Quality schemes, quality marks and the cartel prohibition: EU proposal to broaden the protection of geographical indications

On 13 April 2022, the European Commission (the “Commission”) presented a new proposal to protect the intellectual property rights of certain craft and industrial products. The proposal aims to protect the unique characteristics of these products. Where possible, that protection is currently enshrined in quality or recognition schemes, or quality marks. A well-known example of a quality scheme at a European level is the protected geographical indication of products, such as Feta cheese, Parma ham and Irish whiskey. The broadening of the protection scheme envisaged by the Commission will make craft or industrial products such as glass from Murano, tweed from Donegal and Delft Blue pottery eligible for similar protection. This blog addresses the Commission’s proposal, as well as the relationship between competition law and recognition and quality systems.

Recognition and quality schemes in competition law

A quality or recognition label can offer important economic benefits for producers. Consumers are often more inclined to buy well-known and recognised regional or other products and to pay more for them. Products such as Rooibos tea, Opperdoezer Ronde potatoes or Chablis Grand Cru are widely known. In some sectors, quality marks are used for products that meet certain quality requirements but cannot (always) be attributed to a specific region, such as Woolmark. Consumers and businesses are more likely to purchase products or services from companies that meet a certain recognition scheme, such as a scheme for recognised veterinarians or the CBF (Central Fundraising Bureau) recognition scheme for charities such as the KWF (Dutch Cancer Society).

But there can also be downsides to a quality or recognition label or a quality mark. For producers or service providers without such a label, it could become more difficult to operate (successfully) on the markets in question. In some circumstances, quality and recognition rules or quality marks may be contrary to competition law, specifically the cartel prohibition laid down in Article 6 of the Mededingingswet (Competition Act) or Article 101 TFEU. That is the case if such schemes result in or are used for the exclusion of companies. In its Guidance on Collaborations between Competitors (the “Guidance”), the Netherlands Authority for Consumer and Market (“ACM”) explains the cumulative conditions that a quality scheme must meet to comply with the cartel prohibition. In that context, the quality scheme must:

  • be of an open nature;
  • set requirements that are objective, non-discriminatory and clear in advance;
  • have a transparent qualification procedure (admission or otherwise); and
  • have a qualification procedure (admission or otherwise) that provides for an independent decision about the admission on the first assessment or, after admission has been refused, on appeal.

An example of a recognition scheme that has been reviewed by ACM against the cartel prohibition is the Regeling Geborgde Rundveedierenarts (Guaranteed Cattle Veterinarian Scheme). This scheme requires that veterinarians who wish to provide veterinary services to cattle farmers must meet certain quality requirements. ACM has found that the scheme is accessible to all veterinarians and that it is clear to all veterinarians what conditions they must meet. The scheme furthermore provides for a complaints and disputes procedure. In 2016, the Rotterdam Court confirmed ACM’s analysis. ACM also approved a similar scheme for recognised equine veterinarians. The following recognition and quality schemes did not raise any competition concerns according to ACM and the Court of Leeuwarden:

  • a regulation of the FOCWA (Dutch Association of Bodywork Companies) that imposes certain requirements on businesses that wish to join the association;
  • a Guarantee Recognition Scheme in ABN Amro’s company policy that required a temporary employment agency to have its premises secured by a recognised company; and
  • a recognition scheme that set certain conditions relating to preventive quality and image control for raw milk producers.

Quality scheme for protected geographical indications: PDO, PGI, GI and TSG

The current quality system for protected indications in the European Union (“EU”) provides that a product may be given a geographical protected indication if there is a specific link between the product and the region where it is produced. Such an indication helps consumers to recognise these products and to trust their quality. It also enables the producers in question to market their products more effectively. The EU quality scheme currently applies only to agricultural products, wines and spirits. Well-known examples of products with a protected geographical indication are the Chianti and Bordeaux wines and the Italian Parmesan cheese. There are also products with a protected geographical indication in the Netherlands, such as Gouda, Noord-Hollandse Gouda, and Jenever. There are four types of geographical indications in the current European system:

