After two decades on the basketball court, Michael Jordan, one the greatest basketball players of all time, is currently learning the rules of defence and offence in a different game: the Chinese legal system. Qiaodan Sports Company Limited ("Qiaodan Sports"), a Chinese sportswear company, are throwing their legal dispute with him back into his court.

Michael Jordan's fame in China is long-standing. He was first seen on Chinese television playing for the 1984 gold medal-winning US basketball team at the Los Angeles Olympics. Since then, he has become hugely famous in China, both under his English name but also under his Chinese name "乔丹" which is the Chinese equivalent of the name "Jordan". This Chinese name is shown in pinyin, the official system which is used to transcribe Chinese characters into Latin script, as "Qiaodan". Whilst Michael Jordan registered trademarks for "Jordan" in English in China as far back as 1993, he never applied for any registered trademarks for "乔丹" nor for the pinyin representation "Qiaodan".

In November 2011, Qiaodan Sports won approval from the China Security Regulatory Commission for an IPO of 112.5 million shares to raise about RMB 1.1 billion (approximately USD 178 million). On 21 February 2012, just as Qiaodan Sports were set to debut on the stock market, Michael Jordan cried foul and commenced proceedings against Qiaodan Sports for the unauthorized use of his name at Shanghai No. 2 People’s Intermediate Court. He claimed that Qiaodan Sports were illegally using his Chinese name and his jersey number 23 on their products without his permission. Since Michael Jordan has never registered any trademarks for his Chinese name, his claim is based on the grounds that Qiaodan Sports' use of his Chinese name was in breach of his rights in his Chinese name. He demanded that Qiaodan Sports stop using the name and the trademarks and requested compensation.

Whilst Chinese law generally protects parties who hold registrations and who file early for them, this does not mean that it is open season to register the names of famous people, even if they do not have registered trademarks. Specifically, Chinese law protects the right of personal name under Article 99 of民法通则 (General Principle of Civil Law) and prohibits infringement of the naming rights of individuals under Article 2 of侵权责任法 (Torts Liabilities Law). These principles are also reflected in Article 31 of 商标法 (Trademark Law) which provides that an individual's name rights shall be protected as a prior legitimate right.

In its defence, Qiaodan Sports contended that the Chinese name "乔丹" and its pinyin representation "Qiaodan" were only a translation of the English word "Jordan" and that they were not Michael Jordan's real name or full name. It noted that there were about 4,600 Chinese citizens with the name "Qiaodan" and even more foreigners that have translated their names to "Qiaodan". As such, it argued that "乔丹" and "Qiaodan" should not belong exclusively to Michael Jordan.

These proceedings were brought following recent decisions by the Chinese courts in favour of protecting the naming rights of other well-known basketball players such as Yao Ming in 2011 and Yi Jianlian in 2010. A Chinese court ruled for former NBA player, Yao Ming, who challenged Wuhan Yunhe Sharks Sportswear Company for using his name and the logo "Yao Ming Era" on its products. The company was forced to stop using the name and to pay RMB 300,000 (approximatedly USD $48,600) in damages. Another NBA player, Yi Jianlian, won against Fujian Yi Jianlian Sport Goods Company at a Chinese court which held that an individual's name right should be recognized as a prior right.

To slam dunk his naming rights claim, Michael Jordan needs to establish that:

1. he is a famous public figure and his fame under his Chinese name preceded Qiaodan Sports' trademarks;

2. Qiaodan Sports has acted in bad faith by intentionally using his Chinese name or other personal attributes without his permission; and

3. the use of his Chinese name or other personal attributes has injured him by causing confusion among consumers who misguidedly associate Qiaodan Sports or their products with him.

The Shanghai court accepted this case on 1 March 2012, and there has not yet been any verdict so far.

In an interesting twist to this case, on 26 March 2013, Qiaodan Sports threw the ball back into Michael Jordan's court and countersued him for an apology and damages at the Quanzhou City Intermediate People’s Court in Fujian, alleging that the above lawsuit has tarnished its reputation and thwarted its plan for an IPO on the Shanghai stock exchange. The Fujian court accepted the case on 2 April 2013.

