Defendants Falsely Denied that They Market to Youth

Defendants Falsely Denied that They Market to Youth

¶Defendants engaged in coordinated activity in order to protect their ability to recruit new, youth smokers through cigarette marketing, often utilizing the same joint organizations that were initially created to carry out deceptive public relations campaigns related to disease risks. In order to protect each company's ability to continue to market to the teenagers who are of such vital importance to their continued survival as older smokers quit or die, Defendants have continually represented to the public, both through the Tobacco Institute and individually, that they do not market to youth, that their marketing is only aimed at adult smokers, and that their marketing has no impact on youth smoking. These public statements are false and misleading and have been made to further the Enterprise's overall objective of maximizing Defendants' profits from the sale of cigarettes.¹⁷¹⁷ The alleged Racketeering Acts relating to this component of the scheme to defraud are Racketeering Act Nos. 4, 6, 35, 49, 61, 76, 83, 84, 86, 87, 89, 91, 93, 94, 96, 97, 100, 102, 117, 118, 121, 122, 125-131, 134-148. -1518-

¶Defendants' fraudulent statements stem from their recognition, contained in internal documents written for decades, that new teenage smokers were essential to their continued profitability. See Findings of Fact Section V(F)(2). For example, a 1981 report conducted by the Philip Morris Research Center, titled "Young Smokers Prevalence, Trends, Implications, and Related Demographic Trends," stated that "Today's teenager is tomorrow's potential regular customer, and the overwhelming majority of smokers first begin to smoke while still in their teens. . . . The smoking patterns of teenagers are particularly important to Philip Morris." 1000390803-0855 at 0808-0809 (US 22334). See also 501899346-9359 at 9351 (US 20688) (1974 internal R.J. Reynolds memorandum concluding that "most smokers begin smoking regularly and select a usual brand at or before the age of 18"); 2041761791-1801 at 1791, 1795 (US 21493) (1973 internal Philip Morris Memorandum titled "Incidence of Smoking Cigarettes" discussing a survey measuring smoking incidence among 12-17 year olds); 01110993-1032 at 1030 (US 20031) (1981 internal Lorillard document commenting that the company "must continually keep in mind that Newport is being heavily supported by blacks and the under 18 smokers. We are on somewhat thin ice should either of these two groups decide to shift their smoking habits"); 680500903-1076 at 0930 (US 21607) (1974 B&W Five Year Plan for all of B&W brands stating "the younger smokers' importance cannot be denied. They have distinct brand choices and association appears to exist between growth brands and segments, and the younger smoker"). Defendants not only recognized the importance of protecting their ability to market to youth, but acted in concert based on their shared interest.

¶Defendants aggressively pursued the youth market, often not distinguishing those under 18 from those under 21, while publicly denying their activities. For example, Tobacco Institute spokesperson Brennan Dawson appeared on television and provided statements to newspapers, making such assertions as, "If a child never picks up another cigarette, it would be fine with the tobacco industry." See, e.g., (no bates) (US 85153), (no bates) (US 85154). Indeed, many of the Racketeering Acts associated with Defendants' youth marketing consist of advertisements that appeal to and target youth, the designs of which are based on Defendants' research on teenage behaviors and preferences. See e.g., Racketeering Acts 76, 83, 84, 97, 102, 135-142, 147 and 148.

¶Simultaneously, Defendants made public assertions that they did not market to youth, that they viewed cigarette smoking as "an adult custom," that they were committed to reducing youth smoking, and similar pronouncements. See Findings of Fact Section V(F)(7). These statements continue to the present day, appearing on Defendants' websites, in promotional materials, and in corporate principles. Similarly, Defendants continue to assert that their marketing has no effect on smoking prevalence and that they market only to current smokers in order to influence brand switching. See id.

¶Defendants argue that their fraudulent denials of marketing to youth have not actually served the goal of the Enterprise to preserve and enhance the cigarette market. However, the Court has already found that Defendants' fraudulent denials hid and protected their efforts to market to youth, efforts which are a substantial contributing factor to youth smoking initiation. See Findings of Fact Section V(F)(3). Defendants' efforts to target youth are based on a recognition that the youth market is critical to the growth of their industry; their denials of those efforts are based on the recognition that the public considers pursuit of the youth market to be ethically unacceptable.

¶In any event, it is immaterial to Defendants' liability whether they actually succeeded in their efforts to market to youth or to increase their revenues. As this Court has previously stated on numerous occasions, to establish RICO liability, the United States is not required to prove that Defendants succeeded in their scheme to defraud. United States v. Philip Morris, Inc., 273 F. Supp. 2d 3, 6 (D.D.C. 2002) (completion of scheme to defraud not required under federal fraud statutes); Philip Morris, 116 F. Supp. 2d 131, 153 (D.D.C. 2000) ("A defendant who uses the mail with the intent of defrauding someone of property is guilty (or in this case, liable), whether the attempt succeeds or not.") (emphasis in original).

¶Over many decades, Defendants have tracked the smoking behavior and brand preference of youth. At the same time Defendants were studying why youth start smoking, they were designing their marketing campaigns to appeal to the psychological needs of adolescents. See Findings of Fact Section V(F)(4) (discussing internal research examining what causes adolescents to smoke and whether their marketing effectively associates cigarette brands with youth-appealing themes and imagery). Defendants have also positioned their marketing to reach the maximum number of youth viewers. See Findings of Fact Section V(F)(5).

¶Defendants claim that the MSA fundamentally changed their marketing practices and prevents them from marketing to youth. While the Findings of Fact demonstrate that Defendants' practices have changed to some degree, their fundamental interest in recruiting new youth smokers, however, has not. Indeed, Defendants' marketing expenditures have increased substantially since signing the MSA. See Findings of Fact Section V(F)(5)(a). The 2005 Cigarette Report from the FTC shows that advertising and promotional spending increased by over 21% from 2002 to 2003, rising to a staggering $15.15 billion. FTC Cigarette Report for 2003 (2005) (available at http://www.ftc.gov/opa/2005/08/cigreport.htm). Spending on magazine advertising, including several magazines with substantial youth readership, increased by 46.4%, more than twice the increase in total advertising expenditures, from 2002 to 2003. Id. at 3.

¶Defendants have not abandoned or altered the youth-appealing themes and images they use in their marketing campaigns. Philip Morris continues to utilize the same Marlboro brand imagery, particularly the rugged, masculine Marlboro man, in its direct mail marketing, at point of sale, and on Marlboro cigarette packs, where it has been so phenomenally successful in the past. LeVan PD, U.S. v. Philip Morris, 6/25/02, 124:14-17, 221:10-221:14; Biglan TT, 1/10/05, 9530:6-9533:3. Lorillard has not changed the themes of its principal advertising campaign for its Newport Brand, the "Pleasure" campaign, which features attractive, vibrant young adults enjoying recreational activities and which has remained constant and successful for the past 30 years. Milstein TT, 1/10/05, 9312:1-9314:9; 9417:18-9421:25; Orlowsky WD, 30:14-31:5. B&W continues to use youth-appealing imagery in the marketing campaigns for its Kool brand of cigarettes. Indeed, B&W received numerous complaints that its B Kool campaign, which ran from 1997 to 2000, appealed to adolescents. (no bates) (US 92037). R.J. Reynolds continues to target adolescents through its magazine advertising, which was appearing in Rolling Stone magazine at the same time its President, Lynn Beasley, testified in this case, under oath, that the company had ceased advertising in those publications. RJR has also recently launched cigarette brands in youth-appealing flavors such as Kauai Kolada and Twista Lime, which are clearly designed to target and entice youth. (no bates) (US 90119).