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Thursday, 7 June, 2001, 16:34 GMT 17:34 UK
What now for Big Tobacco?
Chinese smoker
China is a growing market for the tobacco giants
After a US court awards a smoker massive damages against a tobacco company, BBC News Online's Brian Wheeler asks where Big Tobacco goes from here

By anybody's standards $3bn is a lot of money.


I think this will inspire blind terror in the tobacco industry worldwide

Clive Bates, Action on Smoking and Health
That's why Wednesday's decision to award that amount to one man, who claims cigarette maker Philip Morris did not do enough to warn him of the dangers of smoking, has shocked - and delighted - even the most battle-hardened observers of the tobacco industry.

Clive Bates, director of the UK's Action on Smoking and Health (ASH), could barely disguise his glee at the verdict of the Los Angeles' jury.

"The award of $3bn in punitive damages is an awesome judgement on the conduct of Big Tobacco and a mighty hammer blow against Philip Morris," he said.

"I think this will inspire blind terror in the tobacco industry worldwide."

The $3bn award comes on top of more than $200bn to be paid to individual US states for settlement of health care cost recovery claims and a giant $155bn award in last year's Engle class action.

How much more, you might ask, can one industry take?

Watershed ruling

The answer, not surprisingly, is quite a lot more.


Clearly, this jury wants to punish Philip Morris per se, for actions that go beyond its relationship with that particular person

Jonathan Fell, tobacco analyst, Merrill Lynch
The $3bn award is almost certain to be reduced to a fraction of that figure on appeal and absorbed by Philip Morris - maker of the Marlboro brand - as a legitimate business expense.

The smoker in question, Richard Boeken, may be suffering from terminal cancer.

But, cynics argue, if he lived to be 100, he would be unlikely to see any of the money awarded to him on Wednesday.

So far, only one person has received any cash from the billions awarded to sick smokers by US courts over the past few years, with the remaining cases mired in the lengthy appeals process.

Nevertheless, Wednesday's mammoth damages award has succeeded in unnerving the tobacco industry, as it goes far beyond previously accepted limits.

Jonathan Fell, a tobacco analyst at Merrill Lynch, said: "Clearly, this jury wants to punish Philip Morris per se, for actions that go beyond its relationship with that particular smoker."

Investors may be accustomed to a regular flow of bad news from the tobacco industry but that does not mean they like it.

"Court cases are unpredictable," Mr Fell says. "It is difficult for the markets to factor them in."

Ultimately, however, tobacco remains a relatively safe bet for investors.

"The worst case is already priced-in," Mr Fell argues.

Bad publicity

The biggest fall-out from the Los Angeles case is, arguably, in bad publicity.


After decades of 'fight and deny' tactics, they suddenly put their hands up and said 'We are terribly sorry, but it is bad for you after all

Former tobacco industry insider
When Philip Morris and the other tobacco giants took the extraordinary step of owning up to the potentially devastating effect cigarettes can have on the health of smokers last year, it was meant to draw a line under the industry's shady past.

The companies even sponsored anti-youth smoking programmes and handed out advice on how to give up cigarettes, in an attempt to prove their new-found responsible attitude.

According to one former tobacco industry insider, Wednesday's ruling is the clearest evidence yet that this strategy has backfired.

'Fight and deny'

"After decades of 'fight and deny' tactics, they suddenly put their hands up and said 'We are terribly sorry, but it is bad for you after all.

"It is an adult choice if you want to smoke, but there are warnings on the back of the packet.'


People have won billions in damages - but the only way they are going to get that is if the industry passes the costs on to existing smokers

Tobacco analyst
"It was an act of supreme cynicism and arrogance - and it looks as though it has backfired on them. People are not going to wear it."

The Los Angeles jury - which unlike juries in the UK determines the level of damages to be paid - was certainly not taken in by Philip Morris's arguments.

But even if the case does open the door to hundreds - or thousands - of others, as the tobacco industry fears, where will the extra litigation lead?

Share of the profits

Governments have too much invested in the tobacco companies, in terms of tax revenue, to allow them to go out of business.

Even those made ill by smoking have a vested interest in their continuing prosperity.

As one tobacco analyst put it: "People have won billions in damages - but the only way they are going to get that is if the industry passes the costs on to existing smokers.

"These people want a share of the profits."

By contrast, the asbestos industry, another arch villain in public health circles, has all but folded in the face of mounting legal action.

In the past 18 months, eight asbestos-related companies have filed for bankruptcy protection rather than face punitive damages in the courts, making it even harder for former workers and their families to recover any damages.

New markets

The net effect of more litigation on the tobacco industry - apart from adding extra noughts to lawyers' fees - is, arguably, that the companies will increasingly begin to view the US market as not worth the risk.

And they will seek out new markets in countries with less restrictive regimes.

Already analysts have calculated that global giant British American Tobacco (BAT) - which owns such iconic American brands as Lucky Strike - would be worth more as a company if it did not have a US business.

Fortunately for its shareholders, BAT has been at the forefront of tobacco's expansion into the developing world.

The London-based group is exposed to more international markets than any other tobacco company.

Smuggling allegations

With the EU is threatening to ban the production of high tar cigarettes, of the type produced for export by BAT at its UK factories, there is a very real threat that it could almost be legislated out of existence in its home country.

In which case, BAT has said, it will simply switch production outside of the UK.

More worryingly for BAT, the Department of Trade and Industry (DTI) is investigating allegations that it colluded with smuggling gangs.

As in the US - where the authorities are investigating allegations of price-fixing by the big tobacco companies - questions about commercial conduct will, ultimately, be far more damaging than further law suits by sick smokers.

And as long as its product remains legal and people want to use it, the tobacco industry, in some shape or form, will continue to flourish.

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See also:

07 Jun 01 | Business
Q&A: Tobacco litigation
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Tobacco giants face new lawsuits
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