[Intl-tobacco] NY State court rules against ban on mail and internet cig sales

[Robert Weissman]

Ruling Helps Direct Sales of Cigarettes
by Scott Hovanyetz / Senior Reporter /        scotth@dmnews.com
Source:  DM News, Friday, 6/15/01

Cigarette marketers have one less obstacle now that a federal judge has
thrown out a New York state law banning mail-order, Internet and telephone
tobacco sales.

 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."