Reports that Matter

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

Tracking Youth Behavior and Preferences Ensures that Marketing and

Section 74 of 129

Tracking Youth Behavior and Preferences Ensures that Marketing and

Promotion Reach Youth a. Defendants Track Youth Behavior and Preferences 2717. Defendants spent enormous resources tracking the behaviors and preferences of youth

under twenty-one, and especially those under eighteen. Defendants want to draw a bright line between tracking and targeting youth. Defendants claim that tracking is only a research tool to obtain information about youth and that targeting is the directing of all forms of marketing at a particular demographic group, i.e., people under the age of twenty-one. Whether all of the activity detailed below is labeled tracking or targeting is simply a matter of semantics. The activities have the same purpose: to start young people smoking and to keep them smoking. Defendants' argument that their tracking was not done to determine youth preferences and behaviors so as to market to youth more effectively, is patently not credible. Despite their denials that they used such information for marketing purposes, the evidence indicates that Defendants tracked youth in order to determine how best to induce them to start, and continue, smoking cigarettes.

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  1. In August 1953, "A Study of People's Cigarette Smoking Habits and Attitudes," conducted by Elmo Roper for Philip Morris studied the smoking habits of a "cross section of men and women 15 years of age and over." Questions included: "How old were you when you started smoking?" and "What was your first regular brand?" The document indicated that Philip Morris had "very great strength among young people -- particularly under 20." 2022239148-9333 at 9149-9153, 9155, 9163 (US 20358).

  2. An October 7, 1953 letter from George Weissman, Vice President of Philip Morris, discussed the August 1953 Roper report, and stated that "industry figures indicate that 47% of the population, fifteen years and older, smokes cigarettes" and that "we have our greatest strength in the 15-24 age group." Weissman stated:

An interesting aspect of the market is that in the age grouping, Lucky Strike is twice as popular among the fifteen to seventeen year olds as the next leading brand, and therefore, has the potential basis to reverse its present trend in a few years. Encouragingly enough, we have our greatest strength in the fifteen to twenty-four age group, as against Camel and Chesterfield, which are proportionally stronger among older age groups.

2022239142-9147 at 9142, 9144 (US 22931).

  1. A document, titled "Teen-Age Cigarette Purchasing and Smoking Habits in the U.S.A. 1963," discussed a nationwide study of thirteen to eighteen year olds which examined the extent of teenage smoking, the volume of cigarettes smoked by teenagers, where teenagers obtained cigarettes, the extent to which minors purchased cigarettes from vending machines, and possible factors motivating teenagers to smoke. Morgan PD, Minnesota v. Philip Morris, 9/4/97, 133:10-14.
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  1. The "1969 Survey of Cigarette Smoking Behavior and Attitudes" performed by Eastman Chemical Products for Philip Morris, contained a detailed analysis of beginning smokers, including interviews with twelve to fourteen year olds. This report stated that sixteen to twenty is a critical age group for smoking initiation and explained that "at age 14, 60% of the boys who were to become smokers had smoked their first cigarette." The report included information on why these teenagers smoked their first cigarette and whether they liked it. 81560431-0496 at 0454 (US 85200).

  2. In a May 23, 1969 internal memorandum, Myron E. Johnston, Senior Economist for Research and Development at Philip Morris, wrote to Robert S. Seligman, Vice President for Tobacco Science and Research, regarding "Marlboro Market Penetration by Age and Sex." Attached to the memorandum was a chart showing, "by sex and individual years of age, the percent of . . . smokers . . . who smoke Marlboro," which included data on fifteen year olds. 1000306237-6239 at 6237, 6238 (US 20091).

  3. In a June 12, 1970 memorandum, "Suggestions for Research to Answer Questions Raised on Philip Morris Benchmark Study," Steve Fountaine, a Philip Morris employee, discussed the discrepancy between the reported results on a market share survey and Marlboro's actual sales share. Fountaine stated that this discrepancy was "due to the fact that Marlboro has such a high percentage of its smokers among the types of young people our survey misses of necessity (on campus college students, those in the military and those under 18 years of age.)" This memorandum set forth a detailed proposal for research into the smoking habits of young people aged fourteen to seventeen:

To get a reading on the smoker percentage and Marlboro share among teenagers not covered in the Benchmark study we recommend interviewing young people at summer recreation centers (at beaches

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public pools, lakes, etc.). . . . In our opinion, this suggested approach will provide a good reading on the Marlboro share among very young smokers, as well as adding information on college student smoking habits.

2026234664-4669 at 4664, 4665-4667 (US 20424). Since 1968, Marlboro's share of the youngest demographic group has always been substantially higher than Marlboro's overall market share. Morgan PT, Minnesota v. Philip Morris, 4/24/98, 13907:12-19.

  1. In an August 17, 1970 internal memorandum to Wakeham from William L. Dunn, Senior Scientist at Philip Morris, titled "Considerations Pertinent to the Proposed FTC (Federal Trade Commission) Requirement of Published Numbers," Dunn argued that Philip Morris did not need to attempt to block FTC regulations requiring disclosure of tar and nicotine levels in all cigarette advertising, because a survey of twelve to eighteen year olds indicated that youth smoking initiation would not be influenced by such FTC action. Dunn stated:

We have . . . evidence that the will to smoke is remarkably impervious to concerted, dissuasive pressures: a) Horn's recent survey data of teenagers revealing a higher percentage of smokers among 12-18 year olds in the USA than ever before recorded.

1002375102-5107 at 5102 (US 20135).

  1. A "Marketing Planning Guide" written in approximately 1972 to provide a template to Philip Morris employees for creating yearly marketing plans, included a section titled "Industry Trends," which stated: "Although the total population will increase by 3.4% during the 1973-1978 period, the fifteen to nineteen year old age group from which many new smokers are gained, will only increase by 1.9%, while undergoing actual decreases in 1977 and 1978." The document included smoking incidence figures for twelve to seventeen year olds, as well as population numbers for smokers "under 15 years"of age. 2041400206-0236 at 0223 (US 20439).
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  1. A May 18, 1973 memorandum, titled "Incidence of Smoking Cigarettes," sent by Neil

Holbert, Philip Morris Marketing Research Department, to numerous Philip Morris employees, discussed findings from a survey conducted by the Opinion Research Corporation of smoking incidence among 452 twelve to seventeen year olds and those age eighteen and older. The survey found that 13% of the twelve to seventeen year olds polled smoked at least a pack a week.

2041761791-1801 at 1791, 1795 (US 21493).

  1. Philip Morris's "U.S.A. Tobacco Marketing Five Year Plan" dated June 1973 discussed the concern that a decline in "the 15-19 year old age group from which many new smokers are gained" would cause a loss of cigarette sales volume:

the new-smoker age group (15-19) will increase only 1.9% over the total period and will actually decline in 1977 and 1978. A decline of 7.8% for this period in the under 15 age group indicates that this trend will continue in the following years. . . . However, more than offsetting the loss of cigarette volume from the declining trend in the "new-smoker: age group (15-19), are substantial increases in those two population segments which have the highest smoking incidences, the 20-29 year olds (+14.8%) and the 30-39 year olds (+19.1%). . . . In summary, then, the total industry volume will increase at an average annual rate of about 1.9% through 1976 on the strength of increases in the three key population segments -- the 15-19 group which represents the primary source of new smokers, and the 20-29 and 30-39 groups which are characterized by high smoking incidences.

1005159031-9168 at 9034, 9043-9044 (US 26207).

  1. A July 1974 Philip Morris Marketing Research memorandum titled "The New

Competition for Marlboro's Franchise Smokers" stated, "for the past year, Marlboro's growth in share of market has slowed down considerably. . . . [T]his problem is especially clear among the most important segment of the Marlboro franchise, smokers aged 18 to 24." In response to this trend, the memorandum reported that the "Roper Organization was commissioned to undertake [a] study . . . with the intention of probing the dynamics of the market among smokers below the age of 24. (This was not the 'usual' sample of age 18-24; in this study, no lower age limit was set.)" Roper conducted 1050 interviews for this study. Comparing Roper's results and Philip Morris's own National Tracking Study, the document reported that the results were not significantly different, but "[t]he somewhat larger share for Marlboro smokers found in the Roper Study (33% Vs. 27% found in Tracking) may be accounted for by the popularity of this brand among those under age eighteen who are not interviewed in Tracking," but who were interviewed by Roper. The Roper Study determined that "Marlboro is still the most frequent 'first regular brand'" and stated, "[t]he ideal situation would be to have lots of people choosing our brand as their first (which we do)." According to the Roper Study:

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The most important reason these young smokers give for settling on their first regular brand is what we might call peer pressure. . . . This tendency to "go with the leader" feeds on itself. As a brand increases in popularity, it is more likely to be adopted as "the" brand to smoke.

2022245802-5823 at 5803, 5804, 5807, 5808, 5809 (US 26748).

  1. The study referenced above prepared by the Roper Organization in July 1974 for Philip Morris was titled "A Study of Smoking Habits Among Young Smokers," and found that "Marlboro is the starting brand for young whites, and Kool is the starting brand for young blacks." The study questionnaire asked respondents when they started smoking and included a category for fourteen and under. The study report also stated:

We are not sure that anything can be done to halt a major exodus if one gets going among the young. This group follows the crowd, and we don't pretend to know what gets them going for one thing or

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another. Certainly [Philip] Morris should continue efforts for Marlboro in the youth market.

1002646151-6185 at 6152, 6154-6157 (US 20140).

  1. A Philip Morris March 3, 1975 internal document, titled "Economic Forecast

1975-1980," written by Myron E. Johnston, Senior Economist for Research and Development, stated:

The most recent surveys have shown an increase in the proportion of teenagers (particularly girls) who are beginning to smoke cigarettes. Thus, even though there will be a decline in the absolute number of teenagers from 1975 to 1980, the number of teenage smokers will remain constant. From 1969 to 1974, by contrast, the number of teenage smokers increased at an average rate of 2.2%. . . . During the last ten years Marlboro has benefitted from the rapid increase in the number of people 15 to 19 years old, the ages at which most smokers begin smoking.

Johnston also predicted that, because of the declining number of fifteen to nineteen year olds:

Marlboro will be deprived of one source of its growth and, increasingly, will have to rely for growth more on switchers from other brands and on maintaining the brand loyalty of Marlboro smokers. Because of this decline in the number of 15-19 year olds, Marlboro sales will increase at a decreasing rate.

1000739883-9907 at 9903, 9905, 9907 (US 21601).

  1. Johnston sent an inter-office memorandum dated May 21, 1975 to Robert B. Seligman, Director of Commercial Development, Tobacco Products, with the subject "The Decline in the Rate of Growth of Marlboro Red." Johnston discussed four factors contributing to the

Marlboro Red growth slowdown: slower growth in the number of fifteen to nineteen year olds, the recession, increasing cigarette prices, and the "changing brand preferences of younger smokers."

Johnston stated:

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It has been well established . . . [by studies] that Marlboro has for many years had its highest market penetration among younger smokers. Most of these studies have been restricted to 18 and over, but my own data, which includes younger teenagers, shows even higher Marlboro market penetration among 15-17 year olds.

1003285497-5502 at 5497 (US 20160).

  1. An April 8, 1976 Philip Morris inter-office memorandum from Myron Johnston and Frank Ryan, Senior Associate Scientist for Philip Morris, to William Dunn, Senior Scientist, titled "Teenage Smoking," reported on the "upsurge" of smoking among young teenage girls, and hypothesized that the increase in teenage girls' smoking may be connected to the teenage boys' smoking habits and the fact that "teenage boys typically date girls who are their own age or a year or two younger." This document included information on males age twelve to seventeen and females age ten to fifteen, and observed that the thirteen year old age group "shows the most dramatic increase in proportion of smokers." 1000743958-3959 at 3958 (US 20105).

  2. A May 1976 study prepared for Philip Morris by the Roper Organization, titled "A Study of Smokers' Habits and Attitudes With Special Emphasis on Low Tar Cigarettes," stated that:

[a]s usual, in the studies we conduct for Philip Morris, we undermeasure Marlboro's share since we do not interview people under the age of 18, and Marlboro is strong with teen-age smokers. Marlboro continues to be a young smoker's brand, with one-quarter of those 18 to twenty-one reporting they smoke Marlboro Red most often.

2024921314-1612 at 1374 (US 20403).

  1. A June 2, 1976 Philip Morris memorandum from Alfred Udow of the Philip Morris Consumer Research Department to James Morgan, titled "Why People Start To Smoke," stated:
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"most smokers appear to have begun smoking between the ages of 10 and 18." The memorandum identified the "factors involved in the initiation of smoking," explaining:

In general, the studies suggest that youngsters beginning to smoke is related to: a) curiosity about smoking; b) conformity pressures among adolescents; c) need for status among peers, including self-perceived failure to achieve peer-group status of satisfaction; d) the need for self-assurance; and e) striving for adult status.

With respect to high school students, the memorandum stated:

The smoking pattern is established relatively early. Before 12 years of age, less than 5% of boys and 1% of girls smoke, but soon thereafter a steady increase begins. In the 12th grade, from 40-to-55% of children are smokers, and by the age of 25 years about 60% of men and 36% of women have acquired the habit.

Udow indicated that he consulted both external, independent research and internal Philip Morris research on youth smoking: "Information on the motivation that leads to a continuation of smoking comes from a special study done for Philip Morris (Brand, 1971)." 1000744089-4096 at 4089, 4092, 4095-4096 (US 20106).

  1. In a 1978 document titled, "The Assets," Philip Morris reported that "the percentage of smokers in the 17-24 year old age group is up, and the amount smoked per day per young smoker is also up." 1003058994-9017 at 8999 (US 20151).

  2. In a July 1978 document, titled "Estimated Number of US Smokers," Philip Morris tracked smoking incidence among the population starting at age twelve. 2042521997-2001 at 1997, 2001 (US 20445).

  3. A March 1979 study prepared by the Roper Organization for Philip Morris, titled "A Study of Smokers' Habits and Attitudes With Special Emphasis on Low Tar and Menthol Cigarettes," stated: "While we do not interview below age 18, we would guess the trend towards doing almost everything at a younger age applies to cigarette smoking as well, and is a further factor in enlarging the market." 2049455309-5318 at 5313 (US 22218).

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  1. A March 29, 1979 memorandum on Philip Morris USA letterhead, titled "Marlboro," stated: "Marlboro dominates in the 17 and younger age category, capturing over 50% of this market" and itemized various special promotions, including "summer sampling" and the Marlboro Cup. 20483828174-8176 at 8174-8175 (US 21517).

  2. A March 31, 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: Of the eleven packings of which the median age of smokers is under age 30, seven are Philip Morris packings. . . . [I]t is during the teenage years that the initial brand choice is made.

The report indicated Philip Morris's concern over demographic and social trends that were creating a downturn in teenage smoking rate: "Because of our high share of the market among the youngest smokers, Philip Morris will suffer more than other companies from the decline in the number of teenage smokers." 1000390803-0855 at 0808-0809 (US 22334).

  1. In a document dated May 7, 1981, Myron Johnston, Senior Economist for Research and Development at Philip Morris, stated that 33.2%, 32.6% and 32.2% of people seventeen and over were current regular smokers for the years 1978, 1979, and 1980, respectively. 1000792013- 2013 (US 20108).

  2. In a January 19, 1983 inter-office memorandum to Jon Zoler, titled "The Ages at Which People Start Smoking," Myron Johnston set out the smoking initiation ages for demographic groups, finding that the largest percentage (20 to 35%) began smoking before age eighteen, some (18 to 20%) began between the ages of eighteen and twenty-one, and a few (5 to 10%) began between the ages of twenty-one and twenty-five. He asserted:

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Conventional Wisdom has long held that anyone who has not started smoking by age 18 is unlikely to become a smoker. . . . Clearly, Conventional Wisdom has to be rephrased to read: "Anyone who has not become a smoker by age 25 is unlikely to become a smoker." It is interesting to note that the younger cohorts of white females, but not males, are beginning to smoke at progressively younger ages.

1003478157-8159 at 8157 (US 35772) (emphasis in original).

  1. In inter-office correspondence dated February 18, 1983, from Johnston to Alfred Udow, Philip Morris Consumer Research and Marketing Department, titled "Still More on Trends in Cigarette Smoking Prevalence," Johnston discussed "the encouraging upward trend in smoking prevalence among 18-29 year-olds -- encouraging because of the importance of these younger smokers to Philip Morris." 1003285174-5178 at 5174 (US 20157).

  2. An internal document, titled "Product Testing Short Course," dated January 23, 1984, prepared by the Philip Morris Research and Development Department, explained how Marlboro succeeded by attracting new teen smokers:

Marlboro floundered for 8 years and then hit a responsive chord among the post-war baby-boom teenagers with the theme from the 'Magnificent Seven' and an image uncalculatedly right for the wave of teenagers coming of smoking age.

2028817401-7576 at 7504 (US 20016).

  1. A July 9, 1984 Philip Morris memorandum drafted by Myron Johnston to Leo Meyer on the subject of "The Changing Geography of Menthol and the Threat Posed by Newport" recognized the success of Lorillard's Newport brand and stated:
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The fact that Newport smokers are very young gives further indication that Newport's growth is disproportionately at the expense of Marlboro. (Their median age as derived from the Tracking Study data is 23.2, and that does not take into consideration those under the age of 18.)

Johnston further stated:

Lorillard has clearly recognized that menthol smokers are disproportionately black and disproportionately young -- groups that have relatively low newspaper and magazine readership and that tend to be pack buyers rather than carton buyers. Hence Newport relies heavily on point-of-purchase and outdoor advertising -- 63 percent of Newport's 1983 advertising expenditures were for outdoor.

2040280951-0977 at 0954-0955 (US 37496).

  1. A December 12, 1984 Philip Morris special report, titled "Cigarette Market History and Interpretation," prepared by John E. Tindall, Senior Scientist at Philip Morris, and broadly distributed within Philip Morris, traced the history of the cigarette market from 1938 to 1984 and analyzed brand shares and relative performance in terms of the demographics of the smoking population and the turnover in the smoking population. The report explained the rise of Marlboro,

Kool, and Newport: "New smokers entering the market were disproportionately attracted to those brands." The report stated:

[I]f the domestic cigarette market is to survive long-term, it must have a constant influx of new smokers. In the past, the psychology of brand choice for new smokers has been an area to which we have had to give little attention since our brands have been among the major beneficiaries of new smokers' brand choices. There are reasons to believe we may not be so fortunate in the future.

The report further stated:

Marlboro's growth and, presumably, its position as the brand of choice among new smokers, coincided with the Marlboro Country campaign. That was certainly a remarkable campaign and one that

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probably did appeal to young people, but not one that marketers would have been likely to have composed to attract young people in the 1960s.

2001265000-5045 at 5012, 5030 (US 20299).

  1. An August 15, 1985 report, titled "Trends in Smoking Among High School Seniors," authored by Johnston and addressed to Jon Zoler, Director of Marketing Research, stated that "about half of all people, in all age cohorts, who ever smoked have been smokers at age 18. Thus by studying trends in smoking among 18-year-olds we might gain some insight as to what to expect in the future." The report provided extensive data on the smoking habits of high school seniors. Zoler commented that this study was "the most comprehensive study I've seen on the subject."

2040282066-2092 at 2066 (US 20437).

  1. A 1987 Philip Morris document, titled "Parliament Brand Plan Executive Summary," recommended a shift of focus to a younger demographic target because

strategically, if Parliament is to stabilize and grow over the long term, we must pick up younger smokers. Fortunately, we have reason to be optimistic about our ability to appeal to younger smokers. . . . To target the 18-24 males and females, our retail focus will be on pack outlets (52% of smokers in this age group buy the pack compared to 30% of all smokers) and will be trial/conversion oriented. This younger age group is more likely to make decisions based on peer pressure. To convey the idea that everyone is smoking Parliament, the brand should have continuous high levels of visibility in as many pack outlets as possible.

2045287048-7092 at 7061, 7063, 7064 (US 38407).

  1. An August 19, 1987 inter-office memorandum from Nancy E. Brennan (now Lund), current Senior Vice President for Marketing at Philip Morris, to David E.R. Dangoor, Executive

Vice President at Philip Morris, summarized "Key Marlboro Issues." According to Brennan:

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The life blood of the Red franchise is new, young (male) smokers. In this regard, several demographic and industry factors are working against us: 1) a shrinking population of young adults, 2) a lower incidence of smoking among young adults and, 3) an increasing percentage of new smokers entering the market with a low tar cigarette.

In order to maximize share, Marlboro should

[s]eek ways to display Marlboro continually in the convenience stores to fully capitalize on new smoker trial and reduce temporary "defection. . . . ." For Marlboro, the most critical retail visibility is displayed product. Currently, the Brand does not have continuous leadership display presence in pack or carton outlets. This should be our first priority. We are missing trial opportunities.

2045305938-5942 at 5938, 5939, 5941 (US 26948).

  1. Roy Anise, a manager in the Philip Morris Market Research Department, drafted a February 1, 1988 report addressed to Jon Zoler which noted that Philip Morris had reviewed the decreasing smoking incidence among high school seniors to determine if it was a cause of declining smoking rates of military personnel. Anise's report cited Myron E. Johnston's 1985 report, titled "Source Trends in Smoking Among High School Seniors," which stated that "[h]istorically about half of all people . . . who ever smoked have been smokers by the age of 18." 2042078401-8405 at 8404 (US 20442); 2022214369-4395 at 4369 (US 20357).

  2. Myron Johnston wrote a March 17, 1988 memorandum addressed to Jon Zoler, titled "Smoking Among High School Seniors," in which he stated: "I am even more confident than before that we can use the data on high school seniors to predict trends in smoking among young adults." 2042329558-9566 at 9561 (US 20443).

  3. An April 5, 1988 letter from Elizabeth H. Reiman, a Leo Burnett (Philip Morris's advertising agency) employee, addressed to Nancy Brennan Lund, now Senior Vice President for

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Marketing at Philip Morris, provided "details regarding the upcoming Camel qualitative study" and stated that "[r]ecent strong Camel performance, especially among the young male target, has resulted in an effort to explain that success and determine the potential threat to Marlboro." The letter indicated that respondents for this study were to be "recruited among 18-24 year old smokers." 2045471014-1015 at 1014 (US 20461).

  1. A September 26, 1988 inter-office memorandum written by Carolyn Levy, then Philip Morris Assistant Director of Consumer Research, to David Dangoor, Executive Vice President, outlined issues to research in 1989, including: "Can we gain a better understanding of young smokers? What are their personality traits, beliefs, values, lifestyles? What are the marketing implications of these findings?" 2080009511-9515 at 9511 (US 20535); see also 20080009516-9522 (US 88155); 20080009523-9529 (US 88156).
  1. The "Philip Morris USA R&D Strategic Plan, 1991-1995," written in 1990, stated: A review of Marlboro demographics is also a review of the 18-25 year old age group. . . . [I]n 1989, Marlboro's share of that smoker group was in excess of 60%. The brand's strength since 1977 has been in that age group. . . . [T]he continued success of this brand depends on keeping its age profile young. This fact then would say that we do not want Marlboro or the Marlboro image to be old. Its success through the years has been its ability to attract the entry smoker.

2026230097-0713 at 0211 (US 20423).

  1. A report dated August 7, 1990, titled "New Brand Opportunities in the Cigarette Industry," was written for Philip Morris by Gibbons, Voyer & Associates. The report found that seventeen to nineteen year olds comprise 18.9% of smokers. It stated: "Marlboro dominates young adult smoker market: initial exposure, peer pressure, meets image wants." It recommended that any marketing approach "insure that Philip [Morris] has a brand entry to meet the various wants of young adult smokers: image, product, price." 2049397333-7369 at 7343, 7348, 7350 (US 20486).
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  1. Philip Morris's "Marlboro Brand Review" dated April 12, 1992 analyzed Marlboro's past share growth and predicted future patterns. The document stated that, while Marlboro Red King Size and Marlboro Lights King Size had shown steady growth from 1989 to 1992, this growth "has not however compensated for the loss from the Red parent brand" which showed declining sales. The document discussed marketing strategies aimed at a key type of Marlboro consumer, the CHIMP, defined as eighteen to twenty-four year olds who are "young, self-confident, socially- active." 2501081089-1104 at 1093, 1094 (US 20560*).

