Order Code RL33719
Tobacco: Selected Legal Issues
Updated April 30, 2007
Vanessa Burrows
Legislative Attorney
American Law Division
Tobacco: Selected Legal Issues
Summary
Over the past decade, the courts and the Congress have been grappling with
tobacco-related issues. Among these issues are the Food and Drug Administration’s
(FDA) attempt to regulate certain tobacco products under the Federal Food, Drug,
and Cosmetic Act (FDCA); the Master Settlement Agreement (MSA) that resulted
from lawsuits brought by states attorneys general against tobacco companies; federal,
private party, and foreign lawsuits against tobacco companies; limits on tobacco
advertising; and restrictions on selling and distributing tobacco to minors. During
the 110th Congress, legislators have introduced several bills that address some of the
above issues, including H.R. 1108, S. 625, S. 1162, and S.Con.Res. 21.
The FDCA gives the FDA authority to regulate food, drugs, devices, and
cosmetics. In 1996, the FDA promulgated a final rule stating that, under the FDCA,
it could regulate cigarettes and smokeless tobacco. In 2000, the U.S. Supreme Court,
however, found that Congress had not given the FDA regulatory power over tobacco
and overturned the final rule in FDA v. Brown & Williamson Tobacco Corp.
In the 1990s, states attorneys general brought lawsuits for reimbursement of
their states’ tobacco-related medical expenses. The states attorneys general and the
tobacco companies reached a settlement in 1997, but this settlement never garnered
the congressional approval needed for implementation. In 1998, however, 46 states,
the District of Columbia, five U.S. territories, and the tobacco industry signed the
MSA, worth $206 billion over 26 years.
In 1999, the Clinton Administration filed a lawsuit against major tobacco
companies and industry trade groups to recoup federal tobacco-related medical costs.
In August 2006, the district court held that the tobacco companies violated two
Racketeer Influenced and Corrupt Organization Act (RICO) claims and, among other
remedies, ordered them to remove descriptors such as light, low tar, natural, mild,
and ultra light from their packaging. The case is being appealed.
Since the U.S. Supreme Court’s 1992 decision in Cipollone v. Liggett Group
Inc., individual and class action lawsuits have been brought against tobacco
companies under theories such as fraudulent representation, conspiracy, breach of
express warranty, and failure to warn. The private party suit section of this CRS
report discusses the recent decision to certify as a class action the first light cigarettes
case in a federal court, Schwab v. Philip Morris U.S.A., Inc., as well as other selected
state class actions. Suits brought in federal courts by foreign governments for
medical care costs resulting from tobacco-related illnesses have not been successful.
Tobacco advertising is restricted at the federal, state, and local levels. The
Federal Cigarette Labeling and Advertising Act (FCLAA), state laws and the MSA,
and local ordinances limit tobacco advertising in ways such as prohibiting radio and
television advertisements, compelling the use of health warning labels, banning the
use of cartoons, and requiring individuals to have contact with a sales person before
purchasing tobacco products. Additionally, federal law plays a role in enforcing laws
that prohibit tobacco sales to minors.
Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The FDA’s Ability to Regulate Tobacco Products . . . . . . . . . . . . . . . . . . . . 1
State Suits and the Master Settlement Agreement . . . . . . . . . . . . . . . . . . . . . 5
The Federal Lawsuit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Private Party Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Foreign Suits in U.S. Federal Courts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Tobacco Advertising: Federal Regulations, MSA Restrictions, and
Local Ordinances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Restrictions on Selling and Distributing Tobacco to Minors . . . . . . . . . . . . 16
Tobacco: Selected Legal Issues
Introduction
Over the past decade, the courts and the Congress have been grappling with
tobacco-related issues. Among these issues are the Food and Drug Administration’s
attempt to regulate tobacco under the Federal Food, Drug, and Cosmetic Act; the
Master Settlement Agreement that resulted from lawsuits by states attorneys general
against tobacco companies; federal, private party, and foreign lawsuits against
tobacco companies; limits on tobacco advertising; and restrictions on selling and
distributing tobacco to minors. During the 110th Congress, legislators have
introduced several bills that address some of the above issues, including H.R. 1108,
S. 625, S. 1162, and S.Con.Res. 21.
The FDA’s Ability to Regulate Tobacco Products
Congress passed the Federal Food, Drug, and Cosmetic Act1 (FDCA) in 1938
in response to a tragedy in which 100 people died after taking a drug containing a
highly toxic substance. The statute increased the Food and Drug Administration’s
(FDA) enforcement power, gave the FDA jurisdiction over previously unregulated
cosmetics and devices, and instituted safety measures such as requiring instruction
labels on drugs and a pre-market approval process for new drugs.2 The FDCA also
“prohibited false therapeutic claims for drugs.”3 Since 1938, the law has been
amended numerous times.4
Under the FDCA, “drugs” fall into three categories or
an inclusive fourth category comprised of articles intended to become a component
of any of the other three categories. These three categories are (1) “articles
recognized in the official United States Pharmacopoeia” or a similar standard-setting
body for prescriptions and over-the-counter medications; (2) “articles intended for
use in the diagnosis, cure, mitigation, treatment, or prevention of disease in man or
other animals”; and (3) “articles (other than food) intended to affect the structure or
any function of the body of man or other animals.”5 When determining whether an
article is a drug under the second or third categories, the agency takes the intent of
1 21 U.S.C. § 301 et seq.
2 James T. O’Reilly, Food and Drug Administration, § 3.4 (2005).
3 FDA’s Role in Protecting and Promoting Public Health, available at [http://www.fda.gov/
centennial/centennial_files/textonly/index.html].
4 Amendments to the FDCA have included a broad range of topics such as food and color
additives, animal drugs, drug abuse control, infant formula, saccharin labeling, orphan
drugs, nutrition information and food allergen labeling, prescription drug marketing and
importation, safe medical devices, and dietary supplements.
5 21 U.S.C. § 321(g)(1).
