C-12/74

FEDERAL REPUBLIC OF GERMANY, represented by Professor Thomas Opper- mann of the University of Tübingen, with an address for service in Luxem- bourg at the Embassy of the Federal Republic of Germany, 20-22 avenue de l'Arsenal,

defendant,

Application for a declaration that the Federal Republic of Germany is failing to fulfil its obligations under the EEC Treaty, in particular as regards the prohibition on measures having an effect equivalent to quantitative restric- tions on imports, 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;

THE COURT

composed of: R. Lecourt, President, J. Mertens de Wilmars and A. J. Macken- zie Stuart, Presidents of Chambers, A. M. Donner, R. Monaco (Rapporteur), P. Pescatore, H. Kutscher, Judges,

Advocate-General: J. P. Warner Registrar: A. Van Houtte

of paragraph 26 (3) of the Law The Commission had previously been on vine products, this appellation notified of another law on vine products, may, moreover, be linked to the that of 1969, which never came into condition that the sparkling wine force, although it was intended to do so be produced from a minimum on 20 July 1971. The 1971 Law on vine proportion of home-grown products, enacted after Regulations Nos grapes; 816/70 and 817/70 of the Council of 28 — that the appellation 'Prädi- April 1970 (OJ L 99, 1970) was in fact katssekt' may only describe a intended to replace the Law of 1969. As home-produced sparkling wine only the provisions concerning the which fulfils the abovementioned 'Weinbrand' were restated without any conditions and contains at least change in the Law of 1971, the 60 % of home-grown grapes; Commission considered that it was

JUDGMENT OF 20. 2. 1975 — CASE 12/74

necessary, on the basis of the new texts, obligations under the EEC Treaty, to reopen the examination procedure especially Article 30, and under provided for in the first paragraph of Article 12 (2) (b) of Regulation Article 169 of the Treaty. (EEC) No 816/70 of the Council of By letter of 12 June 1972 the 18 April 1970, by reserving the Commission reopened this procedure, at appellations 'Sekt' and 'Weinbrand' the end of which it concluded that the to the domestic product and the appellations in question constituted appellation 'Prädikatssekt' to wines measures having an effect equivalent to produced within the country from a quantitative restrictions, within the fixed minimum proportion of meaning of Articles 30 et seq. of the home-grown grapes; and Treaty. — order the defendant to pay the The Federal Government submitted its costs.'

that it adhered to its opinion, attempting by legal means to transform maintaining that the appellations in these appellations into indirect indica- question did not contravene any rules of tions of origin. This attempt involves the Community law. adoption of 'measures having an effect On 21 February 1974 the Commission equivalent to quantitative restrictions' and consequently infringes both the rules lodged the present application, in of the Treaty concerning the free accordance with the second paragraph of movement of goods and Regulations Article 169 of the Treaty. Nos 816/70 and 817/70 (OJ L 99, 1970). 2. Upon hearing the report of the In particular, as regards trade with third Judge-Rapporteur and the views of the countries, these measures infringe Article Advocate-General, the Court decided to 12 (2) (b) of Regulation No 816/70. In open the oral procedure without holding its reply, the Commission makes it clear any preparatory inquiry. that as the scope of this regulation does not extend to spirits obtained by distilling wine, the complaint of infringement of this article necessarily II — Conclusions of the concerns sparkling wines alone. parties In support of this complaint the Commission makes the following The applicant claims that the Court statements: should:

'— declare that the Federal Republic of 1. The fixing, by legislative means, of Germany has failed to fulfil its protected indications of origin is alien to

COMMISSION v GERMANY

the Deutsche Vereinigung fur gewerbli- of the appellations 'Sekt' and chen Rechtsschutz und Urheberrecht of 'Weinbrand' to domestic products alone 12 September 1967 addressed to the contravenes the principle of the free President of the Bundestag. In the light movement of goods, even on the of these observations, it appears assumption that a change must be unnecessary to resort to opinion polls in accepted in the view held by interested

