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STATE OF MINNESOTA

DISTRICT COURT COUNTY OF RAMSEY

SECOND JUDICIAL DISTRICT

File No. C1-94-8565

The State of Minnesota, by Hubert H. Humphrey, III, its attorney general, and Blue Cross and Blue Shield of Minnesota,

Plaintiffs,

vs.

Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, B.A.T. Industries P.L.C., Lorillard Tobacco Company, The American Tobacco Company, Liggett Group, Inc., The Council for Tobacco Research-U.S.A., Inc., and The Tobacco Institute, Inc.,

Defendants.

TRANSCRIPT OF PROCEEDINGS

VOLUME 5, PAGES 843 - 1032

JANUARY 26, 1998 P R O C E E D I N G S.

THE COURT: Good morning.

(Collective "Good morning." )

THE COURT: On January 23rd, 1998, the defendants, with the exception of Liggett Group, filed a motion to strike the venire and/or jury before the Honorable Kenneth Fitzpatrick of Ramsey County. Each of the 24 members of the panel was questioned by the court and asked whether each would base their decisions only on the evidence presented in court, apply the law as the court instructed, set aside their own opinions and be fair and impartial. The panel should understand, as the court stated, that what we are attempting to do here is select 12 people who will be fair and openminded to the evidence as presented during the trial, and what we need is for you, the jurors, to examine your conscience and answer the question fairly and honestly. To be a fair juror, you have to be able to say to yourself I'm willing to have an open mind, I've made no pre-judgments, and I'm willing to listen to all of the evidence that they present to me, and after I've heard all of that evidence, then I will be -- I will make a decision based on the evidence that's presented to me. Your decision here must be based only on what is presented to you in this courtroom.

Each of the 24 members of the panel agreed to do so. Now the fact that some of the jurors viewed with some skepticism the defendants' position that cigarettes are not addictive and that smoking does not cause disease is not a sufficient basis to strike the venire or jurors for cause. It would certainly not be grounds for removal of a juror if a juror were skeptical when a litigant in a proceeding argued a position that the sun sets in the east.

Parenthetically, the court notes with more than a passing interest the fact that the defendants, who claim that five jurors do not favor their position, having six peremptory strikes, deliberately and intentionally chose not to strike those jurors.

The motion of some of the defendants to strike the venire or jury is denied.

Call the jury.

(Jury enters the courtroom.)

THE CLERK: Please be seated.

THE COURT: Good morning, members of the jury.

(Collective "Good morning." )

THE COURT: I read to you what the case involves and I'm going to go over that one more time for your benefit and allow you to keep this in mind as the case proceeds.

This is an action by the state of Minnesota and Blue Cross Blue Shield of Minnesota, the plaintiffs in this case, to recover health-care expenses plaintiffs have paid to treat diseases caused by smoking and defendants' misconduct. Plaintiffs also seek other relief. The plaintiffs claim that the defendants, contrary to their promises, misrepresented and concealed damaging evidence that they knew about the health hazards of smoking. Plaintiffs also claim that the defendants illegally targeted adolescents in advertising and promotional campaigns and manipulated cigarettes to exploit the addictiveness of nicotine.

Plaintiffs have asserted a number of legal claims. They claim that defendants violated the duty defendants assumed to advance and protect the public health and to research the health hazards of cigarettes and report those findings to the public. Plaintiffs also claim that the defendants' conduct violated Minnesota consumer protection laws and antitrust laws and have unjustly profited from their conduct.

The defendants in this case are Philip Morris Incorporated, R. J. Reynolds Tobacco Company, Brown & Williamson Tobacco Company, B.A.T Industries P.L.C., the British-American Tobacco Company, Ltd., B.A.T U.K. & Export Ltd., Lorillard Tobacco Company, The American Tobacco Company, Liggett Group, Inc., The Council for Tobacco Research U.S.A., Inc., and The Tobacco Institute. The defendants deny engaging in any wrongful conduct. The defendants specifically deny that they misrepresented or concealed evidence relating to the alleged health hazards of smoking or that they targeted adolescents in advertising or promotion campaigns. They deny that they manipulated the nicotine content of cigarettes to addict smokers. The defendants also deny that they violated any legal duty or otherwise violated Minnesota's consumer protection or antitrust laws. The defendants deny that plaintiffs are entitled to recover under any of the legal theories asserted by the plaintiffs. In addition, the defendants assert that the plaintiffs have suffered no damages as a result of any alleged wrongdoing by the defendants.

Let me give you a few directions with regard to your actions during the course of this trial. To begin with, we will have, naturally, one party going first and a second party going after that. Because of that, you should keep an open mind as to the evidence that's presented to you. Wait until all of the evidence is in, all of the evidence is complete. If one side would take a position, and not having heard the other side, sometimes you may tend to make a decision without having heard that other side. So keep that mind open until all of the evidence has been presented to you by the plaintiffs and by the defendants.

In addition, do not discuss the evidence that you hear amongst yourselves. What happens sometimes is you have a tendency to take a position, having heard part of the evidence, and then it might be difficult for you to change your position if subsequent evidence should be received. So avoid discussing the merits of the case and the evidence amongst yourselves. You'll have plenty of time to discuss the case after the case is complete and when you retire to the jury room to deliberate.

Obviously, as I indicated to you previously, do not watch any television, do not read any newspapers or any types of forms of communication with respect to this trial during the pendency of the trial. Do not discuss the case with any outside person, and if there is any person who contacts you and attempts to discuss this and continues to do so after you've told them you do not wish to discuss it, you should contact the court. Further, do not do any independent research. You bring to us what you have now. Do not go home and try and find out additional evidence that would have any effect on the case itself.

Now let me give you just a very brief outline of how we'll be proceeding here. We'll have, first of all, what we call an opening statement by the plaintiffs, the purpose of which is to outline the evidence that the plaintiffs intend to present to you regarding their claims. When that opening statement is complete, the defendants may then choose to have an opening statement or they could make it at a later time. I expect the defendants will make an opening statement right after the plaintiffs.

When that's finished, then we will proceed with the evidence in the case, first of all by the plaintiffs. The plaintiffs will submit to you their evidence that they have regarding their claims. When that is complete, the defendants will then have an opportunity to submit their evidence.

When the defendants complete that, we'll have what we call final arguments, first of all by the defendant and then by the plaintiff; that is, analyzing and summarizing the case from their respective points of view. That will be followed by the instructions that the court will give you; that is, the law that you're to apply to the evidence that you have heard in this case.

Counsel, proceed.

MR. CIRESI: Good morning, ladies and gentlemen. As I told you earlier, my name is Mike Ciresi and I'm one of the lawyers representing the state of Minnesota and Blue Cross and Blue Shield, together with my colleagues sitted at -- seated at the first table. We're all from the same law firm here in the Twin Cities. Name of the firm is Robins, Kaplan, Miller & Ciresi.

I'm now going to make an opening statement to you, and during the course of that statement I'll show you some documents of the defendants. And they'll go on the monitors, you'll see them on either side of the jury box; there's also a large screen over here. So that don't think there's something different on each monitor, they're all the same. But we put them before the parties to make sure that no matter what way you're looking, get comfortable, you'll have an opportunity to see the document that is being talked about at that time.

This case began in August 1994, shortly after the chief executive officers of the major U.S. tobacco companies testified under oath in Congress that cigarette smoking was not addictive. To this day all of the defendants, save one, Liggett, still publicly deny that cigarette smoking is addictive and causes disease. These public statements were and are false and the evidence in this case will prove that.

Over the last three and one-half years we have obtained, through the legal process, millions of the defendants' secret documents which had never before seen the light of day. These documents will bring to life the decades-long illegal conduct of the defendants through their own written words; yet in this courtroom you will see these defendants deny and try to explain away those words.

Every day three thousand of our youth start smoking. Every year over 400,000 individuals die from smoking-related diseases, a staggering number that is one out of every six deaths in the United States. In Minnesota alone, smoking causes more than six thousand deaths a year from diseases, including lung cancer, heart disease, emphysema and bronchitis.

This human carnage, of which only the dead, the afflicted and their families feel the full personal consequences, inflicts an enormous economic burden of health-care costs on the state of Minnesota and Blue Cross and Blue Shield.

The defendants in this case insured a captive market for this inevitable march of death and disease by intentionally attracting children and adolescents and addicting them to a product which kills and causes disease when used as intended. The defendants have long known the addictive nature of nicotine which thwart and compromise smokers' ability to exercise their desire and choice to quit.

The evidence will show that three starkly descriptive words, deceit, exploitation and greed, have been and are indeed today the guiding beacons which have directed the cigarette industry in over four decades of intentional conspiratorial and unlawful conduct. The exposure of that conduct in this trial will be based not on speculation, conjecture or opinion by outsiders, but will be disclosed through the defendants' own documents which they have been forced to produce in this litigation.

The purpose of this lawsuit is to hold the industry accountable, accountable for its own illegal actions. This, the evidence will show, is a case of corporate irresponsibility in which an entire industry, in a half-century-long combination of conspiracy, of willful and intentional wrongdoing, violated the consumer protection and antitrust statutes of the state of Minnesota. These defendants falsely promised the American people that they would undertake a special duty to protect the public health and to conduct research and disclose complete information about smoking and health. They further promised America and its public health authorities that they considered this a basic and paramount responsibility of conducting their business, and they asked the public to rely on their integrity and truthfulness. Yet, these same defendants over that half century intentionally chose to engage in a unified campaign of deceit and misrepresentation by suppressing their own knowledge concerning the addictive nature of nicotine and the severe health risks tobacco presents to smokers. They chose to do all that in the name of profit and to preserve their way of doing business.

In short, ladies and gentlemen, the evidence will show that this was an industry which conceived of a strategy of deceit and, through an arrogance of power, promoted and fortified that sanctuary of deceit for the sole purpose of achieving their objective of the continuous recruitment of teenagers to a product which they knew was addictive and fatal. Indeed, you will learn that the industry did not consider its product to be tobacco at all, but rather nicotine, which they intentionally and internally not only called an addictive drug, but secretly manipulated to maintain its addictive power. Yet, except for Liggett, which has finally admitted the addictive nature of nicotine, not one of the defendants, the other defendants in this case, have to this day disclosed all that they know about that drug.

This industry mutually set upon a course of conduct which results each year in an annual death toll which equals the number of lives America has lost in all of the wars of this century. Each year.

At the conclusion of the testimony, we will ask you, in accordance with the law and evidence, to examine and evaluate the defendants' conduct and hold them accountable by awarding damages for health-care costs in the amount of one billion seven hundred seventy million dollars to the state of Minnesota and Blue Cross and Blue Shield. These costs were paid by the state and Blue Cross for people suffering from lung cancer, chronic obstructive pulmonary disease, coronary heart disease, and other diseases which have been identified by the Surgeon General of the United States as being caused by smoking.

The central inquiry we will ask you to focus on during this trial is what these defendants knew about the hazards of smoking, what they knew, when they knew it, and what they did with that information. This case is not about individual smokers or non-smokers, this case is not about the prohibition of the sale of a legal product, this case is about the illegal sale of a legal product. This case is about the conduct of the industry and how this industry chose, intentionally chose, to violate the laws of the state of Minnesota.

At the end of this case, Judge Fitzpatrick will instruct you on those laws and how to apply them to the evidence you will hear in this courtroom.

The cigarette industry in America is highly concentrated and controlled by these defendants. Six of the defendants have controlled the manufacture of cigarettes in this country for decades, they are Philip Morris Incorporated, which has in excess of 42 percent of the market, R. J. Reynolds Tobacco Company, which has in excess of 29 percent of the market, Brown & Williamson Tobacco Corporation has approximately 12 percent of the market, Lorillard Tobacco Company, which has approximately seven percent of the market, The American Tobacco Company, which is now owned by Brown & Williamson, which also has about seven percent of the market, and finally Liggett Group, which has about three percent or less of the market. Other defendants in this case are three related companies which you will hear referred to as the BAT Group from England, and they include the parent company of the Brown & Williamson cigarette manufacturing company. These related companies are B.A.T P.L.C., British-American Tobacco Company, Ltd., which we may refer to as BATCo, and B.A.T U.K. & Export, Ltd. You may hear us refer to them as BATUKE. This corporation family of related companies, which as I said includes Brown & Williamson, worked in concert with the rest of the defendants in conspiring to withhold information on the health hazards of smoking in the United States. Indeed, the operations of what I will refer to as the BAT group created a network in which the British companies did much of the scientific research for Brown & Williamson, which, contrary to the company's obligations, was never disclosed to the American public. In fact, the corporate headquarters of the parent company in England issued the marching orders on the profound issues of smoking and health which are involved in this lawsuit.

The remaining two defendants in this case are the tobacco industry's two trade groups, The Council for Tobacco Research, which is CTR. When they were first formed they were called TIRC, Tobacco Institute Research Committee, so whenever you hear CTR or TIRC, we will be referring to the same company and the same defendant. The other industry trade group is called The Tobacco Institute.

It is the story of these companies and their control of the entire cigarette industry in this country that will be exposed through the evidence in this trial.

Let us now go back in time to the early 1950s when the industry joined together because of alarm that its way of doing business was threatened. On December 15th, 1953, the first year of president Eisenhower's administration, the chief executive officers of the leading tobacco companies convened a secret meeting at the Plaza Hotel in New York City with Hill & Knowlton, their public relations firm.

The meeting was called as a result of recently published medical studies linking cigarette smoking with cancer, specifically lung cancer. The stock prices of the companies had declined and the chief executive officers wanted to sponsor a public relations campaign which was entirely pro-cigarette and positive in nature. At the meeting the chief executive officers told Hill & Knowlton they did not want to sponsor new research which would provide definitive answers to the charges linking cigarettes with lung cancer.

Hill & Knowlton, their public relations agents, devised a plan to accomplish the chief executive officers' public relations aims. Their plan was based on one overriding concern. After listening to the CEOs, Hill & Knowlton characterized the CEOs' PR concern as follows -- and this is Hill & Knowlton's words, not mine -- memorialized with regard to that meeting: "There is only one problem, confidence and how to establish it, public assurance and how to create it, and perhaps a long interim when scientific doubts must remain." That long interim, ladies and gentlemen, during which the industry has steadfastly tried to create doubts, has lasted to this day.

To address the problem, Hill & Knowlton devised a strategy of public relations which the industry adopted. That strategy was based on the following principles, again in the words of Hill & Knowlton, and I quote: "The very first problem is to establish some public confidence in the industry's leaders themselves so that the public will believe their assertions of their own interest in the public health." Problem two: "To reassure the public and still instinctive fears in this interim when definitive facts for giving complete assurance are still lacking, when scientific doubts must remain, and when new unfavorable information can emerge from some laboratory at any time to act as a bombshell on the whole tobacco industry. In the meanwhile the industry tried to pooh-pooh the unfavorable data so Hill & Knowlton had to determine how to validate this message of assurance, and so they talked to the men in the tobacco companies. Here is what they wrote back in 1953.

The men talked to in the cigarette companies tend to, A, "Think occasionally in terms of trying to smear the personal responsibility, motives, judgments, or techniques of Wynder and others supporting him." Dr. Wynder was a scientist who had published the medical literature that caused the stock prices to plummet and which led to this meeting at the Plaza Hotel. So what Hill & Knowlton found was this is what the men talked to in the cigarette companies, their CEOs, tended to think. C, the men talked to in the cigarette companies tend to "Overlook the fact that in this particular instance, the stakes for the public are even larger than for the tobacco manufacturer. For the public, an issue touching the deepest of human fears and instincts is involved -- the issue of uncontrollable disease and death. Hence cigarette companies might not readily be forgiven if their approach to this problem is stemmed only from eagerness to protect their earnings, and if they twisted the research of medical science, paren, which seeks to save men, close paren, into a device to save stockholders. There is no precedent where a great industry has been forced to face such grave issues.

"In the past, industry has given little twists to the facts of science, to convert them into sales propoganda, without much risk. The cigarette industry has indeed been doing this for years. We can therefore readily understand its assumptions that the same techniques will work now, in devising propoganda. But it is highly important to note that the deep issues of life and death that are now involved make highly doubtful the question as to whether the familiar techniques can be relied on. The stakes are to large; the penalties for losing could be too great."

What else did the cigarette CEOs tend to do? They tended "to assume that agents like science writers can be guided and encouraged to disseminate special interpretations of current findings, in ways that would blame lung cancer on everything else but cigarettes -- or (even better) in ways that would throw doubt on the validity of statistics showing great increases in lung cancer. If the issue were merely coughs or sore throats or worst, this might work. There is serious question as to whether anyone -- after due reflection -- would consider such a course useful for long-term purposes in the present circumstances."

