IN THE CIRCUIT COURT OF THE CITY OF ST. LOUIS, MISSOURI
STATE OF MISSOURI, ex rel.
JEREMIAH W. (JAY) NIXON,
Attorney General,
Plaintiff,

v.

AMERICAN TOBACCO COMPANY, INC.;
AMERICAN BRANDS, INC.; BROWN AND
WILLIAMSON TOBACCO CORP; B.A.T.
INDUSTRIES, P.L.C.; BATUS HOLDINGS
INC.; BRITISH AMERICAN TOBACCO
HOLDINGS, LTD.; BRITISH AMERICAN
TOBACCO COMPANY, LTD.; LIGGETT &
MYERS, INC.; LIGGETT GROUP, INC.;
THE BROOKE GROUP, LTD; LORILLARD
TOBACCO COMPANY, INC.; LORILLARD
CORPORATION; LOEWS CORPORATION;
PHILLIP MORRIS, INC.; PHILLIP
MORRIS COMPANIES, INC.; R.J.
REYNOLDS TOBACCO COMPANY; R.J.R.
NABISCO, INC.; UNITED STATES
TOBACCO COMPANY; THE COUNCIL FOR
TOBACCO RESEARCH U.S.A., INC.; THE
TOBACCO INSTITUTE, INC.; SMOKELESS
TOBACCO COUNCIL, INC.; and HILL
AND KNOWLTON, INC.,
Defendants.

Case No. 972-1465

PETITION FOR PERMANENT INJUNCTION, COMPENSATORY

AND PUNITIVE DAMAGES, CIVIL PENALTIES,

RESTITUTION AND OTHER COURT ORDERS

Comes now the State of Missouri, at the relation of Attorney General Jeremiah W. (Jay) Nixon, and for its cause of action states:

1. The State of Missouri brings this action pursuant to the State's statutory, common law, and equitable authority to protect the public interest and the public health of the citizens of Missouri, for the purposes of obtaining damages, restitution, civil penalties, punitive damages, declaratory and injunctive relief and other equitable relief against the Defendants for their unlawful actions in connection with the marketing and sale of tobacco products to Missouri citizens.

2. The State of Missouri through this action seeks restitution and damages from the Defendants for all of the expenses and costs that the State has incurred, and continues to incur, in providing health care and other services to the citizens and employees of the state who suffer, who have suffered, and who will suffer in the future, from tobacco related injuries, diseases and illnesses as a result of the Defendants' wrongful conduct and unlawful activities. Such sums have been expended and will continue to be expended in the future in order to pay for health care costs and other related services resulting, in whole or in part, from use by Missouri citizens of tobacco products. The State of Missouri has expended, continues to expend, and will expend in the future, such sums pursuant to various State programs. Additionally, the State of Missouri, pursuant to the Missouri Merchandising Practices Act, Chapter 407, RSMo and other statutory, common law and equitable remedies, seeks to disgorge from the Defendants all monies which they acquired through their unlawful practices and to restore said monies to the consumers of Missouri from whom it was unlawfully acquired. Finally, the State of Missouri by this action seeks, through various forms of equitable relief, including without limitation, injunctive relief to curtail the promotion and sale of tobacco products to minors in Missouri.

PARTIES

3. This action is brought for and on behalf of the State of Missouri at the relation of Jeremiah W. (Jay) Nixon, the duly elected, qualified and acting Attorney General of Missouri.

4. 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," manufactures, advertises and sells Lucky Strike, Pall

Mall, Tareyton, American, Malibu, Montclair, Newport, Misty, Iceberg, Silk Cut, Silva Thins, Sobrania, Bull Durham, and Carlton cigarettes and/or other tobacco products throughout the United States. In 1994, American Tobacco was sold to British American Tobacco Co., parent of defendant Brown & Williamson.

5. American Brands, Inc. ("American Brands" but occasionally, collectively as "American Tobacco" or "ATC") is a Delaware corporation whose principal place of business is located at 6 Stamford Forum, Stamford, Connecticut 06904. Defendant American Brands is the parent corporation of, or successor in interest to, American Tobacco. American Brands individually and/or through it's agent, alter ego, subsidiary and/or division, Defendant American Tobacco, manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States and/or materially participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the Defendants in doing so.

6. 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, Pall Mall, Carlton, Lucky Strike, Raleigh, Barclay, BelAir, Capri, Richland, Laredo, Eli Cutter, Tareyton and

Viceroy cigarettes and/or other tobacco products throughout the United States.

7. Defendant B.A.T. Industries, P.L.C. ("B.A.T. Industries" but occasionally, collectively as "Brown and Williamson") 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 Missouri. B.A.T. Industries is a participant in the conspiracy described herein and has caused harm and affected commerce in Missouri.

8. Batus Holdings, Inc. ("Batus" but occasionally, collectively as "Brown & Williamson"), is a Delaware corporation whose principal place of business is located at 1500 Brown & Williamson Tower, Louisville, Kentucky 40202. Defendant Batus is or was an agent, alter ego, subsidiary and/or division of Defendant B.A.T. Industries, Defendant British-American Tobacco (Holdings), Ltd., and/or Defendant British American Tobacco Company, Ltd. Defendant Batus is a parent corporation of Defendant Brown & Williamson. Batus individually and/or through it's agent, alter ego, subsidiary and/or division, Defendant Brown & Williamson, manufactures, advertises and sells cigarettes throughout the United States and/or materially participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the Defendants in doing so.

