Wednesday, 13 January 2016

AG Kokott rejects challenges to the validity of the Tobacco Products Directive – implications for standardised packaging legislation in the Member States?




Jonathan Griffiths, Reader in Intellectual Property Law, Queen Mary University of London

The Tobacco Products Directive (Directive 2014/40/EU, revising Directive 2001/37/EC) imposes stringent controls on the marketing of tobacco products. It introduces, inter alia, a requirement for cigarettes and hand-rolling tobacco to carry more prominent picture and text health warning, further regulatory controls on the marketing of tobacco products (including e-cigarettes) and a prohibition on the marketing of tobacco products with “characterising flavours” (including menthol cigarettes).

On 23rd December, Advocate General Kokott delivered her Opinions in three cases concerning the validity of various provisions of the Directive. In (C-358/14) Republic of Poland v Parliament &Council, Poland seeks annulment of the Union-wide prohibition on menthol cigarettes. Both other cases are requests for a preliminary ruling made in judicial review proceedings by the High Court of England and Wales. (C-477/14) Pillbox 38 (UK) Ltd was referred in a case concerning the domestic implementation of the Directive’s rules concerning e-cigarettes. In the national proceedings in (C-547/14) Philip Morris Brands SARL, in a challenge described by the Advocate General as “a kind of general onslaught”, tobacco companies call into question the domestic implementation of several of the Directive’s provisions. In all three Opinions, the Advocate General advises the Court comprehensively to reject the challenges to the Directive’s validity.

This blogpost focuses on the Opinion in Philip Morris Brands SARL. It outlines the Advocate General’s conclusions on the various questions referred by the High Court and then move on to reflect on that Opinion’s potential implications for current disputes concerning the introduction of legislation requiring fully standardised packaging for tobacco products by some Member States (notably, the United Kingdom, Ireland and France).

(C-547/14) Philip Morris Brands SARL

Phillip Morris (and British American Tobacco) (“the tobacco companies”) brought a claim for judicial review against the Secretary of State for Health, seeking to prevent the implementation of the Directive.  They challenge the Directive on a variety of grounds. They claim, first, that Art 114 does not provide an adequate legal basis for several provisions of the Directive. Secondly, they argue that the Directive violates the principle of proportionality, particularly when viewed in the light of the Union legislature’s obligation to respect their fundamental rights under the EU Charter of Fundamental Rights. Thirdly, they argue that the Directive improperly delegates certain powers to the Commission and, as a result, violates Arts 290 and 291 TFEU. Finally, they claim that the Directive breached the principle of subsidiarity.

While the Secretary of State considers the Directive to be valid, he took the view that the Court of Justice had exclusive jurisdiction to assess its validity. In such circumstances, the High Court simply referred a list of questions concerning the companies’ challenge to the Court of Justice for a preliminary ruling.

Admissibility

Palpably irritated by some aspects of the reference, Advocate General Kokott advised the Court that, in her view, several of the referred questions are inadmissible. A number of the referred questions concern the companies’ challenges to those provisions of the Directive which provide latitude for Member States to adopt more stringent national tobacco control measures than those set out under the Directive (including “standardised packaging” under Art 24(2)). In the absence of the actual adoption of any national measures, the Advocate General considered that, such questions are hypothetical. [37]-[43]. Secondly, several of the referred questions relate to powers delegated to the Commission under the Directive. However, the proceedings before the national court concern only the United Kingdom’s intention and duty to implement the Directive and therefore any questions concerning the Commission’s role are also inadmissible at this stage. [44]-[47]. Thirdly, the national court had raised certain questions about the compatibility of the Directive with the principle of subsidiarity. However, the nature of any such alleged incompatibility was not explained at an adequate level of detail and such questions were therefore, save in one limited respect, also inadmissible. [48]-[51]. Despite the fact that the Advocate General considered these referred questions to be inadmissible, she went on to provide her views on their substance in the alternative (see below).

Even where admissible, the referred questions did not escape criticism. The Advocate General was particularly concerned that the High Court had generally provided a very limited description of the relevant arguments relating to the questions referred [32]-[34]. In effect, the national court appears to have had done little more than convey the text of the tobacco companies’ challenge without making any significant attempt to come to its own view on the various questions. In noting that the companies’ claims were “reasonably arguable”, the national court had done the “absolute minimum” necessary to render the remaining questions admissible [21]-[30].

