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By Peter Leung
July 11 — Philip Morris Brands SARL's attempt to use a bilateral investment treaty to kill Uruguayan laws restricting the use of trademarks on tobacco packaging has failed.
Philip Morris argued that the laws violated the treaty between Switzerland and Uruguay by expropriating its property rights in its trademarks. However, a panel of the International Centre for Settlement of Investment Disputes (ICSID) rejected this argument in a written decision issued July 8 ( Philip Morris Brands SARL v. Oriental Republic of Uruguay, ICSID, Case No. ARB/10/7, Award 7/8/16 ).
The decision is the latest setback in the tobacco industry's attempts to defeat laws that restrict tobacco packaging in the name of public health as more countries are consider such legislation. In December, an arbitration panel rejected, on jurisdictional grounds, Philip Morris's challenge to an Australian law that standardizes nearly all aspects of tobacco packaging (98 PTD, 5/20/16).
Philip Morris challenged two major provisions in Ordinance 514. The first required that tobacco packaging dedicate 50 to 80 percent of its display areas to graphic and text warnings. The second regulation limited each tobacco brand to only one variation in packaging.
Under the second provision, known as the Single Presentation Regulation (SPR), Philip Morris could only sell one product under the Marlboro brand. It chose to sell Marlboro Red cigarettes, taking Marlboro Lights and other lines off the market.
Before the regulation passed, Philip Morris sold six brands of cigarettes in Uruguay, with thirteen variants in total. The SPR limitation meant that seven of its variants could no longer be sold.
Philip Morris attacked the law under the investment treaty, arguing among things that it constituted an expropriation of its trademarks and associated goodwill. It asked that Uruguay withdraw the law or, in the alternative, pay compensation for indirect expropriation. Under the treaty, an indirect expropriation is a measure that is tantamount or equivalent to nationalization or expropriation of an investment.
The panel sided with Uruguay. While agreeing that Philip Morris has a property interest in its trademark registrations, it found that the warnings requirement does not constitute an indirect expropriation. Even if Philip Morris can only use 20 percent of the packaging space for its own trademark, the limitation is only on how the marks may be used, the tribunal said.
This analysis aligns with the tribunal's ruling as to whether a trademark registration is a property right at all. Looking at both international treaties and Uruguayan law, it found the property right in the use of the mark is not absolute.
The second part of the regulation, the SPR, also is not an expropriation, which requires, at least, a substantial deprivation of the value or use of the investments, the tribunal said. That was not the case here.
In fact, Philip Morris's business was very profitable after the regulations passed. it said. Though Philip Morris argued that it would have been even more profitable had the regulations not passed, that doesn't matter because there is no indirect expropriation as long as sufficient value remains in the investment, the tribunal said.
The characterization of Philip Morris's investment was an important consideration. Philip Morris argued that each individual brand variation constituted a single investment, and since seven brand variations were effectively banned, seven of its investments experienced a substantial deprivation.
However, the tribunal took the opposite position. Philip Morris's entire brand catalog was a single investment—because the SPR applied to the company's entire range of business activities—and there was no expropriation because its business as a whole did not suffer from the regulations, it said.
The tribunal members were Piero Bernardini, Gary Born and James Crawford. Mairee Uran-Bidegain was the tribunal's secretary.
Sidley Austin LLP, Lalive and Shook, Hardy & Bacon LLP represented Philip Morris. The Minister of Foreign Affairs, Minister of Public Health and Secretary of the Presidency represented Uruguay, along with Foley Hoag LLP and Prof. Harold Hongju Koh of Yale Law School.
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