(Page 1 ) PROPOSED
RESOLUTION
PREAMBLE
This legislation would mandate a total reformation and
restructuring of how tobacco products are manufactured, marketed
and distributed in this country. The nation can thereby see real
and swift progress in preventing underage use of tobacco,
addressing the adverse health effects of tobacco use and changing
the corporate culture of the tobacco industry.
The Food and Drug Administration ("FDA") and other
public health authorities view the use of tobacco products by our
nation's children as a "pediatric disease" of epic and
worsening proportions that results in new generations of tobacco
dependent children and adults. There is also a consensus within
the scientific and medical communities that tobacco products are
inherently dangerous and cause cancer, heart disease and other
serious adverse health effects.
The FDA and other health authorities have concluded that
virtually all new users of tobacco products are under legal age.
President Clinton, the FDA, the Federal Trade Commission
("FTC"), state Attorneys General and public health
authorities all believe that tobacco advertising and marketing
contribute significantly to the use of nicotine-containing
tobacco products by adolescents. These officials have concluded
that because past efforts to restrict advertising and marketing
have failed to curb adolescent tobacco use, sweeping new
restrictions on the sale, promotion and distribution of such
products are needed.
Until now, federal and state governments have lacked many of
the legal means and resources they need to address the societal
problems caused by the use of tobacco products. These officials
have been armed only with crude regulatory tools which they view
as inadequate to achieve the public health objectives with which
they are charged.
This legislation greatly strengthens both the federal and
state governments' regulatory arsenal and furnishes them with
additional resources needed to address a public health problem
that affects millions of Americans, including most importantly
underage tobacco use. Further, it is contemplated that certain of
the obligations of the tobacco companies will be implemented by a
binding, enforceable contractual protocol.
(Page 2) The legislation reaffirms individuals' right of
access to the courts, to civil trial by jury and to full
compensatory damages. Resolution through the Act of potential
punitive damages liability of the tobacco industry for past
conduct is only made in the context of the comprehensive
settlement proposed by the legislation. It is not intended to
have precedential effect, nor does it express any position
adverse to the imposition of punitive damages in general or as
applied to any other specific industry, case, controversy or
product and does not provide any authority whatsoever regarding
the propriety of punitive damages.
Among other things, the new regime would:
-- Confirm FDA's authority to regulate tobacco products under
the Food, Drug and Cosmetic Act, making FDA not only the
preeminent regulatory agency with respect to the manufacture,
marketing and distribution of tobacco products but also requiring
the tobacco industry to fund FDA's oversight out of ongoing
payments by the manufacturers pursuant to the new regime
("Industry Payments").
-- Go beyond FDA's current regulations to ban all outdoor
tobacco advertising and to eliminate cartoon characters and human
figures, such as Joe Camel and the Marlboro Man, two tobacco
icons which the public health community has long assailed as
advertising appealing to our nation's youth.
-- Impose and provide funding out of the Industry Payments for
an aggressive federal enforcement program, including a
State-administered retail licensing system, to stop minors from
obtaining tobacco products, while in no way preventing the States
from enacting additional measures.
-- Ensure that the FDA and the States have the regulatory
flexibility to address issues of particular concern to public
health officials, such as youth tobacco usage and tobacco
dependence.
-- Subject the tobacco industry to severe financial surcharges
in the event underage tobacco use does not decline radically over
the next decade.
-- Empower the federal government to set national standards
controlling the manufacturing of tobacco products and the
ingredients used in such products.
Page 3
-- Provide new and flexible regulatory enforcement powers to
ensure that the tobacco industry works to develop and introduce
less-hazardous tobacco products," including, among other
things, vesting FDA with the power to regulate the levels of
nicotine in tobacco products.
-- Require the manufacturers of tobacco products to disclose
all previously non-public internal laboratory research and all
new internal laboratory research generated in the future relating
to the health effects or safety of their products.
-- Establish a minimum federal standard with tough
restrictions on smoking in public places with enforcement funding
from the Industry Payments, while preserving the authority of
state and local governments to enact even more severe
standards.
-- Authorize and fund from Industry Payments a $500 million
annual, national education-oriented counter-advertising and
tobacco control campaign seeking to discourage the initiation of
tobacco use by children and adolescents and to encourage current
tobacco product users to quit use of the products.
-- Authorize and fund from Industry Payments the annual
payment to all States of significant, ongoing financial
compensation to fund health benefits program expenditures and to
establish and fund a tobacco products liability judgments and
settlement fund.
-- Authorize and fund from Industry Payments a nationwide
program, administered through State governments and the private
sector, of smoking cessation.
The sale of tobacco products to adults would remain legal but
subject to restrictive measures to ensure that they are not sold
to underage purchasers. These measures respond directly to
concerns voiced by federal and state public health officials, the
public health community and the public at large that the tobacco
industry should be subject to the strictest scrutiny and
regulatory oversight. This statute imposes regulatory controls,
including civil and criminal penalties, equal to, and in many
respects exceeding, those imposed on other regulated industries.
Further, it imposes on tobacco manufacturers the obligation to
provide funding from Industry Payments for an array of public
health initiatives.
The sale, distribution, marketing, advertising and use of
tobacco products are activities substantially affecting
interstate commerce. Such products
Page 4
are sold, marketed, advertised and distributed in interstate
commerce on a nationwide basis, and have a substantial effect on
the nation's economy. The sale, distribution, marketing,
advertising and use of such products are also activities
substantially affecting interstate commerce by virtue of the
health care and other costs that federal and State governmental
authorities have attributed to usage of tobacco products.
Various civil actions are pending in state and federal courts
arising from the use, marketing or sale of tobacco products.
Among these actions are cases brought by some 40 state Attorneys
General, cases brought by certain cities and counties, the
Commonwealth of Puerto Rico, and other third-party payor cases
seeking to recover monies spent treating tobacco-related diseases
and for the protection of minors and consumers. Also pending in
courts throughout the United States are various private putative
class action lawsuits brought on behalf of individuals claiming
to be dependent upon and injured by tobacco products.
Additionally, a multitude of individual suits have been filed
against the tobacco products manufacturers and/or their
distributors, trade associations, law firms and
consultants.
All of these civil actions are complex, slow-moving, expensive
and burdensome, not only for the litigants but also for the
nation's state and federal judiciaries. Moreover, none of those
litigation's has to date resulted in the collection of any monies
to compensate smokers or third-party payors. Only national
legislation offers the prospect of a swift, fair, equitable and
consistent result that would serve the public interest by (1)
ensuring that a portion of the costs of treatment for diseases
and adverse health effects linked to the use of tobacco products
is borne by the manufacturers of these products, and (2)
restricting nationwide the sale, distribution, marketing and
advertising of tobacco products to persons of legal age. The
unique position occupied by tobacco in the nation's history and
economy, the magnitude of actual and potential tobacco-related
litigation, the need to avoid the cost, expense, uncertainty and
inconsistency associated with such protracted litigation, the
need to limit the sale, distribution, marketing and advertising
of tobacco products to persons of legal age, and the need to
educate the public, especially young people, of the health
effects of using tobacco products all dictate that it would be in
the public interest to enact this legislation to facilitate a
resolution of the matters described.
Public health authorities believe that the societal benefits
of this legislation, in human and economic terms, would be vast.
In particular, FDA has found that reducing underage tobacco use
by 50% "would prevent well over 60,000 early deaths."
FDA has estimated that the monetary value of its present
regulations will be worth up to $43 billion per year in reduced
medical costs, improved productivity and the benefit of avoiding
the premature death of loved
Page 5
ones. This statute, which extends far beyond anything FDA has
previously proposed or attempted, can be expected to produce
human and economic benefits many times greater than such existing
regulations.
As part of this settlement, the tobacco companies recognize
the historic changes that will be occurring to their business.
They will fully comply with increased federal regulation, focus
intense efforts on dramatic reductions in youth access and youth
tobacco usage, recognize that the regulatory scheme encourages
the development of products with reduced risk and acknowledge the
predominant public health positions associated with the use of
tobacco products.
[Source/precedent: FDA Rule]
Page 6
Contents
Preamble page 1-5
Title I: Reformation of the Tobacco Industry page 8
A. Restrictions on Marketing and Advertising page 8
B. Warnings, Labeling and Packaging page 9
C. Restrictions on Access to Tobacco Products page 11
D. Licensing of Retail Tobacco Product Sellers page 12
E. Regulation of Tobacco Product Development and Manufacturing
page 13
F. Non-tobacco Ingredients page 19
G. Compliance and Corporate Culture page 21
H. Effective Dates page 23
Title II: "Look Back" Provisions/State Enforcement
Incentives 24
Title III: Penalties and Enforcement; Consent Decrees;
Non-Participating Companies page 26
A. Penalties and Enforcement page 26
B. Consent Decrees page 27
C. Non-participating Companies page 28
Title IV. Nationwide Standards to Minimize Involuntarv
Exposure to Environmental Tobacco Smoke page 30
TitIe V: Scope and Effect page 32
A. Scope of FDA Authority page 32
B. State Authority page 32
Title VI: Programs/Funding page 34
Page 7
A. Up Front Commitment page 34
B. Base Annual Payments page 34
C. Applicability page 35
D. Tax Treatment page 35
Title VII: Public Health Funds From Tobacco Settlement As
Recommended by The Attorneys General For Consideration by the
President and the Congress page 36
Title VIII: Civil Liability page 39
A. General page 39
B. Provisions as to Civil Liability for Past Conduct page
39
C. Provisions as to Civil Liability for Future Conduct page
41
Title IX: Board Approval page 42
Appendices:
Appendix I: Warnings in Advertisements
Appendix II: Retail Tobacco Product Seller Penalties
Appendix Ill: Application to Indian Tribes
Appendix IV: Industry Associations
Appendix V: "Look Back"
Appendix VI: State Enforcement Incentives
Appendix VII: Restrictions on Point of Sale Advertising
Appendix VIII: Public Disclosure of Past and Future Tobacco
Industry Documents and Health Research [Back]
TITLE I: Reformation Of The Tobacco Industry
Title I of the legislation would incorporate and expand upon FDAs
recent regulation of nicotine-containing tobacco products. The
following rules would apply to all tobacco products sold in the
U.S. (including all its territories and possessions, as well as
duty-free shops within U.S. borders). The new regime would be
allowed to operate as described below for five years. FDA would
have authority to make revisions even within this period under
extraordinary circumstances. Thereafter, the FDA would be
authorized to review and revise the rules under applicable Agency
procedures. [Back]
A. Restrictions on Marketing and Advertising
The advertising and marketing of tobacco products would be
drastically curtailed, including in ways that exceed the FDA rule
as originally promulgated and in ways that have previously been
challenged on First Amendment grounds. As in the FDA rule? the
new regime would:
-- Prohibit the use of non-tobacco brand names as brand names
of tobacco products except for tobacco products in existence as
of January 1,1995 (897.16(a))
-- Restrict tobacco product advertising to FDA specified media
(897.30(a)(1 )-(2))
-- Restrict permissible tobacco product advertising to black
text on a white background except for advertising in adult-only
facilities and in adult publications (897.32(a)-(b))
-- Require cigarette and smokeless tobacco product
advertisements to carry the FDA-mandated statement of intended
use ("Nicotine Delivery Device") (897.32(c))
-- Ban all non-tobacco merchandise, including caps, jackets or
bags bearing the name, logo or selling message of a tobacco brand
(897.34(a))
-- Ban offers of non-tobacco items or gifts based on proof of
purchase of tobacco products (897.34(b))
--The citations in this and in the next section are to Part
897 of the FDA's tobacco regulations, 61 Fed. Reg. 44396 (August
28,1996).
(Page 9) -- Ban sponsorships, including concerts and sporting
events, in the name, logo or selling message of a tobacco brand
(897.34(c))
Further, building on and going beyond the FDA rule, the new
regime would:
-- Ban the use of human images and cartoon characters -
thereby eliminating Joe Camel and the Marlboro Man - in all
tobacco advertising and on tobacco product packages
-- Ban all outdoor tobacco product advertising, including in
enclosed stadia as well as brand advertising directed outside
from a retail establishment (modifies 897.30(a)(1) and extends
897.30(b))
-- Prohibit tobacco product advertising on the Internet unless
designed to be inaccessible in or from the United States
-- Establish nationwide restrictions in non adult-only
facilities on point of sale advertising with a view toward
minimizing the impact of such advertising on minors. These
provisions, which are detailed in Appendix VII, restrict point of
sale advertising that was otherwise permitted in retail
establishments by the FDA rule.
