Parties' arguments
The wholesalers were challenging two sections of the MSA as creating an output cartel that imposes draconian monetary penalties for increasing cigarette production beyond 1998 levels and effectively bars new entry into the cigarette market:
- the so-called "Renegade Clause" (which refer to small cigarette producers or "renegades" who generally sell at a discount), the settlement's primary mechanism for allocating payment responsibilities based on production levels. See MSA §§ IX(i) (SMPs), (d) (NPMs)
- the provision calling for "Qualifying Statutes," which are state laws passed as a result of commitments made in the Multistate Settlement Agreement that require Non-Participating Manufacturers to pay into state escrow accounts for each sale made.
Together, the Renegade Clause, the Qualifying Statutes and the Enforcement Fund allegedly created severe obstacles to market entry, or to increasing production and market share. In fact, the Multistate Settlement Agreement explicitly proclaims its purpose to reduce the ability of non-signatory cigarette manufacturers to seize market share because of the competitive advantage accruing from not contributing to the settlement. It declares that the agreement "effectively and fully neutralizes the cost disadvantages that the Participating Manufacturers experience vis-a-vis Non-Participating Manufacturers with such Settling States as a result of the provisions of this Agreement." MSA § IX(d)(2)(E) It was these barriers to entry and increased production that plaintiffs claimed form an output cartel that violates the antitrust laws. Because output is restricted and because of the inelastic demand for cigarettes, in part due to their addictive nature, the Multistate Settlement Agreement allegedly permitted the Majors to raise their prices to near monopoly levels—levels allegedly above those necessary to fund the settlement payments.
Defendants contended the Multistate Settlement Agreement did not violate the antitrust laws, but even if so, they are immune under both the Noerr-Pennington doctrine, which protects petitioning activity, and the Parker doctrine, which protects sovereign acts of states from antitrust liability.
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Under the Noerr–Pennington doctrine, private entities are immune from liability under the antitrust laws for attempts to influence the passage or enforcement of laws, even if the laws they advocate for would have anticompetitive effects. The doctrine is grounded in the First Amendment protection of political speech, and "upon a recognition that the antitrust laws, 'tailored as they are for the business world, are not at all appropriate for application in the political arena.'"
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Competition law theory covers the strands of thought relating to competition law or antitrust policy.
Stanton Arnold Glantz is an American professor, author, and tobacco control activist. Glantz is a faculty member at the University of California, San Francisco (UCSF) School of Medicine, where he is a Professor of Medicine (retired) in the Division of Cardiology, the American Legacy Foundation Distinguished Professor of Tobacco Control, and former director of the Center for Tobacco Control Research and Education. Glantz's research focused on the health effects of tobacco smoking.
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