A Smoking License
- posted by Jim Leitzel @ 9:37 PM

There are a couple features of current tobacco regulation that do not satisfy Vice Squad's approach to vice regulation, the notion that rules should work well if everyone is completely rational with respect to their vice-related decisions -- and the rules should work well, too, if lots of folks are addicted or irrational or exhibit self-control shortcomings when dealing with vice. In particular, cigarette taxes in "western" countries (along with, in the US, the Master Tobacco Settlement effective surcharge) are too high (too punitive for rational smokers), and those public smoking bans are too broad (besides creating problems for Vice Squad fetish Bingo). But the idea that a bar or restaurant, or an individual smoker, might have to pay a small amount to acquire a license for smoking privileges -- well, that warms our self-exclusion heart. And no doubt as a Valentine's Day present to Vice Squad, Britain is considering instituting a licensing system in which would-be cigarette smokers would first have to purchase a tobacco-buyer's license, at a fee of 10 pounds for one year. They also want to make the license application form unwieldy to fill out, it seems, but that can go too far; perhaps better would be an easy form, but a three-day waiting period between when you submit the form and when you pick up your license -- with the possibility of cancelling for a full refund at any time during those three days.

Incidentally, between taxes and the exchange rate, cigarettes are too expensive for Americans in the UK.

Labels: Britain, licensing, Master Settlement Agreement, robustness, tobacco

 
Tobacco Lawsuits in the Times
- posted by Jim Leitzel @ 7:44 PM

Vice Squad long has complained about the difficulty of keeping track of all of the lawsuits against tobacco manufacturers. Today's New York Times does a good job of describing the present state of play in the most significant cases, and mentions in passing that Philip Morris currently is a defendant in 454 lawsuits. And though the cigarette manufacturers haven't been as uniformly successful in defending lawsuits since the 1998 Master Settlement Agreement as they were prior to their pact with the states, they still are doing pretty well:

Since 1998, when the major tobacco companies settled lawsuits with the states for $246 billion over health care costs related to smoking, domestic cases involving Philip Morris as a defendant, alone or with other companies, have ended with 27 verdicts in favor of the defendants and 16 in favor of the plaintiffs, with potential combined awards of $948 million.

But the company has appealed 13 of those cases. Of the remaining three, Philip Morris paid plaintiffs in two, for a total of $20.3 million. The other case was dismissed.

Labels: litigation, Master Settlement Agreement, tobacco

 
More Good News for Big Tobacco
- posted by Jim Leitzel @ 6:02 PM

Lawsuits by smokers seeking damages for adverse health impacts from Big Tobacco were unsuccessful for decades. Then came the Master Settlement Agreement with the state attorneys general in 1998, and the tide seemed to shift. Suddenly individual smokers were winning in some suits, and class-action suits progressed, too. Lately, however, it seems that the 180 degree turnaround might become a 360 degree one. Today's shot-in-the-arm for the tobacco giants is a federal appeals court ruling that precludes a national class action from forming in a New York case.

Public smoking bans remain hot political issues in many localities, however. Residents of Austin, Texas, will vote tomorrow on whether to extend their smoking ban to "bars, bowling alleys, and pool halls," while recently-dormant legislation on a workplace smoking ban for Vice Squad's own hometown of Chicago is now emerging from hibernation.

Labels: litigation, Master Settlement Agreement, smoking ban, tobacco

 
How Big Tobacco's Partners Spend Their Billions
- posted by Jim Leitzel @ 5:55 PM

The partners, of course, are the US states, 46 of whom became particularly beholden to Big Tobacco through the 1998 Master Settlement Agreement (MSA). The Government Accountability Office (GAO) issues an annual report on how the states are spending their settlement funds; the most recent report was issued last week. From the abstract:

States reported they received about $9.7 billion in fiscal year 2004 and expect to receive about $5.4 billion in fiscal year 2005....The MSA allows states to use their tobacco settlement payments for any purpose. States reported that they used the largest portions of the fiscal year 2004 payments to address budget shortfalls (about 44 percent) and to fund health-related programs (20 percent). Compared with fiscal year 2004, states in fiscal year 2005 expect to decrease allocations to address budget shortfalls (11 percent) and to increase allocations to both health-related programs (32 percent) and debt service on securitized funds (23 percent).

