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
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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
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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
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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
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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
1. Uruguayan IP Law Does Not Recognize a Right To Use ...... 297
2. Uruguay’s IP Law Is Based on International Intellectual Property Conventions That Do Not Recognize a Right To Use ..303
B. In Any Event Claimants Have Not Shown that They Registered the Trademarks about Which They Complain ...... 308
1. Marlboro Gold ...... 310
2. Marlboro Blue ...... 313
3. Marlboro Fresh Mint ...... 314
4. Fiesta Blue ...... 314
5. Fiesta 50 50 ...... 316
6. Philip Morris Blue...... 316
7. Premier ...... 317
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CHAPTER 10 Claimants Are Not Entitled To the Relief They Request ...... 323
I. Restitution Is Not an Appropriate Remedy ...... 324
II. Claimants Are Only Entitled To Compensation for Non-speculative Losses They Prove Were Caused by the SPR and 80% Requirement ...... 327
III. Claimants Have Failed To Show the Required Causal Link between Uruguay’s Regulations and Their Alleged Losses ...... 332
IV. Claimants’ Quantum Analysis Is Speculative and Unreliable ...... 341
A. Navigant Overestimates Claimants’ Sales Volume in the But-For Scenario...... 344
B. Navigant Unreasonably Assumes that Taxes Never Increase Beyond the Rate of Inflation ...... 347
C. Navigant’s Estimation of But-For Price Is Inflated ...... 349
D. Navigant Underestimates Marketing Expenses in the But-For Scenario...... 351
E. Navigant Fails To Offset Revenue from Benson & Hedges in the Actual Scenario ...... 351
V. Claimants Are Not Entitled To the Interest They Claim ...... 353
A. The Interest Rate Claimants Seek Is Excessive ...... 353
B. Compound Interest Is Not Appropriate...... 355
CHAPTER 11 Claimants Were Not Denied Justice by the Uruguayan Courts ...... 359
I. The Applicable Standard for a Denial of Justice Claim under International Law ...... 362
A. The Denial of Justice Threshold Is High ...... 363
B. All Available and Effective Local Remedies Must Be Exhausted ...... 369
C. The Elements of a Denial of Justice Claim under an FET Clause Are No Different ...... 375
II. The Uruguayan Judiciary Is Recognized as One of the Best in the World ...... 378
III. The TCA Did Not Deny Claimants Justice When It Rejected Abal’s Challenge To the SPR ...... 381
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A. The TCA Addressed Abal’s Arguments and Evidence ...... 384
B. The TCA’s Three Passing References To BAT’s Trademarks Does Not Give Rise To a Denial of Justice ...... 391
C. The TCA’s Rejection of Abal’s Motion for Clarification and Expansion Was Justified and Consistent with Uruguayan Practice ...... 394
D. Claimants Failed To Exhaust Available and Effective Local Remedies .395
IV. The TCA Did Not Deny Claimants Justice When It Rejected Abal’s Administrative Challenge To the 80% Requirement ...... 398
A. The TCA Decided Abal’s Challenge To the 80% Requirement ...... 401
B. The TCA Was Not Bound To Adhere To the Reasoning of the SCJ in Its Ruling on the Constitutionality of Law 18,256 ...... 406
V. Claimants Are Not Entitled To Damages ...... 413
Conclusions and Submissions ...... 423
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Table of Figures
Figure Title Page
Figure 3.1 Smoking Prevalence Among Adults in Uruguay: 2003-2009 84 (percentage of population)
Figure 4.1 Philip Morris, “Guard Your Throat Campaign Advertisement” 103 (1954), available at http://tobacco.stanford.edu/tobacco_main/images_body.php?tok en1=fm_img2643.php
Figure 4.2 Lorillard Tobacco Co., “True Cigarettes Advertisement” 105 (1976), available at http://tobacco.stanford.edu/tobacco_main/images_body.php?tok en1=fm_img7317.php
Figure 4.3 Marlboro Lights Advertisement (1977), available at 109 http://www.euro-cig.com/gallery.php?id_cap=47
Figure 4.4 Altria Client Services, ALCES Law Support: Consumer 132 Communications (24 May 2010) (R-226)
Figure 4.5 Insert included in Marlboro Gold packages in the United States 133 (June 2010)
Figure 4.6 Comparison between Marlboro Lights and Marlboro Gold 136
Figure 4.7 The Marlboro Brand Family in Uruguay 139
Figure 4.8 Comparison between Philip Morris and Philip Morris Lights 139
Figure 4.9 Comparison between Philip Morris Lights and Philip Morris 140 Blue
Figure 4.10 Comparison between Philip Morris and Philip Morris Blue 141 Packs
Figure 5.1 “Be Marlboro” Campaign Advertisement (English) (produced 207 in R-292)
Figure 5.2 “Be Marlboro” Campaign Advertisement (Spanish) (produced 208 in R-292)
Figure 5.3 Fiesta Lights advertising campaign (produced in R-234) 210
Figure 5.4 2014 Iceball advertising campaign (August 2014) 210
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Figure 5.5 Countries/jurisdictions requiring picture warnings on cigarette 213 packages (produced in R-262)
Figure 5.6 Countries/jurisdictions requiring warnings of at least 50% of 214 package front/back (on average) (produced in R-262)
Figure 6.1 Comparison of Actual Domestic Consumption (Including 224 Counterfeit & Contraband) with Euromonitor Projected Consumption, 2008-2017
Figure 6.2 Comparison of Actual Domestic Consumption (Including 227 Counterfeit & Contraband) with Euromonitor Project Consumption, 2008-2017 (produced as Table 5 on page 57 of Claimants’ Memorial on the Merits)
Figure 7.1 [[ ]] 253
Figure 7.2 [[ ]] 254
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CHAPTER 1
INTRODUCTION
1.1 This case is about protection of public health, not interference with foreign investment.
Claimants challenge Uruguay’s right to protect public health by regulating the marketing of tobacco, a notoriously harmful product, the consumption of which has been proven to cause addiction, disease and death. Claimants’ challenge fails for the following reasons, none of which,
Uruguay submits, can fairly be disputed:
1. Uruguay, like all States, has the right to exercise its sovereign police power to protect public health;
2. Uruguay is obligated to protect public health, and the fundamental human rights to life and health, both under international law and its own domestic law;
3. Tobacco consumption causes grave harm to public health, especially in Uruguay, where it kills more than 6,000 people per year;
4. It is well-documented, and has been judicially confirmed, that the tobacco industry in general, and Philip Morris in particular, spent decades denying that smoking was harmful to human health, long after they knew otherwise; and that, in response to increasing public concern about the dangers of smoking, they engaged in a global effort to keep health conscious smokers from quitting, and attract new smokers, by falsely marketing some cigarettes as “safer” than others — even though they knew that too was not true;
5. There is international legal and scientific consensus that all consumers should be fully informed about the dangers of smoking, and that graphic health warnings that cover as much of the primary package surfaces as possible are the most effective means of conveying that information;
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6. There is also international legal and scientific consensus that States should prohibit the deceptive marketing of cigarettes that conveys the false impression that some cigarettes are safer or less harmful than others. To date, 95 States, including Uruguay, have prohibited the use of misleading words like “light,” “mild,” “ultra-light” and “low tar” on cigarette packs;
7. The tobacco control measures Claimants challenge in this case were adopted by Uruguay for a single purpose: to protect public health;
8. The measures in question were taken in conformity with Uruguay’s national health policy after due deliberation and approved at the highest level of government;
9. The Single Presentation Requirement (the “SPR”) was adopted to mitigate the ongoing effects of the tobacco industry’s, including Claimants’, false marketing of certain brand variants as safer than others, even after misleading descriptors like “light,” “mild,” “ultra light” and “ultra-light” were banned;
10. The requirement that warning labels cover 80% of the front and back of cigarette packs (the “80% Requirement”) was adopted to increase consumer awareness of the health risks of tobacco consumption and encourage quitting, while still leaving room on the packages for brand names and logos;
11. The SPR and 80% Requirement were applied in a non-discriminatory manner to all tobacco companies, domestic and foreign;
12. Uruguay’s sovereign decisions about how best to protect public health are entitled to a wide margin of appreciation, or degree of deference. Neither Claimants nor this Tribunal may simply substitute their judgment for that of Uruguay with regard to vital matters of Uruguayan public health.
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1.2 For these reasons, there is no basis on which to conclude that the SPR and 80%
Requirement were anything other than reasonable, good faith exercises of Uruguay’s sovereign
prerogatives.
1.3 Claimants themselves do not challenge Uruguay’s right to regulate the marketing of
tobacco products. Indeed, they have expressly recognized it. In their pleadings on jurisdiction,
they stated: “Claimants do not contest that Uruguay may adopt non-discriminatory, legitimate
regulations to protect public health ….”1 The Tribunal, too, has recognized the same point. In its
Award on Jurisdiction, the Tribunal observed that the Uruguay-Switzerland BIT “does not prevent Uruguay, in the exercise of its sovereign power, from regulating harmful products in order to protect public health after investments in the field have been admitted.”2
1.4 Claimants not only accept Uruguay’s right to regulate the marketing of their products in
the interests of public health, they claim to “support the strong and effective regulation of the
tobacco industry and its products.”3 They expressly acknowledge the direct connection between
“broad” and “effective” regulation and the protection of public health:
The broad regulation of tobacco, combined with its effective application, can achieve important public health objectives. The consumption of tobacco is addictive and causes grave illnesses, such as lung cancer, heart disease and emphysema. In addition, smokers are much more likely to develop grave illnesses, like lung cancer, than non-smokers, and there is no such thing as a “safe” cigarette. Regulation can assure that consumers are informed of
1 Claimants’ Counter-Memorial on Jurisdiction (23 Jan. 2012), ¶ 176.
2 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction (2 July 2013) (Bernardini, Born, Crawford), ¶ 174 (RL-206).
3 Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004), p. 1 (R-166).
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these health effects. It can also help to prevent minors from having access to tobacco products. Regulation can also help reduce the prevalence of tobacco use, an appropriate public health objective with which Abal [Hermanos] agrees.4
1.5 Nevertheless, in their challenge to the exercise of Uruguay’s regulatory powers in this
case, Claimants claim to see no “logical connection” between the measures Uruguay has taken
— specifically, the SPR and 80% Requirement — and the protection of public health.5 In making
this argument, Claimants both forget their earlier recognition of that connection and ignore the
actual circumstances of this case.
1.6 Their Memorial presents instead an entirely acontextual attack on the SPR and 80%
Requirement, as if these measures were targeted at an ordinary consumer good. The Memorial
never once acknowledges, even in passing, what Claimants said earlier to the Uruguayan
government: that tobacco is an extraordinary product that requires “strong and effective
regulation” to “achieve important public health objectives.” While proceeding in this way allows
Claimants to present a short and uncomplicated Memorial, it does disservice to the central facts
of this case.
1.7 Tobacco is unique precisely because it is so lethal. It is the only legal product that kills
one-third to one-half of its users when consumed as intended.6 Claimants’ own former Senior
Vice President for Corporate Affairs made the point when he “freely concede[d] that tobacco can
4 Ibid.
5 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 2, 6.
6 World Health Organization (“WHO”), Report on the global tobacco epidemic, 2008: The MPOWER package (2008), p. 14 (R-28).
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7 never be viewed as just another product because it is so deadly.” As he told the New York Times in 2006: “We don’t make widgets.”8
1.8 Exactly for that reason, tobacco control policy cannot be analogized to the regulation of other businesses.
1.9 The fact that tobacco is unlike any other consumer product is a matter of international scientific and governmental consensus. The global spread of what is widely referred to as the
“tobacco epidemic”9 led to the first-ever treaty adopted under the auspices of the World Health
Organization (“WHO”): the Framework Convention on Tobacco Control (“FCTC”), which was concluded in 2003, entered into force in 2005 and now has 179 States Parties, including
Uruguay. The first three paragraphs of the FCTC Preamble underscore the uniqueness of the threat to public health tobacco poses:
The Parties to this Convention,
Determined to give priority to their right to protect public health,
Recognizing that the spread of the tobacco epidemic is a global problem with serious consequences for public health that calls for the widest possible international cooperation and the participation of all countries in an effective, appropriate and comprehensive international response,
Reflecting the concern of the international community about the devastating worldwide health, social, economic and environmental consequences of tobacco consumption and exposure to tobacco smoke ….
7 J. Nocera, “If It’s Good for Philip Morris, Can It Also Be Good for Public Health?,” New York Times (18 June 2006), p. 2 (R-175).
8 Ibid., p. 1.
9 World Health Organization (“WHO”), Framework Convention on Tobacco Control (“FCTC”), opened for signature May 2003 through 29 June 2004, EIF 27 Feb. 2005, Forward, p. v (RL-20).
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1.10 Claimants’ behavior has been every bit as extraordinary as the products they sell. Philip
Morris and its affiliates have engaged in an exhaustively documented — and judicially confirmed — history of deceiving the international community about the lethal nature of their cigarettes for decades. In an action instituted by the United States Department of Justice, the courts of the company’s original home country found it liable for engaging in an illegal racketeering enterprise with other members of the tobacco industry, pursuant to which they, among other things:
Falsely denied that cigarettes are harmful to health;10
Falsely denied that nicotine is addictive;11
Falsely denied that they manipulated cigarette design to make them more addictive;12
Falsely denied that they market to youth;13 and
Falsely marketed “light,” “mild,” and “low-tar” cigarettes as less harmful alternatives to full-strength variants.14
1.11 In its 2006 judgment, later confirmed by the United States Court of Appeals, the United
States District Court concluded that:
Defendants have marketed and sold their lethal product with zeal, with deception, with a single-minded focus on their financial
10 United States v. Philip Morris USA, Inc., Amended Final Opinion, Case No. 99-2496 (GK) (D.D.C. 2006), pp. 219-331 (RL-171).
11 Ibid., pp. 445-514.
12 Ibid., pp. 567-635.
13 Ibid., pp. 972-1209.
14 Ibid., pp. 740-971.
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success, and without regard for the human tragedy or social costs that success exacted.15
1.12 The fundamental contradiction between the commercial interests of the tobacco industry and public health is not merely the conclusion of the United States court system. It is a matter of global consensus, as reflected in the FCTC’s Guidelines for Implementation. At the Third
Conference of the Parties in November 2008, the assembled States Parties to the FCTC unanimously adopted the implementation guidelines for Article 5(3). They contain the following statement of principle:
Principle 1: There is a fundamental and irreconcilable conflict between the tobacco industry’s interests and public health policy interests.
… The tobacco industry produces and promotes a product that has been proven scientifically to be addictive, to cause disease and death and to give rise to a variety of social ills, including increased poverty. Therefore, Parties should protect the formulation and implementation of public health policies for tobacco control from the tobacco industry to the greatest extent possible.16
1.13 The two measures Claimants question — the SPR and 80% Requirement — are
Uruguay’s reasoned responses to the uniquely addictive and deadly characteristics of tobacco itself, and the tobacco industry’s history of deceptive marketing. These critical background elements form the context within which Claimants’ assertion that there is “no logical connection” between the measures at issue and the protection of public health in Uruguay is to be assessed. When the two measures are viewed contextually, there can be no genuine question but
15 Ibid., p. 4.
16 Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for Implementation of Article 5.3 of the WHO Framework Convention on Tobacco Control (Packaging and labeling of tobacco products), FCTC/COP3(7) (Nov. 2008), p. 2 (RL-134).
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that they were entirely reasonable; indeed, as Uruguay determined, there was a compelling need for them.
1.14 The particular history that is most relevant to the SPR is the tobacco industry’s creation and marketing of new brands, or variants of existing brands, which were presented as less harmful alternatives to existing cigarettes — even though the tobacco companies knew that was not true. These variants were labeled “light,” “mild,” “low tar,” “ultra light” or with other such descriptors and sold in distinctly colored packages. When the evidence emerged that they were just as, if not more, harmful than their parent brands, States around the world, acting in conformity with the FCTC, moved to stop the deceptive marketing of these brand variants.
Uruguay adopted the SPR to achieve this goal.
1.15 The history relevant to the 80% Requirement is the tobacco industry’s persistent denial of the adverse health effects of tobacco, as well as its efforts to plant doubts about the scientific evidence proving the harms caused by tobacco use, in order to dissuade smokers from quitting and encourage potential smokers, including adolescents, to begin. To make quitting as difficult as possible, the industry deliberately engineered cigarettes to be more addictive, by increasing nicotine delivery through additives like ammonia that enhance absorption of nicotine into the lungs, and alterations in product design. Against this background, States around the world increasingly turned to health warnings on cigarette packs, both to inform consumers about addiction and other dangers of smoking, and to encourage them to quit.
1.16 Over time, as a result of growing scientific evidence of how to most effectively communicate the health harms of cigarettes, warnings have progressed from small text boxes hidden on the side of cigarette packs to large pictorial warnings that cover ever-increasing
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percentages of the package’s primary surfaces, as they now do in many States. The current international consensus, reflected in the FCTC and its implementing Guidelines, is that to be as effective as possible, pictorial warnings should cover at least 50% of the primary surfaces and ideally be designed to cover as much of the pack as possible. Uruguay adopted the 80%
Requirement to achieve this goal.
1.17 In Uruguay’s view, these facts disprove Claimants’ allegations that there is no “logical connection” between the SPR and 80% Requirement and the protection of public health from the unparalleled harms caused by tobacco consumption.
*
1.18 The balance of this Counter-Memorial consists of 10 chapters following this Introduction.
Uruguay apologizes in advance to the Tribunal for the length of this submission. For the reasons stated above, it is not possible for Uruguay to match the terse simplicity of Claimants’ Memorial.
The truth is more complex, and requires more elaboration, than Claimants care to acknowledge.
1.19 Following this Introduction, Chapter 2 sets forth the broader legal context within which
Uruguay’s decision to adopt the SPR and 80% Requirement must be assessed. The Chapter shows that Uruguay, like all States, possesses the inherent sovereign right to exercise its police powers to protect public health without incurring international liability, including under the
Uruguay-Switzerland BIT. The protection of public health, moreover, enjoys a unique place both in the domestic legal order in Uruguay and under international law. Indeed, the duty to protect public health, and especially the fundamental human rights of the Uruguayan people to life and health, are among the most basic norms of domestic and international law. That being the case,
Uruguay’s good faith, sovereign decisions about how best to exercise its legal obligation to
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protect its people from the recognized harms of tobacco consumption enjoy a considerable
margin of appreciation. Neither Claimants nor any international tribunal may substitute their
judgment for Uruguay’s.
1.20 Chapter 3 sets forth the facts that gave rise to the need for Uruguay to protect the health of its public by adopting the SPR and 80% Requirement. Four topics are addressed: (1) the
unique health harms caused by tobacco use and addiction; (2) the tobacco industry’s adjudicated history of deceiving the public, and public health authorities, about the true consequences of tobacco consumption, and the industry’s resistance to good faith regulation of all kinds, including especially regulations designed to mitigate the effects of its deceptive practices; (3) the global reaction to the tobacco epidemic in the form of the FCTC, and the obligations it imposes on its 179 States Parties, including Uruguay; and (4) the threat to public health in Uruguay posed by tobacco consumption, and the history of Uruguay’s regulation of this uniquely harmful product.
1.21 Chapter 4 refutes Claimants’ assertion that the SPR is not logically related to Uruguay’s objective of ending the false perception that some cigarettes are safer than others. The tobacco industry has long cultivated this falsehood in order to dissuade smokers from quitting and to persuade others to start by promoting so-called “light,” “mild,” “ultra-light” and “low tar” cigarettes that are misleadingly said to expose smokers to less tar and nicotine, and therefore less risk of harm, than “stronger” ones. Following WHO recommendations and in compliance with its obligations under the FCTC, Uruguay prohibited the use of such deceptive descriptors. Even so, the industry continued marketing cigarettes that communicated the same misleading message through other means, by emphasizing the continuity between the prohibited cigarettes and the ones that replaced them, and by creating easy to understand systems with colors, numbers and
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text to indicate the relative “safety” of different types of cigarettes within a brand family without
having need to use the prohibited words. The SPR eliminates this deceptive practice and protects
public health by prohibiting the marketing of multiple variations of a single brand.
1.22 Chapter 5 describes Uruguay’s decision to enlarge the size of health warning labels from
50% to 80% of the front and back of tobacco packaging, and the strong connection between that measure and the protection of public health. The evidence shows that when Uruguay enacted the
80% Requirement, many Uruguayans remained unaware of the variety and severity of the
diseases smoking causes, and the likelihood of succumbing to them. The evidence also shows
that highly visible graphic warnings prompt smokers to think about the dangers at a critical time
— when they are making a purchase and when they are taking a cigarette from the package.
Moreover, the FCTC, the implementation guidelines thereto, the recommendations of the WHO
and numerous scientific studies all confirm that the largest warnings are that most effective in
communicating the health risks of smoking, and that, to maximize effectiveness, warnings
should be larger than 50% and cover as much of the package as possible. Claimants’ arguments
that the larger warnings were arbitrary because most Uruguayans were already aware that
smoking is harmful and because there was supposedly no evidence to support Uruguay’s
decision to increase the size of the warnings, are easily dismissed.
1.23 Chapter 6 addresses the effects of the SPR and 80% Requirement on tobacco use in
Uruguay. The Chapter shows that Claimants’ attempt to undermine the reasonableness of the two
measures by showing that tobacco consumption in Uruguay has remained steady, or even gone
up, is legally and factually misguided. Legally, the issue of the measures’ reasonableness must
be assessed ex ante by reference to the situation that existed at the time they were adopted, not ex
post by reference to their actual effects. Factually, Claimants’ argument is based on a series of
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speculative leaps that do not bear up under examination. The reality is that Claimants’ own
figures show that smoking in Uruguay has declined since the SPR and 80% Requirement were
adopted.
1.24 Uruguay’s responses to Claimants’ legal arguments begin in Chapter 7, which refutes their expropriation claim under Article 5 of the BIT. Claimants’ expropriation argument fails in the first instance because Uruguay’s exercise of its sovereign police power does not constitute an
“expropriation” as a matter of law. Even if it did, Claimants’ claim would still fail for the simple reason that the value of their business has not been sufficiently affected to give rise to a valid claim for expropriation. Claimants’ business retains significant value as a going concern. Still further, the expropriation claim fails because Claimants had no affirmative rights under
Uruguayan intellectual property law with which either the SPR or 80% Requirement could be said to have interfered.
1.25 Chapter 8 responds to Claimants’ fair and equitable treatment (“FET”) claims and shows that Claimants have not met their burden of establishing a valid FET claim for multiple reasons.
In the first instance, the measures about which Claimants complain do not come close to violating the traditional customary international law norm providing for a minimum standard of treatment. Under no view of the facts are Uruguay’s measures sufficiently “outrageous” or
“shocking” to give rise to a viable claim in this respect. Moreover, even if, quod non, the
Tribunal were inclined to find that Article 3 of the BIT creates an autonomous FET standard
Claimants’ would still not succeed. Neither the SPR nor the 80% Requirement was arbitrary. To
the contrary, they were entirely reasonable under the circumstances. They did not violate any of
Claimants’ genuinely legitimate expectations; nor were Claimants deprived of a (non-existent)
right to legal stability. In addition to all the above, Claimants’ FET claim is defeated by their
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unclean hands; Claimants’ own deceptive practices were in significant measure a cause of the
regulatory actions they challenge. Ex dolo malo non oritur actio.17
1.26 Chapter 9 addresses and refutes Claimants’ attempts to elevate Uruguay’s alleged violations of its own trademark law into a treaty breach by means of Article 11 of the BIT. As the Chapter shows, this attempt fails in the first instance because Article 11 is far from a standard
“umbrella clause.” Moreover, Switzerland itself has made clear that it cannot be used, as
Claimants try to do here, to elevate purported violations of generally applicable municipal laws into a treaty breach. Like the international law on which it is based, Uruguayan intellectual property law does not give trademark registrants a right to use their trademarks in commerce.
Instead, it confers on them only the negative right to exclude others from doing so. Nothing about either the SPR or the 80% Requirement interferes with this negative right. There is therefore no violation of Uruguayan law that can be elevated into a breach of the BIT.
1.27 Chapter 10 responds to Claimants’ request for damages. It begins by showing that there is no legal basis for their request to repeal the SPR and 80% Requirement. The jurisprudence is clear that restitution of this sort is legally impossible. With respect to the request for monetary compensation, the Chapter shows that Claimants have entirely failed to carry their burden of proving the requisite causal link between the two measures at issue and the damages they claim to have suffered. Their market share and premium price were the same in 2013, four years after the measures were implemented, as they were just before, in 2008. Any fluctuations in market share or price in the intervening years were caused by market forces and Claimants’ own
17 “An action at law does not arise from evil deceit.”
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business decisions. Moreover, Claimants’ quantification analysis is filled with errors and
unwarranted assumptions that render it inherently unreliable and speculative.
1.28 Finally, Chapter 11 addresses and refutes Claimants’ denial of justice claims. Claimants’
argument that Uruguay’s Tribunal de lo Contencioso Administrativo (the “TCA”) rejected
Abal’s challenge to the SPR “without reference to any of Abal’s evidence, arguments, trademarks, or expert legal opinions”18 is mistaken. In fact, the TCA addressed Abal’s arguments
and the opinions of its experts, and rendered a reasoned decision that Claimants dare not dispute
as such. Claimants’ complaint reduces to the fact that the TCA decision makes three passing
reference to trademarks belonging to a different company. Such an obviously clerical oversight
cannot reasonably be cast as a “severe impropriety with an impact on the outcome of the case, to
the point that the entire procedure becomes objectionable as required by the notion of procedural
denial of justice.”19 Claimants also failed to exhaust their local remedies. They could have, but
did not, seek from Uruguay’s Supreme Court of Justice a declaration of unconstitutionality of
Article 8 of Law 18,256, the provision from which the SPR derives its legal force.
1.29 Claimants’ denial of justice claim relating to its challenge of the 80% Requirement is
equally meritless. Their assertion that the Uruguayan courts “effectively denied Abal the right to
a decision on the legality of the 80/80 requirement”20 is false. The TCA adjudicated Abal’s
claims and dismissed them in a reasoned decision. The fact that the TCA did not adopt the
reasoning of the Uruguayan Supreme Court in a prior case does not give rise to a denial of
18 CMM, ¶ 161.
19 Jan Oostergetel and Theodora Laurentius v. Slovak Republic, UNCITRAL, Final Award (23 Apr. 2012) (Kaufmann-Kohler, Wladimiroff, Trapl), ¶ 287 (RL-194).
20 CMM, ¶ 167.
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justice. Under the Uruguay legal system, the TCA and Supreme Court are co-equal institutions with different spheres of jurisdiction. The TCA is not obligated to adhere to the reasoning of the
Supreme Court in cases, like this one, where the latter has upheld the constitutionality of a law
(as distinguished from cases holding that a statute is unconstitutional).
1.30 For all of these reasons, as more fully elaborated within, Claimants have failed to sustain their burden of proving that the SRP or the 80% Requirement were manifestly arbitrary exercises of Uruguay’s well recognized right to regulate the marketing of harmful products to protect public health; and they have failed to show that, in adopting and implementing these measures,
Uruguay violated any of the provisions of the Uruguay-Switzerland BIT.
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CHAPTER 2
URUGUAY HAS THE SOVEREIGN RIGHT AND DUTY TO REGULATE COMMERCIAL ACTIVITY FOR THE PROTECTION OF PUBLIC HEALTH
2.1 This Chapter addresses the nature and scope of Uruguay’s right under international law
— including the Uruguay-Switzerland BIT — to regulate commercial activity for the purpose of promoting and protecting public health.
2.2 Section I discusses the police powers doctrine in international law and demonstrates that
Uruguay has the right to exercise its inherent sovereign power to protect public health without incurring international responsibility.
2.3 Section II describes the domestic and international legal regimes that confer upon
Uruguay the right to protect public health, and endow the people of Uruguay with the fundamental human rights to life and health that their Government is legally obligated to protect.
2.4 Finally, Section III demonstrates that international law accords States a wide margin of appreciation in choosing what measures to adopt to protect core sovereign interests, especially the protection of public health. The task of an international tribunal is not to micromanage the application of public health law but to determine whether the measures were adopted are in good faith and have a logical connection with their intended objectives (a standard that Claimants themselves repeatedly acknowledge21).
21 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 2, 6.
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I. International Law Accords States the Right To Exercise Their Police Powers To Regulate Commercial Activities That Are Harmful To Public Health
2.5 This case is about Uruguay’s exercise of its police power to protect public health against
the detrimental effects of Claimants’ products. It is undisputed that: (1) regular use of these
products results in lifelong addiction, illness and death; (2) that the public health impacts in
Uruguay have been severe; and (3) and that the specific measures adopted by Uruguay were
intended to mitigate these impacts.
2.6 As a sovereign State, Uruguay indisputably “has the inherent right to regulate its affairs
and adopt laws in order to protect the common good of its people, as defined by its Parliament
and Government.”22 The “persistence of [Uruguay’s] regulatory powers” is “an essential element
of the permanent sovereignty … over its economy,” and “[n]othing in the language of bilateral investment treaties purports to undermine the permanent sovereignty [of] States over their economies.”23
2.7 This Tribunal confirmed the principle in its Award on Jurisdiction, in which it expressly
stated that the Uruguay-Switzerland BIT “does not prevent Uruguay, in the exercise of its
22 Joseph Charles Lemire v. Ukraine, ICSID Case No. ARB/06/18, Decision on Jurisdiction and Liability (14 Jan. 2010) (Paulsson, Voss, Fernández-Armesto) (hereinafter “Lemire v. Ukraine”), ¶ 505 (RL-114); LG&E Energy Corp., et al. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (3 Oct. 2006) (de Maekelt, Rezek, van den Berg), ¶ 195 (“With respect to the power of the State to adopt its policies, it can generally be said that the State has the right to adopt measures having a social or general welfare purpose.”) (RL-65).
23 V. Lowe, Recognition or Expropriation, TRANSNATIONAL DISPUTE MANAGEMENT, Vol. 1, No. 3 (July 2004), p. 4 (emphasis added) (cited in UNCTAD, EXPROPRIATION: A SEQUEL (2012), p. 80 (RL-254)) (RL-237).
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sovereign power, from regulating harmful products in order to protect public health after investments in the field have been admitted.”24
2.8 This case involves more than a general right to regulate for public purposes. It involves a special category of State power: the police power. The police power is: “The inherent and plenary power of a sovereign to make all laws necessary and proper to preserve the public security, order, health, morality, and justice.”25 It is “a fundamental power essential to government, [which] cannot be surrendered by the legislature or irrevocably transferred away from government.”26
2.9 Preserving and protecting public health is a quintessential manifestation of police power.27 Indeed, Article 2(1) of the Uruguay-Switzerland BIT explicitly recognizes the special plane on which police power exists by allowing the contracting States to refuse to admit investments “for reasons of public security and order, public health or morality.” Protecting the public health is thus as much a fundamental State function as public security and order.
24 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, Decision on Jurisdiction (2 July 2013) (Bernardini, Born, Crawford), ¶ 174 (RL-206).
25 Black’s Law Dictionary (7th ed. 1999) (hereinafter “Black’s Law Dictionary”), p. 1178: “police power” (emphasis added) (RL-230). In the ELSI case, the International Court of Justice (“ICJ”) stated that “Every system of law must provide, for example, for interferences with the normal exercise of rights during public emergencies and the like.” Elettronica Sicula S.p.A. (United States v. Italy), Judgment (20 July 1989), I.C.J. Reports 1989, p. 51, ¶ 74 (CLA- 088).
26 Black’s Law Dictionary, p. 1178 (RL-230).
27 1961 Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens, reprinted in 55 AM. J. INT’L L. 548 (1961), Art. 10(5) (“An uncompensated taking of property of an alien or deprivation of the use or enjoyment of property of an alien which results from … the action of the competent authorities of the State in the maintenance of public order, health, or morality … shall not be considered wrongful ….”) (emphasis added) (RL- 255). Claimants previously submitted excerpts of the 1961 Harvard Draft Convention as CLA-236. Uruguay submits the full document as RL-255.
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2.10 The police powers doctrine has a long pedigree that predates the advent of investment treaties.28 In 1941, Professor Herz observed that:
[E]ven in the era of most radical non-intervention policy there were always certain cases in which state interference with private property was not considered expropriation entailing an obligation to pay compensation but a necessary act to safeguard public welfare: e.g., measures taken for reasons of police, that is, for the protection of public health or security against internal or external danger.
The right of the state to interfere with private property in the exercise of its police power has been recognized by general international law as referring to foreign property also: interference with foreign property in the exercise of police power is not considered expropriation. The state is deemed to be free to take all necessary steps in this respect without incurring any of the obligations which generally accompany ordinary expropriation.29
2.11 A more recent working paper prepared by the Organization for Economic Co-operation and Development makes the same points: “It is an accepted principle of customary international law that where economic injury results from a bona fide non-discriminatory regulation within the police powers of the State, compensation is not required.”30
2.12 Today, the police powers doctrine is a fixture of investment arbitration. As Professor
Salacuse observes, this is reflected in the general rule that a State is “not responsible for losses resulting from the bona fide exercise of regulatory … authority,” which is “commonly accepted
28 J. Herz, Expropriation of Foreign Property, 35 AM. J. INT’L L. 243 (1941), pp. 251-252 (emphasis added) (RL- 212).
29 Ibid.
30 OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, OECD Working Papers on International Investment Law, No. 2004/04 (Sept. 2004), p. 5 n. 10 (citing R. Dolzer & M. Stevens, BILATERAL INVESTMENT TREATIES (1995), p. 98) (RL-238).
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as part of a state’s police powers.”31 In Saluka v. the Czech Republic, the tribunal similarly described the law, stating: “It is now established in international law that States are not liable to pay compensation to a foreign investor when, in the normal exercise of their regulatory powers, they adopt in a non-discriminatory manner bona fide regulations that are aimed at the general welfare.”32 This rule applies as much to claims of expropriation as claims arising under other treaty provisions.33
31 J. Salacuse, THE LAW OF INVESTMENT TREATIES (2010), p. 56 (RL-93(bis)). See also G. Aldrich, What Constitutes a Compensable Taking of Property? The Decisions of the Iran-United States Claims Tribunal, 88 AM. J. INT’L L. 585 (1994), p. 609 (observing that international legal authorities have regularly concluded that “[l]iability does not arise from actions that are non-discriminatory and are within the commonly accepted taxation and police powers of states”) (RL-225); A. Newcombe, The Boundaries of Regulatory Expropriation in International Law, 20 ICSID REV. 1 (2005) (hereinafter “Newcombe”), p. 29 (“International law authorities have regularly concluded that no right to compensate arises for reasonably necessary regulations passed for the ‘protection of public health, safety, morals or welfare.’”) (RL-240).
32 Saluka Investments BV (The Netherlands) v. Czech Republic, UNCITRAL, Partial Award (17 Mar. 2006) (Watts, Fortier, Behrens), ¶ 255 (CLA-227). See also ibid., ¶ 262 (“In the opinion of the Tribunal, the principle that a State does not commit an expropriation and is thus not liable to pay compensation to a dispossessed alien investor when it adopts general regulations that are ‘commonly accepted as within the police power of States’ forms part of customary international law today.”); Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 Dec. 2011) (Hanotiau, Giardina, Reisman), ¶ 663 (RL-193); Técnicas Medioambientales Tecmed, S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003) (Grigera Naón, Fernandez Rozas, Bernal Verea), ¶ 119 (the tribunal recognized as “undisputable” that “the State’s exercise of its sovereign powers within the framework of its police power may cause economic damage to those subject to its powers as administrator without entitling them to any compensation whatsoever ….”) (CLA-203); Methanex Corporation v. United, UNCITRAL, Final Award (3 Aug. 2005) (Veeder, Rowley, Reisman) (hereinafter “Methanex v. United States”), Part IV, Ch. D, ¶ 7 (“as a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.”) (emphasis added) (RL-164); Sedco, Inc., et al. v. National Iranian Oil Co., et al., Award No. ITL 55-129-3 (28 Oct. 1985), reprinted in 9 IRAN-U.S. CL. TRIB. REP. 248 (1985), p. 275 (“It is also an accepted principle of international law that a State is not liable for economic injury which is a consequence of bona fide “regulation” within the accepted police power of states.”) (emphasis added) (RL-149).
33 Total S.A. v. Argentine Republic, ICSID Case No. ARB/04/1, Decision on Liability (27 Dec. 2010) (Sacerdoti, Alvarez, Marcano), ¶ 197 (RL-190). See also T. Weiler, Philip Morris vs. Uruguay: An Analysis of Tobacco Control Measures in the Context of International Investment Law (28 July 2010), p. 22 (observing that “the FET standard was never meant to prevent the good faith and non-discriminatory exercise of regulatory (aka ‘police’) powers by the Host State unless the adoption, implementation or effects of a measure are manifestly arbitrary, grossly inequitable or patently unfair.”) (R-228).
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2.13 The rationale underlying the police power doctrine and its corollary rule on non-
compensation is straightforward: “[P]roperty rights have inherent limitations – they are never absolute.”34 Property is “a social institution that serves social functions” and it thus “cannot be used in a way that results in serious harms to public order and morals, human health or the environment.”35 As the tribunal in Feldman v. Mexico held in rejecting claims challenging a tax
measure on the production and sale of cigarettes: “[G]overnments must be free to act in the broader public interest” and a “[r]easonable governmental regulation of this type cannot be achieved if any business that is adversely affected may seek compensation, and it is safe to say that customary international law recognizes this.”36
2.14 It is therefore not surprising that the police power doctrine has often proved dispositive of
claims seeking to impose liability on a State for measures adopted to protect public health. As far
back as in 1903, during an epidemic of smallpox, the claimant’s carriage, which had been used to
transport people infected with smallpox, was taken by the police. The police later offered to
return the carriage but the claimant refused to accept it without compensation because it had
been damaged. In dismissing the petition for damages, the claims commission in the Bischoff
Case held: “Certainly during an epidemic of an infectious disease there can be no liability for the
reasonable exercise of police power ….”37
34 Newcombe, p. 27 (RL-240).
35 Ibid., p. 27. See also ibid. (“[F]ew international jurists would seriously suggest that if a government, acting in good faith and non-discriminatorily, bans a carcinogenic pesticide, compensation would be due to the affected investor for an expropriation, even where the pesticide’s company business is based solely on the manufacture and distribution of the banned pesticide.”).
36 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (16 Dec. 2002) (Kerameus, Covarrubias Bravo, Gantz), ¶ 103 (RL-201).
37 Bischoff Case, German-Venezuelan Commission, Decision (1903), 10 U.N.R.I.A.A. 420 (RL-138). - 22 - CONFIDENTIAL INFORMATION REDACTED
2.15 Tobacco consumption may be non-infectious but it is nevertheless regarded as a disease
of epidemic proportions by the WHO, Pan American Health Organization (“PAHO”), U.S.
Surgeon General and Centers for Disease Control and Prevention, and non-governmental organizations dedicated to public health around the world, including, among many others: the
World Lung Foundation, the Union Against Tuberculosis and Lung Disease, the World Heart
Foundation, the Inter-American Heart Foundation, the Union for International Cancer Control,
Corporate Accountability International, the American Cancer Society and the Campaign for
Tobacco-Free Kids. There can be no liability when a State reasonably exercises its police power
to mitigate the harmful effects of such an epidemic.
2.16 Rationales similar to that stated in the Bischoff Case have led investment-arbitration
tribunals to reject claims challenging regulatory measures designed in good faith to protect
public health. In Methanex v. U.S., for example, the claimant argued that its rights had been expropriated as a result of a measure adopted by the authorities in the U.S. state of California banning the fuel additive, MTBE, a ground-water pollutant harmful to public health. The tribunal rejected the claim on the basis of the state’s police powers. The Methanex tribunal explained that
“as a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory ….”38
2.17 Chemtura v. Canada stands for the same proposition. In that case, a U.S. manufacturer of
the chemical lindane, an agricultural insecticide widely recognized as harmful to human health
and the environment, claimed that Canada breached the North America Free Trade Agreement
38 Methanex v. United States, Part IV, Ch. D, ¶ 7 (RL-164).
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(“NAFTA”) by prohibiting sale of the chemical. The arbitral tribunal rejected the claim on
several grounds, including the fact that Canada’s ban on lindane constituted an appropriate
exercise of its police powers to protect the public health. The tribunal held that “the measures
challenged by the Claimant constituted a valid exercise of the Respondent’s police powers,”
because the relevant regulatory agency “took measures within its mandate, in a non-
discriminatory manner, motivated by the increasing awareness of the dangers presented by
lindane for human health and the environment.”39 A measure adopted under such circumstances,
the tribunal concluded, “is a valid exercise of the State’s police powers and, as a result, does not
constitute an expropriation.”40
2.18 Lindane and tobacco differ in exactly how they harm human health. But in both cases
they unquestionably do. Indeed, the harm to health caused by tobacco, which is directly
responsible for over 6,000 deaths a year in Uruguay41 exceeds that of lindane by many orders of
magnitude.
39 Chemtura Corporation v. Government of Canada, UNCITRAL, Award (2 Aug. 2010) (Kauffmann-Kohler, Brower, Crawford) (hereinafter “Chemtura v. Canada”), ¶ 266 (RL-53).
40 Ibid.
41 Uruguayan Office of the President, “Study of the Ministry of Public Health: Smoking Habit Still Causes Around 6,500 Deaths Per Year in Uruguay” (14 Aug. 2014), available at http://www.presidencia.gub.uy/comunicacion/comunicacionnoticias/estudio-msp-enfermedades-atribuibles-tabaco (last visited 11 Sept. 2014) (R-315).
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II. Uruguay Has Domestic and International Legal Obligations To Protect Public Health To Safeguard the Rights of Its Citizens to Life and Health
A. Uruguay’s Obligations under Domestic Law
2.19 In addition to its right under international law to exercise its police power to protect public health, Uruguay has national and international legal obligations to protect the lives and health of its citizens against hazards to human health, including the harmful effects of tobacco consumption.
2.20 Uruguay’s duty to protect public health has long occupied a central place in the domestic legal system. The rights of Uruguayan citizens to life and health are considered fundamental, a bien supremo, or “supreme good.” As fundamental rights, the rights to life and health “prevail over any right of commerce, industry or expression of thought, etc., by those who market or manufacture tobacco [products].”42 In case of a conflict, the rights to life and health must take precedence.43 Indeed, Article 36 of the Constitution expressly emphasizes and prioritizes the
42 Response of Ministry of Public Health, SJC Case No. 1-65/2009 (18 Nov. 2009), ¶ 13 (R-217). See, e.g., Uruguayan Ministry of Public Health (MSP), Resolution of Administrative Opposition of Abal and Philip Morris Products S.A. regarding Ordinance 466 (28 Jan. 2010), ¶ VIII (“[T]he Constitution and legal Doctrine acknowledge the ‘principle of protection,’ which functions as a right that permits exercising other rights and resolving conflicts among equally acknowledged rights; in this case the right to the enjoyment of health should take priority, since it is given pre-eminence in the aforementioned international instruments, seeking to ensure the right to enjoy good health for the entire population, that necessarily must prevail over all commercial rights, industrial rights, or expression of thoughts on the part of the agents that market and industrialize tobacco, being indisputable that, according to our Constitution, all inhabitants are entitled to be protected in the enjoyment of their right to life, understood as the most precious good of a human being, and in the same respect, it is the State’s constitutional obligation to look after the population’s health in general.”) (emphasis added) (RL-9); H. Cassinelli Muñoz, Human Rights: § 61 - Uruguay, in “The Right to Health in the Americas,” DERECHO CONSTITUCIONAL Y ADMINISTRATIVO: ESTUDIOS PUBLICADOS, COMPILADOS POR CARLOS SACCI (2010), pp. 873-874 (RL-35).
43 Response of Ministry of Public Health, SJC Case No. 1-65/2009, ¶¶ 13, 15 (“As established in the Constitution itself, the rights of a private parties may be limited by law due to matters of general interest. It is undeniable that the protection of the right to the full enjoyment of life, the right to [enjoyment of] health and of the environment are public rights of the entire population and imminent matters of general interest which must be regulated by the State and therefore take precedence over any other private right. … In the case in question and given the hypothesis of conflict among rights, this would be between the right to enjoyment of health (life) and the free expression of thought, information, work and commerce …. According to the [constitutional principle of protection], the right to - 25 - CONFIDENTIAL INFORMATION REDACTED
foremost interests of the population (such as life and health) above all industrial, commercial, or
professional work, allowing limitations of such activities for reasons of general interest by legal
means.44 Claimants and all other tobacco companies doing business in Uruguay are thus on
notice that deadly products, such as they ones they market, are subject to these constitutional
mandates.
2.21 Under the Uruguayan Constitution, the government has affirmative duties to protect
public health and is vested with a wide mandate to this end. Article 44 of the Constitution
directs: “The State shall legislate in all matters appertaining to public health and hygiene, to
secure the physical, moral and social well-being of all the inhabitants of the country.”45 Article
46 expresses the duty to “combat social vices by means of the law and International
Conventions.”46 And Article 7 states the principle of protection pursuant to which “[t]he
inhabitants of the Republic have the right to be protected in the enjoyment of their life ….”47
2.22 The Constitutional priority accorded to matters of public health is further codified in the
1934 Organic Law of Public Health, which lays the statutory foundation for all public health
regulations in Uruguay. Reiterating the supremacy of public health, the 1934 Organic Law
provides that the Ministry of Public Health must adopt “all measures deemed necessary to
the enjoyment of health must take precedence, which was given preeminence in international law that the State agreed to comply with. … The general interest of the right to full enjoyment of life must always prevail over private interest such as the freedom of commerce.”) (emphasis added) (R-217).
44 See Constitution of the Oriental Republic of Uruguay (2004) (hereinafter “Uruguay Constitution”), Art. 36 (RL- 1(bis)).
45 Ibid., Art. 44.
46 Ibid., Art. 46. (emphasis added).
47 Ibid., Art. 7.
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maintain collective health ….”48 The Ministry must also take “preventive action in regards to …
social vices … that decrease the capacity of individuals or threaten health ….”49
2.23 In 2008, the legislative branch enacted Law 18,256 on Tobacco Control, a law of public
order directing the Ministry of Public Health to protect the country’s inhabitants against the
health, social, environmental and economic consequences of tobacco use, and exposure to
tobacco smoke.50 The Ministry’s promulgation of implementing regulations following the
enactment of this law, including the regulations that Claimants challenge here, constitutes not
only an exercise of Uruguay’s sovereign police powers, but the fulfillment of a constitutional
duty imposed on the State to protect the most fundamental bien supremo — the right to life —
which is undeniably impaired by long-term tobacco consumption.
2.24 This is not to say that Uruguay’s Constitution or national laws trump its international
obligations, including those arising from bilateral investment treaties. But they do confirm
Uruguay’s strong interest in protecting public health, and underscore its objectives in adopting
and implementing the regulatory measures that have been challenged in this case. And they are certainly relevant both to an understanding of why Uruguay enacted these measures and to an appreciation of Uruguay’s good faith in doing so.
B. Uruguay’s Obligations under International Law
2.25 The rights of the Uruguayan people to life and health, and the corresponding duty of
Uruguay to protect those rights, are not only features of Uruguayan domestic law. They also
48 Uruguayan Organic Law of Public Health No. 9,202 (20 Dec. 1934), Art. 2(1) (RL-8).
49 Ibid., Art. 23.
50 See Uruguayan Law No. 18,256 (6 Mar. 2008), Arts. 1-2 (RL-6).
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exist under international law. The people of Uruguay have an internationally recognized human right to live healthy lives free of preventable diseases and death, and Uruguay has the corresponding international legal obligation to protect its citizens’ enjoyment of this fundamental right. These principles, which are self-evident in any case, apply with particular force in the context of tobacco consumption and addiction, a realm in which the international community has moved with unprecedented consensus.
2.26 Numerous international instruments to which Uruguay is a party guarantee the human right to health.51 The most comprehensive provision is found in the 1966 International Covenant on Economic, Social and Cultural Rights (“ICESCR”).52 Under Article 12(1), States Parties to the ICESCR (which include Uruguay and Switzerland53) recognize “the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.” Article 12.2(c) enumerates illustrative, non-exhaustive examples of the obligations of the States Parties “to
51 The Universal Declaration of Human Rights affirms, in Article 25(1): “Everyone has the right to a standard of living adequate for the health of himself and of his family, including food, clothing, housing and medical care and necessary social services.” Additionally, the right to health is recognized, inter alia, in the International Convention on the Elimination of All Forms of Racial Discrimination of 1965 (Article 5(e)(iv)), the Convention on the Elimination of All Forms of Discrimination against Women of 1979 (Articles 11.1(f) and 12), and the Convention on the Rights of the Child of 1989 (Article 24). Several regional human rights instruments also recognize the right to health, such as the European Social Charter of 1961 as revised (Article 11), the African Charter on Human and Peoples’ Rights of 1981 (Article 16) and the Additional Protocol to the American Convention on Human Rights in the Area of Economic, Social and Cultural Rights of 1988 (Article 10). Similarly, the right to health has been proclaimed by the Commission on Human Rights (resolution 1989/11), as well as in the Vienna Declaration and Programme of Action of 1993 (The Principles for the Protection of Persons with Mental Illness and for the Improvement of Mental Health Care adopted by the United Nations General Assembly in 1991 (Resolution 46/119)). Other international instrument also addressed the right to health (the Programme of Action of the International Conference on Population and Development held at Cairo in 1994).
52 U.N. Committee on Economic, Social and Cultural Rights (CESCR), The right to the highest attainable standard of health: General Comment No. 14, U.N. Doc. E.C.12/200/4 (11 Aug. 2000) (hereinafter “CESCR, The right to the highest attainable standard of health: General Comment No. 14”), ¶ 2 (RL-129).
53 Uruguay ratified the Convention on 1 April 1970 and Switzerland acceded to it on 18 June 1992. - 28 - CONFIDENTIAL INFORMATION REDACTED
achieve the full realization of this right,” including “the prevention, treatment and control of
epidemic, endemic, occupational and other diseases.”54
2.27 The right to health is defined broadly. According to the Constitution of the WHO, health
is defined as “a state of complete physical, mental and social well-being and not merely the
absence of disease or infirmity.”55 The WHO Constitution also enumerates several principles that
are basic to the enjoyment of this right, including “[h]ealthy development of the child”;
“[i]nformed opinion and active co-operation on the part of the public”; and governmental
“responsibility for the health of their peoples which can be fulfilled only by the provision of
adequate health and social measures.”56
2.28 As the WHO Constitution suggests, international human rights law obligates States to
take active measures to guarantee their peoples’ right to health.57 The Economic and Social
Council of the United Nations (“ECOSOC”) has explained that this obligation requires States,
inter alia, “to adopt appropriate legislative, administrative, budgetary, judicial, promotional and
other measures” that “prevent third parties from interfering with … the right to health.”58
54 CESCR, The right to the highest attainable standard of health: General Comment No. 14, ¶ 16 (RL-129).
55 Constitution of the World Health Organization (“WHO”), signed 22 July 1946, EIF 7 Apr. 1948 (hereinafter “WHO Constitution”), ¶ 1 (RL-122). The WHO Constitution has been observed as “claiming … the full area of contemporary international public health,” establishing the right to health as a “fundamental, inalienable human right” that governments cannot abridge, and are rather obligated to protect and uphold. See F. Grad, The Preamble of the Constitution of the World Health Organization, 80 BULL. WORLD HEALTH ORG. 981 (Dec. 2002), p. 981 (RL- 233).
56 WHO Constitution, Preamble (RL-122).
57 CESCR, The right to the highest attainable standard of health: General Comment No. 14, ¶ 33 (explaining that “the right to health, like all human rights, imposes … the obligations to respect, protect and fulfill.”) (RL-129).
58 Ibid.
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2.29 Failure to take appropriate measures to protect the right of the Uruguayan people to health would potentially place Uruguay in breach of its international human rights obligations.
ECOSOC has explained that “violations of the obligation to protect” may, among other things, arise from “the failure of a State to take all necessary measures to safeguard persons within their jurisdiction from infringements of the right to health by third parties.”59 This category of
omissions includes:
“the failure to regulate the activities of individuals, groups or corporations so as to prevent them from violating the right to health of others”;
“the failure to protect consumers … from practices detrimental to health”; and, of particular relevance in this case,
“the failure to discourage production, marketing and consumption of tobacco, narcotics and other harmful substances.”60
2.30 The application of these general principles to the consumption of tobacco was made more specific by the WHO Framework Convention on Tobacco Control, which was adopted in 2003 and entered into force in 2005. There are now 179 States Parties to the Convention (which is discussed in greater detail in the next Chapter), including Uruguay. It was adopted with the objective of
protect[ing] present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure to tobacco smoke by providing a framework for tobacco control measures to be implemented by the Parties at the national, regional and international levels in order
59 Ibid., ¶ 51.
60 Ibid. (emphasis added).
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to reduce continually and substantially the prevalence of tobacco use and exposure to tobacco smoke.61
2.31 The FCTC is unique because it is the only global health treaty devoted to a single product
and reaffirms that good faith efforts to reduce tobacco consumption deserve special deference
under international law. The Preamble to the FCTC begins with the statement that the
Contracting Parties are “[d]etermined to give priority to their right to protect public health.”62
Elsewhere, the Preamble recalls “Article 12 of the International Covenant on Economic, Social and Cultural Rights, adopted by the United Nations General Assembly on 16 December 1966, which states that it is the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.”63
2.32 Article 5(1) of the FCTC states that all States Parties, including of course Uruguay, “shall develop, implement, periodically update and review comprehensive multisectoral national tobacco control strategies, plans and programmes in accordance with this Convention and the protocols to which it is a Party.”64
2.33 Article 7 further requires that States Parties “shall adopt and implement effective legislative, executive, administrative or other measures” to reduce the demand for tobacco.65
These include the measures described in Articles 8 to 13 of the Convention, which encompass
61 World Health Organization (“WHO”), Framework Convention on Tobacco Control (“FCTC”), opened for signature May 2003 through 29 June 2004, EIF 27 Feb. 2005 (hereinafter “WHO, FCTC”), Art. 3 (RL-20).
62 Ibid., Preamble.
63 Ibid.
64 Ibid., Art. 5(1).
65 Ibid., Art. 7.
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protection from exposure to tobacco smoke; regulation of the contents of tobacco products and
tobacco product disclosures; preventing false or misleading packaging and labeling of tobacco
products; education, communication, training and public awareness; and restricting tobacco
advertising, promotion and sponsorship.66
2.34 The General Assembly of the United Nations has expressly recognized the grave threat to
global public health caused by tobacco consumption, and underscored the urgent need to respond
to it by the full and speedy implementation of the FCTC. In its Resolution following the High-
Level Meeting on Non-Communicable Diseases in 2011, the UNGA declared that “the most
prominent non-communicable diseases are linked to common risk factors, namely tobacco use
….”67 It therefore stressed “the critical importance of reducing the level of exposure of individuals and populations to the common modifiable risk factors for non-communicable diseases, namely, tobacco use,” and called upon member States to “accelerate implementation” of the FCTC in order “to reduce consumption and availability” of tobacco.68 In so doing, the
General Assembly underscored “the fundamental conflict of interest between the tobacco
industry and public health.”69
66 The normative content of these obligation is discussed in Chapter 3.
67 United Nations General Assembly (UNGA), Political Declaration of the High-level Meeting of the General Assembly on the Prevention and Control of Non-communicable Diseases, UN Doc. A/RES/66/2, adopted 19 Sept. 2011, distributed 24 Jan. 2012, ¶ 20 (RL-136).
68 Ibid., ¶¶ 35, 43.
69 Ibid., ¶ 38.
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2.35 In the Chemtura case, the arbitral tribunal, taking note of the general international trend
in favor of banning lindane, explained that the “broader factual context is relevant in assessing”70 the reasonableness of Canada’s exercise of its police power. It thus took into account Canada’s international treaty obligations to ban lindane for purposes of protecting public health,71 and ruled that Canada’s ban on the product did not engage its international responsibility.
2.36 Similarly, as discussed in Chapters 4 and 5 of this Counter-Memorial, Uruguay’s tobacco control measures were taken in fulfillment of its obligations under the FCTC and international human rights treaties, as well as its constitutional duty to protect the lives and health of its citizens. Likewise, they do not engage Uruguay’s international responsibility.
III. Uruguay’s Decisions about How To Protect Public Health Enjoy a Wide Margin of Appreciation
2.37 Claimants challenge Uruguay’s SPR and 80% Requirement, alleging that there is “no logical connection” between the regulations and the protection of public health.72 They are
mistaken, for the reasons presented in Chapters 4 and 5 below.
70 Chemtura v. Canada, ¶ 137 (RL-53).
71 Ibid., ¶¶ 135, 137 (“The Tribunal cannot ignore the fact that lindane has raised increasingly serious concerns both in other countries and at the international level since the 1970s. The Respondent has amply established the existence of such concerns, by referring inter alia to the following examples [a list of international conventions]. … This broader factual context is relevant in assessing the first point raised by the Claimant, namely whether the PMRA undertook the Special Review as a result of a trade irritant and not as a part of its mandate as a regulatory agency or as part of an international commitment undertaken by Canada under the Aarhus Protocol to the LRTAP Convention. Although the Claimant has avoided formulating this allegation in such terms, the underlying idea is that the PMRA acted in bad faith and launched a review process for reasons unrelated to its mandate and to the international obligations of Canada. The burden of proving these facts rests on the Claimant, in accordance with well established principles on the allocation of the burden of proof, and the standard of proof for allegations of bad faith or disingenuous behaviour is a demanding one.”) (emphasis added).
72 CMM, ¶¶ 2, 6.
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2.38 What is notable here is Claimants’ recognition of the high hurdle they must surmount to
successfully impose international liability on Uruguay. When Claimants state — two times —
that there is “no logical connection” between the measures taken by Uruguay and the objectives
thereof, they acknowledge that this is the standard against which Uruguay’s actions must be
judged; that is, they bear the burden of showing that there is “no logical connection” between
Uruguay’s measures and objectives, and recognize that, if there is such a connection, their claims
fail.
2.39 Claimants thus admit, as they must, that it is not sufficient for them (or the Tribunal) to
substitute their (or its) judgment for Uruguay’s, by arguing that wiser or more effective measures
were available. Rather, the legal standard to be applied is one of “no logical connection”; that is,
of manifest arbitrariness.
2.40 Moreover, in making this determination, Uruguay’s actions must be given a considerable
measure of deference. Like every other sovereign State, Uruguay has “the right to determine the
level of protection of health that [it] consider[s] appropriate ….”73 This is all the more true in a
case involving a product as indisputably detrimental to public health as tobacco, and where (as
shown in Chapter 3) the tobacco industry has a long and well-documented history of using
deceptive means to promote its products.74 In the words of the FCTC, what is at stake is nothing less than the “protect[ion of] present and future generations from the devastating health, social,
73 WTO Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-Containing Products, WT/DS135/ABR (12 Mar. 2001), ¶ 168 (RL-156); Lemire v. Ukraine, ¶ 505 (RL-114).
74 World Health Organization, Report on the Global Tobacco Epidemic, 2013: Enforcing bans on tobacco advertising, promotion and sponsorship (2013), p. 17 (emphasis added) (R-270).
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environmental and economic consequences of tobacco consumption ….”75 To meet this critical
objective, Uruguay enjoys a significant degree of discretion — a “margin of appreciation” —
when it adopts measures that it considers appropriate to prevent or reduce the harms to public
health that, in its good faith determination, would ensue in the absence of such measures.
2.41 In a case involving an uncompensated taking of property for public purpose, the
European Court of Human Rights (ECtHR) held that, by virtue of their “direct knowledge of
their society and its needs,” national authorities are “better placed than the international judge to
appreciate what is ‘in the public interest.’”76 They therefore “enjoy a certain margin of
appreciation.”77
2.42 This proposition is not limited to the context of the European Convention for the
Protection of Human Rights and Fundamental Freedoms. It has become “a general feature of
international law” that applies equally to claims arising under BITs.78 In Electrabel v. Hungary,
for example, the arbitral tribunal was presented with a challenge to an electricity pricing
measure. In its Award, it held that its task was “not to sit retrospectively in judgment upon
Hungary’s discretionary exercise of a sovereign power, not made irrationally and not exercised
in bad faith” because that “difficult discretionary exercise involve[ed] many complex factors”
75 WHO, FCTC, Art. 3 (RL-20).
76 Jahn and Others v. Germany, Eur. Ct. H.R., Application Nos. 46720/99, 72203/01 and 72552/01, Judgment (30 June 2005), ¶ 91 (RL-163).
77 Ibid. (emphasis added).
78 W. Burke-White & A. von Staden, Private Litigation in a Public Law Sphere: The Standard of Review in Investor-State Arbitrations, 35 YALE J. INT’L L. 283 (2010), pp. 326-327 (referring to Continental Casualty Company v. Argentine Republic, ICSID Case No. ARB/03/9, Award (5 Sept. 2008) (Sacerdoti, Nader, Veeder) (CLA-096), where the tribunal held at ¶ 181 that “objective assessment must contain a significant margin of appreciation for the State applying the particular measure ….”) (RL-249).
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best assessed by the respondent State.79 The State should, moreover, “enjoy a reasonable margin
of appreciation in taking such measures before being held to account under the [Energy Charter
Treaty]’s standards of protection.”80
2.43 The breadth of the margin of appreciation a State enjoys depends on the nature of rights
in conflict. International law accords a wider margin of appreciation in cases where, as here, a
State’s regulation to protect fundamental rights, like the rights to life and health, affects property
rights. In the jurisprudence of the ECtHR, property rights have been recognized as less
fundamental than the right to life. The Court has therefore accorded States a wider margin of
appreciation within which they may exercise their prerogative to choose how best to regulate in
pursuit of such important public policy objectives.81
2.44 This same approach has been embraced in the investment arbitration context. In Lemire v.
Ukraine, the tribunal held that in regulating cultural and linguistic rights, the respondent State
should enjoy a high measure of deference:
As a sovereign State, Ukraine has the inherent right to regulate its affairs and adopt laws in order to protect the common good of its
79 Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 Nov. 2012) (Veeder, Kaufmann-Kohler, Stern), ¶ 8.35 (RL-200).
80 Ibid.
81 See, e.g., Budayeva and Others v. Russia, Eur. Ct. H.R., Application Nos. 15339/02, 21166/02, 20058/02, 11673/02 and 15343/02, Judgment (20 Mar. 2008), ¶ 175 (“While the fundamental importance of the right to life requires that the scope of the positive obligations under Article 2 includes a duty to do everything within the authorities’ power in the sphere of disaster relief for the protection of that right, the obligation to protect the right to the peaceful enjoyment of possessions, which is not absolute, cannot extend further than what is reasonable in the circumstances.”) (emphasis added) (RL-180); Broniowski v. Poland, Eur. Ct. H.R., Application No. 31443/96, Judgment (22 June 2004) (hereinafter “Broniowski v. Poland”), ¶ 149 (The ECtHR observed, since “the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one, [the Court] will respect the legislature’s judgment as to what is ‘in the public interest’ unless that judgment is manifestly without reasonable foundation.”) (RL-160).
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people, as defined by its Parliament and Government. The prerogative extends to promulgating regulations which define the State’s own cultural policy. The promotion of domestic music may validly reflect a State policy to preserve and strengthen cultural inheritance and national identity. The “high measure of deference that international law generally extends to the right of domestic authorities to regulate matters within their own borders” is reinforced in cases when the purpose of the legislation affects deeply felt cultural or linguistic traits of the community.82
2.45 A fortiori Uruguay’s decisions on how best to protect its public from the adverse health impacts of tobacco consumption are entitled to a high measure of deference.
2.46 In practice, the application of a margin of appreciation means that international courts and tribunals do not second-guess a sovereign State’s regulations. Rather, they limit their inquiry to determining whether or not a challenged regulation has been adopted in good faith and has a logical connection with the intended objective — exactly the standard Claimants themselves acknowledge.83
2.47 Claimants are wise not to challenge the point, so firmly is it supported in the jurisprudence. In Broniowski v. Poland, the ECtHR held that since “the margin of appreciation available to the legislature in implementing social and economic policies should be a wide one,
[the Court] will respect the legislature’s judgment as to what is ‘in the public interest’ unless that judgment is manifestly without reasonable foundation.”84
82 Lemire v. Ukraine, ¶ 505 (emphasis in original) (RL-114).
83 CMM, ¶¶ 2, 6.
84 Broniowski v. Poland, ¶ 149 (emphasis added) (RL-160).
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2.48 In Frontier Petroleum v. Czech Republic, the investment-arbitration tribunal was
confronted with the question of whether the Czech courts correctly refused to recognize and
enforce a foreign arbitral award on the grounds that it would have been contrary to Czech public
policy to do so. The tribunal held that it was “not necessary for [it] to determine whether the
findings of the Czech courts meet the applicable standard of international public policy, or to
determine the precise contents of that standard” because “States enjoy a certain margin of
appreciation in determining what their own conception of international public policy is.”85 On
that basis, the tribunal determined that “it is sufficient to examine whether the conclusion
reached by the Czech courts … was … reasonably tenable and made in good faith.”86
2.49 Similarly, in Glamis Gold v. U.S., the tribunal saw its task not as ruling on the
“correctness” of a legal act designed to protect cultural rights but rather as determining whether
there was a manifest lack of reasons for the legislation. The tribunal expressly agreed with
respondent’s statement that “‘[i]t is simply not this Tribunal’s task to become archaeologists and ethnographers and to draw a definitive conclusion as to the location of the Trail of Dreams.’”87
The tribunal observed further: “It is not the role of this Tribunal, or any international tribunal, to supplant its own judgment of underlying factual material and support for that of a qualified domestic agency.”88 The “sole inquiry” for the tribunal, “is whether or not there was a manifest
85 Frontier Petroleum Services Ltd. v. The Czech Republic, UNCITRAL, Final Award (12 Nov. 2010) (Williams, Alvarez, Schreuer), ¶ 527 (emphasis added) (CLA-105).
86 Ibid. (emphasis in original).
87 Glamis Gold, Ltd. v. United States of America, UNCITRAL, Award (8 June 2009) (Young, Caron, Hubbard), ¶ 779 (RL-183).
88 Ibid.
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lack of reasons for the legislation.”89 The tribunal found against the claimant because “the
government had a sufficient good faith belief that there was a reasonable connection between the
harm and the proposed remedy ….”90
2.50 As described more fully in Chapters 4 and 5, in respect of each of the two measures that have been challenged by Claimants, Uruguay acted in the considered and good faith belief that they would help protect public health against the grave harms indisputably caused by tobacco
consumption.
2.51 In the case of the SPR (Chapter 4), Uruguay considered that it would protect the public
health by preventing the tobacco industry from perpetuating the false perception — assiduously
propagated over the course of several decades — that some cigarette brand variants are less
harmful than others, and that smoking or changing to such variants was an alternative to quitting.
2.52 In the case of the 80% Requirement (Chapter 5), Uruguay considered that larger health
warnings would more effectively communicate the health risks of smoking than smaller ones.
2.53 Both measures, in addition to being good faith exercises of Uruguay’s police power to protect public health, are entirely non-discriminatory; they apply equally to all tobacco
companies, domestic and foreign alike.
89 Ibid., ¶ 805 (emphasis added).
90 Ibid.
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CHAPTER 3
THE NEED TO REGULATE THE MARKETING OF TOBACCO PRODUCTS
3.1 The products covered by Uruguay’s regulations are uniquely harmful to public health.
Cigarettes cause lifelong addiction, and terminal illnesses like lung cancer, heart failure and stroke. Worldwide, tobacco consumption kills approximately six million people every year, roughly 6,000 in Uruguay alone.
3.2 Notwithstanding these severe impacts on health, the prevalence of tobacco use remains high. Globally, nearly one billion people are regular smokers. Historically, the numbers in
Uruguay have been alarmingly high. At the peak of its popularity in the country, fully 45% of the population consumed tobacco.91
3.3 In the face of these high levels of use, the WHO has called tobacco consumption a
“global epidemic,” and exhorted member States to protect public health by regulating the
marketing of tobacco products to reduce their appeal.
3.4 In 2003, public health officials from around the world came together under the WHO’s
auspices to sign the Framework Convention on Tobacco Control, which obligates States to take
effective measures to mitigate the impacts of the tobacco industry’s aggressive, and often
deceptive, marketing practices, including especially as regards packaging and labeling. No other
commercial products have prompted the nations of the world to come together in this way,
precisely because no other products pose the same threats to public health.
91 Pan American Health Organization (“PAHO”), Global Adult Tobacco Survey (“GATS”): Uruguay ‘09 (2011) (hereinafter “PAHO, GATS: Uruguay ‘09”), p. 21 (R-233).
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3.5 The harms caused by tobacco derive not only from smoking but also from the ways in
which cigarettes are marketed. For many years, the tobacco industry, including Claimants, hid
from the public, and from governmental health authorities, the scientific evidence they
themselves developed showing that their products cause grave illnesses and kill large numbers of people. Notwithstanding their knowledge of these facts, the tobacco companies conspired with one another to deny that their products had any adverse impacts on health, and to defeat attempts by public authorities to regulate their sales and marketing. This well-documented campaign of deliberate deception, described more fully below, succeeded for many years.
3.6 When, finally, the truth about smoking started to come out, Claimants and their fellow tobacco companies changed tactics. While they continued to challenge the scientific evidence, they also began marketing new brands, or variants of existing brands, which they called “health reassurance” cigarettes, under the guise that these were less harmful than other cigarettes — even though they knew this was not true. The marketing of these cigarettes was aimed at the growing number of smokers who were concerned about their health, and who were susceptible to claims that, by switching brands, they could continue to smoke without serious risk. Thus, the world witnessed the creation and marketing of brand variants that were presented in distinctly colored packages labeled as “light,” “mild,” “low tar,” and “ultra light” versions of existing brands — all designed to convey to consumers the false message that these products were less harmful to health. This, too, is well documented and described in greater detail below.
3.7 Eventually, and notwithstanding the tobacco industry’s deliberate efforts to prevent it, the truth emerged about these products as well. Conclusive evidence established that the brands and brand variants marketed as safer were just as harmful as the original products, and that the tobacco companies knew this. - 42 - CONFIDENTIAL INFORMATION REDACTED
3.8 The global marketing deception executed by Claimants and their fellow tobacco
companies led to new regulations around the world to prevent the continued false marketing of
certain cigarettes brands as less harmful than others, including by prohibiting the use of
packaging to convey that message in express or implied form. The FCTC expressly targeted this
practice and obligated States Parties to address it by appropriate regulation.
3.9 Within this overall factual context, Uruguay decided that the protection of the health of
its people required it to exercise its sovereign police power to regulate the marketing of tobacco
products in the ways that it did. Uruguay adopted the SPR and the 80% Requirement to address the deceptive marketing of certain cigarette brands, or brand variants, and the dangers posed to public health. The relevant historical facts and background leading to this exercise are presented
in this Chapter.
3.10 Section I identifies the grave impacts on public health caused by consumption of
Claimants’ products, as conclusively established by irrefutable scientific evidence.
3.11 Section II addresses the deceptions perpetrated by the tobacco industry, including Philip
Morris, on the international community. Based on judicial findings and internal industry documents that have come to public light, it describes the tobacco companies’ decades-long efforts: to deny the harmful effects of smoking, long after they knew their denials were false; to continue denying the addictive nature of nicotine, also long after they knew otherwise; and to market “light,” “ultra light,” “mild,” and “low-tar” brand variants as less harmful than the original brands, even though they knew that too was untrue. Section II also describes the tobacco industry’s history of opposing, impeding and evading bona fide governmental regulation wherever possible, and for as long as possible, in order to maintain high levels of tobacco use.
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3.12 Section III describes the response of the world health community to these global threats
to public health: the creation and adoption of the WHO Framework Convention on Tobacco
Control and the publication of guidelines for its implementation as agreed by the States Parties.
This Section describes the evidence-based nature of the treaty, its object and purpose, and the
specific provisions most relevant to the issues in this arbitration.
3.13 Finally, Section IV concludes the Chapter by describing the nature of the smoking
epidemic in Uruguay, and the scope of the public health crisis confronting the country. It sets out
the series of regulatory measures Uruguay has adopted, beginning in the 1980s, to address this
problem.
I. The Harms To Public Health Caused by Claimants’ Products
3.14 Cigarettes are the only legal consumer product that kills up to half of long-term users
when consumed as intended.92 Smoking kills more people each year than AIDS, malaria and
tuberculosis combined.93 In more immediate terms, tobacco kills one human being every six
seconds.94
92 World Health Organization (“WHO”), The Scientific Basis of Tobacco Product Regulation (2007), p. 3 (R-181).
93 World Health Organization (“WHO”), WHO Global Report: Mortality Attributable to Tobacco (2012) WHO, Mortality Attributable to Tobacco, p. 4 (R-258).
94 World Health Organization (“WHO”), “Tobacco: Fact Sheet No. 339” (May 2014), available at http://www.who.int/mediacentre/factsheets/fs339/en/ (last visited 17 Sept. 2014) (hereinafter “WHO, ‘Tobacco: Fact Sheet No. 339’”), p. 1 (R-299).
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3.15 Tobacco use is the leading cause of preventable death around the globe.95 Due to the
effects of exposure to second-hand smoke, many of these deaths occur even among people who
have never smoked.96 Globally, tobacco consumption is responsible for approximately six
million deaths every year, fully 10% of all adult deaths worldwide.97 From the filing of this
Counter-Memorial until the time the Tribunal issues its Award in this case, roughly seven and a
half million more people will have died prematurely from tobacco consumption.
3.16 In Uruguay, a country with a population of just under three and a half million, tobacco
consumption killed more than 6,500 people in 2010.98 That equates to nearly 18 deaths every day. Calculated using their reported market share of [[ ]] in 2010,99 Claimants’ products
alone killed approximately [[ ]] Uruguayans in 2010, or more than [[ ]] people every
day.
3.17 The toll tobacco has taken, and continues to take, has been likened to a “holocaust.”100
According to the WHO, tobacco use killed 100 million people during the 20th century, a figure
95 World Health Organization (“WHO”), Report on the Global Tobacco Epidemic, 2013: Enforcing bans on tobacco advertising, promotion and sponsorship (2013) (hereinafter “WHO, Report on the Global Tobacco Epidemic”), p. 12 (R-270).
96 Biotext Pty Ltd, Public consultation on the exposure draft of the Tobacco Plain Packaging Bill 2011: Summary of submissions (18 Sept. 2011), p. 17 (R-247).
97 The World Bank, Curbing the Epidemic: Governments and the Economics of Tobacco Control (1999), p. 1 (R-7); see also WHO, “Tobacco: Fact Sheet No. 339,” p. 1 (R-299).
98 Uruguayan Ministry of Public Health (MSP), “Smoking Habit Still Causes Around 6,500 Deaths Per Year in Uruguay” (14 Aug. 2014) (R-315).
99 Expert Report of Brent C. Kaczmarek and Kiran P. Sequeira (3 Mar. 2014), p. 29, Figure 11 (CWS-013).
100 See generally R. Proctor, GOLDEN HOLOCAUST: ORIGINS OF THE CIGARETTE CATASTROPHE AND THE CASE FOR ABOLITION (2012) (discussing the tobacco industry’s manipulation of cigarettes to become the most widely-used and deadliest drug on the planet) (R-254).
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that exceeds the death toll from the First and Second World Wars combined.101 The WHO
predicts that without urgent global action, the toll will rise ten-fold to one billion people during
the 21st century.102
3.18 Cigarettes’ lethal effects have been well understood in the medical and public health
communities for more than half a century. After decades of denial and deception (described in
the next section), Claimants have finally been forced to admit these facts, albeit reluctantly and
only after they were compelled to do so by judicial orders and strong governmental action.
3.19 The website of Claimants’ corporate parent, Philip Morris International, now states, for
example: “Smoking causes serious disease and is addictive.”103 It admits that more than 100 of the chemicals in cigarette smoke “have been identified by public health authorities as causes or potential causes of smoking related diseases, including cardiovascular disease (heart disease),
lung cancer, and chronic obstructive pulmonary disease (emphysema, chronic bronchitis).”104
Philip Morris also acknowledges that “smoking is addictive, and it can be very difficult to stop smoking.”105
101 Historians estimate that approximately 8.5 million soldiers and civilians died during World War I and approximately 60 million died during World War II. See, e.g., PBS, “WWI Casualty and Death Tables,” available at http://www.pbs.org/greatwar/resources/casdeath_pop.html (last visited 17 Sept. 2014), p. 1 (R-344); National WWII Museum, “By the Numbers: World-Wide Deaths,” available at http://www nationalww2museum.org/learn/education/for-students/ww2-history/ww2-by-the-numbers/world-wide- deaths html (last visited 6 Sept. 2014), pp. 2-3 (R-343); WHO, “Tobacco: Fact Sheet No. 339,” p. 2 (R-299).
102 WHO, Report on the Global Tobacco Epidemic, p. 12 (R-270); see also WHO, “Tobacco: Fact Sheet No. 339” (R-299).
103 Philip Morris International, “Health Effects of Smoking,” available at http://www.pmi.com/eng/our_products/health_effects_of_smoking/pages/health_effects_of_smoking.aspx (last visited 17 Sept. 2014) (hereinafter “PMI, ‘Health Effects of Smoking’”), p. 1 (R-346).
104 Ibid.
105 Ibid. - 46 - CONFIDENTIAL INFORMATION REDACTED
3.20 Claimant Abal, for its part, has acknowledged to the Uruguayan Government: “Smoking is addictive and harmful to health, and causes lung cancer, heart disease, emphysema and other
serious diseases in smokers. Smokers should always be informed of the health risks associated
with smoking.”106
3.21 Even these statements do not, however, capture the full scope of the harms smoking
causes. A complete accounting of the adverse health effects cigarettes cause is beyond the scope
of this Counter-Memorial. The following subsection is intended merely to provide an overview of the scope and magnitude of these harms for purposes of putting in context Uruguay’s need to act to protect the lives and health of its people.
A. Cigarettes Sicken and Kill People
3.22 The most well-known of the many diseases smoking causes is cancer, particularly lung
cancer. Nearly 90% of men who die from lung cancer are smokers.107 Despite widespread
awareness of the causal link between smoking and lung cancer for more than half a century, this
is a problem that has actually grown worse over time. According to the 2014 report of the U.S.
Surgeon General, The Health Consequences of Smoking—50 Years of Progress, changes in the
design and composition of cigarettes, including the propagation of so-called “light” or “low tar”
brands, have actually increased smokers’ risk of developing lung cancer in more recent
decades.108
106 Abal Hermanos S.A., Comments on the “Tobacco Control Law” (Mar. 2008), p. 1 (R-197).
107 U.S. Surgeon General, How Tobacco Smoke Causes Disease: What It Means to You (2010) (hereinafter “U.S. Surgeon General Report 2010: Summary”), p. 7 (R-220).
108 U.S. Surgeon General, The Health Consequences of Smoking 50 Years of Progress (2014) (hereinafter “U.S. Surgeon General Report 2014”), pp. 8-9 (R-285). - 47 - CONFIDENTIAL INFORMATION REDACTED
3.23 Lung cancer is not the only kind of cancer tobacco use causes. It directly causes cancer of
the liver, mouth, nose, throat, larynx, trachea, esophagus, stomach, pancreas, kidneys, bladder,
cervix, blood, breasts, colon and rectum.109
3.24 Moreover, even for cancers that are not directly caused by smoking, such as prostate
cancer, disease progression and mortality rates are higher for smokers than non-smokers.110 In other words, even cancers not causally linked to smoking are more dangerous to, and more likely to kill, smokers than non-smokers.
3.25 Smoking is also the cause of respiratory disease, including chronic obstructive pulmonary disease, of which emphysema and chronic bronchitis are the two most common types.111 There is also evidence that smoking causes both the exacerbation of asthma in adults and an increased risk of tuberculosis.112
3.26 Additionally, smoking causes adverse cardiovascular outcomes, such as heart disease and
stroke. When smoke enters the lungs, it damages blood vessels and causes them to thicken and
scar.113 In the “best” case scenario, this leads to higher blood pressure and blood clots.114 At
109 U.S. Surgeon General, How Tobacco Smoke Causes Disease: The Biology and Behavioral Basis for Smoking- Attributable Disease (2010) (hereinafter “U.S. Surgeon General Report 2010”), p. 225 (R-219).
110 U.S. Surgeon General Report 2014, pp. 8-9 (R-285).
111 U.S. Surgeon General Report 2010: Summary, p. 11 (R-220).
112 U.S. Surgeon General Report 2014, p. 9 (R-285).
113 U.S. Centers for Disease Control and Prevention (CDC), “Smoking & Tobacco Use: Health Effects of Cigarette Smoking” (6 Feb. 2014), available at http://www.cdc.gov/tobacco/data_statistics/fact_sheets/health_effects/effects_cig_smoking/#adults (last visited 6 Sept. 2014) (R-288).
114 Ibid., p. 3; see also World Heart Federation, Tobacco: totally avoidable risk factor of CVD (2012) (R-259).
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worst, it causes coronary heart disease (“CHD”) and peripheral arterial disease (“PAD”). The
former is the leading cause of death in the United States.115 Smokers are two to four times more
likely to develop heart disease than nonsmokers.116 Chest pain, heart attack, heart failure,
arrhythmias and often death result from both CHD and PAD.117 Smoking also doubles a person’s
risk for stroke.118
3.27 Smoking adversely affects human reproduction as well. Maternal smoking in early
pregnancy causes ectopic pregnancy (pregnancy in which the embryo implants outside the
uterus) and birth defects, such as lip or palate clefts, clubfoot, gastroschisis (when an infant’s intestines protrude outside the body) and heart defects.119 Smoking during pregnancy can
increase the risk of premature delivery, low birth weight and stillbirth.120 The effects of maternal
prenatal smoking can extend long into childhood, leading to conditions such as disruptive
behavioral disorders.121 For men, smoking causes impotence.122
115 United States Centers for Disease Control and Prevention (CDC), “Heart Disease and Stroke” (27 Nov. 2012), available at http://www.cdc.gov/tobacco/basic_information/health_effects/heart_disease/ (last visited 17 Sept. 2014) (hereinafter “CDC, ‘Heart Disease and Stroke’”), p. 1 (R-264).
116 Ibid.
117 National Heart, Lung, and Blood Institute, “How Does Smoking Affect the Heart and Blood Vessels?” (20 Dec. 2011), available at http://www nhlbi nih.gov/health/health-topics/topics/smo/# (last visited 17 Sept. 2014), p. 1 (R- 252).
118 CDC, “Heart Disease and Stroke,” p. 1 (R-264).
119 U.S. Surgeon General Report 2014, p. 10 (R-285).
120 U.S. Surgeon General Report 2010: Summary, p. 13 (R-220).
121 U.S. Surgeon General Report 2014, p. 10 (R-285).
122 Ibid.
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3.28 Smoking also contributes to the onset or exacerbation of type 2 diabetes. The risk of
developing diabetes is 30-40% higher for smokers than for non-smokers.123 Smokers with
diabetes have significantly higher risks for diabetes-related complications, including heart and
kidney disease, retinopathy (eye damage) and peripheral neuropathy (nerve damage).124
3.29 Finally, smoking compromises the immune system generally.125 Recent research
demonstrates that the toxins in cigarette smoke weaken the body’s ability to fight tumors, and
may even help them grow, undermining treatment regimens for smokers who have developed
cancer.126
3.30 Statistics from Uruguay show the widespread incidence of all these diseases, including
lung cancer, emphysema, chronic bronchitis and various cardiovascular illnesses.127 Despite
recent and important decreases in the prevalence of smoking in Uruguay, the country continues
to rank first in Latin America for tobacco-related deaths among men (between 20% and 25% of
all deaths) due to the long latency of most tobacco-related illnesses.128 Lung cancer rates among
123 Ibid., p. 11.
124 U.S. Surgeon General Report 2010: Summary, p. 14 (R-220).
125 U.S. Surgeon General Report 2014, p. 11 (R-285).
126 U.S. Surgeon General Report 2010: Summary, p. 6 (R-220).
127 Uruguayan Ministry of Public Health (MSP), “The National Tobacco Control Program in the Context of the New Government” (22 Dec. 2005) (R-19); Uruguayan Ministry of Public Health (MSP), National Guide to Smoking Cessation Treatment: Uruguay (May 2009), p. 13 (R-36); Global Adults Tobacco Survey (GATS), Uruguay 2009 (2011), Executive Summary (R-53); A. Ramos & D. Curti (“PAHO”), Economics of Tobacco Control in Mercosur and Associated States: Uruguay (2006) (hereinafter “Ramos & Curti”), pp. 3-4 (R-20).
128 A. Sica, et al., Tobacco Control Policies in Uruguay in PREVENTION OF HEALTH RISK FACTORS IN LATIN AMERICA AND THE CARIBBEAN: GOVERNANCE OF FIVE MULTISECTORAL EFFORTS (M. Bonilla-Chacín, ed., 2014) (hereinafter “A. Sica, et al.”), p. 145 (R-282).
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men are also the highest in the region,129 and the disease is the leading cause of death from cancer.130
3.31 Cigarette smoke is a “toxic mix of more than 7,000 chemicals,” many of which are
poisonous.131 These include well-known carcinogens such as formaldehyde, benzene and vinyl chloride. Tobacco smoke also contains a collection of toxic metals and gasses, such as arsenic, lead, chromium, hydrogen cyanide, ammonia, butane and carbon monoxide.132
3.32 Inevitably, all of these toxic compounds find their way not only into smokers’ bodies but
also those of the people around them, in whom they cause many of the same diseases.133 Of the six million people who die from tobacco-related illness around the world each year, approximately 10% of them — 600,000 — die as a result of exposure to second-hand smoke.134
This figure is mirrored in Uruguay where 8% of tobacco-related deaths are from exposure to second-hand smoke.135
3.33 One reason that second-hand smoke is so harmful is that inhaling tobacco smoke, even
derivatively, alters the body’s blood chemistry and leads to the buildup of plaque inside the
129 Pan American Health Organization (“PAHO”), Lung Cancer in the Americas (2013), p. 2 (R-268).
130 A. Sica, et al., p. 145 (R-282). It soon will be for women, too. See S. Tegel, “Why Uruguay’s David and Goliath fight with big tobacco really matters,” Global Post (16 July 2014), p. 3 (R-307).
131 U.S. Surgeon General Report 2010: Summary, p. 2 (R-220).
132 Ibid., p. 3.
133 U.S. Surgeon General Report 2010, pp. i, iii, 4 (R-219).
134 WHO Global Health Observatory, “Second-hand smoke,” available at http://www.who.int/gho/phe/secondhand_smoke/en/ (last visited 17 Sept. 2014), p. 1 (R-352).
135 A. Sica, et al., p. 145 (R-282).
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arteries, which can trigger chest pain, blood clots, heart attack and stroke.136 When plaque causes
a blood clot that completely blocks an artery, it can result in sudden death.137 Secondhand smoke increases the risk of stroke by 20-30%,138 even at low levels of exposure, such as in
restaurants.139 More regular exposure, such as in the work place or at home, increases lung
cancer risk by 20-30%.140
B. Cigarettes Are Highly Addictive
3.34 Cigarettes contain nicotine, a powerful drug that is highly addictive. Pharmacologically,
it is every bit as addictive as heroin and cocaine.141
3.35 It is precisely the addictive nature of nicotine that makes it especially dangerous. Nicotine
is, in essence, the Trojan Horse that carries with it all the other toxic chemicals in tobacco
smoke. Smokers’ addiction to nicotine makes them physiologically unable to stop inhaling these
poisons. As one noted tobacco company researcher put it: “[I]f it were not for the nicotine in
136 U.S. Surgeon General Report 2010: Summary, p. 8 (R-220).
137 Ibid.
138 U.S. Surgeon General Report 2014, p. 434 (R-285).
139 I. Oono, et al., Meta-analysis of the association between secondhand smoke exposure and stroke, JOURNAL OF PUBLIC HEALTH, Vol. 33, No. 4 (21 Mar. 2011), p. 496 (finding a “disproportionately high risk at low levels of exposure suggesting no safe lower limit of exposure”) (R-238).
140 CDC, “Heart Disease and Stroke,” p. 1 (R-264).
141 World Health Organization (“WHO”), Gender, Women, and the Tobacco Epidemic (2010) (hereinafter “WHO, Gender, Women, and the Tobacco Epidemic”), pp. 141, 147 (R-221).
