The famous Czech brewery Budějovický Budvar (in German or English, Budweiser Budvar), established in the town of České Budějovice (Budweis), produces and exports beer under the names of "Budějovický Budvar" and "Budweiser Budvar". In particular, it exports a beer called "Budweiser Budvar" to Austria. In 1976 Austria concluded a bilateral agreement with the former Czechoslovak Socialist Republic to protect geographic indications of origin of regional food products in these two neighboring countries. In that convention, Austria granted such protection also to the indication "Bud". In 1995 Austria has become a Member State of EU. In 1999 the Budějovický Budvar brewery requested the Austrian courts to prohibit the Austrian company Rudolf Ammersin GmbH from marketing beer produced by the American brewery Anheuser-Busch, Inc., under the name "American Bud", inter alia on the ground that under the bilateral agreement between Austria and the Czech Republic, the name "Bud" is reserved for Czech beer from the area of the town of Budweis.

The Vienna Handelsgericht (Austria) asked the Court of Justice whether Regulation No. 2081/92 on the protection of geographical indications and designations of origin for agricultural products and foodstuffs or the provisions of the EC Treaty relating to the free movement of goods preclude the application of a provision of a bilateral agreement between a Member State (the Republic of Austria) and a non-member country (the Czech Republic), under which an indication such as "Bud" is accorded protection irrespective of whether there is any risk of consumers being misled, and whether the import of a product lawfully marketed in another Member State may thus be prevented.

The Court of Justice in its judgment held that Regulation No. 2081/92 does not preclude a bilateral agreement under which a simple and indirect indication of origin from a nonmember country is accorded protection in a Member State, irrespective of whether there is any risk of consumers being misled, and that the import into that Member State of a product lawfully marketed in another Member State may be prevented. A simple and indirect geographical indication of origin means that there is no direct link between a particular quality and the specific geographic origin of the product but the name, while not in itself a geographic name, is nevertheless capable of informing the consumer that the product comes from a particular place, region or country.

On the other hand, prohibition of the use of such a geographic name for goods from non-member countries which are lawfully marketed in other Member States is likely to make their marketing more difficult and thus to constitute a restriction on the free movement of goods. It was necessary to examine whether that restriction on the free movement of goods could, however, be justified under Community law.

In line with its case-law, the ECJ found that the aim of the bilateral agreement, which contains a prohibition on the use in one State of a geographic name protected in another State, is to ensure fair competition. It therefore falls within the sphere of the protection of industrial and commercial property provided that the name in question has not, either at the time of the entry into force of that agreement or subsequently, become generic in the State of origin.

If the findings of the national court show that, in fact, according to the prevailing perceptions in the Czech Republic the name "Bud" designates a region or a place in the Czech Republic and must be protected under the scheme of protection for industrial and commercial property, Community law does not preclude such protection from being extended to the territory of Austria. On the other hand, if "Bud" does not either directly or indirectly designate any part of the territory of the Czech Republic, its absolute protection constitutes an obstacle to the free movement of goods and cannot be justified.

Finally, as regards Austria’s international obligations, the ECJ stated that it is for the national court to check whether at the date of the accession of the Republic of Austria to the European Union (January 1, 1995), that State remained bound to the Czech Republic under the bilateral agreement of 1976, notwithstanding the break-up of Czechoslovakia – the contracting party to the bilateral agreement and the predecessor to the Czech Republic – on January 1, 1993: if that were the case, the bilateral agreement could be regarded as predating that accession, with the result that the obligations under the bilateral convention remain binding even where they are contrary to the provisions of the Treaty (EC) relating to the free movement of goods. Pending the elimination of any incompatibilities between a bilateral agreement predating accession to the European Union and the Community Treaty, the national courts may continue to apply the provisions of the bilateral convention.

Therefore and in accordance with the first paragraph of Article 307 EC, if the bilateral agreement predates the accession of the Republic of Austria to the European Union, the obligations under that convention remain binding even if they are contrary to provisions of the Community treaty. 

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