BTI British American Tobacco PLC

   (FROM THE WALL STREET JOURNAL 12/11/15) 
   By Saabira Chaudhuri 

LONDON -- Big Tobacco's legal challenge against the U.K.'s plain-packaging laws kicked off Thursday in a hearing that involves arguments about trademark protection and property deprivation.

British American Tobacco PLC, Imperial Tobacco Group PLC, Japan Tobacco International and Philip Morris International Inc. are presenting legal challenges against plain packaging in London's High Court in a high-stakes six-day hearing that could set a precedent for other countries in Europe to strip branding from cigarette packs.

The U.K. Parliament in March voted to ban branding on cigarette packs as of May 2016. Cigarettes would be sold in uniform packs stripped of distinctive logos and colors -- and adorned with graphic health warnings.

Similar moves are afoot elsewhere, with France recently passing legislation to require plain packaging starting in May. Australia, Ireland and Hungary have also passed plain-packaging laws; a BAT lawsuit against Australia in 2012 was unsuccessful. A total of 20 countries are looking at plain-packaging regulation, according to Wells Fargo analyst Bonnie Herzog. U.S. free-speech laws make plain-packaging legislation all but impossible there.

BAT, Philip Morris, Imperial and Japan Tobacco all filed suits with the High Court in London this summer, alleging that plain packaging violates U.K. and European law.

Tobacco companies' ability to advertise to consumers in the U.K. has been squeezed for years, first by a ban on newspaper and billboard ads in the early 2000s and later by laws that banned tobacco products from being displayed in stores.

Global tobacco consumption has been steadily declining, leaving companies reliant on persuading smokers to buy pricier brands, with quality and brand image at least partly communicated through packaging.

"Removing or significantly weakening branding turns a differentiated marketplace built on innovation and reputation, with products at a range of price points, into very much a commodity marketplace where the primary decision is made on price," said John Noble, director of the British Brands Group, a trade organization.

Imperial's director of group corporate affairs, Axel Gietz, earlier this year described plain-packaging legislation as "a big mistake," noting that "no one starts or continues to smoke because of the color of the pack."

The six-day hearing will include arguments about how plain packaging breaches the trademark and intellectual-property rights enshrined in European Union law. Tobacco companies are also reaching back to a British legal precedent that has its roots in 1765 that says the government can't deprive people of their property without appropriate compensation.

Exane BNP Paribas analyst James Bushnell who attended the Thursday hearing, said the tobacco companies also argued that there is no conclusive evidence that plain packaging is an effective tool in reducing smoking. A verdict is due in early January.

"The judge in the case appeared to be very reasonable, understanding of the arguments and open to all possible outcomes," said Mr. Bushnell.

But Enrico Bonadio, a professor at City Law School who has spent years researching legislation around tobacco, said the tobacco companies are facing an uphill battle.

"The arguments used by the U.K. government are stronger than those used by tobacco companies," he said.

Trademark registrations give owners the right to prevent others from exploiting the trademark but don't offer a positive right to use the brand, leaving open the possibility that how the brand is used can be restricted by the government, Mr. Bonadio said.

He also questioned the tobacco industry's allegation that the government is depriving companies of property without compensation, noting that the government isn't expropriating brands, just limiting their use. Further, he said, any compensation paid would be used to boost the sale of harmful products, contrary to the public interest.

Later this month, an advocate general at the European Court of Justice will give a nonbinding opinion on the EU's revised Tobacco Products Directive, an article of which allows member states to implement packaging rules that go beyond the directive's mandate that 65% of a pack be covered by a health warning. A binding decision will follow the advocate general's. If the article is struck down, the U.K.'s plain-packaging ruling won't be legal.

At the hearing that started Thursday, tobacco companies are also expected to argue that bringing in plain packaging at same time as the directive is unnecessary and doesn't allow time for the revised directive's implications to become apparent.

(END) Dow Jones Newswires

December 11, 2015 02:47 ET (07:47 GMT)

British American Tobacco (NYSE:BTI)
Historical Stock Chart
From Mar 2024 to Apr 2024

British American Tobacco (NYSE:BTI)
Historical Stock Chart
From Apr 2023 to Apr 2024