Art 114 TFEU as legal basis for provisions of the Directive

In a well-established formula, the Advocate General initially noted that recourse to Article 114 TFEU as the legal basis for Directive 2014/40 could not be called into question simply because, in addition to improving the functioning of the internal market for tobacco and related products, the Directive also pursued a high level of health protection as a goal. [56] She then went on to assess each challenge under Art 114 TFEU in turn. They focused on provisions of the Directive which (i) prohibit the marketing of tobacco products with a characterising flavour (Art 7); (ii) regulate the labelling and packaging of tobacco products (Arts 8-16);  (iii) grant Member States freedom to introduce further standardisation of the packaging of tobacco products (Art 24(2)) and to prohibit certain categories of tobacco product for reasons relating to the specific situation in a Member State (Art 24(3)); (iv) give Member States the option to prohibit cross-border distance sales of tobacco products to consumers (Art 18(1)); and (v) authorise the Commission to implement certain internationally agreed standards on a continuing basis (Arts 3(4) & 4(5)).

The Advocate General considered that, if these provisions are interpreted appropriately, Art 114 TFEU provides an adequate legal basis for the Union legislature’s activity. Relevant current and future obstacles to trade exist and the contested provisions will improve the functioning of the internal market. Undoubtedly, where tobacco products are prohibited, the Directive is not capable of improving the functioning of the internal market for those products. However, it is recognised in the Court’s jurisprudence that Article 114 TFEU grants the Union legislature the power to prohibit the placing on the market of a certain product if this helps to improve trading conditions for a class of other products [54]-[144].

Proportionality

In the national judicial review proceedings, the tobacco companies challenged the proportionality of two aspects of the Directive - the prohibition on the marketing of tobacco products with characterising flavours and the regulation of the labelling and packaging of such products. In accordance with established jurisprudence, the Advocate General noted that the principle of proportionality:

“..requires that acts of the EU institutions be appropriate for attaining the legitimate objectives pursued by the legislation at issue and do not go beyond what is necessary in order to achieve those objectives;… when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued…” [146]

In assessing proportionality, the Court is obliged to take fundamental rights into account wherever relevant.

In the national court, the tobacco companies claimed that many of the contested provisions of the Directive interfere disproportionately with their freedom to conduct a business (Art 16, EU Charter). In examining these claims, the Advocate General noted that the Union legislature has a broad discretion to interfere with the right to conduct a business where it acts in an area, such as that of tobacco control, which involves political, economic and social choices and in which it is called upon to undertake complex assessments and evaluations. This was particularly so where the Union legislature acted to achieve a high level of health protection in the European internal market. In such circumstances, legislative activity will only be invalid if it is manifestly inappropriate for attaining the legitimate objectives pursued, goes manifestly beyond what is necessary to achieve those objectives or entails disadvantages which are manifestly disproportionate to its objectives. [149]-[150]

In this light, and in view of the precautionary principle [155]-[160], the Advocate General did not consider that the contested measures constitute a disproportionate interference with the tobacco companies’ freedom to conduct a business. A number of less intrusive means of satisfying the legislature’s health goals had been suggested by the tobacco companies. These included the imposition of age limits on the sale of cigarettes with characterising flavours and the launching of information campaigns about the dangers of tobacco products. However, in the Advocate General’s view, these would clearly be less effective than the measures adopted under the Directive. In considering proportionality in the strict sense, she acknowledged that the contested provisions would have an adverse economic impact on some undertakings. However, she noted that transitional periods were available under the Directive and, in any event:

“It should be borne in mind…that the protection of human health has considerably greater importance in the value system under EU law than such essentially economic interests (see Articles 9 TFEU, 114(3) TFEU and 168(1) TFEU and the second sentence of Article 35 of the Charter of Fundamental Rights), with the result that health protection may justify even substantial negative economic consequences for certain economic operators.” [179][204]

This being so, the contested provisions did not interfere disproportionately with the companies’ freedom to conduct a business. 

