This year saw interim successes in the continuing battle over restrictions of tobacco advertising. The Fourth Circuit invalidated the Food and Drug Administration's attempt to regulate tobacco products, and Congress failed to pass legislation that would have imposed onerous restrictions on tobacco advertising. Despite these successes, protection of tobacco advertising in the federal legislative and judicial systems is not yet sure. The FDA will almost certainly ask the Supreme Court to hear the Fourth Circuit case, and Congress will probably introduce a modified tobacco advertising bill during the next legislative session. Even if the tobacco companies prevail in the courts and in Congress, it is likely that the tobacco companies' settlement with the state attorneys general will be the starting point for stringent regulation of tobacco advertising.

Fourth Circuit's Brown & Williamson Decision

   In the summer of 1998, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit invalidated the proposed regulation of tobacco products by the FDA. Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155 (4th Cir. 1998). In the process, the panel implicitly affirmed the lower court's decision that the FDA lacked authority to regulate tobacco advertising.

   The FDA's sweeping proposal, promulgated in 1996, sought to regulate tobacco advertising while restricting the sale and distribution of cigarettes and smokeless tobacco. Among other things, the FDA tried to prohibit the use of images and colors in most tobacco product advertising. Such advertising was to have been limited to black text on a white background. Also to be banned were all outdoor advertisements for tobacco products within 1,000 feet of a playground or school. This ban was so broad that it included signs on stores stating that they sold tobacco. It would have barred all brand-name sponsorships and the sale and distribution of any branded, non-tobacco merchandise. Finally, unless an advertiser gave the FDA 30 days' advance notice, tobacco advertising was to be prohibited in any medium not specifically approved by the FDA.

   A coalition of advertising trade associations, tobacco manufacturers, and others challenged these rules on both statutory and constitutional grounds. Without even mentioning the constitutional issues, however, the North Carolina district court found that the FDA lacked the statutory authority to regulate advertising.

   The lower court made this decision despite its finding that, as a general matter, the FDA did indeed have authority to regulate the manufacture of tobacco as well as the manner in which it is marketed. To illustrate, the lower court would have allowed the FDA to prohibit the sale of tobacco to anyone under 18, and to require that tobacco products be placed behind, rather than in front of, a sales counter. The particular basis for the district court's finding that the FDA lacked authority over tobacco advertising was its interpretation of the word "sale." The authority to regulate the sale of a product, the court essentially said, does not include the power to restrict speech about the product.

   On Aug. 14, 1998, a federal appellate court reversed the lower court judge on the fundamental point - whether the FDA had the authority to regulate tobacco at all. One judge dissented. Specifically, the majority said that it was not credible to consider tobacco as falling within the statutory definition of a "drug" or "drug delivery device" when that statute was read as a whole. Given its decision that the FDA lacked authority to adopt any regulations concerning tobacco products, the appellate court did not need to reach the specific question of whether the FDA had authority to govern the advertising of such products. The FDA's lack of power to regulate tobacco at all necessarily means that it lacks the ability to regulate the advertising of such products.

   The appellate court declined to rehear the case before a full panel of Fourth Circuit judges. The government has announced that it will appeal the decision to the U.S. Supreme Court. Whatever the fate of the FDA's attempt to regulate tobacco products generally - and that effort increasingly looks like it will fail - the likelihood that the FDA will successfully regulate tobacco advertising now seems even more remote.

Congressional Legislation

   In June 1998, the Senate failed to pass comprehensive antismoking legislation championed by Sen. John McCain (R-Ariz.), even though the Senate Commerce Committee had approved Sen. McCain's bill in early April. The bill included severe restrictions on tobacco advertising. The committee's proposal departed substantially from the plan tobacco manufacturers had initially agreed to with the state attorneys general.

