UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 20, 1997
Date of Report (Date of earliest event reported)
RJR NABISCO HOLDINGS CORP.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-10215 13-3490602
(Jurisdiction of (Commission file number) (I.R.S. Employer
Incorporation or Identification No.)
Organization)
RJR NABISCO, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1-6388 56-0950247
(Jurisdiction of (Commission file number) (I.R.S. Employer
Incorporation or Identification No.)
Organization)
1301 Avenue of the Americas
New York, New York 10019
(212) 258-5600
(Address, including zip code, and telephone number,
including area code, of Registrants' principal
executive offices)
Item 5. Other Events.
Following several months of negotiations among tobacco companies,
state attorneys general, representatives of the public health community and
plaintiff's lawyers, on June 20, 1997, counsel representing R.J. Reynolds
Tobacco Company ("RJRT") and certain other parties signed a Memorandum of
Understanding (the "Memorandum") that sets forth concepts for federal
legislation and a contractual protocol to resolve a variety of litigation
and regulatory issues concerning tobacco. The Memorandum is subject to any
necessary approvals by the various states and the Boards of Directors of
RJRT and the other participating tobacco companies. The related RJRT press
release and the Memorandum are attached as Exhibits 1 and 2, respectively.
RJRT can provide no assurance that legislation to implement the
Memorandum will be enacted or that it will be enacted without modification
that is materially adverse to the tobacco industry, particularly in light of
the complex legal and factual issues involved and the need to reconcile the
views of many competing interests. It is not certain that any proposed
legislation that emerges from this process will be acceptable to RJRT. If
enacted, the legislation could face challenges on the grounds, among others,
that the federal government lacks the authority to regulate the tobacco
industry or limit its liability in the manner contemplated by the Memorandum.
Regardless of the legislative outcome, the negotiation and signing of the
Memorandum could affect other federal, state and local regulation of the
tobacco industry, alter the climate for pending litigation against RJR Nabisco
Holdings Corp. ("Holdings"), RJR Nabisco, Inc. ("RJRN"), RJRT and other
tobacco companies and affect the number of new smoking and health claims filed
against the industry.
The Memorandum requires the tobacco companies to make an initial $10
billion payment and subsequent annual multi-billion dollar payments. Based on
discussions with other manufacturers who were participants in the negotiations
which led to the Memorandum, RJRT believes that its share of the initial
payment will be approximately $600 million and that subsequent payments will
be allocated within the industry based on market share. However, the
financial effects of this legislation and the related contractual protocol are
difficult to predict. They depend, among other things, on (i) the amount and
timing of the payments actually required of RJRT by the legislation; (ii) the
means used to finance these payments; (iii) the impact of increased cigarette
prices and other aspects of the legislation and the contractual protocol on
domestic cigarette consumption; (iv) the effect of the legislation and the
contractual protocol on the consumption of tobacco products and the regulatory
and litigation environment outside the United States; (v) their effect, if
any, on public attitudes toward smoking and the tobacco industry; and (vi)
their impact on RJRT's competitive position in the tobacco industry.
Despite these uncertainties, RJRN believes that implementation of the
Memorandum would increase the costs and reduce the consumption of RJRT's
tobacco products in the United States and that it could have a significant
negative effect on the business of RJRT and the stated financial position of
RJRN and RJRT. On the other hand, the proposals contemplated by the
Memorandum offer a measure of relief from certain litigation that could
otherwise materially affect the results of operations or cash flows of RJRN in
particular quarterly or annual periods or its financial condition. In
evaluating any legislation to resolve tobacco issues, RJRN and RJRT will
continue to weigh carefully the potential benefits, principally greater
regulatory and litigation certainty and a reduction in aggregate contingency
risk, against the resulting monetary, regulatory and other costs.
Item 7. Financial Statements and Exhibits.
Exhibits
(1) Press Release of R.J. Reynolds Tobacco Company, Philip Morris
Incorporated, Brown and Williamson Tobacco Corporation and
the Lorillard Tobacco Company dated June 20, 1997.
(2) Memorandum of Understanding dated June 20, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
RJR NABISCO HOLDINGS CORP.
RJR NABISCO, INC.
(Registrants)
By: /s/ Robert F. Sharpe, Jr.
-----------------------------------
Robert F. Sharpe, Jr.
Senior Vice President and
General Counsel
Date: June 24, 1997
EXHIBIT 1
FOR IMMEDIATE RELEASE Contact: Lance Morgan
FRIDAY, JUNE 20, 1997 Scott Williams
202/822-8766
WASHINGTON D.C. - - The following statement regarding the tobacco negotiations
was issued today by Phillip Morris Incorporated; R. J. Reynolds Tobacco
Company; Brown and Williamson Tobacco Corporation; and the Lorillard Tobacco
Company:
"Twelve weeks ago, at the beginning of the discussions with State Attorneys
General, the public health community, plaintiffs' lawyers and the tobacco
industry, few could have imagined, much less predicted, the level of agreement
that has been achieved.
"The proposal as outlined by the White House and members of Congress
represents a carefully developed consensus on how to best resolve public health
concerns immediately, particularly regarding youth access to, and usage of,
tobacco products; to permit our companies to operate in a more stable and
predictable environment; and to preserve the rights of adults who choose to use
tobacco products.
"Negotiations of this size and scope create compromise, not perfection. No one
side achieves everything it seeks. In this context, the proposal is a bitter
pill because our companies have made concessions that were extremely
difficult. But on balance this plan is preferable to the continuation of a
decades-long controversy that has failed to produce a constructive outcome for
anyone.
"In order to achieve a resolution in the public interest, the tobacco
companies have agreed to support, subject to approval by our boards of
directors, a package which includes certain legislative and regulatory
provisions with which we do not necessarily agree. Nevertheless, the
companies are willing to accept legislation incorporating these provisions in
the interest of reaching an overall resolution of the important issues facing
the industry and the nation.
"We hope that once the White House and the Congressional leadership have
completed their reviews, legislation will move forward, bringing with it a new
era of cooperation and tolerance with regard to tobacco issues."
EXHIBIT 2
Memorandum of Understanding
The undersigned counsel, on behalf of their respective clients,
hereby enter into this Memorandum of Understanding to support the adoption of
federal legislation, and any necessary ancillary undertakings, incorporating
the features described in the proposed resolution attached hereto as
Exhibit A.
In order to achieve a resolution in the public interest, the
tobacco companies have agreed to support, subject to approval by their boards
of directors, a package which includes certain legislative and regulatory
provisions with which they do not necessarily agree. Nevertheless, the
companies are willing to accept legislation incorporating these provisions in
the interests of reaching an overall resolution of the important issues facing
the industry and the nation.
This Memorandum of Understanding is subject to review of the
final terms of any such legislation and related documents and any necessary
approvals by the various States and the boards of directors of the companies.
June 20, 1997
Washington, D.C.
PHILIP MORRIS INCORPORATED STATE OF ARIZONA
by: /s/ Herbert M. Wachtell by: /s/ J. Grant Woods
------------------------------ ---------------------------------
Herbert M. Wachtell J. Grant Woods, Attorney General
by: /s/ Robert B. Fiske, Jr. STATE OF CONNECTICUT
------------------------------
Robert B. Fiske, Jr.
by: /s/ Meyer G. Koplow by: /s/ Richard Blumenthal
------------------------------ ---------------------------------
Meyer G. Koplow Richard Blumenthal,
Attorney General
R.J. REYNOLDS TOBACCO COMPANY STATE OF FLORIDA
by: /s/ Arthur F. Golden by: /s/ Robert A. Butterworth
------------------------------ ---------------------------------
Arthur F. Golden Robert A. Butterworth,
Attorney General
BROWN & WILLIAMSON TOBACCO STATE OF MISSISSIPPI
CORPORATION
by: /s/ Arthur F. Golden by: /s/ Michael C. Moore
------------------------------ ---------------------------------
Arthur F. Golden Michael C. Moore, Attorney General
LORILLARD TOBACCO COMPANY STATE OF NEW YORK
by: /s/ Herbert M. Wachtell by: /s/ J. Dennis C. Vacco
------------------------------ ---------------------------------
Herbert M. Wachtell Dennis C. Vacco, Attorney General
UNITED STATES TOBACCO COMPANY STATE OF WASHINGTON
by: /s/ Richard H. Verheij by: /s/ Christine O. Gregoire
------------------------------ ---------------------------------
Richard H. Verheij Christine O. Gregoire,
Attorney General
CASTANO PLAINTIFFS LITIGATION
COMMITTEE
by: /s/ John P. Coale
-----------------------------
John P. Coale
by: /s/ Stanley M. Chesley
-----------------------------
Stanley M. Chesley
by: /s/ Scott E. Baldwin
-----------------------------
Scott E. Baldwin
by: /s/ Calvin C. Fayard
-----------------------------
Calvin C. Fayard
by: /s/ Hugh Rodham
-----------------------------
Hugh Rodham
by: /s/ Charles S. Zimmerman
-----------------------------
Charles S. Zimmerman
by: /s/ Russell Herman
-----------------------------
Russell Herman
by: /s/ Robert Redfearn
-----------------------------
Robert Redfearn
by: /s/ Will Kemp
-----------------------------
Will Kemp
FOR SETTLEMENT DISCUSSION
PURPOSES ONLY 6/20/97 3:00 p.m.
PROPOSED RESOLUTION
PREAMBLE
This legislation would mandate a total reformation and
restructuring of how tobacco products are manufactured, marketed and
distributed in this country. The nation can thereby see real and swift
progress in preventing underage use of tobacco, addressing the adverse health
effects of tobacco use and changing the corporate culture of the tobacco
industry.
The Food and Drug Administration ("FDA") and other public health
authorities view the use of tobacco products by our nation's children as a
"pediatric disease" of epic and worsening proportions that results in new
generations of tobacco-dependent children and adults. There is also a
consensus within the scientific and medical communities that tobacco products
are inherently dangerous and cause cancer, heart disease and other serious
adverse health effects.
The FDA and other health authorities have concluded that
virtually all new users of tobacco products are under legal age. President
Clinton, the FDA, the Federal Trade Commission ("FTC"), state Attorneys
General and public health authorities all believe that tobacco advertising and
marketing contribute significantly to the use of nicotine-containing tobacco
products by adolescents. These officials have concluded that, because past
efforts to restrict advertising and marketing have failed to curb adolescent
tobacco use, sweeping new restrictions on the sale, promotion and distribution
of such products are needed.
Until now, federal and state governments have lacked many of
the legal means and resources they need to address the societal problems
caused by the use of tobacco products. These officials have been armed only
with crude regulatory tools which they view as inadequate to achieve the
public health objectives with which they are charged.
This legislation greatly strengthens both the federal and state
governments' regulatory arsenal and furnishes them with additional resources
needed to address a public health problem that affects millions of Americans,
including most importantly underage tobacco use. Further, it is contemplated
that certain of the obligations of the tobacco companies will be implemented
by a binding, enforceable contractual protocol.
The legislation reaffirms individuals' right of access to the
courts, to civil trial by jury and to full compensatory damages. Resolution
through the Act of potential punitive damages liability of the tobacco
industry for past conduct is only made in the context of the comprehensive
settlement proposed by the legislation. It is not intended to have
precedential effect, nor does it express any position adverse to the
imposition of punitive damages in general or as applied to any other
specific industry, case, controversy or product and does not provide any
authority whatsoever regarding the propriety of punitive damages.
Among other things, the new regime would:
o Confirm FDA's authority to regulate tobacco products under
the Food, Drug and Cosmetic Act, making FDA not only the
preeminent regulatory agency with respect to the
manufacture, marketing and distribution of tobacco products
but also requiring the tobacco industry to fund FDA's
oversight out of on-going payments by the manufacturers
pursuant to the new regime ("Industry Payments").
o Go beyond FDA's current regulations to ban all outdoor
tobacco advertising and to eliminate cartoon characters and
human figures, such as Joe Camel and the Marlboro Man, two
tobacco icons which the public health community has long
assailed as advertising appealing to our nation's youth.
o Impose and provide funding out of the Industry Payments for
an aggressive federal enforcement program, including a State-
administered retail licensing system, to stop minors from
obtaining tobacco products, while in no way preventing the
States from enacting additional measures.
o Ensure that the FDA and the States have the regulatory
flexibility to address issues of particular concern to
public health officials, such as youth tobacco usage and
tobacco dependence.
o Subject the tobacco industry to severe financial surcharges
in the event underage tobacco use does not decline radically
over the next decade.
o Empower the federal government to set national standards
controlling the manufacturing of tobacco products and the
ingredients used in such products.
o Provide new and flexible regulatory enforcement powers to
ensure that the tobacco industry works to develop and
introduce "less hazardous tobacco products," including,
among other things, vesting FDA with the power to regulate
the levels of nicotine in tobacco products.
o Require the manufacturers of tobacco products to disclose all
previously non-public internal laboratory research and all
new internal laboratory research generated in the future
relating to the health effects or safety of their products.
o Establish a minimum federal standard with tough restrictions
on smoking in public places with enforcement funding from
the Industry Payments, while preserving the authority of
state and local governments to enact even more severe
standards.
o Authorize and fund from Industry Payments a $500 million
annual, national education-oriented counter-advertising and
tobacco control campaign seeking to discourage the
initiation of tobacco use by children and adolescents and to
encourage current tobacco product users to quit use of the
products.
o Authorize and fund from Industry Payments the annual payment
to all States of significant, on-going financial
compensation to fund health benefits program expenditures
and to establish and fund a tobacco products liability
judgments and settlement fund.
o Authorize and fund from Industry Payments a nationwide
program, administered through State governments and the
private sector of smoking cessation.