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tobacco smoke, people would be little more inclined to smoke than they are to blow bubbles or to light sparklers.”142
3.36 That is why tobacco companies, including Philip Morris, have deliberately designed their cigarettes, in the words of the U.S. Surgeon General, to “deliver more nicotine and deliver it quicker than ever before.”143 A 2014 study shows that while the nominal nicotine content of cigarettes remained fairly stable between 1998 and 2012, “the nicotine yields – the amount of nicotine delivered via smoke – increased significantly.”144 The increases cannot be explained by natural agricultural variation in the tobacco leaf; they are “due to tobacco manufacturers’ attempts to increase the efficiency with which nicotine is delivered to a smoker’s lungs.”145 This is not a new practice.
3.37 Early on, the tobacco industry found that it could increase the amount of nicotine delivered to smokers by adding substances, like ammonia, that released more nicotine from the
142 British American Tobacco Internal Document, M. Russell, The Smoking Habit and its Classification (June 1974), Bates No. 103233596-103233602, p. 103233597 (R-97). This document is from the Legacy Tobacco Documents Library (“Legacy database”). Uruguay will cite to various documents from the Legacy database throughout this Counter-Memorial. The Legacy database includes various collections of documents obtained in discovery during litigation in the U.S. and Canada involving major tobacco companies. Legacy Tobacco Documents Library, “About the Collections,” available at http://legacy.library.ucsf.edu/about/about_collections.jsp (last visited 12 Sept. 2014) (R-340). All references to Legacy database documents will include the tobacco company or document collection to which the source belongs to, as well as the range of Bates numbers assigned to it.
143 U.S. Surgeon General Report 2010: Summary, p. 4 (R-220).
144 Campaign for Tobacco-Free Kids (CTFK), Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly (23 June 2014) (hereinafter “CTFK, Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly”), p. 12 (citing T. Land, et al., Recent Increases in Efficiency in Cigarette Nicotine Delivery: Implications for Tobacco Control, NICOTINE & TOBACCO RESEARCH, Vol. 16, No. 6 (June 2014) (R-303)) (R-304).
145 CTFK, Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly, p. 12 (R-304).
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tobacco leaf and increased the “kick” per milligram of nicotine.146 Adding ammonia had the added benefit of allowing tobacco companies to “cheat the [International Standards Organization
(ISO) and U.S. Federal Trade Commission (FTC)] machine measurement … of smoke nicotine by achieving low-nicotine readings.”147 Thus, not only was the industry actively working to facilitate nicotine addiction, it was simultaneously working to deceive both regulators and the public regarding the highly addictive nature of its products. The ventilation holes that the tobacco companies added to cigarettes also “produc[ed] higher levels of free-base nicotine, which led to a more addictive product as well as deeper lung inhalation of cooler and less harsh smoke.”148 The FCTC (discussed in detail in Section III) recognizes these facts in its Preamble, which states that “cigarettes and some other products containing tobacco are highly engineered so as to create and maintain dependence.”149
3.38 Smokers’ addiction to nicotine makes quitting profoundly difficult, most especially for those who started smoking at a young age.150 A WHO survey found that 70% of smokers reported wanting to quit but only 1% of self-quitters (those who quit without any formal
146 R. Schwartz-Bloom & G. Gross de Núñez, “The Dope on Nicotine,” NOVA Online (Oct. 2001), available at http://www.pbs.org/wgbh/nova/cigarette/nicotine_nfp.html (last visited 18 Sept. 2014), p. 2 (R-149); M. Rabinoff, et al., Pharmacological and Chemical Effects of Cigarette Additives, AMERICAN JOURNAL OF PUBLIC HEALTH, Vol. 97, No. 11 (Nov. 2007), p. 1981 (R-191); CTFK, Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly, pp. 15-17 (R-304).
147 Philip Morris Internal Document, Scientific Statement from the VDC Working Group (12 Nov. 1999), Bates No. 2078377943-2078377949 (response to allegations of purposefully increasing nicotine up-take and cheating the FTC machine measurement system) (R-145); see also CTFK, Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly, p. 13 (R-304).
148 U.S. Surgeon General Report 2010, p. 16 (R-219).
149 World Health Organization (“WHO”), Framework Convention on Tobacco Control (“FCTC”), opened for signature May 2003 through 29 June 2004, EIF 27 Feb. 2005 (hereinafter “WHO, FCTC”), Preamble (RL-20).
150 See infra ¶ 5.81; see also M. Paavola, et al., Smoking cessation between teenage years and adulthood, HEALTH EDUCATION RESEARCH, Vol. 16, No. 1 (Feb. 2001), p. 56 (“The results on the relatively low cessation rates support the importance of preventing the onset of smoking in adolescence.”) (R-148).
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treatment) actually succeed.151 Moreover, because “quitting represents stopping an addiction they
have had for many years,” most smokers will attempt to quit many times (between eight and 11)
before finally succeeding, if they ever do.152
3.39 It is a sign of just how powerful nicotine addiction is that even smokers faced with life-
threatening, smoking-induced illnesses have significant difficulty stopping. One well-known study found that more than 40% of patients who underwent lung cancer surgery smoked at some point after their surgery, and more than one third (36.9%) were still smoking a year later.153
3.40 Nicotine is not only dangerous because smokers’ addiction to it leads them to continue inhaling all the other harmful substances in tobacco smoke; it is also toxic in and of itself. The
U.S. Surgeon General’s 2014 Report concluded that the scientific evidence is sufficient to conclude that nicotine “activates multiple biological pathways through which smoking increases risk for disease.”154 In other words, the nicotine amplifies the smoker’s susceptibility to
smoking-related disease.
3.41 Further, nicotine exposure during fetal development has lasting adverse consequences for
brain development in children,155 and can cause preterm delivery and stillbirth. There is also
151 WHO, Gender, Women, and the Tobacco Epidemic, p. 143 (R-221). SRI International found that, in the U.S., only 5% of people who quit “cold turkey” remain abstinent. Ibid. One third of smokers who “self-quit” “remained abstinent after two days, only one quarter after seven days, and less than one in five (19%) after one month.” Ibid.
152 Ibid.
153 Ibid.
154 U.S. Surgeon General Report 2014, p. 8 (R-285).
155 For example, studies show that in utero exposure to tobacco is associated with motor, sensory, and cognitive deficits in infants and toddlers, “suggesting a toxic effect of tobacco on early neurodevelopment.” R. Wickström, Effects of Nicotine During Pregnancy: Human and Experimental Evidence, CURRENT NEUROPHARMACOLOGY, Vol. 5, No. 3 (July 2007) (hereinafter “Wickström”), p. 213 (R-186). These behavioral and cognitive effects continue into - 55 - CONFIDENTIAL INFORMATION REDACTED
evidence that nicotine exposure during adolescence impedes brain development.156 Nicotine
dependence may even be passed down from mother to child: infants born to smoking mothers are themselves at increased risk for developing nicotine dependence later in life.157
3.42 The tobacco companies themselves have even begun to admit the dangers of nicotine by
itself. In marketing new “e-cigarettes” (which deliver vaporized nicotine), they include warning
labels that highlight these dangers.158 Altria, the company that produces the Marlboro brand in
the United States, warns: “Nicotine is addictive and habit forming, and is very toxic by
inhalation, in contact with the skin, or if swallowed.”159
3.43 Teenagers and other young people are especially vulnerable to the effects of nicotine.
Researchers long thought that smokers needed to consume approximately five cigarettes a day
over a significant period of time in order to become addicted. The data now show, however, that
adolescents become addicted far more quickly.160 In fact, a “young cigarette smoker can begin to
late childhood and adolescence and “lead to increased risk for attention-deficit/hyperactivity disorder (ADHD) and conduct disorder (CD).” Ibid.
156 U.S. Surgeon General Report 2014, p. 8 (R-285); N. Goriounova & H. Mansvelder, Short- and Long-Term Consequences of Nicotine Exposure during Adolescence for Prefrontal Cortex Neuronal Network Function, COLD SPRING HARBOR PERSPECTIVES IN MEDICINE, Vol. 2, No. 12 (Dec. 2012) (hereinafter “Goriounova & Mansvelder”), pp. 7-8 (R-265).
157 Wickström, p. 216 (R-186).
158 M. Richtel, “Dire Warnings by Big Tobacco on E-Smoking,” New York Times (28 Sept. 2014), p. 1 (R-322).
159 Ibid.
160 See generally J. DiFranza, et al., Symptoms of Tobacco Dependence After Brief Intermittent Use, ARCHIVES OF PEDIATRICS & ADOLESCENT MEDICINE, Vol. 161, No. 7 (July 2007) (hereinafter “DiFranza, et al., Symptoms of Tobacco Dependence After Brief Intermittent Use”), p. 704 (R-184). - 56 - CONFIDENTIAL INFORMATION REDACTED
feel powerful desires for nicotine within two days of first inhaling ….”161 One study showed that half of the children who became addicted did so after smoking just seven cigarettes a month.162
3.44 The unique susceptibility of adolescents to tobacco addiction is a function of the fact that their brains are still maturing. They “become tolerant to nicotine after smoking fewer cigarettes than one a day, and it is tolerance that then drives them to smoke more often.”163 Moreover, MRI data shows “earlier maturation of reward systems and much slower development of prefrontal cognitive control.”164 This means that, when it comes to smoking, teenagers will “have a more optimistic attitude regarding their smoking behavior,” believing unrealistically that they could quit if they wanted even though they are more likely to become dependent.165
3.45 The ease with which young smokers become addicted is a major factor in perpetuating the tobacco epidemic. “Because most high school smokers are not able to break free from the powerful, addicting effects of nicotine, about three out of four will smoke in adulthood. Among
161 N. Bakalar, “Nicotine addiction is quick in youths, research finds,” New York Times (31 July 2007), p. 1 (emphasis added) (R-187).
162 DiFranza, et al., Symptoms of Tobacco Dependence After Brief Intermittent Use, p. 704 (R-184).
163 J. Brody, “In Adolescents, Addiction to Tobacco Comes Easy,” New York Times (12 Feb. 2008), p. 2 (citing DiFranza study) (R-196).
164 Goriounova & Mansvelder, p. 2 (R-265).
165 Ibid., p. 3 (“Importantly, nicotine may also lead to higher levels of dependence by exerting neurotoxic effects in the prefrontal cortex (PFC) interfering with adolescent cognitive development, executive functioning, and inhibitory control. These effects are particularly evident under stressful or emotionally intense states and are most pronounced when smoking begins during early adolescence. Taken together, most likely owing to its ongoing development, the adolescent brain is more vulnerable to the effects of nicotine than the adult brain.”); see also CTFK, Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly, p. 13 (“[N]icotine poses a significant danger of structural and chemical changes in developing brains. Some of these changes include increased levels of dopamine in the brain which may make the reward associated with nicotine stronger and increasingly compulsive; changes in serotonin levels receptors that are associated with depression; and changes to brain receptors that are associated with an increased preference for other addictive drugs.”) (R-304).
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those who persist in smoking, one third will die about 13 years earlier than their nonsmoking
peers.”166
3.46 In short, despite increased awareness of the harms they cause, cigarettes today are more addictive and more deadly than ever before.167
II. Tobacco Companies, Including Claimants, Have Exacerbated the Harms Their Products Cause by Acting To Deceive Governments and Consumers
3.47 The 2014 Report of the U.S. Surgeon General, issued on the fiftieth anniversary of the
landmark Surgeon General’s report of 1964, which first linked smoking to lung cancer, states:
The epidemic of smoking-caused disease in the twentieth century ranks among the greatest public health catastrophes of the century, while the decline of smoking consequent to tobacco control is surely one of public health’s greatest successes. Many premature deaths have been avoided because of tobacco control programs, but many more could have been avoided if smoking prevalence had dropped more rapidly when the early warnings of lung cancer risk were widely reported in 1950.168
3.48 The Surgeon General’s 2014 Report states that this epidemic “was initiated and has been
sustained by the aggressive strategies of the tobacco industry, which has deliberately misled the
public on the risks of smoking cigarettes.”169
166 U.S. Surgeon General, Preventing Tobacco Use Among Youth and Young Adults, Booklet (2012), p. ii (R-255).
167 See generally CTFK, Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly (R-304).
168 U.S. Surgeon General Report 2014, p. 33 (R-285).
169 Ibid., p. 7 (emphasis added).
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A. Tobacco Companies, Including Claimants, Deliberately Deceived the Public about the True Nature of Their Products for Decades
3.49 The U.S. Surgeon General was not alone in concluding that the “epidemic of smoking-
caused disease” was “initiated and has been sustained by the aggressive strategies of the tobacco
industry.” This is also the conclusion reached, inter alia, by the U.S. judicial system, upon
examination of all the relevant evidence.
3.50 In 1999, the U.S. Department of Justice (“USDOJ”) sued several major tobacco
companies for fraud, as well as reimbursement for tobacco-related medical expenses. The
tobacco company defendants included, among others, Philip Morris USA Inc. and Altria Group,
Inc., which, until 2008, were the U.S. corporate affiliate and parent, respectively, of Claimants in
this case. The U.S. government’s claim for reimbursement was dismissed but the fraud case
against the defendants was allowed to go forward under the U.S. Racketeer Influenced and
Corrupt Organizations Act (“RICO”), a statute originally enacted to combat organized crime.170
3.51 Following a nine-month trial, which included live testimony from 84 expert and lay witnesses, written testimony from 162 witnesses, and almost 14,000 exhibits,171 the United States
District Court for the District of Columbia delivered an encyclopedic 1,683-page Opinion on 17
August 2006. In it, the Court found the tobacco companies liable for violating the law on
multiple grounds, and catalogued the long list of deceptions the industry, including Philip
Morris, had perpetuated over the course of decades, including, but not limited to:
170 United States Pub. L. No 91-452, Racketeer Influenced and Corrupt Organizations Act, Title IX of the Organized Crime Control Act of 1970, 82 Stat. 941 (15 Oct. 1970), codified at 18 U.S.C. §§ 1961-1968 (RL-256).
171 United States v. Philip Morris USA, Inc., 566 F.3d 1095, 1106 (D.C. Cir. 2009) (RL-182).
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Falsely denying that cigarettes are harmful to health;172
Falsely denying that nicotine is addictive;173
Falsely denying that they manipulated product design to make their cigarettes more addictive.174
Falsely denying that they market to youth;175 and
Falsely representing that “light” and “low-tar” cigarettes are less harmful than full- flavor alternatives;176
3.52 The Court found that the defendants as a group had collectively participated in a
scheme to defraud smokers and potential smokers … in order to maximize their profits by preserving and enhancing the market for cigarettes, to avoid costly liability judgments, to derail attempts to make smoking socially unacceptable, and to sustain the cigarette industry.177
3.53 The details of the Court’s comprehensive judgment are well beyond the scope of this overview and are the subject of a considerable body of scholarly articles.178 But several of the
172 United States v. Philip Morris USA, Inc., Amended Final Opinion, Case No. 99-2496 (GK) (D.D.C. 2006) (hereinafter “United States v. Philip Morris”), pp. 219-331 (RL-171).
173 Ibid., pp. 445-514.
174 Ibid., pp. 567-635.
175 Ibid., pp. 972-1209.
176 Ibid., pp. 740-971.
177 Ibid., p. 1501 (affirmed in relevant part by United States v. Philip Morris USA, Inc., 566 F.3d 1095 (D.C. Cir. 2009) (RL-182)) (quoted in U.S. Surgeon General Report 2014, p. 779 (R-285)) (emphasis added).
178 See, e.g., Tobacco Control Legal Consortium, The Verdict Is In: Findings from United States v. Philip Morris, The Hazards of Smoking (2006) (R-173); S. Guardino, et al., USA v. Philip Morris USA, Inc., et al.: Analysis of Judge Kessler’s Final Opinion and Order (Nov. 2006) (R-177); M. Muggli, et al., Transparency as a remedy against racketeering: preventing and restraining fraud by exposing Big Tobacco’s dirty secrets, TOBACCO CONTROL: ONLINE FIRST (21 July 2014) (R-308); J. Vernick, Public Health Benefits of Recent Litigation Against the Tobacco Industry, JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION, Vol. 298, No. 1 (July 2007) (R-185); L. Gostin, Global Regulatory Strategies for Tobacco Control, JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION, Vol. 298, No. 17 (Nov. 2007) (R-190).
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Court’s more specific findings are of particular relevance to the issues in this case. These are listed below. All quotes are taken directly from the Court’s Opinion.
Concerning the industry’s denial of the adverse health effects of smoking:
Cigarette smoking causes disease, suffering, and death. Despite internal recognition of this fact, Defendants have publicly denied, distorted, and minimized the hazards of smoking for decades. The scientific and medical community’s knowledge of the relationship of smoking and disease evolved through the 1950s and achieved consensus in 1964 [with the issuance of the first U.S. Surgeon General’s report linking smoking to lung cancer]. However, even after 1964, Defendants continued to deny both the existence of such consensus and the overwhelming evidence on which it was based. … [T]hey publicly insisted that there was a scientific controversy and disputed scientific findings linking smoking and disease knowing their assertions were false.179
…
In April 1994, in the now-famous congressional hearings before the United States House of Representatives’ Subcommittee on Health and the Environment, Defendants’ executives asserted yet again that the causal relationship of smoking and cancer had not been proven: the CEOs of Defendants [including Philip Morris] publicly denied that smoking caused cancer.180
…
From at least 1953 until at least 2000, each and every one of these Defendants repeatedly, consistently, vigorously – and falsely – denied the existence of any adverse health effects from smoking. Moreover, they mounted a coordinated, well-financed, sophisticated public relations campaign to attack and distort the scientific evidence demonstrating the relationship between smoking and disease, claiming that the link between the two was still an “open question.” Finally, in doing so, they ignored the massive documentation in their internal corporate files from their own scientists, executives, and public relations people that, as
179 United States v. Philip Morris, pp. 219, 279 (RL-171).
180 Ibid., p. 324.
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Philip Morris’s Vice President of Research and Development, Helmut Wakeham, admitted, there was “little basis for disputing the findings [of the 1964 Surgeon General’s Report] at this time.”181
Concerning the industry’s denial of the addictive nature of nicotine:
Notwithstanding the understanding and acceptance of each Defendant that smoking and nicotine are addictive, Defendants have publicly denied and distorted the truth as to the addictive nature of their products for several decades. Defendants have publicly denied that nicotine is addictive, have suppressed research showing its addictiveness, and have repeatedly used misleading statistics as to the number of smokers who have quit voluntarily and without professional help.182
…
Philip Morris Chairman James C. Bowling denied that cigarette smoking was an addiction in a July 18, 1973 “60 Minutes” interview. Instead, Bowling compared the choice to stop smoking to the choice to eat eggs or not.183
…
Defendants themselves possessed, from their own in-house and external research, information that led them to conclude, long before public health bodies did, that the primary reason people keep smoking cigarettes is to obtain the drug nicotine, which is addictive. Defendants intentionally withheld this data … when there were major public efforts to review and synthesize all available information. This occurred with the preparation of both the 1964 and 1985 Surgeon General’s Reports and numerous congressional investigations. Defendants also engaged in a decades-long, elaborate, sophisticated, well-funded public relations offensive, denying and attacking the consensus conclusion they had long ago reached internally ….184
181 Ibid., pp. 330-331.
182 Ibid., pp. 332-333.
183 Ibid., p. 447.
184 Ibid., pp. 479-480.
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…
Time and time again, Defendants falsely denied these facts to smokers and potential smokers, to government regulatory authorities, to the public health community and to the American public.185
Concerning the industry’s manipulation of the nicotine content of tobacco products:
Defendants have designed their cigarettes to precisely control nicotine delivery levels and provide doses of nicotine sufficient to create and sustain addiction. At the same time, Defendants have concealed much of their nicotine-related research, and have continuously and vigorously denied their efforts to control nicotine levels and delivery.186
…
Defendants’ internal documents demonstrate that, based on their knowledge of nicotine’s pharmacological properties and addictive nature, they incorporated physical and chemical design techniques into their commercial products that would assure delivery of the precise levels of nicotine necessary to assure taste, impact, and satisfaction, i.e., to maintain addiction.187
…
[T]he evidence as presented in these Findings of Fact is overwhelming that Defendants have, over the course of many years, time and again — and with great self-righteousness — denied that they manipulated the nicotine in cigarettes so as to increase the addiction and dependence of smokers. Those denials were false.188
3.54 Of particular relevance to Claimants’ challenge to Uruguay’s Single Presentation
Requirement are the Court’s conclusions concerning the industry’s marketing of so-called “light”
185 Ibid., p. 514.
186 Ibid., p. 515.
187 Ibid., p. 517.
188 Ibid., p. 654.
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and “low tar” cigarettes. In this section of its Opinion, the Court found that, since the 1970s, the defendants as a group had deliberately misled consumers into believing that “light” and “low tar” cigarettes were healthier than other cigarettes, and therefore an acceptable alternative to quitting.
In so doing, the defendants increased their sales despite knowing that “light” cigarettes offer no comparative health benefit, and in many cases are, in fact, more harmful.
3.55 Key findings from the Court’s Opinion about the industry’s “light” and “low tar” deceptions include the following:
As detailed below, Defendants made, and continue to make, false and misleading statements regarding low tar cigarettes in order to reassure smokers and dissuade them from quitting. These actions include: assertions that low tar cigarettes deliver “low,” “lower,” or “less” tar and nicotine than full-flavor cigarettes; claims that low tar cigarettes are “mild” or deliver “clean” taste; and use of brand names with descriptors such as “light” and “ultra light,” with full knowledge that consumers interpret these claims and descriptors to convey reduced risk of harm.189
…
The terms “Light” and “Low Tar,” as they are used by Defendants, are essentially “meaningless” and “arbitrary.”190
…
It is clear, based on their internal research documents, reports, memoranda, and letters, that defendants have known for decades that there is no clear health benefit from smoking low tar/low nicotine cigarettes as opposed to conventional full-flavor cigarettes. … Defendants also knew that many smokers were concerned and anxious about the health effects of smoking, that a significant percentage of those smokers were willing to trade flavor for reassurance that their brands carried lower health risks, and that many smokers who were concerned and anxious about the
189 Ibid., p. 877 (emphasis added).
190 Ibid., p. 879.
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health risks from smoking would rely on the health claims made for low tar cigarettes as a reason, or excuse, for not quitting smoking.
Despite this knowledge, Defendants extensively – and successfully – marketed and promoted their low tar/light cigarettes as less harmful alternatives to full-flavor cigarettes ….
By engaging in this deception, Defendants dramatically increased their sales of low tar/light cigarettes, assuaged the fears of smokers about the health risks of smoking, and sustained corporate revenues in the face of mounting evidence about the health effects of smoking.191
…
Defendants’ conduct relating to low tar cigarettes was intended to further their overarching economic goal: to keep smokers smoking; to stop smokers from quitting; to encourage people, especially young people, to start smoking; and to maintain or increase corporate profits.192
3.56 The Court further found that the tobacco company defendants were likely to continue their wrongdoing if they were not compelled to substantially change the manner in which they operate. The Court noted that, despite having agreed in a 1998 Master Settlement Agreement with 46 of 50 U.S. states to a general prohibition “precluding those Defendants who are a party to it from making any ‘material misrepresentation of fact regarding the health consequences of using any Tobacco Product,’ Defendants continue to make affirmative statements on smoking and health issues that are fraudulent.”193
191 Ibid., p. 971.
192 Ibid., p. 741.
193 Ibid., p. 1632; see also Master Settlement Agreement amongst 46 U. S. states, the District of Columbia, five U.S. territories, and Philip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard (Nov. 1998) (RL-258).
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3.57 The Court found, for example, that the tobacco companies, including Philip Morris,
“continue to disseminate false and misleading public statements regarding their true intent in
marketing low tar cigarettes” and “continue to make false and fraudulent statements about the
addictiveness of nicotine and smoking.”194
3.58 The tobacco companies’ appeal of the District Court’s decision was unsuccessful. On 22
May 2009, a unanimous panel of the United States Court of Appeals for the District of Columbia
Circuit upheld the original liability judgment against the tobacco company defendants in its
entirety.195 In its Opinion, the Court of Appeals ruled that the “free speech” protections of the
United States Constitution did not extend to the tobacco industry’s fraudulent statements.196 The
Court of Appeals specifically determined: “Defendants knew of their falsity at the time and made
the statements with the intent to deceive.”197
3.59 This is particularly true of Philip Morris. Internal company documents reveal, for
example, that Philip Morris was aware that nicotine is addictive since at least the late 1950s. A
25 August 1959 company memorandum, for example, lists “Addiction” as one of three
physiological reasons people smoke.198 A 17 July 1963 company memorandum is even more
194 United States v. Philip Morris, pp. 883, 1508 (RL-171).
195 United States v. Philip Morris USA, Inc., 566 F.3d 1095, 1150 (D.C. Cir. 2009) (RL-182).
196 Ibid., pp. 1123-1124.
197 Ibid., p. 1124.
198 Philip Morris Internal Document, R.W. DePuis & J.W. Geiger, Psychological Research (26 Aug. 1959), Bates No. 1003075169-1003075171, p. 1003075170 (R-89).
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direct. It states: “Moreover, Nicotine is addictive. We are, then, in the business of selling
nicotine, an addictive drug effective in the release of stress mechanisms.”199
3.60 Only much later, in 1988, did the U.S. Surgeon General come to the same conclusion,
issuing a report stating that cigarette smoking is an addiction and that nicotine is the addictive
agent.200 Even afterwards, Philip Morris continued to deny these facts despite its long-held
knowledge to the contrary. Emblematic is the 1997 deposition testimony of Philip Morris’s then-
CEO, James Morgan (who was Brand Manager of Marlboro when the company first introduced
Marlboro Lights in 1971). In discussing the addictiveness of nicotine, Mr. Morgan stated: “If
[cigarettes] are behaviorally addictive or habit forming, they are much more like … Gummi
Bears, and I eat Gummi Bears, and I don’t like it when I don’t eat my Gummi Bears, but I’m
certainly not addicted to them.”201
3.61 Annexed to this Counter-Memorial is an expert report prepared by Dr. Jonathan Samet,
one of the world’s leading tobacco control experts, whose experience includes decades of
research on the health risks of inhaled pollutants, such as secondhand smoke, and the risks of
active and passive smoking.202 In his report, Dr. Samet provides a more detailed narrative setting
forth the tobacco industry’s history of misleading both the public and national health authorities
over many years on the following issues: (1) the adverse health effects of smoking; (2) the
199 Philip Morris Internal Document, Implications of Battelle Hippo I & II and the Griffith Filter (17 July 1963), Bates No. 2046754905-2046754909, p. 2046754908 (R-90).
200 U.S. Surgeon General, The Health Consequences of Smoking: Nicotine Addiction (1988), pp. 6-13 (R-121).
201 United States v. Philip Morris, p. 449 (RL-171).
202 Dr. Jonathan M. Samet, The Adverse Health Effects of Smoking and the Tobacco Industry’s Efforts to Limit Tobacco Control (10 Oct. 2014) (REX-001).
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addictiveness of nicotine; (3) the adverse health effects of second-hand smoke; and (4) the true nature of “light” and “low tar” cigarettes.
3.62 Also annexed is an expert report prepared by Dr. David Burns, another of the world’s foremost authorities on tobacco control, that was presented in connection with litigation before the courts of the United States.203 Dr. Burns’ report constitutes supplemental authority for the points presented by Dr. Samet, and is included with this Counter-Memorial with Dr. Burns’ permission.204
3.63 The point of this historical review is not to have the Tribunal judge Claimants for their past practices. In the first place, their practices cannot be consigned to the past. Some of these practices continue and their effects on public health are ongoing. Second, to know where we
203 David M. Burns, M.D., Report on Dennis Deshaies (21 Oct. 2013), presented in Deshaies v. R.J. Reynolds Tobacco Co., Case No. 3:09-cv-11080-WGY-JBT (M.D. Fla.) (R-277).
204 A more exhaustive recounting of the tobacco industry’s history of deceiving the world public about the nature of its products is the subject of extensive literature to which many scholars have devoted years of research. Uruguay respectfully refers the Tribunal to the sources indicated in this footnote as helpful examples. See, e.g., S. Glantz, et al., THE CIGARETTE PAPERS (1996); P. Hilts, SMOKESCREEN: THE TRUTH BEHIND THE TOBACCO INDUSTRY COVER- UP (1996); D. Kessler, A QUESTION OF INTENT: A GREAT AMERICAN BATTLE WITH A DEADLY INDUSTRY (2001); R. Kluger, ASHES TO ASHES: AMERICA’S HUNDRED-YEAR CIGARETTE WAR, THE PUBLIC HEALTH, AND THE UNABASHED TRIUMPH OF PHILIP MORRIS (1996); P. Pringle, CORNERED: BIG TOBACCO AT THE BAR OF JUSTICE (1998); TOBACCO CONTROL POLICY: STRATEGIES, SUCCESSES, AND SETBACKS (L. Brigden & J. de Beyer, eds. 2003); Action on Smoking and Health, Tobacco Explained: The truth about the tobacco industry … in its own words (25 June 1998); Campaign for Tobacco-Free Kids (CTFK) & Action on Smoking and Health (ASH), Trust Us: We’re The Tobacco Industry (May 2001); S. Carter, Cooperation and control: the Tobacco Institute of Australia, TOBACCO CONTROL, Vol. 12, No. suppl 3 (Dec. 2003); S. Chapman, Tobacco indsutry memo reveals passive smoking strategy, BRITISH MEDICAL JOURNAL (1997); A. Landman, Push or be punished: tobacco industry documents reveal aggression against businesses that discourage tobacco use, TOBACCO CONTROL, Vol. 9, No. 3 (Sept. 2000); C. Mangurian & L. Bero, Lessons learned from the tobacco industry’s efforts to prevent the passage of a workplace smoking regulation, AMERICAN JOURNAL OF PUBLIC HEALTH, Vol. 90, No. 12 (Dec. 2000); M. Muggli & R. Hurt, Tobacco industry strategies to undermine the 8th World Conference on Tobacco or Health, TOBACCO CONTROL, Vol. 12, No. 2 (June 2003); Neuman M., Bitton A., Glantz S., M. Neuman, et al., Tobacco industry strategies for influencing European Community tobacco advertising legislation, THE LANCET, Vol. 359, No. 9314 (13 Apr. 2002); Y. Saloojee & E. Dagli, Tobacco industry tactics for resisting public policy on health, BULLETIN OF THE WORLD HEALTH ORGANIZATION, Vol. 78, No. 7 (July 2000); World Health Organization, Evolution of the tobacco industry positions on addiction to nicotine (2008); World Health Organization, Tobacco Industry Interference with Tobacco Control (2008) (hereinafter “WHO, Tobacco Industry Interference with Tobacco Control”) (R-195).
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came from contributes to a better understanding of where we are today. The longstanding battle
between public health authorities around the world and the industry of which Claimants form an integral part persists. Governments struggle to reduce tobacco consumption while the industry
tries to sustain it, often by opposing, evading or circumventing regulations intended by
responsible authorities to protect public health.
B. The Tobacco Industry Has Historically Employed an Array of Strategies To Defeat Tobacco Control Measures around the World
3.64 An accounting of “the aggressive strategies of the tobacco industry”205 in sustaining and
expanding “the epidemic of tobacco-related disease” necessarily includes a description of its
determined use of a variety of tactics to resist and evade bona fide regulation at every turn. In many cases, the regulations the industry has sought to avoid have been precisely those designed to counteract its decades-long history of deceiving consumers and public health authorities about the consequences of smoking and the comparative health effects of cigarettes they falsely marketed as being less harmful than others.
3.65 This, too, is a subject to which many pages could be devoted. It is crucial because it has
required governments to continually strengthen existing rules to prevent the tobacco industry,
including Claimants, from undermining their public health efforts. The extraordinary scale of —
and the amount of proof concerning — the tobacco industry’s efforts to weaken, delay and
obstruct good faith efforts to bring the global tobacco epidemic under control could hardly be
205 U.S. Surgeon General Report 2014, pp. 7, 847 (R-285).
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overstated, as demonstrated by a few examples from the vast archive of authoritative, peer- reviewed studies on the subject listed below.206
3.66 In particular, the tobacco companies have worked globally and in a coordinated fashion to avoid or weaken health warning requirements on their products.207 In 1978, for example, a director of British American Tobacco (“BAT”) wrote to a German colleague, “we can expect health warnings on all tobacco products in your country within a fairly short time, and this is very much to be regretted. Obviously the Group policy should be to avoid health warnings on all
206 E. Crosbie & S. Glantz, Tobacco Industry Argues Domestic Trademark Laws and International Treaties Preclude Cigarette Health Warning Labels, Despite Consistent Legal Advice that the Argument is Valid, TOBACCO CONTROL: ONLINE FIRST (24 Nov. 2012); E. Sebrié & S. Glantz, Tobacco Industry “Youth Smoking Prevention” Programs to Undermine Meaningful Tobacco Control in Latin America, AMERICAN JOURNAL OF PUBLIC HEALTH, Vol. 97, No. 8 (Aug. 2007); J. Barnoya & S. Glantz, Tobacco industry success in preventing regulation of secondhand smoke in Latin America: the “Latin Project”, TOBACCO CONTROL, Vol. 11, No. 4 (Dec. 2002); S.M. Carter & S. Chapman, Smoking, disease, and obdurate denial: the Australian tobacco industry in the 1980s, TOBACCO CONTROL, Vol. 12, No. suppl 3 (Dec. 2003); J. Knight & S. Chapman, “Asia is now the priority target for the world anti-tobacco movement”: attempts by the tobacco industry to undermine the Asian anti-smoking movement, TOBACCO CONTROL, Vol. 13, No. suppl 2 (Dec. 2004); R. MacKenzie, et al., “If we can just ‘stall’ new unfriendly legislations, the scoreboard is already in our favour”: transnational tobacco companies and ingredients disclosure in Thailand, TOBACCO CONTROL, Vol. 13, No. suppl 2 (Dec. 2004); M. Assunta & S. Chapman, “The world’s most hostile environment”: how the tobacco industry circumvented Singapore’s advertising ban, TOBACCO CONTROL, Vol. 13, No. suppl 2 (Dec. 2004); S. Chapman & S.M. Carter, “Avoid health warnings on all tobacco products for just as long as we can”: a history of Australian tobacco industry efforts to avoid, delay and dilute health warnings on cigarettes, TOBACCO CONTROL, Vol. 12, No. suppl 3 (Dec. 2003); S. Lee, et al., The vector of the tobacco epidemic: tobacco industry practices in low and middle-income countries, CANCER CAUSES & CONTROL, Vol. 23, No. 1 supplement (Mar. 2012); H. Hiilamo & S. Glantz, Local Nordic tobacco interests collaborated with multinational companies to maintain a united front and undermine tobacco control policies, TOBACCO CONTROL: ONLINE FIRST (23 Dec. 2011); J. Knight & S. Chapman, “A phony way to show sincerity, as we all well know”: tobacco industry lobbying against tobacco control in Hong Kong, TOBACCO CONTROL, Vol. 13, No. suppl 2 (Dec. 2004); M. Assunta & S. Chapman, A mire of highly subjective and ineffective voluntary guidelines: tobacco industry efforts to thwart tobacco control in Malaysia, TOBACCO CONTROL, Vol. 13, No. suppl 2 (Dec. 2004); M. Muggli, et al., Science for hire: A tobacco industry strategy to influence public opinion on secondhand smoke, NICOTINE & TOBACCO RESEARCH, Vol. 5, No. 3 (2003); M. Muggli, et al., Turning free speech into corporate speech: Philip Morris’ efforts to influence U.S. and European journalists regarding the U.S. EPA report on secondhand smoke, PREVENTIVE MEDICINE, Vol. 39, No. 3 (Sept. 2004).
207 See Brazilian National Cancer Institute, Brazil – Health Warnings on Tobacco Products - 2009 (2008), p. 17 (R- 192).
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tobacco products for just as long as we can.”208 Similarly, a 1977 document setting forth the joint
position of BAT and Phillip Morris stated: “If Governments suggest wording implying or stating
smoking causes certain diseases, Companies must strenuously resist with all means at their
disposal.”209
3.67 After governments nevertheless began requiring warnings on packages, the tobacco
companies, and Philip Morris in particular, continued developing strategies to reduce the
visibility and effectiveness of the messages. When BAT analyzed Philip Morris’s best-selling
brand, Marlboro, it admiringly noted the way Philip Morris had presented the warning, observing
that “clever positioning and use of colour (discrete gold) have ensured minimum impact on the
overall design and minimum legibility to the smoker.”210
3.68 The tobacco industry’s efforts to avoid and subvert effective regulation of cigarette
packaging continue. A recent illustrative case comes from Canada. For many years, Philip
Morris fought to keep warning labels as small as possible. One argument the company made was
that large warnings are unreasonable and ineffectual.211 In 2001, for example, Canada increased
208 S. Chapman & S.M. Carter, “Avoid health warnings on all tobacco products for just as long as we can”: a history of Australian tobacco industry efforts to avoid, delay and dilute health warnings on cigarettes, TOBACCO CONTROL, Vol. 12, No. suppl 3 (Dec. 2003), p. iii13 (R-162).
209 Ibid., p. iii16.
210 British American Tobacco Internal Document, How Marlboro Led the Pack (Mar. 1994), Bates No. 301724401- 301724423, p. 301724408 (R-130).
211 See, e.g., Hammond, Health warnings on tobacco packages: Summary of evidence and legal challenges (Jan. 2008) (hereinafter “Hammond, Health warnings on tobacco packages”), p. 14 et seq. (R-29).
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the size of its warning labels from 33% to 50% of the principal display areas. Philip Morris sued,
arguing that the size increase was unjustified.212
3.69 The Supreme Court of Canada rejected these arguments, finding:
Parliament’s objective in requiring that a large part of packaging be devoted to a warning is pressing and substantial. It is to inform and remind potential purchasers of the product of the health hazards it entails. This is designed to further Parliament’s large goal of discouraging tobacco consumption and preventing new smokers from taking up the habit.213
3.70 The Court added, “the manufacturers argue that the increase from 33 percent to 50
percent of the package cannot be justified. However, the evidence established that bigger
warnings may have a great effect.”214 Canada subsequently increased the required size of warning labels still further, from 50% to 75% of the front and back of the pack.215
3.71 In the late 1990s, the WHO began taking its initial steps in the direction of a global
framework convention on tobacco control. When it did so, the tobacco industry mounted a
counter-attack.216 This led the WHO’s then-Director General, Dr. Gro Harlem Brundtland, to
appoint a Committee of Experts in October 1999 to investigate industry efforts to undermine the
212 Canada (Attorney General) v. JTI-Macdonald Corp., et al., [2007] 2 S.C.R. 610, Supreme Court of Canada (28 June 2007) (hereinafter “Canada (Attorney General) v. JTI-Macdonald Corp., et al.”) (R-183).
213 Canada (Attorney General) v. JTI-Macdonald Corp., et al., ¶ 134 (R-183); see also Hammond, Health warnings on tobacco packages, p. 19 (R-29).
214 Canada (Attorney General) v. JTI-Macdonald Corp., et al., ¶ 137 (R-183); see also Hammond, Health warnings on tobacco packages, p. 19 (R-29).
215 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report, Third Edition (Oct. 2012), p. 2 (R-262).
216 See generally WHO, Tobacco Industry Interference with Tobacco Control (R-195).
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WHO’s tobacco control initiatives. The committee was made up of leading experts from
Switzerland (Claimants’ current home State), the United States, Germany and South Africa, and
issued its report, Tobacco Industry Strategies to Undermine Tobacco Control Activities at the
World Health Organization, in July 2000.217 The report and its conclusions were based on an
extensive review of the industry’s own internal documents.
3.72 The Committee of Experts found that the tobacco industry regarded the WHO as one of
its “leading enemies,” and that the industry had a planned strategy to “contain, neutralize, [and]
reorient” the WHO’s tobacco control initiatives.218 It also found that “tobacco companies quietly
influenced other UN agencies and representatives of developing countries to resist” these WHO
initiatives,219 including those with respect to informing the public of the health consequences of
smoking and preventing the industry from perpetuating the myth that some cigarettes are less
harmful than others. The tobacco industry’s efforts had the effect of slowing and undermining
effective tobacco control programs around the world.220
3.73 The “once confidential, now publicly available, tobacco company documents”221 revealed that the tobacco companies fought WHO’s tobacco control agenda by, among other things:
[S]taging events to divert attention from the public health issues raised by tobacco use, attempting to reduce budgets for the scientific and policy activities carried out by WHO, pitting other
217 World Health Organization (“WHO”) Committee of Experts on Tobacco Industry Documents, Tobacco Company Strategies to Undermine Tobacco Control Activities at the World Health Organization (July 2000) (R-146).
218 Ibid., p. 1.
219 Ibid., p. iii.
220 Ibid., p. iii.
221 Ibid., p. 1.
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UN agencies against WHO, seeking to convince developing countries that WHO’s tobacco control program was a ‘First World’ agenda carried out at the expense of the developing world, distorting the results of important scientific studies on tobacco, and discrediting WHO as an institution.222
3.74 Particular industry “initiatives” called out by the Committee of Experts included:
The Boca Raton Action Plan: In 1988, then President of Philip Morris International Geoffrey Bible orchestrated a meeting of top company executives in Boca Raton, Florida. This meeting generated a master plan by Philip Morris for attacking WHO, influencing the priorities for WHO’s Regional offices, and targeting the structure, management, and resources of WHO.223
An ‘Independent’ Critic of WHO: The industry used “independent” individuals and institutions to attack WHO’s “competence and priorities in published articles, and presentations to the media and to politicians, while concealing its own role in promoting these attacks.”224 The industry also “staged media events to distract attention from tobacco-related WHO events such as the World Conference on Tobacco OR Health.”225
The Third World Issue: The industry fostered the view that “tobacco control is a ‘First World’ concern and that the damage to health in the Third World from tobacco control activities might exceed the toll from tobacco use itself.”226 Activities included intense lobbying of developing country delegates to various UN agencies and use of front groups such as the International Tobacco Growers Association (ITGA) to promote their agenda.227
3.75 Based on its findings, the WHO Committee of Experts summed up the unique peril to
world health posed by the tobacco industry:
222 Ibid.
223 Ibid., p. 4.
224 Ibid., p. 3.
225 Ibid., p. 4.
226 Ibid., p. 6.
227 Ibid., pp. 6-8.
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[T]obacco use is unlike other threats to global health. Infectious diseases do not employ multinational public relations firms. There are no front groups to promote the spread of cholera. Mosquitoes have no lobbyists. The evidence presented here suggests that tobacco is a case unto itself, and that reversing its burden on global health will be not only about understanding addiction and curing disease, but, just as importantly, about overcoming a determined and powerful industry.228
3.76 Following the release of the Committee of Experts’ Report, the World Health Assembly issued Resolution WHA54.18 captioned “Transparency in Tobacco Control.”229 It reads:
The Fifty-fourth World Health Assembly,
Noting with great concern the findings of the Committee of Experts on Tobacco Industry Documents, namely, that the tobacco industry has operated for years with the express intention of subverting the role of governments and of WHO in implementing public health policies to combat the tobacco epidemic;
Understanding that public confidence would be enhanced by transparency of affiliation between delegates to the Health Assembly and other meetings of WHO and the tobacco industry,
1. URGES Member States to be aware of affiliations between the tobacco industry and members of their delegations;
2. URGES WHO and Member States to be alert to any efforts by the tobacco industry to continue its subversive practice and to assure the integrity of health policy development in any WHO meeting and in national governments;
3. CALLS ON WHO to continue to inform Member States of activities of the tobacco industry that have a negative impact on tobacco control efforts.
228 Ibid., p. 244 (emphasis added).
229 World Health Organization, Fifty-fourth World Health Assembly, Transparency in tobacco control, Resolution WHA54.18 (22 May 2001) (RL-131).
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3.77 In 2008, the WHO issued another major report entitled Tobacco Industry Interference
with Tobacco Control.230 The purpose of the 2008 Report was “to broaden understanding in the
global public health community of the tobacco industry’s influence on tobacco control.”231 In the first paragraph of its Preface, the 2008 Report echoes the findings of the 2000 Committee of
Experts Report. It states:
A large body of evidence demonstrates that tobacco companies use a wide range of tactics to interfere with tobacco control. Such strategies include direct and indirect political lobbying and campaign contributions, financing of research, attempting to affect the course of regulatory and policy machinery and engaging in social responsibility initiatives as part of public relations campaigns.232
III. WHO Framework Convention on Tobacco Control
A. History, Objectives and Purpose
3.78 Between 1978 and 1993, the World Health Assembly passed ten Resolutions related to
the dangers of tobacco use and the need for Member States to put in place comprehensive
tobacco control measures. These Resolutions were hortatory. They did not require States to take
any specific actions in relation to tobacco control. As a result, little was done and a consensus
emerged that only legally binding measures would be effective in the face of the growing
epidemic of tobacco use.
230 WHO, Tobacco Industry Interference with Tobacco Control (R-195).
231 Ibid., p. v.
232 Ibid. (emphasis added).
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3.79 The process that eventually culminated in the adoption of the FCTC reached a key
milestone in May 1996, when WHO Member States passed Resolution 49.17.233 The Resolution
requested the WHO Director-General to wield the Organization’s treaty-making power for the
first time, and “initiate the development of a framework convention” in order to “move
progressively toward the adoption of comprehensive tobacco control policies and also deal with
aspects of tobacco control that transcend national boundaries.”234
3.80 Formal negotiations began in 1999, when the WHO Director-General declared global
tobacco control a matter of priority for the organization. Four years later, and despite coordinated
and sustained opposition from the tobacco industry,235 WHO Member States achieved consensus on the text of the Convention. The FCTC entered into force in February 2005.
3.81 The FCTC is unique. It is the first, and so far the only, treaty negotiated under the auspices of the WHO, and it is dedicated to a single public health issue — tobacco control. As such, it reflects the global consensus that tobacco is different from and stands above all others in the magnitude and gravity of its threat to public health. The FCTC was negotiated by all 193
WHO Member States and represents a political, scientific and legal consensus on the measures that Parties must adopt to protect their citizens from the harms of tobacco use. It establishes a series of legal obligations (described below), including the obligation to incorporate its provisions into domestic law.
233 WHO, Report on the Global Tobacco Epidemic, p. 16 (R-270).
234 World Health Organization (“WHO”), International framework convention for tobacco control, WHA49.17 (25 May 1996), p. 1 (R-138).
235 WHO FCTC, History of the WHO Framework Convention on Tobacco Control, p. 8 (describing tobacco companies “elaborate, well-financed, sophisticated and usually invisible” attempts to subvert the efforts of the World Health Organization to control tobacco use) (R-205).
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3.82 The FCTC is an “evidence-based treaty that reaffirms the right of all people to the highest standard of health.”236 As set forth in Article 3, its object and purpose is
to protect present and future generations from the devastating health, social, environmental and economic consequences of tobacco consumption and exposure to tobacco smoke by providing a framework for tobacco control measures to be implemented by the Parties at the national, regional and international levels in order to reduce continually and substantially the prevalence of tobacco use and exposure to tobacco smoke.237
3.83 The Convention’s Preamble contains several important statements of principle that warrant quotation in extenso. The very first preambular paragraph affirms that the States Parties to the FCTC are “[d]etermined to give priority to the right to protect public health.”238
3.84 The Preamble then goes on to state the following considerations, among others:
Recognizing that the spread of the tobacco epidemic is a global problem with serious consequences for public health that calls for the widest possible international cooperation and the participation of all countries in an effective, appropriate and comprehensive international response,
Reflecting the concern of the international community about the devastating worldwide health, social, economic and environmental consequences of tobacco consumption and exposure to tobacco smoke,
…
Recalling Article 12 of the International Covenant on Economic, Social and Cultural Rights, adopted by the United Nations General Assembly on 16 December 1966, which states that it is the right of
236 WHO, FCTC, Forward, p. v (RL-20).
237 Ibid., Art. 3.
238 Ibid., Forward, p. v.
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everyone to the enjoyment of the highest attainable standard of physical and mental health,
Recalling also the preamble to the Constitution of the World Health Organization, which states that the enjoyment of the highest attainable standard of health is one of the fundamental rights of every human being without distinction of race, religion, political belief, economic or social condition,
Determined to promote measure of tobacco control based on current and relevant scientific, technical and economic considerations ….239
3.85 The FCTC has attracted the overwhelming support of the international community. As of
the date of this submission, less than ten years after it entered into force the FCTC has 179 States
Parties (out of 194 U.N. member States).240 By way of comparison, the United Nations
Convention on the Law of the Sea (“UNCLOS”) took 11 years to gather 60 States Parties; today,
32 years after it was opened for signature, UNCLOS has 166 States Parties — 10 fewer than the
FCTC.
B. Relevant Provisions
3.86 The FCTC seeks to protect global public health and reduce the number of people who die
from tobacco use by requiring its Member States to adopt policies that will reduce the number of people who use tobacco products. It contains provisions aimed at reducing both supply and demand. On the demand side, the Convention addresses price and tax measures (Article 6); protection from exposure to tobacco smoke (Article 8); regulation of the content of tobacco products (Article 9); regulation of tobacco product disclosures (Article 10); regulation of
239 Ibid., Preamble, pp. 2-3.
240 WHO Framework Convention on Tobacco Control (“FCTC”), “Parties to the WHO Framework Convention on Tobacco Control (22 July 2014),” available at: http://www.who.int/fctc/signatories_parties/en/ (last visited on 11 Sept. 2014) (R-309).
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packaging and labeling of tobacco products (Article 11); education and public awareness (Art.
12); regulation of tobacco advertising and promotion (Article 13); and reduction measures
concerning tobacco dependence and cessation (Article 14).
3.87 On the supply side, the Convention contains provisions relating to the illicit trade in
tobacco products (Article 15); sales to and by minors (Article 16); and the provision of support
for economically viable alternative activities for tobacco workers (Article 17).
3.88 Of particular relevance to this arbitration, the FCTC rests on the guiding principle that
“[e]very person should be informed of the health consequences, addictive nature and mortal
threat posed by tobacco consumption and exposure to tobacco smoke ….”241 To this end, it addresses tobacco packaging and labeling, as well as tobacco advertising, promotion and sponsorship as important means to deliver this information to consumers.
3.89 Article 11 of the FCTC governs the packaging and labeling of tobacco products. Under
Article 11(1)(b), Parties are required to ensure that
each unit packet and package of tobacco products and any outside packaging and labelling of such products also carry health warnings describing the harmful effects of tobacco use, and may include other appropriate messages. These warnings and messages:
(i) shall be approved by the competent national authority,
(ii) shall be rotating,
(iii) shall be large, clear visible and legible,
(iv) should be 50% or more of the principal display areas but shall be no less than 30% of the principal display areas,
241 WHO, FCTC, Art. 4.1 (RL-20).
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(v) may be in the form of or include pictures or pictograms.242
3.90 In November 2008, the Third Conference of the Parties to the FCTC adopted Guidelines
for Implementation of Article 11. Paragraph 12 of the Article 11 Guidelines states:
Given the evidence that the effectiveness of health warnings and messages increases with their size, Parties should consider using health warnings and messages that cover more than 50% of the principal display areas and aim to cover as much of the principle display areas as possible.243
3.91 The reason for this recommendation is stated as follows:
Evidence demonstrates that the effectiveness of health warnings and messages increases with their prominence. In comparison with small, text-only health warnings, larger warnings with pictures more likely to be noticed, better communicate health risks, provoke a greater emotional response and increase the motivation of tobacco users to quit and to decrease their tobacco consumption. Larger picture warnings are also more likely to retain their effectiveness over time and are particularly effective in communicating health effects to low-literacy populations, children and young people.244
3.92 Article 11 also requires States Parties to ensure that:
[T]obacco product packaging and labelling do not promote a tobacco product by any means that are false, misleading, deceptive or likely to create an erroneous impression about its characteristics, health effects, hazards or emissions, including any term, descriptor, trademark, figurative or any other sign that directly or indirectly creates the false impression that a particular tobacco
242 Ibid., Art. 11(1)(b) (emphasis added).
243 Conference of the Parties of the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for implementation of Article 11 of the WHO Framework Convention on Tobacco Control (Packaging and labelling of tobacco products) (Nov. 2008) (hereinafter “COP-FCTC, Article 11 Guidelines”), ¶ 12 (emphasis added) (RL-13).
244 Ibid., ¶ 7.
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product is less harmful than other tobacco products. These may include terms such as “low tar”, “light”, “ultra-light”, or “mild” ….245
3.93 The Guidelines for Implementation of Article 11, unanimously adopted by the Member
States at the 2008 Conference of the Parties, recommend that, to best implement the requirements of Article 11(1)(a)
Parties should consider adopting measures to restrict or prohibit the use of logos, colours, brand images or promotional information on packaging other than brand names and product names displayed in a standard colour and font style (plain packaging). This may increase the noticeability and effectiveness of health warnings and messages, prevent the package from detracting attention from them, and address industry package design techniques that may suggest that some products are less harmful than others.246
3.94 Article 13(4)(a) concerning tobacco advertising is to the same effect. It provides “as a minimum” that States Parties “shall”:
prohibit all forms of tobacco advertising, promotion and sponsorship that promote a tobacco product by any means that are false, misleading or deceptive or likely to create an erroneous impression about its characteristics, health effects, hazards or emissions ….247
3.95 Thus, the WHO and its Member States have determined that regulatory measures are necessary to counteract the deceptions perpetrated by the tobacco industry described earlier in this Chapter, and to prevent further deceptions. These measures include, inter alia, health
245 WHO, FCTC, Art. 11.1(a) (emphasis added) (RL-20).
246 COP-FCTC, Article 11 Guidelines, ¶ 46 (emphasis added) (RL-13).
247 WHO, FCTC, Art. 13.4(a) (emphasis added) (RL-20).
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warnings of the harms caused by cigarette smoking prominently displayed on cigarette packages,
covering at least 50% of the package (with larger warnings recommended); and prohibitions on
both marketing and packaging that suggest that one type of tobacco product is less harmful than
another. As shown in Chapters 4 and 5, the Uruguayan regulatory measures that Claimants
challenge in this case — the SPR and the 80% Requirement — fully comport with Articles 11
and 13 of the FCTC and the Guidelines for Implementation that the States Parties adopted
thereunder in 2008.
IV. Tobacco Control in Uruguay
A. Prevalence and Effects of Cigarette Smoking
3.96 Uruguay has one of Latin America’s highest rates of smokers.248 According to the Global
Adult Tobacco Survey (“GATS”), a representative household survey carried out in Uruguay in
2009, 25% of people 15 years old and older smoke occasionally or every day.249 More than 90% of Uruguayan smokers smoked every day — at an average of nearly one cigarette every waking hour.250 In 2011, Uruguay’s National Statistics Institute reported that nearly one out of three men
smoked (29.7%), along with just under one out of five women (19%).251
248 Pan American Health Organization (“PAHO”) & World Health Organization (“WHO”), Tobacco Control Report for the Region of the Americas (2013), p. 3 (R-267).
249 PAHO, GATS: Uruguay ‘09, p. 16 (R-233).
250 International Tobacco Control (ITC) Policy Evaluation Project, ITC Uruguay National Report: Findings from the Wave 1 to 4 Surveys (2006-2012) (Aug. 2014) (hereinafter “ITC, ITC Uruguay National Report (Aug. 2014)”), p. 39 (R-313).
251 Ibid., p. 20.
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3.97 Below is a table showing smoking prevalence among adults in Uruguay from 2003 to
2009:
Figure 3.1: Smoking Prevalence Among Adults in Uruguay: 2003-2009 (% of population)
2003252 2006253 2009254 Men 38.8 36.6 30.7 Women 28.4 25.8 19.8
As Uruguay has continued to implement tobacco control regulations, the trend has been downward. Yet, as of 2011 approximately 23% of adults in the country still smoked.255
3.98 Smoking among Uruguayan youth is especially alarming. The average starting age for smokers between ages 12 and 18 in Uruguay is 13.256 According to a survey of young people between 12 and 17 years old, 30.2% of this group smoked in 2003.257 Although the number has fallen due to Uruguay’s improving regulation of tobacco marketing, 18.4% of teenagers still smoked as of 2010.258 Most recently, a Global School-Based Student Health Survey
252 WHO, Report on the global tobacco epidemic, 2008, p. 297 (R-28).
253 Euromonitor, Tobacco - Uruguay (Sept. 2008), p. 2 (C-120).
254 PAHO, GATS: Uruguay ‘09, p. 42 (R-233).
255 ITC, ITC Uruguay National Report (Aug. 2014), p. 20 (citing a 2011 National Statistics Institute Household Survey which estimates adult prevalence at 23.5%) (R-313).
256 Uruguayan National Drug Committee (“JND”), Second National Survey on Drug Consumption In Secondary Students: Preliminary Summary (Apr. 2006) (hereinafter “JND, Second National Survey on Drug Consumption In Secondary School Students: Preliminary Summary”), p. 20 (R-174).
257 PAHO, GATS: Uruguay ‘09, pp. 21-22 (R-233).
258 Ibid.; see also Uruguayan National Drug Committee (“JND”), Drugs: Consumption In Secondary School Students (May 2004), p. 34 (R-165); JND, Second National Survey on Drug Consumption In Secondary School Students: Preliminary Summary, p. 15 (R-174); Uruguayan National Drug Committee (“JND”), Much Ado About Nothing: Consumption of legal and illegal drugs in adolescence (July 2011), p. 27 (R-244). - 84 - CONFIDENTIAL INFORMATION REDACTED
encouragingly reported prevalence rates for teenagers had dropped to 13.1% in 2012.259
However, the percentage of underage girls who smoke is significantly higher than that of boys.260
3.99 The effects of smoking in Uruguay go well beyond the death and disease figures discussed above.261 The social and economic costs are also high. According to the 2009 GATS
study, Uruguayan smokers spent an average of 20% of the applicable minimum wage to sustain
their habit.262 The impact of these outlays is obviously felt more strongly among the poor, who
make up a disproportionately large percentage of the smoking population in Uruguay.263
3.100 According to the World Bank, the health costs linked to smoking in Uruguay amount to
US$150 million per year. This does not include indirect health costs such as higher work absenteeism or social-security costs.264 When the productivity losses due to missed work days,
premature death and other non-health expenditures are accounted for, this figure increases by as
much as 70%;265 that is, to more than US$250 million per year.
3.101 The Fondo Nacional de Recursos (“FNR”), an Uruguayan public entity that provides
financing for medical procedures, has calculated that the total cost of the 51,126 medical
259 Uruguayan National Drug Committee (“JND”), Adolescence: A World of Questions, II Global Survey on Adolescent Health, GSHS, 2012, Uruguay (2012), p. 82 (R-256).
260 Ibid.
261 See supra ¶¶ 3.14-3.33.
262 A. Sica, et al., p. 149 (R-282).
263 See PAHO, GATS: Uruguay ‘09, p. 56 (R-233).
264 A. Sica, et al., pp. 149-150 (R-282).
265 Ramos & Curti, pp. 4-5 (R-20).
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procedures related to smoking-induced disease funded by FNR between 2004 and 2010 came to
nearly US$783 million — roughly US$112 million per year.266
3.102 Viewed through a different lens, the World Bank and WHO developed a measure for calculating “Disability-Adjusted Life Years” (“DALYs”), which represent the sum of potential healthy life-years lost due to illness and premature mortality caused by disease. One DALY is equal to one year of healthy life lost. According to a 2014 estimate, over 135,000 DALYs are lost due to tobacco use in Uruguay every year.267
3.103 Any alleged economic benefits created by the tobacco industry pale in comparison to the
human, social and economic damage it inflicts. Claimants can no longer even claim to support
employment in Uruguay. In October 2011, they closed their factory in the country, laying off
most of the roughly 100 employees who used to work there.268
B. History of Tobacco Regulation
1. 1970-2000
3.104 By the 1970s, Uruguay had developed one of the highest mortality rates from cancer in
the world,269 with almost a quarter of a million deaths between 1953 and 1991270 (years during
266 Table of Data Provided by Uruguayan Fondo Nacional de Recursos (July 2011) (R-64).
267 Uruguayan Ministry of Public Health (MSP), Burden of Disease Study: Uruguay (May 2014), p. 50 (R-298).
268 Claimants’ former Uruguayan employees have been hired as part of the “October 21 Cooperative” by the country’s Ministry of Public Health. This government initiative seeks to reintegrate former tobacco company employees into the labor force in jobs that monitor compliance with tobacco control measures. See “Ex-Philip Morris workers lead Uruguay tobacco crackdown,” AFP (29 July 2014) (R-310).
269 A. Sica, et al., p. 150 (R-282).
270 E. De Stefani, et al., Cancer Mortality Trends in Uruguay 1953-1991, INTERNATIONAL JOURNAL OF CANCER, Vol. 56, No. 5 (Mar. 1994), p. 634 (R-131).
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which the population ranged between 2.2 and 3.2 million). The increasing use of tobacco was a
major cause of these deaths.271
3.105 In the ensuing decades, the government adopted a series of public health measures to
address this crisis. Consistent with the international practice of the day, Law No. 15,361 of 1982,
for example, required textual health warnings on cigarette packs and prohibited sales to minors.272 Two years later, Uruguay instituted a requirement that cigarette companies report the
tar and nicotine content of their products.273
3.106 Regulation expanded in the 1990s with the imposition of tighter controls on tobacco
advertising and the designation of special smoking areas in workplaces.274 Decree 203 in 1996
banned smoking in offices and public buildings altogether.275 And in 1998, Decree 142
prohibited promotional efforts that involved tobacco product giveaways.276
3.107 The tobacco industry took active steps to forestall these measures, including “[s]ubtly
attack[ing] the issue of prior censorship in a newspaper or magazine,”277 holding conferences on
271 Ibid., pp. 637-638.
272 Uruguayan Law No. 15,361 (1982) (RL-5).
273 Philip Morris Internal Document, Philip Morris Incorporated, Tobacco Technology Group, South American Trip (9 Feb. 1984), Bates No. 2000510174-2000510187, p. 2000510183 (R-114).
274 Philip Morris Internal Document, Abal Hermanos S.A., Memorandum from H. Hughes to J. Munro (12 Sept. 1995), Bates No. 2065341132-2065341133, p. 2065341132 (R-137).
275 V. Denis, et al., Application of FODA Matrix on the Uruguayan Tobacco Industry (2007), p. 141 (R-180).
276 Ibid., p. 140.
277 Philip Morris Internal Document, Abal Hermanos S.A., Memorandum from H. Hughes to J. Munro (12 Sept. 1995), Bates No. 2065341132-2065341133, p. 2065341133 (R-137).
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the freedom of commercial expression and criticizing the use of “excessive” executive power.278
Uruguay nevertheless persevered in its efforts to protect public health.
2. 2000-2005
3.108 In 2000, Uruguay’s Ministry of Public Health formed the National Alliance for the
Control of Tobacco (“NACT”), an interdisciplinary organization the members of which were drawn from various sectors of the public health community. Part of the group’s mission was to coordinate tobacco control efforts in Uruguay with the WHO.279 The Alliance acted as an
umbrella organization that provided technical support for the activity of each of its members and,
in particular, urged the Ministry of Public Health to “play a greater role in tobacco control.”280
The increased activity of the government in this realm, as well as the efforts of the members of the NACT, helped to “spark[] a shift in society’s conceptualization of the ‘smoking’ problem” by creating “greater awareness about the extent of the problem both among health-policy decision- makers and the population as whole.”281
3.109 Negotiation of the FCTC was conducted during this period. The first step for Uruguay
and members of the NACT was to “ensure that Alliance members themselves were properly
informed about the Framework Agreement.”282 The NACT both educated the media and raised
278 Ibid.
279 A. Sica, et al., p. 150 (R-282); Witness Statement of Dr. Winston Abascal (9 Oct. 2014) (hereinafter “Abascal Witness Statement”), ¶ 2 (RWS-001).
280 Pan American Health Organization (“PAHO”), Six Years That Changed Tobacco Control In Uruguay: Lessons Learned (2007) (hereinafter “PAHO, Six Years That Changed Tobacco Control In Uruguay”), pp. 4-5 (R-178).
281 A. Sica, et al., p. 151 (R-282).
282 PAHO, Six Years That Changed Tobacco Control In Uruguay, p. 5 (R-178).
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awareness among policymakers in order to stake out an official position during the treaty
negotiations and ensure that Uruguay was represented at every stage.283 Uruguay’s expertise,
largely through the NACT, secured its position as a “trustworthy and truthful” presence during
the negotiations.284
3.110 Uruguay signed the FCTC on 19 June 2003, the third day after it was opened for
signature. Uruguay was the first State in South America to ratify the Convention, which it did in
September 2004. The NACT played a large role in the ratification of the FCTC in Uruguay.285
3.111 Because it considered the high prevalence of tobacco use one of the country’s most
pressing public health problems,286 Uruguay began implementing its obligations under the FCTC almost immediately. In 2004, even before the Convention’s entry into force, the Ministry of
Public Health created the National Advisory Commission for Tobacco Control (the “National
Advisory Commission”), the members of which were drawn from a cross-section of tobacco control experts from public agencies, medical institutions and NGOs, to advise the Ministry on
Uruguay’s implementation of its obligations under the FCTC.287 The National Advisory
283 Ibid., pp. 5-6 .
284 Ibid., p. 6.
285 Ibid., pp. 5-6.
286 See, e.g., Uruguayan Decree No. 171/005 (31 May 2005) (hereinafter “Decree No. 171/005”), p. 1 (“[T]obacco consumption causes significant harm to society, such that it is essential to adopt all the measures that will contribute to decreasing said consumption, precisely because of this general interest.”) (RL-2); MSP, “The National Tobacco Program in the Context of the New Government” (22 Dec. 2005) (“Tobacco dependence is an addictive disease which is a significant public health problem worldwide.”) (R-19).
287 A. Sica, et al., p. 152 (R-282); Witness Statement of Dr. María Julia Muñoz (8 Oct. 2014), ¶¶ 13-14 (RWS-003); Abascal Witness Statement, ¶ 6 (RWS-001); Witness Statement of Dr. Eduardo Bianco (15 Sept. 2014), ¶ 2 (RWS- 002).
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Commission helped oversee the tobacco control measures that Uruguay would develop and
implement in the years to come.
3.112 It is noteworthy that Claimants assured Uruguay that they welcomed its ratification of the
FCTC. In a July 2004 submission to the Ministry of Public Health, Abal wrote that it “firmly
supports the effective and broad reaching regulation of tobacco,” following Uruguay’s ratification of the Convention, “which requires countries to adopt extensive tobacco regulation at the national level.”288 Abal added: “We are also aware that society expects tobacco to be
regulated.”289 In particular, according to Abal: “The broad regulation of tobacco, combined with
its effective application, can achieve important public health objectives,” specifically because,
inter alia, it can “reduce the prevalence of tobacco use, an appropriate public health objective
with which Abal Hnos. agrees.”290 Thus, Abal’s “legitimate expectations” included the
following: that there would be extensive and effective regulation of its products in the wake of
Uruguay’s ratification of the FCTC; and that the objectives of these regulations — which Abal considered “appropriate” — would be to reduce tobacco use.
3. 2005-Present
3.113 In January 2005, after having signed the FCTC, Uruguay promulgated Decree 36, which established that health warnings cover 50% of both sides of the cigarette package.291 The next month, the FCTC entered into force in Uruguay. Then, in May 2005, acting in accordance with
288 Letter from Abal Hermanos S.A. to the Ministry of Public Health (9 July 2004), p. 1 (R-167).
289 Ibid.
290 Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004), p. 1 (R-166).
291 Uruguayan Decree No. 36/005 (25 Jan. 2005), Art. 1 (C-031).
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Article 11 of the FCTC, Uruguay promulgated Decree 171,292 which changed the 50% text warnings to graphic warnings selected by the Ministry of Public Health.293 The warning messages also changed. Research had found that existing warnings, like “[s]moking is harmful to your health,” scored poorly in informing smokers of the severity of the diseases they were facing. As a result, many smokers did not know the particular diseases caused by tobacco use or the magnitude of the risk of contracting them, and were less likely, therefore, to contemplate quitting. Uruguay changed the warnings to include more explicit messages that provided information on the particular diseases caused by smoking, such as “Smoking can generate cancer, lung and heart diseases,” which the evidence showed was critical for consumers to understand how dangerous smoking is.294
3.114 Also in accordance with FCTC Article 11, the decree further banned the use of descriptors such as “light” and “mild” on the grounds that such words falsely suggest that some cigarettes are less harmful than others.295
3.115 Later in 2005, Uruguay adopted further decrees banning tobacco advertising at sports events,296 as well as the broadcast advertising of tobacco products or trademarks on television during times when children are likely to be watching.297 In July 2005, smoking was banned in government and municipal offices, public service companies, schools and universities. And in
292 Decree No. 171/005, Art. 1 (RL-2).
293 Ibid.
294 Euromonitor International, Tobacco - Uruguay (Aug. 2010), p. 4 (R-229).
295 Decree No. 171/005, Art. 1 (RL-2).
296 Uruguayan Decree No. 170/005 (6 June 2005), Art. 1 (C-147).
297 Uruguayan Decree No. 169/005 (6 June 2005), Art. 1 (C-146).
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September 2005, smoking was prohibited in all offices and indoor public environments,
including restaurants and bars.298
3.116 The tobacco industry endeavored to defeat or undermine these measures, and to keep
them from spreading to other countries. One of its tactics was the so-called “Courtesy of Choice
Programme,” which advocated the “accommodating” of smokers as an alternative to smoking
bans, by encouraging the voluntary creation of smoking and non-smoking sections in the hospitality industry.299 The industry “Programme” was not designed to actually protect
consumers from the health hazards of second hand smoke. Instead, the main “success” in Latin
American countries was “the prevention of meaningful smoke-free policies, both in public places
and in workplaces.”300
3.117 Along similar lines, after Uruguay’s ratification of the FCTC in 2004, Claimant Abal
offered its “suggestions” for new regulations nominally intended to “comply” with the FCTC.301
These suggestions included, among others, preventing minors’ access to tobacco products
“communication” to adult consumers of information about its products, and eliminating the illicit sale of cigarettes.302 According to PAHO, such legislative proposals, like the industry’s
voluntary codes, “typically contain minor concessions that the industry believes will not
298 Uruguayan Decree No. 268/005 (9 Sept. 2005) (C-151).
299 E. Sebrié & S. Glantz, “Accommodating” smoke-free policies: tobacco industry’s Courtesy of Choice programme in Latin America, TOBACCO CONTROL, Vol. 16, No. 5 (Oct. 2007), p. 1 (R-188).
300 Ibid.
301 See Letter from Abal Hermanos S.A. to the Ministry of Public Health (9 July 2004) (R-167); Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004) (R-166).
302 Letter from Abal Hermanos S.A. to the Ministry of Public Health (9 July 2004) (R-167); Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004) (R-166).
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significantly impact tobacco sales, and are intended solely to build corporate image and, most
importantly, block or at least delay meaningful regulation.”303 In other words, they seek to
substitute voluntary measures that have been proven not to reduce tobacco use for legally
binding action that would.
3.118 Uruguay continued to move forward. Based on the WHO’s conclusion that higher taxes
would reduce tobacco use, in July 2007, it imposed a 22% VAT on tobacco products, using the
revenue generated thereby to fund government-sponsored smoking cessation programs.304 And in
March 2008, Uruguay passed Law 18,256, which was designed to further implement Uruguay’s obligations under the FCTC. Law 18,256 and its implementing decree (No. 284/008) ratified and reinforced the measures adopted since 2005,305 and provided the legal foundation for further
tobacco regulation, including the two measures that have been challenged in this arbitration.
3.119 Among other tobacco control measures, Law 18,256 limited retail advertising to point-of-
sale, prohibited all other forms of advertising, promotion and sponsorship of tobacco products,
banned the distribution of tobacco branded gifts (e.g., cigarette branded lighters, pens, etc.), and forbade the manufacturing, sale or free distribution of confectionary, toy or other items
303 Pan American Health Organization (“PAHO”), Profits Over People: Tobacco Industry Activities to Market Cigarettes and Undermine Public Health in Latin America and the Caribbean (Nov. 2002), p. 24 (R-157).
304 Euromonitor International, Tobacco - Uruguay (Aug. 2010), p. 2 (R-229).
305 Euromonitor International, Tobacco in Uruguay (Oct. 2013), p. 2 (“These [2005-2007] decrees were preparation for [Law 18,256] that included all the restrictions and was approved during Q1 2008 by the Uruguayan parliament.”) (C-121).
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resembling tobacco products (e.g., candy cigarettes), based on the scientific evidence about the
impact of these forms of marketing.306
3.120 Of particular relevance here, Law 18,256 prohibited any packaging or labeling likely to
have “the direct or indirect effect of creating the false impression that a certain tobacco product
is less harmful than another,” including deceptive terms like “light” and “mild,” as well as any
descriptive elements, trademarks, figurative signs, colors, combinations of colors, numbers, or
letters that might give the same false impression.307
3.121 Finally, Law 18,256 reiterated the requirement that health warnings have “images or
pictograms describing the harmful effects of tobacco consumption” and cover “at least” 50% of
the principal surfaces of all tobacco product packages.308
3.122 Implementing regulations followed enactment of the Law. In August 2008, acting in
furtherance of Law 18,256’s prohibition of any packaging or labeling likely to have “the direct or
indirect effect of creating the false impression that a particular tobacco product is less harmful
than another,” the Ministry of Public Health issued Ordinance 514, prohibiting more than one
presentation, or variant, of any cigarette brand; i.e., the SPR. The ordinance took effect six
months later in February 2009.
3.123 Four months after that, in June 2009, and in furtherance of the mandate in Law 18,256
that health warnings cover “at least” 50% of cigarette packs, Uruguay issued Decree 287/009,
306 Ibid., p. 5.
307 Uruguayan Law No. 18,256 (6 Mar. 2008) (hereinafter “Law No. 18,256 (6 Mar. 2008)”), Art. 8 (RL-6); Uruguayan Decree No. 284/008 (9 June 2008) (hereinafter “Decree No. 284/008”), Art. 12 (RL-3).
308 Law No. 18,256 (6 Mar. 2008), Art. 9 (RL-6); Decree No. 284/008, Art. 12 (RL-3).
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which increased the required size of warning labels to 80% of the front and back of cigarette
packs. Like Ordinance 514, Decree 287 entered into force six months after it was issued, in
December 2009.309
3.124 The reasons why, and the processes by which, the SPR and 80% Requirement were
adopted are fully presented in Chapters 4 and 5. As described therein, both measures were
carefully considered and taken in good faith under Uruguay’s police power on the basis of valid
reasons, and for a single legitimate purpose: to protect public health. They applied equally to foreign and domestic producers and sellers. There is nothing arbitrary or discriminatory about them.
309 Decree 287 was also reiterated in Ordinance 466 in September 2009. Uruguayan Ministry of Public Health (MSP), Ordinance No. 466 (1 Sept. 2009) (C-043).
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CHAPTER 4
THE SINGLE PRESENTATION REQUIREMENT WAS A REASONABLE EXERCISE OF URUGUAY’S SOVEREIGN RIGHT TO PROTECT PUBLIC HEALTH
4.1 Uruguay’s Single Presentation Requirement (“SPR”) prohibits tobacco companies from
marketing multiple presentations of the same brand. Claimants argue that this measure is
arbitrary. It is not. As shown below, it is Uruguay’s reasonable response to efforts by tobacco
companies, including Claimants, to market cigarettes that they knew consumers would falsely
perceive to be “safer” and would choose to smoke as an alternative to quitting.
4.2 These cigarettes were no less harmful than any others, and the tobacco companies knew
it. As Claimants admitted to Uruguay in 2004: “[T]here is no such thing as a safe cigarette.”310
But the result of their marketing of Marlboro “Light” and other brand variants was to mislead tens of thousands of smokers in Uruguay (and many millions worldwide) and keep them smoking under the false pretense that the “light” variants and others were safer options. The SPR was intended to protect public health by putting an end to this deceptive practice. Claimants do not come close to meeting their burden of proof that the measure was arbitrary.
4.3 Section I sets out the background against which the SPR was adopted. It describes the marketing strategy implemented by the tobacco industry in response to growing public awareness of the harmfulness of smoking. Concerned that health conscious smokers would quit, and that would-be smokers would be deterred from starting, the tobacco companies developed and marketed what they euphemistically called “health reassurance” cigarettes; that is, cigarettes the public would perceive as less harmful than others, even though they were not. In Uruguay,
310 Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004), p. 8 (R-166).
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these “health reassurance” cigarettes were primarily introduced as variants of existing brands, to
simultaneously capitalize on the popularity of the originals while offering a supposedly safer
version that was labeled as “light,” “mild,” “ultra light” or “low tar.”
4.4 Marlboro “Light,” for example, was developed and marketed by Claimants and their
affiliates for this very reason — to offer concerned Marlboro smokers and would-be smokers a
supposedly healthier alternative to Marlboro originals, and thereby keep them, or get them
started, smoking Marlboros in one form or another. Unfortunately, these deceptive practices
worked as intended. Large numbers of smokers switched to or began smoking “light” or other
similarly described variants on the false understanding that they were less harmful or less
addictive.
4.5 The impact on public health was significant. Section II describes how it led to the
inclusion of Article 11 in the FCTC, which called upon the States Parties to prohibit all deceptive
forms of display, design, terms, descriptors, trademarks, or other visible promotional or representational material on cigarette packs that suggest that some cigarettes are less harmful than others. In accordance with Article 11 and the international consensus it reflected, Uruguay enacted measures prohibiting the use of deceptive words such as “light” and “mild” on cigarette packs. But the measures proved insufficient. Claimants, and other tobacco companies in
Uruguay, continued to market the same “health reassurance” variants of their original brands, even after the ban on deceptive words took effect, employing new strategies designed to communicate the same false impression as before. Claimants, for example, repackaged Marlboro
Light, which was sold in gold-colored packs, as Marlboro Gold, and continued to promote it as a lighter and healthier version of the “full-strength” Marlboro Red. In this way, they complied with the measure prohibiting use of deceptive words on cigarette packs but circumvented its intent.
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4.6 In response, after careful consideration, Uruguay determined that the most effective way
to stop the false marketing of brand variants as safer versions of other cigarettes was by
implementing the SPR, which prohibited multiple presentations of the same brand. In response to
the same problem, Australia opted in 2012 to require the “plain packaging” of all tobacco
products, which prohibited tobacco companies from using distinctive brand logos, colors or
descriptors of any kind on cigarette packs. Uruguay’s SPR, by contrast, allows the tobacco
companies to continue packaging and labeling their original brands as before, and even to
introduce new brands with their own distinctive packaging and labeling. It stops them only from
offering for sale different versions of the same brand.
4.7 The final section of the Chapter, Section III, refutes Claimants’ suggestion that the SPR is
arbitrary. In fact, it is an entirely reasonable and targeted regulatory measure designed to address
the precise public health problem which Claimants themselves played an important role in
creating: the widespread misperception that “health reassurance” brand variants are safer than the
parent version of the same brand. The SPR is not just rationally related to a legitimate
governmental concern. It is a critical component of Uruguay’s public health program to increase
public awareness of the harmfulness of smoking, disabuse consumers of any false impressions
they might have in regard thereto and encourage more people to choose not to smoke.
4.8 The international public health community has applauded the SPR and Uruguay’s other
tobacco control measures. The Member States of the WHO and PAHO gave their full “support to the Eastern Republic of Uruguay for all the national measures it has adopted, pursuant to the provisions of the Framework Convention and its Guidelines,” including “especially those on the packaging of tobacco products to inform the public about the risks of tobacco and prevent
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manufacturers from directly or indirectly suggesting that some products are less harmful to
health.”311
I. The Tobacco Industry’s Promotion and Marketing of “Health Reassurance” Cigarettes
4.9 In their Memorial, Claimants argue that there is no logical connection between Uruguay’s
objective of ending the deceit that some cigarettes are healthier than others and its prohibition on
the marketing of brand variants.312 In doing so, Claimants disregard the real-world context in
which the SPR was enacted. As explained below, for decades, tobacco companies in Uruguay,
and throughout the world, have used brand variants to create and perpetuate the falsehood that some cigarettes are “less harmful.” The industry, including Philip Morris, did this by promoting the fiction that certain cigarettes deliver less tar and nicotine to the smoker. The stratagem is based on the fact that smokers, influenced by a powerful addiction, are less likely to quit if they can be induced into believing they can switch to a “safer” variety of cigarette.313
4.10 It proved successful. As intended, it induced smokers around the world, including in
Uruguay, to continue smoking, or to begin doing so, by changing to or choosing a brand variant
that they were led to believe was “healthier” that “regular strength” cigarettes. Uruguay adopted
the SPR to put an end to this deception, and to begin to undo its pernicious effects on public
health.
311 Pan American Health Organization (“PAHO”) & World Health Organization (“WHO”), Strengthening the Capacity of Member States to Implement the Provisions and Guidelines of the WHO Framework Convention on Tobacco Control, CD50.R6, adopted on 29 Sept. 2010 (hereinafter “PAHO & WHO, Strengthening the Capacity of Member States to Implement the Provisions and Guidelines of the WHO Framework Convention on Tobacco Control”), ¶ 1 (R-230).
312 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 222-230.
313 See infra ¶¶ 4.12-4.32.
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A. The Advent of “Health Reassurance” Cigarettes
4.11 The tobacco industry knew for decades that its cigarettes were addictive and deadly. A
significant part of its response to public concern about the risks of smoking was, as shown in
Chapter 3, to attempt to conceal the danger by challenging the scientific evidence on the health impacts of smoking and denying the addictive nature of tobacco consumption.
4.12 Nonetheless, the public became increasingly aware of these dangers. This presented the tobacco industry with a dilemma. The natural reaction of many consumers upon learning that smoking is hazardous is to try to quit. Yet, the industry’s profitability depends upon dissuading smokers from quitting and on attracting new smokers despite the obvious health risks. An internal tobacco industry document explained the impact of health concerns on smokers’ behavior:
The role of low delivery cigarettes in a health-conscious market, and for the health concerned individual, can probably be best explained in terms of a simple balance model. This would suggest that the individual smoker seeks to reduce the tension arising from the perceived incompatibility between his health concern and continuing to smoke by making various psychological and behavioural adjustments. For some the tension will only be sufficiently reduced by quitting. For others, an adequate discharge will be achieved by reducing the number of cigarettes smoked and, for yet others, a switch to lower delivery cigarettes is the appropriate modification. In all cases, the model would suggest, the individual makes only that change in his smoking behaviour which is sufficient to offset to a tolerable level the tension arising from the perceived conflict between smoking and his health concern.314
314 British American Tobacco Internal Document, M. Oldman, Low Delivery Cigarettes and Quitting (28 Apr. 1981), Bates No. 109875845-109875846, p. 109875846 (R-110).
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4.13 The tobacco industry based its marketing strategy on this understanding of the
psychology of smokers by promoting new types of cigarettes that purported to offer a “healthier” or “lower delivery” option, even though a genuinely healthier tobacco product did not exist.
These products first began to appear in the 1950s, when Philip Morris and other tobacco companies developed cigarettes they internally referred to by the Orwellian term “health reassurance” cigarettes.315
4.14 An example can be seen in the Philip Morris advertisement reproduced at Figure 4.1,
which touted the “great scientific discovery” imbedded in the product that “protects you from
certain harsh irritants found in every other leading cigarette,” boasting that “no other cigarette
gives you this assurance.”
315 United States v. Philip Morris USA, Inc., Amended Final Opinion, Case No. 99-2496 (GK) (D.D.C. 2006) (hereinafter “United States v. Philip Morris”), ¶¶ 2379, 2400 (RL-171). See also ibid., ¶¶ 2377-2459.
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Figure 4.1: Philip Morris, “Guard Your Throat Campaign Advertisement” (1954)
4.15 Central to the industry’s health reassurance strategy was the development and marketing of so-called “low tar” cigarettes that, tobacco companies claimed, caused smokers to inhale less of the disease-causing agents than other types of cigarettes. This marketing strategy assumed paramount importance in the aftermath of the 1964 publication by the United States Surgeon
General of its seminal report on the devastating health effects of smoking, which drew widespread public attention to the problem.316
316 See Prof. Joel Cohen, Prof. Timothy Dewhirst & Prof. David Hammond, The Single Presentation Requirement: Overcoming The Illusion Of A Less Hazardous Cigarette (19 Sept. 2014) (hereinafter “Cohen Report”), ¶ 46 (REX- 002). The principal author of the expert report is Professor Joel Cohen, Distinguished Service Professor Emeritus at the University of Florida and former chairman of the Marketing Department. The report is co-authored by Professor Timothy Dewhirst, Associate Professor in the Department of Marketing and Consumer Studies at the University of Guelph in Canada, and Professor David Hammond, Associate Professor in the School of Public Health & Health Systems at the University of Waterloo in Ontario, Canada.
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4.16 The tobacco industry’s goal of convincing smokers that safer alternatives were available
is reflected in a confidential presentation to Philip Morris’s Board of Directors made shortly after
the U.S. Surgeon General’s report. It said: “Please recall that our number one objective is to develop products having maximum consumer appeal in the current and future health conscious marketplace.”317 An internal Philip Morris marketing strategy report two years later, entitled
Market Potential of a Health Cigarette, similarly emphasized the importance of developing a
“‘healthy’ cigarette” that “tasted exactly like a Marlboro, delivered the nicotine of a Marlboro,
and was called Marlboro.”318
4.17 Philip Morris itself harbored no illusions that these ostensible “healthy” products would,
in fact, have any health benefits. To the contrary, the company, like the rest of the tobacco
industry, understood that what mattered was the perception of healthiness. The same Philip
Morris marketing strategy report stated that “the illusion of filtration is as important as the fact of
filtration”; consequently, the product design “need not be any more effective” than current
filters.319 Put simply, what mattered most was that consumers believed the cigarette was safer;
the variations within brands were designed to foster this “illusion.”
4.18 The tobacco industry vigorously promoted the purported health benefits of “low tar”
cigarettes. An example is the advertisement reproduced below at Figure 4.2, which presents a
health-conscious tennis player averring: “Considering all I’d heard, I decided either to quit or
317 Philip Morris Internal Document, Operations Department Presentation to Philip Morris Board of Directors: Research and Development (28 Oct. 1964), Bates No. 3003572197-3003572202, p. 3003572197 (R-91).
318 Philip Morris Internal Document, M. Johnston, Market Potential of a Health Cigarette (June 1966), Bates No. 1000338644-1000338671, p. 1000338651 (R-92).
319 Ibid., p. 1000338649 (emphasis added).
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smoke True. I smoke True.” The advertisement then touts the product’s “low tar, low nicotine” virtues.
Figure 4.2: Lorillard Tobacco Co., “True Cigarettes Advertisement” (1976)
4.19 This remained the tobacco industry’s central strategy. As Professor Joel Cohen, one of the world’s leading experts on tobacco marketing, explains in his expert report annexed to this
Counter-Memorial, the industry adopted a “strategy to market products that were intended to be perceived as lower risk or even substitutes for quitting rather than cigarettes that were actually
lower risk.”320
320 Cohen Report, ¶ 65 (REX-002). See also Brown & Williamson Internal Document, M. Weaver, Cigarette Smoking, Health, And Dissonance (Project Libras): IV. Further Analysis, Conclusions and Recommendations (25 Aug. 1981), Bates No. 650018899-650018950, p. 650018330 (internal memorandum by Brown & Williamson observing that smokers “would be highly motivated to modify their smoking behaviour in terms of switching to brands which they perceived as ‘safer’ yet meet their requirements, whatever they might be.”) (emphasis added) (R- 112).
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4.20 This was certainly Claimants’ approach. The U.S. District Court in the USDOJ litigation
determined that “Philip Morris conducted research on former smokers to assist it in marketing
purportedly less harmful cigarettes to draw them back into the market and to dissuade potential
quitters from actually quitting.”321
4.21 Claimants’ implementation of this strategy is reflected in a 1987 Philip Morris internal
strategy report setting out the company’s “Analysis of Future Factors” for profitability. Among
those factors were “social and health pressures,” in regard to which the strategy report
emphasized the need for “cigarettes which would be perceived by the consumer as ‘safer’; and
the desire for reduced tar cigarettes which retain full flavor.”322 In order to meet that goal, the report highlighted Philip Morris’s “considerable commitment at this time to development of a
product which addresses consumer health concerns.” It underscored the importance of the
company’s “low tar (or zero tar)/high taste program and Project ART (low nicotine),” which it
said “can be marketed to the consumer in such a way to convince them that they are indeed
receiving a product which would be perceived as ‘safer.’”323
4.22 The strategy worked: consumers were, in fact, deceived into believing that lower tar
variants were safer. As Professor Cohen’s report explains: “[T]he public believed that these
321 United States v. Philip Morris, ¶ 2295 (RL-171).
322 Philip Morris Internal Document, 1987-1992 R&D Strategic Plan (20 Nov. 1987), Bates No. 2021337620- 2021337807, p. 2021337642 (R-120).
