Monday, December 17, 2012

District court upholds strongly worded remedial cigarette disclosures

U.S. v. Philip Morris USA, Inc., --- F. Supp. 2d ----, 2012 WL 5928859 (D.D.C.)

In 2006—seven years after the government first filed its RICO suit—the court issued a final judgment mandating that the defendant tobacco companies publish corrective statements on five topics about which they had deceived consumers.  After multiple appeals, the court finalized the text of the corrective messages, though implementation details remain.

The defendants were found guilty of a RICO conspiracy; they “knowingly and intentionally engaged in a scheme to defraud smokers and potential smokers, for purposes of financial gain, by making false and fraudulent statements, representations, and promises.”  There were detailed findings of fact.  “[E]ach and every one of these Defendants repeatedly, consistently, vigorously-and falsely-denied the existence of any adverse health effects from smoking,” despite “the massive documentation in their internal corporate files from their own scientists, executives, and public relations people” that confirmed that there was little evidence supporting their claims. They embarked on a “campaign of proactive and reactive responses to scientific evidence that was designed to mislead the public about the health consequences of smoking.”

Second, the tobacco companies “have publicly denied and distorted the truth as to the addictive nature of their products for several decades.” Defendants “knew and internally acknowledged that nicotine is an addictive drug,” but “publicly made false and misleading denials of the addictiveness of smoking, as well as nicotine's role in causing that addiction.”  This was a continuing fraud: “no Defendant accepts the Surgeon General's definition of addiction, no Defendant admits that nicotine is the drug delivered by cigarettes that creates and sustains addiction, and no Defendant acknowledges that the reason quitting smoking is so difficult, and not simply a function of individual will power, is because of its addictive nature.”

Third, they “designed their cigarettes to precisely control nicotine delivery levels and provide doses of nicotine sufficient to create and sustain addiction” through multiple choices of additives, substances, and other design aspects, while falsely denying “that they manipulate nicotine content and delivery in cigarettes in order to create and sustain addiction.”

Fourth, for several decades, they marketed and promoted “low tar brands” as less harmful than conventional cigarettes, knowing this to be false because smokers modify their smoking behavior when smoking low tar brands.  Defendants continued to make “false and misleading statements regarding low tar cigarettes in order to reassure smokers and dissuade them from quitting.”

Fifth, the tobacco companies “crafted and implemented a broad strategy to undermine and distort the evidence indicating passive smoke as a health hazard.”  Contrary to their own research, they made “numerous public statements denying the linkage” between secondhand smoke and disease in nonsmokers, and continued to deny the truth.

Based on this conduct, the court concluded that there was a reasonable likelihood that defendants would continue to violate RICO in the future, a conclusion affirmed by the court of appeals even after the passage of the Family Smoking Prevention and Tobacco Control Act of 2009.  (After all, the court of appeals pointed out, the companies had proven themselves willing to violate RICO, with its very large potential penalties.)  The defendants continued to engage in the same or materially indistinguishable conduct not just after the complaint was filed but until judgment.  Still, the district court waited until the ruling in R.J. Reynolds Tobacco Co. v. Food & Drug Administration, 696 F.3d 1205 (D.C.Cir. 2012), to issue its order on corrective statements.

The court ordered defendants to publish corrective statements as to each of the five groups of fraudulent conduct and statements identified above.  The key language in each is:  “A Federal Court has ruled that the Defendant tobacco companies deliberately deceived the American public about [the health effects of smoking, etc.], and has ordered those companies to make this statement. Here is the truth:”

The remaining statements are blunt, starting with “Smoking kills, on average, 1200 Americans. Every day.  More people die every year from smoking than from murder, AIDS, suicide, drugs, car crashes, and alcohol, combined” and continuing through, e.g., “It's not easy to quit. When you smoke, the nicotine actually changes the brain--that's why quitting is so hard” and “There is no safe level of exposure to secondhand smoke.”  Defendants were sad that they were being ordered to tell people that they’d been lying, and argued that a plain language recitation of the court’s massively documented findings was too mean and emotion-laden to satisfy Zauderer as interpreted in R.J. Reynolds.  (Pro tip: if you don’t want people to call you a liar, don’t lose a fraud case, especially not one involving a massive, deadly campaign of deception.)

