Introduction
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| Image courtesy of xoxoryan |
The case concerned separate challenges by JT International SA (JTI) and British American Tobacco Australasia Limited (BAT Australasia) to the Tobacco Plain Packaging Act 2011 (Cth), which were heard at first instance by Gummow J in the original jurisdiction of the High Court. The joint case came before the Full Court of the High Court on several reserved questions.
The first challenge was brought by JTI, a Swiss-based company that manufactures cigarettes under brands including Camel and Old Holborn, and the second challenge by three related plaintiffs, BAT Australasia (incorporated in Australia), British American Tobacco (Investments) Limited (incorporated in England and Wales), and British American Tobacco Australia Limited (collectively, BAT). BAT imports, sells and distributes cigarettes under the brand names Winfield and Dunhill.
Phillip Morris Ltd, Van Nelle Tabak Nederland BV and Imperial Tobacco Australia Ltd intervened in the BAT matter in support of the plaintiffs. The Northern Territory and the ACT intervened for the Commonwealth.
Although the parties each raised several arguments, the essential question under consideration was a simple one: had the Commonwealth, by imposing restrictions on the design of the plaintiff's tobacco product packaging, acquired the plaintiffs' intellectual property (including their trade marks, patents, and get up and associated goodwill) otherwise than on just terms contrary to the Constitution? Six of the seven judges found that this was not the case.
Legal framework
The TPP Act places restrictions and requirements on the packaging and appearance of tobacco products. Notably, the colour, size and shape of tobacco product packaging are now prescribed, and packaging embellishment is prohibited. The Tobacco Plain Packaging Regulations also place restrictions on the use of trade marks or other signs so that, in effect, the only permitted distinguishing elements on tobacco product packaging is the use of a brand or business name, which must be in small plain font against the prescribed drab brown colour.
The TPP Act creates offences (with attached criminal and civil penalties) for various actions, including selling or supplying tobacco products in non-conforming retail packaging, purchasing such products otherwise than for personal use, packaging them for retail use, manufacturing non-compliant retail packaging and manufacturing tobacco products packaged non-compliantly.
In addition, for tobacco products supplied after 30 November 2012, the Competition and Consumer (Tobacco) Information Standard 2011, made under the Competition and Consumer Act 2010 (Cth) will require at least 75 percent of the front, and 90 percent of the back, of tobacco packaging to be covered by a prescribed graphic health warning, including the Quitline logo and phone number. The validity of the 2011 regulations was not, however, contested. What was challenged in this case was the use of the remaining space on the front of the packet – which was affected by the TPP Act.
The plaintiffs did not dispute that the Commonwealth had power to enact the TPP Act. The constitutional question arose because section 15(1) of the TPP Act states that the TPP Act does not apply to the extent (if any) that its operation would result in an acquisition of property from a person otherwise than on just terms; and section 15(2) states that if, apart from section 15, the TPP Act would result in an acquisition of property otherwise than on just terms, because it would prevent the use of a trade mark or sign on the tobacco packaging, then the trade mark or sign may be so used.
Section 15(2) gave rise to a challenge on the basis of section 51(xxxi) of the Constitution, which gives the Commonwealth government the power to acquire property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws. While on the face of it this is a power granted to the Commonwealth and not a provision directed at protecting the rights of property owners, section 51(xxxi) has always been interpreted as having a two-fold operation that also gives property owners grounds on which to challenge an acquisition of property that is otherwise than on just terms.
The central question was therefore whether the plaintiffs' intellectual property, goodwill and rights to determine the appearance of cigarette packets constituted 'property' for the purposes of section 51(xxxi) and, if this was the case, whether the effect of the TPP Act was that the Commonwealth (or anyone else) acquired that property otherwise than on just terms.
History of control of tobacco advertising
The TPP Act augments existing legislative control of tobacco product advertising, placing additional restrictions on the remaining areas of cigarette packaging on which tobacco companies could advertise.
