Amicus Curiae Brief — Watson v. Philip Morris Companies, Inc.

mA ? 8 2007

WwW FFICE OF THE ¢ ;

wer THE CLERK ,

No. 05-1284

IN THE

Supreme Court of the Cinited States

LISA WATSON, £7 AL...

Petitioners,

Vv.

PHILIP MORRIS COMPANIES, INC., ETAL...

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Eighth Circuit

BRIEF OF FORMER COMMISSIONERS AND

SENIOR STAFF OF THE FEDERAL TRADE

COMMISSION AS AMICI CURTAE IN SUPPORT

OF RESPONDENTS

MICHAEL S. FRIED

(Counsel of Record)

CHRISTIAN G. VERGONIS

JONES DAY

51 Louisiana Avenue, N.W

Washington, D.C. 20001

March 30, 2007 (202) 879-3939

,

Wit SON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D. C. 20002

TABLE OF CONTENTS

Page

Ce artncsncinaicsidiiecindneinictnnnnieinia il

Be Re CO Fe CIN ercceccccccecccvscnsnsesosesonsscconsonen l

SUMMARY OF ARGUMENT. ............cccccosrssssscessssosesesseeesess 2

ARGUMENT ...................: aia il aeiaaliciadicitinhibniatciiadiiai 5

]. THE TESTING, MARKETING AND SALE OF

LIGHT CIGARETTES IS SUBJECT TO

COMPREHENSIVE FEDERAL CONTROL

FP IT ticniitcnnctuicissssinacnininntininennnienni 5

A. The FTC Employs a Broad Range of

Regulatory Tools To Compel Compliance

With Its Consumer-Protection Policies.................. 5

B. The FTC Has a Long History of Regulating

Claims About Tar and Nicotine Content ............... 7

C. The FTC Requires Uniform Testing of Tar

I 10

D. The FTC Requires Disclosure of Tar and

I a 13

E. The FTC Authorizes and Defines

Descriptors Such As “Low Tar” and “Light”

for Use As Shorthand References to Tar and

SY ane Ie eo Uae ton ee 16

F. The FTC Maintains Its Policies Despite

Awareness of Their Limitations.......................000 19

Il. CIGARETTE COMPANIES ARE REQUIRED

TO COMPLY WITH THE FTC’S

PRL ALT OIUR Y COUPEE, BEV LD cccccccscesccsccncsncocescnssconees 22

I e ininicnsavianpsiiiscimnarevaninninieiicnenatonivniiiosmunisntonin 30

——

ll

TABLE OF AUTHORITIES

Page

Cases

Alaska v. O'Neill Investigations, Inc., 609 P.2d 520

8 EE eras eae em ae ane NET 24

Brown v. Brown & Williamson Tobacco Corp., No.

06-30130, 2007 WL 470406 (Sth Cir. Feb. 14,

(SAEED N AU see nar ee Na RO TO RCO ETE 28-29

Dowhal v. SmithKline Beecham Consumer

Healthcare, SE P.36 1 (Call. 2004).......cccccccccccccceccccccccesees 23

FTC v. Brown & Williamson Tobacco Corp., 580 F.

Supp. 981 (D.D.C. 1983), aff'd in part and rev'd

he part, TTS FAG SD CALS. Cat. TGR) occcccsccscescocovcssessecese 25

FTC v. Brown & Williamson Tobacco Corp., 778

I , eeclie 25-26

FTC v. Mandel Brothers, Inc., 359 U.S. 385 (1959) ....24, 27

General Motors Corp. v. Abrams, 897 F.2d 34 (2d

Esk: SIT icickstsisisteincaneeiscaieesnabiancbedipeisicinteiadenieitaisienininndianiaantiis 23

Holloway v. Bristol-Myers Corp., 485 F.2d 986

A 23

In re American Brands, Inc., 79 F.T.C. 255 (1971)............ 17

In re American Tobacco Co., 119 F.T.C. 3 (1995)............. 17

In re Benson & Hedges, 33 F.T.C. 1659 (1941) 0.0... 7

In re Tak Communications, Inc., 138 B.R. 568 (W.D.

Wis. 1992), aff'd, 985 F.2d 916 (7th Cir. 1993)............. 23

NLRB vy. Bell Aerospace Co., 416 U.S. 267 (1974) ............ 23

’ Pearson v. Philip Morris, Inc., No. 02-11 2006 WL

663004 (Or. Cir. Ct. Feb. 23, 2006) .........ccccccsssccccccssesees 29

Prado Alvarez v. R.J. Reynolds Tobacco Co., 313 F.

Supp. 2d 61 (D.P.R. 2004), aff'd, 405 F.3d 36 (ist

saris: AEE nncsbinecsicnsninigdibanendebdnimaptaiianianiqaiuiagatinseusiiaiaiad 29

iil

TABLE OF AUTHORITIES

(Continued)

Page

Price v. Philip Morris, Inc., 848 N.E.2d 1 (Ill. 2005),

cert. dered, 1273. Ct. GBS (2O0G)......cccccoseccccscoscscsescceses 29

Schubach v. Household Finance Corp., 376 N.E.2d

TTI: IPUTII ieitistunitsuddcisnesiienipnsapinmuiisiiaiisiuindiguensiniecsinn 24

United States v. Mead Corp., 533 U.S. 218 (2001) ............ 23

Statutes and Regulations

SR ican ant nh ieepeetciatinienhioneticiagelealibiilea 6

| et EERIE EE Sew seen ane e Leer a Ee 6

Sa Mann nItics: WUE TI sais edeeincpsebiieeenitaniicninenbishaiabinciasinpndipioadeidiaieiiettinie 6

eT eeenaetisa it ite ccicieisatsenbahiephiaeciiailensainciseainiaactanindibibibeidintainiansiaitinabendesiaiditat 6

STE eines UP a iieiihsiehieieeiilaceeseaeniecabiaiiiie 6

NECA OS Ce NEN ec AER 6

eis Ue ee ithiieiiniethcridiitiaciisiieiinsaiianiaeriptiaaiishainiitaiiaiada 17

is Se See vincinnnisiiasnaimicninecemsmenaniataiancnuiianmnnies 2, 5, 30

raat Sie Wide MUTE snes sticicissisininhihlaciasibniltiaanindepasienhagiiieisibiabaneiiien 6

ete ae Se UTED stincesienivcihiesieiehdesihinaticninieiiadieiteienlananineiiin 6

AR NU ii iniiieiiiaeinklie icine ala 17

Other Authorities

Cigarette Advertising Guides, 6 Trade Reg. Rep.

ee ee 8

Cigarette Advertising and Other Promotional

Practices, Announcement of Decision, 43 Fed.

Se, Ee IEG Cie: PIE eacenicncisesnsnenetensssicnesiciistiinninesienl 20

Cigarette Testing Request for Public Comment,

62 Fed. Reg. 48158 (Sept. 12, 1997).............escesesessecseees 18

IV

TABLE OF AUTHORITIES

(Continued)

Page

Cigarette Testing Results, Tar and Nicotine Content,

36 Fed. Reg. 15074 (Aug. 12, 1971) wc. eceeeteeeees 1]

Kenneth C. Davis, Administrative Law &

SO LENE 23

False and Misleading Advertising (Filter-Tip

Cigarettes): Hearings Before Subcomm. of

the Comm. on Gov't Operations H.R., 85th

UTI cicisciciceinidcspiisiichiataiai ee ithnbiiniiatiamapiemnianpnenasennnia 8

FTC Suspends Proceeding to Require Disclosure

of Tar and Nicotine Content in Cigarette

Advertising After Industry Amends Voluntary

Plan, Federal Trade Commission News

ER Sk SUPP stisnebictiinsetaasiieibsilipuabuiniinecticduedienetionecisiini 15-16

Federal Trade Commission 90th Anniversary

Symposium—Program Brochure (Sept. 22-

23, 2004), available at http://www.ftc.gov/

fic/history/90thAnniv_Program.pdf (visited

ERAT SES Rees ae ee nO 7

FTC Operating Manual, available at http://

www. ftc.gov/foia/adminstaffmanuals.htm

SURI CUIINNE SU, SUID Y D icecisnniccssncectiienicaicsnonenanensii 6-7, 18

Federal Trade Commission, Report to Congress

Pursuant to the Public Health Cigarette Smoking

PE _ RESLAeee 13, 15, 25

Charles H. Koch, Jr., Administrative Law & Practice

FERRIER er Na eae ee ae TO APE RC 23

Matthew L. Myers et al., Staff Report on the

Cigarette Advertising Investigation (1981) ................... 18

v

TABLE OF AUTHORITIES

(Continued)

