.
Tobacco: Selected Legal Issues
Vivian S. Chu
Legislative Attorney
June 16, 2009
Congressional Research Service
7-5700
www.crs.gov
RL33719
CRS Report for Congress
P
repared for Members and Committees of Congress
.
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; restrictions on selling and distributing tobacco to
minors; and the Federal Trade Commission’s rescission of its 1966 guidance document relating to
tar and nicotine yields in cigarettes. Thus far, during the 111th Congress, legislators have
introduced a few bills that address the above issues, including H.R. 1261, the Youth Prevention
and Tobacco Harm Reduction Act, and H.R. 1256 and S. 982, the Family Smoking Prevention
and Tobacco Control Act. This report does not address tax-related issues.
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, however, the U.S. Supreme Court 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. They reached a settlement with tobacco companies in 1997, but the
settlement did not garner the congressional approval needed for implementation. In 1998, 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 2006, a district court held that the
tobacco companies violated two provisions under the Racketeer Influenced and Corrupt
Organization Act (RICO) and, among other remedies, ordered them to remove descriptors such as
light, low-tar, natural, mild, and ultra light from their packaging. The case was recently upheld in
the appellate court.
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 report discusses 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, 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.
Congressional Research Service
.
Tobacco: Selected Legal Issues
Contents
Introduction ................................................................................................................................ 1
The FDA’s Ability to Regulate Tobacco Products ........................................................................ 1
State Suits and the Master Settlement Agreement ........................................................................ 4
The Federal Lawsuit.................................................................................................................... 5
Private Party Suits....................................................................................................................... 8
Caronia v. Philip Morris ....................................................................................................... 9
Schwab v. Philip Morris ........................................................................................................ 9
Engle v. Liggett Group, Inc.................................................................................................... 9
Price v. Philip Morris.......................................................................................................... 11
California Cases.................................................................................................................. 12
Foreign Suits in U.S. Federal Courts ......................................................................................... 12
Tobacco Advertising: Federal Regulations, MSA Restrictions, Local Ordinances, and the
Reilly Decision....................................................................................................................... 13
Restrictions on Selling and Distributing to Minors..................................................................... 15
FTC Rescission of Guidance Concerning the Cambridge or FTC Method.................................. 17
Contacts
Author Contact Information ...................................................................................................... 18
Acknowledgments .................................................................................................................... 18
Congressional Research Service
.
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. Thus far, during the 111th Congress, legislators have
introduced a few bills that address the above issues, including H.R. 1261, H.R. 1256, and S. 982.
This report does not address tax-related issues.
The FDA’s Ability to Regulate Tobacco Products
The Federal Food, Drug, and Cosmetic Act1 (FDCA) is organized into chapters that address
drugs, devices, food, and cosmetics, as well as statutory definitions, actions prohibited by the
FDCA, the FDA’s general authorities, imports and exports, and other miscellaneous issues. In
order to understand how the FDA attempted to regulate tobacco, one must first understand the
definitions of “drug” and “device.” 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.”2
When determining whether an article is a drug under the second or third categories, the agency
takes the intent of 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.3
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.4
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
1 21 U.S.C. § 301 et seq.
2 21 U.S.C. § 321(g)(1).
3 O’Reilly, § 13.3. Sunscreen is one example of such a product. Id.
4 21 U.S.C. § 321(h).
Congressional Research Service
1
.
Tobacco: Selected Legal Issues
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.5
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.”6
Examples of this type of drug-device combination product include insulin injector pens, metered
dose inhalers, transdermal patches, and catheters with antimicrobial coating.7
Under the theory that cigarettes and smokeless tobacco are “a combination of a drug, device, or
biologic product,”8 the FDA issued a final rule in 1996 that would have given the agency
jurisdiction over these tobacco products as drugs, devices, or both drugs and devices.9 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.”10 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.”11 This was because nicotine “causes addiction and
other significant pharmacological effects on the human body.”12 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.13 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.”14 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.15
5 O’Reilly, § 18.2.
6 21 CFR § 3.2(e)(1).
7 FDA, Frequently Asked Questions, available at, http://www.fda.gov/CombinationProducts/
AboutCombinationProducts/ucm101496.htm.
8 21 U.S.C. § 353; FDCA § 503(g).
