October 19, 2012

Thailand’s Draft Tobacco Consumption Control Act: Plain Packaging and Beyond

Bangkok Post, Corporate Counsellor Column

Australia will soon be the first nation to require all tobacco products to be sold in plain packaging. From December 1, 2012, tobacco packaging will be standardized for all manufacturers; photographic health warnings will occupy 75% of the front and 90% of the back of the packaging, and product names will appear in a uniform font in the remainder of the pack, which itself must be colored olive green. No famous logos, other branding, trademarks or colors can be applied.

The justification given by the Australian government is that branding on tobacco packs leads to an uptake in smokers and reinforces their commitment to smoking itself. The counterargument is that branding is simply about differentiating the brands, and brand loyalty must not be confused with any addictive nature of the product.

In juxtaposition to these actions taken by Australia related to cigarette and tobacco packaging, a court in the United States recently invalidated a regulation requiring graphic health warnings to be applied to cigarettes packs in that country. The court found that the U.S. Food and Drug Administration (FDA), which proposed the regulation, could not show that graphic health warnings covering half of the pack would reduce smoking, saying that the “FDA has not provided a shred of evidence … that the graphic warnings will ‘directly advance’ its interest in reducing the number of Americans who smoke.”

The Court also noted the lack of data in favor of graphic health warnings from countries that have implemented them, like Thailand, stating that, “[T]he dearth of data reflecting decreased smoking rates in these countries is somewhat surprising and, strongly implies that such warnings are not very effective at promoting cessation and discouraging initiation.”

Thailand already has some of the strictest tobacco regulations in the world. For example, all packs include graphic health warnings that cover 55% of the front and back of the pack, smoking is banned in most places and tobacco products are not allowed to be advertised or marketed at all. In the wake of Australia’s legislation, it seems that Thailand’s Ministry of Public Health (MOPH) may also be considering introducing plain packaging. A current draft Tobacco Consumption Control Act is set to introduce more restrictions, including the government dictating the design of tobacco product packaging and facilitating the introduction of plain packaging here in Thailand.

As this debate pushes ahead, there are some important legal and practical issues that need to be given full consideration.

Constitutional Issues

The Constitution of the Kingdom of Thailand provides that the “property right of a person is protected” and that a person shall enjoy the liberties to engage in an enterprise or an occupation and to undertake fair and free competition. Arguably, due to the lack of regulatory impact assessments evidencing any correlation between use of trademarks on tobacco and social problems of smoking, such a ban would not be proportional under the Constitution.

Trademark – Rights to Use and Value

Trademarks provide substantial benefits to their owners in terms of asset value, licensing value, assignment value and overall goodwill. Importantly, trademarks differentiate the goods of one business from the goods of others, thereby conferring an important valuable benefit to Thai consumers by enabling them to differentiate goods from one company versus another. Just because a good is a controversial product, does not mean that the important trademark function of indicating quality of a product should not still be afforded to both the public and the trademark owner.

By registering a trademark, the trademark owner has obtained the exclusive rights to use and license the use of the trademark in Thailand. A ban on use of trademarks on tobacco products would serve to disallow trademark owners’ use of their trademarks and put those trademarks at risk of being cancelled for non-use.

Indeed, as Thailand prepares for accession to the Madrid Protocol system for the international registration of trademarks, Thai companies may choose to use this new international trademark application system as their businesses grow and expand into new overseas markets. However, if their original Thailand trademark is cancelled for any reason, including for non-use, then this will amount to a “central attack” and their equivalent trademarks in those other countries will be cancelled as well.

Thailand’s International Obligations Under WTO Treaties

In addition to the protection that a business’ valuable trademarks enjoy under Thai law, they are also protected under international treaties, including the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Thai laws and regulations controlling the use of trademarks would bring into question Thailand’s obligations under various Articles of TRIPS, including Article 20 which prohibits unjustifiable encumbrances on the use of a trademark in the course of trade.

Australia is currently dealing with the consequences of enacting plain packaging in the WTO, as three countries have formally requested WTO consultations with Australia regarding its plain packaging measure. In fact, on September 28, 2012, the WTO Dispute Settlement Body agreed to establish a panel to hear Ukraine’s complaint against the plain packaging measures taken by Australia. Loss of the WTO cases and other pending international cases could result in annulment of the Australian law and possible payment of compensation by Australia. Of course, Thailand has also been down this road before when the MOPH proposed putting graphic health warnings on alcohol beverages and a number of countries, including Australia, questioned the proposal in the WTO as well.

Trademarks Help Fight Against Counterfeit Goods

Since 2007, Thailand has been placed on the USTR’s Priority Watch List for the world’s most notorious intellectual property violators. Trademark-infringing products are easily seen around the country today. However, identifying counterfeit, smuggled or other illicitly traded tobacco products will become extremely difficult as plain packaging will remove common product markings.

If all packages are identical without security features, Customs will not be able to easily tell a counterfeit from a genuine product. This will also likely increase the ease of infringers to copy such products, which in turn will increase the trade in unlawful products and cause both confusion in the consumer’s mind about which products are genuine and which are not and lead to a reduction in tax income to the government, as illicit products do not pay government taxes.

Overall, Thailand needs to take a pragmatic and practical approach to this issue, rather than simply following one country’s extreme lead or taking directions from ill-informed NGOs. It is important to remember that Australia has a different social, legal and economic make-up to Thailand. As such, Thai authorities will need to ensure any measures they introduce do not end up infringing on the Thai people’s constitutional rights, undermining intellectual property protection in Thailand, violating the country’s international trade obligations or unexpectedly resulting in increased levels of smuggling and counterfeiting of tobacco products into the Kingdom.

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