Report on an examination under the TBR Regulation - Conseil Interprofessionel du Vin de Bordeaux ("CIVB") - Canada

Transcription

1 EUROPEAN COMMISSION Directorate-General for Trade Brussels, 12 February 2003 Ref. 078/03 [Public] Report on an examination under the TBR Regulation - Conseil Interprofessionel du Vin de Bordeaux ("CIVB") - Canada

2 EUROPEAN COMMISSION Directorate-General for Trade Directorate D - Co-ordination of WTO and OECD matters. Services. Dispute settlement and Trade Barriers Regulation Dispute settlement and Trade Barriers Regulation Brussels, 24 January 2003 TRADE D.3/PG/mt 1239 Report to the Trade Barriers regulation Committee TBR examination procedure concerning an obstacle to trade, within the meaning of Council Regulation (EC) No. 3286/94, consisting of trade practices maintained by Canada in relation to certain geographical indications for Wines

3 EXECUTIVE SUMMARY GENERAL REMARKS THE COMPLAINT THE INVESTIGATING ACTIVITY ECONOMIC AND COMMERCIAL BACKGROUND IN THE COMMUNITY THE PRODUCTS AND GEOGRAPHICAL INDICATIONS CONCERNED THE VINEYARDS OF BORDEAUX Bordeaux-Bordeaux Supérieur Médoc-Haut Médoc PRODUCTION AND TRADE Production Trade SALES Analysis of the total sales of Bordeaux wines in volume and value Analysis of the sales of Médoc and Haut-Médoc in volume and value CONCLUSION ECONOMIC AND COMMERCIAL BACKGROUND IN CANADA Distribution in Canada Sales in Canada Sales in Quebec Sales in Ontario Exports Reputation of Bordeaux name in Canada Practices by "wine making companies" Conclusion LEGAL ANALYSIS THE CANADIAN LAW The Canadian law prior to adoption of the C-57 Amendment Common law and the Quebec's Civil Code The Trade-Mark Act Other relevant Acts Case law The law after the C-57 Amendment THE ALLEGED VIOLATIONS Article 23.1 and 23.2 of TRIPS Article 24.6 of the TRIPS Article 24(3) of TRIPS CONCLUSION ADVERSE TRADE EFFECTS COMMUNITY INTEREST CONCLUSION ENVISAGED COURSE OF ACTION

4 Executive summary On 6 December 2001, the Conseil Interprofessionnel du Vin de Bordeaux (CIVB) lodged a complaint with the Commission services pursuant to Article 4 of (EC) Regulation 3286/94 (Trade Barrier Regulation - TBR). The complaint sought the elimination of Canadian trade practices which were alleged to adversely affect the trade of wine. The alleged obstacle to trade results from the C-57 Amendment to the Canadian Trademarks Act. Having decided, after consultation of the Advisory Committee established by the Trade Barriers Regulation, that there is sufficient evidence to justify initiating an examination procedure for the purpose of considering the legal and factual issues involved, and that this is in the interest of the Community, the Commission on 25 May 2002 commenced an examination in accordance with Article 8 of the Regulation 1. The investigation confirmed the complainant's legal claim that the C-57 Amendment to the Canadian Trade-Marks Act violates Articles 23.1 and 2 as well as Article 24.3 (the so called standstill clause) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and that such infringements cannot be justified on the basis of the exception under Article 24.6 of TRIPS. However, the above analysis is limited by the fact that the Canadian side did not participate in the investigation. Therefore, the findings on one of the main factual aspects to be investigated upon, i.e. whether the names Bordeaux and Médoc are identical with the term customary in common language as the common name for a wine or type of wine which does not originate in these regions of France, could only be based on the facts available, according to Article 8.7 of the TBR. Bordeaux wines have a considerable market share in Canada. This is strictly connected with the Bordeaux/Medoc product s name. If such an asset is not duly protected, holders of the Bordeaux and Médoc geographical indications could see their market position in Canada seriously curtailed. The reputation of the Bordeaux and Médoc geographical indications is being prejudiced by the C-57 Amendment. This prejudice could eventually result in adverse trade effects for the producers of Bordeaux and Médoc wine. It can therefore be concluded that the C-57 Amendment threatens to cause adverse trade effects to the complainant, within the meaning of Article 2.4 of the TBR. The protection and enforcement of intellectual property rights, and in particular of geographical indications, is of great importance for the economy of several regions of the Community. In order to safeguard access to third country markets for the Community's top quality products, especially in the agricultural sector, it is essential to react to WTO incompatible practices. However, it should be noted that the Commission is currently in the process of negotiating a bilateral agreement with Canada on trade in wine and spirits. This agreement would foresee the definitive elimination of the names listed as generic in Canada, including Bordeaux, Médoc and Medoc. Given the prospect of conclusion of such an agreement, that could represent an appropriate means to protect Community interests in this field, it is suggested to delay a Commission Decision on the TBR investigation for a period of 3 months since the circulation of the present report. 1 OJ C124 of

