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Tobacco Deal Case Study

The Tobacco Deal Case Study

Considering that the tobacco industry is a major contributor to the U.S. economy, what may be causal effect of such severe legislation and punishment inflicted on the Tobacco industry?
If the tobacco industries were eventually forced to close their respective doors due to excessive punitive damages awarded or if they were forced to file for bankruptcy due to costs associated to civil lawsuits, what would happen to the economy? It added over $55 billion annually to the GDP. Taxes collected from the sale of cigarettes as well as other tobacco products in the U.S. alone totaled $13.1 billion in 1996. Taxes have steadily risen since then. The industry also plays a big part as a major employer in some states. The industry spent $6.2 billion a year in advertising. I’m sure this has decreased today as advertisement of tobacco products has been banned from TV and billboards. However, the decrease could not be that significant as the industry needs to continue the advertisement of products in order to continue to remain a profitable business. The industry also played a big part of employment for attorneys and public relations.

Terms of the Deal
1) Tobacco industry payments. The industry will be required to pay $368.5 billion for the first 25 years and $15 billion each year after indefinitely.

The proposal states that MOST of the money would go to the states to compensate the cost of health care for people with tobacco related illnesses. $25 billion would go towards health care for uninsured children. “Funds” would also finance antismoking education as well as advertising and enforcement of the settlement. A percentage would pay the fees of attorneys who negotiated the settlement. Who will guarantee that MOST of the money will compensate the costs of health care? I agree that “funds” should finance antismoking education and programs, however the proposal does not specify the amount of funds to do so. I do not agree that this funding should pay attorney fees. The industry should pay the attorney fees.

2) Advertising. All billboard and/or outdoor advertising of tobacco products, the use of cartoon or human figures in ads, Internet advertising, product placement in TV or movies and sponsorship of sporting events would be banned.

This is acceptable to me. This has already been implemented in California. I have not seen any billboards advertising tobacco. There are no ads of cartoon or human figures on TV or movies. Brand name sponsorship of sporting events does not exist.

3) Warning labels. Warning labels on cigarette packs would include statements that cigarettes are addictive, can cause cancer; smoking can kill you as well as cause fatal lung disease.

This is also acceptable to me. Warning labels exist on cigarette packs. As a matter of fact, I recently purchased a carton of cigarettes and each pack had a small pamphlet attached.

4) Government regulation of nicotine. The FDA would be allowed to regulate the quantity of nicotine levels in cigarettes.

I found this interesting. FDA’s regulation of nicotine in cigarettes could be very profitable for the tobacco industry. For example, if the FDA chose to reduce the levels of nicotine in cigarettes, the consumer would more than likely smoke more cigarettes in order to achieve the “nicotine high” that smokers are addictive to. After all, nicotine is the reason that most smokers cannot kick the habit. Why is it that the FDA could not ban nicotine until 2009? The industry needed the additional years to boost the levels of nicotine in order to recruit more smokers? Also, the FDA would have to prove that this action would significantly reduce health risks, was technologically feasible, and would not create a demand for black market cigarettes. I do not believe that we honestly and truthfully know what it is in cigarettes that cause cancer. I think we know and believe that nicotine is the reason that smokers are addicted. However, there more than likely is another substance in cigarettes that causes cancer. What does “technologically feasible” really mean? We have so much technology, it’s coming out of our ears! I also do not believe that the FDA can control the black market. Today’s society has black markets for a lot of illegal products.

5) Cap on liability. The tobacco industry would be protected from future litigation, punitive damages, class action lawsuits, and consolidated litigations.

I do not agree to this portion of the deal. If the industry knowingly boosted the levels of nicotine in cigarettes in order to make smokers addicts, then they should be totally held accountable for whatever the cost of damages the court awards. Like Shane, this is a violation of our constitutional rights. There should not be a liability cap in order to favor the tobacco industry.

6) Access to children. The sale of cigarettes through vending machines or licensed tobacco dealers to minors will be banned.

I agree with this proposal, however I do not see how this will be enforced. In the state of California, there are no vending machines that dispense cigarettes. It is illegal to sell tobacco products to a minor under the age of 18 years. Vending machines have been removed, however my 17-year-old son has been able to purchase cigarettes from local liquor or food markets. He was cited with a violation of a minor in possession of a cigarette and attended court proceedings. I recently received a fine in the mail (as the parent or guardian of this child) for $360 because he did not fulfill his obligations to the court. His driving privileges will be denied until this fine is paid. Do you honestly think that revoking his driving privileges will discourage his need to smoke? He has told me that quitting smoking is a hard thing to do. And he has only been smoking (according to what he tells me) for less than two years. I do not buy my child cigarettes. I have discouraged him from smoking. This “case example” also proves that we and/or the FDA have no control of smoking as a pediatric disease. I began smoking in my teen years. I still smoke today, even knowing of the dangers of smoking related illnesses.

7) Public smoking. Smoking in public places and workplaces would be prohibited. Restaurants, bars, casinos, and bingo parlors would be exempt.

This is another law that has been implemented within California. There is no public place such as workplaces, restaurants, or bars that allow smoking in California. I’m not sure of casinos or bingo parlors though. I can pretty much bet that smoking is not allowed indoors in a public place within the state of California.

8) Smoker assistance. Smokers would receive modest payments for smoking-cessation treatment and monitoring of smoking related illnesses.

This I do agree with, however “modest payments” more than likely would not cover the costs. There is no commitment as to how much would be paid.

Our plan of action was:
a. The outcome of these actions should be the resolution of all litigation.
b. Currently, these companies have the financial means to meat the requirements of any proposed settlement that is within reason. They also have the ability to raise prices on their product to offset the cost of the settlement.
c. What should be done is to get all affected parties together to create a settlement.
d. This should be initiated by the tobacco companies since they have the most to gain from settlement

Rick has stated that our plan should have included a timetable of implementation of our plan of action. I believe we all have agreed that settlement is the only realistic option for the tobacco industry. Some of the proposals of the tobacco deal have already been implemented. I really cannot think of an ideal time to implement the rest of the plan other than immediately. There is no reason to delay any further.

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