Tobacco Pact: One Step Closer
[Sorry, the video for this story has expired, but you can still read the transcript below. ]
PAUL SOLMAN: Well, for details and reaction to today’s deal we’re now joined by Richard Blumenthal, the attorney general of Connecticut; David Kessler, former head of the Food & Drug Administration; Senator Frank Lautenberg, Democrat of New Jersey; and Roy Burry, the tobacco industry analyst for the New York investment firm Oppenheimer. Welcome to you all.
Attorney General Blumenthal, let’s start out here. How’s the deal going to work in practice. Let’s take the payout first. Who gets the money and how?
RICHARD BLUMENTHAL, Attorney General, Connecticut: The money will be divided between federal agencies that will begin cessation programs, that is, to help people who are addicted, and educational efforts to convince kids that it isn’t cool or hip to smoke. It will also go to the states to reimburse them for their expenses that they paid over the years for health treatment of tobacco-caused diseases. It will go, in part, to a new program to provide health care insurance for children.
Ten million children in this country are totally uninsured and some of this money will go to that purpose. And then it will go, in part, also to fund a liability fund for those who sue the companies to compel them to pay for past harm that they have done. That money at the rate of about 4 billion to 5 billion dollars a year will be accessible to them.
PAUL SOLMAN: Okay. What about lawsuits banned? Suppose I want to sue the cigarettes companies because my father or mother were to get cancer from smoking.
RICHARD BLUMENTHAL: Your rights today to a fair hearing in court, to your day in court, are exactly as they were yesterday, and they will be retained. We want to protect you against any immunity on the part of the tobacco companies; however, you will not be able to begin a class action, and you can’t–
PAUL SOLMAN: With other people, in other words, I can’t join with other people as a group?
RICHARD BLUMENTHAL: That’s correct. And you can’t get punitive damages for the past conduct of the industry. We’re compelling the industry to pay for the misconduct of the past and really requiring it to restructure, reform itself. That’s the theory. But you can sue for future punitive damages.
PAUL SOLMAN: Now, does nicotine actually get phased out under this agreement?
RICHARD BLUMENTHAL: The idea is really that the FDA will ratchet down levels of nicotine to the point where eventually it could and, we hope, will be banned.
PAUL SOLMAN: All right. So, Mr. Kessler, what’s not like to like? What questions do you have for him regarding this deal?
DR. DAVID KESSLER, Former FDA Administrator: Attorney General Blumenthal and his colleagues deserve enormous credit. There is a real opportunity here. But you need to understand this is a proposed settlement. They’ve still got a long road to go. FDA must have full authority. I think we agree. FDA must have full authority to regulate nicotine.
PAUL SOLMAN: Just a question. Does it now under this deal have full authority?
DR. DAVID KESSLER: It would have its present authority, which is being defended in court, plus additional powers to reduce those ads that would be otherwise challengeable under the First Amendment. So the answers–I mean, to the question–I mean, really lie in the details. Today under current law, I mean, after Greensboro, FDA has the authority to regulate nicotine. And nothing should be done to weaken that.
PAUL SOLMAN: Will anything be done to weaken that?
RICHARD BLUMENTHAL: Not if we have anything to say about it, because even under the agreement that we have framed I think there’s room for improvement. And one of the important points here, even though politicians, attorneys general like to trumpet and boast, we have left more undone in this agreement than we have accomplished.
And we would welcome advocacy from people Dr. Kessler, who’s devoted his life to this cause; Sen. Lautenberg, who’s played such a distinguished role in leading the effort against tobacco well before I became attorney general; and I would hope that the protections that are embodied now in this settlement could be even broader.
PAUL SOLMAN: So, Senator Lautenberg, what questions do you have about the deal, and do you worry about it making its way through Congress, getting weakened and so forth?
SEN. FRANK LAUTENBERG, (D) New Jersey: I have too many questions for the length of this show.
PAUL SOLMAN: We’ll try to knock off a few of them anyway.
SEN. FRANK LAUTENBERG: No. But the question about what happens with punitive damages, there is now some belief or some hope in the tobacco industry that they might be folded into a product liability package. I’m going to make sure that that doesn’t happen.
PAUL SOLMAN: Is that a legitimate worry?
RICHARD BLUMENTHAL: I think it is a worry about punitive damages in general that they could be completely eliminated, and I and I know a lot of attorneys general support Senator Lautenberg’s efforts to counter that trend.
PAUL SOLMAN: Okay. So that’s one worry. What’s another?