  2. A document, titled "PM USA Business Update," dated October 8, 1992 stated that Philip Morris "faces two significant negative trends. The growth in discount cigarettes is reducing our premium sales and we are not obtaining our historic share of entry-level adult smokers." In order to "[a]ssure PM USA's long term prospects by obtaining our historic share amongst entry-level adult smokers," Philip Morris must:

Contemporize all Marlboro creative with more arresting promotional advertising like Adventure Team and racing; Develop the Marlboro Adventure Team and similar high quality continuity programs into long term affordable promotion in C-stores [convenience stores]; Reinvigorate Marlboro Medium with stronger and more relevant advertising; Develop an alternate mainline campaign to Marlboro Country/Cowboy; [and] Relaunch Bucks, including a lower priced box, with an irreverent advertising campaign meaningful to the young adult smoker.

2046569728-9731 at 9728, 9729-9730 (US 20471).

  1. According to the "Philip Morris USA 1994-1998 Plan Overview," Marlboro had approximately a 60% market share among young adult smokers in 1993, and Philip Morris understood that "Marlboro's favorable demographics are the key to long term growth." This share of young smokers was disproportionate to Marlboro's overall market share of 42%.
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2071032180-2206 at 2181, 2185, 2187 (US 21964).

  1. During a March 26, 1993 speech, Michael Szymanczyk, then Senior Vice President of Sales at Philip Morris, stated: "The fact that there is not a clear discount brand leader among 18 to 24 year old smokers suggests that whoever catches these smokers may be able to retain them over a longer period of time." Szymanczyk further stated that "we have to maintain our 60 [sic] share of young adult smokers, since we know that they are our future." 2023771556-1604 at 1587-1588,

1603 (US 20395).

  1. A document, titled "Worldwide Marlboro Monitor: Five Year Trends 1988-1992," written in April 1993 and produced from the files of Philip Morris's Marketing Research Department, stated:

In markets where Marlboro Red's share of young adult smokers has declined, share of starters was also down. Thus, the ability to attract new smokers and develop them into a young adult franchise is key to brand development. . . . Longer-term brand development depends more on a growing share of starters translating into a strong franchise of young adult smokers. . . . If the young adult smoker franchise is not growing, the brand profile ages over time, which means a smaller proportion of its smokers are in the prime target. As a result, the brand is less visible and impactful among our target smokers and their peer group.

2044895379-5484 at 5389 (US 85185).

  1. Szymanczyk stated in a speech to Equipment Manufacturers in October 1993:

Marlboro's age profile reveals a brand that has a higher share among each successively younger adult age group. Its share of adult smokers under age 25 is greater than the combined share of all other brands, premium or discount.

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  1. The Philip Morris Continuous Consumer Tracking Survey (also called "Continuous Tracking Survey") is a telephone survey commissioned by Philip Morris and performed by its various market research suppliers. It is an ongoing survey that Philip Morris has conducted since approximately 1980. Until 1988, the survey was conducted twice per year. In approximately 1988, on the recommendation of Carolyn Levy, director of the department handling the survey, the data collection methodology was modified to become a "continuous" study in order to avoid "gaps" in information. The method of calling is a "random digit dialing" procedure, where questioners call people who claim to be adult smokers and ask them questions about their cigarette brand preferences and their buying behavior. According to Levy:

historically, and we continue to this day, our method is to go for the youngest male who is at home. So the idea was you select the youngest male adult smoker in the household who's home at the time. . . . We try to go to the hardest to find first [the youngest male] if they are there.

Questions asked include: the promotions they may have seen or purchased; the cigarette brands they have purchased in the last week; the type of store at which they purchase cigarettes; whether they are saving Marlboro Miles; their knowledge of certain brand images; promotion and advertising awareness; and the number and ages of all smokers in the household. Levy PD, California v. Philip Morris, 6/23/98, 18:18-30:12; Levy WD, 17:18-20:15, 27:2-28:19, 41:7-43:18, 48:4-51:21.

  1. Philip Morris has conducted extensive consumer research to help inform and shape marketing campaigns that appeal to their youngest potential smokers. For example, by using its continuous smoker tracking survey, in November 1994: (1) Philip Morris determined that Marlboro and Camel are the leading non-menthol brands for male smokers ages eighteen through twenty-four;
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(2) Philip Morris examined the lifestyles and attitudes of eighteen to twenty-four year old male smokers to explain their brand choices, including their leisure time activities (e.g., hanging out with friends, keeping car looking good, talking on the phone with friends, going to bars or rock concerts), social circles, attitudes about smoking, brand image, and their aspirations and objectives; (3) Philip Morris profiled male Marlboro smokers between the ages of eighteen and twenty-four and compared them with the profiles of Camel male smokers of the same age; (4) Philip Morris determined that the Marlboro Brand image among eighteen to twenty-four year old males included: cool, outgoing, popular, outdoorsy, adventurous, and independent; (5) Philip Morris's profile of an eighteen to twenty-four year old male Marlboro smoker was a relaxed smoker who feels unpressured; (6) Philip Morris determined that, unlike Marlboro smokers, Camel smokers were attracted by the individuality of their brand (and the advertising packaging); (7) Philip Morris researched the size of its smoker base and determined that Marlboro male smokers age eighteen to twenty-four made a disproportionately high contribution to Marlboro's total volume comprising seven million smokers, and accounting for one in five of Philip Morris's total smokers; and (8) Philip Morris determined that smokers eighteen to nineteen shared a similar racial make-up and that 86% were white males who smoked Marlboro Red. 2048735500-5604 at 5501, 5505, 5508, 5518, 5531-5541, 5543, 5547, 5555 (US 21971).

  1. On November 29, 1994, Shari Teitelbaum, Director of Marketing and Sales Decision Support for Philip Morris, wrote an internal draft memorandum to Karen Chaikin, Manager of Trade and Business Programs, that summarized and attached the research results of the "Ohio Retailers Study":
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It appears that minors attempting to buy cigarettes happen [sic] on a fairly regular basis. Approximately 85 percent of retailers say that minors under the age of 18 attempt to purchase cigarettes in their store at least once a day. Of these, more than half say this happens at least three to four times a day, including 16 percent saying this happens ten times a day.

This conclusion and the corresponding table were omitted from the final version of the memorandum and attachment, which were sent on December 9, 1994. 2046828693-8693 (US 21802);

2046828694-8697 (US 21803); 2046828612-8615 at 8612 (US 20479) (emphasis in original).

  1. In 1995 Philip Morris tracked the smoking preferences of college students through an analysis of College Scan 1995, a telephone study conducted among 3,000 full time college students over eighteen years of age. The Philip Morris analysis stated that "Marlboro's share reached an all-time high (61.4%) in 1995, Camel's share continued to decline, and college smoking incidence

. . . historically low, appeared to be stabilizing at about 14%." The analysis also concluded:

Philip Morris's share of adult college smokers (69.3%) is up in 1995 (+5.3%). The gain is traceable mainly to Marlboro and Parliament. . . . Among full time college students, RJR's share has been declining since the price reduction of Marlboro Friday in 1993. . . . Together, Marlboro and Camel comprise 80.2% of the college market. . . . Marlboro's growth has come largely at the expense of Camel and Salem. . . . Marlboro has reached all time highs among . . . 18-19 and 20-23 year old adult full time college students. . . . Camel has declined among . . . 18-19 and 20-23 year old full-time college students.

2040171445-1455 at 1445, 1446 (US 37478*).

  1. A February 1, 1995 letter on Leo Burnett letterhead from Esther Terrell Franklin, then researcher for Leo Burnett, addressed to Susan Norris, Marlboro Brand Manager from 1995-1999, delivered an attached study titled "Insight: A Look at Today's Young Adults." In the letter, Franklin wrote:
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InSight is part of a larger project, Young Adult Trend Track, initiated by the Philip Morris research group. The purpose of this project is to keep the entire Philip Morris team abreast of the current lifestyles of young adult consumers.

Under the heading "Notes from the Editor," Franklin, listed as Editor-In-Chief, explained the purpose of the project:

This booklet (and the editions which will follow) will help you gain a clearer understanding of [Generation X], by giving you a sense of their hearts, their minds, their souls. And by beginning to better comprehend the young adult mindset, advertising to this segment can be truly inviting, impactful and influential.

Half of the study's participants were non-smokers. 2041601887-1931 at 1888, 1889, 1891 (US 38213); Norris PD, United States v. Philip Morris, 7/31/03, 238:25-250:6.

  1. According to Shari Teitelbaum, Philip Morris Director of Marketing and Sales Decision Support, Philip Morris has used the term "herd smoker" to refer to smokers of the most popular cigarette brands, like Marlboro, Camel, and Newport, because these brands attract the largest share of young adult smokers. Herd brands are "the most popular, it's for smokers that would be likely to kind of follow the herd, kind of more of a group mentality type of thing." Teitelbaum PD, United States v. Philip Morris, 4/16/02, 77:22-78:25.

  2. In 1995, Philip Morris decided to attempt to expand its Virginia Slims target audience, previously age twenty-five to forty-four to include younger women age eighteen and older. As the series of research reports discussed below demonstrates, Philip Morris conducted marketing research itself and also contracted with third parties for research on women eighteen and older. The "Regional Analysis of 18-29 Year Old Women," conducted by Roper Starch for Philip Morris, described the new target group as having the "psychographics" of being in transition to becoming independent, getting their first real job, moving away from home, finishing school, and establishing themselves as individuals. 2045812333-2387 (US 38490). Focus group research on women age eighteen to twenty-four conducted for Philip Morris explored whether an attitude of independence would appeal to these women. 2063684453-4480 (US 39819). A Roper Starch report prepared for Philip Morris USA dated June 1995, titled "You've Come A Long Way Baby, But Where Are You Going Now?" analyzed the behavior and attitudes of eighteen to twenty-nine year old females. 2045812333-2387 (US 38490). To effectively reach these smokers, Philip Morris conducted qualitative research

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to understand the attitudes that are relevant to switching from a . . . herd brand to a non-herd brand and to . . . explore both product and imagery associated with those two categories of brands and to provide input on new product concepts that might be available for Virginia Slims.

LeVan PD, United States v. Philip Morris, 6/25/02 148:12-18; see also 2063684338-4340 (US 39817).

  1. Philip Morris designed a new campaign called "It's a Woman Thing" and a series of corresponding events at bars aimed at women age eighteen and older; this campaign was launched after June 1995 and successfully increased Virginia Slims's share of women ages eighteen to twenty-four. 2070672027-2027 (US 85189).

  2. A July 5, 1995 Philip Morris internal memorandum from Jay Schwartz, a senior analyst in Philip Morris's Consumer Research Department, regarding "College Scan - Spring 1995" was sent to various Philip Morris employees, among them Suzanne LeVan, Vice President of Marlboro. The memorandum stated that College Scan, a nationally projectable telephone study of college students age eighteen and over regarding their smoking habits, incidence rates, and brand choices, was conducted during April and May of 1995. 2040171445-1455 at 1445 (US 37478*),

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1/10/05 (LeVan). With regard to the "College Scan" document, LeVan agreed with the statement:

"Marlboro scores by far and away the highest in terms of brand usage and smoking incidence . . ."

among eighteen year olds. LeVan PD, United States v. Philip Morris, 6/25/02, 185:19-22.

  1. Philip Morris solicited research proposals for national consumer research to profile the demographics, lifestyle, world view and culture, and entertainment and media consumption of young people between the ages of eighteen and twenty-four living in urban areas. 2045592699-2709

(US 38434).

  1. A Special Roper Reports Analysis dated January 1996, titled "'Talkin' About My

Generation:' An Examination of Generation X," discussed the Roper organization's study of the purchasing behavior of Generation X, those born between 1966 and 1985, i.e., eleven to thirty year olds. The analysis was prepared for Philip Morris and presented to a group of Philip Morris Brand and Consumer Research employees. 2047130104-0170 (US 38583).

  1. In a May 22, 1996 "CPC New Products" speech, Bob Mikulay, Senior Vice President for Marketing at Philip Morris, stated:

The final area for review today is the young adult smoker. While these 18-24 year old smokers currently represent only 13.9% of all smokers and 11.1% of industry volume, they are absolutely critical to our future. Because brand loyalty in the industry is high and adult smokers tend to retain their brand as they age, the ability to attract and retain these smokers signals the industry's leaders in future years. Marlboro is the clear segment leader with a young adult smoker share of over 62% . . . . Newport is the #2 YAS brand, with a smoker share of 13.1%. Camel is #3, at a 10% share of YAS. Because of the segment's importance, we will aggressively defend Marlboro's position as the competition's future is dependent on penetrating this category.

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  1. Philip Morris focused its efforts on retail visibility -- making its brands highly visible at convenience stores -- because its own consumer research indicated that most young people visit and purchase their cigarettes at convenience stores. The 1998 "Generation X/C-Store Study" conducted by Philip Morris explored eighteen to twenty-five year olds' "Attitudes about Convenience Stores . . . Behaviors related to Convenience Stores . . . [and] How they perceive the Convenience Store visit." The study determined that: "[m]ost of these young adult smokers routinely visit and purchase cigarettes almost exclusively at C-Stores." It also found that "[f]ew among these young adult smokers are carton buyers, and most do not want to be carton buyers." 2082512930-2986 at 2931, 2935, 2986 (US 45497).

  2. In 1998, Philip Morris USA became concerned that its share of so-called "young adult smokers" was declining. In order to counteract this trend, Philip Morris launched new Retail Visibility and Bar Event Programs, as well as related magazine and newspaper advertisements with the purpose of increasing Marlboro's "perceived popularity." In a June 1998 "Metro YAS Tracking Study-Pre Wave" Philip Morris stated:

To counteract the softness in Marlboro's share among young adult smokers, retail visibility promotion programs and bar event programs were launched in selected areas beginning in May 1998. The programs were implemented to increase Marlboro's top-of-mind awareness and perceived popularity. In addition, they are designed to improve the brand's relevance by increasing its association with YAS' lifestyles and self images in these Metro areas.

Additionally, the document noted that "[p]oint of purchase is the key source of brand visibility."

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  1. Philip Morris tracking found that its summer 1998 Retail Visibility and Bar Event Programs successfully increased the perceived popularity of Marlboro. A September 1998 "Metro YAS Spending Study -- Post-Wave I" stated that:

Awareness levels for Marlboro promotions noticeably increased after the Retail Visibility Program was implemented. . . . All smokers report seeing more Marlboro advertising in bars and Marlboro smokers are seeing more advertising in local publications. . . . In the medium spending markets, the Brand's programs succeeded in bumping up Marlboro's perceived vitality . . . [and] Young Adult Smokers perceptions were strongly affected [in the perceived increase in popularity of Marlboro].

LB0170038-0053 at 0038, 0042, 0044, 0050 (US 25906).

  1. Philip Morris's 1999 "Marlboro Marketing Mix Monitor" compared "the profiles of 7 key marketing equities: Advertising . . . In-Store Advertising . . . ROP/Bar Nights . . . Party at the Ranch . . . Racing School . . . Marlboro Menthol . . . [and] New ways to use Miles." The report concluded that "Marlboro's core product imagery remains rooted in quality, popularity and flavor. The brand's personality is popular, outdoorsy, adventurous, active and a leader. . . . Female smokers think of Marlboro as popular and sociable." 2073970989-1050 at 0991, 1049, 1050 (US 24685).

  2. An April 14, 2000 memorandum from Michael M. Cassidy, a Philip Morris employee, to various other Philip Morris employees, titled "YAM Scan II-Final Presentation Summary," discussed "[w]hat is happening with young adult males." The memorandum indicated that, based on a series of focus groups conducted with males aged nineteen to twenty-four, young adult males choose a cigarette by considering a brand's imagery and the associations attached to a brand, and pick the brand to match the image they want to portray at that moment.

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  1. As of 2002, it was the view of Shari Teitelbaum, Director of Marketing and Sales Decision Support at Philip Morris, that Philip Morris markets its products to smokers eighteen years old and older and continues to conduct extensive research into the preferences of young smokers beginning at age eighteen, in focus groups, triads, and in-depth one-on-one interviews. Teitelbaum PD, United States v. Philip Morris, 4/16/02, 21:10-17, 23:14-25:19, 77:21-78:25.

  2. As of 2002, it was the view of Michael Mahan, Vice President of Marketing and Sales of the Asia-Pacific Region for Philip Morris, that Marlboro's "prime target" is young adult smokers. He described Philip Morris's communication strategy for Marlboro as using high-quality visuals and focusing advertising on the core elements of the campaign, which are "Come to where the flavor is" and "Marlboro country." Mahan PD, United States v. Philip Morris, 5/31/02, 76-77, 84-85, 186-194, 120:20-122:2.

  3. According to a report, titled "Adult Smoker Watch, December Report 2003," Philip Morris continues to monitor and track the brand choices, brand loyalty, smoking behavior and smoking incidence of young people of "legal age," i.e., over eighteen in most states (separately from its tracking of "Total Adults") by interviewing 4,000 young people every month on a continuous basis including people eighteen years of age in most states and nineteen years of age in Utah, Alabama, and Massachusetts. PM3002956620-6692 at 6624, 6692 (US 88650) (Confidential).

(2) Lorillard 2781. A July 24, 1963 letter from Shirley Young of Grey Advertising to Richard F. Kieling,

Director of Market Research at Lorillard, discussed a Lorillard study which sampled the smoking behavior of students as young as sixteen years of age. 89834681-4684 at 4681 (US 21108).

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  1. On June 2, 1966 Lorillard sent a letter authorizing Grey Advertising to conduct a "Penetration/Usage/Image" study designed to examine the success of Kent and True marketing. The letter indicated that the study's results "will be tabulated out for the age cell of 16 thru 20 years, in order that we may analyze this group separately." 89834271-4271 (US 20943).

  2. In 1966 and 1969, Lorillard hired Eastman Chemical Products, a subsidiary of the Eastman Kodak Company, to conduct extensive surveys of cigarette smoking behavior and attitudes. The introduction to the first volume of Eastman's 1969 study noted:

In the 1966 survey group interviews, only adults aged 18 and over were included. . . . However in 1969 a better insight into the habits and attitudes of the younger age groups was needed. . . . So this [group interview] phase of the survey was concentrated on young people ranging in age from 12 to 24 years.

81560431-0496 at 0438 (US 85200). In the first volume of Eastman's 1969 study of cigarette smoking behavior and attitudes, Eastman looked closely at smoking initiation behavior of individuals ages seven to twenty-one. Eastman found that over thirty percent of young males obtained their first cigarette, not from parents, friends or relatives, but from buying it (over 10%), stealing it (over 15%), or making it (nearly 10%). Both boys and girls reported about equally that their first cigarette made them feel grown-up. Among the subset of interviewees sixteen to twenty-four years of age, nearly 20% of males and over 10% of females reported feeling "big," while nearly 20% of both sexes mentioned confidence and security as reasons why they started smoking. The study also examined regular smoking among youth ages thirteen and up. Id. at 0454-0455, 0458, 0460, 0465-0471. The second volume of Eastman's 1969 study of cigarette smoking behavior and attitudes included a survey of the literature published between 1967 and 1969 on the smoking behavior of children as young as eleven, as well as teenagers. 81560497-0541 at 0500-0508 (US 85201).

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  1. F.B. Satterthwaite, a Lorillard employee, wrote a June 7, 1973 memorandum to

Lorillard President Curtis H. Judge, regarding Lorillard's analysis of its own and its competitors' brand shares by age. Satterthwaite stated:

The company analysis, based on cumulative brand shares by age group, though correct as far as it goes, is misleading. The favorable trends toward youth for RJR, Philip Morris and Brown and Williamson are completely explained by three brands -- Winston, Marlboro and Kool, respectively. Without these three brands these companies present an older age pattern similar to the other two companies. The exclusion of Newport from their most recent period is detrimental to the overall Lorillard pattern.

91270029-0030 at 0029 (US 21109).

  1. A report, titled "A Special Presentation for Lorillard . . . Cigarette Advertising

1974-1975," by Gallup gauged the effectiveness of advertising in particular magazines, including in the category of "Glamour (Age 15-34)" magazines such as, among others, Seventeen and Teen.

03496228-6630 (US 20057).

  1. An August 22, 1975 memorandum, titled "Progress Report - Zack Filter and

Menthol," from R.E. Ritchie to A.J. Bass at Lorillard reported that

retailers continue to comment that the majority of consumers are younger people between 14 to 25 years of age. Sales from types of accounts like convenience stores continue to support these comments. I feel another sample program is needed with emphasis placed in the suburban areas where the younger people can be reached, and this to be done with outside samplers.

91529112-9114 at 9112 (US 21110).

  1. At a March 27, 1978 Lorillard field sales representatives' seminar, several marketing ideas for Newport cigarettes were discussed. Discussion subjects included: sponsoring youth sports teams; advertising featuring black athletes; tie-ins with professional sports teams; sports posters and bumper stickers; give-away sweat bands; tie-ins with record companies; scholarships for underprivileged youth; "Tie-in with any company who help black -- We help them, they help us. Target group age 16+"; and sponsoring Miss Black Teenager contests. Also specifically discussed was "[h]ow to reach Younger Smokers: P.O.S. material, sampling, Black inner-city newspapers, [and] Tee-shirt give aways." 85530255-0264 at 0262-0263 (US 31998) (emphasis in original).
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  1. In a June 9, 1978 Lorillard memorandum, titled "Black Marketing Research-Findings and Recommended Actions to Date," to J.R. Ave, Senior Vice President of Marketing, and T.H. Mau, G. Flinn, J. Rowe, J. Greene, and E. Ricci, Newport Assistant Brand Manager Robert Davis stated that Newport was "definitely a starter brand . . . . Newport is identified as an 'entry' brand." Under the heading "Demographics," Davis stated: "Black Newport and Kool smokers are even younger than the switching data would indicate." The memorandum characterized the Newport brand profile as being "Age 18-30." Davis also indicated in his memorandum that Newport appealed to high school as well as college students, in competition with Kool, "the dominant entry brand in the inner city." 85530255-0264 at 0255-0256, 0258-0260 (US 31998).

  2. An August 30, 1978 Lorillard memorandum from Ted Achey, Lorillard's Director of Sales in the Midwest, to company President Curtis H. Judge regarding "Product Information," demonstrates that Lorillard recognized the significance of the underage market to the company:

The success of NEWPORT has been fantastic during the past few years. Our profile taken locally shows this brand being purchased by black people (all ages), young adults (usually college age), but the base of our business is the high school student. NEWPORT in the 1970's is turning into the Marlboro of the 60's and 70's. It is the "In" brand to smoke if you want to be one of the group. Our problem is the younger consumer that does not desire a menthol cigarette. If that person desires a non-menthol, but wants to be part of the "In" group, he goes to Marlboro . . . . I think the time is right to develop a

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NEWPORT NATURAL (non-menthol) cigarette to attract the young adult consumer desiring a non-menthol product. . . . A good test area might be the Camden, New Jersey Division.

03537131-32 (US 22357).

  1. An August 11, 1981 memorandum from Tom A. Mau to various Lorillard employees,

01110991-0992 (JE 021604), attached a document, titled "Replies to 5-year Plan Questionnaire," which stated that "the easiest [brand] to keep riding is Newport. However, I think we 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." 01110993-1032 at 1030 (US 20031).

  1. An October 1981 report prepared for Lorillard by the research firm Shoi Balaban

Dickinson Research, titled "An Exploratory Study for Newport Smoking and Purchase Behavior of

Young Adults," stated:

One-half of these respondents began to smoke at ages 10 to 13 years, with most of the remainder starting to smoke between 14 to 17 years of age, with the pattern precisely equal between male and female respondents. Among these participants, it was rare to start smoking at an age older than 18 years. Marlboro and Newport were mentioned far more often than any other brands as the initial brand smoked. . . . Almost all of the respondents report current friends who smoke the same brand as the respondent, and there is a ready awareness of the brands their friends smoke. . . . One of the most striking findings is the very limited number of brands mentioned either as used by their friends or associated with smokers their own age.

The report further stated: "Both the male and female respondents thought of the typical Newport smoker as 'young,' and both cited Newport as a brand used by those who are just starting to smoke."

84411662-1689 at 1669,1680 (US 55999); 83896981-7009 at 6989, 7000 (US 55927).

