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The U.S. Court of Appeals for the 3rd Circuit has once again rejected an antitrust challenge to the $200 billion settlement between the top four tobacco companies and 46 states, finding that while the mega-deal resulted in stifled competition, the state officials who agreed to it are immune from suit. The settlement survived its first challenge in June 2001, when the 3rd Circuit rejected a suit brought by cigarette wholesalers who complained that the settlement had created an “output cartel” that protects the major tobacco companies from future competition by financially rewarding smaller tobacco companies for remaining small and punishing them if they increased their market share. In A.D. Bedell Wholesale Co. Inc. v. Philip Morris Inc., the court held that since the settlement was struck with the government — the 46 states — the tobacco companies were immune from being sued for antitrust violations. Now, in Mariana v. Fisher, a challenge brought by a group of Pennsylvania smokers, the court held that the plaintiffs had shown that the settlement resulted in an antitrust violation, but found that since the government was involved, it was immune from suit under the Noerr-Pennington doctrine, which generally protects anyone who petitions the government for redress from later being sued. In the settlement, Philip Morris, R.J. Reynolds, Brown & Williamson, and Lorillard Tobacco agreed to pay billions and to restrict their marketing of cigarettes. In return, the settling states agreed to provisions that were designed to ensure that the four major companies would not lose any of their combined 98 percent market share. The four companies had feared that cigarette manufacturers that had been left out of the settlement would be able to expand their market share or enter the market by offering lower prices. To prevent that, the settlement included a “Renegade Clause” that allowed smaller tobacco companies to join the settlement at no cost if they promised not to increase their market share above 125 percent of their 1997 share. Any smaller company that opted against the settlement faced the prospect of personal injury suits and would be required to pay into a fund to cover judgments against it. In the court challenges to the settlement, the wholesalers, and now smokers, argued that the settlement enabled the major companies to cling to their 98 percent market share, thereby creating an unregulated cartel. As a result, they argued, the big companies have been able to raise prices without fear of serious competition and without state monitoring, regulation, or supervision. Shannon P. Duffy is U.S. court correspondent for The Legal Intelligencer, the American Lawyer Media newspaper in Philadelphia.

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