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EUROPEAN COMMISSIONDIRECTORATE GENERAL TRADEDirectorate E - Antidumping strategy: injury and Community interest aspects (policy, investigations andmeasures); other instruments of external economic policy and general questionsAntisubsidy investigations (subsidy aspects); investigations under the Trade Barriers Regulation;general questions of external economic policy; WTO dispute settlement; Community import andexport arrangements

Brussels,D(99)

REPORT TO THE TRADE BARRIERS REGULATION COMMITTEE

TBR proceedings concerning Canadianpractices affecting Community exports of

Prosciutto di Parma

Paolo Garzotti

Elisabeth Cavarero

3

Executive summary

On 3 May 1999, theConsorzio del Prosciutto di Parmalodged a complaint pursuant toArticle 4 of the Trade Barrier Regulation (TBR) in order to eliminate certain allegedCanadian trade practices, which would adversely affect exports of Community producersof Prosciutto di Parma(cured raw ham) to Canada. According to the complainant,Canada:

• refuses to register theProsciutto di Parmageographical indication as a collectivetrademark;

• gives legal protection to a trademark ("Parma"), the effect of which is to deceiveconsumers as to the origin, the nature, the manufacturing process and thecharacteristics of the ham sold under it;

• prevents the import of ham bearing the geographical indicationProsciutto di Parma,as it does not allow the complainant to identify their prosciutto as originating in theregion of Parma; and

• does not provide appropriate legal remedies to effectively repress the unfaircompetition generated by the use of the trademark "Parma" by Canadian nationalproducers.

The Commission services have carried out an examination procedure, which has led tothe following conclusions.

• The Consorzio del Prosciutto di Parmais not allowed to register theProsciutto diParma collective /certification marks as they are considered similar to the "Parma"trademark held by Maple Leaf Meats Inc.

• The Consorziohas been recognised as a public authority entitled to use the DucalCrown mark as an official mark under Section 9 of the Canadian Trademark Act.Maple Leaf has appealed against the public notice.

• The complainant commenced actions in Canada in order to:

– Register its geographical indications as a certification (i.e. collective) mark underCanadian law;

– Expunge the contested Canadian trademark "Parma" from the Canadian FederalTrademarks Register;

– Be recognised as a public authority entitled to use the Ducal Crown mark as anofficial mark under Section 9 of the Canadian Trademark Act.

In all three proceedings the Canadian competent authorities have not yet come to adefinitive pronouncement. Canada appears to be still evaluating the rights of thecomplainant and of Maple Leaf Meats Inc. in relation with the use of their respectiveintellectual property rights both via its Trademarks Office and in its courts. In the light ofthe foregoing, the Commission services arrived at the following conclusions.

4

• The claim by the complainant according to which Canada refused to register theProsciutto di Parma collective/certification marks refers to a situation whereapplications were objected to, but not yet formally rejected. Indeed, the applicationprocedures for registration are still open. On the other hand, the Canadian TrademarksOffice has objected to such applications on the basis of the pre-existing "Parma"trademark.

• The fact that Canada has through the TMO public notice recognised the Ducal Crownmark as an "official mark" under Section 9 of the Canadian Trademarks Act is apositive development. The public notice should give theConsorziothe right to use itsgeographical indication and to stop any new use by others of the Ducal Crown markor any confusingly similar mark (albeit without prejudicing the validity of theregistration of the Canadian "Parma" trademark.).

• Even if it does not protect it in the form of a certification mark, Canada could notdeny protection of the geographical indicationProsciutto di Parmaunder Article 24.5of the TRIPS.

• TheConsorzio's allegation that Canada refuses to expunge the Maple Leaf Meats Inc.'s"Parma" trademark from the Canadian Trademarks Register refers to a judicialprocedure, aimed at establishing whether the registration of the contested trademarkwas valid, which is still ongoing before the Canadian Federal Court. In theseproceedings the question of the good faith requirement of Article 24.5 (which is anissue of fact) is expected to be assessed.

• The allegation of the complainant according to which Canada violates Article XI.1 ofthe GATT 1994 by maintaining prohibitions or restrictions other than duties, taxes orother charges made effective through measures on the importation of cured raw hamdoes not appear to be founded. Equally, Canada does not appear to violate ArticleIII.4of the GATT 1994.

• The complainant’s allegation according to which Canada violates Article 22.2 of theTRIPS and Article 10bis and ter of the Paris Convention by not providing legalremedies to effectively repress the unfair competition generated by the use of thetrademark "Parma" by Maple Leaf Meats Inc. does not appear founded. TheConsorziohas several legal possibilities available to counter practices by Maple Leaf Meats Inc.when it uses its trademark "Parma" in a manner that can be considered as an act ofunfair competition under Article 10bis of the Paris Convention. Nevertheless, Canadashould be requested to enforce the relevant provisions of the Consumer Packaging andLabelling Act and of the Food and Drugs Act, in order to have removed from thepackaging and labelling of the cured raw ham sold by Maple Leaf Meats Inc. under thetrademark "Parma" all descriptions and illustrations which have the potential todeceive and mislead the consumer.

• The lack of protection of the geographical indicationProsciutto di Parmacaused tothe complainant adverse trade effects within the meaning of Article 2(4) of the TradeBarriers Regulation (TBR), as it impeded exports ofProsciutto di Parmafrom theCommunity to the Canadian market. These adverse trade effects have a considerableimpact on the economy of a region of the Community.

5

On the basis of these conclusions, the followingcourse of action is suggested.Depending on the outcome of the proceedings commenced by the complainant in Canada,three possible scenarios can be envisaged.

(1) The TMO rejects Maple Leafs Meats Inc.'s appeal against the recognition ofthe Consorzio del Prosciuttodi Parma as a "public authority" under Section9.1(n)(iii) of the Canadian Trademarks Act and the Trial Division of theFederal Court of Canada accepts theConsorzio'sclaim to have the "Parma"trademark expunged from the Federal Trademarks Register (either for itbeing misleading, not registrable or for not having been registered in goodfaith). In such a case, theProsciutto di Parmageographical indicationwould be granted full protection. No violation of WTO provisions arises inthese circumstances.

(2) The TMO rejects Maple Leafs Meats Inc.'s appeal against the recognition ofthe Consorzio del Prosciutto di Parmaas a "public authority" under Section9.1(n)(iii) of the Canadian Trademarks Act and the Trial Division of theFederal Court of Canada rejects theConsorzio's claim to have the "Parma"trademark expunged from the Federal Trademarks Register (finding that it isnot misleading, it is registrable and that it has been registered in good faith).Such an outcome of the judicial proceedings would be acceptable in WTOterms and for the Community industry as long as it will allow a coexistenceof the two intellectual property rights at issue. In this case, Maple Leaf willcontinue to use its "Parma" trademark while the geographical indication"Prosciutto di Parma" will be equally protected.

(3) The TMO accepts Maple Leafs Meats Inc.'s appeal against the recognition ofthe Consorzio del Prosciutto di Parmaas a "public authority" under Section9.1(n)(iii) of the Canadian Trademarks Act and the Trial Division of theFederal Court of Canada rejects theConsorzio'sclaim to have the "Parma"trademark expunged from the Federal Trademarks Register. In this case, thesituation of theConsorziowith regard to the protection of its geographicalindication in Canada would be seriously undermined.

During the investigation, Maple Leaf representatives made clear that underthe above scenario they will start proceedings under Section 53 of theTrademarks Act to stop imports of ItalianProsciutto di Parmabearing theDucal Crown iron brand. It is not clear to what extent such threat would leadto a complete lack of protection of the geographical indication as such.Allowing Maple Leaf Meats Inc the right to deny protection of thegeographical indication in any form would mean that a trademark is givenpriority over a geographical indication; such a result would be clearly at oddswith the analysis of the TRIPs provisions concerning the relationshipbetween trademarks and geographical indications. In such a case any actionto enforce trademark rights over a geographical indication would appear tobe in violation of Canada's obligations under the TRIPS. More specifically,by so doing Canada would fail to implement Section 3, Part II of the TRIPson geographical indications by giving primacy to Section 2, Part II ontrademarks and thus by preventing theConsorzio from identifying theirprosciuttoas originating in the region of Parma even though the validity of

6

the registration or Maple Leaf's right to use the "Parma" trademark would notbe prejudiced.

The above constitutes an analysis of the situation as it currently stands. The issues wouldneed to be further assessed in the light of the reasoning of the relevant Canadiandecisions.

If the proceedings in the Canadian courts result in scenarios (1) and (2), it could beenvisaged to terminate the TBR procedure. In the event of scenario (3), WTO actionwould have to be seriously considered in the light of developments.

7

1. INTRODUCTION

1.1. The complaint

On 3 May 1999, theConsorzio del Prosciutto di Parmalodged a complaintpursuant to Article 4 of the Trade Barrier Regulation (TBR) in order toeliminate certain alleged Canadian trade practices, which adversely affect itsexports ofProsciutto di Parmato Canada.

The Consorzio del Prosciutto di Parmawas set up in 1963 and wasrecognised as a body responsible for protectingProsciutto di Parmaby theItalian Ministerial Decree of 3 July 1978 on the basis of Law No 506 of4 July 1970. This recognition was confirmed by Inter-Ministerial Decree of12 April 1994 on the basis of Law No 26 of 13 February 1990. TheConsorzio protects the interests of producers, stockbreeders and tradersinvolved the production of theProsciutto di Parma. Its mandate is to superviseand control the display of the geographical indicationProsciutto di Parmaand

the (so-called "Ducal Crown") mark, to prevent fraudulent uses ofthem and unfair competition, to ensure full compliance with all requirements ofItalian law1, and to disseminate information aboutProsciutto di Parma.

The complainant claims that Italian cured raw ham bearing the geographicalindication ofProsciutto di Parmacannot be exported to Canada as the use ofthis name would constitute an infringement of a Canadian trademark("Parma") presently owned by Maple Leaf Meats Inc..

More specifically, according to the complainant, Canada:

• refuses to register theProsciutto di Parmacollective trademark;

• gives legal protection to a trademark ("Parma"), the effect of which is todeceive consumers as to the nature, the manufacturing process and thecharacteristics of the ham sold under it;

• prevents the import of ham bearing the geographical indicationProsciuttodi Parma, as it does not allow the complainant to use this geographicalindication in Canada;

• does not provide appropriate legal remedies to effectively repress theunfair competition generated by the use of the trademark "Parma" byCanadian national producers.

1 Since the beginning of 1998, a special agency,Istituto Parma Qualità(IPQ or Parma Quality Institute),oversees and certifies the quality ofProsciutto di Parma, a task previously performed by theConsorziodel Prosciutto di Parma. The IPQ functions under the terms of the European Community Regulation2081/92 of 14 July 1992 on the protection of geographical indications and designations of origin foragricultural products and foodstuffs.

8

The Consorzio considers that the above-referred Canadian practicescontravene:

• Articles 10bis and 10ter of the Paris Convention for the Protection ofIndustrial Property;

• Article 22 of the WTO Agreement on Trade Related Aspects ofIntellectual Property Rights (TRIPS);

• Article XI.1 of the GATT 1994.

Having decided, after consultation of the Advisory Committee established bythe Regulation, that there is sufficient evidence to justify initiating anexamination procedure for the purpose of considering the legal and factualissues involved, and that this is in the interest of the Community, theCommission has commenced an examination in accordance with Article 8 ofthe Regulation2.

1.2. The investigating activity

During the first stage of the examination, the Commission services gatheredinformation on the Canadian legislation and contested practices, on theproduct subject to investigation, on the Canadian and Community cured rawham markets and industries and on the adverse trade effects claimed by thecomplainant. This information has been collected by means of differentquestionnaires addressed to:

– Community producers and associations;

– Canadian authorities;

– Canadian producers and traders.

Several useful pieces of information were also found by searching theInternet.

Moreover, verification visits took place in the complainant’s premises(Parma, 13-14 September 1999). During a mission to Canada (18-22 October1999) the case handlers had the opportunity to meet the relevant Canadianauthorities, Canadian importers and producers of the product subject to theinvestigation as well as the legal representatives of both the complainant andMaple Leaf Meats Inc..

Meetings with officials

Mr. Tarantelli and Mr Messina, from theItalian TradeCommission for Canada

Canadian officials from:

2 The notice of initiation was published in the OJ C176 of 22.6.1999.

9

• Department of Foreign Affairs and International Trade

• Agriculture and Agri-Food Canada

• Canadian Food Inspection Agency

• Customs

Italian Embassy in Canada

Meetings with importers

Mr M. Marchettini fromAroma Foods Inc

Mr P. Blake fromFinica Foods

Mr Rosati fromSanta Maria Foods

Mr Occhiuto fromA.M. Berchicci

Mr Pat and Mr Lawrence Peliccione fromJan K. OverweelLimited

Mr. Arthur Peliccione fromColombo Importing

Meetings with lawyers

Mr McKay and Mr Scott Jolliffe, from Gowlings, Straty andHenderson, legal representative ofMaple Leaf Meats Inc.,owner of the contested trademark, which was represented by MrMcArthur and Mr Smith

Mr Edmonds from McCarthy Tétrault, legal adviser forConsorzio del Prosciutto di Parma

The present report summarises the findings of the investigation carried outby the Commission services following theConsorzio's complaint.

1.3. The position of the Canadian Government

The Canadian Government maintained all along the investigation that it doesnot bear any responsibility for the difficulties encountered by the Italianexporters ofProsciutto di Parmaand that the issue concerns a legal disputebetween private entities (Consorzio del Prosciutto di Parmaand Maple LeafMeats Inc.) that has to be settled in courts while the respective countriesremain neutral. For this reason, Canada did not reply officially to thequestionnaire submitted by the Community within the framework of theinvestigation. However, all along the investigation, the Canadianadministration has been open to provide information in relation to specificaspects of the Canadian legal system as well as to the Canadian law ontrademarks and geographical indications.

10

2. ECONOMIC AND COMMERCIAL BACKGROUND IN THE COMMUNITY AND IN CANADA

2.1. The product

Prosciutto di Parmais a slightly sweet dried Italian ham produced in theprovince of Parma in Italy and cured with air and salt.

The Italian law3 has established very precise criteria for the attribution of theappellation of originProsciutto di Parma. The law has defined every aspectof the production from the areas where the pigs must be bred and laterslaughtered to the methods used in curing the meat and finally to the periodsnecessary for preserving it. The pigs must be bred in certain determinedregions of Italy to a weight of more than 160 kg and be aged at least 9months. The whole curing process is divided in 3 stages:

(1) The raw hams are cut and rubbed with a coating of sea salt thenrefrigerated in cool rooms for 25 days. After that, the hams are hungto dry for two months during which they are periodically massagedand kneaded and the salt is brushed off and reapplied. Hams arefinally washed to take off the excess of salt.

