Rising Fear of Government Regulation

In the early 1970s, even as the tobacco industry was continuing its efforts to develop a safe cigarette (see chapter 4), it was feeling increasingly threatened by possible government regulation. As the ensuing discussion indicates, there were many areas of regulatory activity and the industry adopted various measures to forestall further regulation or at least to counter its effects.

A February 14, 1973, memo, marked "Confidential," from Ernest Pepples, assistant general counsel at B&W, to J. V. Blalock, director of public relations, asks for news clippings relating to "salient problems now facing the cigarette industry" {1814.01}.

The first concern is "Cancer." More specifically, the author sees three threats posed by the activities of the National Cancer Institute and the American Cancer Society.

Second on the list is "The Attack on Heart and Lung Diseases":

This newly authorized program, associated with the Heart and Lung Foundation ... contains the same seeds of difficulty for the tobacco industry. The

same forces and considerations for quick and easy solutions are at work in this area. The new law setting up this program also provides for an assistant director for health information who could easily seize upon an anti-smoking campaign to establish an activist record. {1814.01, p. 2}

The third salient problem listed is "Jurisdiction over Tobacco":

Renewed efforts will be made to include tobacco in the list of products coming under control of the Food and Drug Administration, the new Product Safety Commission, or the proposed Consumer Protection Agency. Should any of these efforts succeed, the industry would be seriously harmed since tobacco would fall under the same category as cyclamates. {1814.01, p. 2}

Cyclamates, artificial sweeteners that were regulated as food additives, were a then-current example of a material that had been banned from foods by the FDA because of animal evidence of carcinogenicity at high doses. The statement in the memo probably indicates concern that even though, according to the industry, the poisons in tobacco smoke were dangerous only in high doses, tobacco would suffer the same fate as cyclamates. Saccharine, another artificial sweetener, had similar, but less compelling, evidence against it, but it has been permitted to remain in the food supply with a warning label.

Fourth on the list is "Passive Smoking":

The anti-smoking lobby is using the issue of the alleged health effect of smoking on the non-smoker to generate media publicity. This trend has been growing since 1970. It received prestigious support when the [Supreme Court] Chief Justice [Warren Burger] made a public display of his annoyance with tobacco smoke on a passenger train. Similarly, the current issue before the CAB [Civil Aeronautics Board] regarding smoking on airliners is also part of the same campaign. There is no medical evidence concerning the health effects of passive smoking. The real purpose [of the anti-smoking lobby] is symbolic to make smoking socially unacceptable and by limiting the public areas where it is permitted. {1814.01, p. 2}

By the early 1970s, then—when the first systematic studies on the respiratory effects of passive smoking on children were just beginning to appear and nearly a decade before the first papers implicating passive smoking as a cause of lung cancer were published—B&W had identified passive smoking as an important issue. (See chapter 10 for a full discussion of passive smoking.)

The fifth item is headed "Implications of Biological Research." Here the author expresses concern about the publication of a study by W. Dontenwill and co-workers (1) funded by the German tobacco industry. The

study demonstrated that inhaled smoke produced laryngeal cancer in Syrian golden hamsters:

There is the likelihood that the Dontenwill work will be published in the U.S.A., and implied in this work are directions for product modification. This approach has some support by anti-smoking scientists in the U.S.A. and is likely to lead to political pressure of the industry to change products. Actions by foreign manufacturers will have effect in the U.S.A. {1814.01 pp. 2–3}

"Addiction" is also a problem:

Some emphasis is now being placed on the habit-forming capacities of cigarette smoke. To some extent the argument revolving around "free choice" is being negated on the grounds of addiction. The threat is that this argument will increase significantly and lead to further restrictions on product specifications and greater danger in litigation [emphasis added]. {1814.01, p. 3}

Finally, "Excise Taxation" is listed as a concern because:

It appears that the anti-smoking groups may find that one of the most successful methods of reducing the use of tobacco products will be the enactment of a high rate taxation on such products, since by this method tobacco products can be priced at a level so as to place the product beyond the financial reach of many consumers. {1814.01, p. 3}

That "many consumers" may be a euphemism for young people is illustrated by the following excerpt from the instructions for the document review project conducted by the law firm of Wyatt, Tarrant & Coombs for B&W (see chapter 1):

If a document discusses or contains testimony of an industry representative speaking at a proceeding, it will receive a significance of "1" unless the issues being discussed are not related to smoking and health (e.g., fire-safe cigarettes). (Excise taxes are related to smoking and health, because taxes influence the price of cigarettes. The price affects the ability of young people to buy cigarettes ) [italic emphasis added]. {1000.01, p. 28}