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the vendor into account. However, even if a vendor does not intend to sell an item
as a drug, the FDA can still govern it as a drug.6 The term “drug” does not include
food or dietary supplements.7
The FDCA defines “device” as:
an instrument, apparatus, implement, machine, contrivance, implant, in vitro
reagent, or other similar or related article, including any component, part, or
accessory . . . which does not achieve its primary intended purposes through
chemical action within or on the body of man or other animals and which is not
dependent upon being metabolized for the achievement of its primary intended
purposes.8
In addition, in order to be a “device” under the FDCA, an item must fall within one
of three categories that are nearly identical to those the FDCA uses to define a “drug”
(see above). In classifying an item as a device, the FDA takes into account the
manufacturer’s intent as to whether it is a device. This intent may be “indicated in
the product’s labeling” and by how the manufacturer promotes, distributes, and sells
the product.9
Combinations of drugs and devices are also regulated by the FDA. A drug-
device combination product is defined to include, among other things, a product that
contains a drug and a device that “are physically, chemically, or otherwise combined
or mixed and produced as a single entity.”10 Examples of this type of drug-device
combination product include insulin injector pens, metered dose inhalers, transdermal
patches, and catheters with antimicrobial coating.11
Under the theory that cigarettes and smokeless tobacco are “a combination of
a drug, device, or biologic product,”12 the FDA issued a final rule13 in 1996 that
would have given the agency jurisdiction over these tobacco products as drugs,
6 O’Reilly, § 13.3. Sunscreen is one example of such a product. Id.
7 21 U.S.C. § 321(g)(1)(D).
8 21 U.S.C. § 321(h).
9 O’Reilly, § 18.2.
10 21 CFR § 3.2(e)(1).
11 FDA, Frequently Asked Questions, [http://www.fda.gov/oc/combination/faqs.html#_
Toc88444656].
12 21 U.S.C. § 353; FDCA § 503(g).
13 Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco
to Protect Children and Adolescents, 61 FR 44396 (1996). For a detailed description of the
FDA’s 1996 final rule that would have restricted the sale of tobacco products, advertising,
and labels, as well as the federal district and court of appeals cases leading up to the
Supreme Court’s decision in FDA v. Brown & Williamson Tobacco Corp., see CRS Report
RL32619, FDA Regulation of Tobacco Products: A Policy and Legal Analysis, by C.
Stephen Redhead and Vanessa Burrows.
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devices, or both drugs and devices.14 The agency’s rule concentrated on cigarettes
and smokeless tobacco because the FDA did not have “sufficient evidence that
[cigars] are drug delivery devices” and “because young people predominantly use
cigarettes and smokeless tobacco products.”15 The FDA found that nicotine was a
drug under the above statutory definition providing that a drug is an article that
“affect[s] the structure or any function of the body.”16 This was because nicotine
“causes addiction and other significant pharmacological effects on the human
body.”17 The FDA further concluded that cigarettes and smokeless tobacco have
“device components that deliver nicotine to the body” and are “intended” by tobacco
manufacturers to do so.18 In the case of cigarettes, the FDA said that the device that
delivers the drug nicotine has “components [that] work together upon combustion
outside the body to form a nicotine-containing aerosol, which then delivers nicotine
to the body when inhaled by the smoker.”19 With smokeless tobacco, the device is
a component that provides “nicotine to the consumer in a form that is palatable and
absorbable by the buccal mucosa,” which is the lining inside the cheeks and lips.20
Implementation of the final rule would have enabled the FDA to regulate
cigarettes and smokeless tobacco, including their access by minors, labeling, and
advertising, under the “device” portion of the FDCA.21 In order to reach tobacco
advertising and youth access to these tobacco products, the FDA rule relied on the
agency’s already-established authority to restrict the sale, use, and distribution of a
potentially harmful device or a device that requires “collateral measures necessary
for its use [if] the Secretary determines that there cannot otherwise be reasonable
assurance of its safety and effectiveness.”22 Under the FDA’s interpretation of the
FDCA in the 1996 rule, the FDA could have issued rules on recordkeeping and
manufacturing as well as reporting requirements in the event of contamination or
14 61 FR 44400.
15 61 FR 44422 (quoting Regulations Restricting the Sale and Distribution of Cigarettes and
Smokeless Tobacco Products to Protect Children and Adolescents, 60 FR 41314, 41322 (to
be codified at 21 C.F.R. pts. 801, 803, 804, 897) (proposed August 11, 1995)).
16 21 U.S.C. § 321(g)(1).
17 Annex to the Final Rule, Nicotine in Cigarettes and Smokeless Tobacco is a Drug and
These Products are Nicotine Delivery Devices Under the Federal Food, Drug, and Cosmetic
Act: Jurisdictional Determination, 61 FR 44619, 44628-29 (1996).
18 61 FR 44628-29; 21 U.S.C. § 321(h).
19 61 FR 44649-50.
20 61 FR 44650.
21 Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco
to Protect Children and Adolescents, 61 FR 44396, 44400 (1996). The agency asserted that
in order “to provide the most effective protection to the public health,” it had discretion in
choosing whether to regulate combination products as drugs or devices, and it chose to
regulate cigarettes and smokeless tobacco as devices. Id. at 44400.
22 21 U.S.C. § 360j(e); FDCA § 502(e).
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“serious adverse events that are not well-known . . . in the scientific community.”23
With the 1996 rule in place, the FDCA also would have allowed the FDA to place
cigarettes in one of three classes of devices ranging from devices that present
minimal harm to users to devices requiring FDA approval because of the risk for
illness and the need for regulatory control. However, before the FDA could
implement its final rule or issue any further regulations, the tobacco industry
challenged the final rule. The industry argued that the FDCA did not permit the FDA
to regulate tobacco, that the FDA could not regulate tobacco products because such
items did not claim to provide health benefits, and that the FDA’s advertising
restrictions violated commercial speech protections guaranteed by the First
Amendment.
In FDA v. Brown & Williamson Tobacco Corp., the U.S. Supreme Court held
that the FDA did not have the statutory authority under the FDCA to regulate tobacco
products as drug-delivery devices, and therefore did not reach the First Amendment
issue.24 The Court used the test it had articulated in Chevron U.S.A., Inc. v. Natural
Resources Defense Council,25 which addresses congressional intent and agency
discretion:
When a court reviews an agency’s construction of the statute which it
administers, it is confronted with two questions. First, always, is the question
whether Congress has directly spoken to the precise question at issue. If the
intent of Congress is clear, that is the end of the matter; for the court, as well as
the agency, must give effect to the unambiguously expressed intent of Congress.