9 Department of Health and Human Services, “Regulations Restricting the Sale and Distribution of Cigarettes and
Smokeless Tobacco to Protect Children and Adolescents,” 61 Fed. Reg. 44396, 44400, August 28, 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 R40196, FDA Tobacco Regulation: History of the 1996 Rule and Related
Legislative Activity, 1998-2008, by C. Stephen Redhead and Vanessa K. Burrows.
10 61 Fed. Reg. 44422 (quoting Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco
Products to Protect Children and Adolescents, 60 Fed. Reg. 41314, 41322 (to be codified at 21 C.F.R. pts. 801, 803,
804, 897) (proposed August 11, 1995)).
11 21 U.S.C. § 321(g)(1).
12 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 Fed. Reg. 44619,
44628-29 (1996).
13 61 Fed. Reg. 44628-29; 21 U.S.C. § 321(h).
14 61 Fed. Reg. 44649-50.
15 61 Fed. Reg. 44650.
Congressional Research Service
2
.
Tobacco: Selected Legal Issues
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.16 In order to reach tobacco advertising and youth access to these tobacco
products, the FDA rule relied on the agency’s 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.”17 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 “serious adverse events that are not well-
known ... in the scientific community.”18 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 that require 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.19 The Court used the test it had articulated in Chevron
U.S.A., Inc. v. Natural Resources Defense Council,20 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.21
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.22 Specifically, the Court held that
the FDA’s interpretation of the FDCA, in its 1996 final rule, was contrary to Congress’s intent
16 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. 61 Fed. Reg. 44400.
17 21 U.S.C. § 360j(e); FDCA § 502(e).
18 61 Fed. Reg. 44615-18.
19 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 142-43 (2000).
20 467 U.S. 837 (1984).
21 Id. at 842-43.
22 See, e.g., Federal Cigarette Labeling and Advertising Act, P.L. 89-92; Comprehensive Smokeless Tobacco Health
Education Act of 1986, P.L. 99-252.
Congressional Research Service
3
.
Tobacco: Selected Legal Issues
“expressed in the FDCA’s overall regulatory scheme and in tobacco-specific legislation that
[Congress] has enacted.”23 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.24
State Suits and the Master Settlement Agreement25
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.26 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 worth $206 billion over 26 years; payments made to the states, however, will continue
in perpetuity. 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 “Tobacco Advertising: Federal Regulations, MSA Restrictions, Local Ordinances,
and the Reilly Decision” below).
According to a March 2007 article by the American Bar Association Journal, of the $61 million
paid to the states by tobacco companies, states had spent less than 8% on anti-smoking
23 FDA, 529 U.S. at 126.
24 Id. at 135-37.
25 For a brief overview of the Master Settlement Agreement, see also CRS Report R40196, FDA Tobacco Regulation:
History of the 1996 Rule and Related Legislative Activity, 1998-2008, by C. Stephen Redhead and Vanessa K. Burrows.
26 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).
Congressional Research Service
4
.
Tobacco: Selected Legal Issues
endeavors.27 Government Accountability Office figures indicate that states have spent even less
on tobacco control, which it defines as efforts to include prevention, education, enforcement, and
cessation services.28 States had 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.29 The states had not allocated 11.9%
of their MSA payments.30
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.31 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.32
Recently, a Philadelphia judge ruled that R.J. Reynolds Tobacco Company violated the MSA by
publishing advertisements that contained cartoon imagery in Rolling Stone magazine in
contravention to the MSA. R.J. Reynolds was sanctioned more than $300,000 and ordered to run
a full-page antismoking and youth-oriented advertisement in the magazine. The company has
stated that it plans to appeal the decision.33
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
27 Mark Curriden, Up in Smoke, A.B.A. Journal, March 2007, at 27.
28 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.
29 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.
30 Shames, supra note 32.
31 42 U.S.C. § 1396b(d)(2)(B).
32 FY1999 Emergency Supplemental Appropriations Act (P.L. 106-31), § 3031.
33 Amaris Elliot-Engel, R.J. Reynolds Tobacco Co. Sanctioned for Ad in Rolling Stone, The Legal Intelligencer, May
14, 2009, available at, http://www.law.com/jsp/article.jsp?id=1202430700555.
Congressional Research Service
5
.