5 1 GENERAL REMARKS 1.1 The complaint On 6 December 2001, the Conseil Interprofessionnel du Vin de Bordeaux (CIVB), supported by the Comité National des Interprofessions des Vins à Appellations d Origine (CNIV) and the Institut National des Appellations d Origine (INAO), lodged a complaint with the Commission services pursuant to Article 4 of (EC) Regulation 3286/94 (Trade Barrier Regulation - TBR). The complaint sought the elimination of Canadian trade practices which were alleged to be WTOincompatible and adversely affect the trade of wine. The alleged obstacle to trade results from the C-57 Amendment 2 to the Canadian Trademarks Act. This Amendment entered into force on 1 January 1996 and it implements the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). According to the complainant, it constitutes an obstacle to trade within the meaning of Article 2.1 of the TBR as it violates Articles 23.1 and 2 as well as Article 24.3 of the TRIPS. CIVB also argues that these violations cannot be justified on the basis of any of the exceptions under Article 24 of TRIPS. In addition, CIVB maintains that the alleged obstacle to trade causes and threatens to cause adverse trade effects to the exports of the Community industry to Canada, in the meaning of Article 2.4 of the TBR. Having decided, after consultation of the Advisory Committee established by the Trade Barriers Regulation, that there is sufficient evidence to justify initiating an examination procedure for the purpose of considering the legal and factual issues involved, and that this is in the interest of the Community, the Commission has commenced on 25 May 2002 an examination in accordance with Article 8 of the Regulation The investigating activity The investigating activity of the European Commission included the gathering of information on the Canadian legislation and contested practices, on the product subject to investigation and industries, as well as on the adverse trade effects claimed by the complainant. This has been accomplished by consultations and questionnaires. It should be noted that questionnaires have been sent to both the Canadian government and the Canadian provincial liquor boards. No reply has been received. Moreover, during a teleconference held on 10 October 2002 within the framework 2 3 As in the complaint, the term "C-57 Amendment" is used in the present report to cover the provisions governing geographical indications in the Act relating to trade marks and unfair competition. The notice of initiation was published in the OJ C124 of The long delay between the lodging of the complaint and the opening of the investigation was due to exceptional circumstances related to the negotiation with Canada of a bilateral agreement on wine and spirits. 5

6 of negotiations on a bilateral wine agreement, Canada made clear that it would not have replied to any query from the EC in the context of the TBR investigation. In this regard, it should be recalled that Article 8.7 of the TBR provides that "When the information requested by the Commission is not supplied within a reasonable time or where the investigation is significantly impeded, findings may be made on the basis of the facts available". 1.4 The position of Canadian Government Article 8.1 of the TBR provides that: "Where, after consultation, it is apparent to the Commission that there is sufficient evidence to justify initiating an examination procedure and that it is necessary in the interest of the Community, the Commission shall act as follows: (a). (b) it shall officially notify the representatives of the country or countries which are the subject of the procedure, with whom, where appropriate, consultations may be held". Accordingly, Canada was notified and requested to express its opinion on the complainant's claims and allegations on 7 June By means of a Note Verbale dated 23 August 2002, Canada disagreed with the contentions made by CIVB in its complaint. Canada noted that it fully implemented its obligations under the TRIPS. It also argued that there does not appear to be any usage of the terms Bordeaux or Médoc by either Canadian wine producers or third party producers in the Canadian market. Thus, Canada failed to see the adverse trade effects alleged by the complainant. More generally, Canada pointed out that a solution to the matter raised by the complaint was apparent in the negotiations between Canada and the EC on a proposed bilateral wine agreement. Canada's view was that the concerns expressed by the complainants could be effectively addressed through these discussions. 2 ECONOMIC AND COMMERCIAL BACKGROUND IN THE COMMUNITY 2.1 The products and geographical indications concerned CIVB's complaint concerns wines with the geographical indications Bordeaux and Médoc. These have been controlled since 1936 under French law. Unquestionably, Bordeaux and Médoc are geographical indications within the meaning of Article 22(1) of TRIPS since quality, reputation and any other characteristic are attributable to the wine s geographic origin. Bordeaux wines are classified in TARIC under CN codes , , and

7 2.2 The vineyards of Bordeaux With 116,902 hectares (288,876 acres) of AOC 4 wines, Bordeaux is the largest vineyard area producing fine wines in France. It represents 1.5% of the world s total vineyard area. All Bordeaux wine producers have adopted the Appellation d'origine Contrôlée system (AOC), which outlines specific rules for viticulture, winemaking and labelling. The AOC label is only awarded 4 In France, there are four wine categories: AOC (Controlled Origin Appellation), VDQS (Geographically Delimited Wine of Superior Quality), Vin de Pays (Regional Wine) and Vin de Table (Table Wine). The Vin de Pays category is separate from Vin de Table because it has a regional origin. A label showing Vins de Pays followed by a region denotes a wine from that region. The official definition is table wines that are representative of the district. Vin de Table on the label indicates the most basic of French wine types. Vintages are not allowed to be shown on Vin de Table labels. EU legislation only distinguishes two categories AOC and VDQS, which are grouped inside VQPRD (Vins de Qualité Produits dans des Régions Déterminées-Quality Wines Produced in Determined Regions). It is the same for Vins de Pays and Vins de Table that constitute in the European Union only one category, that of Vins de Table. 7

