Authors: Richard Kluger
On the food side, Bible displayed his impatience with the sluggish rate of growth in the North American market, where Kraft General Foods was the largest grossing purveyor. Younger executives were put in charge, the Kraft and General Foods divisions were consolidated under the Kraft name alone for greater efficiency, and efforts were intensified to weed out and sell off what Bible called “the hippos,” lethargic performers like the food-service unit, which was grossing $4 billion, or some 17 percent of North American food revenues, but earned far less proportionately. Bible got rid of it for $700 million
at the earliest opportunity and soon after peddled Kraft’s lagging baked-goods business (the Lender’s bagel unit excluded) for $865 million. Abroad, he pushed for further organizational tightening and expansion of business beyond Europe, particularly into Asia and Latin America, where PM’s food lines had a modest presence. Efforts were intensified, for example, to create an appetite for coffee in Japan and yogurt in China—products little known in those societies.
Bible’s confidence that Philip Morris would derive far more mileage from its core tobacco business was justified by the relative weakness of its chief U.S. rivals. The prime achievement of runner-up RJR Nabisco was that it had managed in six years since the LBO to retire about 60 percent of its $25 billion debt by aggressive conversion of its high-yielding bonds. And KKR, the New York takeover artists who had nearly choked on the RJR buyout, had maneuvered themselves out of the picture by selling off or transferring most of its equity interest. On the operational side, though, only RJR’s Nabisco food business sparkled, proportionately outearning PM’s far more complex food operations. Its tobacco brands, despite earnest efforts, continued to lose ground to PM, and its profit margins in particular suffered on a comparative basis. But RJR was far from ready to surrender, hoping that innovative marketing might yet bring about a reversal of its fortunes. Five years after the disastrous introduction of its foul-smelling, hard-drawing “smokeless” Premier brand, it announced the development of a presumably improved version, called Eclipse. Like its predecessor, though, it had the look more of a nicotine-delivery system than a cigarette and seemed certain to invite examination by the newly aroused FDA if the company decided to market the experimental brand.
RJR was less likely to find itself struggling in the last years of the twentieth century against front-running Philip Morris than with third-ranking Brown & Williamson, whose parent, British-American Tobacco, paid $1 billion in 1994 to buy out fading American Tobacco’s 6 percent share of the U.S. cigarette market. The move, which gave expanded B&W about a 17 percent share—within five or six points of RJR—also had a retributive aspect to it. AT’s marauding founder, Buck Duke, who had played the central role in the creation of BAT at the beginning of the century, had ceded international rights to the U.S. giant’s brands to his British partners in their joint venture; now, at the end of the century, BAT was returning the favor by buying up the last remnant of Duke’s U.S. tobacco empire and adding it to its own American subsidiary.
Still more important to Philip Morris’s near-term prospects were the political developments that lightened Geoffrey Bible’s heart during his early months as chief executive. The proposed Clinton health-care reform program, perceived by a majority of Americans as overly complex, intrusive, and costly, was scuttled by Congress—and with its inglorious demise went the prospect of a large increase, or perhaps any at all, in the federal cigarette tax. The healthcare
debacle foreshadowed the Democratic disaster at the polls in November 1994, as voters handed control of both houses of Congress to antiregulatory Republicans for the first time in forty years.
Gloom now descended like an immense cloud of cigar smoke on the tobacco control movement. Chairmanship of the Commerce Committee, the most powerful in the House, passed to Virginia’s Thomas Bliley, ardent protector of his hometown’s largest employer, Philip Morris; all further efforts to investigate, regulate, and harass the tobacco industry would end in the 104th Congress, so far as he was concerned, Bliley asserted. At Commerce’s subcommittee on health, Henry Waxman was out as chairman and his close antitobacco ally, Mike Synar, was out of Congress altogether, having lost his seat in the Oklahoma primary. On the Senate side, things looked nearly as bleak. Bob Dole was back as majority leader, having first won the job in 1981 by bargaining for Jesse Helms’s support with what many suspected had been a promise to tread softly on tobacco issues; Dole had been rewarded with large campaign contributions from the cigarette companies and gifts to his charitable foundation for the handicapped. Tobacco control stalwart Ted Kennedy was replaced as chair of the Labor and Human Resources Committee by Nancy Kassebaum, an opponent of FDA regulation of tobacco.
