In the latest salvo in the fight over plain packaging for tobacco products, Philip Morris is launching legal action under Australia’s bilateral investment treaty with Hong Kong.
The key aspect of Philip Morris' claims against the Australian government is that the proposed plain packaging law results in unreasonable measures that impair the enjoyment of an investment.
Investment is broadly defined under treaty to include intellectual property.
Bilateral investment treaties seek to facilitate investment between two countries. They basically enhance business activities between the nations.
The treaties provide guarantees of non-discriminatory treatment between investors from the two countries; protect those investors from unreasonable measures in terms of their investment; and provide mechanisms for dispute resolution.
Disputes are a growth area in such treaties – which are themselves going through a boom period – as they allow investors to trigger dispute resolution mechanisms.
Investment disputes are normally heard by the International Centre for the Settlement of Investment Disputes (ICSID), which is supported by United Nations arbitration conventions.
So, the argument Philip Morris might seek to make is that the plain pack laws will unreasonably impair its ability to enjoy the intellectual property it has established with its design and properties in Australia.
But while there are mechanisms under that treaty to resolve disputes such as these, the legislation isn’t operative yet so I’m not sure the company’s claim has any basis.
What’s more, the government says any legislation it passes will only come into effect in January 2012.
Technically, there’s no dispute until then, but Philip Morris could argue that the government has announced its intention to introduce the legislation, so it would be prudent for both parties to engage in a conversation now.
In other words, the claim is not consistent with provisions of the agreement but prudence would dictate that it would be advantageous for both sides to start to work out a solution to the impending issue.
And the government could seek to resolve the concerns that Philip Morris is raising.
One way forward for the government is to say “We’re going ahead with this and if you wish to sell your products here, you’ll have to comply with the proposed legislation”.
If the company wants to claim for its intellectual property, the government could offer a monetary settlement and this might be Philip Morris' tactic in raising this issue and having it discussed in advance. It could be a pre-emptive move.
If there were a dispute, the agreement provides that there has to be a three-month cooling period between the time the dispute is raised and the formal commencement of proceedings.
This allows the parties to reach some kind of settlement before getting to arbitration so we’re a way off formal proceedings.
Commercially, if a settlement is reached between the government and Philip Morris, it would put an end to the matter. That is, if the company were to enter into an agreement with the government, that would affect its ability to bring future claims.
Another way to approach this from the government’s side is to phase the measure in as a way of reaching a mutually beneficial outcome.
The company can acquiesce that the government has the right to dictate how products are sold and the government would agree that the company has a right to sell and prepare for the legislative change.
The key issue then would concern the dominant commercial interest on the part of Philip Morris – whether they are concerned about the sale of their products or the intellectual property associated with the packaging of their product.
On the face of it, this move by the company is about creating a precedent for plain packaging and the knock-on effect it may have for other more lucrative markets.
If we look at intellectual property associated with a brand, clearly tobacco companies have in many instances around the world faced significant constraints on the way they can promote their brand.
Already in Australia they are prevented from running television advertisements, advertising during sporting events and they have to carry prominent warnings on their products.
This clearly diminishes tobacco companies' ability to promote their products and the government can argue that the plain packaging initiative is consistent with previous measures.
In fact, this could end up being the what the arbitration panel decides on.