Ceylon Tobacco Company PLC v Hon Maithripala Sirisena, Minister of Health and others, CA 336/2012 (Writ), Court of Appeal, Sri Lanka, 12 May 2014
Journal of Intellectual Property Law & Practice (2014) doi: 10.1093/jiplp/jpu131, first published online: July 16, 2014
The Sri Lankan Court of Appeal refused an application made by the Ceylon Tobacco Company PLC seeking to quash the Tobacco Products (Labelling and Packaging) Regulation No 1 of 2012 (published in Gazette Extraordinary No 1770/15 of 8 August 2012) subsequently amended by regulation published in Gazette Extraordinary No. 1797/22 of 15 February 2013 (‘regulations’) for being ultra vires its empowering statute, the National Authority on Tobacco and Alcohol Act 2006. The court came to its finding having considered the impact pictorial health warnings have on the use of tobacco, the nature of trade mark rights guaranteed under the Intellectual Property Act 2003 and the Sri Lankan government's interest of promoting public health, especially in view of its obligations under the World Health Organization Framework Convention on Tobacco Control.
Legal context and facts
Substance of regulation Reg. 4 No manufacturer, importer, retailer, storekeeper, agent or seller of any cigarette packet, package or carton containing cigarettes shall produce, supply, distribute, sell or offer for sale any such packet, package or carton unless every packet, package or carton containing cigarettes which is distributed, sold or offered for sale carries the specified health warnings as depicted in the Schedule to these regulations.The Ceylon Tobacco Company PLC (CTC) challenged the legality of these regulations, seeking to have them quashed by way of a writ of certiorari, on the basis that they were, inter alia, unreasonable and disproportionate, ultra vires the minister's power to make regulations under s 30 read with s 34 of the NATA Act and illegally subverted the statutory right of the CTC to use its trade marks guaranteed under s 121(1) of the Intellectual Property Act 2003 (IP Act).
Reg. 5 The pictorial health warnings as is specified in the Schedule to these regulations shall be printed on the top surface area of both front and back sides of every cigarette packet, package or carton containing cigarette and shall cover an area not less than eighty per centum (80%) of the total area of the packet, package or carton.
It was in this backdrop that the court had to balance the interests of CTC, including its trade mark rights, against the Sri Lankan government's interest of promoting public health.
Two arguments were advanced by CTC in challenging the legality of the regulations introducing pictorial health warnings. The first argument related specifically to the vires of the regulations. CTC argued that in the absence of any express reference to ‘pictorial’ health warnings in s 34(1) of the NATA Act, the minister was not empowered to make regulations prescribing pictorial health warnings—as his powers were limited only to deal with textual warnings.
In further strengthening this argument, CTC relied on the fact that the FCTC neither compels State parties to impose pictorial health warnings, nor requires the imposition of health warnings on 80 per cent of the display areas of tobacco packs, the minimum being 30 per cent and the recommended being 50 per cent or more (Article 11:1 FCTC). It was on this basis that CTC claimed that the imposition of pictorial health warnings covering a surface of 80 per cent of tobacco packs was not only unreasonable and disproportionate, but also ultra vires the minister's powers under the NATA Act. In this regard, having considered literature from varying jurisdictions on the effectiveness of pictorial health warnings on the use of tobacco, the court concluded that the term ‘health warning’ should not be narrowly interpreted since a warning in today's context and society could be expressed by means of both text and pictures. The court was certain that it could never have been the intention of Parliament to exclude pictorial health warnings since such warnings could reach all categories of persons including those who may be illiterate. Accordingly, the implementation of pictorial health warnings in terms of these regulations was lawful and within the scope of the NATA Act and the powers of the minister.
