STATE OF VERMONT

CHITTENDEN COUNTY, SS.

I. INTRODUCTION

• II. JURISDICTION AND VENUE
• III. PARTIES
• IV. ADDITIONAL JURISDICTIONAL ALLEGATIONS REGARDING B.A.T INDUSTRIES, P.L.C.
• V. CONSPIRACY ALLEGATIONS
• VI. FACTUAL ALLEGATIONS
  • A. Background
  • B. The Cartel’s Pre-Conspiracy Advertising and Promotional Activities: False Claims of Health and Safety
  • C. The 1953 "Big Scare" and Beginning of the Industry Conspiracy to Suppress the Truth and Curtail Competition
  • D. The Industry Pledges to Conduct Unbiased Scientific Research to "Safeguard the Public Health"
  • E. Repeated False Promises to the Public
  • F. The True Nature of the TIRC and the CTR: A "Front" for the Tobacco Cartel
  • G. The Role of CTR "Special Projects" and Industry Lawyers in Concealing Information
  • H. The Continuing Conspiracy to Restrain Trade
    • 1. The "Gentlemen’s Agreement"
    • 2. Suppression of Liggett’s "Safer" Cigarette
    • 3. Brown & Williamson’s Efforts to Develop a "Safer" Cigarette
    • 4. Philip Morris: Avoiding an Industry War
    • 5. Reynolds’s "Safer" Product
    • 6. The Industry Position on "Safer" Cigarettes
  • I. History of Industry Knowledge that Smoking is Harmful
  • J. Industry Knowledge of the Addictive Nature of Nicotine
  • K. Suppression and Concealment of Research on Nicotine Addiction
  • L. The Industry’s Secret Manipulation of Nicotine Levels
    • 1. Leaf Growing
    • 2. Leaf Purchasing
    • 3. Leaf Blending
    • 4. Additional Evidence of Nicotine Manipulation
  • M. Maintaining the Market through Sales to Minors
    • 1. The Increasing Addiction of Minors: A Predicate to Continuing Industry Profits
    • 2. Deceptive Conduct Directed at Minors
    • 3. Reynolds: "Old Joe Camel"
    • 4. Philip Morris’s Admission that it has Targeted Minors
    • 5. Smokeless-Tobacco Products: Addiction Through the "Graduation Process"
  • N. The Human Toll of Cigarette Smoking - A Public Health Crisis
    • 1. Health Effects of Cigarette Smoking
    • 2. Health Effects of Smokeless-Tobacco Products
  • O. Fraudulent Concealment
• VII. CLAIMS FOR RELIEF

COMPLAINT

I. INTRODUCTION
This Section I, Paragraphs 1-10, is intended to serve as an introduction to this complaint. It does not contain averments of claim pursuant to V.R.C.P. 10, and requires no response from defendants

1. The State of Vermont, through its Attorney General, William H. Sorrell, and its Commissioner of Health, Jan K. Carney, M.D., (hereinafter "the State" or "Vermont") files this complaint against the defendants for their activities in marketing tobacco products. The complaint alleges that the defendants have created a public health hazard and public health risk in violation of 18 V.S.A. §§ 2 and 130, and that defendants have committed unfair and deceptive acts and practices and engaged in unfair methods of competition, in violation of Vermont’s Consumer Fraud Act, 9 V.S.A. § 2451 24 et seq. The State seeks civil penalties, disgorgement of profits, remediation through tobacco education and anti-addiction programs, injunctive relief, attorneys’ fees and costs.

The Nature of the Industry

2. The Tobacco Industry in the United States is a highly profitable, highly concentrated industry. In 1996, the Tobacco Industry earned gross revenues in excess of $18 billion throughout the United States. In Vermont alone, the Tobacco Industry earned gross revenues in 1996 of $125 million from cigarette sales.

3. The U.S. Tobacco Industry is dominated by Brooke Group, Ltd., Liggett Group, Inc. (Liggett & Myers Tobacco Co.), Philip Morris Companies, Inc. (Philip Morris, Inc.), American Brands, Inc. (the American Tobacco Co.), UST, Inc. (United States Tobacco), RJR Nabisco, Inc. (R.J. Reynolds Tobacco Co.), Batus, Inc. (Brown & Williamson Tobacco Company), British American Tobacco Company (BATCO) and Lowes Corporation (Lorillard Tobacco Co.).

The Human Toll

4. Tobacco use has created a national epidemic of tragic proportions. More than 400,000 deaths per year in the Unites States are tobacco-related. In Vermont alone, the annual death toll from tobacco use is over 800. Nationally, tobacco causes more deaths than AIDS, homicide, suicide, automotive accidents, and alcohol and drug use combined. More Americans died of smoking-related illnesses in 1990 than were killed in any war this century.

5. The use of tobacco is unique among consumer products. It is the only product which, if used as the manufacturer intends, will cause addiction, and may lead to disease and death.

Decades of Unfair and Deceptive Practices

A. Health Effects

6. Since the early 1950’s, the Tobacco Industry has engaged in a series of unfair and deceptive acts that continue to this day. These acts include but are not limited to:

a. publicly proclaiming that the industry recognized its "special duty" and "responsibility" to report the scientific truth about the health effects of tobacco, and then creating "front" organizations to suppress information demonstrating that tobacco products are harmful;

b. concealing internal research indicating that tobacco use causes cancer and other diseases;

c. agreeing not to compete with each other with healthier products so that the industry could continue to suppress information linking tobacco use with disease; and

d. conspiring and agreeing to keep "safer" cigarettes off the market.

B. Nicotine

7. Nicotine is a highly addictive substance. The defendants have known this for more than forty years. Yet the defendants have repeatedly told the public that nicotine is not addictive, including as recently as April 14, 1994, when the chief executive officers of seven Tobacco Companies testified before Congress and denied under oath that nicotine is addictive. Furthermore, while denying that nicotine is addictive, the tobacco companies actually manipulate levels and the potency of nicotine in their products in order to make them more addictive.

C. Targeting Youth

8. Because so many of the industry’s customers die each year, defendants must constantly add new customers to maintain their profits. These new customers are overwhelmingly children under age 18. Every day 3,000 more children in the United States become regular smokers. In Vermont, 15% of students in grades 8 through 12 were daily smokers in 1995, an increase from 11% in 1993. Nationally, 82% 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 those who do not begin smoking in childhood are unlikely to start as adults.

9. Among the most troubling of defendants’ illegal activities is their deliberate efforts to induce children to use tobacco products. It is against the law in Vermont for children to purchase tobacco, and encouraging them to do so is a violation of Vermont’s Consumer Fraud Act. Nonetheless, defendants have designed marketing campaigns particularly appealing to children. One of the primary goals of this lawsuit is to prevent the tobacco industry’s systematic targeting of children in an effort to addict them to cigarettes before they are old enough to make mature, responsible, adult decisions.

