Supreme Court to step into tobacco industry battle over cut-rate cigarettes

November 17, 1992|By Lyle Denniston | Lyle Denniston,Washington Bureau

WASHINGTON -- The Supreme Court, taking on a dispute over the price of cigarettes, agreed yesterday to rule on the legality of an attempt in the tobacco industry to head off a switch by consumers to cut-rate smokes with no brand name.

The court will consider a plea to reinstate a $148.8 million verdict against a cigarette manufacturer that a jury found had sought to drive prices back up after one of the "big six" companies started selling some of its product in black-and-white packs.

Selling at 30 percent below the cost of a pack of brand-name cigarettes, the "generic" smokes put on the market by Liggett Group a decade ago supposedly posed a major challenge to the industry's long-standing habit of pricing cigarettes the same.

It was the first time in decades that a tobacco company had used cut-race pricing as a way to market its cigarettes. Liggett, which also makes Chesterfield cigarettes, said it took the step because it was afraid it was about to go out of business.

Quickly, the new cut-rate, no-name cigarettes began taking customers away from the brands, especially those made by competitor Brown & Williamson Tobacco Co. It has been estimated that one out of five of Liggett's "generic" cigarette customers was a B & W buyer before. The company makes Raleigh and Viceroy cigarettes.

Later, Liggett claimed in an antitrust lawsuit that Brown & Williamson answered the challenge with a black-and-white pack of generics of its own, looking much like Liggett's, and with rebates to Liggett wholesalers. Liggett, which recently changed its name to Brooke Group, argued that this was designed to force it to match the rebates, causing it to lose more money so that it ultimately would have to raise prices on the generics.

The lawsuit claimed that the countermove worked, and the price gap between generics and brand names narrowed, and the generics' share of the market started falling again. On Liggett's theory that the Brown & Williamson maneuver had forced prices up illegally, and thus threatened harm to consumers, the jury awarded it $49.6 million in damages, which was then tripled to $148.8 million, as antitrust law provides.

Liggett's verdict, however, was overturned by the trial judge, and then by an appeals court, which concluded that Brown & Williamson was acting alone and did not have the power to keep up a campaign of below-cost selling long enough to force Liggett's hand on prices.

In going on to the Supreme Court, Liggett contended that the industry's practice of what it called "lock-step" pricing gave Brown & Williamson the freedom to move to force Liggett back in line, with resulting harm to consumers who had to pay more for their smokes.

A final ruling by the Supreme Court on the case is expected sometime next year.

In another case dealing with jury verdicts, the court bypassed -- as it had done in the past -- a new case testing the constitutionality of laws in Maryland and 23 other states that put ceilings on the amount of damages that can be awarded for medical malpractice.

Over the dissent of Justice Byron R. White, the court declined to hear a challenge to Missouri's "cap" on malpractice damages for such things as pain and suffering, loss of companionship, and disfigurement.

That case involved an 8-year-old Kansas City girl who suffered severe brain damage during a hospital operating room incident that caused her breathing to stop for six minutes. The child had been burned, and was operated on to receive skin grafts. The girl and her mother originally won a jury verdict for $19.8 million in damages, but that ultimately came down to $3.1 million, mainly because of limits set by state law.

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