IN THE SUPERIOR COURT FOR THE STATE OF ALASKA

FIRST JUDICIAL DISTRICT AT JUNEAU

THE STATE OF ALASKA,

Plaintiff,

vs.

PHILIP MORRIS, INCORPORATED; R.J.
REYNOLDS TOBACCO CO.; AMERICAN
TOBACCO CO., INC.; BROWN &
WILLIAMSON TOBACCO CORP.;
LIGGETT & MYERS, INC.; LORILLARD
TOBACCO CO., INC.; UNITED STATES
TOBACCO COMPANY; B.A.T.
INDUSTRIES, P.L.C.; BRITISH AMERICAN
TOBACCO COMPANY, LTD.; HILL &
KNOWLTON, INC.; THE COUNCIL FOR
TOBACCO RESEARCH - U.S.A., INC.; and
TOBACCO INSTITUTE, INC., foreign corporations,

Defendants.
1JU-97915 CI

COMPLAINT FOR INJUNCTIVE RELIEF, DAMAGES,
RESTITUTION, DISGORGEMENT, PENALTIES AND OTHER RELIEF

I. INTRODUCTION

1. The State of Alaska, through Attorney General Bruce M. Botelho, on information and belief, brings this action for monetary damages, civil penalties, declaratory and injunctive relief, restitution, and disgorgement of profits.

2. This case challenges a massive unlawful course of conduct and conspiracy perpetrated by the defendants. The defendants’ unlawful conduct includes a host of unfair, deceptive, anticompetitive and illegal acts, including without limitation the following:

• Publicly undertaking a supposedly "paramount" special duty to research and disclose to public health authorities and the public at large--including the State of Alaska--the full extent of the health risks of cigarette smoking; but then suppressing and distorting the state of their knowledge of those health risks;

• Creating and/or funding fraudulent "front" organizations--such as the Tobacco Industry Research Council (later the Council for Tobacco Research)--which were held out to the public as independent research organizations, but were in fact secretly controlled by the industry’s lawyers and public relations firms and were used by the defendants as industry fronts to prevent the public from learning what defendants knew about the health risks of smoking and to falsely create a controversy about the health risks of smoking;

• Secretly destroying, concealing, and shipping overseas incriminating evidence of industry testing and research on the health risks of cigarette smoking and the addictive nature of nicotine, shutting down laboratories overnight and making personal threats against scientists who tried to publish research revealing what the industry knew, and asserting improper claims of attorney-client privilege and work product to suppress the results of adverse scientific research;

• Conspiring in violation of state antitrust law to eliminate and restrain competition based on the health effects of smoking and by agreeing not to market "safer" cigarettes;

• Conspiring to and concealing the addictive nature of tobacco products and the tobacco companies’ deliberate manipulation of the nicotine levels in tobacco products; and

• Engaging in unfair and deceptive trade practices by undertaking a course of conduct designed to promote illegal sales of cigarettes to minors and, thereby, also contributing to the delinquency of minors.

As a direct, foreseeable result of these and other actions, the State of Alaska has suffered substantial damages, and minors continue to be lured into illegal use of tobacco products. The Attorney General seeks to recover those damages and enjoin the continuing deceptive and unlawful practices described below.

A. The Defendants’ Unlawful Conduct

3. The Tobacco Industry in the U.S. is a highly profitable oligopoly dominated by Brooke Group, Ltd., Liggett Group, Inc. (Liggett and Myers Tobacco Co.), Philip Morris Companies, Inc. (Philip Morris, Inc.), American Brands, Inc. (the American Tobacco Co.), UST, Inc. (United States Tobacco), RJR Nabisco, Inc. (R.J. Reynolds Tobacco Co.), Batus, Inc. (Brown & Williamson Tobacco Company), British American Tobacco Company (BATCO), and Lowes Corporation (Lorillard Tobacco Co.) (collectively referred to as the "Tobacco Companies," "Tobacco Industry" or the "Tobacco Cartel"). For decades, these Tobacco Companies have sold tobacco products at huge profit margins to millions of consumers. The Tobacco Companies have built and sustained the market for their products in large part by concealing and/or misrepresenting the addictive nature of tobacco products, by creating confusion concerning the damage to human health caused by tobacco products, by manipulating the levels of nicotine in tobacco products in order to maintain and boost addiction, by agreeing not to compete for sale of a "safer cigarette" and other innovative products, and by focusing the brunt of their sales efforts on minors.

4. The Tobacco Companies, as well as their public relations agents, lawyers and industry "fronts," have known for more than 40 years that their tobacco products contain large amounts of nicotine--a highly addictive substance--as well as numerous carcinogens and other harmful elements.

5. Notwithstanding this knowledge, the Tobacco Companies have repeatedly told the public that nicotine, an element in all tobacco products, is not addictive. As recently as April 14, 1994, the CEOs of seven tobacco companies testified under oath that nicotine is "not addictive." These statements are false.

6. Nicotine is addictive. The Tobacco Industry is aware of the addictive nature of nicotine as evidenced by just one of the many internal industry documents addressing this subject:

Moreover, nicotine is addictive. We are, then in the business of selling nicotine, an addictive drug. . . .

7. Tobacco products are not only addictive, they are abnormally dangerous and unfit for human use. Tobacco products kill, maim and injure virtually all who use them. The Tobacco Companies know this, but continue to deny the existence of adverse health effects in their public statements.

8. The Tobacco Industry’s unlawful conduct does not stop with misrepresentations concerning the addictive nature of nicotine and the adverse health effects of tobacco use. The industry has secretly gone a step further by manipulating the level of nicotine in tobacco products in order to increase addiction and sell more product. For example, manufacturers of smokeless tobacco seek to "graduate" new users from milder products to those with more "kick" in order to addict users. Their campaign to addict new users has achieved great success, particularly with the young.

9. To continue in its hugely profitable business, in 1953 the Tobacco Industry entered into a multifaceted unlawful conspiracy which continues to this day. One essential element of the conspiracy was an agreement to suppress harmful information concerning tobacco products which was accomplished as follows. First, the tobacco conspirators agreed to falsely represent that there is no proof that smoking or tobacco use is harmful. Second, they agreed to falsely represent that nicotine and tobacco use is not addictive. And finally, the tobacco conspirators represented to the public and governmental regulators that they would undertake a "special duty" and "responsibility" to determine and report the scientific truth about the health effects of tobacco, both by conducting internal research and by funding "independent" external research.

10. Those representations were and continue to be false. Despite the Tobacco Companies’ denials, there is no question that the Tobacco Industry knew its products were addictive and harmful. Further, the industry’s publicly proclaimed special undertaking to pursue and report the truth about smoking was false. The industry’s purported undertaking was part of a conspiracy to refute, undermine and neutralize information coming from the objective scientific and medical community and, at the same time, to confuse and mislead the public in an effort to avoid state or federal regulation, to encourage existing smokers to continue smoking and to induce new persons to commence smoking.

11. An additional important element of the conspiracy was an agreement by the Tobacco Companies to restrain competition for sales of an innovative "safer" cigarette. The purpose and effect of this aspect of the conspiracy was to suppress and restrain competition based on claims of health because such competition would have exposed the ill effects and addictive nature of smoking, thereby substantially increasing the defendants’ liability exposure for the inevitable harm caused by cigarettes and tobacco products, and thereby threatening their shares of the tobacco market.

12. The conspiracy described above originated in response to medical and scientific studies publicizing the adverse health impact of smoking in the early 1950s. In response to what the industry internally called the "health scare," in late 1953 and early 1954, the Tobacco Companies and their public relations agent, Hill & Knowlton, jointly created a purportedly independent entity initially known as the Tobacco Industry Research Council (the "TIRC"). As part of their unlawful conspiracy, the Tobacco Companies publicly represented that the TIRC would undertake, on behalf of the public and those responsible for the public health, including those in Alaska, to objectively research and gather data concerning the relationship between cigarette smoking and health and truthfully publicize the results of this "independent" research. From 1954 forward the industry has been using the TIRC and its successor, the CTR, to publish false reports regarding the relationship between smoking and health.

13. Indeed, the Tobacco Companies, their lawyers and Hill & Knowlton controlled the TIRC and manipulated its affairs so as to "[s]uppress any data demonstrating the addictive nature of cigarette smoking or that cigarette smoking caused human disease" and to publicize information, regardless of its merit, tending to obscure any relationship between cigarette smoking and disease. This course of conduct was designed to create the notion that there was a legitimate and good faith medical/scientific controversy over whether smoking or tobacco is harmful to human health or that nicotine is addictive. The tobacco cartel accomplished this hoax, in part, by assigning all information indicating that cigarette smoking or tobacco use is harmful to human health or that nicotine is addictive to a so-called "Special Projects" division of the TIRC, where the information was secreted from the public and concealed from discovery in litigation against the Tobacco Companies by the improper assertion of the attorney-client privilege.

14. In the words of U.S. District Court Judge H. Lee Sarokin, a "jury could reasonably conclude that the creation of . . . [the TIRC] was nothing but a hoax created for public relations purposes with no intention of seeking the truth or publishing it."

15. Also in the 1950s, the Tobacco Companies began, and continued thereafter, to tailor their cigarette advertisements, promotional activities and public statements to conceal and/or misrepresent the addictive nature and the adverse health impact of cigarette smoking and tobacco use, while at the same time presenting cigarette smoking in a glamorous, youthful, exciting, relaxing posture by associating it with professional and economic success, intelligence, athletic ability and sexual attraction. This course of conduct accomplished the purpose of suppressing or misstating the addictive nature and the adverse health impact of smoking, so that new smokers, mainly young teenagers, could be "hooked" and existing smokers would continue smoking.

B. The Damages Caused by Defendants’ Unlawful Conduct. The Damages Caused by Defendants’ Unlawful Conduct

16. The intended and foreseeable effects of the conspiracy are several and far-reaching, including but not limited to increased medical costs to the State of Alaska and its agencies, the use of tobacco products by minors in violation of state law and the failure of the industry to develop and market "safer" innovative products.

1. Health care costs1. Health care costs. One of the foreseeable and intended consequences of defendants’ conduct has been to unjustly enrich the defendants at the expense of Alaska’s health care system, the state health care authority, state workers’ compensation funds, and ultimately, all Alaska residents and taxpayers.

(a) Approximately 50 million residents of the United States smoke cigarettes, and another six million use smokeless tobacco products. Nationwide, tobacco related deaths are a national tragedy: More than 400,000 deaths per year in the United States are tobacco related.

(b) In Alaska, thousands of adults are smokers. Thousands of Alaskans adults use smokeless tobacco.

(c) Health care costs in the United States are hundreds of billions of dollars each year. Tobacco-related health care costs are estimated to be more than seven percent of total health care costs, and for 1993, tobacco-related health care costs were $50 billion.

(d) The defendants’ conduct has wrongfully shifted these increased costs to the State of Alaska in the form of charges directly attributable to tobacco usage and exposure that should have been borne by the defendants, including but not limited to, increased Medicaid payments and increased health care insurance for public employees.

(e) Alaska’s excess health care costs alone caused by defendants’ conduct is in excess of $100 million. These costs would have been avoided if defendants had not engaged in the course of conduct described in this complaint, and Alaska’s share of those costs are sought as damages in this case.

