European Trademark Law and Geographical Indications, Fall 2008 Class

1. The Manufacturing Hindrance of a PDO
Kathleen Broughton
Case Western Reserve University
School of Law
September 15, 2008
European Trademark Law and Geographical Indications
Professor Ricolfi
Fall 2008

2. I. GIs and PDOs in light of TRIPS
The Trade Related Aspects of Intellectual Property Rights (TRIPs) Agreement entered into
force on January 1, 1995 and is administered by the World Trade Organization (WTO). The
TRIPs Agreement commits member state governments to enact and enforce intellectual property
rights (IPRs) laws. The purpose of TRIPs is to create consistency in IPRs legal standards. Article
7 of the TRIPs Agreement states that “the protection and enforcement of intellectual property
rights should contribute to the promotion of technological innovation and to the transfer and
dissemination of technology, to the mutual advantage of producers and user of technological
knowledge and in a manner conducive to social and economic welfare, and to a balance of rights
and obligations.”1 This Article creates a potential conflict of interest between manufacturing
methods implemented by a company and the company‟s desire to utilize a geographical indicator
(GI) or protected designation of origin (PDO) mark in commerce.
Protecting intellectual property is “viewed as an important part of the process of
commercialization of such assets in the national as well as in the international marketplace.”2
Commercializing innovation typically requires a company to stay ahead of its competitors through
“making a small improvement in the quality of existing products, as compared with those of the
competitor.”3 The manufacturing techniques utilized to improve quality production and reduce
operation costs have a direct correlation to the policies of using a GI or PDO because restrictions
on manufacturing, such as location of production, could negatively impact commercialization.
PDOs are identifying marks used GIs are also regional “source identifiers, indicators of
quality, and are as valuable to producers from particular regions as are trademarks” and are used to
promote the goods of a particular region. 4 A GI mark is different from a trademark because a
trademark is used to identify “an enterprise which offers a product in the market,” whereas a GI
“identifies a geographical area to which a quality, reputation or other characteristic of a product is
attributable.” 5 The benefit of using a GI or PDO over a trademark is that a consumer will expect a
certain level of guaranteed quality of a product from a specific region. European states are
inclined to use GIs or PDOs to protect heritage and culture of a region, whereas Under Article
22.2(a) of TRIPs, member states are required to “provide the legal means for interested parties to
prevent the use of any means in the designation or presentation of a good that indicates or suggests
that the good in question originates in a geographical area other than the true place of origin in a
manner which misleads the public as to the geographical origin of the good.” 6 In today‟s global
market, reputation is critical for a company and its product to remain competitive. Through the
use of a PDO or GI, a company is representing to the public that its product meets a particular
quality standard from an exclusive region or territory. The emerging question, therefore, is
whether the benefits of utilizing a PDO or GI mark outweigh the benefits of the manufacturer to
apply cost-analysis and utilize operation research and management to determine what the best
method is to produce a product.
1
Trade Related Aspects of Intellectual Property Rights Agreement (January 1, 1995), Article 7.
2
Shahid Alikhan and Raghunath Mashelkar, Intellectual Property and Competitive Strategies in the 21st Century,
page 57 (Kluwer Law International 2004).
3
Id.
4
Id. at 17.
5
Id.
6
Trade Related Aspects of Intellectual Property Rights Agreement (January 1, 1995), Article 22.

3. This paper analyzes the problems arising in manufacturing processes and costs stemming
from the use of a PDO. First, the discussion will focus on the Prosciutto di Parma case (Parma
Ham), which is the primary European common law that defined the manufacturers use of a PDO
based upon a regulating association. Then, the discussion will shift to analyze the use of a PDO
mark under traditional trademark policies. Finally, an explanation of modern manufacturing
techniques will provide insight as to why a PDO can create a hindrance on manufacturers. In
summary, the use of the PDO is useful to preserve a particular product‟s production in a particular
region but such production is at the potential harm of restricting modern manufacturing techniques.
