Plain packaging: legal win confirms right to regulate in public interest

An international legal finding against Philip Morris has confirmed the right of states to regulate tobacco, vindicating Australia’s leadership on plain packaging legislation and clearing the way for other countries to implement similar regimes.

The award released on Friday brings to a close a six year dispute between the global tobacco giant and Uruguay, with an arbitral tribunal upholding Uruguay’s right to do two things: prohibit tobacco companies marketing cigarettes in ways that falsely present some cigarettes as less harmful than others and require tobacco companies to use 80% of the front and back of cigarette packs for graphic warnings of the health hazards of smoking.

Uruguay’s lawyers, the Boston-based firm Foley Hoag, praised the decision as having broad international consequences.

“This precedent-setting decision not only upholds Uruguay’s public health measures, but sends a strong signal to other countries that they can move forward with strong tobacco control regulations without fear of intimidation by big tobacco companies like Philip Morris,” said partner Paul Reichler, who worked on the case.

Many countries have in recent years held off introducing plain packaging and other control measures out of concern over potential expensive legal action by big cigarette companies. The law firm predicts Uruguay’s win — which includes an order that PM pay costs to the tune of $7 million — will embolden them to move forward with regulations protecting their citizens’ health.

This represents an even bigger victory than when the Permanent Court of Arbitration found in favour of Australia against Philip Morris earlier this year, as that case was decided on jurisdictional grounds, leaving open the question of Australia’s right to regulate. The court called PM’s case against Australia an “abuse of rights”.

Australia is seen by many as a leader in tobacco control, as it was the first country in the world to introduce plain packaging, forcing companies to sell tobacco products in standardises, drab, logo-free packs from 2012 onwards.

Uruguay’s current tobacco control system is not quite a plain packaging regime — although it requires 80% of the pack to be covered in health warnings, this leaves the other 20% for things like promotional colours and logos. It will, however, soon move towards all tobacco products being sold in generic packages, with even larger warnings of the harms caused by smoking, in an effort to further reduce smoking levels.

Decision will stem abuse of law

Many believe tobacco companies knew they did not have strong cases but used notoriously slow international legal processes as a means of pausing the spread of effective tobacco control measures.

Countries such as Papua New Guinea, struggling to pay for basic health services as is, have been faced with the prospect of multi-million dollar lawsuits for enacting legislation for the public good.

The Uruguay award should make it harder for this to happen. “The decision is also significant because it erects a barrier to the cynical use of international arbitration by Philip Morris and other tobacco companies to stop states from taking reasonable measures to protect public health,” argues Foley Hoag.

“Its strategy of misusing the arbitration process to dissuade states from adopting meaningful regulation of tobacco marketing has failed. States need no longer fear the risks or costs of such a challenge to their sovereign rights.”

There’s a reason tobacco companies have fought tooth and nail against these reforms — interventions like plain packaging and graphic warnings work. An Australian Department of Health report found plain packaging likely caused one quarter of the 2.2% drop in smoking rates between 2012, when it was introduced, and late 2015. During that period the number of Australians smoking fell from 19.4% of the population to 17.2%.

Tobacco control rules have been pushed in Uruguay by President Tabaré Vázquez, an oncologist before entering politics. As a result of various regulations and policies, smoking rates have been reduced from approximately 35% to approximately 23% between 2005 and 2014. Among youth, the rate has fallen to 8.2% as of 2014.

The two regulations challenged by Philip Morris were adopted in 2008 and 2009. In March 2010, PM filed its demand for arbitration with the International Centre for Settlement of Investment Disputes, part of the World Bank. Because Philip Morris International is incorporated in Switzerland, it sought arbitration under the terms of a bilateral investment treaty between Switzerland and Uruguay.

Specifically, the tribunal found: Uruguay’s regulatory measures did not expropriate Philip Morris’s property; the measures did not deny Philip Morris “fair and equitable treatment” because they were not arbitrary; the measures did not “unreasonably and discriminatorily” deny Philip Morris the use and enjoyment of its trademark rights, because they were enacted in the interests of legitimate policy concerns and were not motivated by an intention to deprive Philip Morris of the value of its investment; and that Uruguayan courts afforded the company due process and fair treatment.

In May, the United Kingdom’s High Court upheld its plain packaging law. The European Union Court of Justice has also upheld the right of European states to use plain packaging and graphic health warnings.

Cases relating to claims by Indonesia, Cuba, Dominican Republic and Honduras that Australia’s plain packaging system infringes World Trade Organization agreements are ongoing.