-- Ban direct and indirect payments for tobacco product
placement in movies, television programs and video games
-- Prohibit direct and indirect payments to
"glamorize" tobacco use in media appealing to minors,
including recorded and live performances of music
-- Without limiting the FDA's normal rulemaking authority in
this area, require that the use, in both existing and future
brand styles, of words currently employed as product descriptors
(e.g., "light" or "low tar") be accompanied
by a mandatory disclaimer in advertisements (e.g., "Brand X
not shown to be less hazardous than other cigarettes");
exemplars of all new advertising and tobacco products labeling
shall be submitted to FDA concurrently with their introduction
into the marketplace for FDA's ongoing review.
[Source/precedent: FDA Rule; 21 C.F.R. 101.70] [Back]
B. Warnings, Labeling and Packaging
The federally-mandated warning labels on cigarettes were last
changed in 1984. Since then a number of countries, including
Canada and members of the
(Page 10) European Union, have imposed new warning labels.
Further, the Federal Trade Commission's methodology to measure
the "tar" and nicotine yields of cigarettes has been
criticized as producing misleading information.
1. The legislation, through amendments to the Federal
Cigarette Labeling and Advertising Act and the Comprehensive
Smokeless Tobacco Health Education Act, would mandate new
rotating warnings, to be introduced concurrently into the
distribution chain on all tobacco product packages and cartons,
and to be rotated quarterly in all advertisements. For
cigarettes, the warnings would be:
-- "WARNING: Cigarettes are addictive"
-- "WARNING: Tobacco smoke can harm your
children"
-- "WARNING: Cigarettes cause fatal lung
disease"
-- "WARNING: Cigarettes cause cancer"
-- "WARNING: Cigarettes cause strokes and heart
disease"
-- "WARNING: Smoking during pregnancy can harm your
baby"
-- "WARNING: Smoking can kill you"
-- "WARNING: Tobacco smoke causes fatal lung disease in
non-smokers"
-- "WARNING: Quitting smoking now greatly reduces serious
risks to your health"
For smokeless tobacco products, the warnings would be:
-- "WARNING: This product can cause mouth
cancer"
-- "WARNING: This product can cause gum disease and tooth
loss"
-- "WARNING: This product is not a safe alternative to
cigarettes"
--"WARNING: Smokeless tobacco is addictive"
For cigarettes, the warnings would occupy 25% of the front
panel of the package (including packs and cartons) and would
appear on the upper portion thereof. The legislation would
contain a grandfather provision for existing brands with
flip-top
(Page 11) boxes comprising less than 25% of the front panel.
For smokeless tobacco products, the warnings would appear on the
principal display panel (e.g., a band around the can for moist
smokeless tobacco products) and would occupy 25% of the display
panel. The warnings would be printed in line with current
Canadian standards (e.g., 17 point type with appropriate
adjustments depending on length of required text) and in an
alternating black on white and white on black format. The size
and placement of warnings in advertisements would follow the
requirements set forth in the existing United Kingdom standards.
As described in Appendix I, the warning text and, where relevant,
"tar" and nicotine (or other constituent) yield
information would occupy 20% of press advertisements.
Cigarette and smokeless tobacco product packages would also
carry the FDA mandated statement of intended use ("Nicotine
Delivery Device") on the side of pack.
2. The FDA would be required to promulgate a rule governing
the testing, reporting and disclosure of tobacco smoke
constituents that the Agency determines the public should be
informed of to protect public health, including, but not limited
to "tar," nicotine and carbon monoxide. This authority
would be transferred from the FTC and would include the authority
to require label and advertising disclosures relating to
"tar" and nicotine, as well as disclosures by other
means relating to other constituents.
[Source/precedent: Canadian warning regulations; FDA Rule;
FDCA, 21 U.S.C. Sec. 360h, with conforming amendment in light of
FCLAA] [Back]
C. Restrictions on Access to Tobacco Products
Preventing youth access to tobacco products is a major
objective of this legislation and the FDA Rule. Without
preventing state and local governments from imposing stricter
measures, the legislation would incorporate every access
restriction of the FDA Rule, and more. As in the FDA Rule, the
legislation would:
-- Set a minimum age of 18 to purchase tobacco products
(897.14(a))
-- Require retailers to check photo identification of anyone
under 27 (897.1 4(b)( I )-(2))
-- Establish the basic requirement of face-to-face
transactions for all sales of tobacco products (897.14(c))
-- Ban the sale of tobacco products from opened packages
(897.14(d))
(Page 12) -- Establish a minimum package size of 20 cigarettes
(897.16(b))
-- Impose retailer compliance obligations to ensure that all
self-service displays, advertising, labeling and other items
conform with all applicable requirements (897.14(e))
-- Ban the sampling of tobacco products (897.16(d))
-- Ban the distribution of tobacco products through the mail,
including redemption of coupons, except for sales subject to
proof of age, with a review after 2 years by FDA to determine if
minors are obtaining tobacco products through the mail (goes
beyond 897.16(c)(2)(i))
Building on and going beyond the FDA Rule, the legislation
would:
-- Ban all sales of tobacco products through vending machines
(goes beyond 897.1 6(c)(2)(ii))
-- Ban self-service displays of tobacco products except in
adult-only facilities. In all other retail outlets, tobacco
products must be placed out of reach of consumers (i.e., behind
the counter or under lock-and-key) or, if on the counter, not
visible or accessible to consumers (goes beyond (897.1
6(c)(2)(ii))
[Source/precedent: FDA Rule] [Back]
D. Licensing of Retail Tobacco Product Sellers
The legislation would mandate minimum federal standards for a
retail licensing program that the federal government and state
and local authorities would enforce through funding provided by
the Industry Payments. Any entity that sells directly to
consumers - whether a manufacturer, wholesaler, importer,
distributor or retailer -would require a license.
Elements of the licensing program would include:
-- Mandating compliance with the Act as a condition to obtain
and hold a license
-- Penalties for violations (See Appendix II)
-- Suspension or revocation of licenses (on a site-by-site
basis) for certain violations (see Appendix II)
(Page 13)-- A requirement that distribution of tobacco
products for resale to consumers be made only to licensed
entities
-- Licensing fees to cover the administrative costs of issuing
state licenses (all other costs covered as noted above)
-- Comparable federal licensing programs (with federal
enforcement) for military facilities, U.S. government
installations abroad? and other U.S. territories and possessions
not otherwise under the jurisdiction of the States (including
duty-free shops within U.S. borders)
-- Comparable licensing programs to govern tobacco product
sales on Indian lands (see Appendix III)
(Source/precedent: Various state laws governing sales of
tobacco products and alcoholic beverages) [Back]
E. Regulation of Tobacco Product Development and
Manufacturing
This legislation, for the first time, would impose a
regulatory regime to govern the development and manufacturing of
cigarettes and smokeless tobacco products, including FDA approval
of the ingredients used in such products and imposition of
standards for reducing the level of certain constituents,
including nicotine.
Elements of the regulatory regime would include:
1. Tobacco products shall have the same definition as
contained in the FDA Rule. Jurisdiction shall also cover Roll
Your Own, Little Cigars, Fine Cut, etc.
2. Tobacco will continue to be categorized as a
"drug" and a "device" under the Food, Drug
and Cosmetic Act ("FDCA"). The Agency's authority to
regulate the products as restricted medical devices" will be
explicitly recognized and tobacco products will be classified as
a new subcategory of a Class II device pursuant to 21 U.S.C.
section 360c. FDCA shall apply to these products as provided by
the Act and the amendments to FDCA contained herein.
3. The Class II classification shall permit FDA to require
product modification of tobacco products, including the
regulation of nicotine content, and shall provide that the sale
of tobacco products to adults in the form that conforms to
Performance Standards established for tobacco products pursuant
to Section 514 ("Section 514") of the
(Page 14) FDCA (21 U.S.C. Section 360d) shall be permitted
notwithstanding 21 U.S.C. Sections 360f, 352 ) and 360h(e)
4. Reduced Risks Products
Products sold that an objective, reasonable consumer would
believe pose less of a health risk:
-- Tobacco product manufacturers will be barred from making
claims that could reasonably be interpreted to state or imply a
reduced health risk unless the manufacturer demonstrates to FDA
that the product scientifically does in fact "significantly
reduce the risk to health" from ordinary tobacco products.
Currently employed product descriptors such as "light"
and "low tar" will be regulated as described in 1(A)
above.
-- FDA would have to approve all health claims (direct or
implied), as well as the content and placement of any such claims
in advertisements, to prevent the public from being misled and to
prevent the advertisement from being used to expand, or prevent
the contraction of, the marketplace.
-- For "less hazardous tobacco products", FDA will
be authorized to permit scientifically-based specific health
claims and to permit exceptions to the advertising restrictions
that apply to other products if FDA determines that such
advertising would reduce harm and promote the public health. The
FDA will promulgate a rule to govern how these determinations
will be made.
-- The manufacturers will be required to notify FDA of any
technology that they develop or acquire and that reduces the risk
from tobacco products and, for a commercially reasonable fee, to
cross license all such technology, but only to those companies
also covered by the same obligations. Procedural protections will
be built in to resolve license fee disputes, if the private
parties cannot agree among themselves first. If the technology
reported to the FDA is in the early development stages, the
manufacturer will be provided confidentiality protection during
the development process.
-- The Agency shall also have the authority to mandate the
introduction of "less hazardous tobacco products" that
are technologically feasible, after a formal rule making subject
to the Administrative Procedures Act ("APA"), with the
right of judicial review. In doing so,
(Page 15) the Agency shall have the authority to mandate that
a manufacturer subject to this Act who owns such technology (at
such manufacturer's election) either introduce such products, or,
at a commercially reasonable market rate, license such technology
to a manufacturer who agrees to bring the technology to market in
a reasonable time frame. In the event that no manufacturer or
licensee introduces such "less hazardous tobacco
products," within a reasonable time frame set by FDA, then
the U.S. Public Health Service may produce either itself, or
through a licensing arrangement, any such product.
-- The goal of any rule mandating the introduction into the
marketplace of "less hazardous tobacco products" for
which the technology exists is to guarantee that a mechanism
exists to ensure that products which appear to hold out the hope
of reducing risk are actually tested and made available in the
marketplace and not held back.
5. Performance Standards
To further the public health, to promote the production of
"reduced risk" tobacco products, and to minimize the
harm to consumers of tobacco products by insuring that the best
available, feasible safety technology becomes the industry
standard, FDA will have the authority to promulgate Performance
Standards pursuant to Section 514 that require the modification
of tobacco products to reduce the harm caused by those products
(including the components that produce drug dependence), provided
that the standard shall not require the prohibition on the sale
to adults of traditional tobacco products in the basic form as
described in the August 28, 1996 FDA Rule at 61 Fed. Reg. at
44616 (to be codified at 21 C.F.R. Section 897.3).
Specifically:
A. For a period of no fewer than twelve years following the
effective date of the Act, the product Performance Standards will
be governed by the following: The Agency shall be permitted to
adopt performance standards that require the modification of
existing tobacco products, including the gradual reduction, but
not the elimination, of nicotine yields, and the possible
elimination of other constituents or other harmful components of
the tobacco product, based upon a finding that the modification:
(a) will result in a significant reduction of the health risks
associated with such products to consumers thereof, (b) is
technologically feasible, and (c) will not result in the creation
of a significant demand for contraband or other tobacco products
that do not meet the product safety standard. In determining the
risk of the demand for a market
(Page 16 ) in contraband products, the FDA shall take into
account the number of dependent tobacco product users and the
availability, or lack thereof, of alternative products then on
the market and such other factors as the Agency may deem
relevant.
The authority to require such product modification can be
exercised upon a showing of "substantial evidence?"
based upon an administrative record developed through a formal
rule making subject to the Administrative Procedures Act, with
the right of judicial review, and any such modification shall be
subject to the current procedures of the Regulatory Reform Act of
1996 to provide time and a process for Congress to intervene
should it so choose. In the event a party subsequently files a
petition seeking an administrative review of whether a
modification has, in fact, resulted in the creation of a
significant demand for contraband or other tobacco products that
do not meet the safety standard and FDA denies the petition, the
petitioner shall have the right to seek judicial review of the
denial of the petition.
