Cigar Association of America et al. v. United States Food and Drug Administration et al.
NIALL H. MACMENAMIN, RENE BEFURT & GENNA LIU*
Why It Made the List
Do larger, more prominent health warnings deter people from smoking cigars? That is the question the D.C. Circuit Court of Appeals asked in Cigar Association of America et al. v. United States Food and Drug Administration et al., and one that, according to the court of appeals, the Food and Drug Administration (FDA) failed to answer. The court of appeals reversed the District Court for the District of Columbia’s decision and ruled that the FDA’s new health warning requirements on cigar products violated the Tobacco Control Act (TCA) and the Administrative Procedure Act (APA). Among other concerns, the court of appeals concluded that the agency failed to consider how the proposed warnings would likely affect the number of cigar smokers.
The court of appeals opinion demonstrated the importance of using targeted evidence to evaluate the impact of health warning requirements on consumers’ behaviors. The court noted that FDA’s evidence was insufficient to show that the warning labels would have an impact on current and prospective cigar smokers. Or, in the words of the court’s opinion, FDA “failed to bridge the gap between effective communication and fewer smokers.” In light of the court of appeals’ perception that evidence in this matter was lacking (despite the agency’s contrary belief), one can raise this question: What form of evidence could be used to evaluate the impact of the new warning labels on cigar smoker adoption and cessation rates?
Background: Establishment of the Deeming Rule
In May 2016, FDA promulgated the “Deeming Rule,” a regulation that deemed all tobacco products, including cigars and pipe tobacco, subject to control of the Federal Food, Drug, and Cosmetic Act (FDCA). Passed under the authority of the TCA, the Deeming Rule submits newly deemed tobacco products to the same regulations previously imposed on cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. Specifically, newly deemed tobacco products must adhere to more demanding size mandates for health warning displays on tobacco product packages and advertisements. The displays are meant to inform prospective and current smokers that the tobacco product in question—in this matter, cigars—causes various diseases, creates pregnancy risks, is addictive, and is not a safe alternative to cigarettes.
Prior to FDA’s introduction of the Deeming Rule, the seven largest U.S. cigar companies, which comprise 95% of the U.S. cigar market, were required to rotate the display of five health warning statements “clearly and conspicuously” in their advertising and packaging. Under the Deeming Rule, for individually sold products, cigar producers would have to display warnings that take up at least 30% of two principal display panels on cigar packages, and needed to be placed near the cash register on a sign that is 8.5 by 11 inches in size and “clear, legible, and conspicuous” in appearance. Furthermore, warnings on advertisements were required to comprise at least 20% of the advertisement area. Overall, the Deeming Rule required that health warnings cover between 390 and 475% more of a package’s surface area compared to the prior requirements established by the FTC.
Challenging the Deeming Rule: Ruling and Reasoning of the District Court
In July 2016, shortly after the introduction of the Deeming Rule, the Cigar Association of America and other cigar associations filed suit in the district court, challenging, among other things, the requirement to alter the size and format of the health warnings as applied to cigar packaging and advertisements. They asserted that the Deeming Rule violated the TCA and APA, and that FDA had failed to provide concrete findings required by the TCA to justify the additional health warning requirements. Plaintiffs also alleged that FDA failed to explain plausibly why the existing FTC requirements were inadequate.
The district court upheld the Deeming Rule’s health warning requirements in July 2018, stating that FDA had presented adequate evidence connecting the rule to the cessation and prevention of cigar use. Specifically, the district court concluded that FDA had demonstrated the importance and efficacy of the proposed warnings by showing that health warning statements help consumers understand the health consequences of tobacco use. The district court pointed to research showing that larger lettering on product packaging more effectively communicates warnings to consumers, for example, by improving noticeability and recall.
The cigar associations appealed the district court’s rulings, and the Court of Appeals for the D.C. Circuit issued its opinion in July 2020.
Ruling and Reasoning of the Court of Appeals
The court of appeals reversed the district court’s decision and ruled that FDA failed to consider how the imposed warnings would likely affect the number of cigar smokers, therefore violating the TCA and APA.
In rendering its decision, the court of appeals relied on the wording of FDCA section 906(d)(1), which stipulates that FDA may impose warnings if they are determined to be “appropriate for the protection of the public health” with respect to the risks and benefits for the “population as a whole, including users and nonusers of the tobacco product.” FDA’s finding must also consider the impact of any regulation on the likelihood of cessation (“likelihood that existing users of tobacco products will stop using such products”) and the likelihood of adoption (“likelihood that those who do not use tobacco products will start using such products”). The court of appeals acknowledged that the additional health warning requirements are expensive to implement and affect the speech interests of manufacturers. Consequently, the court pointed out, it was essential for FDA to show that the warnings required by the Deeming Rule would actually have an effect on consumption of cigars.
