Still fighting after all those billions

Three years after landmark tobacco settlement, mixed record of success.

The radio ad starts with a teenager calling Lorillard, the tobacco company.

The boy has a business proposition: He's a dog walker, and his dogs frequently do what dogs will do. Instead of his charges watering fire hydrants, however, the boy wants to sell some of the canine output to the company, which uses urea to boost the nicotine performance in its cigarettes.

"I've got Chihuahua, golden retriever," the caller says. The company's consumer department quickly hangs up.

That national spot is among a handful that irritated Lorillard so much it recently brought a lawsuit against the ad's producer, the American Legacy Foundation, which has sued back. Ironically, Legacy receives some of its funding from Lorillard as part of the landmark $246 billion settlement reached between the state attorneys general and the tobacco companies in 1998.

The litigation, in a way, is emblematic of how the participants feel about the settlement itself: Three years after one of the biggest legal settlements in US history, both sides are still fighting. Hardly anyone is happy.

To be sure, elements of the accord have had an impact. Smoking among teens, for instance, has fallen to its lowest levels in 10 years. But companies are also spending more money on marketing – including in venues like convenience stores, where teens hang out.

How the settlement is viewed is important because it could influence the momentum in the Justice Department's own lawsuit against the tobacco companies. Last December, the government listed new restrictions it would ask a federal judge to impose if the suit is successful. These included changes in the graphics on cigarette boxes, the elimination of "low tar" and "light" categories, and restrictions on marketing promotions.

"The Justice Department can not only seek substantial monetary damages, but if they are fully successful can force the industry to dramatically change its ways," says Cliff Douglas, a lawyer and president of Tobacco Control Law and Policy Consulting, based in Ann Arbor, Mich.

Back in 1998, public-health advocates such as Mr. Douglas hoped the states' settlement would force the industry to change its ways. They've been disappointed not only with that, but also with the way most of the states have handled the settlement. Studies show that only a small percentage of the funds sent to the states as part of the settlement actually goes toward reducing smoking. This coming fiscal year, most states, as part of their budget tightening, plan to reduce those funds even more.

Despite the problems, there is some evidence that the Master Settlement Agreement (MSA), as it's known, has been successful in cutting teen smoking. According to the University of Michigan's Monitoring the Future survey, smoking rates for US teens have dropped dramatically between 1996 and 2001.

A more expensive habit

Sharp price increases have been one of the reasons for the decline. Right after the MSA went into effect, the tobacco companies, in large part to pay for the settlement, raised the wholesale price of cigarettes from $1.25 per pack to $2.35 today.

At the same time, some states have kicked off major prevention programs for youths. One of the most remarkable has been in California, where youth smoking has dipped more than 40 percent since 1996.

Key to the California success are some hard-hitting ads, such as one that attacks Philip Morris's attempt to reinvent itself as a caring company. "If you can't tell the difference between the old Philip Morris company, don't worry! There isn't any!" says one radio spot.

But the tobacco companies themselves want some of the credit for the decline in youth smoking. They cite a reduction in the visible marketing of tobacco products. "There are no more billboards, brand logos on hats, T-shirts, bus stops, or taxis," says Brendan McCormick, a spokesman for Philip Morris. The company – the largest tobacco firm in the US – has also reduced its advertising in magazines and no longer places ads in publications like Rolling Stone.

Philip Morris is also is spending more than $100 million per year on youth antismoking ads and is funding "life skills" classes that teach kids how to avoid peer pressure and media influences. It is mailing more than 1 million brochures advising cigarette-using parents to talk to their kids about the dangers of smoking.

Contested claims

Public-health groups, however, bridle at ascribing any success to the industry. "There is absolutely no evidence that Philip Morris has contributed to the decline of tobacco use by children at all," says Matthew Myers, president of the Campaign for Tobacco-Free Kids in Washington. In fact, the Federal Trade Commission estimates the tobacco industry spent an estimated $8.2 billion on marketing in 1999, up from $6.7 billion the prior year.

Today, the companies spend more money on promotions, such as "buy one pack, get one free." They host parties around college campuses. "Their marketing has gone underground," says Cheryl Healton, president of the Legacy Foundation.

Ms. Healton intends to keep blasting away at the industry with new ads until her funding runs out in 2003. "Our ads are reducing youth smoking by a fairly big chunk," she says, noting that the University of Michigan included the foundation's ads as a reason kids have stopped smoking. She adds, "It was right after that report that Lorillard sued us."

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