Additionally:
-- Within one year of the effective date of this Act, the FDA
shall establish a Scientific Advisory Committee to examine and
determine the effects of the alteration of nicotine yield levels
and to examine and determine whether there is a threshold level
below which nicotine yields do not produce drug dependence and,
if so, to determine that level, and also review any other safety,
dependence or health issue so designated by FDA.
-- Separate from and without detracting from the Agency's
authority under the requirements of the Section 514 Performance
Standard noted above, effective three years from the date of
enactment of this Act, no cigarette shall be sold in the United
States which exceeds a 12 mg "tar" yield, using the
testing methodology now being used by the Federal Trade
Commission.
B. After the initial twelve year period, the Agency will be
permitted to set product safety standards that go beyond the
standards it is authorized to set pursuant to the above noted
provisions and, if it does so, any such product Performance
Standards shall be governed by the following: The Agency will
be
(Page 17) permitted to require the alteration of tobacco
products then being marketed, including the elimination of
nicotine and the elimination of other constituents or other
demonstrated harmful components of the tobacco product,1 based
upon a finding that: (a) the safety standard will result in a
significant overall reduction of the health risks to tobacco
consumers as a group,2 (b) the modification is technologically
feasible, and (c) the modification will not result in the
creation of a significant demand for contraband or other tobacco
products that do not meet the safety standard. In determining the
overall health benefit of a change, the Agency shall consider the
number of dependent tobacco users then in existence, the
availability and demonstrated market acceptance of alternate
products then on the market, and the effectiveness of smoking
cessation techniques and devices then on the market and such
other factors as the Agency may deem relevant.
Given the significance of such an action, the Agency will be
permitted to require the elimination of nicotine or take such
other action that would have an effect comparable to the
elimination of nicotine based upon a "preponderance of the
evidence" pursuant to, at a manufacturer's election, a Part
12 hearing, or notice and comment rule making, with a right of
judicial review. Any such action shall be phased in, and no such
phase-in shall begin in less than two years, to permit time for a
meaningful Congressional review pursuant to the current
procedures of the Regulatory Reform Act of 1996. In the event a
party subsequently files a petition seeking an administrative
review of whether a modification has, in fact, resulted in the
creation of a significant demand for contraband or other tobacco
products that do not meet the safety standard and the FDA denies
the petition, the petitioner shall have the right to seek
judicial review of the denial of the petition.
1 - The elimination of nicotine or other harmful constituent
shall not be deemed to violate the prohibition on the sale of
traditional tobacco products to adults, even if it results in a
reduction of the number of the consumers who use the tobacco
products then remaining on the market.
2 - This includes the reduction in harm which will result from
decreased drug dependence from the reduction and/or elimination
of nicotine from (a) those who continue to use tobacco products,
but less often, and (b) those who stop using tobacco
products.
(Page 18) In any judicial review, the deference accorded to
the Agency's findings shall depend upon the extent to which the
matter at issue is then within the Agency's field of
expertise.
6. Manufacturing Oversight
The, legislation would subject tobacco product manufacturers
to good manufacturing practice standards ("GMPs")
comparable to those applicable to medical device manufacturers,
food companies and other FDA regulated industries, but tailored
specifically to tobacco products. In this regard there would
be:
-- Implementation of a quality control system (e.g., to
prevent contamination)
-- Inspection of tobacco product materials (e.g., to ensure
compliance with quality standards)
-- Requirements for proper handling of finished product
-- Tolerances for pesticide chemical residues in or on
commodities in the possession of the manufacturer; existing EPA
authority and oversight is retained
-- Inspection authority comparable to FDA's authority over
other FDA regulated products, including the ability to enter
manufacturing plants and demand certain records
-- Record keeping and reporting requirements
Tobacco farmers will face no greater regulatory burden than
the producers of other raw products regulated by the federal
government.
[Source/precedent: FDA Rule; FDCA, 21 U.S.C. Sections 346a;
360]
7. Access to Company Information
-- The Act would ensure that previously non-public or
confidential the files of the tobacco industry - including
internal documents - are disclosed to FDA, private litigants The
details of the arrangement are set forth in documents from health
research and the public. Appendix VI II.
(Page 19)-- Any subpoena authority FDA has with respect to
manufacturers of medical devices generally would also apply to
tobacco product manufacturers. [Back]
F. Non-tobacco Ingredients
Currently, at the federal level, tobacco manufacturers are
required only to submit aggregated ingredient information (not by
brand or company) to HHS for monitoring and review. Nor do
tobacco products manufacturers currently disclose to consumers
ingredients information for each of the tobacco products they
sell.
The legislation would supersede the current often-criticized
federal ingredient law and confirm FDA's authority to evaluate
all additives in tobacco products. No non-tobacco ingredient
could be used in manufacturing tobacco products unless the
manufacturer can demonstrate that such ingredient is not harmful
under the intended conditions of use. Further, the legislation
would require the manufacturers to disclose to FDA the
ingredients and the amounts thereof in each brand. In addition,
it would require manufacturers to disclose ingredient information
to the public under regulations comparable to what current
federal law requires for food products, reflecting the intended
conditions of use.
Under this proposed legislation:
-- Manufacturers would be required to provide FDA on a
confidential basis a list of all ingredients, substances and
compounds (other than tobacco, water or reconstituted tobacco
sheet made wholly from tobacco) which are added by the
manufacturer to the tobacco, paper or filter of the tobacco
product by brand and by quantity in each brand. For each such
item, the manufacturer would identify whether or not it believes
that the item would be exempt from public disclosure under the
legislation.
-- Manufacturers would be required to submit, within 5 years
of the enactment of the Act, for each ingredient currently added
to the tobacco product, a safety assessment, based on the best
available evidence, that there is a reasonable certainty in the
minds of competent scientists that the ingredient (up to a
specified amount) is not harmful under the intended conditions of
use. FDA shall promulgate applicable regulations within 12
months.
-- Within a statutory time assessment(s) in accordance within
90 days, FDA shall
(Page 20) period FDA must review with the applicable standard;
approve or disapprove an
ingredient's safety, and if FDA takes no action, the
ingredient is deemed approved. FDA may also challenge any
manufacturer's assertion that an ingredient would be exempt from
disclosure to consumers under applicable regulations comparable
to what current federal law requires for food products.
-- New ingredients or use of current ingredients beyond the
specified maximum amount are subject to a comparable process
prior to use.
-- FDA would be required to protect as strictly confidential
ingredient information not otherwise subject to public
disclosure. If not subject to such disclosure, this information
will be treated as trade secrets under federal law, exempt from
FOIA requests and protected by procedures which shall include the
designation of an agent who will store it in a locked cabinet,
maintain a record of any person who has access to the information
and require a written confidentiality commitment from any such
person.
-- Manufacturers would be required to disclose to the public
ingredients information pursuant to regulations comparable to
what current federal law requires for food products. During an
initial 5 year period, each ingredient that would be exempt from
disclosure under the food regime would be presumed not to be
subject to disclosure unless FDA disproves its safety. However,
manufacturers would be required to disclose all ingredients which
they have been compelled to publicly disclose with respect to a
particular brand in order to comply with a statute or regulation
(e.g., MA Ch 94 s.307B).
-- Manufacturers would be required to have procedures for the
selection, testing, purchase, storage and use of ingredients. The
Act would:
-Provide for record keeping regarding ingredients
-Allow FDA access to such records, with protection of
proprietary information
[Source/precedent: MA Chapter 94, s.307B; 21 C.F.R. s.s.101.4,
101.105, and 101.170; 18 U.S.C. s.1905; 5 U.S.C. s.552(b)(4); MA
proposed reg. 105 C.M.R. s.660.200(G)] [Back]
(Page 21)G.
Compliance and Corporate Culture.
A key element in achieving the Act's goals will be forcing a
fundamental change in the way the tobacco industry does business.
Accordingly, the Act will provide for means to ensure that the
industry will not only comply with the letter of the law but will
also have powerful incentives to prevent underage usage of
tobacco products and to strive to develop and market less
hazardous tobacco products.
First manufacturers would be required to create plans, with an
annual review and update, to:
-- Ensure compliance with all applicable laws and
regulations
-- Identify ways to achieve the goals of reduced youth access
to and incidence of underage consumption of tobacco products and
provide internal incentives for doing so
-- Provide internal incentives to develop products with
reduced risk
Second, with a special emphasis on laws and regulations that
make it unlawful to sell tobacco products to underage persons and
other laws directed at the issue of underage tobacco use, the
manufacturers must implement compliance programs that include, at
a minimum, the following elements:
-- Compliance standards and procedures to be followed by
employees and agents that are reasonably capable of reducing the
prospect of violations
-- Assignment to specific individual(s) within high-level
personnel of the organization of overall responsibility to
oversee compliance with the relevant standards and procedures,
especially in regard to preventing underage tobacco use
-- Use of due care not to delegate substantial discretionary
authority to individuals who the organization knows, or should
have known through the exercise of due diligence, had a
propensity to disregard corporate policy
-- Steps to communicate relevant standards and procedures to
all employees and other agents (including lobbyists), e.g., by
requiring participation in training programs or by disseminating
publications that explain in a practical manner what is
required
-- Internal audits, hotlines and other measures to promote
compliance
(Page 22)-- Appropriate disciplinary mechanisms and measures
(e.g., discipline of employees who violate marketing
restrictions)
-- Reasonable steps to respond appropriately to a violation
and to prevent further similar violations
Furthermore, the Act would provide "whistleblowers"
in the tobacco industry with the maximum protection available
under current federal statutes.
Beyond compliance with the letter of the law, manufacturers
would be required to take affirmative steps in furtherance of the
spirit of the new regime, including:
-- Promulgating corporate principles that express and explain
the company's commitment to compliance, reductions of underage
tobacco use, and development of reduced risk tobacco
products
-- Designating a specific individual within high-level
personnel of the organization with appropriate responsibility and
authority to promote efforts to attain these new standards
-- Providing reports to shareholders on compliance as well as
progress toward meeting these new standards
Manufacturers would also be required to work with retail
organizations on compliance, including retailer compliance checks
and financial incentives for compliance.
Third, each tobacco manufacturer would require all contract
lobbyists (and any other third-parties who may engage in lobbying
activities on behalf of a manufacturer) to agree that they will
not support or oppose any state or federal legislation, or seek
or oppose any governmental action on any matter, without the
manufacturer's express authorization. Manufacturers would also
require anyone lobbying on their behalf to agree in writing that
a) they are aware of and will fully comply with all applicable
laws and regulations; b) they have reviewed and will fully comply
with the Act as it applies to them; c) they have reviewed and
will fully comply with the Consent Decree as it applies to them;
and d) they have reviewed and will fully abide by the
manufacturer's business conduct policies and any other policies
and commitments as they apply, especially those related to
prevention of youth tobacco usage.
Fourth, within ninety days after the Act's effective date, the
Tobacco Institute and the Council for Tobacco Research, U.S.A.
would be dissolved and disbanded. Tobacco product manufacturers
would be permitted to form new trade associations only in
accordance with strict procedures and federal oversight
(Page 23) designed to ensure compliance with antitrust and
other applicable laws. (See Appendix IV)
Finally, companies would be subject to fines and penalties
(including "Scarlet Letter" advertising) for breaching
their obligations vis-a-vis the development, implementation and
enforcement of compliance plans and corporate principles. These
penalties shall follow the scheme set forth in the Clean Air Act,
up to $25,000 per day per violation with a total not to exceed
$200,000. In addition, each manufacturer's employees shall be
directed to report to that manufacturer's compliance officer any
known or alleged violations of this Act by retailers or
distributors. In accordance with procedures established by FDA,
the compliance officer shall be required to furnish all such
reports to FDA for reference to appropriate federal or state
enforcement authorities. The manufacturer shall be subject to
fines or penalties in the event its compliance officer fails to
furnish any such reports to FDA.