323 Ibid., p. 2021337648.
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health reassurance brands were actually healthier.”324 The U.S. District Court held that the
tobacco industry, including Philip Morris,
conducted extensive research on quitting to help them identify and understand potential quitters … and design marketing that would dissuade them from quitting. Defendants’ internal documents demonstrate their recognition that smokers interested in quitting smoking were instead switching to low tar cigarettes under the mistaken belief that doing so would either help them quit or be better for their health.325
4.23 This is confirmed, inter alia, in a market research report prepared for Philip Morris,
which concluded:
The low tar brands have cornered opinion that to the extent any brands are better for your health, they are. All smokers were asked whether they thought particular brands were better for your health than others, and if so, which brands. Three in ten of all smokers said some brands were better for health than others, and almost half of the low tar brand smokers said this. … [I]t is the lower tar content of these brands that make people say they are better for health. When asked why the brands they named were better for your health, answers overwhelmingly were concerned with lower tar content.326
4.24 Numerous other internal tobacco company documents further confirm that smokers were
induced to switch to lower tar cigarettes for their perceived health benefits. One concluded:
“Almost all smokers agree that the primary reason for the increasing acceptance of low ‘tar’
324 Cohen Report, ¶ 71 (REX-002).
325 United States v. Philip Morris, ¶ 2234 (emphasis added) (RL-171).
326 Philip Morris Internal Document, The Roper Organization Inc., A Study of Smokers’ Habits and Attitudes with Special Emphasis on Low Tar Cigarettes (May 1976), Bates No. 2501445736-2501445771, p. 2501445755 (R-98).
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brands is based on the health reassurance they seem to offer.”327 Another found: “Health
concerns are the usual reasons for switching to a low T&N [Tar & Nicotine] brand. Such
cigarettes are ‘better for you’ — milder and less irritation (now) as well as less likely to cause
serious problems (later).”328 An analysis of “Reasons for Smoking Low Tar Cigarettes”
determined:
By changing to a lower tar cigarette, they felt less guilty about continuing to smoke and eventually hoped to stop smoking completely.
Many panelists had switched from a high tar cigarette to a low tar cigarette bearing the same name. Marlboro smokers switched to Marlboro Lights, Winston smokers switched to Winston Lights, etc. …
All switched because they felt that low tar cigarettes are healthier than high tar cigarettes.329
4.25 A major part of the tobacco industry’s marketing strategy was the promotion of the term
“Lights,” which it linked to “lower tar” cigarettes. As Professor Cohen explains, “the industry
chose the term ‘Lights’ as a cigarette descriptor to convey a message of reduced constituents and
thus reduced harm ….”330 Tobacco companies labeled brand variants of existing brands as
327 Brown & Williamson Internal Document, Hawkins, McCain & Blumenthal Inc., Low “Tar” Satisfaction Step 1: Identification of perceived and unperceived consumer needs (25 July 1977), Bates No. 775036039-775036067, p. 775036047 (R-103).
328 The Nowland Organization, Inc., SHF Cigarette Marketplace Opportunities Search and Situation Analysis: Volume II, Management Report (Dec. 1976), Bates No. 84053709-84053744, p. 84053712 (R-100).
329 American Tobacco Internal Document, Fay Ennis Creative Research Services, An Exploration of Two Cigarette Approaches: ‘Laser Technology’ and ‘No Fake Flavors’ (11 Nov. 1976), Bates No. 968362940-968362954, p. 8 (R- 99).
330 Cohen Report, ¶ 68 (REX-002).
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“lights,” so as to emphasize that the variant is a lighter, and therefore healthier, version of the parent brand.
4.26 Philip Morris introduced Marlboro “Lights” in 1971, promoting this brand variant as a healthier version of the parent “Marlboro” brand. An example of its advertising is reproduced at
Figure 4.3. The advertisement promises smokers the “spirit of Marlboro in a low tar cigarette,” underscoring that the cigarette is: “Lighter in taste. Lighter in tar. And still offers up the same quality that has made Marlboro famous.”
Figure 4.3: Marlboro Lights Advertisement (1977)
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4.27 All major cigarette companies used brand variants to promote low tar versions of existing
brands, using intra-brand comparisons to demonstrate the relative healthiness of the variants. In
Uruguay, for example, Claimants marketed Marlboro and Marlboro Lights; Claimants’
competitor, Montepaz, marketed Coronado, Coronado Lights, and Coronado Ultra Lights; and
BAT marketed Montana and Montana Lights, along with Pall Mall and Pall Mall Blue.
4.28 The industry’s success in promoting the connection between “lights” and “low tar” was
such that, according to an industry document:
Perceptually, category consumers do not currently seem to differentiate between “Lights” and “Low Tars” as product modifiers. Each appears to communicate that the “brand” is lower in tar than cigarettes in another sub-category, e.g., full-flavor menthol brands. It should be noted that smokers seem to use the word “light” and “low tar” interchangeably. The two words are thought of “as synonyms.”331
4.29 The promotion of “Lights” was so successful that cigarette companies no longer felt the
need to expressly state that their “health reassurance” variants were “low tar.”332 Simply calling
them “lights” was sufficient to communicate the message. For instance, by 1979, R.J. Reynolds
had concluded that “the word ‘light’ alone seem[ed] enough of an indication of low tar” such that its Lights cigarettes no longer needed the explicit “low tar” wording.333
331 RJ Reynolds Internal Document, Abby Ellison Qualitative Research, Inc., A Qualitative Analysis of the Light/Low Tar Category with Particular Emphasis on Consumer Reactions to Advertising Language and Prototype Concepts for Salem Lights (Nov. 1977), Bates No. 501226743-501226772, p. 501226753 (R-104).
332 Cohen Report, ¶¶ 69-70 (REX-002).
333 RJ Reynolds Internal Document, Camel Lights 100’s Exploratory Focus Group Summary (29 Jan. 1979), Bates No. 500710315-500710317, p. 500710317 (R-107).
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4.30 The success in convincing smokers to choose low tar variants persuaded the industry to
create additional brand variants to appeal to more targeted segments of the health-conscious
smoking population. Tobacco companies, for example, extended low tar brand variants to “ultra-
low” tar options in order to appeal to smokers particularly concerned about health. As one
industry document explained: “In going from smokers of Full Flavor, to Low Tar, to Ultra Low,
there is a progression in the health concerns and a reduction in taste demands.”334 This
development was driven by the fact that “[a]s time goes on, the social and psychological
pressures for smoking a ‘safer’ and lower tar cigarette seem to be increasing.”335 The same
document reported that the “advantages perceived by ultra-low smokers from smoking their
brands” include the “‘Peace of Mind’” that is “provided” by being able to “feel safer” and “have
less concern about longer-term health issues.”336
4.31 Another study prepared for Philip Morris described ultra low tar smokers as “people who
want to quit.”337 It observed, however, that:
In point of fact, smoking an ultra low tar cigarette seems to relieve some of the guilt of smoking and provide an excuse not to quit.
… All of these smokers expressed an awareness of a health hazard from smoking, but felt that they had alleviated some of this hazard by smoking an ultra low tar brand. They described these cigarettes as “safer.” …
334 Philip Morris Internal Document, Review of Low Tar Category (22 May 1979), Bates No. 3990445629- 3990445651, p. 3990445649 (R-109).
335 Ibid.
336 Ibid., p. 3990445650.
337 Philip Morris Internal Document, Goldstein Krall Market Resources, A Qualitative Exploration of Smoker Potential for a New Entry in the Ultra Low Tar Market Category (Two Focused Group Interviews) (Jan. 1979), Bates No. 2040066740-2040066766, p. 2040066752 (R-106).
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With these justifications, there may be less of a compulsion to quit smoking ….338
4.32 Additional variants, such as “medium” or “mid-tar” cigarettes, like Marlboro Medium,
were later introduced. Tobacco companies used these brand variants to target smokers who were
concerned about health but remained dissatisfied with the relative lack of taste associated with
“light” cigarettes.339 Marlboro Medium, according to an internal retrospective on Philip Morris’s
brands, was introduced to appeal to “consumers still looking for a satisfying low tar cigarette
with flavor,” and were positioned on the health reassurance scale as lying “between full flavor
Marlboro and Marlboro Lights.”340
4.33 While “Mediums” may have purported to offer a lower tar option with more flavor, like
“Lights” they offered no health benefit. A Philip Morris executive acknowledged in testimony
that because lower tar cigarettes are no less harmful than full strength cigarettes, the majority of
consumers who began smoking Marlboro Medium started smoking it for a feature that it did not
provide.341
4.34 In fact, despite its promotion of the supposed health benefits of lower tar cigarettes, the tobacco industry, including Philip Morris, knew for decades that lower tar cigarettes were just as
338 Ibid., p. 2040066754.
339 See infra ¶¶ 4.140-4.142.
340 See Philip Morris Internal Document, 2-1 Background Information on PM Brands (Sept. 1991), Bates No. 2070143190-2070143222, p. 2070143206 (R-126).
341 Tobacco Deposition and Trial Testimony Archive (DATTA), Deposition of Jeanne Bonhomme, United States v. Philip Morris Inc., et al. (21 May 2003), Bates No. BONHOMMEJ052103, pp. 428:13-24, 431:24-432:6, 437:8-14, 445:24-446:3, 451:16-452:8 (R-161).
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harmful as other cigarette products, if not more so.342 A 1977 memorandum addressed to Philip
Morris’s Director of Research acknowledged that “it would certainly seem that the campaign for low nicotine [and tar] cigarettes is misguided and rests on a set of fallacious premises,” and concluded that it is “clear” that “the major body of data that has been used to justify the campaign for low nicotine [and tar] cigarettes does nothing of the sort.”343
4.35 The tobacco industry was able to perpetuate the myth that low tar cigarettes are healthier
than full-flavored ones by deceiving regulatory authorities in the United States and elsewhere
about the amount of tar consumed by smokers of the low tar variants. They did this by exploiting
the limitations of the “smoking machine,” developed by the U.S. Federal Trade Commission
(“FTC”) and adopted by the International Standards Organization (“ISO”), that simulated a standardized puffing protocol, with uniform puff size, rate and cigarette butt size.344
4.36 For nearly three decades, the FTC and ISO relied upon this machine to predict
differences in smokers’ intake of tar and nicotine from different cigarettes. Differences in intake
342 See David M. Burns, M.D., Report on Dennis Deshaies (21 Oct. 2013), presented in Deshaies v. R.J. Reynolds Tobacco Co., Case No. 3:09-cv-11080-WGY-JBT (M.D. Fla.) (hereinafter “David M. Burns, M.D., Report on Dennis Deshaies”), ¶ 146 (R-277).
343 Philip Morris Internal Document, S. Schachter, Pharmacological and Psychological Determinants of Smoking (2 Mar. 1977), Bates No. 1000046626-1000046661, pp. 1000046655, 1000046660 (R-101).
344 The smoking machine is referred to as “ISO” internationally and “FTC” in the United States. U.S. Department of Health and Human Services, National Institutes of Health (NIH), National Cancer Institute, Smoking and Tobacco Control, Monograph 13: Risks Associated with Smoking Cigarettes with Low Machine-Measured Yields of Tar and Nicotine, NIH Publication No. 02-5074 (Oct. 2001) (hereinafter “Monograph 13”), pp. 13-35 (R-11). “The FTC Cambridge Filter Method uses a machine to ‘smoke’ the cigarette for a designated puff volume at a designated interval for a designated period of time. As the smoke is drawn into the machine, it passes over a filter known as a Cambridge pad, on which the particulate tar matter is collected … to calculate the tar and nicotine yields for the cigarette.” United States v. Philip Morris, ¶ 2049 (RL-171).
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were assumed to result in corresponding differences in health effects.345 The tests were based on a mistaken premise, however. They failed to account for the fact that smokers invariably seek to consume the amount of nicotine needed to satisfy their addiction, regardless of the type of cigarette they smoke.346 Thus, to satisfy his or her addiction, a smoker inhales essentially the same amount of nicotine and tar from so-called “lower tar and nicotine” cigarettes as he or she would inhale from regular, “full strength” cigarettes.347 This phenomenon, known as
“compensation,” typically manifests itself by smokers puffing longer, harder and more frequently, and/or smoking more cigarettes, when smoking lower tar variants. Virtually all smokers exhibit this tendency,348 and thus receive, in aggregate, no less tar or nicotine than they do when smoking full-strength cigarettes.349
345 WHO Scientific Advisory Committee on Tobacco Product Regulation (SACTob), Conclusions on Health Claims Derived from ISO/FTC Method to Measures Cigarette Yield (2002) (hereinafter “WHO SACTob, Conclusions on Health Claims”), p. 1 (R-13).
346 Cohen Report, ¶¶ 58-63 (REX-002).
347 Ibid.
348 United States v. Philip Morris, ¶ 2072 (RL-171).
349 Monograph 13, pp. 13-35, 39-60, 166 (R-11). See also WHO SACTob, Conclusions on Health Claims (2002), p. 1 (R-13):
The ISO/FTC protocols were never designed to accommodate the variations in human smoking habits as opposed to the standard machine smoking methods. It is now clear that the combination of compensatory changes in smoking patterns by smokers and cigarette design changes (particularly ventilation holes in filters) which increase the yield of smoke can restore the smoke delivery of the so- called low-yield cigarettes to that of full flavour cigarettes with much higher machine measured yields. However, as a consequence of the conventional format for conveying tar and nicotine information, the consumer believes that the “low yield” cigarettes provide an alternative to smoking cessation. This belief persists even though it is now accepted that “low yield” cigarettes do not offer any proven health benefit in comparison to higher yield cigarettes.
Ibid. As the United States District Court determined, to reach their needed quota, smokers “offset the decrease in their cigarettes’ FTC tar and nicotine yields, in whole or in part, by one of two means. First, smokers may … [smoke] individual, lower FTC-yield cigarettes more intensively by taking bigger puffs, taking more frequent puffs, - 114- CONFIDENTIAL INFORMATION REDACTED
4.37 The tobacco industry, including Philip Morris, knew that the FTC/ISO’s method for
measuring tar inhalation was flawed and took advantage of it. An internal document from Philip
Morris in 1974 acknowledged: “People do not smoke like the machine. … People smoke cigarettes differently. … Generally people smoke in such a way that they get much more than predicted by machine.”350 Another internal Philip Morris concluded that the FTC method had
“no practical value for predicting smoke intake.”351 As Philip Morris’s Vice President of
Corporate Research and Development had earlier reported: “[T]he smoking machine data appear to be erroneous and misleading” because, unlike the machine, a “human smoker … appears to adjust to the diluted smoke” of a ventilated cigarette “by taking a larger puff so that he still gets about the same amount of equivalent undiluted smoke,” thereby “defeating the purpose of dilution.”352
4.38 Philip Morris and other tobacco companies allowed the FTC and ISO to labor under the
mistaken assumption that the “smoking machine” accurately predicted the amount of tar
delivered to smokers, and the health effects of different type of cigarettes. They went along with
and willingly submitted to the meaningless test because it gave false credibility to their
promotion of low tar cigarettes as healthier alternatives to “full strength” brands. After
smoking the cigarette closer to the butt, blocking ventilation holes placed in the filter that dilute the smoke, or other means. Second, they may simply smoke more cigarettes.” United States v. Philip Morris, ¶ 2068 (RL-171).
350 Philip Morris Internal Document, Some Unexpected Observations on Tar and Nicotine and Smoker Behavior (1 Mar. 1974), Bates No. 0000260363-0000260380, p. 0000260379 (Chart 16) (R-1).
351 Philip Morris Internal Document, Smoke intake patterns among filter smokers (1970), Bates No. 1003287490- 1003287557, p. 1003287494 (emphasis added) (R-93).
352 United States v. Philip Morris, ¶ 2179 (quoting a memorandum dated 11 August 1967).
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acknowledging that people inhale much more tar than indicated by the FTC test,353 a Philip
Morris internal review stated in its “CONCLUSION” that: “The FTC standardized test should be retained: 1) It gives low numbers. 2) It permits comparisons between brands.”354
4.39 Indeed, a 1974 Philip Morris interoffice memorandum, entitled “Moral Issue on FTC
Tar,” stated: “Some concern has been expressed concerning the moral obligation of Philip Morris
(and perhaps the tobacco industry) to reveal to the FTC the fact that some cigarette smokers may
be getting more tar than the FTC rating of that cigarette. … I believe that there need be no such
concern, at least from a position of morality.”355
4.40 The U.S. District Court, after reviewing internal industry documents, determined that
Philip Morris, together with its competitors:
did not … disclose their knowledge that smokers would ultimately ingest as much if not more nicotine and tar from low delivery cigarettes as they would from full-flavor products. … Nor did [they] disclose to the FTC that “a major reason that the method could yield misleading data was that nicotine addiction would drive smokers to achieve relatively stable nicotine intakes ….”356
4.41 In 2001, the U.S. Department of Health and Human Services’ National Cancer Institute
published a comprehensive report on the matter, entitled Risks Associated with Smoking
Cigarettes with Low Tar Machine-Measured Yields of Tar and Nicotine, which demonstrated
353 Philip Morris Internal Document, Some Unexpected Observations on Tar and Nicotine and Smoker Behavior (1 Mar. 1974), Bates No. 0000260363-0000260380, p. 0000260379 (Chart 16) (R-1).
354 Ibid., p. 0000260380.
355 Philip Morris Internal Document, Memorandum from R. Fagan to H. Wakeham (7 Mar. 1974), Bates No. 3990438852-3990438853, p. 3990438852 (R-95).
356 United States v. Philip Morris, ¶ 2066 (RL-171).
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there is no health benefit to smoking lower tar cigarettes and that “cigarette manufacturers
recognized the inherent deception of [their] advertising.”357 Subsequent reports published by the
WHO, a Canadian Expert Panel and the Institute of Medicine of the U.S. National Academy of
Sciences all came to the same conclusion that low tar cigarettes are at least as harmful as
“regular” cigarettes.358 As a result, the WHO scientific panel on tobacco control expressed
“[c]onsiderable concern” over the “misuse of test results by tobacco companies to support their
marketing claims, which imply that cigarettes with lower yield ratings are ‘safer’ than those with
higher ratings.”359
4.42 The tobacco industry’s deceptive marketing of “light” and “low tar” brand variants as
less harmful versions of original brands has had tragic public health consequences. Smokers who shift to lower tar options are less likely to quit smoking than other smokers because they erroneously believe they have reduced or eliminated health risks.360 As the WHO has concluded:
“Because of these misconceptions, smokers believe those cigarettes marked as lower yield or
light and ultra light are a reasonable intermediate step or alternative to cessation and may defer
357 Monograph 13, p. 233 (R-11).
358 See WHO SACTob, Conclusions on Health Claims (R-13); Canadian Council for Tobacco Control, Putting an End to Deception: Proceedings of the International Expert Panel on Cigarette Descriptors (Jan. 2002), p. 9 (stating “there is no convincing evidence of a meaningful health benefit to either individuals nor to the whole population resulting from cigarettes marketed as ‘light’ or mild’”) (R-151); U.S. Surgeon General, The Health Consequences of Smoking (2004), pp. 25, 324, 901 (R-163).
359 WHO SACTob, Conclusions on Health Claims, p. 1 (R-13).
360 E. Gilpin, et al., Does tobacco industry marketing of ‘light’ cigarettes give smokers a rationale for postponing quitting?, NICOTINE & TOBACCO RESEARCH, Vol. 4, No. Suppl 2 (Dec. 2002) (R-158).
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or avoid the one change in smoking behavior proven to actually reduce their disease risk-
cessation.”361
4.43 In fact, smokers of “light” and “low tar” cigarettes often smoke more than other smokers.
The tobacco industry, including Claimants, knew — and exploited — this fact for decades. A
1978 consumer research report prepared for Philip Morris stated: “Those who are currently
smoking ‘Lights’ do so because” they think “they are better for you” than “full flavor cigarettes,”
and that “[a]lthough some experience that they actually smoke more Lights, they perceive that
they are cutting down and it is an alternative to quitting — which most cannot accomplish.”362
4.44 The same point was made in another internal study by Philip Morris, which confirmed
the company’s awareness that low-tar cigarette smokers frequently consume more cigarettes than
those who smoke other variants: “As we know, all too often the smoker who switches to a hi-fi
[high filter] cigarette winds up smoking more units in order to provide himself with the delivery
[of nicotine] which he had before.”363 Likewise, as a Study of Smokers’ Habits and Attitudes
With Special Emphasis on Low Tar and Menthol Cigarettes, also prepared for Philip Morris,
explained: “The number of cigarettes smoked per day per smoker continues to climb, in part at
361 WHO SACTob, Conclusions on Health Claims, p. 3 (R-13)
362 Philip Morris Internal Document, Depth Research Laboratories, Inc., Reactions to a Proposed New 88MM Benson & Hedges Among Current Benson & Hedges Smokers in Dallas (28 Aug. 1978), Bates No. 1004888470- 1004888484, pp. 1004888480-1004888480 (emphasis added) (R-105).
363 See David M. Burns, M.D., Report on Dennis Deshaies, ¶ 148 (citing an internal Philip Morris memorandum dated 24 March 1961) (R-277).
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least because low tar cigarettes seem to cause people to increase the number of cigarettes they
smoke.”364
4.45 Because of their design and the way they are typically inhaled, “low tar” cigarettes may
be more likely to cause cancer than “regular” cigarettes.365 According to the U.S. Surgeon
General, smoking patterns when smoking “light” cigarettes likely increase the deposition of
toxins and carcinogens deep into the small airways of the lungs, which increases the risk of
adenocarcinoma (a form of previously rare lung cancer).366
4.46 Philip Morris knew this long before the public or the scientific community. An internal
Philip Morris review of the impact of smoking on health indicated that “lower tar” cigarettes were not less harmful than “regular” cigarettes, and that the “lower tar” variants sold by Philip
Morris may in fact be more harmful:
Safer though it may be to take in less nicotine, tar and CO [carbon monoxide], to what extend [sic] is this achieved by changing to a low nicotine cigarette?
… At present a cigarette combining a high nicotine yield with a low tar and CO yield does not, so far as we know, exist ….
If nicotine is the addictive compound in the tobacco smoke, cigarettes with low content of nicotine may even be more
364 Philip Morris Internal Document, The Roper Organization Inc., A Study of Smokers’ Habits and Attitudes with Special Emphasis on Low Tar and Menthol Cigarettes: Volume I (Mar. 1979), Bates No. 2049455309-2049455318, p. 2049455313 (emphasis added) (R-108).
365 “[T]he design changes that lowered tar levels on the standardized machines prompted smokers to smoke in a way that caused cells in the alveoli of the lung (where adenocarcinoma develops) to be exposed to greater amounts of toxicants and carcinogens. These alveolar cells are the cells that transform into adenocarcinoma.” Campaign for Tobacco-Free Kids (CTFK), Designed for Addiction: How the Tobacco Industry Has Made Cigarettes More Addictive, More Attractive to Kids and Even More Deadly (23 June 2014), p. 32 (R-304).
366 U.S. Surgeon General, The Health Consequences of Smoking 50 Years of Progress (2014) (hereinafter “U.S. Surgeon General Report 2014”), p. 184 (R-285).
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dangerous than the usual cigarette, due to their supposed higher degree inhalation ….367
4.47 Scientific studies conducted on Philip Morris’s behalf repeatedly confirmed that “lower tar” cigarettes were more likely to cause cancer than “full strength” cigarettes.368 The Director of
Applied Research at Philip Morris testified before the U.S. District Court that “mutagenicity testing that Philip Morris has conducted for the past 25 years … has indicated that Philip
Morris’s Marlboro Lights cigarettes are, as designed, more mutagenic (likely to cause the cellular changes that can lead to cancer) than Marlboro full-flavor cigarettes ….” He went on to testify that “Philip Morris has not ‘changed the design of “Light” cigarettes in response to its studies and knowledge concerning mutagenicity.’”369
367 Philip Morris Internal Document, PME Research Laboratory, The Current Literature of Smoking and Health (Apr. 1974), Bates No. 2015041685-2015041748, p. 2015041721 (emphasis in original) (R-96).
368 An 11 May 1982 Philip Morris document from INBIFO (Philip Morris’s overseas research facility) indicated that Philip Morris learned from its testing of low tar reference laboratory cigarettes (i.e., cigarettes used for research purposes and not actually sold in stores) in Europe that these cigarettes registered higher in standard biological tests than the regular-delivery reference cigarettes — i.e., were “more active” — and thus were more likely to cause cancer, stating: “Low tar reference cigarette … [m]ay be slightly more active than [the regular delivery reference cigarette] as a complete carcinogen.” Philip Morris Internal Document, INBIFO, Mouse Skin Painting at INBIFO (11 May 1982), Bates No. 1003121638-1003121640, p. 1003121638 (R-111). A 28 January 1994 report from INBIFO to Philip Morris in Richmond, Virginia stated that increased cigarette filtration, porosity, and ventilation (primary methods used by Philip Morris to reduce the FTC Method tar and nicotine yields in its cigarettes) would result in an increase in the degree to which cigarette smoke was toxic to living cells (i.e., cytotoxicity), the irritation it caused to smokers and the likelihood of the smoke to generate mutations such as tumors and/or cancer (i.e., mutagenicity). The document stated: “Increased filtration will result in a relative enrichment of gas phase constituents, leading to increased cytotoxicity and irritancy …. Increased porosity and ventilation will … increase the specific mutagenicity.” Philip Morris Internal Document, INBIFO, Smoke comparisons (28 Jan. 1994), Bates No. 2024005509-2024005512, pp. 2024005509-2024005510 (R-129).
369 United States v. Philip Morris, ¶ 2148 (RL-171).
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4.48 For these reasons, the U.S. District Court concluded that Philip Morris had known for
over twenty-five years that lower tar cigarettes, like Marlboro Lights, are more likely to cause
cancer than their parent brands.370
4.49 The success of the tobacco industry’s strategy is as undeniable as it is tragic. The
marketing of health reassurance cigarettes persuaded would-be quitters to switch to putatively
“less harmful” cigarettes, and new smokers believed that they could reduce or eliminate health
risks by opting for a “safer” cigarette.371 As the WHO expert committee on tobacco control
concluded in 2002, “many smokers currently believe that lower yield or light cigarettes deliver
less tar, produce lower rates of disease and are therefore ‘safer.’”372 The U.S. Surgeon General
similarly concluded: “The [tobacco] industry … fraudulently misled the public on … whether
lower-yield cigarettes conveyed less risk to health ….”373 The U.S. National Cancer Institute’s
Monograph on lower-tar cigarettes also reported: “Many smokers switch to lower yield cigarettes
out of concern for their health, believing these cigarettes to be less risky or to be a step toward
370 See ibid., ¶ 2151.
371 See Cohen Report, ¶¶ 71-74 (REX-002). See also David M. Burns, M.D., Report on Dennis Deshaies, ¶ 110 (R- 277). He explains that the tobacco industry developed
products that offer the illusion of less risk so that they can be presented as an alternative to quitting and “intercept” the smokers on the way to cessation. These light and low tar cigarettes also offered the illusion that they would deliver less nicotine and so would allow the smoker to taper their nicotine intake as a means of quitting. These tobacco company efforts, initially with the addition of filters to cigarettes and later with “low tar and nicotine, light and ultralight” brands, … were intended … to keep the smoker from moving from thinking about quitting to actually making the cessation attempt.
Ibid.
372 WHO SACTob, Conclusions on Health Claims, p. 2 (“many smokers currently believe that lower yield or light cigarettes deliver less tar, produce lower rates of disease and are therefore ‘safer’ …”) (R-13).
373 U.S. Surgeon General Report 2014, p. 34 (R-285).
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quitting. Advertising and marketing of lower yield cigarettes may promote initiation and impede
cessation, more important determinants of smoking-related diseases.”374
4.50 A four-country survey carried out by the International Tobacco Control Policy Evaluation
Project in 2002 provided independent corroboration of what the tobacco companies had
internally documented for years regarding the widespread misperception that “light” cigarettes
are healthier than regular cigarettes. Seventy percent of those surveyed in the United Kingdom
held this mistaken view, as did 55% in Australia, 51% in the United States and 43% in
Canada.375
4.51 Based on the overwhelming evidence of the tobacco industry’s deceptive promotion of
“light” and low tar cigarettes, the U.S. District Court rendered the Judgment described in Chapter
3.376 Uruguay respectfully submits that this aspect of the Court’s Opinion merits careful review,
given the relevance of the Court’s factual findings to Uruguay’s decision to remediate, by means
of the SPR, the deceptions and harmful health effects of Claimants’, and other tobacco
companies’, use of brand variants in Uruguay to create and perpetuate the false “health
374 Monograph 13, p. 10 (R-11).
375 R. Borland, et al., Use of and beliefs about light cigarettes in four countries: Findings from the International Tobacco Control Policy Evaluation Survey, NICOTINE AND TOBACCO RESEARCH, Vol. 6, No. 00 (2004), p. 1 (R-18). See also WHO SACTob, Conclusions on Health Claims, p. 2 (concluding “many smokers currently believe that lower yield or light cigarettes deliver less tar, produce lower rates of disease and are therefore ‘safer’ …”) (R-13); M. Wakefield, et al., The cigarette pack as image: new evidence from tobacco industry documents, TOBACCO CONTROL, Vol. 11, Supp. 1 (2002) (hereinafter “Wakefield, et al., The cigarette pack as image”), p. i73 (“Many smokers are misled by pack design into thinking that cigarettes may be ‘safer’.”) & pp. i76, i78 (R-12); R.W. Pollay & T. Dewhirst, A Premiere example of the illusion of harm reduction cigarettes in the 1990s, TOBACCO CONTROL, Vol. 12, No. 3 (2003) (R-16); International Tobacco Control (ITC) Policy Evaluation Project, ITC Uruguay National Report: Findings from the Wave 1 to 3 Surveys (2006-2011) (Aug. 2012) (hereinafter “ITC, ITC Uruguay National Report (Aug. 2012)”), p. 42 (C-133).
376 See supra ¶¶ 3.49-3.58.
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reassurance” that these variants were safer than the original brands. The following finding
succinctly captures the point:
By engaging in this deception, Defendants dramatically increased their sales of low tar/light cigarettes, assuaged the fears of smokers about the health risks of smoking, and sustained corporate revenues in the face of mounting evidence about the health effects of smoking.377
B. The Marketing of “Health Reassurance” Cigarettes in Uruguay
4.52 In Uruguay, as elsewhere, the tobacco companies vigorously marketed “health
reassurance” cigarettes in the same deceptive manner. Claimants were especially active in this
regard, promoting, most especially, “lights,” to falsely portray their products as being “healthier”
than other types of cigarettes.
4.53 Uruguay does not have access to Claimants’ internal files. However, the few documents
concerning their Uruguayan marketing strategy that have come to light as a result of litigation in
the United States reveal the centrality of misleadingly labeled “health reassurance” brand
variants to Claimants’ promotional efforts in Uruguay.
4.54 As far back as 1982, Philip Morris studied the importance of “health” for marketing a
cigarette called Fiesta Lights to Uruguayan consumers, including those as young as 16 years of
age.378
377 United States v. Philip Morris, ¶¶ 2627-2628 (RL-171).
378 “[A]bal Hermanos wishes to measure the effectiveness of the new Fiesta Lights advertising pool. In order to keep costs down, I feel execution numbers 11 and 12 can be used to represent the total pool. Execution No. 11’s copy places emphasis on the benefit of smoking a low T&N [tar and nicotine] cigarette, while Execution No. 12’s copy places somewhat greater emphasis on smoking pleasure while making the point of being low in T&N… Since this campaign is already on-the-air with little likelihood of being pulled altogether, we have designed this test to place - 123- CONFIDENTIAL INFORMATION REDACTED
4.55 In late 1983-early 1984, Philip Morris International conducted a consumer survey in
Uruguay to assist its Uruguayan subsidiary, Claimant Abal, in the strategic marketing of its
brands.379 The survey, which polled smokers as young as 16 years, determined that Uruguayans
begin smoking at a very early age: 27% between the ages of 10 and 14; and 36% between the
ages of 15 and 17.380
4.56 Philip Morris’s study showed that a large segment of the Uruguayan market was
concerned about the health impact of smoking. Among the “prime ingredients of an ideal brand
in Uruguay” identified by the survey were “little harm to health” and “non-irritation.”381 Philip
Morris’s survey categorized no fewer than 28% of Uruguayan smokers as “Mildness/Health
Concern.” It described this market segment as “want[ing] a mild cigarette with lower tar and
nicotine, that will not harm their health ….”382 Philip Morris found that “over half of this health
concerned group feel they smoke too many cigarettes and more than 4 out of 10 have tried to
stop.”383 Of these smokers, 88% said it is “extremely important” that a cigarette “causes little
harm to the[ir] health” and 79% said the same about cigarettes not “irritat[ing] the[ir] throat or
emphasis on whether or not Uruguayan smokers perceive any differences between the basically ‘health’ oriented No. 11 execution and the more ‘pleasure’ oriented No. 12. The aim here is to determine if one approach is more effective in making an impact on Fiesta Lights’ target group.” Philip Morris Internal Document, Memorandum from E. Finch to B. Colombino (20 Apr. 1982), Bates No. 2504007163-2504007164 (emphasis added), pp. 2504007163- 2504007164 (R-113).
379 Philip Morris Internal Document, E. Finch, Uruguayan General Consumer Survey (June 1984), Bates No. 2500022896-2500022982 (R-115).
380 Ibid., pp. 2500022900, 2500022912.
381 Ibid., p. 2500022901.
382 Ibid., p. 2500022902.
383 Ibid., p. 2500022903.
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provoke[ing] coughing.”384 Summarizing this large category of smokers, Philip Morris
concluded: “This segment want[s] a mild cigarette with lower tar and nicotine, that will not harm
their health. They are not concerned with price, packaging, brand status or advertising.”385
4.57 Another internal Philip Morris report from 1989 reveals Claimants’ understanding that
Uruguayans were “moving towards (perceived) lights products, particularly Fiesta Light.”386
Among the “Key Opportunities” it identified were “Lights perceived products”; namely
“Marlboro Lights, Marlboro Medium, Casino Lights and L&M Azul,” which it concluded “may offer better development opportunities together with Fiesta Lights continued development.”387
Particular opportunities were identified in the development of lower tar brand variants for the especially health conscious, including “lighter or ‘mas suave’ brands” such as “Fiesta Extra
Lights.”388 Claimants viewed these products as especially attractive for those Uruguayan
smokers whom they described as “Responsible & Concerned,” as well as the “Young Active
International Quality” and “Mild & Cost Concerned” segments — all of whom were found to be
focused on health and well-being.389 Together, these health-concerned smokers comprised 70%
of Claimants’ potential Uruguayan consumer base.390
384 Ibid., p. 2500022932.
385 Ibid.
386 Philip Morris Internal Document, Summary of Main Findings (Dec. 1989), Bates No. 2040125501-2040125527, p. 2040125516 (R-123).
387 Ibid.
388 Ibid., p. 2040125510.
389 Ibid., p. 2040125519.
390 Ibid. Philip Morris described “Responsible & Concerned” as “[h]ealth concerned” smokers who “[i]ntend to switch to LTN [lower tar & nicotine brands].” Claimants intended to target their “International Lights” brands - 125- CONFIDENTIAL INFORMATION REDACTED
4.58 Five years later, a 1994 strategy report prepared for Abal noted: “Health concern is
growing, principally among young-adult smokers.”391 Claimants’ business strategy thus focused
on expanding their brands to what they referred to as “(perceived) lights.”392
4.59 In short, tobacco companies in Uruguay, including Claimants, deliberately introduced
and promoted “health reassurance” brand variants to attract Uruguayan consumers concerned
about their health, by misleading them into believing that the variants marketed as “light” or
“mild” were safer. They sought to induce smokers not to attempt quitting, and young non-
smokers to begin, on the basis of this deceptive marketing strategy, when in fact there were no
health benefits, and in many cases the brand variants they marketed as “healthier” were more
dangerous than the regular brands.
II. The Regulatory Response To the Tobacco Industry’s Use of Deceptive Packaging
A. The International Consensus That Deceptive Packaging Should Be Prohibited
4.60 The tobacco industry’s success in convincing the public that light and lower tar cigarettes
are “safer” gave rise to urgent calls from international and national public health authorities for
new tobacco control measures.
(lighter variants of Marlboro, Fiesta and L&M) toward these health concerned smokers. “Mild & Cost Concerned” smokers were “[n]ervous worriers” who were “LTN [lower tar and nicotine] oriented.” The “Young Active International Quality” segment was “[s]portive” and the “[y]oungest” demographic. They were “[l]ighter smokers,” who included “[m]ore starters” and preferred “Marlboro Red & Fiesta Lights.” Claimants intended to target this group with Marlboro Reds (i.e., the “full” strength brand variant) and Marlboro Medium. Ibid., p. 2040125524. The report shows that Claimants were also particularly concerned about targeting young smokers and focused on “revitaliz[ing]” their marketing through “young image promotions.” Ibid., p. 2040125526.
391 Philip Morris Internal Document, Abal Hnos S.A.-Uruguay (1994), Bates No. 2503024025-2503024038, p. 2503024028 (R-128).
392 Philip Morris Internal Document, Summary of Main Findings (Dec. 1989), Bates No. 2040125501-2040125527, p. 2040125516 (R-123).
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4.61 The need for such measures in Latin America was recognized in a November 2002 report by PAHO, Tobacco Industry Activities to Market Cigarettes and Undermine Public Health in
Latin America and the Caribbean, which observed:
One of the most deceptive cigarette marketing campaigns over the years has been the promotion of so-called “low tar” cigarettes. The tobacco industry remains intent on defending its ability to employ deceptive descriptors such as “light”, “mild”, “low tar”, “low nicotine” and others, even in the face of overwhelming scientific evidence that there are no health benefits associated with switching to “light” or similarly described brands. The biggest crisis faced by the industry in the 1970s and 80s in North America was not only the recruitment of new smokers, but also the retention of those customers in the face of growing evidence of the health risks of smoking. Industry documents discuss the need to “reassure” worried smokers and retain them in the market for as long as possible in the face of health concerns. This crisis repeated itself later on in time in Latin America and the Caribbean.
The documents describe the increased marketing, and subsequent growth in consumption, of the so-called “light” and “mild” brands, and provide evidence that the tobacco industry wanted to take advantage of increasingly health-conscious consumers by portraying “lights” as a healthier alternative in Latin America, as it 393 had done in North America more than a decade earlier.
4.62 The WHO’s Scientific Advisory Committee on Tobacco Product Regulation played a leading role in organizing international efforts to devise an effective regulatory response.
Consensus was quickly achieved that tobacco companies should be prohibited from using terms, labels and packaging that misleadingly suggest that some cigarettes are less harmful than others.394 According to the WHO Committee’s recommendations: “[B]ased on the existing
393 Pan American Health Organization (“PAHO”), Profits Over People: Tobacco Industry Activities to Market Cigarettes and Undermine Public Health in Latin America and the Caribbean (Nov. 2002), p. 68 (R-157).
394 WHO SACTob, Conclusions on Health Claims, p. 4 (R-13). See also Campaign for Tobacco-Free Kids (CTFK), “Light” and “Low Tar” Cigarettes: Major scientific findings and public health statements (Apr. 2010) (hereinafter “CTFK, “Light” and “Low Tar” Cigarettes”) (R-48).
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science,” “[t]he ban should apply to packaging, brand names, advertising and other promotional
activities.”395 The Committee made clear also that “[t]he ban should include not only misleading
terms and claims but also, names, trademarks, imagery and other means to conveying the
impression that the product provides a health benefit.”396
4.63 Two years later, the FCTC implemented this consensus. As detailed in Chapter 3, Article
11(1) requires States Parties to adopt effective measures to ensure that “tobacco product
packaging and labelling do not promote a tobacco product by any means that are false,
misleading, deceptive or likely to create an erroneous impression about its characteristics, health
effects, hazards or emissions,” including “any term, descriptor, trademark, figurative or any other
sign that directly or indirectly creates the false impression that a particular tobacco product is
less harmful than other tobacco products.”397 Although the terms “low tar,” “light,” “ultra-light,” and “mild” were all expressly mentioned as being subject to prohibition, Article 11 was not
limited to descriptive words; it applies to anything on the package, including brand names, logos,
designs and colors that conveyed the false impression of greater safety.398
395 WHO SACTob, Conclusions on Health Claims, p. 4 (R-13).
396 Ibid. See also D. Hammond & C. Parkinson, The impact of cigarette package design on perception of risk, JOURNAL OF PUBLIC HEALTH, Vol. 31, No. 3 (July 2009) (hereinafter “Hammond & Parkinson”), p. 351 (“In addition to broadening the list of prohibited words on packs, the removal of color and other design elements — so- called ‘plain packaging’ — may also be required to eliminate misleading information from packaging.”) (R-39); S. Mutti, et al., Beyond light and mild: cigarette brand descriptors and perceptions of risk in the International Tobacco Control (ITC) Four Country Survey, Addiction, Vol. 106, No. 6 (June 2011) (hereinafter “Mutti, et al.”), p. 1173 (R- 62); CTFK, “Light” and “Low Tar” Cigarettes (R-48).
397 World Health Organization (“WHO”), Framework Convention on Tobacco Control (“FCTC”), opened for signature May 2003 through 29 June 2004, EIF 27 22 Apr. 1991 (hereinafter “WHO, FCTC”), Art. 11 (RL-20).
398 See Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for Implementation of Article 11 of the WHO Framework Convention on Tobacco Control (Packaging and labelling of tobacco products), FCTC/COP3(10) (Nov. 2008) (hereinafter “COP-FCTC, Guidelines for Implementation of Article 11 of the WHO FCTC”), ¶ 43 (RL-13).
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4.64 Article 13(4) further obligates States Parties, at a minimum, to prohibit all tobacco advertising, promotion and sponsorship that “promote[s] a tobacco product by any means that are false, misleading or deceptive or likely to create an erroneous impression about its characteristics, health effects, hazards or emissions.”399 The Guidelines for Implementation of
Article 13(4) are clear that this applies to all forms of deceptive advertising, including all elements of tobacco packaging.400
4.65 Tobacco companies nevertheless tried to dissuade States from prohibiting the use of deceptive descriptors, including by raising spurious claims that this was tantamount to expropriation and violated trademark rights.401 However, many States overcame this resistance and adopted regulations prohibiting their use, and thus barred cigarettes from being described as
“light,” “ultra light,” “medium” or “mild.” As of 2012, 95 States had banned descriptors on packaging and labelling that are misleading, deceptive or likely to create an erroneous impression of the product.402
399 WHO, FCTC, Art. 13.4(a) (RL-20).
400 See Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for Implementation of Article 13 of the WHO Framework Convention on Tobacco Control (Tobacco advertising, promotion and sponsorship), FCTC/COP3(12) (Nov. 2008) (hereinafter “COP-FCTC, Guidelines for Implementation of Article 13 of the WHO FCTC”), ¶¶ 37-43 (RL-133).
401 Philip Morris has argued that a ban on the terms “light” and “mild” is: “tantamount to an expropriation of tobacco trademarks containing descriptive terms [e.g., ‘light’]” which would be prohibited under NAFTA’s Chapter 11. Philip Morris International Inc., Submission in Response to the Canadian National Center for Standards and Certification Information Foreign Trade Notification No. G/TBT/N/CAN/22, p. 6 (emphasis added) (R-345). See also Physicians for Smoke-Free Canada, Packaging Phoney Intellectual Property Claims: How multi-national companies colluded to use trade and intellectual property arguments they knew were phoney to oppose plain packaging and larger health warnings (June 2009), pp. 34-36 (R-38).
402 World Health Organization (“WHO”), 2012 Global Progress Report on Implementation of the WHO Framework Convention on Tobacco Control (2012), p. 28 (R-257).
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4.66 Uruguay followed this approach. The Ministry of Public Health sought to discharge its constitutional duty to protect public health, and to implement Uruguay’s obligations under the
FCTC, by developing regulations designed to address the public’s misperception that some
cigarettes are safer than others.
4.67 The first step was Decree 171/005, enacted in May 2005. The Decree began by recalling that “tobacco consumption causes significant harm to society, such that it is essential to adopt all measures that will contribute to decreasing [its] consumption, precisely because of this general interest,” and by invoking the obligations set forth in the Uruguayan Constitution and Article 11 of the FCTC. Article 1 then provided:
[I]t is forbidden for [tobacco] products to carry expressions, terms, elements, brands or signs that may have the direct effect of creating a false impression, for example, “low in tar,” “lights,” “ultra-light,” or “mild.”403
B. The Need for Additional Regulatory Measures To Reduce Misperceptions about the Availability of “Safer” Cigarettes
4.68 The ban on deceptive descriptors did not achieve the objective of eliminating the
misperception that some cigarettes are healthier than others. Indeed, the tobacco industry showed
itself to be adept at continuing to communicate the same misleading message about “health
reassurance” cigarettes, even after it was compelled to remove words like “light,” “mild” and
“low in tar” from packages.
403 Uruguayan Decree 171/005 (31 May 2005), Art. 1 (RL-2). The Decree also required cigarette packaging to contain graphic warning labels. Ibid.
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4.69 The tobacco companies, including Claimants, did so by implementing a two-fold
strategy. First, they emphasized the continuity between the “health reassurance” cigarettes that
had previously been on the market and the new brand variants that they introduced to replace
them. Second, the companies devised easy to understand alternative systems for communicating
the same message, without using the prohibited words, through the skillful deployment of color
codes, numbers and other text.
1. Continuity between Deceptively Labeled “Health Reassurance” Cigarettes and Those That “Replaced” Them
4.70 The tobacco industry worked assiduously to convince smokers that the “health
reassurance” cigarettes that had previously been sold under deceptive labels remained available.
These cigarettes had new names: in Philip Morris’s case, Marlboro Lights became Marlboro
Gold and Marlboro Ultra Lights became Marlboro Silver.404
4.71 Philip Morris put great effort into developing a campaign to educate smokers on how to
identify their preferred “health reassurance” cigarettes, which had now been rebranded, and to
convince them that the putative beneficial attributes of these products remain undiminished.
4.72 The breadth of Philip Morris’s effort is illustrated by the PowerPoint slide prepared by
their parent company’s “Client Services” division, which is reproduced at Figure 4.4 below. It
depicts the “Consumer Communications” plan for educating smokers that “Your Pack May Be
404 D. Wilson, “Coded to Obey Law, Lights Become Marlboro Gold,” New York Times (19 Feb. 2010) (R-45); Example of New Color-Coded Packaging Flyer Given to Retailers in South Carolina by Philip Morris USA (2010), available at http://www.tobaccofreekids.org/what_we_do/industry_watch/low_tar_lie (last visited 24 Sept. 2011) (R-42); J. Thrasher, et al., The alchemy of Marlboro: transforming “light” into “gold” in Mexico, TOBACCO CONTROL, Vol. 19, No. 4 (Aug. 2010), pp. 342-343 (R-43).
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Changing but Your Cigarette Stays the Same.”405 This was implemented by a multifaceted
strategy that included: consumer tear pads; literature placed both inside and outside of packages;
point of sale information; the Marlboro.com website; and a dedicated Call Center for answering
questions.
Figure 4.4: Altria Client Services, ALCES Law Support: Consumer Communications (24 May 2010)
405 Altria Client Services, ALCES Law Support: Consumer Communications (24 May 2010) (R-226). The tobacco industry employed similar tactics in Brazil. See T. Cavalcante, Labelling and Packing in Brazil (2003) (hereinafter “Cavalcante”), pp. 10-11 (R-160).
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4.73 Thus, after the United States banned use of the term Marlboro Lights and Philip Morris replaced it with Marlboro Gold, the company inserted materials into the replacement packaging making it clear that “Gold” was simply a new way of describing “Lights.” It said:
YOUR MARLBORO LIGHTS PACK IS CHANGING. BUT YOUR CIGARETTE STAYS THE SAME. IN THE FUTURE, ASK FOR ‘MARLBORO IN THE GOLD PACK.406
An example of the promotional material is reproduced at Figure 4.5 below.
Figure 4.5: Insert included in Marlboro Gold packages in the United States (June 2010)
2. Intra-Brand Codes To Indicate Relative Degrees of “Healthiness”
4.74 To further foster the illusion that some cigarettes are less harmful than others, the tobacco
industry structured its brand families so as to communicate the message that, within brand
families, there are degrees of relative healthiness. Tobacco companies achieved this by using a
variety of messaging techniques, including the strategic use of color codes, numbers and text.407
As a study published in the AMERICAN JOURNAL OF PREVENTIVE MEDICINE explains, “experience from countries that have removed these descriptors suggests that cigarette marketers circumvent
406 Campaign for Tobacco-Free Kids (CTFK), “FDA Acts to Prevent Philip Morris from Evading New Ban on Promoting Cigarettes as ‘Light’ or ‘Low-Tar’: Statement of Matthew L. Myers” (29 June 2010), available at http://www.tobaccofreekids.org/press_releases/post/id_1215 (last visited 7 Aug. 2014) (R-227). See also Email from Mark J. Schmidt to John Kruse (19 May 2010), pp. 2, 5 (R-225); Altria Sales & Distribution, Memo from Scott Myers to Field Sales Force (15 Mar. 2010) (R-223).
407 Cohen Report, ¶¶ 113-142 (REX-002).
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the intended goal of the regulation by using different terms, colors, or numbers to communicate the same messages.”408
4.75 Intra-brand family color-coding has been the tobacco industry’s most prominent technique for communicating to consumers the gradations of purported healthiness within a
brand family. The assignment of specific colors to different brand variants is not random. Color
assignments are carefully selected to signal to consumers the relative degree of “healthiness” of
the particular variant. This is done by making use of contrasts, whereby a brand variant’s color is
contrasted with the color of the parent brand and of other variants within the brand family. Often,
it is done by retaining, and even emphasizing, the same identifying color for the replacement
brand as the one that identified the variant that it replaced. For example: Marlboro “Lights” were distinguished from other brands in the same family by their distinctive gold color. To convey the
impression that the replacement brand was the same cigarette, Claimants replaced Marlboro
Lights with Marlboro Gold. In similar fashion, the silver logo identified with Marlboro Ultra
Lights was carried over to the replacement brand, Marlboro Silver. As the tobacco companies
knew (and their market research confirmed), these color-codes had become linked in consumers’
minds to “healthier” cigarettes, and conveyed the same deceptive messages that were no longer
possible to deliver by the banned words.409
4.76 In some instances, degrees of healthiness within a brand family are indicated by other
means, such as numbers (e.g., appending “50 50” to a brand name) or by text (e.g., adding the
408 M. Bansal-Travers, et al., What Do Cigarette Pack Colors Communicate to Smokers in the U.S.?, AMERICAN JOURNAL OF PREVENTIVE MEDICINE, Vol. 40, No. 6 (June 2011), p. 683 (R-241).
409 Cohen Report, ¶¶ 128-132 (REX-002). A study of tobacco industry practices in Brazil found that the tobacco industry “creat[ed] different pack colours for each brand family … to prepare the consumers to link the colours of the packs with the notion of light, mild or low yields.” Cavalcante, p. 11 (R-160).
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word “extra”).410 But in Uruguay, Claimants relied primarily, although not exclusively, on color
codes to deliver the same false messages that had been previously conveyed by deceptive labels
such as Marlboro “Lights” and “Milds.”
C. The Use of Brand Variants in Uruguay To Promote “Health Reassurance” Cigarettes
4.77 Claimants deployed brand variants to continue promoting “health reassurance” cigarettes
in Uruguay, as elsewhere. In fact, at the time Uruguay enacted the SPR, all of Claimants’ brand variants in the Uruguayan market were lower tar variants designed to offer smokers the choice of a “healthier” cigarette.411 Within each brand family, Claimants coded its variants with colors,
numbers and text to signal their relative degree of “healthiness” within the brand family.
4.78 At the time the SPR was enacted, Claimants had sold the Marlboro parent brand in
Uruguay for decades.412 Claimants subsequently introduced Marlboro Lights in response to
concerns that the original Marlboro brand would not appeal to health conscious Uruguayan
smokers. The packaging of Marlboro Lights in Uruguay featured a gold chevron, contrasting
410 Cohen Report, ¶¶ 119-127 (REX-002)
411 [[ ]]
412 Weaknesses of the brand included that the image was not “young,” the “[b]rand is not growing in popularity.” Philip Morris Internal Document, Summary of Main Findings (Dec. 1989), Bates No. 2040125501-2040125527, p. 2040125509 (R-123). Prior to the SPR regulation, [[
]]
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with its red analog on the parent version of Marlboro; the name “Marlboro Lights”; and text
emphasizing that these are “filter cigarettes” with “lowered tar & nicotine.”413
4.79 When Uruguay banned use of the term “Lights,” Marlboro Lights immediately became
Marlboro Gold, which Claimants began selling in Uruguay the same month that Marlboro Lights
were removed from the market.414 To indicate the continuity between Marlboro Lights and
Marlboro Gold, the latter retained the gold chevron that it had when it was called Marlboro
Lights.415 The close correspondence between the Marlboro Lights and Marlboro Gold packaging can be seen when they are compared, as depicted in Figure 4.6.416
Before Descriptor Ban After Descriptor Ban
Figure 4.6: Comparison between Marlboro Lights and Marlboro Gold
413 Lithuanian Collection of Full Cigarette Packs, “Examples from Uruguay,” available at http://www.ltcigarettes.com/default.asp?id=15&id2=105&w=6&p=1 (last visited 7 Aug. 2014) (hereinafter “Lithuanian Collection of Full Cigarette Packs, ‘Examples from Uruguay’”) (R-341).
414 Historical Cigarette Pricing Template in Uruguay, p. 13 (C-175). See also infra ¶¶ 9.52-9.57.
415 [[ ]]
416 The Marlboro Lights packaging does not include the 50% warning label because the descriptor ban and the 50% warning label requirement were enacted within short order of each other.
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4.80 As Claimants had intended, the Uruguayan public equated Marlboro Lights with
Marlboro Gold. In 2008, the Ministry of Public Health sent notaries to supermarkets to document
how banned variants were continuing to be sold as new variants.417 When Marlboro Lights were
requested by consumers, they were given Marlboro Gold, which the clerks referred to as
“Marlboro Lights.”418 Further, store receipts listed the product as “Marlboro Light” or “Marb L-
Box,” even though it was, in fact, Marlboro Gold.419
4.81 Claimants also used color contrast to mislead consumers into believing that another
Marlboro brand variant was a relatively “safer” cigarette when they launched Marlboro Blue in
March 2006. Claimants used the blue chevron on the packaging to contrast with Marlboro’s
other color-coded brands, indicating to Uruguayan consumers that Marlboro Blue occupied an
intermediate position, situated as healthier than Marlboro Red (the parent version), but less
healthy than Marlboro Gold (the variant that replaced Marlboro Lights).420 As discussed in
Chapter 9, the trademark Claimants registered in Uruguay that corresponded to Marlboro in a
blue package was for Marlboro Mild; they never registered a separate trademark for Marlboro
Blue.421
417 See Witness Statement of Dr. Winston Abascal (9 Oct. 2014) (hereinafter “Abascal Witness Statement”), ¶ 13 (RWS-001); Witness Statement of Dr. Eduardo Bianco (15 Sept. 2014) (hereinafter “Bianco Witness Statement”), ¶ 7 (RWS-002).
418 See Gabriel Sierra del Cioppo, Notarial Records (19 Jan. 2009) (R-206).
419 Ibid.
420 Cohen Report, ¶¶ 128-132 (REX-002); Philip Morris Internal Document, Summary of Main Findings (Dec. 1989), Bates No. 2040125501-2040125527, p. 2040125522 (R-123); Wakefield, et al., The cigarette pack as image, p. i73 (“Many smokers are misled by pack design into thinking that cigarettes may be ‘safer’.”) & pp. i76, i78 (R- 12); supra ¶¶ 4.32-4.33, 4.70-4.76.
421 See infra ¶¶ 9.58-9.61.
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4.82 Claimants employed a similar technique when they introduced the silver-packaged
Marlboro Fresh Mint in December 2008, after the SPR had been enacted but before it came into
force in February 2009. The use of silver, a color generally perceived as being lighter than gold
(the color associated with Marlboro Lights), was intended to convey a particularly healthy
cigarette. It is for this reason that silver is the color Philip Morris uses elsewhere for the brand
variant that replaced Marlboro Ultra Lights (Marlboro Ultra Lights were not marketed in
Uruguay), which were distinguished by their silver chevron. Claimants’ intention to
communicate to Uruguayans the especially healthy nature of Marlboro Fresh Mint was
reinforced by including “Fresh” in its name, a word that calls to mind youth, vigor and
cleanliness.422
4.83 The color-coded messages regarding the purported health impacts of the various
members of the Marlboro brand family, as it existed at the time the SPR came into force, can be
seen from a side-by-side comparison of family members, as shown in Figure 4.7. The parent
version of Marlboro is red, the color used to indicate the “highest tar,” least healthy variant and
the one against which the purportedly lesser harmfulness of the family’s variants are to be
contrasted. Marlboro Blue, occupies an intermediate position. Presented as less harmful still are
Marlboro Gold, the variant that replaced Marlboro Lights, and the silver-packaged Marlboro
Fresh Mint.
422 Claimants remain permitted to market the same product as a separate brand.
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Figure 4.7: The Marlboro Brand Family in Uruguay
4.84 Claimants also used color-coding to indicate purported relative healthiness within the
Philip Morris brand family. Claimants have sold Philip Morris brand cigarettes in Uruguay for many years. Responding to health-concerned consumers, in 2002 Claimants expanded the brand
to a low tar variant, Philip Morris Lights.423 As can be seen in Figure 4.8, the parent brand appears in red. It appears alongside Philip Morris Lights, with the contrasting colors (red for the parent, blue and white for the “Lights”) intended to suggest differences in healthiness.
Figure 4.8: Comparison between Philip Morris and Philip Morris Lights
423 See Abal’s Sales Data: 1999-2013 (C-125).
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4.85 When deceptive descriptors, such as “light,” were prohibited, Claimants transformed
Philip Morris Lights into Philip Morris Blue, maintaining the same blue and white color scheme
that defined packages of Philip Morris Lights.424 Philip Morris Blue is simply a renamed version of Philip Morris Lights. Claimants’ own records treat Philip Morris “Lights” and “Blue” as
synonymous.425
Before the Descriptor Ban After the Descriptor Ban
Figure 4.9: Comparison between Philip Morris Lights and Philip Morris Blue
4.86 Below is a depiction of the Philip Morris brand family as it was sold in Uruguay immediately prior to the SPR requirement. The contrasting colors between parent (red) and variant (blue), especially with the blue being a continuation of the color identified with Philip
424 See Historical Cigarette Pricing Template in Uruguay, p. 4 (C-175) (referring to “Philip Morris … Blue/Light” cigarettes); PMI Uruguay Long Range Plan 2005-2007, p. 97 (C-284); PMI, PMLA&C Strategy Review: Uruguay, p. 39 (C-285); Lithuanian Collection of Full Cigarette Packs, “Examples from Uruguay” (R-341); infra ¶¶ 9.70-9.71.
425 See, e.g., Historical Cigarette Pricing Template in Uruguay, p. 5 (“Philip Morris 20’s Blue/Light”) (C-175); PMI Uruguay Long Range Plan 2005-2007, p. 37 (C-284); [[ ]] When the SPR was enacted, two of Claimants’ brands in Uruguay had no variants: Casino & Galaxy.
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Morris Lights, conveyed the false message that Philip Morris Blue was a “safer,” “lower tar” alternative to the original red-packaged version.426
Figure 4.10: Comparison between Philip Morris and Philip Morris Blue
4.87 In sum, the tobacco industry in Uruguay, including Claimants, strategically used brand
variants to promote and perpetuate the false perception that some cigarettes are “less harmful”
than others. It did so by: (1) establishing continuity between the “health reassurance” cigarettes that had previously been marketed with deceptive descriptors and their replacement variants; and
(2) using colors, numbers and other design elements to establish and maintain false perceptions about the relative healthiness of different variants within brand families.
D. Uruguay’s Enactment of the Single Presentation Requirement
1. The Need for Further Regulatory Measures
4.88 As a result of the tobacco industry’s continuing manipulation of public perceptions through the use of brand variants, consumers continued to believe that some cigarettes are less
426 See Cohen Report, ¶¶ 131, 144-145 (REX-002).
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harmful than others, even after descriptive words like “light,” “low” and “mild” were prohibited.427
4.89 A study published in the EUROPEAN JOURNAL OF PUBLIC HEALTH showed that, in the
United Kingdom, after Marlboro Lights were banned and replaced by Marlboro Gold, at least half of adult smokers erroneously understood Marlboro Gold to present a lower health risk, and one third believed it would be easier to quit, than the regular Marlboro brand.428
4.90 Another study, published in TOBACCO CONTROL, examined Philip Morris’s retailer manuals, manufacturers’ annual reports, a national public opinion survey and market-wide cigarette sales data.429 It found that manufacturers substituted “Gold,” “Silver” and “Blue” for the banned descriptors “light,” ultra-light” and “mild,” respectively.430 As discussed above, the industry acted aggressively to make the connection between the newly colored packs and the cigarettes that had previously been labeled “light,” “ultra-lights” and “mild,” by, among other things, including inserts in cigarette packs before the descriptor ban took effect that “advised
427 See Hammond & Parkinson, p. 350 (showing that packaging without banned descriptors continued to be perceived as “low tar” and healthier due to the use of other terms (e.g., smooth), numbers and colors) (R-39); R. Borland, et al., What happened to smokers’ beliefs about light cigarettes when “light/mild” brand descriptors were banned in the UK? Findings from the International Tobacco Control (ITC) Four Country Survey, TOBACCO CONTROL, Vol. 17, No. 4 (Aug. 2008) (R-199); D. Hammond, et al., Cigarette pack design and perceptions of risk among UK adults and youths, EUROPEAN JOURNAL OF PUBLIC HEALTH, Vol. 19, No. 6 (Sept. 2009) (hereinafter “Hammond, et al., Cigarette pack design and perceptions of risk among UK adults and youths”) (R-40); Mutti, et al. (concluding that despite current prohibitions on the words “light” and “mild” smokers across four ITC countries continue to falsely believe that some cigarette brands may be less harmful than others due to other deceptive words and elements on the cigarette package) (R-62).
428 Hammond, et al., Cigarette pack design and perceptions of risk among UK adults and youths, p. 633 (R-40).
429 G. Connolly & H. Alpert, Has the tobacco industry evaded the FDA’s ban on ‘Light’ cigarette descriptors?, TOBACCO CONTROL: ONLINE FIRST (13 Mar. 2013), p. 140 (R-274).
430 Ibid.
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consumers regarding the pack changes and substitution of colour name descriptors as listed in the retailer manual.”431
4.91 By this means, the study in TOBACCO CONTROL found, the industry continued to achieve
its desired goal. Health conscious consumers were led to believe that by smoking cigarettes in
the same brand family with the same color package as the variant previously identified as “light”
or “mild,” they could mitigate the health impacts of smoking. Thus, even after the descriptor ban,
92% of smokers reported they could easily identify their preferred brand variant and 68%
correctly named the package color associated with their usual variant.432 Sales for “light”
cigarettes were found to have remained unchanged.433 On the basis of these facts, the study
concluded that “cigarette manufacturers have evaded one of the most important provisions of the
Family Smoking Prevention and Tobacco Control Act for protecting the public health from the
leading cause of preventable death and disease.”434
4.92 Still another study, which surveyed smokers in the United Kingdom, United States,
Canada and Australia, found an “association between perceptions of risk related to colour descriptors on cigarette packages.”435 In particular, “smokers of ‘gold’, ‘silver’, ‘blue’ and
‘purple’ brands were more likely to believe that their own brand might be less harmful compared
to smokers of ‘red’ or ‘black’ brands,” suggesting that “consumers use colours as indicators of
431 Ibid., p. 143.
432 Ibid.
433 See ibid., pp. 142-143.
434 Ibid., p. 144.
435 Mutti, et al., p. 1173 (R-62).
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risk.”436 The study linked these false beliefs to the tobacco industry’s circumvention of
prohibitions on deceptive descriptors by the strategic use of colors and recommended that new
regulations be adopted to address this problem:
Guidelines under the World Health Organization’s Framework Convention on Tobacco Control, as well as existing legislation in Canada, Australia, the United Kingdom and the United States, require regulators to remove potentially misleading information from packages. Each of these countries have now banned the terms ‘light’ and ‘mild’ from packages. However, the current study suggests that these measures are insufficient on their own to remove misleading information from packaging. The names of colours and descriptors such as ‘slim’ are associated with false beliefs about the reduced harm in the same manner as the prohibited terms ‘light’ and ‘mild’. Consumer perceptions of certain colours as indicators of lower harm also highlight the importance of plain packaging regulations, which seek to remove colour and brand imagery from packages….437
4.93 In January 2005, the respected Canadian NGO, Physicians for a Smoke Free Canada, set
out a “comprehensive plan to end the ‘Light’ and ‘Mild’ deception.” It explained that a
prohibition on deceptive descriptors, by itself, was insufficient and should be complemented by additional regulatory measures. Among other things, the NGO called for a ban on brand variants
in light of their central role in perpetuating the misconception that some variants are “safe.” In
support of such a measure, the organization observed:
If smokers are faced with multiple types of cigarettes under one brand name they can be expected to look for and find differences in those brands, and to ascribe a meaning to those differences. Because these cigarettes were marketed to convey a hierarchy of
436 Ibid.
437 Ibid., p. 1174 (emphasis added).
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‘strength’/harmfulness, this will be the meaning that smokers ascribe to any within-brand distinctions.438
4.94 In Uruguay, the persistence of misperceptions about the risks of smoking tracked the findings in other countries. According to the 2009 Global Adult Tobacco Survey,439 at least one in four adult Uruguayan smokers was unaware that smoking “light,” “ultralight,” or menthol cigarettes is as harmful as smoking regular strength cigarettes.440 This is consistent with the results of an independent survey conducted by the International Tobacco Control Policy (“ITC”)
Evaluation Project (the “ITC Project”). The ITC Project is the first-ever international cohort study of adult smokers to assess tobacco control policy. It has collected data related to tobacco control in 19 countries, including Uruguay, every two years since 2006, in order to evaluate the effects of existing tobacco control measures. The ITC survey results found that, even after deceptive descriptors had been banned, 29% of Uruguayan smokers continued to believe that
“light” cigarettes were less harmful than regular cigarettes.441
438 Physicians for a Smoke-Free Canada, A comprehensive plan to end the ‘light’ and ‘mild’ deception (Jan. 2005) (hereinafter “Physicians for a Smoke-Free Canada, A comprehensive plan to end the ‘light’ and ‘mild’ deception”), p. 5 (emphasis added) (R-170).
439 The Global Adult Tobacco Survey (“GATS”) uses a global standardized methodology for systematically monitoring adult tobacco use. GATS is one of the surveys devised by the Global Tobacco Surveillance System (“GTSS”) — an initiative of the WHO, the CDC and other partners — for the collection of data. The GTSS was set up to assist States in establishing tobacco control surveillance and monitoring programs.
440 Global Adult Tobacco Survey (“GATS”), Fact Sheet: Uruguay 2009 (Feb. 2010), p. 1 (R-44). Although the use of the terms “light” and “ultralight” had been banned in cigarette advertising in 2005 by Decree 171/005, the GATS survey still continued to use those terms; respondents were asked “Do you think that light, ultrallight, or mild cigarettes are less harmful to health than regular cigarettes?” and “Do you think that mentholated cigarettes are less harmful to health than regular cigarettes?” Global Adult Tobacco Survey (GATS), EMTA Uruguay: Core+Optional, Household Questionnaire & Individual Questionnaire (29 June 2009), p. 28 (R-214). See also ITC, ITC Uruguay National Report (Aug. 2012), p. 42 (showing that 29.4% of respondents surveyed between October 2008 and February 2009 believed light cigarettes are less harmful) (C-133).
441 ITC, ITC Uruguay National Report (Aug. 2012), p. 42 (C-133).
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4.95 These studies explain why the Uruguayan low tar market was experiencing “important
volume growth.” Euromonitor reported in 2008 that:
The largest cigarettes categories, high tar and mid tar, kept posting negative volume growth rates during 2007 as they were the most affected by the anti-tobacco government campaign, enforced through the Ministry of Public Health. Low tar and ultra low tar cigarettes, on the other hand, had important volume growth as, in lieu of quitting, many smokers shifted to these products, which are perceived as less harmful.442
4.96 As a result, Euromonitor predicted that the market for low tar cigarettes would continue
to increase in Uruguay, benefiting from smokers’ misconceptions that they offer health benefits:
“Many smokers who are not willing to quit are expected to shift to products with lower tar
content, thus favouring the future growth of low tar and ultra low tar cigarettes, which are the
smallest categories.”443
4.97 In light of these developments, Uruguay concluded that additional regulatory measures
were required to counteract the false impression generated by the tobacco companies that the
brand variants that were placed on the market after the descriptor ban were offering the same
purported health benefits as the variants they replaced.444 Merely removing the banned
descriptors, while maintaining continuity of colors, designs, logos, etc., did not solve the
problem that the descriptor ban was intended to address.
442 Euromonitor International, Tobacco - Uruguay: Cigarettes (23 Sept. 2008), p. 1 (emphasis added) (R-200).
443 Ibid., p. 5.
444 Abascal Witness Statement, ¶¶ 8-11 (RWS-001); Witness Statement of Dr. María Julia Muñoz (8 Oct. 2014) (hereinafter “Muñoz Witness Statement”), ¶¶ 15-18 (RWS-003); Bianco Witness Statement, ¶¶ 7-9 (RWS-002).
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2. Uruguay’s Enactment of Ordinance 514
4.98 Claimants allege that the SPR was “carelessly” invented by a single Ministry of Public
Health official, Dr. Winston Abascal, whom they claim single-handedly transformed Uruguayan
law without going through the usual regulatory procedures. These claims are as baseless as they
are insulting.
4.99 To assist the Uruguayan Government in addressing tobacco control matters in a
responsible manner, the Ministry of Public Health consulted with a network of scientific and
medical experts who had experience with tobacco-related issues, institutionalizing the
consultation process in 2004 in the form of the Advisory Commission for Tobacco Control (the
“Advisory Commission” or the “Commission”) discussed in Chapter 3.445
4.100 The Advisory Commission’s primary function was, and continues to be, to provide the
Ministry of Public Health with expert advice for use in developing Uruguay’s national tobacco
control effort, coordinated by the Ministry’s focal point on tobacco control, the National
Tobacco Control Program (“Programa Nacional de Control de Tabaco”).446 Since its formation,
the Advisory Commission has convened at least twice per month to provide the Ministry with
guidance.447
445 See supra ¶ 3.111. The Commission is composed of representatives from the Ministry itself, the National Drug Council, the Municipal Government of Montevideo, the Medical School, the Honorary Commission for the Fight against Cancer, the Honorary Commission for Cardiovascular Health, the Medical Union of Uruguay, and the Interior Medical Federation. Uruguayan Ordinance 507/004 (30 Sept. 2004) (hereinafter “Ordinance 507/004”), Art. 1 (RL-210). See Muñoz Witness Statement, ¶¶ 13-14 (RWS-003); Abascal Witness Statement, ¶¶ 9-10 (RWS-001); Bianco Witness Statement, ¶¶ 7-9 (RWS-002).
446 Ordinance 507/004, Art. 2(a) (RL-210); Abascal Witness Statement, ¶ 6 (RWS-001); Muñoz Witness Statement, ¶¶ 13-14 (RWS-003).
447 Abascal Witness Statement, ¶ 6 (RWS-001).
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4.101 It became increasingly clear to the Ministry and the Advisory Commission that the ban
on deceptive descriptors was not achieving its objective: tobacco companies had managed to sustain the public misperception that certain cigarettes are “safer” than others. The Commission recognized that they had accomplished this by substituting the banned brand variants with new ones that bore suggestive color codes and/or numbers.448 And the industry was continuing to
launch new variants of “health reassurance” cigarettes, and positioning them as even “less
harmful” versions of existing brands.449 There was consensus in the Advisory Commission, and
among the tobacco control specialists at the Ministry of Public Health, that the persistence of this
practice and the consumer misconceptions that it perpetuated required the adoption of further
regulatory measures.450
4.102 Over the course of several months, the Commission, including the Health Ministry representatives within it, deliberated on what additional measures should be considered.451 The
proposal to prohibit brand variants emerged from these discussions as a reasonable and responsible regulatory response to the problem. As described above, the concept of prohibiting brand variants was not invented in Uruguay. It was a regulatory option recommended by international public health experts. Also recommended, and urged by the WHO, was plain packaging.
448 See ibid., ¶ 8. See also Bianco Witness Statement, ¶¶ 8-11 (RWS-002).
449 Abascal Witness Statement, ¶ 8 (RWS-001).
450 Ibid., ¶¶ 9-11; Bianco Witness Statement, ¶¶ 9-10 (RWS-002).
451 Abascal Witness Statement, ¶ 9-10 (RWS-001); Bianco Witness Statement, ¶ 10 (RWS-002).
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4.103 Plain packaging laws require cigarettes to be sold in generic packs that share a single color, shape, size and texture. Aside from government-mandated health warnings, the packs cannot use any logos, graphics, text or other brand identifiers, except for the name of the brand in a standardized font and size. Plain packaging was first endorsed by the Canadian Medical
Association in 1986 as a recommended method for tobacco control.452 More recently, it has received wider endorsement as awareness has grown that cigarette packaging is increasingly used to heighten product appeal, strengthen emotional connections and perpetuate misconceptions about health risks.453 In 2008, the FCTC’s Guidelines for Implementation of
Articles 11 and 13 specifically urged the States Parties to adopt plain packaging.454 Where plain packaging is not required, the guidelines suggest restricting as many packaging design features as possible.455
4.104 In December 2012, Australia became the first country to implement a plain packaging requirement by mandating that all tobacco products sold in Australia be packaged in dark
452 B. Lee, “Sell tobacco in no-frills wrappers, urge doctors,” The Journal (Winnipeg, 1 Oct. 1986) (R-118).
453 See, e.g., Philip Morris Internal Document, Marketing New Products in a Restrictive Environment (June 1990), Bates No. 2044762173-2044762364 (R-124); Canadian Tobacco Trials Document, R. Pollay, As Anyone Can Plainly See: Brand Imagery in Cigarette Packaging and Promotion: A Submission on Plain Packaging of Tobacco Products, House of Commons, Standing Committee on Health (3 May 1994), Bates No. TA85160-TA85175 (R- 132); Canadian Tobacco Trials Document, H. Selin & D. Sweanor, Policy Analysis No. 12: Tobacco Product Pacakaging and Labeling (1998), Bates No. TA84331-TA84358 (R-140); J. Slade, The pack as advertisement, TOBACCO CONTROL, Vol. 6, No. 3 (Sept. 1997) (R-139); Quit Victoria, Cancer Council Victoria, Plain packaging of tobacco products: a review of the evidence (May 2011) (hereinafter “Quit Victoria, Plain packaging of tobacco products”), pp. 6-10 (R-61).
454 COP-FCTC, Guidelines for Implementation of Article 11 of the WHO FCTC, ¶ 46 (RL-13); COP-FCTC, Guidelines for Implementation of Article 13 of the WHO FCTC, ¶ 17 (RL-133).
455 COP-FCTC, Guidelines for Implementation of Article 11 of the WHO FCTC, ¶ 46 (RL-13); COP-FCTC, Guidelines for Implementation of Article 13 of the WHO FCTC, ¶ 17 (RL-133).
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packages with standardized lettering for the brand name.456 The objectives were three-fold:457 (1) to reduce the appeal of tobacco products to consumers;458 (2) to increase the effectiveness of health warnings on the packaging of tobacco products; and (3) to prevent the use of packaging to mislead consumers about the health impacts of smoking. Other States, including France, the
United Kingdom and Finland, have taken steps to enact plain packaging regulations or are actively considering this option.459
4.105 In Uruguay, the Advisory Commission, after much deliberation, decided against proposing a plain packaging requirement. Instead, they opted for the less intrusive SPR, which would allow the tobacco companies to continue using cigarette packages to display brand names and logos, and distinctive designs, and to introduce new brands to the market.460
4.106 The Commission communicated its proposal to the Ministry of Public Health’s National
Tobacco Control Program.461 Dr. Abascal, the Director of the Program, discussed the proposal
456 In addition, graphic health warnings must cover 75% of the front and 90% of the back of cigarette packages. Australian Government Department of Health, “Health Warnings” (4 Dec. 2012), available at http://www health.gov.au/internet/main/publishing.nsf/Content/tobacco-warn (last visited 22 July 2014), p. 2 (R- 266).
457 Australian Act No. 148 (2011), Section 1, Chapter 1, Part 1, Art. 3(2) (R-232). See also Quit Victoria, Plain packaging of tobacco products, p. 13 (R-61).
458 See, e.g., J. Scheffels & I. Lund, The impact of cigarette branding and plain packaging on perceptions of product appeal and risk among young adults in Norway: A between-subjects experimental survey, BMJ OPEN, Vol. 3, No. 12 (Dec. 2013) (R-280).
459 Other countries known to be examining the option of introducing standardized packaging include Canada, Ireland, New Zealand, and Turkey. See Action on Smoking and Health (ASH), Standardised tobacco packaging (Apr. 2014), p. 2 (R-294).
460 Abascal Witness Statement, ¶ 10 (RWS-001). See also ibid., ¶¶ 8-12; Muñoz Witness Statement, ¶¶ 15-19 (RWS- 003); Bianco Witness Statement, ¶¶ 9-10 (RWS-002).
461 See Bianco Witness Statement, ¶ 10 (RWS-002); Abascal Witness Statement, ¶¶ 10, 12 (RWS-001).
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with the Minister of Health, who, after further deliberations within the Ministry, approved it.462
The decision was made to include the measure in the next tobacco packaging regulation.463
Because the measure was conceived as a means to further implement Article 11 of the FCTC, the text of Article 3 of the new regulation was drafted to closely track the Convention’s language.464
4.107 Claimants suggest that the SPR was prepared without the advice of legal counsel.465 They are mistaken. As is standard practice, the draft ordinance was transmitted to the legal advisors in the Ministry’s General Directorate of Health for review and formalization.466 Indeed, ordinances cannot be approved and assigned numbers without first being reviewed by the relevant
Ministry’s lawyers. Once the General Directorate’s legal advisors had reviewed and approved the draft ordinance, it was presented to the Minister of Public Health, who reviewed the text.467
She approved and signed it on 18 August 2008.468 The measure came into legal force on 14
February 2009.469
462 Abascal Witness Statement, ¶ 12 (RWS-001); Muñoz Witness Statement, ¶ 19 (RWS-003).
463 Muñoz Witness Statement, ¶ 19 (RWS-003).
464 Abascal Witness Statement, ¶ 12 (RWS-001).
465 Claimants’ legal counsel in Uruguay, Mr. Herrera, claims that he remembers Dr. Abascal explaining at a meeting that he drafted the SPR “without input from the attorneys at the MSP.” Witness Statement of Mr. Nicolás Herrera (28 Feb. 2014), ¶ 4 (CWS-006). Dr. Abascal refutes that he made such a statement and explains that this narrative of the alleged process is impossible. Abascal Witness Statement, ¶ 13 (RWS-001).
466 Muñoz Witness Statement, ¶ 19 (RWS-003). See also Abascal Witness Statement, ¶ 14 (RWS-001).
467 Muñoz Witness Statement, ¶ 19 (RWS-003); Abascal Witness Statement, ¶ 12 (RWS-001).
468 Muñoz Witness Statement, ¶ 19 (RWS-003); Abascal Witness Statement, ¶ 12 (RWS-001).
469 See Uruguayan Ordinance No. 514/008 (18 Aug. 2008) (hereinafter “Ordinance 514/008”), Art. 5 (RL-7). In September 2009, Ordinance 466/009, which refreshed the warning label pictograms as required every 12 months, repeated the existing requirements for tobacco packaging, including the single presentation requirement established in Ordinance 514/008. Uruguayan Ordinance No. 466/009 (1 Sept. 2009) (C-043).
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4.108 Recalling Uruguay’s obligations under, among other things, the FCTC, Article 3 of
Ordinance 514 provides:
Each brand of tobacco products shall have a single presentation, such that it is forbidden to use terms, descriptive elements, commercial or factory trademarks, representational signs or any other type of signs, such as colors or combinations of colors, numbers or letters, which may have the direct or indirect effect of creating the false impression that a certain tobacco product is less harmful than another….470
4.109 The ordinance was issued in accordance with Article 8 of Uruguay’s framework Law
18,256. Like the FCTC, this provides the conceptual underpinning for the SPR. Specifically,
Article 8 prohibits the use of “terms, descriptive elements, trade name or trade mark, figurative
signs or any other kind which will have direct or indirect effect of creating the false impression
that a certain tobacco product is less harmful than another.”471 The text of the regulation fulfills
this public health objective by prohibiting the practice of selling multiple cigarette variants
within the same brand, which, as discussed, had been used in Uruguay to give consumers the
“false impression that a certain tobacco product is less harmful than another ….”472
4.110 Shortly after Ordinance 514 came into force, the Ministry of Public Health issued a
public statement explaining that it had been adopted because “the Government is dedicated to
470 Ibid., Art. 3.
471 Uruguayan Law No. 18,256 (6 Mar. 2008), Art. 8 (RL-6).
472 Ordinance 514/008, Art. 5 (RL-7). In a contemporaneous interview, Dr. Abascal, told El País that when the government prohibited deceptive terms, “the same products were being associated with different colors,” which he stated was “a way of getting around the restriction.” In order to confront that deception, “just one type of Marlboro will be made, and they can choose whatever color they want.” P. Barquet, “The Place of Smoke,” El País (Montevideo, 13 Dec. 2008), p. 3 (R-202).
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minimizing the harm caused by tobacco use.”473 Having previously banned the use of words like
“light,” “ultra light” and “mild” on cigarette packages because they mislead consumers into
believing that certain cigarettes are less harmful than others, the Ministry explained that tobacco
companies were using other means, including colors, to perpetuate this deception.474 It thus
became necessary to prohibit “advertising with emblems, colors, or references on tobacco
products that induce consumers to believe that one type of cigarette is less harmful than another
… because all of them produce the same adverse health effects.”475
4.111 Uruguay’s adoption of the SPR does not make it the outlier that Claimants suggest. The
standard is whether Uruguay acted in a manifestly arbitrary manner in the factual circumstances
present here. Uruguay’s action does not become arbitrary because other States have not yet
followed suit or because other States, like Australia, have gone even farther. In the history of
tobacco regulation, there is always a State that goes first. The United States was the first State to
require warning labels on cigarette packs (in 1965). Canada was the first to require graphic,
pictorial warnings and to mandate that they cover at least 50% of the front and back of the
packs.476 (It has since increased this to 75%.477) Brazil was the first country to ban the use of
misleading descriptors like “light” in 2001, followed by the United Kingdom in 2003. What
473 Uruguayan Ministry of Public Health (MSP), “Preventing Tobacco Use: Uruguay Leads the World in the Fight Against Diseases Caused by Smoking” (26 Feb. 2009) (hereinafter “MSP, “Preventing Tobacco Use” (26 Feb. 2009)”) (R-35).
474 P. Barquet, “The Place of Smoke,” El País (Montevideo, 13 Dec. 2008), p. 3 (R-202).
475 MSP, “Preventing Tobacco Use” (26 Feb. 2009), p. 1 (R-35).
476 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report (Oct. 2010), p. 3 (R- 50).
477 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report, Third Edition, p. 2 (Oct. 2012) (R-262).
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history shows is that tobacco control measures are continuously being enlarged and strengthened
worldwide in response to the efforts of the tobacco industry to circumvent or evade the effects of
existing regulations.
4.112 In any event, Uruguay does not stand alone. Its SPR and other tobacco control regulations
(including the requirement that health warning labels occupy 80% of the front and back of
cigarette packs) have been applauded and endorsed by the international public health
community. In 2010, the 50th Directing Council of PAHO (and the 62nd Session of the Regional
Committee of WHO for the Americas), representing all 35 Member States, endorsed Uruguay’s
adoption of the SPR (and the 80% Requirement) in Resolution CD50.R6. The Resolution
expressed PAHO’s and WHO’s
support to the Eastern Republic of Uruguay for all the national measures it has adopted, pursuant to the provisions of the Framework Convention and its Guidelines, especially those on the packaging of tobacco products to inform the public about the risks of tobacco and prevent manufacturers from directly or indirectly suggesting that some products are less harmful to health.478
4.113 Similarly, on 19 November 2010, shortly after Claimants commenced this arbitration, the
then-172 States Parties to the FCTC responded by adopting the Punta del Este Declaration on the
Implementation of the WHO Framework Convention on Tobacco Control. The Declaration
“recognize[ed] that measures to protect public health, including measures implementing the
WHO FCTC and its guidelines fall within the power of sovereign States to regulate in the public
478 PAHO & WHO, Strengthening the Capacity of Member States to Implement the Provisions and Guidelines of the WHO Framework Convention on Tobacco Control, Art. 1 (R-230).
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interest, which includes public health,”479 and declared “[t]heir concern regarding actions taken
by the tobacco industry to seek to subvert and undermine government policies on tobacco
control.”480 The States Parties also reaffirmed their “right to define and implement national
public health policies pursuant to compliance with conventions and commitments under WHO,
particularly with the WHO FCTC.”481
4.114 The widespread international support for Uruguay’s tobacco control measures is reflected
also in the FCTC Secretariat’s conclusion, this year, of a Memorandum of Understanding with
Uruguay’s Ministry of Public Health to create a Center for International Cooperation on Tobacco
Control, housed within the Ministry (one of only three such centers in the world), to “develop,
analyze, synthesize and promote awareness of its knowledge and information regarding on
matters within its experience” in relation to the Convention.482 The FCTC Secretariat selected
Uruguay to run this center in recognition of “Uruguay’s strong and important support for the
application of the Convention ….”483 The Center was tasked with “facilitating regional
cooperation as a whole and the exchange of information and promotion of South-South
cooperation for the implementation of the Convention at the international level.”484
479 Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Punta del Este Declaration on the Implementation of the WHO Framework Convention on Tobacco Control (19 Nov. 2010), Preamble (RL-135).
480 Ibid., ¶ 2.
481 Ibid., ¶ 5.
482 Uruguayan Ministry of Public Health (MSP), “Anti-Tobacco Policies: MERCOSUR ratifies support to measures implemented by Uruguay” (31 July 2014) (R-312).
483 Memorandum of Understanding between the Secretariat of the WHO Framework Convention for Tobacco Control and the Uruguayan Ministry of Public Health (21 May 2014), Preamble (R-301).
484 Ibid., Art. 1.1(a).
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4.115 The Director General of the WHO, Dr. Margaret Chan, has publicly expressed the world health community’s support for Uruguay’s tobacco control regime, encouraging it to stand firm against the tobacco industry’s response: “My strong plea: don’t cave in. If one country gives in to these scare tactics, others will fall like dominos.”485
4.116 Similarly, the Director of PAHO has stated: “Uruguay has become a regional model on
the issue of tobacco control … [and in] demonstrating the role of both the legislature and the executive in ensuring the right to health and better living conditions for its citizens.”486
4.117 Most recently, on 29 July 2014, the Heads of State of MERCOSUR expressed their firm
support for Uruguay’s tobacco control policies.487 A Joint Communiqué emphasized their
“support for the Oriental Republic of Uruguay against any interference by the multinational
tobacco industry in regard to the implementation of tobacco control policies that goes against the
sovereign right of States to define their health policies in accordance with Article V of the World
Health Organization’s Framework Convention on Tobacco Control.”488
485 Opening Remarks by Dr. Margaret Chan, Director-General of the World Health Organization, 51st Directing Council of the Pan American Health Organization, CD51/DIV/5 (26 Sept. 2011), p. 3 (R-248).
