Attorney No. 99000

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS

COUNTY DEPARTMENT - LAW DIVISION

PEOPLE OF THE STATE OF ILLINOIS,

Plaintiff,

vs.

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

Defendants.

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No.

Jury Demand

COMPLAINT FOR INJUNCTIVE RELIEF, DAMAGES,

RESTITUTION, DISGORGEMENT, PENALTIES AND OTHER RELIEF

TABLE OF CONTENTS

I.INTRODUCTION

A.The Defendants' Unlawful Conduct

B.The Damages Caused By Defendants’ Unlawful Conduct

1. Health care costs

2. Targeting minors in violation of state law

C.The Objectives of This Action

II.JURISDICTION AND VENUE

III.THE PARTIES

PLAINTIFF

DEFENDANTS

IV.CONSPIRACY ALLEGATIONS

V.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.Representations and Special Undertakings by the Industry

E. Repeated False Promises to the Public

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

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

H.Beyond 1953: 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. Phillip Morris: Avoiding an Industry War

5. Reynolds' Safer Product

6. The Industry Position on "Safer" Cigarettes

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

8. Suppression of Philip Morris Research on Nicotine Analogues

I.History of Industry Knowledge that Smoking is Harmful

J.Industry Knowledge of the Addictive Nature of Nicotine

1.Industry Statements and Documents Reveal the Tobacco Companies' Long-Standing Knowledge that Nicotine is a Powerful and Addictive Drug

2.Long-Standing Industry Awareness of the Difficulty Smokers Have in Quitting Underscores the Tobacco Companies' Knowledge of Addiction

K.Suppression and Concealment of Research on Nicotine Addiction

L.The Industry's Secret Manipulation of Nicotine Levels

1.Tobacco 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. The Use of Appealing Images

3. Use of Youth Oriented Locations for Promotional and Advertising Materials

4. Reynolds: "Old Joe Camel"

5. U.S. Tobacco: "Old Enough to Chew"

6. Phillip Morris: Competing for the Minor Market

7. Phillip Morris’ Admission that it has Targeted Minors

N.Smokeless Tobacco Products:

Addition Through the "Graduation Process"

O.The Human Toll of Cigarette Smoking

1. Health Effects of Cigarette Smoking

2.Health Effects of Smokeless Tobacco Products

P.The Injury to the State of Illinois as a Direct and Foreseeable Consequence of Defendants' Unlawful Conduct

Q.Fraudulent Concealment

VII.CLAIMS FOR RELIEF

COUNT 1

(Violation of 815 ILCS 505/2)

UNLAWFUL MARKETING AND TARGETING MINOR

COUNT 2

(Violation of 815 ILCS 505/2)

CONTRIBUTING TO THE DELINQUENCY OF CHILDREN

COUNT 3

(Violation of 815 ILCS 505/2)

UNFAIR AND DECEPTIVE ACTS OR PRACTICES

COUNT 4

Unreasonable Restraint of Trade Under the

Illinois Antitrust Act, 740 ILCS 10/3(2)

[Equitable Relief Under 740 ILCS 10/7(1) & (4)]

COUNT 5

Unreasonable Restraint of Trade Under the

Illinois Antitrust Act, 740 ILCS 10/3(2)

[Treble Damages and Equitable Relief Under 740 ILCS 10/7(2)]

COUNT 6

BREACH OF ASSUMED DUTY

COUNT 7

PERFORMANCE OF ANOTHER'S DUTY TO THE PUBLIC

COUNT 8

NEGLIGENCE PER SE

COUNT 9

PUBLIC NUISANCE

COUNT 10

CONSPIRACY

COUNT 11

UNJUST ENRICHMENT/RESTITUTION

I. INTRODUCTION

1. The People of the State of Illinois, through Attorney General James E. Ryan, bring this action for monetary damages, civil penalties, declaratory and injunctive relief, restitution, and disgorgement of profits.

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

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

A.The Defendants' Unlawful Conduct

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B.The Damages Caused By Defendants’ Unlawful Conduct

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

C.The Objectives of This Action

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

II. JURISDICTION AND VENUE

18. This complaint is filed and these proceedings are instituted under the provisions of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq., the Illinois Antitrust Act, 740 ILCS 10/1 et seq., and the common law of the State of Illinois.

19. Authority for the Attorney General to commence this action for injunctions, mandatory injunctions, damages, restitution, disgorgement, civil penalties, attorneys' fees, and such other relief as the Court deems proper, is conferred by, inter alia, 740 ILCS 10/7 and 815 ILCS 505/7.