9. Defendant British American Tobacco Company, Ltd. ("BATCO", but occasionally, collectively as "Brown and Williamson"), is a British Corporation whose registered office is at Milbank, Knowle Green, Staines, Middlesex, England TW18 1DY. British American Tobacco Company, Ltd., is or was a related corporation of defendant Brown & Williamson Tobacco Corporation. Both are owned by B.A.T. Industries. BATCO, individually or through its affiliate, alter ego, subsidiary and/or division, defendant Brown & Williamson Tobacco Corporation, manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States. BATCO is a participant in the conspiracy described herein and has caused harm and affected commerce in the State of Missouri.

10. British-American Tobacco (Holdings) Ltd. ("British Holdings" but occasionally, collectively as "Brown & Williamson"), is a British corporation whose registered office is a Millbank, Knowle Green, Staines, Middlesex TW18 1DY, United Kingdom. Defendant British Holdings is or was a parent corporation of Defendant Brown & Williamson and Defendant Batus. British Holdings individually and/or through its agents, alter egos, subsidiaries and/or divisions, Defendants Brown & Williamson and Batus, manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States and/or materially participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the Defendants in doing so.

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

12. Liggett Group, Inc. ("Liggett Group" but occasionally, collectively as "Liggett"), is a Delaware corporation whose principal place of business is located at 300 North Duke Street, Durham, North Carolina 27701. Defendant Liggett is the parent corporation of Defendant Liggett & Myers. Liggett Group individually and/or through its agent, alter ego, subsidiary and/or division, Defendant Liggett & Myers, manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States and/or materially participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the Defendants in doing so.

13. The Brooke Group, Limited ("Brooke Group" but occasionally, collectively as "Liggett"), is a Delaware corporation with its principal place of business located at 300 North Duke Street, Durham, North Carolina. Brooke Group is the parent corporation of Defendant Liggett. Brooke Group individually and/or through its agent, alter ego, subsidiary and/or division, Defendant Liggett, or Liggett Group manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States and/or materially participated, conspired, assisted, encourage and otherwise aided and abetted one or more of the Defendants in doing so.

14. 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/or other tobacco products throughout the United States.

15. Defendant Lorillard Corporation (Lorillard Corp. but occasionally, collectively as Lorillard) is a Delaware corporation whose principal place of business is located at 1 Park Avenue, New York, New York 10016 Lorillard Corporation is wholly-owned or division of Loews Corporation. Lorillard Corporation individually and/or through its agent, alter ego, subsidiary and/or Division, manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States both individually and through its agent or alter ego, Lorillard Tobacco Company, Inc.

16. Defendant Loews Corporation (Loews, but occasionally, collectively as Lorillard) is a Delaware Corporation whose principal place of business is located at 1 Park Avenue, New York, New York 10016. Defendant Loews is the parent corporation of defendant Lorillard. Loews individually and/or through its agents, alter egos, subsidiaries and/or divisions Lorillard or Lorillard Corp. manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States and/or materially participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the defendants in doing so.

17. Defendant Philip Morris Inc. ("Philip Morris U.S.A", but occasionally, collectively "Phillip Morris"), is a Virginia corporation whose principal place of business is 120 Park Avenue, New York, New York 10017. Philip Morris U.S.A. manufactures, advertises and sells Philip Morris, Merit, Cambridge, Marlboro, Benson & Hedges, Virginia Slims, Alpine, Dunhill, English Ovals, Galaxy, Players, Saratoga and Parliament

cigarettes and/or other tobacco products throughout the United States.

18. Philip Morris Companies, Inc. ("Philip Morris"), is a Virginia corporation whose principal place of business is located at 120 Park Avenue, new York, New York 10016. Defendant Philip Morris is the parent corporation of Defendant Philip Morris USA. Philip Morris individually and/or through its agent, alter ego, subsidiary, and/or division, Defendant Philip Morris USA, manufactures, advertises and sells cigarettes and/or other tobacco products throughout the United States and/or materially participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the Defendants in doing so.

19. Defendant R.J. Reynolds Tobacco Company ("Reynolds" or "RJR") is a New Jersey corporation whose principal place of business is Fourth & Main Streets, 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/or other tobacco products throughout the United States.

20. R.J.R. Nabisco, Inc. (hereinafter generally "Nabisco" but occasionally, collectively as "Reynolds"), is a Delaware corporation whose principal place of business is 1301 Avenue of the Americas, new York, New York 10015. Nabisco is the parent corporation of R.J. Reynolds. Nabisco individually and/or through its agents, alter ego, subsidiary, and/or division, Defendant R.J. Reynolds, manufactures, advertises and sells cigarettes throughout the United States and/or participated, conspired, assisted, encouraged and otherwise aided and abetted one or more of the Defendants in doing so.

21. 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, Skoal, Red Seal, Bruton, WB Cut and Copenhagen.

22. Each of the defendant cigarette and tobacco manufacturers advertised, sold and promoted their tobacco products in Missouri.

23. Defendant The Council for Tobacco Research U.S.A., Inc. (the "CTR"), successor in interest to Tobacco Industry Research Committee (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 petition. In doing the acts 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 Missouri.