The sale of tobacco products to adults would remain legal but
subject to restrictive measures to ensure that they are not sold to underage
purchasers. These measures respond directly to concerns voiced by federal and
state public health officials, the public health community and the public at
large that the tobacco industry should be subject to the strictest scrutiny
and regulatory oversight. This statute imposes regulatory controls, including
civil and criminal penalties, equal to, and in many respects exceeding, those
imposed on other regulated industries. Further, it imposes on tobacco
manufacturers the obligation to provide funding from Industry Payments for an
array of public health initiatives.
The sale, distribution, marketing, advertising and use of
tobacco products are activities substantially affecting interstate commerce.
Such products are sold, marketed, advertised and distributed in interstate
commerce on a nationwide basis and have a substantial effect on the nation's
economy. The sale, distribution, marketing, advertising and use of such
products are also activities substantially affecting interstate commerce by
virtue of the health care and other costs that federal and State governmental
authorities have attributed to usage of tobacco products.
Various civil actions are pending in state and federal courts
arising from the use, marketing or sale of tobacco products. Among these
actions are cases brought by some 40 state Attorneys General, cases brought by
certain cities and counties, the Commonwealth of Puerto Rico, and other
third-party payor cases seeking to recover monies spent treating
tobacco-related diseases and for the protection of minors and consumers. Also
pending in courts throughout the United States are various private putative
class action lawsuits brought on behalf of individuals claiming to be
dependent upon and injured by tobacco products. Additionally, a multitude of
individual suits have been filed against the tobacco products manufacturers
and/or their distributors, trade associations, law firms and consultants.
All of these civil actions are complex, slow-moving, expensive
and burdensome, not only for the litigants but also for the nation's state and
federal judiciaries. Moreover, none of those litigations has to date resulted
in the collection of any monies to compensate smokers or third-party payors.
Only national legislation offers the prospect of a swift, fair, equitable and
consistent result that would serve the public interest by (1) ensuring that a
portion of the costs of treatment for diseases and adverse health effects
linked to the use of tobacco products is borne by the manufacturers of these
products, and (2) restricting nationwide the sale, distribution, marketing and
advertising of tobacco products to persons of legal age. The unique position
occupied by tobacco in the nation's history and economy, the magnitude of
actual and potential tobacco-related litigation, the need to avoid the cost,
expense, uncertainty and inconsistency associated with such protracted
litigation, the need to limit the sale, distribution, marketing and
advertising of tobacco products to persons of legal age, and the need to
educate the public, especially young people, of the health effects of using
tobacco products all dictate that it would be in the public interest to enact
this legislation to facilitate a resolution of the matters described.
Public health authorities believe that the societal benefits of
this legislation, in human and economic terms, would be vast. In particular,
FDA has found that reducing underage tobacco use by 50% "would prevent well
over 60,000 early deaths." FDA has estimated that the monetary value of its
present regulations will be worth up to $43 billion per year in reduced
medical costs, improved productivity and the benefit of avoiding the premature
death of loved ones. This statute, which extends far beyond anything FDA has
previously proposed or attempted, can be expected to produce human and
economic benefits many times greater than such existing regulations.
As part of this settlement, the tobacco companies recognize the
historic changes that will be occurring to their business. They will fully
comply with increased federal regulation, focus intense efforts on dramatic
reductions in youth access and youth tobacco usage, recognize that the
regulatory scheme encourages the development of products with reduced risk and
acknowledge the predominant public health positions associated with the use of
tobacco products.
[Source/precedent: FDA Rule]
Contents
page
Preamble ...................................................................1
Title I: Reformation of the Tobacco Industry................................8
A. Restrictions on Marketing and Advertising..........................8
B. Warnings, Labeling and Packaging...................................9
C. Restrictions on Access to Tobacco Products........................11
D. Licensing of Retail Tobacco Product Sellers.......................12
E. Regulation of Tobacco Product Development and Manufacturing.......13
F. Non-tobacco Ingredients...........................................19
G. Compliance and Corporate Culture..................................21
H. Effective Dates...................................................23
Title II: "Look Back" Provisions/State Enforcement Incentives..............24
Title III: Penalties and Enforcement; Consent Decrees; Non-Participating
Companies.......................................................26
A. Penalties and Enforcement.........................................26
B. Consent Decrees...................................................27
C. Non-participating Companies.......................................28
Title IV: Nationwide Standards to Minimize Involuntary Exposure to
Environmental Tobacco Smoke......................................30
Title V: Scope and Effect..................................................32
A. Scope of FDA Authority............................................32
B. State Authority...................................................32
Title VI: Programs/Funding.................................................34
A. Up Front Commitment.............................................. 34
B. Base Annual Payments..............................................34
C. Applicability.....................................................35
D. Tax Treatment.....................................................35
Title VII: Public Health Funds From Tobacco Settlement As Recommended by
The Attorneys General For Consideration by the President and the
Congress........................................................36
Title VIII: Civil
Liability......................................................39
A. General...........................................................39
B. Provisions as to Civil Liability for Past Conduct.................39
C. Provisions as to Civil Liability for Future Conduct...............42
Title IX: Board Approval...................................................42
Appendices:
Appendix I: Warnings in Advertisements
Appendix II: Retail Tobacco Product Seller Penalties
Appendix III: Application to Indian Tribes
Appendix IV: Industry Associations
Appendix V: "Look Back"
Appendix VI: State Enforcement Incentives
Appendix VII: Restrictions on Point of Sale Advertising
Appendix VIII: Public Disclosure of Past and Future Tobacco Industry Documents
and Health Research
TITLE I: Reformation Of The Tobacco Industry
Title I of the legislation would incorporate and expand upon FDA's recent
regulation of nicotine-containing tobacco products. The following rules would
apply to all tobacco products sold in the U.S. (including all its territories
and possessions, as well as duty-free shops within U.S. borders). The new
regime would be allowed to operate as described below for five years. FDA
would have authority to make revisions even within this period under
extraordinary circumstances. Thereafter, the FDA would be authorized to review
and revise the rules under applicable Agency procedures.
A. Restrictions on Marketing and Advertising
The advertising and marketing of tobacco products would be drastically
curtailed, including in ways that exceed the FDA rule as originally
promulgated and in ways that have previously been challenged on First
Amendment grounds. As in the FDA rule, the new regime would:
o Prohibit the use of non-tobacco brand names as brand names of
tobacco products except for tobacco products in existence as
of January 1, 1995 (897.16(a))(1)
o Restrict tobacco product advertising to FDA specified media
(897. 30(a)(1)-(2))
o Restrict permissible tobacco product advertising to black
text on a white background except for advertising in
adult-only facilities and in adult publications
(897.32(a)-(b))
o Require cigarette and smokeless tobacco product
advertisements to carry the FDA-mandated statement of
intended use ("Nicotine Delivery Device") (897.32(c))
o Ban all non-tobacco merchandise, including caps, jackets or
bags bearing the name, logo or selling message of a tobacco
brand (897.34(a))
o Ban offers of non-tobacco items or gifts based on proof of
purchase of tobacco products (897.34(b))
o Ban sponsorships, including concerts and sporting events, in
the name, logo or selling message of a tobacco brand
(897.34(c))
- -----------
(1) The citations in this and in the next section are to Part 897 of the
FDA's tobacco regulations, 61 Fed. Reg. 44396 (August 28, 1996).
Further, building on and going beyond the FDA rule, the new regime would:
o Ban the use of human images and cartoon characters -- thereby
eliminating Joe Camel and the Marlboro Man -- in all tobacco
advertising and on tobacco product packages.
o Ban all outdoor tobacco product advertising, including in
enclosed stadia as well as brand advertising directed
outside from a retail establishment (modifies 897.30(a)(1)
and extends 897.30(b)).
o Prohibit tobacco product advertising on the Internet unless
designed to be inaccessible in or from the United States.
o Establish nationwide restrictions in non adult-only
facilities on point of sale advertising with a view toward
minimizing the impact of such advertising on minors. These
provisions, which are detailed in Appendix Vll, restrict
point of sale advertising that was otherwise permitted in
retail establishments by the FDA rule.
o Ban direct and indirect payments for tobacco product
placement in movies, television programs and video games.
o Prohibit direct and indirect payments to "glamorize" tobacco
use in media appealing to minors, including recorded and
live performances of music.
o Without limiting the FDA's normal rulemaking authority in
this area, require that the use, in both existing and future
brand styles, of words currently employed as product
descriptors (e.g., "light" or "low tar") be accompanied by a
mandatory disclaimer in advertisements (e.g., "Brand X not
shown to be less hazardous than other cigarettes");
exemplars of all new advertising and tobacco products
labeling shall be submitted to FDA concurrently with their
introduction into the marketplace for FDA's on-going review.
[Source/precedent: FDA Rule; 21 C.F.R. 101.70]
B. Warnings, Labeling and Packaging
The federally-mandated warning labels on cigarettes were last changed in 1984.
Since then a number of countries, including Canada and members of the European
Union, have imposed new warning labels. Further, the Federal Trade
Commission's methodology to measure the "tar" and nicotine yields of
cigarettes has been criticized as producing misleading information.
1. The legislation, through amendments to the Federal Cigarette
Labeling and Advertising Act and the Comprehensive Smokeless
Tobacco Health Education Act, would mandate new rotating
warnings, to be introduced concurrently into the
distribution chain on all tobacco product packages and
cartons, and to be rotated quarterly in all advertisements.
For cigarettes, the warnings would be:
o "WARNING: Cigarettes are addictive"
o "WARNING: Tobacco smoke can harm your children"
o "WARNING: Cigarettes cause fatal lung disease"
o "WARNING: Cigarettes cause cancer"
o "WARNING: Cigarettes cause strokes and heart disease"
o "WARNING: Smoking during pregnancy can harm your baby"
o "WARNING: Smoking can kill you"
o "WARNING: Tobacco smoke causes fatal lung disease in non
smokers"
o "WARNING: Quitting smoking now greatly reduces serious risks
to your health"
For smokeless tobacco products, the warnings would be:
o "WARNING: This product can cause mouth cancer"
o "WARNING: This product can cause gum disease and tooth loss"
o "WARNING: This product is not a safe alternative to
cigarettes"
o "WARNING: Smokeless tobacco is addictive"
For cigarettes, the warnings would occupy 25% of the front panel of the
package (including packs and cartons) and would appear on the upper portion
thereof. The legislation would contain a grandfather provision for
existing brands with flip-top boxes comprising less than 25% of the front
panel. For smokeless tobacco products, the warnings would appear on the
principal display panel (e.g., a band around the can for moist smokeless
tobacco products) and would occupy 25% of the display panel. The warnings
would be printed in line with current Canadian standards (e.g., 17 point
type with appropriate adjustments depending on length of required text) and
in an alternating black on white and white on black format. The size and
placement of warnings in advertisements would follow the requirements set
forth in the existing United Kingdom standards. As described in Appendix
I, the warning text and, where relevant, "tar" and nicotine (or other
constituent) yield information would occupy 20% of press advertisements.
Cigarette and smokeless tobacco product packages would also carry the FDA
mandated statement of intended use ("Nicotine Delivery Device") on the side of
pack.
2. The FDA would be required to promulgate a rule governing the
testing, reporting and disclosure of tobacco smoke
constituents that the Agency determines the public should be
informed of to protect public health, including, but not
limited to "tar," nicotine and carbon monoxide. This
authority would be transferred from the FTC and would
include the authority to require label and advertising
disclosures relating to "tar" and nicotine, as well as
disclosures by other means relating to other constituents.
[Source/precedent: Canadian warning regulations; FDA Rule; FDCA, 21
U.S.C. Sec. 360h, with conforming amendment in light of FCLAA]
C. Restrictions on Access to Tobacco Products
Preventing youth access to tobacco products is a major objective of this
legislation and the FDA Rule. Without preventing state and local governments
from imposing stricter measures, the legislation would incorporate every
access restriction of the FDA Rule and more. As in the FDA Rule, the
legislation would:
o Set a minimum age of 18 to purchase tobacco products
(897.14(a))
o Require retailers to check photo identification of anyone
under 27 (897.14(b)(1)-(2))
o Establish the basic requirement of face-to-face transactions
for all sales of tobacco products (897.14(c))
o Ban the sale of tobacco products from opened packages
(897.14(d))
o Establish a minimum package size of 20 cigarettes (897.16(b))
o Impose retailer compliance obligations to ensure that all
self-service displays, advertising, labeling and other items
conform with all applicable requirements (897.14(e))
o Ban the sampling of tobacco products (897.16(d))
o Ban the distribution of tobacco products through the mail,
including redemption of coupons, except for sales subject to
proof of age, with a review after 2 years by FDA to
determine if minors are obtaining tobacco products through
the mail (goes beyond 897.16(c)(2)(i))
Building on and going beyond the FDA Rule, the legislation would:
o Ban all sales of tobacco products through vending machines
(goes beyond 897.16(c)(2)(ii))
o Ban self-service displays of tobacco products except in
adult-only facilities. In all other retail outlets, tobacco
products must be placed out of reach of consumers (i.e.,
behind the counter or under lock-and-key) or, if on the
counter, not visible or accessible to consumers (goes
beyond (897.16(c)(2)(ii))
[Source/precedent: FDA Rule]
D. Licensing of Retail Tobacco Product Sellers
The legislation would mandate minimum federal standards for a retail licensing
program that the federal government and state and local authorities would
enforce through funding provided by the Industry Payments. Any entity that
sells directly to consumers -- whether a manufacturer, wholesaler, importer,
distributor or retailer -- would require a license.
