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 to:

167. The fact that many smokers smoke even though they do not enjoy smoking is conceded in a candid marketing research document prepared for Imperial Tobacco Ltd., which reported that it is particularly difficult to sell cigarettes by "trading on the positives" because the industry is "vexed by the unique problem that users of the category do not necessarily like the product." Another document reports that many smokers of ultra-low tar and nicotine cigarettes want to quit and "refer to their behavior in terms of +satisfying a craving+ while smokers of stronger cigarettes talk about taste and satisfaction."

168. In summary, the Tobacco Companies' data show that users find it extremely difficult to quit smoking and that many tobacco users would quit if theycould. Their data also show that, of those smokers who try to quit, only a small percentage succeed permanently. Consequently, tobacco manufacturers are aware that the large percentage of their customers who try to quit but fail continue to buy and use tobacco products, in large part to satisfy their dependence on nicotine-containing tobacco. Despite this overwhelming knowledge, the defendants have misrepresented and suppressed the truth regarding nicotine and addiction. Instead, they have falsely claimed that this is simply a matter of individual choice.

K.Suppression and Concealment of Research on Nicotine Addiction

169. Defendants, rather than fulfilling their promise to the public to disclose material information about smoking and health, chose a course of suppression, concealment, and disinformation about the true properties of nicotine and the addictiveness of smoking.

170. For example, Philip Morris hired Victor DeNoble in 1980 to study nicotine's effects on the behavior of rats and to research and test potential nicotine analogues. DeNoble, in turn, recruited Paul C. Mele, a behavioral pharmacologist. DeNoble and Mele discovered that nicotine met two of the hallmarks of potential addiction -- self-administration (rats would press levers to inject themselves with a nicotine solution) and tolerance (a given dose of nicotine over time had a reduced effect).

171. However, Philip Morris instructed DeNoble and Mele to keep their work secret, even from fellow Philip Morris scientists. Test animals were delivered at dawn and brought from the loading dock to the laboratory under cover.

172. DeNoble was later told by lawyers for the company that the data he and Mele were generating could be dangerous. Philip Morris executives began talking of killing the research or moving it outside of the company so Philip Morris would have more freedom to disavow the results. DeNoble recalled that Philip Morris discussed several possible scenarios, including having DeNoble and Mele leaving the company payroll and continuing as contractors, and shifting their work to a lab in Switzerland.

173. In August 1983, Philip Morris ordered DeNoble to withdraw from publication a research paper on nicotine that had already been accepted for publication after full peer review by the journal Psychopharmacology. According to DeNoble, the company changed its mind because it did not want its own research showing nicotine was addictive or harmful to compromise the company's defense in litigation recently filed against it. DeNoble subsequently told Jack Heningfield, Ph.D., Chief of the Clinical Pharmacology Branch of the National Institute on Drug Abuse's Addiction Research Center, that Philip Morris officials had rightly interpreted the suppressed nicotine studies as showing that, in terms of addictiveness, "nicotine looked like heroin."

174. In April 1984, Philip Morris, apparently to ensure that DeNoble and Mele's nicotine research remained suppressed and concealed, told DeNoble and Mele that the lab was being closed. DeNoble an Mele were forced abruptly to halt their studies, turn off their instruments and turn in their security badges by morning. Philip Morris executives threatened them with legal action if they published or talked about their nicotine research. According to DeNoble, the lab literally vanished overnight. The animals were killed, the equipment was removed and all traces of the former lab were eliminated. DeNoble recalled, "The lab was gone, everything was gone. The cages were gone, the animals were all gone, all the data was gone. It was empty rooms."

175. DeNoble testified to the Waxman Subcommittee that "senior research management in Richmond, Virginia, as well as top officials at the Philip Morris Company in New York continually reviewed our research and approved our research." DeNoble also stated that these officials were specifically told about nicotine's addictiveness.

L.The Industry's Secret Manipulation of Nicotine Levels

176. Not content to conceal the addictive nature of nicotine, the industry has developed sophisticated technology to control the levels of nicotine in order to maintainits market and guarantee that its customers become and remain addicted. David A. Kessler, M.D., Commissioner of Food and Drugs, recently testified before a congressional committee that cigarette manufacturers can manipulate precisely nicotine levels in cigarettes, manipulate precisely the rate at which the nicotine is delivered in cigarettes, and add nicotine to any part of cigarettes.

177. Dr. Kessler testified that "the cigarette industry has attempted to frame the debate on smoking as the right of each American to choose. The question we must ask is whether smokers really have that choice." Dr. Kessler stated:

178. The Tobacco Industry has used techniques such as adding chemicals to increase nicotine potency. In general, by increasing the alkalinity, or smoke pH, of tobacco blends, the industry can deliver an enhanced "nicotine kick."

179. Particularly instructive on the issue of nicotine manipulation was the following FDA finding published in the FDA's August 1995 report Nicotine In Cigarettes and Smokeless Tobacco Products:

(Emphasis added.)

180. In particular, the FDA based its findings, in part, on the following:

1.Tobacco Leaf Growing

2.Leaf Purchasing

3. Leaf Blending

4. Additional Evidence of Nicotine Manipulation

181. Reconstituted tobacco is made from stalks and stems and other waste that cigarette companies used to discard and now use to make cigarettes more cheaply. On information and belief, ordinarily, reconstituted tobacco contains 25 percent or less of the nicotine in regular tobacco. A former RJR manager who demanded anonymity told the ABC news program "Day One," that on the average, currently marketed brands contain about 22 percent reconstituted tobacco and that cut rate or generic brands typically contain about double that amount.

182. A laboratory analysis commissioned by "Day One" and conducted by the American Health Foundation confirmed the industry's heavy use of reconstituted tobacco. One RJR brand had 25 percent and another had about 33 percent reconstitutedtobacco. Yet, tested samples of the reconstituted tobacco implanted in RJR brands, Winston, Salem, Magna and Now had up to 70 percent, rather than the expected 25 percent, of the nicotine that would be found in regular tobacco, indicating that RJR had fortified the reconstituted tobacco with additional nicotine.

183. On information and belief, reconstituted tobacco has inferior taste and less nicotine, so the cigarette manufacturers or their agents apply a powerful tobacco extract either alone or as part of a solution of flavorings to the reconstituted tobacco. RJR and the other cigarette manufacturers have the technology to add flavorings with or without nicotine, so the addition of nicotine to reconstituted tobacco is purely at the manufacturer's discretion.

184. The Kimberly-Clark tobacco reconstitution process is believed to be used throughout the tobacco industry in a number of countries. A Kimberly-Clark advertisement published in tobacco industry trade publications states:

185. Furthermore, the tobacco industry's own trade literature explains that the Kimberly-Clark process enables manufacturers to triple or even quadruple the nicotine content of reconstituted tobacco, thereby increasing the nicotine content of the final manufactured product.

186. Another enterprise quite explicitly specializes in the manipulation of nicotine and its use as an additive. This company does business under the name "The Tobacco Companies of the Contraf Group." An advertisement run by the Contraf Group in the international trade press states: "Don't Do Everything Yourself! Let usdo it More Efficiently!" Calling itself "The Niche Market Specialists," Contraf lists among its areas of specialization "Pure Nicotine and other special additives."

187. The cigarette industry has also used a process called "denaturing" to add nicotine to cigarettes. Nearly-pure nicotine is combined with alcohol and then applied to tobacco during the manufacturing process. Trucking records show that Philip Morris, for example, received thousands of gallons of this nicotine/alcohol mixture during the 1980s.

188. Against this mounting body of evidence of the cigarette industry's manipulation and control of nicotine levels in cigarettes, the cigarette manufacturers continue to deny to the public, and recently denied to Congress under oath, that they manipulate and control nicotine levels:

189. The cigarette industry's "taste" argument is belied by the testimony of health policy expert, Clifford E. Douglas, testifying before the FDA's Drug Abuse Advisory Committee, who asked "why so many smokers who have enduredtracheostomies due to throat cancer find it necessary to continue to smoke through the holes in their throats, where they cannot taste a thing."

190. The newly discovered evidence of nicotine manipulation by the cigarette industry and the recent disclosures about nicotine addiction and manipulation made before Congress have not deterred the industry from its campaign of concealment and disinformation. As recently as April 1994, the cigarette industry placed advertisements across the country denying that it "spikes" cigarettes with nicotine, denying that it believes cigarette smoking is addictive, and misleading the public about whether the cigarette companies deliberately control nicotine levels in their products.

