Plain Packaging on Tobacco for Australia: A Model for Reducing Healthcare Costs, or a Violation of Intellectual Property Rights?

By Lauren M. Tozzi

In 2006, when I was backpacking with friends in Eastern Europe, we went to Ljubljana, Slovenia.  We were not expecting much nightlife in this small city, so we were surprised to find a red carpet entrance, lined with velvet rope, and surrounded by flashing lights.  We were even more surprised when the bouncer admitted us despite our not-so-hip traveler attire.  Inside, servers were making their way through the crowd with trays of free drinks.  Why was there a chic club in a city that is otherwise known for its bridges and medieval castle?

And why was the club eagerly welcoming its guests with free drinks and…free cigarettes?  The answer was scrawled in big black letters all over the red décor inside: MARLBORO.  The whole set-up was an aggressive marketing campaign for cigarettes.

We were shocked tobacco companies were allowed to market to young people so overtly because we were accustomed to American regulations against youth-targeted tobacco advertising.  In the U.S., the first federal law against tobacco advertising was passed in 1971.  As legislation against cigarette companies has increased in the U.S., the number of smokers has declined.  R.J. Reynolds Tobacco just announced in May that its hometown operations in Winston-Salem, North Carolina will shut down by mid-2011.  And as the market in the U.S. has dwindled, tobacco companies have targeted their marketing efforts at places like Ljubljana where local legislation does not hinder them – yet.

Global trends indicate that it is only a matter of time before less-regulated markets pass legislation to restrict big tobacco advertising.  In 1998, the World Health Organization (“WHO”) launched its Tobacco Free Initiative (“TFI”), aimed at reducing tobacco consumption worldwide.  The TFI is a marketing campaign against tobacco, with the goal of bringing countries into compliance with the WHO Framework Convention on Tobacco Control (“WHO FCTC”).  The TFI hailed a law recently passed in Australia, which may signal a new battle for tobacco companies.

Amidst a slew of other anti-smoking laws recently passed, Australia will more stringently regulate how tobacco products are packaged.  Many countries require health warnings on tobacco products, but Australia is going one step further by requiring tobacco products to be sold in plain packaging.  The new law prohibits any colors or graphics from being displayed on the packaging, and the brand name must be printed in a particular size and font.  Of course, the health warning will remain on the packaging as well.

Not surprisingly, big tobacco companies are displeased with this new regulation.  In opposition to the legislation, the tobacco companies say that plain packaging will encourage counterfeiting and make it difficult for consumers to recognize brand names they trust.  These companies also argue that the new law is “unconstitutional” and an infringement of the companies’ and shareholders’ intellectual property rights.  After all, the purpose of trademark law is to protect source identifiers and discourage counterfeiting.  Imperial Tobacco Australia has already announced plans to take legal action, and British American Tobacco Australia (“BATA”) has threatened to do so as well.  BATA says it may pursue legal action on the basis of intellectual property rights or trademark legislation, and it described the new law as government acquisition of BATA property on unjust terms.  Although the new law is extreme, tobacco causes the death of approximately 5 million people per year worldwide, and more expansive legislation is an essential means of stemming the death toll.

With high hopes that the new tobacco laws will lessen the number of smokers and lower Australian healthcare costs, it is unlikely that pending legal action will soften the Australian government’s stance.  The politicians passed the new legislation without hesitation, based on studies that showed a significant reduction in the number of smokers nationwide.  The way in which Australian courts rule on the new law will be an important indicator for how big tobacco will attract new customers in the years to come.