486 Pan American Health Organization (“PAHO”), “Director Carissa Etienne’s Presentation on Tobacco Control: ‘PAHO commits itself to continue supporting the leadership path that the country has taken’” (2 May 2014) available at http://www.paho.org/uru/index.php?option=com_content&view=article&id=837:la-directora-carissa- etienne-en-presentacion-sobre-control-de-tabaco-ops-se-compromete-a-seguir-acompanandolos-en-la-ruta-de- liderazgo-que-ha-ejercido-el-pais-&Itemid=238 (last visited 22 July 2014) (R-300).
487 Further, in March 2009, the month after Uruguay implemented the SPR, the World Conference on Tobacco or Health bestowed upon Uruguay the Luther L. Perry Award at the World Conference on Tobacco or Health, in recognition of the Uruguayan Government’s “outstanding performance in the fight against tobacco.” Euromonitor International, Tobacco - Uruguay (Sept. 2009), p. 4 (R-215).
488 Joint Communiqué of the Presidents of the Member States of MERCOSUR (29 July 2014), ¶ 9 (R-311).
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III. The SPR Is an Important Regulatory Tool for Reducing Misconceptions about the Risks of Smoking
4.118 There is no merit to Claimants’ contention that the SPR is “arbitrary” because it is not
logically related to the objective of reducing misperceptions that some cigarettes are healthier than others.489 In fact, the SPR is a vital tool for achieving this public health goal.
4.119 For over half-a-century, the proliferation of brand variants has been critical to tobacco
companies’ success in persuading the public about the purported health benefits of “health
reassurance” cigarettes, because they allow for easily made comparisons against a known
standard. The introduction of Marlboro Lights (now known as Marlboro Gold), for example, had the intended effect of persuading smokers that it was a safer cigarette than the original Marlboro parent brand, against which its relative harmfulness was contrasted. As the former CEO of Philip
Morris USA testified, the success of Marlboro Lights was tied to its position as being “lower in
tar and lighter in taste than Marlboro Red.”490
4.120 The misleading effects of brand variants are not confined to the specific variants that
Claimants and their competitors marketed at the time the SPR was enacted. It would be equally
deceptive to consumers, and correspondingly harmful to public health, if Claimants were to
suddenly introduce Marlboro Pink or Marlboro Purple. Even though these colors have not been
used previously in Uruguay to convey linkage to specific banned variants that were formerly
identified explicitly as “light” or “mild,” they would present the same problem: the offering of
489 CMM, ¶¶ 30-31.
490 Philip Morris Internal Document, Deposition of the Defendant, Philip Morris Companies, Inc., by James Morgan (5 June 2002), Bates No. 3990011501-3990011677, pp. 32:25-33:2 (emphasis added ) (R-154). See also ibid., pp. 20:13-21:6, 32:22-33:16, 33:17-34:11; Philip Morris Internal Document, J. Lee, New Marlboro Lights Product Promotion Plan (6 Dec. 1971), Bates No. 2045404133-2045404163 (R-94).
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variants that, by their very distinction from the parent Marlboro brand, would likely be misperceived by consumers as differentiated by their impacts on health.491
4.121 These effects are achieved whenever some aspect of the brand is varied, so that a contrast
can be made between the parent version of the brand and its variant, or between two or more variants within the same family. Tobacco companies, including Claimants, have made extensive
use of coloration to show such contrasts, which can be established with a multitude of different
colors, or even by gradations of a single color. Contrasts can be achieved through other means as
well, including the addition of numbers and/or text, which can also be deployed to suggest to
smokers that brand variations indicate differences in healthiness.
4.122 This has important implications for tobacco control. Public health authorities who wish to
prevent deception cannot rely on self-restraint by the tobacco industry, especially in light of its history of deceit concerning these very matters. Accordingly, given the way brand variants have been used in Uruguay in the past — principally, if not entirely, to promote false beliefs about differences in cigarette safety — it was not unreasonable for Uruguay to ensure that they are not further used for this deceptive purpose by prohibiting their use altogether.
4.123 None of the arguments made by Claimants undermines the conclusion that the SPR was
crafted to advance Uruguay’s objective of dispelling misperceptions regarding the availability of
“safer” cigarettes.
4.124 To begin with, Claimants’ case is not helped by arguing that the “SPR does not prohibit
the use of specific colors,” such as gold and blue, which Claimants correctly note can still be
491 See Cohen Report, ¶¶ 95, 143-158 (REX-002); See also Mutti, et al., p. 1173 (R-62).
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used for cigarette packaging in Uruguay.492 This argument is based on a mischaracterization of
Uruguay’s position. Colors acquire added meaning through their context, and, in this case, the context was provided by the brand family. If a color is used as a means to contrast one brand variant against another for the purpose of suggesting differences in healthiness that do not exist, the color is used deceptively. That is what Claimants and other tobacco companies did in
Uruguay and around the world. Thus, instead of banning specific colors (like gold or blue) altogether, the SPR takes a different approach by eliminating the ability of tobacco companies to use color contrasts within a brand family to promote the misimpression that there are differences in healthiness. As Dr. Abascal, the Director of Uruguay’s Tobacco Program, put it in an interview: “[F]rom now on … just one type of Marlboro will be made, and they can choose whatever color they want.”493 Claimants and other tobacco companies were thus left to decide which color to use for each brand, provided there was only one presentation — and color — available per brand. This reflected Uruguay’s view that, if the consumer was presented with only one presentation per brand, there would be no illusions that different presentations within a brand family signified different health impacts.
4.125 Claimants make the groundless argument that the SPR is “overbroad” because it prohibits selling “two variants, each in a black package,” such as the hypothetical “Marlboro Black” and
“Marlboro Night,” as part of the same brand family.494
492 CMM, ¶ 3. See also ibid., ¶ 32.
493 P. Barquet, “The Place of Smoke,” El País (Montevideo, 13 Dec. 2008) (R-202).
494 CMM, ¶ 4. See also ibid., ¶ 38.
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4.126 Claimants have never sought to market such variants in Uruguay, so the question is
theoretical. Their complaint appears to be that these hypothesized brand extensions would not
indicate differences in their relative healthiness. But that assertion is contrary to the way
Claimants and other tobacco companies have consistently used brand variants in Uruguay (and
elsewhere): to perpetuate the false belief that some variants are less harmful than others by the
very fact of their variation. In short, the difference in brand variants that the tobacco industry has
conditioned smokers to presume is precisely in their relative healthiness.495 As the Tobacco
Epidemic Research Center, a Uruguayan research organization, has observed:
If smokers are faced with multiple types of cigarettes under one brand name they can be expected to look for and find differences in those brands, and to ascribe a meaning to those differences. Because these cigarettes were marketed to convey a hierarchy of “strength”/harmfulness, this will be the meaning that smokers ascribe to any within-brand distinctions. In a smoker’s mind, “stronger” and “less strong” translate to “more and less harmful” ….496
4.127 Similarly, another scientific study that evaluated cigarette packaging concluded:
While variant descriptors are allowed, it seems to us inevitable that smokers will try to make value judgments between them. If those differences are real and the judgments appropriate, this is a good thing. However, if these judgments lead to systematic misunderstandings, then they are a problem. It is particularly a problem when the incorrect attributions are around risk and harm, as is the case for many variant sets. Indeed, we suspect any variant
495 Physicians for a Smoke-Free Canada, Commentary on Promotion of Tobacco Products and Accessories Regulations (Prohibited Terms) (2 May 2011), p. 3 (R-239).
496 Uruguayan Tobacco Epidemic Research Center (CIET), Rationale of Prohibiting the Strategy of Brand Extension in Tobacco Products (Dec. 2011), p. 20 (emphasis added) (R-251).
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set that induces inferences about relative strength is likely to also result in inappropriate inferences about harmfulness.497
4.128 Put simply, differences between variants within a brand family have cultivated the false
impression among consumers that within that family one type of cigarette is less harmful than
another. This has an undeniable impact on public health. It was therefore not unreasonable for
Uruguay to conclude that the best way to protect public health goal was by preventing the
marketing of all brand variants. Uruguay’s decision to adopt the SPR was plainly not arbitrary and Claimants cannot sustain their burden of proof that it was.
4.129 As noted, the SPR does not prohibit tobacco companies from introducing new brands.
That is because new brands, entirely distinct from existing brands, do not convey the same messages as variations within the same brand. As Professor Cohen explains: “The relative character of a variant as ‘lower in tar’ is that much easier to manipulate and communicate when it is compared to other variants within the spectrum of the same brand family (rather than to cigarettes more generally).”498 In contrast, “it is much more difficult to use a separate brand as an anchor because the relationship between brands is less clear.”499
4.130 Professor Cohen gives several reasons for this:
First, if the brands come from separate families there is much less chance that bringing one to mind will bring the other to mind, which is a necessary condition for one to anchor judgments about the other. Second, when the two come from the same brand family
497 R. Borland & S. Savvas, The effects of variant descriptors on the potential effectiveness of plain packaging, TOBACCO CONTROL: ONLINE FIRST (22 Feb. 2013), p. 6 (R-273).
498 Cohen Report, ¶ 150 (REX-002).
499 Ibid., ¶ 151.
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consumers infer that there must be important enough differences between them to warrant marketing both. Such an inference is not nearly as likely when two separate brands or brand families are involved because competitive forces are a reasonable explanation. Third, comparisons between brands that are members of different brand families are harder to make because they are likely to differ on several dimensions, and brand differences are highlighted in marketing. So, for example, it is much easier for Philip Morris to lend its Marlboro brand cache to both Red and Light/Gold while managing the perception of a substantial difference with respect to health risks. Finally, as suggested in internal documents, the consumer who has decided to switch “down” to a reduced tar product may implicitly place his/her trust in the brand family he knows rather than simultaneously switching both “down” and to an unfamiliar brand. As a result, that smoker is led to contrast the brand variant against the familiar parent brand.500
4.131 Further, one of the primary objectives of “health reassurance” cigarettes is to persuade
smokers to switch to them rather than to attempt to quit smoking altogether. Placing a “health
reassurance” cigarette within a brand family facilitates this because smokers generally switch to
lower tar cigarettes within a brand family rather than to those with different brands. This is well
known to tobacco companies. According to one internal industry study: “Many panelists switched from a high tar cigarette to a low tar cigarette bearing the same name. Marlboro smokers switched to Marlboro Lights, Winston smokers switched to Winston Lights, etc. … All switched because they felt that low tar cigarettes are healthier than high tar cigarettes.”501
500 Ibid., ¶ 152.
501 American Tobacco Internal Document, Fay Ennis Creative Research Services, An Exploration of Two Cigarette Approaches: ‘Laser Technology’ and ‘No Fake Flavors’ (11 Nov. 1976), Bates No. 968362940-968362954, p. 8 (R- 99).
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4.132 More broadly, an established brand family is useful in convincing smokers about its
variants’ putative health benefits because of the trust, however misplaced, that has been built up in that brand.502 Professor Cohen explains:
Existing brands further capitalize on such brand family marketing not only because the parent brand serves as a well understood anchor for perceptions but because the wisdom of choosing a brand variant (whose health-associated aspects have been manipulated) is buttressed by the trust consumers put in existing brands.503
4.133 Thus, health-concerned smokers are particularly prone to being persuaded to switch to variants of their current brands, which are viewed as more reliable sources of less harmful cigarettes. This psychological tendency was highlighted in an internal RJ Reynolds memorandum, which concluded:
The smoker, especially the one who feels he has made a conscious effort to protect his health — at least to some extent — by moving down to a reduced tar product, wants to place his trust in someone. He does not want to feel vulnerable. By going to established brand spinoffs, he perceptually sets up a reliability, a sense of trust for his personal smoking experience.504
4.134 A smoker who wishes to switch to a “health reassurance” cigarette thus will tend to use
the parent brand as the “anchor” against which perceptions of risk are measured. Professor
Cohen explains:
502 Physicians for a Smoke-Free Canada, A comprehensive plan to end the ‘light’ and ‘mild’ deception, p. 5 (stating “[b]y using the same brand name, the companies found they could capitalize on the imagery they had already developed for that trademark.”) (R-170).
503 Cohen Report, ¶ 153 (REX-002).
504 RJ Reynolds Internal Document, Abby Ellison Qualitative Research, Inc., A Qualitative Analysis of the Light/Low Tar Category with Particular Emphasis on Consumer Reactions to Advertising Language and Prototype Concepts for Salem Lights (Nov. 1977), Bates No. 501226743-501226772, p. 501226757 (R-104).
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Not only does the illusion of a healthier cigarette, as represented by a brand variant, undermine public health, but the ability to “anchor” one’s perceptions and beliefs about risk on the parent brand — so that a movement “down” to a lighter version is seen as a healthier choice — makes it decidedly easier to continue smoking instead of trying hard to quit.505
4.135 The Marlboro brand family provides a prime example. Before the SPR was enacted in
Uruguay, each Marlboro variant was assigned a different tar profile: Red (full strength); Gold
(light); and Blue (medium).506 As Professor Cohen explains: “To the extent that Marlboro Red is
understood to be high in tar and hence a more ‘hazardous cigarette,’ its availability as an anchor
is likely to have a contrast effect on peoples’ judgments of other Marlboro brand variants,
including Marlboro Gold and Blue, which are distinctively marketed to be seen as ‘lower in tar
and nicotine.’ Leaving all else aside, these brand variants would be judged as even less
hazardous simply by virtue of that contrast.”507
4.136 Claimants’ own marketing expert, Professor Chernev, endorses this understanding of
consumer behavior in his scholarly writing. He states that the “availability of a semantic anchor”
is “likely to produce a directionally opposite effect, leading to contrast rather than
assimilation.”508 Professor Chernev provides the following example: “a cheeseburger following a
green salad is likely to be judged as having more calories than the same cheeseburger preceded
505 Cohen Report, ¶ 148 (REX-002).
506 Marlboro Fresh Mint did not exist when the SPR was enacted. Shortly after the SPR was passed but before it was implemented, Claimants introduced a mentholated cigarette under the name “Fresh Mint” in green packaging.
507 Cohen Report, ¶ 145 (REX-002).
508 A. Chernev, Semantic Anchoring in Sequential Evaluations of Vices and Virtues, JOURNAL OF CONSUMER RESEARCH, Vol. 37, No. 5 (Feb. 2011) (hereinafter “Chernev, Semantic Anchoring in Sequential Evaluations of Vices and Virtues”), p. 3 (R-235).
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by a plate of fried cheese bites.”509 In another example, Professor Chernev states that a “wolf,”
which individually is seen as a “ferocious,” will be seen as less ferocious when contrasted
against a “tiger.”510
4.137 As Professor Cohen thus explains:
Consistent with Professor Chernev’s explanation, exposure to the parent brand, Marlboro Red, is comparable to exposure to a fierce animal (his example was a tiger). With that as an anchor, a brand variant associated with reduced harm (Marlboro Lights and now Gold) is contrasted away from Marlboro Red and is seen as even less harmful — just as a wolf or fox would be in the animal kingdom. The well-studied contrast effect will lead consumers to judge Marlboro Gold in a much more favorable light on the primary dimension (health consequences) for which it was used to differentiate itself from the parent brand. Chernev notes the importance of creating accurate consumer perceptions of sources of health risk in applying his understanding of the effect of anchoring and contrast effects on judgments of calorie content ….511
4.138 Professor Chernev accepts the importance of anchoring and contrast effects in regard to
assessing the relative healthiness of food, acknowledging: “People’s ability to accurately evaluate a meal’s calorie content also has important public policy implications, stemming from
the fact that calorie overconsumption has been identified as one of the primary sources contributing to the obesity epidemic.”512
509 Ibid.
510 Ibid.
511 Cohen Report, ¶ 156 (REX-002).
512 Chernev, Semantic Anchoring in Sequential Evaluations of Vices and Virtues, p. 3 (R-235).
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4.139 Nonetheless, Professor Chernev chooses to disregard these same psychological principles
when it comes to consumers’ evaluation of the relative healthiness of cigarettes. As Professor
Cohen observes, the concerns of Claimants’ expert “about misperceptions and inaccuracies in
perception of health risks due to anchoring and contrast seem highly applicable to allowing
multiple brand presentations by cigarette companies (e.g., Marlboro and Marlboro Gold). Hence
it is hard to understand why he would oppose the single presentation requirement in Uruguay.”513
4.140 Claimants assert that variants within a brand family often serve merely to indicate
innocuous differences in taste or flavor, with Marlboro Red providing the strongest taste or
fullest flavor.514 They fail to mention, however, that taste and flavor are euphemisms for the intensity of inhaled smoke, which smokers associate with levels of health risk. This is no accident. For years, tobacco companies promoted the understanding that “smoother” or “milder” or “less harsh” tasting cigarettes are healthier.515 In encouraging this association, they exploited
the widespread misperception that less harshness or throat irritation corresponds to less tar
inhalation and lower risks to health.516 In short, tobacco companies promoted the link between taste and harm: the more intense the flavor, the less healthy the cigarette. It is for this reason that, prior to the prohibition on deceptive descriptors, “health reassurance” cigarettes were often
513 Cohen Report, ¶ 157 (REX-002).
514 CMM, ¶ 74 n.78.
515 See Cohen Report, ¶¶ 89-92 (REX-002). See, e.g., supra ¶¶ 4.9-4.59.
516 See Hammond & Parkinson (finding that perceptions of taste were significantly associated with perceptions of tar level and risk) (R-39).
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labeled as being “mild” or “smooth” or “fine” in order to misleadingly communicate to smokers
the cigarette’s supposed degree of “healthiness.”517
4.141 In fact, there is no such thing as a truly “light” tasting cigarette. This is simply another marketing tactic employed by the tobacco industry to further the impression that some cigarettes are healthier than others. As the former CEO of Philip Morris testified:
I have trouble in describing what light taste really means …. Light taste, first of all, is not a positive attribute if it does mean anything … in my judgment, light taste is really a meaningless and nebulous claim … the bigger proposition is the lower tar and nicotine …. We are not talking, in my judgment, talking about light … as a taste. It’s not a term that means anything in terms of taste, and the name Marlboro Lights as I said before, a word which we feel has appeal in a different sense than suggesting what the cigarette tastes like.518
4.142 This is a clear acknowledgement, by a well-informed source, that the reason many
smokers prefer the industry’s “health reassurance” cigarettes is not taste.519 As Philip Morris’s
Director of Consumer Insights testified before the U.S. District Court: “Philip Morris’ own
marketing research shows that there are consumers who switch to low tar cigarettes even though
they do not prefer the taste or flavor, [but] because they believe it is better for them ….”520
4.143 Undeniably, it is not. The perception that some cigarette brand variants are healthier than others is indisputably false. Claimants’ deceptive marketing practices have led consumers to
517 See Cohen Report, ¶ 120 (REX-002).
518 United States v. Philip Morris, ¶ 2246 (quoting a 15 October 1974 deposition of the former CEO of Philip Morris) (RL-171).
519 See Cohen Report, ¶ 89 (REX-002).
520 See United States v. Philip Morris, ¶ 2241 (quoting statements by Philip Morris’s Director of Consumer Insights) (RL-171).
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switch between poisons, although both are equally deadly, under the false impression that they are making a healthy choice. Because brand variants have been used in Uruguay (as elsewhere) to perpetuate this false message, Uruguay acted reasonably, and in a manner directly connected to the promotion of public health, when it prohibited their further use by means of the SPR.
Claimants have offered no convincing proof to sustain their burden of showing that the measure was not “logically connected” to public health.
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CHAPTER 5
THE 80% REQUIREMENT WAS A REASONABLE EXERCISE OF URUGUAY’S RIGHT TO REGULATE FOR THE PROTECTION OF PUBLIC HEALTH
5.1 Claimants argue that “there is no logical connection” between Uruguay’s Decree
287/009, which increased the size of warning labels from 50% to 80% of the front and back of
cigarette packs, and protection of public health.521 They are wrong. The connection is clear and
unmistakable: larger warnings are proven to be better at communicating the severity of the health risks of smoking, and increasing public awareness of these risks. These propositions should be self-evident. In any event, there is a considerable body of evidence supporting them, which was available to, and relied on by, Uruguay when it adopted Decree 287.
5.2 As of June 2009, when the 80% requirement was adopted, there was a strong consensus among international public health experts that, in regard to cigarette health warnings, larger warnings are more effective because they do a better job of raising public awareness of the health risks associated with smoking.
5.3 The international consensus was reflected in Article 11 of the FCTC, which obligates
States Parties to require “large, clear, visible and legible” health warnings on cigarette packs that
“should be on 50% or more of the principal display areas.”522
521 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 2, 6. Claimants extend their claims to also include Ordinance 466, which reiterated the requirements established in Decree 287/009. See ibid., ¶ 21.
522 World Health Organization (“WHO”), Framework Convention on Tobacco Control (“FCTC”), opened for signature May 2003 through 29 June 2004, EIF 27 Feb. 2005 (hereinafter “WHO, FCTC”), Art. 11.1(b) (emphasis added) (RL-20).
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5.4 The Guidelines for Implementation of Article 11, adopted unanimously by the
Conference of the Parties in November 2008, seven months before Decree 287 was adopted,
specifically urged States to use “health warnings and messages that cover more than 50% of the
principal display areas and aim to cover as much of the principal display areas as possible.”523
The reason given was “the evidence that the effectiveness of health warnings and messages increases with their size ….”524
5.5 Uruguay adopted the 80% Requirement in conformity with Article 11 and its Guidelines.
It considered that larger health warnings on cigarette packs would increase public awareness of
the harms caused by smoking, and, together with other tobacco control measures, ultimately
contribute to a reduction in smoking rates, especially by adolescents and other vulnerable sectors
of the Uruguayan population. This was Uruguay’s purpose in issuing Decree 287. It had no
other.
5.6 The remainder of this Chapter is divided into three sections. Section I describes the
consensus among public health officials worldwide, and supporting evidence, that health
warnings on cigarette packs should be as large as possible. Section II relates the process by
which the 80% Requirement was adopted, in reliance on this international scientific consensus.
Section III demonstrates that, following adoption of the FCTC and Guidelines, governments
around the world have, like Uruguay, progressively required larger and more graphic warnings
on cigarette packs — in many cases well beyond 50% of the front and back of the packs.
523 Conference of the Parties to the Framework Convention on Tobacco Control (“COP-FCTC”), Guidelines for implementation of Article 11 of the WHO Framework Convention on Tobacco Control (Packaging and labelling of tobacco products) (Nov. 2008) (hereinafter “COP-FCTC, Guidelines for implementation of Article 11 of the WHO FCTC”), ¶ 12 (emphasis added) (RL-13).
524 Ibid.
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I. The Public Health Consensus That the Largest Health Warnings Are the Most Effective
5.7 When Uruguay decided to enlarge its warning labels to 80%, the evidence available to it
showed that larger warnings, including labels that covered more than 50% of the front and back
of cigarette packs, are the most effective in increasing public awareness of the dangers of
smoking.
5.8 Claimants challenge both the evidence and Uruguay’s reliance on it. They make two
arguments: first, that Uruguay’s health warnings “could not increase the level of awareness of
the health risks of tobacco consumption for the simple reason that nearly the entire population
already was aware of the risks;”525 and second, that there is no “credible evidence” that “the
larger warning would change smoking behavior or better communicate the health risks of
smoking than the existing 50% warnings.”526 Both contentions are without merit.
5.9 In the first place, there is abundant evidence that health warnings do increase public awareness of the health risks of tobacco consumption, including among populations where there is widespread general knowledge that smoking is harmful. Second, the evidence is equally plentiful that larger warnings better communicate these risks, and that warnings covering up to and above 80% of cigarette packs communicate them better than those covering 50%.
525 CMM, ¶ 8.
526 Ibid.
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A. The Evidence That Health Warnings do Increase Public Awareness of the Health Risks of Smoking
5.10 Claimants’ first argument against Uruguay’s 80% Requirement — that it cannot increase
public awareness of the dangers of smoking because “awareness in Uruguay of the harmful
effects of smoking” is already “near universal”527 — is easily refuted.
5.11 Taken to its logical conclusion, Claimants’ argument would mean that no health warnings
of any kind (or size) are necessary. If everybody in Uruguay already knows that smoking is bad
for health, why warn at all? Claimants, therefore, undermine their own argument when they state
(in the words of Claimant Abal):
Tobacco products are addictive and cause serious diseases such as lung cancer, heart disease, and emphysema. Therefore, consumers should be warned about these risks, and one way of doing this is by placing health warnings on the packaging of the tobacco products that are sold to the public.528
5.12 Claimants’ corporate parent, Philip Morris International, says that it regards warning
labels as so important that it voluntarily includes them even where they are not required by law:
“We support health warning requirements and, with certain exceptions, defer to the governments
on the content of the warnings. In countries where health warnings are not required, we place
them on packaging voluntarily ….”529 Claimants themselves therefore do not really believe that
health warnings on cigarette packs serve no purpose.
527 Ibid., ¶ 52.
528 Abal Hermanos S.A., Comments on the “Tobacco Control Law” (Mar. 2008), p. 13 (R-197).
529 Philip Morris International, 2009 Annual Report, p. 29 (C-142).
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5.13 They make an exception for Uruguay, however, because of the fact that 98% of
Uruguayans are supposedly already aware, at least on some level, that smoking is harmful to
health. But this by no means obviates the need for warnings. Annex REX-003 to this Counter-
Memorial is the expert report of Professor James Thrasher, one of the world’s leading experts on
health warning labels on tobacco packaging. As he explains, the function of warning labels goes
beyond simply informing consumers that cigarettes are harmful in the abstract. Warning labels
also serve to make those harms real by causing existing and potential smokers to confront the
specific risks they are assuming every time they smoke.530 Smokers are exposed to them over
and over again, including at moments when they may be more open to receiving and
personalizing the message.531
5.14 In 2009, Uruguayan daily smokers smoked 16 cigarettes per day — about one cigarette
every waking hour.532 Pack-a-day smokers are exposed to warnings 20 times a day, or more than
7,000 times a year.533 As Professor Thrasher explains:
The motivation to process messages evolves over time, as does the motivation to quit smoking, and HWLs [Health Warning Labels] may serve different beneficial functions as these motivations change. For smokers who are not currently planning to quit, the HWLs may serve as a consistent reminder of the compelling health-related reasons for quitting. For other smokers who attempt
530 Prof. James F. Thrasher, Review of the Size of Health Warning Labels on Tobacco Packaging (15 Sept. 2014) (hereinafter “Thrasher Report”), p. 15 (“The potential power of HWLs [health warning labels] to communicate information about tobacco-related risks is partly due to their ability to repeatedly reach consumers at tobacco product selection, purchase, and consumption, which are critical moments for effective marketing communications.”) (REX-003).
531 See ibid., pp. 15-17.
532 International Tobacco Control (ITC) Policy Evaluation Project, ITC Uruguay National Report: Findings from the Wave 1 to 4 Surveys (2006-2012) (Aug. 2014), p. 39 (R-313).
533 Thrasher Report, p. 16 (REX-003).
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to quit, HWLs may act in synergy with other life events, such as experiencing the symptoms of an illness or when a friend or family member talks with them about quitting. For example, seeing a HWL for lung cancer shortly after experiencing early symptoms of respiratory disease may prompt a quit attempt or help to sustain a quit attempt that is already in progress.”534
5.15 In 2006, Uruguayan smokers reported that the information on cigarette packs was their
single most important source of information on the dangers of smoking,535 and that they learned
less through public service messages on television, radio and billboards.536 Even if, as Claimants
argue, “nearly the entire population already was aware of the risks,”537 Claimants ignore the fact
that most smokers, although they may know that smoking is harmful in a general sense, cannot
recall the specific harms caused.538 Professor Thrasher explains:
Although most consumers are generally aware that smoking is harmful, this general awareness does not indicate that they are fully informed about the types and severity of tobacco-related health effects …. Studies have consistently shown that smokers’ knowledge of smoking-related diseases is relatively high for a few
534 Ibid., pp. 16-17.
535 International Tobacco Control (“ITC”) Policy Evaluation Project, ITC Uruguay National Report: Findings from the Wave 1 to 3 Surveys (2006-2011) (Aug. 2012) (hereinafter “ITC, ITC Uruguay National Report (Aug. 2012)”), pp. 49, 50 (84.6% of Uruguayan smokers saw campaigns on the harm of cigarette smoke, or that encouraged quitting in the last six months, from cigarette packs) (C-133).
536 Ibid.
537 CMM, ¶ 8.
538 See Pan American Health Organization (“PAHO”) & World Health Organization (“WHO”), Showing the truth, saving lives: the case for pictorial health warnings (2009) (hereinafter “PAHO & WHO, Showing the truth, saving lives”), p. 7 (“While general awareness of the fact that tobacco harms health is high in many countries, specific knowledge and perception of risk are much lower. This is of concern because greater specific knowledge and appreciation of the type, magnitude and consequences of risk are more likely to motivate smokers to try to quit.”) (R-34); D. Hammond, et al., Effectiveness of Cigarette Warning Labels in Informing Smokers about the Risks of Smoking: Findings from the International Tobacco Control (ITC) Four Country Survey, TOBACCO CONTROL, Vol. 15 (2006) (hereinafter “Hammond, Effectiveness of Cigarette Warning Labels”), pp. 19-20 (R-22); Thrasher Report, ¶¶ 15-21 (REX-003).
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of these risks, such as lung cancer and some cardiovascular diseases; however, awareness is much lower for other smoking- related risks.539
5.16 The ITC Survey in Uruguay showed that there were alarming gaps in what Uruguayans
knew about the specific health consequences of smoking, and that further action was needed to
fill those gaps. The relevant ITC data, which was collected in 2006 and 2008, after Uruguay had
implemented 50% warning labels, found that most Uruguayans were aware that smoking causes
lung cancer.540 The evidence confirmed, however, that there was much less knowledge about the
other diseases and harms that smoking causes. In particular, before Uruguay made the decision to
enlarge its warning labels to 80%, more than half of Uruguayan smokers did not know that
smoking caused strokes; 40% did not know that smoking causes premature aging; and one-third
did not know that smoking put them at risk for impotence and mouth cancer.541
5.17 In addition, even while smokers may be aware in general of the risks smoking causes,
they often underestimate the magnitude of those risks.542 The tendency to underestimate risks
prevails even in more developed countries, where there typically has been much more publicity
539 Thrasher Report, pp. 10-11 (REX-003).
540 ITC, ITC Uruguay National Report (Aug. 2012), p. 38 (C-133).
541 Ibid. See Chapter 6 for the results after the 80% warnings were implemented.
542 D. Hammond, et al., Text and graphic warnings on cigarette packages: Findings from the International Tobacco Control Four Country Study, AMERICAN JOURNAL OF PREVENTIVE MEDICINE, Vol. 32, No. 3 (2007) (hereinafter “Hammond, et al., Text and graphic warnings on cigarette packages”) (R-25).
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about the health hazards of tobacco.543 A 2001 study revealed that more than a quarter of
smokers in the United States, for example, were unaware that smoking shortens one’s life.544
5.18 Professor Thrasher adds further that
general awareness of tobacco-related harms does not reflect the extent to which individuals personalize this risk by viewing themselves as susceptible to these harms should they start or continue to consume tobacco. General awareness of harm also does not reflect consumer understanding of the addictive nature of tobacco consumption or how susceptibility to these health effects decreases following long-term abstinence from consumption.545
5.19 The evidence shows that there are two groups whose ability to perceive and process the
true risks of smoking is particularly limited: current smokers and adolescents. Repeated exposure
to the health warnings on cigarette packs is especially important to raise the awareness of risk in
both groups, especially in regard to the addictive nature of tobacco, of which they may be less
aware than the particular diseases smoking causes. A press release quoting the Minister of Public
Health discussing Uruguay’s warning label requirement emphasized that
the incorporation of images to cigarette packaging that somehow show the risks involved and that provide information on tobacco use in a friendly way, do not stigmatize smokers, but instead definitely ensure that people are informed and aware of the risks and try to change their behavior, because tobacco addiction has a biological component, a component that involves biological addiction, and also has a behavioral or psychosocial component
543 J. Ayanian & P. Cleary, Perceived Risks of Heart Disease and Cancer Among Cigarette Smokers, JOURNAL OF THE AMERICAN MEDICAL ASSOCIATION, Vol. 281, No. 11 (17 Mar. 1999), p. 1019 (R-143).
544 Thrasher Report, p. 12 (REX-003).
545 Ibid., p. 10.
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and a normative component, involving how society should organize itself to respond to these issues.546
5.20 As the Minister of Public Health explained, the ability of smokers to accurately perceive
risk is impaired by their addiction to nicotine.547 Because they know their habit is bad for them,
at least at some level of abstraction, smokers typically develop various psychological coping
mechanisms to help distance themselves from the risk. Dr. Cohen explains this in his expert
report:
For the typical smoker, cognitive dissonance stems from the following two contradictory ideas: (1) I smoke and (2) My smoking is bad for me. Decades of research on cognitive dissonance[] tells us, first, that dissonance is psychologically uncomfortable and motivates the person to reduce dissonance and achieve consonance among cognitive elements….When dissonance is present, the individual not only attempts to reduce it, but may actively avoid or discount competing information that is likely to increase it (e.g., warning information), especially if the latter information is challenged or undermined …. In trying to reduce dissonance one cognitive element is typically more “locked in” or resistant to change. … So, for a smoker it would be harder to deny
546 Uruguayan Ministry of Public Health (MSP), “Tobacco Smoke-Free Uruguay Campaign” (12 Aug. 2013) (R- 275).
547 Ibid. See also David M. Burns, M.D., Report on Dennis Deshaies (21 Oct. 2013), presented in Deshaies v. R.J. Reynolds Tobacco Co., Case No. 3:09-cv-11080-WGY-JBT (M.D. Fla.), ¶ 100 (R-277). Burns comments in his report:
Those who have never smoked have the most accurate reporting of the disease consequence of smoking and they hold these beliefs more strongly than smokers. Remarkably, smokers, who after all actually use cigarettes and might be expected to be more knowledgeable about them, are less likely to understand or believe the disease risks established to be caused by smoking; and heavier smokers are even less knowledgeable and less likely to accept the truth. The tobacco industry campaign of denial and creating doubt was targeted at these addicted smokers and clearly has had an impact.
Ibid.
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the reality of smoking than it would be to modify the cognition that “my smoking is bad for me.”548
5.21 Thus, smokers are often unrealistically optimistic, believing that health risks do not apply to them.549 Or they underestimate the lethality of smoking compared to other risks, such as car accidents.550 Indeed, the evidence from one survey showed that most smokers perceived other smokers to be at greater risk than themselves.551
5.22 The warnings on cigarette packages address these problems by providing a clear and consistent message designed to break through the well-documented psychological barriers that smokers, especially young smokers, use to distance themselves from these risks.552
548 Prof. Joel Cohen, Prof. Timothy Dewhirst & Prof. David Hammond, The Single Presentation Requirement: Overcoming The Illusion Of A Less Hazardous Cigarette (19 Sept. 2014) (hereinafter “Cohen Report”), pp. 49-50, 52 (REX-002). See also Philip Morris Internal Document, Memorandum from J. Jones to E. Gee (20 June 1988), Bates No. 3990261612-3990261630, p. 3990261624 (“Festinger’s theory of cognitive dissonance (1957) is intuitively useful in making predictions about the strategies smokers adopt to deal with social pressures.”) (R-122); RJ Reynolds Internal Document, E. Fackelman, Qualitative Research - TGA (13 Mar. 1985), Bates No. 504954120- 504954130, p. 504954122 (“While nearly all smokers felt that this concern was a potential result of their cigarette smoking, they did admit that it was a concern they did not think about frequently. Lung disease was felt to be something they believed they would not actually contract (‘it always happens to someone else’) and thus it was easy, and perhaps best forgotten since it was such an unpleasant prospect.”) (R-116); Brown & Williamson Internal Document, M. Weaver, Cigarette Smoking, Health, And Dissonance (Project Libras): IV. Further Analysis, Conclusions and Recommendations (25 Aug. 1981), Bates No. 650018899-650018950, p. 650018880 (“Highly dissonant smokers, as they have been described, wish to give up smoking, are under pressure to do so, and many of them have seriously attempted to do so within the last two years. However, other evidence suggests that those who have made two or more serious attempts to quit smoking within the last two years and have failed may not be as likely to quit the market as it would first appear. Thus, despite their concern and the pressure they are under, it could be argued that a large proportion of these smokers will form a stable core of the manufactured cigarette market for the next few years. However, this concern and pressure suggests that this is a group who would be highly motivated to modify their smoking behaviour in terms of switching to brands which they perceived as ‘safer’ yet meet their requires, whatever they might be.”) (R-112).
549 Thrasher Report, pp. 12, 30 (REX-003).
550 Ibid., p. 13.
551 Hammond, Effectiveness of Cigarette Warning Labels, p. iii19 (R-22).
552 See Thrasher Report, p. 27 (REX-003); see also Cohen Report, § IV.B (REX-002).
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5.23 The difficulty young people have understanding the magnitude of risk smoking poses is
in part a function of their age. Their mental and emotional ability to judge these matters has not
yet matured. To children deciding whether or not to try smoking, dying from a stroke can seem
like a remote possibility. Professor Thrasher describes how the “tendency to underestimate
tobacco-related risks is particularly pronounced in adolescents, as they also express ‘unrealistic
optimism’ about their ability to quit smoking after they start.”553 In the United States, for
example, a 2007 study showed that “only 3% of high school students who smoked daily reported
that they would still be smoking in five years. Seven to nine years later, however, 63% were
daily smokers.”554 In Uruguay, the average age at which Uruguayans took up smoking in 2011 was just under 14 years old.555
5.24 In sum, Claimants have failed to show that the level of public awareness of the risks of
smoking is so high in Uruguay that warning labels on cigarette packs serve no useful purpose. To
the contrary, the evidence shows that health warnings about the addictive nature of smoking, the
specific diseases and ailments that smoking causes, and the magnitude of these risks remain as
useful and as necessary as ever. This defeats Claimants’ first argument, and leads to their second one: whether the size of the warning matters. As shown below, it does.
553 Thrasher Report, p. 13 (REX-003).
554 Ibid., p. 13 (citing Institute of Medicine, ENDING THE TOBACCO PROBLEM: A BLUEPRINT FOR THE NATION (2007) (R-26)); see also L. Johnston, et al., Monitoring the Future: National Results on Adolescent Drug Use: Overview of Key Findings 2004 (2005), pp. 34-35 (R-169).
555 Euromonitor International, Tobacco in Uruguay (Oct. 2013), p. 3 (C-121).
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B. The Evidence That Larger Health Warnings Better Communicate the Health Risks of Smoking
5.25 Claimants’ second argument, that there is no “credible evidence” to show that larger
health warnings better communicate the health risks of smoking, is contradicted in the first
instance by the plain terms of the FCTC. As described in Chapter 3, the FCTC is an “evidence-
based” treaty crafted by the international public health community, led by the WHO, that has
near-universal support, having been ratified or acceded to by 179 States.556
5.26 As stated, Article 11 of the FCTC specifically requires States Parties to adopt effective
measures to ensure that tobacco packaging carries “health warnings describing the harmful
effects of tobacco use.” Such warnings “shall be large, clear, visible and legible” and “should be
50% or more of the principal display areas ….”557
5.27 The Convention’s Guidelines for Implementation are designed to ensure that the treaty’s
mandates, including those of Article 11, are based on the best and most recent evidence.
Professor Thrasher explains in his report:
As with the original FCTC document, the development of implementation guidelines involves comprehensive review and input from internationally recognized scientific experts from diverse sectors and regions of the world. This process ensures that FCTC recommendations reflect the most up-to-date, scientific consensus regarding “best practices” for tobacco control policies and programs.558
556 See WHO Framework Convention on Tobacco Control (“FCTC”), “Parties to the WHO Framework Convention on Tobacco Control” (22 July 2014), available at http://www.who.int/fctc/signatories_parties/en/ (last visited 11 Sept. 2014) (R-309).
557 WHO, FCTC, Art. 11(1)(b) (emphasis added) (RL-20).
558 Thrasher Report, p. 8 (REX-003).
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5.28 In November 2008, the States Parties to the Convention, assembled at the third
Conference of the Parties in South Africa, unanimously adopted the Guidelines for
Implementation of Article 11. Paragraph 12 of the Guidelines states: “Parties should consider using health warnings and messages that cover more than 50% of the principal display areas and aim to cover as much of the principal display areas as possible.”559 The Guidelines further state that Paragraph 12 is based on “the evidence that the effectiveness of health warnings and messages increases with their size.”560
5.29 In 2009, the WHO and PAHO published a report that similarly called on all States to
“require warnings to be as large as possible” because “larger warnings are more effective than smaller warnings.”561
5.30 It would have been reasonable for any State contemplating a new health warning requirement on cigarette packs to rely on the FCTC and the Guidelines, and the recommendations of WHO and PAHO, to determine the appropriate size of the required warnings.
5.31 In 2009, when Uruguay adopted the 80% Requirement, there were, in addition to these elements, numerous studies showing (1) that bigger health warnings are better because they are more effective in raising public awareness of the risks of smoking; and (2) more specifically, that warnings bigger than 50%, up to 80% and even larger, are more effective than 50% warnings. As
559 COP-FCTC, Guidelines for implementation of Article 11 of the WHO FCTC, ¶ 12 (emphasis added) (RL-13).
560 Ibid.
561 PAHO & WHO, Showing the truth, saving lives, p. 17 (R-34).
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shown in Section II of this Chapter, Uruguay was aware of these studies when it adopted the
80% Requirement.
5.32 The “bigger is better” studies include, inter alia, a 2007 Canadian study of the impacts of
health warnings on adolescents, which showed that the biggest warning labels were the most
effective. The study found that after Canada increased the size of its warning labels to 50% (from
33%) awareness of the warnings among 12- to 18-year olds increased substantially (from 28% to
70%), including both smokers (from 47% to 83%) and non-smokers (from 28% to 77%).562
Three other Canadian studies concluded by 2008 similarly found that adolescents identified packages with larger warning labels as the most effective, reporting that larger warning labels did a better job of getting their attention.563
5.33 The greater effectiveness of larger warnings was confirmed in a comparative analysis of
smokers’ reactions to warning labels in different countries. After the United Kingdom increased the size of its warning labels in 2003 from 6% of both the front and back to 30% of the front and
40% of the back, more smokers reported that the warnings had made them think about
quitting.564
562 Environics Research Group, Wave 12 Surveys: The Health Effects of Tobacco and Health Warning Messages on Cigarette Packages: Survey of Youth (Jan. 2007), p. 29 (R-182); Thrasher Report, p. 23 (REX-003).
563 See Environics Research Group, Canadian Adult and Youth Opinions on the Sizing of Health Warning Messages (Oct. 1999), p. 43 (R-144); Environics Research Group, Consumer Research on the Size of Health Warning Messages — Quantitative Study of Canadian Youth (June 2008), p. 4 (C-231); Environics Research Group, Consumer Research on the Size of Health Warning Messages: Quantitative Study of Canadian Adult Smokers (May 2008), p. 4 (C-230); Thrasher Report, p. 25 (REX-003).
564 Hammond, et al., Text and graphic warnings on cigarette packages, p. 202 (R-25); Thrasher Report, p. 34 (telephone surveys) (REX-003).
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5.34 According to another study, smokers in the United Kingdom, where health warning labels were comparatively larger, reported that warnings had deterred them from having a cigarette more often than did smokers in the United States and Australia, where the warning labels were
565 then smaller. Another study published in early 2009, which assessed how often smokers thought about quitting and smoking-related harms because of warnings, found significant increases after larger warnings were introduced in Australia and the United Kingdom.566 Still other studies from Canada showed that after warning labels were increased to 50% of the front and back of the pack, both adult and adolescent smokers increasingly responded to the warnings by thinking about the health harms they advertised and taking actions to quit.567
5.35 Studies from countries that had adopted larger warning label requirements also reported increased calls to “quit smoking hotlines” following the size increases.568 A 2009 study in
Australia showed that call volume increased when warnings were increased from 25% of the
565 International Tobacco Control (ITC) Policy Evaluation Project, FCTC Article 11 Tobacco Warning Labels: Evidence and Recommendations from the ITC Project (May 2009), p. 6 (R-209).
566 R. Borland, et al., Impact of graphic and text warnings on cigarette packs: Findings from four countries over five years, TOBACCO CONTROL, Vol. 18, No. 5 (Oct. 2009), pp. 359-360 (C-228); Thrasher Report, p. 34 (REX-003).
567 D. Hammond, et al., Impact of the graphic Canadian warning labels on adult smoking behavior, TOBACCO CONTROL, Vol. 12, No. 4 (Dec. 2003), pp. 393-395 (R-17); D. Hammond, et al., The Impact of Cigarette Warning Labels and Smoke-free Bylaws on Smoking Cessation: Evidence from Former Smokers, CANADIAN JOURNAL OF PUBLIC HEALTH, Vol. 95, No. 3 (May 2004), p. 201 (R-164); D. Hammond, et al., Graphic Canadian Cigarette Warning Labels and Adverse Outcomes: Evidence from Canadian Smokers, AMERICAN JOURNAL OF PUBLIC HEALTH, Vol. 94, No. 8 (Aug. 2004), p. 1442 (R-168); M. O’Hegarty, Reactions of Young Adult Smokers to Warning Labels on Cigarette Packages, AMERICAN JOURNAL OF PREVENTIVE MEDICINE, Vol. 30, No. 6 (June 2006) (R-21); Thrasher Report, pp. 34-35 (REX-003).
568 See, e.g., T. Cavalcante, Labelling and Packaging in Brazil (2003), p. 12 (R-14); PAHO & WHO, Showing the truth, saving lives, p. 8 (R-34); M. Willemsen, et al., Impact of the new EU health warnings on the Dutch quit line, TOBACCO CONTROL, Vol. 11, No. 4 (Dec. 2002), p. 5 (R-159); Thrasher Report, p. 35 (REX-003).
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front of the pack and 33% of the back, to 30% of the front and 90% of the back569 (later, calls shot up when warnings were increased from 30%/90% to 75%/75%).570
5.36 These effects were particularly notable among youth under 18 years old. For example, a
2008 study showed that over 80% of the young people under age 18 surveyed believed that increasing the size of warning labels would discourage tobacco use.571 After Australia implemented its larger warnings, adolescent smokers were more likely to report that warnings made them think about quitting.572
5.37 By 2008-2009, there was a very substantial body of evidence that the effectiveness of health warning labels is proportionate to their size, such that bigger warnings are more effective.
A January 2008 report entitled Health warnings on tobacco packages: Summary of evidence and legal challenges confirmed that “larger warnings are significantly more effective than more obscure warnings.”573 Similarly, citing a number of studies, the Technical Guide to Tobacco
569 C. Miller, et al., Impact on the Australian Quitline of new graphic cigarette pack warnings including the Quitline number, TOBACCO CONTROL: ONLINE FIRST (11 Feb. 2009), pp. 235-237 (R-207).; Thrasher Report, p. 35 (REX- 003).
570 J. Young, et al., Association between tobacco plain packaging and Quitline calls: a population-based, interrupted time-series analysis, MEDICAL JOURNAL OF AUSTRALIA, Vol. 200, No. 1 (Jan. 2014) (R-286); Thrasher Report, p. 35 (REX-003).
571 Environics Research Group, Consumer Research on the Size of Health Warning Messages — Quantitative Study of Canadian Youth, pp. 28-29 (C-231); Thrasher Report, p. 28-29 (REX-003).
572 V. White, et al., Do graphic health warning labels have an impact on adolescents’ smoking-related beliefs and behaviors?, ADDICTION, Vol. 103, No. 9, pp. 1568-69 (Sept. 2008) (R-30); Thrasher Report, p. 34 (REX-003).
573 D. Hammond, Health warnings on tobacco packages: Summary of evidence and legal challenges (Jan. 2008) (hereinafter “Hammond, Health warnings on tobacco packages: Summary of evidence and legal challenges”), p. 12 (emphasis in original) (R-29). See also D. Hammond, Tobacco Labeling and Packaging Toolkit: A guide to FCTC Article 11 (Feb. 2009), pp. 17-18 (R-32).
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Packaging and Labelling produced by the International Union Against Tuberculosis and Lung
Disease concluded: “[S]mokers are more likely to recall larger warnings than smaller ones.”574
5.38 As Professor Thrasher states in his expert report: “The evidence, both before and after
Uruguay adopted its 80% HWL [health warning label] regulation, indicates that increasing HWL size enhances HWL effectiveness and that, as a consequence, the largest HWLs are the most effective.”575
5.39 By 2009, studies that explicitly compared 50% health warning labels with larger warnings had been conducted among adult smokers and adolescents in Canada.576 These studies found that the “largest [warnings] were consistently evaluated as the most effective for informing
574 International Union Against Tuberculosis and Lung Disease (IUATLD), Tobacco Packaging and Labelling: Technical Guide (2009), p. 8 (citing Canadian Tobacco Trials Document, Cragg, Ross and Dawson Limited, Health Warnings on Cigarette and Tobacco Packs: Report on Research To Inform European Standardisation (Dec. 1990), Bates No. TA82873-TA82881 (R-125); Health Education Authority, Health warnings on cigarette and tobacco packs: report on research to inform European standardization (1990); Action on Smoking and Health (ASH), Tobacco product warnings: a survey of effectiveness (1998); Philip Morris Internal Document, G. Cooney, School of Behavioural Sciences, Macquarie University, Health Warnings and Contents Labelling on Tobacco Products: Report on Research Conducted by the Centre For Behavioural Research In Cancer (Aug. 1992), Bates No. 2504091740-2504091747 (R-127); E. Strahan, et al., Enhancing the effectiveness of tobacco package warning labels: a social psychological perspective, TOBACCO CONTROL, Vol. 11, No. 3 (Sept. 2002) (R-156); Canadian Tobacco Trials Document, AGB Spectrum Research Ltd., “Testing the Positions of Health Warnings on Cigarette Packs” Prepared for Health Promotion Programme, Department of Health, New Zealand (Nov. 1987), Bates No. TA82495-TA82500 (R-119); Canadian Tobacco Trials Document, P. Linthwaite, Health Warnings, HEALTH EDUCATION JOURNAL, Vol. 44, No. 4 (Dec. 1985), Bates No. TA83859-TA83861 (R-117)) (R-204).
575 Thrasher Report, p. 51 (REX-003).
576 Environics Research Group, Canadian Adult and Youth Opinions on the Sizing of Health Warning Messages (R- 144); Environics Research Group, Consumer Research on the Size of Health Warning Messages — Quantitative Study of Canadian Youth (C-231); Environics Research Group, Consumer Research on the Size of Health Warning Messages: Quantitative Study of Canadian Adult Smokers (C-230); Les Études de Marché Créatec, Quantitative study of Canadian youth smokers and vulnerable non-smokers: Effects of modified packaging through increasing the size of warnings on cigarette packages (2008) (hereinafter “Créatec, Quantitative study of Canadian youth smokers and vulnerable non-smokers”) (C-225); Les Études de Marché Créatec, Quantitative study of Canadian adults smokers: Effects of modified packaging through increasing the size of warnings on cigarette packages (2008) (hereinafter “Créatec, Quantitative study of Canadian adult smokers”) (C-224); Thrasher Report, pp. 28, 52 (REX- 003).
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others (e.g., smokers, Canadians, the public) about the risks of smoking.”577 A series of experiments among adult smokers and adolescents in Canada from 1999 to 2008 evaluated different cigarette packages whose only difference was the warning size. When participants evaluated packages for their effectiveness in discouraging smoking (e.g., reducing smoking, motivating smokers to quit, discouraging people “your age” — for youth — from smoking), the larger warnings were consistently viewed as more effective than smaller warnings across all studies.578
5.40 In particular, a study of Canadian youth in 2008 found that the largest warnings above
50% would be the most effective in communicating the risks of smoking and discouraging tobacco use.579 Each incremental increase in size above 50% was found to produce a significant
increase in effectiveness: “Effects were already significant and substantial at the smaller increased size option B (75%), on each of the five scales used to measure the perceived
communication impact with the public. Incremental effects of each increased size option over its
smaller alternative were also significant.”580 The study therefore concluded: “These findings
577 Thrasher Report, p. 28 (REX-003).
578 Environics Research Group, Canadian Adult and Youth Opinions on the Sizing of Health Warning Messages (R- 144); Environics Research Group, Consumer Research on the Size of Health Warning Messages — Quantitative Study of Canadian Youth (C-231); Environics Research Group, Consumer Research on the Size of Health Warning Messages: Quantitative Study of Canadian Adult Smokers (C-230); Créatec, Quantitative study of Canadian youth smokers and vulnerable non-smokers (C-225); Créatec, Quantitative study of Canadian adult smokers (C-224); Canadian Tobacco Trials Document, Environics Research Group Ltd., “Reactions to Cigarette Packaging Formats” Prepared for the Canadian Cancer Society (Mar. 1999), Bates No. TA82964-TA82985 (R-142); Thrasher Report, pp. 28-29 (REX-003).
579 Créatec, Quantitative study of Canadian youth smokers and vulnerable non-smokers, p. 5, 28-32 (C-225); Thrasher Report, pp. 33-34 (REX-003).
580 Créatec, Quantitative study of Canadian youth smokers and vulnerable non-smokers, p. 31 (C-225).
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confirmed that the larger the warnings, the more they are perceived as an effective vehicle for
communicating with the public. The larger the warnings are, the stronger their influence.”581
5.41 The companion 2008 study of Canadian adult smokers found that increasing the size of
warnings labels from 50% to 75% to 90% and to 100% had important effects reinforcing
personal belief in the message conveyed by the warnings. The study found that the “incremental
effects of each new increased size option from its smaller alternative … were significant” in
increasing the smokers’ personal belief in the message conveyed by the warning.582
5.42 A May 2009 literature review of the available science on tobacco labeling conducted for the European Union likewise found that “the larger the warning the more effective it is likely to be. The evidence shows that a warning message should be optimally 100% and at least 50% of the facial area.”583
5.43 Since Uruguay implemented the 80% Requirement, the evidence has continued to
accumulate that bigger health warnings are more effective in raising public awareness of the hazards of smoking. A recent study published in the AMERICAN JOURNAL OF PREVENTIVE
MEDICINE measured the responses of smokers and non-smokers in the United States to different
package designs with warning labels of three different sizes: 30%, 50% and 100%. The majority
581 Ibid., p. 32.
582 Créatec, Quantitative study of Canadian adult smokers, p. 35 (C-224); Thrasher Report, p. 29 (REX-003)
583 Sambrook Research International, A Review of the Science Base to Support the Development of Health Warnings for Tobacco Packages (2009), p. 46 (C-249); Thrasher Report, p. 53 (REX-003).
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(73%) indicated that they thought the 100% warning label was most likely to motivate smokers
to quit.584
5.44 In his expert report, Professor Thrasher reviews the studies examining the effects of
larger health warning labels. As he explains, the studies demonstrate that larger warnings are
more effective in attracting smokers’ and non-smokers’ attention to the message, better communicating the variety and severity of health risks, and causing cognitive and behavioral changes that ultimately discourage smoking.585 In Professor Thrasher’s words, the studies
provide “consistent support for the basic principle that larger, more prominent HWLs are more
effective in communicating risk.”586 In particular,
the scientific evidence consistently supports the conclusion that larger warnings, including those that cover 80% compared to 50% of the package, are more effective in communicating tobacco- related risks to both adult smokers and adolescents. Evidence available at the time of Uruguay’s decision to increase the size of warning labels from 50% to 80% of the package, which also informed the World Health Organization’s scientific consensus recommending this type of increase in size, is consistent with studies that have been conducted since that time.587
In short: “The studies demonstrate the consensus that the effectiveness of HWLs increases as
their size increases.”588
584 M. Bansal-Travers, et al., The Impact of Cigarette Pack Design, Descriptors, and Warning Labels on Risk Perception in the U.S., AMERICAN JOURNAL OF PREVENTIVE MEDICINE, Vol. 40, No. 6 (June 2011), p. 679 (R-240); see also Thrasher Report, p. 23 (REX-003).
585 Thrasher Report, pp. 21-37 ( REX-003).
586 Ibid., p. 32.
587 Ibid., p. 3.
588 Ibid., p. 22.
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5.45 It is possible, of course, to find experts who will challenge these studies and dispute their
findings. Tobacco companies have never had difficulty in retaining experts to give statements
against proposed laws or regulations that would place limits on their ability to advertise, promote
or market their products. That is standard practice. In this case, as mentioned in Chapter 4,
Claimants have submitted with their Memorial a report prepared by Dr. Alexander Chernev. Dr.
Chernev takes issue with Uruguay’s 80% Requirement as well as the SPR. His criticisms are refuted below.
5.46 Before addressing them however, it bears reiteration that the Tribunal is not called upon to substitute its opinion for the informed judgment of Uruguay’s public health officials, or to weigh all of the scientific and other evidence and determine whether the best size of health warnings on cigarette packs is 80% or some other figure. The question before the Tribunal is whether Uruguay acted in a manifestly arbitrary way in setting that standard; that is, whether — in Claimants’ own words — there is no “logical connection” between the 80% Requirement and the protection of public health. Claimants bear the burden of proving the absence of such a connection.
5.47 Uruguay submits that in light of the express language of the FCTC, the Guidelines, and the recommendations of the WHO and PAHO, as well as the various studies that these organizations and public health and tobacco control experts across the world have deemed reliable, Claimants cannot hope to meet that burden here. Moreover, as discussed in Chapter 2, international law dictates that Uruguay’s public health experts enjoy a wide “margin of appreciation” in adopting regulations for the protection of public health, all the more so in regard to a product as uniquely harmful to human health as tobacco.
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5.48 Dr. Chernev deems only seven of the 23 studies Uruguay raised in its pleadings on
jurisdiction as relevant to the criteria he sets for himself. He then criticizes each. For example,
Dr. Chernev criticizes the findings of the two 2008 companion studies of Canadian adult and
youth smokers because, in his view, they “show that increasing the size of health warning labels
from 50% to 75% did not have a meaningful impact on most of the key outcome measures.”589
With respect, Dr. Chernev is mistaken in his reading of those studies.
5.49 Dr. Chernev bases his view on the following excerpt from the studies’ conclusions, which he cites out of context and thereby gives a different meaning: “considering all effectiveness indicators, [graphic health warnings] with increased size option B (75%) were unlikely to remain more effective over a number of years than with the current scenario A (50%).”590 This, however, does not reflect the studies’ real conclusions, which were:
If the size of current HWMs was increased from 50% to 75%, impact would be statistically significant on many indicators, but small. With modified packaging option B (75%) only one effect would be substantial compared to the current scenario: respondents felt personally more convinced to stay away from smoking.
− Therefore, considering all effectiveness indicators, HWMs with increased size option B (75%) were unlikely to remain more effective over a number of years than with the current scenario A [50%] ….
To achieve statistically significant effects on all effectiveness indicators, at least option C (90%) was required. With modified packaging option C (90%) three additional substantial effects were observed ….
589 A. Chernev, Report on the Relevance, Validity, And Sufficiency Of The Empirical Evidence Cited By The Uruguayan Government In Support Of The Single Presentation Regulation And The 80% Graphic Health Warning Regulation (28 Feb. 2014), ¶ 40 (CWS-009).
590 Ibid.
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With modified packaging option D (100%) one additional substantial effect was observed ….591
5.50 Thus, the studies found that increasing warnings from 50% to 75% of the package
resulted in a significant impact across several indicators of effectiveness, and that the impact was
substantial in regard to at least one of the most important indicators: “respondents felt personally
more convinced to stay away from smoking.”592 That is, of course, one of the principal objectives of warning labels and it impacts directly on public health. In addition, as explained by
Professor Thrasher:
Contrary to Chernev’s conclusion, the authors of the cited studies find that effectiveness indicators favored the 75% over the 50% HWL size in five of the seven domains of interest. The two domains for which evidence is less compelling (i.e., smoker image and product image[]) do not address the primary objective of the Uruguayan 80% HWL regulation. When considering all indicators of risk communication and discouragement of smoking (as described in the current report), 75% HWLs were more effective than 50% HWLs.593
5.51 Other conclusions in these studies that Dr. Chernev did not mention were, as quoted
above, that to achieve statistically significant effects on all effectiveness indicators, an increase in warning size to 90% would be required, and to achieve even greater effectiveness a 100% size
591 Créatec, Quantitative study of Canadian adult smokers, p. 5 (C-224).
592 Ibid. The study found that the 75% warnings showed a particularly substantial impact in regard to their persuasiveness: “While impact on most indicators started to be statistically significant at the smallest increased option B (75%), incremental effects of option C (90%) over B (75%) and option D (100%) over C (90%) were generally proportionally larger than those of option B (75%) over A (50%).” Ibid., p. 4. In other words, while 75% warnings were more persuasive than 50%, each percentage increase above 75% had an even greater impact, with 100% being the most effective of all. To quote the studies themselves: “These findings confirmed that the larger the warnings, the more they are perceived as an effective vehicle for communicating with the public. The larger the warnings are, the stronger their influence.” Ibid., p. 31; Créatec, Quantitative study of Canadian youth smokers and vulnerable non-smokers, p. 32 (C-225).
593 Thrasher Report, pp. 45-46 (REX-003).
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would be necessary. These findings confirm the international public health consensus, and
Uruguay’s understanding, that larger health warnings are more effective than smaller ones, and the largest health warnings are the most effective.
5.52 Dr. Chernev criticizes both Uruguay’s 80% Requirement and its SPR because, in his view, there is no empirical evidence that either measure, by itself, causes a reduction in smoking.
Among the other problems with his argument is that he measures the effectiveness of these
regulations against the wrong standard.
5.53 To be sure, it is Uruguay’s ultimate goal to reduce smoking prevalence, and thereby to
reduce the incidences of addiction and deaths from lung cancer, heart disease, stroke and other
infirmities caused by tobacco use. To that end, it has adopted a range of measures, such as bans
on cigarette advertising, prohibitions on smoking in public places, increased taxes on tobacco
sales, public education campaigns, and, inter alia, the two measures that have been challenged
by Claimants.
5.54 Each of these measures has its own place in Uruguay’s multifaceted approach to reducing
the damage to public health tobacco use causes. The SPR, as explained above, was intended to
combat a practice that misled smokers and would-be smokers into believing that certain brand
variants were less harmful than their parent brands, or other variants in the same brand family,
and caused them to smoke the supposedly “safer” variants in lieu of quitting. It is difficult to
argue that the measure has not been effective in achieving its purpose; since no brand variants
may be sold, it is no longer possible for consumers to be misled into purchasing them under the
guise that they are healthier versions of known brands.
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5.55 In similar fashion, the 80% Requirement was intended to increase public awareness of the specific risks of smoking and the magnitude of those risks. Uruguay would be satisfied if, as a result of such increased awareness, more smokers quit smoking and fewer young people started smoking. As Claimants acknowledged to the Ministry of Public Health in 2004, “to reduce the prevalence of tobacco use [is] an appropriate public health objective with which Abal Hnos. agrees.”594 But increased public awareness of the risks of smoking is an important public health goal in itself: if smokers decide to continue smoking or unsuccessfully attempt to quit, at least it will be with greater appreciation of the health risks they are assuming. According, again, to
Claimants in 2004, “effective tobacco regulation can assure that consumers remain informed about these effects on health.”595
5.56 In any event, it is by examining the combination of tobacco control measures implemented by Uruguay since the 1980s, and especially since 2005 — rather than each measure in isolation from the others — that their effectiveness can best be appreciated. The evidence speaks for itself: between the years just prior to the SPR and 80% Requirement and 2011, the prevalence of smoking in Uruguay dropped from 32% to 23%.596
5.57 Claimants oppose the 80% Requirement because, a 50% warning is, in their judgment, sufficient to communicate effectively to Uruguayan consumers the risks of smoking. A spokesman for PMI explained in an article in the New York Times: “The [cigarette] packages definitely need health warnings, but they’ve got to be a reasonable size .... We thought 50
594 Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004), p. 1 (R-166).
595 Ibid.
596 See infra ¶ 6.45.
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percent was reasonable. Once you take it up to 80 percent, there’s no space for trademarks to be
shown. We thought that was going too far.’”597
5.58 In fact, the 80% Requirement does leave space for brand names and logos to be shown.
Claimants’ current preference for 50% warnings is just their latest arbitrary line in the sand. For
many years, Philip Morris, alongside other tobacco companies, has fought to keep warnings
labels as small as possible, always claiming that larger warnings are unreasonable and ineffectual.598 In 2001, for example, when Canada increased the size of its warning labels from
33% to 50%, Philip Morris sued, arguing that the size increase was unjustified, using some of the
same arguments it has made here.599 As stated in Chapter 3, the Supreme Court of Canada
rejected these arguments, finding that “bigger warnings may have a great effect.”600 In 2012,
Canada further increased the required size of warning labels to 75% of the front and back of the pack.601 After losing once, Philip Morris chose not to sue Canada again.
5.59 Having lost in their attempt to draw the line at 33%, Claimants now proclaim the virtues
of 50%.602 But their arguments here are no more convincing than they were in Canada. If they
now consider a 50% warning “reasonable,” on what basis can they argue that anything over 50%
597 D. Wilson, “Cigarette Giants in Global Fight on Tighter Rules,” New York Times (13 Nov. 2010) (R-231).
598 See, e.g., Hammond, Health warnings on tobacco packages: Summary of evidence and legal challenges, p. 14 et seq. (R-29).
599 Canada (Attorney General) v. JTI-Macdonald Corp., et al., [2007] 2 S.C.R. 610, Supreme Court of Canada (28 June 2007), pp. 2-8 (R-183).
600 Ibid., p. 58; see also Hammond, Health warnings on tobacco packages: Summary of evidence and legal challenges, p. 19 (R-29); see supra ¶¶ 3.68-3.70.
601 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report, Third Edition (Oct. 2012), p. 2 (R-262).
602 See CMM, ¶¶ 45-46.
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is, by definition, not? How can there be “no logical connection” between warning sizes greater
than 50% — including up to at least 80% — and the protection of public health when
international and national public health authorities insist that warnings greater than 50%, indeed warnings that “cover as much of the package as possible,” are more effective? How can they claim that larger-sized warnings, including 80% warnings, are “arbitrary,” when many studies and experts — relied on by WHO and PAHO and many governments around the world — support the conclusion that they are reasonable? Claimants simply cannot meet their burden of
showing that there is “no logical connection” between warning sizes greater than 50% —
including up to 80% — and the protection of public health.
II. The Adoption of Decree 287
5.60 Based on the FCTC mandate to increase warning label size as much as possible and the
evidence supporting it, Uruguay adopted Decree 287/009 on 15 June 2009, enlarging its warning
labels from 50% to 80% of the front and back of cigarette packs. The Decree came into effect six
months later, on 22 December 2009. The Preamble states in part:
CONSIDERING: that according to Article 44 of the Constitution, it is the duty of the State to legislate in all matters related to public health and hygiene, to achieve the physical, moral and social betterment of all the inhabitants of the country;
MINDFUL: of the foregoing and of what is established in Article 44 of the Constitution of the Republic, the Framework Convention for Tobacco Control, Article 11 of Organic Law of Public Health No. 9.202 of 12 January 1934, Article 9 of Law No. 18,256 of 6 March 2008, Article 12 of Decree No. 284/008 of 9 June 2008, and other amending and related provisions ….603
603 Uruguayan Decree No. 287/009 (15 June 2009), Preamble (RL-4).
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Article 1 of the Decree then provides:
It is ordered that the health warnings to be used on tobacco product packages, that include images and/or pictograms and messages, shall cover 80% (eighty per cent) of the lower part of each of the main sides of every cigarette package ….604
5.61 The process leading to the adoption of Decree 287 began with Uruguay’s ratification of
the FCTC in 2004, and the decree to increase warning labels to 50% of the package soon
thereafter.605
5.62 In February 2008, as Uruguay’s framework law on tobacco control, Law 18,256, was in
the final stages of approval by the national legislature (it was approved in March), Public Health
Ministry officials and members of the Advisory Commission on Tobacco Control took note of
the WHO’s recently-released Report on the Global Tobacco Epidemic: The MPOWER package
(2008).606 The WHO report included a plan called “MPOWER” to guide countries in reducing tobacco-related death and disease by implementing their obligations under the FCTC. In regard to health warning labels, the report stated: “To be effective, warnings should be large, clear and legible, and include both pictures and words. They should cover at least half of the pack’s main display areas and feature mandated descriptions of harmful health effects and specific illnesses
604 Ibid., Art. 1.
605 Witness Statement of Dr. María Julia Muñoz (8 Oct. 2014) (hereinafter “Muñoz Witness Statement”), ¶¶ 6-8, 20 (RWS-003); Witness Statement of Dr. Winston Abascal (9 Sept. 2014) (hereinafter “Abascal Witness Statement”), ¶ 15 (RWS-001); Witness Statement of Dr. Eduardo Bianco (15 Sept. 2014) (hereinafter “Bianco Witness Statement”), ¶ 15 (RWS-002).
606 World Health Organization (“WHO”), Report on the global tobacco epidemic: The MPOWER package (2008) (hereinafter “WHO, Report on the global tobacco epidemic”) (R-28); Bianco Witness Statement, ¶¶ 15-17 (RWS- 002).
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caused by tobacco use.”607 It added: “Countries that do not mandate effective pack warnings and
do not prohibit deceptive and misleading terms fail to provide their populations with the most
basic form of protection from a serious health threat — accurate information and protection from
deception by the tobacco industry.”608 The Uruguayan Government heeded the WHO’s
recommendation. Thus, Article 9 of Law 18,256 established that Uruguay’s warnings would
cover “at least 50%” of the principal surfaces of tobacco packaging.609
5.63 In November 2008, the Guidelines for Implementation of Article 11 of the FCTC were
released. As discussed, they called upon States to enlarge health warnings above 50% to the
maximum size possible. The Guidelines were studied by the Ministry of Public Health officials
in the National Tobacco Control Program and by the Advisory Commission.610
5.64 Based on the FCTC, the WHO report and the Guidelines, Uruguayan public health
officials and Advisory Commission members considered whether health warning labels should
be increased in size above 50%, and if so, to what size.611 They concluded, based on these
sources and published studies on the subject, that larger warnings would be more effective in
achieving one of the principal objectives of the National Tobacco Control Program: increasing
607 WHO, Report on the global tobacco epidemic, pp. 34-35 (emphasis added) (R-28).
608 Ibid., p. 50.
609 Uruguayan Law No. 18,256 (6 Mar. 2008) (RL-6).
610 Muñoz Witness Statement, ¶ 21 (RWS-003); Abascal Witness Statement, ¶ 16 (RWS-001); Bianco Witness Statement, ¶ 18 (RWS-002).
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public awareness, among smokers and non-smokers alike, of the particular harms caused by
smoking and the magnitude of these risks.612
5.65 In April 2009, President Tabaré Vazquez was informed of the recommendation to
increase the size of Uruguay’s warnings and encouraged the Ministry of Public Health to move
forward with such a measure, delegating it to the Ministry to determine the size that would best
accomplish Uruguay’s public health goals.613 The President, an oncologist, was familiar from his
former medical practice with the harms caused by tobacco consumption and the need for
increased public awareness.
5.66 Upon receiving the President’s message, the Minister consulted with the National
Program for Tobacco Control and members of the Advisory Commission.614 Several alternatives
were considered. Among them were “plain packaging,” which would not have allowed the
presentation of any form of company or brand logo, or other design or promotional material, on
the package615 (as noted in Chapter 4, this measure was adopted by Australia in 2012, and is
presently under consideration in the United Kingdom, New Zealand and France, among other
States); and warnings covering 90% of the front and back of the package.616
612 Muñoz Witness Statement, ¶ 21 (RWS-003); Abascal Witness Statement, ¶ 18 (RWS-001); Bianco Witness Statement, ¶¶ 15, 18 (RWS-002).
613 Bianco Witness Statement, ¶¶ 16-20 (RWS-002); Abascal Witness Statement, ¶ 17 (RWS-001); Muñoz Witness Statement, ¶ 22 (RWS-003).
614 Bianco Witness Statement, ¶ 20 (RWS-002); Abascal Witness Statement, ¶ 17 (RWS-001); Muñoz Witness Statement, ¶ 22 (RWS-003).
615 Abascal Witness Statement, ¶ 17 (RWS-001); Bianco Witness Statement, ¶ 20 (RWS-002).
616 Muñoz Witness Statement, ¶ 22 (RWS-003); Abascal Witness Statement, ¶ 17 (RWS-001); Bianco Witness Statement, ¶ 20 (RWS-002).
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5.67 As these deliberations were concluding, on 31 May 2009, the WHO and PAHO again
called on States to “require warnings to be as large as possible” because “larger warnings are
more effective than smaller warnings.”617 The following day, on 1 June 2009, Uruguay’s
Minister of Public Health announced that Uruguay would require warnings labels to cover 80%
of tobacco packaging.618 This size was chosen in order to enlarge the warning labels as much as
possible, while still leaving sufficient space on the package to display brand names and logos.619
5.68 In making this announcement, the Minister of Public Health emphasized the importance
of making the public more conscious of “the harmful effects that tobacco causes in human
beings.”620 She continued:
That is why it is to them that we are going to direct a more intense campaign. Through cigarette packs, the President has just signed a Decree increasing the warning of the harmful effects [smoking] produces to 80% of the size of the pack, as well as through publicity campaigns devoted to these issues.621
5.69 The witness statements annexed to this Counter-Memorial confirm what is self-evident
from Decree 287 itself and the events described above that led to its adoption: the measure was
adopted to protect public health by increasing public awareness of the specific nature and
617 PAHO & WHO, Showing the truth, saving lives, p. 17 (R-34).
618 Uruguayan Ministry of Public Health (MSP), “Commitment to the Health of the Population: Strengthening the Anti-Tobacco Campaign” (1 June 2009) (R-37).
619 Abascal Witness Statement, ¶ 17 (RWS-001); Muñoz Witness Statement, ¶ 22 (RWS-003).
620 MSP, “Commitment to the Health of the Population: Strengthening the Anti-Tobacco Campaign” (1 June 2009) (R-37).
621 Ibid.
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magnitude of the health hazards of tobacco consumption.622 It was, moreover, based on the
requirements of the FCTC and recommendations of the WHO, and evidence that was consistent
with those recommendations.623
5.70 There is no basis for challenging either the good faith or the reasonableness of Uruguay’s
decision. The “logical connection” between more effectively warning people of the harms caused
by smoking and the protection of public health is obvious and incontestable. Of particular
relevance in this regard are the statements attached to this Counter Memorial and submitted by:
the then-Minister of Public Health, Dr. María Julia Muñoz; the Director of the Ministry’s
National Program for Tobacco Control, Dr. Winston Abascal; and the President of the
Uruguayan Tobacco Epidemic Research Center and member of the Ministry’s Advisory
Commission, Dr. Eduardo Bianco.624
5.71 Claimants challenge Uruguay’s good faith. They speculate that the “real reason” for the
80% Requirement was “not scientific or empirical, but punitive.”625 According to their
Memorial, the increase in warning size was intended to punish Claimants’ competitor, Mailhos,
for its use of so-called “alibi brands” to circumvent the SPR.626 The assertion is unfounded.
622 Muñoz Witness Statement, ¶¶ 21-22 (RWS-003); Abascal Witness Statement, ¶¶ 15-19 (RWS-001); Bianco Witness Statement, ¶¶ 15-20 (RWS-002).
623 Muñoz Witness Statement, ¶¶ 21-22 (RWS-003); Abascal Witness Statement, ¶¶ 15-19 (RWS-001); Bianco Witness Statement, ¶¶ 15-20 (RWS-002).
624 See generally Muñoz Witness Statement (RWS-003); Abascal Witness Statement (RWS-001); Bianco Witness Statement (RWS-002).
625 CMM, ¶ 50.
626 Ibid.
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5.72 The Memorial cites two sources for this contention. The first is a press statement by Dr.
Abascal in April 2009 in which he stated that he thought that “in the next days or weeks the ministry will take some action with respect to” Mailhos’ use of alibi brands.627 From this,
Claimants leap to the unjustified conclusion that the 80% Requirement was that action. It was
not. In the same statement, Dr. Abascal described the action he had in mind in regard to “alibi
brands.” He said that he expected the Ministry would request “Monte Paz to take off the market
these three brands.”628 Uruguay’s decision to enlarge warning labels had nothing to do with
Mailhos’ alibi brands. Both Dr. Abascal and Dr. Bianco confirm this in their witness statements.629
5.73 Claimants also cite the hearsay statement of Mr. Chris Dilley, a Philip Morris
International employee.630 According to Mr. Dilley, “Abal representatives met with Dr. Abascal”
who allegedly stated that Uruguay “wanted to increase the size of the health warnings to punish
Mailhos for evading the single presentation requirement.”631 Mr. Dilley himself was not present at this meeting.632 Nor does he identify the “Abal representatives” who were. In any event,
627 Ibid. (citing “Accusations against Tobacco Company,” Radio El Espectador (9 April 2009) (C-277)).
628 “Accusations against Tobacco Company,” Radio El Espectador (9 April 2009) (C- 277). Mailhos is also known as Monte Paz.
629 Abascal Witness Statement, ¶ 19 (RWS-001); Bianco Witness Statement, ¶¶ 15-18 (RWS-002).
630 CMM, ¶ 50 (citing Witness Statement of Mr. Chris Dilley (27 Feb. 2014) (hereinafter “Dilley Witness Statement”), ¶ 14 (CWS-005)).
631 Dilley Witness Statement, ¶ 14 (CWS-005).
632 Ibid., ¶¶ 7, 14
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whomever they may have been, their story is defeated by Dr. Abascal’s affirmative statements
that the 80% Requirement had nothing to do with Mailhos’ use of alibi brands.633
5.74 Claimants further question Uruguay’s motive for adopting the 80% Requirement by
pointing to the fact that there were no scientific studies in the administrative file relating to
Abal’s administrative challenge to Decree 287.634
5.75 This challenge also fails. It is based on a misconception of the procedures followed in
administrative challenges to Ministry actions. The Ministry’s files relating to such challenges do
not typically contain scientific or empirical studies. An administrative challenge of the kind Abal
brought against Decree 287 is not directed at the substantive basis of the measure but instead
whether it constitutes an excess of the Ministry’s power under the governing law. Consistent
with standard practice, Abal’s administrative file thus contains its complaint challenging the
Decree under Uruguayan administrative law, the paperwork transmitting the complaint to/from
the relevant authorities and the Ministry’s legal analysis rejecting Abal’s claims.
5.76 Claimants’ real complaint about the 80% Requirement is commercial. They don’t like it
because it reduces the space on tobacco packages that is available to them to advertise and
promote their products.635 In recent years, as other forms of advertising have been increasingly
denied them, tobacco companies have made greater use of cigarette packages to promote tobacco
use. Article 13 of the FCTC requires that all States Parties “shall” undertake “a comprehensive
633 Abascal Witness Statement, ¶ 19 (RWS-001).
634 CMM, ¶ 49.
635 Philip Morris Internal Document, M. Hulit, Presentation at Corporate Affairs Conference: Marketing Issues (27 May 1994), Bates No. 2504015017-2504015042, p. 2504015038 (R-133).
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ban of all tobacco advertising, promotion and sponsorship.”636 As of 2012, 86 countries, including Uruguay, had reported complying with Article 13 by instituting a comprehensive ban on tobacco advertising, promotion and sponsorship.637
5.77 Advertising on cigarette packs is especially effective at promoting smoking because the packaging is not discarded after opening. As a cigarette package designer explained: “A cigarette package is unique because the consumer carries it around with him all day … it’s a part of a smoker’s clothing, and when he saunters into a bar and plunks it down, he makes a statement about himself.”638 Cigarette packs are frequently taken out and opened by the smoker — 20 times per day by pack-a-day smokers — and may be left on public display during use.
5.78 The package is therefore an important vehicle for either promoting or discouraging smoking. According to a Philip Morris executive: “Government required warnings placed on the largest packaging panel, often called the front and/or back, are the biggest marketing threat to all of us in Asia.”639 And in South America too, as Claimants here understand. The more effective government required warnings are, the more awareness smokers and non-smokers have of the
636 WHO FCTC, Art. 13 (RL-20). Article 13’s Implementation Guidelines explain that “Packaging is an important element of advertising and promotion. Tobacco pack or product features are used in various ways to attract consumers, to promote products and to cultivate and promote brand identity,” and recommend that restrictions on pack should cover as many as possible of the design features that make tobacco products more attractive to consumers ….” Conference of the Parties to the Framework Convention on Tobacco Control (COP-FCTC), Guidelines for Implementation of Article 13 of the WHO Framework Convention on Tobacco Control (Tobacco advertising, promotion and sponsorship) (Nov. 2008) (hereinafter “COP-FCTC, Guidelines for Implementation of Article 13 of the WHO FCTC”), ¶¶ 15, 17 (RL-133).
637 See World Health Organization (“WHO”), 2012 Global Progress Report on Implementation of the WHO Framework Convention on Tobacco Control (2012), p. 36 (R-257).
638 M. Wakefield, et al., The cigarette pack as image: new evidence from tobacco industry documents, TOBACCO CONTROL, Vol. 11, No. Suppl. 1 (2002), p. i73 (R-12).
639 See D. Hammond, FCTC Article 11 Tobacco Packaging and Labelling: A Review of Evidence (Nov. 2007), p. 5 (citing Philip Morris Internal Document, M. Hulit, Presentation at Corporate Affairs Conference: Marketing Issues (27 May 1994), Bates No. 2504015017-2504015042, p. 2504015038 (R-133)) (R-189).
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harms they inflict on themselves and others around them by continuing or starting to smoke, and
the more likely it is that they will refrain from doing so. Prominent health warnings that cover a
significant proportion of the package, particularly pictorial warnings, not only restrict the space
available for promotion of smoking but inevitably undermine smoking’s appeal.640
5.79 The impacts of larger health warnings are particularly important in reaching adolescents.
Young people are known to use packages and brands as symbols of the image they would like to
project to the outside world, whether that image is one of adventure or sex appeal.641 The United
Kingdom, which, as noted, is considering plain packaging, appointed an expert to carry out a
review of tobacco packaging. His review demonstrated that “branded packaging plays an
important role in encouraging young people to smoke.”642
5.80 This is not a coincidence. The tobacco companies have made a concerted effort to tailor
their packaging to attract young consumers. To quote the WHO: “Tobacco companies have long
targeted youth as ‘replacement smokers’ to take the place of those who quit or die. The industry
knows that addicting youth is its only hope for the future.” 643 As a result, the effort to stem the
640 D. Hammond, Health warning messages on tobacco products: a review, TOBACCO CONTROL, Vol. 20, No. 5 (Sept. 2011), p. 333 (R-246); COP-FCTC, Guidelines for Implementation of Article 13 of the WHO FCTC, ¶¶ 15, 17 (RL-133).
641 Canadian Tobacco Trials Document, Standing Committee on Health, Canadian House of Commons, Towards zero consumption: Generic packaging of tobacco products (June 1994), Bates No. TA79146-TA79165, p. TA79153 (R-134).
642 P. Taylor, “If cigarettes kill, why do tobacco giants still wield so much power?,” The Guardian (28 May 2014) (R-302).
643 WHO, Report on the global tobacco epidemic, p. 21 (R-28). See also United States Centers for Disease Control and Prevention (CDC), Preventing Tobacco Use Among Young People: A Report of the Surgeon General (Executive Summary), MORBIDITY AND MORTALITY WEEKLY REPORT, Vol. 43, No. RR-4 (11 Mar. 1994) (hereinafter “CDC, Preventing Tobacco Use Among Young People”), p. 6 (“Since most smokers try their first cigarette before age 18, young people are the chief source of new consumers for the tobacco industry, which each year must replace the many consumers who quit smoking and the many who die from smoking-related diseases.”) (R-6).
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epidemic of tobacco-related death and disease in the 21st century is in a very real sense a battle for the world’s youth.
5.81 People who do not start smoking before the age of 21 are unlikely to ever become regular smokers.644 Conversely, the WHO reports that the “younger children are when they first try smoking, the more likely they are to become regular smokers and the less likely they are to quit.”645 Fully two thirds of children who begin smoking at age 12 become addicted adult smokers, and almost half of those who begin smoking at age 16 become regular adult smokers.646
According to data gathered in 2006, 76% of smokers in Uruguay begin smoking before they turn
17, while 22% begin before they are 13 years old.647
5.82 Quite apart from their heightened susceptibility to the addictive effects of nicotine, children are drawn to smoking because they are especially vulnerable to the allure of tobacco marketing.648 The WHO reports: “Adolescents are at a critical transitional phase in their lives, and TAPS [tobacco advertising, promotion and sponsorship] activities communicate messages
644 Ibid.
645 Ibid.; see also World Health Organization (“WHO”), Report on the Global Tobacco Epidemic, 2011: Warning about the dangers of tobacco (2011), p. 20 (“people are most likely to begin to use tobacco as adolescents”) (R-56); CDC, Preventing Tobacco Use Among Young People, pp. vi (“The onset of tobacco use occurs primarily in early adolescence, a developmental stage that is several decades removed from the death and disability that are associated with smoking and smokeless tobacco use in adulthood.”), 7 (“Since nicotine addiction also occurs during adolescence, adolescent tobacco users are likely to become adult tobacco users.”), 8 (“Among addictive behaviors, cigarette smoking is the one most likely to become established during adolescence. People who begin to smoke at an early age are more likely to develop severe levels of nicotine addiction than those who start at a later age.”) (R-6).
646 WHO, Gender, Women, and the Tobacco Epidemic, p. 144 (R-221).
647 Uruguayan Union of Medical Doctors, Tobacco Use in Uruguay, p. 5 (R-350).
648 See CDC, Preventing Tobacco Use Among Young People, pp. 6-9 (“The positive functions that many young people attribute to smoking are the same functions advanced in most cigarette advertising.”) (R-6).
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that using tobacco products will satisfy their social and psychological needs (e.g. popularity, peer acceptance and positive self-image).”649
5.83 The WHO also reports that children’s exposure to tobacco advertising, promotion and
sponsorship, “which usually occurs at very young ages (before age 11), increases positive perceptions of tobacco and curiosity about tobacco use. It also makes tobacco use seem less harmful than it actually is, and influences beliefs and perceptions of tobacco use prevalence, which increase the likelihood that adolescents will start to smoke.”650
649 WHO, Report on the Global Tobacco Epidemic, p. 23 (R-270).
650 Ibid.
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5.85 Claimants’ efforts to target youth around the world, including in Latin America, are
exemplified by its recently launched “Be Marlboro” advertising campaign. According to industry observers and regulatory authorities, the campaign is designed to have special appeal to young people.651 Advertisements feature “young, hip dreamers and doers partying, falling in love,
adventure traveling and generally being ‘cool.’”652
Figure 5.1: “Be Marlboro” Campaign Advertisement (English)
651 Campaign for Tobacco-Free Kids (CTFK), et al., You’re the Target: New Global Marlboro Campaign Found to Target Teens (12 Mar. 2014), pp. 1, 17-19 (R-292).
652 Ibid.
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5.87 As recently as June 2014, a Philip Morris International investor presentation highlighted this ongoing campaign as a “flexible platform that can be tailored to cultural differences and brand priorities.”653 The campaign’s Spanish language advertisements display youth-oriented images with slogans such as “‘Tal vez’ nunca ama” (“‘Maybe’ never falls in love”) and “‘Tal vez’ nunca lo logra” (“‘Maybe’ never succeeds”).654
Figure 5.2: “Be Marlboro” Campaign Advertisement (Spanish)
5.88 To protect teenagers from this kind of targeting, public health officials and consumer organizations in a number of countries have filed complaints against Philip Morris International.
In October 2013, for example, German authorities banned the “Be Marlboro” marketing campaign, “finding that it illegally encouraged teenagers and youth adults between the ages of 14 and 21 to smoke.”655 A German court upheld the ban, denying PMI’s request to continue running
653 Philip Morris International, Slides: Investor Day - Marketing & Sales (26 June 2014), pp. 36-42 (R-305).
654 CTFK, et al., You’re the Target: New Global Marlboro Campaign Found to Target Teens, p. 18 (R-292).
655 Ibid., p. 17.
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the advertisements while the case was being appealed.656 Consumer advocates in Switzerland,
Colombia, Brazil and Peru have also filed complaints, alleging that the campaign violates
tobacco advertising codes of conduct that prohibit marketing to teenagers.657
5.89 Despite these wide-spread complaints, as well as the specific findings of the German
court, “PMI continues to aggressively rollout” the campaign internationally, “including in low-
and middle-income countries struggling with the enormous tobacco epidemic.”658
5.90 To target teenagers in Uruguay, Claimants have conducted extensive market research, and developed brands and advertising campaigns that cater to them. Beginning in the early
1980s, Philip Morris surveyed potential consumers as young as 16 to study the “are[a] in which
[they were] currently concentrating [their] marketing efforts in Uruguay.”659 Another market study identified one of Fiesta Lights’ strengths as the fact that it “[a]ppeals to starters and young adult smokers.”660 (As noted above, most “starters” in Uruguay are under 17, and often under
13).