191. An advertisement placed by Philip Morris in newspapers across the country in April 1994, denied that Philip Morris manipulates nicotine levels and stated that "nicotine level in the finished cigarette is lower than the nicotine level of the original, natural tobacco leaf."

192. RJR placed a similar advertisement in newspapers across the United States, including newspapers sold in Illinois, in 1994 mischaracterizing the "recent controversy" as focusing on RJR's various techniques that help us reduce the +tar+ (and consequently the nicotine) yields of our products."

193. These advertisements deliberately create the false impression that the "recent controversy" they refer to is about whether reconstituted and reduced-tar tobacco have less nicotine than the original tobacco leaf. The tobacco companies can legitimately claim that their finished cigarettes have less nicotine. The real controversy, however, which these advertisements so carefully avoid, stems from the discrepancy between actual nicotine levels of the industry's tar-reduced and reconstituted tobacco and the claimed "essentially perfect" correlation between nicotine and tar levels. In fact, the nicotine levels have proven to be consistently higher than what the correlation would predict. The inaccuracy lies not in the correlation, but in the story the industry has told the public about how it manufactures cigarettes. That story has carefully anddeliberately omitted the industry's addition of nicotine in the form of an extract to these tobaccos to keep them at addictive levels.

M.Maintaining the Market through Sales to Minors

194. In addition to ensuring a captive market through the addiction of its customers, the cigarette industry has maintained its sales and replaced the hundreds of thousands of smokers who die each year by intentionally targeting marketing and promotional efforts at children and adolescents.

195. Every day, more than 1,200 cigarette smokers die of disease caused by smoking. In order to prevent a precipitous decline in cigarette sales, the big cigarette companies must attract new smokers. Children and teenagers became the main target and as a result of the tobacco companies' unfair and deceptive marketing programs and advertising, over 3,000 of them begin smoking everyday.

196. The use of tobacco by minors continues to rise. The Centers for Disease Control and Prevention ("CDC") announced on May 24, 1996, that a study of high school students showed a higher prevalence of tobacco use among high school students in 1995 than in 1993 and 1991, up 35% from 1993 and 28% from 1991. The prevalence of cigarette smoking in recent years among 8th and 10th grade students has risen significantly and provides cause for great concern. For example, among 8th grade students, 14.3 percent in 1991 and 18.6 percent in 1994 were current smokers; among 10th grade students, 20.8 percent in 1991 and 25.4 percent in 1994 were current smokers.

197. The 1994 Surgeon General's Report reviewed several different surveys and found that the estimated percentage of adolescents who have ever smoked cigarettes ranged up to approximately 42 percent (as reported by the 1991 Youth Risk Behavior Survey). The 1994 Surgeon General's Report also found that 28 percent of high school seniors were current smokers. Further, the 1994 Surgeon General's Reportstates that seven to 13 percent of adolescents were frequent or heavy smokers, consuming at least one-half pack daily or smoking 20 days or more of the 30 days in a survey period.

198. Approximately 3 million children under the age of 18 are daily smokers. One study found that children between the ages of 8 and 11 who are daily smokers consume an average of 4 cigarettes daily, and those who are between the ages of 12 and 17 average nearly 14 cigarettes daily. The study also estimated that adolescents consume an estimated 947 million packs of cigarettes and 26 million containers of smokeless tobacco annually and account for annual tobacco sales of $1.26 billion. Another study estimates that teenagers in 1991 smoked 516 million packs of cigarettes and spent $962 million purchasing them. As stated previously, these figures are especially significant given that all states prohibit the sale of tobacco to persons under the age of 18 (with some states prohibiting sales to persons under the age of 19 and one state, Pennsylvania, prohibiting cigarette sales to persons under the age of 21). Unfortunately, few states can successfully enforce their laws restricting tobacco sales to minors given the tobacco industry's intense effort to lure minors into smoking.

199. Studies have also suggested that the age one begins smoking can greatly influence the amount of smoking one will engage in as an adult and will ultimately influence the smoker's risk of tobacco related morbidity and mortality. Those who started smoking by early adolescence were more likely to be heavy smokers than those who began smoking as adults. Another study found that high school students who smoked their first cigarette during childhood smoked more often and in greater amount that those who first tried smoking during adolescence.

200. The escalating use of smokeless tobacco products by underage persons presents an additional and growing public health problem. Smokeless tobacco products include chewing tobacco and snuff and are also known as "spit tobacco" or "spitting tobacco." In 1970, the prevalence of snuff use among males was lowest in those 17 to 19 years of age and the highest use was by men aged 50 or more. By 1985, a dramaticshift had occurred, and males between 16 and 19 were twice as likely to use snuff as men aged 50 and over. An estimated 3 million users of smokeless tobacco products were under the age of 21 in 1986, when Congress enacted the Comprehensive Smokeless Tobacco Health Education Act (the "Smokeless Act") (15 U.S.C. 4401). The Smokeless Act required the Secretary of Health and Human Services ("Secretary") to inform the public of the health dangers associated with smokeless tobacco use, required warning labels on packages, banned advertising on electronic media subject to the Federal Communications Commission's jurisdiction (such as television and radio), and encouraged States to make 18 years the minimum age for purchasing smokeless tobacco products. Despite the Smokeless Act and State laws prohibiting sales to minors, a high percentage of persons under the age of 18 use smokeless tobacco products. For example:

201. In some parts of the United States the rates are especially high. According to the 1990-91 Youth Risk Behavior Survey, the smokeless tobacco product use rates among males in grades 9 through 12 were as high as 34 percent in Tennessee, 33 percent in Montana, 32 percent in Colorado, and 31 percent in Alabama and Wyoming.

202. The recent and very large increase in the use of smokeless tobacco products by young people and the addictive nature of these products has persuaded the Secretary that these products must be included in any regulatory approach that isdesigned to help prevent future generations of young people from becoming addicted to nicotine-containing tobacco products.

203. Despite the best efforts of parents, educators, and the medical profession, smoking among young people has increased since the 1970’s. This is because cigarette company advertising is used to create a mental image associating smoking with healthy, glamorous and athletic lifestyles, with success and sexual attractiveness and success. This increases demand for cigarettes among young people. Within a short period of time, the young smoker becomes physiologically and emotionally dependent, i.e., addicted to tobacco. Later, as the maturing smoker begins to wish he or she could quit, advertising reinforces the practice and seeks to minimize health concerns, creates doubt, confusion and mistake which are used by smokers as an excuse to avoid the pain and discomfort of attempting to break their addiction to nicotine. This is the vicious cycle of fraudulent Tobacco Industry advertising of their products.

204. The cigarette companies sell more than one billion packs of cigarettes per year to minors under the age of 18. In 1988, these sales accounted for about $1.25 billion. Approximately 3% of the total tobacco industry profits ($221 million in 1988) are derived directly from the sale of cigarettes to children under the age of 18, an activity that is illegal in 47 states. Marlboro and Camel cigarettes, produced by Philip Morris and Reynolds, respectively, dominate the teenage smoking market.

205. The advertising imagery used to promote cigarette smoking among young people has been designed to particularly appeal to those with low self esteem and emotional insecurity. Once the young person has been predisposed toward smoking, a variety of factors can precipitate actual experimentation. For many young people, the precipitating factor is being given a free pack of cigarettes by a tobacco company representative, or purchasing cigarettes in order to obtain an attractive tee shirt, baseball cap, or other gimmick used to promote cigarette smoking.

206. One of the best examples of this was the transformation of Marlboro Cigarettes from a red-tipped cigarette for women to the cigarette for the macho cowboy. By changing advertising imagery, Philip Morris was able to tap into a wholly new and different market. In 1950, Reynolds was the king of the cigarette business. It sold more cigarettes than any other company. Philip Morris, though doing well on the basis of its fraudulent health-oriented advertising, was still far behind. In 1981, Philip Morris passed Reynolds in market share and each year has extended its lead by developing an effective marketing campaign for recruiting young new smokers to its brands. The wild spirit of the Marlboro man captured the adolescent imagination. Also, Philip Morris’ representatives fanned out to colleges across the country, giving free cigarettes to incoming freshmen to get them hooked. The children and teenagers who started smoking Marlboro became tenaciously loyal customers. Soon, Marlboro became the gold standard of cigarettes among teenagers. Up until 1988, nearly three-fourths of teenage smokers used Marlboro.

207. At about the time it lost market leadership to Philip Morris, Reynolds dedicated itself to a ruthless advertising campaign encouraging children and teenagers to smoke. One of the key elements of the R.J. Reynolds’ strategy for attracting children was to reposition many of its cigarette brands to younger audiences.

