BOSCH v HAUPTZOLLAMT HILDESHEIM

proceedings are, so far as the parties to the main action are concerned, a step in the action pending before the Finanzgericht Hamburg, the decision on costs is a matter for that court.

On those grounds,

THE COURT (First Chamber)

in answer to the question referred to it by the Finanzgericht Hamburg by order of 5 November 1976 hereby rules.

Article 3 (1) (a) of Regulation No 803/68 of the Council is to be interpreted as meaning that the normal price of goods includes the value of a patented process where the protected process is inseparably embodied in and constitutes the only economically viable use of the goods.

Donner Mertens de Wilmars Bosco

Delivered in open court in Luxembourg on 14 July 1977.

President of the First Chamber

Registrar

OPINION OF MR ADVOCATE-GENERAL WARNER DELIVERED ON 22 JUNE 1977

My Lords,

the inclusion, in the value of goods for customs purposes, of the value of the In this case the Court is once again right to use a patent in respect of them. concerned with the interpretation of Council Regulation (EEC) No 803/68 on The case comes to the Court by way of a the valuation of goods for customs reference for a preliminary ruling by the purposes. The actual question that calls Finanzgericht of Hamburg. The plaintiff for decision is however novel. It is as to before that Court is Robert Bosch

1483

OPINION OF MR WARNER —CASE 1/77

furnish to Bosch certain technical andGmbH, which I shall call 'Bosch'. The other information to enable Bosch todefendant is the Hauptzollamt of manufacture batteries using the COS Hildesheim. process and machine. It continued: 'G-U O will furthermore procure that Globe will furnish to Bosch, upon itsAn American company, Globe-Union request, one or two COS Equipment withInc., of Milwaukee, which I shall call such features and at a price and on'Globe', is the patentee of a process for conditions to be agreed upon betweenthe manufacture of electric storage G-U O, Globe and Bosch in advance'. Ibattery cell components. The process is do not pause to consider whether theone whereby (to quote from the obligation thus imposed on G-U O wasdescription of it given in paragraph legally enforceable, although it appears to1.1.(a) of an Agreement to which I shall have been (by virtue of paragraph 9.3 ofrefer more particularly in a moment) the Agreement) governed by English law'assemblies of cell plates and spacers are clamped in assembled relationship, portions thereof are fluxed or cleaned while so supported, and molten metal is formed in a mold and solidified

The other main relevant provisions ofto rigidly support and electrically interconnect selected ones of said plates. follows.The process is called the 'COS process', the letters 'COS' standing for 'cast-on strap'. Globe is also the manufacturer and the patentee of a machine which is described (in paragraph 1.1.(b) of that Agreement) as having been 'designed for the express purpose of the practice of the COS Process'. In the Federal Republic of Germany, there are two patents for the machine and one for the process. We have not been told what patents there may be for them in other countries.

Under paragraph 2.2 Bosch was to be provided by G-U O and Globe with engineering and consultancy services, including in particular visits by Globe experts to the Bosch works 'with respect to any detailed engineering for the first COS Equipment and the installation thereof. Those services were, by virtue of paragraph 5.7, to be charged for on the basis of the actual expense incurred by G-U O or Globe in their provision. The Agreement that I have mentioned was made on 20 May 1965 between Bosch and G-U Overseas Ltd., a British subsidiary of Globe, which I shall call 'G-U O'. The Agreement recited, among other things, that G-U O was for the purposes of the Agreement sufficiently entitled to the technical information and patent rights of Globe with respect to the COS process and machine, and that Bosch desired to acquire the machine and the right commercially to practise the COS process, and to use therefor Globe's technical information and patent rights. (The machine was referred to in the Agreement as 'COS Equipment').

