Aug 26, 2011
Australia is poised to become the first nation to require tobacco products to be sold in plain packages, a move that could see other countries follow suit and crimp earnings of companies like British American Tobacco Plc.
The laws, passed by the lower house yesterday and due in the Senate in September, will ban logos and color variations on cigarette packages. Packets will have to be olive green and carry health warnings within six months from Jan 1, 2012.
“Other countries will follow,” said Anne Jackson, chief executive of Ash Australia, a non-profit lobby group funded by Cancer Council Australia and the Heart Foundation. “This is a light shining the way for others to do the same and many countries are already considering it.”
Health Minister Nicola Roxon announced the move last April, along with a 25 percent tobacco tax increase and a A$85 million (A$89 million) advertising campaign to combat smoking, which the government says kills 15,000 Australians each year. Companies have since introduced their own advertising campaigns and legal actions against the move.
British American Tobacco Plc (BATS) this week lost an appeal for the release of Australian government documents the company said would help it fight the law. The company plans to ask the Australian High Court to review the ruling.
The company will next take its case to the Parliamentary Legal and Constitutional Affairs Committee, with a hearing scheduled for Sept. 13, Scott McIntyre, a spokesman for the tobacco company, said today in a phone interview. So far the focus has been on the health aspect of the legislation, he said.
“There are a lot of issues outside of health that have to be looked at,” McIntyre said. “There are serious repercussions here. The tobacco company will pursue the case in courts, seeking billions of dollars in damages, if the law is enacted.”
Smoking costs Australia about A$31 billion per year in health and workplace costs, according to the government. With 15.1 percent of the population aged 14 or over smoking daily, it is the country’s top drug and preventable health issue, the government says.
“There isn’t any safe amount of tobacco you can smoke,” Roxon told Channel Ten television today. “It will kill you eventually and we obviously want to make sure the message is loud and clear.”
The tobacco companies say the bill is a breach of the Australian Constitution, as plain packaging exceeds the Commonwealth’s acquisition powers. They said they would seek damages for losing the right to use their trademarks, which they claim the government is seizing, illegally.
Brand Identification Questions
“This would clearly undermine the value of manufacturers’ trademarks and destroy the goodwill built up over many years in consumer brands,” British American Tobacco said in a June 6 submission to the government. “Plain packaging will frustrate brand identification and consumer choice, making smuggled branded product more acceptable to consumers.”
Australia’s top court has never addressed the question of whether banning the use of trademarks amounts to an acquisition by the government, George Williams, a constitutional law professor at the University of New South Wales in Sydney, said.
“The tobacco companies have a hard road ahead,” Williams said. “They’re quite likely to lose.”
Philip Morris International Inc. (PM), the world’s biggest publicly traded tobacco company, said the Australian law also violates a 1994 treaty with Hong Kong that prohibits the forced removal of trademarks.
Legal Strategies Considered
“It is disappointing that the House of Representatives has approved plain packaging even though the Government admits there is no evidence that the policy will be effective at reducing smoking,” Philip Morris said in a statement today in response to the passage in the lower house.
The tobacco companies plan to argue the law is a breach of the World Trade Organization’s Trade Related Aspects of Intellectual Property Rights, or TRIPS.
According to TRIPS, the use of a trade mark in the course of trade “shall not be unjustifiably encumbered by special requirements.” The tobacco companies say the Australian law breaches that article.
“As a result of the Government’s actions, Philip Morris has little option but to pursue our claim for substantial compensation through international arbitration against Australia and to also consider legal claims under domestic Australian law,” Philip Morris said.
Source: Bloomberg (August 24, 2011)