The district court disagreed.  Previously, the court of appeals upheld the determination that corrective statements, targeted at “reveal[ing] the previously hidden truth” about cigarettes and “correct[ing] Defendants' campaign of deceptive marketing,” would prevent and restrain future RICO violations.  The court of appeals already held that a corrective statements remedy was narrowly tailored to achieve the substantial governmental interest of “preventing Defendants from committing future RICO violations.”  It remanded for the district court to develop statements that would satisfy Zauderer by being “purely factual and uncontroversial information, geared towards thwarting prospective efforts by Defendants to either directly mislead consumers or capitalize on their prior deceptions by continuing to advertise in a manner that builds on consumers' existing misperceptions.”

These previous opinions established that, regardless of whether the test was Central Hudson or Zauderer, the key question of “fit” was the same and was satisfied in this case. Moreover, the court of appeals specifically directed the district court to apply Zauderer.  Since the affirmance, the Supreme Court’s 2010 ruling in Milavetz reaffirmed the power to order disclosure to correct misleading commercial speech: while disclosure requirements can’t be unreasonable or unduly burdensome, “an advertiser's rights are adequately protected as long as disclosure requirements are reasonably related to the State's interest in preventing deception of consumers.” Then, the D.C. Circuit applied Zauderer to uphold a rule requiring that the most prominent figure on airline print advertisements and websites be the final price, including taxes, in order to avoid consumer confusion. Spirit Airlines, Inc. v. Dep't of Transp., 687 F.3d 403 (D.C.Cir. 2012). This rule was reasonably related to the goal of preventing consumer confusion about the total price consumers would have to pay, and survived both Zauderer and Central Hudson scrutiny, given the government’s substantial interest in “ensuring the accuracy of commercial information in the marketplace.”  (Comment: Though keeping people from dying apparently isn’t a similarly substantial interest, per the R.J. Reynolds majority.)  This interest was “clearly and directly advanced” by a rule requiring the total price to be the most prominent price in a particular advertisement, and was likewise “reasonably tailored.”

Reynolds rejected Zauderer because the FDA’s interest in using graphic image was targeted at discouraging smokers, not at correcting misleading or incomplete commercial messages, but the court specifically distinguished the case before it from the present RICO proceeding: “remedial measure[s] designed to counteract specific deceptive claims made by the Companies … are the subject of a pending—and entirely separate—line of litigation against the Companies.”

Reynolds also said the warnings would flunk Zauderer because the images were not “purely factual and uncontroversial.”   This relied on “two crucial concessions”: that the images were “not meant to be interpreted literally,” which raised concerns that the images “could be misinterpreted by consumers,” and that the the images were intended to evoke an emotional response and/or shock the reader into retaining information. Thus the images were “inflammatory,” “unabashed attempts to evoke emotion” and to “browbeat” consumers into quitting rather than “pure attempts to convey information.”  While not patently false, the images didn’t “impart purely factual, accurate, or uncontroversial information to consumers.”  Of course, there is no such thing as a factual disclosure divorced from emotional content—emotions are how we make decisions, including feeling the sting of price—but the district court’s stuck with these words, so that’s what it uses.

Applying Reynolds, Zauderer would apply to required disclosures that are purely factual and uncontroversial and aimed at false and misleading commercial speech.  The corrective statements ordered by the court were purely factual, clear, and accurate, each based on specific findings of fact in the 2006 opinion.  Defendants argued that the introductory preamble isn’t “purely factual,” but they just didn’t like the facts: “a federal court ruled that Defendant tobacco companies deceived the public about the topic of the particular Statement and ordered them to issue an accurate Statement.”  It was also factually true that the corrective statements had been ordered to prevent further untruthfulness by defendants. 

“Recognizing this flaw in their argument,” defendants then argued that the language evokes an “emotional response” and “embarrassment” and thus is not factual under Reynolds.  (Really? Defendants don’t seem very embarrassed to me.)  But the Reynolds images were “not meant to be interpreted literally,” while the corrective statements “contain no pictures and merely disclose facts.” 