Page

National Cancer Institute, Smoking and Tobacco

Control Monograph 7: The FTC Cigarette Test

Method for Determining Tar, Nicotine, and

Carbon Monoxide Yields of U.S.-Cigarettes

(1996), available at http://cancercontrol.cancer.

gov/tcrb/monographs/7/index.html (visited March

ile ST Disievcmesessenituislinineginininnsiisiduiaiiaibiaiiaiaidiamamaneas 9-10, 21

National Cancer Institute, Smoking and Tobacco

Control Monograph 13: Risks Associated with

Smoking Cigarettes with Low Machine-Measured

Yields of Tar and Nicotine (2001), available at

http://cancercontrol.cancer.gov/

terb/monographs/ 1 3/ (visited March 28, 2007)............. 19

Regulations Restricting the Sale and Distribution

of Cigarettes and Smokeless Tobacco to Protect

Children and Adolescents, 61 Fed. Reg. 44396

CR, Zi, Fete ievccecsescsuncemnsnsinniccsinnnienmmnnaiiasimiidaneieal 18

Report on the Tar, Nicotine, and Carbon Monoxide

of the Smoke of 1249 Varieties of Domestic

Cigarettes For the Year 1995, 63 Fed. ae.

BET, Tilo. FD ciscevteneserstussacictaniilieviniutiamniiaaecaipiiiaas 12

Roscoe B. Starek, II], Prosecutorial Discretion: A

View From The Federal Trade Commission,

Regulation, Fall 1997, available at http://

www.cato.org/pubs/regulation/reg20n4d.pdf

8, a naar 28

Statement of Federal Trade Commission Chairman

Paul Rand Dixon on Activation of Cigarette

Testing Laboratory (May 15, 1967) .............c:cccceeeeedeeee LI

Strengthening the Cigarette Labeling Act, 112

Cong. Rec. 17270 (July 27, 1966).............sccseseceeereeees 11

INTEREST OF AMICI CURIAE

Amici curiae are former Chairmen, Commissioners and

senior staff of the Federal Trade Commission (the “FTC” or

the “Commission”) who collectively reflect several decades

of FTC leadership: James C. Miller Il] (Chairman, 1981-85),

Daniel Oliver (Chairman, 1986-89), George Douglas

(Commissioner, 1982-86), Thomas Leary (Commissioner,

1999-2005), Carol Crawford (Director, Bureau of Consumer

Protection, 1983-85), John Peterman (Director, Bureau of

Economics, 1988-93, and various other senior positions

beginning in 1976), and Robert Tollison (Director, Bureau of

Economics, 1981-83).'

Amici respectfully submit this brief to assist the Court in

understanding the full context and nature of the FTC’s

comprehensive regulatory control over the conduct at issue

in this case. Amici’s experiences at the FTC give them a

unique perspective on the Commission’s regulatory approach

generally and on the specific role that the FTC has played

and continues to play in the regulation of cigarette

advertising. In particular, amici are intimately familiar with

the FTC’s decades-long efforts to ensure that consumers

receive useful and accurate information about the tar and

nicotine content of competing brands of cigarettes. These

efforts include employing a variety of formal and informal

regulatory tools to foster a uniform standard for measuring

' Counsel for all parties have consented to the filing of this brief, and

those consents are on file with the Clerk of the Court. No counsel for a

party in this case authored this brief in whole or in part. R.J. Reynolds

Tobacco Company has made a monetary contribution to this brief's

preparation and submission. Messrs. Miller, Oliver, and Peterman have

in the past been retained as consultants or expert witnesses for

Respondents, but neither they nor any other amici joining this brief are

being compensated for their role as amici in this case.

2

tar and nicotine yields, to compel disclosures of those

measurements in cigarette advertising, and to define and

authorize the use of various descriptors, such as “low-tar”

and “light,” as shorthand, consumer-friendly references to

those measurements.

SUMMARY OF ARGUMENT

This case involves the standard for determining whether a

private party is a “person acting under” a federal officer for

purposes of the federal officer removal statute, 28 U.S.C.

§1442(a)(1). The Eighth Circuit held below that whether a

defendant was “acting under” the direction of a federal

officer turns on the detail and specificity of the federal

government’s direction of the challenged activities and

whether the government compelled the defendant's

‘compliance with the federal directives. Pet. App. 6a.

Applying this test to Respondents’ testing, marketing and

selling of light cigarettes,’ which Petitioners contend was

deceptive, the Eighth Circuit found the test satisfied because

the FTC engages in “comprehensive, detailed regulation and

. .. Ongoing monitoring” of that activity, and “compel[s] the

tobacco companies to adhere to a testing and advertising

standard that was prompted by the FTC.” Pet. App. 8a, 10a.

Amici take no position on whether the Eighth Circuit

articulated the correct legal standard for private-party

removal under section 1442(a\1). Amici submit, however,

that if the Court were to adopt the Eighth Circuit’s

interpretation of the statute and allow removal predicated on

acts performed pursuant to comprehensive and detailed

federal regulations, then Respondents would plainly qualify

* The term “light cigarettes” refers to cigarettes advertised and sold

using descriptors such as “low tar” and “lights.” As explained below, the

FTC has authorized the use of these descriptors as shorthand references

to specifically defined ranges of tar yield as measured by FTC-mandated

testing.

3

for removal. As Judge Gruender observed below, the level

of the FTC’s direction and control of the conduct at issue

here—i.e., the testing and marketing of light cigarettes—is

“extraordinary.” Pet. App. 18a.

The FTC has, for decades, exercised comprehensive and

detailed oversight over cigarette companies’ claims about the

tar and nicotine yields of their products. It has done so using

the wide array of formal and informal regulatory tools at its

disposal, including rulemaking, policy statements, case-by-

case adjudication and consent decrees, advisory opinions,

and nominally “voluntary” agreements among the major

cigarette manufacturers. Through these measures, the FTC

has compelled the cigarette companies to comply with the

agency’s policy choices concerning the most effective and

efficient way to ensure that consumers receive reliable

information about the tar and nicotine levels in various

cigarettes. Among othe: things, the FTC:

e developed and mandated the use of a uniform method

for determining tar and nicotine yields (referred to as

the modified Cambridge Filter Method or the FTC

Method), with full awareness of the limitations of the

method;

e took the unique step of conducting the tests itself in

its own testing laboratory for over twenty years,

before eventually delegating testing responsibility to

the tobacco industry under FTC specifications and

supervision, and publishing those results;

e required cigarette companies to disclose tar and

nicotine yields, based on the FTC Method, in all non-

permanent cigarette advertising; and

e defined and authorized the use of the descriptors

challenged by Petitioners in this case under

conditions in which the Commission determined they

function as shorthand, consumer-friendly references

to FTC Method results.

4

The FTC took these actions for two very specific reasons:

so that consumers would be able to consider tar and nicotine

yields in making their brand choices, and so that cigarette

manufacturers would be encouraged to compete on the basis

of tar and nicotine yields.

