Charles Frank

“Big Tobacco” may be taking a major hit with respect to future revenues as a result of the First Circuit’s recent decision in National Ass’n of Tobacco Outlets, Inc. v. City of Providence.[1]  On appeal from the United States District Court for the District of Rhode Island, the Court upheld two City of Providence (“City”) ordinances that preclude retailers from (1) offering and/or accepting coupons for cigarettes and tobacco products, (2) selling discounted multi-pack cigarettes and tobacco products, and (3) vending flavored tobacco products other than cigarettes.[2]  The Providence City Council’s intent in enacting these laws was to combat statistically significant youth tobacco use within the City’s limits.[3]

The City ordinances were challenged by influential lobbying arms and trade associations of the tobacco industry, in addition to many of the major tobacco corporations themselves, such as R.J. Reynolds and Philip Morris.  Collectively, these plaintiffs claimed that the ordinances not only infringed upon First Amendment commercial speech protections, but were also preempted by federal and state law.[4]

While “pricing information” has been held to be protected speech[5], the Court distinguished coupons and multi-pack discounting as mere “pricing practices” which could not fall under the ambit of the First Amendment.[6]  In effect, the City was not restricting pricing information such as retail cost, but rather practices like coupons for free or discounted cigarettes and buy-two-get-one-free deals.  The Court also rejected the plaintiffs’ argument that the ordinances should receive heightened scrutiny, in that they were not aimed at “‘inherently expressive’ conduct.”[7]

With respect to the federal preemption claims, the Court found that the ordinances fell under an exception to the Federal Cigarette Advertising and Labeling Act because they were “content neutral” and concerned a “manner” of advertising or promoting cigarettes, two necessary and dispositive elements for preemption to not apply under the Act.[8]  Additionally, the Family Smoking Prevention and Tobacco Control Act provides an exception to preemption where a state or local law relates to the sale of tobacco,[9] which the Court found to be consistent with the City’s flavored tobacco ordinance.[10]  State preemption arguments were refuted as well because the Court reasoned, inter alia, that the State did not satisfy the necessary condition of “intent to occupy the field of tobacco price regulation.”[11]

This decision could have far-reaching implications for the tobacco industry.  As an amicus curiae pointed out, the City of Providence was the “first (and only) jurisdiction to pass a pricing law of the type at issue in this case.”[12]  Should other cities or states choose to pass similar ordinances and if courts choose to pay heed to this binding or persuasive authority, tobacco companies may see a significant reduction in their current $80 billion in annual sales of tobacco.[13]  The tobacco industry’s market share is already being threatened by the rise in popularity of electronic cigarette brands.  In fact, Bloomberg Industries predicts that e-cigarette sales will surpass regular cigarette sales by 2047.[14]  In response, many Big Tobacco corporations have already begun to enter into the e-cigarette market.[15]  Interestingly, the City’s ban on flavored tobacco products could affect that market as well, considering that the nicotine-infused liquid used in e-cigarettes, if flavored, could be considered a “component part” of a tobacco product, thus within the scope of the law.[16]

Price discounts, such as the coupons and multi-pack discounts at issue in National Ass’n of Tobacco Outlets, Inc., account for more than 86% of tobacco companies’ advertising and promotional budgets.[17]  In 2011, tobacco companies spent over $7 billion on coupons and price discounts.[18]  By directly attacking these expenditures, the City ordinances have the potential to succeed in their intent to quell youth smoking regionally.  Furthermore, other state or local jurisdictions within the First Circuit may feel as if they have a carte blanche to pass legislation consistent with this opinion, posing a major threat to Big Tobacco revenues.  If jurisdictions outside the First Circuit follow suit, Big Tobacco may find itself tied up in costly and conceivably unsuccessful litigation.