Ruling Helps Direct Sales of Cigarettes
U.S. District Court Judge Loretta A. Preska ruled June 8 in a 77-page decision that the law interfered with interstate commerce and was unconstitutional. Brown & Williamson Tobacco Corp., Louisville, KY, had challenged the law in a lawsuit filed in October. New York's law, enacted last August, interfered with Brown & Williamson's plans for a multimillion-dollar catalog campaign to market its cigarette brands, the company charged in the lawsuit.
State officials said that they were reviewing the decision and will decide later whether to appeal. In the meantime, the state plans to work with its congressional delegation to pass laws that increase states' authority to regulate direct sales of cigarettes, said Joe Conway, spokesman for New York Gov. George Pataki.
"We are disappointed that the court has struck down a law that intended to save lives by keeping children from smoking," Conway said.
Last year, Brown & Williamson formed a subsidiary, BWT Direct, to sell cigarettes by mail, fax and telephone with plans to expand sales to the Internet. The company produced an eight-page catalog that offered Carlton, Misty, Capri, Barclay, Tareyton, Raleigh, Belair, Tall and Silva Thins brands. The company said it needed to use direct sales to market its cigarettes because limited shelf space at retail stores prevents some lesser-known brands from reaching consumers.
The catalog is now available in 17 states, said Mark Smith, director of public affairs and issues management at Brown & Williamson. Later this year, the company plans to make online ordering available to its present direct customers through a password-protected system. The company has no plans to conduct Internet advertising, he said. Smith was uncertain how much of the company's total sales are represented by direct sales, but he said direct sales were becoming the primary vehicle for the lesser-known brands.
"Add all the small brands up, and they do add up to a significant piece of the market," Smith said.
Santa Fe Natural Tobacco Co., Santa Fe, CA, another company that challenged the law, also applauded the judge's ruling. Because the company is a small manufacturer of tobacco products, it depends on direct marketing to spread awareness of its brands.
"While our volume of consumer direct sales is small, we believe the ability to make such sales is important to our business and also contributes significantly to the success of the local retailers and distributors who have chosen to carry our product," the company said in a statement.
Santa Fe said it requires customers to submit a signed verification of their age along with a copy of a driver's license or other government identification with their first purchase order.
According to this year's Federal Trade Commission annual report on cigarette advertising, companies in 1999 -- the latest year for which numbers were available -- spent $94.6 million on direct mail advertising of cigarettes, up 63.8 percent from the previous year. The industry also spent $650,000 on Internet advertising. However, direct marketing expenditures made up only a tiny fraction of the total $8.24 billion spent on advertising and promotions in 1999.
Brown & Williamson was among the first of the major tobacco companies to offer its products directly to consumers. R.J. Reynolds, Winston-Salem, NC, followed suit earlier this year, testing sales of its More, Now and Vantage brands via a six-page catalog in seven states.
Both companies say they can sell cigarettes directly to consumers while ensuring that all proper taxes are paid and steps are taken to prevent minors from obtaining cigarettes through the catalogs. Unlike many tobacco-product direct marketers, the companies don't offer cigarettes at lower-than-market price.
R.J. Reynolds offers cigarettes directly to consumers as a convenience to smokers who have a hard time finding their favorite lesser-known brands, said company spokesman Seth Moskowitz. The company has no plans to undertake significant direct marketing efforts. R.J. Reynolds also debuted its newest product, the Eclipse cigarette, online at www.eclipse.rjrt.com in April 2000. The cigarette -- promoted as the next-best alternative to quitting because it involves heating moist tobacco instead of burning -- was marketed extensively in the Dallas/Fort Worth, TX, area.
In January, the company began retail sales of Eclipse in Dallas/Fort Worth. However, tests will proceed for some time as the company seeks the most efficient method of marketing the product, Moskowitz said.
"We're still looking at what the best way to communicate to smokers about Eclipse is," Moskowitz said. "There's an adjustment a lot of smokers need to go through."