Tobacco: Selected Legal Issues
• (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.34
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 Act as well
as under the Medicare Secondary Payer Act provisions of the Social Security Act.35 The suit then
proceeded under two RICO claims, 18 U.S.C. § 1962(c) and (d).36 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).”37
The trial began on September 21, 2004, and lasted nine months. Prior to this, the defendants made
an interlocutory appeal to the U.S. Court of Appeals for the D.C. Circuit based on the district
court’s order that essentially allowed the government to continue with its request for the remedy
of disgorgement, that is, the giving up of the tobacco industry’s past profits gained by its
deceptive practices. In 2004, the court of appeals reversed and ruled in favor of the defendants,
thus limiting the remedial measures that the district court could impose if it found that the
defendants had violated RICO.38 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.39 The court of appeals stated that
injunctive relief under RICO40 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.41
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.”42 Although the court of appeals prevented the district court from imposing the remedy
34 United States v. Philip Morris Inc., No. 99-2496, 1-2, 91-92 (D.D.C. filed February 2001) (DOJ First Amended
Complaint).
35 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 is out of print but available from the author.
36 For additional information on RICO, see CRS Report 96-950, RICO: A Brief Sketch, by Charles Doyle.
37 United States v. Philip Morris Inc., et al., No. 99-2496, 48 (D.D.C. 2000).
38 United States v. Philip Morris Inc., 396 F.3d 1190 (D.C. Cir. 2004), cert. denied 546 U.S. 960 (2005).
39 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.
40 18 U.S.C. § 1964(a).
41 Philip Morris, 396 F.3d at 1200.
42 United States v. Philip Morris U.S.A., Inc., No. 99-2496, 1 (D.D.C. September 8, 2006) (amended memorandum
(continued...)
Congressional Research Service
6
.
Tobacco: Selected Legal Issues
of disgorgement, the district court ordered the defendants to pay DOJ’s legal costs, which totaled
approximately $1.93 million.43 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.
In March 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 light. 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
United States.44 The district court order did not take effect immediately because of the appellate
court’s stay and the pending appeal, discussed below.
Both the tobacco companies and the DOJ filed notices of appeal with the U.S. Court of Appeals
for the D.C. Circuit.45 Neither of these notices stated the parties’ particular objections to the lower
court decision, but rather enabled the parties to appeal any and all parts of the judgment. Pending
the appeal, the defendants moved46 and were eventually granted an emergency stay47 of the
district court’s order that banned them from using descriptors such as light or low-tar.48 Thus,
tobacco companies were permitted to continue using descriptors such as ultra light or natural until
the court ruled on the appeal.
On May 22, 2009, the U.S. Court of Appeals for the D.C. Circuit issued its decision largely
upholding the district court’s finding of liability against the nine cigarette manufacturers49 and its
remedial order that not only imposed the numerous affirmative and negative duties on the
defendants, but also denied the government’s proposed remedies, which included a counter-
marketing campaign, smoking cessation program, youth smoking reduction program, and
(...continued)
opinion).
43 United States v. Philip Morris U.S.A., Inc., No. 99-2496 (D.D.C. filed October 2, 2006) (bill of costs).
44 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). Several countries, including Australia, Brazil, and European Union members, currently
prohibit marketing descriptors such as light and low-tar. See Judge Extends ‘Light’ Cigarette Ban Overseas,
CNNMoney.com, March 16, 2007.
45 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).
46 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).
47 Appeals Court Puts Ruling Against Big Tobacco on Hold, Wash. Post, November 1, 2006, at A9.
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). Denying the defendant’s request for stay, the district court concluded that “loss of market share, if that
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.” Id.
49 The appeals court dismissed the two trade associations that were defendants in the case. See D.C. Circuit Upholds
Landmark RICO Case Against Big Tobacco, National Law Journal, May 26, 2009.
Congressional Research Service
7
.
Tobacco: Selected Legal Issues
monitoring scheme.50 Furthermore, the appeals court rejected the government’s request to seize
billions of dollars in corporate profit from companies that include Altria Group, R.J. Reynolds,
and Brown & Williamson. The court of appeals also partly vacated the district court’s remedial
order and remanded for further proceedings on four discrete issues. These included vacating the
remedial order with respect to the prohibition on health messages or descriptors and ordering the
district court “to reformulate [its] injunction so as to exempt foreign activities that have no
substantial, direct, and foreseeable domestic effects.”51 It remains to be seen how this order will
affect the district court’s earlier March 2007 decision that the provisions in the remedial order that
prohibit defendants from using express or implied health messages apply to the defendants’
actions taken outside the United States.
