WTO Panel On Australia’s Tobacco Plain Packaging: A Fact Dependent Analysis Of TRIPS Art 20

By Professor Tania Voon, Melbourne Law School, University of Melbourne, Australia

Scholars and professionals in IP, trade and public health are likely to be digesting the 900-odd page WTO Panel Reports in Australia – Tobacco Plain Packaging, circulated on 28 June 2018, for some time. An appeal by one or more of the complainants (Cuba, the Dominican Republic, Honduras and Indonesia) is expected, to be launched between 20 and 60 days after circulation, in accordance with the WTO’s Dispute Settlement Understanding (DSU, Art 16). Although Australia won the dispute in its entirety, the country could also choose to appeal certain intermediate findings of the Panel, such as its interpretation or application of particular WTO provisions.

In theory, an appeal would take an additional 90 days (DSU Art 17.5), but the duration of appeals has been significantly higher in recent years, especially in more complex cases. Australia – Tobacco Plain Packaging is a highly complex case, involving record numbers of third parties (eg 38 in the complaint brought by Honduras) and voluminous evidence presented on both sides (eg as summarised in the 150-page Appendices to the Panel Report). Even more problematic in relation to the conduct of any appeal is the United States’ continuing blockage of the appointment of Appellate Body Members, which has left the Appellate Body with four instead of the required seven Members at present, presenting a risk of falling to three Members later in 2018 and two Members in 2019 (precluding the division of three Members required to hear an appeal under the DSU, Art 17.1).

Given the uncertainty surrounding the conduct and duration of an appeal, the WTO Panel’s rulings in this dispute may take on heightened significance. The Reports address a range of matters including the WTO’s Agreement on Technical Barriers to Trade (TBT Agreement) and General Agreement on Tariffs and Trade 1994 (GATT 1994). Here, I offer some initial thoughts on the Panel’s key findings in relation to Article 20 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

The complainants raised many other claims under the TRIPS Agreement, including in relation to geographical indications and whether trademark owners’ exclusive rights are negative or positive. Many of the IP-related issues addressed by the Panel parallel those already considered by the High Court of Australia in the unsuccessful constitutional challenge by several tobacco companies to the same scheme (decided in 2012) and raised by Philip Morris Asia Ltd under Australia’s bilateral investment treaty with Hong Kong, before an arbitral tribunal that rejected jurisdiction on the grounds of abuse of rights in 2015. Both the High Court and the investment tribunal awarded costs against the claimants.

Article 20 of the TRIPS Agreement provides:

The use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements, such as use with another trademark, use in a special form or use in a manner detrimental to its capability to distinguish the goods or services of one undertaking from those of other undertakings. This will not preclude a requirement prescribing the use of the trademark identifying the undertaking producing the goods or services along with, but without linking it to, the trademark distinguishing the specific goods or services in question of that undertaking.

The complainants’ claim under Article 20 of the TRIPS Agreement was arguably their strongest in the whole dispute, and it took up more pages of the Panel Report (almost 100) than any of the other TRIPS claims. Its failure was nevertheless predictable and correct. The way the Panel reached this conclusion has major implications for the nature of IP as understood in the WTO and for the future application of the TRIPS Agreement. The many steps of the Panel’s analysis leave significant scope for the Appellate Body to take a different approach at any point.

Beginning with the burden of proof under Article 20, the Panel noted that the disputing parties agreed that the complainants had to make a prima facie case that Australia’s challenged measures constitute special requirements that encumber the use of trademarks in the course of trade (para 7.2161). However, the parties disagreed as to which party had to prove that ‘such use is encumbered “unjustifiably”’ (para 7.2162). Drawing parallels with Article 2.2 of the TBT Agreement, as well as the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement), the Panel agreed with Australia that ‘the initial burden of proof is not borne by the respondent to show that any encumbrances it has adopted are justifiable’ (para 7.2169). That conclusion is consistent with the fact that TRIPS Article 20 imposes a positive obligation, in contrast to the general exceptions in GATT Article XX: ‘the complainants have advanced the positive claim that the TPP measures are inconsistent with Article 20, and with each of its elements, and must establish this claim in its entirety, rather than establishing a claim concerning selected elements of Article 20’ (para 7.2171).

