WTO panel decision: Australia’s tobacco plain packaging legislation not in violation of TRIPS

In its almost 900-page decision, the WTO placed the Australian Government’s objective of the Tobacco Plain Packaging Act 2011 (Cth) (TPP), to improve public health by reducing the use of and exposure to tobacco products,¹ above the rights of trade mark owners in rejecting all of the complainants’ claims that the TPP violated Australia’s international trade obligations, including the trade mark provisions under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).²

The decision regarding the violation of TRIPS’s trade mark provisions hinged on whether the TPP measures, substantially restricting the use of trade marks on tobacco products, are “unjustifiable”. The decision indicates that determination of what measures are justifiable is to be made on a case-by-case basis, by “weighing and balancing” the extent of the encumbrance to the use of trade marks and the contribution it makes to the objective of the measure. This provides governments with little indication of what other measures may be permitted under Art 20 of TRIPS.

The legislation

The TPP was introduced in December 2012 with the aim of reducing the appeal of tobacco products by imposing substantial restrictions on the appearance of cigarette packaging. The TPP prohibits the use of trade marks, including logos, brand imagery and colours and all other promotional text with the exception of tobacco companies’ brands, business/company names and tobacco variant/product names which can be displayed in a mandated size, font style and position.³ The TPP also stipulates physical characteristics of cigarette packaging including shape, dimension, packet opening and colour — “dull olive”.⁴

The TPP does not prevent the registration of new trade marks, nor provide grounds to invalidate or revoke trade mark registrations.⁵ Trade mark applicants are taken to have the necessary intention to use their marks in relation to tobacco products, and registrations are immune from non-use removal.⁶

The Competition and Consumer (Tobacco) Information Standard 2011 (Cth) was introduced alongside the TPP in 2012, requiring text and graphic health warnings (GHW) cover at least 75% of the front surface cigarette packets, and 90% of the back.⁷

Prior challenges to the legislation

Tobacco companies initially challenged the TPP in the High Court of Australia,⁸ contending their trade marks are “property” and the TPP constitutes a compulsory acquisition of that property violating the Australian Constitution.⁹ The Commonwealth defended the legislation arguing the TPP was in the public interest and there was a rational basis for concluding plain packaging would reduce the appeal of tobacco products.¹⁰ It also argued the rights associated with registered trade marks involve “a statutory assurance of exclusive use, not a positive right or authority to use.”¹¹

The High Court upheld the TPP (in a 6-1 majority) finding there is “an important distinction between a taking of property and its acquisition” and as the “taking” did not confer a proprietary benefit or interest, the Commonwealth did not “acquire” any property.¹² The High Court also confirmed that trade mark rights are negative rights and only provide rights to exclude third parties from using registered trade mark.¹³

Philip Morris Asia Ltd (Philip Morris) also brought an investor-state dispute against Australia claiming the TPP breached Australia’s bilateral investment treaty with Hong Kong.¹⁴ The dispute was initiated after Philip Morris restructured its Australian holdings — moving the shares of its Australian subsidiary to its Hong Kong entity. Philip Morris claimed the TPP:¹⁵

• constituted an expropriation of its investments due to the substantial deprivation of the intellectual property
• was not fair and equitable
• was an unreasonable impairment to its investment

The investor-state investment tribunal found it had no jurisdiction to hear the claim, finding the dispute to be an abuse of right (or abuse of process), and was concerned Philip Morris had restructured its holdings for the purpose of initiating the arbitration.¹⁶

WTO dispute

In 2012, tobacco companies also openly assisted the governments of Honduras, Indonesia, the Dominican Republic and Cuba (the complainants),¹⁷ to utilise the WTO’s dispute settlement process to determine whether the TPP violates Australia’s international intellectual property protection provisions under TRIPS (and provi- sions of the Agreement on Technical Barriers to Trade and General Agreement on Tariffs and Trade 1994).¹⁸ Given the similarity of the claims, a single Panel was assembled in 2014 to hear the disputes.

The Panel’s findings

The complainants argued the TPP was inconsistent with several of TRIPS’s trade mark protection provisions, including that the TPP is an obstacle to use of tobacco companies’ trade marks¹⁹ and prevents owners from enjoying the rights conferred by registration (ie, the right to use a mark).²⁰ As with the High Court decision, these arguments were dismissed and the Panel confirmed trade mark owners’ exclusive rights under TRIPS are negative rights, not positive rights — that is, the rights conferred are those to prevent others from using a trade mark, not a positive right to use a trade mark.

