South Africa: Plain Packaging: An Issue That's Not Quite Extinguished

Last Updated: 27 June 2019
Article by Gerard Du Toit

Most Read Contributor in South Africa, July 2019

An article that appeared in the South African Daily Maverick news site, “Plain packaging for cigarettes is a bad idea”, suggests that the plain packaging debate is not yet over.

A recap

We’ve discussed plain packaging for cigarettes on a number of occasions. We’ve looked at how Australia has been at the forefront of this issue, with 2011 legislation requiring all brands of cigarettes to be sold in identical green packs featuring graphic images. We’ve seen how the Australian High Court held that the legislation is lawful, and that it does not involve unlawful expropriation of property. We’ve seen how plain packaging legislation was held to be lawful in the UK, with the Court of Appeal taking the view that the trade mark right is the negative right to exclude others from using it rather than the positive right to use it, and that this negative right to stop others is not affected by plain packaging regulations.

We’ve also looked at how the issue has played out in South Africa, with some arguing that plain packaging requirements are tantamount to expropriation of property. The argument here is that, because a trade mark registration that isn’t used for a period of five years or more can be cancelled by a third party, legislation that makes it impossible to use a trade mark registration is akin to expropriation. The counter-argument is that any such non-use would be covered by the “special circumstances” proviso in the legislation. Most recently, we discussed the publication of the Draft Control of Tobacco Products and Electronic Delivery Systems Bill, 2018, which suggests that all tobacco products will in due course be sold in plain packaging that features little more than the brand name of the product (in small script) and health warnings – no logos or colour schemes.

The article

The writer of the Daily Maverick article, Ivo Vegter, makes a number of points that are summarised in this opening: "Australia adopted plain packaging for tobacco products in 2012, but it has made hardly any difference to smoking rates. It does, however, destroy valuable brand equity, expose consumers to lower-quality products, and stimulate the black market in counterfeit and untaxed tobacco. It also sets a dangerous precedent for other supposedly unhealthy products.” He then goes on to discuss the main arguments:

Loss of trade mark rights: There’s a great deal of focus in the article on the destruction of brand assets. Vegter says that “intellectual property (IP) is well-recognized in law, and often constitutes a large share of a company’s value.” As such, “depriving companies of their brand assets is an extreme measure, which can only be justified by overwhelming evidence that doing so is in the public interest.”

Vegter discusses the fact that the Trade-Related Aspects of Intellectual Property Rights (“TRIPS”) agreement “explicitly guarantees the use of trademarks.” He acknowledges, however, that in a challenge to the Australian plain packaging laws, the WTO ruled that the measures were legal because TRIPS does allow members to “adopt measures necessary to protect public health and nutrition.” But, says Vegter, the International Trademark Association is appealing the decision on the “very reasonable grounds that plain packaging does not actually protect public health.

Vegter acknowledges that “several other court cases, in different countries, have upheld the right of governments to invalidate the branding rights of tobacco companies.” But, he says, “these could also be overturned on the basis that the policy has not achieved its intended purpose.”

It makes counterfeiting easier: According to the article, plain packaging laws “will facilitate the spread of counterfeit tobacco products by making them easier to produce and more difficult to detect.” According to Vegter, the problems with counterfeiting are as follows: “The risk is not only to the fiscus, which collects no excise tax on illicit tobacco products, but also to consumers, who cannot reliably tell what a given product contains. Brands are an important indicator of quality. A lack of branding, by contrast, provides cover for product adulteration and contamination.” So, there are apparently health issues with counterfeit cigarettes.

The measures don’t work: Vegter says that even “if one doesn’t care about intellectual property rights or freedom of choice, one might tolerate these drawbacks if one could be sure that plain packaging would actually make a substantial difference, and hence, save lives…unfortunately, the empirical evidence from Australia suggests that this measure makes little difference to smoking rates, if any at all.”

In fact, they’re counter-productive: ”Once you remove overt branding from packages, people tend to make their buying decision on price. When they buy cheaper cigarettes, they pay less and smoke more.”

Slippery slopes and consenting adults: “Cigarettes, alcohol, sugary food, fast food, financial services, all subject to plain packaging proposals from respected authority figures. If that isn’t a slippery slope, I don’t know what is….governments should not have the right to interfere in voluntary transactions for legal products between consenting adults.”

In summary: “They [governments] should not have the right to violate a company’s economic rights and destroy its brand assets, simply because they say – without evidence – that such a measure will reduce the company’s sales, which might be good for the health of some consumers. All too often, such measures don’t work, have unintended negative consequences, or both.”

Debate is healthy (unlike cigarettes, even non-counterfeits), but in our view, it’s unlikely that this article will put a stop to plain packaging. Following South Africa’s recent cabinet reshuffle, it will be interesting to see what the attitude of the new health minister is towards plain packaging.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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