If, however, the court determines Congress has not directly addressed the precise
question at issue, the court does not simply impose its own construction on the
statute ... Rather, if the statute is silent or ambiguous with respect to the specific
issue, the question for the court is whether the agency’s answer is based on a
permissible construction of the statute.26
The Court found that Congress had spoken on the issue of the FDA’s authority
to regulate tobacco products under the FDCA by passing laws — not administered
by the FDA — that dealt with marketing, labeling, and education regarding tobacco
products. Specifically, the Court held that the FDA’s interpretation of the FDCA, in
its 1996 final rule, was contrary to Congress’s intent “expressed in the FDCA’s
overall regulatory scheme and in tobacco-specific legislation that [Congress] has
enacted.”27 According to the Court, if the FDA had regulatory authority over tobacco
under the FDCA, then tobacco companies could not market their products, and
tobacco products would have to be banned because they are not safe or effective.28
23 61 FR 44615-18.
24 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 142-43 (2000).
25 467 U.S. 837 (1984).
26 Id. at 842-43.
27 FDA, 529 U.S. at 126.
28 Id. at 135-37.
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State Suits and the Master Settlement Agreement29
Beginning in 1994, 41 states and Puerto Rico began filing lawsuits against
tobacco companies for reimbursement of tobacco-related medical expenses,
particularly Medicaid expenditures. These lawsuits eventually culminated in the
1998 Master Settlement Agreement (MSA), but initially they resulted in a June 1997
settlement between states attorneys general and tobacco manufacturers. The 1997
settlement incorporated all the provisions of the FDA’s 1996 tobacco rule, discussed
above. The 1997 proposal included changes to the FDCA and other federal statutes,
and required congressional legislative action in order to take effect. The 1997
agreement, however, never took effect because Congress did not approve legislation
implementing the settlement. Attempts by the 105th Congress to pass such
legislation — comprised of the settlement and additional measures such as financial
penalties if targets for reducing underage tobacco use were not met — ended when
Senator John McCain’s bill was defeated on two procedural votes on June 17, 1998,
after an extended floor debate.30 The negotiated agreement would have resulted in
tobacco-related medical reimbursement payments to states of $368.5 billion for 25
years and then $15 billion per year after the first 25 years. Additionally, tobacco
companies would have paid for programs to reduce adolescent tobacco use. This
settlement would also have granted immunity to tobacco manufacturers from future
lawsuits and ended existing class action lawsuits filed by smokers and their relatives,
as well as nicotine addiction claims.
After the defeat of Senator McCain’s bill, the major cigarette companies
resumed contractual negotiations with the states to settle the lawsuits. In November
1998, attorneys general from 46 states, the District of Columbia, and five U.S.
territories signed the MSA with the major tobacco companies. Four states —
Mississippi, Florida, Texas, and Minnesota — did not join the MSA, but instead
settled individually with the tobacco companies. The MSA did not settle individual,
union, private health care, or class action suits. Through the MSA, states will receive
annual payments of $206 billion over 26 years. Each state needed to and did obtain
its trial court’s approval to receive the MSA funds. The MSA also prohibited certain
advertising, marketing, and promotion of tobacco products (see the Tobacco
Advertising section below).
Of the $61 million paid to the states by tobacco companies to date, states have
spent less than 8% on anti-smoking endeavors, according to a March 2007 article by
the American Bar Association Journal.31 Government Accountability Office figures
indicate that states have spent even less on tobacco control, which it defines as efforts
29 For detailed explanations of the proposed 1997 National Tobacco Settlement and the 1998
Master Settlement Agreement, see CRS Report RL32619, FDA Regulation of Tobacco
Products: A Policy and Legal Analysis, by C. Stephen Redhead and Vanessa Burrows.
30 National Tobacco Policy and Youth Smoking Reduction Act, S. 1415, 105th Cong.
(1998). See, e.g., 144 Cong. Rec. S5494-5511 (June 1, 1998); 144 Cong. Rec. S5737-62
(June 9, 1998); 144 Cong. Rec. S6275-89 (June 12, 1998).
31 Mark Curriden, Up in Smoke, A.B.A. Journal, March 2007, at 27.
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to include prevention, education, enforcement, and cessation services.32 States have
allocated 30% of their MSA payments to health care, including Medicaid, health
insurance, and hospitals; 22.9% towards budget shortfalls; 7.1% to general purposes;
6% towards infrastructure; 5.5% to education; 5.4% to debt service on securitized
funds; 3.5% on tobacco control; and 7.8% to other projects.33 The states have not
allocated 11.9% of their MSA payments.34
As noted, the MSA grew out of lawsuits by the states seeking reimbursement
for their medical expenses on behalf of tobacco users. If a third party, such as a
tobacco company, causes an illness or injury to someone, and a state provides
medical care for that illness or injury, as, for example, out of Medicaid funds, then
the state may sue the third party for reimbursement of such funds. Because the
federal government pays for at least 50% of each state’s Medicaid costs, by law the
federal government is entitled to its share of any reimbursements of Medicaid funds
that a state receives from a third party that caused an illness or injury on which
Medicaid funds were expended.35 With respect to the MSA, however, Congress
enacted P.L. 106-31 (2000), which authorizes the states to keep reimbursements they
receive from third parties.36
The Federal Lawsuit
The federal lawsuit against major tobacco companies and industry trade groups
began under the Clinton Administration in 1999 as a way for the U.S. government
to recover tobacco-related medical costs paid by federal health care programs. The
Department of Justice (DOJ) was seeking (1) restitution for money paid by the
federal government’s health care programs for treatment and care of persons with
tobacco-related diseases, (2) a disgorgement of the profits that the tobacco industry
allegedly earned by violating the Racketeer Influenced and Corrupt Organizations
Act (RICO), and (3) orders preventing fraud and future violations of the law, such
as racketeering or making false, deceptive, or misleading statements about cigarettes;
as well as orders that the defendants take certain actions, such as issuing corrective
statements, disclosing research, and funding smoking cessation programs.37 In 2000,
the U.S. District Court for the District of Columbia dismissed two claims by the
government that would have provided for recovery under the Medical Care Recovery
32 Lisa Shames, Acting Director, Natural Resources and Environment, GAO, Testimony
Before the Committee on Health, Education, labor, and Pensions, U.S. Senate (February 27,
2007), Tobacco Settlement: States’ Allocations of Payments from Tobacco Companies for
Fiscal Years 2000 through 2005, at 14.
