Intellectual Property Alert
In a landmark decision, a majority of the High Court of Australia has rejected the constitutional challenge mounted by several key players in the tobacco industry who opposed the introduction of the Federal Government's (Government's) plain packaging laws on the basis that it amounted to an acquisition of their statutory intellectual property on 'unjust terms'. The decision has been hailed as a victory for the Government and various anti-smoking groups, yet the tobacco industry has vowed it will not give up its challenge and it will continue to focus on the ongoing legal challenges to plain packaging, which are embroiled in numerous international trade and treaty obligations.
Following the passing of the Tobacco Plain Packaging Act 2011 (Cth) (Act) late last year, the key players in the national and international tobacco industry mounted a challenge to its constitutional validity, which was tested before the High Court in April this year. The Act was lobbied with the overall aim of discouraging the use of tobacco products, and was introduced to regulate and dictate the retail packaging and appearance of tobacco products in the interests of:
- Reducing the appeal of tobacco products to consumers
- Increasing the effectiveness of health warnings on the retail packaging of tobacco products.
Given the likely implications this would have for tobacco companies and their brand marketing and advertising, it was not surprising that the companies sought to challenge the validity of the Act under a number of different provisions.
The Act was challenged on the basis that the Government was misappropriating and acquiring the intellectual property rights of tobacco company owners in contravention to the section 51(xxi) 'just terms' provision of the Constitution. It was also put forward that it was a breach of Trade Related Aspects of Intellectual Property and the Agreement on the Promotion of Investments with Hong Kong, the former on the basis that this compromised Australia's obligations to protect trade marks and the latter on the proviso that this deprived investors of their international investments.
The short summary released by the High Court on Wednesday 16 August did not touch upon the latter two arguments put forward by the tobacco companies, although it is likely that the decision relating to these claims will be more fully explored when the court publishes its reasons for the decision at a later date. However, it does appear that the crux of the tobacco companies' claim was dismissed by a majority of the High Court, who were of the opinion that the Act is not contrary to s 51(xxxi).
Implications for tobacco brand owners
The decision is expected to have significant global influence, with countries such as the United Kingdom and New Zealand in particular closely monitoring developments in Australia as a test case for consideration of future policy discussions and decisions. In light of the tobacco companies' renewed fight to continue to challenge plain packaging, no doubt questions about whether the legislation is a breach of international trade and treaty obligations will be more fully canvassed by the tobacco industry in any future international legal challenges.
However, in short, some of the ramifications to be felt by the tobacco companies in Australia as they begin the transition to plain packaging will be:
- Tobacco companies in Australia will now have to adhere to strict retail packaging requirements regarding the physical features, colour and finish of their retail packaging.
- The circumstances in which trade marks may appear on retail packaging are severely limited, with an outright prohibition on the use of trade marks. The exception to this is the use of the product's brand, business or company name and any associated variant name, all of which are subject to additional regulations regarding size, colour and font.
From a branding and marketing perspective, this landmark decision raises the question of how tobacco companies will differentiate themselves from their competitors. Certainly the extent to which brand loyalty and consumer behaviour will dictate price and cost differentiation are some of the key challenges that the tobacco companies will face in the coming months.
We also expect to see a 'ripple' effect in other heavily regulated industries, such as the fast food and alcohol industries. It is likely that intellectual property holders within these markets will be watching developments with close interest.
© DLA Piper
This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.
DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to www.dlapiper.com