The Campaign For Tobacco Free Kids has been a vocal critic of how little state spending from the settlement funds has gone to fight tobacco-related health problems.

Labels: Master Settlement Agreement, tobacco

 
Vetting Scientific Research Through Big Tobacco
- posted by Jim Leitzel @ 11:41 PM

The previous post alluded to the 1998 Master Settlement Agreement between major tobacco companies and 46 state attorneys general. One element of the agreement was that the companies would have to release internal documents relating to research on the health effects of tobacco. A new research publication partly based on those documents now claims that "executives at Philip Morris International hired a consultant to write a scientific article on the causes of [sudden infant death syndrome] and persuaded him to change his original conclusions. The eventual article called into question the connection to secondhand smoke, the San Francisco Chronicle reported Monday." Wow.

Labels: Master Settlement Agreement, tobacco

 
Ohio Tobacco Festival
- posted by Jim Leitzel @ 3:48 PM

Major tobacco companies used to sponsor the event, but that had to end following the 1998 Master Settlement Agreement. Nevertheless, the four-day Ohio Tobacco Festival got underway yesterday in Ripley, Ohio. There's a contest to crown this year's tobacco queen, a cornhole tournament (I have no idea), and the always popular tobacco spitting competition.

Labels: Master Settlement Agreement, tobacco

 
Some Updates and an Out-of-Town Notice
- posted by Jim Leitzel @ 5:38 PM

(1) The Charlotte pastor arrested on prostitution-related charges earlier this month is, as Vice Squad speculated, out of a job. Vice Squad also questioned the newsworthiness of the arrest; the Charlotte Observer later explained its own decision regarding the coverage.

(2) The death toll in the Iranian tainted alcohol disaster has reached 22; at least five others have been blinded.

(3) Squabbling over the circumvention of the cartel created by the 1998 Big Tobacco Master Settlement Agreement (MSA) continues. One of the tobacco companies that eventually joined the settlement is suing states that it feels are not sufficiently going after non-signatories. Vice Squad has tried to keep up with the MSA maneuvering, at least half-heartedly; here's one relatively recent entry. Maybe the MSA will be determined to be unconstitutional and Vice Squad will find better uses for its pixels.

Oh, the out-of-town notice. I will be out of town for the next week, if all goes according to plan, and blogging will be limited. (Although it is my understanding that blogging capabilities have now come to some non-Chicago communities.) Vice Squad members are encouraged to pick up the slack -- or rather, to repair the damage.

Labels: alcohol, Master Settlement Agreement, prostitution, solipsism, tobacco

 
Smoking in the Movies
- posted by Jim Leitzel @ 3:43 PM

Some government officials don't like it when they see an actor in a movie light a Camel cigarette. They can point to the 1998 Master Tobacco Settlement with state attorneys general to ensure that the major tobacco companies are not paying the movie producers for the plug. But what if the movie producers act on their own accord? Well, now those producers can expect to hear from cigarette manufacturers asking that the product reference be removed, and backing up the request with a vague litigation threat. This pressure also is a result of the 1998 settlement:

The push comes as state authorities in California have begun to inform tobacco companies that they are obliged to police the use of their brands in films. State attorneys-general claim their 1998 lawsuit settlement with tobacco companies requires cigarette manufacturers to take any "commercially reasonable" steps to prevent the unauthorized use of their brand names in films. The intent was to prevent the manufacturers from skirting restrictions on cigarette ads.

"It isn't enough for a tobacco company to say, 'We had nothing to do with our brand of cigarettes being in that movie,' " says Michelle Fogliani, deputy attorney general for California, which has support from state authorities in Maryland and elsewhere.

So far, it looks as if the movie producers haven't succumbed to the pressure, but who knows how movies have been altered pre-release to ensure conformity with smoking diktats?