Many sports companies in China have been looking to capitalize on the sudden popularity of NBA surprise standout, Jeremy Lin, by selling jerseys and t-shirts bearing his Chinese name, Lin Shuhao, or his English name. The Financial and Economic Committee of the National People's Congress recognises that there are many businesses who register the names of celebrities as trademarks, affecting the rights and reputation of these celebrities and public interests. Therefore, they have already made recommendations to the Legislative Affairs Office of the State Council for amendment to 商标法 (Trademark Law) in order to give additional protection to the naming rights of individuals.

Regardless of whether these recommendations are adopted, it is clear that a foreign celebrity should not assume that his or her name rights necessarily extend to Chinese equivalents of a celebrity's name, such as "乔丹" or the pinyin representation of the celebrity's name such as "Qiaodan". The primary lesson of these cases is that, as well as registering their name in Latin characters, celebrities should, at an early stage, invest time and money in registering the Chinese equivalent of their name in order to avoid third parties in China from registering it before they do.

Unlike many countries, it is not possible to register trademarks for retail services in China. This position has recently changed with the implementation on January 1, 2013 of the revised Chinese Trademark Office (CTMO) trademark classification which now recognizes retail and wholesale services, albeit in a limited way. The CTMO’s revised classification now recognizes seven new items of services in Class 3509 covering "retail and wholesale services for pharmaceutical, veterinary and hygienic preparations and goods for pharmaceutical purposes.” These new service specifications will protect the sale of pharmaceutical, veterinary, and hygienic preparations across all points of sale, including traditional "brick and mortar" stores as well as online retailers.

Brand owners who wish to take advantage of this change may now file trademark applications for retail services of pharmaceutical, veterinary, and hygienic preparation goods. However, during an initial period from January 1 to 31, 2013 only those applicants who can provide a copy of their business license or certificate of incorporation which shows that the scope of operation of their business is consistent with retail services for these goods can file applications for the new services. Beginning February 1, 2013, these requirements will no longer apply. Brand owners in the pharmaceutical, veterinary, household or personal care industries seeking to minimize the risk of a third party registering their trademark for the new services may wish to file during the initial period or as soon as possible thereafter.

For more information, please contact Ed Chatterton at Edward.Chatterton@dlapiper.com.

This interview was originally posted at BRRMedia. For a full transcript of the interview, please click here.

First four runners in the 2012 Melbourne Cup. Credit: Ian Currie

Horse racing in Australia is big business. The Melbourne Cup (the "race that stops the nation") is one of the richest horse-racing events in the world, and up to AUD$781.7 million is expected to have been spent by the public on the big day this year. Recent amendments to the Australian Rules of Racing (Rules), however, restrict the ability of horse owners to exploit the intellectual property associated with their horses. The Australian Racing Board (ARB) ratified the proposed amendments, inserting a new Article 18A into the Rules which came into effect from 1 October 2012.

"each owner… undertakes not to apply, or to authorise any other person to apply, to register the name, image, jockey silks or any other indicia associated with the horse as a trade mark…"

Makybe Diva winning the Melbourne Cup in 2005; (Credit: Getty Images)

Owners of famous horses such as Makybe Diva and Black Caviar have registered trade marks which cover a wide range of goods and services. This has allowed the owners of the horses to exploit the intellectual property in the name and image of the horse, and to defend their rights from infringement thanks to the protection offered by registration. In that regard, the value of commercialising the trade mark can be very high, particularly where the horses are well-known.

Black Caviar merchandise for sale by the owners of the racehorse; (Credit: blackcaviarshop.com.au)

By prohibiting owners from registering trade marks in relation to the name/ image/ colours of the horse, the ARB is removing any ability for the owners to protect the name/ image/ colours of their horse from being used by others. Even if the Registrar itself applies for the trade mark, the horse owner will not legally be able to pursue anyone who infringes the mark. There is no requirement in the Rules for the Registrar or the ARB to protect or defend the intellectual property of the horses that it registers.

IMPACT

The amendments will greatly reduce the ability for owners of racehorses to protect and commercialise the intellectual property associated with their racehorses. The Registrar has a monopoly over horseracing in Australia. Article 14 of the Rules states that:

"No horse if in Australia shall be entered for and no horse shall run in any race or official trial unless it has been registered with the Registrar of Racehorses…"

If owners breach the new rules, the Registrar may refuse or cancel the registration of the horse.