33 Shames, supra note 32. Section 10908 of the Farm Security and Rural Investment Act of
2002 mandates that GAO report on “all programs and activities that States have carried out
using funds received under all phases of the Master Settlement Agreement of 1997.” P.L.
107-171.
34 Shames, supra note 32.
35 42 U.S.C. § 1396b(d)(2)(B).
36 FY1999 Emergency Supplemental Appropriations Act (P.L. 106-31), § 3031.
37 United States v. Philip Morris Inc., No. 99-2496, 1-2, 91-92 (D.D.C. filed February 2001)
(DOJ First Amended Complaint).
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Act as well as under the Medicare Secondary Payer Act provisions of the Social
Security Act.38 The suit then proceeded under two RICO claims, 18 U.S.C. § 1962(c)
and (d).39 Section 1962(c) criminalizes the association of persons, including
corporations, with enterprises that conduct their affairs through “a pattern of
racketeering activity,” which means that they commit two or more specified crimes
within ten years. Section 1962(d) outlaws conspiracies to violate § 1962(c) or related
provisions regarding racketeering activities. The government alleged that a pattern
of racketeering activity existed because the defendants defrauded “individual
smokers of their property (i.e., the money they spent on cigarettes).”40
During the trial, the defendants appealed the U.S. District Court for the District
of Columbia’s opinion allowing the remedy of disgorgement — the giving up of the
tobacco industry’s past profits gained by its deceptive practices — to the U.S. Court
of Appeals for the D.C. Circuit. In 2005, the court of appeals overturned the district
court’s opinion, thus limiting the remedial measures that the district court could
impose if it found that the defendants had violated RICO.41 Because the court of
appeals allowed only forward-looking injunctive relief, the DOJ could not recover
the $280 billion disgorgement that had been sought for tobacco profits earned since
1971 for marketing to youth.42 The court of appeals stated that injunctive relief under
RICO43 must focus on preventing future wrongdoing rather than on punishing past
conduct. Noting that Congress explicitly crafted a set of remedial measures in the
RICO statute and likely did not intend to provide other remedies, the court of appeals
was “reluctant” to infer an additional remedy such as disgorgement.44
In August 2006, the U.S. District Court for the District of Columbia ruled that
the defendants had violated RICO. The court found that the tobacco companies and
trade industry organizations had conspired “to deceive the American public about the
health effects of smoking and environmental tobacco smoke, the addictiveness of
nicotine, the health benefits from low tar, ‘light’ cigarettes, and their manipulation
of the design and composition of cigarettes in order to sustain nicotine addiction.”45
38 For a detailed explanation of the government’s claims under the Medical Care Recovery
Act and the Medicare Secondary Payer Act, see CRS Report RS20091, The Federal Lawsuit
Against Tobacco Companies to Recover Health Care Costs, by Henry Cohen. This report
has been archived and is available from the author.
39 For additional information on RICO, see CRS Report 96-950, RICO: A Brief Sketch, by
Charles Doyle.
40 United States v. Philip Morris Inc., et al., No. 99-2496, 48 (D.D.C. 2000).
41 United States v. Philip Morris Inc., 396 F.3d 1190 (D.C. Cir. 2005), cert. denied 546 U.S.
960 (2005).
42 Anthony J. Sebok, The Federal Government’s RICO Suit Against Big Tobacco,
Findlaw.com, October 4, 2004, available at [http://writ.lp.findlaw.com
/sebok/20041004.html].
43 18 U.S.C. § 1964(a).
44 Philip Morris, 396 F.3d at 1200.
45 United States v. Philip Morris U.S.A., Inc., No. 99-2496, 1 (D.D.C. September 8, 2006)
(continued...)
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Although, as mentioned above, the U.S. Court of Appeals prevented the district court
from imposing the remedy of disgorgement, the district court ordered the defendants
to pay DOJ’s legal costs, which totaled approximately $1.93 million.46 The district
court also enjoined the defendants from using descriptors such as low tar, light, mild,
and natural on their cigarette packaging and advertisements; ordered the defendants
to place “onserts” or stickers with corrective statements on their packaging and to
issue statements in newspapers and on television and retail displays; and extended
the length of time that tobacco companies must make documents produced in
litigation available to the public, a requirement that originated in the MSA.
Both the tobacco companies and the DOJ have filed notices of appeal with the
U.S. Court of Appeals for the D.C. Circuit.47 Neither of these notices states the
parties’ particular objections to the lower court decision, but rather enables the
parties to appeal any and all parts of the judgment. In addition, pending the outcome
of their appeal, the defendants moved to stay the district court’s order banning them
from using descriptors such as light or low tar. On September 28, 2006, the district
court denied the defendants’ request for a stay, concluding that “loss of market share,
if it results from imposing an appropriate remedy to prevent and restrain past
violations of the law, may well be the price Defendants have to pay for violations of
RICO.”48 The defendants therefore filed a motion with the U.S. Court of Appeals for
the D.C. Circuit requesting an emergency stay of the district court order pending
appeal.49 On October 31, 2006, the court of appeals granted the stay, enabling the
tobacco companies to continue using descriptors such as ultra light or natural until
the court rules on the appeal.50
On March 16, 2007, the U.S. District Court for the District of Columbia
responded to a motion by certain defendants for clarification of the court’s August
2006 order restricting the defendant’s use of marketing descriptors such as natural
and ultra lite. Noting that RICO provisions have effect outside the United States if
the illegal activity abroad “causes a ‘substantial effect’ within the United States,” the
court concluded that the defendants were prohibited from using such marketing
descriptors and express or implied health messages internationally as well as in the
45 (...continued)
(amended memorandum opinion).
