Philip Morris Suits Target Internet Black Market

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Internet cigarette sales are under fire again as Philip Morris USA yesterday said it has filed eight lawsuits in federal court against operators of 13 Web sites.


The lawsuits, filed in New York and California against merchants based in Europe, Russia and the United States, allege trademark infringement and illegal sales of cigarettes, including some into the United States that were manufactured for sale overseas.


Philip Morris wants the defendants barred from using its trademarks and selling cigarettes in the United States. It also seeks all the profits resulting from sales of the cigarettes, attorneys' fees and other costs, plus unspecified punitive damages.


Philip Morris asked the California court to order some of the defendants to take out ads "in a form approved by the Court to acknowledge their violations of the law" and correct "false and deceptive impressions."


Among the specifics of the complaints, some merchants wrongly claim their sales are tax-exempt, according to Philip Morris.


"The cigarettes on sale at Yesmoke.com can be tax free because they are sold from [sic] BONDED WAREHOUSE," reads copy in the frequently-asked-questions section of Yesmoke.com, a Switzerland-based site named in the suits. Philip Morris claims this is not so.


The suits come as lawmakers increasingly eye cigarette taxes to make up for revenue shortfalls and, therefore, look for ways to collect taxes on cigarettes sold via unregulated channels like the Internet. A law banning untaxed cigarette sales in New York was declared unconstitutional last year after a challenge by Brown and Williamson Tobacco Corp.


Massachusetts recently approved a 75-cent increase on packs of cigarettes, and Illinois recently raised cigarette taxes by 40 cents to 98 cents a pack. New Jersey and New York have the nation's highest cigarette taxes at $1.50 per pack. Washington state is third, at $1.425 per pack. Virginia is the lowest at 2.5 cents per pack.


Forrester Research predicts that Internet tobacco sales will exceed $5 billion in 2005, and that states will lose $1.4 billion in tax revenue as a result.


In the most glaring example of a booming black market in cigarettes, New York City raised sales taxes from 8 cents per pack to $1.50 per pack on July 2. Premium brands in New York City go for $7.75 per pack. Premium brands online go for about $30 per 10-pack carton. In July and August, 24.5 million fewer packs of cigarettes were sold in New York City compared with that period last year as New Yorkers increasingly turned to smugglers and the Internet to buy their smokes.


Meanwhile, Philip Morris is also charging some Web site operators named in its complaints with unauthorized use of the word "Marlboro" in their metatags, code that Web site operators use to describe Web site content in an effort to get their sites to be included in search engine results.


The suits also claim that some Web site operators use images on their sites that are "confusingly similar to, and an obvious copy of, the Marlboro Man."


Philip Morris alleges that, as a result, consumers are likely to be confused into believing that Philip Morris is somehow affiliated with some merchants named in the suits.


It also claims that some of eight companies are illegally selling to minors.


Sites named in the suit were Cheapmarlboro.com, Discountcigs.homestead.com, Discountcigarettes.cjb.net, Discount-marlboro-cigarettes.com, Dutyfree-cigarettes.com, Dfshop.org, Europecigarettes.com, Freefags.com, Smokefarm.com, Smokeplanet.com, Smoke.shop4all.net, Yesmoke.com and 18orless.com.


Defendants in the suits were not immediately reachable. Philip Morris said it has identified 600 Web sites selling cigarettes and that it plans to file more lawsuits against online merchants in the coming months.


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