# The Tobacco Masters Settlement (1998)

I believed that the health warnings on cigarette packs are there to discourage people from smoking. I am sure that 6 billion people on earth think so. Wrong Again.

The history chapters show that there were two clear phases in the anti-smoking lobby:

Chapter Anti-Smoking Wall of Fame. These are activists that did not like smoking, or had a religious objection or had a grudge against cigarette companies because family members died.

Chapter: New Rebels with a New Cause. These are people that actively sued the cigarette companies for compensation. Big money was asked, and lawyers in the USA made big bucks.

In Wikipedia the second phase is described as:

“By the mid-1950s, individuals in the United States began to sue the companies responsible for manufacturing and marketing cigarettes for damages related to the effects of smoking. In the forty years through 1994, over 800 private claims were brought against tobacco companies in state courts across the country. The individuals asserted claims for negligent manufacture, negligent advertising, fraud, and violation of various state consumer protection statutes. The tobacco companies enjoyed great success in these lawsuits. Only two plaintiffs ever prevailed, and both of those decisions were reversed on appeal. As scientific evidence mounted in the 1980s, tobacco companies claimed contributory negligence as the adverse health effects were previously unknown or lacked substantial credibility.”


The term ‘contributory negligence’ is important. Wikipedia define this as

“Contributory negligence in common-law jurisdictions is defense to a claim based on negligence, an action in tort. It applies to cases where aplaintiff/claimant has, through his own negligence, contributed to the harm he suffered. For example, a pedestrian crosses a road negligently and is hit by a driver who was driving negligently.”


Basically the plaintiffs in these cases argued that the cigarette companies caused their lung cancers. The cigarette companies’ defence was:

1. There is no real evidence that cigarette smoking causes lung cancer,

2. They (the cigarette companies) did not know cigarette smoking is damaging to health,

3. The smokers knew that cigarette smoking might be damaging to their health.

Over the 40 years of these legal actions the cigarette companies found that their best defence was to admit to point 1 above, and having done this they could not really argue point 2. Their best strategy was to argue point 3.

This is where the Tobacco Masters Settlement comes in.

“The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related, health-care costs, and also exempted the companies from private tort liability regarding harm caused by tobacco use.[1]:25 

“In exchange, the companies agreed to curtail or cease certain tobacco marketing practices, as well as to pay, in perpetuity, various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses.

“The money also funds a new anti-smoking advocacy group, called the American Legacy Foundation, that is responsible for such campaigns as The Truth.

“The settlement also dissolved the tobacco industry groups Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research. In the MSA, the OPMs (Original Participating Manufacturers) agreed to pay a minimum of $206 billion over the first twenty-five years of the agreement.”


$206 billion sounds like a lot of money. However, this amount over 25 years is really less than $10 billion per year!

Let us now compare this penalty to what the cigarette manufacturers spent on advertising and marketing:

“The Federal Trade Commission claimed that cigarette manufacturers spent $8.24 billion on advertising and promotion in 1999, the highest amount ever at that time.”


Due to the complexity of the settlement legislation it is difficult to work out what the different levels of suppliers pay in relations to their turnover, but this table shows what one group of companies would pay:

“(A) 1999: $.0094241 per unit sold after the effective date of this act;

(B) 2000: $.0104712 per unit sold;

(C) for each of 2001 and 2002: $.0136125 per unit sold;

(D) for each of 2003 through 2006: $.0167539 per unit sold;

(E) for each of 2007 and each year thereafter: $.0188482 per unit sold.”


Robert Levy of the Cato Institute says this of the Masters Settlement:

“For 40 years, tobacco companies had not been held liable for cigarette-related illnesses. Then, beginning in 1994, led by Florida, states across the country sued big tobacco to recover public outlays for medical expenses due to smoking. By changing the law to guarantee they would win in court, the states extorted a quarter-trillion-dollar settlement, which was passed along in higher cigarette prices. Basically, the tobacco companies had money; the states and their hired-gun attorneys wanted money; so the companies paid and the states collected. Then sick smokers got stuck with the bill.”


The lawyers were making a fortune from 800 cases suing the cigarette companies – mostly as tort actions,

The cigarette companies were paying lawyers a fortune defending themselves against 800 cases, (successfully),

By accepting the Masters Settlement Bill they:

Denied anybody the ability to sue them,

Saved the legal fees,

Paid a penalty which is about as much as they were spending on advertising,

Passed the cost onto their customers.


In no other country:

1. Were they sued. No other country’s legal system allows such litigation.

2. Did they have to pay legal fees.

3. Did they have to pay settlement.

In all other countries they managed to save their advertising costs without paying penalties toward the health system of that country.


I started this chapter with the statement that I (along with 6 billion others) believed that these warnings are there to act as a deterrent to smokers.

Go back to the start of this chapter and read the defence that was successful for the cigarette companies: Contributory Negligence.

With these warnings on the packet nobody can ever again argue that they were not warned. If anyone now wants to sue the cigarette companies then their simple defence is Contributory Negligence.


It is no wonder that Philip Morris’ shares are the best investment since WW II. They are bullet proof against law suits and they save their advertising budget (put this into profits) and their consumers pay the penalties of the Masters Settlement, and on their overseas cigarette sales they do not even pay a penalty to the health care system, or toward anti-smoking advertising!

THE BIG QUESTION: Why are so many countries introducing anti-smoking legislation that is even more draconian than that of the USA. What is their incentive?


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