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Unlucky Strike: Challenge fails against Uruguay’s “plain packaging” law for tobacco

Source: Grill IP patent news

Philip-Morris-Uruguay-Challenge-DismissedA challenge against Uruguay’s “plain packaging laws for tobacco has failed. A Tribunal of the International Centre for Settlement of Investment Disputes (ICSID) vetoed an attempt by tobacco giant Philip Morris International to bring down the law, the second failure of the tobacco company to contest a “plain packaging” law under international investment treaties. The defeat highlights the tension between sovereign states and the rights of companies to operate freely in foreign markets. Philip Morris had argued that Uruguayan legislation aimed at promoting public health violated a bilateral investment treaty between Switzerland and Uruguay, because it was damaging the company’s investments in the South American country.

Under Uruguayan law, tobacco companies are forced to follow strict packaging rules for their products, and also have to display larger graphic health warning graphics. The Uruguayan government argues that these measures are in the interest of public health and are in compliance with all international investment obligations. Sovereign prerogatives guided the government’s measures and were applied without discrimination, which according to Uruguay’s lawyers meant that Philip Morris had no grounds for legal action.  

Philip Morris didn’t agree, maintaining that the country’s health legislation infringed upon Uruguay’s obligations under its investment treaty with Switzerland. The treaty prevents the country from impairing the use and enjoyment of investments, denying justice to investors, and expropriation. Philip Morris demanded that Uruguay should withdraw the law on tobacco packaging, or offer Philip Morris an exception to the rules. The tobacco manufacturer also asked to have its arbitration fees reimbursed, plus $22 million in damages on top of that.

The ICSID Tribunal, however, sided with the Uruguayan government, saying that it acted within its power to regulate in the interest of public health. Philip Morris’s investments were not unlawfully expropriated, nor had there been any breach of equitable treatment disadvantaging the company. Further, no “legitimate expectations” concerning Philip Morris’s investments were frustrated in any way, as the company had no expectations that such measures might not be enacted. Since trademarks fall outside the scope of the international treaty’s protection, the Tribunal reasoned that Uruguay was in observance of all its obligations. Procedural improprieties levied against Uruguay were unfounded, and since Philip Morris was not denied justice, the plaintiff was ordered to pay the country $7 million in arbitration costs.

Back in May, Philip Morris suffered a similar fate when it challenged Australia’s “plain packaging laws.” The two rulings against the tobacco giant suggest that the ICSID has little sympathy for companies that threaten a country’s sovereign right to dictate policy on public health issues. While these health standards bar Philip Morris from diversifying it’s brand presence, such measures constitute neither unequal nor unfair treatment according to international authorities — producing a very unlucky strike for the cigarette producer and a very sound standard for international markets to follow.

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