Tobacco Documents Online

CONFIDENTIAL AND PRIVILEGED Honorahle Earle C. CLements President The Tobacco Institute., Inc. 1735 K Street, N.W. Washington, D. C. 20006 Dear Senator Clements: COVINGTOO& BURLING UNION TRUST eUI11DING WASHINGTON,D..C. 20005 REPUtlLIC ) 5900 November 13, 1968, ,9ome weeks.agp you requested us, as counsel for .. The Tobacco Tnstitute, to evaluate the risk of'aiiti- trust law violation being found'f if two or more cigar- ette companies were to agree for a period of substantial duration to eliminate or to curtail by formula their , respective television advertising of cigarettes. Even though we understand it is unlikely that The Tobacco Institute would be a party to any such agreement, inasmuch as it does not advertise cigarettes and is by its charter precluded from dealing with any questions relating to the advertising or other market- ing practices of any cigarette company, in the event of governmentaL challenge or private litigation under the antitrust laws it nevertheless might be charged as a participant or co-conspirator. This possibility under- lies the Institute's interest in these questions. In view of your familiarity with the extent of current cigarette advertising,, the various criticisms of the Federal Trade Commission of both its content and ubiquity, and the bills in the 90th Congress aimed at the regulation of its scope and its volume, and the Fairness Doctrine ruling of the FCC now being litigated, there is no need to rehearse that background.

VIN'GT'ON & 8U«LING Honorable Earle C. Clements November 13, 1968 Page Two 0 As.to any formula that.might be devised for the application of any partial restrictions among the cigarette manufacturers who might participate in an agreement to limit their aggregate television exposure, or its application to:particular•brands or varieties of cigarettes, we are of the opinion that the overall ap- plication of the antitrust laws wouldt not be substan- tially affected by any particular formula. We recognize that what may constitute an unreasonable restraint of trade is of course dependent upon the scope, objectives, and effect of any agreement.. Without reviewing in detail our opinion letter of June 17, 1963, to the Institute concernir.g,the ad- vertising code then undler discussion, we also simply note that the antitrust risk then evaluated related largely to the content of cigarette advertising while the present inquiry concerns proposals for its total elimination or substantial quantitative curtailment on television. In that connection, we also call your attention to the "railroad release" letter or business practice clearance from the Antitrust Division, dated June 20, 1964!, relating to the Cigarette Advertising Code. The industry conclusion to seek a Departmental clearance letter on the far less questionable restraints in that Advertising Code created a controlling precedent for requesting similar clearance on any agreement cover- ing greater restraints. We.likewise understand:that you have no interest in any discussion of specific court or administrative opinions, or analytical refinements, but instead de- sire operating conclusions insofar as they ean be formulated. Our conclusions, as to~any agreement for the total elimination of television advertising, are these: 1. If a "railroad release" letter can be ob- tained from the Department of Justice, there is no real risk of antitrust criminal prosecution. We believe that under all of the current circumstances, the Anti- trust Division could be persuaded to issue such a letter.

. ~('INGTON S BURLING Honorable Earle C. Clements November 13, 1968 Page Three 2. Experience indicates that the Department of Justice seldom revokes a clearance letter once it is issued. In the present instance, if that "railroad release" letter is buttressed by letters of approval of the cigarette industry agreement from the Chairmen, of the respective Congressional Committees having jurisdiction over the labeling and advertising of cigarettes, there would be hardly any likelihood of any future withdrawal of the "railroad release" letter foLlowed by the institution of a civil complaint by the Antitrust Division to end the agreement. 3. No matter what type of Department of Justice release letter, or Congressional expressions of ap- proval, can be obtained, there is a considerable risk that private treble damage suits would be filed by some broadcasters whose opportunity to book television cigarette advertising has been eliminated or curtailed by the agreement, or possibly by advertising agencies. Whether those suits could be successfully defended is. an open question, in large part dependent upon public acceptance of the spirit and purpose of the agreement. our reasons for each of these conclusions may be briefly summarized: 1. It is the established policy of the Anti- trust. Division that while a "railroad release" letter is outstanding no criminal prosecution will be insti- tuted. The Division, of course, reserves the right to withdraw its letter and thereafter to begin penal prosecution. Ordinarily, it does not do so, but in- stead institutes a civil proceeding to dissolve an agreement which it believes has become illegal. Necessarily, the issuance of a "railroad release" letter is indicative of the Department's view that the agreement it covers is not an unreasonable re- straint of trade. 2. If the Antitrust Division's release letter could be buttressed by letters of approval from the various Chairmen of the Congressional Committees, we are of the opinion that the Department of Justice would