[Source/precedent: Federal Organizational Sentencing
Guidelines; various federal consent decrees; various corporate
environmental programs] [Back]
H. Effective Dates
Many of the foregoing requirements relating to the reformation
of the tobacco industry will become effective shortly after the
Act is signed by the President; including the following
categories of new rules, which will be implemented on the dates
indicated:
Category Effective Dates on Final Passage Retail Product
Displays 9 months Retail signage 5 months Advertising 9 months
Package Labeling 1/3 in 90 days 1/3 in 120 days 1/3 in 180 days
Sponsorships 12/31/98 Vending machines 12 months Sampling 3
months GMPs 24 months in accordance with rulemaking, whichever is
later Corporate compliance 12 month Face-to-face transactions 3
months Ban on sales of open packs 3 months 20 cigarettes per pack
minimum 3 months Puerto Rico pack size 12 months [Back]
(Page 24 )TITLE II: "Look
Back" Provisions/State Enforcement incentives
A central aim of this legislation is to achieve dramatic and
immediate reductions in the number of underage consumers of
tobacco products. The legislation accordingly contains a
"look-back" provision giving tobacco product
manufacturers significant economic incentives to take every
possible step to ensure that the advertising, marketing and
distribution requirements of this Act are met, and imposing
substantial surcharges on the manufacturers in the event that
underage tobacco-use reduction targets are not achieved.
The "look-back" provision sets targets for the
dramatic reduction of current levels of underage tobacco use (as
measured by the University of Michigan's National High School
Drug Use Survey "Monitoring the Future"). Underage use
of cigarette products must decline by at least 30% from estimated
levels over the last decade by the fifth year after the
legislation takes effect, by at least 50% from estimated levels
over the last decade by the seventh year after the legislation
takes effect, by at least 60% from estimated levels over the last
decade by the tenth year after the legislation takes effect, and
remain at such reduced levels or below thereafter. (These
required reductions amount to even steeper declines from current
levels of underage smoking.) Underage use of smokeless tobacco
products must decline by at least 25% from current levels by the
fifth year after the legislation takes effect, by at least 35%
from current levels by the seventh year after the legislation
takes effect, by at least 45% from current levels by the tenth
year after the legislation takes effect, and remain at such
reduced levels or below thereafter. FDA will annually assess the
prevalence of underage tobacco use (based on the methodology
employed by the University of Michigan survey) to determine
whether these targets have been met.
If a target has not been met, FDA will impose a mandatory
surcharge on the relevant industry (cigarette or smokeless
tobacco) based upon an approximation of the present value of the
profit the industry would earn over the lives of all underage
users in excess of the target (subject to an annual cap of $2
billion for the cigarette industry (adjusted each year for
inflation) and a comparably derived cap for the smokeless tobacco
industry). Tobacco product manufacturers could receive a partial
abatement of this surcharge (up to 75%) only if they could
thereafter prove to FDA that they had fully complied with the
Act, had taken all reasonably available measures to reduce youth
tobacco use and had not taken any action to undermine the
achievement of the required reductions.
(Page 25) A fuller description is provided in Appendix
V.
In addition, the proposed Act goes well beyond the provisions
of the Synar Amendment's "no tobacco sales to minors"
law and related regulations, 42 U.S.C. s. 300X-26, and the Final
Rule promulgated thereunder, which became effective February
20,1996 (61 Fed. Reg., June 19,1996). The proposed Act requires
the several States to undertake significant enforcement steps
designed to dramatically reduce the incidence of youth smoking,
and youth access to tobacco products. These enforcement
obligations are funded by Industry Payments. Each state must
maintain specific levels of enforcement effort, or the state
risks the loss of a significant portion of the health care
program funds otherwise payable to the state under the Act
Amounts withheld from states not doing an adequate enforcement
job will be reallocated to states with a superior "no sales
to minors" enforcement record. No state will be held
responsible for sales to underage consumers outside that state's
jurisdiction.
The details of these state enforcement incentives are set
forth in Appendix VI.
(Page 26) TITLE
Ill: Penalties and Enforcement; Consent Decrees;
Non-Participating Companies
A. Penalties and
Enforcement
-- This legislation will be enforceable both by the federal
government, including FDA and civil and criminal divisions of the
Department of Justice, and by the several States. FDA will also
have the authority to contract directly with state agencies to
assist with enforcement. If conduct is subject to a particular
State's consumer protection law or similar statute, such state
may proceed under that law.
-- State enforcement actions - whether brought under the Act
or a State's consumer protection law - could not impose
obligations or requirements beyond those imposed by the
legislation (except where the legislation does not specifically
preempt additional state-law obligations), and would be limited
to the civil and criminal penalties established by the
legislation and by the prohibition on duplicative penalties.
State enforcement proceedings under the Act (or predicated on
conduct violating the Act), except those exclusively local in
nature, would be removable to federal court. Nothing in the Act
precludes a State from enforcing its laws in the ordinary fashion
as to matters not covered by the Act or Protocol.
-- Civil and criminal penalties for violations of the
legislation based on those governing other drugs or devices
regulated under the Food, Drug and Cosmetic Act and, where
applicable, under Title 18 of the U.S. Code.
-- In addition, the industry faces civil penalties of up to
$10 million per violation for any violations of the obligations
to disclose to the FDA research about tobacco-product health
effects and information regarding the toxicity of non-tobacco
ingredients and constituents used in their products. This penalty
is ten times the largest penalty faced by other drug or device
manufacturers for similar violations.
-- To reflect the fact that not all States have filed lawsuits
against the tobacco industry, but that the intent of the
negotiators is to provide the benefits of the settlement to all
States, the industry also will enter into a binding and
enforceable national tobacco control
(Page 27 ) Protocol embodying certain terms of the proposed
resolution. As an enforceable contract, which would not be
subject to facial constitutional challenge, this Protocol will
provide benefits and enforcement rights to the federal government
and all states. [Back]
B. Consent Decrees
Certain terms of the agreement will also be reiterated in
consent decrees between the tobacco industry and the states that
will not take effect until after enactment of the Act. These
consent decrees will be identical to, and will reiterate, the
terms of the agreement with respect to: (1) restrictions on
advertising, marketing and youth access to tobacco products; (2)
trade associations; (3) restrictions on lobbying; (4) disclosure
of tobacco smoke constituents; (5) disclosure of non-tobacco
ingredients; (6) disclosure of existing and future industry
documents relating to health, toxicity and addiction; (7)
compliance and corporate culture; (8) obligations to make
monetary payments to the States reflecting their reasonable share
of the total provided by the Act; (9) obligations of the industry
to deal only with distributors and retailers that operate in
compliance with applicable provisions of law respecting the
distribution, sale and marketing of tobacco products; (10)
warnings, labeling and packaging (to the extent noted below); and
(11) dismissal of other pending litigation specified by the
parties.
The consent decrees will not contain provisions as to: (1)
product design, performance or modification; (2) manufacturing
standards and good manufacturing practices; (3) testing and
regulation with respect to toxicity and ingredients approval; and
(4) the national FDA "look back" provisions.
The consent decrees will provide that their terms are to be
construed in conformity with the Act and the Protocol and with
each other. State proceedings to enforce the provisions of the
consent decrees may be brought in state court, subject to an
acceptable procedure to ensure consistent rulings with respect to
conduct that is not exclusively local in character. State
proceedings to enforce the consent decrees may seek injunctive
relief only, and may not seek criminal or monetary sanctions. A
State shall not be limited from seeking criminal or other
sanctions for a company's
(Page 28) subsequent violation of an injunction entered by the
court in an action brought to enforce the consent decree
-- The provisions of the consent decrees will remain
enforceable regardless of whether subsequent changes in the Act
or in any other provision of law diminish the obligations of the
companies in the areas covered by the consent decrees, except:
(1) where such changes create federal requirements that produce
obligations in conflict with those contained in the consent
decrees; (2) with respect to the allocation of funds; and (3)
with respect to warnings, labeling and packaging. With respect to
warnings, labeling and packaging, if the requirements of the Act
are later modified, or if Congress subsequently prohibits
warnings on tobacco products, the consent decrees will be
modified to conform to such requirements. However, if Congress
later eliminates altogether the warning requirement in the Act,
the warnings originally set forth in the Act (the so-called
Canadian warnings) shall be mandated and enforceable under the
consent decrees.
-- In addition, the parties recognize that certain provisions
of the consent decrees and the agreement may require them to act
(or refrain from acting) in a manner that they might otherwise
claim would violate the federal or state constitutions. They will
therefore in the consent decrees expressly waive any claim that
the provisions of the consent decrees or the agreement violate
the federal or state constitutions. The consent decrees will also
state that if a provision of the Act covered by the decrees is
subsequently declared unconstitutional, the provision remains an
enforceable term of the consent decrees. [Back]
C. Non-participating companies
-- The regime envisioned by the resolution would be
substantially undercut if certain companies were free to ignore
the limitations it imposes, and were instead able to sell tobacco
products at lower prices (because they were not making the
payments described above) and through less restricted advertising
and marketing activities. The resolution accordingly anticipates
the possibility that some manufacturers of tobacco products may
not consent to the institution of this regime. Rather than
seeking to impose on such manufacturers the advertising
restrictions, full required payments and corporate culture
changes set forth above, the resolution
(Page 29) avoids constitutional questions that might otherwise
be raised by establishing a separate regime for non-participating
manufacturers.
-- Non-participating manufacturers would be subject to the
access restrictions and regulatory oversight set forth above.
They would receive none of the civil liability protections
described in Title VIII. Their product would be subject to a user
fee equal to the portion of the payments by participating
manufacturers allocated to fund public health programs and
federal and state enforcement of the access restrictions.
-- The resolution further recognizes that - unlike the
participating manufacturers - non-participating manufacturers
will not have made consensual payments to settle governmental
actions for health care costs, to settle class actions and in to
provide consideration for the partial settlement of individual
tort actions (including punitive damages claims). Because such
actions would remain wholly unsatisfied, it is vital that the
claimants be ensured that funds will be available to satisfy any
judgments that may be obtained. Accordingly, the resolution
requires that each nonparticipating manufacturer place into an
escrowed reserve fund each year an amount equal to 150% of its
share of the annual payment required of participating
manufacturers (other than the portion allocated to public health
programs and federal and state enforcement). These escrowed funds
would be earmarked for potential liability payments, and the
manufacturer would reclaim them with interest 35 years later to
the extent they had not been paid out in liability.
-- Moreover, the resolution also recognizes that - because
nonparticipating manufacturers are not subject to the corporate
culture commitments requiring manufacturers to monitor
distributor and retailer compliance with the underage access
restrictions -distribution and retail sales of those
manufacturers' products present a particularly great obstacle to
the achievement and enforcement of the access restrictions.
Accordingly, the resolution provides that the exemption from
civil liability applicable to distributors and retailers of the
products of participating manufacturers will not apply to
distributors and retailers who handle tobacco products of
non-participating manufacturers. [Back]
(Page 30)
Title IV: Nationwide Standards To Minimize Involuntary
Exposure To Environmental Tobacco Smoke
Until now, there has been no minimum or other federal standard
governing smoking in public places or at work. The legislation
would:
-- Restrict indoor smoking in "public facilities"
(i.e., any building regularly entered by 10 or more individuals
at least one day per week) to ventilated areas with systems
that:
- Exhaust the air directly to the outside;
- Maintain the smoking area at "negative pressure"
compared with adjoining areas; and
- Do not recirculate the air inside the public facility.
-- Ensure that no employee shall be required to enter a
designated smoking area while smoking is occurring. Cleaning and
maintenance work in a designated smoking area shall be conducted
while no smoking is occurring.
-- Exempt restaurants (but not "fast food"
restaurants)1 and bars (including those in hotels), private
clubs, hotel guest rooms, casinos, bingo parlors, tobacco
merchants and prisons.
-- Direct OSHA to issue, not later than one year after the
effective date of the legislation, regulations implementing and
enforcing the preceding standards, with enforcement costs paid
out of the Industry Payments. The smoking restrictions outlined
in this Title would take effect on the first anniversary of the
enactment of the legislation
-- "Fast food" restaurant means any restaurant or
chain of restaurants which
primarily distributes food via customer pick-up (either at a
counter or drive-through window). In addition, OSHA would be
authorized to issue regulations clarifying this definition to the
extent necessary to ensure that the intended inclusion of
establishments catering largely to minors is achieved. Any such
regulation may consider such factors as whether a restaurant
either has attached playgrounds or play areas for children, uses
ad campaigns that feature or prominently include cartoon
characters and/or toy giveaways or advertises "happy
meal" or other comparable kids-combination platters, and
other factors OSHA deems relevant.
(Page 31 ) irrespective of whether the implementing
regulations have been promulgated.
The legislation would not preempt or otherwise affect any
other state or local law or regulation that restricts smoking in
public facilities in an equal or stricter manner. Nor would the
legislation preempt or otherwise affect any federal rules that
restrict smoking in federal facilities.