24. Defendant The Tobacco Institute, Inc., ("Tobacco Institute" or "TI") is a New York nonprofit corporation with its principal place of business at 1875 I Street NW, Suite 800, Washington, D.C. 20006. At all relevant times, the 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 Defendants described in this petition. In committing the acts alleged, the TI 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 TI alleged in this complaint were ratified and approved by the officers or managing agents of the Tobacco Companies. The TI has been involved in the conspiracy described in this complaint, and the actions of the TI have affected commerce and caused harm in Missouri.

25. Smokeless Tobacco Council, Inc. ("STC"), is a New York non-profit corporation whose principal place of business is 1627 K Street Northwest, Washington, D.C. STC ostensibly was formed for reasons of supporting objective research into the biologic consequences of the use of smokeless tobacco. Like CTR, it was used to further the goals of the conspiracy. Dominated by U.S. Tobacco, STC also included as members several small producers of smokeless tobacco and was financially supported by several of the Big Six Tobacco Companies, including at least Brown & Williamson, Lorillard and Reynolds. Personnel from the Tobacco Companies actively participated in STC activities. At all relevant times, STC operated as a public relations and lobbying arm of the Tobacco Companies and as agent and employee of the Tobacco Companies. It also acted as a facilitating agency in the furtherance of Defendants' combination and conspiracy as described in this Petition. In doing the things alleged, STC 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 STC alleged were ratified and approved by the officers of managing agents of the Tobacco Companies. STC has been involved continuously in the conspiracy described and its actions have affected commerce and caused harm in Missouri.

26. Defendant Hill & Knowlton, Inc. ("Hill & Knowlton"), is an international public-relations firm with offices located in major American cities and whose principal place of business is 420 Lexington Avenue, New York, New York. 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 TIRC and CTR. Hill & Knowlton has been the primary advertising agency responsible for disseminating 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, Philip Morris, Reynolds, American Tobacco and Lorillard. 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.

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

JURISDICTION

28. Defendants have transacted business in the State of Missouri and in the City of St. Louis, directly and through their servants, agents, employees and representatives by advertising and selling cigarettes and/or other tobacco products.

29. This Court has jurisdiction over the subject matter of this action pursuant to, among other authorities, the Missouri Merchandising Practices Act § 407.100, the Missouri Antitrust Act, 416.061, § 478.070, § 527.010,and § 27.060, RSMo 1994. The Court has personal jurisdiction over the non-resident Defendants pursuant to, among other authority, § 506.500, RSMo 1994.

VENUE

30. Venue is proper in the City of St. Louis, pursuant to, among other authorities, the Missouri Merchandising Practices Act § 407.100, the Missouri Anti-Trust Act § 416.131 and § 508.010, RSMo 1994. The Defendants have advertised and sold their products in the City of St. Louis, and, in addition, are non-resident organizations without a principal office in the State of Missouri.

COMMON FACTUAL ALLEGATIONS

A. Background

31. Today, some 50 million Americans smoke and, according to current trends, 22 percent of adult Americans will still be smokers in 2000. In the latter half of the 20th century, some 10 million Americans have been killed by smoking-related 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.

32. 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 every year than lung cancer. Smoking is responsible for approximately one-fourth of all cancer deaths as well as one-third of all heart-disease deaths.

33. Several factors account for the persistence of cigarette smoking. First, partly as a result of the Tobacco Industry's false and fraudulent advertising, consumers began to smoke before it was proven that smoking is a cause of lung cancer and other diseases. Second, the long latency period

between smoking initiation and disease contraction masked the causal relationship for decades. Third, cigarettes contain large amounts of nicotine, an 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 is really harmful and to make it appear that there is a legitimate, good-faith scientific dispute over the health impact of smoking, while presenting cigarette smoking in an attractive, youthful and positive way; concealing all the while that the product is, in fact, highly addictive and dangerous.

34. Despite their knowledge that cigarette smoking is extremely addictive, the Tobacco Companies to this day, pursuant to their conspiracy, deny that smoking is addictive or the cause of disease. 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

35. The promotional activities and conduct of the Tobacco Industry, after the conspiracy (which is described below) was agreed to and implemented, 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.

36. Cigarette smoking increased dramatically in the first half of the 20th 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."

37. 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."

38. 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 of the falsity of their claims and the

consequential adverse health 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."

39. 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 presentations 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

40. 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 not to 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.

41. In the early 1950s, 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."

42. The cigarette industry responded quickly to the Big Scare, which by late 1953 had caused a decrease in consumption of tobacco products and in the stock prices of many of the Tobacco Companies. Thus, on December 14, 1953, in the direct aftermath of the Wynder study and the public concern over it, Brown & Williamson president Timothy V. Hartnett circulated a

memorandum to his counterparts at other defendant Tobacco Companies and set out his proposals on how the industry should collectively deal with the "health issue."

43. Hartnett proposed a two-pronged collective response to his competitors "to get the industry out of this hole": (a) "unstinted assistance to scientific research," and the most difficult part of this effort was the group's 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."

44. Hartnett's actions were an invitation to his competitors to agree to restrain independent economic best interest in favor of collusion.

45. 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, Brown & Williamson, Lorillard, Philip Morris, R.J. Reynolds and U.S. Tobacco. This gathering was unprecedented because it was the first time the Tobacco Companies had met together outside occasional dinners. Also in attendance was Hill & Knowlton, which coordinated the meeting and was to play a major role in formulating and executing the industry's response.

46. 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." 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." To conceal their intentions collectively to 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."

