Saturday 11 June 2011

Aussie Bravado On Plain Packaging Is Premature

Tobacco harm reduction advocate Carl V. Phillips opined on Wednesday that Australian tobacco controllers may be quietly happy if their plain packaging nonsense ends up being rebutted.

If the plain packaging were implemented without incident and the inevitable increase in black market sales and lack of decrease in use prevalence occurred, it would be one more step into the cul-de-sac of irrelevance for tobacco control. Oh, but if the industry can be tempted into fighting this, and better still if they win, jackpot! “Big tobacco wins again!” “Important public health measure prohibited on a technicality.” “We would have eliminated smoking in Australia with this, but Big Tobacco just has too much influence.” That is good for at least five more years of full employment for anti-tobacco extremists.
I was sceptical, it has to be said, but I'm starting to wonder if the Australian public health bulldozer is more worried about how this could all pan out tha they are letting on.

Upside down anti-smoker-in-chief Simon Chapman, in particular, has been spinning relentlessly in recent weeks and been rightly ridiculed for trying to involve himself in areas that are out of his term of reference or experience.

You see, the problem with tobacco control is that they have reached a level that they couldn't have dreamed about when they started 35 or 40 years ago. They've had the benefit of some quite astoundingly retarded politicians to help them get even this far, but they're now at the very limits of The Peter Principle.

Sure, Chapman is one of the world leaders in producing junk science and badgering his friends at the WHO to pass directives on behalf of his pharmaceutical paymasters, but when dipping his toes into the business world, he is on very shaky ground ... not surprising for someone who has never generated a productive dollar in his life. However, with the glittering attraction of plain packaging almost within his grasp, he just can't resist casting himself as a financial expert instead of stepping back and admitting he's out of his element.

Via Belinda comes his arrogantly-written piece where he suddenly transforms from faux medical type guy into an indisputable guru on intellectual property rights, legal intricacies, and multi-national business affairs.

"The extinction of rights or the reduction of rights is not relevant. The government or a third party must acquire property as a consequence of the legislation.

“The government does not wish to use the tobacco trade marks. Nor does it want third parties to do so. It does not desire to or intend to acquire any property. The proposition that prohibitions on the use of property do not constitute an acquisition of property was confirmed by the High Court as recently as 2009. In that case, the High Court held that the government was entitled to extinguish property rights in licences of farmers to take bore water.”
As a wise commenter - amongst Chapman's idolatrous performing seals - kindly chips in before I googled it, the basis of that case was to determine who actually owned the water being bored. The government successfully argued that it wasn't the farmers' to begin with. Control of all water is vested in the government, so no material loss had occurred.

With regard to tobacco company trade marks, logos, designs, and branding, the Aussie government can't possibly make the same claim. They entirely belong to the companies concerned - as they do in any other industry - and would therefore be effectively confiscated by the state if the legislation passes.

Chapman argues that this isn't a problem anyway because they would have to prove reduced sales. Now, I hate to break it to him, but the whole point of the exercise is to do exactly that, so all the tobacco legal teams would need do is raid his own side's justification for the ban. If there is no reduction, there will be no problem of compensation, but it would kinda make the whole idea look a bit self-defeating by the same token.

But that's all by-the-by.

Chapman's view of material damage shows a distinct lack of awareness of accounting principles and business worth because turnover is just one ingredient in how a business is valued. As is profit, as is every other tangible measure.

The sticky point for Australia's government is that they will be destroying an intangible asset which has a real value, the loss of which would negatively impact any large business.

Goodwill and brand recognition - whether actually on a company's balance sheet or not - have a massive bearing on the credit worthiness of a business, as well as the attractiveness to investors, the value of shares, and the overall wellbeing of the operation. If the government takes these away, it really is theft and would have no other effect than to harm the business in a tangible and financially-averse way.

Healthy sales may well lead to a decent net profit in the long run, but the difference between a business's operational (net book) value and its worth on the stock markets is how its intangible value (brand and goodwill) is calculated. For example, pharmaceutical company Procter & Gamble's brands are valued at $104bn, and goodwill at $89bn. If a government tried to take such a huge amount of value away, I reckon P&G would spend a shitload of money on protecting it - irrespective of sales - just as tobacco companies are doing.

What's more, we know that tobacco stocks are widely held by pension funds all over the world. There's been much debate just in our country about such investments, but considering tobacco companies perform consistently well in the markets, managers are not keen to ditch them. If state action forced them to - probably at a knock-down price - it would impact on the cash pot available to investors, funds would not be earning as they should, and claims could ensue. Of course, if they didn't dispose of such shares, and earnings were impacted, claims could still ensue. That's quite a bit of potential legal pain for Australia plc, right there.

And we haven't even spoken yet of shareholders who would be quite miffed if the Australian government's actions led to their losing money from their investments and dividends. And as we all know, 'where there's blame, there's a claim'.

Reduced sales? It really isn't the half of it, Simon.

But then, he does point to a clause in the Bill which is not only wise, but may also be quite significant.