(2) Then, the hams are hung to dry for another 4 months in special roomswith tall windows and cured with air. They are then covered in lard toprevent an excessive drying during the final stages of curing intraditional cellars.

(3) Finally, the hams spend at least five months in traditional cellars thatare purposely built half underground. During this stage, the meat,which has hardened as it air-dried, turns soft and rosy pink again andbecomesProsciutto di Parma. They are then stamped with the DucalCrown mark.

A cured raw ham bearing the geographical indication ofProsciutto di Parmamust weight at least 7 kilos. The Italian law requires a minimum ageing timeof ten months for hams weighting up to 9 kilos and twelve months for thoseweighting more. Canadian sanitary regulations allow imports into Canada ofcured raw hams only if aged for at least 400 days.

The method of production of theCanadian cured raw ham is quitedifferent from the traditional method used for producing theProsciutto diParma. Firstly, the Canadian hams are cured for about 8-9 months. Inaddition, they are markedly more salty and smaller (5-7 kilos) than theProsciutto di Parma. Consequently, the cost of production is inferior.

The Community Combined Nomenclature and the Canadian CombinedNomenclature classify the product at issue as follows:

3 See Law No 506 of 4 July 1970 and Law No 26 of 13 February 1990.

11

Community 0210 19 81 9100 :Meat and edible meat offal, salted, inbrine, dried, or smoked; edible flours and meals of meat ormeat offal - Meat of swine - Boneless

Canada4 0210 11 00: Hams, shoulders and cuts thereof, of swine,with bone in, cured

0210 19 00: Pork meat cured

2.2. Producing companies

All companies producingProsciutto di Parmaare members of theConsorziodel Prosciutto di Parma.

At its creation in 1963, theConsorziowas an association of 23 producers.Currently, 201 companies produceProsciutto di Parmain Italy for a totalproduction of 8,644,903 pieces in 1998. The table below shows the evolutionof the production since 1963:

In the last twenty years, the production more than doubled, whereas thenumber of producers slightly increased. Since 1978, the detailed totalproduction and number of producers were as follows:

4 Exports to Canada might be declared under both tariff headings.

production in Number of hams

,,0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

19641968

19721976

19801984

19881992

1996

production

12

The 1998Prosciutto di Parmaproduction represents 36% of the total Italianproduction of cured raw ham, which amounts to 24 million pieces. Asregards turnover, it amounts to€676million in 1998 for 8.073 million piecessold, which represents 44% of the total turnover for cured raw ham in Italythat reached€1,549 million in the same year. This shows thatProsciutto diParmais representative of the cured raw ham market in Italy both in terms ofproduction and sales.

Prosciutto di Parmais the leading geographical indication in Italy as it holds44% of the market share compared to 13% forSan Daniele5. The remaining43% is split between different smaller geographical indications.

2.3. Sales

5 San Danieleis also a top quality Italian cured raw ham that enjoys the protected designation of originin the European Union. Even if it does not directly concern the present case, it might be of interest todraw the attention to the fact that theConsorzio del Prosciutto di San Danieleis facing on theCanadian market difficulties similar to those encountered by theConsorzio del Prosciutto di Parma.The leading Canadian producer of cured raw ham, Santa Maria Foods, owns the trademark "SanDaniele", registered in association withprosciutto. Most of the legal and factual analysis elaborated inthe present report with regard to the conflict between the "Parma" trademark and the geographicalindicationProsciutto di Parmacould be applied,mutatis mutandis, to the "San Daniele" trademark andtheProsciutto di San Danielegeographical indication.

YearStampedProduction

Number ofproducers

1978 2,452,409 1851979 3,402,731 2201980 4,346,556 2301981 4,861,584 2401982 5,639,480 2451983 5,973,456 2441984 6,664,318 2461985 7,060,658 2471986 6,393,766 2301987 6,374,266 2201988 6,977,651 2141989 7,475,541 2151990 7,218,273 2151991 7,063,510 2101992 7,514,056 2051993 7,712,308 2031994 7,737,764 2051995 8,109,456 2041996 7,832,416 2011997 8,064,042 2011998 8,644,903 201

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Total sales amounted to 8,072,646 pieces in 1998 for a total of€676 millionof which 1,301,837 pieces were sold out of Italy representing 15% of thetotal production. From 1994 to 1998 total sales have risen of 18% in valueand 9% in quantity. As regards sales on non-Italian markets, they grewrapidly and increased of 8% in quantity and 29% in value, confirming theirpotential for theProsciutto di Parmaindustry.

Prosciutto di Parmais sold in over 40 countries, the main countries in 1998being France (28%), Germany (27%) and the US (13%). Given the Canada'ssanitary regulations, producers of theConsorzio del Prosciutto di Parmadidnot obtain permission to export their product until spring 1997 andshipments actually started in June 1997. In 1998, theConsorzio's membersexported 8,000 pieces in Canada, which represents 0.6% of the sales out of

Italy.

0

2000000

4000000

6000000

8000000

10000000

1994 1995 1996 1997 1998

Domestic and other markets sales in number

other markets

Italy

Total

in piece in 000Euros in piece in 000Euros in piece in 000Euros in piece in 000Euros in piece in 000EurosItaly 6,195,118 491,000 6,384,870 491,000 5,826,068 446,000 6,181,968 530,000 6,770,809 573,000other markets 1,210,807 80,210 1,318,242 93,200 1,502,185 106,005 1,362,509 107,886 1,301,837 103,450Total 7,405,925 571,210 7,703,112 584,200 7,328,253 552,005 7,544,477 637,886 8,072,646 676,450Production 7,737,764 8,109,456 7,832,416 8,064,042 8,644,903

markets19981994 1995 1996 1997

in piece 1994 1996 1997 1998Export 1210807 1318242 1502185 1301837Italy 6195118 6384870 5826068 6770809Total 7405925 7703112 7328253 8072646Production 7737764 8109456 7832416 8644903

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The tables below show the evolution ofProsciutto di Parmasales on non-Italian markets from 1994 to 1998 and the situation of these markets in 1998:

These figures show that the EC (except Italy) is the main market with 70% ofmarket share in 1998, but that the increase in sales outside Italy since 1994 isexclusively due to the development of the export market share in non-ECcountries. In fact, sales to other EC countries have been decreasing of 7.8%since 1994, whereas exports to third countries increased of 81%. As aconsequence, new export markets in third countries are essential to maintaina positive growth rate. As an example, in the United States sales ofProsciutto di Parmanearly doubled from 1994 to 1998. Canada could be amarket with comparable potential increase rates given the analogous socio-economic situation with the US and the large Italian community living inCanada.

in pieces 1994 1995 1996 1997 1998France 525,875 528,408 572,474 478,710 365,468Germany 331,866 369,865 416,303 377,973 359,850Belgium 59,832 76,832 74,203 86,066 71,300Great Britain 81,703 68,447 80,358 68,771 98,691Luxemburg 0 0 24,133 0 0Austria 0 4,672 12,231 23,716 16,773Denemark 3,598 9,622 15,684 16,006 12,886sub-total EC 1,002,874 1,057,846 1,195,386 1,051,242 924,968Switzerland 54,595 62,034 72,026 69,026 76,145US 85,615 108,602 136,355 129,916 165,742Japan 0 0 17,184 40,662 52,584Argentina 0 29,756 20,771 24,885 27,174Canada 0 0 0 5,000 8,033Others 67,723 60,004 60,459 41,769 47,172Total 1,210,807 1,318,242 1,502,181 1,362,500 1,301,818

Main non-Italian markets in 1998

EC (exceptItaly)70%

Switzerland6%

US13%

Japan4%

Canada1%

Others6%

Switzerland

US

Japan

Canada

Others

EC (except Italy)

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2.4. Economic and commercial background in Canada

2.4.1. The Canadian production of cured raw ham

The yearly estimated6 Canadian production breakdown per piece of curedraw ham is the following:

SANTA MARIA FOODS (trademarkSan Daniele) 182,000-364,000

CAPPOLA FOODS (trademarkCappola) 130,000-156,000

MAPLE LEAF MEATS INC. (trademarkParma) 52,000 – 78,000

SIENA FOODS (trademarkSiena) 52,000 – 78,000

TOTAL 416,000-676,000

In the near future, the production is going to increase significantly asSantaMaria Foods has recently enlarged the capacity of its plant in order todouble its production from 182,000 to 364,000 pieces. Given the averageageing time for a cured raw ham, the new output of 364,000 should beavailable by the end of the second semester 2000. This investment of 12million CAN$ was primarily aimed at developing Santa Maria Foods’exports to the United States. In addition, according to one of the importersmet during the investigation, a company named Zadi Food (a joint venturebetween a Canadian and an Italian company) has recently built a new plant inorder to produce cured raw ham. These recent investments show that there isstill a potential in Canada both for the domestic and for the export market.

Two companies (Maple Leaf Meats Inc. and Cappola Foods Ltd.) are part ofthe two largest food-processing companies in Canada.

Maple Leaf Meats Inc. bought a cured raw ham plant located in Laval (andthe "Parma" trademark), when it acquired the prepared meats and saladsbusiness of Principal Marques Inc., in May 1997. In April 1998, Maple LeafMeats Inc. invested 1 million CAN$ to more than double the current capacityof this cured raw ham plant. The management confirmed that this investmentwas done to respond to a strong demand for this product in Canada, Japanand US and consequently create new export opportunities. Maple Leaf MeatsInc. is a division of Maple Leaf Foods of Toronto. Maple Leaf Foods isCanada’s largest food processing company with more than 3 billion CAN$sales. The company operates on three segments: Meat Products Group,which includes fresh pork and poultry, prepared meats and rendering; BakeryProducts Group, which includes bakery operations in Canada and the US andfranchising operations; and Agribusiness Group, which includes animal feedand pet food operations, international food trading and seafood processing.Total sales of the Meat Products Group amount to 2 billion CAN$ thusrepresenting two third of the total group sales.

6 Data on production were reported by the importers met during the investigation. However, they couldnot provide with data on the evolution of the production.

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Cappola Foodsis part of the Schneider Corporation, one of Canada’s largestproducers of premium food products. Schneider manufactures and sells awide variety of processed meat, fresh pork, poultry and grocery products.The Corporation’s sales in 1998 were 906 million CAN$. Schneider wastaken over at the end of 1998 by the American Group Smithfield Food that isthe world's largest hog producer and fresh pork processor.

2.4.2. Distribution of cured raw ham in Canada

The Canadian cured raw ham is distributed through the retail and foodservice channels. The retail channel is the main distribution outlet (70%approximately) and concerns grocery customers, many being large nationalgrocery store chains including A&P, Loblaws, Metro, etc. Food service is anindustry term used to designate those customers who purchase in order toresell to hotels, restaurants, fast food outlets, etc.

As regardsProsciutto di Parma, it is exclusively sold in delicatessen,restaurants and small grocery chains specialised in Italian products. This ismainly explained by the difference in price. The wholesale price of Canadiancured raw ham is comprised between 10-11 CAN$/kg compared to 24-25CAN$ for Prosciutto di Parma, whereas the retail price varies from 25 to 30CAN$/kg compared to 45-60 CAN$/kg forProsciutto di Parma. Thesuperior quality and the higher costs of production of theProsciutto DiParmaexplain the price difference.

2.4.3. Imports and exports

Canada is a net exporting country of cured raw ham, given its growingproduction capacity and its legislation that only authorised imports of curedraw ham since 1997.

Imports

Prosciutto di Parmais the only Community originating cured raw hamauthorised to be imported by the Canadian sanitary legislation. There are 14plants (out of 210 members of theConsorzio), which are currently authorisedto export to Canada. In practice, due to the peculiar sanitary requirementsand to the impossibility to make use of theProsciutto di Parmageographicalindication, only 6 producers actually export to Canada.

Overall official statistics of Canadian imports of cured raw ham are notavailable; however, Canadian importers and producers confirmed that theonly products actually imported were theProsciutto di Parma ones.Accordingly, the Canadian cured raw ham market is almost entirely ownedby domestic producers.

Exports

The breakdown of exports by destination is not available. However, it wasreported by Canadian importers and producers during the investigation thatat least 40% of the Canadian production is exported, mainly to the United

17

States (70% approximately), but also to Central and South America. TheCanadian operators regard Japan as a good new potential market.

2.4.4. Conclusion

Prosciutto di Parmahas a small market share in Canada with 8,000 piecesper year. Canadian importers confirmed that the market potential amounts toat least 25,000 pieces per year. The recent investments made by Canadianproducers in order to increase their production capacity seem to indicate thatthere are strong possibilities to increase exports for the Communityproducers ofProsciutto di Parma.

3. THE INTELLECTUAL PROPERTY RIGHTS CONCERNED

The core of the present dispute is the conflict between two separate intellectualproperty rights: the geographical indicationProsciutto di Parmaand the trademark"Parma". Therefore, in order to have a clear picture of the background of the case, itis important to look over:

• the intellectual property right that the complainant claims to be infringed; and

• the history of the Canadian trademark questioned by the complainant7.

3.1. The geographical indicationProsciutto di Parma

The city of Parma is located in the province of Parma, which has beenknown by that name since 1861, when it became part of the Kingdom ofItaly. Prior to that, the area was known as the Duchy of Parma. In 100 BC anauthor first mentioned the extraordinary flavour of the air cured hamproduced around the town of Parma in Italy. Therefore, the earliest examplesof prosciutto(from the Italianprosciugare, to dry out) date back 2,000 yearsto when the Romans first used salt to cure hams8.

Prosciutto di Parmaenjoys a protected designation of origin (denominazionedi origine tutelata - DOT) under Italian law (Law No 26 of 13 February1990) and under Community law ("protected designation of origin" - PDO)as laid down in Regulations (EC) Nos. 2081/92 and 1107/96.

One of the main goals of theConsorziois to formalise the methodology ofproducingprosciutto in the Province of Parma and to establish proceduresfor guaranteeing the quality thereof. In the early years of existence, theConsorziopromulgated rules for its members to follow in the production oftheir hams. TheConsorziois entrusted by the Italian law with the authorityof allowing its members displaying, in association with appropriately

7 See extract of the Canadian trademarks database in Annexe …..

8 The first document on theprosciutto is probably theDe Rusticaby Cato (200 BC), where it isreported the receipt for theperexuctus. This receipt is basically the same used today by the Italianproducers.