As the trial unfolds, ladies and gentlemen, you will see these defendants, through deceit, exploitation and greed, did deliberately embark on the course of conduct that was said by Hill & Knowlton, the one that they should not follow. The industry blamed lung cancer and other -- other fatal diseases on alternative causes. They twisted the facts, and while doing so, steadfastly refused to conduct the type of biological research within their own laboratories which would enable them to answer the life and death questions raised by the selling of their product. Biological research is research on animals which would have studied the relationship between smoking and disease. You will see over the course of years this twisting of the facts led to complete denials until they started talking about risk factors -- you'll hear about that during the course of this litigation -- but the evidence will show that constantly they attempted to undermine the scientific validation that smoking causes serious diseases, and they did it in concert and they did it intentionally. They took this action, course of action, although they knew it was their legal duty to know what could be known about their product. As an excuse for failing to conduct research, they claimed they had financed those who were competent to conduct such research, claiming that they themselves internally were not competent. You will see from the defendants' own documents that these representations are false and the real reason they didn't undertake appropriate internal research was to preserve their freedom to criticize, undermine and twist the facts of those who did.

The publication of the medical studies in the early '50s concerning cancer and smoking presented a choice to the industry. They had a choice: Should they take the high road and disclose the information they already knew and had proof of in their files and conduct appropriate biological scientific studies into whether cigarette smoking caused disease, or should they provide a sanctuary for smokers by implying that the charges were not scientifically valid? The industry chose darkness while publicly claiming they were pursuing the truth.

On January 4th, 1954, shortly after this meeting at the Plaza Hotel in New York, the industry issued what they call a Frank Statement to Cigarette Smokers which ran in the newspapers of every city in the United States that had a population in excess of 50,000 people, including St. Paul, Minneapolis and r Duluth. This unprecedented action was again the creation of the industry's public relations firm Hill & Knowlton. In this Frank Statement, a copy of which is on this board and also on the monitors, the industry voluntarily undertook a special responsibility and duty to the people of America, and they said, "We accept -- We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business." Two, "We believe the products we make are not injurious to health." Three, "We are pledging aid and assistance to the research effort in all phases -- all phases -- of tobacco use and health. This joint financial aid will of course be in addition to what is already being contributed by individual companies.

"For this purpose, we are establishing a joint industry group consisting initially of the undersigned."

And if you look at the bottom of this document, you'll see five of the cigarette manufacturers who are defendants in this courtroom, The American Tobacco Company, Brown & Williamson, Lorillard, Philip Morris and

R. J. Reynolds Company. So this -- those people were forming a group which was going to be known as the Tobacco Industry Research Committee.

That's the one defendant I mentioned to you earlier, TIRC, which is now known as the CTR. They've changed their name from TIRC to CTR.

They also said, "We always have and always will, we always have and always will cooperate closely with those whose task it is to safeguard the public health." One of those is the state of Minnesota.

Contrary to these promises, the public could not even count on this industry to disclose what they had in their own files at the time they issued that Frank Statement. For example, a Mr. Teague, a research scientist at

R. J. Reynolds Company, ten months before the Frank Statement was issued, ten months before the meeting at the Plaza Hotel, had recommended to management of RJR that management recognize the health problem and its implications to the cigarette industry and that positive research action be planned and initiated without delay. Indeed, after a survey of cancer research, he concluded, and I quote -- his words, not mine -- "The increased incidence of cancer in the lung in man which has occurred during the last half century is probably due to new or increased contact with carcinogenic stimuli. The closely paralleled increase in cigarette smoking has led to the suspicion that tobacco smoking is an important etiologic" -- which means a cause -- "factor in the induction of primary cancer of the lung. Studies of clinical data tend to confirm the relationship between heavy and prolonged smoking and incidence of cancer in the -- of the lung. Extensive, though inconclusive testing of tobacco substances on animals indicates the possible presence of carcinogenic agents in those substances." Mr. Teague's quote from RJR. The Frank Statement issued ten months later: "We believe the products we make are not injurious to health." False.

RJR was not alone in 1954 in refusing to disclose information locked in its files which was directly related to the health and deep issues of life and death which affected smokers. For example, Brown & Williamson's laboratory in 1952 had isolated and identified a highly carcinogenic aromatic hydrocarbon in tobacco smoke named benzpyrene. The industry's pledge to assist and aid research effort into all phases of tobacco use and health was an empty promise. Instead, they undertake a campaign to publicly deny and undermine the risks of smoking. Their front organization in this campaign was the Tobacco Industry Research Committee, now CTR.

The defendants will say that they conducted extensive research through CTR by renowned scientists. They'll put up big boards with the universities that they gave funding to, some here in Minnesota, across the country. However, as you listen to all the evidence about those studies from the CTR, the evidence will show that in large measure their research was not directed to finding answers to smoking-and-health issues. To this day, CTR, their public front, their research, their objective organization that was to tell all the truth, to this day it refuses to publicly admit that cigarette smoking is addictive and causes serious health problems and death. In fact, in 1994, at those same congressional hearings that the CEOs testified at 50 years after the Frank Statement in the sworn testimony in Congress, the head of CTR denied that cigarettes caused disease.

It is no wonder that CTR has been the subject of internal derision from the industry sources themselves. Indeed, this organization, established by the industry to safeguard the public health, has been used to undermine the medical information from independent scientists that was shedding light on the causal link between smoking and health. The true purpose of CTR is best stated by one of its officials who said, "CTR is the best and cheapest insurance the tobacco industry can buy, and without it the industry would have to invent CTR or would be dead." Their words, not mine.

At the same time, CTR was using -- was being used by the industry to deny and undermine the hazards of cigarette smoking. The defendants' internal documents paint an entirely different state of knowledge with regard to what they knew, when they knew it, and what they did with that information. One document, written 40 years ago but not disclosed until this litigation, demonstrates that these defendants knew and accepted that smoking caused lung cancer. On the board you'll see it's entitled "REPORT OF VISIT TO THE USA AND CANADA, 17th of April through 12th of May 1958" by three BATCo officials, Mr. Hentley, Mr. Felton and Mr. Reid. British tobacco conducted this extensive trip to the United States where its scientists visited a number of defendants in independent research laboratories at Johns Hopkins Hospital, New York University, Sloan-Kettering Institute, the National Cancer Institute and other educational institutions. They also visited a number of the companies and visited CTR itself. Companies included American Tobacco Company, Liggett, Philip Morris and TIRC, which we know is CTR.

Reporting back on the trip, senior scientists from BATCo stated -- again I quote, their words, not mine -- this is in 1958, four years after the Frank Statement? Quote, "With one exception, the individuals whom we met believed that smoking causes lung cancer if by 'causation' we mean any chain of events which leads finally to lung cancer and which involves smoking as an indispensable link." That is an admission that these defendants, except Liggett, have not to this day stated publicly. 1958, 40 years ago.

The document continues with regard to CTR. "We found general acceptance of the view that the most likely means of causation is that tobacco smoke contains carcinogenic substances present in sufficient quantity to provide lung cancer when acting for a long time in a sensitive individual."

Then they went to contrast what was going on at CTR as opposed to what was going on in the rest of the scientific community. I again quote, "The main effort outside TIRC" -- that again is TIRC/CTR -- "therefore has switched from trying to confirm the direct causal hypothesis to trying to find biological test systems which will allow active substances in smoking to be identified."

The BATCo scientists also pointed out that Liggett & Myers stayed out of CTR at that point because they originally doubted the sincerity of TIRC's motives and believed that the organization was too unwieldy to work efficiently. In other words, one of these defendants doubted the sincerity of the scientific organization that was supposed to protect the public health and which was set up by these companies. BATCo reported that Liggett & Myers in 1958 remained convinced that its misgivings were justified and that in Liggett's opinion, TIRC had done little if anything constructive and that TIRC's constantly reiterated not-proven statements in the face of mounting contrary evidence has thoroughly discredited TIRC and the Scientific Advisory Board. You see the initials SAB. They set up a Scientific Advisory Board of eminent scientists, and you'll find out that was controlled as we march through this evidence. But Liggett said they were thoroughly discredited and that the SAB, Scientific Advisory Board of the TIRC, is supporting almost without exception projects which are not directly related -- or related directly to smoking and lung cancer. Their words, ladies and gentlemen of the jury, not mine.

BATCo found out why the individual defendant companies and CTR didn't want to conduct appropriate biological research. At page seven, again, their words, not mine, "Finally our attention was drawn to some of the very real policy and public relation problems which might arise if the industry seems to be engaged in biological testing. In the U.S.A. medical opinion on the likely role of smoking in the causation of lung cancer has not become consolidated." What they are talking about is the scientific community -- there wasn't unanimity -- hasn't become consolidated in anything like the extent to which it is in the United Kingdom, and TIRC is very much concerned not to encourage any such consolidation or to do anything which might reduce any further its degree of freedom to criticize and comment. For that reason alone it is improbable that TIRC would engage overtly," in other words, they would admit that they were engaging, "in biological research with tobacco smoke." Their words, ladies and gentlemen, not mine. This was the scientific organization of the industry set up in 1954 to protect the public health. Their paramount responsibility, as they coined it.

The case for the industry's campaign of deceit regarding smoking and health could not be made clearer than this document we have just shown you. Think of it. A short four years after the industry said in the Frank Statement that it was going to safeguard the public health, this document shows that the majority of individuals which BATCo surveyed accepted that cigarette smoking caused cancer in the human lung. That opinion was given that in view of its chemical composition, it would indeed be surprising if cigarette smoke was not carcinogenic.

As you deliberate, you'll have the opportunity to look at these documents in their entirety so that you'll be assured that they are put in the proper context. You'll be able to read it all. The individuals being referred to in this con -- in this document were not just those outside the industry, but as you saw, they were also scientists from American Tobacco, Liggett & Myers, Philip Morris and CTR itself. Yet, despite that almost universal opinion, the industry continued and continues to this day to deny that cigarette smoking causes health problems.

The Frank Statement. "We believe the products we make are not injurious to people's health." False.

The Eisenhower administration passed the torch to the Kennedy administration and six years passed since the Frank Statement was issued to the American public. During that period of time the evidence continued to accumulate in the defendants' files that smoking was a cause of lung cancer and other major illnesses. Cigarette smoke was analyzed by the defendants and found to contain numerous carcinogens, yet they continued their strategy to deceit and deny.

In 1964 a seminal event occurred with regard to smoking and health. The Surgeon General of the United States issued its 1964 report on smoking and health which concluded that cigarette smoking was causally related to lung cancer and one of the most important causes of chronic bronchitis in the United States. 1964, ten years after the Frank Statement, ten years after the information in their own files, six years after the 1958 trip report of BATCo where they knew that smoking caused cancer:

The Surgeon General's report reported that in comparison to non-smokers, average smokers of cigarette had a 900- to 1,000-fold increased risk of developing lung cancer and heavy smokers a 2,000 increased risk. Despite the medical evidence contained in the Surgeon General's report, the industry continued its policy of deceit and denial. This position was made despite the urges of some employees in the industry that the industry change its public relations campaign and accept the report's findings on face value since little basis for disputing findings of the Surgeon General were available.

For example, on February 18th, 1964, Dr. Wakeham, the scientific director at Philip Morris, circulated a review of the Surgeon General's report to a number of executives at Philip Morris, including its president. Title was "SMOKING AND HEALTH, SIGNIFICANCE OF THE REPORT OF THE SURGEON GENERAL'S COMMITTEE TO PHILIP MORRIS INCORPORATED," and the distribution list includes these officials, including their president. And what does Philip Morris say internally in 1964? "The Research Center has made an initial examination of the report of the Surgeon General's advisory committee on smoking and health with the view to its proper influence on Research Center program and formulation of technical advice to Philip Morris Management. The statement -- This statement summarizes those preliminary views.

"The onus of proof has been moved by the report from its usual position with the industry's accusers to the tobacco industry itself." Six years after they knew themselves that smoking caused cancer. "Meeting this challenge affords Philip Morris a splendid opportunity to gain a competitive edge through effective technical activity. Positive programs to cure ills cited in this report, whether real or alleged, are recommended, as little basis for disputing the findings at this time has appeared. Among those programs which deserve increased corporate support" -- this is the report to management, including the president -- "which deserve increased corporate support are expansion of the Research Center knowledge through intelligence effort in epidemiology, bioassay, lung cancer research, et cetera, and liaison with the medical school."

On page two Dr. Wakeham goes on, "Health impact will surely be an important, perhaps the most important, basis for competition in the industry in the next few years. Competitive breakers" -- I'm sorry. "Competitive pressures suggest a breakup of the common front approach of the industry through TI and TIRC. While R. J. Reynolds continues to advocate a joint front, sit tight, status quo approach, paren, it has the most to lose from any change in status quo, others like American and Liggett & Myers, sanguine to improved competitive positions, show signs of bolting and have capitalized with their new products on early reactions to the report. The greater the longer term market impact of the report, the more intense will there be health competition, which is to say technical competition, among major tobacco companies."

The report also stated that "No evidence existed to indicate a smoking threshold, below which -- below which no harmful effects occur." In other words, these companies could not say their product was ever safe when used as intended.

Dr. Wakeham here was suggesting that there be competition to developing healthier products, there be health competition, information got out, these people compete in accordance with the laws of the state of Minnesota. The evidence will show that they didn't compete, that they suppressed information, that they violated the antitrust laws of the state.

Despite Dr. Wakeham's suggestion, neither Philip Morris nor the rest of the defendants abandoned their anti-competitive, common-front approach that they had so carefully erected and nourished over the years. In fact, for decades the defendants had what was called a gentlemen's agreement not to conduct internal biological research, the very type suggested by Dr. Wakeham, which would establish the link between smoking and disease and allow the companies to develop a safer cigarette.

Part of the discovery from this case is taking depositions, which is sworn testimony of people. Dr. Wakeham's deposition was taken, and on this issue here is what he said:

"Question: What's the type of research that you understood there was an understanding that the cigarette companies would not be doing in-house?

"Answer: Studying a relationship which might exist between smoking and diseases, such as were tabulated in the Surgeon General's report."

The reason for that agreement, as we will show you by their documents and by Dr. Wakeham's own testimony, is explained by a 1965 memorandum prepared by a lawyer for American Tobacco which shows why the company rejected its scientist's request for facilities to conduct biological research. This is a remarkable document of admissions which was not pried lose from the grips of the defendants until a few weeks ago. This document captures the essence of the entire industry's approach to scientific research with regard to smoking and health from the time of the issuance of the Frank Statement right up to the present date. Indeed, when you look at this document in its entirety, you will see that that was their conduct before the issuance of the Frank Statement.

This is a confidential memorandum prepared by a lawyer from one of the defendants law firms, Chadbourne & Parke. Janet Brown was her name. The title of it is, "CONFIDENTIAL MEMORANDUM TO MR. HETSKO RE CONFERENCE WITH MESSRS. HARLAN AND HARLOW ON WEDNESDAY, AUGUST 25, 1965 AT THE COMPANY LAW LIBRARY." Mr. Hetsko was the general counsel or the highest lawyer at American Tobacco, the head of the law department. Mr. Harlow was the research director of American, and Mr. Harlan was at scientist. And what had happened was Mr. Harlow had written to the general counsel saying they were going to set up biological research. Now of course there was an agreement that that not be done, but he was going to set it up. So that's the background as this memo came, and now Ms. Brown is going to meet the research director and she references in the very first paragraph the purpose of the meeting. "I opened with the explanation that we were there at your request. Our only purpose was to explore with them, first, the background, purposes and proposed modus operandi of the postulated 'biological' program which you had only recently learned about, and second, to review some of the most fundamental problems a program of the nature indicated in Mr. Harlow's memorandum to you would pose for the company in its public, medical and legal positions in the health controversy."

And she then goes on to state what happened at the conclusion of her meeting. "At the conclusion of our conference Harlow stated the opinion that the program contemplated would make the company's past and current position in the health field "'untenable'. Harlan thought" -- he's the research director -- "Harlan thought that "we'll have to give it up." Harlow ultimately stated that while the program was important and he wanted very much to do it, he would certainly not want to do anything that "has an impact on the company's position or if it makes that position any less sound than it now is." Once again, ladies and gentlemen, their words, not mine.