208. Reynolds’ Vantage cigarettes entered the 1980’s as a brand targeted at the health conscious adult smoker. Advertisements were intended to assuage fears of lung cancer and other diseases, and give concerned smokers arguments for rationalizing their continuation of the addiction. Through multiple advertising transmogrifications, Vantage cigarettes have been progressively repositioned to ever-younger audiences. During the mid-1980’s this advertising campaign featured young successful professionals (including architects, fashion designers, lawyers, etc.) with the slogan "The taste of success." These ads promoted the implication that smoking is helpful –-if not essential -– to social success or prominence. This is an image designed to appeal to underage smokers who dream of becoming successful professionals. In the late1980’s the advertising theme for Vantage cigarettes began to feature professional-caliber athletes like wind surfers, aerobic dancers, downhill ski-racers, and auto-racers. These advertisements depict physical activity requiring strength or stamina beyond those of everyday activity, clearly suggesting that smoking is not harmful.

209. During the 1980’s, advertising for Salem cigarettes also became more youth-oriented. Whereas the dominant advertising theme for Salem cigarettes used to be clean fresh country air, during the 80’s Salem ads were populated by muscular surfers and beach bunnies, fun-loving party animals, and other attractive adolescent role models. Another successful advertising campaign targeted at young people is the Lorillard Tobacco Company campaign promoting Newport cigarettes. Newport ads frequently show men and women in sexually suggestive positions, always having fun, using the slogan "Alive with pleasure."

210. Another successful advertising campaign has been the "You’ve come a long way baby" campaign promoting Virginia Slims cigarettes. One of the most important psychological needs of most adolescent girls is to become independent from their parents. By associating smoking with women’s liberation, Philip Morris hopes to create in the minds of these teenage girls the vision of smoking as a symbol of autonomy and independence. Ads for Virginia Slims and other "feminine" cigarettes prey upon the natural and almost universal insecurity and sense of inferiority experienced by adolescents by portraying the cigarette as a crutch and a symbol of superiority. Perhaps the most acute psychological need of adolescence is to fit in, to be accepted, to be popular. Ads for Philip Morris’ Benson & Hedges cigarettes thus developed an image of smoking as a happy pleasure to be shared in the company of others, and the easy road to instant acceptance within a group.

211. A status symbol and secret desire of many teenage boys is a powerful motorcycle. It is for this reason that so many cigarette brands have used motorcycle imagery to encourage teenage boys to smoke. Many cigarette ads that target young boys glamorize high risk activities like hang gliding, motorcycle racing, mountainclimbing, etc. Cigarette makers do this deliberately to undermine awareness that smoking is dangerous. In its campaign to attract adolescent boys to become smokers, the R.J. Reynolds cigarette company has made extensive use of risk-taking and danger in its advertising. By glorifying risk-taking, these ads have a more insidious purpose. How a person estimates the magnitude and likelihood of a risk can be significantly affected by what it is compared against. By portraying extremely dangerous activities like hang-gliding, mountain climbing, and stunt motorcycle riding, Reynolds minimizes the dangers of smoking in adolescent minds.

212. The greatest success that Reynolds had in its effort to gain on Philip Morris in the youth market is the "Joe Camel" cartoon character. This campaign was inaugurated in the United States in 1987 to commemorate the 75th anniversary of Camel cigarettes. In the first ads, the camel leered out over the pack saying, "75 years and still smoking." The implication is obvious. It soon became evident that "Joe Camel" would strike a responsive chord among children and teenagers, and has been used by Reynolds to target young persons – even children – to get them to start smoking at as early an age as possible. Reynolds has more than tripled its advertising expenditures for Camel cigarettes after 1988, utilizing themes like "Joe Camel" guaranteed to be attractive to young people at high risk of becoming smokers.

213. It is not just the themes within cigarette advertising that betray the real target, it is also the location of those ads. During the decade of the 1980s there was a steady migration of cigarette advertising into youth-oriented publications. Magazines with sexually oriented themes, and those concerning entertainment and sporting activities, had the highest concentration of cigarette ads. For many of these magazines, teenagers comprise a quarter or more of the total readership. Cigarette ads in these youth-oriented magazines were frequently multi-page, pop-up ads. News magazines like Time and Newsweek, which have older audiences, had few cigarette ads, and thosetended to emphasize implicit health promises concerning tar and nicotine rather than glamorous images.

214. In tests all across the country, it has been demonstrated that children as young as 12 years old can buy cigarettes in three out of four retail outlets. A study by the Inspector General’s Office of the Department of Health and Human Services concluded that, while there are laws prohibiting the sale of tobacco to minors, they are almost uniformly unenforced. The risk of a merchant being punished for selling cigarettes to minors is about one in 33 million. Cigarettes are available in unlimited quantities to children through vending machines as well.

215. A particularly successful element of the industry's advertising campaign has been advertising aimed at young girls. Nearly every issue of magazines for young girls like Teen and Young Miss includes an advertisement by Reynolds urging children not to smoke. But the reasons given for refraining are not that smoking is addictive, that it can harm or kill the infants of pregnant women, or that it causes cancer and other awful diseases. Rather, the reason given is that it is an "adult custom."

216. The likely effect of these ads is that, rather than discouraging children from smoking, they plant in impressionable young girls’ minds the notion that smoking is something to do to show one’s independence, to act grown-up. This notion is, of course, reinforced by the ubiquitous cigarette ads depicting glamorous young adult women smoking as a way of demonstrating their independence.

217. The most notorious recent example of the industry targeting of minors is the "Joe Camel" advertising campaign conducted by Reynolds, in observance of the Camel brand's 75th anniversary. As part of the initiation of the promotion, Reynolds included singing birthday cards in Rolling Stone magazine, a publication particularly popular with young people, and offered premiums such as T-shirts, party mugs and wall posters. When Reynolds began this cartoon campaign in 1988, Camel's share of the children's (under 18 years of age) market was only 0.5%. In just a few years,Camel's share of this illegal market has increased to 32.8%, representing sales estimated at $476 million per year. Another indication of the phenomenal success of this marketing campaign is the fact that in a recent survey of six year-olds, 91% of the children could correctly match "Old Joe" with a picture of a cigarette, and both the silhouette of Mickey Mouse and the face of Old Joe were nearly equally well recognized by almost all children.

218. All defendants are aware of the fact that tobacco use begins primarily among youth who are not yet 18 years of age. Among minors, the three most used brands of cigarettes are the most advertised. Reynolds studied the attributes of an advertising campaign which would most appeal to the group it carefully identified as "21 and under." Those attributes directly coincide with the "Joe Camel" campaign. Several years later, again addressing those attributes, this startling statement was made: "Young people will continue to become smokers at or above the present rates during the projection period. The brands which these beginning smokers accept and use will become the dominant brands in future years. Evidence is now available to indicate that the 14 to 18 year old group is an increasing segment of the smoking population. RJR must soon establish a successful new brand in the market if our position in the industry is to be maintained over the long term" [emphasis in original].

219. Reynolds continues to use the "Old Joe" character in conjunction with other offers attractive to minors. Recently, for example, it began an advertising campaign offering concert tickets in return for redemption of a number of Camel coupons, again in Rolling Stone magazine.

220. Reynolds has made other premiums available in exchange for coupons included in packages of Camel cigarettes. These premiums are deliberately designed to appeal primarily to minors.

221. Reynolds has expressly encouraged minors to circumvent laws related to tobacco use by minors. For example, in one coupon offer for a free package of Camels, "Joe Camel" advised individuals that it would be a "smooth move" to havesomeone else redeem the coupon, thus suggesting the means to overcome prohibitions of sales to minors of tobacco products. Other Reynolds campaigns have targeted stores and advertising locations close to high schools and other areas frequented by minors, and Reynolds concentrates advertising in publications read by large numbers of minors.

222. U.S. Tobacco has engaged in an ongoing campaign to induce individuals to become users of smokeless tobacco, and its efforts find particular success among minors, as intended by the company.

223. U.S. Tobacco designs its products to introduce the "new user" to smokeless tobacco products, and as addiction grows, "graduate" users to higher nicotine content products: "Skoal Bandits [a mild, low-nicotine product, packaged in individual use +tea bags+] is the introductory product, and then we look towards establishing a normal graduation process [to higher nicotine content products]." The introductory products are aimed at new users, mainly cigarette smokers, between ages 15 and 35.