The national court also referred a question concerning the proportionality of Art 13 of the Directive with the tobacco companies’ right of freedom of expression under Art 11 of the Charter. Art 13 prohibits elements of labelling on the packaging of tobacco products that give rise to a number of specified effects, including those that (i) promote a tobacco product or encourage its consumption by creating an erroneous impression about its characteristics, health effects, risks or emissions; (ii) those that suggest that a particular tobacco product is less harmful than others or aims to reduce the effect of some harmful components of smoke or has vitalising, energetic, healing, rejuvenating, natural, organic properties or has other health or lifestyle benefits and (iii) those that suggest economic advantage. The Advocate General interpreted this provision as prohibiting both true and false statements on product packaging where those statements, viewed objectively, are capable of producing one or more of the designated effects:

“An ‘organic cigarette’ is still a product that is extremely harmful to health. Information on the product packaging should not suggest even to consumers who are aware of the health risks of smoking — even merely subconsciously — that it is desirable for them or beneficial to the environment to smoke ‘organic cigarettes’. In addition, any poor conscience on the part of smokers on account of the health risks associated with the consumption of tobacco products should not be appeased by the fact they are doing something good for themselves or for the planet by turning to ‘organic cigarettes’ rather than conventional cigarettes.” [222]

Nevertheless, even when interpreted expansively in this way, Art 13 does not constitute a disproportionate interference with the tobacco companies’ right of freedom of expression. The Union legislature has less freedom of manoeuvre in restricting freedom of expression than it has in interfering with the right to conduct a business. The European Court of Human Rights has for some time subjected restrictions to commercial communications to a detailed proportionality enquiry and the Court of Justice should do likewise. However, according to the Advocate General, the constraints imposed by Article 13(1) were not disproportionate to the health protection objectives pursued, particularly as the products at issue entail considerable health risks [211]- [237].

Improper delegation of powers to the Commission

Under Art 290(1) TFEU, the Union legislature may delegate the power to adopt non-legislative acts of general application to supplement or amend a basic legislative act to the Commission and, under Art 291TFEU, the legislature may delegate the power to adopt measures that implement legislation to the Commission. The referring court asked whether, in passing provisions of the Directive, the Union legislature had exceeded the limits of these powers of delegation; in particular, because a number of the powers delegated were either legislative in nature or were unreasonably vague. The Advocate General considered any such criticisms to be ill-founded [238]-[269].

The principle of subsidiarity

Under the principle of subsidiarity, as enshrined in Art 5(1) TEU in conjunction with Article 5(3) TEU, in areas which do not fall within its exclusive competence, the Union may act only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States, but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level [271]. As noted above, in large part, the questions referred by the national court on the application of the subsidiarity principle were considered to be inadmissible by the Advocate General because they had not been presented in sufficient detail. The only admissible question on subsidiarity was given short shrift by the Advocate General, who was strongly of the view that action to control tobacco products with characterising flavours could not be achieved at national level and that the Directive’s objectives in this regard could be better achieved at Union level.

In addition to this challenge on substance, the national court had asked whether the Union legislature had provided an adequate statement of reasons for the Directive in the light of the principle of subsidiarity, suggesting that the legislature had simply asserted compliance with the principle of subsidiarity in a formulaic manner. That being the case, a question arose as to whether the Directive was vitiated by a defective statement of reasons. In considering this question, the Advocate General noted that:

“Where compliance with the principle of subsidiarity is under examination, it must be clear from the statement of reasons for the EU measure whether the Union legislature gave sufficient consideration to questions relevant to the principle of subsidiarity and, if so, what conclusions it reached with regard to subsidiarity.” 

She agreed that Recital 60 of the Directive was an “empty formula”. However, this did not necessarily mean that the measure was invalid because aspects relevant to the issue of subsidiarity were also to be found in other recitals, even if those recitals do not themselves make express reference to the principle of subsidiarity . Furthermore, it was not necessary for the justification for a Union measure in the face of the principle of proportionality to be completely evident in the contested legislative measure itself. Here, for example, justification for the Union’s legislative action could be found in the Explanatory Memorandum for the Commission’s Proposal for a Directive and in the comprehensive preparatory work by the Commission staff in connection with the impact assessment for the Directive. As a result, the legislative institutions had adequate material on which to base their evaluation of compliance with the principle of subsidiarity [270]-[301]. Nevertheless, according to the Advocate General:

