Brand Owners Watch as Smoke Clears on Plain Packaging Efforts

The World Health Organization (“WHO”) celebrated World No Tobacco Day 2016 at the end of last month with a theme focused on plain packaging.  As I’ve written about before, plain packaging involves the removal of logos, colors and brand images or promotional material on product packaging, particularly in connection with tobacco.  Plain packaging rules dictate that cigarettes, for example, are presented in standard color packaging, and that all brand and product information appear in a standard color and font.  Vivid graphic health warnings, which the Canadian Cancer Society reports are currently required in at least 77 countries and jurisdictions around the world, make up the bulk of the packaging’s visual appeal – or lack thereof.  Dr. Margaret Chan, Director-General of the WHO, issued a statement calling on governments to get ready for plain packaging on tobacco products, noting that if governments can agree to “[s]tip back the glamour and glossy packaging,” which Chan characterizes as “a form of advertising and promotion that often misleads consumers,” then they can “improve global health” by reducing premature deaths caused by non-communicable diseases like cancers.

The major premise of plain packaging is that when stripped of producers’ logos, brand images and promotional matter, tobacco products simply aren’t as attractive to consumers.  Reduced focus on logos and images also increases the effectiveness of health warnings.  Chan points to research from Australia, the first country to fully implement plain packaging, to show that by stripping tobacco products of gratuitous trademarks and other producer advertising elements, there were 100,000 fewer smokers over the first 34 months after implementation in 2012.

Not all groups agree, however.

The Property Rights Alliance (PRA), in an open letter to the WHO, has noted that because trademarks offer consumers assurances that they are purchasing a legitimate, quality product, by not allowing companies to use their trademarks and logos on plain packages, governments could force consumers to make uninformed decisions or put them “in danger by forcing them to enter the illicit ‘black’ market in search of goods.”

Others, such as UK news site The Telegraph, argue that “retrospectively eroding property rights” in the form of restricted trademark use “injects uncertainty into an economy, undermines the rule of law and makes companies less secure about returns.”  Soft drink, chocolate and alcohol manufacturers would do well to take note of evolving legislation and court rulings regarding plain packaging, the paper writes, and “anybody else whose wares [may] fall out of favor.”

The International Trademark Association (INTA) in early 2016 advanced similar arguments in comments it addressed to the health ministries of Hungary, Singapore and Slovenia, three additional countries considering proposed plain packaging legislation.  The Association noted that plain packaging “create[s] a dangerous precedent for other legal products being viewed by activists as ‘unhealthy’ and becoming subject to such restrictions, thus creating an environment more susceptible to illicit trade.”  Making packaging less distinctive and more uniform increases the ease of copying plain-packaged products, which in turn increases the risk of consumers encountering “potentially dangerous counterfeits” on the market.

INTA’s concerns also fall into two other broad categories, including (1) compliance with international treaties and (2) damages and costs to trademark owners should their ability to exercise their intellectual property rights in the form of trademarks and other indicia of goodwill be limited.

Regarding treaty obligations, for those countries that are signatories to the World Trade Organization’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the preamble to that Agreement expressly recognizes intellectual property rights as private rights.  As such, where a TRIPS signatory member interferes with these rights, TRIPS obliges them to consider the implications of such interference, including damages and costs to brand owners.  Because a trademark’s validity almost always depends on its use, limitations on when and how brand owners might use their marks on certain goods, if at all, could result in the loss of valuable rights.  Because Article 20 of TRIPS forbids any requirements that unjustifiably encumber the manner in which a given trademark is used, and Article 15 prohibits regulations conditioning registration on the nature of a product, national plain packaging legislation may render TRIPS countries noncompliant with treaty provisions.

As almost any company can attest, brands are considerably valuable.  In 2016, Forbes estimated the tobacco brand Marlboro to be worth $21.9 billion, making it the 26^th most valuable brand in the world.  Marlboro is made by Philip Morris, which last year invested over $473 million in advertising the brand.  INTA and others argue that legislation denying the right to use a valuable trademark is akin to seizing an asset.  Furthermore, given the special nature of trademark rights, the longer a trademark holder is prevented from using a brand, the more the value of its asset is likely to erode.  From a legal perspective, restrictions on use can adversely impact brand owners trying to protect their marks from infringement and passing off, not only on tobacco products themselves, but on associated or unrelated goods.

British American Tobacco (BAT), Philip Morris International, Japan Tobacco International and Imperial Brands advanced a similar “takings” argument in a UK lawsuit earlier this year.  The four tobacco giants lost that case in May, with the British High Court noting it “is wrong to view this issue purely in monetized terms alone.”  The court’s decision paved the way for plain packaging of cigarettes to take effect in the UK last month, with broader efforts scheduled to also take effect across the EU, and many believe the UK court’s decision will have a rallying impact on other governments looking to step up plain packaging efforts.  The coordinated attempt by the world’s four largest cigarette manufacturers came after a similar loss before the European Court of Justice earlier in May.

The rulings, some have suggested, put “the full stop to a story that had its glamourous beginnings in the Mad Men era of the 1960s.”  As Deborah Arnott, Chief Executive of Action on Smoking and Health phrased it “before too long, glitzy, brightly colored and highly branded tobacco packs will be a relic of the past.”

Tobacco companies and other brand owners, however, are focused squarely on the future.  Discussing British American Tobacco’s plans for an appeal, lawyer Geoffrey Hobbs stressed that the case is not just about tobacco.  “There are proposals … for the same sort of reasoning and approach to be applied in relation to foods with high salt content, foods with too much fat, too much sugar,” Hobbs noted.  And as smoke from the European legal battles clears, global brand owners are paying attention.