2. Targeting minors in violation of state law. Targeting minors in violation of state law. A further effect of defendants’ course of unlawful conduct and conspiracy is the targeting and eventual addiction of minors and young people. Recognizing the pernicious addictive nature of their products, the Tobacco Industry seeks new customers among the youth of the nation. Because of the deaths of so many of the industry’s adult customers, the defendants must constantly add new customers in order to maintain their profits.

(a) According to a 1994 U.S. Surgeon General’s Report, every day another 3,000 children become regular smokers. Eighty-two percent of adults who have ever smoked had their first cigarette before age 18 and more than half of them had already become regular smokers by that age. Reports published by the U.S. Centers for Disease Control and Prevention indicate that anyone who does not begin smoking in childhood is unlikely to begin. For those 3,000 children who do become regular users of tobacco products every day, projections of current trends indicate that 1,000 will die prematurely as a result of their tobacco use. According to the Centers for Disease Control, in 1993, 28.1 percent of Alaska teenagers smoked. Ten and three-tenths percent of teenagers in Alaska smoke on a daily basis.

(b) It is against the law of Alaska for minors to smoke and efforts to encourage them to do so contravene public policy. Nonetheless, to lure minors into smoking, the Tobacco Companies have unfairly and deceptively designed special marketing campaigns particularly appealing to minors and young people. This targeting of minors is accomplished by promotional materials designed to create the impression that smoking is glamorous, sexy, fun and the "in" thing to do. An integral part of this campaign is the use of images particularly appealing to minors and the placement of promotional materials in locations likely to be accessed primarily by minors.

(c) Further, knowing that products, such as smokeless tobacco, with too much nicotine can be harsh and thus deter new users from becoming new addicts, the Tobacco Companies seek to graduate new users, often minors, from "milder" products to those with more "kick" in order to attract and addict more customers.

(d) As a result of defendants’ unlawful acts, each day minors use tobacco products in violation of state law. The Attorney General seeks to halt this practice.

C. The Objectives of This Action. The Objectives of This Action

17. In this action, the Attorney General seeks (i) to secure for the State of Alaska a fair and open market, free from unfair or deceptive acts or practices and illegal restraints in trade; (ii) to return to the State the increased costs of health care caused by defendants’ wrongful conduct; (iii) to require fair and full disclosure by defendants of the nature and effects of their products; (iv) to unequivocally halt the marketing of tobacco products to minors; and (v) to disgorge defendants’ profits from their sales of tobacco products in violation of state law.

II. JURISDICTION AND VENUE

18. This complaint is filed and these proceedings are instituted under the provisions of the Alaska Unfair Trade Practices and Consumer Protection Act, AS 45.50.471 et seq., the Alaska Monopolies and Restraint of Trade Act, AS 45.50.562 et seq., and the common law of the State of Alaska.

19. Authority for the Attorney General to commence this action for injunctions, mandatory injunctions, damages, restitution, disgorgement, civil penalties, attorneys’ fees and such other relief as the Court deems proper, is conferred by, inter alia, AS 45.50.501; AS 45.50.580; and AS 44.23.020(b).

20. The violations alleged herein have been and are being committed in whole or in part, and affect commerce in, and defendants do business in, the First Judicial District of Alaska and elsewhere throughout the State of Alaska. The basis for jurisdiction over defendants is further set forth in this complaint.

21. The amount in controversy exceeds $50,000.

III. THE PARTIES

PLAINTIFF

22. This action is brought for and on behalf of the State of Alaska, by Bruce M. Botelho, Attorney General of the State of Alaska, pursuant to the provisions of the Alaska Monopolies and Restraint of Trade Act, AS 45.50.562 et seq., the Alaska Unfair Trade practices and Consumer Protection Act, AS 45.50.471 et seq. and his common law authority as Attorney General to represent the State of Alaska.

DEFENDANTS

23. Defendant American Tobacco Company, Inc. ("American Tobacco") is a Delaware corporation whose principal place of business is Six Stamford Forum, Stamford, Connecticut 06904. American Tobacco, sometimes hereinafter referred to as "ATC," manufactured, advertised and sold Lucky Strike, Pall Mall, Tareyton, American, Malibu, Montclair, Newport, Misty, Iceberg, Silk Cut, Silva Thins, Sobrania, Bull Durham, and Carlton cigarettes and other tobacco products throughout the United States. In 1994, American Tobacco was sold to British-American Tobacco Co., parent of defendant Brown & Williamson.

24. Defendant Brown & Williamson Tobacco Corporation ("Brown & Williamson") is a Delaware corporation whose principal place of business is 1500 Brown & Williamson Tower, Louisville, Kentucky 40202. Brown & Williamson manufactures, advertises and sells Kool, Raleigh, Barclay, BelAir, Capri, Richland, Laredo, Eli Cutter and Viceroy cigarettes and other tobacco products throughout the United States.

25. Defendant Liggett & Meyers, Inc. ("Liggett") is a Delaware corporation whose principal place of business is Main and Fuller, Durham, North Carolina. Liggett manufactures, advertises and sells Chesterfield, Decade, L&M, Pyramid, Dorado, Eve, Stride, Generic and Lark cigarettes and other tobacco products throughout the United States.

26. Defendant Lorillard Tobacco Company, Inc. ("Lorillard"), is a Delaware corporation whose principal place of business is 1 Park Avenue, New York, New York 10016. Lorillard manufactures, advertises and sells Old Gold, Kent, Triumph, Satin, Max, Spring, Newport and True cigarettes and other tobacco products throughout the United States.

27. Defendant Philip Morris Inc. ("Philip Morris"), is a Virginia corporation whose principal place of business is 120 Park Avenue, New York, New York 10017. Philip Morris manufactures, advertises and sells Philip Morris, Merit, Cambridge, Marlboro, Benson & Hedges, Virginia Slims, Alpine, Dunhill, English Ovals, Galaxy, Players, Saratoga and Parliament cigarettes and other tobacco products throughout the United States.

28. Defendant R.J. Reynolds Tobacco Company ("Reynolds") is a New Jersey corporation whose principal place of business is Fourth & Main Street, Winston-Salem, North Carolina 27102. Reynolds manufactures, advertises and sells Camel, Vantage, Now, Doral, Winston, Sterling, Magna, More, Century, Bright Rite and Salem cigarettes and other tobacco products throughout the United States.

29. Defendant United States Tobacco Company ("U.S. Tobacco"), is a Delaware corporation whose principal place of business is 100 West Putnam Avenue, Greenwich, Connecticut. U.S. Tobacco manufactures, advertises and sells Sano cigarettes. U.S. Tobacco also manufactures, advertises and sells approximately 88 percent of the smokeless tobacco (snuff and chewing tobacco) sold in the United States, under various brand names including Happy Days, Skoll and Copenhagen.

30. Each of the cigarette and tobacco manufacturers advertised, sold and promoted their tobacco products in the State of Alaska.

31. B.A.T. Industries P.L.C. ("B.A.T. Industries" or "BAT II") is a British corporation whose principal place of business is Windsor House, 50 Victoria St., London. Through a succession of intermediary corporations and holding companies, B.A.T. Industries is the sole shareholder of Brown & Williamson. Through Brown & Williamson, B.A.T. Industries has placed cigarettes into the stream of commerce with the expectation that substantial sales of cigarettes would be made in the United States and in the State of Alaska. B.A.T. Industries has also conducted, or through its agents, subsidiaries, associated companies and/or co-conspirators, significant research for Brown & Williamson on the topics of smoking, disease and addiction. On information and belief, Brown & Williamson also sent to England, research conducted in the United States on the topics of smoking, disease and addiction, in order to remove sensitive and inculpatory documents from United States jurisdiction, and such documents were subject to B.A.T. Industries’ control. B.A.T. Industries is a participant in the conspiracy described herein and has caused harm and affected commerce in the State of Alaska.

32. British American Tobacco Company, Ltd. ("BATCO") is a British Corporation whose registered office is Milbank, Knowle Green, Staines, Middelsex, England TW18 1DY. British American Tobacco Company, Ltd., is or was a related corporation of defendant Brown & Williamson Tobacco Corporation. Both are owned by BAT Industries, PLC. BATCO also advertises, promotes and sells its own tobacco products such as "555 Express" cigarettes throughout the State of Alaska. At times pertinent to the Complaint, BATCO, individually or through its affiliate, alter ego, subsidiary and/or division, defendant Brown & Williamson Tobacco Corporation, designed, tested, manufactured, marketed and sold cigarettes for use in the State of Alaska. BATCO has also conducted, or through its associated companies, agents, or subsidiaries significant research for Brown & Williamson on the topics of smoking, disease, and addiction. On information and belief, Brown & Williamson also sent to England research conducted in the United States on the topics of smoking, disease, and addiction, in order to remove sensitive and inculpatory documents from United States jurisdiction. BATCO is a participant in the conspiracy described herein and has caused harm and affected commerce in the State of Alaska.

33. Defendant Hill & Knowlton, Inc. is an international public relations firm with offices located in major United States cities and whose principal place of business is 420 Lexington Avenue, New York, New York. Defendant Hill & Knowlton played an active and knowing role in the conspiracy complained of, aiding the circulation and/or publication of many of the false statements of the tobacco industry attributable to the TIRC and the Council for Tobacco Research (the "CTR"). Hill & Knowlton has been the primary advertising agency responsible for dissemination of the false and misleading information in question, in its capacity as the advertising and public relations agency for The Tobacco Institute, the CTR and several members of the tobacco industry, including Liggett Group, Inc., Philip Morris, U.S.A., R.J. Reynolds Tobacco Co., the American Tobacco Company and Lorillard Tobacco Co. In the course of such representation Hill & Knowlton aided these defendants in creating and issuing false information and covering up the truth concerning the tobacco industry, the link between smoking and cancer or other health hazards, the addictive nature of smoking and the true nature of the activities of the TIRC/CTR and its relationship to the industry. Hill & Knowlton has been involved in the wrongful conduct and conspiracy since its creation. The TIRC was actually formed at the recommendation and with the substantial assistance of Hill & Knowlton in 1954, 11 days after Hill & Knowlton, in December 1953 sent members of the tobacco industry "preliminary recommendations" for dealing with "a serious problem with public relations," suggesting the tobacco industry form the Tobacco Industry Research Committee. Moreover, Hill & Knowlton shared office space with the TIRC and provided staffing for it. Hill & Knowlton also played a major role in the creation, development and dissemination of "selection criteria" for a publication entitled, "Tobacco & Health Research," which was used as a vehicle for the dissemination of the false and misleading information generated by the tobacco industry. Hill & Knowlton knew that the CTR and the tobacco industry were engaged in the fraudulent conspiracy complained of, but failed to disclose the truth because the tobacco industry and its agents had promised Hill & Knowlton enormous fees to help publicize and circulate the false information necessary to conceal the truth and to continue the tobacco industry’s fraud of issuing misleading statements regarding the health risks of tobacco products.

