Report Concerning Promotional Matters Prepared by Outside Legal Counsel to Tobacco Companies Rendering Legal Advice to TI Employees, PM Employee and Copied to TI Employees.
Date: 15 Feb 1988
Length: 13 pages
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Length: 13 pages
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- Becker, K.L.
- Florio, D.
- Soanlan, R.
- Martin, C.
- Boltz, J.
- Curry, M.
- Nell, B.
- Duhaime, P.
- Duffin, A.
- Minshew, G.
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ADVERTISING (a) Should the free distribution of cigarettes be prohibited? [This set of talhin~ points, w,~ich includes a discussion of sampling, also addresses the broader issue of cigarette advertising and promotion.] o (D o
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a~~ ~"''=~s =c.r ~oe Katz The Case Against Restriction by New Jersey of Cigarette Advertising a~d Promotion cicaret~e smckln- by y_.u... DeoD!e. They have !one Co!lowed ~ ~ .no their brand m===ace= and _a...-~== di=tribu'.icn ~= voun- oeo.D!e. All U.S. cigarette makers follow to a volumtary Code of Cigarette Sampling Practices tha~ limit~ distribution of sample packs to smokers 21 cr ever. The code dictates immediate dismissal of amy employee or contractor who deem mot observe this standard or who operates within specified dimtances from centers of youth activity. Any restriction cf sam~limg or amy other markeDin9 practice traditional to the bram/ promotlom of cigarettes to adult ~mokers, therefore, is umnecessary, untimely and, as will be shown, ccntrary to bo~h federal statute am~ %he free speech and equal prcDection guarantees of the U.S. Constitution. Remtrictien of sanD!inn by statem or municipal!ties is f6rbidden hv ..... f=~=~a" ~--u*e~=~ ~ and c!earlv ~- c~nflict with the Supremacy Clause ef the U.S. Conmti%u%ion. in the Cigarette Labeling and Adver~isimg Act of !959, Congress established "a comprehensive Federal program to deal with cigarette labeling and advertising with respect to any r~!ationship between smoking and health." Congress specifically sough~ to preven~ commerce and the national economy being "impeded by diverse [and] nonuniform...advertisimg regulations." The Congress, therefore, wrote into the and this preemption: "No requiremen~ or prohibition based oz smoking amd hea!%h shall be imposed under State law with respect to page o 0~ o) 0 (D
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the advertisin~ or ~romo%ion =f any cigarettes the • -.. ~ ~ ~ packages of wn=-~ are _a.eled conformity with the provisions of ~his Act." All cigarette packs sold in ~he U.S. today carry one of four pia~v.__, worded, unambiguous healDh ..__m==s=~e=- _ selected by. the Con~res~ ~o rotate thereon. Similar messages appear i: all brand advertising. States may act then further restric~ the adver%isins and promotion of those clgareD~es. =-ecause the Concress e::Dress!y DreemDt.ed =-= s~=~e Or local action, i5 is doub~fu! a court would find it~ necessary or aDDroDria5e mddres=_ ~nhere-~. .. First. and Fourr.eenDh Amendment !=pli.ca1~!ons. if a ccur> were to de so, it is likely the res~rlc%io~-s would be held in vio!aticn cf the Drotec~io~_s cf ~hose amendments. Th9 distribution ~ free produc~ samples to adul~ smokers is as traditona! a promotional practice as buyi~ b~llboar~ or magazine space for brands messages. Like advertising, promotions for "mature" amd persomal choice produc~s like cigarettes, or cologze, or watches invite consumer to try the featured brand or to maimtain loyalty %o his current brand. Unlike promotional activity for newer consumer items such as lap-top computers or she!f-sDable, no,refrigerated prepared dinners, ads for cigarettes dc not sell product concept to a po~.