Tobacco Litigation and the Anti-Smoking Movement

in the U.S. and Japan

Stephen D. Sugarman

Agnes Roddy Robb Professor of Law UC Berkeley

Waseda University

October 26, 1998 revised March 15, 1999

In the U.S., the tobacco companies are now involved in a huge amount of litigation. In Japan, a small amount of litigation against the tobacco companies is just beginning. In the U.S., the companies are still winning most of this litigation. But these lawsuits are very threatening to the industry. Therefore, for the first time the industry is settling some important cases. In fact, it has tried to reach an overall settlement with the lawyers who are suing them and the leaders in the anti-smoking movement. But those fighting the tobacco companies have very different opinions about such a settlement. In Japan, the tobacco industry is not talking about settlement now, but at least the lawyers and the anti-smoking groups seem to be working together.

I. Individual Lawsuits for Money Damages

Most American lawsuits have been individual product liability claims filed by smokers or their families. These cases seek financial compensation for serious injury or death. Thousands of these lawsuits have been filed in the U.S. in the past 50 years, and hundreds are in litigation right now.

Yet, in only four cases have claimants been awarded money by the jury, and three of those cases have been overturned on appeal. The rest have been abandoned or have resulted in legal victories for the defense. Why has this litigation been so unsuccessful?

Some victims have trouble proving causation. Early on the problem was convincing juries that tobacco causes disease and death. Now the problems seem to be more about proving that their own disease was caused by smoking and that it was the defendant's brand that did it. The first problem is much greater for those with heart disease than with lung cancer. The second problem is much greater for those who have switched brands.

Beyond these causation problems, American claimants have problems proving that cigarettes are "defective" products, as required by the law. U.S. courts do not treated products as defective on the basis of danger alone. Nearly all cases are based on claims about inadequate warnings. Smokers argue that cigarettes were defective in the past when sold with no warning, and that they are still defective today because the warning they now carry is not strong enough. If the companies had given the public a stronger or earlier warning, the claimants say, then they would have quit smoking, or never started smoking in the first place.

In the 1960s, the U.S. Congress required tobacco companies to place warnings on product packages and on advertisements. And a case named Cippolone, the tobacco companies won a big victory based upon that Congressional requirement. The U.S. Supreme Court decided that, unless fraud is proved, compliance with the federal warning law immunizes the companies from lawsuits based upon inadequate warnings.

Of course, many smokers who are now ill, started smoking before there were any warnings, and they can still sue for failure to warn. But they face two difficult problems. First, they have to prove that the companies knew about the dangers of tobacco products before the U.S. Surgeon General issued his famous report in 1964. Until recently, when secret tobacco company papers have come to light, this has been difficult to prove.

Second, these smokers did not stop smoking after the warnings appeared. Therefore, how can they claim that the failure to get an earlier warning made any difference to them? To overcome this argument probably requires them to prove that they started smoking as teenagers without realizing that smoking was addictive and that by the time they were later warned about the risks of smoking, they were addicted and could not stop. But the problem is to get juries to accept this addiction claim, since many jurors, or their spouses, friends, or other family members have quit.

With these legal barriers in mind, it is perhaps easier to understand why the companies have almost always won these individual product liability cases. Nevertheless, things may be changing. Two smoker victims recently were awarded substantial sums by juries in Florida. Although these two cases were reversed on appeal because of procedural technicalities, their lawyer alone represents 150 additional claimants. Moreover, in early 1999, a California jury awarded a single smoker more than $50 million in compensatory and punitive damages. She had started smoking as a teenager in the early 1960s and claimed that, by the time the warnings appeared, she was addicted. This case is now on appeal.

A new type of product liability claim is also being brought. The claimants in these cases are not smokers in the ordinary sense. These people claim to be the victims of what is usually called second-hand smoke, or passive-smoking, or environmental tobacco smoke.

These claimants also base their arguments on failure to warn. They say that if they had known about the risk, they would have avoided that smoke. Most of these claimants say they were victimized by tobacco smoke at work. They argue that they would have changed jobs or arranged for their work space to be smoke-free had they known of the dangers.

The tobacco companies argue that there is no good proof that ETS is more than an nuisance for non-smokers. I believe that the scientific case for the dangers of second-hand smoke can be made, and that most neutral scientists believe the evidence. Yet, the studies are not nearly so strong or so numerous as the studies that connect smoking with disease in active smokers. Lawyers in the passive smoking cases also have problems proving causation. Although the tobacco companies are winning these cases so far, perhaps it is only because the claimant lawyers are now just learning how to present them.

II. Class and Group Actions

Some lawyers seek to overcome many of the difficulties of the individual case by filing class actions. They sue on behalf of a large number of victims at once, sometimes an enormous number. In one case filed in the city of New Orleans, for example, the lawyers claimed to be representing 50 million American smokers. In these lawsuits, the lawyers hope to prove group causation with epidemiological studies and to assign defendant liability on the basis of market share.