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  1. An August 2, 1982 Lorillard memorandum from Florian Perini, Senior Research

Chemist, to M.A. Sudholt, Manager of Analytical Development, on the subject of "Idea Session July

27, 1982 of the Tobacco Science Group" contained a proposal that "Video Game Imagery [be] incorporated in pack design (youth appeal)." It detailed:

the widespread video game craze has certain fundamental features which we could be the first to exploit. Names such as PAC MAN, SPACE INVADERS, TRON and their imagery can imaginatively show up on cigarette packs with repeat motifs . . . and patterns, and their bright imagery can have lasting appeal. Can extend concept to SPACE IMAGERY (Galaxy, Cosmos, Universe).

96509517-9519 at 9519 (US 56890).

  1. Laurie R. Moroz, Manager of General Marketing Research at Lorillard, stated in a

September 2, 1983 memorandum to Curtis H. Judge, President of Lorillard, that "because the number of teenagers is declining rapidly, even a stable smoking incidence would mean a declining number of entering smokers." 03922854-2854 (US 21755).

  1. In February and March 1984, Lorillard conducted focus groups of young menthol smokers ages eighteen to twenty-four. A February 20, 1984 Lorillard document titled "Topic Guide

-- Young Menthol Smokers" provided ways for an interviewer to gather information about young smokers. This document included a list of questions to ask young adults, including:

How many packs do you usually buy at a time? . . . When you buy cigarettes in a store, do you notice it if some brand has a special display? . . . Sometimes you might get a small free sample pack of a brand. Have you ever bought the brand later based on trying the sample? . . . How do you think of the cost of cigarettes compared to other things you buy -- expensive, cheap, or what? . . . Quite often there are brands on display that are being promoted at a lower price than other brands. When you see that type of offer do you ever take advantage of the lower price? . . . What do you think of the idea of being able to buy cigarettes in packs of 10 cigarettes, which would be

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priced at half of what you now pay for a pack? Under what circumstances can you imagine yourself buying a 10-pack?

85377724-7729 at 7725-7727 (US 21078). In a March 8, 1984 memorandum, titled "Young Menthol Smoker Focus Groups," to S.T. Jones, Lorillard Director of Product Development and Marketing Research, Laurie Moroz discussed "observations and hypotheses" from these focus groups and stated: "the females in the 18 to 24 year old age group are more experimental and open to new brands than males." 85377682-7682 (US 87806); 85377680-7681 at 7680 (US 87807).

  1. Lorillard's September 1988 "Newport Image Study" concluded that "[i]n all areas Newport smokers were viewed as party-goers, those that do their own thing and [are] fun-loving" and "[i]n all areas Newport smokers were viewed younger and more fun-loving than Kool and Salem smokers." 89579737-9797 at 9784 (US 67673); 89576893-6936 at 6935 (US 67669).

  2. A document setting out strategies for Newport's Van and Music Truck Programs, Club Event Nights, Race Car Program, and other promotional events for 1991 and 1992 stated that the programs "maximize Newport's exposure to our target audience, where they live, and where they have fun." For example, the Newport Van Program sent out vans which acted as "mobile billboards," for the purpose of "developing new business." The document explained that "[y]oung adult smokers, especially in inner-city areas, will tend to emulate those adults that are already smoking. . . . The targeted age factor plays a major role in selecting sampling locations." Regarding Newport's Special Events programs at music festivals and street fairs with "exceptionally large crowds," the document stated: "The promotional effectiveness of getting potential smokers to touch, hear, taste and see the activities we provide . . . must have the desirable impact in generating trial and positive recall for Newport." 93374749-4761 at 4756, 4757, 4761 (US 85204).

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  1. In a November 2, 1993 memorandum sent to Lorillard employees on the subject of "Special Promotions -- POW! 'Pleasure on Wheels,'" Richard DiDonato wrote:

POW is a promotional program that utilizes Newport vans, operated by agency personnel, to distribute promotional items to Newport purchasers. The objective of the POW program is two fold: -- Generate incremental volume thru [sic] impulse purchase and long term conversion -- Reinforce Newport's image as the 'peer brand' among young adult smokers.

92092650-2651 at 2650 (US 57159).

  1. Newport's 1994 Brand Plan, dated November 16, 1993, stated that "Newport's creative product must strengthen Newport's competitive edge as the 'peer' brand among younger adult smokers," and that Newport is "positioned to appeal primarily to general market/urban center adult smokers ages 18-24." 91945017-5124 at 5033, 5045 (US 21113); 92002948-3012 (US 87808); 92003013-3021 (US 87809).

  2. A January 1994 document, titled "Final Report on Eight Focus Groups with Black and White Users of Newport, Salem, and Kool Cigarettes on Issues Related to Newport Cigarettes and its Advertising Campaign," was prepared by RIVA Market Research for Lorillard. In the "Executive Summary," the report stated that "Black Newport smokers perceive Newport as the 'in' cigarette, or cigarette of choice among themselves and their peers. They view it as a popular cigarette which fits with their lifestyle." The report continued:

White Newport Smokers (men) really enjoy the taste of Newport cigarettes, yet feel they are "out of the mainstream" because most of their friends smoke Marlboro Lights. The women feel they are smoking a "cool" cigarette that people with happy, active, and upbeat lifestyles smoke, as Newport ads project.

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This report also stated that "Lorillard's Newport brand recognizes younger adult smokers as an important consumer base for this cigarette. This market is defined as a 'twenty-something' market; adults ages 18-29." 91950191-0242 at 0193, 0195 (US 74423) (emphasis in original).

  1. According to George Telford, Vice President of Brand Marketing at Lorillard, as part of Lorillard's direct marketing efforts, the company collects demographic information about smokers' age, gender, and race, which is then used by Lorillard to focus its marketing efforts, including its advertising for different brands based on the particular demographic profile of those brands. Because Newport advertisements are targeted at the younger segment of the adult smoking population, Lorillard advertises Newport in publications like Sports Illustrated, Playboy, and Penthouse, all of which have substantial youth readership. Telford PD, United States v. Philip Morris, 6/26/02, 59:22- 62:2, 63:20-64:3.

(3) American Tobacco, BATCo, and Brown & Williamson 2801. An April 6, 1960 American Tobacco memorandum from James R. Huott of the Filing

Department to Karl W. Schullinger, Assistant to the Advertising Manager, stated that "the largest potential market for Lucky Strike is in the younger age groups," and that "Bonanza" would be a better television venue for Lucky Strike than "Lawrence Welk" because "Bonanza" was viewed by a greater number of people in the "younger age groups." An attached chart showed that three times as many "Teen-Agers (boys and girls 13-17)" watch "Bonanza" as watch "Lawrence Welk." ATX030308900-8901 at 8900 (US 20583).

  1. An August 1962 proposal to the Tobacco Manufacturers' Standing Committee ("TMSC"), later renamed the Tobacco Research Council, by Market Investigations, Ltd. summarized "a large scale survey of smoking by children" that had already been performed for the British cigarette manufacturers (including BATCo) in 1961, and recommended that the TMSC fund further studies of "the trend in smoking by children and young adults" including "[t]he change in smoking habits as children grown older; particularly in the three or four years before the age of fifteen." Like CTR in the United States, TMSC was an organization that funded industry-sponsored research in the United Kingdom; BATCo officers sat on the TMSC Board. The 1962 proposal from Market Investigations Ltd., titled "Smoking by Children and Adolescents, Memorandum on Further Research to the Tobacco Manufacturers' Standing Committee," suggested interviews of "ten and eleven year olds." The proposal stated:
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Children in their teens present a dilemma for the tobacco manufacturer. On the one hand you want to discourage children from smoking. . . . On the other hand, it is difficult for you to lend your weight to a campaign against smoking by young people without running the risk of discouraging them from taking up smoking altogether.

105408812-8815 at 8812-8813 (US 26273).

  1. American Tobacco continued to study the impact of certain advertising on children ages sixteen and above after it adopted the 1964 Advertising Code, despite the fact that the Code banned such advertising. American Tobacco determined that its advertising was reaching the sixteen to twenty year old market. Gesell PD, Minnesota v. Philip Morris, 9/18/97, 54:19-55:11, 57:1-59:2.

  2. A July 1968 document "[p]repared for the American Tobacco Company," titled "The Position of Brighton in the St. Louis Market," stated:

The purpose of the study is to provide American Tobacco with consumer feedback on the impact of the Brighton brand. Such feedback, beyond the customary sales information that is presently available, would greatly aid the company in realistically assessing the sales performance -- not only of Brighton -- but of other new brands in test markets, and would aid the company in instituting changes in

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strategy (advertising, packaging, etc.) to maximize the success of new brands.

The researchers telephoned approximately 4,500 individuals in the age groups of sixteen to twenty, twenty-one to thirty-four, thirty-five to forty-nine, and fifty and over. In addition, "Age and sex quotas were assigned so as to yield the correct proportions of teen-age contacts and adult male and female contacts." MNAT00405881-5912 at 5883-5585 (US 88157).

  1. On August 2, 1968, William Scholz of Ted Bates & Company Advertising provided an analysis of brand switching studies to Anthony Mercer, a marketing employee at B&W. The analysis found that "Kool attracts more in the 16-25 age group than it loses." In addition, the analysis included an "Index of Starters – Menthol Brands" that included data on individuals ages sixteen to twenty-five. 170051478-1481 (US 26590); 170051490-1490 (US 26599); 170051499- 1499 (US 26608).

  2. A report dated April 3, 1970 discussed a "1969 Survey of Cigarette Smoking Behavior and Attitudes" that was written by Eastman Chemical Products for American Tobacco Company. The survey, which included those aged sixteen and over, stated, "At age 14 60% of the boys who were to become smokers, had smoked their first cigarette." The survey further concluded, "The age at which people start to smoke regularly is an important factor in assessing the future markets for cigarettes." 650340129-0193 at 0151, 0156, 0162 (US 20948).

  3. A 1973 B&W report titled "New Product Concepts" described the company's strategy to reach a "Direct Target Group: 6.3 million 16-25 year old smokers." The strategy plan was to "[t]o improve B&W's position in attracting young male smokers by making as direct an appeal as possible in product, packaging, and advertising to young males." Possible names for a cigarette appealing to this segment included Laredo, Lancer, Durango, Champion, and Voyager. 670186789-6824 at 6811, 6815-6816 (US 21431).

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  1. A February 21, 1973 internal B&W memorandum from R.L. Johnson, an employee of B&W's Advertising Department, to R.A. Pittman, a B&W Vice President, regarding Kool sales recommended that B&W should focus its media spending on the magazines that teenagers read:

Kool's stake in the 16-25 year old population segment is such that the value of this audience should be accurately weighted and reflected in current media programs. As a result, all magazines will be reviewed to see how efficiently they reach this group and other groups as well.

680135996-6002 at 5996-5997, 5998 (US 20989). Johnson explained the reason for its targeted approach:

Kool has shown little-or-no-growth in share of users in the 26+ age group. Growth is from 16-25 year olds. At the present rate, a smoker in the 16-25 year age group will soon be three times as important to Kool as a prospect in any other broad age category.

Id. (emphasis in original).

  1. A September 1974 report written by Kenyon & Eckhardt for B&W's New Ventures Project, titled "The 'New' Smoker," detailed Kenyon's focus group research conducted on behalf of the company, as reflected by the report above. Focus groups were conducted with regular smokers under age twenty-two, and data was tabulated for smokers age sixteen and older. The research identified the typical smoking initiation process occurring before age ten, and continuing into the junior high school or the early high school years. Influences on initiation included the desire to belong to a group and to rebel against parents. The research found that smoking initiation was prompted by psychological factors:
1073

[O]vercoming the unpleasant physical reaction became a strongly motivated goal. The psychological rewards for "conquering"smoking seemed to center on proving manliness and strength to themselves and others and, for the most part, they seemed to feel it was worth the effort.

The study concluded that "the younger smoker is of pre-eminent importance." 779217759-7833 at

7760, 7763-7768, 7827 (US 21054); 779217758-7793 at 7760, 7768 (US 85211).

  1. Tracking data purchased by B&W on individuals as young as sixteen was used by the company's marketing department in the 1970s. Smith TT, 1/7/05, 9249:22-9250:20. For example, a September 23, 1974 B&W Five Year Plan for all B&W brands, written or approved by Richard

L. Johnson in B&W's Advertising and Marketing Planning Department (which he subsequently managed), stressed the importance of effective marketing to young "starters" for the continued profitability of the company. The plan stated that, although B&W's share of smokers under twentyfive was greater than the rest of the industry, this was due entirely to Kool: "[w]ithout Kool's influence, the Company's profile is female, old and getting older . . . a relatively undesirable situation." The document anticipated a coming battle over the shrinking pool of sixteen to twentyfive year old potential smokers:

[T]he 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. Industry switchers and starters are predominantly found in this under-25 year old category -- especially among women. If the pool of starters and switchers shrinks, as it is expected to, even more effort could be waged against under-25 year olds in the battle for remaining new users.

The plan indicated that youth smokers were the market's growth: "among under 25 year olds, users have almost doubled. Kool's growth in this market is the greatest of any brand. It is also the fastest growing cigarette in the total market." The plan recommended that "[n]ew ways to selectively reach younger smokers and females entering the market should be found. . . ." 682823798-3801 at 3801 (US 21032); 680500903-1076 at 0918, 0930, 0942, 0945 (US 21607).

1074
  1. B&W has stated that it tracked marketing data on sixteen and seventeen year olds only because it purchased syndicated data from third party vendors and had no choice over age ranges that began at age sixteen. However, the company paid additional amounts for syndicated data on sixteen and seventeen year olds as part of a larger age range, and paid additional amounts to disaggregate and analyze the specific data relating to sixteen and seventeen year olds. A September 26, 1974 document written by C.S. Muije, B&W Manager of Market Research, stated

a $3,000 exploratory study of brand switching among young smokers as they age was authorized . . . if the pilot study is successful, we estimate that another 12 to $15,000 will be needed to exhaustively track and table switching as younger smokers age. For example, we should be able to tell initial switching experiences as 16 to 17-year-olds start smoking and then track them up to age 21.

027887-7887 (US 34185); Smith TT, 1/7/05, 9247:1-9248:7.

  1. A December 12, 1974 B&W report, titled "Target Audience Appendix," concluded that the target audience for Kool was a "pool of switching smokers" including 2.5 million people ages sixteen to twenty-five. 680106344-6350 at 6349 (US 20985).

  2. A B&W document from 1975-1976, titled "Viceroy Agency Orientations Outline," was written to "prepare agencies for the creative and positioning assignments on Viceroy." The outline stated that Viceroy's target audience was "males 16-35, primarily." The document also stated that the "'Racing Campaign' . . . clearly positioned the brand as a young, exciting, full-flavored, satisfying cigarette." 680116947-6968 at 6947, 6959-6961 (US 21877).

1075

  1. A 1975 B&W marketing presentation, titled "Cigarette Brand Switching Studies," stated that "Kool has a young age profile. The largest proportion of Kool's smokers are between 16 and 25 years of age," and that "Kool's young age profile contrasts with the older age profile of the other major menthol brand -- Salem and is more similar to that of Marlboro." The presentation also stated that starters made up 15% of smokers ages sixteen to twenty-five, and that "Kool attracts a high level of starting smokers[,] especially 16-25 year old starters." 665076894-6916 at 6899, 6904, 6916 (US 20958).

  2. A 1976 B&W summary report, titled "Starters," recorded data and tracked starting smokers as a percentage of all smokers from 1969 to 1976, by gender and by age group. One of the age groups was "16-25." The report concluded that, "[t]he 16-25 age group has consistently accounted for the highest level of starters." 170040333-0333 (US 22359).

  3. An August 10, 1976 document, written by Robert G. Yizar, B&W Assistant Brand Manager, about the Pontiac Kool Jazz Festival, stated: "Audience composition covered the age spectrum with a slight skew toward the 16-25 age group." 666011286-1287 at 1286 (US 20960).

  4. A B&W report, titled "Situation Analysis," dated June 23, 1977, forecasted Kool's performance among teens: "Population data indicate that the 16-20 year old segment will be diminishing in size -- the historical stronghold of Kool smokers and starter smokers." The "Demographic Profile for Media Selection" for the "Kool Kings & Box" style of cigarettes was described as "[y]oung adult males, 16-25, young blacks (both sexes), 16-25, and some females 16- 25." The document also included a chart on consumer awareness of Kool which contained data on the thirteen to twenty-four age group. 666022186-2223 at 2193, 2200, 2219 (US 30803).

1076
  1. An October 18, 1977 report prepared for Imperial Tobacco, a member of the BAT group of companies, by Kwechansky Marketing Research stated:

Since how the beginning smoker feels today has implications for the future of the industry, it follows that a study of this area would be of much interest. Project 16 was designed to do exactly that -- learn everything there is to learn about how smoking begins, how high school students feel about being smokers, and how they forsee [sic] their use of tobacco in the future.

The "recruiting qualifications" for the study were respondents "aged 16 or 17, attending high school, and smokers of 5 cigarettes or more per day." 566627826-7935 at 7839, 7840 (US 20939).

  1. An August 1978 B&W document, titled "Kool Family Utopian Objectives 1979- 1985," discussed strategies for Kool to replace Winston "as the No. 2 cigarette in the country by 1985." The author wrote that to accomplish this goal, "Kool must achieve a user image that is acceptable to the majority of young adult and starter smokers." A section of the document titled "Demographic Objectives" included the statement:

Return the starter index to 11% by 1982 and maintain this level as the highest starter index in the industry . . . [t]he starter index has been the historical pillar of Kool strength and to return it to 11% will be to build longevity into the franchise.

Strategies to achieve this objective included "advertising pressure against high filtration styles in young adult skewed publications" and to "[d]ominate specific young adult publications with a particular style." 680559149-9162 at 9149, 9152-9154 (US 54048).

  1. An internal B&W document dated September 21, 1979 from Robert Chambers, a B&W Brand Manager, attached a report, titled "The Growth of Menthols, 1963 to 1977," describing Kool's growth phase from 1963-1977. The report stated:
1077

Salem had created a vast market potential for menthol, and Kool had retained its taste, while brands in the 'tar' derby had dropped "tar" and taste. This put Kool in a good position to capitalize on two emerging markets -- the blacks and college-aged marijuana users. The post-war baby boom had, by this time, swelled the population of young and black; and Kool was positioned to take advantage. Kool increased its advertising and promotion to blacks and youth, who were both heavy pot users and heavy menthol smokers.

660110384-0386 (US 20954).

  1. An October 1979 B&W document, titled "History and Key Trends in the U.S. Cigarette Market," contained several reports prepared for the company describing market trends occurring in the United States in previous decades. One of the reports described "Kool's growth phase" between 1963-1974:

Use of marijuana by young people was growing . . . according to a . . . consumer survey, 52% of marijuana users aged 12-17 also smoked cigarettes compared with only 11% of non-users. No hard data are available on the brands of cigarettes used by smokers of pot but menthols would appear to hold an above average share among such smokers. This would be consistent with Kool's position as the favored cigarette of young smokers.

The report on menthols also tracked Kool's share of smokers ages sixteen to twenty-five and specifically noted Kool's share of black male smokers ages sixteen to thirty-four. 670624932-5364 at 4932, 5008-5009, 5013-5014 (US 53869).

  1. B&W did not institute a company policy prohibiting research on youth marketing and smoking behavior for those under twenty-one until the "late 1970s or early 1980s." Prior to the early

1980s, B&W conducted marketing research on individuals as young as sixteen, specifically on the switching behaviors of individuals between the age of sixteen and twenty-five. Brookes PD, United

States v. Philip Morris, 5/2/02, 134:24-136:23, 146:18-147:18, 148:2-148:19.

1078

  1. Another B&W document, titled "Kool Switching History," tracked demographic data and smoking incidence of people aged sixteen and older from 1966 to 1980. 542011811-1812 (US 20934).

  2. Kwechansky Marketing Research wrote a report dated May 7, 1982 for Imperial Tobacco Limited, titled "Project Plus/Minus," that focused on two age groups: sixteen to eighteen year olds, and nineteen to twenty-four year olds. The report built on "Project 16," an earlier study which examined "why do young people start smoking, and how do they feel about being smokers?" The report stated that a smoker's first brand choice comes from "peer example," and that "Imperial Tobacco's brands have the apparent lions [sic] share of this [youth] market." The study stated that "the age of brand independence and of cessation of peer brand judgment seems to be getting lower," and concluded with an analysis of brand choice of cigarettes by young people. The report stated: "Juvenile dabblings with smoking take place mostly for reasons of seeking to sample forbidden fruit." 566627751-7824 at 7753, 7755, 7812, 7813, 7816 (US 20938).

  3. A September 14, 1983 B&W document, titled "Belair 1984 Media Plan," recommended a media target audience for Belair that included males and females ages sixteen to twenty-nine. 676025033-5033 (US 53922).

  4. An October 1983 document, titled "Market Dynamics," reported research conducted by B&W to determine trends in starting smoking and switching brands. The document stated that "[s]tarters are concentrated in the youngest age groups," and included a chart indicating that smokers age sixteen to twenty-five compromise 15.2% of former smokers and 34.0% of starters. The document further stated that "Kool's ability to attract starters has been because of high development among young smokers," and provided a table of "Kool Starters: Male smokers 16-25" with data from 1979 to 1982. Concluding that "starters are concentrated in the younger age groups" and "starters are influenced by their peer group," the authors recommended that "to increase Kool's share of starters, it will be necessary to increase Kool's share among young smokers." 670585199-5216 at 5211-5212, 5214 (US 20972).

1079

  1. An October 26, 1983 report produced by the Information Center for B&W on the "starting age of all smokers on the switching study" shows starting ages ranging from one to eighty-six, with most smokers starting between the ages of twelve to eighteen. 670579884-9946 at 9888, 9891, 9896 (US 25429).

  2. A January 1984 report, titled "Additional Analysis: The National Brand Switching Studies," prepared by Market Facts for B&W concluded that "[b]y age group, incidence among 16-25 year olds rose" and that "[f]irst time starters are a great deal younger, and smoke considerably less than the other categories of smokers." 670579702-9724 at 9705, 9723 (US 20971).

  3. A July 30, 1984 Imperial Tobacco Limited document, titled "Proceedings of the Smoking Behaviour-Marketing Conference, Montreal, Quebec, July 9th-12th, 1984, Session 1," stated that "our future business depends on the size of [the] starter population," and asked, "Can we develop models of how smoking careers unfold?" The document indicated that Wayne Knox, Marketing Manager, Imperial Tobacco Limited, had "pointed out that the failure to develop new smokers may have more detrimental impact on the industry in [the] future than losses due to quitting." 536000000-0090 at 0016, 0017,27 (...continued) Defendants offered the testimony of Joseph Mulholland as a fact witness, not as an expert. He is a long-time staff economist with the FTC Bureau of Economics, who personally does not agree with the conclusion of Monograph 13 that the introduction of low tar cigarettes has not materially reduced health risks from smoking, even though the FTC has never taken an official position on this issue. Mulholland WD, 12:12-15, 14:3-6, 15:15-23, 16:3-11 (Monograph 13 has not changed the FTC's position, as the FTC has not taken an official position on the issue); Mulholland TT, 4/25/05, 19854:16-19855:3. While recognizing that Dr. Mulholland has acquired extensive knowledge, in his capacity as an FTC staff economist, concerning cigarette-related matters, as the Court observed at the trial, his "testimony is not that overwhelmingly relevant." Mulholland TT, 4/25/05, 19938:16- 19939:1. -780- (US 22338).

  4. A March 6, 1985 B&W memorandum from Brand Assistant A.G. Forsythe to R.D. Sharp, a B&W Group Product Director, posed the question: "How did Marlboro and Newport become the in-brands?" With respect to Newport, the response was

1080

Newport was a regional brand that depended primarily on local programs targeted to young adults (beach events, sampling, vans, etc.) supported primarily by outdoor. Like Marlboro, Newport has maintained creative consistency since the early 70's. The Newport campaign has been tightly targeted to young adults. During this time, Kool either had no user image campaigns or was depicting older models. As a result "Ports" [Newports] has become the in-brand among young Black adults while Kool has declined significantly among this group.

This document also stated that "Kool must aggressively seek to re-establish itself among young adults with aggressive programs" such as music events and outdoor advertising. 554000052-0060 at 0053 (US 20937).

  1. An internal April 29, 1985 document analyzing the success of the Marlboro brand, titled "Resolve Brand Marketing Strategies," stated that B&W's market weaknesses were among starters and switchers, largely due to the company's "failure to meet needs of young smokers." The author also stated that Kool needs to "focus on young adults." 528000268-0279 at 0269, 0275 (US 20924).

