SUPERIOR COURT OF WASHINGTON IN AND FOR KING COUNTY

STATE OF WASHINGTON,

Plaintiff,

v.

AMERICAN TOBACCO CO., INC.; BROWN & WILLIAMSON TOBACCO CORP.; LIGGETT & MYERS, INC.; LORILLARD TOBACCO CO., INC.; PHILIP MORRIS, INC.; R.J. REYNOLDS TOBACCO CO,; UNITED STATES TOBACCO CO.; B.A.T. INDUSTRIES, P.L.C.; HILL & KNOWLTON, INC.; THE COUNCIL FOR TOBACCO RESEARCH-U.S.A., INC.; SMOKELESS TOBACCO COUNCIL, INC.; TOBACCO INSTITUTE, INC.; foreign corporations; and unknown corporations; and JOHN DOE 1-100, and JANE DOE 1-100, individuals,

Defendants.

Case No. 96-2-15056-8 SEA

June 5, 1996

COMPLAINT FOR INJUNCTIONS, MANDATORY INJUNCTIONS, DAMAGES, RESTITUTION, DISGORGEMENT, PENALTIES AND OTHER RELIEF

I.

INTRODUCTION

1. The State of Washington, through Attorney General Christine O. Gregoire, Senior Assistant Attorney General John W. Hough, Senior Counsel Jon P. Ferguson, and Special Assistant Attorneys General Paul N. Luvera, and Steve W. Berman, on behalf of the State, brings this action for monetary damages, civil penalties, declaratory and injunctive relief, restitution, and other equitable relief.

2. This case challenges a massive illegal conspiracy perpetrated by the defendant Tobacco Companies and the other defendants. That conspiracy includes a host of unlawful, unfair and deceptive acts, including without limitation the following:

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

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

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

Conspiring to eliminate and restrain competition based on the health effects of smoking and agreeing not to market "safer cigarettes"; and

Engaging in unfair and deceptive trade practices by targeting and marketing to promote illegal sales of cigarettes to minors.

As a direct, foreseeable result of these and other actions, the State of Washington has suffered enormous damages. The Attorney General seeks to recover those damages and enjoin the continuing deceptive and unlawful practices described below.

A. The Defendants' Unlawful Conduct

3. The tobacco industry in the United States is a highly profitable oligopoly dominated by Liggett and Myers, Inc., Philip Morris, Inc., American Tobacco Co., Inc., United States Tobacco Co., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp. and Lorillard Tobacco Co., Inc. (collectively referred to as the "Tobacco Companies"). For many years, the Tobacco Companies have sold cigarette and smokeless tobacco products for huge profits to millions of consumers. The Tobacco Companies have built and sustained the market for their products in large part by concealing and/or misrepresenting the addictive nature of tobacco products, by creating confusion concerning the damage to human health caused by tobacco products, by manipulating the levels of nicotine in tobacco products in order to maintain and boost addiction, and by agreeing not to compete for sales of a "safer cigarette" and other innovative products.

4. The Tobacco Companies, as well as their public relations agents, lawyers and industry trade organizations have long known that their tobacco products contained large amounts of nicotine - a highly addictive substance - as well as numerous carcinogens and other harmful elements. They have further known that their products were addicting, extremely dangerous to the health of smokers, and would cause adverse health effects to virtually all persons who smoked them.

5. The tobacco industry has repeatedly told the public that nicotine, an element in all tobacco products, is not addictive. As recently as April 14, 1994, the CEO's of seven tobacco companies testified under oath that nicotine is "not addictive."

6. Nicotine is addictive. The tobacco industry is aware of its addictive nature, as exemplified by one of the many industry documents addressing this subject:

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

7. The industry has secretly manipulated the level of nicotine in tobacco products in order to increase addiction and sell more product. For example, manufacturers of smokeless tobacco seek to "graduate" new users from milder products to those with more "kick" in order to addict users. The campaign to addict new users has achieved great success, particularly with the young. Over 19% of male students in the 9th-12th grades use smokeless tobacco. The campaign has achieved even greater success in certain ethnic populations: 57% of current users of smokeless tobacco among Native Americans in Washington State began using the product before the age of ten years.

8. Tobacco products kill, maim, and injure virtually all who use them. The Tobacco Companies know this, but continue to deny the existence of adverse health effects in their public statements.

9. To continue in its hugely profitable business, the tobacco industry entered into a multifaceted unlawful conspiracy. One aspect of the conspiracy was an agreement to suppress harmful information concerning tobacco products which was accomplished as follows: First, the conspirators agreed to falsely represent that there is no proof that smoking causes injury to health. Second, they agreed to falsely represent that smoking is not addictive. Third, the tobacco conspirators represented to the public and to government that they would undertake a special duty and responsibility to determine and report the scientific truth about the health effects of tobacco, both by conducting internal research and by funding "independent" external research.

10. The industry's public special undertaking to pursue and report the truth about smoking was immediately breached. The industry's purported undertaking was part of a conspiracy to refute, undermine, and neutralize information coming from the objective scientific and medical community and, at the same time, to confuse and mislead the public in an effort to avoid state or federal regulation, to encourage existing smokers to continue and to induce new persons to commence smoking.

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

12. The conspiracy described above originated in response to medical and scientific studies publicizing the adverse health impact of smoking. In response to the "health scare," in late 1953 and early 1954, the Tobacco Companies and their public relations agent, Hill & Knowlton, jointly created a purportedly independent entity initially known as the Tobacco Industry Research Council ("TIRC"). In 1964, the TIRC was renamed the Council for Tobacco Research ("CTR"). As part of the unlawful conspiracy, the defendants publicly represented that these organizations would undertake, on behalf of the public, to objectively research and gather data concerning the relationship between cigarette smoking and health and truthfully publicize the results of this "independent" research.

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

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

15. Also in the 1950's, the Tobacco Companies began, and continued thereafter, to tailor their cigarette advertisements, promotional activities and public statements to conceal and/or misrepresent the addictive nature and the adverse health impact of cigarette smoking and tobacco use, while presenting cigarette smoking in a glamorous, youthful, exciting, relaxing posture by associating it with professional and economic success, intelligence, athletic ability and sexual attraction.

B. The Damages Caused By Defendants' Unlawful Conduct

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

17. A foreseeable and intended consequence of defendants' conduct has been to unjustly enrich the defendants at the expense of Washington's health care system, the state health care authority, state workers' compensation funds, and ultimately, all Washington residents and taxpayers:

a. Approximately 50 million residents of the United States smoke cigarettes, and another 6 million use smokeless tobacco products. Nationwide, tobacco related deaths are a national tragedy: More than 400,000 deaths per year in the United States are tobacco related.

b. In Washington, almost 850,000 adults are smokers. Each year, 8,000 of them die prematurely, each losing on average 11.5 years of life. Another 75,000 Washington adults use smokeless tobacco.

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

d. The defendants' conduct has wrongfully shifted to the State of Washington and others costs directly attributable to tobacco usage and exposure that should have been borne by the defendants, including but not limited to, increased Medicaid payments and increased health care insurance premiums for public employees. In addition, the Department of Labor & Industries ("L&I"), as trustee for the Workers Industrial Insurance Program, must assess higher premiums as a result of work-related injuries that are aggravated due to tobacco use by some workers.

e. In 1990 alone, Washington's excess health care costs caused by defendants' conduct were approximately $706 million. These excess costs are distributed as follows: Medicare - 20.5%; Medicaid - 10.3%; self-pay, including by the state for its employees - 21.0%; private insurance - 33.4%; other federal funds - 9.6%; other state funds - 3.2%; and other funds - 2.2%. These costs are the proximate result of the course of conduct described in this complaint, and Washington seeks its share of those costs as damages in this case.

