CONFIDENTIAL INFORMATION REDACTED and Claimants, V. Respondent. ICSID Case No. ARB/10/7 URUGUAY's COUNTER-MEMORIAL on THE
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ARBITRATION BEFORE THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES PHILIP MORRIS BRANDS SÀRL PHILIP MORRIS PRODUCTS S.A. and ABAL HERMANOS S.A. Claimants, v. ORIENTAL REPUBLIC OF URUGUAY, Respondent. ICSID Case No. ARB/10/7 URUGUAY’S COUNTER-MEMORIAL ON THE MERITS 13 October 2014 Paul S. Reichler Ronald E.M. Goodman Lawrence H. Martin Clara E. Brillembourg FOLEY HOAG LLP 1717 K Street, N.W. Washington, DC 20006 Professor Harold Hongju Koh 87 Ogden Street New Haven, CT 06511 Counsel for the Oriental Republic of Uruguay CONFIDENTIAL INFORMATION REDACTED CONFIDENTIAL INFORMATION REDACTED Table of Contents CHAPTER 1 Introduction ............................................................................................................. 1 CHAPTER 2 Uruguay Has the Sovereign Right and Duty To Regulate Commercial Activity for the Protection of Public Health ......................................................... 17 I. International Law Accords States the Right To Exercise Their Police Powers To Regulate Commercial Activities That Are Harmful To Public Health ............18 II. Uruguay Has Domestic and International Legal Obligations To Protect Public Health To Safeguard the Rights of Its Citizens to Life and Health .......................25 A. Uruguay’s Obligations under Domestic Law ............................................25 B. Uruguay’s Obligations under International Law .......................................27 III. Uruguay’s Decisions about How To Protect Public Health Enjoy a Wide Margin of Appreciation..........................................................................................33 CHAPTER 3 The Need To Regulate the Marketing of Tobacco Products ................................. 41 I. The Harms To Public Health Caused by Claimants’ Products ..............................44 A. Cigarettes Sicken and Kill People ..............................................................47 B. Cigarettes Are Highly Addictive ...............................................................52 II. Tobacco Companies, Including Claimants, Have Exacerbated the Harms Their Products Cause by Acting To Deceive Governments and Consumers ........58 A. Tobacco Companies, Including Claimants, Deliberately Deceived the Public about the True Nature of Their Products for Decades ....................59 B. The Tobacco Industry Has Historically Employed an Array of Strategies To Defeat Tobacco Control Measures around the World .........69 III. WHO Framework Convention on Tobacco Control ..............................................76 A. History, Objectives and Purpose ................................................................76 B. Relevant Provisions ...................................................................................79 IV. Tobacco Control in Uruguay .................................................................................83 A. Prevalence and Effects of Cigarette Smoking ...........................................83 B. History of Tobacco Regulation ..................................................................86 CONFIDENTIAL INFORMATION REDACTED 1. 1970-2000 ......................................................................................86 2. 2000-2005 ......................................................................................88 3. 2005-Present ..................................................................................90 CHAPTER 4 The Single Presentation Requirement Was a Reasonable Exercise of Uruguay’s Sovereign Right To Protect Public Health .......................................... 97 I. The Tobacco Industry’s Promotion and Marketing of “Health Reassurance” Cigarettes .............................................................................................................100 A. The Advent of “Health Reassurance” Cigarettes .....................................101 B. The Marketing of “Health Reassurance” Cigarettes in Uruguay .............123 II. The Regulatory Response To the Tobacco Industry’s Use of Deceptive Packaging .............................................................................................................126 A. The International Consensus That Deceptive Packaging Should Be Prohibited .................................................................................................126 B. The Need for Additional Regulatory Measures To Reduce Misperceptions about the Availability of “Safer” Cigarettes ..................130 1. Continuity between Deceptively Labeled “Health Reassurance” Cigarettes and Those That “Replaced” Them .......131 2. Intra-Brand Codes To Indicate Relative Degrees of “Healthiness” ...............................................................................133 C. The Use of Brand Variants in Uruguay To Promote “Health Reassurance” Cigarettes ...........................................................................135 D. Uruguay’s Enactment of the Single Presentation Requirement ...............141 1. The Need for Further Regulatory Measures ................................141 2. Uruguay’s Enactment of Ordinance 514 ......................................147 III. The SPR Is an Important Regulatory Tool for Reducing Misconceptions about the Risks of Smoking .................................................................................157 CHAPTER 5 The 80% Requirement Was a Reasonable Exercise of Uruguay’s Right To Regulate for the Protection of Public Health ...................................................... 169 I. The Public Health Consensus That the Largest Health Warnings Are the Most Effective ...............................................................................................................171 - ii - CONFIDENTIAL INFORMATION REDACTED A. The Evidence That Health Warnings do Increase Public Awareness of the Health Risks of Smoking ...................................................................172 B. The Evidence That Larger Health Warnings Better Communicate the Health Risks of Smoking .........................................................................180 II. The Adoption of Decree 287 ................................................................................195 III. Increasing Warning Label Sizes around the World .............................................211 CHAPTER 6 Claimants’ Arguments about Tobacco Consumption in Uruguay Are Legally Irrelevant and Factually Incorrect ....................................................................... 217 I. Claimants’ Argument about Consumption Is Legally Irrelevant .........................217 II. Claimants’ Consumption Argument Is Predicated on Two False Premises ........219 III. Claimants’ Analysis of Consumption Is Flawed in Any Event ...........................222 IV. There Are Meaningful Indicators That the SPR and the 80% Requirement Have Been Effective ............................................................................................229 A. The SPR ...................................................................................................229 B. The 80% Requirement .............................................................................232 C. Reduction in Prevalence Rates .................................................................234 CHAPTER 7 Uruguay Did Not Expropriate Claimants’ Investment ....................................... 237 I. The SPR and 80% Requirement Were Not Expropriatory Because They Were Valid Exercises of Uruguay’s Sovereign Police Power .......................................238 II. Claimants Have Failed To Demonstrate that Uruguay Indirectly Expropriated Their Investment ..................................................................................................248 A. Claimants’ Investment Has Not Been Expropriated Because Their Business Retains Significant Value .........................................................248 B. Claimants Had No Trademark Rights Capable of Being Expropriated ...256 1. Uruguayan Law Does Not Give Trademark Registrants a Right To Use Their Marks in Commerce ....................................257 2. Claimants Had No Trademark Rights in the Seven Variants about Which They Complain .......................................................258 - iii - CONFIDENTIAL INFORMATION REDACTED CHAPTER 8 Uruguay Accorded Claimants Fair and Equitable Treatment ............................. 261 I. Claimants Do Not Meet the High Threshold for Establishing a Breach of the Fair and Equitable Treatment Standard under Customary International Law .....261 II. Even if an Autonomous Treaty Standard Were To Be Applied, Claimants’ Case Would Still Fail ...........................................................................................266 A. The SPR and 80% Requirement Are Not Arbitrary.................................267 B. Uruguay Has Not Violated Claimants’ Legitimate Expectations ............275 C. Uruguay Did Not Deprive Claimants of Legal Stability .........................281 III. The SPR and 80% Requirement Do Not Violate Article 3(1) of the BIT ...........285 CHAPTER 9 Uruguay Did Not Breach Article 11 of the BIT ................................................. 289 I. Article 11 Does Not Cover the “Obligations” Claimants Invoke ........................290 II. Uruguay Did Not Fail To Observe Any Obligations with Regard to Claimants’ Trademarks ........................................................................................295 A. Uruguayan IP Law Does Not Give Registrants an Affirmative Right To Use a Trademark in Commerce ..........................................................296