Why Vermont Is Filing Suit Today

10. For years, the Tobacco Industry hid information about its unfair and deceptive activities from the public. By transferring to lawyers all information indicating that either smoking is harmful to human health or nicotine is addictive, defendants have improperly asserted attorney-client privileges, thereby concealing from the public and private litigants the truth about the Tobacco Industry’s knowledge of the harmful effects of tobacco products.

11. Through recent disclosure, the truth about the defendants’ activities has now begun to be revealed. For example, in a recent settlement with certain state Attorneys General, Liggett & Meyers made unprecedented admissions that nicotine is addictive, tobacco use causes cancer, and the industry has been targeting minors for decades. The Attorney General and the Commissioner of Health have determined it is now appropriate to seek an end to the defendants’ abusive practices in Vermont.

Objectives of This Action

12. In this action, the Attorney General and the Commissioner of Health seek to:

a. alleviate the significant public health hazard and hazard imposed by defendants’ deliberate targeting of minors, their manipulation of nicotine levels of tobacco to ensure addiction, their suppression of safer products, and other deceptive conduct that creates a public health risk and hazard;

b. enjoin future activities that may contribute to the public health risk and hazard caused by tobacco products;

c. require remedial measures be taken by defendants to mitigate the health risk and hazard imposed by their activities;

d. enjoin unfair or deceptive acts or practices and illegal restraints in trade;

e. require fair and full disclosure by defendants of the nature and effects of their tobacco products;

f. halt unequivocally the marketing of tobacco products to minors;

g. obtain penalties and disgorgement of profits commiserate with the harm caused by defendant.

II. JURISDICTION AND VENUE

13. This complaint is filed and these proceedings are instituted under 3 V.S.A. §§ 152 and 157, 9 V.S.A. § 2458(a) and (b), and 18 V.S.A. §130.

14. Each defendant does business in the State of Vermont and each defendant regularly does or solicits business or derives substantial revenue or benefit from goods, materials or services used, consumed or rendered in this state.

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

16. The public health hazard and risk alleged herein are being committed in Chittenden County and elsewhere throughout the State of Vermont.

17. Venue is proper in Chittenden County.

III. PARTIES

Plaintiff

18. The State of Vermont, through William H. Sorrell, Attorney General of Vermont, and Jan K. Carney, M.D. and M.P.H., Commissioner of Health for Vermont, brings this action pursuant to 3 V.S.A. §§ 152 and 157, 18 V.S.A. § 130, and 9 V.S.A. § 2458(a) and (b).

Defendants

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

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

21. In 1995, Brown & Williamson had revenues from domestic tobacco sales of $2.3 billion generating profits of $450 million. Brown & Williamson is or was a wholly-owned subsidiary or division of BATUS Holdings, Inc., and is a wholly-owned subsidiary or division of B.A.T. Industries plc.

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

23. 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.

24. In 1995, Lorillard’s domestic tobacco revenues were $2.1 billion, generating profits of $363 million.

25. 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 is the world’s largest tobacco company.

26. In 1995, Philip Morris’s domestic tobacco revenues were $11.5 billion, generating profits of $3.5 billion.

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

28. In 1995, Reynolds’s domestic tobacco revenues were $4.5 billion, generating profits of $954 million.

29. RJR Nabisco Holdings Corp. ("RJR Nabisco Holdings") is a Delaware corporation whose principal place of business is 1301 Avenue of the Americas, New York, New York 10019. RJR Nabisco Holdings is the parent company of wholly-owned subsidiary RJR Nabisco, Inc. which in turn is the parent company of R.J. Reynolds Tobacco Company. According to RJR Nabisco Holdings, its "worldwide tobacco operations are managed in the United States by R.J. Reynolds Tobacco Co." Individually and through its agent, R.J. Reynolds Tobacco Company, RJR Nabisco Holdings 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. Individually and through its agent, R.J. Reynolds Tobacco Company, RJR Nabisco Holdings advertises, promotes and sells its tobacco products throughout the State of Vermont.

30. RJR Nabisco, Inc. ("RJR Nabisco") is a Delaware corporation whose principal place of business is 1301 Avenue of the Americas, New York, New York 10019. RJR Nabisco is the parent corporation of R.J. Reynolds Tobacco Company. According to RJR Nabisco, its "worldwide tobacco operations are managed in the U.S. by R.J. Reynolds Tobacco Company." Individually and through its agent R.J. Reynolds Tobacco Company, RJR Nabisco 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. Individually and through its agent, R.J. Reynolds Tobacco Company, RJR Nabisco advertises, promotes and sells its tobacco products throughout the State of Vermont.

31. On information and belief, RJR Nabisco directly dictates and controls the world-wide sales and marketing efforts of its tobacco subsidiary through its RJR Nabisco Executive Council. In addition, RJR Nabisco exercises detailed and hands-on control of the marketing of individual Reynolds brands. Also on information and belief, RJR Nabisco supervises and controls tobacco-related litigation involving its tobacco subsidiary, Reynolds.

32. Defendant United States Tobacco Company ("U.S. Tobacco") is a Delaware corporation whose principal place of business is 100 West Putnam Avenue, Greenwich, Connecticut. U.S. Tobacco manufactures, advertises and sells Sano cigarettes. U.S. Tobacco also manufactures, advertises and sells approximately 88 percent of the smokeless tobacco (snuff and chewing tobacco) sold in the United States under various brand names including Happy Days, Skoal, Red Seal, Bruton, WB Cut and Copenhagen. Its total tobacco sales in 1995 were $4.2 billion, generating profits of $721 million.

33. B.A.T Industries plc ("B.A.T Industries" or "BAT II") is a British corporation whose principal place of business is Windsor House, 50 Victoria St., London, England SW1. Through a holding company, B.A.T Industries is the sole shareholder of Brown & Williamson. B.A.T Industries exercises direct and detailed "hands on" control over day-to-day operations of its subsidiaries, especially Brown & Williamson. B.A.T Industries, directly and through its agent Brown & Williamson, 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 Vermont. B.A.T Industries has also conducted, directly or through its agents, subsidiaries, associated companies and/or co-conspirators, significant research for Brown & Williamson on the topics of novel product development smoking, disease and addiction. B.A.T Industries surreptitiously sent that research to Brown & Williamson in the United States, and conspired with and directed Brown & Williamson to conceal the research and other shared information from discovery in United States lawsuits, which it did.

34. On information and belief, Brown & Williamson also sent to B.A.T Industries in England research conducted in the United States on the topics of smoking, disease and addiction, in order to remove sensitive and inculpatory documents from United States jurisdiction, and such documents were subject to B.A.T Industries' control.

35. B.A.T Industries is a participant in the conspiracy described herein and has caused harm and affected commerce in the State of Vermont.

36. Defendant British American Tobacco Company, Ltd. ("BATCO") is a British Corporation whose registered office is at Millbank, Knowle Green, Staines, Middlesex, England TW18 1DY. British American Tobacco Company, Ltd., is or was a related corporation of defendant Brown & Williamson Tobacco Corporation. Both are owned by B.A.T. Industries.