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),52 which required warning labels, preempted plaintiffs’ claims that the
tobacco companies had a duty to warn consumers.53 In some cases, however, tobacco
manufacturers prevailed by arguing that smokers assumed the risks of smoking.54 Then, in 1992,
in Cipollone v. Liggett Group, Inc.,55 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 or prohibitions 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. Cigarette manufacturers have also been sued under
legal theories that include negligence, strict liability, defective design, public nuisance, antitrust
laws, and unfair trade practices.
50 United States v. Philip Morris U.S.A., Inc., No. 06-5267, slip op. at 5-6, 91-92 (D.C. Cir. May 22, 2009).
51 Id. at 92.
52 15 U.S.C. § 1331-41.
53 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).
54 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).
55 505 U.S. 504 (1992).
56 15 U.S.C. §§ 1331-41, 4402.
57 Cipollone, 505 U.S. at 524-25, 530-31.
Congressional Research Service
8
.
Tobacco: Selected Legal Issues
Caronia v. Philip Morris
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’
“wrongful design, manufacturing, and marketing” places them at a higher risk for lung cancer.59
The parties are currently awaiting a decision from the court on class certification.60 Philip Morris
had stated that it expects the court to dismiss the case because “most states don’t recognize
medical monitoring as a remedy or cause of action.”61 Previous lawsuits asking for medical
monitoring as relief have not been successful.62 Additionally, the utility of CT scans for lung
cancer is a subject of debate.63
Schwab v. Philip Morris
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.64 The Schwab case became the first light
cigarettes, or “lights,” case to receive class certification from any federal court. After the district
court found that the MSA did not preclude the suit because, in the MSA, the states, not individual
smokers, were compensated. On appeal, the U.S. Court of Appeals for the Second Circuit
decertified the class action lawsuit, finding that the “class action suffers from an insurmountable
deficit of collective legal or factual questions” and therefore did not meet a requirement under
Rule 23 of the Federal Rules of Civil Procedure that “questions of law or fact common to class
members predominate over any questions affecting only individual members.”65
Engle v. Liggett Group, Inc.
In most states, courts reportedly have denied class action status to plaintiffs for private lawsuits
against tobacco companies.66 However, in Florida, class action status was granted by the Circuit
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 Sheri Qualters, Two Key Cases Challenge Philip Morris on Early-Stage Lung Cancer Detection, Nat’l L. J., (January
8, 2009). A similar case, Donovan v. Philip Morris U.S.A., Inc., No. 1:06-cv-122234 (D. Mass), is also awaiting a
decision class certification. The federal judge certified two questions to the Massachusetts Supreme Court asking it to
answer: (1) whether the plaintiffs’ medical monitoring lawsuit states a claim under state law “based on the subcelluar
effects of exposure to cigarette smoke and consequent increased of lung cancer,” and (2) whether the statute of
limitations has expired on such claims. Id.
61 Peter Geier, Smokers Sue Tobacco Company for Lung Scans, Nat’l L. J., November 21, 2006.
62 Id.
63 Gina Kolata, Researchers Dispute Benefits of CT Scans for Lung Cancer, N.Y. Times, March 7, 2007.
64 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.
65 McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 219, 222 (2d Cir. 2008).
66 Anthony Sebok, The Federal Government’s RICO Suit Against Big Tobacco, Findlaw.com, October 4, 2004,
(continued...)
Congressional Research Service
9
.
Tobacco: Selected Legal Issues
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 of up to 700,000 Florida smokers was decertified by Florida’s Third
District Court of Appeal.67 On December 21, 2006, the Florida Supreme Court upheld the
decision to decertify the class.68 The court stated that causation and the proportion of the
defendants’ fault were too individualized to be litigated as a class action suit.69 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 U.S. Supreme Court denied certiorari in the
Engle case.70
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.71 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. According to one tobacco
company’s filing with the Securities and Exchange Commission, “[a]s of April 11, 2008, RJR
Tobacco had been served in 1,931 Engle Progeny Cases in both state and federal courts in
Florida. These cases include approximately 8,178 plaintiffs.”72 The company also stated that
“[t]he number of cases will increase due to a delay in the processing of cases in the Florida court
system.”73
Post-Engle, there have been mixed results in the individual suits. In one of the first suits, a Fort
Lauderdale jury awarded a widow $8 million in damages against Altria, the parent company of
Philip Morris. Subsequently, however, a state jury in St. Petersburg, Florida, delivered a verdict in
favor of R.J. Reynolds, where the plaintiff was also a widow of a smoker who died of lung
cancer.74 Although the trials will continue, the tobacco companies are awaiting a decision from
the 11th Circuit regarding the Florida Supreme Court’s decision to allow certain findings of fact to
stand.
