CJEC, February 20, 1975, No 12-74

THE COURT

1 By an application lodged on 21 february 1974 pursuant to article 169 of the treaty establishing the european economic community, the commission seeks a declaration that by reserving the appellations 'sekt' and 'weinbrand' to the domestic product and the appellation 'praedikatssekt' to wines produced in germany from a fixed minimum proportion of german grapes, The Federal Republic of Germany has failed to fulfil its obligations under the eec treaty, in particular as regards the free movement of goods.

2 According to paragraph 26 of the german law on vine products of 14 july 1971 (bundesgesetzblatt 1971, i, p. 893) and paragraphs 3 and 8 of the implementing regulation of 15 july 1971 on sparkling wines and spirits obtained by distilling wine (bundesgesetzblatt 1971, i, p. 939), hereinafter referred to as the 'legislation on vine products' the appellation 'sekt' may only describe a german sparkling wine which satisfies certain conditions of quality and may only be applied to foreign wines if german is an official language throughout the whole of the country of production.

By these same provisions the appellation 'praedikatssekt' may only describe a 'sekt' containing at least 60 per cent of german grapes.

Moreover, according to paragraph 44 of the above-mentioned law, the appellation 'weinbrand' may only be used for a domestic product which is entitled to the appellation 'spirits obtained by distilling quality wine' and only for a foreign product if german is an official language throughout the whole of the country of production.

Finally, sparkling wines and spirits obtained by distilling foreign wines other than those produced in countries in which german is an official language are, in principle, compelled to employ the appellations 'schaumwein' or 'qualitaetsschaumwein', 'branntwein aus wein' or 'qualitaetsbranntwein aus wein '.

3 The commission maintains that the appellations 'sekt' and 'weinbrand' are generic appellations which the german legislature has attempted, by means of a legislative measure, to transform into indirect indications of origin; the german consumers and circles interested do not understand the appellation 'praedikatssekt' to describe a wine produced from a fixed minimum proportion of german grapes, but a 'sekt' of a particular quality. The commission further claims that by reserving the appellations 'sekt' and 'weinbrand' for national products and the appellation 'praedikatssekt' for a 'sekt' containing a fixed minimum proportion of german grapes, while on the german market foreign products are compelled to use appellations which are less esteemed or are unknown to the consumer, the legislation on vine products favours domestic production to the detriment of foreign goods and thus comprises measures having an effect equivalent to quantitative restrictions, contrary to the requirements of article 30 of the treaty and, as regards 'sekt' and 'praedikatssekt', to article 12 (2) (b) of regulation n°816-70 of the council of 18 april 1970 (oj l 99, 1970).

Moreover, the commission states, as the measures in dispute are not indispensable in order to protect producers against unfair competition and consumers against deception regarding the origin of the products, they are not justified under article 36 of the treaty.

4 In its principal submission the federal republic maintains that the legislature made no changes in the factual situation existing before the entry into force of the legislation on vine products, but merely sanctioned, on the legislative plane, the view of the german economic circles concerned and the german consumer, for whom the appellations in dispute described domestic products.

For this reason the provisions of the legislation on vine products concerning 'sekt' and 'weinbrand' formed part of the system of indirect indications of origin and thus, under article 2 (3) (s) of directive n°70-50-eec of the commission of 22 december 1969 (oj l 13-29, 1970) could not be described as measures having an effect equivalent to quantitative restrictions. Moreover, the appellation 'praedikatssekt' describes a 'sekt' of which the fixed minimum proportion of german grapes used in its production brings out the typically german flavour.

5 The common market is based upon the free circulation of goods within the community.

In order to ensure this freedom the treaty prohibits, in particular by articles 12 and 31, the introduction, as between member states, of new measures whose effect is directly or indirectly to create barriers to trade within the community which are not justified under article 36.

More especially, as regards 'sekt' and 'praedikatssekt', from the entry into force of regulation n°816-70 rules concerning the conditions of marketing of these products must be placed in a community context.

The legislation on vine products adopted in 1971 after the entry into force of this regulation may affect the conditions of supply of the products to which it refers in the german market.

Having regard to the prohibitions set out both in the treaty and in regulation n°816-70, it is necessary to consider whether, by introducing the provisions in question, The Federal Republic of Germany failed to fulfil its obligations under the eec treaty.

