Are lawmakers smoking out tobacco brands?

Australia faces some imposing legal hurdles in its attempt to ban tobacco trademarks. However, as Matt Packer writes, this has not stopped other countries from thinking about extinguishing them.
First statement: Tobacco is not good for you and is best avoided if you are interested in pursuing a healthy lifestyle.
Second statement: Intellectual property (IP) is a fundamental asset in enabling manufacturers to fully exploit their products, and should be safeguarded.
From a lawmaking viewpoint, is it possible to believe that both of those statements are true without becoming horribly conflicted? It’s a complicated question – and it looks as though it will take a lawsuit, and more, to answer it.
In Australia, the quandary has been brought into sharp relief by legal action against the government launched on 27 June by Philip Morris Asia (PMA) – parent company of Philip Morris Ltd, which serves the Australian market. Both companies are divisions of the powerful industry leader, Philip Morris International. In its suit, PMA is aiming to block plans spearheaded by Prime Minister Julia Gillard to enforce plain packaging across all tobacco products sold in the country: part of a wider drive to boost public health.
However, PMA argues that the government scheme is legally flawed on two counts: i) it flies in the face of time-honoured provisions for trademark protection contained in Australia’s IP laws; and ii) it flouts the terms of a major trade treaty between Australia and Hong Kong that enforces mutual support for all bilateral exports. Crucially, PMA is headquartered in Hong Kong, putting its relationship with Philip Morris Ltd firmly under the treaty’s jurisdiction.
While this battle plays out, there are signs that it could, in the near future, migrate to the European Union (EU) and the UK. With that in mind, this article looks at tobacco-brand developments in each region – starting with a more detailed look at the Australia-Hong Kong treaty.


That 1993 document – known in full as the Agreement Between the Government of Hong Kong and the Government of Australia for the Promotion and Protection of Investments – has three main clauses that are critical to the lawsuit between PMA and Australia:
Article 2(ii) states that investments and financial returns of each contracting party shall, at all times, be accorded fair and equitable treatment, and shall enjoy full protection and security in each party’s area. Neither contracting party shall, without prejudice to its laws, in any way impair by unreasonable or discriminatory measures the enjoyment or disposal of investments in its area by the other party.
Article 6(i) provides that each party shall not deprive the other of investments, nor subject it to measures with effects equivalent to such deprivation – except i) under due process of law; ii) for a public purpose related to internal needs; iii) on a non-discriminatory basis, and iv) with compensation. That compensation must amount to the value of the investment immediately before the deprivation, or before the impending deprivation became public knowledge – whichever was earliest.
Article 10 holds that any dispute between an investor of one party and the other that has failed to reach an amicable settlement shall – after a period of three months from written notification of the claim – be submitted to such procedures for alternative settlement as may be agreed between the parties. If no such procedures have been agreed, the parties shall be bound to submit it to arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law.
Wayne Condon, principal at Australian IP law firm Griffith Hack, told NewLegal Review: ‘An “investment” is defined to include IP Rights including trademarks, trade names, know-how and goodwill. No doubt PMA will seek to rely upon article 2(ii) of the Agreement by suggesting that Australia has – by promulgating the plain tobacco packaging legislation – impaired the use and enjoyment of PMA’s investment in PML.’
In addition, there are interesting points in Article 6(i) on laws enacted for public purposes according to internal needs, which chimes with Gillard’s health mission – the catch being that a mandatory compensation payout from Australia would appear to be required. This leads to Article 10: the compulsory, three-month discussion period that has already been triggered by PMA’s lawsuit – and which is set to expire in late September.
According to Condon, issues that the parties are likely to discuss include:
• Whether the plain-packaging legislation – which has been announced, but not yet formally introduced – is unreasonable or discriminatory;
• Whether the legislation is saved from contravening the Agreement by the ‘without prejudice to its laws’ exception in Article 2(ii);
• Whether the plain packaging legislation has been proposed ‘for a public purpose related to the internal needs’ of Australia; and
• Whether PMA’s use and enjoyment of its investments in PML have, in fact, been impaired.