  2. A July 9, 1985 B&W document, titled "Beta M National Theoretical Media Plan," stated that the "target audience for B&W's BETA-M cigarette" was "[w]omen [s]mokers 18-34 years of age," and recommended placing advertising in Ms. magazine "because its special editorial directed to young women ranks high with women smokers 18-34." It further recommended placing advertising in Rolling Stone, Record, and Spin, all described as "young targeted music books." 670661599-1665 at 1627, 1628 (US 23054).

  3. A February 17, 1987 memorandum, titled "Kool Isn't Getting the Starters," from D.V. Cantrell at B&W to I.D. Macdonald, B&W Marketing Vice President, addressed "the fact that Kool is no longer attracting new smokers (further referred to as starters)." The memorandum explained that "Menthol brands have been said to be good starter products because new smokers appear to know that menthol covers up some of the tobacco taste, and they already know what the menthol tastes like, vis-a-vis candy." 621079918-9921at 9918, 1920 (US 30792).

1081
  1. A November 1993 report, titled "The Psychology of Significant Moments and Peak Experiences in Cigarette Smoking, The Motivations and Sociological Significance of Smoking," was prepared by Hugh Baines Research for BATCo. One section of the report focused on children's motivations to begin smoking, finding that:

Children's reasons for experimenting with smoking: Children start to experiment with smoking for a variety of reasons. Observing adults smoking, children from a very early age often use substitute objects as "pretend cigarettes" in play, mimicking the actions adults make when smoking.

500287512-7596 at 7532 (US 20624).

  1. An August 2, 1994 letter from Laura Moorhead at Campbell Mithun & Esty, an advertising and marketing communications firm, to Donnar Sengalaub, a B&W Marketing Financial Analyst, showed that in 1994, B&W was placing its media and sale promotion dollars behind Kool rather than its other brands such as Viceroy and Capri. An August 25, 1994 invoice from Campbell Mithun & Esty indicated that in 1994 B&W placed Kool advertisements in magazines with a substantial youth readership, such as Sporting News and Sports Illustrated. According to MRI data, nearly 28% of readers of Sporting News, and nearly 18% of readers of Sports Illustrated were between the ages of twelve to seventeen in 1994. 671443677-3677 (US 20974); 461301164-1167 at 1166 (US 21994); Krugman WD, 116:3-122:7.

  2. Sharon Smith, when she was Director of Creative Services and Director of Lucky Strike, attended meetings annually in London with individuals from other BAT group companies where information and research was shared concerning Lucky Strike advertising. The BAT global policy is that it markets to and conducts market research on persons ages eighteen and above. BAT group companies conducted consumer research on Lucky Strike which included individuals as young as eighteen that was shared with individuals at B&W. Smith WD, 37:23-39:6; 500049909-9912 (US 20618); 283000783-0789 at 0783-0784 (US 87810).

1082

  1. On January 11, 1995 Tim Rutter, a Creative Alliance (marketing firm) employee, sent a document, titled "Growing the Kool Franchise," to Robert John Dunham, Kool Brand Manager, which included "initial, topline ideas for enhancing the growth of Kool." Rutter stated that "[t]he Kool franchise continues to age, attracting fewer and fewer new customers each year." Suggestions for "growth" included vending machines and Kool signage inside jukeboxes in bars and nightclubs. 291001508-1508 (US 67743); 291001509-1515 at 1509, 1513 (US 22992).

  2. The "B Kool" campaign grew out of "Project Look." "Project Look" was an effort in the mid 1990's by B&W to re-position Kool as a brand for so-called "young adult smokers" when market research showed that Kool received low ratings for "leading brand," "kept up with times," and "for a younger adult." Kool was B&W's most profitable brand and the success of B&W depended on the success of Kool. As discussed in an April 28, 1998 Business Briefing video featuring Senior Market Analyst Nick Wilkerson, the purpose of "Project Look" -- which included the new Kool soft and box packs, the "Team Kool Green" Indy car, and "B Kool" advertising campaign -- was to reestablish the Kool brand among younger adults. Wilkerson stated in the video that B&W wanted to launch these campaigns at the beginning of 1998, before the marketing environment became more restricted. Smith WD, 7:11-18, 10:11-15; 582302425-2436 at 2426 (US 20942); USX1640103-0104 (US 47668); DXA1100054-0054 (US 87811).

1083

  1. A 1996 B&W study of the Kool brand reported that "Young Adult Smokers (YAS) represent approximately 11% of total smokers in the U.S." and that "[b]uilding a strong position in the YAS segment is critical to achieving long-term sustainable growth in the U.S. market." The document further stated that B&W "Continues to Significantly Underperform" in this important segment. 314002773-2792 at 2776 (US 21835).

  2. In a 1996 BATCo memorandum, titled "Brand Portfolio Strategy Development," Bob Miller, BATCo's Head of Marketing Information, stated that "[g]aining young adult smokers is critical for the future growth of our brands and business (ergo, YAUS [young adult urban smokers] target audiences across many key brands)." 780011787-1790 at 1787 (US 22197).

  3. A 1997 BATCo report, titled "Marketing Strategy for British American Tobacco," stated that "[t]he ASU segment is important in and of itself . . . and may represent a critical element in building more profitable premium brands." The report emphasized the importance of ASU 30 [Adult Smoker Under 30] smokers: "[t]hey are more likely to smoke the more profitable Premium brands and . . . we need brands that can attract and maintain ASU 30's to participate. . . . ASU 30 is the key smoker group and is relevant to all brands from which growth is expected." 325335439- 5468 at 5443, 5445, 5451 (US 24093) (Confidential).

  4. A December 8, 1998 TMG Worldwide proposal to B&W for the development of a Kool brand loyalty program contained a situation analysis that provided information on the growth of the age eighteen and older "smoker universe." The report detailed the growth of the Marlboro, Newport, and Camel brands from 1994 to 1998 among this population in contrast to the decrease in the number of Kool smokers among the same population. 318034354-4406 at 4360-61 (US 22215).

1084
  1. As recently as 2001, B&W conducted focus group research with individuals as young as eighteen. A January 16, 2001 email from Kevin Korte, B&W Senior Manager, Process Innovation and Recon Development, to a BATCo employee, indicates that he attended focus group research in Philadelphia on Project Baltec. According to his email, the research took place in January 2001. Korte stated in his email that he "attended the female 18-23 and the female 28-35 groups." 271101190-1121 at 1194-1195 (US 22210) (Confidential).

(4) R.J. Reynolds 2844. RJR requested and obtained a proposal dated March 14, 1958 from George

MacGovern of the William Esty Company to study high school students' attitudes toward cigarette smoking. 501113763-3764 (US 22361). One of the conclusions reached in that study was that, "[p]reference-wise, CAMEL and WINSTON are shown as holding their shares substantially constant while SALEM increased its share, especially among high school students." 501113723-3730 at 3723 (US 22366).

  1. The December 1958 report prepared at RJR's request was titled "Summary of Findings" of "The Youth Research Institute Study Regarding Cigarette Smoking Among 8,112 High School and College Students in 82 Cities Throughout the United States, October-November, 1958." The report included data and conclusions on smoking incidence, smoking volume, and brand preferences of 3,052 high school students, 58% of whom were smokers, and 5,060 college students, 73% of whom were smokers. Both the high school and the college categories were further broken down into "freshman-sophomore" and "junior-senior" classes. 501113743-3749 at 3744 (US 22362).

  2. A lengthy February 1964 report prepared for RJR by the William Esty Company summarizing a national report on smoking trends included further information on smoking incidence, smoking volume, and brand preferences for 8,863 families who participated in the National Family Opinion ("NFO") panel. Information in this report was collected on smokers as young as sixteen. 500396569-6607 at 6572 (US 20632); see also 517145828-5830 at 5828 (US 80621).

1085
  1. In a March 12, 1964 letter from W.A. Sugg at RJR to William S. Smith of the Tobacco Institute Advertising Committee, Sugg attached the February 1964 study and stated:

We [RJR] put a similar survey in the field about February 10. . . . This and later studies will help us in evaluating changes in incidence of smoking, volume of smoking, and brand switching resulting from the report of the Surgeon General's committee and subsequent developments. . . . The most interesting finding in the study is the great strength of WINSTON among young smokers, the brand having its highest preference share with teen-agers, its next highest with young adults, and its lowest popularity with smokers 50 years of age and older.

501795141-5141 (US 20687).

  1. In an April 9, 1968 memorandum, titled "Teenage and Adult Smoking Attitudes," T.P. Haller, Marketing and Research Department at RJR, recommended that RJR conduct semi-annual studies of teenagers (both smokers and non-smokers) in order to "forecast our future requirements in leaf buying, plant facilities, manpower, etc." Among other benefits, Haller stated that the study "will put light on the very vital teenage sector of the market." 517142447-2448 (US 21659).

  2. As early as 1964, as set forth above, and during the 1970s, RJR gathered and interpreted data on the smoking habits of fourteen to seventeen year olds from the National Family Opinion ("NFO") survey results. National Family Opinion data could be used to determine how underage smokers perceived certain aspects of certain brands. During the 1970s, information from publicly available sources could be used to determine why people under eighteen started smoking.

1086

In the mid-1970s, RJR became aware by using various consumer research methods that their "share of market among younger people [was] much lower than it had to be in order to maximize [their] volume." Tredennick PD, United States v. Philip Morris, 5/13/02, 42:16-46:20, 104:3-105:05, 148:22-149:09, 144:05-22, 171:07-24. The data on "teenage smokers" (fourteen to seventeen) from the NFO included: the relative share of RJR in capturing this market; the share of each of the company's competitors in this age group; RJR's share among this age group among its own key brands; the share of the company's competitors in this age group by key cigarette brands, the share of the total market broken down by age and gender, and the number of cigarettes smoked per day in this age group broken down by gender. 501443912-3921 at 3913-3915 (US 20681).

  1. At an April 7, 1971 meeting between representatives of the RJR's Marketing Research Department and the William Esty Company, RJR decided to include and count smokers ages thirteen and under and to begin profiling fourteen to twenty year olds in future National Family Opinion surveys. 500347108-7111 (US 20628).

  2. A July 2, 1971 letter from William Esty Company to Jerry Clawson, an RJR Marketing Research Department employee, reported the preliminary findings of a study requested by RJR regarding "smoking incidence and preference shares, by age, among those aged fourteen to twenty responding to the new questionnaire" during the National Family Opinion survey. 506052583-2584 (US 20751).

  3. A November 29, 1971 report issued by RJR's Marketing Research Department, titled "Marketing Research Report on NFO [National Family Opinion] Profiles for Camel Regular and Filter [Cigarettes]," concluded that "there are indications of progress in expanding our franchise among younger adult smokers." Attached to this report was a chart, titled "Younger Smokers -- Ages 14-20." 501426066-6095 at 6067, 6095 (US 20679).

1087
  1. Dr. Claude Teague, an RJR Research & Development employee, wrote an April 14, 1972 report, titled "Research Planning Memorandum on the Nature of the Tobacco Business and the Crucial Role of Nicotine Therein." On the topic of smoking initiation, Teague wrote that a smoker

appears to start to smoke for purely psychological reasons -- to emulate a valued image, to conform, to experiment, to defy, to be daring, to have something to do with his hands, and the like. Only after experiencing smoking for some period of time do the physiological "satisfactions" and habituation become apparent and needed. Indeed, the first smoking experiences are often unpleasant until a tolerance for nicotine has been developed.

500915683-5691 at 5686-5687 (US 20659). Teague repeated these statements, almost verbatim, in a 1973 memorandum discussing "factors influencing pre-smokers to try smoking, learn to smoke and become confirmed smokers." 502987407-7418 at 7408 (US 20708).

  1. A September 26, 1972 memorandum, titled "Share of Smokers: By Age -- Top Ten Brand Items," from J.H. Sherrill to W.S. Smith included tables tracking brand share among teenagers ages fourteen and older based on April 1972 data. In the memorandum, Sherrill stated that "Marlboro King and Kool King have significantly higher shares among younger smokers than among the population in general." 500810043-0046 at 0043 (US 21456).

  2. In a February 2, 1973 RJR research planning memorandum, titled "Some Thoughts About New Brands of Cigarettes for the Youth Market," Teague addressed a dramatic decline in RJR market share due to Marlboro's success in attracting new teenage smokers. Teague addressed the significance of the underage market in these terms:

1088

At the outset it should be said that we are presently, and I believe unfairly, constrained from directly promoting cigarettes to the youth market; that is, to those in the approximately twenty-one year old and under group. Statistics show, however, that large, perhaps even increasing, numbers in that group are becoming smokers each year, despite bans on promotion of cigarettes to them. If this be so, there is certainly nothing immoral or unethical about our Company attempting to attract those smokers to our products. We should not in any way influence non-smokers to start smoking; rather we should simply recognize that many or most of the "21 and under" group will inevitably become smokers, and offer them an opportunity to use our brands. Realistically, if our Company is to survive and prosper, over the long term, we must get our share of the youth market. In my opinion this will require new brands tailored to the youth market. . . . Thus we need new brands designed to be particularly attractive to the young smoker, while ideally at the same time being appealing to all smokers. Several things will go to make up any such new "youth" brands. . . . What image? and What quality? Perhaps these questions may best be approached by consideration of factors influencing pre-smokers to try smoking, learn to smoke and become confirmed smokers.

502987407-502987418 at 7408 (US 20708).

  1. John McCain of the William Esty advertising firm sent a March 8, 1973 letter to Jack

Watson at RJR concerning National Family Opinion preference share data for fourteen to twenty year old Marlboro and Winston smokers. McCain wrote that

[m]any manufacturers have "studied" the 14-20 market in hopes of uncovering the "secret" of the instant popularity some brands enjoy. . . . Creating a "fad" in this market can be a great bonanza. To date, success, if it comes, has often been a function more of luck than of prior marketing perception.

508453918-3920 at 3919 (US 20812).

  1. A May 4, 1973 proposal, titled "Meet the Turk," was presented to RJR management

"to expose Management to the opportunity to aggressively position Camel Filter against the young adult market (male)." The proposal stated that males aged fourteen to thirty-four "represent approximately 35% of 85 mm [length] NFF [non-filter full flavor] smokers." 500723696-3718 at

1089

  1. The November 1973 RJR Winston Box Marketing Plan recommended increasing marketing efforts to support the Winston box franchise because "[b]oth Winston and Marlboro enjoy their strongest franchise among the under 25 year old smoker and especially the young male smoker" and "[w]hile only 7.2% of all adult smokers (18 and over) smoke a cigarette in a Box, 24.4% of those 14-20 yrs . . . smoke a Box cigarette." 500724265-4313 at 4272, 4273 (US 20648).

  2. A December 4, 1973 inter-office memorandum, titled "Cigarette Concept to Assure RJR a Larger Segment of the Youth Market," from Frank G. Colby, Associate Director of Scientific Information at RJR, to R.A. Bleyins stated that to succeed in the youth market, the company should "develop a new RJR youth-appeal brand" that "delivered more 'enjoyment' or 'kicks.'" The memorandum stated:

it should be easy to develop, within a relatively few weeks, these new youth-appeal cigarettes for market testing for which the following advertising claims could be unequivocally proven: They will deliver more flavor, more enjoyment, and more puffs for the money than any large selling cigarette on the market, or for that matter, than any other cigarette now on the market.

501166152-6153 (US 23051).

  1. In 1974, Donald Tredennick, Manager of Consumer Research for RJR, was directed by a supervisor to determine what caused smokers to select their first brand of cigarettes. In response to this direction, Tredennick sent a July 3, 1974 memorandum to F. Hudnall Christopher, Director of Marketing Research for RJR. Using publicly available sources and consumer surveys of people over eighteen, Tredennick found that "most smokers begin smoking regularly and select a usual brand at or before the age of 18." Tredennick further stated:
1090

If a person is going to smoke cigarettes, he generally starts during his teens, primarily to conform with a close friend or friends, to give himself greater confidence in stress situation [sic], or to avail himself or [sic] the physical enjoyment smoking offers . . . . The main causes of initial brand selection; i.e., the influence of friends, the user image a brand projects and differentiated product characteristics, are logically related to the reasons a young person begins to smoke.

A table titled "Age Started Smoking," which included a category for "12 & Under," was appended to this memorandum. 501899346-9359 at 9346, 9351, 9352 (US 20688).

  1. Joan F. Stuart, an RJR marketing research employee, sent a March 15, 1974 letter to National Family Opinion. In the letter, RJR requested that, when National Family Opinion conducted its consumer surveys, it continued to question fourteen to eighteen year olds. The letter also requested different types of reports from National Family Opinion, including those titled "Product Testing Availabilities," "Smoking Incidence and Brand Preference -- ages 14-17," and "Sales Promotion/Special Events." 500487414-7416 (US 21865).

  2. A September 30, 1974 RJR document, titled "1975 Marketing Plans Presentation," (also referred to as "The Hilton Head Report") stated:

In 1960, this young adult market, the 14-24 age group, represented 21% of the population. . . . [T]hey will represent 27% of the population in 1975. They represent tomorrow's cigarette business. As this 14-24 age group matures, they will account for a key share of the total cigarette volume -- for at least the next 25 years.

The presentation discussed the importance of youth smokers in reestablishing RJR's share of market growth and setting the marketing strategy that would be implemented to gain market share among youth. 500746950-6976 at 6951 (US 21609). A November 26, 1974 memorandum, titled "R.J. Reynolds Tobacco Company Domestic Operating Goals," stated: "Winston has 14% of this franchise, while Marlboro has 33% – Salem has 9% – Kool has 17%." The memorandum indicated that RJR "will direct advertising appeal to this young adult group without alienating the brand's current franchise." 500796928-6934 at 6928 (US 22363); 500796976-6983 at 6977 (US 21610).

1091
  1. In a "Secret" memorandum dated January 23, 1975 to RJR President of Marketing Charles Tucker, James F. Hind advised:

Our attached recommendation to expand nationally the successfully tested "Meet the Turk" ad campaign and new Marlboro-type blend is another step to meet our marketing objective: To increase our young adult franchise. To ensure increased and longer-term growth for Camel Filter, the brand must increase its share penetration among the 14-24 age group which have a new set of more liberal values and which represent tomorrow's cigarette business.

A handwritten cover memorandum to the "Secret" Hind memorandum revealed that Tucker subsequently obtained company approval of the "Turk" recommendation. 505775556-5561 at 5556, 5557 (US 78787).

  1. A document, titled "Smokers Screening -- April 1976 Profile (14-17)," conducted by National Family Opinion for RJR contained 1976 brand preference information for respondents aged fourteen to seventeen. 501376255-6406 (US 20678).

  2. J.M. Wallace, RJR Marketing Research Department employee, wrote an October 30, 1975 product research report, titled "Share of Smokers by Age Group." Wallace's report provided an "annual update of trends in share of smokers by age. Information is drawn from the April NFO [National Family Opinion] panels." Wallace continued:

Marlboro's traditional source of strength -- younger smokers, though still sizable, is eroding at a rapid rate. Between April, 1974, and April, 1975, Marlboro King showed a five share point loss in the

1092

14-17 year old age group and since 1973, Marlboro King's share of market has declined by eight share points in this segment. . . . Winston King did not capitalize on Marlboro's decline, but exhibited some softness itself - especially in the younger age groups (14-17 and 21-24). . . . This growth for Salem occurred at a time when Kool King declined substantially in the 14-17 market and the 18-24 market. Thus, while Salem is beginning to show strength in the younger markets, Kool is showing major signs of weakness in the same markets.

500769032-9036 at 9032 (US 21814).

  1. RJR annually engaged in ten year planning forecasts using youth data. According to a March 15, 1976 report, titled "Planning Assumptions and Forecast for the Period 1977-1986 for

R.J. Reynolds Tobacco Company":

The present large number of people in the 18 to 35 year old age group represents the greatest opportunity for long-term cigarette sales growth. Young people will continue to become smokers at or above the present rate during the projection period. The brands which these beginning smokers accept and use will become the dominant brands in future years. Evidence is now available to indicate that the 14 to 18 year old group is an increasing segment of the smoking population. RJR-T must soon establish a successful new brand in this market if our position in the Industry is to be maintained over the long term.

Leary PD, United States v. Philip Morris, 5/2/02,102:9-105:11; 501630269-0288 at 0283 (US

21605).

  1. Tim Key, an RJR Marketing Research Department employee, wrote an August 12,

1976 memorandum to T.L. Ogburn, titled "Share of Smokers by Age Group," which contained "an annual update of trends." The memorandum stated that Winston King's share among fourteen to seventeen year olds "is off two points for the second year in a row. Current share is 9%. Conversely,

1093

Marlboro King's share among this age group which had shown losses during the past three years was up one point. Current share is 32%." Key stated:

Salem King appears to have retained most of the share gain seen during 1975 among 14-17 year olds. Current share of 9% is only one point off the previous years [sic] high of 10%. Kool King has a larger share at 15% and was even with the previous year.

Under "Corporate Comparisons," the memorandum stated: "Philip Morris posted a 4 point gain among 14-17 year old smokers (RJR and B&W each lost 2 points)." 500234050-4051 (US 48071).

  1. An October 8, 1976 RJR Marketing Department Report, titled "Marketing Department Key Issues -- Position Papers," observed that adult smokers under age twenty-five would "show a major shift in brand preference" away from Marlboro and that the decline in Marlboro's share of this market would continue to open the market for another dominant brand to emerge from peer group pressures. The basis for this projection was a National Family Opinion study showing that

Marlboro's acceptance among 14-17 year olds had dropped from 39% to 32%. This pattern has been repeated by three brands with Pall Mall peaking in 1969, total Winston in 1970, and total Marlboro should peak share in 1978.

The report further predicted a "reduction in the number of new smokers" due to "stronger enforcement of laws prohibiting sale of cigarettes to teen-agers," which, according to the report, would have a negative impact on RJR's sales and profits. 500387795-7899 at 7822, 7836 (US 20631).

  1. An October 31, 1977 memorandum to T.L. Ogburn, Jr., written by Jeffrey F. Durgee, RJR Product Design, and copied to J.H. Sherrill, E.N. Monahan, and T.J. Key, regarding "Share of Smokers by Age Group," was "the annual update of trends in share of smokers by age group" with data "drawn from the April NFO panels" that included fourteen to seventeen year old smokers. The memorandum reported various trends among fourteen to seventeen year olds, including:
1094

Perhaps because of their higher susceptibility to fads, peer pressure, etc., younger (14-18) smokers show frequent, short-term changes from one brand to another. . . . As a group, younger smokers probably emulate the smoking habits of smokers in the next oldest group, the 18-24 year olds, since trends for younger smokers tend to follow (by 2-3 years) trends for the latter group. . . . Every year, Vantage and Carlton gain slightly among older (over 35) smokers. At the same time, the popularity of these brands seems to filter down to younger and younger age groups. . . . RJR's share of younger (under 18) smokers continues a 3 year decline. In 1975, RJR brands accounted for 28% of the smokers in this category. Today, they account for 25%. Among younger smokers, only Brown and Williamson brands have shown a similar decline. In contrast, Philip Morris has shown steady gains, not only among the younger smokers, but also among the adult (over 18) age groups. If share trends for the past 5 years indicate future share trends, Philip Morris will draw increasing numbers of young smokers (ages 14-35), giving it a decidedly younger franchise.

94681077-1079 at 1077, 1079 (US 32322); 501380878-0982 at 0878-0880 (US 48844).

  1. In 1980, the RJR Marketing Development Department issued a series of internal reports titled "Teenage Smokers (14-17) and New Adult Smokers and Quitters." The reports contained the RJR Marketing Research Department's analysis of the data provided by the National

Family Opinion regarding the smoking behavior of fourteen to seventeen year old smokers.

501443912-3921 (US 20681); 501098917-8922 (US 23050); 500768429-8438 (US 20649);

500768427-8428 (US 22341); 501254289-4301 (US 20674); 501254267-4283 (US 22342);

501757367-7384 (US 22343); 500768754-8754 (US 20650); 500794841-4843 (US 20653).

  1. One of the series of "Teenage Smokers (14-17) and New Adult Smokers and Quitters" reports, dated February 1, 1980, written by Stephen R. Perry, an RJR Marketing Research
1095

Department employee, discussed "franchise aging" -- the process of young smokers entering the smoking population as older smokers leave the market, either because they quit or they die. The report stated:

For example, in 1979 approximately one million smokers became 18 years old while approximately 450,000 older smokers left the market. The extent that each company is affected by this process is determined by the age skew of its franchise.