On page seven there's an explanation of what this program was going to be for and the two reasons for it. "Two prime motives engendered the move to institute a company biological research program. One was deep dissatisfaction with the conduct of experimental work by independents in this area." Remember back to the 1958 trip report, they were saying they would fund these things externally to other independent laboratories, then of course they could always criticize them, undermine them. Here's one of their own scientists that was saying that there was deep dissatisfaction with the conduct of outside experimental work. "The other -- the other reason was the need for commercial security in the development of new products. If they did undertake their paramount responsibility and did try to develop safer products, these gentlemen wanted to protect the confidentiality of that, and they felt they could do it better if that was done inside. They would be able to protect the confidentiality more if it was being done at American Tobacco rather than by some independent laboratory." So that was their two reasons for this biological program.

The document questions then -- and you'll have an opportunity to read these -- how a biological program will be perceived or characterized by interested persons outside the company, whether friend -- gentlemen's agreement -- other tobacco companies, or foe, regulators, the public. It concludes that such a program would be perceived as a cancer research program into certain questions of the relationship of smoking to human cancer.

One might ask: Isn't that the responsibility of this industry? The question is answered by the author of the report who states as follows: "When the company asserts competence to conduct its own biological research into certain aspects of human health it opens for jury evaluation the question whether it acted reasonably in not instituting biological research long before now. Substantial scientific literature extending back over many decades has asserted a great variety of pathological effects from the use of tobacco." And then they cite some of those medical studies. "A variety of cancers, pulmonary and circulatory diseases have long been claimed to be tobacco linked. Lung cancer, emphysema, heart and peripheral circulatory disease have already become subjects of suits.

"If the company can now inform itself respecting biological effects of smoking, it will be argued that it could and should have done so in all these areas, years ago. Ample funds were at the company's disposal. Researchers with M.D. degrees were available to devise, conduct and evaluate experiments on animals and men. Laboratory facilities for such work could easily have been provided. What has been found by independent scientists over the years, it will be argued, could have been found long since by the manufacturer whose primary responsibility it was.

The question will be raised, for jury resolution, whether a reasonably prudent manufacturer capable of conducting biological research would not have instituted biological testing programs in the 1920s, or the 1930s, or the 1940z, eras in which, as evidenced by the Haag, Larson, Silvette book, red flags of warning respecting serious health questions were being raised in the scientific literature. It will be argued that, if such a program was not institute earlier, it should at least have been begun in 1950 to 1953, with publication of the four retrospective studies showing association with lung and other cancers; or in 1953, with the publication of the Wynder mouse-painting experiments" -- Wynder is the one who was mentioned about twisting the facts back in the Hill & Knowlton document which I showed you earlier. He did the experiments in '53 and it was published. That's what led to that meeting at the Plaza Hotel. And here they're saying -- "or in 1953, with publication of the Wynder mouse-painting experiment, or in 1954, with publication of the firm Hammond-Horn report. What about in 1954, with the publication of the Frank Statement, or in 1957, with publication of the study group report on smoking and health? Why were such programs not instituted, at least, in 1958, with publication of the final Hammond-Horn report, or in 1959, with the publication by the Surgeon General of an official statement pronouncing a causal link between smoking and certain diseases, or in 1962, with publication of the report of the Royal College of Physicians, or if not then, why not a year ago, with publication of the report of the Surgeon General's advisory committee.

"Instituting a biological program today will be argued to be an implied admission that the company believes it has not in the past been doing all it could and should have been doing to find the scientific facts respecting tobacco use and health. We can anticipate, too, that it will be argued to be an implied admission that the company accepts that smoking has been shown to be a cause of pulmonary and other disease. Why, otherwise, would it now institute such a program, reversing its fundamental policy as enunciated in litigation by company officials?" "As enunciated in litigation by company officials."

"We cannot say that a jury might not conclude that, if the company is competent to investigate some biological questions today, the company could and should have begun investigating such questions --

some or even many such questions one, two, five, ten, or many years ago." Their words, ladies and gentlemen, not mine.

This is precisely the issue in this case. The evidence will show this is a renegade industry which has placed profit above the health and wellbeing of its customers. It did not conduct in-house biological research so that it could, as this document will show you upon a complete reading, continue to criticize and undermine those who were doing scientific research in the field. The concern should not be what a jury might do, but what a company must do in order to protect its company -- customers and place a safe product upon the market. This industry, as you will learn from the documents, not only of America, but of each and every one of these defendants, turned its back on its customers in order to preserve its way of doing business. It has sought to hold others -- others accountable for their actions, but it does not want to be held accountable for its own actions.

That is what this case is about, ladies and gentlemen, accountability of this industry for its violations of Minnesota law.

In 1964, right around the same time as this document I just showed you, The Tobacco Research Council of the United Kingdom sent representatives to meet with the defendant manufacturers to discuss smoking-and-health research in the United States. At that time British representatives learned that biological research, except possibly for some work being done on a contract basis for Liggett & Myers -- in other words, being done outside of the company, they had contracted with somebody -- was short-term and not cancer research. So when they contracted out, they contracted out for short-term studies and not related to cancer. The reason for this, The Tobacco Research Council of the United Kingdom found out, was the personal beliefs of the presidents of the defendants that nothing against smoking had been proved, and the fact the companies did not want to do research which could be used against them in litigation. Their words, not mine.

It was felt that if they did smoking-and-health research and had to admit in lawsuits that their experiments showed that cancer could be caused in animals, that this would constitute an admission that cancer could also be caused in human beings. As a result, they chose to do nothing about their own companies but to finance limited research by third parties. As I said, it left them free to criticize that research and to say that it had no relevance or meaning in a human context.

The British also learned during that period of time the manufacturers were doing chemical research on the properties of smoke so that they would be able to alter the constituents quickly if the law should so require. In other words, the defendants would do nothing to change their products unless and until they were required to do so by government or as a result of being held accountable in litigation. The extreme measures that these defendants took in order to perpetuate and fortify their strategy of deceit is evidenced by the fact that they entered into, as Dr. Wakeham testified under oath, a gentlemen's agreement whereby they agreed among themselves -- of course not in writing -- that biological research would not be done. Indeed, when Philip Morris learned in 1970 that RJR was doing inhalation studies in rats, causing emphysema, they were doing the smoking-and-health research -- that's one type of biological research -- the president, president of Philip Morris called the RJR president to demand why the gentlemen's agreement was not being adhered to. The RJR president said, "I don't know anything about this biological research," but he investigated and he found out that in fact it was taking place. Immediately upon his discovery, the biological research which was being conducted at RJR in a laboratory facility called the Mouse House was shut down and many of the scientists working in that facility were terminated on the spot.

Another example of the lengths that these defendants will go to keep their dark secrets locked within the bowel of the industry is represented by the following memo, a Philip Morris document which again was hidden in the company's files until we found it in this lawsuit. At the top you'll see it says, "Ship all documents to Cologne. Keep in Cologne. Okay to phone and telex. These will be destroyed." Next in number six it says, "If important letters and documents have to be sent please send to home -- I will act on them and destroy." This is by a Mr. Osdene, who is the director of research at Philip Morris.

And what was going on is that Philip Morris was conducting some research in a facility over in Cologne, Germany, but of course they didn't want any of this information in their files here, it might be subject to discovery in a lawsuit and then people would find out what the companies knew, when they knew it, and what they were doing about it.

So what did Mr. Osdene say? Destroy. Send to Cologne. Let's set up some elaborate labyrinth of deceit and deception so it can't be found out in discovery.

B.A.T did the same thing. They had a procedure for handling B.A.T scientific documents. B.A.T had a cost-sharing agreement with Brown & Williamson whereby B.A.T would get money from Brown & Williamson, they'd do research over in England, but they didn't want these documents to get into the files of Brown & Williamson because they may be susceptible to discovery in a lawsuit, and if they got discovered in a lawsuit, then again people would know what B&W and B.A.T knew, when they knew it and what they were doing with that information. So they set up an elaborate schematic. And when you read this document, you'll see that they did. They set it up for the purposes of litigation.

What they wanted to do is they had this scientific information. They would send it up to a strawman who basically said that it was being prepared for litigation; therefore, it's protected under discovery rules and you can't get at it. They hide it in attorneys' files. That's what this document is about. When you read it in its entirety, you'll see that's what this is about. That's B.A.T.

CTR, 1978, a letter from the member of the Scientific Advisory Board to the scientific director for The Council for Tobacco Research. Now TIRC has been renamed by this point in time. Here's a letter that says, "I think CTR should be named Counsel for Legally Permitted Tobacco Research, CLIFT for short." Talking about what type of research should or would be allowed in this scientific -- independent scientific organization that was set up to protect the public health, that paramount responsibility which they testified to. And what did the chief executive officer of Lorillard think about this CTR? Here's another one. This is in April of 1978, seven months before that one I just showed you. This is written by Curtis Judge, who was the CEO or president of Lorillard, and it came out of a Dr. Spears' file who was the present president of Lorillard. And what does he say, Mr. Judge? "Would he have again abdicated the scientific research directional management of the industry to the 'lawyers' with virtually no involvement on the part of scientific or business management side of the business.

"Lorillard's management is opposed to the total industry future being in the hands of the Committee of Counsel -- it's reminiscent of the late '50s when -- '60s when Ramm's group ran the TI" -- Tobacco Institute -- "CTR and everything else involved with the industry's public posture." Ramm was the lawyer. The Committee of Counsel was a bunch of lawyers who again got together to keep scientific information out of the hands of the public. If they came out in lawsuits, then the public would know, the public health agencies would know, and the industry could no longer maintain its position of undermining public knowledge while at the same time not denying it. You'll see documents to that effect. We'll continue to undermine the public knowledge for those whose support we need, smokers, legislators. Their words, not mine.

These documents that you've seen are but examples of the evidence you will see in this case regarding the defendants' conspiracy of concealment and deceit on the life and death hazards of cigarette smoking that were known to them. While the industry continued to suppress information, cast doubt on the validity of the medical statistics, blame lung cancer on everything else but cigarettes, dismiss independent reports of the health hazards of smoking, and refuse for the most part to conduct biological research, it did recognize that the drug effect of its true product -- its true product, nicotine -- must not be compromised. Nicotine is a poison which is also used as an insecticide. It's the chief active component or compound of tobacco. For decades the company -- the industry has hid the extent of their knowledge concerning the addictive nature of nicotine, and it was only after the 1994 congressional hearings that knowledge regarding the industry's manipulation of nicotine in cigarettes began to seep out.

At this point we're going to take a short break so that you can get up and stretch a bit.

THE CLERK: Court stands in recess.

(Recess taken.)

THE CLERK: All rise. Court is again in session.

(Jury enters the courtroom.)

THE CLERK: Please be seated.

MR. CIRESI: The nicotine issue is one which is central to this case, and the defendants' own documents speak in striking clarity and through vivid terms the role that nicotine plays in smoking and health. Were it not for nicotine, we would not be here today since the cigarette industry as we know it would not exist. These again are not my words, but the words of the defendants themselves.

Let us look together at two documents from 1972, written by employees of the two largest manufacturing defendants in this case, Philip Morris and RJR. The Philip Morris document was written by William Dunn, Jr., a scientific researcher at the Philip Morris Research Center in Richmond, Virginia. Mr. Dunn was known at Philip Morris as The Nicotine Kid. The second document was written by Claude Teague, Jr., a research scientist at RJR.

First we shall here from Mr. Teague. This is an RJR confidential document produced in this litigation. The title, "RESEARCH PLANNING MEMORANDUM ON THE NATURE OF THE TOBACCO BUSINESS ON THE CRUCIAL ROLE OF NICOTINE THEREIN." Mr. Teague starts his memo as follows: "In a sense, the tobacco industry may be thought of as being a specialized, highly ritualized and stylized segment of the pharmaceutical industry. Tobacco products, uniquely, contain and deliver nicotine, a potent drug with a variety of physiological effects." When the defendants made their Frank Statement to the public in 1954, and indeed right up to the time of today, you have never seen such a statement publicly from any of the defendants, save Liggett, who said that cigarettes are addictive.

As we move down that paragraph we find the following words, and again I quote: "His," referring to the smoker, "choice of product and pattern of usage are primarily determined by his individual nicotine dosage requirements and secondarily by a variety of other considerations including flavor and irritancy of the product, social patterns and needs, physical and manipulative gratifictions, convenience, cost, health considerations and the like. Thus a tobacco product is, in essence, a vehicle for delivery of nicotine, designed to deliver the nicotine in a generally acceptable and attractive form. Our industry is then based upon design, manufacture and sale of attractive dosage forms of nicotine, and our company's position in our industry is determined by our ability to produce dosage forms of nicotine which have more overall value, tangible or intangible, to the consumer than those of our competitors."

The next page, Mr. Teague goes on at the bottom, "If nicotine is the sine qua non" -- meaning the essential ingredient -- "of tobacco products and tobacco products are recognized as being attractive dosage forms of nicotine, then it is logical to design our products -- and where possible, our advertising -- around nicotine delivery rather than the 'tar' delivery or flavor. To do this we need to develop new data on such things as the physiological effects of nicotine, the rate of absorption and the elimination of nicotine delivered in different doses at different frequencies and by different routes, and ways of enhancing or diminishing nicotine effects and 'satisfactions'." And one of the ways they do that is they test it on the marketplace, and that's what he's saying as he moves on. "In the absence of such data, we may survey the market, i.e., the smokers, and conclude that current cigarette products, delivering about 1.3 milligrams of nicotine, appear to, quote, satisfy, end of quote, the typical smoker."

Then as he goes down in that paragraph he says, "However, if we knew more about nicotine absorption" -- what he's talking about there is how it's absorbed into the bloodstream, how it gets to the brain quickly and in what form it gets to the brain quickly, because when it gets to the brain it has its pharmacological drug effects on the human being, and you will hear evidence of that in this case, and that's what he's talking about -- "However, if we knew more about that absorption, action, elimination, enhancement and the like, it should in theory be possible to more precisely specify and deliver the optimum amounts of nicotine activity in sophisticated products which would be more satisfying and desirable to the user. This area merits consideration."

And then, ladies and gentlemen, in the next paragraph, he talks about the difference between people who are already smoking and non-smokers, people who haven't started to smoke yet, and you'll find as we read through this and as we go through further documents here that the non-smokers they're talking about are the youth of America. This will come forward not in my words, their words, and their documents will show that.

What does Mr. Teague say? "Before proceeding too far in the direction of design of dosage forms for nicotine it may well be -- it may be well to consider another aspect of our business; that is, the factors which induce a pre-smoker or non-smoker to become a habituated smoker. Paradoxically, the things which keep a confirmed smoker habituated and 'satisfied,' i.e., nicotine and secondary physical and manipulative gratifictions, are unknown and/or largely unexplained to the non-smoker. He does not start smoking to obtain undefined physiological gratifictions or relief, and certainly he does not start to smoke to satisfy a non-existent craving for nicotine. Rather, he" -- as I read through this, think of youth -- "Rather, he appears to start to smoke for purely psycological 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, i.e., nicotine, 'satisfactions' and habituation become apparent and needed."

Over onto the next page Teague goes on, in the first full paragraph, "What we should really make and sell would be the proper dosage form of nicotine with as many other built-in attractions and gratifictions as possible -- that is, an efficient nicotine-delivery system with satisfactory flavor, mildness, convenience, cost, et cetera. On the other hand, if we are to attract the non-smoker or pre-smoker, there is nothing in this type of product that he would currently understand or desire. We have deliberately played down the role of nicotine, hence the non-smoker has little or no knowledge of what satisfactions it may offer him, and no desire to try it. Instead, we must convince him with wholly irrational reasons that he should try smoking, in the hope that he will himself then discover the real satisfaction obtained, and of course in the present advertising climate, our opportunities to talk to the pre-smoker are increasingly limited and therefore increasingly ineffective. Would it not be better in the long run to identify in our own minds and in the minds of our customers what we are really selling, i.e., nicotine satisfaction? This would enable us to speak directly of the virtues of our product" -- the virtues of our product -- "to the confirmed smoker and would educate the pre-smoker, perhaps indirectly but effectively, in what we have to offer and what it would be expected to do for him."

Over on to the next page. "If, as proposed above, nicotine is the sine qua non of smoking, and if we meekly accept the allegations of our critics and move toward reduction or elimination from our products, then we shall eventually liquidate our business. If we intend to remain in business, and our business is the manufacture and sale of dosage forms of nicotine, then at some point we must make a stand. We should know more, rather than less, than our critics about the physiological effects of nicotine, and we should in all ways scientifically validate and speak to the beneficial effects and satisfactions derived from the use of nicotine."