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1. The appellations 'Sekt' and legislature's usual method of proceeding 'Weinbrand' became part of German in matters of competition. In particular, commercial practice towards the for an appellation to be regarded as an beginning of this century as designations indication of origin it is sufficient for a 'not inconsiderable section' of the describing a specific quality and type of interested commercial circles to detect German sparkling wine and spirits obtained by distilling wine. They were the exact origin of the product. originally parallel appellations to those In these circumstances, to regard the of 'Champagner' and 'Kognak' for which appellations 'Sekt' and 'Weinbrand' as they were, moreover, finally substituted measures having an effect equivalent to in 1923, as from that date these two quantitative restrictions within the names ceased to be generic appellations meaning of Articles 30 et seq. of the and became registered designations of Treaty, while the registered designations origin limited to French products. of origin and the indications of origin applied by other Member States are 2. Both originally and at present the regarded as in accordance with appellations 'Sekt' and 'Weinbrand' are Community law, would amount to closely linked to a particular German discrimination against the Federal method of producing the products to Republic. which they apply. This method, which was later defined by the legislature, 4. As regards the reference made by the consists of a specific combination of Commission to Directive No 70/50/EEC, it should be noted that in Article 1 this several elements, capable of being checked in all its details, by means of Directive, which was drawn up in which products are obtained with a application of Article 33 (7) of the specific taste ('German flavour'). This Treaty, concerns the abolition of taste confers on the products described measures having equivalent effect in as 'Sekt' and 'Weinbrand' their specific existence on the entry into force of the characteristics, as a result of which it is Treaty.

(a) First: — the official language clause contained in paragraph 44 (1) of the Law on — the appellations in dispute are found vine products and in paragraph 8 (1) among the 'names indicative of of the regulation on sparkling wines origin or source' which Article 2 (3) and spirits obtained by distilling (s) by implication withdrew from the wine, merely constitute an exception scope of Article 30 of the Treaty. for the benefit of the economically Moreover, they form part of the insignificant trade in various varieties 'qualified' class of indications of of Austrian sparkling wines and

Germany, are closer to registered into Germany of sparkling wines and designations of origin in the strict spirits obtained by distilling wine, before sense than are 'ordinary' indirect and after 1971, show that the legislation indications of origin; in dispute had no restrictive effects on — the indirect indication of origin is an the trade in the products in question. On acknowledged principle of the law the contrary, starting more or less in on unfair competition. German law 1970 there developed a particularly contains no prohibition against marked increase in imports from France regulating indirect indications of and Italy. Even accepting the argument origin by legislative means. More- put forward by the Commission, over the EEC Treaty has provided according to which the mere fact that for no 'standstill' on this matter by measures having equivalent effect are the laws of Member States; 'likely' to restrict imports is sufficient for — the 'national' rather than 'regional' them to be prohibited, nevertheless — link in the appellations in question is without prejudice to the question whether a necessary result of the such an argument may be applied to

(3) (f) of Directive No 70/50/EEC, long time, according to which any 'lower the value of an imported product, part of the surface of the earth, in particular by causing a reduction in its however its boundaries are marked intrinsic value, or increase its cost'. and independently of its extent, may constitute a legitimate point of (d) Finally, the designations limited to reference, in particular in questions imported products readily enable them of indirect, indications of origin; to remain competitive in relation to the