[Source/precedent: H.R. 3434, as reported out of committee;
WISHA workplace smoking rule; state law exemptions for the
"hospitality sector"] [Back]
(Page 32 ) TITLE
V: Scope and Effect
A. Scope of FDA
Authority
-- All product sold in U.S. commerce
-- Covers new entrants; imports; U.S. duty free, etc.
-- BATF to retain fiscal authority over tobacco products
-- FTC to retain existing authority, except for
"tar", nicotine, and carbon monoxide testing
-- Grower Limitation: FDA jurisdiction does not extend to the
growing, cultivation or curing of raw tobacco (USDA has exclusive
authority). [Back]
B. State Authority
1. Preservation of State and Local Government Laws and Legal
Authority
-- While setting a federal "floor" for tobacco
control measures in many substantive areas, this legislation
preserves, to the maximum extent, state and local government
authority to take additional tobacco control measures that
further restrict or eliminate the product's use by and
accessibility to minors.
-- This legislation also permits state and local governments
to enact measures that further restrict or eliminate employee and
general public exposure to smoking in workplaces and in other
public and private places and facilities.
-- The legal authority of a state or local government to
further regulate, restrict or eliminate the sale or distribution
of tobacco products, and to impose state or local taxes on such
products, also remains unchanged.
-- The legislation retains similar flexibility for Indian
tribes, military facilities and other federal agencies.
(Page 33) 2. Uniformity of Warning Labels, Packaging, Labeling
and Other Advertising Requirements; Manufacturing
Requirements
-- Current federal law providing for national uniformity of
warning labels, packaging and labeling requirements, and
advertising and promotion requirements related to tobacco and
health, is preserved, except that this legislation gives FDA
express authority to require changes in the language of the
warnings, subject to the standard requirement that it provide
public notice and a hearing opportunity prior to making such
changes.
-- Similarly, the provisions of FDCA designed to provide
uniformity in product manufacturing and design requirements
relating to medical devices will apply to tobacco products,
except that any application by a State or locality for an
exemption permitting it to adopt additional or different
requirements relating to performance standards or good
manufacturing practices may only be granted if the requirement
would not unduly burden interstate commerce. Further, to ensure
that FDA has an adequate opportunity to evaluate non-tobacco
ingredients as described in Title 1(F), no exemption relating to
ingredients may be applied for until the fifth anniversary of the
effective date of the Act. [Back]
(Page 34) TITLE
VI: Programs/Funding
TOTAL 25 YEAR PACKAGE FACE VALUE - $368.5 Billion
A. Up Front Commitment - Lump Sum Cash Payment - $10
Billion
1. Payable on Statute Signing Date. [Back]
B. Base Annual Payments - 25 Year Total Face Value is
Billion (Figures Subject to Inflation Protection and Volume
Adjustments)
1. Duration - annual payments in perpetuity
2. Commencement - 12/31 of first full year after statute
signing
3. Face Amounts (includes payments from all industry sources):
$358.5
Year 1 2 3 4 5 6-8 9
Total Payments $8.5B $9.5B $11.5B $14B $15B $15B $15B
$15B
Base Amount: $6B $7B $8B $1OB $10B $12.5B $15B $15B
Public Health Trust $2.5B $2.5B $3.5B $4B $5B $2.5B
4. Inflation Protection for Annual Payments
-- Greater of 3% or CPI applied each year on previous year,
beginning with first annual payment.
5. Adjustment for Volume Decrease (Adult Volume Only) or Total
Volume Increase
-- Beginning in year 1; payment made equal to scheduled annual
payment times the ratio of actual relevant domestic tobacco
product unit sales volume to relevant base volume. In the event
of a decline in volume, relevant actual volume and relevant base
volume are adult volume figures; in the event of an increase in
volume, relevant actual volume and
(Page 35) relevant base volume are total volume figures. Base
volume is 1996 volume.
-- Any reduction in an annual payment will be reduced by 25%
of any increase above the industry's base year net operating
profits (after application of inflator discussed above) from
domestic sales of tobacco products.
6. Payment Protection
-- Provide for payment priority/continuation during
bankruptcy/ reorganization proceedings. Protocol cannot be
rejected in bankruptcy. Obligation for annual payments
responsibility only of entities selling into domestic market
7. Pass-Through
-- In order to promote maximum reduction in youth smoking, the
statute would provide for the Annual Payments to be reflected in
the prices manufacturers charge for tobacco products. [Back]
C. Applicability
1. Applicable to All Sellers of Tobacco Products
-- Through protocol and statute to protocol signatories.
-- Through alternative statutory provisions to
non-signatories. [Back]
D. Tax Treatment
All payments pursuant to this Agreement (including those
pursuant to Title II) shall be deemed ordinary and necessary
business expenses for the year of payment, and no part thereof is
either in settlement of an actual or potential liability for a
fine or penalty (civil or criminal) or the cost of a tangible or
intangible asset. [Back]
(Page 36) TITLE
VII: Public Health Funds From Tobacco Settlement
As Recommended By The Attorneys General For Consideration
By The President And The Congress
BASED ON THE PREMISE OF $1 BILLION FOR THE FIRST YEAR AND
GRADUALLY INCREASING TO $1.5 BILLION THEREAFTER, ADJUSTED FOR
INFLATION AFTER THE FIRST YEAR.
BASED ON THE PREMISE OF $1 BILLION FOR SMOKING CESSATION FOR
THE FIRST 4 YEARS AND $1.5 BILLION THEREAFTER, ADJUSTED FOR
INFLATION.
(A) ALLOCATION OF GRANT MONIES AMONG PROGRAMS - The use of
moneys under this Section shall be limited to programs
established under this Section, shall be adjusted for inflation
annually from the effective date, and shall be allocated among
such programs as follows:
(1) $125,000,000 for the first three years and $225,000,000
annually thereafter to the Secretary of HHS to accomplish the
purposes described in Paragraph (B) of this Section (Reduction in
Tobacco Usage);
(2) $300,000,000 annually for the FDA to carry out its
obligations under and to enforce the terms of this Act, including
for grants to the states to assist in the enforcement of the
provisions of the Act;
(3) $75,000,000 for the first two years, $100,000,000 in the
third year, and $125,000,000 annually thereafter to fund state
and local tobacco control community based efforts modeled on the
ASSIST program, designed to encourage community involvement in
reducing tobacco use and the enactment and implementation of
policies designed to reduce the use of tobacco products;
(4) $100,000,000 annually to fund research and the development
of methods for how to discourage individuals from starting to use
tobacco and how to help individuals to quit using tobacco;
(5) Beginning in the second year, $75,000,000 annually for a
period of ten (10) years to compensate events, teams or entries
in such events, who lose sponsorship by the tobacco industry as a
result of this Act, or who currently receive tobacco industry
funding to sponsor events and elect to replace that
(Page 37) funding, provided that the event, team, or entry is
otherwise unable to replace its tobacco industry sponsorship
during those given years. Funds used for this purpose shall
promote a Quit Tobacco Use theme. After a ten year period, no
additional funds shall be used for this purpose and the funds
previously allocated to this purpose shall be used as follows:
50% to supplement funding of the multimedia campaigns in
paragraph (1) of this subsection; 25% to supplement the funding
of the enforcement provisions of paragraph (2) of this
subsection; and 25% to supplement the funding of community action
programs in paragraph (3) of this subsection.
(B) ESTABLISHMENT OF PROGRAMS BY THE SECRETARY - The Secretary
shall establish programs to accomplish the following
purposes---
(1) the reduction of tobacco product usage, both by seeking to
discourage the initiation of tobacco use by persons under the age
of 18 and by encouraging current tobacco users to quit through
media-based and non-media based education, prevention and
cessation campaigns. The Secretary may make grants to state
health departments to assist in carrying out the purposes of this
provision.
(2) the research into and development and public dissemination
of technologies and methods to reduce the risk of dependence and
injury from tobacco product usage and exposure;
(3) the identification, testing and evaluation of the health
effects of both tobacco and non-tobacco constituents of tobacco
products;
(4) the promulgation of such other rules and regulations as
are necessary and proper to carry out the provisions of this Act,
as well as the development of such other programs as the
Secretary determines are consistent with the goals of the
Act.
(C) Public Education Campaign - $500,000,000 shall be spent
annually in such multi-media campaigns designed to discourage and
de-glamorize the use to tobacco products. To carry out such
efforts, an independent non-profit organization with a Board made
up of prestigious individuals and the leaders of the major public
health organizations shall be created which shall contract or
make grants to non-profit private entities who are unaffiliated
with tobacco manufacturers or tobacco importers, who have a
demonstrated record of working effectively to reduce tobacco
product use and expertise in multi-media communications
campaigns. The independent body shall be authorized to contract
with state health departments, where appropriate, to run
campaigns for
(Page 38 ) their states and communities. In creating the
program the Secretary or independent body shall also take into
account the needs of particular populations. The goal shall be
the reduction of tobacco product usage, both by seeking to
discourage the initiation of tobacco use by persons under the age
of 18 and by encouraging current tobacco users to quit.
(D) Tobacco Use Cessation - For the first 4 years, $1 billion,
and thereafter, $1.5 billion of the total amount paid by the
tobacco industry shall be paid into a Trust Fund to be used to
assist individuals who want to quit using tobacco to do so.
Within 12 months the Secretary shall promulgate regulations to
govern (1) the establishment of criteria for and a procedure for
the approval of cessation programs and devices for which payment
may be made under the program, (2) the eligibility requirements
for individuals seeking to use moneys from the trust to fund the
tobacco cessation efforts, and (3) the procedures to govern the
tobacco cessation program.
The goal of the tobacco cessation program shall to enable the
most tobacco users possible to receive assistance in their effort
to quit using tobacco by providing financial assistance and
identifying the programs, techniques, and devices that have been
shown to be safe and effective. Benefits to individuals should
not be limited to a single effort, but should be tailored to the
needs of individual smokers according to standards established by
the Secretary using the best available scientific
guidelines.
(E) Public Health Trust Fund Presidential Commission - A
Presidential commission will be appointed to include
representatives of the public health community, Attorneys
General, Castano attorneys and others to determine the specific
tobacco-related medical research for which the $25 Billion Public
Health Trust Fund will be used. [Back]
(Page 39) TITLE
VIII: Civil Liability
The following provisions would govern actions for civil liability
related to tobacco and health.
A. General
1. Present Attorney General actions (or similar actions
brought by or on behalf of any governmental entity), parens
patriae and class actions are legislatively settled. No future
prosecution of such actions. All "addiction"/dependence
claims are settled and all other personal injury claims are
reserved. As to signatory States, pending Congressional
enactment, no stay applications will be made in pending actions,
based upon the fact of this resolution, without mutual consent of
the parties.
2. Third-party payor (and similar) actions pending as of
619197 are not settled, but governed by provisions regarding past
conduct set forth in Section B below. [Back]
B. Provisions as to Civil Liability for Past Conduct
The following provisions apply to suits for relief arising
from past conduct - i.e., suits by persons claiming injury or
damage caused by conduct taking place prior to the effective date
of the Act.
1. All punitive damages claims resolved as part of overall
settlement. No punitive damages in individual tort actions.
2. Individual trials only: i.e., no class actions, joinder,
aggregations, consolidations, extrapolations or other devices to
resolve cases other than on the basis of individual trials,
without defendant's consent.
Action removable by defendant to federal court upon receipt of
application to, or order of, state court providing for trial or
other procedure in violation of this provision.
3. Except as expressly provided in the Act, FCLAA and
applicable case law unchanged by the Act.
4. Provided that the five negotiating companies enter into the
Protocol: Protocol manufacturers to enter into joint
sharing
(Page 40 ) agreement for civil liability. Protocol
manufacturers not jointly and severally liable for liability of
non-Protocol manufacturers. Trials involving both protocol and
non-Protocol manufacturers to be severed.
5. Permissible parties:
Plaintiffs -
a. Claims of individuals, or claims derivative of such claims,
must be brought either by person claiming injury or heirs.
b. Third-party payor (and similar) claims not based on
subrogation that were pending as of 619197.
c. Third-party payor (and similar) claims based on subrogation
of individual claims; no extrapolations, etc.
Defendants
a. maintained only against companies, their assigns, any
future fraudulent transferee, and/or entity for suit designated
to survive defunct manufacturer. Actions may be manufacturing
successors and
b. Manufacturers of agents agencies and liable vicariously for
acts (including advertising attorneys).
6. No removal except under paragraph 2 above.
7. The development of "reduced risk" tobacco
products after the effective date of the Act is neither
admissible nor discoverable.
