CEI vs. Big Business

Jacob Sullum | August 2, 2005

Today the Competitive Enterprise Institute filed a federal lawsuit challenging the constitutionality of the 1998 agreement that settled state lawsuits against the leading tobacco companies. The so-called Master Settlement Agreement in effect established nationwide restrictions on advertising and promotion, imposed a nationwide cigarette tax increase, and created a price control system designed to prevent nonparticipating companies from gaining market share by underselling Philip Morris et al. CEI argues that this anticompetitive scheme violates the Compact Clause, which says "no State shall, without the Consent of Congress...enter into any Agreement or Compact with another State." According to its complaint, which was filed on behalf of two small cigarette manufacturers, a distributor, a tobacconist, and a smoker, "The States became business partners in establishing one of the most effective and destructive cartels in the history of the Nation."

I did a bit of consulting work for CEI in the early stages of this project, and I'm glad to see it proceed. One good thing about the tobacco settlement is that it offers an opportunity to demonstrate the difference between defending big business and defending free markets. In this case, big business conspired with big government to screw over consumers and the competition, undermining the rule of law in the process.

Comments

|8.2.05 @ 7:08PM|#

Unfortunately, a lot of people are reflexively against 'big tobacco', not to mention people's reaction to 'big business'.

On a side note, I was watching CSPAN2 the other day, and they had a couple of guys on there from the Ayn Rand Institute talking about how anti-trust was unconstitutional (in a nutshell). They sure were saying a lot of the right things in my book.

|8.2.05 @ 7:56PM|#

Lowdog,

"Big Tobacco" is a scumbag industry. That said, that doesn't mean one should support what Philip Morris, etc. did. Outting them for the scumbags that they are is enough.

|8.2.05 @ 8:09PM|#

Oh, no question, Hakluyt. I wasn't defending them. I was just trying to say that with 'big tobacco' even being mentioned in the same breath it will make this lawsuit difficult to win, imo.

|8.2.05 @ 9:23PM|#

I always thought the underlying anti-trust statute should be void for vagueness.

|8.2.05 @ 11:26PM|#

"Big Tobacco" is a scumbag industry.

I'm curious Hakluyt. What is it about the tobacco industry that riles you?

I can't imagine that you'd want to deny people the personal choice to smoke, and it logically follows that if people can freely choose to consume cigarettes, then it can't be wrong to produce cigarettes.

Now despite the whole caveat emptor principle, I'll accept that it's only fair to warn customers that smoking is hazardous. There have been Surgeon General's warning labels on every pack of butts since the 60's. So, I can't possibly imagine that any literate individual could legitimately claim that nobody told him/her smoking was harmful.

But, think of the children. Kids are vulnerable to peer pressure and get addicted before they can make informed decisions. But since sales to minors were outlawed decades ago, not one tobacco company has sold a single pack of cigarettes to a minor. Feel free to blame merchants and vendors for that, in the same way that criminals and not manufacturers are responsible for gun violence.

But, advertising to kids is the same as selling to them, right? So please tell me how to advertise to adults without appealing to teenagers who desire to emulate adults.

I found only two faults with tobacco companies. The first was their failure to disclose ingredients and additives. The second was their failure to admit to the addictive nature of nicotine. They now routinely do both.

So, why do you hate "Big Tobacco"?

|8.2.05 @ 11:43PM|#

That said, if there's one market whose customers I find it hard to sympathize with, it's the cigarette market. I can almost feel for older smokers, who picked up the habit when cigarettes merely made you cough and stink. As for those who started smoking after it was well known that doing so made you cough and stink and die, I won't be losing sleep over the fact that they're having to pay a little extra for the privilege.

NECESSARY LIBERTARIAN DISCLAIMER:

Of course, the CEI is totally right that the settlement was unconstitutional, and that the free market should be allowed to work to drive down prices and drive up quality in the cigarette market, so that smokers can reduce their life expectancy more cheaply and enjoyably.

|8.2.05 @ 11:53PM|#

Russ:

Surgeon General's warnings or not, the industry claimed for years that smoking wasn't unhealthful. They lied through their teeth, since their own research proved otherwise.

That gives me a really good reason to dislike them. How can a smoker make an informed decision if the industry lies about their products? By withholding that information from their customers, they are liable for the effects.

|8.3.05 @ 12:07AM|#

Is "Little Tobacco" a scumbag industry too? How about industries centered around alcohol, sports cars, fast food, diet products, marijuana, junk food? All of these are marketed deceptively. Alcohol ads don't feature people with all the cancers alcohol consumption contributes to. Sport cars ads don't show dead people in the morgue, or put up a disclaimer that your new car won't really make you cool. Diet ads don't state, "this diet will be about as effective as the other nine you've tried". Marijuana dealers don't mention anything about the very real possibility of mistaking your kids for the thanksgiving turkey:) (I hate it when that happens)

|8.3.05 @ 9:01AM|#

JonBuck,

"Surgeon General's warnings or not, the industry claimed for years that smoking wasn't unhealthful. They lied through their teeth, since their own research proved otherwise."

Explain to me how exactly you can dismiss the bold warning label that was printed on EVERY SINGLE PACK for the last four decades?

