Reports that Matter

United States v. Philip Morris USA Inc.: Amended Final Opinion

Developments Since the MSA

Section 93 of 129

Developments Since the MSA

  1. There is no question that the MSA has either directly brought about certain significant changes in industry practices or indirectly contributed to those developments.
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  1. Since the MSA went into effect in late 1998, youth smoking rates, which peaked in 1997, have declined. The CDC reported a smoking rate of 36.4% among students in grades nine through twelve in 1997, with a decline to 21.9% in 2003. (no bates) (JDEM 040369); see also (no bates) (JDEM 040199).9

  2. Since the execution of the MSA, Defendants' market share and overall competitive position have declined relative to non-Defendant manufacturers. Carlton WD, 10:24-11:4; (no bates) (JDEM 010431); (no bates) (JDEM 010432); see also Gruber TT, 5/10/05, 20677:10-14; Beasley WD, 8:20-9:23, 13:10-15:9, 16:8-17:2. Specifically, cigarette company Defendants' market share declined from 97% in 1998 to 85% in 2004. Carlton WD, 8:13-9:2; (no bates) (JD 052903); (no bates) (JD 065406); Gruber TT, 5/10/05, 21677:3-14; (no bates) (JDEM 010431) (discussed at Carlton WD, 11:3); (no bates) (JDEM 010432) (discussed at Carlton WD, 11:4). Approximately 200 new companies have entered the U. S. cigarette market since 1998. Szymanczyk TT, 4/11/05, 18516:15-18.

  3. Three of the Defendants in this case are not subject to all the provisions of the MSA. As this Court previously recognized, "the MSA cannot preclude relief in this RICO action because two of the Defendants, BATCo and Altria, are not even signatories to that Agreement." United States v. Philip Morris USA Inc., 316 F. Supp. 2d 6,12 While the Court has not relied upon certain portions of Dr. Brandt's testimony, a careful review of all of Dr. Brandt's testimony, the documents he cited, and the documents which Defendants cited to rebut his testimony reveals that many of Defendants' characterizations of both the testimony and individual documents are out of context, unrepresentative, and unfair. -232- (D.D.C. 2004). In addition, a third Defendant, Liggett, is exempt from important provisions of the MSA. LeBow TT, 4/4/05, 17570:14- 17572:4.

On June 6, 2006, the CDC issued a Report finding that the decline in youth smoking rates which began in 1998 plateaued because teenage smoking initiation is on the rise again. However, this Report is not part of the record in this case. The Court is not relying upon this information.

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  1. Defendants' assertions that, as a result of the MSA, they are now new companies headed by changed management are simply not accurate. Wells TT, 9/22/04, 213:24, 220:17-21;

Szymanczyk TT, 4/7/05, 18110:7-10.

  1. For example, Philip Morris management has not changed in any meaningful way.

Michael Szymanczyk, President of Philip Morris, conceded that the Philip Morris executives whom he promoted to his Senior Leadership Team, and whom he appointed to their current positions since

1999, were in fact veteran employees who averaged some fifteen to twenty years' tenure at Philip

Morris or one of its sister companies:

Michael Szymanczyk: appointed to current position, Chairman and Chief Executive Officer, in 1997; actual tenure -- fifteen years.

John Nelson: appointed to current position, Senior Vice President, Research and Development, in 2002; actual tenure -- fifteen years.

David Beran: appointed to current position, Executive Vice President, Strategy, Communication, and Consumer Contact, in 2002; actual tenure -- fifteen to thirty years.

Craig Johnson: appointed to current position, Executive Vice President, Sales and Distribution, in 2002; actual tenure -- about fifteen years.

Denise Keane: appointed to current position, Senior Vice President and General Counsel, in 2001; actual tenure -- almost thirty years.

Howard Willard: appointed to current position, Senior Vice President, Corporate Responsibility, in 2002; actual tenure -- about fifteen years.

Nancy Lund: appointed to current position, Senior Vice President, Marketing, in 1999; actual tenure -- twenty years.

Gregory Cummings: appointed to current position, Senior Vice President, Manufacturing and Quality, in 2002; actual tenure -- twenty-five years.

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Kevin Benner: appointed to current position, Senior Vice President, Human Resources, in 2003; actual tenure -- eight years. Tina Walls: appointed to current position, Senior Vice President, Corporate Affairs, in 2003; actual tenure -- nineteen to twenty years. Michael Farris: appointed to current position, Vice President of Leaf, in 2004; actual tenure -- about twenty years. Virginia Murphy: appointed to current position, Senior Vice President, Compliance and Branch Integrity, in 2005; actual tenure -- about twelve years. Richard Solana: appointed to current position, Vice President, Research and Technology, in 2005; actual tenure -- eleven to twelve years. Harry Steele: appointed to current position, Vice President, in 1990; actual tenure -- about twenty years.

(no bates) (JDEM 040284); Szymanczyk TT, 4/7/05, 18111:24-18117:9. Indeed, Szymanczyk acknowledged that, in picking his Senior Leadership Team, he did not "go outside of Philip Morris to fill any of those positions . . . on the exhibit JDEM 040284." Szymanczyk TT, 4/7/05, 18118:18- 18119:3. In sum, the employees selected by the President of Philip Morris are not "new blood," but rather, very long-time employees who have been thoroughly imbued with the public relations, marketing, research and development, and ethical policies of Philip Morris.