It would appear that owners of racehorses have no option but to comply with the new amendments to the Rules. The profitability of owning a well-known horse is likely to be impacted, as owners will not be able to maximise the benefits of properly commercialising the intellectual property associated with the horse.  For instance, horse owners will not be able to sell the rights to produce products that indicate an association with the horse to a distributer or manufacturer of goods. The potential impact of the rules goes further - unless the Registrar takes it upon itself to protect the unauthorised use of the name/ image/ colours of a horse by registering the relevant trade marks and pursuing people who infringe upon those trade marks, the value of any intellectual property with respect to the horse will be dramatically reduced and may even be lost. This may seriously affect the value of race horses and could impact the future of the racing industry in Australia.

The Conference consisted of sessions on alternative fee arrangements, business development, diversity and pro bono projects, social media brand building, and team building. Of course, the highlights of the Conference were the very humorous group commercials on the DLA Piper IPT brand and the entertaining Karaoke night. We look forward to next year’s Conference!

In an exciting development for the international trademark field, the Thai Parliament has issued its approval to move forward with Thailand’s proposed admission to the Madrid Protocol. The Thai Parliament must now amend its trademark laws to conform with the Madrid Protocol. Thailand’s Trademark Office has drafted these amendments which are currently under review. Upon completion of the review period, these revisions must be approved by the legislature. This revision and approval process will take approximately six months.

Thailand is Southeast Asia’s second largest economy after Indonesia. Analysts predict the Thai economy will grow by 5.5-6.0 percent in 2012. This growth, combined with the proximate availability of the efficient Madrid Protocol system, makes Thailand an even more attractive destination to brand owners considering expansion.

Thailand has set a goal of 2015 to obtain full membership to the Madrid Protocol, though this parliamentary approval indicates Thailand may be a member as soon as 2014.

Does the availability of Madrid Protocol protection affect your brand’s international expansion plans? Do you currently own a national trademark registration in Thailand?

Members of our DC Trademark Group, Tom Zutic, Eunice Chung, Greg Esau and Maria Updegrove, met with Kosuke Takahashi, a researcher from the Institute of Intellectual Property (IIP) based in Tokyo.  The IIP was commissioned by the Japanese Patent and Trademark Office to conduct research on how to encourage trademark filing into Japan via the Madrid Protocol.  Our team shared feedback, based on its extensive experience using the Madrid Protocol system, as well as the JPO itself, on how to make the system and process more user-friendly.

Introduction

It is not difficult to understand why China is viewed by businesses around the world as an indispensable market. Its size alone is staggering (1.3 billion people). Its purchasing power is equally impressive (on a purchasing power parity basis, it is already the second largest economy in the world).

What attracts most prospective sellers of goods and services, of course, is China’s astonishing growth rate.  Even during the recession which has plagued the rest of the world China has continued its remarkable trajectory, with retail spending increasing steadily by 15 percent and more.

For franchisors, there are some aspects of China which make it especially attractive. The size of the middle class, while smaller as a percentage of the population than in some other countries, is a powerful magnet; within a generation it will be roughly 4 times the size of America’s, for example.

Another measurement by which China is almost uniquely attractive is its number of large cities. Since franchisors (or their multi-unit developers or master franchisees) seek out concentrations of population, so as to make it possible to reach their target markets in an economic and logistically feasible fashion, the number of cities in China with more than 1 million population is eye-popping: 94, compared to 9 in the United States.

Franchisors have flocked to China in recent years -- not only the well known names from the United States (McDonald’s, YUM!, Burger King, virtually all the hotel chains) but also a number of smaller companies (Sir Speedy, Abrakadoodle). Beyond US companies, many franchisors from other parts of the world have begun to respond to the beckoning appeal of the Chinese market, including some French companies such as Accor and others. Finally, franchising as a method of distribution has not been lost on Chinese companies themselves, which have embraced it.

Regulation of franchising in China

 Regulation of franchising in China can be thought of as occurring in two rather distinct phases. The first began as far back as 1997, when rules were first announced. The decade which followed, which included the adoption of “Measures for the Regulation of Commercial Franchise” in 2004, the lifting of certain restrictions and other halting steps, were marked by a degree of confusion - both by the domestic regulators and by foreign franchisors seeking to understand their obligations. It was during this period as well that the first disputes arose - disputes which continue to this day - as to the status of these regulations and the consequence of violating them.