Elements of the licensing program would include:
o Mandating compliance with the Act as a condition to obtain
and hold a license
o Penalties for violations (See Appendix II)
o Suspension or revocation of licenses (on a site-by-site
basis) for certain violations (see Appendix II)
o A requirement that distribution of tobacco products for
resale to consumers be made only to licensed entities
o Licensing fees to cover the administrative costs of issuing
state licenses (all other costs covered as noted above)
o Comparable federal licensing programs (with federal
enforcement) for military facilities, U.S. government
installations abroad, and other U.S. territories and
possessions not otherwise under the jurisdiction of the
States (including duty-free shops within U.S. borders)
o Comparable licensing programs to govern tobacco product
sales on Indian lands (see Appendix III)
[Source/precedent: Various state laws governing sales of tobacco products and
alcoholic beverages]
E. Regulation of Tobacco Product Development and Manufacturing
This legislation, for the first time, would impose a regulatory regime to
govern the development and manufacturing of cigarettes and smokeless tobacco
products, including FDA approval of the ingredients used in such products and
imposition of standards for reducing the level of certain constituents,
including nicotine.
Elements of the regulatory regime would include:
1. Tobacco products shall have the same definition as contained
in the FDA Rule. Jurisdiction shall also cover Roll Your
Own, Little Cigars, Fine Cut, etc.
2. Tobacco will continue to be categorized as a "drug" and a
"device" under the Food, Drug and Cosmetic Act ("FDCA"). The
Agency's authority to regulate the products as "restricted
medical devices" will be explicitly recognized and tobacco
products will be classified as a new subcategory of a Class
II device pursuant to 21 U.S.C. section 360c. FDCA shall
apply to these products as provided by the Act and the
amendments to FDCA contained herein.
3. The Class II classification shall permit FDA to require
product modification of tobacco products, including the
regulation of nicotine content, and shall provide that the
sale of tobacco products to adults in the form that conforms
to Performance Standards established for tobacco products
pursuant to Section 514 ("Section 514") of the FDCA (21
U.S.C. Section 360d) shall be permitted notwithstanding 21
U.S.C. Sections 360f, 352(j) and 360h(e)
4. Reduced Risks Products
Products sold that an objective, reasonable consumer would believe pose less
of a health risk:
o Tobacco product manufacturers will be barred from making
claims that could reasonably be interpreted to state or
imply a reduced health risk unless the manufacturer
demonstrates to FDA that the product scientifically does in
fact "significantly reduce the risk to health" from ordinary
tobacco products. Currently employed product descriptors
such as "light" and "low tar" will be regulated as described
in l(A) above.
o FDA would have to approve all health claims (direct or
implied), as well as the content and placement of any such
claims in advertisements, to prevent the public from being
misled and to prevent the advertisement from being used to
expand, or prevent the contraction of, the marketplace.
o For "less hazardous tobacco products", FDA will be
authorized to permit scientifically-based specific health
claims and to permit exceptions to the advertising
restrictions that apply to other products if FDA determines
that such advertising would reduce harm and promote the
public health. The FDA will promulgate a rule to govern how
these determinations will be made.
o The manufacturers will be required to notify FDA of any
technology that they develop or acquire and that reduces the
risk from tobacco products and, for a commercially
reasonable fee, to cross license all such technology, but
only to those companies also covered by the same
obligations. Procedural protections will be built in to
resolve license fee disputes, if the private parties cannot
agree among themselves first. If the technology reported to
the FDA is in the early development stages, the manufacturer
will be provided confidentiality protection during the
development process.
o The Agency shall also have the authority to mandate the
introduction of "less hazardous tobacco products" that are
technologically feasible, after a formal rule making subject
to the Administrative Procedures Act ("APA"), with the right
of judicial review. In doing so, the Agency shall have the
authority to mandate that a manufacturer subject to this Act
who owns such technology (at such manufacturer's election)
either introduce such products, or, at a commercially
reasonable market rate, license such technology to a
manufacturer who agrees to bring the technology to market in
a reasonable time frame. In the event that no manufacturer or
licensee introduces such "less hazardous tobacco products,"
within a reasonable time frame set by FDA, then the U.S.
Public Health Service may produce either itself, or through
a licensing arrangement, any such product.
o The goal of any rule mandating the introduction into the
marketplace of "less hazardous tobacco products" for which
the technology exists is to guarantee that a mechanism
exists to ensure that products which appear to hold out the
hope of reducing risk are actually tested and made available
in the marketplace and not held back.
5. Performance Standards
To further the public health, to promote the production of "reduced risk"
tobacco products, and to minimize the harm to consumers of tobacco products by
insuring that the best available, feasible safety technology becomes the
industry standard, FDA will have the authority to promulgate Performance
Standards pursuant to Section 514 that require the modification of tobacco
products to reduce the harm caused by those products (including the components
that produce drug dependence), provided that the standard shall not require
the prohibition on the sale to adults of traditional tobacco products in the
basic form as described in the August 28, 1996 FDA Rule at 61 Fed. Reg. at
44616 (to be codified at 21 C.F.R. Section 897.3). Specifically:
A. For a period of no fewer than twelve years following the
effective date of the Act, the product Performance Standards
will be governed by the following: The Agency shall be
permitted to adopt performance standards that require the
modification of existing tobacco products, including the
gradual reduction, but not the elimination, of nicotine
yields, and the possible elimination of other constituents
or other harmful components of the tobacco product, based
upon a finding that the modification: (a) will result in a
significant reduction of the health risks associated with
such products to consumers thereof, (b) is technologically
feasible, and (c) will not result in the creation of a
significant demand for contraband or other tobacco products
that do not meet the product safety standard. In determining
the risk of the demand for a market in contraband products,
the FDA shall take into account the number of dependent
tobacco product users and the availability, or lack thereof,
of alternative products then on the market and such other
factors as the Agency may deem relevant.
The authority to require such product modification can be
exercised upon a showing of "substantial evidence," based
upon an administrative record developed through a formal
rule making subject to the Administrative Procedures Act,
with the right of judicial review, and any such
modification shall be subject to the current procedures
of the Regulatory Reform Act of 1996 to provide time and
a process for Congress to intervene should it so choose.
In the event a party subsequently files a petition
seeking an administrative review of whether a
modification has, in fact, resulted in the creation of a
significant demand for contraband or other tobacco
products that do not meet the safety standard and FDA
denies the petition, the petitioner shall have the right
to seek judicial review of the denial of the petition.
Additionally:
o Within one year of the effective date of this Act, the
FDA shall establish a Scientific Advisory Committee to
examine and determine the effects of the alteration of
nicotine yield levels and to examine and determine
whether there is a threshold level below which
nicotine yields do not produce drug dependence and, if
so, to determine that level, and also review any other
safety, dependence or health issue so designated by
FDA.
o Separate from and without detracting from the Agency's
authority under the requirements of the Section 514
Performance Standard noted above, effective three years
from the date of enactment of this Act, no cigarette
shall be sold in the United States which exceeds a 12
mg "tar" yield, using the testing methodology now
being used by the Federal Trade Commission.
B. After the initial twelve year period, the Agency will be
permitted to set product safety standards that go beyond the
standards it is authorized to set pursuant to the above noted
provisions and, if it does so, any such product Performance
Standards shall be governed by the following: The Agency
will be permitted to require the alteration of tobacco
products then being marketed, including the elimination of
nicotine and the elimination of other constituents or other
demonstrated harmful components of the tobacco product,(1)
based upon a finding that: (a) the safety standard will
result in a significant overall reduction of the health
risks to tobacco consumers as a group,(2) (b) the
modification is technologically feasible, and (c) the
modification will not result in the creation of a
significant demand for contraband or other tobacco products
that do not meet the safety standard. In determining the
overall health benefit of a change, the Agency shall
consider the number of dependent tobacco users then in
existence, the availability and demonstrated market
acceptance of alternate products then on the market, and the
effectiveness of smoking cessation techniques and devices
then on the market and such other factors as the Agency may
deem relevant.
Given the significance of such an action, the Agency will be
permitted to require the elimination of nicotine or take
such other action that would have an effect comparable to
the elimination of nicotine based upon a "preponderance of
the evidence" pursuant to, at a manufacturer's election, a
Part 12 hearing, or notice and comment rule making, with a
right of judicial review. Any such action shall be phased
in, and no such phase-in shall begin in less than two years,
to permit time for a meaningful Congressional review
pursuant to the current procedures of the Regulatory Reform
Act of 1996. In the event a party subsequently files a
petition seeking an administrative review of whether a
modification has, in fact, resulted in the creation of a
significant demand for contraband or other tobacco products
that do not meet the safety standard and the FDA denies the
petition, the petitioner shall have the right to seek
judicial review of the denial of the petition.
In any judicial review, the deference accorded to the
Agency's findings shall depend upon the extent to which the
matter at issue is then within the Agency's field of
expertise.
6. Manufacturing Oversight
The legislation would subject tobacco product manufacturers to good
manufacturing practice standards ("GMPs") comparable to those applicable to
medical device manufacturers, food companies and other FDA regulated
(1) The elimination of nicotine or other harmful constituent
shall not be deemed to violate the prohibition on the sale
of traditional tobacco products to adults, even if it
results in a reduction of the number of the consumers who
use the tobacco products then remaining on the market.
(2) This includes the reduction in harm which will result
from decreased drug dependence from the reduction and/or
elimination of nicotine from (a) those who continue to use
tobacco products, but less often, and (b) those who stop
using tobacco products.
industries, but tailored specifically to tobacco products. In this regard
there would be:
o Implementation of a quality control system (e.g., to prevent
contamination)
o Inspection of tobacco product materials (e.g., to ensure
compliance with quality standards)
o Requirements for proper handling of finished product
o Tolerances for pesticide chemical residues in or on
commodities in the possession of the manufacturer; existing
EPA authority and oversight is retained
o Inspection authority comparable to FDA's authority over
other FDA regulated products, including the ability to enter
manufacturing plants and demand certain records
o Record keeping and reporting requirements
Tobacco farmers will face no greater regulatory burden than the producers of
other raw products regulated by the federal government.
[Source/precedent: FDA Rule; FDCA, 21 U.S.C. Sections 346a; 360]
7. Access to Company Information
o The Act would ensure that previously non-public or
confidential documents from the files of the tobacco
industry -- including internal health research documents --
are disclosed to FDA, private litigants and the public. The
details of the arrangement are set forth in Appendix VIII.
o Any subpoena authority FDA has with respect to manufacturers
of medical devices generally would also apply to tobacco
product manufacturers.
F. Non-tobacco Ingredients
Currently, at the federal level, tobacco manufacturers are required only to
submit aggregated ingredient information (not by brand or company) to HHS for
monitoring and review. Nor do tobacco products manufacturers currently
disclose to consumers ingredients information for each of the tobacco
products they sell.
The legislation would supersede the current often-criticized federal
ingredient law and confirm FDA's authority to evaluate all additives in
tobacco products. No non-tobacco ingredient could be used in manufacturing
tobacco products unless the manufacturer can demonstrate that such ingredient
is not harmful under the intended conditions of use. Further, the legislation
would require the manufacturers to disclose to FDA the ingredients and the
amounts thereof in each brand. In addition, it would require manufacturers to
disclose ingredient information to the public under regulations comparable to
what current federal law requires for food products, reflecting the intended
conditions of use.
Under this proposed legislation:
o Manufacturers would be required to provide FDA on a
confidential basis a list of all ingredients, substances and
compounds (other than tobacco, water or reconstituted
tobacco sheet made wholly from tobacco) which are added by
the manufacturer to the tobacco, paper or filter of the
tobacco product by brand and by quantity in each brand. For
each such item, the manufacturer would identify whether or
not it believes that the item would be exempt from public
disclosure under the legislation.
o Manufacturers would be required to submit, within 5 years of
the enactment of the Act, for each ingredient currently
added to the tobacco product, a safety assessment, based on
the best available evidence that there is a reasonable
certainty in the minds of competent scientists that the
ingredient (up to a specified amount) is not harmful under
the intended conditions of use. FDA shall promulgate
applicable regulations within 12 months.
- Within a statutory time period FDA must review
assessment(s) in accordance with the applicable
standard; within 90 days, FDA shall approve or
disapprove an ingredient's safety, and if FDA takes no
action, the ingredient is deemed approved. FDA may
also challenge any manufacturer's assertion that an
ingredient would be exempt from disclosure to
consumers under applicable regulations comparable to
what current federal law requires for food products.
- New ingredients or use of current ingredients beyond
the specified maximum amount are subject to a
comparable process prior to use.
- FDA would be required to protect as strictly
confidential ingredient information not otherwise
subject to public disclosure. If not subject to such
disclosure, this information will be treated as trade
secrets under federal law, exempt from FOIA requests
and protected by procedures which shall include the
designation of an agent who will store it in a locked
cabinet, maintain a record of any person who has
access to the information and require a written
confidentiality commitment from any such person.
o Manufacturers would be required to disclose to the public
ingredients information pursuant to regulations comparable
to what current federal law requires for food products.
