Tim Lince

Long-running litigation between Uruguay, which has some of the toughest anti-smoking laws in the world, and cigarette giant Philip Morris could have direct consequences for plain packaging legislation globally and the case is being watched “with interest” by the IP community in Australia. However, could it also pave the way for legal action in Europe?

Philip Morris International first brought the lawsuit against Uruguay in 2010, saying the requirement that 80% of cigarette packaging be allocated to health warnings and 20% to branding is a violation of a bilateral investment treaty between the country and Switzerland, where the Philip Morris operating centre is based. The treaty, in short, states that Uruguay will respect IP rights - a pledge the country is breaking, according to Philip Morris, which is suing for $25 million on the basis that the size of the warnings goes beyond what is reasonable and leaves little space for its legally protected trademarks. Reflecting on the litigation, a Uruguayan reporter, speaking to NPR, noted: “The outcome of this case will set the tone for other countries. I spoke with Uruguay's former secretary of public health, who said that Philip Morris' intention was to make an example out of Uruguay.”

While Uruguay’s regime is not a ‘plain packaging’ one, the litigation is being watched closely by countries that have enacted plain packaging or are considering it. Philip Morris Asia has previously sought legal action against plain packaging in Australia and there is ongoing litigation in which the company argues that Australia is breaching a similar bilateral investment treaty with Hong Kong.

Peter Hallett, director at Watermark in Melbourne, told World Trademark Review that the wording of the Uruguay treaty with Switzerland and the Australia treaty with Hong Kong are “similar, but not identical”, noting: “Both treaties provide that neither country may ‘impair by unreasonable or discriminatory measures’ investments made by investors of the other country. That restriction is primarily intended to ensure the equal treatment of investors, but the wording does suggest that laws might be ‘unreasonable’ even if they are non-discriminatory, and that seems to be the argument that Philip Morris will run. On the other hand, Uruguay and Australia will presumably argue that this restriction should be read as only prohibiting measures that are in substance inconsistent with the principle of equal treatment”.

To make its case in Uruguay, Hallett suggests that the company may present “evidence from branding experts in relation to what size a mark needs to be on packaging in order to be recognisable to a purchaser”. Additionally: “I expect that evidence as to the effectiveness of plain packaging laws and other regulatory measures on reducing smoking rates, as well as the health and other costs of smoking, would be very important in both proceedings to the assessment of whether the measures are ‘reasonable’.”

Considering the arguments that the legislation constitutes expropriation of Philip Morris’ marks, Hallett argues: “The Australia/Hong Kong treaty refers to an investor being ‘deprived’ of their investment, which is perhaps a broader concept than expropriation. The High Court of Australia has already decided that Australia's plain packaging laws do not involve the compulsory ‘acquisition’ of property, on the basis that there is a difference between a law that restricts use of a trademark and a law that involves the compulsory acquisition of a trademark. If the same reasoning were to be applied under the bilateral investment treaties, it is unlikely that either Uruguay or Australia would be found to have expropriated Philip Morris' trademarks.”

With Philip Morris boasting an annual net revenue reportedly higher than Uruguay's GDP, the company is unlikely to back down as the litigation costs pile up and the outcome of the action will be closely watched. If it does “make an example out of Uruguay”, it is possible that this will pave the way for action elsewhere. The European Directive on Tobacco Products requires that health warnings cover 65% of the front and back of cigarette packaging – could it therefore make the argument that the size of these warnings similarly go beyond what is reasonable and leave little space for its legally protected trademarks?

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RE: The international implications of the Philip Morris branding battle in Uruguay

Thank you for a concise and clear analysis of the implications of Philip Morris' (PM) action against Uruguay. I should like to submit that something has not been stressed clearly enough in this matter. Not only does plain packaging or restrictive health warning laws not involve the compulsory acquisition or expropriation of property: strictly speaking, there is no 'property' as such involved. Under standard trademark law a trademark 'proprietor' has an 'exclusive right' in respect of the (commercial) use of the mark for specified goods or services. This means that the right holder can prevent any third party from commercially using his mark.

Both in Uruguay and Australia this exclusive right remains intact so far. How can you tell? If, for example, a consignment of counterfeit ‘Marlboro’ cigarettes were sent to Uruguay or Australia where that mark is registered or otherwise protected by PM, this company could block the importation of those cigarettes or could seize the cigarettes after they have cleared customs. PM could do this on the basis of its exclusive trademark rights. This would be so regardless of the fact that PM may be unable to use that trademark itself, or may be required to comply with strict regulations on its use in those countries.

The point is that two things need to be distinguished: (i) the intellectual property (IP) right in a trademark, which only grants a right to exclude third parties from using the mark; and (ii) the ‘right’ to trade using or not using a trademark on one’s goods. This latter right may result from a constitutional or legal statement of ‘freedom of trade’. As with any product (especially dangerous or sensitive products), freedom to produce and commercialize can be regulated, restricted or outright banned by law. However, even if the trade in tobacco products was totally banned in Uruguay or Australia (which it is not at present), PM could still fully benefit from its IP trademark rights. Remember: IP does not give a right to use the protected object, it only grants a right to exclude other persons from using. For PM to have been ‘expropriated’ of its IP trademark rights it would have had to be deprived of its right to exclude others from using its marks. It has not been so excluded.

Let us hope the arguments can focus better and the IP dimension is dropped, as IP does not seem to be an issue here. The question is basically whether PM can, under national law, trade its (dangerous) goods totally unfettered or rather subject to certain regulatory constraints, or whether it cannot trade those goods at all. The law can determine any of those scenarios on grounds of public interest, public health, etc. (Perhaps in Uruguay PM could just switch its line of business to marihuana which -- apparently -- is less of a health hazard than tobacco).

Octavio ESPINOSA, on 23 Sep 2014 @ 22:55

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