Philip Morris Inc. v. Reilly

• Decision Date: 10 May 2001
• Docket Number: No. 00-2425,No. 00-2449,00-2425,00-2449
• Court: U.S. Court of Appeals — First Circuit
• Parties: (1st Cir. 2001) PHILIP MORRIS, INC., R.J. REYNOLDS TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO CORPORATION, and LORILLARD TOBACCO COMPANY, Plaintiffs, Appellees, v. THOMAS F. REILLY, ATTORNEY GENERAL OF MASSACHUSETTS,and HOWARD KOH, MASSACHUSETTS COMMISSIONER OF PUBLIC HEALTH, Defendants, Appellants. UNITED STATES TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO CORPORATION, CONWOOD COMPANY, L.P., NATIONAL TOBACCO COMPANY, L.P., THE PINKERTON TOBACCO COMPANY, and SWISHER INTERNATIONAL, INC., Plaintiffs, Appellees, v. THOMAS F. REILLY, ATTORNEY GENERAL OF THE COMMONWEALTH OF MASSACHUSETTS and HOWARD K. KOH, MASSACHUSETTS COMMISSIONER OF PUBLIC HEALTH, Defendants, Appellants. & Heard

Page 45

267 F.3d 45 (1st Cir. 2001)

PHILIP MORRIS, INC., R.J. REYNOLDS TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO

CORPORATION, and LORILLARD TOBACCO COMPANY, Plaintiffs, Appellees, v. THOMAS F. REILLY, ATTORNEY GENERAL OF MASSACHUSETTS,and HOWARD KOH, MASSACHUSETTS COMMISSIONER OF PUBLIC HEALTH, Defendants, Appellants.

UNITED STATES TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO CORPORATION, CONWOOD COMPANY, L.P., NATIONAL TOBACCO COMPANY, L.P., THE PINKERTON TOBACCO COMPANY, and SWISHER INTERNATIONAL, INC., Plaintiffs, Appellees, v. THOMAS F. REILLY, ATTORNEY GENERAL OF THE COMMONWEALTH OF MASSACHUSETTS and HOWARD K. KOH, MASSACHUSETTS COMMISSIONER OF PUBLIC HEALTH, Defendants, Appellants.

No. 00-2425 & No. 00-2449

United States Court of Appeals For the First Circuit

Heard May 10, 2001

Decided October 16, 2001

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. George A. O'Toole, Jr., U.S. District Judge] [Copyrighted Material Omitted] William W. Porter, Assistant Attorney General, with whom Thomas A. Barnico Assistant Attorney General, and Thomas F. Reilly, Attorney General, were on brief, for appellants.

Douglas N. Letter, Appellate Litigation Counsel, with whom Stuart E. Schiffer, Deputy Assistant Attorney General, and Donald K. Stern, United States Attorney, were on brief for the United States, amicus curiae.

John D. Echeverria on brief for Environmental Defense, Consumer Federation of America, Calvert Group, Ltd., OMB Watch, Working Group on Community Right to Know and Atlantic States Legal Foundation, amici curiae.

Bonnie I. Robin-Vergeer, David C. Vladeck, Public Citizen Litigation Group, Matthew L. Myers, and National Center for Tobacco -Free Kids, on brief for Public Citizen, Inc., National Center for Tobacco-Free Kids, American Cancer Society, American College of Cardiology Massachusetts Chapter, American College of Chest Physicians, American College of Physicians-American Society of Internal Medicine, American Heart Association, American Lung Association, American Medical Association, American Public Health Association, American School Health Association, American Thoracic Society, Massachusetts Medical Society, and The National Association of Local Boards of Health, amici curiae.

Henry C. Dinger, with whom Henry C. Dinger, P.C., Cerise Lim-Epstein, Goodwin, Procter LLP, Clausen Ely, Jr., Patricia A. Barald, Covington & Burling, Richard M. Zielinski, Robert D. Ryan, and Hill & Barlow were on brief, for Philip Morris Incorporated, and Lorillard Tobacco Company, appellees.

John L. Oberdorfer, with whom Patton Boggs LLP, A. Hugh Scott, Choate, Hall & Stewart, Peter J. McKenna, Eric S. Sarner, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief, for Brown & Williamson Tobacco Corp., Conwood Company, L.P., National Tobacco Company, L.P., The Pinkerton Tobacco Company, Swisher International, Inc., and U.S. Smokeless Tobacco Company, appellees.

John H. Henn, Foley, Hoag & Eliot, John B. Connarton, Jr., Marcia E. Harris, and Connarton, Wood & Callahan on brief, for Brown & Williamson Tobacco Corporation and R.J. Reynolds Tobacco Company, appellees.

Daniel J. Popeo, Richard A. Samp and Washington Legal Foundation, on brief for Washington Legal Foundation, amicus curiae.

Before Selya, Circuit Judge, Schwarzer,^* Senior District Judge, and Saris,^** District Judge.

SCHWARZER, Senior District Judge.

We must decide the Constitutional validity of a Massachusetts statute requiring tobacco companies marketing their products in the Commonwealth to disclose for each brand the identity of each added ingredient in order of weight, measure or count--information the companies treat as trade secrets. The district court held the statute to violate the Fifth and Fourteenth Amendments by effecting an uncompensated taking, the Due Process Clause, and the Commerce Clause, and entered a permanent injunction. We have jurisdiction over this appeal and reverse.

