Working Paper #8
in a Series on Legal Issues
in the Proposed Tobacco Settlement

 May 11, 1998

Authored by

Richard A. Daynard
Peter D. Enrich
Wendy E. Parmet
Patricia A. Davidson
Graham E. Kelder, Jr.
Robert L. Kline

Tobacco Control Resource Center (TCRC)
Northeastern University
102 The Fenway Suite 117
Boston, MA 02115

In the following pages the Tobacco Control Resource Center (TCRC) presents its analysis of selected provisions of the May 1, 1998 version of the McCain Committee bill (S. 1415rs, the "National Tobacco Policy and Youth Smoking Reduction Act"). Our analysis focuses on the following areas.

In an effort to provide a timely report in a changing landscape, our methodology and analysis are limited to the particular provisions of the bill identified and discussed in each section of the working paper. In many instances particular provisions of the McCain Committee bill are compared to an earlier (March 29, 1998) committee draft, which was our initial baseline for analysis. Due to the need for rapid dissemination of our report we did not scrutinize the bill in its entirety. Thus, there may be provisions of the legislation that we have not reviewed which may affect our interpretations and conclusions.



An Analysis of Selected Provisions of the McCain Committee Bill

(S. 1415rs)

Editor's Note: This executive summary was prepared as an overview of the Tobacco Control Resource Center's Working Paper analyzing selected portions of the McCain Committee bill, released May 11, 1998. This summary was drafted before Senate floor consideration began and does not include changes made by the Manager's Amendment or any other amendment.

Judicial Federalism and Civil Liability

The McCain Committee bill avoids many of the constitutional problems raised by the settlement proposed last summer and other legislative proposals by more clearly and fully federalizing civil liability actions. However, a significant price has been paid for the constitutional cleanliness of the bill. Passage of the McCain Committee bill would result in an enormous preemption of state law, removing from the states a broad swath of their traditional police powers. The bill would also expand the role of the federal courts, at the expense of the state courts, in an era in which there is a renewed respect for the role of the states.

The civil liability provisions of the McCain Committee bill provide unacceptable forms of immunity to the tobacco industry. Specifically, the $6.5 billion dollar cap is an outright gift to the industry and it does not, contrary to some reports, increase in future years if it is not fully spent in past years. Moreover, section 705(b) restricts "permissible defendants" in civil actions based on tobacco claims to "a tobacco product manufacturer," which is defined to include only domestic tobacco subsidiaries of the tobacco conglomerates. Immunizing these conglomerates, whose assets were purchased with the profits from sales to U.S. smokers, leaves a drastically smaller asset and income base for paying off American tobacco claims. Ironically, if bankruptcy is a genuine concern, this immunity provision lowers the bankruptcy threshold to a fraction of what it would otherwise be.

The immunity provisions of the McCain Committee bill undermine the social purposes served by tort law: general deterrence, specific deterrence and compensation.

Advertising Restrictions and the First Amendment

Tobacco advertising can be regulated, but the regulations must conform to the four-part commercial speech test set forth by the U.S. Supreme Court in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n. The McCain Committee bill's advertising restrictions are constitutional. These regulations include, for example, limitations on outdoor advertising, advertising in publications with significant youth readership, and advertising on the Internet. The First Amendment requires that government regulation of commercial speech materially and directly advance the government interest and that the restriction be no more extensive than necessary. Existing social science evidence shows that tobacco advertising restrictions will directly and materially advance the government interest in preventing children from being enticed by tobacco advertising to try a dangerous, illegal product.

Marketing tobacco products to youth, however, will continue despite the McCain Committee bill. For example, section 122(a)(1)(A) of the bill requires that tobacco advertising "contain no human image, animal image, or cartoon character." This is a loophole that the tobacco industry is already slipping through. Recent tobacco industry advertising shows, for example, cute anthropomorphic cigarettes, and cleverly positioned chili peppers that resemble a pair of lips smoking a cigarette. Such advertising is eye-catching, appealing, and completely legal under the McCain Committee bill. To close this loophole, tobacco advertising in all media should be limited to tombstone format: black text on white background.

Section 122(a)(1)(F) of the bill restricts tobacco advertising on the Internet unless it "is designed to be inaccessible in or from the United States to all individuals under the age of 18." This provision is constitutional if it is taken literally and interpreted to apply only to advertising and not to all tobacco industry speech on the Internet. Reno v. ACLU, the famous "indecency on the Internet" case, does not prevent Congress from regulating tobacco industry advertising on the Internet.

Ironically, congressional action granting the tobacco industry any measure of protection from the normal consequences of the civil justice system in exchange for "voluntarily" accepting restrictions on advertising may raise unconstitutional conditions doctrine problems. Although the government may grant benefits to parties (here, immunity for the tobacco companies), it may not condition the availability or access to those benefits upon the relinquishment of constitutional rights.

