As the tobacco industry awaits word from the Federal District Court on whether a corrective-statement sign settlement is approved, c-store operators with cigarette programs are wise to learn what it means to be in compliance with corrective-sign requirements and the penalties for non-compliance.
At press time, a federal judge had not yet issued an order approving the settlement agreement entered into by the U.S. Department of Justice, Altria Group Inc., Philip Morris USA Inc., R.J. Reynolds Tobacco Co. and ITG Brands LLC regarding certain corrective-statement signage to be displayed in retail stores that have manufacturer cigarette programs in place. A court order regarding the settlement agreement was expected sometime in October or November of this year.
Settlement Agreement Background
In 1999, the U.S. government sued the major cigarette companies asserting claims under various federal laws. In 2006, a federal judge entered judgment in favor of the government on certain claims and, among other things, ordered Altria Group Inc., Philip Morris USA Inc. and R.J. Reynolds Tobacco Co. 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 Co. in 2015.
These manufacturers have now reached a settlement agreement with the federal government, through the U.S. Department of Justice, 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, these manufacturers will be required to amend their cigarette program agreements with retailers to require the placement of a corrective-statement sign or signs in retail stores.
Amendments 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, two or three corrective-statement signs for a 21-month period.
However, it is important to note 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 a regular store that is not a kiosk-style store, one 348-square-inch corrective-statement sign will be displayed. The sign will be either square (18.655 inches by 18.655 inches) or rectangular (32 inches by 10.875 inches). The sign will need to be displayed in one of four locations based on the following order:
- above the main cigarette display,
- adjacent to the main cigarette display,
- within 48 inches of the main store entrance, or
- within 48 inches of the cash register.
For a retail store that is not a kiosk-style store but has more than nine feet of horizontal linear display space devoted to the manufacturers’ cigarette brands, a second 348-square-inch corrective-statement sign will be displayed and placed in one of the same four locations.
For a retail store that is not a kiosk-style store and has 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 within 48 inches of the main store entrance. The sign will be either square (12 inches by 12 inches) or rectangular (20 inches by 7.2 inches).
For kiosk-style stores, which are those that either don’t allow customers to enter and have a selling window between customers and store personnel; or that are no more than 325 square feet in area, not including restrooms, regardless of whether customers are allowed to enter the store; one 144-square-inch sign will need to be displayed near the transaction window or near the cash register. The sign can be either square (12 inches by 12 inches) or rectangular (20 inches by 7.2 inches).
The manufacturers will print the corrective-statement signs with 17 different court-ordered messages, with one message printed on each sign. The signs will be randomly distributed by manufacturers to stores across the country.
Display Period
Under the settlement agreement, there is a three-month “posting period” for manufacturers to 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 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 (as long as 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 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 violations.
Repeated Major Non-Compliance would result in the retailer’s suspension from the retail marketing programs for various periods of up to 17 weeks.
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.
A hearing before the Federal District Court to determine if the judge accepts the settlement agreement was held on July 28, 2022. At this time, the industry is waiting for the judge to issue an order on whether the settlement is accepted by the court.
Thomas Briant is the executive director for the National Association of Tobacco Outlets (NATO). NATO’s mission is to enhance the business interests of retailers that sell tobacco products, support the legislative and regulatory interests of members, and encourage the expansion of the retail tobacco segment in a responsible manner.
