One judge, David S. Tatel, noted that the Supreme Court was reviewing a separate case alleging deceptive advertising of "light" cigarettes that could have a "fairly dramatic impact" on their decision. "Why shouldn't we wait?" he said.
The appeals panel is considering whether to overturn Kessler's ruling, which, if it stands, could open the door to more lawsuits from smokers claiming they were harmed because they were deceived by cigarette companies. Health groups say the ruling should be upheld with stiff penalties to remedy decades of misleading industry advertising and wrongful behavior.
At the hearing, Philip Morris attorney Miguel Estrada said tobacco companies might have sent mixed messages in the past about the safety of cigarettes. But he said it was never proven the companies had conspired in a group enterprise to commit fraud.
"Ultimately, the essence of the government's case is, 'We don't like your industry, we don't like what you do,"' Estrada said.
Justice Department attorney Mark Stern countered that evidence at trial showed that top tobacco executives continued to assert that cigarettes weren't addictive and market them as such even as their researchers suggested otherwise.
"Our point is, the top guys knew," Stern said.
Both the government and the industry are challenging different aspects of Kessler's ruling, which barred cigarette companies from using terms such as "low tar" or "light" in their marketing, but did not impose financial penalties.
Cigarette companies say they did nothing wrong, while the Justice Department wants the industry to pay roughly $14 billion for a smoking cessation program and related efforts.
"The current punishment does not fit the magnitude of the crime," said M. Cass Wheeler, who heads the American Heart Association and wants the court to levy billions of dollars in penalties against tobacco companies. "That money should be used for education and cessation programs to break the cycle of addiction, not to entice children and adults to start and maintain a very deadly habit."
Murray Garnick, an associate general counsel with Altria Group Inc., the parent company of Philip Morris USA Inc., said the government had failed to prove its case. Tobacco companies have long since improved the way they market cigarettes, he said.
The other tobacco companies appealing in the case are R.J. Reynolds Tobacco Co.; Brown & Williamson Holdings Inc.; Lorillard Tobacco Co.; and British American Tobacco Ltd.
"This is an extraordinary case that never should have been brought under the RICO statute," Garnick said.
In her ruling, Kessler said she lacked authority to order them to pay the billions of dollars the government had sought. Instead, she ordered the companies to publish in newspapers and on their Web sites "corrective statements" on the adverse health effects and addictiveness of smoking and nicotine.
Kessler also barred tobacco companies from labeling cigarettes as "low tar," "light," "ultra light" or "mild," since such cigarettes have been found to be no safer than others because of how people smoke them.
Those orders have been delayed by the federal appeals court while the appeal is being reviewed.
In her ruling in the long-running case, the judge said, "Over the course of more than 50 years, defendants lied, misrepresented and deceived the American public, including smokers and the young people they avidly sought as 'replacement smokers,' about the devastating health effects of smoking and environmental tobacco smoke (secondhand smoke)."
Kessler, who presided over a nonjury trial in the case, said that adoption of a national stop-smoking program, as sought by the government, "would unquestionably serve the public interest" but that she was barred by an appeals court ruling that said remedies must be forward-looking and not penalties for past actions.
The government had asked the judge to make the companies pay $10 billion for smoking cessation programs, though the Justice Department's own expert said $130 billion was needed.
Kessler's decision came nearly a decade after the states reached legal settlements with the industry worth $246 billion and aimed at recovering health care costs. Those settlements imposed some restrictions on the industry, such as banning ads on billboards and public transportation.
Sharon Eubanks, who once headed the government's tobacco prosecution team said, "We won. It's clear the government won.
This is the first time they've been found to violate the racketeering statute. For crying out loud, that's significant. They're racketeers."
The tobacco companies - except for one defendant, Liggett Group Inc. - were ordered to pay the government's cost for pursuing the lawsuit. The government's costs, according to some Justice Department estimate, totaled more than $140 million.
The suit was first filed in 1999 during the Clinton administration. The Bush administration pursued it after receiving early criticism for openly discussing the case's perceived weaknesses and attempting unsuccessfully to settle it.
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