Plain packaging: impending hardship for brand owners?
Several Latin American countries have proposed the introduction of plain packaging for products such as cigarettes, replacing packaging bearing the trade dress that differentiates such products. However, strict regulations limiting the use of trade dress by rights holders already apply to such products and the proposals go beyond these regulations.
Several Latin American countries have proposed the introduction of plain packaging for products such as cigarettes, replacing packaging bearing the trade dress that differentiates such products. However, strict regulations limiting the use of trade dress by rights holders already apply to such products and the proposals go beyond these regulations.
Limiting the use of trademarks and trade dress would cause great damage to the companies that own them, as these signs – the result of years of investment and effort – may be their most valuable asset.
Overly strict regulation could destroy the prime intangible assets of the tobacco industry and result in a legal scenario that is incompatible with existing Latin American law, in terms of not only national and international IP regulations, but also the constitutional laws guaranteeing these rights.
Legal framework
Intellectual property
While the constitutions of Chile (Article 24) and Ecuador (Article 322) provide that creators or inventors enjoy IP rights in their work, the constitutions of other countries (eg, Costa Rica and Argentina) delegate responsibility for IP rights to specific laws. These include national law, decisions on industrial property (for the countries of the Andean Community – Colombia, Ecuador, Peru and Bolivia) and international IP treaties and conventions (eg, the Paris Convention, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)). These laws give trademarks and other intangible assets effective and efficient protection, not only because of their creative contribution, but also because of the value of trademarks in identifying products and services on the market.
Any constitutional safeguard which protects trademarks must ensure that the rights are not impaired by new, lower-level regulations (eg, plain packaging regulations) which eliminate the distinctive power of a trademark or trade dress. Any regulation that prevents the use of trade dress as it has been recognised by consumers on the market would imply a breach of a constitutional right.
Unfair competition
Many constitutional rules guarantee free competition and a transparent and fair market (eg, Article 28 of the Mexican Constitution and Article 335 of the Ecuadorian Constitution). These rules are in line with international conventions and treaties that regulate acts of unfair competitions, particularly Article 10bis of the Paris Convention and TRIPs.
Many acts of unfair competition involve IP rights, particularly trademarks (eg, acts causing consumer confusion or dilution of intangible assets). If regulations require rights holders to stop using their intangible assets in the market by making plain packaging mandatory, competitors will be able to take advantage of their work. This will lead – indirectly – to unfair competition actions that clearly harm rights holders and consumers. Plain packaging legislation would appear to legalise these unfair practices and the unlawful appropriation of the intangible value of certain IP rights.
Antitrust regulations and free competition guarantee order and transparency in the market and trademarks are the best way to achieve this objective. Regulations on plain packaging would compromise this transparency, as their objective is contrary to the aims of IP law. Plain packaging would result in a market full of confusion and error, where some competitors could take unfair advantage of the efforts of rights holders – which have invested time and money to make consumers aware of their products – and where the real value of trademarks would be lost.
Copyright
Copyright protection is established in international and regional multilateral treaties and conventions (eg, the Berne Convention, TRIPS, Andean Decision 351). All Latin American countries also have specific laws guaranteeing such protection. Further, copyright has been declared a human right in Article XIII of the American Declaration of Rights and Duties of Man 1948 and Article 27 of the United Nations Universal Declaration of Human Rights 1948.
In order to enjoy protection, copyright must involve a creative expression of intellect. Therefore, as trademarks involve creation and originality, they can be protected through copyright law. ‘Originality’ (defined as the personal contribution of the creator to the shape or the way in which ideas are expressed) should be considered in the context of European law – the source of Latin American law – as the personal contribution of the creator and within the framework of copyright. Originality should be understood as anything that involves skill and work.
Trademarks – particularly well-established marks, such as CAMEL, LUCKY STRIKE and MARLBORO – are the result of creative work that takes into account many aspects, including commercial issues, territoriality and social traditions. The originality of these marks thus justifies protection through copyright and such marks cannot be denied copyright protection. If this is true for word marks, it applies even more so for commercial slogans, logos, designs, colours and trade dress designs that work as trademarks, which are often protected as three-dimensional marks (eg, in Ecuador).
Thus, plain packaging is not only contrary to constitutional law, but also affects human rights as it impinges on the protection offered by copyright law to all creative expression.
Trademarks
Without seeing a trademark, consumers may not know which product they wish to buy or use, since they may be unable to distinguish the product they are seeking from others on the market. Thus, trading becomes a question of luck and, in most cases, the consumer will feel cheated since he or she will buy a certain product or service thinking that it is actually a different one.
The main purpose of a trademark is to clearly distinguish one product from others in order to avoid confusion with other products or services. If a sign lacks this distinctiveness, it cannot be protected as a trademark.
Administrative court decisions and Latin American jurisprudence agree that distinctiveness is the feature that allows consumers to identify a product or service with precision. In this regard, the Court of Justice of the Andean Community has repeatedly held: “The brand has the essential purpose of distinguishing products or services of others and for the consumer to identify the trademark and a product from another. The requirement of distinctiveness is justified by the very essence and purpose that the mark has [of distinguishing goods and services].” (Case 27-IP-95.)
