Gates and Bloomberg create $4 million fund to fight Big Tobacco

* Fund to help poorer countries fight legal challenges

* Fund co-founder Bloomberg: "This is about sovereignty"

* Initial investment expected to grow with other donors (Adds statement from tobacco firm Philip Morris International (Xetra: A0NDBJ - news) )

By Kate Kelland, Health and Science Correspondent

LONDON, March 18 (Reuters) - Developing countries facing potentially pricey legal challenges from big tobacco firms are to get help from a new $4 million fund created by the philanthropists Bill Gates and Michael Bloomberg.

Announcing the creation of the anti-tobacco trade litigation fund on Wednesday, Bloomberg Philanthropies and the Bill & Melinda Gates Foundation said countries with limited resources should not be bullied into making bad health policy choices.

"This new fund is going to help countries who are sued by the tobacco industry fight back in court and win," Bloomberg, the former mayor of New York and one of the world's richest people, told reporters in a telebriefing.

Bloomberg and Gates, the billionaire co-founder of Microsoft (NasdaqGS: MSFT - news) , cited examples such as Uruguay, which since 2010 has been fighting a legal challenge by the cigarette maker Philip Morris International against the use of graphic health warnings on tobacco products.

Australia has also been fending off a World Trade Organization challenge and a legal challenge by Philip Morris against its anti-tobacco laws.

The tobacco industry's use of international trade agreements to threaten and prevent countries from passing tobacco control laws was unacceptable, Bloomberg said.

"This is not about trade," he said. "No one is a stronger supporter of capitalism and trade than I am. This is about sovereignty and whether a country has the right to set its own public health policies."

Philip Morris International said in a statement that it respected "a government's authority to regulate in the public interest" and believes "sound tobacco control policy and compliance with international law can easily coexist".

"Governments can and should honour their international obligations when enacting tobacco control measures, and this fund can provide them with resources to do so," it said.

According to the American Cancer Society and the World Lung Foundation's 2012 Tobacco Atlas, the combined profit of the world's six leading tobacco companies was $35.1 billion in 2010.

Britain voted last week to introduce a ban on branding on cigarette packs, following Australia in introducing so-called "plain packaging" to try to protect public health

British American Tobacco (LSE: BATS.L - news) , the world's second-largest cigarette maker, has said it will take action against Britain, which has a $29 billion tobacco industry, but the Department of Health said it would "defend this policy robustly against any legal challenge".

Gates noted in a statement that smaller countries did not have the same resources as Australia and Britain.

"Country leaders who are trying to protect their citizens from the harms of tobacco should not be deterred by threats of costly legal challenges from huge tobacco companies," he said.

The U.S.-based Campaign for Tobacco-Free Kids will administer the fund, starting with $4 million. The initial investment is expected to grow as more donors come on board. (Editing by Alison Williams)