Philip Morris’s Second Unlucky Strike Against “Plain Packaging” Laws

A second try by Philip Morris International, Inc. to challenge “plain packaging” tobacco laws under an investment treaty has failed. Phillip Morris suffered another defeat recently when an ICSID Tribunal rejected claims brought against Uruguay’s “plain packaging” laws under the Switzerland-Uruguay bilateral investment treaty. The decision follows on the heels of the dismissal of another treaty claim in May brought by Philip Morris against Australia to challenge similar “plain packaging” laws. 
 
At issue in the case against Uruguay were government measures that included adopting a single presentation requirement precluding tobacco manufacturers from marketing more than one variant of cigarette per brand family, and the increase in the size of graphic health warning appearing on cigarette packages. Philip Morris alleged that these measures breached Uruguay’s obligations under the investment treaty that prohibit the impairment of use and enjoyment of investments, require fair and equitable treatment, prohibit denial of justice, prohibit expropriation, and require observance of commitments. On this basis, it sought withdrawal of the measures or non-application of them to Philip Morris, as well as damages, or in the alternative an award of at least $22 million in damages – and payment of its fees and expenses in bringing the arbitration.
 
Uruguay responded that the measures were adopted in compliance with Uruguay’s international obligations, including the investment treaty, and were promulgated for the single purpose of protecting public health. Uruguay further asserted that the measures were applied in a non-discriminatory manner to all tobacco companies, and amounted to a reasonable, good faith exercise of Uruguay’s sovereign prerogatives.
 
The Tribunal ruled that Uruguay’s challenged measures were a valid exercise of its power to regulate in the interests of public health. It therefore did not constitute an unlawful expropriation of the Philip Morris’s investment. Nor did it represent a breach of fair and equitable treatment or impair Philips Morris’s use and enjoyment of its investment. In particular, the Tribunal found that Uruguay’s measures did not frustrate Philip Morris’s “legitimate expectations” in making its investment, finding that the company had no such expectations that such measures would not be adopted. It also found that Uruguay’s actions did not undermine the “stability of the legal framework,” since the effect of the measures had not been such as to modify the stability of the Uruguayan legal framework. Further, the Tribunal found no lack of observance of commitments by Uruguay because trademarks were not within the intended scope of that treaty protection. Finally, the Tribunal held that alleged procedural improprieties in previous proceedings in the case did not rise to the level of a denial of justice.
 
In rejecting all of Philip Morris’s claims, the Tribunal ordered the company to pay Uruguay US $7 million in arbitration costs, including all the fees and expenses of the Tribunal, as well as ICSID’s administrative fees and expenses.
 
Philip Morris’s recent defeat demonstrates the challenges facing companies operating in foreign markets in areas that touch on health and public welfare interests. Arent Fox’s International Arbitration and Dispute Resolution Practice has broad experiences in the field of investment treaties and investor-State arbitration. If you have any questions, please feel free to contact Timothy Feighery, Lee Caplan, or Sylvia Costelloe.