Big Tobacco took the British government to court on Thursday, arguing that the UK's "plain packaging" law, which will take effect next May, unlawfully takes away its intellectual property.
Companies including Philip Morris International (PM.N), British American Tobacco (BATS.L), Japan Tobacco International (2914.T) and Imperial Tobacco Group (IMT.L) are challenging the legislation because it will prohibit all forms of branding on tobacco packaging, including colours and logos.
The rule, known as "plain packaging," aims to reduce smoking's death toll by making the packs less attractive.
"Smoking is catastrophic for your health and kills over 100,000 people every year in the UK," said a spokesman for the Department of Health. "Standardised packaging is an important public health measure aimed at discouraging children from smoking and helping smokers to quit."
What happens in Britain will be closely watched by other countries considering or planning such moves.
The companies failed in their bid to overturn a plain packaging law in Australia, but have said they are more confident this time because they only have to prove under UK law that their intellectual property was illegally taken but had further hurdles under Australian law.
The case will be heard in a six-day hearing at London's Royal Courts of Justice. The claimants hope a verdict will be handed down early next year.
BIG TOBACCO PUTS FORWARD ITS CASE
Tobacco companies argue that the plain packaging law represents the seizure of their property without compensation.
"Our trademarks have a capital value ... and that value has been effectively removed," said David Anderson of law firm Freshfields, representing Japan Tobacco International in court.
"Since there is no compensation at all .... They must be considered unlawful for that reason alone," he also said.
Barrister Dinah Rose, speaking on behalf of Imperial Tobacco, argued that by preventing the use of intellectual property in Britain, the UK was violating European Union law that gives trade marks a "unitary character" that applies throughout the community.
In Australia, the only country to have so far implemented plain packaging, the companies say there has been an increase in black market tobacco and sales of lower-priced cigarettes, which could ultimately hurt their profit margins.
In separate EU court proceedings, the companies are challenging an article in the revised EU Tobacco Products Directive that gives member states the right to introduce their own regulations. If they succeed, the UK's plan would fail. Further guidance from the EU is expected later this month.
Aside from Australia and Britain, plain packaging has been approved in Ireland, Hungary and France, while over a dozen other countries -- including Belgium, Canada and Pakistan -- have either proposed or are talking about proposing, similar measures.
"In total we count 20 countries with some level of interest or focus on pursuing some type of plain packaging regulation," said Wells Fargo analyst Bonnie Herzog in a recent note. She said those countries represent 30 percent of cigarette retail sales, excluding China and the United States.