“...it is strongly advisable that in future the Union legislature avoids set formulas like the one contained in recital 60 in the preamble to the Directive and instead enhances the preamble to the EU measure in question with sufficiently substantial statements regarding the principle of subsidiarity which are tailored to the measures in question. [301]

Implications for standard packaging legislation in the Member States

If the Court follows Advocate General Kokott’s guidance, the most controversial provisions of the Tobacco Products Directive will comprehensively withstand the tobacco industry’s “general onslaught”. However, the industry’s legal challenge to tobacco control legislation in Europe will certainly not end there. As explained above, Art 24(2) of the Directive provides that:

“This Directive shall not affect the right of a Member State to maintain or introduce further requirements, applicable to all products placed on its market, in relation to the standardisation of the packaging of tobacco products, where it is justified on grounds of public health, taking into account the high level of protection of human health achieved through this Directive. Such measures shall be proportionate and may not constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States...”

The United Kingdom and Ireland have already taken advantage of this freedom to enact comprehensive standardised packaging legislation (see the Standardised Packaging of Tobacco Products Regulations2015 and the Public Health (Standardised Packaging of Tobacco) Act 2015 respectively). France has committed to follow suit.

Under such laws, tobacco products must be sold in drab-coloured packaging without any branding other than a written indication of the brand and variant under which the product is sold. While the UK and Irish provisions are not set to come into force until May, they have already been challenged by the tobacco industry in judicial review proceedings. In the United Kingdom, the High Court heard the industry’s challenge in December and judgment is expected soon. The industry argues, amongst other things, that the domestic legislation interferes with the principle of freedom of movement of goods, breaches European trade mark law and violates a number of their fundamental rights.

(C-547/14) Philip Morris Brands SARL does not concern Member State standardised packaging legislation and, indeed, as we have seen, the national court’s questions on the validity of Art 24(2) have been considered inadmissibly hypothetical. Nevertheless, if endorsed by the Court, the views of the Advocate General may have important implications for the outcome of the domestic challenges to the legality of the UK and Irish legislation.

National court not simply to refer tobacco companies’ challenges without attempting to reach its own view

The tobacco industry has deep pockets and resists tobacco control measures by all means possible. In the domestic proceedings in (C-547/14) Philip Morris Brands SARL, the industry clearly threw the kitchen sink at the Directive. In such circumstances, it is perhaps not surprising that the domestic judge largely satisfied himself with establishing that the claims were arguable before passing them swiftly on to the Court of Justice. Nevertheless, the Advocate General’s strongly-worded criticism must make it more likely that the High Court judge currently considering the challenge to the UK’s standardised packaging regulations will attempt resolve the industry’s multiple claims himself rather than simply referring them to the Court.

Free movement of goods

In (C-547/14) Philip Morris Brands SARL, the tobacco companies suggested that Art 24(2) could not properly be based on Article 114 TFEU because it allows Member States to undermine the free movement of goods by introducing more stringent rules than those laid down at Union level. As has been indicated above, the national court’s question on this issue was considered inadmissible. Nevertheless, in the alternative, the Advocate General suggested that Art 114 TFEU provided an appropriate legal basis for Art 24(2). Properly interpreted, this provision permitted Member States to adopt “further requirements” only in so far as the Union legislature itself has not carried out harmonisation. As such, Art 24(2) simply made it clear that the Directive was only partially harmonising. [105]-[120]. On this basis, the Advocate General indicated that it ought to be possible for Member States to introduce fully standardised packaging legislation at national level:

…[T]he Member States remain free, in particular, to lay down their own requirements as to colours of all parts of the packaging which are not reserved for warnings, extending as far as the standardisation of packaging….Colouring is regulated — indirectly — in the Directive at most in so far as Article 13 prohibits tobacco products being given a misleading or deceptively positive presentation.” [113]

Such national legislation would, of course, introduce new obstacles to trade and the question of proportionality would be crucial in determining whether the interference with the principle of free movement of goods which they create can be justified. Again, on this issue, the Advocate General’s Opinion offers interesting insight.

