Brian Hendy

Brian Hendy

Stephen Krouzecky

Stephen Krouzecky

The government is committed to the implementation of a suite of reforms in an attempt to reduce smoking and the harmful effects resulting from the use of tobacco and tobacco products.

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 anticipated to take effect in 2012, will effectively prevent the advertising and promotion of tobacco and tobacco products on product packaging with a view towards:

  • 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 effects of using the product. 
  • Increasing the prominence and effectiveness of health warnings on product packaging which have been mandated for many years. 
  • 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, thus preventing such trademarks from being used as a design feature to divert attention away from the health warnings, or otherwise to promote use of tobacco or tobacco products.

Few recent matters of public health and fair trading entitlement have raised the ire of the public and lobby groups on both sides of the fence more than the plain packaging legislation, which was finally passed by the Senate on 10th November 2011 as the Tobacco Plain Packaging Act 2011.

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

What are the effects of the legislation on trademark use?
The legislation delves into territory restricting the manner of trademark use in a way that has not been seen before. It is careful to ensure that there is no restriction on the ability of tobacco product manufacturers and marketers to obtain registration of their trademarks, and therefore to protect such trademarks from unauthorised use by others. 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 being a brand name in the typeface Lucinda Sans, no larger than 10 points in size in normal weighted regular font and in a prescribed colour. Basically, the legislation 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 the intellectual property of the owners of tobacco product trademarks. If it is, there is justification for owners to be compensated on just terms by virtue of Section 51(xxxi) of the 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 this requires strong justification.

An important issue is which IP right is allegedly being “acquired” by the government as a consequence of the legislation. Reference to the definition of a "trademark" and the rights given by registration under the Trademarks Act 1995 is helpful in making such a determination.

Section 17 of the act 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 authorize other persons to use the trade mark;

in relation to the goods and/or services in respect of which the trade mark is registered.

A consequence of the legislation allowing trademark owners to retain registration of their trademarks is that they maintain their exclusive rights. With the restriction in the ability to use certain signs, one questions the value of having exclusivity in signs that can no longer be used on retail packaging. However, the more important consequence of the legislation appears to be in the loss of the ability to use certain signs, and therefore the inability to distinguish the goods or services dealt with or provided in the course of trade by the trademark owner from goods or services so dealt with or provided by others. This loss extends well beyond the bounds of the Trademarks Act itself, and 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, where 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 well accepted under trademark law that the adoption of graphical signs is an aid used by a consumer in identifying the same product that he or she would otherwise have bought, but of which he or she has an imperfect recollection. It is also acknowledged that such signs add to the complexity that a counterfeiter must address in order to produce a counterfeit product, making it easier for the owner to spot poor-quality imitations of complex signs.

Value of the trademark
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 that a trademark itself appearing on a product can induce a consumer to buy that product when he or she may not have had any intention of doing so in the first place. Cancer Council research 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” to induce adults and adolescents to purchase their product. It further stated that this was achieved by the adoption of particular colouring and imagery, and the use of such terms of “smooth”, “gold” and “silver”.

Indeed, the power of a good trademark now appears to be well accepted as being capable of increasing sales without any perceivable difference in advertising or marketing expenditure. Selection and branding strategies, however, need to be in tune with the market and to keep pace with changes in the perception of the market over time.

Tobacco brands on unrelated goods
A further concern to 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 these unrelated goods.

These concerns are sought to be addressed by a proposed amendment to the Trademarks Act in new Section 231A, which provides that the 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 Trademarks Act to govern the effect of operation of the Tobacco Plain Packaging Act 2011 (and the regulations made under that act) on the Trademarks Act and the Trademark Regulations 1995. It is not, however, the intention of the Tobacco Plain Packaging Act 2011 to prevent tobacco companies from using their trademarks on goods other than tobacco or tobacco products.

Further commentary on Section 231A and its effect in the absence of access to the regulations is difficult to provide at this time. This is especially so given the potentially wide-ranging ambit and effect that the regulations may have.

Undoubtedly, many interest groups will seek to influence the drafting, scope and effect of the regulations, which will be keenly watched both in Australia and throughout the world.

For further information please contact:

Brian Hendy
Watermark
www.watermark.com.au
Email: b.hendy@watermark.com.au
Tel: +61 3 9819 1664