There is also a second concern relating to excise taxation:

A second basis for attack appears to be the introduction of legislation providing for a tax level graduated on the basis of tar and nicotine content. {1814.01, p. 3}

Indeed, New York City had enacted such a tax in 1971, and just a few months after this memo was written, a New York County trial court upheld the validity of the tax and the accompanying administrative regulation requiring that cigarette prices reflect the amounts of tax

attributable to the tar and nicotine content of cigarettes sold [Long Island Tobacco Co., Inc. v Lindsay 343 N.Y.S.2d 759 (N.Y. Sup. Ct. 1973)]. The court stated that the regulation was "clearly designed to preclude the seller from absorbing the tax and to discourage through higher prices the consumer's use of cigarettes with relatively higher levels of tar and nicotine" [at 763]. This case was subsequently affirmed without opinion by New York State's highest court, the Court of Appeals [Long Island Tobacco Co., Inc. v Lindsay, 313 N.E.2d 794 (N.Y. 1974)]. In 1976 a bill was introduced in Congress to tax cigarettes on the basis of tar and nicotine content.

Clearly, the author of this list of concerns (probably Pepples) was quite accurate about most of the items, and twenty years after the list was compiled, much of it is still relevant. While the scientific issues surrounding cancer and heart and lung diseases have long since been settled, and the industry barely makes a pretense of contesting the existence of these health problems, the addiction issue (in part because of the exposure of the documents discussed in this book) has become the new battleground. Whereas, in all the intervening time, jurisdiction over the industry by the listed federal agencies never materialized, it has now become a distinct possibility because of the addiction issue. (The FDA, however, had started to raise questions about nicotine addiction several months before these and related documents began to surface in the press in mid-1994.) The author of the list of concerns correctly forecast the problems to the industry from the passive smoking issue and the increase in excise taxes, but it is doubtful that, in his wildest dreams, he actually foresaw the enormous cost to the industry from the emerging nonsmokers' rights movement, both in actual dollars and as an influence on the public perception of smoking. It should also be noted that, while the industry has always fought even minimal increases in tobacco excise taxes, it has consistently raised the prices of tobacco products, often well beyond the rate of inflation.

Ten years later, three areas of regulatory concern—smoking in the workplace, the treatment of grass-roots lobbying, and fire-safe cigarettes—were the subject of a memorandum by R. H. Sachs, reporting on a meeting held on December 8, 1983, by the Committee of Counsel (a Tobacco Institute committee consisting of the chief counsels of the member tobacco companies).

Smoking in the Workplace —We discussed the draft of a model ordinance prepared by C&B [the law firm of Covington and Burling]. [Stanley] Temko [an attorney at Covington and Burling] lamented that suggestion to add language for some sort of "equal accommodation" for smokers was difficult. [Roger

L.] Mozingo [Tobacco Institute vice president] does not need the model ordinance at present. {2220.01, p. 2}

This memorandum was written just one month after the tobacco industry had suffered a major defeat by the passage of Proposition P in San Francisco, a referendum that ratified a city ordinance requiring that nonsmokers be protected from secondhand smoke in office workplaces (2). Numerous cities throughout the country were asking for copies of the ordinance so that they could replicate it, and the "model ordinance" referred to in the memorandum was undoubtedly being drafted by the industry as a countermeasure. The industry typically presents its own sham versions of nonsmokers' rights laws when faced with the possible enactment of meaningful legislation.

The memorandum also discusses the possible use of scientific studies on this subject:

Shook, Hardy [and Bacon, an industry law firm] reported on a Swedish case wherein descendants of a lung cancer victim were awarded compensation because of prolonged exposure to tobacco smoke at work. (I talked to Morini about this case. He was aware of it, and is presently checking it out.)

A settlement agreement is near in the Lee case (Mass.) [an action by a state employee seeking a smoke-free workplace, that was settled favorably for the employee] and an accommodation has been worked out in the Orange County (Cal.) case [reference unclear].