The second phase of regulation of franchising can be dated to 2007. That year’s Franchise Regulation represents a major improvement over the past, and reflects the Chinese government’s willingness to adopt a more liberal regulatory regime. Perhaps the most striking feature was the gratifying response of the government to the efforts by the International Franchise Association and others to remove the “in China” requirement from the 2+1” rule, i.e., a franchisor must still demonstrate that it has operated at least two company owned units for at least one year before franchising in China, but those two units need not be in China itself, thus opening up the market significantly.

From the outset, it was recognized that not all provisions of the regulation of franchising could be contained in the Franchise Regulation itself, and the government has therefore issued two sets of Implementation Guidelines. It is important for a franchisor to read and follow those provisions along with the Regulation itself.

The most prominent feature of the current Franchise Regulation is its “disclosure” features. The list of what must be disclosed will not come as a shock to any franchisor which has already learned to deal with disclosure laws in France (Loi Doubin), the United States, and a number of other countries.

The process in China, however, is somewhat different than elsewhere. As in certain other countries, there is a requirement of disclosure of the information in advance of the consummation of the contract(not less than 30 days). In addition, however, the franchisor must register with the Government, but not until after the franchisor has sold its first franchise; the Government must respond by registering the document no more than a certain number of days following its receipt of all required materials.

Finally, there is a mandatory cooling-off period, a period during which a franchisee is allowed to rescind the franchise agreement after it has been signed. Unfortunately, the government has not spelled out the precise period of time which will suffice. Presumably, one week should be adequate, as this is clearly modeled after the 7-day cooling-off period required in Australia.

Beyond the disclosure document, there are certain other aspects of the regulation of franchising in China which are worth noting. Most significant, franchising activities must be “conducted in compliance with the principles of free will, fair dealing, honesty and good faith.” The uncertainty of how this will be interpreted in the future remains, but it has not thus far created difficulties.

One of the potentially most troubling features of the original regulation has now been substantially ameliorated. Originally, joint liability was imposed upon franchisors for injuries or other damage suffered by customers. The 2007 version of the Regulation only requires that the franchise agreement specify who will be responsible for customer liability issues.

Most recently, the Ministry in charge of enforcing the Regulation issued two new sets of Implementation Rules to replace the existing rules. They serve to clarify a few issues in connection with the disclosure and registration requirements. The changes are evolutionary, and do not represent any major departure from the existing practice and interpretation. It is notable, however, that the Ministry retreated from further liberalization reflected in the earlier drafts of these new rules. Their reluctance to follow, and the circulation of a draft of a set of “punishment” rules, may suggest the Government will still take a more active role in enforcing the existing Regulation and rules.

It should be noted that the regulation of a franchise agreement and relationship in China does not end, with the Franchise Regulation itself. There is obvious interaction with contract laws and a series of other laws and regulations affecting facets of the franchise operation. One should particularly note, however, the issue of trademark laws and of foreign exchange controls. Since China is a “first-to-file” country with its trademark registration authority taking a very rigid view of its trademark laws, foreign franchisors will be well advised to secure their rights in China as early as possible. With respect to getting money out of China, while it has become much easier than in the past, foreign franchisors still frequently run into delays caused by China’s foreign exchange control regime.

Conclusion

No one entering China should be under illusions about some of the difficulties which will be faced. It is difficult to find qualified and competent franchisees, although that problem has eased slightly in recent years as more and more Chinese are being exposed to franchising, and are receiving education and employment experience outside China. The blistering pace of growth in China has begun to cool, in part because of government measures to reduce the threat of inflation.

But the magnetic appeal of this large and growing market is such that more and more franchisors are venturing to China and finding ways to overcome these obstacles. And it is not an overstatement to conclude that any franchisor with aspirations to an international presence simply cannot afford to ignore the Chinese market.

* * *

Philip F. Zeidman (Philip.Zeidman@dlapiper.com) is a Senior Partner in the Franchising and Distribution Practice of DLA Piper, based in Washington, DC. Tao Xu (Tao.Xu@dlapiper.com) is an Associate based in the firm’s Northern Virginia office. DLA Piper, an international law firm, is General Counsel to the International Franchise Association.

