Tobacco on the back foot?

The CJEU has recently found the Tobacco Products Directive to be valid. The Directive regulates the following across the EU in relation to tobacco products: labelling; ingredients; tracking and tracing; e-cigarettes; and cross-border sales. It is designed to create better health outcomes for consumers, and to discourage young people from taking up smoking. The recent UK decision of Tobacco Packaging [2016] EWHC 1169 rejected judicial review of the UK legislation for plain-packaging rules, which are now set to come into immediate effect. These various legislative instruments, including the Australian Government’s Tobacco Plain Packaging Act 2011 (Cth) (TPPA), have the same goals, and it is timely to consider the impact of the Australian legislation and the challenges it has faced since introduction.

While the wider impact of the TPPA has yet to be seen, its success to date is giving other countries confidence, as a number of EU Member States pass and begin to implement similar legislation. The Australian Federal Court’s positive consideration of the legislation’s effect in a trade mark infringement case last year is encouraging.

Legislation considered

The TPPA aims to reduce the appeal of tobacco products by imposing substantial limitations on the appearance of cigarette packaging,including shape and colour. It prohibits the use of trade marks, including figurative, logo and colour marks, on tobacco packaging, with the exception of tobacco companies’ brand and business/company names, and tobacco variant names which can be displayed in mandated size, font and position. It dictates physical characteristics of cigarette packets, including shape, dimension, packet opening and colour (dull olive). Simultaneous with the TPPA, the Competition and Consumer (Tobacco) Information Standard 2011 (Cth) was introduced, mandating that text and graphic health warnings cover at least 75 per cent of the front surface of cigarette packets, and 90 per cent of the back.

The TPPA does not prevent the registration of new trade marks, nor does it provide grounds to invalidate or revoke current registrations or applications. Trade mark applicants are taken to have the requisite intention to use the mark in relation to tobacco products, and registrations are immune from non-use removal.

The only case considering the TPPA thus far was a parallel importing case before the Federal Court in October 2015: Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2015] FCA 1086. In this case, Scandinavian Tobacco brought a claim against Trojan for trade mark infringement and passing off, and breach of Australian consumer law. Trojan, a parallel importer of cigars,removed the original packaging of the imported Scandinavian Tobacco cigars and replaced it with the new TPPA-compliant packaging without Scandinavian Tobacco’s consent. This included affixing Scandinavian Tobacco’s trade marks, in plain font and type size as required by the TPPA, so the cigars could be sold in Australia.

The Court found that, as the cigars themselves and the packaging originally had the trade mark applied to them by Scandinavian Tobacco, Trojan was free to apply the trade marks on the external re-packaging and use “the trade marks by selling the goods and doing the associated activities”. The Court found this use fell within the Section 123 of the Trade Marks Act 1995 (Cth) defence to infringement, namely that it “does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark”. This decision is indicative of how the TPPA and its interplay with the Trade Marks Act 1995 will be treated by the Australian courts in the future.

Challenges

Tobacco companies have instituted a number of challenges to the TPPA, both domestic and international, in an attempt to thwart the legislation.

High Court of Australia

Tobacco companies initially challenged the TPPA in the High Court of Australia (JT International v Commonwealth of Australia; British American Tobacco Australasia Ltd v Commonwealth of Australia [2012] HCA 43), contending that their trade marks are “property”, and the TPPA constitutes a compulsory acquisition of that property in violation of Australia’s Constitution.

In its defence, the Commonwealth argued the TPPA was in the public interest, and there was a rational basis for concluding plain packaging of tobacco products would reduce their appeal. It also submitted the property rights associated with the registered trade marks involve “a statutory assurance of exclusive use, not a positive right or authority to use”.

In a six-to-one majority, the High Court upheld the TPPA, finding that, while it operates as a taking of property, there is “an important distinction between a taking of property and its acquisition”. As the “taking” did not confer a proprietary benefit or interest, the Commonwealth did not acquire any property.

Investor-state dispute

Tobacco companies have also looked to international forums to challenge the TPPA. Philip Morris Asia Limited brought an investor-state dispute (which allows an investor to bring proceedings against a foreign government) against Australia, claiming the TPPA breaches Australia’s foreign investment provisions in its bilateral investment treaty with Hong Kong. Philip Morris claimed the TPPA constituted an expropriation of its IP, and did not afford it fair and equitable treatment.

It is understood that Philip Morris restructured its company to place itself in a position to present the claim, and the Australian Government argued Philip Morris had improperly made a foreign investment to facilitate the proceedings, and that the nature of the investment contained “false and misleading” assertions. The Permanent Court of Arbitration unanimously agreed with the Australian Government that it had no jurisdiction to hear Philip Morris’s claim.

WTO dispute

Currently, four countries are utilising the WTO’s dispute settlement process, claiming the TPPA violates Australia’s obligations under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement. As private companies cannot bring claims directly in WTO disputes, tobacco companies are openly assisting the complainant governments - Honduras, Indonesia, the Dominican Republic and Cuba (Ukraine recently withdrew its dispute).

The most substantive argument is that the TPPA is inconsistent with TRIPS’ trade mark protection provisions. The complainants argue that the TPPA is an obstacle to use of tobacco trade marks; prevents owners from enjoying the rights conferred by registration (ie the right to use); and unjustifiably encumbers by special requirements the use of trade marks (in violation of Article 20).

As TRIPS does not support a positive right to use a trade mark, only a right to registration and a right of exclusion, the dispute will likely turn to the interpretation of Article 20, and whether the public-health objectives of the TPPA are “justified” to prevent the use of tobacco trade marks. A decision in the WTO dispute is not expected until the latter half of 2016.

Applications filed

While some tobacco companies have taken steps to file trade mark applications in the new TPPA compliant format see right, many continue to file large numbers of applications for figurative, logo and colour marks covering cigarettes and tobacco in class 34. This may suggest tobacco companies are optimistic the WTO will find the TPPA in breach of Australia’s obligations under TRIPS, but many of the new applications also cover e-cigarettes.

Currently, the TPPA does not prohibit the use of trade marks on e-cigarettes. However, momentum is building to have the marketing and advertising restrictions that apply to tobacco products extended to e-cigarettes. The Australian Medical Association, Cancer Council Australia and the National Heart Foundation have all recently released position statements supporting this.

Is the TPPA effective?

There are indications the TPPA is effective. The Australian Bureau of Statistics revealed total expenditure on tobacco products in the first quarter of 2014 was the lowest ever recorded. There has been a 78 per cent increase in calls to quit-smoking service Quitline since the TPPA’s introduction, and the number of minors taking up smoking has also fallen. However, given the TPPA has only been in force for three years, and was introduced concurrently with the increased size of graphic health warnings and tax increases, significant studies on its impact are yet to be released.

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This article was first published in the July/August 2016 issue of the ITMA Review, the journal of the Institute of Trade Mark Attorneys (ITMA). For more information on ITMA, please visit www.itma.org.uk.

*Since this article was first published, the Full Federal Court upheld the decision in Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2015] FCA 1086.