In February 2010, three subsidiary companies of Philip Morris International (PMI) initiated an investment arbitration claim at the International Centre for the Settlement of Investment Disputes (ICSID), an arbitration panel of the World Bank. PMI alleged that two of Uruguay’s tobacco control laws violated a Bilateral Investment Treaty (BIT) with Switzerland. PMI brought the claim after legal challenges in Uruguay’s domestic courts by the Philip Morris subsidiaries had failed. The panel of three arbitrators published their ruling on July 8, 2016, dismissing all PMI’s claims and awarding Uruguay its legal costs ($7 million).
The two “Challenged Measures” required:
1. Large graphic health warnings covering 80% of the front and back of cigarette packets; and
2. The Single Presentation Requirement (SPR) that limited each cigarette brand to just a single variant or brand type (eliminating brand families to address evidence that some variants can mislead consumers and falsely imply some cigarettes are less harmful than others).
PMI alleged that the 80% health warnings left insufficient room on the packs for it to use its trademarks and branding as they were intended, and the SPR meant it could not market some of its brands such as Marlboro Gold. PMI therefore alleged that Uruguay had breached the terms of the BIT because the Challenged Measures: Expropriated the property rights in PMI’s trademarks without compensation; were arbitrary as they were not supported by evidence to show they would work and so did not accord PMI with Fair and Equitable Treatment; did not meet PMI’s Legitimate Expectations of a stable regulatory environment or to be able to use their brand assets to make a profit; and that the Uruguayan courts had not dealt properly or fairly with PMI’s domestic legal challenges such that there was a Denial of Justice.
Philip Morris sought an order for the repeal of the Challenged Measures and for compensation in the region of $25 million.
The tribunal’s findings
This highly anticipated award addressed a number of fundamental legal issues concerning the balance between investor rights and the space available for states’ to regulate for public health. While there is no doctrine of binding precedent in international arbitration law, the development of an investment treaty case law and jurisprudence means that the wider value of each award can be very significant. This ruling highlighted the importance of the WHO Framework Convention on Tobacco Control (FCTC) in setting tobacco control objectives and establishing the evidence base for measures, and confirmed that states therefore need not recreate local evidence. It addressed the wide ‘margin of appreciation’ and deference provided to sovereign states in adopting measures or decisions concerning public health. The tribunal also identified that a state need not prove a direct causal link between the measure and any observed public health outcomes – rather that it was sufficient that measures are an attempt to address a public health concern and taken in good faith.
The ruling sets an extremely high bar for any foreign investor seeking to bring an investment arbitration challenge against a non-discriminatory public health measure that has a legitimate objective and that has been taken in good faith.
PHILIP MORRIS BRANDS SÀRL, PHILIP MORRIS PRODUCTS S.A. and ABAL HERMANOS S.A. (THE CLAIMANTS) and ORIENTAL REPUBLIC OF URUGUAY (THE RESPONDENT) (ICSID Case No. ARB/10/7).
Uruguay
Jul 8, 2016
International Centre for Settlement of Investment Disputes
Tobacco companies or front groups may challenge any legislative or regulatory measure that affects their business interests. Unlike public interest litigation, these cases seek to weaken health measures. These cases frequently involve the industry proceeding against the government. For example, a group of restaurant owners challenging a smoke free law as unconstitutional.
Governments may bring complaints before intergovernmental bodies on tobacco-related issues. For example, one country may complain that another country’s tax regime discriminates against its exported tobacco products. In some cases, a treaty may allow a private party to file a complaint against a government before an intergovernmental body.
Measures to regulate the marketing on tobacco packages. This includes both bans on false, misleading, deceptive packaging, as well as required health warnings on packaging.
(See FCTC Art. 11)
A violation of the right to expression, free speech or similar right to express oneself without limitation or censorship. The industry may claim that a regulation infringes on their right to communicate with customers and the public. Similarly, they may claim that mandated warnings infringe on their freedom to communicate as they desire.
A violation of the right to procedural fairness. For example, a party may claim that a government agency did not consult with public or stakeholders when issuing regulations.
Regulations may infringe on intellectual property rights, which may be protected by international treaties. The industry may argue that bans on "deceptive" packaging that eliminate the use of colors, numbers or trademarks threaten intellectual property rights.
A claim of an infringement of any international trade agreement, including General Agreement on Tariffs and Trade (GATT), Technical Barriers to Trade (TBT), Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), or bilateral treaties.
Regulatory measures may lead to an increase in illegal sales, such as counterfeit products. The industry may also argue that such illicit trade will reduce tobacco tax revenue.
Regulatory measures consisting of political actions designed to punish the tobacco industry or tobacco users. The industry may argue such arbitrary and capricious regulations will fail to achieve the stated objective. They may also argue that the measures are too extreme, prohibitively expensive, and violate the principle of proportionality.
