Inquiry Into Plain Tobacco Packaging

REPORT ON THE CONSISTENCY OF A PROPOSED PLAIN PACKAGING REQUIREMENT WITH AUSTRALIA’S INTERNATIONAL OBLIGATIONS Professor Gabriël A Moens and Adjunct Professor John Trone* Introduction This Report considers the consistency of a plain packaging requirement with Australia’s treaty obligations. Senator Fielding has introduced a private member’s Bill seeking to require that tobacco products have plain packaging. In his Second Reading Speech Senator Fielding summarized the effect of his Bill: “tobacco companies will be banned from advertising their logos or trademarks on their products. Instead, all cigarette and other tobacco packets will have plain labelling, with the only predominant item to feature on the packets to now be the warning labels.”1 This Report has been written at the request of Philip Morris Ltd (PML), through Allens Arthur Robinson. Philip Morris International (PMI) is the ultimate holding company of PML. The headquarters of PMI is in the United States and its operations centre is in Switzerland.2 PML owns or is the licence holder of numerous trademarks relating to tobacco products.3 PMI is the owner of some of the trade marks used by PML in Australia. Trademarks are frequently referred to as the most important assets of tobacco companies. The introduction of plain packaging would render useless the trademarks held by PML. Executive Summary A plain packaging requirement would be inconsistent with Art 20 of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS) since it encumbers the use of trade marks in trade with unjustifiable special requirements. It would not fall within the limited exceptions to trademark rights permitted under Art 17 of TRIPS. The public health clause in Art 8(1) of TRIPS does not provide legal justification for plain packaging. Art 8(1) does not justify measures that are inconsistent with other provisions of TRIPS. Plain packaging would fail the necessity test under Art 8(1) since there are reasonably available alternatives which would protect public health and would be less restrictive of trade. The British government has indicated that “strong and convincing evidence showing the health benefits” of plain packaging would be required before it could be justified under international trade law treaties. A plain packaging requirement would also violate Art 2.2 of the Agreement on Technical Barriers to Trade. It would constitute a technical regulation imposing an unnecessary obstacle in international trade. A plain packaging requirement would be inconsistent with Art 6quinquies of the Paris Convention since it would deny registration on grounds that are not permitted by that Article. It would also be inconsistent with Art 7 of the Paris Convention and Art 15(4) of TRIPS since the nature of the goods (tobacco) would be an obstacle to registration of the mark. In our view under the Australia-United States Free Trade Agreement (AUSFTA) at a minimum clear and convincing evidence of the effectiveness of plain packaging in substantially reducing tobacco consumption would be necessary. If the evidence suggests that the major effect of branded * The Appendix at the end of this Report contains brief resumes for the authors. 1 Senate Hansard, 20 August 2009, p 5500. 2 http://www.philipmorrisinternational.com/AU/pages/eng/ourbus/Our_business.asp. 3 See http://pericles.ipaustralia.gov.au/atmoss/falcon.application_start. 2 packaging is to influence the market share of particular brands among existing smokers, the introduction of plain packaging would constitute an indirect expropriation of the trademarks of tobacco companies under the AUSFTA. Senator Fielding’s Bill makes no provision for compensation for the expropriation of these trademarks. Introduction of a plain packaging requirement would also breach the AUSFTA obligation to accord fair and equitable treatment to investments. The World Health Organization Tobacco Control Convention and its implementing Guidelines do not impose an obligation to introduce a plain packaging requirement. Assuming that there is a conflict with the WHO Convention, TRIPS would apply as between Australia and Switzerland. In such a conflict TRIPS would also apply as between Australia and the United States. US domestic legal restrictions upon intervention by the US Trade Representative on behalf of the tobacco industry are subject to re-enactment with each appropriation. The most likely sanction for a violation of TRIPS is the withdrawal of tariff concessions. The costs of compensation for the expropriation of tobacco company trademarks would be enormous. Questions (1) Whether a plain packaging (PP) requirement for tobacco products, in the form of the Fielding Bill or otherwise, would be in violation of Australia’s obligations under the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS)4 (a) Whether a