Whither Marlboro man?

When Virginia tobacco company Allen & Ginter launched collectable cigarette cards in 1875, it started a trend that lasted for more than a century. The cards were designed to stiffen packs but they were also one of the earliest forms of advertising, and consumers across the US bought, traded and shared its coloured prints of sports stars, actresses, animals and Indian chiefs.

In the 137 years since, tobacco packaging has been used by companies to captivate consumers, strengthen brand identities and distinguish products from those of their rivals. Marlboro’s red chevron conjured images of ranchers in Stetsons and blue jeans, and white and gold cartons of Virginia Slims echoed its ads starring glamorous models in power suits. Reds and blues hinted at full, intense flavours, while purples and silvers suggested a lighter, more feminine smoke.

But in 2013, tobacco advertising is severely restricted. In some countries, it’s banned altogether. In an age where smoking is recognised as the world’s biggest preventable cause of death, these brightly coloured packets are often the only reminder of the images tobacco brands spent billions crafting. And in Australia, even these are now extinct.

The Act

On December 1, 2012, Australia’s Tobacco Plain Packaging (TPP) Act came into force. The law dictates that all cigarettes must be sold in standardised packaging and is based on research that claims teenaged smokers are attracted to colourful cartons. It is part of an initiative to cut the number of smokers in Australia to 10 percent of the population by 2018 (in 2011, it was 17 percent).

Instead of blues and purples, cigarette packets in Australia are now a dull greenish brown. Instead of logos and illustrations, they are adorned with graphic images of blackened lungs and rotting teeth and brand names in a standard white type.

The World Health Organization (WHO) says Australia’s new law is the “gold standard” for tobacco control, and several countries are considering similar measures: New Zealand’s government agreed in principle to plain packaging in April 2012; a bill was submitted for discussion in India in November, and the UK is soon to publish the results of a national consultation on the issue held last summer. In December, the EU published draft legislation which will allow each member state to implement plain packaging if it chooses to do so.

Legal objections

Although it has been praised by governments and public health campaigners, Australia’s legislation has been fiercely opposed by brand owners and trademark organisations who claim it is a violation of international trade laws and their intellectual property rights.

In early 2012, British American Tobacco (BAT), Philip Morris, Imperial Tobacco and Japan Tobacco challenged the directive in Australia on the grounds that it was unconstitutional as it effectively extinguished their IP rights. The case reached Australia’s High Court, but a panel of judges ruled against the challenge in a six-to-one verdict.

Tobacco companies have had little success challenging any kind of limit on how their products are displayed: when the UK banned point of sale tobacco displays in shops and newsagents in April last year, brands filed a legal objection at the English High Court but dropped their case soon after as it would not be decided until after the legislation was introduced.

So are these companies presenting a valid legal argument that is being wrongly ignored? And is standardised packaging really a violation of IP rights?

Entitlement to use

Stephen Reid, senior IP counsel at Imperial Tobacco, believes Australia’s legislation is a clear violation of Article 20 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), which states:

“The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements such as … use in a special form or … in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings.”

He says it is little wonder that businesses have objected to the concept of plain packaging. “The only plain packaging legislation we have seen (in Australia) has banned the use of all ‘non-word’ trademarks, and only permits word marks ‘in a special form’, namely in a manner (a specific size and font) defined by the government,” he says.

Robert Arnold, a partner at Baker McKenzie in Sydney, says: “Clearly, this is an IP issue, as the decision affects the use of IP rights. The use of the term ‘unjustifiably’ includes matters of public policy such as those considered by the High Court. The High Court has stressed that IP laws are designed to serve public policy as well as the interests of the rights owners. One cannot be divorced from the other.”

“THE HIGH COURT HAS STRESSED THAT IP LAWS ARE DESIGNED TO SERVE PUBLIC POLICY AS WELL AS THE INTERESTS OF THE RIGHTS OWNERS. ONE CANNOT BE DIVORCED FROM THE OTHER.”

But Jessie Buchan, a lawyer at DLA Piper in Sydney, says the protection afforded by the Australian Trade Marks Act grants exclusive use of a mark, but does not constitute an automatic and unrestrained entitlement to use. “It does not confer on the registered owner a liberty to use that trademark free from whatever restraints or restrictions may be imposed in common law or other statutes,” she says.

