August 17, 2006

Tobacco firms avoid stiff damages in U.S. case

By Peter Kaplan

WASHINGTON (Reuters) - A federal judge on Thursday ruled
that cigarette makers were liable for a decades-long conspiracy
to hide the dangers of smoking but declined to impose financial
penalties on the industry.

U.S. District Judge Gladys Kessler found that the
government had proved its case that accused cigarette makers of
a decades-long conspiracy to hide the dangers of smoking.

But Kessler said a previous ruling by an appeals court
prevented her from slapping the companies with monetary
penalties such as funding a large anti-smoking campaign, as the
government had sought.

"Cigarette smoking causes disease, suffering, and death.
Despite internal recognition of this fact, defendants have
publicly denied, distorted, and minimized the hazards of
smoking for decades," she said in the 1,653-page opinion.

She ordered the companies to make corrective statements
about the health effects and addictiveness of smoking, and
banned them from using terms describing cigarettes in ways that
convey health claims.

Targeted in the 1999 lawsuit were Altria Group Inc. and its
Philip Morris USA unit; Loews Corp.'s Lorillard Tobacco unit,
which has a tracking stock, Carolina Group; Vector Group Ltd.'s
Liggett Group; Reynolds American Inc.'s R.J. Reynolds Tobacco
unit and British American Tobacco Plc unit British American
Tobacco Investments Ltd.

Several tobacco stocks rose in extended trading after the
ruling came out. "Although they lost, they won. It's a victory
for the tobacco companies," said Tim Ghriskey, chief investment
officer at Solaris Asset Management.

The ruling was seen as the last major hurdle to be cleared
before Altria decides when it will spin off its Kraft Foods
Inc. business.

During an eight-month trial that ended in June 2005, the
government called scientists, economists and tobacco industry
whistle-blowers who described a decades-long campaign by
tobacco companies to deny or obscure the hazards of smoking --
even as its ill effects became increasingly clear.

Tobacco companies offered testimony from their own
scientists, economists and company executives. They denied any
conspiracy to promote smoking and said the government had no
grounds to pursue them after they drastically overhauled
marketing practices as part of a 1998 states' settlement.

Kessler ordered each company to post on its Web site all
documents it submitted to prosecutors in the case and
transcripts of letters and depositions of former employees
about the health impacts of cigarette smoking or research. The
material must remain on their Web sites until 2016.

In February 2005, the U.S. Court of Appeals for the
District of Columbia Circuit barred the government from seeking
$280 billion in past industry profits, depriving the government
of its biggest potential weapon in the case.

The appeals court said civil racketeering remedies must
focus on the prevention of future misconduct, not punishment of
past misdeeds.

Lawyers for the Justice Department eventually asked the
judge to require tobacco companies to fund a 10-year, $14
billion anti-smoking program if the government prevails.

But tobacco company lawyers argued proposals such as
requiring their clients to finance a stop-smoking program were
still beyond the bounds of the appeals court ruling.