And then Mr. Teague, at the conclusion of this document, goes on and proposes certain indicated research that RJR should undertake, and you'll have an opportunity to read this entire document, and RJR does undertake that type of research into nicotine. RJR, in fact, and the entire industry did precisely what was recommended by Mr. Teague. They researched and manipulated nicotine so that the ability of smokers, those confirmed smokers they referenced, to excercise their choice and decision to quit was compromised. The industry recognized that some people could put -- some can quit cold turkey but the majority could not, and that the addictiveness of nicotine would keep people smoking. It is this intentionally controlled addictive nature of nicotine which keeps people smoking long enough and heavily enough to cause serious illness and death.

Mr. Teague, in his cold and detached language, graphically points out how the industry strategy of deceit is implemented. First, the defendants attract pre-smokers -- that's a code word for youth -- who he admits do not know about nicotine, and then entraps them through their need for nicotine.

Mr. Dunn, The Nicotine Kid from Philip Morris, described this deceit and exploitation in more prosaic language. Mr. Dunn attended a conference on what he called a lovely little island lying about 150 miles east of the Virgin Islands at the northern end of the Antilles in 1972. This was called -- this conference was called by the CTR, and there were 25 or 29 invited scientists who they brought in because they wanted to have a conference on nicotine, and Mr. Dunn on the island of St. Martin attended this conference, listened to all the scientists and drafted this research memo for Philip Morris entitled "MOTIVES AND INCENTIVES IN CIGARETTE SMOKING." Page three he says -- and ladies and gentlemen, these are his words, not mine -- "It would be difficult for any of us to imagine the fate of eating were there not ever any nutritive gain involved. It would be even more provocative to speculate about the fate of sex without orgasm. I'd rather not think about it. As with eating and copulating, so it is with smoking, the physiological effects serve as the primary incentive. All other incentives are secondary.

"The majority of conferees would go even further and accept the proposition that nicotine is the active constituent of cigarette smoke. Without nicotine, the argument goes, there would be no smoking." Some strong evidence can be marshalled to support this argument. "One. No one has ever become a cigarette smoker by smoking cigarettes without nicotine.

"Two. Most of the physiological responses to inhaled smoke have been shown to be nicotine-related.

"Three. Despite many low nicotine brand entries into the marketplace, none of them have captured a substantial segment of the market." A very, very small segment? Yes. But without nicotine, we would not be here today. Their business would be liquidated.

Onto the next page. The Nicotine Kid, in his language, "Why then is there not a market for nicotine per se, to be eaten, sucked, drunk, injected, inserted or inhaled as a pure aerosol? The answer, and I feel quite strongly about this, is that the cigarette is in fact among the most awe-inspiring examples of the ingenuity of man. Let me explain my conviction." And he goes on to talk about "The cigarette should be conceived not as a product but a package. The product is nicotine. The cigarette is but one -- but one of many package layers." You got to peel the package open to get at the product. "There is the carton, which contains the pack, which contains the cigarette, which contains the smoke. The smoke is the final package. The smoker must strip off all these package layers to get to that which he seeks. Think of the cigarette pack as a storage container for a day's supply of nicotine. Think of the cigarette as a dose -- as a dispenser for a dose unit of nicotine."

On to the next page. "Think of a puff of smoke as the vehicle of nicotine." And then finally he says, "Smoke is beyond question the most optimized vehicle of nicotine and the cigarette the most optimized dispenser of smoke." And you will hear from Mr. Richard Hurt from the Mayo Clinic why that is so.

But Philip Morris and RJR were not alone. All of the defendants knew the role of nicotine, and you will see from all of their documents how they knew it, researched it, but never disclosed it. As the '60s rolled into the '70s and the '70s into the '80s, you will see documents from these defendants' files which showed that they intentionally cheated smokers -- their words, not mine -- by lowering tar and nicotine in cigarettes and implying -- not claiming, but implying -- that those cigarettes were safer. The fact is these companies knew that smokers who were moving in droves to lower tar and nicotine cigarettes, thinking they were safer, were obtaining the same tar and subject to virtually the same risks as the higher tar cigarettes.

One of the reasons for this is a concept known to the defendants called compensation, which means that a smoker, driven by a need for the physiological effect of nicotine, takes a heavier and deeper draw on lower tar cigarettes, resulting in virtually the same serious health effects as a high tar cigarette. There were other design changes which also enhanced that delivery of nicotine.

Indeed, in 1987 B.A.T conducted a study of the biological activity of smoke condensate from the cigarette made in 1959, they kept it refrigerated, and then they compared it to the top five brands on the market in 1987, comparing a '59 cigarette to an '87. '87 has lower tar and nicotine. Think, well, it must be safer. It found that the biological activity of the earlier cigarette was less than the more modern cigarettes. Lower tar but not lower harm.

In the '70s and '80s the industry's campaign of deceit became more sophisticated and complex as the defendants became more focused on the increased engineering of the cigarette as a nicotine-delivery system. The defendants were faced with a problem: How to reduce tar and nicotine but still maintain a sufficient level of nicotine so that it could have its intended physiological effect.

In 1953, Mr. Teague, who we've already heard from, authored another report which looked at the sales growth of Marlboro and Kool, which were the competitors to the Winston and Salem brands of RJR. Remember, Mr. Teague was at RJR, so they're doing some competitive intelligence. They are looking at Philip Morris, which manufactures Marlboro, and they're looking at B&W, who manufactures Kool, and saying what is going on in the marketplace.

Reynolds had been concerned that Kool had surpassed Salem and Marlboro was close to overtaking Winston, which at that point had been the best-selling cigarette in America. During this same period of time the cigarette industry was continuing to reduce tar and nicotine in their cigarettes as part of their strategy to create a sanctuary or illusion that cigarettes were being made safer to smokers. Teague's report was a result of research conducted at RJR looking at the chemical and physical properties of the competing brands and comparing those to the RJR brands.

You will learn in this case, ladies and gentlemen, that the cigarette is not a simple agricultural product where we take the tobacco leaves and roll it up and make cigarettes, but it's a complex and highly engineered product containing hundreds of chemicals and carcinogens. For example, just a partial list of additives, about 599 chemical additives right on this list right here, and that's not all of them that's engineered into these cigarettes. There had been identified as of 1995 by some medical researchers 71 known carcinogens in tobacco smoke.

Mr. Teague, in his research in 1973, discovered that the most significant difference between the Reynolds brand and the Philip Morris brands and Brown & Williamson was in the area of what's called pH. Smoke pH is a means of expressing on a zero to 14 scale -- it's a logarithmic scale -- the degree of acidity or alkalinity of a substance, in this case cigarette smoke. The lower it is, the more acid, so zero up to seven is acidic, seven is neutral -- water would have a pH of seven -- and above that it becomes alkaline. Now as the smoke pH increases -- and you just have to move it a little bit, not a lot -- it becomes more alkaline, and as smoke pH decreases it becomes acidic.

The research department at Reynolds discovered that although Marlboro and Kool delivered about the same amounts of total smoke nicotine -- and they call that delivery and it's done by a test by the FTC, so they deliver about the same amount, those two brands, Marlboro and Kool, as Winston and Salem -- they had a higher smoke pH, which meant that Marlboro and Kool contained more free nicotine than the Reynolds brands. This means that the nicotine was in free or free base form. And you've all heard of crack cocaine when they smoke it, free basing it, gets into your system faster, has its drug effect faster. And that's what Reynolds found out about Marlboro and Kool. It was more volatile and more rapidly absorbed through the lung into the blood of the smoker.

It was further discovered that as a result of its higher smoke pH, Marlboro, despite a two-thirds reduction in tar and nicotine over the years, had maintained essentially the same amount of free nicotine in its smoke as the Winston cigarette had had many years earlier when it had higher tar and nicotine. On the other hand, Winston, which had been reducing tar and nicotine, had experienced a two-thirds reduction in free nicotine, and this is free nicotine again that maximizes the potential for the nicotine to get to the brain quicker. So Marlboro had almost three times the amount of free nicotine as Winston in 1973. The significance of this was that the 1973 Marlboro had the same addictive effect on people as the earlier Winston even though the total nicotine had been reduced.

During the same period of time, not surprisingly, Marlboro was dramatically increasing its market share, and you will see that that was primarily among our youth. Reynolds concluded -- and this -- these are their words, again, not mine -- that Philip Morris's manipulation of nicotine was deliberate in order to give it a greater nicotine kick, and one way this was achieved was by adding ammonia to Marlboro.

Philip Morris had started its ammoniation process on Marlboro in 1964, and as a result of Reynolds' competitive research, Reynolds ammoniated a Camel in 1974 and many others of its brands in the 1979 to 1980 time period. Indeed, all of the defendant manufacturers in this case, with the exception again of Liggett, ammoniate some of their brands of cigarettes which results in increased pH nicotine that enhances nicotine's ability to get into the smoker's system more rapidly. Defendants have also implemented other design changes that you will learn as the evidence unfolds in their cigarettes to increase the cigarette's effectiveness as a drug-delivery device.

Never have any of these defendants or their public relation fronts, the CTR and TI, discharged their legal responsibility by disclosing to the public their sophisticated, scientifically based manipulation of nicotine. The reason for this is simple: If they honestly and completely disclose this information, they could no longer argue to the public that smoking was a free choice. And you all heard about that in voir dire. The industry's fear of a disclosure of their own internal knowledge about the addictive nature of nicotine is expressed in a secret Tobacco Institute document dated September 9th, 1980, written to a senior vice-president of The Tobacco Institute, a document that we obtained in this litigation, and you'll see it says "CONFIDENTIAL: MINNESOTA TOBACCO LITIGATION." And the author of this document, talking about -- let me put it in context for you. At this point in time the National Institute of Drug Abuse wanted to put "addictive" on the cigarette warning label. None of these defendants, with the exception of Liggett, have such a warning label on and Liggett's only came on within the last year. But this was back in 1980. And of course the industry was going to fight that with all of their might and all of their power, and I'll tell you why right here. This issue of choice they all like to talk about, they ask questions about to prospective jurors? Here's what they said. "I feel badly about my own lack of intelligence gathering in this situation" -- this is the author. He didn't know that the National Drug Institute was going to come out with this proposal -- "but I don't think the questions I now raise are academic. Shook, Hardy," that's another one of the defendants' law firms, "Shook, Hardy reminds us, I'm told, that the entire matter of addiction is the most potent weapon a prosecuting attorney can have in a lung cancer/cigarette case. We can't defend smoking as 'free choice' if the person was 'addicted'." Their words, not mine.

The industry's calculated determination to not disclose its knowledge concerning nicotine addiction and manipulation was not only based on their realization that juries, when faced with the hidden knowledge, would reject the industry's bogus claim of free choice, but also that if such knowledge reached governmental authorities, the industry would be forced to substantially reduce or eliminate nicotine from tobacco. Although all of the manufacturing defendants can essentially eliminate nicotine from cigarettes, they have chosen not to do so. And you saw why: They'd have to liquidate their business.

And their fear of this regulation is expressed in a meeting of tobacco company research directors which took place on February 16th, 1983. In attendance at that meeting were representatives from B.A.T, Philip Morris and American. And in that document, which you'll have an opportunity to read during this trial, they show that if any future study -- Should we study this? -- if any future study either was or not associated with perpetuating the smoking habit in regard to nicotine, the industry will be called upon to eliminate nicotine from the product. A heads we lose, tails we cannot win situation."

As Mr. Teague stated in 1973, the physiological effects of nicotine are unknown or largely unexplained to the beginning smoker. A person begins to smoke for other reasons, such as emulating a valued image, conforming to experiment, to defy, or to be daring. It is only after experiencing smoking for a period of time that the physiological satisfactions become needed. These defendants have long studied the smoking patterns of our youth and the reasons why youth began to smoke. Their documents reflect that the overwhelming majority of smokers begin by the age of 18. These defendants have long known that it is essential that they recruit teenagers and adolescents if they are to remain profitable, yet you will hear in this courtroom the defendants' argument that the reason they spend billions of dollars per year in promotion and advertising is only to get adults to switch brands even though you will hear the evidence from their own files that the amount of adults who switch is so miniscule that no one, no one would spend that kind of money to attempt to get switchers. It's directed to people who have not yet started smoking, and the overwhelming majority of those people are our youth.

Once again, the defendants' own previously secret documents will prove their statements to be false. Company after company and document after document, in clear and unequivical language, point out that in order to sustain their market, they must attract youth to their cigarette brands. It is no coincidence, ladies and gentlemen, that Philip Morris is the largest tobacco company in the United States and that Marlboro is the number one selling cigarette brand in the United States. Marlboro has risen to its number one position on the backs of the youth of this country. For decades Philip Morris has been studying the youth market, teenagers.

In 1969, Dr. Wakeham again, November 26, 1969 -- I know it's hard read, that's the date, you'll have this document yourself -- presented to the Philip Morris board of directors by Dr. Wakeham, he's talking here about smoker psychology research, why people start smoking, and one of his slides, in addition to other ones, was slide 13, and he breaks down the question. "First, we have to break the question into its two parts: Why does one begin to smoke? Why does one continue to smoke?" He says, "There's general agreement on the answer to the first part. The 16- to 20-year-old" -- here they're going after 16 -- 17-year-olds, teenagers, they have never ever publicly said they go after teenagers, here they're reporting to the board of directors of Philip Morris in 1969, that's the highest authority in the corporation, that "The act of smoking is symbolic. It signifies adulthood. He smokes to enhance his image in the eyes of his peers." Who does that but youth? Philip Morris, their own document.

In 1974 Philip Morris hired the Roper Organization to conduct a study of smoking habits among young smokers titled "A Study of Smoking Habits Among Young Smokers Prepared for Philip Morris Incorporated July 1974." "Interviewers were instructed to go to locations where young people, as described in their quota assignments, were likely to be found, near high schools and colleges, around young people's hangouts such as soda fountains, recreation areas, parks, bowling alleys, beaches, lakes, et cetera."

Talking about where the market was going in this report: "What can Philip Morris do about the situation? 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 another. Certainly Philip Morris should continue efforts for Marlboro in the youth market, but perhaps as strongly as possible aimed at the white market rather than attempting to encompass blacks as well." They were so sophisticated in their research that they segregated, they segregated the market between whites, blacks, Hispanics, between various age groups. That's what these companies did in selling this deadly addictive product.

They go on to say in this document, "On other fronts, there appear to be good possibilities for some of the other Philip Morris brands in the young market, and these could be promoted."

May 21, 1975, another Philip Morris document. "Marlboro has for many years" -- and I'm just reading from their documents, I'm not making these words up -- "Marlboro has for many years had its highest market penetration among younger smokers. Most of these studies" -- and this is a gentleman who's reporting on this, and you'll see his name a lot, Myron Johnston to a Dr. Seligman -- so he says, "Most of these studies have been restricted to people age 18 and over." Those are independent studies that they get from outside the company. "But my own data, which includes younger teenagers, shows the entire Marlboro market penetration among 15- to 17-year-olds. The teenage years are important because those are the years during which most smokers begin to smoke, the years in which initial brand selections are made and the period in the life cycle in which conformity to peer group norms is greatest." And yet they say they don't market to youth.

Another exhibit, May 29th, 1979. Philip Morris, on their letterhead again, "Marlboro represents 60 percent of Philip Morris U.S.A. sales." Sixty percent, one brand. "Marlboro dominates in the 17 and younger age category, capturing over 50 percent of this market."

Another Philip Morris document, March 31, 1981, Philip Morris Research Center, Myron Johnston's name is on there again, report titled "YOUNG SMOKERS -- PREVALENCE, TRENDS, IMPLICATIONS AND RELATED DEMOGRAPHIC TRENDS." This again is directed to Dr. Seligman. "For over fifteen years certain demographic and social trends have been moving in directions favorable to industry growth. Now, one by one, these powerful social and demographic factors are turning against us, and by 1984 -- 5 all will be operating against us.

"The trends are" -- let's just take a look at the first two -- "After increasing for over a decade, the prevalence of teenage smoking is now declining sharply." This was back in 1985. You'll find that's no longer the case today.

"Two. After increasing for over a decade, the average daily consumption of teenage smokers is declining." Over on to the next page. "This report deals with only one of these trends -- teenage smoking and attitudes towards smoking, together with related demographics. Subsequent reports will cover the social, economic and psychographic characteristics of teenage smokers and the demographics of other significant age groups.