656 Ibid., p. 3.
657 Ibid., pp. 18-19. In June 2014, PROCON, a public consumer protection agency linked to the State, Justice and Citizenship Defense Secretary of São Paulo, fined PMI US$500,000 and asked it to withdraw its campaign because it takes advantage of young people’s inexperience. PMI has appealed the fine, but no date has been set on when the appeal will be decided. See J. Nublat, “Procon Fines Cigarette Manufacturer R$1.1 Million For Advertising Campaign,” Folha de São Paulo (26 Aug. 2014) (R-321).
658 CTFK, et al., You’re the Target: New Global Marlboro Campaign Found to Target Teens, pp. 3-4 (R-292).
659 Philip Morris Internal Document, E. Finch, Uruguayan General Consumer Survey (June 1984), Bates No. 2500022896-2500022982, p. 2500022900 (R-115). See also Philip Morris Internal Document, Memorandum from E. Finch to B. Colombino (20 Apr. 1982), Bates No. 2504007163-2504007164, p. 2504007163 (describing data regarding smokers as young as 16) (R-113).
660 Philip Morris Internal Document, Summary of Main Findings (Dec. 1989), Bates No. 2040125501-2040125527, p. 2040125510 (R-123).
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5.91 Advertisements also frequently featured youthful imagery. For example, an advertising
campaign for Fiesta Lights in the 2000s, shown below as Figure 5.3, featured “pictures of young
people dancing, playing pool and hanging out, where one of them is always seen smoking.” The
ads “portray a sense of belonging to a group; the possibility of not being alone and isolated in a sad world, but rather to form part of a happy group of beautiful people. The moment paints a picture of the companionship of a cigarette with friends.”661 Similarly, Abal’s current point-of-
sale advertisements for its new Iceball” brand, depicted below in Figure 5.4, show a young
woman crowd surfing, while celebrating the smoker’s independence with the slogan “You
choose the freshness.”662
Figure 5.3: Fiesta Lights advertising Figure 5.4: 2014 Iceball advertising campaign campaign (August 2014)
661 R. Pitarque, Communication Strategies of the Tobacco Industry in the Rio de la Plata: Youth at Risk (2010), p. 30 (R-234).
662 Uruguay recently passed a law banning advertisements at the point of sale. Thus, these last remaining forms of advertisement will soon be removed.
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5.92 Just as Uruguay, along with 85 other States, has banned the advertising or promotion of tobacco products, to more fully shield its adolescents and others from the tobacco companies’ marketing, it could have extended that ban to cover the entirety of cigarette packages by, for example, mandating plain packaging as Australia has done. Or it could have opted for warnings larger than 80%. As indicated earlier, it considered both possibilities before finally settling, in its discretion, on the 80% Requirement because it left space for tobacco companies to display their brand names and logos.
5.93 Of course, faced with the 80% Requirement, Claimants and other tobacco companies now prefer 50% — just as vehemently as they denounced 50% when they tried to limit Canada’s warnings to 33%, or when they criticized that figure in favor of even smaller warnings, or when they opposed warnings of any kind or size.
5.94 For the tobacco companies, this is about enlarging the space on cigarette packages to promote consumption of their products. For international organizations like WHO and PAHO, and governments like Uruguay, it is about enlarging the space for warnings of the health hazards of smoking. Tellingly, for both sides in this debate, bigger is better. Claimants thus effectively concede that bigger promotional messages are more effective than smaller ones and that, accordingly, a message occupying 80% of a package is more effective than one occupying 50%, if only because it leaves less space for a contrary message.
III. Increasing Warning Label Sizes around the World
5.95 Uruguay may have been early but it is far from alone in complying with the FCTC, the
Guidelines and the recommendations of WHO and PAHO to increase health warnings above
50% and cover as much of the front and back of cigarette packs as possible. Two weeks before
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Uruguay adopted Decree 287, Mauritius imposed a requirement that cigarette packs carry health warnings on 60% of the front and 70% of the back.663 Now many States require warnings greater than 50%, some even larger than Uruguay’s 80%. The trend is in one direction: larger and more graphic health warnings.
5.96 State practice with respect to warning label size has followed a progression similar to that of graphic depictions on warning labels. When Uruguay enacted Decree 287, it was one of 18
States to require graphic warnings.664 As depicted in the chart below, that number has tripled in the years since. Canada was the first country to require graphic warnings, which it did in 2001.665
By the end of 2013, at least 67 countries had mandated graphic warning labels,666 including
Switzerland, which implemented pictorial warnings in 2010.667 Today, more than 40% of the
663 International Tobacco Control (ITC) Policy Evaluation Project, “Mauritius” (9 Apr. 2014), available at http://www.itcproject.org/countries/mauritius (last visited 1 Aug. 2014) (R-296).
664 In addition to Uruguay, these countries included the following: Australia, Belgium, Brazil, Brunei, Canada, Chile, the Cook Islands, Egypt, Hong Kong, Jordan, New Zealand, Panama, Romania, Singapore, Thailand, the United Kingdom, and Venezuela. Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report (Oct. 2010), p. 3 (R-50); see also Tobacco Labelling Resource Centre, “Health Warning Images” by Country for Assorted Countries (alphabetical), available at http://www.tobaccolabels.ca/healthwarningimages (last visited 24 Sept. 2011) (hereinafter “Tobacco Labelling Resource Centre, ‘Health Warning Images’ by Country for Assorted Countries”) (R-69).
665 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report (Oct. 2010), p. 3 (R- 50).
666 R. Cunningham, Canadian Cancer Society, “Cigarette Package Warning Size and Use of Pictures: International Summary” (18 Feb. 2014), available at http://www.tobaccolabels.ca/wp/wp-content/uploads/2014/04/Cigarette- Package-Warning-Size-and-Use-of-Pictures-International-Summary-Cunningham-Feb-2014.pdf (last visited 1 Aug. 2014) (hereinafter “Cunningham, Canadian Cancer Society, ‘Cigarette Package Warning Size and Use of Pictures: International Summary’”), p. 1 (R-289).
667 Tobacco Labelling Resource Centre, “Health Warning Images” by Country for Assorted Countries, p. 6 (R-69).
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world’s population is informed of the harms caused by tobacco through pictorial health
warnings.668
Figure 5.5: Countries/jurisdictions requiring picture warnings on cigarette packages
5.97 As the WHO and PAHO have continued to urge States to increase warning label size as
much as possible, and the evidence has continued to accumulate that larger warning labels are
more effective than smaller ones, the number of States increasing the size of their warning labels
has grown steadily. When Uruguay issued Decree 287 in the middle of 2009, more than 24
countries required warning labels of at least 50%. As depicted in the graph below, by 2012 there were twice that many.669
668 Health Justice Philippines, “As picture warnings on cigarette packs get bigger worldwide, in RP they have yet to be implemented” (12 Feb. 2013), available at http://www healthjustice.ph/?action=viewArticle&articleId=814 (last visited 1 Aug. 2014) (R-272).
669 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report, Third Edition (Oct. 2012) (R-262).
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Figure 5.6: Countries/jurisdictions requiring warnings of at least 50% of package front/back (on
average)
5.98 Despite the very real chilling effect this arbitration has had on States around the world,
especially smaller countries loathe to expend their limited resources in international arbitration
proceedings, at least 18 States670 have acted to enlarge the size of their warning labels above
50%, including Turkey (65% front, 43% back),671 Ecuador (60% front and back)672 and Brunei
(75% average).673 In addition, in May 2014, the European Union mandated that all 28 member
670 See ibid., p. 2.
671 Tobacco Labelling Resource Centre, “Health Warning Images” by Country for Assorted Countries, p. 7 (R-69).
672 Tobacco Labelling Resource Centre, “Ecuador,” available at http://www.tobaccolabels.ca/countries/ecuador (last visited 12 Sept. 2014) (R-349).
673 Tobacco Labelling Resource Centre, “Brunei,” available at http://www.tobaccolabels.ca/countries/brunei (last visited 12 Sept. 2014) (R-348).
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States require warning labels that cover 65% of the front and back of the package by May
2016.674
5.99 Several States have gone beyond Uruguay’s 80%. As of June 2014, Thailand increased the required size of its warning labels from 55% to 85% of the front and back of its cigarette packs.675 As in Uruguay, the tobacco companies litigated and lost. Like Uruguay’s administrative court (the TCA), the Thai Supreme Administrative Court ruled against their arguments challenging the regulation.676 Australia also now requires warnings to cover an average of 82.5% of the package (75% front, 90% back),677 in addition to requiring plain packaging.678 Close behind are Canada, Nepal and Brunei, which have all increased their warning labels to cover
75% of both the front and back of the package.679
*
674 European Union, Directive 2014/40/EU (3 Apr. 2014), Art. 10(1) (“Each unit packet and any outside packaging of tobacco products for smoking shall … cover 65% of both the external front and back surface of the unit packet and any outside packaging.”), Art. 29(1) (“Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 20 May 2016.”) (R-295). See also European Commission, “Revision of the Tobacco Products Directive,” available at http://ec.europa.eu/health/tobacco/products/revision/index_en.htm (last visited 12 Sept. 2014) (directive entered into force on 19 May 2014) (R-339).
675 A. Sawitta Lefevre, “Bigger health warnings for Thai cigarette packs,” Reuters (27 June 2014) (R-306).
676 Ibid.
677 Cunningham, Canadian Cancer Society, “Cigarette Package Warning Size and Use of Pictures: International Summary,” p. 2 (R-289).
678 Canadian Cancer Society, Cigarette Package Health Warnings: International Status Report, Third Edition (Oct. 2012), p. 2 (R-262).
679 Ibid.
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5.100 For all these reasons, there can be no serious doubt that Uruguay’s decision to increase the size of the required health warning labels from 50% to 80% was a reasonable measure adopted in good faith to accomplish important public health policy goals.
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CHAPTER 6
CLAIMANTS’ ARGUMENTS ABOUT TOBACCO CONSUMPTION IN URUGUAY ARE LEGALLY IRRELEVANT AND FACTUALLY INCORRECT
6.1 In the previous two Chapters, Uruguay showed why the SPR and 80% Requirement were reasonable measures to protect the health of its people from the harms of tobacco use. In this
Chapter, Uruguay responds to the argument Claimants put forward in their Memorial that the unreasonableness of these measures is demonstrated by the “fact” that they have ostensibly led to an increase in tobacco consumption, not a decrease.
6.2 This is an argument to which Claimants devote more attention than any other single subject. Of the 136 pages in Claimants’ otherwise succinct Memorial, fully 22 are devoted to the subject of consumption. Yet, Claimants’ attention to the issue is misplaced for three fundamental reasons: (1) it is legally irrelevant; (2) it is predicated on a false premise; and (3) it is factually incorrect, both (a) taken on its own terms, and (b) in its assessment of the efficacy of the measures Uruguay has adopted.
I. Claimants’ Argument about Consumption Is Legally Irrelevant
6.3 Claimants present their argument about consumption in the following terms: “[I]t is
notable that the SPR and 80/80 regulation have not materially reduced tobacco consumption in
Uruguay. To the contrary, consumption has remained virtually unchanged, and by some
measures it has actually increased.”680 They then describe what they see as the relevance of the
issue, stating:
680 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶ 109 (emphasis omitted).
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To be clear, the Tribunal need not find that the regulations will result in an increase in tobacco consumption in order to determine that they are expropriatory, unfair and inequitable, unreasonable, or amount to a failure to observe Respondent’s obligations. Yet, the trends in tobacco consumption since 2009 show that Respondent’s claimed justification for the SPR and 80/80 regulation fails even on its own terms.681
6.4 In framing the issue this way, Claimants have got it exactly backwards. The point is not that the Tribunal does not need to find that consumption will increase in order to find a treaty breach. To the contrary, correctly put, the point is that the Tribunal need not find that the SPR and 80% Requirement led to a decrease in smoking to reject Claimants’ case.
6.5 As discussed in Chapter 2, the appropriate standard of review applicable in this case is whether or not the challenged measures are manifestly arbitrary.682 So long as there was a rational basis for the SPR and 80% Requirement, Claimants have no valid complaint. Moreover, the burden rests squarely on Claimants. Claimants themselves effectively acknowledge the correct standard of review in their Counter-Memorial when they contend — repeatedly — that the SPR and 80% Requirement fail because there is “no logical connection” between them and
Uruguay’s objectives in adopting them.683
6.6 The question of whether or not a particular regulation is arbitrary, or — to borrow
Claimants’ phraseology — whether there is a “logical connection” between the measure and the intended objective, is one that must be answered by reference to the situation at the time the measure was adopted. It is, in other words, to be determined ex ante. Ex post consequences are
681 Ibid., ¶ 110 (emphasis added).
682 See supra ¶¶ 2.37-2.53.
683 See CMM, ¶¶ 2, 6.
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irrelevant. It is entirely possible that a well-founded measure adopted in good faith might prove
either ineffectual or even counter-productive. (No doubt in the real world of governmental
regulation, many such examples could be found.) Yet, even in such a case, there could be no
legitimate BIT-based attack on the measure if there was a rational basis for it at the time it was
adopted.
6.7 As explained in the previous two Chapters, that is exactly the case here. Uruguay not
only had a rational basis for adopting the SPR and 80% Requirement, it had compelling reasons
for doing so. That being the case, the after-the-fact effects on tobacco consumption in Uruguay,
even if quod non, Claimants were right about them, are not relevant.
II. Claimants’ Consumption Argument Is Predicated on Two False Premises
6.8 In making their irrelevant argument about consumption, Claimants repeatedly
mischaracterize Uruguay’s objective in adopting the SPR and 80% Requirement. According to
Claimants, Uruguay’s purpose was to “reduce tobacco consumption.”684 They are mistaken. This
was not, in fact, the immediate goal the measures were intended to achieve.
6.9 While the ultimate objective of all tobacco control policy is, of course, to reduce
smoking, that does not mean the immediate aim of each and every particular measure is to do the
same. The regulation of tobacco is a dynamic and multi-dimensional process that aims not only
to prevent smoking initiation (particularly among youth) and promote quitting, but also attempts
to educate the public on the harmful effects of smoking, put an end to false beliefs about the
684 See also ibid., ¶ 139 (stating: “Respondent had no basis at the time it adopted the regulations to assume that they would reduce tobacco consumption. Again, Respondent’s purported justification for the regulations fails even on its own terms.”).
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relative harmfulness of different cigarettes, reduce exposure to tobacco smoke and de-normalize
tobacco use.685 To tackle these diverse goals, States adopt an array of strategies.
6.10 In his expert report, Professor Thrasher states the point this way: “Tobacco control is most effective as an evolving collection of policies and programs that work in concert to influence the biological, psychological, and social forces that affect tobacco-related perceptions and behaviors. Governments therefore often simultaneously implement a range of tobacco control strategies.”686
6.11 In a similar vein, Dr. Samet observes in his report:
In the 1990s, there was growing recognition of the importance of using broad, multi-element programs for tobacco control .... The 2000 report of the US Surgeon General addressed policy approaches to tobacco control. A major conclusion for the volume was that: “The impact of these various efforts, as measured with a variety of techniques, is likely to be underestimated because of the synergistic effect of these modalities. The potential for combined effects underscores the need for comprehensive approaches.” Additionally, the increasing heterogeneity of tobacco use reinforces the need for comprehensive approaches, given the variation in effectiveness of strategies by subgroup.687
6.12 As described in Chapter 3, Uruguay has adopted precisely this approach. It has deployed
broad, multi-faceted programs for tobacco control. Elements of its comprehensive policy
include:
685 See generally World Health Organization (“WHO”), Report on the Global Tobacco Epidemic, 2008: The MPOWER Package (2008), pp. 8-13 (introducing the MPOWER policy package) (R-194).
686 Prof. James F. Thrasher, Review of the Size of Health Warning Labels on Tobacco Packaging (15 Sept. 2014), pp. 48-49 (REX-003).
687 Dr. Jonathan M. Samet, The Adverse Health Effects of Smoking and the Tobacco Industry’s Efforts to Limit Tobacco Control (10 Oct. 2014), p. 21 (REX-001).
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Bans on advertising and promotion on television and at sporting events;
Bans on product giveaways;
Bans on indoor smoking;
Bans on misleading terms such as “light” and “mild”;
The imposition of a 22% value added tax on tobacco;
Bans on manufacture, sale or distribution of candy, toy or other items resembling tobacco products;
Mandating treatment by healthcare providers for nicotine dependence; and
Requiring large graphic warnings on cigarette packaging.688
6.13 The SPR and 80% Requirement were adopted within this overall context for discrete purposes. As stated, the immediate purpose of the SPR was to address the false belief among consumers that some cigarettes are less harmful than others. And in the case of the 80%
Requirement, Uruguay’s purpose was to better inform the public about the health risks of smoking, and the severity and magnitude of those risks. They were each intended to contribute, along with Uruguay’s other tobacco control efforts, to the ultimate goal, to be achieved over time, of reducing the incidence of smoking; but neither measure in itself was expected to directly accomplish that goal in the short term.
6.14 The premise of Claimants’ argument, that the sole purpose of the SPR and 80%
Requirement was to directly reduce consumption, is therefore invalid. As the premise falls, so too does the argument.
688 See supra ¶¶ 3.104-3.124.
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6.15 In addition, while Claimants focus on “consumption,” that may be a less meaningful
measure of smoking rates than “prevalence.” Whereas the former term refers to the total number
of cigarette sticks sold, the latter is the percentage of people who smoke. Although the two are
related, they are nevertheless distinct. Consumption as such can go up and down independently
of prevalence, and is impacted by matters such as population increases and economic conditions,
which were unrelated to the success of tobacco control measures.689 In this respect, it is
significant that Article 3 of the FCTC states that the objective of the Convention is “to reduce
continually and substantially the prevalence of tobacco use and exposure to tobacco smoke.”690
6.16 And when it comes to prevalence as such, there is no dispute. As discussed further in
Section IV(C) below, the evidence is irrefutable: smoking prevalence in Uruguay has fallen considerably in the years since the SPR and 80% Requirement were adopted. Put simply, many fewer people are smoking now than before.
III. Claimants’ Analysis of Consumption Is Flawed in Any Event
6.17 As stated, Claimants argue that tobacco consumption in Uruguay has either remained virtually unchanged or, “by some measures,” has actually increased.691 Before exploring the
dubious propositions underlying these assertions, two threshold observations are warranted.
689 See American Lung Association, Trends in Tobacco Use (July 2011), Tables 2 & 3 (showing that between 1965 and 2007, the ratio between the number of smokers in the U.S. and the number of cigarettes smoked fluctuated, indicating that consumption and prevalence do not always move in tandem) (R-243).
690 World Health Organization (“WHO”), Framework Convention on Tobacco Control (“FCTC”), opened for signature May 2003 through 29 June 2004, EIF 27 Feb. 2005, Art. 3 (emphasis added) (RL-20).
691 CMM, ¶¶ 109, 111.
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6.18 First, the physiological and behavioral effects of nicotine addiction mean that the impact
of tobacco control policies is not always immediately observable. Chronic smokers frequently
struggle to quit, sometimes opting instead to switch to cigarettes that they perceive to be less
harmful. It is common for those who do quit to have tried and failed to do so many times before
ultimately succeeding.692 The results of tobacco control measures can, in other words, be years in
coming. Second, it is exceedingly difficult to disentangle the implications for consumption of
one or two aspects of Uruguay’s tobacco control policies from other social or economic factors.
6.19 That said, perhaps the most critical aspect of Claimants’ arguments about consumption is that they acknowledge that consumption of legal cigarettes has actually decreased perceptibly
since the adoption of the SPR and 80% Requirement.693 And they also acknowledge that the
decrease in consumption exceeds projections made by Euromonitor in 2008, just before the
measures were adopted.694 These facts are reflected in Table 4 from page 51 of Claimants’
Memorial reproduced below (in which the orange line depicts Euromonitor’s 2008 consumption
projections and the dark blue bars represent actual consumption figures):
692 See supra ¶¶ 3.38-3.39.
693 CMM, ¶ 112.
694 See ibid., p. 51, Table 4.
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Figure 6.1: Comparison of Legal Domestic Actual Consumption and Euromonitor Projected Consumption, 2008-2017
6.20 Because they cannot deny that the statistics show that tobacco consumption has, in fact, decreased in Uruguay, Claimants must turn to other means in an attempt to show the contrary.
Thus, they contend that some of the evident decrease in consumption was offset by an ostensible increase in the illicit market, which, they say, is attributable at least in part the SPR and the 80%
Requirement.695 Other than the entirely unsupported assertions of an Abal Manager, Mr. Diego
Cibils,696 however, Claimants offer no evidence to show that the two challenged measures have caused an increase in illegal cigarette sales.
6.21 Uruguay cannot help but note that Claimants’ attempt to argue that the SPR and 80%
Requirement have increased the trade in illegal cigarettes is predictable, ironic and unproven.
Claiming that any new measure, real or proposed, will lead to a rise in the illicit market is a
695 See ibid., ¶¶ 119-123.
696 Witness Statement of Mr. Diego Cibils (28 Feb. 2014) (hereinafter “Cibils Witness Statement”), ¶¶ 54-56 (CWS- 004).
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common tactic of the tobacco industry.697 Claimants’ corporate parent, PMI, for example, is
currently attempting to resist bans on point-of-sale advertising, which are increasingly being
adopted by States worldwide, with the claim that they will lead to an increase in the illicit
trade.698 Among other things, this tactic allows industry to present itself as socially responsible
while simultaneously shifting nominal responsibility for the problem onto governments.
6.22 Claimants’ attempt to place the blame for any increase in illicit trade on Uruguay is also
ironic in the sense that the tobacco industry, including Philip Morris, has a documented history
of participating in the illegal market, from which it often benefits.699 In the 1990s, for example,
Philip Morris facilitated smuggling in Latin America by knowingly exporting cigarettes from
Brazil to Paraguay, which were then smuggled back to Brazil, where they were sold on the black market to avoid the country’s high tax rates.700 More recently, the company settled for US$1.25
billion a case brought against it by the European Union relating to its participation in an alleged
conspiracy to smuggle large amounts of cigarettes by exporting them to countries with low taxes,
and then reselling them on the black market in countries with higher taxes.701
697 A. Rowell, et al., Tobacco industry manipulation of data on and press coverage of the illicit tobacco trade in the UK, TOBACCO CONTROL: ONLINE FIRST (10 Mar. 2014) (hereinafter “Rowell, et al.”), p. 1 (R-291); F. Chaloupka, Taxes, prices and illicit trade: the need for sound evidence, TOBACCO CONTROL, Vol. 23, No. e1 (May 2014) (hereinafter “Chaloupka”) (R-297).
698 Philip Morris International, “Point of Sale Display Ban,” available at http://www.pmi.com/eng/tobacco_regulation/regulating_tobacco/pages/point_of_sale_display.aspx (last visited 6 Oct. 2014) (R-347).
699 See L. Joossens & M. Raw, Progress in combating cigarette smuggling: controlling the supply chain, TOBACCO CONTROL, Vol. 17, No. 6 (Dec. 2008) (R-201).
700 International Consortium of Investigative Journalism & Center for Public Integrity, Tobacco Underground: The Global Trade in Smuggled Cigarettes (2009), pp. 70-71 (R-203). See also M. König & D. Antonel, “Cigarettes kill,” Gazeta do Povo (Curitiba, 23 Mar. 2014) (R-293).
701 William Echikson, “Philip Morris to Settle Legal Battles with EU,” Wall Street Journal (12 July 2004) (R-245).
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6.23 Be that as it may, Claimants’ effort to inflate their figures by including information on the illicit market is inherently speculative. The fact is there are no reliable data to quantify the consumption of illegal cigarettes.702 Precisely due to its illegality, the illicit tobacco trade is notoriously difficult to measure.703 Such information as there is typically emanates either from the tobacco industry itself or from consumer marketing companies like Euromonitor.704 Industry estimates of the phenomenon are flagrantly high.705 And even in the case of Euromonitor, there is reason to doubt the accuracy of its figures. It lists its sources vaguely as “official statistics, trade associations, [and] trade interviews,”706 which include the industry itself. It therefore unsurprisingly comes out with numbers that are conspicuously higher than other sources. In
2007, for example, it estimated that illicitly traded cigarettes in Uruguay comprised 19% of the market,707 while another, local organization produced a substantially lower estimate of 12% for just the year before.708
702 International Tobacco Control (ITC) Policy Evaluation Project, ITC Uruguay National Report: Findings from the Wave 1 to 3 Surveys (2006-2011) (Aug. 2012) (hereinafter “ITC, ITC Uruguay National Report (Aug. 2012)”), p. 12 (C-133).
703 L. Joossens & M. Raw, From cigarette smuggling to illicit tobacco trade, TOBACCO CONTROL, Vol. 21, No. 2 (Mar. 2012), p. 232 (R-260); Rowell, et al., p. 2 (R-291).
704 E. Bianco & D. Curti, “No evidence that tobacco control increased illicit trade in Latin America” (6 Mar. 2014), available at http://www.fctc.org/fca-news/illicit-trade/1144-no-evidence-that-tobacco-control-increased-illicit-trade- in-latin-america (last visited 3 Sept. 2014), p. 1 (R-290).
705 A. Ramos, Illegal trade in tobacco in MERCOSUR countries, TRENDS IN ORGANIZED CRIME, Vol. 12 (June 2009) (hereinafter “Ramos”), p. 296 (C-126); A. Gilmore, et al., Towards a greater understanding of the illicit tobacco trade in Europe: a review of the PMI funded ‘Project Star’ report, TOBACCO CONTROL: ONLINE FIRST (11 Dec. 2013) (hereinafter “Gilmore, et al.”), p. 6 (R-281); Chaloupka, p. e1 (R-297).
706 Euromonitor International, Tobacco in Uruguay (Oct. 2013), p. 10 (C-121).
707 Euromonitor International, Tobacco – Uruguay (Sept. 2008), p. 9 (C-120).
708 Ramos, p. 295 (C-126).
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6.24 Despite all the above, perhaps the most critical fact is that Claimants’ own figures show
that tobacco consumption in Uruguay still dropped following the adoption of the SPR and the
80% Requirement. The decrease in consumption also exceeded Euromonitor’s 2008 projections.
This is reflected in Table 5 from page 57 of Claimants’ Memorial reproduced below:
Figure 6.2: Comparison of Actual Domestic Consumption (Including Counterfeit & Contraband) with Euromonitor Projected Consumption, 2008-2017
6.25 Because the numbers still do not support Claimants’ point, they are forced to take a
second, even more speculative leap to make it look like consumption has remained stable
following the SPR and 80% Requirement. To that end, they invoke the putative effect of duty
free sales. Only when these supposed numbers are included are Claimants able to contend that
“overall consumption in Uruguay may actually have been higher in 2012 and 2013 than was
projected [by Euromonitor in 2008] before the regulations.”709
6.26 As Claimants themselves acknowledge, however: “Sales of duty free cigarettes are the smallest component of illicit/irregular cigarettes.”710 That is putting it mildly. According to a
709 CMM, ¶ 131 (emphasis in original).
710 Ibid., ¶ 128.
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recent survey, only 0.5% and 0.1% of smokers reported purchasing cigarettes from a duty free shop or outside the country, respectively.711 In fact, sales from duty-free shops are so de minimis that not even Euromonitor tracks them.
6.27 In the absence of real data on duty free sales,712 [[
]] In Uruguay’s view, the utility of this method as a valid measure of anything speaks for itself.
6.28 [[
]]
711 International Tobacco Control (ITC) Policy Evaluation Project, ITC Uruguay National Report: Findings from the Wave 1 to 4 Surveys (2006-2012) (Aug. 2014) (hereinafter “ITC, ITC Uruguay National Report (Aug. 2014)”), p. 92 (R-313).
712 CMM, ¶ 129.
713 Ibid.
714 Ibid., ¶ 128.
715 Ibid., ¶ 130. See also ibid., ¶ 130 n.164; Expert Report of Brent C. Kaczmarek and Kiran P. Sequeira (3 Mar. 2014) (hereinafter “Kaczmarek and Sequeira Report”), ¶ 98 (CWS-013); Expert Report of Jeffrey A. Cohen (13 Oct. 2014), ¶ 48 (REX-005).
716 See Kaczmarek and Sequeira Report, Appendix K.4 (CWS-013); CMM, p. 60, Table 7.
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6.29 Not surprisingly, a number of independent studies have criticized the “empty pack” methodology on multiple grounds, including:717
It does not use appropriate sampling methods;
It is unclear how projections are made at the national level; and
It lacks transparency, external scrutiny and independent data.718
6.30 Claimants’ conclusions concerning the consumption of cigarettes in Uruguay are therefore not credible.
IV. There Are Meaningful Indicators That the SPR and the 80% Requirement Have Been Effective
6.31 In contrast to Claimants’ inflated consumption figures, which are meaningless and inaccurate, there are a number of reliable indicators to suggest that the SPR and 80%
Requirement are having exactly the effects Uruguay intended. To be clear: Uruguay maintains its view that ex post measures of effectiveness are not relevant to an ex ante determination of their reasonableness. Nevertheless, Uruguay presents the data below to further undermine Claimants’ erroneous contentions about the ineffectiveness of the SPR and 80% Requirement.
A. The SPR
6.32 As stated, the purpose of the SPR was to prevent the tobacco industry from perpetuating the myth that some cigarettes are less harmful than others. Important survey data suggests that the SPR is having just that effect.
717 Gilmore, et al. (R-281); Rowell, et al. (R-291).
718 Gilmore, et al., pp. 3, 8 (R-281); Rowell, et al., pp. 3, 6 (R-291).
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6.33 The ITC survey confirmed the success of the SPR in helping alter the Uruguayan public’s
perceptions about “light” cigarettes. As discussed in Chapter 3, Uruguay first banned descriptors
like “light” and “low tar” in 2005.719 According to the 2012 ITC National Report for Uruguay
(describing the results of the Wave 3 survey conducted in 2010), the descriptor ban did not have
its intended effect. The Report states: “Smokers’ false perceptions about the harm of ‘light’
cigarettes did not decrease after the implementation of bans on the use of misleading
terminology, colours, numbers, letters, and even increased for one measure.”720
6.34 That changed following the adoption of the SPR, when the false belief about the reduced harmfulness of “light” products fell by 50%, from 29% to 15%.721 According to the 2012 ITC
Report: “[S]mokers’ false beliefs declined significantly after Uruguay’s ban on multiple brand
variants, providing support for the effectiveness of this stronger policy measure in the short
term.”722
6.35 The results from the most recent 2014 ITC National Report for Uruguay (describing the
results of Wave 4 from 2012) show that these important declines have endured, despite the
tobacco industry’s attempts to perpetuate “light” cigarettes by other means.723 (In Claimants’
719 See supra ¶¶ 3.113-3.114.
720 ITC, ITC Uruguay National Report (Aug. 2012), p. 42 (C-133). The 2014 ITC Uruguay National Report similarly states, “There is modest evidence of a positive impact of the single presentation brand policy as the percentage of smokers who had false beliefs that lights are less harmful decreased from 29% before the policy to 15% after the policy.” ITC, ITC Uruguay National Report (Aug. 2014), p. 102 (R-313).
721 ITC, ITC Uruguay National Report (Aug. 2012), p. 42 (C-133).
722 Ibid.
723 ITC, ITC Uruguay National Report (Aug. 2014), pp. 75-76 (R-313).
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case, one way they have done this is by reintroducing what used to be Marlboro Gold as their
Benson & Hedges brand.724)
6.36 It is also notable that the SPR has had a significant impact on the rate at which pregnant
smokers in Uruguay quit. Smoking is one of the most significant modifiable risk factors associated with adverse perinatal outcomes, including low birth weight and preterm birth.725
Nearly all pregnant women know that they should quit smoking, but not all succeed. A study by
MIT econometrician and physician Dr. Jeffrey Harris processed data collected in Uruguay since
2007 and observed “a striking increase in the proportion of pregnant smokers who had quit by their third trimester, from 15% in 2007 to 42% in 2012.”726
6.37 The data showed that this dramatic change was attributable to Uruguay’s suite of tobacco
control measures: “[N]early all of the observed increase in quit rates from 2007–2012 could be explained by a series of non-price nationwide tobacco control measures, including rotating pictograms with warnings on cigarette packs, a ban on almost all tobacco advertising, and the restriction of all cigarette brands to a ‘single presentation.’”727
724 See Cibils Witness Statement, ¶ 24 (“Benson & Hedges was introduced to address the preferences of the same segment of the market that had purchased Marlboro Gold before Marlboro Gold was withdrawn from the market.”) (CWS-004); Video and Transcript of Abal Hermanos S.A. Sales Agent at Devoto Store, lines 13-17 (video depicting an Abal promoter telling Devoto supermarket employee that because “lights don’t exist anymore,” Benson & Hedges is the new Marlboro Light, transcript of same) (R-351).
725 J. Harris, et al., Tobacco Control Campaign in Uruguay: Impact on Smoking Cessation During Pregnancy and Birth Weight (29 Jan. 2014), National Bureau of Economic Research (NBER) Working Paper No. 19878, p. 4 (R- 287).
726 Ibid., p. 24.
727 Ibid.
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6.38 Notably, the study identified the SPR as having the most significant impact: “The latter
measure [the SPR], in particular, appeared to have had the largest quantitative impact on quit
rates.”728 The study “found that the combination of the single presentation rule and the third
round of warnings increased the rate of quitting by 14.1 percentage points.”729 By itself then, the
SPR has had, and will continue to have, significant health benefits for pregnant mothers, and for
the next generation of Uruguayans.
B. The 80% Requirement
6.39 Similarly, there are important indications that the larger health warning labels are having
their intended effect in raising “the population’s awareness regarding the harmful effects that
smoking causes in human beings ….”730
6.40 The results of the ITC Project show notable changes in the impact of health warnings on
smokers’ perceptions and behaviors. Uruguay increased the size its warning labels from 50% to
80% in 2009 between Waves 2 and 3 of the ITC Project. According to the recently released 2014
ITC National Report for Uruguay, the proportion of smokers who said that the health warnings
made them think about the health risks of smoking “somewhat” or “a lot” rose more than 20%,
728 Ibid.
729 Ibid., p. 25. The SPR was implemented at the same time as the third round of warning labels, such that it was not possible to separate the data between the two measures. “[W]e could not distinguish the effect of the single presentation rule from the third round (nor the effect of the 80% rule from the fourth round). Nonetheless, there are reasons to believe that the single presentation rule was by itself a critically important measure. A manufacturer that previously marketed both red and gold varieties of the same brand had to choose between the two, thus alienating one or another group of previously loyal customers. The same would apply to the choice between plain and menthol varieties of the same brand.” Ibid.
730 Uruguayan Ministry of Public Health (MSP), “Commitment to Health of the Population: Strengthening the Anti- Tobacco Campaign” (1 June 2009) (R-37).
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from 35% at Waves 1 and 2 to 43% at Wave 3, after the 80% Requirement was implemented.731
At Wave 4, the figure remained unchanged at 44%.732
6.41 In addition, the 2014 ITC National Report revealed that the percentage of smokers who
said that the health warnings made them “somewhat” or “a lot” more likely to think about
quitting increased by more than 20% between Wave 2 and Wave 3, from 25% to 31%, where it
too has remained essentially unchanged at Wave 4 (30%).733
6.42 According to the earlier 2012 ITC National Report: “The most significant increases in reasons for quitting between Wave 2 and Wave 3 were warnings labels on cigarette packs and advertising and information about health risks. These increases coincide with the switch from symbolic, moderate images on the pack warnings (Rounds 1 and 2) to the larger and more intense images of severe health effects (Rounds 3 and 4).”734 The 2014 National Report confirms
that these “improvements in warning label effectiveness that resulted from larger … more
graphic … warnings in 2009 have been sustained after the introduction of two new images” in
2012.735
731 ITC, ITC Uruguay National Report (Aug. 2014), p. 66 (R-313).
732 Ibid.
733 Ibid.
734 ITC, ITC Uruguay National Report (Aug. 2012), p. 29 (C-133).
735 ITC, ITC Uruguay National Report (Aug. 2014), p. 102 (R-313).
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6.43 In a similar vein, after surveying the data on the tobacco market in Uruguay in 2009,
Euromonitor concluded in 2013: “The increase in the size of the warnings and the use of images
have contributed to the decline in sales of all tobacco products ….”736
C. Reduction in Prevalence Rates
6.44 There is also significant evidence showing that smoking prevalence in Uruguay has
decreased appreciably since the SPR and the 80% Requirement were adopted.
6.45 As stated in Chapter 3, Uruguay historically had one of the highest smoking rates in all
Latin America.737 At the height of its popularity, nearly half of all adults (defined as people 15
years of age and older) in Uruguay smoked.738 Thanks to its increasingly effective tobacco
control policies, smoking prevalence has dropped significantly. In the years just prior to the SPR
and 80% Requirement, the percentage of people in Uruguay who smoked hovered around
32%.739 By 2009, the year during which both the SPR and the 80% Requirement came into effect
(in February and December, respectively), the rate dropped to 25% in persons 15 years or
736 Euromonitor International, Tobacco - Uruguay (Aug. 2010), p. 4 (R-229). See also Euromonitor International, Tobacco in Uruguay (Oct. 2013), p. 5 (C-121).
737 See supra ¶¶ 3.2, 3.96.
738 Pan American Health Organization (“PAHO”), Global Adult Tobacco Survey (GATS): Uruguay ‘09 (2011) (hereinafter “PAHO, GATS: Uruguay ‘09”), p. 21 (citing PAHO & WHO, Tobacco or Health: Situation in the Americas (1992), pp. 385-399) (R-233). See also World Health Organization (“WHO”), “Uruguay Fact Sheet,” available at http://www.who.int/tobacco/media/en/Uruguay.pdf (last visited 4 Sept. 2014) (R-353).
739 PAHO, GATS: Uruguay ‘09, p. 21 (R-233). See also Uruguayan National Drug Committee (“JND”), Third National Survey on the Prevalence of Drug Consumption (2001), ¶ 3.2.1 (R-147); Uruguayan National Drug Committee (“JND”), Fourth National Household Survey on Drug Consumption (2007), p. 32 (R-179).
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older.740 This rate has continued fall in the years since the measures came into effect, and is now estimated to be approximately 23%.741
6.46 The downward trend in the prevalence figures is particularly striking among young people, a group for which tobacco control is especially important because, as explained, adolescents are uniquely vulnerable to the addictive effects of nicotine. Given that the median age at which Uruguayans start smoking is 13 and that most smokers take up the habit before the age of 20,742 if young people can be discouraged from smoking, prevalence rates will eventually fall substantially.
6.47 According to the National Survey on Drug Use in High School conducted among students aged 12 to 17 years old, youth prevalence rates in Uruguay declined, from 30.2% in
2003, to 24.8% in 2006, and 22% in 2007.743 Following the implementation of the SPR and 80%
Requirement, the prevalence rate among youth declined still further; the corresponding figure for
2010 was 18.4%.744 Similar results were observed by the Global Youth Tobacco Survey,745 the
740 PAHO, GATS: Uruguay ‘09, p. 16 (R-233).
741 ITC, ITC Uruguay National Report (Aug. 2014), p. 20 (citing a 2011 National Statistics Institute Household Survey that pegs adult prevalence at 23.5%) (R-313).
742 PAHO, GATS: Uruguay ‘09, p. 16 (R-233).
743 Ibid., pp. 21-22. See also Uruguayan National Drug Committee (“JND”), Drugs: Consumption Among Secondary School Students (Aug. 2002) (hereinafter “JND, Drugs: Consumption Among Secondary School Students (Aug. 2004)”), p. 34 (R-155); Uruguayan National Drug Committee (“JND”), Second National Survey on Drug Consumption In Secondary Students: Preliminary Summary (Apr. 2006) (hereinafter “JND, Second National Survey on Drug Consumption In Secondary School Students: Preliminary Summary”), p. 15 (R-174); Uruguayan National Drug Committee (“JND”), Much Ado About Nothing: Consumption of legal and illegal drugs in adolescence (July 2011) (hereinafter “JND, Much Ado About Nothing: Consumption of legal and illegal drugs in adolescence”), p. 27 (R-244).
744 PAHO, GATS: Uruguay ‘09, p. 21-22 (R-233). See also JND, Drugs: Consumption Among Secondary School Students (Aug. 2004), p. 34 (R-155); JND, Second National Survey on Drug Consumption In Secondary School Students: Preliminary Summary, p. 15 (R-174); JND, Much Ado About Nothing: Consumption of legal and illegal drugs in adolescence, p. 27 (R-244).
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Uruguayan National Drug Committee,746 and the Global School-Based Student Health Survey
(“GSHS”).747 The GSHS survey indicated that youth prevalence rates had fallen all the way to
13.1% in 2012, three years after the 2009 adoption of the SPR and 80% Requirement.748
*
6.48 For all these reasons, Claimants’ attack on the SPR and 80% Requirement on the basis of allegedly stable (or higher) consumption figures is fundamentally misguided. The issue is legally irrelevant, and Claimants’ numbers are unreliable and incorrect in any event. Moreover, the reality is that there are meaningful indicators that the SPR and 80% Requirement are having exactly the effects Uruguay intended. Independently, as shown in Chapters 4 and 5, both measures were reasonable exercises of Uruguay’s sovereign police power for the purpose of protecting public health. There were reasonable bases for both measures, and they were adopted in good faith. In the circumstances, Claimants cannot sustain their burden of proving that either measure was manifestly arbitrary.
745 Uruguayan National Drug Committee (“JND”), Smoking: Tobacco Consumption In Secondary School (Jan. 2002), p. 9 (finding that 24.1% of high school students aged 13-15 years old smoked in 2001) (R-152).
746 Uruguayan National Drug Committee (“JND”), Second Global Survey on Smoking in Youth: Uruguay 2006 (July 2007), p. 19 (finding in 2006, the prevalence of smokers was 22.8%) (R-27(bis)). See also Uruguayan National Drug Committee (“JND”), Fifth National Survey on Drug Consumption In Secondary School Students (Oct. 2012), p. 26 (finding that secondary school smokers consumed 17.16 cigarettes per month, on average) (R-263).
747 Uruguayan National Drug Committee (“JND”), Adolescence: A World of Questions, II Global Survey on Adolescent Health, GSHS, 2012, Uruguay (2012), p. 82 (R-256).
748 Ibid.
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CHAPTER 7
URUGUAY DID NOT EXPROPRIATE CLAIMANTS’ INVESTMENT
7.1 Claimants argue that by adopting the SPR and 80% Requirement Uruguay indirectly
expropriated their investment in violation of Article 5 of the Uruguay-Switzerland BIT.749 Their
claim is fundamentally misconceived. Neither in law nor fact did Uruguay expropriate
Claimants’ investment.
7.2 In Section I of this Chapter, Uruguay shows that the SPR and 80% Requirement cannot
be considered expropriatory in character. To the contrary, they were legitimate exercises of
Uruguay’s sovereign police power to protect public health. International law is clear that, as
such, they do not constitute an “expropriation.”
7.3 In Section II, Uruguay demonstrates that Claimants’ expropriation claim fails also on the
facts. This is true in three different respects. First, Claimants’ own evidence shows that their business continues to have significant commercial value after the adoption of the measures in question. The value of their business has not been rendered so marginal as effectively to deprive it of its character as an investment. Accordingly, the effect of the SPR and the 80% Requirement has not been tantamount to an expropriation.
7.4 Second, Uruguayan law does not afford trademark registrants an affirmative right to use those marks. To the contrary, in accordance with the international law on which it is based,
Uruguayan intellectual property law only gives trademark registrants a negative right to prevent
others from using their marks. The SPR and 80% Requirement do not affect this right. Therefore,
749 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 182-183.
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the predicate to a valid expropriation claim — legal rights with which governmental measures
interfere — is lacking.
7.5 Third, at the time the measures at issue were adopted, Claimants did not in fact have registered trademarks for any of the brand variants about which they complain. For this reason, too, Claimants had no legally protected rights amenable to expropriation.
I. The SPR and 80% Requirement Were Not Expropriatory Because They Were Valid Exercises of Uruguay’s Sovereign Police Power
7.6 The point of departure for analyzing Claimants’ expropriation claim is Article 5 of the
Uruguay-Switzerland BIT, which provides:
Neither of the Contracting Parties shall take, either directly or indirectly, measures of expropriation, nationalization or any other measure having the same nature or the same effect against investments belonging to investors of the other Contracting Party, unless the measures are taken for the public benefit as established by law, on a non-discriminatory basis, and under due process of law, and provided that provisions be made for effective and adequate compensation.750
7.7 Claimants submit that Article 5 prohibits any expropriation unless it is carried out for the public benefit, on a non-discriminatory basis, under due process of law and with
compensation.751 Claimants argue further that “Respondent cannot excuse the expropriation of
Claimants’ investments by asserting that the SPR and 80/80 regulation were imposed for a public
750 Agreement between the Swiss Confederation and the Oriental Republic of Uruguay on the Reciprocal Promotion and Protection of Investments, signed 7 Oct. 1988, EIF 22 Apr. 1991, Art. 5(1) (RL-21).
751 CMM, ¶ 205.
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purpose. The text of the BIT makes it clear that compensation is due even if a government action
is for a public purpose ….”752
7.8 Claimants have put the cart before the horse. Article 5 sets certain conditions for avoiding
liability when the host State takes measures amounting to an expropriation. But those conditions,
including the public benefit requirement, have no bearing on the predicate question of whether or
not an expropriation has occurred. Put another way, to be consistent with the BIT, an
expropriation must comply with the conditions stated in Article 5. If a measure does not
constitute an “expropriation” as a matter of law, however, Article 5 does not apply.
7.9 The plain language of Article 5 makes this clear. In providing that the Parties shall not
take “either directly or indirectly, measures of expropriation, nationalization or any other
measure having the same nature or the same effect” unless the specified conditions are met, the
text establishes that the question of whether a particular measure amounts to an expropriation
must be answered before determining whether the conditions for a lawful expropriation have
been met.
7.10 The tribunal in the Fireman’s Fund Insurance Co. v. Mexico case adopted just this
approach. There, the tribunal stated that it “cannot start an inquiry into whether expropriation has
occurred by examining whether [the four conditions] for avoiding liability in the event of
expropriation have been fulfilled,” precisely because those conditions “do not bear on the
question as [to] whether an expropriation has occurred.”753
752 Ibid., ¶ 204 (emphasis in original).
753 Fireman’s Fund Insurance Co. v. United Mexican States, ICSID Case No. ARB(AF)/02/01, Award (17 July 2006) (van den Berg, Lowenfeld, Saavedra Olavarrieta), ¶ 174 (emphasis added) (RL-169).
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7.11 Whether or not a particular measure can be characterized as an expropriation is a question that must be answered by reference to the nature of the government’s action.754 As discussed in
Chapter 2, where, as here, the action is a bona fide, nondiscriminatory exercise of a State’s sovereign police power to protect the public health or welfare, it does not constitute an expropriation as a matter of law. Nor is the State liable for paying compensation for any damages that may have been suffered as a result.755
7.12 The tribunal in Levy de Levi v. Peru put the point succinctly, stating that it is “important to recognize a State’s legitimate right to regulate and to exercise its police power in the interests of public welfare and not to confuse measures of that nature with expropriation.”756
7.13 Leading commentaries agree. The Harvard Draft Convention on the International
Responsibility of States for Injuries to Aliens, drafted in 1961 by Professors Sohn and Baxter, recognized that measures taken to protect public health do not constitute compensable takings:
An uncompensated taking of property of an alien or a deprivation of the use or enjoyment of property of an alien which results from
754 See Methanex Corporation v. United States of America, UNCITRAL, Final Award (3 Aug. 2005) (Veeder, Rowley, Reisman) (“Methanex v. United States”), Part IV, Ch. D, ¶ 7 (RL-164); Chemtura Corporation v. Government of Canada, UNCITRAL, Award (2 Aug. 2010) (Kaufmann-Kohler, Brower, Crawford), ¶ 247 (RL-53); Glamis Gold, Ltd. v. United States of America, UNCITRAL, Award (8 June 2009) (Young, Caron, Hubbard) (hereinafter “Glamis Gold v. United States”), ¶ 356 (RL-183); Saluka Investments B.V. (the Netherlands) v. Czech Republic, UNCITRAL, Partial Award (17 Mar. 2006) (Watts, Fortier, Behrens), ¶¶ 255-264 (CLA-227); Too v. Greater Modesto Insurance Associates, Award No. 460-880-2 (29 Dec. 1989), reprinted in 23 IRAN-U.S. CL. TRIB. REP. 378 (1991) (hereinafter “Too v. Greater Modesto Insurance”) (RL-153). See also OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, OECD Working Papers on International Investment Law, No. 2004/04 (Sept. 2004) (hereinafter “OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law”), p. 10 (RL-238).
755 See supra ¶¶ 2.5-2.18.
756 Levy de Levi v. Republic of Peru, ICSID Case No. ARB/10/17, Award (26 Feb. 2014) (Oreamuno, Hanotiau, Morales Godoy), ¶ 475 (RL-207); Suez, Sociedad General de Aguas de Barcelona S.A., and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/03/19, Decision on Liability (30 July 2010) (Salacuse, Kaufmann- Kohler, Nikken), ¶ 139 (RL-189).
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… the action of the competent authorities of the State in the maintenance of public order, health, or morality … shall not be considered wrongful.757
7.14 The RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW OF THE UNITED STATES likewise provides that a State does not commit an expropriation — i.e., it is not liable to pay compensation to dispossessed property holders — when it adopts a general bona fide regulation that is “commonly accepted as within the police power of states.”758
7.15 Professor Sornarajah explains: “[I]nterference on the basis of legislation [mandating the
protection of public health] does not constitute compensable taking in situations in which public
harm has already resulted or is anticipated.”759 These “regulatory functions are a matter of
sovereign right of the host [S]tate and there could be no right in international law to
compensation or diplomatic protection in respect of such interference.”760
7.16 In a 2012 report on expropriation, UNCTAD cited “extensive State practice as well as
arbitral awards and academic literature” confirming that “the support for the police powers
doctrine appears to be overwhelming” and concluded that “expropriation provisions in
757 L. Sohn & R. Baxter, Responsibility of States for Injuries to the Economic Interests of Aliens, 55 AM. J. INT’L L. 545 (1961), p. 554 (emphasis added) (RL-216).
758 American Law Institute, RESTATEMENT OF THE LAW 3D, FOREIGN RELATIONS LAW OF THE UNITED STATES (1987), § 712, cmt. g (“A state is not responsible for loss of property or for other economic disadvantage resulting from bona fide general taxation, regulation, forfeiture for crime, or other action of the kind that is commonly accepted as within the police power of states, if it is not discriminatory …, and is not designed to cause the alien to abandon the property to the state or sell it at a distress price.”) (emphasis added) (RL-257).
759 M. Sornarajah, THE INTERNATIONAL LAW ON FOREIGN INVESTMENT (2004), p. 357 (RL-236).
760 Ibid., p. 375; A. Newcombe, The Boundaries of Regulatory Expropriation in International Law, 20 ICSID REV. 1 (2005), p. 29 (“International [] authorities have regularly concluded that no right to compensate arises for reasonably necessary regulations passed for the ‘protection of public health, safety, morals or welfare.’”) (RL-240).
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[investment protection treaties] may not be read as preventing States from bona fide regulation
in the public interest.”761
7.17 The authorities on which Claimants attempt to rely do not support their case. They
invoke, for example, Norwegian Shipowners’ Claim asserting that the award in that case required
compensation for the wartime expropriation of certain contractual rights, notwithstanding the
fact that “the United States had a valid public purpose” for the taking.762 Claimants have
mischaracterized the award.
7.18 Norwegian Shipowners’ Claim was a State-to-State arbitration commenced by agreement
between Norway and the United States. It followed the United States’ requisitioning of the
property of Norwegian nationals “by the exercise of the power of eminent domain within the
meaning of American municipal law,”763 which, by its terms, requires just compensation. The
United States had unilaterally “declared its willingness and desire to make just compensation for
the property taken.”764 The tribunal therefore had no occasion to determine whether or not an
expropriation had occurred as a matter of international law. Its task was limited only to
establishing the amount of compensation.
7.19 That said, the tribunal did take pains to highlight the “essential difference” between that
case and the “‘requisition of neutral property’ in the special meaning of that term in the laws and
761 UNCTAD, EXPROPRIATION: A SEQUEL (2012), pp. 80, 85-86 (emphasis added) (RL-254).
762 CMM, ¶ 207 (citing Compañía del Desarrollo de Santa Elena S.A. v. Costa Rica, ICSID Case No. ARB/96/1, Final Award (17 Feb. 2000) (Fortier, Lauterpacht, Weil) (hereinafter “Santa Elena v. Costa Rica”), ¶ 72 (CLA- 214)).
763 Norwegian Shipowners’ Claims (Norway v. USA), Arbitral Award (13 Oct. 1922), 1 U.N.R.I.A.A. 307, p. 325 (CLA-212).
764 Ibid., p. 313.
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customs of war” which is “often excused” from compensation “on account of extreme
emergency.”765 The tribunal thus accepted that there are situations where a State’s actions cannot
be treated as a compensable expropriation as a matter of law. Norwegian Shipowners’ Claims
therefore actually undermines Claimants’ case.
7.20 Claimants also cite to Santa Elena v. Costa Rica, in which the tribunal stated:
“Expropriatory environmental measures—no matter how laudable and beneficial to society as a
whole—are[,] [in this respect,] similar to any other expropriatory measures that a state may take
in order to implement its policies: where property is expropriated, even for environmental
purposes, [whether domestic or international,] the state’s obligation to pay compensation
remains.”766 This portion of the tribunal’s award was mere obiter dictum; however, it did not
form part of its ratio decidendi. Moreover, like Norwegian Shipowners’ Claims, the Santa Elena
tribunal was not called upon to decide whether an expropriation had occurred. Costa Rica did not
dispute that it had taken claimant’s property767 and consented to arbitration on “the sole issue” of
“the amount of compensation.”768 The tribunal’s passing comments thus provide no meaningful
support for Claimants’ case.769
765 Ibid., p. 337.
766 CMM, ¶ 206 (emphasis omitted) (citing Santa Elena v. Costa Rica, ¶ 72 (CLA-214)).
767 Santa Elena v. Costa Rica, ¶ 17 (CLA-214).
768 Ibid., ¶ 56 (“Thus, the sole issue in the present arbitration could not be more simply stated: What is the amount of compensation now owed to CDSE for the expropriation of the Property by Costa Rica?”).
769 Claimants also attempt to enlist SPP v. Egypt to their aid, in which the tribunal found Egypt to be under “an obligation to indemnify” the claimant in spite of the fact that the measure in question concerned the protection of antiquities. This case is equally unhelpful for Claimants. Protecting antiquities, as laudable and necessary an objective as it may be, is not part of a State’s police powers under international law, whereas the protection of public health plainly is. Perhaps for this reason, Egypt itself recognized its obligation to compensate. Following the cancellation of the investment project, “the Prime Minister stated that the Claimant would be compensated for their - 243 - CONFIDENTIAL INFORMATION REDACTED
7.21 The few cases Claimants cite are no match for the mountain of contrary authority, all of
which confirms that a State’s bona fide exercise of its police power does not give rise to a valid expropriation claim. Uruguay has brought a number of these authorities to the Tribunal’s attention already, both in Chapter 2770 and above.771 It has no wish to burden the Tribunal further
by belaboring a point that is so well-settled. One more example will suffice for present purposes.
7.22 In Too v. Greater Modesto Insurance Associates, the U.S.-Iran Claims Tribunal
dismissed the claim of an Iranian investor arising from the seizure and auctioning off of its liquor
license by the United States Internal Revenue Service. (The seizure was made in order to satisfy
overdue withholding taxes.) The tribunal held that the actions at issue constituted an exercise of
the police power of the United States and therefore no duty to pay compensation arose. In particular, the tribunal stated:
[A] State is not responsible for loss of property or for other economic disadvantage resulting from bona fide general taxation or any other action that is commonly accepted as within the police power of States, provided it is not discriminatory and is not designed to cause the alien to abandon the property to the State or to sell it at a distress price.772
losses.” Southern Pacific Properties (Middle East) Ltd. v. Egypt, Award (20 May 1992) (Jiménez de Aréchaga, el Mahdi, Pietrowski), ¶ 162 (CLA-215). Even the Egyptian Constitution and laws, applicable in that case, imposed upon Egypt “[t]he obligation to pay fair compensation in the event of expropriation [] where antiquities are involved,” a factor dispositive for the tribunal’s decision on compensation. Ibid., ¶ 159. That case is therefore distinguishable from this one on both the law and the facts.
770 See supra ¶¶ 2.5-2.18.
771 See supra ¶¶ 7.10-7.16.
772 Too v. Greater Modesto Insurance, p. 387 (RL-153). See also Sedco, Inc., et al. v. National Iranian Oil Co., et al., Award No. ITL 55-129-3 (28 Oct. 1985), reprinted in 9 IRAN-U.S. CL. TRIB. REP. 248 (1985), p. 275 (“It is also an accepted principle of international law that a State is not liable for economic injury which is a consequence of a bona fide ‘regulation’ within the accepted police power of states.”) (RL-149). State practice is replete with examples of the complete prohibition of certain activities regarded as harmful, for which no compensation was paid despite the “resulting destruction of important corporeal and incorporeal property rights.” See, e.g., S. Friedman, - 244 - CONFIDENTIAL INFORMATION REDACTED
7.23 This fundamental rule of customary international law applies with full force here.
Claimants err when they argue that because neither Article 5 nor any other provision of the
Uruguay-Switzerland BIT provides any “carve-outs, exceptions, or saving presumptions for
public health or other regulatory actions,” it would not be appropriate to read one into it.773 No
carve out its necessary. As the ICJ held in Nicaragua v. United States, customary international
law does not require incorporation into a treaty; it “continues to exist and to apply, separately
from international treaty law.”774 Article 31(3)(c) of the Vienna Convention on the Law of
Treaties also requires that Article 5 of the BIT be interpreted in light of “[a]ny relevant rules of
international law applicable in the relations between the parties,” which includes, of course,
customary international law.775
7.24 Particularly instructive in this respect is the fact that as an OECD member, Claimants’
home State, Switzerland, has recognized that “[i]t is an accepted principle of customary
international law that where economic injury results from a bona fide non-discriminatory
regulation within the police powers of the State, compensation is not required.”776 To the same
EXPROPRIATION IN INTERNATIONAL LAW (1953), pp. 50-51 (RL-215). Among prominent examples, Professor Friedman refers to the prohibition of the manufacture and sale of alcoholic liquor introduced in 1926 by the United States. When Mexico protested against this measure, the United States Secretary of State replied that it was an exercise of the “police powers” of the State and could not, therefore, be the subject of a diplomatic protest. Ibid., pp. 50-52. Similar events took place in France with the abolition of private telegraphic undertakings in 1837 and the prohibition of the manufacture of white lead by the Law of July 20, 1909. Another example is “the so-called ‘nationalization’ of nuclear minerals and materials by the U.S.A., a measure taken for reasons of national security and protection of health.” G. White, NATIONALISATION OF FOREIGN PROPERTY (1961), p. 42 n. 3 (RL-217).
773 CMM, ¶ 210.
774 Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States), Judgment on the Merits (26 June 1986), I.C.J. Reports 1986, p. 14, ¶ 179 (RL-67).
775 Vienna Convention on the Law of Treaties (with annex) (23 May 1969), 1155 U.N.T.S. 331, Art. 31(3)(c) (RL- 19).
776 OECD, “Indirect Expropriation” and the “Right to Regulate” in International Investment Law, p. 5 n. 10 (citing R. Dolzer and M. Stevens, BILATERAL INVESTMENT TREATIES (1995), p. 98 (CLA-055)) (RL-238).
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effect is the 1967 OECD Draft Convention on the Protection of Foreign Property, which
provides that measures taken in the pursuit of a State’s “political, social or economic ends”
generally do not constitute a compensable expropriation.777
7.25 The measures Claimants challenge here were taken in the exercise of Uruguay’s recognized police power to protect public health. That being the case, in order to establish a right to compensation under Article 5, it falls to Claimants to prove by “convincing evidence” that the
SPR and 80% Requirement were not bona fide.778 For the reasons presented in Chapters 4 and 5,
this is a burden they cannot hope to meet. The SPR and 80% Requirement were indisputably
taken with one end in mind: protecting the Uruguayan people from the dangers of smoking.
7.26 Nor is Claimants’ expropriation claim salvaged by their argument that Uruguay’s registration of their trademarks gave rise to a commitment to refrain from adopting any regulation that might impede their use.779 The jurisprudence is clear that a mere change in the
law does not give rise to a valid expropriation claim unless the claimant can point to a “specific
commitment” from the government to refrain from making such changes.780 As the tribunal in
Methanex explained:
777 OECD, Draft Convention on the Protection of Foreign Property (Dec. 1962), p. 18 (RL-123).
778 Quasar de Valores SICA V S.A., et al. v. Russian Federation, SCC Case No. 24/2007, Award (20 July 2012) (Brower, Landau, Paulsson), ¶ 181 (emphasis added) (RL-198). See, e.g., Compañía de Aguas del Aconquija S.A. and Vivendi Universal S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Award (20 Aug. 2007) (Rowley, Kaufmann-Kohler, Bernal Verea) (hereinafter “Vivendi v. Argentina”), ¶ 7.5.22 (where the tribunal found that the “record [was] clear” that the measures at issue “were not legitimate regulatory responses … but were sovereign acts designed illegitimately to end the concession or to force its renegotiation”) (emphasis added) (CLA-210).
779 CMM, ¶ 212.
780 EnCana Corporation v. Republic of Ecuador, LCIA Case No. UN3481, Award (3 Feb. 2006) (Crawford, Grigera Naón, Thomas) (hereinafter “EnCana v. Ecuador”), ¶ 173 (“In the absence of a specific commitment from the host - 246 - CONFIDENTIAL INFORMATION REDACTED
[A]s a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alios, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments had been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation.”781
7.27 The putative commitment Claimants point to — Uruguay’s mere registration of
trademarks — does not amount to the sort of specific commitment international law requires.
Indeed, as discussed in Chapter 9 concerning Claimants’ intellectual property law claims, it does
not constitute any sort of commitment at all. Contrary to Claimants’ assertion, Uruguayan
intellectual property law does not recognize an affirmative right of a trademark holder to use that mark in commerce,782 much less does it constitute a guarantee that the law will never change.
7.28 Moreover, as members of the tobacco industry, Claimants could not reasonably have expected that Uruguay’s regulatory scheme would never change. Tobacco is one of the most highly regulated businesses in the world. In Feldman v. Mexico, the tribunal observed:
“Governments, in their exercise of regulatory power, frequently change their laws and regulations in response to changing economic circumstances or changing political, economic or social considerations.”783 Those changes “may well make certain activities less profitable or even
State, the foreign investor has neither the right nor any legitimate expectation that the tax regime will not change, perhaps to its disadvantage, during the period of the investment.”) (RL-167).
781 Methanex v. United States, Part IV, Ch. D, ¶ 7 (emphasis added) (RL-164).
782 See infra ¶¶ 9.22-9.35.
783 Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (16 Dec. 2002) (Kerameus, Covarrubias Bravo, Gantz) (hereinafter “Feldman v. Mexico”), ¶ 112 (RL-201).
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uneconomic to continue.”784 These observations, which apply in any case, take on added force in
regard to tobacco. Claimants therefore have no genuine expropriation claim.
II. Claimants Have Failed To Demonstrate that Uruguay Indirectly Expropriated Their Investment
7.29 Quite apart from the fact that the measures they challenge do not constitute an
“expropriation” under international law, Claimants have failed to satisfy the prerequisites for a successful expropriation claim in several other respects. These are detailed below.
A. Claimants’ Investment Has Not Been Expropriated Because Their Business Retains Significant Value
7.30 A valid indirect expropriation claim requires a showing that the governmental measures
in question have had such a severe economic impact on an investor’s business that it has been
rendered virtually without value. That is distinctly not the case here. Claimants’ enterprise has
considerable enduring value, a fact that by itself invalidates their expropriation claim.
7.31 The mere fact that a measure has had a negative impact on an investment’s profitability is
insufficient to support a finding of expropriation. As the tribunal in Feldman v. Mexico held:
“[N]ot all government regulatory activity that makes it difficult or impossible for an investor to
carry out a particular business, change in the law or change in the application of existing laws
that makes it uneconomical to continue a particular business, is an expropriation under Article
785 [5].” According to Brownlie’s PRINCIPLES OF PUBLIC INTERNATIONAL LAW: “State measures,
784 Ibid.
785 Ibid. See also Spyridon Roussalis v. Romania, ICSID Case No. ARB/06/1, Award (7 Dec. 2011) (Hanotiau, Giardina, Reisman), ¶ 328 (“Acts that create impediments to business do not by themselves constitute expropriation. In order to qualify as indirect expropriation, the measure must constitute a deprivation of the economic use and - 248 - CONFIDENTIAL INFORMATION REDACTED
prima facie a lawful exercise of powers of government, may affect foreign interests considerably without amounting to expropriation.”786
7.32 The reasons behind this rule are clear: if States were held liable for expropriation every time a regulation had an adverse impact on an investment, effective governance would be rendered impossible.787 Precisely for this reason, for a measure to amount to a de facto expropriation, the test is whether that interference is “sufficiently restrictive to support a conclusion that the property has been ‘taken’ from the owner”788 so as “to render almost without value the rights remaining with the investor.”789
7.33 The primary consideration is how much value remains after the alleged taking, not how much value was taken. As long as a “sufficiently positive” value remains, there is no
enjoyment, as if the rights related thereto, such as the income or benefits, had ceased to exist.”) (emphasis added) (RL-193).
786 I. Brownlie, PRINCIPLES OF PUBLIC INTERNATIONAL LAW (5th ed., 1998), p. 535 (emphasis added) (RL-229). See also G. Christie, What Constitutes a Taking of Property Under International Law, 38 BRIT. Y.B. INT’L L. 307 (1962), p. 335 (“It would seem, on balance, that in cases of ‘partial monopoly’ or ‘partial prohibition’ the difficulties are so great that the only practicable solution is to resolve all doubts against the alien claimant.”) (RL-218); B. Wortley, EXPROPRIATION IN PUBLIC INTERNATIONAL LAW (1977), p. 50 (“Whatever may be the remedy of foreigners caught by general changes in the law, if those changes do not in fact dispossess them but merely lessen the value of their holdings or expectations, in the general interest, then bona fide changes in the public interest will not be confiscations, since the owners are left in possession of their property ….”) (RL-219).
787 Feldman v. Mexico, ¶ 103 (“[G]overnments must be free to act in the broader public interest. … Reasonable government regulation of this type cannot be achieved if any business that is adversely affected may seek compensation, and it is safe to say that customary international law recognizes this.”) (RL-201).
788 Pope & Talbot v. The Government of Canada, NAFTA, Interim Award (26 June 2000) (Dervaird, Greenberg, Belman), ¶ 102 (CLA-216); Glamis Gold v. United States, ¶ 357 (RL-183) (emphasis added).
789 Glamis Gold v. United States, ¶ 355 (emphasis added) (RL-183).
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expropriation.790 The text of Article 5 of the BIT, which refers to “measures having the same nature or the same effect” as expropriation or nationalization, is consistent with this rule.
7.34 Archer Daniels v. Mexico is a useful example. There, the investor claimed that
“[Mexico’s 20% tax on corn syrup] was … structured so as to discriminate in favor of the
Mexican cane sugar industry, penalizing the use of [corn syrup] so severely that it substantially
affected the beverage market … [and] destroyed the value of … investment.” 791 According to
the claimant, “the object of the alleged expropriation is the profits that [the investor] would have
generated … in the absence of the [regulatory measure], including their profits on lost sales of
[their product].”792
7.35 The tribunal found that the tax was “not sufficiently restrictive” to support a conclusion
that it had “effects similar to an outright expropriation,”793 because “[t]he tax did not frustrate
the complete operation of [the investor’s] activities in Mexico.”794 It held:
no expropriation occurs unless the measure’s degree of interference is substantial, which is not the case in the present situation, where the Claimants remained at all times in control of their investment, producing and distributing [their product]. … Accordingly, the loss of benefits or expectation, or the alleged
790 Ibid., ¶¶ 365-366.
791 Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/05, Award (21 Nov. 2007) (Cremades, Rovine, Siqueiros), ¶ 100 (RL-178).
792 Ibid., ¶ 246.
793 Ibid.
794 Ibid., ¶ 247 (emphasis added).
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discriminatory character of the Tax – standing alone – is not a sufficient criterion for an expropriation.795
7.36 Tribunals convened under BITs have taken the same approach. In LG&E v. Argentina,
for example, the tribunal held: “Interference with the investment’s ability to carry on its business
is not satisfied where the investment continues to operate, even if profits are diminished.”796
Similarly, the tribunal in CMS v. Argentina rejected a claim of expropriation because the claimant retained full control of the investment, even though its value had been reduced by more than 90%.797
7.37 The decision in EnCana v. Ecuador is also instructive. In that case, the claimant argued
that the sudden denial of value-added tax (“VAT”) credits and refunds, followed by a retroactive
denial of previously granted credits and refunds, had such a significant impact that it should be
treated as an expropriation.798 The tribunal rejected that claim, stating:
[A]lthough the [claimant] suffered financially from the denial of VAT and the recovery of VAT refunds wrongly made, they were nonetheless able to continue to function profitably and to engage in the normal range of activities, extracting and exporting oil (the price of which increased during the period under consideration). There is nothing in the record which suggests that the change in VAT laws or their interpretation brought the companies to a standstill or rendered the value to be derived from their activities
795 Ibid., ¶ 251 (emphasis added).
796 LG&E Energy Corp., et al. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (3 Oct. 2006) (de Maekelt, Rezek, van den Berg), ¶ 191 (RL-65).
797 CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8, Award (12 May 2005) (Orrego Vicuña, Lalonde, Rezek), ¶¶ 262-264 (CLA-093).
798 EnCana v. Ecuador, ¶ 172 (RL-167).
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so marginal or unprofitable as effectively to deprive them of their character as investments.799
7.38 No expropriation has occurred in this case for similar reasons. The effect of the SPR and
80% Requirement on Claimants’ business has not been sufficiently severe so as to render their
“activities so marginal or unprofitable as effectively to deprive them of their character as
investments.”
7.39 Abal’s market share data make this clear. According to Claimants’ statistics, Abal’s share
of the Uruguayan market in [[ ]] In [[
]] the most recent year for which data is available, Abal’s market share was [[ ]]
Moreover, Claimants themselves admit that in [[
]]
7.40 An examination of the accounting metrics that Claimants’ damages experts, Navigant,
use to analyze Abal’s historic financial performance also belie any claim that their operations
were substantially impaired. For example, as reflected in Figure 7.1, Abal’s net operating income803 actually increased significantly between 2005 and 2012.804 In fact, in 2012, three years
799 Ibid., ¶ 174 (emphasis added).
800 [[ ]]
801 [[ ]]
802 [[ ]]
803 Net operating income, which is calculated as revenues minus excise taxes and discounts and allowances, captures how many Uruguayan pesos Abal earned before most operating expenses (e.g., costs of goods sold).
804 Abal Hermanos, Financial Statements (31 Dec. 2006), p. 3 (C-299); Abal Hermanos, Financial Statements (31 Dec. 2012), p. 3 (C-123).
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after the implementation of the SPR and 80% Requirement, Abal’s net operating income was
higher than at any point since 2004. [[
]]
7.41 An analysis of Abal’s gross profit805 [[ ]]
2010 (when, as discussed in Chapter 10, Abal decided to sell cigarettes below the cost of making
805 Gross profit, which is net operating income minus cost of goods sold, measures the profit Abal received from selling cigarettes but does not take into account selling, administrative and certain additional costs.
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them806), its gross profit was also [[
[[ ]]
7.42 In the face of these measures of economic performance, Claimants’ argument that the
SPR and 80% Requirement left their investment virtually without value is not credible.
806 See infra ¶ 10.22-10.47.
807 [[ ]]
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7.43 Claimants’ expropriation claim is defeated even by their own legal authorities. They cite,
for example, to Tecmed v. Mexico.808 Yet, in that case, the tribunal set a very high standard for
indirect expropriation, requiring the claimant to show that the measures at issue “radically deprived [it] of the economic[] use and enjoyment of its investments … in such a way that
‘[] any form of exploitation thereof…’ has disappeared; i.e. the economic value of the use, enjoyment or disposition of the assets or rights affected … have been neutralized or destroyed.”809 To be sure, the tribunal found that the claimant in that case had met this high
standard, but only because Mexico’s refusal to renew claimant’s landfill license coupled with an
order to cease operations “fully and irrevocably destroyed” the claimant’s “economic and
commercial operations” and “benefits and profits.”810 The effect of those measures was so severe that it “neutralize[d]” the “full … value” of the whole investment project.811 Tecmed was, in short, left with virtually nothing.
7.44 Claimants also cite to CME v. the Czech Republic,812 but that case, too, is very different.
The tribunal held that a finding of indirect expropriation “would require, at the very least, that the Tribunal be satisfied that there was deliberate government interference,” which “effectively neutralize[d] the benefit of the property.”813 The tribunal deemed that test met, but only because
808 CMM, ¶ 186.
809 Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No. ARB(AF)/00/2, Award (29 May 2003) (Grigera Naón, Fernandez Rozas, Bernal Verea), ¶¶ 115-116 (emphasis added) (CLA-203).
810 Ibid., ¶ 117.
811 Ibid., ¶ 121.
812 CMM, ¶ 188.
813 CME Czech Republic B.V. (The Netherlands) v. Czech Republic, UNCITRAL, Partial Award (3 Sept. 2001) (Kühn, Schwebel, Hándl), ¶¶ 604, 608 (citing Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting - 255 - CONFIDENTIAL INFORMATION REDACTED
the respondent’s actions were not a “normal [exercise of regulatory power] in compliance with
and in execution of the law”814 but rather were “actions designed to force the foreign investor” to
renounce its “basic rights for the protection of its investment.” The result was to “destroy[] the
legal basis for the foreign investor’s business in the Czech Republic,”815 such that it could not
continue its operations in the country.816
7.45 That standard plainly is not met here. Claimants have failed to show that their rights were
effectively “neutralized” such that the legal basis for their business was destroyed. To the
contrary, Claimants continue to reap significant returns on their sales of cigarettes in Uruguay.817
They have no viable expropriation claim.
B. Claimants Had No Trademark Rights Capable of Being Expropriated
7.46 Claimants argue that their investment was indirectly expropriated because they had to
withdraw seven of their 13 brand variants following the adoption of the SPR, and were forced to
withdraw two more following the adoption of the 80/80 Regulation.818 In addition to the reasons
discussed above, Claimants’ claims fail because they had no rights under Uruguayan law that
were capable of being expropriated.
Engineers of Iran, Award No. 141-7-2 (22 June 1984), reprinted in 6 IRAN-U.S. CL. TRIB. REP. 219 (CLA-205)) (emphasis added) (CLA-202).
814 Ibid., ¶ 603.
815 Ibid.
816 Ibid.
817 Claimants’ reliance on the Vivendi v. Argentina is equally misplaced to sustain their expropriation claim. Unlike here, the Vivendi claimants “were radically deprived of the economic use and enjoyment of their investment, the benefits of which (ie the right to be paid for services provided) had been effectively neutralized and rendered useless.” Vivendi v. Argentina, ¶ 7.5.34 (CLA-210).
818 CMM, ¶¶ 182-183.
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1. Uruguayan Law Does Not Give Trademark Registrants a Right To Use Their Marks in Commerce
7.47 Claimants’ expropriation claim turns on their assertion that Uruguayan law gives
trademark registrants an affirmative right to use their marks in commerce. In particular,
Claimants assert that they “registered and acquired ownership of their trademarks in accordance with Uruguayan trademark law, and [] thereby obtained the right to use those trademarks. As a result of the SPR, they cannot use many of the trademarks, and the appearance of those that they can use is corrupted due to the limited space for displaying the trademarks as a result of the
80/80 regulation.”819 Claimants are mistaken. There is no such right. The essential precondition to a valid expropriation claim — extant legal rights with which governmental regulation interferes — is therefore absent.
7.48 In EnCana v. Ecuador the tribunal held that “for there to have been an expropriation of an investment or return (in a situation involving legal rights or claims as distinct from the seizure of physical assets) the rights affected must exist under the law which creates them, in this case,
the law of Ecuador.”820 It could hardly be otherwise; it would be nonsensical to suggest that a
non-right could be expropriated.
7.49 In this case, Claimants had no trademark right capable of being expropriated. As noted
above and discussed in detail in Chapter 9, Uruguayan trademark law does not recognize an
affirmative right for registrants to use their trademark in commerce.821 In this respect, Uruguayan
819 Ibid., ¶ 212 (emphasis added).
820 EnCana v. Ecuador, ¶ 184 (RL-167).
821 See infra ¶¶ 9.22-9.35.
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law is entirely consistent with the international law on which it is based, as the World Intellectual
Property Organization had repeatedly made clear to Philip Morris itself on numerous
occasions.822 Under both Uruguayan law and international law more generally, the only right the
act of registering a trademark confers is the negative right (ius prohibendi) to prohibit others
from using the mark.823 Nothing about either the SPR or the 80% Requirement interferes with
this right. Claimants remain registered owners of the relevant trademarks and continue to be
entitled to prevent third parties from using them.
7.50 By limiting the number of brand variants Claimants may place on the market, Uruguay
has not interfered with any genuinely protected legal interest Claimants have in their trademarks.
Nor has the 80% Requirement interfered with Claimants’ right to prevent others from using their
registered marks. Consequently, no expropriation claim can lie.
2. Claimants Had No Trademark Rights in the Seven Variants about Which They Complain
7.51 Even if Claimants had an affirmative right to use their trademarks (which they did not),
that right would arise only as a result of the registration of the trademark(s) in question with the
appropriate authorities (in Uruguay, the National Directorate of Industrial Property).824 Yet, as also detailed in Chapter 9, Claimants did not in fact have registered trademarks for any of the seven brand variants they claim that they were compelled to withdraw from the market at the time the SPR was adopted.
822 See infra ¶¶ 9.38-9.40.
823 See infra ¶¶ 9.23-9.35, 9.41.
824 See infra ¶¶ 9.20.
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7.52 In particular, when the SPR was adopted, Claimants had not (and in most cases still have
not) registered their trademarks for (1) Marlboro Gold, (2) Marlboro Blue, (3) Marlboro Fresh
Mint, (4) Fiesta Blue, (5) Fiesta 50 50, (6) Philip Morris Blue, or (7) Premier.825 Accordingly,
even under their own theory, Claimants had no legally protected right to use those marks under
Uruguayan law. They therefore could not have been expropriated.826
825 See infra ¶¶ 9.48-9.83.
826 With respect to the two variants Claimants allege they were forced to discontinue as a result of the 80% Requirement (Premier Extra and Galaxy), their complaint is equally unavailing. As discussed in Chapter 9, Claimants’ decision to withdraw those variants from the market was a business choice for which Uruguay was not responsible.
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CHAPTER 8
URUGUAY ACCORDED CLAIMANTS FAIR AND EQUITABLE TREATMENT
8.1 Claimants argue that the SPR and 80% Requirement violated Uruguay’s obligation to accord them fair and equitable treatment (“FET”).827 Their argument fails. Claimants have not met their burden of demonstrating that Uruguay’s treatment of them was in any way “shocking,”
“egregious,” or indicative of “willful neglect” or “bad faith” as the traditional FET standard requires. Neither have Claimants shown that Uruguay treated them unfairly or inequitably under any other standard. To the contrary, as demonstrated below, Uruguay at all times accorded
Claimants treatment that was fair and equitable.
I. Claimants Do Not Meet the High Threshold for Establishing a Breach of the Fair and Equitable Treatment Standard under Customary International Law
8.2 Article 3(2) of the Uruguay-Switzerland BIT provides in relevant part:
Each Contracting Party shall ensure fair and equitable treatment within its territory of the investments of the investors of the other Contracting Party.828
8.3 Claimants make scant effort to articulate the legal standard applicable to their FET claim.
They merely cite Vasciannie for the ordinary meaning of the terms “fair” and “equitable.”829 By
itself, however, this is of little utility because “fair and equitable treatment” is a legal term of art
827 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 214-248.
828 Agreement between the Swiss Confederation and the Oriental Republic of Uruguay on the Reciprocal Promotion and Protection of Investments, signed 7 Oct. 1998, EIF 22 Apr. 1991 (hereinafter “Uruguay-Switzerland BIT”), Art. 3(2) (RL-21).
829 CMM, ¶ 216.
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that has a well-defined meaning: it refers to the minimum standard of treatment that must be accorded to aliens under customary international law.830
8.4 The standard of State responsibility for failure to protect the rights of aliens was first articulated in the award of the U.S.-Mexico General Claims Commission in the Neer case:
Without attempting to announce a precise formula, it is in the opinion of the Commission possible to … hold (first) that the propriety of governmental acts should be put to the test of international standards, and (second) that the treatment of an alien, in order to constitute an international delinquency, should amount to an outrage, to bad faith, to willful neglect of duty, or to an insufficiency of governmental action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency.831
830 The formulation “fair and equitable treatment” is found, for example, in the Organization for Economic Cooperation and Development (“OECD”) Draft Convention on the Protection of Foreign Property, whose substantive provisions have served as an important model for BITs of capital-exporting States. As noted in the Commentary to Article 1(a), the obligation of parties to ensure at all times “fair and equitable treatment” to the property of the nationals of the other parties, “indicates the standard set by international law for the treatment due by each State with regard to the property of foreign nationals … [t]he standard required conforms in effect to the ‘minimum standard’ which forms part of customary international law.” OECD, Draft Convention on the Protection of Foreign Property (Dec. 1962), p. 9 (emphasis added) (RL-123). The Draft Convention, along with the notes and comments constituting its interpretation, was adopted by the OECD at its 150th Meeting on 12 October 1967. OECD, Resolution of the Council on the Draft Convention on the Protection of Foreign Property (12 Oct. 1967), reprinted in 7 I.L.M. 117 (1968) (RL-124). Several commentators have stressed that “fair and equitable treatment” constitutes a reflection of the minimum standard of treatment under customary international law. See J. Thomas, Reflections on Article 1105 of NAFTA: History, State Practice and the Influence of Commentators, 17 ICSID REV. 21 (2002), p. 51 (“[the OECD Draft] is eviden[ce] that states propounding the negotiation of investment protection treaties saw a clear and intended link between constant (or full) protection and security and fair and equitable treatment and the international minimum standard at general international law. The former were considered to be expressions of the latter.”) (emphasis added) (RL-232); J. Karl, The Promotion and Protection of German Foreign Investments Abroad, 11 ICSID REV. 1 (1996), p. 10 (discussing the German model BIT and arguing “[t]he second sentence of Article 2(1) reflects the international minimum standard by requiring that the investment receive fair and equitable treatment.”) (emphasis added) (RL-227); D. Price, An Overview of the NAFTA Investment Chapter: Substantive Rules and Investor-State Dispute Settlement, 27 INT’L L. 727 (1993), p. 729 (RL-224); P. Gann, The US Bilateral Investment Treaty Program, 21 STAN. J. INT’L L. 373 (1985), p. 389 (RL-223); A. Newcombe & L. Paradell, LAW AND PRACTICE OF INVESTMENT TREATIES (2009) (hereinafter “Newcombe & Paradell”), p. 268 (noting “[t]here is a distinct lack of conclusive evidence of state practice clearly indicating that it was the intention of any state entering an [international investment agreement] that fair and equitable treatment would be a new and autonomous standard of conduct.”) (emphasis added) (RL-248).
831 L.F.H. Neer and Pauline Neer (U.S.A.) v. United Mexican States, U.S.-Mexico General Claims Commission, Decision (15 Oct. 1926), 4 U.N.R.I.A.A. 60, pp. 61-62 (emphasis added) (CLA-237).
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8.5 As the use of the terms “outrage,” “bad faith,” and “willful neglect” suggest, the award
established a high standard for a successful FET claim.
8.6 Although customary international law has evolved since the Neer decision, the threshold for establishing an FET violation remains quite high. The heavy burden Claimants face has been recognized in numerous investment arbitrations, including S.D. Myers v. Canada,832 and
International Thunderbird v. Mexico. In the latter case, the tribunal found:
Notwithstanding the evolution of customary law since decisions such as Neer Claim in 1926, the threshold for finding a violation of the minimum standard of treatment still remains high, as illustrated by recent international jurisprudence. For the purposes of the present case, the Tribunal views acts that would give rise to a breach of the minimum standard of treatment prescribed by the NAFTA and customary international law as those that, weighed against the given factual context, amount to a gross denial of justice or manifest arbitrariness falling below acceptable international standards.833
8.7 In Glamis Gold v. United States, the tribunal similarly concluded that customary international law has not abandoned the high standard articulated in the Neer case, and that this
was “evident in the abundant and continued use of adjective modifiers throughout arbitral
awards, evidencing a strict standard.”834 The tribunal observed further that the customary international law minimum standard is “just that, a minimum standard. It is meant to serve as a
832 S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award (13 Nov. 2000) (Chiasson, Hunter, Schwartz), ¶ 263 (“[t]he tribunal considers that a breach of Article 1105 occurs only when it is shown that an investor has been treated in such an unjust or arbitrary manner that the treatment rises to the level that is unacceptable from the international perspective.”) (emphasis added) (RL-155).
833 International Thunderbird Gaming Corporation v. United Mexican States, UNCITRAL, Award (26 Jan. 2006) (van den Berg, Portal Ariosa, Wälde), ¶ 194 (emphasis added) (RL-166).
834 Glamis Gold, Ltd. v. United States of America, UNCITRAL, Award (8 June 2009) (Young, Caron, Hubbard) (hereinafter “Glamis Gold v. United States”), ¶ 614 (RL-183).
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floor, an absolute bottom, below which conduct is not accepted by the international community.
Although the circumstances of the case are of course relevant, the standard is not meant to vary
from state to state or investor to investor.”835 The Glamis tribunal concluded that
although situations may be more varied and complicated today than in the 1920s, the level of scrutiny is the same. The fundamentals of the Neer standard thus still apply today: to violate the customary international law minimum standard of treatment codified in Article 1105 of the NAFTA, an act must be sufficiently egregious and shocking — a gross denial of justice, manifest arbitrariness, blatant unfairness, a complete lack of due process, evident discrimination, or a manifest lack of reasons — so as to fall below accepted international standards and constitute a breach of Article 1105(1).836
8.8 Non-NAFTA tribunals have also concluded that BIT-based FET clauses incorporate the
customary international law minimum standard of treatment. In Genin v. Estonia, for example,
the tribunal analyzed the FET provision of the U.S.-Estonia BIT,837 and concluded that, under
international law, fair and equitable treatment is generally understood to “require an
‘international minimum standard’ that is separate from domestic law, but that is, indeed, a
minimum standard.”838 The tribunal added that “acts that would violate this minimum standard
835 Ibid., ¶ 615 (emphasis added).
836 Ibid., ¶ 616 (emphasis added).
837 Article II(3)(a) of the U.S.-Estonia BIT reads as follows: “Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than required by international law.” United States-Estonia BIT, signed 19 Apr. 1994, EIF 16 Feb. 1997, Art. II(3)(a) (RL- 127).
838 Alex Genin, Eastern Credit Limited, Inc. & A.S. Baltoil v. Republic of Estonia, ICSID Case No. ARB/99/2, Award (25 June 2001) (Fortier, Heth, van den Berg) (hereinafter “Genin v. Estonia”), ¶ 367 (emphasis in original) (RL-157).
