Analyst skeptical of cigarette restrictions
CHICAGO, March 11 (Reuters) - The U.S. government plans to seek a broad range of restrictions on how tobacco companies market cigarettes in a three-year old lawsuit against the industry, but analysts are skeptical over whether the government can win any o
In a little-noticed legal filing made late last year, the Justice Department said it will seek to force cigarette companies to package their products only in black and white, put graphic health warnings on at least 50 percent of the space of all tobacco advertising and eliminate sales of cigarettes in vending machines.
The government will also seek to prevent or limit the use of lucrative ``slotting fees'' that companies pay to merchants to secure prominent shelf space, as well as promotions like clothing giveaways and buy-three, get two sales.
Those are part of a long list of remedies the government said it would seek in December in an exchange of documents in the lawsuit against several tobacco companies.
The suit, filed in 1999 by the Clinton administration, accuses major tobacco companies of fraud, conspiracy and racketeering in attempts to hide health risks in their product.
GOVERNMENT FACES SEVERAL HURDLES
But whether any of these remedies are ever put in place depends on several factors, not the least of which is the government's ability to win the case.
``The government can throw out whatever it wants in its (requests). It doesn't get anything unless it wins,'' David Adelman, tobacco industry analyst at Morgan Stanley, said.
The government already suffered a setback in the case when a federal judge in September 2000 eliminated claims seeking damages for health-related costs.
In addition, the tobacco companies can also ask the judge to dismiss the rest of the case without a trial later this year by asking her to grant ``summary judgment.''
``The DOJ's case had its guts ripped out on the industry's motion to dismiss, where the judge presiding over the case commented, on the one claim she did not dismiss, she felt that the DOJ had a tough row to hoe at trial,'' Robert Campagnino, tobacco industry analyst at Prudential Securities, said.
Defendants include industry leader Philip Morris Cos Inc. (NYSE:MO - news), R.J. Reynolds Tobacco Holding Co. (NYSE:RJR - news), British American Tobacco Plc's (quote from Yahoo! UK & Ireland: BATS.L) Brown & Willianson Tobacco Corp., Loews Corp.'s (NYSE:LTR - news) Lorillard tobacco Co. Inc., Vector Group Ltd.'s (NYSE:VGR - news) Liggett Group Inc., the Council for Tobacco Research U.S.A. Inc. and the Tobacco Institute Inc.
Industry lawyers argue that some of the proposed remedies, which go beyond those reached in a legal settlement with 46 states, are unconstitutional.
``A substantial majority of what they requested, a judge can't order and neither could Congress, in many respects, enact into law,'' William Ohlmeyer, vice president and associate general council for Philip Morris, said in an interview.
Under current law, Congress would have to decide what warnings go onto a tobacco package, Campagnino said.
``I can't for the life of me envision a scenario where Congress decides that litigation rather than legislation determines tobacco warning labels,'' he said.
A third question is how committed the Bush administration is to pursuing the case. Attorney General John Ashcroft had in the past limited funding for the case and pushed for settlement talks last year, though only one meeting was ever held, in July.
``We remain committed to this litigation, as we have from the outset,'' a Justice Department spokeswoman said on Monday.
Tobacco industry opponents said the requested remedies could be a signal that the administration is behind the case.
``By pushing for major changes in how the industry can advertise and promote its deadly product, the Justice Department could actually push us forward to retiring images like Philip Morris' Marlboro Man,'' Patti Lynn, associate campaign director at INFACT, a watchdog group that has battled the tobacco industry on advertising, said.
Tobacco stocks fell slightly on the news of the request Monday. Philip Morris closed down 67 cents or 1.26 percent, at $52.58 on the New York Stock Exchange, while R.J. Reynolds Tobacco Holdings Inc. (NYSE:RJR - news) fell $1.04, or 1.59 percent, to $64.21.
``We're continuing to prepare our defense in the suit,'' R.J. Reynolds spokesman Seth Moskowitz said. ``We do not believe there is a need for additional advertising and marketing restrictions that go beyond those detailed in the MSA.''