Decoding the "Swissness" legislation: what constitutes "Swiss made"?

Introduction
Swiss goods and services enjoy an excellent reputation worldwide for the values that they represent, such as quality, exclusiveness and reliability. This reputation, highly appreciated by customers, represents a clear competitive advantage as it enables these goods and services to be positioned in higher price brackets. Accordingly, the economic value of goods or services of Swiss origin is high. Other indications of source, such as “made in Germany“, “Spaghetti Italianita” or “France bon appétit", are also highly appreciated by consumers and contribute to their purchasing decisions. 

However, a negative consequence is that the abuse of indications of source has increased in recent years. Many goods and services are sold as Swiss or German which do not originate from the corresponding country. The indiciation of origin is overused, leading to dilution of the label and a decline in its economic value. 

A new legislative proposal is intended to prevent such illegal use of indications of source and to protect and sustain the value of the Switzerland designation. Under the proposal, the “Swiss-made” designation and the Swiss cross will obtain better protection. In addition, consumers will not be misled over the real origin of goods and services. But how much of Switzerland must be in a product for it to be labelled as Swiss-made? 

Current situation
The existing legal conditions for use of indications of source (ie, the Switzerland designation and the Swiss cross) are set down only generally by statute. There is specific legal regulation only in relation to the Swiss origin of watches. According to the Swiss-Made Ordinance for Watches of the Federal Council, a Swiss watch must be built with Swiss clockwork, which is switched on in Switzerland and receives its final inspection in Switzerland.

Provided that the use is not misleading or deceptive in relation to the origin of goods or services, the Swiss cross can be used in advertisements and for the designation of services. On a product itself the Swiss cross may be used only for decorative purposes and not as an indication of source (see the Federal Act on the Protection of Coats of Arms and Other Public Insignia). However, this regulation does not represent the needs of today's economy.

The use of “Switzerland”, “Swiss made” or other designations is permitted provided that the designation is not inaccurate (see the Federal Act on the Protection of Trademarks and Geographical Indications) – that is, the actual origin of the goods or services must be that indicated by the designation of origin. The origin of goods shall be determined by the place of manufacture or by the origin of the basic materials and components used. The origin of services shall be determined by the registered offices of the person providing the service or the nationality or domicile of the persons exercising control over the business. The current conditions for determining whether a product is Swiss are imprecise and lead to legal uncertainty.

The Swiss Fair Trading Commission has developed a principle which applies to products that have been only partly produced in Switzerland. However, this principle is not binding. It states that products are considered to be Swiss products if at least 50% of the production costs (including basic materials, semi-finished products, accessories, wages and production overheads) were incurred in Switzerland. The calculation does not take into account development costs. Further, the practice stems from a decision of the St. Gallen Commercial Court (St. Gallische Gerichts- und Verwaltungspraxis 1992, No 39). According to this decision, a Swiss designation is permitted only if the Swiss portion of the production costs (excluding the research, development and marketing costs) is at least 50% and if the most important part of the manufacturing process took place in Switzerland. These requirements also apply to other designations.

According to the Federal Act on the Protection of Coats of Arms and Other Public Insignia, the illegal use of the Swiss cross incurrs a monetary penalty (a maximum of 60 daily penalty units up to a maximum of Sfr3,000), and the mislabelled products can be seized and confiscated. The illegal use of an indication of source will be penalised with imprisonment for up to one year or a monetary penalty. A person who uses an indication of source in an illegal manner on a regular basis for financial gain will be punished with imprisonment of up to five years or a monetary penalty (a maximum of 360 daily penalty rates up to a maximum of Sfr3,000). The cantons are responsible for the prosecution and evaluation of violations. Harmed private parties have the right to take civil actions. In addition, a wronged party may request the intervention of the Federal Customs Administration, which can temporarily withhold the infringing goods. However, in such cases a claim must be filed within a certain time.

Swissness legislation
The existing statutory rules are unreliable due to the large number of cases of abuse and a lack of enforcement. The Switzerland designation is severely underprotected. The proposed legislation would amend the Federal Act on the Protection of Trademarks and Geographical Indications and the Federal Act on the Protection of Coats of Arms and Other Public Insignia. It aims to strengthen the protection of the Switzerland designation, the Swiss cross and indications of source in general by setting down more precise criteria for the designation of the geographical origin of goods and services. On 18th November 2009 the Federal Council approved the dispatch concerning the legislative amendment and the National Council Committee for Legal Affairs is now dealing with the bill.

In future, the use of the Swiss cross will generally be permitted for the designation of all services and goods, provided that the use is not inaccurate or misleading. The Swiss coat of arms of the Confederation remains reserved for federal use in principle; however, as an exception, the right to use will be granted to companies that have used the Swiss coat of arms as part of their business identifier for decades.

Regarding the Switzerland designation or any other indication of source, the following classification will apply:

• For industrial products (eg, machinery), the indication of source will be determined according to the location where the essential manufacturing step takes place and where at least 60% of the production costs (including research and development costs) are incurred.
• The origin of natural products (eg, mineral water and plants) will be determined by the place of extraction, harvest or growth of the product.
• Processed natural products (including most comestibles) have as their place of origin the place where they were processed, provided that this place establishes the essential characteristics of the product. In addition, at least 80% (disputed by the food industry) of the raw materials available at the place of origin must originate from there.

In future, a service may be designated as Swiss only if, cumulatively, the headquarters of the service provider and its administrative centre are located in Switzerland. This criterion is particularly designed to prevent a postal address being used to justify a corresponding designation of origin.

Wilful use of an incorrect indication of source will be prosecuted ex officio. Consequently, the requirement for a criminal complaint to be filed will be waived. The penalties will not be increased. Furthermore, the competence of the Swiss Federal Institute of Intellectual Property to report an offence to the responsible cantonal criminal prosecution agency and to participate in the judicial proceedings will be explicitly stated in the act.

The bill also proposes ex ante protection for easier enforcement abroad by implementing two new protective measures: 

• The bill will establish a national register for geographical indications for all goods (not only agricultural products, as under existing law) whose reputation or quality is essentially attributable to their respective geographical origin.
• The bill will introduce a geographical trademark (as a special guarantee and collective mark) for registered appellations of controlled origin, registered geographical indications, registered wine designations and designations regulated by the Swiss Federal Council (currently watches and chocolate).

Where the general interest of the economy or a particular sector so requires, the Federal Council may specify the conditions under which a Swiss indication of source may be used for specific goods or services.

Comment
The new rules appear rather inflexible and sector-specific. The bill particularly serves the research-intensive industries, due to the fact that research and development costs incurred in Switzerland will in future be counted as Swiss production costs. In addition, the agricultural sector will benefit, since it is expected that demand for Swiss raw materials, in particular for the food industry, will increase.