U.S. District Judge William L. Osteen is hearing a motion by tobacco companies, ad groups and convenience-store owners to summarily overturn the FDA rules. Those groups have filed four lawsuits challenging the rules.
FDA SEEKS BROAD AUTHORITY
Those rules, most of which would take effect Aug. 28, are extensive, including bans on any imagery or color in many tobacco ads and signage; on giveaways of items carrying tobacco brand symbols; on outdoor boards in many city areas; and beginning in August 1998, on tobacco-brand sponsorship of sporting and music activities.
President Clinton reiterated his support for the rules in his State of the Union speech. Later in the week, in his fiscal 1998 budget submitted to Congress, he asked for $34 million for FDA to implement the ad rules and $86 million for state anti-tobacco programs.
$4.8 BILLION SPENT IN 1994
The Federal Trade Commission has reported that the industry spent $4.8 billion on marketing in 1994.
Those numbers include coupon redemption and on-package giveaways of extra packs, hats or other paraphernalia of $1.2 billion and retailers slotting fees of $1.7 billion. Ad groups say $1.14 billion in advertising and point-of-purchase materials would be affected by the FDA rules.
"We are at a moment when the Supreme Court is recognizing broader protections for free speech, and this case is a threat to undermine that development," said David Cole, a law professor at Georgetown University.
The U.S. Supreme Court last May, in the 44 Liquormart case, seemed to deliver a body blow to attempts to use ad curbs to achieve public policy goals available from other kinds of regulation.
"I think 44 Liquormart can be read to say that government justification for regulating commercial speech can be limited to avoiding misleading information," Mr. Cole said. "These tobacco cases are going to put that in a more charged context. The question is how far the government can go in regulating a product whose use is legal by some but not by others."
AD GROUPS CITE 1ST AMENDMENT
The First Amendment issue will be argued by ad groups; they also contend that Congress specifically gave advertising and marketing regulatory rights to the Federal Trade Commission.
The tobacco and convenience-store industries will argue the FDA has no legal authority to regulate tobacco and that even if it can regulate tobacco, the way it chose-regulating cigarettes as a medical device because they deliver nicotine-distorts or "fabricated" previous rulings.
"Congress makes the law. What the FDA tried to do is usurp that authority," said Charles A. Blixt, general counsel of R.J. Reynolds Tobacco Co.
In what could prove to be the most interesting arguments of the day, the plaintiffs will contend that FDA's restrictions are so broad as to be flatly unconstitutional.
The six ad groups joining the legal fight over the FDA regulations are the American Advertising Federation, American Asso-ciation of Advertising Agencies, Association of National Advertisers, Magazine Publishers of America, Outdoor Advertising Association of America and Point-of-Purchase Advertising Institute.
The hearing is on a motion for summary judgment; the lawsuits' challenge of the FDA's fact gathering and conclusion that ad curbs will decrease underage smoking will be heard later if Judge Osteen decides not to grant the motion or elects to hear more evidence and arguments before ruling.
PRELIMINARY INJUNCTION POSSIBLE
The tobacco and ad groups are expected to ask for a preliminary injunction temporarily blocking the rules from taking effect. The industry contends that even the possibility of the rules taking effect has a significant impact on media buying and event sponsorship deals.
The FDA last week said it has made no notifications to the media or marketers about implementing the rules. The agency has concentrated on implementing a less controversial section of the rules that takes effect Feb. 28 and requires stores to demand photo identification from people under age 26 buying tobacco products.
Manny Goldman, a tobacco industry analyst with PaineWebber, while worried about the First Amendment issues raised, said he didn't see tobacco companies suffering that much if the rules are implemented.
"If people smoke, they will smoke," he said. "It won't keep people from smoking and the [brand] images are there and won't disappear."
"My guess is the industry is pretty innovative and will come up with new ways to communicate with customers. They've done that in the past, back in the '70s" with the broadcast ad ban, said Gary Black, industry analyst with Sanford C. Bernstein & Co.
ALCOHOL, HIGH-FAT FOOD NEXT?
Mr. Goldman added: "You could see people selling off beer stocks and McDonald's. If the FDA were given the rights to constrain free speech, alcoholic beverages and high-fat food would be next."
"While it might not impact the overall market," said RJR's Mr. Blixt, "it would . . . make it very difficult [for marketers] to compete for smokers of competitive brands."