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In the Supreme Court of the United States
UNITED STATES OF AMERICA, PETITIONER
PHILIP MORRIS USA, INC., ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
APPENDIX TO THE
PETITION FOR A WRIT OF CERTIORARI
Counsel of Record
Assistant Attorney General
EDWIN S. KNEEDLER
MICHAEL R. DREEBEN
Deputy Solicitors General
ANTHONY A. YANG
Assistant to the Solicitor
MARK B. STERN
ALISA B. KLEIN
MARK R. FREEMAN
GREGORY C.J. LISA
Department of Justice
Washington, D.C. 20530-0001
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
No. CIV.A. 99-2496(GK)
UNITED STATES OF AMERICA, PLAINTIFF
TOBACCO-FREE KIDS ACTION FUND, AMERICAN
CANCER SOCIETY, AMERICAN HEART
ASSOCIATION, AMERICAN LUNG ASSOCIATION,
AMERICANS FOR NONSMOKERS'
RIGHTS, AND NATIONAL AFRICAN AMERICAN
TOBACCO PREVENTION NETWORK, INTERVENORS,
PHILIP MORRIS USA, INC., (F/K/A PHILIP MORRIS, INC.), ET AL., DEFENDANTS
Aug. 17, 2006
KESSLER, District Judge.
TABLE OF CONTENTS
I. INTRODUCTION 26
A. Overview 26
B. Preliminary Guidance for the Reader 29
II. PROCEDURAL HISTORY 31
III. CREATION, NATURE, AND OPERATION
OF THE ENTERPRISE 34
A. Pre-1953 Overview-The Rise in
American Smoking and the Status of
Scientific Research on Smoking and
B. Creation of the Enterprise 36
C. TIRC/CTR-Tobacco Industry Research Committee/Council for Tobacco Research-USA 41
1. Selection and Approval of TIRC's
Scientific Advisory Board Members
and Scientific Director 46
2. Research Activities of TIRC/CTR 49
3. Public Relations Activities of TIRC/CTR 53
4. Publications and Public Statements
of TIRC/CTR 56
a. TIRC/CTR Annual Reports 56
b. TIRC/CTR Newsletters 58
c. TIRC/CTR Press Releases and
Other Public Statements 60
D. Tobacco Institute 62
1. Formation of the Tobacco Institute 62
2. Relationship Between the Tobacco
Institute and TIRC/CTR 66
3. Tobacco Institute Press Releases,
Public Statements, Advertisements,
Brochures, and Other Publications 70
4. Tobacco Institute Committees 77
a. Committee of Counsel and Outside
b. Tobacco Institute Executive
c. Tobacco Institute Communications
5. Tobacco Institute College of Tobacco
6. Tobacco Institute Testing
E. Joint Research Activity Directed by
Defendants' Executives and Lawyers 87
1. Witness Development 87
2. CTR Special Projects 91
a. Nature of CTR Special Projects 91
b. Lawyers' Involvement with CTR
Special Projects 94
c. Scientists Funded Through CTR
Special Projects 100
3. Lawyers' Special Accounts 100
a. Special Account No. 3 101
b. Special Account No. 4 101
c. Special Account No. 5 106
d. Institutional Grants 107
F. Committees 108
1. Research Review Committee,
Research Liaison Committee, and
Industry Research Committee 108
2. Industry Technical Committee 110
3. Tobacco Working Group 112
G. Coordinated Smoking and Health
Literature Collection and Retrieval 115
H. Defendants' Organizations Focused on ETS Issues 118
I. International Organizations, Committees, and Groups 119
1. Overview 119
2. TMSC-Tobacco Manufacturers'
Standing Committee 123
3. TRC-Tobacco Research Council 125
4. TAC-Tobacco Advisory Council 126
5. ICOSI-International Committee
on Smoking Issues 129
Tobacco Information Center 132
7. TDC-Tobacco Documentation
8. CORESTA-Center for Cooperation
in Scientific Research Relative to
Tobacco/Centre de Coopération pour les Recherches Scientifques
Relatives au Tabac 136
9. Tobacco Institute Interaction with
Overseas and International Groups 137
J. Dissolution of CTR and the Tobacco
1. CTR 142
2. Tobacco Institute 143
IV. THE DEFENDANTS ARE ENGAGED IN
AND THEIR ACTIVITIES AFFECT
INTERSTATE AND FOREIGN
A. Philip Morris Companies 143
B. Philip Morris 143
C. R.J. Reynolds 144
D. Liggett 144
E. Lorillard 144
F. BATCo 144
G. Brown & Williamson 144
H. American 144
I. Tobacco Institute 144
J. TIRC/CTR 145
V. DEFENDANTS DEVISED AND EXECUTED
A SCHEME TO DEFRAUD CONSUMERS
AND POTENTIAL CONSUMERS OF
CIGARETTES IN MOST, BUT NOT ALL,
OF THE AREAS ALLEGED BY THE
A. Defendants Have Falsely Denied,
Distorted and Minimized the Significant
Adverse Health Consequences of
Smoking for Decades 146
1. Cigarette Smoking Causes Disease 146
2. Scientific Research on Lung Cancer
up to December 1953 148
a. Scientists Investigating the Rise
in the Incidence of Lung Cancer
Linked Smoking and Disease
before 1953 148
b. By 1953, Defendants Recognized
the Need for Concerted Action
to Confront Accumulating
Evidence of the Serious
Consequences of Smoking 153
3. Developments Between 1953 and
a. Between 1953 and 1964, the
that Smoking Causes Signifi-
cant Adverse Health Effects
Grew Although No Consensus
Had Yet Been Reached 155
b. Before 1964, Defendants Inter-
nally Recognized the Grow-
ing Evidence Demonstrating
that Smoking Causes Signifi-
cant Adverse Health Effects 164
c. In the 1950s, Defendants Began
Their Joint Campaign to Falsely
Deny and Distort the Existence
of a Link Between Cigarette Smok-
ing and Disease, Even Though
Their Internal Documents Recog-
nized Its Existence 168
4. The 1964 Surgeon General Report
Represented a Scientific Consensus
that Smoking Causes Disease 174
a. The Process and Methodology
of the Surgeon General's Report 174
b. The Conclusions 178
5. Post-1964 Research on the Adverse
Health Effects of Smoking and Defend-
ants' Persistent Denials Thereof 179
a. Following Publication of the 1964
Report, the Scientific Community
Continued to Document the Link
Between Smoking and an Extra-
ordinary Number of Serious
Health Consequences 179
b. Defendants' Internal Documents
and Research from the 1960s,
1970s, and Beyond Reveal Their
Continued Recognition that
Smoking Causes Serious Adverse
Health Effects and Their Fear of
the Impact of Such Knowledge
on Litigation 180
c. Despite Their Internal Know-
ledge, Defendants Continued,
From 1964 Onward, to Falsely
Deny and Distort the Serious
Health Effects of Smoking 187
6. As of 2005, Defendants Still Do Not
Admit the Serious Health Effects
of Smoking Which They Recognized
Internally Decades Ago 204
7. Conclusions 207
B. The Addictive Properties of Nicotine 208
1. Introduction 208
2 Cigarette Smoking Is Addictive and
Nicotine Is the Primary Element of
that Addiction 209
a. How Nicotine Operates within
the Body 209
b. Evolving Definitions of "Addiction"
and Classification of Nicotine 211
c. Consequences of the Addictiveness
of Nicotine 216
d. Conclusion 218
3. Defendants Were Well Aware that
Smoking and Nicotine Are Addic-
a. Philip Morris 219
b. R.J. Reynolds 231
c. BATCo 237
d. Brown & Williamson 258
e. Lorillard 266
f. American Tobacco Company 269
g. CTR 270
4. Defendants Publicly Denied that
Nicotine Is Addictive and Continue
to Do So 271
a. Philip Morris 272
b. R.J. Reynolds 274
c. BATCo 277
d. American Tobacco Company 278
e. Brown & Williamson 278
f. Lorillard 279
g. Liggett 280
h. Tobacco Institute 281
i. CTR 286
j. Defendants' Conduct Continues 286
5. Defendants Concealed and Sup-
pressed Research Data and Other
Evidence --> --> at Nicotine Is Addictive 289 a. Philip Morris 290 b. BATCo 297 c. Brown
& Williamson 298
d. American Tobacco Company 303
e. Tobacco Institute 303
f. CTR and Other Defendant
Funded Research Groups 303
6. Conclusions 307
C. Nicotine "Manipulation": Defendants
Have Falsely Denied that They Can
and Do Control the Level of Nicotine
Delivered In Order to Create and
Sustain Addiction 308
1. For Decades, Defendants Have
Recognized that Controlling Nicotine
Delivery, in Order to Create and
Sustain Smokers' Addiction, Was
Necessary to Ensure Commercial
a. Defendants Recognized the Need
to Determine "Minimum" and
"Optimum" Nicotine Delivery
Levels in Order to Provide Suffi-
cient "Impact" and "Satisfaction"
to Cigarette Smokers 309
(1) Philip Morris 311
(2) R.J. Reynolds 312
(3) Brown & Williamson and
(4) Lorillard 315
(5) Liggett 315
b. Defendants Have Long Recog-
nized that Controlling the Nicotine
to Tar Ratio Would Enable Them
to Meet Minimum and Optimum
Nicotine Delivery Levels 315
(1) Philip Morris 315
(2) R.J. Reynolds 319
(3) Brown & Williamson and
(4) American 328
(5) Lorillard 329
(6) Liggett 333
c. Defendants Understood the Cor-
relation Between Nicotine
Delivery and Cigarette Sales 334
(1) Philip Morris 334
(2) R.J. Reynolds 334
(3) Brown & Williamson and
(4) Lorillard 336
2. Defendants Researched, Developed,
and Utilized Various Designs and
Methods of Nicotine Control to
Ensure that All Cigarettes Delivered
Doses of Nicotine Adequate to
Create and Sustain Addiction 337
a. Defendants Recognized the Need
to Design Cigarettes that Would
Produce Low Nicotine and Tar
Measurements under the FTC
Method While Also Delivering
the Minimum Nicotine Levels to
Create and Sustain Addiction 338
b. Leaf Blend and Filler: Defendants
Controlled the Amount and Form
of Nicotine Delivery in Their Com-
mercial Products by Controlling
the Physical and Chemical Make-
Up of the Tobacco Blend and
(1) Philip Morris 341
(2) R.J. Reynolds 343
(3) Brown & Williamson and
(4) American 345
(5) Lorillard 347
(6) Liggett 348
c. Nicotine to Tar Ratio: Defendants
Have Used Physical Design Para-
meters to Increase the Nicotine to
Tar Ratio of Their Cigarettes 349
(1) Filter Design 350
(2) Ventilation and Air Dilution 351
(3) Paper Porosity and Compo-
d. Smoke pH and Ammonia: Defen-
dants Altered the Chemical Form
of Nicotine Delivered in Main-
stream Cigarette Smoke for the
Purpose of Improving Nicotine
Transfer Efficiency and Increasing
the Speed with Which Nicotine Is
Absorbed by Smokers 352
(1) Scientific Overview 352
(2) Individual Defendants'
(a) Philip Morris 357
(b) R.J. Reynolds 360
(c) Brown & Williamson and
(d) American 369
(e) Lorillard 370
(f) Liggett 371
e. Other Additives: Defendants Re-
searched the Use of Other Addi-
tives to Control Nicotine Delivery 372
3. Defendants Have Made False and
Misleading Public Statements
Regarding Their Control of the
Nicotine Content and Delivery of
Their Products 374
a. The Waxman Hearings 374
b. Defendants' False and Misleading
Public Statements Continued
After the Waxman Hearings 380
c. Testimony Consistent with
Fraudulent Public Statements 383
4. Conclusions 383
D. The Government Has Failed to Prove by
a Preponderance of the Evidence that
Defendants Deliberately Chose Not to
Utilize or Market Feasible Designs or
Product Features that Could Produce
Less Hazardous Cigarettes 384
1. Introduction 384
2. Defendants Have Long Acknow-
ledged Internally the Existence of
a Market for a Genuinely Less
Hazardous Cigarette 385
3. Defendants Received Conflicting
Messages From the Government
and the Public Health Community
About Their Efforts to Create and
Market Less Hazardous Cigarettes 386
4. As Part of the Effort to Make Less
Hazardous Cigarettes, Defendants
Experimented with General and
Selective Reduction 389
a. General Reduction 389
b. Selective Reduction 391
(1) Defendants' Efforts to
Reduce Benzo(a)pyrene 392
(2) Defendants' Efforts to Reduce
Phenols Through Use of Char-
coal Filtered Cigarettes 392
(a) Philip Morris 393
(b) RJ Reynolds 395
(c) Lorillard's York Cigarette 395
(3) Defendants' Efforts to Reduce
(4) Defendants' Efforts to Reduce
Delivery of Tobacco-Specific
5. Defendants' Efforts to Develop/
Market Potentially Less Hazardous
Non-Conventional Products 399
a. Philip Morris 399
(1) Accord 399
(2) Next 400
(3) Nicotine Analogue Program 401
b. RJ Reynolds 402
(1) The Multijet Filter 402
(2) Heated Tobacco Products 403
(a) Premier 403
(b) Eclipse 410
(3) EW/Winston Select 415
c. BATCo and Brown & Williamson 420
(1) FACT Cigarette 420
(2) Project Ariel 421
(3) Project Airbus 422
(4) Advance 423
d. Lorillard's Zero Tar and PMO
e. Liggett's Project XA 426
6. The Government Has Not Proven
by a Preponderance of the Evidence
that Defendant Had a "Gentleman's
Agreement" Not to Develop a Less
Hazardous Cigarette and Not to Do
In-House Bioogical Research on the
Hazards of Smoking 427
7. Conclusions 429
E. Defendants Falsely Marketed and Pro-
moted Low Tar/Light Cigarettes as Less
Harmful than Full-Flavor Cigarettes in
Order to Keep People Smoking and
Sustain Corporate Revenues 430
1. Low Tar/Light Cigarettes Offer No
Clear Health Benefit over Regular
a. History of Health Claims 431
b. The FTC Method 433
c. The FTC Method Does Not
Measure Actual Tar and Nicotine
d. The Public Health Community
Has Concluded that Low Tar
Cigarettes Offer No Clear
Health Benefit 444
2. Based on Their Sophisticated Under-
standing of Compensation, Defen-
dants Internally Recognized that
Low Tar/Light Cigarettes Offer No
Clear Health Benefit 456
a. Defendants Internally Recognized
that Low Tar Cigarettes Are Not
Less Harmful Than Full-Flavor
(1) Philip Morris 456
(2) RJ Reynolds 458
(3) Brown & Williamson 459
(4) BATCo 460
(5) Lorillard 460
(6) Liggett 460
b. Internally, Defendants Had an
Extensive and Sophisticated
Understanding of Smoker
(1) Philip Morris 461
(2) RJ Reynolds 467
(3) Brown & Williamson 469
(4) BATCo 470
(5) American Tobacco 474
(6) Lorillard 474
3. Defendants Internally Recognized
that Smokers Switch to Low Tar/
Light Cigarettes, Rather than Quit
Smoking, Because They Believe
They Are Less Harmful 475
a. Defendants Recognized that Smok-
ers Choose Light/Low Tar Ciga-
rettes for a Perceived Health
(1) Philip Morris 477
(2) R.J. Reynolds 481
(3) Brown & Williamson 483
(4) BATCo 485
(5) American Tobacco 487
(6) Lorillard 487
b. Defendants Internally Recognized
that Smokers Rely on the Claims
Made for Low Tar/Light Ciga-
rettes as an Excuse/Rationale
for Not Quitting Smoking 488
(1) Tobacco Institute 488
(2) Philip Morris 488
(3) R.J. Reynolds 492
(4) Brown & Williamson 495
(5) BATCo 497
(6) American Tobacco 499
(7) Lorillard 499
(8) Liggett 500
4. Despite Their Internal Knowledge,
Defendants Publicly Denied that
Compensation Is Nearly Complete
and that the FTC Method is Flawed 500
a. Tobacco Institute 504
b. Philip Morris 504
c. RJ Reynolds 506
d. Brown & Williamson 506
e. BATCo 507
f. American Tobacco 507
g. Lorillard 507
5. Despite Their Internal Knowledge,
Defendants' Marketing and Public
Statements About Low Tar Ciga-
rettes Continue to Suggest that
They Are Less Harmful than Full-
Flavor Cigarettes 507
a. Philip Morris 513
(1) Philip Morris's Low Tar Ciga-
rette Marketing Techniques 513
(2) Philip Morris's Research on
the Low Tar Cigarette Cate-
(3) Philip Morris's Public State-
ments About Low Tar Ciga-
b. R.J. Reynolds 529
(1) R.J. Reynolds's Low Tar
Marketing Techniques 529
(2) R.J. Reynolds's Research on
the Low Tar Cigarette Cate-
(3) RJR's Public Statements
About Low Tar Cigarettes 537
c. Brown & Williamson 537
(1) Brown & Williamson's Mar-
keting of Low Tar Cigarettes 537
(2) Brown & Williamson's
Research on the Low Tar
Cigarette Category 540
(3) Brown & Williamson's Public
Statements About Low Tar
d. BATCo 546
(1) BATCo's Research on the
Low Tar Cigarette Category 546
(2) BATCo's Public Statements
About Low Tar Cigarettes 549
e. American Tobacco Marketing
of Low Tar Cigarettes 549
f. Lorillard 554
(1) Lorillard's Marketing of
Low Tar Cigarettes 554
(2) Lorillard's Research on the
Low Tar Cigarette Category 558
g. Liggett 560
6. Conclusions 560
F. From the 1950s to the Present, Different
Defendants, at Different Times and
Using Different Methods, Have Inten-
tionally Marketed to Young People
Under the Age of Twenty-One in Order
to Recruit "Replacement Smokers" to
Ensure the Economic Future of the
Tobacco Industry 561
1. Definition of Youth 561
2. The Defendants Need Youth
as Replacement Smokers 561
3. Defendants' Marketing Is a Substan-
tial Contributing Factor to Youth
Smoking Initiation 565
a. Development of the Link Between
Marketing and Youth Smoking 565
(1) No Single-Source Causative
Factor Can Describe the
Complex Link Between Mar-
keting and Youth Smoking 565
(2) Public Health Authorities
Have Found that Marketing
Is a Substantial Contributing
Factor to Youth Smoking
(3) Independent Studies Have
Found that Marketing Is a Sub-
stantial Contributing Factor to
Youth Smoking Initiation 569
(4) Credible Expert Witnesses
Have Found that Marketing
Is a Substantial Contributing
Factor to Youth Smoking
b. The Ubiquity of Defendants' Mar-
keting Normalizes and Legiti-
mizes Smoking for Youth 575
c. Risk Perception: The Inability of
Youth to Grasp the Full Implica-
tions of Smoking 576
4. Tracking Youth Behavior and Prefer-
ences Ensures that Marketing
and Promotion Reach Youth 580
a. Defendants Track Youth Behavior
and Preferences 580
(1) Philip Morris 580
(2) Lorillard 594
(3) American Tobacco, BATCo,
and Brown & Williamson 598
(4) R.J. Reynolds 607
b. Defendants' Marketing Employs
Themes Which Resonate with
(1) Philip Morris 617
(2) Lorillard 622
(3) Brown & Williamson 625
(4) R.J. Reynolds 630
c. Defendants Continue Price Promo-
tions for Premium Brands Which
Are Most Popular with Teens 639
(1) Philip Morris 641
(2) Liggett 643
(3) Lorillard 643
(4) Brown & Williamson 643
(5) R.J. Reynolds 644
5. Defendants' Marketing Successfully
Reaches Youth 645
a. Defendants' Spending on Market-
ing and Promotion Has Contin-
ually Increased 645
b. Defendants Advertise in Youth-
Oriented Publications 646
(1) Philip Morris 647
(2) Liggett 651
(3) Lorillard 651
(4) Brown & Williamson 653
(5) R.J. Reynolds 654
c. Defendants Market to Youth
Through Direct Mail 656
(1) Philip Morris 656
(2) Lorillard 658
(3) Brown & Williamson 659
(4) R.J. Reynolds 659
d. Defendants Market to Youth
Through an Array of Retail
e. Defendants' Promotional Items,
Events and Sponsorships Attract
(1) Events 663
(2) Sponsorships 664
(3) Promotional Items 667
6. Defendants' Youth Smoking Preven-
tion Programs Are Not Designed to
Effectively Prevent Youth Smoking 667
7. Despite the Overwhelming Evidence
to the Contrary, Defendants' Public
Statements and Official or Internal
Corporate Policies Deny that Their
Marketing Targets Youth or Affects
Youth Smoking Incidence 672
a. Defendants Claim They Restrict
Their Marketing to People
Twenty-one and Older 672
(1) The 1964 Advertising Code 672
(2) Official Corporate Policies 674
b. Defendants Deny Their Market-
ing Influences Youth Smoking
Initiation; Defendants' Explan-
ation for Their Marketing
Practices Is Not Credible 676
(1) Tobacco Institute 676
(2) Philip Morris 682
(3) Liggett 684
(4) Lorillard 684
(5) BATCo and Brown & William-
(6) RJ Reynolds 688
8. Conclusions 691
G. Defendants Have Publicly Denied What
They Internally Acknowledged: that
ETS Is Hazardous to Nonsmokers 692
1. Introduction 692
2. The Consensus of the Public Health
Community Is that ETS Causes
Disease in Nonsmokers 693
a. The Development of the Consen-
b. The Consensus 703
3. Internally, Defendants Recognized
that ETS Is Hazardous to Non-
a. ETS Research at Philip Morris's
Institut für Biologische For-
schung (INBIFO) 709
b. Defendants' Recognition of the
Validity of the Hirayama Study 716
c. Other Internal Research and
Statements Revealing Defendants'
Knowledge of the Health Risks of
Passive Smoking 718
4. Internally, Defendants Expressed
Concern that the Mounting Evi-
dence on ETS Posed a Grave Threat
to Their Industry 720
5. Defendants Made Public Promises to
Support Independent Research on the
Link Betwen ETS and Disease 722
6. Defendants Undertook Joint Efforts
to Undermine and Discredit the
Scientific Consensus that ETS
Causes Disease 723
a. Defendants Acted Through a Web
of Coordinated and Interrelated
International and Domestic
(1) 1975-1980: The Tobacco Insti-
tute ETS Advisory Group 724
(2) 1977-1991: "Operation Berk-
(3) 1987: Operation Downunder 732
(4) 1988-1999: The Center for
Indoor Air Research (CIAR) 735
(a) CIAR Applied Projects 739
(b) Defendants Cultivated
CIAR's Apparent Inde-
(c) The Demise of CIAR 746
(5) Post-1991: IEMC 746
(6) The Global ETS Consultancy
(a) Establishment and Goals
of the ETS Consultancy
(b) Implementation of the
ETS Consultancy Pro-
gram: Recruiting, Training,
and Educating the Consult-
(c) The Indoor Air Pollution
Advisory Group (IAPAG) 757
(d) The Appearance of "Inde-
(e) Defendants' Use of Con-
(f) ARIA and IAI 762
(g) The Industry's ETS Con-
sultants Cited and/or Pub-
lished Without Disclosure
of Tobacco Industry Ties 764
(h) ACVA/HBI 766
(7) ETS Symposia 767
(a) The 1974 Bermuda (Ry-
lander) "Workshop" 768
(b) The Geneva (Rylander)
