Commission of the European Communities v the Federal Republic of Germany (12/74)

I —Facts and written procedure

II —Conclusions of the parties

The applicant claims that the Court should:— declare that the Federal Republic of Germany has failed to fulfil its obligations under the EEC Treaty, especially Article 30, and under Article 12 (2) (b) of Regulation (EEC) No 816/70 of the Council of 18 April 1970, by reserving the appellations “Sekt” and “Weinbrand” to the domestic product and the appellation “Prädikatssekt” to wines produced within the country from a fixed minimum proportion of home-grown grapes; and— order the defendant to pay the costs.’The defendant contends that the Court should:— dismiss the application,— order the applicant to pay the costs of the action.’

III —Submissions and arguments of the parties

The Commission maintains that by reserving the generic appellations ‘Sekt’ and ‘Weinbrand’ for domestic production the German Government was attempting by legal means to transform these appellations into indirect indications of origin. This attempt involves the adoption of ‘measures having an effect equivalent to quantitative restrictions’ and consequently infringes both the rules of the Treaty concerning the free movement of goods and Regulations Nos 816/70 and 817/70 (OJ L 99, 1970).In particular, as regards trade with third countries, these measures infringe Article 12 (2) (b) of Regulation No 816/70. In its reply, the Commission makes it clear that as the scope of this regulation does not extend to spirits obtained by distilling wine, the complaint of infringement of this article necessarily concerns sparkling wines alone.In support of this complaint the Commission makes the following statements:1. The fixing, by legislative means, of protected indications of origin is alien to the German legal system. At least, in the case of indirect indications of origin the German courts are required to decide whether the appellations in question are regarded by the circles interested as being indications of origin and whether this opinion should be upheld because it is justified by considerations concerning the quality of the product.2. The concept of measures having equivalent effect includes ‘measures … which hinder imports which could otherwise take place, including measures which make importation more difficult or costly than the disposal of domestic production’ (Article 2 (1) of Directive 70/50/EEC of 22 December 1969, OJ L 13, 1970), and also covers measures which favour domestic goods. Moreover, in accordance with the principle which may be deduced from Article 33 (4) of the Treaty, concerning quotas, a measure having equivalent effect is prohibited once it is ‘likely’ to hinder imports, without any need to check whether its effects are actually restrictive.3. In this instance importation is more difficult and domestic goods are favoured as a result, in particular, of the fact that, on the German market, imported products are no longer entitled to take advantage of the well-known and particularly attractive designations ‘Sekt’ and ‘Weinbrand’, but are compelled to use new appellations which are unknown to the consumer. The disadvantage thus suffered by foreign producers results in discrimination against them which is incompatible with the Treaty.This analysis is, moreover, confirmed by the expert assessment made of the new arrangements — in the form of the first draft of 1967 — and by the statement of the Deutsche Vereinigung fur gewerblichen Rechtsschutz und Urheberrecht of 12 September 1967 addressed to the President of the Bundestag. In the light of these observations, it appears unnecessary to resort to opinion polls in order to check whether, in the view of the circles interested, the appellations ‘Sekt’ and ‘Weinbrand’ do in fact amount to indirect indications of origin.4. As regards the justification for the geographical link with the ‘domestic’ appellation, in its observations submitted during the administrative proceedings the Federal Government gave no example demonstrating that the territory of a whole country may also be the subject of indirect indications of origin. Secondly, the reservation which the rules in dispute lay down for the benefit of producing countries regarding the whole of the territory in which German is the official language, shows that the question concerns a generic appellation in the German language and not an indication of origin.5. In the international bilateral agreements concluded with various states concerning the protection of indications of origin, registered designations of origin and other geographical appellations, the Federal Republic only claimed protection for such appellations as ‘Deutscher Sekt’ and ‘Deutscher Weinbrand’.6. In order to justify the continued use of the appellations in dispute it is irrelevant to invoke Article 36 of the Treaty and considerations based upon the legal system of industrial and commercial property. Furthermore, although the ‘existence’ of a right is not necessarily identifiable with its ‘exercise’, there is no doubt that when, as in this instance, the exercise of a right leads to the walling off of national markets, the right itself is shown to be incompatible with the Common