8 after strict production and tasting standards have been met. It is a guarantee of a wine's authenticity and quality. The vineyards of Bordeaux count 57 appellations (AOC) which are divided in 6 groups: Bordeaux-Bordeaux Supérieur, Médoc-Graves, Saint Emilion/Pomerol/Fronsac, the Côtes, the dry white wines and the sweet white wines. Each Appellation d Origine Contrôlée can be regional, as Bordeaux and Bordeaux Supérieur, subregional as Haut-Médoc, communal or village (Saint Julien, Pomerol) Bordeaux-Bordeaux Supérieur The entire AOC falling within the Gironde department allows the production of white and red wines in the appellations Bordeaux and Bordeaux Supérieur. This is the largest of the appellation groups. Bordeaux and Bordeaux Supérieur are regional appellation covering respectively 40,295 hectares and 10,637 hectares in 2000, i.e. all together 45.3% of the total Bordeaux surface area. For the 2000 harvest they represent respectively a production of 2,531,624 hectolitres and 621,612 hectolitres Médoc-Haut Médoc With 14,161 hectares under production, the Médoc represents more than 16% of all the vineyards in Bordeaux (red wines). In the Médoc there are 8 appellations-two sub-regional appellations, Médoc and Haut-Médoc, and 6 communal appellations: Saint Estèphe, Pauillac, Saint-Julien, Moulis en Médoc, Listrac-Médoc and Margaux. 2.3 Production and trade Production The production of Bordeaux wines has remained rather stable since This is due to the EC/national legislation that limits the communes where the wine concerned may be produced, the area within the commune (only identified parcels may be claimed as AOC), the plantation rights as well as the yield per hectare. Indeed the procedure of certification of AOC wines includes an annual authorised yield fixed every year by the National Committee of INAO (French National Institute for Wine Appellations) on the propositions of the Viticultural Federations. As regards the appellations Bordeaux and Bordeaux Supérieur as well as Médoc and Haut-Médoc, they represent respectively around 45% and 8% of the total Bordeaux wine production. Since 1995, the detailed total production of all Bordeaux wines of which Médoc and Haut Médoc and Bordeaux-Bordeaux Supérieur is as follows: 8

9 Volume in hectolitres all Bordeaux wines of which Médoc and Haut médoc % 8% 8% 8% 8% 8% 8% 8% of which Bordeaux and Bordeaux Supérieur % 43% 45% 45% 46% 46% 47% Trade The Bordeaux s wine trade incorporates 11,433 wine producers, 400 wine merchants and 120 brokers. It plays an important role in the region s economy since it is estimated that 1 in 6 of the Gironde s working population is involved in it. The total number of direct employees is estimated at around 34,000 and the number of total direct and indirect employment amounts to around 53,800 as the figures below show: Number of companies and employees 2001 number of companies number of employees wine merchants 400 n.a brokers 120 n.a sub-total cooperatives wine producers direct employment Total employees direct and indirect Sales Analysis of the total sales of Bordeaux wines in volume and value Sales figures are given for all Bordeaux wines, including both wines with the appellation Bordeaux only and wines of the Bordeaux region which can use the Bordeaux name in association with other AOC (e.g.: Margaux). The figures below show that since the harvest, Bordeaux wine sales in volume have steadily increased per 1.9 % per year on average to reach hectolitres in Export sales performed particularly well, as they raised by 2.5 % per year on average. Volume in hectoliters Average 6 years France ,3% EU ,5% export ,5% Total all Bordeaux wines ,9% % export/total 10,0% 10,5% 11,2% 13,0% 9,9% 9,9% 10,3% Bordeaux wine sales in value climbed from to by 52% to reach 3,222 million. This increase is largely due to the strong growth in export and EU sales, at an average annual rate of 12% compared to 5% for sales on the French national market. 9

10 value in million Average 6 years France 1.460, , , , , , ,0 4,9% EU 357,8 403,6 547,4 668,6 700,8 691,9 704,9 12,0% export 297,3 335,4 454,9 597,6 487,3 525,7 577,1 11,7% Total all Bordeaux wines 2.115, , , , , , ,0 7,3% % export/total 14,1% 15,2% 18,5% 19,1% 16,2% 16,8% 17,9% In conclusion, although the French national market remains the main outlet representing respectively 63% and 60% of total sales in volume and value in , export markets are significant and account for 10% in volume and 18% in value. In addition, it is important to note that, since , the average rate growth in EU and export markets sales is significantly higher than that of the national market Analysis of the sales of Médoc and Haut-Médoc in volume and value Similar trends can be seen in the figures on Médoc/Haut Médoc sales. Export markets are of major importance for trade of wine bearing such indications as they represent hectolitres in volume (13.5% of total sales) and million in value in Volume in hectoliters Average 4 years France n.a n.a ,6% EU n.a n.a ,0% export n.a n.a ,9% Total n.a n.a ,9% % export/total n.a n.a 14,3% 17,1% 13,4% 13,5% 13,7% value in million Average 4 years France n.a n.a n.a n.a n.a n.a n.a EU n.a n.a 66,56 86,28 85,78 116,93 83,92 6,0% export n.a n.a 48,45 67,14 46,76 47,2 51,85 1,7% Total n.a n.a n.a n.a n.a n.a n.a % export/total n.a n.a n.a n.a n.a n.a n.a 2.5 Conclusion Bordeaux export markets have largely contributed to the positive growth rate of Bordeaux total sales, representing around 18% of such sales. Bordeaux trade incorporates 54,000 direct and indirect employees. Consequently, access to export markets is of considerable importance for the economy of Bordeaux (Gironde) region. 10