'viNCroN & euFZUrio Y,onorable Earle C. Clements November 13, 1968 Page Four be unlikely to withdraw its release letter without full consultation with those Committees. If such letters could be secured, there would also be very little lilce- lihood of the release letter being withdrawn without a considerable preliminary investigation by the Antitrust Division (as illustrated by Assistant Attorney,General Crrick's letter of February 18, 1965, relating to the use of charcoal in cigarette filters) and full consul- tation with the industry. Both in the request to the Antitrust Division for a release letter, and in any discussions as to whether it should be continued in effect, it would of course be urged that the purpose of the agreement under consideration would, unlike the usual concerted refus- als to deal, not be motivated by any desire to coerce third parties to follow a particular course of action, or to exclude them from competition. Instead, its ob- jective would be to respond, at least for a trial period, to the recommendations of the FTC, the HEW, and various private groups with respect to delimiting television cigarette advertising. Of equal relevance is the fact that an agreement to eliminate or to cur- tail cigarette advertising in one medium would have no adverse effect on cigarette consumers. These considerations lead us to conclude that there is no risk of' the agreement being considered by the Department of Justice as aper se violation of the Sherman Act but as an agreement to be measured in terms of whether it is or is not a reasonable restraint. The analogies to the agreements embodied in the NAB Television Code and the Distilled Spirits Institute would be useful. In addition, there are a good number .of speeches and articles by former Antitrust Officials bearing on this very point of competitive agreements relating to public interests which, though they could be the subject of legislation, are still not to be deemed unreasonable restraints when achieved by private agreement.

OMGTON & aURLING Honorable Earle C. Clements November 13, 7.968 Page Five 3. On the other har.d, any Antitrust Division release (even were it confirmed by a letter from the Attorney General which would be far more difficult to obtain and is virtually unprecedented) is legally only a statement of the Department's announced intention ' not to bring governmental action. It cannot of itself foreclose treble damage challenge in a private anti-. trust action by any person claiming that the agreement injures his business. By the same token, any expres- sion of approval by a Congressional Committee cannot constitute a bar to private antitrust litigation. Accordingly, there remains the risk that a broadcaster might institute a treble damage action on the ground that the agreement injured him in his busi- ness because it directly resulted in foreclosing his booking television cigarette commercials. In addi- tion, under recent case law, what is called a class action might be available to permit that broadcaster to sue on behalf of all others similarly claiming injury. Conceivably, but not realistically, private litigation might also be instituted by some advertis- ing agency. We do not regard that as a~ substantial risk because of the obvious difficulties they would; have in asserting injury resulting from the agreement. But the controlling question in any private.. litigation would be whether, in the light of its pur- poses and all of the surrounding circumstances, the agreement constituted an unreasonable restraint of trade. If the NAB by its own action were to include a prohibitory provision in its Television Code, com- parable to that operative for Distilled Spirits, that fact would have an affirmative bearing, even if not a controlling one, on the reasonableness of the agree- ment. Moreover, the existence of a Department of Jus- tice release.and of Congressional informal approval would contribute heavily to persuading a judge and jury of reasonableness. P N O N N Cd ~ N ~

, ^ vINGTON & BURLING Honorable Earle C. Clements November 13, 1968 Page Six W While we recognize that the volume of tele- vision cigarette advertising makes the financial ex- posure in private treble damage litigation very sub- stantial, and no one can predict with any useful degree of probability on the key question whether this type ' of industry agreement would be held lawful as not be- ing an unreasonable restraint, we believe that'the overall risk is one which can be balanced by the in- dustry against the other factors in the current over- all problems confronting the industry. In that evaluation, a p6int warranting con- sideration is that legislation accomplishing the same end might be permanent, whereas an agreement, with whatever degree of exposure it entails, might afford a period of experiment in which the effect and:public reaction to its provisions could provide a sounder basis for any future discussion of legislative propo- sals. In addition, further scientific research might be productive during the period of the industry agree- ment. Evaluation of these broader questions, or of .the possible alternatives of a stringent warning being required to be included in all advertising in all media, or of the potential thrust or result of Con- gressional hearings and action arise out of the expir- ation of the moratorium in Section 10 of the Cigarette Advertising and Labeling Act of 1965, are beyond the scope of this.letter; and are of,course management questions for the respective companies. Those ques- tions necessarily merit consideration in any industry determination whether the irreducible antitrust uncer- tainties in potential private litigation warrant being taken. We have not endeavored to measure in this letter the degree to which any agreement curtailing by formula the:extent of television advertising, rather than to- tally curtailing or approaching total curtailment of that advertising, would increase or minimize the risk of an adverse decision in a private lawsuit on the ques- tion of reasonableness or unreasonableness of the

,)VINGTON & BURLING. Honorabl.e Earle C. CTenrents November 13,. 1968 Page Seven resulting partial restraint. Without more detail as to what the formula might be, or of its effect on the aggregate current.television advertising, that in- quiry would, in our opinion, be premature. Nor would• the possible economic effect upon any particular broadcaster who might be a potential plaintiff; presently be measurable. We have likewise not discussed an application for clearance to the Federal Trade Commission because in our view it would have little legal bearing or be of value in private litigation beyond what the Com- mission has recommended in its various reports to the Congress. We shall be happy to amplify any of these obser- vations or document them with the decisions and other authorities we have considered if you shou7d care to have us do so. Very truly yours, ~lG:~ .lG/`!! , HTA:dgd