(...continued)
available at http://writ.lp.findlaw.com/sebok/20041004.html.
67 Liggett Group, Inc. v. Engle, 853 So. 2d 434 (Fla. Dist. Ct. App. 2003).
68 Engle v. Liggett Group, Inc., 945 So. 2d 1246 (Fla. 2006).
69 Engle, 945 So. 2d at 1265.
70 R.J. Reynolds Tobacco Co. v. Engle, 128 S. Ct. 96 (2007).
71 Engle, 2006 Fla. LEXIS 1480, at *7-*8.
72 Reynolds American, Inc., Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2008, at 18 http://reynoldsamerican-inc.com/common/
ViewPDFDisclaimer.aspx?postID=1275&disclaimer=10q.
73 Id.
74 Alison Frankel, Third Time’s a Charm for Defense in Florida Smoker Suits, American Lawyer.com, March 27, 2009.
Congressional Research Service
10
.
Tobacco: Selected Legal Issues
Price v. Philip Morris
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.75 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.76 The Illinois Supreme Court
ruled against the plaintiffs and held that the Federal Trade Commission (FTC) 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 FTC requirements, even if the terms were false or
misleading. The U.S. Supreme Court denied certiorari on November 27, 2006.77
Since this decision, the Supreme Court decided Altria Group, Inc. v. Good. 78 In this case, the
Court addressed whether the Federal Cigarette Labeling and Advertising Act (FCLAA)
preempted a state law claim that Philip Morris USA (PMUSA) and its parent company Altria
Group violated the Maine Unfair Trade Practices Act (MUTPA) by using “light” and “low tar”
descriptors on cigarettes, thereby delivering the message that light cigarettes deliver less tar and
nicotine to consumers than regular brands, while knowing such message to be untrue. The Court
held that the plaintiffs’ claims were not expressly preempted by the FCLAA because their claims
under the MUTPA are predicated on the general duty not to deceive. The Court further rejected
PMUSA’s argument that the state law claims were impliedly preempted because of its contention
that the FTC has for decades promoted the development and consumption of low-tar cigarettes,
encouraged consumers to rely on representations of tar and nicotine content in choosing among
cigarette brands, and authorized the use of such descriptors. In holding that the FCLAA neither
expressly nor impliedly preempted the plaintiffs’ claims, the Court’s decision appears to allow
other state law claims of fraud based on the use of descriptors such as “light” and “low tar” to go
forward.
75 2005 Ill. LEXIS 2071 (Ill. 2005). The Illinois Supreme Court denied the class’s motion for rehearing on May 5,
2006.
76 Melanie Warner, Big Award on Tobacco is Rejected by Court, N.Y. Times, July 7, 2006, at C1.
77 The United States submitted an amicus brief in a separate U.S. Supreme Court case, Watson v. Philip Morris U.S.A.,
Inc., which argued that “the FTC has never adopted any official regulatory definitions of the terms ‘light,’ or ‘low tar’;
and ... the FTC has neither requested nor required tobacco companies to describe or advertise their cigarettes using
those or any other descriptors.” Brief for the United States as Amicus Curiae, Watson v. Philip Morris Companies, Inc.,
551 U.S. 142 (2007) (No. 05-1284), 2005 U.S. Briefs 1284, at *21. After this submission was made, an Illinois circuit
court judge questioned whether he would have jurisdiction to hear a post-judgment motion seeking to “vacate or
withhold final judgment” in the Price case due to the federal government’s position in its Watson amicus brief. The
Illinois Supreme Court instructed the judge “to enter an order dismissing plaintiffs’ motion.” Philip Morris USA, Inc. v.
Bryon, 876 N.E.2d 645 (Ill. 2007).
78 129 S. Ct. 538 (2008). For an examination of this case, see CRS Report R40639, The Federal Cigarette Labeling and
Advertising Act and Preemption Revisited: An Analysis of the Supreme Court Case Altria Group, Inc. v. Good and
Current Legislation, by Vivian S. Chu.
Congressional Research Service
11
.
