Government of Uruguay Taps Foley Hoag for Representation in International Arbitration Brought by Philip Morris to Overturn Country's Tobacco Regulations

Uruguay's Ordinances Part of 170-Nation Effort to Combat Smoking by the World Health Organization; Philip Morris Alleges That Regulations Violate Switzerland-Uruguay Bilateral Investment Treaty

October 8, 2010

In a first-of-its-kind case focusing on areas of conflict between a nation’s tobacco control regulations and the treaty rights of a multinational corporation, the government of Uruguay has retained Foley Hoag LLP to represent it in an arbitration case brought by Philip Morris, at the International Centre for Settlement of Investment Disputes (ICSID).

The Foley Hoag team is led by international law specialists and Washington-based partners Paul Reichler and Ronald Goodman. Mr. Reichler most recently represented Uruguay in its successful defense of a suit brought by neighboring Argentina at the International Court of Justice in The Hague. The case, in which Argentina attempted to force closure of a Uruguayan paper mill, was only the second environmental case heard by the ICJ in its history. Mr. Goodman most recently obtained a judgment for Venezuela in an ICSID case brought by Nova Scotia Power Inc.; the tribunal ordered the company to pay Venezuela more than $1 million in legal costs.

The current ICSID arbitration was initiated by FTR Holdings SA, a Swiss conglomerate that owns fellow plaintiffs Philip Morris as well as Abal Hermanos SA, the second-largest Uruguayan tobacco company. The cigarette manufacturers contend that Uruguay’s restrictions on sales and marketing of tobacco products, violate the bilateral investment treaty between Switzerland and Uruguay by harming the companies’ business operations and trademarked brands.

Uruguay enacted the measures as part of a broad effort to safeguard and enhance public health. In 2005 it became one of 170 countries to sign the World Health Organization’s Framework Convention on Tobacco Control, a global initiative to reduce or eliminate tobacco use. Soon after, the Uruguayan government introduced restrictions on cigarette marketing and packaging, including:

Limiting each brand of cigarette to a “single representation,” that is, forbidding multiple iterations of a brand such as “light,” “menthol,” etc.;

Requiring pictograms on tobacco packages to graphically illustrate the possible adverse health effects of sustained tobacco use;

Mandating that 80 percent of the surface area of cigarette packages be covered with health warnings to consumers.

Cigarettes sold in Uruguay include such well known Philip Morris brands as Marlboro and L&M, as well as locally made Casino and Premier brands. As a result of the regulations Philip Morris has ceased marketing Marlboro varieties called “Gold,” “Green (Fresh Mint),” and “Blue.” The claim alleges that the government’s actions violate both the 1988 Switzerland-Uruguay bilateral investment treaty and international law, by imposing unreasonable restrictions and subjecting FTR and its subsidiaries to unfair treatment.

Mr. Reichler believes the plaintiffs have targeted Uruguay as a test case.  “Our view is that Philip Morris is hoping to use this case to deter not only Uruguay but other signatories to the WHO’s Framework Convention from taking effective measures to safeguard the public health against the known hazards of tobacco consumption,” he said.

“Sovereign states are normally given wide discretion in enacting legislation or promulgating regulations to protect and promote public health,” Mr. Reichler noted.  “Indeed, that is one of the fundamental aspects of sovereignty. This is not a case of economic regulation, but of government action strictly in the name of public health.”

Mr. Goodman said, “Uruguay’s regulations are aimed at tobacco products which, it is scientifically proven, kill people or cause grave illnesses to those who smoke and to those around them. Because of the widespread illness, disease and mortality created by smoking, tobacco products impose tremendous burdens on a country’s public health system.   In many countries the state pays for or subsidizes the care and treatment of sick people. The financial burdens on states caused by smoking are enormous.”

“Philip Morris and its associated companies are challenging the right and discretion of Uruguay to make its own determination on how to protect public health – which in our view is a sovereign right that no private company can overrule,” Mr. Goodman added.

The Campaign for Tobacco-Free Kids, a U.S.-based research and advocacy organization funded by the Bloomberg Foundation, has agreed to help finance Uruguay’s defense.

The arbitral tribunal will be comprised of one arbitrator selected by each side and a third whom the parties agree on.

Philip Morris is represented by the Swiss firm Lalive.

[Editor's note: view subsequent coverage of the case here, translated from El Pais.]

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