The decision upholds a lower court ruling and responds to a U.S. Supreme Court decision that asked Oregon courts to consider whether the award in the lawsuit against Philip Morris was excessive.
The state Supreme Court said it was not excessive, given "such extreme and outrageous circumstances."
"Philip Morris knew that smoking caused serious and sometimes fatal disease, but it nevertheless spread false or misleading information to suggest to the public that doubts remained about the issue," the court said.
"It deliberately did so to keep smokers smoking, knowing that it was putting the smokers' health and lives at risk, and it continued to do so for nearly half a century," it said.
The decision upholds a 1999 Multnomah County jury award of $79.5 million in punitive damages to the family of Jesse D. Williams, a janitor who died in 1997 of lung cancer at the age of 67. The man's family also got $500,000 in non-economic damages, to compensate for pain and suffering.
The tobacco company said Thursday it would comment on the ruling after reviewing it.
An attorney for Williams' family, James S. Coon, applauded the ruling.
"We think it's the right decision," said Coon.
He said the Supreme Court's language was on target in describing the conduct of Philip Morris and its executives. Coon said well-educated people who knew that thousands would die "calmly did this."
In 2003, the U.S. Supreme Court ordered Oregon courts to review the award to ensure it was not unconstitutionally excessive under new standards for punitive damages adopted by the high court.
A state appeals court said in 2004 that the award wasn't excessive, and the state Supreme Court decision upholds that decision.
The $79.5 million award will mean a windfall not only for the man's family, but for the state as well.
Under state law, 60 percent of punitive damages in such cases go to the state, which in turn uses the money to support crime victims assistance programs.
According to testimony in the trial, Williams started smoking in the 1950s when serving in the Army in Korea, and later he smoked three packs of Marlboros a day.
Williams' family said he kept smoking because he did not believe a company would sell something that was truly harmful.
After a Multnomah County jury ordered the company to pay the Williams family $79.5 million in punitive damages, the judge reduced the award to $32 million. The state appeals court reinstated the jury's punitive damage award in 2002.
The U.S. Supreme Court then ordered Oregon courts to reconsider the judgment, in view of its 2003 ruling in another case that a jury went too far in ordering an insurance company to pay $145 million over the way it handled claims from a car accident.
Also in 2002, a jury in Portland ordered Philip Morris to pay $150 million to the estate of a woman who died of lung cancer after smoking Merit low-tar cigarettes. That Multnomah County Court jury found that Philip Morris had falsely represented that low-tar cigarettes are healthier than regular ones.