18

produced and marked hams, the Ducal Crown mark and the geographicalindicationProsciutto di Parma.

On 13 May 1963, theConsorzio registered in Italy the Ducal Crowncollective mark. At the same date, it filed an application for the internationalregistration of the same collective mark with the United International Bureaufor the Protection of Intellectual Property - a body of the World IntellectualProperty Organisation - in Geneva according to the Madrid Convention9. TheDucal Crown mark is therefore protected in all countries party to the MadridConvention.

In addition, theConsorziohas registered the Ducal Crown mark in thefollowing countries in the world: United Kingdom, Denmark, South Africa,The Netherlands, Spain, Portugal, Australia, Brazil, United States ofAmerica, Sweden, Ireland, Belgium, Luxembourg, Monaco, Switzerland,Chile and Greece. Registration proceedings are ongoing in Japan. It has alsoregistered the geographical indicationProsciutto di Parmaor translationsthereof in all countries of the European Union, in the USA, Switzerland,Brazil and Monaco.

Geographical indications are defined by the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) as indications whichidentify a good as originating in the territory of a Member, or a region orlocality in that territory, where a given quality, reputation or othercharacteristic of the good is essentially attributable to its geographical origin(Article 22.1). This definition specifies that the quality, reputation or othercharacteristic of a good can each be a sufficient basis for eligibility as ageographical indication, where they are essentially attributable to thegeographical origin of the good.

The TRIPS also requires that the Members shall comply with the ParisConvention on Industrial Property, which in the second paragraph of its firstarticle stated that the protection of industrial property embraces within itsobject indications of source and appellations of origin. The TRIPS uses theterm "geographical indications" to cover both indications of source andappellations of origin. The most common definition of appellation of originis the one given by the Lisbon Agreement for the Protection of Appellationsof Origin and their International Registration, which reads "appellation oforigin means the geographical name of a country, region, or locality, whichserves to designate a product originating therein, the quality andcharacteristics of which are due exclusively or essentially to thegeographical environment, including natural and human factors".Appellations of origin can be considered as aspecies of the genus"indications of source", characterised by their relationship with quality orcharacteristics derived from the source. Indications of source, thegenus,

9 The Madrid system of international registration of marks is governed by two treaties: the MadridAgreement Concerning the International Registration of Marks, which dates from 1891, and theProtocol Relating to the Madrid Agreement, which came into operation on April 1, 1996. The system isadministered by the International Bureau of the World Intellectual Property Organisation (WIPO) inGeneva, Switzerland. Canada is not party to this agreement.

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would include all expressions or signs used to indicate the origin of theproducts or services.

The reputation and quality of theProsciutto di Parmaare essentiallyattributable to its geographical origin as:

• hogs for producingProsciutto di Parmamust originate from a specificregion of Italy;

• the know-how is an essential factor indissolubly linked to the human andprofessional environment of the Parma region;

• the weathering requires specific climatic conditions that are unique of thehills around Parma.

Therefore, it can be affirmed thatProsciutto di Parmais a geographicalindication according to Article 22 of the TRIPS Agreement and that it shouldenjoy the protection granted by such provision.

3.2. A brief outlook on the Canadian Trademarks Law

A trademark is one or more words, or a series of letters or numbers, ora design, or shape, that is used by a person to distinguish wares orservices manufactured, sold, leased, hired or performed by that person fromthose manufactured, sold, leased, hired or performed by others.

According to Canadian law, a trademark is owned by the business that firstuses it in a commercial context - that is, attaches the mark to a product oruses the mark when marketing a product or a service. A business may alsoobtain ownership of a mark if it applies for federal registration of the markand the application date is before anyone else uses the mark. Once a businessowns a trademark, it may be able to prevent others from using that mark, or asimilar one, on their good and services.

Trademarks may be registered in Canada pursuant to the CanadianTrademarks Act. The Canadian Trademarks Registry is maintained at theCanadian Trademarks Office (TMO) located in Ottawa. The validregistration of a trademark in Canada in respect of any wares or servicesgives to the owner of the trademark registration the exclusive right to the usethroughout Canada of the trademark in respect of those wares or services.This right is deemed to be infringed by a person not entitled to the registeredtrademark, who sells, distributes or advertises wares or services inassociation with a confusing trademark or trade name. The valid registrationof a trademark in Canada also prohibits the use of the registered trademarkby another person in a manner that is likely to have the effect of depreciatingthe value of the goodwill attached to that trademark.

To register a trademark in Canada, a completed trademark application isfiled by the applicant, or by a registered trademark agent acting on behalf ofthe applicant. The application is filed with the Canadian Trademarks Office,located in Ottawa. The filed trademark application is then examined by theTrademarks Office, to assess whether: (a) the trademark application is in

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proper form; (b) the trademark is registrable; (c) the person applying toregister the trademark is in fact the person entitled to register the mark.Where the Registrar is not satisfied that the trademark application should berefused, the Registrar then directs that the trademark application beadvertised in the Canadian Trademarks Journal (a weekly publication),which gives an opportunity to any interested parties to oppose theapplication.

Trademark applications are opposed by the filing of a Statement ofOpposition. The Statement of Opposition sets out, among other things, thegrounds or basis for the opposition. Interested parties may oppose atrademark application on the basis that: (a) the trademark application is notin proper form; (b) the trademark is not registrable; (c) the person applyingto register the trademark is not the person entitled to register the mark; (d)the trademark lacks distinctiveness.

If the Registrar of Trademarks considers that the Statement of Oppositiondoes not raise a substantial issue for decision, he will reject the opposition.However, if the Registrar of Trademarks considers that the Statement ofOpposition raises a substantial issue for decision, he will forward a copy ofthe Statement of Opposition to the applicant, who then files a CounterStatement with the Registrar (and serves a copy of the Counter Statement ofOpposition on the opponent). Both the opponent and the applicant are thengiven an opportunity to submit evidence and to make representations to theRegistrar of Trademarks (unless either the opposition or application iswithdrawn, or deemed to have been withdrawn). After considering theevidence and representations of the opponent and the applicant, the Registrarof Trademarks will then either refuse the application or reject the opposition.If the trademark application is not opposed by a third party (or if it isopposed and the opposition is unsuccessful), the trademark may then proceedto registration upon completing the technical requirements set out in theTrademarks Act and upon the payment of a government registration fee.

Upon registration, the "®" symbol should be used next to the trademark toindicate that the mark has been registered (prior to registration the letters"TM" should appear next to any unregistered trademarks). Trademarkregistrations last for a period of 15 years, and may be renewed upon thepayment of a government fee.

Registered (and unregistered) trademarks may also be assigned or sold toanother party.

Unregistered trademarks are also entitled to protection in Canada, althoughthe extent and scope of protection provided to unregistered trademarks willdepend of factors such as the extent to which, and the manner in which thetrademark has been used and has become known.

It is to be noted that Canadian trademark law also prohibits one fromdirecting public attention to his wares, services or business in such a way asto cause or be likely to cause confusion in Canada, at the time hecommenced so to direct attention to them, between his wares, services orbusiness and the wares, services or business of another and prohibits the

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"passing off" of wares or services as and for those ordered or requested.Canadian law also prohibits one from making use, in association with waresor services, of any description that is false in a material respect and likely tomislead the public as to (i) the character, quality, quantity or composition,(ii) the geographical origin, or (iii) the mode of the manufacture, productionor performance of the wares or services.

Consumers often make their purchasing choices on the basis of recognisabletrademarks. For this reason, the main thrust of trademark law is to make surethat trademarks don't overlap in a manner that causes customers to becomeconfused about the source of the product.

3.3. The history of the Canadian "Parma" trademark

The use of the "Parma" trademark in Canada dates back to 18 September1958, when Parma Foods Products Ltd. was incorporated. The samecompany filed the application for the registration on 9 April 1964. At thattime, Parma Foods did not produce any cured raw ham, but only other kindsof processed hog meat. At the time the TMO objected to the registrationsince it considered the "Parma" trademark not registrable as it was "eitherclearly descriptive or deceptively misdescriptive of the origin of the wares".In 1971, Parma Foods Product Ltd. obtained a reconsideration of theapplication and the trademark was eventually registered on 26 November1971 in the name of Parma Foods Products Limited in association with thefollowing wares: "meats namely salami, salamitti, suppressata, capicollo,pepper butts, pepperoni, dry sausage, cacciatore, mortadella, bacon,prosciuttini, ham". Since then, the ownership of the "Parma" trademark haschanged hands several times. In 1978, according to a new languagelegislation of Quebec, Parma Foods Products Limited changed its corporatename toLes Aliments Parma Ltee.. On 30 September 1982, Les AlimentsParma Ltee assigned the Parma trademark to Primo Foods Limited. In thesame year, Primo Foods acquired the majority of Parma Foods. In 1986 PETFoods Inc. bought Primo Foods Ltd.. This did not require nor did result in anassignment of the trademark. In 1993, theConsorzio del Prosciutto di Parmatried to have the trademark expunged from the Canadian TrademarksRegister by claiming the non-use of it according to Section 45 of theCanadian Trademarks Act. Primo Foods could demonstrate the use of the"Parma" trademark in association withprosciuttosince 1982, but failed to doit in relation with "salametti, soppressata, cacciatore, bacon, prosciuttini"that were therefore deleted. In May 1994 Principal Marques Inc.10 purchasedcertain assets including the "Parma" trademark registration, manufacturingfacilities and goodwill from PET Foods Inc.. The "Parma" trademark wasassigned to Principal Marques Inc. on 16 May 1994. Finally, on 23 May1997 Maple Leaf Meats Inc. acquired the "Parma" trademark and goodwillassociated therewith from Principal Marques Inc..

10 Principal Marques is a Canadian processor of quality meats, sold primarily in the deli market acrossCanada and in some parts of the United States.

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The Canadian production of cured raw ham under the "Parma" trademark11

only started in 1982 in the plant of Laval (nearby Montreal, in the provinceof Quebec)12 as a joint venture between Parma Foods and an Italiancompany. In fact before 1982, theParma trademark has been exclusivelyused in association with other pigmeat products as dry salami, pepperoni,cooked sausage, mortadella, etc.

The value and quantity of sales of Parma branded wares in Canada since1995 to the end of 1997 in Canadian dollar value and weight are set outbelow13:

Year Weight (Millions Kg) Value (Millions CAN$)

1995 1.4 >8,500,000

1996 1.6 >10,000,000

1997 1.5 >10,000,000

Accordingly, the "Parma" trademark has been used by Principal Marques andMaple Leaf Meats Inc. in association with considerable quantity of pigmeatproducts and represents a total value of more than 10 million CAN$. Thissuggests that the trademark should be familiar to the average pork meatconsumer in Canada.

The investigation showed that since 1982, Primo Foods, then PrincipalMarques Inc. and, finally, Maple Leaf Meats Inc. used the "Parma"trademark continuously with regard to cured raw ham in Canada.

3.4. Further trademarks applications of Maple Leaf Meats Inc.

In addition to the "Parma" trademark, Maple Leaf Meats Inc. is the owner ofthe pending Canadian trademark applications seeking to register thefollowing marks:

– "Parma" (application sought to be registered in association with cheese),

11 This information was given to the case handlers by Mr Arthur Pelliccione, the person who registeredthe trademarkParmaand former shareholder of Primo Foods Ltd.

12 The production of cured raw ham by Santa Maria Foods Inc. under the "San Daniele" trademark startedin 1980.

13 Quantities were only available in kg and not in pieces

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– (sought to be registered in association withmeats, namely salami, capicollo, pepper butts, pepperoni, dry sausage,mortadella, ham)

– "Parmacotto", (sought to be registered in association with ham, sausage,Italian sausage, salami,prosciutto, bologna, mortadella, capicollo,pepperoni, Italian style processed meats, pre-packaged delicatessen stylemeats, sliced processed meats).

– "Prosciutto canadese" (sought to be registered in association withprosciutto, slicedprosciuttoand salami, approved by TMO and opposedby theConsorzio),

– "Italeana" (sought to be registered in association, among other wares, withprosciuttoand ham, allowed14 by the TMO).

As regards the first two applications, which are the more likely to prejudicethe complainant’s position on the Canadian market, the TMO has objected toboth of them on the basis of theConsorzio's pre-existing applications. Ifthese applications are definitively rejected, then Maple Leaf Meats Inc.'sapplications will likely proceed to registration.

Maple Leaf Meats Inc. also owns the registered trademark "Regio" inassociation with, among other wares, ham, sliced processed meats andprosciutto.

4. THE CANADIAN PRACTICES

The barriers to trade contested by the complainant basically consist in the failure byCanada to protect the geographical indicationProsciutto di Parma and theconsequent obstacle to imports of cured raw hams bearing such geographicalindication.

More specifically, according to theConsorzio, these trade obstacles are substantiatedin the following alleged practices:

(1) The refusal to register theProsciutto di Parmacollective/certification mark;

14 When an application for registration of a proposed trade-mark is allowed, the Canadian TMO givesnotice to the applicant accordingly and register the trade-mark and issue a certificate of registration onreceipt of a declaration that the use of the trade-mark in Canada, in association with the wares orservices specified in the application, has been commenced by (a) the applicant; (b) the applicant'ssuccessor in title; or (c) an entity that is licensed by or with the authority of the applicant to use thetrade-mark, if the applicant has direct or indirect control of the character or quality of the wares orservices. An application for registration of a proposed trade-mark is deemed to be abandoned if theCanadian Registrar has not received the declaration referred to above before the later of (a) six monthsafter the notice by the Registrar referred to above, and (b) three years after the date of filing of theapplication in Canada.

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(2) The refusal to expunge the Canadian trademark from the CanadianTrademark Register;

(3) The prohibition to import hams bearing the geographical indicationProsciutto di Parma.

(4) The lack of appropriate legal remedies to effectively repress the unfaircompetition generated by the use of the trademark "Parma" by Canadiannational producers.

A first important piece of information not included in the complaint that appearedduring the investigation regards the proceedings commenced by theConsorziobefore the Canadian courts15 and of the Canadian Trademarks Office (TMO). In fact,the Consorzio is already trying to have its rights recognised by the Canadianauthorities, not only by requesting the registration of the certification/collective16

mark Prosciutto di Parma, but also by requesting the expunction of the "Parma"trademark from the Canadian Federal Register of Trademarks and by having theDucal Crown mark recognised under Section 9 of the Canadian Trademarks Act.These proceedings are still ongoing and will be dealt with in the following legal andfactual analysis of the alleged practices.