18. A further effect of defendant's conspiracy is the targeting and eventual addiction of minors and young people. Recognizing the pernicious addictive nature of their products, the tobacco industry seeks to addict new customers among the most impressionable group, the youth of the nation. The defendants must constantly addict new customers in order to ensure their continued profits.

a. According to a 1994 U.S. Surgeon General's Report, 3,000 children become regular smokers each day. Eighty-two percent of adults who have ever smoked had their first cigarette before age 18 and more than half of them had already become regular smokers by that age. Reports published by the U.S. Centers for Disease Control and Prevention indicate that anyone who does not begin smoking in childhood is unlikely to begin. For the 3,000 children who become regular users of tobacco products everyday, projections indicate that 1,000 of the 3,000 new smokers will die prematurely as a result of their tobacco use.

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

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

19. In this action, the Attorney General seeks (1) a fair and open market, free from deception and unfair competition; (2) the return of the increased costs of health care caused by defendants' wrongful conduct; (3) fair and full disclosure by defendants of the nature and effects of their products; and (4) an end to the marketing of tobacco products to minors and the return of the illegal profits from defendants' sales to minors.

II.

JURISDICTION AND VENUE

20. This complaint is filed and these proceedings are instituted under provisions of the Washington Consumer Protection Act, Chapter 19.86 RCW, the Constitution of the State of Washington, and the common law of the State of Washington.

21. Jurisdiction for the Attorney General to commence this action for injunctions, mandatory injunctions, damages, restitution, disgorgement, civil penalties, attorneys' fees, and other relief, is conferred by RCW 19.86.080, RCW 19.86.090 and RCW 19.86.140 and 150, by the Constitution of the State of Washington, and by the common law.

22. The violations alleged herein have been and are being committed in whole or in part, and affect commerce in, and defendants do business in King County and elsewhere throughout the State of Washington.

III.

THE PARTIES

PLAINTIFF

23. The Attorney General is the chief law enforcement officer and attorney for the State of Washington, and brings this action on behalf of the State.

DEFENDANTS

24. 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 manufactured, advertised and sold Lucky Strike, Pall Mall, Tareyton, American, Malibu, Montclair, Newport, Misty, Iceberg, Silk Cut, Silva Thins, Sobrania, Bull Durham, and Carlton cigarettes and other tobacco products throughout the United States. American Tobacco advertised, promoted and sold its tobacco products throughout the State of Washington. In 1994, American Tobacco was sold to British-American Tobacco Co., parent of defendant Brown & Williamson.

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

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

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

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

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

30. 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% of the smokeless tobacco (snuff and chewing tobacco) sold in the United States, under various brand names including Happy Days, Skoal and Copenhagen. U.S. Tobacco advertises, promotes and sells its tobacco products throughout the State of Washington.

31. B.A.T. Industries P.L.C. ("B.A.T. Industries") 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 Washington. B.A.T. Industries has also conducted, or through its agents, subsidiaries, associated companies, and/or co-conspirators conducted, significant research for Brown & Williamson on the topics of smoking, disease and addiction. On information and belief, Brown & Williamson also sent to England research conducted in the United States on the topics of smoking, disease and addiction, in order to remove sensitive and inculpatory documents from United States jurisdiction, and such documents are subject to B.A.T. Industries' control. B.A.T. Industries is a participant in the conspiracy described herein and has caused harm and affected commerce in the State of Washington.

32. Defendant Hill & Knowlton, Inc. is an international public relations firm whose principal place of business is 420 Lexington Avenue, New York, New York. Defendant Hill & Knowlton played an active and knowing role in the conspiracy complained of, aiding the circulation and/or publication of the false statements of the tobacco industry and the Council for Tobacco Research. Hill & Knowlton has been the primary advertising agency responsible for dissemination of the false and misleading information in question, in its capacity as the advertising and public relations agency for The Tobacco Institute, 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.

33. The Council for Tobacco Research - U.S.A., Inc. ("CTR"), successor in interest to the Tobacco Institute 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, CTR and TIRC operated as public relations and lobbying arms of the Tobacco Companies and as agents and employees of the Tobacco Companies. They also acted as facilitating agencies in furtherance of defendants' combination and conspiracy as described in this complaint. In doing the things alleged, CTR and 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 TIRC alleged were ratified and approved by the officers or managing agents of the Tobacco Companies. CTR and TIRC have been involved continuously in the conspiracy described and the actions of CTR and TIRC have affected commerce and caused harm in Washington.

34. 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 complaint. 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 Washington.

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

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

IV.

CONSPIRACY ALLEGATIONS

37. In committing the wrongful acts alleged, all of the defendants and the other entities and persons identified, with the assistance and knowledge of their counsel, have pursued a common course of conduct, acted in concert with, aided and abetted and conspired with one another, in furtherance of their common plan, and scheme outlined herein.

38. Various other persons, firms, and corporations, who have been named as Unknown Corporations and John Doe 1-100 and Jane Doe 1-100 participated as co-conspirators in the illegal acts alleged and performed acts and made statements in furtherance of the combination and conspiracy alleged in this complaint.

V.

NATURE OF TRADE AND COMMERCE

39. Cigarette manufacturing has been one of the most concentrated industries in the United States throughout this century. Together, Philip Morris, Reynolds, Brown & Williamson, Lorillard, American Tobacco, and Liggett comprise the "Big Six" cigarette manufacturers, who control virtually 100% of the market in the United States and in Washington. Philip Morris and Reynolds are the industry leaders, with national market shares of approximately 46% and 25%, respectively. The approximate cigarette market shares of the remaining Big Six manufacturers are: Brown & Williamson, 12% (19% if American Tobacco is included); Lorillard, 8%; American Tobacco, 7%; and Liggett, 2%. The smokeless tobacco market, dominated by U.S. Tobacco, is even more concentrated.

40. In part because of its concentration, the tobacco industry has long been one of America's most profitable businesses, with profit margins estimated to be at least 30%. The industry earns billions of dollars in profits each year from domestic sales alone. In 1995, Philip Morris Companies, Inc., parent of defendant Philip Morris, reported record earnings, largely due to significantly increased tobacco sales abroad, especially in Eastern Europe. However, even its U.S. sales strengthened in 1995, and the domestic tobacco business shipped a record 422 billion cigarettes, earning $3.7 billion.

VI. FACTUAL ALLEGATIONS

A. TOBACCO -- AN ADDICTIVE AND DEADLY PRODUCT

41. Today, 50 million Americans smoke and, according to current trends, 22% 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 cigarette disease. This year (and every year into the foreseeable future), nearly half a million Americans will die prematurely due to disease caused by cigarette smoking. Based upon current smoking trends, of the American children alive today, more than 5 million will be killed by cigarette disease during the 21st century.

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

43. The cigarette is one of the most efficient drug delivery systems ever devised. Within seven seconds of the first inhalation, a dose of nicotine hits the brain providing instantaneous satisfaction of nicotine craving and concomitant mood alteration.