(c) The Vienna Conference 771
(d) The 1987 Tokyo Confer-
(e) The 1989 McGill "Sympos-
b. Defendants and Their Paid Con-
sultants Controlled ETS Research
(1) The 1995 Japanese Spousal
(2) The 1989 Malmfors/SAS Air-
line Study 781
(3) The 1992 HBI 585 Building
(4) The 2003 Enstrom/Kabat
7. Defendants Made False and Mislead-
ing Public Statements Denying that
ETS Is Hazardous to Nonsmokers 788
8. Defendants Continue to Obscure the
Fact that ETS is Hazardous to Non-
a. Websites and Other Public State-
b. The Philip Morris External Re-
search Program (PMERP) 798
c. Other Initiatives 799
9. Conclusions 800
H. At Various Times, Defendants Attempted
to and Did Suppress and Conceal Scien-
tific Research and Destroy Documents
Relevant to Their Public and Litigation
1. Suppression and Concealment of Scien-
tific Research 801
a. R.J. Reynolds 802
b. BAT Group 804
c. Philip Morris 810
d. Lorillard 814
2. Document Destruction Policies 814
a. BAT Group 815
b. R.J. Reynolds 831
3. Improper use of Attorney-Client and
Work Product Privileges 832
a. BAT Group 832
b. R.J. Reynolds 836
c. Liggett 836
d. Findings by Other Courts 836
4. Conclusions 839
VI. THE PROVISIONS AND IMPLICATIONS
OF SETTLEMENT AGREEMENTS BY
A. Liggett's Settlement Agreement with
Various States 839
B. The Master Settlement Agreement 841
1. Provisions of the MSA 841
2. Enforcement of the MSA 844
3. Developments Since the MSA 848
VII. DEFENDANTS HAVE VIOLATED 18 U.S.C.
A. Introduction 851
B. Defendants Engaged in a Scheme to De-
fraud Smokers and Potential Smokers 852
1. Defendants Falsely Denied the Ad-
verse Health Effects of Smoking 854
2. Defendants Falsely Denied that Nico-
tine and Smoking Are Addictive 856
3. Defendants Falsely Denied that They
Manipulated Cigarette Design and
Composition so as to Assure Nicotine
Delivery Levels Which Create and
Sustain Addiction 858
4. Defendants Falsely Represented that
Light and Low Tar Cigarettes De-
liver Less Nicotine and Tar and,
Therefore, Present Fewer Health
Risks than Full-Flavor Cigarettes 859
5. Defendants Falsely Denied that
They Market to Youth 861
6. Defendants Falsely Denied that
ETS Causes Disease 864
7. Defendants Suppressed Documents,
Information, and Research 866
C. Defendants Established an Enterprise 867
1. Applicable Legal Standards 867
2. Defendants' Enterprise Had a
Common Purpose 869
3. The Enterprise operated through
both formal and informal organi-
4. The Enterprise Has Functioned
as a Continuous Unit 871
D. The Enterprise Engaged in and Its
Activities Affected Interstate and
Foreign Commerce 872
E. Each Defendant Was Associated with,
but Distinct from, the Enterprise 873
1. Each Defendant Is Associated with
the Enterprise 873
2. Each Defendant is Distinct from
the Enterprise 875
F. Each Defendant Participated in the
Conduct of the Enterprise 875
G. Each Defendant Carried Out Its Participa-
tion in the Conduct of the Enterprise
by Engaging in a Pattern of Racketeer-
ing Activity 878
1. The Government Has Proven that
Defendants Caused Mailings and
Wire Transmissions, in Furtherance
of the Scheme to Defraud, in Viola-
tion of 18 U.S.C. §§ 1341 and/or
a. Defendants' Routine Mailing
(1) Philip Morris 881
(2) Lorillard 881
(3) Liggett 881
(4) R.J. Reynolds 881
(5) The Tobacco Institute 882
(6) Council For Tobacco
b. Prior Stipulations and Admissions
Establish the Mailings and Wire
Transmissions Underlying 79 of
the Alleged 145 Racketeering
c. The Mailings and Wire Trans-
missions Underlying the Alleged
Racketeering Acts Which Involve
Defendants' Press Releases and
Advertisements Were Dissemi-
nated to the Public Via the United
States Mails and Wire Transmis-
d. Defendants Caused Wire, Radio,
and Television Transmissions
Underlying the Racketeering
e. The Mailings and Wire Trans-
missions Involving Communi-
cations Were Sent or Received
by Defendants or their Repre-
f. The Cigarette Company Defend- ants Are Liable for the Mailings
and Wire Transmissions Under-
lying the Racketeering Acts
Committed By Defendants
CTR and TI 885
2. The First Amendment Does Not
Protect Defendants' False and
Misleading Public Statements 886
a. Noerr-Pennington Protects Only
Those Defendants' Statements
Made in the Course of Petitioning
the Legislature; It Does Not Im-
munize Statements Made with the
Purpose of Influencing Smokers,
Potential Smokers, and the Gen-
eral Public 886
b. The Government Has Met the Nec-
essary Standard of Proof to Show
that Defendants' Actions Are
3. Defendants Engaged in a Pattern of
Racketeering Activity in Further-
ance of the Scheme to Defraud 889
a. Each Defendant Committed at
Least Two Racketeering Acts,
the Last One of Which Occurred
Within Ten Years from the Com-
mission of the Prior Racketeering
b. The Racketeering Acts Are Relat-
ed and Continuous 889
(1) The Racketeering Acts Are
(2) The Racketeering Acts Have
Been Continuous 890
4. Defendants Acted with the Specific
Intent to Defraud or Deceive 891
a. Defendants Are Liable for the
Acts of Their Officers, Employees,
and Agents 892
b. Defendants Are Deemed to Pos-
sess the Collective Knowledge of
Their Officers, Employees, and
c. Specific Intent May Be Estab-
lished by the Collective Know-
ledge of Each Defendant and of
the Enterprise as a Whole 895
5. Defendants' False and Fraudulent
Statements, Representations, and
Promises Were Material 898
VIII. DEFENDANTS HAVE VIOLATED
18 U.S.C. § 1962(d) 901
A. Applicable Case Law 901
B. Each Defendant Is Liable for the RICO
Conspiracy Charge Because Each
Entered into the Requisite Conspira-
torial Agreement 903
C. Liggett Withdrew from the Conspiracy 906
IX. ALTRIA IS LIABLE FOR ITS VIOLATIONS
OF 18 U.S.C. § 1962(c) and (d) 907
X. THERE IS A LIKELIHOOD OF PRESENT
AND FUTURE VIOLATIONS OF RICO 908
A. Applicable Law 908
B. The Enterprise's Scheme to Defraud
Presents Continuing Opportunities for
Defendants to Commit Violations of
18 U.S.C. § 1962(c) and (d) 911
C. The MSA Has Not Sufficiently Altered
Defendants' Conduct to Justify Not
Imposing Appropriate Remedies 913
D. As to Certain Defendants, There is Not
a Reasonable Likelihood of Future Viola-
tions of 18 U.S.C. § 1962(c) and (d) 915
1. CTR 915
2. The Tobacco Institute 916
3. Liggett 918
XI. REMEDIES 919
A. Legal Standards Governing Remedies 919
B. Specific Remedies 923
1. Prohibition of Brand Descriptors 923
2. Corrective Communications 925
3. Disclosure of Documents and Disag-
gregated Marketing Data 928
a. Depositories 929
b. Websites 930
c. Privilege Claims 931
d. Disaggregated Marketing Data 932
4. General Injunctive Provisions 932
5. National Smoker Cessation Program 933
6. Youth Smoking Reduction Targets 933
7. Corporate Structural Changes 934
8. Public Education and Countermar-
keting Campaign 936
9. Costs 937
On September 22, 1999, the United States brought this massive lawsuit against nine cigarette manufactur ers of cigarettes and two tobacco-related trade organiza tions. The Government alleged that Defendants have violated, and continue to violate, the Racketeer Influ enced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, by engaging in a lengthy, unlaw ful conspiracy to deceive the American public about the health effects of smoking and environmental tobacco smoke, the addictiveness of nicotine, the health benefits from low tar, "light" cigarettes, and their manipulation of the design and composition of cigarettes in order to sustain nicotine addiction. As Justice O'Connor noted in Food and Drug Administration, et al. v. Brown & Wil liamson Tobacco Corporation, et al., 529 U.S. 120, 125, 120 S. Ct. 1291, 146 L. Ed. 2d 121 (2000), "[t]his case involves one of the most troubling public health prob lems facing our Nation today: the thousands of prema ture deaths that occur each year because of tobacco use."
In particular, the Government has argued that, for approximately fifty years, the Defendants have falsely and fraudulently denied: (1) that smoking causes lung cancer and emphysema (also known as chronic obstruc tive pulmonary disease ("COPD")), as well as many other types of cancer; (2) that environmental tobacco smoke causes lung cancer and endangers the respiratory and auditory systems of children; (3) that nicotine is a highly addictive drug which they manipulated in order to sustain addiction; (4) that they marketed and pro moted low tar/light cigarettes as less harmful when in fact they were not; (5) that they intentionally marketed to young people under the age of twenty-one and denied doing so; and (6) that they concealed evidence, de stroyed documents, and abused the attorney-client privi lege to prevent the public from knowing about the dan gers of smoking and to protect the industry from ad verse litigation results.
The following voluminous Findings of Fact demon strate that there is overwhelming evidence to support most of the Government's allegations. As the Conclu sions of Law explain in great detail, the Government has established that Defendants (1) have conspired together to violate the substantive provisions of RICO, pursuant to 18 U.S.C. § 1962(d), and (2) have in fact violated those provisions of the statute, pursuant to 18 U.S.C. § 1962(c). Accordingly, the Court is entering a Final Judgment and Remedial Order which seeks to prevent and restrain any such violations of RICO in the future.
In particular, the Court is enjoining Defendants from further use of deceptive brand descriptors which implic itly or explicitly convey to the smoker and potential smoker that they are less hazardous to health than full flavor cigarettes, including the popular descriptors "low tar," "light," "ultra light," "mild," and "natural." The Court is also ordering Defendants to issue corrective statements in major newspapers, on the three leading television networks, on cigarette "onserts," and in retail displays, regarding (1) the adverse health effects of smoking; (2) the addictiveness of smoking and nicotine; (3) the lack of any significant health benefit from smok ing "low tar," "light," "ultra light," "mild," and "natural" cigarettes; (4) Defendants' manipulation of cigarette design and composition to ensure optimum nicotine de livery; and (5) the adverse health effects of exposure to secondhand smoke.
Finally, the Court is ordering Defendants to disclose their disaggregated marketing data to the Government in the same form and on the same schedule which they now follow in disclosing this material to the Federal Trade Commission. All such data shall be deemed "con fidential" and "highly sensitive trade secret informa tion" subject to the protective Orders which have long been in place in this litigation.
Unfortunately, a number of significant remedies pro posed by the Government could not be considered by the Court because of a ruling by the Court of Appeals in United States v. Philip Morris, USA, Inc., et al., 396 F.3d 1190 (D.C. Cir. 2005). In that opinion, the Court held that, because the RICO statute allows only forward-looking remedies to prevent and restrain viola tions of the Act, and does not allow backward-looking remedies, disgorgement (i.e., forfeiture of ill-gotten gains from past conduct) is not a permissible remedy.
Applying this same legal standard, as it is bound to do, this Court was also precluded from considering other remedies proposed by the Government, such as a com prehensive smoker cessation program to help those ad dicted to nicotine fight their habit, a counter marketing program run by an independent entity to combat Defen dants' seductive appeals to the youth market; and a schedule of monetary penalties for failing to meet pre- set goals for reducing the incidence of youth smoking.
The seven-year history of this extraordinarily com plex case involved the exchange of millions of docu ments, the entry of more than 1,000 Orders, and a trial which lasted approximately nine months with 84 wit nesses testifying in open court. Those statistics, and the mountains of paper and millions of dollars of billable lawyer hours they reflect, should not, however, obscure what this case is really about. It is about an industry, and in particular these Defendants, that survives, and profits, from selling a highly addictive product which causes diseases that lead to a staggering number of deaths per year, an immeasurable amount of human suf fering and economic loss, and a profound burden on our national health care system. Defendants have known many of these facts for at least 50 years or more. De spite that knowledge, they have consistently, repeatedly, and with enormous skill and sophistication, denied these facts to the public, to the Government, and to the public health community. Moreover, in order to sustain the economic viability of their companies, Defendants have denied that they marketed and advertised their products to children under the age of eighteen and to young peo ple between the ages of eighteen and twenty-one in or der to ensure an adequate supply of "replacement smok ers," as older ones fall by the wayside through death, illness, or cessation of smoking. In short, Defendants have marketed and sold their lethal product with zeal, with deception, with a single-minded focus on their fi nancial success, and without regard for the human trag edy or social costs that success exacted.
Finally, a word must be said about the role of law yers in this fifty-year history of deceiving smokers, po tential smokers, and the American public about the haz ards of smoking and second hand smoke, and the addic tiveness of nicotine. At every stage, lawyers played an absolutely central role in the creation and perpetuation of the Enterprise and the implementation of its fraudu lent schemes. They devised and coordinated both na tional and international strategy; they directed scien tists as to what research they should and should not un dertake; they vetted scientific research papers and re ports as well as public relations materials to ensure that the interests of the Enterprise would be protected; they identified "friendly" scientific witnesses, subsidized them with grants from the Center for Tobacco Research and the Center for Indoor Air Research, paid them enormous fees, and often hid the relationship between those witnesses and the industry; and they devised and carried out document destruction policies and took shel ter behind baseless assertions of the attorney client privilege.1
What a sad and disquieting chapter in the history of an honorable and often courageous profession.
B. Preliminary Guidance for the Reader
Courts must decide every case that walks in the courthouse door, even when it presents the kind of juris prudential, public policy, evidentiary, and case manage ment problems inherent in this litigation. From the day this lawsuit was filed, it has garnered much media atten tion. Recognizing this, the Court hopes to assist the in trepid reader with her task by explaining certain princi ples and procedures that it has followed.
First and foremost, the Court has decided that, as fact finder, its obligation is to present to the appellate courts, the parties, and the public all the relevant facts which have been proven by a preponderance of this mas sive body of evidence consisting of testimony (including written direct examination, in-court cross examination, and re-direct examination of witnesses in this trial, as well as deposition and trial testimony of witnesses in related cases), and thousands of exhibits. By virtue of this procedure, the appellate courts will have before them all the factual determinations they need to decide the numerous legal issues which will unquestionably be raised.
Certain consequences flow from the decision to pres ent the most complete factual picture possible. Even though this Opinion is unusually long and detailed, on occasion, there are very few facts presented on impor tant issues and questions leap off the page to the reader. In those instances, it should be understood that the par ties presented no further evidence and the Court has stated whatever Findings can be appropriately made on whatever evidence does exist; the record must remain bare as to the unanswered questions and the gaps in the evidence. On other occasions, some individual factual findings may appear unclear or inconsistent with other factual findings. In those instances, the Conclusion to that Section will contain the Court's final Findings, and its reasons for reaching them.
Second, in an effort to make the substance of the Opinion as accessible as possible, almost every Section of the Opinion in both the Findings of Fact and the Con clusions of Law contains an Introduction that provides an overview of the subject matter to be covered and a Conclusion that summarizes what has been found in that Section; the extensive detailed Findings between the Introduction and the Conclusion provide the factual "meat" between the two. In a few instances, Sections are so brief or so self-evident that no Introduction or Conclusion was necessary. Finally, Appendix I contains a Glossary of frequently used terms and concepts; Ap pendix II contains the relevant Surgeon Generals' Re ports and their major findings; and Appendix III con tains all the Racketeering Acts charged by the Govern ment.
Third, every effort has been made to make each Sec tion self-contained so that it is complete and under standable in and of itself. Thus, a reader who is inter ested in only a particular topic, such as youth marketing, can pick up that Section, and obtain the information he needs without having to read the entire Findings of Fact. However, it has been virtually impossible to to tally segregate the Findings presented in each Section. At times, the historical data, the scientific data, and the relevant documentary materials overlap subject matter areas and therefore must be repeated in order to ensure that a Section can be read and understood by itself. By the same token, many individuals are identified numer ous times in the text in an effort to make it easier for the reader to follow the narrative rather than having to search through many pages to re-familiarize himself with a person's position within either a Government agency or one of the Defendant corporations.
Fourth, specific record citations have been given whenever possible. Many times an individual Finding of Fact is either a direct quote from a witness's written or oral testimony or is taken directly from a proposed find ing submitted by one of the parties and supported by the record and proved by at least a preponderance of the evidence. Vast amounts of testimony were given-by eminent and respected scientists, government officials and corporate executives. Only the portions of their tes timony specifically cited in the Opinion were affirma tively credited and relied on by the Court. The Court has made it very clear when specific evidence referred to is being rejected or discredited.
Fifth, parties should understand that every Exhibit and Prior Testimony cited in the Findings of Fact is deemed admitted into evidence. A formal Order, accom panying this Opinion, will be entered listing those hun dreds (perhaps thousands) of Exhibit numbers and Prior Testimonies, overruling any objections made thereto.
Sixth, several observations need be made about wit ness bias and credibility. For the most part, each indi vidual Chapter in the Findings of Fact explains why cer tain facts were found, why certain witnesses were cred ited, and why the testimony of certain witnesses was either discredited as just plain not believable or, in most instances, outweighed by other more convincing and credible evidence.
Most of the witnesses whose testimony was most vehemently attacked by the Defendants (such as Dr. David R. Kessler,2 Dr. Michael C. Fiore, Dr. Jeffrey Wigand, and Dr. Cheryl Healton) were only relied upon for undisputed or relatively insignificant background facts (as with Dr. Kessler and Dr. Wigand), or testified about remedies which this Court could not consider on the merits under the Court of Appeals decision dis cussed above (as in the case of Dr. Fiore and Dr. Heal ton).
Much of the Defendants' criticisms of Government witnesses focused on the fact that these witnesses had been long-time, devoted members of "the public health community." To suggest that they were presenting inac curate, untruthful, or unreliable testimony because they had spent their professional lives trying to improve the public health of this country is patently absurd. It is equivalent to arguing that all the Defendants' witnesses were biased, inaccurate, untruthful, and unreliable be cause the great majority of them had earned enormous amounts of money working and/or consulting for Defen dants and other large corporations, and therefore were so devoted to the cause of corporate America that noth ing they testified to, even though presented under oath in a court of law, should be believed. Such simplistic attacks on the credibility of the sophisticated and knowl edgeable witnesses who testified in this case are foolish.
All of this is not to deny that there were significant differences in the overall qualifications of the Govern ment's witnesses and the Defendants' witnesses. There were. The Government's witnesses, viewed as a whole, were far more experienced, credentialed, and active in the area of smoking and health, whatever their particu lar area of specialty, than were the Defendants'. Many of the Government experts had participated extensively, over many years, in the long and drawn-out process of ascertaining the consensus of scientific opinions embod ied in each Surgeon General's Report. Virtually every one had taught at a well-regarded academic institution and written numerous peer-reviewed articles in their particular area of specialty. Many of the Government witnesses continued "hands on," clinical work in their fields despite heavy commitments for research, writing, teaching, and lecturing to their peers.
The Defendants' witnesses were obviously well edu cated in their areas of specialty. Indeed, as was men tioned on many occasions, Defendants even presented the testimony of an impressive Nobel Prize winner. However, rarely did these witnesses have the depth and breadth of experience of the Government witnesses. Many had worked only in large corporations, and many for only one or two such employers. Many-although not all-had written relatively few peer-reviewed arti cles. Many of the highest paid experts of Defendants, while well credentialed in their particular fields, such as economics, presented relatively narrow testimony tai lored to the particular problem or issue they were re tained to opine on for purposes of this litigation. A few of Defendants' experts had done virtually no individual research and written virtually no peer-reviewed articles, and a few were unfamiliar with the relevant facts and/or the major scientific literature on the issue about which they testified.
While the testimony of each person- expert or fact witness-was evaluated on its own merits, there can be no denying that, as a group, the Government's witnesses were far more knowledgeable, experienced, and active in their respective fields.
Finally, despite the length and detail of the Findings of Fact, the evidentiary picture must be viewed in its totality in order to fully appreciate how massive the case is against the Defendants, how irresponsible their ac tions have been, and how heedless they have been of the public welfare and the suffering caused by the cigarettes they sell.3
II. PROCEDURAL HISTORY
Plaintiff, the United States of America ("the Govern ment") brought this suit in 1999 against eleven tobacco- related entities ("Defendants")4 to recover health care expenditures the Government has paid or will pay to treat tobacco-related illnesses allegedly caused by Defen dants' unlawful conduct. The Government also asked this Court to enjoin Defendants from engaging in fraud ulent and other unlawful conduct and to order Defen dants to disgorge the proceeds of their past unlawful activity.
In its original Complaint, the Government made four claims against Defendants under three federal statutes. The first statute, the Medical Care Recovery Act ("MCRA"), 42 U.S.C. §§ 2651-2653, provides the Govern ment with a cause of action to recover certain specified health care costs it pays to treat individuals injured by a third-party's tortious conduct (Count 1). The second statute is a series of amendments referred to as the Medicare Secondary Payer provisions ("MSP"), 42 U.S.C. § 1395y, which provides the Government with a cause of action to recover Medicare expenditures when a third-party caused an injury requiring treatment and a "primary payer" was obligated to pay for the treat ment (Count 2). The third statute is the Racketeer In fluenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968 (Counts 3 and 4), which provides private parties with a cause of action to recover treble damages due to injuries they received from a defen dant's unlawful racketeering activity and the govern ment with a cause of action to seek other equitable rem edies to prevent future unlawful acts. Joint Defendants moved to dismiss the case on all counts. On September 28, 2000, the Motion was granted in part and denied in part, and Counts 1 and 2 were dismissed. United States v. Philip Morris, Inc., 116 F. Supp. 2d 131 (D.D.C. 2000).
Continuing its case on Counts 3 and 4, the Govern ment sought injunctive relief and $289 billion5 in dis gorgement of Defendants' ill-gotten gains for what it alleges to be an unlawful conspiracy to deceive the American public. The Government's Amended Com plaint describes a four-decade long conspiracy, dating back to at least 1953, to intentionally and willfully de ceive and mislead the American public about,inter alia, the harmful nature of tobacco products, the addictive nature of nicotine, and harmfulness of low tar cigarettes. Amended Complaint ("Am. Compl.") at ¶ 3. According to the Government, the underlying strategy Defendants adopted was to deny that smoking caused disease and to consistently maintain that whether smoking caused any kind of disease was still an "open question" for which no scientific consensus existed. Am. Compl. at ¶ 34. In furtherance of that strategy, Defendants allegedly is sued deceptive press releases, published false and mis leading articles, destroyed and concealed documents which indicated that there was in fact a correlation be tween smoking and disease, and aggressively targeted children as potential new smokers. Am. Compl. at ¶ 36.6
The parties engaged in intensive discovery for more than two years, with the assistance of Special Master Richard Levie overseeing disputes and issuing 172 Re ports and Recommendations, the majority of which were appealed to this Court. During discovery, the parties exchanged over 4,000 requests for production of docu ments. Defendant alone made available to the Govern ment over 26 million pages of documents. In addition, the parties each took over 1,000 hours of depositions. As discovery progressed and trial loomed, the Court held regularly scheduled and, when events necessitated it, irregularly scheduled status conferences and conference calls and oversaw the filing of many status reports and praecipes.