34. The Council for Tobacco Research--U.S.A., Inc. (the "CTR"), successor in interest to the Tobacco Institute Research Committee (the "TIRC"), is a New York nonprofit corporation with its principal place of business at 900 3rd Avenue, New York, New York 10022. At all relevant times, the CTR and the TIRC operated as public relations and lobbying arms of the Tobacco Companies and as agents and employees of the Tobacco Companies. They also acted as facilitating agencies in furtherance of defendants’ combination and conspiracy as described in this complaint. In doing the things alleged, the CTR and the TIRC acted within the course and scope of their agency and employment, and acted with the consent, permission, and authorization of each of the Tobacco Companies. All actions of the CTR and the TIRC alleged were ratified and approved by the officers or managing agents of the Tobacco Companies. The CTR and the TIRC have been involved continuously in the conspiracy described and the actions of the CTR and the TIRC have affected commerce and caused harm in Alaska.

35. Defendant Tobacco Institute, Inc. ("Tobacco Institute") is a New York nonprofit corporation with its principal place of business at 1875 I Street Northwest, Suite 800, Washington, D.C. 20006. At all relevant times, Tobacco Institute operated as a public relations and lobbying arm of the Tobacco Companies and was an agent and employee of the Tobacco Companies. It also acted as a facilitating agency in furtherance of the combination and conspiracy of the defendants described in this complaint. In doing the things alleged, Tobacco Institute acted within the course and scope of its agency and employment, and acted with the consent, permission and authorization of each of the Tobacco Companies. All actions of the Tobacco Institute alleged were ratified and approved by the officers or managing agents of the Tobacco Companies. Tobacco Institute has been involved in the conspiracy described in this complaint and the actions of Tobacco Institute have affected commerce and caused harm in Alaska.

36. The above named defendants are sometimes herein collectively referred to as "Defendants," "Tobacco Industry," "Tobacco Companies" or "Tobacco Cartel."

IV. CONSPIRACY ALLEGATIONSIV. CONSPIRACY ALLEGATIONS

37. In committing the wrongful acts alleged, all of the defendants and the other entities and persons identified, with the assistance and knowledge of their counsel, have pursued a common course of conduct, acted in concert with, aided and abetted and conspired with one another and other conspirators not yet named or known, in furtherance of their common plan and scheme outlined herein.

V.

ADDITIONAL JURISDICTIONAL ALLEGATIONS

REGARDING BAT INDUSTRIES, P.L.C.V. ADDITIONAL JURISDICTIONAL ALLEGATIONS REGARDING BAT INDUSTRIES, P.L.C.

38. B.A.T. Industries p.l.c., or "BAT-II," describes itself as "one of the U.K.’s leading business enterprises with interests principally in tobacco and financial services." "[B.A.T. Industries] is the world’s most international cigarette manufacturer," with an unrivaled range of both international and domestic brands. In 1995, the "B.A.T. Industries Group" [ The defendant, B.A.T. Industries p.l.c. (or "BAT - II") repeatedly refers to itself and its subsidiaries as the "B.A.T. Industries Group," or "the BAT Group," "the Group" or simply "BAT" in publicly required filings and promotional material. Bat - II and subsidiary annual reports are replete with references to BAT - II as being in the business of selling cigarettes. Of course, this is a clear indication of the close cooperation of the affiliated BAT - II companies worldwide. The term "BAT - II" as used herein, refers to the corporate defendant, B.A.T. Industries p.l.c.; the term "BAT - I" refers to British American Tobacco Corporation Limited, an English corporation that, from 1902 until 1976, was the ultimate parent company for the BAT commercial enterprise. After 1976, BAT - I has functioned largely as only one of many of the BAT Group’s tobacco operating companies, and since 1976 the defendant has typically referred to BAT - I simply as "BATCo," a usage which is similarly adopted for the post-1976 period. The terms "BAT," the "BAT Group," and "BAT Industries Group" shall be used to refer to BAT - II and its subsidiaries, a usage adopted by BAT - II in its own documentation.] sold "more than 670 billion cigarettes . . . achieving a 12.4% share of the world market [and] B.A.T. Industries has the leading cigarette brand in over 30 markets." In 1995, BAT-II’s total revenue amounted to about $38.8 billion, and pre-tax profit reached a record $4.6 billion. (Id.)

39. For the past 20 years, BAT-II has played a significant role in the BAT Group process that leads to the sale of millions of packs of cigarettes in Alaska annually. The BAT-II board and senior officers established and enforced coordinated cigarette research, tobacco growing and other development policies for the BAT Group. BAT-II also established and enforced policies and guidelines for the design and manufacture of addictive cigarettes in the United States. BAT-II also established, and enforced, coordinated marketing and public relations policies for the BAT Group in the United States. In sum, BAT-II is the ultimate decision-maker on all significant issues-- whether it be research, tobacco agriculture, design, manufacture, marketing or administration--that affect the BAT Group’s sale of cigarettes in Alaska.

40. BAT-II acted in complicity not only with the corporate members of the BAT Group itself, but with the American tobacco industry as a whole, in connection with the wrongdoing alleged in this case. The promulgation and enforcement of deceptive smoking and health policies, or of the manipulative nicotine design of cigarettes to addict smokers, did not remain within the walls of BAT-II’s Windsor House headquarters--they spread throughout the BAT Group and into BAT-II’s American tobacco business. And, by combining with the wider tobacco industry in the United States, these policies were implemented on an industry-wide basis.

41. BAT-II has purposely availed itself of the American economy, including the Alaska cigarette markets. Over time, BAT-II has reaped millions of dollars of profits from Alaska consumers, upstreaming those profits to diversify its global commercial enterprise and pay dividends. Furthermore, BAT-II has succeeded in its aggressive United States corporate acquisition plan, a plan that has had significant effects upon the Alaskan economy. For example, in 1994 BAT-II purchased the American Tobacco Company, then the fifth-largest tobacco operation in the country, for approximately $1 billion.

42. Furthermore, BAT-II has directly and substantially engaged in key decision-making for the research, development, design, manufacture and marketing of millions of dollars of cigarettes sold in Alaska. Through secret programs such as "Project GHOST" or "Project BATTALION" and through formal "delegation" of authority, BAT-II directly participated in fundamental, strategic and implementive decisions leading to the sale of cigarettes in the U.S. by the BAT Group, and more particularly, its wholly owned subsidiary, Brown & Williamson. The participation was detailed, and covered many important aspects of the research, development, manufacture, design and marketing of cigarettes, along with the political relations to accompany the business generally, and the administrative infrastructure to carry on that work. BAT-II’s actions were intentional, and they were directed at the sale of cigarettes in Alaska (as well as other states). BAT-II is the hub of the BAT Group industrial enterprise, which sells millions of dollars of cigarettes in Alaska. In short, BAT-II regularly does or solicits business in Alaska.

43. BAT-II is also subject to personal jurisdiction for causing tortious injury by an act or omission in Alaska. BAT-II has participated in a fraud against Alaska and the public; has assured that substantial scientific and other knowledge not be disclosed to Alaska and its citizens; has directed the research and design of cigarettes sent into Alaska for sale and consumption, and; has assured the complicity of B&W and the other BAT-II operating companies in the United States tobacco industry conspiracy alleged in the Amended Complaint. As a result, BAT-II has directly or by an agent caused tortious injury by an act or omission in this commonwealth.

44. BAT-II also has minimum contacts with Alaska under a stream-of-commerce analysis. In this case, BAT-II has played the most significant and important role in the research, development, design and marketing of cigarettes for the BAT Group, including B&W. BAT-II established and enforced the coordinated research and development policies of the BAT Group for 20 years. BAT-II established and enforced policies and programs for the design and manufacture of addictive cigarettes in the United States for many years, such as Project AIRBUS, Project GREENDOT, Project WHEAT and "Y-1" tobacco. BAT-II established and enforced coordinated marketing and public relations policies of the BAT Group in the United States and elsewhere for over 20 years. BAT-II has, quite simply, been the ultimate decision-maker for the BAT Group on the issues which go to the heart of this case, including decisions on the research, design, manufacture, distribution, marketing and public relations of cigarettes in the United States for 20 years. It is, therefore, subject to personal jurisdiction in Alaska.

45. When it suits BAT-II’s own purposes, BAT-II does not hesitate to subject itself to jurisdiction in the United States. For example, when it sought to consummate its $5.2 billion purchase of the Farmer’s Group, BAT-II subjected itself to jurisdiction in various states in undertaking the insurance approval process for that transaction; when it sought to purchase American Tobacco Company for $1 billion, it submitted to the jurisdiction of the Federal Trade Commission, and judicially admitted that it was involved in "commerce" between the various states; when it sought to raise hundreds of millions of dollars on the American financial markets through the sale of promissory notes through a BAT-II United States subsidiary, BAT-II submitted to the jurisdiction of New York courts and unconditionally guaranteed payment on the notes.

46. The United States, including Alaska, has been central to BAT-II’s global tobacco and financial businesses. There is nothing unfair, indeed it is only just, to require BAT-II to defend this action in Alaska.

VI. FACTUAL ALLEGATIONSVI. FACTUAL ALLEGATIONS

A. Background. Background

47. Today, 50 million Americans smoke and, according to current trends, 22 percent of adult Americans will still be smokers in the year 2000. In the latter half of the 20th century, some 10 million Americans have been killed by cigarette disease. This year (and every year into the foreseeable future), nearly half a million Americans will die prematurely due to disease caused by cigarette smoking. Based upon current smoking trends, of the American children alive today, more than 5 million will be killed by cigarette disease during the 21st century. In 1993, 402 Alaska residents died from smoking related causes.

48. Cigarette and smokeless tobacco diseases share a common root cause: a highly addictive product that has been fraudulently and falsely promoted by the corporations comprising the Tobacco Cartel. Smoking causes lung cancer. It is also virtually the only cause of throat cancer and emphysema. Smoking-caused heart disease actually results in more deaths than lung cancer. Smoking is responsible for approximately one-fourth of all cancer deaths as well as one-third of all heart disease deaths.

49. Several factors account for the persistence of cigarette smoking and other tobacco use. First, largely as a result of the Tobacco Industry’s false and fraudulent advertising, smoking and other tobacco use became socially acceptable before it was proven to be a cause of lung cancer and other diseases. Second, the long latency period between the initiation of tobacco use and disease contraction masked the causal relationship for decades. Third, cigarettes and other tobacco products contain large amounts of nicotine, an extraordinarily addictive substance, which makes it difficult for a person to stop smoking. Fourth, the Tobacco Industry has conspired not to compete on the basis of relative health risk, to restrict output in safer and alternate products, and to create confusion as to whether smoking or other tobacco use is really harmful and to make it appear that there is a legitimate good faith scientific dispute over the health impact of smoking and other tobacco use, while presenting cigarette smoking in an attractive, youthful and positive way--concealing all the while that tobacco products are, in fact, highly addictive and unquestionably dangerous.

50. Despite their knowledge that nicotine is extremely addictive, the Tobacco Companies to this day, pursuant to their conspiracy, deny that smoking is the cause of disease or that nicotine is addictive. Recently, and in furtherance of the conspiracy, each of the CEOs of the defendant Tobacco Companies testified under oath before Congress that smoking was not addictive.

B. The Cartel’s Pre-Conspiracy Advertising and Promotional Activities: False Claims of Health and Safety. The Cartel’s Pre-Conspiracy Advertising and Promotional Activities False Claims of Health and Safety

51. The promotional activities and conduct of the Tobacco Industry, after the conspiracy was agreed to and implemented (which is described below), can only be understood in the context of the fraudulent and false claims they had engaged in preconspiracy regarding cigarette smoking and health. Until the mid-1950s, explicit or implied health claims and/or medical endorsement for smoking were major advertising campaign themes for many cigarette brands and in the public statements issued by the Tobacco Industry.