Market.As it is of interest in the case, the Commission observes that the limitation of the appellations ‘Sekt’ and ‘Weinbrand’ to domestic products alone contravenes the principle of the free movement of goods, even on the assumption that a change must be accepted in the view held by interested circles, as a result of which these appellations are in fact interpreted as indirect indications of origin. The above principle is not compatible with the possibility of protecting information as to quality, drawn from the vocabulary of a Member State, which acts as an indirect indication of origin for the products of the State in question, and of assigning less well known or less attractive appellations to imported products.The German Government replies primarily by putting forward the following arguments:1. The appellations ‘Sekt’ and ‘Weinbrand’ became part of German commercial practice towards the beginning of this century as designations describing a specific quality and type of German sparkling wine and spirits obtained by distilling wine. They were originally parallel appellations to those of ‘Champagner’ and ‘Kognak’ for which they were, moreover, finally substituted in 1923, as from that date these two names ceased to be generic appellations and became registered designations of origin limited to French products.2. Both originally and at present the appellations ‘Sekt’ and ‘Weinbrand’ are closely linked to a particular German method of producing the products to which they apply. This method, which was later defined by the legislature, consists of a specific combination of several elements, capable of being checked in all its details, by means of which products are obtained with a specific taste (‘German flavour’). This taste confers on the products described as ‘Sekt’ and ‘Weinbrand’ their specific characteristics, as a result of which it is impossible to confuse them with foreign sparkling wines and spirits obtained by distilling wine. For producers based outside Germany to imitate this taste would be very difficult if not impossible, by reason of the economic and financial problems which it would involve. To support its arguments the German Government produces, in a schedule to its statement of defence, opinion polls concerning both ‘Sekt’ and ‘Weinbrand’.3. In the Law of 1971 on vine products the German legislature acknowledged this development as regards ‘Sekt’ and ‘Weinbrand’ and sanctioned on the legislative plane a tendency which also exists in other countries to give legal protection to registered designations of origin and indirect indications of origin based upon the view of the circles interested. Furthermore, to take current opinion into consideration is justifiable and in accordance with the German legislature's usual method of proceeding in matters of competition. In particular, for an appellation to be regarded as an indication of origin it is sufficient for a ‘not inconsiderable section’ of the interested commercial circles to detect the exact origin of the product.In these circumstances, to regard the appellations ‘Sekt’ and ‘Weinbrand’ as measures having an effect equivalent to quantitative restrictions within the meaning of Articles 30 et seq. of the Treaty, while the registered designations of origin and the indications of origin applied by other Member States are regarded as in accordance with Community law, would amount to discrimination against the Federal Republic.4. As regards the reference made by the Commission to Directive No 70/50/EEC, it should be noted that in Article 1 this Directive, which was drawn up in application of Article 33 (7) of the Treaty, concerns the abolition of measures having equivalent effect in existence on the entry into force of the Treaty.Although it does not deal entirely with the problem under discussion this Directive nevertheless provides very useful criteria by which to dismiss the argument put forward by the Commission, even having regard to the criteria which the Commission itself saw in this text.(a) First:— the appellations in dispute are found among the ‘names indicative of origin or source’ which Article 2 (3) (s) by implication withdrew from the scope of Article 30 of the Treaty. Moreover, they form part of the ‘qualified’ class of indications of origin. The consumer does not merely establish a connexion between the ‘Sekt’ and ‘Weinbrand’ appellations and their geographical origins, but in this case thinks also of the particular properties and the quality of the products (evidence). Such qualified indications of origin, the concept of which is becoming more and more accepted in Germany, are closer to registered designations of origin in the strict sense than are ‘ordinary’ indirect indications of origin;the indirect indication of origin is an acknowledged principle of the law on unfair competition. German law contains no prohibition against regulating indirect indications of origin by legislative means. Moreover the EEC Treaty has provided for no ‘standstill’ on this matter by the laws of Member States;— the ‘national’ rather than ‘regional’ link in the appellations in question is a necessary result of the circumstances. Current opinion refers in this instance to products of a specific type and quality which