Because the industry was required to print warnings? Because deep down, they might have resented it? Irrelevant, because the warnings were made, willingly or not. The reason you're willing to ignore the warning labels is because they destroy your foregone conclusion that people were misled.

"How can a smoker make an informed decision if the industry lies about their products?"

By reading the label? By listening to their doctor's advice? By talking to any other human of moderate intelligence? I challenge you to find me one individual who was not warned repeatedly about the risks of smoking. People chose to ignore those warnings.

The only smoker for whom I have any sympathy is the individual who took up smoking before any warnings were issued, AND quit smoking when the dangers were made public, AND suffers from an illness DIRECTLY attributable to smoking.

Now, I agree with you that the industry withheld information and denied health risks for years. They've reversed their course and are now the models of risk disclosure. So if you had reason to dislike them in the past, what's your reason now?

|8.3.05 @ 9:01AM|#

The issue isn't really whether Big Tobacco is good or bad.

Even if you leave aside the issue of whether Big Tobacco did anything to warrant the massive campaign of government lawsuits against it, the issue is whether the government can bar new competitors from entering the field in order to prop Big Tobacco up long enough to pay the settlements that have been extorted from it.

That's what this is really about. The government is counting on large streams of revenue from tobacco settlements. Big Tobacco is supposed to pay for those settlements by passing price increases through to their customers.

This means that a new company, that does not have the burden of the legal liability that Big Tobacco has as a legacy, could enter the market and destroy the existing tobacco companies by charging less per pack.

The states have sought to prevent that from happening by price fixing.

The states therefore are claiming the right to punish guiltless tobacco companies [who are not part of the settlement] in order to prop up "guilty" tobacco companies ["guilty" according to the states themselves, and not necessarily by the merits].

That's what's really wrong here.

|8.3.05 @ 9:20AM|#

Thank you Fluffy. You've hit it on the head.

|8.3.05 @ 9:45AM|#

Russ R

No matter how much you argue or how logical you are, the fact is in many minds it will always be:

Smoker= victim

"Big Tobacco" = evil corp.

I (a non-smoker) have had discussions with people who made the victim arguement while smoking. It's an easy out for just not taking responsibility.

As for the people who started smoking before medical evidence was so common, maybe hindsight is 20/20 but I don't see how anyone could think sucking smoke directly into your lungs is a good thing. That goes for any smoke (tobacco or pot). Of course, many tobacco smokers can go thru a couple packs a day.

|8.3.05 @ 1:08PM|#

Fluffy - you're absolutely right.

'Big Tobacco' is a scumbag industry because they have been so under-handed throughout their history. I totally agree with posters here that since warning labels have been on cigarettes, you can't claim you didn't know they were harmful (or even before - it shouldn't be hard to realise that inhaling smoke into your lungs isn't super healthy). So the class action lawsuits are an abomination.

But that doesn't excuse the attitude and behaviour of 'Big Tobacco'.

Sam Kazman|8.3.05 @ 1:36PM|#

My thanks to Jacob for blogging our lawsuit.

I would like to clarify a point made by Lowdog in one of his comments yesterday--that Big Tobacco's involvement would make the case more difficult to win. In fact Big Tobacco is NOT on our side; it is a defender of the MSA, not an opponent. While the industry was originally the target of a largely unjustified campaign, it and the states ended up crafting a very lucrative result for themselves. The states get lots of money, and Big Tobacco gets lots of protection from competition.

|8.3.05 @ 1:59PM|#

As an ex-smoker, whenever I would be defending my habit I would always use the old "but there is no PROOF that smoking CAUSES cancer". That claim was made because I trusted "Big Tobacco" when they said the science is inconclusive and that causality could not be shown. It wasn't until these lawsuits and settlements that I realized that "Big Tobacco" wasn't being honest with me and that their products did in fact cause cancer. Who would have thought they were selling a product that actually slowly kills their customers? And who would have thought that they would have cooked or suppressed the scientific record/results? I never believed any corporations would ever do that.

Ok seriously, I knew that it caused cancer when I smoked, despite any claims to the contrary, but I did it anyway. I thought cancer was for other people, not for me. If I do wind up having some kind of health issues because of it, the fault lies on me and me alone. But thats because I knew what I was doing. There are a lot of people who really did believe the claims of no causality and whatnot. The dishonesty on the part of tobacco companies should have been punished. That is what I really bothers me about the tobacco industry. I could have respected the industry if they would have taken the position that its a personal choice and people want to smoke despite the health risks. There are lots of people who do lots of things despite the risks.

But that dishonesty doesn't justify the current situation nor the costant attacks on tobacco that I see all the time.

|8.3.05 @ 3:40PM|#

"That claim was made because I trusted "Big Tobacco" when they said the science is inconclusive and that causality could not be shown. It wasn't until these lawsuits and settlements that I realized that "Big Tobacco" wasn't being honest with me and that their products did in fact cause cancer."

Too bad nobody here at Reason is willing to apply the obvious analogy to global warming deniers, funded part and parcel by oil and coal concerns.

Michael Siegel|8.3.05 @ 4:39PM|#

The lawsuit, although complex because of all the intricate language of the Master Settlement Agreement, is based on a quite simple premise and I find the complaint to be extremely clear. Here is my attempt to explain, in simple terms, the reasoning involved in the lawsuit.