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would include acts showing a willful neglect of duty, an insufficiency of action falling far below
international standards, or even subjective bad faith.”839
8.9 Whether particular treatment is fair and equitable is a fact-dependent, case-specific
inquiry that must be assessed in light of all the facts and circumstances of the particular case.840
Under any view of the facts in this case, however, Claimants have plainly not met the burden customary international law imposes upon them to establish a successful FET claim. Far from being “outrageous,” “shocking” or reflecting “bad faith,” the SPR and 80% Requirement were, for the reasons detailed in Chapters 4 and 5, plainly adopted in good faith and in a non- discriminatory manner for the single purpose of protecting the public health, to which they have a well-established logical connection. On this basis alone, Claimants’ FET claim fails.
8.10 In their Memorial, Claimants depart from the traditional customary international law standard. Even as they acknowledge that the FET standard “has its roots in the minimum standard of treatment long required by international law,” they suggest that it “continues to evolve today through state practice and the jurisprudence of arbitral tribunals.”841 They refer to a variety of “ways that a government might fail to provide fair and equitable treatment with respect
839 Ibid. (emphasis added). See also M.C.I. Power Group v. Ecuador Ecuador, ICSID Case No. ARB/03/6, Award (31 July 2007) (Vinuesa, Greenberg, Irarrázabal) (hereinafter “M.C.I. v. Ecuador”), ¶ 369 (stating of the U.S.- Ecuador BIT that “fair and equitable treatment conventionally obliges States parties to the BIT to respect the standards of treatment required by international law.”) (CLA-036). See also ibid., ¶ 370 (citing Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award (11 Oct. 2002) (Stephen, Crawford, Schwebel), ¶ 119 (RL-117)).
840 Saluka Investments B.V. v. Czech Republic, UNCITRAL, Partial Award (17 Mar. 2006) (Watts, Fortier, Behrens) (hereinafter “Saluka v. Czech Republic”), ¶ 285 (CLA-227).
841 CMM, ¶ 217.
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to an investment.”842 In so doing, Claimants intimate — although they never say directly — that
there may be an “autonomous” BIT-based FET standard that should apply in this case.
8.11 If that is indeed what Claimants are arguing, Uruguay very much disagrees. In its view,
the FET provision of its BIT with Switzerland does not give rise to a vague, free-standing
standard, but simply incorporates the pre-existing customary international law norm.
8.12 Switzerland appears to agree with this view. A statement issued by the Swiss Foreign
Office in 1979 with respect to the concept of fair and equitable treatment in the context of the
Swiss investment law practice provides:
[FET] thus references the classic principle of public international law according to which States must provide foreigners in their territory the benefit of the international ‘minimum standard’, that is, to accord them a minimum of personal, procedural and economic rights.843
8.13 Moreover, even if some sort of “autonomous” treaty standard were applied, quod non, the
result would be no different in this case. The fact would remain that Uruguay has treated
Claimants fairly and equitably for the reasons presented below.
II. Even if an Autonomous Treaty Standard Were To Be Applied, Claimants’ Case Would Still Fail
8.14 Claimants have not identified a particular “autonomous” FET standard that they claim applies. Instead, they have cherry-picked several options they appear to like. In particular,
842 Ibid.
843 L. Caflisch, Swiss Practice in Public International Law, 36 SWISS DIRECTORY OF PUBLIC INTERNATIONAL LAW 139 (1980), p. 178 (“One thus references the classic principle of international law according to which States must provide foreigners in their territory the benefit of the international ‘minimum standard,’ that is, to accord them a minimum of personal, procedural and economic rights.”) (RL-221).
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Claimants allege that Uruguay has failed to abide by its FET obligation to them because the SPR and 80% Requirement were (1) arbitrary; (2) inconsistent with their “legitimate expectations”; and (3) deprived them of “legal stability.”844 Even assuming arguendo that any of these
ostensible standards applies, Claimants’ case would still fail. The SPR and 80% Requirement are
not arbitrary, they are not inconsistent with Claimants’ legitimate expectations and they did not
deprive Claimants of legal stability.
A. The SPR and 80% Requirement Are Not Arbitrary
8.15 Claimants argue that Uruguay has breached its obligation to provide them with fair and
equitable treatment because, they assert, the SPR and 80% regulations are “arbitrary.”845 This
claim is without merit.
8.16 Nowhere does Claimants’ Memorial quote the international law standard for determining
whether a State has acted arbitrarily, which was set out by a Chamber of the International Court of Justice in the Case Concerning Elettronica Sicula S.p.A. (ELSI) (United States of America v.
Italy). There, the Court, after observing that “[a]rbitrariness is not so much something opposed to
a rule of law,” defined it as “a wilful disregard of due process of law, an act which shocks, or at
least surprises, a sense of juridical propriety.”846
8.17 The ICJ’s definition of arbitrariness remains the most authoritative interpretation of
international law on this question and applies equally in the investment law context. In El Paso v.
844 CMM, ¶ 215.
845 Ibid., ¶ 219.
846 Elettronica Sicula S.p.A. (ELSI) (United States v. Italy), Judgment (20 July 1989), I.C.J. Reports 1989, p. 15 (hereinafter “ELSI”), ¶ 128 (emphasis added) (CLA-088).
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Argentina, the tribunal cited ELSI approvingly, defining “arbitrariness [as] not something
opposed to a rule of law, as something opposed to the rule of law …. It is a willful disregard of
due process of law, an act which shocks, or at least surprises, a sense of judicial propriety.”847
Similarly, the tribunal in Noble Ventures v. Romania relied on “the decision of the ICJ in the
ELSI case” to define arbitrariness.848
8.18 Other tribunals have looked to the ordinary meaning of “arbitrary” to define it as “not governed by any fixed rules or standard,” “performed without adequate determination of principle,” “without cause based upon the law,” or resulting from a “failure to exercise honest judgment.”849 In Genin v. Estonia, the tribunal held that arbitrariness requires the State’s actions
to “amount to bad faith, a wilful disregard of the process of law or an extreme insufficiency of
action” that violates the “‘sense of judicial propriety.’”850 And the NAFTA tribunal in Cargill v.
Mexico held:
Arbitrariness may lead to a violation of State’s duties … only when the State’s actions move beyond a merely inconsistent or questionable application of administrative or legal policy or procedure to the point where the action constitutes an unexpected and shocking repudiation of a policy’s very purpose and goals, or
847 El Paso Energy International Co. v. Argentine Republic, ICSID Case No. ARB/03/15, Award (31 Oct. 2011) (Caflisch, Bernardini, Stern) (hereinafter “El Paso v. Argentina”), ¶ 319 (citing ELSI, ¶ 128 (CLA-088)) (emphasis added) (CLA-102).
848 Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award (12 Oct. 2005) (Böckstiegel, Lever, Dupuy), ¶ 176 (“The BIT gives no definition of either the notion ‘arbitrary’ or ‘discriminatory.’ Regarding arbitrariness, reference can again be made to the decision of the ICJ in the ELSI case. The Court defined arbitrariness as … ‘a wilful disregard of due process of law, an act which shocks, or at least surprises, a sense of juridical propriety.’”) (emphasis in original) (RL-165).
849 El Paso v. Argentina, ¶ 319 (citing Black’s Law Dictionary (1999): “arbitrary”) (CLA-102).
850 Genin v. Estonia, ¶ 371 (RL-157).
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otherwise grossly subverts a domestic law or policy for an ulterior motive.851
8.19 Accordingly, Claimants face a high bar in pressing their claim of arbitrariness. The height
of the bar is consistent with the well-established principle that “States are not liable to pay
compensation to a foreign investor when, in the normal exercise of their regulatory powers, they
adopt in a non-discriminatory manner bona fide regulations that are aimed at the general
welfare.”852
8.20 It is irrelevant that Claimants believe other courses of action would have been better, or
might more efficiently have achieved Uruguay’s public health objectives. Tribunals have
uniformly held that it is not their role to substitute their own policy judgments for those of the
State. For that reason, the tribunal in Enron v. Argentina held that Argentina’s measures to
address its 2000-2002 economic crisis were not arbitrary because they were based on “what the
Government believed and understood was the best response to the unfolding crisis.” The tribunal
ruled:
The measures adopted might have been good or bad, a matter which is not for the Tribunal to judge, and as concluded they were not consistent with the domestic and the Treaty legal framework, but they were not arbitrary in that they were what the Government believed and understood was the best response to the unfolding crisis. Irrespective of the question of intention, a finding of arbitrariness requires that some important measure of impropriety is manifest, and this is not found in a process which although far
851 Cargill, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award (18 Sept. 2009) (Pryles, Caron, McRae), ¶ 293 (RL-186).
852 Saluka v. Czech Republic, ¶ 255 (CLA-227); see also Methanex Corporation v. United States of America, UNCITRAL, Final Award (3 Aug. 2005) (Veeder, Rowley, Reisman), Part IV, Ch. D, ¶ 7 (RL-164).
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from desirable is nonetheless not entirely surprising in the context it took place.853
8.21 In short, for regulatory measures to be deemed arbitrary, “some important measure of
impropriety [must] be manifest,”854 reflecting “the absence of legitimate purpose, capriciousness,
bad faith, or a serious lack of due process.”855 Consequently, measures undertaken in good faith
cannot be considered arbitrary unless there is a manifest lack of rational relationship between the
measure and its objective, i.e., unless there is no logical connection between them.
8.22 For the reasons presented in Chapters 4 and 5, that is not the case here with respect to
either the SPR or the 80% Requirement. To the contrary, both formed an essential part of
Uruguay’s comprehensive tobacco control policies adopted to protect public health. In the case
of the SPR, the measure was designed to impede the ability of tobacco companies operating in
the country to continue perpetuating the myth, cultivated over decades, that some cigarettes are
less harmful than others, thus giving existing smokers an apparently healthy alternative to quitting and potential new smokers more reason to smoke. In the case of the 80% Requirement, the measure was intended to better educate the public about the gravity and magnitude of the
853 Enron Creditors Recovery Corporation and Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award (22 May 2007) (Orrego Vicuña, van den Berg, Tschanz) (hereinafter “Enron v. Argentina”), ¶ 281 (emphasis added) (CLA-230).
854 Sempra Energy International v. Argentine Republic, ICSID Case No. ARB/02/16, Award (28 Sept. 2007) (Orrego Vicuña, Lalonde, Moreli Rico), ¶ 318 (CLA-142); Enron v. Argentina, ¶ 281 (CLA-230). See also Ulysseas, Inc. v. Republic of Ecuador, UNCITRAL, Final Award (12 June 2012) (Bernardini, Pryles, Stern) (hereinafter “Ulysseas v. Ecuador”), ¶¶ 319, 320, 323 (the tribunal dismissed the claim of breach of the BIT for arbitrary treatment, quoting the Enron case — “a finding of arbitrariness requires that some important measure of impropriety is manifest” — and holding that “[t]here was nothing ‘improper’ in the enactment of Constituent Mandate No. 15 on 23 July 2008 and in its implementation through CONELEC’s subsequent regulations.”) (emphasis in original) (RL-196).
855 Newcombe & Paradell, p. 303 (RL-248).
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risks of smoking, and to make those risks real by providing graphic reminders that consumers are forced to look at every time they remove a cigarette from its pack.
8.23 Accordingly, both measures easily pass the relevant test under international law. Neither is arbitrary. To the contrary, they are both well-considered measures adopted for a legitimate public purpose.
8.24 Moreover, both the SPR and the 80% Requirement were made necessary and appropriate by the actions of the tobacco industry itself, including the industry’s prolonged efforts to convince the public that smoking was not harmful to health, and then that certain cigarettes were safer than others. In light of this history, and the ongoing effects of the tobacco companies’ deceptive practices, basic notions of equity should preclude Claimants from arguing that they are the ones who have been treated unfairly.
8.25 The maxim ex dolo malo non oritur actio (“an action at law does not arise from evil deceit”) is recognized as a general principle of international law.856 This doctrine, closely related to the common-law concept of “unclean hands,”857 derives from principles of good faith.858
856 Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, Award (2 Aug. 2006) (Oreamuno Blanco, Landy, von Wobeser), ¶ 240 (CLA-113); see also B. Cheng, GENERAL PRINCIPLES OF LAW AS APPLIED BY INTERNATIONAL COURTS AND TRIBUNALS (2006) (citing Claims of Clark and Danels, Granadine-United States Claims Commission, Decision (1857), reprinted in 3 MOORE INTERNATIONAL ARBITRATION 2729 (1898), p. 2739), p. 156 (“A Party who asks for redress must present himself with clean hands.”) (RL-36(bis)); H. Lauterpacht, RECOGNITION IN INTERNATIONAL LAW (1947), p. 420 (“The principle ex injuria jus non oritur is one of the fundamental maxims of jurisprudence. An illegality cannot, as a rule, become a source of legal right to the wrongdoer.”) (RL-214).
857 Black’s Law Dictionary (7th ed. 1999), p. 244: “clean-hands doctrine” (“The principle that a party cannot seek equitable relief or assert an equitable defense if that party has violated an equitable principle, such as good faith. … Such a party is described as having ‘unclean hands.’”) (RL-230).
858 Nuclear Tests (Australia v. France), Judgment (20 Dec. 1974), I.C.J. Reports 1974, p. 253, ¶ 46 (“One of the basic principles governing the creation and performance of legal obligations … is good faith. Trust and confidence are inherent in international cooperation, in particular in an age when this cooperation in many fields is becoming - 271 - CONFIDENTIAL INFORMATION REDACTED
Translated to the investment arbitration context, it means that an investor should not be permitted
to argue that it has been denied fair and equitable treatment when it has itself acted fraudulently
or in bad faith, particularly where, as here, the fraud in question contributed to the adoption of the measures about which the investor complains.
8.26 An analogous issue arose in the Case Concerning the Diversion of Water from the River
Meuse before the Permanent Court of International Justice.859 In that case, Belgium argued that
the Netherlands could not invoke a treaty against Belgium when, by its prior actions, the
Netherlands itself had violated the treaty’s terms.860 In its Judgment, the Court concluded that the
Netherlands could not validly complain about an action it had undertaken in the past.861 Notably, in his concurring opinion, Judge Manley Hudson invoked the doctrine of unclean hands as a general principle of law and affirmed that courts should “refuse[] relief to a plaintiff whose conduct in regard to the subject-matter of the litigation has been improper.”862
8.27 Investment arbitration tribunals have applied this principle in a variety of factual settings
to deny relief to a claimant that had engaged in wrongdoing. In Plama v. Bulgaria, for example,
the claimant “failed, deliberately, to inform the government entity during negotiations” that its
increasingly essential.”) (RL-145); M. Shaw, INTERNATIONAL LAW (2008), p. 103 (RL-245); M. Virally, Review Essay: Good Faith in Public International Law, 77 AM. J. INT’L L. 130 (1983) (RL-222).
859 The Diversion of Water from the Meuse, Judgment (28 June 1937), P.C.I.J. Series A/B, No. 70 (RL-141).
860 Ibid., p. 8.
861 Ibid., p. 25.
862 The Diversion of Water from the Meuse, Judgment (28 June 1937), Individual Opinion of Judge Hudson, P.C.I.J. Series A/B, No. 70, p. 77 (RL-142).
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former partners had withdrawn from their consortium,863 which was a “deliberate concealment
amounting to fraud, calculated to induce the Bulgarian authorities to authorize the transfer of
shares to an entity that did not have the financial and managerial capacities required to resume
operation of the Refinery.”864 The tribunal therefore found that the claimant’s investment was
“obtained by deceitful conduct that is in violation of Bulgarian law”865 and thus “contrary to the
principle of good faith.”866 On that basis, it declined to afford the claimant the substantive
protections of the pertinent BIT.867
8.28 Similarly, in Fraport v. Philippines, the investor made its investment fraudulently and
then continued to “arrange secretly for management and control of the project in a way which the
investor knew were not in accordance with the law of the Philippines.”868 The tribunal found that
the “comportment of the foreign investor, as is clear from its own records, was egregious and
cannot benefit from presumptions which might ordinarily operate in favour of the investor.”869
863 Plama Consortium Limited v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27 Aug. 2008) (Salans, van den Berg, Veeder), ¶ 134 (CLA-222).
864 Ibid., ¶ 135.
865 Ibid., ¶ 143.
866 Ibid., ¶ 144.
867 Ibid., ¶ 146. Note that the Energy Charter Treaty, the governing investment agreement, did not include a provision that required the investments to be made “in accordance with the law” of the host State.
868 Fraport AG Frankfurt Airport Services Worldwide v. Republic of the Philippines, ICSID Case No. ARB/03/25, Award (16 Aug. 2007) (Fortier, Cremades, Reisman), ¶ 398 (RL-175). This aspect of the Award was not affected by the Award’s annulment on different grounds.
869 Ibid., ¶ 397.
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Thus, because there was no “investment in accordance with the law,” the tribunal concluded it lacked jurisdiction ratione materiae to adjudicate the case.870
8.29 This case is not about fraudulent representations made to obtain Uruguay’s approval of
Claimants’ investment. But the principle is the same. Both before and after they made their
investment in Uruguay, Claimants (along with other tobacco companies) defrauded Uruguayan
consumers about the harmfulness of smoking in general, and the relative safety of certain brand
variants in particular. As demonstrated in detail in Chapters 3 and 4,871 as well as in the expert
reports of Drs. Jonathan Samet872 and Joel Cohen,873 Claimants’ fraud was multi-faceted. For
decades they, among other things: (1) falsely denied the harmful health effects of smoking,
claiming the issue was the subject of controversy, (2) falsely denied that nicotine is addictive,
even as they designed their products to be as addictive as possible and (3) extended brand
families to promote the false belief among health-concerned consumers that some cigarettes are
less harmful than others. Claimants should be precluded from claiming that Uruguay’s treatment
of them was arbitrary when their own fraudulent actions created the need to take the measures
they now challenge, especially since those measures were aimed precisely at mitigating the
effects of Claimants’ fraudulent practices.
870 Ibid., ¶ 401.
871 See supra ¶¶ 3.47-3.77, 4.9-4.59.
872 Dr. Jonathan M. Samet, The Adverse Health Effects of Smoking and the Tobacco Industry’s Efforts to Limit Tobacco Control (10 Oct. 2014) (REX-001).
873 Prof. Joel Cohen, Prof. Timothy Dewhirst & Prof. David Hammond, The Single Presentation Requirement: Overcoming The Illusion Of A Less Hazardous Cigarette (19 Sept. 2014), Section III (REX-002).
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B. Uruguay Has Not Violated Claimants’ Legitimate Expectations
8.30 Claimants argue that their “reasonable investment-backed expectations” were
“eviscerated” by the adoption of the SPR and 80% Requirement.874 Their argument is untenable.
Uruguay has at all times respected Claimants’ truly legitimate expectations. Its bona fide
exercise of its sovereign police power to protect the public health does not breach the BIT.
8.31 Even in cases where the “legitimate expectations” standard applies, not all of an investor’s expectations are protected. To the contrary, as the Glamis Gold tribunal stated, to establish an FET breach, a claimant must show that its expectations were predicated on specific representations or assurances made by the host State.875 A commitment acquires the requisite
specificity only if its “precise object was to give a real guarantee of stability to the investor.”876
8.32 In EDF v. Romania the investor asserted that it had been invited by Romania to invest in the country, and to establish a business selling goods in Romanian airports and on board airplanes.877 Pursuant to that invitation, the investor entered into joint venture agreements with
Romanian State-owned entities.878 When the investor’s joint venture partners refused to renew
874 CMM, ¶ 237.
875 Glamis Gold v. United States, ¶ 620 (RL-183). See also Duke Energy Electroquil Partners and Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 Aug. 2008) (Kaufmann-Kohler, Gómez Pinzón, van den Berg), ¶ 351 (“In view of the contract history, the expectation could only have been deemed reasonable if it had been based on clear assurances from the Government.”) (emphasis added) (CLA-098); PSEG Global Inc. & Konya Ilgin Elektrik Üretim ve Ticaret Limited Şirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award (19 Jan. 2007) (Orrego Vicuña, Fortier, Kaufmann-Kohler), ¶ 241 (“Legitimate expectations by definition require a promise of the administration on which the Claimants rely to assert a right that needs to be observed.”) (emphasis added) (RL-172).
876 El Paso v. Argentina, ¶ 377 (CLA-102).
877 Ibid., ¶ 66.
878 Ibid., ¶ 46.
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the agreements in question, the investor instituted arbitration, claiming, inter alia, that its
legitimate expectations had been frustrated.879 The tribunal rejected the investor’s claim,
stressing:
Except where specific promises or representations are made by the State to the investor, the latter may not rely on a bilateral investment treaty as a kind of insurance policy against the risk of any changes in the host State’s legal and economic framework. Such expectation would be neither legitimate nor reasonable.880
8.33 Merely failing to fulfill an investor’s general subjective expectations is not enough.881 In the words of the El Paso tribunal, legitimate expectations “cannot be solely the subjective expectations of the investor, but have to correspond to the objective expectations that can be deduced from the circumstances and with due regard to the rights of the State.”882 The latter
point is of particular importance because “a balance should be established between the legitimate
expectations of the foreign investors to make a fair return on its investment and the right of the host State to regulate its economy in the public interest.”883
8.34 Here Claimants are unable to point to any specific commitment made to them by
Uruguay because there was none. Instead, they try to move away from the requirement altogether
879 See ibid., ¶ 177.
880 Ibid., ¶ 217. See also GEA Group Aktiengesellschaft v. Ukraine, ICSID Case No. ARB/08/16, Award (31 Mar. 2011) (van den Berg, Landau, Stern), ¶¶ 283, 287 (RL-191); ibid., ¶ 291 (“[i]n the Tribunal’s view, the statements made by the Respondent cannot be read as unconditional promises for payment. At most, these statements, taken together, may be read as Ukraine engaging to use its best efforts to assist in bringing the bankruptcy proceedings to an end within the scope of Ukrainian law.”) (emphasis added); Ulysseas v. Ecuador, ¶ 249 (RL-196).
881 Saluka v. Czech Republic, ¶ 304 (stating “the scope of the Treaty’s protection of foreign investment against unfair and inequitable treatment cannot exclusively be determined by foreign investors’ subjective motivations and considerations.”) (CLA-227).
882 El Paso v. Argentina, ¶ 358 (CLA-102).
883 Ibid.
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by invoking the Tecmed case, which they cite for the proposition that a host State is required to
“provide to international investments treatment that does not affect the basic expectations that were taken into account by the foreign investor to make the investment.”884 Tecmed is, however,
very much of an outlier. The assertion that a host State’s FET obligation extends to protecting an
investor’s “basic expectations” stands in flat contradiction with the proposition that only specific
commitments can give rise to truly legitimate expectations, and potentially crosses the line into
protecting investors’ wholly subjective expectations regardless of whether or not they were well-
founded.
8.35 Not surprisingly therefore, the Tecmed decision has been the subject of substantial
criticism both by scholars and other tribunals. The tribunal in El Paso, for example, criticized
Tecmed’s description of FET as “a program of good governance that no State in the world is
capable of guaranteeing at all times.”885 The ad hoc annulment Committee in MTD v. Chile
observed in a like vein:
[T]he TECMED Tribunal’s apparent reliance on the foreign investor’s expectations as the source of the host State’s obligations (such as the obligation to compensate for expropriation) is questionable. The obligations of the host State towards foreign investors derive from the terms of the applicable investment treaty and not from any set of expectations investors may have or claim to have. A tribunal which sought to generate from such expectations a set of rights different from those contained in or
884 CMM, ¶ 236 (citing Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No. ARB (AF)/00/2, Award (29 May 2003) (Grigera Naón, Fernandez Rozas, Bernal Verea) (hereinafter “Tecmed v. Mexico”), ¶ 154 (CLA-203)).
885 El Paso v. Argentina, ¶ 34 (CLA-102).
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enforceable under the BIT might well exceed its powers, and if the difference were material might do so manifestly.886
8.36 This Tribunal should therefore decline Claimants’ invitation to adopt the Tecmed
standard here.
8.37 Even were the Tecmed standard deemed to apply, quod non, Claimants would still have
no case. They assert that the “basic expectations” that they had when they made their investment
were that Uruguay would (1) allow them to “continue to deploy and capitalize on their brand
assets,” (2) “respect Claimants’ intellectual property rights” and (3) “refrain from imposing
restrictive regulations without a well-reasoned, legitimate purpose.”887 All of these claims are
groundless.
8.38 Claimants’ assertion that they expected that they would be allowed to “continue to deploy
and capitalize on their brand assets”888 is far too nebulous in content to give rise to anything that
could be considered a legitimate expectation as a matter of law. As explained in Chapter 2, the
rights of Uruguayan citizens to life and health are fundamental, they are a “supreme good.” They
are also protected by various international covenants to which Uruguay is a party, not least of
which is the FCTC. As such, these basic human rights prevail over any commercial interest
Claimants may have in the marketing of their tobacco products.
886 MTD Equity Sdn Bhd. & MTD Chile S.A. v. Republic of Chile, ICSID Case No ARB/01/7, Decision on Annulment (21 Mar. 2007) (Guillaume, Crawford, Ordóñez Noriega), ¶ 67 (CLA-041).
887 CMM, ¶ 237. Claimants also contend that they expected that Uruguay would “ensure that Claimants had access to a just, unbiased and defective domestic court system.” Ibid. This allegation raises denial of justice issues which are dealt with in full in Chapter 11 of this Counter-Memorial.
888 Ibid.
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8.39 Claimants’ own contemporaneous statements prove that they did not legitimately expect
otherwise. In July 2004, after Uruguay ratified the FCTC, Claimant Abal sent a letter to the
Ministry of Public Health, the opening line of which states: “We firmly encourage the adoption
of an effective tobacco regulation with broad scope.”889 The accompanying memorandum, which provided ideas for tobacco control measures that Abal considered appropriate, further explained that broad regulation was needed to achieve the important public health goal of ensuring that smokers understood the serious diseases caused by smoking and that “no safe cigarette exists”:
Wide tobacco regulation, combined with an effective enforcement thereof, may be useful to attain major public health goals. Tobacco consumption is addictive and causes serious diseases, such as lung cancer, heart disease and emphysema. In addition, smokers are much more prone to serious diseases, such as lung cancer, than non-smokers, and there is no “safe” cigarette. Regulation may ensure that consumers remain informed about these health effects.890
8.40 Claimants appear to argue that their expectations, whatever they were, became
“legitimate” because Uruguay “actively promoted the expansion of Abal’s operations, declaring
in 2002 that Claimants’ investment project was ‘hereby promoted’, with respect to
manufacturing, marketing and distribution of cigarettes and tobacco.”891 There are at least two
flaws in this argument. First, Uruguay’s 2002 actions had nothing to do with Claimants’ ability
to “deploy and capitalize on their brand assets,” the nominal object of their expectations. To the
contrary, Uruguay did nothing more than provide a time-limited package of tax exemptions and
889 Letter from Abal Hermanos S.A. to the Ministry of Public Health (9 July 2004), p. 1 (R-167).
890 Abal Hermanos S.A., Recommendations for a comprehensive regulation of tobacco products (9 July 2004), p. 1 (R-166).
891 CMM, ¶ 238 (citing Declaration of Promoted Activity for Investment Project of ABAL HNOS S.A. (14 Mar. 2002) (C-029)) (emphasis omitted).
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credits of a general nature.892 These actions afford no basis for Claimants to have formed any
expectations about their “brand assets.”
8.41 Second, and more fundamentally, the Tecmed analysis applies only to expectations that
“were taken into account by the foreign investor to make the investment.”893 Yet, that could not
possibly have been the case here because, by 2002, Claimants were already in the country as the
Declaration on Promoted Activity they cite plainly reflects.
8.42 Neither did the SPR or 80% Requirement thwart Claimants’ expectations that they would be able “to capitalize on the intellectual property” associated with their products. Claimants claim that this expectation “was backed by Uruguayan law, which guarantees Claimants the right to use their trademarks and exclude others from doing so.”894 As noted in Chapter 7 in
connection with Claimants’ expropriation arguments, and set forth in full in Chapter 9
concerning the intellectual property issues in this case, the premise of Claimants’ argument is
mistaken. Uruguayan law does not grant trademark registrants a guaranteed “right to use,” as
Claimants contend.895 The expectation that Claimants would benefit from that right has therefore
not been disappointed.
8.43 Claimants have also failed to demonstrate that their nominal expectation that Uruguay
would “refrain from imposing restrictive regulations without a well-reasoned, legitimate
892 See Declaration of Promoted Activity for Investment Project of ABAL HNOS S.A. (14 Mar. 2002) (C-029).
893 Tecmed v. Mexico, ¶ 154 (CLA-203).
894 Ibid., ¶ 240.
895 See infra ¶¶ 9.23-9.47.
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purpose”896 has been frustrated. As set forth in Chapters 4 and 5, and reiterated above, the two
measures at issue in this case were adopted after due consideration and for an indisputably
“legitimate” purpose: protecting public health. Uruguay had a reasonable basis for believing that
the regulations would serve that end. Claimants cannot show, therefore, that any expectation that
they may have had that Uruguay would refrain from imposing regulations without a well-
reasoned, legitimate purpose was disappointed.
8.44 For all these reasons, Claimants have not met their burden of proving that Uruguay
frustrated their legitimate expectations in violation of the FET provision of the Uruguay-
Switzerland BIT.
C. Uruguay Did Not Deprive Claimants of Legal Stability
8.45 Claimants contend that Uruguay violated its FET obligation by changing the legal and business environment in which they operate.897 As Claimants see it, the FET obligation “requires
the host state to provide a reasonably stable and predictable legal system.”898 This argument is
unavailing.
8.46 It founders in the first instance on the fact that there is no general (and amorphous)
obligation to provide a stable legal environment for investors to operate. Most of the cases in
which this requirement has been deemed to exist involve disputes arising under certain United
896 CMM, ¶ 237. See also ibid., ¶ 239.
897 Ibid., ¶¶ 243, 247.
898 Ibid., ¶ 243.
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States BITs that contain preambular language to the effect that “fair and equitable treatment of
investment is desirable in order to maintain a stable framework for investment ….”899
8.47 Even in those cases, the existence of the putative obligation Claimants invoke is the
subject of significant debate. In Continental Casualty v. Argentina, for example, the tribunal
refused to read such an obligation into the substantive protections of the U.S.-Argentina BIT on
the basis of similar preambular language. The tribunal stated:
Stability of the legal framework for investments is mentioned in the Preamble of the BIT. It is not a legal obligation in itself for the Contracting Parties …. Stability of the legal framework is undoubtedly conducive to attracting foreign investments …. On the other hand, it would be unconscionable for a country to promise not to change its legislation as time and needs change …. Such an implication as to stability in the BIT’s Preamble would be contrary to an effective interpretation of the Treaty; reliance on such an implication by a foreign investor would be misplaced and, indeed, unreasonable.900
8.48 Whatever the merits of this debate may be in the context of the pertinent U.S. BITs, the question is entirely irrelevant here. No similar language appears in the Preamble to the Uruguay-
Switzerland BIT. As discussed in Chapter 2, sovereign States have the inherent right to regulate in the public interest, even when those regulations affect the investor. In Saluka v. Czech
Republic, for example, the Tribunal found that:
No investor may reasonably expect that the circumstances prevailing at the time the investment is made remain totally unchanged. In order to determine whether frustration of the foreign
899 See, e.g., LG&E Energy Corp., et al. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (3 Oct. 2006) (de Maekelt, Rezek, van den Berg), ¶ 124 (RL-65).
900 Continental Casualty Company v. Argentine Republic, ICSID Case No. ARB/03/9, Award (5 Sept. 2008) (Sacerdoti, Veeder, Nader), ¶ 258 (emphasis added) (CLA-096).
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investor’s expectations was justified and reasonable, the host State’s legitimate right subsequently to regulate domestic matters in the public interest must be taken into consideration as well. …
The determination of a breach of Article 3.1 by the Czech Republic therefore requires a weighing of the Claimant’s legitimate and reasonable expectations on the one hand and the Respondent’s legitimate regulatory interest on the other.901
8.49 In Parkerings-Compagniet v. Lithuania, the tribunal specifically stated that investors should expect the regulatory legal framework to change over time:
A State has the right to enact, modify or cancel a law at its own discretion. Save for the existence of an agreement, in the form of a stabilisation clause or otherwise, there is nothing objectionable about the amendment brought to the regulatory framework existing at the time an investor made is investment. As a matter of fact, any businessman or investor knows that laws will evolve over time. What is prohibited however is for a State to act unfairly, unreasonably or inequitably in the exercise of its legislative power.902
901 Saluka v. Czech Republic, ¶¶ 304-308 (CLA-227). See also Mobil Investments Canada Inc. & Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/4, Decision on Liability and on Principles of Quantum (22 May 2012) (van Houtte, Janow, Sands), ¶ 153 (where the Tribunal found that “[the] applicable standard does not require a State to maintain a stable legal and business environment for investments, if this is intended to suggest that the rules governing an investment are not permitted to change, whether to a significant or modest extent. Article 1105 may protect an investor from changes that give rise to an unstable legal and business environment, but only if those changes may be characterized as arbitrary or grossly unfair or discriminatory, or otherwise inconsistent with the customary international law standard.”) (RL-195). Additionally, in CMS v. Argentina, upon which Claimant purportedly relies, the tribunal stressed that the preamble of the U.S.-Argentina BIT “makes it clear … that one principal objective of the protection envisaged under the treaty is that fair and equitable treatment is desirable ‘to maintain a stable framework for investments ….’” CMS Gas Transmission Company v. Argentine Republic, ICSID Case No. ARB/01/8, Award (12 May 2005) (Orrego Vicuña, Lalonde, Rezek), ¶ 274 (CLA-208). The tribunal added that this requirement does not mean that the legal framework should be frozen in time; however, that framework could not be dispensed with altogether “when specific commitments to the contrary have been made.” Ibid., ¶ 277 (emphasis added).
902 Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No. ARB/05/8, Award (11 Sept. 2007) (Lévy, Lew, Lalonde), ¶ 332 (emphasis omitted) (RL-177).
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8.50 These general principles apply with particular force in the context of this case. First, what
is involved here is more than just the general right to regulate for public purposes; it is the
exercise of Uruguay’s sovereign police power to protect public health.903
8.51 Second, this case involves tobacco, one of the most highly regulated industries in the
world at the local, national and international levels. That being the case, Claimants could not
reasonably have had any expectation, let alone a legitimate one, that Uruguay’s tobacco control
policies would not change over time in response to the requirements of public health. Pertinent in this respect is Grand River v. United States, in which the tribunal found that
trade in tobacco products has historically been the subject of close and extensive regulation by U.S. states, a circumstance that should have been known to the Claimant from his extensive past experience in the tobacco business. An investor entering an area traditionally subject to extensive regulation must do so with awareness of the regulatory situation.904
8.52 Moreover, the evidence shows that Claimants did not, in fact, expect the regulatory
framework to remain immutable. This is shown by Claimant Abal’s 2004 letter cited above, and by a subsequent December 2008 letter from Abal to Uruguay’s Ministry of Public Health in
which it repeated many of the same points. Abal wrote:
As we have previously stated, Abal Hermanos S.A. agrees with the need to establish comprehensive and effective regulations on tobacco products. In this regard, our company has actively cooperated both with the legislative and executive branches in order to hold a constructive dialogue seeking to prioritize proposals that will implement efficient measures aimed at
903 See supra ¶¶ 2.5-2.36.
904 Grand River Enterprises Six Nations, Ltd., et al. v. United States of America, UNCITRAL, Award (12 Jan. 2011) (Nariman, Anaya, Crook), ¶ 144 (CLA-234).
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achieving the diverse health objectives set out by the authorities. Within this process, our company has backed an important number of initiatives taken by the Uruguayan government and provided the necessary means to ensure a correct and timely implementation.905
8.53 Claimants’ argument that Uruguay deprived them of an ostensible interest in an
immutable legal regime fails both on the law and the facts.
III. The SPR and 80% Requirement Do Not Violate Article 3(1) of the BIT
8.54 In addition to arguing that the SPR and 80% Requirement violated Uruguay’s FET
obligations, Claimants also make a related argument that the two measures unreasonably
impaired the use and enjoyment of their investment in violation of Article 3(1) of the BIT.906
This aspect of Claimants’ case fails for all the same reasons stated above, as well as in Chapters
4 and 5, which specifically address the SPR and the 80% Requirement.
8.55 Article 3(1) of the BIT provides:
Each Contracting Party shall protect within its territory investments made in accordance with its legislation by investors of the other Contracting Party and shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment, extension, sale and, should it so happen, liquidation of such investments.907
It follows from this plain language that a State may impair the use and enjoyment of an
investment without violating the BIT, provided that such impairment does not result from
measures that are unreasonable or discriminatory.
905 Letter from Abal Hermanos S.A. to the Ministry of Public Health (26 Dec. 2008) (C-15).
906 CMM, ¶¶ 249-252.
907 Uruguay-Switzerland BIT, Art. 3(1) (emphasis added) (RL-21).
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8.56 Claimants make no claim that either the SPR or the 80% Requirement are discriminatory.
Nor could they, as the measures apply equally to all tobacco companies, domestic and foreign alike. Claimants contend only that the regulations are unreasonable.908
8.57 Claimants devote less than two pages to this argument. They merely assert that the same
facts that ostensibly show the regulations are “arbitrary” also establish that they are
“unreasonable.”909 By parity of reasoning, the facts Uruguay presented in Chapters 4 and 5 that
prove that neither the SPR nor the 80% Requirement was arbitrary equally prove that they were
not unreasonable. Since those facts have already been thoroughly set out, there is no need to
repeat them here.
8.58 The standard for assessing the reasonableness of a measure was stated in Saluka and
followed in Biwater Gauff. Applying provisions similar to Article 3(1) in this case, both tribunals
stated that reasonableness requires only that “the State’s conduct bears a reasonable relationship
to some rational policy ….”910 Moreover, the burden rests squarely on Claimants to prove
unreasonableness.
8.59 To be sure, in both Saluka and Biwater Gauff the tribunals did find the host State’s
measures at issue to be unreasonable. But the reasons they did so only underscore the differences
with this case and highlight the reasonableness of Uruguay’s actions. In both cases, the tribunals
found the questioned actions entirely lacked justification and, in fact, were targeted at the
908 CMM, ¶¶ 251-252.
909 Ibid., ¶ 251.
910 Saluka v. Czech Republic, ¶ 460 (CLA-227); Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008) (Hanotiau, Born, Landau) (hereinafter “Biwater Gauff v. Tanzania”), ¶ 693 (citing Saluka v. Czech Republic, ¶ 460 (CLA-227)) (CLA-013).
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investors with the intent to deprive them of their investments under the pretext of law. Thus, in
Saluka, the tribunal considered unreasonable the respondent’s deliberate “circulation of negative information about [the investor’s enterprise] in order to precipitate [its] failure.”911 And in
Biwater Gauff, the tribunal found, inter alia, that the abusive deportation of the investor’s senior management and the seizure of its assets lacked justification and, instead, were “parts of a concerted campaign against [the investor].”912
8.60 The differences with this case are stark. There is nothing whatsoever to suggest that
Uruguay targeted Claimants’ investments without reason for purposes of depriving them of their
value. Claimants themselves do not suggest that is the case. To the contrary, the SPR and the
80% Requirement were of general application. And for the reasons previously stated, both of
them quite obviously bear “a reasonable relationship to some rational policy.” Accordingly,
there is no argument that either measure violated Article 3(1) of the BIT.
911 Saluka v. Czech Republic, ¶¶ 481, 472 (CLA-227).
912 Biwater Gauff v. Tanzania, ¶ 709 (CLA-013).
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CHAPTER 9
URUGUAY DID NOT BREACH ARTICLE 11 OF THE BIT
9.1 Article 11 of the Uruguay-Switzerland BIT provides: “Either Contracting Party shall
constantly guarantee the observance of commitments it has entered into with respect to the
investments of the investors of the other contracting Party.”913
9.2 According to Claimants: “This provision, commonly known as an ‘umbrella clause,’
elevates the Respondent’s ‘observance of … commitments’ entered into with respect to
Claimants’ investments to the level of a treaty obligation. Respondent’s failure to meet this
obligation breached Article 11 of the BIT.”914 As Claimants’ see it, the commitment Uruguay
allegedly failed to observe relates to their alleged trademark protections under Uruguayan
intellectual property (“IP”) law. They state: “Upon accepting Claimants’ trademark applications,
Respondent undertook the obligation to protect Claimants’ right to use their trademarks.
Respondents failed to observe that obligation.”915
9.3 Claimants’ argument about Uruguay’s putative violation of Article 11 fails for two
reasons. First, Article 11 is far from an ordinary “umbrella clause,” a fact noted by a number of tribunals and commentators. Indeed, it may not even be an umbrella clause at all. In any event,
Switzerland itself has made it clear that it does not cover “commitments” made under generally applicable municipal laws of the sort Claimants allege here. Uruguay shares that view.
913 Agreement between the Swiss Confederation and the Oriental Republic of Uruguay on the Reciprocal Promotion and Protection of Investments, signed 7 Oct. 1988, EIF 22 Apr. 1991, Art. 11 (RL-21).
914 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶ 253.
915 Ibid., ¶ 257.
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9.4 Second, Claimants are mistaken in their interpretation of Uruguayan IP law. The mere
registration of a trademark does not confer upon registrants a right to use those marks in
commerce as Claimants contend. Moreover, the facts show that Claimants have failed to register
most of the trademarks about which they complain.
9.5 These points are addressed in turn below.
I. Article 11 Does Not Cover the “Obligations” Claimants Invoke
9.6 Claimants’ argument about Article 11 proceeds from the assumption that it is a
“common” umbrella clause. They are mistaken. In reality, Article 11 is a highly unusual
provision that cannot be equated to umbrella clauses in other BITs involving different parties.
9.7 The task of the Tribunal is, of course, to interpret and apply the text of the treaty before
it.916 An examination of the pertinent text here reveals significant differences from standard
umbrella clauses.917
9.8 True umbrella clauses typically provide that the States Parties “shall observe any
obligation” entered into with respect to an investor. Article II(2)(c) of the U.S.-Argentina BIT,
for example, provides: “Each party shall observe any obligation it may have entered into with
916 A. Sinclair, The Umbrella Clause Debate in INVESTMENT TREATY LAW: CURRENT ISSUES III (A. Bjorklund, et al., eds., 2009), p. 277 (RL-247). The ICJ has observed that “the first duty of a tribunal which is called upon to interpret and apply the provisions of a treaty, is to endeavor to give effect to them … in the context in which they occur. If the relevant words in their natural and ordinary meaning make sense in their context, that is an end of the matter.” Competence of the General Assembly for the Admission of a State to the United Nations, Advisory Opinion (3 Mar. 1950), I.C.J. Reports 1950, p. 4, p. 8 (RL-143); Vienna Convention on the Law of Treaties (with annex) (23 May 1969), 1155 U.N.T.S. 331, Art. 31 (RL-19).
917 CMM, ¶¶ 253 et seq.
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regard to investments.”918 Article 11 is conspicuously different, however. It provides that Parties
shall “constantly guarantee the observance of the commitments it has entered into ….”
9.9 This unusual formulation is not unique to the Uruguay-Switzerland BIT. Verbatim
clauses appear in several of Switzerland’s BITs dating to the same period, including the
Switzerland-Pakistan BIT, the Switzerland-Gambia BIT and the Switzerland-Paraguay BIT,
among others.919
9.10 The first case to examine a putative umbrella clause, SGS v. Pakistan, required the
interpretation of one of these identical provisions: Article 11 of the 1995 Switzerland-Pakistan
BIT. Claimants there argued that the clause gave the tribunal jurisdiction over their claims
arising under their service contract with Pakistan. The tribunal disagreed, stating the clause
“would have to be considerably more specifically worded before it can reasonably be read in the
extraordinarily expansive manner submitted by the [investor].”920
9.11 The tribunal’s decision in SGS v. Pakistan generated considerable comment, both in subsequent jurisprudence and the doctrine. Shortly after the decision was issued in that case, an umbrella clause issue arose in the SGS v. Philippines case (involving the Switzerland-Philippines
BIT). In its Decision on Jurisdiction, the SGS v. Philippines tribunal noted the differences between the Switzerland-Pakistan and Switzerland-Philippines treaties, and the unusual nature of
918 Argentina-United States BIT, signed 14 Nov. 1991, EIF 20 Oct. 1994, Art. II(2)(c) (RL-24).
919 Switzerland-Pakistan BIT, signed 11 July 1995, EIF 6 May 1996, Art. 11 (RL-128); Switzerland-Gambia BIT, signed 22 Nov. 1993, EIF 30 Mar. 1994, Art. 11 (RL-126); Switzerland-Paraguay, signed 31 Jan. 1992, EIF 28 Sept. 1992, Art. 11 (RL-125).
920 SGS Société Générale de Surveillance S.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/01/13, Decision of the Tribunal on Objections to Jurisdiction (6 Aug. 2003) (Feliciano, Faurès, Thomas), ¶ 171 (CLA-059).
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Article 11 of the former. It observed that while the BITs had “arguably similar language,” they
could not be conflated:
It should be noted that the “umbrella clause” in the Swiss-Pakistan BIT was formulated in different and rather vaguer terms than Article X(2) of the Swiss-Philippines BIT. Article 11 of the Swiss- Pakistan BIT provides that: “Either Contracting Party shall constantly guarantee the observance of the commitments it has entered into with respect to the investments of the investors of the other Contracting Party.” Apart from the phrase “shall constantly guarantee” (what could an inconstant guarantee amount to?), the phrase “the commitments it has entered into with respect to the investments” is likewise less clear and categorical than the phrase “any obligation it has assumed with regard to specific investments in its territory” in Article X(2) of the Swiss-Philippines BIT.921
9.12 The OECD made similar observations about Article 11 in its Working Paper on the
Interpretation of the Umbrella Clause in Investment Agreements, which states: “While in most of the BITs which contain an umbrella clause the language is clear and straightforward,” the words in Article 11 are “more ambiguous and may leave room for different interpretations.”922
9.13 Others have expressed like views. One commentator, for example, observed that the clause at issue in Salini v. Jordan (which provided that the Parties “shall create and maintain in its territory a legal framework apt to guarantee to investors the continuity of legal treatment”)
“was rightly held not to involve any guarantee by the host state with regard to specific transactions. It was not an umbrella clause at all.”923 He then added: “Likewise, the clause in
921 SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Decision on Jurisdiction (29 Jan. 2004) (El-Kosheri, Crawford, Crivellaro), ¶ 97, 119 (CLA-058).
922 OECD, Interpretation of the Umbrella Clause in Investment Agreements, OECD Working Papers on International Investment, No. 2006/03 (Oct. 2006), p. 11 (RL-242). Page 12 also describes the unique nature of this clause within Switzerland’s treaty practice.
923 J. Crawford, TREATY AND CONTRACT IN INVESTMENT ARBITRATION (2007), p. 18 (CLA-116).
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SGS v. Pakistan was curiously worded and might have given grounds for a narrower
construction.”924 And in his article on Swiss Investment Treaties and their Umbrella Clauses,
Michael Schmid stated: “Some authors and tribunals have hesitated to consider a clause with a wording such as the one found in the BIT with Pakistan … to be a ‘real’ umbrella clause in terms of its scope and effect.”925
9.14 In light of Article 11’s uniqueness, the interpretation adopted by the Parties is entitled to
considerable deference. Switzerland has made clear that it interprets Article 11 to preclude
Claimants from elevating their claims under Uruguayan IP law into a treaty breach. In particular,
in response to the tribunal’s decision in SGS v. Pakistan, Switzerland addressed a formal letter to
ICSID stating its views on what Article 11 of the Switzerland-Pakistan BIT — and, by extension,
Article 11 of the Uruguay-Switzerland BIT — means. In it, Switzerland stated that the provision
was not intended to extend to general legislative or administrative measures, as Claimants
contend here. The letter states:
It is not the intention of the Swiss Authorities that the scope of Article 11 be “almost indefinite” and cover every imaginable commitment, including “municipal legislative or administrative or other unilateral measures” as the ICSID Tribunal suggests. In our view already a plain reading of the text would preclude such an interpretation because the expression “a commitment entered into by a Contracting Party” signifies a more active demeanor by a party that points more in the direction of a commitment to a
924 Ibid.
925 M. Schmid, Swiss Investment Treaties and their Umbrella Clauses in PROTECTION OF FOREIGN INVESTMENTS THROUGH MODERN TREATY ARBITRATION: DIVERSITY AND HARMONISATION (A. Hoffman, ed., May 2010), p. 14 (RL-251).
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specific investment or a specific investor, either in a contract or an authorization granted by an authority.926
9.15 The letter goes on to explain that Switzerland’s intention was that “[p]rovisions such as
Article 11 … cover commitments that a host State has entered into with regard to specific
investments of an investor, or investments of a specific investor, which played a significant role
in the investor’s decision to invest or to substantially change an existing investment ….”927
These commitments would typically be in the form of “an investment authorization by the competent authority of the host State or a written agreement between the host State or a competent authority of that State, on the one hand, and the investor, on the other.”928
9.16 By its express terms, the Swiss letter defeats Claimants’ argument. The only alleged
“commitment” that Claimants attempt to elevate into a treaty breach by operation of Article 11 is
Uruguay’s alleged violation of Claimants’ ostensible trademark rights under Uruguayan IP law.
But this is exactly the sort of “municipal legislative or administrative or other unilateral
measure[]” that the Swiss government itself intended to exclude from the coverage of Article 11.
Uruguay agrees that Article 11 does not apply to such measures.
9.17 None of the cases Claimants cite to contrary effect is apposite; none of them involves a provision analogous to the one in dispute here.929 Instead, all of Claimants’ cases involve more
926 Letter from Amb. Marino Baldi, Swiss State Secretariat for Economic Affairs, to Mr. Antonio R. Parra, Deputy Secretary-General, ICSID, reprinted in 19 MEALEY’S INT. ARB. REP. E3 (1 Oct. 2003), p. 3 (emphasis added) (RL- 259).
927 Ibid.
928 Ibid.
929 See CMM, pp. 112-114 (citing Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 Aug. 2008) (Kaufmann-Kohler, Gómez Pinzón, van den Berg) (CLA-228); LG&E Energy Corp., et al. v. Argentine Republic, ICSID Case No. ARB/02/1, Decision on Liability (3 Oct. 2006) - 294 - CONFIDENTIAL INFORMATION REDACTED
typical umbrella clauses. The reasoning of those decisions, whatever their merits may be,
therefore cannot be transposed to the very different language at issue here.
9.18 Accordingly, there is no basis on which Article 11 can be used to elevate nominal
violations of generally applicable IP law into a treaty breach. In any event, as discussed in the
next section, there are no breaches of that law that are amenable to elevation.
II. Uruguay Did Not Fail To Observe Any Obligations with Regard to Claimants’ Trademarks
9.19 Claimants contend that Uruguay failed to comply with its obligations with respect to
Claimants’ trademarks.930 As they see it, Uruguay “granted legal protection to each of the
registered trademarks owned by Claimants, including Claimants’ right to use the trademarks in
commerce.”931 They assert: “Through the SPR and 80/80 regulation, Respondent now prohibits
the use of the very trademarks that Uruguayan law had protected.”932
9.20 Claimants’ arguments fail both as a matter of law and as a matter of fact. First, under
Uruguayan law, there is no affirmative right to use a trademark in commerce. Second, Claimants did not, in fact, have rights in the trademarks about which they are complaining. The evidence shows that they did not register trademarks for many of their brand variants with Uruguay’s
(de Maekelt, Rezek, van den Berg) (RL-65); Enron Corporation & Ponderosa Assets, L.P. v. Argentine Republic, ICSID Case No. ARB/01/3, Award (22 May 2007) (Orrego-Vicuña, van den Berg, Yves Tschanz) (CLA-230); Noble Energy, Inc, et al. v. Republic of Ecuador, et al., ICSID Case No. ARB/05/12, Decision on Jurisdiction (5 Mar. 2008) (Kaufmann-Kohler, Cremades, Alvarez) (CLA-247); Petrobart Limited v. The Kyrgyz Republic, SCC Case No. 126/2003, Award (29 Mar. 2005) (Danelius, Bring, Smets) (CLA-049)).
930 CMM, § III.A.4.b.
931 Ibid., ¶ 258.
932 Ibid., ¶ 84.
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National Directorate of Industrial Property (“DNPI”),933 the necessary predicate for legal
protection (whatever its scope) under Uruguayan law.
9.21 These points are addressed below, and in greater detail in the expert report of Professor
Andrea Barrios Kübler, Chair of the Pharmaceutical and Intellectual Property Law Department at
the University of the Republic of Uruguay School of Chemistry, annexed to this Counter-
Memorial.934
A. Uruguayan IP Law Does Not Give Registrants an Affirmative Right To Use a Trademark in Commerce
9.22 Claimants’ argument rests entirely on the contention that Uruguayan IP law confers on
trademark registrants a “right to use the[ir] trademark[s] in commerce.”935 According to
Claimants, this alleged right has been explicitly recognized by the Uruguayan legislative system,
as well as international conventions and intellectual property doctrine more generally.936 They are mistaken. Neither Uruguayan law nor the other sources Claimants cite support their argument.
933 The DNPI is an office within the Ministry of Industry, Energy and Mines responsible, inter alia, for reviewing and approving trademark applications.
934 Expert Report of Prof. Andrea Barrios Kübler (2 Oct. 2014) (hereinafter “Barrios Report”) (REX-004).
935 CMM, ¶ 87 (quoting Expert Report of Prof. Gustavo Fischer (28 Feb. 2014) (hereinafter “Fischer Report”), ¶ 4 (CWS-012)).
936 Fischer Report, § III.C (CWS-012).
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1. Uruguayan IP Law Does Not Recognize a Right To Use
9.23 The legal framework for trademarks in Uruguay was established by Law No. 17,011 (the
“Trademark Law”) enacted in 1998 and implemented by Decree No. 34/99.937 Uruguay has also
ratified several international IP conventions: the Paris Convention for the Protection of
Intellectual Property (“Paris Convention”) in 1979, the Agreement on Trade-Related Aspects of
Intellectual Property Rights (“TRIPS”) in 1994, and the Protocol on Harmonization of
Intellectual Property Norms in MERCOSUR in the Field of Trademarks, Indications of Source
and Appellations of Origin (the “MERCOSUR Protocol”) in 1998.938
9.24 Claimants assert that the rights allegedly created by Uruguayan trademark law include both a positive aspect — consisting of the right to use the trademark in commerce — and a negative aspect — consisting of the right to exclude others from using it.939 Claimants are right
on the second point but wrong on the first. Professor Barrios states in her expert report, “it is not
true that Uruguayan law recognizes the right on the part of trademark holders to actively use said trademarks.”940 She explains: “The registered trademark holders acquire exclusionary rights
established under Law 17,011, meaning that, once registered, the holder of a trademark has the
right to challenge the use of any trademark that could result in confusion between goods or
937 Barrios Report, ¶ 6 (REX-004).
938 Ibid., ¶ 7. As explained by Professor Barrios, the MERCOSUR Protocol is only valid between the two States that ratified it (Uruguay and Paraguay).
939 Ibid.; Fischer Report, ¶ 4 (CWS-012).
940 Barrios Report, ¶ 50 (emphasis omitted) (REX-004).
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services for which the trademark was registered and/or goods or services offered by third parties; and also the right to challenge the registration of identical or similar signs.”941
9.25 Article 14 of Law 17,011 makes this clear. It guarantees: “The right to oppose the use or registration of any trademark that could lead to confusion between goods or services shall belong to the person that meets all the requirements of the present law.”942 There is no corresponding provision creating the “right to use” that Claimants contend. To the extent that the rights conferred by the Trademark Law have a “positive” aspect, Professor Barrios explains that this only arises from the fact that
the authority or right to exclude third parties from the market (called the negative facet), renders the exclusive use of the trademark in the marketplace possible. Thus, the positive facet seeks to explain the consequence of the exercise of the exclusive rights — the authority to exclude third parties from the market — such that only the trademark holder (and no one else) has the possibility to use the trademarks in commerce.943
9.26 Professor Barrios’ views have been confirmed by Uruguay’s highest administrative tribunal, the Tribunal de lo Contencioso Administrativo (the “TCA”), which has made clear that there is a distinction between the registration of a trademark, on the one hand, and the use of that trademark in commerce, on the other.944 It did so in a decision sustaining a bank’s request to nullify a resolution of the DNPI rejecting its application to register a trademark. In its ruling, the
941 Ibid., ¶ 48 (emphasis in original).
942 Uruguayan Law No. 17,011 (25 Sept. 1998), Art. 14 (C-135).
943 Barrios Report, ¶ 60 (emphasis added) (REX-004).
944 Ibid., ¶ 37.
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TCA stated that the mere registration of the bank’s trademark did not give rise to a right to use it
in commerce:
The act of obtaining a trademark registration confers no additional rights other than those that arise from the registration itself, to include in its name the official name of a foreign banking institution that is not established in our country, but under no circumstances does it involve or enable the exercise of financial activity.
Domestic and international rules independently and separately govern the requirements for trademark registration and the effective use of a trademark for a specific product or service.
The registration of a trademark does not assume its use. Moreover, it does not include an authorization to operate in the local financial market, such that if the plaintiff was seeking to carry out financial activities in our territory, it would have to seek prior authorization from the central bank, but not before, when it intends to seek to preserve or protect the business name of its company with respect to third parties ….945
9.27 The TCA’s statement of the law is confirmed by Uruguayan administrative practice. The
review and determination of whether a trademark can be registered is conducted by the National
Directorate of Industrial Property (“DNPI”), within the Ministry of Industry, Energy and Mines.
In deciding whether or not to register a trademark, the task of the DNPI is limited to determining whether it meets the criteria established in the Trademarks Law (e.g., the sign has to be clearly distinctive in relation to the product or services identified with such sign). The determination of whether products affecting public health — such as medicine or, in this case, cigarettes — can be
945 TCA Decision 933, Case No. 527/2008 (11 Nov. 2010), pp. 5-6 (emphasis added) (RL-211).
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sold in the market, on the other hand, is made by the Ministry of Public Health. The two
processes are independent of one another.946
9.28 Professor Barrios explains that
the trademark system merely grants exclusive rights to certain signs that identify certain goods or services, for the sole purpose of preventing the risk of confusion with competing products. Once a natural person or legal entity is granted a trademark via an administrative decision, it acquires the right to exclude third parties from the market, but under no circumstances does it acquire the right to use the sign in commerce with regard to the goods or services for which it was requested. As stated above, in granting trademarks, the DNPI only takes into account the requirements established by the Trademark Law, and does not examine the lawfulness of the products or services identified by the trademarks. It could very well happen that the DNPI grants a trademark, but that the use of the same in the marketplace is restricted by requirements established by other laws ….947
The simple registration of a trademark by the DNPI therefore does not confer a right to use it in
commerce.
9.29 Claimants themselves have effectively conceded this. They did so in the conduct of their
litigation before the TCA in this very dispute. In neither the proceeding Claimant Abal brought
challenging the SPR nor the proceeding it brought challenging the 80% Requirement, nor at any
other time, did it raise the claim under Uruguayan IP law that it is now making before this
Tribunal. It did not argue to the courts of Uruguay that under Uruguayan IP law the mere act of
registration confers upon it the affirmative right to use its trademarks in commerce. The omission
is conspicuous. Surely, if Claimants truly considered that Uruguayan law confers on them the
946 Barrios Report, ¶ 84 (REX-004).
947 Ibid., ¶ 64 (emphasis in original).
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right they now claim, they would have presented that argument in a domestic forum in the first
instance.
9.30 Claimants now rely on the opinion of their expert, Professor Fischer, to support their new
argument. Professor Fischer asserts that the affirmative right to use is established in certain
articles of the Trademark Law, which supposedly “explicitly recognize[] a right to use a
trademark.”948 The only provisions of the Trademark Law that Professor Fischer identifies,
however, are Articles 58 and 70, which deal with the rights granted to a licensee through the license of a trademark and the rights conferred upon the assignment or sale of a commercial establishment, respectively.949
9.31 As Professor Barrios writes, these provisions do not support the conclusion Professor
Fischer seeks to derive from them. She explains:
Law 17,011 does not expressly grant trademark holders the right to use the trademark, but rather grants them the right to exclude third parties from using said trademark; and as such the holder of a trademark could hardly transfer, via a license or the sale of a commercial establishment, a right that was not granted to it by the Law. However, we must bear in mind that both licensees and purchasers of commercial establishments are considered “third parties” in relation to the trademark holder; which means they would be excluded by the exclusive rights granted by the Law, and this is the reason why both Articles 58 and 70 make clear reference to the use of the trademark, expressly establishing an exception to the exclusive rights granted to the trademark holder.950
948 Fischer Report, ¶ 30 (emphasis added) (CWS-012).
949 Ibid.
950 Barrios Report, ¶ 62 (emphasis in original) (REX-004). Additionally, Professor Fischer states that the recent amendment to Article 19 of the trademarks law by Law 19,149 (in force since 1 January 2014), which made the use of a trademark mandatory and provided the possibility of requesting the elimination of trademarks that, having been registered, have not been used by their owner for five consecutive years, support his argument that the trademark - 301 - CONFIDENTIAL INFORMATION REDACTED
9.32 Professor Fischer further attempts to sustain Claimants’ position by asserting that “both the Trademark Law and the Civil Code define the right over a trademark as a property right and protect the active right to use such property.”951 Here, too, the law does not support his argument.
9.33 This aspect of Professor Fischer’s argument is predicated on the assertion that the provisions of the Uruguayan Civil Code relating to “property,” as such, apply equally to trademarks and other intellectual property. But he is mistaken; they do not. Trademarks and other intellectual property in Uruguay fall into a distinct category referred to as “industrial property.”952 Unlike ordinary tangible property, which is the subject of the Civil Code, the industrial property regime in Uruguay is sui generis.953 Both the Constitution and the Civil Code itself make this perfectly clear. The Constitution contains different provisions relating to
“property,” on the one hand, and “intellectual property,” on the other (Articles 32 and 33, respectively). And Article 491 of the Civil Code states that “the products of talent or ingenuity are the property of their author and shall be governed by special laws”954 (in this case Law
17,011).
9.34 Moreover, unlike the rules applicable to ordinary property, pursuant to which property holders’ ownership is generally considered absolute, the Trademark Law makes clear that a
owner has a right and obligation to use a trademark in commerce. Fischer Report, ¶ 29 n.27 (CWS-012). As explained by Professor Barrios, the recent modification of the law shows that under the trademarks law there was no expectation that the trademarks would be used in commerce, and therefore, even less a recognized and explicit right to use it. Barrios Report, ¶ 64 (REX-004).
951 Fischer Report, ¶ 31 (CWS-012).
952 Barrios Report, ¶ 34 (REX-004).
953 Ibid.
954 Ibid., ¶ 24 (citing Annotated Civil Code (1950), p. 70 (AB-06)) (emphasis added).
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registrant’s rights are limited and conditional.955 As Professor Barrios explains, trademark
protection is subject to terms and conditions; it only applies to the class of goods or services with respect to which the mark was registered; it covers only marks “precisely as” they are registered and do not include variations or derivations; and it is revocable.956 For these reasons, Professor
Barrios concludes:
A comparison of the institution of trademarks and the institution of ownership [of property] clearly shows the differences that warrant Intellectual Property being a special system governed by its own rules. Therefore, Dr. Fischer’s arguments in favor of the applicability of the Civil Code to trademarks are incorrect.957
9.35 For these reasons, Claimants are wrong in contending that Uruguayan IP law confers on
trademark registrants an affirmative right to use their mark(s) in commerce.
2. Uruguay’s IP Law Is Based on International Intellectual Property Conventions That Do Not Recognize a Right To Use
9.36 Uruguay’s Trademark Law is clear on its face that the mere fact of registering a
trademark does not confer on registrants an affirmative right to use the mark in commerce.
Although there is no need to look beyond the plain text of the law, the absence of a right to use is
confirmed by an examination of the legislative history of Law No. 17,011.
9.37 Uruguay did not craft its 1998 Trademark Law in a vacuum. Rather, it was guided by the
rules already established in the existing international legal order. As reflected in the Minutes of
the Senate’s 10th Session held in April 1998 discussing the draft trademark law, the law was
955 Ibid., ¶¶ 23-35.
956 Ibid., ¶¶ 27-31.
957 Ibid., ¶ 33.
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based on the intellectual property conventions to which Uruguay was then a Party, including the
Paris Convention and TRIPS.958 Since, as discussed below, these conventions do not recognize a right to use, there is little ground on which to argue that the Uruguayan Trademark Law recognizes one.959
9.38 The fact that the Paris Convention does not recognize a right to use has been confirmed
by no less an authority than the World Intellectual Property Organization (“WIPO”). Claimants themselves know this. Indeed, WIPO told them 20 years ago in a letter responding to a joint inquiry on this very question submitted on behalf of the tobacco industry.960
9.39 In particular, the WIPO Director of IP Law, Mr. Ludwig Baumer, wrote a letter dated 5
July 1994 responding to an inquiry from the tobacco companies asking whether States could
prohibit the use of registered trademarks under the Paris Convention.961 WIPO’s response could
not have been clearer:
[T]he countries of the Paris Union are bound to admit trademarks for registration notwithstanding the nature of the goods to which they are applied (Article 7). However, the Paris Convention does not contain any obligation to the effect that the use of a registered trademark must be permitted.962
958 Uruguayan Senate, Minutes of Sessions, No. 228, Vol. 387 (15 Apr. 1998), p. 319 (R-141).
959 Ibid.
960 See Physicians for Smoke-Free Canada, The Plot Against Plain Packaging (Apr. 2008), p. 17 (R-198).
961 British American Tobacco Internal Document, Memorandum from L. Baeumer to D. Latham (5 July 1994), Bates No. 502592535-502592536 (R-135). See also RJ Reynolds Internal Document, Memorandum from L. Baeumer to R. Oman (31 Aug. 1994), Bates No. 515446013-515446015 (R-136).
962 British American Tobacco Internal Document, Memorandum from L. Baeumer to D. Latham (5 July 1994), Bates No. 502592535-502592536 (emphasis added) (R-135). See also RJ Reynolds Internal Document, Memorandum from L. Baeumer to R. Oman (31 Aug. 1994), Bates No. 515446013-515446015 (R-136).
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The letter continued: “If a national law does not exclude trademarks for certain kinds of products
from registration, but only limits the use of such trademarks, this would not constitute a violation
of the Paris Convention.”963
9.40 WIPO underscored the same point in a 22 February 1995 letter from WIPO Director-
General, Mr. A. Bogsch, to the Director-General of the WHO. The letter states:
Article 7 of the Paris Convention makes the registration of a mark independent of the question of whether the goods to which such mark is to be applied may or may not be sold in the country concerned. In other words, the Paris Convention obliges its member States to register a mark even where the sale of the goods to which such mark is to be applied is prohibited, limited or subject to approval by the competent authorities of such states.
…
Therefore, countries party to the Paris Convention remain free to regulate the sale of certain types of goods and the fact that a mark has been registered for such goods does not give the right to the holder of the registration to be exempted from any limitation of using the mark which may be decided by the competent authority of the country where the mark is registered.964
9.41 The literature further confirms that neither the Paris Convention nor TRIPS recognizes a right to use of the sort Claimants claim.965 Under both conventions, trademark rights are limited
963 British American Tobacco Internal Document, Memorandum from L. Baeumer to D. Latham (5 July 1994), Bates No. 502592535-502592536 (emphasis added) (R-135). See also RJ Reynolds Internal Document, Memorandum from L. Baeumer to R. Oman (31 Aug. 1994), Bates No. 515446013-515446015 (R-136).
964 N. Collishaw, Tobacco Control and the Paris Convention for the Protection of Industrial Property, TOBACCO CONTROL, Vol. 5, No. 2 (1996), p. 165 (quoting Letter from A Bogsch, Director-General of the World Intellectual Property Organization, to H. Nakajima, Director-General of the World Health Organization) (emphasis added) (RL- 226).
965 See M. Davison, The legitimacy of plain packaging under international intellectual property law: why there is no right to use a trademark under either the Paris Convention or the TRIPS Agreement in PUBLIC HEALTH AND PLAIN PACKAGING OF CIGARETTES: LEGAL ISSUES (T. Voon, et al., eds., 2012), p. 82 (RL-252).
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to the negative right to exclude third parties from using the trademark and do not include an
affirmative right to use the mark in commerce.966
9.42 Despite these unequivocal statements from the world authority on intellectual property
law, Claimants’ Request for Arbitration in this case initially presented a claim that Uruguay had
breached its obligations arising from international intellectual property law, in particular the
Paris Convention and TRIPS.967 Claimants pulled back from that claim, apparently thinking
better of pressing an argument that has been so resoundingly rejected by the most knowledgeable
international authority on the subject.
9.43 They opted instead to try to convince this Tribunal that the less widely-known Uruguayan
IP regime lies outside the mainstream of world intellectual property law. For the reasons
elaborated above, it is Claimants’ novel claim to a positive “right to use” that sits well outside
the legal mainstream.
9.44 In cases involving analogous claims by tobacco companies against tobacco control
regulations in other countries, the courts of those States have consistently affirmed that there is
no right to use a trademark in commerce. In August 2012, for example, the High Court of
Australia dismissed a constitutional challenge to that country’s plain packaging legislation,
which was based in part on an alleged violation of the tobacco companies’ right to use their
966 WTO Panel Report, European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs: Complaint by Australia, WT/DS290/R, adopted on 15 Mar. 2005, ¶¶ 7.610- 7.611 (RL-162). See also ibid., ¶ 7.173 (noting that Article 2.1 of the TRIPS Agreement incorporated the Paris Convention).
967 Claimants’ Request for Arbitration (19 Feb. 2010) (hereinafter “RFA”), ¶¶ 85-86.
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trademarks. The High Court rejected the challenge, emphasizing that trademarks in Australia
confer negative rights, but not positive rights. The Court held:
Strictly speaking, the right subsisting in the owner of a trade mark is a negative and not a positive right. It is to be understood as a right to exclude others from using the mark and cannot be viewed as separate from the trade in connection with which it is used. It is for the protection of that trade in goods that property is recognized in a trade mark.968
9.45 The Panamanian Supreme Court reached a similar result in a recent decision relating to a
request from BAT to nullify a resolution of the Panamanian Ministry of Public Health
prohibiting BAT from using its trademark, “Kool,” in commerce. The Court rejected BAT’s
challenge and declared the resolution legal. It found: “In this regard, we add that registering a mark with the Ministry of Commerce and Industry is not a legal act that would require the health
authority to ignore the tobacco control rules provided by Law 13 of 2008, Executive Decree No.
230 of 2008 and Law 40 of 2004.”969
9.46 Instead of relying on the Paris Convention or TRIPS or other international sources,
Claimants’ expert, Professor Fischer, asserts that the right to use is recognized by Article 11 of
the MERCOSUR Protocol.970 Even if that were correct, which it is not,971 it is of no assistance to
968 JT International SA v. Commonwealth of Australia, High Court of Australia Matters No. S409/2011 and S389/2011, Order (5 Oct. 2011), ¶ 348 (RL-192).
969 British American Tobacco Panamá, S.A. v. Panamanian Ministry of Health, Panamanian Supreme Court Case No. 204-11, Decision (30 June 2014), p. 12 (RL-208).
970 Fischer Report, ¶ 35 (CWS-012).
971 Article 11 of the MERCOSUR Protocol provides: “The registration of a trademark shall grant the owner an exclusive right of use, and the right to prevent any person from performing, without the patentee’s consent, the following acts ….” Protocol on Harmonization of Intellectual Property Norms in MERCOSUR (5 Aug. 1995) (hereinafter “MERCOSUR Protocol”), Art. 11 (C-155). The “exclusive right of use” in this context means only that - 307 - CONFIDENTIAL INFORMATION REDACTED
Claimants. As Professor Barrios explains, the MERCOSUR Protocol applies only between the
States that have ratified it.972 To date, only Paraguay and Uruguay have done so; it therefore only
applies in the legal arrangements between them. Moreover, the MERCOSUR Protocol “has no
force of law to modify domestic provisions.”973 Accordingly, whatever they may provide, “the
provisions of this Protocol did not modify the positive law in effect with regard to trademarks and therefore they are not generally applicable ….”974
9.47 As shown by the governing law, confirmed by the TCA, underscored by administrative
practice and reflected in international law, Uruguayan IP law does not give the registrant of a
trademark an affirmative right to use that mark in commerce. Claimants have therefore failed to
demonstrate that the SPR or the 80% Requirement violated any commitment Uruguay made to
them under its IP law.
B. In Any Event Claimants Have Not Shown that They Registered the Trademarks about Which They Complain
9.48 Claimants’ assertion that Uruguay failed to observe its commitments with respect to their
alleged trademarks fails for still another reason: they did not properly register the trademarks
about which they complain.
if the mark is used in commerce, the only one who may do so is the registrant. It does not amount to a guarantee that the registrant will be able to use the trademark.
972 Barrios Report, ¶ 8 (REX-004). MERCOSUR Protocol, Art. 26 (“The present Protocol, which is an integral part of the Treaty of Asunción, shall become effective, for the first States that ratify it, thirty days after the second ratification instrument has been filed. For the rest of the signatories, [the Protocol] shall become effective thirty days after the filing of the respective ratification instruments, in the order in which they are filed.”) (C-155).
973 Barrios Report, ¶ 8 (citing B. Bugallo, INTELLECTUAL PROPERTY (2006), p. 238 (AB-39)) (emphasis omitted) (REX-004).
974 Ibid., ¶ 10 (emphasis in original).
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9.49 Claimants themselves recognize that only “trademarks that [they] duly registered with the
Uruguayan Government” can benefit from legal protection.975 Yet, as discussed below, the evidence shows that, with one exception, Claimants did not in fact “duly register” the trademarks they claim were affected by the SPR and 80% Requirement. And even the one that was registered was submitted after the SPR had been announced and adopted.
9.50 Claimants state that Abal sold the following 13 brand variants before the SPR came into effect:
Marlboro Red, Marlboro Gold, Marlboro Blue and Marlboro Fresh Mint;
Fiesta, Fiesta Blue and Fiesta 50 50;
Philip Morris and Philip Morris Blue;
Premier and Premier Extra;
Casino; and
Galaxy.976
9.51 They argue that the SPR forced them to discontinue seven of these 13 variants: Marlboro
Gold, Marlboro Blue, Marlboro Fresh Mint, Fiesta Blue, Fiesta 50 50, Philip Morris Blue and
975 CMM, ¶ 257 (emphasis added). See also ibid., ¶¶ 84, 87, 258. In this respect, Claimants are correct. To have standing to raise a trademark claim under Uruguayan law, a claimant must prove that it is either the owner or the licensee of the trademark in question. Professor Barrios explains: “In both cases, the Claimants must show evidence originating from the DNPI: the title to the trademark or evidence of registration with the DNPI of the respective licensing agreement for a registered trademark in favor of third parties, or a certificate issued by the DNPI. Their inability to meet these requirements shall show that they lack standing to file a claim based on Law 17,011.” Barrios Report, ¶ 91 (REX-004).
976 CMM, ¶¶ 65, 75; Witness Statement of Mr. Roman Militsyn (27 Feb. 2014) (hereinafter “Militsyn Witness Statement”), ¶ 7 (CWS-007).
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Premier.977 They assert: “With one exception” — namely, Marlboro Fresh Mint — “the presentations of each of these products were registered as trademarks in Uruguay and were the property either of PMP or Abal itself.”978 Claimants are wrong. The evidence shows that none of these seven variants were properly registered with the DNPI.
1. Marlboro Gold
9.52 Claimants attempt to prove ownership of the relevant marks, including Marlboro Gold, by submitting trademark titles corresponding to an assortment of Marlboro trademarks not in dispute in this arbitration, as well as an application for yet another Marlboro trademark also not in dispute in this arbitration.979 None of them relates to Marlboro Gold, however.
977 CMM, ¶ 96; Militsyn Witness Statement, ¶ 8 (CWS-007). It is worth noting that the Request for Arbitration mentions that the Premier variant that was removed from the market as a result of the SPR was “Premier Extra,” not “Premier.” RFA, ¶ 44. In their Memorial on the Merits, Claimants change their allegations and state that the variant “Premier” was eliminated from the market as a result of the SPR, and the variant “Premier Extra” was discontinued [[ ]] after the 80/80 regulation. CMM, ¶¶ 96, 193, 285; Militsyn Witness Statement, ¶ 8 (CWS-007); Witness Statement of Mr. Diego Cibils (28 Feb. 2014) (hereinafter “Cibils Witness Statement”), ¶ 18 (CWS-004).
978 RFA, ¶ 3. As discussed below in ¶ 9.62, Marlboro Fresh Mint was not registered when the SPR entered into force February 2009. In fact, Claimants only submitted their application to register the mark on 5 September 2008, after the SPR had been adopted but before it came into effect. Barrios Report, ¶ 106 (REX-004). They thus sought to register it at a time when they were fully aware they would not be able to use it.
979 Uruguayan registration documents for “Marlboro,” “Fiesta,” “L&M,” and “Philip Morris” trademarks (C-8). The trademarks submitted by Claimant as exhibits for the registration of “Marlboro” brand are trademarks No. 368717, 379713, 347090, 335632, 405840, 370572 and the request for registration of Marlboro Fresh Mint. Uruguay submits herewith the “mark details” from the DNPI website for each of these trademarks which supplement the information provided by Claimant and better illustrate the trademark at issue: DNPI, Mark Details for “Marlboro Mild Flavor,” File No. 368717, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-342); DNPI, Mark Details for “Marlboro,” File No. 379713, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-330); DNPI, Mark Details for “Marlboro,” File No. 347090, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-329); DNPI, Mark Details for “Marlboro Lights,” File No. 335632, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (hereinafter “DNPI, Mark Details for ‘Marlboro Lights,’ File No. 335632”) (R-328); DNPI, Mark Details for “Marlboro,” File No. 405840, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-331); DNPI, Mark Details for Marlboro chevron, File No. 370572, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-337).
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9.53 Under Uruguayan law, the protection that comes with the registration of a trademark
covers only the marks exactly as registered.980 Any variance between the trademark as registered
and an item in commerce renders the protection afforded by the registration inapplicable.981
Professor Barrios explains:
The protection granted by the registration of a trademark covers the mark precisely as is or exactly as it was registered. Any change made to the original mark as registered, either to its name or its graphic elements, logos, figures, colors, etc., constitutes a different, unregistered trademark and as such its holder will not acquire exclusive rights to the new mark nor can it claim rights to it based on the registration of the original trademark.982
9.54 Since none of the trademark titles Claimants have submitted correspond exactly to
Marlboro Gold, that product is not protected.
9.55 This does not appear to be a mere oversight on Claimants’ part. The DNPI maintains a
website that permits users to search by, among other things, trademark name or number, or by
owner.983 A search for “Marlboro Gold” returns 23 different variants of Marlboro Gold,
including Marlboro Gold Shine Touch, Marlboro Gold Enhance and Marlboro Gold Accent,
980 Barrios Report, ¶¶ 29, 92, 96 (REX-004).
981 Ibid., ¶ 96.
982 Ibid. (emphasis in original).
983 This function is available at http://www.dnpi.gub.uy.
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among others.984 Not only are the names different, the package designs are entirely different than
the Marlboro Gold package Abal sold in Uruguay.985
9.56 What Abal was selling as Marlboro Gold when the SPR was adopted had been previously
sold as Marlboro Lights, but without the “lights” descriptor.986 Also missing from the Marlboro
Gold package is the phrase “lowered tar and nicotine,” which appears on the mark as registered
for Marlboro Lights.987 Since any variance between the good and the trademark renders the
protection afforded by the trademark inapplicable,988 the trademark for Marlboro Lights did not
convey any rights in regard to Marlboro Gold.
9.57 A certificate issued by the DNPI confirms that there is not and has never been a
trademark for Marlboro Gold as such registered in Uruguay.989 It therefore was and is not
entitled to any protection under Uruguayan trademark law.
984 A complete list of all the “Marlboro Gold” variants from the DNPI web site is included as: DNPI, Mark Details for various “Marlboro Gold” variants, available at http://www.dnpi.gub.uy (last visited 5 Aug. 2014) (R-338).
985 In addition, none of these variants was registered when the SPR came into effect.
986 See PMI Uruguay Long Range Plan 2005-2007, slide 87 (showing the package for “Marlboro Lights”) (C-284); see also PMI Uruguay Strategy Review, slide 35 (C-285) (showing the package for “Marlboro Gold”); Comparison of Mailhos Brands and Abal Brands Before and After Ordinance 514, p. 3 (C-063).
987 DNPI, Mark Details for “Marlboro Lights,” File No. 335632 (R-328). The registered trademark for Marlboro Lights is also in black and white, not color. For this reason too, it does not cover Claimants’ Marlboro Gold variant.
988 Barrios Report, ¶¶ 29, 92, 96 (REX-004).
989 DNPI Certificate for Marlboro Gold (21 Aug. 2014) (R-319).
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2. Marlboro Blue
9.58 As stated, Claimants submitted an assortment of Marlboro trademark titles with their
Memorial to prove ownership of their ostensible marks.990 None of these corresponds to
Marlboro Blue, either.
9.59 The trademark Claimants submit to show ownership of Marlboro Blue is actually for an
entirely different mark, Marlboro Mild Flavor.991 Although the package for Marlboro Mild
Flavor bears some similarities to the package for Marlboro Blue, there are also obvious
differences, even beyond the name. The legend on the top center, for example, reads “Mild
Flavor,” while the corresponding legend on the Marlboro Blue package reads “Filter
Cigarettes.”992 These differences mean that any protection afforded by the trademark for
Marlboro Mild Flavor does not cover Marlboro Blue.993
9.60 In addition, a search for Marlboro Blue on the DNPI website returns just two results:
Marlboro Blue Fresh994 and Marlboro Blue Ice.995 Both are obviously different from Marlboro
Blue, and therefore do not provide trademark protection for Marlboro Blue.
9.61 The annexed certificate from the DNPI confirms that Marlboro Blue was not a registered
trademark in Uruguay.996
990 See supra ¶ 9.52.
991 See Uruguayan registration documents for “Marlboro,” “Fiesta,” “L&M,” and “Philip Morris” trademarks, p. 1 (C-8).
992 Compare ibid. with image at CMM, ¶ 37.
993 Barrios Report, ¶¶ 104-105 (REX-004).
994 No. 416406, filed on 28 September 2010 and approved on 21 September 2012.
995 No. 418151, filed on 25 November 2010 and approved on 3 August 2012.
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3. Marlboro Fresh Mint
9.62 Abal submitted its trademark application for Marlboro Fresh Mint on 5 September 2008,
after the SPR had been enacted (on 18 August 2008), and introduced it to the Uruguayan market
only on [[ ]] shortly before the SPR came into effect (on 18 February
2009). Abal thus introduced this brand variant fully aware that it would have to be removed from
the market [[ ]] months after its introduction.
9.63 The consequences of Abal’s timing are significant. As Professor Barrios explains:
The consequence of registering a trademark that does not comply with regulations put in place by the Health Authority — in this case the MPH, is that it is impossible to use the trademark for the products subject to regulation, even if the trademark had been granted by the DNPI after properly completing the procedure for registering and granting said trademark.998
4. Fiesta Blue
9.64 Claimants submit trademarks for five Fiesta variants with their Memorial.999 None
corresponds to Fiesta Blue. Nor do any of the package designs of the Fiesta variants submitted
by Claimants correspond to the Fiesta Blue package that Claimant was selling in Uruguay.1000
996 DNPI Certificate for Marlboro Blue (21 Aug. 2014) (R-318).
997 CMM, ¶ 97 n.105.
998 Barrios Report, ¶ 108 (REX-004).
999 The trademarks submitted by Claimant as exhibits for the registration of “Fiesta” brand are trademarks No. 340728 (Fiesta Milds), 340730 (Fiesta Milds), 388400 (Fiesta 50 50 PM), 345084 (Fiesta Lights) and 377899 (Fiesta). Uruguay submits herewith the “mark details” from the DNPI website for each of these trademarks which supplements the information provided by Claimant and better illustrates the trademarks at issue: DNPI, Mark Details for “Fiesta Milds,” File No. 340728, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-325); DNPI, Mark Details for “Fiesta Milds,” File No. 340730, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (hereinafter “DNPI, Mark Details for ‘Fiesta Milds,’ File No. 340730”) (R-326); DNPI, Mark Details for “Fiesta 50 50 PM,” File No. 388400, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (hereinafter “DNPI, Mark - 314 - CONFIDENTIAL INFORMATION REDACTED
9.65 The closest one is the trademark for Fiesta Milds, the package image for which contains
the legend “Milds” below the word “Fiesta.”1001 It appears that after the decree banning
descriptors entered into force in 2005, Claimants simply removed the word “Milds” from the
package and re-introduced it as Fiesta Blue, without bothering to register a trademark for the
latter.
9.66 Professor Barrios states:
In the particular case of Fiesta Blue, the fact that the Claimants never registered the mark “precisely as” they used it in the market, and that in addition they used the logo registered under the Fiesta Milds trademark (file No. 340730), once again means they have no trademark rights to the set of signs that entered the Uruguayan market, consisting of an unregistered name, “Fiesta Blue” and a logo registered under the “Fiesta Milds” name.1002
9.67 Claimants’ failure to register a trademark for Fiesta Blue is confirmed by the certificate
issued by the DNPI annexed hereto.1003
Details for ‘Fiesta 50 50 PM,’ File No. 388400”) (R-323); DNPI, Mark Details for “Fiesta Lights,” File No. 345084, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-324); DNPI, Mark Details for “Fiesta,” File No. 377899, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-327).
1000 See PMI Uruguay Strategy Review, slide 36 (showing the package that Abal was selling for Fiesta Blue) (C- 285). Also, the DNPI website search does not show any registration for “Fiesta Blue.” Additionally, none of the license agreements submitted by Claimant include “Fiesta Blue” in the list of trademarks for which PMP granted a license to Abal.
1001 Fiesta Milds was approved on 2 December 2002, long before Claimant introduced Fiesta Blue into the market. DNPI, Mark Details for “Fiesta Milds,” File No. 340730 (R-326).
1002 Barrios Report, ¶ 111 (emphasis in original) (REX-004).
1003 DNPI Certificate for Fiesta Blue (21 Aug. 2014) (R-317).
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5. Fiesta 50 50
9.68 The trademark title Claimants submitted as evidence of their ownership of Fiesta 50
50,1004 also corresponds to a different mark: Fiesta 50 50 PM.1005 Not only is the name different, the registered trademark for Fiesta 50 50 PM is also in black and white.1006 In contrast, what
Abal was selling as Fiesta 50 50 was in full color (gold, blue and white).1007 These differences render the trademark titles Claimants have submitted inapplicable to Fiesta 50 50.1008
9.69 Claimants’ failure to register a trademark for Fiesta 50 50 is confirmed by the certificate issued by the DNPI annexed hereto.1009
6. Philip Morris Blue
9.70 Claimants submitted two trademark titles allegedly proving ownership of the mark for
Philip Morris Blue.1010 Neither corresponds to Philip Morris Blue; both correspond instead to
Philip Morris. Moreover, neither registered image corresponds to the Philip Morris Blue package
1004 Uruguayan registration documents for “Marlboro,” “Fiesta,” “L&M,” and “Philip Morris” trademarks, p. 12 (C- 8).
1005 DNPI, Mark Details for “Fiesta 50 50 PM,” File No. 388400 (R-323).
1006 Ibid.
1007 CMM, ¶ 96.
1008 Barrios Report, ¶ 114 (REX-004).
1009 National Directorate of Industrial Property (DNPI) Certificate for Fiesta 50 50 (21 Aug. 2014) (R-316).
1010 Uruguayan registration documents for “Marlboro,” “Fiesta,” “L&M,” and “Philip Morris” trademarks, pp. 7-8 (C-8). The trademarks submitted by Claimant as exhibits for the registration of “Philip Morris” brand are trademarks No. 336029 (Philip Morris) and No. 377897 (Philip Morris). Ibid. Uruguay submits the “mark details” from the DNPI website for each of these trademarks which supplements the information provided by Claimant and better illustrates the trademarks at issue: DNPI, Mark Details for “Philip Morris,” File No. 336029, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (hereinafter “DNPI, Mark Details for ‘Philip Morris,’ File No. 336029” (R-332); DNPI, Mark Details for “Philip Morris,” File No. 377897, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (hereinafter “DNPI, Mark Details for ‘Philip Morris,’ File No. 377897”) (R-333).