There was a deep split of opinion with respect to commissioning scientific studies, using Battelle, with respect to smoking in the workplace. B&W and Lorillard are in favor of proceeding. ATCo. [American Tobacco Company] is strongly against it. RJR [R. J. Reynolds] and PM [Philip Morris] both expressed grave reservations but were not in a position to give a final answer. It looks like it's dead. {2220.01, p. 2}

This discussion appears to relate to work that Battelle (a contract research organization) was conducting on secondhand-smoke levels in workplaces. Battelle had been funded to do this work through CTR Special Account 4 (discussed in chapter 8) during 1981–83, so the work appears to have been halted (the memorandum is from December 1983). Since Special Account 4 was administered by the law firm of Jacob, Medinger, and Finnegan, perhaps expenditures could have been made even if not all the tobacco companies agreed on a given project.

The tobacco industry's evolving grass-roots lobbying effort also commanded comment in the same memorandum:

Tax Treatment of Grass Roots Lobbying —Temko reported that the Treasury is still reviewing this issue and that it is conceivable that new regulations could be issued in the Spring. C&B will keep an eye on it. {2220.01, p. 2}

The tobacco industry has responded to the growing (and genuine) nonsmokers' rights movement (discussed in chapter 10) by conducting its own grass-roots lobbying through so-called "smokers' rights" organizations (3–5). The tobacco industry's serious interest in this issue is yet another indication of how important and large an effort the industry was anticipating.

Another item in the list of concerns related to fires caused by cigarettes when they were inadvertently left to burn on a combustible surface, such as bedding or other furniture. Although a few cigarette brands have been found to be relatively fire-safe (including a B&W brand, Capri), in that they will either self-extinguish before igniting furniture or will not burn hotly enough to ignite an adjoining surface, most brands are not fire-safe. As a result, cigarette-caused fires are the leading cause of fire deaths in the United States. There have been various attempts at both the state and federal levels to legislate a requirement that cigarettes be fire-safe, but none has succeeded. In 1984 Congress passed a bill sponsored by Congressman Joseph Moakley (D-MA) that established a three-year research committee, the Technical Study Group, to determine whether a fire-safe cigarette was technically and economically feasible. In 1987 the committee submitted its unanimous conclusion that such a cigarette was feasible. Then, in 1990, another bill by Congressman Moakley established a new committee, the Technical Advisory Group, to oversee the development of a test method for determining whether or not a cigarette is fire-safe. In August 1993, on an 11-to-4 vote (the four tobacco company representatives being in the minority), the committee reported to Congress that it had developed a sufficient test. Thus, the requirement that cigarettes be made fire-safe awaits only congressional regulatory action. It is in this context that the discussion of this issue in the memorandum should be read:

Fire Safe Cigarettes —John Rupp (from Covington & Burling) reported that we are gaining some support from within the International Association of Fire Chiefs. In the past they have supported Congressman Moakley's bill [to require "fire-safe" cigarettes]. This year, after hearing a presentation from the tobacco industry, led by Dr. [Alexander] Spears from Lorillard, IAFC set up a committee to reconsider their position. The efforts we have put behind building a relationship with the organization may be paying off.

The companies agreed to proceed with an industry examination of ignition propensity in order to develop a model for a testing methodology. Scientists from each company will meet to discuss this. Covington & Burling will provide counsel at these meetings for the purpose of antitrust oversight.

Rupp reported on efforts to get a meeting with Moakley to see if there is any way to reconcile our position. There are two troublesome areas: federal

preemption and trade secret confidentiality. On the first issue, our position has been to push for "perpetual" preemption. Rupp and others think this is unrealistic. Moakley has accepted the idea of some federal preemption and Rupp would like to see us accept 18 months after publication of the study. He is also seeking more flexibility on the trade secrets issue. He mentioned allowing information to be turned over to permanent Congressional committees "with some safeguards". Rupp would like to hear from each of the companies on this by the middle of next week. {2220.01, p. 1}

Whereas one might think that an association of fire chiefs would be the least likely organization to inhibit fire safety legislation, there is evidence to the contrary. The "efforts" expended to build a relationship between the industry and the fire chiefs consisted of the payment of money to provide services for the organization. Indeed, during the 1980s the tobacco industry provided millions of dollars in grants, equipment, and public relations services to the fire chiefs' association, other firefighter organizations, and numerous individual fire departments around the country, to enlist their support in opposing meaningful legislation regarding fire-safe cigarettes (6).