The contention, by Petitioners and their amici, that these

regulations are not compulsory because they resulted from

agency action short of rulemaking ignores the realities of the

Commission’s regulatory strategies. Although the disclosure

of tar and nicotine yields results from an agreement among

industry participants, that agreement is “voluntary” in name

only. The FTC chose to compel such disclosure, but

decided-——based on past experiences and with the support of

members of Congress—that securing an agreement with the

major cigarette manufacturers would be more efficient and

effective than promulgating a formal rule. The Commission

therefore coerced industry participants to enter into an

agreement in lieu of rulemaking, demanded that the

agreement comply with the agency’s exact requirements, and

made clear that the FTC would monitor compliance and

initiate rulemaking if the agreement turned out to be

ineffective. The FTC has similarly demanded, without the

need for a formal rule, that cigarette companies strictly limit

their use of descriptors such as “light” and “low tar” to

cigarettes falling within certain tar ranges as measured by the

FTC Method.

In sum, Respondents undertook the conduct challenged in

this lawsuit—i.e., testing the tar and nicotine yields of their

hght cigarettes and making representations about those

yields—pursuant to detailed and specific requirements

imposed on them by the FTC. For this reason, under the

Eighth Circuit’s interpretation of section 1442(a)(1),

Respondents were entitled to remove this action to federal

court.

5

ARGUMENT

The Eighth Circuit held that a private party is “acting

under” a federal officer for purposes of the federal officer

removal statute, 28 U.S.C. § 1442(a)(1), where that party is

compelled by a federal agency to comply with detailed and

specific requirements under a comprehensive federal

regulatory scheme. This standard is readily satisfied in a

case, like this one, challenging the testing, marketing and

sale of light cigarettes. The FTC has, over the course of

several decades, established detailed and specific regulations

governing the measurement of tar and nicotine yields, as

well as advertising claims about the tar and nicotine content

of cigarettes. In doing so, the FTC made the deliberate

choice to forego the promulgation of formal rules in favor of

more flexible regulatory alternatives. That the Commission

chose this strategy does not make acquiescence with its

regulatory directives optional. To the contrary, the FTC

expects cigarette companies to market their products in full

compliance with the Commission’s regulatory directives, and

subjects companies that fail to do so to adverse legal action.

1. THE TESTING, MARKETING AND SALE OF

LIGHT CIGARETTES IS SUBJECT TO

COMPREHENSIVE FEDERAL CONTROL AND

REGULATION

Over the course of several decades, the FTC has used a

broad array of regulatory tools to impose detailed and

specific requirements relating to the testing of, and

advertising claims about, tar and nicotine yields in cigarettes.

A. The FTC Employs a Broad Range of Regulatory

Tools To Compel Compliance With Its Consumer-

Protection Policies

As an independent agency with far-reaching regulatory

powers, the FTC employs a variety of tools in carrying out

6

its broad mandate to protect consumers from “unfair or

deceptive acts or practices.” Federal Trade Commission Act

(“FTC Act”) § 5(a)(1), 15 U.S.C. § 45(ay(1).° The FTC Act

authorizes the Commission to promulgate rules, known as

Trade Regulation Rules, through notice-and-comment

rulemaking. See FTC Act §§ 6(g), 18, 15 U.S.C.

§§ 46(g), 57a. The Act also empowers the Commission to

initiate administrative adjudication and to seek injunctive

and monetary relief in federal court. See FTC Act §§ 5(m),

13, 19, 15 U.S.C. §§ 45(m), 53, 57b.

The FTC also employs several less formal mechanisms to

achieve regulatory compliance. For example, it frequently

issues Industry Guides that serve as “administrative

interpretations of laws administered by the Commission for

the guidance of the public in conducting its affairs in

conformity with legal requirements.” 16 C.F.R. § 1.5

(2007). These Guides “provide the basis for voluntary and

simultaneous abandonment of unlawful practices by

members of industry,” id., and are especially useful in

getting firms to abandon practices simu taneously where

each firm may be reluctant to lose a competitive advantage

by doing so unilaterally. See +/7C Operating Manual ch. 8

§ 3.3, available at http://www.ftc.gov/foia/adminstaff-

manuals.htm (visited March 28, 2007). The FTC similarly

issues Advisory Opinions in response to requests by private

parties. See 16 C.F.R. § 1.1 (2007). These Opinions are

“binding upon the Commission with respect to the person or

group to whom such opinion is issued with regard to the acts,

practices, or conduct described in the request.” FT7C

Operating Manual ch. 8 § 4.3.

* Indeed, the FTC’s independence extends, under some circumstances,

to its litigation authority in this Court. See FTC Act § 16, 1S U.S.C.

§ 56(a)(3)(A). There is no evidence that the brief of the Solicitor General

in this case reflects the views of the FTC.

~

7

Finally, the FTC uses the threat of formal agency action,

such as rulemaking or litigation, to encourage industry

participants to agree voluntarily to prevent unfair or

deceptive practices. The FTC thus frequently enters into

consent decrees to end or forestall litigation. /d. ch. 6 § 3.

The FTC similarly encourages industry participants to adopt

“voluntary” agreements as a substitute for trade regulation

rules. Between 1919 and the 1960s, for instance; the FTC

regularly held trade practice conferences to encourage

industries to write their own rules, subject to final approval

by the Commission. See Federal Trade Commission 90th

Anniversary Symposium—Program Brochure 6-7 (Sept. 22-

23, 2004), available at http://www.ftc.gov/ftc/history/

90thAnniv_Program.pdf (visited March 28, 2007). Because

formal agency action typically entails the expenditure of

significant resources by both the FTC and the industry, the

solicitation of such “voluntary” agreements is often the most

efficient way for the FTC to achieve its regulatory

objectives.

As explained below, during the FTC’s long history of

regulating cigarette advertising, it has successfully employed

all of these regulatory tools. It litigated against tobacco

companies for making misleading tar and nicotine claims; it

provided Industry Guides for cigarette advertising; it issued

Advisory Opinions on tar and nicotine claims; it used the

threat of rulemaking to orchestrate a “voluntary” agreement

among the major cigarette companies to provide tar and

nicotine data in their print advertising; and it published

policy statements concerning tar and nicotine advertising in

the Federal Register and in its FTC News Releases.

B. The FTC Has a Long History of Regulating Claims

About Tar and Nicotine Content

The FTC’s long history of regulating claims about the tar

and nicotine yields of cigarettes dates back decades. See,

e.g., In re Benson & Hedges, 33 F.T.C. 1659, 1659-60

(1941) (FTC enforcement action).

8

By the 1950s, the cigarette industry had responded to the

growing awareness of the health risks of cigarettes by

creating and marketing filtered cigarettes as lower in tar and

nicotine. Given uncertainties at the time about the health

effects of tar and nicotine, the FTC initially sought to enjoin

questionable advertising claims about filters and tar and

nicotine yields. See False and Misleading Advertising

(Filter-Tip Cigarettes): Hearings Before a Subcomm. of the

Comm. on Gov't Operations H.R., 85th Cong. 274-75 (1957)

(statement of FTC Acting Chairman Robert T. Sécrest)

[hereinafter Secrest Statement]. But because the FTC was

not equipped to test cigarettes and there was no standardized

test, it was difficult to prove that any particular claims were

deceptive or unfair. /d. at 275-76.

As an alternative to litigation, therefore, the FTC decided

to work with the industry to establish guidelines for cigarette

advertising. In September 1955, following consultation with

cigarette manufacturers, the agency formally adopted the

Cigarette Advertising Guides for the use of its staff in

evaluating cigarette advertisements. /d. at 276. Among

other things, the Cigarette Advertising Guides permitted

claims about tar, nicotine, and other ingredients of cigarette

smoke so long as such claims had been “established by

competent scientific proof.” Cigarette Advertising Guides,

6 Trade Reg. Rep. (CCH) 4 39,012 (Sept. 22, 1955). By

1957, working under the Guides, the FTC had obtained

voluntary discontinuance of seventy-five advertising claims

it found objectionable, without having to institute any formal

proceedings; many other objectionable advertisements were

abandoned before they ever reached the public. Secrest

Statement, supra, at 278-79. During his congressional

testimony in 1957, FTC Chairman Secrest expressed

_ Satisfaction with the FTC’s regulatory achievements:

[The] adoption and administration of the guides did

more to prevent deceptive advertising of cigarettes and

to fulfill the Commission’s responsibility to the public

9

than it could possibly have accomplished by any other

means.

