Dec. 15 (Bloomberg) -- Smokers can sue over the marketing of “light” cigarettes, the U.S. Supreme Court ruled in a decision that bolsters billions of dollars in claims against Altria Group Inc.’s Philip Morris USA and other tobacco companies.

The justices, voting 5-4, said a federal labeling law doesn’t shield cigarette makers from suits accusing them of deceiving consumers by describing cigarettes as “light” or “low tar.” The high court also said federal oversight of cigarette testing didn’t preclude those lawsuits.

Light-cigarette suits represent probably the most significant legal threat facing the tobacco industry, with dozens of smoker suits against Philip Morris, Reynolds American Inc.’s R.J. Reynolds Tobacco and other cigarette makers. Lights account for more than 80 percent of the U.S. market, according to federal figures.

The ruling “gives a green light to conventional fraud claims against the tobacco industry,” said David Vladeck, a Georgetown University law professor who filed a brief backing the smokers.

Altria fell 13 cents, or 0.9 percent, to $15.21 at 4:02 p.m. in New York Stock Exchange trading. The shares fell as low as $14.96 about a half-hour after the Supreme Court released its ruling in Washington. Reynolds American fell 54 cents, or 1.3 percent, to $40.01.

‘Manageable’ Litigation

Altria said in a statement it continues to view lights litigation as “manageable.” The smoker suits still face other hurdles, including the reluctance of some courts to grant class- action status, a designation that lets smokers with relatively small claims sue together.

“The company will assert many of the strong defenses used successfully in the past to defend against this very type of case,” Murray Garnick, an Altria lawyer, said in a statement.

In broadening consumer rights, the court divided along familiar lines. Justices John Paul Stevens, Anthony Kennedy, David Souter, Stephen Breyer and Ruth Bader Ginsburg formed the majority. Chief Justice John Roberts and Justices Antonin Scalia, Clarence Thomas and Samuel Alito dissented.

The ruling surprised some industry analysts, including Morgan Stanley’s David Adelman, who had predicted an industry victory before the high court heard arguments. Still, Adelman said cigarette companies retained “very, very valid and effective defenses” to the suits.

No Turning Point

“I don’t think this is a turning point for the plaintiffs in either lights litigation or tobacco litigation generally,” said Adelman.

Anti-tobacco advocates hailed the ruling. “It’s a very historic day in the field of tobacco litigation,” said Ed Sweda, an attorney at the Tobacco Products Liability Project at Northeastern University School of Law in Boston. “There was this dark cloud hanging over all these cases up until today.”

Cigarette companies face about 40 similar suits, Sweda said. Smoking foes say Philip Morris and other cigarette makers have long known that smokers compensate for reduced tar and nicotine levels by inhaling more deeply and frequently.

An Illinois light-cigarette suit at one point threatened Philip Morris, the nation’s largest tobacco company, with a $10.1 billion award before it was overturned.

The suit before the justices seeks to recover the money Maine smokers spent on Philip Morris’s Marlboro Lights and Cambridge Lights through November 2002, plus punitive damages. A federal appeals court in Boston had said the suit, which invoked a Maine unfair trade practices law, could go forward.

Federal Regulation

Philip Morris contended that the Maine suit was preempted by a pair of federal cigarette-labeling laws enacted in the 1960s. Those measures require each package of cigarettes to carry a specified warning label while barring additional state regulation “based on smoking and health.”

Writing for the court majority, Stevens said the Maine unfair trade practices statute “says nothing about either ‘smoking’ or ‘health.’” He called the state law “a general rule that creates a duty not to deceive.”

Stevens invoked a 1992 Supreme Court ruling that barred some, though not all, smoker lawsuits against tobacco companies. Cipollone v. Liggett Group, as the case is known, splintered the justices, leaving the court unable to produce a single majority opinion. Stevens said his reasoning was consistent with the four- justice plurality opinion in the 1992 case.

In dissent, Thomas said the smokers’ lawsuit was “premised on the effects of smoking and health.” He and the other dissenters said the court should have disavowed the Cipollone plurality’s reasoning, calling it “unworkable.”

Trade Commission Oversight

Philip Morris also argued that lawsuits would interfere with the Federal Trade Commission’s oversight of cigarette testing and its policy of encouraging companies to market low-tar brands.

Stevens rejected that argument, saying the FTC “has no longstanding policy authorizing collateral representations” based on the testing method used by cigarette makers. Thomas didn’t address that question in his dissent.

The FTC last month withdrew its endorsement of the four- decade-old test that lets cigarette makers claim some brands contain less tar and nicotine. The test method is “confusing or misleading to consumers,” the FTC said in a statement then.

“For consumers it’s a major victory,” Jonathan Leibowitz, a Democratic FTC commissioner said of today’s high court decision. The ruling reaffirms that “states are full partners” with the FTC in protecting consumers against deception, he said.

The case is Altria v. Good, 07-562.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: December 15, 2008 16:13 EST