Master Settlement Agreement, or a Masterful Status-quo Agreement?

November 23, 2008 marks ten years since 46 state Attorneys General and the major American tobacco companies signed the big tobacco Master Settlement Agreement (MSA). Besides being the largest legal settlement in history and resolving an unprecedented onslaught of litigation against the industry, the MSA required tobacco companies to pay approximately $200 billion to the states over 25 years (subject to tweaks for inflation and market share).

Trash receptacle with ashtray topThe devil, however, was in the details. Heralded at the time as a defeat for the tobacco industry and a victory for public health, the MSA has actually done little to change the status quo. It ended some forms of tobacco advertising, for example, but the restrictions adopted were in reality less important to the industry than to public health authorities. The industry abandoned billboards and transit ads, ads in magazines with a high youth readership, and ads within a certain distance of schools. However, it continued marketing through high levels of advertising, bar nights, event sponsorships, direct mail, and retail placements.

As usual, Philip Morris (PM) was far ahead of the game back in November 1998. PM lawyers had drafted a Master Settlement Agreement-type deal long before the states filed their lawsuits. PM documents show that in the wake of the 1989 Rose Defrancesco Cipollone trial, lawyers conceived of a bargaining strategy called "Project Rainbow." The Cipollone case was the first lawsuit against a major tobacco company to result in an award to the plaintiff, albeit a relatively small one. Small or not, any verdict in favor of a plaintiff in a tobacco case posed a distinct threat to the tobacco industry, and PM took the verdict seriously. The loss in the Cipollone case got PM thinking about how it could deal with similar cases in the future. The best way, they decided, would be to not have to deal with them at all.

Under a bargaining strategy devised in Project Rainbow, PM would agree to major advertising concessions -- even a complete ban on cigarette advertising -- in exchange for legislated immunity from all future personal injury lawsuits. In Project Rainbow, PM also sought ways to forestall legislation that would be "at least as bad or worse" than the concessions to which PM was willing to agree, while "[securing] a competitive advantage" against other cigarette manufacturers and "[reducing] the level of criticism directed toward Philip Morris and the rest of the industry."

Arguably, the MSA has fulfilled many of these goals. An early proposed version of the MSA, rolled out in 1997, would have required Congressional approval to enact. It took the form of a bill sponsored by Senator John McCain and actually contained a provision granting legal immunity for the tobacco industry against future personal injury cases -- just as PM sought in Project Rainbow. The provision raised protest from public health advocates, though, and the bill was defeated.

Socialism for Corporations

Money bagsFor decades, tobacco companies have privatized profits from cigarettes, while allowing the government to foot the bill for treating sick smokers. Before Treasury Secretary Henry Paulson's massive $700 billion bank bailout, the MSA was the most obvious example of how U.S. corporations privatize profits while socializing the costs of their products and activities. The reason the states gave for suing the tobacco companies was to recoup billions of dollars the government had spent treating people who had come down with smoking-related diseases. The states got their money all right, but have used hardly any of it to relieve the social or financial burdens caused by smoking.

By Philip Morris's own calculations, states have put only only 3.5% of their payments towards tobacco control programs and activities since the payouts started in 1998. Shortly after the MSA was signed, the U.S. Centers for Disease Control issued guidance saying that to be effective in gaining traction against smoking, at least 25% of each state's MSA payment should be directed toward a comprehensive tobacco control program.

For once, it seemed, the states had the money and guidance they needed to take strong action to reduce smoking-related disease.

Public Health? What Public Health?

In the time since then, the states have largely ignored CDC's advice and spent their MSA money on projects completely unrelated to tobacco control. North Carolina used its MSA funds to create a museum about tobacco farming. Kentucky built a veterinary center for diagnosing illnesses in horses. Virginia used $80 million of their settlement funds to bring broadband Internet service to rural parts of the state. States have used the money to fill potholes, pay debts, finance new infrastructure, pay for college scholarships and a huge number of other unrelated uses.

How the MSA is being used. (Source: Campaign for Tobacco-Free Kids)Predictably, the Campaign for Tobacco-Free Kids, American Heart Association, American Cancer Society, Cancer Action Network and the American Lung Association issued a joint press release on November 21, complaining about the lost public health opportunity of misspent MSA funds. But was this any surprise? Quite honestly, even the most politically unengaged American citizen could have predicted the result. In the absence of some mandate (backed by a strong enforcement mechanism) saying MSA funds must be spent on tobacco control, throwing a billion-dollar windfall to legislators was bound to create a free-for-all, pork-barrel feeding frenzy. It's hard to believe that the high-level state attorneys at the National Association of Attorneys General couldn't have foreseen that legislatures would divert the windfall to other causes.

Was this really the best all these people could do on behalf of public health? Write a fantastically expensive settlement agreement and hope that legislators would do the right thing? It seemed completely absurd at the time. In hindsight, it's even sadder and more absurd.

Let's face it. Despite all the crowing from the Attorneys General about how wonderful it is, the MSA has done remarkably little in the last ten years to change the norm of smoking in our culture or relieve the burden of disease and death nicotine addiction brings upon this country. Most of the real gains made against smoking since then have resulted not from the MSA, but from unrelated measures the industry still fights, like higher cigarette taxes and statewide workplace smoking bans that end smoking in restaurants and bars.

Maintaining the Status Quo: Highly Valuable for the Tobacco Industry

Since the MSA was signed, the major American tobacco companies have been convicted in federal court of conspiracy and racketeering, and the industry continues to be responsible for the deaths of well over 400,000 Americans each year, with no change in sight. The government is still footing the bill for tobacco-related illness and the industry remains a well-accepted part of mainstream corporate America, carrying on business as usual, partnering with youth and community groups, drug store chains, universities and medical schools and promoting cigarettes as "light" and "luscious." Cigarettes are still sold in virtually every grocery, drug and convenience store in the country. Smoking is still portrayed as normal behavior in movies and on TV. The industry is spending more than ever before on marketing. They've increased the price of a pack of cigarettes by about $1.10 since the settlement was signed, but they only needed half of that to pay for the settlement. The price increase beyond that point simply assured that tobacco companies would make more profits than ever.

Little has really changed overall because of the MSA. The tobacco companies are doing better than ever, just the way they planned.