This article was first published in the May 2014 edition of Managing IP.
It is 17 months since Australia became the first country in the world to standardise packaging for tobacco products, and other countries from New Zealand to the UK are watching the implementation, and legal challenges, closely. Studies since plain packaging was introduced have looked at the impact on teens and on people seeking to quit, as well as the effect on legitimate purchases and illegal trade. The legal challenges brought by tobacco companies against the Australian legislation failed, but there are important lessons to be learned that could be relevant if similar proposals are introduced in Europe, particularly regarding the principle of proportionality. While the EU Tobacco Products Directive does not include mandatory plain packaging, it is possible that EU member states will seek to do so – and the UK, Scottish and Irish governments are all heading in that direction. These moves will be of concern for brand owners not just in tobacco but also in other regulated industries.
On December 1 2012, Australia was the first country in the world to introduce rules on standardising packaging for tobacco products by excluding any graphic or text elements by which manufacturers can express their brand identity and restricting the use of brand names to a small standardised font. The impact of the policy and legal challenges it has faced are being watched closely by other governments considering similar legislation. New Zealand has expressly stated that it is waiting for the outcome of the WTO challenge to Australia’s laws brought by Ukraine, Honduras, the Dominican Republic, Cuba and Indonesia before deciding whether to introduce plain packaging. Aside from the UK and Ireland where things are moving quickly, others are likely to be adopting this cautious approach and will also be reviewing how the analysis adopted by the Australian High Court when considering the legality of the rules under the Australian constitution might play out in their own legal context. Finally, plain packaging initiatives will also be closely monitored by other industries since, if past experience is anything to go by, the next range of products likely to face branding restrictions will be alcoholic beverages and food products considered to contain high levels of fat, salt or sugar.
What effect is plain packaging having in Australia?
The aims of Australia’s Tobacco Plain Packaging Act 2011 ("TPPA") were expressed to be the improvement of public health by discouraging people from taking up smoking, encouraging people to give up smoking and discouraging people who have given up smoking from relapsing. Whilst the most obvious effect of the TPPA has been to deprive tobacco companies of their brands, after just over 16 months it might be too early to determine if it has, or will, achieve its stated objectives. At the same time as introducing plain packaging, the government also changed the images used for the graphic on pack health warnings and more than doubled their size, making it difficult to attribute changes in smoking behaviour specifically to the branding having been removed from the packs.
In March 2014 academics from the Department of Economics at the University of Zurich and University of Saarland published an analysis of Roy Morgan data on smoking prevalence of Australian minors, aged 14 to 17 years, over the period January 2001 to December 2013. This failed to find any evidence for an actual plain packaging effect on this group. However others have claimed that trends in calls to the Quitline advisory service since the introduction of plain packaging show, while not measuring actual smoking behaviour (and subject to potential confounding factors), an increase in numbers of calls coinciding with the introduction of plain packaging.
More recently, Australian tobacco companies released their sales data for 2013, showing an increase in purchases by retailers for sale to consumers. In addition to showing a slight increase in sales despite years of declining volumes, the tobacco manufacturers have suggested that the product mix (for example, the ratio of manufactured cigarettes to loose tobacco) may indicate that, following the introduction of plain packaging, smokers are moving towards cheaper commoditised products.
One concern about plain packaging is also the impact the policy may have on the illicit trade. One industry -funded study published by KPMG suggests the consumption of illicit tobacco in Australia has reached record levels, growing from 11.8% in 2012 to 13.9% in 2013, with the key driver of this growth being a large increase in the consumption of illegal, branded cigarettes, primarily in the form of contraband. Consumption of counterfeit cigarettes has also increased.
Lessons from legal challenges in Australia
In April 2012 the Australian High Court heard challenges by several tobacco companies to the validity of the TPPA. The companies sought to rely upon the restraint upon the legislative power of the Australian Parliament found in s51(xxxi) of the Constitution, which empowers the Parliament to make laws with respect to “the acquisition of property on just terms”. The Court rejected the argument that some or all of the provisions of the TPPA were invalid because they were an acquisition of the companies’ property otherwise than on just terms.
