Bill Godshall on the Master Settlement Agreement
Following is the plenary presentation I gave about the Master
Settlement Agreement (MSA) on Tuesday (8/24/99) at the
Fifth Annual National Tobacco Control Conference in Orlando.
While monitoring the settlement negotiations between the State
Attorneys General and the tobacco industry last summer and fall,
and after analyzing the MSA last November, many public health
and civil justice advocates concluded that the MSA provides far
greater benefits for tobacco manufacturers than for public health.
After failing to convince the AGs to oppose the deal, health
advocates, hospitals, counties, and others went to court in many
states to challenge the MSA. Of these, court challenges remain
in nine states, with the only public health based challenge existing
in Pennsylvania. Additionally, several federal lawsuits now
challenge the MSA, and experts anticipate far more litigation in
the future, some of which ultimately may unravel the MSA.
During this past year, many Attorneys General have greatly
exaggerated the MSA's public benefits while not even
acknowledging its tobacco industry protection provisions;
Congress (at the request of the National Governor's Association,
National Association of Attorneys General and National
Conference of State Legislatures) gave away the federal share
of Medicaid settlement funds to the States with no conditional
requirements for tobacco control programs; courts in most States
have politically rubber stamped the MSA without evaluating its
merits or its many legal precedents and contradictions; more
tobacco industry protection loopholes have been discovered in
the MSA; violations of the MSA have gone unenforced; and only
a few States have allocated an adequate amount of settlement
funds for tobacco control programs.
That said, the MSA did contain public health benefits, chief
among them is the $.40 per pack price hike by the cigarette
companies to more than cover the costs of payments to States.
Reports filed by cigarette makers in the first and second
quarters of this year state that domestic cigarette sales
dropped by slightly greater than 10% in the past year, much of
which was a result of the MSA.
Building on Mike Pertschuk's soundbite that "the tobacco
industry will give an inch to gain a decade," it appears that in
settling with the States, "the tobacco industry gave 10% to gain
eternity," as the unprecedented and extensive liability release
and offset provisions in the MSA, unless struck down by the
courts, will extend in perpetuity.
The MSA's advertising restrictions have eliminated tens of
thousands of large outdoor billboards, but these have already
been replaced by hundreds of thousands of smaller cigarette
billboards located outside of nearly every retailer; right at
children's eye level. And while the MSA eliminates nearly all
small scale brand sponsorships, tobacco companies are likely
to increase overall sponsorship budgets by greatly expanding
national level brand sponsorships like the Winston Cup.
The MSA's lobbying limitations on tobacco companies, corporate
culture commitments, prohibitions on material misrepresentations,
and many other clauses that purportedly protect public health,
contain so many loopholes as to render them moot. For example,
nothing in the MSA prohibits the National Smoker's Alliance,
chambers of commerce, manufacturers associations, restaurant
associations, tobacco retailer groups, anti tax organizations and
others who receive tobacco industry funding from continuing
many of these same practices that the manufacturers are now
prohibited from doing.
Even when the tobacco companies violate provisions in the
MSA, only the AGs are permitted to take enforcement action
against the violations. The Pennsylvania activists who correctly
accused Philip Morris of violating the MSA in May by sponsoring
more than 100 Marlboro billboards with the Wawa convenience
store chain are still waiting for PA AG Mike Fisher to initiate
enforcement action against Philip Morris. While these billboards
were ultimately removed due to public pressure and media
scrutiny, Philip Morris has continued claiming these billboards
didn't violate the MSA.
The lesson here for the public health community is that enforcing
even blatant violations of the MSA by tobacco companies will
require citizen watchdogs and political pressure on the AGs.
And while the $246 billion payments to states over 25 years
appears in much testimony and press releases, the MSA's
volume adjustment provision will reduce tobacco industry
payments at nearly the same rate as the drop in domestic
cigarettes sales. For example, the overall decrease in domestic
cigarette sales of 12% during the past two years will result in
about a 12% decrease in payments to States next year and
every year thereafter. And if cigarette sales continue to drop at
the almost 2% annual rate they have over the past two decades,
all States will receive a total of about $160 billion, instead of
$246 billion, over the next 25 years.
If the federal DOJ files suit against the tobacco industry and
settles for about $125 billion over the next 25 years, which many
Wall Street tobacco stock analysts and tobacco litigation experts
think will occur, the ensuing cigarette price hike will further reduce
domestic cigarette sales and corresponding industry payments
to states. Similarly, an enormous damage award in the Engle
class action suit here in Florida and/or other court verdicts
against the tobacco industry will further increase cigarette prices,
which will reduce cigarette sales and industry payments to the
states. And we must never forget that the Engle case wouldn't
have gone to court had the AGs June 20, 1997 Global Bailout
been enacted by Congress.
