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AG TALKS: Detailed Outline of Proposed Deal [11/13-1]

Below is a detailed outline of the deal negotiated by several attorneys general with the tobacco industry. Note that NAAG stands for the National Association of Attorneys General.

The deal  is scheduled to be announced very soon, perhaps as early and Monday.  Unfortunately, it appears that  the public (including various health organizations) be permitted only a few days to study and comment on whether or not the deal is a fair one which offers adequate protections against smoking.

It  also appears that the actual text of this very complex deal will not be made public.  As a result the public will be asked to comment based upon a self-serving outline such as the one displayed below.

 Since the devil is often in the details -- something which certainly was true of the initial 1997 attorney general deal which was unanimously rejected by the public health community, the White House, and ultimately by the U.S. Senate -- this is a major concern.  ASH wonders why, if the deal is such a good one for the public, the attorneys general apparently plan to keep the actual text a secret.

PLEASE CHECK THIS WEB SITE FREQUENTLY DURING THE DAY AND OVER THE WEEKEND FOR FURTHER DEVELOPMENTS.

Modest  and Somewhat Vague Restrictions

Prohibits Youth Targeting
  • Prohibits targeting youth in advertising, promotions or marketing.
  • Bars industry actions aimed at initiating, maintaining or increasing youth smoking.


    • Bans Cartoon Characters

  • Bans use of cartoon characters in the advertising, promotion, packaging or labeling of tobacco products.


    • Restricts Sponsorships By Brand Names

  • Restricts sponsorships by tobacco brand names.
  • Prohibits brand name sponsorship of events with a significant youth audience or of  team sports (football, basketball, baseball, hockey or soccer).
  • Prohibits sponsorship of events where the paid participants or contestants are underage.
  • Limits tobacco companies to one brand name sponsorship per year (after current contracts expire or after three years - whichever comes first).
  • Allows corporate sponsorship of athletic, musical, cultural, artistic or social events as long as the corporate name does not include the brand name of a domestic tobacco product.
  • Bans tobacco brand names for stadiums and arenas.
  • Limits duration and area of advertising for sponsored events.


    • Bans Outdoor Advertising

  • Bans all outdoor advertising, including: billboards, signs and placards larger than a poster in arenas, stadiums, shopping malls, and video game arcades.
  • Bans transit advertising of tobacco products.
  • Tobacco billboards and transit ads must be removed within 150 days after the Master Settlement Agreement Execution Date.
  • Allows states to substitute, at industry expense and for the duration of billboard lease periods, alternative advertising which discourages youth smoking.
  • Bans tobacco companies from entering into agreements which would prohibit advertising discouraging tobacco use.
  • Requires tobacco companies to designate a contact person for sign removal in each state.


    • Bans Placement of Tobacco Products

  • Bans payments to promote tobacco products in movies, television shows, theater productions or live performances, videos and video games.


    • Bans Sale of Merchandise With Tobacco Brand Names

  • Beginning July 1, 1999, bans distribution and sale of non-tobacco merchandise with brand-name logos (caps, T-shirts, backpacks, etc.).


    • Bans Youth Access To Free Samples

  • After Master Settlement Agreement Execution Date, free samples cannot be distributed except in a facility or enclosed area where the operator ensures no underage person is present.


    • Bans Proof of Purchase Gifts

  • No gifts can be offered to youth in exchange for the purchase of tobacco products, coupons or proofs of purchase.
  • Bans distribution of gifts through the mail without proof of age (legible driver's license certified to be valid by the gift recipient).
  • Provisions effective after Master Settlement Agreement Execution Date.


    • Prohibits Third Parties From Using Tobacco Brand Names

  • Tobacco companies are prohibited from authorizing third parties to use or advertise brand names.
  • Tobacco companies must designate a contact in each state who will respond to Attorney General complaints of prohibited third party activity.
  • Exempts licensing agreements or contract in existence as of July 1, 1998, although contracts cannot be extended beyond current times.


    • Bans Non-Tobacco Brand Names

  • Bans future cigarette brands from being named after recognized non-tobacco brand or trade names (such as Harley Davidson, Yves Saint Laurent, Cartier) or nationally recognized sports teams, entertainment groups or individual celebrities.


    • Sets Minimum Pack Size At 20 Cigarettes

  • Limits minimum pack size to 20 cigarettes through March 31, 2001.
  • Tobacco companies prohibited from opposing state legislation which bans the manufacture and sale of packs containing fewer than 20 cigarettes.