224. A U.S. Tobacco employee, Bill Falk, who was apparently terminated for some other comments in the article [see discussion below] told a New York Post reporter: "A lot of young people are getting into it [smokeless tobacco use] . . . It's become a status thing. When a kid gets a new pair of jeans, he puts the snuff can in the back pocket and rubs it till the outline shows. It shows he's old enough to chew."

225. All defendants promote and market their products to minors. At least one company, Philip Morris, tracked hyperactive children in grade school to research whether they would become smokers. Philip Morris apparently conducted market research concerning minors who smoke or are apt to smoke. In a 1969 presentation to the Board of Directors by the Philip Morris Research Center, W.L. Dunn, Jr. and F.J. Ryan talked about the future of the "psychology department," noting that more attention was being paid to the reasons why people smoke; "there is general agreement on the answer to [why people begin to smoke]. The 16 to 20 year old begins smoking forpsychosocial reasons. The act of smoking is symbolic; it signifies adulthood, he smokes to enhance his image in the eyes of his peers." Philip Morris, having apparently studied the minor market for tobacco, has recently begun a program characterized as "Marlboro Unlimited," which is a program offering premiums for coupons from cigarette packages. This program is a direct response to Reynolds success in the minor market, is designed to appeal to minors, and is an effort by Philip Morris to maintain Marlboro's dominance of that illegal market.

226. Each tobacco company defendant engages in various advertising and promotional activities in an effort to develop a "minor" market. These activities include pervasive sponsorship of various sporting events, concerts and other events likely to attract extensive youth interest. Another means of appealing to youth used by the companies is paying for promotional appearances in movies which, because of the subject matter or the actors in the films, are most likely to appeal to youth. For example, Brown & Williamson agreed with the actor Sylvester Stallone that he would use the former's products in at least five feature films, in exchange for $500,000. Philip Morris paid for the promotion of Marlboro in "Superman II," "Risky Business," and "Crocodile Dundee" and for promotion of Lark in "License to Kill." It paid for or otherwise provided promotional material for 56 films in 1987-1988. Liggett paid for promotion of Eve [its brand designed especially to appeal to young women] in "Supergirl." American Tobacco promoted Lucky Strike in "Beverly Hills Cop." Reynolds paid for the promotion of Camel in "Who Framed Roger Rabbit," "Desperately Seeking Susan," and "Honey, I Shrunk the Kids."

7. Phillip Morris’ Admission that it has Targeted Minors

227. The Tobacco Cartel is currently under intense scrutiny from state and federal officials. In a blatant attempt to stave off FDA regulations, Philip Morris has proposed a series of changes to their marketing practices. In a recent letter to the Attorneys General of many states, Phillip Morris informed the Attorneys General that ithas announced a "blue print which directly addresses the issue of youth smoking." Among the proposals are the following:

228. These proposals constitute an admission that the industry has attempted to attract minors, when it: (1) places tobacco ads near schools, playgrounds, and in youth oriented publications; (2) uses logos and characters that are intended to appeal to minors; (3) sponsors events that have primarily youth audiences; (4) places ads in places likely to reach minors such as video and family oriented centers. These admissions are powerful evidence that the Tobacco Industry has knowingly and intentionally targeted minors.

229. The Defendants Brown & Williamson and R.J. Reynolds also manufacture and distribute loose tobacco used in the "roll your own" process of cigarette-making.

230. Even though the medical evidence regarding the hazards of cigarette smoking and addiction have been known to the defendants for many years, the packages and containers of the "roll your own" tobacco bear no warning regarding such hazards.

231. Despite their knowledge that the use of smokeless tobacco is, as a result of nicotine, extremely addictive, the Tobacco Companies to this day deny that smoking,"dipping," or "chewing" tobacco is addictive. Through their individual advertising and public relations campaigns, and collectively, through the Tobacco Institute, the Tobacco Companies have successfully promoted and sold tobacco products by concealing and misrepresenting the highly addictive nature of cigarettes and smokeless tobacco.

232. Defendant United States Tobacco Company makes approximately 90 percent of the oral snuff and chewing tobacco sold in the United States. As alleged above, smokeless tobacco delivers a similar amount of nicotine as cigarettes and is equally as addictive. Plaintiff is informed and believes that smokeless tobacco manufacturers intend to cause nicotine dependence among consumers through a strategy that involves promoting the user of lower nicotine brands with the intent of moving users up to higher, more addictive brands over time. The "graduation" strategy calls for three different brands of low, medium, and high nicotine content. The strategy is based on the premise that new users of smokeless tobacco are most likely to begin with products that are milder tasting, more flavored and lighter in nicotine content. After a period of time, there is a natural progression to products that are more full-bodied and have more concentrated tobacco taste, with more nicotine, than the entry brand. This graduation strategy is supported by the manufacturers' advertising practices which indicate the manufacturers' intent to have consumers experiment with low-nicotine brands and graduate to higher-nicotine brands over time. The FDA's 1995 investigation into nicotine and tobacco products found, that with respect to smokeless products, "tobacco manufacturers control the delivery of nicotine" so that products that deliver lower doses of nicotine are provided to "new users" who are then encouraged by tobacco marketing to "graduate" to products that deliver "higher doses of nicotine."

O.The Human Toll of Cigarette Smoking

233. Over 400,000 Americans die each year from smoking-related illnesses. This equates to more than one of every five deaths in the United States. If an adolescent's tobacco use continues for a lifetime, there is a 50 percent chance that theperson will die prematurely as a direct result of smoking. Moreover, the earlier a young person's smoking habit begins, the more likely he or she will become a heavy smoker and therefore suffer a greater risk of smoking related diseases. Smoking is responsible for about 90 percent of all lung cancer deaths; 87 percent of deaths from chronic obstructive pulmonary diseases (COPD); 21 percent of deaths from coronary heart disease; and 18 percent of deaths from stroke. Further, a causal relationship exists between cigarette smoking and cancers of the larynx, mouth, esophagus, and bladder; and atherosclerotic peripheral vascular disease, cerebrovascular disease (stroke), and low-birth weight babies. Cigarette smoking is also a probable cause of infertility and peptic ulcer disease and contributes to, or is associated with, cancers of the pancreas, kidney, cervix, and stomach.

234. Epidemiologic studies provide overwhelming evidence that smoking causes lung cancer. The risk of getting lung cancer may be more than 20 times greater for heavy smokers than nonsmokers. The relationship between smoking and lung cancer is due to the numerous carcinogens in cigarette smoke. Cigarette smoking caused an estimated 117,000 deaths from lung cancer in 1990.

235. The risk of getting lung cancer increases with the number of cigarettes smoked and the duration of smoking, and decreases after cessation of smoking. Starting smoking at an earlier age increases the potential years of smoking and increases the risk of lung cancer. Studies have shown that lung cancer mortality is highest among adults who began smoking before the age of 15.

236. Cigarette smoking also causes cancer of the larynx, mouth, and esophagus. According to current estimates, 82 percent of laryngeal cancers are due to smoking and about 80 percent of the 10,200 deaths from esophageal cancer in 1993 can be attributed to smoking. The risk of oral cancer among current smokers ranges from 2.0 to 18.1 times the risk in people who have never smoked and can be reduced more than 50 percent after quitting. The risk of esophageal cancer among current smokersranges from 1.7 to 6.4 times the risk in people who have never smoked and can also be reduced by about 50 percent after quitting.

237. Epidemiological studies demonstrate that cigarette smoking contributes to the development of pancreatic cancer. The reason for this relationship is unclear, but may be due to carcinogens or metabolites present in the bile or blood. In 1985, the proportion of pancreatic cancer deaths in the United States attributable to smoking was estimated to be 29 percent in men and 34 percent in women.

238. Cigarette smoking accounts for an estimated 30 to 40 percent of all bladder cancers and is a contributing factor for kidney cancer. The increased risk of kidney and bladder cancer may be related to the number of cigarettes smoked per day, and the risk decreased following smoking cessation.

239. Smoking is a contributing factor for cancer of the cervix. The association between cigarette smoking and cervical cancer persists after control is made for risk factors, such as age at first intercourse and the number of sexual partners, that predispose a woman to developing sexually-transmitted diseases. The inclusion of these risk factors, however, may not completely rule out confounding by sexually-transmitted diseases. The findings that components of tobacco smoke can be found in the cervical mucus of smokers, and the mucus of smokers is mutagenic, and that former smokers have a lower risk of getting cervical cancer than current smokers are consistent with the hypothesis that smoking is a contributing cause of cervical cancer.