47. At the Plaza Hotel meeting, the Defendants entered into a combination and conspiracy to cease to compete on the basis of relative health risks, an agreement that violates Missouri's prohibitions on unreasonable restraints of trade.

48. 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 memorandum, the Tobacco Companies were prevented by a 1911 dissolution decree and criminal convictions for price

fixing in 1939 from carrying on many group activities.

49. Despite the dangers, the competitors met because they viewed the current problem "as being extremely serious and worth 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."

50. 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."

51. Thus, at the December 15, 1953 meeting, the course of conduct agreed to included 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."

52. 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."

53. 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."

54. 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 named 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.

55. 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.

56. 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.

57. 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.

58. 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."

59. British research conducted by the Tobacco Manufacturers' Standing Committee ("TMSC"), an equivalent organization to the TIRC (and including companies, such as British American Tobacco, which were affiliated with U.S. companies) had known competitive impacts. B.A.T.'s Chairman, Sir

Charles Ellis, said, "The Board has decided that if this Company [B.A.T.] 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."

60. 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."

61. 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

62. 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:

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

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

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

d. 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:

a) 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.

b) 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.

c) 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.

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 and United States Tobacco Company.

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 Missouri. 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 Public

63. Despite increasing internal knowledge of the undisclosed dangers of cigarette smoking, 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-pronged strategy of falsely representing the objectivity of industry research to the public to gain credence, and then misrepresenting, distorting and

suppressing information to support its pro-cigarette position.

64. Other public statements issued by the Tobacco Industry through the TIRC/CRT or the Tobacco Institute repeated several themes: (1) that the industry was working to report the full and complete truth concerning tobacco and health, (2) that those 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:

a. On June 4, 1955, the TIRC issued a release entitled "Antismoking 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."

b. 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."

c. 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 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.

d. 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."

e. 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."

f. 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."

g. On May 28, 1962, the TIRC in a release confirmed that its purpose was to "make the facts known to the public."

h. 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."

i. In 1979, the Tobacco Institute 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 that 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 ù 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.

65. 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:

a. On February 28, 1956, the president of ATC issued a release indicating that "many highly respected medical scientists challenge the anti-tobacco claims."

b. 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."

c. 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."

d. 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 person while having a mortality rate of 29 percent below average.

e. 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."

f. 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, "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."

66A 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." For example, on or about December 1, 1970, the TI issued a release entitled "The question about smoking and health is still a question." According to the release, "eminent scientists" question "whether any causal relationship has been proven between cigarette smoking and human disease." With respect to research, the release represented that "a major portion of this scientific inquiry has been financed by 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." The release went on to describe the CTR and its support for research by "independent scientists." According to the release, all of their work has been published. The release concluded with the following promises:

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

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

67A Far from being independent, scientists often had grants reviewed by counsel for the Tobacco Companies before their approval. So entwined were the Tobacco Company lawyers in the "independent" work of the CTR that the CTR set up a storage and retrieval system for the lawyers of five companies.

68A 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."

69A 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.

70A 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.

71A Reynolds 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."

72A In 1984, Reynolds 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.

73A 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 to better distort and suppress substantive information about smoking and health.

74A In addition to the campaign of disinformation perpetrated by TIRC, CTR and the Tobacco Institute, defendant companies disseminated their own misinformation. For example, Brown & Williamson was responsible for Project Truth, an operation consisting of articles and releases about the "smoking/health controversy." Project Truth took issue with reports linking tobacco use and smoking, in part because certain of these studies use laboratory techniques such as painting the backs of mice with nicotine concentrates. While Project Truth was ongoing, internally BATCO was conducting a project confirming the validity of linking smokers and cancer through the use of skin-painting tests, as set forth below.

F. The True Nature of the TIRC: A "Front"

for the Tobacco Cartel

75A 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 not to compete in the development of a "safer" cigarette. Its acts were the acts of Defendants in furtherance of their covenant not to compete.

76A 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.

77A 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.

78A 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 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, "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."

79A 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.

Other internal documents admit to the sham nature of the CTR. For example, in 1977, Addison Yeaman, chairman and president of CTR, stated during a 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."

80A A 1974 report to the CEO of Lorillard from a research executive described CTR's scientific projects as having not been selected against specific scientific goals, but rather for various purposes such as public relations, political relations and position for litigation. Thus, reviews of such programs for scientific relevance and merit in the smoking and health field are not likely to produce high ratings.

81A 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.

82A 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 . . . ."

83A 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."

84A This and other evidence demonstrates that the role and purpose of TIRC and CTR in the Tobacco Companies' strategy were to seek to use the public's trust to propagate "pro-tobacco" propaganda. An industry official described in his personal notes a meeting that included high level officials from various Tobacco Companies: "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."

85A 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 a Congressional Subcommittee chaired by Representative Henry Waxman of

California:

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.

86A 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 were published without deleting the word cancer.

87A 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

88A 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 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.

89A The true purpose of the Special Projects division was to concoct research regarding the links between smoking and disease 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 withhold 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."

90A 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, B.A.T. Industries, so that they would not be discovered in legal proceedings in the United States.

91A 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."

92A 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. . . . 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.

