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Action on Smoking and Health
A National Legal-Action Antismoking Organization Entirely Supported by Tax-Deductible Contributions
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Philip Morris Files Suit Against Internet Tobacco Retailers [08/05-5]
Excerpts from: Duty-Free Site's Cigarette Sales Draw Scrutiny From Big Tobacco
By MARTON DUNAI The Wall Street Journal [08/05/04]
Gianpaolo and Carlo Messina were nobodies in tobacco four years ago when they set up Yesmoke.com, an online cigarette shop run out of a duty-free zone in the Swiss Alps. Today, the Italian brothers are grossing about $100 million (€83 million) in annual sales and stoking the ire of both Big Tobacco and the Big Apple.
Their largest market is the U.S., where their mail-order Marlboros, Camels and Lucky Strikes, costing as little as $14 per 10-pack carton, are winning over smokers fed up with paying $7 or more for a pack of heavily taxed U.S. smokes. In New York, where Mayor Michael Bloomberg has cracked down on smoking with bans and tax increases, a carton of Marlboros costs upward of $70. Now the cigarette industry and the city are trying to snuff out the Messinas' business model.
Philip Morris USA is challenging Yesmoke.com's parent company, Otamedia SA, in two lawsuits filed in U.S. District Court in New York's southern district. The initial suit alleges that Otamedia engaged in unfair business practices and trademark infringement; Otamedia ignored the suit, and in 2003 the court ruled against it in a default judgment. A claim for $395 million in damages is pending. In the second suit, Philip Morris is seeking ownership of the yesmoke.com domain name, claiming there is no other way to stop Otamedia except to block its Internet address. A ruling in that case is expected this summer.
Currently, visitors to Yesmoke.com are redirected to a Swiss site, Yesmoke.ch. Meanwhile, yet a third suit, filed in the southern federal district by the city of New York, seeks $17 million in back taxes from Otamedia and alleged affiliates on sales to New Yorkers.
Gianpaolo Messina, 44 years old, says the $395 million suit both stunned and pleased him. "It put us in pole position" among online cigarette sellers, referring to the preferred place in auto racing. At Yesmoke.com's logistics base in Balerna, a small town near the Italian border, workers in blue polo shirts use wireless hand-held devices to coordinate the outfit's core business: repackaging Marlboros and other brand-name smokes and mailing them to customers around the world.
The online cigarette business is creating a rare meeting of minds among tobacco companies, politicians and antismoking activists. There are now hundreds of online cigarette vendors whose sales threaten to eat into tax revenue and sales of conventional tobacco merchants. Anyone with a credit card can buy cigarettes online from sites like Yesmoke.com, making it hard to enforce bans on smoking by minors.
Online smoke shops based in the U.S. have attracted lawmakers' scrutiny by shipping cigarettes from low-tax states to high-tax ones. The House is reviewing an amendment to the Jenkins Act, which regulates mail-order trade, to include interstate online shopping. If signed into law, the measure would make it easier to prevent U.S. cigarette sites from circumnavigating taxes. But it isn't clear whether lawmakers can stop foreign online outfits from selling cigarettes in the U.S.
Philip Morris has gone after other Internet cigarette vendors with mixed results. It says it has initiated 20 lawsuits in seven federal courts against 67 owners and operators of online smoke shops. It has won judgments against the operators of four Web sites registered in Panama City, Panama, including Discount-Marlboro-Cigarettes.com and Allsmoke.com.
Earlier this year, a U.S. district court in Los Angeles ruled against the four sites and awarded the tobacco giant some $9 million in damages and fees and gave it the rights to their Internet domain names. Discount-Marlboro-Cigarettes closed down; Allsmoke relocated to a Russian Web server and now is selling Marlboros at Allsmoke.ru.
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