44. Millions of those who use tobacco products as a result of nicotine addiction have died horrible deaths. They have died from cancer of the lung, mouth and throat; they have suffered the inexorable suffocation of emphysema; they have been felled suddenly or gradually crippled by heart disease and stroke and they have suffered the blinding effects of cataracts -- all because they have been addicted to nicotine by defendants' tobacco products. On average, cigarette disease victims die more than 20 years before life expectancy for nonsmokers. One of every three smokers is killed prematurely by cigarette disease. Most of the rest suffer disease and debilitation.

45. Several factors account for the persistence of cigarette smoking. First, largely as a result of tobacco industry's pervasive and misleading advertising and promotion, smoking became socially acceptable before it was proven to be 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 extraordinarily addictive substance, which makes it difficult for a person to stop smoking. Fourth, the tobacco industry has conspired 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 unquestionably dangerous.

46. Because the tobacco industry is unique in killing nearly half a million of its customers each year, one of its key objectives is to attract and addict youthful replacement smokers, and to convince concerned adults that switching brands is a reasonably safe alternative to attempting to break their nicotine addiction and quit smoking. Once a person starts smoking, it is unlikely he or she can stop. According to the Surgeon General of the United States,

"The pharmacologic and behavioral processes that determine tobacco addiction are similar to those that determine addiction to drugs such as heroin and cocaine."

47. According to Neal Benowitz, M.D. -- one of the nation's leading authorities on nicotine addiction -- a child who smokes just one pack of cigarettes will develop a substantial tolerance to the drug effects of nicotine. After one pack, the new smoker will be able to inhale without coughing and without nausea, two typical physiological reactions to nicotine. This is the critical first step in the addiction process.

48. Drugs of addiction share a number of similar characteristics. According to Addiction Research Center of the National Institute on Drug Abuse, nicotine in tobacco has addictive potential similar to that of heroin, cocaine, and amphetamines. In another study, cocaine addicts who were also smokers were unable to distinguish between intravenous cocaine and intravenous nicotine as both exerted a similar psychoactive effect when administered by this route. Other studies have shown that relapse rates from individuals who participate in heroin, alcohol, and tobacco cessation programs are strikingly similar.

49. The strongest evidence of the addictive power of nicotine is the fact that many smokers (75% to 85% in most surveys) say they would like to quit, and that they are concerned for their health, yet a vast majority of those who attempt to quit are unable to do so. The failure rate of people who attempt to stop or reduce smoking is dramatic, even in the face of life-threatening tobacco related illnesses. Thus, even after a heart attack or lung cancer surgery, approximately one-half of survivors return to smoking within one year. A study of drug use by high school seniors conducted annually by the University of Michigan shows that of high school seniors who smoke, more than half have tried unsuccessfully to quit. Follow-up surveys show that eight years later three of four are still smoking, and those still smoking are smoking more heavily. As a result of these characteristics and others, the FDA in 1995 found that "nicotine satisfies the classic criteria for an addictive substance."

50. A 1971 secret internal report distributed to Philip Morris executives showed that tobacco executives knew the powerfully addictive nature of nicotine in cigarettes. The report studied persons who had tried to stop smoking and concluded that only 28% of those who tried to quit were still non-smokers eight months later:

Even after eight months quitters were apt to report having neurotic symptoms, such as feeling depressed, being restless and tense, being ill-tempered, having a loss of energy, being apt to doze off. They were further troubled by constipation and weight gains which averaged about five pounds per quitter … This is not the happy picture painted by the Cancer Society's anti-smoking commercial which shows an exuberant couple leaping into the air and kicking their heels with joy because they've kicked the habit. A more appropriate commercial would show a restless, nervous, constipated husband bickering viciously with his bitchy wife who is nagging him about his slothful behavior and growing waistline.

51. Despite their knowledge that cigarette smoking is extremely addictive, the Tobacco Companies to this day deny that smoking is addictive or the cause of disease. Recently, each of the CEOs of the defendant Tobacco Companies testified under oath before Congress that smoking was not addictive.

52. Despite what the defendants have represented for years, their cigarettes are neither fresh nor natural. In the fields, tobacco is drenched with insecticides and fertilizers. After harvest, it is dried in barns where it is treated for protection against tobacco beetle infestation. At the factory, tobacco leaves are mixed with stems and scraps and pulverized into a mash, into which artificial flavorings and additives that contain additional doses of nicotine are incorporated, dried, and puffed with freon to look like real tobacco shreds. Approximately 8% of the weight of tobacco in a cigarette is flavorant additives, some of which are carcinogens or co-carcinogens. Cigarette smoke also contains more than 4,000 different chemical compounds, including at least 43 proven carcinogens. Some of the worst are: carbon monoxide, the compound in car exhaust that kills in suicides; hydrogen cyanide, which is the lethal substance of the gas chamber; formaldehyde, used for embalming; and nicotine, an addictive poison so powerful that it has been outlawed for use as an insecticide. Thus, defendants' representations that cigarettes are either fresh or natural have been deceptive and misleading.

53. Despite what the defendants have represented for years, many current cigarette filters do little to protect the health of smokers. During the early 1950s, when the first studies implicating smoking as a cause of lung cancer were being publicized, cigarette sales fell for the first time since the depths of the Great Depression. The Tobacco Companies responded with massive advertising and public relations campaigns claiming significant health benefits from smoking filtered cigarettes. In 1950, only about 1% of cigarettes were sold with filters. By the end of that decade, more than half of all cigarettes were sold with filters. Millions of smokers had switched in the wake of a massive advertising campaign that indicated that smoking cigarettes with filters was a reasonably safe alternative to quitting. Unfortunately, as was known to the tobacco industry, most smokers compensate for the alleged reduced nicotine delivery from filtered cigarettes by smoking more. Since the advent of filters, average daily consumption for the typical smoker has increased from 20 to 30 cigarettes. Thus, any marginally reduced lung cancer risk from most conventional filters has been achieved at the cost of greater risk of emphysema, heart disease, stroke, and other diseases. In addition, current filter cigarettes are just as addictive as unfiltered cigarettes. As noted in the 1972 Philip Morris Company internal memo examining why people smoke:

Without nicotine . . . there would be no smoking . . . . Think of the cigarette as a dispenser for a dose unit of nicotine.

54. At the same time that Tobacco Companies were assuring smokers of health benefits from filters, the tobacco industry's research organization (CTR) funded a secret 1974 research project that concluded:

The public should be informed that, based on present knowledge, cigarettes with either reduced "tar" or reduced gas vapor constituents cannot be considered safe, that is, smoking these cigarettes does not eliminate damage to health such as risk of lung cancer.

This information was concealed from the public, despite defendants' representations that CTR would fully and honestly publicize any information it obtained implicating cigarette smoking as causing human disease.

B. ADVERTISING AND PROMOTIONAL ACTIVITIES OF THE CIGARETTE INDUSTRY PRE-CONSPIRACY -- CLAIMS OF HEALTH AND SAFETY

55. The promotional activities of the tobacco industry after the conspiracy was agreed to and implemented (which is described below), can only be understood in the context of the claims they had engaged in prior to the conspiracy regarding cigarette smoking and health. Until the mid-1950s, explicit or implied health claims and/or medical endorsements for smoking were major areas of competition for many cigarette brands and in the public statements issued by the tobacco industry.

56. 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 . . . the increase is due to the increased incidence of smoking and that smoking is a factor because of the chronic irritation it produces."