Few of those megaphoning this legal Armageddon appear to have even read the draft Bill itself. Section 11 makes it clear that plain packaging won’t apply if it were to be determined (by a court) that its operation would result in an acquisition of property otherwise than on just terms. So in the unlikely event that the High Court says there is an acquisition of property (more on this below), the legislation would revert to a fallback position in the regulations under which “the trade mark may be used on the packaging of tobacco products, or on a tobacco product, in accordance with any requirements prescribed in the regulations”.

In other words, the bill has been drafted with a get-out-of-jail-free card under which plain packaging will not proceed if the court said it was an unjust acquisition. So massive damages or compensation will simply not arise.
So, if tobacco companies successfully argue that they have had their property - presumably defined as something that has a real measurable financial value - stolen by this legislation, all bets are off.

The very existence of such a clause would tend to suggest that the Aussie government and the public health lobby - far from dismissing such an outcome - consider it a distinct possibility. And why not considering the above?

Which would then mean that Carl V. Phillips's Brer Rabbit scenario leaps to the fore as he smugly smooths his eyebrows and grins the smarmy grin of self-satisfaction.


Angry Exile said...

As a supporter ;-) of my local tobacco smuggler I say all this can't come soon enough. Why should hard working Aussie smokers have to pay extortionate prices, as much as $16 a pack or more for some brands, when instead they could be buying chop-chop by weight or some knocked off Chinese stuff for about five or six bucks? I do hope the Obesity Policy Coalition - yes, they're real - are paying attention because this is what's in store when they get round to demanding similar sanctions against what they decide is junk food. Once again I find myself ahead of the curve - my favourite takeaway burgers come in plain brown paper bags.

Anonymous said...

Anti-tobacco is clearly overstepping authority and Simon Chapman is beginning to sound like a public relations specialist and not an expert on anything, other than on how to put across a good lie. Plain packaging is tampering with freedom of trade, the same way smoking bans trampled property rights. At the rate we are going, pretty soon there will be no rights left - and all of it thanks entirely to anti-tobacco and other prohibitionists in the pipeline riding on the gravy train.

Anonymous said...

I vaguely wonder whether or not it is possible to have clause in an Act which says, "Just in case the courts say that we are breaking international law, then, if that becomes apparent, this Act contains regulations regulating the regulations provided by this Act."

Doesn't make sense to me. The thing is that the regulations form part of the Act, but do not have to be notified to MPs at the time when the Act is passed - they can be notified later. This is how we came to have non-shelters. In the Commons, the regulations are merely placed in the Common's library. But the regulations can only be formulated in accordance with the Act. How can the regulations incorporate provisions which make an assumption that the Act is illegal? When I say illegal, I do not mean that the Aussie Gov cannot insist on plain packaging, I mean that they are breaking international laws to which they have subscribed. If that were the case, would not the Aussie Gov be continuously liable for damages, year after year? Unless, of course, they withdraw from the World agreement - in which case, all Aussie trademarks, logos, etc useless - exit vast numbers of international companies.

Never, in my wildest imagination, did I ever think that I would be supporting international companies!

More unintended consequences?

Mick Turatian said...

...Goodwill and brand recognition ... have a massive bearing on the credit worthiness of a business...

Not so. I agree that brands can have considerable intrinsic value but a company's creditworthiness is going to be a function more of its ability to generate cash from the brand than of the value of the brand itself.

Dick Puddlecote said...

Mick: Tell that to my company's bank who issue credit terms purely on the basis of accounting ratios and proofs of security, one of which is a measure of resale worth.

Carl V Phillips said...

Just to clarify, when I suggested that some of those pulling the strings were pulling a long con, I was not suggesting they included Chapman (who I took apart in two recent EP-ology posts, one of which is linked from your Snowdon link). Again, I am just speculating, but if there are such brains behind it, they probably find it convenient to let people (including Chapman) think that Chapman is the leader.

Also, I agree with Junican that even if the Australian domestic courts let this slide, the treaty arbiters might not, leading to the Brer Rabbit outcome.

Finally, re your last sentence, though there is a case to be made that sometimes my eyebrows could use some smoothing, can I assume there is an ambiguous antecedent problem and you are saying the smarmy smile belongs to the Rabbit and not me? I can't say I recall anyone ever characterizing me that way. :-) <--Snarky smile

Mick Turatian said...

...Tell that to my company's bank...

Gladly! I didn't want to get an A* for pedantry which is why I didn't go on to say earlier that the value of a brand is relevant to the lender in circumstances where the borrower is approaching insolvency and where the business might have to be sold.

Where a company is trading profitably, the existence and value of the brand should not really be an issue at all and for an SME that has never changed hands the value of the brand in isolation is pure conjecture anyway.

You can test this by telling your bank that you are selling the PuddleTruck © brand (but not the trucks or the business) to Norbert and see if they want to pull your line.

Chances are they'll like the cash injection into your business so much that they'll offer you a bigger facility!

Dick Puddlecote said...

Carl: Consider it an enigmatic Errol Flynn "I'm better than you, and you know it" smile. ;)

Mick: Gotcha. Ta for the extra info. :)