The report went on: "[m]any adult smokers have already formed consistent smoking patterns by the time they enter the market at age 18." 501443912-3921 at 3912, 3915 (US 20681).

  1. Another in the series of "Teenage Smokers (14-17) and New Adult Smokers and Quitters" reports, dated February 4, 1980, stated:

In the last five years, share of cigarette volume of the 14-17 year-olds declined by about 36%, from 3.14% in 1975 to 2.00% in 1979. . . . The share of companies of the 14-17 year-olds has changed very significantly in the last five years: RJR's share declined from 29.9% in 1975 to 21.3% in 1979. A large part of the share loss can be traced to Winston.

500768427-8428 at 8427 (US 22341).

  1. Kay Duffy wrote an October 23, 1980 memorandum to L.W. Hall Jr., Vice President of Brands Marketing at RJR, titled "Younger Adult Smokers." Duffy stated "[s]moking behavior of 14-17 year olds is analyzed . . . to improve our ability to forecast future trends." The memorandum stated: "P. Morris continues to gain share among the 14-17 year old age group. . . . P. Morris' large share among 18 year olds has made it the only company to realize substantial share gains due to the aging process." Duffy also stated that "RJR continues to lose share due to . . . a decrease in new smokers and an increase in quitters," that Lorillard and American were also losing share and that Liggett Group, Inc. & Myers had an unchanged share. Finally, Duffy stated that
1096

B&W's share among fourteen to seventeen year olds had declined. 500686301-6313 at 6302, 6303

  1. An internal July 22, 1980 RJR memorandum from G.H. (Jerry) Long, RJR Executive Vice President, to Edward A. Horrigan, Jr., RJR's CEO, titled "MDD [Marketing Development Department] Report on Teenage Smokers (14-17)," stated:

Attached is a MDD report covering the aforementioned subject. Last January, a report was issued on this subject that indicated that Philip Morris had a total share of 59 among 14-17 year old smokers, and specifically, Marlboro had a 52 share. This latest report indicates that Philip Morris's corporate share has increased by about 4 points; however, Marlboro remains the same at 52.

This memorandum stated that "RJR continues to gradually decline," and concluded, "[h]opefully, our various planned activities that will be implemented this fall will aid in some way in reducing or correcting these trends." 508453894-3894 (US 20811).

  1. RJR's extensive market research on young people performed during the 1970s revealed that Philip Morris's Marlboro brand was dominating the youth market. By the early 1980s, according to internal documents and an RJR market researcher, Diane S. Burrows, RJR knew through research that the combination of so few young smokers choosing to smoke RJR brands and the tendency of those smokers to be loyal to their first brand of choice would ultimately lead to market share declines for the company if its brands continued to be unpopular with young people. RJR knew, as it stated in its "1975 Marketing Plans Presentation," that teenage smokers were "tomorrow's cigarette business" and accounted for "a key share of the total cigarette volume -- for at least the next 25 years." 500746950-6976 at 6951 (US 21609); Burrows PD, United States v. Philip Morris, 6/27/01, 15:19-16:4.
1097
  1. RJR also knew at this time that it was unlikely to be able to win the teenage market with a new, unknown brand, and that it would be wiser for RJR to revise an existing brand's image to make it more appealing to teenagers. In a September 29, 1980 RJR memorandum to Gerald Long,

Executive Vice President of Marketing and Sales, titled "Younger Adult Smoker Opportunity

Analysis -- New Brands," L.W. Hall stated about young smokers:

Socially insecure, they gain reinforcement by smoking the brands their friends are smoking, just like they copy their friends' dress, hairstyle, and other conspicuous things. To smoke a brand no one has heard of -- which all new brand names are -- brings one the risk of ostracism. It's simply not the "in" thing to do. If this theory is correct, it would be extremely difficult to achieve success with a new brand name who's [sic] primary thrust was against younger adult smokers. Certainly, there have been many attempts -- "Maverick," "Zack," "Luke," and "Redford" come immediately to mind -- and all have failed. . . . My thinking is that to maximize our success among this important group, we should place our efforts and our resources behind our established brand names, keeping them young and contemporary through advertising, promotion, and line extension strategies and executions.

501340949-0950 (US 20677).

  1. In 1981, RJR developed a system called "AGEMIX," to determine smoking incidence and rates across demographic categories of sex and age. In a July 8, 1982 letter to Data Resources regarding the development of AGEMIX, Diane Burrows wrote that AGEMIX allowed RJR to determine smoking incidence and smoking rates for individuals age twelve and over, as the

AGEMIX system included age breakdowns of twelve to seventeen, eighteen to twenty-four, etc.

Burrows stated: "Since few people start smoking after age 24, we will assume that incidence remains fixed as a group ages past 24." 502661958-1963 (US 20704); 501291100-1101 (US 85234);

1098

  1. A January 28, 1982 letter from Thomas A. Trumbull at National Family Opinion to Linda Mabee in the RJR Marketing Development Department confirmed that the January wave of the Mass Smokers Screening study produced for the company would include "the name, address, telephone number, and age and sex of each family member 17 years and older." Midge Barnes, of the RJR Marketing Development Department, had previously written to Paul J. Cousino at National Family Opinion on July 28, 1981, with respect to the same study to express Reynolds's desire "to address . . . any recommendations you have for introducing 17 year old smokers to the panel as they age into 18+." 502992729-2730 at 2729 (US 50276); 503425601-5608 at 5602 (US 50372).

  2. In a 1984 RJR report, titled "Strategic Research Report Market Overview and Key Trends/Issues," Richard Nordine provided a "broad overview of the cigarette market" spanning the preceding thirty years. Nordine stated: "[T]here are clear differences between growing and declining brands. Those which have younger adult profiles are growing and those which show older are declining (except Generics)." 517142223-2257 at 2224, 2230 (US 21764).

  3. On February 2, 1984, R.J. Harden of the RJR Marketing Development Department wrote a memorandum to A.M. Curry, titled "A Perspective on Appealing to Younger Adult Smokers" which stated: "A cigarette brand's (and the associated company's) long-term vitality is strongly influenced by its ability to attract young adult smokers." 502034940-4943 at 4940 (US 20695).

  4. In a January 28, 1986 document regarding Camel, titled "State of the Brand Report," Frances V. Creighton, an RJR market researcher, stated that "[t]he trend among 18-24 year old males has exhibited growth throughout 1985 reflecting targeting promotional activities throughout most of the year. . . . [S]hare among the 18-24 old male smokers is currently 5.7%, up +1.3% versus November [a] year ago." 505736433-6454 at 6435 (US 20745).

1099
  1. An October 15, 1987 memorandum, titled "Project LF Potential Year 1 Marketing Strategy," from J.H. Miller to Emily C. Etzel and Ann E. Biswell, and copied to H.T. William C. Parks, discussed

introducing Project LF in 13 priority regions. . . . Project LF is a wider circumference non-menthol cigarette targeted at younger adult male smoker (primarily 13-24 year old male Marlboro smokers). . . . [W]e are assuming $100MM for a national launch and $70MM for a regional introduction.

Miller attached a table showing "Priority Regions" and "Remaining Regions" by brand: Marlboro, Winston and Camel. This document was contained in a file titled "Youth Target." 505936377-6378 (US 50876).

  1. A 1988 RJR document, titled "Strategic Overview," discussed Marlboro's success and advised that, in order to meet the goal of increasing RJR's market share, the company must target the "young adult" market. To meet this goal, "[s]everal research programs have been completed to increase understanding of YAS." 521895685-5732 at 5723 (US 20903).

  2. An RJR document dated June 21, 1990, titled "US Cigarette Market in the 1990s," stated that the "majority [of smokers] become regular smokers before age 18. . . ." 507798137-8230 at 8142 (US 20789*).

  3. An October 24, 1996 email from RJR employee Diana Martin to fellow employee Gus Lejano attached a document discussing the repositioning of the Winston brand. Martin's email attachments indicated that "[s]ustained growth [is] driven only by younger adult smokers" and contained data on Winston's share among eighteen to twenty-four year olds. Martin also advised:

1100

"[s]uccessful repositioning [of Winston] requires young adult smokers." 700186251-6251 (US

700186256-6256 (US 54465).

  1. In a March 14, 1997 memorandum sent by Daniel Murphy at Diagnostic Research International to L.G. Dube, an RJR employee, Murphy indicated that his company was evaluating Salem's market share among eighteen to thirty-four year old smokers in various markets. Similarly, the M/A/R/C Group performed research in 1997 on behalf of RJR to evaluate the awareness of the "SALEM MVP Proposition" and whether it "improves overall brand perceptions and positively impacts brand buyer dynamics" on smokers as young as eighteen. 519941785-1786 (US 85239); 516949904-9907 at 9905-9906 (US 85240).

  2. A 1997 memorandum from Regena Pasterczyk, Senior Brand Research Manager for Winston and Senior Information Manager in RJR's Business Unit Research Department, to Lynn Beasley, Vice President of the Winston business unit, summarized the findings among respondent groups that included eighteen to twenty year olds: "no additives, no artificial ingredients, and a 'no bull' brand is clearly coming across among the critical 18-34 NM competitive prospect group." "No Bull" was the slogan that RJR used to launch its repositioned Winston in 1997. 519588649-8659 at 8649 (US 22465).

  3. A September 4, 1997 Tracking Research Report, titled "Winston 1997 Hispanic Tracker Pre-Wave Results," published by the Business Information and Analysis Department at RJR revealed that following the introduction of its Winston "No Bull" advertising campaign in August 1997, RJR developed "a comprehensive national tracking plan . . . to monitor the awareness and penetration of the launch among [Hispanic] smokers 18+." 520650706-0727 at 0706 (US 52621);

1101

518090228-0255 at 0233, 0242, 0244-0249, 0251 (US 52152); 518090256-0268 at 0260-0265, 0267

  1. RJR's CEO Andrew Schindler admitted that 1997 Winston Launch plans for the "No Bull" campaign included quantitative information obtained from a survey of eighteen to thirty-four year olds, and that such quantitative information could inform the company with respect to the marketing of its products. Schindler TT, 1/25/05, 10942:8-10947:16; 520601649-1699 (US 22116).

  2. In the "Winston 'No Bull' National Launch Tracking Report IV- November" dated January 8, 1998 from A. Phillips, a RJR employee, to E. Leary, Director of Winston Brand, RJR tracked the total number of smokers ages eighteen and older who had ever tried and ever purchased Winstons since the brand's national launch. It concluded that "new business to the brand is coming primarily from younger adult smokers, 18-34, where purchase . . . and repeat purchase . . . have doubled since [the Launch]." 519921955-1983 at 1958 (US 22467).

  3. As recently as 2002, Frances Creighton, RJR Senior Vice President for Marketing, admitted that RJR tracks brand performance and brand perception among smokers as young as eighteen. Creighton PD, United States v. Philip Morris, 6/20/02, 54:5-57:7.

b. Defendants' Marketing Employs Themes Which Resonate with Youth 2892. As the following evidence demonstrates, Defendants have utilized the vast amount

of research and tracking data they accumulated on youth smoking initiation, tastes and preferences by employing themes which resonate with youth in their marketing campaigns. Krugman WD, 85:11-92:18. Defendants have focused their attention on young people under the age of twenty-one in order to recruit replacement smokers and have emphasized the popularity, physical attractiveness, and "coolness" of their youth brands. Above all, Defendants have burnished the image of their youth brands to convey rugged independence, rebelliousness, love of life, adventurousness, confidence, self-assurance, and belonging to the "in" crowd.

1102

(1) Philip Morris 2893. In 1968, Philip Morris began a nationwide Virginia Slims newspaper and magazine

advertising campaign. The advertisements usually depicted slim, independent, well-dressed attractive women smoking cigarettes. ADV0281229-1231 (US 10511); see also (no bates) (US 12983); (no bates) (US 12527); (no bates) (US 12453).

  1. Helmut Wakeham, Vice President for Corporate Research and Development at Philip Morris, made a November 26, 1969 presentation to the Philip Morris Board of Directors titled "Smoker Psychology Research." His report stated that, although "the primary motivation for smoking is to obtain the pharmacological effects of nicotine," it is psycho-social motivations and not nicotine that are responsible for the initiation, as opposed to the continuation, of smoking:

We are not suggesting that the effect of nicotine is responsible for the initiation of the habit. To the contrary, the first cigarette is a noxious experience to the novitiate. To account for the fact that the beginning smoker will tolerate the unpleasantness we must invoke a psycho-social motive. Smoking a cigarette for the beginner is a symbolic act . . . a symbolic declaration of personal identity.

The report further stated: "The 16 to 20 year-old begins smoking for psychosocial reasons. The act of smoking is symbolic; it signifies adulthood, he smokes to enhance his image in the eyes of his peers." The document concluded: "As the force from the psycho-social symbolism subsides, the pharmacological effect takes over to sustain the habit, augmented by the secondary gratifications."

1103

1000273741-3771 at 3749 (US 26080); 1003287880-7890 (US 20163); 1003287836-7848 at 7836,

  1. In the July 15, 1970 Philip Morris "R&D Strategic Plan: 1971-1975," Wakeham stated: "Without an effective counter-effort by cigaret [sic] makers, there is likely to be an erosion of the social acceptability of smoking. Whereas smoking has traditionally been viewed by adolescents and young adults as sophisticated adult behavior to be emulated, it is in danger of being regarded generally as undesirable behavior to be avoided." 1000837808-7813 at 7809 (US 20110); 2022163543-3555 at 3544 (US 20353).

  2. Metacorp, a marketing development corporation, prepared a March 1984 document, titled "1984 Marlboro Spring Resort Field Marketing Opportunities," for Philip Morris. Metacorp outlined various venues and events occurring during Spring Break, among them the 2nd Annual New Music Showcase, featuring Duran Duran, a band popular with teenagers. 2044390059-0073 at 0061, 0064 (US 20453).

  3. A March 20, 1984 Philip Morris document, titled "The Cigarette Consumer," stated that "[p]eople begin smoking 1) [because of] peer pressure, 2) to rebel/assert independence, 3) to appear grown up, [and] 4) to experiment," and that "products targeted to younger end of spectrum [are] most viable." 2500002189-2207 at 2203, 2205 (US 21460).

  4. In a December 12, 1984 Philip Morris report, titled "Cigarette Market History and Interpretation," John E. Tindall, Senior Scientist at Philip Morris, stated that, in order to discover why certain brands have captured the young smokers,

[w]e need not try to understand why young people have a herd instinct. From their choices of food, clothes, transportation, entertainment, heros [sic], friends, hangouts, etc., it is clear that they

1104

do. More important to us (and probably to many other product categories) is why they make certain choices instead of others.

2001265000-5045 at 5030 (US 20299).

  1. An October 7, 1987 internal Philip Morris document containing plans for marketing Parliament in 1988 and 1989 stated:

To target the 18-24 males and females, our retail focus will be on pack outlets . . . and will be trial/conversion oriented. This younger age group is more likely to make decisions based on peer pressure. To convey the idea that everyone is smoking Parliament, the brand should have continuous high levels of visibility in as many pack outlets as possible.

2045287059-7067 at 7063 (US 38408).

  1. Philip Morris's marketing for its youth brand, Marlboro, is expressly designed to appeal to young smokers' desire for peer acceptance by emphasizing Marlboro's popularity and status as the "number one" brand. Camisa PD, United States v. Philip Morris, 6/28/02, 107:6-109:22, 111- 113, 158:7-159:8; 2071230813-0888 at 0820-0821, 0830-0832, 0838-0839, 0850, 0856, 0862, 0864 (US 20521*); 2080499829-9896 at 9859 (US 20536).

  2. A document apparently drafted after 1986, titled "Impact of Marlboro Sponsorship in CART Racing: Are We on Track?" discussed Marlboro car racing promotions. The document stated that 14% of eighteen to twenty-four year olds were racing fans and that racing was perceived as "[m]asculine" and "dangerous" because racing "is like grabbing Death by the gonzos and saying 'Ha!'" 2040750492-0510 at 0495, 0496 (US 20438).

  3. A May 12, 1989 Philip Morris document, titled "Marlboro Brand Review," contained a discussion of Marlboro issues, performance, and strategy:

1105

Major strategic shifts are not recommended for Marlboro. Our plans, in fact, have become even more focused on appealing to the core young adult male user and reinforcing our strong male, full flavor brand image. Further, Marlboro's position against competitive threats will be offensive not defensive.

Regarding the threat of Camel, the document stated:

Camel has perhaps the strongest flavor, most male image of any cigarette in the industry. This equity is being effectively leveraged with the bold, young "smokin' Joe" advertising and promotion effort, an effort which taps directly into the young male headset -- have fun, get wild, and be macho. The campaign limitation may be that it can't support the franchise as it ages because the message is so young.

To meet Camel's threat, the document discussed a potential new advertising campaign, in addition to the traditional Marlboro advertisements, which would be "designed to appeal specifically to the young, adult male; ads which are strong in subject and tonality thereby reinforcing our core position." 2025871433-1506 at 1434, 1438, 1440 (US 22054).

  1. Jeanne Bonhomme, Manager of Consumer Research at Philip Morris, and Karen Eisen, a marketing researcher at Philip Morris, wrote a February 6,1991 to 1995. This program studied the correlation between lifestyle and environmental exposures and major chronic illnesses, and the role of diet in cancers of the lung, oral cavity and bladder. 2046988683-8683 (US 85673); 2021630974-0975 (US 87371); 2046988682-8682 (US 85674). -1358- memorandum to James Taylor, Brand Manager, New Products at Philip Morris, titled "Marlboro/Camel Consumer Research," which discussed research comparing the advertising and images of Camel and Marlboro among eighteen to twenty-four year old male Marlboro and Camel smokers. Respondents were asked whether various descriptive statements fit the Marlboro Man and Joe Camel, including whether these characters were "[r]ugged and [m]acho," "independent," "rebellious," "cool/hip," and whether they were someone that "I'd be friends with." When asked what the Marlboro slogan "Come to Marlboro Country" means, most respondents responded that it meant to "smoke/try/switch" to Marlboro. 2045732054-2074 at 2054, 2057-2058 (US 20465).
1106
  1. Handwritten notes taken by Carolyn Levy dated May 2,1991 to 1995. This program studied the correlation between lifestyle and environmental exposures and major chronic illnesses, and the role of diet in cancers of the lung, oral cavity and bladder. 2046988683-8683 (US 85673); 2021630974-0975 (US 87371); 2046988682-8682 (US 85674). -1358- related to a Philip

Morris project researching consumers' thoughts about cigarettes. Levy's notes stated:

Smoking is a social ritual which enables us to express and reaffirm our self-image by reactivating the initiation into adulthood. This taboo is for you, Playing with fire, Forbidden fruit, U.B.U., Badge of honor, It hurts so good, Dare to be me, The rite to be me.

2062145828-5833 at 5828, 5833 (US 85184). As Levy acknowledged, "Philip Morris knows that cigarettes are one of the things that adolescents use in their transition from childhood to adulthood," based both on this research and on published literature. Levy WD, 50:2-51:21.

  1. In an April 1992 presentation to the Board of Directors, David Dangoor, Senior Vice

President of Marketing at Philip Morris International, explained how the race car drivers pictured in Marlboro advertisements represented a "contemporized" and "relevant" Marlboro man:

We are in constant search for more contemporary ways to convey the "west" with more appeal to young adult smokers. Auto racing is one such avenue. Our drivers symbolize the modern day cowboy and the advertising support creates more relevance for today's consumer. . . . Marlboro's positioning remains strong and relevant. Its advertising whilst effective, needs careful attention to maintain its appeal to young adult smokers. We must continue to compete effectively at retail with more image enhancing promotions.

2045068451-8470 at 8456, 8460 (US 23931).

  1. "The Viability of the Marlboro Man Among the 18-24 Segment" dated March 1992, prepared by Bruce Eckman, Inc. for Philip Morris, made recommendations for Marlboro advertising in light of Camel's success. Eckman recommended that

to reduce the effectiveness of the Camel advertising with the 18-24 segment, Marlboro should consider: a) capitalizing on the strength of being the number one brand; make the users feel that they belong to a special group of smokers through point of sale which reinforces being number one; b) increasing the breadth and variety of the

1107

Marlboro Man advertising campaign without sacrificing the strength of his integrity[:] 1) show him not only at work, but also at leisure, . . . 2) show him enjoying the benefits of his chosen path, . . . 3) show him in charge . . . and desirable in magazines where he could be pictured with a woman, . . . 4) consider using a copy line to direct the visuals, [and] . . . make him more accessible and less removed.

2045060177-0203 at 0178, 0180 (US 20459).

  1. On March 19, 1994, advertising agency Leo Burnett held an internal meeting called "Camp Marlboro" to discuss Leo Burnett's performance on Philip Morris and Philip Morris International business. Geoffrey Bible, Altria's CEO, gave a speech at Camp Marlboro in which he told Leo Burnett that they were the "guardians of Marlboro, working with PM senior management." At Camp Marlboro, Bible indicated that Leo Burnett should "Leverage core values which are attractive to YAMS by portraiting [sic] the full breath [sic] of Marlboro country: Masculinity, Freedom, Limitless Opportunity, Self-sufficiency, Mastery of destiny, Harmony with Nature." After Camp Marlboro, Karen Green, Leo Burnett Planning Director and Senior Team Member, wrote a "Summary of Findings" which indicated that the "Marlboro brand strengths" included "No. 1 brand among starters/YAS, Brazil, Latin America, USA." As noted earlier, "starters" is a term used for those who are starting to smoke, who are most often underage. Dudreck PD, United States v. Philip Morris, 6/21/02, 83:9-107:19; LB0058147-8186 at 8176, 8185 (US 22070).

  2. The March 24, 1994 plan for Philip Morris's Chesterfield brand prepared by Young & Rubicam stated: "Smoking enthusiasm is firmly grounded in the emotional connection . . . [t]he emotional connection -- adventure, living on the edge -- is the deep basis for category attraction . . . [l]ater, more rational issues may counterbalance this attraction." Moreover, the plan stated: "Significant choice moments in cigarette smoking tend to coincide with critical transition stages in life. . . . Choice of a 'starter' brand [coincides with] [y]outhful conformity/rebellion." 2500086977- 7024 at 6983, 6984 (US 27908).

1108

  1. With its continuous smoker tracking survey, laid out in a November 1994 document, titled "Profile of the Young Adult Marlboro Smoker Part 1: Males,18 Defendants assert that the statements of their C.E.O.s before the Waxman Subcommittee in 1994 constitutes petitioning activity protected from any imposition of liability under the Noerr-Pennington doctrine. See, Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers v. Pennington, 381 U.S. 657 (1965). This legal issue is addressed fully in the Conclusions of Law. The facts, as recounted herein, speak for themselves. -637- to 24 Years Old," Philip Morris found that eighteen to twenty-four year old males cite Marlboro's popularity with friends ("brand I grew up with," "an 'in' brand") and availability as factors driving their initial choice of a regular brand. The document also stated that a male Marlboro smoker eighteen to twenty-four years old is most likely to consider his brand to be "popular" and "well established." 2048735500-5604 at 5544, 5546 (US 21971).

  2. A document titled "Proposed Script for Marlboro Story," apparently drafted in 1995, traced the development of Marlboro advertising themes from the Marlboro Man to the Marlboro Racing Team and Marlboro Adventure Team. The document indicated that the Marlboro Man represented rugged independence, whereas the promotional events Marlboro Racing Team and the Marlboro Adventure Team used themes of freedom and adventure. As discussed above, the Marlboro Adventure Team promotion was one marketing tool recommended in the October 8, 1992 "PM USA Business Update" to obtain Philip Morris's "historic share amongst entry-level adult smokers." 2071349278-9281 (US 20526); 2046569728-9731 at 9728-9729 (US 20471); see also (no bates) (US 3567); (no bates) (US 8131); (no bates) (US 9062); (no bates) (US 13920); (no bates) (US 47303); (no bates) (US 7509); (no bates) (US 47307); (no bates) (US 9296).

  3. Philip Morris collected information on whether smokers perceive particular brands to be "popular" brands as part of its continuous consumer tracking survey in order to help it to "understand if the brand is remaining new and relevant and growing in the marketplace or whether the consumers think that this brand [] is washed up." This information was considered important in marketing Marlboro because "at least what we know about young adult smokers, for some of them, the fact that Marlboro is a popular brand may be a factor in why they choose Marlboro." Lund PD, United States v. Philip Morris, 6/27/02, 137:17-140:13, 197:24-199:11.