It is also clear that the lawyers bringing these class actions don't really imagine that they will finally have to prove individual damages in court. Instead, they are hoping for some sort of comprehensive settlement in which a fund containing millions or billions of dollars will be created. The individual claimants would then be paid out of that fund on some rough justice basis that relies upon administrative convenience. Similar settlements have been reached in other mass tort cases in the U.S., such as where a toxic spill injures those who live in the surrounding area.

Some judges have been hostile to these tobacco class action cases. For example, the New Orleans case I mentioned earlier was dismissed. Some judges say that these cases unfairly put the companies at risk of losing all of their assets in a single case. Others say that victims, especially future victims, will not obtain the individualized fair treatment to which they are entitled. Other judges just don't want the courts to become swamped with so much tobacco litigation. Nonetheless, some class actions are going forward.

Two important class actions are now in process in Florida. One is a passive smoking case, brought on behalf of airline flight attendants. They argued that airplanes would have been made smoke-free much earlier had the tobacco companies told what they knew. The tobacco companies must have been at least a little worried because, during the trial, a settlement was reached between the claimant lawyers and the tobacco companies for several hundred million dollars. About 50 million is to go to the lawyers, and the rest is to go into a fund to be used to reduce the dangers from passive smoking. But no money has been provided for the flight attendants. They would still have to sue individually. Some flight attendants have objected to this settlement, so the matter remains unresolved.

The other case is potentially much larger. It was brought on behalf of all Florida smokers injured by their own smoking. As this paper is being revised, the victim's lawyers have completed the presentation of their side of the case and the tobacco companies will soon begin their presentation.

III. Lawsuits by State Attorney Generals

A few years ago the attorney general from the state of Mississippi sued the tobacco companies. He claimed that the state is entitled to be reimbursed by the companies for the costs of health care it provides to poor people who have no health insurance and who suffer from tobacco-related diseases. The legal theory behind this case was unclear. The state could be asserting its right of what we call "subrogation" through the smokers to whom it provides health care. But this theory would require the state to prove tobacco company liability to those smokers one by one, and the state never had any intention of doing that.

Nonetheless, other state attorney generals began suing as well. Realizing the apparent weakness of the Mississippi case, they offered additional legal theories, such as that the tobacco companies violated state consumer protection laws, that they violated state anti-trust laws, and so on. Although the companies might well have violated some consumer protection laws, it is unclear why the penalty should be measured in terms of health care costs to low-income smokers. But the attorney generals seem to focus on those costs because they are so large.

Regardless of the legal merits of these cases, it is understandable that the tobacco companies would be afraid of them. With the home state attorney general suing them before a home state jury, they have reason to fear that a huge award might be imposed on them. Therefore, the tobacco companies offered to settle for hundreds of millions, even billions of dollars, depending on the size of the state.

Indeed, initially, the companies hoped to achieve a single nationwide settlement of all the state attorney general cases. This settlement not only would have had the tobacco companies pay out more than $12 billion a year for at least 25 years, but it also contained two other important features. First, public health advocates would gain many of the tobacco controls they have been seeking, such as limits on tobacco advertising and promotion, new controls on sales of tobacco products to children, and funding for anti-smoking education and counter-advertising. Second, in return, the tobacco companies would be protected by an annual dollar limit that would apply to successful individual product liability claimants. So, even though they had never paid anything to such claimants in the past, this would provide the companies with a kind of insurance. More important, class actions and attorney general claims would be prohibited for the future. The settlement was structured so that it needed the approval of the U.S. Congress.

Anti-smoking leaders themselves disagreed as to whether to support the settlement. Some said that if the tobacco companies want something, it must be bad for the public. Some of these activists can't imagine a settlement or compromise on any terms with what they call an evil industry. Many wish to punish the companies and their executives in every way possible. Moreover, many anti-smoking leaders opposed the settlement because they believe that lawsuits will continue to bring to light secrets that will hurt the tobacco companies and will keep anti-smoking efforts in the news. On the other hand, many other tobacco-control leaders are eager to get stronger tobacco control measures in place. In fact, the U.S., like Japan, has quite weak controls now, and this settlement would have changed that.

As the settlement was being considered by Congress, many members demanded more concessions and more money from the tobacco companies. Many also opposed granting any limits on liability. In the end, the tobacco companies rejected these new demands, and the entire Congressional effort failed.

However, the tobacco companies then decided they could settle the state attorney general cases without involving Congress. First they settled with four states, and then based upon the pattern so established, they set out a deal that they offered to the rest of the states. Quickly all 46 other states agreed and these settlements are now going into effect. This state-by-state settlement gives the states quite a large sum of money, about $8 billion a year nationwide (although less than the states could have obtained under the original package that was presented to Congress). This deal also includes some public health concessions on advertising and youth access (although the restrictions are weaker than those that had been included in the package that was presented to Congress). On the other hand, the state settlements do not contain any limits on liability in the individual tobacco cases. Still, many public health leaders opposed these settlements as too lenient. That opposition proved powerless, however, in the face of all the money that the states are to receive (over $200 billion spread across many years).