"Because the major data sources have just become available and because of the importance of these data to the company, I have elected to report the data in a series of memoranda rather than wait and issue all of the material at once."

Over to his summary. "It is important to know as much as possible about teenage smoking patterns and attitudes. Today's teenager is tomorrow's potential regular customer, and the overwhelming majority of smokers first begin to smoke while still in their teens. In addition, the ten years following the teenage years is the period during which average daily consumption per smoker increases to the average adult level."

Down to the next paragraph. "Furthermore, it is during these teenage years that the initial brand choice is made." And you're going to see a lot of documents about this, first regular brand, young adult smokers, that's another one, code word, young adult smokers, RJR's code word for teenagers and youth. "At least a part of the success of Marlboro Red during its most rapid growth period was because it became the brand of choice among teenagers who then stuck with it as they grew older -- this combined with the rapid growth in the absolute number of teenagers. Between 1967 and 1976 the number of 15- to 19-year-olds in the U.S. increased 18 percent, and there was also an increase during at least part of that period in the percent of teenagers who smoked cigarettes."

It is so important that they grip them early where they don't know about nicotine, as they themselves say, and then they get them hooked on the nicotine because they stay with the brand, there is brand loyalty. Exceedingly important as you go through and you watch the demographics of these groups and the amount of revenues they drive to the company.

Another Philip Morris document, "Product Testing Short Course," January 23rd and 24th, 1984, Richmond, Virginia. This is a great big thick document. I've just taken out part of it. You'll have the opportunity to read all of it so that you can understand the entirety of what's going on and be sure and assured that nothing's being taken out of context. You can look at all of the information. We'll put it all in. "Marlboro floundered for eight years and then hit a responsive chord among post-war baby-boom teenagers with a theme from the Magnificent Seven and an image uncalculatedly right for the wave of teenagers coming of smoking age."

Down in the next paragraph. "While it is difficult to see anything in the Kool image that young people could associate, Kool is apparently the in menthol plan corresponding to Marlboro, especially among blacks. I interpret Newport's success as a continuation of Kool's success. Kool appears to have lost favor among the young black smokers." Again stratifying and segmentizing the population. That's how sophisticated they got with regard to their marketing to youth.

Philip Morris isn't alone. RJR is the number two company. For years RJR, through competitor intelligence, as I told you, had been analyzing Philip Morris's success in selling to youth and trying hard to catch up to Philip Morris in sales to youth. In 1972, in a memo that was sent straight to the president of the company, the marketing department reported that Philip Morris, the fastest growing company, had a substantially higher share among smokers age 14 to 17. The president of RJR was also told, quote, "Marlboro is the primary reason that Philip Morris does so well among young adults," their code word for our youth.

January 1973, another RJR document, and this is the one I was telling you about with regard to Mr. Teague. A secret document. This is the one where he looked at the nicotine and nicotine kick. Here's what he said in it. "Marlboro was continuing to grow in sales." And he said, "Winston had a severe problem." And Marlboro at this time in '73 was continuing to grow and the document reported that the most profound differences in sales between Winston and Marlboro were in attracting ages 14 to 17. Winston had a 13 percent share of the market among youth ages 14 to 17, Marlboro had a 40 percent share among youths 14 to 17.

Over on page eight. "In order to actively compete with Marlboro, we feel that Winston's media planning must reflect a more single-minded orientation toward spending against young adult urban males."

At the same time RJR's scientists were also looking for ways, in addition to marketing, to capture the youth market. You'll remember that Philip Morris, with Marlboro, was the first company to use ammonia, and this resulted in a higher pH and nicotine free base. In addition, adding ammonia also made the cigarettes less harsh.

Teague, who I also referenced to you earlier, in this secret '73 memo, recognized that Marlboro represented a new type of cigarette which was mild but had a high nicotine kick. They found this --

They did research on this at RJR, and he issued this report called "IMPLICATIONS AND ACTIVITIES ARISING FROM CORRELATION OF SMOKE PH WITH NICOTINE IMPACT, OTHER SMOKE QUALITIES, AND CIGARETTE SALES." And the chart -- one of the charts -- before I get to the chart, let -- let me just read to you what -- what Mr. Teague said. And he reports this to management. "If our data, correlations and conclusions are valid, then what has emerged is a rather new type of cigarette, represented by Marlboro and Kool, with high nicotine kick, burley flavor," which is a type of tobacco, "mildness to the mouth, and increased sensation to the throat, all largely the result of higher smoke pH. There is evidence that other brands which are selling well also have some of these attributes, particularly increased free nicotine impact. Because brands of this type continue to show vigorous growth in sales because a high proportion of beginning smokers are learning to like Marlboro," that's a emphemism for youth, beginning smokers, the leading brand of the new type, "and because we have no current brand in this newly identified major segment of the market, it has become appropriate for us to consider moving our present brands in the direction of the new type of cigarette and/or creating new products to compete directly in that area of the market." And that's what they did, ladies and gentlemen, they ammoniated their cigarettes and they competed.

And you can see the concern they had by this graph which is up on the board right now. The first graph is the annual sales in billions, and the solid line at the top is Winston. It was the leading seller at that time. And then you see Marlboro, the broken line, coming up. Now the next graph down on the right shows the pH. The broken line, you'll see what the pH of the Marlboro cigarette is, and below that you see the pH of the Winston. Marlboro was increasing its pH. And finally you see the free nicotine in smoke in the cigarette. Remember, I was talking about back in the '50s and '60s where they started lowering tar and nicotine and the pH was at a certain level. You can -- you can watch this. The free nicotine, free nicotine creates more -- it is a result of higher pH, so as they came down, they were losing nicotine. And look what happens to Marlboro, that broken line. As they started going into the ammoniation, and look what Winston is, and that's what I was telling you about the difference between the pH and the free nicotine, Winston versus Marlboro, the ability to get to the brain quicker.

Another RJR scientist, Frank Colby, wrote a memo entitled "Cigarette Concept to Assure RJR a Larger Segment of the Youth Market." This new cigarette would be for the up-and-coming new generation of smokers. Colby's idea for a youth brand cigarette was to get additional nicotine kick, not by adding more nicotine, but as Dr. Teague said, by increasing the pH. Any additional nicotine kick could be easily obtained through pH regulation. His words, not mine. And of course we now know from RJR's secret documents that RJR did start using ammonia to increase pH and free base nicotine in its cigarettes beginning in 1974.

What did RJR really consider the youth market to encompass? At a September 30th, 1974 meeting at Hilton Head Island, a market presentation was made to the board of directors, the very top of the company. This document in unequivical terms lays out RJR's understanding of the youth market. There you see "1975, MARKETING PLANS PRESENTATION, HILTON HEAD, SEPTEMBER 30, 1974." Objective in 1975. "Our paramount marketing objective in 1975 and ensuing years is to re-establish RJR's share of the market growth in the domestic cigarette industry."

Remember what they said their paramount responsibility to the public was back in 1954, the safety and health of the public, paramount to every other consideration in their business? That's what they said externally in 1954. This is what they say internally in 1974.

Chart two, "Increase our young adult franchise.

First, let's look at the growing importance of the young adult in the cigarette market." Remember that term, "young adult?" "In 1960 this young adult market" -- look at the ages, 14 to 24 -- "resulted -- or represented 21 percent of the population.

"As seen by this chart, they will represent 27 percent of the population in '75. They represent tomorrow's cigarette business. As this 14-to-24 age group matures, they will account for a key share of the total cigarette volume -- for at least the next 25 years." And that would mean today's 39- to 45-year-old people. That's what they said back in 1974, "Let's go get them."

The next page, "The 14-to-24 age category, Philip Morris has a 38 percent share and Brown & Williamson a 21 percent share. Both companies have significantly lower shares in the remaining age categories." Yes, those who are older, those to whom sales of cigarettes are legal. "In sharp contrast, our company line shows a pattern of relatively even strength among all age groups and strength in the 25 and older categories, where we exceed both competitors. Winston is at 14 percent in the 14-to-24 age group versus Marlboro at 33. Salem is at nine percent versus Kool at 17." There again, they were lagging behind in the youth market.

So what do they say? Strategy: "Direct advertising appeal to the younger smokers while being true to the brand's basic product attributes. Research has shown that among young adults," that's their 14 to 24, "the new Winston ads"-- they were test marketing their ads -- "generate twice as much recall as any previous Winston campaign and are 40 percent more persuasive compared to the Marlboro campaign." There they were, their own words targeting youth, putting ads out there, seeing how they reacted in the marketplace, and presenting it to the board of directors of the second largest tobacco company in this country.

In January of 1975, talking about Camels, they said, "To ensure increased and long term growth of Camel filters, the brand must increase its share penetration among the 14-to-24 age group which have a new set of more liberal values and which represents tomorrow's cigarette business."

In 1980 in July, a memo to the president of RJR. Again RJR recognized Marlboro's strength among the 14- to 17-year-old smokers. "Philip Morris has a total share of 59 percent among 14- to 17-year-old smokers, and specifically Marlboro had a 52 percent share." Again RJR planners planned to take action to capture more teenage smokers. "Hopefully our various planned activities that will be implemented this fall will aid in some way to reducing or correcting these trends." They had the evidence that showed they had to get these kids when they're young because they're the ones who supply you money over the long term and they are brand loyal, and these companies know that.

In 1984, an in-depth study of the youth market by RJR demonstrated that youth smokers had been the critical factor in the growth and decline of every major brand for every major tobacco company for 50 years. RJR felt that younger adult smoker -- their code word for youth -- would continue to be just as important to tobacco companies in the future. And here's what they say. "Younger adult smokers are the only source of replacement smokers." What's a replacement? They replace those who may be able to overcome the addiction and quit, and there are a lot of those, and they replace those who die, over 400,000 every year.

"If younger adults turn away from smoking, the industry must decline, just as the population which does not give birth will eventually dwindle. Younger adult smokers are critical to RJR's long-term performance and profitability. Therefore, RJR should make a substantial long term commitment of manpower and money dedicated to younger adult smoker programs. An unusually strong commitment from executive management will be necessary." And it was given, ladies and gentlemen: We all know about Joe Camel.

In 1987 the advertising, talking about Camel, also successfully achieves communication of the desired individualistic Camel user personality whom the target smoker relates to as one of their friends. October of '91. "The non-people character nature of Joe Camel seems key to why consumers willingly admit its relevance and/or their envy of his lifestyle and/or that he represents a role model."

Brown & Williamson also focused on youth by regularly studying and targeting teenagers. Philip Morris wasn't alone, RJR wasn't alone. In 1973 their direct target group, Brown & Williamson, 6.3, 16- to 25-year-old smokers.

In February of 1973, another document, "Kool has shown little or no growth in the share of users in the 26 plus age group. Growth is from 16- to 25-year-olds. At the present rate, a smoker in the 16- to 23-year-age group will soon be three times as important to Kool as a prospect in any other broad age category.

Page three, "Kool's stake in the 16- to 25-year-old population segment is such that the value of this audience should be accurately weighted and reflected in current media programs."

September 10th, 1975, "Kool's effort" -- excuse me. They want to target them, they had to target them; now what do they say about it? "Kool's effort in the 16- to 25-age-group continues to be working. Kool's effort is successfully attracting new smokers. Kool's starter level is well above the average among all age groups and both sexes, with particularly strong evidence among female starters."

October 9th, 1979. Reference is to 13- to 17-year-olds who are now starting to smoke, and they say, "It appears there will be a new battle for the new generation."

Lorillard also relied on the youth market. A memo to the president of Lorillard recognized the importance of the high-school student. Their words again, not mine. "The success of Newport has been fantastic during the past few years. The base of our business is the high-school student."

The industry through these defendants knew they were dependent on attracting non-smokers if they were to survive and prosper. The evidence will show their extensive research into the demographics of smokers led to the inescapable conclusions that their recruits must be America's youth. It is and always has been this segment of our population which has the most pronounced need to emulate a role model, to conform, to experiment, to defy and to be daring. All of this was known by these defendants and capitalized on in order to ensure that there would be fresh recruits into the market for this addictive and deadly product.

Defendants used what they knew about the psyche and needs of youth to fashion billion-dollar marketing campaigns aimed at subtlely and subconsciously enticing youth to start smoking. Defendants knew that most young people would say that it was peer pressure that led them to start smoking. As a result, defendants targeted their marketing to influence the teen peer group in ways that these young people would not even perceive to be working on them. Defendants' internal documents in their own words emphasized the importance in attracting youth due to teens' brand loyalty. The industry knew that their greatest revenues over the long term are from those who begin smoking by age 18. Defendants, faced with this irrefutable fact disclosed by their own elaborate and extensive marketing research that 90 percent of smokers begin by age 18, accordingly they treated America's youth as a commodity who where the source of replacement smokers for those who were able to beat the addiction and quit and for those who died from diseases caused by smoking.

In conclusion, ladies and gentlemen, the evidence in this case will come forward from that witness stand and through experts on addiction, internal medicine, epidemiology, biostatistics, chemical engineering, adolescent behavior, antitrust economics, marketing, and through these defendants' own employees. The totality of that evidence will show a deliberate, intentional and sustained course of conduct by these defendants which has caused damages to the state of Minnesota and Blue Cross in the amount of one billion seven hundred seventy million dollars. Those damages will be established through the introduction of a sophisticated and scientifically valid statistical model based upon detailed and extensive health-care cost records of the state and Blue Cross.

As I stated earlier, this is a case of deceit and exploitation in which these defendants were guided not by their duty under the law but by their allegiance to their bottom line. You will hear the defendants' attempt to deflect attention from their own conduct by suggesting the issue should be focused on the decision of adults to exercise their free choice to smoke. You will hear defendants argue that the hazards of smoking were common knowledge and that cigarettes are a legal product. At the same time defendants will deny that smoking causes any diseases, thereby suggesting that everybody else should know what they themselves do not know or will not admit with regard to their own product.

Remember the commitments that we have made to youth and those which the defendants will make to you in their opening statements. Keep those in mind as the evidence unfolds in this case and judge us by those commitments at the end of this case. This case is not about free choice, but rather about the illegal conduct of these defendants in selling an addictive product.

At the end of the evidence we will ask you to return a verdict based on that evidence and the instructions that Judge Fitzpatrick provides to you.

Thank you very much.

THE COURT: We'll recess until 2:00 o'clock.

(Court recesses.)

AFTERNOON SESSION.

THE CLERK: All rise.

(Jury enters the courtroom.)

THE CLERK: Please be seated.

THE COURT: Counsel.

MR. BLEAKLEY: This case, this case before you, is about money. The state and Blue Cross, through Mr. Ciresi, have leveled a lot of charges and accusations against the defendants in this case. They're very specific charges and they have made very specific claims for money damages. And what Mr. Ciresi and his clients want you to do at the end of this case is to award money, money for injuries they claim were caused by the defendants' wrongful product -- wrongful conduct.

What I'm going to tell you here this afternoon is that the state and Blue Cross are not going to prove that they suffered any of the injury they claim they suffered because of the defendants' wrongful conduct, and let me make very clear right at the beginning what I am talking about. There are three very specific health-care programs involved in this case, and it is under these three very specific health-care programs that the state and Blue Cross seek damages. The first of those is Medicaid, the second is General Assistance Medical Care, and the third is Blue Cross insurance. And the reason why I'm writing this up here and I'm going to leave it up here is because I want you ladies and gentlemen to remember all the way through my opening statement, through the opening statements of the other defendants in this case, and as you listen to all of the evidence in this trial, that we're not talking about health-care costs in general in this case. The state and Blue Cross are seeking recovery under these three very specific programs, and what I'm telling you is the state and Blue Cross are not going to prove that they have suffered any increased health- care costs in these three programs because of the defendants' conduct.

Good afternoon. Let me introduce myself once again. My name is Peter Bleakley and I'm one of the attorneys for Defendant Philip Morris in this case, and as is obvious, I'm going first. Some of my colleagues will follow me and I'll talk about that in just -- just a moment. I want to begin by stating to you, ladies and gentlemen, that the defendants understand that many of you, maybe even most of you, don't like smoking very much, and some of you, hopefully only some of you, don't even like cigarette companies very much. The defendants understand, believe me, that smoking has become a major issue in this country and that people, and some of you may be among them, have very strongly-held views about smoking across the board, certain aspects of smoking. We understand that this is a subject that is in the newspapers every day, it is a subject about which people and governments and companies and public health authorities have strongly-held views. We know, for example, that some of you may think that cigarette advertising should be banned. There may even be a few among you who think that cigarette sales should be banned. But as Mr. Ciresi said in his opening, that is not a issue in this case.

