Philip Morris to sue if Australia puts all cigarettes in plain green wrappers

Marlboro manufacturer Philip Morris International is threatening to sue the Australian government for billions of dollars over its plan to be the first country to introduce plain, brand-free packaging for cigarettes.

The row is being closely followed by politicians in Britain, Canada and New Zealand, where similar plans to curtail cigarette branding are being considered.

The Australian government has drawn up some of the world's strictest restrictions for cigarette packaging. From January 2012 it plans to stop manufacturers showing logos, branding, colours and promotional text on tobacco packaging.

Cigarette packets will be a drab, olive-green colour that research has shown is unattractive to smokers. The box will also show graphic images depicting the health consequences of smoking on the front and back.

Branding will be restricted to the name of the manufacturer and the name of the product displayed in a standard size and type of lettering.

British American Tobacco (BAT), one of the largest cigarette firms in Australia, has already said it plans a legal challenge to the proposals, which have yet to be formally released. A spokeswoman said BAT would wait for the legislation to be issued before making any move.

Philip Morris Asia is the parent company of the Marlboro firm's Australian outpost. It claims Canberra's proposals will violate its intellectual property rights and is taking legal action using Australia's bilateral investment treaty with Hong Kong. The rules are designed to protect investments made by Asian companies against discriminatory treatment.

"If no mutually agreeable solution is found, then it proceeds to us seeking compensation. We estimate the damage will potentially amount to billions of Australian dollars," a spokeswoman for Philip Morris Asia told Dow Jones Newswires.

"Brands are valuable intellectual property and form the basis of consumer goods businesses like ours. If we are banned from using them, our business in Australia will become commoditised and its value will be significantly impacted.

"The Australian government does not have an unfettered right to confiscate [our] valuable intellectual property. Moreover, the government has failed to demonstrate that plain packaging will reduce smoking prevalence."

The company has nominated Singapore as a venue for the initial talks.

The Australian government pledged to fight any legal action. The prime minister, Julia Gillard, said: "We're not going to be intimidated by Big Tobacco's tactics, whether they're political tactics, whether they're public affairs kind of tactics out in the community, or whether they're legal tactics. We're not taking a backward step. We've made the right decision and we'll see it through."

The Australian health minister, Nicola Roxon, said the government's legal advice was strong. "We won't be frightened off by threats of legal action," she said. "We will fight that action."

The Australian moves come as the UK prepares to tighten its rules on cigarette packets, with plain packaging under consideration.

Last week, the US government unveiled its new packaging rules, which force tobacco firms to print harrowing images of the health consequences of smoking on cigarette boxes.

Martin Dockrell, director of research and policy at anti-smoking group Ash, said he expected the Australian suit to be the first of many as governments around the world tighten up the rules on cigarette packaging.

"Plain packaging would make a tremendous difference and that's why the tobacco industry is fighting so hard to stop it," Dockrell said.

"Legal action is a standard delaying device for them. They are going to throw huge amounts of money into this."

Philip Morris is already pursuing a claim against Uruguay for the latter's tough rules on cigarette packaging. The company is citing impairment of its commercial interests in a case lodged with the World Bank's arbitration body, the International Centre for Settlement of Investment Disputes. It argues that these violate trade agreements with Switzerland, where Philip Morris International is based. Uruguay is defending its laws, arguing that its government has a right to legislate on such matters in the interest of public health.

• This article was amended on 30 June 2011. The original said that Philip Morris's ICSID action had forced Uruguay to water down its rules on cigarette packaging. This has been corrected.