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July 2018

Panel report in Australia – Plain packaging: A “healthy” verdict

by Jayant Raghu Ram

Introduction

On 28 June 2018, the WTO circulated the much-awaited panel report in the Plain Packaging complaints brought against Australia by five WTO members. The measures at issue were Australia’s domestic laws and regulations concerning the retail packaging of tobacco products. The measures require that, inter-alia, the retail packaging have physical features that are plain, and be drab dark brown in colour. The measures also prohibit the appearance of trademarks and marks anywhere on the retail packaging of tobacco products, with the exception of the brand name, business or company name, etc. The purpose of the measures is to discourage tobacco consumption by making the retail packages unattractive to consumers.

The complainants’ claims primarily centered on the consistency of these measures with provisions of the TRIPS Agreement and the TBT Agreement. Much to the delight of anti-tobacco activists, the panel dismissed all the claims and ruled in favour of Australia’s measures. Besides establishing critical jurisprudence on issues concerning the intersection of IPR and trade-related measures, the ruling has important implications for designing of public health policy.

The implication of the ruling is that other countries are likely to follow suit not just in adopting anti-tobacco measures in their respective countries, but it may also encourage similar measures against other consumable products that may be harmful to human health such as carbonated drinks, alcohol, junk food, etc. This article is aimed at discussing how some of the jurisprudence in Plain Packaging may be relevant in shaping public policy aimed at protecting public health.

 

Claims under the TBT Agreement

The TBT Agreement enables countries to institute non-tariff measures such as labelling, technical specifications, packaging, etc. as long as these measures are taken for achieving legitimate objectives such as public health. In Plain Packaging, the complainants claimed that the impugned measures violated Article 2.2 of the TBT Agreement as they were more trade-restrictive than necessary in fulfilling the legitimate objective of protection of public health. The panel however rejected this claim on the basis that the objective of the plain packaging measures was to improve public health by reducing the use of, and exposure to, tobacco products and that the plain packaging measures made a material contribution to this objective.

The panel further stated that the nature of the risks that would arise from non-fulfilment of this objective was that public health would not be improved and would in fact be jeopardized. The complainants proposed alternative measures such as social marketing campaigns, increased taxation, that they claimed would be less trade restrictive than the plain packaging measures. These alternative measures were, however, rejected by the panel on the ground that the complainants did not demonstrate that they would make a contribution equivalent to that made by the plain packaging measures, to Australia’s regulatory objectives. The panel thus held that these measures were not more trade restrictive than necessary.

An important determination that the panel made under the above issue pertains to those provisions of the WHO’s Framework Convention on Tobacco Control (FCTC) which pertain to plain packaging. Australia had claimed the measures to be based on the FCTC, which it claimed to be the relevant international standard. It thus argued that under Article 2.5 of the TBT Agreement the measures were presumed to not create an unnecessary obstacle to international trade. The panel however held that these FCTC provisions did not constitute a "standard" as they were not intended to provide a unified document "for common and repeated use" in respect of tobacco plain packaging, which is one of the attributes of a "standard" within the meaning of Annex 1.2 to the TBT Agreement. In its analysis, the panel found an absence of uniformity in the different features of plain packaging measures as recommended under the FCTC.

The implication of the above finding is that in case a WTO Member takes measures aimed at reducing the consumption of, and exposure to, products such as carbonated drinks, etc., it would be imperative for such a Member to prove that the measures are not more trade restrictive than necessary. This is an extra burden that would arise for defending Members as, international legal frameworks on health issues on products such as junk food, that are in the nature of a standard, are largely absent. This is an important point that must be kept in mind when the international community engages in decision-making in this field.

 

Claims under TRIPS Agreement

At the heart of the dispute were the claims made by the complainants under the TRIPS Agreement, particularly pertaining to trademark since the usage of trademarks was directly affected by the measures. Out of the nine TRIPS-related claims, only the claim under Article 20 is discussed in this article as it pertains to the encumbrance, by the measures, of the use of trademarks in the course of trade.

The complainants claimed that the plain packaging measures were inconsistent with Article 20 of the TRIPS Agreement as they unjustifiably encumbered the use of tobacco trademarks in the course of trade. The complainants stated that trademarks played an important role in differentiating goods and services for facilitating competition. Article 20 thus played a crucial role by seeking to ensure that trademarks performed this basic function of distinction in commerce.

In its analysis, the panel noted that by disallowing the use of the design features of trademarks, the measures prevented a trademark owner from using such features to convey any information (whether functional or intangible) about the product to the market and thereby deriving any economic benefit from the use of such features. In principle, therefore, the panel was in agreement with the complainants that the measures encumbered the use of the trademarks.

The panel however noted that the practical implications of these prohibitions were partly mitigated by the fact that the measures allow tobacco manufacturers to use wordmarks such as brand names, company names, product and variant names, to distinguish their products from each other. Further, the complainants had not demonstrated that as a result of these encumbrances, consumers were unable to distinguish between the various tobacco products, which is the key function performed by trademarks.

The panel then proceeded to examine the justifiability of the encumbrances. The panel found justification in Australia’s objective to protect public health by curbing use of, and exposure to, tobacco products. The panel drew strength from Article 8.1 (general principle that allows Members to protect public health when formulating measures) of the TRIPS Agreement in support of the justification of the measures under Article 20, and also from the Doha Declaration on TRIPS and Public Health. The panel noted that the use of the term “unjustifiably” under Article 20 provides a degree of latitude to a Member to choose an intervention to address a policy objective, which in this particular case was public health. In sum, the panel determined that the complainants had not proved that the plain packaging measures unjustifiably encumbered the use of tobacco trademarks by their respective owners.

 

Conclusion

The panel report is a shot in the arm for governments who are interested in taking measures similar to the scale, design and effect of plain packaging for curtailing consumption of, and exposure to, consumables such as junk food and carbonated beverages. The panel report has shown how balance can be achieved between protection of public health objectives and private rights of trademark owners. The panel did not straight away dismiss the complainants’ claims. Rather the panel took care to intricately assess each of their claims and in the process, has generated crucial jurisprudence under both the TBT Agreement and the TRIPS Agreement. The case serves as an important precedent for governments who wish to utilize the policy space available under the various WTO agreements and enact measures aimed at achieving public health objectives but are wary of doing so.

Even though the panel has upheld the right to encumber the use of tobacco trademarks (on justifiable grounds), the panel has noted the right to use word marks such as brand names, company names, product names, etc. If the measures would have constrained the owners’ right to use these marks as well, then it is possible that the panel would have struck down this aspect of the measures. Therefore, the wiggle room available to tobacco manufacturers is to innovate with their wordmarks in order to add weight to the distinction between different tobacco brands.

Given the importance of the findings for the interface between international trade rules and public health objectives, Australia – Plain Packaging is definitely a landmark ruling. The verdict is however yet to see some finality since Honduras has filed an appeal. It now remains to be seen how the panel findings will be analysed by the Appellate Body (or what is left of it).

[The author is Senior Associate, International Trade Practice, Lakshmikumaran & Sridharan, New Delhi]

 

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