are produced, as such, not in a region but in a specific country. Moreover, the 1971 legislation on vine products does not constitute a new departure in this respect, but is linked to principles of German competition law, known and acknowledged for a long time, according to which any part of the surface of the earth, however its boundaries are marked and independently of its extent, may constitute a legitimate point of reference, in particular in questions of indirect, indications of origin;— the official language clause contained in paragraph 44 (1) of the Law on vine products and in paragraph 8 (1) of the regulation on sparkling wines and spirits obtained by distilling wine, merely constitute an exception for the benefit of the economically insignificant trade in various varieties of Austrian sparkling wines and spirits obtained by distilling wine, traditionally produced mainly in several border regions of Austria. The method of production of the Austrian products in any case shows a certain affinity with German methods of production, which is in part the result of traditions dating from the nineteenth century.(b) Secondly, the quantities of imports into Germany of sparkling wines and spirits obtained by distilling wine, before and after 1971, show that the legislation in dispute had no restrictive effects on the trade in the products in question. On the contrary, starting more or less in 1970 there developed a particularly marked increase in imports from France and Italy. Even accepting the argument put forward by the Commission, according to which the mere fact that measures having equivalent effect are ‘likely’ to restrict imports is sufficient for them to be prohibited, nevertheless — without prejudice to the question whether such an argument may be applied to names which are indicative of origin within the meaning of Article 2 (3) (s) of Directive No 70/50/EEC — experience shows that the appellations in dispute are unlikely to be restrictive.(c) Thirdly, as the appellations in dispute have no restrictive effect on imports they are not included among the measures which, according to Article 2 (3) (f) of Directive No 70/50/EEC, ‘lower the value of an imported product, in particular by causing a reduction in its intrinsic value, or increase its cost’.(d) Finally, the designations limited to imported products readily enable them to remain competitive in relation to the products designated as ‘Sekt’ and ‘Weinbrand’.5. Moreover, even supposing that it constitutes a measure having an effect equivalent to quantitative restrictions on imports and that it thus is covered by the scope of Article 30 of the Treaty, the legislation in dispute is justified as regards Community law by Article 36 of the Treaty. It in fact forms part of national competition law and is justified on grounds of public policy and the protection of industrial and commercial property within the meaning of the abovementioned article, whilst being neither a means of discrimination nor a disguised restriction within the meaning of the second sentence of that article.As regards the distinction between the ‘existence’ and the ‘exercise’ of an industrial or commercial property right, such distinction could not be employed in this instance as, if the appellations in dispute were also applied to foreign products, they would for that very reason be deprived of their function as indirect indications of origin.In its reply, the Commission continues to maintain that the prohibition on measures having equivalent effect is not linked to the actual trend of imports. Proof of the existence of obstacles to imports can moreover only be supported by approximate results and by reference to the past. Moreover, the statistical data produced by the German Government concerning the trend in the imports of spirits obtained by distilling wine and sparkling wines are inconclusive. In fact, the increase in imports which took place between 1969 and 1970 was the result of the elimination, required by Article 33 of the Treaty of existing quantitative restrictions which, in the case of the spirits, was strengthened by a State monopoly of a commercial character which the Commission had specifically requested be adjusted in order to ensure the liberalization of trade. As regards the imports made between 1970 and 1973, it must not be forgotten that the transitional arrangements provided for by the law in dispute accepted, at least in 1972, the use of the foregoing appellations in the import and sale of the products in question.Furthermore, the fact that the measures in dispute are likely to put foreign producers who do not produce these commodities at a disadvantage was shown by the various applications which, even in 1972, had been lodged against them in Germany before the Bundesverfassungsgericht.The Commission disputes the relevance of the questions set out in the opinion polls submitted by the defendant and points out:— that the ‘language’ clause contained in the law in dispute is incompatible with the system of registered designations of origin, according to which the territory in question must not extend beyond national frontiers, and— that the transitional arrangements provided for in paragraph 75 (6) of this law, which permit