Philip Morris `Light' Cigarette Trial Emphasizes Advertising
Edwardsville, Illinois, March 9 (Bloomberg) -- Philip Morris USA will try to persuade an Illinois judge to reject a claim that the tobacco company deceived customers by advertising ``light'' cigarettes as less dangerous than its regular product.
Closing arguments in the first class-action trial over light cigarettes will begin Monday, where smokers claim Philip Morris, a unit of Altria Group Inc., lied about the products' health risks and should pay more than $7 billion in damages. Analysts have been pessimistic about the tobacco company's chances before Judge Nicholas Byron, who will decide the verdict, and worry that it would be difficult for the company to post a bond of billions of dollars.
``There is a decent probability that the judge rules against Philip Morris in this case and the damages could be in the tens of billions of dollars,'' wrote Salomon Smith Barney analyst Bonnie Herzog in a report.
Philip Morris shares, which have fallen 34 percent in the last year, fell $1.46 to $35.82 on Friday on the New York Stock Exchange.
``Class actions scare investors to death,'' said Timothy Ghriskey, who holds Altria shares in his $100 million fund at Ghriskey Partners LLC. ``Will the stocks react negatively if the case goes against them? Yes. And it has been reaching to that already.''
Question of Notice
Philip Morris said that it never claimed that the light brands were safer than full-flavored brands and the smokers had been warned about the health risks.
``Every pack they bought had a warning,'' said William Ohlemeyer, Philip Morris' associate general counsel said. ``There's no such thing as a safe cigarette.''
During the trial, attorney Stephen Tillery told the judge that the world's largest tobacco company participated in ``calculated misinformation'' so customers would continue to use the product.
Smokers ``went to a healthier, safer product,'' Tillery said in an interview. ``They thought they were getting a healthier, safer product.''
Documents in lawsuits brought by smokers and states in the 1990s showed the tobacco industry knew smokers using lower- nicotine brands compensated by covering ventilation holes, inhaling more deeply and puffing more. That meant the smokers were breathing more tar and nicotine than government tests estimated.
The suit, which seeks punitive damages and refunds for light cigarette buyers, is part of a new wave of product-liability litigation against the tobacco industry over the health effects of light cigarettes. R.J. Reynolds Tobacco Holdings Inc. and British American Tobacco Plc's Brown & Williamson unit face similar suits elsewhere.
Class-action suits allow similar claims to be tried together, which may open the tobacco companies to billions of dollars in damages. Philip Morris contends the claims are too different to be tried as a group.
At issue in the case brought by Susan Miles of Granite City, Illinois, is whether Philip Morris deceived consumers by claiming Marlboro Lights and Cambridge Lights deliver lower tar and nicotine than regular cigarettes.
``This case involves a product that was sold with a federally mandated health warning,'' Ohlemeyer said.
How much tar a smoker inhales depends on how much the smoker draws on a cigarette, Philip Morris told the judge.
That was the same defense Philip Morris used last year in a Portland, Oregon, case where a jury told Philip Morris to pay $150 million to relatives of a deceased smoker who used lower-tar products. That verdict, later reduced by a judge to $100 million, was reached in a case involving an individual smoker.
In the last three years, juries in California and Florida have returned several multibillion-dollar verdicts against Philip Morris in cases involving full-strength cigarettes. A Miami jury in 2000 told the tobacco industry to pay $145 billion to hundreds of thousands of Florida smokers.
This case could be just as troubling to investors as the Florida case, Merrill Lynch analyst Martin Feldman wrote. Aside from a large verdict, if the plaintiffs are successful, that could lead to more suits, he said.
``The market has decided that there will be a substantial financial loss for the defendant,'' Feldman said. ``There could be some further downside,'' though it would be ``limited.''
With light cigarette trials on the horizon, Philip Morris said in November it would insert notices into about 130 million packs of light, medium, mild and ultra-light cigarettes saying they aren't safer than full-strength brands.
Philip Morris has said the inserts are a response to a U.S. National Cancer Institute report in November 2001 that said low tar or light cigarettes didn't reduce the chances of getting smoking-related diseases, rather than an attempt to protect the company from litigation.
Lawsuits haven't been the only factor hurting Philip Morris shares.
New York-based Philip Morris and rival R.J. Reynolds have increased promotions on premium-priced brands in the past year to maintain sales amid competition from cheap imports and counterfeits. Discounts on Philip Morris's Marlboro haven't stemmed declining market share for the world's best-selling cigarette brand.