Tobacco plain packaging and its constitutionality

[NB Written long before the High Court’s decision, which largely confirmed the ideas discussed here] The High Court’s innovation of publishing the parties’ submissions in pending matters on its website is an excellent one.  It allows academics, journalists and others more easily to get a clear idea of the questions in issue in important cases, and to analyse and dissect the parties’ arguments.

This process is especially interesting in the cigarette plain packaging case British American Tobacco Australasia Limited and Ors v. The Commonwealth of Australia.  The consensus of legal academic commentators seems to be that the tobacco companies don’t have much chance of success.  Although that was also my own initial reaction, having now perused the parties’ submissions I don’t necessarily agree.  BATA’s arguments are at least respectable and have some chance of success.

As most readers will be aware, BATA’s case primarily seeks to establish that the Gillard government’s Tobacco Plain Packaging Act 2011 (Cth) breaches Constitution s 51(xxxi) which reads:

The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:

(xxxi)  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 …

The High Court has repeatedly held that the provision is not breached by regulating use of a property right through laws of general application, nor by mere extinguishment of the right without more. The Commonwealth or someone else must acquire a ‘corresponding benefit of commensurate value’ flowing directly from the extinguishment, deprivation or “taking” (as US constitutional jurisprudence calls it) of the plaintiff’s property.  I will return to this point below, but first we need to examine the parties’ respective arguments as to exactly what property rights BATA owns.

What property rights do tobacco companies have?

The frustrating aspect of the plaintiff BATA’s submissions is that its senior counsel Allan Myers QC (no doubt for sound tactical reasons) assumes without much reasoning or analysis that the plaintiff’s trade marks include broad property rights to use those marks on and about their products, rights which have been extinguished by the Tobacco Plain Packaging Act 2011 (Cth).  The plaintiff then argues that the Commonwealth has not just extinguished its rights but has effected an “acquisition” within s 51(xxxi) in that the Commonwealth obtains a “corresponding benefit” through being able to use the packaging space vacated by its prohibition of display of the plaintiff’s trade marks for the Commonwealth’s purposes, namely display of anti-smoking messages, Quitline advertisements and deliberately ugly colour and design intended to deter smoking.

The defendant Commonwealth’s submissions by contrast, via Solicitor-General Stephen Gageler SC and a gaggle cast of supporting senior counsel, deny that the plaintiff has any positive property rights at all to use its trade marks:

Do tobacco companies have property of the nature and amplitude they assert? No.  Their statutory rights to trade marks, patents, registered designs and copyright include no positive right to use and are, in any event, inherently subject to statutory modification or extinguishment without compensation, for the purpose of preventing or reducing harm to the public or public health.

This primary submission on the part of the Commonwealth engages a familiar argument.  The argument springs from the commonsense proposition that not every right granted by statute can sensibly be classified as “property” for constitutional purposes, otherwise the Commonwealth’s legislative powers would effectively be neutered because it would be obliged to pay potentially massive compensation to affected persons every time it amended legislation in a manner that adversely affected anyone’s “rights”.  Hence the Court has developed a distinction between “property rights” and “mere statutory entitlements” as explained by Mason CJ, Deane and Gaudron JJ in Health Insurance Commission v Peverill (1994) 179 CLR 226:

It is significant that the rights that have been terminated or diminished are statutory entitlements to receive payments from consolidated revenue which were not based on antecedent proprietary rights recognised by the general law. Rights of that kind are rights which, as a general rule, are inherently susceptible of variation. That is particularly so in the case of both the nature and quantum of welfare benefits, such as the provision of medicare benefits in respect of medical services.

The Commonwealth appears to concede that the plaintiff has a property right for constitutional purposes being a “statutory assurance of exclusive use of the trade mark; a monopoly right to exclude others from using that mark in relation to the relevant goods and services” but that any positive rights to use trade marks are mere creatures of statute and “inherently susceptible of variation”.  It would be impossible to argue that a trade mark does not confer at least some proprietary rights, because section 21 of the Trade Marks Act 1995 (Cth) expressly provides that a trade mark is personal property (though it does not expressly define the content of these property rights) and section 22 gives a trade mark holder full rights to deal with the mark (including by sale, licence and mortgage or charge).  These are indisputably attributes of property (both in a constitutional and general sense).  Hence Gageler is forced to argue that only the negative monopoly right (to exclude others from use) is property while any positive rights of use are “inherently susceptible of variation”.