37. At times pertinent to the complaint, BATCO, individually or through its affiliate, alter ego, subsidiary and/or division, defendant Brown & Williamson Tobacco Corporation, designed, tested, manufactured, marketed and sold cigarettes for use in the State of Vermont.

38. BATCO has also conducted, or through its associated companies, agents or subsidiaries has conducted, significant research for Brown & Williamson on the topics of smoking, disease, and addiction.

39. On information and belief, Brown & Williamson also sent to England research conducted in the United States on the topics of smoking, disease and addiction to remove sensitive and inculpatory documents from American jurisdictions.

40. BATCO is a participant in the conspiracy described herein and has caused harm and affected commerce in the State of Vermont.

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

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

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

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

IV. ADDITIONAL JURISDICTIONAL ALLEGATIONS REGARDING B.A.T INDUSTRIES, P.L.C.

45. B.A.T Industries plc, or "BAT-II," describes itself as "one of the U.K.'s leading business enterprises with interests principally in tobacco and financial services." "[B.A.T Industries] is the world's most international cigarette manufacturer," with an unrivaled range of both international and domestic brands. In 1995, the "B.A.T Industries Group" sold "more than 670 billion cigarettes . . . achieving a 12.4% share of the world market [and] B.A.T Industries has the leading cigarette brand in over 30 markets." In 1995, BAT-II's total revenue amounted to about $38.8 billion, and pre-tax profit reached a record $4.6 billion.

46. The terms "BAT," the "BAT Group," and "BAT Industries Group" shall be used to refer to BAT-II and its subsidiaries since this is usage adopted by BAT-II in its own documentation.

47. BAT-II's United States interests are a significant part of the B.A.T-II empire. According to one BAT-II publication: "The North American operations of B.A.T Industries are a key part of the Group's strategic and financial development. In 1987 they contributed 44 per cent of the Group's trading profit and accounted for 27 per cent of turnover worldwide. Nearly one-third of B.A.T Industries assets are held in North America." Brown & Williamson, BAT-II's wholly-owned United States subsidiary, is by far BAT-II's most significant North American asset. It is BAT-II's largest operating group and the third largest tobacco company in the United States.

48. Throughout BAT history, BAT-II board members have acted to ensure that they dictate and control all significant smoking and health policies, research programs and marketing strategies of BAT tobacco operations, including Brown & Williamson. In addition to reserving for itself sufficient policy-making and decision-implementing power to establish and maintain the BAT Group's complicity in the tobacco industries' public health conspiracy, the BAT-II board established, among others, the following five boards and committees, all reporting directly to the BAT-II board of directors, to assist in controlling every aspect of BAT Group tobacco operations:

a. Chairman's Policy Committee (CPC) (later changed to Chief Executive Committee). The CPC was formed to act as "key executive body of the [BAT-II] Board." Management of all tobacco operating companies report directly to CPC.

b. The Tobacco Division Board (TDB). The TDB is responsible for considering and referring directly to the board issues relating to smoking and health, research policy and marketing policy.

c. The Tobacco Executive Committee (TEC). The TEC exists to give TDB time to "concentrate on policy matters in depth." It is "responsible for the execution of policies and objectives decided by TDB."

d. The Tobacco Strategy Review Team (TSRT). The purpose of the TSRT was to "formulate overall strategic objectives" for the BAT Group relating to tobacco issues. Initially, membership on the TSRT was confined to a very close circle of BAT-II Board members whose job on the TSRT was to dictate tobacco strategy of the entire BAT Group. Years later, membership was extended to include the Chief Executives of the four tobacco businesses, including Brown & Williamson.

e. The Scientific Research Group (or "SRG"). The mission of the SRG was to "set group policies and issues related to additives, pesticide residues and smoking and health."

The BAT-II board has acted through these groups to assure that its overall policies and strategic objectives relating to its tobacco business and smoking and health issues are followed on a global basis.

49. Both through these groups and in other ways, BAT-II has played a significant role in the BAT Group process that leads to the sale of hundreds of thousands of packs of cigarettes in Vermont annually.

50. BAT-II exercises control over the day-to-day operations of its wholly-owned subsidiary Brown & Williamson, especially on the critical issues of new product development, smoking and health, the addictiveness of nicotine and marketing tobacco products to American children.

51. BAT-II has played the most significant role in the research and development and design and marketing of cigarettes for the BAT Group, including Brown & Williamson.

52. The BAT-II board and senior officers have established and enforced coordinated cigarette research, tobacco growth and other development policies for the BAT Group. BAT-II has also established and enforced policies and guidelines for the design and manufacture of addictive cigarettes in the United States.

53. BAT-II also established and enforced coordinated marketing and public relations policies for the BAT Group in the United States. In sum, BAT-II is the ultimate decision-maker on all significant issues -- whether it be research, tobacco agriculture, design, manufacture, marketing or administration -- that affect the BAT Group's sale of cigarettes in Vermont.

54. Furthermore, BAT-II has directly and substantially engaged in key decision-making for the research, development, design, manufacture and marketing of hundreds of millions of dollars of cigarettes sold in Vermont.

55. Through secret programs such as Project GHOST or Project BATTALION and through formal delegation of authority, BAT-II directly participated in fundamental, strategic, and implementive decisions leading to the sale of cigarettes in the United States by the BAT Group, and more particularly, its wholly-owned subsidiary, Brown & Williamson.

56. The participation was detailed and covered many important aspects of the research, development, manufacture, design and marketing of cigarettes, along with the political relations to accompany the business generally, and the administrative infrastructure to carry on that work.

57. BAT-II’s actions were intentional, and they were directed at the sale of cigarettes in Vermont (as well as other states). BAT-II is the hub of the BAT Group industrial enterprise, which has sold millions of dollars worth of cigarettes in Vermont. In short, BAT-II regularly does or solicits business in Vermont.