4.1. The alleged refusal to register the Prosciutto di Parmacollective/certification mark and the alleged refusal to expunge theMaple Leaf Meats Inc.'s "Parma" trademark from the CanadianTrademarks Register

The complainant alleges that Canada refused the registration of itsgeographical indication as a collective mark because of the earlierregistration of the Maple Leaf Meats Inc.'s "Parma" trademark.

There are three basic categories of trademarks:

• ordinary marks are words or symbols that identify goods, wares orservices of a specific firm or individual;

• collective marksthat identify goods and services which meet a definedstandard17;

• distinguishing guisethat identifies the unique shape of a product or itspackage.

15 The case handlers received most of the information concerning the pending cases from the Consorzio'sCanadian legal representative in these proceedings is the law firm McCarthy Tétrault.

16 See infra for an outlook of the Canadian law on collective marks.

17 The use of certification and collective marks are particularly helpful in the maximisation of economicefficiencies, transmitting to the consumers common information from a whole group of undertakers, inregard to their respective products/services or in regard to whatever other information a group ofundertakers may wish to pass to the consumers.

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More specifically, a collective mark is a symbol, label, word, phrase or othermark used by members of a group or organisation to identify goods,members, products or services they render. The use of a collective mark isrestricted to members of the group or organisation that owns the mark.

The registration of collective marks is provided for in Article 7bis of theParis Convention18 (which is integrated in the TRIPS Agreement inaccordance with the first paragraph of its Article 2), which does not definethe expression "collective marks". In the Canadian Trademarks Act there isno mention of collective marks. However, Sections 23-25 of this Act19

define and regulate "certification marks". According to this legislation, acertification mark is a symbol, name or device used by an organisation tovouch for products and services provided by others. This can actuallyembrace the concept of collective marks in the Paris Convention/TRIPS.This type of mark may cover characteristics such as regional origin, methodof manufacture, product quality and service accuracy. Therefore, in Canada,organisations responsible for geographical indications might availthemselves of the certification mark provisions.

This was the option chosen by theConsorzio del Prosciutto di Parma, whenin 1984 it filed applications to register three collective/certification marks:

18 Article 7bis of the Paris Convention reads as follows: "1. The countries of the Union undertake toaccept for filing and to protect collective marks belonging to associations the existence of which is notcontrary to the law of the country of origin, even if such associations do not possess an industrial orcommercial establishment. 2. Each country shall be the judge of the particular conditions under whicha collective mark shall be protected and may refuse protection if the mark is contrary to the publicinterest. 3. Nevertheless, the protection of these marks shall not be refused to any association theexistence of which is not contrary to the law of the country of origin, on the ground that suchassociation is not established in the country where protection is sought or is not constituted accordingto the law of the latter country".

19 Section 23-25 of the Canadian Trademarks Act provides as follows: "23. (1) A certification mark maybe adopted and registered only by a person who is not engaged in the manufacture, sale, leasing orhiring of wares or the performance of services such as those in association with which the certificationmark is used.(2) The owner of a certification mark may license others to use the mark in associationwith wares or services that meet the defined standard, and the use of the mark accordingly shall bedeemed to be used thereof by the owner (3) The owner of a registered certification mark may preventits use by unlicensed persons or in association with any wares or services in respect of which the markis registered but to which the licence does not extend. (4) Where the owner of a registered certificationmark is an unincorporated body, any action or proceeding to prevent unauthorised use of the markmay be brought by any member of that body on behalf of himself and all other members thereof. 24.With the consent of the owner of a certification mark, a trade-mark confusing with the certificationmark may, if it exhibits an appropriate difference, be registered by some other person to indicate thatthe wares or services in association with which it is used have been manufactured, sold, leased, hiredor performed by him as one of the persons entitled to use the certification mark, but the registrationthereof shall be expunged by the Registrar on the withdrawal at any time of the consent of the ownerof the certification mark or on the cancellation of the registration of the certification mark. 25. Acertification mark descriptive of the place of origin of wares or services, and not confusing with anyregistered trade-mark, is registrable if the applicant is the administrative authority of a country, state,province or municipality including or forming part of the area indicated by the mark, or is acommercial association having an office or representative in that area, but the owner of any markregistered under this Section shall permit the use of the mark in association with any wares or servicesproduced or performed in the area of which the mark is descriptive."

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"Parma ham" filed on 19 October 1984 (Canadian Trademark ApplicationNo. 530,220). On 4 February 1985, the TMO objected to this application onthe basis of previously existing registration No. 179,637, then owned byParma Food Products Ltd., and now owned by Maple Leaf Meats Inc. Theapplication was amended on 13 March 1989, but the TMO maintained itsobjection.

"Prosciutto di Parma" filed on 19 October 1984 (Canadian TrademarkApplication No. 530,221). Here again, by letter dated 4 February 1985 theTMO objected to the application on the basis of the Canadian trademarkregistration No. 179,637. On 12 November 1997 the application wasamended; but the TMO replied on 3 March 1999 continuing to object theapplication on the same grounds.

The"Ducal Crown" mark filed on 19 October 1984, (Canadian TrademarkApplication No. 530,222). The TMO also objected to this application on thebasis of registration 179,637. On 5 November 1997 an amended applicationwas filed along with written argument designed to overcome the TMO'sobjection. The argument was not successful as the TMO maintained itsobjection by letter dated 27 January 1998.

Even if the TMO has objected to all three applications because of the pre-existing Canadian trademark registration, these applications have not yetbeen formally rejected. TheConsorzio's lawyers were able to keep themalive, primarily by filing with the Office requests for extensions of time20.

During 1996, Principal Marques, the owner of the trademark at that time,started complaining with the TMO of the continuous extensions granted tothe Consorzioin its three applications. Following these remonstrations, theOffice refused to allow further extensions of time and required theConsorzioto respond substantively to the main objection (pre-existence of the "Parma"trademark) by 5 November 1997. At that stage it was clear that thecomplainant's trademarks applications would have been rejected in absenceof any counteraction from theConsorzio. In order to avoid this occurrence,the Consorzio commenced two separate proceedings:

• an action to have Maple Leaf Meats Inc.'s "Parma" trademark expungedfrom the Canadian Federal Trademarks Register;

• a request to the TMO for recognition of theConsorzio del Prosciutto diParma as a "public authority" and the Ducal Crown as an official markunder Section 9.1(n)(iii) of the Canadian Trademarks Act.

20 Extensions of time were granted in relation with the Federal Trademarks Registrar objection of theConsorzio's applications, then in relation with theConsorzio's action under Section 45 and finally inconnection with the ongoing expunction action taken by theConsorzioagainst the "Parma" trademarkowned by Maple Leaf Meats Inc..

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4.1.1. The Consorzio's legal actions

4.1.1.1. The expunction action

On 5 November 1997, theConsorzio del Prosciutto di Parmacommencedproceedings in the Federal Court of Canada - Trial Division, pursuant toSection 57(1) of the Canadian Trademarks Act, seeking expunction of theregistration for the mark "Parma" owned by Maple Leaf Meats Inc.

In these proceedings in front of the Federal Court, the Consorzio argues thatthe registration of the "Parma" trademark was invalid as it was notregistrable at the time of registration. Section 18 of the Canadian TrademarksAct states that: "The registration of a trade-mark is invalid if the trade-markwas not registrable at the date of registration". According to Section 12 ofthe same Act, a trade-mark is registrable if it is not "whether depicted,written or sounded, either clearly descriptive or deceptively misdescriptivein the English or French language of the character or quality of the wares orservices in association with which it is used or proposed to be used or of theconditions of or the persons employed in their production or of their place oforigin".

A first instance decision on this dispute is expected for the end of 2000. Thelosing party will be entitled to appeal and this could delay the final decisionfor a longer time.

4.1.1.2. The recognition of theConsorzio del Prosciutto di Parmaas a"public authority under Section 9.1(n)(iii) of the CanadianTrademarks Act

On 19 September 1997, theConsorzio del Prosciutto di Parmarequested theCanadian Intellectual Property Office to give public notice, pursuant toSection 9(1)(n)(iii) of the Canadian Trademarks Act, of the adoption and useof the Ducal Crown mark in Canada as an Official Mark for services. Thisprovision states that "No personal shall adopt in connection with a business,as a trademark or otherwise, any mark consisting of, or so nearlyresembling as to be likely to be mistaken for … any badge, crest, emblem ormark … adopted and used by any public authority, in Canada as an officialmark for wares or services … in respect of which the Registrar has … at therequest of the public authority… given public notice of its adoption and use".Section 12(1)(e) of the Canadian Trademarks Act precludes registration of atrademark, the adoption of which is prohibited by Section 9.

On 11 February 1998, the TMO gave public notice pursuant to section 9 ofthe Trademarks Act of the adoption and use of the Ducal Crown mark by theConsorzio del Prosciutto di Parma. Thus, Canada has recognised that theConsorziois a public authority. This means that Canada recognises that theConsorzio:

• is a body entrusted with duties and responsibilities which are in the publicinterest;

• is subject to a significant degree of governmental control;

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• performs its duties in the public interest.

More importantly, the TMO public notice grants to such public authoritysome rights on the use of the Ducal Crown mark. In particular, this publicnotice gives theConsorziothe right:

(i) to use its Ducal Crown mark containing the geographical indication"Parma"; and

(ii) stop any new use by others of the Ducal Crown mark or any confusinglysimilar mark(i.e.: it gives the Registrar the ability to refuse to register themark, or any confusingly similar mark, in the name of anyone else.)

The Section 9 does not appear to allow theConsorzioor the Registrar to takeany action with respect to trademark registrations already in existence or usesof the marks that commenced prior to the date of publication. Therefore, theTMO public notice effectively allows the co-existence of the Ducal Crownmark with Maple Leaf's similar pre-existing trademark.

Maple Leaf Meats Inc. has appealed against the TMO public notice, as itimplicitly recognises the not entirely private character of the dispute at issueand it gives, as explained above, theConsorzioa possibility to make use ofits Ducal Crown mark in coexistence with the "Parma" trademark.

On the question of coexistence and/or conflict between an official mark anda registered trademark, the Canadian government informed the Commissionservices that notwithstanding the TMO public notice "the definitive answerto the (…) question about priorities between an official mark and a priorregistered trademark (…) must come from the Canadian court system as partof the outcome of the litigation (between Maple Leaf Meats Inc. and thecomplainant), which is not within the control of the Canadiangovernment"(emphasis added)21. However, the Canadian government is ofthe opinion that "an official mark would not prevent the continued use of amark adopted before the date of publication of the official mark". Insubstance, this public notice does not appear to affect substantially the rightof Maple Leaf Meats Inc. to use the Parma mark. The Canadian courts havenot yet clarified what would be the outcome in a case where the rights of theowner of a valid trademark and those of a public authority on an officialmark concerned a similar mark.

A final decision on the Maple Leaf appeal is expected for the end of 2000.

4.1.2. Applicability of Article 22.2 and 22.3 of the TRIPS to the case atissue

The complainant holds that any refusal by Canada to grant protection to thegeographical indicationProsciutto di Parma(either by not allowing theregistration of the collective trademark at issue or by refusing to expunge theMaple Leaf Meats Inc.'s "Parma" trademark) would constitute an

21 Letter of the Canadian Department of Foreign Affairs and International Trade of 10 December 1999.

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infringement of Article 22 of the TRIPS and of Article 10bis of the ParisConvention for the Protection of Industrial Property of 1883 (last amended in1979)22.

According to Article 22 of the TRIPS, in respect of all geographicalindications, interested parties must have legal means, to prevent use ofindications which misleads the public as to the geographical origin of thegood.

More specifically, TRIPS Article 22.323 requires Canada to refuse orinvalidate, ex officio if the legislation so permits or at the request of aninterested party, the registration of a trademark which uses a geographicalindication in a way that misleads the public as to the true place of origin.

The first condition to be considered is therefore that the trademark has tocontain or consist of a geographical indication. The Maple Leaf Meats Inc.'s"Parma" trademark clearly respond to this criterion sinceProsciutto diParma, as noted above24, is a geographical indication pursuant to Article22.1 of the TRIPS. Moreover, it is evident that Maple Leaf Meats Inc.produces its cured raw hams in Canada and not in the province of Parma.Then the only real question is to establish whether the use of the indication inthe trademark is of such a nature as to mislead the public as to the true place oforigin.

4.1.2.1. Misleading nature of the use of the geographical indication in thetrademark

In order to establish the misleading nature of the "Parma" trademark it isnecessary to identify the "public" to which the TRIPS makes reference. Itseems a reasonable assumption to consider the "public" as the averageCanadian consumer of cured raw ham. In this regard, it has to be taken intoconsideration that there is a big Italian community living in the Toronto andMontreal area, the members of which are well aware of the existence of theProsciutto di Parma.

During the expunction proceedings started by the complainant in front of theCanadian courts, both parties have lodged affidavits25, summarising theresults of two different surveys, in order to clear the question on themisleading nature of the term "Parma" as included in the contested

22 Article 2.1 of the TRIPS provides that: "In respect of Parts II, III and IV of this Agreement, Membersshall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967)".

23 Article 22.3 of the TRIPS reads as follows: "A Member shall, ex officio if its legislation so permits orat the request of an interested party, refuse or invalidate the registration of a trademark whichcontains or consists of a geographical indication with respect to goods not originating in the territoryindicated, if use of the indication in the trademark for such goods in that Member is of such a natureas to mislead the public as to the true place of origin".

24 See Chapter 3.1.

25 An affidavit is a written statement for use as legal evidence, sworn or oath to be true.

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trademark26. The contradictory character of these pieces of evidencedemonstrates quite clearly that a slightly different selection of the group ofpeople interviewed, or a question formulated in a different way may have animportant weight in the final outcome of the survey. However, it is hard tocontest that the word "Parma" in connection with food products induces anormally informed Canadian consumer to relate the product with Italy.

The Commission services did not proceed to any survey on the perception ofthe word "Parma" by the average Canadian consumers. However, it appearsquite plainly from the context in which the Canadian trademark it is usedthat it is of such nature as to mislead the public and that in many cases itdoes so. This is particularly true for the less informed consumer who doesnot know the product and can more easily be impressed by the labelling.