   The McCain legislation proposed to restrict advertising even more dramatically than the FDA rules recently struck down by the Fourth Circuit. First, the McCain legislation would have restricted where tobacco may be advertised. All outdoor advertising of tobacco products would have been prohibited, as would all advertising in any arena or stadium "where athletic, musical, artistic, or other social or cultural events or activities occur." Internet advertising would have been prohibited if accessible in the United States. Point-of-sale advertising would have been extremely restricted, except at adult-only stores and in "tobacco outlets." Paid product placements on television, in movies, or in videos or video games would not have been allowed.

   The McCain bill would have restricted the content of advertising as well. It would have prohibited tobacco advertisements from using human images or cartoon characters. Except for a few narrow exceptions, labeling and advertising of tobacco products would have been required to assume the form of black text on a white background. Color could have been used only in ads in the few "adult-only" facilities where vending machines and self-service displays were permitted, and in magazines that the manufacturer, distributor, or retailer demonstrated to be "adult publications." Adult publications were narrowly defined as those whose readers under 18 years of age constituted 15 percent or less of the total readership, and that were read by fewer than 2 million individuals under 18 years of age.

   The bill would also have prohibited the sale of any item (other than tobacco products) or service bearing a brand name or product identification similar to those used for tobacco products. Gifts to tobacco purchasers would have been prohibited, as would tobacco-related sponsorships of any athletic, musical, artistic, or other social or cultural event, entry, or team.

   The McCain legislation would have restricted not only commercial speech but also fully protected political speech. All lobbyists employed by tobacco manufacturers, retailers, or distributors would have been required to sign contracts agreeing to refrain from supporting or opposing any federal or state legislation, or any governmental action, without the express consent of the tobacco-related employer. The McCain bill would have expressly dissolved the Tobacco Institute and the Council for Tobacco Research, U.S.A.

   Perhaps aware of the dubious constitutional bases for these measures, the Commerce Committee sought to shield these provisions from judicial scrutiny. First, the provisions would have been embodied in "consent" decrees entered into between tobacco manufacturers and states. Any entity refusing to enter into such "voluntary" agreements, in the case of a tobacco manufacturer, would not have been entitled to the provisions limiting the liability of tobacco manufacturers against civil suits. Similarly, any non-complying state would have been ineligible for congressional funds dispensed under the legislation. For good measure, the consent decrees would have included provisions waiving the tobacco companies' constitutional claims under state and federal law. Each tobacco manufacturer would also have been required to enter into a "National Tobacco Control Protocol" that would have been enforceable in court.

   The advertising prohibitions would have been imposed on manufacturers, distributors, and retailers. Non-participating manufacturers not only would have been denied the benefits of the provisions limiting their liability, but would also have been required to pay a user fee. The bill also provided for massive government-funded anti-smoking campaigns.

   At the end of March, tobacco manufacturers announced that they would oppose the McCain bill or any similar legislation and that, if such a bill were passed, they would challenge it in the courts on First Amendment and other grounds. The bill, in its current form, died in mid-June 1998. Sen. McCain is unlikely to reintroduce his bill in the next Congress. However, many still consider passage of tobacco legislation during the next Congress to be a serious possibility.

National Settlement

Congress's failure to pass national tobacco legislation, including tobacco advertising restrictions, turned attention to the tobacco companies' settlement with numerous state attorneys general. In November 1998, tobacco companies announced a $206-billion litigation settlement in which they agreed to compensate, over the next 25 years, 46 states for public health costs related to smoking.

   The 1998 settlement omits some of the more onerous cigarette-marketing restrictions included in the failed June 1997 settlement. For instance, it does not require the FDA to give prior approval to certain tobacco advertising and it does not impose point-of-sale restrictions. Nonetheless, the 1998 settlement still imposes significant advertising restrictions on tobacco companies. The new settlement follows the old in banning outdoor tobacco advertising such as billboards, but it permits the use of large signs at retailers. The current settlement also disallows promotional giveaways, as well as the use of paid tobacco promotions in movies, on television, and at concerts. It mimics the old settlement in prohibiting the use of cartoon characters such as Joe Camel in advertisements. However, the 1998 settlement does not ban the use of humans in advertising and it permits the use of cartoons on cigarette packs.