58. BAT-II’s control over research and development of new products has been exhaustive and definitive. Not only has BAT-II controlled the initiation of new research and product development by the BAT Group, including Brown & Williamson, it has also dictated and controlled the termination of such development and research often before the original research objectives have been achieved. One area in which this BAT-II control has been exercised most pre-emptively is in the development of so-called "safer" cigarettes and other novel products. BAT-II, through the TSRT, has directly orchestrated the efforts of BAT operating companies in the United States, and across the globe in this area. Examples of BAT-II's direction and control include, without limitation:

a. Y-1 Tobacco. The TSRT directed the efforts of the BAT Group, and particularly its United States tobacco operations, with respect to the utilization of a genetically-engineered tobacco known as Y-1. The BAT Group secretly developed Y-1 tobacco with nicotine content more than twice the average found naturally in flu-cured tobacco. The TSRT organized efforts to grow Y-1 tobacco in South America and ship it to the United States to be used by Brown & Williamson commercially in cigarettes sold in Vermont--and urged the use of Y-1 tobacco worldwide. The chairman of BAT-II expressed particular interest in reviewing the progress of the utilization of Y-1 tobacco and Mr. Pritchard (BAT-II board member and CEO of Brown & Williamson) was responsible for Y-1 tobacco reporting.

b. Project GREENDOT. The TSRT directed the BAT Group’s Project GREENDOT, a nicotine manipulation scheme which had the specific aim of lowering tar, but having normal nicotine delivery. Project GREENDOT was later terminated by the BAT-II TSRT.

c. Project AIRBUS. The TSRT dictated the direction, funding, and ultimate termination of Project AIRBUS. Project AIRBUS had been undertaken by Brown & Williamson in response to the development by R.J. Reynolds Tobacco Company of a smokeless and virtually tobacco-free cigarette. Once the R.J. Reynolds Tobacco Company product failed, the TSRT ordered the discontinuation of any further work of developing a smokeless cigarette as an alternative to its tobacco products. Research based on AIRBUS technology was later resumed and continued, at TSRT direction, not in the United States, but in England, as Project NOVA.

d. Ammonia Treatment. The TSRT directed the BAT Group’s global use of ammonia treatment for tobacco. During many TSRT meetings, the chairman of BAT-II exhorted the need to increase the BAT-Group’s use of ammonia treatment. Treating tobacco with ammonia increases the amount of "free" nicotine in cigarette smoke, and thereby increases the "impact" of the smoke.

59. BAT Industries' involvement in the day-to-day operations of its subsidiaries, especially Brown & Williamson, is detailed and pervasive. Examples of BAT-II's "hands-on" involvement in the day-to-day operations include, without limitation, the following:

a. The promulgation of "guidelines" which are designed "to indicate the contribution" BAT-II is requiring from its United States and other operations, "both in financial terms and supporting B.A.T Industries' policies and strategies." Among many other things, BAT-II established guidelines requiring American tobacco operations to contribute with the other tobacco operations in the formulation and implementation of a group-wide R&D program;

b. The requirement that American tobacco operations participate in the "Tobacco Strategy Review Team" of the BAT Group;

c. direction of marketing strategies;

d. direction of legal and technical defense efforts;

e. promotion of competing epidemiological scientific information; and

f. controlling Brown & Williamson personnel policy matters by having Brown & Williamson report directly to BAT Industries on personnel matters and investing authority in a BAT-II committee to approve Brown & Williamson executive salaries, bonus compensation, and other employment contract terms at the vice president level and above, as well as other personnel issues; and investing authority in a compensation committee, comprised of BAT-II and Brown & Williamson officers to approve appointments and employment contract terms of senior managers below vice president level.

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

61. B.A.T-II also conspired directly and on its own with the United States tobacco industry to deceive the American public and the citizens of Vermont regarding cigarette smoking and its consequences and the pharmacological and behavioral addictiveness of nicotine. BAT-II's conspiratorial contact with the American Tobacco industry, independent of Brown & Williamson, includes, without limitation, the following:

a. High level BAT-II executives initiated and maintained direct contact with their counterparts in American tobacco industry on topics related to smoking and health, nicotine and other wrongdoings alleged in this case;

b. BAT-II regularly conducted visits to the United States, independent of Brown & Williamson business, which included direct contact with the research directors of major American cigarette companies, including RJ Reynolds, Philip Morris, Liggett & Myers as well as the American Medical Association and the National Institutes of Health, on research aspects of smoking and health.

c. BAT-II, through the United Kingdom Tobacco Institute, regularly shared research information on smoking and health issues with TIRC, CTR and other tobacco industry fronts in the United States.

62. For twenty years, BAT-II has deceived the Vermont public. BAT-II has controlled and directed the BAT Group's international campaign to systematically suppress and conceal material information and to aggressively promote disinformation about the health consequences of smoking. From its corporate headquarters in England, BAT-II directed and controlled the manipulation of scientific research, non-disclosure of scientific research, suppression of product development, manipulation of nicotine levels of cigarettes and obstruction of the judicial process across the globe. These actions resulted in widespread disease and death throughout Vermont and other states. Examples of BAT-II's efforts to ensure its market position by concealing significant health and product information include without limitation:

a. Establishing and enforcing strict guidelines for the mandatory distribution of BAT Group scientific research to Brown & Williamson exclusively through certain American lawyers with neither Brown & Williamson nor any Brown & Williamson employee revealed on the distribution list;

b. Implementing and enforcing BAT disciplinary policies for "careless" statements by employees about smoking and public health;

c. Undertaking research on smoking and health issues in England because BAT-II would not "want it to leak back to the United States."

63. BAT-II has purposely availed itself of the American economy, including the Vermont cigarette and financial markets.

64. Upon information and belief, BAT Group tobacco revenues in Vermont -- sales ultimately directed and controlled by BAT-II -- are hundreds of thousands of dollars annually.

65. The BAT Group recognizes substantial profits each day for the sale of its cigarettes in Vermont.

66. Over time, BAT-II has reaped millions of dollars of profits from Vermont consumers, upstreaming those profits to diversify its global commercial enterprise and pay dividends.

67. BAT-II has succeeded in its aggressive United States corporate acquisition plan, a plan that has had significant effects upon the Vermont economy. For example, in 1994 BAT-II purchased the American Tobacco Company, then the fifth-largest tobacco operation in the country, for approximately $1 billion.

68. BAT-II is also subject to personal jurisdiction for engaging in deceptive or unfair acts or practices in Vermont. BAT-II has assured that substantial scientific and other knowledge not be disclosed to Vermont and its citizens; has directed the research and design of cigarettes sent into Vermont for sale and consumption; and has assured the complicity of B&W and the other BAT-II operating companies in the United States tobacco industry conspiracy alleged in the Complaint.

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

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

71. BAT-II regularly does and solicits business in the American financial markets. Over many years, BAT-II representatives -- including the Chairperson of the BAT-II board -- have repeatedly canvassed the United States to solicit individual and institutional investment in BAT-II securities and debt instruments. This solicitation was part of an aggressive marketing plan over years by BAT-II to solicit greater American investment. Upon information and belief, this solicitation involved substantial Vermont dollars.

72. BAT Industries' own publications proudly promote American investment in the company: "Shares of B.A.T Industries are traded in the American Stock Exchange in the United States . . . and are often among the most actively traded on that exchange." Upon information and belief, BAT-II solicits investors in the State of Vermont. One way BAT-II solicits Vermont investors is through advertisements contained in newspapers distributed in Vermont.

73. The United States, including Vermont, has been central to BAT-II's global tobacco and financial businesses.

V. CONSPIRACY ALLEGATIONS

74. In committing the wrongful acts alleged, all defendants and 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, abetted and conspired with one another and other conspirators not yet named or known, in furtherance of their common plan and scheme outlined herein.

