[Ip-health] IP-Watch: Inside Views - WTO Panel On Australia’s Tobacco Plain Packaging: A Fact Dependent Analysis Of TRIPS Art 20

Thiru Balasubramaniam thiru at keionline.org
Tue Jul 3 07:11:08 PDT 2018

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


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

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

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
faciecase 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
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 seunjustifiable 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

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.

Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International
41 22 791 6727
thiru at keionline.org

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