Philip Morris USA Inc. and other tobacco makers must say on cigarette packages that they’re “intentionally designed” to ensure addiction, a Washington federal appeals court said.
The companies, however, don’t have to say they lied about the dangers of smoking.
That’s the decision of a Washington-based appeals court Friday in a 15-year-old racketeering case. The U.S. claims Altria Group Inc.’s Philip Morris USA unit and eight other cigarette manufacturers conspired to hide the health consequences and addictiveness of cigarettes. Friday’s ruling by the Washington-based court came in the fifth appeal to be filed since the case was brought.
In its decision, the three-judge panel said the lower court overstepped its authority by requiring tobacco makers to include a statement saying a U.S. court found they deliberately deceived the public about the health effects of secondhand smoke.
The statement reveals “nothing about cigarettes” and focuses instead on the companies’ conduct, the court ruled.
“We are gratified that the appellate court struck down the preamble to each proposed communication, which was the critical part of the appeal,” Brian May, a spokesman for Richmond, Virginia-based Altria, said in an e-mail. “The court correctly found that the preamble violated federal law by focusing on past conduct, instead of the health consequences.”
Boost Profits
Representatives of Reynolds American Inc. and Lorillard Inc. didn’t immediately return calls seeking comment on the ruling.
A court’s finding in 2006 that the companies joined together to boost profits through false statements eventually led to an order requiring corrective disclosures on package labels.
The racketeering case followed a 1998 agreement between 46 states and the five biggest tobacco companies that set standards for how they market and sell their products. Those restrictions, along with higher taxes and aggressive anti-smoking campaigns, spurred years of declining sales volumes as more people quit.
In recent years, manufacturers have been able to raise prices, leading to modest revenue gains. Reynolds and Lorillard have pushed away from discount cigarettes to focus on more profitable brands, including Camel and Newport. Sales volume declines have slowed, helped most recently by low gas prices that leave cash in smokers’ pockets.
The companies have sought to combat declining smoking rates and boost profitability by consolidating. Reynolds announced its $25 billion acquisition of Lorillard last July, a deal that will combine the nation’s second- and third-largest cigarette makers.
The merged firm will hold an estimated 34 per cent market share and become a larger rival to Altria, which owns the Marlboro brand and holds an estimated 47 per cent share. The stronger position will provide more leverage to raise prices and cut costs.
News by Bloomberg, edited by ESM