However the problem with this argument is that the concept of trade mark is on the face of the Act integrally bound up with the concept of its use in and about products and their packaging. The very concept of a trade mark is as a mark or symbol to differentiate one trader’s products from another, which one would have thought necessarily involves display of that mark on the product or its packaging.  As IP Australia explains:

A trade mark is used to distinguish the goods and services of one trader from those of another.

A trade mark is a right that is granted for a letter, number, word, phrase, sound, smell, shape, logo, picture and/or aspect of packaging.  A registered trade mark is legally enforceable and gives you exclusive rights to commercially use, licence or sell it for the goods and services that it is registered under.

The Commonwealth appears to be arguing that this common understanding of the nature and purpose of a trade mark is simply wrong.  According to the Commonwealth argument, the only exclusive “right” a trade mark confers is the right to prevent others from using it, and therefore the fact that the Tobacco Plain Packaging Act 2011 (Cth) effectively prohibits any meaningful use at all of the tobacco companies’ trade marks on or about their products and packaging is of no constitutional significance whatever.

Apparently there is almost no Australian case law on exactly what proprietary rights are created by a trade mark.  Gageler’s submissions rely on a proposition in a 1962 English decision that “what is created by registration [of a trade mark] is not the proprietor’s right to use the mark but a right to prevent other persons from using it as a trade mark on in certain other specified ways”.  This principle is said to derive from a 1907 UK decision adopted by a single NSW judge in 1931 in Leach v Wyatt (1931) 48 WN (NSW) 173.  It sounds like rather sparse authority for a such a major legal principle (although a number of European precedents apparently to similar effect are also listed). Perhaps the point has not been decisively determined in Australia because it is rare if not unprecedented for a Parliament to interfere so radically with rights of use in a trade mark.

Gageler’s submissions assert that a recent High Court decision in Campomar Sociedad Limited v Nike International Limited (2000) 202 CLR 45 provides tangential support for this proposition, but any such support is oblique at best.  Indeed in some respects the Court’s reasoning appears to contradict Gageler’s principal argument that a trade mark confers only negative monopoly rights.  At [62] (in a rare unanimous joint judgment) the Court observes:

Rather than conferring a “statutory monopoly” in any crude sense, the 1955 Act is an example of the striking of a legislative compromise between various interests, in the manner indicated earlier in these reasons.

In turn those earlier observations about the various interests accommodated by modern Australian trade marks legislation are at [42]:

Further, the Australian legislation has manifested from time to time a varying accommodation of commercial and the consuming public’s interests. There is the interest of consumers in recognising a trade mark as a badge of origin of goods or services and in avoiding deception or confusion as to that origin. There is the interest of traders, both in protecting their goodwill through the creation of a statutory species of property protected by the action against infringement, and in turning this property to valuable account by licensing or assignment. The provisions of the 1955 Act with respect to defensive registrations and certification marks were recognitions that the interests of the owners of registered trade marks may go beyond that of indicating trade origin.

This passage does not negate the possibility that trade mark registration confers no positive right of use, but nor does it provide support for it.  Moreover, Their Honours also observe that over the last century “the species of trade marks themselves have developed from one statute to the next”.  Accordingly, a proposition that may have held true in 1907 will not necessarily be held applicable to the Trade Marks Act 1995 (Cth).

If anything, a plausible argument can be mounted that the scheme of the Act itself does integrally involve the concept of use.  Section 17 defines a trade mark as “a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person”.  Section 20(1) confers on the holder of a registered trade mark the exclusive rights “to use the trade mark” and “to authorise other persons to use the trade mark”.  Section 7(4) defines “use of a trade mark in relation to goods”  as “use of the trade mark upon, or in physical or other relation to, the goods (including second-hand goods)” while Part 9 of the Act contains a detailed regime for removal of a trade mark from the Register for extended non-use for any reason.

Gageler’s argument appears to rest principally on the proposition that section 42 requires an application for registration of a trade mark to be rejected if “its use would be contrary to law”. This, Gageler argues, shows that positive rights of use in a trade mark are not conferred by the Trade Marks Act 1995 (Cth) in that they can be diminished or extinguished by other laws both Commonwealth and State.  However this appears to conflate considerations relevant to the creation of a trade mark with the question of whether once created it is a proprietary right for constitutional purposes.