A new opportunity is on the horizon for brand owners seeking to expand their online presence in China. Starting September 15, 2012, owners of a valid trademark registration will be able to register .中国 (or “.CHINA”) domain names corresponding to their registered marks.

The registrant must own a valid trademark registration (in any country) for a mark identical to the proposed domain name.

The trademark registration must cover a plain block letter version of the mark (registrations including figurative elements or design marks are not acceptable).

The trademark can cover Latin characters or Chinese characters. If the mark is composed of Chinese characters, only a pinyin version of the mark is acceptable.

In addition to these trademark requirements, a number of formality documents are also required to obtain a registration under this new top-level domain, including company formation documents and a signed letter of commitment.

The initial sunrise period will close on October 11, 2012. Because trademark registrations from any jurisdiction are acceptable, it is possible that conflicting claims could be made on some domain names. Thus, if you wish to take advantage of this opportunity, we recommend acting quickly as registrations will be issued on a first-come, first-served basis.

For non-trademark holders, a second sunrise period will open on October 14, 2012. On that date, registration will open to owners of existing domain name registrations under the currently-existing .cn country code top-level domains. Finally, at some point in late October or early November 2012, general availability will commence.

For more specific information about the application process, or to discuss the possibility of moving forward with an application for a new .中国 domain name, please contact us.

The Internet Corporation for Assigned Names and Numbers (ICANN) has just announced that the target "Reveal Day" for its new generic Top Level Domain ("gTLD") program - the day when the list of gTLDs that have been applied for is announced - will be 13 June 2012. This date will be eagerly awaited by brandowners, both those who have applied to register their brands as gTLDs (and will want to see whether anyone has applied for similar domains which may be in competition with their application), and those who may wish to object to a gTLD application which is confusingly similar to their brand.

Teething Problems

The announcement follows a software glitch in ICANN's gTLD application system (known as "TAS"), which allowed some users to view other users' gTLD applications. This situation has understandably caused applicants some concern that third parties may have been able to find out about their application, and perhaps react to it by filing a competing application. Most applicants have to date been keeping their cards close to their chests and not revealing that they were applying, nor what they were applying for. ICANN has offered a refund of the application fees to applicants who wish to withdraw their applications.

The problems with TAS led to the application system being suspended on 12 April (the date when the application period was due to close), and re-opened from 22 to 30 May (this further period did not allow new applications to be filed, but merely for existing applicants to verify and finalise their applications). These developments will have caused over a month's delay to roll-out of the new domain extensions; "Reveal Day" had originally been scheduled for the start of May.

Uptake

While the failure of its IT system is highly embarrassing for ICANN (and one wonders what future "glitches" may occur in later stages of the program), there is no denying that the level of uptake of the new gTLDs has been high. ICANN says that at the time the system was taken offline, the system held 2,091 separate applications. In addition, ICANN says there were 214 potential applications that were registered prior to the 29 March application cut-off date, but whose payments had not yet been received or reconciled.

Next Steps

Both applicants and non-applicants will need to carefully consider how to protect their brands in light of the new gTLD program. We will be sending a further alert to clients shortly after Reveal Day to outline the key processes involved going forward, including the possibility of filing an objection to an application.

One of the packed meetings at the United States-China Adjudication Conference was the trademark breakout session, conducted for the most part in Chinese, with simultaneous translations. Several high-ranking judges in the IPR Tribunal spoke on trademark developments. From a U.S. perspective, there is a keen interest in the protection of well known trademarks either registered or unregistered in China. 

Beijing Friendship Hotel, along with Beijing's Renmin University of China, hosted the United States-China Intellectual Property Adjudication Conference. Ann Ford (Washington, DC), along with other DLA Piper partners including Yan Zhao (Shanghai), Ed Chatterton (Hong Kong), and Beni Surpin (San Diego) attended the Conference. DLA Piper Partner and IPT leader John Allcock moderated a key session on "Enforcement of Patent Judgments."