As can be seen in the specimen annexed to this report27 the use of the Parmatrademark on the Canadian produced cured raw ham is accompanied by thewordings (in Italian) "Ricetta originale della Regione di Parma"(originalreceipt of the Parma region) and "Il nostro prosciutto è preparato con curameticolosa secondo un autentico metodo segreto della regione di Parma eviene poi invecchiato espertamente per un periodo di circa un anno prima diraggiungere quella perfezione cosi' apprezzata dai buongustai di tutto ilmondo" (our prosciutto is meticulously prepared according to an authenticsecret preparation inspired28 from the Region of Parma, then expertly curedfor an average period of one year to mouth watering perfection, that's prizedby connoisseurs the world over). These wordings and the dominant red,white and green colours of the label can easily mislead any public as to thetrue place of origin. Moreover, the "connoisseurs the world over" estimatethe Prosciutto di Parma; not the Canadian ham. This implies that theconsumer to which Maple Leaf Meats Inc. addresses the product is expectedto be informed about the ItalianProsciutto di Parmaquality ham, and thatMaple Leaf Meats Inc. uses the renown ofProsciutto di Parmaand thesimilarity between its trademark and the Italian geographical indication topromote its lower quality product.

Importers and retailers interviewed during the investigation confirmed thatthe "Parma" name, particularly as it is presented to the public, may generateconfusion as regards the origin of the cured raw ham.

In conclusion, despite the complex character of the issue, as confirmed bythe various surveys presented in front of the Canadian courts, there aregrounds for arguing that the use of the geographical indicationProsciutto diParmain the "Parma" trademark is of such a nature as to mislead the public asto the true place of origin.

26 See Chapter 5.2 for a more detailed description of these surveys.

27 See annexe …

28 A literal translation of the Italian text would read " ourcured raw hamis meticulously preparedaccording to an authentic secret preparation from the Region of Parma", without the word "inspired".

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4.1.2.2. Article 24.5 of the TRIPS

Canada might argue that this finding is not enough to establish theapplication of Article 22.3 to the present issue, since Article 24 of the TRIPScontains a number of exceptions to the protection of geographicalindications. In particular, Article 24.5 of the TRIPS provides that "Where atrademark has been applied for or registered in good faith, or where rights toa trademark have been acquired through use in good faith either:

(a) before the date of application of these provisions in that Member asdefined in Part VI; or

(b) before the geographical indication is protected in its country of origin;

measures adopted to implement this Section shall not prejudice eligibility foror the validity of the registration of a trademark, or the right to use atrademark, on the basis that such a trademark is identical with, or similar to,a geographical indication".

Hypothesis on the respective scopes of Article 24.5 and 22.3

Article 24.5 is by definition an exception and as such to be interpretednarrowly. In particular, it could be argued that its scope is narrower thanArticle 22.3 and that, therefore, for a trademark to remain unchallenged,apart from meeting the requirements of Article 24.5, it must also satisfy therequirement of Article 22.3 not to mislead the public. In the case at issue, theCanadian trademark is not only similar or identical to the Italiangeographical indication: in addition it misleads the public as regards theorigin of the product. Therefore it should not be grandfathered by theexception ex Article 24.5 as it does not meet the requirement of Article 22.3.In support of this thesis, one might consider that Article 24.8 of the TRIPSstates that a person can always use his name notwithstanding conflictinggeographical indications, provided he/she does not use his/her name in a wayto mislead the public. If the narrow interpretation referred to above isrefused, the conclusion that the TRIPS gives a stronger protection totrademarks than to a family name against a geographical indication should bereached. A hypothetical Mr/Mrs Parma, therefore, could not make the sameuse as Maple Leaf of his own personal name. According to the interpretationillustrated above, if the Canadian trademark was to be recognised asmisleading, Canada would be bound by Article 22.3 of the TRIPS toexpunge the Parma trademark from the Canadian Trademarks Register, asthe exception ex 24.5 would not apply.

As already noted, there are no legal precedents for interpretation of WTOrules concerning geographical indications. It is, therefore, considered usefulto continue the analysis leaving the interpretation above illustrated as anoption to be further evaluated in terms of policy.

The bad faith criterion

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If we leave apart the interpretation referred to in the previous Chapter, otheraspects of Article 24.5 have to be considered in order to verify itsapplicability to the case at issue.

The geographical indicationProsciutto di Parmawas firstly protected inItaly by Statute 506 of 4 July 197029. On the other hand, the Maple LeafMeats Inc.'s "Parma" trademark was registered in 1971, before the date ofapplication of the TRIPS in Canada. However, the application for thecontested trademark had been originally lodged in 1964, before thegeographical indication was protected in Italy, even if the actual registrationtook place later.

Under this hypothesis, since both conditions under Article 24.5 (a) and (b)seem to be satisfied, the measures adopted by Canada to implement Article22.3 of the TRIPS cannot prejudice the validity of the "Parma" trademarkregistration or the right of Maple Leaf Meats Inc. to use it unless it has beenapplied for or registered in bad faith.

In determining bad faith for the purposes of Article 24.5 of the TRIPS, itshould first be taken into consideration whether the person who obtained theregistration of or used the mark which is in conflict with a geographicalindication had, at the time when the mark was used or registered, or theapplication for its registration was filed, knowledge of, or reason to know of,the geographical indication.

The contested trademark was registered in 1971 by Parma Foods Ltd., acompany the shareholders of which were all either Italians or of Italianorigin. During the investigation, the case handlers met the person who wasmore directly involved in the registration proceedings, Mr Arthur Pelliccionefrom Colombo Importing. He stated that he knew about theProsciutto diParmageographical indication at the time of registration. He noted that the"Parma" name was chosen in general because it was Italian as most of theproducts in association with which it was used. He declared that there was nointention to compete unfairly against the Italian originatingProsciutto diParma. Furthermore, as explained above, in 1964, the TMO had objected tothe original registration request since it considered the "Parma" trademarknot registrable as it was "either clearly descriptive or deceptivelymisdescriptive of the origin of the wares". Only seven years later, in 1971,did Parma Foods Product Ltd. obtain a reconsideration of the application onthe grounds that the "Parma" trademark was"neither descriptive nordeceptive use of the mark, because no one would think that the goods inquestion actually emanate from Parma, Italy. Moreover, Parma is not only aprovince of Italy, it is also a city in Italy and a village in Idaho. Also Parmahas already been registered … for fluid pumps … and for cigars".

29 Article 1 of the Statute 506 provides that: "The denomination "Prosciutto di Parma" is reservedexclusively to ham having characteristic qualities related to its geographical situation -comprehensive of the natural and human factors - and whose various phases of preparation fromsalting to the end of seasoning are carried out in the actual production zone. (…)".

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This at least demonstrates that at the time of registration the Parma FoodsProducts Ltd. representatives not only had knowledge of the geographicalindication, but they were also well aware of the confusion that could havebeen generated with regard to the origin of the products bearing the "Parma"trademark. The fact that in 1971 Parma Foods Ltd. did not produce any curedraw ham and that exports ofProsciutto di Parmain Canada were prohibiteddoes notper seexclude the malicious intention. On the contrary, the lastcircumstance rendered the applicant safe from any possible opposition fromtheConsorzio.

Moreover, Mr Pelliccione recalled that the "Parma" trademark was assignedby Parma Foods to Primo Foods in 1982 in connection with the beginning ofthe production of cured raw ham in the Laval factory. Parma Foods was atthe time controlled by Primo Foods. The cured raw ham production sitestarted as a joint venture between Primo Foods and an Italian company, withno involvement of Parma Foods. The assignment of the mark to Primo Foodsis suggestive of the intention to have the possibility to use the "Parma"trademark in association with the cured raw ham production. In addition, theuse presently made by Maple Leaf Meats Inc. of the "Parma" trademarkshows a clear intention to deceive the consumer on the origin and quality ofthe product, by making him/her "think that the goods in question actuallyemanate from Parma, Italy".

There is no case law on the interpretation of the concept of bad faith asexpressed in the TRIPS provision at issue. Nonetheless, on the basis of theabove mentioned considerations, the Commission services estimate that itcan be argued that Parma Foods Ltd. registered the "Parma" trade mark inbad faith and that therefore a WTO panel might find Article 22.3 applicableto the case at issue. In any event, Article 24.5 being an exception Canadawould bear the burden of proving that the requirements set out therein aremet in the case in question i.e. proving good faith.

The possibility of a coexistence between trademark and geographical indication

Without prejudging the question of the validity of the trademark owned bythe Canadian company, theConsorzio del Prosciutto di Parmaconsidersthey should be allowed to identify their prosciutto as originating in the regionof Parma since its quality, reputation and other characteristics is essentiallyattributable to its geographical origin.

(i) The Canadian provisions

Within the Canadian legal system the possibility of a coexistence betweentrademark and geographical indication seems to be substantiated by Article20 of the Canadian Trademarks Act according to which: "The right of theowner of a registered trade-mark to its exclusive use shall be deemed to beinfringed by a person not entitled to its use under this Act who sells,distributes or advertises wares or services in association with a confusingtrade-mark or trade-name, but no registration of a trade-mark prevents aperson from making

(a) any bona fide use of his personal name as a trade-name, or

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(b) any bona fide use, other than as a trade-mark

(i) of the geographical name of his place of business, or

(ii) of any accurate description of the character or quality of his wares orservices,

in such a manner as is not likely to have the effect of depreciating the valueof the goodwill attaching to the trade-mark".

The geographical indication at issue can be interpreted as a use of the"geographical name of business" and as a fair description of the product as itis suggestive of the unique manufacturing process and characteristics of theItalian hams.

(ii) The TRIPs provisions

The possibility of the existence in parallel of theProsciutto di Parmageographical indication and the "Parma" trademark would be in line with theTRIPS disciplines on both geographical indications and trademarks andnotably the provisions of Articles 22.3 and 24.5 as explained below.

In practical terms, the basic issue raised in this case is the following: whathappens when a trademark is similar or identical to a geographicalindication? The situation is further complicated by the fact that under theTRIPs Agreement geographical indications are protected in a negative formi.e. they enjoy a "right of prevention ". In particular, under Article 22.2interested parties enjoy the right to prevent the designation or presentation ofa good in a way that suggests that the good originates in a certaingeographical area.

The above issue must be resolved in such a way so as to give effectivemeaning to the provisions concerning both trademarks and geographicalindications.

The only provisions under the TRIPS Agreement containing guidance in thecase of the above mentioned conflict are to be found in the Section dealingwith geographical indications, namely, Articles 22.3 and 24.5.

Under Article 22.3, the registration of a trademarkafter the entering intoforce of the TRIPS Agreement is not possible if such trademark conflictswith a geographical indication; in such a case the registration of thetrademark must be refused or invalidated. In the case of apre-existingtrademark (registered in good faith) Article 24.5 provides that caution shouldbe exercised in adopting measures to implement the Section on geographicalindications so as not to prejudice the eligibility, validity or use of such atrademark. Consequently, while Article 22.3 clearly provides for thegeographical indication's right of prevention fully to apply, Article 24.5introduces an exception to this rule and precludes the right of preventionfrom applying with regards to the pre-existing (grand-fathered) trademarkwhich is effectively allowed to continue to be used.

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On the other hand, nothing in Articles 22.3 or 24.5 (which being anexception should be interpreted restrictively) suggest that pre-existingtrademarks may prevent the use of geographical indications. In other words,the "grand-fathering" of the trademark is not to be interpreted so as toprevent geographical indication users from identifying their product with acertain geographical region. On the contrary, even in the event of theexistence of a grand-fathered trademark, the rightful users of geographicalindications may still be granted protection against third parties other than theowner of the grand-fathered trademark under Articles 22.2 and 22.3. Such aright would not of course make sense had the protection of a geographicalindication been denied in a WTO Member due to the existence of a grand-fathered trademark.

Article 22 regulates the protection of geographical indications. Article 24.5is an exception (subject to certain conditions) to the discipline established inArticle 22, which provides that measures adopted to implement suchprotection shall not affect "eligibility for, validity of the registration of atrademark, or the right to use a trademark".

Thus, both articles examine the conflict between a trademark and a GI byfocusing on the consequences of such conflict on the trademark, the generalrule being that the trademark normally disappears unless it can be broughtunder the safe haven of Art 24.5, in which case the trademark would have tobe tolerated.

In the present case, leaving aside the issues of "good faith" and "misleadingthe public" on which there is certain amount of evidence, coexistence of theConsorzio's geographical indication and Maple Leaf's TM can be supportedby the provisions of Article 24.5 of the TRIPs. This Article clearly envisagescoexistence. Indeed, it creates an exception, through "grand-fathering", to therule that the geographical indication should prevail. While the language isnot precise, the logic of this provision and the Agreement as a whole seem tolead to the conclusion that a trademark holder, whose right to maintain thetrademark in force exists solely as a result of the exception, cannot at thesame time have the right to prevent the protection of a similar geographicalindication since this would contradict the theory that exceptions must bestrictly interpreted to limit their effect. This approach would also beconsistent with the theory that TRIPs does not create an enforceable right touse a geographical indication. It would be merely applying the sustainableapproach that a trademark holder under Article 24.5 (i.e. by way ofexception) does not have an enforceable right to prevent the protection of asimilar geographical indication.

It seems unlikely that TRIPs having set the rule in Article 22(2) and (3)would completely reverse its priority in Article 24(5) by denying theprotection of a geographical indication. Indeed, should this be the case, thenthe geographical indication would effectively cease to have any rightwhatsoever under TRIPs in the country concerned.

Thus, the TRIPs Agreement seems to have foreseen the problem of thepotential existence in parallel of two similar/identical signs/indications albeitcovered by two distinct intellectual property rights (trademarks and

36

geographical indications) and has resolved the conflict by establishing ageneral rule of priority for the geographical indication with the exception ofthe situation described in Article 24.5 where the geographical indicationcannot but exist in parallel with a pre-existing trademark.

In the case in question therefore, without prejudice to the issue of registrationof the trademark in good faith, Article 24.5 would not prevent theConsorzioto identify their products as originating in the region of Parma, even if theCanadian authorities refrain from invalidating the registration of MapleLeaf's "Parma" trademark and/or do not register the Ducal Crown mark as an"official mark" under Section 9 of the Canadian Trademarks Act.

From a practical point of view, it has to be noted that the hams that theItalian law and the Canadian sanitary regulations allow to be imported intoCanada under the geographical indicationProsciutto di Parmaare twice asexpensive and of a higher quality than the domestic product. Thecoexistence, therefore, between the "Parma" trademark and the complainant'sgeographical indication would have little, if any, effect on the goodwill orthe reputation of Maple Leaf Meats Inc.'s product, given its lower quality andsale price. Moreover, such coexistence wouldde facto associate theCanadian trademark to a superior product, a situation from which MapleLeaf Meats Inc. could only profit.