1109

  1. In a June 23, 1995 memorandum from Philip Morris research analyst Marian Wood to Lund, Wood discussed the results of a qualitative market research study concerning the Marlboro Lights brand. This study, conducted by Marketing Perceptions, a market research contractor for Philip Morris, found that "most of the Lights smokers [in that study] chose Marlboro because of the brand's popularity. However, once they were in the franchise, many of these smokers identified with the independent image the brand conveyed." 2071580565-0566 at 0566 (US 20528).

  2. In a February 21, 1996 memorandum, Natalie Ellis, Marlboro Research Manager at Philip Morris USA, remarked upon the "critical role brand popularity plays in the Marlboro core image." 2040837079-7080 at 7079 (US 23898).

  3. A 1996 telephone study produced by Philip Morris USA surveyed 850 smokers on "the appeal of racing in key demos in order to assess its viability as a national marketing equity." The study concluded that "[r]acing imagery and Marlboro 'fit' on a number of levels" because racing

[o]verlaps core imagery of confidence, determination, masculinity, independence and control. . . . Reinforces Marlboro's status as a popular, worldwide brand. . . . Lends an upbeat tone of excitement, competitiveness, dynamism, challenge and 'edginess' to brand image [and] Provides relevant, aspirational but obtainable images.

Additionally, "traits associated with the drivers are consistent with those often mentioned for the cowboy -- masculinity, confidence, strength, determination, independence and skill." In sum,

1110

[r]acing as a communication vehicle (i.e. calendar, newsletter, advertising) has strong national potential, particularly among YAS by communicat[ing] values of masculinity, independence and strength . . . excitement . . . color and cutting edge modernism to the base image.

2072475100-5149 at 5102, 5122, 5123, 5148 (US 85191).

  1. A November 1998 document titled "Marlboro Worldwide Creative Brief," written by the Leo Burnett Agency, analyzed the marketplace dynamics affecting Marlboro's volume and share performance and recommended ways to market Marlboro to "young adult male smokers" who

"continue to be of primary importance for the growth of Marlboro." The report opened by discussing

"Key Consumer Insights," including:

Friends/peers are more important than before. Given increased pressure from a rapidly changing world around them, there is a growing need for "connectedness" with this group. Young Adult Smokers today communicate with each other differently -- they care more about relationships with others.

After discussing the "core values of Marlboro Country" -- "Masculinity, Freedom, Adventure,

Limitless Opportunities, Self-Sufficiency, Mastery of Destiny, Harmony with Nature" -- the report addressed Marlboro's "Advertising Challenge":

With more than 30 years of experience behind the Marlboro Country campaign idea, we are confident that its timeless, universal appeal will continue to build the brand's image, awareness and sales well into the future. Nevertheless, our key advertising challenge is to keep the Brand Essence and Core Values of Marlboro Country relevant and impactful in the context of changing young adult smokers and marketplace dynamics. As an evolutionary process, the advertising approach must continue to link to the historical advertising theme, while keeping the communication fresh and vital.

The report continued by addressing, under the heading of "Creative Direction," Marlboro's

"Advertising Objectives":

1111

We need to deliver well-targeted advertising that: 1. Builds/maintains brand and advertising awareness. 2. Reinforces Marlboro's position as the world's #1 cigarette . . . .As part of these objectives we want to: Reinforce Marlboro as the brand of choice and build loyalty among Young Adult Male Smokers (YAMS). . . . Bonding/Camaraderie[:] Images that capture aspects of camaraderie and sociability. . . .This content area is the place to reveal the social, more approachable side of the Cowboy.

LB0092389-2414 at 2391-2394, 2396 (US 33235) (emphasis in original); 2085298486-8512 at 8488- 8491, 8493 (US 22906).

  1. A new Marlboro promotion called "Cowboy's Place," created by Leo Burnett, acknowledged in a February 2, 1999 document that Marlboro's traditional advertising image "plays on the 'approaching adulthood' side . . . [featuring] independence," and compared that to the "competition" -- specifically, Camel and Newport -- whose advertising "plays on the 'being young (adult)' side . . . [featuring] sociability, nightlife, partying, fun-loving, experiencing the moment." Leo Burnett recommended that the "Cowboy's Place" promotion feature the themes of sociability, spontaneity, and partying usually featured by Camel and Newport. Leo Burnett promised that "Cowboy's Place" would provide the "[o]pportunity for Marlboro to own 'the road to adulthood.'" LB0090212-0230 at 0216, 0217, 0218 (US 33211).

  2. A Leo Burnett document, titled "Virginia Slims -- Stuck in the Seventies," establishes that Philip Morris initiated the "Find Your Voice" campaign in 1999 to make Virginia Slims more appealing to younger women. The advertisements were slated to begin running in December 1999 publications and Leo Burnett predicted subsequent "volume growth" for Virginia Slims cigarettes. LB0131023-1026 at 1023, 1026 (US 33402*); see also (no bates) (US 14326).

1112

(2) Lorillard

  1. On August 13, 1970, Philip Gaberman, creative director for Robert Brian Associates, was involved in creating a new package design for Lorillard's Kicks cigarette brand. Gaberman wrote a letter to Professor Charles Seide of Cooper Union, a New York City art college, proposing the use of Seide's students for creating the Kicks package design. The letter stated:

We're adults. You've got a group of talented kids. Hence this letter. We have been asked by our client to come up with a package design . . . a design that is attractive to kids . . . (young adults). We were wondering if this project might serve as a challenging assignment for your package design class(es). . . . Note: While this cigarette is geared to the youth market, no attempt (obvious) can be made to encourage persons under twenty-one to smoke. The package design should be geared to attract the youthful eye . . . not the ever-watchful eye of the Federal Government.

92352889-2890 (US 21725).

  1. Lorillard's September 23,1991 to 1995. This program studied the correlation between lifestyle and environmental exposures and major chronic illnesses, and the role of diet in cancers of the lung, oral cavity and bladder. 2046988683-8683 (US 85673); 2021630974-0975 (US 87371); 2046988682-8682 (US 85674). -1358- "Harley-Davidson Year I Strategic Marketing Plan" stated:

Harley-Davidson cigarettes are positioned to appeal to young adult male smokers, 18-24 years of age with high school educations, generally blue collar occupations as a brand which offers a unique smoking experience by virtue of its association with Harley-Davidson motorcycle imagery.

94258098-8143 at 8105 (US 85206).

  1. In two letters, one dated August 17, 1993, and the other dated August 27, 1993,

Timothy K. Hoelter, Harley Davidson Vice President and General Counsel, wrote to Ronald

Goldbrenner, Lorillard Associate General Counsel, expressing Harley Davidson's concern that

Lorillard's proposed upcoming cigarette advertising campaign to introduce its new Harley Davidson brand, especially when combined with the low price of the brand, would "recruit underage smokers."

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Hoelter indicated that Harley Davidson had hired a market research firm specializing in child research to evaluate the Lorillard advertising campaign, and that this firm had concluded that "the campaign will appeal to underaged children." 91384161-4162 (US 54404); 92670418-0419 at 0419

(US 21760).

  1. By letter dated August 30, 1993, Goldbrenner responded to Hoelter's August 27 letter with a warning to Harley-Davidson:

In your letter you refer to market research which Harley-Davidson has conducted. As you know, Lorillard's 'American Quality' campaign is an important trade secret, as are the timing and details of virtually all new products and advertising campaigns. Your letter raises serious concern on our part for the basic protection of very important Lorillard trade secrets. . . . Furthermore, if such research has been improperly conducted or analyzed, it may be very damaging to the reputation and business of Lorillard's disclosure, whether or not trade secrets are involved. . . . We would further appreciate your forwarding to us an immediate copy of the test results and methodology so that we will be better able to discuss this matter with you. We cannot impress upon you too strongly your obligation to maintain these materials in confidence and to permit us to review and validate the market research you describe so that we may properly assess this matter.

92670436-0437 (US 57194).

  1. Despite Hoelter's letters protesting the appeal of Harley-Davidson cigarettes to underage persons, Lorillard proceeded to introduce the brand and marketed the cigarettes until 1996 when Lorillard replaced Harley-Davidson which had "fail[ed] to make sales goals" with another brand called Maverick. 94917017-7017 (US 88152); 92715334-5457 at 5440-5442 (US 87927).

  2. Lorillard's "Newport '95 Promotional Platform Preliminary Presentation" dated

November 30, 1994 stated that one objective was "[t]o develop a comprehensive Newport Promotion

1114

Program which . . . Enhances image as one of the 'cool' brands." 91945211-5218 at 5216 (US

  1. A November 11, 1993 presentation by McCracken Brooks for Lorillard, titled "Newport Promotional Concepts," stated that one of the "objectives" was to "[s]trengthen Newport's competitive edge as the peer brand among young adult smokers." 91949806-9831 at 9808 (US 57155).

  2. Newport's 1994 Brand Plan stated that "Newport is the leading menthol cigarette brand among younger adult smokers in the freshness segment, positioned to appeal primarily to general market/urban center adult smokers ages 18-24" and that "Newport's creative product must strengthen Newport's competitive edge as the 'peer' brand among younger adult smokers." 91945017-5124 at 5033, 5045 (US 21113).

  3. A July 1994 report, titled "An Evaluation of the Newport 'Pleasure on Wheels' Promotion Tiers 1 and 2," prepared for Lorillard by Meyers Research Center stated that one of the "primary marketing objectives" of this promotion was to "[r]einforce Newport's image as the 'peer brand' among young adult smokers." This report was attached to a July 26, 1994 memorandum titled "Final Report: Newport P.O.W. Promotion Evaluation in Tiers I and II – MPID #5543/394" from Scott Benson, Lorillard Manager of Consumer Research, to Victor Lindsley, Lorillard Senior Group Brand Director. 91840214-0311 at 0218 (US 74415); 94291134-1139 at 1134 (US 21119).

  4. A July 15, 1996 memorandum from Dick Westwood at Strategy & Tactics, Ltd. to Scott Benson, Group Manager of Marketing Research at Lorillard, regarding "The Menthol Market Study Reanalysis," concluded:

1115

Brand imagery should be pursued as the primary lever Lorillard can deploy in acting against the menthol market. Some Image Segments are, indeed, taste-based (for example, the Taste/Sensation segment with its focus on mintiness and iciness), and it is appropriate to pursue such segments through a taste-centered strategy. But other market segments -- including the Social Acceptance segment which is Newport's primary strength -- are defined by more subjective aspects of imagery and, for these, taste profiles need to be subsumed to fitting the image that the Company is seeking to create. . . . From a taste perspective, Newport . . . competes primarily with Kool. However, the two brands play in different Image Segments -- Social Acceptance and Strength respectively, and thus do not interact as directly as taste alone would suggest. Thus, for example, although both brands skew to males and African Americans, Newport has been able to attract a considerably younger adult smoker as its user base.

96290861-0869 at 0869 (US 85209*).

  1. In approximately 1998, Lorillard undertook a nationwide advertising campaign for

Newport cigarettes captioned "Pleasure! Fire It Up!" in newspapers and magazines. Among several treatments, "Pleasure! Fire It Up!" advertising depicted attractive young men and young women smoking cigarettes, often in circumstances involving sports and other physical activities. (no bates)

(US 11209); (no bates) (US 11247); (no bates) (US 11257); (no bates) (US 11283); (no bates) (US

14767); (no bates) (US 14637); (no bates) (US 12477).

  1. A March 27, 1998 letter to Collett Thatch, the Senior Brand Manager for Newport, from Dorothy Straub at Saatchi & Saatchi, provided information on competitive print advertising campaigns. The letter described Lucky Strike as "making a concerted effort to reposition themselves as a contemporary retro cigarette (see inside visual of a James Dean look-a-like leaning on a 60's convertible coupe)." At the bottom of the advertisement was a toll-free number to call which provided information on upcoming "trendy bars/special promotions and money saving coupons."

86165773-5775A at 5775 (US 22207).

1116

  1. The Newport campaign uses the same themes known to be attractive to youth, including socialization, having fun with friends, and risky independent outdoors activities. Telford PD, United States v. Philip Morris, 6/26/02, 85:13-88:14 (Confidential); see also (no bates) (US 4873); (no bates) (US 11183); (no bates) (US 11283); (no bates) (US 11590); (no bates) (US 4685); (no bates) (US 9360); (no bates) (US 12074).

  2. The "Newport 2000 Strategic Plan Overview," dated October 8, 1999, stated that "[t]he Newport Family as Lorillard's core power volume brand must contribute significant volume and share growth. . . ." A "Key Issue" was Newport's need to strengthen its marketing programs:

Newport's marketing programs have not been strong enough in a substantially changed marketplace to protect the brand's core business base, significantly improve volume and share trends, or defend against Marlboro Menthol's aggressive marketing initiatives.

The "Creative Strategy" to increase volume and gain long term growth was:

Develop creative executions that continue to strengthen and refresh Newport's competitive advantage as the peer brand of choice among younger adult smokers by reinforcing the perception that Newport delivers smoking pleasure in social settings relative to their lifestyles. . . . Continue to leverage the Pleasure campaign equity to reinforce the brand's fun, spontaneous, upbeat image through a variety of settings portraying social interaction, spontaneous fun, refreshment and smoking situations.

98196660-6681 at 6661, 6665, 6671 (US 56953). The "Newport 2001 Strategic Plan Overview," dated June 9, 2000, set forth "Marketing Objectives" identical to the year 2000 plan. 99310880-0893 at 0884-0885 (US 57656) (Confidential).

  1. Lorillard CEO Martin Orlowsky acknowledged that "[p]eer acceptance is an important business issue in terms of brand selection, because it is a factor affecting brand choice among younger adult smokers." Orlowsky WD, 58:3-4.
1117
  1. A 1974 B&W report, titled "Young Adult Smoker Life Styles and Attitudes," recorded that "as part of [B&W's] investigation of the 'new' smoker, a program of consumer research was undertaken." The purpose of the research was "to gain insight into the perceptions, attitudes and behavior of younger, recently-starting smokers regarding initial product usage, current smoking and health concerns." Included in the findings was the statement that smoking starts with younger people for four reasons:

The first factor is the desire of young people to look older than they really are. The second is peer pressure and doing what friends and authority figures do. The third reason is to rebel against parents with only modest risk. The fourth reason identified had to do with physical reaction. This physical reaction was described as a "high" or as a challenge to be strong enough to smoke without getting sick.

B&W designed its marketing campaigns around themes that would exploit these attitudes. 170040977-1001 at 0977 (US 20289); see also (no bates) (US 8013); (no bates) (US 1094); (no bates) (US 10443).

  1. A May 26, 1975 report, titled "What Have We Learned From People? A Conceptual Summarization of 18 Focus Groups Interviews on the Subject of Smoking," was prepared for B&W by the Ted Bates Agency. A section of the report titled "How Can We Introduce Starters and Switchers to our Brands," stated: "With only very few exceptions, young people start to smoke because of their peer group." The document also stated that

an attempt to reach young smokers, starters should be based . . . on the following parameters: [p]resent the cigarette as one of a few initiations into the adult world. Present the cigarette as part of the illicit pleasure category of products and activities. . . . Consider a sampling technique to allow the young starters to actually try your brand . . . . In your ads create a situation taken from the day-to-day

1118

life of the young smoker but in an elegant manner have this situation touch on the basic symbols of the growing-up, maturity process. To the best of your ability (considering some legal constraints) relate the cigarette to "pot," wine, beer, sex, etc.

680092632- 2668 at 2664-2665 (US 21693); 170043558-3593 at 3581-3582 (US 20293); 679018003-8278 (US 87928).

  1. An August 4, 1976 letter to Frank McKeown at B&W from Jeffrey Clinaman at Zimmer-McClaskey-Lewis, an advertising firm, recommended a Kool Basketball Premium for Kool's 1977 Promotion Program: "Basketball is a major source of recreation among young, black males. We would capitalize on this interest by offering a basketball premium, perhaps even green and white to tie in with Kool." The plan also advised that

Since Kool is heavily oriented toward the young and the brand's starter index is 10, it will benefit us long-term to develop promotion events that involve the young and especially, to convince the starter group to smoke Kool.

777080491-0522 at 0491, 0500, 0508 (US 31585).

  1. On November 15, 1977, B.L. Broeker, a B&W Senior Brand Manager, wrote to Phil Weinseimer at the Ted Bates Agency attaching "exploratory advertising strategies, 'Exhilaration' and 'Confidence.'" The "Key Fact" under the Exhilaration advertising strategy was that "Kool is losing smokers to menthol competition and not attracting enough starter and switcher smokers to affect this loss." The 'Confidence' advertising was designed to address the problem that Kool "lacks an upbeat, exciting image to reinforce its youthful franchise and attract new smokers." The "Promise" of the Confidence creative strategy was "Smokers who try Kool will derive a sense of confidence and preeminence among their peers via association with this superior product." 686032807-2811 at
1119

  1. B&W recognizes the importance of imagery and packaging to make its products attractive to teenagers. An April 20, 1978 B&W document, titled "Implications for Cigarette Industry," stated that "[i]magery will continue to be important in brand selection for teenagers" and "[p]ackaging will become more important if not the most important advertising vehicle." 667007711-7714 at 7711, 7712 (US 20961).

  2. A B&W document apparently drafted in 1983, titled "Kool Advertising," stated as a "Problem" that "[o]ur campaign does not currently appeal to young adults of all races (<25)," because it was weakest with young people. As the solution, the document recommended that Kool advertising "go for the fantasy" and "go for cool." 675159252-9253 (US 21730).

  3. A B&W 1985 Strategic Marketing Plan discussed the marketing strategy for Kool: "concentrate efforts on young adult, male prime prospects. . . . Advertising should symbolize both the best cigarette (quality) and a contemporary image of masculinity, self-assurance, confidence and control (cool)." 670146621-6701 at 6626, 6637, 6638 (US 30805).

  4. The 1997 Media Plan for Kool cigarettes listed the following among its objectives" "Communicate 'Up-to-Date', 'Leading Brand', 'Quality', and Popular.'" The 1997 preliminary list of magazines in which Kool advertisements were placed included publications such as Spin and Sport, each of which had a youth readership (readers between the ages of twelve to seventeen) of over 30%. 462205141-5145 at 5141 (JD 011795).

  5. The 1997 Creative Plan For Kool cigarettes included a section on the development of creative images to be used in advertisements, in POS [point of sale], and in communications to support the Kool Indy car sponsorship. The plan stated that the images should "[r]eflect masculinity, popularity, and young adult imagery in a manner that differentiates Kool from Newport and

1120

Marlboro Menthol through a contemporary exploitation of the Kool Indy car program." 1760207572942. In 1997 B&W sponsored the H.O.R.D.E. (Horizons of Rock Developing Everywhere) Festival, an annual all-day music festival staged in twenty-eight cities across the United States over the summer. Prior to the H.O.R.D.E. Festival, B&W sponsored the "Extremely Kool Band-to-Band Combat" competitions in ten United States cities "with the grand prize being the opening act on the Second Stage at three H.O.R.D.E. shows." The objectives for the "Extremely Kool Band-to-Band Combat" competitions included "[i]mprov[ing] perceptions of Kool as a popular, up-to-date, leading brand" and capturing names for B&W's smoker database. 306014279-4279 (US 22102).

  1. Other internal documents confirm that B&W sought to "update the image of its Kool brand" with its "B Kool" advertising in the late 1990s. Advertising awareness for Kool increased between 1997, when the "B Kool" campaign was initiated, and 1999. Adult smokers under thirty who were aware of the advertising were more likely to associate Kool with "key imagery measures" that included popularity and sophistication. The "B Kool" campaign communicated an image of the Kool smoker as independent, masculine, popular, and confident, all themes that appeal to youth. 462110343-0376 at 0344 (US 22490); 309031048-1071 at 1051 (US 22660); 315022030-2207 at 2041 (US 22496); Biglan WD, 36-95; Krugman WD, 94:1-99:23; Smith WD, 16:20-17:6; see also (no bates) (US 10880); (no bates) (US 14557); (no bates) (US 14170); (no bates) (US 13277).

  2. A February 12, 1997 agreement between B&W and Gateway Motorsports Corporation made Kool the "Official and Exclusive Tobacco Sponsor" of the 1997-1998 CART World Series event at Gateway International Raceway. B&W received the right to display Kool banners and signage around the racetrack, as well as point of sale signage "in and around all concession areas." The agreement also included provisions guaranteeing that Kool would receive six P.A. announcements each day of the event, and provisions authorizing B&W to conduct a direct mail promotion in connection with the event. 323011515-1519 at 1515-1516, 1517 (US 47068); see also (no bates) (US 2320).

1121
  1. A May 30, 1997 BATCo plan titled "Lucky Strike -- Strategic Development of Get Lucky Campaign" demonstrated that B&W had access to and reviewed BATCo marketing research using smokers under twenty-one. The plan discussed Lucky Strike's "[e]xtremely successful sales results . . . achieved in the two key test markets," and indicated that the principal target group of the Lucky Strike campaign was male young adult urban smokers ages eighteen to twenty-five who were "opinion leaders and trend setters." The document described Lucky Strike as: "James Dean -- an archetypal Luckies smoker," "a legendary marque of teenage rebellion and rock 'n' roll heroes of the 1950's." It stated:

Lucky Strike is one of the greatest "badges" of all time. . . . Cigarette consumers crave this sort of "badge"; it is more important to them than anything else. This sort of authenticity is rare and invaluable since it demonstrates to peer groups that you are "in the know."

844002422-2437 at 2432, 2434, 2437 (US 21921).

  1. Numerous public officials, including the then-Governor of Florida and several state Attorneys General, have expressed their dismay at B&W's "B Kool" advertising campaign because of its appeal to youth. On October 22, 1997, Governor Lawton Chiles of Florida wrote to B&W stating:

I am very disturbed by B&W's most recent advertising campaign for Kool menthol cigarettes. This so-called "B Kool" campaign appears to be yet another flagrant attempt by Big Tobacco to hook another generation of teens. In addition, it clearly violates the spirit of the

1122

settlement agreement reached between the State of Florida and Big Tobacco.

The letter criticized the use of a young female model in the campaign who "looks like a teenager from head to toe" and the use of billboards. The Governor concluded his letter by requesting that B&W remove "these offensive billboards immediately . . . and immediately halt this campaign." 282208267-8267 (US 22099).

  1. On October 22, 1999, Indiana Attorney General Jeffrey Modisett wrote to B&W summarizing his impressions of a meeting he attended with the company on October 4, 1999. In response to representations made at the meeting that B&W only intended to target smokers between the ages of twenty-one and thirty with its "B Kool" campaign, Attorney General Modisett stated: "While your intentions have been clearly stated, to outside observers it is hard to believe that your company does not use advertising to entice non-smokers to begin smoking your products." He also stated:

I find it amazing that no one would agree that kids age 10-14 are more interested in "being cool" than the older, more mature 21-30 age group. So, while your intentions with the "B Kool" advertising campaign seem clear internally, you have a long way to go to convince outside observers that this advertising campaign does not have an undesired impact on both younger smoking and non-smoking teens.

282204359-4361 at 4359-4360 (US 22211).

  1. On December 3, 1999, the Oklahoma Attorney General, Drew Edmonson, wrote to B&W on behalf of the NAAG Tobacco Enforcement Committee to express the Committee's concerns about the content of the "B Kool" advertising campaign and the placement of "B Kool" advertisements in magazines with significant youth readership according to data contained in the
1123

1999 MRI Twelve Plus Study. B&W had placed "B Kool" advertisements in such magazines as Vibe and Sport, which had youth readership (readers between the ages of twelve and seventeen) above 35% based on the 1999 MRI Twelve Plus Study. Edmonson wrote that:

[t]he placement of ads in magazines with a significant youth readership is especially problematic because the content of the B Kool ads has such high youth appeal. Research over many years has shown that adolescents emulate youth adults who strongly desire to be seen as "cool" in the eyes of their peers.

He noted that "[s]ome of the ads include visual cues, e.g. tattoos which are currently in vogue among teens. This imagery is likely to appeal to male adolescents." Edmonson also stated that the "B Kool" slogan was more likely to "resonate" with young adolescents than with smokers twenty-one to thirty years old. In response to B&W's contention that the advertising campaign was intended to target twenty-one to thirty year olds, Edmonson stated

it is foreseeable and inevitable that a marketing strategy directed at young adults which employs themes with particular appeal to adolescents (e.g. independence, desire to appear older, desire to be cool), . . . will, in fact, both appeal to and reach a large number of youth.