    • Corporate Changes

    Requires Corporate Commitments To Reduce Youth Access and Consumption
  • Beginning 180 days after the Master Settlement Agreement Execution Date, companies must:
  • Develop and regularly communicate corporate principles which commit to complying with the Master Settlement Agreement and reducing youth smoking.
  • Designate executive level manager to identify ways to reduce youth access and consumption of tobacco.
  • Encourage employees to identify additional methods to reduce youth access and youth consumption.


    • Disbands Tobacco Trade Associations

  • Disbands the Council for Tobacco Research, the Tobacco Institute, and the Council for Indoor Air Research.
  • Requires all records of these organizations that relate to any lawsuit to be preserved.


    • Provides Regulation and Oversight of New Trade Organizations

  • Requires any new trade association to adopt bylaws that provide:
  • Officers of the association will be appointed by the board, be employees of the association and will not be employed by a member tobacco company.
  • Legal counsel will be independent and not serve as counsel to member companies;
  • Minutes of board of director meetings will be prepared and maintained for at least five years.
  • For the purpose of enforcing the Master Settlement Agreement, antitrust staff for any settling state may inspect and copy all non-privileged, non-work-product records and interview association directors, officer and employees.

    • Industry Lobbying

    Stops Industry Assault On Tobacco Control Laws
  • After state specific finality, tobacco companies will be prohibited from opposing proposed state or local laws or administrative rules which are intended to limit youth access to and consumption off tobacco products.
  • The industry must require its lobbyists to certify in writing they have reviewed and will fully comply with settlement terms including disclosure of financial contributions regarding lobbying activities and new corporate culture principles.
  • In states without laws regarding financial disclosure of lobbying, requires disclosure of lobbying costs to the state Attorney General.
  • Prohibits lobbyists from supporting or opposing state, federal or local laws or actions without authorization of the companies.
  • Prohibits the industry from lobbying for the diversion of settlement money to non-tobacco or non-health related uses or legislation which would eliminate or diminish state rights under the settlement.


    • Protects State And Local Youth Access Laws

  • Prohibits new challenges by the industry against the enforceability of constitutionality of tobacco control laws, ordinances, and rules passed prior to June 1, 1998.


    • Dismisses Lawsuits Against State Laws

  • Requires the industry to dismiss, without fees, all claims against participating states.
  • Requires the industry to dismiss pending legal challenges related to underage smoking and environmental tobacco smoke laws.


    • No Criminal Liability

  • Specifies that states expressly do not waive any criminal liability based on federal stats or, local law.

    • Industry Records and Research

    Opens Public Access To Tobacco Documents
  • Effective on the Master Settlement Agreement Execution Date, tobacco companies will release documents which are under protective orders in state lawsuits and have no privilege of trade-secret claim.
  • Settling states may seek court-approved public release of any documents which have been subject to an order or filing, prior to August 17, 1998, denying privilege, work product or trade secret protection. The industry can content the action.


    • Creates Website For Industry Documents

  • Requires tobacco companies to open, at their expense, a Website which includes all documents produces in state and other smoking and health related lawsuits.
  • Requires the industry to maintain the site for ten years in a user-friendly and searchable format (requires and index and other features to improve searchable access).
  • Requires the industry to add, at its expense, all documents produced in future civil actions involving smoking and health cases.
  • Oversized or multi-media records will not be placed on the Website, but they will be made available to the public through the Minnesota depository.
  • The industry will provide the National Association of Attorneys General with up to $100,000 for a computer consultant to review and make recommendations regarding the industry's Website plans.
  • NAAG's consultant can seek input from settling sate officials, public health officials and other users of the Website.


    • Stops Conspiracy To Hide Research Regarding Smoking and Health

  • Prohibits manufacturers from jointly contracting or conspiring to:
  • Limit information about the health hazards from the use of their products:
  • Limit or suppress research into smoking and health; and
  • Limit or suppress research into the marketing or development of new products.
  • Prohibits the industry from making any material misrepresentations regarding the health consequences of smoking.