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that Claimant was selling in Uruguay.1011 One is not a pack image at all but only the two words
“Philip Morris.”1012 The other is in black and white, not light blue, and contains several other distinct design elements that render it inapplicable to Philip Morris Blue.1013
9.71 Further, a search of the DNPI website search does not return any results for Philip Morris
Blue. The certificate issued by the DNPI and annexed hereto confirms that Claimants did not register Philip Morris Blue as a trademark in Uruguay.1014
7. Premier
9.72 Claimants submit three trademark titles allegedly proving ownership of a mark for
Premier.1015 Here, once again, none of them corresponds to the Premier package that Claimants were selling in Uruguay.1016 The first is the registration for “Premier Lights”1017 and the second
1011 See PMI Uruguay Strategy Review, slide 39 (showing the package that Abal was selling for Philip Morris Blue) (C-285).
1012 DNPI, Mark Details for “Philip Morris,” File No. 377897 (R-333).
1013 DNPI, Mark Details for “Philip Morris,” File No. 336029 (R-332).
1014 DNPI Certificate for Philip Morris Blue (21 Aug. 2014) (R-320).
1015 Uruguayan registration documents for “Casino” and “Premier” trademarks, pp. 3-5 (C-11). The trademarks submitted by Claimant as exhibits for the registration of “Premier” brand are trademarks No. 307150 (Premier Lights), No. 303606 (Premier Extra Suaves) and No. 343304 (Premier [wordmark]). Ibid. Uruguay submits the “mark details” from the DNPI website for each of these trademarks which supplements the information provided by Claimant and better illustrates the trademarks at issue. See DNPI, Mark Details for “Premier Lights,” File No. 307150, available at http://www.dnpi.gub.uy (last visited 4 Aug. 2014) (hereinafter “DNPI, Mark Details for ‘Premier Lights,’ File No. 307150”) (R-334); DNPI, Mark Details for “Premier,” File No. 303606, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (hereinafter “DNPI, Mark Details for ‘Premier,’ File No. 303606”) (R-335); DNPI, Mark Details for “Premier,” File No. 343304, available at http://www.dnpi.gub.uy (last visited 25 June 2014) (R-336).
1016 See CMM, ¶ 96.
1017 Uruguayan registration documents for “Casino” and “Premier” trademarks, p. 3 (C-11).
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is for “Premier Extra Suaves.”1018 Both are obviously different from, and do not serve to afford
protection to, Premier.
9.73 The third is merely a “denominative” trademark made up only of the name “Premier.”1019
Professor Barrios explains that this denominative trademark does not cover the Premier package previously on the Uruguayan market.1020 She states:
Given that the Premier trademark No. 343403 is purely denominative, the protection does not cover the mixed sign (consisting of the name and logo) that the Claimants used on the products they commercialized under said name.1021
9.74 In this respect, the TCA has emphasized that
trademarks must be taken as a whole, and not dismembering them into their component parts for purposes of analysis, which must also involve a successive and prereflexive comparison …. In other words, we must bear in mind that a trademark is indivisible. It is the impression of the whole that must be taken into account for all intents and purposes ….1022
9.75 As was the case with Marlboro Lights and Fiesta Milds, it appears that after Uruguay
adopted the ban on descriptors in 2005, Claimants simply removed the words “Lights” and
1018 Ibid., p. 4.
1019 Ibid., p. 5.
1020 Barrios Report, ¶ 121 (REX-004).
1021 Ibid.
1022 Ibid., ¶ 119 (citing TCA Decision No. 354/2011 (28 Apr. 2011) (AB-46)).
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“Suaves” from the Premier packages it was selling and reintroduced them as Premier and
Premier Extra.1023 They failed, however, to register the new variants as trademarks.
9.76 Professor Barrios concludes:
The products that entered the market as Premier and Premier Extra are not protected by the trademarks registered by the Claimants, because the signs that identify the products and the mixed trademarks granted by the DNPI to the Claimants for “Premier Lights” and “Premier Extra Suaves” do not match. Although the logos are similar, the Claimants never used the marks “precisely as” they were presented in said registrations. Therefore, just like in the cases discussed above, they cannot claim rights to the trademark set they used under the name Premier and its logo, because they have no individual registration as a trademark in Uruguay.1024
8. Other Trademarks
9.77 Claimants assert that the SPR “left [them] with just six variants, one for each of
Claimants’ former brand families.”1025 These were: Marlboro Red, Fiesta, Philip Morris, Premier
Extra, Galaxy and Casino. Inasmuch as Marlboro Red, Fiesta, Philip Morris and Casino remain
on the market today, Claimants can, under no view of the facts or the law, have a viable trademark claim based on these four brands.
9.78 [[
1023 See CMM, ¶ 96; PMI Uruguay Long Range Plan 2005-2007, slide 37 (C-284). See also DNPI, Mark Details for “Premier Lights,” File No. 307150 (R-334); DNPI, Mark Details for “Premier,” File No. 303606 (R-335).
1024 Barrios Report, ¶ 118 (REX-004).
1025 CMM, ¶ 196.
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]] Nothing about either the SPR or the 80%
Requirement prevented Claimants from using these trademarks in commerce. The regulations therefore did not violate a non-existent right to use.
9.79 Moreover, the evidence shows that Claimants’ decision to withdraw these products from the market was a calculated business move, responsibility for which cannot attributed to
Uruguay. According to Claimants themselves, the “Galaxy and Premier brands were not as strong as Claimants’ other brands to begin with” and “were eliminated later in 2009, in part because the 80/80 regulation made it impossible to develop and perpetuate a viable brand associated with these products.”1027 These assertions are telling in several respects.
9.80 First, Claimants’ acknowledgment that these two brands were weak to begin with makes them a very poor platform on which to make a claim of any kind, much less a claim capable of being elevated to the level of a BIT breach. Notable in this respect is the fact that Claimants do not claim any damages resulting from their withdrawal of these two brands.1028
9.81 Second, Claimants state that they were eliminated “in part” because of the 80%
Requirement. By their own admission, other causative factors were thus involved in the business decision.
9.82 Third, the assertion that the decision to remove the Premier and Galaxy brands from the market was attributable to the effects of the 80% Requirement is suspect. Claimants state
1026 Ibid., ¶¶ 98, 198; Cibils Witness Statement, ¶ 18 (CWS-004).
1027 CMM, ¶ 98 (emphasis added).
1028 Ibid., ¶ 285.
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vaguely that the decision was made “later in 2009” without specifying a precise date. This is
noteworthy because the 80% Requirement did not actually come into effect until 22 December
2009. It thus appears that Claimants withdrew the Galaxy and Premier brands without actually
waiting to see what the effects of the 80% Requirement would be. While they are certainly
entitled to make whatever business decisions they consider appropriate, Claimants are not
entitled to assume what the effects of a regulation on an already weak product would be, and
then attempt to make Uruguay bear responsibility for that assumption.
9.83 Accordingly, for all these reasons, Claimants have no viable trademark claim under
Uruguayan law. Ironically, although they assert that Uruguay interfered with their “right to use”
their trademarks, the evidence shows that they never bothered to perfect those alleged rights.
Seven of the 13 trademarks about which they complain were not registered at the time the SPR
was adopted;1029 four are still on the market;1030 and neither measure Claimants question in this case interfered with their putative right to use the remaining two.1031 Uruguay has therefore not
violated any “commitments” under its IP law, which, in any event, are not susceptible of
elevation into a treaty breach under Article 11 of the Uruguay-Switzerland BIT.
1029 Marlboro Gold, Marlboro Blue, Marlboro Fresh Mint, Fiesta Blue, Fiesta 50/50, Philip Morris Blue and Premier.
1030 Marlboro Red, Fiesta, Philip Morris and Casino.
1031 Premier Extra and Galaxy.
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CHAPTER 10
CLAIMANTS ARE NOT ENTITLED TO THE RELIEF THEY REQUEST
10.1 Claimants seek two different remedies for Uruguay’s alleged violations of the Uruguay-
Switzerland BIT. First, they seek repeal of both the SPR and the 80% Requirement.1032 Second, they seek damages. The quantum of damages they seek depends on whether or not the Tribunal grants their request to repeal the questioned measures. In the event the SPR and 80%
Requirement are repealed, they seek compensation in the amount of US$4,951,000
(US$2,489,000 and US$2,463,000 for the SPR and 80% Requirement, respectively).1033 In the event the measures are not repealed, they seek a total of US$25,743,000 (US$13,424,000 and
US$12,319,000 for the SPR and 80% Requirement, respectively) as the sum total of their damages in perpetuity.1034
10.2 Uruguay denies that Claimants are entitled to any remedy of any sort. For the reasons presented in the previous Chapters, Claimants have not met their burden of proving that either the SPR or the 80% Requirement violated any of their rights under the Uruguay-Switzerland
BIT.1035 For purposes of its presentation in this Chapter, Uruguay requests that the Tribunal bear
in mind its position that the Tribunal need not get to the question of remedy because Claimants
have failed to establish a case on liability. But even if, quod non, liability were established,
Claimants would still not be entitled to the remedies they seek.
1032 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶ 281.
1033 Ibid., ¶ 289; Expert Report of Brent C. Kaczmarek and Kiran P. Sequeira (3 Mar. 2014) (hereinafter “Kaczmarek and Sequeira Report”), p. 66, Table 20 (CWS-013); ibid., p. 70, Table 23.
1034 CMM, ¶¶ 285-286.
1035 Claimants’ denial of justice claims are addressed and refuted in the next chapter, Chapter 11, of this Counter- Memorial.
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10.3 In the first instance, Claimants have no serious basis on which to ask this tribunal to repeal the SPR and 80% Requirement. The law is clear that restitution of this sort is a legal impossibility.
10.4 Moreover, as Claimants themselves acknowledge, they are only entitled to damages that they can prove were caused by the SPR and 80% Requirement. An examination of Claimants’ own data negates their causation theory. If Claimants truly suffered any financial harm in the period following the adoption of the SPR and 80% Requirement, it is attributable to other factors, including Claimants’ own strategic business decisions. Neither the SPR nor the 80%
Requirement was the proximate cause of the damages Claimants claim to have incurred.
10.5 Finally, even if proximate causation could be established, the quantum of damages
Claimants seek is wildly inflated and inherently unreliable. It rests on a series of errors, and unsupported and speculative assumptions that result in numbers that are grossly overstated.
When just some of those errors and assumptions are corrected, the resulting figures are reduced by up to 67%, a discrepancy so large as to throw the validity of Claimants’ entire quantification exercise into doubt.
I. Restitution Is Not an Appropriate Remedy
10.6 Claimants appear to be asking this Tribunal to award them restitution by ordering
Uruguay to repeal the SPR and 80% Requirement.1036 The manner in which they present their
request, however, makes it clear that they do not genuinely consider repeal a serious possibility.
1036 CMM, ¶ 282.
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10.7 The section of their Memorial devoted to remedies is, for example, captioned
“Damages,”1037 thus underscoring that what Claimants really seek is monetary compensation. To
the extent Claimants advert to restitution by way of repeal, they do so only obliquely. Paragraph
281 of the Memorial states, for instance:
Thus, the standard of reparation under customary international law is to put the claimant in the position in which it would have been but for the treaty breach through restitution — that is, remedying the breach by reversing the breaching act and compensating for any effects of the breach — or if restitution is not possible, thorough monetary compensation. In the current case, restitution would mean the repeal of the regulations and monetary compensation for the effects of the regulations during the time they were in place. If restitution is not possible, then monetary compensation should make them whole ….1038
10.8 Claimants’ hesitancy in presenting a claim of restitution is understandable. In its decision
on provisional measures, the tribunal in Occidental v. Ecuador observed that it is “well
established” that where a State “in the exercise of its sovereign powers” has adopted laws or
regulations that affect the rights of a foreign investor, restitution “must be deemed legally
impossible.”1039 The reasons for this rule were explained in LG&E v. Argentina:
[J]udicial restitution … impl[ies] modification of the current legal situation by annulling or enacting legislative and administrative measures that make over the effect of the legislation in breach. The
1037 See ibid., p. 122.
1038 Ibid., ¶ 281.
1039 Occidental Petroleum Corporation and Occidental Exploration and Production Company. v. Republic of Ecuador, ICSID Case No. ARB/06/11, Decision on Provisional Measures (17 Aug. 2007) (Fortier, Stern, Williams) (hereinafter “Occidental v. Ecuador, Decision on Provisional Measures”), ¶ 79 (RL-176).
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Tribunal cannot compel [a State] to do so without a sentiment of undue interference with its sovereignty.1040
10.9 Instructive also in this regard is LIAMCO v. Libya, in which the sole arbitrator rejected an
oil company’s request to undo the nationalization measures at issue in that case. He reasoned:
[R]estitutio in integrum claimed as a principal remedy by LIAMCO as well as the remedy of a Declaratory Award declaring the invalidity of Libya’s title to LIAMCO’s nationalized rights, are to be rejected in accordance with prevalent international practice, and because they are practically incapable of compulsory execution;
[M]oreover, the said remedies are liable to encroach upon the principle of the sovereignty of States and the indisputable and unappealable character of all “Acts of State” ….1041
10.10 Restitution here would not only “encroach upon the principle of the sovereignty of
States,” it would impose an obviously disproportionate burden on Uruguay.1042 In the Occidental
decision on provisional measures, for example, the tribunal held that “to impose on a sovereign
State reinstatement of a foreign investor in its concession, after nationalization or termination of
a concession license or contract by the State, would constitute a reparation disproportional to its
interference with the sovereignty of the State when compared to monetary compensation.”1043
1040 LG&E Energy Corp., et al. v. Argentine Republic, ICSID Case No. ARB/02/1, Award (25 July 2007) (de Maekelt, Rezek, van den Berg) (hereinafter “LG&E v. Argentina”), ¶ 87 (emphasis added) (RL-174); see also Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Award (20 Nov. 1984) (Goldman, Foighel, Rubin), ¶ 202(ii) (“It is obvious that this Tribunal cannot substitute itself for the Indonesian Government, in order to cancel the revocation and restore the license; such actions are not even claimed, and it is more than doubtful that this kind of restitution in integrum could be ordered against a sovereign State.”) (CLA-243).
1041 Libyan American Oil Company (LIAMCO) v. Government of the Libyan Arab Republic, Award (12 Apr. 1977), reprinted in 20 I.L.M. 1 (1981), pp. 168-169 (emphasis added) (RL-146).
1042 Occidental v. Ecuador, Decision on Provisional Measures, ¶ 82 (Juridical restitution “even if possible, will nevertheless be refused if it imposes too heavy a burden on the party against whom it is directed.”) (RL-176).
1043 Ibid., ¶ 84 (emphasis added).
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10.11 This reasoning applies with particular force here. An order compelling Uruguay to repeal the SPR and 80% Requirement would require it to dismantle important parts of the comprehensive legal regime it has crafted to address the tobacco epidemic in the country and protect public health.
10.12 For these reasons, it would be, just as it was in Occidental, “utterly unrealistic” for this
Tribunal “to order to turn back to the regulatory framework existing before the [public health]
measures were adopted.”1044
II. Claimants Are Only Entitled To Compensation for Non-speculative Losses They Prove Were Caused by the SPR and 80% Requirement
10.13 In their request for damages, Claimants do not distinguish between their expropriation
claim and their claims under other provisions of the BIT. Rather, they make the same damages
request in regard to each treaty provision that was allegedly violated.1045 They do so by reference
to the ILC Articles on State Responsibility which provide: “The State responsible for an
internationally wrongful act is under an obligation to compensate for the damage caused thereby,
insofar as such damage is not made good by restitution.”1046 As Claimants state: “Such
1044 Ibid., ¶ 81 (citing CMS Gas Transmission v. Argentine Republic, ICSID Case No. ARB/01/8, Award (12 May 2005) (Orrego Vicuña, Lalonde, Rezek) (hereinafter “CMS v. Argentina”), ¶ 406 (CLA-093)).
1045 CMM, ¶ 281.
1046 International Law Commission, Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001) (hereinafter “ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts”), p. 98, Art. 36(1) (emphasis added) (RL-130).
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compensation ‘shall cover any financially assessable damage including lost profits insofar as it is established.’”1047
10.14 In the circumstances of this case, Uruguay does not dispute this general formulation. It does, however, consider that certain points of clarification are required. The first concerns the element of causation. As the above quotation from the Articles on State Responsibility makes clear, a State is obliged only to make reparation for damages actually caused by an internationally wrongful act.1048 Claimants, moreover, bear the burden of proving the existence of the requisite causal link.1049
1047 CMM, ¶ 278 (citing ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, p. 98, Art. 36(2) (CLA-061)) (emphasis added).
1048 Article 31(1) of the ILC’s Draft Articles on the Responsibility of States articulates this fundamental principle: “The responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act.” ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, p. 91, Art. 31(1) (emphasis added) (RL-130). The Commentary goes on to explain that “[t]his phrase is used to make clear that the subject matter of reparation is, globally, the injury resulting from and ascribable to the wrongful act, rather than any and all consequences flowing from an internationally wrongful act.” Ibid., p. 92, Comment (9) to Art. 31. See also B. Cheng, GENERAL PRINCIPLES OF INTERNATIONAL LAW AS APPLIED BY COURTS AND TRIBUNALS (2006), p. 253 (stating that “the duty to make reparation extends only to those damages which are legally regarded as the consequences of an unlawful act”) (RL-36(bis)); T. Wälde & B. Sabahi, Compensation, Damages and Valuation in International Investment Law, TRANSNATIONAL DISPUTE MANAGEMENT, Vol. 4, No. 6 (Nov. 2007), p. 35 (A damage calculation relies on showing “a causal relationship between the unlawful act and the harm done thereby excluding recovery for damages that have not been caused by the wrongful acts.”) (RL-244); Tradex Hellas S.A. (Greece) v. Republic of Albania, ICSID Case No. ARB/94/2, Award (29 Apr. 1999) (Böckstiegel, Fielding, Giardina), ¶ 200 (citing Otis Elevator Co. v. Islamic Republic of Iran and Bank Mellat, Award No. 304-284-2 (29 Apr. 1987), reprinted in 14 IRAN-U.S. CL. TRIB. REP. 283 (1987) (hereinafter “Otis v. Iran”), ¶ 47 (RL-150)) (asserting that the claimant must “establish[] that the infringement of these rights was caused by conduct attributable to the Government of Iran,” which the tribunal was not convinced it was) (RL-154); Elettronica Sicula S.p.A. (ELSI) (United States of America v. Italy), Judgment, I.C.J. Reports 1989, p. 15 (hereinafter “ELSI”), ¶ 119 (concluding that it was not possible to say in the case of a claim for expropriation “that the ultimate result was the consequence of the acts or omissions of the [state] authorities” when Claimant was “in so precarious a state that bankruptcy was inevitable.”) (CLA-164).
1049 Houston Contracting Co. v. National Iranian Oil Company, et al., Award No. 378-173-3 (22 July 1988), reprinted in 20 IRAN-U.S. CL. TRIB. REP. 3 (1988), ¶ 467 (confirming that the claimant was obliged to take reasonable steps in investing “so as to satisfy the burden of proof to show that the losses suffered by it were incurred as a result of the acts or omissions of Iran and not by [claimant’s] own failure to act”) (RL-152); S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award (13 Nov. 2000) (Chiasson, Hunter, Schwartz), ¶ 316 (asserting that “the economic losses claimed … must be proved to be those that have arisen from a breach of the [treaty]”) (RL-155); Biwater Gauff (Tanzania) Ltd v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 - 328- CONFIDENTIAL INFORMATION REDACTED
10.15 Causation has both a factual and a legal element.1050 Factually, Claimant must prove that, but for the State’s unlawful act, the harm would not have occurred.1051 Legally, Claimant must also show that the injury was proximately caused by the State’s actions; in other words, the actions were not too unforeseeable, indirect or remote from the harm.1052
10.16 In Lauder v. Czech Republic, the tribunal found that the respondent had breached the provision against arbitrary and discriminatory measures in the governing BIT.1053 Nevertheless, the tribunal rejected Lauder’s claim for damages because it found the alleged harm was caused by the intervening acts of a third party.1054 The tribunal stated: “Even if the breach therefore constitutes one of several ‘sine qua non’ acts, this alone is not sufficient. In order to come to a finding of a compensable damage it is also necessary that there existed no intervening cause for the damage.”1055
July 2008) (Hanotiau, Born, Landau), ¶ 787 (noting that, “in order to succeed in its claims for compensation, [claimant] has to prove that the value of its investment was diminished or eliminated, and that the actions [claimant] complains of were the actual and proximate cause of such diminution in, or elimination of, value.”) (CLA-013).
1050 S. Ripinsky & K. Williams, DAMAGES IN INTERNATIONAL INVESTMENT LAW (2008) (hereinafter “Ripinsky & Williams”), pp. 135-136 (RL-246).
1051 Ibid., p. 135; ELSI, ¶ 101 (concluding that there were “several causes” leading to harm but the underlying one was “insolvency … which state of affairs it seems to have attained even prior to the requisition”) (CLA-164).
1052 Ripinsky & Williams, p. 135 (“under the legal test of causation, the key issue is whether the wrongful conduct was a sufficient, proximate, adequate, foreseeable or direct cause of the harm or injury) (emphasis in original) (RL- 246); see also Hoffland Honey Co. v. Natinoal Iranian Oil, et al., Award No. 22-295-2 (26 Jan. 1983), reprinted in 2 IRAN-U.S. CL. TRIB. REP. 41 (1983), p. 2 (citing Palsgraf v. Long Island R. Co., 162 N.E. 99 (N.Y. 1928) (Andrews, J., dissenting)) (concluding that sales at issue were a “cause, but not the proximate cause”) (RL-147).
1053 Lauder v. Czech Republic, UNCITRAL, Final Award (3 Sept. 2001) (Briner, Cutler, Klein), ¶ 235 (CLA-052).
1054 Ibid.
1055 Ibid., ¶ 234 (emphasis added).
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10.17 Similarly, in Metalclad v. Mexico, the tribunal found that Mexico has violated the FET and expropriation provisions of NAFTA.1056 The investor sought damages for a decrease in
Metalclad’s share price allegedly resulting from the negative impact of respondent’s conduct on
its other business operations.1057 The tribunal rejected the claim, finding that “a variety of
factors, not necessarily related to the investment at issue … caused the decrease.”1058 The tribunal concluded: “The causal relationship between Mexico’s actions and the reduction in value of Metalclad’s other business operations are too remote and uncertain to support this claim.”1059
10.18 And in Otis Elevator Company v. Iran, the tribunal concluded that “a multiplicity of factors” affected the claimant’s position and only some of these factors resulted from conduct attributable to Iran.1060 The tribunal determined that “acts of interference determined by the
Tribunal as being attributable to Iran are not sufficient in the circumstances of this Case, either individually or collectively, to warrant a finding that a deprivation or taking of the Claimant’s participation in Iran Elevator had occurred.”1061 Although Iran’s actions were a “concurrent
1056 Metalclad Corporation v. United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (30 Aug. 2000) (Lauterpacht, Civiletti, Siqueiros) (hereinafter “Metalclad v. Mexico”), ¶¶ 101, 112 (CLA-039).
1057 Ibid., ¶ 115.
1058 Ripinsky & Williams, p. 143 (RL-246).
1059 Metalclad v. Mexico, ¶ 115 (CLA-039).
1060 Otis v. Iran, ¶ 47 (RL-150).
1061 Ibid.
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cause” they were not “sufficient grounds for finding that a compensable deprivation had taken place.”1062
10.19 In addition to requiring a claimant to prove causation, international law provides that no
compensation can be awarded for uncertain or speculative damages.1063 In the words of the U.S.-
Iran Claims Tribunal: “One of the best settled rules of the law on international responsibility of
States is that no reparation for speculative and uncertain damage can be awarded.”1064
10.20 The tribunal in LG&E v. Argentina stated to similar effect:
[A]s a matter of principle, it is necessary to outline at this point the distinction between accrued losses and lost future profits. Whereas the former have commonly been awarded by tribunals, the latter have only been awarded when ‘an anticipated income stream has attained sufficient attributes to be considered legally protected interests of sufficient certainty to be compensable.’ Or, in the words of the Draft Articles, ‘in so far as it is established.’ The question is one of ‘certainty.’ ‘Tribunals have been reluctant to provide compensation for claims with inherently speculative elements.’1065
10.21 As Uruguay demonstrates below, Claimants have failed to meet either the causation or
the certainty requirements in this case.
1062 Ripinsky & Williams, p. 142 (noting also that the tribunal treated the causal link as a necessary element for finding expropriation that was relevant at the liability stage) (RL-246).
1063 Amoco International Finance Corp. v. Government of the Islamic Republic of Iran, et al., Award No. 310-56-3 (14 July 1987), reprinted in 15 IRAN-U.S. CL. TRIB. REP. 189 (1987), ¶ 238 (RL-151).
1064 Ibid., ¶ 238 (emphasis added).
1065 LG&E v. Argentina, ¶ 51 (emphasis in original) (RL-174). See also Rudloff Case, United States-Venezuela Mixed Claims Commission, Decision of Claim on it Merits (1903), 9 U.N.R.I.A.A. 255 (1903-1905), p. 258 (“Damages to be recoverable must be shown with a reasonable degree of certainty, and cannot be recovered for an uncertain loss.”) (RL-139).
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III. Claimants Have Failed To Show the Required Causal Link between Uruguay’s Regulations and Their Alleged Losses
10.22 Claimants’ theory of causation is that the SPR and 80% Requirement damaged their business by forcing them to charge lower prices for their products. They assert: [[
]] Claimants’ representative, Mr. Diego Cibils, states:
This situation left Abal with a choice: It could have chosen either to preserve its premium prices and lose market share (because fewer consumers were willing to pay high prices for established brands like Marlboro), or to preserve market share by reducing prices. Either strategy would have resulted in substantially diminished performance and profitability for Abal.1067
10.23 Claimants’ causation theory does not withstand scrutiny. In the first instance, their
argument about the “corruption” of its branding and the resulting unwillingness of smokers to
pay as much for their products is pure assertion without proof. Nowhere either in their Memorial
or in the report of their damages experts, Navigant, do Claimants make any effort whatsoever to
establish the truth of these hypotheses. As such, their causation theory is entirely speculative.
10.24 Moreover, as discussed below, the evidence shows that Claimants’ pricing decisions, and
in particular their decision to drop their prices precipitously in December 2009, was driven by
other factors having nothing to do with either the SPR or the 80% Requirement.
1066 CMM, ¶ 104.
1067 Witness Statement of Mr. Diego Cibils (28 Feb. 2014) (hereinafter “Cibils Witness Statement”), ¶ 32 (CWS- 004).
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10.25 Even beyond these two basic flaws, Claimants’ causation theory is undone by their own data. The conflict they posit between market share, on the one hand, and their ability to charge a premium price, on the other, is illusory. A comparison between their market share and price premium in 2008, the last year before the questioned measures were implemented, and 2013, the most recent year for which information is available, proves the point.
10.26 According to Claimants’ own information, [[
]] During that year, they were able to sell Marlboro at a UY$3 premium.1069 In comparison, [[ ]] and Marlboro’s price premium
at the end of the year stood at UY$10.1071
10.27 Claimants’ competitive position in Uruguay thus actually improved in 2013 as compared
to 2008. Their overall market share was greater, as was the price premium they were able to
charge for Marlboro. By itself and without more, this fact eviscerates Claimants causation
theory.
10.28 To be sure, there was some fluctuation in Claimants’ market share and prices between
2009 and 2012. But these fluctuations had nothing to do with the effects of the SPR and the 80%
Requirement. To the contrary, they are explained by Abal’s own pricing decisions and basic microeconomic theory; in particular, the “law of demand” (which posits that all “other things
1068 [[ ]]
1069 Ibid., p. 27, Figure 8. See also Historical Pricing Template in Uruguay (C-175).
1070 [[ ]]
1071 See ibid., p. 30, Figure 12.
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equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises.”1072)
10.29 In November 2009, seven months after the SPR came into effect, Abal raised its
prices,1073 a move that belies their assertion that the SPR caused them to lower prices. In any
event, the result was predictable: [[
]] Then, in an abrupt reversal, Abal slashed its prices precipitously the
next month (in the case of Marlboro, by nearly 30%).1076 The result was again predictable: [[
]]
10.30 Thereafter, according to Claimants, [[
]] Once again, the law of demand was followed:
[[
1072 N. Mankiw, PRINCIPLES OF ECONOMICS (2012) (hereinafter “Mankiw”), p. 67 (R-253).
1073 Kaczmarek and Sequeira Report, p. 28, Figure 10, ¶ 79 (CWS-013).
1074 [[ ]]
1075 [[ ]]
1076 Ibid., p. 28, Figure 10.
1077 [[ ]]
1078 [[ ]]
1079 [[ ]]
1080 [[ ]]
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]] The only significant difference between then and now is that, as stated, Abal is today charging a price premium of UY$10 for Marlboro (as compared to UY$3 in 2008).1081 It is difficult to see how Claimants can attribute these results to the two
Uruguayan measures.
10.31 [[
]] Since their market share was [[
]] it is not unreasonable to presume, in the absence of a contrary showing by Claimants, that [[
]] with or without the SPR and the 80% Requirement. Without more, there is no reason to blame that decline [[
]] on the two regulations.
10.32 Accordingly, even under their own theory, Claimants have entirely failed to prove the required causal link between either the SPR or the 80% Requirement and the damages they claim. Their argument fails on that basis alone.
10.33 Nevertheless, Claimants persist. Citing Mr. Cibils, they argue: “As soon as the single presentation regulation entered into force, Abal immediately lost substantial sales volume.”1083
1081 The inflation rate in Uruguay during these years ranged generally between 7% and 9%. Even adjusted for inflation, Claimants’ UY$10 price premium is at least double the UY$3 price premium in 2008.
1082 [[ ]]
1083 CMM, ¶ 106 (citing Cibils Witness Statement, ¶ 33 (CWS-004)).
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Mr. Cibils does not point to any data to support his suggestion that the SPR caused the reduction
in sales volume.1084 Only Claimants’ damages experts, Navigant, attempt to do so. In its report, [[
]] Correlation is
not causation, however. The evidence suggests that other factors were at play.
10.34 [[
]]
10.35 Second, the cigarette market in Uruguay as a whole shrunk appreciably between 2008 and
2009. According to figures Navigant presents, the total consumption of cigarettes in Uruguay dropped roughly 7% [[
]] for the country as a whole.1087
10.36 Third, Uruguay increased taxes on cigarettes by 30% in June 2009. 1088 The effect of this
increase was to push prices up, a fact that undoubtedly depressed Abal’s (and other tobacco
1084 See generally Cibils Witness Statement (CWS-004).
1085 [[ ]]
1086 Analysis Group Report, ¶ 42 (REX-005).
1087 Kaczmarek and Sequeira Report, ¶ 93 (CWS-013).
1088 Ibid., ¶ 100.
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companies’) sales volume by operation of the law of demand.1089 Claimants make no attempt to
account for the effects of this substantial tax increase on their sales. Instead, they assume that the
SPR and the 80% Requirement caused the reduction.
10.37 Fourth, as noted above, Navigant itself acknowledges that some of the additional loss of
sales volume was attributable to [[ ]]
According to its report: [[
]]
10.38 Claimants’ damages story suffers from still other serious flaws. They contend, for
example, that their decision to cut prices so dramatically at the end of 2009 was motivated by [[
]] As just
demonstrated, however, there is no proof that the lost volume was caused by the SPR, as opposed to the 30% sales tax increase in mid-year, or the price increase Abal implemented in
November on top of that. Moreover, contemporaneous evidence suggests that the price cut was motivated by other factors.
1089 See Mankiw, p. 72 (stating that when consumers bear the cost of a cigarette tax increase, demand goes down) (R-253).
1090 [[ ]]
1091 [[ ]]
1092 [[ ]]
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10.39 The sudden reduction in Abal’s prices attracted the attention of the press. In a 19
December 2009 story appearing in El País, an Abal representative referred to the move as justified by “business strategy criteria, in order to maintain competitiveness on the market.”1093
He continued:
Abal Hnos. strives to offer a high quality brand portfolio which satisfies the preferences of its consumers. In this sense, we will continue to compete on the Uruguayan market, concentrating our efforts on the growth of our market share through current brands and other new brands being developed, in order to ensure we continue to offer the best products for adult smokers.1094
10.40 Thus at the time of its price reduction, Abal itself made no mention of it having been
necessitated by the effects of the SPR or the 80% Requirement. To the contrary, Abal reported
that its reduction in price was designed to achieve “the growth of our market share,” exactly the
effect one would expect from a price decrease.
10.41 Abal’s decision to slash its prices precipitously caused Abal’s competitor, Mailhos, to
write to the Ministry of the Economy and Finance complaining:
Through the scheme implemented, the multinationals have shown themselves willing (and their leadership in the global market allows them to do so) to sell at less than the cost of production contrary to the Government’s public health policies referred to in the Preamble to Decree 268/09, [and] in a clear attempt to take over the market to the detriment of the domestic producer Compañía Industrial de Tabacos Monte Paz S.A.1095
1093 “Large cigarette price decreases due to commercial reasons,” El País (Montevideo, 19 Dec. 2009) (R-218).
1094 Ibid. (emphasis added).
1095 Letter from Compañía Industrial de Tabacos Monte Paz S.A. to the Uruguayan Minister of the Economy and Finance (17 Feb. 2010), p. 1 (R-222).
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Noteably, several months after Abal’s move, BAT was forced out of the Uruguayan market.1096
10.42 After a thorough investigation, the Government of Uruguay agreed with Mailhos, found
Abal had indeed engaged in “predatory pricing” and fined the company US$250,000.1097 In its
decision, the Commission for the Promotion and Defense of Competition of the Ministry of the
Economy and Finance found, among other things:
4. … [T]hat there was an illegal practice of fixing abusive prices with characteristics of predatory prices on the part of the company Abal Hnos. S.A. and that it has no justifications, efficiency gains, or benefits that are passed on to consumers.
…
9. In this case, there is shared existence of an atypical position of dominance on the part of Abal Hnos. S.A. deriving from its international strength because it is a subsidiary of the multinational company Philip Morris International, and not because of its specific participation on the local market. It has the financial ability to sustain the strategy of fixing prices in the long term at under the variable average cost, which produced, among other things, the almost immediate removal of one of the competitors [BAT] for the position that remained in only one department of the country ….
10. Pursuant to the cost study by the School of Cost Accounting of the School of Economic Sciences and Administration, it was proven that the company Abal Hnos. S.A. sold below its total costs from December 2009 and below the average variable cost since March 2010 until, at least, December 2010.
…
15. Report No. 57/013 showed that Abal’s strategy of selling more at a lower price, earning market share, caused it more losses than selling less at a higher price. The report states that the decision by Abal Hnos. S.A to increase prices in November 2009 did not cause
1096 Kaczmarek and Sequeira Report, p. 6 n.3 (CWS-013).
1097 Uruguayan Ministry of Economy and Finance (MEF), Resolution 128/2013 (23 Oct. 2013), pp. 2-4 (R-278).
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it to lose sales volume but instead brought it positive sales in the domestic market. On the contrary, the later decision to lower the price caused it losses.1098
10.43 Claimants’ effort to paint themselves as victims of the SPR or 80% Requirement thus
misrepresents their opportunistic move to increase their market share at the expense of their
competitors. That this happened in the same year the SPR and 80% Requirement were adopted is certainly not enough to establish the element of causation that the law requires.
10.44 Claimants underscore the implausibility of their own causation argument when they
attempt to attribute [[
]] How
can the same measures be responsible for both a price increase and a price decrease in close proximity to one another? There is no proof to support the assertion that either price change was made in response to either regulation. The contention is particularly implausible with respect to the 80% Requirement which did not enter into force until 22 December 2009, after prices had first been increased and then decreased.
10.45 Claimants’ argument that the two regulations caused them damage is further belied by one more fact: the steady decline in Abal’s sales volume discussed above came to an abrupt end in 2009. Since the year that both measures were implemented, its sales volume has not gone
1098 Ibid.
1099 [[ ]]
1100 [[ ]]
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down any further. [[
]] 1101
10.46 This figure is all the more notable because according to Claimants’ figures, the
Uruguayan market as a whole has continued to shrink by approximately another [[ ]] during the same period.1102 If the two regulations had truly “corrupted” Claimants’ brand equity and
impaired their ability to sell their products, one would expect to see that fact reflected in their
sales volume. The fact that it is not disproves any causal link between the regulations and the
damages Claimants claim.
10.47 Just as in Metalclad, Claimants’ losses, if any, were the result of a “variety of factors,”
including Uruguay’s tax increases (which they do not challenge in this arbitration), their own
price increases on top of those, their predatory pricing activities and the steadily decreasing size
of the Uruguayan cigarette market as a whole. Accordingly, Claimants have not met their burden
of establishing that any losses they suffered were the result of either the SPR or the 80%
Requirement. Their damages claim fails in its entirety.
IV. Claimants’ Quantum Analysis Is Speculative and Unreliable
10.48 In light of the above, Uruguay considers that Claimants have failed to prove the requisite
causal link between the SPR and 80% Requirement and the damages they claim. Even beyond
that fundamental flaw, their damages claim fails also because it is based on a quantitative model
that it inherently speculative and unreliable, and includes a series of errors and unsupported
1101 Abal’s Sales Data: 1999-2013 (C-125).
1102 Kaczmarek and Sequeira Report, Appendix E (CWS-013).
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assumptions. When just some of these are corrected, the resulting figure is reduced by up to
67%, a number so large as to undermine the reliability of Claimants’ entire quantification exercise.
10.49 Navigant purports to calculate the damages allegedly caused by the SPR and 80%
Requirement by creating and comparing two financial scenarios: the “actual scenario” and the
“but-for” scenario, meant to describe the world as it would have been had the questioned measures not been adopted.
10.50 In the case of the SPR, Navigant calculates Claimants’ damages based on what it considers Claimants would have earned if they had not withdrawn seven variants from the market: Marlboro Gold, Marlboro Blue, Marlboro Fresh Mint, Philip Morris Blue, Fiesta 50 50,
Fiesta Blue and Premier.1103 In the case of the 80% Requirement, Navigant purports to estimate
what Claimants would have earned on the four remaining products (Marlboro Red, Philip
Morris, Fiesta and Casino) if the warning labels had not been increased from 50% to 80%.1104
10.51 To arrive at its final damages figure of $25,740,000, Navigant constructs Abal’s actual and but-for cash flows and royalty payments to Claimant Philip Morris Products, and deducts the difference between them, discounting this amount to the present value.1105
1103 Ibid., ¶ 108. [[ ]]
1104 Ibid., ¶ 111. [[ ]]
1105 See ibid., ¶¶ 104-115, Table 20.
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10.52 Navigant’s primary method of determining the cash flows and royalties that Claimants would have earned but for the questioned measures is the discounted cash flow (“DCF”) method.1106 This method calculates the sum of future cash flows projected to a specific date and then
applies a discount rate to calculate their present value. The DCF method is a highly sensitive
valuation tool, the reliability of which depends on the validity of the assumptions used to calculate
the model’s inputs. For example, it will produce widely varying results depending on input
values relating to revenues (e.g., market share and cigarette prices), market demand (e.g.,
consumption patterns and illicit sales), financial conditions (e.g. tax rates, inflation rates) and
risks (e.g., commercial or geopolitical).
10.53 Uruguay’s valuation expert, Mr. Jeffrey Cohen, the Managing Principal of Analysis
Group, an economics and finance consulting firm that specializes in legal and regulatory matters,
has examined Navigant’s calculations in detail, and discovered a number of unsupported
assumptions and serious errors. When these are corrected, the result is to reduce Navigant’s final
damages figure by as much as 67%.1107
10.54 As stated, the reliability of Navigant’s DCF method depends on the validity of the
assumptions used to calculate the model’s inputs. In order to understand how differing
assumptions can affect the calculation, it helps to understand the mechanics of the model. Mr.
Cohen explains:
32. … Broadly speaking, the Navigant-calculated losses reflect the difference between the cash flows that would have been received
1106 Ibid., ¶ 113.
1107 Analysis Group Report, ¶ 73 (REX-005).
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in the but-for scenario minus those cash flows that were either received or projected in the actual scenario.
33. An increase of the cash flows in the but-for scenario would increase alleged damages … [and a] decrease of the cash flows in the but-for scenario would decrease alleged damages ….
34. Furthermore, an increase of the cash flows in the actual scenario would decrease alleged damages … [and a] decrease of the cash flows in the actual scenario would increase alleged damages ….1108
A. Navigant Overestimates Claimants’ Sales Volume in the But-For Scenario
10.55 One critical way in which Navigant overstates Claimants’ damages is by overestimating
Abal’s sales volume in the but-for scenario. The result is to drive up Abal’s projected income and with it, damages.1109
10.56 In Navigant’s model, sales volume is a function of (1) Abal’s market share, and (2) the
overall size of the cigarette market in Uruguay. Navigant overestimates both. With respect to
market share, Navigant’s but-for scenario posits a [[
]] Yet, according to Navigant’s own data, this
estimate is plainly overly optimistic. Historically speaking, Abal’s total market share [[
]] in the years leading
up to the SPR and 80% Requirement. On what basis Navigant considers it justified to assume a
reversal of this trend in the but-for scenario is not clear.
1108 Ibid., ¶¶ 32-34.
1109 Ibid., ¶ 41.
1110 [[ ]]
1111 [[ ]]
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10.57 Navigant also makes similar errors with respect to Claimants’ Marlboro brand family.
Based on the assertion that [[
]] Navigant’s but-for scenario assumes that [[
]] Yet, here again, the data show that
Marlboro’s market share [[ ]] before the questioned
measures were adopted.1114 On average, the market share for the Marlboro brand family was [[
]]
10.58 [[ ]] followed the same declining trajectory.1116 After reaching a peak market share of [[ ]], its market share dropped to [[ ]] Nevertheless, Navigant’s but-for scenario posits that [[ ]]
market share would have increased from [[
]] In other words, Navigant’s but-for scenario assumes not just an increase
in market share for [[ ]] it assumes that it would reach a higher level than it ever
had before.
1112 [[ ]]
1113 [[ ]]
1114 Analysis Group Report, ¶ 47 (REX-005).
1115 [[ ]]
1116 Analysis Group Report, ¶¶ 68-70 (REX-005). See also Kaczmarek and Sequeira Report, Appendix K.1 (CWS- 013).
1117 [[ ]]
1118 [[ ]]
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10.59 Correcting these overly optimistic projections only for [[ ]] in Navigant’s but-for scenario and using instead its historical average market share between [[
]] has the effect of decreasing Claimants’ damages by [[ ]]
10.60 Navigant also attempts to increase Abal’s sales volume in the but-for scenario by
including an adjustment for illicit sales in their total sales figures, 1120 which it attributes to the
SPR and 80% Requirement.1121 There are at least two problems with this. First, it is notoriously difficult to measure the volume of illicit sales with any degree of confidence.1122 Any attempt to do so is necessarily speculative.
10.61 Second, Navigant’s attempt to attribute the alleged increase in the illicit trade to the SPR
and 80% Requirement is both unjustified and unjustifiable.1123 Navigant cites no data to support
the putative connection. Moreover, as Mr. Cohen observes, Navigant’s contentions are
inconsistent with its own analysis.1124 In its report, Navigant expressly attributes the ostensible
increase in illicit sales to another cause: Uruguay’s decision to increase the IMESI tax in 2010.
Navigant specifically states that the tax increase “no doubt contributed to a migration of
1119 [[ ]]
1120 Analysis Group Report, ¶ 48 (REX-005).
1121 Ibid., ¶ 51.
1122 See ibid., ¶ 52.
1123 See ibid., ¶¶ 51-52.
1124 Ibid., ¶ 51.
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consumers from the legal market to the illicit market.”1125 The inclusion of illicit sales in
Navigant’s but-for scenario is therefore untenable.
10.62 Navigant’s estimate of the size of the illicit market suffers from still other flaws. To
estimate the size of the illicit trade in the but-for world, Navigant takes only a sliver of illicit
sales data from just two years: [[ ]]1126 In so doing, it cherry-picks the two years
with the lowest reported rates of illicit sales. If Navigant more appropriately derived its estimate
from a broader data sample including the four years from 2005 to 2008, the result would be a
reduction in Claimants’ damages of US$587,748.1127
B. Navigant Unreasonably Assumes that Taxes Never Increase Beyond the Rate of Inflation
10.63 Navigant’s damages model is also unreliable because it inexplicably uses different tax
rates in the actual and but-for scenarios. In the actual scenario, Navigant uses the IMESI taxes
Abal paid from 2009-2013 (including the 2010 increase) and then increases the tax rate in step
with inflation thereafter.1128 In the but-for scenario, however, Navigant does not take account of
the 2010 tax increase and elects instead to revert to taxes paid in 2009 and then to increase those
at the rate of inflation into perpetuity.1129
1125 Kaczmarek and Sequeira Report, ¶ 100 (CWS-013).
1126 Analysis Group Report, ¶ 52 (REX-005).
1127 Ibid., Figure 4.
1128 Ibid., ¶¶ 38-39.
1129 Ibid.
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10.64 Navigant attempts to defend this inconsistency by arguing that the 2010 IMESI tax “was
‘retaliatory’ in nature due to Abal’s price reductions that were triggered by the Regulations.”1130
In other words, it considers that in the but-for world without the SPR and 80% Requirement, there would have been no price reductions and thus no “retaliatory” increase in the IMESI tax in
2010.
10.65 As demonstrated above, however, there is no basis for those assumptions.1131 Claimants
not only have not proved that the price reductions were due to the measures, the evidence is to
the contrary. Claimants in fact were engaged in a predatory pricing scheme designed to unfairly
capture market share from their competitors. There is therefore no basis for Navigant’s
assumption.
10.66 Also belied by the facts is Navigant’s assumption that the IMESI tax would grow only at
the same rate as inflation. Between the 2007 tax reform and the end of 2009, the IMESI rose at
an annual rate of 11.1% while inflation grew at an annual rate of 7.7%.1132 And this does not take
account of the 2010 tax increase.
10.67 The failure to allow for the possibility that taxes would rise faster than inflation is
particularly problematic in the but-for scenario because, as Mr. Cohen points out, “in the absence
1130 Kaczmarek and Sequeira Report, ¶ 128 (CWS-013).
1131 See supra ¶¶ 10.22-10.47.
1132 Analysis Group Report, ¶ 39 (REX-005).
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of the SPR or the 80/80 regulations, the Uruguayan government would have had a greater economic incentive to use excise tax increases as a tool to regulate tobacco.”1133
10.68 Mr. Cohen concludes: “By not considering the possibility of taxes increasing at a rate
greater than inflation in the but-for scenario, Navigant’s damages model is overly optimistic, and
as a result creates larger damages than a correctly specified but-for scenario would.”1134
10.69 There is yet another error in Navigant’s calculation of the IMESI tax rate in the but-for scenario that, by itself, has a significant impact on the final damages figure.1135 In particular,
Navigant miscalculated the time-weighted average of the 2009 IMESI in the but-for scenario.1136
Because after 2009 Navigant assumes that IMESI will increase at the rate of inflation in perpetuity, this miscalculation has a significant effect on the final result. Correcting for it decreases damages by US$948,475.1137
C. Navigant’s Estimation of But-For Price Is Inflated
10.70 Navigant’s price estimates have a considerable impact on its damage calculation. That is
especially true in this case because Claimants are stating a claim for damages in perpetuity.
Thus, even a marginal overestimation of prices in the but-for scenario as compared to the actual scenario leads to a substantial overstatement of damages. That is exactly what has happened here.
1133 Ibid.
1134 Ibid., ¶ 40.
1135 Ibid., ¶ 71.
1136 Ibid., ¶ 72.
1137 Ibid., Figure 4.
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10.71 Navigant’s calculation of the 2009 per stick price is a key component of its cash flow in
the but-for scenario (because it is used to project sales sold in perpetuity), and thus its damages
calculation.1138 But Mr. Cohen has identified two key flaws with Navigant’s 2009 per stick price calculation, both of which affect the final figure significantly.
10.72 In the first instance, Navigant calculates the 2009 wholesale price per stick by using a simple average across different package sizes and types instead of a volume-weighted average
(i.e., applying a weighted average according to sales volume by pack type). In doing so,
Navigant ignores the fact that some pack types sell much less often than others. (Packs of 10 cigarettes and soft packs of 20 cigarettes sell significantly less than hard packs of 20 cigarettes.)
Just correcting for this evident error by using a volume-weighted average results in a decrease in
Claimants’ damages of US$2,400,000.1139
10.73 The problems with Navigant’s calculation of the 2009 price per stick go deeper still,
however. In contrast to what it did for 2009, when it used wholesale prices, Navigant calculates
prices for all prior years by dividing Abal’s total actual revenues by its total sales volume.1140
Navigant offers no support for using a different methodology in this one critical year. Had
Navigant done what it should have and used the same methodology for 2009 that it did for all earlier years, the result would have been a larger reduction in the but-for price, and thus a larger
1138 Ibid., ¶ 54.
1139 Ibid., ¶ 56.
1140 Ibid., ¶ 57.
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reduction in damages. The effect is quite significant. Correcting for this error, Claimants’ damages are lowered by US$7,100,000.1141
D. Navigant Underestimates Marketing Expenses in the But-For Scenario
10.74 Marketing expenses are one of the categories of operating expenses included in
Navigant’s cash flow analysis in both the actual and but-for scenarios.1142 Inexplicably, however,
Navigant omits certain categories of marketing expenses from the but-for scenario that it
includes in the actual scenario. In particular, in the actual scenario, Navigant includes as
marketing expenses both direct marketing expenses and a category referred to as “Mkts & BBF
Adm.”1143 In the but-for scenario, however, Navigant omits anything other than direct marketing
expenses.1144
10.75 Mr. Cohen corrects for this by estimating total marketing expenses Navigant omitted
from the but-for scenario. He does so based on company financial data. The result of including
these omitted marketing expenses in the but-for scenario is to decrease Claimants’ damages by
another US$2,900,000.1145
E. Navigant Fails To Offset Revenue from Benson & Hedges in the Actual Scenario
10.76 As noted above, understating cash flows in the actual scenario is another way in which
damages can be overstated. By failing to include the value of Benson & Hedges, the brand
1141 Ibid.
1142 Kaczmarek and Sequeira Report, ¶ 129 (CWS-013).
1143 Ibid., Appendix H.4 n.2.
1144 Ibid., Appendix H.9.
1145 Analysis Group Report, ¶ 66 (REX-005).
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Claimants introduced to replace Marlboro Gold, in the actual scenario, that is precisely what
Navigant has done.
10.77 Navigant seeks to justify this omission by stating that it is “unclear” whether Benson &
Hedges should be considered as an offset to Claimants’ losses from the SPR because [[
]]
10.78 In fact, the evidence is to the contrary. [[
]]
1146 [[ ]]
1147 [[ ]]
1148 [[ ]]
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10.79 The value of Benson & Hedges should therefore be included in the actual scenario for purpose of calculating damages. Doing so reduces Claimants’ damages by another [[
]]
*
10.80 Taken together, Navigant’s errors and unsupported assumptions reduce Navigant’s damages calculation by up to 67%, to as little as US$8,500,000.1150 In Uruguay’s view, this gross
disparity is sufficiently large as to render Navigant’s entire damages calculation inherently
speculative and unreliable.
V. Claimants Are Not Entitled To the Interest They Claim
10.81 Claimants contend that in the event the Tribunal decides to award them damages, they are
entitled to interest at the rate of LIBOR plus 4% with annual compounding.1151 Claimants are
mistaken in two respects: (1) the interest rate they seek is excessive; and (2) they are not entitled
to compound interest.
A. The Interest Rate Claimants Seek Is Excessive
10.82 The interest rate Claimants ask to be awarded, LIBOR plus 4%, is out of line with
commercial reality and legal authority.
10.83 The ILC Articles on State Responsibility make clear that “[t]he interest rate and mode of
calculation are to be set so as to achieve the result of providing full reparation for the injury
1149 Ibid., ¶ 61.
1150 Ibid., ¶ 73, Figure 4.
1151 CMM, ¶ 302.
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suffered as a result of the internationally wrongful act.”1152 Claimants assert that LIBOR plus 4%
would do that here because it would properly compensate them for their “opportunity costs.”1153
Uruguay disagrees. A more appropriate measure of Claimants’ allegedly lost “opportunity costs” would be the risk-free rate of return; i.e., the return Claimants could have earned if they had invested the money they claim to have lost without meaningful risk, for example, in short-term
United States Treasury bonds.
10.84 Navigant attempts to justify LIBOR plus 4% on the grounds that it “would be” a commercial borrowing rate widely available on the market.1154 Using a borrowing rate as a proxy
for the value of lost “opportunity costs” is, however, inherently speculative. As one commentator
has observed:
Long-established business ventures frequently fail to earn the expected profits or even incur losses. Future earnings are always highly speculative. Because an international tribunal cannot retroactively impose risk on the victorious claimant, a commercial interest rate could overcompensate the claimant by awarding it an amount that includes a risk premium, when in fact the claimant was never forced to undertake any commercial risk. Consequently, it could be argued that a risk-free interest rate best approximates the claimant’s actual loss in most cases.1155
10.85 The tribunal in Sistem v. Kyrgyz Republic adopted exactly this approach, observing:
The proper role of the payment of interest is to fulfil the duty to compensate the Claimant for the whole of its loss. One cannot
1152 ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, p. 109, Comment (10) to Art. 38 (RL-130).
1153 CMM, ¶ 301.
1154 Kaczmarek and Sequeira Report, ¶ 184 (CWS-013).
1155 A. Fellmeth, Below-market Interest in International Claims Against States, 13 J. INT’L ECON. L. 423 (2010), p. 436 (RL-250).
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know what a Claimant would have done had it been paid USD8.5 million in June 2005. It might have made spectacularly good, or disastrously bad decisions on the investment of such a sum. The cautious approach is to assume, in the absence of evidence to the contrary, that its loss would have been at least that of the principal sum plus interest gained from risk-free investments.1156
10.86 In LG&E v. Argentina, the tribunal dismissed Claimants’ expert’s proposal to use
Argentina’s borrowing rate as “speculative and extemporaneous,” opting instead to use the short- term U.S. Treasury bill rate.1157 Other investment tribunals have done the same.1158 Uruguay
submits that in the exceedingly unlikely event the Tribunal determines that damages are warranted in this case, the short-term U.S. Treasury bill rate is also the appropriate, non-
speculative measure of the value of Claimants’ allegedly lost “opportunity costs,” and therefore the proper interest rate to be applied.
B. Compound Interest Is Not Appropriate
10.87 In international law, the general rule stated in the Articles on State Responsibility is that
an injured party does not have “any entitlement to compound interest, in the absence of special
circumstances which justify some element of compounding as an aspect of full reparation.”1159 In
1156 Sistem Mühendislik Inşaat Sanayi ve Ticaret A.Ş. v. Kyrgyz Republic, ICSID Case No. ARB(AF)/06/1, Award (9 Sept. 2009) (Lowe, Elaraby, Patocchi), ¶ 194 (RL-185).
1157 LG&E v. Argentina, ¶ 102 (RL-174).
1158 See, e.g., Marvin Roy Feldman Karpa v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (16 Dec. 2002) (Kerameus, Covarrubias Bravo, Gantz), ¶ 211 (RL-201); CMS v. Argentina, ¶ 471 (CLA-093); Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/04/05, Award (21 Nov. 2007) (Cremades, Rovine, Siqueiros) (hereinafter “Archer Daniels v. Mexico”), ¶ 300 (RL-178).
1159 ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, p. 109, Comment (9) to Art. 38 (emphasis added) (RL-130). See also United Nations General Assembly (UNGA), Third report on State Responsibility by Mr. James Crawford, Special Rapporteur: Addendum, UN Doc. A/CN.4/507/Add.1 (15 June 2000) (hereinafter “UNGA, Third report on State Responsibility by Mr. James Crawford”), ¶ 211 (“[C]ompound interest is not generally awarded under international law or by international tribunals ….”) (RL-231). See also Norwegian Shipowners’ Claims (Norway v. USA), Award (13 Oct. 1922), 1 U.N.R.I.A.A. 307, p. 341 (Rejecting the - 355- CONFIDENTIAL INFORMATION REDACTED
the R.J. Reynolds case, for example, the U.S.-Iran Claims Tribunal found there were no “special reasons for departing from international precedents which normally do not allow the awarding of compound interest.”1160 It observed further that “there are few rules within the scope of the
subject of damages in international law that are better settled than the one that compound interest
is not allowable.”1161
10.88 In fact, the ILC specifically rejected a proposal to include compound interest in the
Articles on State Responsibility.1162 The Commission considered that the preponderance of authority continued to support the views expressed by Max Huber in the British Claims in the
Spanish Zone of Morocco case:
As regards the choice between simple and compound interest, … the arbitral case law in matters involving compensation of one State for another for damages suffered by the nationals of one within the territory of the other … is unanimous … in disallowing compound interest. In these circumstances, very strong and quite specific arguments would be called for to grant such interest.1163
claim to compound interest, the tribunal held: “The claimants have asked for compound interest with half-yearly adjustments, but compound interest has not been granted in previous arbitration cases, and the Tribunal is of the opinion that claimants have not advanced sufficient reasons why an award of compound interest, in this case, should be made.”) (emphasis added) (CLA-212).
1160 R.J. Reynolds Tobacco Co. v. Government of the Islamic Republic of Iran, Award No. 145-35-3 (6 Aug. 1984), reprinted in 7 IRAN-U.S. CL. TRIB. REP. 181 (1994), p. 8 (RL-148).
1161 Ibid. (citing M. Whiteman, DAMAGES IN INTERNATIONAL LAW 1997 (1943)).
1162 UNGA, Third report on State Responsibility by Mr. James Crawford, pp. 47-48 (RL-231).
1163 ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, p. 109, Comment (8) to Art. 38 (citing British Claims in the Spanish Zone of Morocco (1925) 2 U.N.R.I.A.A. 615, p. 650) (emphasis added) (RL- 130).
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10.89 Investment tribunals have typically followed this rule and refused to order the payment of compound interest absent special circumstances.1164 Claimants here have not even attempted to
show such circumstances, choosing instead to treat compound interest as an “entitle[ment].”1165
10.90 Uruguay does not dispute that there have been instances where compound interest was
awarded. But, as one commentator has written:
It seems that arbitrators “are most comfortable awarding compound interest where there is mention or provision for such remedy in the parties’ contract, or in cases where the claimant has been required as a result of the respondent’s default to obtain supplementary financing that itself involves compound interest.” In addition to the above, concerns over the possibility of over- compensating a party has made some tribunals deny compound interest.1166
10.91 The cases Claimants cite are inapposite because they involved direct or indirect expropriations resulting in total loss of investments.1167 That is plainly not the case here. The
distinction is important. The Tribunal “must consider the damage done and the nature of
1164 See RosInvestCo UK Ltd. v. Russian Federation, SCC Case No. V079/2005, Final Award (12 Sept. 2010) (Veeder, Hobér, Eliasson) (hereinafter “RosInvestCo v. Russia”), ¶ 692 (CLA-139); Saipem S.p.A. v. People’s Republic of Bangladesh, ICSID Case No. ARB/05/7, Award (30 June 2009) (Kaufmann-Kohler, Schreuer, Otton), ¶ 212 (the tribunal awarded simple interest at a rate of 3.375% per annum) (RL-184); Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 Aug. 2008) (Kaufmann-Kohler, Gómez Pinzón, van den Berg), ¶ 491(5) (CLA-228); Desert Line Projects LLC v. Republic of Yemen, ICSID Case No. ARB/05/17, Award (6 Feb. 2008) (Tercier, Paulsson, El-Kosheri) (RL-179); Archer Daniels v. Mexico, ¶ 300 (the tribunal awarded simple interest rate for U.S. Treasury bills) (RL-178); CMS v. Argentina, ¶ 471 (CLA-093).
1165 See CMM, ¶ 298.
1166 B. Sabahi, Recent Developments in Awarding Damages in Investor-State Arbitrations, TRANSNATIONAL DISPUTE MANAGEMENT, Vol. 4, No. 4 (July 2007), p. 19 (citing C. Dugan, et al., INVESTOR-STATE ARBITRATION (forthcoming)) (RL-243).
1167 CMM, ¶¶ 299-300.
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Claimant[s]’ investment” in “its assessment of the interest due.”1168 In Archer Daniels, for
example, the tribunal rejected the claim of compound interest, because the claimants only
suffered some loss of profits and their assets were not seized directly or indirectly.1169 It held:
“[S]ince this is not an expropriation case, but rather concerns the appropriate compensation to be
paid to Claimants for the injury caused as a result of the Respondent’s breach of the national treatment and performance requirements obligations under Chapter Eleven [of NAFTA], the
Tribunal’s view is that simple interest is appropriate in the present case.”1170
10.92 Claimants here have presented no special circumstances that might justify departing from
the general international law rule permitting only simple interest. Their request for compound interest must therefore be rejected.
1168 RosInvestCo v. Russia, ¶ 689 (CLA-139).
1169 Archer Daniels v. Mexico, ¶ 296 (“In the present case, the Claimants’ assets were not seized directly or indirectly. The Respondent breached Chapter Eleven of the NAFTA as regards national treatment and performance requirements, the result of which was that the Claimants suffered loss of profits during the period of time the Tax was in force.”) (RL-178).
1170 Ibid., ¶ 298 (emphasis added).
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CHAPTER 11
CLAIMANTS WERE NOT DENIED JUSTICE BY THE URUGUAYAN COURTS
11.1 Claimants argue that the rejection by the Tribunal de lo Contencioso Administrativo
(“TCA”) of Abal’s administrative challenges to the SPR and 80% Requirement constituted a denial of justice, and as such, violated Uruguay’s obligations under Article 3 of the BIT. They complain of “blatant errors” by the Uruguayan judiciary, of “breaches of fundamental principles of due process,” of “gross incompetence and arbitrariness,” and of “effectively being deprived of
their rights to a decision.”1171
11.2 Claimants’ excessive rhetoric is telling in one respect: it reflects their awareness of the
high hurdle they must clear to prove a denial of justice under international law. That is no
excuse, however, for such unjustified attacks on one of the best justice systems in the world. This is particularly true given that, as discussed below, Claimants’ complaints do not survive even the most cursory examination of the decisions they impugn.
11.3 The real source of Claimants’ grievance is, of course, their dissatisfaction with the outcome of their challenges to the SPR and 80% Requirement. However, “it is common ground that the role of an investment tribunal is not to serve as a court of appeal for national courts.”1172
The fact that a party failed to prove its case does not constitute a denial of justice in violation of international law.
1171 Claimants’ Memorial on the Merits (3 Mar. 2014) (hereinafter “CMM”), ¶¶ 162, 179, 267.
1172 Jan Oostergetel and Theodora Laurentius v. Slovak Republic, UNCITRAL, Final Award (23 Apr. 2012) (Kaufmann-Kohler, Wladimiroff, Trapl) (hereinafter “Oostergetel v. Slovakia”), ¶ 291 (RL-194).
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11.4 Section I of this Chapter addresses the international law standards for a finding of denial of justice. It responds to Claimants’ “Overview of the Denial of Justice Standard,”1173 from which Claimants have conspicuously omitted two important elements: (1) the high threshold a claimant must meet; and (2) the requirement that all available and effective local remedies be exhausted.
11.5 Section II shows that Uruguay’s judicial system is among the best in the world. This fact is widely recognized by neutral observers. The strength of the rule of law in Uruguay is among the main reasons that Uruguay has attracted, and continues to attract, considerable foreign investment.
11.6 Section III demonstrates that Claimants were not in any way denied justice by the TCA’s handling of Abal’s challenge to the SPR. Claimants’ assertion that the TCA rejected Abal’s challenge “without reference to any of Abal’s evidence, arguments, trademarks, or expert legal opinions”1174 is simply wrong. The record is clear that the TCA addressed Abal’s arguments and
the opinions of its experts, and rendered a well-reasoned decision that Claimants dare not dispute
as such. At root, Claimants’ complaint reduces to the fact that the TCA’s decision makes three
passing references to the trademarks of a different company. Such a de minimis oversight does
not begin to approach the high threshold for establishing a denial of justice claim.
11.7 In any event, Claimants failed to exhaust their local remedies. They could have sought a
declaration of unconstitutionality of Article 8 of Law 18,256 — the provision from which the
1173 CMM, ¶¶ 262-266.
1174 Ibid., ¶ 161.
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SPR derives its legal force — from Uruguay’s Supreme Court of Justice (“SCJ”). They did not.
They have therefore failed to meet the prerequisites for asserting their denial of justice claim.
11.8 Section IV details the reasons that Claimants’ denial of justice claim concerning the 80%
Requirement is equally without merit. Claimants’ assertion that the Uruguayan courts
“effectively denied Abal the right to a decision on the legality of the 80/80 requirement”1175 is untenable. The reality is that the TCA received vigorous argumentation from both sides, adjudicated Abal’s claims and dismissed them in a carefully reasoned decision. The mere fact that the TCA did not agree with the reasoning of the SCJ in its decision rejecting Abal’s challenge to the constitutionality of the law on which the 80% Requirement was based does not give rise to a denial of justice under international law. Under Uruguayan law, the TCA and SCJ are co-equal institutions with distinct spheres of competence. The TCA is not bound to follow the SCJ’s reasoning when the latter upholds the constitutionality of a law.
11.9 Finally, Section V addresses the issue of the appropriate remedy for a denial of justice under international law. Although the issue is entirely hypothetical because Claimants have failed to prove that a denial of justice has occurred in this case, Uruguay nevertheless shows that
Claimants have also failed to prove an entitlement to the damages they seek. To show damages, they would have to prove that they more likely than not would have prevailed before the TCA but-for the denials of justice they allege. That is a showing they have not even tried to make; their damages claim is therefore entirely unfounded.
1175 Ibid., ¶ 167.
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11.10 Uruguay’s submissions in this Chapter are supplemented by the reports of three legal experts: (1) Professor Nico Schrijver of Leiden University, Faculty of Law;1176 (2) Professor
Emeritus Lucius Caflisch of the Graduate Institute of International and Development Studies;1177 and (3) Professor Felipe Rotondo, an expert in Uruguayan administrative law from the
University of the Republic.1178 Professor Schrijver’s report addresses the standards applicable to
denial of justice claims under international law and applies those standards to the facts of this
case. Professor Caflisch examines the issue of exhaustion of local remedies in detail and also
applies them to Abal’s challenge to the SPR. And Professor Rotondo explains the issues of
Uruguayan administrative and constitutional law relevant to Claimants’ denial of justice claim
for purposes of emphasizing the absence of any such denial here.
I. The Applicable Standard for a Denial of Justice Claim under International Law
11.11 Claimants’ “Overview of the Denial of Justice Standard”1179 misses two important and
interrelated aspects of a denial of justice claim under international law: (1) the high threshold for
proving the delict; and (2) the requirement that all available and effective local remedies be
exhausted before a claim may be brought before an international court or tribunal. These elements apply no matter what BIT provision a claimant attempts to invoke to establish State responsibility for a denial of justice.
1176 Legal Opinion of Prof. Nico Schrijver (22 Sept. 2014) (hereinafter “Schrijver Opinion”) (REX-008).
1177 Legal Opinion of Prof. Lucius Caflisch (23 Sept. 2014) (hereinafter “Caflisch Opinion”) (REX-006).
1178 Legal Opinion of Dr. Felipe Rotondo (22 Sept. 2014) (hereinafter “Rotondo Opinion”) (REX-007).
1179 CMM, ¶¶ 262-266.
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A. The Denial of Justice Threshold Is High
11.12 Claimants’ statement that a host State breaches its obligation to accord fair and equitable
treatment “when its justice system subjects an investor to fundamentally unfair proceedings”1180 only begins to capture just how high the threshold is for establishing a denial of justice claim in international law. In his monograph on denial of justice, Claimants’ own expert, Professor
Paulsson, refers to “[t]he modern consensus … to the effect that the factual circumstances must be egregious if state responsibility is to arise on the grounds of denial of justice.”1181 In fact, a
State can only be held responsible for a denial of justice “if and when the judiciary breached the standard by fundamentally unfair proceedings and outrageously wrong, final and binding decisions.”1182
11.13 In Oostergetel v. Slovakia, the tribunal referred to the “high threshold reflect[ing] the demanding nature of a claim for a denial of justice in international law,”1183 and stressed that:
To meet the applicable test, it will not be enough to claim that municipal law has been breached, that the decision of a national court is erroneous, that a judicial procedure was incompetently conducted, or that the actions of the judge in question were probably motivated by corruption. A denial of justice implies the failure of a national system as a whole to satisfy minimum standards.1184
1180 Ibid., ¶ 262 (emphasis added).
1181 J. Paulsson, DENIAL OF JUSTICE IN INTERNATIONAL LAW (2005) (hereinafter “Paulsson”), p. 60 (RL-239).
1182 Mr. Franck Charles Arif v. Republic of Moldova, ICSID Case No. ARB/11/23, Award (8 Apr. 2013) (Cremades, Hanotiau, Knieper) (hereinafter “Arif v. Moldova”), ¶ 445 (emphasis added) (CLA-229).
1183 Oostergetel v. Slovakia, ¶ 291 (RL-194).
1184 Ibid., ¶ 273 (emphasis added). See also Jan de Nul N.V. v. Arab Republic of Egypt, ICSID Case No. ARB/04/13, Award (6 Nov. 2008) (Kaufmann-Kohler, Mayer, Stern) (hereinafter “Jan de Nul”), ¶ 209 (RL-181); Vannessa Ventures Ltd. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/04/6, Award (16 Jan. 2013) (Lowe,
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11.14 As Professor Schrijver states in his expert opinion:
A finding of a denial of justice requires demonstration of systemic injustice, which cannot be proven by evidence of minor shortcomings in the organization and conduct of domestic judicial proceedings.1185
11.15 Professor Schrijver adds that showing such a fundamental failure of a State’s system of justice “imposes a very heavy burden of proof, which in practice is rarely met by a claimant.”1186
Indeed, “the claim of denial of justice imposes a more stringent standard of proof than that applicable to alleged breaches of other investment protection standards.”1187
11.16 Only clear and convincing evidence will suffice to meet a claimant’s burden of proving sufficiently egregious conduct to warrant a finding of a denial of justice.1188 Judge Greenwood
Brower, Stern) (hereinafter “Vannessa Ventures v. Venezuela”), ¶ 227 (RL-203); Iberdrola Energía S.A. v. Republic of Guatemala, ICSID Case No. ARB/09/5, Award (17 Aug. 2012) (Zuleta, Oreamuno, Derains) (hereinafter “Iberdrola v. Guatemala”), ¶¶ 491-492 (RL-199).
1185 Schrijver Opinion, ¶ 30 (REX-008).
1186 Ibid., ¶ 14.
1187 Ibid., ¶ 31.
1188 United States of America (B. E. Chattin) v. United Mexican States, United States-United Mexican States Claims Commission, Arbitral Award (23 July 1927), 4 U.N.R.I.A.A. 282, p. 288 (stating that “convincing evidence is necessary to fasten liability” for denial of justice) (emphasis added) (CLA-242); El Oro Mining and Railway Company Ltd. (Great Britain) v. United Mexican States, British-Mexican Claims Commission, Decision No. 55 (18 June 1931), 5 U.N.R.I.A.A. 191, p. 198 (“It is obvious that such a grave reproach can only be directed against a judicial authority upon evidence of the most convincing nature.”) (emphasis added) (RL-140); Vannessa Ventures v. Venezuela, ¶ 228 (RL-203). This elevated standard of proof is further acknowledged in the Mondev case, cited with approval at paragraph 266 of Claimants’ Memorial. See Mondev International Ltd. v. United States of America, ICSID Case No. ARB(AF)/99/2, Award (11 Oct. 2002) (Stephen, Crawford, Schwebel) (hereinafter “Mondev”), ¶ 127 (“In the end the question is whether, at an international level and having regard to generally accepted standards of the administration of justice, a tribunal can conclude in the light of all the available facts that the impugned decision was clearly improper and discreditable, with the result that the investment has been subjected to unfair and inequitable treatment.”) (emphasis added) (RL-117).
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has explained: “Only if there is clear evidence of discrimination against a foreign litigant or an outrageous failure of the judicial system is there a denial of justice in international law.”1189
11.17 This elevated standard of proof reflects the grave nature of the allegation. Under international law, “the graver the charge the more confidence must there be in the evidence relied on.”1190 And a charge of denial of justice is among the gravest there is. In the words of Judge
Tanaka in his Separate Opinion in the Barcelona Traction case:
It is an extremely serious matter to make a charge of a denial of justice vis-à-vis a State. It involves not only the imputation of a lower international standard to the judiciary of the State concerned but a moral condemnation of that judiciary.1191
11.18 The demanding nature of the claim means that misapplications of municipal law or erroneous factual findings do not, per se, give rise to a denial of justice.1192 In addition, as
1189 C. Greenwood, State Responsibility for the Decisions of National Courts in ISSUES OF STATE RESPONSIBILITY BEFORE INTERNATIONAL JUDICIAL INSTITUTIONS 58 (M. Fitzmaurice et al eds., 2004) (hereinafter “Greenwood”) (emphasis added) (RL-234).
1190 Oil Platforms case (Islamic Republic of Iran v. United States of America), Judgment (6 Nov. 2003), Separate Opinion of Judge Higgins, I.C.J. Rep. 2003, p. 225, p. 234, ¶ 33 (RL-159). See also Application of the Convention on the Prevention and Punishment of the Crime of Genocide (Bosnia and Herzegovina v. Serbia and Montenegro), Judgment (26 Feb. 2007), I.C.J. Rep. 2007, p. 43, ¶ 209 (stating that it “has long recognized that claims against a State involving charges of exceptional gravity must be proved by evidence that is fully conclusive.”) (emphasis added) (RL-173).
1191 Barcelona Traction, Light and Power Company, Limited (Belgium v. Spain), Judgment, Separate Opinion of Judge Tanaka (5 Feb. 1970), I.C.J. Reports 1970, p. 114 (hereinafter “Barcelona Traction, Separate Opinion of Judge Tanaka”), p. 160 (RL-144).
1192 Charles De Visscher, Le déni de justice en droit international, 54 RECUEIL DES COURS 370 (1935), p. 376 (“The mere violation of internal law may never justify an international claim based on denial of justice.”) (Uruguay’s Counsel’s translation) (CLA-162); The Loewen Group, Inc. and Raymond L. Loewen v. United States of America, ICSID Case No. ARB(AF)/98/3, Award (26 June 2003) (Mason, Mikva, Mustill) (hereinafter “Loewen”), ¶ 189 (rejecting claims that the Mississippi court’s refusal to relax bonding requirements constituted a denial of justice and thereby violated NAFTA Article 1105 because “[i]t was at worst an erroneous or mistaken decision.”) (CLA-169); Alps Finance and Trade AG v. The Slovak Republic, UNCITRAL, Award (5 Mar. 2011) (Crivellaro, Stuber, Klein) (hereinafter “Alps Finance v. Slovakia”), ¶¶ 249-250 (“Claimant seems to assume that international law prohibits ‘wrong’ judiciary decisions as such and that the State becomes automatically responsible in international law if one of its courts has made a decision which is (possibly) wrong under municipal law …. What international law
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Professor Schrijver explains: “The principle that mere misapplication of domestic law does not entail the responsibility of the State is the logical consequence of the fact that the standard of conduct imposed by international law is, essentially, independent from the question of legality under domestic law.”1193
11.19 Judge Jimenez de Aréchaga, the former Uruguayan ICJ President, explained that, for international responsibility to arise as a result of misapplication of municipal law, such misapplication must be “flagrant and inexcusable.”1194 Moreover, according to Sir Gerald
Fitzmaurice:
[T]he element of bad faith must be present, and it must be clear that the court was actuated by bias, by fraud, or by external pressure, or was not impartial; or the judgment must be such as no court which was both honest and competent could have delivered.1195
prohibits is not a possible error in law, but a system of justice which falls below a minimum standard so as to lead to an inevitable denial of justice.”) (CLA-005); Oostergetel v. Slovakia, ¶ 299 (“The BIT does not grant protection for mere breaches of local procedural law ….”) (RL-194); RosInvestCo UK Ltd. v. The Russian Federation, SCC Case No. V 079/2005, Final Award (12 Sept. 2010) (Böckstiegel, Steyn, Berman) (hereinafter “RosInvestCo”), ¶ 275 (“The Tribunal stresses that the threshold of the international delict of denial of justice is high and goes far beyond the mere misapplication of domestic law”) (CLA-139); Sergei Paushok, et al. v. The Government of Mongolia, UNCITRAL, Award on Jurisdiction and Liability (28 Apr. 2011) (Lalonde, Grigera Naón, Stern) (hereinafter “Paushok v. Mongolia”), ¶ 628 (RL-75); Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/07/14, Award (22 June 2010) (Böckstiegel, Hober, Crawford) (hereinafter “Liman Caspian v. Kazakhstan”), ¶ 274 (RL-188).
1193 Schrijver Opinion, ¶ 16 (REX-008).
1194 E. Jiménez de Aréchaga, General Course in Public International Law, in RECUEIL DES COURS: COLLECTED COURSES OF THE HAGUE ACADEMY OF INTERNATIONAL LAW 1978, Vol. 159 (1979) (hereinafter “Jiménez de Aréchaga”), p. 281 (RL-220).
1195 G. Fitzmaurice, The Meaning of the Term Denial of Justice, 13 BRIT. Y. B. INT’L L. 93 (1932), pp. 110-11 (CLA-165). See also Barcelona Traction, Separate Opinion of Judge Tanaka, p. 158 (RL-144); Jiménez de Aréchaga, p. 282 (RL-220).
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11.20 Professor Schrijver observes that it is therefore “not [the] proper role [of international courts and tribunals] to act as supranational courts of appeal.”1196 Here too, Professor Paulsson agrees: “[T]he objective of the international adjudicator is never to conduct a substantive review” of a national court’s decision.1197 Thus, investment arbitration tribunals have consistently refused requests by claimants to engage in a re-adjudication of the municipal courts’ application of municipal law.1198
11.21 In Mondev v. U.S., for example, the claimant argued that the decision of the
Massachusetts Supreme Judicial Court at issue constituted a denial of justice because it was “a
‘significant and serious departure’ from [the Court’s] previous jurisprudence.”1199 The tribunal resisted the claimant’s invitation to review the decision, noting:
1196 Schrijver Opinion, ¶ 17 (REX-008).
1197 Paulsson, p. 84 (emphasis in original) (RL-239).
1198 See, e.g., Loewen, ¶ 134 (“Whether the conduct of a trial amounted to a breach of municipal law as well as international law is not for us to determine. A NAFTA claim cannot be converted into an appeal against the decisions of municipal courts.”) (CLA-169); RosInvestCo, ¶ 275 (“The Tribunal emphasises again that an international arbitration tribunal, and also this Tribunal dealing with alleged breaches of the [UK/USSR bilateral investment treaty], is not an appellate body and its function is not to correct errors of domestic procedural or substantive law which may have been committed by the national courts.”) (CLA-139); Oostergetel v. Slovakia, ¶¶ 291, 299 (“[T]he task of the Tribunal is to determine if the outcome of the bankruptcy proceedings is discreditable and offensive to judicial propriety. This high threshold reflects the demanding nature of a claim for a denial of justice in international law. It is indeed common ground that the role of an investment tribunal is not to serve as a court of appeal for national courts. … The BIT does not grant protection for mere breaches of local procedural law nor does it open an extraordinary appeal from the decisions of municipal courts.”) (RL-194); Apotex Inc. v. United States of America, UNCITRAL, Award on Jurisdiction and Admissibility (14 June 2013) (Landau, Davidson, Smith) (hereinafter “Apotex”), ¶ 278 (“[A]s a general proposition, it is not the proper role of an international tribunal established under NAFTA Chapter Eleven to substitute itself for the U.S. Supreme Court, or to act as a supranational appellate court.”) (RL-205); Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award (30 Apr. 2004) (Crawford, Civiletti, Magallón Gómez), ¶ 129 (“Turning to the actual reasons given by the federal courts, the Tribunal would observe that it is not a further court of appeal, nor is Chapter 11 of NAFTA a novel form of amparo in respect of the decisions of the federal courts of NAFTA parties.”) (CLA-225).
1199 Mondev, ¶¶ 131, 135 (RL-117).
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[I]t is not the function of NAFTA tribunals to act as courts of appeal. As a NAFTA tribunal pointed out in Azinian v. United Mexican States:
The possibility of holding a State internationally liable for judicial decisions does not, however, entitle a claimant to seek international review of the national court decisions as though the international jurisdiction seised has plenary appellate jurisdiction. This is not true generally, and it is not true for NAFTA.1200
The tribunal observed further that the issues claimants pointed to were ones “which all legal
systems have to face.”1201
11.22 A necessary corollary of investment tribunals’ lack of competence “to determine whether
domestic court’s judgments have been rendered in conformity with the applicable domestic law”1202 is that they cannot substitute their own interpretation of national law for that of national
courts.
11.23 This principle is uncontroversial in investment treaty arbitration practice,1203 all the more
when the pertinent domestic law questions are complex or controversial. In Arif v. Moldova, the investor’s claims of procedural denial of justice included the allegation that Moldovan courts unduly exercised jurisdiction over contested acts.1204 The arbitral tribunal took note of the
different interpretations of the underlying statutes offered by the parties, and observed that it was
“confronted with a complex question of Moldovan law,” which was “answered differently and
1200 Ibid., ¶ 126 (quoting Robert Azinian, Kenneth Davitian, and Ellen Baca v. The United Mexican States, ICSID Case No. ARB(AF)/97/2, Award (1 Nov. 1999) (Paulsson, Civiletti, von Wobeser), ¶ 99).
1201 Mondev, ¶ 133 (RL-117).
1202 Schrijver Opinion, ¶ 17 (REX-008).
1203 See, e.g., Mondev, ¶ 126 (RL-117).
1204 Arif v. Moldova, ¶¶ 474-477 (CLA-229).
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contradictorily by the judiciary and by learned experts on Moldovan law.”1205 It further noted:
“Both interpretations are based on arguments and on the words and the objectives of the law.”1206
Under the circumstances, the tribunal determined that “taking sides” on the controversy was beyond its competence, lest it sit as “a court of appeal over decisions of the Moldovan judiciary.”1207 Instead, the tribunal limited its role “to determin[ing] whether the judiciary has denied justice by applying procedures that are so void of reason that they breathe bad faith.”1208
Applying that standard, it found no denial of justice.
B. All Available and Effective Local Remedies Must Be Exhausted
11.24 In order to establish Uruguay’s liability for a denial of justice, Claimants must also have exhausted all reasonably available and effective local remedies.1209 As Professor Paulsson has written elsewhere, “the very definition of the delict of denial of justice encompasses the notion of exhaustion of local remedies. There can be no denial before exhaustion.”1210
1205 Ibid., ¶ 481.
1206 Ibid.
1207 Ibid.
1208 Ibid., ¶ 482 (emphasis added).
1209 Caflisch Opinion, ¶ 12 (“[I]n certain contexts, the rule of exhaustion of local remedies serves as a requirement of substance rather than of procedure. This is the case of denial of justice under international law. The establishment of international responsibility arising from the conduct of a State’s judiciary requires that the claimant party first have exhausted reasonably available and effective local remedies.”) (REX-006); Schrijver Opinion, ¶ 33 (“[T]he principle of judicial finality is a substantive element of any denial of justice claim, which implies that the responsibility of the State for the acts of its judiciary cannot be invoked before all available local remedies are exhausted.”) (REX-008).
1210 Paulsson, p. 111 (emphasis added) (RL-239). See also ibid., p. 100 (“International law attaches state responsibility for judicial action only if it is shown that there was no reasonably available national mechanism to correct the challenged action.”) (emphasis added); see also Pantechniki S.A. Contractors & Engineers (Greece) v. Republic of Albania, ICSID Case No. ARB/07/21, Award (30 July 2009) (Paulsson, sole arbitrator), ¶ 96 (“Denial of justice does not arise until a reasonable opportunity to correct aberrant judicial conduct has been given to the system as a whole.”) (CLA-048). See further Greenwood, p. 61 (RL-234).
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11.25 Indeed, this rule is so fundamental that the tribunal in Loewen v. U.S. noted that there has
been no instance in which “an international tribunal has held a State responsible for a breach of
international law constituted by a lower court decision where there was available an effective and
adequate appeal within the State’s legal system.”1211 The tribunal stated further:
The purpose of the requirement that a decision of a lower court be challenged through the judicial process before the State is responsible for a breach of international law constituted by judicial decision is to afford the State the opportunity of redressing through its legal system the inchoate breach of international law occasioned by the lower court decision.1212
11.26 The Arif v. Moldova tribunal similarly ruled that:
as long as the judicial system is not tested as a whole, the fair and equitable treatment standard is not violated via a denial of justice. The State does not mistreat a foreign investor unfairly and inequitably by a denial of justice through an appealable decision of a first instance court, but only through the final product of its administration of justice which the investor cannot escape.1213
11.27 As Professor Caflisch explains in his expert report, the exhaustion requirement in a denial
of justice case “is identical in all respects with that applied in the context of diplomatic
protection, except that exhaustion is now being considered a matter of substance rather than of
1211 Loewen, ¶ 154 (CLA-169).
1212 Ibid., ¶ 156. See also Jiménez de Aréchaga, p. 292 (“The foundation of this rule is the respect due to the sovereignty and domestic jurisdiction of the State competent to deal with the question through its judicial or other organs.”) (RL-220).
1213 Arif v. Moldova, ¶ 443 (emphasis added) (CLA-229). See also Alps Finance v. Slovakia, ¶ 251 (CLA-005); Toto Costruzioni Generali S.p.A. v. Republic of Lebanon, ICSID Case No. ARB/07/12, Decision on Jurisdiction (11 Sept. 2009) (van Houtte, Feliciani, Moghaizel), ¶ 164 (RL-80); ATA Construction, Industrial and Trading Company v. The Hashemite Kingdom of Jordan, ICSID Case No. ARB/08/2, Award (18 May 2010), ¶ 107 (CLA-080); Apotex, ¶¶ 281-282 (RL-205); Jan de Nul, ¶¶ 258-259 (RL-181).
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admissibility.”1214 As a result, international law requires the exhaustion of any and all remedies that are “reasonably available” and “effective.”
11.28 A remedy is considered “reasonably available” if it can be pursued by the claimant without difficulties or impediments in the circumstances of the particular case. The Loewen tribunal stated: “Availability is not a standard to be determined or applied in the abstract.”1215
Rather, a remedy must be “reasonably available to the complainant in the light of its situation, including its financial and economic circumstances as a foreign investor, as they are affected by any conditions relating to the exercise of any local remedy.”1216
11.29 A remedy is “effective” if it can rectify the situation created by an alleged denial of justice.1217
11.30 The lone exception is for local remedies that are obviously futile,1218 but the burden is on the claimant to demonstrate such obvious futility.1219 As observed by the tribunal in Apotex v.
U.S., the threshold for establishing futility is a “high one”:1220
1214 Caflisch Opinion, ¶ 13 (REX-006). See also Loewen, ¶ 159 (stressing that although they serve different purposes, the principle of judicial finality and the exhaustion of local remedies rule of admissibility of international claims are “similar in content”) (CLA-169).
1215 Loewen, ¶ 169 (CLA-169).
1216 Ibid.
1217 The Ambatielos Claim (Greece, United Kingdom of Great Britain and Northern Ireland), Award (6 Mar. 1956), 12 U.N.R.I.A.A. 83 (hereinafter “Ambatielos”), p. 119 (RL-44).
1218 Schrijver Opinion, ¶ 35. See also Claim of Finnish shipowners against Great Britain in respect of the use of certain Finnish vessels during the war (Finland, Great Britain), Award (9 May 1934), 3 U.N.R.I.A.A. 1479, p. 1505 (“The local remedy shall be considered to be ineffective only where recourse is obviously futile”) (emphasis added) (CLA-030). See also Ambatielos, p. 119 (“The views expressed by writers and in judicial precedents, however, coincide in that the existence of remedies which are obviously ineffective is held not to be sufficient to justify the application of the rule.”) (emphasis added) (RL-44); Apotex, ¶ 268 (“The key issue is therefore the basis upon which
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Because each judicial system must be allowed to correct itself, the “obvious futility” exception must be construed narrowly. It requires an actual unavailability of recourse, or recourse that is proven to be “manifestly ineffective” – which, in turn, requires more than one side simply proffering its best estimate or prediction as to its likely prospects of success, if available recourse had been pursued.
