Philip Morris, Inc. v. Reilly

312 F.3d 24

PHILIP MORRIS, INCORPORATED, et al., Plaintiffs, Appellees, v. Thomas F. REILLY, Attorney General of Massachusetts, et al., Defendants, Appellants.

United States Tobacco Company, et al., Plaintiffs, Appellees, v. Thomas F. Reilly, Attorney General of Massachusetts, et al., Defendants, Appellants.

No. 00-2425.

No. 00-2449.

United States Court of Appeals, First Circuit.

Heard January 7, 2002.

Decided December 2, 2002.

COPYRIGHT 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, Civil Division, Department of Justice, for amicus United States.

Henry C. Dinger, P.C., with whom Goodwin Procter LLP, John H. Henn, Foley, Hoag & Eliot LLP, John Connarton, Connarton, Wood & Callahan, Richard M. Zielinski, Hill & Barlow, Clausen Ely, Jr., Patricia A. Barald, and Covington & Burling, were on brief for appellees Philip Morris, Inc., et al.

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 appellees United States Tobacco Company, et al.

Before TORRUELLA, SELYA and LIPEZ, Circuit Judges.

EN BANC OPINION

TORRUELLA, Circuit Judge.

Unquestionably, tobacco is subject to heavy regulation by federal and state governments. This case concerns one attempt, by Massachusetts, to further regulate tobacco products by requiring tobacco companies to submit to Massachusetts the ingredient lists for all cigarettes, snuffs, and chewing tobaccos sold in the state. For each brand, the manufacturer must list, by relative amount, all ingredients besides tobacco, water, or reconstituted tobacco sheet. Mass. Gen. Laws ch. 94, § 307B (2002). Currently, the appellees, a group of tobacco companies, treat these ingredient lists as trade secrets and either do not disclose brand-specific information at all or do not disclose it without some guarantee of confidentiality.

The tobacco companies brought suit claiming that the Massachusetts statute, which allows the public disclosure of these ingredient lists whenever such disclosure "could reduce risks to public health," Mass. Gen. Laws ch. 94, § 307B, creates an unconstitutional taking. Appellees also argued that the Massachusetts statute violates their Due Process rights by effecting a taking of their property without first providing a meaningful opportunity to be heard. The district court concurred and granted summary judgment in favor of the tobacco companies. A divided panel of this Court rejected appellees' arguments and reversed the district court's judgment. After en banc review, however, Judge Selya and I agree with the district court and, therefore, affirm its grant of summary judgment and award of injunctive and declaratory relief in favor of plaintiffs-appellees.

I. Factual Background

Appellees are various manufacturers of cigarettes and smokeless tobacco products.¹ They all currently sell their products in Massachusetts and are potentially subject to the requirements of Mass. Gen. Laws ch. 94, § 307B ("Disclosure Act").

Defendants-appellants are the Attorney General of Massachusetts and the Massachusetts Commissioner of Public Health.

A. The Ingredient Lists

All of the tobacco products manufactured by appellees include a variety of additives (in addition to tobacco, water, and reconstituted tobacco sheet). For example, common ingredients include sugars, glycerin, propylene glycol, cocoa, and licorice. These various additives are used as solvents, processing aids, pH modifiers, formulation aids for reconstituted tobacco, preservatives, humectants, tobacco protection aids, "plasticizing" agents, and, perhaps most importantly, flavorings. It is undisputed that appellees have spent millions of dollars developing formulas for their different brands, and when successful, those brands are worth billions of dollars. A major factor of each brand's success is its distinctive flavor, taste, and aroma.

While appellants argue that the added ingredients are neither pre-approved by regulators nor tested for safety, it is undisputed that most of the added ingredients are approved for consumption in food or "Generally Recognized As Safe" by the Food and Drug Administration. The one additive not found on either list is denatured alcohol, and this has been approved by the Bureau of Alcohol, Tobacco, and Firearms for use in the manufacture of tobacco products.