SEN. FRANK LAUTENBERG: Well, there are many. What happens with the effort to reduce teen smoking? Is it a cessation penalty to get these people in the tobacco industry to really ratchet down? Because the FDA has the jurisdiction, as we’ve just heard, that they can also eliminate nicotine in a dozen years. Will they cooperate in terms of making the product less addictive? Thus far they haven’t done it. I mean, these are not good guys coming to the table.
They’ve been dragged there, and the fact is that that winds up with a lot of suspicion about what’s in there. We have to look at we just–the agreement was just concluded. Frankly, we haven’t had a chance to study it–
DR. DAVID KESSLER: Let me tell you what this comes down to. The goal of the public health community, the goal of the attorneys general, the goal of Sen. Lautenberg, is to have fewer people smoke. I mean, in a couple of years, in a decade, I mean, in two decades what’s the goal of the industry, to continue selling cigarettes. That’s why any settlement has to be rock solid. That’s why we have to look at all the details. And, again, it’s not just today. Today in some ways is the beginning. We have to see how this emerges, and through the Congress.
RICHARD BLUMENTHAL: And this is a very important point, a critical point, because this agreement has requirements; that teenage smoking actually be reduced, for example, by 50 percent in seven years.
PAUL SOLMAN: You have benchmarks, you mean?
RICHARD BLUMENTHAL: We have standards. If the industry doesn’t meet them, we suffer very severe penalties up to $2 billion.
PAUL SOLMAN: Let’s get Mr. Burry in here from New York. Is the detail good for tobacco companies and their investors?
ROY BURRY, Tobacco Analyst: Paul, I feel a little bit outnumbered here, but let me tell you what the tobacco companies got because they gave up an awful lot and the gentlemen at the table there certainly are correct in saying that $368 billion is a lot of money.And, of course, the marketing and sale and distribution of cigarettes will be totally changed by this agreement; however, the industry got some things that they wanted too, and the way punitive damages are handled in this agreement and the way class action suits are handled in this agreement.
The industry has virtual immunity, virtual immunity. Secondly, there are also some restrictions placed on how the FDA can deal with product construction, of course, the most important part being nicotine, and, of course, that was a concern to the industry as to how the FDA, if they ever get control in this regard, through the trial, which must be taking place, at some point in time, that would be something that the industry was very concerned about, and as a result, that was restricted as far as the FDA is going forward.
PAUL SOLMAN: So total immunity?
RICHARD BLUMENTHAL: Absolutely not. That’s what they wanted.
ROY BURRY: Absolutely fully immunity, total, full immunity.
RICHARD BLUMENTHAL: Well, as a lawyer, I can tell you that is absolutely totally untrue. It is the reason that we have $4 billion available to satisfy judgments against the industry. You can sue the tobacco industries for literally millions of dollars for the pain and suffering, the medical costs, all of the damages that you could seek now. And if Mr. Burry believes what he’s saying, and Wall Street believes it and the stock rises, there are a lot of folks in a few weeks or a few years who will be very disappointed.
PAUL SOLMAN: What happened to the stocks today, Mr. Burry, Philip Morris and RJR?
ROY BURRY: Well, the stocks have been rising very significantly. All the tobacco stocks are up between 10 and 15 percent.
PAUL SOLMAN: Today?
ROY BURRY: Not today, no.
PAUL SOLMAN: Today they were down about 5 percent, weren’t they?
ROY BURRY: Yeah. They were down a little bit today. That’s correct. But, in general, they’ve been rising as the negotiations have taken place. And all the stocks basically are near their highs.
PAUL SOLMAN: Why is that?
ROY BURRY: Because of basically the valuation discounts applied to these stocks by, by the market for the uncertainty and risk associated with the legal aspects of the–of the situation far exceed–far, far exceed the cost of the settlement, itself.
PAUL SOLMAN: Why a deal now, Mr. Blumenthal, Attorney General Blumenthal?
RICHARD BLUMENTHAL: A deal now because we lose three thousand young people every day who begin smoking, and we can’t afford to wait. People say, why deal with the devil? We know it’s the devil. It’ll be the devil tomorrow, as well as today, and so both Dr. Kessler and Sen. Lautenberg are absolutely right. We have to continue to distrust this villain, and we have to continue bashing and vilifying an industry that really deserves it because it addicts young people.
PAUL SOLMAN: Does that answer satisfy you, Sen. Lautenberg? You said you have to wait to see the details; you don’t know if you’d sign onto this.
SEN. FRANK LAUTENBERG: The answer is on guard. We have a long way between this start until we get to the finish. I just calculated, there were eight different departments of government, major departments, Defense, Environment, and Health, who are going to be looking at this. There are obviously 100 Senators–I can make that prediction without fail–those who still represent some tobacco state interests. This is going to go–undergo a fairly thorough inspection. I commend Attorney General Blumenthal and all the people who worked to get this agreement. I think it’s a positive first step, I must say.
