Evaluation of the Keck Formula in Selling Arrangements

“The introduction of ‘certain selling arrangements’ has imposed an unnecessary straitjacket on the development of the Keck principle. Not only is the Keck formula too narrow; paradoxically, it is also too broad in that it catches ‘dynamic’ measures (such as restrictions on advertising) and therefore takes them outside the scope of Article 28 even though they do affect inter-state trade.”

(C. Barnard, The Substantive Law of the EU. The Four Freedoms (OUP 2d ed.) at 149).

Discuss

Introduction

Article 28 of the EC Treaty concerns the free movement of goods in the EU and states that, “quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between member states”. The nature of what constitutes a “measure having equivalent effect” was enunciated in the European Court of Justice’s (ECJ’s) judgment in the case of Dassonville [1974] ECR 837. In this particular case the court stated that the phrase was to extend to “…all trading rules enacted by Member States that are capable of hindering, directly or indirectly, actually or potentially, intra-community trade”(1) This broad interpretation on the application of Article 28 resulted in a much increased tendency for traders to challenge Member States internal laws, that on a strict interpretation, breached Article 28, as defined by the Dassonville formula. An Example of such a challenge was in the case of Torfaen BC v B&Q[1989] ECR 765. In this case the ECJ rejected the assertion that laws of the United Kingdom relating to Sunday opening hours breach Article 28.

The ECJ had previously made a ruling in relation to rules imposed by Member States that specifically affect the nature of products in the case of Rewe Zentral v Bundesmonopolverwaltung fur Branntwein (Cassis de Dijon) [1979] ECR 649. In Cassis it was stated that justification would have to be provided for any state measure that affected the nature of products. The ECJ felt it necessary to re-define the scope of its ruling in Cassis, in relation to its stance over rules that did not necessarily affect the product itself, due to the increasing number of instances, where traders were invoking the Article as a means of challenging any rule which had the potential to limit their commercial freedom.

The Keck Formula

The judgment in case of Keck and Mithouard [1995] 1 CMLR 101 was designed to clarify this stance. The case involved a French law which prohibited distributors re-selling goods at a loss. In the judgment of that case the court stated, “Contrary to what has been previously decided, the application to products from other Member States of national provisions restricting or prohibiting certain selling arrangements is not such as to hinder directly or indirectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgment… so long as those provisions apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law and in fact, the marketing of domestic products and of those from other Member States”(2) As one commentator has recently written, “…unfortunately, it did not say which of the previous decisions was being overturned.”(3) This has led to a considerable degree of legal uncertainty in regard to precisely what measures will breach Article 28. It is valid to now argue that the ECJ, makes a distinction between rules that relate to the characteristics of the products themselves and those specifically aimed at how the products are sold. In order to critically evaluate the accuracy or otherwise of the supposition made regarding the Keck Formula, it is essential to assess its impact on subsequent ECJ legal judgments.

Is the Formula too narrow?

The Court in Lucien Ortscheit GmBH [1994] E.C.R I-5243, considered a situation where a piece of legislation prohibited certain advertisements, which contained an offer to obtain medicines by importing them from abroad. In this instance it was held that the legislation did indeed breach Article 28, as it was only applicable to medicines sold from other Member States. The ECJ in Vereinigte Familiapress Zeitungsverlags und Vertreibs v Heinrich Bauer Verlag [1997] 3 CMLR 1329 did consider that certain “selling arrangements” could have a bearing on the product itself. In this case, an Austrian law prevented publishers from including prize competitions within their publications. A German newspaper contained such a completion and was prohibited from selling newspapers in Austria. The court held that this law was in breach of Article 28, but its reasoning was that it concerned the nature of the product itself and not merely a “selling arrangement”. It does however point towards a more restrictive interpretation of the Keck Formula.

More recently, there has been indication form the ECJ of a more narrow interpretation of its own formula, this can be clearly seen in its ruling in TK-Heimdienst Sass [2000] E. C. R. I-151. In this case, “Austrian legislation restricted the possibility to do sales on rounds of given groceries to those traders who had an establishment in the administrative district where the sale on the rounds took place or in a district bordering it” (4) The ECJ in this instance, found that the law in question was not compatible with Article 28 as it was not a “selling arrangement” within the Keck Formula. Its main argument to support this assertion was based on the logical grounds that the residence requirement would always be indirectly discriminatory, due to the fact that foreign traders were much less likely to have an establishment within the specified area.

The court in Gourmet International Products [2001] E.C.R. I – 1795, again continued the more narrow approach towards the interpretation of the Keck formula. This case involved a near ban on alcohol advertising, which obviously affected domestic producers in the same way as foreign producers. It was adjudged that this measure fell within the definition of a “measure having equivalent effect” and sent the case back to the national courts of the country concerned to decide whether it was justified. “It should be noted that the Court’s reasoning is ambiguous in that it is based on a market access rationale and on the potential discriminatory effects of an outright ban of advertising, that might render access to the market of foreign alcoholic products more difficult than access to the market of domestic products with which the customer will be more familiar” (5) The most recent case of DocMorris [2003] ECR I-14887 has demonstrated a further shift away from the previous broad application of the Keck Principle. This case involved the prohibition on the sale of medicines outside pharmacies and had the effect of disallowing foreign internet-based pharmacies from gaining a foothold on the internal market of that country. The court ruled that in the case of non-prescription drugs only, the ban was not consistent with Article 28.