A group of us from our DLA Piper IPT group around the world, including those from Hong Kong, San Diego and Washington, DC are in Beijing, China attending the United States-China Intellectual Property Adjudication Conference. Yesterday, several top Chinese judicial and government leaders joined Gary Locke, U.S. Ambassador to the PRC, Judge Randall Rader, Chief Judge to the U.S. Court of Appeals for the Federal Circuit and David Kappos, Under Secretary of Commerce for IP, Director of the U.S. Patent and Trademark Office to talk about our shared goal of IP enforcement. Key issues will be discussed in the areas of trademark, patent and copyright. The Chinese press came out in force to cover the opening ceremony of the Conference and the judges and commissioners speaking there.

World Intellectual Property Organization (WIPO) Director General Francis Gurry said the day “is an opportunity to celebrate the contribution that intellectual property makes to innovation and cultural creation – and the immense good that these two social phenomena bring to the world.” WIPO posted a number of suggestions for celebrating World IP Day. This year’s theme is “visionary innovators – people whose innovations transform our lives.”

What are you doing to celebrate World IP Day?

The use of social media is now common place the corporate world, but are organisations protecting themselves by ensuring the relevant policies and procedures are in place? 

Social media connects millions of people across the world every day and has become an important way for people to communicate. It is now an integral part of the way we live and increasingly affects the way we work and do business. 

Reflecting our position as a leader in employment law, we have commissioned an in-depth study into how social media is used in the workplace. In particular, the report focuses on the opportunities and challenges social media presents to employers. The responses, which include views from both employees and senior decision makers in large business enterprises, have been analysed with detailed commentary to provide a comprehensive report. 

To request a copy of the Report please email ranjit.dhillon@dlapiper.com. 

If you would like to discuss the Report in more detail please do not hesitate to contact us.

There are two practical consequences of this decision for Western brand owners.  Firstly, the decision emphasizes yet again the importance to Western brand owners of ensuring that they adequately protect their brands in China.  Failing to file trademark applications in China at the earliest possible date is a mistake which many Western brand owners continue to make, despite the fact that China has clear and well-established rules giving preference to the party who is first to file.  The other mistake Western brand owners frequently make is not filing to protect the Chinese language version of their mark.  Bearing in mind the fact that most Chinese people do not speak or read a foreign language, it is imperative that Western brand owners devise a Chinese language version of their mark and, just as importantly, file to protect the Chinese language version of their mark.  Had Castel done this, it would not be facing an infringement suit for having used its "own" mark. 

Secondly, the decision is of particular note for foreign entities who do not have significant assets in China.  Typically, such entities may have considered themselves insulated from the risk of litigation in China due to a lack of assets in China.  However, even foreign entities without significant assets in China very often have trademarks in China.  Those trademarks are now in the firing line if the foreign entity ever gets sued, whether for trademark infringement or for other causes of action, particularly where the foreign entity has limited assets in China.  Of course, this equally applies to foreign plaintiffs who seek to recover damages against Chinese defendants. 

Reward scheme to combat copying and distribution offence

On 16 February 2011, the Hong Kong government introduced the Reward Scheme to Combat Copying and Distribution Offence. The scheme, which is administered by Hong Kong Customs, encourages the public to report copyright crimes by providing cash rewards for information that leads to an arrest and/or criminal conviction for copyright offenses.

China, June 2011

IPR exchange opens in Tianjin

A pilot intellectual property right (IPR) exchange was recently established in Tianjin. The exchange allows investors to buy shares in the IPR of small- and medium-sized enterprises (SMEs) to ease their financial woes.

Institutes and individuals will use the exchange to buy and sell IPR shares, much as they would in a normal fund market. Publicly traded IPRs are expected to come from China's emerging industries, including the cultural sectors.

The Tianjin Binhai Intellectual Property Exchange International, operated by the government-backed Northern Technology Exchange Market and the Tianjin IPR Service Center, is the first of its kind in China and is considered to be a "financial innovation" by the Tianjin municipal government. 

Hong Kong, March 2011

TVB Shareholding Change Approved

In March 2011, the Hong Kong Broadcasting Authority approved a change in shareholding structure of Television Broadcasts Limited (TVB), whereby TVB's 103 year-old founder and chairman Run Run Shaw sold 26 percent of the voting shares of TVB to a consortium comprised of Charles Chan, the chairperson of ITC Corporation, Cher Wang, the founder and chairperson of HTC Corporation, and Providence Equity Partners, a global private equity firm.