11 3 ECONOMIC AND COMMERCIAL BACKGROUND IN CANADA Distribution in Canada The Canadian market is regulated through provincial Liquor Boards that control the importation, sale and distribution of all alcoholic beverages. Alberta is the only province that has deregulated the sale and distribution of alcoholic beverages, even though the importation thereof is still controlled by the Alberta Liquor board. Each province should be viewed as a separate market as regulations and requirements will differ between the Liquor Boards. In order to conduct business with a Liquor Board, wine exporters must appoint a local agent in order to be represented in the respective provinces. The Liquor boards in the provinces of major economic importance are the Société des Alcools du Québec (SAQ) and the Liquor Control Board of Ontario (LCBO) Sales in Canada The total volume of still wines in Canada is 2.55 million hectolitres in 2001 that is to say 11% of the total sales of alcoholic beverages vs. 83% for beer and 6% for spirits. Imported wines dominate the Canadian market. In fact 62% of wine sales in Canada (as percentage of sales volume) are imported wines with the following breakdown Country % import market share in 2001 France 35.3 Italy 21.2 Spain 2.9 USA 11.5 South America 11.2 Australia 9.2 Source: Institut du vin canadien France is the main wine exporter to Canada. However, during the last years, the market share of French wines on the Canadian market has come under pressure from the so-called New World wine producers (Australia, California, Chile). In 1990, France was the main wine exporter to Canada with a market share of 54% of imports. By 2000, this had fallen to 35%. In order to face this increasing competition on the Canadian market, it is essential to secure protection for Bordeaux geographical indication, one of the main strengths in promoting Bordeaux wines in Canada. As regards the breakdown by province, Quebec and Ontario alone account for 71% of sales of still wines by volume: Quebec 38% 11

12 Ontario 33% British Columbia 15% Canada represents a market of 11 million consumers and the per capita wine consumption amounts to 11.7 litre with respectively 15.3 litre for Quebec and 10.6 litres for Ontario Sales in Quebec While beer is the most popular alcoholic beverage in Canada, in Quebec wine is becoming the most consumed drink above beer. One third of the French speakers over 18 years drink wine at least once a week, compared with 13% in The most popular appellations (AOC and DOC) in Quebec are (as percentage of all sales volume): White wines Red wines - Muscadet 12.5% - Bordeaux 10.3% - Bordeaux 12.4% - Montepulciano 5.6% - Colli Albani 9.5% - Valpolicella 4.4% - Alsace 7.7% - Côtes du Rhône 4.3% - Orvieto Classico 5.2% - Valencia 3.7% - Bourgogne 5.0% - Brouilly 3.5% Source: annual report SAQ 2001 The figures show that Bordeaux is the most widely sold geographical indication in Québec. The market share of French wines in 2001 represents 37% of the total sales of still wines in Quebec and the breakdown among French wines is the following: Vins de table 30% Other AOC 26% Bordeaux 17% Vins de pays 13% Bourgogne 12% Sales of Bordeaux and Médoc wines by appellation in Quebec QUEBEC TOTAL hectolitres Growth in % Average years Bordeaux ,4 6,7 11,7 4,8 5,8% Bordeaux Supérieur ,5 24,6 12,9 1,0 10,9% Haut-Médoc ,2-9,6 23,1 29,7 11,8% Médoc ,8 24,8 13,9-3,0 5,3% Total ,5 8,0 12,0 4,8 6,2% 12

13 Sales of Bordeaux and Médoc wines have shown an average annual growth of 6.2% over the 4 past years, reaching 32,372 hectolitres in compared to 25,421 hectolitres in The highest increase in percentage since is the appellation Bordeaux Supérieur (+10.9%) and Haut-Médoc (+11.8%) Sales in Ontario The market share of French wines in 2001 represents 22% of the total sales volume of still wines in Ontario. The breakdown among French wines is the following: Vins de Table 59% Vins de pays 14% Bourgogne 11% Bordeaux 8% Other AOC 8% Bordeaux represents the most widely sold geographical indication in Ontario. Sales of Bordeaux and Médoc by appellation in Ontario ONTARIO TOTAL hectolitres Growth in % Average years Bordeaux ,8 9,3 3,2-0,7 1,6% Bordeaux Supérieur ,8 29,4-0,4 3,7 9,0% Haut-Médoc ,4-13,9 5,4-4,3-7,2% Médoc ,5 130,7-10,3-18,1 6,7% Total ,6 11,8 2,5-0,8 2,0% Sales of Bordeaux and Médoc wines have increased since by an annual growth rate of 2%, reaching 7,840 hectolitres in compared to 7,230 hectolitres in Exports Volume in hectolitres average years all Bordeaux wines ,7% of which Medoc + Haut Medoc ,7% of which Bordeaux+Bordeaux Supérieur ,3% % growth all Bordeaux wines -2,4% 12,7% 13,4% -9,4% 18,2% 4,6% % growth Medoc + Haut Medoc -16,2% 5,4% 17,8% -9,1% -13,4% 52,3% % growth Bordeaux+Bordeaux Supérieur -1,2% 17,9% 13,9% -3,4% 31,4% 1,2% 13