Dan Smith, director and head of advertising and marketing law at Wragge & Co in London, agrees that it would be wrong to assume that registering a mark provides an automatic and unrestrained entitlement to use. He also says the wording of Article 20 of the TRIPS agreement is debatable, and that advertising regulations have always placed restrictions on how tobacco products are promoted. “If you oppose tobacco marketing, plain packaging is really just the next step,” he says.

Acquiring rights

In their appeals against TPP, brands including JT International (JTI) and BAT also argued that plain packaging didn’t just encumber their trademark rights but effectively meant the government acquired them, a violation of section 51 of Australia’s constitution.

The Commonwealth disputed this, stating that neither it nor anyone else would obtain proprietary benefit or interest from restricting the presentation of tobacco packaging—the test of acquiring property under section 51—and that as JTI and BAT’s IP rights involve “a statutory assurance of exclusive use, not a positive right or authority to use,” restrictions on use “would take nothing away from the rights granted”.

In its judgment, which was published on October 5, the majority of the High Court agreed that there was no acquisition “on unjust terms” as the Commonwealth would not benefit from the restrictions imposed.

“The majority of the High Court noted that the registrability of trademarks whose use is subject to the restrictions imposed by the legislation is not to be prejudiced by those constraints. While the legislation does pose significant restrictions on how tobacco companies can market and promote their products, such measures appear to have been justified by the need to achieve the legislation’s underlying public health objectives,” says Melinda Upton, a partner at DLA Piper in Sydney.

As public health objectives are the driving force behind Australia’s decision to adopt the TPP, the introduction of this legislation has also led to a wider debate on whether IP rights can, or should, ever be revoked on health grounds.

“It is a difficult task to strike the appropriate balance between managing statutory rights and public interest concerns, although it’s evident that there are some unique situations in which the grant of a statutory monopoly may be outridden by other interests,” says Upton.

One piece of legislation which allows governments to supersede IP rights is the Doha Declaration. Adopted in 2001, it allows World Trade Organization member states to bypass patent laws to provide essential medicines for the treatment of epidemics such as HIV/AIDS, malaria and tuberculosis.

Smoking isn’t classed an epidemic, but the WHO estimates six million people each year die smoking-related deaths, while AIDS kills 1.5 million. Does this mean there is a case for ignoring the IP rights of tobacco brand owners to protect public health?

Reid does not believe so.

“Even if one accepts in principle the possibility of health issues justifying exceptions from the provisions of TRIPS in such circumstances, it is still necessary to evidence that the public health situation surrounding tobacco use is such that an exception should be made, and that plain packaging is a necessary, effective and proportionate response. As tobacco packaging has never been identified as a reason why people start to smoke, or continue to choose to smoke, the evidence base is likely to fall short of satisfying this test,” he says.

Arnold says that it could perhaps be justified, but there would have to be evidence demonstrating that the use, acquisition or ownership of IP rights would have a positive impact on public health. “The evidence would have to be clear and transparent,” he says.

“INTERNET USERS’ FREEDOM TO EXPRESS THEIR BRAND ALLEGIANCE IS FOREVER GROWING: THERE ARE THOUSANDS OF VIDEOS ON YOUTUBE WHICH FEATURE CONSUMERS CELEBRATING THEIR CHOSEN CIGARETTE.”

Proving what makes people smoke is difficult, if not impossible. But if the TPP Act reduces the number of smokers in Australia, and further studies prove a direct link between packaging and peoples’ decision to smoke, other governments may see this as sufficiently ‘clear and transparent’ evidence. Until or unless that happens, Reid says Imperial Tobacco will continue to battle against all standardised packaging proposals.

“We will continue to defend our legitimate commercial right to utilise our trademarks to differentiate our brands from those of our competitors. Any other company in any other industry would surely do the same,” he says.

Counterfeiting concerns

Tobacco companies also claim that the TPP Act could lead to an increase in counterfeit cigarette production.

A study carried out by charity Cancer Research UK claims there is no evidence to support this, but in a letter to The Times newspaper on June 28, 2012, 24 senior customs officials and police staff said that stripping packs of distinguishing marks “would make it even easier for criminals to copy and sell these products to the unsuspecting public, including children.”