-.-z~ia! first-time buyer. .=rand promotion for ma~ure produc~ - " . tcuti=g one brand over all other bran~s. !5 dee~ nc~ i~crease the pco! of u~ers. As %he chairman -= the Federal Trade Commi=sion wrote re=en%ly, "Surely no one ~hinks ga£o!iz-, = co=pazies do a!! 5h=5._ adver%isi~g merely ~o i~duce ~ew drivers i~o the market."* Cigarette promotions say "Smoke this brand." They dc no% say "Try a cigarette." Dis~ributiom cf free product samples 5o smokers goes one step further. I~ affords the adult smoker the chamce -- a~ no ezpezme -- tc compare another bramd -- often a new ~ne -- with thaD he or she already buys and smokes. To the eztent that restrictions oz sampling in%effete with the consumer receiving experience with or information abou~ brands, they offend First Amemdment values. Lim£timg %ruthful promotion of a legal product is a violation cf the rlgh~ of a manufacturer to give, and the right of the consumer to receive, information about a lawful producD. Further, discriminating improperly against a lawful produc~ &s a~ odds w.~h the equal protect'on 9uarantees of 5he Fourteenth Amendment. o o • 03 o page 2
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### Recently ~cme have claimed that a new Supreme Court declsloz, P:~adas v. Teur!sn of Puerto Rice, (i06 S. C~. 29C= [19BG:), has ~ened ...... ~ d~cr to state restrictlo-~_ on c!care~e advertisi..~.~- and s-emotlon~ . ~-._ ".h_~ = ~.zntrarv,. noah!no in Po~adas limits or alters the federal preemption. ~n fact~ in Pcsadas the Court re=~=~ %he =~rlnoen~ ~tandards,. . .... , . _~ set ~- ~SO =or content-based cur~ai!ment ef__.....=_..=_~ .... ~-:-~ speech. Restrictions DroDosed i- New Jersey can net be shown to _nee% those standards. The governing test was set by the Court in Central Hudson Gas ~ E!___!_ ~c v. ,. ..., , =~:~ . PcC (447 U ~ ~7 ~66 ).. it requires %hat purported ~overnment interests in restric%in~ commercial speech of ~ ....="~ " tha~ ~--~=~ restrlctiens be a ~=~.~_ product be "substantial, shown to directly and effectively advance those interests and that. restrictions be shown to be the least intrusive means of serving asserted goals. Prcpcnent~ can net demonstrate tha~ restricting cigarette prc~ctiona! activities would reduce clgarette consumption or contribute to further decrease in smoking by young people. (See "Advertising is Net a Significant Factor I~fluencing Young People to Smoke.") Measures that are proposed are not the least restrictive means available for curtailing consumption. Moreover, they are i!!-t!~ed in view of C~ngress' recent mandate manufacturers display explicit new health zessages of the Surgeon General c~ngresmieza! direction that the Secretary of Health and Human Services implement az educational program om "amy dangers ~o humam health presented by cigarette smoking." Since 1976, ~he Supreme Court has held repeatedly 5hat commercial speech may 2c~ be suppressed. The truthful sales messages of a lawful product, cigarettes, the= and new stand firuly under First A~and~ent pro~ecticn. Proponents of such suppression cannot meet ~rln;ez~ Ceztra! Hudson reguirements. ### The Supreme Court decision in Posadas does not mean w~=t~cb~- of c~-~rette advertis!nc and ere=orlon would survive constitutional chal!ence. The two sltua~icns d~=fer greatly. The advertlsln~ limltatl~-= sustained in Pesadas were res~riction~ in name only. They forbade ca~ino-gambling advertising "addressed" to Puerto Rice residents but sot advertising that would reach %hem. Restrictions proposed for cigarettes would effectively suppres~ the flew of truthfulcommercial information and the receipt cf same by adult smokers.
