Scotland may pay for tobacco intervention

Picture: AP
Picture: AP
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Plain cigarette packaging could break laws, says Colin Hulme

In 2008, Alex Salmond gave a speech at Harvard University expounding on the virtue and potential of Scotland’s knowledge economy. He said: “Among the big winners of globalisation are the small, dynamic trading nations of Europe – those countries with the skills and the flexibility to claim a major stake in the knowledge economy and the sectors of the future.” He went on to refer to Scotland’s successful life science and creative industries, which are creating intellectual property to be commercialised.

There is undoubtedly exciting potential for Scotland if we are able to harness, protect and sell these ideas effectively on a global scale.

However, as a result of the law of unintended consequences, the Scottish Government may now risk weakening Scotland’s international competitiveness. Scottish ministers have declared their intention to introduce plain packaging of tobacco products which has already attracted strong opposition in Ireland from US investors. There is a real danger, should it go down this road, that Scotland will in the process end up contravening EU and international law.

The plain packaging argument appears to be focused on public health, but cannot be looked at in isolation. Regard must also be given to international agreements such as those regulating intellectual property. My concern is that the proposed plain packaging legislation may risk placing the Scottish Government in breach.

The Human Rights Act, requiring public bodies to comply with the European Convention on Human Rights (ECHR), protects us from being deprived of assets, such as intellectual property rights, including valuable trademarks, without justification and compensation. By introducing a prohibition on the use of trademarks by tobacco manufacturers, government would effectively eliminate brands that have been invested in over many years. Recent commentary estimated this would trigger compensation payments of £500 million in Scotland. 2014 is the 20th anniversary of the agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), an international agreement regulated by the World Trade Organisation (WTO) which sets internationally recognised minimum standards of protection for IP rights across signatory states. One such minimum standard provides that “use of a trademark shall not be unjustifiably encumbered by special requirements”. The danger is that plain packaging legislation may well breach UK treaty obligations, a point which the Scottish Government will need to take cognisance of if planning to submit Scotland’s membership application to WTO in the event of Scottish independence. Should there be a “no” vote, it is something UK and Scottish governments will need to address before Scotland proceeds either in tandem with the UK or unilaterally.

A separate concern that could lead to further diminution of Scotland’s trade abroad is the possibility that foreign countries could penalise Scotland for standardising tobacco packaging by introducing similar measures for well-known Scottish brands, which account for over £4 billion in exports each year. How would we resist decisions of other governments to ban iconic Scottish brands from whisky to fizzy drinks when the precedent has been set by us?

In modern society, there are instances in which the state can deprive a private individual or company of its property. For example, compulsory purchase orders can be seen as a necessary measure if transport infrastructure is to be built and developed. However, the state cannot take any property it wants arbitrarily. At a minimum, it must pay compensation.

It would be concerning if the Scottish Government were to find itself where effectively it was compulsorily acquiring intellectual property without regard for such safeguards and procedural protection. So far, there has been no suggestion that compensation will be paid.

If the Scottish Government were to deprive tobacco companies of their intellectual property rights, how can it do so without undermining Scotland’s knowledge economy?

While our MSPs contemplate their own “compulsory purchase” of tobacco brands, there is no doubt that alcohol abuse and obesity are similar concerns for the health of our nation and many others. Where will it stop? And at what cost to Scotland’s own brand image?

• While the above is based on research conducted for Philip Morris International, all views expressed are those of Colin Hulme, a commercial litigator with Burness Paull LLP


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