Meanwhile, the possibility of tagging R-ratings on US movies because of smoking continues to be discussed. (One commentator in the linked article notes the irony in that smoking was sometimes used in steamy ways in old movies precisely because more overt sexual behavior was verboten.) Britain, too, is considering rating movies according to their drinking and smoking content.

Labels: litigation, Master Settlement Agreement, tobacco

 
Philip Morris and its Partner, the Commonwealth of Virginia, Lose a Skirmish
- posted by Jim Leitzel @ 4:16 PM

Many states continue to look for ways to protect their tobacco settlement awards by raising the costs of small, non-settling tobacco manufacturers. The governor of Virginia had proposed legislation to slow down the return of escrow payments made by the small sellers, but the Virginia House Speaker was able to prevent the proposal from coming up for a vote, according to this article in dailypress.com (Hampton Roads, Virginia). But with big money at stake for the Virginia/Philip Morris team, one suspects that the House Speaker's maneuvering will not be the last move in this game. (Here and here are the most recent related Vice Squad posts.)

Labels: Master Settlement Agreement, tobacco

 
Tobacco Company Partners Prosper
- posted by Jim Leitzel @ 2:29 PM

The partners, of course, are the states, which haul in all sorts of funds from cigarette sales, through excise taxes, sales taxes, and the Big Tobacco Settlement. Here's the latest good news:

"New Mexico received more than $35.6 million in the latest payment to the state under the 1998 settlement of a lawsuit against the major tobacco companies."

"Michigan to receive $271 million in tobacco settlement cash."

Labels: Master Settlement Agreement, tobacco

 
Two Quick Updates, One Concerning Tobacco, the Other, Alcohol
- posted by Jim Leitzel @ 5:22 PM

Tennessee is looking to tax "Little Tobacco" companies by 50 cents per pack to protect the state's revenue from the 1998 Master Tobacco Settlement. This is simply the latest development in a long, long cycle of activity in state houses throughout America; one recent (yet, oddly, not the most recent) related Vice Squad post is here. An excerpt from the linked article: "The cost of many standard cigarette brands has gone up as a result of the lawsuit settlement, while these off-brands can be half the price. That means that not only are the state's children being enticed to buy cigarettes, less money comes into the state's coffers as large manufacturers' profits drop, said [the bill's sponsor]."

The alcohol update concerns the tight new anti-alcohol restrictions in Aboriginal areas in Australia. First the new controls brought "Winegate," a political scandal involving a government plane that landed in the prohibition zone...with a wine bottle on board! Now an Aboriginal political leader is in trouble after a can of beer was tossed, so the accusation goes, from his car as it approached a police roadblock.

Labels: alcohol, Australia, Master Settlement Agreement, tax, tobacco

 
Tobacco Lawsuit Update #116
- posted by Jim Leitzel @ 6:14 PM

The loyal Vice Squad reader keeps imploring, please, please, can we hear more about the thousands of lawsuits involving tobacco companies? And as we aim to please....

The European Union has taken Philip Morris International to court, on the grounds that their distribution practices were undertaken in the knowledge that they were aiding the smuggling of untaxed cigarettes. (A similar "distribution knowingly aimed at fueling the black market" argument has been employed, as far as I know unsuccessfully to date, against the gun industry in the US; I also half-recall that Canada had a similar lawsuit against Big Tobacco but it went nowhere.) Now PMI and the EU are looking to settle. The terms of the putative settlement have PMI paying some 1 billion euros over ten years, with the funds being used to help police the black market.

Pennsylvania has settled one of the cases that it has been bringing against small tobacco manufacturers who were not abiding by the escrow rules adopted in the wake of the 1998 Multistate Tobacco Settlement. The company will pony up. Some previous Vice Squad posts on related developments are here (March 27); here (March 18); and here (involving Pennsylvania, too, on March 2).

The Massachusetts Supreme Court will hear a case (link to article in the Providence Journal; registration required) involving Philip Morris, the state having accused it of deceiving consumers into thinking that low tar and nicotine cigarettes are safer. A similar case is currently at the Illinois Supreme Court; Vice Squad noted it earlier (most recently, on March 18). The current issue to be decided in Massachusetts, however, only concerns whether the case can be brought as a class action.