During an initial 5 year period, each ingredient that would
be exempt from disclosure under the food regime would be
presumed not to be subject to disclosure unless FDA
disproves its safety. However, manufacturers would be
required to disclose all ingredients which they have been
compelled to publicly disclose with respect to a particular
brand in order to comply with a statute or regulation (e.g.,
MA Ch 94 Section 307B).
o Manufacturers would he required to have procedures for the
selection, testing, purchase, storage and use of
ingredients. The Act would:
- Provide for record keeping regarding ingredients
- Allow FDA access to such records, with protection of
proprietary information
[Source/precedent: MA Chapter 94, Section 307B; 21 C.F.R. Section Section
101.4, 101.105, and 101.170; 18 U.S.C. Section 1905; 5 U.S.C. Section
552(b)(4); MA proposed reg. 105 C.M.R.
Section 660.200(G)]
G. Compliance and Corporate Culture
A key element in achieving the Act's goals will be forcing a fundamental
change in the way the tobacco industry does business. Accordingly, the Act
will provide for means to ensure that the industry will not only comply with
the letter of the law but will also have powerful incentives to prevent
underage usage of tobacco products and to strive to develop and market less
hazardous tobacco products.
First, manufacturers would be required to create plans, with an annual review
and update, to:
o Ensure compliance with all applicable laws and regulations
o Identify ways to achieve the goals of reduced youth access
to and incidence of underage consumption of tobacco products
and provide internal incentives for doing so
o Provide internal incentives to develop products with reduced
risk
Second, with a special emphasis on laws and regulations that make it unlawful
to sell tobacco products to underage persons and other laws directed at the
issue of underage tobacco use, the manufacturers must implement compliance
programs that include, at a minimum, the following elements:
o Compliance standards and procedures to be followed by
employees and agents that are reasonably capable of reducing
the prospect of violations
o Assignment to specific individual(s) within high-level
personnel of the organization of overall responsibility to
oversee compliance with the relevant standards and
procedures, especially in regard to preventing underage
tobacco use
o Use of due care not to delegate substantial discretionary
authority to individuals who the organization knows, or
should have known through the exercise of due diligence, had
a propensity to disregard corporate policy
o Steps to communicate relevant standards and procedures to all
employees and other agents (including lobbyists), e.g., by
requiring participation in training programs or by
disseminating publications that explain in a practical
manner what is required
o Internal audits, hotlines and other measures to promote
compliance
o Appropriate disciplinary mechanisms and measures (e.g.,
discipline of employees who violate marketing restrictions)
o Reasonable steps to respond appropriately to a violation and
to prevent further similar violations
Furthermore, the Act would provide "whistleblowers"in the tobacco industry with
the maximum protection available under current federal statutes.
Beyond compliance with the letter of the law, manufacturers would be required
to take affirmative steps in furtherance of the spirit of the new regime,
including:
o Promulgating corporate principles that express and explain
the company's commitment to compliance, reductions of
underage tobacco use, and development of reduced risk
tobacco products
o Designating a specific individual within high-level
personnel of the organization with appropriate
responsibility and authority to promote efforts to attain
these new standards
o Providing reports to shareholders on compliance as well as
progress toward meeting these new standards
Manufacturers would also be required to work with retail organizations on
compliance, including retailer compliance checks and financial incentives for
compliance.
Third, each tobacco manufacturer would require all contract lobbyists (and any
other third-parties who may engage in lobbying activities on behalf of a
manufacturer) to agree that they will not support or oppose any state or
federal legislation, or seek or oppose any governmental action on any matter,
without the manufacturer's express authorization. Manufacturers would also
require anyone lobbying on their behalf to agree in writing that a) they are
aware of and will fully comply with all applicable laws and regulations; b)
they have reviewed and will fully comply with the Act as it applies to them;
c) they have reviewed and will fully comply with the Consent Decree as it
applies to them; and d) they have reviewed and will fully abide by the
manufacturer's business conduct policies and any other policies and
commitments as they apply, especially those related to prevention of youth
tobacco usage.
Fourth, within ninety days after the Act's effective date, the Tobacco
Institute and the Council for Tobacco Research, U.S.A. would be dissolved and
disbanded. Tobacco product manufacturers would be permitted to form new trade
associations only in accordance with strict procedures and federal oversight
designed to ensure compliance with antitrust and other applicable laws. (See
Appendix IV)
Finally, companies would be subject to fines and penalties (including "Scarlet
Letter" advertising) for breaching their obligations vis-a-vis the development,
implementation and enforcement of compliance plans and corporate principles.
These penalties shall follow the scheme set forth in the Clean Air Act, up to
$25,000 per day per violation with a total not to exceed $200,000. In addition,
each manufacturer's employees shall be directed to report to that
manufacturer's compliance officer any known or alleged violations of this Act
by retailers or distributors. In accordance with procedures established by
FDA, the compliance officer shall be required to furnish all such reports to
FDA for reference to appropriate federal or state enforcement authorities. The
manufacturer shall be subject to fines or penalties in the event its
compliance officer fails to furnish any such reports to FDA.
[Source/precedent: Federal Organizational Sentencing Guidelines; various
federal consent decrees; various corporate environmental programs]
H. Effective Dates
Many of the foregoing requirements relating to the reformation of the tobacco
industry will become effective shortly after the Act is signed by the
President, including the following categories of new rules, which will be
implemented on the dates indicated:
Category Effective Dates on Final Passage
- ------------------------------------ ----------------------------------
Retail Product Displays 9 months
Retail signage 5 months
Advertising 9 months
Package Labeling 1/3 in 90 days
1/3 in 120 days
1/3 in 180 days
Sponsorships 12/31/98
Vending machines 12 months
Sampling 3 months
GMPs 24 months or in accordance with
rulemaking, whichever is later
Corporate compliance 12 months
Face-to-face transactions 3 months
Ban on sales of open packs 3 months
20 cigarettes per pack minimum 3 months
Puerto Rico pack size 12 months
TITLE II: "Look Back" Provisions/State Enforcement Incentives
A central aim of this legislation is to achieve dramatic and
immediate reductions in the number of underage consumers of tobacco products.
The legislation accordingly contains a "look-back" provision giving tobacco
product manufacturers significant economic incentives to take every possible
step to ensure that the advertising, marketing and distribution requirements
of this Act are met, and imposing substantial surcharges on the manufacturers
in the event that underage tobacco-use reduction targets are not achieved.
The "look-back" provision sets targets for the dramatic
reduction of current levels of underage tobacco use (as measured by the
University of Michigan's National High School Drug Use Survey "Monitoring the
Future"). Underage use of cigarette products must decline by at least 30%
from estimated levels over the last decade by the fifth year after the
legislation takes effect, by at least 50% from estimated levels over the last
decade by the seventh year after the legislation takes effect, by at least 60%
from estimated levels over the last decade by the tenth year after the
legislation takes effect, and remain at such reduced levels or below
thereafter. (These required reductions amount to even steeper declines from
current levels of underage smoking.) Underage use of smokeless tobacco
products must decline by at least 25% from current levels by the fifth year
after the legislation takes effect, by at least 35% from current levels by the
seventh year after the legislation takes effect, by at least 45% from current
levels by the tenth year after the legislation takes effect, and remain at
such reduced levels or below thereafter. FDA will annually assess the
prevalence of underage tobacco use (based on the methodology employed by the
University of Michigan survey) to determine whether these targets have been
met.
If a target has not been met, FDA will impose a mandatory
surcharge on the relevant industry (cigarette or smokeless tobacco) based upon
an approximation of the present value of the profit the industry would earn
over the lives of all underage users in excess of the target (subject to an
annual cap of $2 billion for the cigarette industry (adjusted each year for
inflation) and a comparably derived cap for the smokeless tobacco industry).
Tobacco product manufacturers could receive a partial abatement of this
surcharge (up to 75%) only if they could thereafter prove to FDA that they had
fully complied with the Act, had taken all reasonably available measures to
reduce youth tobacco use and had not taken any action to undermine the
achievement of the required reductions.
A fuller description is provided in Appendix V.
In addition, the proposed Act goes well beyond the provisions of the Synar
Amendment's "no tobacco sales to minors" law and related regulations, 42 U.S.C.
Section 300X-26, and the Final Rule promulgated thereunder, which became
effective February 20, 1996 (61 Fed. Reg., June 19, 1996). The proposed Act
requires the several States to undertake significant enforcement steps
designed to dramatically reduce the incidence of youth smoking, and youth
access to tobacco products. These enforcement obligations are funded by
Industry Payments. Each state must maintain specific levels of enforcement
effort, or the state risks the loss of a significant portion of the health
care program funds otherwise payable to the state under the Act. Amounts
withheld from states not doing an adequate enforcement job will be reallocated
to states with a superior "no sales to minors" enforcement record. No state
will be held responsible for sales to underage consumers outside that state's
jurisdiction.
The details of these state enforcement incentives are set forth in Appendix VI.
TITLE III: Penalties and Enforcement; Consent Decrees;
Non-Participating Companies
A. Penalties and Enforcement
o This legislation will be enforceable both by the federal
government, including FDA and civil and criminal divisions of the
Department of Justice, and by the several States. FDA will also
have the authority to contract directly with state agencies to
assist with enforcement. If conduct is subject to a particular
State's consumer protection law or similar statute, such state may
proceed under that law.
o State enforcement actions -- whether brought under the Act or a
State's consumer protection law -- could not impose obligations or
requirements beyond those imposed by the legislation (except where
the legislation does not specifically preempt additional state law
obligations), and would be limited to the civil and criminal
penalties established by the legislation and by the prohibition on
duplicative penalties. State enforcement proceedings under the Act
(or predicated on conduct violating the Act), except those
exclusively local in nature, would be removable to federal court.
Nothing in the Act precludes a State from enforcing its laws in
the ordinary fashion as to matters not covered by the Act or
Protocol.
o Civil and criminal penalties for violations of the legislation
based on those governing other drugs or devices regulated under
the Food, Drug and Cosmetic Act and, where applicable, under Title
18 of the U.S Code.
o In addition, the industry faces civil penalties of up to $10
million per violation for any violations of the obligations to
disclose to the FDA research about tobacco-product health effects
and information regarding the toxicity of non-
tobacco ingredients and constituents used in their products. This penalty is
ten times the largest penalty faced by other drug or device manufacturers for
similar violations
o To reflect the fact that not all States have filed lawsuits against
the tobacco industry, but that the intent of the negotiators is to
provide the benefits of the settlement to all States, the industry
also will enter into a binding and enforceable national tobacco
control Protocol embodying certain terms of the proposed
resolution. As an enforceable contract, which would not be subject
to facial constitutional challenge, this Protocol will provide
benefits and enforcement rights to the federal government and all
states.
B. Consent Decrees
o Certain terms of the agreement will also be reiterated in consent
decrees between the tobacco industry and the states that will not
take effect until after enactment of the Act. These consent
decrees will be identical to, and will reiterate, the terms of the
agreement with respect to: (1) restrictions on advertising,
marketing and youth access to tobacco products; (2) trade
associations; (3) restrictions on lobbying; (4) disclosure of
tobacco smoke constituents; (5) disclosure of non tobacco
ingredients; (6) disclosure of existing and future industry
documents relating to health, toxicity and addiction; (7)
compliance and corporate culture; (8) obligations to make monetary
payments to the States reflecting their reasonable share of the
total provided by the Act; (9) obligations of the industry to deal
only with distributors and retailers that operate in compliance
with applicable provisions of law respecting the distribution,
sale and marketing of tobacco products; (10) warnings, labeling
and packaging (to the extent noted below); and (11) dismissal of
other pending litigation specified by the parties.
o The consent decrees will not contain provisions as to: (1) product
design, performance or modification; (2) manufacturing standards
and good manufacturing practices; (3) testing and regulation with
respect to toxicity and ingredients approval; and (4) the national
FDA "look back" provisions.
o The consent decrees will provide that their terms are to be
construed in conformity with the Act and the Protocol and with
each other. State proceedings to enforce the provisions of the
consent decrees may be brought in state court, subject to an
acceptable procedure to ensure consistent rulings with respect to
conduct that is not exclusively local in character. State
proceedings to enforce the consent decrees may seek injunctive
relief only, and may not seek criminal or monetary sanctions. A
State shall not be limited from seeking criminal or other
sanctions for a company's subsequent violation of an injunction
entered by the court in an action brought to enforce the consent
decree.
o The provisions of the consent decrees will remain enforceable
regardless of whether subsequent changes in the Act or in any
other provision of law diminish the obligations of the companies
in the areas covered by the consent decrees, except: (1) where
such changes create federal requirements that produce obligations
in conflict with those contained in the consent decrees; (2) with
respect to the allocation of funds; and (3) with respect to
warnings, labeling and packaging. With respect to warnings,
labeling and packaging, if the requirements of the Act are later
modified, or if Congress subsequently prohibits warnings on
tobacco products, the consent decrees will be modified to conform
to such requirements. However, if Congress later eliminates
altogether the warning requirement in the Act, the warnings
originally set forth in the Act (the so-called Canadian warnings)
shall be mandated and enforceable under the consent decrees.
o In addition, the parties recognize that certain provisions of the
consent decrees and the agreement may require them to act (or
refrain from acting) in a manner that they might otherwise claim
would violate the federal or state constitutions. They will
therefore in the consent decrees expressly waive any claim that
the provisions of the consent decrees or the agreement violate the
federal or state constitutions. The consent decrees will also
state that if a provision of the Act covered by the decrees is
subsequently declared unconstitutional, the provision remains an
enforceable term of the consent decrees.