Smith agrees that standardised packaging could facilitate counterfeiting. “In my mind, it would make counterfeiting easier, as the regulatory controls will essentially function as a checklist for counterfeiters, providing instructions on how packets should be designed,” he says.

But he also says it would be naive to imagine that counterfeiters aren’t capable of producing counterfeit cigarettes sold in more sophisticated packaging. And while Australian legislation limits packaging design, Smith points out that it does not forbid the use of marks or seals invisible to the human eye.

According to a 2011 report by Deloitte, the number of counterfeit cigarettes in Australia increased to more than one in 10 in 2011. It’s too early to say if the TPP Act has led or will lead to a further increase in the trade of counterfeit tobacco but as Reid points out, this would defeat the purpose of the new legislation.

“In addition to the loss in tax revenue, governments are likely to find that any increase in counterfeit goods will undermine their own, and the industry’s, efforts to curb sales to minors. Governments need to ask themselves whether they want tobacco products to be sold by a responsible, legitimate business or by organised crime gangs who have no regard for any regulation about sales to children,” he says.

The bigger picture

The harmful effects of smoking mean that the tobacco industry has more severe sanctions imposed on how its products are sold, displayed and promoted than any other legitimate industry. But if the TPP Act is successful, there are concerns among brand owners and IP practitioners that similar restrictions could be applied to other products deemed harmful, such as alcohol and fatty or sugary foods.

Smith believes it is unlikely. “In all honesty, I don’t think this will happen, at least not for a very long time. Smoking is a special case—there has been over 50 years of campaigning against smoking and incremental constraints on tobacco marketing. There are concerns in some quarters, for example, about foods with high fat, salt and sugar content, but I think any proposals to extend legislation to such products would be met with a lot of resistance.”

The future for tobacco trademarks

So what now for tobacco brands? Their trademarks, while still valid are severely restricted. Their products, in countries that have signed the WHO framework on tobacco control, cannot be advertised. Is the beginning of the end for a multi-billion dollar industry?

Arnold doesn’t believe so. “The [TPP] legislation has made tobacco logos and pack designs redundant in Australia, not the brand names themselves. These remain strong, and all their rights to stop unauthorised third parties from using their marks remain in place,” he says.

The TPP Act also states that tobacco companies’ rights cannot be attacked on the basis of nonuse, but Reid says this is of little comfort. While trademarks will remain valid, the scope of protection afforded by them is likely to dwindle as brand recognition declines.

“The concept of plain packaging will certainly make the majority of trademarks in any portfolio redundant, in that those marks cannot be used as they were intended to be used—that is, to distinguish a company’s goods from the goods of its competitors and to assist consumers in making properly informed decisions about the product they are purchasing,” he says.

“What I, as an IP practitioner, find baffling and disturbing in equal measure, is why a line has been drawn between word marks in a prescribed manner, which are alleged to be necessary and unobjectionable, and non-word marks, which are alleged to be guilty of misleading consumers in all sorts of ways. I have not seen any solid justification for this distinction, which does not reflect how trademarks operate in practice,” he adds.

But Mark Rae, a branding expert at London consultancy Brandhouse, says a good brand is about much more than a logo. “It is memorable because it emotionally connects with its target audience. If you rely only on a trademark, you won’t have a particularly strong brand. Much more important is a continued dialogue with your target audience through various channels: a presence at events, sponsorship and finding other ways of communicating will become ever more important,” he adds.

Smith agrees. “Tobacco companies still have marketing budgets. If marketing is effectively ruled out in some territories, they can look to others where they have more freedom, and while packaging is a key avenue for communication, there may still be rights in some territories to engage in brand extensions, and other ways to work within the law. Ferrari, for example, still has an agreement in place with Philip Morris,” he says.

And while tobacco brands’ ability to market their products becomes increasingly restricted, Internet users’ freedom to express their brand allegiance is forever growing: there are thousands of videos on YouTube which feature consumers celebrating their chosen cigarette and on Facebook, there are hundreds of unofficial fan pages with thousands more devoted followers. As long as there are smokers, it seems, there will be smokers who are willing to advertise where brands themselves cannot.

For tobacco companies, the enactment of standardised packaging is the end of an era. But if these brands want their trademarks to survive, they’ll need to get creative.