However, the key argument raised by the complainants, and the core focus of the Panel’s decision, was that the TPP violates Art 20 of TRIPS:

The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. This will not preclude a requirement prescrib- ing the use of the trademark identifying the undertaking producing the goods or services along with, but without linking it to, the trademark distinguishing the specific goods or services in question of that undertaking [emphasis added].

In order to establish whether the TPP violates Art 20, the Panel considered in turn:²¹

a. whether the TPP measures involve “special requirements” that “encumber” the use of a trademark … and if so,

b. whether such requirements encumber the “use of a trademark” “in the course of trade” … and, if so,

c. whether they do so “unjustifiably”.

After extensive review of the meaning of the terms “special requirements” and “encumber”, the Panel found:

…the term “special requirements” refers to a condition that must be complied with, and has a close connection with or specifically addresses the “use of a trademark in the course of trade”, and [that] [t]his may include a … prohibition on using a trademark[,]²²

and

… if the use of a trademark is prohibited, it is “encumbered” to the greatest possible extent[,]²³

in finding the TPP does impose special requirements that encumber the use of trade marks.²⁴

The Panel then moved on to consider whether these requirements encumber the use of a trade mark in the course of trade. Whilst Australia argued that “in the course of trade” refers to acts undertaken during the buying and selling of goods which concludes at the point of sale, the complainants contended that the phrase more broadly covers all activities related to commercial activity.²⁵ The Panel agreed with the complainants and found that use in the course of trade, within the meaning of Art 20, was not limited to use “up to the point of sale” or use of a trade mark to perform a “distinguishing function” and concluded the trade mark restrictions under the TPP remain applicable beyond the point of sale.²⁶

As a result of these findings, Australia’s defence then rested on whether the TPP measures “unjustifiably” encumbered the use of trade marks in the course of trade. Extensive arguments were made on this issue by the complainants, Australia and a number of interested third parties.

Does the TPP unjustifiably encumber the use of trade marks?

In determining whether an encumbrance by special requirements on the use of a trade mark is unjustifiable, the Panel concluded an assessment would need to be carried out on a case-by-case basis, taking into account:²⁷

• the nature and extent of the encumbrance resulting from the special requirements
• the reasons for which the special requirements are applied, including any societal interests they are intended to safeguard
• whether these reasons provide suffıcient support for the resulting encumbrance

Nature and extent of the encumbrance

Whilst recognising the TPP measures are “far reaching” and prevent trade mark owners from “extracting economic value” from the figurative and stylised elements of their trade marks,²⁸ the Panel found the prohibitions are partly mitigated by allowing tobacco companies to use word trade marks to distinguish their products.²⁹ In addition, the Panel found that there was evidence regarding cigarette prices that did not validate the complainants’ argument that the trade mark restrictions will lead to an increase in price competition and a fall in prices, and subsequently a decrease in the sales value of tobacco products and total value of imports.³⁰

Reasons for which the special requirements are applied

The Panel noted the trade mark prohibitions were an “integral part” of the overall objective of the TPP: to improve public health by reducing the use of, and exposure to, tobacco products³¹ and gave weight to Australia’s claim that the TPP measures were introduced to complement its comprehensive range of tobacco control measures which already included advertising and promotional bans, excise taxes, graphic health warnings, and investment in anti-smoking initiatives.³²

The Panel also considered the principles of TRIPS under Art 8.1 (which provide that countries may formulate or amend their laws and adopt measures necessary to protect public health) may provide a basis for justification of the TPP measures under the terms of Art 20, and para 4 of the Doha Declaration³³ which indicates each provision of TRIPS should be read in light of the object and purpose of the Agreement, which includes Art 8.

