DATE: Saturday, April 26, 1997              TAG: 9704260343

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

SOURCE: STAFF AND WIRE REPORT 

DATELINE: GREENSBORO                        LENGTH:  134 lines

RULING STUNS TOBACCO INDUSTRY REGULATION, CURBS ON PRODUCTS ALLOWED.

In a staggering defeat for the already beleaguered tobacco industry, a federal judge ruled Friday that the government can regulate cigarettes and smokeless tobacco. The ruling was all the more surprising because it came from a court in North Carolina, the nation's biggest tobacco-growing state.

The decision allows the FDA to implement its planned rules on labeling of cigarettes and new controls on young people's access to tobacco products. But the industry has long feared that if the FDA has this regulatory authority, it could eventually take more-aggressive measures, such as regulating the amount of nicotine in cigarettes.

Still, the judge held that the Food and Drug Administration could not restrict tobacco advertising and promotion, which will prevent limits on Marlboro Man billboards and Joe Camel magazine ads from taking effect in August, as scheduled.

Although neither side got everything it wanted, the tobacco industry clearly suffered a big defeat.

The companies had sought a friendly hearing in North Carolina. Instead, U.S. District Judge William Osteen ruled against them on the most fundamental issue at stake: whether the FDA can regulate tobacco products as drug-delivery devices.

The ruling was all the more astonishing because the judge himself had once worked as a paid lobbyist for tobacco growers.

The court ruling will likely be appealed all the way to the Supreme Court. But in the meantime, public health advocates and anti-smoking forces have gained more leverage in their negotiations with the tobacco industry over a possible multibillion-dollar settlement to a host of outstanding lawsuits.

``This is a historic and landmark day for the nation's health and children,'' said President Clinton, who gave the go-ahead last year for the FDA to act to reduce teen smoking. ``With this ruling, we can regulate tobacco products and protect our children from a lifetime of addiction.''

David Kessler, who initiated the move to regulate tobacco while he was head of the FDA, said, ``It's an enormous victory.''

On Wall Street, Allan Kaplan, an analyst who follows tobacco stocks for Merrill Lynch, called the judge's ruling a sizable blow to the industry.

``It was rather a surprise considering it came from Greensboro,'' he said. ``I don't think (the companies) expected a total dismissal of the case, but I don't think they expected the judge to come out so heavily in favor of the FDA.''

The stock of Richmond-based Philip Morris dropped about $2 a share Friday, losing about 5 percent of its value. RJR Nabisco, based in Winston-Salem, lost $2.75 per share, about 8.5 percent of the stock's value.

While cigarette manufacturers emphasized that Osteen made a split decision, Rep. Scotty Baesler, D-Ky., the lone tobacco farmer in Congress, conceded: ``When you say the FDA can regulate, that's a hit to the industry. I don't think we should minimize that at all.''

Virginia Attorney General James S. Gilmore III had filed a friend-of-the-court brief in October supporting the tobacco companies' lawsuit.

Gilmore argued that regulation of tobacco sales should be a state responsibility, not a federal one. He said Virginia has shown its commitment to restricting teenage smoking through a series of recent laws stepping up oversight of sales to minors.

Gilmore, the presumptive Republican nominee for governor this year, also maintained that the FDA does not have authority to regulate nicotine as a drug. He said increased federal oversight of tobacco products - Virginia's largest export - will cause ``inevitable adverse impact on the state's economy.''

His position has been widely criticized by Democrats who claim that Gilmore is cozy with tobacco interests.

``I entered this case to protect the livelihood of Virginia's farmers in Southside and the Southwest,'' Gilmore said in a written statement Friday. Predicting the decision will be appealed, he added, ``As this matter proceeds, I will continue to stand up for the working families of Virginia.''

Regulation has been one of the key issues in negotiations under way among the cigarette makers, plaintiffs' attorneys and the state attorneys general who are suing the companies. The companies have discussed paying up to $300 billion over 25 years and agreeing to most aspects of FDA regulation - but not limits on nicotine - in return for protection against more suits.

Mississippi Attorney General Michael Moore, who has led the group of more than 20 attorneys general in the negotiations, said of Friday's ruling: ``I'm sure it will strengthen our side of the table. . . . I think this is going to put us in a better bargaining position all around.''

Minnesota Attorney General Hubert H. Humphrey III, who is skeptical about a settlement, said: ``This tremendous win already puts into law much of what the tobacco industry has been dangling as a bargaining chip in its settlement efforts. The tobacco industry came to the table, but this cuts the legs off their chairs.''

The ruling also encouraged those public health advocates who are starting to question the wisdom of any compromise with the tobacco companies.

``We see settling at this point is only to the advantage of the industry,'' said Scott Ballin, vice president of the American Heart Association, urging great caution in reaching any agreement with the industry.

In his decision Friday, Osteen found:

Tobacco products fit within the Food, Drug and Cosmetic Act's definitions of ``drug'' and ``device,'' and can be regulated by the FDA.

The FDA can regulate access to and labeling of tobacco products.

The FDA can continue to require that anyone appearing to be under 27 years of age must present a photo ID to buy cigarettes or smokeless tobacco, and that the tobacco products can be sold only to people who are at least 18 years old.

The FDA can ban vending machines except in adult-only locations and prohibit self-service displays of tobacco products in stores. But Osteen barred the FDA from implementing these regulations, pending appeal of the case.

On the advertising issue, Osteen ruled that the law creating the FDA does not give the agency the power to regulate tobacco advertising and promotion. The judge did not address arguments offered by tobacco companies and advertising interests that ad restrictions would have violated the First Amendment right to free speech.

The FDA rules would have banned promotional items - such as caps, T-shirts and other clothing - that display brand names of tobacco products.

In addition, the FDA would have allowed billboards to carry only black-and-white, text-only ads. The same restriction would have applied to magazines with substantial youth readership. No billboards at all would have been allowed within 1,000 feet of schools. And tobacco brand sponsorship of sporting events would have been halted.

Advertising and publishing executives, who considered FDA restrictions a major threat to their business, were thrilled Friday to have the judge back their claim.

But Matthew Myers, an attorney for the Campaign for Tobacco-Free Kids, an anti-smoking group, said he hoped the advertising part of Osteen's ruling can be overturned on appeal. If not, he said, the anti-smoking forces will go to Congress to seek legislation to achieve that goal. MEMO: This story was compiled from reports by Knight-Ridder News

Service, The Los Angeles Times and Staff Writer Warren Fiske. ILLUSTRATION: Color photos

[vending machine]

[Camel billboard] KEYWORDS: SMOKING TOBACCO RULING FDA

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