46 United States v. Philip Morris U.S.A., Inc., No. 99-2496 (D.D.C. filed October 2, 2006)
(bill of costs).
47 United States v. Philip Morris U.S.A., Inc., No. 99-2496 (D.D.C. September 11, 2006)
(Philip Morris U.S.A. Inc., Altria Group, Inc., British American Tobacco Ltd., R.J. Reynolds
Tobacco Co., Brown & Williamson Corp., and Lorillard Tobacco Co. Notices of Appeal);
United States v. Philip Morris U.S.A., Inc., No. 99-2496 (D.D.C. October 16, 2006) (DOJ
Notice of Appeal).
48 United States v. Philip Morris U.S.A., Inc., No. 99-2496, 1 (D.D.C. September 28, 2006)
(memorandum opinion on stay appeal).
49 United States v. Philip Morris U.S.A., Inc., Nos. 06-5267 - 06-5272 (D.C. Cir. October
2, 2006) (defendants’ emergency motion to stay the judgment).
50 Appeals Court Puts Ruling Against Big Tobacco on Hold, Wash. Post, November 1, 2006,
at A9.
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United States.51 Several countries, including Australia, Brazil, and European Union
members, currently prohibit marketing descriptors such as light and low-tar.52 The
district court order banning the use of marketing descriptors domestically and
internationally will not take effect immediately because of the appellate court’s stay
of the district court order and the pending appeal. Defendants Philip Morris U.S.A.,
Inc., Altria, R.J. Reynolds, Brown & Williamson, Lorillard, and BATCo. may be
affected in differing degrees by the international application of the order due to the
level of their international sales.
Private Party Suits
Prior to 1992, tobacco lawsuits were typically individual product liability and
negligence suits brought by smokers or their relatives seeking damages for smoking-
related illnesses. The tobacco industry generally prevailed in these cases by arguing
that the Federal Cigarette Labeling and Advertising Act (FCLAA),53 which required
warning labels, preempted plaintiffs’ claims that the tobacco companies had a duty
to warn consumers.54 In some cases, however, tobacco manufacturers prevailed by
arguing that smokers assumed the risks of smoking.55 Then, in 1992, in Cipollone
v. Liggett Group, Inc., the U.S. Supreme Court made it more feasible for smokers to
recover. Although the Court held that federal laws requiring warning labels56
precluded states from imposing additional requirements on cigarette advertising and
labeling, and therefore precluded lawsuits alleging that the federally required warning
labels were inadequate, the Court stated that federal law did not preclude “state-law
damages actions.” Examples of state-law damages actions include failure-to-warn
lawsuits based on tobacco companies’ “testing or research practices or other actions
unrelated to advertising or promotion,” or claims of breach of express warranty,
fraudulent representation, and conspiracy.57
This section now examines selected recent suits brought by private parties after
Cipollone. In addition to the class action and individual suits discussed below,
tobacco companies have been sued by their own shareholders for decreased stock
prices due to deceptive practices, and by insurance companies for medical expenses
resulting from fraud, conspiracy, racketeering, misrepresentation, and antitrust
violations.
51 United States v. Philip Morris U.S.A., Inc., No. 99-2496, 6, 8 (D.D.C. March 16, 2007)
(memorandum opinion accompanying Order #1028).
52 Judge Extends ‘Light’ Cigarette Ban Overseas, CNNMoney.com, March 16, 2007.
53 15 U.S.C. § 1331-41.
54 See, e.g., Pennington v. Vistron Corp., 876 F.2d 414 (5th Cir. 1989); Forster v. R.J.
Reynolds Tobacco Co., 437 N.W.2d 655, 660 (Minn. 1989).
55 See Brief for Petitioner at 13-14, n.3, Philip Morris U.S.A., Inc. v. Williams, 549 U.S. __
(filed July 2006) (No. 05-1256) (and cases cited therein).
56 15 U.S.C. §§ 1331-41, 4402.
57 Cipollone v. Liggett Group Inc., 505 U.S. 504, 520, 524-25, 530-31 (1992).
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Long-term Marlboro smokers filed a class action suit, Caronia v. Philip Morris
U.S.A., Inc., seeking to have the manufacturer provide low dose CT scans for lung
cancer on an annual basis or more frequently if the scan shows signs of cancer.58 The
plaintiffs allege that Philip Morris’s “wrongful design, manufacturing, and
marketing” places them at a higher risk for lung cancer.59 Philip Morris expects the
court to dismiss the case because “most states don’t recognize medical monitoring
as a remedy or cause of action.”60 Previous lawsuits asking for medical monitoring
as relief have not been successful.61 Additionally, the utility of CT scans for lung
cancer is a subject of debate.62
In the federal class action lawsuit Schwab v. Philip Morris U.S.A., Inc., lead
plaintiff Barbara Schwab sued six tobacco companies in the U.S. District Court for
the Eastern District of New York, alleging that the tobacco industry committed fraud
and misled customers by marketing light cigarettes as less dangerous than regular
cigarettes.63 On September 25, 2006, the Schwab case became the first light
cigarettes, or “lights,” case to receive class certification from any federal court. The
class includes individuals who purchased light cigarettes since the first light cigarette
was introduced in 1971. The class could be extended to include individuals who
bought low-tar cigarettes.64 The court found that the MSA does not preclude the suit
because, in the MSA, the states, not individual smokers, were compensated. On
October 6, 2006, the defendants asked the U.S. Court of Appeals for the Second
Circuit to review the federal district court’s decision to certify the class action lawsuit
and sought a stay pending review.
In most states, courts reportedly have denied class action status to plaintiffs for
private lawsuits against tobacco companies.65 However, in Florida, class action
status was granted by the Circuit Court of Miami-Dade County in Engle v. Liggett
Group, a case against tobacco companies and industry trade groups in which a jury
awarded $145 billion in punitive damages. After the jury verdict, however, the class
58 Caronia v. Philip Morris U.S.A., Inc., No. 06-224 (E.D.N.Y. January 19, 2006).
59 Sean Wajert, Medical Monitoring Claim Pursued in New York State, Washington Legal
Foundation Legal Opinion Letter, Vol. 16, No. 15 (June 2, 2006).
