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 Biological Research on the Hazards of Smoking 2004. The Government alleges that Defendants had a so-called "Gentleman's Agreement"

¶that "[a]ny company discovering an innovation permitting the fabrication of an essentially safe cigarette would share the discovery with others in the industry and no domestic company would use intact animals [in] in-house bio-medical research." TT, 9/21/04, 122:3-7 ("Gov't Opening Stmt.). The Government claims that Defendants did this, "[f]irst, to avoid generating evidence that a potentially hazardous cigarette was necessary or possible; and second, to avoid generating internal evidence showing that some of their current products were likely less harmful than others." Id. at

765

As demonstrated above, there is abundant evidence of active competition on health claims amongst Defendants for the past 50 years. Moreover, the evidence is clear that Defendants conducted in-house biological research and did compete in attempting to develop and market potentially less hazardous cigarettes.
The Court finds that the evidence offered by the Government, including the testimony of Dr. William Farone and Dr. Jeffrey Harris, does not support a finding that a "Gentleman's Agreement" existed.
First, Dr. Harris had no direct personal knowledge of any "Gentleman's Agreement." Moreover, he conceded that there were ways the companies could get around any such "Gentleman's Agreement" if they wanted to by using a contract laboratory, such as Battelle, either in the United States or in a foreign country, or they could do it through a foreign affiliate. Harris TT, 10/18/04, 27432:22-2743:15.
Second, the bulk of Dr. Farone's testimony belies the existence of a broader agreement not to compete in the development of less hazardous cigarettes. He described a myriad of projects at Philip Morris, discussed in detail in Section V(D)(4), supra, all dealing with safer cigarette development such as nitrosamine removal, modification of tobacco, selective filtration efforts nicotine analogue research, supercritical nicotine extraction, and work with electrically heated cigarettes. Farone TT, 1623:17-24, 1678:4-1672:1, 1690:9-1691:7, 1692:25-1695:17, 1954:25- 1957:2; Farone WD, 91:8-11.
Dr. Farone's knowledge was based only on hearsay from other Philip Morris scientists, who themselves had no personal knowledge of the events in question.

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Third, Dr. Farone testified that he did not know the date the so-called "Gentleman's Agreement" was entered into. Farone TT, 10/6/04 1783:60-10. Nor did he know who was present or who entered into it. Farone TT, 10/7/04, 1897:2-4. He admitted that he "didn't know the names of the companies" and "didn't know if there were one, two, three, or four companies that were supposed to be part of this agreement." Farone TT, 10/12/04, 2058:18-2059:9.
The Government, and Dr. Harris, rely on the following language in a February 18, 1964 document by Helmut Wakeham, Philip Morris's Vice President for Research & Development, titled "Smoking and Health: Significance of the Report of the Surgeon General's Committee to Philip Morris Incorporated." 0000335612-5625 (US 22986); Harris WD, 122:3-125:12.

Competitive pressures suggest a break up of the common front approach of the industry through TI and TIRC. While R.J. Reynolds continues to advocate a joint front, sit tight, status quo approach (it has the most to lose from any change in status quo), others like American and Liggett and Myers, sanguine for improved competitive positions, show signs of bolting and have capitalized with their new products on early reactions to the report. The greater the longer term market impact of the report, the more intense will there be health competition, which is to say technical competition, among major tobacco companies.

¶Harris WD, 124:1-12.

Dr. Harris also relied on certain language on page 8 of this document, which states: "The industry should abandon its past reticence with respect to medical research." The language cited simply does not evidence any such "Gentleman's Agreement."
The Government and Dr. Harris also point to Wakeham's draft presentation, titled "Need for Biological Research by Philip Morris Research and Development." 0001607055-7061 (US 76155); Harris WD, 152-57. In the document, Wakeham wrote:

767

We have reason to believe that in spite of the gentlemans [sic] agreement from the tobacco industry in previous years that at least some of the major companies have been increasing biological studies within their own facilities.

¶0001607055-7061 at 7058 (US 76155). This single sentence reference is not sufficient to prove, by a preponderance of the evidence, that such an "Agreement" existed.

