Following a recent Government announcement plain packaging legislation now looks set to be introduced in the UK. However, big questions still remain about how the Government will tackle the thorny issue of compensating the affected brand owners for depriving them of their IP.

On 22 January 2015 the Minister for Public Health announced that the Government intends to introduce Regulations implementing plain packaging in the UK before the dissolution of Parliament on 30 March 2015 (prior to the General Election on 7 May 2015)6. Whilst MPs will be given a free vote on the policy, the opposition Labour party has previously indicated its support such that a final vote is very likely to be in favour of introducing the Regulations.

The Regulations themselves will severely curtail the ways in which brand identity can be expressed on tobacco packaging by prohibiting the use of all images, colours and other visual features which differentiate one brand from another.  Instead, the only brand identifiers permitted on the packaging will be a product name and brand variant, both written in a standardised font and colour.

The Government's announcement follows an initial public consultation on the policy in 2012, a Government commissioned review of public health evidence in spring 2014 and a further public consultation which concluded in August 2014.  The draft Regulations accompanying the second public consultation set out strict requirements for cigarette packs and also include the following image suggesting how these requirements would look in practice.

Click here to view image.

Although the results of the second public consultation are yet to be published, on 29 August 2014 the Government notified its draft Regulations to the European Commission under the Technical Regulations notification procedure set out in Directive 98/34/EC. Following notification, detailed opinions on the draft Regulations have been provided by 11 Member States who have raised concerns that plain packaging will impede the free movement of goods. The standstill period under the Directive, before the UK Government can adopt the Regulations, has therefore been extended from three months to six months and will now expire on 2 March 2015. The UK Government will also need to provide the Commission with an explanation of the action that it intends to take in response to these opinions.

The need for fair compensation

Whilst the Government now looks set to proceed with introducing the Regulations, one of the key issues which remains unresolved is whether it intends to compensate tobacco companies for depriving them of their brands. Intellectual property is entitled to protection from deprivation both under Article 17 of the Charter of Fundamental Rights of the European Union and under Article 1 of the First Protocol to the European Convention of Human Rights (implement in the UK under the Human Rights Act 1998). In both cases there are strong arguments that a deprivation of property (i.e., intellectual property) by the state is only permissible where it is accompanied by fair compensation. Given that the value of tobacco brands in the UK was estimated by Exane BNP Paribas Research in June 2014 to be between £9-11bn, any compensation paid to the tobacco companies is likely to be significant.

So far the Government has yet to say whether it is prepared to offer this compensation to the tobacco companies. The draft Regulations do not make any provision for compensating brand owners and there is an argument that this alone may be sufficient for a UK Court to find the Regulations in conflict with Article 17 and Article 1 of the First Protocol. A similar argument was recently used by the District Court in The Hague to rule that the a Dutch law phasing out the farming of fur-bearing animals in The Netherlands was invalid under Article 1 of the First Protocol due to an absence of any provisions compensating fur-farmers.

This issue of compensation is likely to become increasingly important in coming months as the tobacco industry appears to be set sue the Government if it is not adequately compensated and indeed the Government has recognised in its public statements that litigation is a risk associated with introducing the policy.

Other legal challenges

Whilst legal action before the UK courts now appears to be approaching, the introduction of plain packaging in the UK could also draw the Government into litigation under the WTO's Dispute Settlement procedure based around the UK's obligations under the Trade-Related Aspects of Intellectual Property Rights ("TRIPS") Agreement and other related WTO agreements. Australia (currently the only country in the world to have implemented plain packaging) is facing similar proceedings before the WTO brought by the Ukraine, Honduras, the Dominican Republic, Cuba and Indonesia. Despite previous indications that a decision in those proceedings could be expected during summer of 2015, the dispute resolution panel hearing the case have now stated that they will delay giving a decision until the first half of 2016. The introduction of plain packaging in the UK will likely lead to similar allegations that it has breached its obligations under the TRIPS Agreement and further proceedings before the WTO.

However, the UK may not be the only country facing WTO proceedings in relation to plain packaging rules.  The Irish government has also previously signalled its firm commitment to introduce the policy and may well be emboldened to proceed following the recent UK announcement.

A concern for other brand owners

Legal challenges aside, the UK Government's determination to push forward with plain packaging has led others to express their concern about the precedent which it will set for other industries.  For example, speaking to World Trade Mark review following the Government's announcement, the director of the British Brands Group, John Noble, stated:

Branding differentiates markets and helps give consumers a choice of products and a range of different price points. Removing that genericises the category and that means price competition becomes increasingly important. This may move consumers to cheaper and potentially lower quality products. Branding is also an incentive for companies to invest in reputation and quality, so if you reduce the incentive for companies to invest in quality then that could also lead to lower quality products.

Others have expressed concern that plain packaging may also harm the UK's reputation for having a strong system of IP protection.  For example, a recent report by the US Chamber of Commerce's Global Intellectual Property Center identified the move towards plain packaging for cigarettes as a key area of weakness in the UK's overall IP regime.  The report goes on to comment that:

… providing blanket “power” to governments to regulate trademarks, trade dress, and brands based on broad objectives of public health could expose a variety of other products in the future to similar regulation, legislation, and de facto prohibition. Many products could be at risk of such regulation (e.g., high sugar/calorie/fat food products and drinks, alcohol and liquor)…

Whilst the report was written shortly before the UK Government's announcement its impact was not reflected in the UK's overall scores for protection of IP and the UK was ranked second in the world for its IP protection. However, as stated in the country specific commentary, the introduction of the Regulations would lose the United Kingdom a point from its trade mark score (as happened to Australia when it introduced its own plain packaging laws), causing, of course a fall in its ranking.