BTI British American Tobacco PLC

By Saabira Chaudhuri in London and Gabriele Steinhauser in Brussels 

The European Union's top court on Wednesday dismissed legal challenges against tightened tobacco regulations, in a move that paves the way for plain packaging and other restrictive measures to be rolled out across Europe.

The European Court of Justice upheld the 2014 Tobacco Products Directive, which bans menthol cigarettes, mandates bigger warning labels on cigarette packaging and, for the first time, sets limits on electronic cigarettes, including on how much nicotine they can contain. The court also told Poland and Romania, which wanted to stick to less restrictive measures, that they had to conform with the new EU-wide obligations.

The directive was subject to an intense lobbying battle--involving traditional tobacco companies and new players in the growing market for e-cigarettes--and led to the ousting of an EU health commissioner.

But on Wednesday, the European Court of Justice upheld the law in its entirety. The decision cannot be appealed.

The ruling is a blow for British American Tobacco PLC and Philip Morris International Inc., which in 2014 had filed a legal challenge against certain parts of the directive. The companies objected to the use of certain product descriptors, the mandatory graphic warning and the ban on certain flavorings, among other things, saying the European Commission had exceeded its authority.

"We stand by our belief that the Tobacco Products Directive is a clear example of the EU overstepping the limits of its authority," said a BAT spokeswoman on Wednesday. "The reality is that many elements of the directive are disproportionate, distort competition and fail to respect the autonomy of the member states."

Marc Firestone, general counsel of Philip Morris International, said the ruling isn't the final word on the overall legality of plain-packaging laws. "Today's judgment is specific to detailed aspects of EU law, and reflects the substantial deference that the Court of Justice often shows to the EU institutions when reviewing EU legislation," he said.

A spokesman for Imperial Brands PLC, which didn't file a separate suit but participated as an interested party to Philip Morris's case, said the company was disappointed by the judgment.

The new EU-wide rules come into force later this month, with countries given transition periods for certain measures.

Wednesday's decision also marks a major setback for e-cigarette makers. The limitations on e-cigarettes were among the most disputed provisions of the directive. E-cigarette makers argued that their products weren't tobacco products and thus shouldn't be dealt with under the new law. Makers of regular cigarettes, meanwhile, complained that e-cigarettes faced looser rules.

The directive limits the nicotine content of e-cigarette liquids to 20 milligrams per milliliter, requires that health authorities be notified of the products, and bans advertising and sponsorship.

Wednesday, the court said the new limits were warranted. "The identified and potential risks linked to the use of electronic cigarettes have led the EU legislature to act in a manner consistent with the requirements stemming from the precautionary principle," it said.

U.K. e-cigarette company Totally Wicked, which had challenged the directive, said the measure "will adversely impact the availability of good quality, electronic cigarettes and e-liquids, and jeopardize the life-changing potential of vaping, resulting in a major detrimental impact on the public health of millions of people across the EU."

The court said banning menthol, the most popular flavoring for traditional cigarettes, was in line with EU law.

"Menthol, by its pleasant flavor, makes tobacco products more attractive to consumers," the court said. "Reducing the attractiveness of those products may contribute to reducing the prevalence of tobacco use and dependence among new and continuing users.

It said a requirement that health warnings cover at least 65% of the front and back of cigarette packages "did not go beyond the limits of what is appropriate and necessary." National governments will also still be allowed to go beyond this minimum requirement, for instance by mandating plain packaging, which prohibits cigarette makers from using distinctive fonts and colors.

The decision paves the way for the U.K. to go ahead with its own law on plain packaging, slated to take effect later this month. Tobacco companies had brought a separate case in the U.K. challenging the legality of plain packaging, which was heard in December. A judgment--widely expected to favor plain packaging--is due later this month. France and Ireland are among other EU states that have said they would adopt stricter packaging limitations.

Exane BNP Paribas analyst James Bushnell described Wednesday's ruling as "not a surprise, but clearly not positive."

The biggest danger to the tobacco industry is a more global spread of plain packaging as the latest adopters lend legitimacy to the regulation, " he said.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Gabriele Steinhauser at gabriele.steinhauser@wsj.com

(END) Dow Jones Newswires

May 04, 2016 08:07 ET (12:07 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.