the continued provisional use of the appellations ‘Sekt’ and ‘Weinbrand’, show that the appellations in dispute were formerly used for imported sparkling wines and spirits obtained by distilling wine.The Commission continues to maintain that in commercial practice these appellations constituted purely generic indications. This is particularly clear in the case of the ‘Prädikatssekt’ which is interpreted by the consumer to describe not a given content of domestic wine but a ‘Sekt’ of exceptional quality.Moreover, the case-law of the Bundesfinanzhof prior to 1971 shows that the transformation of an appellation which was originally indicative of quality into one which is indicative of origin is only permissible:— if this transformation is confirmed by the ‘almost unanimous’ opinion of the circles concerned (74 % being insufficient in this respect);— if those concerned have had the opportunity to distinguish and compare several comparable products.In this instance none of these conditions is satisfied. It is for this reason that an opinion poll such as that produced by the defendant is neither indispensable nor conclusive.As regards the argument that the products covered by the appellations in question have a characteristic and typical (German) ‘flavour’, this is based on considerations (proportion of home-produced grapes, method of production, etc) which are incorrect and incomplete, or inconclusive. In particular, as regards the necessary conditions of production, the provisions in question showed that the same conditions of quality are required for both ‘Sekt’ and ‘Qualitätsschaumwcin’. Moreover, in Germany these conditions are so general that a sparkling wine sold as ‘Sekt’ might be produced by the most widely differing methods. In these circumstances it is doubtful whether a ‘German flavour’ can be a characteristic feature and one which is common to all these wines.The Commission concludes that although it is indisputable that Directive No 70/50/EEC only ‘directly’ concerns measures having equivalent effect existing when the Treaty came into force, it does, however, call attention to the method of interpretation approved by the Member States and constantly followed by the Commission in this matter. The reservation on the subject of names indicative of origin or source contained in Article 2 (3) (s) of this provision put into concrete form the exception provided for in Article 36 for the benefit of industrial and commercial property. This Directive cannot create exceptions to the prohibition in Article 30 which exceed the framework of Article 36, with the result that any ‘name indicative of origin or source’ must be considered in the light and within the limits of this latter Article.The appellations in dispute were not justified by the provisions of Article 36 of the Treaty. First, the powers held by Member States in the context of this article are not absolute, but are limited by the obligations arising out of Article 5 of the Treaty. Secondly, measures such as those in question which favour all products of domestic manufacture have a particularly restrictive effect on the functioning of the Common Market. Such significant restrictions are only justified if they are absolutely indispensable and if no other means exists of achieving the objective in view. Thirdly, these measures constitute a remarkable innovation which is contrary to the established system. Finally, even supposing that the aim of these measures is to protect German producers of ‘Sekt’ and ‘Weinbrand’ from unfair competition and consumers from deception with regard to the origin of the products, no risk of fraud or deception existed in the situation prior to the introduction of the contested measures.In its rejoinder, the German Government point out, first, that in its reply the Commission had restricted the complaint originally raised on the basis of Article 12 (2) (b) of Regulation No 816/70 to the case of ‘sparkling wines’ and requests the Court, in accordance with Article 69 (4) of the Rules of Procedure, to order the Commission to bear the costs involved in that part of the complaint which has been withdrawn.In addition, it observes that the Commission shows a certain unease at conducting the debate in the field of its own legislation and that it appears, wrongly in a question as important as that in this instance, to be avoiding undertaking a thorough consideration of the facts. To the evidence and the numerous documents (experts' opinions, opinion polls, etc. ..) submitted by the defendant, the applicant merely puts forward an argument based in the main on an abstract analysis of Articles 30 to 36 of the Treaty.Moreover, an amendment of the legislation in dispute in the manner desired by the Commission (use of the appellations ‘Sekt’ and ‘Weinbrand’ also in relation to imported products) would not be effective, since it would give rise to a serious problem in intra-Community trade as regards ‘checks’ on the legitimate use of these appellations.Having put forward these general observations, the German Government emphasizes in particular the following points:— Article 2 (3) (s) of Directive No 70/50/EEC does not lay down, as regards names indicative of origin or source, an exception to Article 30 of the Treaty based upon Article 36. This article as a whole makes it clear what is to be understood by measures having equivalent effect within the meaning of the Treaty. A different interpretation of this Directive, such as that suggested by the Commission, would deprive Article 5 (2) of any logical content.