52. Cigarette smoking increased dramatically in the first half of the 20^th century. With the increase of cigarette smoking came an increase in lung cancer. Dr. Alton Ochsner, a New Orleans surgeon and regional medical director of the American Cancer Society, told an audience at Duke University on October 23, 1945, that "there is a distinct parallelism between the incidence of cancer of the lung and the sale of cigarettes . . . . [T]he increase is due to the increased incidence of smoking and . . . smoking is a factor because of the chronic irritation it produces."

53. In 1946, Tobacco Company chemists themselves reported concern for the health of smokers. A 1946 letter from a Lorillard chemist to its manufacturing committee states that "[c]ertain scientists and medical authorities have claimed for many years that the use of tobacco contributes to cancer development in susceptible people. Just enough evidence has been presented to justify the possibility of such a presumption."

54. Despite evidence showing their cigarettes caused lung disease and cancer, the Tobacco Companies chose sales over public health and safety. Starting in the 1930s and continuing until the mid-1950s, the Tobacco Companies made express claims and warranties as to the healthiness of their products with reckless disregard to the falsity of their claims and the consequential adverse impact on consumers. Examples of these health warranties include the following: Old Gold – "Not a cough in a Carload;" Camel – "Not a single case of throat irritation due to smoking Camels;" Philip Morris – "The Throat-tested cigarette."

55. One of the key themes used to promote cigarette smoking during this period was a promise that individual cigarette brands were either "less irritating" or that "harmful irritants" had been removed. At one point or another during this period every major cigarette brand made a false claim regarding health and/or irritation. These pre-1954 advertisements and representations demonstrate defendants’ understanding that consumers wanted safer products, and as a result, the Tobacco Companies engaged in vigorous competition on the basis of claims of health and safety as detailed above and elsewhere in this complaint.

C. The 1953 "Big Scare" and Beginning of the Industry Conspiracy to Suppress the Truth and Curtail Competition. The 1953 BigScare and Beginning of the Industry Conspiracy to Suppress the Truth and Curtail Competition

56. The defendants and their co-conspirators knew that published information about health risks would (i) increase consumer demand for safer tobacco products, (ii) induce some competitors to promote their own brands or denigrate competing brands on the basis of relative health risk, (iii) materially reduce their profits and market shares, and (iv) increase the likelihood of government regulation and decrease the likelihood that they could shift to the public and public agencies the health costs caused by use of tobacco products. Armed with this knowledge, and as set forth below, defendants ultimately agreed to not compete in the market based on health claims or in the market for "safer" or alternative products and agreed to suppress adverse information concerning health risks and addiction.

57. In the early 1950’s, scientists published two significant scientific studies warning of the health hazards of cigarettes. The first was published in 1952 by Dr. Richard Doll, a British researcher, who found that lung cancer was more common among people who smoked and that the risk of lung cancer was directly proportional to the number of cigarettes smoked. A second study was published in December 1953 by Dr. Ernest Wynder and others of the Sloan-Kettering Institute, whose experiments with mice confirmed the cancer-causing properties of cigarettes. The widespread reporting of these studies caused what cigarette company officials called the "Big Scare."

58. The cigarette industry responded quickly to the Big Scare, that by late 1953 had caused a decrease in consumption of tobacco products and in the stock prices of many tobacco companies. Thus, on December 14, 1953, in the direct aftermath of the Wynder study and the public concern over it, B&W President, Timothy V. Hartnett, circulated a memorandum to his counterparts at other tobacco companies and set out his proposals on how the industry should collectively deal with the "health issue."

59. Hartnett proposed a two-prong collective response to his competitors "to get the industry out of this hole": (a) "unstinted assistance to scientific research," with the most difficult part of this effort being the group deciding "how to handle significantly negative research results if, as, and when they develop;" and (b) "the best obtainable" public relations counsel since none "has ever been handed so real and yet so delicate a multimillion dollar problem." (Italics in original.)

60. Hartnett’s proposal was an invitation to his competitors to agree to restrain independent economic best interest in favor of collusion.

61. The next day, December 15, 1953, accepting Hartnett’s offer to conspire, the presidents of the leading tobacco companies met at an extraordinary gathering in the Plaza Hotel in New York City. Present were the presidents of American Tobacco, Benson & Hedges, B&W, Lorillard, Philip Morris, R.J. Reynolds and U.S. Tobacco. This gathering was unprecedented: It was the first time the Tobacco Companies had met together outside occasional dinners. Also in attendance was Hill & Knowlton, who coordinated the meeting and was to play a major role in formulating and executing the industry’s response.

62. According to a Hill & Knowlton memorandum summarizing the meeting, the companies exchanged proprietary information and "voluntarily admitted" that "their own advertising and [past] competitive practices have been a principal factor in creating a health problem," and acknowledged that they had "informally talked over the problem and will try and do something about it." (Emphasis added). The defendants realized that the subject of doing something collectively about competitive advertising practices "is one of the important public relations activities that might very clearly fall within the purview of the antitrust act." In order to conceal their intentions to collectively restrain competition, they concluded, "it is doubtful that we will be able to make any formal recommendation with regard to the advertising or selling practices and claims." (Emphasis added.)

63. At the Plaza Hotel meeting, the defendants entered into a contract, combination and conspiracy to cease to compete on the basis of relative health risks, an ongoing agreement that is a violation of the Alaska Monopolies and Restraint of Trade Act.

64. At the time of the December 15, 1953 meeting, the cigarette industry did not have a trade association, and cigarette manufacturers had never before met in a formal business meeting or discussed business, because, according to the Hill & Knowlton memo, the Tobacco Companies were prevented by a 1911 dissolution decree and criminal convictions for price fixing in 1939 from carrying on many group activities.

65. Despite the dangers, the competitors met because they viewed the current problem "as being extremely serious and worthy of drastic action." An indication of the seriousness of the problem was "that salesmen in the industry are frantically alarmed and that the decline in tobacco stocks on the stock exchange market has caused grave concern."

66. The agreement reached at the Plaza Hotel to conceal adverse information and not compete on the basis of health, was to be a permanent fixture of defendants’ future relationship. According to the Hill & Knowlton memorandum, "[e]ach of the company presidents attending emphasized the fact that they consider the program to be a long term one," and the meeting participants were "emphatic in saying that the entire activity is a long-term, continuing program, since they feel the problem is one of promoting cigarettes and protecting them from these and other attacks that may be expected in the future." (Emphasis added.)

67. Thus, at the December 15, 1953 meeting the course of conduct agreed to include, but was not limited to:

a. "The chief executive officers of all the leading companies-- R.J. Reynolds, Philip Morris, Benson & Hedges, U.S. Tobacco Company, Brown & Williamson--have agreed to go along with a public relations program on the health issue."

b. "Because of the antitrust background, the companies do not favor the incorporation of a formal association. Instead, they prefer strongly the organization of an informal committee which will be specifically charged with the public relations function and readily identified as such."

c. Hill & Knowlton, a public relations firm, was to play a central role in the industry association. "The current plans are for Hill & Knowlton to serve as the operating agency of the companies, hiring all the staff and disbursing all funds."

d. All of the leading manufacturers, except Liggett, agreed to join in the public relations strategy. Liggett decided not to participate at that time "because that company feels that the proper procedure is to ignore the whole controversy."

68. In furtherance of the conspiracy, nine days later, Hill & Knowlton presented a detailed recommendation to the tobacco companies and their co-conspirators. The recommendation recognized the importance of gaining public trust, and avoiding the appearance of bias, if the industry’s "pro-cigarette" public relations strategy was to succeed. According to the memorandum:

a. "[T]he grave nature of a number of recently highly publicized research reports on the effects of cigarette smoking . . . have confronted the industry with a serious problem of public relations."

b. "It is important that the industry do nothing to appear in the light of being callous to considerations of health or of belittling medical research which goes against cigarettes."

c. "The situation is one of extreme delicacy. There is much at stake and the industry group, in moving into the field of public relations, needs to exercise great care not to add fuel to the flames."

69. John Hill suggested that the word "research" be included in the name of the Committee. The suggestion was apparently taken, and thus, an organization designed to pursue a very delicate "public relations function" was given the intentionally misleading name of the "Tobacco Industry Research Committee" (the "TIRC").

70. Five of the Big Six cigarette manufacturers were original members of the TIRC. Liggett did not join until 1964. In 1964, the TIRC changed its name to the Council for Tobacco Research (the "CTR"). The industry formed equivalent organizations in other countries, as well, including the Tobacco Advisory Committee, formerly Tobacco Research Council in the United Kingdom, and Verbrand der Cigarettenindustrie in Germany. The U.S. companies, either directly or through affiliates, are members of the other organizations.

71. The agreement that the industry would not compete based on claims of health was documented and communicated in a number of ways. One example is a June 21, 1954 Hill & Knowlton memorandum:

Early in the life of the Tobacco Industry Research Committee, it was accepted as a basic principle that every effort should be made to avoid stimulating more adverse publicity and controversy on the subject of tobacco and health.

The principle has been and will continue to be carefully adhered to in the work carried on for the committee.

(Emphasis added.)

72. The "every effort" referred to the agreement not to compete on the basis of health claims for fear of stirring up any controversy regarding health and safety.

73. A July 31, 1954 Hill & Knowlton "Confidential Memorandum" acknowledges that the formation of the TIRC was the result of a decision that "joint action" was imperative.

74. The defendants were keenly aware that the agreement creating the TIRC was a restraint on competition: "On the Continent individual companies and monopolies have agreed to pool research on the health question, thereby reducing it as a basis for competition." (Emphasis added.)

75. British research conducted by the Tobacco Manufacturers’ Standing Committee [TMSC], an equivalent organization to the TIRC (and including companies, such as British American Tobacco [BAT] who were affiliated with U.S. companies) had known competitive impacts. BAT’s Chairman, Sir Charles Ellis said, "The Board has decided that if this Company [BAT] makes any significant scientific discovery clearly relevant to health it will share its knowledge with its co-members of TMSC and not seek to obtain competitive commercial advantage." (Emphasis added.)

76. In compliance with the noncompetition conspiracy, at least one of the companies, American Tobacco, did nothing on its own to evaluate the risks of use of its products: "The Council for Tobacco Research was the source of expertise on that."

77. To further the existing conspiracy, a second trade group, the Tobacco Institute, was formed by cigarette manufacturers in 1958. It performs a variety of functions and provided opportunities for the conspirators to exchange information, to police the agreement, and otherwise to coordinate activities.

D. Representations and Special Undertakings by the Industry. Representations and Special Undertakings by the Industry

78. The cigarette industry announced the formation of the TIRC on January 4, 1954, with newspaper advertisements placed in virtually every city with a population of 50,000 or more, reaching a circulation of more than 43 million Americans. The advertisement was captioned "A Frank Statement to Cigarette Smokers" and was run under the auspices of the TIRC with, inter alia, five of the Big Six manufacturers listed by name. The advertisement stated as follows:

"A Frank Statement to Cigarette Smokers"

RECENT REPORTS on experiments with mice have given wide publicity to a theory that cigarette smoking is in some way linked with lung cancer in human beings.