II. Premise of the Prosciutto di Parma Case
In 2001, the Parma Ham case was first reviewed in English courts. Parma hams are
known throughout the world as a meat delicacy because of the traditional methods and standards
the people of Parma, Italy implement to produce, process and prepare the ham. To preserve
these traditional standards, a national PDO was registered in the Italian Patent and Trademark
Office and was governed by the “Consorzio del Prosciutto di Parma” or Parma Ham
Association.7 This PDO stamp was then placed upon all Parma hams produced in the region
under the regulations specified by the Parma Ham Association. This stamp was used as an
indicator for consumers to identify the product‟s exclusivity and quality.
The concern with the use of the PDO mark on the parma hams arose after Hygrade Foods
Ltd (Hygrade), located in Corsham in Wiltshire, England, began importing boned Parma hams
from one of the producers and completed the manufacturing production of the hams by slicing
and packaging the hams. The hams packaged at Hygrade did not bear the PDO mark nor was
there any concern as to the authenticity of the mark. Hygrade would then supply these packaged
hams to Asda Stores Ltd. (Asda), who sold them in their supermarkets. The Association claimed
that such procedures were in conflict with regulating state and national law.
In the English court, the Plaintiff, the Parma Ham Association, argued its reliance of
Italian law to enforce the Association‟s regulations in using the Parma Ham PDO against a
parma ham producer who moved packaging operations into England. Under Italian Law No. 26
of 13 February 1990, Article 1 lays the foundation of PDO protection for “…ham equipped with
a distinguishing mark that allows permanent identification, obtained by processing fresh legs of
national pigs…produced according to the provisions laid down in this law and aged in the
[traditional] area of production…” (emphasis added).8 Article 6 exclusively indicates that the
mark should be permanently fixed on the product.9 The article further indicates that if no
method can be utilized to create such permanent marking, then “packaging operations shall be
carried out in the [traditional] production area…” (emphasis added).10 The House of Lords held
that the case must be analyzed and decided upon by the European Court of Justice (ECJ) since
7
Consorzio Del Prosciutto di Parma v. ASDA Stores Limited and Others, Opinions of the Lords of Appeal for
Judgment.
8
Id.
9
Id.
10
Id.

4. there were conflicting state and European Commission laws with non-apparent clarity as to the
dictating laws and regulations.
When the ECJ reviewed the case in 2003, the court analyzed four main issues in
determining whether or not the producer was acting in an acceptable manner under regulation to
utilize the PDO mark. These issues are: 1) “whether Regulation No. 2081/92 must be interpreted
as precluding the use of a PDO from being conditional on operations such as the slicing and
packaging of the product taking place in the region of production,” 2) “whether imposing such a
condition on the use of the PDO Prosciutto di Parma for ham marketed in slices constitutes a
measure having equivalent effect to a quantitative restriction on exports within the meaning of
Article 29 EC,” 3) “whether, if that is so, the condition in question may be regarded as justified,
and hence compatible with Article 29 EC,” and 4) “whether that condition may be relied on
against economic operators when it has not been brought to their notice.”11
The ECJ held that the manufacturing techniques of slicing and packaging carried out in
England implemented by the producers were in violation of Regulation No. 2081/92. The ECJ
also noted that the Regulation “does not exclude the application of special technical rules to
operations leading to different presentations on the market of the same product” but the
“specification of the PDO Prosciutto di Parma expressly mentions the requirement of slicing and
packaging the product in the region of production for ham marketed in slices.”12 Thus, to use the
PDO marking on the Parma Ham, the slicing and packaging must take place in the same region
where it is produced. The court reasoned that the specification “is intended to allow the persons
entitled to use the PDO to keep under their control one of the ways in which the product appears
on the market.”13 The court noted that Parma Ham is usually sold in slices and thus slicing is an
important element of the overall ham manufacturing operation. The court then solidified its
reasoning in determining that “any deterioration in the quality or authenticity of ham sliced and
packaged outside the region of production, resulting from materialization of the risks associated
with slicing and packaging, might harm the reputation of all ham marketed under the PDO
Prosciutto di Parma, including that sliced and packaged in the region of production under the
control of the group of producers entitled to use the PDO.” 14
As a result, the ECJ ruled that the entire manufacturing operation of Parma ham must be
in the same region from production to processing to packaging. The court recognized, however,
that there was not adequate publicity in the Community legislation to impose criminal or civil
penalties against the economic operators. One could premise that this case provided notice to
Parma ham producers that they are required to complete the entire manufacturing operation in
the designation of origin to utilize the PDO marking and that third parties are no longer allowed
to package the Parma hams since this ruling may serve as sufficient notice that such act is
prohibited under Regulation No. 2081/92.15 Additionally, there was a concern as to the
contractual relations between the producers, Hydrade and Asda – however concern of this paper
11
Consorzio Del Prosciutto di Parma v. ASDA Stores Limited and Others, European Court of Justice, Case C-
108/01, 20 May 2003.
