Tobacco Industry Dodges a $280 Billion Bullet

The Supreme Court on Monday announced that it would not decide the issues raised in seven tobacco-related appeals, five of which were filed by the industry, one by the federal government and one by an anti-smoking group. By refusing to hear the cases, the justices made losers of all of the appellants, saved themselves from having to wrestle with an unusually complex set of cases, and most important, prevented the tobacco industry from having to pay the federal government $280 billion in alleged "ill gotten gains," or even to continue to face the threat that they might have to pay someday.

If the court had agreed to hear the cases, they would have been argued next fall and decided next spring, meaning that even if the court ultimately agreed with the tobacco companies, the threat of having to make the mammoth payment would have hung over the industry for the better part of a year.

Specifically, the court's decision not to hear the cases let stand lower court decisions that found the tobacco industry guilty under the Racketeer Influenced Corrupt Organizations (RICO) Act and imposed a variety of restrictions on the industry, but rejected the government's attempt to force the industry to disgorge $280 billion in profits earned since the RICO Act was passed.

As a result of Monday's decision, the restrictions imposed on the industry after the RICO ruling will take effect. That means, for example, the industry can't call any cigarettes "light" or "low tar" and must correct the record by making public statements about the dangers of smoking, the addictiveness of nicotine and the risks from second hand smoke. Still, given everything that has come out about the tobacco industry's deceptive practices and the dangers of smoking, plus the recent legislation regarding tobacco, these "new" restrictions may not amount to much. For example, regulations taking effect last week already bar the use of "light" and "low tar" in tobacco marketing.

The biggest impact on the industry will surely be the case it won when the court decided not to weigh in--the holding that it can't be forced to pay $280 billion. The pending appeal had been casting a cloud on the tobacco companies, something apparent in the way their stocks have responded to today's decision -- they're going up.

Face-Off: How To Profit From Tobacco Stocks