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• ~ ~ !m -" ~o~da~ ~nvo_ve_ cur~ai ent of communication abou~ an ac~ivi~, -- ~=~inc--_ c=~ing.___. -- %ha~ had long been il!~_~__ ~n Puerto Rice. Cigare%~es, by con%ras%, are a lawful produc% %hroughou% %he Fe~ada= ~==trlc~ions were, im effect, ecemomic developmem~ measure~, laws the Supreme Court was umders~andabiy re!ucDanD upped ;~ ligh~ of what i~ called Puerto Rico's "unique cultural and !eqa! him%cry." No such comsiderations would shield adver~isin9 and promotlom restrictions im New $ersey. ### Finally, comments of federal czmsti~u%ional authorities and civil liberties experts mince the July ~, ~98~, Posadas decision indicate Posadas canmot properly be read to affecD the commercial ~peecn doctrine as it a~pl~es to cigarette salem messages; c The U.S. Justice Department stated that, as a matter of law and policy, "the case for bannim9 cigarette a!verz~i_i_~ has • = - nc~ been made."~ The American Civil Liberties Union condemned such prope£a!s as "inconsistent wi~h the princ~~ of full and free presentation of information and opinion."** Additionally, the chairman cf the ..C h== writ%on that a ban on ~-.~ help The Tobacco Im_~tuDe=~. October I~, 1986 Letter from Daniel Oliver, Chairman, Federal Trade Commismicn, to Congres£mam Thomas J. Bli!ey, Jr., August i, 1986. Transcript of Proceedings, U.S. House of Representatives, C~m:i~tee on Energy and Commerce, Subcommittee on Health amd the Environment, Hearing c= Nature and Ezte:~ of Advertising Tobac=c Products, Washimg%om, D.C., Friday, August i, 195~. o 0~ page
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ADVERTISING (b) Should sporting events not advertise cigarettes or tobacco products? Corporate sponsorship of sporting events produces important economic benefits to the sports themselves, as well as to communities who host them. Direct Employment: Thousands of persons a4ze supported directly by these sports events. For example, 3000 drag racer drivers, each with a 3 to 4 person car crew, participate in one major racing series. Direct Expenditures: Corporate sponsorship helps keep ticket prices within the affordable range for fans. Each event produces gate receipts, and pays for the o~eration and maintenance of cars and the salaries of drivers and crews. Indirect Employment and Expenditures: Even the smaller sports events are often the largest activity to occur in many of the host towns. Visitors spend significant amounts of money on lodging, gasoline, restaurants, - souvenirs and incidental purchases that are relied upon by merchants in the local economy. Dimension: One major racing series alone awards more than $I0 million in prize money annually. Sponsoring companies contribute even more to advertise most events. This money flows, directly and indirectly, to businesses unrelated to the sports events themselves. 09 0 O~ O9 0
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In addition to the economic benefits of corporate sponsorship of sports and entertainment activities, there are important social, philosophical and legal arguments to support such sponsorship. As with any form of advertising, cigarette manufacturers wish -- and have the legal right -- to inform consumers about their products. Proponents of banning or restricting the advertising of lawful products in order to "protect" consumers exhibit a paternalistic attitude that underestimates the intelligence and responsibility of the American public. Such an attitude has no place in a free society. Unlike many nations, the United States government has few programs to promote sports and provides no subsidies to sports organizations. It is wrong for government to inhibit the right of athletes, entertainers, and sports organizations to seek financial support in the business community. Sporting and entertainment activities are not merely frills. In addition to being a means of livelihood for thousands of citizens, they are important sources of relaxation and enjoyment for millions of people. o o
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(a) SALES RESTRICTIONS Should unsupervised vending machine sales of cigarettes be banned or restricted? Legislation or policies prohibiting access by adult smokers to venting machines or to other retail sources are flagrant encroachment on the public's freedom to choose and the right of merchants to vend a lawful product. Less than 10 percent of all cigarettes are sold through vending machines. But those sales account for approximately 23 percent of total sales of the average vending operation. Proponents of vending machine bans and cigarette minimum-age purchase laws often link the two. Advocates of vending restrictions -- including The American Medical Association -- claim the machines are a major source of cigarettes for minors. Machines cannot distinBuish between adults and. minors and therefore circumvent state laws banning sale of tobacco products to minors, they argue. The contention that vending machines are a major source of cigarettes for minors is demonstrably incorrect. A National Automatic Merchandising Association (NAMA) nationwide survey in early 1986 found virtually all cigarette vending machines are in locations not frequented by minors. The majority of cigarette vending machines are located in cocktail lounges and bars, where minors are not admitted, and in places of employment (e.g., factories and offices) where teenagers usually do not have access. This is not by accident. These locations happen to be the most profitable for vending machines. Most of the typical places patronized by teenagers, such as fast food chains, do not sell cigarettes. o oi o 0~