12
Id.
13
Id.
14
Id.
15
Id.

5. is focused on whether or not the use of a PDO mark hinders more than helps manufacturers
whom desire to implement modern manufacturing techniques.
III. Analysis of PDO use on the Parma Ham packaging in question
The ruling of the ECJ regarding the manufacturing of Parma hams is unique. The court
and the parties involved agreed that “the protection conferred by a PDO does not normally
extend to operations such as slicing and packaging the product.”16 The court noted that the
packaging in another region will typically be allowed unless the overseeing specification
explicitly indicates otherwise.17 The Italian Law No. 26 explicitly states the complete
manufacturing requirements of the ham to take place in the same region. The Italian law
established for the manufacturing of Parma hams is for the protection of both producers and
consumers because the hams have unique and distinguishable characteristics that could not
otherwise be protected. However, there are concerns raised to the analysis made by the ECJ of
the use of the PDO including whether or not there was deception in the use of the mark and
whether or not the packaging could take place outside of the region while still meeting or
exceeding the customer‟s expectations in the quality of the product.
i. Use of the PDO under Trademark Principles
There are three main policies underlying trademark law. The first is an exclusive right to
“prevent consumer confusion and reduce consumer search costs.”18 Second, due to consumer
expectation, a trademark is to “encourage trademark owners to invest in and maintain a
consistent level of quality.”19 The third policy of trademark law is to protect the trademark
owner from a competitor to “free ride on the good will of the trademark owner.”20 The use of a
GI or PDO mark is to provide an additional level of protection beyond a trademark because the
guidelines to use a GI or PDO require stricter laws to acquire and maintain use of such markings.
Although the use of a GI or PDO is not utilized in the US, it still bears importance in Europe.
Under the EC No 510/2006 (previously EC No 2081/92), Article 2 provides the purpose
of PDOs and GIs; the requirements to protect a PDO are more stringent than the requirements to
protect a GI. As defined under the regulation, a PDO describes an agricultural product or a
foodstuff with “quality or characteristics of which are essentially or exclusively due to a
particular geographical environment with its inherent natural and human factors.” [emphasis
added] 21 The GI, on the other hand, describes an agricultural product or a foodstuff “which
possesses a specific quality, reputation or other characteristics attributable to that geographical
origin.”22 The PDO standards set forth in the EC 510/2006 indicate that the production,
processing and preparation take place in the defined geographical area. On the other hand, the
GI standards only require that the production and/or processing and/or preparation take place in
the same defined geographical area. Roland Knaak, an International IP attorney residing in
16
Id.
17
Id.
18
Craig Nard, David Barnes, and Michael Madison. The Law of Intellectual Property, 2 (Aspen Publishers 2006).
19
Id.
20
Id.
21
Official Journal of the European Union Council Regulation No 510/2006 Article 2 (March 31, 2006).
22
Id.

