A New York state law banning sales of cigarettes via the internet is being challenged in federal court by Brown & Williamson Tobacco, which has filed a lawsuit arguing that the new law unfairly limits the ways in which the company can do business.
Mark Smith, director of public affairs at the Louisville, Kentucky-based cigarette company, says the suit filed in US District Court in Manhattan asks that the New York law be overturned. The measure is scheduled to go into effect in November and would also bar cigarette sales via mail order and the telephone.
But from the perspective of Brown & Williamson, the third-largest cigarette maker in the US, the new law is unconstitutional. "The Constitution prohibits any one state from regulating avenues of commerce, such as the Internet, or US mail, or interstate shipments," Smith says. The New York law "has implications for all e-commerce," he adds.
The law, signed by governor George Pataki in August, would ban direct sales of cigarettes over the internet and the two other mediums in an attempt to prevent minors from making illegal purchases, according to state officials. A spokesman for the governor's office couldn't be reached for comment on Brown & Williamson's suit.
Smith said Brown & Williamson last week set up a new division called BWT Direct that plans to offer some of its harder-to-find cigarette brands directly to smokers. The direct-marketing strategy is aimed at making the brands more visible at a time when retailers have finite amounts of shelf space for products such as cigarettes.
"We've got a piece of the business that's kind of fading away if we don't figure out some way of getting these products [out and helping] consumers to be able to find them," Smith says. The brands in question include Tareyton, Carlton, Barclay, Misty and Capri cigarettes and together make up about 3.5 percent of the company's annual sales, "which is a nice piece of business," Smith adds.
Brown & Williamson would collect all taxes on the cigarettes it plans to sell directly and forward the money to state and federal governments as required by existing law, according to Smith. The company plans to prevent sales to minors by using customer databases, voter registration information and photo ID validation methods to be sure of the identity and age of customers, he says.
Harry Wolhandler, an analyst at ActivMedia Research in Peterborough, New Hampshire, predicts that the New York law is unlikely to stand up in court as long as internet, mail or phone sales won't reduce the state's tax revenue.
"I think New York may have a hard time supporting its position, providing all of its other laws are maintained,'' Wolhandler says. "I really have difficulty seeing how New York could ban [the internet] as a channel. I think free trade is going to prevail on this one."
However, the Texas Department of Transportation did win an online sales legal battle with Ford last summer when a US District Court judge upheld laws in that state prohibiting automakers from also acting as car dealers. Transportation officials in Texas had cited those laws in moving to halt an operation under which Ford was selling used cars via the internet in the Houston area.
A similar case has been unfolding in Arizona, where two trade associations representing automakers filed suit in July in an effort to block a new state law that prohibits car manufacturers from using the Internet to sell directly to consumers.