In her decision, Kiefel J pointed out that regulation of tobacco product advertising began in the early 1970s, when the Commonwealth required every television or radio cigarette advertisement to be followed by a warning that smoking is a health hazard. All broadcast advertisement of tobacco products was subsequently prohibited in 1976. The states and territories also began regulating in relation to tobacco products in 1973, by requiring cigarette packets to be labelled with a health warning. In 1987, the existing warning requirements were replaced with new legislation requiring products to be labelled with four 'rotating' warnings. In 1990s the Commonwealth government went further again, banning print media advertising of tobacco products and placing prohibitions and restrictions on the promotion of retail products at the point of sale.
From 1994, cigarette packages were also required to contain a warning message (the size, position and orientation of which were prescribed) followed by the words 'Government Health Warning'. More recently again, in 2004, a more stringent regime was introduced under the Trade Practices (Consumer Product Information Standards) (Tobacco) Regulations 2004 (Cth) which required at least 30 percent of the front and 90 percent of the back of a cigarette packets to be labelled with a warning message accompanied by graphic images of conditions caused by smoking, along with a corresponding explanatory message and the Quitline logo and number.
The arguments
BAT's main allegation was that the TPP Act would, but for section 15, result in an acquisition of its intellectual property otherwise than on just terms and that, by reason of section 15, the provisions of the TPP Act had no application to its products and packaging. It claimed that a number of categories of its property rights had been affected, including trade marks and unregistered marks consisting of the words, get-up and colours used on Winfield cigarette packaging; literary and artistic works found in the text and colour of Winfield cigarette packs; and a registered design related to the features, shape and configuration of a ribbed cigarette pack.
BAT also claimed the TPP Act affected two registered patents for a method of sealing cigarette packets and increasing the internal surface area used for printing information or graphics. It also claimed that several other categories of its intellectual property rights were affected, including trade dress and get-up for tobacco products and reputation and goodwill arising from the use of its trademarks, copyright and get-up.
JTI asserted that its rights in its trade marks and their associated get-up were property for the purposes of section 51(xxxi) of the Constitution and sought declaratory relief that the TPP Act was invalid in its effect on the JTI registered trademarks, and because of its unjustified effects on JTI's common law rights in the get-up of its products.
All plaintiffs later changed their focus asserting that what the Commonwealth had acquired was the space on the packaging.
The Commonwealth also put forward several arguments, at the broadest contending that the public health aims of the TPP Act, to reduce the appeal of tobacco products and increase the effectiveness of health warnings, effectively justified the means used. It also asserted that the intellectual property rights affected were not 'property' for the purposes of section 51(xxxi) because they were inherently susceptible to modification or extinguishment in the interests of public health.
A further submission by the Commonwealth was that, as the intellectual property rights in question (such as trade marks and copyright) are negative in nature, in that they grant an assurance of exclusive use rather than a positive right of use, restricting their use did not take away from them. According to this argument, there had been no 'taking' of property by operation of the TPP Act.
In terms of the specific categories of rights, the Commonwealth argued that as there was no total prohibition on the use of trade marks (as they could still be used in communications and on wholesale packaging), the imposition of restrictions took nothing from the rights and interests granted to the registered owner, and, that there was no property in the goodwill generated by the products' get-up as this was simply the product of the plaintiffs' freedom to trade – a right that is not protected by s 51(xxxi).
Decision
The High Court unanimously found that trade marks and goodwill can constitute a proprietary interest. The issue was therefore whether the requirements of the TPP Act amounted to an 'acquisition' of the plaintiffs' property and, if so, whether this was otherwise than on just terms.
The majority held that the TPP Act sufficiently affected the various intellectual property rights of the plaintiffs to amount to a 'taking' of that property. As Gummow J put it, the TPP Act effectively deprived the trade marks of all of their value and use. The effect on the BAT copyrights, patent and design was even worse, as the artistic works, registered design for the ribbed package and the patented sealing method can no longer be used at all.
