Law Graduate, Quintin Rares examines Australia’s attempt to take away Big Tobacco’s intellectual property rights through plain packaging legislation, and poses the question ‘who’s next’?

Intellectual property rights’ holders around the world should be watching whether Australia’s new Tobacco Plain Packaging Act 2011 (TPPA) withstands legal challenge. It is likely that if Australia’s legislation withstands legal challenge, governments around the world will follow suit with their own TPPAs; legislation protecting ‘public health’ has broad international appeal. Importantly, cigarettes are not the only product with accompanying intellectual property that poses ‘public health’ concerns. A number of foods (e.g. junk food) and other drugs (e.g. alcohol) also pose a danger to public health and it remains to be seen whether this legislation is the beginning of a wider movement to curtail the use of products through removal of producers’ rights to exploit related intellectual property.

Tobacco Plain Packaging Act 2011

The TPPA curtails virtually every design, copyright, trademark and patent right involving a cigarette box. The extensive list of limitations on the packaging includes a ban on decorative ridges, embossing, irregularities in shape and texture, or any other embellishments, logos, scents and fonts (other than what is prescribed). Moreover, writing on the packet is restricted to, more or less, the company name, ‘variant’ of product and health warnings.

The legislation mandates rigid 90-degree packet corners, a flip-flop lid that is hinged at the back, a matt finish, a dark-drab brown box colour, and so on. Additionally, it mandates negative advertising regarding ‘quitting smoking’, including gruesome pictures of smoking related diseases and advertisements for the ‘Quitline’ (an antismoking call centre that encourages smokers to quit).

In essence, the legislation has the effect of depriving tobacco companies of the ability to foster and maintain ‘goodwill’ or ‘reputation’ through packaging by removing a tobacco company’s right to control what is on the face of their property (i.e. the cigarette packet before it is sold).

This legislation comes after a long line of legislation seeking to curb consumption of tobacco in Australia, such as limits on smoking in pubs and clubs (now banned), limits on displaying cigarettes openly in shops (now sold from closed opaque cabinets), limits on advertising (now banned from virtually every medium) and so on. The TPPA seems to have been the last straw, with the tobacco companies now filing legal suits in order to draw the line and protect their (few) remaining rights.

Tobacco companies have three main forums in which they can contest the TPPA. First are the Australian Courts; an appeal in the High Court Australia’s highest Court – was heard on the 17th of April. Second are the World Trade Organisation’s (WTO) Panel and Appellate Body through lobbying a member state to file suit (as, for example, Phillip Morris International Inc. (a cigarette company fighting the TPPA) cannot bring a suit itself; a member state must). Third are investor-state arbitrations, which are created under the many investor-state arbitration clauses contained in bilateral and multilateral trade treaties.

The forums and the arguments

The High Court

The Australian Constitution provides for “the acquisition of property on just terms from any … person for any purpose in respect of which the Parliament has power to make laws” (s51(xxxi)). The High Court has generally accorded a liberal construction to this provision of the Constitution. Nevertheless, the key issue is likely to be whether the Court will find legislation involves an ‘acquisition’ of property, as opposed to a mere extinguishment of property. It is uncertain as to how the Court will decide this point. Importantly, if the property is not ‘acquired’, the Constitution likely offers no protection against this legislation, and thus tobacco companies would need to make their case in another forum.

The World Trade Organisation

The WTO has two levels of courts/ tribunals. The lower level is called a Panel and the higher level is named the Appellate Body. Complaints may be made to the WTO by member countries only, and may not be made by individual companies or people who are aggrieved by laws of member states. In regards to the TPPA, a complaint has already been filed and will be reviewed by a WTO Panel at first instance. This initial complaint was launched by the Ukraine, and has recently been joined by Honduras. Moreover, the dispute is being closely watched by a number of other WTO members, with Brazil, Canada, the European Union, Guatemala, New Zealand, Nicaragua, Norway and Uruguay having asked to be third parties to the dispute. Many of them will be planning their own similar legislation and will seek to stop the WTO from limiting the TPPA.

