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Federal Trade Commission Chairman Robert Pitofsky testified today before the Senate Commerce Committee and presented Commission testimony that addresses advertising, marketing and antitrust issues in the proposed global tobacco settlement. “The FTC strongly supports the goal of reducing tobacco use by minors,” the Commission testimony states. The testimony points out that because tobacco products pose significant health risks and most of those who use tobacco products begin when they are under 18, “one effective means of reducing the death and disease caused by tobacco is to prevent tobacco use by minors.”

The chairman said, “My own view is that Congress should enact restrictions on the marketing of tobacco products to minors and such restrictions, if carefully tailored to address the legitimate and compelling interest in curtailing minors’ demand for tobacco products, will pass constitutional review.” Pitofsky also stated that he believed that there are certain benefits to enacting the advertising and marketing restrictions as outlined in the global tobacco settlement but if agreement cannot be reached on these provisions, then Congress should act separately to enact a set of carefully tailored restrictions that would, he believes, further the goals of reducing cigarette use by young people.

Pitofsky presented the Committee with an overview of the Commission’s jurisdiction and current responsibilities for tobacco product regulation. Noting that the FTC has a long history of involvement with tobacco regulation, Pitofsky pointed out that in 1964 the Commission concluded that in light of the mounting evidence of serious health risks caused by cigarette smoking, the failure of cigarette manufacturers to warn consumers of such a danger violated federal law. “As a result,” the Commission testimony states, “the Commission decided to require tobacco companies to inform the public about the dangers of smoking.”

The testimony outlines the Commission’s jurisdiction for tobacco product regulation that stems from its enforcement of Section 5 of the FTC Act, which prohibits unfair methods of competition and unfair or deceptive acts or practices affecting commerce. One of the FTC’s major responsibilities is the regulation of national advertising, including the advertising and promotion of cigarettes, smokeless tobacco, and other tobacco products.

“The FTC’s tobacco advertising program is an important part of the agency’s consumer protection mission,” the testimony notes. It outlines a number of actions such as the case against R.J. Reynolds Tobacco Co. alleging that the company’s Joe Camel advertising campaign induced many young people to begin or continue to smoke or increased the risk that they would do so and, as a result caused, or was likely to cause, significant injury to their health and safety.

The Commission’s testimony points out “that any effort to restrict tobacco advertising to young people must be sufficiently broad to be effective.” The chairman explained that FTC reports on advertising and promotional expenditures of tobacco companies have shown how these dollars shift as public concerns shifts. “[A]fter the cigarette manufacturers were prohibited from advertising on television and radio ... they put tens of millions of dollars into print advertising to sell their products,” the testimony states. Recently they have shifted money away from traditional advertising and spent increasing amounts on sponsorships and so-called “trinkets and trash” -- items some believe are very attractive to young people, the chairman noted. “To prevent simply another such shift in marketing strategy, a set of advertising and marketing restrictions that addresses the many different ways in which tobacco may be marketed and advertised to minors is necessary,” the testimony states.

The testimony also refers to the Commission’s belief that the agency “can make a significant contribution to any post-settlement regulation of tobacco advertising.” It states that a “provision expressly preserving FTC’s authority ensures that the Commission will be able to continue to bring the kinds of cases it has always brought in the tobacco area. It also enables the FTC to address unfair or deceptive acts and practices in the advertising or marketing of tobacco products that might not otherwise be covered by the settlement, or for which the FTC Act provides better or more flexible enforcement tools,” the Commission said.

Pitofsky said that the FTC also endorses the dual federal-state enforcement scheme contemplated by the proposed global settlement. The testimony notes that “we have carried out other Congressionally-mandated responsibilities in close cooperation with other federal agencies and with state authorities. We would take the same approach with any additional legislative authority.”

The Commission’s testimony also notes that the Commission has many years of experience examining the competitive structure of the tobacco industry and in response to a request from Congress prepared an analysis of the potential impact of the proposed tobacco settlement on competition, prices, industry profits and government revenues. Pitofsky referred to the Commission’s testimony of October 29 before the Senate Subcommittee on Antitrust, Business Rights and Competition when the Commission addressed the tobacco industry’s request for an antitrust exemption for activities relating to the settlement.

Pitofsky warned that any antitrust immunity that is “unnecessary, imprecise or excessively broad can enable firms to engage in collusive arrangements that could harm consumers.” He also noted that there are few industries or competitive situations in which the antitrust laws do not apply.

In referring to the global settlement, the chairman pointed out that the “fundamental issue is whether the implementation of any terms of the settlement ... would require collaborative conduct on the part of the tobacco product manufacturers, or whether unilateral compliance with such provisions would suffice.” If Congress determines that collaborative conduct is reasonably needed for any legitimate purpose, “any antitrust exemption should be narrowly drawn to cover only that conduct,” he said.

The chairman outlined four situations posited by the industry and analyzed whether any of them warrants a grant of immunity: (1) collaboration on the pass-through of annual payment amounts, (2) collaboration on marketing and advertising restrictions, (3) joint action to address problems with uncooperative retailers, and (4) a catch-all provision for future agreements.

In sum, today’s testimony states that “the Commission believes that the industry has not established a need for any antitrust exemption in order to implement the proposed settlement.”

The Commission vote to approve the testimony was 4-0, with Commissioner Mary L. Azcuenaga not participating.

Copies of the testimony, the Commission testimony of October 29, 1997, and the September 1997 staff report, titled “Competition and the Financial Impact of the Proposed Tobacco Industry Settlement,” are available from the FTC’s web site at: and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-3128; TTD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. 984 301)

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