    • A Foundation And $1.45 Billion Public Education Fund

    Creates A National Foundation to Reduce Teen Smoking and Substance Abuse
  • Requires the industry each year for ten years to pay $25 million to fund a charitable foundation which will support the study of programs to reduce teen smoking and substance abuse and the prevention of diseases associated with tobacco use.
  • The NAAG Executive Committees will provide for creation of the foundation.
  • The foundation will governed by a seven-member board of directors. NAAG, the National Governors Association and the National Conference of State Legislatures each will appoint a board member and the three will select the final four members with expertise in public health, medicine and child psychology.
  • The foundation will:
  • Carry out a nation wide, sustained advertising and education program to counter youth tobacco use and educate consumers about the cause and prevention of diseases associated with tobacco use.
  • Develop, disseminate and test the effectiveness of counter advertising campaigns.
  • Develop disseminate and test the effectiveness of model classroom educational programs, including programs targeting at-risk population.
  • Develop, disseminate and test the effectiveness of criteria for effective cessation programs.
  • Commission studies, fund research and publish reports on factors that influence youth smoking and substance abuse.
  • Develop targeted training and information programs for parents.
  • Maintain a library of foundation studies, reports and publications.
  • Track and monitor youth smoking and substance abuse with a focus on reasons for increases or failures to decrease tobacco and substance use rates.
  • The foundation is prohibited from engaging in political or lobbying activities.
  • Includes a severance clause for settling states which are prohibited by state law from entering into the foundation portion of the agreement.


    • Creates A National Public education Fund

  • Requires the industry to pay $1.45 billion over the next five years for a National Public Education Fund.
  • The agreement includes incentive to the states for continued funding (from non-participating manufacturers).
  • The fund is established to carry out a nation sustained advertising and education program to counter youth tobacco use and educate consumers about tobacco-related diseases.
  • The fund may make grants to states and political subdivisions to carry out the fund's purposes.
  • Grants from the fund will be made by the foundation.
  • Industry payments to the foundation and education fund will be held in an escrow account until state-specific finality in a required number of states.
  • Outside contributions can be made to the foundation and specifically to the education fund.

    • Enforcement

    Provides Court Jurisdiction For Implementation and Enforcement
  • Settling states or tobacco companies may apply to the court to enforce or interpret the terms of the agreement, although before applying to the court a party must give the other parties and NAAG 30-days notice (unless the Attorney General determines there is a public health of safety concern requiring faster action).
  • If the court issues an enforcement order enforcing the agreement and party violates that order, the court may order monetary, civil contempt or criminal sanctions to enforce compliance with the enforcement order.
  • Key public health provisions of the agreement are included in consent decrees to be filed in each sate.
  • Settling states or tobacco companies may apply to the court to enforce the terms of the consent decree.
  • A settling state may not seek to enforce the consent decree of another settling state.
  • A state is not required to give any prior notice before sending an order to enforce a consent decree from the court-except that a 10-day notice is required if the claimed violation involves targeting youth or making material misrepresentations about tobacco products (unless the Attorney General determines there is a public health or safety concern requiring faster action, or the party has committed substantially similar violation previously).
  • If the court finds the consent decree has been violated, the court may award any relief available under the consent decree or the law in the state.
  • Allows settling state AGs access to company documents, records and personnel to enforce the agreement.


    • NAAG Provides Implementation And Enforcement Coordination

  • NAAG will:
  • Receive $150,000 per year until 2007 from the industry for oversight costs.
  • Monitor potential conflicting court interpretations involving the settlement.
  • Convene two meetings each year and one national conference every three years to evaluate the success of the settlement and coordinate AG efforts.
  • Assist states with inspection and discovery activities which are conducted to enforce the settlement.


    • State Enforcement Fund Established

  • On March 31, 1999, the industry is directed to pay $50 million which will be used to assist settling states in enforcing and implementing the agreement and to investigate and litigate potential violations of state tobacco laws.

    • Financial Terms

    States Will Recover $---Billion
  • Total "up-front" and annual payments from tobacco companies to the states over the next 25 years will total $---billion.
  • Distributions to states will be made based on formulas agreed to by Attorneys General.


    • Up-front Payments Total $12 Billion

  • Tobacco companies will pay $2.4 billion per year, starting in October, 1998, and one January 5 in 2000, 2001, 2002 and 2003.


    • Annual Payments Begin April 15, 2000

  • If all states participate in the settlement, annual payments will "ramp-up" beginning with a $4.5 billion payment on April 15, 1999. Ensuing April 15 payments will be at the following rates:
  • 2000: $4.5 billion
  • 2001: $5 billion
  • 2002-2003: $6.5 billion
  • 2004-2017: $8.139 billion (plus $861 million to the strategic fund)
  • 2018 on: $9 billion
  • Payment calculations for the industry will be made by an independent auditor paid for by the industry and by a fund established in the agreement.
  • The independent auditor will be selected by the NAAG executive committee and the companies.
  • Both up-front and annual payments will be allocated to the states based on a formula developed by Attorneys General.


    • Strategic Contribution Fund

  • On April 15, 2008 and on April 15 each year through 2017, the companies will pay $861 million into a strategic contribution fund.
  • Money from the fund will be allocated to states based on a strategic contribution formula developed by Attorneys General. The allocation formula will reflect the contribution made by states toward resolution of the state lawsuits against tobacco companies.