240. The 1982 Surgeon General's Report concluded that stomach cancer is associated with cigarette smoking.

241. Smoking is a leading cause of heart disease. The 1964 Surgeon General's Report noted that male cigarette smokers had higher death rates from coronary heart disease than nonsmokers. Subsequent reports have concluded that cigarette smoking contributes to the risk of heart attacks, chest pain, and even sudden death. Overall, smokers have a 70 percent greater death rate from coronary heart disease than nonsmokers.

242. Ischemic heart disease resulting from cigarette smoking claimed nearly 99,000 lives in 1990. One study estimates that smoking causes 30 to 40 percent of all deaths due to coronary heart disease. Smokers between the ages of 40 and 64, who smoked more than one pack a day, were shown to have a risk of coronary heart disease that is 3.2 times higher than people who do not smoke.

243. Smoking also increases a person's risk of atherosclerotic peripheral vascular disease, especially if the smoker is diabetic. Complications of this disease include decreased blood delivery to the peripheral tissues, gangrene, and ultimately loss of the affected limb. Smoking cessation is the most important intervention in the management of peripheral vascular diseases.

244. Smoking is a cause of stroke. Stroke is the third leading cause of death in the United States. The association of smoking with stroke is believed to be mediated by the mechanisms responsible for atherosclerosis (narrowing and hardening of the arteries), thrombosis, and decreased cerebral blood flow in smokers. Female smokers who use oral contraceptives are at an increased risk of having a stroke.

245. Cigarette smoking is the leading cause of chronic obstructive pulmonary disease (COPD) in the United States. Approximately 84 percent of the COPD deaths in men and 79 percent of the COPD deaths in women are attributable to cigarette smoking. The risk of death from COPD may depend on how many cigarettes a person smokes daily, how deeply the person inhales, and the age when the person began smoking. The number of cigarettes smoked per day is a strong indicator for the presence of the principal symptoms of chronic respiratory illness, including chronic cough, phlegm production, wheezing, and shortness of breath.

246. Smoking's detrimental effect on lung structure and function appear within a few years after cigarette smoking begins. Children who smoke are more likely to suffer from respiratory illnesses than children who do not smoke. Adolescents who smoke may experience inflammatory changes in the lung, reduced lung growth, and may not achieve normal lung function as an adult.

247. Cigarette smoking is a probable cause of peptic ulcer disease. Peptic ulcer disease is more likely to occur in smokers than in nonsmokers, and the disease is less likely to heal, and more likely to cause death in smokers than nonsmokers. Quitting smoking reduces the chances of getting peptic ulcer disease and is an important component of effective peptic ulcer treatment.

248. Studies also show that women who smoke have reduced fertility. One study showed that smokers were 3.4 times more likely than nonsmokers to take more than 1 year to conceive.

249. Smoking's severe detrimental effects during pregnancy are well documented. Women who smoke are twice as likely to have low birth weight infants as women who do not smoke. Smoking also causes intrauterine growth retardation of the fetus. Mothers who smoke also have increased rates of premature delivery.

250. Smoking may lead to premature infant death. Babies of mothers who smoke are more likely to die than babies born to nonsmoking mothers. A recent meta-analysis reported that use of tobacco products by pregnant women results in 19,000 to 141,000 miscarriages per year, and 3,100 to 7,000 infant deaths per year. In addition, the meta-analysis attributed approximately two-thirds of deaths from sudden infant death syndrome to maternal smoking during pregnancy. By another estimate, if all pregnant women stopped smoking, there would be 4,000 fewer infant deaths per year in the United States.

251. Smokeless tobacco use can cause oral cancer. The risk of oral cancer increases with increased exposure to smokeless tobacco products, particularly in those areas of the mouth where smokeless tobacco products are used. The risk of cheek and gum cancers is nearly 50 times greater in long-term snuff users than in nonusers. Snuff and chewing tobacco contain potent carcinogens, including nitrosamines, polynuclear aromatic hydrocarbons and radioactive polonium.

252. Smokeless tobacco use can cause oral leukoplakia, a precancerous lesion of the soft tissue that consists of a white patch or plaque that cannot be scraped off. One study of 117 high school students who were smokeless tobacco users revealed that nearly 50 percent of these students had oral tissue alterations. There is a 5 percent chance that oral leukoplakias will transform into malignancies in 5 years. The leukoplakia appears to decrease or resolve upon cessation of smokeless tobacco use.

253. Smokeless tobacco use causes oral cancer and oral leukoplakia and may be associated with an increased risk of cancer of the esophagus. Smokeless tobacco use has been implicated in cancers of the gum, mouth, pharynx and larynx. Snuff use also causes gum recession and is associated with discoloration of teeth and fillings, dental cavities and abrasion of the teeth.

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

254. In addition to the human toll, the economic costs of tobacco use, and, in particular, health care expenditures from tobacco-attributable diseases, amount to an unacceptable burden on society and the State of Illinois.

255. The State spends millions of dollars each year to provide or pay for health care and other necessary facilities and services on behalf of state employees, the needy, indigents and other eligible residents. Increased health care costs for those individuals are directly caused by tobacco induced cardiovascular disease, lung cancer, emphysema, respiratory and other diseases.

256. In fulfilling its statutory duties, the State of Illinois has expended and will expend substantial sums of money due to the increased cost of providing health care services for treatment of tobacco-caused diseases. These increased expenditures have been caused by the unlawful actions of the Tobacco Industry.

257. Illinois expends funds in several areas which include significantly increased charges attributable to tobacco usage and exposure. These include but are not limited to:

258. The Centers for Disease Control have developed information on smoking-attributable deaths and diseases and the economic impact of smoking. Their study demonstrates that there is a direct and substantial cost to Illinois State taxpayers of increased health care attributable to use of tobacco. Nationwide, the CDC data shows that the estimated health care costs for smoking-attributable diseases are $50 billion. These costs have been increasing at a precipitous rate, more than doubling in the period from 1987 to 1993. The present value of Illinois's Medicaid expenses attributable to smoking for the period 1992-1994 by itself exceeds $436 million. This figure does not include other damages suffered by the state, such as increased health care premiums.

Q.Fraudulent Concealment

259. Plaintiff was without knowledge of defendants' combination or conspiracy, or of any facts from which it might reasonably be concluded that defendants were illegally conspiring, or which would have led to the discovery thereof until early 1994. Plaintiff could not have discovered such facts or the alleged violations at an earlier time because defendants fraudulently concealed their course of conduct.

260. Plaintiff is not aware of the methods used by defendants to conceal their activities, but believes that the methods used by defendants in furtherance of theircombination and conspiracy were by nature self-concealing and not of a type which could have reasonably been apparent to plaintiff.

261. For example, in 1985, a Brown & Williamson attorney recommended that much of its medical research be declared "deadwood" and shipped to England. The attorney stated that, "I have marked with an X documents 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 deadwood." The attorney further suggested that the research, development, and engineering department also "should undertake to remove the deadwood from its files."

262. Brown & Williamson attempted to control other documents such that it could later claim an attorney-client privilege or work product protection for documents which its attorneys thought might later cause difficulties in product liability actions. Such documents included scientific reports which the company sought to protect from discovery: "[Scientific] material should come to you [corporate counsel] under a policy statement between you and Southampton [BAT] which describes the purpose of developing the documents for B & W and sending them to you as use for defense of potential litigation. It is possible that a system can be devised which would exempt the Engineering reports because it might be difficult to maintain a privilege for covering such reports under the potential litigation theory. [C]ontinued Law Department control is essential for the best argument for privilege. At the same time, control should be exercised with flexibility to allow access of the R & D staff to the documents."

263. The Brown & Williamson assertions of privilege are false and in bad faith. Other defendants have used similar tactics to conceal the activities of the conspiracy. The joint actions of the conspiracy through the CTR and Tobacco Institute have been similarly shielded from scrutiny. Part of the document review undertaken by Brown & Williamson was an effort to conceal documents showing the true nature of the associations: "[In conducting document review] pay special attention to documentssuggesting that TI [Tobacco Institute] was used as a vehicle for the industry's alleged conspiracy to promote cigarettes through the +open controversy+ PR program. . . ."

264. The CTR had a number of categories of research projects. Of particular significance is the category "Special Projects." Special Projects were reviewed and selected for funding by the general counsel of the member companies. It may be reasonably inferred that lawyers controlled this research so as to protect it from discovery and also to further the ends of the conspiracy.

