Shock law angers cigarette firm Philip Morris

Tobacco giant Philip Morris is to fight Australian plans to strip company logos from cigarette packs and replace them with grisly images of cancerous mouths, ill children and bulging, blinded eyes.

The government believes the new rules will make the packs less attractive to smokers and turn Australia into the world's toughest country on tobacco advertising.

Several outraged cigarette makers have threatened lawsuits, arguing the move illegally diminishes the value of their trademarks. Philip Morris is the first companies to file a claim for compensation.

"We would anticipate that the compensation would amount to billions," a spokeswoman said.

The legislation, which will be introduced to Parliament next month, would ban cigarette makers from printing their logos, promotional text or colourful images on packs. Brand names will instead be printed in a small, uniform font and feature large health warnings and gruesome, full-colour images of the consequences of smoking. The law would be phased in over six months, starting in January 2012.

Hong Kong-based Philip Morris Asia Limited, which owns the Australian affiliate Philip Morris Limited, started its legal action by arguing the legislation violates a bilateral investment treaty between Australia and Hong Kong.

The tobacco company says the treaty protects companies' property, including intellectual property such as trademarks. The plain packaging proposal severely diminishes the value of the company's trademark.

"Our brands are really one of the absolute key valuable assets that we have as a company - it's what helps us compete, it's what enables us to distinguish our products," the spokeswoman said. "This move ... would essentially amount to confiscation of our brand in Australia."

The government denied the plan breaks any laws and said it would not back down.

"Our government is determined to take every step we can to reduce the harm by tobacco," Health Minister Nicola Roxon said. "We won't be deterred by tobacco companies making threats or taking legal action."

Prime Minister Julia Gillard also brushed off Philip Morris' threats. "We're not going to be intimidated by big tobacco's tactics," she said.

The legal notice filed opens up a three-month period of negotiation between the two sides. Philip Morris said if a "satisfactory outcome" is not achieved by the end of the three months, it will seek arbitration.