Proportionality and fundamental rights

Formally at least, the proportionality of national legislation must, be examined against a stricter standard than that applied generally by the Advocate General in (C-547/14) Philip Morris Brands SARL (“manifest disproportionality”). There are also differences in the factual and policy contexts of the two disputes. Nevertheless, there are many indications in the Opinion that suggest that, in principle, national standardised packaging legislation will survive review for compatibility with the proportionality principle in Union law.

Logically, a Member State legislature ought also to benefit from discretion to legislate in an area, such as tobacco control, which involves political, economic and social choices and in which complex assessments and evaluations must be undertaken and the “precautionary principle” ought to apply where national legislation aims to achieve important public health objectives against a background of scientific evidence that is, to some degree, uncertain. More particularly, however, the Advocate General’s Opinion indicates considerable scepticism about some of the arguments upon which the industry has relied heavily in the judicial review of the standardised packaging regulations in the United Kingdom.

She was clearly not persuaded by claims that an alleged increase in the trade in counterfeit tobacco products resulting from standardised packaging legislation renders such legislation disproportionate. [84]-[85]; [182]. Perhaps even more importantly, she rejected, with some disdain, the argument that standardised packaging legislation will be ineffective in dissuading people (and particularly young people) from smoking; noting that plainer packaging will remove some of the “coolness or fun factor that may be associated with unusual or particularly striking packaging and the curiosity that may be inherent in new or unusual packaging…” [191].

Conclusion – the role of fundamental rights

In lobbying on, and litigating against, standardised packaging legislation, the tobacco industry has placed considerable reliance on its fundamental rights. However, the Opinion in (C-547/14) Philip Morris Brands SARL suggests that the presentation of its arguments within the framework of the Charter is unlikely to have a conclusive impact on the outcome of its challenge to standardised packaging legislation. The right to conduct a business is clearly very readily outweighed in the public interest and, even if the restriction of the industry’s right to apply its trade marks is framed as an interference with property under Art 17 of the Charter, little significant difference would appear to be made to the assessment of proportionality in this instance (see (C-477/14) Pillbox 38 (UK) Ltd [194]-[201]). Even arguments based upon the more potent right of freedom of expression are unlikely to prevail. Ultimately (and perhaps unsurprisingly), all such claims face the same obstacle. In the Advocate General’s words:      

“Certainly, the standardisation of the shape, size and minimum content of cigarette packets brought about by the Directive means a loss of diversity, marketing opportunities and competitive potential for manufacturers of tobacco products. However, the purely economic interest in the greatest possible inter-product and inter-brand competition must be secondary to the protection of human health, which, as has already been stated, has considerably greater importance in the value system under EU law…” [193]-[204].

This, however, is not the only interesting point to be made about the Union’s fundamental rights framework. More generally, there are also a couple of features of the Opinion which indicate that the Court’s jurisprudence on the application of the Charter may not yet be fully established. First, while the Advocate General referred to the right to health care protected under Art 35 of the Charter as designating a public interest of very high importance, she did not examine the legitimacy of the various contested provisions by reference to the need to establish a “fair balance” between competing rights of equivalent status. Instead, she sought strictly to determine the proportionality of the Union legislature’s interference with the tobacco companies’ protected rights. This approach might have been employed as a result of the manner in which the national court had referred its questions. However, in other cases, the Court has employed a “fair balance” framework and this diversity of approach indicates a significant ambiguity at the heart of its fundamental rights jurisprudence.

Another interesting feature of the Opinion relates to the concept of the “essence” of protected fundamental rights. Under Art 52(1):

Any limitation on the exercise of the rights and freedoms recognised by this Charter must…respect the essence of those rights and freedoms.
  
In this context, “essence” appears to indicate an irreducible minimum of protection. However, the exact function of this concept has yet to be explained clearly by the Court. This uncertainty seems apparent in the Opinion. Following a thorough assessment of the proportionality of the Directive’s interference with the right of freedom of expression, the Advocate General provides only the following briefest of afterthoughts:

“The essence of freedom of expression (first sentence of Article 52(1) of the Charter of Fundamental Rights) is likewise not affected if commercial communications by undertakings which are intended solely to promote sales are restricted by an EU legislative act” [236].

The lack of further explanation here perhaps again indicates another aspect of the Court’s fundamental rights jurisprudence awaiting further elaboration.


Barnard & Peers: chapter 5, chapter 11, chapter 12
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