4.1.3. Conclusion

The claim by the complainant according to which Canada refuses to registerthe Prosciutto di Parmacollective/certification marks refer to a situationwhere applications were objected to but not yet formally rejected. Indeed, allthree application procedures for registration are still open. However,notwithstanding the fact that Maple Leaf has lodged an appeal, the fact thatCanada has through the TMO public notice recognised the Ducal Crownmark as an "official mark" under Section 9 of the Canadian Trademarks Actis a positive development. The public notice should give theConsorziotheright to use its geographical indication and to stop any new use by others ofthe Ducal Crown mark or any confusingly similar mark (albeit withoutprejudicing the validity of the registration of the Canadian "Parma"trademark.). Thus, unless the Canadian courts overrule the TMO publicnotice, or otherwise fail to enforce theConsorzio's rights linked to the DucalCrown Mark the possibility for the Consorzio to use its geographicalindication would be ensured.

However, it appears clear that if both the expunction action and the actionunder Section 9 of the Trademarks Act will have a negative outcome for theConsorzio, the applications will be inevitably rejected.

Equally theConsorzio's allegation that Canada refuses to expunge the MapleLeaf Meats Inc.'s "Parma" trademark from the Canadian TrademarksRegister refers to a judicial procedure, aimed at establishing whether theregistration of the contested trademark was valid, which is still ongoing infront of the Canadian Federal Court. However, but for the question of badfaith (which is essentially a factual issue), co-existence is provided for under

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Article 24.5 of the TRIPs Agreement and therefore a refusal to expunge thepre-existing trademark cannot constitute a violation of Article 24.5.

The Canadian courts are currently evaluating the rights of the complainantand of Maple Leaf Meats Inc. in relation with the use of their respectiveintellectual property rights. Depending on the outcome of such evaluation(i.e. of theConsorzio's actions) three possible scenarios can be envisaged:

(1) The TMO rejects Maple Leafs Meats Inc.'s appeal against therecognition of theConsorzio del Prosciuttodi Parma as a "public authority"under Section 9.1(n)(iii) of the Canadian Trademarks Act and the TrialDivision of the Federal Court of Canada accepts theConsorzio'sclaim tohave the "Parma" trademark expunged from the Federal Trademarks Register(either for it being misleading, not registrable or for not having beenregistered in good faith). In such a case, theProsciutto di Parmageographical indication would be granted full protection.

(2) The TMO rejects Maple Leafs Meats Inc.'s appeal against therecognition of theConsorzio del Prosciutto di Parmaas a "public authority"under Section 9.1(n)(iii) of the Canadian Trademarks Act and the TrialDivision of the Federal Court of Canada rejects theConsorzio's claim tohave the "Parma" trademark expunged from the Federal Trademarks Register(finding that it is not misleading, it is registrable and that it has beenregistered in good faith). Such an outcome of the judicial proceedings wouldbe acceptable for the Community industry as long as it will allow acoexistence of the two intellectual property rights at issue. In this case,Maple Leaf will continue to use its "Parma" trademark while theConsorzio'sgeographical indication will also be protected.

(3) The TMO accepts Maple Leafs Meats Inc.'s appeal against therecognition of theConsorzio del Prosciutto di Parmaas a "public authority"under Section 9.1(n)(iii) of the Canadian Trademarks Act and the TrialDivision of the Federal Court of Canada rejects theConsorzio'sclaim tohave the "Parma" trademark expunged from the Federal TrademarksRegister. In this case, the situation of theConsorziowith regard to theprotection of its geographical indication in Canada would be seriouslyundermined.

During the investigation, Maple Leaf representatives made clear that underthe above scenario they will start proceedings under Section 53 of theTrademarks Act to stop imports of ItalianProsciutto di Parmabearing theDucal Crown iron brand. Such threat would lead to a complete lack ofprotection of the geographical indication as such. Allowing Maple LeafMeats Inc the right to prevent use of the geographical indication in any formwould mean that a trademark is given priority over a geographical indication;such a result would be clearly at odds with the above analysis of the TRIPsprovisions concerning the relationship between trademarks and geographicalindications. In such a case any action to enforce trademark rights over ageographical indication would appear to be in violation of Canada'sobligations under the TRIPS. More specifically, by so doing Canada wouldfail to implement Section 3, Part II of the TRIPs on geographical indicationsby giving primacy to Section 2, Part II on trademarks and thus by preventing

38

the Consorzio from identifying theirprosciuttoas originating in the regionof Parma even though the validity of the registration or Maple Leaf's right touse the "Parma" trademark would not be prejudiced.

Finally, Canada would violate Article 22.3, by failing to invalidate theregistration of the "Parma" trademark in the event it was found to not havebeen registered in good faith or, provided the hypothesis on the respectivescopes of Article 22.3 and 24.5 set out above is accepted, also in case it wasfound to be misleading.

The above constitutes an analysis of the situation as it currently stands. Theissues would need to be further assessed in the light of the reasoning of therelevant Canadian decisions. As there are no legal precedents as regardsWTO rules on geographical indications an analysis on the basis ofhypothetical situations is obviously a complex task and recommendation forfurther action may at this stage be premature.

4.2. The prohibition to import hams bearing the geographical indicationProsciutto di Parma: Article III.4 and XI.1 of the GATT 1994

The complainant claims that Canada, by not granting protection to itsgeographical indication,de facto prohibits the import of cured raw hamunder the geographical indicationProsciutto di Parmathus violating ArticleXI.1 of the GATT 199430. In the Consorzio's view, the success of theProsciutto di Parmaon a third country market is strictly dependent on theidea of quality and safety that the consumer associates with the geographicalindication. Without the possibility of making use of such an indication,either in the form of a collective trademark or of geographical indication, itis practically impossible to have access to a new market.

However, the Canadian measure is not an import restriction, but an internalmeasure. Therefore, it appears impossible to claim a violation of Article XI.1by Canada. More specifically, according to GATT’s case law31, the GeneralAgreement distinguishes between measures affecting the "importation" ofproducts, which are regulated in Article XI.1, and those affecting "importedproducts", which are dealt with in ArticleIII. If Article XI.1 were interpretedbroadly to cover also internal requirements, Article III would be partlysuperfluous. Moreover, the exceptions to Article XI.1, in particular thosecontained in Article XI.2, would also apply to internal requirementsrestricting imports, which would be contrary to the basic aim of Article III.

30 Article XI.1 of the GATT provides that: "No prohibitions or restrictions other than duties, taxes or othercharges, whether made effective through quotas, import or export licences or other measures, shall beinstituted or maintained by any contracting party on the importation of any product of the territory of anyother contracting party or on the exportation or sale for export of any product destined for the territory ofany other contracting party".

31 See the GATT panelCanada - Administration of the Foreign Investment Review Act (FIRA)(BISD30S/140) – 1984.

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The Commission services investigated the Canadian practices under theangle of a possible violation of Article III.4 of the GATT199432.

The investigation revealed thatProsciutto di Parmabearing the DucalCrown iron brand has been regularly imported into Canada since July 1997.

Under present conditions, the only person entitled to use the mark "Parma"in association with cured raw ham in Canada is Maple Leaf Meats Inc. byvirtue of its registered trademark N. 179,634. Accordingly, since the firstimport operations, Maple Leaf Meats Inc. has written both to the Canadianimporters and to the Italian producers ofProsciutto di Parmathreateninglegal action for the infringement of its rights on the use of the "Parma"trademark. Following these threats, some Italian producers stopped exportingto Canada, others continued exports, but without making any use of theProsciutto di Parmageographical indication on labelling or in advertising.Only the Ducal Crown iron brand is still used as it certifies that the curedraw ham has been produced according to the relevant Italian legislation. TheConsorzioargued that this was a requirement for obtaining the necessarypermits to export to Canada. During the investigation, the Canadiancompetent authorities explained that they simply require that the cured rawham exported to Canada is produced according to specific sanitary standardslisted in an agreement between Italy and Canada. They would allow intoCanadaProsciutti di Parmawithout the Ducal Crown iron brand, providedthat all certificates and the conditions contained in the agreement are metwith.

In November 1997, theConsorziocommenced proceedings under Section 9of the Trademarks Act and expunction action against Maple Leaf MeatsInc.'s trademark. Following this, Maple Leaf Meats Inc. has refrained fromcarrying out its threats. For this reason, Canada has taken no action yet toprevent importation ofProsciutto di Parmaor to otherwise forbid the use oftheProsciutto di Parmageographical indication.

If the Consorzio's action fails to ensure any kind of protection to theProsciutto di Parmageographical indication (either by having the Canadian"trademark" expunged or by being recognised under Section 9 of theTrademarks Act), Maple Leaf Meats Inc. will be entitled to start proceedingsin order to have its rights on the "Parma" trademark protected. Thisencompasses the possibility that the hams bearing theProsciutto di Parmageographical indication and/or the Ducal Crown iron brand will be detainedand seized by the Canadian customs pursuant to Sections 53.1 to 53.3 of theTrademarks Act. According to these provisions, a registered trademarkowner can apply for an Order from the Federal Court of Canada directing the

32 Article III.4 reads as follows: “The products of the territory of any contracting party imported into theterritory of any other contracting party shall be accorded treatment no less favourable than thataccorded to like products of national origin in respect of all laws, regulations and requirementsaffecting their internal sale, offering for sale, purchase, transportation, distribution or use. Theprovisions of this paragraph shall not prevent the application of differential internal transportationcharges which are based exclusively on the economic operation of the means of transport and not onthe nationality of the product”.

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detention by Canadian Customs of goods alleged to infringe registeredtrademarks. The form of Order obtainable from the Court provides for theMinister of National Revenue (the Minister responsible for the operation ofthe Canadian Customs) to take reasonable measures on the basis ofinformation reasonably required by the Minister and provided by theapplicant to detain goods.

The Canadian law on the subject as applied to the case at issue does notappear to violate Canada's obligation under the TRIPS and the ParisConvention.

Article 44 of the TRIPS explicitly provides that "The judicial authoritiesshall have the authority (…) to prevent the entry into the channels ofcommerce in their jurisdiction of imported goods that involve the infringementof an intellectual property right, immediately after customs clearance of suchgoods". Article 46 of the same Agreement states that "In order to create aneffective deterrent to infringement, the judicial authorities shall have theauthority to order that goods that they have found to be infringing be, withoutcompensation of any sort, disposed of outside the channels of commerce insuch a manner as to avoid any harm caused to the right holder, or, unless thiswould be contrary to existing constitutional requirements, destroyed".

In addition Article 9 of the Paris Convention states that "Goods unlawfullybearing a trademark or trade name shall be seized on importation into thosecountries of the Union where such mark or trade name is entitled to legalprotection".

4.2.1.1. Conclusion

In conclusion, we note that the complainant has not imported into Canadaany ham with the appellationProsciutto di Parmafollowing threats of legalaction by Maple Leaf for alleged infringement of trademark rights underCanadian law. However, as regards the allegation of the complainantaccording to which Canada violates Article XI.1 of the GATT 1994 bymaintaining prohibitions or restrictions other than duties, taxes or othercharges made effective through measures on the importation of cured raw hamdoes not appear to be founded, as the Canadian measure is an internal one.With regard to Article III.4 of the GATT1994, we reserve the examination ofthis aspect to a possible later stage, when the practical implications of theapplication of Canadian law to such imports have become clearer.

4.3. The lack of appropriate legal remedies: Article 22.2 of the TRIPS andArticle 10bis and 10ter of the Paris Convention

The complainant alleges that Canada acted in violation of Article 22.2 of theTRIPS33 as well as of Article 10bis and 10ter of the Paris Convention for the

33 Article 22.2 of the TRIPS provides that "In respect of geographical indications, Members shallprovide the legal means for interested parties to prevent: (a) the use of any means in the designationor presentation of a good that indicates or suggests that the good in question originates in ageographical area other than the true place of origin in a manner which misleads the public as to the

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Protection of Industrial Property of March 20, 1883, as amended on 2October 1979, to which Canada is signatory. In particular, theConsorzioalleges that Canada did not accord to it the appropriate legal remedies toeffectively repress the use of the contested Canadian trademark.

Article 22.2 of the TRIPS requires Canada to provide legal means forinterested parties to prevent certain misleading and unfair practices. Morespecifically, it provides that, in respect of all geographical indications,interested parties must have legal means, to prevent use of indications whichconstitutes an act of unfair competition within the meaning of Article 10bisof the Paris Convention. The TRIPS provision requires Members to providelegal means beyond those resulting from Article 10 of the Paris Conventionfor the repression of false indications of source, at the same time that itmakes certain that the legal means used to repress unfair competition underArticle 10bis of the Paris Convention shall be available to repress the use ofmisleading appellations of origin.

4.3.1. Applicability of Article 10bis of the Paris Convention

Article 10bis of the Paris Convention lays down that the contracting partiesare required to prohibit "indications or allegations the use of which in thecourse of trade is liable to mislead the public as to the nature, themanufacturing process, the characteristics, the suitability for their purpose,or the quantity, of the goods". According to the complainant, Canada hascontravened this international obligation by giving legal protection to atrademark, the effect of which is to deceive consumers as to the nature, themanufacturing process and the characteristics of the ham sold under thetrademark "Parma". TheConsorzio claims that Maple Leaf Meats Inc.wrongfully uses its geographical indication which not only misleadsconsumers but also gives it an unfair advantage over theConsorzio'smembers, who, over a period of time, may lose the whole or part of theircustom, goodwill and reputation symbolised by such indication.

Article 2.2 of the TRIPS states that "Nothing in Parts I to IV of thisAgreement shall derogate from existing obligations that Members may haveto each other under the Paris Convention (…)". Therefore, the provisionsand exceptions of Article 22 and 24 of the TRIPS cannot affect obligationsraising from Article 10bis of the Paris Convention.

In the text of Article 10bis no mention is made of geographical indications orsimilar concepts, but the characteristics and the manufacturing process canbe linked or directly dependent on the origin of the goods in question. Asnoted above, the trademark "Parma" can be considered misleading as regardsthe origin of the Canadian cured raw ham. Moreover, the way in which the"Parma" trademark is used in association with the Canadian cured raw hamby Maple Leaf Meats Inc. is undoubtedly misleading as regards thecharacteristics and the manufacturing process of the goods. Under this

geographical origin of the good (b) any use which constitutes an act of unfair competition within themeaning of Article 10bis of the Paris Convention (1967)".

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perspective, the protection of the geographical indication can be considered aparticular aspect of the protection against unfair competition.