6. Munich, explained that the relationship between the product and the geographical origin must be
closer than designations of origin within the meaning of the Regulation.23 Therefore, the Parma
ham manufacturing was under question because the Association chose to utilize the more
restrictive PDO mark rather than the GI mark. The Italian Law No. 26 explicitly stated what
manufacturing techniques are required to gain protection under a PDO mark. The concern raised
in the Italian Law protecting Parma ham is the necessity of such strict manufacturing
requirements compared to the policy aims of trademark protection.
The first policy underlying trademark law is the exclusive right to prevent consumer
confusion. Under the Parma Ham Regulation Article 4.2, the labeling requirements were
specific to indicate that the packaging shall take place in the same region as production to qualify
for a PDO marking. To prevent consumer confusion the packaging should then explicitly
indicate such location. It was argued that the “supervision of the packaging is entirely for the
purpose of ensuring the authenticity of the sliced ham.”24 The Parma ham packaging under
question bore a mark indicating the ham was “made by traditional methods to guarantee their
authentic flavour and quality and Produced in Italy, packed in the UK for Asda Stores
Limited.”25 It would appear that consumers would not be confused from the packaging of the
ham since it explicitly indicates the packaging location. The lack of actual or potential consumer
confusion was further demonstrated because neither party questioned such potential confusion,
let alone presenting supportive evidence.
The second policy underlying trademark law is to encourage trademark owners to invest
in the quality of their product. The House of Lords noted that the “purpose of protection of the
PDO, according to the recitals to the Regulation, is to enable the consumer to „purchase high
quality products with guarantees as to the method of production and origin.‟”26 Of course
claiming manufacturing must take place in only one geographical region to ensure product
quality begs the question as to whether or not the quality of the product is affected if the
packaging of a product is completed in a region outside of where the production and processing
occurred. It is arguably reasonable to require packaging to take place in the same region of
origin as the production and processing of a product. Simultaneously, in application of modern
manufacturing principles, packaging can take place in a region other than the location of
production and not diminish the product‟s quality. Therefore, this trademark policy is met
regardless of manufacturing location if the manufacturing techniques are identical in both
regions and care is taken in the logistics of transporting the product.
The third policy underlying trademark law is to protect the trademark owner from
competitors piggy-backing on the success of the original owner. Here, the PDO is better
protected if all manufacturing processes are executed in the same geographical region because
there will be no concern of misrepresentation in the product. In the analysis of the Parma Ham
23
Roland Knaak, Case Law of the European Court of Justice on the Protection of Geographical Indications and
Disignations of Origin Pursuant to EC Regulation No. 2081/92, International Review of Industrial Property and
Copyright Law, Volume 32 No. 4, 378 (2001).
24
Consorzio Del Prosciutto di Parma v. ASDA Stores Limited and Others, European Court of Justice, Case C-
108/01, 20 May 2003.
25
Id.
26
Consorzio Del Prosciutto di Parma v. ASDA Stores Limited and Others, Opinions of the Lords of Appeal for
Judgment.

7. case, there was no question as to whether or not a competitor was attempting to piggy back from
the Parma ham PDO. If there was an allowance for the packaging to take place in a different
geographical region, it is questionable as to whether or not imitation manufacturers would
attempt to create knock-off products because the Association would have less control over the
mark of the product. A trademark infringement claim, based on consumer confusion could
commence if such a problem arose when an association distributed the geographical locations of
the manufacturing processes.
ii. Implementation of Manufacturing Techniques
When the producers in question contracted with Hygrade to complete the manufacturing
of the Parma Hams, the producers either did not consider the PDO regulation or did not believe
their manufacturing operations were violating the regulation. It appears that the ECJ‟s reasoning
for requiring all manufacturing to take place in the same region for the use of the Parma Ham
PDO is to maintain the integrity of the quality of the product. The producers were likely focused
on production that implemented the highest level of manufacturing performance in relationship
to time, cost, and quality regardless of a PDO marking regulation. From a manufacturer‟s
perspective, the “objective of the manufacturing manager is to produce a quality product, on
schedule, at the lowest possible cost, with a minimum of capital investment and a maximum of
employee satisfaction.”27 In the traditional methods of performing operations research and
implementing improvements, a mainstream philosophy of manufacturing is that
“there is only one way that a company can be competitive: all parts in every
product must be produced in the precise dimensions given on the drawings.
