Philip Morris and RJR
Philip Morris was the single largest taxpayer and RJR was not far behind.
There was an issue whether the industry should be paying for the healthcare costs, whether
it should be regulated as a drug, to what extent it should be advertised
Settlement: Tobacco industry agreed to pay over 368 billion to 50 states (responsible for
health care in the United States). In 1997 the gov’t were responsible for paying the
healthcare for the most part. The gov’t were going to sue the tobacco industry so in the
settlement they were going to pay billions of dollars to settle it. They also agreed to not fight
if the FDA wanted to regulate it as a drug, to not use a cartoon characters to market their
product. What they got in return, the states would not sue Tobacco for healthcare costs and
that there would be a ban on class action lawsuits against them. Tobacco also received
certainty going forward which was important for the industry. 368 billion dollars was a lot
but they could raise the price per packet by a little over 60 cents and would recover the loss.
Demand for Tobacco doesn’t change with price, because people are addicted to it
In effect, the tobacco industry does not do badly with eliminating the cartoon characters as
this was going to be across the board (it’s a wash)
How did the deal come to an end?
The emergence of whistle-blowers (in the 90s)
There is now something that protects whistle-blowing and became a part of the culture
Easier for politicians to go after the tobacco industries and garner votes
Scientific development- in the 1960s it was revealed that people who smoked can get cancer,
not until the 1990s the second hand smoke idea came to be and become a public issue
The environment became unfavourable for the tobacco industry and their certainty is no