8. Statute of limitations: for all actions, individual state
laws governing time periods from injury, discovery, notice or
contamination/violation.
9. Annual aggregate cap for judgments/settlements: 33% of
annual industry base payment (including any reductions for volume
decline). If aggregate judgments/settlements for a
(Page 41)year exceed annual aggregate cap, excess does not
have to be paid that year and rolls over.
Any judgments/settlements run against defendant? but give rise
to 80-cent-on-the-dollar credit against annual payment in year
paid. Suitable provision for settlement consultation and
permission. Manufacturers control insurance claims, and any
insurance recovery obtained by manufacturers (net of cost) on
account of judgment and/or settlement covered by above sharing
arrangement allocated 80% to annual payments. Manufacturers
retain any insurance proceeds on account of defense costs.
Provision with respect to individual judgments above $1
million: amount in excess of $1 million not paid that year unless
every other judgment/settlement can be satisfied within the
annual aggregate cap. Excess rolls forward without interest and
is paid at the rate of $1 million per year, until the first year
that the annual aggregate cap is not exceeded (at which time the
remainder is paid in full). For purposes of this provision, a
third-party payor (or similar) action not based on subrogation is
treated as having been brought by a single plaintiff and is
subject to the $1 million rollover on that basis.
10. In the event that the annual aggregate cap is not reached
in any year, a Commission appointed by the President will
determine the appropriate allocation of the amount representing
the unused amount of the credit. The Commission will be entitled
to consider, among public health, governmental entities, and
other uses of the funds, applications for compensation from
persons, including nonsubrogation claims of third party payors,
not otherwise entitled to compensation under the Act.
11. Defense costs paid by manufacturers. [Back]
C. Provisions as to Civil Liability for Future Conduct
The following provisions apply to suits for relief arising
from future conduct - i.e., suits claiming injury or damage
caused by conduct taking place after the effective date of the
Act.
(Page 42 )
1. Paragraphs 2, 3, 5, 6, 7, 8, 9, 10 and 11 in Section B
apply.
2. No third-party payor (or similar) claims not based on
subrogation. [Back]
TITLE IX: Board Approval
The terms of this resolution are subject to approval by the
Boards of Directors of the participating tobacco companies.
(Page 43 ) Appendix
I - Warnings in Advertisements
The space in press and poster advertisements for tobacco products
that is to be devoted to the warning and, where relevant, the
"tar," nicotine and any other constituent yield
statements will be 20% of the area of the advertisement. The size
of the printing of the warning and the yield statements shall be
pro rata to the following examples:
a) Whole page broadsheet newspaper - 45 point type
b) Half page broadsheet newspaper - 39 point type
c) Whole page tabloid newspaper - 39 point type
d) Half page tabloid newspaper - 27 point type
e) DPS magazine - 31.5 point type
f) Whole page magazine - 31.5 point type
g) 28 cm X 3 columns - 22.5 point type
h) 20 cm X 2 columns - 15 point type
FDA may revise the required type sizes within the 20%
requirement.
Page 44
Appendix II - Retail Tobacco Product Seller Penalties
1. The sale of tobacco products to consumers by an unlicensed
seller shall be a criminal violation, and be subject to minimum
penalty of $1,000, or imprisonment, for 6 months, or both, if an
individual, or in the case of a corporation, by a maximum penalty
of $50,000. Any State or local jurisdiction may provide by
statute or code more severe penalties.
2. In addition to any criminal penalties which may be imposed
under any applicable state or local law, a tobacco product
licensee may be subjected to civil sanctions, including
penalties, or license suspension or revocation (on a site-by-site
basis), or a combination thereof, for any violation of the
provisions of the State licensing laws regarding sales to minors.
Such sanction shall not exceed the following:
(a) For the first offense within any two year period, $500 or
a 3 day license suspension or both.
(b) For the second offense within any two year period, $1,000
or a 7 day license suspension or both.
(c) For the third offense within any two year period, $2,000
or a 30 day license suspension or both.
(d) For the fourth offense within any two year period, $5,000
or a 6 month license suspension or both.
(e) For the fifth offense within any two year period, $10,000
or 1 year license suspension or both.
(f) For the sixth and any subsequent offenses within any two
year period, $25,000 or a revocation of license with no
possibility of reinstatement for a period of three years.
(g) Permanent license revocation is mandatory for the tenth
offense within any two year period.
Page 45
Each state must enact a statutory or regulatory enforcement
scheme that provides substantially similar penalties to the
minimum federal standards for a retail licensing program.
[Source/Precedent: Washington State Alcohol Licensing Act] [Back]
Page 46
Appendix III - Application to Indian Tribes
A. Application Of Act
1. The provisions of the FDCA, the regulations of the FDA, and
the Act relating to the manufacture, distribution and sale of
tobacco products shall apply on Indian lands as defined in 18
U.S.C s.1151 and on any other trust lands subject to the
jurisdiction of an Indian tribe. To the extent that an Indian
tribe engages in the manufacture, distribution or sale of tobacco
products, the provisions of this Act shall apply to such tribe.
2. Any federal tax or fee imposed on the manufacture,
distribution or sale of tobacco products shall be paid by any
Indian tribe engaged in such activities, or by persons engaged in
such activities on such Indian lands, to the same extent such tax
or fee applies to other persons under the law.
B. Tribal Programs And Authority
1. For the purposes of the provisions of this Act, FDA is
authorized to treat any federally-recognized Indian tribe as a
state, and is authorized to provide any such tribe grant and
contract assistance to carry out the licensing and enforcement
functions provided by this section.
2. Such treatment shall be authorized only if:
(a) the Indian tribe has a governing body carrying out
substantial governmental powers and duties;
(b) the functions to be exercised by the Indian tribe under
this section pertain to activities on trust lands within the
jurisdiction of the tribe; and
(c) the Indian tribe is reasonably expected to be capable of
carrying out the functions required under this Act.
[Source/precedent: Clean Air Act, 42 U.S.C. s.7601(d)]
3. FDA regulations which establish a retail licensing program
shall apply on Indian trust lands, and each tribe's program shall
be no less strict than the program of the State in which the
tribe is located.
Page 47
4. If FDA determines that an Indian tribe does not qualify for
treatment as a state, FDA will directly administer the retailer
licensing program, or may delegate such authority to the
state.
C. Tobacco Compensation And Public Health Grants
1. A portion of the settlement funds to which a state is
otherwise entitled shall be paid to HHS for distribution to the
Indian tribes which have been certified by FDA for treatment as
states. The funds to be paid for such purposes on behalf of
Indian tribes shall be determined by the proportion of registered
tribal members resident on the reservation to the total
population of the state in which the tribe is located. The funds
to be distributed to Indian tribes shall be used for the same
purposes as those funds are to be used by the states and be
subject to the same compliance requirements for retail sales to
minors as are the states under the Act.
2. The Department of Health and Human Services will annually
pay to the governing body of each Indian tribe its share of the
funds for use under an FDA-approved plan after annual
certification by FDA, under the same standards that apply to the
States, that the Indian tribe is in compliance with the
requirements of the Act and any applicable regulations.
3. If HHS does not distribute all, or a portion, of an Indian
tribe's share of the funds in any given year because the tribe
has not qualified under the terms of this section or has not met
the compliance requirements for retail sales to minors, those
funds will be distributed to other qualified tribes in the same
state for the same purposes and on the same proportional basis,
less the non-qualified tribe's population, as other settlement
funds are to be distributed to the tribes.
D. Obligations of Tobacco Manufacturers
1. Tobacco manufacturers shall not engage in any activity on
Indian lands subject to this Act which activity the manufacturers
may not otherwise do within a State.
2. Tobacco manufacturers also agree not to sell tobacco
products for manufacture, distribution, or sale to an Indian
tribe, or to a manufacturer, distributor, or retail seller
subject to the jurisdiction of an Indian tribe, except under the
same terms and conditions as the
Page 48
tobacco manufacturers impose under other manufacturers,
distributors and retail sellers under the Act, or any applicable
regulations. [Back]
Page 49 Appendix
IV - Industry Associations
Within 90 days of the effective date of the Act, the tobacco
product manufacturers shall disband and dissolve the Council for
Tobacco Research, U.S.A. and the Tobacco Institute. In addition,
with respect to any new trade associations:
A. Tobacco product manufacturers may form or participate in
any new tobacco industry trade association. Any such new trade
association shall have an independent board of directors, in
accordance with the following requirements. For at least 10 years
after the formation of the new association, a minimum of 20
percent of the directors, but at least one director, shall be
other than a current or former director, officer or employee of
any association member or affiliated company. No other director
of a new trade association may be, at the same time, a director
of any association member or affiliated company. The officers
shall be appointed by the board and shall be employees of the
association, and during their term shall not be employed by any
association member or affiliated company. Legal counsel for any
such association shall be independent and not serve as legal
counsel to any association member or affiliated company while
counsel to the association.
B. Any new tobacco product manufacturers' trade association
shall adopt by-laws governing the association's procedures and
the activities of its members, board, employees, agents and other
representatives. The by-laws shall include, among other things,
provisions that:
(1) members who are competitors in the tobacco industry shall
not meet on the association's business except under sponsorship
of the association;
(2) every board of directors meeting, board sub-committee
meeting, general association or committee meeting, and any other
association sponsored meeting, shall proceed under and strictly
adhere to an agenda, approved by legal counsel and circulated in
advance; and
(3) minutes describing the substance of the meetings shall be
prepared for all such meetings, and shall be maintained by the
association for a period of 5 years.
Page 50
C. Moreover, under the new regime:
1. The structure, by-laws, and activities of tobacco industry
trade associations shall be subject to continuing oversight by
the U.S. Department of Justice and by state antitrust
authorities. For a period of 10 years from the creation of a new
trade association, such authorities may, without limitation on
whatever other rights to access they may be permitted, upon
reasonable prior notice:
(a) have access during regular office hours to inspect and
copy all books, records, meeting agenda and minutes, and other
association documents; and
(b) interview the association's directors, officers and
employees, who may have counsel present.
The inspection and discovery rights provided in (a) and (b)
above shall be exercised through a multi-state States' Attorneys
General oversight committee. Any documents and information
provided to any state pursuant to (a) and (b) above shall be kept
confidential by and among the states and shall be utilized only
for governmental purposes of enforcing the Act and ancillary
documents.
2. In order to achieve the goals of this Agreement and the Act
relating to tobacco use by children and adolescents, the tobacco
product manufacturers may, notwithstanding the provisions of the
Sherman Act, the Clayton Act, or any other federal or state
antitrust law, act unilaterally, or may jointly confer,
coordinate or act in concert, for this limited purpose.
Manufacturers must obtain prior approval from the Department of
Justice of any plan or process for taking action pursuant to this
section; however, no approval shall be required of specific
actions taken in accordance with an approved plan. Approval or
non-approval of a plan shall not be grounds for abatement of any
surcharge to a manufacturer for failure to meet the reductions in
underage tobacco use contemplated in this resolution and the Act.
[Back]
Page 51 Appendix V -
"Look Back"
A summary of the "look-back" provision is as
follows:
A. The Reduction Requirements.
1. The required reductions in underage tobacco use are
measured against a base percentage. For underage use of
cigarettes, the base percentage is the average weighted by
relative population of such age groups in 1995 as determined by
the U.S. Census Bureau, of (a) the average of the percentages of
12th graders (ages 16 and 17) from 1986 to 1996 who used
cigarette products on a daily basis; (b) the average of the
percentages of 10th graders (ages 14 and 15) from 1991 to 1996
who used cigarette products on a daily basis; and (c) the average
of the percentages of 8th graders (age 13) from 1991 to 1996 who
used cigarette products on a daily basis. The percentages are
those measured by the University of Michigan's National High
School Drug Use Survey "Monitoring the Future" or by
such comparable index using identical methodology as is chosen by
FDA after notice and hearing.
For underage use of smokeless tobacco products, the base
percentage is the average, weighted by relative population of
such age groups in 1995 as determined by the U.S. Census Bureau,
of (a) the percentage of 12th graders (ages 16 and 17) in 1996
who used smokeless tobacco products on a daily basis; (b) the
percentage of 10th graders (ages 14 and 15) in 1996 who used
smokeless products on a daily basis; and (c) the percentage of
8th graders (age 13) in 1996 who used smokeless tobacco products
on a daily basis. These percentages are to be derived from the
same source as are the percentages with respect to use of
cigarette products.