C. Non-participating companies
o The regime envisioned by the resolution would be substantially
undercut if certain companies were free to ignore the limitations
it imposes, and were instead able to sell tobacco products at
lower prices (because they were not making the payments described
above) and through less restricted advertising and marketing
activities. The resolution accordingly anticipates the possibility
that some manufacturers of tobacco products may not consent to the
institution of this regime. Rather than seeking to impose on such
manufacturers the advertising restrictions, full required payments
and corporate culture changes set forth above, the resolution
avoids constitutional questions that might otherwise be raised by
establishing a separate regime for non-participating manufacturers.
o Non-participating manufacturers would be subject to the access
restrictions and regulatory oversight set forth above. They would
receive none of the civil liability protections described in Title
VIII. Their product would be subject to a user fee equal to the
portion of the payments by participating manufacturers allocated
to fund public health programs and federal and state enforcement
of the access restrictions.
o The resolution further recognizes that -- unlike the participating
manufacturers -- non-participating manufacturers will not have made
consensual payments to settle governmental actions for health care
costs, to settle class actions and in to provide consideration for
the partial settlement of individual tort actions (including
punitive damages claims). Because such actions would remain wholly
unsatisfied, it is vital that the claimants be ensured that funds
will be available to satisfy any judgments that may be obtained.
Accordingly, the resolution requires that each non-participating
manufacturer place into an escrowed reserve fund each year an
amount equal to 150% of its share of the annual payment required
of participating manufacturers (other than the portion allocated
to public health programs and federal and state enforcement).
These escrowed funds would be earmarked for potential liability
payments, and the manufacturer would reclaim them with interest 35
years later to the extent they had not been paid out in liability.
o Moreover, the resolution also recognizes that -- because
non-participating manufacturers are not subject to the corporate
culture commitments requiring manufacturers to monitor distributor
and retailer compliance with the underage access restrictions --
distribution and retail sales of those manufacturers' products
present a particularly great obstacle to the achievement and
enforcement of the access restrictions. Accordingly, the
resolution provides that the exemption from civil liability
applicable to distributors and retailers of the products of
participating manufacturers will not apply to distributors and
retailers who handle tobacco products of non-participating
manufacturers.
TITLE IV: Nationwide Standards To Minimize
Involuntary Exposure To Environmental Tobacco Smoke
Until now, there has been no minimum or other federal standard governing
smoking in public places or at work. The legislation would:
o Restrict indoor smoking in "public facilities" (i.e., any
building regularly entered by 10 or more individuals at
least one day per week) to ventilated areas with systems
that:
- Exhaust the air directly to the outside;
- Maintain the smoking area at "negative pressure"
compared with adjoining areas; and
- Do not recirculate the air inside the public facility.
o Ensure that no employee shall be required to enter a
designated smoking area while smoking is occurring. Cleaning
and maintenance work in a designated smoking area shall be
conducted while no smoking is occurring.
o Exempt restaurants (but not "fast food" restaurants)(1) and
bars (including those in hotels), private clubs, hotel
guest rooms, casinos, bingo parlors, tobacco merchants
and prisons.
o Direct OSHA to issue, not later than one year after the
effective date of the legislation, regulations implementing
and enforcing the preceding standards, with enforcement
costs paid out of the Industry Payments. The smoking
restrictions outlined in this Title would take effect on the
first anniversary of the enactment of the legislation
irrespective of whether the implementing regulations have
been promulgated.
The legislation would not preempt or otherwise affect any other state or local
law or regulation that restricts smoking in public facilities in an equal or
stricter manner. Nor would the legislation preempt or otherwise affect any
federal rules that restrict smoking in federal facilities.
[Source/precedent: H. R. 3434, as reported out of committee; WISHA workplace
smoking rule; state law exemptions for the "hospitality sector"]
- ---------------
(1) "Fast food" restaurant means any restaurant or chain of restaurants
which primarily distributes food via customer pick-up (either at a counter
or drive-through window). In addition, OSHA would be authorized to issue
regulations clarifying this definition to the extent necessary to ensure
that the intended inclusion of establishments catering largely to minors is
achieved. Any such regulation may consider such factors as whether a
restaurant either has attached playgrounds or play areas for children, uses
ad campaigns that feature or prominently include cartoon characters and/or
toy giveaways or advertises "happy meal" or other comparable kids-
combination platters, and other factors OSHA deems relevant.
TITLE V: Scope and Effect
A. Scope of FDA Authority
o All products sold in U.S. commerce
o Covers new entrants; imports; U.S. duty free, etc.
o BATF to retain fiscal authority over tobacco products
o FTC to retain existing authority, except for "tar", nicotine, and
carbon monoxide testing
o Grower Limitation: FDA jurisdiction does not extend to the growing,
cultivation or curing of raw tobacco (USDA has exclusive
authority).
B. State Authority
1. Preservation of State and Local Government Laws and Legal Authority
o While setting a federal "floor" for tobacco control measures in many
substantive areas, this legislation preserves, to the maximum
extent, state and local government authority to take additional
tobacco control measures that further restrict or eliminate the
product's use by and accessibility to minors.
o This legislation also permits state and local governments to enact
measures that further restrict or eliminate employee and general
public exposure to smoking in workplaces and in other public and
private places and facilities.
o The legal authority of a state or local government to further
regulate, restrict or eliminate the sale or distribution of
tobacco products, and to impose state or local taxes on such
products, also remains unchanged.
o The legislation retains similar flexibility for Indian tribes,
military facilities and other federal agencies.
2. Uniformity of Warning Labels, Packaging, Labeling and Other
Advertising Requirements; Manufacturing Requirements
o Current federal law providing for national uniformity of warning
labels, packaging and labeling requirements, and advertising and
promotion requirements related to tobacco and health, is
preserved, except that this legislation gives FDA express
authority to require changes in the language of the warnings,
subject to the standard requirement that it provide public notice
and a hearing opportunity prior to making such changes.
o Similarly, the provisions of FDCA designed to provide uniformity in
product manufacturing and design requirements relating to medical
devices will apply to tobacco products, except that any
application by a State or locality for an exemption permitting it
to adopt additional or different requirements relating to
performance standards or good manufacturing practices may only be
granted if the requirement would not unduly burden interstate
commerce. Further, to ensure that FDA has an adequate
opportunity to evaluate non-tobacco ingredients as described in
Title I(F), no exemption relating to ingredients may be applied
for until the fifth anniversary of the effective date of the
Act.
TITLE VI: Programs/Funding
TOTAL 25 YEAR PACKAGE FACE VALUE -- $368.5 Billion
A. Up Front Commitment -- Lump Sum Cash Payment -- $10 Billion
1. Payable on Statute Signing Date.
B. Base Annual Payments -- 25 Year Total Face Value is $358.5 Billion
(Figures Subject to Inflation Protection and Market Volume
Adjustments)
1. Duration -- annual payments in perpetuity
2. Commencement -- 12/31 of first full year after statute signing
3. Face Amounts (includes payments from all industry sources):
Payment Year 1 2 3 4 5 6-8 9 infinity
Total Payments $8.5B $9.5B $11.5B $14B $15B $15B $15B $15B
Base Amount $6B $7B $8B $10B $10B $12.5B $15B $15B
Public Health
Trust $2.5B $2.5B $3.5B $4B $5B $2.5B
4. Inflation Protection for Annual Payments
o Greater of 3% or CPI applied each year on previous year,
beginning with first annual payment.
5. Adjustment for Volume Decrease (Adult Volume Only) or Total
Volume Increase
o Beginning in year 1; payment made equal to scheduled annual
payment times the ratio of actual relevant domestic tobacco
product unit sales volume to relevant base volume. In the
event of a decline in volume, relevant actual volume and
relevant base volume are adult volume figures; in the event
of an increase in volume, relevant actual volume and
relevant base volume are total volume figures. Base volume is
1996 volume.
o Any reduction in an annual payment will be reduced by 25% of
any increase above the industry's base year net operating
profits (after application of inflator discussed above) from
domestic sales of tobacco products.
6. Payment Protection
o Provide for payment priority/continuation during bankruptcy/
reorganization proceedings. Protocol cannot be rejected in
bankruptcy. Obligation for annual payments responsibility
only of entities selling into domestic market.
7. Pass-Through
o In order to promote maximum reduction in youth smoking, the
statute would provide for the Annual Payments to be
reflected in the prices manufacturers charge for tobacco
products.
C. Applicability
1. Applicable to All Sellers of Tobacco Products
o Through protocol and statute to protocol signatories.
o Through alternative statutory provisions to non-signatories.
D. Tax Treatment
All payments pursuant to this Agreement (including those pursuant to Title II)
shall be deemed ordinary and necessary business expenses for the year of
payment, and no part thereof is either in settlement of an actual or potential
liability for a fine or penalty (civil or criminal) or the cost of a tangible
or intangible asset.
TITLE VII: Public Health Funds From Tobacco Settlement
As Recommended By The Attorneys General For Consideration
By The President And The Congress
BASED ON THE PREMISE OF $1 BILLION FOR THE FIRST YEAR AND GRADUALLY
INCREASING TO $1.5 BILLION THEREAFTER, ADJUSTED FOR INFLATION AFTER THE FIRST
YEAR.
BASED ON THE PREMISE OF $1 BILLION FOR SMOKING CESSATION FOR THE FIRST 4
YEARS AND $1.5 BILLION THEREAFTER, ADJUSTED FOR INFLATION.
(A) ALLOCATION OF GRANT MONIES AMONG PROGRAMS - The use of moneys under this
Section shall be limited to programs established under this Section, shall be
adjusted for inflation annually from the effective date, and shall be allocated
among such programs as follows:
(1) $125,000,000 for the first three years and $225,000,000 annually
thereafter to the Secretary of HHS to accomplish the purposes described in
Paragraph (B) of this Section (Reduction in Tobacco Usage);
(2) $300,000,000 annually for the FDA to carry out its obligations under
and to enforce the terms of this Act, including for grants to the states to
assist in the enforcement of the provisions of the Act;
(3) $75,000,000 for the first two years, $100,000,000 in the third year,
and $125,000,000 annually thereafter to fund state and local tobacco control
community based efforts modeled on the ASSIST program, designed to encourage
community involvement in reducing tobacco use and the enactment and
implementation of policies designed to reduce the use of tobacco products;
(4) $100,000,000 annually to fund research and the development of
methods for how to discourage individuals from starting to use tobacco and how
to help individuals to quit using tobacco;
(5) Beginning in the second year, $75,000,000 annually for a period of
ten (10) years to compensate events, teams or entries in such events, who lose
sponsorship by the tobacco industry as a result of this Act, or who currently
receive tobacco industry funding to sponsor events and elect to replace that
funding, provided that the event, team, or entry is otherwise unable to
replace its tobacco industry sponsorship during those given years. Funds used
for this purpose shall promote a Quit Tobacco Use theme. After a ten year
period, no additional funds shall be used for this purpose and the funds
previously allocated to this purpose shall be used as follows: 50% to
supplement funding of the multi-media campaigns in paragraph (1) of this
subsection; 25% to supplement the funding of the enforcement provisions of
paragraph (2) of this subsection; and 25% to supplement the funding of
community action programs in paragraph (3) of this subsection.
(B) ESTABLISHMENT OF PROGRAMS BY THE SECRETARY -- The Secretary shall
establish programs to accomplish the following purposes--
(1) the reduction of tobacco product usage, both by seeking to
discourage the initiation of tobacco use by persons under the age of 18 and by
encouraging current tobacco users to quit through media-based and non-media
based education, prevention and cessation campaigns. The Secretary may make
grants to state health departments to assist in carrying out the purposes of
this provision.
(2) the research into and development and public dissemination of
technologies and methods to reduce the risk of dependence and injury from
tobacco product usage and exposure;
(3) the identification, testing and evaluation of the health effects of
both tobacco and non-tobacco constituents of tobacco products;
(4) the promulgation of such other rules and regulations as are
necessary and proper to carry out the provisions of this Act, as well as the
development of such other programs as the Secretary determines are consistent
with the goals of the Act.
(C) Public Education Campaign - $500,000,000 shall be spent annually in such
multi-media campaigns designed to discourage and de-glamorize the use to
tobacco products. To carry out such efforts, an independent non-profit
organization with a Board made up of prestigious individuals and the leaders of
the major public health organizations shall be created which shall contract or
make grants to non-profit private entities who are unaffiliated with tobacco
manufacturers or tobacco importers, who have a demonstrated record of working
effectively to reduce tobacco product use and expertise in multi-media
communications campaigns. The independent body shall be authorized to contract
with state health departments, where appropriate, to run campaigns for their
states and communities. In creating the program the Secretary or independent
body shall also take into account the needs of particular populations. The
goal shall be the reduction of tobacco product usage, both by seeking to
discourage the initiation of tobacco use by persons under the age of 18 and by
encouraging current tobacco users to quit.
(D) Tobacco Use Cessation - For the first 4 years, $1 billion, and thereafter,
$1.5 billion of the total amount paid by the tobacco industry shall be paid
into a Trust Fund to be used to assist individuals who want to quit using
tobacco to do so. Within 12 months the Secretary shall promulgate regulations
to govern (1) the establishment of criteria for and a procedure for the
approval of cessation programs and devices for which payment may be made under
the program, (2) the eligibility requirements for individuals seeking to use
moneys from the trust to fund the tobacco cessation efforts, and (3) the
procedures to govern the tobacco cessation program.
