U.S. appeals court agrees tobacco companies lied

By Diane Bartz

WASHINGTON (Reuters) - Cigarette companies systematically lied for decades to hide the dangers of smoking, a U.S. appeals court said on Friday as it upheld a trial judge's racketeering verdict.

But in a blow to anti-smoking groups, the U.S. Court of Appeals for the District of Columbia also upheld U.S. District Judge Gladys Kessler's 2006 rejection of plans to force the companies to fund smoking cessation programs, which could have cost them billions of dollars.

The appeals court's three-judge panel ruled that the companies, including Altria Group Inc and its Philip Morris USA unit, violated federal anti-racketeering laws by conspiring to lie about the dangers of smoking.

"Defendants knew of their falsity at the time and made the statements with the intent to deceive," the court said in a 92-page ruling. "Thus, we are not dealing with accidental falsehoods, or sincere attempts to persuade; Defendants' liability rests on deceits perpetrated with knowledge of their falsity."

Other companies appealing Kessler's ruling were the R.J. Reynolds Tobacco unit of Reynolds American Inc, Lorillard Inc, Vector Group Ltd's Liggett Group, British American Tobacco Plc and its Brown & Williamson unit, as well as now defunct industry groups: the Council for Tobacco Research and the Tobacco Institute.

The case was filed in 1999 by the Clinton administration, which sought $289 billion in damages.

During the original trial, which began in 2004, the Justice Department under the Bush administration scaled back its demands to $14 billion for anti-smoking campaigns.

Kessler ultimately ruled the companies broke the law and could no longer use expressions such as "low tar" or "light" in their cigarette marketing. But she said she did not have the authority to force them to fund a smoking cessation program.

Philip Morris, Altria and Reynolds said on Friday that they would press on with their legal fight, although they had not yet decided if they would ask for a rehearing before the entire appeals court or ask the Supreme Court to consider the case.

Tobacco companies are already paying billions of dollars a year under a 1998 settlement agreement with state governments that also bars targeting children in cigarette advertising and puts other restrictions on cigarette ads.

Legislation working its way through the U.S. Congress would give the Food and Drug Administration power to control the advertising and manufacture of tobacco products.

CORRECTIVE STATEMENTS

In its ruling on Friday, the appeals court upheld an order requiring warnings on cigarette packages and demanding that tobacco sellers publish "corrective statements" on corporate web sites. They would also have to buy full-page advertisements in thirty-five major newspapers and put at least ten advertisements on a major television network.

In a victory for convenience stores and other retailers, however, the appeals court said the lower court overstepped its authority in requiring merchandisers to add countertop signs with the "corrective statements."

The National Association of Convenience Stores said the requirement would take away valuable counter space and cost the industry $82 million in lost sales annually.