A discussion on whether the regulations impose an undue burden on the tobacco industry. This argument may involve the costs of implementing regulatory measures.
Type of Tobacco Product
None
Limitations regarding the use of quotes The quotes provided here reflect statements from a specific decision. Accordingly, the International Legal Consortium (ILC) cannot guarantee that an appellate court has not reversed a lower court decision which may influence the applicability or influence of a given quote. All quotes have been selected based on the subjective evaluations undertaken by the ILC meaning that quotes provided here may not accurately or comprehensively represent a given court’s opinion or conclusion, as such quotes may have originally appeared alongside other negative opinions or accompanying facts. Further, some quotes are derived from unofficial English translations, which may alter their original meaning. We emphasize the need to review the original decision and related decisions before authoritatively relying on quotes. Using quotes provided here should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter in any jurisdiction. Please see the full limitations at https://www.tobaccocontrollaws.org/about.
"In short, the 80/80 Regulation was a reasonable measure adopted in good faith to implement an obligation assumed by the State under the FCTC. It was not an arbitrary, grossly unfair, unjust, discriminatory or a disproportionate measure, in particular given its relatively minor impact on Abal’s business. The Tribunal concludes that its adoption was not in breach of Article 3(2) of the BIT."
"In the Tribunal’s view, in these circumstances there was no requirement for Uruguay to perform additional studies or to gather further evidence in support of the Challenged Measures. Such support was amply offered by the evidence-based FCTC provisions and guidelines adopted thereunder."
Limitations regarding the use of quotes The quotes provided here reflect statements from a specific decision. Accordingly, the International Legal Consortium (ILC) cannot guarantee that an appellate court has not reversed a lower court decision which may influence the applicability or influence of a given quote. All quotes have been selected based on the subjective evaluations undertaken by the ILC meaning that quotes provided here may not accurately or comprehensively represent a given court’s opinion or conclusion, as such quotes may have originally appeared alongside other negative opinions or accompanying facts. Further, some quotes are derived from unofficial English translations, which may alter their original meaning. We emphasize the need to review the original decision and related decisions before authoritatively relying on quotes. Using quotes provided here should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter in any jurisdiction. Please see the full limitations at https://www.tobaccocontrollaws.org/about.
In February 2010, three subsidiary companies of Philip Morris International (PMI) initiated an investment arbitration claim at the International Centre for the Settlement of Investment Disputes (ICSID), an arbitration panel of the World Bank. PMI alleged that two of Uruguay’s tobacco control laws violated a Bilateral Investment Treaty (BIT) with Switzerland. PMI brought the claim after legal challenges in Uruguay’s domestic courts by the Philip Morris subsidiaries had failed. The panel of three arbitrators published their ruling on July 8, 2016, dismissing all PMI’s claims and awarding Uruguay its legal costs ($7 million).
The two “Challenged Measures” required:
1. Large graphic health warnings covering 80% of the front and back of cigarette packets; and
2. The Single Presentation Requirement (SPR) that limited each cigarette brand to just a single variant or brand type (eliminating brand families to address evidence that some variants can mislead consumers and falsely imply some cigarettes are less harmful than others).
PMI alleged that the 80% health warnings left insufficient room on the packs for it to use its trademarks and branding as they were intended, and the SPR meant it could not market some of its brands such as Marlboro Gold. PMI therefore alleged that Uruguay had breached the terms of the BIT because the Challenged Measures: Expropriated the property rights in PMI’s trademarks without compensation; were arbitrary as they were not supported by evidence to show they would work and so did not accord PMI with Fair and Equitable Treatment; did not meet PMI’s Legitimate Expectations of a stable regulatory environment or to be able to use their brand assets to make a profit; and that the Uruguayan courts had not dealt properly or fairly with PMI’s domestic legal challenges such that there was a Denial of Justice.
Philip Morris sought an order for the repeal of the Challenged Measures and for compensation in the region of $25 million.
The tribunal’s findings
This highly anticipated award addressed a number of fundamental legal issues concerning the balance between investor rights and the space available for states’ to regulate for public health. While there is no doctrine of binding precedent in international arbitration law, the development of an investment treaty case law and jurisprudence means that the wider value of each award can be very significant. This ruling highlighted the importance of the WHO Framework Convention on Tobacco Control (FCTC) in setting tobacco control objectives and establishing the evidence base for measures, and confirmed that states therefore need not recreate local evidence. It addressed the wide ‘margin of appreciation’ and deference provided to sovereign states in adopting measures or decisions concerning public health. The tribunal also identified that a state need not prove a direct causal link between the measure and any observed public health outcomes – rather that it was sufficient that measures are an attempt to address a public health concern and taken in good faith.
The ruling sets an extremely high bar for any foreign investor seeking to bring an investment arbitration challenge against a non-discriminatory public health measure that has a legitimate objective and that has been taken in good faith.