The Government also looks to a December 1981 memo from Frank Colby to Jay Giles. 501626469 (US 21576). In this memo, Dr. Colby writes that "information was obtained that Philip Morris-U.S.A. does not live up to the alleged 'gentlemen's agreement' of not having animal laboratory facilities on their premises in this country." Id. Not only does Dr. Colby use the term "alleged gentlemen's agreement," this exhibit simply provides further evidence that the cigarette manufacturing Defendants did in-house biological research despite any alleged agreement. Indeed, the evidence outlined earlier in this Section, shows that Reynolds had been conducting or sponsoring biological research since the 1960s. Mosberg United States Dep. 4/23/02, 30:15-31:15; (no bates) (JDEM 060502); (no bates) (JD 067970); (no bates) (JD 060235).
Dr. Robert DiMarco, a former Reynolds's scientist, who worked there from 1982- 1992, stated that he was unaware of any agreement between the companies not to conduct laboratory research on the companies' U.S. premises and noted that RJR had an animal facility that was used extensively. DiMarco, Burton Dep., 8/14/01, at 118:22-119:1.
Dr. Harris and Dr. Farone also cite a March 1983 draft memo prepared by Drs. Rodgman and Colby of Reynolds regarding "Biological/Consumer Preference Research Conducted by Philip Morris" as evidence of the alleged "Gentleman's Agreement." 501543470-3517 (US 21737); Harris WD, 157:5-12, 159:2-19 (describing Demonstrative #6); Farone WD, 137:7-138:7.

768

¶Dr. Harris acknowledges that the memo indicates that (1) "[t]hroughout the domestic industry, the 'Gentlemen's agreements were operative in the early days," (2) one-half of this "early days" agreement involved sharing discoveries that would permit the manufacturing of a "safe" cigarette, and that (3) at least two companies violated the alleged agreement not to conduct in-house biological research. 501543470-3517 at 3504 (US 21737). Dr. Harris also concedes that this document suggests that the alleged gentleman's agreement became inoperative. Harris WD, 160:3-6. Most significantly, Dr. Farone conceded that, despite this alleged agreement, all companies were, in fact, doing in-house biological testing "at one point or another" and that at least Reynolds and Lorillard were doing in-house testing on live animals. Farone TT, 10/12/04, 2060:25-2061:21.

The evidence shows that the Defendants have devoted substantial resources to developing and marketing potentially less hazardous cigarette products. Further, the evidence shows that the Defendants have conducted extensive biological research, both in-house and by using contractors. Accordingly, the Court finds that the Government has failed to establish the existence of a "Gentlemen's Agreement" amongst Defendants.

Conclusions 2018. After weighing and evaluating all the specific Facts found in the foregoing Section,

¶the Court concludes that the Government has failed to carry its burden of proving, by a preponderance of the evidence, that Defendants deliberately chose to sabotage the successful marketing and production of less hazardous cigarettes. 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 cigarettes which would present fewer health risks to the public.

769

Those efforts failed for many reasons: some approaches proved to be scientific and technological failures, such as the effort to reduce nitrogen oxide and harmful TSNAs, and the effort to develop a nicotine analogue; some could not gain consumer acceptability because of unpleasant taste, such as the charcoal filter cigarettes Saratoga, Tempo, and York; some could not gain consumer acceptability because they were too dissimilar from traditional cigarettes, such as Accord, Premier, and Eclipse.
The Government may well be correct that more effective marketing and advertising which focused on the health benefits of these newly developed cigarettes could have overcome the consumer resistence to them. However, Defendants were operating in a regulatory climate where their fears of litigation with the Federal 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 introduction of any new cigarette, no matter how much less risk it might pose to health.
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 dollars, 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.

770

For these reasons, the Court finds that the Government has not proved, by a preponderance of the evidence, that Defendants deliberately kept less hazardous cigarettes off the market.

Defendants Falsely Marketed and Promoted Low Tar/Light Cigarettes as Less

Harmful than Full-Flavor Cigarettes in Order to Keep People Smoking and Sustain Corporate Revenues 2023. For several decades, Defendants have marketed and promoted their low tar brands

¶as being less harmful than conventional cigarettes. That claim is false, as these Findings of Fact demonstrate. By making these false claims, Defendants have given smokers an acceptable alternative to quitting smoking, as well as an excuse for not quitting.

Defendants used a combination of techniques to market and promote their low tar brands. Defendants' marketing has emphasized claims of low tar and nicotine delivery accompanied by statements that smoking these brands would reduce exposure to the "controversial" elements of cigarette smoke (i.e., tar). Since the 1970s, Defendants also have used so-called brand descriptors 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 acceptable 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 tipping 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).
Even as they engaged in a campaign to market 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 advertised, they are unlikely to provide any clear health benefit to human smokers, as opposed to the FTC smoking machine, when compared to regular, full flavor cigarettes.

771

As Defendants have long been aware, nicotine delivered by cigarettes is addictive (see