Iowa Public Television


Lawsuit: Tobacco Deal Created Non-Competitive Cartel

posted on August 5, 2005

The 1998 legal settlement requiring major tobacco companies to pay $206 billion to the states who filed lawsuits against the industry created a government-protected cartel that keeps cigarette prices artificially high, according to a new lawsuit.

In a suit filed this week by the Competitive Enterprise Institute, a Washington D.C.-based free market advocacy group, the plaintiffs allege escrow payments made to the states under the settlement drove up costs and "erected barriers to entry and expansion" that ensured major tobacco companies would maintain their market share.

The landmark 1998 agreement between 46 states and major tobacco companies -- which required payments to be made over 25 years -- settled all of the states' lawsuits over the public costs of treating ill smokers. To receive their shares, states were required to pass laws mandating non-participating cigarette-makers to contribute escrow payments.

A tobacco distribution company, two cigarette makers not covered in the settlement, and a smoker joined the Institute as plaintiffs.

Tags: courts industry news smoking tobacco