(FORTUNE Magazine) – By now, moviegoers have become well acquainted with the phenomenon of product placement--the quid pro quo between corporations and filmmakers that made E.T. gobble Reese's Pieces and James Bond trade in his Aston Martin for a BMW. Usually the practice is mutually beneficial; for the upcoming movie You've Got Mail, for instance, the filmmakers got to use America Online's well-known sign-on slogan as their title, giving their film the ring of authenticity; in return, AOL got what may be the most prominent product plug of all time. Everybody wins.

But what happens when a company's wares are shown not in the hands of lovable Meg Ryan, but those of a child molester? "There were not many product companies competing to have their merchandise in my movie," says Todd Solondz, the director of Happiness, a dark comedy about, among other things, a pedophile dad. Converse and headset maker Plantronics both receive thanks in the credits, but you would be hard-pressed to find their products in the film. Similarly, Kraft Foods, maker of Jell-O, instituted discussions with the makers of an uncoming film called Jello [sic] Shots, about a night of drunken debauchery fueled by the title concoction. Wary of such an unsavory linkage, Kraft wanted to ensure that its products would not be mentioned anywhere in the film--an act, if you will, of product displacement.

And then there is the inverse problem: What if the character is lovable but the product is not? Products with a heavy social stigma, like handguns, pose a dilemma for placement execs and filmmakers. Studios need the products for realism, they say, but they can't be seen as endorsing them. "At Fox we don't do handguns; we don't do cigarettes; we don't do hard alcohol," says Susan Safier, Twentieth Century Fox's VP for product placement. "I don't go out and solicit companies to participate in these kind of activities."

But if the studios won't come to the companies, the companies will come to the studios. For instance, Smith & Wesson used a product-placement firm, International Promotions, to put its wares in the hands of stars. The company scored with the TV show Brooklyn South and the film For Richer or Poorer, but fearing bad press, S&W severed the relationship, says Ken Jorgensen, the gunmaker's public relations manager. "It was just pretty much a consensus that it wasn't something we wanted to do," he says, "and when it expired, it was gone."

While studios are willing to tolerate some dealings with gun merchants, with the current anti-tobacco furor, they won't come anywhere near cigarette makers. Cigarettes still show up in movies, primarily because millions of real people smoke, but these aren't donated by the cigarette makers--a shift from the industry's stance as recently as ten years ago. According to internal Philip Morris papers released in March, until 1988 the company gave free smokes to studios for use in a wide range of films, including Crocodile Dundee and, oddly enough, The Muppet Movie.

--Brian Palmer