57. 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 "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."

58. Despite the evidence showing their cigarettes caused lung disease and cancer, the Tobacco Companies chose sales over public health and safety. In the 1930s through the 1950s, in response to what industry spokesmen referred to as "the health scare," the Tobacco Companies made express claims regarding the healthiness of their products with reckless disregard to the falsity of the claims and the consequential adverse impact on consumers. Examples of these health representations 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."

59. One of the key themes used to promote cigarette smoking between 1930 and 1954 was a promise the 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 claim regarding health and/or irritation. These pre- 1954 advertisements and representations demonstrate defendants' understanding that consumers wanted safer products. As a result, defendants engaged in the tobacco companies engaged in vigorous competition on the basis of claims of health and safety.

60. For example, during the 1950s, Viceroy cigarettes were promoted with the "health guard filter." Some of the claims included:

New health guard filter makes Viceroy better for your health; new king-size Viceroy gives you double-barreled health protection. Leading N.Y. doctor tells his patients what to smoke! Filtered cigarette smoke is better for health.

Prominent physician tells patients -- smoke Viceroy filter-tipped cigarettes. The nicotine and tar is trapped by the Viceroy filter and cannot reach mouth, throat, or lungs. You can see the health guard filter discolor from nicotine and tars which might otherwise be drawn into your mouth, throat, and lungs.

61. In 1952, the Lorillard Tobacco Company introduced Kent cigarettes with the micronite filter. It was represented that the micronite filter removed seven times more tar and nicotine than any other cigarette. Lorillard stated that the material in the Kent filter was developed for gas masks during the war, and was at that time being used to remove radioactive particles from the air at atomic power plants. In an ad, Lorillard purportedly cited an article in the Journal of the American Medical Association:

These findings -- which show the effects of various types of cigarettes on the human system, and put Kent in a class all by itself where health protection is concerned -- have been made available to doctors…. It is known and provable, that there is only one way to take the irritants out of tobacco smoke in sufficient quantity of the sensitive smoker. That is to take them out with a filter . . . [Kent is] a really good smoke and real protection. [emphasis in original.]

62. In the first weeks after it was introduced, sales of Kent cigarettes greatly exceeded Lorillard's original expectations. In the early months, the biggest problem faced by the company was keeping dealers supplied. Other Kent ads claimed "don't be mislead by conflicting claims . . . Today as before you get less tars and nicotine in Kent than any other leading cigarette." Other companies competed on the same basis at the same time. For example, Philip Morris ads claimed "no other popular filter cigarette delivers less nicotine and tar."

63. Between 1952 and 1957, more than a dozen different filter cigarettes were introduced. In 1952, filter cigarettes accounted for less than one percent of the market. By 1958, there were filters on more than 40 percent of cigarettes sold due to consumer demand for "safer" products. Advertising promoting the supposed "health benefits" of cigarette filters had the desired effect. The decline in cigarette sales of 1953 and 1954 was reversed, and by 1957 cigarette sales exceeded the 1952 record.

64. By the mid-1950s, the major cigarette companies had become more adept at making implicit health claims for their cigarettes. One technique was to imply that years of research had gone into developing cigarettes with lower tar or nicotine content and that health benefits were associated with reduced tar/nicotine intake from smoking. At the time that these ads were run (and to this day), there was no evidence that low tar- nicotine cigarettes provide a significant health benefit or are materially less addicting. At best, low tar/nicotine cigarettes may reduce the risk of lung cancer by 20 percent (meaning that a low tar two-pack smoker would still be more than 15 times likely as a nonsmoker to die of lung cancer). However, in most instances, current low tar/nicotine cigarettes actually increase the risk of emphysema and heart disease and other diseases caused by smoking, and are just as addictive as ordinary cigarettes. This is because smokers of low tar/nicotine cigarettes tend to smoke more, inhale more deeply, and hold the smoke in their lungs longer in order to maximize their intake of nicotine. Thus, these low tar and low nicotine cigarettes are still highly addictive and harmful to health.

65. Another common form of misrepresentation has been to imply government endorsement of certain cigarette brands. In particular, American Tobacco (makers of Carlton cigarettes) and Reynolds (makers of Now cigarettes) have regularly implied government endorsement for their low tar cigarettes. Carlton ads combined implied governmental endorsement, confusing numbers, and the promise of "lowest" (meaning "safest") in ads. To this day, the claim that "Carlton is lowest" is splashed across each ad to imply that the brand is "safest." But at the same time that American Tobacco was claiming Carlton to be lowest, Reynolds claimed that "Now is lowest." And others made the same claim. Another technique that was used to encourage smokers to refrain from quitting was soothing reassurances like the one in a True ad: "I'd heard enough to make me decide one of two things: quit or smoke True. I smoke True." This was one of a whole genre of ads in which men and women who were portrayed as concerned smokers explained the reasons why they had switched to True, Vantage, or other brands as an alternative to quitting.

66. Thus, prior to 1954, it is clear that the industry competed in a robust fashion on the basis of explicit health claims.

C. THE BEGINNING OF THE INDUSTRY CONSPIRACY TO SUPPRESS THE TRUTH AND CURTAIL COMPETITION

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

68. 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 tobacco companies and set out his proposals on how the industry should collectively deal with the "health issue."

69. Hartnett urged "[e]xcessive caution . . . in the methods we adopt to counteract these claims" by investigators of "unquestioned integrity." [emphasis added.]

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

71. The next day, December 15, 1953, 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, Reynolds and U.S. Tobacco. This gathering was unprecedented: it was the first time the Tobacco Companies had met together outside occasional dinners. Hill & Knowlton coordinated the meeting and later prepared a memorandum summarizing the discussions of that day.

72. At the meeting, the companies "voluntarily admitted" that "their own advertising and competitive practices have been a principal factor in creating a health problem," and acknowledged that they had "informally talked over the problem and will try and do something about it." [emphasis added.] In doing so, however, the competitors realized that the subject [doing something about competitive advertising practices] "is one of the important public relations activities that might very clearly fall within the purview of the antitrust act." Accordingly, they concluded, "it is doubtful that we will be able to make any formal recommendation with regard to the advertising or selling practices and claims." [emphasis added.]

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

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

75. According to the Hill & Knowlton memorandum, "[e]ach of the company presidents attending emphasized the fact that they consider the program to be a long term one," and the meeting participants were "emphatic in saying that the entire activity is a long-term, continuing program, since they feel the problem is one of promoting cigarettes and protecting them from these and other attacks that may be expected in the future." [emphasis added.]

76. Thus, at the December 15, 1953 meeting:

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."

77. Nine days later, Hill & Knowlton presented a detailed recommendation to the cigarette manufacturers and others. 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."

78. At the December 15, 1953, John Hill of Hill & Knowlton, suggested that the word "research" be included in the name of the Committee. Thus, an organization designed to pursue a very delicate "public relations function" was given the intentionally misleading name of the "Tobacco Industry Research Committee" ("TIRC").

79. Five of the Big Six cigarette manufacturers were original members of TIRC. Liggett did not join until 1964. In 1964, TIRC changed its named to the Council for Tobacco Research ("CTR"). The world tobacco 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.

80. The result of these meetings was an agreement that the industry would not compete based on claims of health and a conspiracy then went forward on that basis. This agreement is reflected in a June 21, 1954 Hill & Knowlton memorandum:

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

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

81. The "every effort" was, among other things, an agreement not to compete on the basis of health claims for fear of stirring up any controversy regarding health and safety.