60 Peter Geier, Smokers Sue Tobacco Company for Lung Scans, Nat’l L. J., November 21,
2006.
61 Id.
62 Gina Kolata, Researchers Dispute Benefits of CT Scans for Lung Cancer, N.Y. Times,
March 7, 2007.
63 Schwab v. Philip Morris U.S.A., Inc., No. 04-CV-1945 (E.D.N.Y. September 25, 2006)
(memorandum and order), available at [http://www.nyed.uscourts.gov/pub/rulings/cv/2004/
04cv1945mo.pdf]. The defendant tobacco companies in the Schwab case are R.J. Reynolds
Tobacco Co., Brown & Williamson Tobacco Corp., British American Tobacco Ltd.,
Lorillard Tobacco Co., Liggett Group Inc., and Philip Morris U.S.A., Inc.
64 Id. at 540.
65 Anthony Sebok, The Federal Government’s RICO Suit Against Big Tobacco,
Findlaw.com, October 4, 2004, available at [http://writ.lp.findlaw.com/sebok
/20041004.html].
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of up to 700,000 Florida smokers was de-certified by Florida’s Third District Court
of Appeal.66 On July 6, 2006, the Florida Supreme Court upheld the decision to de-
certify the class.67 The court stated that causation and the proportion of the
defendants’ fault was too individualized to be litigated as a class action suit.68 To
maintain a class action suit, the issues that the plaintiffs have in common must
predominate over the individual plaintiffs’ issues. In this case, the Florida Supreme
Court found, individual plaintiffs’ issues predominated. Such issues included
whether cigarettes, or some other factor, caused the plaintiff’s illness, and the
percentage of fault that should be attributed to each defendant tobacco company if
a plaintiff smoked multiple brands. The court did uphold smaller individual damage
awards of $2,850,000 and $4,023,000 for two Florida cancer patients.
The Florida Supreme Court decision did not prevent individual smokers (or
families of deceased smokers) from filing individual lawsuits instead of a class
action. The court upheld most of the jury’s findings that cigarettes are addictive,
defective, and unreasonably dangerous products that cause diseases.69 This aspect
of the court’s decision gives plaintiffs an advantage in any individual lawsuits they
may file because the individuals will not have to prove these findings again — that
cigarettes are addictive, defective, and unreasonably dangerous. A jury awarded
$37.5 million for medical expenses, pain and suffering, and loss of consortium to
Yolanda Lukacs. She was the widow of former Engle class action member John
Lukacs, who sued cigarette manufacturers in an individual suit that was allowed due
to his terminal condition. However, the court has not entered a final judgment in the
Lukacs case or ordered a trial for punitive damages, as the defendants are awaiting
a decision from the U.S. Supreme Court granting or denying certiorari in the Engle
case.70
On December 15, 2005, the Supreme Court of Illinois overturned a verdict of
$7.1 billion in compensatory damages and $3 billion in punitive damages in the
consumer-fraud and deceptive trade practices class action of Price v. Philip Morris
U.S.A., Inc.71 An Illinois circuit court had certified a class that consisted of 1.14
million plaintiffs who bought Cambridge Lights and Marlboro Lights in Illinois from
the time that the cigarettes were first placed on the market until February 2001. The
plaintiffs in Price alleged that tobacco companies committed fraud by advertising
light cigarettes as having lower tar and nicotine levels and leading consumers to think
that such cigarettes were safer to smoke than full flavor cigarettes.72 The court held
66 Liggett Group, Inc. v. Engle, 853 So. 2d 434 (Fla. Dist. Ct. App. 2003).
67 Engle v. Liggett Group, Inc., 2006 Fla. LEXIS 1480; 31 Fla. L. Weekly S 464 (Fla. 2006).
68 Engle, 2006 Fla. LEXIS 1480, at *5.
69 Id. at *7-*8.
70 Forrest Norman, Lawyers for Tobacco Plaintiff Want $37.5 Million Judgment OK’d, Daily
Bus. Rev., March 16, 2007.
71 2005 Ill. LEXIS 2071 (Ill. 2005). The Illinois Supreme Court denied the class’s motion
for rehearing on May 5, 2006.
72 Melanie Warner, Big Award on Tobacco is Rejected by Court, N.Y. Times, July 7, 2006,
(continued...)
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that the Federal Trade Commission had authorized light and low-tar labeling and
therefore that Philip Morris U.S.A., Inc. could not be held liable as long as the
company complied with Federal Trade Commission requirements, even if the terms
were false or misleading. The U.S. Supreme Court denied certiorari on November
27, 2006, thus allowing the ruling of the Illinois Supreme Court to stand.
In August 2002, the California Supreme Court enabled individuals to sue
tobacco companies by holding that a statute73 granting tobacco manufacturers
immunity from products liability suits applied only from the date of the statute’s
enactment on January 1, 1988, until the statute’s repeal effective January 1, 1998.
The court found that general tort principles applied to conduct before and after the
ten-year immunity period.74 In a separate case decided on the same day, the court
also found that the immunity statute did not prohibit lawsuits alleging that tobacco
additives create an unreasonably dangerous product “that exposed smokers to dangers
beyond those commonly known to be associated with cigarette smoking.”75 In a
more recent ruling, Grisham v. Philip Morris, the California Supreme Court held that
the state’s two year statute of limitations for filing a physical injury claim starts to
run after a “smoker is diagnosed with a disease caused by the cigarettes.”76 The
ruling did not address whether the statute of limitations would have run if an
individual was diagnosed with more than one illness, “[f]or example, if a smoker
were diagnosed with emphysema five years ago and then lung cancer last month —
but only files suit after the lung cancer diagnosis — the statute of limitations may
have run.”77 Defendant tobacco companies had argued that the statute of limitations
should begin when smokers discover they are addicted to cigarettes.78
Foreign Suits in U.S. Federal Courts
The Governments of Guatemala, Nicaragua, and Ukraine sued major American
tobacco companies in the U.S. District Court for the District of Columbia for money
they had spent on medical care for their citizens’ tobacco-related illnesses. The
Government of Guatemala alleged that the tobacco companies misrepresented the
dangers of cigarette smoking, and as a result, the Guatemalan government waited
before making efforts to shrink its smoking population.79 Reasoning that “the injury
72 (...continued)
at C1.