products designated as 'Sekt' and transitional arrangements provided for 'Weinbrand'. by the law in dispute accepted, at least in 1972, the use of the foregoing 5. Moreover, even supposing that it appellations in the import and sale of the constitutes a measure having an effect products in question. equivalent to quantitative restrictions on Furthermore, the fact that the measures imports and that it thus is covered by in dispute are likely to put foreign the scope of Article 30 of the Treaty, the producers who do not produce these legislation in dispute is justified as re- commodities at a disadvantage was gards Community law by Article 36 of shown by the various applications the Treaty. It in fact forms part of which, even in 1972, had been lodged national competition law and is justified against them in Germany before the on grounds of public policy and the Bundes verfassungsgericht. protection of industrial and commercial The Commission disputes the relevance property within the meaning of the of the questions set out in the opinion abovementioned article, whilst being polls submitted by the defendant and neither a means of discrimination nor a points out: disguised restriction within the meaning of the second sentence of that article. — that the 'language' clause contained in the law in dispute is incompatible As regards the distinction between the with the system of registered 'existence' and the 'exercise' of an designations of origin, according to industrial or commercial property right, which the territory in question must such distinction could not be employed not extend beyond national frontiers, in this instance as, if the appellations in and dispute were also applied to foreign — that the transitional arrangements products, they would for that very provided for in paragraph 75 (6) of reason be deprived of their function as this law, which permit the continued indirect indications of origin. provisional use of the appellations In its reply, the Commission continues to 'Sekt' and 'Weinbrand', show that maintain that the prohibition on measures the appellations in dispute were having equivalent effect is not linked to formerly used for imported sparkling the actual trend of imports. Proof of the wines and spirits obtained by existence of obstacles to imports can distilling wine. moreover only be supported by The Commission continues to maintain approximate results and by reference to that in commercial practice these the past. Moreover, the statistical data appellations constituted purely generic produced by the German Government indications. This is particularly clear in concerning the trend in the imports of the case of the 'Prädikatssekt' which is spirits obtained by distilling wine and interpreted by the consumer to describe sparkling wines are inconclusive. In fact, not a given content of domestic wine but the increase in imports which took place a 'Sekt' of exceptional quality. between 1969 and 1970 was the result of

In this instance none of these conditions article are not absolute, but are limited is satisfied. It is for this reason that an by the obligations arising out of Article opinion poll such as that produced by 5 of the Treaty. Secondly, measures such the defendant is neither indispensable as those in question which favour all nor conclusive. products of domestic manufacture have a particularly restrictive effect on the As regards the argument that the functioning of the Common Market. products covered by the appellations in Such significant restrictions are only question have a characteristic and typical justified if they are absolutely (German) 'flavour', this is based on indispensable and if no other means considerations (proportion of home-pro- exists of achieving the objective in view. duced grapes, method of production, Thirdly, these measures constitute a etc) which are incorrect and incomplete, remarkable innovation which is contrary or inconclusive. In particular, as regards to the established system. Finally, even the necessary conditions of production, supposing that the aim of these measures the provisions in question showed that is to protect German producers of 'Sekt' the same conditions of quality are and 'Weinbrand' from unfair competi- required for both 'Sekt' and tion and consumers from deception with 'Qualitätsschaumwcin'. Moreover, in regard to the origin of the products, no Germany these conditions are so general risk of fraud or deception existed in the that a sparkling wine sold as 'Sekt' situation prior to the introduction of the might be produced by the most widely contested measures. differing methods. In these circumstances it is doubtful whether a 'German In its rejoinder, the German Government flavour' can be a characteristic feature point out, first, that in its reply the and one which is common to all these Commission had restricted the complaint wines. originally raised on the basis of Article 12 (2) (b) of Regulation No 816/70 to The Commission concludes that the case of 'sparkling wines' and although it is indisputable that Directive requests the Court, in accordance with No 70/50/EEC only 'directly' concerns Article 69 (4) of the Rules of Procedure, measures having equivalent effect to order the Commission to bear the existing when the Treaty came into costs involved in that part of the force, it does, however, call attention to complaint which has been withdrawn. the method of interpretation approved by the Member States and constantly In addition, it observes that the Commission shows a certain unease at followed by the Commission in this matter. The reservation on the subject of conducting the debate in the field of its names indicative of origin or source own legislation and that it appears, contained in Article 2 (3) (s) of this wrongly in a question as important as provision put into concrete form the that in this instance, to be avoiding exception provided for in Article 36 for undertaking a thorough consideration of the benefit of industrial and commercial the facts. To the evidence and the