    • Payments Subject to Inflation Factor

  • Payments made by tobacco companies (annual payments, strategic contribution fund, up-front payments) will be adjusted annually based on an inflation factor.


    • Annual Payments Subject to Adjustments

  • The amount of the annual payments will be subject to "volume adjustments." Tobacco company payments will rise if cigarette sales increase and fall if fewer cigarettes are sold.
  • Annual payments also are subject on Non Settling States adjustment. If states fail to participate in the settlement, the annual payments made by tobacco companies will be reduced by the settlement share amounts which have been allocated to those non settling states.


    • Non-Participating Manufacturers Adjustment

  • Settlement negotiations originated with the four major tobacco companies, but an early goal was to ensure public health and other initiatives achieved in the agreement are extended industry-wide. To achieve that goal, attempts were made to involve additional companies in the negotiations and to develop provisions which would encourage all tobacco companies to follow terms of the settlement.
  • --- companies, which represent ---% of the market, have signed on to the settlement.
  • States may pass model laws that effectively create a reserve fund for non participating manufacturers to pay future claims.
  • If the aggregate market share of companies participating in the agreement decline by greater than two percent, their annual payment is reduced by three percent for each percent lost over the two percent threshold. States which have not passed a model law would have their annual payments reduced.
  • States which pass the model law would not have their annual payments reduced.
  • If a state's model law is struck down by the court, a state would get the annual payment reduced, but in a lesser amount.


    • Federal Legislation Adjustment

  • If federal legislation requires participating tobacco companies to make payments to the federal government, and some portion of that money is sent to the settling states, those payments may be offset, dollar for dollar, from the annual payments, under certain enumerated circumstances.

    • Cost Recovery and Attorney Fees

    States Recover Cost, Expenses and Market Rate For Attorney Fees
  • Tobacco companies will reimburse offices of state Attorneys General offices and other political subdivisions for all reasonable costs and expenses and in-house attorney fees.
  • Establishes a $150 million aggregate cap for all amounts paid will be subject to reasonable verification by any requesting company.


    • Industry Will Pay Outside Attorney Fees

  • No state dollars will be used to pay outside counsel.
  • Two payment methods are available - liquidated fee agreement and arbitration.
  • Outside counsel can negotiate a liquidated fee agreement with the industry, and if accepted, would be paid from a $1.25 billion pool of money from the tobacco industry.
  • If outside counsel rejects the liquidated fee process or cannot agree to an offer, they can go through arbitration.
  • A three-member arbitration panel will be established with two permanent members and a member from the state represented by the outside counsel.
  • The industry will pay whatever arbiters award, but timing of the payment will be subject to a $500-million-per-year cash flow cap.

    • Miscellaneous

    Release Provisions
  • If an Attorney General does not have the authority to release claims for political subdivisions or certain other entities and that political subdivision or entity proceeds with a lawsuit and wins a judgment or settlement (and the AG agrees to the settlement), the amount of the recovery will be taken out of the state's settlement share.


    • Court Approval of Settlements and Consent Decrees Required

  • Within 30 days of the Master Settlement Agreement execution date, states must go to court to have the settlement approved and their consent decrees entered and approved.
  • Non-filing states which want a consent decree will have 30 days to file suite and enter the settlement agreement and consent decree.


    • Most Favored Nation Provisions

  • If tobacco companies, before October 1, 2000, enter into an agreement with better financial terms, settlement states will get the benefit of the agreement. (This does not apply to any agreement reached after the seating of a jury or commencement of trial.)
  • There is no time limit on non-economic terms. If more favorable non-economic terms are offered in a future agreement, settling states at their option may benefit.
  • If a settling state enters into an agreement with a company not participating in this settlement and the terms are more favorable to the industry, settling companies can benefit, but only within that state.


    • Settlement Amendment Provisions

  • The settlement can be amended only if all affected states and all affected companies agree to the amendment.


    • Key Dates

  • There are three critical dates in the agreement: Master Settlement Execution Date, State Specific Finality date and Final Approval date.
  • Master Settlement Agreement Execution: this is the starting date and it occurs when Attorneys General and the companies sign the agreement. Various public health provisions are triggered by this date.
  • State Specific Finality: This date occurs when a state court approves the settlement and consent decree and appeal time has run, or, if there is an appeal, the appeal has been decided in favor of approval. This important date keys more public health initiatives and vest the state for financial recovery.
  • Final Approval: This is the earlier of June 30, 2000, or the date when 80 percent of the settling states reach State Specific Finality and states with 80 percent of the financial allocation reach State Specific Finality. No money is dispersed to the states until Final Approval is reached.


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