In addition, the parties filed, pursuant to limitations imposed by the Court, 18 summary judgment motions and countless motions in limine. The Court granted all of the Government's Motions for partial summary judg ment to dismiss Defendants' Affirmative Defenses based on: (1) the assertion that the Federal Trade Commis sion had exclusive authority over Defendants' marketing activities (Order # 356); (2) waiver, equitable estoppel, laches, unclean hands and in pari delicto (Order # 476); (3) the assertion that the Government's claims and rem edies sought violated the 8th Amendment of the Consti tution and the Ex Post Facto Clause (Order # 509); (4) the assertion that constitutional separation of powers precludes the Government's claims (Order # 510); (5) the assertion that the RICO claims and relief sought are prohibited by the 10th Amendment of the Constitution and by separation of powers and that Defendants are not jointly and severally liable for any disgorgement ordered by the Court (Order # 538); and (6) res judi cata, collateral estoppel, release, accord and satisfaction, and mootness (Order # 586). In addition, the Court granted the Government's Motions for partial summary judgment that each Defendant is distinct from the RICO enterprise (if the Court were to determine that there is an enterprise) and that a Defendants' liability for a RICO conspiracy does not require that Defendant to participate in the operation or management of the En terprise (Order # 591). All other summary judgment motions of the Government and the Defendants were denied because the existence of material facts in dispute rendered summary judgment inappropriate.
Upon resolution of all preliminary matters, trial be gan on September 21, 2004. Together, the parties pre sented eighty four witnesses and tens of thousands of exhibits. The trial lasted nine months.
On February 4, 2004, our Circuit rendered a decision on an interlocutory appeal from this case. Defendants had appealed this Court's decision denying summary judgment as to the Government's claim for disgorge ment under 18 U.S.C. 1964(a). (Order # 550). In that opinion, written by Judge David Sentelle, the Court of Appeals determined that disgorgement is not a permis sible remedy in civil RICO cases. United States of America v. Philip Morris USA Inc., et al., 396 F.3d 1190 (D.C. Cir. 2005). As a result, because $280 billion in disgorgement was the centerpiece of its requested relief, the Government moved for leave to reformulate their proposed remedies. The Court granted that mo tion. After the liability phase of the trial concluded, the parties were allowed to put on evidence pertaining to the remedies sought by the Government.
At the conclusion of the remedies trial, several enti ties and organizations moved to intervene in order to assert their interests in the proposed relief. The Court granted the Motions to Intervene for the following par ties: American Cancer Society; American Heart Associ ation; American Lung Association; Americans for Non smokers' Rights; National African American Tobacco Prevention Network; and Tobacco-Free Kids Action Fund. These parties had a clear interest in advancing the public health and in the remedies proposed in this case.
In addition, the Court received numerous motions for leave to appear as amicus curiae, in support of the United States, from organizations who also wanted to assert their views on the appropriate and necessary remedies in this case. The Court granted the Motions of the following states and organizations because of their enormous collective knowledge and experience in the fields of public health, smoking, and disease: Arkansas; Connecticut; Hawaii; Idaho; Iowa; Kentucky; Louisiana; Maryland; Massachusetts; Nevada; New Jersey; New Mexico; New York; Ohio; Oklahoma; Oregon; Tennessee; Vermont; Washington; Wisconsin; Wyoming; and the District of Columbia.; Citizens' Commission to Protect the Truth; Regents of the University of California; To bacco Control Legal Consortium, including 18 additional nonprofit organizations; Essential Action; the City and County of San Francisco; the Asian Pacific Island Amer ican Health Forum; San Francisco African-American Tobacco Free Project; Black Network in Children's Emotional Health.7
On August 8, 2005, each side simultaneously submit ted its 2,500 page Proposed Findings of Fact. As August turned into September, the Government filed its 250 page opening Post-trial brief; Defendants filed their 250 page opposition to the Government's brief and their 50 page opening brief on affirmative defenses; the Govern ment filed its 100 page reply brief and 50 page opposi tion to Defendants' brief on affirmative defenses; and Defendants filed their 20 page reply brief on affirmative defenses.
The Court has issued 1010 Orders during the course of this arduous litigation. Some pundits have opined that this is the largest piece of civil litigation ever brought. The Court will leave that judgment to others.
FINDINGS OF FACT
III. CREATION, NATURE, AND OPERATION OF THE ENTERPRISE8
The following Section sets forth in enormous detail the intricate, interlocking, and overlapping web of na tional and international organizations, committees, affil iations, conferences, research laboratories, funding mechanisms, and repositories for smoking and health information which Defendants established, staffed, and funded in order to accomplish the following goals: coun ter the growing scientific evidence that smoking causes cancer and other illnesses, avoid liability verdicts in the growing number of plaintiffs' personal injury lawsuits against Defendants, and ensure the future economic via bility of the industry.
* * * * *
IV. THE DEFENDANTS ARE ENGAGED IN AND THEIR ACTIVITIES AFFECT INTERSTATE AND FOREIGN COMMERCE
486. Defendants in this case at all relevant times have been and are engaged in interstate and foreign commerce and their activities have affected, and con tinue to affect, interstate and foreign commerce within the meaning of 18 U.S.C. § 1962(c) and (d). Regarding Defendant-members of this RICO enterprise, the Court finds the following facts.
* * * * *
V. DEFENDANTS DEVISED AND EXECUTED A SCHEME TO DEFRAUD CONSUMERS AND POTEN TIAL CONSUMERS OF CIGARETTES IN MOST, BUT NOT ALL, OF THE AREAS ALLEGED BY THE GOVERNMENT
A. Defendants Have Falsely Denied, Distorted and Minimized the Significant Adverse Health Conse quences of Smoking for Decades
509. Cigarette smoking causes disease, suffering, and death. Despite internal recognition of this fact, De fendants have publicly denied, distorted, and minimized the hazards of smoking for decades. The scientific and medical community's knowledge of the relationship of smoking and disease evolved through the 1950s and achieved consensus in 1964. However, even after 1964, Defendants continued to deny both the existence of such consensus and the overwhelming evidence on which it was based.
1. Cigarette Smoking Causes Disease
510. Cigarette smoking and exposure to secondhand smoke (also known as environmental tobacco smoke or "ETS") kills nearly 440,000 Americans every year. The annual number of deaths due to cigarette smoking is substantially greater than the combined annual num ber of deaths due to illegal drug use, alcohol consump tion, automobile accidents, fires, homicides, suicides, and AIDS. Approximately one out of every five deaths that occur in the United States is caused by cigarette smok ing. * * *
* * * * *
822. Defendants have been aware since the late 1950s of substantial evidence demonstrating that smok ing causes significant adverse health effects, in particu lar, lung cancer. The evidence was presented by practic ing physicians, such as Michael DeBakey, Alton Osch ner, and Richard Overholt, by academic scientists, such as Evarts Graham and Ernst Wynder, and by govern ment officials such as Surgeon General Leroy Burney in his 1959 JAMA article.
823. By 1964, when the Surgeon General of the Uni ted States, Luther Terry, issued his ground-breaking Report considering some 7,000 scientific articles on the relationship between smoking and health, there could no longer be any question that there was a consensus in the American scientific community "that cigarette smoking contributes substantially to mortality from certain spe cific diseases and to the overall death rate," that "[c]iga rette smoking is associated with a 70 percent increase in the age-specific death rates of males," that "[c]igarette smoking is causally related to lung cancer in men," and that the "data for women, though less extensive, point in the same direction." In 1968, the Surgeon General con cluded that "cigarette smoking can contribute to the development of cardiovascular disease and particularly to death from coronary heart disease."
824. From at least 1953 until at least 2000, each and every one of these Defendants repeatedly, consistently, vigorously-and falsely-denied the existence of any ad verse health effects from smoking. Moreover, they mounted a coordinated, well-financed, sophisticated public relations campaign to attack and distort the sci entific evidence demonstrating the relationship between smoking and disease, claiming that the link between the two was still an "open question." Finally, in doing so, they ignored the massive documentation in their inter nal corporate files from their own scientists, executives, and public relations people that, as Philip Morris's Vice President of Research and Development, Helmut Wake ham, admitted, there was "little basis for disputing the findings [of the 1964 Surgeon General's Report] at this time."
825. Indeed, as far back as 1968, William Kloepfer, Vice President of Public Relations for the Tobacco Insti tute recognized that "[o]ur basic position in the cigarette controversy is subject to the charge, and may be sub ject to a finding, that we are making false or misleading statements to promote the sale of cigarettes." Mr. Kloepfer was both correct and prescient.
826. For more than forty years after issuance of the Frank Statement in 1954, and for more than thirty years after issuance of the Surgeon General's first Report on smoking and health, Defendants maintained their posi tion denying the causal relationship between smoking and disease. Finally, in 1999, Philip Morris launched a corporate website acknowledging the "overwhelming medical and scientific consensus that cigarette smoking causes lung cancer, heart disease, emphysema, and oth er serious disease in smokers." Despite this acknow ledgment of the "overwhelming medical and scientific consensus," Philip Morris could not bring itself to clear ly state its agreement with that consensus until October 2000. Philip Morris still does not include the informa tion on its cigarette packaging that it agrees that smok ing causes cancer and other diseases in smokers.
827. Neither RJR, Lorillard, nor B & W, have open ly admitted that smoking causes cancer. Indeed, in 2000, two years after the effective date of the Master Settlement Agreement, B & W was putting the following message on its website: "We know of no way to verify that smoking is a cause of any particular person's ad verse health or why smoking may have adverse health effects on some people and not others."
B. The Addictive Properties of Nicotine
828. Cigarette smoking is an addictive behavior, characterized by drug craving, compulsive use, toler ance, withdrawal symptoms, and relapse after withdraw al. Underlying the smoking behavior and its remarkable intractability to cessation is the drug nicotine. Nicotine is the primary component of cigarettes that creates and sustains addiction to cigarettes. While the terminology of addiction has evolved over time, the underlying facts about the addictive nature of smoking and the centrality of nicotine to the addiction have been known and have not changed in over 40 years.
829. Since the 1950s, Defendants have researched and recognized, decades before the scientific community did, that nicotine is an addictive drug, that cigarette manufacturers are in the drug business, and that ciga rettes are drug delivery devices. The physiological im pact of nicotine explains in large part why people use tobacco products and find it so difficult to stop using them. Moreover, Defendants have sought to exploit the addictive quality of smoking and nicotine for decades in order to develop new products and increase sales.
830. Notwithstanding the understanding and accep tance of each Defendant that smoking and nicotine are addictive, Defendants have publicly denied and distorted the truth as to the addictive nature of their products for several decades. Defendants have publicly denied that nicotine is addictive, have suppressed research showing its addictiveness, and have repeatedly used misleading statistics as to the number of smokers who have quit voluntarily and without professional help.
831. Defendants have intentionally maintained and coordinated their position on addiction and nicotine as an important part of their overall efforts to influence public opinion and persuade people that smoking was not dangerous; in this way, the cigarette company De fendants could keep more smokers smoking, recruit more new smokers, and maintain or increase their earn ings. Additionally, Defendants have sought to discredit evidence of addiction in order to preserve their "smok ing is a free choice" argument in smoking and health litigation.
832. Defendants, with the exception of Philip Mor ris, continue to publicly deny and distort the truth as to the addictiveness of cigarette smoking and nicotine's role in the addiction. Defendants ignore their own inter nal statements acknowledging and exploiting nicotine addiction. While nicotine shares certain key attributes of heroin, cocaine, and other drugs, Defendants continue to assert that smoking is no more addictive than coffee, chocolate, and exercise, and (with the exception of Philip Morris) continue to deny that nicotine is addictive at all. * * * * *
1359. For approximately forty years, Defendants publicly, vehemently, and repeatedly denied the addic tiveness of smoking and nicotine's central role in smok ing. They made these denials out of fear that public ac knowledgment of what was so well documented and widely accepted internally within their corporate offices and scientific laboratories could result in governmental (i.e., FDA) regulation, adverse liability judgments from addicted smokers suffering the adverse health effects of smoking, loss of social acceptability of smoking, and the ultimate loss of corporate profits. The evidence spelled out above is simply overwhelming that Defendants knew that smoking is addictive and knew that nicotine is the agent creating and sustaining that addiction. There is also overwhelming evidence that even though Defen dants have known internally about addiction for de cades, they have endeavored to keep the extensive re search and data they had accumulated out of the public domain and out of the hands of the public health commu nity by denying that such data existed, by refusing to disclose it, and by shutting down or censoring laborato ries and research projects which were investigating the mechanisms of nicotine.
1360. Defendants assert that the public health com munity and the public itself has known for decades that nicotine produced dependence. For example, Defen dants cite to the 1962 publication of the well respected Larson, Haag and Silvette compendium, Tobacco Exper imental and Clinical Studies, which described nicotine's effects on the human nervous system and summarized existing research suggesting that people smoke to ob tain nicotine, that nicotine has pharmacological effects, and that nicotine is addictive or habituating. (no bates) (JD-000500). Defendants also cite to the United States Supreme Court comment that, when Congress enacted the Federal Cigarette Labeling Act in 1965, "the ad verse health consequences of tobacco were well known, as were nicotine's pharmacological effects." Food and Drug Admin. v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 138, 120 S. Ct. 1291, 146 L. Ed. 2d 121 (2000). Even if there is truth to Defendants' speculation that "everyone knew" of nicotine's addictiveness, there is no question that the public health community lacked the substantial and sophisticated understanding of nico tine's effects and role that Defendants possessed. Put quite simply, if the Surgeon General of the United States possessed the information and data Defendants possessed prior to publication of his 1964 Report, it is simply not possible that he would have ignored it.
1361. Moreover, there is a basic inconsistency in De fendants' position. If, in fact, "everybody knew" that smoking and nicotine were addictive, then why were Defendants publicly, vehemently, and repeatedly deny ing it?
1362. Defendants' denials misled the public about why quitting smoking is so difficult, exactly how difficult it is, and about why failure to quit is not simply a func tion of personal weakness or lack of willpower. In short, after reassuring the smoker that smoking was not bad for her health, and was not addictive, Defendants then blamed her for being unable to stop using the product they had so successfully marketed with false informa tion.
1363. Defendants did not simply deny that smoking warranted the label "addiction"; they denied the entire concept of physiological dependence. The semantic bat tle Defendants have waged in the public realm and at trial is a distraction from the fact that, whether using the word "dependence" or "addiction," the core concept is the compulsive and uncontrollable use of nicotine re flected in drug-seeking and drug-taking behavior, all of which Defendants deny exist.
1364. Based on the extensive individual Findings of Fact set forth in this Section, the Court finds that De fendants have known for decades that cigarette smoking was addictive, and that nicotine is the addicting element in smoking behavior. Defendants' false and misleading statements relating to addiction continue even today.
1365. Moreover, Defendants deliberately and inten tionally hid this information from the public and closed down research laboratories and on-going projects in order to ensure secrecy. Time and time again, Defen dants falsely denied these facts to smokers and potential smokers, to government regulatory authorities, to the public health community and to the American public.
C. Nicotine "Manipulation": Defendants Have False ly Denied That They Can and Do Control the Level of Nicotine Delivered In Order to Create and Sus tain Addiction
1366. As demonstrated in the previous Section, De fendants have long known that nicotine creates and sus tains an addiction to smoking and that cigarette sales, and ultimately tobacco company profits, depend on cre ating and sustaining that addiction. Section V(B)(3), supra. Given the importance of nicotine to the ultimate financial health of Defendants, they have undertaken extensive research into how nicotine operates within the human body and how the physical and chemical design parameters of cigarettes influence the delivery of nico tine to smokers. Using the knowledge produced by that research, Defendants have designed their cigarettes to precisely control nicotine delivery levels and provide doses of nicotine sufficient to create and sustain addic tion. At the same time, Defendants have concealed much of their nicotine-related research, and have contin uously and vigorously denied their efforts to control nic otine levels and delivery.
1367. Defendants, individually, jointly, and through third parties, have extensively studied smoking intake and inhalation, compensation, addiction physiology, smoker psychology, the pharmacological aspects of nico tine, the effects of nicotine on brain waves, and related subjects. As a result of this research, cigarette company Defendants have been aware for decades that cigarettes are addictive and that smoking addiction is caused pri marily by the delivery of dependence-producing levels of nicotine.
1368. The typical cigarette contains far more nico tine than an individual will inhale as he or she smokes. Farone WD, 86:16-19; Henningfield WD, 35:16-36:16. Every aspect of a cigarette is precisely tailored to en sure that a cigarette smoker can pick up virtually any cigarette on the market and obtain an addictive dose of nicotine. Farone WD, 3:12-22. Most cigarettes are man ufactured using reconstituted tobacco material, addi tives, burn accelerants, ash conditioners, and buffering substances, all of which affect nicotine levels and deliv ery. Other cigarette design features used by Defen dants to control nicotine delivery include filter design, paper selection and perforation, ventilation holes, leaf blending, and use of additives (such as ammonia) to con trol the PH of cigarette smoke.
1369. During the 1960s and 1970s, the public health community urged development of low-tar cigarettes as a healthier alternative to the "full-flavored" cigarettes which then dominated the market. In response, ciga rette company Defendants developed low-tar cigarettes. They then falsely maintained that nicotine levels were inextricably linked to tar levels, and that nicotine levels would, of necessity, proportionately fall, as fast and as far as the tar levels in the newer low-tar cigarettes.
1370. In the early 1970s, the Federal Trade Commis sion developed a machine to measure tar and nicotine levels. Even though it became the accepted mechanism for taking such measurements, it became widely known in both the public health community and by the cigarette company Defendants that the FTC method did not accu rately measure the amounts of nicotine and tar which a smoker actually ingested. Cigarette company Defen dants, with the benefit of their much more sophisticated understanding of smoker compensation, as well as their knowledge of nicotine control, then intentionally devel oped and marketed cigarettes which, in actuality, deliv ered higher levels of nicotine than those measured by the FTC method. Those levels of nicotine were suffi cient to create and sustain addiction in smokers.
* * * * *
1758. The Defendants have repeatedly made vigor ous and impassioned public denials-before Congressio nal committees, in advertisements in the national print media, and on television-that neither smoking nor nico tine is addictive, and that they do not manipulate, alter, or control the amount of nicotine contained in the ciga rettes they manufacture. The Findings of Fact con tained in this Section and Section V(B), supra, provide overwhelming evidence that those statements are false.
1759. As established by the Findings of Fact set forth in this Section, cigarette company Defendants re searched, developed, and implemented many different methods and processes to control the delivery and ab sorption of the optimum amount of nicotine which would create and sustain smokers' addiction. These methods and processes included, but were not limited to: altering the physical and chemical make-up of tobacco leaf blends and filler; maintaining or increasing the nicotine to tar ratio by changing filter design, ventilation and air dilution processes, and the porosity and composition of filter paper; altering smoke pH by adding ammonia to speed nicotine absorption by the central nervous sys tem; and using other additives to increase the potency of nicotine.
1760. The fact that some of these methods and pro cesses may also have been used, as Defendants argued, to improve flavor and taste, especially of low tar ciga rettes as they were developed in response to the fears of the public about the adverse health effects of smoking, is in no way inconsistent with these Findings of Fact that Defendants also used them to manipulate, and in crease the amount and form of nicotine delivered in ciga rettes.
1761. Nor is the fact that during the 1970s, the pub lic health community may have encouraged the develop ment of low tar cigarettes because it believed-erron eously-that nicotine levels would fall as tar levels fell, in any way inconsistent with these Findings of Fact. What the public health community did or did not know is irrelevant to the issue of what Defendants knew about the relationship between nicotine and tar and whether they knowingly made false public statements about that relationship.
1762. The words of Defendants themselves establish that the goal of their extensive efforts, through research and experimentation, to control the levels of nicotine de livery was to ensure that smokers obtained sufficient nicotine to create and sustain addiction:
Philip Morris listed as one of the achievements of its Electrophysiological Studies Research Group a dis covery "that there are optimal cigarette nicotine de liveries for producing the most favorable physiologi cal and behavioral responses." ¶ 947, supra.
RJR's "top priority [was] to develop and market low 'tar' brands . . . that: [m]aximize the physiological satisfaction per puff-the single most important need of smokers." ¶ 1431, supra.
BATCo named as a "high priority" development of "alternative designs (that do not invite obvious criti cism) which will allow the smoker to obtain signifi cant enhanced deliveries should he so wish." ¶ 1460, supra.
The "major objective" of Lorillard's study of filter design was to "increase the physiological impact and/or nicotine to tar ratio in ultra low tar ciga rettes." ¶ 1488, supra.
1763. In sum, the evidence as presented in these Findings of Fact is overwhelming that Defendants have, over the course of many years, time and again-and with great self-righteousness-denied that they manipulated the nicotine in cigarettes so as to increase the addiction and dependence of smokers. Those denials were false.
D. The Government Has Failed to Prove by a Prepon derance of the Evidence that Defendants Deliber ately Chose Not to Utilize or Market Feasible De signs or Product Features that Could Produce Less Hazardous Cigarettes.
* * * * *
2018. After weighing and evaluating all the specific Facts found in the foregoing Section, the Court con cludes that the Government has failed to carry its bur den of proving, by a preponderance of the evidence, that Defendants deliberately chose to sabotage the success ful marketing and production of less hazardous ciga rettes. As these Facts demonstrate, Philip Morris and RJR, in particular, as well as Lorillard and Liggett to a lesser extent, spent many years, enormous amounts of money, and the creative energies of their top scientists to investigate different approaches to production of ciga rettes which would present fewer health risks to the public.
2019. Those efforts failed for many reasons: some approaches proved to be scientific and technological fail ures, such as the effort to reduce nitrogen oxide and harmful TSNAs, and the effort to develop a nicotine ana logue; some could not gain consumer acceptability be cause of unpleasant taste, such as the charcoal filter cigarettes Saratoga, Tempo, and York; some could not gain consumer acceptability because they were too dis similar from traditional cigarettes, such as Accord, Pre mier, and Eclipse.
2020. The Government may well be correct that more effective marketing and advertising which focused on the health benefits of these newly developed ciga rettes could have overcome the consumer resistence to them. However, Defendants were operating in a regula tory climate where their fears of litigation with the Fed eral Trade Commission were by no means unreasonable given cases which the Commission had actually brought and won. Moreover, Defendants faced petitions filed with the FTC by advocacy groups which believed that cessation of all smoking was the only effective answer to the public health problem, and therefore opposed intro duction of any new cigarette, no matter how much less risk it might pose to health.
2021. Finally, it simply strains credulity to conclude that these Defendants-whose prime mission in life is to make money-would pour hundreds of millions of dol lars, as well as huge amounts of scientific and technical resources, into the development and marketing of less hazardous cigarettes and then deliberately choose to reject the benefits of their investment of money and brainpower. Defendants understood full well that the first company to succeed in producing a consumer- acceptable less hazardous cigarette would dominate the market in record time.
2022. For these reasons, the Court finds that the Government has not proved, by a preponderance of the evidence, that Defendants deliberately kept less hazard ous cigarettes off the market.
E. Defendants Falsely Marketed and Promoted Low Tar/Light Cigarettes as Less Harmful than Full- Flavor Cigarettes in Order to Keep People Smok ing and Sustain Corporate Revenues
2023. For several decades, Defendants have market ed and promoted their low tar brands as being less harmful than conventional cigarettes. That claim is false, as these Findings of Fact demonstrate. By mak ing these false claims, Defendants have given smokers an acceptable alternative to quitting smoking, as well as an excuse for not quitting.
