Cigarette companies systematically lied for years in order to sell tobacco products they knew were dangerous, a U.S. appeals court said on Friday as it upheld a trial judge's racketeering verdict.

But in a blow to anti-smoking groups, the U.S. Court of Appeals for the District of Columbia also upheld the lower court's decision to reject expensive remedies, like funding a smoking cessation program.

The tobacco companies had appealed the decision of U.S. District Judge Gladys Kessler in August 2006 that included ordering cigarette makers to cease using expressions such as low tar or light in their cigarette marketing.

The three-judge panel of the appeals court unanimously ruled that the companies, including Altria Group Inc and its Philip Morris USA unit, violated federal anti-racketeering laws by conspiring to lie about the dangers of smoking.

Defendants knew of their falsity at the time and made the statements with the intent to deceive, said the 92-page ruling. Thus, we are not dealing with accidental falsehoods, or sincere attempts to persuade; Defendants' liability rests on deceits perpetrated with knowledge of their falsity.

Other companies appealing Kessler's ruling were the R.J. Reynolds Tobacco unit of Reynolds American Inc, Lorillard Inc, Vector Group Ltd's Liggett Group, British American Tobacco Plc and its Brown & Williamson unit, as well as now defunct industry groups: the Council for Tobacco Research and the Tobacco Institute.

Despite the racketeering finding, the tobacco companies have managed to avoid major monetary penalties in the case that was originally filed by the Clinton administration in 1999 seeking $289 billion in damages.

During the trial, that began in 2004, lawyers for the Justice Department under the Bush administration scaled back the monetary demands to $14 billion for anti-smoking campaigns.

Kessler ultimately ruled the companies broke the law but said they could not be forced to fund a quit-smoking program under a 2005 ruling by the same appeals court that rejected penalties for past behavior and said any remedies should be forward-looking.

Philip Morris and Altria said they would press on with the legal fight.

PM USA (Philip Morris) and Altria Group continue to believe that the court's conclusions are not supported by the law or the evidence presented at trial..., said Murray Garnick, Altria associate general counsel in an email.

Matthew Myers, president of the Campaign for Tobacco Free Kids, welcomed the racketeering finding. We're disappointed that the court didn't go further in ordering a major smoking cessation campaigns but the court's findings represent a major public health victory.

RELIEF FOR CONVENIENCE STORES

In a victory for convenience stores and other retailers, the appeals court said the lower court overstepped its authority in requiring merchandisers to add countertop signs displaying corrective statements by the tobacco companies.

The National Association of Convenience Stores said the requirement would take away valuable counter space and cost the industry $82 million in lost annual sales.

But the appeals court upheld the order requiring warnings on cigarette packages and demanding that tobacco sellers publish the corrective statements on corporate websites, that they issue full-page advertisements in thirty-five major newspapers and put at least ten advertisements on a major television network.

The appeals court was highly critical of the tobacco companies, rejecting their arguments that they had never advertised light cigarettes as less dangerous.

The court also pointed to evidence that the companies knew that second-hand smoke was dangerous, dismissing their assertions that there was no scientific consensus.

Again defendants miss the point, the ruling said. The question is not whether other individuals knew that defendants' claims were false or misleading; the question is whether defendants did. Regardless of whether a scientific consensus existed at any point, defendants may be liable for fraud if they made statements knowing they were false or misleading.

The case is U.S. v Philip Morris USA et al, U.S. Court of Appeals for the District of Columbia, No. 06-5267.

The ruling was posted at: http://pacer.cadc.uscourts.gov/common/opinions/200905/06-5267-1181914.pdf

(Additional reporting by James Vicini; Editing by Gerald E. McCormick and Tim Dobbyn)

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