Big Tobacco v. Australia: The Battle over Branding

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As of January 2012, all cigarettes in Australia will be sold in packs of uniform olive green. The color was carefully chosen after a government survey found it to be the most distasteful to Australian smokers. The brand names will be printed in black standardized font. The new legislation will also designate seventy-five percent of the front and ninety percent of the back of the pack to warning labels.

The new packaging is the next step in Australia’s push to reduce smoking rates. Last year, the government raised tobacco taxes by twenty-five percent, bringing the cost of a pack of twenty cigarettes to between sixteen and twenty Australian dollars per pack ($16.75 – 21.00). These are some of the highest prices in the world. Australia has already banned public displays of tobacco products in retail stores, forcing storeowners to keep the products hidden behind counters. Smoking-related diseases kill 15,000 Australians per year and cost the country 31.5 billion Australian dollars in healthcare and lost productivity. Cigarettes are the leading preventable cause of death in the country. Australian officials say they are confident this ban of tobacco trademarks can be justified by its public health argument.

Tobacco companies vow not to give up without a fight. They have invested substantial capital in establishing and protecting their trademarks and feel that the plain packaging requirement will deprive them of their intellectual property without compensation. Philip Morris Asia, based in Hong Kong, has already initiated legal action against the Australian government, claiming the new legislation would violate a twenty-year-old bilateral investment treaty between Australia and Hong Kong. Under bilateral investment treaties, countries pledge to protect the investments made by foreign companies within their borders. On June 27, 2011, Philip Morris Asia filed a notice of claim, starting a mandatory three-month negotiation period. Other companies will likely follow suit.

Stripped of their brand recognition, tobacco companies are concerned for lost revenue. The value of a trademark is not in its possession, but its use. Trademarks create a shortcut in the consumer’s mind between the product and the quality. While Australia represents only a modest fraction of global tobacco sales, companies fear a domino effect. Countries like Canada, New Zealand, and the United Kingdom are watching this situation closely and considering similar measures. Tobacco companies also fear that plain packaging, which is much easier to imitate, will lead to an increase in counterfeit tobacco. This could lead to a greater supply of cheaper tobacco products on the market. Many companies have threatened to lower their prices in order to remain competitive, thus incentivize smoking.

Philip Morris will likely make two main arguments against the Australia’s public health claim First, it will point to the fact that there is no evidence that removing trademarks from packaging will reduce the number of existing smokers. Even if a person may mistake one brand for another, there is nothing to show that their smoking patterns would change. However, proponents of the new packaging argue removing all trademarks will breakdown the smoking-is-cool image the cigarette companies have been working for decades to create.

Secondly, Philip Morris will likely argue that the cigarette industry is being singled out. The Australian government allows for trademark-laden packaging for other unhealthy but legal products, such as alcohol and junk food. When this issue has been raised in interviews, Australian health minister, Nikola Roxon has responded that while alcohol and junk food, if consumed in moderation, produce few health concerns, there is no safe level of tobacco intake.

Outside of the courtroom, the tobacco companies have launched a counter attack. Philip Morris and other companies have joined together to create an advertizing campaign depicting the Australian government as an overbearing parental figure. The ads feature a stern looking woman with a tagline that reads, “Do you like living in a nanny-state?” Philip Morris has also created a website that warns that plain packaging will lead to counterfeit cigarettes manufactured in squalid conditions by organized crime leaders.

At this time, Philip Morris Asia is the only company to begin legal action, although they cannot officially file suit until the law goes into effect in January. When that happens and if Philip Morris is successful, other tobacco companies are likely to follow. Besides suing under bilateral investment treaties, the tobacco companies may also try to persuade their governments to bring suit against Australia under the WTO for violations under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs). The countries most likey to do this would be the world’s leading tobacco producers. Indonesia, the Dominican Republic, Mexico, and the Philippines have already raised concerns. Regardless of how the tobacco companies choose to fight the anti-trademark legislation, Australia should prepare for a shoot-out that would make the Marlboro Man proud.