The legislation surrounding fire-safe cigarettes is another example of how the tobacco industry uses preemption as a general political strategy to limit its political exposure and liability. Preemption at a federal or state level protects the tobacco industry broadly from local activities, over which they have less control. Moreover, obtaining preemption only requires action by a relatively few powerful members of Congress or a state legislature, as opposed to dealing with a plethora of local jurisdictions. Indeed, as discussed later in this chapter, by the late 1960s the tobacco industry had accepted mild federal warning labels on tobacco packages, and, later, bans on radio and television advertising, in order to preempt possible state action with respect to consumer warnings and limits on tobacco advertising (7). The tobacco industry still uses preemption as a major strategy today, particularly in the effort to stop passage of local laws requiring smoke-free workplaces and public places.

Strategies To Defeat Government Regulation

As the threat of government regulation of tobacco increased on several fronts, the tobacco industry developed several strategies for counteracting government action. The principal strategy was simply to create as much controversy as possible over the link between smoking and disease (see chapter 8). Beyond this, the industry also developed specific meth-

ods for minimizing the impact of legislation aimed at smoking itself (such as the requirements for warning labels and the disclosure of the tar and nicotine content of cigarettes) and legislation aimed at limiting smoking in public places and the workplace.

In 1976 Ernest Pepples, B&W's vice president and general counsel, composed a long, thoughtful analysis of the smoking and health controversy, entitled "Industry Response to the Cigarette/Health Controversy." Pepples begins by noting the means by which the industry has coped with the smoking and health controversy:

The tobacco industry has reacted to the challenge of the smoking and health controversy in the following ways:

The fact that Pepples regarded filters and low tar as responses to the "smoking and health controversy" (item 1) contrasts with the industry's public stance that these innovations were made in response to "consumer demand" and had nothing to do with health. This memo is an explicit acknowledgment that these things did have everything to do with health. Tying the two together leads to the conclusion that filters and low tar have to do with health concerns of consumers, and to the extent that the innovations allayed concern without providing protection, they are public relations devices for a public health problem.

Pepples then spells out the role of the Tobacco Institute, the industry's trade organization, and the Council for Tobacco Research (CTR), the entity established by the industry purportedly to do independent scientific research on the health effects of smoking (see chapter 2):

The Tobacco Institute, founded in 1958, has been the focal point for criticism of research that indicates a connection between smoking and health. The Institute has attempted to keep the opposition honest. It has carefully scrutinized the sampling difficulties and statistical deficiencies in the studies which allegedly indicate correlations between smoking and disease. The Institute

also has vigorously opposed governmental control of the marketing of cigarettes. This rearguard action has bought time in which the companies could adapt to the challenge, i.e. change themselves (through diversification) and change their products.

The Council for Tobacco Research (CTR) has dispersed over $26 million through 1973. During the past 20 years the industry has committed more than $50 million to scientific research related to tobacco and health. In December 1972, five cigarette companies including Brown & Williamson gave a $2.8 million grant to the Harvard Medical School for a 5-year investigation of any specific effects cigarette smoke may have in the development of lung and heart diseases. In 1967, over $12 million was spent in the United States on smoking and health research. In 1968, the figure increased to over $15 million.

The significant expenditures on the question of smoking and health have allowed the industry to take a respectable stand along the following lines—

"After millions of dollars and over twenty years of research, the question about smoking and health is still open " [emphasis added]. {2205.01, pp. 1–2}

Pepples viewed CTR as a means of keeping the "controversy" alive, although the industry maintained publicly that CTR was an independent organization whose purpose was to determine whether smoking is causally linked to disease. In essence, therefore, the industry was spending millions of dollars on research so that it could make the single statement that "the question about smoking and health is still open."

The Tobacco Institute also was used for the purpose of prolonging the "controversy." The instructions for B&W's document review project show that the lawyers were sensitive to this issue:

Documents discussing or containing public statements made by TI [the Tobacco Institute] in its role as spokesman for the tobacco industry. Pay special attention to documents suggesting that TI was used as a vehicle for the industry's alleged conspiracy to promote cigarettes through the "open controversy" PR program; that industry-sponsored smoking and health research was used for PR; or that the industry monitored governmental expenditures on research to make certain the industry outspent the government on research [emphasis added]. (1001.01, p. 32}

In "Industry Response to the Cigarette/Health Controversy," Pepples also discusses the strategy of preemption.

The tobacco industry wanted to prevent the chaos of nonuniform state and local regulation such as affects the alcohol industry. To gain one crucial costsaving objective, uniform regulation, the industry compromised by adding a health warning to the cigarette package. Another critic noted that "the label might even be a boon of sorts, providing a new defense for the industry" when

new health suits were brought by persons claiming to have been injured by cigarette smoking.