82. 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.

83. The Industry was keenly aware that the agreement creating TIRC was a restraint on competition. As Philip Morris noted, similar agreements in other countries restrained competition: "On the Continent individual companies and monopolies have agreed to pool research on the health question, thereby reducing it as a basis for competition." [emphasis added.]

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

85. At least one of the defendants, 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."

86. Another trade group, the Tobacco Institute, was formed by cigarette manufacturers in 1958. It performs a variety of functions and provides opportunities for the combination and conspiracy to exchange information, to police the illegal agreement, and otherwise to coordinate activities.

D. THE INDUSTRY ASSUMES A SPECIAL DUTY

87. The cigarette industry announced the formation of TIRC on January 4, 1954, with newspaper advertisements placed in virtually every city with a population of 50,000 or more, including Seattle, 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 TIRC with, inter alia, five of the Big Six manufacturers listed by name. The advertisement stated as follows:

"A Frank Statement to Cigarette Smokers"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Listed as sponsors of this announcement were American Tobacco, Brown & Williamson, Lorillard, Philip Morris, Reynolds and U.S. Tobacco.

88. 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. 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.

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

90. Other public statements by the defendants over the years have repeated the representations that the industry was dedicated to the pursuit and dissemination of the scientific truth regarding smoking and health.

91. The tobacco industry promised full public disclosure of relevant research through a CTR statement captioned "A Statement About Tobacco and Health" distributed throughout the U.S.

a. "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."

b. "We accepted this responsi-bility 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 all the facts are known."

c. "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."

d. "We shall continue all possible efforts to bring the facts to light." [emphasis added.]

92. A Hill & Knowlton April 28, 1955 Report to the TIRC admitted the special responsibility of TIRC and the tobacco industry:

The Tobacco Industry Research Committee first appeared before the public with an assurance that the industry itself would assume leadership in research into all aspects of tobacco use and health . . .

This brings with it a greater responsibility to the press and the public. The TIRC will have to live up to the expectations it has created on two fronts:

First, by pushing ahead soundly but steadily to get at the facts . . . .

Second, to report to the public where it stands in the search for the desired information about cancer . . . .

This calls for a more active and outspoken position. (Emphasis added.)

93. After attempting to lull the public into a false sense of security concerning smoking and health, the TIRC acted to further the tobacco industry conspiracy. Despite the initial public statements and posturing, and the repeated assertions that the industry was committed to full disclosure and vitally concerned with public health, the TIRC failed to make public health a concern. Rather than work for the good of the public health and sponsor independent research, as it had promised, the Tobacco Companies, acting through the TIRC/CTR, concealed, undermined and distorted information coming from the scientific and medical community.

E. THE TRUE NATURE OF THE TIRC BREACH OF THE SPECIAL DUTY

94. The true nature of the TIRC is revealed by a series of Hill & Knowlton reports to the TIRC. An early report to the TIRC chairman is entitled, "Confidential Report of Activities Through 1954." The cover letter indicates that the report is "highly confidential" and warns that "no additional copies be made and that this copy not be placed in the files."

95. The confidential report makes it clear that Hill & Knowlton -- not the independent scientists -- actually ran the Tobacco Industry Research Committee. According to the report:

"Since the Committee had no headquarters and no staff, Hill and Knowlton, Inc. was asked to provide a working staff and temporary office space. As a first organizational step, public relations counsel assigned one of its experienced executives, W.T. Hoyt, to serve as account executive and handle as one of his functions the duties of executive secretary for the Tobacco Industry Research Council."

96. The report further states that Hill and Knowlton "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."

97. The report describes how the TIRC would transfer an obscure scientific report favorable to the industry into national headline news. According to the report, "advance checking" by TIRC revealed that a Dr. Hueper was scheduled to give an unpublicized report "concerning the lack of a proven link between lung cancer and smoking" in July in Sao Paulo, Brazil. TIRC reproduced the report and two pages of highlights and established a "special liaison" in Sao Paulo "to give word of Dr. Hueper's delivery as quickly as possible, so as to enable distribution of the talk while it was still newsworthy." As soon as the talk was given, "personal delivery of the Hueper release was made to important newspapers and services as well as distribution to science writers, editorial writers and feature writers." In the end:

Although many of the writers covering the Sao Paulo meeting failed to mention the Hueper talk in their dispatches, it is significant that, as a result of the distribution in the U.S.A., stories questioning a link between smoking and cancer were given wide attention, both in headlines and stories. In some press accounts, the Hueper story took precedence over the reports of Drs. Hammond and Wynder, even though the latter were made available to the press in advance of their delivery on a hold-for-release basis."

98. The report describes many other efforts of the TIRC to influence media, including "special personal contacts" with Time, Newsweek, U.S. News and World Report, and Business Week; preparation of editorials entitled "The Same Old Culprit" and "Truth Makes a Slow Crop" that were "widely used in 'home town' dailies and weeklies throughout the country"; and "assistance . . . provided to the New York Times for a Sunday Magazine piece . . . on "Why People Smoke," which discussed some of the now-abandoned old charges against cigarettes."

99. According to the report, in many instances TIRC worked behind the scenes to influence the content of individual articles. In one case, the intervention of the TIRC resulted in "seven revisions and five qualifying additions" to a story in Cosmopolitan magazine that "was already in type."

100. In other cases, it was quicker and more effective simply to hire free-lance authors to write favorable articles for the Tobacco Industry Research Committee:

Especially-written articles are being developed that can be used or adopted for use in various media receptive to or seeking material relating to the subject. . . . To achieve this objective more quickly and effectively, the free lance services of qualified science writers are being used."

101. Another important function of the Tobacco Industry Research Council was to infiltrate anti-smoking organizations to obtain "advance information." According to the report:

Personal contacts are advantageous not only in disseminating and gathering information but for enlisting support and advice on problems. . . . Personal liaison has been established in such cancer, research, and medical organizations and associations as the American Medical Association, American College of Chest Physicians, American Cancer Society, Sloan-Kettering Foundation, New York University School of Industrial Medicine, National Cancer Institute, International Cancer Congress' Cancer Prevention Committee, as well as with individual doctors and scientists. These continue to make possible obtaining advance information or papers concerning research being done in this and related fields." (pp. 17-18)

102. A Hill & Knowlton July 31, 1954 "Confidential" report was proud to acknowledge that the efforts of the conspiracy had been successful:

A FORWARD LOOK

Although the industry has been bedeviled by sensational headlines generated often by publicity seeking researchers and a seeming revival of the anti-cigarette crusade, the trend is beginning to turn. In 1953, no voice was being raised in behalf of the industry. Press comment was almost entirely limited to a reflection of unproven theories which most people were accepting as proven facts. No balancing information was being made available.

The progress of the Tobacco Industry Research Committee's program is bringing greater acceptance of the industry's sincere efforts. The publicity accompanying each step taken so far by the Tobacco Industry Research Committee, particularly since the selection of the Scientific Director and the Scientific Advisory Board, has helped bring understanding that the charges against tobacco are not proven and are not joined in by a large body of scientific opinion. The bulk of editorial comment now appearing approves and, at times, applauds the action of the industry. ("Emphasis added.")

103. Further evidencing the true nature of the TIRC, Hill & Knowlton wrote a "confidential memorandum" describing "Tobacco Industry Research Committee Information Activities" in August and September 1954.