2024. Defendants used a combination of techniques to market and promote their low tar brands. Defen dants' marketing has emphasized claims of low tar and nicotine delivery accompanied by statements that smok ing these brands would reduce exposure to the "contro versial" elements of cigarette smoke (i.e., tar). Since the 1970s, Defendants also have used so-called brand des criptors such as "light" and "ultra light" to communicate reassuring messages that these are healthier cigarettes and to suggest that smoking low tar cigarettes is an ac ceptable alternative to quitting. In addition to appealing advertising and easily-remembered brand descriptors, Defendants have used sophisticated marketing imagery such as lighter color cigarette packaging and white tip ping paper to reinforce the same message that these brands were low in tar and therefore less harmful. See Section V(E)(5), infra (Defendants' deceptive marketing of low tar cigarettes).
2025. Even as they engaged in a campaign to mar ket and promote filtered and low tar cigarettes as less harmful than conventional ones, Defendants either lacked evidence to substantiate their claims or knew them to be false. Indeed, internal industry documents reveal Defendants' awareness by the late 1960s/early 1970s that, because low tar cigarettes do not actually deliver the low levels of tar and nicotine which are ad vertised, they are unlikely to provide any clear health benefit to human smokers, as opposed to the FTC smok ing machine, when compared to regular, full flavor ciga rettes.
2026. As Defendants have long been aware, nicotine delivered by cigarettes is addictive (see Section V(B)(3), supra (addiction)). Defendants' internal documents demonstrate their understanding that, in order to obtain an amount of nicotine sufficient to satisfy their addic tion, smokers of low tar cigarettes modify their smoking behavior, or "compensate," for the reduced nicotine yields by taking more frequent puffs, inhaling smoke more deeply, holding smoke in their lungs longer, cover ing cigarette ventilation holes with fingers or lips, and/or smoking more cigarettes. See Section V(E)(2)(b), infra (smoker compensation). As a result of this nico tine-driven smoker behavior, smokers of light cigarettes boost their intake of tar, thus negating what Defendants have long promoted as the primary health-related bene fit of light cigarettes: lower tar intake.
2027. Defendants did not disclose the full extent and depth of their knowledge and understanding of smoker compensation to the public health community or to gov ernment regulators.
2028. Defendants' conduct relating to low tar ciga rettes was intended to further their overarching eco nomic goal: to keep smokers smoking; to stop smokers from quitting; to encourage people, especially young people, to start smoking; and to maintain or increase corporate profits.
* * * * *
2626. The evidence set forth above overwhelmingly establishes the following facts.
2627. It is clear, based on their internal research documents, reports, memoranda, and letters, that De fendants have known for decades that there is no clear health benefit from smoking low tar/low nicotine ciga rettes as opposed to conventional full-flavor cigarettes. It is also clear that while Defendants knew that the FTC Method for measuring tar and nicotine accurately com pared the nicotine/tar percentages of different ciga rettes, they also knew that that Method was totally un reliable for measuring the actual nicotine and tar any real-life smoker would absorb because it did not take into account the phenomenon of smoker compensation. Defendants also knew that many smokers were con cerned and anxious about the health effects of smoking, that a significant percentage of those smokers were will ing to trade flavor for reassurance that their brands carried lower health risks, and that many smokers who were concerned and anxious about the health risks from smoking would rely on the health claims made for low tar cigarettes as a reason, or excuse, for not quitting smoking.
2628. Despite this knowledge, Defendants exten sively-and successfully-marketed and promoted their low tar/light cigarettes as less harmful alternatives to full-flavor cigarettes. Moreover, Defendants opposed any changes in the FTC Method which would more accu rately reflect the effects of compensation on the actual tar and nicotine received by smokers, denied that they were making any health claims for their low tar/light cigarettes, and claimed that their marketing for these cigarettes was based on smokers' preference for a "lighter," "cleaner" taste.
2629. By engaging in this deception, Defendants dramatically increased their sales of low tar/light ciga rettes, assuaged the fears of smokers about the health risks of smoking, and sustained corporate revenues in the face of mounting evidence about the health dangers of smoking.
F. From the 1950s to the Present, Different Defen dants, at Different Times and Using Different Methods, Have Intentionally Marketed to Young People Under the Age of Twenty-one in Order to Recruit "Replacement Smokers" to Ensure the Economic Future of the Tobacco Industry
1. Definition of Youth
2630. There is much confusion, both in the internal documents of Defendants and the various kinds of evi dence introduced in this trial, over the definition of the term "youth."
2631. In most states, the legal age at which a person can purchase cigarettes is eighteen. The exceptions are Alabama, Alaska, and Utah, where the legal age is nine teen, and Massachusetts, where the legal age is twenty. Defendants argue that so long as they are marketing to persons over the legal age, they are not marketing to "youth." That approach is both simplistic and inaccu rate.
2632. Defendants' own internal documents make constant reference to eighteen to twenty-one year olds as "youth." Defendants' public utterances often use the word "youth" to refer to those under the age of eighteen, as well as to those between eighteen and twenty-one. The expert witnesses on both sides also used the term interchangeably to refer to those under eighteen and those between eighteen and twenty-one. In short, no uniform and consistent definition of the term was used by any party to define the age parameters for the term "youth." Moreover, it is clear from the evidence that the eighteen to twenty-one year age bracket encompasses young people transitioning to adulthood who are decid ing whether or not to experiment with smoking, who are still immature and at their most vulnerable to the blan dishments of advertising and marketing, and who are usually not yet addicted, heavy smokers.
2633. Given this background, and Defendants' re peated assertions that their marketing is directed at maintaining brand loyalty and attracting brand "switch ers" rather than inducing "youth" to initiate smoking, the Court finds that defining the term "youth" to include those twenty-one and under is the most appropriate def inition, as well as the one used most frequently by the parties.
2. The Defendants Need Youth as Replacement Smokers
2634. Every year, over 400,000 people die of smok ing related diseases. In addition, there are a relatively small number of people who quit smoking each year. In order to sustain and perpetuate themselves, Defendants must bring in new smokers to replace those leaving the market. Each cigarette manufacturing company gains a small amount (less than 10%) of smokers through "switching" or changing brands. Only about 9% of adult smokers switch among Defendants' brands. Krugman WD, 154:31-158:5; see also 2045165002-5014 (U.S. 38402). Defendants' own employees admit that brand switching rates are low and falling. According to David Beran, Executive Vice President of Strategy, Communi cations and Consumer Contact for Philip Morris, the brand switching rate for 1997 was 4.0%, Beran TT, 4/18/05, 19395:15-17 (Confidential) (closed court); (no bates) (JD 053375) (Confidential); was 6.3% for 2002, Beran TT, 4/18/05, 19322:16-25; (no bates) (JDEM 040331); and was 5.4% for 2003. (no bates) (JD053375) (Confidential); Beran TT, 4/18/05, 19394:25-19395:3. Switching, by definition, does not bring in new smokers to the industry as a whole.
2635. The only way Defendants can sustain them selves is by bringing in large numbers of replacement smokers each year. Carl Schoenbachler, current presi dent and CEO of BATIC (a former parent of B & W To bacco and holding entity for B & W Tobacco) acknowl edged that although the company has a stated policy of not marketing to non-smokers, "it was a reasonable con clusion" that B & W would become unprofitable if non- smokers did not become smokers. Schoenbachler PD, United States v. Philip Morris, 5/21/02, 72:16-21, 73:13- 22, 141:11-141:21, 152:20-25.
2636. The majority of people who become addicted smokers start smoking before the age of eighteen, and many more before the age of twenty-one. Ellen Merlo, Senior Vice President at Philip Morris, admitted that she was aware that over 80% of smokers start smoking before they turn eighteen. Merlo PD, United States v. Philip Morris, 6/11/02, 42:22-45:15, 48:2-48:6. A 1989 RJR document titled "Camel Y & R Orientation" dis cussed the "strategic importance" of young adult smok ers ("YAS"): "YAS are the only source of replacement smokers. Less than one-third of smokers start after age 18." The document further stated: "To stabilize RJR's share of total smokers, it must raise share among 18-20 from 13.8% to 40% . . . ASAP." 507241613-1838 at 1617, 1620 (U.S. 20774). In a September 20, 1982 memo randum, Diane S. Burrows, RJR Marketing Develop ment Department researcher, stated, "if a man has never smoked by age 18, the odds are three-to-one he never will. By age 21, the odds are twenty-to-one." 500582269-2272 at 2270 (U.S. 20641).
2637. Moreover, smokers are remarkably brand- loyal. LeVan PD, United States v. Philip Morris, 6/25/02, 225:3-228:12, 229:4-230:11 ("premium tobacco brands and smokers are very highly loyal and . . . they don't switch brands very often."). Defendants realize that they need to get people smoking their brands as young as possible in order to secure them as lifelong loyal smokers. As Bennett LeBow, President of Vector Holdings Group, stated, "if the tobacco companies really stopped marketing to children, the tobacco companies would be out of business in 25 to 30 years because they will not have enough customers to stay in business." LeBow WD, 63:16-64:1.
2638. In internal documents, Defendants admit that stimulating youth smoking initiation and retaining and increasing their share of the youth market is crucial to the success of their businesses. For example, in a 1999 slide presentation, titled "ASU30 [Adult Smoker Under 30] Project," manager Rick Stevens analyzed BATCo's "ASU30 Performance 1998," stating that younger adult smokers were a "critical factor in the growth and decline of every major brand and company over the last 50 years." Furthermore, a slide, titled "Value of YAS," rec ognized that "[m]arket renewal is almost entirely from 18 year old smokers" and "[n]o more than 5% start smoking after age 24." 321539777-9806 at 9782, 9787- 9788 (U.S. 24084); see also 2041518797-8956 at 8819-8820 (U.S. 23907).
2639. Defendants know that marketing their ciga rettes to youth is essential to each company's success and longevity, and for that reason create marketing campaigns designed to increase youth consumption. VXA1240104-0567 at 0272 (U.S. 64316) (2000 Surgeon General Report noting that "considerable evidence" demonstrates that "advertising and promotion recruit new smokers"). As United States marketing expert Dr. Robert Dolan explained:
The trend in tobacco companies' spending on mar keting has continued to increase dramatically. To bacco industry spending of $2 billion on advertising and promotion in 1980 reached $4 billion in 1988 and then $6 billion in 1994. After four years around the $6 billion mark, spending shot up [to] $11.2 billion by 2001. In 2002, the last year for which data is avail able, the tobacco companies spent $12.47 billion, an increase of 11.61% over 2001. The fundamental dy namic of the industry has not changed though. The tobacco companies knew that brand loyalty is a key phenomenon and if someone doesn't start smoking as a teenager, he or she is unlikely to start. . . . De fendants still represent that the only objective of marketing is impacting brand choice while they im plement marketing programs which increase the value potential customers see in smoking-attracting people including teenagers to the market and deter ring others from quitting.
Dolan WD, 147:10-148:18; 2070802707-2770 at 2728 (U.S. 89172).
2640. In a February 29, 1984 memorandum, titled "Younger Adult Smokers: Strategies and Opportuni ties," to Martin Orlowsky, CEO of Lorillard, Diane Bur rows, market researcher at R.J. Reynolds, stated:
Younger adult smokers have been the critical factor in the growth and decline of every major brand and company over the last 50 years. They will continue to be just as important to brands/companies in the future for two simple reasons:
 The renewal of the market stems almost entirely from 18-year old smokers. No more than 5% of smokers start after age 24. The brand loyalty of 18-year-old smokers far outweighs any tendency to switch with age. . . . Marlboro and Newport, the only true younger adult growth brands in the mar ket, have no need for switching gains. All of their volume growth can be traced to younger adult smok ers and the movement of the 18-year-olds which they have previously attracted into older age brackets, where they pay a consumption dividend of up to 30%. A strategy which appealed to older smokers would not pay this dividend. . . . Younger adult smokers are the only source of replacement smokers. Re peated government studies . . . have shown that: Less than one-third of smokers (31%) start after age 18. . . . Thus, today's younger adult smoking be havior will largely determine the trend of Industry volume over the next several decades. If younger adults turn away from smoking, the Industry must decline, just as a population which does not give birth will eventually dwindle.
503049069-9072 at 9069 (U.S. 20711); 501431517-1610 at 1519 (U.S. 20680); 506653291-3348 at 3291, 3296 (U.S. 85235).
2641. In an April 13, 1984 RJR letter, R.C. Nordine stated that "[i]t is relatively easy for a brand to retain eighteen-year-old smokers once it has attracted them. . . . Conversely, it is very difficult to attract a smoker that has already been won over by a different brand." 502033156-3157 at 3156 (U.S. 49017).
2642. A March 1988 report, titled "Younger Adult Smoker Opportunity," discussed "RJR's most critical strategic need-Younger Adult Smokers." The report stated: "Improved younger adult development is a key Corporate priority . . . -Necessary for core brand revitalization (# 1 Corporate priority)-Lack of younger adults responsible for total Company volume trend." It indicated that RJR's "[m]arketing department [was] refocusing efforts against younger adult smokers." The report indicated the importance of unrestricted adver tising for reaching these younger smokers and stated that a possible advertising ban "would severely limit RJR's ability to introduce [a] new brand or attract youn ger adult smokers." The report also stated that "[y]oun ger adult smokers drive the growth of two major com petitors"-Marlboro and Newport-which were "cap turing an ever increasing share of younger adult smok ers." Finally, the report explained that young smokers were crucial to the continuing survival of RJR because teenagers remain loyal to their brand of choice as they age and because teenagers smoke an increasing volume of cigarettes as they become adults: "[Y]ounger adult smokers are the key to future growth for any company or brand for several reasons: (1) Aging explains 75% of SOM [Share of Market] growth. (2) Benefits of younger adult smokers compound over time as a result of brand loyalty and the increase in rate per day as smokers age." In summary, the report stated, "RJR must begin now to capture younger adult smokers:-Volume decline inevi table without YAS-Potential for future advertising restrictions-Marketing department restructured to address the issue." 506664499-4558 at 4499-4500, 4506- 4507, 4557 (U.S. 20763) (emphasis in original).
2643. Marketing reports prepared for RJR, under the heading "Decision to Smoke," included the following statement: "66% of all new smokers by age 18." The document also reported on the brand loyalty of smokers, indicating that "90% [of] smokers use only one brand," and that the "Implications for 90's" are that eighteen to twenty-four year olds will be "[c]ritical to long term brand vitality as consumption increases with age." An other report prepared for RJR, from approximately 1989, titled "Younger Adult Smokers," discussed the strategic importance of younger adult smokers, stating that "YAS are the only source of replacement smokers- [l]ess than one-third of smokers start after age 18." The report analyzed the differences between "FUBYAS" [First Brand Young Adult Smokers] (ages 18 to 20) and "Switchers" (ages 21 to 24), stating that "FUBYAS are in transition-belonging to the FAMILY (secure) re placed by belonging to selected PEER GROUP (not as secure)." MBDOJ06953-6966 at 6955-6956, 6969, 6993, 6996 (U.S. 59747) (emphasis in original).
2644. In a letter dated October 12, 1989, titled "Dol lar Value of YAS Over Time," Burrows provided "esti mates . . . of the value of capturing Younger Adult Smokers and holding them over time." The letter calcu lated the profits that RJR would gain "[i]f an 18 year old adopts an RJR full price brand" for 3 years ($1,359), for 7 years ($3,710), for 10 years ($6,148), or for over 20 years ($18,794). Burrows concluded:
Our aggressive Plan calls for gains of about 5.5 share points of smokers 18-20 per year, 1990-93 (about 120,000 smokers per year). Achieving this goal would produce an incremental cash contribution of only about $442MM during the Plan period (ex cluding promotion response in other age groups and other side benefits). However, if we hold these YAS for the market average of 7 years, they would be worth over $2.1 billion in aggregate incremental profit. I certainly agree with you that this payout should be worth a decent sized investment.
507181261-1261 (U.S. 20007) (emphasis in original).
2645. An RJR document, titled "1990 Workplan Ob jectives," stated that "[t]he number one priority for 1990 is to obtain younger adult smoker trial and grow youn ger adult smoker share of market." In addition, the doc ument asked "Why target the YAS market?" and an swered:
-800,000 new smokers (18+) enter the market
-1,500,000 smokers leave the market
With about 50 million smokers, this means that each year there are:
-1.6 share points of new smokers
-3.0 share points of quitters
At least 95% of all new smokers are 18-24. About 70% are exactly 18 (i.e., aged in the 18+ market).
Each brand and company has a share of new smok ers and quitters, which is reflected in their shares of YAS and older smokers. These shares drive long- term market performance.
513869196-9303 at 9197, 9198 (U.S. 30058) (emphasis in original).
2646. Carl Schoenbachler, current president and CEO of BATIC (a former parent of B & W Tobacco and holding entity for B & W Tobacco), when asked if the statement, "The key to sustainable long-term profit growth in the U.S. is ASU 30," was accurate, responded: "Yes, I would say that's true." He explained that
there tends to be a great deal of loyalty in cigarette brands. So, just a natural mathematical equation would suggest if you-if you don't have thirty-year- olds smoking your product, you won't have forty- year-olds and fifty-year-olds. It's a very brand loyal business.
Schoenbachler PD, United States v. Philip Morris, 5/21/02, 72:16-21, 73:13-22, 141:11-141:21, 152:20-25.
3. Defendants' Marketing Is a Substantial Contribut ing Factor to Youth Smoking Initiation
2647. Cigarette marketing, which includes both ad vertising and promotion, is designed to play a key role in the process of recruiting young, new smokers by ex posing young people to massive amounts of imagery as sociating positive qualities with cigarette smoking. Re search in psychology and cognitive neuroscience demon strates how powerful such imagery can be, particularly for young people, in suppressing perception of risk and encouraging behavior. Slovic WD, 53:22-63:11 Defen dants' own statistics demonstrate how successful they have been in marketing their three main youth brands: Philip Morris's Marlboro, RJR's Camel, and Lorillard's Newport.
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3296. The evidence is clear and convincing-and beyond any reasonable doubt-that Defendants have marketed to young people twenty-one and under while consistently, publicly, and falsely, denying they do so. Dolan WD, 24:3-16; Krugman WD, 17:2-19:1; Chaloupka WD, 30:832:20; Biglan WD, 100-379.
3297. In response to the mountain of evidence to the contrary, Defendants claim that all the billions of dollars they have spent on cigarette marketing serves the pri mary purpose of retaining loyal customers ("brand loy alty"), and the secondary purpose of encouraging smok ers to switch brands. They deny that any of their mar keting efforts are aimed at encouraging young people to initiate smoking or to continue smoking. Dolan WD, 61:6-16.
3298. In fact, the overwhelming evidence set forth in this Section-both Defendants' internal documents, testimony from extraordinarily qualified and experi enced experts called by the United States, and the many pictorial and demonstrative exhibits used by the Government-prove that, historically, as well as cur rently, Defendants do market to young people, including those under twenty-one, as well as those under eighteen. Defendants' marketing activities are intended to bring new, young, and hopefully long-lived smokers into the market in order to replace those who die (largely from tobacco-caused illnesses) or quit. Defendants intensive ly researched and tracked young people's attitudes, preferences, and habits. As a result of those investiga tions, Defendants knew that youth were highly suscepti ble to marketing and advertising appeals, would under estimate the health risks and effects of smoking, would overestimate their ability to stop smoking, and were price sensitive. Defendants used their knowledge of young people to create highly sophisticated and appeal ing marketing campaigns targeted to lure them into starting smoking and later becoming nicotine addicts. Dolan WD, 24:3-16; Krugman WD, 84:1-99:23; Chal oupka WD, 30:8-32:20; Biglan WD, 100-379.
3299. As a result, 88% of youth smokers buy the three most heavily advertised brands-Marlboro, Camel, and Newport. Fewer than half of smokers over the age of twenty-five purchase these three brands. For exam ple, in 2003, Marlboro, the most heavily marketed brand, held 49.2% of the twelve to seventeen year old market but only 38% of smokers over age twenty-five. Eriksen WD, 52:17-54:10; (no bates) (U.S. 17684A).
3300. Independent scientific studies published in prestigious peer-reviewed scientific journals and in offi cial government reports have confirmed Defendants' knowledge, as demonstrated in their internal docu ments, that their marketing contributes substantially to the initial demand for and continuing use of cigarettes by young people. Over the past ten years, there have been a number of comprehensive reviews of the scien tific evidence concerning the effects of cigarette market ing, including advertising and promotion, on smoking decisions by young people. The weight of all available evidence, including survey data, scientific studies and experiments, reports of public health and governmental bodies, and the testimony of experts in this case, sup ports the conclusion that cigarette marketing is a sub stantial contributing factor to youth smoking initiation and continuation. Eriksen WD, 55:4-20.
3301. Defendants spent billions of dollars every year on their marketing activities in order to encourage young people to try and then continue purchasing their cigarette products in order to provide the replacement smokers they need to survive. Defendants' expenditures on cigarette advertising and promotion have increased dramatically over the past decades, and in particular since the signing of the MSA. Krugman WD, 23:10-24:4. Over the decades, Defendants have used the full range of marketing tools available to them at any particular time, including: advertising on television, radio, and billboards, and in magazines and newspapers; sponsor ing events, such as sporting events, bar promotions, fes tivals, concerts, and contests; providing coupons, price reductions, and free packs with purchases; providing gifts with purchases (known as "continuity items") such as t-shirts, mugs, and sporting goods; direct-mail mar keting by sending magazines and other materials di rectly to individuals' homes; distributing free cigarette samples at retail stores, public events, bars, or other lo cations; and strategically locating "point of sale" adver tising and promotions at retail outlets young people are most likely to frequent, such as convenience stores. Krugman WD, 43:14-2; Dolan WD, 48:6-3.
3302. In the face of this evidence, Defendants have denied, over and over, with great self-righteousness, that they have marketed to youth.
G. Defendants Have Publicly Denied What They Inter nally Acknowledged: that ETS Is Hazardous to Non smokers
3303. Defendants' collective effort to maintain an open question as to the health effects of cigarette smok ing was not limited to whether cigarettes caused disease in smokers themselves. During the 1970s, scientific evi dence suggesting that exposure to cigarette smoke was hazardous to nonsmokers began to grow, and public health authorities began to warn of a potential health risk to both adults and children. Fearing government regulation to restrict smoking in public places and sens ing a decrease in the social acceptability of smoking, Defendants were faced with a major threat to their prof its.
3304. In 1974, Tobacco Institute chairman Horace Kornegay warned that smoking restrictions not only impacted sales but also "could lead to the virtual elimi nation of cigarette smoking." TIMN0067732-7755 at 7734 (U.S. 22047). Reynolds CEO Ed Horrigan wrote Lorillard executives in 1982: "We all know that proba bly the biggest threat to our industry is the issue of pas sive smoking." 93443843-3843 (U.S. 32289). A 1986 BATCo document stated: "The world tobacco industry sees the ETS issue as the most serious threat to our whole business." 1009931583165 at 3158 (U.S. 89556). Philip Morris Companies Vice Chairman Bill Murray was advised at a presentation by Project Down under Conference attendees, in 1987: "The situation can't get any worse. Sales are down, can't be attributed to taxes or price increases. ETS is the link between smokers and non-smokers and is, thus, the anti's [anti-smoking activ ists] silver bullet." 20215026712678 at 2678 (U.S. 22950).
