US cigarette makers yesterday struck a deal requiring them to pay out $250 billion (£170 billion) over the next 25 years to end the worst of the litigation they face.
If finally agreed, the settlement will be by far the biggest by any industry in corporate history, dwarfing Monday's proposed $3.2 billion pay-out by Dow Corning to end breast implant litigation.
The deal was struck between the big cigarette manufacturers and eight of the 38 states suing them for the cost of treating smoking-related illnesses. Details of the package are expected to be announced on Monday. The other 30 states will then be given about a week to sign up.
If more than two or three states refuse to sign - especially big states such as New York or California - the deal could fall apart, but most states are expected to approve the settlement because it includes advertising restrictions and other anti-tobacco measures that would not be available through a jury award.
Yesterday's settlement is a slimmed-down version of a tougher deal that the states announced in June, 1997, when the tobacco companies agreed to pay out $368 billion, accepted ambitious targets for reducing teenage smoking, and agreed to federal regulation of nicotine as a drug.
In return, the tobacco companies wanted immunity from nearly all big lawsuits, so the deal had to go to Congress for approval. It fell apart when Congress tried to make it even tougher. The new version does not require Congressional approval.
The settlement sets out to discourage young people from smoking by banning advertisements in places where youngsters would be likely to see them, including nearly all outdoor advertising and restrictions on sports sponsorship. Cartoon figures such as Joe Camel will be banned, but human figures such as the Marlboro Man will survive.
A national foundation to reduce teen smoking will be established at a cost of $25 million a year over 10 years, and $1.45 billion will be paid over five years to set up a public education fund that will campaign against smoking.
The pay-outs to the states - to be divided among them according to population and smoking costs incurred - will start with a payment of $2.4 billion backdated to last month, rising to $9 billion by 2018, a level at which they will continue in perpetuity.
The payments will be divided among the cigarette makers according to market share. They will rise in line with inflation, and will also rise or fall in line with overall cigarette sales.
The deal says the lawyers who assisted the states will be paid from a $1.25 billion fund set up by the tobacco industry. But most law firms were working on contingency fee basis, and will probably fight to claim a percentage of the sums paid to the states.
Although the deal will lift the legal threat from the tobacco industry, it will prompt concerns among other US industries about which will be targeted next by multi-billion dollar lawsuits.
On Thursday, Chicago became the second city to take legal action against US gun makers and distributors, claiming compensation for the damage done by their products. New Orleans sued two weeks earlier.