The second argument advanced by CTC was that permitting pictorial health warnings to be displayed on 80 per cent of the display area of tobacco packs interfered with the tobacco company's right to use its trade marks effectively—which it argued was guaranteed under s 121(1) of the IP Act. Going beyond its minimum obligations under the Agreement on the Trade Related aspects of Intellectual Property Rights (TRIPS), which requires contracting States to confer on trade mark owners a negative right to exclude the unauthorized use of their trade marks (Article 16:1, TRIPS), the Sri Lankan government expressly guarantees anyone having a registered trade mark in Sri Lanka a positive right to use it in trade. The court acknowledged this positive right to use a trade mark, referring to an earlier decision of the Sri Lankan Court of Appeal in Leelananda v Earnest de Silva  2 Sri LR 237, where Sarath N Silva J (who later became a Chief Justice of Sri Lanka) interpreting the provisions of the former Code of Intellectual Property 1979 (that resembled s 121 of the IPAct), observed:
[T]he rights of a registered owner are both positive and negative in nature. The rights operate in a positive way and entitle the owner to use the mark or to assign or transmit the registration of the mark or to conclude licence contracts in relation to it … The negative aspects of the rights … preclude third parties from doing certain acts in relation to a registered mark. In my view both the positive and negative aspects referred above form integral parts of the rights of a registered owner of a mark.Most importantly, the court concluded that any limitations on the rights of a trade mark owner (as prescribed in s 122 of the IP Act) apply only to the negative aspect of the right, whereas the positive right to use a trade mark does not succumb to any such restriction. In the circumstances, the court concluded:
Where 80% of the pack is covered with the health warning, the practical issue that arises is whether the remaining 20% is reasonably sufficient to present and exhibit the mark or in other words to use the mark … 20% of the space is not reasonably sufficient to present and exhibit a trade mark … .The court added that the core function of a trade mark is to enable consumers to identify goods they desire without being misled as to their source and quality. By depriving tobacco trade mark owners of a reasonable opportunity to realize the function of a trade mark, ‘… unscrupulous traders may even misuse [that] situation to mislead … consumers by selling products from wrong sources rather than selling what actually the consumer wants to buy.’
Accordingly, although CTC's application was dismissed, the regulations were adjusted such that now only 50–60 per cent of the display surface of tobacco packs is subject to pictorial health warnings, leaving at least 40 per cent of space for the display of trade marks.
The gruelling duel between tobacco trade mark owners and health conscious governments is far from over, and has led to stringent legislative measures being taken in some jurisdictions. The recent enactment of the Tobacco Plain Packaging Act 2011 (Cth) (‘TPP Act’) in Australia that has completely abolished the use of trade marks on consumer tobacco packs serves as a fitting example, although the TRIPS compliance of this law is currently being challenged before the World Trade Organization (WTO).
What is noteworthy, however, is that, just as in Sri Lanka, the Australian Trade Marks Act 1995 (Cth) guarantees all trade mark owners a right to use their marks (s 20(1)). Yet when the Australian High Court was called upon to determine the constitutional validity of the TPP Act, the justices (except Haydon J who dissented) answered in the negative, or avoided answering at all, the question whether a right to use a trade mark exists (JTI v Commonwealth,  HCA 43, paras 43, 77, 248 and 348). In contrast, the Sri Lankan Court of Appeal not only endorsed the existence of a positive right to use a trade mark under Sri Lankan law, but also concluded that if the display of tobacco trade marks was limited to just 20 per cent of the display area of tobacco packs that would be an unreasonable restriction on that right to use. This approach of the Court of Appeal in drawing a balance between the rights of tobacco trade mark owners and the government's interest in promoting public health is no doubt sound and is in fact consistent with the spirit of TRIPS.
However, the Court of Appeal's conclusion that the limitations on trade mark rights under the IP Act only apply to the negative right of exclusion conferred on trade mark owners, ought not to be taken as implying that the positive trade mark right of use is somehow absolute or unqualified. In order to arrive at its final decision, the Court of Appeal did not have to come to such a conclusion on a trade mark owner's right to use a trade mark, especially because all that TRIPS requires its contracting States to guarantee is the negative trade mark right of exclusion. In any event, the Court of Appeal's conclusion is not without problems in the Sri Lankan context, since a citizen's fundamental right to engage in a lawful trade guaranteed by the Sri Lankan Constitution (Art. 14(1)(g)) is subject to restrictions as may be prescribed by law in the interest of inter alia public health (Art 15(7)). If the use of trade marks is necessary to fully realise the fundamental right to engage in trade, then any positive right to use a trade mark must be subject to this constitutional limitation. The Supreme Court of Sri Lanka now has the opportunity of providing guidance on the nature and scope of trade mark rights, in particular as regards the positive right of use, in view of CTC's appeal to the land's highest court from the judgement of the Court of Appeal (S.C. Spl. L.A. No. 85/2014 dated 23.5.2014). Unless such guidance is provided, there could be implications in the event the Sri Lankan Government wishes to introduce more stringent tobacco packaging legislation, such as plain packaging.