Federal lawsuit is next test for Big Tobacco

The tobacco industry faces its most daunting court date yet. Following a raft of state and individual lawsuits, the federal government filed a suit yesterday that has the greatest potential to date to change the way the industry conducts its business.

The case will seek to recover the $25 billion per year the government says it spends on smoking-related health costs. But the actual payout could be higher, since the government is suing under the civil racketeering statute, which allows triple damages. Because of the potential for an enormous award against them, the tobacco industry will be under pressure to settle the suit.

Moreover, health-care analysts say any settlement could have wide-ranging policy implications, such as regulation of nicotine by the Food and Drug Administration (FDA) and tight restrictions on advertising.

"This is potentially their biggest legal challenge, because it could force changes in the tobacco industry itself," says Cliff Douglas, head of Tobacco Control Law and Policy Consulting in Ann Arbor, Mich.

"This lawsuit gives the federal government a chance to get the concessions that the state attorneys general did not get," says Richard Daynard, a professor at Northwestern University School of Law in Evanston, Ill.

The US case focuses on recovering costs related to Medicare and veterans programs. Last year's $206-billion settlement with states dealt with Medicaid program, but did little to address marketing and regulatory issues.

The industry has dreaded this lawsuit ever since President Clinton announced it in his State of the Union message last January. The federal government has enormous resources that can be used to prosecute the case.

Scott Williams, a spokesman for the industry, could not reached for comment. But in the past, Mr. Williams has questioned the potential suit. "It would be unprecedented for the federal government ... to act like the plaintiffs bar and try to intimidate a legal industry into paying $200 billion or more simply because they are unpopular," said Mr. Williams in a past interview. He maintains that because of all the taxes the industry pays, "smokers pay their own way now."

But Sen. Dick Durbin (D) of Illinois, in a past interview, said recovering the money spent on tobacco-related health expenses is important. Earlier this year the Senate included a provision that any money recovered from a tobacco lawsuit will be used to defray the cost of prescription drugs for Medicaid recipients. "So the money really has a valuable use," says Mr. Durbin.

But the greatest potential for the lawsuit is to force the industry to the bargaining table to discuss policy concessions. For example, the industry is disputing FDA jurisdiction over nicotine, a prime ingredient of tobacco. A lawsuit over this is currently before the US Supreme Court. "The FDA regulation is far and away the most important concession," says Mr. Douglas.

If the FDA were to gain jurisdiction over the industry, it could begin to mandate nicotine levels. Health groups would ask the FDA to force the industry to gradually lower nicotine levels. This could help individuals quit smoking.

Douglas says the government could also force marketing concessions. In last year's settlement with the Attorneys General, the industry agreed to stop using billboards and to curtail the use of free samples. But the federal government could force the industry to end sponsorships, such as backing of NASCAR races and other promotion efforts.

Since the state settlement, the price of cigarettes has increased by about 45 cents a pack. This has curtailed some smoking. But in one indication that the price hikes are not having much of an effect, the government recently found teen smoking at its highest level in 19 years.

If the federal lawsuit costs the industry $500 billion, cigarette prices would again go up sharply. This could raise the per-pack price to the $4 to $5 range, depending on state taxes. Analysts estimate such an increase would decrease demand significantly.

(c) Copyright 1999. The Christian Science Publishing Society