What happened to the tobacco deal?

When Big Tobacco agreed to the previously unimaginable last year--severe marketing restrictions on cigarettes and a $368.5 billion payout to the states and the federal government over the next 25 years--anti-tobacconists pouted instead of cheering. The American Lung Association dismissed the restrictions as "a mere inconvenience" to the industry. The Food and Drug Administration's David Kessler groused that the agreement would block the feds' right to regulate nicotine levels in cigarettes for 12 years. And the, who had dragged Big Tobacco into court with dreams of winning $18 billion in fees, protested that the deal cheated them. Even after Sen. John McCain, R-Ariz., proposed increasing the payout to $506 billion and adding new regulations to the bill, the anti-tobacconists still complained. (To read why the "deal" keeps flying apart, click.)

Two questions: 1) What made the once-invincible tobacco makers capitulate? 2) How many trillions does it take to make an anti-tobacconist smile?

Peter Pringle's ticktock of the legal battle, Cornered: Big Tobacco at the Bar of Justice, answers the first question: The plaintiffs' lawyers and the attorneys general proved indefatigable; incriminating documents were leaked from inside the big tobacco companies; an important industry scientist defected; and, most importantly, Wall Street, fearing a bottomless payout, signaled the industry to submit.

As Pringle reports, the trial attorneys filed their class action suits in the early '90s after having tapped out the conventional product liability market: asbestos, IUDs, and silicone implants. The attorneys general, also primed by asbestos settlements, joined in with a new legal argument that held the industry liable for the Medicaid bills of all tobacco-damaged patients--an argument that has proved persuasive in three states. Joining this coalition were anti-smoking activists like Kessler, who thinks of smoking as a "pediatric disease" and regulation as the cure.

Against them stood the united front of Big Tobacco--R.J. Reynolds, Philip Morris, Lorillard, Brown & Williamson (a division of B.A.T. Industries), Liggett & Myers, and U.S. Tobacco. It wasn't until August 1996, after four decades of courtroom sparring, that a jury finally ordered the industry to pay damages to a smoker for ruining his health. The tobacco cartel also fractured in 1996 when the runt of the litter, Liggett, sensed the power shifting and cut a separate deal. What may have caught Liggett's eye were: First, newly purloined documents from industry archives that revealed the magnitude of Big Tobacco's deceit about tobacco's role in addiction and disease; and second, the fact that a B&W scientist, Jeffrey Wigand, had gone over to the other side. The new information to be gleaned from the documents and Wigand could conceivably persuade juries in the 300-plus tobacco-liability suits then pending to award hundreds of billions in damages.

If the legal levee was about to burst, Liggett CEO Bennett LeBow figured, why shouldn't he let the flood lift him to greater glory? Portraying himself as a "whistleblower," LeBow simultaneously surrendered to the anti-tobacconists, with whom he hoped to settle for a few million and some marketing restrictions, and launched a takeover bid for RJR. LeBow's hope, which ultimately proved false, was that RJR investors would welcome a takeover if it would allow RJR to share in Liggett's lenient settlement. This would give RJR/Liggett a huge competitive edge over industry giant Philip Morris, which would presumably face tougher terms.

Wall Street initially recoiled at the idea of a settlement but then bid Big Tobacco's stocks up at nearly every mention of an impending deal. What sweet irony: The specter of unlimited legal liability was a bigger threat to the industry's well-being than a straightforward settlement. And the $368.5 billion deal was affordable for the companies, especially considering the tax benefits of a payout and the time value of money. These economic truths reunited Big Tobacco behind a settlement on the industry's terms. Having won the public relations war by agreeing to a settlement, the industry continues to use its leverage to win a sweeter deal. Just last week, RJR led Big Tobacco in declaring its opposition to the McCain bill.

Which brings us to Question 2. When Big Tobacco was finally brought to the bargaining table, why didn't the anti-tobacco activists rejoice? Jacob Sullum's For Your Own Good: The Anti-Smoking Crusade and the Tyranny of Public Health surveys five centuries of tobacco abolitionism and concludes what tobacco's foes want more than money: They want to see the last butt snuffed out.

Sullum reaches back to King James I's 1603 anti-tobacco tirade, A Counterblaste to Tobacco, to prove that the is nearly as old as the smoking habit itself. The campaign has grown so successful that Americans now think cigarettes are more deadly than they really are. Sullum cites a Harvard economist's survey in which respondents guessed that the average smoker forfeits 11.5 years from his life span, when the "true" loss is between 3.6 and 7.2 years. So much for the idea that more "education" will deter tobacco use.

A dequately warned, why do people persist in sucking cancer-causing tars into their lungs? Anti-tobacconists insist that nicotine's addictive powers explain it all. But when the industry attempted to create, the same activists protested again, declaring the "safer" cigarette evil because it would encourage smokers to continue their habit. As it turns out, Big Tobacco was ambivalent about the safe-cigarette projects because they exposed the industry to an uncomfortable double bind: Making a "safer" cigarette is tantamount to confessing that regular cigarettes are dangerous when taken as directed, something the industry had spent billions denying.