The goal of the tobacco cessation program shall to enable the most tobacco
users possible to receive assistance in their effort to quit using tobacco by
providing financial assistance and identifying the programs, techniques, and
devices that have been shown to be safe and effective. Benefits to individuals
should not be limited to a single effort, but should be tailored to the needs
of individual smokers according to standards established by the Secretary
using the best available scientific guidelines.
(E) Public Health Trust Fund Presidential Commission -- A Presidential
commission will be appointed to include representatives of the public health
community, Attorneys General, Castano attorneys and others to determine the
specific tobacco-related medical research for which the $25 Billion Public
Health Trust Fund will be used.
TITLE VIII: Civil Liability
The following provisions would govern actions for civil liability
related to tobacco and health.
A. General
1. Present Attorney General actions (or similar actions brought
by or on behalf of any governmental entity), parens patriae
and class actions are legislatively settled. No future
prosecution of such actions. All "addiction"/dependence
claims are settled and all other personal injury claims are
reserved. As to signatory States, pending Congressional
enactment, no stay applications will be made in pending
actions, based upon the fact of this resolution, without
mutual consent of the parties.
2. Third-party payor (and similar) actions pending as of 6/9/97
are not settled, but governed by provisions regarding past
conduct set forth in Section B below.
B. Provisions as to Civil Liability for Past Conduct
The following provisions apply to suits for relief arising from past
conduct -- i.e., suits by persons claiming injury or damage caused by conduct
taking place prior to the effective date of the Act.
1. All punitive damages claims resolved as part of overall
settlement. No punitive damages in individual tort actions.
2. Individual trials only: i.e., no class actions, joinder,
aggregations, consolidations, extrapolations or other
devices to resolve cases other than on the basis of
individual trials, without defendant's consent.
Action removable by defendant to federal court upon receipt
of application to, or order of, state court providing for
trial or other procedure in violation of this provision.
3. Except as expressly provided in the Act, FCLAA and applicable
case law unchanged by the Act.
4. Provided that the five negotiating companies enter into the
Protocol: Protocol manufacturers to enter into joint sharing
agreement for civil liability. Protocol manufacturers not
jointly and severally liable for liability of non-Protocol
manufacturers. Trials involving both protocol and
non-Protocol manufacturers to be severed.
5. Permissible parties:
Plaintiffs-- a. Claims of individuals, or claims derivative
of such claims, must be brought either by
person claiming injury or heirs.
b. Third-party payor (and similar) claims not
based on subrogation that were pending as
of 6/9/97.
c. Third-party payor (and similar) claims
based on subrogation of individual claims;
no extrapolations, etc.
Defendants-- a. Actions may be maintained only against
manufacturing companies, their successors
and assigns, any future fraudulent
transferee, and/or entity for suit
designated to survive defunct manufacturer.
b. Manufacturers liable vicariously for acts
of agents (including advertising agencies
and attorneys).
6. No removal except under paragraph 2 above.
7. The development of "reduced risk" tobacco products after the
effective date of the Act is neither admissible nor
discoverable.
8. Statute of limitations: for all actions, individual state
laws governing time periods from injury, discovery, notice or
contamination/violation.
9. Annual aggregate cap for judgments/settlements. 33% of annual
industry base payment (including any reductions for volume
decline). If aggregate judgments/settlements for a year
exceed annual aggregate cap, excess does not have to be paid
that year and rolls over.
Any judgments/settlements run against defendant, but give
rise to 80-cent-on-the-dollar credit against annual payment
in year paid. Suitable provision for settlement consultation
and permission. Manufacturers control insurance claims, and
any insurance recovery obtained by manufacturers (net of
cost) on account of judgment and/or settlement covered by
above sharing arrangement allocated 80% to annual payments.
Manufacturers retain any insurance proceeds on account of
defense costs.
Provision with respect to individual judgments above $1
million: amount in excess of $1 million not paid that year
unless every other judgment/settlement can be satisfied
within the annual aggregate cap. Excess rolls forward
without interest and is paid at the rate of $1 million per
year, until the first year that the annual aggregate cap is
not exceeded (at which time the remainder is paid in full).
For purposes of this provision, a third-party payor (or
similar) action not based on subrogation is treated as
having been brought by a single plaintiff and is subject to
the $1 million rollover on that basis.
10. In the event that the annual aggregate cap is not reached in
any year, a Commission appointed by the President will
determine the appropriate allocation of the amount
representing the unused amount of the credit. The
Commission will be entitled to consider, among public
health, governmental entities, and other uses of the funds,
applications for compensation from persons, including non-
subrogation claims of third party payors, not otherwise
entitled to compensation under the Act.
11. Defense costs paid by manufacturers.
C. Provisions as to Civil Liability for Future Conduct
The following provisions apply to suits for relief arising from future
conduct - i.e., suits claiming injury or damage caused by conduct taking place
after the effective date of the Act.
1. Paragraphs 2, 3, 5, 6, 7, 8, 9, 10 and 11 in Section B apply.
2. No third-party payor (or similar) claims not based on
subrogation.
TITLE IX: Board Approval
The terms of this resolution are subject to approval by the Boards of
Directors of the participating tobacco companies.
Appendix I - Warnings in Advertisements
The space in press and poster advertisements for tobacco products that is to be
devoted to the warning and, where relevant, the "tar," nicotine and any other
constituent yield statements will be 20% of the area of the advertisement. The
size of the printing of the warning and the yield statements shall be pro rata
to the following examples:
a) Whole page broadsheet newspaper - 45 point type
b) Half page broadsheet newspaper - 39 point type
c) Whole page tabloid newspaper - 39 point type
d) Half page tabloid newspaper - 27 point type
e) DPS magazine - 31.5 point type
f) Whole page magazine - 31.5 point type
g) 28 cm X 3 columns - 22.5 point type
h) 20 cm X 2 columns - 15 point type
FDA may revise the required type sizes within the 20% requirement.
Appendix II - Retail Tobacco Product Seller Penalties
1. The sale of tobacco products to consumers by an unlicensed
seller shall be a criminal violation, and be subject to
minimum penalty of $1,000, or imprisonment, for 6 months, or
both, if an individual, or in the case of a corporation, by
a maximum penalty of $50,000. Any State or local
jurisdiction may provide by statute or code more severe
penalties.
2. In addition to any criminal penalties which may be imposed
under any applicable state or local law, a tobacco product
licensee may be subjected to civil sanctions, including
penalties, or license suspension or revocation (on a
site-by-site basis) or a combination thereof, for any
violation of the provisions of the State licensing laws
regarding sales to minors. Such sanction shall not exceed
the following:
(a) For the first offense within any two year period, $500
or a 3 day license suspension or both.
(b) For the second offense within any two year period,
$1,000 or a 7 day license suspension or both.
(c) For the third offense within any two year period,
$2,000 or a 30 day license suspension or both.
(d) For the fourth offense within any two year period,
$5,000 or a 6 month license suspension or both.
(e) For the fifth offense within any two year period,
$10,000 or 1 year license suspension or both.
(f) For the sixth and any subsequent offenses within any
two year period, $25,000 or a revocation of license
with no possibility of reinstatement for a period of
three years.
(g) Permanent license revocation is mandatory for the
tenth offense within any two year period.
Each state must enact a statutory or regulatory enforcement
scheme that provides substantially similar penalties to the
minimum federal standards for a retail licensing program.
[Source/Precedent Washington State Alcohol Licensing Act]
Appendix III - Application to Indian Tribes
A. Application Of Act
1. The provisions of the FDCA, the regulations of the FDA, and
the Act relating to the manufacture, distribution and sale
of tobacco products shall apply on Indian lands as defined
in 18 U.S.C. Section 1151 and on any other trust lands
subject to the jurisdiction of an Indian tribe. To the
extent that an Indian tribe engages in the manufacture,
distribution or sale of tobacco products, the provisions of
this Act shall apply to such tribe.
2. Any federal tax or fee imposed on the manufacture,
distribution or sale of tobacco products shall be paid by
any Indian tribe engaged in such activities, or by persons
engaged in such activities on such Indian lands, to the same
extent such tax or fee applies to other persons under the
law.
B. Tribal Programs And Authority
1. For the purposes of the provisions of this Act, FDA is
authorized to treat any federally-recognized Indian tribe as
a state, and is authorized to provide any such tribe grant
and contract assistance to carry out the licensing and
enforcement functions provided by this section.
2. Such treatment shall be authorized only if:
(a) the Indian tribe has a governing body carrying
out substantial governmental powers and duties;
(b) the functions to be exercised by the Indian
tribe under this section pertain to activities
on trust lands within the jurisdiction of the
tribe; and
(c) the Indian tribe is reasonably expected to be
capable of carrying out the functions required
under this Act.
[Source/precedent: Clean Air Act, 42 U.S.C. Section 7601 (d)]
3. FDA regulations which establish a retail licensing program
shall apply on Indian trust lands, and each tribe's program
shall be no less strict than the program of the State in
which the tribe is located.
4. If FDA determines that an Indian tribe does not qualify for
treatment as a state, FDA will directly administer the
retailer licensing program, or may delegate such authority
to the state.
C. Tobacco Compensation And Public Health Grants
1. A portion of the settlement funds to which a state is
otherwise entitled shall be paid to HHS for distribution to
the Indian tribes which have been certified by FDA for
treatment as states. The funds to be paid for such purposes
on behalf of Indian tribes shall be determined by the
proportion of registered tribal members resident on the
reservation to the total population of the state in which
the tribe is located. The funds to be distributed to Indian
tribes shall be used for the same purposes as those funds
are to be used by the states and be subject to the same
compliance requirements for retail sales to minors as are the
states under the Act.
2. The Department of Health and Human Services will annually
pay to the governing body of each Indian tribe its share of
the funds for use under an FDA-approved plan after annual
certification by FDA, under the same standards that apply to
the States, that the Indian tribe is in compliance with the
requirements of the Act and any applicable regulations.
3. If HHS does not distribute all, or a portion, of an Indian
tribe's share of the funds in any given year because the
tribe has not qualified under the terms of this section or
has not met the compliance requirements for retail sales to
minors, those funds will be distributed to other qualified
tribes in the same state for the same purposes and on the
same proportional basis, less the non-qualified tribe's
population, as other settlement funds are to be distributed
to the tribes.
D. Obligations of Tobacco Manufacturers
1. Tobacco manufacturers shall not engage in any activity on
Indian lands subject to this Act which activity the
manufacturers may not otherwise do within a State.
2. Tobacco manufacturers also agree not to sell tobacco
products for manufacture, distribution, or sale to an Indian
tribe, or to a manufacturer, distributor, or retail seller
subject to the jurisdiction of an Indian tribe, except under
the same terms and conditions as the tobacco manufacturers
impose under other manufacturers, distributors and retail
sellers under the Act, or any applicable regulations.
Appendix IV -- Industry Associations
Within 90 days of the effective date of the Act, the tobacco product
manufacturers shall disband and dissolve the Council for Tobacco Research,
U.S.A. and the Tobacco Institute. In addition, with respect to any new trade
associations.
A. Tobacco product manufacturers may form or participate in any
new tobacco industry trade association. Any such new trade
association shall have an independent board of directors, in
accordance with the following requirements. For at least 10
years after the formation of the new association, a minimum
of 20 percent of the directors, but at least one director,
shall be other than a current or former director, officer
or employee of any association member or affiliated company.
No other director of a new trade association may be, at the
same time, a director of any association member or
affiliated company. The officers shall be appointed by the
board and shall be employees of the association, and during
their term shall not be employed by any association member
or affiliated company. Legal counsel for any such
association shall be independent and not serve as legal
counsel to any association member or affiliated company
while counsel to the association.
B. Any new tobacco product manufacturers' trade association
shall adopt by-laws governing the association's procedures
and the activities of its members, board, employees, agents
and other representatives. The by-laws shall include, among
other things, provisions that:
(1) members who are competitors in the tobacco industry
shall not meet on the association's business except
under sponsorship of the association;
(2) every board of directors meeting, board subcommittee
meeting, general association or committee meeting, and
any other association sponsored meeting, shall proceed
under and strictly adhere to an agenda, approved by
legal counsel and circulated in advance; and
(3) minutes describing the substance of the meetings shall
be prepared for all such meetings, and shall be
maintained by the association for a period of 5 years.
C. Moreover, under the new regime:
1. The structure, by-laws, and activities of tobacco
industry trade associations shall be subject to
continuing oversight by the U.S. Department of Justice
and by state antitrust authorities. For a period of 10
years from the creation of a new trade association,
such authorities may, without limitation on whatever
other rights to access they may be permitted, upon
reasonable prior notice:
(a) have access during regular office hours to
inspect and copy all books, records, meeting
agenda and minutes, and other association
documents; and
(b) interview the association's directors, officers
and employees, who may have counsel present.
The inspection and discovery rights provided in (a)
and (b) above shall be exercised through a multi-state
States' Attorneys General oversight committee. Any
documents and information provided to any state
pursuant to (a) and (b) above shall be kept
confidential by and among the states and shall be
utilized only for governmental purposes of enforcing
the Act and ancillary documents.
2. In order to achieve the goals of this Agreement and
the Act relating to tobacco use by children and
adolescents, the tobacco product manufacturers may,
notwithstanding the provisions of the Sherman Act, the
Clayton Act, or any other federal or state antitrust
law, act unilaterally, or may jointly confer,
coordinate or act in concert, for this limited purpose.
