Philip Morris Lawsuit Alleges Australian Anti-Tobacco Legislation Violates Trade-mark Rights

Philip Morris Lawsuit Alleges Australian Anti-Tobacco Legislation Violates Trade-mark Rights

Michael Gilburt is a JD candidate at Osgoode Hall Law School.

On June 27, 2011, the tobacco giant Philip Morris issued a press release announcing its decision to commence legal action against Australia over proposed legislation which, they argue, illegally diminishes the value of their trade-marks.

The pending legislation, referred to as the Tobacco Plain Packaging Bill 2011, would require tobacco companies to adopt a standardized form of packaging for their products. The legislation prohibits companies from printing logos, promotional text or colorful images on cigarette packages. Instead, brand names must be displayed in a prescribed font, colour and position, and each package must contain large health warnings and graphic images of illnesses caused by smoking.

Philip Morris Asia, which owns the Australian Philip Morris Ltd., argues that “the forced removal of trade marks and other valuable intellectual property” from cigarette packaging is “an expropriation of Phillip Morris’ investments” without fair compensation and therefore violates Article 6 of the Australia-Hong Kong (SA) Bilateral Investment Treaty (“AHBIT”), which protects investments from each country in the other’s territory. According to Anne Edwards, a spokesperson for Philip Morris, the “plain packaging would severely diminish the value of the company’s trade-mark” as branding is “one of the absolute key valuable assets…(that)…helps us compete (and) distinguish our products.” As such, commentators predict that Philip Morris will seek monetary compensation for the loss incurred by the new legislation and an injunctive remedy that requires Australia to suspend operation of the law after it comes into force.

Although multilateral treaties such as TRIPS prohibit non-state actors from launching claims against state parties, Professor Jurgen Kurtz of Melbourne University explains that bilateral investment treaties such as AHBIT enable non-state actors to bring claims against a state party who breaches its treaty obligations. Therefore, Philip Morris has the requisite standing to launch its action.

Australian health minister, Nicola Roxon, has expressed confidence that the lawsuit can be successfully defended on the grounds of public health. Professor Kurtz concurs, noting that international law has supported a public health exception in multilateral treaties. For instance, the WTO contains an exemption that allows states to pass regulations for public health purposes. While there are no equivalent clauses in the AHBIT, Kurtz asserts that “this does not necessarily mean that Australia’s proposed scheme will be found to breach the protections in the BIT.” He points to a number of cases (such as the 2005 NAFTA case of Methanex v USA) where states have “regulated for legitimate health purposes and succeeded in their defence of an investor-state arbitral claim.”

In my view, Australia’s proposed legislation would have troubling implications for free-speech and intellectual property rights. In this case, the Australian government has attempted to preserve Philip Morris’ trade-mark by maintaining it on the registry while preventing the company from using the trade-mark in the Australian marketplace. This course of action threatens to undermine the utility of the registry as the mechanism through which trade-marks are commercialized. Furthermore, the legislation restricts commercial expression beyond what is commercially reasonable, as it prohibits virtually all design elements that would enable a consumer to distinguish between competing products.

Unfortunately, the outcome of the dispute will not be known for some time. According to the Arbitration Rules of the United Nations Commission on International Trade Law, a three-month negotiation session between Australia and Philip Morris must occur before an arbitration proceeding can commence.