VI. FACTUAL ALLEGATIONS

A. Background

75. Today, some 50 million Americans smoke. According to current trends, 22 percent of adult Americans will still be smokers in the year 2000.

76. In the latter half of the 20th century, some 10 million Americans have been killed by smoking-related disease. This year (and every year into the foreseeable future), nearly half a million Americans will die prematurely due to disease caused by cigarette smoking.

77. 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.

78. In the 1990’s, thousands of Vermont residents died from smoking-related causes.

79. Several factors account for the persistence of cigarette smoking.

80. First, partly as a result of the Tobacco Industry’s false and fraudulent advertising, smoking became socially acceptable before it was proven to be a cause of lung cancer and other diseases.

81. Second, the long latency period between smoking initiation and disease contraction masked the causal relationship for decades.

82. Third, cigarettes contain large amounts of nicotine.

83. Nicotine is an addictive substance.

84. Nicotine in cigarettes makes it difficult for a person to stop smoking.

85. Fourth, the Tobacco Industry has in large part conspired not to compete on the basis of relative health risk. The Tobacco Industry conspired to restrict output in safer and alternate products.

86. Fifth, the Tobacco Industry conspired to create confusion as to whether smoking is harmful and to make it appear that there is a legitimate, good-faith scientific dispute over the health impact of smoking when there simply is not any such legitimate debate.

87. The industry presents cigarette smoking in an attractive, youthful and positive way.

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

88. Despite the growing body of evidence showing their cigarettes caused lung disease and cancer, the Tobacco Companies chose to promote their product with deceptive health claims. Starting in the 1930s and continuing until the mid-1950s, the Tobacco Companies made express claims and warranties as to the healthiness of their products with disregard of the falsity of their claims and the consequential adverse health impact on consumers.

89. Examples of these health warranties include the following: Old Gold: "Not a cough in a Carload"; Camel: "Not a single case of throat irritation due to smoking Camels"; Philip Morris: "The Throat-tested cigarette."

90. One of the key themes used to promote cigarette smoking during this period was a promise that individual cigarette brands were either "less irritating" or that "harmful irritants" had been removed. At one point or another during this period every major cigarette brand made a false claim regarding health and/or irritation.

91. These pre-1954 advertisements and representations demonstrate defendants’ understanding that consumers wanted safer products. As a result, prior to 1954, the Tobacco Companies engaged in vigorous competition on the basis of claims of health.

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

92. The defendants knew that published information about health risks could:

a. decrease tobacco sales;

b. increase consumer demand for safer tobacco products;

c. induce some competitors to promote their own brands or denigrate competing brands on the basis of relative health risk;

d. materially reduce their profits and market shares; and

e. increase the likelihood of government regulation.

93. In the early 1950s, scientists published two significant scientific studies warning of the health hazards of cigarettes. The first was published in 1952 by Dr. Richard Doll, a British researcher, who found that lung cancer was more common among people who smoked and that the risk of lung cancer was directly proportional to the number of cigarettes smoked.

94. A second study was published in December 1953 by Dr. Ernest Wynder and others of the Sloan-Kettering Institute.

95. Wynder’s experiments with mice confirmed the cancer-causing properties of cigarettes.

96. The widespread reporting of these studies caused what cigarette company officials called the "Big Scare."

97. By late 1953 the Big Scare had caused a decrease in consumption of tobacco products and in the stock prices of many of the Tobacco Companies.

98. The cigarette industry responded quickly to the Big Scare.

99. On December 14, 1953, in the direct aftermath of the Wynder study and the public concern over it, Brown & Williamson president Timothy V. Hartnett circulated a memorandum to his counterparts at other defendant Tobacco Companies and set out his proposals on how the industry should collectively deal with the "health issue."

100. Hartnett proposed a two-pronged collective response to his competitors "to get the industry out of this hole."

101. Hartnett proposed that the industry ostensibly offer "unstinted assistance to scientific research." The most difficult part of the "research" effort would be "how to handle significantly negative research results if, as, and when they develop."

102. Hartnett urged that the industry obtain "the best obtainable" public-relations counsel since none "has ever been handed so real and yet so delicate a multimillion dollar problem." (Emphasis in original.)

103. The next day, December 15, 1953, accepting Hartnett’s offer to conspire, the presidents of the leading Tobacco Companies met at an extraordinary gathering in the Plaza Hotel in New York City. The public relations firm Hill & Knowlton coordinated the meeting and was to play a major role in formulating and executing the industry’s response. Present at the meeting were the presidents of American Tobacco, Benson & Hedges, Brown & Williamson, Lorillard, Philip Morris, R.J. Reynolds and U.S. Tobacco.

104. This gathering was unprecedented because it was the first time the Tobacco Companies had met together outside of occasional dinners.

105. According to a Hill & Knowlton memorandum summarizing the meeting, the companies exchanged proprietary information and "voluntarily admitted" that "their own advertising and [past] competitive practices have been a principal factor in creating a health problem," and acknowledged that they had "informally talked over the problem and will try and do something about it." (Emphasis added).

106. Defendants realized that the subject of doing something collectively about competitive advertising practices "is one of the important public relations activities that might very clearly fall within the purview of the antitrust act." Therefore, the defendants 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.)

107. At the Plaza Hotel meeting, the defendants entered into a combination and conspiracy to cease to compete on the basis of relative health risks.

108. Prior to the December 15, 1953 meeting, the cigarette industry did not have a trade association. Moreover, the companies avoided formal business meetings of any kind in the wake of prohibitions stemming from a 1911 dissolution decree and criminal convictions for price fixing in 1939.

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

110. The agreement reached at the Plaza Hotel, to conceal adverse information and to refrain from competition on the basis of health, became a permanent fixture of defendants’ future relationship.

111. 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.)

112. The course of conduct agreed to at the December 15, 1953 meeting included but was not limited to:

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

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

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

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

113. Nine days later, Hill & Knowlton presented a memorandum detailing its recommendation to the Tobacco Companies. The memorandum 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."

114. John Hill suggested that the word "research" be included in the name of the Committee. An organization designed to pursue a very delicate "public relations function" was given the intentionally misleading name of the "Tobacco Industry Research Committee."

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

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

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

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

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

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

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

D. The Industry Pledges to Conduct Unbiased Scientific Research to "Safeguard the Public Health"

120. As the initial step of the conspiracy, the Tobacco Industry announced the formation of the TIRC on January 4, 1954, with newspaper advertisements nationwide, reaching a circulation of more than 43 million Americans. This ad appeared in newspapers circulated throughout Vermont. The advertisement was captioned "A Frank Statement to Cigarette Smokers" and was run under the auspices of the TIRC.

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

122. 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 these charges have been abandoned for lack of evidence.

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

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

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

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

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

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

123. By issuing this publication and others that followed, the industry affirmatively represented that it would conduct and disclose unbiased and authenticated research on the health risks of cigarette smoking. When they made these representations, defendants intended that the public and government regulators believe and rely upon it.

