Judge Tosses Challenge to 1998 Tobacco Settlement

(CN) - A federal judge in Kentucky dismissed General Tobacco's $1 billion challenge to the 1998 Master Settlement Agreement between the states and 19 tobacco manufacturers, saying the defendant states and "grandfathered" tobacco companies are immune from antitrust claims.

U.S. District Judge Jennifer Coleman dismissed the claims of General Tobacco, the sixth-largest tobacco company in the United States, which argued that the settlement favors participating tobacco manufacturers over new entrants to the settlements, including the plaintiff.

The 1998 agreement requires participating manufacturers to make annual payments to the states. Non-participating manufacturers must place matching funds in escrow, to eliminate any competitive advantage. Companies that joined the settlement within 90 days of its initial execution are considered "grandfathered" participating manufacturers and are held to the same payment requirements as original participating manufacturers.

General Tobacco took issue with the agreement's "Limited Most-Favored Nation" clause, which allows original and grandfathered participating manufacturers to reap any favorable agreements the states strike with new participants.

Because the participating manufacturers refused to waive that right, the states stopped short of executing a more favorable agreement with General Tobacco.

General Tobacco sued 18 participating manufacturers and the 52 attorneys general of the settling states, claiming the defendants' misuse and "exploitation" of the Limited Most-Favored Nation provision violated antitrust law.

"Simply put, the (participating manufacturers) have petitioned for, and received, certain government action that creates anti-competitive effects upon the plaintiff," Coleman wrote. "(T)he defendant manufacturers are entitled to immunity for the anti-competitive effects of their successful petition for government action."

The judge similarly upheld the states' sovereign immunity and dismissed the case.

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