Sufficient support for the resulting encumbrance

The Panel noted it was “undisputed” that the basis for the special requirements on use of trade marks under the TPP was to address an “exceptionally grave domestic and global health problem involving a high level of preventable morbidity and mortality.” The Panel considered the special requirements were part of the overall TPP measures, and in combination with Australia’s other tobacco control measures, which “are capable of contributing, and do in fact contribute, to Australia’s objective of improving public health” and therefore provide sufficient support for the resulting encumbrances.³⁴

Based on the evidence before it, the Panel concluded that the removal of design features on retail packaging and cigarettes was appropriate to reduce the appeal of tobacco products and increase the effectiveness of GHWs. The Panel found the reasons for the adoption of the TPP measures, which include the integral trade mark-related requirements, are sufficient to support these requirements and are therefore “not applied ‘unjustifiably’”.³⁵

The Panel again referenced the objective of the TPP and Australia’s intention to satisfy its obligations under the World Health Organization’s (WHO) Framework Convention on Tobacco Control (an evidence-based treaty) which sets outs provisions to reduce tobacco consumption and recommends parties adopt measures to restrict/prohibit use of logos, colours, brand images or promotional information on tobacco packaging.³⁶

Conclusion

The Panel concluded that Australia had not “acted beyond the bounds of the latitude available to it under Article 20”³⁷ in adopting a policy intervention to address public health concerns relating to tobacco products and imposing special requirements that encumber the use of trade marks in the course of trade.

However, given the Panel’s approach in determining whether Australia’s TPP measures are unjustifiable, the decision provides little guidance for governments as to what other policies restricting trade mark rights in order to address public health concerns or other societal interests will be permitted in accordance with Art 20 of TRIPS. The test is clearly to be made on a case-by-case basis depending on specific circumstances of the policy and by “weighing and balancing” the extent of the encumbrance against the contribution it makes to the objective.

Whilst Honduras and the Dominican Republic have appealed certain aspects of the Panel’s decision, the decision is expected to give confidence to other governments to implement similar plain packaging legislation.

This article first appeared in LexisNexis’ Australian Intellectual Property Law Bulletin Vol 31 No 9 and is reprinted with permission.

Footnotes

1. TPP, s 3.
2. Marrakesh Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3 (entered into force 1 January 1995) annex 1C (“Agreement on Trade-RelatedAspects of IntellectualPropertyRights”) www.wto.org/english/docs_e/legal_e/27-trips.pdf.
3. Above n 1, s 21.
4. Tobacco Plain Packaging Regulations 2011 (Cth), reg 2.2.1.
5. Above n 1, s 28.
6. Above n 1, s 28.
7. Competition and Consumer (Tobacco) Information Standard, Div 4.
8. JT International SA v Commonwealth; British American Tobacco Australasia Ltd v Commonwealth (2012) 250 CLR 1; 291 ALR 669; [2012] HCA 43; BC201207608.
9. Australian Constitution, s 51.
10. Above n 8, at [22].
11. Above n 8, at [37].
12. Above n 8, at [41]–[42].
13. Above n 8, at [36].
14. Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments [1993] ATS 30 (entered into force 15 October 1993).
15. Philip Morris, Written Notification of Claim Australia/Hong Kong Agreement for the Promotion and Protection of Invest- ments, 27 June 2011, www.ag.gov.au/Internationalrel... .
16. Philip Morris Asia Ltd v Commonwealth UNCITRAL PCA Case No 2012-12 at [585].
17. Ukraine also initiated a dispute settlement but withdrew its dispute.
18. Above n 2, annex 1A (“Agreement on Technical Barriers to trade”) www.wto.org/english/docs_e/leg... Arts 2.1 and 2.2.
19. Above, Art 15.4.
20. Above n 2, Art 16(1).
21. WTO Australia — Certain Measures Concerning Trademarks, Geographical Indications and Other Plain Packaging Requirements Applicable to Tobacco Products and Packaging (28 June 2018) https://docs.wto.org/dol2fe/Pa... para 7.2172.
22. Above, para 7.2231.
23. Above n 21, para 7.2236.
24. Above n 21, para 7.2245.
25. Above n 21, para 7.2260.
26. Above n 21, paras 7.2291–92.
27. Above n 21, para 7.2430.
28. Above n 21, para 7.2569.
29. Above n 21, para 7.2570.
30. Above n 21, para 7.2572.
31. Above n 21, para 7.2586.
32. Above n 21, para 7.2589.
33. Declaration on the TRIPS Agreement and Public Health WT/MIN(01)/Dec/2 (20 November 2001 adopted on 14 November 2001) www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.pdf.
34. Above n 21, para 7.2592.
35. Above n 21, para 7.2593.
36. WHO, Guidelines for implementation of Article 11 of the WHO Framework Convention on Tobacco Control (Packaging and labelling of tobacco products), November 2008, www.who.int/fctc/guideline/article_11.pdf.
37. Above n 21, para 7.2604.