Big Tobacco Conspired to Lie About Smoking Risks: Ruling

WASHINGTON—The US Justice Department's lawsuit against the major tobacco companies ended with more of a whimper than a bang. A federal judge found that the companies engaged in a decades-long conspiracy to deceive Americans about the dangers of smoking cigarettes but said that a 2005 ruling by a federal appeals court severely limited the penalties she could impose.

As a result, although the companies were enjoined from committing any future racketeering acts in the United States related to cigarettes, they were neither fined nor required to fund smoking cessation programs. And while their legal defeat may cost them tens of millions of dollars, the decision did not run into the billions sought by the Justice Department. One financial analyst called the decision a complete win "from a business perspective" for the defendants.

However, legal action in the case, and even the possibility of stronger penalties, has not ended. Appeals could overturn the district court's decision, handing the companies a more favorable outcome. Likewise, a higher court could reverse the decision cited by Judge Gladys Kessler of the US District Court for the District of Columbia in refusing to grant the Justice Department's request for $14 billion in remedies. Should the latter occur, the tobacco companies could face far more expensive penalties.

In her opinion, Judge Kessler wrote that "overwhelming evidence" showed the companies "marketed and sold their lethal products with zeal, with deception, with a single-minded focus on their financial success, and without regard for the human tragedy or social costs that success extracted." However, she noted, the 2005 appeals court ruling held that the federal Racketeer Influenced and Corrupt Organizations Act (RICO) only allowed forward-looking penalties aimed at preventing future illegal acts by the cigarette makers and did not provide for remedies such as the forfeiture of ill-gotten profits.

In the remedies handed down by Judge Kessler, all but one of the companies was ordered to:

• Affix to each cigarette pack a statement on the adverse health effects of smoking and the addictive properties of cigarettes.

• Run prime-time commercials with such warnings on at least one major television network (ABC, CBS, or NBC) at least once a week for a year, and publish full-page advertisements in 35 daily newspapers.

• Cease using words on their products implying that certain cigarettes pose less of a health threat, such as low tar, light, ultralight, mild, and natural.

• Pay the legal costs incurred by the federal government in the 7-year lawsuit.

The penalties—which will take effect on Jan. 1, 2007, unless stayed by an appeal—apply to seven of the corporate defendants: Philip Morris USA, Inc., and its parent company, the Altria Group, Inc.; R. J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Co.; British American Tobacco Ltd.; and Lorillard Tobacco Co.

Judge Kessler exempted the Liggett Group, Inc., which is now a subsidiary of Vector Group Ltd., from her remedies order. In her opinion, she found that Liggett had withdrawn from the conspiracy in 1997, aided federal and state officials in their investigations of the tobacco industry, and held only 2.4% of the nation's cigarette market. "Liggett does not have a reasonable likelihood of future RICO violations," she said.

Philip Morris and Altria announced immediately after Judge Kessler released her decision that they would pursue the case further. William S. Ohlemeyer, Altria vice president and associate general counsel, said that the two companies "believe much of today's decision and order are not supported by the law or the evidence presented at trial, and appear to be Constitutionally impermissible or infringe on Congress's sole right to provide for the regulation of tobacco products."

At the time of this report, the two corporations had not decided whether to first seek review of the ruling on the case by the district court or to go directly to the US Circuit Court of Appeals for the District of Columbia.

Groups Urge Justice to Appeal

Several public health groups, including the American Cancer Society and the American Lung Association, urged the Justice Department to appeal the remedies portion of Judge Kessler's decision, while applauding her finding of deception by the tobacco companies.

"Given the overwhelming scope of the industry's wrongdoing found by the judge, much of which continues today, the Bush Administration has an obligation to appeal the remedies in this case to protect the American people and especially our children," said William Corr, executive director of the Campaign for Tobacco-Free Kids. In a statement, the Justice Department said that its attorneys were "continuing to review the Court's 1,652-page opinion."