Debate and Issues Index

draft settlement

Dick Daynard's Analysis


Draft Summary of AG Tobacco Deal Contains Few New Public Health Provisions and Lacks Many Critical Industry Concessions

A draft summary of the proposed multi-state tobacco settlement of state attorney general cases suggests that the parties involved have kept the terms a secret for good reason: they are, by and large, quite under-whelming. If approved, the "Friday the 13th" deal could only be characterized as a big victory for Big Tobacco.

What is Missing?

There are no look-back provisions to financially punish tobacco companies if they continue to peddle their deadly wares to kids. The proponents of the June 20, 1997 deal admitted that their marketing restrictions (which were much more far-reaching than those in the present deal) were probably not airtight; they argued, however, that the look-back provisions would give the industry an incentive not to search for loopholes. Nonetheless, the look-back provisions in the June 20 deal were criticized by most experts as too lenient to do the job. This deal avoids that problem by omitting this potentially very effective device altogether!

There are no restrictions on vending machines, self-service displays, Internet sales, or in-store advertising, all in contrast to both the June 20 deal and the FDA regulations (which are now in limbo).

There is nothing in the draft requiring the industry to "call off their dogs" and stop fighting the FDA, EPA, and ingredient disclosure efforts.

Also missing is a great deal of taxpayers' money! The AG,s argue that they can get more from this deal than they could in their lawsuits. That may be true, but it,s comparing apples and oranges. The AG's are suing for past damages. If they win they get a lump sum check for all their past damages, and can also sue for future damages. The deal reimburses them only for future damages. While future damages may be larger than past damages (especially if you don,t discount to present value), the comparison is totally beside the point. Non-signing AG's will be able to recover past and future damages; AG's signing the deal will recover only future damages. (In fact, they may recover less future damages than non-signing AG's do, since by suing for their future damages in the future, the non-signers will be able to account for medical inflation, which runs at a much higher rate than the inflation adjustment provided in the agreement.)

Fool's Gold

What is offered, in many instances, has already been accomplished elsewhere, or contains loopholes and weaknesses that may undermine the stated public health purposes of these provisions. (We can note here only a few such instances, both because the hour is late, and because we do not have the full agreement, which most probably contains many egregious examples that are not even hinted at in the draft summary.)

The prohibition on targeting youth is an example of something that is already in effect nationally as a result of the Minnesota Agreement and something that the industry vehemently denies doing anyway.

The restriction on cartoon advertising is an example of "closing the barn door only after the camel has escaped." The only tobacco advertising cartoon campaign is gone as a result of the Mangini settlement last year and the FTC action against RJ Reynolds (FTC v. RJ Reynolds is currently in trial). What about the Marlboro man? This does not go as far as FDA regulations or the June 20 accord, which would have banned human and animal figures. Furthermore, recent tobacco industry advertising shows, for example, cute anthropomorphic cigarettes, and cleverly positioned chili peppers that resemble a pair of lips smoking a cigarette or cartoon-like layouts featuring human figures. Such advertising is eye-catching and appealing to kids and completely legal under the proposed settlement.

The restrictions on sponsorships by brand name appears to be seriously flawed. This is an area where the tobacco industry has shifted much of its promotional efforts in recent years. The prohibition on brand name sponsorship of events with a significant youth audience begs the question: what sports do not have a significant youth audience? How about NASCAR and other racing circuits? Essentially, these provisions give the appearance of attorneys general condoning tobacco brand sponsorship of sporting events. Even if each company is limited to one brand name sponsored event per year, there is no limitation on advertising at events (such as brand-sponsored cars) as long as the ads are no bigger than "posters."

Furthermore, the "ban on outdoor advertising permits "signs and placards [no] larger than a poster invideo game arcades. So much for stopping the tobacco companies from marketing to kids!

The caption on another provision states, "Sets Minimum Pack Size at 20 Cigarettes. The text makes clear that limit applies only through March 31, 2001. After that, the companies are free to make "kiddie packs of 10, 5, or even 1 cigarette (unless states pass statutes prohibiting this). This provision, too, appears to reflect the AG,s approval of a youth-targeting device that the major companies have yet even attempted!

The settlement pretends to "Disband Tobacco Trade Associations. But in the very next section, it permits the companies to resurrect them, essentially unchanged.

The settlement "requires the industry to dismiss pending legal challenges related to underage smoking and environmental tobacco smoke laws, but it does not prevent them from lobbying against new clear indoor air laws, or from mounting legal challenges against new clean indoor air or youth access laws.

The settlement forces state legislatures to pass laws taxing non-participating manufacturers. It never puts it like that, but the result of the "non-participating manufacturers adjustment clause is that any state which does not pass such a law is liable to see its payments from the signatory tobacco companies drastically reduced, possibly down to zero. (By the way, if a state is going to have to pass a cigarette tax anyway, why shouldn,t it just pass a cigarette tax, and continue its litigation against the manufacturers?)

An interesting provision states that "outside counsel can negotiate a liquidated fee agreement with the industry, and if accepted, would be paid from a $1.25 billion pool of money from the tobacco industry. These include the same outside counsel who negotiated this deal and strongly urged their AG clients that it would be in their best interests to sign it. Could there be a conflict of interest here?

While there is in theory a "most favored nation" clause, which would give the signing states the benefits won in later settlements by AG's who do not sign this agreement, the effort to get every AG to sign this agreement undercuts the purpose of the clause. The use of the clause to ratchet up the financial and public health benefits has been the key to making the four previous state settlements so effective. The fear of this process is what has impelled the tobacco companies to try to settle every state's case at the same time.