Details on Corrective Statements Point-of-Sale Settlement Agreement

Industry awaits judge’s order on whether court accepts settlement
Image courtesy of the U.S. Department of Justice

LAKEVILLE, Minn. — In 1999, the U.S. government sued the major cigarette companies asserting claims under various federal laws. In 2006, a federal judge sided in favor of the government on certain claims and, among other things, ordered Altria, R.J. Reynolds Tobacco Co., and Philip Morris USA Inc. to make “corrective statements” on certain topics. ITG Brands LLC became a party to the litigation for purposes of the court-ordered remedies when it purchased four cigarette brands from R.J. Reynolds Tobacco in 2015.

PM USA, RJR and ITG (the “manufacturers”) have now reached a settlement agreement with the government and several public health organizations that intervened in the case regarding how these court-ordered “corrective statements” will be displayed in retail stores. As part of the settlement agreement, the manufacturers will be required to amend their cigarette retail program agreements with retailers to require the placement of a corrective-statement sign or signs in retail stores.

Amendments to Cigarette Retail Program Agreements

The settlement agreement states that the cigarette retail program agreements between retailers and the manufacturers will be amended to include the settlement agreement provisions. The settlement agreement provides that a retail store with a cigarette retail program agreement will need, depending on various circumstances, to display one corrective-statement sign, two corrective-statement signs or three-corrective statement signs for a 21-month period. 

It is important to note, however, that the government had previously proposed that 25% of the cigarette display space and 25% of all off-set advertisements devoted to the manufacturers’ cigarette brands in each retail store be covered with corrective-statement signs for a 24-month period. The settlement agreement replaced the government’s 25% proposal with the one, two or three corrective-statement signs alternative, and ensures that no signs will cover any portion of the main cigarette display.

Corrective-Statement Signs

The following corrective-statement sign requirements are a part of the settlement agreement and apply to all retail stores which have contracts with the manufacturers:

  • For stores that are not a kiosk-style store, one 348-square-inch corrective statement sign will be displayed. The sign will be either square (18.7 by 18.7 inches) or rectangular (32 by 10.9 inches).
  • For retail stores that are not a kiosk-style store and have more than 9 feet of horizontal linear display space devoted to the manufacturers’ cigarette brands, a second 348-square-inch corrective-statement sign will be displayed.
  • For retail stores that are not a kiosk-style store and that have cigarette promotional signage displayed elsewhere in the store other than on the main cigarette display (and excluding signage that only identifies the brand, price or has a picture of a pack of cigarettes), an additional 144-square-inch corrective statement sign will be displayed. The sign will be either square (12 by 12 inches) or rectangular (20 by 7.2 inches).
  • For kiosk-style stores, which are those stores that either: (1) do not allow customers to enter and that have a selling window between the customer and store personnel, or (2) that are no more than 325 square feet in area, not including restrooms, regardless of whether customers are allowed to enter the store, then one 144-square-inch sign will be displayed.  The sign can be either square (12 by 12 inches) or rectangular (20 by 7.2 inches).

The manufacturers will print corrective-statement signs with 17 different court-ordered messages, with one message to be printed on each sign. The signs will be randomly distributed by the manufacturers to stores across the country.

Display Period for Corrective-Statement Signs

Under the settlement agreement, there is a three-month “posting period” for the manufacturers to actually place the corrective-statement signs in stores. Then, after this “posting period,” the corrective statement signs will be displayed in stores for 21 consecutive months. During the 10th, 11th and 12th months of the 21-month period, the manufacturers will rotate the signs in stores by replacing existing signs with signs that have a different court-ordered message. Photos of the signs placed in all stores will be uploaded to a database to confirm compliance with the settlement agreement.

Retail Compliance and Non-Compliance

 If a retailer complies with the terms of the settlement agreement by displaying the required sign or signs, the retailer will not incur any non-compliance penalties. If a retailer does not fully comply with the sign-display requirements, then a retailer may incur various consequences depending on the kind of non-compliance.

Minor non-compliance includes obstructing a portion of a sign (other than the smoking/health-related statement) or displaying a sign incorrectly (if it remains visible to consumers). Minor non-compliance would result in counseling by the manufacturers on the proper sign-display requirements and, if not corrected, could lead to a warning letter and the retailer being required to display an additional 144-square-inch corrective-statement sign in the non-compliant store for 120 days. 

Major non-compliance includes not posting a sign, obstructing or displaying a sign so that the message is not visible, damaging or removing a sign, or failing to rotate a sign. The penalties for major non-compliance include counseling by the manufacturers on the proper sign-display requirements, displaying an additional 144-square-inch sign corrective-statement sign for the duration of the 21-month display period, and paying to each manufacturer with which the retailer has a retail marketing contract a financial penalty equivalent to the retailer’s price-promotion discounts for a period of four weeks or 13 weeks, depending on the number of major non-compliance violations. Repeated major non-compliance would result in the retailer’s suspension from the retail marketing program for a period of up to 17 weeks.

Auditor and Working Group

An auditor will be retained by the manufacturers to review photos of signs and visit some stores to take pictures and make determinations of retail compliance or non-compliance. A working group composed of 10 members, including persons appointed to represent the manufacturers, the National Association of Tobacco Outlets (NATO) and the National Association of Convenience Stores (NACS), will be formed to address implementation and compliance questions from retailers.

Court Hearing to Accept Point-of-Sale Settlement Agreement

A hearing before the Federal District Court to determine if the judge accepts the settlement agreement was held on July 28. At this time, the industry is waiting for the judge to issue an order on whether the settlement is accepted by the court.

Thomas A. Briant is the executive director of NATO, a tobacco retailing association based in Lakeville, Minn. Reach him at info@natocentral.org.

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