The broadcast ban which was enacted by Congress in 1969 called for the elimination of all TV and radio cigarette advertising after January 1, 1971 as well as strengthening the cautionary statement. The bill extended the preemption of state and/or local health regulation until June 1971. The tobacco industry did not oppose the 1969 or the 1965 enactments [requiring warning labels on cigarettes] which were in some ways victories [emphasis added]. {2205.01, p. 6}

Indeed, the tobacco industry testified in favor of the federal broadcast ban on cigarette advertising in July 1969.

Pepples concludes his 1976 analysis with a discussion of the implications for the tobacco industry of the disjointed nature of the federal government's regulatory authorities:

Some Conclusions and Observations

The foregoing discussion illustrates that the federated nature of the U.S. political system and the fragmentation of governmental authority and administrative responsibility are important in determining the type of governmental response.

The Congress is not staffed adequately nor is it properly structured to deal on a comprehensive basis with the medical aspects of the smoking controversy.

The independent regulatory bodies in the United States have been established to accomplish government regulation in technical areas. The FTC [Federal Trade Commission], FCC [Federal Communications Commission] and FCPSC [Federal Consumer Product Safety Commission] have been on very doubtful statutory ground in treating the smoking/health issue. They have been slowed by the limits in the procedures found in their statutory charter. As a result broad consideration of the smoking/health problem has been made difficult. Compared with public agencies in other countries they have been relatively free, however, to respond to the problem.

The FTC and FCC actions in this area have been unexpected and precedent-setting. They have mainly stemmed from the efforts of individual personalities. While the agencies have taken a high profile attitude, they have not had the power to act on issues of this type which lie outside their expertise and outside their legislative mandates. Congress has not extended their mandates to deal with the smoking/health problem and in fact has expressly prevented proposed agency actions from taking effect. In addition to the FTC, FCC and FCPSC the Departments of Agriculture, Treasury and Health, Education and Welfare have all dealt with portions of the total picture. A disjointed nature of governmental response has been augmented by the multiplicity of possible places where the action could occur [emphasis added]. {2205.01, pp. 6–7}

Pepples is saying, in effect, that Congress should not play a major role in tobacco control but should leave it up to an agency that is properly

structured. When discussing potential regulatory agencies, he does not mention the FDA.

Pepples continues:

Each agency is affected by interest group pressures that oppose compromise and cooperation with its opponents. For example, U.S. tobacco price supports and export subsidies are two programs (the latter begun after the Surgeon General's Report) that have been criticized as being in direct conflict with the government's smoking and health program. Also in Britain the Exchequer has been notably reluctant to give up tobacco taxes from cigarette smokers.

The oversight by Congress of its departments is not effective in resolving differences between departments. Each pressure group struggles to define the issue in its own terms so that the goals and actions of government will be congruent with its desires. The Treasury has sought to collect revenues, Agriculture has sought to maintain and increase employment, income and productivity of farmers while the health interests have sought to reduce disease. The antismoking forces were able to gain a foothold in the FAA [Federal Aviation Administration], FCC and FTC and in the Department of Health, Education and Welfare. The fact that one hand of the government does one thing and another hand does something quite different reflects the division of authority and responsibility which has made each agency vulnerable to the narrow interests of particular pressure groups [emphasis added]. {2205.01, p. 7}

There is a certain irony in Pepples's complaint about the multitude of government agencies involved in regulating tobacco and their disjointed efforts. Had a single federal agency been given the power to regulate tobacco in a comprehensive manner, its coordinated approach might well have resulted in much stricter control of tobacco. Had regulation been consistent, we would not have had federal price supports for tobacco growers, and tobacco exports would not have been subsidized under the Food for Peace program along with programs to discourage smoking.

Pepples continues,

Smoking and health as a political issue has been unpopular with all but a few politicians regardless of political party persuasions or country. Not only have strong economic interest groups opposed government action but a substantial portion of adult population indulge in the habit and derive significant pleasure from the use of the product. While it is reasonable to assume that the public desires good health, it is not reasonable to assume that the public at large and especially the cigarette smoking public is favorable toward antismoking measures that entail giving up the pleasures of smoking. {2205.01, p. 7}

These views were supported by decades of experience. However, not long after this paper was written, some politicians, particularly at the local level, began to take up the cause of nonsmokers' rights and to react favorably to the idea of restrictions on public smoking.