124. The issuance of the "Frank Statement" was an integral step in the conspiracy to suppress and conceal information that might reduce the Cartel’s sale of tobacco products.

E. Repeated False Promises to the Public

125. Despite increasing internal knowledge of the undisclosed dangers of cigarette smoking, defendants continued, renewed and repeated the representations and undertakings of the 1954 "Frank Statement to Cigarette Smokers." The cigarette industry continued to falsely represent the objectivity of industry research to the public to gain credence on the one hand while misrepresenting, distorting and suppressing information to support its pro-cigarette position on the other.

126. Countless other public statements issued by the Tobacco Industry through the TIRC, the CTR and the Tobacco Institute repeated several themes: (1) that the industry was working to report the full and complete truth concerning tobacco and health, (2) that those working on reporting the truth were "independent" scientists and (3) that the results of this independent research cast grave doubt on any study linking tobacco use with health problems. For example:

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

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

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

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

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

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

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

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

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

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

i. The Tobacco Institute, the cigarette industry’s lobbying group, in the 1960’s again confirmed and acknowledged the industry’s "special responsibility" to report the truth:

The tobacco industry supports and cooperates with all responsible efforts to find the facts and bring them to the public.

* * *

We know we have a special responsibility to help scientists determine the facts about tobacco use and health.

The industry accepted this responsibility in 1954 by establishing the Tobacco Industry Research Committee to provide research grants to scientists in recognized research institutions. This research program is continuing on an expanded and intensified scale.

j. This "special responsibility" was also recognized in additional statements issued by the TI. For example, the TI stated:

Serious charges have been made about tobacco use.

The tobacco industry has taken these charges seriously.

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

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

* * *

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

k. On or about December 1, 1970, the TI issued a release entitled "The question about smoking and health is still a question." According to the release, "eminent scientists" question "whether any causal relationship has been proven between cigarette smoking and human disease." As for the research effort, the release asserted, "a major portion of this scientific inquiry has been financed by people who know the most about cigarettes and have a great desire to learn the truth . . . the tobacco industry. And the industry has committed itself to this task in the most objective and scientific way possible." (Emphasis added.) The CTR continued to support research by "independent scientists," the release claimed, and all of their work has been published. The release concluded with the following promises:

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

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

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

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

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

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

* * *

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

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

n. In 1977, Addison Yeaman, chairman and president of CTR, stated during a speech that "[CTR] has no propaganda function of any kind or any degree."

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

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

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

p. The 1979 report referred to above describes how the industry has spent $82 million in research "into all phases of tobacco use and health." Further the report proclaimed that "the findings are not secret" and reaffirmed the commitment to the tobacco industry:

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

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

q. On information and belief, in or about 1984 the Tobacco Industry jointly issued "Another Frank Statement to Smokers." In this modern version the industry claimed that "the intervening years have brought a stream of conflicting and confusing publicity about tobacco use, especially cigarette smoking, in relation to health." The Tobacco Industry then decided to "set forth the facts" which included the following:

1. Compelling doubts have been raised about some interpretations of the statistics relating to smoking and health.

2. Laboratory and clinical findings have failed to establish the charges of a causal relationship between smoking and lung cancer. Experiments conducted in various institutions with animals inhaling tobacco smoke have consistently failed to show any lung cancer causation from the smoke.

3. The cause or causes of lung cancer remain undetermined and a large number of possible factors, including occupational exposures, specific air pollutants, nutrition and many others, are under continuing study.

4. Definite conclusions are not warranted by the present state of knowledge about this complex disease.

* * *

The cause of cancer remains today as much a mystery as ever. Until the questions now raised about tobacco are solved, the Tobacco Industry Research Committee will continue to support independent scientific research into all phases of tobacco use and health.

At its formation in January 1954 the Tobacco Industry Research Committee stated:

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

‘We are pledging aid and assistance to the research effort into all phases of tobacco use and health.’

We reaffirm that statement and pledge today.

127. Additional representations were made by the individual Tobacco Companies themselves repeating the promise that they would investigate and report all facts relating to smoking and health.

128. For example, the American Tobacco Co. (ATC) made the following representations:

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

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

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

d. On June 4, 1963, ATC issued a release, quoting Dr. Robert Heiman, assistant to the president and prime author of studies refuting any link between smoking and health. In the release, Heiman claimed that workers for the company smoked twice as much as the average person while having a mortality rate of 29 percent below average.

e. On October 3, 1963, ATC again issued a release, this time citing Heiman for proof that the statistical association between smoking and lung cancer is "fallacious" and leads to "absurd consequences." (Emphasis added.)

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

The tobacco industry supports more scientific research into the problems than any other source. . . .

According to the 1967 release, "The tobacco industry continues to endure unfair and unjustified harassment from government and private sources." Finally, the release asserted, "the cold hard fact remains that no clinical or biological evidence has been produced which demonstrates how cigarettes relate to cancer or any other disease in human beings."

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

130. In 1984, RJR placed an editorial-style advertisement in the New York Times stating:

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

131. In 1988, after the Cipollone v. Lorillard trial, Lorillard issued a press release on behalf of the industry, summarizing the evidence introduced during the trial. The release reaffirmed that the industry "has funded independent research" to determine the cause of smoking and cancer and "has communicated the results of that and other research, whether they cast a favorable or unfavorable light on tobacco, to the scientific community, the public and the government."

132. According to Lorillard, documents introduced at the trial contained "no evidence whatsoever that the companies suppress any information or that they conspired among themselves to confuse the public about smoking and health."

133. Brown & Williamson was responsible for "Project Truth", an operation consisting of articles and releases about the "smoking/health controversy." Project Truth took issue with reports linking tobacco use and smoking, in part because certain of these studies use laboratory techniques such as painting the backs of mice with nicotine concentrates. While Project Truth was ongoing, internally BATCO was conducting a project confirming the validity of linking smokers and cancer through the use of skin-painting tests.

134. In 1991, RJR issued a publication again reaffirming the work of the industry in funding and fully reporting the results of research.

135. The TI, through its executives, also sought to influence the government by using defendants’ deceptive representations concerning tobacco and health. For example, in 1972, Tobacco Institute president Horace Kornegay testified before Congress:

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

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

136. Each of the representations to the public — that defendant Tobacco Companies were sponsoring independent objective research, that they were endeavoring to bring the truth to light, and that the public could therefore rely upon the statements made — were deceptive.

137. These misrepresentations were designed to gain the trust of the public and public-health authorities to better distort and suppress substantive information about smoking and health.

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

138. Industry executives and lawyers, both in-house and outside counsel, actually ran the TIRC. They, along with public relations counsel, "provided assistance in selecting" the Scientific Advisory Board of the TIRC.

139. The TIRC and CTR, as part of the conspiracy, influenced media and scientific reports to cloud the issue of smoking and health and to suppress all harmful information.