Although conducted by doctors of professional standing, these experiments are not regarded as conclusive in the field of cancer research. However, we do not believe that any serious medical research, even though its results are inconclusive should be disregarded or lightly dismissed.

At the same time, we feel it is in the public interest to call attention to the fact that eminent doctors and research scientists have publicly questioned the claimed significance of these experiments.

Distinguished authorities point out:

1. That medical research of recent years indicates many possible causes of lung cancer.

2. That there is no agreement among the authorities regarding what the cause is.

3. That there is no proof that cigarette smoking is one of the causes.

4. That statistics purporting to link cigarette smoking with the disease could apply with equal force to any one of many other aspects of modern life. Indeed the validity of the statistics themselves is questioned by numerous scientists.

We accept an interest in people’s health as a basic responsibility, paramount to every other consideration in our business.

We believe the products we make are not injurious to health.

We always have and always will cooperate closely with those whose task it is to safeguard the public health.

For more than 300 years tobacco has given solace, relaxation and enjoyment to mankind. At one time or another during these years critics have held it responsible for practically every disease of the human body. One by one of these charges have been abandoned for lack of evidence.

Regardless of the record of the past, the fact that cigarette smoking today should even be suspected as a cause of a serious disease is a matter of deep concern to us.

Many people have asked us what we are doing to meet the public’s concern aroused by the recent reports. Here is the answer:

1. We are pledging aid and assistance to the research effort into all phases of tobacco use and health. This joint financial aid will of course be in addition to what is already being contributed by individual companies.

2. For this purpose we are establishing a joint industry group consisting initially of the undersigned. This group will be known as TOBACCO INDUSTRY RESEARCH COMMITTEE.

3. In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition there will be an Advisory Board of scientists disinterested in the cigarette industry. A group of distinguished men from medicine, science, and education will be invited to serve on this Board. These scientists will advise the Committee on its research activities.

This statement is being issued because we believe the people are entitled to know where we stand on this matter and what we intend to do about it.

(Underlining added.) Listed as sponsors of this announcement were, inter alia, the American Tobacco Company, Brown & Williamson Tobacco Corporation, P. Lorillard Company, Philip Morris Co. Ltd., Inc., R.J. Reynolds Tobacco Company, United States Tobacco Company.

79. By issuing this publication and others that followed, the industry undertook a special and continuing duty to protect the public health by representing that it would conduct and disclose unbiased and authenticated research on the health risks of cigarette smoking. When they made this representation, defendants intended that the public and government regulators believe and rely upon it, and knew or should have known that consumers would consider the representation material to their decisions to purchase and smoke cigarettes and that government regulators would consider the representation material to their decisions to regulate cigarettes. At that time, and continuing to the present, defendants intended and/or knew or should have known that their failure to fulfill the duty they undertook would directly increase the health care costs to the State of Alaska. The issuance of this statement and others that have followed was also intended by defendants to assure public health officials that the industry would respond to health issues in an honest manner so that no government regulation was necessary. The issuance of this publication was an integral step in the conspiracy to suppress and conceal information that might reduce the cartel’s sale of tobacco products.

E. Repeated False Promises to the PublicE. Repeated False Promises to the Public

80. Despite increasing internal knowledge of the dangers of cigarette smoking which they did not disclose, the defendants continued, renewed and repeated the representations and undertakings of the 1954 "Frank Statement to Cigarette Smokers." The cigarette industry continued to pursue its two-prong strategy of falsely representing the objectivity of industry research to the public in order to gain credence, and then misrepresenting, distorting, and suppressing information in order to support its pro-cigarette position.

81. Other public statements issued by the tobacco industry through the TIRC/CTR or the TI, repeated several themes: (1) that the industry was working to report the full and complete truth concerning tobacco and health, (2) that these working on reporting the truth were "independent" scientists and (3) that the results of this independent research cast grave doubt on any study linking tobacco use with health problems. These statements include, but are not limited to the following:

(1) On June 4, 1955, the TIRC issued a release entitled "Anti-smoking Theories Not Based on Scientific Knowledge." The release represented that according to the TIRC’s associate scientific director, "little is established scientifically about tobacco effects on the heart;" tobacco has "even been reported as killing various harmful bacteria." The release represented that the TIRC "is supporting scientific investigation into many phases of tobacco use and human health in order to get the facts." (Emphasis added.)

(2) On December 16, 1957, the TIRC issued a release representing that "extensive scientific research now underway into tobacco use does not substantiate generalized charges against smoking as a cause of cancer." Reporting on the findings of Dr. Clarence Cook Little, "Scientific Director" of the TIRC, the release represented that "no substance has been found in tobacco smoke known to cause cancer." According to Dr. Little, the research program was designed "solely to obtain new information and to advance human knowledge in every possible phase of the tobacco and health relationship." (Emphasis added.)

(3) On or about December 27, 1958, the TIRC issued a release representing that "during the past year many scientists of high professional standing have produced additional evidence and opinions that challenge the validity of broad charges made against tobacco use." According to the TIRC, its research had developed several "essential facts," including the fact that "the cause or causes of lung cancer remain undetermined" and that "compelling doubts have been raised about statistics and their interpretations involving smoking and health." The release concluded with the following promise:

At its formation in January 1954, the Tobacco Industry Research Committee stated its fundamental position: ‘We believe the products we make are not injurious to health. We are providing aid and assistance to research efforts into all phases of tobacco use and health.’

That statement and pledge are reaffirmed today by members of the Tobacco Industry Research Committee.

(4) On March 28, 1960, the TIRC issued a release challenging any link between smoking and lung cancer. In the release the TIRC repeated that "we have frankly accepted a responsibility for financing independent research into health problems, including lung cancer, in an effort to get needed facts and evidence." (Emphasis added.)

(5) George Allen, President of the Tobacco Institute issued a report pledging that the TI, for the benefit of the "public interest" would "encourage the kind of research that will provide the necessary facts." Further, Allen promised that this type of research "is what the industry has tried to do in the past" and "is what we shall do in the future, until enough facts are known to provide solutions to the health questions involved." (Emphasis added.)

(6) In 1962, the TIRC issued a release announcing it was in its ninth year of supporting research by independent scientists relevant to questions about tobacco and health. The release represented that "the tobacco industry continues its support of the search for truth and knowledge." (Emphasis added.)

(7) On May 28, 1962, the TIRC in a release confirmed that its purpose was to "make the facts known to the public." (Emphasis added.)

(8) In 1964, the TIRC issued a "year end statement" representing that its research "will intensify," that $7.25 million had been apportioned to date involving 125 grants and that the TIRC "is dedicated to support its program of research by independent scientists until all the answers are known." (Emphasis added.)

(9) In 1979 the TI issued a document entitled "Tobacco Industry Research on Smoking and Health." In it, the TI represented that "[t]here are still eminent scientists who question whether a causal relationship has been proven between cigarette smoking and human disease." The report went on to claim the industry had a great desire to "learn the truth":

[A] major portion of this scientific inquiry has been financed by the people who knew the most about cigarettes and have a great desire to learn the truth--the tobacco industry.

The industry has committed itself to this task in the most objective and scientific way possible.

The report describes how the industry spent $82 million in research "into all phases of tobacco use and health." Further the report proclaimed that "the findings are not secret" and reaffirmed the commitment to the tobacco industry:

From the beginning the tobacco industry has believed the American people deserve objective, scientific answers.

With this credo in mind, the tobacco industry stands ready today to make new commitments for additional valid scientific research that may shed light on the question of smoking and health.

(Emphasis added.)

82. Additional representations were made by the tobacco companies themselves repeating the promise that they would investigate and report all facts relating to smoking and health. For example:

(1) On February 28, 1956, the President of American Tobacco Company ("ATC") issued a release indicating that "many highly respected medical scientists challenge the anti-tobacco claims."

(2) On November 14, 1957, ATC issued a release representing that its own research produced "evidence directly contradicting the theory that smoking causes lung cancer or heart disease."

(3) On April 9, 1962, ATC issued a release indicating that research contradicting any statistical association between cigarettes and higher death rates was "very difficult to refute."

(4) On June 4, 1963, ATC issued a release, quoting Dr. Robert Heiman, Assistant to the President and prime author of studies refuting any link between smoking and health. In the release, Heiman claimed that workers for the company smoked twice as much as the average while having a mortality rate of 29 percent below average. (5) On October 3, 1963, ATC again issued a release, this time citing Heiman for proof that the statistical association between smoking and lung cancer is "fallacious" and leads to "absurd consequences."

(6) In 1967, ATC issued a release describing a 46-page booklet prepared by the tobacco industry which "refutes anticigarette charges." ATC called the evidence on smoking and health "an open one," refuted the studies linking smoking with cancer in mice, and claimed that "no one does more" about smoking and health than "The Tobacco People:"

No one does more. The tobacco industry supports more scientific research into the problems than any other source. . . .

The release went on to claim that: "The tobacco industry continues to endure unfair and unjustified harassment from government and private sources." ATC also claimed that "the cold hard fact remains that no clinical or biological evidence has been produced which demonstrates how cigarettes relate to cancer or any other disease in human beings."

83. Additional representations were made in 1970 when the cigarette industry, through its lobbying group the Tobacco Institute, placed a number of announcements similar to the 1954 "Frank Statement." These announcements stated in part:

(1) "After millions of dollars and over 20 years of research: The question about smoking and health is still a question."

(2) "[N]o particular ingredient, as it occurs in cigarette smoke, has been demonstrated as the cause of any particular disease."

(3) "[A] major portion of this scientific inquiry has been financed by the people who know the most about cigarettes and have a great desire to learn the truth . . . the tobacco industry. And the industry has committed itself to this task in the most objective and scientific way possible."

(4) "A $35,000,000 program."

(5) "In the interest of absolute objectivity, the tobacco industry has supported totally independent research efforts with completely non-restrictive funding."

(6) "In 1954, the Industry established what is now known as CTR, the Council for Tobacco Research--U.S.A., to provide financial support for research by independent scientists into all phases of tobacco use and health. Completely autonomous, CTR’s research activity is directed by a board of ten scientists and physicians who retain their affiliations with their respective universities and institutions. This board has full authority and responsibility for policy, development and direction of the research effort."

(7) "The findings are not secret."

(8) "From the beginning, the tobacco industry has believed that the American people deserve objective, scientific answers."

(9) "The tobacco industry stands ready today to make new commitments for additional valid scientific research that offers to shed light on new facets of smoking and health."

84. On March 24, 1965, the TI issued a release in which it represented that regulations on advertising should not be implemented, in part because the "industry is profoundly conscious of the questions concerning smoking and health" and the industry is conducting scientific research through the CTR. In the release, Boyman Gray of RJR, represented that "it has not been established that smoking causes lung cancer or any other disease."

85. Another industry publication in 1970 stated that the industry believed the American public is "entitled to complete, authenticated information about cigarette smoking and health. The tobacco industry recognizes and accepts a responsibility to promote the progress of independent scientific research in the field of tobacco and health."

86. Yet another announcement co-sponsored by the TIRC and the Tobacco Industry, called "A Statement about Tobacco and Health," stated:

We recognize that we have a special responsibility to the public, to help scientists determine the facts about tobacco and health, and about certain diseases that have been associated with tobacco use.