Developing quality products in a manner that actually reduces costs is a major
tenet of the approach to quality instituted by Taguchi. This approach involves
combining engineering and statistical methods to achieve improvements in
cost and quality by optimizing product design and manufacturing methods.”28
This means that quality of a product improves with consistency in the production. If operations
are consistent in the manufacturing, then the question posed is whether or not it is a necessity to
carry out the manufacturing processes in a single location.
Many industrialized countries continually learn from each others manufacturing
techniques to remain competitive. When modern manufacturing was developed near the turn of
the 20th century, the focus of production was on quantity. This is the time when stream lined
assembly processes were first introduced to manufacturing. Over time, the manufacturing focus
shifted from quantity to quality.29 Currently, “according to many observers, we are now in the
midst of the third wave of manufacturing, which first became noticeable in the early 1980s.” 30
This third wave is known as world-class manufacturing (“WCM”). The concept of
WCM, or lean manufacturing is
27
Benjamin Niebel and Andris Freivalds. Methods, Standards, and Work Design, 3, (11th ed., McGraw Hill 2003).
28
Id at 81.
29
J. Barry DuVall. Contemporary Manufacturing Processes, 35, (Goodheart-Willcox Company 1996).
30
Id.

8. when a company has gone through continual improvement to the extent
necessary to assure that better quality products are being consistently
produced at less cost. World-class manufacturers are experts at producing
quality products. Efficiency in performance has been sharpened to the
point where lead times are almost nonexistent. WCM firms can be
effectively viewed as the integrators: they know how to utilize all the
principles of effective technology management, and they can do it faster
and better. 31
In applying WCM one of the many statistical analysis applied is 6 Sigma. 6 Sigma is the
measure of variability. It is a name given to indicate how much of the data falls within the
customers‟ requirements. The higher the process sigma, the fewer the defects in parts produced.
Statistically, 6 Sigma is only 3.4 failures per million opportunities. The concept of 6 Sigma is
more than just a statistic; it is a concept in the manufacturing world to signify change in the
production to produce quality products in rapid time. One of the driving factors for companies to
utilize 6 Sigma techniques in manufacturing is customer‟s voice. Corporations realize the only
way to remain competitive is to satisfy the needs of the customers, which typically includes a
high quality product at the best price.
One of the methods used to define the customer‟s voice into qualitative data is through
quality function deployment (“QFD”). QFD “supports and documents the benchmarking and
customer-need-analysis processes, and its intent to improve the quality of products in the
broadest sense.”32 This method is a tool for managers and engineers to develop strategies to
improve their manufacturing process over time.
QFD is used to “make clear the relationships between customer needs and engineering
requirements, document benchmarking data (both quantitative and qualitative), form
specifications by establishing target values on each engineering requirement, check for conflicts
in engineering requirements, and finally record expected technical difficulty.” 33 By utilizing
QFD principles, a manufacturing process is improved based on the customer‟s needs. Customers
today not only expect, but demand, high quality in their products. To produce high quality
products, there must be consistency in the manufacturing processes. Japan is one of the leading
industrialized countries utilizing WCM techniques.
The Japanese are known for implementing quality checks in every aspect of the
manufacturing process. In Japan, “quality control or quality assurance is defined as the
development, design, manufacture, and service of products that will satisfy the customer‟s needs
at the lowest possible cost.” 34 To achieve high levels of quality assurance, “few inspection
procedures are assigned to specialized inspectors; usually the final inspections are made from the
31
Id 38.
32
Kevin Otto and Kristin Wood. Product design. Techniques in reverse engineering and new product development,
290, (Prentice Hall 2001).
33
Id.