Paragraph 2.1 of the Agreement provided that G-UO should, within 90 days, make available to Bosch throughout the term of the Agreement such of G-U O's and Globe's technical information, whether patented or unpatented, as would be of assistance to Bosch's operations under the Agreement; and under paragraph 2.4 Bosch was given the right to inspect, at any time during the two years following the date of the Agreement, Globe's 'COS Equipment' at any 'suitable' Globe plant. By paragraph 4.1 G-UO granted to Bosch a non-transferable, non-exclusive licence, expressed to be 'under Globe's and G-U O s Technical Information and Patent Rights', (i) to manufacture, use and sell in all countries of Continental Europe batteries embodying, utilizing or resulting directly from the technical information made available to Bosch on such goods under the Agreement or any feature or rights in respect of the COS process or machine and (ii) to use and sell batteries so manufactured in Great Britain and Ireland, and in all countries of Africa and Asia, with certain exceptions. By various provisions of the Agreement (in particular paragraphs 2.5, 3.2 and 4.3) Bosch undertook countervailing obligations as to secrecy and as to the disclosure to G-U O of improvements, whether patented or not, found by Bosch concerning the use of the COS machine or process. By clause 5.1 Bosch was to pay to G-U O an initial sum of US $ 10 000 within one month of the date of the Agreement. By clause 5.2, as amended by a supplemental Agreement made on 12 December 1968, Bosch was, for the first five years of the life of the Agreement, to pay to G-U O a royalty for each battery sold under the licence, the rates being US $1-15 for each 6-volt battery and US $2-30 for each 12-volt battery, with a minimum annual royalty of US $ 7 000. Under paragraph 5-3, Bosch was, from the beginning of the sixth year, to pay royalties at half those rates and then only for batteries in the manufacture of which any of the licensed patent rights had been used.

The Finanzgericht has found as a fact that the technical information to be given by G-U O to Bosch under the Agreement included data as to the preparation of the flux, as to the temperature of the lead baths and as to the composition of the lead alloys to be used in the COS process. (Aktenzeichen VII 89/60 U, Bundessteuerblatt III 1962, p. 549). The Bundesfinanzhof there held that, if, in connection with the purchase and import of a machine manufactured under a patent, the right to a patented process was also assigned or a licence to use that right was granted, the consideration for that assignment or grant formed part of the value of the machine for customs purposes, at any rate if the machine, owing to the special characteristics of its construction and to the mode of its operation, embodied the patented process so that a person entitled to use the machine could, by operating it, also operate the patented process without taking any further step in order to do so.

1485

OPINION OF MR WARNER —CASE 1/77

information made available to Bosch on such goods under the CCT was under the Agreement or any feature or rights in respect of the COS process or machine and (ii) to use and sell batteries so manufactured in Great Britain and Ireland, and in all countries of Africa and Asia, with certain exceptions. By various provisions of the Agreement (in particular paragraphs 2.5, 3.2 and 4.3) Bosch undertook countervailing obligations as to secrecy and as to the disclosure to G-U O of improvements, whether patented or not, found by Bosch concerning the use of the COS machine or process. By clause 5.1 Bosch was to pay to G-U O an initial sum of US $ 10 000 within one month of the date of the Agreement. By clause 5.2, as amended by a supplemental Agreement made on 12 December 1968, Bosch was, for the first five years of the life of the Agreement, to pay to G-U O a royalty for each battery sold under the licence, the rates being US $1-15 for each 6-volt battery and US $2-30 for each 12-volt battery, with a minimum annual royalty of US $ 7 000. Under paragraph 5-3, Bosch was, from the beginning of the sixth year, to pay royalties at half those rates and then only for batteries in the manufacture of which any of the licensed patent rights had been used.

The Finanzgericht has found as a fact that the technical information to be given by G-U O to Bosch under the Agreement included data as to the preparation of the flux, as to the temperature of the lead baths and as to the composition of the lead alloys to be used in the COS process. (Aktenzeichen VII 89/60 U, Bundessteuerblatt III 1962, p. 549). The Bundesfinanzhof there held that, if, in connection with the purchase and import of a machine manufactured under a patent, the right to a patented process was also assigned or a licence to use that right was granted, the consideration for that assignment or grant formed part of the value of the machine for customs purposes, at any rate if the machine, owing to the special characteristics of its construction and to the mode of its operation, embodied the patented process so that a person entitled to use the machine could, by operating it, also operate the patented process without taking any further step in order to do so.

1485

BOSCH v HAUPTZOLLAMT HILDESHEIM

The Commission told us, in its written Observations, that, under the German law of patents, it is not possible to take out a patent for a process having the same content as a patent for a machine. I agree.