We accepted this responsibility in 1954 by establishing the Tobacco Industry Research Committee, which provides research grants to independent scientists. We pledge continued support of this program of research until the facts are known.

* * *

Scientific advisors inform us that until much more is known about such diseases as lung cancer, medical science probably will not be able to determine whether tobacco or any other single factor plays a causative role, or whether such a role might be direct or indirect, incidental or important.

We shall continue all possible efforts to bring the facts to light. In that spirit we are cooperating with the Public Health Service in its plan to have a special study group review all presently available research.

(Emphasis added.)

87. In 1972, Tobacco Institute President Horace Kornegay testified before Congress:

Let me state at the outset that the cigarette industry is as vitally concerned or more so than any other group in determining whether cigarette smoking causes human disease, whether there is some ingredient as found in cigarette smoke that is shown to be responsible and if so what it is.

That is why the entire tobacco industry . . . since 1954 has committed a total of $40 million for smoking and health research through grants to independent scientists and institutions.

88. RJR chairman Bowman Gray told Congress in 1964: "If it is proven that cigarettes are harmful, we want to do something about it regardless of what somebody else tells us to do. And we would do our level best. It’s only human."

89. In 1984, RJR placed an editorial style announcement in the New York Times stating:

Studies which conclude that smoking causes disease have regularly ignored significant evidence to the contrary. These scientific findings come from research completely independent of the tobacco industry.

90. Each of the representations to the public that defendant tobacco companies were sponsoring independent objective research, that they were endeavoring to bring the truth to light, and that the public could therefore rely upon the statements made, were false and deceptive. These misrepresentations were designed to gain the trust of the public and public health authorities in order to better distort and suppress substantive information about smoking and health.

F. The True Nature of the TIRC: A Front for the Tobacco Cartel. The True Nature of the TIRC A Front for the Tobacco Cartel

91. The TIRC was an agent of the conspirators and operated among other things, to facilitate their implementation of the Plaza Hotel agreement/conspiracy to suppress and/or misrepresent information and to not compete in the development of a "safer" cigarette. Its acts were the acts of defendants in furtherance of their covenant not to compete.

92. The TIRC was physically established in the Empire State Building, one floor below the Hill & Knowlton offices. Internal documents confirm that Hill & Knowlton, and not independent scientists as represented, actually ran the TIRC.

93. In 1954, the TIRC’s first year of operation, 35 staff members of Hill & Knowlton worked full or part time for the TIRC. In that year, the TIRC spent $477,955 on payments to Hill & Knowlton, over 50 percent of the TIRC’s entire budget.

94. The sham nature of the TIRC is revealed by a series of Hill & Knowlton reports to the TIRC. Those reports reveal that the true nature of the TIRC was to influence media and scientific reports so as to cloud the issue of smoking and health and to suppress all harmful information. These reports all reveal that Hill & Knowlton--not the independent scientists--actually ran the Tobacco Industry Research Committee, and "provided assistance in selecting" the Scientific Advisory Board, "proposed" Dr. Little for the Scientific Director, and "handled liaison, agendas, organizational plans, business affairs, reports, and materials for meetings of the TIRC [and] the Scientific Advisory Board, . . . in addition to developing operating procedures for the research program." (Emphasis added.)

95. By the Spring of 1955, the unlawful strategy recommended by Hill & Knowlton and implemented by the industry through the "Frank Statement" was largely successful. Hill & Knowlton reported to the TIRC:

a. [P]rogress has been made . . . The first _big scare_ continues on the wane.

b. The research program of the TIRC has won wide acceptance in the scientific world as a sincere, valuable and scientific effort.

c. Positive stories are on the ascendancy.

96. In 1970, H. Wakeman, a Vice President of Philip Morris, observed that the stated objective of the CTR was "to make available to the public" information on tobacco use and health. He noted this "broad statement" had been interpreted more narrowly by the CTR. Wakeman also noted that the public statement of the purpose of CTR is "to find out about smoking and health." In this regard, rather than be independent as publicly represented, Wakeman wrote "we are interested in evidence which we believe denies the allegation that cigaret [sic] smoking causes disease." Wakeman then posited alternatives for the future of the CTR, one of which was to use the CTR as a means for expert witnesses in "legislative halls" and "in litigation." This option, was the true function of the CTR.

97. In 1977, Addison Yeaman, chairman and president of CTR, stated during a published speech that "[CTR] has no propaganda function of any kind or any degree." Internal documents demonstrate, however, that the tobacco companies’ joint efforts undertaken through TIRC, and later, through CTR, were not disinterested or objective. Rather, they were designed and used to promote favorable research, to suppress negative research when possible, and to attack negative research where it could not be suppressed, all in order to convince the public that the "case against smoking is [not] closed."

98. A 1972 internal document from a Tobacco Institute official to the group’s president described the importance of using joint industry research to maintain public doubt about the link between smoking and disease:

For nearly twenty years, this industry has employed a single strategy to defend itself on three major fronts -- litigation, politics, and public opinion. While the strategy was brilliantly conceived and executed over the years helping us win important battles, it is only fair to say that it is not - nor was it ever intended to be - a vehicle for victory. On the contrary, it has always been a holding strategy, consisting of

* creating doubt about the health charge without actually denying it

* advocating the public’s right to smoke, without actually urging them to take up the practice

* encouraging objective scientific research as the only way to resolve the question of the health hazard.

As an industry, therefore, we are committed to an ill-defined middle ground which is articulated by variations on the theme that, ‘the case is not proved.’

In the cigarette controversy, the public -- especially those who are present and potential supporters (e.g. tobacco state congressmen and heavy smokers) -- must perceive, understand, and believe in evidence to sustain their opinions that smoking may not be the causal factor. As things stand, we supply them with too little in the way of ready-made credible alternatives.

99. A 1974 report to the CEO of Lorillard from a research executive described CTR’s scientific projects as hav[ing] not been selected against specific scientific goals, but rather for various purposes such as public relations, political relations, position for litigation, etc. Thus, it seems obvious that reviews of such programs for scientific relevance and merit in the smoking and health field are not likely to produce high ratings. 100. A 1978 memo addressed to the CTR file from a Philip Morris official characterized CTR as "an industry ‘shield.’" The memorandum goes on to state: "the ‘public relations’ value of CTR must be considered and continued . . . It is extremely important that the industry continue to spend their dollars on research to show that we don’t agree that the case against smoking is closed for ‘PR’ purposes . . . ."

101. In 1993, a former 24-year employee of CTR confirmed publicly that the joint industry research efforts were not objective: "When CTR researchers found out that cigarettes were bad and it was better not to smoke, we didn’t publicize that. The CTR is just a lobbying thing. We were lobbying for cigarettes."

102. This and other evidence demonstrates that the role and purpose of TIRC and CTR in the tobacco companies’ strategy was to seek to use the public’s trust to propagate "pro-tobacco" propaganda. An industry official wrote in his personal notes describing a meeting that included high level officials from various tobacco companies that: "CTR is the best & cheapest insurance the tobacco industry can buy and without it the Industry would have to invent CTR or would be dead."

103. Nonetheless, in its annual reports published between 1985 and 1992, CTR stated that its Scientific Advisory Board funded peer-reviewed research projects "judging them solely on the basis of scientific merit and relevance." In 1994, Dr. James F. Glenn, CEO of CTR, submitted testimony to the Waxman Subcommittee that:

a. The Council . . . sponsors research into questions of tobacco use and health and makes the results available to the public.

b. [G]rantees are assured complete scientific freedom in conducting these studies . . . [P]ublication [of research results] is encouraged in every instance.

104. In fact, CTR-sponsored research projects were directed away from research that might add to the evidence against the use of tobacco products. When CTR-sponsored research did produce unfavorable results the information was distorted or simply suppressed. For example, Dr. Freddy Homburger, a researcher in Cambridge, Massachusetts, undertook a study of smoke exposure on hamsters. According to Dr. Homburger, he received a grant from CTR that was changed half-way through the study to a contract "so they could control publication--they were quite open about that." Dr. Homburger has testified that when the study was completed in 1974, the scientific director of CTR and a CTR lawyer "didn’t want us to call anything cancer" and that they threatened Dr. Homburger with "never get[ting] a penny more" if his paper was published without deleting the word cancer.

105. An internal CTR document describes how Dr. Homburger attempted to call a press conference about the incident and how CTR stopped it:

He . . . was to tell the press that the tobacco industry was attempting to suppress important scientific information about the harmful effects of smoking. He was going to point specifically at CTR . . . . I arranged later that evening for it to be canceled. Homburger was given a cordial welcome and nicely hastened out the door. P.S. I doubt if you or Tom will want to retain this note.

G. Role of the CTR as a "Front" for Disseminating False Information. Role of the CTR as a Front for Disseminating False Information

106. In 1964, the year of the first Surgeon General’s report on smoking, the CTR formed a "Special Projects" division to assist the industry in concealing unfavorable information. A series of research grants designated as CTR "Special Projects" were developed by defendants in a manner so as to appear to receive the protection of the attorney-client or attorney work product privilege. The "Special Projects" division was under the auspices of the CTR.

107. The true purpose of the "Special Projects" division was to conduct research regarding the links between smoking and disease in order to develop a number of expert witnesses for defense purposes in tort suits against the tobacco industry. Consistent with this purpose, the tobacco industry’s counsel were substantially involved in strategic and specific decision-making within the "Special Projects" division, to secrete dangerous evidence from the public. For example, the notes of one CTR meeting, written in 1981, state, "When we started the CTR Special Projects, the idea was that the scientific director of CTR would review a project. If he liked it, it was a CTR special project. If he did not like it, then it became a lawyers’ special project." Another memorandum from 1981 explained, "Difference between CTR and Special Four (lawyers’ projects). Director of CTR reviews special projects -- if project was problem for CTR, use Special Four."

108. The industry has been successful in using the CTR Special Projects division to conceal harmful information. Research from the Special Projects division remains shielded from public scrutiny. Individual companies furthered the conspiracy by shielding company documents with claims of attorney-client privilege and through tactics such as that undertaken by Brown & Williamson, which over the years has transferred documents described as "deadwood" to its British parent company, BAT Industries, so that they would not be discovered in legal proceedings in the United States.