14 Value in million average years all Bordeaux wines 22,4 23,5 26,8 37,9 35,1 43,5 45,7 12,6% of which Medoc + Haut Medoc 1,8 1,8 1,8 2,7 2,7 2,2 3,2 10,1% of which Bordeaux+Bordeaux Supérieur 6,7 6,7 8,3 10,7 10,6 15,4 15,8 15,4% % growth all Bordeaux wines 4,9% 14,0% 41,4% -7,4% 23,9% 5,1% % growth Medoc + Haut Medoc 0,0% 0,0% 50,0% 0,0% -18,5% 45,5% % growth Bordeaux+Bordeaux Supérieur 0,0% 23,9% 28,9% -0,9% 45,3% 2,6% Exports by volume of all Bordeaux wines to Canada in 2001 account for 79,892 hectolitres, up 39.6 % from Exports by value amount to 45.7 million in 2001 and have more than doubled since They respectively represent 12.8% and 7.8% of the total exports of Bordeaux wines. Canada is therefore a significant export market for Bordeaux and has been showing a strong growth since 1995 (average annual growth rate of 5.7% by volume and 12.6% by value). These data show that Canada is an export market of large economic interest, with an increasing demand, dominated by imported wines, which are facing an increasing competition. In this context, it is vital to secure one of the principal marketing assets of Bordeaux, its reputation Reputation of Bordeaux name in Canada In 1997, a study carried out by CIVB gave a spontaneous recognition rate for the Bordeaux name of 34% in Canada, 41% in Quebec and 28% in Ontario. When prompted, rates of recognition are much higher and gave the following percentages: 47% in Canada, Quebec 66% and Ontario 38%. These figures show the reputation enjoyed by the Bordeaux geographical indication, a world benchmark for quality wine. This is one of the main strengths in marketing Bordeaux in Canada, which is, as noted, the most widely sold geographical indication in Canada Practices by "wine making companies" Canada argued that there does not appear to be any usage of the terms Bordeaux or Médoc by either Canadian wine producers or third party producers in the Canadian market. The complainant alleges that Canadian "winemaking companies" did make use of the Bordeaux name. Winemaking companies (U-Vint) are privately operated service outlets. They provide consumers with ingredients, equipment and expertise to make their own wine at the shop (wine in kits). It is estimated that there were over 600 U-Vint establishments in Ontario in Most winemaking companies do not sell labels using the Bordeaux and Médoc geographical indications. However, approximately 18 months ago, certain U-Vint stores produced labels bearing the Bordeaux name. It would appear that such production does not take place any longer, as the name has been transformed from Bordeaux to Bordailles. The use of Bordeaux appellation has also been exploited by these winemaking companies via Internet. Consumers are offered must (with labels and bottles) as Bordeaux and Médoc. At home, they can dilute it to make wine (also known as home made wines). It would appear that the on line use of 14

15 Bordeaux appellation has also been terminated, as U-Vint companies now offer Red "Bordailles" and White "Bordailles". These practices show that the defective protection conferred by the Canadian legislation to the geographical indications Bordeaux and Médoc can result in indiscriminate use of these appellations on the Canadian market Conclusion Given the lack of collaboration of the Canadian authorities, the investigation could not verify whether, at present, the appellations in question are inappropriately used on the Canadian market. However, the Canadian legal system allows such unrestricted use, which can affect the reputation of the appellations concerned. The Canadian market represents 12.8% in value of all Bordeaux wine exports in 2001 and is the most widely sold geographical indication in Canada. There is reason to believe that this market share could be difficult to maintain if one of the product s main strength, its reputation, is jeopardised. In order to verify whether the Canadian legislation appropriately protects the geographical indications at issue from the above threat, we proceed to the legal analysis of the case. 4 LEGAL ANALYSIS 4.1 The Canadian law As the complainant alleges a violation of the standstill clause of TRIPS (Article 24.3), it is relevant to report the status of the Canadian law before and after the entering into force of the C-57 Amendment The Canadian law prior to adoption of the C-57 Amendment Common law and the Quebec's Civil Code Before the C-57 Amendment, the protection of geographical indications in Canada was based on common law in all provinces except Quebec, were the protection was granted by Article 1457 of the Civil Code. In Quebec, according to Article 1457 of the Civil Code, a plaintiff must prove the classic elements of civil responsibility: fault, injury and causality 5. In common law, the protection of geographical indication could be achieved by a tort action of passing off. The tort of passing off provides endorsers 5 Article 1457 of the Quebec's Civil Code reads as follows: "Every person has a duty to abide by the rules of conduct which lie upon him, according to the circumstances, usage or law, so as not to cause injury to another. Where he is endowed with reason and fails in this duty, he is responsible for any injury he causes to another person and is liable to reparation for the injury, whether it be bodily, moral or material in nature. He is also liable, in certain cases, to reparation for injury caused by the act or fault of another person or by the act of things in his custody". 15

