Bloomberg News

Australian Judges Query Tobacco Companies’ Stand on Packs

April 17, 2012

A proposed cigarette packet, to be introduced under Australia's cigarette plain-packaging law, is arranged for a photograph in Melbourne. Photographer: Carla Gottgens/Bloomberg

A proposed cigarette packet, to be introduced under Australia's cigarette plain-packaging law, is arranged for a photograph in Melbourne. Photographer: Carla Gottgens/Bloomberg

Tobacco companies’ claims that Australia was illegally seizing their trademarks with a law requiring cigarettes to be sold in plain packages was questioned by judges who said companies would still retain their brand names on the new packs.

“The name itself would be important for reputation and goodwill,” said Justice Susan Crennan, a member of the seven- judge panel of the High Court of Australia in Canberra where the challenge to the law is being heard. “You and your competitors will all be in the same boat.”

British American Tobacco Plc (BATS), Europe’s biggest cigarette maker, and Japan Tobacco Inc. (2914) were joined by Philip Morris International Inc. (PM:US), the largest publicly traded tobacco manufacturer, and Imperial Tobacco Group Plc (IMT), maker of Gauloises Blondes, in a challenge to the Australian ban on logos.

The Australian ban, the first of its kind in the world, is being watched by governments around the globe. A High Court ruling upholding the law, which is due to go into effect Dec. 1, might prompt other countries to follow suit, further eroding the value of the tobacco companies’ brands.

‘Is Pivotal’

“What happens in Australia is pivotal to the plain packaging issue internationally,” Rob Cunningham, senior policy analyst at the Canadian Cancer Society in Ottawa, said in an e- mail. “The industry knows that once plain packaging is implemented in one country, the dominoes will fall.”

The government crossed a line with the new rules, moving from regulating tobacco sales by requiring warning messages to “commandeering people’s property,” Bret Walker, a lawyer for Imperial Tobacco, told the court. The aim was to send out a “political admonition that you should not smoke,” he said.

Several judges questioned the benefit the government receives from appropriating space on cigarette packages now reserved for the companies’ logos and trademarks. To win, the tobacco companies must persuade the judges the government benefits from the prohibition on the use of the trademarks and as a result would have to compensate them.

“The Commonwealth doesn’t have the right to use your trademark,” Chief Justice Robert French said.

Japan Tobacco, the maker of Camel cigarettes, won’t be able to use a picture of the animal on its packages and has to turn all available space on a cigarette pack to the government, to be used as the government wishes, Gavan Griffith, the cigarette maker’s lawyer, said at the hearing today.

“They could have a message such as ‘Pay Your Tax on Time,’ or ‘Drive Safely,’’ Griffith said.

‘A Hard Battle’

Australia’s government is confident the law will be upheld, Attorney-General Nicola Roxon told reporters before the start of the hearing.

‘‘It’s going to be a hard battle,” Roxon said at a news conference outside the High Court. “Tobacco companies have made clear from the beginning that they will fight this battle in the courts.”

The European Commission, New Zealand, Canada, Belgium, Iceland and France have all indicated an interest in implementing a plain packaging law on cigarettes.

“We must make plain packaging a big success so that it becomes the success of the world,” Margaret Chan, the World Health Organization’s director general, said March 22 at the 15th World Conference on Tobacco or Health in Singapore. “This is the death throe of the addicting industry,” she said in reference to the Australian law.

First Amendment

The anti-tobacco lobby faces resistance in the U.S., where cigarette manufacturers also have the protection of the First Amendment of the U.S. Constitution, which covers the right to freedom of expression from government interference.

A federal judge in Washington ruled on Feb. 29 that the U.S. Food And Drug Administration’s requirement for graphic warning labels on cigarette packs violated the tobacco companies’ free-speech rights. A U.S. Court of Appeals in Cincinnati ruled 2-1 in a separate case that tobacco companies can be forced to put graphic warning labels on packages without violating their constitutional rights.

‘Marketing to Youth’

“Packaging is the industry’s last bastion for marketing to youth,” John Stewart, senior organizer with the lobby group Corporate Accountability International, said in an e-mail.

The tobacco companies wrongly characterize the packaging regulation as an acquisition of property, the government said in its filing to the high court.

The law regulates trading activity in a manner that’s appropriate to reducing harm to the public, the government said.

Smoking is estimated to have led to the deaths of more than 900,000 Australians from 1950 to 2008, according to the government. Still, almost one-sixth of the Australian population aged 14 years and older smokes cigarettes on a daily basis, the government said.

Under the plain packaging law, cigarettes will be sold with no company logos and the same font for all brands on a dark brown background. Graphic health warnings will cover 90 percent of the back of the package and 70 percent of the front. The law was approved by the Australian Senate on Nov. 10.

JTI and BAT lawyers provided the judges with samples of the current and new cigarette packages, sealed in clear, plastic evidence bags to compare.

Easier to Follow

Once a country implements a tobacco control measure, it becomes easier for other countries to do the same, Cunningham said.

“We saw this with Canada being the first to require pictorial health warnings on cigarette packages in 2001,” he said. “There are now roughly 50 countries that have done so.”

BAT makes Dunhill, Pall Mall and Australia’s best-selling cigarette brand, Winfield. Philip Morris is the maker of Marlboro cigarettes.

Philip Morris is also pursuing the case in international arbitration. The Australian proposal violates a treaty with Hong Kong and may cause billions of dollars in damages, the maker of Marlboro cigarettes said.

Honduras has complained to the World Trade Organization about the Australian law, claiming it contravenes WTO obligations on intellectual property rights and will have serious economic consequences to the central American country that relies on tobacco exports.

Ukraine had filed a similar complaint on March 15.

“The tobacco industry has strongly opposed breakthrough tobacco control measures predicting disaster and that the ‘sky will fall,’” Cunningham said. “But the sky never falls. And when other governments see that the sky does not fall, resisting tobacco industry opposition becomes a lot easier.”

The case is British American Tobacco Australia Ltd. v the Commonwealth of Australia. S389/2011. High Court of Australia (Canberra).

To contact the reporter on this story: Joe Schneider in Sydney at jschneider5@bloomberg.net

To contact the editors responsible for this story: Douglas Wong at dwong19@bloomberg.net


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