109. Other internal industry documents also shed light on the true nature of the conspirators’ associations, as the following quotations demonstrate by way of example:

a. "CTR began as an organization called Tobacco Industry Research Council (TIRC). It was set up as an industry ‘shield’ in 1954. That was the year statistical accusations relating smoking to diseases were leveled at the industry; litigation began; and the Wynder/Graham reports were issued. CTR has helped our legal counsel by giving advice and technical information, which was needed at court trials . . . . [T]he ‘public relations’ value of CTR must be considered and continued . . . . It is very important that the industry continue to spend their dollars on research to show that we don’t agree that the case against smoking is closed."

b. "CTR is best & cheapest insurance the tobacco industry can buy and without it the Industry would have to invent CTR or would be dead."

c. "Historically, the joint industry funded smoking and health research programs have not been selected against specific scientific goals, but rather for various purposes such as public relations, political relations, position for litigation, etc. . . . In general, these programs have provided some buffer to public and political attack of the industry, as well as background for litigious (sic) strategy."

d. "Historically, it would seem that the 1954 emergency was handled effectively. From this experience there arose a realization by the tobacco industry of a public relations problem that must be solved for the self-preservation of the industry."

e. "To date, the TIRC program has carried its fair share of the public relations load in providing materials to stamp out brush fires as they arose. While effective in the past, this whole approach requires both revision and expansion. The public relations program . . . was like the early symptoms of diabetes - certain dietary controls kept public opinion reasonably healthy. When some new symptom appeared, a shot of insulin in the way of a news release . . . kept the patient going."

f. "When the products of an industry are accused of causing harm to users, certainly it is the obligation of that industry to endeavor to determine whether such accusations are true or false. Money spent for such purpose should not be regarded as a charitable contribution but as a business expense -- an expense necessary to keep that industry alive. In view of the billions of dollars of annual sales of our industry our expenditures for health research has been of a minimal order."

g. "For nearly twenty years, this industry has employed a single strategy to defend itself on three major fronts -- litigation, politics, and public opinion. While the strategy was brilliantly conceived and executed over the years helping us win important battles, it is only fair to say that it is not -- nor was it intended to be -- a vehicle for victory. On the contrary, it has always been a holding strategy, consisting of creating doubt about the health charge without actually denying it. . . . In the cigarette controversy, the public --especially those who are present and potential supporters (e.g. tobacco state congressmen and heavy smokers) -- must perceive, understand, and believe in evidence to sustain their opinions that smoking may not be the causal factor."

h. A July 1963 industry report acknowledged that the TIRC was not qualified to conduct research in reaction to the Surgeon General’s report because it "was conceived as a public relations gesture . . . and it has functioned as a public relations gesture." The report noted that the TIRC did not have breadth of research to adequately respond to the Surgeon General.

110. Despite overwhelming scientific evidence, and the confirmation of this evidence by their own internal research, the cigarette manufacturers and their trade associations continue to deny uniformly that there is a causal connection between cigarette smoking and adverse health effects, or that nicotine is addictive. As one industry representative testified: "[A company can’t represent that] smoking doesn’t cause cancer. You can’t say that. But you can say it is a risk factor, and scientifically it hasn’t been established. And that’s what the research is for [emphasis added] . . . I don’t agree [that nicotine is addictive]. From what I’ve read on nicotine is that it contributes to the flavor, the taste of the product." These representations are intentionally misleading, unfair and deceptive. They are moreover a result of the industry’s ongoing conspiracy and combination arising from the Plaza Hotel agreement, and are done to maintain its market and profits from a deadly and addictive product.

111. Special Projects was not the only instance where the industry used lawyers to shield the truth. For example, in 1984, BAT began internally plotting how to shield documents produced by scientists from discovery. This plan included having BAT’s "scientific literature review publication . . . set up as a Law Department function." BAT internally noted that "Direct lawyer involvement is needed in all BAT activities pertaining to smoking and health from conception through every step of the activity. This is a direct admission of BAT’s efforts to shield adverse scientific information from seeking the light of day. This goal was being frustrated because "[t]he problem posed by BAT scientists and frequently used consultants who believe cause is proven is difficult."

112. The Kansas City law firm of Shook, Hardy & Bacon and other lawyers played a critical role in furthering the conspiracy to suppress and conceal information about the adverse health effects caused by the use of tobacco products. The lawyers’ strategy was to attempt to protect damaging tobacco-related documents from disclosure under the attorney-client or work product privileges regardless of whether such documents were prepared in anticipation of litigation or represented confidential communications made between lawyer and client for the purpose of rendering legal advice. Lawyers routinely provided a number of non-legal services to the defendants such as deciding which CTR "special projects" should receive funding, dispensing funding to the "scientists" involved in such projects and designing the scope and approach of the special project. Shook, Hardy & Bacon also undertook to coordinate the tobacco companies CTR "special projects" subterfuge.

113. For example, in 1976, Donald K. Hoel of Shook, Hardy & Bacon wrote to in-house lawyers at the various tobacco companies that a study to measure environmental tobacco smoke should be modified in such a way so that the study would yield more favorable results for the tobacco companies’ position. The study was subsequently modified to de-emphasize the role of second-hand tobacco smoke relating to indoor environmental quality.

114. In addition, a May 19, 1981 letter from Ernest Pepples, vice president and general counsel of Brown & Williamson, to Patrick Sirridge of Shook, Hardy & Bacon requests that Sirridge evaluate the qualifications of various scientists seeking to conduct scientific studies for Brown & Williamson. Shook, Hardy & Bacon responded by providing biographical sketches of potential consultants including whether they previously had taken a scientific position favorable to the industry’s position. Sirridge also cooperated with Pepples’ request in 1984 to transfer the funding of some helpful research by a cooperative scientist from a CTR account to a law firm project: "I do not think . . . that we should continue burdening CTR with such programs, and instead suggest that they be handled as law firm projects."

115. In 1972, William Shinn of Shook, Hardy & Bacon wrote to tobacco company officials that a potentially favorable study should be secretly funded by the tobacco companies as a "special project (non-CTR)" in order to make the study appear independent of the industry and thus heighten its perception as unbiased and reliable.

116. By becoming intimately involved in the funding and design of these scientific studies, these lawyers attempted to further the conspiracy and fraud of the tobacco companies and CTR by (1) clothing such studies in the attorney-client or work product privilege in order to protect them from disclosure if their results were unfavorable, and (2) creating the perception that CTR and the tobacco companies were fairly and appropriately fulfilling their obligations and promises to the public that they would, in a vigorous and unbiased manner investigate and report to the public the link between their products and human disease.

117. At least one tobacco company used similar tactics in-house to suppress and avoid disclosure of its internal research on smoking and disease. At a time when the company was resisting discovery in a number of personal injury lawsuits, Brown & Williamson’s general counsel, J. Kendrick Wells, recommended in a memorandum dated January 17, 1985, that most of the company’s biological research be declared "deadwood" and shipped to England. He recommended that no notes, memos or lists be made about these documents. Wells stated, "I had marked certain of the document references with an X . . . which I suggested were deadwood in the behavioral and biological studies area. I said that the "B" series are "Janus" series studies and should also be considered as deadwood." ("Janus" was a name of a project that attempted to isolate and remove the harmful elements of tobacco.) Wells further recommended that the research, development and engineering department also should undertake "to remove the deadwood from the files."

118. Similarly, in a 1978 memo, B&W’s Pepples wrote that use of the CTR avoids the dilemma of a manufacturer that needs to know the state of the art, but "on the other hand cannot afford the risk of having the in-house work turn sour. . . . The point here is the value of having CTR doing work on a nondirected and independent fashion as contrasted with either in-house or under. B&W contract which, if it goes wrong, can become the smoking pistol in a lawsuit!"

119. Thus, the tobacco companies and their lawyers have misused claims of attorney/client privilege to insulate CTR-funded research projects and internal documents from disclosure to the public and to government officials. This conduct demonstrates the falsity of the tobacco companies’ representations that they would jointly fund objective research and report the results of that research to the public.

H. Beyond 1953: The Continuing Conspiracy to Restrain Trade. Beyond 1953 The Continuing Conspiracy to Restrain Trade

1. The "Gentlemen’s Agreement". The Gentlemen’sAgreement

120. The industry’s 1953 combination and conspiracy was supplemented and aided by a commitment jointly to conduct research because of "a general feeling that an industry approach as opposed to an individual company approach was highly desirable." This approach was desirable to prevent, among other things, competition on the basis of health risk comparisons.

121. As part and in furtherance of the agreement not to compete to develop a "safer" cigarette, there was a "gentlemen’s agreement" among the manufacturers to suppress independent research on the issue of smoking and health, for the purpose of and with the effect of restricting output. Despite increasing market demand, the tobacco manufacturers agreed not to market any safer or alternative products. The means of effecting this output reduction conspiracy included suppression of independent research and policing violators, as described below. This agreement was referenced in a 1968 internal Philip Morris draft memo, which stated, "We have reason to believe that in spite of gentlemans (sic) agreement from the tobacco industry in previous years that at least some of the major companies have been increasing biological studies within their own facilities." This memo also acknowledged that cigarettes are inextricably intertwined with the health field, stating, "Most Philip Morris products both tobacco and non-tobacco are directly related to the health field."

122. As indicated by this memo, it was believed within the industry that individual companies were performing certain research on their own, in addition to the joint industry "research." Some companies viewed the strengthening demand for safer and alternative products as a potential future marketing opportunity. But the fundamental understanding and agreement remained: That information and activities deemed harmful to the unified, defensive posture of the industry or inconsistent with the non-competition conspiracy would be restrained, suppressed, and/or concealed. No company or industry trade organization stood behind the "promise" the defendants had made. As American Tobacco’s CEO testified, "[If the health studies are correct], consumers have the right to know whatever is affecting their health. I think that’s what, the public health agencies and the government have that responsibility." (Emphasis added.)

123. The agreement not to compete was explicitly referenced in an October 1964 memorandum entitled "Reports on Policy Aspects of the Smoking and Health Situation in U.S.A.":

The informal agreement between TRC members not to make health claims was explained to Philip Morris.

124. Defendants’ activities in furtherance of the output-restriction/non-competition combination included restraining, suppressing, and concealing research on the health effects of smoking, including the addictive properties of tobacco products, and restraining, concealing, and suppressing the research and marketing of safer cigarettes. Despite the ability to produce "safer" cigarettes, the defendants did not market such products, except in limited test markets, because it was understood within the combination that no company would characterize or promote a product as biologically "safer."

125. Like all classic cartels, defendants policed their conspiracy internally and externally. One member of the conspiracy, US Tobacco, went so far as to terminate an employee and apologize to the Big 6 cigarette companies when the employee was quoted in a New York Post article referring to smokeless tobacco as less dangerous than smoking. Ernest Pepples of Brown & Williamson reported this in a memo, where he wrote that he had been called by UST’s General Counsel, Jim Chapin. Pepples stated, "Chapin says the statements quoted were unauthorized and do not represent his company’s views. He has asked me to extend U.S. Tobacco’s apology to each of the cigarette companies and advised me that the individual quoted in the article is no longer employed at U.S. Tobacco. Chapin says U.S. Tobacco has instituted smoking and health seminars throughout the company." This action is totally contrary to the self-interest of U.S. Tobacco, and is consistent with the conspiracy among the defendants not to compete on the basis of safety and health.

2. Suppression of Liggett’s "Safer" Cigarette. Suppression of Liggett’s Safer Cigarette

126. In response to perceived growing demand, several companies researched the possibility of marketing "safer" (less harmful to humans) cigarettes. One of the ways in which the defendants acted in concert was to exclude the products from the market and further exclude potential new entrants by patenting the processes for these less harmful products, which they neither marketed nor licensed to any other actual or potential competitor.

127. In response to demand, Liggett was one of the defendants who was successful in researching and actually developing a less biologically active cigarette. However, in response to retaliation and threats from co-conspirators, Liggett agreed not to market this product after an apparent threat of retaliation by another manufacturer.

128. Liggett initiated its safer cigarette project, called XA, in 1968. After a minimal expenditure of only $14 million, Liggett was able, internally, to proclaim the project a success in 1979. By applying an additive of palladium metal and magnesium nitrate to tobacco to act as a catalyst in the burning process, Liggett found that "[c]igarette tar has been neutralized" and that there was "[n]o evidence for new or increased hazard . . . ."