It is important to understand that the companies are agreeing to pay out these rather large sums in a way that is almost sure to permit them to pass the costs on to smokers. In this way, the tobacco-related health care expenses of poor people with no insurance will really be subsidized by other smokers -- the very people that the public health community claims are addicted to smoking. In many ways this seems unfair. Yet the anti-smoking movement seems in agreement that raising the price of cigarettes is a good thing because that discourages consumption, especially by teenagers.

IV. Implications for Japan.

In Japan, so far as I know, only two tobacco-related product liability lawsuits have been filed. These are basically individual cases brought against Japan Tobacco. Not much has happened with these cases yet.

Suing for product liability in Japan is generally difficult, and the Japanese government still owns more than half of the stock of Japan Tobacco ("JT"). Therefore, one might expect the Japanese courts to be cautious about imposing liability on JT. Moreover, in Japan, large class action cases or claims like the attorney general cases in the U.S. are unlikely.

Yet, the Japanese lawsuits based upon inadequate warning may be considerably stronger as compared with the U.S. claims. There are three points here. One, merely providing the warnings now required to be placed on the packages should not block such lawsuits as they do in the U.S. The Ministry of Finance has specifically ruled that the companies may add extra warnings if they wish -- but they have not done so. Two, the existing warning is very mild by international standards, and, in the opinion of many, is actually misleading. It seems to say that moderate smoking is all right, in the way that moderate drinking is safe. But scientists reject this idea. A package of cigarettes a day might not seem "excessive" to the typical smoker, but it surely is dangerous. Three, although the foreign tobacco companies have now gained more than 20% of the Japanese market over the past 12 years, people in Japan who suffer from tobacco-related diseases today almost all smoked brands sold by Japan Tobacco, which used to have a near monopoly. Therefore the causation problem caused by "brand switching" in the U.S. should not be a hurdle in Japan.

This potential legal vulnerability of JT and the possibility that it might eventually seek a broad settlement should be considered in light of some wider factors that give all the transnational tobacco companies, including JT, reason to put their legal problems in the past. For one thing, one of the largest U.S. companies has already complained that its enormous legal fees are cutting into its profits in substantial way. For a second thing, in the U.S., as a result of so much litigation, the tobacco companies now seem to have very bad reputations and risk even worse if litigation continues. JT would not want to wind up in this same situation. Third, some U.S. tobacco companies have reason to fear that individual executives might be charged with crimes for lying in public hearings. If the civil litigation can be resolved, maybe these problems will go away. JT executives are probably not worried about criminal prosecutions now. But if they were called to testify before a government committee or the Minister of Health and Welfare, they might also say some things intended to protect them in the product liability cases that might later be used in prosecutions for perjury. Fourth, serious efforts are underway to put international pressure on tobacco companies. WHO is working on an international treaty that would especially impact on tobacco companies in their fast growing markets in the developing countries, and JT now has a bigger stake in those markets, having just purchased most of the international arm of the U.S. tobacco giant RJR. So long as the companies are being sued and getting bad publicity in the mass media, they are probably more vulnerable to these international controls. Fifth, there is good reason to think that the stock of all of the tobacco companies would substantially increase in value if the litigation risk is removed. This is clearly so for the American companies and perhaps for JT as well.

If the U.S. experience is carried over here, the Japanese litigation will bring to light information that JT has long known things that it has denied. This could force the government to respond to calls for reform from anti-smoking groups, despite the government's ownership of JT stock. Moreover, I believe that some new smoking control policies would benefit the Japanese government. For example, (1) a large tobacco tax increase would increase government tax revenue at least for many years, and, by reducing smoking, it would later save the government heath care costs. (2) Sweeping controls on advertising and promotion that the anti-smoking advocates favor could well help JT to hold onto its commanding market share. Finally, (3) a new and stronger warning on the package, that anti-smoking groups favor, could actually protect JT in future product liability cases.

In short, if the Japanese litigation can begin to bring JT into disrepute, an opening could be found to usher in several controls that Japanese advocates favor, but would not harm the government's financial interest in both JT and tobacco taxes. Whether this opening will occur is altogether speculative, especially in a country whose legal system allows so little pre-trial discovery as compared to what we have in the U.S. Moreover, if I have learned nothing else, it is that any country's tobacco-control policies and tobacco litigation situation can change so rapidly, that is extremely difficult to predict how things will look in one year, to say nothing of five years.

In the meantime, it is perhaps worth noting in conclusion that, unlike the situation in U.S., the lawyers who are suing JT seem to be working with and have the support of the Japanese anti-smoking groups. But whether this alliance will be sufficient to sharply change Japanese smoking policy remains to be seen.