It can then be concluded that, apart from the validity of the registration of the"Parma" trademark, Maple Leaf Meats Inc. uses its trademark "Parma" in amanner that can be considered as an act of unfair competition according toArticle 10bis of the Paris Convention. Likewise, it can be concluded thatMaple Leaf Meats Inc. uses means in the designation or presentation of itscured raw ham that suggests that the good in question originates in ageographical area other than the true place of origin in a manner whichmisleads the public as to the geographical origin of the good. As a result,Canada should grant to theConsorzio effective protection against suchpractices.

4.3.2. The implementation in the Canadian legal system of Article 22.2 ofthe TRIPS and Article 10ter of the Paris Convention

Following the above mentioned conclusion, in order to determine if theviolations contested by the complainant are well founded, it has to beestablished if Canada failed to provide to the complainant the legal means toprevent the practices maintained by Maple Leaf Meats Inc..

The Canadian legal system expressly provides for protecting geographicalindications in Canada only as regards wines and spirits34. No specificprovision refers to the protection of other geographical indications as the onerelevant for the case at issue. However, according to the Canadianauthorities, the existing law is sufficient for the Canadian legal system tocomply with Article 22.2 of the TRIPS Agreement and with Article 10ter ofthe Paris Convention35. Canada has indicated the following possible legalmeans that can be invoked to stop the alleged unfair practices referred toabove36.

4.3.2.1. The Trademarks Act

In Canada, a rightholder could bring a private action against a person whomade use of a mark which was likely to mislead the public as to thegeographical origin of products other than wines and spirits under sub-

34 Section 11 of the Canadian Trademarks Act.

35 Article 10ter of the Paris Convention provides that: "The countries of the Union undertake to assure tonationals of the other countries of the Union appropriate legal remedies effectively to repress all theacts referred to in Articles 9, 10, and 10bis. They undertake, further, to provide measures to permitfederations and associations representing interested industrialists, producers, or merchants, providedthat the existence of such federations and associations is not contrary to the laws of their countries, totake action in the courts or before the administrative authorities, with a view to the repression of theacts referred to in Articles 9, 10, and 10bis, in so far as the law of the country in which protection isclaimed allows such action by federations and associations of that country".

36 The following summary of Canadian legal means was transmitted by the Canadian authorities to theCommission services during the investigation. It has also been notified by Canada to the WTO asDocument IP/Q2/CAN/1, dated 20 June 1997.

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paragraph 7(d)(ii) of theTrademarks Act, which provides as follows: ""Noperson shall ... make use, in association with wares or services, of anydescription that is false in a material respect and likely to mislead the publicas to ... the geographical origin ... of the wares or services."

In appropriate circumstances, a rightholder could also bring an action underparagraph 7(b) of theTrademarks Act, which provides as follows: "Noperson shall ... (b) direct public attention to his wares, services or businessin such a way as to cause or be likely to cause confusion in Canada, at thetime he commenced so to direct attention to them, between his wares,services or business and the wares, services or business of another.", orunder sub-paragraph 7(d)(i), which provides that: "No person shall ... (d)make use, in association with wares or services, of any description that isfalse in a material respect and likely to mislead the public as to: (i) thecharacter, quality, quantity or composition ... of the wares or services;".

Another possible ground for an action would be Section 10 of theTrademarks Act, which provides as follows: "Where any mark has byordinary and bona fide commercial usage become recognised in Canada asdesignating the kind, quality, quantity, destination, value, place of origin ordate of production of any wares or services, no person shall adopt it as atrade-mark in association with such wares or services or others of the samegeneral class or use it in a way likely to mislead, nor shall any person soadopt or so use any mark so nearly resembling that mark as to be likely to bemistaken therefore."

Organisations responsible for geographical indications might availthemselves of the certification marks provisions (Sections 23-25) of theTrademarks Act. As noted, theConsorzio has undertaken suchproceedings37.

4.3.2.2. The Competition Act

According to Canada, prosecutions against practices contravening to Article22.2 of the TRIPS and the Paris Convention may be brought by the Canadianstate, in response to complaints of misleading advertising under Section 52of the Competition Actor any provincial consumer protection legislation.Section 52 of theCompetition Actprovides as follows: "No person shall, forthe purpose of promoting, directly or indirectly, the supply or use of aproduct or for the purpose of promoting, directly or indirectly, any businessinterest, by any means whatever: (a) make a representation to the public thatis false or misleading in a material respect; (…). However, it appearsdifficult to prove that a misleading representation of the origin of the productis misleading "in a material respect".

37 See Chapter 4.1.

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4.3.2.3. The Food and Drugs Act

According to Article 30(1)(b) of the Food and Drugs Act the Governor inCouncil may make regulations for carrying the purposes and provisions ofthis Act into effect, and, in particular may make regulations respecting: "(i)the labelling and packaging and the offering, exposing and advertising forsale of food, drugs, cosmetics and devices, (ii) the size, dimensions, fill andother specifications of packages of food, drugs, cosmetics and devices, (iii)the sale or the conditions of sale of any food, drug, cosmetic or device, (…)to prevent the purchaser or consumer thereof from being deceived or misledin respect of the design, construction, performance, intended use, quantity,character, value, composition, merit or safety thereof,(…)".

As it appears that the use of the trademark made by Maple Leaf Meats Inc.has the potential to deceive and mislead the consumer in respect of thecharacter and merit of the Canadiancured raw ham, the Governor in Councilshould take the necessary action in order to have its packaging and labellingmodified.

4.3.2.4. The Consumer Packaging and Labelling Act

Article 7 of the Consumer Packaging and Labelling Act states that "Nodealer shall apply to any pre-packaged product or sell, import into Canadaor advertise any pre-packaged product that has applied to it a labelcontaining any false or misleading representation that relates to or mayreasonably be regarded as relating to that product". The same Articleindicates that "false or misleading representation" includes "any descriptionor illustration of the type, quality, performance, function, origin or methodof manufacture or production of a pre-packaged product that mayreasonably be regarded as likely to deceive a consumer with respect to thematter so described or illustrated".

Here again, the packaging and labelling of the Canadian cured raw hamclearly includes descriptions and illustrations of the quality and method ofproduction that are likely to deceive the consumer. Accordingly, theCanadian authorities should act in order to have the false and misleadingrepresentation of the origin of the Canadian product rectified.

4.3.2.5. The tort of passing off

Another legal means available to theConsorzio against the misleadingpractices maintained by Maple Leaf Meats Inc. is provided by the Canadiancommon law in the form of the tort of passing off.

The tort of passing off provides endorsers and manufacturers with a weaponto prevent unfair representations of the nature or origin of a product: it ispassing off as a product which is associated with the work or name ofanother person or group when it really is not in the hopes that thisrepresentation will entice a potential consumer of the product. Remedies forsuch passing off are generally found at common law, where the tort of

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passing off can be traced back to at least 191538. A more recent articulationof the common law test comes from a 197939 case. It required five elementsto be present: (1) the offending goods must constitute a misrepresentationwhich lead to confusion (or deception) in the mind of the consumer (2) madeby a trader in the course of trade, (3) to prospective customers of his orultimately consumers of the goods or services supplied by him, (4) which iscalculated to injure the business or goodwill of another trader (in the sensethat it is a reasonably foreseeable consequence) and (5) which causes actualdamage to a business or goodwill of the trader by whom the action is broughtor will probably do so.

The common law passing off tort would seem to be applicable in cases of thekind of the one at issue as it includes the possibility to ensure that extra-territorial reputation is protected within the domestic territory.

4.3.2.6. The Canadian Civil Code

There is also the possibility of bringing an action for the civil lawdélit de laconfusion, délit de la substitutionor délit du dénigrement, under Article1457 of theCivil Code of Quebec, (which deals with unfair competition),which provides as follows: "Every person has a duty to abide by the rules ofconduct which lie upon him, according to the circumstances, usage or law,so as not to cause injury to another. Where he is endowed with reason andfails in this duty, he is responsible for any injury he causes to another personand is liable to reparation for the injury, whether it be bodily, moral ormaterial in nature. He is also liable, in certain cases, to reparation forinjury caused to another by the act or fault of another person or by the act ofthings in his custody."

4.3.3. Conclusion

The complainant’s allegation according to which Canada does not providelegal remedies to effectively repress the unfair competition generated by theuse of the trademark "Parma" by Maple Leaf Meats Inc. does not appearcorrect. Most of the legal means described above can actually be employedin order to oppose Maple Leaf Meats Inc.'s unfair practices. As a matter offact, theConsorziohas made use of the very rights available to it under theTrademarks Act of Canada, which it alleges Canada failed to provide.

Only if Canada did not allow theConsorzio del Prosciutto di Parmatoprevent the use of its geographical indication by others than the owner of the"Parma" grandfathered trademark, it would be in breach of Article 22.2 ofthe TRIPS and of Article 10ter of the Paris Convention as it would notprovide to the Italian consortium the legal means to oppose unfaircompetition and misleading practices by third parties other than Maple Leaf.

38 A.G. Spalding & Brothers v. A.W. Gamage Ltd., (1915) 32 R.P.C. 273, House of Lords

39 Erven Warnick B.V. v. Townend & Sons Ltd., [1979] All.E.R. 932-3, House of Lords

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In addition, Canada should be requested to enforce the relevant provisions ofthe Consumer Packaging and Labelling Act and of the Food and Drugs Act,in order to have removed from the packaging and labelling of the Canadianoriginating cured raw ham sold by Maple Leaf Meats Inc. under thetrademark "Parma" all descriptions and illustrations which have the potentialto deceive and mislead the consumer and which constitute acts of unfaircompetition under Article 10bis of the Paris Convention.

5. ADVERSE TRADE EFFECTS

The TBR investigation focused on the existence of adverse trade effects andexamined the impact of such adverse trade effects on the Community industry ofProsciutto di Parma. In this respect, the present chapter took into account thefollowing:

• the impossibility in advertising and marketing theProsciutto di Parmaunder itsgeographical indication, thus confusing the Canadian consumer on the real originof the product and tarnishing the quality image of theProsciutto di Parma;

• the impossibility to recover the additional costs due to the sanitaryrequirements of the Canadian Federal Ministry of Agriculture and Food and thelabel especially designed for the Canadian market;

The above-mentioned adverse trade effects hamper the sales ofProsciutto di Parmain the Canadian market and result in a low demand, which hinders the commercialeconomies of scales necessary to lower the selling prices.

5.1. Impossibility to develop a marketing and advertising policy

The reputation ofProsciutto di Parmais based on the strict controls andproduction criteria required for a product bearing the geographical indicationand on its quality. TheConsorzio del Prosciutto di Parmaand theIstitutoParma Qualità monitor all aspects of the production process, which isregulated by the Italian law. Since its creation, theConsorzio has putimportant resources in advertising and promoting the product world-wide.Over 2,250,000 USD has been spent promotingProsciutto di Parmafrom1989 to 1996 in France, Germany, Belgium, UK, Japan and US alone. In1966,Prosciutto di Parmawas sold in 9 countries; in 1985 in 22 countries.Thanks to the high quality of the product and to theConsorzio's promotionalactivities aimed at enhancing its value,Prosciutto di Parmais currently soldin 40 countries throughout the world.

The marketing of this high quality product relies to a great extent on therenown of theProsciutto di Parmageographical indication and related DucalCrown mark. Consumers are ready to pay a high price for a product whenthey are aware of its quality. In Canada, the retail price of the domesticallyproduced cured raw ham amounts to 25-30 CAN$/kg compared to 45-60CAN$/kg for Prosciutto di Parma. The lack of protection of thegeographical indicationProsciutto di Parma impedes any advertisingactivity designed to enhance the value of the product. Since consumers are

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not given the assurance of the quality of the product, they do not understandand accept the price difference with the Canadian cured raw ham.

Importers and producers ofProsciutto di Parmamet during the investigationconfirmed their difficulties in promoting the product.Prosciutto di Parmamarket is a niche market (product of high quality), which needs continuousadvertising in order to justify its premium price. They estimate that it wouldbe possible to nearly triple their sales from 8,000 pieces in 1998 to 25,000within the next three years40 if the product could be promoted under thename Prosciutto di Parma, especially in view of the large Italiancommunity41.

5.2. Consumer confusion

The proceedings commenced by theConsorzio in front of the Canadiancourts aimed at the expunction of the Canadian trademark have alreadyfocused on the question of the misleading nature of the term "Parma". Bothparties presented two contradictory surveys demonstrating the following:

• On one hand, the survey conducted on behalf of the respondent MapleLeaf Meats Inc. concluded that the "vast majority of Canadian - at least96% and possibly higher - do not recognise Parma, Italy as a source ofham or pork products, or do not associate Parma meat products with aplace in Italy. As a result of the survey, the opinion of the analyst is thatham and pork products sold in association with the word Parma are notperceived to any significant extent as originating from, or beingassociated with, Parma Italy".

• On the other hand, the survey conducted on behalf of the applicantConsorzio del Prosciutto di Parmacriticised the previous survey andconcluded that "when members of the market encounter the Parma meatproducts specifically, a very significant proportion (43%) concludes theproduct comes from Italy and when the Parma meat packaging alsodisplays the national colours of Italy (red, white and green), a strongmajority (61%) of the market concludes that the product source is Italy".

These conclusions, which take into consideration different assumptions andsurveyed population, show that it is difficult to get to a univocal conclusionon the question. However, it has to be noted that the trademark "Parma", as itis used and displayed by Maple Leaf Meats Inc. on its products, creates amisunderstanding on the real origin of the product. Italian products aretrendy on the Canadian market and selling a product, which appears asoriginating from Italy, is a good sales argument. This is clearly demonstrated

40 According to the complainant, the potential market in Canada amounts to 40,000 to 50,000 pieces ayear.

41 In 1991 the Italian Community represented 1,147,775 people out of 26,994,045 in Canada (i.e.4.25%).

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by the fact that all the cured raw hams sold in Canada42 have an Italian name(San Daniele, Siena, Cappola).

All importers interviewed during the investigation confirmed that theaverage Canadian consumer is confused by the Canadian "Parma" trademark.They consider that only some sectors (the older generation) of the ItalianCommunity may be able to differentiate clearly between the Italian andCanadian ham.

In conclusion, it can be affirmed that the confusion created by the use madeby Maple Leaf Meats Inc. of the "Parma" trademark engenders an adverseeffect for exports ofProsciutto di Parmato Canada.

5.3. Image of theProsciutto di Parma

In countries where theProsciutto di Parmageographical indication isprotected consumers usually associate it with a high quality product having aparticular flavour and certain specific characteristics subjected to strictcontrols.

