An office worker smokes a cigarette as he takes notes in front of the Sydney Harbor Bridge on August 15, 2012. Australia called on the rest of the world to match its tough new anti-tobacco marketing laws which say cigarettes and tobacco products must be sold in plain olive green packets without branding. (Daniel Munoz/Reuters)

Australia’s High Court has rejected a challenge by the world’s biggest tobacco companies seeking to overturn a law requiring cigarettes to be sold in plain packaging.

The law, approved by Parliament last year, requires cigarettes to be sold in drab dark packaging starting in December, without logos but featuring graphic images of smoking-related diseases. Brand names can still be used, but only in a standard font, size and position.

British American Tobacco, Imperial Tobacco, Philip Morris International and Japan Tobacco had argued that the world’s first plain-packaging law was unconstitutional because it amounted to an acquisition of intellectual property without adequate compensation.

But on Wednesday, the High Court struck down the challenge, which is being closely followed outside Australia by the European Union and several countries that are consulting on whether to ban branding on tobacco packaging.

“The plaintiffs argued that some or all of the provisions of the act were invalid because they were an acquisition of property otherwise than on just terms,” the court said in a summary of the decision. “At least a majority of the court is of the opinion that the act is not contrary to section 51 of the constitution.”

The European Union is considering introducing plain packaging, while the British government finished its public consultation on the issue last week.

John Doherty, head of regulation at the Britain-based law firm Manches, said the alcohol and fast-food industries were watching developments closely.

“The Australian judgment and the U.K.’s proposed plain-packaging regime for tobacco products will be of major concern for all producers of consumer products that have known adverse health effects,” he said.

“The most obvious candidates next in line to face similar initiatives will be the alcohol, soft drinks and fast-food industries.”

The specter of plain packaging has prompted many tobacco companies to invest in a new generation of smokeless alternatives to cigarettes as the industry faces regulatory threats across the globe.

The Australian High Court is to publish its reasons for the decision later in the year. The Labor government had argued that it was not acquiring intellectual property, but preventing tobacco companies from using their brands to promote the products.

Nicola Roxon, Australia’s attorney general, and Health Minister Tanya Plibersek welcomed the decision.

“This is a victory for all those families who have lost someone to tobacco-related illness,” they said in a statement. “No longer when a smoker pulls out a packet of cigarettes will that packet be a mobile billboard.”

The decision, which had been expected by legal experts, does not, however, mark the end of the legal battle over plain packaging. It will be contested under international trade agreements.

Philip Morris is challenging the law under the 1993 Bilateral Investment Treaty between Australia and Hong Kong. This has led to accusations by Roxon that Philip Morris deliberately transferred ownership of its Australian business from a Swiss parent company to Hong Kong so that it could launch proceedings. Trade complaints have also been filed at the World Trade Organization.

“We will have to wait to read the court’s opinion to fully assess today’s decision,” Philip Morris said. “Regardless, the legality of plain packaging, including whether Australia will have to pay substantial compensation to Philip Morris Asia, remains at issue and will be considered in other ongoing legal challenges.”

British American Tobacco expressed disappointment at the decision and said the Tobacco Plain Packaging Act was a “bad piece of law that will only benefit organized crime groups which sell illegal tobacco.”

The company said: “The illegal cigarette black market will grow further when all packs look the same and are easier to copy.”

— Financial Times

Christopher Thompson contributed to this report.