Tobacco Documents Online

DANIEL M. GRIBBON STANLEY L. TEMKO JAMES C. MCKAY JOMN W. DOUGLAS HAMILTON CAROTNERS J. RANDOLPH WILSON ROBERTS B. OWEN EDGAR F. CZARRA, JR. WILL !AM M. A1~LEN DAVID B.ISBELL Q~U>"R ~D ONEES, JR. PHILIP R.STANSBURY PET£R BARTONLMUTT HERBERT DYM hJ1ARROS WEINSTEIN JOHN B.OENNISTON JOHIARTMAN IO KB V.KE CHARLES E. BUFFON ROBERT N. SAYLER " DAVICWNRBROWN E " PAUL J. TAGLIABUE ANDREW W. SINGER DAVID M. HICKMAN RUSSELL H. CARPENTER,JR. NICHOLAS W. FELS THEODORE L.GARRETT DANA T. ACKERLY JOMN M. VINE JOMN THOMAS SMiTH1L JOMN P. RUPP CLAUSEN ELY,JR. RICHAp D F. KINGMAM ROBERTM.SUSSMAM MICHAEL R. LEVY GEORGE B. REID,JR. THOMAS S. WILLIAMSON,JR. JOMN R. BOLTON . JOANNEB.GROSSMAN J. MICHAEL HEMMER GREGORY M. SCNMIDT MARRY L. SHNIDERMAN DON V. HARRIS. JR. WNEAVIER W.rDULNENLH~ EDwIM M. 21MMERMAN JEROME ACKERMAN HENRY P. SAILER JO`MN H. SCHAFER JOMNE&MOCYNgE ELLICOTT DAEDWAEqD DUNKFLBERGER.JR. SRICE MtAD00 CLAGETr RICHARD A. BRADY ROBERT E.O'MALLEY EUGENEI.LAMBERT HARVEY M EAPPLEBAUM MICHAEL S. HORNE CHARLES F. C. RUFF MICHAEL BOUDIN ALIIAN TOPOLEVERIGH VIRGINIA G, WATKIN RICHARD D. COPAKEN CHARLES LISTER PETER D. TROOBOFF WESLEY S. WILLIAMS.JR. DORIS O. BLAZEK W/LL1AM 0. IVERSON JAME51 RMATWOODTON, JR. STOUART C. STOCKS EUGENE 0. GULLAND EUGENE A.JLUOWIGN,JR. PATRICIA A. BARALD REEVES C. WESTBROOK THEODORE VOORHEES,JR. PAULRJ BERMANELLE WILLIAM P. SKINNER RICHAqD A. MESERVE JR. COVINGTON & BURLINC-7 1201 PENNSYLVANIA AVENUE, N. W. P. Q. BOX 7566 WASHINGTON. 0. C. 20044 (202) 6s2-6000 WRITER'S- DIRECT DIAL NUMBER 662-5650 FONTAINE C. gRADLEY EDWARD BURLING.JR. HOWARD C. WESTWOOD CHARLES A. HORSKY JOHN T.SAPIENZA JAMES H. McGLOTMLIN ERNEST W.JENNES EOWIN S. COHEN COU-MSEL JOHN SHERMAN COOPER O•COUNSEL TWX: 710 s22-0005 (Ce WSH) TELE%:Ol-69] (COVLING WSH) TELECOr1ER rNFORMATION: (202) ee2-eza0 . CABLEI COVUNG March 26, 1985 DELIVERED BY HAND John H. Carley, Esquire General Counsel Federal Trade Commission Sixth Street and Pennsylvania Avenue, N.W. Washington, D.C. 20580 Dear Mr. Carley: In my letter to you of March 21, 1985, we: explained why simultaneous printing and use of package labels is permitted by the Comprehensive Smoking Education Act ("Act"). As noted there, the proposal to rotate package labels simultaneously or continuously would have the ciaa- rette companies doing more, rather than less, than the Act requires. We do not believe that anything in the Act or in the Act's legislative history would justify Commission disapproval of the package label proposal that has been made by the major cigarette manufacturers. if our basic interpretation of the package rota- tion provision of the Act is accepted, there is no need for the Commission to consider the commercial feasibility or burdens that would be associated with other conceivable approaches to package label rotation. But even if our basic interpretation is questioned, we believe that: the Commission should, under the Act, approve the packa:c rota- tion proposal that we have submitted on behalf of the major cigarette manufacturers. TIMN 0013818

CCCVINGTON & BURLING John H. Carley, Esquire March 26, 1985 Page Two As noted in my March 21 letter, Commission Chair- man Miller assured members of the House and Senate, before the Comprehensive Smoking Education Act was approved, that -- legislation requiring a system of rota- tional health warnings could provide consumers with important and useful health information at very low cost. Furthermore, the Commission stands ready to assist Congress in the design and implementation of a flexible and effective disclosure system * * *. H. Rep. 98-805, 98th Cong., 2d Sess., p. 25. Somewhat earlier in the legislative process, Mr. T:Lmothy Muris of the Commission's Bureau of Consumer Protection had given comparable assurance to the pertinent committees of the House and Senate. The letter that Mr. Muris sent to Senator Packwood and Representative Dingell in September 1982 stated that -- [a] flexible rotation warning system would be inexpensive to operate and enforce; a more rigid system would create much higher costs with no cor- responding increase in effectiveness. As long as each message achieves sub- stantial exposure, consumers will have ample opportunity to learn it. Letter p. 15. Consistent with the assurances provided by Chair- man Miller and Mr. Muris, the House report on the Compre- hensive Smoking Education Act repeatedly urges the Comarission to proceed "reasonably" in considering proposed rotation plans. The House report also points out that -- [i]n preparing a rotation system for submission to the FTC for approval, the Committee recognizes that there may be more than one system which would comply with the subsection. Any such system must of necessity take into account practical constraints on the production TIMN 0013819