265. Plaintiff's claim of CTR manipulation through the siphoning of relevant projects is further supported by the notes of the September 10, 1981 Committee of General Counsel, transmitted via a September 18, 1981 letter from Webster & Sheffield, which states:

These minutes explicitly acknowledge that the supposedly "independent" scientific director of CTR channeled research into "Special Projects" for defendants’ litigation efforts. But even more disturbing is defendants’ announced practice of using the "Special Projects" division in order to shield damaging research results from the public and the FTC. A document captioned "Notes from the September 10, 1981 Meeting of Company Counsel and Ad Hoc Committee Members" is even more explicit. Page one of the "Notes" states as follows:

This document pertains not only to the Special Projects division but also to defendants’ intentional manipulation of the CTR as a whole.

266. Defendants’ conspiracy is ongoing and continues to this day. The defendants continue to deny that (i) nicotine is addictive; (ii) smoking causes cancer and other health problems; (iii) that they are illegally targeting minors; (iv) that they manipulate the level of nicotine in tobacco products to increase addiction.

VII. CLAIMS FOR RELIEF

COUNT 1

(Violation of 815 ILCS 505/2)

UNLAWFUL MARKETING AND TARGETING MINORS

267. The State of Illinois repeats and realleges paragraphs 1-93 and 117-266 as if set forth fully above.

268. The Illinois State Legislature has declared that it is the public policy of this State to prohibit minors’ access to tobacco products. For example, pursuant to 720 ILCS 675/2, it is a criminal violation to give or sell tobacco products to minors. Further, pursuant to 720 ILCS 680/3, it is a business offense to sell smokeless tobacco products to minors.

269. Defendants have engaged in a course of conduct and have suppressed information with the intent that others rely on such suppression in an effort to deceptively, unfairly and unlawfully encourage minors to violate the declared public policy of the State of Illinois.

270. More specifically, and as set forth above, defendants have caused their products to be sold to minors, in part, by (i) concealing that their marketing is designed to encourage minors to smoke in violation of State law; (ii) concealing that their products are addictive and harmful and suppressing and omitting information on these subjects, while at the same time portraying tobacco use as glamorous and in a fashionthat is designed to minimize the risks associated with tobacco use; (iii) designing their marketing campaigns with the intent that minors rely on the tobacco companies' advertisements, and (iv) engaging in conduct with the purpose of causing minors to smoke in violation of state law. This conduct is both unfair and deceptive. Further, defendants' conduct is made even more deceptive by virtue of the fact they have publicly proclaimed that they are against encouraging minors to smoke while secretly they have launched a course of conduct designed to accomplish exactly the opposite.

271. Tobacco sales to minors have increased in Illinois as a direct, foreseeable and intended result of the defendants' practices.

272. The targeting of minors as described in the Complaint violates the expressed public policy of the State of Illinois, and as such, is an unfair and deceptive act or practice in violation of 815 ILCS 505/2.

273. Defendants acted with the intent that others rely upon the concealment, suppression and omissions of information set forth above.

274. Defendants' unfair and deceptive acts or practices occurred in the course of conduct involving trade or commerce.

275. Defendants' violation of 815 ILCS 505/2 was done with intent to defraud.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is unlawful and in violation of 815 ILCS 505/2.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order the defendants to take reasonable and necessary steps to prevent the distribution and sale of cigarettes to minors under the age of eighteen.

G. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

H. That the Court order defendants to disgorge all unjust profits from tobacco sales to minors, and from all other tobacco sales in the State of Illinois which defendants should not be allowed to retain.

I. That, pursuant to 815 ILCS 505/7, the Court assess civil penalties of $50,000 from each defendant for violations of 815 ILCS 505/2 complained of herein.

J. That, pursuant to 815 ILCS 505/7, the Court assess civil penalties of $50,000 from each defendant for each violation of 815 ILCS 505/2 for defendants' intentionally fraudulent action.

K. That, pursuant to 815 ILCS 505/10a., the State of Illinois recover from defendants the costs of this action, including a reasonable attorney's fee.

L. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 2

(Violation of 815 ILCS 505/2)

CONTRIBUTING TO THE DELINQUENCY OF CHILDREN

276. The State of Illinois repeats and realleges paragraphs 1-93 and 117-266 as if set forth fully above.

277. The Illinois State Legislature has declared that it is the public policy of the State to prohibit a person from knowingly or wilfully causing, aiding or encouraging any child to be or to become a delinquent child. 720 ILCS 130/2a. A "delinquent child" is any minor who prior to his or her 17th birthday has violated or attempted to violate any federal or state law or municipal ordinance. 720 ILCS 130/1a.

278. Defendants have engaged in a course of conduct and have suppressed information with the intent that others rely on such suppression in an effort to deceptively, unfairly and unlawfully cause, aid and/or encourage children of the State of Illinois to become delinquent children.

279. More specifically, and as set forth above, defendants have caused, aided an/or encouraged the delinquency of the children of Illinois, in part, by (i) concealing that their marketing is designed to encourage minors to smoke in violation of State law; (ii) concealing that their products are addictive and harmful and suppressing and omitting information on these subjects, while at the same time portraying tobacco use as glamorous and in a fashion that is designed to minimize the risks associated with tobacco use; (iii) designing their marketing campaigns with the intent that minors rely on the tobacco companies' advertisements, and (iv) engaging in conduct with the purpose of causing minors to smoke in violation of state law. This conduct is both unfair and deceptive. Further, defendants' conduct is made even more unfair and deceptive by virtue of the fact they have publicly proclaimed that they are against encouraging minors to smoke while secretly they have launched a course of conduct designed to accomplish exactly the opposite.

280. Tobacco sales to minors have increased in Illinois as a direct, foreseeable and intended result of the defendants' practices.

281. Defendants' efforts to cause, aid and/or encourage children of the State of Illinois to become delinquent through the targeting of minors as described in the Complaint violates the expressed public policy of the State of Illinois, and as such, is an unfair and deceptive act or practice in violation of 815 ILCS 505/2.

282. Defendants acted with the intent that others rely upon the concealment, suppression and omissions of information set forth above.

283. Defendants' unfair and deceptive acts or practices occurred in the course of conduct involving trade or commerce.

284. Defendants' violation of 815 ILCS 505/2 was done with intent to defraud.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is unlawful and in violation of 815 ILCS 505/2.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order the defendants to take reasonable and necessary steps to prevent the distribution and sale of cigarettes to minors under the age of eighteen.

G. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

H. That the Court order defendants to disgorge all unjust profits from tobacco sales to minors, and from all other tobacco sales in the State of Illinois which defendants should not be allowed to retain.

I. That, pursuant to 815 ILCS 505/7, the Court assess civil penalties of $50,000 from each defendant for violations of 815 ILCS 505/2 complained of herein.

J. That, pursuant to 815 ILCS 505/7, the Court assess civil penalties of $50,000 from each defendant for each violation of 815 ILCS 505/2 for defendants' intentionally fraudulent action.

K. That, pursuant to 815 ILCS 505/10a., the State of Illinois recover from defendants the costs of this action, including a reasonable attorney's fee.

L. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 3

(Violation of 815 ILCS 505/2)

UNFAIR AND DECEPTIVE ACTS OR PRACTICES

285. The State of Illinois repeats and realleges paragraphs 1-93 and 117-266 as if set forth fully above.

286. In the regular course of business, defendants engaged in misrepresentations and/or omissions of material facts, including but not limited to:

287. The conduct described above and in this Complaint constitutes unfair and deceptive acts or practices in violation of 815 ILCS 505/2.

288. Defendants acted with the intent that others rely upon the concealment, suppression and omissions of information set forth above.

289. Defendants' unfair and deceptive practices occurred in the course of conduct involving trade or commerce.

290. Defendants' violation of 815 ILCS 505/2 was done with intent to defraud.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is unlawful and in violation of 815 ILCS 505/2.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and theirrespective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court order defendants to pay restitution which would restore plaintiff to the financial position that it would be in, absent the defendants' conduct.

H. That the Court order defendants to disgorge all unjust profits from tobacco sales to minors, and from all other tobacco sales in the State of Illinois which defendants should not be allowed to retain.

I. That, pursuant to 815 ILCS 505/7, the Court assess civil penalties of $50,000 from each defendant for violations of 815 ILCS 505/2 complained of herein.

J. That, pursuant to 815 ILCS 505/7, the Court assess civil penalties of $50,000 from each defendant for each violation of 815 ILCS 505/2 for defendants' intentionally fraudulent action.

