Under proposed government legislation aimed at reducing smoking rates, due to take effect next year, all logos would be removed from cigarette packaging with company brand names printed in a specific font.
|File photo shows the Philip Morris International headquarters in Lausanne.|
All packets would also be a bland olive-green and contain graphic health warnings such as black, diseased gums, blinded eyes and children in hospital.
The proposal has enraged the tobacco giants, who say it would reduce their profits and see counterfeit products flood the market because plain packaging is much easier to reproduce.
Hong Kong-based Philip Morris Asia (PMA), which distributes brands such as Marlboro and Peter Jackson in Australia, will argue that Canberra is breaching a bilateral investment treaty between the two countries.
"The forced removal of trade marks and other valuable intellectual property is a clear violation of the terms of the bilateral investment treaty between Australia and Hong Kong," PMA spokeswoman Anne Edwards said in a statement.
"We believe we have a very strong legal case and will be seeking significant financial compensation for the damage to our business."
The notice of claim, to be served on Monday, will start a three-month period of negotiation and if there is no resolution the matter will proceed to arbitration.
"Legal action is not a course we take lightly, but the government has unfortunately left us with no other option," added Edwards.
The Philip Morris statement cited Don Wallace Jr., chairman of the International Law Institute and an expert on investor-state disputes, as saying compensation could be significant.
"Plain packaging legislation would expose Australia to well-founded claims under the treaty, potentially costing the Australian government billions of dollars in damages," said Wallace.
Canberra says 15,000 Australians die of smoking-related diseases every year, and that tobacco use costs the country Aus$31.5 billion ($33 billion) a year in healthcare and lost productivity.
Though Australia would be the first country in the world to mandate plain packaging, New Zealand, Canada and Britain have considered a similar policy.