On the meaning of ‘special requirements’, Australia contended that although some aspects of its challenged measures impose special requirements (eg by requiring the use of word trademarks in a particular form), those aspects prohibiting the use of certain trademarks (eg logos) do not do so (para 7.2174). Some scholars had previously made similar arguments, as far back as 2004. After considering the meaning of the terms ‘special requirements’ and ‘encumber’ rather succinctly, the Panel rejected this contention (para 7.2239). The Panel’s primary reasons for this rejection appear to be:

• The plain meaning of ‘requirement’ does not suggest it excludes prohibition (para 7.2222).
• Although the examples of special requirements included in Article 20 all concern how a trademark is used rather than whether it can be used, the words ‘such as’ indicate that this is an illustrative rather than exhaustive list of special requirements (para 7.2226).
• Articles 19 and 20 are not mutually exclusive, such that the contemplation in Article 19 of government requirements precluding use of a trademark does not mean that special requirements in Article 20 exclude such requirements (para 7.2230).
• The term ‘special requirements’ ‘refers to a condition that must be complied with, has a close connection with or specifically addresses the “use of a trademark in the course of trade”, and is limited in application’, which ‘may include’ a prohibition on trademark use (para 7.2231).
• If a measure prohibits the use of a trademark, it encumbers the trademark ‘to the greatest possible extent’ (para 7.2236).
• Under the SPS Agreement, WTO Panels have interpreted the term ‘requirements’ to include a ban on marketing a particular product (paras 7.222, 7.2237, referring, inter alia, to EC – Approval and Marketing of Biotech Products).
• Under the General Agreement on Trade in Services, the Appellate Body found that a prohibition on market access constituted a quantitative limitation contrary to Article XVI (para 7.2237, referring to US – Gambling, raised by Honduras, in which the Appellate Body characterised a prohibition as a ‘zero quota’ (para 238)).
• It would be ‘counterintuitive’ and defeat the object of Article 20 if a restriction on the use of a trademark were caught by Article 20 but not a prohibition on such use (para 7.2238).

The Panel’s reasoning does seem to take account of the text, context, and object and purpose of the WTO agreements (or at least the object of Article 20 of the TRIPS Agreement), as required by Article 31(1) of the Vienna Convention on the Law of Treaties. However, the contextual analysis, including reference to other WTO agreements, is not particularly compelling. The most persuasive reason offered by the Panel seems to be the last: it would be counterintuitive for Article 20 to capture restrictions on how trademarks are used but not prohibitions on their use. Yet this general sense of what would make sense under Article 20 is not legally satisfying. The Panel’s conclusion also raises questions as to the scope of Article 20 in relation to bans on particular products or services. These potential implications may explain why the Panel noted, without taking a position, that all parties considered (for different reasons) that ‘a general regulatory measure, such as an advertising ban’, would not fall under Article 20 (para 7.2233).

The Panel’s findings on the meaning of ‘special requirements’ and ‘encumber’ meant that it found that aspects of the Australian measures restricting or prohibiting the use of various forms of trademark do constitute special requirements that encumber that use (para 7.2245). The next questions were whether the special requirements encumber the use of a trademark ’in the course of trade’ and ‘unjustifiably’. The Panel rejected Australia’s arguments that ‘in the course of trade’ means buying or selling only up to the point of sale (para 7.2264) and that the relevant use of the trademark is solely for the purpose of distinguishing the goods of one undertaking from those of others (para 7.2286). Therefore, the Panel found that Australia’s measures amount to special requirements that encumber the use of a trademark in the course of trade (para 7.2292).

The result of these sequential findings under Article 20 of the TRIPS Agreement was that Australia’s defence to this claim was left to rely on the word ‘unjustifiably’. The Panel’s approach to that word is therefore crucial in drawing the line between lawful and unlawful restrictions on trademarks by WTO Members. Here, too, the Panel rejected Australia’s submission that ‘unjustifiably’ refers to the absence of ‘rational connection’ between the special requirements and a legitimate policy objective (para 7.2422). Instead, the Panel proposed a new ‘weighing and balancing’ test to be applied on a case by case basis in identifying whether the use of a trademark in the course of trade has been unjustifiably encumbered by special requirements (para 7.2431). The three factors to be considered, according to the Panel, are: the nature and extent of the encumbrance, bearing in mind the legitimate interest of the trademark owner; the reasons for the special requirements; and whether those reasons sufficiently support the encumbrance (para 7.2430).

Ultimately, this test leaves a great deal to a factual assessment by the Panel and little certainty for governments about the extent to which any given regulatory intrusion on trademark rights for a genuine public health or other policy reason is permitted under Article 20. Unlike the factors identified by the Appellate Body to be weighed and balanced under the necessity test in GATT Article XX, the Panel’s factors overlap. The third factor seems determinative: the treaty interpreter simply weighs the other two factors to decide whether a breach exists. Reliance on the facts may have been the Panel’s way of ensuring the ‘balance’ it found in Article 20 ‘between the existence of a legitimate interest of trademark owners in using their trademarks in the marketplace, and the right of WTO Members to adopt measures for the protection of certain societal interests that may adversely affect such use, including for public health reasons’ (para 7.2504). The Panel’s emphasis on this balance may reflect, in turn, a cautious approach to a dispute with significant potential implications for IP as well as public health.

