The Master Settlement Agreement

In May of 1998, “Skip” Humphrey, then Attorney General of Minnesota, entered into Minnesota’s tobacco settlement agreement with “big tobacco” as a result of evidence of the tobacco companies withholding information about the potential harm of their products, and to protect themselves from future lawsuits and litigation.

As a result of this settlement, in November of 1998, 46 states’ attorneys general, including Jim Doyle, now governor of Wisconsin, entered into The Master Settlement Agreement (MSA) with “Big Tobacco” (Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company, Philip Morris Incorporated, and R. J. Reynolds Tobacco Company, and Liggett Group, Inc.). The MSA provides for the payment of $206 billion in “damages”, plus billions more in lawyers’ fees.

In 2000, Thomas C. O’Brien published a compelling Policy Analysis of the MSA, stating that the MSA is unconstitutional, illegal, and violates anti-trust laws:

The 1998 tobacco settlement is a sophisticated,white-collar crime instigated by contingency fee lawyers in pursuit of unimaginable riches. In collaboration with state attorneys general and the four leading tobacco companies, they concocted a scheme that forces all tobacco companies—even new companies and companies that didn’t join the settlement—to engage in a program of price fixing and monopolization. Essentially, the major cigarette makers bought permission to fix prices and exclude competitors.

If you think back to before 1998 (if you were a smoker at the time), a pack of smokes cost around $2.25-$2.50 a pack. Now, the cost is around $4.50 a pack; a large portion of that increase is due to the MSA. Minnesota has only raised cigarette taxes once, and that was 75 cents, so without the MSA in play, a pack of cigarettes should only cost a little over 3 bucks. That’s where the violation of the anti-trust laws (price-fixing) comes into play:

In the MSA, the settling tobacco companies allocated the obligation to pay the $206 billion “damages” among themselves on the basis of their current market shares. Those “damages” constitute more than 33 percent of the wholesale price of cigarettes. The MSA’s allocation system ensures that each settling tobacco company will pay proportionately (i.e., in proportion to its market share) the same amount of “damages” and can pass its “damages” on to its customers without creating a relative price disadvantage for itself.

Got that? In other words, they jacked up the price of cigarettes to cover their losses in regard to the MSA.

The settling tobacco companies and the states agreed to a number of measures to prevent non-settling tobacco companies from increasing their sales and market shares at the expense of the settling tobacco companies. Generally, those measures involve forcing all states to join the MSA and forcing non-settling tobacco companies to increase their prices, freeze their level of sales, or get out of the business.

So, big tobacco and the states involved in the MSA made it a point to not allow the sales of off-brand cigarettes take any significant market share from the big tobacco companies that settled.

Now, as far as the MSA being unconstitutional:

To the extent that the MSA obstructs or regulates interstate commerce without congressional consent, it violates the Commerce Clause of the Constitution (Article I, section 8), which provides, “The Congress shall have power . . . To regulate Commerce . . . among the several States…In short, the MSA is an extreme intrusion by the states into interstate commerce, which infringes on the federal government’s powers over interstate commerce and violates the Commerce Clause of the Constitution.


…The Compacts Clause of the Constitution (Article I, section 10), which provides, “No State shall, without the Consent of Congress . . . enter into any Agreement or Compact with another State.” …It is hard to imagine an agreement or compact among the states that would be more in violation of the Compacts Clause than the MSA.

So, why doesn’t anyone act upon this?

The state attorneys general buried a $50 million war chest in the MSA to discourage and delay any challenges to their illegal scheme…Among the laws that the attorneys general are expected to enforce are the federal and state antitrust laws. The state attorneys general have not brought any actions on behalf of their citizens for violation by the MSA of the antitrust laws, because it is quite clear that they would lose the “damages” payments provided for them under the MSA.

So, the state governments win by receiving the extra revenue from the MSA, anti-smoking groups, such as Clearway Minnesota, receive money from the MSA to spread their lies, the tobacco companies are protected from future lawsuits, so who loses? You guessed it:

Forty-five million smokers are the primary victims of the MSA. The major tobacco companies have colluded to raise cigarette prices by $206 billion over the next 25 years. Smokers cannot change suppliers or brands to escape the higher prices because the MSA excludes tobacco companies that do not pay “damages.” Smokers (who according to the states’ lawsuits are addicted to cigarettes) are trapped into paying the price-fix premiums. Those are classic “antitrust injuries,” engineered by masters of the trade.

There you have it. Smokers are the real losers in the MSA, because not only are smokers paying a fixed price for cigarettes, but a portion of the MSA settlement goes to those organizations who ban smoking, support smoker discrimination, and lie to promote their agenda.


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