NCPA - National Center for Policy Analysis

Critics Say Tobacco Settlement Is Unconstitutional

May 1, 2000

Some legal experts argue that the nationwide tobacco settlement violates both the antitrust laws and the Constitution. Moreover, they charge that it transforms the tobacco industry into a cartel by erecting barriers to entry that preserve the 99 percent market dominance of the largest companies.

Among the charges being leveled:

  • The wording of the November 1998 Master Settlement Agreement allows the four big tobacco companies to exclude competitors and raise tobacco prices with impunity.
  • Smokers receive nothing of value -- yet they bear the entire cost of the agreement as tobacco companies raise prices to cover their payments.
  • The settlement has led to a massive shift in wealth from millions of smokers to trial lawyers.
  • The agreement violates not only the antitrust laws, but also the Commerce Clause (because it preempts federal regulation of interstate commerce) and the Compacts Clause -- the latter because it is a multistate agreement negotiated without congressional consent, as required by the Constitution.

The fact that the master settlement contains an official disclaimer in which each tobacco manufacturer expressly waives "any and all claims that the provisions of this Agreement violate state or federal constitutions" proves that the parties to the agreement knew it to be unconstitutional from the start, critics charge.

They urge that the agreement be dismantled, the legal fees refunded, price increases canceled and competition be restored.

Source: Thomas C. O'Brien (Corning Inc.) and Robert A. Levy (Cato Institute), "A Tobacco Cartel Is Born, Paid For by Smokers," Wall Street Journal, May 1, 2000.

 

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