The Panel found that special requirements involving significant encumbrance, such as a prohibition on certain types of trademarks, are not per se unjustifiable under Article 20 (para 7.2442). The Panel also rejected the complainants’ suggestion that a Member must assess each individual trademark to prevent unjustifiably encumbering them (para 7.2505), rather than restricting a class of trademarks such as tobacco trademarks. Thus, Australia’s focus on removing ‘stylized fonts, logos, emblems and other branding imagery from trademarks on tobacco packaging and products’ rather than ‘specific features of particular trademarks’ in order to ‘prescrib[e] a standardized, plain appearance for tobacco packages and products’ is not, per se, unjustifiable (para 7.2507). The Panel also found that the fact that a measure falls within one of the examples of an encumbrance in Article 20 (such as ‘use in a special form’) does not of itself indicate that the measure unjustifiably encumbers the use of a trademark contrary to Article 20 (para 7.2526). Although these findings appear correct, they place further weight on the Panel’s subsequent assessment of the factual circumstances of the case.

In applying the test it had conceived to Australia’s challenged measures, the Panel began with the nature and extent of the encumbrance. The Panel described the measures as ‘far-reaching in terms of the trademark owner’s expected possibilities to extract economic value from the use of’ design features such as figurative and stylised elements (para 7.2569). Nevertheless, the Panel emphasised that the complainants did not contend that the measures had prevented consumers from distinguishing tobacco products of one undertaking from those of other undertakings (para 7.2570). Moreover, the Panel found (in para 7.2572):

Overall, the empirical evidence before us relating to cigarette prices, to the total value of the retail market and to the total value and volume of cigarette imports does not validate the complainants’ argument that the [challenged] measures will lead to an increase in price competition and a fall in prices, and consequently to a decrease in the sales value of tobacco products and the total value of imports.

As for the reasons for the plain packaging scheme, the Panel referred to Australia’s objective of improving public health by reducing the use of and exposure to tobacco products, noting that the trademark requirements form ‘an integral part’ of the scheme (para 7.2586). The Panel recalled the Appellate Body’s acknowledgment in EC – Asbestos that the preservation of human life and health is ‘both vital and important in the highest degree’ (para 7.2587). The Panel also noted the recognition of the importance of public health in Article 8.1 of the TRIPS Agreement and paragraph 4 of the Doha Declaration on TRIPS and Public Health (para 7.2588), and the extent of the tobacco epidemic as reflected in the preamble to the WHO Framework Convention on Tobacco Control (FCTC) (para 7.2589).

Turning to the third, determinative, factor, the Panel said it had to ‘assess the public health concerns that underlie the … trademark requirements against their implications on the use of trademarks in the course of trade, taking into account the nature and extent of the encumbrances’ (para 7.2591). Those concerns involve ‘an exceptionally grave domestic and global health problem involving a high level of preventable morbidity and mortality’ (para 7.2592). According to the Panel, the ‘fact’ that the special requirements ‘contribute’ to Australia’s public health objective ‘suggests that the reasons for which these special requirements are applied provide sufficient support for the application of the resulting encumbrances’ (para 7.2592). The Panel again pointed to the FCTC, noting that the relevant Australian legislation refers explicitly to the intention of giving effect to its obligations under that treaty (para 7.2596), and that FCTC implementing guidelines state that the 180 FCTC parties should consider adopting plain packaging (para 7.2595).

In concluding its analysis of Article 20, the Panel emphasised that the word ‘unjustifiably’ “provides a degree of latitude to a Member to choose an intervention to address a policy objective, which may have some impact on the use of trademarks in the course of trade, as long as the reasons sufficiently support any resulting encumbrance’ (para 7.2598). In this case, Australia had not ‘acted beyond the bounds of the latitude available to it under Article 20’ (para 7.2604). These references to policy space, the FCTC, and the Doha Declaration are all encouraging for WTO Members seeking assurances about the WTO-consistency of their own tobacco control, public health, or other policy measures affecting trademarks. The Panel’s support for Australia’s choices is also positive from the perspective of sovereign regulatory autonomy. However, the absence of a breach of Article 20 by Australia hinged largely on the Panel’s determination that Australia’s reasons were ‘sufficient’ to support the encumbrance on trademarks. Despite the apparent creation of a new, clear test relying on several relevant factors, WTO Members are left with uncertainty as to what reasons will be sufficient to justify a given level of encumbrance of trademarks.

Professor Tania Voon, Melbourne Law School, University of Melbourne, Australia. Professor Voon has a PhD in Law from the University of Cambridge and a Master of Laws from Harvard Law School. She is a member of the WTO’s indicative list of governmental and non-governmental panelists for resolving WTO disputes. She previously worked as a lawyer with the WTO Appellate Body Secretariat, the Australian Government Solicitor, and Mallesons Stephen Jacques (now King & Wood Mallesons). She collaborates closely with various health NGOs and has previously given advice to the Australian government on tobacco plain packaging.