Tobacco giant Philip Morris International Inc. (PM) has threatened the Australian government for the proposed ban on cigarette-packaging advertisements and expects to seek billions of Australian dollars in financial compensation.
Under the proposed laws of Australia, Canberra wants to be the first government in the world to restrict logos, branding, colors and promotional text on tobacco packets beginning in January 1, 2012. Moreover, the government plans to outlaw logos on cigarette packs and force them to be sold in plain dark olive packaging, as the research showed smokers found it the least attractive color.
Further, the packing would carry health warnings instead of company’s logos and the cigarette brand names will appear on the packages in the same size and style of printing.
Philip Morris is now fearful that plain-packaging will damage its cigarette brands like Marlboro, Longbeach and Alpine and reduce their ability to compete against other brands. Moreover, it will make smoking less attractive and in turn, reduce smoking rates and the health costs resulting from smoking.
Philip Morris Asia stated that it had served a notice of legal claim on the government under Australia’s bilateral investment treaty with Hong Kong, which holds the government responsible for protecting Hong Kong investments in Australia.
The notice sets a mandatory three-month period for the two sides to negotiate an outcome. If there is no agreement, Philip Morris Asia stated that it would seek compensation that would be decided under United Nations trade rules.
Though Philip Morris expects billions of dollars in compensation, but the actual amount remains uncertain as it was still calculating the value of its brands in Australia.
Australia’s tobacco market generated total revenue of A$9.98 billion ($10.4 billion) in 2009, up from A$8.3 billion in 2008, although smoking generally has been in decline. The Australian government then raised the tobacco taxes by 25% last year to curb smoking.
Prime Minister Julia Gillard also rightly decided to bring in the new packaging laws as smoking-related illnesses kill more than 15,000 Australians each year and cost the economy A$31.5 billion in health costs. Australia has already banned all outdoor and media advertising of cigarettes and cigarette packets that are covered with graphic photographs of the affects of cancer.
Other countries of New Zealand, Canada and Britain are also considering the similar laws to fight cigarette packaging.
As against this, the tobacco industry backed by Imperial Tobacco Australia Ltd. is showing TV advertisements against the plain packaging laws, asking Australians whether they want to live in a “nanny state.”
Philip Morris and other tobacco industries also believe that plain packaging would hurt the companies in the emerging markets and going forward, could lead to takeovers in the industry to cut costs.
British American Tobacco, whose brands include Winfield, Dunhill and Benson & Hedges, has announced the government’s plans would infringe upon international trademark and intellectual property laws and has also raised the possibility of pursuing legal action.
Recently in May, Philip Morris bought the patent and global rights to an aerosol nicotine-delivery system that delivers nicotine to users’ lungs but doesn’t involve smoking.
Last month, British American Tobacco plc created a subsidiary called Nicoventures, which focused on nicotine alternatives. In 2009, Reynolds American Inc. (RAI) purchased Swedish company Niconovum, whose nicotine gum, pouches and spray help people give up smoking.
We are encouraged as Philip Morris is strengthening its brand portfolio through innovation based on enhanced consumer understanding. However, if the law of plain-packaging comes in, it would restrict tobacco industry logos, brand imagery, colors and promotional text appearing on packs, with the only distinguishing marks being the brand and product name in a standard text and color, causing billions of damage to the tobacco firms like Philip Morris.