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Smoke that

Jan 10 2013 09:23 *Rachel Sikwane

(AFP)

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BRITISH AMERICAN TOBACCO PLC [JSE:BTI]

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Last Updated: 01-10-2014 at 11:57. Prices are delayed by 15 minutes. Source: McGregor BFA

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THERE is speculation that the rule of plain tobacco packaging could come to South Africa, following the Australian government's decision to implement a law that requires tobacco companies to sell their products in plain packages.

Australia's Tobacco Plain Packaging Act 2011, which came into effect on December 1 2012, requires all cigarette brands to be sold in identical olive green packs featuring graphic images of mouth ulcers and other consequences of smoking.

These health warnings must, in  fact, cover 75% of the front of the pack, and 90% of the back. The brand name (without the logo) and the variant (like menthol) may appear on the pack, but only in very small print.

Legal challenge

Two tobacco companies, JT International and British American Tobacco [JSE:BTI] (BAT), challenged the legislation. They argued that it was an unlawful expropriation of intellectual property, because the constitution says that any acquisition of property must be “on just terms”.

On August 15 2012, the Australian High Court held that the legislation was legal. The majority, led by Chief Justice Robert French, ruled that the law only controls the way tobacco is marketed and does not involve an acquisition.

The court said this in its press release: "Although the act regulated the plaintiffs' intellectual property rights and imposed controls on the packaging and presentation of tobacco products, it did not confer a proprietary benefit or interest on the commonwealth.

"The act was valid, as it did not acquire property. It therefore did not engage section 51(xxxi) of the constitution."

It did not take long for the legislation to become an international issue.

Honduras, Nicaragua, Zimbabwe, the Dominican Republic and Ukraine made it known at the World Trade Organisation (WTO) that they felt that the legislation breaches Australia's obligations under the Trade-Related Aspects of Intellectual Property Rights (Trips) Agreement, and the Technical Barriers to Trade (TBT) Agreement.

They argue that the Australian law restricts the essential function of a trademark, which is to denote the origin of products.

Australia, on the other hand, argues that its law is a sound and well-considered measure designed to achieve a legitimate objective, namely the protection of public health.

Australia argues that its legislation does not undermine the protection afforded under the Trips Agreement, and that it is origin-neutral, non-discriminatory and applies to all tobacco products.

It also argues that the law is in line with the World Health Organisation's Framework Convention on Tobacco Control.


Proposed cigarette packaging by the World Health Organisation. The body is urging governments to unite against "big tobacco", which it says uses dirty tricks, bullying and immorality in its quest to keep people smoking. (AFP)

Australia rejected Honduras' first request for a WTO panel to examine the legislation on November 19 2012. As a result, the Dominican Republic filed a request for the establishment of a panel to be considered by the Dispute Settlement Board at its December 2012 meeting.

Norway, New Zealand and Uruguay, in the meantime, gave notice that they support the Australian legislation, being an exercise of the sovereign right of WTO members to protect public health.


SA, New Zealand, India want to follow suit

New Zealand has also indicated that it will follow Australia's lead and pass plain packaging legislation.

An Indian MP has announced that she will be putting forward a private member's bill for plain packaging legislation in India, and the South African government has made it clear that it wishes to introduce similar legislation.

The tobacco industry in South Africa has already given a very strong indication that it will challenge any such legislation in the Constitutional Court.

The argument in South Africa is likely to be similar to what it was in Australia. The tobacco companies are likely to argue that a law requiring them to use unbranded packs contravenes the constitution, which says that no one should be deprived of property and that in the case of an expropriation, compensation must be paid.

In support of this, they will argue that - because such legislation will prevent them from using their trademarks, and because the law says that a registered trademark that is not used for five years is vulnerable to cancellation - the legislation will be tantamount to expropriation.

They may well argue that they will be entitled to significant compensation, because trademarks are very valuable assets.

The government, on the other hand, may argue that legislation of this nature simply restricts the way in which tobacco companies can use their trademarks, and does not deprive them of ownership. Its stance will obviously be fortified by the Australian decision.

The government may also argue that, even if the legislation does constitute expropriation, its purpose must be considered and as this is the promotion of public health, compensation should be modest.

Constitutional Court ruling backs government

The South African case will be strengthened be further by the fact that a few years back the Constitutional Court ruled that the constitutional right of freedom of expression trumped the right of a company to control the use of its trademark.

Surely, the government will argue, it must follow that health rights must supersede intellectual property rights.

It will be fortified by the dismissal of the Supreme Court of Appeal in a case filed by BAT, where the company argued the legislation that prohibits tobacco advertising in South Africa does not extend to one-on-one communications between a tobacco company and a consenting adult customer, as this would be contrary to the right of freedom of expression.

The court ruled that the ban on tobacco advertising does indeed extend to such one-on-one communications.

It pointed out the constitution makes it clear that any constitutional right can be limited to the extent that the limitation is reasonable and justifiable, taking into account relevant factors. These include the nature of the right, and the nature and extent of the limitation.

The judge said: "In my view, this is a classic example of a case in which matters of fact and policy are intertwined. There are powerful public health considerations for a ban on advertising and promotion of tobacco products.

"South Africa also has international law obligations and this has been the practice in many other open and democratic societies. They have accepted the link between advertising and consumption as incontrovertible and have imposed restrictions on the advertising and promotion of tobacco products."

In countries such as Australia and South Africa, the tide has certainly turned against tobacco companies; whether it has in the rest of the world remains to be seen.

 - Fin24

*Rachel Sikwane  is a senior associate at Edward Nathan Sonnenbergs. Views expressed are her own.


 

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