3305. In response, Defendants crafted and imple mented a broad strategy to undermine and distort the evidence indicting passive smoke as a health hazard. Defendants' initiatives and public statements with re spect to passive smoking attempted to deceive the pub lic, distort the scientific record, avoid adverse findings by government agencies, and forestall indoor air restric tions. Defendants' conduct with respect to passive smoking continues to this day, when currently no Defen dant publicly admits that passive exposure to cigarette smoke causes disease or other adverse health effects.
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3859. Scientists have been concerned about the health effects of environmental tobacco smoke since at least the late 1960s, after the issuance of the Surgeon General's Report on Smoking and Health. However, no scientific consensus about the hazards of ETS to non- smokers (particularly to babies and young children), as well as to smokers who also inhale the sidestream smoke which is a component of ETS, was reached until 1986. That year the Surgeon General issued his Report con cluding that ETS is a cause of disease and that children of smoking parents have a higher frequency of respira tory infections and symptoms; the National Research Council of the National Academy of Sciences issued its report on "Environmental Tobacco Smoke, Measuring Exposures and Assessing Health Effects," concluding that ETS increases the incidence of lung cancer in non smokers and that children of smoking parents suffer greater respiratory problems; and the World Health Or ganization's International Agency for Research on Can cer (IARC) issued its Monograph concluding that tobac co smoke is carcinogenic to humans.
3860. Significantly, Defendants were well aware of, and worried about, this issue as early as 1961 when a Philip Morris scientist presented a paper showing that 84% of cigarette smoke was composed of sidestream smoke, and that sidestream smoke contained carcino gens. In addition to understanding, early on, that there was a strong possibility that ETS posed a serious health danger to smokers, Defendants also understood the fi nancial ramifications of such a conclusion. In 1974, the Tobacco Institute's president Horace Kornegay ac knowledged that indoor air restrictions designed to de fuse the passive smoking issue "could lead to the virtual elimination of cigarette smoking." In 1980, the CEO of R.J. Reynolds, Ed Horrigan, stated that "We all know that probably the biggest threat to our industry is the issue of passive smoking." In the 1990s, a Philip Morris report identified "the social acceptability of smoking practices [as] the most critical issue that our industry is facing today . . . Attacks on acceptability are almost exclusively based on claims that ETS can cause diseases in the exposed population."
3861. Despite the fact that Defendants' own scien tists were increasingly persuaded of the strength of the research showing the dangers of ETS to nonsmokers, Defendants mounted a comprehensive, coordinated, in ternational effort to undermine and discredit this re search. Defendants poured money and resources into establishing a network of interlocking organizations. They identified, trained, and subsidized "friendly" scien tists through their Global Consultancy Program, and sponsored symposia all over the world from Vienna to Tokyo to Bermuda to Canada featuring those "friendly" scientists, without revealing their substantial financial ties to Defendants. They conducted a mammoth na tional and international public relations campaign to cri ticize and trivialize scientific reports demonstrating the health hazards of ETS to nonsmokers and smokers.
3862. Defendants still continue to deny the full ex tent to which ETS can harm nonsmokers and smokers. Some Defendants, such as BATCo, R.J. Reynolds, and Lorillard, flatly deny that secondhand smoke causes disease and other adverse health effects; some, such as Brown & Williamson, claim it's still "an open question"; and others, such as Philip Morris, say that they don't take a position and that the public should follow the rec ommendations of the public health authorities. To this day, no Defendant fully acknowledges that the danger exists.
H. At Various Times, Defendants Attempted to and Did Suppress and Conceal Scientific Research and Destroy Documents Relevant to Their Public and Litigation Positions
3863. Defendants attempted to and, at times, did prevent/stop ongoing research, hide existing research, and destroy sensitive documents in order to protect their public positions on smoking and health, avoid or limit liability for smoking and health related claims in litigation, and prevent regulatory limitations on the cig arette industry.
3864. The evidence of Defendants' suppression of research and destruction of documents consists of events which often seem to be unrelated and to lack a unifying thread. Defendants claim these facts, most of which are undisputed, amount to no more than a string of isolated instances which prove nothing. This explana tion misses the point. The evidence is clear that on a significant number of occasions, Defendants did in fact suppress research and destroy documents to protect themselves and the industry. The fact that much addi tional evidence may be lacking because Defendants were successful in their efforts to suppress, conceal, and de stroy materials that would have reflected adversely on their corporate interests is hardly a justification for ig noring the evidence that does exist. Moreover, in those instances where Defendants did successfully suppress, conceal, and destroy materials, it is most unlikely that there would be any evidence to reflect that since it would no longer exist. By destroying evidence, Defen dants make it virtually impossible to know what materi als existed prior to their destruction.
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4034. The foregoing Findings of Fact demonstrate that, over the course of approximately fifty years, differ ent Defendants, at different times, took the following actions in order to maintain their public positions on smoking and disease-related issues, nicotine addiction, nicotine manipulation, and low tar cigarettes, in order to protect themselves from smoking and health related claims in litigation, and in order to avoid regulation which they viewed as harmful: they suppressed, con cealed, and terminated scientific research; they de stroyed documents including scientific reports and stud ies; and they repeatedly and intentionally improperly asserted the attorney-client and work product privileges over many thousands of documents (not just pages) to thwart disclosure to plaintiffs in smoking and health related litigation and to federal regulatory agencies, and to shield those documents from the harsh light of day.
4035. While it is true that some of these efforts were unsuccessful and some of the elaborate document "re tention" policies were either not fully implemented or not implemented at all, the fact remains that many were fully complied with. Consequently, we can never know the full extent of the evidence destroyed and lost to pub lic view.
VI. THE PROVISIONS AND IMPLICATIONS OF SET TLEMENT AGREEMENTS BY DEFENDANTS
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CONCLUSIONS OF LAW
VII. DEFENDANTS HAVE VIOLATED 18 U.S.C. 1962(c)
The United States established by a preponderance of the evidence that Defendants and others comprised an association-in-fact enterprise ("Enterprise") and that each Defendant participated in the conduct, manage ment, and operation of the Enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c); see, e.g., Sedima v. Imrex Co., 473 U.S. 479, 491, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985); Yellow Bus Lines, Inc. v. Drivers, Chauffeurs & Helpers Local Un ion 639, 913 F.2d 948, 954 (D.C. Cir. 1990); United States v. Local 560, Int'l Bhd. of Teamsters, 780 F.2d 267, 280 n.12 (3d Cir. 1985). Section 1962(c) provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign com merce, to conduct or participate, directly or indi rectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collec tion of unlawful debt.
18 U.S.C. § 1962(c). The United States has proven this violation by establishing each of the following elements:
· The existence of an enterprise;
· The enterprise was engaged in, or its activities affected, interstate or foreign commerce;
· Each defendant was employed by or associated with the enterprise;
· Each defendant conducted or participated, di rectly or indirectly, in the conduct of the affairs of the enterprise;
· Each defendant committed at least two acts of racketeering within 10 years of one another; and
· The racketeering acts constitute a pattern of rack eteering activity.
See, e.g., Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496-97, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985); United States v. Hoyle, 122 F.3d 48, 50 (D.C. Cir. 1997) (listing elements); United States v. Philip Morris USA, 316 F. Supp. 2d 13, 16 (D.D.C. 2004).
All the alleged predicate racketeering acts in this case involve mail or wire fraud offenses, in violation of 18 U.S.C. § 1341 or § 1343. The mail fraud statute, 18 U.S.C. § 1341, provides in relevant part:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pre tenses, representations, or promises . . . for the purpose of executing such scheme or artifice or at tempting so to do, [mails or causes the mailing of any matter] . . . shall be fined under this title or im prisoned not more than 20 years, or both.
To establish an offense under § 1341 (or § 1343), the plaintiff must prove by a preponderance of evidence the following elements:
· The defendant knowingly devised or intended to devise any scheme or artifice to defraud a victim of money or property, or the defendant knowingly devised or intended to devise any scheme for ob taining money or property by means of material false or fraudulent, representations, pretenses, or promises, and
· The defendant mailed any matter, or caused the mailing of any matter (or sent or caused to be send by interstate wire transmission), for the pur pose of furthering or executing such scheme or artifice, and
· The defendant acted with the specific intent to defraud or deceive.
See Neder v. United States, 527 U.S. 1, 24-25, 119 S. Ct. 1827, 144 L. Ed. 2d 35 (1999); United States v. Philip Morris Inc., 304 F. Supp. 2d 60, 69 (D.D.C. 2004). The extensive, detailed Findings of Fact set forth above, establish-overwhelmingly-that Defendants devised a scheme to defraud and used mailings and wire transmis sions for the purpose of furthering it. The purpose of the scheme was to obtain, from smokers and potential smokers, money, i.e., the cost of cigarettes, to fill the coffers of the corporate Defendants. Put more colloqui ally, and less legalistically, over the course of more than 50 years, Defendants lied, misrepresented, and deceived the American public, including smokers and the young people they avidly sought as "replacement smokers," about the devastating health effects of smoking and en vironmental tobacco smoke, they suppressed research, they destroyed documents, they manipulated the use of nicotine so as to increase and perpetuate addiction, they distorted the truth about low tar and light cigarettes so as to discourage smokers from quitting, and they abused the legal system in order to achieve their goal-to make money with little, if any, regard for individual illness and suffering, soaring health costs, or the integrity of the legal system.
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VIII. DEFENDANTS HAVE VIOLATED 18 U.S.C. § 1962(d)
18 U.S.C. § 1962(d) provides in part: "It shall be unlawful for any person to conspire to violate any of the provisions of . . . Subsection (c) of this Section."
A. Applicable Case Law
To establish a conspiracy violation of 18 U.S.C. § 1962(d), the United States must prove each of the fol lowing elements:
1. The existence of an enterprise;
2. That the enterprise was engaged in, or its activi ties affected, interstate or foreign commerce; and
3. That each defendant knowingly agreed to the com mission of a violation of 18 U.S.C.1962(c).9
See, e.g., Salinas v. United States, 522 U.S. 52, 62-65, 118 S. Ct. 469, 139 L. Ed. 2d 352 (1997); United States v. Philip Morris Inc., 130 F. Supp. 2d 96, 100 (D.D.C. 2001); United States v. Posada-Rios, 158 F.3d 832, 857 (5th Cir. 1998); United States v. To, 144 F.3d 737, 744 (11th Cir. 1998); Jones v. Meridian Towers Apartments, Inc., 816 F. Supp. 762, 772-73 (D.D.C. 1993).
Although a substantive RICO offense under § 1962(c), requires proof that each defendant committed at least two racketeering acts, a RICO conspiracy charge does not require proof of the actual commission of any racketeering act or any overt act. See, e.g., Sa linas, 522 U.S. at 63, 118 S. Ct. 469; United States v. Zauber, 857 F.2d 137, 148 (3d Cir. 1988); United States v. Caporale, 806 F.2d 1487, 1515 (11th Cir. 1986); United States v. Teitler, 802 F.2d 606, 612-13 (2d Cir. 1986) (col lecting cases); United States v. Neapolitan, 791 F.2d 489, 498 (7th Cir. 1986); United States v. Adams, 759 F.2d 1099, 1116 (3d Cir. 1985); United States v. Brooklier, 685 F.2d 1208, 1222-23 (9th Cir. 1982); United States v. Corrado, 286 F.3d 934, 937 (6th Cir. 2002); Glecier, 923 F.2d at 500; Gonzalez, 921 F.2d at 1547-48; United States v. Torres Lopez, 851 F.2d 520, 525 (1st Cir. 1988); United States v. Persico, 832 F.2d 705, 713 (2d Cir. 1987).
As the Supreme Court explained in Salinas, "[t]he RICO conspiracy provision, then, is even more compre hensive than the general conspiracy offense in [18 U.S.C.] § 371." 522 U.S. at 63, 118 S. Ct. 469. As in the case of conventional conspiracy offenses, each co-con spirator is liable for the acts of all other conspirators undertaken in furtherance of the conspiracy both prior to and subsequent to the coconspirator's joining the con spiracy. See, e.g., Salinas, 522 U.S. at 63-64, 118 S. Ct. 469; P & B Autobody, 43 F.3d at 1562; Pungitore, 910 F.2d at 1145-48; United States v. Bridgeman, 523 F.2d 1099, 1108 (D.C. Cir. 1975).
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B. Each Defendant10 Is Liable for the RICO Conspir acy Charge Because Each Entered into the Requi site Conspiratorial Agreement
"In order to be guilty of a RICO conspiracy, a defen dant must either agree to [individually] commit two predicate acts or agree to participate in the conduct of the enterprise with the knowledge and intent that other members of the conspiracy would commit at least two predicate acts in furtherance of the enterprise." United States v. Nguyen, 255 F.3d 1335, 1341 (11th Cir. 2001); see also United States v. Abbell, 271 F.3d 1286, 1299 (11th Cir. 2001); Brouwer v. Raffensperger, Hughes & Co., 199 F.3d 961, 964 (7th Cir. 2000); To, 144 F.3d at 744; United States v. Brazel, 102 F.3d 1120, 1138 (11th Cir. 1997); United States v. Shenberg, 89 F.3d 1461, 1471 (11th Cir. 1996). Defendants are liable for a RICO con spiracy under either test.
First, each Defendant individually agreed to commit at least two Racketeering Acts. The overwhelming evi dence demonstrates that each Defendant personally committed numerous Racketeering Acts in furtherance of the affairs of the Enterprise. See Findings of Fact Section VII(G)(3)(a), supra. "Where, as here, the evi dence establishes that each defendant, over a period of years, committed several acts of racketeering activity in furtherance of the enterprise's affairs, the inference of an agreement to do so is unmistakable." Elliott, 571 F.2d at 903; see also United States v. Ashman, 979 F.2d 469, 492 (7th Cir. 1992); United States v. Crockett, 979 F.2d 1204, 1218 (7th Cir. 1991); United States v. Carlock, 806 F.2d at 547 (5th Cir. 1986); United States v. Melton, 689 F.2d 679, 683 (7th Cir. 1982); United States v. Sutherland, 656 F.2d 1181, 1187 n.4 (5th Cir. 1981).
Second, each Defendant agreed to participate in the conduct of the Enterprise with the knowledge and intent that other members of the conspiracy would also commit at least two predicate acts in furtherance of the Enter prise. A RICO conspiracy may exist even if a conspira tor does not agree to commit or facilitate each and every part of the substantive offense. See United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 253-254, 60 S. Ct. 811, 84 L. Ed. 1129 (1940). As the Supreme Court ex plained in reference to RICO:
A conspirator must intend to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or facilitating the criminal endeavor. He may do so in any number of ways short of agreeing to undertake all of the acts necessary for the crime's completion. One can be a conspirator by agreeing to facilitate only some of the acts leading to the substantive offense. It is elemen tary that a conspiracy may exist and be punished whether or not the substantive crime ensues. . . . * * *
It makes no difference that the substantive offense under § 1962(c) requires two or more predicate acts. The interplay between subsections (c) and (d) does not permit us to excuse from the reach of the con spiracy provision an actor who does not himself com mit or agree to commit the two or more predicate acts requisite to the underlying offense.
Salinas, 522 U.S. at 63-65, 118 S. Ct. 469.
Thus, to prove a RICO conspiracy,
[t]he focus is on the agreement to participate in the enterprise through the pattern of racketeering activ ity, not on the agreement to commit the individual predicate acts. . . . The government can prove [such] an agreement on an overall objective by cir cumstantial evidence showing that each defendant must necessarily have known that others were also conspiring to participate in the same enterprise through a pattern of racketeering activity.
Starrett, 55 F.3d at 1543-44 (internal quotations and citations omitted); Accord Posada-Rios, 158 F.3d at 857; To, 144 F.3d at 744. It is sufficient "that the defendant agree to the commission of [at least] two predicate acts [by any conspirator] on behalf of the conspiracy." MCM Partners, Inc. v. Andrews-Bartlett & Assocs., 62 F.3d 967, 980 (7th Cir. 1995) (quoting United States v. Nea politan, 791 F.2d 489, 498 (7th Cir. 1986)). Accord Brou wer, 199 F.3d at 964; United States v. Quintanilla, 2 F.3d 1469, 1484 (7th Cir. 1993) (quoting Neapolitan).
Defendants' conspiracy was in existence as of De cember 1953, when several of the cigarette company Defendants met in New York City to create CTR and to discuss and outline the Enterprise's future strategy.11 Each Defendant agreed to commit a substantive RICO offense with the knowledge that other members of the Enterprise were also conspiring to commit racketeering activity. All Defendants coordinated significant aspects of their public relations, scientific, legal, and marketing activity in furtherance of the shared objective-to use mail and wire transmissions to maximize industry prof its by preserving and expanding the market for ciga rettes through a scheme to deceive the public. Defen dants executed the scheme by using several different strategies including: (1) denying that there were ad verse health effects from smoking; (2) making false, mis leading, and deceptive public statements designed to maintain doubt about whether smoking and exposure to secondhand smoke cause disease; (3) denying the addic tiveness of smoking cigarettes and the role of nicotine therein; (4) disseminating advertising for light and low tar cigarettes suggesting they were less harmful than full flavor ones; and (5) undertaking a publicly an nounced duty to conduct and publicize disinterested and independent research into the health effects of smoking upon which the public could rely. See Findings of Fact Sections III and V.
Moreover, the cigarette company Defendants jointly participated at various times and to various degrees in creating, funding, directing and controlling Defendants CTR, TI and other entities and causing Defendants CTR and TI to commit numerous racketeering acts to further those shared objectives. Furthermore, the frequent oral and written communications between and among Defen dants illustrate their joint efforts to pursue their shared objectives. Significantly, Defendants worked together continuously, in many different venues and through many different entities, to disseminate their agreed upon deceptive public position denying the link between smoking cigarettes and adverse health effects, denying the addictiveness of smoking cigarettes and nicotine, and denying their marketing of cigarettes to young peo ple. See Findings of Fact Sections V(A, B, F).
In addition, each Defendant also agreed to facilitate the substantive RICO violation by concealing or sup pressing information and documents which may have been detrimental to the interests of the members of the Enterprise. Such information might well have been dis coverable in smoking and health liability cases against Defendants and therefore could have constituted, or led to, evidence of the link between smoking cigarettes, ad diction, and adverse health effects. See Findings of Fact Section V(H).
Thus, each Defendant knew the goals of the Enter prise, the general nature of the conspiracy, and that other members of the conspiracy would commit at least two Racketeering Acts in furtherance of the Enter prise's scheme to defraud. Indeed, each Defendant took substantial steps to facilitate the scheme to defraud that was the central purpose of the conspiracy, including committing numerous Racketeering Acts in furtherance of the Enterprise's affairs. Hence, each Defendant en tered into the requisite conspiratorial agreement. Ac cord Salinas, 522 U.S. at 66, 118 S. Ct. 469 ("[E]ven if Salinas did not accept or agree to accept two bribes, there was ample evidence that he conspired to vio late subsection (c). The evidence showed that [Salinas' conspirator] committed at least two acts of racketeering activity when he accepted numerous bribes and that Salinas knew about and agreed to facilitate the scheme. This is sufficient to support a conviction under § 1962(d).").
While there is much explicit evidence of actual agree ment between Defendants in the Findings of Fact, RICO liability does not require such an explicit agreement. "Regardless of the method used to prove the agreement, the government does not have to establish that each con spirator explicitly agreed with every other conspirator to commit the substantive RICO crime described in the indictment, or knew his fellow conspirators, or was aware of all the details of the conspiracy." Starrett, 55 F.3d at 1544 (internal quotations and citations deleted).
Even though the criminal activities may differ, they must still be linked to allow the inference of an agree ment. United States v. Boylan, 898 F.2d 230, 242 (1st Cir. 1990) (RICO conspiracy conviction upheld where "the defendants and their activities were nothing short of striking: each defendant was a detective assigned to work nights in District 4 at some time during the indict ment period; each received things of value, usually cash, from restaurant or nightclub owners in exchange for services not officially sanctioned; the targeted establish ments were all in District 4 and all under the Board's aegis. Moreover, there was a significant degree of inter connectedness. The defendants often cooperated with one another in collecting payments and in providing their specialized services. These common characteris tics are precisely the kind of factors which can permissi bly lead to the inference of a single conspiracy."); Ash man, 979 F.2d at 492 (in investment scheme, evidence sufficient for RICO conspiracy where defendants served as "bag men" for each other, used similar procedures for covering losses, and "were well aware that they were part of an ongoing and flexible agreement to com mit fraud as the need-or perhaps the opportunity- arose"); see also United States v. Zichettello, 208 F.3d 72, 100 (2d Cir. 2000); To, 144 F.3d at 744; United States v. Ruiz, 905 F.2d 499, 505 (1st Cir. 1990); Rastelli, 870 F.2d at 828 (collecting cases); United States v. Rosen thal, 793 F.2d 1214, 906 1228 (11th Cir. 1986); United States v. De Peri, 778 F.2d 963, 975 (3d Cir. 1985); El liott, 571 F.2d at 902-03.
To establish sufficient knowledge, it is only required that the defendant "know the general nature of the con spiracy and that the conspiracy extends beyond his indi vidual role." Rastelli, 870 F.2d at 828 (collecting cases). Accord Zichettello, 208 F.3d at 100; Brazel, 102 F.3d at 1138; Eufrasio, 935 F.2d at 577 n.29; Rosenthal, 793 F.2d at 1228; De Peri, 778 F.2d at 975; Elliott, 571 F.2d at 903-04. Furthermore, "[b]ecause conspirators nor mally attempt to conceal their conduct, the elements of a conspiracy offense may be established solely by cir cumstantial evidence. . . . The agreement, a defen dant's guilty knowledge and a defendant's participation in the conspiracy all may be inferred from the develop ment and collocation of circumstances." Posada-Rios, 158 F.3d at 857 (citations and internal quotations omit ted).
For all the foregoing reasons, the Court concludes that Defendants are liable for conspiracy under 18 U.S.C. § 1962(d) of RICO because they both explicitly and implicitly agreed to violate 18 U.S.C. § 1962(c) of RICO.12
C. Liggett Withdrew from the Conspiracy
Where an alleged conspirator communicates his abandonment in a manner reasonably calculated to reach co-conspirators, the conspirator is deemed to have withdrawn from the conspiracy. United States v. Tho mas, 114 F.3d 228, 267-9 (D.C. Cir.), cert. denied, 522 U.S. 1033, 118 S. Ct. 635, 139 L. Ed. 2d 614 (1997) (col lecting cases); see also United States v. United States Gypsum Co., 438 U.S. 422, 463-64, 98 S. Ct. 2864, 57 L. Ed. 2d 854 (1978); In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 616 (7th Cir. 1978); In re Corrugated Container Antitrust Litig., 662 F.2d 875, 886 (D.C. Cir. 1981). Although there is clear and convincing evidence that Liggett participated in the RICO Enterprise and conspiracy during its formative years, the Court finds that it withdrew from the conspir acy in 1997.
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IX. ALTRIA IS LIABLE FOR ITS VIOLATIONS OF 18 U.S.C. § 1962(c) AND (d).
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X. THERE IS A LIKELIHOOD OF PRESENT AND FU TURE VIOLATIONS OF RICO
A. Applicable Law
18 U.S.C. § 1964(a) limits the granting of remedies for liability under 1962(c) to those which "prevent and restrain violations of section 1962. . . . " As the D.C. Circuit explained, "[t]his language indicates that the jurisdiction is limited to forward-looking remedies that are aimed at future violations." United States v. Philip Morris USA Inc., 396 F.3d 1190, 1198 (D.C. Cir. 2005).