104. This memorandum describes "recent major public relations projects" from August through September 1954. According to the memorandum, the Scientific Director and Chairman of the Tobacco Industry Research Committee met with the following publishers to "explain the industry's long-range intention to support a research program devoted primarily to the public interest": Arthur Hays Sulzberger, the president and publisher of the New York Times; Helen Rogers Reid, chairman of the board of the New York Herald Tribune; Jack Howard, president of Scripps-Howard Newspapers; William Randolph Hearst, Jr., president and publisher of the Hearst Consolidated Publications; and Roy E. Larsen, president of Luce Publications.

105. The memorandum describes how the Tobacco Industry Research Council influenced the content of the Edward R. Murrow Television Show:

A conference was held with Edward R. Murrow, Fred Friendly, his producer, … at the Tobacco Industry Research Committee offices in the Empire State Building…. The Murrow staff emphasized the intention to present a coldly objective program with every effort made to tell the story as it stands today, with special effort toward balanced perspective and concrete steps to show that the facts still are not established and must be sought by scientific means such as the research activities the Tobacco Industry Research Committee will support. Mr. Murrow was assured of continued cooperation from the Tobacco Industry Research Committee to the extent possible under the scope of the TIRC program." ("Emphasis added.")

106. The memorandum also describes how an article being prepared by Leonard Engle for Harper's Magazine "use[s] TIRC as a source of information" and "should lend weight to the industry's contention that there is no proof of the charges and that there are many other factors that enter strongly into the increasing incidence of lung cancer." It also reports that in the Washington Post "a feature story by Nate Haseltine us[es] long excerpts from [the] paper by Dr. Hueper, which was supplied him in personal contact through Hill & Knowlton, Inc., Washington office."

107. Finally, the memorandum describes the tactic of hiring free-lance authors to write ostensibly independent articles favorable to the industry, reporting that "C.B. Colby, free-lance popularizer of science, was retained for research and possible writing of article concerning all the hazards of modern life which people are cautioned against and leading to the conclusion that in spite of all the death scares, "You Still Live Longer."

108. On April 28, 1955, Hill & Knowlton wrote a confidential "Public Relations Report" to the TIRC. The report finds that after a year of intensive public relations activities, "progress has been made." Specifically:

The first "big scare" continues on the wane. There is much general awareness of the big IF factors involved. . . . Treatment of the cigarette-health issue in public media continues to improve from the Tobacco Industry Research Committee point of view. Even adverse stories now tend to carry modifying statements. Positive stories are on the ascendancy. [emphasis added.]

In July of 1957, Dr. Clarence Cook Little, Chairman of the "science advisory board" of the TIRC, publicly stated:

The announced purposes and objective of the Tobacco Industry Research Committee are to aid and assist research in tobacco use and health and to make available to the public factual information on this subject. . . . My appointment is annual and it is clearly understood with the Tobacco Industry Research Committee that if, as, and when the slightest pressure as to what type of direction we should take in research or what the publication of the research should be is evident that my resignation takes effect immediately. I can say truthfully and honestly that during the period that I have worked on this problem, there has not been the slightest effort to "pull punches," to select evidence, or to limit objectives for research.

110. On June 25, 1964, Bowman Gray, Chairman of the Board of R.J. Reynolds and spokesperson for the tobacco industry, testified before a House Committee and affirmed the industry's special duty to the public. In addition to his testimony, the following exchange took place between him and the Members of the Committee (Mr. MacDonald and Mr. Curtin):

MR. MACDONALD. Sir, I have just one question to ask. I was not here when you gave your statement but I read on page 4 about the Council for Tobacco Research which you say is comprised of eminent medical scientists and grants of over $7 million have been given to that body by the cigarette industry or tobacco industry.

If that body did come up with the same findings as the Surgeon General did, what would the attitude of the tobacco people be about the present legislation?

MR. GRAY. To begin with the grantees who receive money under the scientific advisory board; that is, the vehicle which handles these grants, are perfectly free and certainly requested to publish whatever findings they may arrive at in the course of their investigations. These, however, are scientifically and medically oriented and directed research programs and are not concerned with surveys and statistical reports.

* * *

MR. GRAY. The group that have been handling this money here have made public all the findings, as far as I know, of this research. Up to now none of it has come up with a positive answer which would be in the area that this causes ill health or this is injurious.

MR. MACDONALD. If they did?

MR. GRAY. If they did they would bring it out. Then what do we do?

MR. MACDONALD. Yes, sir.

MR. GRAY. We get awfully fast to work to see what we can do about it.

111. As part of the conspiracy the Tobacco Institute ran an advertisement in 1970 captioned, "The question about smoking and health is still a question." In this advertisement, the Tobacco Institute stated:

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

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

Completely autonomous, CTR's research is directed by a board of ten scientists and physicians. . . . This board has full authority and responsibility for policy, development and direction of the research effort. [emphasis added.]

112. Again, in 1970, the Tobacco Institute stated, "The Tobacco Institute believes that the American public is entitled to complete, authenticated information about cigarette smoking and health." The Tobacco Institute further stated that, "The tobacco industry recognizes and accepts a responsibility to promote the progress of independent scientific research in the field of tobacco and health."

113. The tobacco industry repeatedly emphasized its commitment to full public disclosure of CTR-sponsored research: "We are cooperating in efforts to learn and to make known all the facts." The CTR often repeated its representation that it promoted the disclosure of all relevant facts: "The Tobacco Institute believes that the American public is entitled to complete, authenticated information about cigarette smoking and health." At the same time, the tobacco industry widely represented the "independent" and "objective" nature of the CTR, disclaiming any affiliation with or influence of the tobacco industry in the workings of the CTR. These statements extended to representations of independent decision-making regarding the funding of research proposals.

114. Robert C. Hochett, Ph.D., acting Scientific Director for the Council for Tobacco Research publicly stated:

In 1965 and 1969 I described in considerable detail the nature, organization and modus operandi of the Council, and these descriptions were included in the records. My oral statement of 1965 was supplemented by a complete background document outlining the Council's history, organization, scientific program and publications. This also appears in the record and need not be repeated here. My thesis in these previous presentations was that neither tobacco and health research in general, nor that of the Council has established that tobacco use or cigarette smoking in particular is a "major health hazard." My point is that it has not been shown whether, how, to what extent or in whom cigarette smoking can contribute to the etiology (causation) of any disease that is presently a major cause of illness or early decease. I do not find any convincing evidence that either tar or nicotine or any other agent in cigarette smoking has been "incriminated" in relation to any human disease. Consequently, there is no scientific basis on which to establish "maximum acceptable" levels of tar, nicotine or other incriminated agents. [emphasis added.]

115. On February 13, 1978, Horace Kornegay, then the President of the Tobacco Institute publicly stated:

Generally, the industry funds scientific research on smoking and health through the Council for Tobacco Research. The organization, or rather its predecessor, was formed in 1954, and its sole purpose is to support independent scientific research. They have what they call a Scientific Advisory Board, composed of well known and qualified people from all over the country, which determines the scientific merits of the grant applications.

116. In 1982, Edward A. Horrigan, Jr., then the Chairman of the Executive Committee of the Tobacco Institute, publicly stated:

After three decades of investigation and millions of dollars invested by the government, the Tobacco Industry and private organizations, the smoking and health controversy remains unresolved. The net result of all of this effort has been that no causal link between smoking and disease has been established. That is not merely the opinion of tobacco industry executives. That is scientific fact readily available to anyone willing to make an objective, unemotional study of the existing evidence.

