Big companies marketing deadly products to children in lower‑income and middle‑income nations is common. In 2007, 23.2% of Uruguay’s 13‑ to 15‑year‑olds used tobacco products, and by 2009 almost 20% of secondary students were current smokers. Uruguay decisively won its legal battle with Philip Morris over its strong tobacco‑control laws in 2016, and that victory has stood as a global precedent for protecting children from youth‑targeted marketing. Follow KARA’s new international page here.
Legal decision
After more than six years of litigation at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), the tribunal dismissed all of Philip Morris’s claims and ruled that Uruguay’s measures were a legitimate exercise of its sovereign police powers to protect public health, not an expropriation or treaty violation. The tribunal ordered Philip Morris to pay Uruguay’s legal costs (about $7 million), and public‑health groups hailed the decision as a historic win that affirmed every country’s right to enact strong tobacco‑control laws, including rules that curb marketing and packaging tactics that appeal to youth. Uruguay not only won the case; it also created a powerful legal shield that other countries now cite when tobacco companies threaten or file suits over regulations meant to reduce youth smoking and protect children from predatory marketing.
In Philip Morris v. Uruguay, the company challenged two core policies:
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the single‑presentation rule, which stopped tobacco companies from selling multiple variants of the same brand (for example, “Marlboro Gold,” “Blue,” “Silver”) that imply some cigarettes are safer; and
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the 80/80 packaging rule, which required 80% of the front and back of cigarette packs to be covered with graphic health warnings, leaving only 20% for branding.
After more than six years of litigation at ICSID, the tribunal dismissed all of Philip Morris’s claims and held that Uruguay’s measures were a lawful use of its sovereign police powers to protect public health. Philip Morris was ordered to pay Uruguay US$7 million, plus the tribunal’s fees and costs, and the award emphasized that states have a reasonable right to regulate trademarks and packaging in order to protect their populations, including children and youth.
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The Details:
Philip Morris v Urugay, 2016
Philip Morris v Uruguay, 2016 ICSID.. 2
State Regulatory Power vs. Threat of Legal Action. 4
Who is Philip Morris
Philip Morris is a leading multinational corporation with well known brands, such as General Goods and Kraft Foods, under its name. Philip Morris started out in 1847 as a tobacco company established in London, England, selling hand rolled Turkish cigarettes, but has since expanded into the US and other international markets in food, beverages and consumer goods.
Phillip Morris has positioned itself as a leader in the post-cigarette era of e-cigarettes and nicotine patches, encouraging a smoke free future; however, Phillip Morris’ actions of the past and the extent of child and youth vaping brings into question Phillip Morris’ commitment to a smoke free future.
Philip Morris v Uruguay, 2016 ICSID
Philip Morris v. Uruguay, Award, 8 July 2016
Facts
It was noted that in Uruguay, in 2007, 23.2% of adolescents aged 13 to 15 years used tobacco products, with most young smokers beginning their tobacco consumption at age 16. In 2009, 18.4% of secondary school students were current smokers.
In response to the alarming statistics, Urugay’s Ministry of Health enacted measures regulating the packaging and labeling of tobacco products being sold in Urugay. The measures were adopted to mitigate the ongoing adverse effects of tobacco promotion, including marketing that certain brand variants, such as ‘light’ or ‘mild, or ‘ultra-light’ cigarettes, are safer than others. The regulations increased the space used on packaging for warning labels about the health risks of tobacco consumption and to encourage people, including younger people, to quit or not take up smoking.
Phillip Morris, under the bilateral investment treaty between Switzerland and Urugay, brought a case against the Uruguay government. The local subsidiary of Phillip Morris argued that the health measures adopted by the Uruguayan government violated their rights under the bilateral investment treaty. They argued that the health measures violated their intellectual property rights (their Marlboro trademarks) and significantly reduced the value of their investment and company. It was also argued that the adoption of the health measures was unilateral without any meaningful deliberation or consultation.