73 Cal. Civ. Code § 1714.45, repealed by 1997 Cal. Stat. ch. 570, § 1.
74 Myers v. Philip Morris Cos., Inc., 28 Cal. 4th 828 (Cal. 2002).
75 Naegele v. R.J. Reynolds Tobacco Co., 28 Cal. 4th 856 (Cal. 2002).
76 Millie Lapidario, Tobacco Claims Will Start Smoking Again, Thanks to Calif. Ruling, The
Recorder, February 20, 2007.
77 Id.
78 Id.
79 Saundra Torry, Cigarette Firms Sued by Foreign Governments, Wash. Post, January 17,
1999, at A12.
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that [the nations] purportedly suffered occurred only as a consequence of the harm
to individual smokers,” the district court dismissed the lawsuit.80
The U.S. Court of Appeals for the D.C. Circuit affirmed the dismissal, noting
that it concurred with seven circuits “that the alleged injuries of the third-party payors
are too remote to have been proximately caused by the defendants’ alleged
conduct.”81 The court also held that the foreign governments did not have standing
“unless there is a clear indication by the Supreme Court or one of the two coordinate
branches of government to grant such standing” to foreign nations to sue in the U.S.
on behalf of their foreign citizens.82 The foreign governments had argued that they
were suing on behalf of their people and were “seeking to protect their governments’
treasuries.”83 On October 29, 2001, the U.S. Supreme Court denied certiorari, which
allowed the court of appeals decision to stand.
Tobacco Advertising: Federal Regulations, MSA
Restrictions, and Local Ordinances84
The Federal Cigarette Labeling and Advertising Act (FCLAA) limits advertising
of tobacco products.85 The act prevents advertising of cigarettes, little cigars, and
smokeless tobacco via electronic communications under the jurisdiction of the
Federal Communication Commission, such as radio and wire communications, as
well as broadcast, satellite, and cable television. In combination with other federal
statutes, the act requires health warning labels on cigarette and smokeless tobacco
packaging, as well as on all cigarette and most smokeless tobacco advertisements.86
The health warnings must be rotated several times per year according to a
manufacturer-submitted plan approved by the Federal Trade Commission.87 Cigars
are not subjected to similar advertising and warning restrictions. Because of the
FCLAA’s preemption provision, states cannot impose their own health warning
labels on cigarettes.88
The FCLAA’s preemption provisions do not apply to the MSA because the
states and tobacco manufacturers voluntarily agreed to waive “any and all claims that
80 Guatemala v. Tobacco Inst., Inc., 83 F. Supp. 2d 125, 129 (D.D.C. 1999).
81 Guatemala v. Tobacco Inst., Inc., 249 F. 3d 1068, 1069 (D.C. Cir. 2001), cert. denied, 534
U.S. 994 (2001).
82 Id. at 1073.
83 See id. at 1072.
84 For information on federal advertising laws related to alcohol, tobacco, mail (including
junk mail), telephone, commercial email (spam), and the Federal Trade Commission Act,
see CRS Report RL32177, Federal Advertising Law: An Overview, by Henry Cohen.
85 15 U.S.C. § 1331-41.
86 15 U.S.C. §§ 1331-41, 4402. Federal law does not require warning labels on outdoor
billboards that advertise smokeless tobacco. 15 U.S.C. § 4402(a)(2).
87 15 U.S.C. §§ 1333(c)(1), 4402(c).
88 15 U.S.C. § 1334(b); Cipollone v. Liggett Group Inc., 505 U.S. 504 (1992).
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the provisions of this Agreement violate the state or federal constitutions.”89 The
MSA restricted tobacco advertising in several ways, although it did not restrict
certain forms of advertising, such as print and online advertisements or marketing
inside retail locations.90 The MSA banned cartoons; tobacco advertising on public
transportation; sponsorship of certain team and league sports; stadium naming rights;
gifts to minors of non-tobacco merchandise in exchange for proofs of purchase of
tobacco products; free samples of tobacco products in places other than adult-only
facilities; signs outside stores larger than 14 square feet; and billboards in arenas,
stadiums, malls, and arcades. However, the MSA allows advertisements that are
located within and not visible outside of adult-only facilities.91 Within MSA
limitations, tobacco companies may still sponsor certain musical, sporting, and
cultural events. The MSA also bans the sale and distribution of merchandise with
tobacco product brand names, except for at brand-name sponsored events. The MSA
prohibits payments to the media for the promotion, mention, or use of tobacco
products, except for adult-only media. Moreover, the MSA prohibits tobacco
companies from targeting or promoting tobacco to minors.92
Though states attorneys general signed and trial courts ratified the MSA, several
states and cities created additional restrictions on tobacco advertising. For example,
Baltimore passed ordinances prohibiting tobacco and alcohol advertisements on
billboards, except for commercial and industrial zones of the city. The U.S. Court of
Appeals for the Fourth Circuit upheld Baltimore’s ordinances in two cases,93 finding
that they do not violate the First Amendment.94
In 1999, the Massachusetts Attorney General promulgated advertising
restrictions — on cigarettes, smokeless tobacco, little cigars, and cigars — that he
intended to fill the gaps left by the MSA. The regulations prohibited all sizes of
outdoor tobacco advertisements within 1,000 feet of playgrounds, schools, and parks,
including advertisements located within a store that were visible from the outside of
that store. The rules also imposed a similar 1,000-foot state ban on point-of-sale
retail displays if the displays were less than five feet tall and located in stores
89 Master Settlement Agreement, p. 99, available at [http://www.naag.org/backpages/naag/
tobacco/msa/msa-pdf/1109185724_1032468605_cigmsa.pdf].