Manufacturers must obtain prior approval from the
Department of Justice of any plan or process for
taking action pursuant to this section; however, no
approval shall be required of specific actions taken
in accordance with an approved plan. Approval or
non-approval of a plan shall not be grounds for
abatement of any surcharge to a manufacturer for
failure to meet the reductions in underage tobacco use
contemplated in this resolution and the Act.
Appendix V -- "Look Back"
A summary of the "look-back" provision is as follows:
A. The Reduction Requirements.
1. The required reductions in underage tobacco use are measured
against a base percentage. For underage use of cigarettes,
the base percentage is the average, weighted by relative
population of such age groups in 1995 as determined by the
U.S. Census Bureau, of (a) the average of the percentages of
12th graders (ages 16 and 17) from 1986 to 1996 who used
cigarette products on a daily basis; (b) the average of the
percentages of 10th graders (ages 14 and 15) from 1991 to
1996 who used cigarette products on a daily basis; and (c)
the average of the percentages of 8th graders (age 13) from
1991 to 1996 who used cigarette products on a daily basis.
The percentages are those measured by the University of
Michigan's National High School Drug Use Survey "Monitoring
the Future" or by such comparable index using identical
methodology as is chosen by FDA after notice and hearing.
For underage use of smokeless tobacco products, the base
percentage is the average, weighted by relative population
of such age groups in 1995 as determined by the U.S. Census
Bureau, of (a) the percentage of 12th graders (ages 16 and
17) in 1996 who used smokeless tobacco products on a daily
basis; (b) the percentage of 10th graders (ages 14 and 15)
in 1996 who used smokeless products on a daily basis; and (c)
the percentage of 8th graders (age 13) in 1996 who used
smokeless tobacco products on a daily basis. These
percentages are to be derived from the same source as are
the percentages with respect to use of cigarette products.
2. After the fifth year after enactment of the Act and annually
thereafter, the FDA will calculate the incidence of daily
use of tobacco products by those under 18 years of age as
follows:
For cigarette product use, the FDA will calculate the
average, weighted by relative population of such age groups
in 1995 as determined by the U.S. Bureau of Census, of the
percentages of 12th graders (ages 16 and 17), 10th graders
(ages 14 and 15) and 8th graders (age 13) who used cigarette
products on a daily basis during the preceding year. The
percentages used in this calculation are to be those
measured (a) by the University of Michigan Survey; or (b) by
such comparable index using identical methodology as is
chosen by the FDA after notice and hearing. If the
methodology of the University of Michigan Survey is
hereafter changed in a material manner from that employed in
1986-96 (including by changing the states or regions on
which that Survey is based), the FDA shall use the
percentages measured by an index chosen by it after notice
and hearing having a methodology identical to that employed
by the University of Michigan Survey in 1986-96.
For smokeless tobacco product use, the FDA will calculate the
average, weighted by relative population of such age groups
in 1995 as determined by the U.S. Bureau of Census, of the
percentages of 8th (age 13), 10th (ages 14 and 15) and 12th
graders (ages 16 and 17) who used smokeless tobacco products
on a daily basis during the preceding year. This calculation
is to be made using the same methodology as with respect to
cigarette product use.
Any data underlying the University of Michigan Survey shall
be available by request from FDA.
3. The reduction requirements (expressed as reduction from the
base percentage) for cigarette products are as follows:
<TABLE>
<S> <C>
Year After Enactment Reduction Requirement
- --------------------------------------- -----------------------
years 5-6 30% reduction
years 7-9 50% reduction
year 10 (and thereafter) 60% reduction
</TABLE>
The reduction requirements (expressed as reduction from the
base percentage) for smokeless tobacco products are as
follows:
<TABLE>
<S> <C>
Year After Enactment Reduction Requirement
- --------------------------------------- -----------------------
years 5-6 25% reduction
years 7-9 35% reduction
year 10 (and thereafter) 45% reduction
</TABLE>
B. The Surcharge
Where the FDA's calculation (per the procedure set forth above) shows
that the reduction requirements with respect to underage use of cigarette
products were not met in the preceding year, the FDA will impose a surcharge
on the manufacturers of cigarette products. Where the FDA's assessment shows
that the Reduction Requirements with respect to underage use of smokeless
tobacco products were not met in the preceding year, the FDA will impose a
surcharge on the manufacturers of smokeless tobacco products.
1. The surcharge with respect to the cigarette industry will be
calculated as follows:
(a) The FDA will then determine the percentage point difference
between:
(i) the required percentage reduction applicable to a given
year, and
(ii) the percentage by which the percent incidence of
underage use of cigarette products for that year is less
than the base incidence percentage.
(In the event that the FDA's calculation of the percent
incidence of underage use of cigarette products for that
year is greater than the base incidence percentage, the
number of percentage points used will be (i) the required
percentage reduction for that year plus (ii) the percentage
by which the actual percent incidence for that year is
greater than the base incidence percentage.)
(b) The surcharge will be $80 million for each percentage point
derived per the above procedure. This amount reflects an
approximation of the present value of the profit the
cigarette industry would earn over the life of underage
smokers in excess of the required reduction (at current
levels of population and profit). This calculation will be
subject to the following:
(1) the $80 million will be adjusted proportionately for
percentage increases or decreases compared with 1995 in the
population of persons resident in the United States aged
13-17, inclusive.
(2) the $80 million will be adjusted proportionately for
percentage increases or decreases compared with 1996 in the
average profit per unit (measured in cents and weighted by
annual sales) earned by the cigarette industry. (The average
profit per unit in 1996 will be derived from the industry's
operating profit as reported to the SEC; and the average
profit per unit for the year in which the surcharge is being
determined will be calculated and certified to the FDA by a
major, nationally recognized accounting firm having no
existing connection to the tobacco industry using the same
methodology as employed in deriving the average profit per
unit for 1996.)
(3) the surcharge will be reduced to prevent double counting
of persons whose smoking had already resulted in the
imposition of a surcharge in previous years (to the extent
that there were not underage smokers of comparable age in
those previous years on whom a surcharge was not paid
because of the cap set forth in paragraph (d) below).
(4) the surcharge may not exceed $2 billion in any year (as
adjusted for inflation).
2. The surcharge with respect to the smokeless tobacco industry
will be derived through a comparable procedure based upon a
base per- percentage point amount and a cap specific to that
industry.
3. The surcharge payable by cigarette manufacturers will be the
joint and several obligation of those manufacturers,
allocated by actual market share. The surcharge payable by
smokeless tobacco product manufacturers will be the joint
and several obligation of those manufacturers, as allocated
in the same manner. Within each such respective product
market, the FDA will make such allocations according to each
manufacturer's relative market volume in the United States
domestic cigarette or smokeless tobacco markets in the year
for which the surcharge is being assessed, based on actual
federal excise tax payments.
4. The surcharge for a given year, if any, will be assessed by
the FDA by May 1 of the subsequent calendar year. Surcharge
payments will be paid on or before July 1 of the year in
which they are assessed by the FDA. The FDA may establish,
by regulation, interest at a rate up.
5. After payment of its share of the surcharge, a tobacco
product manufacturer may seek return of up to 75% of that
payment through the abatement procedures described below.
C. Use of the Surcharge
The Surcharge funds would be used in an manner designed to speed the
reduction of the levels of underage tobacco use.
Upon final completion and review of any abatement petition, the
FDA would transfer as grants to state and local government public
health agencies, without further appropriation, 90% of all monies
paid as Surcharge amounts.
o As a condition of such transfers, the recipients of the
transferred funds would be required to spend them on
additional efforts by state and local government agencies,
or by contract between such agencies and private entities,
to further reduce the use of tobacco products by children
and adolescents.
o The FDA may retain up to 10 percent of such Surcharge
amounts for Administrative Costs -- the administration of
the Surcharge provisions of the Act and related proceedings,
and for other administrative requirements imposed on the FDA
by the Act.
o If 10 percent of the Surcharge amounts exceeds the
Administrative Costs, the FDA may (1) transfer any portion
of the excess to other federal agencies, or to state and
local government agencies, to meet the objective of
reduction of youth tobacco usage, or (2) may expend such
amounts directly to speed the reduction of underage tobacco
use.
D. Abatement Procedures
Upon payment of its allocable share of any Surcharge, a tobacco product
manufacturer may petition the FDA for an abatement of the surcharge, and shall
give timely written notice of such petition to the attorneys general of the
several states.
1. The FDA shall conduct a hearing on an abatement petition
pursuant to the procedures set forth in sections 554, 556
and 557 of Title 5 of the United States Code.
2. The attorneys general of the several states shall be
entitled to be heard and to participate in such a hearing.
3. The burden shall be on the manufacturer to prove, by a
preponderance of the evidence, that the manufacturer should
be granted an abatement.
4. The FDA's decision on whether to grant an abatement, and the
amount thereof, if any, shall be based on whether:
(a) The manufacturer has acted in good faith and in full
compliance with the Act, and any FDA rules or
regulations promulgated thereunder, and all applicable
federal, state or local laws, rules or regulations;
(b) In addition to full compliance as set forth in (a)
above, the manufacturer has pursued all reasonably
available measures to attain the required reductions;
(c) There is evidence of any action, direct or indirect,
taken by the manufacturer to undermine the achievement
of the required reductions or other terms and
objectives of the Act; and
(d) Any other relevant evidence.
5. Upon a funding by the FDA that the manufacturer meets the
grounds for an abatement under the standards set forth
above, it shall order an abatement of up to 75% of the
Surcharge with interest at the average United States 52-Week
Treasury Bill rate for the period between payment and
abatement of the surcharge. The FDA may consider all
relevant evidence in determining what percentage to order
abated.
6. Any manufacturer or state attorney general aggrieved by an
abatement petition decision of the FDA may seek judicial
review thereof within 30 days in the United States Court of
Appeals for the District of Columbia Circuit. Unless
otherwise specified in this Act, judicial review under this
section shall be governed by sections 701-706 of Title 5 of
the United States Code.
7. Notwithstanding the foregoing, a tobacco product
manufacturer may neither file an abatement petition or seek
judicial review of a decision denying an abatement if it has
failed to pay the surcharge in a timely fashion.
8. No stay or other injunctive relief enjoining imposition and
collection of the surcharge amounts pending appeal or
otherwise may be granted by the FDA or any court.
[Source/precedent: 5 U.S.C. Sections 554, 556-57, 701-06]
Appendix VI: State Enforcement Incentives
The details of the state enforcement incentives are as follows:
In addition to FDA and other federal agency, state attorney general and
other existing state and local law enforcement authority under current law,
the proposed Act requires the following:
A. States must have in effect a "no sales to minors" law providing that
it is unlawful for any manufacturer, retailer or distributor of tobacco
products to sell or distribute any such products to any persons under the age
of 18. (42 U.S.C. Section 300X-
26(a)(1); 45 C.F.R. Section 96.130(b)). This state statutory requirement
remains in addition to the federal regulatory prohibitions on retail sales of
tobacco products to children and adolescents (also defined as persons under
the age of 18) adopted by the FDA in its August 28, 1996 Final Rule (to be
codified at 21 C.F.R. Section 897.14 et seq.);
B. States must conduct random, unannounced inspections at least monthly,
and in communities geographically and statistically representative of the
entire state and its youth population to ensure compliance with the "no sales
to minors" law, and implement "any other action which the state believes are
necessary to enforce the law." (goes further than 45 C.F.R. Section 96.130(c),
96.130(d)(1),(d)(2);
C. States must conduct at least 250 random, unannounced inspections of
retailer compliance with the "no sales to minors" law per year for each 1
million of resident population, as determined by the most recent decennial
census. In the case of tribes, tribes must conduct no fewer than 25 such
inspections per location of point of sale to consumers per year, conducted
throughout the year.
Annual State Reporting Requirements
As a condition to receiving any moneys due and payable pursuant to the
Act, States must annually submit a report to the FDA and the States must make
their reports public (except as provided in (C) below) within the state. Such
state reports must include at least the following:
A. A detailed description of enforcement activities undertaken by the
state and its political subdivisions during the preceding federal fiscal year;
B. A detailed description of the state's progress in reducing the
availability of tobacco products to individuals under the age of 18, including
the detailed statistical results of the mandated compliance checks;
C. A detailed description of the methods used in the compliance checks,
and in identifying outlets which were tested, with the FDA providing the state
appropriate confidentiality safeguards for information provided to the agency
regarding the timing and investigative techniques of state compliance checks
that depend for their continued efficacy upon such confidentiality;
D. A detailed description of strategies the state intends to utilize in
the current and succeeding years to make further progress on reducing the
availability of tobacco products to children and adolescents; and
E. The identity of the "single state agency" responsible for fulfilling
the Synar Amendment and the Act's requirements, including the coordination and
report of state efforts to reduce youth access to tobacco products sold or
offered for sale in the state.
(strengthens and extends beyond 45 C.F.R. Section 96.130(e) by adding greater
detail to the requirements and transferring reporting obligation of states to
FDA from HHS)
Required Attainment Goals for State Enforcement
The FDA is required to make an annual determination, prior to allocating any
moneys allocated to the states under the proposed Act for the purposes of
defraying public health care program expenditures (but not including or
conditioning moneys made available under the Act for the payment of private
claims), as to whether each state has "pursued all reasonably available
measures to enforce" the prohibition on sales of tobacco products to children
and adolescents.