Is the Formula too broad?

There is a significant amount of European case law that demonstrates the number of situations where state measures that could be most damaging to intra-Community trade escape the effects of Article 28 via the Keck loophole. In the case of Punta Casa SPA v Sindaco del Commune di Capena [1994], the ECJ stated that Italian laws relating to shop opening hours did not breach Article 28. Its reasoning for this stance, was that the legislation was a mere ”selling arrangement” and affected all traders in the Member State evenly. The ECJ ruled in Commission v Greece [1995] E. C. R. I-1621 that a measure, which required all processed milk for infants to be sold in pharmacies, was a “selling arrangement”. Its argument was that as the law affected all producers in the same manner it was not a measure which breached Article 28.

In the case of R Hunermund v Landesapothekerkammer Baden-Wurttemburg [1993] ECR 1-6787, the ECJ that a rule prohibiting the advertisement of certain medical products, was outside the scope of Article 28 as defined in the Keck judgment. In this instance the Court repeated its reasoning for holding this stance. It stated that as the rule was not technically aimed at intra-Community trade and as it applied equally to all traders in the particular Member State, despite the fact that it could have the effect of affecting the volume of sales in this area, this did not warrant it being prohibited under Article 28. This case is particularly significant, as it demonstrates the court’s view that advertising restrictions fall under the ‘selling arrangement.” The effect of this cannot be easily overlooked, considering the importance of advertising in gaining a foothold in new markets. Advocate General Jacobs expressed grave concern about the breadth of the Formula in the case of Leclerc-Siplec (C-412/93). He described the relaxation on the restriction on advertising in Member States was, “the most serious difficulty to emerge from the Keck judgment.”(6) The flaw in the reasoning behind Keck, is that arrangements relating to the sale of a product are valued more highly than market access. Jacobs argued stringently that this was the wrong course of action for the court to take. In the Leclerc case, the court disregarded Jacob’s opinion and ruled that a French law prohibiting distributors from advertising petrol imported by themselves and sold in their outlets was a “selling arrangement” and therefore outside the scope of Article 28. There is numerous additional case law in which the court applies the same reasoning to national rules concerning such products as tobacco and even one relating to the distribution of bovine semen. However it has to be conceded that in most recent ECJ cases the court has been more inclined to a less rigid approach to the formula as devised in Keck.

Conclusion

The ECJ in Keck, “…wished to give guidance to national courts so that they could dismiss fanciful attempts to equate Community internal market rules with purely local affairs” (7) and to a certain extent it was successful in achieving this objective. The key to the Keck Formula, is the distinction that must be drawn between rules which relate to the product itself and those that relate to the method by which the product is being sold. The important point to note here, is that if the rule affects the product itself, then it must be justified on the grounds as established the Cassis de Dijon case. However, if it is merely classified as a “selling arrangement”, then it only needs to be justified if it is held to be discriminatory on imported goods. There is a large bank of European case law that supports both elements of the statement of C. Banard. Cases such as Punta Casa and LeClerc support the assertion that in some situations the ECJ applies the Keck Formula in a manner that many commentator regard as being too broad. Whilst more recent cases such as Gourmet and DocMorris have shown that the ECJ is not as inflexible as it used to be when deciding which state measures can be classified as “selling arrangements”. The rigid approach which was previously applied has now been somewhat relaxed and the court is prepared to look more generally at whether a particular measure places imported products at a disadvantage when compared to domestic ones.

Footnotes

1. 1. Dassonville[1974] ECR 837

2. 2. Keck and Mithouard [1995] 1 CMLR 101 (Paragraph 16)

3. 3. European Community Law (2^nd Edition) – James Hanlon

(Sweet and Maxwell, 2003) p254

4. 4. Wyatt and Dashwood’s European Union Law (5^th Edition) – Alan Daswood and Derrick Wyatt (Sweet and Maxwell, 2006) p596

5. 5. Wyatt and Dashwood’s European Union Law (5^th Edition) – Alan Daswood and Derrick Wyatt (Sweet and Maxwell, 2006) p598

6. 6. European Community Law (2^nd Edition) – James Hanlon

(Sweet and Maxwell, 2003) p255

7. 7. European Community Law (2^nd Edition) – James Hanlon

(Sweet and Maxwell, 2003) p254

A Guide to the EU (9^th Edition) – Dr. P. S. R. F. Mathijsen (Sweet and Maxwell, 2007)

Constitutional Law of the EU (2^nd Edition) – Koen Lenaerts and Piet Van Nuffel (Sweet and Maxwell, 2005)

Wyatt and Dashwood’s European Union Law (5^th Edition) – Alan Daswood and Derrick Wyatt (Sweet and Maxwell, 2006)

European Community Law (2^nd Edition) – James Hanlon (Sweet and Maxwell, 2003)