In evaluating the evidence put forth by FDA, the court of appeals concluded that as applied to cigars, the Deeming Rule did not consider the impact of health warnings on cigar adoption and cessation rates. In the text of the Deeming Rule, FDA cited literature that showed tobacco smokers are “more likely to recall warnings that are in a larger size” or “appear on the front/major surfaces” of the product packaging, and that the likelihood that a consumer would notice and pay attention to the warning depends on the warning’s size and position. Although FDA contended that health warnings would more effectively convey the health risks of tobacco products, it did not consider the increased or decreased likelihood that consumers would act on the information conveyed in the warnings by deciding not to smoke. Even if effective communication and changes in smoking behavior are generally related, the FDA, the D.C. Circuit said, is not relieved of its duty to provide evidence of such connection for the specific product at-issue (cigars). Additionally, the requirement that FDA’s evidence focus on cigar users as opposed to all smokers is necessary because they are different consumers. For example, one expert report submitted to the district court found that cigar users have different demographics and usage behaviors than cigarette users, and one study cited by FDA in support of the Deeming Rule showed that cigar smokers might be less responsive to graphic health warnings than cigarette users.
The court of appeals decision raises the bar for FDA’s regulatory oversight. Under the decision, consistent with requirements set forth by the TCA, FDA must consider how proposed health warnings will likely impact the number of smokers. In particular, FDA must consider the effect of the proposed warning on the likelihood that existing users of tobacco will stop using the product, and the likelihood that those who do not use tobacco products will start using such products. In essence, FDA needs to present concrete evidence to bridge the gap between an updated warning label and its impact on consumer behavior.
The impact of product labelling on consumer perception and decision making has been a topic of academic and commercial research for decades. Labels are powerful elements of branding and advertising strategies, as they help consumers identify products and gather information about their features, quality, positioning, and numerous other characteristics. If one seeks to understand the impact of a warning label—or any label change, for that matter—on consumers’ perceptions and behaviors, empirical research can be a suitable place to look for an answer.
Empirical research can be conducted in various ways, including collecting scanner data (detailed data on sales of consumer products that are created when bar codes are scanned at the point of sale in retail locations) from retailers, and asking consumers directly for their input about a topic of interest. Among the tools that researchers use to develop evidence on marketing decisions such as changes to a label, survey research methods are particularly appropriate for evaluating consumer responses to new labelling options. Surveys are commonly used in regulatory and litigation contexts for this purpose and can inform stakeholders when conducted to accepted standards. FDA has frequently used surveys to test the effects of product claims and labeling on consumer perception and purchase decisions. However, in the Cigar Association matter, FDA remarked that “reliable evidence on the impacts of warnings label . . . on users of cigars . . . does not . . . exist.” A survey, however, may have provided FDA with suitable evidence to assess the impact of health warnings on cigar smokers’ smoking behavior and prospective smokers’ intent to adopt cigar smoking.
The benefits of survey research for the Cigar Association matter include:
- A direct sample of the populations of interest: The court of appeals decision identifies two distinct and mutually exclusive populations of interest: existing cigar users and prospective cigar users. A survey sampling plan can directly target these two populations, a benefit already known to FDA. For example, FDA has frequently analyzed national surveys that collect information on different categories of users and prospective users of tobacco products, assessing their usage behaviors, attitudes, and beliefs. In the same vein, FDA could survey a category of cigar users and prospective cigar users to evaluate the impact of the proposed health warnings.
- An estimate of the effect of a warning label on consumer purchase decisions: Surveys can be conducted as an experiment to assess the causal impact of a variable of interest on usage and purchase behavior. In simple terms, an experimental design involves the random assignment of respondents to test and control groups. The only difference between the two groups is the variable of interest: in this case, the size—and possibly the contents—of the warning statement displayed on cigar packaging. A survey researcher can construct separate images of the product with the existing label and the product with a label with a different size and/or statement. With this test and control design, the researcher can directly compare the effects of the proposed health warning label with the current label. For example, researchers could test for a difference in the likelihood of usage between the test and control group. A statistically significant result would suggest that the tested health warning label is likely to impact smoking behaviors.
The Cigar Association case is still ongoing in both the court of appeals and the district court, as the parties are still resolving other issues involving grandfathering dates and premarket review. The challenge to the Deeming Rule’s health warnings was remanded to the district court, which then vacated the warning requirements and remanded them back to FDA. It is unclear at this point whether or when FDA might initiate new rulemaking proceedings for cigar health warning labels.