…
It is not enough, therefore, to allege the “absence of a reasonable prospect of success or the improbability of success, which are both less strict tests.” In the (frequently quoted) words of Professor Borchard, a claimant is not: “relieved from exhausting his local remedies by alleging … a pretended impossibility or uselessness of action before the local courts.”1221
11.31 The duty to exhaust local remedies is not confined to remedies found in the ordinary path of justice. A claimant must resort to extraordinary remedies as well, provided only that, like any other, they are “reasonably available” and capable of providing effective redress.1222
Apotex elected not to exhaust all available remedies, and whether such remedies were (according to the Parties’ common test) ‘obviously futile.’”) (emphasis in original) (RL-205); Jiménez de Aréchaga, p. 294 (RL-220).
1219 Schrijver Opinion, ¶ 36 (REX-008). Moreover, “the showing of the ineffectiveness or futility of a prior recourse to local remedies demands evidence with sufficient probative value.” Ibid., ¶ 37.
1220 Apotex, ¶ 279 (RL-205).
1221 Ibid., ¶¶ 284-285 (emphasis in original). See also Duke Energy Electroquil Partners & Electroquil S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 Aug. 2008) (Kaufmann-Kohler, van den Berg, Gómez Pinzón), ¶ 401 (“Lack of clarity is not sufficient to demonstrate that a remedy is futile.”) (emphasis added) (CLA-098); C. Amerasinghe, LOCAL REMEDIES IN INTERNATIONAL LAW (2004) (hereinafter “Amerasinghe”), p. 209 (“The inadequacy of the remedy for the specific object must be proven beyond reasonable doubt.”) (emphasis added) (RL-235).
1222 This principle may also be seen as a natural corollary of the systemic nature of denial of justice. As the Loewen tribunal held, the requirement of exhaustion of local remedies “afford[s] the State the opportunity of redressing through its legal system the inchoate breach of international law occasioned by the lower court decision.” Loewen, ¶ 156 (CLA-169). To this end, “[i]t is the whole system of legal protection, as provided by municipal law, which must have been put to the test.” Ambatielos, p. 120 (emphasis added) (RL-44). See also Apotex, ¶ 282 (“A claimant cannot raise a claim that a judicial act constitutes a breach of international law, without first proceeding through the judicial system that it purports to challenge, and thereby allowing the system an opportunity to correct itself.”) (emphasis added) (RL-205). In his treatise on denial of justice in international law, Claimants’ expert Professor Paulsson has similarly written that “States are held to an obligation to provide a fair and efficient system of justice,
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11.32 Article 14.2 of the ILC’s Draft Articles on Diplomatic Protection, which reflects general international law, prescribes that the duty to exhaust encompasses legal remedies that are “open
to an injured person before the judicial or administrative courts or bodies, whether ordinary or
special, of the State alleged to be responsible for causing the injury.”1223 Professor Caflisch
explains: “This definition encompasses the whole gamut of domestic judicial remedies, i.e. all
the means for settling disputes by applying rules of law … all legal remedies in law, including
appeals, ordinary and extraordinary, even if there is no right of appeal, provided that leave to
appeal has not been refused.”1224 Professor Schrijver agrees: “For purposes of the local remedies rule, all types of remedies can be taken into consideration, including those of a procedural nature.”1225
11.33 The case-law of the European Court of Human Rights (“ECtHR”) confirms that the
obligation to exhaust local remedies carries with it the duty to bring the matter before
constitutional courts, provided that the latters’ action will be effective, i.e. capable of bringing relief to individual claimants. Professor Caflisch refers in his report to the Sürmeli case, decided during his tenure as Judge on the Court:
The case of Sürmeli v. Germany raised a length-of-proceedings problem under Article 6 of the ECHR. The ECtHR found that the applicant had been under no obligation to submit his case to the German Constitutional Court because the latter had no means to
not to an undertaking that there will never be an instance of judicial misconduct.” Paulsson, p. 100 (emphasis in original) (RL-239). Accordingly, “[n]ational responsibility for denial of justice occurs only when the system as a whole has been tested and the initial delict has remained uncorrected.” Ibid., p. 125 (emphasis added).
1223 International Law Commission, Draft articles on Diplomatic Protection (2006), Art. 14(2) (emphasis added) (RL-132).
1224 Caflisch Opinion, ¶ 16 (emphasis in original) (REX-006).
1225 Schrijver Opinion, ¶ 34 (REX-008).
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make the lower courts speed up proceedings except by exhorting them to do so. If it had had such means, the situation would have been different.1226
11.34 The U.N. Human Rights Committee has likewise stated:
In addition to ordinary judicial and administrative appeals, [claimants] must also avail themselves of all other judicial remedies, including constitutional complaints, to meet the requirement of exhaustion of all available domestic remedies, insofar as such remedies appear to be effective in the given case and are de facto available to a [claimant].1227
11.35 In his leading monograph on exhaustion of local remedies in international law, Professor
Amerasinghe writes that the extraordinary nature of constitutional remedies “does not affect the
requirement of exhaustion because the answer to the question of whether the remedy should have been exhausted depend[s] entirely on whether the remedy was adequate and effective.”1228
Accordingly, “constitutional appeals are per se within the concept of remedies to be exhausted, although in given circumstances they may not be subject to exhaustion for other reasons.”1229
11.36 In sum, the prior exhaustion of local remedies is an intrinsic and essential requirement to a successful denial of justice claim. The requirement encompasses all reasonably available and effective remedies, regardless of their nature.
1226 Caflisch Opinion, ¶ 17 (discussing Sürmeli v. Germany, Eur. Ct. H.R. Application No. 75529/01, Judgment (8 June 2006) (RL-168)) (REX-006).
1227 U.N. Human Rights Committee (UNHRC), Gilberg v. Germany, Communication No. 1403/2005, U.N. Doc. CCPR/C/87/D/1403/2005 (25 July 2006), ¶ 6.5 (citing U.N. Human Rights Committee (UNHRC), P.L. v. Germany, Communication No. 1003/2001, U.N. Doc. CCPR/C/79/D/1003/2001 (22 Oct. 2003), ¶ 6.5 (RL-158); U.N. Human Rights Committee (UNHRC), Riedl-Riedenstein, et al. v. Germany, Communication No. 1188/2003, U.N. Doc. CPR/C/82/D/1188/2003 (2 Nov. 2004), ¶ 7.2 (RL-161)) (emphasis added) (RL-170).
1228 Amerasinghe, p. 313 (emphasis added) (RL-235).
1229 Ibid., p. 316 (emphasis added).
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C. The Elements of a Denial of Justice Claim under an FET Clause Are No Different
11.37 The legal principles outlined above apply regardless of the BIT provision invoked.
Claimants appear to suggest otherwise when they assert that “excessive deference to the host
State’s judiciary is inappropriate, particularly under the fair and equitable treatment
standard.”1230 A number of tribunals have rejected similar arguments.
11.38 In Paushok v. Mongolia, for example, the tribunal held: “It is well established that the obligation to grant fair and equitable treatment also extends to the judiciary but it is also well established that arbitral tribunals have set the bar rather high before finding denial of justice as a BIT breach.”1231 In a like vein, the tribunal in Iberdrola v. Guatemala stressed that, even
though the applicable BIT standard derived from the obligation to provide fair and equitable
treatment, this “does not mean, per se, as Iberdrola argued, that the standard of denial of justice
of the Treaty is broader than that of customary international law.”1232
11.39 Claimants seek support for their assertion in Arif v. Moldova. Yet, as shown above,1233 that award only underscores the weight of the burden Claimants bear. To be sure, the tribunal in that case did express its view (albeit without citation to any authority) that the “previous conviction … that acts of the judiciary had to be judged with more ‘delicacy’ and
1230 CMM, p. 118 n. 331.
1231 Paushok v. Mongolia, ¶ 625 (RL-75) (emphasis added). See also ibid., ¶ 626 (“After a review of the Mongolian court decisions concerned, the Tribunal cannot conclude that any of those decisions can be seen as so erroneous as to lead to a denial of justice or a manifest failure of justice in judicial proceedings.”) (emphasis added).
1232 Iberdrola v. Guatemala, ¶ 427 (emphasis added) (RL-199).
1233 See supra ¶ 11.12.
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circumscription than acts committed by the other branches of government, is obsolete.”1234
However, the tribunal emphasized that its statement was subject to an important caveat; 1235 namely that:
international tribunals must refrain from playing the role of ultimate appellate courts. They cannot substitute their own application and interpretation of national law to the application by national courts. It would blur the necessary distinction between the hierarchy of instances within the national judiciary and the role of international tribunals if “[a] simple difference of opinion on the part of the international tribunal is enough” to allow a finding that a national court has violated international law. The opinion of an international tribunal that it has a better understanding of national law than the national court and that the national court is in error, is not enough. In fact – as Claimant formulated – arbitral tribunals cannot “put themselves in the shoes of international appellate courts.”1236
11.40 Significantly, the tribunal in Arif reviewed the alleged errors by the Moldovan courts to determine if they resulted in “fundamentally unfair proceedings” or “outrageously wrong, final
and binding decisions.”1237 In other words, it applied the high standard required by international law, and it found no denial of justice.
11.41 The exhaustion of local remedies requirement also applies equally to all denial of justice claims, regardless of which BIT provision is alleged to have been violated. In Loewen, the
tribunal held that the requirement of judicial finality “has application to breaches of Articles
1234 Arif v. Moldova, ¶ 439 (CLA-229).
1235 The tribunal recognized another caveat: local remedies must be exhausted prior to engaging the responsibility of a State under international law for a denial of justice. See ibid., ¶¶ 442-443. See also infra ¶¶ 11.24-11.36.
1236 Arif v. Moldova, ¶ 441 (citing Paulsson, p. 72 (RL-239)) (first emphasis added) (second and third emphases in original) (CLA-229).
1237 Arif v. Moldova, ¶ 445 (CLA-229).
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1102 [national treatment] and 1110 [expropriation] as well as Article 1105 [minimum standard
of treatment, including fair and equitable treatment and full protection and security] [of
NAFTA].”1238
11.42 In Jan de Nul v. Egypt, the claimant attempted to bypass the exhaustion requirement by
alleging that “an unjust judgment of a lower court may per se constitute unfair and inequitable treatment and, therefore, denial of justice without any prior conditions being met.”1239 The
tribunal rejected this argument, finding:
The respondent State must be put in a position to redress the wrongdoings of its judiciary. In other words, it cannot be held liable unless “the system as a whole has been tested and the initial delict remained uncorrected.” An exception to this rule may be made when there is no effective remedy or “no reasonable prospect of success,” which was not argued by the Claimants.1240
11.43 Ruling otherwise, the tribunal said, “would allow to circumvent the standards of denial of
justice.”1241 In Oostergetel v. Slovakia, the tribunal found that the FET provision of the
applicable BIT included the concept of denial of justice, but observed that the exhaustion
principle “applie[d] to both substantive and procedural denial of justice.”1242 Reflecting on this
1238 Loewen, ¶ 156 (CLA-169).
1239 Jan de Nul, ¶ 259 (RL-181).
1240 Ibid., ¶ 258.
1241 Ibid., ¶ 191.
1242 Oostergetel v. Slovakia, ¶¶ 272, 275, 298 (RL-194); see also Arif v. Moldova, ¶ 442 (CLA-229).
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jurisprudence, Professor Schrijver concludes: “As a substantive element, the principle of finality applies equally to claims based on the distinct fair and equitable treatment standard.”1243
II. The Uruguayan Judiciary Is Recognized as One of the Best in the World
11.44 Claimants’ allegations that Uruguay denied them justice must be put in proper context:
Uruguay’s judicial system, and its commitment to the rule of law, are widely recognized as among the best, not just in South America, but in the world.
11.45 According to the Inter-American Development Bank, for example, “Uruguay is a mature democracy with solid public institutions and a stable political system. Its judiciary system is independent, rule of law is firmly embedded in the country’s national culture, and legal safeguards are broadly observed.”1244 In 2012, the World Bank ranked Uruguay first in the
region for political stability,1245 second for rule of law,1246 and fifth for regulatory quality.1247
11.46 In its “Rule of Law Index 2014,” the World Justice Project similarly stated of Uruguay:
1243 Schrijver Opinion, ¶ 10 (REX-008).
1244 Inter-American Development Bank (IDB), “Uruguay: A Perspective,” available at http://www.iadb.org/en/mapamericas/uruguay/uruguay-a-perspective,5979.html (last visited 23 Aug. 2014) (emphasis added) (R-314).
1245 The World Bank, “Worldwide Governance Indicators: Uruguay” (27 Sept. 2013), available at http://info.worldbank.org/governance/wgi/index.aspx#reports (last visited 22 Aug. 2014) (hereinafter “The World Bank, ‘Worldwide Governance Indicators: Uruguay’”) (R-276). This variable captures perceptions of the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including politically- motivated violence and terrorism.
1246 Ibid. This variable captures perceptions of confidence in and abidance by the rules of society, and in particular the quality of contract enforcement, property rights, the police and the courts, as well as the likelihood of crime and violence.
1247 Ibid. This variable captures perceptions of the government’s ability to formulate and implement sound policies and regulations that permit and promote private sector development.
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Uruguay is the highest-ranked country in Latin America, at 20th overall, showing a stable performance since last year. The country scores relatively well on government accountability (ranking 18th globally) and absence of corruption (ranking 19th overall and first in the region). Administrative agencies are effective in enforcing regulations and civil courts are independent, accessible, and free of improper influence.1248
11.47 The U.S. Department of State has highlighted the strength of the investment climate in
Uruguay, including the quality of the legal system:
The Government of Uruguay has traditionally recognized the important role foreign investment plays in economic development and worked to maintain a favorable investment climate. … [T]here is neither de jure nor de facto discrimination toward investment by source or origin, and national and foreign investors are treated equally. … Secured interests in property and contracts are recognized and enforced.1249
11.48 Uruguay also ranks high in Transparency International’s Corruption Transparency Index, which evaluates countries and territories based upon perceived corruption in the public sector. In
2013, Uruguay was ranked best in Latin America in terms of transparency and 19th in the world
— tied with the United States.1250 The World Bank, which produces a similar classification for governments’ control of corruption, ranked Uruguay second in the region, with a score of 87.56
1248 The World Justice Project, Rule of Law Index 2014 (2014), p. 49 (emphasis added) (R-283).
1249 United States Department of State, Bureau of Economic and Business Affairs, 2013 Investment Climate Statement – Uruguay (Feb. 2013) (emphasis added), p. 9 (R-271).
1250 Transparency International, “Corruption by Country: Uruguay” (2014), available at http://www.transparency.org/country#URY (last visited 13 Aug. 2014) (R-284). Transparency International’s index is composite, “drawing on corruption-related data from expert and business surveys carried out by a variety of independent and reputable institutions. Countries are scored from 0 (highly corrupt) to 100 (very clean).” Uruguay scored 73 in 2013. Ibid.
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out of 100 in 2012.1251 The U.S. State Department has observed that Uruguayan law establishes
criminal penalties for official corruption and the government enforces these laws effectively.1252
11.49 Uruguay’s strong performance in the administration of justice and rule of law has
attracted increasing volumes of foreign investment to the country. In particular, the last decade
has seen a surge in foreign direct investment (“FDI”), with annual inflows virtually doubling
from 2.4% of GDP in 2004 to 4.7% in 2011.1253 In contrast to many of its neighboring States,
foreign investment in Uruguay was not affected by the recent global economic crisis (with the
exception of a relatively small drop in FDI in 2008).1254 Contrary to the regional trend, Uruguay
has received “unusually large-scale investments,” including a US$2.6 billion pulp mill from a
Finnish-Swedish-Chilean company.1255
11.50 These investments are tangible endorsements of Uruguay’s investor-friendly regulatory
climate, and the security provided by its commitment to the rule of law.
1251 The World Bank, “Worldwide Governance Indicators: Uruguay” (R-276). The percentile rank captures perceptions of corruption of all forms, as well as “capture” of the state by elites and private interests. Ibid.
1252 United States Department of State, Bureau of Democracy, Human Rights and Labor, Uruguay 2013 Human Rights Report (2013), p. 9 (R-269).
1253 Ibid.
1254 Ibid.
1255 Ibid.
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III. The TCA Did Not Deny Claimants Justice When It Rejected Abal’s Challenge To the SPR
11.51 Claimant Abal presented its administrative challenge to the SPR to the Ministry of Public
Health on 18 September 2008, prior to the implementation of the measure.1256 The challenge was rejected by operation of law when the Ministry did not rule on it within 120 days.1257 Abal then filed an action in the TCA seeking the annulment of the SPR.1258
11.52 Abal made three principal arguments for annulling the SPR. First, it argued that it was
“manifestly illegal because it exceeds the Law 18,256 and the Decree 284 and is inconsistent with them.”1259 Second, it argued that the SPR should be revoked because the Ministry was not empowered to create the SPR.1260 Third, it claimed that it “violates the principle of reserva de la ley,”1261 which posits that fundamental rights may be limited only through the law. Each of these arguments was duly rejected by the TCA.
1256 Abal’s Administrative Opposition against Ordinance 514 (18 Sept. 2008) (C-035).
1257 Rotondo Opinion, ¶ 9 (REX-007).
1258 Abal’s Request for Annulment of Ordinance 514 before the TCA (9 June 2009) (hereinafter “Abal’s Request for Annulment of Ordinance 514”) (C-041). As Professor Rotondo explains, although it is not part of the Judiciary in Uruguay, the TCA is a body with judicial powers, “created to be in charge of the control of legality in all the Uruguayan Government.” Rotondo Opinion, ¶¶ 5-7 (REX-007). In particular, the TCA is entrusted with jurisdiction “to hear the cases of actions for annulment of final administrative acts issued by any Government entity which are contrary to a ‘legal rule’ ….” Ibid., ¶ 6. A legal rule is considered “to include any legal principle, constitutional, legal, regulatory or contractual rule.” Ibid. The TCA is called to “annul[] or confirm[] the challenged administrative acts, without modifying them.” Ibid.
1259 Abal’s Request for Annulment of Ordinance 514, p. 11, § IV.A (C-041).
1260 Ibid., p. 18, § IV.B.
1261 Ibid., p. 25, § IV.C.
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11.53 As described in greater detail below, the TCA took note of each of these arguments at the outset of its 14 June 2011 decision,1262 and denied them in a reasoned opinion that upheld the
legality of the SPR.1263
11.54 Unsatisfied, Abal filed a motion for clarification and expansion of the TCA’s decision on
24 August 2011.1264 In it, Abal argued that the TCA’s judgment was erroneous because it was
allegedly “based on [different] facts and evidence.”1265 Abal premised its argument on the fact
that the TCA decision contained three references to the trademarks of a different company,
BAT.1266 Notably, the motion did not argue that the TCA had failed to address Abal’s legal arguments.
11.55 On 29 September 2011, the TCA rejected Abal’s motion, ruling that Abal’s complaints did not satisfy any of the statutory grounds available for the clarification and expansion of a TCA judgment.1267
11.56 Claimants now argue that the TCA rejected Abal’s challenge to the SPR “without reference to any of Abal’s evidence, arguments, trademarks, or expert legal opinions.”1268
1262 TCA Decision 509, Case No. 363/2009 (14 June 2011) (hereinafter “TCA Decision 509”), pp. 2-3 (R-242). Claimants previously submitted this Decision as C-053. Uruguay respectfully submits a revised translation as R-242.
1263 Ibid., pp. 13-14.
1264 Abal’s Motion for Clarification and Further Judgment for the TCA’s Decision on Ordinance 514 (24 Aug. 2011) (C-055).
1265 Ibid., p. 1.
1266 Ibid.
1267 TCA Decision 801, Case No. 363/2009 (29 Sept. 2011) (hereinafter “TCA Decision 801”) (R-249). Claimants previously submitted this Decision as C-056. Uruguay respectfully submits a revised translation as R-249.
1268 CMM, ¶ 161.
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Additionally, Claimants complain that, when responding to Abal’s request for clarification and expansion, the TCA “refused to correct the error and instead dismissed it as ‘not important.’”1269
11.57 For Claimants, “[t]he TCA’s fundamental breach of due process, arbitrariness, gross
incompetence, and effective refusal to judge Abal’s case amounted to a denial of justice.”1270
Erroneously assuming that Claimants’ factual contentions and understandings of Uruguayan law are true, Claimants’ expert, Professor Paulsson, opines: “The wrong committed by the TCA was perhaps as basic as any denial of justice alleged in the annals of international jurisprudence: the
TCA simply did not hear the case ….”1271
11.58 Claimants’ allegations are wildly misguided. As shown below, the TCA did in fact
address Abal’s arguments and evidence. The mere fact that Claimants would have preferred a
different outcome does not give rise to a denial of justice. Moreover, the TCA’s three passing
references to BAT’s trademarks were entirely immaterial to any of the issues in the case. Further,
Claimants failed to exhaust available and effective local remedies in connection with the TCA’s
decision. On both counts, losing fairly before a national court hardly constitutes a denial of
justice.
1269 Ibid., ¶ 267.
1270 Ibid., ¶ 270.
1271 Opinion of Jan Paulsson (27 Feb. 2014) (hereinafter “Paulsson Opinion”), ¶ 43 (emphasis in original) (CWS- 011). See also ibid., ¶ 8 (“I express no view as to the accuracy of any factual contentions made by the Claimants and have not verified them or conducted my own factual investigation. Nor do I express any view on any question of Uruguayan law. I simply assume the facts and propositions of Uruguayan law relied on by the Claimants in the documents I have listed to be true and, on that assumption, express my opinion on whether there has been a denial of justice for the purposes of public international law.”) (emphasis added).
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A. The TCA Addressed Abal’s Arguments and Evidence
11.59 As stated, Abal made three principal arguments before the TCA: the SPR was
“manifestly illegal because it exceeds the Law and the Decree [on which it is based] and is
inconsistent with them”;1272 the SPR should be revoked because the Ministry lacked the
competence to create it;1273 and the SPR “violates the principle of reserva de la ley.”1274
11.60 Claimants argue that in rejecting Abal’s request, the TCA referred only the argument that the SPR violated the principle of reserva de la ley, which BAT had also argued.1275 As Claimants see it, the TCA “simply failed to mention, much less address” Abal’s two “additional, equally central” arguments1276 that: (1) “the SPR impermissibly exceeded and was inconsistent with the norms on which it was allegedly based — Law 18,256 and Decree 284 — which were targeted at
misleading packaging and did not impose a per se prohibition on multiple presentations of a
tobacco brand”; and (2) “the MPH was not competent to issue new rules such as the SPR.”1277
11.61 Notably, in its subsequent motion for clarification and expansion, Abal did not argue that the TCA had failed to address its legal arguments. And for good reason. The TCA did in fact address and reject, in a reasoned opinion, the two arguments Claimants now identify as not having been addressed.
1272 Abal’s Request for Annulment of Ordinance 514, p. 11, § IV.A (C-041).
1273 Ibid., p. 18, § IV.B.
1274 Ibid., p. 25, § IV.C.
1275 CMM, ¶ 163.
1276 Ibid., ¶ 268.
1277 Ibid., ¶ 159.
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11.62 With respect to the first of the two arguments that Claimants contend the TCA did not address — namely, that the SPR exceeded and was inconsistent with the law and decree on which it is based — even a cursory review of the TCA’s decision shows that this argument was considered and rejected.
11.63 In a section of its decision called Resultando (“Findings of Fact”), for example, the TCA observed that the claimant company’s action was grounded on “the manifest illegality” of the
SPR allegedly because it included “a prohibition that is not provided in the Law (No. 18,256), or in the Regulatory Decree (No. 284/008), nor the Organic Law of the Ministry of Public Health
(No. 9,202) ….”1278
11.64 Then, in the Considerando (“Conclusions of Law”) section of its decision, the TCA disposed of this argument, holding that the SPR “takes into consideration the ratio legis of Law
18,256, which seeks to prevent the average consumer from being misled.”1279 The TCA further
recognized that under Uruguayan law, administrative regulations such as the SPR are
“organizational or procedural supplements, or may even address substantive aspects, for areas
where technical assessment may be required,”1280 and which “may establish formalities or
requirements not provided for by the law which are necessary for its enforcement, but these may
under no circumstances be contrary to the law’s provisions.”1281 On this basis, the TCA found
1278 TCA Decision 509, p. 2 (R-242).
1279 Ibid., p. 7 (emphasis added).
1280 Ibid., p. 9.
1281 Ibid., p. 8.
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the SPR legitimate because it is “designed to implement” Article 8 of Law 18,256 and Article
12(3) of Decree 284, and also adhered to Article 11 of the WHO Framework Convention.1282
11.65 With respect to the second of the two arguments that Claimants contend the TCA did not
address — namely, that the Ministry of Public Health was not empowered to issue it — an
examination of the decision again easily disproves Claimants’ contention.
11.66 In the Resultando section of its decision, TCA specifically notes that Abal argued that the
Ministry “lack[ed] the competence” to impose the SPR.1283 And in the Considerando section, it
held that the Ministry did not exceed its material competence under the law because “this is not a
case of invading areas of legislation reserved exclusively to the Law.”1284 To the contrary, the
TCA determined the SPR to be a proper exercise of the Ministry of Public Health’s powers in the
sense that it is “does nothing more than interpret, as an implementing regulation, the spirit and
purpose of the legal framework governed by this broad law enacted in protection of human
health.”1285
11.67 The fact that the TCA first recited and then expressly rejected each of the two arguments
Claimants say it “failed to acknowledge” by itself demonstrates that there is no merit to their
denial of justice claim.1286
1282 Ibid., p. 10.
1283 Ibid., p. 3.
1284 Ibid., p. 10.
1285 Ibid., p. 12.
1286 Schrijver Opinion, ¶ 42 (“the Tribunal carefully considered each of the legal grounds invoked (under CONSIDERANDO), before confirming the impugned administrative act as valid. In this sense, there is no issue of infra or ultra petita as such.”) (REX-008).
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11.68 Claimants’ accusation that the TCA somehow mistook Abal for BAT is further disproven by those aspects of the TCA decision that addressed — and rejected — arguments that were made by Abal but not by BAT. For example, Abal argued that Article 44 of the Uruguayan
Constitution did not give the Ministry of Public Health the power to enact the SPR.1287 BAT, in contrast, did not make this argument. In its decision, the TCA expressly held that the SPR complied with the aim of the Constitution, and in particular Article 44.1288 Plainly, it had Abal’s
case in mind, not BAT’s, when it made this finding.
11.69 Equally telling is the fact that in its challenge to the SPR, BAT raised arguments that
Abal did not. These arguments are not reflected in the TCA’s decision on Abal’s challenge.
BAT, for example, argued that the SPR breached the Uruguay-U.K. BIT,1289 as well as Article 7
of the Paris Convention.1290 In its decision on BAT’s challenge, the TCA took note of these arguments:
[T]he Ordinance ignores section 7 of the Paris Convention, which provides that the product’s nature to which the brand shall apply cannot obstruct the brand’s registry in any case.
Moreover, [the Complainant] added that [the Ordinance] violates the Promotion and Protection Investment Treaty signed by Uruguay and the United Kingdom of Great Britain and Northern Ireland, not only for British investments in our country but also for the subsidiary plaintiff, which are under threat of deprivation of
1287 Abal’s Request for Annulment of Ordinance 514, pp. 4, 22-23 (C-041).
1288 TCA Decision 509, pp. 2, 13 (R-242).
1289 BAT’s Complaint in Challenge to Ordinance 514 (submitted as C-127, additional pages translated by Uruguay) (15 May 2009), pp. 30-32, 36 (R-210).
1290 Ibid., pp. 26-27, 36.
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their economic value, emptying them of their property rights, making formal ownership of said property useless.1291
11.70 In contrast, there is no mention of either argument in the TCA’s decision on Abal’s challenge. If, as Claimants contend, the TCA had truly decided Abal’s case by reference to
BAT’s arguments, it would have addressed these arguments in its decision in the Abal case. This is further proof that decided Abal’s case by reference to Abal’s arguments, not BAT’s.
11.71 Claimants’ argument that the TCA rejected Abal’s challenge without reference to “any”
of its “evidence” is equally without merit.1292 The only specific evidence they mention in support
this allegation consists of the expert legal opinions of Professors Delpiazzo, Cajarville and Risso
Fernand that Abal submitted to the TCA.1293
11.72 Claimants did not produce any of these opinions with their Memorial. Why not? Because
when their contents are compared with the TCA’s decision, it is apparent that the TCA
considered and disagreed with the points Abal’s experts made, even if it did not mention them by
name in its decision. So that the Tribunal may see this for itself, Uruguay has annexed the
opinions to this Counter-Memorial.1294
1291 TCA Decision 569 on BAT’s Request for Annulment of Ordinance 514 (26 July 2011), pp. 3-4 (C-113).
1292 CMM, ¶¶ 161, 268.
1293 Ibid., ¶¶ 159, 268.
1294 Expert Opinion of Prof. Carlos E. Delpiazzo, TCA Case No. 363/09 (15 May 2009) (hereinafter “Delpiazzo Opinion, TCA Case No. 363/09”) (R-211); Expert Opinion of Prof. Juan Pablo Cajarville Peluffo, TCA Case No. 363/09 (21 May 2009) (hereinafter “Cajarville Opinion, TCA Case No. 363/09”) (R-212); Expert Opinion of Prof. Martín Risso Ferrand, TCA Case No. 363/09 (27 May 2009) (hereinafter “Risso Opinion, TCA Case No. 363/09”) (R-213).
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11.73 As the Tribunal can see for itself, in its pleadings before the TCA, Abal quoted or referred to the opinions of its experts in support of its arguments that:
an administrative act such as SPR could not restrict the constitutional right to property under the principle of reserva de la ley;1295
because the SPR contradicted the language of Law 18,256 and Decree 284, neither of which expressly prohibited more than one presentation of a single brand, it was “manifestly illegal”;1296 and
the Ministry of Public Health lacked material competence to issue the SPR and exceeded its legal powers in doing so.1297
11.74 Claimants do not contend that the TCA failed to address the first argument, which it
plainly did. As discussed above, the TCA also expressly took note of and dispensed with each of
the other arguments. The substance of Abal’s expert evidence — all of which went to points of
law — was therefore addressed. The mere fact that the TCA did not refer to the experts by name
is without consequence. As Professor Rotondo explains in his report, “the rules applicable to the
administrative annulment proceeding do not require that each piece of evidence offered by the
parties be specifically mentioned or referred to ….”1298 This uncontroversial proposition is, of
course, true of courts the world over. To suggest otherwise would exalt form over substance to an absurd degree.
1295 Abal’s Request for Annulment of Ordinance 514, p. 5 (quoting from or referring to Delpiazzo Opinion, TCA Case No. 363/09, ¶ 2.5.5 (R-211)) (C-041); ibid., p. 5 (quoting Risso Opinion, TCA Case No. 363/09, ¶ 13(v) (R- 213)); ibid., pp. 4-5 (quoting from Cajarville Opinion, TCA Case No. 363/09, ¶ 3 (R-212)).
1296 Ibid., pp. 3, 17 (quoting from or referring to Delpiazzo Opinion, TCA Case No. 363/09, ¶¶ 1.5, 2.1.5, 5(a) and (b) (R-211)); ibid., pp. 3, 17 (quoting from or referring to Cajarville Opinion, TCA Case No. 363/09, ¶¶ 1-2, 8(a) (R- 212)).
1297 Ibid., pp. 4, 24 (quoting from or referring to Delpiazzo Opinion, TCA Case No. 363/09, ¶¶ 2.3.4-2.3.5 (R-211)); ibid., p. 5 (quoting Risso Opinion, TCA Case No. 363/09, ¶ 13(v) (R-213)); ibid., pp. 5, 22-24 (quoting from or referring to Cajarville Opinion, TCA Case No. 363/09, ¶¶ 3, 5(a)-(b) (R-212)).
1298 Rotondo Opinion, ¶ 38 (REX-007).
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11.75 Claimants are reduced to grasping at straws when they point to the TCA’s reference to a statement made by Dr. Winston Abascal, Director of the National Tobacco Control Program, concerning the systematic noncompliance of tobacco companies and retailers with Uruguay’s
2005 ban on descriptors.1299 According to Claimants, the TCA’s mention of this statement, which was not included in Abal’s file, was “another blatant error” because “Dr. Abascal’s finding formed an important part of the TCA’s reasons for dismissing Abal’s claim.”1300
11.76 This assertion fails on several counts. First, there is nothing in the TCA’s decision to
suggest that Dr. Abascal’s statement “formed an important part of the TCA’s reasons.” To the
contrary, the decision mentions the statement only once, and does not cite it at all in setting forth
its reasoning. Second, as its decision makes clear, the TCA had already concluded that the SPR:
(a) conforms with the ratio legis of Law 18,256; and (b) implements Law 18,256 and Decree
284/008, and is consistent with Article 11 of the FCTC (all of which prohibit the marketing of
tobacco products in a way that creates the false impression that certain products are less harmful
than others).1301 The TCA’s single reference to Dr. Abascal’s statement serves only as context
for the decision of the Ministry of Public Health to adopt the SPR, not as a legal basis for the
TCA’s decision upholding it.
1299 TCA Decision 509, p. 13 (referring to Dr. Abascal’s statement to the effect that “Despite the laws and regulations existing since 2005, tobacco companies and retailers have evaded compliance with such rules, violating their spirit, by bringing to market the same brands but with different colors, while, through marketing techniques, letting consumers know which ones replaced the ‘light,’ ‘ultralight,’ etc. This fact is widely known by all smokers and has been confirmed by personnel from the Notarial Legal Division.”) (R-242).
1300 CMM, ¶ 162.
1301 TCA Decision 509, pp. 7, 10-13 (R-242).
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11.77 It is untenable to argue that the TCA’s reference to Dr. Abascal was a “severe impropriet[y] with an impact on the outcome of the case, to the point that the entire procedure becomes objectionable as required by the notion of procedural denial of justice.”1302 That they
have to stretch the facts that far to find a “denial of justice” underscores that there was none.
B. The TCA’s Three Passing References To BAT’s Trademarks Does Not Give Rise To a Denial of Justice
11.78 Claimants’ denial of justice claim with respect to the SPR is based on the fact that the
TCA’s decision denying Abal’s challenge contains three references to the trademarks of BAT, not Abal.1303 Claimants seize on this oversight, and attempt to convert it into a denial of justice
under international law, by arguing that the TCA “explicitly refer[red] to the plaintiff as ‘BAT’
throughout the opinion — except in the caption of the decision, which is the only indication that
the decision purports to reject Abal’s challenge to Ordinance 514.”1304
11.79 The truth is very much to the contrary. In the first place, Claimants are mistaken when
they assert that the TCA referred to Abal only in the caption of its decision. In the section of its decision setting out the “claimant’s” arguments, the TCA stated that the annulment action before it was filed on behalf of the “claimant company” by Mr. Carlos Brandes, the individual who filed the complaint on behalf of Abal1305 and Abal’s Request for Annulment of the SPR.1306 BAT’s complaint, on the other hand, was filed by a Mr. Nelson Larrañaga Zeni.1307
1302 Oostergetel v. Slovakia, ¶ 287 (RL-194).
1303 See TCA Decision 509, pp. 7 (twice), 12 (R-242).
1304 CMM, ¶ 268.
1305 See TCA Decision 509, p. 2 (R-242).
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11.80 Moreover, as demonstrated above, the TCA considered and addressed each of Abal’s arguments. Indeed, it addressed arguments that only Abal made and did not address arguments that only BAT made. In these circumstances, it is impossible to conclude that the TCA confused the two companies in such a way as to deny Abal its day in court.
11.81 To the extent Claimants seize on the fact that the TCA’s decision thrice refers to BAT’s trademarks, and attempt to convert an evident clerical error into a denial of justice under international law, that attempt fails.
11.82 First, the TCA’s reference to BAT’s trademarks was of no consequence to the outcome of Abal’s case. It could only have influenced the result if the Ministry of Public Health had questioned Abal’s ownership of its trademarks, such that Abal’s standing was in dispute.1308 But the Ministry raised no such question, considering it unnecessary in the context of the proceedings before the TCA.1309 As Claimants themselves state, “there was never any question that Abal
owned its trademarks” before the TCA.1310
11.83 Second, as is evident from its decision, the TCA engaged in an abstract judicial review of
the SPR, and concluded that it “compl[ied] with the ‘ratio legis’ of Law 18.256,” and “enabled”
1306 Abal’s Request for Annulment of Ordinance 514, p. 1 (C-041). See also TCA Decision 509, p. 5 (referring to Abal representatives Mr. Brandes and Ms. Santo “filed an action” on behalf of the claimant company) (R-242).
1307 See BAT’s Complaint in Challenge to Ordinance 514, p. 1 (C-127).
1308 Rotondo Opinion, ¶ 36 n. 26 (REX-007).
1309 Similarly, the MPH did not question the ownership of BAT’s trademarks, as acknowledged by the TCA. Ibid., p. 6.
1310 CMM, ¶ 161.
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its provisions.1311 The TCA reached this conclusion by reference to the relevant domestic legislation, constitutional norms and international obligations of Uruguay. In this context, the specific trademarks at issue were irrelevant to the TCA’s decision to uphold the SPR. If the SPR was constitutionally and legally valid in respect of BAT’s trademarks, then it was ipso facto valid in respect of Abal’s, as well as those of any other producer or seller of tobacco products. As
Professor Schrijver states, this sort of abstract review, “is not at all uncommon in judicial review of subordinate legislation ….”1312
11.84 That being the case, the three passing references BAT’s trademarks are, at most, an
oversight of no significance. As stated above,1313 only “procedural irregularities of such severity that affected the outcome of the case” can give rise to a denial of justice under international law.1314 That is plainly not the case here. Professor Schrijver concludes: “[T]here is simply
nothing to substantiate that the TCA decision was in any way arbitrary, grossly unfair, unjust or
idiosyncratic, discriminatory, or in any way involving a lack of due process leading to an
outcome which offends judicial propriety.”1315
1311 See supra ¶¶ 11.59-11.68.
1312 Schrijver Opinion, ¶ 44 (REX-008).
1313 See supra ¶¶ 11.12-11.23.
1314 Schrijver Opinion, ¶ 28(b) (REX-008). See also Oostergetel v. Slovakia, ¶ 287 (assessing whether “the procedural irregularities were in fact severe improprieties with an impact on the outcome of the case, to the point that the entire procedure becomes objectionable.”) (emphasis added) (RL-194); Swisslion DOO Skopje v. The Former Yugoslav Republic of Macedonia, ICSID Case No. ARB/09/16, Award (6 July 2012) (Gillaume, Price, Thomas), ¶ 268 (assessing whether there was “any serious procedural unfairness in the conduct of the legal proceedings.”) (emphasis added) (RL-197); Liman Caspian v. Kazakhstan, ¶ 279 (holding that “Respondent can only be held liable for denial of justice if Claimants are able to prove that the court system fundamentally failed. Such failure is mainly to be held established in cases of major procedural errors such as lack of due process.”) (emphasis added) (RL-188).
1315 Schrijver Opinion, ¶ 44 (REX-008).
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C. The TCA’s Rejection of Abal’s Motion for Clarification and Expansion Was Justified and Consistent with Uruguayan Practice
11.85 Claimants also take issue with the TCA’s decision on Abal’s motion for clarification and
expansion. They complain that the TCA “summarily rejected the request for clarification on the
grounds that ‘the so called contradictions are not important nor do they justify the revision of the decision.’”1316
11.86 As shown above, the “so called contradictions” were, in fact, unimportant. The original
TCA decision responded to Abal’s arguments and took account of its evidence. The TCA’s
conclusions about the constitutional and legal validity of the SPR applied equally to the
trademarks of all of the tobacco companies operating in Uruguay. The obviously inadvertent
references to BAT’s trademarks were immaterial. The TCA was therefore entirely correct in
finding that (1) there were no “obscure ideas or ambiguous words” in the reasoning of its original
decision; (2) there was no omission regarding “any essential point of the case”; and (3) “the
alleged contradictions are not material, nor do they justify reexamining the basis of the judgment
issued in the case against which the motion was filed, as such basis is consistent with the ratio
legis of applicable law ….”1317
11.87 Nor does the brevity of the TCA’s decision on the motion for clarification and expansion
constitute a denial of justice. As Professor Rotondo explains, TCA decisions on such motions are
typically succinct.1318 This is even more so when there is nothing to be clarified, or when the
1316 CMM, ¶ 269 (emphasis in original).
1317 TCA Decision 801, p. 1 (R-249). See also Rotondo Opinion, ¶ 39 (REX-007); Schrijver Opinion, ¶ 45 (REX- 008).
1318 Rotondo Opinion, ¶ 18 (REX-007).
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TCA considers that all “essential point[s]” have been considered,1319 which is plainly the case
here.
D. Claimants Failed To Exhaust Available and Effective Local Remedies
11.88 The fact that the TCA’s decision on Abal’s challenge was not subject to an ordinary
appeal does not relieve Claimants from the requirement to exhaust local remedies, provided only
that such remedies were available and effective. Here, such remedies did exist. Claimants’ failure
to exercise them constitutes another ground for rejection of their denial of justice claim.
11.89 In particular, Claimants could have sought a declaration of unconstitutionality of Article
8 of Law 18,256, whose provisions the SPR was intended to “enable.” They could have done this either during or after the proceedings before the TCA. As Professor Caflisch rightly points out,1320 the TCA itself alluded to the possibility of constitutional review before Uruguay’s
Supreme Court of Justice, when it observed in its decision that “if [Abal] considers the law to be unconstitutional, this Court lacks jurisdiction to rule on the matter ….”1321
11.90 Claimants have effectively admitted that this was a remedy available to them by their
conduct in their subsequent challenge to the 80% Requirement. In those proceedings, Abal first
filed an action in the SCJ, seeking to have Article 9 of Law 18,256 declared unconstitutional.
Abal then filed an action to annul the 80% Requirement before the TCA, which suspended
1319 Ibid.
1320 Caflisch Opinion, ¶ 29 (REX-006).
1321 TCA Decision 509, p. 12 (R-242).
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proceedings pending the outcome of the constitutional challenge.1322 That Abal did not do the
same with respect to its challenge of the SPR is fatal to Claimants’ denial of justice claim in
regard to that measure.
11.91 Recourse to the Uruguayan Supreme Court constitutes a remedy that must be exhausted.
According to Professor Caflisch:
[Under] Article 14.2 of the ILC’s Draft [Articles on Diplomatic Protection], the international law rule requiring exhaustion covers both “ordinary” and “special” remedies. The rule does, therefore, extend to constitutional courts, provided that, as held in the Sürmeli case, the court in question is “reasonably available” and “offers a reasonable possibility of effective” redress.1323
11.92 Professor Caflisch goes on to state:
“All local remedies” (emphasis added), says Article 14.1 of the ILC’s Draft [must be exhausted], subject to Article 15. And, according to Article 14.2 of the Draft, “local remedies” means “the” legal remedies open to the allegedly injured person, “whether ordinary or special”; there is no hint at “indirect,” “proximate” or “remote” remedies, and there is nothing, in Articles 14 and 15 of the Commission’s Draft – or in international practice – to suggest that some “special” remedies are excluded from the expression “all remedies,” provided that they are effective and “reasonably available local remedies” (Article 15.a). In the words of commentary (4) on Article 14, “the crucial question is not the ordinary or extraordinary character of a legal remedy, but whether it gives the possibility of an effective and sufficient means of redress” ….1324
1322 CMM, ¶ 169. See also Motion of Abal Hermanos S.A., Motion to Suspend Proceedings, TCA Case No. 132/2010 (3 May 2010), ¶ 4 (R-224).
1323 Caflisch Opinion, ¶ 31 (emphasis added).
1324 Ibid., ¶ 35 (emphasis added).
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11.93 Uruguay’s SCJ was a reasonably available remedy, as evidenced by the TCA’s reference to it1325 and Claimants’ own conduct in connection with their challenge to the 80%
Requirement.1326 A constitutional appeal in regard to the SPR could plainly have been pursued without difficulties or impediments.
11.94 There is no doubt that the Supreme Court could have rectified the ostensible denial of justice about which Claimants complain.1327 Abal could have requested a declaration of unconstitutionality either (1) “by means of lawsuit, which must be filed before the Supreme
Court of Justice,” or (2) “by plea of exception, which may be made in any judicial proceedings,”1328 including proceedings before the TCA. In the latter event, proceedings in the
1325 Ibid., ¶ 33 (“I am unaware of any reduced availability of Uruguay’s Supreme Court, and the phrase in the TCA’s decision … certainly does not contradict this view.”).
1326 See infra ¶¶ 11.112-11.123.
1327 In this regard, as Prof. Schrijver states, “the “obviously futility” threshold does not turn on the issue of the likelihood of success if available recourse had been pursued.” Schrijver Opinion, ¶ 35 (REX-008).
1328 Article 258 of the Uruguayan Constitution reads in its entirety:
The declaration of the unconstitutionality of a law and the inapplicability of the provisions affected thereby, may be requested by any person who considers that his direct, personal, and legitimate interest is injured:
1. By means of lawsuit, which must be filed before the Supreme Court of Justice;
2. By plea of exception, which may be made in any judicial proceeding.
A judge or court which hears any judicial proceeding, or the Contentious- Administrative Tribunal, as the case may be, may also request the declaration of unconstitutionality of a law and its inapplicability, before rendering a decision.
In this case and in that provided in numeral 2 above, the proceedings shall be suspended and the case referred to the Supreme Court of Justice.
Constitution of the Oriental Republic of Uruguay (2004) (hereinafter “Uruguay Constitution”), Art. 258 (RL-1(bis)).
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TCA “shall be suspended and the case referred to the Supreme Court of Justice.”1329 Moreover,
in the event the Supreme Court were to declare Article 8 of Law 18,256 unconstitutional, all
“provisions affected thereby,” including obviously the SPR, would have been rendered
“inapplicable.”1330 This would mean, in the words of Professor Caflisch,
that the Regulation, deriving as it would from unconstitutional Law 18.256, would be illegitimate, with the result that the TCA’s decision would never have come to be or would become inoperative, so long as Claimants had filed an action before the Supreme Court after the rendering of the TCA decision.1331
11.95 The conclusion is plain: “[R]ecourse to the Supreme Court would have been an accessible, adequate and effective remedy requiring exhaustion.”1332 Claimants’ failure to
exhaust local remedies with respect to the SPR therefore constitutes a separate ground for
rejection of their denial of justice claim.1333
IV. The TCA Did Not Deny Claimants Justice When It Rejected Abal’s Administrative Challenge To the 80% Requirement
11.96 On 11 September 2009, Abal filed a constitutional challenge to Articles 9 and 24 (but not
Article 8) of Law 18,256 in the SCJ. If successful, Abal’s challenge would have invalidated
Decree 287, which implemented Article 9 by imposing the 80% Requirement. Abal argued that
1329 Ibid. See further Rotondo Opinion, ¶ 28 (REX-007).
1330 Uruguay Constitution, Art. 258 (RL-1(bis)).
1331 Caflisch Opinion, ¶ 33 (REX-006). See also TCA Decision 138, Case No. 93/08 (1 Mar. 2011) (hereinafter “TCA Decision No. 138”), p. 9 (R-237). Claimants previously submitted this Decision as C-281. Uruguay respectfully submits a revised translation as R-237.
1332 Caflisch Opinion, ¶ 34 (REX-006).
1333 Ibid., ¶ 36 (“To exhaust Uruguayan domestic remedies in connection with their challenge of Ordinance 514, Claimants should have requested the Uruguayan Supreme Court to rule on the constitutionality of Article 8 of Uruguayan Law 18.256.”); Schrijver Opinion, ¶ 46 (REX-008).
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Articles 9 and 24 were unconstitutional because they delegated “unlimited authority to the
Executive Branch to restrict individual rights,”1334 a power which could only be exercised under the Uruguayan Constitution by the legislature.1335 The Ministry of Public Health defended the constitutionality of the law, arguing that it did not amount to a delegation of legislative authority to the Executive. Rather, the Law required “implementation [regulations].”1336 According to the
Ministry, the Law “determines the size of the pictograms of the packaging of tobacco products,” and “authorizes the precise determination of the size by means of regulation.”1337
11.97 On 10 November 2010, the SCJ rejected Abal’s challenge. In its decision, the SCJ observed that the challenged statutory language was adopted from Article 11 of the FCTC, which then formed part of Uruguayan law.1338 It also noted that since “Public Health is one of the
State’s essential duties … it is natural that the issuance of such regulations [in the sphere of
1334 Complaint of Abal Hermanos S.A., SCJ Case No. 1-65/2009 (11 Sept. 2009), p. 2 (R-216).
1335 Ibid. The Legislative Power submitted a brief defending the constitutionality of Law 18,256 on the grounds that “it does not allow the regulation to set a higher percentage” than 50% of the cigarette packaging. The arguments made by the Legislative Power’s representatives in litigation do not constitute an authoritative interpretation of the law. As Prof. Rotondo explains:
[the Legislative Power’s] representatives are not legislators themselves, but well-regarded lawyers who work at the Legal Affairs Office of the Legislative Branch.
In their appearance they fail to provide an authentic interpretation of the law, which may only be made through another law, as established by Art. 12(1) of the Civil Code: “The lawmaker is the only one who has to explain or interpret the law, in a manner that would be generally obligatory.”
Rotondo Opinion, ¶ 50 (emphasis in original) (citing Preliminary Title of the Civil Code, of 20 articles, called “Laws,” Art. 12(1) (FR-26)) (REX-007).
1336 Response of Ministry of Public Health, SCJ Case No. 1-65/2009 (18 Nov. 2009), p. 9 (R-217).
1337 Ibid.
1338 Supreme Court Decision No. 1713, “Abal Hermanos S.A. v. Legislative Power et al. – Unconstitutionality Action, Articles 9 and 24 of Law 18,256,” Docket File No. 1-65/2009 (10 Nov. 2010) (hereinafter “Supreme Court Decision No. 1713”), Whereas (II) (Claimants’ translation modified in brackets in text) (C-051).
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tobacco control] were committed to the Ministry of Public Health.”1339 It concluded that Articles
9 and 24 of Law 18,256 were constitutional, because “it cannot be considered that the principles
of legality and non delegation have been infringed.”1340 Claimants do not challenge this
conclusion here. They cite, instead, the Supreme Court’s observation that the law “does not
delegate to the Executive Power a discretionary power to impose restrictions on top of said
[50%] minimum.”1341 As discussed below, however, that observation was not binding on the
TCA.
11.98 On 22 March 2010, pending the outcome of its constitutional challenge, Abal instituted
an administrative challenge to the validity of the 80% Requirement in the TCA.1342 The TCA rejected Abal’s challenge in a reasoned decision issued on 28 August 2012.1343
11.99 Claimants contend that the Uruguayan courts “effectively denied Abal the right to a
decision on the legality of the 80/80 requirement.”1344 How so, considering that the SCJ reviewed
and ruled on their constitutional claim, and the TCA reviewed and ruled on their administrative
challenge to the 80% Requirement? In Claimants’ view, they were denied justice because the
decisions of the SCJ and the TCA “directly contradicted each other.”1345 Claimants’ expert,
1339 Ibid.
1340 Ibid.
1341 Ibid., Whereas (IV).
1342 Abal’s Request for Annulment of Decree 287 before the TCA (22 Mar. 2010) (hereinafter “Abal’s Request for Annulment of Decree 287”) (C-049).
1343 TCA Decision No. 512 on Abal’s Request for Annulment of Decree 287/2009 (28 Aug. 2012) (hereinafter “TCA Decision 512”) (C-116).
1344 CMM, ¶ 167.
1345 Ibid., ¶ 272. See also Paulsson Opinion, ¶ 27 (CWS-011).
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Professor Paulsson professes to see this alleged contradiction as “the functional equivalent of locking Abal out of the court building: the plainest kind of denial of justice.”1346
11.100 Reality is not as Claimants would have it. Claimants were not “locked out of the court
building.” Far from it. As demonstrated below, the record is clear that Abal presented its case to
the TCA with force and the Ministry of Public Health did the same. The TCA considered the
parties’ competing arguments, decided in favor of the Ministry and rejected Abal’s challenge in a
fully considered opinion. It was therefore not “denied the right to a decision on the legality of the
80/80 requirement.”1347 To the contrary, Abal received a ruling on the administrative validity of
the 80% Requirement from the institution with the exclusive competence to make such
determinations under Uruguayan law.
11.101 The mere fact that the TCA did not adopt the reasoning of the Supreme Court in its
decision on Abal’s challenge to the constitutionality of Articles 9 and 24 of Law 18,256 does not
give rise to a denial of justice under international law. Under Uruguayan law, the TCA and SCJ
are co-equal institutions with different spheres of competence. The TCA is only bound by the
decisions of the SCJ when it declares a law unconstitutional, which it did not do here.
11.102 Each of these points is developed further in the sections that follow.
A. The TCA Decided Abal’s Challenge To the 80% Requirement
11.103 Claimants’ assertion that that Abal was “locked out of the court building” is defeated by
the simple and undisputed fact that the validity of the 80% Requirement was fully and vigorously
1346 Paulsson Opinion, ¶ 40 (CWS-011).
1347 CMM, ¶ 167.
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litigated to conclusion in the TCA. As Professor Schrijver observes, there is no issue here of
Abal’s access to Uruguay’s courts “having been obstructed in any way.”1348 Claimants tellingly
make no argument to the contrary.
11.104 An examination of the record only underscores these points. As stated, Abal instituted its
challenge to the validity of the 80% Requirement in the TCA on 22 March 2010. It argued that
“regardless of whether … the Law is unconstitutional,”1349 Decree 287 was unlawful because (1)
it “restricts and effectively eliminates” Abal’s constitutional rights, contrary to the principle of reserva de la ley;1350 (2) it went beyond the dictates of Law 18,256, which “nowhere state[d] that
the warnings must occupy 80% of the pact”;1351 and (3) the Executive Branch did not have
jurisdiction to increase the size of health warnings because Law 18,256 could not constitutionally delegate such jurisdiction to the Executive.1352
11.105 The Ministry of Public Health answered each of these arguments. The Ministry argued
that the 80% Requirement did not violate the reserva de la ley principle because “the right to full
enjoyment of life and to health justifies any other limitation to commercial, industrial and
intellectual property rights ….”1353 In case there is a conflict, the “the right of the entire
1348 Schrijver Opinion, ¶ 49 (REX-008).
1349 Abal’s Request for Annulment of Decree 287, p. 3 (C-049).
1350 Ibid., p. 2.
1351 Ibid., p. 3.
1352 Ibid.
1353 Response of Ministry of Public Health, TCA Case No. 132/2010 (11 Feb. 2011), p. 14 (R-236). See also ibid., p. 17.
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population to the enjoyment of health … must prevail over all commercial and industrial or rights of expression ….”1354
11.106 The Ministry also argued that Article 9 of Law 18,256 authorized “the possibility of [the
health warnings] taking up a larger area” than 50%, leaving it to the Executive “through its
regulations to accurately determine their size.”1355 And, as the Executive organ with “the specific
duty of regulating everything related to the health of the national population,”1356 it was
appropriate for the Ministry to issue the questioned regulation. With respect to Abal’s other
arguments, the Ministry argued that its policy was both reasonable and proportional, and intended to achieve the ends of the law. There was a “reasonable connection between the motives
[of the Law] and the content of the administrative act or between the content of the act and the goal to be attained ….”1357 This was because it is a “basic principle in order to achieve the
objectives of the Convention and its Protocols, that everyone should be informed of the health
consequences, the addictive nature, and the deadly threat posed by tobacco consumption ….”1358
11.107 The TCA considered all of these arguments and agreed with the Ministry of Public
Health. It found that the 80% Requirement did “not contain solutions that exceed the provisions of the law which it regulates.”1359 The TCA elaborated:
1354 Ibid., p. 17.
1355 Ibid., p. 16.
1356 Ibid., p. 13. See also ibid., p. 8 (“the Administration issued an act within the realm of the specific powers and commitments conferred upon it ….”).
1357 Ibid., p. 8.
1358 Ibid., p. 11.
1359 TCA Decision 512, p. 3 (C-116).
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The contended decree has limited itself to what was established by law, due to the fact that it determined the percentage to be occupied by sanitary warnings …. The law establishes a minimum limit for the administrator … and therefore, raising the set minimum, according to the directives of the World Health Organization, is in accordance to law.1360
11.108 The TCA further reasoned that “if the pictogram is maintained, the warning and the 50% of the pack, the tobacco company might focus attention on the available space by increasing the intensity of the colors.”1361 As such, and in order to prevent the “effectiveness or preponderance
of the health message [from] becom[ing] absolutely futile,” the TCA deemed it consistent with
the Law that “the size of the pictogram [be increased to] 80% of the size of the pack.”1362 The
TCA found further confirmation for this interpretation in Article 23 of Law 18,256, directing the interpreting authority to ensure that “the right to the protection of the collective health shall prevail” in interpreting the provisions of the Law.1363
11.109 Finally, the TCA held that the 80% Requirement did not violate the reserva de la ley
principle because the rights Abal claimed were infringed “can be limited for reasons of general
interest through the law.”1364 Indeed, “all the measures which have been adopted with [the]
purpose” to “reduce as much as possible the consumption of tobacco … faithfully respond to the
1360 Ibid., p. 4.
1361 Ibid., pp. 5-6.
1362 Ibid., p. 6.
1363 Ibid.
1364 Ibid., p. 4.
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intention of the legislator.”1365 Hence, the TCA found that the 80% Requirement “constitutes a
regulation which is in conformity with the law which serves as a framework.”1366
11.110 In light of the detailed reasoning of the TCA’s decision, there can be no question that it
was “reasonably substantiated.”1367 Professor Schrijver agrees: “It is certainly a stretch to claim now that the courts of Uruguay never decided Claimants’ case.”1368 The fact is that the TCA
“considered Abal’s challenge, but simply rejected it.”1369 And it did so with a decision that, in
the words of Professor Schrijver, is:
adequately motivated: it recalls the main legal grounds adduced by the plaintiff and the respondent, and it subsequently considers each of those grounds, before rejecting them as unfounded. The decision appears to be based on interpretations of applicable legal instruments that are plausible and reasonably tenable and in light of all the available facts does not strike me as “clearly improper and discreditable.”1370
11.111 The TCA’s decision on Abal’s challenge to the 80% Requirement was plainly not of a
kind which no competent judge could reasonably have made. In the absence of any allegation,
much less evidence, of bias, fraud or external pressure, the TCA’s decision on a matter of
domestic law is entitled to the deference it deserves. Claimants’ complaint can be rejected on this
basis alone.
1365 Ibid., p. 3.
1366 Ibid.
1367 Rotondo Opinion, ¶ 42 (REX-007).
1368 Schrijver Opinion, ¶ 49 (REX-008).
1369 Ibid.
1370 Ibid., ¶ 55.
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B. The TCA Was Not Bound To Adhere To the Reasoning of the SCJ in Its Ruling on the Constitutionality of Law 18,256
11.112 Claimants assert that the TCA’s decision constituted a denial of justice because it impermissibly derogated from the SCJ’s ruling on Abal’s challenge to the constitutionality of the law. As Claimants see it, the TCA was “bound to follow the Supreme Court’s rulings on constitutionality.”1371 They are wrong, as a matter of Uruguayan law.
11.113 Under the Uruguayan Constitution, the TCA, although a judicial body in all respects, is not technically part of the Judiciary.1372 It is “independent of any other authority in the exercise of [its] powers,”1373 and has “the same characteristics and hierarchy as the highest body of the
Judiciary, the Supreme Court of Justice.”1374 As a co-equal institution, it is not subject to the cassation review of the Supreme Court.1375
11.114 Section XVII of the Uruguayan Constitution provides that the TCA has the exclusive jurisdiction to assess the validity of administrative acts.1376 The TCA itself makes specific mention of this fact in its decision rejecting Abal’s challenge to the 80% Requirement:
1371 CMM, ¶ 177.
1372 Rotondo Opinion, ¶ 5 (“The TCA was created by the Constitution as a court, though it is not part of the Judiciary. It was created in the 1952 Constitution, as a body independent from any other organic system, specifically the above-mentioned branches. The organization and powers of the TCA are established in Section 17 of the Constitution, and in its Organic Decree-Law No. 15,524 of 1-9-1984, amended by Law No. 15,869 of 6-22-1987.”) (REX-007).
1373 Uruguayan Law No. 15,750 (24 June 1985), Art. 1 (RL-209).
1374 Rotondo Opinion, ¶ 22 (citing H. Giorgi, THE ADMINISTRATIVE LITIGATION FOR NULLIFICATION (1958), p. 115 (FR-12)) (REX-007).
1375 Ibid., ¶ 29.
1376 Ibid., ¶ 47.
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[R]egarding the decision of the Supreme Court of Justice that the plaintiff brings to this Court as a new fact, it is not understood that the decision has the reach claimed by the plaintiff. Being an exclusive capacity of this administrative litigation jurisdiction the analysis of the legality of the contested decree, only this organ can analyze it ….1377
11.115 This rule of constitutional law was also acknowledged by the SCJ in its decision, when it
stated:
The circumstance that the Executive Power has promulgated a decree establishing that the health warnings should occupy the lower 80% of both principal faces [Decree No 287/009)] and, as a result, that it has interpreted the challenged legal norms in a manner different from that put forth, involves a question that cannot be reviewed by this body by virtue of the regime established in Section XV, Chapter IX of the Constitution.
If in said sphere of regulation, the plaintiff considers that the Administration has promulgated an illegitimate administrative act, it should have resorted to the corresponding proceeding, it not being authorized to seek such clarification by the present proceeding of unconstitutionality and even less to proceed in hypothetical issues as the ones that were raised that it could reach 90 or 100% of the surface ….1378
11.116 Professor Rotondo explains that this institutional divide, in place since long before
Claimants’ invested in Uruguay, makes the Uruguayan jurisdictional system “sui generis.”1379
Claimants themselves acknowledge that under Uruguayan law, Abal was required to litigate its
1377 TCA Decision 512, p. 5 (emphasis added) (C-116).
1378 Supreme Court Decision No. 1713, Whereas (V) (emphasis added) (C-051). The Legislative Power’s representatives and the State Attorney General also stressed that the question of the legitimacy of Decree 287 is not subject to the SCJ’s constitutionality review. See Opinion of the State Attorney General regarding Law 18,256 (8 Feb. 2010), ¶ 3 (C-197); Legislature’s Answer to Abal’s Unconstitutionality Action of Law 18,256, ¶ 3.11 (C-046).
1379 Rotondo Opinion, ¶¶ 20-23, 55(a) (REX-007).
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claims in separate courts.1380 And, of course, a domestic legal practice is not unjust just because
“a foreigner finds it odd.”1381 Under international law, a State may establish its own system of
justice and the manner in which municipal rules of law are instituted, interpreted and applied.1382
As Professor Paulsson himself has written: “The legitimacy of local practice should be acknowledged by the international adjudicator as well by the complainant.”1383 In the words of the Anglo-Colombian Arbitration Commission in the Cotesworth & Powell case:
No demand can be founded, as a rule, upon mere objectionable forms of procedure or the mode of administering justice in the courts of a country because strangers are presumed to consider these before entering into transactions therein.1384
11.117 The lone exception to the TCA’s institutional independence is found in Article 258 of the
Uruguayan Constitution. Under that provision, the declaration of a law’s unconstitutionality entails “the inapplicability of the provisions affected thereby,”1385 which “may include the
1380 CMM, ¶ 168.
1381 Paulsson, p. 205 (RL-239).
1382 C. Hyde, INTERNATIONAL LAW CHIEFLY AS INTERPRETED AND APPLIED BY THE UNITED STATES (1945), p. 729 (“Save for the general obligation to conform to the practices of civilization, a State is unfettered in its choice of forms of procedure or in the adoption of a particular code”) (RL-213); A. Freeman, THE INTERNATIONAL RESPONSIBILITY OF STATES FOR DENIAL OF JUSTICE (1970), pp. 78-79 (“In fulfilling [the requirement to provide an adequate judicial protection for the rights of aliens], each State enjoys a plenary margin of liberty. The organization of its courts, the procedure to be followed, the kind of remedies instituted, the laws themselves, are left to the State’s own discretion.”) (CLA-231).
1383 Paulsson, p. 205 (RL-239).
1384 Cotesworth & Powell (Great Britain v. Colombia), Award (Aug. 1875), reprinted in 2 MOORE INTERNATIONAL ARBITRATION 2050 (1898), p. 2083 (emphasis in original) (RL-137).
1385 Uruguay Constitution, Art. 258 (RL-1(bis)).
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administrative litigation action for annulment under the review of the TCA, regardless of whether or not the TCA shares the reasons of the Court’s judgment.”1386
11.118 In contrast, where, as here, the SCJ affirms the constitutionality of a law, the TCA retains
the exclusive and unencumbered jurisdiction to determine whether an administrative act is
consistent with the law on which it is based.1387 Professor Rotondo explains:
If the Court does not hold the unconstitutionality [of a law], the TCA will evaluate the legitimacy of the challenged administrative act with regard to the superior legal rules, including the law, in accordance with its own interpretation, as the only body of competent jurisdiction pursuant to the Constitution to annul this kind of State legal act. The arguments or “reasoning” of the Supreme Court are not “binding” upon it; especially if the TCA has not been a “party” to the unconstitutionality proceeding (it could be a “party” if it had raised the issue—Art. 258 of the Constitution—which did not happen in the Abal Hermanos case).1388
11.119 These principles underlie the TCA’s decision in the Castroman case, which Claimants misleadingly try to use to buttress their case.1389 The main issue there was whether the TCA may
confirm an administrative act despite the fact that the SCJ had previously declared
unconstitutional the law upon which the act in question was based.1390 The TCA found that, in
such event, it was bound to annul the questioned administrative act because finding otherwise
1386 Rotondo Opinion, ¶ 29 (REX-007). As a result of the institutional independence of the two bodies, and of their equal standing, the reverse scenario is also applicable: the TCA’s determination of the invalidity of an administrative act would not be reviewable by the SCJ. See ibid.
1387 Ibid., ¶ 29.
1388 Ibid., ¶ 46 (emphasis in original). See also ibid., ¶ 29 (“Thus, there will be due deference for the institutional position of the bodies mentioned, in the exercise of the powers granted by the Constitution itself to each of them.”).
1389 See CMM, p. 81 n. 225.
1390 TCA Decision No. 138, p. 4 (R-237).
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would give rise to a fundamental contradiction: “one, the sentence declaring unconstitutionality of the law in the specific case and the other, the sentence of the Tribunal de lo Contencioso
Administrativo, confirming [the validity of an administrative act based on that law].” It was that circumstance that the TCA held would “be against logic and common sense ….”1391
11.120 This case is obviously different. Here, the SCJ upheld the constitutionality of Article 9 of
Law 18,256, and the TCA rejected the action for annulment of the 80% Requirement. There is no inherent contradiction because, as explained above, in Uruguay’s constitutional system, the TCA alone has jurisdiction to determine the validity of an administrative act adopted pursuant to a law determined to be constitutional. The views of the SCJ on such an act are obiter dicta and impose
no obligation on the TCA.
11.121 Claimants rely on a statement made in Professor Dante Barrios de Angelis’ textbook on
procedural law to suggest that the principle of res judicata may extend beyond the holding of a
judgment, to its reasoning “when the former cannot be agreed to without the latter.”1392 The
principle of res judicata and the scope of its application are plainly irrelevant to the issue here,
however. As explained above, due to its independent status and exclusive jurisdiction to decide
the legality of administrative acts, the TCA is not bound to adhere to the reasons relied on by the
SCJ in upholding the constitutionality of a law.1393
1391 Ibid., p. 9.
1392 D. Barrios de Angelis, THEORY OF PROCESS (2005), p. 172 (RL-241). Claimants previously submitted excerpts from this book as CLA-201. Uruguay respectfully submits a revised translation as RL-241. Prof. de Angelis rightly adds that the extension of the res judicata principle to the reasoning of a judgment, which is but one of the various theories on the scope of applicability of the res judicata principle in the first place, operates on a case-by-case basis. Ibid., pp. 172-173. See also D. Barrios de Ángelis, Res judicata and Administrative res judicata, URUGUAYAN CONSTITUTIONAL AND POLITICAL REVIEW, No. 18 (1998), p. 18 (RL-228).
1393 Rotondo Opinion, ¶ 53(b) (REX-007).
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11.122 In any event, as Professor Rotondo explains, the SCJ’s decision:
has several grounds: that the law does not grant “unlimited powers to the Executive Branch to restrict” rights; that it was issued in furtherance of a “health policy implemented by the Government,” with the precedent of Law No. 17793 which passed the WHO Framework Agreement for Tobacco Control; that the Government is entitled to regulate the law and take any actions to maintain public health; that there is no legislative delegation but “legal extension,” aspects which are also mentioned in the TCA judgment.1394
11.123 All these grounds, independent of each other, justified the SCJ’s holding concerning the
constitutionality of Article 9. It follows that the SCJ’s ruling was not “based entirely on its finding that Law 18,256 did not delegate authority to the Executive branch to require warnings covering more than 50% of the package.”1395 In other words, the SCJ’s ruling did not
“necessarily depend” on this finding.
11.124 At the end of the day, whether or not the TCA is bound by the reasons given in a SCJ
decision upholding the constitutionality of law is a question whose answer turns on an analysis
of the finer points of Uruguayan constitutional and administrative law.1396 Uruguay submits that,
for the reasons articulated above, the answer is clear: the TCA was not bound by the SCJ’s
reasoning. Claimants take a different view. What is indisputable, however, is that it is not the job
of this Tribunal to “take sides” in this debate.1397 If it did, it would impermissibly “sit as a court
1394 Ibid.
1395 CMM, ¶ 177.
1396 See Opinion of the State Attorney in Administrative Litigation (27 Oct. 2011), p. 1 (emphasizing that “although the matter in dispute may be open to debate,” the assessment of the legitimacy of Decree 287 falls within the purview of the TCA, “as correctly affirmed by [the Supreme Court] ….”) (R-250); TCA Decision No. 138, p. 6 (R- 237).
1397 Arif v. Moldova, ¶ 481 (CLA-229).
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of appeal,”1398 which is not the role of an international investment tribunal. The critical point is
that the TCA’s decision plainly constitutes a “plausible and reasonably tenable” interpretation of
municipal law.1399 As such, it more than passes muster under the applicable international
standard.1400
11.125 The question is, moreover, precisely the sort “which all legal systems have to face.”1401
As Professor Schrijver observes: “Different or even contradictory decisions are a normal fact of life in any legal system where the competence of judicial organs differs on the basis of functional specialization,” and are the consequence of the fact that “different courts engage in different types of judicial review, in which context legislative acts are tested against different standards.”1402 The manner in which Uruguayan courts have chosen to handle this issue is not a
matter with which, in the circumstances present here, this Tribunal should wish to interfere.
*
11.126 For all the foregoing reasons, Claimants have not met the heavy burden they bear of
proving that the TCA was actuated by bias or fraud in its decisions rejecting Abal’s
administrative challenges, or that Claimants were subjected to fundamentally unfair proceedings
1398 Ibid. Even tribunals that have come to a different conclusion as regards the contents of domestic law from domestic courts have held that this was no indication that the domestic court decision constituted evidence of arbitrariness or bad faith. Schrijver Opinion, ¶ 27 n. 68.
1399 Even if this was not the case, as arguably in Mondev v. U.S., that alone would not have been sufficient to establish a denial of justice. Mondev, ¶ 132 (RL-117).
1400 Schrijver Opinion, ¶ 27 (referring, inter alia, to Liman Caspian v. Kazakhstan, ¶ 390 (RL-188), and Arif v. Moldova, ¶¶ 462-463 (CLA-229)) (REX-008).
1401 Mondev, ¶ 133 (RL-117).
1402 Schrijver Opinion, ¶ 54 (REX-008).
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such that they received decisions that were outrageously wrong. To the contrary, they presented their cases on the merits vigorously and without impediment, their arguments were duly considered, and they received fully reasoned decisions. Claimants therefore were not denied justice by Uruguay’s courts.
V. Claimants Are Not Entitled To Damages
11.127 Because Claimants suffered no denial of justice, they are entitled to no relief. But even if the Uruguayan courts denied justice to Claimants in the ways they allege (which Uruguay firmly denies), Claimants have failed to establish a basis for the damages they seek, or for any damages whatsoever.
11.128 Claimants seek as damages for their denial of justice claims “the same quantum of damages as [they] are seeking with respect to the SPR and 80/80 regulation.”1403 In particular,
they seek “all past and future damages caused by the regulations that have remained in place as a
result of the judgments.”1404 This claim has no basis in law.
11.129 Assuming quod non that the TCA did deny Claimants justice, the task of this Tribunal
would be to restore the status quo ante. In the words of the ICJ, the Tribunal would have to
“reestablish the situation which would, in all probability, have existed if [the internationally
wrongful acts] had not been committed.”1405 In so doing, the Tribunal cannot put Claimants in a
1403 CMM, ¶ 297.
1404 Ibid., ¶ 296. See also Paulsson Opinion, ¶ 51 (CWS-011).
1405 Case Concerning the Factory at Chorzow (Germany v. Poland), Judgment (13 Sept. 1928), P.C.I.J. Series A, No. 17, ¶ 125 (CLA-240).
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position that is better than the one they would have been in but for the acts ostensibly giving rise
to liability. To do that would overcompensate them.1406
11.130 In the context of their denial of justice claim, restoration of the status quo ante requires
Claimants to prove that but for the putative denials of justice, they would have prevailed on the
merits of their challenges to the SPR and 80% Requirement; that is, that the Uruguayan courts
would have ruled in their favor and struck down both requirements. Without sustaining their
burden of proving the likelihood of their success before the Uruguayan courts, they cannot
establish the requisite causal link between the alleged denial of justice and the damages they
seek. Since, Claimants do not even attempt to make that showing here, their damages claim must
fail.1407
11.131 Claimants take a different view. They assert that “a denial of justice must be
compensated [by a State], regardless of the merits of the domestic case.”1408 On this basis, they
claim entitlement to recover the entire “financial impact of being constrained by” the SPR and
80% Requirement.1409 Regardless of the merits of the domestic case? Even if their cases before the Uruguayan courts lacked merit, such that they would not have prevailed, they should still get
the same damages? Such an obviously unjust proposition cannot be the law.
1406 Víctor Pey Casado and Foundation “Presidente Allende” v. Republic of Chile, ICSID Case No. ARB/98/2, Decision on the Application for Annulment of the Republic of Chile (18 Dec. 2012) (Fortier, Bernardini, El- Kosheri), ¶ 269 (RL-202). Claimants in fact admit this principle when they say that they are not “seeking double compensation ….” CMM, ¶ 290.
1407 The Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award (6 May 2013) (Berman, Donovan, Lalonde) (hereinafter “Rompetrol v. Romania”), ¶ 190 (“To the extent … that a claimant chooses to put its claim … in terms of monetary damages, then it must, as a matter of basic principle, be for the claimant to prove … its quantification in monetary terms and the necessary causal link between the loss or damage and the treaty breach.”) (emphasis added) (RL-204).
1408 CMM, ¶ 293 (emphasis added).
1409 Ibid, ¶ 290 (citing Paulsson Opinion, ¶ 51 (CWS-011)).
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11.132 Claimants cite three cases to support their argument: Roberts v. Mexico, Chattin v.
Mexico and Amco v. Indonesia (II).1410 Roberts and Chattin are irrelevant to issue at hand. They
stand only for the proposition that a State may incur international responsibility for denial of
justice even if the underlying judicial action was substantively valid.1411 The question here is
different, however. In the words of Claimants’ expert, Professor Paulsson, it is “not the
unlawfulness of the conduct, but whether it caused proximate damage.”1412
11.133 Of the three decisions Claimants cite, only Amco v. Indonesia (II) has anything to say on
that subject. The tribunal in that case held that Indonesia committed a denial of justice when one
of its administrative agencies, the Capital Investment Coordinating Board (“BKPM”), revoked
Amco’s investment license. The effect was to render Amco unable to secure its share of the
profits under a profit-sharing agreement it had concluded with a local Indonesian partner. Having
found that the revocation of the license constituted a denial of justice, the tribunal went on to
assess the compensation due. In so doing, it “expressly declined the invitation to reassess the
merits and to award no damages if a fair decision-maker would have agreed with the outcome
that had been produced via a denial of justice.”1413 The tribunal stated:
To argue, as did Indonesia, that although there had been procedural irregularities, a “fair BKPM” would still have revoked the license,
1410 CMM, ¶¶ 292-295.
1411 Indeed, Claimants cite several passages from the Amco II award, which, however, are plucked from that tribunal’s findings on liability. See Amco Asia Corporation and others v. Republic of Indonesia, ICSID Case No. ARB/81/1, Resubmitted Case: Award (31 May 1990) (Higgins, Lalonde, Magid) (hereinafter “Amco II”), ¶¶ 139- 140 (“The Tribunal therefore finds that, although certain substantive grounds might have existed for the revocation of the license, the circumstances surrounding BKPM’s decision make it unlawful. That being so, the Tribunal could at this point conclude its findings on liability.”) (emphasis added) (CLA-160).
1412 Paulsson, p. 221 (emphasis added) (RL-239).
1413 CMM, ¶ 295.
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because of Amco’s own shortcomings, is to misaddress causality. The Tribunal cannot pronounce upon what a “fair BKPM” would have done. This is both speculative, and not the issue before it. Rather it is required to characterize the acts that BKPM did engage in and to see if those acts, if unlawful, caused damage to Amco. It is not required to see if, had it acted fairly, harm might then have rather been attributed to Amco’s own fault.1414
The tribunal went on to order compensation to “put Amco in the position it would have been in had it received the benefits of the Profit-Sharing Agreement ….”1415
11.134 Professor Paulsson roundly criticized this result in his treatise on denial of justice in international law, and rightly so.1416 He contrasted the Amco II decision with Lauder v. Czech
Republic in which the tribunal determined that it would not be appropriate to award damages for a treaty breach in light of claimant’s failure to establish the causal link between the breach and the damages.1417 Professor Paulsson wrote:
It seems difficult to justify the conclusion that the prejudice to a claimant who was prevented from having his grievance heard should be deemed equal to whatever relief he had initially seen fit
1414 Amco II, ¶ 174 (CLA-160).
1415 Ibid., ¶ 186.
1416 As stated by the International Law Commission (“ILC”) in the commentary on article 36 of its Draft Articles on State Responsibility, “the function of compensation is to address the actual losses incurred as a result of the internationally wrongful act.” International Law Commission, Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries (2001) (hereinafter “ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries”), p. 99, Comment (4) to Art. 36 (emphasis added) (RL-130). This principle is beyond dispute in investment treaty arbitration. See, e.g., Rompetrol v. Romania, ¶ 190 (“To the extent … that a claimant chooses to put its claim … in terms of monetary damages, then it must, as a matter of basic principle, be for the claimant to prove … its quantification in monetary terms and the necessary causal link between the loss or damage and the treaty breach.”) (emphasis added) (RL-204).
1417 Paulsson, p. 223 (discussing Ronald S. Lauder v. Czech Republic, UNCITRAL, Final Award (3 Sept. 2001) (Briner, Cutler, Klein), ¶¶ 232-235 (CLA-052)) (RL-239). See also Paulsson, p. 224 (referring, inter alia, to the ELSI case, “where the US claim was rejected because of its failure to establish that the offending acts of the Italian Government were the proximate cause of the relevant losses – rather than ‘ELSI’s headlong course to insolvency’ ….”) (RL-239).
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to ask. In establishing an amount so that it corresponds to what the international tribunal feels was the true loss, it may be necessary to evaluate probabilities of the outcome if the local system had proceeded in accordance with its laws but without violating international law. The notion that no international wrong must go unpunished is arguably inconsistent with Chórzow if its consequence is that it leads to recovery even in the absence of demonstrable prejudice.1418
11.135 Professor Paulsson subsequently reiterated these views in a different setting. In the expert
opinion he submitted on behalf of claimants in the UNCITRAL arbitration between Chevron &
Texaco and Ecuador, he stated that the measure of damages for a denial of justice depended on
the answer to the following question:
What would a proper disposition of the legal proceedings have been? Once that question is answered, the measure of compensation is clear: to award the Claimants the value of the difference between a proper disposition and the treatment they actually suffered.1419
1418 Paulsson, p. 227 (emphasis added) (RL-239). Professor Paulsson adds: “Such recovery could only be viewed as a penalty in the interest of the international rule of law.” Ibid. This statement does not reflect existing general international law; nor is advanced by Professor Paulsson as such, at least in his 2005 treatise. As stated by the ILC in the commentary on its Draft Articles on State Responsibility:
Compensation corresponds to the financially assessable damage suffered by the injured State or its nationals. It is not concerned to punish the responsible State, nor does compensation have an expressive or exemplary character.
ILC, Draft articles on Responsibility of States for Internationally Wrongful Acts, with commentaries, p. 99, Comment (4) to Art. 36 (emphasis added) (RL-130).
1419 Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. Republic of Ecuador, UNCITRAL, Partial Award on the Merits (30 Mar. 2010) (Böckstiegel, Brower, van den Berg) (hereinafter “Chevron v. Ecuador”), ¶ 358 (citing paragraph 144 of Professor Paulsson’s opinion submitted in support of the claimants’ case) (emphasis added) (RL-187).
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11.136 In his expert opinion in this case, Professor Paulsson makes a remarkable volte-face.
Where before he was critical, he now embraces Amco II.1420 To this Tribunal he opines that
Claimants must receive “full compensation” for “the financial impact of being constrained by
regulations whose lawfulness [they] were deprived of an opportunity to challenge ….”1421
11.137 Professor Paulsson is obviously aware of his own prior writings. He seeks to excuse the
evident contradiction between his opinion in this case and his previously expressed views as
follows:
In Denial of Justice in International Law, I suggested at pages 223 et seq. that [the Amco II tribunal’s] approach left unresolved some issues of proximate cause in cases where intervening factors contributed to the prejudice, whether acts of the claimant (e g conduct justifying forfeiture of its rights) or of a third party (e g breach of a private contract). Those concerns do not seem to apply here, where the Claimants are not alleged to have engaged in any unlawful behaviour; activity which was lawful when it was carried out does not become retrospectively unlawful by the enactment of regulations.1422
11.138 This ex post rationalization is unpersuasive. Not only does it fail to address his expert
opinion in the Chevron & Texaco case, the fact is that nowhere in his treatise did Professor
Paulsson suggest that he considered the Amco II tribunal’s approach applicable only in cases
where the claimant had engaged in unlawful conduct. To the contrary, his concern plainly
transcended the particular facts of the case. The question to which he addressed himself was
1420 Paulsson Opinion, ¶ 51 (“As the tribunal in Amco II held, the task for the tribunal is to nullify the denial of justice and to repair the prejudice it has caused, not to examine the merits of the aborted challenges as though it were standing in the place of either the Supreme Court or the TCA, and imagining how either of those courts might have decided in the absence of a denial of justice.”) (CWS-011).
1421 Ibid.
1422 Ibid., ¶ 50.
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simple and clear: “what are the damages [for a denial of justice] if the outcome would have been the same even if the national authorities had acted properly?”1423 And his response there was quite different from his opinion here: such damages would have to correspond “to what the international tribunal feels was the true loss,” and to do that “it may be necessary to evaluate probabilities of the outcome if the local system had proceeded in accordance with its laws but without violating international law.”1424
11.139 In any event, the tribunal’s approach in Amco II has been superseded by more recent jurisprudence. In Chevron & Texaco v. Ecuador, the tribunal, having found Ecuador liable for breach of Article II(7) of the Ecuador-U.S. BIT,1425 noted with approval the agreement of the parties that (1) “the loss due to an international wrong is to be measured by the comparison of the victim’s actual situation to that which would have prevailed had the illegal acts not been committed”; and (2) “the Tribunal may only award compensation to the Claimants if the
Claimants are able to prove that they would more likely than not have prevailed on the merits in
1423 Paulsson, p. 221 (RL-239).
1424 Ibid., p. 227.
1425 The tribunal found Ecuador liable for breach of Article II(7) of the Ecuador-U.S. BIT, and not for a denial of justice. Chevron v. Ecuador, ¶ 275 (“Any additional breach of the BIT or – in view of Article VI(1)(a) – of customary international law is not relevant unless it leads to further damages. As will be seen in the later considerations of the Tribunal regarding causation and damages, the Parties have not claimed and indeed there is no evidence that additional damages have been caused by the alleged breaches of other BIT provisions or of customary international law. Accordingly, as the award of damages in respect of the breach of Article II(7) encompasses any compensation owed with regard to the remaining BIT and custom-based claims, those claims need no longer be decided.”) (RL-187). The tribunal found that Article II(7), requiring the Parties to “provide effective means of asserting claims and enforcing rights with respect to investment,” created obligations that “overlap significantly with the prohibition of denial of justice under customary international law”; however, it “appears in the BIT as an independent, specific treaty obligation and does not make any explicit reference to denial of justice or customary international law.” In the view of the tribunal that meant that Article II(7) “constitutes a lex specialis and not a mere restatement of the law on denial of justice.” The implication was that “a distinct and potentially less-demanding test is applicable under this provision as compared to denial of justice under customary international law.” It followed that “under Article II(7), a failure of domestic courts to enforce rights ‘effectively’ will constitute a violation of Article II(7), which may not always be sufficient to find a denial of justice under customary international law.” Ibid., ¶¶ 241-242, 244.
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their cases before the Ecuadorian courts, that is if the Tribunal believes that the underlying claims have merit and should have been accepted by the Ecuadorian courts.”1426 The tribunal
went on to state that “in essence” the claimants had to prove: “the element of causation – i.e.,
that they would have received judgments in their favor as they allege “but for” the breach by the
Respondent.”1427
11.140 Importantly, the tribunal observed that these conclusions were consistent with Professor
Paulsson’s treatise, which stood for the proposition that “simply proving the breach does not automatically entitle a claimant to get the amount of his original claim, but that he must prove the merit of that underlying claim.”1428
11.141 Learned commentators agree with the views Professor Paulsson expressed in his treatise
and in his expert report in the Chevron case. According to Professors Wälde and Sabahi, a
material breach of the due process principle implicit in “denial of justice” should not lead to an
award “as if the investor had prevailed in the incriminated litigation ….”1429 Any other outcome
would contravene the established prohibition against overcompensation in international law.1430
Indeed, as Professors Wälde and Sabahi pointedly observe: “If a denial of justice claim would
1426 Ibid., ¶ 374. Neither side in the arbitration “argue[d] that any particular violation of the BIT or – in view of Article VI(1)(a) – of customary international law leads to any additional damages or a different assessment of damages as compared to any other alleged violation.” Ibid, ¶ 383.
1427 Ibid., ¶ 374 (emphasis added).
1428 Ibid., ¶ 380 (emphasis added).
1429 T. Wälde & B. Sabahi, Compensation, Damages and Valuation in International Investment Law, TRANSNATIONAL DISPUTE MANAGEMENT, Vol. 4, No. 6 (Nov. 2007) (hereinafter “Wälde & Sabahi”), p. 31 (RL- 244).
1430 C. Tietje & E. Sipiorski, Offset of Benefits in Damages Calculation in International Investment Arbitration, 29 J. INT’L ARB. 545 (2012), p. 547 (“Implicated in the idea of full compensation is the premise that the compensation shall not exceed the amount that was lost by the wrongful act or breach.”) (RL-253).
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result in compensation equal to the claim, then the investor would in effect swap a risky litigation claim against certain, risk-free income.”1431 That would lead to “‘double recovery’ except in
cases where on the basis of facts and law available the domestic court had in the tribunal’s view
no other choice but to adjudicate fully in favour of claimant.”1432
11.142 For Claimants to succeed in their claim for compensation, they must therefore prove that
they would have succeeded in their administrative challenges to the SPR and 80% Requirement
but for the alleged improprieties to which they point. Without that, they have not established the
required causal link between the nominal wrong and the damages they suffered. Yet, nowhere in
their Memorial do Claimants even attempt to make this showing. Their claim for compensation
must therefore be rejected.
1431 Wälde & Sabahi, p. 31 (RL-244).
1432 Ibid.
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CONCLUSIONS AND SUBMISSIONS
For all the reasons set forth above, the Oriental Republic of Uruguay submits:
1. Claimants’ claims should be dismissed in their entirety; and
2. Uruguay should be awarded compensation for all the expenses and costs associated with defending against these claims.
Dated: 13 October 2014
Respectfully Submitted,
______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
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