True, the Clinton White House could still take executive action to discourage smoking, like the Justice Department’s successful suit in the spring of 1995 to bar televised cigarette signs from Madison Square Garden—the first federal enforcement of the twenty-five-year-old ban on broadcast advertising of tobacco products (and prompting Philip Morris to announce removal of all its cigarette signs at sports arenas where they could be seen on camera). But the balance of power in the capital had shifted to Capitol Hill, where Congress ordered a postponement of any new regulatory measures and debated a national tort “reform” bill to end all liability claims against unfixably dangerous products—steps that greatly heartened the tobacco industry. If FDA administrator Kessler had been looking to Congress for guidance before claiming jurisdiction over the making and selling of cigarettes, he was now unlikely to get it. The new and powerful House Speaker, Newt Gingrich, termed Kessler “a bully and a thug,” threatening swift comeuppance from the Republican majority unless he proposed only the mildest of antismoking measures.
Even so, in August 1995, after carefully preparing the scientific and legal groundwork for the long-overdue action, Kessler won President Clinton’s strong endorsement of FDA oversight of cigarettes as essentially nicotine-delivery devices and therefore a drug. This historic outreach of federal jurisdiction, proposing regulations far more sweeping than any that Congress or the FTC had ever imposed on the tobacco industry, was staked out at a presidential press conference in which Clinton, at his compassionate best, framed the effort as a public-health initiative—in effect, a program of preventive medicine
directed not at irretrievably addicted adult smokers but at impressionable teenagers being lured into the habit in increasing numbers by the cigarette manufacturers’ ever greater outlays on youth-oriented sports and entertainment events and recreational merchandise. “Our children face a health crisis that is getting worse,” said the President, citing surveys that found one in five high school seniors to be a daily smoker and a sharp uptrend in the lower grades as well. “We need to act … before another generation of Americans is condemned to fight a difficult and grueling personal battle with an addiction that will cost millions of them their lives.”
In framing the proposed regulations on the marketing—but not the ingredients—of cigarettes, FDA lawyers sent the White House an 800-page rationale for the agency’s claim of jurisdiction, reversing its position of 1980, the last time it evaluated its authority to take the politically embroiling step. Since the earlier reluctance relied on statutory history that defined as a drug only products and devices so intended by their sellers, the FDA’s legal corps now asserted that “to require a showing of subjective intent—which would limit the relevant evidence to what is in the mind of the manufacturer or vendor as shown by express representation [
i.e.
, product labeling or advertising], promotional claims, or otherwise—would frustrate [the] legislative policy goals” of the 1938 Food, Drug, and Cosmetics Act and the 1960 Federal Hazardous Substances Act. Citing agency regulations first promulgated in 1952, in which the concept of “objective intent” was introduced (and thereby suggesting that the grounds for staking out jurisdiction had been available that long if only the agency had chosen to claim them), FDA lawyers argued that in deciding what was or was not a drug, the agency was free to draw upon “the totality of the relevant evidence showing the seller’s awareness of how its product is actually used and affects the structure or function of the body,
regardless of how the product is labeled or advertised
… [italics added].” As precedents for regulating tobacco products, the agency now pointed to other actions it had taken in the past dozen years, including juridiction over vaginal products for over-the-counter use, and said, “If an active ingredient is present in a therapeutic concentration, the product is a drug, even if that product does not claim to produce the effect which will result from the action of the … ingredient.” Fluorides and hormones were other examples of such “active ingredients”. Since 1980, the Surgeon General “and virtually every major public health organization have concluded that nicotine in tobacco products leads to addiction,” the FDA said. Its own intensive investigation, ordered by Commissioner Kessler, had further revealed “a wealth of evidence consisting of industry statements, research and actions acknowledging nicotine’s drug effects” and resulted in overwhelming findings that “consumers use the products predominantly … for its significant pharmacological” and other psychoactive effects “such as relaxation and stimulation [and] weight regulation.”