A number of the judges, however, relied on the following passage of Mason J in the The Commonwealth v Tasmania (The Tasmanian Dam Case) (1983) 158 CLR 1, in concluding that there had not been any acquisition of a proprietary interest by the Commonwealth, which is the central concern of section 51(xxxi):
Gummow J focused on the rights given to registered trade mark owners to assign their marks with or without goodwill and to license others to use them. He held that, contrary to JTI's arguments, the fact that the Commonwealth was fulfilling treaty obligations, and that the Quitline logo might attain further goodwill, did not give the Commonwealth any proprietary benefit. Likewise, the fact that the Commonwealth gained the ability to 'control' the exploitation of the trade marks was not a proprietary interest. He held that the legislation was regulatory, not proprietary in nature, and section 51(xxxi) does not protect the commercial and economic position of traders. Nor does the Trade Marks Act confer any rights on registered owners to be free from restraints found in other legislation.To bring the constitutional provision into play it is not enough that legislation adversely affects or terminates a pre-existing right that an owner enjoys in relation to his property; there must be an acquisition whereby the Commonwealth or another acquires an interest in property, however slight or insubstantial it may be. [emphasis added]
French CJ likewise held that while there had been an extinguishment or restriction of the plaintiffs' statutory exclusive rights, this, without more, did not constitute an acquisition for the purpose of section 51(xxxi). He agreed that the Commonwealth had accrued no benefit of a proprietary nature. According to French CJ, the TPP Act was a judgment of Parliament that the public benefits of the legislation outweighed the intellectual property rights of the plaintiffs.
In a joint judgment, Heyne and Bell JJ agreed with Gummow J that there had been no acquisition, and did not did not think it was necessary to decide whether there had been a 'taking'. While they found that the plaintiffs had lost the ability to exploit their packaging, and noted that, under section 51(xxxi), 'acquisition' and 'property' are to be construed liberally, they held that what the TPP Act gave the Commonwealth was the right to require that certain things be done on the packaging, which was no different from any legislation requiring health warnings to be placed on a product. Control does not amount to a proprietary interest and a liberal interpretation cannot stretch to construing any benefit or advantage as property.
Crennan J also found that the plaintiffs' intellectual property rights were property capable of attracting the requirement of just terms. She held, however that an essential feature of the plaintiffs' trade marks, for the purposes of distinguishing their products from those of their competitors, was brand name. As such, the plaintiffs' argument that they were deprived of the 'substance' or 'reality' of their property ownership (because they could not use their registered trade marks and associated get up) failed because it did not take into account their continued ability to use their brand names. Crennan J held that even if the effect of the TPP is to reduce the sales volume or the value of intellectual property rights, the purpose of section 51(xxxi) is not to preserve the value of property or commercial business.
Kiefel J likewise found there had been no acquisition, on the basis that ownership of the trade marks and other IP rights remains with the plaintiffs, even if it is subject to great restrictions on use. As she put it: 'The loss of trade or business does not spell acquisition'. According to Her Honour, the control the Commonwealth acquired over the physical space on the packaging only gave it the advantage of pursuing its statutory objectives. She rejected the suggestion that the Commonwealth had been saved the cost of acquiring space for its own advertising and the argument that Quitline benefited in a proprietary way from the provisions of the TPP Act. Even if the TPP led to greater advertising and use of Quitline this would only achieve the TPP's stated aim to improve public health.
In his dissenting judgment, Heydon J found that the real purpose of the legislation, even if motivated by desire to improve public health, was to avoid paying compensation to those whose rights were affected.
He therefore held that the effect of the legislation on trademarks is that owners cannot use their trade marks on cigarette packets or cigarettes, which (as this was the last place left for tobacco companies to advertise) meant they had lost the exclusive right to use their trade marks. Heydon J found that the TPP Act accordingly 'deprives the proprietors of their statutory and common law intellectual property rights and their rights to use the surfaces of their own chattels. It gives new, related rights to the Commonwealth. One is the right to command how what survived of the intellectual property… should be used. Another is the right to command how the surfaces of the proprietors' chattels should be employed.'
He therefore held that the effect of the legislation on trademarks is that owners cannot use their trade marks on cigarette packets or cigarettes, which (as this was the last place left for tobacco companies to advertise) meant they had lost the exclusive right to use their trade marks. Heydon J found that the TPP Act accordingly 'deprives the proprietors of their statutory and common law intellectual property rights and their rights to use the surfaces of their own chattels. It gives new, related rights to the Commonwealth. One is the right to command how what survived of the intellectual property… should be used. Another is the right to command how the surfaces of the proprietors' chattels should be employed.'
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