Philip Morris Makes a Stand Against Online Cigarette Sales

Philip Morris USA's spokes person claims that they constantly fight Internet sellers that infringe on the company's intellectual property rights by selling brand-name cigarettes without authorization. In the past, such actions have led to 16 federal court judgments and permanent injunctions against operators of Internet companies accused of such sales. Using the Web has been seen as a way of not only selling to those who would not be otherwise able to obtain cigarettes because of their age, but also as a way for some merchants to circumvent state taxes, which often add dollars per pack onto the prices of cigarettes. The truth is that its been Philip Morris USA doing the battle to preserve its depleting market share against imports while maintaining high market prices.

The settlement is the latest attempt by regulators to shut off the supply of cigarettes available for sale through online sites that do not require proof of age or that sell into jurisdictions that do not allow online tobacco sales. The biggest problem that seem to bother Philip Morris are the cheaper imports that have been taking away from its own sales specifically Marlboros produced in Switzerland or the Philippines.

With Philip Morris accounting for nearly half of all cheap cigarettes sales in the U.S., the move could have a major impact on online sales, though merchants willing to operate outside the law may still find ways to obtain the product, as tax-free cigarettes can often still be obtained from overseas locations.

The agreement seemed to leave some unanswered questions, including whether Philip Morris agrees with the attorneys general that all online tobacco sales are essentially illegal because age cannot be verified and because of tax-collection loopholes. In fact, that question has been one debated frequently since the dawn of e-commerce. In 2001, a Federal appeals court in New York threw out a state law banning online sales, saying the state had overstepped its jurisdiction by placing a limit on interstate commerce.

There are also financial implications, noted National Taxpayers Union policy analyst Elizabeth Terrell. "A lot of states had been targeting online sales to collect the taxes that may have been avoided by buying through that channel," she said. Some states had begun to use existing federal legislation in an attempt to force retailers to turn over the names of customers so that they could be billed by states for taxes that were not paid at the time of purchase. "States were becoming much more aggressive about targeting those sales from the tax angle," Terrell added.