129. Using this process, Liggett was able to produce cigarettes "which are believed to be of commercial quality." These cigarettes, however, were never marketed.

130. Liggett abandoned its XA project for the reason, among others, that it faced retaliation from industry leader Philip Morris if Liggett broke ranks. Another reason for abandoning the project was fear that the marketing of a "safer" cigarette would be, in essence, a confession that its, and the industry’s other cigarettes, were not safe. Thus, one Liggett executive wrote that, "Any domestic activity will increase risk of cancer litigation on existing products."

131. James Mold, who was assistant director of research at Liggett during the development of the safer cigarette, the XA project, has provided testimony including the following overview of the XA project and its abandonment:

a. Mold stated that the XA project produced a safer cigarette. He stated, "We produced a cigarette which was, we felt, commercially acceptable as established by some consumer tests, which eliminated carcinogenic activity. . . ." (underline supplied).

b. Mold testified that after 1975, all meetings on the project were attended by lawyers, lawyers collected all notes after the meetings, and all documents were directed to the law department to maintain the attorney-client privilege. He stated, "Whenever any problem came up on the project, the Legal Department would pounce upon that in an attempt to kill the project, and this happened time and time again."

c. Mold testified that he was at a conference of scientists in Buenos Aires prepared to present his research regarding a less harmful cigarette when he received a "frantic call" from legal counsel and was told not to present the paper or issue the press release. He was instructed not to publish his results in the Journal of Preventative Medicine.

d. Mold was asked why Liggett didn’t market a safer cigarette. He answered, "Well, I can’t give you, you know, a positive statement because I wasn’t in the management circles that made the decision, but I certainly had a pretty fair idea why. . . . [T]hey felt that such a cigarette, if put on the market, would seriously indict them for having sold other types of cigarettes that didn’t contain this, for example." Also, there was a meeting we held in . . . New Jersey at the Grand Met headquarters. . . at which the various legal people involved and the management people involved and myself were present. At one point Mr. Dey who at that time, and I guess still is the president of Liggett Tobacco, made the statement that he was told by someone in the Philip Morris company that if we tried to market such a product that they would clobber us."

3. Brown & Williamson’s Efforts to Develop a Safer Cigarette3. Brown & Williamson’s Efforts to Develop a Safer Cigarette

132. Brown & Williamson also developed "safer" cigarettes, which it did not market despite promising test results, because, among other reasons, such efforts would violate the output-restriction conspiracy. Jeffrey Wigand, a former Vice President for Research and Development for Brown & Williamson, states that he was instructed by the President of the company to abandon all efforts to develop a safer product. He has testified that he was told, generally, "That there can be no research on a safer cigarette. Any research on a safer cigarette would clearly expose every other product as being unsafe and, therefore, present a liability issue in terms of any type of litigation." Brown & Williamson’s Project "Ariel" used a heating, as opposed to burning system. Its Project "Janus" was intended to identify hazardous components of cigarette smoke so they could be removed.

133. Brown & Williamson also conducted research on tobacco substitutes or analogues, as did a number of the other companies. These substitutes were sought as a means to duplicate some of the effects of nicotine without toxic or harmful effects. For example, Brown & Williamson’s parent BAT developed "Batflake," a tobacco substitute. Laboratory tests showed that use of "Batflake" reduced a number (though not all) of the harmful effects of smoking in direct proportion to the amount used in a cigarette. So far as is known, none of the substitute products was ever marketed in the United States. In 1980, BAT and Brown & Williamson abandoned the "safer" product search: "Dangerous area [research into irritation and smoke inhalation]. Please do not publish or circulate. No more work is needed on biological side." (Emphasis added.)

134. Despite increasing market demand for their products, such innovative products were not marketed because of the agreement not to compete; i.e. to restrict output of alternative or safer products. No other member of the conspiracy broke ranks by competitively marketing products with improved biologic performance despite individual competitive reasons for marketing such product: "Within B & W, we have rarely attempted to develop new products specifically designed to deliver low CO [carbon monoxide], except perhaps a prototype of FACT that was kept ready on a turn-key basis in the event of a marketing need for such product. This was done through a combination of filter ventilation, cigarette paper permeability, and appropriate cigarette paper additive. Needless to say, such need did not arise." (Emphasis added.)

4. Philip Morris: Avoiding an Industry War. Philip Morris Avoiding an Industry War

135. Philip Morris also explored research to develop a safer cigarette, or, in the words of one memorandum to the board of directors, cigarettes with "superior physiological performance." This memorandum noted competitive pressures to produce "less harmful" cigarettes. However, the memorandum was careful to state that, "[o]ur philosophy is not to start a war, but if war comes, we aim to fight well and to win." Philip Morris never broadly marketed such a "safer" cigarette. Its documents recognize the strong market demand and state that "after much discussion we decided not to tell the physiological story which might have appealed to a health conscious segment of the market. The product as test marketed didn’t have good _taste_ and consequently was unacceptable to the public ignorant of its physiological superiority." Subsequently, taste was improved and Philip Morris attempted to promote the product. However, "The imposition of FTC rules and the industry advertising code took the starch out of the program . . . ." (Emphasis added.)

5. Reynolds’ Safer Product. Reynolds’ Safer Product

136. Reynolds also developed an alternative product which had reduced physiological consequences. Except for a brief test in several cities, because of the output-restriction conspiracy Reynolds did not market its safer product, "Premier."

137. The Federal Trade Commission Cigarette Advertising Guides, adopted September 22, 1955 and modified March 25, 1966, did not allow claims based on unsubstantiated health effects. However, it was clear in the industry that the Guides could be modified if justification was shown. Indeed, the 1966 modification of the Guides was based on development of a method, albeit not without difficulties of its own, of measuring tar and nicotine content. In the context of development of a potentially less hazardous product, a Brown & Williamson document by Addison Yeaman states, "I would submit that the FTC in the face of 1) the industry’s research effort, 2) the truth of our claims, and 3) the _public interest_ in our filter, cannot successfully deny us the right to inform the public." In truth, the defendants used the FTC Guides as a shield behind which it concealed its agreement not to compete. The voluntary agreement with the FTC was characterized by the Consumers Union as being "to the industry’s advantage and to the public’s disadvantage. . . ."

138. The Cigarette Advertising Code, adopted by the defendants, was another mechanism used to enforce the illegal agreement not to compete on the basis of safety or health characteristics of tobacco products. Among other provisions, it prohibits health claims in industry advertisements unless the "Code Administrator," to whom all cigarette advertisements are required to be submitted, approves of the advertisement. The Code, a blatant restraint of trade, provided a mechanism to monitor and police defendants’ illegal agreement.

6. The Industry Position on "Safer" Cigarettes. The Industry Position on Safer Cigarettes

139. In furtherance of their illegal combination and conspiracy, defendants collectively denied that a safer cigarette could be produced.

140. A memorandum authored by an attorney at the firm of Shook, Hardy & Bacon, long-time lawyers for the cigarette industry, confirmed that there was an industry-wide position regarding the issue of a safer cigarette.

141. The 1987 memorandum was written in the context of the marketing by R.J. Reynolds of a smokeless cigarette, Premier, which heated rather than burned tobacco. The Shook, Hardy attorney wrote that the smokeless cigarette could "have significant effects on the tobacco industry’s joint defense efforts" and that "[t]he industry position has always been that there is no alternative design for a cigarette as we know them." The attorney also noted that, "Unfortunately, the Reynolds announcement . . . seriously undercuts this component of industry’s defense." This fundamental position of the "industry" defense had been identified much earlier. In 1970, David Hardy of the Shook, Hardy firm wrote to DeBaun Bryant, General Counsel at Brown & Williamson, expressing concerns about some of the industry research into alternative products. In critiquing the minutes of a conference, he stated: "It is our opinion that statements such as [references to research into safer products, products which are less biologically active, and to _healthy cigarettes_] constitute a real threat to the continued success in the defense of smoking and health litigation. Of course, we would make every effort to _explain_ such statements if we were confronted with them during a trial, but I seriously doubt that the average juror would follow or accept the subtle distinctions and explanations we would be forced to urge. . . . [E]mployees in both companies [Brown and Williamson and British American Tobacco] should be informed of the possible consequences of careless statements on this subject."

142. All defendants were keenly aware of the risk to the industry if any of them sought a competitive advantage by developing and marketing a safer product. The risk was avoided by agreeing to not compete on that basis. As one industry representative testified: "[A]s a company, we cannot position our products as being healthy. We’ve already agreed that they are a risk factor [the _agreement_ referenced is the industry’s acceptance of the warning labels on cigarette packages]. [W]e wouldn’t run any advertising that positions any of our products as being healthier than others."

143. As part of the conspiracy, the companies agreed to avoid research that might produce bad results for the industry. For example, on March 31, 1980, Philip Morris scientist Robert Seligman wrote Lorillard scientist Alex Spears, suggesting "subjects to be avoided." These subjects included developing new tests for carcinogenicity, attempts to relate human desires to smoking and tests which would show the "addictive" effect of smoking on carcinogenicity.

7. Suppression of the R.J. Reynolds "Mouse House" Research. Suppression of the R.J. Reynolds MouseHouse Research

144. For a period of time in the late 1960’s, R.J. Reynolds had a state-of-the-art laboratory in Winston-Salem, nicknamed "the mouse house." Here, scientists conducted research with mice, rats and rabbits and began to uncover promising avenues of investigation into the mechanisms of smoking-related diseases. In 1970, this entire research division was disbanded in one day, and all 26 scientists were fired without notice. Company attorneys had collected dozens of research notebooks, still undisclosed, from the biochemists several months before the firings.

8. Suppression of Philip Morris Research on Nicotine Analogues. Suppression of Philip Morris Research on Nicotine Analogues

145. In the early 1980’s, researchers working at a Philip Morris laboratory in Richmond worked to develop a synthetic form of nicotine that would avoid its cardiovascular complications. However, in April 1984 the company abruptly shut the laboratory. The researchers were fired and threatened with legal action if they published their work.

146. The research was conducted by Victor J. DeNoble and his colleague Paul C. Mele, who remained silent about their work under confidentiality agreements imposed by Philip Morris until testifying in 1994 before a congressional committee in Washington.

147. The research was so secretive that laboratory animals were brought in at night under cover. The researchers discovered that nicotine demonstrated addictive qualities and that the animals self-administered the substance, pressing levers to obtain nicotine. The researchers also discovered nicotine analogues, artificial versions of nicotine. These analogues affected the brain much like nicotine. But the analogues did not seem to produce the harmful cardiovascular effects of nicotine. Thus, rats using the analogue behaved as if they had a nicotine "high" but did not show signs of heart distress such as rapid heart beat.

148. By 1983, the research was becoming particularly problematic. A number of personal injury cases had been filed against the industry, with nicotine dependence a critical issue. In June 1983, DeNoble was called to the Philip Morris headquarters in New York to brief top executives. Following the meeting, company lawyers visited the lab and reviewed research notebooks. There were discussions of shifting the research out of the company, perhaps to DeNoble and Mele as outside contractors or to a lab in Switzerland, to distance Philip Morris from the results.

149. Finally, in April 1984, the researchers were abruptly told to halt their work, kill all the rats, and turn in their security badges. The researchers also were forced to withdraw a paper on the addictive qualities of nicotine, even after it had been accepted for publication by a scientific journal.

I. History of Industry K