WASHINGTON (Legal Newsline)-The U.S. Supreme Court rejected an appeal Monday by a California smoker who alleged the $206 billion tobacco settlement between 46 states and the four major cigarette companies violated antitrust laws.

As a part of the multi-state settlement, Philip Morris, R.J. Reynolds Tobacco Company, Brown & Williamson and Lorillard Inc. agreed in November 1998 to pay the states to settle claims by the states for smoking related costs they incur.

Without comment, the nation's high court declined to hear the case that Steve Sanders brought originally in June 2004, when he sued the four tobacco companies and the state of California.

Sanders argued that the terms of the agreement effectively penalized tobacco companies if they gained market share.

He said in court papers that tobacco companies would have to make larger payments to the states if they cut prices and increased their sales relative to their rivals.

As a result, cigarette companies were able to raise their prices in tandem to pay for the settlement, he said.

By raising the price of a carton of cigarettes by $12.20 between 1998 and 2002, he said the tobacco companies were able to rake in $20 billion in profits annually, or more than double the amount they were required to pay the states under the settlement.

He said the multi-state agreement "effectively established a horizontal cartel that eliminated all incentive to increase market share or to compete on price."

His claims were dismissed by a federal district court and by the 9th U.S. Circuit Court of Appeals in San Francisco.

The tobacco companies and the state of California responded to the lawsuit, saying that the settlement agreement is exempt from antitrust law, as are most actions by states.

California Attorney General Jerry Brown said in court filings that tobacco companies that didn't participate in the settlement increased their market share five years afterward, from .5 percent to 8.2 percent, while the four leaders saw their share drop from 96.5 percent to 84.5 percent.

Named in the lawsuit are Philip Morris USA, a unit of Altria Group Inc.; Brown & Williamson Holdings Inc., a unit of British American Tobacco PLC, Lorillard Tobacco Co., a unit of Loews Corp.; and R.J. Reynolds Tobacco Co., a unit of Reynolds American Inc.

The case is Sanders v. Brown et al, 07-995.

From Legal Newsline: Reach reporter Chris Rizo by e-mail at chrisrizo@legalnewsline.com.