Comments for Philip Morris fumes at ‘plain’ packaging plan

I- Plain packaging prevents the social benefits of trademarks
Economic rationale of trademarks : trademarks presupposes a constant good quality => a consumer will only trust it if there is high quality => or else he will spend time on comparing products in detail. Trademark thus gives incentives to the producer to maintain a good product quality.
⇨ It follows that one of the possible unintended consequences of plain packaging is to reduce the quality of the product in favor of low pricing. Normally it might not necessarily be a bad outcome except in this case: cigarettes have to take into account the dangers that their contents pose to health. They will be less inclined to do so if low prices are the only way to compete.

There may be the consequence that plain packaging will annul any possibility of distinction between products that are bad or good. At the least, it will greatly increase search costs, and reduce prospects for advertising. Advertising presupposes the presence of trademarks. Advertising is a form of expression that is included in the right to freedom of expression. According to Posner, we might define a price function of a good with a trademark as follows : π = P + H(T, Y, W).
π is the full price of the good to the buyer ; P is the money price ; H are the search costs that are a negative function of T (trademark generating information concerning the source of the good and information about the product itself) , Y (other factors like the amount of advertising, the information technology available, the cost to the buyer’s time and the number of competitors), W (the available symbols and words that the firm might use as a trademark). A reduction in trademark use will create a situation where increasing costs to the consumers will favor emergence of an illicit market undermining the goals of the regulation. This could be considered contrary to Article 17 of the TRIPS agreement that states that : « members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties. » In this case, the Australian government is not taking account of the legitimate interests of the owner of the trademark and of third parties since its plainpackaging policy is likely to have detrimental unintended consequences on public health, and the costs incurred by the consumers.

There might be the question of tarnishment of trademark => Coca Cola CO. v. Gemini Rising, Inc., 346 F. Supp. 1183, 1189 (EDNY 1972). Indeed, the Australian government will be tempted of picturing worst case scenarios of people smoking, erroneously inducing people into thinking that the immediate effect will be the one pictured.

II- No direct legal violation of international agreements concerning trademarks
In theory, any member state is able to refuse trademark protection under the cases listed in article 6 quinquies of the Paris Convention. Indeed, when a trademark is considered to be contrary to public order by a legislation concerned with public order (in this case public health), it might be refused protection in the member State. Article 7 bis precises that each state will be allowed to judge the specific conditions under which a trademark is to be protected.
We may argue that the TRIPS agreement does not prohibit plain packaging as such because it allows a Member State to pose exceptions to the traditional use of trademark provided they still allow some distinctiveness which is the case since it allows for name differences that are well known to the general public. Moreover the public health interest outweighs the loss of benefits that will be incurred by the tobacco industry as well as the monetary costs to the buyers.

Source : Richard.A. Posner and Wiliam M. Landes “The Economic Structure of Intellectual Property Law” 2003.

Tobacco producers think that the new law on plain packaging affects their intellectual property rights. I think that in order to see if this is actually true or not, we have to put in balance the different interests at stake.
It’s true that, as the tobacco industry says, “The ability to show a trademark on the packaging of a product constitutes the very essence of trademark rights”. But the law on plain packaging will still allow the brand and product name to be mentioned on the cigarette packet even if it’s true that it will appear in a standard colour, standard position and standard font size and style and that all cigarette packets will be olive green (a colour supposed to be dull) and reproduce not very attractive photos of smoking-related diseases. On this issue, I think that because of the fact that the brand can still be mentioned on cigarette packets, the interests of the tobacco companies are respected.
Moreover, the new legislation on plain packaging has a good and positive purpose. In the article of Rita Mu, it is said that “the proposed legislation was part of a Government’s plan to knuckle down on the number of smoking-related deaths and illnesses. Indeed, smoking kills 15,000 Australians a year and costs our society $31.5 billion each year – helping people to give up smoking and minimising their chance of them starting are health priorities for the Government”. We can see that the interest mentioned here by the Australian government (to protect the life of people) is much more important than the interest of the tobacco industry (to see their intellectual property rights respected).
As a conclusion, I would say that plain packaging does not affect the rights of the tobacco industry because the goal of this new legislation is much more important than their interest to see their intellectual property rights respected.

Philip Morris and other tobacco companies have threatened the Australian government with lawsuits, but as said in “Philip Morris threatens Australia lawsuit” (Financial Times, 27 june 2011) they can only take actions when the act will come into force, which is not before january 2012

The tobacco companies advance that the law passed by the Australian government violates a certain amount of international agreements, and more particularly the Paris Convention, the General Agreement on Tariff and Trade and the TRIPS. This could in fact give rise to legal proceedings under the World Trade Organization.

The companies and law firms make reference to many different violations, especially a trademark violation under the international trade agreements. They argue that this plain packaging will bring to a violation of free trade because it will actually help drive the market towards illicit traffickers at the expense of the legitimate business and put consumers at risk of using substandard products.

They also argue that there is a seizure of intellectual property, in fact it will bring to an indirect expropriation of intellectual property since the people owning the trademark will not be able to take advantage of their property. This raises the question of compensation that should be given for that expropriation.

The principal avenue is that this plain packaging plan represents an infringement for the trademark rights. However, this right is protected by several legislation, national and international ones such as the Paris Convention and the TRIPs. Those conventions are supposed to protect intellectual rights. The plain packaging law would completely remove this protection. So the main avenue for tobacco industries would be to sue the legislation for this reason, because this plan represents a violation of fundamental rights such as freedom of expresionn and property.