You may conclude -- you may believe already -- you may conclude at the close of the evidence in this case that there are occasions or instances in which the tobacco companies or some of them have behaved foolishly or badly or even wrongly. You may feel -- you may conclude that the cigarette companies should have conceded years ago that smoking causes disease. You may have all of those views. You may come into the courtroom with those views and you may leave with them, or even stronger ones. But the issue that you have to decide in this case is whether wrongful conduct by the defendants caused the state and Blue Cross to incur increased health-care costs, increased health-care costs in these three specific programs. That's what this case is all about.

Now when Mr. Ciresi and I and my colleagues spent all of the time -- and the court -- with you and other potential jurors talking about how you can be fair and impartial in this case, you remember how all of us said -- asked you: Can you put all of that other stuff, all of that furniture that you come in here with out of your mind and try and listen only to the evidence that you see and hear in this case, and to try to be fair and impartial? And that's what I want to start by asking you once again to do. And I want to ask you to do it in the context of what this case is about. So no matter what you may think about smoking or cigarette companies, remember that what you have to do here is decide whether, under the facts that are presented to you in this courtroom and nowhere else, the defendants have acted unlawfully, violated the laws of the state of Minnesota, and whether those wrongful acts caused the specific injury that the plaintiffs claim they caused.

Now I want to tell you a little about some of the evidence that the defendants believe that you're going to see and hear in this case. I want to stop for just a moment. I'm sure that all of you know this, but what Mr. Ciresi was telling you here this morning is what the state believes the evidence is going to show. That wasn't evidence. That wasn't testimony. Those little pieces of documents from which Mr. Ciresi read in his opening statement are just that, little pieces of documents. This trial hasn't really started until the first witness gets up on the witness stand and you start hearing evidence. And the evidence hasn't started yet. So what Mr. Ciresi says isn't evidence but what he believes the evidence is going to show, and what I'm about to tell you and what my colleagues who will follow me are about to tell you is what we believe the evidence will show. But you all are the judges and the only judges of what the evidence in fact shows. You're the ones who, when this is all over and we've made our closing arguments and the judge has given you the legal instructions that are applicable, you're going to go into the courtroom and you're going to decide what the facts are, not us. None of us.

So I ask you, and I'll try not to ask it again: Please keep an open mind and remember what this case is about.

Actually I have two more preliminary matters before I get to the evidence, the first of which is that, listening to Mr. Ciresi, you would think that all the defendant tobacco companies have done is work together over the years, but what you're going to learn from the evidence in this case is that these companies, who are represented by the lawyers sitting here at this table, have been vigorous, often bitter competitors over the years. In the 1940's my client, Philip Morris, was the smallest tobacco company in the country. Today it's the largest, and it got there by taking business away from the other defendants. And the companies have struggled with one another, scratched and clawed for market share. Especially as the market for cigarettes has been declining all through these years, everyone's been fighting for a share of a declining market. But having said that, we know that none of you wants to spend one more day in this courtroom than absolutely necessary. Every one of us in this courtroom is mindful of the tremendous burdens that this trial is placing on some of you. Some burden on all of you, but a very substantial burden on some of you. We understand that. And unlike the rest of us who get paid for what we're doing here, you don't, and so we're going to try very hard to be as efficient as we can and we have, therefore, agreed to cooperate in trying to present pieces of the case without duplicating each other, without repeating each other, and we're going to start that effort to be efficient and to present pieces of the defense to you right here today and tomorrow in our opening statements. We're going to divide up the subject matters as fully as we can so that we don't all get up and repeat ourselves and you all are sitting there in the jury box saying, "Oh, my God, he said the same thing the one before him." We're going to try very hard to do that.

Second matter that I wanted to raise preliminarily with you is I want to say a word or two about who the defendants in this case are. You heard names of a lot of organizations, some of which I'm sure meant absolutely nothing to you. I'm going to let the counsel for the other major tobacco companies who are going to also make opening statements here describe their own companies to you, but I want to say just a word or two about my own client, Philip Morris, and I want to say a word or two about some of the other defendants that are in this case.

My client, Philip Morris, is, as Mr. Ciresi said to you this morning, the manufacturer of Marlboro cigarettes and a number of other cigarette brands. It is today the largest cigarette company in the United States. Hasn't always been true, but it is today. Philip Morris is also a major food manufacturer, it makes a lot of other products than cigarettes, it makes Oscar Mayer meat products, for example, it makes -- Kraft General Foods is part of Philip Morris, Miller Brewing Company is part of Philip Morris, and several of the other defendants have affiliates in other businesses as well.

A word about defendant Liggett. Defendant Liggett is a tobacco company. It was once a very large tobacco company. It once had one of the largest selling brands in the world, Chesterfield. Some of you probably have heard of that brand either from the old days or even today. Liggett has not fared as well in recent years as some of the other tobacco companies. They are today a very small company. And in 1986 Liggett was purchased by a man named Bennett LeBow, and you may see Mr. LeBow here at trial, I don't know whether you will or not, but you may see him here as a witness for the plaintiffs in this case.

I just want to make sure that as we begin the evidence you all understand that defendant Liggett has already entered into a settlement with the state of Minnesota in this case in which they agreed to cooperate with the state in the prosecution of this case. So if and when you see Mr. LeBow in here testifying, I want you to understand that he is in many ways now on the side of the plaintiff. Won't say anything more about it now. We'll see what happens and -- and talk about it in closing argument.

The Council for Tobacco Research, the successor to The Tobacco Institute -- Tobacco Industry Research Committee, Mr. Ciresi described it this morning, you're going to hear a lot more about The Council for Tobacco Research through my colleague, David Bernick, and perhaps from some of the other defense counsel in this case. I just want for you to understand this now because this is going to drag out over a long time. But Council for Tobacco Research is not a trade association, it is a research organization, and it has done a lot of very high quality smoking-and-health research, some of which was cited in the 1964 Surgeon General's report and some of which has been cited in Surgeon General's reports on smoking and health since then. It is a quality research organization.

The Tobacco Institute is a trade association. It does a lot of things. It represents the industry in -- before the public. It expresses the industry's views. It is in that respect very much like the trade associations that represent every industry in the United States. In some respects like unions. There's nothing nefarious about having a trade association, The Tobacco Institute.

Okay. Let's turn to the subject about which I'm going to talk in my opening remarks, and I want to tell you a little about the evidence you're going to see on that subject, and the subject I want to talk to you about is essentially where Mr. Ciresi left off in his opening statement this morning, causation, injury, what in fact are these wrongful acts that the state and Blue Cross have charged the defendants with. What effect, if any, have those acts had upon the state's Medicaid, GAMC and Blue Cross's health-care costs. That's what I want to talk about.

I don't mean to suggest for a moment that you're not going to hear what our perspective, what the defendants' perspective is on the evidence you will see with respect to the industry's conduct. You will indeed. You will hear from David Bernick on behalf of Brown & Williamson, you will hear from John Monica on behalf of defendant Lorillard, you will also hear from Bob Webber, counsel for R. J. Reynolds, who will discuss with you in detail many of the specific allegations that Mr. Ciresi talked about here this morning.

It's going to be a long trial. You're going to hear a lot of evidence. I want to make sure you understand that all of those charges are not going to go unanswered either in opening statements or in the evidence.

But what I want to talk to you about is that it is so critical to the determination that you have to make when you leave this jury room whether the state and Blue Cross are going to be able to prove that they incurred increased health-care costs in these areas.

Well let's start with the evidence that the plaintiffs are going to offer. Mr. Ciresi said they're going to prove -- while I won't remember them all -- they're going to prove false advertising, they're going to prove conspiracy, they're going to prove suppression of research, they're going to prove fraud, all of these things that the plaintiffs say the defendants did that deceived people, that caused people not to understand the health risks of smoking. Well let me ask you to ask yourselves a question. You'll know the answer pretty soon. How are they going to prove this? How are they going to prove that smokers, who are Medicaid recipients or GAMC recipients or Blue Cross insureds, were deceived? Are they going to bring smokers in here? Mr. Ciresi said this morning this wasn't about individual smokers. But in a sense this case is about individual smokers. It's about all of them lumped together, at least all of them lumped together who are Medicaid recipients, GAMC recipients or Blue Cross insureds. Is the plaintiffs' side of the case going to bring in any smokers to testify that they were deceived? Well you can probably tell by my asking that question that the answer to it is no, they are not. They are not going to bring in one single Medicaid recipient, one single GAMC recipient, one Blue Cross insured, one smoker on those programs or not. Not one. They're going to try to prove that smokers were deceived by bringing in experts to testify that what the defendants did was reasonably likely to deceive, that it was calculated to deceive and perhaps even that it did deceive, but they won't bring in the people who were allegedly deceived, none of them. Not one.

And as you listen to this evidence I want you to ask yourselves: How do we know, based on the testimony of an expert who says it was likely to deceive, whether it in fact deceived anyone? How do we know whether it was all smokers who were Medicaid recipients were deceived, or 90 percent, or 50 percent or 10 percent? How do we know that?

Keep that question in mind as you listen to the evidence in this case because the plaintiffs are not going to bring in anybody who can testify how many were deceived, how much, when, or to what degree. None of that. It's all going to be experts testifying that they think it happened. That's the evidence you're going to hear and see from the plaintiffs. You're certainly not going to hear about it from the statistical model that Mr. Ciresi talked about right at the end of his opening statement this morning. The people who developed that model are not going to. We asked the people who developed that model specifically when they testified on deposition whether or not they knew whether or not they could tell which people -- let me just quote to you, I won't --

One of the experts who worked on the statistical model that the plaintiffs are going to offer here in this case was asked in his sworn deposition, "Doctor, I had just one question to kind of wrap up what we were talking about immediately before the break, and that was: Do you know whether plaintiffs would have paid more or less money for health-care services if defendants had not committed the wrongs that are alleged in the complaint?

"Answer: No, I don't know that."

The other expert who worked on the model, whom the plaintiffs have identified as a witness they're going to call here at trial, was asked virtually the same question and gave virtually the same answer. That's the evidence that the plaintiffs are going to offer to prove people were deceived.

Well, we're not going to stop by just arguing that that's not good enough. We're going to offer evidence in this case on behalf of the defendants to counter the claim their experts made. We're going to offer evidence that people were not in fact deceived. No matter what you think about the defendants' conduct, that people receiving Medicaid assistance in the state of Minnesota, people receiving GAMC medical health care in Minnesota, and Blue Cross of Minnesota insureds, were not in fact deceived. That's what we're going to do.

Now how are we going to do this? We're going to do this by demonstrating, with an enormous amount of evidence, that the people of Minnesota, people like you, have known about and have believed that cigarette smoking is harmful for decades, for decades, since long before this Medicaid program existed, long time before this one existed. This one didn't start until 1978. Before any of the issues in this case were concerned, we're going to demonstrate to you that public awareness and belief in the health hazards of smoking, and addiction for that matter, has been universal in this state. Now how are we going to do this? Well first we're going to go back in time, in history. Basically we're going to start in about 1950 when the first of these retrospective epidemiological studies that Mr. Ciresi talked about this morning were done. In about 1950. We're going to start there and we're going to move forward to the time when the first Surgeon General's report was issued in 1964, 15 years or so later, and tell you about what happened. We're going to have witnesses come in here -- lot of it will come out of the plaintiffs' own witnesses, but we're going to have experts of our own come in here and tell you what was going on, what was being publicized, where it was in the newspapers and magazines during that period of time.

But I want to start, before I even get to 1950, by saying something to you that you're going to learn from the evidence in this case that some of you may be old enough to know, I'm not sure, but even in 1950 there were a lot of people who thought cigarette smoking was bad for you. And as a matter of fact, cigarette smoking has been condemned -- tobacco, the use of tobacco, has been condemned for centuries on health grounds. Centuries. People have thought that the use of tobacco was bad for you.

Now if I could make this little gimmick work here, I'll see how many of these exhibits I'm actually going to use depending on how well I use this. Christopher Columbus. Remember him? He wrote in his journal, "I knew Spaniards on this island of Espanola who were accustomed to take it" -- he meant tobacco -- "and being reprimanded by telling them it was a vice. They made reply that they were unable to cease from using it." Unable to cease from using it. 1490.

There we go. Hundred plus years later, still several hundred years ago, this was written by King James of England, the same King James responsible for the King James version of the Bible. He wrote a document called a Counter Blaste to Tobacco. "Tobacco is a custom loathsome to the eye, hateful to the nose, harmful to the brain, and dangerous to the lungs." Promise I'm not going to go century by century. But the fact of the matter is that the attack on tobacco use has never stopped. Not in the 17th century, not in the 18th century, not in the 19th century, and certainly not in the 20th century.

Some of you who grew up in the '40s and '50s -- I knew we wouldn't get through this without some technology glitch -- who grew up in the '40s and '50s will remember cigarettes being referred to as coffin nails or cancer sticks. Some of you may even remember that back in 1948 there was a popular song by a singer named Tex Williams called "Smoke Smoke Smoke that Cigarette." I promise I won't try to sing it to you. But there was a line in it called -- that said, "Nicotine slaves are all the same." The fact of the matter is, ladies and gentlemen, that even in 1950 there was a lot of suspicion and a lot of belief that cigarette smoking was bad for you.

In 1949 there was a Gallup poll that showed that 52 percent of the people in the United States in 1949 believed that cigarette smoking was harmful. What I'm about to tell you now is about the evidence that you're going to see and hear in this case concerning what happened between 1950 and 1965 or so, because when that was over, when that period was over and the Surgeon General's report came out, that the awareness and belief that cigarette smoking was harmful had gone from a majority to just about everybody.

Okay. Let's -- let's take a look at 1950. Lot of speculation, lot of suspicion, some scientists believed even that there was evidence that cigarette smoking caused disease, but not a whole lot in terms of what we normally think of us as hard scientific evidence.

Let me give you an example of what was said about one very distinguished scientist in 1948. Dr. Edward Churchill was a professor of medicine at the Harvard Medical School in Cambridge, Massachusetts, and he was the chief of surgery at the Massachusetts General Hospital in Boston. Very distinguished scientist. And he wrote in the Journal of the American Medical Association in 1949, "Nothing is known about the cause of the disease that can be translated into effective prevention measures." And if you read the rest of it, you'll see that he was talking about smoking. He was commenting on the belief of some scientists that cigarette smoking causes cancer.

An editorial in the Journal of the American Association -- American Medical Association, same year, "Extensive scientific studies have proven that smoking in moderation by those for whom tobacco is not specifically contradicted -- contraindicated is not -- does not appreciably shorten life." This was the state of the evidence in 1948, '49, '50. There were scientists who thought that it probably did, but there wasn't a lot of very solid scientific evidence. Nevertheless, 52 percent of the American people believed that it was harmful in 1950 anyway.

In that area, the first of the series of studies was published. You heard Mr. Ciresi refer to them this morning, they were retrospective epidemiological studies, they were statistical association studies. What they did is they followed people who had lung cancer and people -- control people, and they found an apparent statistical association between smoking and lung cancer. The authors of this study were careful not to assert that cancer causation had been proven, but they certainly thought it was suggested. And then a couple of years later, scientists did laboratory experiments, including one of the same scientists who had done the statistical study a couple of years earlier, and what they did is they took mice, not human beings but mice, and they painted condensate or tar of tobacco on the backs of the mice, and a fairly high percentage of them, 40 percent of them, contracted tumors, not lung cancer, but tumors. Once again, while the authors of that study were very careful to say that this didn't constitute proof that cigarette smoking causes lung cancer, because mice aren't the same as people and they didn't inhale, it was suggested.

Now those studies, those epidemiological studies and those laboratory experiments received widespread publicity throughout the United States and here in Minnesota.

This is a collage of articles on smoking and health that appeared in the period from 1950 to 1954 reporting on these very studies. These were, you will learn, Reader's Digest, Life Magazine, U.S. News & World Report, these are among the most popular news magazines in the United States. You will probably know that, except for photographs, Life Magazine doesn't exist as a magazine any more, but believe me, in the 1950s it was one of the most widely read magazines in the United States. And there were articles about these in every one of these.

There were also articles about these in newspapers across the country, and there were articles in these -- well I don't have one from the Minnesota papers right now, but you'll see articles from the Minnesota papers at this same period of time. They were in every newspaper in the country about these studies. The article "Cancer by the Carton" in Reader's Digest was one of the most read -- widely read articles in the United States.

