7/14/00 3:30 p.m.
Who Is “Big Tobacco” Now?
The Florida award isn't the last word.

By Jacob Sullum, syndicated columnist and senior editor at Reason

fter a jury ordered the five leading tobacco companies to pay $145 billion in punitive damages — the largest product liability award in history — Philip Morris attorneys responded calmly, saying the verdict would "have no practical impact." Although there was obviously an element of bravado to this attitude, it also reflected sincere confidence in the industry's ability to prevail on appeal in Engle v. R.J. Reynolds, a class action by Florida smokers.

The lawyers' cockiness represents a shift from a couple of months ago, when it was unclear whether the tobacco companies would be able to appeal at all. That's because state law would have required them to post an appeal bond equal to the amount of the Engle award plus 20 percent. In the case of a $145 billion award, that's more than the entire industry is worth. Coming up with that kind of cash would have been tough, to say the least. But in May the Florida legislature came to the industry's rescue by passing a law that limits appeal bonds to $100 million. Now the cigarette companies can afford to take their battle to the appeals courts.

On the face of it, Florida's sudden concern for the tobacco industry's welfare is puzzling. After all, this is the same legislature that, six years ago, passed a law that authorized the state to sue cigarette manufacturers for the cost of treating smoking-related illness under Medicaid. The law lightened the state's burden of proof and stripped the tobacco companies of their strongest defenses. Facing a rigged game, the industry ultimately agreed to pay the state $13 billion over 25 years.

But now it has occurred to Florida's anti-tobacco crusaders that the industry's resources are finite. Rather than applauding other attempts to punish Big Tobacco, they worry that such litigation could impair the industry's ability to continue funding their pet projects. It's a concern shared by politicians in all 50 states, which are supposed to receive a total of $246 billion under settlements reached in 1997 and 1998.

In a recent Cato Institute paper, attorney Thomas C. O'Brien aptly calls this arrangement "a sophisticated white-collar crime instigated by contingency fee lawyers." O'Brien describes how the states and the trial lawyers conspired with the major tobacco companies to fleece smokers, who are picking up the tab for the settlement payments through higher cigarette prices. (A clever, little-noticed system of penalties prevents smaller tobacco companies from grabbing market share by underselling the industry leaders.)

The settlement money magnifies the government's financial stake in the cigarette business, which already exceeds that of the tobacco companies. A 1999 New York Times estimate put Philip Morris's profit on a pack of Marlboros at 28 cents. As of December, according to a calculation by Philip Morris, the average state cigarette tax, weighted by sales, was 40 cents a pack, on top of a 34-cent federal tax (scheduled to hit 39 cents in 2002). Meanwhile, the idea of raising cigarette taxes to pay for new programs seems to be catching on, with a 50-cent hike in California for "early childhood development" last year and a 55-cent hike in New York for health insurance this year.

Add in the proceeds from the state litigation and whatever the feds get from the lawsuit they've filed, and it's clear that the government is by far the biggest beneficiary of the cigarette trade. Politicians who rail against Big Tobacco increasingly resemble the unkempt men who wander the streets of New York, engaged in never-ending arguments with themselves.