The ability of marks to prevent confusion among consumers would be negated by plain packaging regulations, as the effect would be precisely the opposite. By preventing the use on the market of well-known trademarks or trade dress, such marks or trade dress would be rendered void, since their main purpose is to distinguish products and services. If they are not used for this purpose, they are “expropriated” (as set out in bilateral investment treaties and free trade agreements) since, through regulation, the government is preventing use of an IP right.
In regard to Andean law and regulations, rules on plain packaging would cause Andean Community countries to breach the common legal system and face trade sanctions, ultimately damaging the trade and political relationships between member countries. Article 4 of the treaty, which created the Andean Court of Justice, states: “member countries are required to take the necessary steps to ensure compliance with the rules of the Andean Community legal system. They shall also undertake not to adopt or use a rule that is contrary to those rules or that somehow stops implementation measures.”
Further, Andean law has supranational characteristics. In cases where national law contravenes or is inconsistent with Andean law, the latter applies, displacing national laws and making them inapplicable. The Andean court has repeatedly applied these fundamental principles of integration law (Decisions 2-IP-90, 3-IP-89, 5-IP-89, 2-IP-90, 3-IP-94, 5-IP-90, 12-IP-96 and 3-AI-96).
The proposed plain packaging regulations would govern an issue already addressed by Andean Community law – that is, the right to own and use exclusively a trademark or other distinctive sign (trade dress). For this reason, any law that impinges on the scope of the Andean legal framework will be incompatible with that framework.
If a member country adopts a law which breaches the Andean legal framework, it will face an action before the Andean Tribunal Court.
TRIPs presents a similar situation, as this international, multilateral agreement requires member countries to guarantee IP rights to trademarks and service marks. Further, Article 20 of TRIPs requires member countries to offer amenable conditions for trademark use: “The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. This will not preclude a requirement prescribing the use of the trademark identifying the undertaking producing the goods or services along with, but without linking it to, the trademark distinguishing the specific goods or services in question of that undertaking.”
It is clear that plain packaging regulations would render the rights in trademarks ineffective and would unreasonably and unjustifiably hinder the use of trade dress, affecting their distinctiveness. Thus, a country which adopts plain packaging regulations may be brought before the World Trade Organisation Dispute Settlement Body, which may find that rights guaranteed by TRIPs have been nullified or impaired. Trade measures may be taken against the country and the affected parties may seek financial compensation and suspension of concessions as determined by Article 22 of the Understanding on Rules and Procedures Governing Dispute Settlement.
Well-known and notorious trademarks
In some cases the use and knowledge of a mark transcend the borders of local markets because of high sales volumes, major advertising campaigns, the quality of the products or services or international marketing. In such cases the protection given by law may be insufficient due to the limitations of trademark legislation (eg, territoriality and the speciality rule).
The current trend is to protect well-known marks by offering a higher level of protection than that given to common brands, generally ignoring the principles of territoriality and specialty (under Article 6bis of the Paris Convention, Article 16 of TRIPs, Andean Decision 486 and the World Intellectual Property Organisation Joint Resolution Relative to the Protection of Well-Known Marks).
Article 224 of Andean Decision 486 defines a ‘well-known mark’ as “that which is recognised as such by any Member Country in the pertinent market sector”. In such cases the law provides greater protection for these brands. Further, such protection is no longer exclusively targeted at the consumer against the risk of confusion, but also protects the rights holder against the risk of association (ie, so that the consumer does not confuse the source or commercial origin of the products or services).
Nevertheless, there are other marks which are stronger and more important than well-known marks. These are known as ‘renowned and world-famous marks’, which are known not only by regular consumers of the specific goods or services which the marks represent, but also by all consumers in general. For example, Ecuadorian law specifies: “A high renown mark exists when it is known by the general public of the country or internationally” (Article 196(e)). Andean Court Decision 1- IP -87 declares that: “every renowned mark is well-known but not all well-known trademarks are renowned.”
Highly renowned marks enjoy even greater protection than that given to well-known trademarks. This protection also covers the rights holder not only against the risk of confusion, like a regular trademark, but also against the risk of association as a well-known trademark and the risk of dilution.
Damages
If, as discussed above, plain packaging regulations would nullify common or ordinary trademarks or trade dress, they would also lead to major damage to consumers and rights holders, which would need to be compensated. Plain packaging could cause significant damage to brands such as Belmont, Lucky Strike and Marlboro, which are worth billions of dollars.
The virtual annulment of such trademarks through plain packaging regulations could result in a breach of national legislation and constitutions and a violation of regional laws and international conventions and treaties. Worse, it could result in the nullification of companies’ highly valuable intangible assets.
Romero Corral Abogados
Av 12 de Octubre N26-97 & Abraham Lincoin
Torre 1492, 5th Floor, Office 505
Quito
Ecuador
Tel +593 2298 6671
Fax +593 2298 6677
Alfredo Corral Ponce
Co-founding partner
Alfredo Corral Ponce is a co-founding partner of Romero Corral Abogados and oversees the competition law practice. He is an expert in IP matters and also advises clients on advertising law issues.
Mr Corral’s knowledge of the Ecuador IP law regime is unparalleled, and he helped to draft the IP Law. He was chief negotiator for Ecuador for the IP section of the Treaty of Andean Free Trade and was also a negotiator for Ecuador for the Free Trade Area of the Americas, in the IP area. He is former president of the Ecuadorian Institute of Intellectual Property, and he acts as a consultant for various international organisations, including the World Intellectual Property Organisation.