International Trade

Plain Packaging: A Government Seizure of a Company’s Most Valuable Asset

By Karla Jones

In a move that threatens to dismantle over a century of international intellectual property rights (IPR) protections, Australia has officially begun the process of implementing a law passed last year that requires the plain packaging of tobacco products sold in that country.  Plain packaging for cigarettes as defined in Australia’s “Tobacco Plain Packaging Bill 2011” would consist of dark olive brown matte-finished flip-top boxes devoid of logos or any other design features either on the cigarettes themselves or the packages.  The brand name would be printed in a uniform font style and size.  Additionally, graphic health warnings would cover 90 percent of the back surface of the box and 75 percent of the front.  Additional warnings would cover one side panel leaving the second side panel for manufacturer’s details and bar codes.  The target date for full enactment of the Bill is January 2012 followed by full implementation in July 2012.  Comments on the implementing legislation will be accepted until June 6, 2011.

Although this ill-considered legislation targets tobacco packaging, the alarm over the policy relates to the effects it will have on international intellectual property rights and protections.  For if enacted and implemented, this law threatens free market principles and amounts to a government seizure of what is often a company’s most valuable asset – its trademark.  The importance of IPR protection to economic health cannot be overstated, and trademarks are fundamental to market competition – enabling a company to differentiate itself and its brand from others.  Intellectual property (IP), including trademarks, are essential to a company’s ability to compete and thrive in the global economy, and this legislation will seriously undermine the value of trademarks and trade dress used by companies that sell cigarettes in Australia.  A company’s logo empowers consumers to differentiate between its products and materially inferior ones and protect the reputation of its products.

IP is the engine driving the innovation economy.  America’s intellectual property is valued at between $5 and $5.5 trillion and IP-intensive industries account for roughly 60 percent of total U.S. exports and employ more than 18 million Americans.  IP protections are vital to the functional, global economy and initiatives that undermine them should be countered.  Protecting IPR is so important that it has been codified in the most significant multilateral and bilateral international economic agreements for over 100 years.

The “Tobacco Plain Packaging Bill 2011” is inconsistent with Australia’s obligations in several international agreements to which Australia is a signatory.  The Bill violates IP provisions in the Paris Convention for the Protection of Industrial Property (Paris Convention), the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property (TRIPS Agreement), the WTO Agreement on Technical Barriers to Trade (TBT Agreement) and the Australia-U.S. Free Trade Agreement (AUSFTA).  Even Nicola Roxon, Australia’s Health Minister acknowledges that the Bill might lead to property rights violations and as such the Bill contains provisions to compensate companies that successfully challenge the law on the grounds that IPR were violated.

While the Australian government is slowly conceding this legislation’s inconsistency with international IP law, it overlooks the Bill’s unintended consequences.  If implemented, Australia’s plain packaging policy will send the wrong message to the developing world where IP cooperation is already difficult to obtain.  If Australia does not live up to its IP commitments, it frustrates efforts to convince less wealthy nations of the importance of protecting IPR.  Plain packaging also sets a dangerous precedent for producers of legal products that can potentially pose a risk to public health.  Although tobacco is the first to be targeted with plain packaging, if this legislation succeeds and proliferates, enterprises marketing alcoholic beverages and products containing sugar and excess salt will be vulnerable to future versions of plain packaging policy.  Many retailers oppose the measure.  The Australian Retailers Association has cited the costs of altering store fittings and increased transaction times as a source of concern and small retailers fear that they will be unable to sustain the additional costs associated with compliance.

However the most troubling aspect of this Bill is that there is no compelling evidence that it will succeed in its stated objectives to reduce the initiation of tobacco use and consumption and to remove the package’s ability to mislead and deceive consumers.  In fact, evidence exists that plain packaging could lead to an increase in tobacco use.  Plain packaged products are much easier to reproduce and thus more vulnerable to counterfeiting.  Counterfeit products tend to be significantly cheaper and while there is no established correlation between plain packaging and reduction in cigarette use, there is a correlation between low cigarette prices and increased consumption.  Current tobacco packaging is neither misleading nor deceptive – health warnings are on every pack – but the same cannot be said of contraband, plain packaged products, which are completely unregulated.

The motivation behind plain packaging legislation is as clear as the possible ramifications of its implementation. Plain packaging policies are unlikely to achieve their stated objectives but will undermine the international system of  IPR protections setting in motion a precedent that could ultimately devitalize the free market system while exacerbating the very challenges it purports to address.  All eyes are on you, Australia, and we fervently hope that you reconsider this misguided policy before it spreads.

Karla Jones is the Director of the International Relations Task Force.