B&W did not change the content of the B Kool campaign in response to the concerns expressed by National Association of Attorneys General ("NAAG"). 282300205-0207 at 0205-0206 (US 20574); Smith WD, 32:20-33:8.

  1. In May 2000, B&W launched a new advertising campaign for Kool known as the "House of Menthol" campaign. B&W sought to market to youth through its "House of Menthol" advertising theme. Richard Newman, executive vice president and worldwide account director at BATES USA, stated that one of the meanings associated with "House" is house music, a type of music that is popular with teenagers. 700500191-0193 at 0193 (US 85223).
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  1. In March 2004, B&W issued a press release announcing the launch of the Kool Mixx campaign. As part of the campaign, a series of "Kool Mixx" advertisements appeared in the April 2004 edition of Rolling Stone magazine sent to subscribers over twenty-one. The advertisements featured cartoon-like images of DJs spinning CDs and young people dancing. The text of the advertisements included statements that

Kool recognizes DJs as the center of Hip Hop, inspired by the real feel and energy of the streets . . . DJ's are the Masters of the Hip Hop like Kool is the Master of Menthol. Kool Mixx special Edition Packs are our mark of respect for these Hip Hop Players.

The special edition packs referenced in the advertisements featured the same images of DJs and young people dancing. Also included in the April 2004 edition of Rolling Stone was a Kool Mixx CD/CD-Rom, described in the advertisements as "Your way to experience the sights and sounds of the Soundtrack to the Streets." The CD-Rom contained, among other things, soundtracks by various hip-hop artists, interviews with DJs, and a link to the website www.houseofmenthol.com, which the press release described as a "comprehensive, age-verified website for adult smokers" created as part of the KOOL Mixx campaign. Ivey WD, 28:4- 29:27, 33:1-34:20; ADV1150001-0117 (US 88094); Krugman WD, 116:3-122:7; USX5420003-0008 (US 89164). See http://www.trinketsandtrash.org/featured/koolcampaign.htm.

  1. Public heath organizations and Attorneys General of several states criticized B&W's Kool Mixx campaign for targeting youth. The African American Tobacco Prevention Network issued a statement "denounc[ing] a plan by Kool brand cigarettes to escalate its targeting of black youth and urban hip-hop culture by sponsoring a nationwide Hip-Hop DJ Competition, and creating a special cigarette package to market that event which by design appeals to youth." G. Steven Rowe,
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Maine Attorney General and Chair of the Tobacco Enforcement Committee, in a March 25, 2004 letter to Neil Mellon, wrote, "[t]he advertising images used in this campaign [hip-hop artists, DJ's, art, and culture] appear to us to hold particular appeal for teenagers." It was also brought to B&W's attention that individuals were able to gain access to www.houseofmenthol.com, its supposedly "age-verified" website, by providing false information.

  1. The Attorneys General of New York, Illinois, and Maryland filed lawsuits against B&W alleging that the Kool Mixx campaign violated the Master Settlement Agreement's provision against youth targeting. An affidavit filed in the New York litigation by Dr. Michael Kamins, Associate Professor of marketing at the Marshall School of Business, concluded that "the Kool Mixx Campaign targets youth, particularly African/American youth." On October 5, 2004, B&W and RJR reached a settlement with the state Attorneys General resolving these lawsuits. As part of the settlement, B&W and RJR agreed to pay $1.46 million to the Center for Disease Control Foundation, the National African American Tobacco Prevention Network, the American Lung Association of Metropolitan Chicago, and the Bobby E. Wright Community Health center to support youth smoking reduction and prevention programs. In addition, RJR agreed to no longer distribute Kool Mixx CDs or other Kool Mixx promotional items in magazines and to no longer sell Kool Mixx packs in retail stores. However, RJR can and does continue to use the Kool Mixx campaign. Ivey WD, 35:13- 41:11; Ivey TT, 11/16/04, 6153:11-6168:1; TLT1050314-0316 (US 86683); USX5430001-0004 (US 89167); USX5430005-0006 (US 89168); USX5430007-0008 (US 89169); USX5560025-0026 (US 90057); USX5560018-0024 (US 90056); USX5560031-0034 (US 90059); USX5560095-0114 (US 92037); USX5560035-0050 (US 90061).
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(4) R.J. Reynolds

  1. In a February 2, 1973 RJR document, titled "Research Planning Memorandum On

Some Thoughts About New Brands Of Cigarettes For The Youth Market," Claude E. Teague, Jr.,

Assistant Director of Research at RJR, set forth the following strategy for appealing to young people's desires to smoke popular and peer-approved brands:

A. Group Identification -- Pre-smokers learn to smoke to identify with and participate in shared experiences of a group of associates. If the majority of one's closest associates smoke [sic] cigarettes, then there is strong psychological pressure, particularly on the young person, to identify with the group, follow the crowd, and avoid being out of phase with the group's value system even though, paradoxically, the group value system may esteem individuality. This provides a large incentive to begin smoking. If this be true, then the same effect strongly influences the brand chosen, it likely being the popular, "in" brand used by ones [sic] close associates. Thus a new brand aimed at the young smoker must somehow become the "in" brand and its promotion should emphasize togetherness, belonging and group acceptance, while at the same time emphasizing individuality and "doing ones [sic] own thing."

502987407-502987418 at 7413 (US 20708).

  1. A March 22, 1982 document, titled "Export Family Strategy," discussed marketing strategy for Export cigarettes, RJR's leading Canadian brand:

It is hypothesized that very young starter smokers choose Export "A" because it provides them with an instant badge of masculinity, appeals to their rebellious nature and establishes their position amongst their peers. . . . It is at this transition point (ages 18-24) that Export "A" is declining in its ability to hold the young adult males as they go through the maturing process, due to its out-dated irrelevant image. . . . Since we cannot direct our media or our creative [campaigns] to starter smokers, the optimal target group is young adult smokers between the ages of 18-24. . . . The key influencing factor to initial brand selection amongst new smokers appears to be conformity to what their friends smoke . . . . While Export "A" appears to be chosen as a first brand based on this key influencing

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factor, we must strive for peer group acceptability throughout the maturing process, for all the Export brands.

800057286-7321 at 7299 at 7302 (US 21057).

  1. A June 29, 1983 report, titled "13-30 Corporation/R.J. Reynolds," summarized a meeting "[t]o develop concepts/options for media vehicle(s) for use in, on, under or around convenience stores which will satisfy the needs of . . . the convenience store customer . . . owner . . . [and] the R.J. Reynolds Company." The report described convenience stores ("Youth Oriented," "Hang-Out" and "Video Games"), convenience store customers ("Younger," "Children With Them," "Late at Night-Younger" and "Kids on Friday Night Buying Evening 6-Packs"), and convenience store purchasers ("Young, Single" and "People with Less Spending Money"). The report listed "beginning ideas" to be implemented at convenience stores to encourage purchase of RJR's cigarette brands, including "activity booklet appealing to young people – things to do," "develop a bike rack for kids with bikes -- create ad space," "hook-up cigarettes with other youth purchases," "have a video game token given away with purchase," "create a music channel that is closed-circuited into C.S. [convenience store] that is on-target to youth market," and "some kind of game or contest . . . via proof of purchase -- with a weekly winner. Could be video game – high school sports quiz." The report considered ways to connect RJR marketing to dating: "facilitate boy meets girl at C.S.," and "how to legitimize the boy/girl encounter -- e.g., movie schedules." 500863242-3272 (US 20654).

  2. In an RJR document dated June 14, 1984, titled "New Brands and Strategic Research Report: Project XG Qualitative Exploratory III MDD Topline Perspective," P.S. Cohen, an RJR employee, stated: "In recognition of the importance of younger adult smokers to RJR growth, Project Planning has been asked to develop a brand which appeals to the image and peer acceptance wants of 18-24 year old smokers." This effort was code-named "Project XG." Cohen further stated that, to appeal to the younger adult smoker, visuals would convey a sense of: "Adventure/controllable risk, Independence/freedom, Honesty/straightforwardness, 'In control'/ 'street-smart'/urban personality, Spontaneity/lack of inhibitions." 502034890-4895 at 4892, 4893 (US 20694).

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  1. A March 12, 1986 memorandum, titled "Camel New Advertising Campaign Development," labeled "RJR Secret," sent to David Iauco, RJR Senior Vice President for Marketing and R.T. Caufield, of the RJR Brand Group, described RJR's plans for developing the Joe Camel campaign: "Overall, CAMEL advertising will be directed toward using peer acceptance/influence to provide the motivation for target smokers to select Camel." 503969238-9242 at 9238 (US 79096).

  2. A 1988 RJR document, titled "Camel Advertising Development White Paper," discussed the importance of younger "adult" smokers and analyzed "[w]hy Camel has an opportunity to target younger adult smokers." The White Paper stated that

Marlboro's key strength relates to peer acceptability and belonging. . . . Marlboro is perceived by younger adult smokers as a brand which provides a sense of belonging to the peer group. A variety of research studies including the Segment Description Study, the Marlboro Vulnerability Analysis, in-market perception research, as well as in-depth qualitative [research] all show this.

The White Paper then discussed how Camel could reconfigure its market image in order to appeal to the "peer acceptability and belonging" themes so effectively exploited by Marlboro's advertising. 506768775-8784 at 8776, 8781-8784 (US 20764).

  1. An August 1988 report, titled "Permanent Young Adult OOH (Out of Home) Plan," discussed RJR's OOH marketing ("out of home" primarily refers to billboards and other outdoor advertising) and made recommendations for targeting the younger adult smoker ("YAS") market.
1129

The overall plan for RJR's billboard efforts was described as "[c]ontinuous, high impact visibility in the most YAS-oriented media available." The overall objective was to: "Assure continuous OOH presence for highest potential Brands, utilizing locations, units and creative executions that are uniquely and singlemindedly relevant to younger adult smokers." The report recommended placing billboards in the areas most likely to be frequented by young adults, including:

-- Near venues where rock concerts are regularly held.

-- Along cruising strips/streets with heavy concentrations of fast food restaurants and convenience stores.

-- Near technical colleges, military bases, video game arcades, city basketball courts, motocross tracks, major record stores, etc.

The report stated that, with respect to marketing in such areas, "[t]raditional OOH selection parameters do not necessarily apply! Highly 'daily effective circulation' not critical -- maybe YAS only in area on weekends -- that's OK!" 507286174-6181 at 6175-6576, 6178 (US 22051).

  1. A July 1989 internal RJR document, titled "Soundwaves Program Awareness and

Perception Study," declared that the Soundwaves Program was:

being developed to improve Salem's appeal, relevance, and share among younger adult smokers, the key subgroup fueling the brand's long-term decline. The program is designed to tie the Salem brand name with music, a very important and universal interest among younger adult smokers. The program will focus on the areas of music most meaningful to the 18-24 year old smoker target, new music, via various elements of the program-music magazine, record/tape offer, retail offers, media delivered offers, and local field marketing events -- club nites and talent search.

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  1. In 1989-1990, RJR also sought to develop a cigarette brand, "Uptown," targeted at young adult less well educated African Americans. Project Uptown was part of RJR's "Black Initiative" to increase RJR's share of eighteen to twenty year old black smokers by 2.5 points in 1990. An internal RJR document that pre-dated Project Uptown, "Black Opportunity Analysis," stated that "Black Smokers have been identified as a potential opportunity sector for RJR" and that "[s]everal studies have suggested that Blacks are becoming polarized into an 'elite' and an 'underclass' . . . [it] is the 'underclass' who are smokers." In a section of the document titled "Blacks as People," it states,

[i]nner city Black smokers are resigned to a future which permits only modest aspirations. . . . Younger adult inner-city black men seem to have fewer goals than the females. . . . From their discussions, it was evident that most of these men had surrendered to their dismal fate rather than actively seeking a solution.

A March 6, 1989 document produced from RJR files, titled "1990 New Marketing Ideas," referenced an "Inner-City Black Targeted Brand" that would be a distinctive cigarette brand targeted at the Inner-city Black smoker" and would "leverage the Black consumers' desire to use products which . . . are more 'potent' (e.g., Blacks drink malt liquor rather than beer)." An October 18, 1989 RJR marketing research report, titled "Project UT [Uptown] Creative Qualitative Research," stated "Project UT is a new brand targeted to younger adult Black smokers," and described the results of focus group testing conducted in Chicago among eighteen to twenty-four year old African American males and females who had "a high school or less education, and a total household income under $20,000 per year." Only after the then-Secretary of HHS, Dr. Lewis Sullivan, gave a speech condemning Uptown did RJR decide not to bring Uptown to market. Schindler TT, 1/25/05, 10952:4-10953:14; Schindler WD, 112:2-22, 121:19-24; 505925251-5295 at 5253, 5263, 5278 (US 89347); 507297419-7442 at 7438 (US 89351); 507318253-8287 at 8254, 8257 (US 89346).

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  1. Through smoker research, RJR knows that first brand choice is largely based on brand popularity and "peer pressure," which can be created and intensified by advertising and promotion. According to Edmund Leary,

Just like any -- any brand that's popular, people tend to pick a popular brand, and that's just the way people act . . . I think advertising and promotion can influence an adult smoker's brand choice, and I think, you know, if it's your first brand choice, if the brand is popular, that has lot to do with it, as well as what your friends smoke.

Leary PD, United States v. Philip Morris, 5/2/02, 60:25-62:23.

Case Study: RJR's Joe Camel Campaign 2963. RJR's Joe Camel is one of the most well-known images employed for cigarette

marketing. The development of Joe Camel, described below, highlights Defendants' efforts to market to youth.

  1. In the early 1980s, RJR did not have a successful young "adult" smoker brand that could challenge Marlboro's dominance of the younger smoker market. RJR had already tried, unsuccessfully, to transform Camel into a youth brand with its 1973 to 1978 campaign "Meet the Turk." Burrows PD, United States v. Philip Morris, 6/27/01, 55:9-56:14; Long PD, United States v. Philip Morris, 10/18/01, 66:4- 25.

  2. Between 1979 and 1982, RJR CEO Edward A. Horrigan, Jr. initiated the Joe Camel campaign by asking his marketing department to look at the French "Funny Camel" campaign, which had been very effective with young people in France, to see if RJR could reinvigorate Camel with a similar approach. As a February 7, 1984 memorandum from Dana Blackmar to Rick McReynolds stated: "I think the French advertisement for Camel Filters is a smash. It would work equally well, if not better, for Camel Regular. It's about as young as you can get, and aims right at the young adult smoker Camel needs to attract." 502303940-3940 (US 22067); Horrigan PD, United States v. Philip Morris, 10/25/01, 25:1-27:8.

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  1. In 1984, Frances V. Creighton of the RJR Marketing Research Department prepared an "Established Brands Research Proposal: Camel Younger Adult Campaign Focus Groups," a proposal that sought to "qualitatively explore three creative strategies/campaigns for their appeal, relevance, and fit with Camel among target 18-20 year old smokers." In order to compete with Marlboro, "the Brand is currently developing new advertising creative targeted to younger adult male smokers. Three advertising strategies are being pursued . . . : Freedom and Independence, Interactive Sociability, and Pack Graphics." 521895585-5587 at 5585 (US 20902).

  2. In an October 18, 1984 document, titled "Younger Adult Smoker Perceptions of Camel," Charles A. Martin of the RJR Marketing Development Department discussed how young adults' perceptions of Camel could be used to increase market share, especially among FUBYAS (First Usual Brand Younger Adult Smokers). Martin stated:

Camel is excellently positioned to appeal to FUBYAS who want to project themselves as being different from the crowd because they seek the ultimate in adventure and excitement. It supports this image through its heritage and mystique. Camel is a brand which differentiates itself from the vast majority of other cigarettes in the market. Camel projects an image of virility that is heroic and "larger than life." And, as it is a brand that's not for everyone, Camel is exciting to smoke.

503561565-1570 at 1567 (US 21704); 502656424-6660 (US 87821).

  1. A February 1, 1985 focus group report written by Martin, titled "Established Brand Research Proposal: Camel Younger Adult Smoker Focus Group," stated that, "[d]ue to the growing importance of younger adult smokers, Camel has developed a campaign which is directed solely towards this group." Martin summarized the findings of the focus group:
1133

Overall, many of the male and female respondents held negative user and product perceptions of Camel. In their minds, Camel was thought to be a non-filtered, harsh product smoked by older males. However, exposure to the younger adult ads appear to somewhat improve these attitudes. This improvement stemmed primarily from two characteristics: humor, and relevancy to younger adult smokers. Certain ads did convey the message that Camel was an acceptable choice for younger adult smokers.

Martin also discussed focus group reactions to advertisements featuring the "French Camel," which was the precursor to the Joe Camel campaign:

These ads were well-received due to the fun/humor aspects of the cartoons. More than any other theme, the "French Camels" appeared to attract the respondents' attention. The main drawbacks of these executions were that: one, they may be more appealing to an even younger age group and two, there is some confusion as to the meaning behind them (some focus group members were hard-pressed to explain the purpose of the ads).

521895554-5555 at 5554 (US 52788); 504585737-5757 at 5738-5739 (US 50628).

  1. RJR continued to work toward launching its Joe Camel campaign, even though another company executive explicitly raised the issue of Joe Camel's appeal to youth. A March 5,

1985 memorandum from J.S. Carpenter, RJR Tobacco International employee, to John Winebrenner about the "Funny French Camel Design" described RJR's use of the "French Camel" campaign to attract young smokers in France. Carpenter wrote:

I must caution that this design was used in France during a time when an attempt was being made to "youthen" the brand; the entire advertising and promotional campaign used at the time was geared to this end, with the "funny" Camel playing a key role in the advertising. Indeed the design did help to achieve this end.

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  1. In a March 12, 1986 memorandum, titled "Camel New Advertising Campaign Development," labeled "RJR Secret," R.T. Caufield, of the RJR Brand Group, emphasized appealing advertising as key to repositioning Camel for younger smokers:

It is recommended that creative efforts reflect a primary focus on developing advertising which is highly relevant, appealing and motivational to 18-24 male smokers. This recommendation is based on consideration of the marketplace dynamics which are perpetuating Marlboro's growth (i.e., brand loyalty and peer influence), and which strongly suggest that repositioning Camel as the relevant brand choice for younger adult smokers will be critical to generating sustained volume growth.

The report indicated that "advertising will be developed with the objective of convincing target smokers that by selecting Camel as their usual brand they will project an image that will enhance their acceptance among their peers." 503969238-9242 at 9238 (US 79096).

  1. In 1988, RJR finally launched the Joe Camel campaign with the "Camel's 75th Birthday Celebration," a year long print and billboard advertising, promotional, and point of sale campaign. During the twenty years preceding the Joe Camel campaign, Camel's share of the overall cigarette market fell by more than 50%, from 9.2% to 4.3%. Camel had only 2.4% of the fourteen to seventeen year old market in 1979, according to internal RJR data. In 1986, Camel's market share among eighteen to twenty-four year olds was 3.2% . By 1993, by virtue of the Joe Camel campaign, Camel had increased its share of the teenage market to an astonishing 13.3%, according to both official government survey data and data from surveys conducted by RJR itself. In contrast, Camel's share of adult smokers only increased from 2.7% to 4% between 1988 and 1993. 506763382-3402 at 3383 (US 22231); Eriksen WD, 1/17/05, 49:7-53:5; VXA1900036-0049 (US 63946).
1135

  1. RJR had extensively planned and researched the 75th Birthday Campaign before its launch in 1988. For example, in an August 21, 1987 RJR memorandum, titled "Camel's 75th Birthday Plan," Yasmin Jones stated that campaign promotional ideas "must appeal to the 18-34 year old mindset," and included an example of a "Party Animal" magazine pop-up insert. 521190415-0418 at 0416 (US 20895); 506885567-5603 (US 87823).

  2. In another example of RJR's testing of its Camel's 75th Birthday Campaign, Frances V. Creighton prepared a November 1987 report, titled "Marketing Research Proposal -- Camel Project Big Brand Perceptions Tracking Study." The report indicated that the planned market testing would "evaluate target smokers' perceptions and attitudes toward Camel before and after the launch of [Camel's] 75th Birthday celebration" among a target audience of eighteen to thirty-four year old males. 521895557-5559 at 5557 (US 20900).

  3. A 1988 RJR document, titled "Camel Advertising Development White Paper" provided the roadmap for RJR's repositioning of Camel with the Joe Camel campaign in order to reduce Marlboro's majority share of the young smoker market: "[O]nly about 5% of all smokers start smoking after the age of 24 . . . . The majority of younger adult smokers will stay loyal to their first brand choice." It stated that Camel's current image, conveyed through advertising, was too "old," and that advertising using younger models and themes that appealed to youth (independence, rebelliousness, etc.) could make Camel's image younger:

Camel's current existing market image (i.e., brand perceptions, not advertising perceptions) includes aspects that are highly consistent with the wants of younger adult males . . . including: independence, doesn't follow crowd, lives by own set of rules, stands up for beliefs, not afraid to express individuality, enjoys being different, won't settle for ordinary. . . . The major weaknesses in Camel's in-market image is that it is not considered by younger adult smokers to be

1136

contemporary, and thus is not relevant. Negative perceptions include: . . . a lot older than me. . . . In order to fully target the younger adult market, Camel must displace Marlboro as the younger adult brand. Simply speaking, Marlboro is the younger adult smoker market. . . . Marlboro's key strength relates to peer acceptability and belonging. . . . Marlboro is perceived by younger adult smokers as a brand which provides a sense of belonging to the peer group. . . . The [Camel] advertising should elicit an emotional response to positively motivate target smokers to rethink their brand choice. . . . In order to stimulate [youths] to think about brand alternatives, the advertising and brand personality must "jolt" the target consumer. Since Camel does not have a demonstrably different or unique product (rational) benefit to sell, this jolt needs to be based on an emotional response and is unlikely to be accomplished with advertising which looks conventional or traditional. Studies have shown that the so-called "hot buttons" for younger adults include some of the following themes: Escape into imagination. . . . Excitement/fun is success: Younger adults center their lives on having fun in every way possible and at every time possible. Their definition of success is "enjoying today" which differentiates them from older smokers.

506768775-8784 at 8777, 8779-8783 (US 20764) (emphasis in original).

  1. Advertisements often showed the cartoon character Joe Camel hanging out at bars, visiting casinos, riding motorcycles, or driving cars; Joe Camel was also portrayed as a cool, rebellious, and adventuresome character, all themes with great appeal to teenagers. Biglan WD, 320340; see also (no bates) (US 8748); (no bates) (US 8815); (no bates) (US 2166); (no bates) (US

8590); (no bates) (US 9271); (no bates) (US 8521); (no bates) (US 8835); (no bates) (US 8905); (no bates) (US 1809).

  1. Francis Creighton prepared a January 27, 1988 "Marketing Research Proposal 'Heroic

Camel' Advertising Test" recommending that RJR conduct market research to determine the effectiveness of the "Heroic Camel" advertising campaign, and assure that it was positively received by eighteen to thirty year olds. The "Heroic Camel" campaign showed Joe Camel in a "series of

1137

'heroic' situations drawn from bigger than life fictional characters," including as a fighter pilot, a foreign legionnaire, "Hollywood," and a detective. These advertisements were run in 1989. 521895566-5570 (US 24813*).

  1. An RJR document, titled "Volume Impact of Camel YAS Growth," examined Camel growth among young adult smokers in 1988 after the start of the Joe Camel campaign:

In 1988, Camel Regular posted a 2.2 point national gain in usual brand share among males 18-24 (the brand's target) and a gain of 1.4 points among total 18-24 (YAS). This was the largest 12-month YAS gain ever recorded on Tracker, for Camel or any other RJR brand.

517161869-1876 at 1869 (US 80669).

  1. In an internal RJR March 20, 1989 memorandum, titled "Camel Performance Analysis," from G.C. Pennell to J. T. Winebrenner and R.M. Sanders, Pennell stated that

Camel's ability to reach and convert younger adult smokers is significant with the eighteen to twenty year old group driving this growth. Accordingly, the brand should maintain its single-minded focus against this important smoker group.

517161877-1877 (US 80670).