COViNGTON & BURLtNG John H. Carley, Esquire March 26, 1985 Page Three and distribution of cigarette packages and the dissemination of cigarette advertising. H. Rep. 98-805, 98th Cong., 2d Sess., p. 19. Thus, even if one reads the Act as favoring package rota- tion by calendar quarter, the Commission is not ent:itled to disapprove other rotation approaches unless it finds that an inflexible plan of rotation by calendar quarter is "com- mercially feasible" and does not impose "an undue burden on any manufacturer or importer ***'° (ibid.). We are enclosing letters from the six major United States cigarette manufacturers -- Americ.an Brands, Inc., Brown & Williamson Tobacco Corporation, Liggett Group Inc., Lorillard, A Division of Loew's Theatres, Inc., Philip Morris Incorporated and R. J. Reynolds Tobacco Company, Inc. -- that describe the practical constraints associated with package rotation. Because the enclosed letters contain proprietary and other trade secret information, we must request that they be held in confidence by the Commission. Further, we would appreciate being informed prompt]Ly of any congressional request for copies of the letters so that we can make a timely request of the member or committee to handle the letters in a manner that protects from unneces- sary disclosure the proprietary information the letters contain. As confirmed by the enclosed letters, an inflexible plan of package rotation by calendar quarter would not result in consumers seeing a different package label every three months -- regardless of how such a reauirement were implemented. But the costs of such rotation would be truly staggering. The enclosed letters indicate that engraving the extra cylinders and plates that would be required initially under a calendar quarter rotation plan would exceed the initial engraving costs under a continuous rotation plan by approximately $12,000,000. That difference in initial costs would be compounded over time as further engravings or reengravings were required to accommodate new brands, package label redesign and the wearing out of printing cylinders and plates. In addition, each of the companies would incur substantial costs associated with the storing TIMN 0013820

, COVI NGTON & BURLING John H. Carley, Esquire March 26, 1985 Page Four and maintenance of the additional printing cylinders and plates that would be needed under a calendar quarter rota- tion plan. Rotation by calendar quarter also would force package printing lines to be shut down at three-month inter- vals to permit cylinder and plate changeouts. The companies have estimated that the annual costs of cylinder and plate changeouts would amount to several million dollars per year. That estimate does not take into account administra- tive costs associated with planning for and scheduling the required changeouts. R. J. Reynolds has estimated that it would incur approximately $250,000 per year in additional administrative expenses to effect the printing changeovers that would be required under a calendar quarter package rotation plan. The other manufacturers undoubtedly would incur similar costs. Because of the need, from an efficiency standpoint, of ensuring that a sufficient quantity of packaging mate- rial is available to permit uninterrupted operation of cigarette manufacturing lines, each manufacturer also would incur substantial added costs under a calendar quarter rota- tion plan due to the scrapping of unused, and unusable, packaging material. While these added costs are difficult to estimate in advance, they can be expected to exceed $8,000,000 per year for the six major United States ciga- rette manufacturers. Other added costs would result from the need to segregate and store package materials bearing each of the four required label statements. It is important to emphasize that incurring the costs described above probably would not affect display of the various label statements in the marketplace. The reason is that the manufacturers have little or no contro]. over the actions of individual cigarette wholesalers and retailers, and both stocking and sales practices vary widely from one wholesaler or retailer to another. It must be understood, in addition, that it takes several weeks for a package of cigarettes to reach the shelf of any retail location and that some cigarette packages do not appear at the retail level for several months following manufacture. As a con- sequence, there simply is no way that a rotation p:Lan could be designed by a cigarette manufacturer so that an individual consumer would be exposed to one package label statement TIMN 0013821

. " C6VINGTON & BURLING f John H. Carley, Esquire March 26, 1985 Page Five for three months and then be exposed to a different state- ment during the following three-month period. As confirmed by the enclosed letter `_om R. J. Reynolds, even attempting to "rotate" finished aroduct inventory would cost many tens of millions of dollars per year. It is important to recognize, moreover, that such efforts -- although extremely costly -- would not ensure display of the various package labe~ statements for indi- vidual brands of cigarettes in three-month intervals. I have not attempted in this ~etter to summarize all of the added costs that would be associated with rota- tion of package labels by calendar cuar--er, as opposed to the continuous or simultaneous rota_ion that the manufacturers have proposed. As should be apparent, :.owever, attempting to rotate the various package label statements by calendar quarter would be extremely costly and burdensome while con- ferring no benefit at all on consumers. Indeed, as pointed out in my letter of March 21, the only way to ensure that consumers will be exposed promptly and continuously to the statutory label statements -- regardlesr of the brand of cigarettes they smoke -- is to perm'_t simultaneous printing and use of packaging bearing the tour required statements. Sincerely, Jd--- F',aYf J o hn P. Rupp Enclosures ceb TIMN 0013822