Issue
Whether Urugay’s adopted measures to curb the rise of smoking among youth and the general public violated Phillip Morris’ rights under the bilateral investment treaty between Switzerland and Urugay.
Conclusion
The International Centre for Settlement of Investment Disputes (ICSID) is an institution, apart of the World Bank Group, dedicated to the arbitration of international investment disputes. State parties can conclude investment treaties amongst themselves in which ICSID is agreed upon to be the tribunal facility under which investment disputes, between states or states and private entities, will be dealt with.
In the Phillip Morris v Urugay case, the ICSID tribunal held that the pro-health measures adopted by the Uruguay government were allowed. The tribunal held that trademark holders, such as Philip Morris, do not enjoy an absolute right of use, free of regulation, but rather trademarks enables holders to exclude third parties from the market so that only the trademark holder has the possibility to use the trademark in commerce. The tribunal stated that there must be a reasonable expectation of regulation and that the regulations adopted by the Uruguay government were adopted in fulfilment of Urugay’s national and international legal obligations for the protection of public health. It was further held that the measures were not discriminatory or targeted towards Philip Morris and were further proportionate to the harm being targeted.
The Claimant, Philip Morris, was ordered to pay the respondent, the Urugay government, US$7 million, plus the fees and costs of the tribunal.
Analysis
Philip Morris argued that the government health measures deprived them the opportunity to charge a premium price for their cigarette products; however, the tribunal stated that the regulations only limited the modality, or the manner in which the relevant trademarks, can be displayed on the packaging, not banning the display altogether. The tribunal also noted the Philip Morris’ investment showed a perpetual positive cash flow. Philip Morris themselves admitted that the Uruguayan subsidiary had grown to be more profitable but would have been more profitable but for the new health regulations.
The tribunal noted that protecting public health is an essential manifestation of the state’s police power, which is the inherent power of the state to legislate and regulate for public interest, as long as the adopted measure is bona fide, non-discriminatory and proportionate to the harm they are trying to remedy. The tribunal noted that investment tribunals should pay great deference to governments in their judgements of national needs in matters such as protection of public health. The tribunal explained that the BIT between Switzerland and Urugay included a provision allowing party states to refuse to admit investments for reasons of public security, public health and morality. The tribunal referenced the OECD who noted that under customary international law, where economic injury, such as that argued by Phillip Morris, results from a non-discriminatory regulation within the police power of the state, compensation is not required. The tribunal concluded that the health measures adopted by the Uruguay government was well within the police power of the state and, given the limited of the economic harm claimed by Philip Morris, compensation was not required.
The tribunal noted that the incidence of smoking in Urugay had declined, most notably among young smokers, since adopting the public health regulations, illustrating that these public health measures were directed to this end and were capable of contributing to its achievement.
Why is this an issue
State Regulatory Power vs. Threat of Legal Action
The actions of Philip Morris illustrate the profit hungry actions of multinational enterprises (MNEs). Often MNEs will use their economic power and threaten to withdraw or delay important investment to intimidate governments into withdrawing, weakening or delaying progressive regulations made to protect the health and well being of the country’s citizens, such as the health regulations in Uruguay made to address the rise of youth smoking/vaping. This has resulted in a regulatory chill in some countries, preventing, for example, tobacco legislation that would have saved lives. MNEs will instead lend support and move investments to countries where there are regulatory frameworks that support their business expansion and profits.
This brings into question of whether states, particularly least developed or dependent states, have a strong power to legislate in the interest of the public. A state may declare a public health emergency, further lending to the narrative that something must be done. But where the evidence is not as strong as the wide international concern for the harmful effects of tobacco, particularly concerning children and youth, states may have a more difficult time regulating the behaviour of MNEs in order to protect the public. It has been argued that Urugay was successful in its defence of the ICSID case because of the understanding surrounding a state’s sovereign right to protect public health, the strong international political support and mobilized international civil society (health groups and former presidents) to present a strong united front in support of the health regulations.
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