Id. at 279-80.

Notwithstanding these efforts, during the second half of

the decade, cigarette companies continued competing to

produce and advertise cigarettes with lower tar and nicotine

yields. During this “tar derby,” as the period of competition

became known, cigarette companies employed different tar

and nicotine testing methods to substantiate their claims

about the lower yields of certain brands. Concerned that the

lack of a uniform testing method was confusing to

consumers, the FTC in December 1959 ended the “tar derby”

by demanding that cigarette companies eliminate ll

references to low or reduced tar or nicotine in their

advertisements. See Correspondence from William H. Brain,

FTC Bureau of Consultation Attorney, to John Vance Hewitt

(Dec. 17, 1959) (J.A. 12). The FTC backed up this demand

with a threat to refer non-complying advertisements to the

agency’s enforcement bureaus. /d. The FTC subsequently

sought and obtained signed undertakings from the seven

major cigarette manufacturers to eliminate all references to

tar and nicotine claims from cigarette advertising. See 1960

FTC Ann. Rep. 82.

FTC Chairman Paul Rand Dixon described these

measures as notice to the industry that the FTC would deem

“any reference to tar or nicotine content” sufficient to

“support a complaint” for false and misleading advertising.

See Correspondence from Paul Rand Dixon, FTC Chairman,

to Warren G. Magnuson, Chairman of U.S. Senate

Committee on Commerce 3 (Apr. 11, 1966) [hereinafter

Dixon-Magnuson Correspondence]. Although the measures

stopped short of formal regulatory action, C. Lee Peeler, then

Deputy Director of the FTC’s Bureau of Consumer

Protection, described them as a “ban” on tar and nicotine

advertising. C. Lee Peeler, Cigarette Testing and the

Federal Trade Commission: A Historical Overview, in

c~

10

National Cancer Institute, Smoking and Tobacco Control

Monograph 7: The FTC Cigarette Test Method for

Determining Tar, Nicotine, and Carbon Monoxide Yields of

U.S. Cigarettes 1, 2 (1996), available at http://

cancercontrol.cancer.gov/tcrb/monographs/7/index.html

(visited March 28, 2007).

C. The FTC Requires Uniform Testing of Tar and

Nicotine Yields

During the 1960s, the FTC’s total ban on tar and nicotine

advertising was called into question as mounting scientific

evidence indicated that the health risks of smoking could be

lowered through reductions in tar and nicotine yields. The

American Cancer Society, fo. example, expressed its

“conviction . . . that the Federal Trade Commission can

render a major service to the health of the public by

rescinding its restriction relative to the mention of the tar and

nicotine content of cigarette smoke in cigarette advertising

and on the packages of the various brands of cigarettes.”

Dixon-Magnuson Correspondence, supra, at 8-9 (internal

quotation marks omitted).

In response to such demands, the FTC notified the

nation’s cigarette manufacturers of its determination that

factual statements about tar and nicotine yields would no

longer be deemed to violate the FTC Act or the 1955

Cigarette Advertising Guides provided that no collateral

health claims were made, and that claims about tar and

nicotine content were supported by testing conducted in

accordance with a uniform testing protocol approved by the

FTC. See FTC News Release (Mar. 25, 1966) (J.A. 20-21).

The FTC subsequently solicited comments and held public

hearings on the proper testing protocol, see Cigarette and

Related Matters: Methods To Be Employed in Determining

Tar and Nicotine Content; Notice of Public Hearing, 31 Fed.

Reg. 14,278 (Nov. 4, 1966) (J.A. 27-29), and, in reliance on

comments and testimony, ultimately adopted as its testing

protocol a modified version of the Cambridge Filter Method

11

that became known as the “FTC Method.” See Cigarettes:

Testing for Tar and Nicotine Content, 32 Fed. Reg. 11178

(Aug. 1, 1967) (J.A. 46-47); FTC News Release, F7C to

Begin Cigarette Testing (Aug. 1, 1967) [hereinafter Testing

Release] (J.A. 52-56).*

In response to calls by members of Congress for the FTC

to itself conduct cigarette testing, see, e.g., Strengthening the

Cigarette Labeling Act, 112 Cong. Rec. 17270, 17274-75

(July 27, 1966) (Sens. Magnuson and Kennedy), the FTC

took the “very unusual” step of opening its own testing

laboratory in May 1967, J.A. 290, and began testing

cigarettes under the FTC Method on August 1, 1967. See

Statement of Federal Trade Commission Chairman Paul

Rand Dixon on Activation of Cigarette Testing Laboratory

(May 15, 1967); Testing Release, supra. The FTC published

the results of its testing approximately every year in the

Federal Register and in its annual reports to Congress. See,

e.g., Cigarette Testing Results, Tar and Nicotine Content, 36

Fed. Reg. 15074 (Aug. 12, 1971).

In 1987, the FTC delegated testing responsibility to the

private Tobacco Industry Testing Lab (the “TITL”). See

Correspondence from John P. Rupp, Attorney for cigarette

manufacturers, to Judith P. Wilkenfeld, Program Director of

Cigarette Advertising and Testing at FTC (June 30, 1987).

* The FTC. Method uses a machine to measure the tar and nicotine

yielded when a cigarette is smoked according to specific parameters:

The FTC regulations involve the use of a cigarette smoking machine.

The machine is set to specific parameters governing the depth to

which the cigarette is inserted, the volume of air drawn through the

burning cigarette with each “puff,” the number of puffs drawn per

minute and the amount of the cigarette consumed. The tar and

nicotine captured by a filter in the machine are then measured.

Pearson v. Philip Morris, Inc., No. 0211-11819, 2006 WL 663004, at *1

(Or. Cir. Ct. Feb. 23, 2006).

12

Testing at the TITL is conducted under F | C monitoring and

supervision, including periodic unannounced mspections,

and the FTC uses compulsory process to require the tobacco

companies to submit the TITL’s measurements to the F PC in

swom statements under penalty of perjury. See. eg. Repow

on the Tar, Nicotine, and Carbon Monoxide of the Smoke of

1249 Varieties of Domestic Cigarettes For the Year 1995, 63

Fed. Reg. 3576 (Jan. 23, 1998).

The FTC does not permit deviation from the FTC Method.

To the contrary, the Commission adopted an official method

precisely because it believed the test provided a “reasonable

standardized method” that was “capable of being presented

to the public in a manner that is readily understandable.”

Testing Release, supra, at 1 (J.A. 53). The FTC therefore

made clear from the start that it would deem deceptive the

use of measurements derived from any method other than the

FTC Method, because “[uJse of more than one testing

method would . . . only serve to confuse or mislead the

public.” Jd. at 1-2 (J.A. 53). Indeed, in 1978, the FTC

issued an Advisory Opinion rejecting a request to use a

measurement method other than the FTC Method, even if the

method would produce higher tar and nicotine yields,

because of the potential for consumer confusion. See

Proposed advertising plan to disseminate cigarette

advertisements headlining, without qualification, tar values

higher than latest published FTC number disapproved, 92

F.T.C. 1035, 1035 (1978) (J.A. 201-02).

In its 1968 Report to Congress, the FTC made clear its

motivation for replacing its earlier ban on tar and nicotine

advertising with its new testing regime:

Based upon the proposition that lower yield cigarettes

present a lessened hazard to the American public, the

Commission has acted within the past year to

(1) augment information available to the public on the

tar and nicotine content of cigarettes and (2) prompt

13

cigarette manufacturers to develop less hazardous

cigarettes.

Federal Trade Commission, Report to Congress Pursuant to the

Federal Cigarette Labeling and Advertising Act 17 (June 30,

1968) [hereinafter /968 Report to Congress] (J.A. 15).

D. The FTC Requires Disclosure of Tar and Nicotine

Yields

The FTC’s 1966 policy reversal was only the first-step

taken by the FTC to help inform consumers about machine-

measured tar and nicotine yields of cigarettes. Soon after,

the FTC took steps to require manufacturers to include tar

and nicotine yield disclosures in all cigarette advertising.

