1 February 2012Jurisdiction reports

Plain packaging: catching tobacco in a state of undress

Plain packaging

As part of these reforms, the government introduced legislation (the Tobacco Plain Packaging Bill 2011) to require the plain packaging of tobacco products.

The Tobacco Plain Packaging Act 2011, which is expected to take effect in 2012, will prevent the advertising and promotion of tobacco and tobacco products on product packaging with a view to:

• Reducing the attractiveness and appeal of tobacco products to consumers, particularly Australian youth;

• Reducing the ability of tobacco product packaging to mislead consumers about the harmful eff ects of using the product;

• Increasing the prominence and eff ectiveness of health warnings on product packaging that have been used for many years; and

• Reducing the amount of tobacco products sold in Australia and the rate of uptake by potential new users, particularly smokers, of tobacco products.

The Tobacco Plain Packaging Act 2011 also restricts trademarks from being placed on tobacco products or their retail packaging, except in a very restricted manner. This prevents trademarks from being used as features that are designed to divert attention away from health warnings, or otherwise to promote use of tobacco or tobacco products.

Aside from the emotive issues of public health and restrictions placed on the trading practices of tobacco companies, many interesting issues arise from the legislation in relation to intellectual property (IP) rights and the commercial value of trademarks.

What are the effects on trademark use?

The legislation will restrict the ways in which trademarks can be used to an extent that has not been seen before. The legislation is careful to ensure that there is no restriction on the ability of tobacco product manufacturers and marketers to obtain registrations for their trademarks.

It also proposes to make previously registered trademarks exempt from removal actions for non-use as a consequence of the legislation. However, the legislation is unequivocal in stopping the use of trademarks on tobacco products other than in a highly prescriptive form.

A trademark that may be displayed on the retail packaging of a tobacco product is limited to a brand name in the typeface Lucinda Sans. It can be no larger than 10 points in size and must be in a normal, weighted and regular font, and it must be in a prescribed colour.

The legislation essentially emasculates the efficacy of all other signs registered by the trademark owner for tobacco products.

Does the legislation ‘acquire’ IP rights?

One area of debate centres on whether, as a result of the legislation, the government is actually acquiring IP from the owners of trademarks that manufacture or sell tobacco products. If it is, there is justification for owners to be compensated on just terms by virtue of Section 51(xxxi) of the Australian Constitution.

There is no argument that the government has the ability to acquire trademark rights and limit the use of trademarks on the grounds of public health considerations, but such an act requires strong justification. An important question is: what IP is the government allegedly acquiring as a consequence of the legislation?

Reference to the definition of a trademark and the rights that come with a registration in the Trade Marks Act 1995 is helpful in making such a determination. Section 17 of the Trade Marks Act 1995 provides that: “A trade mark is a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services dealt with or provided by any other person.”

Under Section 20, a registered trademark provides the registered owner with: “... the exclusive rights: (a) to use the trade mark; and (b) to authorise other persons to use the trade mark; in relation to the goods and/or services in respect of which the trade mark is registered”.

It would seem that a consequence of the decision to allow trademark owners to retain their registrations is that they maintain their exclusive rights. As the ability to use certain signs is restricted, the value of having exclusivity in signs that can no longer be used on retail packaging is questionable.

However, the more important consequence of the legislation appears to be in the loss of the ability to use certain signs. This leads to an inability to distinguish the goods or services dealt with or provided in the course of trade by the trademark owner from goods or services dealt with or provided by others.

This loss extends well beyond the bounds of the Trade Marks Act 1995 itself. It appears to result in tobacco product owners being at a distinct disadvantage in preventing competitors from supplying goods or services that may no longer be distinguishable from the goods or services of the owner that were previously distinguished by the use of the sign in question.

Naturally, the argument extends to making it easier for low quality or counterfeit products to be produced and sold alongside well known brands, as the armoury of the legitimate tobacco product owner is reduced since it can no longer rely on graphical signs to distinguish its products from others.

It is accepted under trademark law that a graphical sign is used by a consumer to overcome an imperfect memory and identify a product that he or she would usually buy. It is also acknowledged that such signs add to the complexity of producing a counterfeit product, as well as making it easier for the trademark owner to spot poor quality imitations of complex signs.

The value of the trademark itself

One positive message emerging from the debate is recognition of the value that is attached to the use of a trademark per se. Aside from any consideration of how a particular product is advertised or marketed, there is strong evidence being cited that a trademark that appears on a product can induce a consumer to buy that product when the consumer may not have had any intention of doing so in the first place.

The non-government Cancer Council of Australia’s findings, which were researched over two decades and across five countries, concluded that, among other things, “the tobacco industry uses cigarette pack technologies and innovations in design to communicate particular attributes about each brand and by extension the personality and social status of its users”, as a means of inducing adults and adolescents to purchase a product.

It added that this was achieved by adopting particular colouring and imagery, and by using terms like “smooth”, “gold” and “silver”. Indeed, a good trademark now appears to be capable of increasing sales volumes without any perceivable difference in advertising or marketing expenditure.

Selection and branding strategies, however, need to be in tune with the market and will need to keep pace with changes in the perception of the market over time.

Tobacco brands and unrelated goods

A further concern for the owners of tobacco marks that have extended their brands into unrelated goods is whether the plain packaging legislation will extend to the use of these marks in respect of goods unrelated to tobacco.

These concerns are being addressed by a proposed amendment to the Trade Marks Act 1995. Section 231A says that the trademark regulations may make provisions in relation to the Tobacco Plain Packaging Act 2011.

In particular, the new section will provide for the making of regulations under the Trade Marks Act 1995 to govern the effect of operation of the Tobacco Plain Packaging Act 2011 (and the regulations made under that the new tobacco packaging act) on the Trade Marks Act 1995 and the Trade Mark Regulations 1995.

However, the Tobacco Plain Packaging Act 2011 is not intended to prevent tobacco companies from using their trademarks on goods other than tobacco or tobacco products.Further commentary on Section 231A and its effect is difficult to provide in the absence of access to the regulations.

This is especially so given the potentially wide-ranging ambit and effect the regulations may provide. Undoubtedly many interest groups will seek to influence the drafting, scope and effect of the regulations and this will be keenly watched both in Australia and elsewhere.

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9 October 2013   The European Parliament has rejected proposals to introduce plain packaging on cigarettes.