NEW YORK — A landmark settlement by one of the big five tobacco companies could mark the beginning of a dramatic shift in the way the industry does business.
The agreement by the Liggett Group marks the first time a tobacco firm has conceded paying a dime to anyone who sued it. It may buttress the government's attempt to reform the industry - and boost antismoking efforts.
Among the key pieces of the settlement:
Liggett, the smallest of the major tobacco firms, will give part of its pretax income to fund smoking-cessation programs over the next 25 years.
The company will agree to immediately implement proposed US Food and Drug Administration rules to change the way tobacco companies advertise their products, which critics say target children. In the process, Liggett in effect concedes FDA jurisdiction.
For its part, Liggett will be removed as a defendant in a class-action suit brought by a consortium of law firms representing smokers and former smokers. The suit contends that the tobacco firms and their lobbying arm, the Tobacco Institute, concealed research showing nicotine is addictive. Five other companies are still defendants in the class-action lawsuit.
Liggett is also close to settling other lawsuits brought against it by four state attorneys general.
Health advocates call the settlement, which was announced in New Orleans yesterday, a dramatic concession.
''The portion of the settlement that requires [Liggett] to withdraw its opposition to the FDA assertion of jurisdiction and the FDA rules as published last August is of historic public health importance,'' says Matt Myers, general counsel to the Coalition on Smoking OR Health, a Washington lobbying group.
Mr. Myers and others believe the settlement will put significant pressure on other tobacco companies to settle the lawsuits as well. ''In essence, Liggett said it is better to change how it does business than to risk potential ruin through the courts,'' Myers says.
Lawyers also believe that if Liggett settles its lawsuits with the states, which are suing to force tobacco companies to pay Medicaid expenses from smoking-related health issues, additional states will join in. ''Other state attorneys general will undoubtedly accelerate that process, because states who are not suing will not get any of that money,'' says Edward Sweda, attorney with the Boston-based Tobacco Products Liability Project.
The Liggett concessions will certainly cause a stir on Capitol Hill. The tobacco industry had mounted a major campaign to try to prevent the FDA from enacting its rules, which would limit advertising critics say is aimed at children.
''Now that Liggett is in essence agreeing with the FDA, I'd like to see anyone on Capitol Hill oppose the FDA restrictions,'' says Phil Wilber, a spokesman for the Advocacy Institute, an anti-tobacco group in Washington.
Brennan Dawson, a spokeswoman for the Tobacco Institute, says the group has no comment on the settlement. ''We don't respond to litigation,'' she says, adding: ''Our position on FDA regulation has not changed from our strong opposition.''
Brown and Williamson Tobacco Corporation based in Louisville, Ky., a defendant in the class-action suit, believes the settlement is unlikely to become effective. It says the agreement is terminated if the tobacco firms win the lawsuits.
Anti-tobacco groups, for their part, are particularly cheered by the prospect that Liggett will fund smoking-cessation efforts. In California, a portion of the state's sales tax has gone towards television advertising to educate the public about the dangers of smoking. ''This has cut down dramatically on smoking,'' says Mr. Wilber.
The major reason for the Liggett settlement is an ongoing proxy battle between Liggett's owner, Bennett LeBow, and Reynolds. Both sides have claimed victory in their battle for control.
Now, Mr. LeBow has told the Wall Street Journal, Liggett is worth more money because it has removed the uncertainty of the litigation. According to published reports, the settlement would extend to Reynolds if Liggett is successful in its takeover attempt.
Any concessions by the other companies would change the course of the $45 billion industry.
The tobacco industry has always fought lawsuits brought against it. In the past, the industry has successfully defended itself against claims that cigarettes cause cancer and other health problems. The industry's defense has been that individual users of the product are aware of the dangers because of health warnings on cigarette packs. They argue individuals can quit smoking.
But the New Orleans suit represents a new attack on the industry. Lawyers argued the industry never revealed that tobacco products are addictive.