NAME : SRI MULIANA AZHARI

STUDENT NUMBER: 1703101010074

Philip Morris v. Uruguay

The Philip Morris v. Uruguay case started on 19 February 2010, when the
multinational tobacco company Philip Morris International filed a complaint
against Uruguay. The company complains that Uruguay's anti-smoking legislation devalues its
cigarette trademarks and investments in the country and is suing Uruguay for compensation
under the bilateral investment treaty between Switzerland and Uruguay.

Uruguay has one of Latin America’s highest smoking rates. Tobacco consumption in Uruguay
has massive health implications for its population and affects the Uruguayan economy
considerably. Against this background, Uruguay has engaged in important anti-smoking policy
measures and adopted two principal regulations.

Abal Hermanos S.A., Philip Morris Brands Sàrl and Philip Morris Products S.A. (hereafter:
Philip Morris) initiated arbitration against Uruguay for breach of its obligations under its
bilateral investment treaty (BIT) with Switzerland. In particular, Philip Morris targeted the two
legislative measures mentioned above. First, the claimant alleged that the Single Presentation
Requirement substantially affected the company’s value since it had to pull out 7 of its 13
product variants. Second, it argued that the 80/80 Regulation wrongfully limited Philip Morris’
right to use its legally protected trademark by infringing on its intellectual property rights and
thus further reduced the value of its investment.

The first measure, the Claimants sold multiple product varieties under each brand, such as
Marlboro Red, Marlboro Gold, Marlboro Blue and Marlboro Green. With the adoption of the
single presentation requirement, the Claimants had to sell only one product variant under each
brand, such as Marlboro Red. According to the Claimants, this decreased the value of the
company, due to lack of variant sales. It is reported that this regulation caused the Claimants
to withdraw seven of their twelve brands from shops in Uruguay.

The second measure, called the 80/80 Regulation, pertains to the increase in size of graphic
health warnings printed on the cigarette packages. This Regulation sets forth that the size of
health warnings on cigarette packages should increase from 50% to 80%, and only 20% of the
cigarette pack could be used for trademarks, logos and other relevant information. The
Claimants contended that this is a wrongful limitation of the right to use their trademarks, by
preventing their display in the proper form, which further leads to deprivation of intellectual
property rights, and reducing the value of their investment.

Philip Morris argued that the Single Presentation Requirement and the 80/80 Regulation
constituted an indirect expropriation of its brand assets, including intellectual property and
goodwill associated with each of its brand variants. According to Uruguay, the measures could
not constitute an expropriation mostly because they were a legitimate exercise of its sovereign
police powerto protect public health.

The tribunal concluded that the Single Presentation Requirement and the 80/80 Regulation
have been adopted in fulfillment of Uruguay’s national and international legal obligations for
the protection of public health. The measures also satisfied the conditions of the police power
doctrine as they were adopted in good faith andfor the purpose of protecting public health and
were non-discriminatory and proportionate.

Philip Morris further claimed that the measures were arbitrary, since they failed to serve a
public purpose but caused substantial harm, and thus breached the fair and equitable treatment
(FET) standard. Uruguay counter-argued the claim by stressing once more that the measures
were adopted in good faithand in a non-discriminatory manner and that they were logically
connected with the state’s public health objectives.

Referring to the Glamis Gold v. United States award, the tribunal held that the sole inquiry for
the tribunal is whether or not there was a manifest lack of reasons for the legislation.
Accordingly, the majority of the tribunal found the Single Presentation Requirement to be
reasonable because it was an attempt to address real public health concerns.

The tribunal started from the undisputed point that trademarks and the associated goodwill are
protected investments under the BIT, and assumed that Philip Morris’s brands continued to be
protected under Uruguayan trademark law even after the changes motivated by the challenged
measures.

The tribunal found that, under all these applicable sources of law, “the trademark holder does
not enjoy an absolute right of use, free of regulation, but only an exclusive right to exclude
third parties from the market so that only the trademark holder has the possibility to use the
trademark in commerce, subject to the State’s regulatory power”.

The tribunal started its FET analysis addressing Philip Morris’s allegation that the challenged
measures were arbitrary. Referring to the international law standard under the ELSI case, which
defines arbitrariness as a “wilful disregard of due process of law, an act which shocks, or at
least surprises, a sense of juridical propriety”, the tribunal concluded that the measures were
not arbitrary. Rather, it agreed that Uruguay adopted them in good faith and in order to protect
public health. Furthermore, contrary to Philip Morris’s contention that the measures were
adopted without scientific support, the tribunal indicated that they were based on the FCTC
process, which in turn was supported by scientific evidence.

The resolution of the case, which affected international jurisprudence, took 6 years; the case
ended on 8 July 2016. The World Bank [ICSID] ruled in favor of Uruguay, forcing the
demandant to pay the costs of the defendants and the court. The final report established
that Philip Morris had to pay 7 million dollars to the country for judicial expenses, in addition
to paying different amounts for the fees and administrative expenses of the three arbitrators
and the CADI. Gary Born emitted a discordant decision in two of the points of the judicial
failure.

After its victory in the case, the government declared that from 2017 cigarettes in Uruguay will
be sold in generic packaging.

In my opinion, the decision of the international arbitration court to win Uruguay is a very
appropriate thing. The two main rules governed by Uruguay regarding the single presentation
requirements and 80/80 regulation do not constitute a breach of obligations under the Bilateral
Investment Agreement (BIT) between Uruguay and Switzerland.

The rules restrict cigarette brands to only use one type of packaging to prevent several terms
(such as light and mild) and the rule to include 80% pictorial health warnings (PHW) on
cigarette packages to reduce the adverse effects of smoking are part of Uruguay's
comprehensive approach in consuming tobacco to reduce deaths and diseases caused by
tobacco consumption.

The victory of Uruguay, in this case, should be able to mobilize many countries in the world to
implement the World Health Organization Framework Convention on Tobacco Control and
and get more attention of governments including Indonesia as one of the countries with the
most smokers in the world. The government should be more effective in regulating policies for
public health and decrease cigarette industry intervention on policymakers.