## Facts

- Deutsche Grammophon Gesellschaft mbH (DG) manufactured sound recordings and held a nationally protected exclusive distribution right in Germany.
- DG sold records in Germany through a selective distribution system that maintained fixed resale prices.
- DG’s French subsidiary/licensee lawfully marketed DG records in France with DG’s consent.
- Metro-SB-Großmärkte GmbH & Co. KG (Metro), a German wholesale retailer, imported those French-market records into Germany and resold them below DG’s fixed German prices.
- DG sued in Germany seeking an injunction, relying on its German distribution right to stop Metro’s resale of records first marketed in France.
- The Oberlandesgericht Hamburg referred questions to the Court of Justice in a preliminary reference procedure under Article 177 EEC (now Article 267 TFEU) concerning the interaction between national IP rights, free movement of goods, and EU competition rules.

## Issues

1. In a preliminary reference, may the Court interpret national law, or only EU Treaty provisions and EU acts?
2. Does the Treaty permit a rightholder to use a national exclusive distribution right to prevent resale in one Member State of goods first marketed with the rightholder’s consent in another Member State?
3. To what extent does Article 36 EEC protect IP rights against the free-movement rules in Articles 30–36 EEC, including the distinction between the “existence” and “exercise” of IP rights?
4. Can invoking an exclusive distribution right to sustain market separation and price differences implicate Articles 85 and 86 EEC (now Articles 101 and 102 TFEU), including dominance and abuse?

## Decision

- The Court held it lacks jurisdiction in a preliminary ruling to interpret national law; it may only interpret the Treaty and EU acts, taking the factual/legal context as given and focusing the questions on EU law.
- The Court held that while Article 36 preserves the existence of IP-type rights (including rights related to copyright), their exercise may be limited where it conflicts with free movement of goods.
- The Court held it is incompatible with the free-movement rules for a rightholder to use a national distribution right to block sales in a Member State of goods placed on the market by the rightholder (or with its consent) in another Member State solely because first marketing occurred abroad.
- On Article 85 EEC, the Court stated that the exercise of an IP right can fall within the prohibition when it operates as the subject, means, or result of an agreement that prevents imports and partitions markets.
- On Article 86 EEC, the Court stated that holding/exercising an exclusive distribution right does not, by itself, establish dominance; a marked, unjustified price differential may be relevant to abuse but is not conclusive. Assessment of dominance and abuse was left to the national court.

## Legal Principles

- In preliminary references, the Court interprets EU law, not national law; it may restate questions to address only EU-law issues.
- Article 36 EEC may justify restrictions on free movement only to protect the “specific subject-matter” of an IP right; the Treaty distinguishes the existence of the right from its exercise.
- Once goods are lawfully placed on the market in any Member State by or with the rightholder’s consent, national distribution rights are exhausted for purposes of preventing parallel imports within the common market.
- Using IP rights to prevent parallel imports solely to preserve national price structures and separate markets conflicts with the objective of market integration.
- Exercise of IP rights may trigger Article 85 EEC when linked to agreements or concerted practices that restrict imports and partition markets.
- Dominance under Article 86 EEC depends on market power to impede effective competition; price differentials may be evidence of abuse if particularly marked and not objectively justified.

## Conclusion

The Court established that EU free-movement rules prevent a rightholder from invoking a national exclusive distribution right to stop parallel imports of goods first marketed with the rightholder’s consent in another Member State, confirming EU-wide exhaustion while allowing competition-law scrutiny where IP rights are used to sustain market partitioning.


Deutsche Grammophon Gesellschaft mbH v. Metro-SB-Großmärkte GmbH & Co. KG, Case 78/70, [1971] E.C.R. 487 (C.J.E.C. 1971)