For this purpose it is first necessary to consider the situation created with regard to the appellations 'sekt' and 'weinbrand '.

6 Directive n°70-50-eec, which is based on the provisions of article 33 (7) of the treaty, states in article 1 that its purpose is to abolish measures which have an effect equivalent to quantitative restrictions on imports operative at the date of entry into force of the treaty and sets out in article 2 (3) the measures which must be regarded as prohibited within the meaning of the preceding paragraphs; it refers under article 2 (3) (s) to measures which 'confine names which are not indicative of origin or source to domestic products only '.

7 Whatever the factors which may distinguish them, the registered designations of origin and indirect indications of origin referred to in that directive always describe at the least a product coming from a specific geographical area.

To the extent to which these appellations are protected by law they must satisfy the objectives of such protection, in particular the need to ensure not only that the interests of the producers concerned are safeguarded against unfair competition, but also that consumers are protected against information which may mislead them.

These appellations only fulfil their specific purpose if the product which they describe does in fact possess qualities and characteristics which are due to the fact that it originated in a specific geographical area.

As regards indications of origin in particular, the geographical area of origin of a product must confer on it a specific quality and specific characteristics of such a nature as to distinguish it from all other products.

8 The german legislation on vine products provides that the appellations 'sekt' and 'weinbrand' shall describe products originating in The Federal Republic of Germany or coming from other countries throughout the whole of which german is an official language.

An area of origin which is defined on the basis either of the extent of national territory or a linguistic criterion cannot constitute a geographical area within the meaning referred to above, capable of justifying an indication of origin, particularly as the products in question may be produced from grapes of indeterminate origin.

In this instance, it is not disputed that the area of origin referred to by the legislation on vine products does not show homogeneous natural features which distinguish it in contrast to adjacent areas, as the natural characteristics of the basic products used in the manufacture of the products in question do not necessarily correspond to the line of the national frontier.

The german government maintains, however, that the products covered by the appellations 'sekt' and 'weinbrand' are clearly distinguished from all other products as a result of the particular method of manufacture used in germany which confers on them a typical flavour, which is moreover brought out in 'praedikatssekt' by the required minimum content of german grapes.

9 In the case of vine products, the natural features of the area of origin, such as the grape from which these products are obtained, play an important role in determining their quality and their characteristics.

Although the method of production used for such products may play some part in determining their characteristics, it is not alone decisive, independently of the quality of the grape used, in determining its origin.

Moreover, the method of production of a vine product constitutes a criterion which is all the less capable of being by itself sufficient to prove its origin as, to the extent to which it is not linked with the use of a specific type of grape, the method in question may be employed in other geographical areas.

It is impossible to exclude the possibility that the method of production employed in a given area may be practised, in so far as it is not protected by exclusive rights, by producers who are wholly or partially established in other geographical areas.

Moreover, a comparison of the provisions of paragraph 3 (1) with those of the third sentence of paragraph 8 (1) of the national regulation on sparkling wines and spirits obtained by distilling wine shows that, taking schedule 2 to that regulation into account, the conditions which must be satisfied by quality foreign sparkling wines and by 'sekt' are in the main identical.

Similarly, as between 'weinbrand' and spirits obtained by distilling quality foreign wine, the provisions of paragraph 40 (1) and of paragraph 44 (1) of the law on vine products do not show an appreciable difference in the requirements of quality applicable to each product.

Moreover, the condition laid down in paragraph 40 (1) no 4 regarding 'weinbrand' is all the less essential in this instance as, first, the legislation on vine products does not exclude the possibility that the domestic distillate may be obtained from foreign wines and, secondly, the obligation to stock this distillate in an undertaking situated in german territory does not necessarily imply that all the producers established in this same territory in fact employ the specific method of production in question.

10 In the light of these considerations it cannot be shown from the arguments based by the defendant on the method of production used for 'sekt' and 'weinbrand' that, by reason of this method, these products have a quality and characteristics peculiar to them which render them typically german products.

Furthermore, it is not disputed that the law in force until 1971 in The Federal Republic of Germany allowed, as regards 'sekt', and even required, as regards 'weinbrand', the use in german of the appellations in dispute as regards the imported products.