93A Special Projects was not the only instance where the industry used lawyers to shield the truth. For example, in 1984, B.A.T. began internally plotting how to shield documents produced by scientists from discovery. This plan included having B.A.T.'s "scientific literature review publication . . . set up as a Law Department function." B.A.T. internally noted that "Direct lawyer involvement is needed in all B.A.T. activities pertaining to smoking and health from conception through every step of the activity." This is a direct admission of B.A.T.'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."

94A 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 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.

95A For example, in 1976, a lawyer representing the tobacco industry wrote to in-house lawyers at the various Tobacco Companies that a study to measure environmental tobacco smoke should be modified 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.

96A In 1972, another lawyer representing the industry wrote to Tobacco Company officials that a potentially favorable study should be secretly funded by the Tobacco Companies as a "special project (non-CTR)" to make the study appear independent of the industry and thus heighten its perception as unbiased and reliable.

97A 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 to protect them from disclosure if their results were unfavorable, and (2) by 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.

98A 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, memoranda 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."

99A 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

1) The "Gentlemen's Agreement"

100A The industry's 1953 combination and conspiracy were 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.

101A 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 Companies agreed not to market any safer or alternative products. This output-reduction conspiracy was effected by suppressing independent research and policing violators, as described below. This conspiracy 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."

102A 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" 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."

103A 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.

104A 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."

105A Like all classic cartels, Defendants policed their conspiracy internally and externally. One member of the conspiracy, U.S. 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 Defendants not to compete on the basis of safety and health.

2) Suppression of Liggett's "Safer" Cigarette

106A 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 Defendants acted in concert to exclude the products from the market and further excluded potential new entrants was by patenting the processes for these less harmful products, which they neither marketed nor licensed to any other actual or potential competitor.

107A In response to demand, Liggett was one of the Defendants 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.

108A 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 . . . ."

109A Using this process, Liggett was able to produce cigarettes "which are believed to be of commercial quality." These cigarettes, however, were never marketed.

110A 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."

111A 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. . . ."

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" Cigarette

112A 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, has stated that he was instructed by the company president 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.

113A 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 B.A.T. 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, B.A.T. 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."

114A Despite increasing market demand, 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 biological 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."

4) Philip Morris: Avoiding an Industry War

115A Philip Morris also explored research to develop cigarettes that were "safer" or, in the words of one memorandum to the board of directors, had "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 . . . ."

5) Reynolds's "Safer" Product

116A Reynolds also developed an alternative product that had reduced physiological consequences (see below). Except for a brief test in several cities, Reynolds did not market its safer product, "Premier," because of the conspiracy.

6) The Industry Position on "Safer" Cigarettes

117A In furtherance of their illegal combination and conspiracy, Defendants collectively denied that a "safer" cigarette could be produced.

118A A memorandum authored by an attorney representing the tobacco industry confirmed that there was an industry-wide position regarding the issue of a safer cigarette.

119A 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 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, "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, another industry attorney 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 & Williamson and British American Tobacco] should be informed of the possible consequences of careless statements on this subject."

120A 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 not to 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."

7) Suppression of the R.J. Reynolds

"Mouse House" Research

121A For a period of time in the late 1960s, 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. Months before the firings, company attorneys had collected dozens of research notebooks, still undisclosed, from the biochemists.

8) Suppression of Philip Morris Research

on Nicotine Analogues

122A In the early 1980s, 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, fired the researchers and threatened legal action if they published their work.

123A 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.

124A 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, which are 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.

125A 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.

126A Finally, in April 1984, the researchers were abruptly told to halt their work, kill all 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 Knowledge

that Smoking is Harmful

127A Even before Defendants represented in the "Frank Statement" that "there is no proof that cigarette smoking is one of the causes" of lung cancer, an industry researcher had reported the contrary.

128A As early as 1946, Lorillard chemist H.B. Parmele, who later became vice president of research and a member of Lorillard's board of directors, wrote to his company's manufacturing committee:

Certain 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.

129A After the 1954 Frank Statement, the Tobacco Industry promptly breached its assumed duty to report objective facts on smoking and health. As evidence mounted that cigarette smoking causes cancer and other diseases both through industry research and truly independent studies the Tobacco Industry continued publicly to represent that nothing was proven against smoking. Internal documents, however, show that the truth was very different. The Tobacco Companies knew and acknowledged among themselves the veracity of scientific evidence of the health hazards of smoking, and at the same time suppressed such evidence where they could and attacked it when it did appear.

130A Internal cigarette industry documents reveal, for example:

a. A 1956 memorandum from the vice president of Philip Morris's research-and-development department to top executives at the company regarding the advantages of ventilated cigarettes stated: "Decreased carbon monoxide and nicotine are related to decreased harm to the circulatory system as a result of, smoking. . . . Decreased irritation is desirable . . . as a partial elimination of a potential cancer hazard."

b. A 1958 memorandum from a Philip Morris researcher to the company's vice president of research, who later became a member of its board of directors, stated "the evidence . . . is building up that heavy cigarette smoking contributes to lung cancer either alone or in association with physical and physiological factors. . . ."

c. A 1961 document presented to the Philip Morris research-and- development committee by the company's vice president of research and development included a section entitled "Reduction of Carcinogens in Smoke." The document states, in part:

To achieve this objective will require a major research effort, because Carcinogens are found in practically every class of compounds in smoke. This fact prohibits complete solution of the problem by eliminating one or two classes of compounds.

The best we can hope for is to reduce a particularly bad class, i.e., the polynuclear hydrocarbons, or phenols. . . .

