$280bn tobacco suit in disarray after appeal court defeat

THE AMERICAN government is this week weighing up the future of its $280bn (pounds 149bn) lawsuit against the tobacco industry, the biggest civil case it has brought, after a court ruled it could not force cigarette companies to hand over their alleged "ill-gotten gains" of the past.

On Friday the US court of appeal threw out the government's attempts to seize $280bn of past profits from tobacco companies, which the Department of Justice (DoJ) had claimed as part of a major fraud and racketeering case against the industry. The DoJ is now reviewing the decision, which has been seen as a hammer blow to the case.

The companies are accused of defrauding the public over the health dangers of smoking in a conspiracy dating back to 1954. The DoJ claims six companies engaged in wilful "fraud and deception" that saw scientific material on nicotine and carcinogenics withheld, destroyed and ignored, and misinformation on the health effects of cigarettes fed to the public.

All the companies, which include a subsidiary of British American Tobacco, Philip Morris and R J Reynolds, deny the charges, which were brought under civil racketeering laws originally designed to fight mobsters profiting from organised crime.

The court of appeal ruled on Friday that only criminal racketeering charges allowed the government to seize gains made from past illegal activities. Civil racketeering charges demand remedies to stop the accused from misbehaving in the future, and the DoJ had argued that making tobacco companies pay for their alleged past wrongs would deter them from perpetrating subsequent fraud. But this was dismissed by the court.

Unless the DoJ wins an appeal in the Supreme Court, financial compensation from the lawsuit has been ruled out. This limits the measures, if the tobacco companies are found guilty, to actions such as further restrictions on advertising and marketing. The judge could also order that tobacco companies fund smokers to quit their habit.

BAT, whose research and investment subsidiary, BATCo, is named in the lawsuit, said it was "delighted" with the result. "Our exposure to the claim was very limited as no past profits were attributed to BATCo," a spokeswoman for BAT plc said yesterday. "It is a massive blow for the government. We believe we have a very strong case and we will continue to defend ourselves very vigorously."

The case has taken five years to get to court and is now entering its fifth month of trial. The DoJ has already spent millions on bringing the lawsuit, its budget increasing from $1.8m in 1999 to more than $20m a year.

In the witness stand last week was Dr Jeffrey Wigand, a former head of research and development for Brown & Williamson, whose story of going public on the secrets held within tobacco company laboratories was made famous in the Oscar-nominated film The Insider.