Furthermore, the FTC determined that it would authorize and

permit other representations of tar and nicotine—including

the very sort of product descriptors challenged by Petitioners

in this action (for example, “low tar” and “light”)}—so long

as such representations and advertising claims were

substantiated by FTC Method test results.

On August 8, 1970, the FTC formally proposed a Trade

Regulation Rule requiring cigarette manufacturers to

“disclose, clearly and prominently, in all advertising the tar

and nicotine content of the advertised variety or varieties [of

cigarettes] . . . based on the most recently published Federal

Trade Commission test results.” Advertising of Cigarettes:

Notice of Public Hearing and Opportunity To Submit Data,

Views, or Arguments Regarding Proposed Trade Regulation

Rule, 35 Fed. Reg. 12671, 12671 (Aug. 8, 1970) (J.A. 135).

The FTC explained that such disclosures were necessary to

encourage “greater interest in obtaining a low tar and

nicotine cigarette” and to facilitate “competition among the

cigarette companies to meet that interest.” Federal Trade

Commission, Report to Congress Pursuant to the Public

Health Cigarette Smoking Act 15 (Dec. 31, 1970) —

[hereinafter 1970 Report to Congress}.

Congress and the FTC recognized, however, that it would

be preferable to avoid the attendant costs and delays of

14

notice-and-comment rulemaking. During his confirmation

hearings, FTC Chairman-designate Kirkpatrick was asked

about the possibility of pursuing an industry-wide agreement

as an alternative:

Senator Magnuson: I wanted to ask you if [the

proposed Trade Regulation Rule on tar and nicotine

listing in advertising] can be done by voluntary

agreement, without the need of long, drawn out

litigation or further legislation, would that be better

than the rule?

Kirkpatrick: In my judgment; yes, sir.

Senator Magnuson: [I]t seems to me if there could be

achieved a voluntary agreement on this tar and

nicotine, which this committee has long pursued, or at

least we have been talking about it, that that might be

the better arrangement.

Kirkpatrick: It would be a highly desirable

arrangement, sir; indeed, yes.

Nomination—1970: Hearing Before the S. Comm. on Commerce

on Nomination of Miles W. Kirkpatrick, To Be Chairman of the

Federal Trade Commission, 91st Cong. 172 (1970) (J.A. 140-

41).

Accordingly—as it did a decade earlier in successfully

ending the tar derby —the FTC took steps to prompt cigarette

manufacturers to comply “voluntarily” with the FTC’s

desired requirements. With the proposed trade regulation

rule looming, the Commission directed participants in the

tobacco industry to submit a plan describing how they would

agree to disclose tar and nicotine yields in cigarette

advertising. See FTC Directs Tobacco Industry to Submit

Specifics on Disclosing Tar and Nicotine Content, Federal

Trade Commission News (Oct. 1, 1970) (J.A. 145). The

Commission subjected the initial industry proposal to a

period of public comment, and Commission staff ultimately

15

recommended rejecting the proposal and threatened to

continue the rulemaking process unless a number of changes

were made. See Correspondence from Allen F. Brauninger,

Attorney in FTC Bureau of Consumer Protection, to

Commission (Nov. 9, 1970) (J.A. 148-58); Correspondence

from FTC Chairman Miles W. Kirkpatrick to Commission

(Nov. 24, 1970) (J.A. 159). The cigarette companies made

concessions, and, on December 22, 1970, after the agreement

had been revised to the FTC’s exact requirements, the FTC

voted to accept ihe agreement (the “1970 Agreement”),

suspend the rulemaking proceeding indefinitely, and thereby

“afford the tobacco industry an opportunity to implement the

letter and the spirit of the amended plan.” Correspondence

from Allen F. Brauninger, Attorney in FTC Bureau of

Consumer Protection, to Commission (Dec. 21, 1970)

{hereinafter Brauninger Dec. 21, 1970 Correspondence] (J.A.

160-93); Correspondence from Joseph W. Shea, Secretary, to

General Counsel, Director of Bureau of Consumer

Protection, Director of Public Information, and Legal and

Public Records (Dec. 22, 1970).

The 1970 Agreement requires that tar and nicotine yield

measurements be disclosed in non-permanent cigarette

advertising with the legend “av. per cigarette by FTC

method.” Brauninger Dec. 21, 1970 Correspondence (J.A.

168). The FTC characterized its exaction of the agreement

as “Regulatory Activity” in its 1970 report to Congress, see

1970 Report to Congress, supra, at 17-20, and warned the

cigarette industry that it would reinitiate rulemaking if the

agreement was not effective in compelling tar and nicotine

yield disclosures. See Brauninger Dec. 21, 1970

Correspondence (J.A. 160-63); FTC Suspends Proceeding to

Require Disclosure of Tar and Nicotine Content in Cigarette

16

Advertising After Industry Amends Voluntary Plan, Federal

Trade Commission News (Dec. 23, 1970).°

E. The FTC Authorizes and Defines Descriptors Such

As “Low Tar” and “Light” for Use As Shorthand

References to Tar and Nicotine Yields

As the final prong of its regulatory program, the FTC

approved the use of descriptors, such as “low tar” and

“light,” to refer to specified yields of tar. The Commission

recognized that, to the extent the descriptors functioned

merely as shorthand, consumer-friendly references to FTC

Method results, their use supported the FTC’s dual goals of

providing consumers with information about tar and nicotine

yields and encouraging the manufacture of lower-yield

cigarettes.

When the FTC reversed its policy in March 1966 and

allowed the advertising of tar and nicotine yields, it was not

immediately clear to what extent the Commission would

permit representations beyond the numerical test results,

especially given the FTC’s statement that no “collateral”

representations would be permitted. See supra p. 10.

Ultimately, the FTC adopted and publicized an “enforcement

policy” providing that “representations relating to[] tar and

nicotine content of cigarettes” are permissible “where they

are shown to be accurate and fully substantiated by” FTC

Method results. FTC News-Release (Oct. 26, 1967). The

FTC repeated its position on this issue in its 1968 Report to

Congress. See 1968 Report to Congress, supra, at 18 (J.A.

15-16).

Consistent with this policy, and as a signal to the entire

industry, the FTC in 1969 launched a proceeding against a

* As detailed below, see infra pp. 25-26, the FTC has successfully

taken enforcement action against cigarette companies that tried to deviate

from the disclosures required by the 1970 Agreement.

17

cigarette manufacturer for stating that certain brands-were

“lower” in tar in the absence of substantiation by the FTC

Method. See Jn re Am. Brands, Inc., 79 F.T.C. 255 (1971)

(J.A. 203-08). In a 1971 decree resolving the case, the FTC

reaffirmed that it would permit the use of descriptive terms

such as “low,” “lower,” “reduced~ and “like qualifying

terms” only if their use was substantiated by the FTC

Method and was accompanied in advertising by a disclosure

of the underlying tar and nicotine numbers under the FTC

Method (as is required for all cigarette advertising by the

1970 agreement discussed above). /d. at 258-59 (J.A. 207-

08).° Years later, in another consent decree, the FTC again

reaffirmed that “express or implied representation|[s] . . . that

[a] brand is ‘low,’ ‘lower,’ or ‘lowest’ in tar and/or nicotine”

are not misleading or deceptive only if those representations

are substantiated by FTC Method results. /n re Am. Tobacco

Co., 119 F.T.C. 3, 11 (1995). Before entry of this order, the

FTC described this statement as providing “a limited ‘safe

harbor’ for advertising that complies with certain specific

requirements in its use of official tar and nicotine ratings.”

The American Tobacco Company; Proposed Consent

Agreement With Analysis To Aid Public Comment, 59 Fed.

Reg. 51980, 51982 (Oct. 13, 1994) (J.A. 222).’

