Property Rights and the Constitution

Property rights and the Constitution This essay will discuss the plain packaging laws for tobacco in the Commonwealth of Australia. A recent High Court of Australia’s judgment in the case of JT International and British American Tobacco v Commonwealth of Australia[1] has upheld the righteousness of the tobacco plain packaging laws. However, the manufacturers have argued that such laws constitute hostile acquisition of intellectual property. This paper reviews such claims of manufacturers and whether intellectual property rights are indeed endangered with such laws. Therefore, it will be argued that it is important that the Australian Constitution should protect intellectual property rights more robustly reinstating that acquisition of property does not take place at unjust terms. While evaluating the above critically, the essay is broken down in to the following sub-sections: summary of the judgment in JT International and British American Tobacco v Commonwealth of Australia, the legal aspects, the economic repercussions of such laws and pros & cons, and the final expected outcome. Judgment summary The legislation of the Tobacco Plain Packaging Act 2011 (Cth) puts some restrictions on the use of colour, size, font, marks, other physical features, etc. in the packaging for tobacco products.[2] The tobacco manufacturers in opposition to the same claimed that it is an acquisition of the intellectual property that they have developed over the years and contributes significantly to their sales. Thus, on one hand they are given exclusive rights to use certain captions, logos, marks, etc. and on the other hand restriction is being levied for use of such exclusivity.[3] The Commonwealth of Australia being the defendant claimed that there is no acquisition of property commensurate to Section 51(xxxi) of the Constitution and therefore the question of acquisition of the manufacturers’ property rights does not only arise.[4] The Court after due diligence and through a statement of reasons of the bench of judges came to the conclusion that there is indeed no acquisition of property to invoke Section 51(xxxi) of the Constitution and thus the Tobacco Plain Packaging Act 2011 (Cth) is fair in its legislation.[5] Legal aspects The reasons and statements made by the bench in support of their judgment are critical to understand and be read with the appropriate legislation. In this section, we intend to relate the reasons with the appropriate legislation. In the Tobacco Plain Packaging Act 2011 (Cth) s 18 of the Act prescribes the physical features of the packaging (i.e. the cigarette packet) as well as the packing (i.e. cartons).[6] The retail packaging restrictions as prescribed by the Act is excerpted below: “... (1) The retail packaging of tobacco products must comply with the following requirements: (a) the outer surfaces and inner surfaces of the packaging must not have any decorative ridges, embossing, bulges or other irregularities of shape or texture, or any other embellishments, other than as permitted by the regulations; (b) any glues or other adhesives used in manufacturing the packaging must be transparent and not coloured. Cigarette packs and cigarette cartons (2) A cigarette pack or cigarette carton must comply with the following requirements: (a) the pack or carton must be rigid and made of cardboard, and only cardboard (subject to paragraphs (1)(b) and (3)(d)); (b) when the pack or carton is closed: (i) each outer surface of the pack or carton must be rectangular; and (ii) the surfaces of the pack or carton must meet at firm 90 degree angles; (c) all edges of the pack or carton must be rigid, straight and not rounded, bevelled or otherwise shaped or embellished in any way, other than as permitted by the regulations....” When we closely examine the highlighted parts, it is evident that what the Act envisages is uniformity of shape, size and colour. The trademarks, copyrights, etc. registered by the businesses are differentiated by the symbols, colour, fonts, etc. Thus, it may seem that the costs incurred by the businesses in developing these differentiated marks or fonts or colour are sunk to an extent because of this uniformity. However, if Section 19(3) is read, it is found that the brand name, business name or variant name doesn’t require to follow the colour scheme which implies that while the whole pack is required to be of a certain colour (dark brown if nothing else is specified), the brand name or the variant name can continue to be of the colour it is. Section 19(3)[7] is read as below: “...(3) The following are not required to be the colour mentioned in paragraph (2)(b): (a) the health warnings; (b) the text of: (i) the brand, business or company name, or variant name (if any), for the tobacco products; and (ii) the relevant legislative requirements (other than the health warnings). Evidently, Section 20 prescribes no use of trademarks, marks, variant or business name in the no other text orientation than that of health warning. Further, while Section 20 does not apply to wrappers, Section 22 clarifies that even wrappers cannot have any trademarks, colour, should have non-transparent material, etc. The overall impact of the same is that, businesses or brands that have their differentiation made in a way that modifies the name of the variant will be less harmed compared to a business that uses a trademark or image for differentiation purpose.[8] Every brand of cigarette extensively relies on the colour and image specificity to differentiate with other brands. The similar restrictions on packaging will result in the redundancy of all intellectual property rights being built by the businesses over time. If all the brand’s cigarette packs look alike with just the name of the brand in plain text, then the costs incurred in intellectual property development over the years shall surely be wasted. Consequently, with the provision of the Tobacco Plain Packaging Act 2011 (Cth) applicable, the only use of trademarks shall be limited to showcasing them in advertisements. Based on the above, there is certainly an infringement into the Intellectual Property Rights of the manufacturers. One of the reasons forwarded by the bench of High Court of Australia regarding the non-usability of trademarks, designs, etc. was that an intellectual property is in itself a negative right which is put into effect with an attempt to stop others from using it.