Both the provisions of paragraph 75 (6) of the law on vine products which provides for a transitional system of implementation and the reactions to this law in the courts of The Federal Republic of Germany by importers or producers of both foreign sparkling wines and spirits obtained by distilling foreign wine show by implication that, from the entry into force of this law, the appellations in question were in fact applied to at least a part of the imported products.

When the defendant maintained in its reply to a question put by the court during the oral procedure that the use of these appellations to describe imported products had been 'very infrequent', it was referring to the year 1966, that is, to a period in which the supply of these products on the german market was still very limited by reason of national restrictions on imports which were in force at that time and destined to be abolished a short time later by virtue of the treaty.

In fact, the statistics concerning the imports which were made during the years following 1966 show that in The Federal Republic of Germany these imports increased considerably, in particular during the years 1969 and 1970.

Moreover, the details provided by the defendant concerning the sales of german sparkling wine and imports of foreign sparkling wines show that, during the years 1969 and 1971, imports and, as a result, the quantities available on the german market increased at a much greater rate than did sales of the domestic product, although, on the other hand, this rate decreased in relation to sales during the years following the entry into force of the legislation on vine products.

It must therefore be accepted that use of the contested appellations to describe imported products, although it was still very infrequent, particularly in 1966, from the entry into force of the legislation on vine products may have applied to increasingly large quantities of such products.

11 It must therefore be concluded that as the appellations 'sekt' and 'weinbrand' do not apply to products whose quality was essentially the result of their being restricted to a particular area of origin and as they could or should describe both imported goods and domestic production, such appellations were not, at the time of the entry into force of the legislation on vine products, capable of identifying the products in question as german, on the basis of their specific quality and characteristics.

12 The defendant puts forward opinion polls in order to show that, at the date referred to above, in the opinion of the german consumer the appellations 'sekt' and 'weinbrand' referred to the domestic product.

As, however, the protection accorded by the indication of origin is only justifiable if the product concerned actually possesses characteristics which are capable of distinguishing it from the point of view of its geographical origin, in the absence of such a condition this protection cannot be justified on the basis of the opinion of consumers such as may result from polls carried out on the basis of statistical criteria.

In addition, by reason of the difficulties which are inherent in these types of inquiry, opinion polls are, by their very nature, incapable of producing results on the basis of which the facts in dispute may be objectively assessed.

Moreover, the polls on which the defendant relies were carried out in 1966 and 1973 during periods which in this instance cannot be regarded as conclusive as, in 1966, measures to restrict imports of the products in question were still in force in the federal republic and at the date of the later polls the legislation on vine products had already been in force two years.

It results from the foregoing considerations that the appellations 'sekt' and 'weinbrand' do not constitute indications of origin.

13 As regards the appellation 'praedikatssekt', which was created by the legislation on vine products, it cannot be accepted that the use of 60 per cent of german grapes confers a particular flavour on the product in question.

In fact, as the legislation on vine products does not define the grapes which must be used in the production of 'praedikatssekt' with reference to their specific character but only on the basis of their national origin, the minimum percentage required does not necessarily imply that the product in question is actually of a special quality in comparison with 'sekt' and thus warrants the protection accorded to it.

14 The provisions of the treaty establishing the free movement of goods, in particular those of article 30, prohibit, as between member states, quantitative restrictions on imports and all measures having equivalent effect.

Under the terms of article 2 (3) (s) of directive n°70-50-eec of the commission, measures which 'confine names which are not indicative of origin or source to domestic products only' are to be regarded as prohibited within the meaning of articles 30 et seq. Of the treaty.

By reserving these appellations to domestic production and by compelling the products of the other member states to employ appellations which are unknown or less esteemed by the consumer, the legislation on vine products is calculated to favour the disposal of the domestic product on the german market to the detriment of the products of other member states.

Thus, this legislation on vine products involves measures having an effect equivalent to quantitative restrictions on imports within the meaning of the abovementioned provisions; such measures, as regards imports of sparkling wines from third countries, are contrary to article 12 (2) (b) of regulation n°816-70 of the council.

For the purposes of this prohibition it is not necessary to show that such measures actually restrict imports of the products concerned but, in accordance with article 2 (1) of the abovementioned directive, that they may merely hinder 'imports which could otherwise take place '.