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Sales Restrictions (cont'd.) The vending industry has long recognized its responsibility to prevent minors' purchasing cigarettes from vending machines. Vending companies, aware of the laws which prohibit sales of cigarettes to minors, have long conducted their business under an industry Code of Self-Regulation designed to make sure cigarette vending machines are not a source of cigarettes for minors. Banning or restricting vending sales would have little effect on teenage smoking. NAMA surveys have found few teenage smokers obtain cigarettes from vending machines, Fewer than 2.5 percent of cigarette vending ~achines sales are to teenagers, according to NAMA. Cigarette manufacturers have long opposed smoking by young people, believing smoking is a choice to be made freely by mature and informed individuals. ~igarette manufacturers oppose as unfair restraint of trade legislation that would limit or ban sale to adult customers of a legal product through vending machines or retail outlets. o 0~ 0 o~
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(a) TAXATION Should the present state cigarette tax be increased in order to discourage consumption among children/adolescents? Would this be effective? The suggestion to discourage tobacco consumption by young persons by increasing the tax rate is a misuse of tax policy based on a misperception of teenage smoking behavior. Current and past studies* published by the U. S. Government and others show that: - Only 2 out of ]0 teenagers smoke. - Only ] out of ]0 teenage smokers purchases cigarettes. Over 97 percent of teenage smokers do no._.~t buy from vending machines. Only 7 percent of high school seniors -- many of whom are legally considered adults -- smoke a pack or more a day. Based on studies: Dru~s and American High School Students: ]975 - ]983° U. S. Department of Health and Human Services, Public Health Service; T.eenaBe Smoking, U. S. Department of Health, Education and Welfare, Public Health Service Pub. No. (NIH) 76-93]; Teen-Age Cigarette Purchasin$ and Smoking Habits in the U.S.A., ]963, Gilbert Marketing Group, Inc. 0 0
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Taxation (cont'd). Studies that purport to show a strong price sensitivity on the part of young persons often employ severely outdated data, as much as 15 years old (Lewit, Coate and Grossman, ]98]), statistically nonsignificant consumption elasticities, and "...estimation of average daily consumption...[that] requires a number of assumptions and interpolations" (Warner, Journal of the American Medical Association, ]986). Young people today have more income -- and more discretionary income -- than ever before. When it is not uncommon to spend $80 for a pair of running shoes or $]0 for a record albur~, it is unreasonable to assume that a tax increase on a product purchased infrequently by only 2 percent of teenagers would influence consumption. Sinokers in New Jersey already pay 4] cents per pack in taxes on cigarettes. Raising the excise tax would adversely and unfairly affect those adults -- many of whom are members of lower-income groups -- who are more frequent purchasers and consumers of the product. State tax increases often severely affect legal sales, wholesaler and retailer income, as well as sales of goods and services of other, nontobacco business sectors (e.g., convenience stores). A state cigarette tax policy that is severe will disrupt sales patterns, encourage interstate cigarette trafficking and circumvention of taxable sources, increase surveillance costs, and lower tra~e sector incomes of clerks and proprietors • within the state. o o
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(a) EDUCATION What source of revenue can be used to fund educational activities? Is it appropriate to tap into the cigarette tax? Earmarking of taxes, whether for education, prisons or cancer research, has become an increasingly questionable practice. While earmarking is intended to be a means for a legislature to gain greater control over the budget-making process by specifying funding sources for certain projects, in reality, the opposite is often the case. Clearly, a system of taxation where every program will have to raise its own support presents numerous concerns. Dedicating funds is not only questionable as a matter of government fiscal policy; almost invariablY it represents an additional cost to be borne by taxpayers. With regard to cigarette excise taxes, the cost is borne disproportionately by lower-income individuals. Tax policy must be fair and equitable. Though regressive taxes such as cigarette excises abound, serious students of tax policy development reject such discrimination against lower-income population groups and often, as a result, o specific minority groups. The notion of earmarking seriously compornds this problem. Earmarking -- as a concept -- becomes even more discriminatory when the reasons for the earmarking are not based in fact bu= in theory of unproven but assumed "benefits received." That is clearly the case when it is proposed that cigarette excises be earmarked for educational activities. o 0~ o
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Education (cont'd.) The "benefits received" tax criterion is either ignored or violated by earmarking whenever the recipients of earmarked tax revenues are not the taxpayers. On this basis, only user taxes truly meet this criterion. A number of persons have expressed concern about the wisdom of earmarking taxes, including Dr. William H. Foege, Director of the Centers for Disease Control. Testifying before a U. S. House of Representatives Committee, Dr. F0ege said, "The question of earmarking tax revenues for special purposes -- even the best purposes -- raises many economic and tax policy questions which require further analysis." ~ny increase in the cigarette excise tax will result in reduced product consumption and sales and income tax revenues, increased tax evasion and attendant criminal activity. Furthermore, the earmarking of such revenue places a heavy and unfair burden on one segment of society -- smokers -- for funding various programs or projects that may benefit smokers and nonsmokers alike, or provide a greater benefit to nonsmokers. Earmarking of revenues removes from a legislature one more segment of control over state budgeting and expenditures. The further the principle of earmarking revenue sources for specific programs is carried, the less government is able to achieve fiscal discipline and establish or maintain rational budgetary priorities. o o"1 o o