° The FTC lacked the power to impose a corresponding disclosure

requirement with respect to descriptors on cigarette packages. See

Federal Cigarette Labeling and Advertising Act § S(a), 15 U.S.C.

§-1334(a) (“No statement relating to smoking and health, other than the

statement required by [this Act], shall be required on any cigarette

package.”).

” Consistent with the FTC’s policy for all consent decrees, 16 C.F.R.

§ 2.34, the American Brands and American Tobacco consent decrees

were published for notice and comment. See 59 Fed. Reg. 51980, FTC

Consent Order Forbids Unlimited ‘Low Tar’ Claims by Cigarette Maker,

FTC News (July 13, 1971). The FTC engages in notice and comment for

consent decrees because of its recognition that consent decrees provide

18

In its 1968 Report to Congress, the FTC also adopted the

convention, since then continuously followed both inside and

outside the industry, of using the descriptor “low tar” to refer

to 15 milligrams or less of tar yield, measured by the FTC

Method. See /968 Report to Congress, supra, at 18 (J.A.

15). The FTC has reiterated over the years that it “formally

defines a low ‘tar’ cigarette as one that has 15.0 or less

milligrams of ‘tar.”” Matthew L. Myers et al., Staff Report

on the Cigarette Advertising Investigation 1-50 n.175

(1981); see also Correspondence from FTC Chairman Janet

D. Steiger to Samuel Broder, Director of National Cancer

Institute 3 (July 20, 1994) (using the term “low-tar” to refer

to cigarettes with less than 15 milligrams of tar).* Other

government agencies have recognized these definitions. See,

e.g., Regulations Restricting the Sale and Distribution of

Cigarettes and Smokeless Tobacco to Protect Children and

Adolescents, 61 Fed. Reg. 44396, 44952 (Aug. 28, 1996)

(noting that “[a]pproximately 80% of the cigarettes on the

market today are either low-tar (6 to 15 mg tar) or ultra-low-

tar (less than 6 mg tar)”). Additionally, the FTC treats the

descriptor “light” as synonymous with “low tar.” See, e.g.,

Cigarette Testing Request for Public Comment, 62 Fed. Reg.

48158, 48163 (Sept. 12, 1997).

industry-wide guidance as to the FTC’s regulatory policies. See FTC

Operating Manual ch. 6, §§ 11-.15.

* See also Federal Trade Commission, Report to Congress Pursuant to

the Cigarette Labeling and Advertising Act—For the Year 1979, at 11 n.8

(“‘low tar’ [is] define[d by the Commission] as 15.0 mg. or less tar”)

(J.A. 210); Federal Trade Commission, Report to Congress Pursuant to

the Cigarette Labeling and Advertising Act--For the Year 1980, at 18

n.11 (same) (J.A. 213); Ira Taylor Whitten, Brand Performance in the

Cigarette Industry and the Advantage to Early Entry, 1913-74, Staff

Report to the Federal Trade Commission 35 (June 1979) (referring to the

FTC’s “official definition of low-tar cigarettes (15 or less milligrams of

tar)”).

19

The FTC’s definitions of these descriptors are well-

understood in the public-health community. The 1981

Surgeon General Report, for example, stated that “[l]ower

‘tar’ cigarettes conventionally have been defined as yielding

15 mg of ‘tar’ or less per cigarette.” U.S. Department of

Health and Human Services, The Health Consequences of

Smoking: The Changing Cigarette, A Report of the Surgeon

General 23 (1981). Similarly, the National Cancer Institute

has explained:

In the United States, cigarette brands yielding

approximately 1-5 or 6 mg tar by [the FTC] method are

generally called ‘Ultra-Light’; brands yielding between

approximately 6 or 7-15 mg tar are called ‘Light’; and

brands yielding more than 15 mg tar are called

‘Regular’ or ‘Full Flavor.’ By convention, cigarettes

yielding 15 mg tar by the FTC method are called ‘low

tar.”

Lynn T. Kozlowski ef al., Cigarette Design, in National Cancer

Institute, Smoking and Tobacco Control Monograph 13: Risks

Associated with Smoking Cigarettes with Low Machine-

Measured Yields of Tar and Nicotine 13 (2001), available at

http://cancercontrol.cancer.gov/terb/monographs/ 1 3/ (visited

March 28, 2007).

F. The FTC Maintains Its Policies Despite Awareness of

Their Limitations

From the beginning of its testing program, the FTC was

aware that while the FTC Method accurately measured the

comparative tar and nicotine yields among different brands

of cigarettes when smoked under the identical circumstances

simulated by the machines, it was of limited use in

measuring or predicting actual tar and nicotine intake by

individual smokers... The Commission explained to the

public at the time it began testing that:

[t]he [FTC] Method does not and cannot measure the[]

many variations in human smoking habits. It does not

measure tar or nicotine in the smoke generated while

20

the cigarette is not being puffed. It does not measure

all of the tar and nicotine in any cigarette, but only that

in the smoke drawn in the standardized machine

smoking according to the prescribed method. Thus, the

purpose of testing is not to determine the amount of tar

and nicotine inhaled by any human smoker, but rather

to determine the amount of tar and nicotine generated

when a cigarette is smoked by [a] machine in

accordance with the prescribed method.

Testing Release, supra, at 2.

Nor did the adoption of the FTC Method end the

Commission’s investigation of its method’s limitations.

Since it began testing in 1967, the FTC has repeatedly

considered whether it should abandon or modify its

regulatory program in response to the very theories and

allegations asserted by Petitioners in this case. On each

occasion, the FTC has declined to change its program, and

use of the FTC Method is still required today. See, e.g.,

Cigarette Testing, Tar and Nicotine Content Results, 42 Fed.

Reg. 21155, 21155 (Apr. 25, 1977) (noting questions about

method but declining to take further action) (J.A. 127-28);

Commission Determination re _ Barclay Cigarettes;

Amendment of Report of “Tar,” Nicotine, and Carbon

Monoxide Content of 208 Varieties of Cigarettes; Request

for Comment on Possible Testing Modifications, 48 Fed.

Reg. 15953, 15954-55 (Apr. 13, 1983) (seeking public

comment on implications for testing of “compensatory

smoking behavior”) (J.A. 129-34); Cigarette Advertising and

Other Promotional Practices, Announcement of Decision,

43 Fed. Reg. 11856, 11856-57 (Mar. 22, 1978) (recognizing

that smokers may “compensate” for low-tar cigarettes by

covering ventilation holes and thereby increasing the amount

of tar inhaled, but nonetheless deciding to retain FTC

Method testing).

In declining to change its regulatory program

notwithstanding evidence of smoker compensation, the FTC

21

relied on epidemiological studies showing that persons who

smoked cigarettes that measured lower in tar under the FTC

Method were less likely to get smoking-related diseases than

were persons who smoked cigarettes that measured higher in

tar under the FTC Method. See Peeler, supra, at 7. As the

FTC’s Bureau of Consumer Protection subsequently

explained:

|A]bandoning the testing system without instituting

another method of tar testing would have been

premature because then-current epidemiological

evidence suggested that there had been a reduction in

lung cancer deaths that might be attributable to

declines in average tar levels that had occurred since

the 1950's.

Id. In fact, at the time, FTC staff specifically opposed

abandoning the FTC’s program because of fears that without the

program, “cigarettes will gradually become higher in tar and

nicotine,” which “[e]vidence clearly indicates . . . would be

harmful.” Undated Memorandum from Judith P. Wilkenfeld &

Susan Cohn to Commission re “Modification of FTC Cigarette

Testing Methodology,” at 42 n.41.

The FTC also specifically investigated the use of

descriptors in view of allegations similar to those made by

Petitioners here. For example, in 1992, at the behest of a

consumer group, the FTC launched an investigation focused

specifically on whether the terms “light” and “low tar”

should be prohibited as deceptive. See Coalition on

Smoking OR Health, Petition Before the Federal Trade

Commission (1992). The FTC decided to continue to permit

the use of these descriptors, as substantiated by FTC Method

results. See Correspondence from John D. Graubert, FTC's

Deputy General Counsel, to Lucia M. Valente, Counsel to

New York Attorney General (Sept. 10, 1998). Similarly, in

1998, Senator Lautenberg requested that the FTC “begin a

proceeding to suspend the right of tobacco companies to

market any cigarettes as ‘Light’ or ‘Ultra Light’ or list

22

supposed nicotine and ‘tar’ ratings on their products and

advertisements until and unless an accurate system of

measuring the health implications of cigarettes is

established.” Correspondence from Senator Frank R.

