The Tobacco Settlement: An Overview

C. Stephen Redhead
Science Policy Research Division

Updated July 31, 1997

97-664 SPR

CONTENTS:

BACKGROUND
Overview of Settlement
FDA's Tobacco Regulation

SUMMARY

On June 20, a group of state attorneys general, plaintiffs' lawyers, public health advocates, and lawyers representing cigarette manufacturers announced an historic settlement that would restructure the tobacco industry and revolutionize the nation's tobacco control efforts. The proposed settlement is currently under congressional consideration, and would require legislation and the President's approval before taking effect. The agreement would settle lawsuits brought by 40 states seeking to recoup Medicaid spending for smoking-related illnesses and ban class-action lawsuits against the tobacco industry. The industry, in turn, would pay an estimated $386.5 billion over the next 25 years to compensate states and individuals for tobacco-related health costs and finance nationwide anti-smoking programs. The settlement also purports to incorporate and expand upon the recent Food and Drug Administration's (FDA) regulation of tobacco products. The sale of tobacco products to adults would remain legal, but subject to restrictive measures designed to reduce significantly sales to underage buyers. Public health officials have raised questions about the proposed settlement concerning its potential effect on FDA's authority to regulation nicotine.

BACKGROUND

On June 20, a group of state attorneys general, plaintiffs' lawyers, public health advocates, and lawyers representing cigarette manufacturers announced an historic settlement that would restructure the tobacco industry and revolutionize the nation's tobacco control efforts. The proposed settlement is intended to be a blueprint for congressional legislation. Two Senate committees have already held hearings on the settlement, and more are planned after the August recess as lawmakers consider how best to approach this issue.

Overview of Settlement

-- Seeks to prevent underage access to, and dramatically reduce underage use of, tobacco products.

-- Confirms the FDA's authority to regulate tobacco products.

-- Incorporates most of the provisions of FDA's tobacco regulation, expanding them to include a ban on all outdoor tobacco advertising.

-- Sets national requirements limiting smoking in public buildings and leaves states and local governments free to set more stringent requirements.

-- Requires that the participating tobacco companies pay $15 billion a year to fund anti-smoking and smoking cessation programs, smoking-related health care costs incurred by federal, state and local governments, and federal and state enforcement of the proposed regulations.

-- Protects the industry from all class-action lawsuits, while preserving the rights of individuals to sue the tobacco industry.

-- Ensures that non-participating tobacco companies are held fully liable for any injuries their products may cause.

-- Mandates changes in the corporate culture of tobacco companies in order to ensure that they comply with the spirit, as well as the letter, of the proposed resolution.

FDA's Tobacco Regulation

On August 28, 1996, the FDA issued a final regulation governing access to and advertising and promotion of nicotine- containing cigarettes and smokeless tobacco products to children and adolescents, after a 2«-year investigation of the tobacco industry and its products. (See Endnote 1.) The agency's assertion of jurisdiction over tobacco products under the Federal Food, Drug, and Cosmetic Act (FFDCA; 21 U.S.C. 301) was based on the finding that cigarettes and smokeless tobacco products are delivery devices for nicotine, an addictive drug. The aim of the regulation is to reduce youth access to tobacco products and the appeal of tobacco advertising to youngsters.

The FDA regulation prohibits the sale of cigarettes and smokeless tobacco to persons under the age of 18; requires manufacturers, distributors, and retailers to comply with certain conditions regarding the sale and distribution of these products; requires retailers to verify the purchaser's age by photo identification; prohibits all free samples; prohibits vending machines and self-service displays except in adult-only facilities; limits the advertising to which children are exposed to a black-and-white, text-only format; prohibits the sale or distribution of tobacco-related promotional non-tobacco items such as hats and tee shirts; prohibits brand-name sponsorship of sporting and other events; and requires manufacturers to provide intended use information on package labels and in advertising.

On April 25, 1997, a federal district court judge in Greensboro, North Carolina ruled that the FDA has jurisdiction under the FFDCA to regulate nicotine-containing tobacco products. (See Endnote 2.) The court held that "tobacco products fit within the FFDCA's definitions of drug and device'" and that the FDA can regulate cigarettes and smokeless tobacco products as drug delivery devices under the combination product and restricted device provisions of the Act.

However, while the court upheld all the regulation's provisions that restrict youth access and labeling, it found that the FDA lacks authority under the FFDCA to restrict the advertising and promotion of tobacco products. The court also ordered the FDA not to implement any of the provisions of the regulation that have not yet gone into effect pending further action by the court. Two access provisions--the prohibition of sales to minors under age 18 and the requirement that retailers check photo identification of customers under age 27--went into effect on February 28. All but one of the remaining provisions were scheduled to go into effect on August 28, 1997. The federal government has appealed the advertising portion of the ruling to the U.S. Fourth Circuit Court of Appeals in Richmond, which is expected to hear the case next month.

The North Carolina decision gives the FDA broad authority to regulate nicotine-containing tobacco products, including the authority to reduce or even eliminate nicotine and other ingredients in cigarettes and smokeless tobacco. The proposed tobacco settlement would explicitly recognize the agency's authority to regulate tobacco products and codify that authority in law.

However, public health officials have criticized the settlement on the grounds that it places undue restrictions on FDA's authority to regulate nicotine. For example, under the settlement any proposal to reduce the level of nicotine in cigarettes would require a formal rule making and be subject to congressional review. The agency would also have to demonstrate that the proposed reduction in nicotine significantly reduces health risks and does not create a black market for unmodified products. In addition, the FDA would be required to wait 12 years before proposing to eliminate nicotine from tobacco products.

ENDNOTES

(1) Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco to Protect Children and Adolescents. Federal Register, v. 61, no. 168, Aug. 28, 1996. p. 44396-45318.

(2) Coyne Beahm, Inc. v. Food and Drug Administration, 958 F. Supp 1060 (M.D.N.C. Apr. 25, 1997).

(3) The information in Table 1 is drawn from the 68-page settlement document, which is entitled Proposed Resolution and dated June 20, 1997. The document was obtained from representatives of parties involved in the tobacco settlement negotiations.