Flavor substances and carcinogenic substances come from the same classes, in many instances.

d. A 1963 memorandum to Philip Morris's president and CEO from the company's vice president of research describes a number of classes of compounds in cigarette smoke which are "known carcinogens." The document goes on to describe the link among smoking, bronchitis and emphysema:

Irritation problems are now receiving greater attention because of the general medical belief that irritation leads to chronic bronchitis and emphysema. These are serious diseases involving millions of people. Emphysema is often fatal either directly or through other respiratory complications. A number of experts have predicted that the cigarette industry ultimately may be in greater trouble in this area than in the lung cancer field.

e. A 1961 "Confidential" memorandum from the consulting research firm hired by Liggett to do research for the company states:

There are biologically active materials present in cigarette tobacco.

They are:

a) cancer causing

b) cancer promoting

c) poisonous

d) stimulating, pleasurable, and flavorful.

f. A 1963 memorandum from Liggett's consulting research firm states:

Basically, we accept the inference of a causal relationship between the chemical properties of ingested tobacco smoke and the development of carcinoma, which is suggested by the statistical association shown in the studies of Doll and Hill, Horn, and Dorn with some reservations and qualifications and even estimate by how much the incidence of cancer may possibly be reduced if the carcinogenic matter can be diminished, by an appropriate filter, by a given percentage.

131A These internal Liggett documents sharply contrast with the information Liggett provided to the Surgeon General in 1963. Liggett withheld from the Surgeon General the views of its researchers and consultants that the evidence shows cigarette smoking causes human disease. A "Draft of an Outline for a Background Paper on the Smoking Problem to be Used in Connection with a Presentation of Arguments Before the Surgeon General's Committee" states:

a. "All Types of Smoking are Associated with Increased Mortality from all causes combined. . . ."

b. "For cigarette smokers who smoke regularly, excess mortality increases with current number of cigarettes smoked. . . ."

c. "Lung cancer extremely rare among nonsmokers . . . ."

d. As "reported by Hammond . . . Excess Mortality [is] (1) higher for cigarette smokers than others and (2) increases with daily cigarette consumption."

e. "For both sexes, all chronic respiratory diseases, chronic bronchitis, irreversible obstructive lung diseases . . . increased in prevalence with increasing current amount of smoking."

132A The report Liggett presented to the Surgeon General did not contain any of these conclusions and instead focused on alternative causes of disease, such as air pollution, coffee and alcohol consumption, diet, lack of exercise and genetics. Liggett criticized the known statistical association between smoking and mortality and various diseases as based upon "unreliably conducted" studies and "inadequately analyzed" data. The Liggett report concluded that the association between smoking and disease was inconclusive and due to other factors coincidentally associated with smoking.

133A Philip Morris also concealed from the public its actual views of the research conducted outside the influence of the industry. A 1971 memorandum written by Dr. H. Wakeham, then vice president of research and development, discussed a recent study that found cigarette-smoke inhalation caused lung cancer in beagles:

1970 might very properly be called the year of the beagle. Early in the year, the American Cancer Society announced that they had finally demonstrated the formation of lung cancer in beagles by smoke inhalation in the now infamous Auerbach and Hammon study. I am sure all of you have read extensively about this in the newspapers, how the industry asked to have independent panel of pathologists review the histological sections showing cancer, how the Society refused, how generally the ACS was put on the defensive, how publication was refused by two medical journals and how the story was changed somewhat by the time it was published . . . .

134A The memorandum goes on to describe how the industry publicly dismissed the mice cancer studies, such as the 1953 Wynder research. Dr. Wakeman explained that "mouse skin is not human lung tissue," "smoke condensate has different chemical composition from inhaled smoke," and "painting is not the method of application practised by human smokers."

135A In contrast to the mice studies, however, Dr. Wakeman continued:

The logical extension of these objections is that an inhalation test in which an animal breathed smoke like a human would be a better model system. Presumably, in such a test, the formation of lung cancers in the test animal would be strong evidence for the cigarette causation hypothesis. That is why the beagle test was a critical one. . . . So the test was not conclusive. But it was a lot closer than skin painting.

The strong opposition of the industry to the beagle test is indicative of a new more aggressive stance on the part of the industry in the smoking and health controversy. We have gone over from what I have called the "vigorous denial" approach, the take it on the chin and keep quiet attitude, to the strongly voiced opposition and criticism. I personally think this counter-propaganda is a better stance than the former one.

136A Taken together with the internal acknowledgments of cigarette smoking as a cause of human disease, this memorandum from a senior Philip Morris researcher demonstrates that the 1954 Frank Statement representations were deceptions, and that the cigarette industry promptly breached the duties it had undertaken. Far from "accept[ing] an interest in people's health as a basic responsibility, paramount to every other consideration in our business" and "cooperat[ing] closely with those whose task it is to safeguard the public health," the cigarette industry approach was to deny and attack with "counter-propaganda" the mounting evidence that smoking caused human disease evidence that the industry plainly viewed internally as accurate.

137A Recently, a series of Brown & Williamson documents was publicly disclosed that set forth the far-ranging deceptions of that company in particular, and of the industry in general with respect to the harmful effects of smoking.

138A Brown & Williamson, like the other manufacturers, was aware early on published statistical research, including the 1952 report by Dr. Doll, noted that the studies offered "frightening testimony from epidemiological studies."