Each of the appellees closely guards its valuable ingredient lists. For example, within each company, only a few individuals are privy to the entire formula for any one brand. Suppliers are subject to confidentiality agreements and ship their products in packages which disguise their contents.

It is true that some ingredients of particular brands are known, and all ingredients used in any tobacco product are publicly available. However, this does not mean that complete brand-specific ingredient information can be obtained. In fact, various appellees have tried to "reverse engineer" the formulas of their competitors, but these attempts have been unsuccessful. Apparently, they have been able to determine the chemical composition of the various brands, but this information does not translate into a formula to recreate the product. Appellees assert, however, that if they were able to combine the chemical composition derived from this "reverse engineering" with a list of specific ingredients, arranged by relative amount, it would be much easier to discover a competitor's formula. Therefore, the tobacco companies argue that publication of their ingredient lists, organized by relative amount, on a brand-by-brand basis would likely destroy the secrecy of their formulas. This contention is not disputed by appellants.

B. Current Federal and State Disclosure Requirements

Tobacco companies currently have to disclose their ingredient lists to both the federal government and at least two state governments.

The federal government requires only that an aggregate list of all ingredients used in cigarettes and smokeless tobacco products be provided to the Department of Health and Human Services. 15 U.S.C. § 1335a(a). These lists, each of which contains hundreds of ingredients, neither identify the ingredients in any particular brand nor reveal which ingredients are used by which manufacturer. Id. The Department of Health and Human Services can study and report to Congress on the health effects of tobacco additives, including information on specific ingredients which may pose a health risk to consumers. Id. at § 1335a(b)(1)(A)-(B). However, without further legislation and disclosure, the federal government has no ability to warn consumers of the use of harmful additives in specific brands.

Two states, besides Massachusetts, require some disclosure of additives to tobacco products. Minnesota mandates that tobacco companies report only the use of several targeted additives in their products. Minn.Stat. § 461.17 (Supp.1997). Texas requires that the tobacco companies report brand-specific ingredient information, in descending quantities. Tex. Health & Safety Code Ann. §§ 161.351-55 (West Supp.2001). While this scheme superficially looks like the challenged Massachusetts legislation, Texas protects the ingredient lists by prohibiting public disclosure when those lists would be considered trade secrets under either federal or state law. Id. at § 161.254(c). The tobacco companies have complied and continue to comply with these disclosure requirements and have never challenged their validity.

C. The Disclosure Act

In 1996, Massachusetts enacted the Disclosure Act, ostensibly to promote public health. Citing the fact that various tobacco product additives may have adverse health effects when burned, either alone or in combination with other additives, Massachusetts expressed an interest in being able to study more accurately the health effects of tobacco products on consumers. Massachusetts was also concerned that certain additives may increase nicotine delivery and that those additives might be used in cigarettes advertised as having a lower nicotine content.

In Massachusetts' view, previous disclosure requirements did not allow it to investigate adequately these public health concerns. For example, the publicly available ingredient lists do not identify additives according to brand or manufacturer. Therefore, Massachusetts could not study the interaction of additives and know whether those additives are actually combined. Nor could Massachusetts study the additives used in more popular brands and those brands targeted to younger consumers. No one disputes that these suggested studies are laudable and within the health and safety realm of the state's traditional police powers.

Massachusetts, however, has an additional goal to be realized through the Disclosure Act: it hopes to publicize the ingredient lists of various brands. This information, Massachusetts believes, will help consumers make more informed choices about the tobacco products they choose to consume. The envisioned effect is greater public awareness about the potential health effects of tobacco additives.

With these considerations in mind, Massachusetts enacted the Disclosure Act, which reads, in relevant part:

For the purpose of protecting the public health, any manufacturer of cigarettes, snuff or chewing tobacco sold in the commonwealth shall provide the department of public health with an annual report, in a form and at a time specified by that department, which lists for each brand of such product sold the following information:

(a) The identity of any added constituent other than tobacco, water or reconstituted tobacco sheet made wholly from tobacco, to be listed in descending order according to weight, measure, or numerical count; and

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