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

21. The amount in controversy exceeds $30,000.

III. THE PARTIES

PLAINTIFF

22. This action is brought for and on behalf of the People of the State of Illinois, by James E. Ryan, Attorney General of the State of Illinois, pursuant to the provisions of the Illinois Antitrust Act (740 ILCS 10/1 et seq.), Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq.), and his common law authority as Attorney General to represent the People of the State of Illinois.

DEFENDANTS

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

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

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

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

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

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

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

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

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

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

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

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

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

IV. CONSPIRACY ALLEGATIONS

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

V. FACTUAL ALLEGATIONS

A. Background

37. Today, 50 million Americans smoke and, according to current trends, 22% of adult Americans will still be smokers in 2000. In the latter half of the 20th century, some 10 million Americans have been killed by cigarette disease. This year (and every year into the foreseeable future), nearly half a million Americans will die prematurely due to disease caused by cigarette smoking. Based upon current smokingtrends, of the American children alive today, more than 5 million will be killed by cigarette disease during the 21st century. In 1993, 19,269 Illinois residents died from smoking related causes.

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

39. Several factors account for the persistence of cigarette smoking. First, largely 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. Second, the long latency period between smoking initiation and disease contraction masked the causal relationship for decades. Third, cigarettes contain large amounts of nicotine, an extraordinarily addictive substance, which makes it difficult for a person to stop smoking. Fourth, the Tobacco Industry has conspired not to compete on the basis of relative health risk, to restrict output in safer and alternate products, and to create confusion as to whether smoking is really harmful and to make it appear that there is a legitimate good faith scientific dispute over the health impact of smoking, while presenting cigarette smoking in an attractive, youthful and positive way --concealing all the while that the product is, in fact, highly addictive and unquestionably dangerous.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

52. 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 problemand will try and do something about it." (Emphasis added). The defendants realized that the subject of doing something collectively about competitive advertising practices "is one of the important public relations activities that might very clearly fall within the purview of the antitrust act." In order to conceal their intentions to collectively restrain competition, they concluded, "it is doubtful that we will be able to make any formal recommendation with regard to the advertising or selling practices and claims." (Emphasis added.)

53. At the Plaza Hotel meeting, the defendants entered into a contract, combination and conspiracy to cease to compete on the basis of relative health risks, an agreement that is a violation of the Illinois Antitrust Act.

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

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

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

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

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

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

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

61. 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:

62. 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.

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

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

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

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

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

D.Representations and Special Undertakings by the Industry

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

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

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

E. Repeated False Promises to the Public

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

71. For example, 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."

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

73. 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."

74. 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.)

75. 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

H.Beyond 1953: The Continuing Conspiracy to Restrain Trade

1. The "Gentlemen's Agreement"

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

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

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

91. 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 Phillip Morris.

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

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

2. Suppression of Liggett's "Safer" Cigarette

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

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

96. 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 . . . ."

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

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

99. 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:

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

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

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

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

4. Phillip Morris: Avoiding an Industry War

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

5. Reynolds' Safer Product

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

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

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

6. The Industry Position on "Safer" Cigarettes

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

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

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

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

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

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

8. Suppression of Philip Morris Research on Nicotine Analogues

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

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

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

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

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

I.History of Industry Knowledge that Smoking is Harmful

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

118. As early as 1946, Lorillard chemist H.B. Parmele, who later became Vice President of Research and a member of Lorillard's Board of Directors, wrote to his company's manufacturing committee:

Certain scientists and medical authorities have claimed for many years that the use of tobacco contributes to cancer development in susceptible people. Just enough evidence has been presented to justify the possibility of such a presumption.

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

120. Internal cigarette industry documents reveal, for example:

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

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

123. Philip Morris also concealed from the public its actual views of the research conducted outside the influence of the industry. A 1971 memorandum written by Dr. H. Wakeham, then Vice President of Research and Development, discussed a recent study which found cigarette smoke inhalation caused lung cancer in beagles:

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

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

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

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

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

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

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

128. Brown & Williamson, like the other manufacturers, was aware early on of the dangers of cigarettes. Indeed, a Brown & Williamson review of publishedstatistical research, including the 1952 report by Dr. Doll, noted that the studies offered "frightening testimony from epidemiological studies."

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

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

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

132. Yeaman wrote in a 1963 analysis that:

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

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

135. Subsequently, Brown & Williamson continued to conduct and conceal biological research. Some of these research projects confirmed causation.

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

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

J. Industry Knowledge of the Addictive Nature of Nicotine

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

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

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

(Emphasis added.)