Tobacco: Selected Legal Issues
California Cases
In August 2002, the California Supreme Court enabled individuals to sue tobacco companies by
holding that a statute79 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.80 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.”81
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.”82 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.”83 Defendant tobacco companies had argued that the statute of
limitations should begin when smokers discover they are addicted to cigarettes.84
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, for
example, 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.85 Reasoning that “the injury that [the nations] purportedly suffered occurred only as a
consequence of the harm to individual smokers,” the district court dismissed the lawsuit.86
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.”87 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
79 Cal. Civ. Code § 1714.45, repealed by 1997 Cal. Stat. ch. 570, § 1.
80 Myers v. Philip Morris Cos., Inc., 28 Cal. 4th 828 (Cal. 2002).
81 Naegele v. R.J. Reynolds Tobacco Co., 28 Cal. 4th 856 (Cal. 2002).
82 Millie Lapidario, Tobacco Claims Will Start Smoking Again, Thanks to Calif. Ruling, The Recorder, February 20,
2007.
83 Id.
84 Id.
85 Saundra Torry, Cigarette Firms Sued by Foreign Governments, Wash. Post, January 17, 1999, at A12.
86 Guatemala v. Tobacco Inst., Inc., 83 F. Supp. 2d 125, 129 (D.D.C. 1999).
87 Guatemala v. Tobacco Inst., Inc., 249 F. 3d 1068, 1069 (D.C. Cir. 2001), cert. denied, 534 U.S. 994 (2001).
Congressional Research Service
12
.
Tobacco: Selected Legal Issues
sue in the United States on behalf of their foreign citizens.88 The foreign governments had argued
that they were suing on behalf of their people and were “seeking to protect their governments’
treasuries.”89 On October 29, 2001, the U.S. Supreme Court denied certiorari.
Tobacco Advertising: Federal Regulations, MSA
Restrictions, Local Ordinances, and the Reilly
Decision90
The Federal Cigarette Labeling and Advertising Act (FCLAA) limits advertising of tobacco
products.91 The act prevents advertising of cigarettes, little cigars, and smokeless tobacco92 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.93 The health warnings must be rotated several times per year according to a
manufacturer-submitted plan approved by the Federal Trade Commission.94 Because of the
FCLAA’s preemption provision, states cannot impose their own health warning labels on
cigarettes.95
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 the provisions of this
Agreement violate the state or federal constitutions.”96 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. 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.97 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
88 Id. at 1073.
89 See id. at 1072.
90 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.
91 15 U.S.C. § 1331-41.
92 Cigars are not subjected to similar advertising and warning restrictions.
93 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).
94 15 U.S.C. §§ 1333(c)(1), 4402(c); 16 C.F.R. Part 307.
95 15 U.S.C. § 1334(b); Cipollone v. Liggett Group Inc., 505 U.S. 504 (1992).
96 Master Settlement Agreement, at 99, available at, http://www.naag.org/backpages/naag/tobacco/msa/msa-pdf/
1109185724_1032468605_cigmsa.pdf.
97 Master Settlement Agreement, p. 18.
Congressional Research Service
13
.
Tobacco: Selected Legal Issues
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.98
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,99 finding that they do not violate the First Amendment.100
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 accessible to
youth.101 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.102 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.103 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.104
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.105
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.106 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
98 Id. at 14-21.
99 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).
100 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.
101 Mass. Regs. Code tit. 940, §§ 21.04, 22.06.
102 Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 534-36 (2001).
103 Id. at 551-52.
104 Id. at 553.
105 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).
106 Lorillard, 533 U.S. at 562, 564-65.
Congressional Research Service
14
.
Tobacco: Selected Legal Issues
information and the tobacco industry has a right to communicate truthful speech on legal
products.107 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.108 According to one source, at least 20 state and local laws have been repealed as a
result of Lorillard.109
Finally, as to the question of Massachusetts’s regulation of cigarette, smokeless tobacco, and cigar
sales, the petitioners did not argue that the FCLAA preempted Massachusetts law.110 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.111 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.112
Restrictions on Selling and Distributing to Minors
All 50 states ban tobacco sales to individuals under age 18, and federal law plays a role in this
restriction.113 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.”114 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.”115
Under the Synar Amendment, states must enforce their bans through annual random,
unannounced inspections.116 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.117 According to the HHS regulations, the
107 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.
108 Id. at 566.
109 David L. Hudson Jr., Tobacco Ads, Speech topic - Advertising & First Amendment,
http://www.firstamendmentcenter.org/speech/advertising/topic.aspx?topic=tobacco_alcohol.