Lautenberg to FTC Chairman Robert Pitofsky (Nov. 24,

1998). The FTC again declined the request, explaining that

the request “raised issues currently under review at the

Commission.” Federal Trade Commission, F7C Statement

in Response to Senator Frank Lautenberg’s Letter, FTC

News (Nov. 24, 1998).

Il. CIGARETTE COMPANIES ARE REQUIRED TO

COMPLY WITH THE FTC’S REGULATORY

DIRECTIVES

As detailed above, in advertising and marketing light

cigarettes, companies are subject to specific and detailed

federal regulation imposed by the FTC to further the

agency’s considered regulatory policies. Specifically, the

FTC requires cigarette companies (i) to subject all brands to

testing for tar and nicotine yields pursuant to the FTC

Method, (ii) to disclose on all cigarette advertising the tar

and nicotine yields as measured by the FTC Method, and

(iii) to use non-numeric descriptors such as “low-tar” and

“light” only as shorthand, consumer-friendly references to

specifically defined ranges of tar yield under the FTC

Method.

Petitioners and their amici contend, however, that these

regulatory directives are not compulsory because they are

embodied in informal agency statements, nominally

“voluntary” agreements among the major cigarette

manufacturers, and consent orders’ with individual

companies, rather than in a formal trade regulation rule. See

Pet. Br. at 39-48; Amicus Br. of Campaign for Tobacco-Free

Kids ef al. at 5-24. In taking the steps described above,

however, the FTC appropriately selected among the broad

array of regulatory tools in its arsenal to craft an effective

23

and efficient regulatory scheme that is no less compulsory

than more formal agency action.

1. The FTC’s decision to forego rulemaking in light of

its inefficiencies, see supra pp. 13-15, is a_ perfectly

appropriate means of pursuing the Commission’s regulatory

policies. Courts and commentators have long recognized

that federal agencies develop and communicate their policies

and directives by choosing among “the great variety of ways

in which the laws invest the Government’s administrative

arms with discretion, and with procedures for exercising it.”

United States v. Mead Corp., 533 U.S. 218, 236 (2001).’

The FTC is the classic example of an agency that has “a

broad range of flexible enforcement powers available for

use, as deemed necessary in [its] sound discretion and expert

judgment.” Holloway v. Bristol-Myers Corp., 485 F.2d 986,

997 (D.C. Cir. 1973); see also Gen. Motors Corp. v. Abrams,

897 F.2d 34, 39 (2d Cir. 1990) (“Congress has authorized the

FTC to exercise its supervisory powers under the [FTC] Act

in a variety of ways.”). As detailed above, the FTC has a

long history of expertise in using informal means—including

advisory opinions, industry guides, agreements among major

industry participants, and exemplary enforcement actions—

to secure adherence to FTC policies. See supra pp. 6-7.

These informal tools, no less than notice-and-comment

* See also NLRB v. Bell Aerospace Co., 416 U.S. 267, 294 (1974)

(“adjudicated cases may and do .. . serve as vehicles for the formulation

of agency policies, which are applied and announced therein” (internal -

quotation marks omitted, ellipsis in original)); Im re Tak

Communications, Inc., 138 B.R. 568, 578 (W.D. Wis. 1992) (FCC policy

communicated through a series of denials of licensing applications),

aff'd, 985 F.2d 916 (7th Cir. 1993); Dowhal v. SmithKline Beecham

Consumer Healthcare, 88 P.3d 1, 10 (Cal. 2004) (FDA policy established

through informal letter); Kenneth C. Davis, Administrative Law &

Government 283 (2d ed. 1975); Charles H. Koch, Jr., Administrative Law

& Practice § 5.43 (1997).

24

rulemaking, constitute enforcement of federal law by the

Commission. Indeed, this Court has held that the FTC’s

consistent administrative “construction [of a statute that it

administers] is entitled to great weight even thcugh it was

applied in cases settled by consent rather than in litigation.”

FTC v. Mandel Bros., Inc., 359 U.S. 385, 391 (1959)

(internal citations omitted).’°

2. The FTC used just such a combination of formal

and informal tools in directing cigarette companies to test

and disclose tar and nicotine yields pursuant to the FTC

Method. Petitioners’ characterization of the testing” and

disclosure as mere voluntarily adherence to an agreement to

which the FTC is not a party ignores the context and effect

of the 1970 Agreement and the steps that FTC has taken to

ensure compliance with the agreement.

The 1970 Agreement arose against the backdrop of a

proposed FTC trade regulation rule that would have required

cigarette companies to disclosure tar and nicotine yields

measured pursuant to the FTC Method. See supra p. 13.

With the support of members of Congress, however, the FTC

hoped to avoid “long, drawn out litigation” by pursuing the

“highly desirable arrangement” of an agreement among the

major industry participants. See supra p. 14. The FTC had

recent experience with such an agreement, naving

successfully used the device to end the “tar derby” a decade

earlier. See supra pp. 9-10. The FTC thus used the threat of

rulemaking and enforcement action to effectively coerce the

cigarette companies to enter into the 1970 Agreement on the

FTC’s own terms. See supra pp. 14-16. That is why the

"© See also Alaska v. O'Neill Investigations, Inc., 609 P.2d 520, 529

(Alaska 1980) (FTC consent decrees constitute “administrative

interpretation|s]” with “precedential value”); Schubach v. Household Fin.

Corp., 376 N.E.2d 140, 141 (Mass. 1978) (FTC’s policy inferred from

complaints and cease and desist orders).

25

FTC characterized its acceptance of the agreement as

“Regulatory Activity.” 1970 Report to Congress, supra, at

17-20.

In addition to using the 1970 Agreement to mandate

testing and disclosure pursuant to the FTC Method, the

Commission put the cigarette industry on notice that it

intends to bring an enforcement action, for unfair and

deceptive practices, against any cigarette company that uses

a measurement method other than the FTC method, even if

that method yields higher tar and nicotine yields. See supra

pp. 11-12 (describing FTC’s 1967 News Release and its

1978 Advisory Opinion). Indeed, that the testing-and-

disclosure regime established by the 1970 Agreement

effectively binds the industry is exemplified by the FTC’s

1983 enforcement action against Brown & Williamson.

In that case, the FTC determined that a new Brown &

Williamson cigarette was designed in an unusual way to

register inaccurately low tar and nicotine yields during FTC

Method testing. See FTC v. Brown & Williamson Tobacco

Corp., 580 F. Supp. 981 (D.D.C. 1983), aff'd in part and

rev'd in part, 778 F.2d 35 (D.C. Cir. 1985). Brown &

Williamson rejected the FTC’s demand that it alter its

advertisements to state a higher estimated yield, instead

maintaining the lower figure and referencing its own

independent testing, rather than the FTC Method. Despite

conceding the “literal truth” of the company’s advertising

claim, 580 F. Supp. at 984, the FTC sought and obtained an

injunction barring use of that claim.

The D.C. Circuit upheld the district court’s injunction

without direct evidence of consumer confusion on the

ground that deviation from the FTC Method was “inherently

deceptive.” 778 F.2d at 41-42. Noting that “tar milligram

figures have significance only as comparative values,” the

court of appeals upheld the FTC’s and district court’s

conclusions that no disclaimer disclosing use of a method

other than the FTC Method could possibly eliminate the

26

deception that would necessarily arise from the use of

another testing method. /d. at 42-43. The court based this

conclusion on the district court’s findings that “after 12 years

of exposure to FTC ratings, consumers have become

‘habituated’ to the tar and nicotine ‘legends’ in cigarette

advertisements” and would likely not understand than any

disclaimer “signified a departure from the long-utilized FTC

Report numerical ratings.” /d. at 43.