K. That, pursuant to 815 ILCS 505/10a., the State of Illinois recover from defendants the costs of this action, including a reasonable attorney's fee.

L. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

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)]

291. The State of Illinois repeats and realleges paragraphs 1-193 through 233-266 as if set forth fully above.

292. As described above, beginning at least as early as 1953 and continuing until the present date, the defendants entered into a contract, combination or conspiracy to eliminate and suppress competition in the market for tobacco products.

293. Pursuant to such contract, combination or conspiracy, the defendants engaged in the following underlying activity, all as set forth in considerably more detail above:

294. In fact, as a direct result of the defendants' conduct, the State of Illinois incurred substantial health care costs arising from smoking-related diseases and injuries. The defendants' conduct is thus inextricably intertwined with the State's increased health care costs.

295. The defendants' conduct has had a direct and foreseeable effect on the State's health care costs. The defendants continue to reap enormous profits by virtue of their wrongful conduct at the expense of the State, and have thus effectively shifted the health care costs of smoking-related diseases to third parties, including the State of Illinois.

296. The defendants' conduct constitutes an unreasonable restraint of trade. The defendants have thus violated section 3(2) of the Illinois Antitrust Act, 740 ILCS 10/3(2), which violation is continuing and likely to continue unless restrained, the State's remedy at law being inadequate.

297. By virtue of such violation, the State of Illinois, through the Attorney General, is authorized to bring suit and seek appropriate equitable remedies and penalties under sections 7(1) and 7(4) of the Illinois Antitrust Act, 740 ILCS 10/7(1) and (4).

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is unlawful and in violation of 740 ILCS 10/3(2).

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court award damages to the State resulting from the actions described above.

H. That, pursuant to 740 ILCS 10/7(1) of the Illinois Antitrust Act, the Court allow such relief as necessary to remove the effects of the defendants' violation, including the divestiture of the defendants' property (i) in the form of profits they have derived from Illinois smokers attributable to the defendants' wrongful conduct, and (ii) equal to the amount expended by the State of Illinois attributable to such conduct;

I. That, pursuant to 740 ILCS 10/7(1), the Court allow such relief as necessary to prevent such violation from continuing or from being renewed in the future, including preliminary and permanent injunctive relief.

J. That, pursuant to 740 ILCS 10/7(4), the Court impose a penalty in accordance with section 7(4) of the Illinois Antitrust Act against each defendant in the amount of $100,000 for each wrongful act in furtherance of the defendants' contract, combination or conspiracy.

K. That the State of Illinois recover from defendants the costs of this action, including a reasonable attorney's fee.

L. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

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)]

298. The State of Illinois repeats and realleges paragraphs 1-193, 233-266, and 292-297 as if set forth fully above.

299. The defendants' conduct is willful and constitutes an unreasonable restraint of trade. The defendants have thus violated section 3(2) of the Illinois Antitrust Act, 740 ILCS 10/3(2), which violation is continuing and likely to continue unless restrained, the plaintiff's remedy at law being inadequate.

300. By virtue of such violation, the State of Illinois, through the Attorney General, is authorized to bring suit and seek appropriate equitable remedies and treble damages for its injuries under section 7(2) of the Illinois Antitrust Act, 740 ILCS 10/7(2).

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is unlawful and in violation of 740 ILCS 10/3(2).

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That, pursuant to 740 ILCS 10/7(2) of the Illinois Antitrust Act, the Court provide for the recovery of damages equal to the amount incurred by the State of Illinois attributable to such conduct and, in accordance with the said section 7(2), treble such damages.

E. That, pursuant to 740 ILCS 10/7(2), the Court allow such relief as necessary to restrain continuing violations by the defendants, including preliminary and permanent injunctive relief.

F. That, pursuant to 740 ILCS 10/7(2), the State of Illinois recover from defendants the costs of this action, including a reasonable attorney's fee.

G. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 6

BREACH OF ASSUMED DUTY

301. The State of Illinois repeats and realleges paragraphs 1-266 as if set forth fully above.

302. Beginning as early as 1954 with the publication of "A Frank Statement to Cigarette Smokers" and continuing to the present date, the defendants assumed a special and general duty to protect the public health and a duty to those who advance the public health, including the State of Illinois and its political subdivisions.

303. Defendants publicly represented that they were undertaking to act on behalf of the public's health; to aid and assist the research effort into all phases of tobacco use and health; to cooperate closely with those who safeguard the public health; to continue research and all possible efforts until all the facts were known; and to provide complete and authenticated information about cigarette smoking and health.

304. Defendants did not make these representations gratuitously. Rather, they were made to combat emerging concerns about smoking and to protect the Tobacco Cartels' enormous profits.

305. Defendants ostensibly undertook performance of their assumed duty, and awarded highly-publicized grants to supposedly "independent researchers." Throughout the years and continuing to the present date, defendants' spokespersons have repeatedly announced that research was underway, but the results are always "inconclusive" and the health questions "unresolved." These actions are part of defendants' elaboratedisinformation campaign designed to obscure the overwhelming and conclusive evidence that smoking causes lung cancer, heart disease and a host of other health problems.

306. Defendants' conduct in breaching their assumed special duty and their general duty deliberately increased the risk to the State of Illinois that people would continue to smoke and to take up smoking, thereby imposing enormous medical expenses on the State. The purpose of defendants' assumption of a duty was to promote the use of cigarettes and thus directly increase the risk of harm to the State of Illinois. Defendants' conduct in breaching their assumed special and general duty deliberately increased the risk to the State of Illinois that people would continue to smoke and to take up smoking, thereby imposing enormous medical expenses on the State. A further increased risk of harm to the State of Illinois has occurred because defendants, by suppressing material information, have been able to fend off government regulation.

307. Defendants’ continuing conduct is an intentional breach of their publicly announced duty. Defendants failed to exercise reasonable care in the performance of their duty. Further, defendants knowingly suppressed information that would have assisted any effort to advance the public's health as it relates to tobacco usage. This has resulted in a detrimental impact to the public health needs of Illinois residents and has cost the State of Illinois increased expenditures in public health that would not have been required if defendants had exercised reasonable care, or if the defendants had not undertaken the duty in the first place.

308. As a direct and proximate cause of defendants' breach, plaintiff has suffered and will continue to suffer substantial injuries and damages.

309. The conduct described constitutes a breach of a voluntarily assumed special and/or general duty for which defendants are liable in money damages.

310. Defendants' unlawful conduct will continue unless the relief prayed for in this Complaint is granted.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is an unlawful breach of assumed duty.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court award damages to the State resulting from the actions described above.

H. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 7

PERFORMANCE OF ANOTHER'S DUTY TO THE PUBLIC

311. The State of Illinois realleges and incorporates paragraphs 1-310 as if set forth fully above.

312. As a direct and proximate result of their wrongful conduct alleged above, defendants have unreasonably injured and endangered the comfort, repose, health andsafety of the residents of the State of Illinois by selling tobacco products which are dangerous to human life and health and cause injury, disease and sickness. Defendants' acts have caused damage to the public, the public safety and the general welfare of citizens of Illinois.

313. Defendants' conduct has created a health crisis which has required the State of Illinois to assume the financial burden of smoking related medical costs, a burden which should have been borne by the tobacco companies. The State has thus borne the defendants duty to the public, which arises in part from defendants' assumed duty, their duty to not sell dangerous products, and their duty to not sell products through the use of a scheme, conspiracy and artifice to defraud.

314. In assuming this burden belonging to defendants, the State was responding to a clear need to relieve the distress of those who were inflicted with smoking related illnesses and to prevent their condition from worsening. Since the defendants have eschewed any intention of accepting responsibility for their creation of this crisis, the State's actions cannot be termed "officious." Nor did the State intend to confer a gratuitous benefit upon defendants. Rather, the State's expenditures were aimed at averting a public health crisis.

315. As a result of defendants' conduct, the State of Illinois has suffered and will continue to suffer substantial damages for which it is entitled to both monetary and injunctive relief.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is an unlawful and required defendants to perform the State's duty to the public.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, fromcontinuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court order defendants to pay restitution which would restore plaintiff to the financial position that it would be in, absent the defendants' conduct.

H. That the Court award damages to the State resulting from the actions described above.

I. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 8

NEGLIGENCE PER SE

316. The State of Illinois realleges and incorporates paragraphs 1-284 as if set forth fully above.

317. Defendants violations of 720 ILCS 130/2a as described above in Count 2 constitute negligence per se.

318. As a direct result of defendants' conduct, the State of Illinois has suffered and will continue to suffer substantial injuries and damages for which it is entitled to relief.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is unlawful as negligence per se.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court order defendants to pay restitution which would restore plaintiff to the financial position that it would be in, absent the defendants' conduct.