You're going to hear testimony during this trial from Dr. Hy Berman of the University of Minnesota, professor of history, who's done a thorough job of studying all of the articles in newspapers and all of the polls, all of the evidence that there is about what people knew and heard and saw about the health hazards of smoking in the United States generally, but specifically here in Minnesota. You'll see Dr. Berman testify at this trial and he will describe this evidence to you.

Then in the middle and late 1950s, a new kind of statistical study was done by a number of different researchers. These were -- the others that I talked about a few moments ago were retrospective studies, they looked back in time. These were prospective studies. What they did here was they took a group of people before anyone had contracted any disease and they watched them going forward, and the ones that had lung cancer, they would look to see whether or not they smoked. And what these studies found is a very high statistical association between cigarette smoking and lung cancer.

These, too, received enormous publicity throughout the United States in the same magazines, Time Magazine, Life, U.S. News, Newsweek. I'll give you a second to look at those and then I want to show you some headlines from Minnesota papers during this same period.

"Report on 188,000 man study." This was one of those prospective statistical studies that I was talking about reported in what was then the Minneapolis Star.

Now what happened, what was happening during this period of time when these studies were being done, is there was a major debate going on in the medical and scientific community about whether this proved that cigarette smoking causes lung cancer and other disease. There were scientists on one side of the issue, there were scientists on the other side of the issue, and the evidence that you're going to see in here, ladies and gentlemen, will not support an argument that the defendants made up this controversy. This was a real controversy, real genuine science, and medical doctors were arguing about it. Some of them thought it did prove smoking caused cancer, some of them didn't, and the debate was being played out in newspapers and magazines throughout the country and as television was becoming -- just becoming more of a news medium, people like Edward R. Morrow, whom some of you will remember, had programs on this at the time. But television was just beginning to become a major news medium during this period of time. This debate was playing itself out on television as well, ladies and gentlemen.

Let me show you how it played out during the period leading up to the Surgeon General's report. In 1957 the man who was then the Surgeon General of the United States, Dr. LeRoy Burney, who was a public health practitioner, personally was of the view that cigarette smoking probably caused lung cancer, but he didn't think the evidence was conclusive. And he gave testimony before the United States Congress in which he was asked to express his views, and he was asked to state whether he thought there should be a warning about the health risks of smoking, and here is what Surgeon General Burney said. The Surgeon General of the United States said in 1957, "There is a lot that is unknown in this area. It is a controversial area, in which some well-known scientists have opinions which differ from some of the other people whom you have heard in these hearings." And Surgeon General Burney went on to say in this statement and elsewhere in his testimony that he did not think that a warning at that time was necessary or appropriate. He said, "We believe that is as far as we should go at this time until and when we have additional information."

Now even Surgeon General Burney's personal view that cigarette smoking probably causes lung cancer, which he had expressed on occasion, was disputed. For example, it was disputed in an article in the Journal of the American Medical Association in 1959 by Dr. Joseph Burkson, who was at the time a physician with the Mayo Clinic here in Minnesota. This was still a controversy. And because there was so much controversy about whether cigarette smoking caused cancer, in 1962 the new Surgeon General of the United States, Dr. Luther Terry, Dr. Luther Terry, decided to appoint an expert committee of physicians and scientists from around the country to study all of the evidence and make a report to him on the evidence with regard to smoking and health, and he picked as the members of this committee people who had not expressed publicly a view one way or the other about smoking and health. These were not people who worked for the tobacco companies, this was -- these were public officials who had looked at all the evidence. And you're not going to hear any evidence that came out of the cigarette companies that cigarette smoking had been proven to cause cancer in the 1950s either. This was still a very controversial area. Surgeon General Burney appointed this committee and they spent two years and they reviewed every one of these studies that Mr. Ciresi and I have talked about, every article, every journal, every piece of research they could get their hands on, and in 1964 they issued what is now known as the 1964 Surgeon General's report, the famous 1964 Surgeon General's report.

This is a foreward from the 1964 Surgeon General's report. The Surgeon General of the United States, recognizing that few medical questions have stirred such public interest or created more scientific debate than the tobacco-health controversy, he recognized that in the foreward to the Surgeon General's report, nevertheless, the findings that this independent group of scientists and doctors made was that cigarette smoking was causally related to lung cancer in man, among other things. This is a summary of the principal findings of the 1964 Surgeon General's report.

So what you have is in 1949, 52 percent of the American people already believed that cigarette smoking is harmful to health. We don't have a poll for 19 -- for Minnesota in 1949, but on a nationwide basis you have 52 percent of the people in the United States believing that smoking is harmful to health. Then you have a whole series of studies and evidence culminating in the work of the Surgeon General's committee in the 1964 Surgeon General's report concluding that it had been proven that cigarette smoking causes lung cancer and some other diseases.

Believe me, this report was seen by everybody. It was publicized in every major news magazine in the United States, again, Time, Life, Reader's Digest, Newsweek. It was published in every major newspaper in the United States -- oops, wrong one -- published on the front page of the Minneapolis Sunday Tribune, "Report Partially Indicts Cigarette Smoking." It was reported on the front page of the St. Paul Sunday Pioneer Press, "Government Action Urged on Cigarettes." And there have been thousands and thousands of articles about the Surgeon General's report, about cigarette smoking causing disease ever since.

Now what effect did all of this have on people's belief -- awareness and belief about the health hazards of smoking? Remember when I told you that in 1949, 52 percent of the American people believed that cigarette smoking was harmful for your health? What I have here is some polls that are Minnesota-specific polls.

Everyone see that? I'll hold it up. Here, I'll hold it up.

In 1964 when the Surgeon General's report was issued, 80 percent of Minnesotans believed smoking is hazardous to health. By 1969 that number had gone up to 93 percent. By 1970, still 28 years ago, that figure was up to 95 percent. And what you're going to learn from Dr. Berman and other witnesses in this case is when 95 percent of the people believe something, that's basically universal awareness because you almost never have more than 95 percent of the people believe anything. That is essentially universal awareness in the state of Minnesota, universal awareness and belief no later than 1970, 28 years ago, before the GAMC program existed, only a couple of years after the Medicaid program started, virtually everyone in Minnesota believed.

Now the fact of the matter is is that you'll see evidence of this. The people of Minnesota were especially well educated about the health risks of smoking because the state of Minnesota had believed that cigarette smoking was hazardous to the health since long before 1950 and had been teaching it to the school children in Minnesota.

Remember when Mr. Ciresi talked this morning about going in discovery into the files and records of the defendant tobacco companies? Well the defendants did the same thing. Discovery is a two-way street in cases like this. The defendants went into the files and records of the state of Minnesota going back a long ways, and what we found is the state of Minnesota was teaching the school children of Minnesota that smoking is bad for you a hundred years ago. A hundred years ago, ladies and gentlemen.

In 1893 the Minneapolis public schools recommended a textbook that taught how tobacco affects the growth of bones, the bad effects of tobacco, the effects of alcohol and tobacco on circulation,. Going back a hundred years ago, ladies and gentlemen.

There we go. In 1908, the state Department of Education recommended a textbook that taught how tobacco harms. Look at the second point there. "The use of cigarettes makes one more a slave to the drug. The continuing use of tobacco decreases very markedly the lung capacity." It refers to nicotine, an injurious effect on the heart, in 1908.

In 1919 the textbook used in Minnesota had a section called "Making the Most of Life." It talks there in the first paragraph about the amount of nicotine, "The seriousness of the effects produced was in proportion to the amount of nicotine contained in the tobacco that was used." And the last paragraph it says, "Smokers often die of heart collapse...."

Well I can't get that one to work. But a curriculum for elementary schools put out by the Department of Education in 1928 described the harmful effects on body, heart, nervous system of tobacco that insures delicate lining of the nose, throat and lungs, and said "Use is costly." There it is. 1928.

1935, the textbook used in Minnesota, "Tobacco is a Poison." 1944, "What is the effect of tobacco smoking on personal efficiency and appearance?" Look at paragraph one. "The smoking of tobacco is today the most popular drug habit in the world and is likewise one of the strongest of the addictions." In 1944, school children of Minnesota were being taught that cigarette smoking is an addiction. Habitual use of tobacco produces harmful body effects.

1949, this was a text used by the Minneapolis public schools, "The Study of Alcohol and Markets." Tobacco is included there as a narcotic. Describes tobacco as one of the most frequent causes of sudden death and has a section on addiction.

1958, habit-forming drugs.

The fact of the matter is, ladies and gentlemen, that there has not been a point in time in the last hundred years when the harmful effects of tobacco haven't been believed in by the state of Minnesota Department of Education and taught to the school children of Minnesota, and that is undoubtedly one of the reasons why so many Minnesotans believed by 1965 and -- and thereafter that smoking was harmful to the health.

In 1983 and 1984, the Department of Education developed a comprehensive new plan for dealing with smoking and health. I'll get it up here in a minute. There we go. The Minnesota plan for non-smoking and health, report and recommendations of the technical advisory committee on non-smoking and health. This plan made 39 separate recommendations for education in the public schools, "Provide six or more hours of scientifically evaluated non-smoking education in seventh grade. Evaluate the use of non-smoking contests. Regulate smoking in schools. Reinforce school efforts through community programs." You had a bunch of recommendations for promotion of non-smoking through traditional marketing and communication techniques. Conduct a long-term public communication campaign to market non-smoking. Public and private regulatory measures, 39 separate recommendations. The plan made recommendations for economic incentives and disincentives, like increasing the state excise tax on cigarettes. This recommendation in large measure was approved by the Minnesota legislature and became a part of law in 1985. A specific program was set up, administrators were established, salaries were paid to discourage smoking and educate people about the dangers of smoking.

Now let me talk for just a moment about Blue Cross Blue Shield, because I don't want to leave them out, because the evidence that you will see and hear in this case will establish that Blue Cross Blue Shield has believed that it was a hard fact that cigarette smoking had been proven to cause disease for a long, long time. In 1984 the CEO of Blue Cross Blue Shield of Minnesota, Andrew Czajkowski, made a speech to the Association of Non-Smokers Rights in which he said as far as Blue Cross and Blue Shield of Minnesota is concerned, the debate on smoking is closed and should have been closed years ago.

Remember this morning when Mr. Ciresi talked about taking deposition testimony of people before trial? Well it wasn't just the plaintiffs who took depositions before trial, the defendants took sworn depositions of people before trial too. We took the deposition of a representative of Blue Cross Blue Shield. Blue Cross Blue Shield believed that smoking was harmful to health a long time ago.

Now the fact is that the evidence that you're going to see and hear in this case is going to establish that at least since the mid- to late 1960s, before this program existed and around the time this program was started, virtually every one in Minnesota believed that cigarette smoking was harmful and had been taught it in the Minnesota public schools and had been taught in the Minnesota schools that cigarette smoking was addictive as well. As a result of this universal awareness in Minnesota and elsewhere, what you're going to learn and many of you probably already know is that millions and millions and millions of Americans have quit smoking, addicted or not. Millions have quit smoking. The estimates of how many Americans have stopped smoking since the 1964 Surgeon General's report range as high as 40 to 50 million people have stopped smoking. You will hear evidence that there are more non-smokers -- or ex-smokers in the United States today than there are smokers.

The educational program conducted by the Minnesota Department of Education and other Minnesota authorities has worked. In many respects it has worked. The federal program, the parallel federal program which consisted of requiring that a health warning be placed on every cigarette pack sold in the United States since 1966, every pack sold since 1966 has contained a health warning, it has worked in the sense that it has encouraged millions upon millions of people to stop smoking and encouraged many, many people never to take it up in the first place.

What we will argue to you at the conclusion of the case when you have heard all of the evidence is that no smoker who was a Medicaid recipient, no smoker who was a GAMC recipient, no smoker who's a Blue Cross insured, has been deceived, misled by any improper conduct by the defendant tobacco companies.

What Minnesota and the federal government and many other states have attempted to do in discouraging smoking and educating people about the health hazards of smoking has worked, and ladies and gentlemen, that's all these programs were designed to do. These programs weren't designed to make people stop smoking, they were designed to encourage people to stop smoking, slowly by surely to get rid of smoking in this society. But they never made it unlawful. It is a legal product.

Interestingly enough, Minnesota did have a law that banned the sale of cigarettes for a time around the turn of the century, a number of states did, and in 1913 that law was repealed, and since 1913 the sale and use of cigarettes in the United States has been lawful and it's lawful today, and it's lawful today and it has been lawful through all of this period of time that we're talking about in this case since 1950. Even though the state of Minnesota has known about and believes that cigarette smoking is harmful to health, nevertheless, the sale and use of the product in this case remains a lawful activity.

In the 1984 plan that I talked about a few minutes ago, the Minnesota Department of Education recognized that there were health costs associated with smoking. They estimated what those health-care costs were. But the recommendations of the technical advisory committee were not to stop -- make smoking unlawful; on the contrary, they were -- the recommendations were to discourage smoking, to educate, to protect non-smokers, but the sale of cigarettes would continue to be allowed and indeed taxed. Taxed. And the sale of cigarettes is in fact taxed and has been since 1947 in this state and in almost every other state, and by the federal government.

In the very Minnesota plan, when the technical advisory committee was talking about economic strategies and incentives and disincentives, one of them was to increase the cigarette tax to reduce levels of smoking but maintaining or raising revenues. Not to eliminate, not to outlaw, but to reduce levels of smoking.

The committee recommended a moderate price increase to decrease cigarette consumption but increase cigarette tax revenue. The committee recommended a 10-cent-per-pack increase in excise taxes, and the fact of the matter is that the state has collected hundreds of millions of dollars in excise taxes on cigarettes over the past years.

Now let me make something absolutely clear, ladies and gentlemen. The defendants are not suggesting for one moment that the choices that the state of Minnesota has made are wrong. Not for a second. The defendants are not suggesting that the state of Minnesota shouldn't have levied excise taxes or that they should have been higher or lower. The defendants are not suggesting that the state should ban advertising or ban the sale of cigarettes. That is the state's prerogative to do what it wants. The point that I am making is that the state of Minnesota has known and has taught its citizens for a long, long time about the health hazards of smoking and the health-care costs associated with smoking. Now my point be being that no one, least of all Blue Cross and the state of Minnesota, have been deceived about the health hazards of smoking, but neither have the citizens of Minnesota. And they have not smoked because of the illegal acts that the plaintiffs claim the defendants have engaged in.

Now my colleagues, John Monica, David Bernick and Bob Webber, are going to talk to you in a few moments about the response of the tobacco industry to the debate and the controversy that arose in the 1950s, and the actions that the tobacco industry, the tobacco companies took to that conduct -- to that controversy, especially the industry -- how the industry responded lawfully and responsibly by doing extensive research on smoking and health and by spending hundreds of millions of dollars attempting to develop new products that would address the health concerns of people about smoking. But before I do, I want to address very briefly a second reason why the evidence in this case will show that the defendants -- the plaintiffs are not entitled to recover any damages in this case.

Remember I said earlier that the plaintiffs would fail to prove that they have incurred any increased health-care costs in these programs -- and that's all this case is about -- as the result of the defendants' allegedly unlawful conduct. Well what I'm going to tell you now is that the evidence will show not just that, but the evidence in this case will show the state and Blue Cross cannot prove any increased health-care costs in these three specific programs as the result of smoking. Get the difference? What they're claiming is that the health-care costs incurred in these programs have been increased by the defendants' unlawful conduct, but what I'm going to tell you is they will not even prove that their health-care costs in Medicaid, GAMC and Blue Cross has been increased by smoking. That may surprise you. You may say are you really saying that? Is he really saying what I think I hear him say? And let me make sure that you understand when I say this that I -- I am not saying and the defendants are not saying that smoking lowers medical costs. What I'm saying is that this case is about these three programs, and the evidence will not show that the health-care costs of the plaintiffs have been increased in these three programs by smoking.

Now what is the evidence that the plaintiffs are going to offer in this case to show that they are? Well here is where the statistical model comes into play that Mr. Ciresi talked about more about 30 seconds at the beginning of his opening statement this morning. Plaintiffs' experts are going to come in here and tell you that you should find that the state has incurred 1.3 billion dollars in increased health-care costs, and Blue Cross 460 something million dollars as the result of smoking, and there's a very fundamental flaw in how they came up with that number. How they came up with a number, there is a fundamental flaw, and that flaw is they didn't look at the right people. They didn't look at -- when they calculated this number, they didn't look at Medicaid people, GAMC people, Blue Cross people in Minnesota. What they based their statistical estimate on was a National Medical Expenditure Survey. In fact that's what it's called. The National Medical Expenditure. Not Minnesota, not Medicaid, not GAMC and not Blue Cross.