34
Yasuhiro Monden. Toyota Production Systems, 221, (3rd ed., Chapman & Hall 1998).

9. point of view of the consumer or management and are not inspections for defects that would
affect the flow production.” 35
Many industrialized countries refer to the efficient and effective manufacturing processes
of the Japanese. It is possible that
the most important reason for continued Japanese success in the
manufacturing sector is the keiretsu. This is a form of business and
manufacturing organization that links businesses together. It can be
thought of as a web of interlocking relationships among manufacturers –
often between a large manufacturer and its principal suppliers. 36
The keiretsu principles happen in most corporations, large and small, which are apparent from
the multitude of international agreements established to allow for these exact business practices,
such as NAFTA and GATT. In a global economy it is only expected that an operation would
likely grow with time to develop the need for manufacturing processes to take place in
logistically different locations. If there is no solidified reasoning as to why the manufacturing
processes cannot remain consistent in different locations, then there should be no questions
raised as to whether or not the quality of the product is affected.
In the case of the Parma Hams, it is very likely that the producers under question were
implementing WCM techniques. In implementing such strategic techniques, the producers were
likely improving the quality of the product. The modern manufacturing principles utilized by
many competitive companies is in complete conflict with the rationale the ECJ used to determine
that “it must be accepted that checks performed outside the region of production would provide
fewer guarantees of the quality and authenticity of the product than checks carried out in the
region of production.” 37 This concern raised as to the level of control the producers have over
the product is not justified based on the decisions of the producers and the principles of WCM.
If the producers did not trust that Hygrade would maintain the level of quality necessary to
distinguish the authenticity of the product, then the producers would not have contracted with
them to carry out the final operations of slicing and packaging the Parma Ham product.
Furthermore, since the slicing and packaging are likely automated processes, there likely is a
consistent process that can be carried out in any location.
IV. Summary
Frequently, especially in intellectual property, the law is molded based upon the changes
and improvements made in useful arts. If, therefore, the principle that law is reactionary to
technological innovation is taken as true, then the producers of Parma Ham that implemented
manufacturing techniques of modifying the logistics of the packaging were performing at a
WCM level and the regulation dictating use of the PDO mark, as interpreted by the ECJ, is
35
Id.
36
Niebel and Freivalds. Methods, Standards, and Work Design at 87.
37
Consorzio Del Prosciutto di Parma v. ASDA Stores Limited and Others, European Court of Justice, Case C-
108/01, 20 May 2003.

10. creating a hindrance on this particular producer‟s business model. It therefore becomes a
balance of objectives as to whether or not it is better to keep operations in one particular region.
Some of the reasons to maintain all manufacturing operations in one region are to spur
the local economy of the community producing such regional goods, to preserve the traditional
methods of production and to maintain complete manufacturing control. On the other hand,
some of the reasons to allow manufacturing operations in different regions are on the basic
modern principles of WCM and allowing a business to utilize competitive business strategies
with analyzing logistics and cost efficiency in deciding where manufacturing operations are best
suited to the product to meet the needs of the customer. In respect to trademark law, the
manufacturing techniques implemented by a company should not create consumer confusion and
should, if the manufacturing techniques are utilized consistently, improve the quality of the
goods produced.
By utilizing modern manufacturing techniques, a company should become quite effective
to produce a product with consistent quality standards by way of technical specification. If the
producers of the Parma Ham utilize automation and computers in the manufacturing process, the
product is likely consistently produced with quality built in to the product. Therefore, if
automation is a driving factor of the manufacturing, there should be little concern where the
actual location of the slicing and packaging of the product takes place. Since the Parma ham is
protected under a PDO and the PDO regulation indicated that all manufacturing operations were
to take place in the same region, the ECJ likely decided the case properly based solely upon the
regulation protecting the Parma Ham PDO. If the producers looked for use of a GI, rather than a
PDO, however, then the outcome of the case may have been different since a GI holds less
stringent requirements on the manufacturing processes than a PDO.