Wines, spirits, cheese – and less GI infringement please!

This Kat was delighted to hear that more research is being done on Geographical Indications. DPhil candidate Alexandra Mogyoros looks at EUIPO's recent report:

I enjoyed reading the European Union Intellectual Property Office’s report, “Infringement of Protected Geographical Indications for Wine, Spirits, Agricultural Products and Foodstuff in the European Union” last week—in no small part because it addressed some of my favourite things: wine, spirits, and cheese! Of course, not all things are created, or sold, equal. Some of my favourite things (like Scotch Whisky and Parmigiano Reggiano) are protected by Geographical Indications (GIs), a sui generis intellectual property right under EU law, and others are not. 

Kat and cheese fan Alex

GIs play a significant role in the EU market for wine, spirits, agricultural products and foodstuffs. Nearly 3,400 GI names are registered in the EU. Given the importance of GIs, the EUIPO has set about acquiring empirical data on GIs’ “value.” While this report focuses on monetary market value, GIs can also “help contribute to and complement rural development policy,” and (as the report notes) “can have potentially positive implications for the protection of indigenous knowledge.” 

In markets, GIs serve an important role of conveying information to consumers. However, GIs acquired trust and reputation are shared between its users. This reputation becomes vulnerable to collective action problems, such as opportunistic behaviour. The unscrupulous behaviour of one firm jeopardises the collective reputation. This vulnerability makes the EUIPO’s study into GI infringement particularly interesting – one bad barley can ruin a barrel!

Spot the non-GI goods
George Smith of Chichester, by Irina

The report uses data from several sources, including data from 17 Member States, a 2012 external study, and producer trade statistics. The report makes estimates of infringement using data from the control infrastructure already in place in the EU to determine if products are infringing; almost 10,000 samples were taken between 2012-2015. This report produced the following main findings: 

I. Consumption Activities 

Just as not all scotch is distilled equal – as I’ve learned first-hand – neither are the rates at which EU Member States consume GI-protected products. The report finds consumption activity depends on GI “culture” and consumption per capita is not correlated with general purchasing power. Within the EU, the largest consumer of GIs is France, followed by Italy and Germany—France also being the largest producer. Differences in consumer behaviour in Member States reflect “tradition and consumer tastes.” However, it is unclear from the report whether consumer tastes refers to quality. One case study finds consumers purchased a GI product because they were interested in supporting the local economy and perceived authenticity, rather than quality. While this study concludes GIs have different market shares in different Member States, the question of why remains of interest. 

II. Infringement 

You can’t believe everything you see. Not all products that appear to be GIs are in fact GIs. The report estimates the rate of infringement in 2014 was approximately 9.0% of the total EU GI product market, about €4.3 billion in value. 

Keeping in theme, not all infringement happens equally! The study finds, sadly for me, infringement rates are higher in wines, spirits and cheese. The report took a broad definition of infringement, considering any products identified as “irregular” during inspection as instances of infringement. Irregular products included both GI products that did not conform to the required specifications, as well as non-GI products that were found to infringe the rights of the inspected the GI. This latter group contained products that had misleading labels or labels that “imitate or evoke the inspected GI.” The largest instance of infringement was the most ambiguous, 42% of the infringements were attributed to the imitation or evocation of GI products. In close second, 38% of infringements were attributed to misleading information about the provenance of non-GI products. GI products that did not entirely conform to their product specifications were responsible for 21% of infringements. 

III. Consumer Loss  

Using this infringement data, the EUIPO attempt to calculate consumer loss in the GI market. That is, the loss to consumers who pay a premium price for a GI product who in fact receive an infringing product. The report estimated consumer loss to be €2.3 billion, approximately 4.8% of total GI purchases. 

The Cheese stands alone
Dota 2 TI4

These figures was calculated using the EUIPO’s “premium price” - the ratio between the price of a proper GI product and its non-GI counterpart. The EUIPO argues that where a consumer purchases an infringing product, they are being misled, and the premium they pay is a loss caused by deception. I wonder if this estimate reflects consumer loss, or if it may be better conceived as potential consumer loss. As the report does not purport to establish that all “irregular” - and thus infringing - products are bought because the consumer believed them to be a GI product, it is impossible to say whether the consumers buying infringing products are suffering a true loss. Perhaps they are willing to pay the higher price for another reason. As the report acknowledges, the purchasing power of a GI largely rests on the consumer’s knowledge. So if a consumer has no knowledge of the GI, are they truly suffering a loss by paying the premium? 

GIs have long been overlooked, and this report makes great strides in understanding how GIs work in the market. Ultimately, I look forward to further research on how the average consumer perceives and understands GIs in the market. Are consumers looking to GIs as indications of quality or as mark of brand authenticity? Are similar instances of infringement occurring in jurisdictions that don’t have sui generis protecting for GIs, but rather regulate them as ordinary certification marks? Readers looking for more on this topic may be interested on the CJEU’s recent decision regarding GIs.

The Katonomist is excited to see economic and empirical analysis wending its way further into policy and research, and the emergence of interdisciplinary researchers such as Alex. [Merpel doesn't quite understand why the Katonomist gets so excited by numbers, but to each her own.]