Where I disagree with the Commission is in the reasoning according to which it reaches that conclusion. The Commission's view is on the one hand that Article 3 (1) is to be given a narrow interpretation, excluding all patents for processes, unless they be processes by which the imported goods themselves have been manufactured, but, on the other hand, that it is implicit in Article 1 (1) of the Regulation that where a patented process covers the use of a particular machine the value of the right to use the machine forms part of its 'normal price'.

In approaching the interpretation of Article 3 (1) the Commission focusses its attention on the reference to the goods having been 'manufactured in accordance with' a patented invention. From this the Commission deduces that Article 3 (1) is not concerned with any use of the goods after their manufacture and importation. But this approach seems to me, with all respect to the Commission, to confuse the use of a patent in respect of goods (which is what Article 3 (1) refers to) and the use of the goods themselves. Take the simple case of a patented machine. The unlicensed manufacture of the machine would be an infringement of the patent. But so would the unlicensed sale or hire of the machine after its manufacture, and its unlicensed use in the commercial production of other goods. So there is a use of the patent in respect of the machine, not only when it is manufactured, but when it is subsequently sold, hired, or put into production. The reference in Article 3 (1) to 'the right to use the patent ... in respect of the goods' must be intended to cover all these.

Although the concession made by Bosch was thus, in my opinion, rightly made, I do not think that it went far enough, because it did not cover a case where the invention protected by a patent for a process includes the use of a particular machine and something else. In such a case, it seems to me, in so far as the invention is of the machine, it is not excluded from Article 3 (1). The Commission submitted that, in such a case, the value of the right to use the patent in respect of the machine must be segregated from the value of the right to use the patent in respect of the process.

To seek to solve that problem by reference to Article 1 (1) of the Regulation is open to two major objections. The first is that it ignores the structure of Articles 1 to 8 of the Regulation. Article 1 (1), as I have pointed out, only gives a general definition of the concept of the 'normal price'. Articles 1 (2) and 2 to 8 refine on that definition, working out the details of its application in relation to specific matters. The matter of industrial property rights, and in particular of patents, is dealt with by Article 3. That being so there is no room for implying anything further about patents in Article 1 (1) itself. Of course each of the provisions of the Regulation must be interpreted in the light of the others, but that is not to say that any of them can be interpreted as implicitly dealing with a matter which is the express province of another.

The second and graver objection is that Regulation No 803/68 is fiscal legislation. Its purpose and its effect are to define fiscal liabilities. It would be contrary to all principle to hold that such liabilities could be imposed or increased by implication. The very argument of the Commission evinces a difficulty inherent in its approach. The Commission naturally realized that it was not enough to say that this case was implicitly covered by Article 1 (1). It must propound a principle from which that could be deduced. The principle it propounded was that the acquisition of goods at their 'normal price' implied that the purchaser would acquire them free from restrictions on their user. For the Commission accepts that there are circumstances in which the existence of a patent for a process will restrict the freedom of a purchaser of a machine to use it, without the value of the right to use that patent forming part of the 'normal price' of the machine.

The truth is that there is nothing in the concept of the 'open market', and it is on that, I think, that the Commission mainly relied, that connotes that a purchaser of goods in that market will acquire them free from restrictions on their user. For instance the rule of English law is that a sale of a patented article by the patentee, in any market, is presumed to carry with it the right for the purchaser to use the article in any way he chooses, but that presumption is rebutted if at the time of the sale the purchaser has notice of restrictions on its use imposed by the patentee, whether by contract or otherwise (see National Phonograph Co. of Australia, Ltd. v Menck [1911] A.C. 336, Goodyear Tyre and Rubber Co. (G. B.) Ltd. v Lancashire Batteries Ltd. [1958] 1 W.L.R. at p. 861 and Dunlop Rubber Co. Ltd. v Longlife Battery Depot, ibid., at p. 1037). Of course, where and in so far as Article 3 (1) applies, it requires such restrictions to be ignored in computing the 'normal price' of the article. But nothing to the same effect can legitimately be read into Article 1 (1) taken by itself or, for that matter, into any other provision of the Regulation.

In the result I am of the opinion that Your Lordships should answer the question referred to the Court by the Finanzgericht by saying that Article 3 (1) of Regulation No 803/68 is to be interpreted as meaning that the normal price of an appliance includes the value of the right to use a patent for a process if and to the extent to which the scope of the patent is such as to protect the invention of the appliance itself.

1492