In reaching their decision, the majority of the High Court, while acknowledging that the effect of the TPPA on the tobacco companies' trade marks and other IP rights amounted to a “taking" or “deprivation” of such property, determined that the TPPA did not constitute an “acquisition” of property. The Court found that the tobacco companies'’ rights in their brands constituted property and that the extinguishment of those rights, while not an acquisition by the government, was a deprivation from the perspective of its owner which amounted to a taking of such property.
This finding will be of particular relevance in the European context. Article 17 of the EU'’s Charter on Fundamental Rights and Freedoms states:
Everyone has the right to own, use, dispose of and bequeath his or her lawfully acquired possessions. No one may be deprived of his or her possessions, except in the public interest and in the cases and under the conditions provided for by law, subject to fair compensation being paid in good time for their loss. The use of property may be regulated bylaw in so far as is necessary for the general interest. 2. Intellectual property shall be protected (emphasis added). The link between the High Court’s finding and the Charter was expressly recognised in the opinion of the Legal Affairs Committee of the European Parliament (JURI) on proposals to include plain packaging in the revised Tobacco Products Directive. The Committee suggested that the finding speaks against the admissibility of similar measures under EU law.
One important issue in the European context will also be that of proportionality and compensation. Article 52 of the Charter requires that “Subject to the principle of proportionality, limitations may be made only if they are necessary and genuinely meet objectives of general interest recognised by the Union or the need to protect the rights and freedoms of others”. However, proportionality was not an issue considered by the Australian High Court. In focussing their decision on the issue of the “acquisition” of property, the majority of the Court found it unnecessary to deal with further submissions by the Commonwealth that the Act was valid, and the constitutional protection against acquisition of property other than on just terms did not apply. Save for certain particular circumstances, Australian courts have largely eschewed adopting a test of proportionality as a separate ground for judicial review.
In summary, unlike the European Union, the principle of proportionality does not constitute a separate ground for judicial review, and the High Court did not consider the validity of the Act on this basis. Accordingly, the decision offers no guidance to the European courts on this particular issue and they will have to make their own assessment of the proportionality arguments surrounding plain packaging. Part of this assessment will be the principle of EU law that the proportionality of a deprivation of property is inextricably linked to compensation. Courts considering the right to property under Article 17 of the Charter (and the related Article 1 Protocol 1 of the European Convention on Human Rights) have repeatedly stated that a deprivation of property can only be considered proportionate where it is accompanied by fair compensation.
Following the public consultation run by the UK Department of Health in the summer of 2012, it was thought that the UK government would propose plain packaging as part of the legislative programme it would announce in May 2013. However, after much speculation in the media, the legislation was not forthcoming and the Health Secretary explained that the government had put its plans on hold as it wanted to wait and see how the policy worked in Australia before making a final decision. Many thought that this signalled the proposal had lost political support and would be unlikely to re-appear in the immediate future. However, this view was challenged in November 2013 when the government unexpectedly agreed to back an amendment to the Children and Families Bill proposed by a cross -party group of peers during the Bill’s passage through the House of Lords. The Bill received Royal Assent on March 13 2014 and section 94 gives the Health Secretary the power to make regulations to introduce plain packaging at some point in the future if he “considers that the regulations may contribute at any time to reducing the risk of harm to, or promoting, the health or welfare of people under the age of 18”.