16 and manufacturers with a weapon to prevent unfair representations of the nature or origin of a product. The tort of passing off can be traced back to at least It requires five elements to be present: (1) the offending goods must constitute a misrepresentation which lead to confusion (or deception) in the mind of the consumer (2) it must be made by a trader in the course of trade, (3) to prospective customers of his or ultimately consumers of the goods or services supplied by him, (4) it must be intended to injure the business or goodwill of another trader (in the sense that it is a reasonably foreseeable consequence) and (5) it must cause actual damage to a business or goodwill of the trader by whom the action is brought or will probably do so The Trade-Mark Act Before the C-57 Amendment protection for geographical indications could also be claimed under the Trademarks Act. In fact, this piece of legislation already included provisions on unfair competition and prohibited marks 7, that could be used for protecting geographical indications. For example, Section 7(d) of the Act provides that it is prohibited to make use, in association with wares or services, of any description that is false in a material respect and likely to mislead the public as to the (i) the character, quality, quantity or composition, (ii) the geographical origin, or (iii) the mode of the manufacture, production or performance of the wares or services. Moreover, other provisions could be interpreted as prohibiting the illegitimate use of geographical indications under certain circumstances: for example, Sections 7(b) 8, Section Such protection, however, is a negative one, that is, one that prohibits Canadian or third country nationals from registering as trademarks or using geographical names that are protected on exclusive basis as geographical indications in third countries. Yet, such provisions did not permit, per se, the protection of geographical indications as marks Other relevant Acts The Competition Act, the Food and Drugs Act and the Consumer Packaging and Labelling Act contain rules on misleading advertising, labelling and A.G. Spalding & Brothers v. A.W. Gamage Ltd., (1915) 32 R.P.C. 273, House of Lords See Sections 7 to12 of the Trade-Marks Act. Article 7(b) provides that: No person shall direct public attention to his wares, service or business in such away as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his wares, services or business and the wares, services or business of another. Section 10 states that: Where any mark has by any ordinary and bona fide commercial usage become recognised in Canada as designating the kind, quality, quantity, destination, value, place of origin or date of production of any wares or services, no person shall adopt it as a trade-mark in association with such wares or services or others of the same general class or use it in a way likely to mislead, nor shall any person so adopt or so use any marks so nearly resembling the mark as to be likely to be mistaken therefor. 16

17 Case law packaging that could also be invoked under certain circumstances to protect rights relating to geographical indications 10. As to the case law, it should be noted that, in 1974, INAO challenged the use of the designation Champagne by a producer and distributor of sparkling wine known as Canadian Champagne 11. The Canadian courts rejected INAO's claim and explicitly states that the geographical indication Champagne had not degenerated into generic use The law after the C-57 Amendment On 15 December 1994 Canada adopted the C-57 Amendment to implement TRIPS provisions relating to protection of geographical indications. The protection provided for by the C-57 Amendment is based on registration of geographical indications with the Canadian Office of the Registrar of Trademarks. Only geographical indications which have been registered are protected under the C-57 Amendment. Protection includes prohibition of the adoption or use of a protected geographical indication as a trademark or otherwise. A trademark for wines or spirits which is in whole or in part a geographical indication cannot be registered where the place of origin is not in a territory indicated by the geographical indication. This provision is implemented by Sections of the Trade-Mark Act, which provides that: 1. No person shall adopt in connection with a business, as a trademark or otherwise, (a) a protected geographical indication identifying a wine in respect of a wine not originating in the territory Section 52 of the Competition Act provides as follows: "No person shall, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever: (a) make a representation to the public that is false or misleading in a material respect; ( ). Article 30(1)(b) of the Food and Drugs Act provides that the Governor in Council may make regulations for carrying the purposes and provisions of this Act into effect, and, in particular may make regulations respecting: "(i) the labelling and packaging and the offering, exposing and advertising for sale of food, drugs, cosmetics and devices, (ii) the size, dimensions, fill and other specifications of packages of food, drugs, cosmetics and devices, (iii) the sale or the conditions of sale of any food, drug, cosmetic or device, ( ) to prevent the purchaser or consumer thereof from being deceived or misled in respect of the design, construction, performance, intended use, quantity, character, value, composition, merit or safety thereof, ( )". Article 7 of the Consumer Packaging and Labelling Act states that "No dealer shall apply to any pre-packaged product or sell, import into Canada or advertise any pre-packaged product that has applied to it a label containing any false or misleading representation that relates to or may reasonably be regarded as relating to that product". The same Article indicates that "false or misleading representation" includes "any description or illustration of the type, quality, performance, function, origin or method of manufacture or production of a pre-packaged product that may reasonably be regarded as likely to deceive a consumer with respect to the matter so described or illustrated". Château-Gai Wines Limited v. Institut National des Appellations d Origine, (1974) 14 C.P.R. (2d). Inao v. Andres Wines, p : " I am not persuaded that the word [Champagne] has degenerated to the extent that it refers merely to a class or genus of products". 17