2. After the fifth year after enactment of the Act and
annually thereafter, the FDA will calculate the incidence of
daily use of tobacco products by those under 18 years of age as
follows:
For cigarette product use, the FDA will calculate the average,
weighted by relative population of such age groups in 1995 as
determined by the U.S. Bureau of Census, of the percentages of
12th graders (ages 16 and 17), 10th graders (ages 14 and 15)
and
8th graders (age 13) who used cigarette products on a daily
basis during the preceding year. The percentages used in this
calculation are to be those measured (a) by the University of
Michigan Survey;
Page 52
or (b) by such comparable index using identical methodology as
is chosen by the FDA after notice and hearing. If the methodology
of the University of Michigan Survey is hereafter changed in a
material manner from that employed in 1986-96 (including by
changing the states or regions on which that Survey is based),
the FDA shall use the percentages measured by an index chosen by
it after notice and hearing having a methodology identical to
that employed by the University of Michigan Survey in
1986-96.
For smokeless tobacco product use, the FDA will calculate the
average, weighted by relative population of such age groups in
1995 as determined by the U.S. Bureau of Census, of the
percentages of 8th (age 13), 10th (ages 14 and 15) and 12th
graders (ages 16 and 17) who used smokeless tobacco products on a
daily basis during the preceding year. This calculation is to be
made using the same methodology as with respect to cigarette
product use.
Any data underlying the University of Michigan Survey shall be
available by request from FDA.
3. The reduction requirements (expressed as reduction from the
base percentage) for cigarette products are as follows:
Year After Enactment Reduction Requirement
years 5-6 30% reduction
years 7-9 50% reduction
year 10 (and 60% reduction
thereafter)
The reduction requirements (expressed as reduction from the
base percentage) for smokeless tobacco products are as
follows:
Year After Enactment Reduction Requirement
years 5-6 25% reduction
years 7-9 35% reduction
Page 53 year 10 (and thereafter) 45% reduction
B. The Surcharge
where the FDA's calculation (per the procedure set forth
above) shows that the reduction requirements with respect to
underage use of cigarette products were not met in the preceding
year, the FDA will impose a surcharge on the manufacturers of
cigarette products. Where the FDA's assessment shows that the
Reduction Requirements with respect to underage use of smokeless
tobacco products were not met in the preceding year, the FDA will
impose a surcharge on the manufacturers of smokeless tobacco
products.
1. The surcharge with respect to the cigarette industry will
be calculated as follows:
(a) The FDA will the determine the percentage point difference
between:
(i) the required percentage reduction applicable to a given
year, and
(ii) the percentage by which the percent incidence of underage
use of cigarette products for that year is less than the base
incidence percentage.
(In the event that the FDA's calculation of the percent
incidence of underage use of cigarette products for that year is
greater than the base incidence percentage, the number of
percentage points used will be (i) the required percentage
reduction for that year plus (ii) the percentage by which the
actual percent incidence for that year is greater than the base
incidence percentage.)
(b) The surcharge will be $80 million for each percentage
point derived per the above procedure. This amount reflects an
approximation of the present value of the profit the cigarette
industry would earn over the life of underage smokers in excess
of the required reduction (at current levels of population and
profit). This calculation will be subject to the following:
(1) the $80 million will be adjusted proportionately for
percentage increases or decreases compared with 1995 in the
population of persons resident in the United States aged 13-17,
inclusive.
Page 54
(2) the $60 million will be adjusted proportionately for
percentage increases or decreases compared with 1996 in the
average profit per unit (measured in cents and weighted by annual
sales) earned by the cigarette industry. (The average profit: per
unit in 1996 will be derived from the industry's operating profit
as reported to the SEC; and the average profit per unit for the
year in which the surcharge is being determined will be
calculated and certified to the FDA by a major, nationally
recognized accounting firm having no existing connection to the
tobacco industry using the same methodology as employed in
deriving the average profit per unit for 1996.)
(3) the surcharge will be reduced to prevent double counting
of persons whose smoking had already resulted in the imposition
of a surcharge in previous years (to the extent that there were
not underage smokers of comparable age in those previous years on
whom a surcharge was not paid because of the cap set forth in
paragraph (d) below).
(4) the surcharge may not exceed $2 billion in any year (as
adjusted for inflation).
2. The surcharge with respect to the smokeless tobacco
industry will be derived through a comparable procedure based
upon a base per-percentage point amount and a cap specific to
that industry.
3. The surcharge payable by cigarette manufacturers will be
the joint and several obligation of those manufacturers,
allocated by actual market share. The surcharge payable by
smokeless tobacco product manufacturers will be the joint and
several obligation of those manufacturers, as allocated in the
same manner. Within each such respective product market, the FDA
will make such allocations according to each manufacturer's
relative market volume in the United States domestic cigarette or
smokeless tobacco markets in the year for which the surcharge is
being assessed, based on actual federal excise tax
payments.
4. The surcharge for a given year, if any, will be assessed by
the FDA by May I of the subsequent calendar year. Surcharge
payments will be paid on or before July 1 of the year in which
they are assessed by the FDA. The FDA may establish, by
regulation, interest at a rate up
Page 55
5. After payment of its share of the surcharge, a tobacco
product manufacturer may seek return of up to 75% of that payment
through the abatement procedures described below.
C. Use of the Surcharge
The Surcharge funds would be used in an manner designed to
speed the reduction of the levels of underage tobacco use.
Upon final completion and review of any abatement petition,
the FDA would transfer as grants to state and local government
public health agencies, without further appropriation, 90% of all
monies paid as Surcharge amounts.
As a condition of such transfers, the recipients of the
transferred funds would be required to spend them on additional
efforts by state and local government agencies, or by contract
between such agencies and private entities, to further reduce the
use of tobacco products by children and adolescents.
The FDA may retain up to 10 percent of such Surcharge amounts
for Administrative Costs - the administration of the Surcharge
provisions of the Act and related proceedings, and for other
administrative requirements imposed on the FDA by the Act.
If 10 percent of the Surcharge amounts exceeds the
Administrative Costs, the FDA may (1) transfer any portion of the
excess to other federal agencies, or to state and local
government agencies, to meet the objective of reduction of youth
tobacco usage, or (2) may expend such amounts directly to speed
the reduction of underage tobacco use.
D. Abatement Procedures
Upon payment of its allocable share of any Surcharge, a
tobacco product manufacturer may petition the FDA for an
abatement of the surcharge, and shall give timely written notice
of such petition to the attorneys general of the several
states.
1. The FDA shall conduct a hearing on an abatement petition
pursuant to the procedures set forth in sections 554, 556 and 557
of Title 5 of the United States Code.
Page 56
2. The attorneys general of the several states shall be
entitled to be heard and to participate in such a hearing.
3. The burden shall be on the manufacturer to prove, by a
preponderance of the evidence, that the manufacturer should be
granted an abatement.
4. The FDA's decision on whether to grant an abatement, and
the amount thereof, if any, shall be based on whether:
(a) The manufacturer has acted in good faith and in full
compliance with the Act, and any FDA rules or regulations
promulgated thereunder, and all applicable federal, state or
local laws, rules or regulations;
(b) In addition to full compliance as set forth in (a) above,
the manufacturer has pursued all reasonably available measures to
attain the required reductions;
(c) There is evidence of any action, direct or indirect, taken
by the manufacturer to undermine the achievement of the required
reductions or other terms and objectives of the Act; and
(d) Any other relevant evidence.
5. Upon a finding by the FDA that the manufacturer meets the
grounds for an abatement under the standards set forth above, it
shall order an abatement of up to 75% of the Surcharge with
interest at the average United States 52-Week Treasury Bill rate
for the period between payment and abatement of the surcharge.
The FDA may consider all relevant evidence in determining what
percentage to order abated.
6. Any manufacturer or state attorney general aggrieved by an
abatement petition decision of the FDA may seek judicial review
thereof within 30 days in the United States Court of Appeals for
the District of Columbia Circuit. Unless otherwise specified in
this Act, judicial review under this section shall be governed by
sections 701-706 of Title S of the United States Code.
7. Notwithstanding the foregoing, a tobacco product
manufacturer
Page 57
may neither file an abatement petition or seek judicial review
of a decision denying an abatement if it has failed to pay the
surcharge in a timely fashion.
8. No stay or other injunctive relief enjoining imposition and
collection of the surcharge amounts pending appeal or otherwise
may be granted by the FDA or any court.
[Source/precedent: 5 U.S.C. Sections 554, 556-57, 701-06] [Back]
Page 58 Appendix
VI: State Enforcement Incentives
The details of the state enforcement incentives are as
follows:
In addition to FDA and other federal agency, state attorney
general and 'other existing state and local law enforcement
authority under current law, the proposed Act requires the
following:
A. States must have in effect a "no sales to minors"
law providing that it is unlawful for any manufacturer, retailer
or distributor of tobacco products to sell or distribute any such
products to any persons under the age of 18. (42 U.S.C.
s.300X-26(a)(1); 45 C.F.R. s.96.130(b)). This state statutory
requirement remains in addition to the federal regulatory
prohibitions on retail sales of tobacco products to children and
adolescents (also defined as persons under the age of 18) adopted
by the FDA in its August 28, 1996 Final Rule (to be codified at
21 C.F.R. s.897.14 et sea.);
B. States must conduct random, unannounced inspections at
least monthly, and in communities geographically and
statistically representative of the entire state and its youth
population to ensure compliance with the "no sales to
minors" law, and implement "any other action which the
state believes are necessary to enforce the law." (goes
further than 45 C.F.R. s.96.130(c), 96.1 30(d)(1 ),(d)(2);
C. States must conduct at least 250 random, unannounced
inspections of retailer compliance with the "no sales to
minors" law per year for each I million of resident
population, as determined by the most recent decennial census. In
the case of tribes, tribes must conduct no fewer than 25 such
inspections per location of point of sale to consumers per year,
conducted throughout the year.
Annual State Reporting Requirements
As a condition to receiving any moneys due and payable
pursuant to the Act, States must annually submit a report to the
FDA and the States must make their reports public (except as
provided in (C) below) within the state. Such state reports must
include at least the following:
A. A detailed description of enforcement activities undertaken
by the state and its political subdivisions during the preceding
federal fiscal year;
Page 59
B. A detailed description of the state's progress in reducing
the availability of tobacco products to individuals under the age
of 18, including the detailed statistical results of the mandated
compliance checks;
C. A detailed description of the methods used in the
compliance checks, and in identifying outlets which were tested,
with the FDA providing the state appropriate confidentiality
safeguards for information provided to the agency regarding the
timing and investigative techniques of state compliance checks
that depend for their continued efficacy upon such
confidentiality;
D. A detailed description of strategies the state intends to
utilize in the current and succeeding years to make further
progress on reducing the availability of tobacco products to
children and adolescents; and
E. The identity of the "single state agency"
responsible for fulfilling the Synar Amendment and the Act's
requirements, including the coordination and report of state
efforts to reduce youth access to tobacco products sold or
offered for sale in the state.
(strengthens and extends beyond 45 C.F.R. s.96.130(e) by
adding greater detail to the requirements and transferring
reporting obligation of states to FDA from HHS)
Required Attainment Goals for State Enforcement
The FDA is required to make an annual determination, prior to
allocating any moneys allocated to the states under the proposed
Act for the purposes of defraying public health care program
expenditures (but not including or conditioning moneys made
available under the Act for the payment of private claims), as to
whether each state has "pursued all reasonably available
measures to enforce" the prohibition on sales of tobacco
products to children and adolescents.
In addition to the criteria set forth in 45 C.F.R. s.96.130,
the proposed Act will require the FDA to find presumptively that
the state has not "pursued all reasonably available measures
to enforce" the "no sales to minors law" unless
the state has achieved, in the following years, the following
compliance rate results for the retail compliance checks required
by the Act:
Federal Fiscal Year Retail Compliance Check
Under Review Performance Target
5th Year after year of 75%
enactment of Act
Page 60
7th Year after year of 85%
enactment of Act
10th Year after year of 90%
enactment of Act and annually thereafter
These compliance percentages are expressed as the percentage
of the random, unannounced compliance checks conducted pursuant
to the Act for which the retailer refused sale of tobacco
products to the potential underage purchaser. (note: these
performance targets are far more stringent on the states than
those in the Synar Amendment, which sets as a "final
goal" a target of no less than 80% (i.e., an inspection
failure rate of no more than 20%) within "several years. See
45 C.F.R. s.96.130. In addition, the proposed Act's targets are
mandatory, uniform national minimum performance requirements,
while the Synar Amendment calls for HHS simply to
"negotiate" an "interim performance target"
beginning in 1998).