139A By 1957, one of Brown & Williamson's British affiliates, which conducted much of the health research for the U.S. company, was using the code-name "zephyr" for cancer. For example, in a March 1957 report, the British affiliate stated, "As a result of several statistical surveys, the idea has arisen that there is a causal relation between zephyr and tobacco smoking, particularly cigarette smoking."

140. In 1962, Brown & Williamson's London-based parent company conducted a meeting of its worldwide subsidiaries in Southampton, England. A transcript of the meeting reveals the following remarks:

a. One researcher stated that "smoking is a habit of addiction" and that "[n]icotine is not only a, very fine drug, but the technique of administration by smoking has considerable psychological advantages." (Several years later, in 1967, the researcher admitted that the company "is in the nicotine rather than the tobacco industry.")

b. Another research executive "thought we should adopt the attitude that the causal link between smoking and lung cancer was proven because then at least we could not be any worse off."

c. Another researcher stated that "no industry was going to accept that its product was toxic, or even believe it to be so, and naturally when the health question was first raised, we had to start denying it at the P.R. level. But by continuing that policy, we had got ourselves into a corner and left no room to maneuver. In other words, if we did get a breakthrough and were able to improve our product, we should have to about-face, and this was practically impossible at the P.R. level."

d. The chairman of Brown & Williamson's British affiliate stated that it "was very difficult when you were asked as chairman of a tobacco company to discuss the health question on television. You had not only your own business to consider but the employees throughout the industry, retailers, consumers, farmers growing the leaf, and so on. And you were in much too responsible a position to get up and say, I accept that the product which we and all our competitors are putting on the market gives you cancer, whatever you might think privately."

e. The chairman also stated that if the company manufactured safer brands, "how to justify continuing the sale of other brands? . . . It would be admitting that some of its products already on the market might be harmful. This would create a very difficult public relations situation."

141. The next year, 1963, Brown & Williamson engaged in an internal debate over whether to disclose what it knew about the adverse effects of smoking to the Surgeon General, who was preparing his first official report on cigarettes. It was decided that its information would not be disclosed. Some of the documents generated by Brown & Williamson as part of this process were shared with its London-based parent company, as well as other cigarette manufacturers and the TIRC/CTR. Addison Yeaman, who was then general counsel at Brown & Williamson and who authored some of the most critical memoranda from this time, subsequently became a director of the CTR.

142. Yeaman wrote in a 1963 analysis that:

a. "[N]icotine is addictive."

b. "We are, then, in the business of selling nicotine, an addictive drug . . ."

c. Cigarettes "cause, or predispose, lung cancer . . ."

d. "They contribute to certain cardiovascular disorders . . ."

e. "They may well be truly causative in emphysema, etc."

143. Yeaman suggested that Brown & Williamson "accept its responsibility" and disclose the hazards of cigarettes to the Surgeon General. He noted that this would allow the company to openly research and develop a safer cigarette.

144. Yeaman warned, however, that one danger of candid disclosure was that jurors would learn that the cigarette companies knew of the hazards of their products and had the means to make safer cigarettes but didn't. Yeaman noted that this might cause an "emotional reaction" in jurors. Ultimately, Yeaman's suggestion for full disclosure was rejected.

145. Subsequently, Brown & Williamson continued to conduct and conceal biological research. Some of these research projects confirmed causation between tobacco use and health hazards.

146. The more sensitive research was often undertaken by Brown & Williamson's British affiliate, acting on behalf of both companies. Much of the work was performed at a British laboratory called Harrogate, which performed work for a number of cigarette manufacturers, and some of this research was shared with these other companies and the Tobacco Institute.

147. From 1965 to 1978, Battelle Memorial Laboratory conducted experiments for BATCO under the code name "Project Janus" The Battelle lab experiments used mouse skin paintings to determine the carcinogenicity of tobacco. These reports repeatedly found that tobacco caused tumors when painted on the skin of mice:

a. A 1971 "Survey of the Janus Mouse Skin Painting Experiments" reported that more than 80 percent of the mice exposed to a blend of flue core tobacco developed tumors.

b. A 1973 Janus Report shows 50 percent or more of the mice developing tumors.

c. While publicly belittling the use and importance of mouse skin painting, BATCO in a 1970-71 "Project Janus Annual Report" conceded that mouse skin painting is likely to remain an important recognized test of carcinogenesis.

148. Brown & Williamson also attempted to develop a safer cigarette or, in the words of an internal document, "a device for the controlled administration of nicotine." There were at least two safer cigarette projects, Project Ariel, which focused on heating rather than burning tobacco; and Project Janus, which focused on isolating and removing the harmful elements of tobacco. At least some of the work was performed by Battelle Laboratories in Frankfurt. By the end of the 1970s, however, in a pattern that was repeated throughout the industry, Brown & Williamson closed its research labs and halted work on a safer cigarette.

J. Industry Knowledge of the Addictive

Nature of Nicotine

1) Industry Statements and Documents Reveal

the Tobacco Companies' Long-Standing

Knowledge that Nicotine is a Powerful

and Addictive Drug

149. As alleged above, the Defendants continue to deny and conceal that tobacco products are addictive while secretly manipulating levels of nicotine to increase or maintain addiction. The evidence is clear that the Tobacco Industry has known and hidden for decades that tobacco products are addictive.