The D.C. Circuit’s holding thus endorsed the FTC’s view

that departure from the system of testing and disclosure

established by the 1970 Agreement constitutes a violation of

federal law."' In light of this ruling and the FTC’s clear

statement of its enforcement position, it ignores reality to

contend that the FTC’s testing-and-disclosure regime is

anything but compulsory.

3. Petitioners also point to the absence of any

applicable Trade Regulation Rule in support of their

contention that the FTC does not control the cigarette

companies’ use of descriptors such as “light” and “low-tar.”

This argument, too, relies on too narrow a view of the FTC’s

regulatory strategies. The FTC made a policy determination

that it was in the interests of consumers for cigarette

'' The D.C. Circuit did narrow the scope of the district court’s

injunction, which had permanently enjoined any and all such future

departures, but only after envisioning a theoretical scenario in which one

cigarette company conducted independent testing of all competing brands

and prominently displayed the comparative results in its advertisements.

778 F.2d at 45. Because such a hypothetical advertisement might not be

inherently deceptive, the D.C. Circuit reasoned, the FTC would, in the

absence of a specific Trade Regulation Rule, retain the burden of proving

deceptiveness under the FTC Act. /d The court’s refusal to enjoin this

highly unrealistic theoretical deviation from the FTC’s testing-and-

disclosure regime was based on First Amendment concerns about an

“impermissibly broad prior restraint,” id at 43, and is fully consistent

with the court’s broader endorsement of the FTC’s position.

27

companies to compete on the basis of such descriptors; it

prompted their use by announcing to the industry that

descriptors were permissible in advertising so long as they

were substantiated by FTC Method results; and it repeatedly

defined the descriptors so that their usage in the industry—

by cigarette companies, public health professionals and

government entities alike—became standardized. See supra

pp. 16-19.

The fact of this FTC policy determination is further

confirmed by the action the FTC brought in 1969 against

American Brands, Inc. for claiming that certain of its

cigarette brands were “lower” in tar when the claim was not

substantiated by the FTC Method. See supra pp. 16-17.

This action put the industry on notice that any use of

descriptors unsupported by comparative testing using the

FTC Method would be viewed as an unfair and deceptive

trade practice.

4. Petitioners contend that the consent orders that

resulted from the FTC enforcement actions against Brown &

Williamson and American Brands do not constitute

regulatory direction because they are not by their terms

binding on other industry participants. See Pet. Br. at 44-48.

While it is technically true that a consent order runs against

the defendant only—the FTC could not, for example, seek to

hold Respondents in contempt for violating the American

Brands consent order—it is also beside the point. The FTC’s

position that a practice violates the Act “is entitled to great

weight even though it was applied in cases settled by

consent.” Mandel Bros., 359 U.S. at 391. Moreover, the

consent orders signal the FTC’s enforcement policies to the

industry, letting other manufacturers know what practices

will result in an enforcement action by the Commission, and

providing them with the opportunity to adjust their behevier

accordingly.

In 1987, then-chairman of the FTC, Daniel Oliver,

testified before Congress that “it is more efficient,” and

28

therefore “serves the consumers’ interest better,” for the FTC

“to bring a single case against the first offender in order to

stop the practice” without the need for rulemaking. FTC

Nicotine Program: Hearing Before the Subcomm. on

Transp., Tourism, and Hazardous Materials of the House

Comm. on Energy and Commerce, \00th Cong. 17-18 (May

7, 1987) (testimony of FTC Chairman Daniel Oliver).

Chairman Oliver explained that, in the case of the cigarette

industry:

[I]t is entirely reasonable to suppose that one action

against one cigarette company would have an effect on

all of them, and that you would not have to make a

rule. You would do the same thing much faster

bringing a single case; that would benefit the

consumers. So my job is deploying resources, and |

would much prefer to bring a case, which can be done

in a tenth of the time that making a rule can be done. |

think that’s a more effective way to deploy law

enforcement resources for the benefit of the consumer.

Id at 19; see also, e.g, Roscoe B. Starek, Ill, Prosecutorial

Discretion: A View From The Federal Trade Commission,

Regulation, Fall 1997, at 24, 25-26, available at http://

www.cato.org/pubs/regulation/reg20n4d.pdf (visited March 28,

2007) (FTC commissioner explaining that the FTC “interprets

and implements the FTC Act primarily through the prosecution

and adjudication of individual cases”).

5. Finally, the degree of the FTC’s regulatory control

over the marketing of light cigarettes is illustrated by the

numerous lower-court decisions recognizing the legal effect

of the Commission’s acts. Specifically, several courts have

concluded that the FTC’s actual, detailed oversight in this

area precludes efforts to attack the use of descriptors under

state law. For example, in Brown v. Brown & Williamson

Tobacco Corp., No. 06-30130, 2007 WL 470406 (Sth Cir.

Feb. 14, 2007), the Fifth Circuit held that “the use of FTC-

approved descriptors {such as ‘lights’ and ‘lowered tar and

29

nicotine’] cannot constitute fraud.” Jd at *6. The Court

explained that “[c]Jigarettes labeled as ‘light’ and ‘low-tar’ do

deliver less tar and nicotine as measured by the only

government-sanctioned methodology for their measurement.

In fact, [cigarette m]janufacturers are essentially forbidden

from making any representations as to the tar an sicotine

levels in their marketing about tar that are not based on the

FTC method.” /d The panel thus concluded that “[t}he

terms ‘light’ and ‘lowered tar and nicotine’ cannot, therefore,

be inherently deceptive or untrue.” /d Moreover, it

concluded, “[{t]o hold that the [mJanufacturers’ use of the

FTC-approved terms. relating the FTC-approved

measurement system constitutes affirmative misstatement

under State law would directly undermine the entire purpose

of the standardized federal labeling system and most courts

have been reluctant to find liability on this basis.” /d.

Another court recently observed that “the FTC could, and

did, specifically authorize all United States tobacco

companies to utilize the words ‘low,’ ‘lower,’ ‘reduced’ or

like qualifying terms, such as ‘light, so long as the

descriptive terms are accompanied by a clear and

conspicuous disclosure of the ‘tar’ and nicotine content in

milligrams of the smoke produced by the advertised

cigarette,” and held that this precluded the imposition of

liability for such conduct under a state consumer protection

statute. Price v. Philip Morris, Inc., 848 N.E.2d 1, 50 (Il.

2005), cert. denied, 127 S. Ct. 685 (2006). Several other

decisions are in accord. See, e.g., Prado Alvarez v. RJ.

Reynolds Tobacco Co., 313 F. Supp. 2d 61, 75 (D.P.R. 2004)

(holding that challenges to descriptors “conflict with the

FTC’s regulation of the area”), aff'd, 405 F.3d 36 (Ist Cir.

2005); Good v. Altria Group, Inc., 436 F. Supp. 2d 132, 138

(D. Me. 2006) (the FTC has determined that “descriptors are

not forbidden and are not unfair or deceptive (at least if not

unsubstantiated)”); Pearson v. Philip Morris, Inc., No. 02-11

2006 WL 663004, at *] (Or. Cir. Ct. Feb. 23, 2006) (“The

30

FTC also specifies the machine-measured yields a cigarette

can give and still qualify for a description as ‘low tar.””).

CONCLUSION

For the reasons set forth above, in testing, marketing and

selling light cigarettes, Respondents are subject to

comprehensive and detailed federal regulatory directives. As

a result, if the Court concludes that the Eighth Circuit

applied the correct legal standard for private-party removal

under 28 U.S.C. § 1442(a)(1), it should affirm the decision

below.

Respectfully submitted,

MICHAEL S. FRIED

Counsel of Record

CHRISTIAN G. VERGONIS

JONES DAY

51 Louisiana Avenue, N.W.

Washington, DC 20001

(202) 879-3939

March 30, 2007