Philip Morris (NYSE:PM) warned on Monday that it plans on challenging Australias proposed ban on cigarette-packaging advertisement and may seek billions in compensation.
The countrys government is looking to be the first country to implement plain, brand-less packaging for cigarettes beginning in January in an effort to reduce smoking rates, but the worlds biggest tobacco company fears the move will damage its brands like Marlboro and Alpine.
Product names on the new packaging would appear in standard colors and positions in a uniform font and size on dark olive-brown-colored packets. Research has found those colors hold the lowest appeal to smokers. Health warnings and graphic images promoting the harmful effects of smoking will be required to make up 75% of the packaging and 90% of the back.
While the company alleges the new packaging would rob the brands from being able to differentiate from competitors, the Australian government has said the diminished brand recognition would ultimately benefit consumers health.
The forced removal of trade marks and other valuable intellectual property is a clear violation of the terms of the bilateral investment treaty between Australia and Hong Kong, said Philip Morris spokeswoman Anne Edwards. We believe we have a very strong legal case and will be seeking significant financial compensation for the damage to our business.
The New York-based company, which has made and sold cigarettes in Australia since 1954, said the government has repeatedly ignored domestic and international stakeholder concerns about the adverse consequence of plain packaging and has failed to demonstrate how the policy would stop people from smoking.
The notice by Philip Morris Asia starts a mandatory three-month period during which the parties must attempt to negotiate an outcome. If unachieved, the company will likely attempt to sue the government for billions.
Australian health minister Nicola Roxon told reporters that the government wont be frightened off by threats of legal action, noting the company will fight that action.