Philip Morris, Inc. v. Harshbarger

• Decision Date: 28 July 1998
• Docket Number: Nos. 98-1199,98-1200,s. 98-1199
• Parties: PHILIP MORRIS, INCORPORATED, et al., Plaintiffs, Appellees, v. Scott HARSHBARGER, Attorney General of Massachusetts, et al., Defendants, Appellants. UNITED STATES TOBACCO COMPANY, et al., Plaintiffs, Appellees, v. L. Scott HARSHBARGER, Attorney General of Massachusetts, et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 670

159 F.3d 670 PHILIP MORRIS, INCORPORATED, et al., Plaintiffs, Appellees,
v.
Scott HARSHBARGER, Attorney General of Massachusetts, et
al., Defendants, Appellants.
UNITED STATES TOBACCO COMPANY, et al., Plaintiffs, Appellees,
v.
L. Scott HARSHBARGER, Attorney General of Massachusetts, et
al., Defendants, Appellants. Nos. 98-1199, 98-1200. United States Court of Appeals,
First Circuit. Heard July 28, 1998.
Decided Nov. 6, 1998.

Page 671

William W. Porter, Assistant Attorney General, with whom Scott Harshbarger Attorney General, and Thomas A. Barnico, Assistant Attorney General, were on brief, for appellants.

Henry C. Dinger, with whom Henry C. Dinger, P.C., Thomas J. Griffin, Jr., Cerise Lim-Epstein, Goodwin, Procter & Hoar, LLP, Verne W. Vance, Jr., John H. Henn, Foley, Hoag & Eliot LLP, Donald J. Wood, Connarton, Wood & Callahan, Richard M. Zielinski, Hill & Barlow, Herbert Dym, Clausen Ely, Jr., Patricia A. Barald, David H. Remes, and Covington & Burling were on brief, for appellees in No. 98-1199.

George J. Skelly, with whom Thomas J. Dougherty, Skadden, Arps, Slate, Meagher & Flom LLP, A. Hugh Scott, Robert A. Kole, Choate, Hall & Stewart, John L. Oberdorfer, G. Kendrick Macdowell, and Patton Boggs, L.L.P. were on brief, for appellees in No. 98-1200.

Before SELYA, Circuit Judge, WELLFORD, ^* Senior Circuit Judge, and LIPEZ, Circuit Judge.

SELYA, Circuit Judge.

The plaintiffs in this case, manufacturers of cigarettes and smokeless tobacco products, ¹ mounted a constitutional challenge to the novel ingredient-reporting requirements of Mass. Gen. L. ch. 94, § 307B (Section 307B). The district court granted the plaintiffs' motion for a preliminary injunction restraining two state officials (collectively, the Commonwealth) from enforcing these requirements. In this venue, the Commonwealth

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invites us to vacate or modify the injunction. We decline the invitation.

I.

Background

A.

The Statute

Regulation is not a stranger to the tobacco industry. The Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1335a (1994) (the Labeling Act), mandates that "[e]ach person who manufactures, packages, or imports cigarettes shall annually provide the Secretary [of Health and Human Services] with a list of the ingredients added to tobacco in the manufacture of cigarettes," but this list need not "identify the company which uses the ingredients or the brand of cigarettes which contain the ingredients," and those required to furnish lists may designate proxies to do so on their behalf. Cigarette manufacturers typically comply with the Labeling Act's strictures through an internuncio; they submit information to a law firm which acts as a clearinghouse for the industry. The law firm then furnishes an annual list of all ingredients used by any of the companies to the Secretary. The law firm maintains the secrecy of the ingredients used in a particular brand from both the government and the brand's competitors. ² In short, though the Labeling Act obligates the Secretary to report to Congress health risks from tobacco products discerned directly or indirectly through the lists, it assures confidentiality for trade secrets.

Existing state law is not much more intrusive. Apart from Massachusetts, only Minnesota and Texas have required any reporting of tobacco ingredients. The Minnesota statute, Minn.Stat. § 461.17 (Supp.1997), compels tobacco manufacturers to report the use of any of several targeted additives in their products. The Texas law, Tex. Health & Safety Code Ann., §§ 161.251-255 (West Supp.1998), bears certain similarities to Section 307B, but provides protection for information submitted that "would be excepted from public disclosure as a trade secret under state or federal law." Id. § 161.254(c).