Moreover, the statistics contained in the rejoinder show that, as regards imports of sparkling wines in particular, after the entry into force of the legislation on vine products, the annual rate of increase of these imports declined in relation to that of the years 1969 and 1971.

15 The fact that the appellations 'sekt' and 'weinbrand' do not constitute indications of origin signifies that the measures in dispute which are included in the legislation on vine products cannot be justified under article 36 of the treaty on grounds of the protection of industrial and commercial property.

The defendant maintains, however, that by referring to national rules on industrial and commercial property, the abovementioned article 36 does not intend to refer to a specific system of legal protection of such property, but leaves to the member states the power to prepare and develop such a system, and that in this instance the system in force in The Federal Republic of Germany in the field of indications of origin, whilst still forming part of the law on competition, is in fact developing towards that of industrial and commercial property.

16 However, such an unlimited development would run the risk of progressively restricting the scope of the treaty.

Although the treaty does not restrict the power of each member state to legislate in matters of indications of origin, they are nevertheless prohibited by the second sentence of article 36 from introducing new measures of an arbitrary and unjustified nature whose effects are, for this reason, equivalent to quantitative restrictions.

This is precisely the case where a national legislature grants the protection provided for indications of origin to appellations which, at the time when such protection is granted, are merely generic in nature.

17 The Federal Republic of Germany maintains in addition that the measures in dispute are justified on grounds of public policy, within the meaning of article 36 of the treaty, in particular by reason of the need to protect producers against unfair competition and consumers against deception regarding the origin of the products.

However, independently of any definition of the concept of public policy referred to in article 36 of the treaty, this provision could only derogate from articles 30 to 34 to the extent to which such derogation proves necessary in order to ensure that the producer and consumer are protected against fraudulent commercial practices.

Vine products of the same type may differ from each other by reason of their quality and certain of their characteristics.

Moreover, before the entry into force of the legislation on vine products a designation of the origin of at least some of the products in dispute appeared on the labelling beside the generic appellation.

The defendant has not shown the reasons for which it has modified this practice.

18 It must therefore be concluded that by reserving, in the law on vine products and in the implementing regulation on sparkling wines and spirits obtained by distilling wine of july 1971, the appellations 'sekt' and 'weinbrand' to the domestic product and the appellation 'praedikatssekt' to wines produced in germany from a fixed minimum proportion of german grapes, The Federal Republic of Germany has failed to fulfil its obligations under article 30 of the treaty and, as regards sparkling wine, under article 12 (2) (b) of regulation n°816-70 of the council of 28 april 1974.

19 Under the terms of article 69 (2) of the rules of procedure the unsuccessful party shall be ordered to pay the costs if they have been asked for in the successful party's pleading.

In this instance The Federal Republic of Germany has failed in its submissions.

It maintains, however, that as, in its reply and contrary to the terms of its application, the commission restricted the ground of complaint based on the infringement of article 12 (2) (b) of regulation n°816-70 to sparkling wine, it has partially discontinued its application and should for this reason be ordered to pay the costs involved in such discontinuance in accordance with article 69 (4) of the rules of procedure.

20 It follows from article 1 (2) of regulation n°816-70 that this regulation, which concerns inter alia sparkling wine, does not refer to spirits obtained by distilling wine.

Therefore, by limiting the ground of complaint based on the infringement of article 12 (2) (b) of regulation n°816-70 to sparkling wine, the commission has not amended the conclusions of the application, but has added thereto details arising from the scope of this regulation.

Consequently, it is unnecessary for article 69 (4) of the rules of procedure to be applied in this instance.

The court

Hereby:

1. Declares that by reserving, in the law on vine products of 14 july 1971 (bundesgesetzblatt 1971, i, p. 893) and in the implementing regulation on sparkling wines and spirits obtained by distilling wine of 15 july 1971 (bundesgesetzblatt 1971, i, p. 939) the appellations 'sekt' and 'weinbrand' to domestic production and the appellation 'praedikatssekt' to wines produced in germany from a fixed minimum proportion of german grapes, The Federal Republic of Germany has failed to fulfil its obligations under article 30 of the treaty and, as regards sparkling wine, under article 12 (2) (b) of regulations n°816-70 of the council of 28 april 1970 (oj l 99-1, 1970);

2. Orders The Federal Republic of Germany to pay the costs.