Photographer: Daniel Acker/Bloomberg

Big Tobacco Risks EU Court Defeat Over Tough Packaging Rules

  • Measures help health-warning effectiveness, court adviser says
  • Advocate general for top court also backs rules on e-cigs

Tobacco companies including Philip Morris International Inc. and British American Tobacco Plc received a blow from an adviser to the European Union’s top court in their battle against EU orders to cover cigarette packs with graphic pictures and warning signs.

The 2014 EU rules help boost the visibility of health warnings and maximize their effectiveness, Advocate General Juliane Kokott of the EU Court of Justice said in a non-binding opinion Wednesday.

“The coolness or the fun factor” and “the curiosity that may be inherent in new or unusual packaging then has a lesser influence on the decision to purchase,” she said.

Wednesday’s opinion stems from a U.K. court case where judges last year asked their EU peers whether the European rules are valid. Philip Morris, BAT, Imperial Tobacco Group Plc and Japan Tobacco Inc., who control almost all of the 18.7 billion-pound ($27.8 billion) U.K. market earlier this month went to court again, this time claiming British measures violate the companies’ intellectual property rights.

Kokott said EU nations are free to take the rules a step further on packaging standards, such as requiring plain cigarette packs, with no logos.

“It’s a blow for the tobacco companies but it isn’t a massive surprise given that the EU wrote the law," Duncan Fox, an analyst with Bloomberg Intelligence, said by phone. If the top court upholds the rules, “it gives a nice get-out clause for European countries that want to implement plain packaging.”

‘Disappointed’

“While we are still analyzing the opinion, we are obviously disappointed with its conclusions,” British American Tobacco said in an e-mailed statement. “Importantly, it does not give member states carte blanche to adopt plain packaging,” BAT said.

The new EU tobacco law “inexplicably encourages a patchwork of regulations and disregards important limits on the scope of EU legislation,” Philip Morris said in a statement. Kokott’s opinion “offers an unusually broad view” of the EU’s authority, it said. Representatives for the other tobacco companies didn’t immediately comment.

Cancer-Causing Substances

The contested EU rules replaced a 2001 EU tobacco law forcing cigarette makers to put health warnings at the top of packages. Nations must ensure firms apply the measures, which also include a mandatory information message that tobacco smoke contains more than 70 cancer-causing substances.

Tobacco kills as many as 695,000 people a year in the EU, or one person every 45 seconds, according to the European Commission, which says a third of European adults still smoke. Smoking is the largest avoidable health risk in Europe, causing more problems than alcohol, drugs, high blood pressure, high cholesterol or obesity, according to the EU’s executive body, which proposed tougher rules in December 2012.

The U.K. and Ireland together with France are the first European countries to back plain packaging, stamping out one of the last ways cigarette manufacturers can market their products to consumers.

Cap on Valuations

The opinion “makes it seems increasingly unlikely that the U.K, France or Ireland will either delay or abandon their PP implementations,” Exane BNP Paribas analysts wrote in a note. “This is negative for sector sentiment in 2016, and could cap sector valuations despite the positive pricing and operating environment being seen at present.”

Kokott also backed EU-wide rules for the advertising of e-cigarettes, a “still relatively little known product for which there is a rapidly developing market.”

This contrasts with recent developments in the U.K., one of the biggest e-cigarette markets globally, which have indicated a growing acceptance of the products as a method of harm reduction. Prime Minister David Cameron told the Commons this month that the devices represented a viable way of quitting smoking. While in August, a report by Public Health England said that there’s about a 95 percent chance of e-cigarettes being less harmful than conventional cigarettes.

The EU court adviser also backed a ban on menthol cigarettes as necessary because the flavor can “reduce or camouflage the generally very bitter and even pungent taste of tobacco smoke” and facilitate initiation to smoking.

The Luxembourg-based court’s final ruling -- expected in four to six months -- will be binding and usually follows the opinions of its advocates general.

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