Labels: EU, litigation, Master Settlement Agreement, tobacco

 
Shoring Up the Tobacco Settlement
- posted by Jim Leitzel @ 5:25 PM

As the loyal Vice Squad reader knows, states have been trying to force small tobacco producers who operate in only a few states to charge more for their cigarettes -- otherwise, the states see a decline in their payments from those tobacco companies that reached the 1998 multi-state settlement. (The most recent Vice Squad entry on this issue is in the second half of this post from March 18.) But lately, state legislatures have not been willing to go along with the scheme, it seems. A bill to tack on a 50 cent per pack tax on the cigarettes of small manufacturers failed to make it out of committee in Florida last week. (Florida is one of the four states that is not part of the multi-state agreement, but forged a similar, separate settlement with Big Tobacco.) And in Kentucky, the state House voted 46-45 against a measure aimed at penalizing the non-participating small tobacco manufacturers. Don't expect this issue to go away, however, as the amount of money involved is substantial.

In other tobacco lawsuit news -- this time an old-fashioned lawsuit brought by the wife of a heavy smoker who died from lung cancer -- the Mississippi Supreme Court upheld the trial court verdict in favor of the defendant, R. J. Reynolds. One of the bases for the appeal was that the trial judge did not let into evidence an advertisement by tobacco companies from 1954 that apparently questioned the link between smoking and lung cancer. The presiding justice noted that the deceased smoker was 2 years old when the ad appeared, and so he "could not have read, understood, or relied on this statement in any meaningful way."

Labels: litigation, marketing, Master Settlement Agreement, tobacco

 
Tobacco Lawsuits
- posted by Jim Leitzel @ 7:53 AM

Maybe someone can keep track of what is happening with respect to the multitudinous ongoing tobacco lawsuits, but I can't. Nevertheless, I soldier on. The case that the US government is pursuing against tobacco firms continues apace, now that the judge ruled today against the tobacco companies' request for dismissal. The companies claimed that the lawsuit violates the separation of powers, as it essentially is using the courts to perform a legislative function. The judge disagreed, so the $289 billion racketeering suit also soldiers on. Here's a brief description of the case from this Reuters news story:

"The government has brought claims against the Philip Morris unit of Altria Group Inc., R.J. Reynolds Tobacco Holdings Inc., the Loews Corp.'s Lorillard Tobacco unit, British American Tobacco Plc, Brown & Williamson Tobacco Co. and the Vector Group Ltd.'s Liggett Group.

Brought in 1999 by the Clinton administration, the suit seeks damages and tougher rules on marketing, advertising and warning claims on tobacco products."

Last week, the judge in the case ruled that the government could target pre-1970 tobacco company profits, even though the RICO statute that the government is employing did not exist in those years. From the linked LA Times story (registration required): "U.S. District Judge Gladys Kessler said that "disgorgement of illegal proceeds is not 'punishment,' " allowing the government to seek remedies for the pre-1970 activity as long as it does not add new punishments."

Disgorging profits "punishment"? Well of course not. It's a compliment, really.

Meanwhile, attempts to hold on to their stream of future payments from Big Tobacco are causing states to target "Little Tobacco" firms. It's Florida's turn now. Though Florida was one of four states that was not part of the 1998 master settlement, it negotiated a similar, separate deal, but is worried that its revenues will fall as smokers switch to the cheaper cigarettes manufactured by non-settling firms. From today's Miami Herald:

"Florida's Republican-led, staunchly antitax Legislature is mulling a 50-cent-per-pack tax increase on cigarettes -- but only on some cigarettes.

Smaller manufacturers of dozens of mostly lower-priced cigarettes that have seen their sales mushroom in recent years would be targeted. The nation's biggest tobacco companies -- makers of well-known brands such as Marlboro and Newport -- would be exempt."

I assume that Florida won't actually enact such a discriminatory "tax," but will dress it up, as other states have, as payments into an escrow account reserved for future lawsuit damages. Some of Vice Squad's earlier looks at the Tobacco Settlement shenanigans are here and here.) Incidentally, West Virginia has rejected for now, but might reconsider, a plan to sell its claim to future tobacco settlement payments for current cash; look about halfway down here.