In addition to the criteria set forth in 45 C.F.R. Section 96.130, the
proposed Act will require the FDA to kind presumptively that the state has not
"pursued all reasonably available measures to enforce" the "no sales to minors
law" unless the state has achieved, in the following years, the following
compliance rate results for the retail compliance checks required by the Act:
<TABLE>
<CAPTION>
Federal Fiscal Year Retail Compliance Check
Under Review Performance Target
- ------------------------------------ ----------------------------
<S> <C>
5th Year after year of 75%
enactment of Act
7th Year after year of 85%
enactment of Act
10th Year after year of 90%
enactment of Act and
annually thereafter
</TABLE>
These compliance percentages are expressed as the percentage of the
random, unannounced compliance checks conducted pursuant to the Act for which
the retailer refused sale of tobacco products to the potential underage
purchaser. (note: these performance targets are far more stringent on the
states than those in the Synar Amendment, which sets as a "final goal" a
target of no less than 80% (i.e., an inspection failure rate of no more than
20%) within "several years." See 45 C.F.R. Section 96.130. In addition, the
proposed Act's targets are mandatory, uniform national minimum performance
requirements, while the Synar Amendment calls for HHS simply to "negotiate" an
"interim performance target" beginning in 1998).
Reduction of Money Allocated to State Not
Meeting Performance Targets
If a state does not meet the Act's "no sales to minors" performance
targets for retail compliance checks, then the FDA may refuse to pay to that
noncomplying state certain moneys otherwise payable to that state under the
proposed Act. No state shall be held responsible for sales to underage
consumers outside that state's jurisdiction. Specifically, the FDA may
withhold from such state an amount equal to 1% of moneys otherwise payable to
that state under the Act to defray health care expenditures of public programs
of medical assistance for each percentage point by which the state's
performance on its mandatory compliance checks fails to meet the required
performance targets for that year. In no event may the FDA withhold more than
20% of the money otherwise allocable to such state under the Act for such
purposes.
The FDA shall reallot any Withhold Amounts once final, to states that
exceed the Act's Performance Targets, in amounts and by an allocation formula
determined by the agency to reward those states with the best record of
reducing youth access to tobacco products.
Appeal Following Withhold
Upon notice from the FDA of a withhold of moneys (the "Withhold Amount")
allocable to the state under the Act, a state subject to such notice of
withhold may petition the agency for a release and disbursement of the
Withhold Amount, and shall give timely written notice of such petition to the
attorney general for that state and to all tobacco product manufacturers. The
agency shall hold, and invest in interest bearing securities of the United
States government or its agencies, any Withhold Amounts subject to a pending
petition for release and disbursement or related appeal until final
disposition of such petition and appeal.
In the case of petition by a state for a release and disbursement of a Withhold
Amount, the agency's decision on whether to grant such a petition, and the
amount thereby released and disbursed, if any, shall be based on whether:
(1) the state has acted in good faith and in full compliance with the
Act, and any agency rules or regulations promulgated thereunder;
(2) the state has pursued all reasonably available measures to attain
the Retail Compliance Check Performance Targets and Youth Smoking Reduction
Goals of the Act;
(3) there is evidence of any action, direct or indirect, taken by the
state to undermine the achievement of the Retail Compliance Check Performance
Targets and Youth Smoking Reduction Goals or other terms and objectives of the
Act; and
(4) any other relevant evidence.
The burden shall be on the state to prove, by a preponderance
of the evidence, that the state should be granted a release and disbursement
of the Withhold Amount or any portion thereof. Prior to decision, the agency
shall hold a hearing on the petition, with notice and opportunity to be heard
given to the attorney general of that state and to all domestic tobacco
product manufacturers.
Upon a finding by the agency that the state meets the grounds,
as set forth above, and the burden of proof for a release and disbursement of
a Withhold Amount, then it shall order a release and disbursement of up to 75%
of the Withhold Amount appealed, and it shall so release and disburse to the
state that amount, with interest at the average United States 52-Week Treasury
Bill rate for the period between notice and release of such Withhold Amount.
The agency may consider all relevant evidence in determining that percentage
of the Withhold Amount to order released and disbursed.
Any manufacturer or state attorney general aggrieved by a
Withhold Amount decision of the agency may seek judicial review thereof within
30 days in the United States Court of Appeals for the District of Columbia
Circuit. Unless otherwise specified in this Act, judicial review under this
Section shall be governed by Sections 701-706 of Title 5 of the United States
Code.
No stay or other injunctive relief enjoining imposition of the
withhold pending appeal or otherwise may be granted by the FDA or any court.
No appeal may be taken from an agency decision denying a
petition to release and disburse a Withhold Amount unless filed within 30 days
following notice of such decision. No stay or other injunctive relief,
enjoining imposition of the withhold pending appeal or otherwise, may be
granted, by any court or administrative agency. Appeals filed hereunder shall
be made to the District of Columbia Circuit Court of Appeals and, on appeal,
shall be governed by the procedural and evidentiary provisions of the
Administrative Procedures Act, unless otherwise specified in this Act. The
judgment of the District of Columbia Court of Appeals on appeal shall be final.
Appendix VII - Restrictions on Point of Sale Advertising
The details with respect to point of sale advertising restrictions are
as follows:
1. There shall be no Point of Sale Advertising of tobacco products,
excluding adult-only stores and tobacco outlets, except as
provided herein:
A. Each manufacturer of tobacco products may have not more than
two separate point of sale advertisements in or at each
location at which tobacco products are offered for sale,
except any manufacturer with 25 percent of market share may
have one additional point of sale advertisement. A retailer
may have one sign for its own or its wholesaler's contracted
house retailer or private label brand.
No supplier of tobacco products may enter into any
arrangement with a retailer that limits the retailer's
ability to display any form of advertising or promotional
material originating with another supplier and permitted by
law to be displayed at retail.
B. Point of Sale advertisements permitted herein each shall be
of a display area not larger than 576 square inches (either
individually or in the aggregate) and shall consist of black
letters on white background or recognized typographical
marks. Point of Sale advertisements shall not be attached to
nor located within two feet of any fixture on which candy is
displayed for sale. Display fixtures are permitted signs
consisting of brand name and price, not larger than 2 inches
in height.
2. Except as provided herein, Point of Sale Advertising shall mean
all printed or graphical materials bearing the brand name (alone
or in conjunction with any other word), logo, symbol, motto,
selling message, or any other indicia of product identification
identical or similar to, or identifiable with, those used for any
brand of cigarettes or smokeless tobacco, which, when used for its
intended purpose, can reasonably be anticipated to be seen by
customers at a location at which tobacco products are offered for
sale.
3. Audio and video formats otherwise permitted under the FDA Rule may
be distributed to adult consumers at point of sale but may not be
played or shown at point of sale (i.e., no "static video
displays").
Appendix VIII - Public Disclosure of Past and Future Tobacco Industry
Documents and Health Research
The legislation would ensure that previously non-public or confidential
documents from the files of the tobacco industry - including the results of
internal health research -- are disclosed to the federal government, the
States, public and private litigants, health officials and the public. The
legislation also would provide for binding, streamlined and accelerated
judicial determinations with nationwide effect in the event that disputes
remain over the legitimacy of claims of privileges or protections, including
attorney-client privilege, and work product and trade secret protections.
1. Under the Act, the manufacturers and CTR and TI would
establish a national tobacco document depository that is
open to the public and located in the Washington, DC area.
This depository would serve as a resource for litigants,
public health groups, and anyone else with an interest in
the tobacco industry's corporate records on the subjects of
smoking and health, addiction or nicotine dependency, safer
or less hazardous cigarettes and underage tobacco use and
marketing. Specifically:
o The depository would include all of the documents
produced to the other side by the manufacturers, CTR
and TI in the Attorneys General actions (including all
documents selected by plaintiffs from the Guilford,
U.K. repository), Philip Morris Companies Inc.'s
defamation action against Capital Cities/ABC News, the
FTC's investigation concerning Joe Camel and underage
marketing, the Haines and Cipollone actions and the
Butler action in Mississippi.
o In the event there are additional existing documents
discussing or referring to health research, addiction
or dependency, safer/less hazardous cigarettes,
studies of the smoking habits of minors and the
relationship between advertising or promotion and
youth smoking that the manufacturers or trade
associations have not yet completed producing as
agreed or required in the above actions, such
additional documents shall be placed in the depository
commencing within 90 days of the effective date of the
Act, and concluding as soon as practicable thereafter.
o Except for privileged and trade secret materials
(which shall be exempt from disclosure into the
depository), all documents placed in the depository
shall be produced without any confidentiality
designations of any kind.
o Along with these document collections, the
manufacturers and trade associations shall place into
the depository all indices (as defined by the court's
order in the Minnesota Attorney General action) of
documents relating to smoking and health, including
all indices identified by the manufacturers in the
Washington, Texas and Minnesota Attorney General
actions. Any computerized indices shall be produced in
both a computerized and hard-copy form. (If redactions
of any such indices are required in order to protect
any privileged or trade secret information, such
redactions shall be subject to the procedures set
forth below for adjudicating any disputes over claims
of privilege and trade secrecy.)
o All documents placed into the depository shall be
deemed produced for purposes of any litigation in the
United States. The court in each underlying action
shall retain the discretion to determine the
admissibility on a case-by-case basis of any such
produced document.
o The tobacco industry shall bear the expense of
maintaining the depository.
2. Immediately upon finalizing a resolution of these
litigations with the Attorneys General, without waiting for
Congress to embody these requirement in the proposed
legislation, the manufacturers, CTR and TI shall:
o Commence to conduct a good-faith, de novo, document-by-
document review of all documents previously withheld
from production in tobacco litigation on grounds of
privilege. The purpose of this review shall be to
identify documents which the reviewer concludes are
not privileged. All documents so identified shall be
placed in the depository as soon as practicable.
o Prepare and place in the national depository as soon as
practicable a comprehensive new privilege log of all
documents that the manufacturers, CTR and TI, based on
their de novo review, continue to deem to be
legitimately privileged against disclosure.
o Itemize on this new privilege log all of the
descriptive detail that the court has required
defendants to furnish document by-document on their
privilege logs in the Minnesota Attorney General
action, thereby ensuring that there will be sufficient
detail on the privilege logs to enable any interested
person to determine whether he or she wishes to
challenge claims of privilege or trade secrecy on any
particular documents.
3. The Act also would establish a panel of three federal
Article III judges, appointed by the Judicial Conference, to
hear and decide all disputes over claims of privilege or
trade secrets, except for those disputes that already have
been determined by other federal or state courts at the time
the Act is enacted or are pending in cases prior to the time
the Court has had an opportunity to begin to review
privilege claims.
o The three-judge panel shall decide all privilege or
trade secrecy challenges asserted by the federal
government, the States, public and private litigants,
health officials and the public with respect to
tobacco industry documents.
o The Act would vest exclusive federal jurisdiction for
the three judge panel to decide any such disputes in
accordance with the ABA/ALI Model Rules and/or
principles of federal law with respect to privilege
and the Uniform Trade Secrets Act with respect to
trade secrecy. Any such adjudication shall be
reviewable only in the manner prescribed by 28 U.S.C.
[Sec. 1254-certiorari].
o The panel's adjudications shall be binding upon all
federal and state courts in all litigation in the
United States.
o The panel shall be authorized to appoint Special
Masters pursuant to Fed. R. Civ. P. 53, with the cost
to be borne by the tobacco industry.
o Once the Act becomes effective and the three-judge
panel is appointed, all disputes that may arise
concerning privilege claims by the manufacturers or
trade associations relating to smoking and health
subjects must be resolved through this process, except
for disputes in pending cases that can be resolved
prior to the time the Court has had an opportunity to
begin to renew privilege claims.
o If a claim of privilege is not upheld, the three-judge
panel shall consider whether the claimant had a good
faith factual and legal basis for an assertion of
privilege and, if the claimant did not, shall assess
against the claimant costs and attorneys' fees and may
assess such additional costs or sanctions as the panel
may deem appropriate.
4. In order to expedite the process of judicial review and to
ensure that the federal government, the States, public and
private litigants, health officials and the public no longer
need to be concerned that claims of privilege and trade
secrecy are being asserted improperly or without legal
basis, the legislation would create an accelerated process
by which any public or private person or entity, subject to
a right of intervention by any other interested person or
entity, may challenge any claims of privilege or trade
secrecy before the three- judge panel. Under the Act, a
person or entity filing such an action to challenge to
privilege or trade secrecy will not need to make any prima
facie showing of any kind as a prerequisite to in camera
review of the document or documents at issue.
5. The manufacturers would also be subject to certain continuing
disclosure obligations over and above the aforementioned
provisions and whatever further judicial discovery may be
required in pending or future civil actions. Specifically,
for the first time ever, the manufacturers would be required
to disclose all original laboratory research relating to the
health or safety of tobacco products, including, without
limitation, all laboratory research relating to ways to make
tobacco products less hazardous to consumers.
o Whenever such research is performed in the future, the
manufacturers shall disclose its results to the FDA.
o In addition, all such research (except for legitimate
trade secrets) shall be produced to the national
document depository described above. In addition, the
manufacturers and trade associations shall produce
into the depository on an ongoing basis any future
studies of the smoking habits of minors or documents
discussing or referring to the relationship, if any,
between advertising and promotion and underage smoking.
o No original laboratory research relating to the health
or safety of tobacco products shall be withheld from
either the FDA or the depository on grounds of
attorney-client privilege or work product protection.
6. The tobacco manufacturers' and CTR's and TI's compliance
with any of the provisions of this Act shall not be deemed a
waiver of any applicable privilege or protection.
7. The Act will also incorporate reasonable and appropriate
provisions to protect against the destruction of documents
bearing on matters of public health or safety.