* Niall H. MacMenamin is a Vice President at Analysis Group, and a member of the Surveys & Experimental Studies practice. He is an economist with a specialization in marketing and statistics. He has expertise in cases involving false advertising and antitrust disputes. Dr. Befurt is a Vice President at Analysis Group, and a leading member of the Surveys & Experimental Studies practice. Dr. Befurt is an expert in applying marketing research methods to strategic business problems and litigation matters. He has served as an expert witness in numerous survey and sampling matters, and he assists academic affiliates in the conceptualization, administration, and evaluation of surveys. His specialty in consumer surveys is the development and evaluation of survey experiments and choice modeling approaches, including conjoint analyses. Genna Liu is a Senior Analyst at Analysis Group and a core member of the Surveys & Experimental Studies and Antitrust & Competition practices. Genna’s experience includes a wide spectrum of analytical applications and econometric analyses, as well as the design and evaluation of empirical quantitative and qualitative research studies to assess consumer perception and behavior around topics related to marketing and branding.
 964 F.3d 56 (D.C. Cir. 2020).
 315 F. Supp. 3d 143 (D.D.C. 2018).
 While this article focuses on cigars, the court decisions also covered pipe tobacco.
 964 F.3d at 60.
 Final Rule Deeming Tobacco Products to be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 81 Fed. Reg. 28,974 (May 10, 2016).
 21 C.F.R. § 1143.3(a)(1).
 This requirement was established as part of a settlement reached between Swisher International, Inc., Altadis U.S.A., Inc., General Cigar Holdings, Inc., John Middleton, Inc., Lane Limited, Inc., and Swedish Match North America, Inc. and the Federal Trade Commission (FTC) in 2000. See 315 F. Supp. 3d at 151–52; Press Release, Fed. Trade Comm’n, Nationwide Labeling Rules for Cigar Packaging and Ads Take Effect Today (February 13, 2001), https://www.ftc.gov/news-events/press-releases/2001/02/nationwide-labeling-rules-cigar-packaging-and-ads-take-effect.
 21 C.F.R. § 1143.5(a)–(b). In addition, the Deeming Rule added requirements such as a new warning statement about nicotine addiction.
 315 F. Supp. 3d. at 155.
 Id. at 159.
 Id. at 160–61.
 964 F.3d at 59.
 Id. at 62.
 81 Fed. Reg. at 28,989.
 964 F.3d at 62–63.
 81 Fed. Reg. at 28,989; Elliott & Shanahan Research, “Literature Review: Evaluation of the Effectiveness of the Graphic Health Warnings on Tobacco Product Packaging 2008,” prepared for Australian Government Department of Health and Ageing, 2009.
 For example, Borin, Cerf, and Krishnan studied the impact of environmental information on consumer perception and purchase likelihood, and Loureiro, Gracia, and Nayga Jr. (2006) studied the value consumers place on nutritional labeling. See Norm Borin, Douglas C. Cerf & Ram Krishnan, Consumer Effects of Environmental Impact in Product Labeling, 28 J. Consumer Marketing 76, 76–86 (2011); Maria L. Loureiro, Azucena Gracia & Rodolfo M. Nayga, Jr., Do Consumers Value Nutritional Labels?, 33 European Rev. Agric. Econ. 249, 249–68 (2006).
 Kevin Lane Keller, Strategic Brand Management 36 (Pearson, 4th ed., 2013).
 For example, FDA put forth a draft guidance on survey methodologies for risk evaluation and mitigation strategies, including using a survey design that meets survey objectives, justifying the statistical analysis plan, constructing a survey instrument that tests for reliability and validity, minimizing factors that might contribute to bias, and developing strategies that minimize the burden on respondents and maximize participation. U.S. Food & Drug Admin., Survey Methodologies to Assess REMS Goals That Relate to Knowledge (Feb. 2019), https://www.fda.gov/regulatory-information/search-fda-guidance-documents/survey-methodologies-assess-rems-goals-relate-knowledge.
 For example, FDA used experimental designs to test the effects of nutrient content claims and vitamin-fortified snack foods on consumers’ health perceptions, purchase decisions, and information research. Consumer Research on Labeling, Nutrition, Diet, and Health, U.S. Food & Drug Admin. (Mar. 5, 2018), https://www.fda.gov/food/cfsan-consumer-behavior-research/consumer-research-labeling-nutrition-diet-and-health.
 964 F.3d at 63.
 For example, FDA publishes results from the National Youth Tobacco Survey, which is administered by the Centers for Disease Control and Prevention. National Youth Tobacco Survey (NYTS), Ctrs. for Disease Control & Prevention (Dec. 21, 2020), https://www.cdc.gov/tobacco/data_statistics/surveys/nyts/index.htm.
 The researcher could test multiple treatment groups for additional formulations of the warning statement.
 Final Judgment and Order at 3 (September 11, 2020).