Last Friday, the D.C. Circuit Court of Appeals ruled that the Department of Justice could not use the federal Racketeer Influenced and Corrupt Organizations Act to seek $280 billion in damages against tobacco companies.

This ruling has been labeled as a political defeat for the Department of Justice and a rare recent legal victory for tobacco firms. Shares of Philip Morris, Altria Group, Reynolds American, and British American Tobacco rose in late trading Friday.

But, more importantly, the decision places boundaries on the government’s use of RICO to seek damages from corporations. Without these limitations, RICO could become the weapon of choice in government litigation against businesses or even individuals.

RICO was not created by Congress in 1970 to fight wrongdoings by the visible corporate America for which there are ample remedies at law. Rather, the law was written to counteract the invisible underworld of organized crime against which government power had proved wanting.

RICO applies where the government can show that a criminal organization has invested in an enterprise engaged in interstate commerce and also has established a pattern of “racketeering” activity through the commission of two or more acts. Under RICO, the government can use otherwise unavailable extraordinary legal powers including anticipatory actions, such as freezing assets, to prevent future crimes.

In this case, (U.S. v. Philip Morris U.S.A.), the Justice Department attempted to use RICO to supplement other charges against the tobacco industry. RICO is the primary foundation for the government’s claim of substantial damages.

Many Americans have been harmed or even died at least partly as a result of the excessive use of tobacco. For the victims and their heirs, America offers a wide range of legal remedies ranging from products liability and negligence to fraud and tort claims.

This case is not about individual claims. The tobacco industry and the federal government have been in litigation for decades, but it was not always so. Just 60 years ago, the tobacco industry worked closely with the federal government to supply cigarettes to millions of servicemen during World War II. Such coordination with the tobacco industry seems impossible to imagine today.

The fickle relationship between government and private companies is all the more reason for us to hold the government to a high standard of staying narrowly within established law. The unpopularity of an industry should not give the government more latitude to prosecute its wrongdoings.

In litigation that began in the late 1990s, the Department of Justice alleges that the tobacco industry caused the federal health programs to incur substantial costs. The federal government sought damages to get the money back. A few years ago, District Court Judge Kessler ruled that the federal government could not make such claims directly through federal health-care programs.

But Judge Kessler did allow the government’s RICO claims against the tobacco industry for conspiring to hide information and for marketing tobacco improperly to go forward. That decision resulted in the appeal to the D.C. Circuit Court.

The narrow legal issue reviewed by the D.C. Circuit Court involved whether District Court Judge Kessler was correct in permitting the Department of Justice to insist on disgorgement of past tobacco company “proceeds” as a remedy under RICO. Those proceeds, according to the government, apparently amount to approximately $1,000 for every American, or $280 billion.

Writing for himself and Judge Williams, Judge Sentelle of the D.C. Circuit Court finds that courts can use the civil provisions of RICO to constrain future unlawful activity but not to recover from the past behavior of the tobacco industry. Presumably, various traditional legal remedies are available for recovering damages from past unlawful activities.

The Justice Department may yet prevail against the tobacco industry on other counts in Judge Kessler’s court. Big Tobacco may pay large damages, but unlikely under RICO.

Judge Sentelle has written the requiem for unbounded interpretations of RICO against corporate America. The government rightfully has substantial advantages in litigation with private parties. Those advantages need expansion in only the exceptional circumstance, much as envisioned under the RICO statute. A government that can interpret the powers of RICO to require large retrospective damages from public corporations today can set a precedent for using RICO even more imaginatively tomorrow.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.