July 7, 2016

Introduction

In Philip Morris Brands SARL and others v The Secretary of State for Health (Case C-547/14, 4 May 2016) the Court of Justice of the European Union (“CJEU”) considered a request from the High Court of England and Wales for a preliminary ruling on various questions relating to the validity of Directive 2014/40/EU on the approximation of the laws, regulations and administrative provisions of the Member States concerning the manufacture, presentation and sale of tobacco and related products (the “Directive”). Member States were obliged to implement the Directive, subject to certain transitional measures, on or before 20 May 2016.

Facts

The request for a preliminary ruling arose out of claims for judicial review brought by Philip Morris and British American Tobacco before the High Court of England and Wales against the “intention and obligation” of the Secretary of State for Health to implement the Directive. However, the questions referred by the High Court raised questions regarding the validity of the Directive itself.

The High Court referred numerous questions, some of which were found to be inadmissible, to the CJEU for a preliminary ruling. The referred questions challenge the validity of various provisions of the Directive on grounds, including: the violation of the principle of proportionality; infringement of Article 11 of the Charter of Fundamental Rights of the European Union (the “Charter”) which protects freedom of expression; and infringement of Article 114 of the Treaty on the Functioning of the European Union (“TFEU”) which enables the European Parliament and Council to adopt the measures which have as their object the establishment and functioning of the internal market.

Judgment

This article focuses on the aspects of the judgment which consider the validity of Articles 8 to 16 of the Directive which seek to regulate the packaging of tobacco products, and Article 24(2), which permits Member States to maintain or introduce additional requirements, above and beyond those prescribed by the Directive, in relation to the standardisation of the packaging of tobacco products.

Articles 8 to 16

Articles 8 to 16 provide that tobacco products shall be labelled with a general warning (‘Smoking kills – quit now” or “Smoking kills”), an information message (“Tobacco smoke contains over 70 substances known to cause cancer”), and a combined health warning consisting of a text warning and a corresponding colour photograph. The Directive also prescribes the size and positioning of such labels: in particular, the combined health warning must cover 65% of the back and front surface of each packet.

In relation to Article 114 TFEU, the tobacco companies argued that there were no current divergences in practice that hinder the free movement of goods; any divergences were due to commercial drivers. Further, the Directive itself provides for divergences between Member States, in particular due to language requirements and the preservation of the ability to include local taxation information on packaging. These arguments were dismissed on the basis that there were disparities between national rules prior to the implementation of the Directive, which were likely to increase in the absence of action on the part of the EU legislature. Although the CJEU acknowledged that the Directive introduces or preserves some differences between Member States, it stated that other aspects of packaging are harmonised. Accordingly, the CJEU held that Article 114 TFEU authorised the EU legislature to take action.

The tobacco companies also argued that certain of these Articles infringed the principle of proportionality because they are not appropriate or necessary to achieve the objective of the protection of human health, and less intrusive measures could be adopted instead. In particular, the tobacco companies objected to the requirement for the combined health warning to occupy 65% of the front and back surface of each packet. The CJEU dismissed these arguments because the tobacco companies had not taken into account the primary objective of the Directive of ensuring the smooth functioning of the internal market. Once this objective was taken into account, the Articles complained of were not manifestly inappropriate and did not go beyond what was necessary to achieve the objective of harmonisation.

Article 13, which sets out a list of features that may not be included on packaging, such as statements that suggest that a particular tobacco product is less harmful than others or more biodegradable, was challenged on the basis that, if it prohibits true and non-misleading statements, it constitutes a violation of Article 11 of the Charter, which protects freedom of speech. The CJEU acknowledged that Article 13 prohibits factually accurate statements, and constitutes an interference with tobacco companies’ right to freedom of expression, but stated that such interference is justified because one of the purposes of the Directive is to secure a high level of protection for human health and the prohibition contained in Article 13 does not go beyond what is necessary in order to achieve this objective.

Article 24(2)

Under Article 24(1) of the Directive, Member States may not prohibit or restrict the sale of tobacco products which comply with the terms of the Directive. Article 24(2) constitutes an exception to this general rule, in that it permits Member States to introduce “further requirements” above and beyond those prescribed by the Directive in relation to the “standardisation” of the packaging of tobacco products, where such measures are justified on public health grounds, are proportionate, and do not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States.

The tobacco industry sought to challenge Article 24(2) on the basis that Article 114 TFEU does not provide an adequate legal basis. The CJEU acknowledged that the scope of the power granted under Article 24(2) was ambiguous, in part due to the lack of definition of the terms “further requirements” and “standardisation”. It found that there were two potential interpretations of the Article: that it permits Member States to maintain or introduce measures which relate to all aspects of the packaging of tobacco products, including those that have been harmonised by the Directive; or that it only permits Member States to maintain or introduce measures which relate to aspects of the packaging of tobacco products which have not been harmonised by the Directive. The Court found that the second interpretation was to be preferred as the Directive was only intended to harmonise certain aspects of the packaging of tobacco products. Support for this interpretation was found in the recitals to the Directive as well as in the general principle that, where more than one interpretation is possible, preference should be given to the interpretation which is consistent with the TFEU.

The CJEU concluded that, although any “further requirements” introduced by Member States may potentially impede the free movement of goods on the internal market, this is the inevitable consequence of the method of harmonisation chosen by the EU legislature, and stated that partial harmonisation, such as that mandated by the Directive, still promotes the functioning of the internal market.

Comment

Although the Directive was found to be valid in its entirety, the tobacco companies may take some comfort from the finding that Article 24(2) only permits Member States to introduce “further requirements” where those requirements are not harmonised under the Directive. However, it would appear that many aspects, such as the colour of packaging and the use of trade marks, are not covered by the Directive and accordingly Member States retain the ability to introduce their own plain packaging laws, such as those recently implemented in the UK and upheld by the High Court of England and Wales.

Published with minor changes in World Trade Mark Review Daily on 17 June 2016