PAUL SOLMAN: Why did the companies give up as much as they did, Mr. Burry, assuming that they gave up a lot?
ROY BURRY: Well, because they got a lot. In other words, they did–
PAUL SOLMAN: This is this immunity you talk about.
ROY BURRY: That’s right. This was virtually–
PAUL SOLMAN: You’re sticking with that?
ROY BURRY: That’s right. No doubt about $4 million that the attorney general at first who has to be paid anyway. It’s a cap, and the punitive damages are the key because compensatory damages are worth very, very little. And no contingency fee lawyer is going to take a case based upon the–
PAUL SOLMAN: Go ahead.
SEN. FRANK LAUTENBERG: It’s also a price, an elastic product. And if they want to raise–
PAUL SOLMAN: That means people will smoke regardless of what the price is?
SEN. FRANK LAUTENBERG: They’ll pay the price. They’ll pay the price. And if these guys want to raise that product by $2 a pack, I saw an MIT study–perhaps you’ve seen it, Dr. Kessler–that showed a very small market reduction. On the other hand, the profits increased enormously.
PAUL SOLMAN: If you raise the price?
SEN. FRANK LAUTENBERG: Sure.
PAUL SOLMAN: Because people will keep smoking who are addicted to it?
SEN. FRANK LAUTENBERG: Yes. You’ve got addicts out there.
ROY BURRY: Paul, there’s a very important point to be made here.
PAUL SOLMAN: Yes, Mr. Burry.
ROY BURRY: And I think the Senator has made the point. The tax–this tax will be imposed on the cigarette smoker and the tobacco user. It will be very, very substantial. We consider it to be maybe 30, 40, 50, 60 cents a package. And this is what the cigarette smoker is going to have to pay for these–for these programs. Now you can say they’re good programs, or they’re not programs, but it’s a direct tax on the cigarette smoker.
PAUL SOLMAN: Does that make you feel bad, Mr. Kessler, the fact that that may to some significant extent be true; that the addicted people are the ones who wind up paying for this?
DR. DAVID KESSLER: I think we all wind up paying for it, but it is true, I mean, that in the end those who are addicted pay the highest cost. The industry has gotten something in this proposed settlement, something that it’s wanted. You can call it financial predictability. You could call it partial immunity. You can call it limitation of certain caps. And what’s absolutely critical is that the public health side also get something fundamental. If you’re going–as you say–if it’s necessary to make a deal with the devil, you have to make sure that you are going to take his horns and his fork.
PAUL SOLMAN: Attorney General Blumenthal, do you expect this to become law, and, if so, how soon will the deal with the devil be made, the fork and spoon taken away?
RICHARD BLUMENTHAL: I expect that some of the–many of the concepts, if not all of them, will become law, and I expect it to be so beginning very soon the Majority Leader of the Senate, Trent Lott, has said that he thinks the Senate will take up the bill sometime in the fall. Sen. Lautenberg knows better than I what the Senate’s schedule may be, but I–
PAUL SOLMAN: Because he said he didn’t want the FDA to have this much authority, didn’t he?
DR. DAVID KESSLER: This is enormous. This is difficult to get through. We shouldn’t kid ourselves. I mean, this type of legislation–I mean, is as big as anything. It’s not going to–
SEN. FRANK LAUTENBERG: We started inhibiting smoking in 1986 when I wrote the law against smoking in airplanes. And every step along the way has been inch-like. You know, you just can’t do it overnight. This is going to take a long time.
RICHARD BLUMENTHAL: And there is another lesson of history, and that is that the industry has triumphed almost every time there has been reform, whether it’s the warnings on packaging, so we need to be very careful and we cannot suspend our sense of mistrust, because we are continuing to deal with an industry that has practiced deceit for decades.
PAUL SOLMAN: Should it become law, Mr. Kessler, or you can say what you were going to say. You don’t have to answer my question.
DR. DAVID KESSLER: It depends on the details. I’d love to sit here–I think we’d all love to sit here and declare a victory. It’s a very important step today, but we need to recognize it’s only another chapter. In the end, the question is: Will there be fewer people who smoke? Is this industry going to change the way it does business? Are they going to be able to gain the system here or there? Are we sure these penalties are as strong as we would like? That’s the question. Those are the questions for debate. This needs to be extensively aired. The public, the Congress, the President do need to study this and come to some conclusion.
PAUL SOLMAN: Well, I’m sure they all will be. Thank you all very much. I appreciate it.