PHILIP MORRIS' $10B WARNING TOBACCO ATTACKS REACH CRITICAL MASS AS ABC IS SUED

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Philip Morris Cos. is using its $10 billion libel suit against ABC as a clear warning to the media about treating too lightly the unchecked charges of tobacco opponents.

After repeatedly being pummeled by claims in stories about congressional hearings, news conferences and reports, often without significant comment or reaction from the tobacco industry, Philip Morris has said, "Enough is enough."

Not everyone will be sued. Not every minor mention will prompt a response. But that doesn't mean the company won't ever respond.

Philip Morris also said its response won't necessarily be limited to lawsuits. Although it won't boycott ad buys on ABC for now, that remains a possibility. Philip Morris' Kraft General Foods and Miller Brewing Co. spent $100 million on ABC last year.

"We haven't ruled it out," said Murray Bring, senior VP-general counsel for Philip Morris.

Philip Morris' suit was filed as the regulatory climate against the tobacco industry turns increasingly hostile.

On March 25 the U.S. Department of Labor said it would soon propose rules that would virtually ban smoking in most restaurants and bars and sharply curtail smoking in offices.

"Lives will be saved, healthcare costs reduced and productivity increased," Labor Secretary Robert Reich said at a news conference.

The same day, at a congressional hearing called to discuss whether the Food & Drug Administration should regulate tobacco, FDA Commissioner David Kessler accused tobacco companies of researching ways to replace specific amounts of nicotine removed from low-nicotine cigarettes.

Earlier in the week, a subcommittee of the House Ways & Means Committee proposed raising the 24 cent federal tobacco tax $1.25 a pack. Several states, including California and Vermont, are considering actions to either restrict tobacco advertising or its deductibility.

"It's like the straw that broke the camel's back," said Manny Goldman, an analyst with PaineWebber, speaking of the ABC charges. "It is something that the company can demonstrate is a blatant falsehood."

Mr. Goldman said Philip Morris may also believe it didn't go far enough to publicly challenge an Environmental Protection Agency report that used very questionable statistics to cite the dangers of second-hand smoking and isn't going to repeat the mistake.

The suit, filed March 24 against ABC in Circuit Court for the City of Richmond, Va., may be the biggest libel suit ever, though suits in many states don't initially specify damages. The $10 billion sought nearly equals the net capital value of ABC's parent, Capital Cities/ABC.

Philip Morris claims it was libeled in two ABC "Day One" segments and several others on other network news programs, referring to those segments that said tobacco companies were "spiking" their cigarettes by adding nicotine in the manufacturing process. Besides ABC, the suit names correspondent John Martin and segment producer Walt Bogdanich.

The marketer denied it adds nicotine to any tobacco. Philip Morris said it uses a trace of nicotine to make denatured alcohol used during one stage of a process that lowers cigarettes' nicotine content. The suit contends that Philip Morris stock suffered $5 billion in market losses and asks another $5 billion in punitive damages. ABC last week said it stands by its story and was still examining the suit.

Philip Morris has never sued anyone else for libel over tobacco, Mr. Bring said, but the ABC report required some reaction.

"It's not our practice to go around suing everybody," he said. "This was an aggrievous, false and very damaging allegation that though it is false has been accepted by a variety of people who are opinion leaders, including the president of the United States.

"The lawsuit was the natural thing to do because we were defamed by what ABC said, and we have a good lawsuit. We did not consider pulling our ads off ABC [for now] because it wouldn't have been as responsive."

Mr. Bring said Philip Morris wants to set the record straight.

Libel lawyers said Philip Morris is basing its case on demonstrating not only that ABC erred but that it either knew about the error or was reckless. That standard has proved difficult to meet since it was set by the U.S. Supreme Court in The New York Times. Philip Morris will also have to show that the ABC stories, which concentrated on rival R.J. Reynolds Tobacco Co., actually specifically hurt Philip Morris.

"The New York Times case makes it tough to recover against the media, but that doesn't mean media companies are free from any responsibility," said Tim Revilli, an attorney for Winston & Strawn, Chicago.

The suit came on the eve of a congressional hearing into a bill by Rep. Henry Waxman (D., Calif.) seeking to ban almost all smoking in public buildings.

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