150. Numerous Tobacco Company documents contain statements by company researchers and executives acknowledging that nicotine is, in fact, addictive. For example, more than thirty years ago, a report was completed for BATCO that specifically addressed the mechanism of nicotine addiction in smokers. The researchers concluded that chronic intake of nicotine, such as that which occurs in regular smokers, creates a need for ever-increasing levels of nicotine to maintain the desired action: "[u]nlike other dopings, such as morphine, the rate of increasing demand for greater dose levels is relatively slow for nicotine." The report continues:

A body left in this unbalanced state craves for renewed drug intake in order to restore the physiological equilibrium. This unconscious desire explains the addiction of the individual to nicotine.

151. Internal Tobacco Company documents reveal that all of this research has convinced company researchers and executives that nicotine in tobacco functions as a drug with powerful psychoactive effects. For example, in 1962, even before much of this research had been completed, Charles Ellis, of BATCO, expressed his view that nicotine in tobacco functions as a drug much like stimulants and tranquilizers:

It is my conviction that nicotine is a very remarkable beneficent drug that both helps the body to resist external stress and also can as a result show a pronounced tranquilizing effect. You are all aware of the very great increase in the use of artificial controls, stimulants, tranquilizers, sleeping pills, and it is a fact that under modern conditions of life people find that they cannot depend just on their subconscious reactions to meet the various environmental strains with which they are confronted: they must have drugs available which they can take when they feel the need. Nicotine is not only a very fine drug, but the techniques of administration by smoking has considerable psychological advantages and a built-in control against excessive absorption.

152. In the decades that followed this statement, BATCO and Brown & Williamson held many research conferences, some of which were devoted entirely to discussing nicotine's pharmacological effects. The records of these conferences demonstrate that, at almost every conference, Tobacco Company officials from around the world discussed the results of research on nicotine pharmacology and agreed that nicotine had been shown to have pharmacological effects on tobacco users.

153. Researchers and executives from the other major Tobacco Companies and associated with the CTR have also made statements revealing their knowledge that nicotine is a psychoactive drug. For example, the authors of a research paper funded by the CTR reporting on the "beneficial" pharmacological effects of nicotine in cigarettes said that "[n]icotine is recognized as the primary psychoactive compound in cigarette smoke."

154. More than 30 years ago, in 1962-63, BATCO received the results of its Project HIPPO study (HIPPO I and HIPPO II), the aim of which was to "understand some of the activities of nicotine those activities that could explain why smokers are so fond of their habit." A second purpose of the Project HIPPO study was to compare the effects of nicotine with those of then-new tranquilizers, "which might supersede tobacco habits in the near future." Thus, these researchers believed that nicotine-containing tobacco and tranquilizers were used for the same purposes by consumers.

155. The Project HIPPO reports were disseminated to Brown & Williamson officials. The exchange of information between BATCO and Brown & Williamson is important because it demonstrates B&W's awareness of the results of studies such as Project HIPPO, which was just one of a number of studies commissioned by BATCO to study nicotine's physiological and pharmacological effects. For example, a 1980 report addresses the critical role of nicotine's drug effects:

Nicotine is an extremely biologically active compound capable of eliciting a range of pharmacological, biochemical, and physiological responses . . . . In some instances, the pharmacological response of smokers to nicotine is believed to be responsible for an individual's smoking behavior, providing the motivation for and the degree of satisfaction required by the smoker.

156. The BATCO documents include not only some of the research reports themselves, but also summaries or minutes of numerous BATCO research and development ("R&D") meetings at which nicotine's drug effects and importance to the industry were discussed. These papers demonstrate both the consistency and the extent of the industry's interest in and knowledge of nicotine as the primary pharmacological agent in tobacco. For example, at a 1974 BATCO Group R&D Meeting, it was noted that:

Nicotine (which has been assumed to be the main pharmacologically active component in smoke) may act in a bi-phasic manner, either as a stimulant (CNV increase) or depressant (CNV decrease).

157. Subsequent BATCO research conferences offer equally revealing statements about the drug effects of nicotine. A BATCO Group R&D Smoking Behavior-Marketing Conference held in 1984 focused almost entirely on the role of nicotine pharmacology in smoking. Summaries of the presentations at that conference include numerous references to the pharmacological effects of nicotine and the importance of these effects in maintaining tobacco use. For example, one presentation included the following observation:

Smoking is then seen as a personal tool used by the smoker to refine his behavior and reactions to the world at large.

It is apparent that nicotine largely underpins these contributions through its role as a generator of central physiological arousal effects which express themselves as changes in human performance and psychological well-being.

158. Another BATCO conference focusing on nicotine was held in 1984. One of the presentations was characterized by a Brown & Williamson official:

The presentation was concerned with summarizing and outlining the central role of nicotine in the smoking process and our business generally. . . . There are two areas of nicotine action that are of primary importance: (i) to identify to what extent the pharmacological properties or responses to nicotine are influenced by blood and tissue levels of nicotine. (ii) what is the significance and role of nicotine in eliciting the impact response and upper respiratory tract responses. . .

159. Philip Morris researchers conducted extensive research on nicotine pharmacology from the late 1960s until at least the mid-1980s. The nature and magnitude of the research, as well as statements made in internal documents, show that the Philip Morris researchers strongly believed that nicotine has potent psychoactive effects and that these effects provide a primary motivation for smoking. In 1974, Philip Morris researchers began a study designed to test their theory that hyperkinetic children take up smoking in adolescence because nicotine may per