Big Tobacco Regains Confidence

One year after the most concerted assault against Big Tobacco in US history, the industry is showing surprising resilience as a series of legal and political developments break its way.

The industry is winning lawsuits and prevailing in Congress. Buoyed by its improved standing, companies are pushing ahead with an aggressive PR campaign - and fighting back in court. Indeed, tobacco executives, once considered pariahs, are now castigating public-health advocates as "extremists" who killed any chance for a tobacco agreement. They are even willing to sign their names to their advocacy ads, which lash out at opponents.

"It's an incredible comeback," says Richard McGowan, author of a book on the industry and a professor at Boston College.

This is an abrupt turnabout from a year ago. Beset by lawsuits, the tobacco companies were waving a white flag. They had met with state attorneys general and agreed to pay $368 billion to settle lawsuits, limit their advertising, and be regulated by the US Food and Drug Administration. For the first time in the firms' long history, they shook hands with some public-health advocates. "A year ago we were on our backs," acknowledges Scott Williams, a tobacco-industry spokesman in Washington.

But since that agreement, which failed to make it past Congress, the industry has had some remarkable successes.

* On Tuesday, a Florida appeals court overturned and dismissed a jury verdict against the Brown & Williamson Tobacco Corp. The case was one of the first victories brought by an individual smoker against the industry. Many of the legal arguments are likely to be used in coming trials elsewhere. "It's a major victory," says Mark Smith, a spokesman for Brown & Williamson.

* The industry has been buoyed by its $6.1 billion settlement with the state of Minnesota. After the settlement, which was reached before the case went to the jury, several of the jurors said they were not certain they would have voted against the industry. "I don't think I would have awarded anything extra," said juror James Livingston, referring to the issue of punitive damages. He also had doubts that the companies acted in an anticompetitive manner. "I think they did what the consumer wanted," he said.

Hardball in court?

Such comments may well cause the industry to play hardball with the remaining states that have filed suits. Referring to jurors' comments, Mr. Williams, who is with the public-relations firm BSMG Worldwide, says, "I did not sense that they felt it was time to wreak vengeance on the tobacco industry."

"The need to settle is no longer there," says a tobacco industry source, who asked for anonymity. Instead, tobacco companies are now preparing for their next lawsuit, filed by the state of Washington.

In Olympia, Wash., Liz Mendizabal, spokeswoman for the attorney general, says the state is also readying for the Sept. 14 trial. Unlike most other attorneys general, Washington's Christine Gregoire is not asking for reimbursement for Medicaid expenses. Instead, the state is charging the tobacco companies with antitrust and consumer violations such as allegedly claiming to create safer cigarettes. "We are confident we have a very good case," says Ms. Mendizabal. "The industry has said it wanted to go to trial in other cases but settled on the courthouse steps."

The public-health community is not exactly looking forward to locking horns again with the industry. "It's almost like it's back to trench warfare," says William Novelli, president of the Washington-based Campaign for Tobacco-Free Kids.

Mr. Novelli expects the tobacco industry will mount yet another public-relations and advertising blitz to try to improve its overall image. He expects each company to name a vice president in charge of trying to prevent children from smoking. He envisions a voluntary ban on tobacco billboards and a commitment by the industry to buy more US-grown tobacco.

"They will try to portray themselves as the new, kinder, gentler, reformed, and responsible tobacco industry," he suggests.

But Williams says another ad campaign is not immediately in the works. The tobacco industry just finished a $40 million national public-relations and advertising blitz in its successful effort to derail a comprehensive tobacco bill in Washington. The ads portrayed the legislation as a large tax increase on the working class.

"There is a streak of rebellion in Americans, and the tobacco industry found a way to play to it," says Boston College's Mr. McGowan.

Another industry victory

The industry also succeeded in portraying former Surgeon General C. Everett Koop and former FDA Commissioner David Kessler as extremists. Both men insisted that a large cigarette-tax hike was needed to prevent children from smoking. Mr. Kessler managed to bring the White House into the battle by arguing that smoking is a children's issue, since most smokers pick up the habit when they are under 18 years old.

Now, antismoking groups wonder what to do about the "two K's." As one antismoking advocate observes, "With their utopianism, they [Koop and Kessler] dragged the whole debate to the left."

Wall Street cautious

Despite the industry's new bounce, the companies still have not achieved one of their goals: acceptance by Wall Street. Tobacco stocks remain at the lower level of their recent trading ranges.

"Wall Street likes consistency. It does not like to see too many imponderables," says Allan Kaplan, a tobacco analyst with Merrill Lynch & Co. in New York.

One of those imponderables is the future of any tobacco legislation. On Tuesday, Sens. Orrin Hatch (R) of Utah and Dianne Feinstein (D) of California unveiled a new proposal to raise the tax on cigarettes by $1.10 per pack over 10 years instead of five years, as called for in the defeated measure offered by Sen. John McCain (R) of Arizona. Total revenues would be $428.5 billion, and the money would be allocated to the states and public health. None would go toward tax relief. In a bid to win industry support, punitive damages would be eliminated in return for $100 billion deposited in a fund for biomedical research.

A spokesman says Senator Hatch wants to attract more sponsors before actually introducing the idea as legislation. Mr. Kaplan, however, says it would immediately hike the price of a pack of cigarettes by $2 - something the industry would see as a drawback.