Intent is at the heart of tobacco lawsuit

Published 9:00 pm Saturday, September 25, 2004

Motivation and intent aren’t always as obvious as they are in the television mystery story, where the freshly signed insurance policy and the poisoned coffee tell us all we need to know. In real life, sometimes the motivation and intent behind an action are hard to figure.

The U.S. government’s lawsuit against the major tobacco companies is a good example of this. The case is being heard in U.S. District Court in Washington, D.C., and it would be easy to assume that the motivation behind it is money.

The government is seeking $280 billion from the tobacco companies as “disgorgement” – the legal term for coughing up illegally obtained profits. In this instance, the government is accusing the big tobacco firms of a conspiracy to defraud the public by concealing the health dangers of smoking.

Conspiracy is an important word in the legal case against the tobacco industry because the government’s case is a civil action brought under the Racketeer Influenced and Corrupt Organization Act. And conspiracy to commit some illegal act – including fraud, as alleged in this case – carries severe penalties under RICO.

The government, however, apparently wasn’t satisfied with those penalties and seeks to recover money for things the tobacco industry may have done prior to RICO’s enactment in 1971. An appeals court is looking into that issue, which turns out to be an important part of the case, because that time period covers the tobacco industry’s response to the first hard scientific evidence linking smoking to heart and lung diseases. The health hazard warnings on cigarette packages first appeared in 1965.

The case was first filed in 1999 and the Justice Department has thus far spent $135 million on it – a good portion of that on assembling and organizing 80 million pages of documents that it believes are relevant to its argument.

As to why it is going to all this trouble – the Microsoft case, for example, cost the government less than a quarter of this amount – Attorney General John Ashcroft says that “the case against the tobacco industry is an important effort to prevent fraudulent activity and uphold corporate integrity.”

Corporate integrity and fraud-free markets are very important to our economy. It is difficult to imagine that we could have achieved and sustained the prosperity we have known without regulatory and prosecutorial enforcement of these concepts. It is equally difficult to imagine, though, how this particular case advances integrity or reduces fraud.

Instead, it looks like a monument to an unworthy idea: covering up the government’s fumbling, bumbling and sighing through decades of missed opportunities to take charge of a product it now sees ambiguously as a threat to public health, as well as a source of revenue.

There are some glaring anomalies in this case. Conspiracies require secrecy, and while the tobacco companies may or may not have had secret meetings – this is at issue in the trial – there was absolutely nothing secret about the manufacture and marketing of cigarettes.

In the early 1960s, for example, in writing about the purpose and effectiveness of advertising, economist John Kenneth Galbraith expressed doubt that there was “anyone left in the United States who didn’t know that the American Tobacco Co. had cigarettes for sale.”

There was also nothing secret about the health hazards of cigarette smoking. Nobody claimed they were good for you, at least not since Fairfax cigarettes, whose maker claimed that they prevented respiratory disease (until the FDA, in 1953, made them stop). And the early scientific studies, although damning, certainly had difficulties in establishing causality.

That, presumably, was why the federal government decided that warnings on cigarette packs were an adequate way to address the public health risks to smokers.

It would seem, given the lack of secrecy, that a tobacco industry conspiracy to conceal the health hazards of smoking would require, at a minimum, a federal government capable of being duped for more than four decades. This isn’t a very attractive thought, but it is preferable to the alternative explanation – that the dupe in this case was, in fact, a co-conspirator.

The fact that the case has some big holes in it doesn’t really help to clarify the government’s motivation and intent in pursuing it. Because the damages sought are so massive, they would be impossible to collect unless they are spread out over time and the tobacco industry is allowed to continue operating – despite the impact on public health – so that it can pay up.

Exactly what kind of message about integrity that would send to our economy is hard to say, but there is no way that it can be good.

James McCusker is a Bothell economist, educator and consultant. He also writes “Business 101,” which appears monthly in The Snohomish County Business Journal.