Supreme Court rejects tobacco settlement appeal

Associated Press
Published: May 12, 2008

WASHINGTON (AP) — The Supreme Court rejected an appeal Monday by a California smoker who alleged the multibillion dollar tobacco settlement between 46 states and the four major cigarette companies was anticompetitive and violated antitrust laws.

Philip Morris, R.J. Reynolds Tobacco Company, Brown & Williamson and Lorillard Inc. agreed in Novem-ber 1998 to pay the states more than $200 billion over 25 years as part of the settlement.

In June 2004, Steve Sanders sued the four companies and the state of California, arguing that the terms of the agreement effectively penalized tobacco companies if they gained market share. Tobacco companies would have to make larger payments to the states if they cut prices and increased their sales relative to rivals, Sanders said in court filings.

As a result, the cigarette companies were able to raise their prices in tandem to pay for the settlement, Sanders said, by $12.20 per carton in the first four years of the agreement. That allowed them to reap $20 billion in profits annually, more than double the amount they were required to pay under the settlement, he said.

A federal district court and appeals court dismissed Sanders’ claims.

The four companies account for roughly 85 percent of cigarettes sold in the U.S. California, like most of the other states, required cigarette makers that didn’t participate in the settlement to pay into an escrow fund that could be used to settle any future claims against them.

The four tobacco companies and the state of California responded that the settlement agreement and the state laws implementing it are exempt from antitrust law, as are most actions by states.

They also disputed Sanders’ argument that the settlement discourages cigarette makers from gaining mar-ket share. California’s Attorney General, Jerry Brown, said in court filings that tobacco companies that didn’t participate in the settlement increased their market share five years afterward, from .5 percent to 8.2 percent, while the four leaders saw their share drop from 96.5 percent to 84.5 percent.

The tobacco companies also noted that more than 20 lawsuits have been filed seeking to invalidate the set-tlement on antitrust grounds but none have succeeded.

Philip Morris is owned by Altria Group Inc., while R.J. Reynolds is a unit of Reynolds American Inc. and Brown & Williamson is owned by BATUS Tobacco Services Inc. Lorillard is a unit of Loews Corp.

The case is Sanders v. Brown et al, 07-995.