Reduction of Money Allocated to State Not
Meeting Performance Targets
If a state does not meet the Act's "no sales to
minors" performance targets for retail compliance checks,
then the FDA may refuse to pay to that noncomplying state certain
moneys otherwise payable to that state under the proposed Act. No
state shall be held responsible for sales to underage consumers
outside that state's jurisdiction. Specifically, the FDA may
withhold from such state an amount equal to 1% of moneys
otherwise payable to that state under the Act to defray health
care expenditures of public programs of medical assistance for
each percentage point by which the state's performance on its
mandatory compliance checks fails to meet the required
performance targets for that year. In no event may the FDA
withhold more than 20% of the money otherwise allocable to such
state under the Act for such purposes.
The FDA shall reallot any Withhold Amounts, once final, to
states that exceed the Act's Performance Targets, in amounts and
by an allocation formula determined by the agency to reward those
states with the best record of reducing youth access to tobacco
products.
AppeaI Following Withhold
Upon notice from the FDA of a withhold of moneys (the
'Withhold Amount") allocable to the state under the Act, a
state subject to such notice of
Page 61
withhold may petition the agency for a release and
disbursement of the Withhold Amount, and shall give timely
written notice of such petition to the attorney general for that
state and to all tobacco product manufacturers. The agency shall
hold, and invest in interest bearing securities of the United
States government or its agencies, any Withhold Amounts subject
to a pending petition for release and disbursement or related
appeal until final disposition of such petition and appeal.
In the case of petition by a state for a release and
disbursement of a Withhold Amount, the agency's decision on
whether to grant such a petition, and the amount thereby released
and disbursed, if any, shall be based on whether:
(1) the state has acted in good faith and in full compliance
with the Act, and any agency rules or regulations promulgated
thereunder;
(2) the state has pursued all reasonably available measures to
attain the Retail Compliance Check Performance Targets and Youth
Smoking Reduction Goals of the Act;
(3) there is evidence of any action, direct or indirect, taken
by the state to undermine the achievement of the Retail
Compliance Check Performance Targets and Youth Smoking Reduction
Goals or other terms and objectives of the Act; and
(4) any other relevant evidence.
The burden shall be on the state to prove, by a preponderance
of the evidence, that the state should be granted a release and
disbursement of the Withhold Amount or any portion thereof. Prior
to decision, the agency shall hold a hearing on the petition,
with notice and opportunity to be heard given to the attorney
general of that state and to all domestic tobacco product
manufacturers.
Upon a finding by the agency that the state meets the grounds,
as set forth above, and the burden of proof for a release and
disbursement of a Withhold Amount, then it shall order a release
and disbursement of up to 75% of the Withhold Amount appealed,
and it shall so release and disburse to the state that amount,
with interest at the average United States 52-Week Treasury Bill
rate for the period between notice and release of such Withhold
Amount. The agency may consider all relevant evidence in
determining that percentage of the Withhold Amount to order
released and disbursed.
Any manufacturer or state attorney general aggrieved by a
Withhold Amount decision of the agency may seek judicial review
thereof within 30 days in the United States Court of Appeals for
the District of Columbia Circuit. Unless
Page 62
otherwise specified in this Act, judicial review under this
Section shall be governed by Sections 701-706 of Title 5 of the
United States Code.
No stay or other injunctive relief enjoining imposition of the
withhold pending appeal or otherwise may be granted by the FDA or
any court.
No appeal may be taken from an agency decision denying a
petition to release and disburse a Withhold Amount unless filed
within 30 days following notice of such decision. No stay or
other injunctive relief, enjoining imposition of the withhold
pending appeal or otherwise, may be granted, by any court or
administrative agency. Appeals filed hereunder shall be made to
the District of Columbia Circuit Court of Appeals and, on appeal,
shall be governed by the procedural and evidentiary provisions of
the Administrative Procedures Act, unless otherwise specified in
this Act. The judgment of the District of Columbia Court of
Appeals on appeal shall be final. [Back]
(Page 63) Appendix
VII - Restrictions on Point of Sale Advertising
The details with respect to point of sale advertising
restrictions are as follows:
1. There shall be no Point of Sale Advertising of tobacco
products, excluding adults-only stores and tobacco outlets,
except as provided herein:
A. Each manufacturer of tobacco products may have not more
than two separate point of sale advertisements in or at each
location at which tobacco products are offered for sale, except
any manufacturer with 25 percent of market share may have one
additional point of sale advertisement. A retailer may have one
sign for its own or its wholesaler's contracted house retailer or
private label brand.
No supplier of tobacco products may enter into any arrangement
with a retailer that limits the retailer's ability to display any
form of advertising or promotional material originating with
another supplier and permitted by law to be displayed at
retail.
B. Point of Sale advertisements permitted herein each shall be
of a display area not larger than 576 square inches (either
individually or in the aggregate) and shall consist of black
letters on white background or recognized typographical marks.
Point of Sale advertisements shall not be attached to nor located
within two feet of any fixture on which candy is displayed for
sale. Display fixtures are permitted signs consisting of brand
name and price, not larger than 2 inches in height.
2. Except as provided herein, Point of Sale Advertising shall
mean all printed or graphical materials bearing the brand name
(alone or in conjunction with any other word), logo, symbol,
motto, selling message, or any other indicia of product
identification identical or similar to, or identifiable with,
those used for any brand of cigarettes or smokeless tobacco,
which, when used for its intended purpose, can reasonably be
anticipated to be seen by customers at a location at which
tobacco products are offered for sale.
3. Audio and video formats otherwise permitted under the FDA
Rule may be distributed to adult consumers at point of sale but
may not be played or shown at point of sale (i.e., no
"static video displays").
NOTE: Page 64 is missing from this document.
Page 65
-- Except for privileged and trade secret materials (which
shall be exempt from disclosure into the depository), all
documents placed in the depository shall be produced without any
confidentiality designations of any kind.
-- Along with these document collections, the manufacturers
and trade associations shall place into the depository all
indices (as defined by the court's order in the Minnesota
Attorney General action) of documents relating to smoking and
health, including all indices identified by the manufacturers in
the Washington, Texas and Minnesota Attorney General actions. Any
computerized indices shall be produced in both a computerized and
hard-copy form. (If reductions of any such indices are required
in order to protect any privileged or trade secret information,
such reductions shall be subject to the procedures set forth
below for adjudicating any disputes over claims of privilege and
trade secrecy.)
-- All documents placed into the depository shall be deemed
produced for purposes of any litigation in the United States. The
court in each underlying action shall retain the discretion to
determine the admissibility on a case-by-case basis of any such
produced document.
-- The tobacco industry shall bear the expense of maintaining
the depository.
2. Immediately upon finalizing a resolution of these
litigations with the Attorneys General, without waiting for
Congress to embody these requirement in the proposed legislation,
the manufacturers, CTR and TI shall:
Commence to conduct a good-faith, de novo,
document-by-document review of all documents previously withheld
from production in tobacco litigation on grounds of privilege.
The purpose of this review shall be to identify documents which
the reviewer concludes are not privileged. All documents so
identified shall be placed in the depository as soon as
practicable.
Prepare and place in the national depository as soon as
practicable a comprehensive new privilege log of all
(Page 66 ) documents that the manufacturers, CTR and TI, based
on their de novo review, continue to deem to be legitimately
privileged against disclosure.
-- Itemize on this new privilege log all of the descriptive
detail that the court has required defendants to furnish
document-by-document on their privilege logs in the Minnesota
Attorney General action, thereby ensuring that there will be
sufficient detail on the privilege logs to enable any interested
person to determine whether he or she wishes to challenge claims
of privilege or trade secrecy on any particular documents.
3. The Act also would establish a panel of three federal
Article Ill judges, appointed by the Judicial Conference, to hear
and decide all disputes over claims of privilege or trade
secrets, except for those disputes that already have been
determined by other federal or state courts at the time the Act
is enacted or are pending in cases prior to the time the Court
has had an opportunity to begin to review privilege claims.
-- The three-judge panel shall decide all privilege or trade
secrecy challenges asserted by the federal government, the
States, public and private litigants, health officials and the
public with respect to tobacco industry documents.
-- The Act would vest exclusive federal jurisdiction for the
three-judge panel to decide any such disputes in accordance with
the ABA/ALl Model Rules and/or principles of federal law with
respect to privilege and the Uniform Trade Secrets Act with
respect to trade secrecy. Any such adjudication shall be
reviewable only in the manner prescribed by 28 U.S.C. [Sec. 1
25-certiorari].
-- The panel's adjudications shall be binding upon all federal
and state courts in all litigation in the United States.
-- The panel shall be authorized to appoint Special Masters
pursuant to Fed. R. Civ. P.53, with the cost to be borne by the
tobacco industry.
-- Once the Act becomes effective and the three-judge panel is
appointed, all disputes that may arise concerning privilege
Page 67
claims by the manufacturers or trade associations relating to
smoking and health subjects must be resolved through this
process, except for disputes in pending cases that can be
resolved prior to the time the Court has had an opportunity to
begin to renew privilege claims.
-- If a claim of privilege is not upheld, the three-judge
panel shall consider whether the claimant had a good faith
factual and legal basis for an assertion of privilege and, if the
claimant did not, shall assess against the claimant costs and
attorneys' fees and may assess such additional costs or sanctions
as the panel may deem appropriate.
4. In order to expedite the process of judicial review and to
ensure that the federal government, the States, public and
private litigants, health officials and the public no longer need
to be concerned that claims of privilege and trade secrecy are
being asserted improperly or without legal basis, the legislation
would create an accelerated process by which any public or
private person or entity, subject to a right of intervention by
any other interested person or entity, may challenge any claims
of privilege or trade secrecy before the three- judge panel.
Under the Act, a person or entity filing such an action to
challenge to privilege or trade secrecy will not need to make any
prima facie showing of any kind as a prerequisite to in camera
review of the document or documents at issue.
5. The manufacturers would also be subject to certain
continuing disclosure obligations over and above the
aforementioned provisions and whatever further judicial discovery
may be required in pending or future civil actions. Specifically,
for the first time ever, the manufacturers would be required to
disclose all original laboratory research relating to the health
or safety of tobacco products, including, without limitation, all
laboratory research relating to ways to make tobacco products
less hazardous to consumers.
-- Whenever such research is performed in the future, the
manufacturers shall disclose its results to the FDA.
-- In addition, all such research (except for legitimate trade
secrets) shall be produced to the national document depository
described above. In addition, the manufacturers and trade
Page 68
associations shall produce into the depository on an ongoing
basis any future studies of the smoking habits of minors or
documents discussing or referring to the relationship, if any,
between advertising and promotion and underage smoking.
-- No original laboratory research relating to the health or
safety of tobacco products shall be withheld from either the FDA
or the depository on grounds of attorney/client privilege or work
product protection.
8. The tobacco manufacturers' and CTR's and TI's compliance
with any of the provisions of this Act shall not be deemed a
waiver of any applicable privilege or protection.
7. The Act will also incorporate reasonable and appropriate
provisions to protect against the destruction of documents
bearing on matters of public health or safety.
-----------------------------------------------------------------
ACTION ON SMOKING AND HEALTH (ASH)
2013 H Street, NW
Washington, DC, 20006
(202) 659-4310
A National Legal-Action Antismoking Organization Entirely
Supported by Your Tax-Deductible Contributions
NOW CELEBRATING 30 YEARS OF PUBLIC SERVICE All materials on
ASH's main and supplemental web pages may be freely copied and
reproduced in print or on other web pages. Please give credit to
ASH, and include ASH's web address:
http:/ash.org/
1. From: "LIST.HEALTHPLAN" <sfreedkin@igc.apc.org>
Subject: TOBACCO SETTLEMENT TEXT (was Re: SEND TOBACCO TEXT)
Sender: sfreedkin@igc.org X-PMFLAGS: 34078848 0
This message is automatically generated. In reply to your
request, following is the text of the settlement of 40 state
lawsuits and 17 class-action lawsuits against the tobacco in-
dustry, courtesy of Action on Smoking and Health (ASH).
Information on ASH appears at the bottom of this item. --
LIST.HEALTHPLAN [Back] |
