Philip Morris Vs Uruguay: the David against Goliath legal case that could reshape the global tobacco industry

Philip Morris Vs Uruguay legal case

One country that has long run an aggressive anti-smoking campaign is Uruguay, where the government’s efforts since 2006 to convince its citizens to stop smoking had profound results since tobacco use declined rapidly between 2006 and 2009, and it kept falling ever since. Among the many tactics employed by the government was the adoption of graphic, and even gruesome, warnings on cigarette packages, covering 50% of the packet. In addition, cigarette companies are currently only allowed to sell one brand of smokes within Uruguay: branding with words such as “light,” “extra,” “green” or “gold” were prohibited because they allegedly convince consumers they are smoking a safer/healthier option.

The government of Uruguay had started its crackdown on smoking in 2005, at a time when 40 per cent of adults in the country smoked. Now, as a result of the drastic measures taken only 23 per cent of Uruguayans still have the habit. Among the young, where a third of all teenagers smoked before, only 13 per cent do so now. Encouraged by these results, in 2009 the Uruguay government decided to raise the required coverage of cigarettes packages by gruesome pictorial health warnings to 80 percent, more than any other country had mandated before. Moreover it banned the sale of more than one brand variant, saying that selling cigarettes under terms like “light” and “gold” deceives consumers into thinking that those types are healthier than the average cigarette.

As a result of these measures, tobacco giant Philip Morris had to take seven of its 12 products off the shelves and it then decided to file a lawsuit against the government of Uruguay because it says that the percentage of warning labels that are required on cigarette packs in Uruguay goes beyond what is reasonable to protect people from the harmful effects of smoking and that they leave no space on the packs for legally protected trademarks. The lawsuit asks for a $25 million compensation from the Uruguay government and it is based on the terms of a bilateral trade agreement between Switzerland  – the current seat of Philip Morris – and Uruguay. The trade deal has at its heart a provision allowing Swiss multinationals the right to sue the Uruguayan people if they bring in legislation that will damage their profits.

The lawsuit will be settled finally towards the end of this year by binding arbitration from the International Center for Settlement of Investment Disputes (ICSID), under the trade agreement between two countries, however it attracts great attention as it is seen as a test case for big business lawsuits that could hit the EU and other regions.

The litigation has already been dragging on since 2009 and it has already cost Uruguay millions of dollars. However, Uruguay authorities went ahead with its anti-tobacco measures and further to those it has also banned cigarettes from being on show in shops. Uruguayan authorities claim that Philip Morris is bullying their country because it is small and they also point to the fact that besides the ISDS case, the company has also closed down its factory in Uruguay during the dispute, leaving 40 workers out of jobs.

Uruguay has some supporters in its efforts, such as for example the advocacy organization Avaaz, which is running a signature campaign in support of Uruguay’s policies. Supporters of the Uruguay government view this dispute is a classic David versus a corporate Goliath fight, sspecially since Uruguay’s GDP in 2013 was about US$55.7 billion, while Philip Morris’ revenues the same year totaled approximately US$80.2 billion. Also supporting Uruguay are Bloomberg Philanthropies, the eponymously named foundation launched by New York City’s former mayor, and the Gates Foundation, which fund the efforts of Uruguay in the fight against Philip Morris, because they fear that if Philip Morris wins its legal battle with Uruguay, smoking bans in other countries will come under threat.

This argument does hold considerable validity as it appears that Philip Morris’ intention was to make an example out of Uruguay and this is why the outcome of this case will indeed set the tone for other countries. Consequently, both the tobacco industry and its critics are keenly watching how this lawsuit will eventually unfold, while the anti-tobacco lobby is arguing that the whole purpose of this lawsuit is to intimidate other governments and make them feel that “they can’t afford to take on the big companies.”

This is further supported by the fact that the Uruguayan case pre-dates the more famous but similar ISDS case brought by Philip Morris against Australia when the country introduced the plain packaging of cigarette packets. In fact, the tobacco giant’s attack on Australia, which is ongoing, led New Zealand to overturn its original decision to follow its bigger neighbour with plain packaging. It is reminded that Ireland, the UK and other countries have also decided to introduce plain packaging and the tobacco manufacturers have already announced their intentions to legally contest these decisions as well.

Commenting on the lawsuit Philip Morris has said: “The two regulations we’re challenging in Uruguay, and the one we’re challenging in Australia, arbitrarily and unjustifiably restrict legitimate businesses from using their brands and trademarks to sell their products. Building a brand is a long-term significant investment which these governments have severely damaged, despite their pledge under binding international treaties not to deprive investors of their property without fair compensation in return.”

Moreover, the company claimed that Australia’s and Uruguay’s actions went further than “virtually any other country” and also pointed out that tax records from cigarette sales showed they had “no effect at all” on consumption.