Pepples, moreover, miscalculated the reaction of smokers to restrictions on public smoking. Polls over the past twenty years have consistently shown majority support among smokers for such restrictions. Many smokers view limitations on smoking as a way to help them quit, or at least reduce their consumption, and many also understand the need to control tobacco smoke pollution for the sake of others.

Pepples next discusses the impact of the efforts to regulate cigarette advertising on cigarette consumption:

So far government efforts to regulate cigarette advertising have constituted the main thrust of government concern and the aggressive antismoking lobby is highly dissatisfied with the impact such efforts have had on total consumption. (The following page [not in the documents] shows in chart form the general upward trend in cigarette sales but suggests a significant loss of volume due to political factors.) The reduction in cigarette advertising seems to have made the industry stronger economically. Profits have increased. The ban on television and other broadcast advertising does not seem to have reduced consumption. The concomitant reduction in the number of anti-cigarette commercials is considered to be a severe loss in the effort to keep public concern and awareness of the controversy at a fever pitch [emphasis added]. {2205.01, p. 8}

Pepples then specifies the legitimate government role in regulating tobacco as a public health problem.

Like the meat industry [because of muckrakers who demanded USDA regulation early in the century] and recently the automobile industry [because of Ralph Nader], tobacco products are now coming under close scrutiny and governments are attempting to establish control over the products, as opposed to merely the advertising, to protect the public .

The warnings, the tar and nicotine ratings and the anti-cigarette commercials were all part of the effort to educate children and cigarette consumers not to smoke. Implicit in the policy of education is the idea that the consumers should make the basic decision and will make the "right" decision, provided they are given "more knowledge." In short, inform the public, and rely on an informed public to change the pattern of consumption. The government has not yet intervened directly to change the content of the product or limit its use. The protection of nonsmokers also has become an important and growing focus of the antismoking lobby with the announced purpose of making cigarette smoking an unacceptable social custom which they compare to spitting . At least 26 bills have been added to some 70 antismoking proposals in state legislatures for action in 1976, involving 26 states. Characteristically these measures would restrict the places where smoking may lawfully occur.

It is clear, however, that many anti-cigarette zealots and some public officials believe that the responsibility of the government does not end with merely warning the public of the hazards. They advocate direct intervention. Senators [Edward] Kennedy (D-MA) and [Gary] Hart [D-CO] recently [in

1976] proposed a health research bill to be financed by a tax related to the tar and nicotine content of cigarettes. At about the same time, the British Minister of Health announced on national television that he intended to lay an order before Parliament bringing additives and substitutes under the Medicines Act, which order must be approved by resolution of each House.

The tobacco industry, of course, would prefer no regulation at all. If there must be regulation, the industry is probably better off to have it at the federal level than be forced to fight off a multitude of nonuniform regulatory efforts at the state, county and town levels. Even expanded regulatory efforts may be shaped by the industry to enhance stability in the market or by individual manufacturers to bolster market positions—for example, by capitalizing on official tar and nicotine ratings in cigarette advertising.

The manufacturers' marketing strategy has been to overcome and even to make marketing use of the smoking/health connection. Individual tobacco companies have benefited from government actions. Thus the "tar derby" in the United States resulted from industry efforts to cater to the public's concern and to attract consumers to the new filtered brands. The heavy use of television in the introduction of WINCHESTER [a cigarette-like little cigar made by R. J. Reynolds] represented a bald exploitation of the little cigar loophole in the broadcast ban law. The current duel between TRUE and VANTAGE and between CARLTON and NOW are other examples of competitive efforts to capitalize on the smoking/health controversy.

Market conditions are important in determining company response. In a rapidly changing cigarette market, it is difficult to obtain industry cooperation because cooperation tends to affect individual firms unevenly [emphasis added]. {2205.01, pp. 8–9}

In effect, preemption allowed the industry to accept certain defeats, while at the same time limiting the damage. Indeed, as Pepples noted, the radio and television advertising ban, which might have appeared at first to be a crippling blow to the industry, actually turned into an unforeseen advantage. As important as preemption was to the industry with respect to the issues discussed by Pepples in 1976, it was to become an even more crucial tactic for the industry in its battle against legislation regulating environmental tobacco smoke. In that battle the industry has focused on passing weak laws at the state level (where the industry has great political clout) that preempt stronger ordinances passed by cities and counties (where industry influence is relatively weak).