PP requirement would be inconsistent with Article 20 of TRIPS Art 20 of TRIPS provides in relevant part: “The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. ….”5 Several key concepts appear in Art 20: (1) special requirements, (2) use in a special form, (3) use in a manner that is detrimental to the mark’s capacity to distinguish the goods, (4) encumbrance, and (5) the encumbrance must be unjustifiable. Firstly, special requirements may include requirements that diminish the distinguishing capacity of the trademark. A plain packaging requirement would eliminate the trademark’s function of distinguishing the product from competing goods. Secondly, use in a special form is a special requirement. This may include use in a “standard format for all trademark owners”. 6 Plain packaging would constitute use in a standard format for all tobacco trademark owners, given its requirements for standard packaging, colour and size. Thirdly, another example of a special requirement is use in a manner that is detrimental to the capacity of the mark to distinguish the goods. Plain packaging would eliminate the capacity of trademarks to distinguish tobacco products. 4 Marrakesh, 15 April 1994, 1869 UNTS 299, [1995] ATS 8 p 341. 5 A similar provision appears in Art 1708(10) NAFTA. 6 Peter-Tobias Stoll, Jan Busche and Katrin Arend (eds), WTO – Trade-Related Aspects of Intellectual Property Rights (Leiden: Martinus Nijhoff, 2009), 345 (hereafter Stoll). 3 Fourthly, the special requirements must encumber the use of the trademark in trade. A plain packaging requirement would impose a very substantial burden (encumbrance) upon the use of the trademark. It would prevent the use of almost all characteristics of the trademark, including any colours, lettering, insignias or packet size that falls outside the very limited range permitted. Fifthly, the encumbrance must be unjustifiable. The use of the word “unjustifiably” implies that some special requirements are justifiable.7 In determining the limits of justification particular regard should be paid to the essential function of the trademark, which is to distinguish the goods offered by different businesses. The special requirements imposed by plain packaging are unjustifiable because they almost nullify the distinguishing capacity of the trademarks. A plain packaging requirement would be inconsistent with Art 20 of TRIPS. (b) Whether a PP requirement would fall within the limited exceptions to rights conferred by a trade mark permitted under Article 17 of TRIPS Art 17 of TRIPS provides: “Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.” A virtually identical provision appears in the Australia-United States Free Trade Agreement.8 Academic commentary regards Art 17 as having a fairly restricted scope. Art 17 is directed only to limitations relating to unfair competition.9 Art 17 “is about limiting the rights of trademark owners to prevent others from using signs similar or identical to the protected marks.”10 Plain packaging of tobacco products would not fall within the limitations permitted by Art 17 since it is not a measure related to unfair competition. Furthermore, to be justified under Art 17 an exception must: (1) be limited, and (2) take into account the legitimate interests of the owner. Firstly, the exception must be ‘limited’. A WTO Panel has emphasised that the word ‘limited’ means that “the exception must be narrow and permit only a small diminution of rights.”11 The Panel added that the question is whether the exception to trademark rights is narrow, not the number of trademark owners who are affected by the exception. A plain packaging requirement would not constitute a narrow exception giving rise to a small diminution of rights. It would be a major diminution of trademark rights. Secondly, the exception must take into account the legitimate interests of the trademark owner. A WTO Panel has held that the ‘legitimate interests’ of the trademark owner are less than their full legal rights. These legitimate interests “are ‘justifiable’ in the sense that they are supported by 7 Carlos M Correa, Trade Related Aspects of Intellectual Property Rights: A Commentary on the TRIPS Agreement (Oxford: Oxford University Press, 2007), 200 (hereafter Correa); Daniel Gervais, The TRIPS Agreement: Drafting History and Analysis (3rd ed, London: Sweet & Maxwell, 2008), 286 (hereafter Gervais). 8 Art 17.2(5) AUSFTA. A similar provision also appears in Art 1708(12) NAFTA. 9 Stoll, supra n 7, 333, 334. 10 Nuno Pires de Carvalho, The TRIPS Regime of Trademarks and Designs (The Hague: Kluwer, 2006), 294 (hereafter Carvalho). 11 European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs (WT/DS290), adopted 20 April 2005, DSR 2005: X-XI, 4603, 5121 at [7.650]. 4 relevant public policies or other social norms”.

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