Constitutionality of the "Look-back" Provisions

There are two "look-back" provisions in the McCain Committee bill. The first establishes separate cigarette and smokeless tobacco industry-wide penalties if underage tobacco use does not decline by specified target percentages in future years. The amount of the penalties is measured by the percentage shortfalls and is capped. Industry manufacturers are jointly and severally liable.

The second provision authorizes the Secretary to bring an action in a three-judge District Court against the manufacturer of any cigarette or smokeless tobacco brand which misses the target reduction percentage for underage consumers by more than 20%. If the court finds that a manufacturer has violated the McCain Committee bill, taken steps to undermine its goal of reducing sales to youth, or failed to comply with recommendations of a Tobacco Agreement Accountability Panel, the manufacturer loses the benefit of the liability cap provided by Title VII.

The first look-back provision is constitutionally indistinguishable from a tax, as to which no valid constitutional objection can be made. Congress may tax for revenue, to discourage use, or to provide an incentive for desired industry behavior. The Due Process Clause is not relevant, and the provision is not a Bill of Attainder. The second look-back provision requires a judgment about individual company behavior, and hence procedural dues process applies. However, fact-finding by a three-judge panel of the District Court certainly satisfies due process.

The likely efficacy of the "look-back" provisions is another matter. The cap on penalties in the first provision guarantees that they will have a negligible deterrent effect on the industry, and only a small effect on underage consumption. The second provision may deter egregious behavior by tobacco companies, but is unlikely to cause them to "demarket" their products to underage consumers.

State and Local Regulatory and Enforcement Powers

In several respects, the McCain Committee bill reflects a greater sensitivity to the protection of state and local autonomy in the regulation of tobacco products than did prior legislative proposals or the original proposed settlement agreement. However, the bill continues to pose serious threats to state and local regulatory and enforcement authority and some of the statutory drafting raises problematic questions concerning its purpose and effect.

First, the general nonpreemption language in section 5 omits several protective provisions that appeared in a previous version. Second, the breadth of the preemption provisions applicable to areas regulated by the FDA is problematic. Third, the legislative proposal does not repeal the preemption provisions for the Federal Cigarette Labeling and Advertising Act and Comprehensive Smokeless Tobacco Health Education Act. Fourth, the state opt-out provision under the Environmental Tobacco Smoke (ETS) title undermines federal regulation in this area, as well as the purported preemption protection for state and local ETS regulation.

Furthermore, in the area of enforcement, the provisions of the McCain Committee bill could seriously interfere with the ability of state and local governments to go to court and seek civil penalties or injunctive relief against tobacco companies or retailers who violate state or local laws regulating the sale or use of tobacco products. The McCain Committee bill's consent decree and protocol provisions also raise significant enforcement preemption problems.

State Retail Licensing and Related Provisions

The McCain Committee bill replaces the Synar amendment with a law that repeats many of the amendment's mistakes and delays enforcement. Like the Synar amendment and its regulations, the McCain Committee bill does not, for example, require states to use a large percentage of block grant money for enforcement or prevent states from reporting inflated compliance rates by using 12 and 13-year-olds to test merchant compliance. If the McCain Committee bill passed Congress in 1998, state enforcement would be delayed from 1994 to 1999, and states could not be penalized for failing to enforce the law until 2003. Abolishing Synar and requiring states to adopt laws implementing section 213's requirements also provides another opportunity for the tobacco industry and its allies to pass preemptive statewide legislation.

Section 224 of the McCain Committee bill requires states to have a law or regulation that mandates state licensing of each retail establishment selling or distributing tobacco products to consumers. The tobacco industry is adept at influencing state legislatures, and, therefore, state laws that are passed to comply with the bills' state licensure requirements may be preemptive or weak and loophole-ridden.

Section 224 may also deprive local governments of their most effective tool: the permitting or licensing of tobacco retailers. Section 224 does not require states to include an anti-preemption clause in their state retailer licensing law. In many states, absent an express anti-preemption provision, a retailer licensing scheme contained in a state law may occupy the field of permitting, and, therefore, preempt existing or future licensing programs at the local level.

The retail licensing provision of the McCain Committee bill may protect tobacco retailers who sell to minors because its civil penalties are vague and open-ended and it requires cumbersome judicial review before a retailer's license can be suspended or revoked. Section 224 also establishes penalties for youth possession of tobacco that may be inimical to the McCain Committee bill's stated goal of reducing youth access to tobacco.

The research and analysis underlying this Working Paper were supported by National Institutes of Health/National Cancer Institute Grant Award No. RO1 CA67805-01 Titled "Legal Interventions to Reduce Tobacco Use." Any opinions, findings and conclusions or recommendations expressed in this publication are those of the authors and do not necessarily reflect the views of the prime sponsor.

Copyright 2005 Tobacco Control Resource Center, Inc.