Germany: European Tobacco Legislation Endangers Cigarette Brand Identity

Goods and services are only purchased if they promise some kind of advantageous use to the potential purchaser. One can differentiate between "basic benefits" and "additional benefits" in this respect, whereby basic benefits refer to material/technical qualities of a product (size, quantity, weight, etc.) and additional benefits to social attributes like youth, beauty, success or "social acceptance". Given the increasing homogeneity of goods with respect to their basic benefits, these additional benefits are becoming more important. The less products can be distinguished based only on how they taste, for example, the more companies are inclined to embellish product names with particular "mental associations" and to let the product itself move into the background.

The best example of this development can be found in tobacco advertising, which has always cultivated an association between cigarettes and "freedom and adventure". Indeed, by successfully building up "product personalities" and brand images, the tobacco industry has rendered its homogenous products nevertheless differentiable. The brand "American Spirit" advertises its additional benefit already in its name, while the value of the "Marlboro" trademark was estimated at over 40 billion Euro already in 1998.

With this in mind, it is not surprising that the latest decision of the European Court of Justice (ECJ) on tobacco advertising in the European Union (EU) was strongly praised, mainly by the tobacco industry. The decision dated October 5, 2000 (C-376/98) very clearly defines the limits of a possible EU-wide prohibition of advertising of tobacco products and sponsoring by tobacco companies – probably also analogously applicable to the advertising of other risk products such as alcoholic beverages – and thereby ends a lengthy discussion of the possible jurisdiction of the EU-Commission. The advertising industry also strongly approved of the ECJ’s judgement and rightly pointed out the fundamental nature of the decision.

In 1998 the EU-Commission had decided on a general, if only gradual, prohibition of direct and indirect advertising measures as well as accompanying sponsoring activities in connection with tobacco products. This prohibition was later formally adopted by the European Parliament and the EU-Council. In practice, the distribution and marketing of goods other than tobacco products under a tobacco company’s name ("Camel-Boots", "Marlboro-Tours") and large-scale event sponsoring were in particular prohibited. The Formula 1 series was granted an exceptional transition period until 2006.

It is interesting to note in this respect however, that the ECJ in fact left potential loopholes open to the European legislator. The Court for example explicitly confirmed that a prohibition of tobacco product advertising in magazines and newspapers could be acceptable based on a corresponding directive to ensure the free movement of such printed material. The Court stated this under the assumption that the development of national legislations will lead to an ever-increasing limitation of tobacco product advertising, because of the conviction that such advertising noticeably increases tobacco consumption. Indeed: Great Britain has already extended its national prohibition of tobacco advertising to stores and kiosks; tobacco advertising is fundamentally prohibited in the print media in Finland, France, Portugal and Sweden, and EU-candidate Poland is planning – following the example of other countries – a prohibition of tobacco advertising on billboards and in the mass media. Therefore, according to the ECJ, it is likely that restrictions on the movement of printed matter between the various jurisdictions will occur, with the result that a prohibition of advertising for tobacco products in magazines and newspapers would be justified to guarantee the free movement of these goods throughout the EU.

In line with the aforesaid, the ECJ recently confirmed the legality of the Swedish prohibition of alcohol advertising (C-405/98). In its decision dated March 8, 2001, the ECJ stated that although the prohibition of advertisements for alcoholic beverages may impede the free movement of goods inside the EU, it was nevertheless justified on grounds of health protection.

In accordance with the national Swedish Law, any advertising which was used to market alcoholic beverages on radio or television was forbidden. Also, advertising was not allowed to be used to market spirits, wines or strong beers either in periodicals or in other publications which were aimed at the general public.

In deciding upon the legality of the Swedish measures, the Court found itself able to conclude that in the case of products like alcoholic beverages, the consumption of which is linked to traditional social practices and to local habits and customs, a prohibition of all advertising directed at consumers was liable to impede access to the market by products from other Member States. Such a total prohibition would give an advantage to domestic products with which consumers are habitually more familiar. A prohibition of advertising such as that at issue – in the Court’s conclusion – had therefore to be regarded as affecting the marketing of products from other Member States more heavily than the marketing of domestic products and therefore as constituting an obstacle to trade between Member States caught by Article 30 of the EC Treaty.