WTO Panels and the Appellate Body have traditionally been hostile to members seeking to challenge other member’s laws that are made for the purpose of protecting ‘public health’. For example, in US – Clove Cigarettes, the Panel stated: “7.2 At the outset, this Panel would like to emphasize that measures to protect public health are of the utmost importance, and that the WTO Agreements fully recognize and respect the sovereign right of Members to regulate in response to legitimate public health concerns”.

In the present case, a legal battle could be brought against Australia on a number of grounds under the Technical Barriers to Trade Agreement (TBT), the General Agreement on Trade and Tariffs (GATT), the Paris Convention for the Protection of Industrial Property (Paris Convention) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

TRIPS – which incorporates the Paris Convention into WTO law – specifically mentions tobacco as a protected product type, and in Article 15.4 states ‘the nature of goods or services to which a trademark is to be applied shall in no case form an obstacle to registration of the trademark’. Whether or not Article 15.4 can extend to trademark ‘use’ is controversial, though it appears it cannot.

Under the non-intellectual property conventions cited above (i.e. TBT and GATT), the Ukraine and Honduras will need to prove Australia’s legislation discriminates against them (TBT 2.1; GATT III:4), or that the TPPA is more trade restrictive than necessary to achieve its ‘public health’ objective (i.e. an alternative, less discriminatory measure, must exist e.g. upping taxes or the smoking age; TBT 2.2).

It is uncertain how the WTO’s Panel and Appellate Body will rule on the intellectual property grounds or discrimination grounds.

Investor-State Arbitration

Further, Australia has entered into treaties undertaking to provide minimum standards to foreign investors. These Bilateral Investment Treaties (BITs) or Free Trade Agreements with Investment Chapters (FTAs) often create obligations to treat foreign investors equally with domestic investors and to not expropriate investments without compensation.

Each treaty is different. In order to determine if the BIT/FTA has been breached it is likely that the issue of acquisition and the public policy advanced will be relevant.

Some treaties have an arbitration mechanism by which an investor can claim. Philip Morris has given notice under the Australia-Hong Kong BIT to initiate arbitration in Singapore to recover significant damages.

Australia has entered several other international treaties which oblige it to comply with the terms of any arbitral award. At this stage the outcome of this process is unknown..

Conclusion

The TPPA legislation passed both houses of Australia’s Parliament with strong bipartisan support. Therefore, it is unlikely the legislation will be repealed by a change in government and it is unlikely it will be repealed due to a popular backlash. The question is whether legal challenge will weaken or eliminate the TPPA.

Importantly, the legislation, even if deemed to be in breach of the Australian Constitution or international conventions (mentioned above) by the High Court, WTO tribunals, or investor-state arbitration, the Australian Government is likely to only need to pay out money to compensate those affected. The legislation might therefore survive unless (possibly) the Australian Government repeals the legislation to avoid ruinous compensation claims, or the High Court takes the unlikely action of invalidating the TPPA.

If the WTO finds that the legislation discriminates against any member countries, then Australia will have to make substantive changes to the law or else suffer the threat (or actuality) of sanction, or at a minimum, international pressure.

It should also be noted that in Phillip Morris’ Investment Arbitration Notice, the company stated that it intended to “seek orders from the arbitral tribunal for the cessation and discontinuance of plain packaging legislation” as well as damages. Though the arbitrator may do both, only Australian Courts can validly declare Australia law invalid, making any ‘cessation and discontinuance of plain packaging legislation’ order a hollow victory at best.

In summary, the decisions of all three forums will have wide ranging implications for not just the worldwide tobacco industry, but also for the rights of all other producers of goods or services that could be seen as damaging to ‘public health’. With this said, by year-end, all forums should have made their decision, which will make clearer the scope allowed under each of the mentioned legal instruments.