18 indicated by the protected geographical indication; or (b) a translation, in any language of the geographical indication in respect of that wine. 2. No person shall use in connection with a business, as a trade-mark or otherwise, (a) a protected geographical indication identifying a wine in respect of a wine not originating in the territory indicated by the protected geographical indication or adopted contrary to subsection (1); or(b) a translation in any language of the geographical indication in respect of that wine 13. As regards the relationship between geographical indications and trademarks, Subsection 12(1)(g) prohibits registration of a trademark in whole or in part a protected geographical indication that is to be registered in association with a wine not originating in a territory indicated by the geographical indications. The C-57 Amendment contains a number of exceptions from the special protection normally afforded to registered geographical indications. In particular, it contains a list of generic names of wines and spirits 14, which includes Bordeaux and Médoc. 15 With regard to these generic wines and spirits it is provided that nothing in any of those provisions [i.e. the C 57 Amendment's provisions] prevents the adoption, use or registration as a trademark or otherwise, in connection with a business, of the following indications". 16 Being on the list of generic names, Bordeaux and Médoc are excluded from that registration and are not covered by the special protection system. Accordingly, Bordeaux and Médoc geographical indications can be used without restrictions. In addition, the C-57 Amendment has abolished the possibility of protecting such indications through registration as trademarks. Section 20(2) of the Trademarks Act (as amended) provides that "No registration of a trade-mark prevents a person from making any use of any of the indications mentioned in subsection 11.18(3) in association with a wine [ ]" Section of the C-57 Amendment. Section provides for an identical prohibition for spirits. Subsections 11.18(3) and 11.18(4) of the C-57 Amendment: Notwithstanding Sections and and paragraphs 12(1)(g) and (h), nothing in any of those provisions prevents the adoption, use or registration as a trademark or otherwise, in connection with a business, of the following indications; in respect of wines: (m) Bordeaux; (r) Médoc; (s) Medoc. The list of wines excluded from any protection as geographical indications in Canada includes: Champagne, Port (or Porto ), Sherry, Chablis, Burgundy, Rhine (and Rhin ), Sauterne (and Sauternes ), Claret, Bordeaux, Chianti, Madeira, Malaga, Marsala, Médoc (and Medoc ), Moselle, Mosel and Tokay. Subsections 11.18(3) (for wines) and 11.18(4) (for spirits). 18

19 4.2 The alleged violations Article 23.1 and 23.2 of TRIPS Article 23 of the TRIPS deals with Additional Protection for Geographical Indications for Wines and Spirits and, in its paragraph 1 and 2, provides that "1. Each Member shall provide the legal means for interested parties to prevent use of a geographical indication identifying wines for wines not originating in the place indicated by the geographical indication in question or identifying spirits for spirits not originating in the place indicated by the geographical indication in question, even where the true origin of the goods is indicated or the geographical indication is used in translation or accompanied by expressions such as "kind", "type", "style", "imitation" or the 17 like. 2. The registration of a trademark for wines which contains or consists of a geographical indication identifying wines or for spirits which contains or consists of a geographical indication identifying spirits shall be refused or invalidated, ex officio if a Member's legislation so permits or at the request of an interested party, with respect to such wines or spirits not having this origin". The investigation confirmed the complainants' allegation that Bordeaux and Médoc are two important geographical indications, which are protected in their country of origin 18. According to Article 23 of TRIPS these geographical indications must be given appropriate protection in Canada. The fact that they are not protected, due to the exclusion under Subsection 11.18(3) of the C-57 Am endment, appears to be an infringement of Articles 23(1) and 23(2) of TRIPS. The complainant also argues that the C-57 Amendment does not prohibit: a Canadian wine producer from using a protected geographical indication accompanied by expressions such as type, kind etc. the use of a protected geographical indication accompanied by the true origin of the wine (Canadian Bordeaux). As a matter of fact, the text of the Amendment does not expressly provide for such a prohibition, which might give raise to legal uncertainty to the detriment of the holders of rights relating to geographical indications. Such uncertainty is of concern given that the use of a geographical indication accompanied by terms such as type, kind, style etc. is often the first stage in the erosion of a geographical indication Notwithstanding the first sentence of Article 42, Members may, with respect to these obligations, instead provide for enforcement by administrative action. It should be noted that Article 24.9 of TRIPS provides that: "There shall be no obligation under this Agreement to protect geographical indications which are not or cease to be protected in their country of origin, or which have fallen into disuse in that country". 19

20 This lack of certainty surrounding the scope of protection would appear inadequate and might conflict with Article 23(1) Article 24.6 of the TRIPS It could be argued that the above violations of Article 23 are justified under the exceptions provided for by Article 24 of TRIPS. As a matter of fact, during discussions in the TRIPS Council, in reply to questions put by the EC asking for the reasons for the list in Subsection 11.18(3), Canada referred to the exception under Article 24(6) of TRIPS by claiming that the names in Subsection 11.18(3) of the C-57 Amendment were identical with terms customary in common language in Canada. 19 Article 24(6) of TRIPS allows WTO Members to be exempted from the obligation to protect geographical indications for good or services for which the relevant indication is identical with the term customary in common language as the common name for such goods or services in the territory of that Member. Therefore, even if Canada did not put forward any argument in this direction within the framework of the TBR investigation, we should proceed to evaluate whether this exception may apply to the present case. This being an exception, for the purposes of the investigation, it would have been up to Canada to prove that the names in Subsection 11.18(3) of the Trademarks Act, and notably Bordeaux and Médoc, are identical with terms customary in common language in Canada. Given the lack of collaboration by the Canadian government and the provincial liquor boards, no evidence has been made available to or could be collected by the case handlers on this point. On the basis of the facts available, i.e. a research undertaken by the complainant, it would appear that the Bordeaux and Médoc are not generic names in Canada. Canadian dictionaries 20 define Bordeaux and Médoc exclusively as wines from the region in question, and not as types of generic wine. Since it can be assumed that these dictionaries reflect common language in Canada, there appears to be sufficient evidence that the names Bordeaux and Médoc are not identical with the term customary in common language as the common name for a wine or type of wine which does not originate in these regions of France. This evidence substantiates the assumption that Bordeaux and Médoc should not be included in the list of generic wines in Subsection 11.18(3) See review of legislation on trademarks, geographical indications and industrial designs and models. Replies to questions put by the Community and its Member States - TRIPS Council - 11 November IP/C/W/5 (notably reply to question 5). The complaint refers to both French and English dictionaries: Dictionnaire Général de la langue française en Canada, Dictionnaire Québécois d aujourd hui (edition 1993), Jean-Claude Boulanger and Alain Rey, Funk & Wagnalls Canadian College Dictionary (edition 1989), The Canadian Oxford Dictionary (edition 1998), ITP Nelson Canadian dictionary of the English language (edition 1997). 20