Oh, here's an excerpt from another recent Miami Herald article that neatly lays out the main issue for the settling states:

"In 1998, the major tobacco companies agreed to settle lawsuits from 46 states that alleged Big Tobacco engaged in deceptive marketing practices and should pay for smoking-related illnesses. The companies agreed to pay the states more than $200 billion over 25 years, though the precise amounts vary depending on cigarette sales.

Last year, North Carolina received $164 million, money it uses for health and economic development programs, among other uses. That amount could decline if discount cigarette sales soar, reducing the number of brand-name cigarettes sold.

Concerned about that possibility, the states that signed the settlement passed laws requiring small tobacco companies that weren't part of the lawsuit to pay fees to cover future costs associated with tobacco liability. Last year, North Carolina collected about $20 million from small tobacco companies.

But because of the way the settlement was written, companies that sell cigarettes in only a few states can receive big refunds. In 2003, North Carolina refunded about three-quarters of the money it collected from discount cigarette makers."

Labels: litigation, Master Settlement Agreement, taxes, tobacco

 
Cigarette Distributor Wins One in Pennsylvania
- posted by Jim Leitzel @ 10:40 AM

The Commonwealth of Pennsylvania has been taking on cigarette manufacturers who were not parties to the 1998 "Master Settlement" with Big Tobacco, and who haven't been funding escrow accounts as required by some related legislation. Just last week, Pennsylvania settled a lawsuit against one non-participating manufacturer. But yesterday came word that an appeals court sided with a tobacco distributor in another Pennsylvania suit aimed at securing escrow payments. The court ruled that the legislation specifically refers to non-participating manufacturers, not distributors of cigarettes. The Illinois-based distributor, therefore, is not liable for such payments, though perhaps the manufacturer (located in India) might be.

According to the linked Associated Press story, "The state Attorney General's office has sued six companies for allegedly failing to comply with the [settlement-related] act. It has won one, lost one and settled one; three are pending before Commonwealth Court." A short overview of the six Pennsylvania cases can be found here.

For an argument that the 1998 Master Settlement with Big Tobacco constitutes (among other debilities) a violation of antitrust laws through its price-fixing and entry-deterring effects, see this Cato Institute publication (pdf, 29 pages) from May, 2000.

Labels: litigation, Master Settlement Agreement, tobacco

 
Continuing to Plug Holes in the Tobacco Settlement
- posted by Jim Leitzel @ 5:46 PM

Vice Squad has been following some of the issues surrounding the "avoidance" of the 1998 tobacco settlement by manufacturers that were not parties to the agreement. States are trying to ensure that the non-signatories don't gain a competitive advantage, as that would undermine the flow of tobacco payments to the states. The agreement itself and further action at the state levels might even be described as extraordinary efforts at limiting avoidance of the settlement parameters.

Today, Pennsylvania has announced that it has settled a case with a non-participating manufacturer. The firm had been a bit torpid in setting up and maintaining its escrow account, as mandated by state law (following the settlement). As Vice Squad recently noted, the justification for this mandated account is, shall we say, imaginative. The funds are supposed to cover future claims against non-settling firms, though the real purpose is to keep the settlement cash flowing.

In other tobacco settlement news, California has been suing R.J. Reynolds on the grounds that the tobacco firm violated the 1998 agreement by continuing to target underage consumers in advertising. The appeals court upheld a lower court finding against Reynolds, but overturned the $20 million fine, "ruling that the amount was based on the company's national print advertising budget rather than the amount spent in California." The California case is not to be confused with the ongoing suit by the US government against Big Tobacco concerning advertising allegedly aimed at underage consumers.