Legal Challenges To Regulation

On August 14, 1978, Ernest Pepples sent a "Privileged" memorandum to several high executives at the company regarding a paper entitled "Up from the Bombshelter," which was written by Charles Morgan, a noted

civil rights attorney in the 1960s, who later represented the tobacco industry. Although the documents include only a tiny fragment of the paper, we know from those fragments and from Pepples's memo that Morgan believed the industry should adopt aggressive legal measures to challenge government regulation of tobacco. For example, at one point, Morgan states:

We recommend the initiation of litigation to strike down legislation which forbids private property owners to allow free and unrestricted assembly by smokers in their businesses, restaurants, hotels, bars, stores, and similar facilities. {2211.01, p. 57}

Pepples explained that the paper had been reviewed and discussed by the Committee of Counsel, a Tobacco Institute committee consisting of the chief counsel of the tobacco companies, and by Horace Kornegay, then president of the institute, and that the memo dealt "with the main currents of the deliberations arising from [the] paper" {2210.01}.

In his analysis of Morgan's paper, Pepples notes:

Although some of the specific recommendations in Morgan's paper seem impractical, there is already wide agreement with one of his underlying ideas; namely, that now it has become timely for the industry to adopt a more aggressive stance in objection to some of the anti-industry measures being proposed. {2210.01}

Pepples then explains that challenging the Federal Trade Commission's attempts to impose further restrictions on cigarette advertising is a worthwhile endeavor because the industry has a reasonable chance of prevailing and there is "genuine value to be gained by winning":

The hard part is to find the right thing to stand and fight about and the right time and place to do so. The FTC wants to do something more about cigarette advertising because the display of the health warning in advertising has not been sufficiently "effective." By effective the FTC means a reduction in sales of cigarettes. The Commission attack will be founded on the now familiar premise that cigarette advertising tends to overcome the effect of the Surgeon General's warning and in so doing the advertising amounts to an unfair practice within the meaning of Section 5 of the FTC Act.

We can fight on that battlefield. We have a good argument and we will not be alone. The First Amendment issue is raised by the attempts to regulate the commercial expression on the vague ground of "unfairness." Here the FTC goes far beyond the familiar notions of falsity, deceit and misrepresentation. There is no lie or deceit present in cigarette advertising, whether you view the words alone or as a whole with the imagery. The FTC has to make its case in the mushy area of "unfairness." While "unfairness" under the Act may prove a flexible tool in regulating conduct, such as bait-and-switch

practices, the attempts to use it for the expansive regulation of the substance of expression contained in advertising runs right up against First Amendment considerations.

Another important legal issue concerns the res judicata effect to be given to the 1972 Consent Order under which the Surgeon General's warning is required in cigarette advertising. The Consent Order was based on a broadranging complaint that covers almost all of what the Commission is likely to come up with the next time around. Whatever legal validity and strength the FTC contentions in that complaint may have had, they should be taken as settled and not be open for relitigation time and time again [emphasis in original]. {2210.01, pp. 1–2}

Res judicata is a legal term meaning, literally, a thing that is definitely settled by judicial decision. When that is the case, the issue—in this instance the effect of the Surgeon General's warning—may not be opened up again by the same court or another court. Thus, Pepples is saying that the 1972 Consent Order settled all the issues relevant to the order and that the FTC contentions surrounding the order should receive no further hearing.

These are "good" legal issues, there is a reasonable chance of prevailing, and there is a great deal of genuine value to be gained by winning. Moreover the issues are sufficiently basic and of broad applicability that the industry will not necessarily be standing out there alone. For example, as to the First Amendment issue the makers of sugared cereals are already locked in battle, and the beer industry may soon be, on some of the same grounds as those that will be of concern to the cigarette industry. {2210.01, p. 2}

However, there were two important areas of concern that the attorneys did not believe were worth pursuing, despite Morgan's recommendations. The first of these was the ban on broadcast advertising on cigarettes, which the attorneys believed could not be challenged successfully on constitutional grounds and, in any event, was not worth fighting about:

He [Morgan] also says that the time is right for attacking the broadcast ban on cigarette advertising, again resting his arguments in the federal constitution.

With respect to Morgan's ideas about the broadcast ban, the First Amendment issues are theoretically interesting. The ban is a clear restriction of expression. The Court has recently affirmed that commercial forms of expression are protected by the First Amendment. But we are the wrong industry and this is the wrong issue on which to try to enlarge on this new-found constitutional protection for advertising. The Court has left many questions about the protection of commercial speech unanswered and this might be a very bad case to bring on early, before the Court has developed the rule more fully. The Court has already hinted that mere product advertising may enjoy the lowest degree of protection. Add to the foregoing factors that the case

involves issues of the public health and the protection of children and one can see that a negatively-inclined Court would have plenty of ammunition to use against the First Amendment argument.