Note that I am not arguing here that the Commonwealth cannot regulate use of a trade mark once it is created, any more than one would argue that an estate in fee simple in land cannot be subject to regulation of its user. Rights grounded in statute may be proprietary for constitutional purposes notwithstanding that to a significant extent the conditions and extent of their user may be subject to valid regulation.  By contrast, Gageler’s submissions seem to rest on an implicit assumption that the fact that user can be regulated is decisive against the proposition that those rights of user may nevertheless be proprietary in nature.  In fact the preferable view of the approach to ascertaining whether particular statutory rights are proprietary in a constitutional sense is that it is a multi-factorial analysis. One may make a plausible argument from analyis of the provisions of the Act that a trade mark does confer positive proprietary rights of user notwithstanding that those rights are subject to regulation and restriction within broad but not limitless boundaries (see below).

Has there been an “acquisition” of property in tobacco trade marks?

Assuming for present purposes that tobacco companies’ proprietary rights in their trade marks do include a right of user (albeit subject to regulation), has that right been “acquired” by the Tobacco Plain Packaging Act 2011 (Cth)?

Perhaps the quite negative evaluations of most academic commentators may have been influenced by the fact that even the most venerable form of property right, an estate in fee simple in land, is subject to regulation of rights of user which may effect quite marked restrictions.  As Heydon J noted in ICM Agriculture Pty Ltd v The Commonwealth (2009) 240 CLR 140: “In any event, a change in zoning laws normally [my emphasis] effects no acquisition.”

However that word “normally” suggests that there may be extreme examples of zoning laws which remove rights of user so completely as to amount to an acquisition (or at least an extinguishment) of property.  In the Tasmanian Dams Case (1983) 158 CLR 1, Mason J (as he then was) cited with approval US authority as to when regulatory action might amount to a “taking” or extinquishment of property (albeit noting that Australia’s Constitution required not just “taking” but also “acquisition” of property before the “just terms” guarantee would be engaged):

The proposition, supported by the judgments of Holmes J. and Brandeis J., in Pennsylvania Coal Co. v. Mahon, is that a restriction on the use of property deprives the owner of some right previously enjoyed and is therefore an abridgment of rights in property without making compensation. The consequence is that if the regulation of property goes too far it is a “taking”. Corpus Juris Secundum (1965), vol.29a, “Eminent Domain” §6 states:

There is no set formula to determine where regulation ends and taking begins; so, the question depends on the particular facts and the necessities of each case, and the court must consider the extent of the public interest to be protected and the extent of regulation essential to protect that interest.

Mason J ultimately held that the Commonwealth legislation in that case did not go “too far” in restricting user even though, as he noted, the practical effect of the impugned provisions was “to prevent any development of the property in question, subject to the Minister’s consent, so as to preserve its character as a wilderness area”.  Nevertheless, the owner’s proprietary rights could still be enjoyed to a significant extent, not only through excluding others from possession but by actively enjoying rights of occupation for recreational, scientific and environmental purposes. The Commonwealth legislation even permitted improvements to be contructed as long as they did not threaten the land’s world heritage environmental values as a dam manifestly would have.

By contrast, one may argue that a complete prohibition on user of a trade mark on or in connection with the product and its packaging, coming on top of antecedent prohibitions on just about all forms of print and electronic advertising of the product, does go “too far”.  Such a law leaves no meaningful aspect of the property right remaining for an owner to enjoy.  Indeed in some respects even if one were to accept the Commonwealth’s constipated version of the extent of the property right (a mere negative monopoly), one might still argue that the law goes “too far”. What value, practical utility or meaningful reality does a monopoly right to exclude others from using a trade mark possess if neither you nor they have any capacity whatever to use it anyway?  Nevertheless Mason J’s approach still requires a quantifiable “corresponding benefit” to the Commonwealth or some other person flowing from the taking of property before an extinguishment will be turned into an acquisition.

Deane J went even further than Mason J in Tasmanian Dams, citing with approval and then adopting and applying the following remarks of Stephen J from Trade Practices Commission v Tooth & Co. Ltd (1979) 142 CLR 397, 414-415:

On the one hand, many measures which in one way or another impair an owner’s exercise of his proprietary rights will involve no “acquisition” such as pl. (xxxi) speaks of. On the other hand, far-reaching restrictions upon the use of property may in appropriate circumstances be seen to involve such an acquisition. That the American experience should provide guidance in this area is testimony to the universality of the problem sooner or later encountered wherever constitutional regulation of compulsory acquisition is sought to be applied to restraints, short of actual acquisition, imposed upon the free enjoyment of proprietary rights. In each case the particular circumstances must be ascertained and weighed and, as in all questions of degree, it will be idle to seek to draw precise lines in advance.

