Glantz--PRELIMINARY ANALYSIS OF THE TOBACCO DEAL
PRELIMINARY ANALYSIS OF THE TOBACCO DEAL
Prepared by: Brion Fox, James Lightwood, Stanton Glantz June 24, 1997
I. General Comments
The document is not a legal settlement in the sense that it is a binding agreement among the parties that formally terminates litigation. Rather, it is an outline for proposed federal legislation that deals with a wide variety of tobacco issues. Many of the propositions within the deal should be embraced as steps that could reduce the death and disease related to tobacco and represent an improvement over the status quo and provide a worthy legislative agenda independent of the current tobacco litigation. There are, however, some important retreats from the existing status quo, particularly with regard to FDA authority, limiting the tobacco industry's liability, and avoiding full disclosure. In addition, we have not seen anything which suggests that these proposals could not be adopted outside of the scope of litigation, or that the costs paid by the attorneys general would be worth the benefits gained.
II. FDA Jurisdiction
Many people have embraced FDA jurisdiction over tobacco products as an important regulatory mechanism to reduce the impact of tobacco in society. The deal clearly embraces this model. The deal would legislatively enable the FDA to regulate tobacco products as a drug and as a drug delivery device. It would also codify much of the current FDA regulations and it would extend some of the marketing and advertising restrictions of the FDA; it would also weaken current FDA jurisdiction in some areas.
Neither the deal or additional legislation is necessary to provide the FDA with jurisdiction over tobacco. A federal court recently upheld the FDA's regulatory authority over nicotine and tobacco products. While the court voided the advertising restrictions in the current FDA rule, it indicated mechanisms to fix those aspects it denied. Furthermore, there is nothing in the FDA rules that we are aware of which would preclude it from embracing much of what was proposed by the deal. Nor is there anything which would preclude the Congress from codifying the authority the FDA already has. While it is true Congress will be subject to political influence favoring the tobacco industry, the influence will also come to bear in the enactment of legislation as proposed by this deal. Thus, the deal simply grants FDA jurisdiction it already has under the law and the tobacco companies are simply agreeing to abide by the laws which they are already subject to.
The more troubling part of the deal is that in order to get the tobacco companies to agree to abide by the laws as written, the FDA will have its hands tied in regulating the actual content of cigarettes. The agreement states in the preamble that cigarettes are inherently dangerous products. The agreement also contains language that is intended to encourage the development of safer products. However, the FDA cannot prohibit "the sale to adults of traditional tobacco products in the basic form." The scope of this statement could eliminate technological advancements such as slow burn cigarettes, smokeless cigarettes, low burn temperature cigarettes, non-tobacco based cigarettes, which could otherwise be considered suitable and safe alternatives for consumers. The meaning of this clause must be clarified to ensure that it will not interfere with the introduction of products that will benefit the public health. Furthermore, the deal requires the FDA to use extraordinarily heightened standards of proof and to meet burdensome regulatory requirements before it can order those modifications it is permitted to make. The standards are so high that for the next twelve years it will be nearly impossible for the FDA to restrict the hazardous contents of cigarettes, and it will be impossible to eliminate nicotine. After twelve years, the standards of proof are reduced, but are still much higher than is currently needed for regulatory action and still contains the burdensome regulatory requirements. Even at that time, nicotine elimination would only be phased in. Furthermore, the deal places a value to the industry to keeping its consumers highly addicted so that proposed modifications would be burdensome. This perverse incentive exposes one reason why industries should not be selected out for special treatment.
III. Financial Provisions
The financial obligations placed upon the tobacco companies will be insufficient to adequately compensate for the harms to society caused by tobacco. It is estimated that tobacco costs society $100 billion/year. The deal would provide less than $15 billion/year. This is clearly insufficient, particularly when one considers past damages due to the tobacco industry as well as punitive damages.
Furthermore, only a third of the money used for non-public health will be available for private plaintiffs. It also appear that after the eighth year there is no money specifically set aside for public health purposes. (One hopes this is merely a typographical error.) This means that private plaintiffs suffer the greatest risk. The fact that whatever money that is not won by private plaintiffs is turned over to the public health programs also could create a tension between private litigants and the public health community.
Finally, all of the payments will be tax deductible as normal business expenses. Depending on the tax burden of the tobacco companies, this could mean that a portion of the settlement would be paid for by American taxpayers in subsidizing the tax relief for the companies. Overall, the tobacco industry will still be able to force others to bear the costs of its products.
IV. Protections from Litigation
Much has been written about the possible public health benefits to litigation against the tobacco companies. These advantages would be eliminated through the enactment of this deal. Some cases are eliminated directly, such as the ongoing attorney general actions, class actions, and "addiction"/dependency lawsuits. These lawsuits can not be brought in the future.
Other cases will be made more difficult to bring. For example, future personal injury litigation will not be able to seek punitive damages for past conduct and will be subject to annual caps. The amount of compensatory damages are capped on per suit/per year basis, and the tobacco companies will be shielded by an aggregate cap for all lawsuits. These financial barriers will make it less appealing to bring a lawsuits against the tobacco companies and more difficult to find legal representation in those suits which are brought. There are also procedural changes which may make it more difficult to bring a lawsuit. For example, there is a specific evidentiary change which makes the development of "reduced risk" products not discoverable. These and other potential changes could make the prosecution of such claims more risky for the plaintiffs.