This Court has already held that:
To obtain injunctive relief in this Circuit, a plaintiff must show that the defendant's past unlawful con duct indicates a "'reasonable likelihood of further violation( s) in the future.'" SEC v. Kenton Capital, Ltd., 69 F. Supp. 2d 1, 15 (D.D.C. 1998) (Kollar- Kotelly, J.) (quoting SEC v. Savoy Ind., Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978)); SEC v. Bilzerian, 29 F.3d 689, 695 (D.C. Cir. 1994).
To determine whether there is a "reasonable likeli hood" of future violations, the following factors must be considered: " whether a defendant's violation was isolated or part of a pattern,  whether the vio lation was flagrant and deliberate or merely techni cal in nature, and  whether the defendant's busi ness will present opportunities to violate the law in the future." [SEC v. First City Financial Corp., 890 F.2d 1215, 1228 (D.C. Cir. 1989)] (citing Savoy Indus., 587 F.2d at 1168); Bilzerian, 29 F.3d at 695. None of these three factors is determinative; rather, "the district court should determine the propensity for future violations based on the totality of circum stances." First City, 890 F.2d at 1228 (citing SEC v. Youmans, 729 F.2d 413, 415 (6th Cir. 1984)).
Philip Morris, Inc., 116 F. Supp. 2d at 148. In addition, the requisite "reasonable likelihood" of future violations may be established by inferences drawn from past con duct alone. Philip Morris USA, 316 F. Supp. 2d at 10 n.3.
The Findings of Fact demonstrate that Defendants' conduct "overwhelmingly satisfied each of the [D.C. Cir cuit's] three First City factors." First City, 890 F.2d at 1228. First, Defendants' RICO violations were not "iso lated." On the contrary, the Findings of Fact describes more than 100 predicate acts spanning more than a half century. Second, Defendants' RICO violations were not "technical in nature." As discussed above, Defendants' numerous misstatements and acts of concealment and deception were made intentionally and deliberately, rather than accidentally or negligently, as part of a multi-faceted, sophisticated scheme to defraud. Third, as this Court has already found, Defendants' business of manufacturing, selling and marketing tobacco products "present[s] opportunities to violate the law in the fu ture." Philip Morris, 116 F. Supp. 2d at 149 (alteration in original). As the Government points out, as long as Defendants are in the business of selling and marketing tobacco products, they will have countless "opportuni ties" and temptations to take similar unlawful actions in order to maximize their revenues, just as they have done for the past five decades.
Where, as here, the United States seeks equitable relief brought by the United States under 18 U.S.C. § 1964(a), "the government need not, as [Defendants] assert, demonstrate a new RICO violation to justify is suance of the injunction." Local 560, 974 F.2d at 325 n.5 ("[Defendant] erroneously argues . . . that to succeed the government must prove a new RICO offense based on conduct which occurred after the March 16, 1984 Judgment Order"); see also United States v. Local 6A, Cement & Concrete Workers, 663 F. Supp. 192, 195 (S.D.N.Y. 1986) (rejecting argument that "the Govern ment must show present RICO violations to secure [in junctive] relief"). Instead, it is sufficient that the Uni ted States demonstrate a reasonable likelihood that the defendant might continue unlawful conduct in the fu ture, which may be inferred from past conduct.13 In making that determination, the court does not begin "with a clean slate" as if it were "a new case;" rather, the court considers the totality of the evidence of the underlying case. United States v. Local 560, Int'l Bhd. of Teamsters, 754 F. Supp. 395, 403 (D.N.J. 1991). Moreover, a defendant remains liable for the continua tion of events it conspired to set in motion, even if a par ticular defendant has ceased its unlawful activity. For the Court to enter injunctive remedies, there need only be a reasonable likelihood that the unlawful conduct set in motion by the conspirators will continue.
The evidence in this case clearly establishes that De fendants have not ceased engaging in unlawful activity. Even after the Complaint in this action was filed in Sep tember 1999, Defendants continued to engage in conduct that is materially indistinguishable from their previous actions, activity that continues to this day. For example, most Defendants continue to fraudulently deny the ad verse health effects of secondhand smoke which they recognize internally; all Defendants continue to market "low tar" cigarettes to consumers seeking to reduce their health risks or quit; all Defendants continue to fraudulently deny that they manipulate the nicotine de livery of their cigarettes in order to create and sustain addiction; some Defendants continue to deny that they market to youth in publications with significant youth readership and with imagery that targets youth; and some Defendants continue to suppress and conceal infor mation which might undermine their public or litigation positions. See generally Findings of Fact Section V. Significantly, their conduct continues to further the ob jectives of the overarching scheme to defraud, which began by at least 1953. Their continuing conduct mis leads consumers in order to maximize Defendants' reve nues by recruiting new smokers (the majority of whom are under the age of 18), preventing current smokers from quitting, and thereby sustaining the industry.
As Defendants' senior executives took the witness stand at trial, one after another, it became exceedingly clear that these Defendants have not, as they claim, ceased their wrongdoing or, as they argued throughout the trial, undertaken fundamental or permanent institu tional change. For example, during live testimony in January 2005, more than forty years after the 1964 Sur geon General's Report, Reynolds American Executive Chairman Andrew Schindler refused to admit that smoking causes disease. Schindler TT, 1/24/05, 10812:3- 22. Nevertheless, Joint Defendants assert in their post- trial Proposed Findings of Fact that "Reynolds Con cedes That Cigarette Smoking Causes Disease." JD FF ch. 8, § V.G.4. In reality, the RJR website on which Joint Defendants rely in making that statement is only a half-hearted concession with the same two conditions that Schindler made in open court: "R.J. Reynolds To bacco Company (R.J. Reynolds) believes that smoking, in combination with other factors, causes disease in some individuals." March 18, 2005 RJR website printout (page 54 of 569) (JD 068012). The website minimizes smoking as being merely "a risk factor for many chronic diseases," and states that "[m]ost, if not all, chronic dis eases result from the interaction of many risk factors including genetics, diet and lifestyle choices." Id.14
RJR is not alone. Lorillard's CEO, Martin Orlow sky, likewise refused at trial to admit to the full extent of smoking's harm. He was asked, "Why hasn't Loril lard specifically stated publicly that smoking causes any diseases other than smoking emphysema, COPD or heart disease?" He responded: "We have-in certain instances, we do not know if in fact the evidence, the scientific evidence is such that it warrants saying it does cause. However, Lorillard's longstanding position, as long as I've been with the company, is that certainly smoking can, and is a risk factor for those diseases." Orlowsky TT, 10/13/04, 2303:7-15. Lorillard's website includes a July 28, 2003 press release, in which its gen eral counsel Ronald Milstein falsely stated that, "Re search has shown time and time again that willpower is the only smoking cessation aid that always works." (no bates) (U.S. 86693). At trial, Milstein specifically re fused to remove his statement from the website. Mil stein TT, 1/7/05, 9288:12-19. He made those statements notwithstanding the fact that Defendants' internal docu ments indicate that they recognize that it is simply false that "willpower . . . always works." Clearly, then, any claim the Defendants have changed their behavior must be rejected.
B. The Enterprise's Scheme to Defraud Presents Con tinuing Opportunities for Defendants to Commit Violations of 18 U.S.C.1962(c) and (d)
There is a reasonable likelihood that Defendants' RICO violations will continue in most of the areas in which they have committed violations in the past. Defen dants' practices have not materially changed in most of the Enterprise's activities, including: denial that ETS causes disease, denial that Defendants market to youth, denial of the addictiveness of nicotine, denial of manipu lation of the design and content of cigarettes, suppres sion of information and research, and claims that light and low tar cigarettes are less hazardous than full-flavor cigarettes.
Philip Morris, BATCo, B & W, Lorillard, and RJR all deny in this lawsuit and in public statements that ETS causes disease in nonsmokers, contrary to the definitive scientific evidence and their own internal acknowledg ments.15 As of August 2005, RJR's website asserted that it believes "that there are still legitimate scientific ques tions concerning the reported risks of secondhand smoke." (U.S. 92012). Absent Court intervention, such denials and distortions of material health information and scientific evidence on ETS are, at a minimum, likely to continue.
Similarly, Defendants continue to engage in many practices which target youth, and deny that they do so. Despite the provisions of the MSA, Defendants continue to track youth behavior and preferences and market to youth using imagery which appeals to the needs and desires of adolescents. Defendants are well aware that over eighty percent of adult smokers began smoking be fore the age of 18, and therefore know that securing the youth market is critical to their survival. There is there fore no reason, especially given their long history of de nial and deceit, to trust their assurances that they will not continue committing RICO violations denying their marketing to youth.
Although Defendants recently began to finally admit that smoking is addictive, no Defendant publicly informs consumers that nicotine is addictive, much less that smoking is a nicotine-driven addiction. See Findings of Fact Section V(B)(4). Defendants minimize the issue as a "quibble over the precise wording of the addictiveness of smoking." JD Br. at 39. To the contrary, the issue is Defendants' refusal to admit publicly that nicotine is physiologically addictive, that smoking is a nicotine- driven addiction, and that, therefore, quitting is not a simple act of willpower. At trial, the General Counsel for Philip Morris, Denise Keane, admitted that the "Smoking is Addictive" statement that Philip Morris re moved from cigarette packs after buying three Liggett cigarette brands in 1999 was both correct and material. She also agreed that it is material for people to know that Philip Morris agrees that the nicotine delivered in cigarette smoking is addictive, but it does not say so publicly. Keane TT, 1/18/05, 10458:6-17. The deliberate omission of admittedly material information about nico tine addiction is not a mere "quibble." It is fraudulent, with consequences for those who smoke and those, espe cially young people, who are considering whether to start smoking. Defendants have thus made clear that, despite their internal research to the contrary, they re main unwilling to admit publicly that nicotine is addic tive and that smoking is an addiction driven by nicotine. Such RICO violations are reasonably likely to continue.
Defendants also continue to deny that they manipu late the design and content of cigarettes in order to as sure adequate nicotine delivery to create and sustain smokers' addiction. Such RICO violations are reason ably likely to continue.
In addition, Defendants have a continuing interest in suppressing research and information and destroying documents which could prove detrimental to their public and litigation positions. Although it is difficult to prove such suppression or destruction, the Court strongly be lieves such RICO violations are reasonably likely to con tinue.
Contrary to their internal documents, Defendants also continue to deny that low tar cigarettes are just as hazardous to smokers as full-flavor cigarettes, in part because of smoker compensation. In 1998, Philip Mor ris, RJR, B & W, and Lorillard jointly stated to the FTC that compensation was so "weakly documented" that the FTC should not require disclosure warnings to alert consumers, and that they were "unaware of evi dence," other than that presented in Monograph 7, 5208421992295 at 2243, 2289 (U.S. 88618), that consum ers viewed low-tar cigarettes as safer. Defendants are well aware from their own research that a majority of smokers believe that low-tar cigarettes are healthier, are willing to buy them for precisely that reason, and are willing to sacrifice taste for what they believe to be less harmful cigarettes. Nonetheless, to this day, Defen dants still deny that, as Monograph 13 found, low-tar cigarettes are just as dangerous as full-flavor cigarettes. These RICO violations are likely to continue.
Finally, despite Defendants' claims that they have materially altered their management and are now "new" companies, the evidence demonstrates that they have not changed their policies or personnel in any meaning ful way. For example, Philip Morris' current top execu tive staff is composed entirely of veteran employees with an average of fifteen to twenty years of company experi ence. The assertion that such longstanding, faithful em ployees will usher in dramatically new corporate policies seems reasonably unlikely.
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D. As to Certain Defendants, There is Not a Reason able Likelihood of Future Violations of 18 U.S.C. § 1962(c) and (d)
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A. Legal Standards Governing Remedies
Once RICO liability is established, 18 U.S.C. § 1964(a) states that:
The district courts of the United States shall have jurisdiction to prevent and restrain violations of sec tion 1962 of this chapter [18 USCS § 1962] by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing rea sonable restrictions on the future activities or invest ments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign com merce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons.
In Order # 550, the Court denied Defendants' Mo tion for Partial Summary Judgment Dismissing the Gov ernment's Disgorgement Claim and, in doing so, laid out the existing standard for equitable remedies under § 1964(a) which prevent and restrain RICO violations. First, the Court noted that the full scope of a court's equitable jurisdiction must be recognized and applied except where "a statute in so many words, or by a neces sary and inescapable inference, restricts the court's ju risdiction" or where there is a "clear and valid legisla tive command" limiting jurisdiction. Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S. Ct. 1086, 90 L. Ed. 1332 (1946). Second, the Court held that the plain lan guage of § 1964(a) requires a showing of a reasonable likelihood of future RICO violations before entering any equitable remedies. Third, the Court noted that one of the purposes of civil remedies under § 1964(a) is "to di vest the association of the fruits of its ill-gotten gains." United States v. Turkette, 452 U.S. 576, 585, 101 S. Ct. 2524, 69 L. Ed. 2d 246 (1981). Finally, based on the fore going conclusions, the Court held that disgorgement prevents and restrains future RICO violations and is appropriate as an equitable civil RICO remedy.
Our Court of Appeals, in a 2-1 opinion written by Judge Sentelle, interpreted § 1964(a) to authorize only those remedies that are enumerated in the statute and equitable relief that "prevents and restrains" a defen dant from engaging in future RICO violations. Accord ingly, this Court is limited to ordering "remedies explic itly included in the statute," and "remedies similar in nature to those enumerated," see United States of America v. Philip Morris, Inc., 396 F.3d 1190, 1200, 1197 (2005) (quotations and internal citations omitted). Finding that all examples of appropriate remedies given in the text of the statute are "aimed at separating the RICO criminal from the enterprise so that he cannot commit violations in the future," id. at 1198 (emphasis in original), and that the terms "prevent and restrain" are also "aimed at future actions," id. at 1199, the D.C. Circuit concluded that remedies similar in nature to those enumerated are "forward-looking remedies that are aimed at future violations," id. at 1198.16
Although the Government initially sought $289 bil lion in disgorgement in this case, Judge Sentelle's ma jority opinion explained that disgorgement is not an available remedy under § 1964(a) because it is not for ward looking and does not separate the RICO criminal from the enterprise. The court characterized disgorge ment strictly and narrowly as a "backward-looking rem edy focused on remedying the effects of past conduct to restore the status quo." Id. at 1198. Judge Sentelle's opinion distinguished between acting to "prevent and restrain" and acting to "discourage," and concluded that the general deterrence created by disgorgement "inso far as it makes RICO violations unprofitable" may not necessarily "prevent and restrain" future RICO viola tions. Id. at 1200. Consequently, the court found that disgorgement is not a forward looking remedy aimed at future violations, and therefore is not similar to those enumerated in § 1964(a). Additionally, because the court determined that disgorgement is "aimed at sepa rating the criminal from his prior ill-gotten gains" and not intended to "separat[e] the criminal from the RICO enterprise to prevent future violations . . . [disgorge ment] may not be properly inferred from § 1964(a)." Id . at 1200.17
Accordingly, this Court may not, as a matter of law, order disgorgement and may order only such remedies as are designed to "prevent and restrain" Defendants from committing future RICO violations by separating them from the RICO enterprise.
Defendants argue that the Court can enter none of the Government's proposed remedies. First, they inter pret Judge Sentelle's opinion so narrowly as to preclude any remedy other than a standard injunction restraining future RICO violations. Specifically, Defendants argue that, as a consequence of the standard which they advo cate, the Court cannot consider the public interest in fashioning remedies. Second, Defendants argue that the mere existence of the MSA renders any remedy which the Court may enter duplicative and therefore inappro priate. Finally, Defendants claim that they did not re ceive fair notice of the remedies which the Government seeks and, therefore, the Court cannot enter any of the requested relief.
Defendants are wrong for the following reasons.
First, unless a specific remedy would countermand statutory guidance from Congress, a court must take into account the public interest when considering wheth er its imposition is justified. U.S. Bancorp Mortg. Co. v. Bonner Mall P'ship, 513 U.S. 18, 26, 115 S. Ct. 386, 130 L. Ed. 2d 233 (1994) ("As always, when federal courts contemplate equitable relief, our holding must also take account of the public interest"). Defendants argue that "any perceived benefit to the public interest cannot de termine the outcome if consideration of all the equities . . . tip the balance the other way." JD Corrected Post- Trial Brief at 154-55. There is no question that a court sitting in equity may not "override Congress' policy choice, articulated in a statute, as to what behavior should be prohibited." United States v. Oakland Canna bis Buyers' Coop., 532 U.S. 483, 121 S. Ct. 1711, 149 L. Ed. 2d 722 (2001) (reversing a medical necessity excep tion to an injunction that was granted on grounds of public interest, where the statute clearly prohibited the behavior). However, a court may consider the public interest when determining what types of remedies to fashion pursuant to a statute's dictates. Id. at 498, 121 S. Ct. 1711 ("To the extent the district court considers the public interest . . . the court [may evaluate] how such interest . . . [is] affected by the selection of an injunction over other enforcement mechanisms."). Thus, the Court is not precluded from considering the public interest when it decides on the appropriateness of reme dies.
Second, Defendants' claim that the existence of the MSA precludes all relief sought here is unpersuasive. Defendants rely on Ellis v. Gallatin Steel Co., 390 F.3d 461 (6th Cir. 2004), to argue that this Court is precluded from issuing any remedies because the MSA already enjoins Defendants' future RICO violations. However, this case is distinguishable from Gallatin Steel in a num ber of significant ways. In that case, two private citizens sought injunctive relief to prevent a steel manufacturer and slag processor from allegedly violating the Clean Air Act ("CAA") after a consent decree had been issued. The Sixth Circuit found that because the parties first entered into the consent agreement, additional injunc tive relief would violate its terms and frustrate its pur poses.
First, the Sixth Circuit reversed the district court's imposition of an injunction in Gallatin Steel because the CAA primarily serves the public interest, and "citizens acting as 'private attorneys general' to enforce the [CAA who] seek relief . . . and accordingly 'personalized' remedies are not a first priority of the Act." Id. at 477. In this case, however, it is the Government that seeks remedies for the harms Defendants have caused smok ers and potential smokers as well as the American public as a whole. Where private citizens were seeking redress in Gallatin Steel, in this case, Plaintiff, the United States Government, is acting in the public interest.
Second, the court in Gallatin Steel rested its opinion on conditions that are not present here. First, it found that the consent decree covered all the claims brought by the parties. Id. at 476. In this case, however, there are remedies distinct from and additional to those that were included in the Master Settlement Agreement. Furthermore, the MSA is enforced by the states, where as the remedies sought in this case will be enforced by the federal government. Finally, here, certain of the Defendants in this case are not even parties to the MSA and therefore not bound by its provisions.
Third, the timing of the claims brought by the citi zens in Gallatin Steel also distinguishes that case. In Gallatin Steel, the district court granted plaintiffs' in junction when the consent decrees were only three months old, "meaning that the remedial requirements imposed by the decrees either had just been completed or had not been completed at all." Id. at 476. By con trast, the MSA was implemented in 1998, providing eight years for Defendants to meet and complete the requirements imposed by that agreement. At this point, after eight years, the weaknesses of the MSA are well known, whereas the three month period in Gallatin Steel was clearly insufficient. Additionally, because por tions of the MSA are due to expire soon, there is no dan ger that the remedies sought by the Government will be duplicative of those already contained in the MSA.
Because of the distinguishing factors set forth above, this Court finds no compelling reasons to follow the Sixth Circuit's ruling in Gallatin Steel. Accordingly, the Master Settlement Agreement does not preclude any remedies this Court may impose.
Finally, as a general matter, parties must be given fair notice of the remedies sought by opposing counsel. Defendants argue that they were not given sufficient notice of the remedies the Government requests. As the circuit courts have held, however, "surprise alone is not a sufficient basis for appellate reversal; appellant must also show that the procedures followed resulted in preju dice." Socialist Workers Party v. Illinois State Bd. Of Elections, 566 F.2d 586, 587 (7th Cir. 1977) (finding that fair notice was given where appellants received a brief from opponent seeking injunctive relief and where more formal notice would not have provided defendants with greater opportunity to alter the result); see also United States v. Microsoft Corp., 253 F.3d 34, 103 (D.C. Cir. 2001) (finding that fair notice was not given where de fendants were denied a "basic procedural right to have disputed facts resolved through an evidentiary hear ing"). Where injunctive relief is sought, both parties must be given an opportunity to have a remedies hear ing. See generally Fed. R. Civ. P. 65. In Microsoft the court failed to allow defendants a hearing on remedies, despite their repeated requests. By stark contrast, in this action, Defendants received the Government's pro posed remedies almost two months before the remedies trial and had an additional twelve days after the conclu sion of the liability phase to prepare for the remedies phase. Defendants participated in a fourteen day reme dies trial which was fully briefed, and at which thirteen witnesses testified. They had a full opportunity to cross- examine all Government witnesses. Moreover, Defen dants point to no specific witness they were unable to cross-examine and no substantive area of testimony they were unable to rebut because of the alleged lack of no tice. Accordingly, the Government's remedies requests do not abrogate Defendants' procedural rights.
B. Specific Remedies
The Court will address each of the Government's proposed remedies seriatim.
1. Prohibition of Brand Descriptors
As described in detail in the Findings of Fact, supra, cigarettes marketed with descriptors such as "low tar," "light," "mild," and similar terms are no less likely to be harmful than other cigarettes. The terms themselves have no standardized meaning aside from a non-enforce able industry practice to apply the "light" descriptor to cigarettes with 7 to 14 milligrams of tar as measured by the FTC method, and "ultra light" to cigarettes with fewer than 7 milligrams of tar. Keane WD, 56:14-23; Mulholland WD, 26:4-27:9; accord Henningfield WD, 56:8-11. Of even greater concern is the fact that Defen dants design "light" cigarettes to allow smokers to ob tain much higher levels of nicotine than are measured by the FTC method, and in fact manipulate cigarettes to provide sufficient nicotine delivery to create and sus tain addiction. Burns WD, 29:6-13; Monograph 13, DXA0310399-0650 (U.S. 58700).
The trial record overwhelmingly demonstrates that Defendants developed and marketed low tar and nico tine brands in order to dissuade smokers from quitting smoking. See Findings of Fact Section V(E). Defen dants know that health concerns are the primary moti vation for smokers' attempts to quit. They have conduc ted extensive research on quitting to help them identify, understand, and deter potential quitters. Defendants' internal documents show that they were confident that if they could convince potential quitters that low tar cig arettes were a healthier choice and an acceptable alter native to quitting, they could keep their sales from de clining. See also Burns WD, 41:12-18, 46:21-47:9, 49:11- 20.
Based on that knowledge, Defendants introduced a number of brands and brand extensions lower in tar and nicotine and positioned them as 'health reassurance' brands to meet the health concerns of smokers. Defen dants' own internal research showed that "smoking low tar and nicotine helped a smoker to reduce guilt about smoking and thus made a smoker less likely to quit. Smoking a 'health reassurance' product with its low tar FTC rating was a 'compromise' to justify not quitting." Dolan WD, 106:14-107:2; 118:4-8; 118:23-119:21; 126:8- 16; accord Burns WD, 69:3-14 (beginning in the 1950s, Defendants "introduced and marketed filtered ciga rettes and 'low tar and nicotine' cigarettes as an effort to prevent smokers from quitting based on growing health concerns among smokers"). As a result, consum ers labor under a longstanding and pervasive misconcep tion that "low tar/low nicotine" cigarettes are safer than their full flavor counterparts. See Findings of Fact Sec tion V(E)(3).