Labels: litigation, marketing, Master Settlement Agreement, tobacco

 
Aren't Settlements Supposed to Be Voluntary?
- posted by Jim Leitzel @ 3:53 PM

The 1998 settlement (available, in all its 285-page glory, from this website) between Big Tobacco and state attorneys general recognized that the future settlement payments (based on market share) would be put at risk if new or non-settling firms increased their own market share. So the settlement, remarkably, required states that wanted to protect their future payments from the settling firms to enact a model law that would mandate firms not participating in the settlement to make payments similar to those made by the settling firms -- whew -- ostensibly to create a fund from which future claims (from litigation) could be paid. The actual language in the model statute really is amazing: "It would be contrary to the policy of the State if tobacco product manufacturers who determine not to enter into such a settlement could use a resulting cost advantage to derive large, short-term profits in the years before liability may arise without ensuring that the State will have an eventual source of recovery from them if they are proven to have acted culpably. It is thus in the interest of the State to require that such manufacturers establish a reserve fund to guarantee a source of compensation and to prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise."

I find this amazing: "if they are proven to have acted culpably." With such a standard, the state (oh, I mean, State) should require that all of us set up a large escrow account, in case we later misbehave and do not have the funds to pay adequate recompense.

But why mention it today? Well, once again we are seeing news articles about state concerns that the existing measures to prevent "avoidance" of the agreement are proving insufficient; here are samples from Pennsylvania, West Virginia, and Florida (this last not a signatory to the master settlement, but one of four states to sign a separate agreement). So, as Vice Squad has mentioned before, states are looking for further measures to ensure that their stream of settlement payments are not unduly disturbed.

Labels: Master Settlement Agreement, tobacco

 
Tobacco Settlement and Non-Participating Companies
- posted by Jim Leitzel @ 1:48 PM

The settlement between 46 state attorneys general and Big Tobacco in 1998 raised the cost of manufacturing cigarettes -- for those who were part of the settlement -- while also promising boatloads of money to the states. What about tobacco companies that did not sign the settlement? Well, states enacted legislation that would raise their costs, too, so that they would not achieve a competitive advantage. The deal had a loophole, however, for small manufacturers that did not have a sales presence in more than a few states. This loophole is beginning to hurt Big Tobacco and its partners, the states, so there are efforts afoot to close it. Those efforts have already been successful in 19 states.

Details can be found in this excellent Kansas City Star story, prepared by an AP writer. The story interviews the owner of Poison, Inc., maker of cigarette brands such as Grim Reaper. Here's a sample that refers to the loophole:

"State laws enacted to enforce the settlement also required cigarette companies to pay money into escrow accounts. Those payments -- about $3.90 per carton this year -- would be used to pay any future claims made against smaller manufacturers, and would also ensure those companies couldn't undercut the Big Four on price.

Those escrow funds were to be paid back after 25 years. But the way the law was written, companies that didn't join the settlement and only do business in a few states could get back most of that money almost immediately.

As a result, Poison can sell Grim Reapers for as little as $1.49 a pack in North Carolina -- about half the price of the Big Four's premium brands."

Vice Squad mentioned the circumvention of the settlement two weeks ago. Update, January 24: Overlawyered comments on this story, too, and rightly points out that the term "loophole" is used rather creatively here.

Labels: Master Settlement Agreement, tobacco

 
US Tobacco Settlement Under Siege
- posted by Jim Leitzel @ 7:45 PM

The 1998 settlement between tobacco manufacturers and state attorneys general is under attack as being anti-competitive. Of course, the settlement is anti-competitive. It essentially imposes higher taxes on existing manufacturers. The higher prices that result potentially would have created an enhanced incentive for new producers (not subject to the settlement taxes) to enter the market and to gain market share. To prevent this foreseeable development, the settlement commits the states to impose taxes on non-settling firms that gain a significant market share.

One importer has sued in Federal court, and now its suit has an opportunity to move ahead. Overlawyered and the Volokh Conspiracy have more.

Incidentally, the hegemony of the Big Four tobacco manufacturers is already under serious post-settlement attack from competitors. Here's a paragraph from a January 5 report from a North Carolina-based news station: "In four years, the market share of the small cigarette companies has multiplied more than tenfold, from 0.5 percent of cigarettes sold in the United States in 1998 to 6.5 percent in 2002, according to the National Association of Attorneys General. The group said the numbers for 2003 will be more startling."

Labels: Master Settlement Agreement, tobacco