Massachusetts has gone further. When Section 307B was enacted as a means of regulating the tobacco industry, proponents billed it as an innovative regulatory effort which, incidentally, would protect public health. See Press Release Distributed by the Commonwealth upon Signing of Section 307B, August 2, 1996 (quoting then-Governor William F. Weld's description of Section 307B as "a common sense, pro-consumer bill that will give people all the information they need to make educated decisions about what they put in their bodies"). The statute significantly expands the reach of existing positive law. Its ingredient-reporting provisions are novel both because they demand brand-by-brand reporting of additives and because they permit public disclosure of this ingredient information.

Specifically, Section 307B stipulates that each manufacturer of tobacco products must report annually to the Massachusetts Department of Public Health (DPH) "[t]he identity of any added constituent other than tobacco, water or reconstituted tobacco sheet made wholly from tobacco, to be listed in descending order according to weight, measure, or numerical count" for each brand sold within the state. Any such information that DPH reasonably concludes "could reduce risks to public health, shall be public records," as long as the attorney general advises DPH that such disclosure would not work an unconstitutional taking. ³ The historical archives clearly indicate the legislature's intent. For instance, in a letter urging colleagues to support the bill that eventually became Section

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307B, a proponent explained that brand-specific reporting and disclosure are necessary because "[i]f you smoke Merits you want to know what is in Merits, not what may be in every brand of cigarettes on the market." Letter from Senator Warren E. Tolman to Colleagues 2 (June 14, 1996).

B.

The Marlboro Man's Secret

Because consumers choose brands based on flavor, taste, and aroma, and tend to remain loyal to those brands, small fortunes are spent creating the flavor formulas for tobacco products. The information needed to copy these formulas is, in turn, worth many millions of dollars. See, e.g., Kurt Badenausen, Blind Faith, Financial World, July 8, 1996, at 50-65 (describing Philip Morris's Marlboro brand as worth over $44,000,000,000 and rating it the most valuable of 364 brand names surveyed). It is no secret that tobacco companies, like other manufacturers of brand name products, employ elaborate procedures to safeguard their ingredient information. For example, suppliers sign confidentiality agreements and furnish their wares in coded packaging, devoid of proprietary names, to keep ingredient information under wraps. Even in house, copies of flavor formulas are retained under lock and key, and ingredient information is made available only on a "need to know" basis.

The tobacco companies claim that the operation of Section 307B threatens to destroy these enormously valuable trade secrets. The industry submits aggregate lists of all ingredients included in tobacco products sold in the United States in compliance with federal law. However, at the current state of technology, these lists cannot feasibly be used to copy a tobacco product's taste or aroma. Divulging brand-specific lists of ingredients in descending order of volume, as required by Section 307B, is quite a different story; the plaintiffs aver--and the Commonwealth, for purposes of this proceeding, does not contradict--that such lists, when and as disclosed, will allow pirates to "reverse engineer" products possessing flavors and aromas indistinguishable from popular brands, with substantially reduced research and development costs. The threat of this increased ease of entry into, and competition within, the tobacco industry fuels the plaintiffs' challenge to Section 307B.

C.

Proceedings Below

The cigarette and smokeless tobacco companies brought separate suits attacking Section 307B. Their complaints claimed that the statute was preempted by federal law and that it ran afoul of various constitutional impediments, including the Takings Clause, the Commerce Clause, and the Due Process Clause. The district court consolidated the cases. Early on, it resolved the preemption question in favor of the Commonwealth, and we affirmed that determination. See Philip Morris, Inc. v. Harshbarger, 122 F.3d 58, 87 (1st Cir.1997).

The plaintiffs had greater success when they moved for a preliminary injunction to prevent the enforcement of Section 307B's ingredient-reporting requirements. Finding that the plaintiffs were likely to succeed on the merits of their takings claim and that they faced irreparable harm in the absence of interim relief, the district...