Mr. Horrigan added:

I am saying that science to date after much research including over $100 million funded by our industry, indicates that no causal link has been shown.

117. In 1978, Sheldon Sommers, M.D., a former Scientific Director of the Council for Tobacco Research, described the CTR as a "funding agency for bio-medical research in the area of smoking and health, funded by tobacco manufacturers. Dr. Sommers stated that the CTR "exerts no influence upon the grantees" who Dr. Sommers stated "may freely publish what they find as they choose."

118. One year later, Dr. Sommers publicly stated:

During the past 18 months, I have served as Scientific Director, Council for Tobacco Research - U.S.A., Inc. This organization, funded by the major U.S. cigarette manufacturers, supports basic and applied bio-medical research relating to smoking and health.

* * *

The donors of the money and the Council for Tobacco Research give complete scientific freedom to grant recipients in conducting their studies. The grantees are free to publish their findings and report them at professional meetings.

* * *

Cigarette smoking has not been scientifically established to be a cause of chronic disease, such as cancer, cardiovascular disease or emphysema. Nor has it been shown to affect pregnancy outcome adversely. Rapidly accumulating new basic scientific discoveries and reports and the medical literature render the simplistic statements … invalid. (Emphasis added.)

In 1984, Reynolds falsely represented in The New York Times: "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."

120. In 1988, a CTR report stated:

The Council for Tobacco Research - U.S.A., Inc. is the sponsoring agency of a program of research into questions of tobacco use and health. It is the outgrowth of an organization formed early in 1954 by tobacco manufacturers, growers and warehousemen. Research support has been mainly through a program of grants-in-aid supplemented by contracts for research with institutions and laboratories. The Council does not operate any research facility.

The Scientific Advisory Board to The Council meets regularly to evaluate applications for research support, judging them solely on the basis of scientific merit and relevance.

The Council awards research grants to independent scientists who are assured complete scientific freedom in conducting their studies. Grantees alone are responsible for reporting or publishing their findings in the accepted scientific manner - through medical and scientific journals and societies.

F. THE CAMPAIGN OF DECEIT AND MISREPRESENTATIONS

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

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

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

124. Other internal industry documents also shed light on the true nature of the trade associations, as the following examples demonstrate:

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. . . ."

h. 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."

125. 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 is it is a risk factor, and scientifically it hasn't been established. And that's what the research is for [emphasis added.] . . . I don't agree [that nicotine is addictive]. From what I've read on nicotine is that it contributes to the flavor, the taste of the product." These representations are intentionally misleading, unfair and deceptive. They are moreover a result of the industry's ongoing conspiracy and combination, and are done to maintain its market and profits from a deadly and addictive product.

G. THE CONSPIRACY TO RESTRAIN TRADE

1. The "Gentlemen's Agreement"

126. The industry's combination and conspiracy included 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."

127. There was a "gentlemen's agreement" among the manufacturers to suppress independent research on the issue of smoking and health. This agreement was referenced in a 1968 internal Philip Morris draft memo, which stated, "We have reason to believe that in spite of gentlemans (sic) agreement from the tobacco industry in previous years that at least some of the major companies have been increasing biological studies within their own facilities." This memo also acknowledged that cigarettes are inextricably intertwined with the health field, stating, "Most Philip Morris products both tobacco and non-tobacco are directly related to the health field."

128. 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. But the fundamental understanding and agreement remained: That information and competition activities deemed harmful to the unified, defensive posture of the industry would be restrained, suppressed, and/or concealed. No company or industry trade organization stood behind the "promise" the defendants had made. As American Tobacco's CEO testified, "[If the health studies are correct], consumers have the right to know whatever is affecting their health. I think that's what, the public health agencies and the government have that responsibility." [emphasis added]

129. Defendants' activities in furtherance of the combination included restraining, suppressing, and concealing research on the health effects of smoking, including the addictive properties of tobacco, 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.

130. One member of the conspiracy, US Tobacco, went so far as to terminate an employee and apologize to the Big six 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."

131. Several companies researched the possibility of marketing "safer cigarettes." The defendants acted in concert to exclude such products from the market and further excluded potential new entrants, in part, by patenting the processes for these less harmful products, which they neither marketed nor licensed to any other actual or potential competitor.

2. Suppression of Liggett's "Safer Cigarette"

132. Liggett was one of the defendants who was successful in researching and actually developing a "safer cigarette." However, Liggett decided not to market this product.

133. Liggett initiated its "safer cigarette" project, called XA, in 1968. After a minimal expenditure of only $14 million, Liggett internally proclaimed the project a success in 1979. Liggett found that "[c]igarette tar has been neutralized" and that there was "[n]o evidence for new or increased hazard . . ."

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

135. Liggett abandoned the project in furtherance of the conspiracy. Liggett feared 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." In addition, there was a threat of retaliation from industry leader Philip Morris if Liggett broke ranks.

136. 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, "[a]t 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. Abandonment of Brown & Williamson's "Safer Cigarette"

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

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

139. Such innovative products were not marketed because no member of the conspiracy has broken ranks by competitively marketing safer products. "Within B & W, we have rarely attempted to develop new products specifically designed to deliver low CO [carbon monoxide], except perhaps a prototype of FACT that was kept ready on a turn-key basis in the event of a marketing need for such product. This was done through a combination of filter ventilation, cigarette paper permeability, and appropriate cigarette paper additive. Needless to say, such need did not arise." [emphasis added.]

4. Philip Morris: Avoiding an Industry War

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

141. The industry was aware that consumer demand would support "safer" products. Prior to adoption of the advertising Code, companies made claims of reduced tar and nicotine content for their products, which the public perceived as offering reduced health risks. However, "the smoker of a filter cigarette [claiming reduced tar] was getting as much or more nicotine and tar as he would have gotten from a regular cigarette. He had abandoned the regular cigarette, however, on the ground of reduced risk to health." The industry recognized a difference between "health-oriented" cigarettes, which were never marketed on a wide basis, and "health-image" cigarettes, such as low-tar, low-nicotine products. The latter were a marketing tool, intended to give the illusion of a safer product.

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

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

5. Reynolds' Safer Product

144. Reynolds also developed a "safer cigarette". Except for a brief test in several cities, Reynolds did not market its safer product, "Premier."

6. The Industry Position on "Safer" Cigarettes

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

146. The 1987 memorandum was written in the context of the marketing by Reynolds of its smokeless cigarette, Premier, which heated rather than burned tobacco. The Shook, Hardy attorney wrote that the smokeless cigarette could "have significant effects on the tobacco industry's joint defense efforts" and that "[t]he industry position has always been that there is no alternative design for a cigarette as we know them." The attorney also noted that, "Unfortunately, the Reynolds announcement. . . seriously undercuts this component of industry's defense."

147. This fundamental position of the "industry" defense had been identified much earlier. In 1970, David Hardy of the Shook, Hardy firm wrote to DeBaun Bryant, General Counsel at Brown & Williamson, expressing concerns about some of the industry research into alternative products. In critiquing the minutes of a conference, he stated: "It is our opinion that statements such as [references to research into safer products, products which are less biologically active, and to 'healthy cigarettes'] constitute a real threat to the continued success in the defense of smoking and health litigation. Of course, we would make every effort to 'explain' such statements if we were confronted with them during a trial, but I seriously doubt that the average juror would follow or accept the subtle distinctions and explanations we would be forced to urge....[E]mployees in both companies [Brown and Williamson and British American Tobacco] should be informed of the possible consequences of careless statements on this subject."