  • Protected designation of origin (PDO): this designation applies to food, agricultural products and wines whereby the entire production, processing and preparation of the product take place in a specific region. This may be the case, for instance, if a cheese is made from milk from a local breed of animal. Examples of products with a PDO are Gorgonzola, Noord-Hollandse Gouda and Brabant Wal asparagus.
  • Protected geographical indication (PGI): this indication applies to food, agricultural products and wines whereby a certain quality, reputation or other characteristic of the product is essentially attributable to its geographical origin. This means that at least one of the production, processing or preparation steps must take place in the specific region. Examples of PGI products are Ardennes Ham and Edam Cheese.
  • Geographical Indication of Spirits and Aromatised Wines (GI): this indication aims to protect spirits or aromatised wines whereby a certain quality, reputation or other characteristic of the product is essentially attributable to its geographical origin. This means that at least one of the production, processing or preparation steps must take place in the specific region. Examples of GI drinks are Grappa and Jenever.
  • Traditional Speciality Guaranteed (TSG): this designation applies to food and agricultural products with a traditional production composition or method. There need not be a link with a specific geographical area. Examples of products with a TSG indication are Neapolitan Pizza and caster sugar.

There are also other, less common designations for products, such as mountain products (raw materials must come from mountain areas) or products from the outermost regions of the EU (agricultural products from the French overseas departments, the Azores and the Canary Islands). Products bearing a geographical indication are included in the registers of quality products and are also recognised as intellectual property. This ensures that the products are legally protected against counterfeiting and misuse in the EU.

Protection is effective

The following example demonstrates that protection may also be (legally) effective. In 2008, for instance, the Commission banned the use of the name Parmesan for German cheese because a geographical indication applies for the Parma region. Parmesan is not a generic name and its use damages the reputation of the protected Italian Parmigiano Reggiano cheese. The following example, however, shows that there are limits to the protection. In 2019, the Court of Justice addressed the question whether the German company Balema could use the word balsamico for its labels. The question was whether the protected Aceto Balsamico di Modena was being infringed. The Court of Justice ruled that only the entire registered name Aceto Balsamico di Modena is protected and that the separate words aceto and balsamico are generic terms and are not protected.

Protection of geographical indications for craft and industrial products

On 13 April 2022, the Commission published its Proposal on the Protection of Geographical Indications of Craft and Industrial Products. The proposal follows the Action Plan on Intellectual Property adopted in November 2020. That plan aims to protect geographical indications for industrial and craft products. The Commission defines craft and industrial products as follows:

  • Craft products: products produced either totally by hand or with the aid of manual tools or including by mechanical means, whenever the direct manual contribution is still the most important component of the finished product.
  • Industrial products: products produced in a standardised way, typically on mass scale and through the use of machines.

To be eligible for protection of a geographical indication under the new proposal, a product (craft or industrial) must meet the following cumulative conditions:

  • the product originates in a specific place, region or country;
  • the product has a quality, reputation or other characteristic that is essentially attributable to its geographical origin; and
  • at least one production step must take place in the defined geographical area.

Once the Commission’s proposal has been adopted, products such as natural stones, jewellery, textiles, lace, cutlery, glass, furniture, ceramics and porcelain will be eligible for geographical protection. If an application is approved, the product in question will be included in the quality register. In many cases, this protection will also extend beyond the EU, through negotiations and protection agreements with non-Member States. For that purpose the EU acceded in 2019 to the Geneva Act, a treaty administered by the World Intellectual Property Organisation (WIPO).

EU uniformity in the protection of industrial and craft products

According to the Commission, the proposal does not raise any competition concerns. First, the proposal is unlikely to create market power for certain producers. The Commission estimates that there are between 300 and 800 products in the internal market that might be eligible for a geographical indication. And there are numerous similar products without geographical indications that compete with the protected products. Secondly, the Commission notes that even if competition on a market were reduced by new geographical indications, that would not negatively impact consumers. The Commission believes that consumers would be willing to pay a higher price for a product with a guaranteed quality or origin label.

Some EU Member States already grant protection to certain industrial and craft products. Germany has the Solingen Regulation, which protects cutlery from the cities of Solingen and Haan. France has the national Hamon Act, which also protects industrial and craft products such as Calais lace, Quimper pottery and Limoges porcelain. But varying national rules lead to varying levels of protection across the EU. Producers of craft and industrial products that wish to protect a geographical indication throughout the EU must apply for legal protection in each EU Member State separately, which is very costly and time-consuming. The lack of an EU-wide scheme furthermore prevents EU producers from fully benefiting from international protection for their geographical indication products. That is why the Commission’s proposal is an important development. If adopted, it will create a European system for the protection of industrial and craft products from 1 January 2024. This will allow products to fully benefit from domestic and international protection for their products.

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