High Court Trade Mark Decision Leaves Tobacco Companies Fuming
10 June 2016
British American Tobacco & others v Department of Health  EWHC 1169
This case concerns the introduction of plain packaging legislation for tobacco products in the United Kingdom. The decision was handed down on 19 May ahead of the introduction of the Packaging of Tobacco Products Regulations 2015 (“the Regulations”) on 20 May, the UK’s implementing legislation for the EU Tobacco Products Directive (“the TPD”). Whilst principally about a landmark public health initiative and the legality of its means, this case also raised fundamental issues of trade mark theory.
The TPD sets out that Member States must implement legislation specifying that 65% of the front and back surfaces of tobacco packaging be dedicated to health warnings. The remaining 35% remains free. However, under Article 24(2), Member States are also able to impose more stringent measures where these are justified on the grounds of public health. The UK elected the latter path. Under the Regulations, packaging must be plain, with the manufacturer only permitted to include his name and brand in a standard font.
Tobacco manufacturers had previously challenged the legality of the TPD itself, but the CJEU emphatically ruled it legal.
In the present proceedings back at the UK High Court, the manufacturers put forward no fewer than 17 grounds of claim. Among these were several interesting questions concerning trade mark law.
Does a trade mark registration merely allow the exclusion of others from use of a mark, or is it a positive right to use the mark?
The statutes characterise trade marks as exclusive rights rather than positive right to use. However, the manufacturers argued that this failed to take into account the trade mark’s ‘substance’, describing the trade mark as an “economic hollow shell” if it was barred from use for the purposes of commercial exploitation.
Mr Justice Green affirmed that the analysis could indeed be based on the “practical, real world, substance” of the trade mark rather than “formalistic legal rights”. It was clear that “the economic value of a trade mark lay in its use as well as its ability to exclude. In particular, the commercial value of a trade mark lay in its ability to forge links of recognition or identity and reputation in the mind of consumers.”
Would the Regulations effect an expropriation of trade mark owners’ property, or merely control of the use of that property?
The manufacturers submitted that the Regulations would unlawfully expropriate their property rights without compensation. The claim was advanced under various bodies of law, including Article 1, Protocol No 1. of the ECHR (“A1P1”), the Common Law, and Article 17 of the Charter of Fundamental Rights.
The judge reviewed the case law on expropriation and established a set of main principles. Mostly significantly, he found that property may be lawfully expropriated or have its use controlled if such action serves a legitimate public interest and is proportionate (striking a fair balance between the relevant interests). The two most important criteria for establishing the distinction between expropriation and control of use would lie in a) whether the measure pursued a legitimate objective, and b) where title transferred to the state.
The judge concluded that the Regulations amounted to control of use not expropriation of property. This was because the marks remained unequivocally the property of the claimants. The claimants were still able to conduct their business, and the interference was unequivocally in the public interest.
It can be seen from the analysis of the ‘substance’ point that the judge viewed the restrictions on use as far from total. He stated: “I do accept that the rights have been significantly and even substantially diminished but this is not the same thing as saying that they have been destroyed or eradicated.” In particular, the trade marks available to the tobacco manufacturers could still perform the essential function of identifying origin and distinguishing their goods, through the placing of company and brand names on the packaging. The manufacturers were not forced to sell their cigarettes and tobacco products as a homogeneous unidentified commodity. Use of the trade marks had been limited, but the owners’ rights to exclude others from using the mark remained intact.
A difference between word and figurative marks?
The manufacturers contended that there must be a difference between word marks, which could still be used in a certain form, and figurative marks, which could not be used at all. The judge disagreed. For the purposes of A1P1, for example, it was “necessary to consider the use of the property rights in the round and collectively.” In reality, figurative marks were used in conjunction with word marks to convey a collective message to consumers, and there was no real scope for other use. Tobacco manufacturers had not been able to lawfully advertise for some time on the sides of buses or on billboards. As such, figurative marks were not playing any major function as standalone identifiers or creators of reputation. Further, irrespective of the effects of the UK Regulations, the TPD would have significantly diminished the role of figurative trade mark rights, given the limited space allowed for such devices on the packaging.
Would the Regulations interfere with the unitary character of the EU Trade Mark?
Recital 2 of the CTMR (now EUTMR) states that the unitary character of the CTM is designed to enable products and services “to be distinguished by identical means throughout the entire Community, regardless of frontiers.” The manufacturers argued that they would be forced to use different tobacco packaging in the UK compared to other Member States. The Regulations thus derogated unlawfully from the unitary nature of the CTM guaranteed by the CTMR.
The judge rejected the idea that the only derogations to this unitary character could be found in the CTMR. There were clearly other sources. For example, all CTMs were subject to overriding treaty obligations not mentioned in the CTMR. The same could be true of competition law considerations such as abuse of dominance.
Interestingly, this differs from another recent characterisation of the Community Trade Mark Regulation, albeit regarding different facts and a different legal question. In Marussia v Manor Grand Prix Racing  809 (Ch), the judge stated: “it is clear that the Regulation operates as a complete code so far as the rights of a Community trade mark proprietor are concerned”. The idea that protection might vary between Member States was “unacceptable”.
The key issue of proportionality
Much of the case hinged on whether the suppression of the use of trade marks as a means of advertising and promoting tobacco products was a legitimate objective. The Court noted that while tobacco manufacturers bring in annual tax revenues estimated at £10bn, the overall costs to the Exchequer net of these receipts was £13.74bn a year. There was a clear public interest in implementing the Regulations, offset only by decreased profits for the manufacturers. As Mr Justice Green summarised:
“the essence of the case is about whether it is lawful for States to prevent the tobacco industry from continuing to make profits by using their trade marks and other rights to further what the World Health Organisation describes as a health crisis of epidemic proportions and which imposes an immense clean-up cost on the public purse.”
Trade Mark group
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© Withers & Rogers LLP, June 2016