The world’s four largest tobacco companies are currently taking High Court action against the UK Government.  Their aim is to prevent a near-total removal of their designs and trademarks on their cigarette packets, which the Government argues will help smokers give up and discourage non-smokers, especially children, to start. The tobacco companies have already failed in a similar bid in Australia, but what is their approach this time, and what are the potential implications for trademarks in the future?  Is the health of the nation more important than the rights of trademark holders and their profits?

Chris Pett, a Consultant and former Partner at Dehns Patent and Trade Mark Attorneys, summarises the position, considers the arguments, and outlines potential implications on trademarks and packaging in other sectors.

Many will be aware that the UK Government has passed legislation which from 20 May 2016 will require cigarettes only to be sold in plain packaging.

The law will prohibit the use of logos, colours, brand imagery or promotional text on all tobacco product packaging.  On cigarette packets it will require that all brand and product names be displayed in a standard colour (Pantone Cool Grey 2C Matt), font style (Helvetica) and size, and positioned over a dull olive green-coloured (Pantone 448B Matt) background.  There will also be some gruesome pictures of the consequences of smoking along with the now customary health warnings.  The policy, known as ‘plain packaging’, aims to deter an impressionable clientele by removing any of the glamour involved in smoking.  Similar legislation has already been passed and is in effect in Australia and plans are afoot in several other countries as well.

The tobacco companies Philip Morris International, British American Tobacco, Imperial Tobacco and Japan Tobacco International are currently taking action in the UK High Court to challenge the proposed rules.  Several of these companies challenged the Australian government over their plans back in 2012.  Their case then was based on the contention that the law change amounted to an acquisition of property on less than just terms under the Australian Constitution. 

They lost that case, it being decided that the (Plain Packaging) Act was not a law by which the state acquired any interest in property, however slight or insubstantial it might have been.  The Act was part of a legislative scheme which placed controls on the way in which tobacco products could be marketed.  While the imposition of those controls might have been said to constitute a taking in the sense that the claimants' enjoyment of their intellectual property and related rights was restricted, the corresponding imposition of controls on the packaging and presentation of tobacco products did not involve the accrual of a benefit of a proprietary character to the state which constituted an acquisition.

A different tack is being followed in the UK.  Over here the tobacco companies say that  a) the regulations unlawfully deprive tobacco companies of their trademarks, contrary to English and EU law which prohibits depriving private entities of property without fair compensation;  b) the regulations are contrary to EU trademark law because EU trademarks are expected to be used by identical means throughout the EU, which would be impossible if the UK government bans their use in the UK; and  c) the regulations obstruct the free movement of goods through means that are neither necessary nor proportionate to achieve the UK government’s public health objectives.  They argue that the new move will illegally diminish the value of their trademarks as items of property. They claim the regulations will destroy their highly valuable property rights and render products indistinguishable from each other.  They say there are Human Rights implications.

Organisations dedicated to the protection of IP rights are all against any restriction.  No surprise there.  They argue that “trademarks and trade dress are relied upon by consumers as signposts of genuine goods and services.  This is true for both word marks and figurative marks (graphical devices), and for signs resulting from the combination of the two, as well as so called “non-traditional” trademarks such as packaging shapes and colours per se.  Trademarks also indicate the source of goods and services to assure consumers on the quality of the products that they purchase or that they would consider purchasing.  This fundamental function cannot be fulfilled if trademarks are not noticeable, or unavailable, to consumers when selecting a product.  They take the view that the inability to recognize a brand or trade mark on a product would lead to consumer confusion, and therefore diminish the goodwill acquired in that brand through considerable investment and effort over a significant period of time.  They say the inability to call for or recognise a brand also takes away a consumer’s freedom of choice.”

The government disagrees with these contentions and argues that the changes are an important public health measure aimed at discouraging children from smoking and helping smokers to quit.   The sale and packaging of cigarettes has long been regulated in the UK, and they argue that plain packaging is but a further justified step in this process.  The new law does also include a Section in which some trademark owner rights are safeguarded.

That trademarks are considered as items of property is not in question.  Both UK and EU law specifically refer to trademarks as such.  However, neither law provides an absolute right to trade mark owners to use their rights, as these can be subject to other laws and the rights of others.  The right given by a trademark can be considered as the right to prevent others from unlawfully using the mark, not a right to use. 

There would of course be some branding on the packaging.  The primary function of word trademarks - to identify origin - would remain.  Choice of manufacturers would continue and wording would still be permitted to allow consumers to make choices between brand variants.  Plain packaging would not deprive the trademark owner of all his property.  He would in many ways have the same power to exclude as he had before.  What would be missing would be the glitz.

Plain packaging is seen as a threat because packaging is one of the most important ways tobacco companies seek to communicate with the consumer.  If all the glitz in branding were removed, consumers might well be less attracted to the more profitable premium brands.  The manufacturers must also be concerned that the measure will see a further drop in consumption, though they have also thrown into the argument their belief that the government has failed to demonstrate that the policy will stop people from smoking.  If it will not, then what are the objectors afraid of?  Is the argument about diminishing the value of the trademarks not simply a worry about a loss of profits in disguise? 

Would the new law be, as Lord Hoffmann has opined, an unlawful deprivation of property or, as the government argues, an allowable restriction aimed at informing, and reducing harm to public health caused by the use of tobacco products?   And how strong is the angle that if the UK adopts this law where the rest of the EU has not, EU trademark law would be infringed because EU trademarks, which are unitary rights, would be prevented from being used across all the Member States, hence preventing the free movement of goods throughout the EU?

Some enlightenment on that possible sting in the tail may be provided later this month when an Advocate General at the European Court of Justice gives a non-binding opinion on the legality of the EU’s revised Tobacco Products Directive.  From 20 May 2016 this will require that at least 65% of all cigarette packs sold in the EU be covered by forms of health warning, and further specifically allows individual Member States to introduce additional measures relating to the standardisation of packaging – or plain packaging – where they are justified on grounds of public health, are proportionate and do not lead to hidden barriers to trade between Member States.  Some variation in packaging of the same product across Member States is therefore foreseen as permissible under EU law.  Challenge to the legal basis of the Directive has been made by the tobacco companies and a binding decision of the Court (which frequently is the same though need not be) will follow the Advocate General’s opinion in the New Year.

Opponents might justifiably also wonder if this is the thin end of the wedge.  This could potentially see the start of an expansion of plain packaging initiatives into other areas as well.  There have been warnings that the argument does not revolve only around tobacco, as the underlying rationale is open-ended.  The possibility of similar legislation being applied to the alcohol and food industries as part of the public health initiative argument has certainly been raised, and some countries are considering more restrictive regulations.  And if the tobacco companies win their case, trademark law would have been seen to have prevailed over national health concerns.  Would this be a good decision?   The verdicts in the New Year on both cases will be keenly awaited, and how far up the Court ladder will the UK case go?