In Canada, the lack of protection of the geographical indication, on whichProsciutto di Parmaheavily relies to be marketed, prevents the complainantfrom clearly differentiating its cured raw ham from the lower qualityCanadian product. The existence on the Canadian market of a productsimilar to theProsciutto di Parma, but of a notably inferior quality, which issold under the "Parma" trademark and it is marketed in a manner that islikely to create confusion withProsciutto di Parma, tarnishes its image andreputation. This affects negatively exports of the Italian product to Canada.

5.4. Additional costs

Italian producers have to bear additional costs due to compliance withspecific conditions imposed by the competent Canadian sanitary authorities.In addition, the impossibility to use the geographical indication oblige themto export products bearing a label especially designed for the Canadianmarket.

5.4.1. Canadian specific requirements

In Spring 1997, the Canadian Federal Ministry of Agriculture and Foodgranted the permits necessary for the importation into Canada ofProsciuttodi Parma under certain strict sanitary requirements. Italian cured raw hamsexported to Canada are produced exclusively for that market with theapplication, right from the pig-breeding and slaughtering stages, of a numberof controls and special production techniques. For example, theProsciutti diParmafor the Canadian market have a maturing period of not less than 400

42 see paragraph 2.4.1

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days (longer than the period laid down in Italian law)43 and only oneslaughterhouse and 14 producers are approved by the Canadian authorities.

5.4.2. Special label

As the Italian producers cannot export under the geographical indicationProsciutto di Parma, they brand the products intended to be exported toCanada with special labels44. This involves additional production costs thatcan be evaluated at 500 Liras.

Compliance with all these specific requirements and special label leads toextra production costs (at least 20%) that cannot be recovered by selling theproduct on other Italian, Community or international markets.

5.4.3. Conclusion

The above mentioned factors lead to higher selling prices that cannot bejustified by any marketing, advertising and promotional investments underthe geographical indicationProsciutto di Parma. This affects the distributorsthat have not sufficient outlets for the Italian quality hams acquired at highprice and cannot therefore be motivated to purchaseProsciutto di Parma. Asa consequence, the demand is low, which hinders the commercial economiesof scale.

Presently, importing prices45 are rather high compared to the US market.Most importers confirmed that the demand would increase significantly ifthe selling price decreases. The price difference with the US is explainedboth by the Canadian sanitary regulations limiting the suppliers authorised toexport to Canada (limited supply results in high prices) and the additionalproduction costs.

5.5. Limited access to the Canadian market

The main adverse trade effect caused by the lack of protection of theProsciutto di Parma geographical indication is a severe difficulty inaccessing the Canadian market. It is impossible to precisely quantify theeconomic damage caused by this lack of protection. However, it isinteresting to compare exports to Canada with exports to the US where thegeographical indication is protected, where there are not unfairly competingtrademarks and which have a comparable socio-economic situation. Thecomparative table below indicates total exports ofProsciutto di ParmatoCanada and US, their total population together with the number andpercentage of people of Italian origin and of those speaking Italian at home:

43 Italian hams have a minimum ageing time of 10 months for a weight comprised between 7 and 9 kilosand 12 months over 9 kilos. See Chapter 2.1.

44 The Italian producers export to Canada under the trademark “The Original Prosciutto" and "Zerto".

45 In the US the retail price per Kg of Prosciutto di Parma is more or less 15% lower than in Canada (theimported price in Canada amounts at 19,000 Italian Liras/Kg whereas in the US it amounts at 17,000Italian Liras/Kg, i.e. 11% less).

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US Canada

Total population 249,439,000 28,528,125

Total Italian Origin

- in number

- in percentage

11,286,81546

4.5%

1,207,47547

4.2%

Total Italian spoken at home

- in number

- in percentage

1,308,648

0.52%

215,100

0.75%

Total Prosciutto di Parmaexports in 1999 195,455 9,094

Exports to the US started in September 1989 and increased from 47,920pieces in 1990 to 195,455 pieces in 1999. As regards Canada, exports startedin July 1997 and increased from 5,000 pieces in 1997 to 8,000 pieces in 1998and 9,094 pieces in 1999. Given that the size of the Canadian population isapproximately 10 times lower than the US one, the potential of the Canadianmarket for Prosciutto di Parmacould reasonably be estimated at 20,000pieces. This estimation is rather conservative considering the large ItalianCommunity in Canada and its links with the Italian culture and way of life.Indeed, the Italian immigration is more recent in Canada than in the US.That's why, according to the importers, the potential amounts to at least25,000 pieces.

As far, only six producers (out of the 14 agreed by the Canadian sanitaryauthorities48) effectively exported to Canada: few firms decided to make thenecessary investments and, under the present conditions, this number is notexpected to raise in the near future. The reason for this small number is thelow demand and the impossibility of increasing it with promotional andadvertising campaigns under the geographical indicationProsciutto diParma. Furthermore, some firms refuse to export if they are not allowed touse the proper geographical indication49.

5.6. Impact on the economy of the Community

The lack of protection of the geographical indication Parma impedes exportsfrom the Community to Canada and has an impact on the economy of aregion of the Community (Parma). Indeed, export markets are a goodopportunity for Prosciutto di Parma producers as they represent

46 Source : US Bureau of the census, 1990 “Persons of Italian ancestry”

47 Source : Statistics Canada (Canada’s national statistical agency) 1996 “Ethnic origins in Canada”

48 The Canadian sanitary authorities were quite strict in agreeing producing sites. Japan granted permitsto export to 27 producers and the United States to 42.

49 The Italian producers export to Canada under the trademark "The Original Prosciutto", "Il numerouno" and "Zerto".

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approximately 30% of sales outside Italy in 1998. TheProsciutto di Parmasector consists of 5,550 swine breeding facilities, 163 slaughtering houses,201 producers and 3,000 people involved in the production process.

In addition, the protection and enforcement of geographical indications is ofgreat importance for the economy of several regions of the Community,especially in the agricultural sector. The Community product that bears thegeographical indication is recognised as a product of quality andconsequently has an important advantage when exported in third countries. Itis therefore essential to safeguard this asset for the benefit of theCommunity’s exports.

5.7. Threat of adverse trade effects

Given the presence and reputation of theProsciutto di Parmain manycountries world-wide, Maple Leaf Meats Inc. could have the intention toexport its cured raw ham under the "Parma" trademark to new markets wherethe geographical indicationProsciutto di Parmaand/or the Ducal Crownmark is not yet registered. In fact it was reported50 that the Japanese marketalready interests Maple Leaf Meats Inc., as they tried to find Japaneseimporters. In addition, as noted, Maple Leaf Meats Inc. recently doubled itscurrent capacity of cured raw ham plant in order to create new exportopportunities.

This situation could again impede exports ofProsciutto di Parmato thesemarkets and constitutes an important threat to exports ofProsciutto diParmato third countries, notably those developing markets whereProsciuttodi Parma position is not yet firm and its reputation has not been fullyestablished.

5.8. Conclusion

The impossibility to develop a marketing and advertising policy under thetrademark "Parma", the confusion of the consumer on the real origin of theproduct, the damage on its reputation together with the extra-productioncosts hamper the sales ofProsciutto di Parmain the Canadian market. Thelow demand resulting thereof hinders the commercial economies of scalenecessary to lower the selling prices, an obvious pre-requisite to increasesales.

In summary, the main findings of the investigation evidenced that the lack ofprotection of the geographical indicationProsciutto di Parma impedesexports of Prosciutto di Parmafrom the Community to the Canadianmarket, thus causing adverse trade effects within the meaning of Article10(4) of the Trade Barriers Regulation. In addition, the possibility to exportthe Italian cured raw ham to developing export markets where thegeographical indicationProsciutto di Parmaand/or the Ducal Crown mark is

50 Letter from the Italian Embassy in Japan to the Consorzio Prosciutto di Parma

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not yet registered threatens to cause adverse trade effects to the Communityindustry.

Therefore, the Commission services consider that the lack of protection ofthe geographical indicationProsciutto di Parmain Canada causes andthreatens to cause adverse trade effects within the meaning of Article 2(4) ofthe Trade Barriers Regulation.

6. CONCLUSIONS

In the light of the foregoing, the Commission services arrived at the followingconclusions and suggest the course of action referred to below.

The investigation provided sufficient evidence for assessing that:

• The claim by the complainant according to which Canada refused to register theProsciutto di Parmacollective/certification marks refers to a situation whereapplications were objected to, but not yet formally rejected. Indeed, theapplication procedures for registration are still open. On the other hand, theCanadian Trademarks Office has objected to such applications on the basis of thepre-existing "Parma" trademark.

• The fact that Canada has through the TMO public notice recognised the DucalCrown mark as an "official mark" under Section 9 of the Canadian TrademarksAct is a positive development. The public notice should give theConsorziotheright to use its geographical indication and to stop any new use by others of theDucal Crown mark or any confusingly similar mark (albeit without prejudicingthe validity of the registration of the Canadian "Parma" trademark.).

• Even if it does not protect it in the form of a certification mark, Canada could notdeny protection of the geographical indicationProsciutto di Parmaunder Article24.5 of the TRIPS.TheConsorzio's allegation that Canada refuses to expunge theMaple Leaf Meats Inc.'s "Parma" trademark from the Canadian TrademarksRegister refers to a judicial procedure, aimed at establishing whether theregistration of the contested trademark was valid, which is still ongoing beforethe Canadian Federal Court. In these proceedings the question of the good faithrequirement of Article 24.5 (which is an issue of fact) is expected to be assessed.

• We note that the complainant has not imported into Canada any ham with theappellationProsciutto di Parmafollowing threats of legal action by Maple Leaffor alleged infringement of trademark rights under Canadian law. However, asregards the allegation of the complainant according to which Canada violatesArticle XI.1 of the GATT 1994 by maintaining prohibitions or restrictions otherthan duties, taxes or other charges made effective through measures on theimportation of cured raw ham does not appear to be founded, as the Canadianmeasure is an internal one. With regard to Article III.4 of the GATT1994, wereserve the examination of this aspect to a possible later stage, when the practicalimplications of the application of Canadian law to such imports have becomeclearer.

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• The complainant’s allegation according to which Canada violates Article 22.2 ofthe TRIPS and Article 10bis and ter of the Paris Convention by not providinglegal remedies to effectively repress the unfair competition generated by the useof the trademark "Parma" by Maple Leaf Meats Inc. does not appear founded.The Consorziohas several legal possibilities available to counter practices byMaple Leaf Meats Inc. when it uses its trademark "Parma" in a manner that canbe considered as an act of unfair competition under Article 10bis of the ParisConvention. Nevertheless, Canada should be requested to enforce the relevantprovisions of the Consumer Packaging and Labelling Act and of the Food andDrugs Act, in order to have removed from the packaging and labelling of thecured raw ham sold by Maple Leaf Meats Inc. under the trademark "Parma" alldescriptions and illustrations which have the potential to deceive and mislead theconsumer.

• The present lack of protection of the geographical indicationProsciutto di Parmacaused to the complainant adverse trade effects within the meaning of Article2(4) of the Trade Barriers Regulation (TBR), as it impeded exports ofProsciuttodi Parma from the Community to the Canadian market. These adverse tradeeffects have a considerable impact on the economy of a region of the Community.

7. ENVISAGED COURSE OF ACTION

The Canadian courts are currently evaluating the rights of the complainant and ofMaple Leaf Meats Inc. in relation with the use of their respective intellectualproperty rights both via its Trademarks Office and in its courts. Depending on theoutcome of the proceedings commenced by the complainant in Canada, threepossible scenarios can be envisaged:

(1) The TMO rejects Maple Leafs Meats Inc.'s appeal against the recognition of theConsorzio del Prosciuttodi Parma as a "public authority" under Section 9.1(n)(iii)of the Canadian Trademarks Act and the Trial Division of the Federal Court ofCanada accepts theConsorzio'sclaim to have the "Parma" trademark expungedfrom the Federal Trademarks Register (either for it being misleading, not registrableor for not having been registered in good faith). In such a case, theProsciutto diParma geographical indication would be granted full protection. No violation ofWTO provisions would arise in these circumstances.

(2) The TMO rejects Maple Leafs Meats Inc.'s appeal against the recognition of theConsorzio del Prosciutto di Parmaas a "public authority" under Section 9.1(n)(iii)of the Canadian Trademarks Act and the Trial Division of the Federal Court ofCanada rejects theConsorzio's claim to have the "Parma" trademark expunged fromthe Federal Trademarks Register (finding that it is not misleading, it is registrableand that it has been registered in good faith). Such an outcome of the judicialproceedings would be acceptable for the Community industry as long as it will allowa coexistence of the two intellectual property rights at issue. In this case, Maple Leafwill continue to use its "Parma" trademark while theConsorzio's geographicalindication will be equally protected.

(3) The TMO accepts Maple Leafs Meats Inc.'s appeal against the recognition of theConsorzio del Prosciutto di Parmaas a "public authority" under Section 9.1(n)(iii)of the Canadian Trademarks Act and the Trial Division of the Federal Court of

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Canada rejects theConsorzio'sclaim to have the "Parma" trademark expunged fromthe Federal Trademarks Register. In this case, the situation of theConsorziowithregard to the protection of its geographical indication in Canada would be seriouslyundermined. During the investigation, Maple Leaf representatives made clear thatunder the above scenario they will start proceedings under Section 53 of theTrademarks Act to stop imports of ItalianProsciutto di Parmabearing the DucalCrown iron brand. Such threat would lead to a complete lack of protection of thegeographical indication as such. Allowing Maple Leaf Meats Inc the right to denyprotection of the geographical indication in any form would mean that a trademarkis given priority over a geographical indication; such a result would be clearly atodds with the above analysis of the TRIPs provisions concerning the relationshipbetween trademarks and geographical indications. In such a case any action toenforce trademark rights over a geographical indication would appear to be inviolation of Canada's obligations under the TRIPS. More specifically, by so doingCanada would fail to implement Section 3, Part II of the TRIPs on geographicalindications by giving primacy to Section 2, Part II on trademarks and thus bypreventing theConsorzio from identifying their prosciutto as originating in theregion of Parma even though the validity of the registration or Maple Leaf's right touse the "Parma" trademark.

Finally, Canada would violate Article 22.3, by failing to invalidate the registrationof the "Parma" trademark in the event it was found to not have been registered ingood faith or, provided the hypothesis on the respective scopes of Article 22.3 and24.5 set out above is accepted, also in case it was found to be misleading.

The above constitutes an analysis of the situation as it currently stands. The issueswould need to be further assessed in the light of the reasoning of the relevantCanadian decisions.

If the proceedings in the Canadian courts result in scenarios (1) and (2), it could beenvisaged to terminate the TBR procedure. In the event of scenario (3), WTO actionwould have to be seriously considered in the light of developments.