H. That the Court award damages to the State resulting from the actions described above.

I. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 9

PUBLIC NUISANCE

319. The State of Illinois realleges and incorporates paragraphs 1-318 as if set forth fully above.

320. As a direct and proximate result of their wrongful conduct as alleged above, defendants have unreasonably injured and endangered the comfort, repose, health and safety of the residents of the State of Illinois by selling their tobacco products, which are dangerous to human life and health and cause injury, disease and sickness. Defendants' acts have caused damage to the public, the public safety and the general welfare of the residents of the State of Illinois, and constitute a public nuisance.

321. Defendants' conduct has wrongfully caused the State of Illinois to expend millions of dollars in support of the public health and welfare.

322. As a result of defendants' conduct, the State of Illinois has suffered and will continue to suffer substantial injuries and damages for which it is entitled to relief.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is an unlawful public nuisance.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court order defendants to pay restitution which would restore plaintiff to the financial position that it would be in, absent the defendants' conduct.

H. That the Court award damages to the State resulting from the actions described above.

I. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 10

CONSPIRACY

323. The State of Illinois realleges and incorporates paragraphs 1-322 as if set forth fully above.

324. Defendants entered into a conspiracy to violate the statutes set forth above in Counts 1-5 and the common law as set forth in Counts 6-9, and agreed as part of the conspiracy to: (1) suppress information concerning the adverse effects of smoking and the addictive qualities of nicotine; (2) create doubt about the scientific studies linking smoking to adverse health consequences and/or the addictive nature of nicotine; (3) conceal their manipulation of the level of nicotine in tobacco products; (4) avoid competition based on a safer cigarette.

325. Defendants knowingly and voluntarily participated in the common scheme to commit these unlawful acts.

326. Defendants, knowingly, willingly and wantonly, combined and agreed with one another for the purposes of deceiving the state regulators and the public about the carcinogenic, pathologic and addictive properties of cigarettes and accomplishing the unlawful ends complained of and/or for the purposes of unlawfully accomplishing the lawful ends complained of, namely, the ability to legally continue to sell and profit from cigarettes, in spite of the significant carcinogenic, pathologic and addictive properties of cigarettes.

327. All defendants joined in the conspiracy at least by 1954 through the formation of the TIRC, or, in the case of defendant Liggett, by its actual and/or tacitagreement with the other defendants to withhold from government regulators and the public their knowledge about the true carcinogenic, pathologic and addictive properties of their cigarettes.

328. Defendants' overt acts in furtherance of these purposes, include, without limitation:

329. The effect of this conspiracy was to violate State law as set forth above. The conspiracy is ongoing and will not stop unless injunctive relief is granted.

330. The defendant co-conspirators performed tortious acts in furtherance of the conspiracy, thereby proximately causing injury to the State of Illinois.

331. As a direct, actual and proximate result of defendants' conduct, the State of Illinois has suffered and will continue to suffer substantial injuries and damages for which the State of Illinois is entitled to relief.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court adjudge and decree that such conduct is an unlawful conspiracy.

C. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

D. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

E. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

F. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

G. That the Court order defendants to pay restitution which would restore plaintiff to the financial position that it would be in, absent the defendants' conduct.

H. That the Court award damages to the State resulting from the actions described above.

I. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

COUNT 11

UNJUST ENRICHMENT/RESTITUTION

332. In the alternative to the above claims, if the Court finds that the State of Illinois has no remedy at law, the State of Illinois alleges as follows:

333. The State of Illinois realleges and incorporates paragraphs 1-331 as if set forth fully above.

334. Use of defendants' cigarettes as intended causes disease.

335. Many of the State of Illinois's residents who are afflicted with tobacco-related diseases are poor, uneducated, and unable to provide for their own medical care. These residents rely upon the State of Illinois to provide their medical care, and the State is legally obligated to provide and pay for such medical services, pursuant to 305 ILCS 5/5-1.1 et seq. and the provisions of 42 U.S.C. õ 1396, et seq. The provision of and payment for such medical care results in an extreme burden on the taxpayers and the financial resources of this State. The State of Illinois has expended millions of dollars in caring for residents who have and are suffering from lung cancer, cardiovascular disease, emphysema, chronic obstructive pulmonary disease and a variety of other cancers and diseases that were and are caused by defendants' cigarettes. The State of Illinois has also expended millions in providing health care for its employees the cost of which has been increased as a result of defendants' conduct.

336. Defendants have knowledge of the benefit conferred on them by the State's payment of health care costs for diseases resulting from the use of tobacco products sold in the State of Illinois by the defendants, which payments were foreseeable, given the defendants' knowledge of the health risks of their cigarettes.

337. While the State of Illinois pays the health care costs that result from the use of tobacco products as intended, defendants continue to reap billions of dollars in profits from the sale of their cigarettes.

338. Defendants have avoided regulations and the costs of disease, injuries and deaths resulting from the normal use of their unreasonably dangerous products. Defendants have been and are able legally to promote the sale of cigarettes to the residents of the State of Illinois by continuing to misinform the federal and state authorities about the true carcinogenic, pathologic and addictive qualities of their cigarettes.

339. In direct contradiction to and in spite of the State of Illinois's specific statutory prohibitions, defendants have spent billions of dollars on targeted marketing programs designed to encourage minors to purchase and use their cigarettes.

340. In equity and fairness, the defendants and their agents, aiders and abettors and co-conspirators, not the State of Illinois, should bear the costs of tobacco-related diseases. By avoiding their own duties to stand financially responsible for the harm done by their cigarettes, defendants wrongfully have forced the State of Illinois to perform such duties and to pay the health care costs of tobacco-related disease. As a result, defendants have been unjustly enriched to the extent that taxpayers of the State of Illinois have had to pay these costs, which rightfully should be borne by defendants.

341. As a result of defendants' conduct, the State of Illinois has suffered and will continue to suffer substantial injuries and damages for which it is entitled to relief.

WHEREFORE, the State of Illinois prays as follows:

A. That the Court adjudge and decree that defendants have engaged in the conduct alleged herein.

B. That the Court enjoin and restrain defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing or engaging in such conduct or other conduct having similar purpose or effect.

C. That the Court order defendants to publicly disclose, disseminate, and publish all research previously conducted directly or indirectly by themselves and their respective agents, affiliates, servants, officers, directors, employees, and all persons acting in concert with them, that relates to the issue of smoking and health.

D. That the Court order defendants to fund a corrective public education campaign relating to the issue of smoking and health, administered and controlled by an independent third party.

E. That the Court order defendants to fund clinical smoking cessation programs in the State of Illinois.

F. That the Court order defendants to pay restitution which would restore plaintiff to the financial position that it would be in, absent the defendants' conduct.

G. That the Court order defendants to disgorge all unjust profits from tobacco sales to minors, and from all other tobacco sales in the State of Illinois which defendants should not be allowed to retain.

H. That the Court order such other and further relief as the Court deems just, necessary and appropriate.

DATED: November 12 1996.

PEOPLE OF THE STATE OF ILLINOIS

JAMES E. RYAN
Attorney General of Illinois
By: Steve W. Berman
Special Assistant Attorney General
Richard M. Stock
Stephen J. Culliton
Assistant Attorneys General
100 W. Randolph
12th Floor
Chicago, IL 60601
(312) 814-3000
HAGENS & BERMAN
Steve W. Berman
Ill. Bar No. 03126833
James P. Solimano
George W. Sampson
Sean R. Matt
Andrew M. Volk
1301 Fifth Avenue, Suite 2929
Seattle, WA 98101
(206) 623-7292
FREEBORN & PETERS
David H. Kistenbroker
Fred Foreman
311 S. Wacker
Suite 3000
Chicago, IL 60606
(312) 360-6000
STEVEN C. MITCHELL, P.C.
Steven C. Mitchell
3605 North Seventh Avenue
Phoenix, AZ 85013
BARRETT LAW OFFICES
Don Barrett
404 Court Square North
P.O. Box 987
Lexington, MS 39095
(601) 834-2376
LIEFF, CABRASER, HEIMANN
& BERNSTEIN
275 Battery Street
30th Floor
San Francisco, CA 94111
(415) 956-1000
Special Assistant Attorneys General
for the State of Illinois

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