21 The above would appear to be confirmed by past practices on the Canadian wine market, as the Bordeaux and Médoc indications do not seem to be used as generic terms by Canadian wine producers and traders. The complainant provided evidence, apart from two limited exceptions, that there has not been any use of the names Bordeaux and Médoc on the Canadian wine market for over 70 years for producers other than French. This would appear to exclude the possibility to defend the inclusion of these names on the list of generic wine names. As a result, on the basis of the evidence verified during the investigation, it appears that Canada may not justify the inclusion of Bordeaux and Médoc in the list of generic names of wines on the basis of an exception under Article 24(6) of TRIPS Article 24(3) of TRIPS The complainants alleges that Canada, by officially defining "Bordeaux" and Médoc" as generic names, violated Article 24.3 of TRIPS, which reads as follows: "In implementing this Section, a Member shall not diminish the protection of geographical indications that existed in that Member immediately prior to the date of entry into force of the WTO Agreement". This provision is usually referred to as the standstill clause". According to the complainant, Canada by adopting legislation which officially labels Bordeaux and Médoc as generic wine names contravened this clause, as it has undermined the rights of holders of geographical indications in relation to the situation which existed prior to implementation of TRIPS. Before the C-57 Amendment was adopted it was possible to prevent the use of Bordeaux and Médoc geographical indications by demonstrating that these geographical indications had a reputation or specific circle of customers and their use was likely to deceive or mislead the public. The contested Amendment has formally ruled that the names Bordeaux and Médoc are generic wine names. Under such circumstances, it would appear practically impossible to prove that consumers would be confused and that Bordeaux or Médoc wines have a special reputation. Before the Amendment was adopted, the Canadian legislator had not established that Bordeaux was in generic use. It was up to the user to prove that it was used in this way on the Canadian market. The fact that the Canadian Courts stated that the geographical indication Champagne had not become generic in Canada would appear to confirm the complainant's allegation that the standstill obligation has been infringed. The C-57 Amendment would appear to be at odds with the standstill obligation of Article 24(3) of TRIPS also because, by classifying them as generics, it has abolished the possibility of protecting Bordeaux and Médoc indications through registration as trademarks: Section 20(2) on validity and effects of trademarks registration provides that registration of names included in the list of generics no long confers exclusive right of use. 21

22 4.3 Conclusion The investigation did not provide any evidence to contradict the complainant's legal claim that the C-57 Amendment to the Canadian Trade-Marks Act violates Articles 23.1 and 2 as well as Article 24.3 (so called: standstill clause) of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and that such infringements cannot be justified on the basis of the exception under Article 24.6 of TRIPS. However, the above analysis is limited by the fact that the Canadian side did not participate in the investigation. Therefore, the findings on one of the main factual aspects to be investigated upon, i.e. whether the names Bordeaux and Médoc are identical with the term customary in common language as the common name for a wine or type of wine which does not originate in these regions of France, could only be based on facts available, within the meaning of Article 8.7 of the TBR. 5 A DVERSE TRADE EFFECTS Article 2.4 of the TBR provides that "For the purposes of this Regulation, 'adverse trade effects' shall be those which an obstacle to trade causes or threatens to cause, in respect of a product or service, to Community enterprises on the market of any third country, and which have a material impact on the economy of the Community or of a region of the Community, or on a sector of economic activity therein". The data reported in Chapter 3 demonstrate that exports of Bordeaux wine to Canada have increased both in volume and value. The investigation did not provide any factual evidence of actual adverse trade effects due to the entering into force of the C-57 Amendment in However, it would appear undeniable that the considerable market share of Bordeaux wines in Canada is strictly connected with the Bordeaux/Medoc product s name: Bordeaux s world reputation is one of the main strengths in the marketing of Bordeaux wines on export markets. If such asset is not duly protected, holders of the Bordeaux and Médoc geographical indications could see their market position in Canada seriously curtailed. This reputation of the Bordeaux and Médoc geographical indications is being jeopardised by the C-57 Amendment. By ruling that Bordeaux and Médoc are generic wine names, Canada is directly contributing to the deterioration of Bordeaux producers' fame. Eventually, if the flaws in the Canadian legal system of protection of the Bordeaux and Médoc indications are not cured, there is a risk of a widespread generic use of these indications on the Canadian market. This would discourage consumers from buying expensive Bordeaux wines, because there would be no guarantee of their provenance and quality. The threat of adverse trade effects to the interests of holders of the Bordeaux and Médoc geographical indications is real. The increased competition on the 22