On 5 October 2012, the High Court of Australia handed down written reasons, following orders made on 15 August 2012 in favour of the defendant in each of JT International SA v Commonwealth and British American Tobacco Australasia Limited v Commonwealth.
Section 51(xxxi) of the Constitution provides:
The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:
(xxxi) the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.
Most of the substantive provisions of the Tobacco Plain Packaging Act 2011 (Cth) (TPP Act), which received royal assent on 1 December 2011, entered into force on 1 October 2012, with the remainder to enter into force on 1 December 2012. The TPP Act introduces tight controls over the packaging of cigarettes, as set out in Part 2 of that Act, including, among other things, a restriction of the use of trade marks and a requirement that the colour of the packaging must be a “drab dark brown”. The brand name may appear on the packaging but only in a standard location a small plain font. Information and warnings about the use of tobacco products will take up much of the free space on the package. Effectively, this prevents tobacco companies from using their own get up and trade marks (other than their brand word marks) to distinguish their products from those of their competitors. Section 15 of the TPP Act provides that the “Act does not apply to the extent (if any) that its operation would result in an acquisition of property from a person otherwise than on just terms”.
JT International SA (JTI) and members of the British American Tobacco group (BAT) commenced separate proceedings challenging the TPP Act on the basis that it effected an acquisition of their intellectual property rights and goodwill, contrary to s 51(xxxi). Other tobacco companies, Philip Morris Limited, Van Nelle Tabak Nederland BV and Imperial Tobacco Australia Limited, participated by way of intervention.
JTI argued that its registered trade marks and its get up were property for the purposes of s 51(xxxi), the acquisition of which required just terms. In its defence, the Commonwealth pleaded that the rights claimed were always susceptible to commonwealth regulation, and that in any event the TPP Act results in an acquisition of property on just terms. JTI demurred in reply to the Commonwealth’s defence, arguing that the TPP Act effected an acquisition that was not on just terms.
BAT cast its case more broadly, arguing further that copyright, licensing goodwill, design rights, patent rights, packaging goodwill and the intellectual property rights were also within the scope of s 51(xxxi). On 27 February 2012, Gummow J reserved questions in the BAT proceedings under s 18 of the Judiciary Act 1903 (Cth) for consideration by the Full Court.
The demurrer in the JTI proceedings and the questions reserved in the BAT proceedings were heard consecutively.
Orders made on 15 August 2012
On 15 August 2012, the High Court found, by a majority (French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ), that there had been no acquisition of property within the meaning of s 51(xxxi), and made orders accordingly.
Reasons published on 5 October 2012
Six separate judgments were provided, comprising individual judgments of French CJ, Gummow J, Heydon J (in dissent), Crennan J and Kiefel J, and the joint judgment of Hayne and Bell JJ.
Each of French CJ, Gummow J, Heydon J, Crennan J and Kiefel J held that registered trade marks, designs and patents, and copyright were property capable of attracting the protection of s 51(xxxi). Gummow J made reference to Wurridjal v The Commonwealth (2009) 237 CLR 309, in which Crennan J had held that “the extent to which a right created by statute may be modified by subsequent legislation without amounting to an acquisition of property under s 51(xxxi) must depend upon the nature of the right created by statute”. Gummow J held that the fact that rights under intellectual property laws were “artificial products of society” means that further attention was required in the identification of “those right which constitute the property in question in these cases.”
As to whether goodwill was property within the scope of s 51(xxxi), Gummow J held that while goodwill was correctly characterised as property, whether the goodwill associated with the packaging was property within the scope of s 51(xxxi) required further consideration. This was because, unlike statutory forms of intellectual property, the common law restricts the assignment of goodwill, which can only be assigned in conjunction with the goodwill of the business in respect of which the get-up was used. He held, however that it was not necessary to decide its character with respect to s 51(xxxi) because of his conclusions on acquisition.
The court generally emphasised that it was necessary to distinguish between the property that was taken – being what was lost by the owner - and the property that was acquired – being what was gained by the recipient. French CJ observed that an extinguishment of a right is a loss of that right by the owner but not necessarily a gain by another, citing Georgiadis v Australian Overseas Telecommunications Corporation (1994) 179 CLR 297. Each member of the majority held that for there to be an acquisition within the scope of s 51(xxxi), it was necessary for there to be a gain of a proprietary nature. The TPP Act did not involve a proprietary gain on the part of the Commonwealth.
The fact that the Commonwealth was able the resulting “space” (caused by the absence of trade marks and other get up) on the packaging was not an accrual of property. In particular, Gummow J, citing The Commonwealth v Tasmania (1983) 158 CLR 1 held that the fulfilment of its legislative objectives (and treaty obligations) was not an acquisition of this type.
Heydon J’s dissent centred on the issue of acquisition, holding that acquisition only required "some identifiable and measurable countervailing benefit or advantage" to be acquired (citing Mutual Pools & Staff Pty Ltd v The Commonwealth (1994) 179 CLR 155) and that this was the effect of the TPP Act. The TPP Act resulted in the destruction of some of the proprietor’s property and the application of some of it for a Commonwealth purpose, and the level of control exercised by the Commonwealth over the packaging was sufficient to enliven s 51(xxxi).
On the international stage, there are dispute resolution proceedings concerning the TPP Act in progress in the World Trade Organisation (dispute nos. DS434, DS435 and DS441) and under the 1993 Australia-Hong Kong bilateral investment treaty. Nonetheless, the TPP Act will enter fully into force on 1 December 2012 and tobacco companies, distributors and retailers will need to ensure that they are compliant with that Act and its (not unambiguous) regulations.
Other jurisdictions are considering similar plain packaging regimes including Canada and New Zealand. The option of plain packaging for tobacco is being more readily considered than formerly as options to control the use of that substance. If the TPP Act survives challenges in the WTO and under the bilateral treaty, more attempts to impose plain packaging for tobacco, and further, attempts to impose plain packaging on other products such as alcohol can be expected around the world. While many of these attempts would be linked to the prevention of harm to public health, what “prevention of harm to public health” involves is a matter of interpretation and is of potentially quite broad application. There is also the possibility that plain packaging regimes may be introduced for reasons other than prevention of harm to public health and this decision is therefore of relevance to all trade mark holders.