Absent the federal government conceding unwarranted liability
releases and offsets to the tobacco industry in settling its
anticipated lawsuit, and I expect public health and civil justice
advocates to vigorously oppose such immunity, continued
litigation against the tobacco industry should bring about
additional cigarette price hikes, reduced domestic cigarette
sales and reduced industry payments to States. This is the
course that appears to hold the most promise for sharply
reducing tobacco addiction in this country and throughout the
The tobacco industry fully agrees with this scenario, which is why
it will insist upon massive immunity in any settlement with the
federal government, and why it will continue stepping up tort
deform lobbying efforts at the federal and state levels. And with
settlement payments to states dependant upon cigarette sales
volume, governors and state legislatures will become ever more
vulnerable to the specious argument that immunizing the tobacco
industry from lawsuits is in the States' best financial interests.
Several weeks ago, five tobacco state governors advocated
that very argument (and cited a study funded by Philip Morris)
in a letter to other governors urging them to oppose a federal
lawsuit against the tobacco industry.
To prevail over this economic sophistry, public health and civil
justice advocates must redouble their efforts to conduct more
research and educate state and federal government officials
that the $6-$7 billion in annual settlement payments to the
States are only a fraction of the tens of billions of dollars spent
annually by the States, local governments, public entities and
other releasing parties in the MSA to pay for the many damages
caused by tobacco products.
A recently discovered tobacco industry protection loophole in the
MSA that you will hear a lot about in the future is referred to by
tobacco companies as "gray market cigarettes," by importers as
"repatriated cigarettes," but what is really "cigarette dumping into
By considering only domestically sold cigarettes in determining
MSA payments to States, and by lobbying for federal and state
laws to ban so-called gray market cigarettes in America,
tobacco companies are trying to preserve their predatory
marketing practices in developing nations where they sell
tobacco at below cost in order to increase smoking rates and
market share. At the same time, these same below cost
cigarettes that importers ship back to America are exempted
from tobacco industry payments to states. Either way,
tobacco companies win.
If Philip Morris, BAT and RJ Reynolds truly wanted to eliminate
this growing problem that they masterminded, they would simply
raise the price of cigarettes intended for export to match the
prices of cigarettes they sell in America, as that would protect
public health in the third world and preserve settlement payments
to the states. But don't expect this to occur.
Gray market tobacco industry protection bills, along with the
model statute (Exhibit T in the MSA) legislation to protect
participating manufacturers from price competition by non-
participating manufacturers, present opportunities for tobacco
control advocates to expose these scams and to amend
these bills with effective public health provisions as they travel
through state legislatures.
In negotiating the MSA, tobacco companies also inserted
provisions that recognize, and that appear to provide incentives
for the enactment of, state laws to criminalize youth for the
purchase or possession of cigarettes. Over the past five years,
tobacco manufacturers and retailers have aggressively lobbied
for these laws to preserve their ability to market cigarettes to
youth, as these laws shift criminal and civil liability away from the
adults in the tobacco industry and onto their youthful prey. These
laws have never proven effective in reducing youth smoking, and
instead appear to increase the youths desire to experiment with
the forbidden fruit. I strongly urge public health advocates to
continue opposing these bills that scapegoat youth for the
outrageous behavior of the tobacco industry.
Big Tobacco also continues pushing preemption bills, like those
now pending in Wisconsin and Michigan. Health advocates must
be prepared to take time out of their campaigns to secure
settlement funds to fight the tobacco industry on these and other
In creating the American Legacy Foundation, the MSA prohibits
its programs from criticizing the tobacco industry, which has
proven most effective method of tobacco control education and
counter advertising. The MSA also requires the Foundation to
address other drugs of abuse in its programs. Will these
requirements turn the American Legacy Foundation into another
DARE program or Partnership for a Drug Free America, whose
programs make politicians and the public feel good, but that
aren't effective in reducing drug addictions? I hope Chuck Wolfe
can prove my concerns wrong.
Many health advocates have been betrayed by their governors
and legislatures, who diverted settlement funds to programs
having nothing to do with tobacco. We cannot allow this to
continue. Stan Glantz was right at last year's conference when
he said "politicians understand two things, money and pain."
Tobacco companies are giving the politicians huge amounts
of money, and health advocates must be willing to criticize the
politicians who attempt to divert settlement funds away from
tobacco control programs.
An excellent example is this full page ad that appeared in today's
Orlando Sentinel challenging Governor Jeb Bush and other State
officials to restore funding for the very effective "Truth" campaign.
Also, expect to see more government funded programs that are
called tobacco control, but which are really corporate welfare,
public relations and/or ineffective programs. As the California
experience has taught us, eternal vigilance is essential for
keeping tobacco control programs adequately funded and
Finally, in carrying out these many important activities in this
time of opportunities and threats, health advocates must put
aside self interests and truly collaborate, as we cannot allow the
tobacco industry to prevail.