However, nothing is less sure that the manufacturers could win the case because actually, even if this will surely reduce their number of sales, this plan is created for two good reasons that cannot easily be discarded.
The first one is that the number of dead is increasing and represents no less than 15, 000 people a year. The second one concerns the cost of cigarettes to the society. It costs 31.5 billion every year to help smokers to stop their addiction.

There is a real balance of interests that has to be undertaken here by the judge.

The Paris Convention provides that registration of a trademark may be refused in well-defined cases, and for instance when it is contrary to morality or public order, or when it is of such a nature as to be liable to deceive the public.
It seems smoking somehow became considered as contrary to public order. It was a progressive evolution in parallel with the discovery of all the prejudicial effects smoking had on health: the one of the smoker but also, and at an ever higher degree the one of people surrounding him and breathing in the smoke. Everyone is free to choose (you can smoke) but no one can impose to others to bear the consequences of his/her choices (you cannot force your friends to get someday cancer from your smoke because having their daily lunch break with you). Therefore, smoking has been prohibited in public places, there are no longer adverts representing smoking people as cool people, and other measures have been undertaken to limit the possibility of smoking in public space.
Here, it seems to be another step in this direction, an important one and according to the Paris Convention it seems possible without violating the very essence of trademark rights.
Still, in order to maintain a trademark, it is required to actively use it; if not, after a certain period of time (5 years in UK for example), the trademark is lost, or rather: may be revoked.
Example: http://www.ipo.gov.uk/revokingnonuse.pdf
However, even if it may seem that because of the planned legislation, companies risk to lose their trademarks related to the packaging (logo, color etc.) after a few years since unable to use them, it isn’t so. Article 19 TRIPs could be applied since it states that “circumstances arising independently of the will of the owner of the trademark which constitute an obstacle to the use of the trademark, such as import restrictions on or other government requirements for goods or services protected by the trademark, shall be recognized as valid reasons for non-use”.
Therefore, the trademark wouldn’t be lost as such. Also, it might be used in other circumstances: for example in case of a use of the protected logo in a local publication or the one of the use of the specific packaging colors for another product. All in all, this legislation wouldn’t deprive trademarks on features related to the packaging, of all their utility.

Another argument would be related to the goals pursued by trademark rights:
One of them is to protect the consumer: to make sure he cannot be misled and perfectly knows what he buys. http://cyber.law.harvard.edu/metaschool/fisher/domain/tm.htm
The proposed legislation does maintain the name of the brand but omits all the specific features of its packaging. As such, an attentive consumer won’t be misled: the name is still there. But many won’t longer pay attention and just grab the first pack of cigarettes and since they will all be similar, companies will lose money: everything will depend on the position of their product in the store, the first one in line being the first one bought. All in all, there won’t be any misleading since the name remains, and the fact that a majority of consumers isn’t very attentive is not relevant: it’s their loss. Moreover, the “real” smokers will certainly pay attention to the indicated name or at least, “feel the difference” while smoking.
Another reason behind the creation of trademarks was to provide an incentive for manufacturers: since the product is well identified and hence connected automatically with the brand , they need to make their product the best they can in order not to link their image to poor quality, and to make benefits from sales. Since the name would still be mentioned on the packaging, this goal wouldn’t be missed. It cannot be denied that the link will be weaker since all other characteristics will be gone off the packaging, but the most important of them (the name) will remain so at least the link won’t be broken and therefore, no protest shall be.
We may conclude out of this that the goals at the basis of trademarks will remain reached even if such legislation came to be applied in a country.

Let’s first focus on the arguments of the government and, to a larger extent, of the project defensors.
We’ve retained one main and large argument: HEALTH. Prohibiting trademarks on cigarettes packages will help preventing consumers from buying tobacco which can provoke cancer. People will no longer be attracted by the design of each trademark (color, size of the character, size of the package,…). Glamour disappears and smokers just see horrible and frightening images on the front of the packages which enhance the reality of the disease. Hence, they will buy tobacco less easily and so the cancer rate will be reduced.
It also permits to reduce the costs of the treatment of people hit by cancer, which is a great amount of money for the States.
Besides, art. 8(1) of the TRIPS agreements states: “Members may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition(…)”.

Now, cigarette producers have several counter-arguments, which have to be balanced with the health goal :

– First of all, it hurts the core function of trademark itself. No more color, different size of characters, slogans,… All these elements constitute the essence of IP trademark rights. On the front of the cigarette package, you just see the name of the brand in standard character (the same for all brands).
– Clear clash with international obligations of Australia which has signed the TRIPS agreements (section II, art. 15 to 21) and the Paris Convention (art. 6quinquies–> Protection of Marks Registered in One Country of the Union in the Other Countries of the Union). A Member State cannot “unjustifiably deny the use of trademarks” (http://www.plain-packaging.com/Templates/Blank_TrademarkRights.aspx).
– This project jeopardizes the interest of tobacco companies which could no longer compete between themselves. Indeed, without any design element, they cannot distinguish themselves from other brands. It could constitute an infringement to Antitrust law.
– This projects clashes with another goal: fight against counterfeiting. Since it will be easier for counterfeiters to reproduce the standard package, a black market could grow next to the legal one, offering not controlled cigarettes (with more dangerous substances).

To make a long story short, we think that tobacco companies have more chances to win the case; they have more arguments and have the international law on their side. If this law had to be adopted, companies could ask financial compensation for the loss occurred because of the loss of attractiveness (people will buy less) caused by the standard design.