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Tobacco Cases Expose Tension Between Antitrust and Public Health

A recent decision of the European Court of Justice (“ECJ”) regarding the sale of tobacco products highlights a long-standing tension between two sets of laws: antitrust/competition laws, which seek to keep products affordable and accessible to consumers, and consumer protection and public health laws, which can seek to steer consumers away from products that pose a risk to public health by making them less accessible.

In the case of tobacco, raising prices to discourage consumption is one method of influencing consumers to avoid smoking or other tobacco use. Indeed, the World Health Organization has advised that “increasing the retail price of tobacco products. . . is the single most effective way to decrease consumption.” Attempts to raise such prices, however, can run counter to the goals of antitrust law, leaving anti-tobacco measures vulnerable to antitrust challenge.

The ECJ ruled last week on just such a challenge. In an advisory opinion, it found that a Belgian public health measure precluding the sale of discounted tobacco products does not impede “healthy competition,“ bolstering the Belgian government’s position in a dispute in Belgian court with supermarket chain Colruyt Group over a law prohibiting any act “directly or indirectly aimed at promoting sales” of tobacco products. The opinion comes after the same court sustained several challenges to anti-tobacco public health measures in the European Union (“EU”) based on competitive principles.

This most recent case arose when Colruyt Group ran afoul of the law by selling tobacco products for less than the amount indicated on the revenue stamps affixed by manufacturers or importers, which function as a suggested retail price. In particular, the supermarket chain had offered a discount to members of youth groups. Belgian authorities maintained that these actions unlawfully promoted tobacco products. A Belgian criminal court agreed. Colruyt Group argued on appeal that the law was incompatible with “the EU rules on free movement of goods and free competition” and, specifically, with provisions of an EU directive on tobacco and the Treaty on the Functioning of the EU. The Belgian appeals court requested non-binding guidance from the ECJ on the competition questions presented.

In finding the law did not implicate competition concerns, the ECJ focused on the fact that it still allows for competition between manufacturers, noting that it was important that “the revenue stamp price continues to be freely determined by manufacturers or importers, who remain at liberty to exploit any competitive advantage they might have over their competitors.” The ECJ also noted that the law “applies without distinction to all tobacco products locally produced or imported into Belgium” and “does not appear to put any additional burden on imported products or make their access to the Belgian market more difficult.” The ECJ was therefore able to find a middle ground in which competition was protected, but some of the public health benefits were preserved.

In previous cases, however, the ECJ declared Greek and French measures for setting minimum tobacco prices anticompetitive. The Greek measure set a minimum price for tobacco products by ministerial decree; the French by reference to the average price of all tobacco products on the market. In both cases, the ECJ found that the laws were anticompetitive (and thus prohibited) because they interfered with manufacturers’ ability to set a maximum retail price.

Tensions between antitrust and public health are not confined to the EU. For example, the Federal Trade Commission (“FTC”) last summer approved the $25 billion merger of tobacco companies Reynolds American and Lorillard. At the time, Reynolds, Lorillard, and Philip Morris USA accounted for about 90 percent of all cigarette sales in the United States. In response to the FTC’s charge that the merger would be anticompetitive, Reynolds and Lorillard entered into a consent agreement to divest some of their cigarette brands to Imperial Tobacco Group. The FTC praised the consent agreement, pointing to the resulting “greater opportunity and incentive to promote and grow sales of the divested brands,” their increased “visibility at the point of sale,” and the likelihood that Imperial would reduce prices and focus on promotion of new products. In short, the agreement was good because Imperial would be able to sell more cigarettes for less. The FTC did not address any impact on public health.

Some commentators have suggested that the United States adopt “a carefully tailored antitrust exemption” for the tobacco industry. See Brian Dean Abramson, Let Them Eat Smoke: The Case for Exempting the Tobacco Industry from Antitrust, 6 Cardozo Pub. L. Pol'y & Ethics J. 345, 346 (2008). Such an exemption would lead to increased cigarette prices, decreased consumption, and better health, the argument goes. These health gains would, in turn, translate into monetary savings on health-care expenses. Other commentators maintain that the FTC “should be directed to issue decisions that promote competition only when that is consistent with protecting and promoting the public health.”

As antitrust principles and public health policies continue to come into conflict on both sides of the Atlantic, it is possible that these ideas may gain increasing traction.