140. An April 1962 memorandum of Hill & Knowlton reveals the real purpose of the TIRC: "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."

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

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

* creating doubt about the health charge without actually denying it

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

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

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

142. A 1974 report to the CEO of Lorillard from a research executive described CTR’s scientific projects as having not been selected using specific scientific goals, but rather for various purposes such as public relations, political relations and position for litigation.

143. The falsity of the "independent research" being conducted by the CTR is revealed by the following internal Philip Morris memo:

It has been stated that CTR is a program to find out ’the truth about smoking and health.’ What is truth to one is false to another. CTR and the Industry have publicly and frequently denied what others find as ‘truth.’ Let’s face it. We are interested in evidence which we believe denies the allegation that cigaret smoking causes disease. If the CTR program is aimed in this direction, it is in effect trying to prove the negative, that cigaret smoking does not cause disease. Both lawyers and scientists will agree that this task is extremely difficult, if not impossible.

144. In a December 6, 1977 letter, the President of American Brands wrote Addison Yeaman of the CTR reminding Yeaman that the 1954 Frank Statement constituted a "pledge to the public’s of independent research." According to the author, "contract research," i.e., research carefully selected by the CTR, which had been the modus operandi of the TIRC and CTR, violated this pledge.

145. A 1978 memo addressed to the CTR file from a Philip Morris official characterized CTR as "an industry ‘shield.’" The memorandum goes on to state: "the ‘public relations’ value of CTR must be considered and continued . . . It is extremely important that the industry continue to spend their dollars on research to show that we don’t agree that the case against smoking is closed for ‘PR’ purposes . . . ."

146. In a "personal and confidential" memo, T.S. Osdene of Philip Morris recommended that the company review its relationship to the CTR. He criticized the statements of D. Ford, a CTR staffer, concerning the similarity of nicotine and opiates.

147. Osdene also criticized the work of CTR staffer Dr. Kreisher because it "starts from the point of view that smoking causes lung cancer." With this type of research, Osdene wrote, "we are digging our own grave. I believe that the program as set up has the potential of great damage to the industry . . . I am very much afraid that the direction of the work being taken by CTR is totally detrimental to our position and undermines the public posture we have taken to outsiders."

148. T.S. Osdene recently refused to testify about his work on the CTR by invoking the Fifth Amendment.

149. A June 25, 1981 presentation by the TI staff to the TI Executive Committee, comprised of members of the major tobacco companies, made clear the industry’s strategy in suppressing and misrepresenting the state of scientific research. "First and most important," the presentation stressed, "we must establish that there is no proof that smoking harms smokers or nonsmokers."

150. This presentation reiterated the strategy that had been followed by the industry for years.

151. On February 18, 1982, the TI published a review of the scientific evidence regarding smoking and cancer. The materials challenged any link between smoking and cancer. According to a TI press release on the review, the findings "raise serious question about the link between smoking and cancer." This publication was a direct result of the industry’s strategy as outlined at the June 25, 1981 meeting.

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

153. An industry official described in his personal notes a meeting that included high level officials from various Tobacco Companies: "CTR is the best & cheapest insurance the tobacco industry can buy and without it the Industry would have to invent CTR or would be dead."

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

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

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

155. In fact, CTR-sponsored research projects were directed away from research that might add to the evidence against the use of tobacco products. When CTR-sponsored research did produce unfavorable results, the information was distorted or simply suppressed.

156. For example, Dr. Freddy Homburger, a researcher in Cambridge, Massachusetts, undertook a study of smoke exposure on hamsters. According to Dr. Homburger, he received a grant from CTR that was changed half-way through the study to a contract "so they could control publication — they were quite open about that."

157. Dr. Homburger has testified that when the study was completed in 1974, the scientific director of CTR and a CTR lawyer "didn’t want us to call anything cancer" and that they threatened Dr. Homburger with "never get[ting] a penny more" if his paper were published without deleting the word cancer.

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

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

159. Other internal industry documents also shed light on the true nature of the Tobacco Industry associations, as the following quotations demonstrate by way of example:

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

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

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

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

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

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

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

160. 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.

161. As one industry representative testified: "[A company can’t represent that] smoking doesn’t cause cancer. You can’t say that. But you can say it is a risk factor, and scientifically it hasn’t been established. And that’s what the research is for. . . . I don’t agree [that nicotine is addictive]. From what I’ve read on nicotine is that it contributes to the flavor, the taste of the product." (Emphasis added.)

162. These representations are misleading, unfair and deceptive. They are also a result of the industry’s ongoing conspiracy and combination arising from the Plaza Hotel agreement, and are made to maintain the industry’s market and profits from its product.

G. The Role of CTR "Special Projects" and Industry Lawyers in Concealing Information

163. In 1964, the year of the first Surgeon General’s report on smoking, the CTR formed a "Special Projects" division to assist the industry in concealing unfavorable information. A series of research grants designated as CTR Special Projects were developed by defendants to enable them to improperly assert the protection of the attorney-client or attorney-work product privilege.

164. The true purpose of the Special Projects division was to conceal damaging research regarding the links between smoking and disease and to develop a number of expert witnesses for defense purposes in tort suits against the Tobacco Industry.

165. Consistent with this purpose, the Tobacco Industry’s counsel were substantially involved in strategic and specific decision-making within the Special Projects division to withhold dangerous evidence from the public.

166. 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."

167. 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."

168. 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.

169. Special Projects was not the only instance where the industry used lawyers to shield the truth. For example, in 1984, B.A.T. began internally plotting how to shield documents produced by scientists from discovery. This plan included having B.A.T.’s "scientific literature review publication . . . set up as a Law Department function."

170. B.A.T. internally noted that "Direct lawyer involvement is needed in all B.A.T. activities pertaining to smoking and health from conception through every step of the activity." B.A.T.’s efforts to suppress adverse scientific information was being frustrated because "[t]he problem posed by BAT scientists and frequently used consultants who believe cause is proven is difficult." (Emphasis added.)

171. The Kansas City law firm of Shook, Hardy & Bacon, which represented a number of the defendants, and other Tobacco Industry lawyers played a critical role in furthering the conspiracy to suppress and conceal information about the adverse health effects caused by the use of tobacco products. The lawyers attempt to protect damaging tobacco-related documents from disclosure under the attorney-client or work-product privileges.

172. The lawyers assert these privileges regardless of whether the documents were prepared in anticipation of litigation or represented confidential communications made between lawyer and client. Lawyers routinely provided a number of non-legal services to defendants such as deciding which CTR "special projects" should receive funding, dispensing funding to the "scientists" involved in such projects, and designing the scope and approach of the special project.