The approval indicates that regulators are satisfied that, upon completions of the sale, management and control of TVB will continue to be exercised from Hong Kong, and that TVB’s domestic free television programme service will continue to be aimed primarily at the Hong Kong market.

Featured Article: Australia Is Set to Enact World First Plain Packaging Law, by Courtney Macintosh

Australia could be the first country to enact a plain packaging law for tobacco products.

In April 2011, the government released the Tobacco Plain Packaging Bill (Exposure Draft), which requires tobacco products to be sold in plain packaging.  The bill has support of the opposition party and is expected to be in force as early as 2012.

Tobacco companies have indicated that they will fight the plain packaging bill with the following arguments:

• Breach of the Constitution: plain packaging breaches the Commonwealth's acquisition powers;
• Breach of TRIPS: plain packaging breaches Australia's obligations to protect trade marks under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS); and / or
• Breach of the Agreement on the Protection and Promotion of Investments with Hong Kong ("Hong Kong Agreement"): plain packaging "deprives" Hong Kong investors (i.e. Philip Morris Asia) of their investments, thereby breaching the agreement. 

The government has vowed to continue with the reform, noting that none of the above arguments is likely to succeed. While this may be prove true of the Constitutional and TRIPS arguments, the situation is less certain under the Hong Kong Agreement.

Background

• In 2005, the World Health Organisation’s Framework Convention for Tobacco Control came into force ("WHO Convention").
• Article 13 of the WHO Convention requires members to develop bans on tobacco advertising.  Guidelines to Article 13 suggests introduction of plain packaging laws.
• Since 2006, Australia has required tobacco packaging to include prominent graphic health warnings in cigarette packs (they include images of diseased organs).
• Plain packaging has been considered by a number of other countries including the United Kingdom, France, New Zealand and Belgium, all of which are watching developments in Australia with a view to their own strategies.

Breach of the Constitution

Section 51(xxxi) of the Constitution allows the Commonwealth 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”.

Tobacco companies argue that, by prohibiting use of trade marks on tobacco packaging, the Commonwealth has “acquired” property on unjust terms – i.e. without compensation.

High Court precedents suggest that this argument is likely to fail because the Commonwealth is not actually “acquiring” any property.  That is, it is not receiving any direct property or legal interest in return. 

Breach of TRIPS

Article 20 of TRIPS states that “the use of a trade mark in the course of trade shall not be unjustifiably encumbered by special requirements”. 

Tobacco companies, along with countries such as Japan and the Dominican Republic, argue that plain packaging breaches Article 20.

Plain packaging supporters point out that Article 8 of TRIPS also allows countries to enact measures “necessary for public health", provided they are consistent with the rest of TRIPS. 

WTO judicial precedents suggest that Article 8 could be successfully used to defend plain packaging.  In particular, it has been held that the identification of health objectives and the extent to which a nation wishes to pursue it is a matter for individual nations.

Breach of the Agreement for the Protection and Promotion of Investments with Hong Kong

Under the agreement, a party must not expropriate the other party’s investors of their investments (including IP rights) without compensation.

Philip Morris Asia has indicated that it will use this provision to claim billions in compensation.

Under international law, it is well established that "property has been expropriated when the effect of the measures taken by [a State] has been to deprive the owner of ...access to the benefit and economic use of his property".

Unlike the TRIPS, there is no public health exception readily available.  Similarly, Philip Morris does not have to prove that the Australian Government obtained any property or legal rights as a result of the expropriation.

This agreement therefore provides the clearest course of action for tobacco companies, although proving monetary loss could be difficult. 

Also the Australian government has the option of paying the compensation in order to save the legislation, in which case, it would weigh the public health cost of tobacco against the perceived savings from plain packaging.

Summary

·         Arguments against plain packaging under the Australian Constitution or TRIPS are unlikely to succeed. 

·          Australia’s Agreement for the Protection and Promotion of Investments appears to present a more "hopeful" course of avenue for tobacco companies, although the Australian government could still preserve the legislation by paying compensation. 

·         In the end, given the Australian Government's extensive efforts to restrict cigarette advertising (including the prominent graphic health warnings), the value of tobacco trade marks in Australia is questionable in any event. 

·         The real value of the tobacco industry's fight against plain packaging probably lies in relation to other countries watching the developments in Australia.