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

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

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

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

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

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

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

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

149. More than three decades ago, in 1961, a presentation by Dr. Helmut Wakeham, a senior Philip Morris research scientist, to the company's Research and Development Committee noted that:

150. Dr. Wakeham also noted that "nicotine is believed essential to cigarette acceptability," a view later restated by William Dunn, Jr., another high-ranking Philip Morris official. In summarizing a 1972 conference sponsored by the Council for Tobacco Research, Dr. Dunn reported:

151. After describing "the physiological effect" as "the primary incentive" for smoking, Dr. Dunn continued:

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

153. In a research paper funded by the CTR, reporting on the "beneficial" pharmacological effects of nicotine in cigarettes, the authors said:

154. Many other industry documents refer to the central role of nicotine's drug effects for smokers and, therefore, for the industry. Nicotine is repeatedly identified as a primary reason consumers smoke or use other nicotine-containing products. A "Proposal for Low Delivery Project for B&W" prepared by a marketing firm by B&W in the late 1970's contained the following statement that a sufficient dose of nicotine is essential to sell cigarettes and, implicitly, to maintain market share based on nicotine addiction:

155. A 1976 BATCO Conference on Smoking Behavior further underscores tobacco industry researchers' awareness of the fundamental importance (to the huge majority of smokers) of nicotine's effects on the brain:

156. In 1988, during the case Cipollone v. Liggett, Joseph Cullman III, former CEO of the Philip Morris Tobacco Company, testified as follows:

157. A memorandum from a Philip Morris official in 1980 confirms the company's view that nicotine's pharmacological effects on the central nervous system are critical to the tobacco industry's success:

158. Despite the 1994 sworn testimony of tobacco CEOs that nicotine is not addictive, it is clear that high-ranking tobacco company officials have repeatedly acknowledged that nicotine is addictive and that this is the reason why people use tobacco.

159. The smokeless tobacco industry also recognizes that almost all consumers use tobacco products to obtain the pharmacological effects of nicotine. The senior vice-president for marketing of U.S. Tobacco wrote in a 1981 letter on new product development:

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

161. The Tobacco Companies are aware of the large number of smokers who have tried to quit using tobacco, and of the very small number who actually succeed. The evidence known to the Tobacco Companies about smokers' unsuccessful attempts to quit shows that the Tobacco Companies know that a large percentage of their market consists of people who demonstrate one of the characteristic features of addiction.

162. The great difficulty smokers experience when they try to quit was conceded by Joseph F. Cullman, III, the former chief executive officer of Philip Morris. Mr. Cullman was called as a witness in the Cipollone lawsuit and gave the following answers in response to questions from one of the plaintiff's attorneys:

163. A presenter responsible for summing up the results of cessation studies at a 1984 BATCO conference agreed that, while a large percentage of smokers do not want to smoke, most of those smokers feel compelled to continue to smoke:

It was thus well known to the participating companies that a very large percentage of their customers were smoking not out of choice but because they could not quit.

164. Other companies also understand that many of their consumers would like to quit but are unable to do so. A Philip Morris researcher who studied a "cold turkey" campaign in the small Iowa town of Greenfield in 1969 reported that those who succeed in quitting smoking over the long term are a much smaller group than those who would like to quit and who attempt to quit. The researcher cited the findings of Hunt and Matarazzo in proposing that most attempts to quit smoking are not long-lasting: "[I]n summarizing many reports of long-term quitting using various techniques, [the authors] show that the percentage of nonrecidivists [successful quitters] decreases as a function of time . . . in a negatively accelerated fashion." The Philip Morris researcher found that in Greenfield only 28% of those smokers who agreed to quit as part of the cold turkey campaign were still not smoking after 7 months. The researcher then observed that the small number of Greenfield residents who managed to stay off cigarettes for more than 7 months was, based on other published reports of success rates for quitting smoking, about average.

165. The researcher also described findings that revealed in part why it is so hard for smokers to quit. He reported that smokers who quit for more than 7 months continued to suffer a variety of adverse effects related to quitting, including weightgain, restlessness, depression, ill-temper, constipation, nervous mannerisms, and loss of energy. These are some of the classic symptoms of nicotine withdrawal, described earlier.

166. Market research documents also show that the Tobacco Companies have conducted research in quitting behavior and have documented the reasons why people quit and why they fail to quit, despite a desire to do so. A market research firm reporting on a survey of smokers' views about the health implication of smoking observed that:

Another market research firm reported its findings about the inability of young smokers to quit when they want