110 Lorillard, 533 U.S. at 566.
111 Id. at 567.
112 Id. at 569.
113 Barnaby J. Feder, U.S. Imposes Rules on Tobacco Sales to Minors, NY Times, January 19, 1996.
114 42 U.S.C. § 300x-21.
115 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).
116 42 U.S.C. § 300x-26(b)(2)(A).
117 Id. at § 300x-26(c).
Congressional Research Service
15
.
Tobacco: Selected Legal Issues
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 18.118
In 2008, the Supreme Court decided Rowe v. New Hampshire Motor Transport Association,
where it held that two Maine laws aimed at restricting minors’ access to cigarettes were
preempted by the Federal Aviation Administration Authorization Act of 1994 (FAAA).119 The
FAAA prohibited states from “enact[ing] or enforc[ing] a law ... related to a price, route, or
service of any motor carrier ... with respect to the transportation of property.” In 2003, Maine
passed two laws that instituted requirements for shipping and delivery sales of tobacco products
that attempted to end sales to minors. Violators of either provision could receive civil penalties.120
The first provision required tobacco retailers to use delivery services that verify that, if the
purchaser of the tobacco products was under 27 years old, the purchaser had a valid government
photo identification that indicated the purchaser was of legal age to buy tobacco products.121 That
provision also required the purchaser to be the addressee and to sign for the products. The second
provision provided that a person was “deemed to know” that a shipment contained tobacco
products if the package was marked on the outside by a tobacco retailer (1) “to indicate that the
contents are tobacco products” and (2) with the retailer’s name and Maine tobacco license
number.122 A person, such as a delivery service, was also “deemed to know” that the package
contained tobacco if it came “from a person listed as an unlicensed tobacco retailer.”123 In other
words, as the Supreme Court stated, the second provision “imposes civil liability upon the carrier,
not simply for its knowing transport of (unlicensed) tobacco, but for the carrier’s failure
sufficiently to examine every package.”124 The state argued that such laws helped the state to stop
minors from gaining access to cigarettes.
In finding that the FAAA preempted Maine’s mail-order tobacco product delivery laws, the Court
noted that Maine’s laws had a “significant impact” on carrier rates, routes, or services. The Court
reasoned that Maine’s laws had the effect of substituting “government commands for
‘competitive market forces’ in determining ... the services that motor carriers will provide.”125 The
Court also found that Maine’s laws would be preempted regardless of whether, as Maine alleged,
the overturning of Maine’s laws would hurt its efforts to stop underage smoking.126 Justice
Ginsburg’s concurrence stated that a “large regulatory gap [was] left by an application of the
FAAAA[‘s] preemption provision, which affected state enforcement strategies to prevent tobacco
sales to minors.”127
118 45 C.F.R. § 96-130(g).
119 128 S. Ct. 989 (2008). For additional information on this case, see CRS Report RS22938, Rowe v. New Hampshire
Motor Transport Association: Federal Preemption of State Tobacco Shipment Laws, by Vanessa K. Burrows.
120 Rowe, 128 S. Ct. at 994.
121 Me. Rev. Stat. Ann. tit. 22, §§ 1555-C(3)(C).
122 Me. Rev. Stat. Ann. tit. 22, §1555-C(3)(B); Me. Rev. Stat. Ann. tit. 22, §1555-D.
123 Me. Rev. Stat. Ann. tit. 22, §1555-D.
124 Rowe, 128 S. Ct. at 996.
125 Id. at 995.
126 Id. at 996-98.
127 Id. at 998 (Ginsburg, J. concurring).
Congressional Research Service
16
.