Judges are only people and people are not favorably inclined toward this industry. On crucial points in the debate, the public opinion percentage scores against the industry read like a thermometer in July. Over 90 do not believe anything we say. Over 90 think cigarettes are dangerous. Even among smokers we lose. People say they want to quit. In an unaided poll a strong majority said that public smoking should be banned. About half of the people believe that ambient smoke is hazardous. With these kinds of attitudes floating around, Courts will likely be very negative toward cigarette advertising and any First Amendment argument which is advanced to get cigarettes back on TV [emphasis added]. {2210.01 pp. 2–3}

This frank assessment of the unpopularity of the tobacco industry and the extent to which the public was aware of the dangers of smoking for both smokers and nonsmokers indicates that the industry was far ahead of most politicians of the day in these realizations. In 1978 it was still only a rare politician who understood the industry's credibility problems and was willing to stand up to it. Pepples continues:

We have some discouraging history in this regard too. When the industry tried to impose the Fairness Doctrine in reverse—giving tobacco companies a right to reply to free anti-cigarette ads—Lewis Powell [an attorney at the time, who later became a justice of the Supreme Court] was hired and brought the case in the friendly 4th Circuit [of the US Court of Appeals]. Although it should have been won, the case was lost. It's bad law but there it is.

Even if the broadcast ban now were struck down, the pressures from government and non-government sources for counterads would be tremendous. The Fairness Doctrine may no longer require stations to carry anti-ads, as Morgan notes, but it certainly doesn't forbid stations to do so. The resumption of advertising on television would almost certainly be accompanied by the return in force of anti-smoking announcements [emphasis added]. {2210.01, p. 3}

Since the television and radio advertising ban was upheld in court, Pepples was undoubtedly correct in his assessment that it was not worth challenging. More recently, however, the advertising issue has shifted dramatically: there has been serious discussion of banning cigarette advertising altogether or of severely restricting its content. In August 1995 the FDA proposed a moderate set of restrictions designed to reduce the appeal of cigarettes and smokeless tobacco products to children and adolescents (8). The industry, of course, does not view such restrictions in the same way it did the broadcast ban. After the broadcast ban it merely

shifted its advertising to another medium, and it vigorously opposes any across-the-board restrictions or prohibitions.

In addition, Pepples rejects the notion that restrictions on public smoking are unconstitutional:

Similarly the recommendation for a wave of industry sponsored litigation attacking the constitutionality of public smoking ordinances is not convincing. A basic fallacy in Morgan's arguments is the assumption that the case involves an issue concerning the right of assembly and association. None of the anti-smoking ordinances in fact restricts a smoker's right of association or assembly. None of them exclude smokers from any place or infringe the rights of smokers to associate with whom they choose and assemble where they please. Instead they regulate activity or conduct. The ordinances do invoke the police power to restrict the activity of smoking in certain places.

A second major fallacy is the failure to recognize this police power aspect. The states have extensive authority to regulate the use of privately owned commercial property especially where questions of public health and safety are concerned.

With respect to the litigation recommended, the chances for success are relatively slight and with a small chance of winning, the prizes to be won would be practically valueless. If an anti-smoking ordinance is knocked down the most likely result would be the environmental protection "No Smoking" signs would be taken down and Fire Marshall's "No Smoking" signs would be put back up. No doubt the anti-smoking ordinances cover a somewhat broader group of public places than the Fire Marshall's have traditionally covered, but the Fire Marshall's authority is broad and could be more widely exercised in the future. One has to conclude, therefore, that the practical effort of a victory over the anti-smoking ordinances would be something less than sweeping [emphasis added]. {2110.01, pp. 3–4}

This analysis is particularly interesting for two reasons. First, it provides further evidence that the industry recognized nonsmokers' rights and clean indoor air as crucial issues in 1978, long before the mainstream health establishment did. Second, it indicates that the industry's chief lawyers agreed that they could not challenge a clean indoor air law on constitutional grounds; thus, they clearly conceded that public smoking is not a constitutionally protected right. Pepples's recognition that public smoking laws regulate conduct and do not interfere with constitutional freedoms is in sharp contrast with the position the tobacco industry has consistently taken when opposing the passage of such laws. In fact, the industry always frames the issues in terms of the effect of a proposed law on the "rights" of smokers (chapter 10).