90 Since the 1998 MSA, the tobacco industry has increased its spending on marketing in
ways that comply with the MSA, such as paying “bonuses to retailers who meet sales targets
and post in-store signs.” Tobacco manufacturers also offer “direct-mail coupons good for
a free pack for each purchase of two.” Myron Levin, Tobacco Deal Yet to Clear the Air, LA
Times, November 27, 2003.
91 Master Settlement Agreement, p. 18.
92 Id. at 14-21.
93 Penn Advertising of Baltimore, Inc. v. Schmoke, 101 F.3d 332 (4th Cir. 1996), cert.
denied, 520 U.S. 1204 (1997); Anheuser-Busch v. Schmoke, 101 F.3d 325 (4th Cir. 1996),
cert. denied, 520 U.S. 1204 (1997).
94 For further information on First Amendment issues raised by advertising laws, see CRS
Report 95-815, Freedom of Speech and Press: Exceptions to the First Amendment, by Henry
Cohen.
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accessible to youth.95 Additionally, the attorney general restricted tobacco
promotions, samples, and cigar labels; banned self-service displays; and required
customers to have contact with a sales person before handling or purchasing tobacco
products.96 In 2001, however, the U.S. Supreme Court held in Lorillard Tobacco Co.
v. Reilly that the FCLAA preempted Massachusetts’ outdoor advertising and point-
of-sale restrictions for cigarettes, because the FCLAA preempts state regulations of
cigarette advertising and promotion.97 Therefore, the Court struck down that portion
of the regulations. The Court noted, however, that the FCLAA preemption
provisions do not apply to smokeless tobacco or cigars, or restrictions on cigarette
sales.98
Therefore, the Court had to reach the issue of whether Massachusetts’ outdoor
and point-of-sale advertising regulations violated the First Amendment, which
guarantees freedom of speech.99 Though Massachusetts had a compelling interest in
protecting youth from tobacco products, the Court found that the restrictions on
outdoor advertising of cigars and smokeless tobacco were overbroad in that they
prohibited advertising “in a substantial portion of the major metropolitan areas of
Massachusetts,” included oral communications, and imposed burdens on retailers
with limited advertising budgets.100 The Court also upheld challenges by smokeless
tobacco and cigar companies to the outdoor advertising restrictions on the grounds
that adults have a right to information and the tobacco industry has a right to
communicate truthful speech on legal products.101 The Justices then struck down the
similar 1,000-foot state ban on point-of-sale retail displays for cigars and smokeless
tobacco under five feet tall in stores accessible to youth. They noted that the
prohibition did not advance the goal of preventing minors from using tobacco
products because some children are taller than five feet and others can look up at
their surroundings.102 According to one source, at least 20 state and local laws have
been repealed as a result of Lorillard.103
95 Mass. Regs. Code tit. 940, §§ 21.04, 22.06.
96 Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 534-36 (2001).
97 Id. at 551-52.
98 Id. at 553.
99 The First Amendment applies to advertising, but the U.S. Supreme Court has held that it
“affords a lesser protection to commercial speech than to other constitutionally guaranteed
expression” and analyzes commercial speech differently from other forms of expression.
United States v. Edge Broadcasting Co., 509 U.S. 418, 426 (1993); see Central Hudson Gas
& Elec. Corp. v. Public Serv. Comm’n of N.Y., 447 U.S. 557, 566 (1980) (four-part test for
commercial speech analysis).
100 Lorillard, 533 U.S. at 562, 564-65.
101 Id. at 564. Additionally, the Court reasoned that the attorney general’s restriction on in-
store advertising that can be viewed from the outside “presents problems in establishments
like convenience stores, which have unique security concerns.” Id. at 565.
102 Id. at 566.
103 David L. Hudson Jr., Tobacco Ads, Speech topic - Advertising & First Amendment,
[http://www.firstamendmentcenter.org/speech/advertising/topic.aspx?topic=tobacco_alc
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Finally, as to the question of Massachusetts’s regulation of cigarette, smokeless
tobacco, and cigar sales, the cigarette petitioners did not argue that the FCLAA
preempted Massachusetts law.104 As a result, the Court evaluated arguments from
cigarette, smokeless tobacco, and cigar petitioners that certain sales restrictions
violated the First Amendment. The Court upheld restrictions banning self-service
displays and requiring customers to have contact with a sales person before handling
or purchasing tobacco products.105 According to the Justices, the state had a
substantial interest in preventing minors from accessing tobacco products, and the
regulation was narrowly tailored so as not to significantly affect adult access to
tobacco products.106
Restrictions on Selling and Distributing Tobacco to Minors
All 50 states ban tobacco sales to individuals under age 18, and federal law
plays a role in this restriction.107 The Public Health Service Act authorizes the
Secretary of Health and Human Services (HHS) to “make an allotment each fiscal
year for each state” to be used for “activities to prevent and treat substance abuse.”108
Under a 1992 amendment to this statute, sponsored by Representative Michael Synar
and known as the “Synar Amendment,” the Secretary may make such grants “only
if the State has in effect a law providing that it is unlawful for any manufacturer,
retailer, or distributor of tobacco products to sell or distribute such product to any
individual under the age of 18.”109
Under the Synar Amendment, states must enforce their bans through annual
random, unannounced inspections.110 If a state fails to comply with the federal
enforcement provisions and reporting requirements on its enforcement activities, the
federal government may reduce that state’s federal funding for substance abuse
treatment.111 According to the HHS regulations, the goal of the Synar Amendment’s
random inspections requirement is to achieve 80% or higher compliance with laws
prohibiting tobacco sales and the distribution of tobacco products to individuals
under 18.112
103 (...continued)
ohol].
104 Lorillard, 533 U.S. at 566.
105 Id. at 567.
106 Id. at 569.
107 Barnaby J. Feder, U.S. Imposes Rules on Tobacco Sales to Minors, NY Times, January
19, 1996.
108 42 U.S.C. § 300x-21.
109 42 U.S.C. § 300x-26(a)(1). The Synar Amendment was enacted as § 1926 of the Alcohol,
Drug Abuse, and Mental Health Administration Reorganization Act, P.L. 102-321 (1992).
110 42 U.S.C. § 300x-26(b)(2)(A).
111 Id. at § 300x-26(c).
112 45 C.F.R. § 96-130(g).