In the Court’s opinion, such an obstacle was however justified by the protection of public health, a general interest ground recognized by Article 36 of the Treaty. In that regard, it was accepted that rules restricting the advertising of alcoholic beverages in order to combat alcohol abuse reflects public health concerns. In order for public health concerns to be capable of justifying an obstacle to trade such as that inherent in the prohibition on advertising at issue, the measure concerned must also be proportionate to the objective to be achieved and must not constitute either a means of arbitrary discrimination or a disguised restriction on trade between Member States, held the ECJ.

However, there was no evidence before the Court to suggest that the public health grounds on which the Swedish authorities relied had been diverted from their purpose and used in such a way as to discriminate against goods originating in other Member States or to protect certain national products indirectly. Also, the decision as to whether the prohibition on advertising at issue was proportionate, and in particular as to whether the objective sought might be achieved by prohibitions or restrictions having less effect on intra-Community trade, called for an analysis of the circumstances of law and of fact which characterized the situation in the Member State concerned, and which the national court was in a better position than the ECJ to carry out. Therefore, Articles 30 and 36 of the Treaty did not preclude a prohibition on the advertising of alcoholic beverages such as that laid down in the Swedish Law which applied also to the Freedom to provide services.

Thus, the ECJ has confirmed that national legislators can indeed intervene in the free movement of goods for the purpose of health protection – a right which, as mentioned, the ECJ explicitly denied to the Commission in the tobacco decision. The irony is that should more national legislatures follow Sweden’s example, the Commission could justify a unified prohibition of alcohol advertising, for example in newspapers and magazines, exactly in order to ensure the free movement of goods, as outlined by the ECJ regarding the prohibition of tobacco advertising. Using this "back door", the European Commission would receive exactly that jurisdiction which the ECJ had previously explicitly denied it.

This result would, however, contradict the EU-Directive on e-Commerce, whereby the permissibility of Internet advertising must be judged by the law of the originating country. For example, an Irish online advertisement which is permissible according to Irish law could not be prohibited under German advertising law, even if the latter contained stricter measures. If one takes this e-Commerce Directive into consideration in the evaluation of tobacco advertising, it becomes clear that the print media and the Internet would be handled differently. In the first case an EU-wide prohibition of tobacco advertising would be possible, whereas in the second case tobacco advertising has to be judged exclusively by the – possibly very lax or very strict – law in the originating country.

Whatever decision will be reached in this fundamental case, the EU-Commission has already played its first card and tested the possibility of a limited pan-European prohibition of tobacco advertising. The Commission will therefore now probably try the loopholes left in the ECJ decision. This can only mean a looming European prohibition of tobacco advertising in magazines and newspapers. According to press releases by the Commissioner for Health, David Burns, a new bill is already being considered for the first half of 2001. Parallel to this, a new tobacco directive is in the works which stipulates, among others, markedly larger warnings on cigarette packages. The debate on the limits of tobacco advertising in Europe thus is far from over. Other potentially harmful products, particularly alcohol, will probably also not be able to remain much longer outside the debate.

The European tobacco and advertising industries are also threatened by the World Health Organization (WHO), which held a symposium in October 2000 entitled "Framework Convention on Tobacco Control", during which it left little doubt that, in its opinion, an international prohibition on tobacco advertising was unavoidable. Moreover, the Fédération internationale de l’automobile (FIA) intends to voluntarily phase out all cigarette advertising in automobile racing by 2007. This will probably not even negatively affect the Formula 1 circuit, since public interest in car racing has indeed increased and brought other branches into the field of potential sponsors. There are estimates today that of the 85 million Euro per year which are invested in the Formula 1 racing teams by German sponsors alone, only 30 million Euro currently come from tobacco companies.

Given these developments, the instrument of voluntary self-limitation will probably also grow in importance. For example, British American Tobacco (BAT) and Philip Morris have, for some time in Germany, been promoting awareness and explicitly warning youth about smoking. Further, although the Marlboro man is still riding his horse, the first billboards from that company have appeared in which the product, logo and claim are completely absent. Instead – in a perfect example of image advertising – winter landscapes and campfire scenes are depicted, sometimes completely without actors. Such influencing of the decision to purchase probably still goes to far for the EU Commission, however, so that the current Europe-wide ban of tobacco advertising on television will most likely not be the last word in the matter.

Published in Managing Intellectual Property (MIP), London, May 2001