  1. In 1989, RJR utilized "program 900162," which included "buy one, get one free coupons." It also placed the following advertisements in various media: (a) an advertisement with the words "Bored? Lonely? Restless? What you need is . . ." featuring the face of a beautiful woman gazing at the reader; (b) advertisements captioned "Camel Smooth Moves," including "Smooth Move #325 - Foolproof Dating Advice," which advised "[a]lways break the ice by offering her a Camel;" and "Smooth Move #334 - How to impress someone at the beach," which advised that the reader "[r]un into the water, grab someone and drag her back to shore, as if you've saved her from drowning. The more she kicks and screams, the better" and "[a]lways have plenty of Camels ready when the beach party begins"; and (c) an advertisement captioned "Smooth Move #437 -- How to get a FREE pack even if you don't like to redeem coupons." 513590183-0185 (US 20854).
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  1. A September 15, 1989 RJR document, titled "Diez Y Seis Fiesta Event Summary," reported on Camel marketing at the Denver Diez Y Seis Fiesta, a festival that offered "kiddy rides, vendor booths, and live entertainment on both stages." A similar Dallas event included a midway area with carnival rides for the children: "Camel presence, as a major sponsor, was certainly realized by all those at the event.25 The FTC held a public hearing on November 30, 1966. Official Transcript of Proceedings, In The Matter Of Methods to Be Employed in Determining Tar and Nicotine Content of Cigarettes (Nov. 30, 1966), JD 004748. -750- large banners were hung around the perimeter of the park. The Camel 30-ft. inflatable giant pack was situated next to the main stage." A Camel basketball game in a "freestanding booth with banners, flags and giant packs" was located in the midway area with children's carnival rides which achieved "maximum brand impact." The documents indicated that 2,000, 5,000, and 28,000 free samples of cigarettes were distributed at these three events, respectively. 507525019-5023 at 5020, 5022 (US 20778).

  2. A May 4, 1990 RJR report, titled "Camel Brand Promotion Opportunities," discussed a number of promotional items geared directly at "young adult target smokers." The report described the "target smokers" as

approaching adulthood, hence they are sensitive to peer group perceptions regarding their maturity and masculinity. . . . Young adult target smokers are active, sociable and fun loving in nature. Their key interests include girls, cars, music, sports and dancing -- all of which can include family and friends and can be accomplished on a limited budget.

The promotional items suggested by this report included blank audio tapes with Camel logo, a Camel Walkman case and other "entertainment-oriented incentives." Other suggestions included the

1139

"Camel pocket game," which included chess, checkers, dominoes, or Parcheesi, all using Camel logos, graphics and visuals. 509216033-6056 at 6035-6036, 6041, 6044-6045 (US 20826).

  1. Joe Camel advertisements run in the 1990s used the same themes and techniques which RJR used during Camel's 75th Birthday Campaign advertisements in 1988. The 1990s advertisements continued to portray Joe Camel as cool, rebellious, and adventuresome, showed him engaged in adult activities, and offered "Camel Cash," which could be redeemed for promotional items such as t-shirts, lighters, and mugs. One such advertisement, which RJR placed in various print media in 1992, was captioned "Camel Lights." It depicted Joe Camel wearing sunglasses, a t- shirt, and blue jeans, with a pack of cigarettes rolled up in his sleeve and a lit cigarette hanging from his mouth, while casually leaning against a convertible car. 509131534-1534 (US 21717); 515123613-3634 (US 87828).

  2. An April 1991 RJR Executive Summary, titled "Operating in a Restricted Environment," predicted that greater future restrictions on RJR's marketing and advertising were a virtual certainty, and explored ways to continue marketing RJR's brands if such restrictions were implemented. The summary stated that the Joe Camel cartoon campaign was particularly at risk, and suggested that RJR should "[b]egin now to explore ways to transfer Old Joe's irreverent, fun loving personality to other creative properties which do not rely on models or cartoon depictions." The summary also stated: "Outdoor advertising continues to bear the brunt of anti-smoker criticism as regards unrestricted exposure to youth, and in fact, it is the medium that we are least able to defend in these terms." 507755082-5094 at 5085, 5091 (US 20787).

  3. In an October 1991 research summary, titled "A Qualitative Assessment of Camel Advertising Equity," Ellison Qualitative Research reported to RJR the findings of focus groups of young adult smokers, ages eighteen to thirty-four which were conducted to measure consumer perceptions of Joe Camel advertising. The research study found that:

1140

By all indications, the repositioning of the Camel brand seems to be generating a sense of upgraded appeal and relevance among key smoker segments -- particularly adult males 18-24. A principal part of the repositioning -- the 'Smooth Character' advertising and integrated communications programs -- appear to be critical in helping to make the recent Camel effort successful.

507642890-2934 at 2892 (US 22055).

  1. In a March 16, 1992 letter, Thomas C. Griscom, RJR's Executive Vice President, External Relations, forwarded to Preston Kirk a compilation of Camel market data that included data on twelve to seventeen year olds. This data included

No. [number] of Smokers Underage (12-17). . . . Total Cigarettes Smoked Per Year -- Underage. . . . Percentage of Total Cigarettes Accounted For by Underage Smoker. . . . Camel's Share-of-Market Among Underage Smokers. . . . Total Camels Purchased by Underage Smokers . . . [and] Percentage of Camels Bought by Underage Smokers.

512027239-7240 at 7240 (US 20845).

  1. A November 1993 Roper Starch report on an "Advertising Character and Slogan Survey" was conducted with a "national sample of young persons, age 10 to 17 years" to track awareness of the Joe Camel Campaign. The study found that 86% of the ten to seventeen year olds surveyed recognized Joe Camel. Joe Camel was identified correctly as advertising cigarettes by 95% of the ten to seventeen year olds who claimed awareness of the Joe Camel character. This percentage was higher than the percentage of children who knew that Ronald McDonald advertised McDonald's fast food and within 1% of the number of children who knew that the Keebler elves advertised cookies. The top two responses of ten to seventeen year olds to the open ended question of "How would you describe Joe Camel?" were (a) he smokes, and (b) he is "really cool/acts cool/ thinks he's cool." 517145060-5108 at 5064, 5082, 5085 (US 20877).
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  1. Three cigarette advertisements used by RJR in 1996 included offers of Camel Cash. Two showed Joe Camel wearing sunglasses and a leather jacket and offered $25 savings on Ticketmaster tickets with 100 Camel Cash C-States; in one, Joe said "Wanna see a show?" and in the other, Joe said "Go ahead, it's on me." The third advertisement showed Joe Camel driving a car, saying "Take a Rockin' Road Trip" and included an offer of $25 savings on Ticketmaster tickets for "Camel Cash." 526310001-0015 at 0001,4 One cannot help wondering whether this litigation was the best vehicle for attempting to hold Defendants accountable for their indifference 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 address broad-scale economic and social problems which might be far better and more appropriately grappled with by our elected representatives. (US 21979); 509137483-7486 at 7483 (US 21982).

  2. Even after Joe Camel was replaced with "Kamel" and other campaigns for Camel cigarettes in 1998, RJR continued to market the brand to young people, particularly through its media placements. For example, the "Camel 1999 Media Recommendation" recommended that RJR "select and utilize media that provide a sense of change, disruption, and high impact." 522668862-8890 at 8864 (US 20911). The "Camel 1999 Print Selection Rationale" identified magazine titles based on their ability to "[f]ollow the latest music trends and entertainment news, [e]njoy the nightlife, [a]bility to evoke change and disruption." 522669065-9093 at 9068 (US 20913).

  3. The "1999 Camel Media Recommendation Print Categories" recommended that Kamel "Core" Books should be Bikini, Jane, Spin, and others, because of their younger reader profile. 522694030-4038 at 4030, 4307 (US 20914).

  4. The "Camel 1999 Final Media Recommendation" identified as its objective to "[s]olidify awareness of Camel's brand identity among the target audience, adult smokers 21-24 (core target) . . . described as confident, fun-loving, adventurous, slightly irreverent, and having an individualistic attitude and outlook on life." 522728272-8320 at 8274 (US 21831).

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c. Defendants Continue Price Promotions for Premium Brands Which Are Most Popular with Teens 2991. Defendants recognize that youth and young adults are more responsive to increases

in cigarette and other tobacco prices, and will not try smoking or continue to smoke if cigarette prices rise. Chaloupka WD, 94:23-124:4. Despite that recognition, Defendants continue to use price-based marketing efforts as a key marketing strategy. As a result, price reductions, initiated by the cigarette company Defendants, such as sharply dropping the wholesale price of cigarettes most popular with young people, have reduced the rate of decline in overall cigarette smoking and contributed to the increases in youth smoking incidence and prevalence observed during much of the 1990s. Chaloupka WD, 86:5-87:13.

  1. A June 1997 article published in the peer-reviewed journal Pediatrics, "The Food and Drug Administration's Rule on Tobacco: Blending Science and Law," contains the data confirming that children and teens are more price sensitive than adults and that pricing has an immediate and direct impact on cigarette sales to minors. HHS1202891-2895 (US 59999).

  2. Defendants' price-related marketing efforts, including coupons, multi-pack discounts, and other retail value added promotions, have partially offset the impact of higher list prices for cigarettes, historically and currently, particularly with regard to young people. Id. at 61:3-6. David Beran, Executive Vice President of Strategy, Communications and Consumer Contact for Philip Morris, has acknowledged that the recently decreasing rate at which the retail price of cigarettes has increased is attributable to price promotions. Beran TT, 4/18/05, 19377:7-10.

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  1. Defendants could significantly reduce adolescent smoking by withdrawing their opposition to tax increases and stopping all price related marketing (i.e., discounting and value added offers of cigarettes), especially in convenience stores, where this kind of marketing is concentrated and where young people are more likely to purchase cigarettes. Chaloupka WD, 124:7- 136:20; 250025505-5505 (US 25343); 2041787758-7815 at 7795 (US 38236).

  2. A February 1982 National Bureau of Economic Research ("NBER") report, titled "The Potential for Using Excise Taxes to Reduce Smoking," examined the effect of teenagers' price sensitivity on their cigarette purchases and concluded that "price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to smoke rather than via adjustments in the quantity of cigarettes smoked." VXA0501915-1917 at 1915 (US 64544).

  3. Defendants used price promotions, in large part, to meet increased competition from discount cigarettes which have been gaining market share since the early 1990s. (no bates) (JD 053268). On April 2, 1993, when the gap between the price of Marlboro and discount cigarettes had grown to 90% and Marlboro had lost two points of market share in one year, Philip Morris decided to lower the price of Marlboro by about $.40 per pack (known as "Marlboro Friday"). These price reductions were quickly matched by other cigarette manufacturers on premium brands. The program worked. Marlboro's share of the market increased 1.1 points in April and May 1993. Beran WD, 134:7-136:11; (no bates) (JD 041431); (no bates) (JD 048635); (no bates) (JD 040639); (no bates) (JD 048637). Given the impact of price on youth initiation, a fact fully recognized by Philip Morris and the other Defendants, there is no question that this enormously successful marketing technique had a significant effect on youth smoking incidence.

1144

  1. Since signing the MSA, Defendants have increased the list price of their cigarettes. At the same time, they have enormously increased their promotions, thereby, in effect, decreasing the real price of cigarettes to consumers. Defendants continue to oppose cigarette taxes that would raise cigarette prices and deny that such tax increases will affect youth initiation. Chaloupka WD, 124:7-136:20.

  2. There has, as noted, been a dramatic increase in Defendants' use of price promotions in recent years. In its Report to Congress for 1999 Pursuant to Federal Cigarette Labeling and Advertising Act, issued in 2001 ("2001 FTC Report"), the FTC reported that in 1999 (the year after the MSA went into effect), $3.54 billion, or 43% of the tobacco industry's advertising and promotion expenditures, were devoted to trade promotions, up from $856 million in 1987. 1900082-0107 (US 60663). According to the 2001 FTC Report, in the year after the MSA was implemented, spending on retail value added offers (e.g., buy one, get one free) rose 64.6% to $2.56 billion. Chaloupka WD, 82-84.

  3. The following examples of internal company documents, testimony, and admissions, demonstrate that although Defendants have long recognized young people's price sensitivity, they still continue to offer lower priced cigarettes which contribute to an increase in youth smoking.

(1) Philip Morris 3000. A September 18, 1956 Philip Morris inter-office memorandum "re: College Survey"

from George Weissman, Vice President of Philip Morris, to Dr. R.N. DuPuis, Philip Morris Scientific Research Director, described the results of a 1956 college survey conducted by Elmo Roper for Philip Morris. In a section of his memorandum titled "The Economics of Cigarettes," Weissman stated:

1145

Sixteen per cent of the students who never smoked gave "too expensive" as a reason. Seventeen per cent who gave it up gave this as a reason. An even larger percentage suggested reduction in price. Again, this brings to mind the possibility of a less expensive unit of sale if such a unit can be controlled and strictly confined to the college market.

2022240073-0075 at 0074 (US 20359).

  1. In a May 21, 1975 memorandum to Robert B. Seligman, Director of Commercial Development, Tobacco Products at Philip Morris, titled "The Decline in the Rate of Growth of Marlboro Red," Philip Morris Senior Economist Myron E. Johnston analyzed data on "younger teenagers," including fifteen to seventeen year olds. Johnston blamed price elasticity and young peoples' price sensitivity for Marlboro's decline in sales in 1974:

I think price elasticity, like income elasticity, has a greater effect on lower income people than on those with higher incomes. As mentioned above, Marlboro smokers, being younger, tend to have lower incomes. Thus, Marlboro sales are probably more responsive to price changes than are the sales of brands which appeal to older segments of the population.

Johnston postulated that, with any general increase in cigarette prices, "I would expect a disproportionately large number of Marlboro smokers to quit smoking or reduce daily consumption." 1003285497-5502 at 5497, 5500 (US 20160).

  1. In a September 17, 1981 memorandum to Harry Daniel, a Philip Morris Research and Development employee, Johnston discussed the March 1981NBER working paper, titled "The Effect of Government Regulation on Teenage Smoking," which examined "the impact on teenage smoking of: (1) the excise tax on cigarettes, (2) the FCC Fairness Doctrine [which mandated equal-time antismoking commercials for all cigarette commercials], and (3) the cigarette advertising ban." Johnston stated that the NBER working paper was:
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the only study I know of that attempts to determine the price elasticity of cigarettes among different groups. Because of the quality of the work, the prestige (and objectivity) of the NBER . . . I think we need to take seriously their statement that if future reductions in youth smoking are desired, an increase in the Federal excise tax is a potent policy to accomplish this goal. . . . Most researchers, myself included, have concluded that the best estimate of the price elasticity of cigarettes is about -0.4, i.e. that a ten percent increase in the retail price of cigarettes will cause a decline of about four percent in cigarette sales; . . . that the price increases would have less impact on the . . . older and therefore more habituated smokers, than on other smokers.

1003478193-8196 at 8193-8194 (US 20175).

  1. In Johnson's September 17, 1981 memorandum, he discussed findings by the NBER that teens and young adults are up to three times more sensitive to price increases and the inflationary loss of purchase power than are older smokers, stating that "it is clear that price has a pronounced effect on the smoking prevalence of teenagers." Anticipating a higher excise tax, Johnston predicted:

"[G]iven the evidence that individuals are considerably less likely to initiate smoking after age 25, it is quite possible the cohort . . . who never begin to smoke as a result of the tax increase would never become regular smokers." 1003478193-8196 at 8195, 8196 (US 20175).

  1. In a January 5, 1982 memorandum to Harry Daniel, titled "Cigarette Price Elasticities and the Implications for [Philip] Morris," Johnston again analyzed the effect of excise tax increases on demand for cigarettes, especially among teenagers, and concluded that "any increase in the price of cigarettes will have its greatest effect on the young, and, in particular, on young males."

1003478185-8191 at 8189 (US 35774); 2049456635-6650 at 6639 (US 20487).

  1. A December 6, 1982 Philip Morris report, titled "Price Elasticities, Excise Taxes, and

Cigarette Sales," outlined Philip Morris's opposition to raising excise taxes on cigarettes despite studies showing that raising cigarette prices was the most effective way to reduce youth initiation and youth smoking. The report reflected Philip Morris's knowledge that "[t]he main effect of an excise tax increase will be to reduce the number of young people who begin to smoke." Nonetheless,

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Philip Morris continued to vigorously oppose all cigarette excise tax proposals. 2049456670-6694 at 6684 (US 20489).

  1. In a September 3, 1987 Philip Morris memorandum to Jon Zoler and others titled

"Handling an Excise Tax Increase," Johnston stated that:

You may recall . . . that Jeffrey Harris of MIT calculated on the basis of the Lewin and Coate data, that the 1982-83 round of price increases caused two million adults to quit smoking and prevented 600,000 teenagers from starting to smoke . . . this means that 700,000 of those adult quitters had been PM smokers and 420,000 of the non-starters would have been PM smokers. Thus, if Harris is right, we were hit disproportionately hard. We don't need to have that happen again.

2022216179-6180 (US 76177).

  1. In a 1994 speech, Philip Morris's Tina Walls congratulated company employees for defeating twenty-seven of thirty-seven government attempts to increase price through excise taxes, stating: "Your batting average on state excise taxes has been outstanding." 2024252441-2562 at

2441 (US 21984).

  1. On September 4, 1997, James J. Morgan, President and Chief Executive Officer of

Philip Morris USA, testified that

I believe that . . . higher prices in the industry, whether by excise tax or manufacturer's price increases . . . affect industry consumption, and . . . they lower industry consumption. And I believe that there are two groups of people who are . . . impacted the most by higher prices . . . and . . . both [groups have] the least disposable income. One is what I would call young adult smokers . . . people who smoke who are

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arguably strapped of . . . cash, and the other [group] would be older people on fixed incomes who are also strapped of cash.

Morgan PD, Minnesota v. Philip Morris, 9/4/97, 219:23-220:15.

  1. A November 1994 report, titled "Profile of the Young Adult Marlboro Smoker Part 1: Males,18 Defendants assert that the statements of their C.E.O.s before the Waxman Subcommittee in 1994 constitutes petitioning activity protected from any imposition of liability under the Noerr-Pennington doctrine. See, Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers v. Pennington, 381 U.S. 657 (1965). This legal issue is addressed fully in the Conclusions of Law. The facts, as recounted herein, speak for themselves. -637- to 24 Years Old," shows that, through its continuous smoker tracking survey, Philip Morris researched the price sensitivity of Marlboro male smokers age eighteen to twenty-four by analyzing their sensitivity to promotions such as coupons and "continuity" items (gifts such as t- shirts). The report recognized that the biggest threat to Marlboro Red's dominance of the eighteen to twenty-four year old category was possibly discount brands which offered lower priced cigarettes than Marlboro. The report recommended that, in order to counter this threat, Philip Morris should provide coupons and continuity items to these smokers to keep them from switching or, presumably, from quitting smoking. 2048735500-5604 at 5561 (US 21971).

  2. Philip Morris relied much more heavily on retail promotions in the late 1990s than it did during the mid-1980s because of the increase in the price of cigarettes and the increased presence of discount brand cigarettes. Mikulay PD, United States v. Philip Morris, 7/1/02, 145:13- 146:19.

  3. Carolyn Levy, Senior Vice-President and Director of the Youth Smoking Prevention Department from its inception in April 1998 to approximately March 2002, admitted that Philip Morris was aware that "the price of cigarettes for some kids appears to be an important variable in preventing them from smoking." She also acknowledged that "Philip Morris was aware that youth smoking behavior was price sensitive as a result of data in the Philip Morris TABS [Teenage Attitudes and Behavior Study] survey," which concluded that "[f]or children who do not smoke, the percentage of 11 to 14 year olds who agree that smoking is expensive is around 33 percent." Levy WD, 95:15-17.

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  1. When she was head of Philip Morris's Youth Smoking Prevention department, Carolyn Levy took the position that the company should not oppose taxes on cigarettes because tax increases reduced teenage smoking, due to of the price-sensitivity of teenagers. Further, although Levy "told Mike Szymanczyk [Philip Morris CEO] that [she] thought that Philip Morris should stop fighting excise tax increases or take a neutral position," she claimed she did not know if Philip Morris took "any action as a result of [her] recommendation." Levy WD, 96:1-97:23. As noted earlier, it did not.

  2. Philip Morris Companies' CEO Geoffrey Bible said that he "assumes that young people are sensitive to prices," so smoking incidence would decrease due to price increases. Bible PD, United States v. Philip Morris, 8/22/02, 245:8-20.

(2) Liggett 3014. Liggett's President of the Northern Strategic Business Unit stated that Liggett is aware

that price affects consumption. Petch PD, United States v. Philip Morris, 10/12/01, 101:25-102:21.

  1. Liggett spent $113 million on promotional programs for its discount brands, including point of sale materials, buy downs, marketing accruals and coupons. Id. at 65:12-66:16.

(3) Lorillard 3016. A March 20, 1992 Lorillard memorandum from S.R. Benson to S.T. Jones, Director

of Product Development and Marketing Research, regarding "Price Sensitivity By Age" stated that

there is some evidence that the younger adult smokers currently smoking a full price brand may be demonstrating a sensitivity towards price . . . it is clear that the younger adult, 18-24 smoker

1150

group, although still smoking a full price brand, 'claim' a greater sensitivity towards price than the older age groups.

82849666-9667 at 9666 (US 55569).

(4) Brown & Williamson 3017. Since approximately 2000, B&W has spent more on discounting or reducing the price

of Kool cigarettes than any of its other brands, according to Paul Wessel, the Current Divisional Vice President at B&W in charge of value for money premium niche brand and new product development. Wessel PD, United States v. Philip Morris, 3/19/03, 28:17-29:1.

  1. Wessel claimed that he was unaware of whether youths were price sensitive and whether B&W had ever taken a position on the price sensitivity of youth. Id. at 36:23-37:12. That statement is not credible in light of his corporate responsibilities and B&W's oft-claimed sensitivity to avoiding the marketing of its products to youth.

(5) R.J. Reynolds 3019. In a September 20, 1982 memorandum, titled "Estimated Change In Industry Trend

Following Federal Excise Tax Increase," to P.E. Gaylan, a Marketing Research Department employee, Diane Burrows estimated how the cigarette industry would be affected by a federal excise tax increase. The memorandum included data on "starting age patterns," "[s]tarting age," and "new smokers." Burrows estimated that an excise tax increase would result in 1,759,000 "new smokers" lost to the industry. Their potential consumption, if they had smoked ten cigarettes a day, would amount to 605 million cigarettes, or .1% of the industry total. Burrows stated that: "[s]ince the Industry growth rate depends on new smokers, losses in these groups can change the direction of the

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Industry trend." 501988846-8849 at 8846, 8846-8848 (US 20692); 504630598-0702 at 0701 (US

  1. In a September 20, 1982 internal memorandum to J.W. Johnston and H.J. Lees, Greg Novak, RJR Group Director of Marketing Services, stated:

Our Forecasting Group has determined that younger adult smokers, particularly younger adult male smokers, tend to be very price sensitive. The effect of a price increase on younger adult male smokers could be three to four times greater than on smokers in general, in terms of negative impact on volume.

500151647-1647 (US 21785).

  1. A September 27, 1982 RJR memorandum from Burrows to P.E. Galyan summarized the conclusions of the NBER on relative price sensitivity and stated:

A key finding is that younger adult males are highly sensitive to price. This suggests that the steep rise in prices expected in the coming months could threaten the long term vitality of the industry, by drying up the supply of new/younger adult smokers entering the market. It could also undermine the long range growth potential of brands which rely on new/younger smokers, including Marlboro and Newport.

503011368-1369 at 1368 (US 20709).

  1. In an August 1986 report, titled "R.J. Reynolds Quarterly Industry Cigarette Demand Model," Data Resources updated RJR's earlier information regarding price elasticity. The report stated: "The current research effort has endeavored to test the validity of the relative price elasticity estimates and to further develop some conclusions concerning the impact of the anti-smoking campaign and changes in real income." A chart included in the report, titled "1965 World Incidence," showed an age category of "12-17" year olds. 505611105-1138 at 1106, 1124 (US 20744); 519498624-8749 (US 87844*).
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  1. In its Joe Camel campaign, which began in 1988, RJR relied heavily on price promotions such as coupons and "Camel Cash." Coupons were placed in magazines with substantial youth readership, such as Rolling Stone and Sports Illustrated. As one example, on November 21, 1988, RJR placed Camel advertisements that included coupons for a free pack in Sports Illustrated. 509131376-1378 (US 20822).