The Illinois Supreme Court 12/15/05 threw out a $10.1 billion judgment against Philip Morris in a consumer class action. This claim alleged fraud in the advertising of "light" cigarettes. The Court ruled 4 to 2 that § 10(b)(1) of the Illinois Consumer Fraud Act barred the suit.That section provides that the fraud statute does not apply to company actions that are specifically authorized by laws administered by state or federal officials. However, merely complying with federal labeling and advertising rules, according to the court, is not enough to trigger this exemption. Instead, the court found that the Federal Trade Commission has specifically authorized the use of the terms “lights” and “lowered tar and nicotine” in labeling and advertising. The only condition in the FTC’s authorization was that the descriptive terms be accompanied by a clear and conspicuous disclosure of the tar and nicotine content.
The history of low tar and nicotine cigarette regulation is a classic example of regulation by litigation. The court described how the FCC communicated to the cigarette industry the circumstances under which they may use “low tar” descriptors in their advertising and packaging. The FCC did this by bringing an enforcement action against one company, then negotiating a consent decree that announced to the entire industry what behavior is and is not authorized. This “regulation by consent decree” constitutes specific federal authorization sufficient to fall within Illinois’ exemption from fraud liability.
There were a number of other issues in the case that the court declined to address, except to say that they raised serious issues about which court had grave reservations. Justice Karmeier wrote that the case should be dismissed because the plaintiffs failed to show that they sustained any actual damages.
The NAM and the Illinois Manufacturers' Association urged the court in 2003 to overturn the judgment. Our brief focused on the lack of evidence that any consumer suffered economic damages given that cigarette prices were unaffected once the company changed its product advertisements, and the excessive $3 billion punitive damages award that was not proportional to the degree of reprehensibility shown, out of line with comparable state laws and improper in that it took into account the wealth of the defendant