148. All defendants were keenly aware of the risk to the industry if any of them sought a competitive advantage by developing and marketing a safer product. The risk was avoided by agreeing to not compete on that basis. As one industry representative testified: ". . . as 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]....we wouldn't run any advertising that positions any of our products as being healthier than others."

7. Suppression of Reynolds "Mouse House" Research

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

8. Suppression of Philip Morris Research on Nicotine Analogues

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

151. 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.

152. 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; i.e., artificial versions of nicotine. These analogues affected the brain much like nicotine, but 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.

153. 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.

154. 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.

9. The Industry Stops Competing on Health

155. Evidence of the tobacco cartel's agreement not to develop a "safer cigarette," and to restrain competition based on health, is the uniform shift in the nature of tobacco advertising starting in 1954 and continuing through the present. Prior to 1954, as set forth above, the tobacco industry responded to consumer demand by advertising and robustly competing based on claims related to health. After 1954, although the companies competed on issues such as filters, tar and nicotine, no further health claims were made nor was there any advertising on less harmful products. By the 1970's and 1980's, all advertising switched to portraying smoking as being associated with manliness or femininity, with athletic achievement, economic and/or professional success, social skills and acceptance, sexual attractiveness, etc.

156. Two major themes dominated cigarette advertising during the 1970's and 1980's and no claims were made based on health or a less harmful product. First, many brands used image advertising to create an association between smoking a particular cigarette and certain glamorous, athletic, and successful lifestyles. Second, low tar and nicotine cigarette brands for much of this period used a confusing numbers game to make it appear that they were lower in tar and nicotine, than other brands.

157. Many cigarette ads during this period do not even contain words concerning taste or other characteristics of the cigarette, or if they did, they were subordinate to the graphics. The purpose of these images is to create a mental association between smoking and desirable lifestyles.

158. A Reynolds document describes how this process works to attract young new customers to a brand, as well as to further bond current smokers:

Motivational research has identified the phenomenon of image projection as a highly motivating force. Therefore, through the association of Salem, and its brand styles with emulatable personalities and situational elements that are compatible with the aspirations and lifestyles of contemporary young adults, this important target segment will be attracted to the brand. Importantly, older smokers also relate favorably to this personality type; therefore, reinforcement of the current franchise is simultaneously achieved.

159. A Brown & Williamson document shows how image projection advertising was used to attract young people:

For the young smoker, the cigarette is not yet an integral part of life, of day-to-day life, in spite of the fact that they try to project the image of a regular, run-of-the-mill smoker. For them, a cigarette, and the whole smoking process, is part of the illicit pleasure category . . . In the young smoker's mind a cigarette falls into the same category with wine, beer, shaving, wearing a bra (or purposely not wearing one), declaration of independence and striving for self-identity. For the young starter, a cigarette is associated with introduction to sex life, with courtship, with smoking "pot" and keeping late studying hours (Federal Trade Commission's 1981 report, Confidential section).

160. The defendants are very interested in, and knowledgeable about, the psychology of adolescence and the factors that could be used to influence children to take up smoking.

161. Many brands showed a clear gravitation toward youth-oriented image projection. For example, the brands of Reynolds were periodically repositioned toward younger audiences. Winston, which early in this period featured middle-aged people stating their reasons for smoking, in the early 1980s began advertising featuring helicopter pilots and mountain climbers.

162. Perhaps most instructive was the repositioning of Vantage and Sterling cigarettes. Vantage for many years had been promoted on the basis of its tar and nicotine levels. In the early 1980s, it adopted an advertising theme featuring young professionals and the slogan "The Taste of Success." Then, in 1985, it was again repositioned to a theme featuring daring and high-risk ski-racing, and wind-surfing. The color scheme was red, white and blue.

163. Sterling cigarettes were introduced in early 1985 with a clear focus on the upscale market (Sterling is only a cigarette, like Porsche is only a car). Only a year later, the theme was changed to feature risky activities like hang-gliding, stunt motorcycle riding, and wind-surfing. The color scheme was dark props, often silhouetted against the sun.

164. The repositioning of Vantage and Sterling to feature risky activities that are aspired to by many adolescents occurred nearly simultaneously, and were a coordinated attack on the youth market. The change in the themes for the two brands resulted from the same market research on the factors that motivate the target audience to smoke.

165. Like many other cigarette ads of this period, both Sterling and Vantage glorified risk-taking behavior. The subtle message of these ads was that while smoking might be risky, so are all of the other adventurous activities. By equating smoking with other attractive but risky endeavors, advertising attempts to influence young people's assessment of both the magnitude and acceptability of the risk associated with smoking.

166. The advertising themes of this period were far more sophisticated than those of earlier eras. The phrase "Now is Lowest" is much less direct than the promise "Kent provides the greatest health protection in cigarette history." It is, nonetheless, just as effective at conveying the message that it is reasonably safe to smoke that brand of cigarettes.

167. Likewise, the photographic image of a macho man or independent woman engaged in glamorous and exciting activities is less direct than the celebrity testimonials of earlier periods, or 1950s-style ads like "Lucky Strikes _ the one to start with, the one to stay with." They are, however, much more effective in influencing impressionable young minds to associate cigarette smoking with desirable lifestyles.

H. MAINTAINING THE MARKET THROUGH SALES TO MINORS

1. The Increasing Addiction of Minors _ A Predicate to Continuing Industry Profits

168. In addition to ensuring a captive market through the addiction of its customers, the tobacco industry maintained its sales and replaced the hundreds of thousands of tobacco users who die each year by targeting marketing and promotional efforts at minors.

169. Despite the best efforts of parents, educators, and the medical profession, tobacco among young people has remained alarmingly constant since the 1970's, and, in fact, is currently on the rise. Tobacco company advertising creates a mental image associating tobacco use with healthy, glamorous and athletic lifestyles, with success and sexual attractiveness and success. This increases demand for tobacco products among young people. Within a short period of time, a young tobacco user becomes physiologically and emotionally dependent, i.e., addicted to tobacco. Later, as the maturing tobacco user begins to wish he or she could quit, advertising reinforces the practice and seeks to minimize health concerns, creates doubt, confusion and mistake, which are used by tobacco users as an excuse to avoid the pain and discomfort of attempting to break their addiction to nicotine. This is the vicious cycle of fraudulent tobacco industry advertising of their products.

170. Tobacco companies sell more than one billion packs of cigarettes per year to minors under the age of 18. In 1988, these sales accounted for about $1.25 billion in sales. Approximately 3% of the total tobacco industry profits ($221 million in 1988) are derived directly from the sale of cigarettes to children under the age of 18, an activity that is illegal in 43 states. Marlboro and Camel cigarettes, produced by Philip Morris and Reynolds, respectively, dominate the minor smoking market.

2. The Use of Appealing Images

171. The use of tobacco by minors continues to rise. The Centers for Disease Control and Prevention ("CDC") announced on May 24, 1996, that a study of high school students showed a higher prevalence of tobacco use among high school students in 1995 than in 1993 and 1991, up 35% from 1993 and 28% from 1991.

172. The advertis