Deane J proceeds to give a hypothetical example of a law regulating user to such an extreme extent as to amount to an acquisition:

Thus, if the Parliament were to make a law prohibiting any presence upon land within a radius of 1 kilometre of any point on the boundary of a particular defence establishment and thereby obtain the benefit of a buffer zone, there would, in my view, be an effective confiscation or acquisition of the benefit of use of the land in its unoccupied state notwithstanding that neither the owner nor the Commonwealth possessed any right to go upon or actively to use the land affected.

Deane J’s approach significantly de-emphasises but probably does not completely remove the need for a “corresponding benefit” flowing from the taking of property to turn it into an acquisition.  It appears that the “benefit” does not have to be especially large or quantifiable if the interference with property rights is sufficiently extreme or complete.

Tom Allen (2000) asserts that Deane J’s approach has at least arguably been subsequently accepted by the Court as a whole, citing cases  including Georgiadis, Mewett and Mutual Pools.  Allen summarises Deane J’s approach as follow:

By contrast, Deane J maintained that the imposition of an absolute prohibition on development should be treated as an acquisition of property, even though the Commonwealth had not acquired a ‘material benefit of a proprietary nature’.” He said that section 51(xxxi) should not be limited to those situations that would be characterised as acquisitions of property in private law; a restriction on the exercise of property rights may amount to an acquisition of property under section 51 (xxxi) if its effect ‘is to confer upon the Commonwealth or another an identifiable and measurable advantage or is akin to applying the property, either totally or partially, for a purpose of the Commonwealth’. In his view, both the purpose and the impact of a restriction are important: if the restriction is intended merely to adjust competing interests in resources, it is likely that section 51(xxxi) is not involved. Similarly, if the impact is slight, section 51(xxxi) does not apply.

Again, applying Deane J’s principles to the Tobacco Plain Packaging Act 2011 (Cth) might well result in a conclusion that it “goes too far”, although whether one can identify a sufficient “corresponding benefit” or “measurable advantage” to the Commonwealth or anyone else even on Deane J’s relaxed standard is less certain.

Lastly on this point, Gaudron J made the following rather peculiar observations in Commonwealth v WMC Resources Ltd (1998) 194 CLR 1, 35-36:

If a law modifies or extinguishes a statutory right which has no basis in the general law in circumstances in which some person obtains some consequential advantage or benefit in relation to property, that law may and, ordinarily, will effect an acquisition. And there may and, ordinarily, will be an acquisition if a law operates to transfer a right to some other person, even though the right has no basis in the general law and is inherently susceptible of modification or extinguishment. So, too, there may and, ordinarily, will be an acquisition if a law extinguishes a right of that kind (particularly a monopoly right) and vests a similar right or a right with respect to the same subject matter in some other person. In cases of that kind, there is something more than the mere modification or extinguishment of a right that is inherently susceptible to that course; the law also operates to confer a benefit.

Gaudron J’s observation rather obviously and indeed confusingly blurs the distinction between proprietary and inherently defeasible statutory rights, but nevertheless its application might also result in the Tobacco Plain Packaging Act 2011 (Cth) being held to be an extinguishment of property rights.  Moreover, Gaudron J’s approach might even result in its being held to be an acquisition. A “similar right or a right with respect to the same subject matter” is arguably vested in the Commonwealth by the legislation, namely the right to determine the  design, get-up and messages contained on cigarette packaging.

Does the Commonwealth or some other person obtain a sufficient “corresponding benefit” for there to be an acquisition?

This may be the weakest part of BATA’ s case.  Here are several of the features of the Commonwealth scheme that BATA argues constitute sufficient “corresponding benefits” as to turn what would otherwise be a “mere extinguishment” into an “acquisition” of property:

Secondly, the prohibition on the use of the plaintiffs’ intellectual property is coupled with positive requirements as to the physical appearance of the plaintiffs’ cigarette packets (including as to shape, size, colour, content of written messages, and font and size of written messages). The benefit of the prohibition on the use of the plaintiffs’ intellectual property is thus a critical aspect of a scheme whereby the Commonwealth has reserved to itself the right to dictate every aspect of the appearance of BAT’s cigarette packets. It is thus not a “bare” prohibition on use, but a prohibition enabling the Commonwealth to impose its own design, labelling and get-up on BAT’s cigarettes and their packets.

Fourthly, and connected with the third benefit, certain of the messages required to be printed on the plaintiffs’ cigarette packets advertise a service operated by various entities called “Quitline”. The increased prominence of that advertising by reason of the prohibition on use of the plaintiffs’ intellectual property confers a benefit on both the Co=onwealth and the Quitline service providers.