— The discussion concerning the ‘likelihood’ of the measures in dispute to restrict imports of the products in question is irrelevant in this instance. As a result of the legal exception provided for by Article 2 (3) (s) of the abovementioned directive, in the case of names indicative of origin or source it is no longer necessary to ask whether they constitute measures having equivalent effect within the meaning of Article 30 of the Treaty, as such a question is answered in the negative by the directive itself.— Even if it is true that the exceptional increase in imports which occurred in 1970 and the years following was in part the result of the freeing of intra-Community trade sought by the Treaty, nevertheless, apart from certain seasonal variations, the trend of imports has for a long time been continuously upward (cf. the years 1966 to 1973).— As regards the argument that the legislation in dispute is at present the subject of certain actions before the Bundesverfassungsgericht, it should not be forgotten that the number of references made to this court each year is very large, as a result of the special characteristics of the German system in this area. Moreover, these references have not yet reached the stage of an examination of the substance of the action, and in the meantime an application for the adoption of interim measures has been rejected by the Court, on the ground that the Law of 1971 on vine products as regards spirits obtained by distilling wine has not injured the parties concerned. Finally, in proceedings before the Court of Justice, the arguments put forward by the parties in an action pending before another court cannot be invoked by way of evidence. It is for the Court of Justice to decide whether the points of view expressed in the context of this action may be taken into consideration; if this is possible, it should suspend the present proceedings until the Bundesverfassungsgericht has given a final ruling.— The appellations reserved for imported wines have no pejorative meaning resulting in discrimination in respect of those products. The term ‘Schaumwein’ is merely an altogether neutral designation of quality: it corresponds to the term ‘vin mousseux’ reserved in France for ‘ordinary’ sparkling wine not covered by the designation ‘Champagne’. The expression ‘Branntwein aus Wein’ corresponds in its turn to the French term ‘eau-de-vie de vin’ also used for wine spirits not covered by the designation ‘Cognac’. The word ‘Qualität’ clearly describes a product of high quality and for this reason has no pejorative connotation. Finally, the term ‘Prädikatssekt’ emphasizes the particularly pronounced nature of a product in which the ‘German flavour’ is accentuated as a result of a minimum content of 60 % of domestic wines. Moreover, nothing prevents the imported product from being described by means of the national registered designations of origin or appellations of origin just as the German product is able to use its appellation of origin.— The Commission is wrong in maintaining that the conditions required by the legislation in dispute for the preparation of quality spirits and quality sprakling wine are similar for domestic and foreign products. On the contrary, the conditions required for domestic products are stringent and are explained by the need to ensure that the product has the ‘German flavour’ characteristic of ‘Sekt’ and ‘Weinbrand’.The German Government thus concludes, principally, that instead of constituting a measure having equivalent effect, the legislation in dispute is justified in relation to the Treaty, by virtue of Article 2 (1) to (3) of Directive No 70/50/EEC.It replies therefore, secondly, on the problem concerning Article 36 of the Treaty by stating in particular:— that, although the reservation contained in this article for the benefit of national authorities cannot be expressed in absolute terms, in the field of industrial and commercial property the Treaty has allowed the legislature a sufficient margin of freedom in which to permit national law to develop, as long as it has not been possible to achieve an approximation of national laws according to the procedures provided for by the Treaty. In order for national legislation to be justified as regards Article 36, genuine reasons must exist for its introduction and it must not improperly hinder trade. Interpreted in this sense the legislation in dispute is justified;— that as this legislation lays down penalties (paragraph 69, subparagraph (3) (2)) it also forms part of German ‘public policy’ and, for this reason, benefits from the provisions of Article 36 of the Treaty.At the hearing on 3 December 1974 the parties elaborated the arguments set out in the course of the written procedure. The Court put to the defendant certain questions to which it replied in writing on 13 December 1974. The Advocate-General delivered his opinion at the hearing on 15 January 1975.

Costs