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No Trademark, No Accountability

No Trademark, No Accountability

By David Hirschmann

An apple. A swoosh. Two golden arches. Most citizens of the world equate those three iconic symbols with a brand.

Branding is essential for the economy and provides a fundamental service to the consumer, differentiating competing products from one another. This differentiation has several benefits; it makes producers accountable for their own goods, it ensures that consumers can find the quality products they seek, it helps protect consumers choose the products they trust and it helps distinguish legal from black market goods. Customers will go to great lengths to access brands they like and trust.

Unfortunately, brands are under attack. Legislation recently passed in Ireland and the UK that will eliminate trademarks – vital to brand integrity – on tobacco packaging. Proponents of the effort cite similar legislation in other countries and a perceived drop in smoking rates. However, the facts are not on their side, and such action does an enormous disservice to consumers who value choices and choosing the brands they trust.

While we welcome efforts to reduce smoking, eliminating one of the tools consumers search for when looking for a brand they trust is the wrong approach. Two years ago, Australia enacted a plain packaging law for cigarettes that for the first time denied manufacturers of a legal product the ability to distinguish their product from those of their competitors through trade dress.  The unintended consequence of that policy decision has been to drive consumers not away from smoking but into the unregulated black market for cigarettes, which makes it easier for criminal enterprises – which thrive on the black market – to enter the legitimate supple chain.

Three studies make the case that plain packaging is not meeting the public health objectives of the law and is having an impact on the black market:

First, a study by the London Economics group (“An Analysis of Smoking Prevalence in Australia”) analyzed the impact of plain packaging on smoking prevalence among Australians, and found that “the data do not demonstrate that there has been a change in smoking prevalence following the introduction of plain packaging and larger health warnings despite an increase in the noticeability of the new health warnings.”

A second study, by KPMG (“Illicit Tobacco in Australia, 2013 Full Year Report”), shows significant increase of illicit branded manufactured cigarettes following the implementation of Australia’s plain packaging laws.

And the KPMG report from last year (“Illicit Tobacco in Australia, 2014 Full Year Report”) found that since the enactment of plain packaging, the decrease in the consumption of legal cigarettes has been counterbalanced by an increase in consumption of illegal cigarettes. Perversely, the only place an Australian smoker can go today to buy a branded cigarette is to the black market. It’s illogical.

As the KPMG reports remind us, legal cigarette volumes have been steadily declining for many years in Australia, but this historic rate of decline has eased following plain packaging implementation. The increase in illegal tobacco has been greater than the decline of legal tobacco, leading to an overall increase in the consumption of tobacco in Australia.

The lesson here is that two wrongs never make a right. Australia’s efforts to reduce smoking, while understandable, have been ill-served by the choice of policy tools that deny consumers access to a legal product, remove the important consumer protection given by branding, and drive consumers to the unsecure black market.

Plain packaging has not only demonstrably failed to work in Australia, but it has arguably put Australia in violation of international trade rules intended to protect the rights of brand owners in the global marketplace.  Currently, the Australian measure is being challenged by five of its trading partners at the World Trade Organization (WTO), with 35 more countries weighing in as interested parties. The measures recently adopted in the UK and Ireland will likely face similar challenges in the courts. Lawmakers need to take a long look at the cautionary tale of Australia’s plain packaging fiasco and not fall victim to a similar situation. New Zealand, for example, has chosen to wait until the WTO issues its ruling on whether or not plain packaging violates international trade law, rather than recklessly push forward with an initiative that may soon be found in violation.

Brands matter, and consumers demand them. While today’s debate is about tobacco “plain packaging” there have been similar calls for plain packaging of spirits and wine. No doubt there will be other candidates down the road.

That’s one of the reasons why more than 145 prominent global business organizations joined the U.S. Chamber of Commerce in signing a joint statement in opposition to trademark destruction through plain packaging.

There are better ways for governments to educate consumers about the ramifications of smoking than by denying them appropriate choices and trusted brands.  Consumers deserve better.