Should a government be allowed to take away branding rights for a product that is widely acknowledged to be unhealthy?  That’s exactly what happened in Australia—in December 2012, Australia’s controversial “plain packaging” tobacco law came into force with the enactment of the Tobacco Plain Packaging Act 2011.  The Act requires cigarette companies to manufacture and sell cigarettes in standardized, neutral-colored packaging without any branding or marketing. Instead, the packages are required to display prominent and graphic health warnings and may only display the name of the brand in a legally-prescribed typeface.

Australia is the only country so far to adopt this type of law, although similar legislation is being looked at in other places, such as the UK and New Zealand. The law, which aims to reduce the attractiveness of smoking among consumers, is backed by international organizations such as the World Health Organization.  However, the legislation, which severely restricts the rights of tobacco companies to promote themselves through branding, could have wider implications for other industries that are viewed by policy-makers as promoting unhealthy lifestyles.

Prior to the Act coming into effect, its legality was challenged in the Australian High Court by a group of tobacco companies representing around 45% of the global market, including Japan Tobacco and Imperial Tobacco Group.  The companies argued that by stripping packaging of any logos or other trade symbols, the Tobacco Plain Packaging Act is a form of unconstitutional acquisition by the Australian government of the tobacco companies’ intellectual property rights (including trademarks, copyrights, and design rights) and goodwill in their respective cigarette brands.  In a 104-page judgment released in October 2012, the Australian High Court rejected the tobacco companies’ claims.  The Act is also being challenged before the WTO by five countries, including Ukraine, Cuba and Indonesia, claiming that the Act violates certain Australian trade obligations with those countries.

Furthermore, according to a November 2013 report prepared by KPMG at the direction of a group of tobacco companies, an unintended consequence of the plain packaging law is that the consumption of illicit cigarettes, which still display logos, has increased.  This suggests that attempts to reduce consumer purchasing by removing trade symbols can lead to a branding “black hole” that may be filled by illegal or counterfeit goods.  As recently highlighted by the International Chamber of Commerce, this potentially creates more enforcement challenges for brand owners trying to protect their intellectual property.

From a brand protection perspective, the banning of logos on lawfully produced cigarettes undoubtedly constitutes an invasion of tobacco companies’ trademark property rights—rights that have been legitimately obtained and paid for by those companies.  And plain-packaging laws are not necessarily limited to tobacco—in South Africa, a law has been recently introduced to ban logos and packaging on infant formula milk in order to promote breastfeeding.  Although there are legitimate public health concerns surrounding tobacco use, if governments can take away the branding rights of cigarette companies, could they also restrict branding on other arguably unhealthy products, such as liquor and high-fat foods?  CovBrands will continue to monitor this issue.