not be effective, since it would give rise year is very large, as a result of the to a serious problem in intra-Communi- special characteristics of the German ty trade as regards 'checks' on the system in this area. Moreover, these legitimate use of these appellations. references have not yet reached the Having put forward these general stage of an examination of the observations, the German Government substance of the action, and in the emphasizes in particular the following meantime an application for the points: adoption of interim measures has been rejected by the Court, on the — Article 2 (3' (s) of Directive No 70/50/EEC does not lay down, as ground that the Law of 1971 on vine regards names indicative of origin or products as regards spirits obtained source, an exception to Article 30 of by distilling wine has not injured the parties concerned. Finally, in the Treaty based upon Article 36. This article as a whole makes it clear proceedings before the Court of what is to be understood by Justice, the arguments put forward by the parties in an action pending measures having equivalent effect before another court cannot be within the meaning of the Treaty. A different interpretation of this invoked by way of evidence. It is for the Court of Justice to decide Directive, such as that suggested by the Commission, would deprive whether the points of view expressed Article 5 (2) of any logical content. in the context of this action may be taken into consideration; if this is — The discussion concerning the possible, it should suspend the 'likelihood' of the measures in present proceedings until the dispute to restrict imports of the Bundesverfassungsgericht has given a products in question is irrelevant in final ruling. this instance. As a result of the legal exception provided for by Article 2 — The appellations reserved for (3) (s) of the abovementioned imported wines have no pejorative directive, in the case of names meaning resulting in discrimination indicative of origin or source it is no in respect of those products. The longer necessary to ask whether they term 'Schaumwein' is merely an constitute measures having equiva- altogether neutral designation of lent effect within the meaning of quality: it corresponds to the term Article 30 of the Treaty, as such a 'vin mousseux' reserved in France for question is answered in the negative 'ordinary' sparkling wine not covered by the directive itself. by the designation 'Champagne'. The — Even if it is true that the exceptional expression 'Branntwein aus Wein' increase in imports which occurred in corresponds in its turn to the French 1970 and the years following was in term 'eau-de-vie de vin' also used for part the result of the freeing of wine spirits not covered by the intra-Community trade sought by the designation 'Cognac'. The word Treaty, nevertheless, apart from cer- 'Qualität' clearly describes a product tain seasonal variations, the trend of of high quality and for this reason imports has for a long time been con- has no pejorative connotation. tinuously upward (cf. the years 1966 Finally, the term 'Prädikatssekt' to 1973). emphasizes the particularly pro- — As regards the argument that the nounced nature of a product in legislation in dispute is at present the which the 'German flavour' is

Law

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 'Prädikatssekt' 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

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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 'Prädikatssekt' may only describe a 'Sekt' containing at least 60 % of German grapes.

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 'Prädikatssekt' 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 'Prädikatssekt' 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 'Prädikatssekt', to Article 12 (2) (b) of Regulation No 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.

COMMISSION v GERMANY

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 purpose it is first necessary to consider the situation created with regard to the appellations 'Sekt' and 'Weinbrand'.

6 Directive No 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

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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.

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 'Prädikatssekt' 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 af a vine product constitutes a criterion which is all the less capable of being by itself sufficient 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.

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 to 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.

COMMISSION v GERMANY

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

13 As regards the appellation 'Prädikatssekt', which was created by the legislation on vine products, it cannot be accepted that the use of 60 % 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 'Prädikatssekt' 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.

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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 No 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.

COMMISSION v GERMANY

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.

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distilling wine of July 1971, the appellations 'Sekt' and 'Weinbrand' to the domestic product and the appellation 'Prädikatssekt' 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 No 816/70 of the Council of 28 April 1974.

Costs

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 No 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.

COMMISSION v GERMANY

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 'Prädikatssekt' 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 No 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.

Lecourt Mertens de Wilmars Mackenzie Stuart

Donner Monaco Pescatore Kutscher

Delivered in open court in Luxembourg on 20 February 1975.