173. Shook, Hardy & Bacon undertook to coordinate the Tobacco Companies’ CTR "special projects" subterfuge.

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

175. In addition, a May 19, 1981 letter from Ernest Pepples, vice president and general counsel of Brown & Williamson, to Patrick Sirridge of Shook, Hardy & Bacon requests that Sirridge evaluate the qualifications of various scientists seeking to conduct scientific studies for Brown & Williamson. Shook, Hardy responded by providing biographical sketches of potential consultants including whether they previously had taken a scientific position favorable to the industry’s position.

176. Sirridge also cooperated with Pepples’ request in 1984 to transfer the funding of some helpful research by a cooperative scientist from a CTR account to a law-firm project: "I do not think . . . that we should continue burdening CTR with such programs, and instead suggest that they be handled as law firm projects."

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

178. By becoming involved in the funding and design of these scientific studies, these lawyers attempted to further the conspiracy and fraud of the Tobacco Companies and CTR by clothing such studies in the attorney-client or work- product privilege to protect them from disclosure if their results were unfavorable.

179. Brown & Williamson used similar tactics in-house to suppress and avoid disclosure of its internal research on smoking and disease.

180. At a time when the company was resisting discovery in a number of personal injury lawsuits, Brown & Williamson’s general counsel, J. Kendrick Wells, recommended in a memorandum dated January 17, 1985, that most of the company’s biological research be declared "deadwood" and shipped to England.

181. Wells recommended that no notes, memoranda or lists be made about these documents. Wells stated, "I had marked certain of the document references with an X . . . which I suggested were deadwood in the behavioral and biological studies area. I said that the "B" series are "Janus" series studies and should also be considered as deadwood." ("Janus" was the name of a project that attempted to isolate and remove the harmful elements of tobacco.) Wells further recommended that the research, development and engineering department also should undertake "to remove the deadwood from the files."

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

H. The Continuing Conspiracy to Restrain Trade

1. The "Gentlemen’s Agreement"

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

184. As part and in furtherance of the agreement not to compete to develop a "safer" cigarette, there was a "gentlemen’s agreement" among the manufacturers to suppress independent research on the issue of smoking and health, for the purpose and with the effect of restricting product development.

185. On information and belief, market demand for safer tobacco products was increasing.

186. Despite this increasing demand, the Tobacco Companies agreed not to market any safer or alternative products.

187. This output-reduction conspiracy was effected by suppressing independent research and policing violators, as described below.

188. The "gentlemen’s 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." (Emphasis added.) This memo stated 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."

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

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

190. An internal Imperial Tobacco Company memorandum acknowledges that the tobacco companies had agreed to not compete on the basis of health: "It has always been agreed that smoking and health is not a proper field for commercial competition."

191. Defendants’ activities in furtherance of the output-restriction/non- competition combination included restraining, suppressing and concealing research on the health effects of smoking, including the addictive properties of tobacco products, and restraining, concealing and suppressing the research and marketing of "safer" cigarettes.

192. Despite the ability to produce "safer" cigarettes, the defendants did not market such products, except in limited test markets because it was understood within the combination that no company would characterize or promote a product as biologically "safer."

193. Defendants policed their agreement not to compete internally and externally.

194. U.S. Tobacco, went so far as to terminate an employee and apologize to the other defendant 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." (Emphasis added.)

195. This action by U.S. Tobacco is consistent with the agreement among defendants not to compete on the basis of safety and health.

196. In response to perceived growing demand, several companies researched the possibility of marketing "safer" (less harmful to humans) cigarettes.

197. As indicated by the 1968 Philip Morris memo, it was believed within the industry that individual companies were performing certain research on their own, in addition to the joint industry "research." Some members of the Tobacco Industry viewed the strengthening demand for safer and alternative products as a potential future marketing opportunity. But the fundamental understanding and agreement remained: That information and activities deemed harmful to the unified, defensive posture of the industry or inconsistent with the non-competition conspiracy would be restrained, suppressed, and/or concealed.

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

2. Suppression of Liggett’s "Safer" Cigarette

199. Liggett was successful in researching and actually developing a less-biologically-active cigarette.

200. However, in response to the threat of retaliation from other members of the Tobacco Industry, Liggett agreed not to market this product.

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

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

203. Liggett abandoned its XA project in part because it faced retaliation from industry leader Philip Morris if Liggett broke ranks.

204. Another reason for abandoning the project was fear that the marketing of a "safer" cigarette would be, in essence, a confession that its (and the industry’s) other cigarettes were not safe. Thus, one Liggett executive wrote that, "Any domestic activity will increase risk of cancer litigation on existing products."

205. 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. . . ." (Emphasis added.)

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

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

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

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

206. Brown & Williamson also developed "safer" cigarettes, which it did not market despite promising test results because, among other reasons, such efforts would violate the output-restriction conspiracy.

207. 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.

208. Jeffrey Wigand, a former vice president for research and development for Brown & Williamson, has stated that he was instructed by the company president to abandon all efforts to develop a safer product. He has testified that he was told, generally, "That there can be no research on a safer cigarette. Any research on a safer cigarette would clearly expose every other product as being unsafe and, therefore, present a liability issue in terms of any type of litigation."

209. Brown & Williamson also conducted research on tobacco substitutes or analogues. These substitutes were sought as a means to duplicate some of the effects of nicotine without toxic or harmful effects.

210. For example, Brown & Williamson’s parent B.A.T. 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.

211. In 1980, B.A.T. and Brown & Williamson abandoned the "safer" product search: "Dangerous area [research into irritation and smoke inhalation]. Please do not publish or circulate. No more work is needed on biological side." (Emphasis added.)

212. Despite increasing market demand, such innovative products were not marketed by B.A.T. and Brown & Williamson because of the agreement not to compete; i.e. to restrict output of alternative or safer products.

213. According to Brown & Williamson internal documents, no other member of the conspiracy broke ranks by competitively marketing products with improved biological performance despite individual competitive reasons for marketing such product. One such document states "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

214. Philip Morris also explored research to develop cigarettes that were "safer" or, in the words of one memorandum to the board of directors, had "superior physiological performance." This memorandum noted competitive pressures to produce "less harmful" cigarettes. However, the memorandum was careful to state that, "[o]ur philosophy is not to start a war, but if war comes, we aim to fight well and to win."

215. Philip Morris never broadly marketed such a safer cigarette. Its documents recognize the strong market demand and state that "after much discussion we decided not to tell the physiological story which might have appealed to a health conscious segment of the market. The product as test marketed didn’t have good taste and consequently was unacceptable to the public ignorant of its physiological superiority." (Emphasis added.)

216. Subsequently, taste was improved, and Philip Morris attempted to promote the product. However, "The imposition of FTC rules and the industry advertising code took the starch out of the program . . . ." (Emphasis added.)

5. Reynolds’s "Safer" Product

217. Reynolds also developed an alternative product that had reduced physiological consequences. Except for a brief test in several cities, Reynolds did not market its safer product, "Premier," because of the agreement to not market such products.

6. The Industry Position on "Safer" Cigarettes

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

219. A memorandum authored by an attorney at Shook, Hardy c