Tobacco: Selected Legal Issues
FTC Rescission of Guidance Concerning the
Cambridge or FTC Method128
The cigarette industry uses a test methodology initially set forth by the Federal Trade
Commission (FTC) in 1967 to determine tar and nicotine ratings of cigarettes.129 This method,
which relies on the use of a machine “to produce uniform, standardized data about the tar and
nicotine yields of mainstream cigarette smoke,” is known as the FTC Test Method or the
Cambridge Filter Method.130 In 1966, the FTC issued a guidance document that informed major
cigarette manufacturers that factual statements of tar and nicotine content would be permitted if
they were based on the FTC Method.131 In litigation regarding light and low-tar cigarettes,
tobacco manufacturers often reference this guidance document as well as other actions of the FTC
as evidence that the FTC authorized the use of descriptors such as “light” or “lower tar and
nicotine,” and that because of this, they cannot be held liable for any misleading or deceptive
practices.132
On December 8, 2008, the FTC published a notice that it had rescinded the 1966 guidance
document. It stated that the scientific consensus is that “machine-based measurements of tar and
nicotine yields using the Cambridge Filter Method ‘do not offer smokers meaningful information
on the amount of tar and nicotine they will receive from a cigarette, or on the relative amounts of
tar and nicotine exposure they are likely to receive from smoking different brands of
cigarettes.’”133 In its notice of rescission, the FTC declared that although cigarette manufacturers
have adopted descriptive terms such as “light” and “ultra low,” the Commission “has neither
defined those terms, nor provided guidance or authorization as to use of the descriptors.”134 The
Commission declined to initiate a proceeding to ban all use of descriptors because the district
court had entered an order requiring tobacco manufacturers to do so in the government’s RICO
lawsuit against tobacco companies (United States v. Philip Morris). Furthermore, the Commission
indicated that any continued use of descriptors or reference to the testing method would be
subject to the FTC Act’s prohibition against deceptive acts or practices. Therefore, companies can
only make claims that reference a specific testing method as long as the claims are truthful, non-
misleading, and substantiated.135
128 For more on the FTC Method and Guidance Document see CRS Report RS22944, Federal Trade Commission
Guidance Regarding Tar and Nicotine Yields in Cigarettes, by Vanessa K. Burrows.
129 Press Release, Federal Trade Commission, FTC to Begin Cigarette Testing, August 1, 1967, available at,
http://www.philipmorrisusa.com/en/cms/Products/Cigarettes/Tar_Nicotine/ftc_1967_press_release.aspx. Prior to the
use of the FTC Method, cigarette manufacturers used different testing methods to determine tar and nicotine yields,
“making cross-brand comparison unreliable.” Price v. Philip Morris, Inc., 848 N.E.2d 1 (Ill. 2005); 2005 Ill. LEXIS
2071, at *4. In 1955 the FTC allowed industry manufacturers to make such claims “only if they could substantiate their
claims by ‘competent scientific proof.’” Id. at *3.
130 Accuracy of the FTC Tar and Nicotine Cigarette Rating System Before the Senate Comm. on Scommerce, Science,
and Transportation, 110th Cong. (November 13, 2007) (statement of William E. Kovacic, FTC Commissioner).
131 FTC Rescinds Guidance from 1966 on Statements Concerning Tar and Nicotine Yields, Press Release, November
26, 2008, available at, http://www.ftc.gov/opa/2008/11/cigarettetesting.shtm.
132 See, e.g., Watson v. Philip Morris U.S.A., Inc., 551 U.S. 142 (2007); Altria Group, Inc. v. Good, 129 S. Ct. 538
(2008).
133 73 Fed. Reg. 74501 (December 8, 2008).
134 Id. at 74504.
135 Id.
Congressional Research Service
17
.
Tobacco: Selected Legal Issues
The rescission of this guidance document and the discussion set forth in the notice may affect
future lawsuits and the FTC’s jurisdiction in policing these statements. Given the Commission’s
declaration that it never authorized the use of descriptors, this could effectively take away from a
tobacco manufacturer any defense it may want to raise where it had asserted that the FTC
authorized the use of such descriptors. The rescission could lead to more enforcement action by
the FTC because it continued to permit tobacco manufacturers to reference testing methods and
descriptors. Or, on the other hand, assuming H.R. 1256, the Family Smoking Prevention and
Tobacco Control Act becomes law, the FTC may be less able to bring enforcement actions
because tobacco manufacturers would have to seek approval from the FDA to sell “any tobacco
product that is sold or distributed for use to reduce harm or the risk of tobacco-related disease”
(i.e., light or low-tar cigarettes, also known as “modified risk tobacco products”).136
Author Contact Information
Vivian S. Chu
Legislative Attorney
vchu@crs.loc.gov, 7-4576
Acknowledgments
Vanessa K. Burrows, Legislative Attorney, was the initial author of this report.
136 H.R. 1256, 111th Cong., 1st Sess. Section 911. See also S. 982, the Family Smoking Prevention and Tobacco Control
Act, 111th Cong., 1st Sess (2009) (On May 20, 2009, S. 982 was reported favorably by the Senate Health, Education,
Labor and Pensions Committee to the full Senate—as amended—by a vote of 15-8. On June 10, 2009, provisions of S.
982 were included in amendment no. 1247 to H.R. 1256).
Congressional Research Service
18