There is also a significant change to the medical reimbursement suits filed by medical insurers, pension plans and other third party payors. While these suits currently operate on epidemiological evidence of large groups, which benefits the plaintiffs, there is a provision in the deal which would practically require that these suits be filed with respect to the cost of individual smokers, which benefits the tobacco industry. This makes these lawsuits much more costly and provides the tobacco companies a new array of defenses to defeat these suits.
Finally, there is no room in the deal for the evolution of new legal theories. Suits are either third party payor claims or "claims of individuals." Although it is not clear at this point what other theories could be brought it is not appropriate to restrict avenues for future lawsuits.
Thus, while this agreement still technically maintains the rights of individuals to sue, it makes bringing such cases very difficult from an economic and legal perspective and grants the tobacco industry near complete immunity from future litigation.
V. Youth tobacco usage penalties
The look back provision that is designed to penalize the tobacco companies for failing to meet certain targets for reducing tobacco use has several problems. First, youth smoking is quantified as daily users of tobacco products. Most youth are not yet daily users, so this measure will underestimate actual youth smoking. Youth who are less than daily users are also likely to go on to become adult smokers. Second, the cap on the amount of money to be paid, the clauses to avoid "double counting," and the "good faith" provision are likely to combine to reduce, but not eliminate, the economic incentive to the tobacco industry to recruit new smokers. A more detailed analysis is needed to ensure that these penalties do not continue to permit profitable sales to minors.
VI. Disclosure Provisions
The disclosure provisions are too limited. All documents related to scientific research should be released and the procedures to compel the release of the "attorney client" documents are burdensome and should be eliminated or greatly simplified. The allegedly protected documents got to the core of the abuse of the legal process and to the conspiracy that many of the law suits allege. Furthermore, resources should be provided to fully analyze the documents. Failure to disclose these documents will permit the cover up to continue.
VII. Preemption
The proposal would preempt states, under their Food and Drug laws, from regulating ingredients and nicotine unless the state could show that it would not result in an undue burden on interstate commerce. Massachusetts and Minnesota have both made important progress in this area and the deal would strip them of regulatory authority. Despite anti-preemption statements, it is likely that the deal will have the effect of increasing federal preemption on issues such as ingredient disclosure and, because of the OSHA Act, most aspects of clean indoor air. There is a broad consensus that substantial progress has been occurring at the local level in these areas. There needs to be a discussion of whether federal action in these areas is the optimal approach for the public health, particularly when we are trading away certain aspects of FDA jurisdiction, litigation, and full disclosure.
VII. Public Health Benefits
The deal claims various public health measures as benefits to outweigh the concessions to the tobacco industry. While these measures are a step forward from where our society is now, the benefit appears to be exaggerated in some cases and enthusiasm should be tempered when weighing the benefits against the costs. For example, the restrictions on advertising and youth access both represent small steps forward, not large steps.
Advertising
The elimination of sponsorships and other restraints on advertising will prove to be beneficial but are not a panacea. The lessons we learn from observing those countries which have advertising restrictions stronger than those proposed, are that the tobacco companies will develop advertisements which are just as effective, albeit in a different style. For example, Marlboro will often use images of the wild west with running horses and deep sunsets to paint a picture that is just as appealing as the "Marlboro man." Other companies have developed similar advertisement styles, for example, the anthropomorphization of cigarettes. These attractive advertisements eliminate the need for cartoon characters or human images.
In countries where the advertising restrictions are more restrictive than those proposed, it is apparent the tobacco companies will still find ways to market their wears, without using human figures are cartoons. One needs only to look at advertising in the UK or South Africa to see how successful the industry can be. In addition, in Australia (where advertising is nearly totally prohibited), the industry is now hosting "Brand X nights" at local bars. These events appear to have a strong impact on teens, even though they are not allowed in the bars. The exemption from the clean air provisions for bars in the deal may have important long term ramifications for marketing and promotion.
The lesson to be learned, is that the tobacco companies will find a way to market their products. The First Amendment and its protections will only add to the likelihood that the tobacco companies will successfully market their products, despite the terms of this agreement. Thus, the benefits of the advertising restrictions must be kept in perspective.
Youth Access
Similarly, the deal commits a large amount of resources to restricting youth access. While there is good evidence that such programs are effective in reducing sell rates, there is not good evidence that youth access programs reduce teen smoking prevalence or consumption. While eliminating vending machines is a good idea, it is important to remember that teens only buy about half their cigarettes and other tobacco products; they are equally likely to "bum" or steal cigarettes than to purchase them themselves. One only needs to look at the high teenage drug and alcohol rates to understand that supply side laws are not a complete solution to youth consumption.
There is also the theory that such laws actually increase youth desire to smoke. Whether this is under a scarcity theory or "forbidden fruit" analysis, there is some support that smoking may become more attractive as a rebellious activity for some youth with increased enforcement. This is not to say the laws should be abandoned, but simply that they represent only a small part of tobacco control.
Conclusion
The cost to the public health of this deal outweighs the benefits. The advantages obtained for increased regulatory control can be obtained by other mechanisms. The financial benefits to the settlement are relatively small related to the harms to society and could be obtained elsewhere, for example higher taxation in the event the lawsuits fail. Finally, the benefits to the tobacco industry for near complete immunity from modification of its product and from future litigation represent an immense cost to the public health.
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