Europe & UK

Legal smoke signals

While the EU and UK have yet to feel the onset of a PMA-style lawsuit, both are taking a serious look at how tobacco is marketed, with a heavy emphasis on health effects. This year, the European Commission launched a consultation on the potential for revising Europe’s Tobacco Products Directive (2001/37/EC), which aims to assist single-market support for the tobacco industry while protecting public health. In light of current trends, this could see the health part of the directive taking priority. Results of the consultation and details of forthcoming work on the topic are due in early 2012.
Meanwhile, the UK government has weighed in with its tobacco-control plan, Healthy Lives, Healthy People, published in March this year. This suggests a number of steps for the practical implementation of relevant clauses in the Health Act 2009, which provided for a ban on the display of tobacco products in large stores from April 2012, and smaller stores from April 2015. The government has also announced that it will examine whether plain packaging would be of use for preventing young people from taking up the habit, and for encouraging long-term smokers to quit. A consultation on these matters is likely to be launched this autumn.
So how would EU manoeuvres on tobacco branding affect the legislative independence of the UK? John Noble, director of the British Brands Group – a non-profit membership organisation for brand holders – told NewLegal Review: ‘The UK legislation would focus on reducing the number of young people taking up smoking and on helping adults to quit. As such, the UK would be able to legislate alone. However, were it to do so, there may be practical implications – such as illicit imports from Europe – that may reduce the effectiveness of the policy.’

Lingering effects

There are numerous other consequences to consider, not least of which is whether such legislation would actually stimulate imitative products. Condon is not convinced that it would. ‘It has been suggested by some commentators that the move to plain tobacco packaging may, paradoxically, increase the prospect of tobacco counterfeiting,’ he said. ‘This seems to be somewhat fanciful, based upon a proposition that potential counterfeiters are more likely to be motivated to copy plain-packaging get up than they are to copy logo marks. There appears to be no objective basis for the proposition that tobacco counterfeiting is likely to be encouraged by a move to plain tobacco packaging.’
Noble acknowledges Condon’s view, but doesn’t rule out de-branding as a potential stimulant for counterfeiting. ‘Certainly, plain packaging isn’t going to make it more difficult to counterfeit tobacco packaging,’ he said. ‘Intuitively, you would think that plain packaging would be much easier to copy effectively – although some counterfeiters are already sophisticated in their ability to copy complex packaging designs. The key point is that plain packaging will make it much harder for consumers to differentiate and distinguish one product from another – be it between one brand and another, or between genuine and fake.
‘Counterfeiters are opportunists, who counterfeit whatever sells,’ he added. ‘They may find that counterfeit plain packs arouse less suspicion among consumers, and are less easy to detect by authorities – both of which will encourage counterfeiting.’

Good intentions, bad habits?

For Noble, much of the EU and UK progress on tobacco packaging will depend upon circumstances. ‘If the UK is the only market in the EU with plain packaging,’ he said, ‘and packs carrying logos are as attractive as the government maintains, there may be an increase in illicit imports of branded packs from other EU markets – whether they are counterfeit, or genuine, but non-duty paid, products.
‘Were plain packaging introduced,’ he stressed, ‘we believe there is a real risk that competition and innovation would be reduced and the market will become increasingly price led. Were price competition to strengthen, bringing lower prices, the policy would have the opposite effect to the one intended, with potentially more people smoking more. These factors mitigate against plain packaging as an effective policy measure in any sector, unless there is very clear evidence that a particular market works counter-intuitively.’
In April, the International Chamber of Commerce (ICC) advised the Australian government: ‘By eroding the means of asserting IP Rights, the measure[s] proposed would restrict trade, hamper consumer choice and safety, subvert trademark laws and increase counterfeiting and illicit trade – while encouraging lower-priced legal and illegal commerce in tobacco products.’ Noble agrees with the ICC. ‘We see that as a succinct summary of the implications of plain packaging,’ he said. ‘We urge governments to give full weight to these factors in weighing up the pros and cons of plain packaging as an appropriate regulatory tool.’

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