The proposed FDA measures were far more sweeping than tobacco-control advocates could have hoped for, given the hostile political climate in which they were announced. Included were a federal ban on cigarette sales to anyone under eighteen, preempting the diverse state bans, and requirement of photo identification as proof of age; the abolition of cigarette sales by vending machines and mail order; prohibition of cigarette billboards within 1,000 feet of schools and limitation of ads in print media with more than 2 million readers or more than 15 percent of their readership among those under eighteen to a black-and-white, text-only format; and, perhaps most frightening of all to the industry, a halt to brand-name sponsorship of sports and entertainment events and the sale or giveaway to youngsters of promotional merchandise bearing brand names or logos.
In anticipation of the FDA move, Philip Morris led the industry with a big increase in its political contributions to congressmen during the first half of 1995 and renewed its intermittent avowals of uninterest in the teenage market by now placing a label on all its cigarette packs stating they were not to be sold to underage customers. A new PM ad campaign, intending to show that FDA action was unnecessary, again declared that youngsters should not begin smoking until they were old enough to make a reasoned decision about its claimed risks.
It was less the likely impact of the proposed FDA regimen on U.S. cigarette sales, about 3 percent of which were derived from underage smokers, that greatly alarmed the tobacco companies than the principle being laid down by the agency—namely, that it had the power to regulate the manufacture and sale of cigarettes, even if it had not chosen to exercise it earlier, and, once established, that power could warrant severe restrictions in the future, such as maximum allowable tar and nicotine yields. Not surprisingly, the industry filed suit at once in a North Carolina federal district court to challenge the lawfulness of the FDA initiative and thereby threatened to delay indefinitely the implementation of the new regulations. As this book went to press, it was uncertain whether the antiregulatory Congress would move to strike down the FDA action, almost certainly inviting a presidential veto; agree to a modified version of the regulatory package; or leave the issue to the courts to decide. In the end, though, greater federal government oversight of cigarettes—an addicting product that could almost certainly never be either banned outright or certified as safe for human consumption—appeared inevitable.
VIII
IF
the national political tide had shifted enough to give the cigarette manufacturers strong hope of at least temporary surcease from the proddings of
the smoking control movement, they nevertheless remained under the long shadow of litigation, that chronic potential spoiler of their financial well-being. And the mid-’Nineties wave of suits, brought by resourceful attorneys representing vast claimant pools and even whole states, was likely to stretch into the twenty-first century. The Department of Justice, too, was finally bestirring itself through investigations, fueled by pilfered internal industry documents, into the possibly fraudulent habitual behavior by the cigarette companies in denying and suppressing their knowledge of the effects of smoking.
The tobacco industry was primed to meet these ever larger challenges as a cost of doing business, and it did not lack for plausible, even persuasive, defenses. The “mega-suit,” for example,
Castano v. American Tobacco
, the claim behind which one of the plaintiff lawyers paraphrased as, “You addicted me, and you knew it was addicting, and now you say it’s my fault,” differed primarily in emphasis from the claim in Rose Cipollone’s case, which the jury did not buy. While new evidence had emerged in the interim showing that Philip Morris and B&W, among others, had done research on the addictive nature of nicotine and had neither disclosed it to the public nor warned against the addicting potency, many similar findings by investigators outside the industry had long since been made and published. Public-health advocates, moreover, had for years advised that nicotine was as addicting as heroin and cocaine, yet the Surgeon General had not declared smoking to be addicting until 1988. The point was that whether one categorized smoking as a practice, a habit, an indulgence, a vice, a dependency, or an addiction, it was commonly known—and had been for decades—to be hard to stop once begun. Nor could anyone say for certain how much of a daily dose served to induce addiction; tolerances differed from person to person, and the industry had in fact made available brands with extremely low dosages. How, then, to justify a claim that the cigarette makers had massively imposed an intentionally addicting product on an innocent public that had little knowledge or choice in the matter?