  1. In particular, Philip Morris chose long-time Philip Morris employees to staff the Youth Smoking Prevention Program. The Program is not staffed with a single professional from outside the company who had experience and credentials in the smoking prevention area. Szymanczyk TT, 4/7/05, 18273:7-18274:13.

  2. Lorillard's senior management team reflects an average of twenty-two years' tenure with the company:

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Martin L. Orlowsky, Chairman, President and CEO: twenty-five years. Ronald Milstein, Vice President and General Counsel: nine years. George Telford, Vice President, Brand Marketing: twenty-nine years. Kathy Sparrow, Vice President, Sales: twenty-five years. Victor D. Lindsley III, Senior Group Brand Director: twenty-four years.

Orlowsky WD, 1:2-14; Milstein TT, 1/7/05, 9257:11-12; Telford PD, United States v. Philip Morris, 6/26/02, 15:3-16:6; Sparrow PD, United States v. Philip Morris, 2/25/02, 9:19-22; Lindsley PD, United States v. Philip Morris, 5/16/02, 13:17-14:12.

  1. BATCo's senior management team reflects an average of twenty-three years' tenure with BATCo and Brown & Williamson. BATCo and B&W have, over the years, had varying corporate relationships but have, at a minimum, always worked together closely and cooperatively:

Paul Adams, Chairman of BATCo, also Managing Director and CEO of BAT plc: fourteen years. Nicholas Brookes, former Chairman and CEO of B&W, now Regional Director, America-Pacific Region of BATCo: twenty-seven years. Graham Read, BATCo Head of Global Strategic Research: twenty-nine years.

Brookes PD, United States v. Philip Morris, 5/2/02, 19:21-20:1; Adams PD, United States v. Philip Morris, 8/22/02, 14:1-10; Read TT, 3/21/05, 16281:19-16282:1.

  1. R.J. Reynolds's senior management team (which, after the merger with B&W, now includes many senior managers from B&W) reflects an average of twenty-four years' tenure with the industry:
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Andrew Schindler, Non-Executive Chairman, RAI: thirty-one years. Susan M. Ivey, President and CEO, RAI; Chairman and CEO, RJR; former CEO of B&W: twenty-four years. Lynn J. Beasley, President and Chief Operating Officer, RJR: twenty-three years. Charles A. Blixt, Executive Vice President and General Counsel, RAI and RJR Tobacco: twenty years. Frances Creighton, Executive Vice President, Marketing, RJR Tobacco: twenty-four years. Brennan M. Dawson, Senior Vice President, Government Relations, RJRT; former Vice President for External Affairs at B&W and former TI spokesperson: nineteen years.

Schindler WD, 1:6-2:11; Ivey WD, 1:3-2:11; Beasley WD, 1:6-13; Blixt PD, United States v. Philip Morris Inc., 10/31/02, 20:4-6; Creighton PD, United States v. Philip Morris Inc., 6/20/02, 13:22-24; Dawson WD, 1:19-20, 2:6-9, 3:1-2, 3:21-4:1.

  1. Defendants have not lowered their total marketing and promotion expenditures in response to the MSA's prohibition on billboard advertising and its restrictions on print advertising. To the contrary, they have both increased their marketing expenditures and shifted those increased expenditures towards price-based promotions, as detailed more fully in Section V(F)(5), supra. Dolan WD, 145:10-146:22; Krugman WD, 101:16-102:9.

  2. The MSA does not: (1) require Defendants to make corrective statements regarding health risks of smoking and nicotine addiction; (2) require Defendants to fund effective cessation programs; (3) appoint court-appointed officials to implement the relief granted; (4) enjoin Defendants from future RICO violations; or (5) enjoin Defendants' alleged youth-marketing practices. United States v. Philip Morris USA Inc., 316 F. Supp. 2d 6,11 Lorillard did not participate in the second phase of funding for the Brotman/Freedman research. (US 30450). -147- (D.D.C. 2004) (internal quotation marks and citations omitted; items in list renumbered).

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  1. The MSA contains no provision regulating the use of the descriptors "light" and "low tar." Myers WD, 24:16-18.

  2. The MSA did not earmark any funds for smoking cessation programs, nor did any of its provisions require the settling States to spend any funds for this purpose. Myers WD, 54:16-20.

  3. The advertising campaigns of the three leading youth brands, Marlboro, Newport, and Kool, for youth have not changed since the MSA. For example, Lorillard has not changed its principal "Pleasure" advertising campaign for Newport, the second-leading brand smoked among youth ages twelve to seventeen. Milstein TT, 1/10/05, 9312:1-9314:9, 9417:18-9421:25.

  4. The MSA's requirement to provide public access to certain tobacco industry documents through tobacco document websites applies only to the original participating manufacturers. Moreover, the MSA's requirement to maintain these tobacco document websites expires on June 30, 2010. (no bates) (JD 045158 at § IV, ¶¶ 36-41).

CONCLUSIONS OF LAW