At the same time as announcing its backing for the amendment, the government asked Sir Cyril Chantler, an academic paediatrician from Kings College London, to conduct an independent review into “whether or not the introduction of standardised packaging is likely to have an effect on public health (and what any effect might be), in particular in relation to the health of children”. The final report was published on April 3 2014 and Sir Chantler’s conclusion was that: “Although I have not seen evidence that allows me to quantify the size of the likely impact of standardised packaging, I am satisfied that the body of evidence shows that standardised packaging, in conjunction with the current tobacco control regime, is very likely to lead to a modest but important reduction over time on the uptake and prevalence of smoking and thus have a positive impact on public health.” On the same day the report was published, the Public Health Minister announced that the government is now minded to introduce plain packaging and will shortly be publishing draft Regulations implementing the proposals. However, in recognition of the fact that the Chantler review did not consider the wider implications of standardised packaging, including the question of legality and compensation, the government will hold a further short public consultation on issues relevant to a final decision on the policy including the legal, economic and criminal implications.
The legal implications in particular will be of key importance to the government in making its decision. There are serious arguments that introducing standardised packaging will reach the UK’s obligations under both European law and the TRIPs Agreement leaving the government open to numerous legal challenges in the courts and through the World Trade Organisation. As explained above, the finding by the Australian High Court that plain packaging amounted to a “taking” or “deprivation” of the tobacco companies'’ intellectual property and the resulting issues surrounding compensation will be likely to feature in their assessment.
In Europe, the revision of the European Tobacco Products Directive (TPD) replacing the current TPD 2001/37/EC, was approved on February 26 2014 by the European Parliament and formally adopted by the Council on March 14 2014. The revised TPD will come into force in May 2014 and member states will have two years to implement the new rules into national law.
Under the revised TPD, 65% of the front and back surface of packs will show a combined text and graphic health warning and 50% of the sides will show text health warnings. The new TPD will also standardise pack size and shape and prohibit any references to smell, taste, flavourings, additives or the absence thereof.
Although the introduction of mandatory plain packaging was not included in the initial Commission proposal and was subsequently rejected by the European Parliament and the Council, the revised TPD expressly states that it does not affect the right of member states to introduce further measures relating to standardisation of packaging where it is justified on grounds of public health and where other strict conditions are met. The TPD makes it clear that such measures, among others, must be proportionate and not lead to hidden barriers to trade between member states and respect international trade obligations. The TPD does not therefore allow member states to sidestep their other obligations under EU law, such as the protection of rights under the Charter.
In 2013 the Irish government announced that it wants to introduce plain packaging although no firm date for implementation has been set. The Scottish government has also previously expressed its support for plain packaging.
A challenging precedent for brands
The optional provision of introducing plain packaging contained in the TPD (see box) and the intention of the UK and Irish governments to bring in such measures are of concern to many brand owners, not least because of the precedent it sets for possible public health intervention in other industries. On March 28 2014 the concerns of many brand owners were expressed in a joint statement of the IP associations APRAM, ICC BASCAP, BMM, ECTA, MARQUES, UNIFAB and UNION-IP.
The regulatory trends in the tobacco industry have historically been followed a number of years later in the alcohol and food industries. A report by Deloitte in 2013, Accelerating Complexity, regarding regulatory trends in the consumer goods industry shows there is a well-established cascade in regulatory and tax measures based on public health intervention from the tobacco industry to the alcohol and food industries. The implications of plain packaging for brands in general cannot therefore be seen as an issue confined to only one industry.
Those most likely to see a drip-feed of mandatory on packaging health warnings and branding restrictions similar to those seen for tobacco are producers of alcoholic beverages and food products containing fat, sugar or salt, which the World Health Organisation (WHO) has stated are prime candidates for stronger regulatory controls. A Dutch senior health official recently referred to sugar as “the most dangerous drug of our time” and suggested health warnings similar to health warnings for tobacco products.
While we are unlikely to see plain packaging for alcohol or fast food in the near future, the history of tobacco packaging does show that there is a precedent for brands being 'salami sliced' whereby ever increasing health warnings squeeze the space available for branding until the point where the branding is removed altogether. Given the importance of plain packaging to brands in general many will want the UK government to heed calls for a specific public consultation on the IP implications of the policy before taking its final decision.