As Dr. Farone testified, the terms "light" and "low tar," as used by Defendants, are "meaningless" and "ar bitrary," because "light" and regular cigarettes of the same brand can have the same FTC yields:
[T]here are lights of certain brands with higher tar levels than regulars of other brands from the same company, and there are also lights and regulars of the same brand that have the same FTC tar rating. So therefore the term 'light' is not related to tar or taste. For example, according to the most recent FTC report of tar and nicotine yields, Philip Morris sells versions of Virginia Slims and Virginia Slims Lights that both deliver 15 mg of tar by the FTC method.
Farone WD, 116:3-14; 525311179-1223 at 1185, 1207- 1208, 1222 (U.S. 52977).
Gary Burger, Senior President of Research & Devel opment for RJR, admitted in a 1997 deposition, that RJR was aware that consumers smoke low tar cigarettes for the perceived health benefit. Burger said that "[c]ertainly, smokers perceive lower tar cigarettes in some ways to be better for them and therefore they want them." He further acknowledged that consumers "have that impression that there are higher levels of bad stuff in high tar cigarettes and lower levels of bad stuff in low tar cigarettes." Burger PD, Arch v. American Tobacco Co., 8/21/97, 226:9-243:18. In addition, research conducted for B & W as recently as 2000 confirmed that consumers still misperceive "lights" as less harmful. 250255060-5075 at 5064, 5066-5068, 5071-5075 (U.S. 22170); Ivey WD, 59:20-60:12.
As data have emerged establishing that "light" and "mild" cigarettes are at least as harmful as "full-flavor" brands, Defendants have developed new descriptors to convey implied health reassurance messages. B & W developed and marketed the "Kool Natural Lights" brand extension in 1998. Despite having market re search showing that consumers incorrectly interpret the word "natural" to mean that the cigarettes are safer than conventional cigarettes, B & W advertised Kool Natural Lights without informing consumers that "natu ral" cigarettes are no safer than any others. Smith TT, 1/6/05, 9178:18-9182:9; 210430297-0396 at 0322 (U.S. 67711); ADV0100742-0744 (U.S. 2701) (advertisement in 2001 issue of Rolling Stone); (U.S. 12651) (advertise ment in 2000 issue of Maxim).
Significantly, although lower-yield cigarettes have dominated the U.S. market for many years, there has been no corresponding reduction in smoking-related disease among U.S. smokers; in fact, the disease risk has increased. Burns WD, 33:18-35:9; Monograph 13, DXA0310399-0650 (U.S. 58700).
Accordingly, the only way to restrain Defendants from their longstanding and continuing fraudulent ef forts to deceive smokers, potential smokers, and the American public about "light" and "low tar" cigarettes is to prohibit them from using any descriptor which con veys a health message. It is not sufficient to forbid De fendants from misrepresenting the health effects of "light" and "low tar" cigarettes. By using descriptors such as "lights" and "low tar," Defendants knowingly convey the false impression that cigarettes with those labels are less harmful than other cigarettes. Consum ers' false belief is so pervasive and longstanding, and has been exploited and promoted by Defendants for so long, that preventing and restraining Defendants' future fraud requires a ban on any future use of descriptors which convey a health message.
As the National Cancer Institute concluded in Mono graph 13, descriptors are inherently deceptive. US 58700 at 0611, 0646. Similarly, the WHO Scientific Advi sory Committee on Tobacco concluded that descriptors are inherently misleading, and recommended that "mis leading health and exposure claims should be banned. . . . Banned terms should include light, ultralight, mild and low tar, and may be extended to other misleading terms." US 86658 at 0695. As set out above, Defen dants' own documents, including consumer research, and testimony demonstrate that Defendants both knew and intended to use brand descriptors to convey a false per ception of reduced harm. See Findings of Fact Sections V(E)(3, 5).
The Court will therefore order a ban on any cigarette descriptors that convey implicit health claims. Prohibi tion of Defendants' future use of deceptive descriptors is forward looking and narrowly tailored to prevent and restrain their future fraudulent conduct relating to the marketing of low tar cigarettes. Indeed, this remedy directly addresses the ongoing fraud Defendants commit every day with their marketing of "light" cigarettes and the virtually certain continuation of such fraud in the future in the absence of such a ban. Accordingly, begin ning January 1, 2007, Defendants are prohibited from using any descriptors indicating lower tar delivery- including, but not limited to, "low tar," "light," "mild," "medium" and "ultra light"-which create the false im pression that such cigarettes are less harmful to smok ers.18
2. Corrective Communications
The trial record amply demonstrates that Defen dants have made false, deceptive, and misleading public statements about cigarettes and smoking from at least January 1954, when the Frank Statement was published up until the present. See Findings of Fact Sections V(A)(5)(c) and V(G)(7, 8), supra (public statements on adverse health effects, including exposure to second hand smoke); Section V(B)(4), supra (public statements on addictiveness of smoking and nicotine); Section V(C)(3), supra (public statements on nicotine manipula tion); Section V(F)(7), supra (public statements on youth marketing); Section V(E)(4), supra (statements on "light" and "low tar" cigarettes).
Evidence in the record also amply demonstrates that certain of Defendants' public statements communicating their positions on smoking and health issues continue to omit material information or present information in a misleading and incomplete fashion. For example, Rey nolds's current website statement on the health effects of smoking continues to insist that smoking "causes dis ease in some individuals" only "in combination with other factors." (JD 068012); see also Schindler TT, 1/24/05, 10810:9-10813:5 (Reynolds' recent Chairman and CEO refusing to admit that cigarette smoking causes disease).
In addition, Philip Morris's current website claims that the company's position on addiction is the same as the public health community's, but Philip Morris's state ment on addiction omits the material information that nicotine delivered by cigarettes is a drug and that it is addictive. 3000172188-2188 (JD 053199).
As the Court has noted, certain language in some of Defendants' more recent positions on smoking and health issues, following their decades of denials and dis tortion, do represent a step forward. See, e.g., Henning field TT, 11/29/04, 7185:2-8. However, evidence in the record supports a finding that notwithstanding Defen dants' self-serving claims that they have been more forthcoming on smoking and health issues, and notwith standing a general prohibition in the MSA precluding those Defendants who are a party to it from making any "material misrepresentation of fact regarding the health consequences of using any Tobacco Product," Defen dants continue to make affirmative statements on smok ing and health issues that are fraudulent. MSA § III(r) at 36 (JD-045158). Accordingly, an injunction ordering Defendants to issue corrective statements is appropriate and necessary to prevent and restrain them from mak ing fraudulent public statements on smoking and health matters in the future.
Contrary to Defendants' arguments, the First Amendment does not preclude corrective statements where necessary to prevent consumers from being con fused or misled. Any interest Defendants have in avoid ing compelled speech are easily outweighed by the gov ernment's interest in preventing future consumer decep tion or confusion. See Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 651, 105 S. Ct. 2265, 85 L. Ed. 2d 652 (1985) (upholding dis closure requirement in attorney advertising regarding terms of contingency agreement). In accordance with this principle, our Court of Appeals has expressly held that mandatory disclosures regarding commercial prod ucts are consistent with the First Amendment when re quired to correct a manufacturer's campaign of decep tive or misleading marketing or to prevent consumer confusion. See Novartis Corp. v. FTC, 223 F.3d 783, 788-89 (D.C. Cir. 2000) (holding that the trial court was permitted to enter a corrective statement remedy be cause it "advances precisely the 'interest involved,' namely the avoidance of misleading and deceptive adver tising"); Warner-Lambert Co. v. FTC, 562 F.2d 749, 769- 70 (D.C. Cir. 1977).
In Warner Lambert, the D.C. Circuit upheld the FTC's order which required Warner-Lambert to cease and desist from representing that Listerine mouthwash prevents or alleviates the common cold, and required the company to include in future advertising the phrase "Listerine will not help prevent colds or sore throats or lessen their severity." 562 F.2d at 756. The Court re jected a First Amendment challenge to the order, find ing that the protection extended to commercial speech in Virginia State Board of Pharmacy v. Virginia Citi zens Consumer Council, Inc., 425 U.S. 748, 96 S. Ct. 1817, 48 L. Ed. 2d 346 (1976), which expressly permitted government regulation of false or misleading advertis ing, authorized an order requiring the company to make corrective statements in order to counteract its earlier, fraudulent statements. The court also upheld the FTC's position that the corrective statements were necessary because "a hundred years of false cold claims have built up a large reservoir of erroneous consumer belief which would persist, unless corrected, long after petitioner ceased making the claims." Id.
The Court explained, in language that is particularly applicable to this case, that:
To be sure, current and future advertising of Lister ine, when viewed in isolation, may not contain any statements which are themselves false or deceptive. But reality counsels that such advertisements cannot be viewed in isolation; they must be seen against the background of over 50 years in which Listerine has been proclaimed and purchased as a remedy for colds. When viewed from this perspective, advertis ing which fails to rebut the prior claims as to Listerine's efficacy inevitably builds upon those claims; continued advertising continues the decep tion, albeit implicitly rather than explicitly. . . . Under this reasoning the First Amendment presents no direct obstacle. The Commission is not regulating truthful speech protected by the First Amendment, but is merely requiring certain statements which, if not present in current and future advertisements, would render those advertisements themselves part of the continuing deception of the public.
Id. at 769, 96 S. Ct. 1817.
Here, too, certain Defendants have recently modified their public statements regarding the adverse health effects of smoking cigarettes and their addictiveness. Nevertheless, as in Warner Lambert, additional correc tive statements to consumers and the public are neces sary to prevent current and future advertisements from becoming "themselves part of the continuing deception of the public." 562 F.2d at 769. The injunctive relief sought here is narrowly tailored to prevent Defendants from continuing to disseminate fraudulent public state ments and marketing messages by requiring them to issue truthful corrective communications. See Zauderer, 471 U.S. at 651, 105 S. Ct. 2265.
The evidence identifies the various venues in which Defendants have made their fraudulent public state ments about cigarettes, including, but not limited to, newspapers, television, magazines, onsets, and Internet websites. See generally, Findings of Fact. For example, from the inception of the Enterprise's fraudulent scheme, newspapers and magazines have been pri mary vehicles for disseminating Defendants' public statements on smoking and health issues. See, e.g., 860174547454 (U.S. 21418) (1954 Frank Statement prin ted in 448 newspapers nationwide); 2023011263-1263 (U.S. 20371) (1994 Philip Morris "Facts You Should Know" advertisement in the New York Times); 500810940-0941 (U.S. 23036) (BATCo's Blackie Letter to Editor in 1994); TI00581619-1629 (U.S. 62969); Dawson WD, 114:18-115:21; Dawson TT, 1/12/05, 9907:21-9918:8 (ghostwritten letter to the editor challenging evidence of health effects of secondhand smoke, prepared for out side scientist to send to editors at AP, UPI, and 22 news papers across the country, without disclosing TI's role or that scientist was a paid Tobacco Institute consul tant); 513943434-3434 (U.S. 50268) (1984 RJR newspa per statement that whether smoking causes disease is an "open controversy").
More recently, Defendants-particularly Altria and Philip Morris-have used many of these same vehicles very effectively to disseminate their recently adopted Corporate Principles, including statements on smoking and health positions and alleged youth smoking preven tion efforts. Szymanczyk WD, 86:22-93:3, 150:12-22. See generally Keane TT, 1/19/05, 10566:4-10578:17. For ex ample, Philip Morris and Altria have run a range of tele vision (and radio) advertisements to improve their public image, to promote Philip Morris's website, and to warn the public that there is no such thing as a safe cigarette. See, e.g., Keane TT, 10/19/05, 10577:1-25, 10620:9-18 (testimony about Philip Morris's national television and radio advertising campaign).
Accordingly, the Court will structure a remedy which uses the same vehicles which Defendants have them selves historically used to promulgate false smoking and health messages. Specifically, the Court will order De fendants to make corrective statements about addiction (that both nicotine and cigarette smoking are addictive); the adverse health effects of smoking (all the diseases which smoking has been proven to cause); the adverse health effects of exposure to ETS (all the diseases which exposure to ETS has been proven to cause); their manip ulation of physical and chemical design of cigarettes (that Defendants do manipulate design of cigarettes in order to enhance the delivery of nicotine); and light and low tar cigarettes (that they are no less hazardous than full-flavor cigarettes). Within sixty days of the issuance of this opinion and order, both parties will submit a pro posal for the exact wording of these statements. After the Court approves particular statements, Defendants must publish such corrective statements in newspapers and disseminate them through television, advertise ments, onsets, in retail displays, and on their corporate websites, as detailed in the accompanying Order.19
3. Disclosure of Documents and Disaggregated Mar keting Data
As discussed in great detail in the Findings of Fact, Defendants' suppression and concealment of informa tion has been integral to the Enterprise's overarching scheme to defraud. Not only have Defendants failed to publicly disclose all the information they internally held about their cigarettes, but they have also created false controversies about the existence of such information.
The Court finds that in order to prevent and restrain such RICO violations in the future, Defendants must create and maintain document depositories and websites which provide the Government and the public with ac cess to all industry documents disclosed in litigation from this date forward. Disclosing such information will allow the public to monitor what Defendants are doing internally and to assess the accuracy of future informa tion they may make available about their activities and their products. Imposing such disclosure requirements will act as a powerful restraint on Defendants' future fraudulent conduct. Indeed, this remedy is exactly what Judge Williams, in his concurrence in the disgorgement opinion, recommends that the District Court do under § 1964(a): "impose transparency requirements so that future violations will be quickly and easily identified." 396 F.3d at 1203 (Williams, J., concurring).
The Supreme Court has recognized, in numerous other contexts over the past century, that compelled disclosures of information can prevent and restrain fu ture frauds. In the election context, it explained that "disclosure requirements deter actual corruption and avoid the appearance of corruption by exposing large contributions and expenditures to the light of publicity." Buckley v. Valeo, 424 U.S. 1, 67, 96 S. Ct. 612, 46 L. Ed. 2d 659 (1976) (per curiam) (discussing campaign contri bution disclosure requirements); see also Buckley v. Am. Constitutional Law Found., Inc., 525 U.S. 182, 222, 119 S. Ct. 636, 142 L. Ed. 2d 599 (1999) (O'Connor, J., con curring in part and dissenting in part). In a different context, in Village of Schaumburg v. Citizens for a Better Env't, 444 U.S. 620, 637-38, 100 S. Ct. 826, 63 L. Ed. 2d 73 (1980), the Supreme Court struck down under the First Amendment an ordinance that sought to re duce fraud by charitable organizations by dictating what percentage of their income they could spend on particu lar activities, but observed that "[e]fforts to promote disclosure of the finances of charitable organizations also may assist in preventing fraud by informing the public of the ways in which their contributions will be employed." 444 U.S. at 637-38, 100 S. Ct. 826 (footnote omitted).
The Supreme Court has authorized injunctive relief requiring defendants who have been found to have en gaged in past fraud to make ongoing public disclosures to prevent similar fraudulent conduct in the future. In SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 84 S. Ct. 275, 11 L. Ed. 2d 237 (1963), the Supreme Court held that because the Investment Advisers Act of 1940 authorized courts "to enjoin any practice which operates 'as a fraud or deceit upon any client or prospec tive client,'" the trial court was authorized to issue an injunction requiring the defendant to make ongoing pub lic disclosures as a "mild prophylactic" to prevent it from repeating its past fraudulent and deceitful prac tices. 375 U.S. at 185, 193, 198-99.
As discussed below, most Defendants are currently subject to some public disclosure requirements for docu ments under the MSA. Most of those requirements will end between 2008 and 2010. Extending those obliga tions, and subjecting all Defendants to similar, ongoing disclosure obligations, will work to prevent and restrain them from engaging in future frauds.
The Government has also requested that Defendants be ordered to produce and make public all "health and safety risk information" in their own files relating to their products. The Government argues that disclosure of such information will prevent and restrain Defen dants from making fraudulent denials about the hazard ousness of their cigarettes. Although disclosure of health and safety risk information would obviously serve the public interest, the Government's request is far too broad and not narrowly tailored enough to include as a remedy.
Requiring Defendants to make public the documents that they produce or use in future litigation or adminis trative actions, with certain safeguards to protect privi leged and confidential trade secret information, is a first step towards preventing and restraining Defendants from engaging in future fraudulent activities. Document depositories will provide hard copies of documents to the public and thus will reduce Defendants' ability to sup press, conceal, or remove those documents from public access. While Defendants complain about the expense and burdensomeness of the Government's request, they are basically being required to merely extend into the future the operation of document storage facilities which have existed for almost ten years.
Currently, certain Defendants maintain the Guild ford and Minnesota Depositories, which contain hard copies of documents produced in those respective sets of litigation. The May 1998 Minnesota settlement obliged the settling defendants in that case to pay for mainte nance and operation of the Minnesota Depository for ten years. Those Defendants and BATCo were also re quired to send any additional documents produced in other smoking and health litigation to the Minnesota Depository during the same ten year period. Those obli gations cease in May 2008. Neither Liggett nor Altria is subject to those obligations.
During the Minnesota litigation, BATCo created the Guildford Depository in Guildford, England, to provide the Minnesota litigants with access to documents cre ated before the document production cutoff date in that litigation, August 18, 1994. See Order # 38 (protocols for United States trip to Guildford Depository for access to pre-August 18, 1994 documents available to the pub lic); Order # 75 ¶ 2 at 2 (same, for access to non-public "files created between August 18, 1994 and December 31, 1999"). BATCo is obliged to maintain and operate the Guildford Depository collection of documents from 1994 and earlier. See Minnesota Consent Judgment § VII(D) (JD093326). That obligation also ceases in May 2008.
The Court will order Defendants to continue main taining their Minnesota and Guildford Depository obli gations for an additional fifteen years. Furthermore, Defendants must provide meaningful tools to identify and analyze those documents. To that end, both docu ment depositories must include databases which search individual documents (rather than files) by multiple bib liographic fields, such as Bates number, date, author, title, etc. Defendants are to employ the twenty-nine bib liographic fields specified in the MSA. Finally, Defen dants must allow greater access to the Guildford Deposi tory than that which is currently available. Presently, public access to the Guildford Depository is severely restricted, with only one organization and no more than six visitors allowed access per day; and copying requests often take weeks or months to fulfill. See Health Com mittee, U.K. House of Commons, The Tobacco Indus try and the Health Risks of Smoking, vol. 1 (2000), (¶¶ 234, 237); 322241213-1295 at 1282-1283 (U.S. 93249); 770007956-8214 at 7994 (U.S. 88132). Defendants will be required to provide access, at a minimum, to six organi zations and a dozen visitors per day.
Section IV of the MSA obliges certain Defendants to create and maintain document websites for all docu ments produced during litigation, except those which are privileged or confidential. See MSA § IV(c) & (e) at 36, 39 (JD 045158). See, e.g., Keane TT, 1/18/05, 10376:22- 10377:7 (discussing Philip Morris's document website, www.pmdocs.com); McAllister WD, 8:25-9:4, 15:4-5 (dis cussing CTR document website, http://www.ctr-usa.org/ ctr). The MSA's document website obligations expire on June 30, 2010. Neither Altria nor BATCo was a signa tory to the MSA, and therefore neither is subject to these obligations.
Document websites have several significant desirable features that document depositories do not. Collections of tobacco documents placed on the web following the litigation of the 1990s, unlike the majority of non- digitized archival materials, are generally searchable through the web. In addition, relatively few members of the public are able to travel to Minnesota or England to access the Minnesota and Guildford Depositories, re spectively, so a document website "increases the avail ability of the documents to the general public." Brandt WD, 28:1-8; Szymanczyk WD, 202:4-6.
Accordingly, the Court will order Defendants to maintain websites for all documents which have been produced in litigation for a period of fifteen years. In addition, Defendants must provide bibliographic infor mation for each document, if it is not apparent on the face of the document, and shall make such documents searchable by multiple bibliographic fields.
c. Privilege Claims
The tobacco industry has withheld enormous num bers of documents on grounds of privilege. The defen dants in the Minnesota litigation, for instance, withheld some 230,000 documents (estimated to contain over 1,000,000 pages) on grounds of privilege or confidential ity because of proprietary interest. See State of Minne sota v. Philip Morris, 606 N.W.2d at 682. Given the magnitude of this litigation, the volume of documents over which Defendants asserted privilege is, if anything, substantially larger. For example, BATCo alone served privilege logs in this case with 91,723 entries for 72,593 different documents that it withheld from production on grounds of privilege or protection. See R & R # 112 at 4 & n.3, adopted by Order # 359. In addition, as de tailed in Section V(H) of the Findings of Fact, Defen dants have abused these protections, using privilege and confidentiality designations to conceal potentially dam aging information.
The purposes of document disclosure will be substan tially frustrated unless the Court requires Defendants to provide complete and accurate information about any documents they withhold on grounds of privilege or other protection, including confidentiality. In order to provide the public with a reasonable method to deter mine which documents Defendants withhold on such grounds, the Court will order Defendants henceforth to provide full bibliographic information for all withheld documents, including titles (as well as a brief summary of the basis for the privilege or confidentiality asser tion).
Compelling Defendants to provide accurate and up dated indices of all documents they are withholding on grounds of privilege or confidentiality is the only way to guarantee transparency and ensure that Defendants do not engage in similar egregious conduct in the future. Without a Court-ordered mechanism to ensure that all appropriate documents are either disclosed, or are logged as being withheld, Defendants will continue to suppress documents from the public. Defendants must similarly be required to identify all document fields and give meaningful explanations for all documents that they withhold on grounds of confidentiality.
Defendants will also be required to provide regularly-updated information concerning all waivers and losses of privilege and confidentiality. Indeed, in Order # 51, § III.G.9, this Court ordered Defendants to identify all documents being withheld on grounds of privilege over which a court had previously ruled that their privilege assertion had been waived or was invalid. Imposing such a requirement on an ongoing basis is nec essary to ensure that accurate and current information is available concerning which withheld documents have been adjudicated nonprivileged or non-confidential. Such a requirement is also necessary to ensure that once a Defendant waives privilege over particular documents, the public is on notice if and when the Defendant refuses to make those documents public.
d. Disaggregated Marketing Data
The FTC requires Defendants to maintain disaggre gated marketing data20 and to submit it at regular inter vals, under strict confidentiality, pursuant to that agen cy's schedule for disclosure. Such data reveals with specificity exactly what Defendants' marketing dollars are being spent on. Such information has never been available to the public because the FTC only publishes
the data in aggregated form.
In order to ensure transparency of Defendants' mar keting efforts, particularly those directed towards youth, and what effect such efforts are having, the Court will order Defendants to provide their disaggregated marketing data to the Government according to the same schedule on which they provide it to the FTC. Dis closure of this data will prevent and restrain Defendants from continuing to make false denials about their youth marketing efforts and will enable the Government to monitor such activities. The data which Defendants pro vide to the Government will be disaggregated by type of marketing, brand, geographical region, type of promo tion or marketing used, number of cigarettes sold, and location of marketing (e.g. in store, in magazine, etc.). Because such information is clearly proprietary, how ever, it will not be made public, as the Government re quests. Instead, it will be disclosed only to the Depart ment of Justice, the enforcing agent for this decree, and be subjected to appropriate protective orders, such as have already been used in this litigation with no difficul ties.