Sixthly, and generally, the prohibition on use is said by the Commonwealth to enable to Commonwealth to achieve particular objectives of its own. That is to say, the Commonwealth has acquired the right of the plaintiffs, as owners of the intellectual property in question, not to use their property in order to achieve the Commonwealth’s own ends. Those objectives and ends are at least partly set out in s 3 of the Act, and the attempt to achieve them by prohibiting the use of certain intellectual property is a direct benefit to the Commonwealth.

The contrary argument is that these are not “benefits” of the sort contemplated by the case law on Constitution s 51(xxxi) but rather the specific incidents of general regulation in the public interest that the case law is careful to distinguish from a “corresponding benefit”.  The sorts of benefits the High Court (with the possible exceptions of Deane and Gaudron JJ) sees as “corresponding benefits” are quantifiable for a start e.g. there is an obvious actual or potential dollar value to the Commonwealth extinguishing a debt (Mutual Pools), cause of action in tort (Georgiadis, Mewett) or a mining lease (Newcrest). Moreover, if it were accepted that the sort of diffuse general public benefits described in the BATA submissions satisfied the High Court’s requirement for a “corresponding benefit” flowing from an extinguishment of property rights, then the Australian approach to Constitution s 51(xxxi) would be essentially indistinguishable from the US Supreme Court’s approach to the “takings clause”.  Almost by definition any legislation involves a putative public benefit and could potentially be described in terms not dissimilar to those in BATA’s submissions.  It is unlikely that the High Court would countenance such an approach.

Nevertheless, it isn’t possible to conclude that these BATA arguments are without any prospect of success.  As I remarked at the outset, it seems to me that BATA’s case is quite a reasonable one (legally as opposed to morally), although on balance I still expect that it will more than likely fail.

**Image authorised for reuse.

4 thoughts on “Tobacco plain packaging and its constitutionality”

  1. Hi there Ken,

    I was disappointed that more of the Court didn’t fully engage with the issue of the acquisition of statutory property rights in Phonographic v Cth recently. Do you think the judgement shed any light on the potential outcome for BATA?

  2. Hi M
    I don’t think Phonographic v Cth throws much if any light on prospects in the BATA litigation. As tweeting barrister @under_exposed explained
    at his blog

    In Phonographic Performance Company of Australia Ltd v Commonwealth the High Court unanimously (although in three separate judgments) held that there was no relevant acquisition of property. The Court held that the effect of the Copyright Act 1968 was to terminate the copyrights subsisting as at 1 May 1969 under the Imperial Act, and to bring into effect a new copyright. There was no challenge based upon the termination of the copyrights under the Imperial Act. To that new copyright in respect of sound records there was immediately attached the compulsory statutory licensing system, including the cap upon the royalties payable thereunder. There was therefore no diminution in those rights; they were always subject to the licensing system.

    I suspect that if they HAD challenged the validity of termination of the old copyrights by the Copyright Act 1968, it would have been found to be an “adjustment of rights” between competing interests (Blank Tapes case) and therefore outside the scope of the just terms requirement. However it would be difficult to characterise the plain packaging legislation as an adjustment of competing rights. As I argue above, I think BATA will lose on the basis that, even if their property rights are extinguished, there is no corresponding benefit to the Cth or anyone else such as to make it an “acquisition”. Anyway we’ll have a better idea after next week. I think it’s on for hearing starting Tuesday. I’ll be reading the transcript with interest.

  3. It seems reasonable to presume that the central deciding factor will be whether the Cth is deemed to be receiving a benefit from suspending the property rights of BATA. Clearly they are not in the simple sense – eg as would be the case if they suspended BATA’s rights in order to use the trademarks themselves.

    However, arguably of course that is exactly what they are seeking to do – receive a huge financial benefit. Apart from the morality issue of reducing smoking for the benefit of public health, there is a huge financial benefit to the Cth if smoking-related diseases were to be reduced because of reduced healthcare costs.

    Unfortunately for BATA, I don’t think that’s an argument they would be looking to run.

    Even if they did, I suppose Cth would counter-argue that they were actually obtaining a negative direct benefit owing to reduced taxation receipts.

  4. This was a really interesting paper. The Government imposing their own trademark (shock advertising and Quitline information) on a private company’s product is a possible benefit they are acquiring. The acquisition may be the advertising space on the product, not the trademark itself.
    If the requirement was purely for plain packaging, that may be more just regulation of the use of trademark.

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