[9] Thus in effect, the restriction to use such intellectual property which bars other competitors from using a close clone of the image (trademark) would in no way take any right granted to the manufacturers. However, if we consider the end result by way of the packaging of the product, when the major proportion of the packaging is similar in colour, texture, shape, etc. for each brand, the right to stop a close competitor from copying or using a close symbolism is effectively made zero. Therefore, the value of an intellectual property as used in the financial statements based on some methodology which is again based on some Australian statute becomes much lower due to its apparent ineffectiveness. Therefore, there is surely an acquisition or reduction in value of an asset without any consideration, let alone a just consideration. Furthermore, with respect to the question whether there is an acquisition of property via unjust terms so as to invoke Section 51(xxxi) of the Constitution or not, it is clarified that since the Commonwealth is not using any property of the plaintiffs to derive any benefit and nor does it hold any interest in such property. As such, ‘acquisition’ is not in effect. While in literal terms although the justification may seem correct, the same concept can also be viewed in a different light. The objective of the Commonwealth of Australia here is to reduce the consumption of cigarettes and tobacco products. By validating the Tobacco Plain Packaging Act 2011 (Cth), the effectiveness of the intellectual property of the manufacturer is reduced substantially and this reduction in effectiveness to sale cigarettes is being capitalised to fulfil the objective of reducing cigarette consumption. Thus, even without holding an interest in the property, the property is being controlled to fulfil a different set of objectives. It has to be considered that for an intangible asset literal possession is not possible and the existence of such asset is only realisable through it use and control over it. Thus, from a different point of view, there is a virtual acquisition of intellectual property on unjust terms. The Economic Repercussions If we think practically, the economic impact can be broadly classified into two categories. The first category is that consumers would already consume cigarettes and are habituated; for these consumers, the impact of the Act will possibly be limited and subject to time constraint. Although consumers will initially find a little difficulty in finding their brand, over time they will be acquainted with the new restricted packaging of cigarettes. The second category is potential new consumers, where for new consumers the impact on sale will be much deeper. These are the consumers on whom the concept of differentiation has the highest impact and it is for this segment that the trademarks, colour, packaging, etc. play a significant role. With the new look alike packaging restrictions for all cigarette brands, there is a high possibility that the established brands like Camel, Marlboro etc. will lose their lustre. There is a potential loss of goodwill, brand image and positioning in the mind of the consumers. Therefore, since there will be a definite loss in monetary terms through trademark and design restrictions, the applicability of Tobacco Plain Packaging Act 2011 seems unjust to manufacturers because of the following reasons. First, the reduction in consumption of cigarettes could have been practiced through alternative means without infringing any loss of goodwill, brand value. With the objective of reducing cigarette consumption, a mere mandate to showcase pictures of cancer patients over a substantial area of the packet could have been adequate. The destruction of brand proposition and trademarks of tobacco manufacturers were not required to be done. Furthermore, the intellectual property laws pertaining to tobacco manufacturers could have been separately amended first and just terms could have been extended for existing players in the market.[10] Based on the above, it is concluded that the outcome of the JT International and British American Tobacco v Commonwealth of Australia was not good. Final expected outcome In section 51(xxxi) it is stated that “…the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws…”.[11] This provision in the Constitution does not clarify and foresee situations like this infringement of intellectual property rights and the same can be exploited by States. In addition, a number of cases and allegations of unjust acquisition of property by States in lieu of the aforementioned provision of Section 51 can be exemplified. For example, in the case Spencer v Commonwealth of Australia[12], Mr Peter Spencer protested New South Wales legislation and Commonwealth actions which had diminished his ability to clear his land as he pleased and diminished the value of his land, which constituted an unjust acquisition of his property.[13] A case of similar nature took place in the Kimberley region where land was acquired for a gas precinct and allegations of unjust acquisition have surfaced. Therefore, the Constitution should be much more robust in reinstating that acquisition does not take place at unjust terms and for the same relevant bills and amendments need to be brought in. A Private Member’s bill was introduced by Mr. Bob Katter in the House of Representatives called Constitution Alteration (Just Terms) Bill 2010 so as to withhold the concept of just compensation for property acquisition made by the States for common benefit of the Commonwealth of Australia. This again testifies the claim that unjust acquisition of property does happen in the country and adequate steps to counter the same should be put in place. References Cited Daniel Fletcher, ‘JT International SA v Commonwealth: Tobacco Plain Packaging’ (2013) 35(15) Sydney Law Review 827. Tobacco Plain Packaging Act 2011 (Cth) Diane Spooner, ‘Property’ and acquisition on just terms, 1

[1] (2012) 250 CLR 1. [2] Tobacco Plain Packaging Act 2011 (Cth) s 18. [3] JT International and British American Tobacco v Commonwealth (2012) 250 CLR 1, 19 [2]. [4] JT International and British American Tobacco v Commonwealth (2012) 250 CLR 1, 70 [176]-[178]. [5] Daniel Fletcher, ‘JT International SA v Commonwealth: Tobacco Plain Packaging’ (2013) 35(15) Sydney Law Review 827, 828. [6] Tobacco Plain Packaging Act 2011 (Cth) s 18. [7] Tobacco Plain Packaging Act 2011 (Cth). [8] Tobacco Plain Packaging Act 2011 (Cth) s 22. [9] JT International and British American Tobacco v Commonwealth 250 CLR 1, 31 [36]. [10] JT International and British American Tobacco v Commonwealth (2012) 250 CLR 1, 25-26 [25]. [11] Commonwealth of Australia Constitution Act [12] [2010] HCA 28. [13] Spencer v Commonwealth of Australia (2010) 241 CLR 118, 126 [8]-[9].

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