Next they argued about the phrasing of particular facts.  The court rejected defendants’ argument that it was not factual to disclose how many Americans die each day from smoking-related illnesses because that number was based on the estimated number who die each year.  To address these concerns about the “roughness” of the estimate, the final version of the corrective statement was amended to read, “Smoking kills, on average, 1,200 Americans. Every day.” The court also rejected other equally trifling criticisms, such as that another corrective statement misleadingly implied that defendants “spike” cigarettes with additional nicotine.  Not so; instead, as the court found, they manipulated nicotine delivery in a number of ways, and that’s what the statement says.

The statements were grounded in affirmed findings of fact; accurate; and didn’t attempt to “shock” the reader or elicit embarrassment, so they were “factual” under Zauderer.  They were also uncontroversial.  Controversy has to mean more than that the defendants “simply disagree with a particular proposition that has been decided against them.”  Reynolds found images controversial when they didn’t clearly convey the particular text, but rather were “subject to misinterpretation” and required “significant extrapolation on the part of consumers.”  The corrective statements, by contrast, were “simple declarative sentences and basic, uncomplicated language. There are no images at issue and the language used does not raise similar concerns about misinterpretation. Nor is there any need for the consumer to ‘extrapolate’ from the text.”

Defendants argued that the preamble was “controversial” because it intended to evoke an emotional response, calling it “unprecedented, self-denigrating language” compelling them to admit past wrongdoing (wrongs they did, in fact, do).  (I already mentioned the science above; how about a feminist take—some emotions count as emotions and others count as rationality.)

“Putting aside Defendants' hyperbole, their argument ignores the fact that the government regularly requires wrongdoers to make similar disclosures in a number of different contexts. The language of the preamble is hardly ‘unprecedented,’ and the variety of contexts in which such language has been approved undermines Defendants' position that the preamble is ‘controversial.’”  The NLRB and the FTC have made similar orders requiring disclosure of unfavorable rulings and determinations for decades, not to mention a bunch of other regulators.  In 2010 the D.C. Circuit affirmed a remedy requiring a seller of supposed cancer remedies to send a letter, on its own letterhead, signed by the seller itself, to individuals who had purchased its product, including the statement, “the Federal Trade Commission (‘FTC’) has found our advertising claims for these products to be deceptive because they were not substantiated by competent and reliable scientific evidence, and the FTC has issued an Order prohibiting us from making these claims in the future.”  The court of appeals pointed out that deceptive commercial speech is unprotected, and, even if it were protected, the FTC’s order would still be fine since it was carefully tailored to protect customers from deception—like the court’s corrective statements here.

Next, the tobacco companies suggested that the court’s findings were inherently “controversial” because no other court has made similar findings, and other courts have let the companies off the hook for their fraud.  But the findings are the law of the case; and in any event, none of the previous cases had an ultimate finding of fact absolving tobacco companies on the grounds that they didn’t engage in fraud—those cases went off on standing, harm, or lack of reliance.

Given that the purpose of the corrective statements was to correct and prevent consumer deception, then, Zauderer was satisfied.  Defendants argued that the statements were “inappropriately motivated” by a desire to induce quitting, but the statements themselves say nothing about individual smokers’ choices. 

The FTC regularly uses similar corrective statements to correct a public campaign of misinformation, as approved in Warner-Lambert Company v. F.T.C., 562 F.2d 749 (D.C.Cir. 1977) (approving corrective advertising requirement: “Listerine will not help prevent colds or sore throats or lessen their severity”).  The Warner-Lambert court of appeals found the corrective statement “well calculated to assure that the disclosure will reach the public.” Though it deleted “contrary to prior advertising” from the required disclosure as unnecessary, the court noted that Warner-Lambert wasn’t an “egregious case of deliberate deception” and that such a statement might be appropriate in another case.  The value of corrective statements was reaffirmed in Novartis Corporation v. F.T.C., 223 F.3d 783 (D.C.Cir. 2000).  Even in this case, the court of appeals had already ruled that corrective statements were an appropriate remedy: “Defendants will be impaired in making false and misleading assurances about, for instance, smoking-related diseases or the addictiveness of nicotine ... if they must at the same time communicate the opposite, truthful message about these matters to consumers.”

