* Decision conflicts with district court ruling

* Cases could end up before U.S. Supreme Court

By Terry Baynes

March 19 (Reuters) - A federal law requiring large graphic health warnings on cigarette packaging and advertising does not violate the free speech rights of tobacco companies, a federal appeals court ruled on Monday.

Cigarette makers had sued to stop the U.S. Food and Drug Administration's new labeling and advertising requirements on grounds the rules violated their First Amendment right to communicate with adult tobacco consumers.

But the Cincinnati-based U.S. Court of Appeals for the 6th Circuit upheld the bulk of the FDA'S new regulatory framework, including the new graphic warnings. The ruling in large part affirmed a Kentucky federal judge's 2010 decision in the case.

"There can be no doubt that the government has a significant interest in preventing juvenile smoking and in warning the general public about the harms associated with the use of tobacco products," Judge Eric Clay wrote for the three-judge appeals court panel.

Congress passed the law in 2009 and ordered the FDA to adopt specific warning-label regulations. The labels must be in color, must cover the top 50 percent of a cigarette pack's front and back panels, and must cover the top 20 percent of print advertisements.

After tobacco companies, including R.J. Reynolds Tobacco Co and Lorillard Tobacco Co, sued to block the law, the FDA unveiled nine images to go on cigarette packs, including graphic pictures of dead bodies, diseased lungs and rotting teeth. The companies accused the government of forcing them to disseminate an anti-smoking message in order to stigmatize and embarrass already-informed consumers.

The appeals court panel's two-judge majority disagreed with the companies on the label requirement, finding that the fact that the specific images might trigger disgust does not make the requirement unconstitutional. The majority did note that it was only addressing the constitutionality of the statute on its face, and not the specific images that the FDA introduced after the suit was filed.

Judge Clay, who wrote the main opinion upholding most of the FDA regulations, dissented, however, on the graphic label ruling. He called the rule "simply unprecedented." While the government can require a product manufacturer to provide truthful information, "it is less clearly permissible for the government to simply frighten consumers or to otherwise attempt to flagrantly manipulate the emotions of consumers as it seeks to do here," Clay wrote.

In a separate case, a district judge in Washington, D.C., ruled on Feb. 29 that the graphic label requirement was a violation of the tobacco companies' free-speech rights. He found that the warning labels were too big and that the government has numerous other tools at its disposal to deter smoking, such as raising cigarette taxes or including simple factual information on the labels rather than gruesome images. The Obama administration appealed that ruling with the U.S. Court of Appeals for the District of Columbia Circuit on March 5.

Floyd Abrams, a lawyer for Lorillard, said the 6th Circuit decision does not necessarily conflict with the D.C. district court decision, which addressed the nine FDA images.

"The court made clear it was focusing on the statute as written, as opposed to the implementation of it," Abrams said. However, he noted a difference in tone between the two rulings. The 6th Circuit majority said it disagreed with the D.C. court's premise that a disclosure is unconstitutional if it triggers a visceral response.

Abrams said the 6th Circuit case, the D.C. case or both would likely end up in the U.S. Supreme Court.

The Department of Justice did not immediately provide comment.

The 6th Circuit also upheld other FDA regulations, including restrictions on the marketing of "light" cigarettes, on the distribution of free tobacco samples, and event sponsorship. The court struck down a rule barring the use of color and graphics in tobacco advertising.

"We are pleased the 6th Circuit Court of Appeal upheld the continued use of colors and imagery in our advertisements," said R.J. Reynolds spokesman Bryan Hatchell.

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