I. FACTUAL BACKGROUND

Plaintiffs-appellees are manufacturers of cigarettes and smokeless tobacco (the Manufacturers).¹ Since the late 1970s, when consumers began demanding lower tar and nicotine levels, the Manufacturers have increased the number of additives, other than tobacco, in their products, ostensibly to offset the lost flavor and taste. Today the Manufacturers report using approximately 700 additives, many of which are the focus of public health officials' concern. The Manufacturers assert that these additives, besides improving taste, flavor and aroma, serve as solvents, processing aids, and pH modifiers, and also fulfill other chemical functions. Each brand contains a combination of ingredients that substantially contributes to its distinctiveness and thus its competitive success. As such a formula gives a manufacturer a competitive advantage over other manufacturers who cannot, given the current state of technology, mimic it, the Manufacturers have invested many millions of dollars in creating their distinctive blends and take extensive precautions to protect the identity of the ingredients from disclosure.

Federal law requires the Manufacturers to submit to the Department of Health and Human Services (DHHS) an aggregate list of ingredients used in cigarettes and smokeless tobacco, without identification of the relevant manufacturer or brand or disclosure of quantities.² Thus, although the lists compiled under the federal statutes are voluminous, they do not identify the ingredients (or the amounts) used in any particular brand nor do they enable public health experts to research how these ingredients might impact health when combined in particular amounts with others. See E.R. at 516 (Letter from David Satcher, M.D., Ph.D., Director of Centers for Disease Control, to Congress ("Many of the approximately 700 ingredients added to tobacco could be causes of diseases or potential adverse health effects, if a sufficiently high dose is ingested. . . . [W]e do not know what potentially harmful byproducts may be produced when tobacco additives are burned alone or in combination, as they are in cigarettes.")). In 1996, responding to what it perceived as this very problem, the Massachusetts legislature enacted the Massachusetts Tobacco Ingredients and Nicotine Yield Act (the Disclosure Act), the law at issue here. Mass. Gen. Laws ch. 94, § 307B (2000).³

The Disclosure Act requires each manufacturer to provide the Massachusetts Department of Public Health (DPH) with an annual report listing, for each brand, "the identity of any added constituent . . . in descending order according to weight, measure, or numerical count."⁴ The Disclosure Act further provides that both the brand's ingredient list and nicotine yield rating (the estimated amount of nicotine an average consumer would ingest when using the product) "shall" become a public record if two conditions are met. First, DPH must determine that "there is a reasonable scientific basis for concluding that the availability of such information could reduce risks to public health." See Mass. Regs. Code tit. 105, §§ 660.200(A)-(C). Second, the Massachusetts Attorney General must advise DPH that the public release of the information would not constitute an unconstitutional taking of property. Id. 105, §§ 660.200(D)-(E). The regulations require DPH to give the manufacturer sixty days' written notice of the information to be disclosed if the Attorney General decides that disclosure would not be a taking. Id. § 660.200(E). The manufacturer may then cease sales in Massachusetts or remove the product from the Massachusetts market in order to reformulate it without the constituent(s) identified as problematic by DPH. Id. § 660.200(F). Under a 1999 amendment to the regulations, all information provided to DPH is to remain confidential unless and until: (1) the manufacturer notifies DPH in writing that it does not consider the additive information it has submitted to be confidential; (2) sixty days has elapsed since DPH notified the manufacturer of the information to be disclosed and no complaint has been filed in a court of competent jurisdiction challenging disclosure on the grounds that it would make public a trade secret; (3) disclosure is authorized by a court of competent jurisdiction and the time for appeal has elapsed; or (4) disclosure is authorized by agreement of the parties. Id. § 660.200(G).

The Disclosure Act will enable DPH to study additives and the potential synergistic effects of certain ingredients in particular brands to determine whether they present health risks. If the requirements for public disclosure are met, DPH will be able to inform consumers whether a particular brand contains ingredients it has determined to be associated with adverse health effects, including enhanced nicotine delivery. In particular, it will be able to inform consumers whether the designation of several brands as "light" or "ultra light" (based upon estimates of low tar and nicotine delivery under the Federal Trade Commission (FTC) machine testing method) is misleading. See 61 Fed. Reg. 44,970-79, 974 (Aug. 28, 1996) (noting that the Food and Drug Administration has found that "the actual nicotine delivery to the smoker from some brands may be higher than the FTC yield because of the addition of ammonia or similar compounds to increase free nicotine"); see also 61 Fed. Reg. 45,108-16 (Aug. 28, 1996) (detailing similar manipulation of nicotine delivery in smokeless tobacco). Even in the absence of public disclosure, DPH's study of additive safety could provide valuable information contributing to public health.

Texas has also enacted legislation requiring brand-specific reporting of ingredients.⁵ See Tex. Health & Safety Code Ann. §§ 161.351-.355 (1999). The Texas statute obligates the Manufacturers to report the same information required by the Disclosure Act, but, like the federal statutes which require the Secretary of DHHS to treat the submitted information as "trade...