Defendants’ only real argument was that the preamble wasn’t reasonably related to the government’s interest because corrective statements had to be focused on facts about the product, not on the speaker’s past conduct.  No dice: alerting people to the deceptive nature of a business practice is tailored to protect consumers from further deception.  Plus, the deception here went far beyond that in Warner-Lambert and Novartis: nearly fifty years of multiple deceptive claims, not merely a single claim that a product provided a benefit it didn’t actually have.  Here, the defendants offered false scientific claims and concealed research data disproving their claims; they marketed to young people to recruit “replacement smokers”; they manipulated cigarette designs to ensure that cigarettes delivered doses of nicotine adequate to create and sustain addiction; they conspired to undermine and discredit the scientific consensus that secondhand smoke causes disease; they destroyed relevant documents to support their public and litigation positions.   “[T]he massive scope of Defendants' campaign of deception and fraud differentiates this case from cases requiring simpler corrective statements such as Warner-Lambert and Novartis.”  Given this record and the likelihood of future RICO violations, the preamble provided “important and necessary context for the consumer to understand the accurate information that follows.”

Likewise, the corrective statements weren’t unjustified or unduly burdensome.  “There is no reason to believe that issuing these Corrective Statements would place any burden on Defendants' speech other than the desired one, namely preventing Defendants from denying the accuracy of them.”

Even if Zauderer didn’t apply, the corrective statements passed Central Hudson scrutiny too.  There was a substantial governmental interest; it was directly advanced by the regulation; there was a reasonable fit between the interest and the means chosen.  Though there’d been some discussion of the quantum of evidence that the government had to provide to show that its interest was directly advanced by a regulation, Lorillard Tobacco Co. v. Reilly, 533 U.S. 525 (2001), made clear that the evidence could come from “studies and anecdotes pertaining to different locales altogether, or even, in a case applying strict scrutiny, to justify restrictions based solely on history, consensus, and simple common sense.”  Here, simple common sense was enough to support the conclusion that revealing the previously hidden truth would prevent and restrain RICO violations.
Defendants argued that their own proposed language would be a lesser burden (I’ll bet!) and that therefore the “fit” between the court’s language and the government’s interest wasn’t reasonable.  But Central Hudson isn’t a least restrictive means test; the court of appeals had already determined that corrective statements were narrowly tailored. 

Plus, the defendants’ proposals could easily be predicted to perform materially worse at preventing future RICO violations.  For example, the evidence of harm from secondhand smoke is overwhelming, which defendants knew as early as 1961.  “Despite publicly promising to fund independent research on the issue, Defendants ‘took steps to undermine independent research, to fund research designed and controlled to generate industry-favorable results, and to suppress adverse research results.’”  But defendants’ proposals would allow them to falsely deny that secondhand smoke causes disease once the two-year corrective statement period expired: “All of the statements on secondhand smoke submitted by the Defendants phrased the fact as merely a ‘conclusion’ held by either the Surgeon General or ‘public health officials.’”  Their proposals depicted well-established scientific fact “as if it were a mere opinion held by public health officials, rather than representing a consensus held by the scientific community at large.”  By contrast, the court’s disclosures ensured that consumers know the history of defendants’ deceptiveness in the past.  After they disclosed the scientific consensus, defendants would be less likely to attempt to dispute the existence of such a consensus.  (I'm not surprised the court rejected such blatant attempts to play on potential consumer distrust of government.)

Finally, the tobacco companies argued that the preamble was “confessional” and “punitive” in violation of due process. Not so.  Its purpose was corrective, and civil cases have ordered defendants to admit wrongdoing and publish corrections.

There remained implementation details.  Originally, the defendants had been ordered to publish the statements on their corporate websites, publish them as full-page ads in major newspapers, run them on major TV networks, and attach onserts containing the statements to their packaging. These media were designed to use the same vehicles that defendants themselves historically used to promote false messages.  In the past six years, though, the types of media in which defendants advertise have changed dramatically, so the parties were ordered to meet and confer with a Special Master on the questions raised, along with other details of implementation (such as the exact configuration of cigarette box onserts and whether they, and corrective ads on websites, should be translated into Spanish).

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