4. General Injunctive Provisions21
Even under the narrow interpretation of 18 USC 1964(a) by which this Court is bound, the Court may
enjoin specific future RICO violations upon its finding of liability under 1962(c) and (d). Accordingly, Defendants will be ordered to refrain from engaging in any act of racketeering, as defined in 18 USC § 1961(1) relating in any way to manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States.
Defendants will also be ordered not to participate in the management and/or control of any of the affairs of CTR, TI, CIAR, or any successor entities.
Defendants will also be ordered not to reconstitute the form or function of CTR, TI, or CIAR.
Finally, because this is a case involving fraudulent statements about the devastating consequences of smok ing, Defendants will be prohibited from making, or caus ing to be made in any way, any material, false, mislead ing or deceptive statement or representation concerning cigarettes that is disseminated in the United States.
5. National Smoker Cessation Program
As laid out in detail in the Findings of Fact, Defen dants employed highly sophisticated and expensive pro motional campaigns to portray light and low tar ciga rettes as less harmful than full flavor cigarettes in order to keep smokers from quitting. Defendants' concerted and ongoing effort to defraud consumers regarding light and low tar cigarettes has been a calculated and ex tremely successful scheme to increase their revenues at the expense of smokers, potential smokers, and the American public. Over 50% of those who smoke light and ultra light cigarettes mistakenly believe that lights offer a less hazardous option to full flavor cigarettes.
Weinstein WD 53:3-18. Of the almost 47 million Americans who smoke cigarettes today, more than 81%
smoke "light" or "ultralight" cigarettes. Moreover, 70% of these smokers want to quit, but in any given year only 40% will attempt to quit and, tragically, only 2.5% will succeed. Fiore WD, 69:5-8.
To prevent future related RICO violations, the Gov ernment asks the Court to enter a remedy requiring Defendants to fund a national smoking cessation pro gram including: (1) a national tobacco quitline network that will provide access to evidence-based counseling and medications for tobacco cessation; (2) an extensive paid media campaign to encourage smokers to seek as sistance to quit smoking; and (3) a research agenda to achieve future improvements in the reach, effectiveness and adoption of tobacco dependence interventions and physician and clinician training and education. See e.g., Fiore WD, 17:22-18:20.
Adoption of such a national smoking cessation pro gram would unquestionably serve the public interest. However, under the narrow standard for § 1964(a) reme dies articulated in Judge Sentelle's Opinion, the Court cannot enter such a remedy because it is not specifically aimed at preventing and restraining future RICO viola tions.
6. Youth Smoking Reduction Targets
There is overwhelming evidence in this case that De fendants encourage youth to smoke, track youth behav iors and preferences, market to youth based on that tracking, and accordingly, substantially contribute to youth smoking initiation and continuation. Because over 80% of adult smokers start before the age of 18, Defen dants continue to pursue and profit from the youth mar ket. Indeed, Defendants internally acknowledge that they cannot sustain the cigarette industry without se curing new youth smokers. To give just one example, a 1984 R.J. Reynolds document candidly states, "Younger adult smokers are the only sources of replacement smokers. . . . If younger adults turn away from smok ing, the industry must decline, just as a population which does not give birth will eventually dwindle." 501431517-1610 at 1526 (U.S. 20680).
To prevent related RICO violations, the Government asks the Court to require Defendants to reduce youth smoking by 6% per year between 2007 and 2013. This remedy would provide a total reduction in smoking of 42% by 2013 among individuals between twelve and twenty years old, measured against a 2003 baseline year. Under the Government's plan, if Defendants should fail to meet their annual targets, they would be assessed $3,000 for each youth above the target who continues to smoke. The Government bases its figure on the fact that $3,000 is the upper limit on the lifetime proceeds a De fendant could expect to earn from making its brands appealing to an individual within the demographic tar get. Such reductions could be made in whatever fashion Defendants, who are most knowledgeable about market ing to youth, see fit, including price increases for their cigarettes, which have already been demonstrated to reduce youth smoking initiation. The government rea sons that such a remedy would reduce the incentive for Defendants to make their products appealing to youth by removing their ability to profit from youth marketing and from youth smoking initiation.
Although such a remedy is forward-looking, could prevent future RICO violations, and would unquestion ably serve the public interest, it is not sufficiently nar rowly tailored to meet the standard articulated by our Court of Appeals. United States v. Philip Morris USA, Inc., et al., 396 F.3d at 1198-99. As Dr. Jonathan Gru ber, an economist at the Massachusetts Institute of Technology, testified, the Youth Smoking Reduction Targets are an "outcome-based" remedy because they tie financial assessments to the outcome of youth smok ing.22 Youth smoking rates may increase or decrease due to input factors beyond Defendants' control. Accor dingly, because the targets are aimed at reducing the public health consequences of marketing to youth and are not narrowly tailored to prevent and restrain Defen dants' future RICO violations, the Government's pro posed remedy cannot be entered by this Court.
7. Corporate Structural Changes
Defendants have engaged in an overarching scheme to defraud smokers and potential smokers for more than 50 years, employing the research and development, ad vertising, marketing, and public relations capabilities of each individual company and of the Enterprise as a whole. As the evidence overwhelmingly demonstrates, Defendants' fraudulent conduct has permeated all as pects of their operations-from how they design, manu facture, and market their products to how they commu nicate with the public about them-and continues to this day. Such fraudulent behavior has been driven by a de sire to increase company profits and avoid huge liability judgments in litigation.
The Government asserts that unless Defendants make fundamental changes in their business practices and policies, they will continue to engage in RICO viola tions as long as such behavior is profitable. The Govern ment contends that a "culture of fraud" permeates De fendants' business practices and, as a result, Defendants cannot be trusted with the responsibility of identifying and implementing the necessary changes in their own companies. Accordingly, the Government requests that the Court appoint an Independent Investigative Officer ("IO")-basically a tobacco czar-to review Defendants' business policies, practices, and operations and identify and implement appropriate procedures and measures which will remove the incentives, practices, and policies that have led Defendants to commit the RICO violations for which they have been found liable in this litigation.
Specifically, the Government asks the Court to ap point an IO to review Defendants' premises, papers, and personnel. That IO would have full access to Defen dants' facilities, operations, employees, meetings, and records and would investigate the ways "in which the people, tasks, competencies, structures, incentives, and culture of a firm interrelate." Bazerman WD, 45:12 23. Next, the IO would identify and implement procedures and measures that will prevent and restrain Defendants from engaging in future RICO violations, including but not limited to: (a) eliminating economic incentives for Defendants to market and sell cigarettes to youth; (b) changing compensation and promotion policies for man agers and executives to reduce the likelihood of miscon duct; (c) requiring subcontracting of certain research to independent third parties monitored by the Court; (d) requiring the institution of programs to educate manag ers in order to address bias in decision making; (e) cre ating internal mechanisms for employees, agents and contractors to report misconduct without fear of retribu tion; and (f) changing oversight and reporting arrange ments to produce outcomes inconsistent with miscon duct. Bazerman WD, 2:11-19, 3:4-15.
The Government also proposes appointment of an Independent Hearing Officer ("IHO") who would review Defendants' compliance with this Order, determine if there are violations, and enforce measures to remedy those violations. Therefore, while the IO would investi gate Defendants' business practices and compliance with this Court's Order, the IHO would serve as a quasi-judi cial officer when violations are alleged by the IO.
Even though this proposed remedy might conceiv ably prevent and restrain Defendants' future RICO vio lations, it would require delegation of substantial judi cial powers to non-judicial personnel in violation of Arti cle III of the Constitution. The Court has no authority to order such a far-reaching remedy. See Cobell v. Norton, 392 F.3d 461 (D.C. Cir. 2004) ("Cobell II"); Cobell v. Norton, 334 F.3d 1128 (D.C. Cir. 2003) ("Cobell I"). In Cobell I, the court appointed a Court Monitor, with the parties' consent, to "monitor and review all of the Interior Defendants' trust reform activities on be half of certain Native American tribes and file written reports of his findings with the Court" for a period of one year. Cobell I, 334 F.3d at 1133-35. At the end of that year, over defendant's objection, the District Court extended the Monitorship for at least an additional year. The D.C. Circuit reversed, holding that "the district court does not have inherent power to appoint a moni tor-at least not a monitor with the extensive duties the court assigned to [the Monitor in this case]-over a party's objection." Id. at 1141. The court noted that "it was surely impermissible to invest the Court Monitor with wide-ranging extra-judicial duties" and that this particular "Monitor was charged with an investigative, quasi-inquisitorial, quasi-prosecutorial role that is un known to our adversarial legal system." Id. at 1142.
In this case, the Government's proposed remedy un constitutionally delegates judicial powers to the Inde pendent Hearing Officer. While it is permissible for the Court to appoint an individual to oversee and monitor implementation of a decree, here, as in Cobell I, the Court is being asked to give the IHO the power to con duct hearings, determine violations, and to direct chang es in Defendants' actions and policies to ensure compli ance with the Court's Order. The proposed IHO would have the authority to require Defendants to adopt "pro cedures and measures" recommended by the IO. Addi tionally, the IHO would have the authority to order "re moval of any officer, employee, or other member of se nior management of any Defendant after determining that he or she acted in concert with one or more named Defendants in committing a civil RICO violation," which would obviously require the IHO to make determina tions of liability. This suggested restructuring of Defen dants' companies goes too far. The Court simply does not have the power to impose such a far-reaching and intrusive remedy. Accordingly, because the powers granted to the IHO constitute an impermissible delega tion of Article III powers, the Court cannot enter the Government's proposed plan for oversight of the imple mentation of this decree by independent officers.
8. Public Education and Countermarketing Cam paign
As laid out in detail in the Findings of Fact, Defen dants have preserved and enhanced the market for ciga rettes in part by making statements about the health effects of smoking and secondhand smoke and by deny ing their marketing to youth. Defendants denied that smoking and secondhand smoke cause disease long after they internally recognized that such facts were true, and thereby provided smokers with sufficient reason to maintain their addiction. In addition, Defendants spent hundreds of millions of dollars advertising their ciga rettes with youth appealing imagery and campaigns which substantially contributed to youth smoking initia tion and continuation. Defendants' denials of the haz ards of smoking are exceptionally effective because the general public, and youth in particular, significantly un derestimate all the risks of beginning and continuing to smoke.
To prevent future related RICO violations, the Gov ernment asks the Court to enter a remedy requiring Defendants to fund a long-term, extensive, culturally competent public education and countermarketing cam paign. The Government proposes a campaign with two primary purposes: (1) educating youth and adults about the hazards of smoking and exposure to secondhand smoke and (2) informing youth that Defendants are mar keting to and attempting to manipulate them. This cam paign would be aimed at diluting both the impact of De fendants' fraudulent statements and at undermining the efficacy of Defendants' marketing efforts towards youth. Countermarketing would very likely help to change the social environment which currently normalizes tobacco use among youth, making it less socially acceptable. Finally, providing youth with fully accurate information about smoking would serve to reduce the number of youth smokers, reduce the number of addicted adult smokers in the future, and thereby potentially reduce the economic incentives for Defendants to continue their fraud.
Adoption of such a public education and counter marketing campaign would unquestionably serve the public interest. However, under the narrow standard for § 1964(a) remedies articulated in Judge Sentelle's Opinion, the Court cannot enter such a remedy because it is not specifically aimed at preventing and restraining future RICO violations.23
At the conclusion of the case, upon a finding of liabil ity, it is appropriate to award costs. "Costs are accorded to prevailing litigants . . . under Rule 54(d) of the Fed eral Rules of Civil Procedure."24 Moore v. National Ass'n of Sec. Dealers, Inc., 762 F.2d 1093, 1107 (D.C. Cir. 1985); Hoska v. United States Dept. of the Army, 694 F.2d 270, 272 (D.C. Cir. 1982). Local Civil Rule 54.1 states that "[c]osts shall be taxed as provided in Rule 54(d), Federal Rules of Civil Procedure," and specifi cally enumerates those costs that can be awarded to the prevailing party. LCvR 54.1(a) and (d).
Accordingly, because the United States has proven its case by a preponderance of the evidence and because the Court has found the Defendants liable under 18 U.S.C. §§ 1962(c) and (d), costs will be awarded to the Government. The United States will be required to serve and file a bill of costs in accordance with LCvR 54 within 30 days from the date of this Opinion and its ac companying Order.
A Final Judgment and Remedial Order will accom pany this Opinion.
* * * * *
1 It would appear this situation continues even to the present. For example, in this very litigation, a former long-time career government lawyer was so intent on representing a company aligned with the De fendants that he grossly misrepresented in his pleadings and declara tion to the Court the degree and substance of his earlier participation as government counsel in related litigation involving the Food and Drug Administration. As a result, he was disqualified from representing Defendant-Intervenor BATAS. See Order # 915.
2 As the Court has noted for the record on numerous occasions, Dr. Kessler is not related in any way.
3 One cannot help wondering whether this litigation was the best vehicle for attempting to hold Defendants accountable for their indiffer ence to the health of American citizens. In a democracy, it is the body elected by the people, namely Congress, that should step up to the plate and address national issues with such enormous economic, public health, commercial, and social ramifications, rather than the courts which are limited to deciding only the particular case presented to them in litigation. However, this will certainly not be the first, nor the last, time that litigants seek to use the courts and existing legislation to ad dress broad-scale economic and social problems which might be far bet ter and more appropriately grappled with by our elected representa tives.
4 The eleven Defendants were: Philip Morris, Inc., now Philip Mor ris USA, Inc. ("Philip Morris"), R.J. Reynolds Tobacco Co., now Reyn olds American ("R.J. Reynolds"), Brown & Williamson Tobacco Co., now part of Reynolds American ("Brown & Williamson"), Lorillard Tobacco Company ("Lorillard"), The Liggett Group, Inc. ("Liggett"), American Tobacco Co., merged with Brown & Williamson which is now part of Reynolds American ("American Tobacco"), Philip Morris Cos., now Altria ("Altria"), B.A.T. Industries P.L.C. ("BAT Ind."), now part of BATCo, British American Tobacco (Investments) Ltd. ("BATCo"), The Council for Tobacco Research-U.S.A., Inc. ("CTR"), and The Tobacco Institute, Inc. ("TI"). The latter two entities do not manufac ture or sell tobacco products, but are alleged to be co-conspirators in Defendants' tortious activities. BAT Ind. has been dismissed for lack of personal jurisdiction. All Defendants but Liggett joined together in common defense (the "Joint Defendants"). In 2003, the Court granted the Motion of British American Tobacco Australian Services, Ltd. ("BATAS") to intervene for the limited purpose of asserting and protecting its interests in litigation documents. Order # 449.
5 See United States' Preliminary Proposed Findings of Fact at 14.
6 These allegations have been further described in U.S. v. Philip Morris Inc., 116 F. Supp. 2d at 136-38.
7 To the extent that they are relevant, all arguments of the interve nors and amici have been considered and addressed.
8 "Enterprise" is a statutory term contained in 18 U.S.C. § 1962(c). The Court's use of it in these Findings does not imply that Defendants' activities meet the statutory definition contained in 18 U.S.C. § 1961(4). That issue will be fully discussed in the Conclusions of Law.
9 The first two elements are also required to establish the substan tive RICO violation, which has been addressed supra, in Sections VII(C) and (D).
10 As discussed in great detail, infra at Section VIII(C), Liggett with drew from the conspiracy in 1997. Accordingly, Liggett is not liable as a conspirator for any acts that occurred subsequent to 1997.
11 As noted earlier, no evidence has been presented regarding a con spiracy before 1953.
12 Contrary to Altria's claim, the prohibition against intracorporate conspiracies under the antitrust laws does not apply to this case. In Ashland Oil, Inc. v. Arnett, 875 F.2d 1271 (7th Cir. 1989), the Seventh Circuit explained:
Since a subsidiary and its parent theoretically have a community of interest, a conspiracy "in restraint of trade" between them poses no threat to the goals of antitrust law-protecting competition. In contrast, intracorporate conspiracies do threaten RICO's goals of preventing the infiltration of legitimate businesses by racketeers and separating racketeers from their profits. (continued . . . )
875 F.2d at 1281 (citations omitted). Accordingly, because Altria con spired to violate 18 U.S.C. § 1962(c), it is liable under RICO conspiracy, even though one of the Defendants with which Altria conspired was Philip Morris USA, Altria's subsidiary.
13 See, e.g., United States v. Private Sanitation Indus. Ass'n, 995 F.2d 375, 377 (2d Cir. 1993); United States v. Local 30, United Slate, Tile & Composition Workers, 871 F.2d 401, 408-09 (3d Cir. 1989); Uni ted States v. Local 1804-1, Int'l Longshoremens Ass'n, 831 F. Supp. 177, 191 (S.D.N.Y. 1993); United States v. Local 295, Int'l Bhd. of Team sters, 784 F. Supp. 15, 19-22 (E.D.N.Y. 1992) (RICO injunction granted based upon evidence of past corruptions, and the court noted that "[i]nstitutional practices and traditions tend to endure long after spe cific individuals are gone") (id. at 19); Local 6A, 663 F. Supp. at 194-95.
14 Schindler acknowledged at trial that "[i]f R.J. Reynolds wanted to convey the message on its Website that smoking causes disease, it could say that unequivocally," and that he could make it happen "in a heart beat," but he would not do so. Schindler TT, 1/24/05, 10816:2510817:5, 10821:2-18.
15 From 1999-2001, the Philip Morris website publicly stated its dis agreement with the scientific consensus as well: Many scientists and regulators have concluded that ETS poses a health risk to nonsmokers. Even though we do not agree with many of their conclusions, below we have provided some links so you can access some of their views. (no bates) (U.S. 92056 at 2); Parrish TT, 11080:23-11082:14. While this case was pending, Philip Morris revised its position on ETS to delete its disagreement with the conclusions of "scientists and regulators." Philip Morris now states: "Public health officials have concluded that sec ondhand smoke from cigarettes causes disease, including lung cancer and heart disease in nonsmoking adults" as well as a number of adverse health effects in children. (no bates) (U.S. 92055 at 1).
16 Recently, the Tenth Circuit, without expressing an "opinion regard ing whether, or in what circumstances, disgorgement is authorized un der RICO" held that the presence of the term "restrain" in a statutory grant of general equity jurisdiction is not dispositive evidence of Con gress's intent to limit remedies to those that are forward-looking. Uni ted States v. Rx Depot, Inc., 438 F.3d 1052, 1058-1059 (10th Cir. 2006) (declining to apply the D.C. Circuit's interpretation of the term "re strain" and upholding the Supreme Court interpretation permitting dis gorgement as a forward-looking remedy in cases brought under § 332(a) of the FDCA). Rx Depot followed virtually the same analysis of a court's equitable powers to "restrain" violations as this Court did in Order # 550, relying heavily on Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S. Ct. 1086, 90 L. Ed. 1332 (1946) and concluding that disgorgement is allowed under the Federal Food Drug, and Cosmetic Act, which states that "district courts . . . shall have jurisdiction, for cause shown to restrain violations." Id.
17 This determination has created a Circuit split. Contrary to the D.C. Circuit, both the Fifth and Second Circuits have adopted a stan dard of relief that permits disgorgement where it will prevent and re strain future RICO violations. As the Second Circuit reasoned, dis gorgement may serve the goal of preventing and restraining future violations where "there is a finding that the gains are being used to fund or promote the illegal conduct, or constitute capital for that purpose." United States v. Carson, 52 F.3d 1173, 1182 (2nd Cir. 1995); see also Richard v. Hoechst Celanese Chem. Group, 355 F.3d 345, 354-355 (5th Cir. 2003) (adopting the standard set forth by the Second Circuit but denying disgorgement on other grounds).
18 Defendants claim that prohibition of their deceptive use of descrip tors "would improperly invade the primary jurisdiction of the FTC," JD PFOF, ch. 13 ¶ 599, but "[t]he FTC does not impose, regulate, or re quire [descriptors]. How those terms are applied, and on which brands, is entirely up to the tobacco companies." Henningfield WD, 56:8-11. Further, Defendants' claim reiterates their previous argument that such relief is preempted by the FTC Act, an argument which the Court has already rejected. See United States v. Philip Morris, Inc., 263 F. Supp. 2d 72, 74(D.D.C. 2003).
19 Defendants' argument that requiring corrective statements on pac kage onserts would conflict with the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331 et seq. ("FCLAA") is unconvincing. This remedy falls within the narrow scope of equitable powers granted to the Court under Section 1964(a) because it specifically prevents and restrains Defendants from continuing to make statements about smok ing and health that are fraudulent and misleading in vehicles which are likely to reach consumers. It does not implicate Section 5(a) of the FCLAA, because Section 5(a) only prohibits "state and federal rule making bodies from mandating particular cautionary statements" on cigarette packages. Cipollone v. Liggett Group, Inc., 505 U.S. 504, 518, 112 S. Ct. 2608, 120 L. Ed. 2d 407 (1992). Under the FCLAA, a "pac kage" is defined as "a pack, box, carton, or container of any kind in which cigarettes are offered for sale, sold, or otherwise distributed to consumers." 15 U.S.C. § 1332(4). An onsert, which is only a small infor mational brochure attached to the outside of the "pack box, carton, or container . . . in which cigarettes are offered for sale, sold, or other wise distributed to consumers," is not a package. Therefore, the reme dy at issue does not implicate the FCLAA's preemption provision.
20 Disaggregated data is data broken down by type of marketing, brand, geographical region, number of cigarettes sold, advertising in stores, and any other category of data collected and/or maintained by or on behalf of each Defendant regarding their cigarette marketing ef forts.
21 The Government has also requested a specific injunction against Defendants' ongoing and future youth marketing. Although such a remedy would certainly serve the public interest, it does not prevent and restrain future RICO violations, which, in this case, are not Defen dants' continuing efforts to market to youth but rather their false de nials of those efforts. Accordingly, because this injunction does not meet the standard set forth in Judge Sentelle's Opinion, the Court can not enter such a remedy.
22 Dr. Gruber based his youth smoking reduction targets on the 1997 Proposed Resolution, a draft settlement proposed by certain Defen dants to Congress when it was considering federal regulation of the to bacco industry and resolution of all pending tobacco lawsuits. As De fendants vigorously argue, because the 1997 Resolution was never adopted and was merely part of a comprehensive settlement package, it would not be an appropriate basis for setting targets for reductions in youth smoking.
In addition, Dr. Gruber proposed, as one possible means for decreas ing youth smoking rates, that Defendants use price increases alone to effectuate the necessary reductions. Dr. Gruber did note that Defen dants have at their disposal many other tools by which they could choose to achieve the targets, but that price increases alone could yield the same result, if Defendants chose to take that course. In response, Defendants raised the concern that, with price increases, they would lose some market share (however minimal) to tobacco manufacturers who are party to neither this Order nor the MSA. As a result, those manufacturers could market to youth without any restrictions and thus undermine the very purpose of Dr. Gruber's proposal. This effect, if it occurred, would be of concern.
23 As is obvious, the Court is not entering as remedies either the pro posed national smoker cessation program or the proposed public educa tion and countermarketing campaign. Accordingly, Joint Defendants' Motion for Judgment on Partial Findings Pursuant to Fed. R. Civ. P. 52(c) with Respect to Certain Remedies Sought by the United States is denied as moot.
24 Rule 54(d) of the FRCP states: "Except when express provisions therefor is made either in a statute of the United States or in these
rules, costs other than attorneys' fees shall be allowed as of course to the prevailing party unless the court otherwise directs."