Now does it make a difference? You bet it makes a difference. But before I tell you how it makes a difference and how the evidence is going to show what an enormous difference it makes, I need to take just a second to tell you a little bit about what you're going to learn Medicaid and GAMC are, because we've been talking about this here for a long time and nobody's told you what it is. You'll hear from experts in this case on both sides what the programs are.

Medicaid is a joint federal and state program established by the United States Congress in 1965. States were given an option whether to participate in the program or not. Minnesota adopted the Medicaid program not too long after the program was enacted by Congress in 1966. Under this program the federal government pays 55 percent of the covered costs, the state pays 45 percent. The state had a option to join this program, and it exercised the option to participate in the program. It didn't have to, it made a decision, and it made a decision in 1965 and 1966 knowing what I've told you the evidence was going to show it knew and believed about the health-care costs that are associated with smoking.

Okay. Minnesota decided to participate, but what does it cover? Well it's very limited. It's actually very limited. It covers a few very specific groups of people. It covers pregnant women who need medical assistance, it covers young children and their mothers, it covers the disabled -- people who have been hurt in accidents and the like -- and it covers a limited segment of the elderly. Now I say a limited segment of the elderly because as I'm sure many you know, the principal medical program for the elderly is Medicare. That's a different program, different federal program. Medicaid covers a limited group of elderly people, by and large people in nursing homes. So what you really have here is you have the disabled, you have pregnant women, you have young children and their parents, and you have people in nursing homes who are in need of medical assistance.

Okay. GAMC. This is the same state program, entirely a state program. The state adopted this program, like the Medicaid program, but it's completely within the state's control and the state bears all of the costs. It was adopted in 1978. State has complete control over who is covered, what benefits will be provided, and it adopted this program in 1978 knowing and believing that there were health-care costs associated with smoking.

Blue Cross I don't think I need to tell you much about, it's an insurance company. You pay premiums and Blue Cross reimburses you for the expenses that are covered under -- under your policy.

Okay. Those are the programs. Now let's go back to what I said earlier, which is the defendants -- the plaintiffs' experts, when they put together their damage model attributing these costs to smoking, looked at the wrong people. They didn't look at Medicaid recipients, didn't look at GAMC recipients, they didn't look at Blue Cross insureds, and they didn't do a sample of Medicaid or GAMC recipients. They used a national population, people at large. But people are different. People in Minnesota are different from people in California, people on Medicaid are different from people who aren't on Medicaid, and people on the GAMC program are different. Their medical problems are different, their lifestyles are different, their disease risks are different, very different. And because the plaintiffs' experts looked at the wrong people and used the wrong people in their damage estimate in their statistical model, they got the wrong answer.

Defendants' experts did look at the right people. You'll hear from the defendants' experts in this case. They will come here and testify and they will be subject to cross examination. Defendants' experts did look at the right people, and do you know how they did it? They found right there in that National Medical Expenditure study a subset of people who are Medicaid recipients. Defendants' experts did what plaintiffs' experts chose not to do, they looked at Medicaid recipients, not the national population at large. And what they found is that smokers in Medicaid don't cost more than non-smokers and smokers in GAMC-like programs don't cost more than non-smokers.

Now why is this true? Well, I'm not going to speculate about it, but what I will tell you is that the evidence will show that the people who are receiving Medicaid by and large consist of people who are less fortunate than the rest of us, they're the sick, they're the disabled, they're people with a host of medical problems.

This is a table summarizing some data that you will see when the defendants' experts testify. People on Medicaid and GAMC programs spend 3,556 dollars on medical costs. People who are not spend 1457 dollars. I'm sure that doesn't come as a surprise to you. There are people that have medical needs. That's part of the problem here; that is, they are already people with medical problems that do not exist in the population at large. And it means that using data from the national population at large is misleading and not meaningful.

Defendants' experts looked at people on Medicaid in that National Medical Expenditure study and found a lot of very interesting things. One of the things was that the incidence of disease between smokers and non-smokers in the Medicaid population was not significantly different. Look at this table. What it will show is that for anybody who's on Medicaid, the incidence of disease -- and we're not talking about health-care cost now, we're just talking about incidence of disease -- non-smokers 88 percent, very high percentage -- I mean smokers, 88 percent, very high percentage of smokers needed medical assistance and had diseases, but non-smokers is 91 percent. Smoking-related diseases, and by that I mean the diseases that the Surgeon General has identified as those which are associated with smoking, the incidence of those kinds of diseases as between smokers and non-smokers was virtually nil, it's 56 percent smokers, 57 percent non-smokers. Neoplasms, that's cancers, the percentage of Medicaid recipients who were smokers who had cancer was 7.76 percent, the percentage of non-smokers was slightly less, but not significantly, at 7.65. Circulatory disease, heart disease, another one of the diseases attributed to smoking, the incidence was 44 percent among smokers but higher among non-smokers. There was not a significant difference.

The defendants will tell you -- defendants' experts looked for what is the key issue in this case: Do smokers on Medicaid and GAMC actually cost more? And what they found, using data with Medicaid and GAMC-like recipients from the same study that the plaintiffs used, it said smokers do not cost more than non-smokers.

Now defendants' experts checked in a number of different ways to make sure that it was reliable. They checked, for example, to see if there was a difference between sexes, do women smokers have more, or non-smokers, they found no difference. They did their own statistical model, they found no significant difference. Defendants' experts even found a way to look at Minnesota Medicaid recipients. There was no cost data available, but what there was available was data showing the number of doctors' visits and the number of hospital stays, and they found no material difference between non-smokers and smokers in terms of the number of doctors visits per year or the number of hospital stays. No matter how they looked at this data, ladies and gentlemen, they came up with the same conclusion, which is that smokers in these programs do not cost more than non-smokers, and that's what this case is about.

If they had looked, if the plaintiffs had looked at this data instead of relying on nationwide data as a whole, they would have come up -- come up with the same answer: No difference.

Now let me make absolutely clear once again what the defendants are saying and what they are not saying. The defendants are not saying that smoking reduces medical costs. We're not saying that there are no medical costs associated with smoking. Not claiming that. That's not a issue in this case. The issue in this case is: Are there medical costs, increased health-care costs in these programs attributable to smoking? And the answer that you will hear when you see all of the evidence in this case is that the answer is no.

Now don't take my word for it because I'm doing the same thing Mr. Ciresi did. I'm telling you what the defendants believe the evidence is going to show. You're going to see -- the plaintiffs' experts are going to get up on that witness box and they're going to be sworn and they're going to tell the truth, and they're going to be examined by Mr. Ciresi and his colleagues, and when they're finished we're going to have our shot at them and we're going to cross-examine them, and when they're all finished and the defense time comes to put on our case, we're going to put our experts up there on the witness stand and we're going to ask them these questions, and the plaintiffs' counsel are going to get up and they're going to cross-examine. And you know what else, ladies and gentlemen, both sides have already taken the depositions of these people. You're going to have all of this evidence presented to you thoroughly and completely. Nobody's going to hide anything. Nobody's going to be able to. All I'm asking you to do right now is keep an open mind about this because the defendants believe that when you've heard all of the evidence and you've heard all of the cross examination by both sides, you're going to find that what I'm saying is right, which is that smokers in these programs do not cost more than non-smokers, and that Blue Cross can't prove that smokers in its program cost more than non-smokers. That's what we'll argue to you at the end of the case based on the evidence you've heard. And if that's true, if what I'm saying to you is true, that smokers don't cost more than non-smokers in this case, in these programs, then the state and Blue Cross are not entitled to recover any damages. And it doesn't make any difference, ladies and gentlemen, whether you don't like smoking, you don't like tobacco companies, whether you think the tobacco companies have behaved badly or foolishly, it doesn't make any difference what you think about any of those issues, because when you go into the jury room to deliberate, the question you're going to be asked is what's the answer to that question? More or no more? And if the answer is no more, no increased health-care costs, as I'm suggesting to you the evidence will establish, then you'll come back from the jury room with a verdict against the state and for the defendants.

Thank you.

THE COURT: We'll take a short recess.

THE CLERK: Court stands in recess.

(Recess taken.)

(The following proceedings were held in

open court.)

THE CLERK: All rise.

(Jury enters the courtroom.)

THE CLERK: Please be seated.

MR. MONICA: May it please the court. Good afternoon, ladies and gentlemen. I introduced myself a bit earlier, but I will introduce myself again. My name is John Monica and I represent the Lorillard Tobacco Company. I think I'm getting a little feedback here. With me is David Martin, and David is from the Doherty, Rumble, Butler firm here in St. Paul, and together we will be representing Lorillard in this action.

We will also be bringing to talk with you our CEO, Dr. Spears. Dr. Spears, I believe, is designated to be the eighth witness in this trial, and he will be coming out to talk with you. Dr. Spears has done work for the company about 40 years. He's worked his way up as assistant research director, then research director, and now he is CEO with the company. Dr. Spears has a Ph.D., he's a scientist, he has a Ph.D. in chemistry, and I think he will be someone you will find very interesting.

Let me tell you a little bit about Lorillard before I get into the main issue I'm going to discuss with you today, and that main issue is advertising. But just a bit, if I may, before we get on to that subject about my company, the Lorillard Tobacco Company. The Lorillard Tobacco Company is the oldest tobacco company. It was originally founded in 1760 by Pierre Lorillard, who was a French immigrant who came to this country. He later passed this on to his two sons, George and Peter. And Lorillard, as you can see, has been around since before the Declaration of Independence was signed. In fact, Lorillard published probably what we believe is the first advertisement on tobacco that was ever published in this country, and that was in 1789. And Lorillard is a relatively small company as far as tobacco companies go; we are a distant fourth if you rank us according to national sales. We are located in Greensboro, North Carolina. We have about eight percent of the national market for the sale of cigarettes, and we're very proud of our products. In fact, even though we are only fourth in the industry, we do have the second best selling cigarette, and that is Newport cigarette. Our major brands are Newport, Kent, True and Old Gold. Those are the major brands of cigarettes that we manufacture. We do manufacture others, but I just mention those to give you an idea of the major brands that we manufacture.

We have been a very innovative company the years we've been in the business. For example, we were the first to use aluminum foil to wrap cigarettes in a package, and we were also the first to use the tear tab that helps you open the packs of cigarettes when you go to open them.

We have only one plant, and that's located in Greensboro, North Carolina. We sell only one product, and that is cigarettes. And we sell our products here in the United States.

I would ask that you please do your best, as I know you will, to keep in your minds separate Lorillard from the other companies when the evidence goes only to Lorillard, only to another defendant. It's very important for you to keep in mind that we are all separate companies, that we are presenting our defense to you today at the request of the court in a common sense, that we're not trying to duplicate each other by each attorney getting up and asking questions over and over again on the same subject, but we are all separate companies and we have our separate evidence, and I know you'll try to keep that evidence separate and distinct in your minds.

Now let me go on and cover the subject that I want to today with you, and that's advertising. Of course this is a very important subject, and perhaps the best way to start out is by reminding you of something Mr. Bleakley just told you when he was up here, and that is this lawsuit is about money. That is what the plaintiffs are seeking, they're seeking money in this lawsuit. And over the years advertising has been used by the tobacco companies, as it has been by many industries, and in this lawsuit plaintiffs are suing because we sold our products here in Minnesota, and they're legal products the evidence will show, and we sold them with advertising, and we have warnings placed on these products as we were required to do by law. These were the rules of the game, if you will, under which we operated. Society had told us if you want to sell your product, you must sell it in a certain fashion. It must have a warning. It will be heavily regulated. We will be looking at you every step of the way. And we sold our product under those rules and regulations. We conformed to the rules and regulations. We met our obligations, but now we find ourselves in court being sued for just under two billion dollars, as you heard today.

Now I'd like to point out that you'll see reference to different types of advertising used by the companies, but there have been no radio or television ads for cigarettes for some 25 years, so you won't -- if you -- if you want to see radio and cigarette -- radio and television cigarette ads you have to go back 20 -- 25 years.

The warning on the pack of cigarettes that you see on every pack of cigarettes has been around for some 25 years, and I'd like for you to take a look at that warning now. It's coming up on the screen now.

Now I have there a series of warnings, the evolution of the warnings that you have seen over the years on packs of cigarettes. Let me just take you through them briefly. Since 1966 the warnings said "Caution: Smoking may be hazardous to your health." Then since 1970 the warning has said "The Surgeon General has determined that cigarette smoking is dangerous to your health." Then beginning in 1985 we had four different types of warning -- warnings that rotated, if you will, on the packs of cigarettes. First one says "Surgeon general's warning: Smoking causes lung cancer, heart disease, emphysema and may complicate pregnancy." Second one right under that says, "Quitting smoking now greatly reduces serious risk to your health." The two on the right, top one says, "Smoking by pregnant women may result in fetal injury, premature birth and low birth weight." And the final one says "Cigarette smoking contains carbon monoxide."

So you can see that the warnings were fairly specific and forceful, and they were meant to be to -- to allow people to understand what the risks of smoking are. These warnings have been on every pack of cigarettes since the dates shown, and also warnings have been on all cigarette advertisements after a period of time.

Now the proposal to ban advertising on cigarettes first started originating during the 1920s, so this issue about advertising cigarettes has been around for some 75 years, if you will. The controversy has existed over the years, but as Mr. Bleakley pointed out, society has determined that we will be permitted to sell our product, it's a legal product, and we will be permitted to advertise it.

You will see plaintiffs will bring to you some old advertisements of cigarettes from bygone eras. For example, I know that they will probably show you some Kent advertisements, one of my client's advertisements for Kent cigarettes, or some Old Gold advertisements from many years ago. You need to keep in mind that times have changed and advertising has changed, just like you have to keep in mind society has dramatically changed over this period of time from the 1930s to now. For example, today we listen to -- or our kids listen to at least, I mean I know mine do, people like Nirvana or Three-Eleven or David Lee Roth or someone like that, but in older eras it was Frank Sinatra, it was Glenn Miller, people like that. The music has changed, society has changed, advertising has changed. It is no longer proper, appropriate to do what you did in the past, and we know that and we have not done that. But when you look at our old advertising, please keep in mind that things have changed and remember it's not fair to compare and contrast old advertising with today's standards. And I'm sure you'll keep that in mind.

Now because of the warnings that I have up there, we will show you that people have in fact become aware, as Mr. Bleakley has pointed out, that smoking can be injurious to your health according to the Surgeon General. I would like to show you just how people have become aware of this and show you some of the old advertisements that -- old advertisements that you'll be seeing for different products so you can keep those in mind when you see our products.

For example, here is a -- the first one I'd like to show you is a traditional one for? I believe it's Lustre-Creme shampoo. There is an advertising --

advertisement from the past. That's Joan Crawford advertising Lustre-Creme shampoo saying that the most beautiful hair in the world uses that kind of shampoo.

Next I'd like to show you another advertisement showing Rita Hayward. She's always been one of my favorites. Rita is advertising Lux soap. And if you could read that fine print there, it would talk about tests on skin performed by specialists and what those tests reveal about the use of Lux soap. And of course the soap is very heavily promoted in this ad, as was true of that type of advertising for its day.

Next, let's go to some different types of products just for a feel of the different type of advertising you'll see from the past when you start to compare them with advertising of the companies. Let's show you some advertising for meat.

Now today meat, there's a controversy on meat as to whether or not cholesterol, how much cholesterol meat causes and what meat is bad for you. We have a couple of advertisements here just to show you what kind of advertising was being done in bygone eras for meat. The first one is entitled "This is Life." This is about a prime rib of beef, and I don't know if you can read this over here -- I'll hold it up for you -- but these are the kinds of statements that you were seeing in the past: "This is not just a piece of meat, this is something a man wants to come home to, something that children -- helps children to grow, something that makes women proud of their meals. This is a symbol of man's desire, his will to survive, for as old as man's instinct to live is his liking for meat, and to satisfy -- and it is satisfied in his eating." Surely you would not see this type of ad today advertising meat in this fashion.

We have another one, and I won't belabor the meat situation, but we have another one that I'm sure you will admit that you would not see at all today, and this one is about our old friend bacon. How many ads are you going to see on bacon today? Here's what it says -- I'll just read you a snippet from it so you can get some feel for it. "Why do they say bring home the bacon? Because bacon is the thing to bring home. If you have bacon in the house, you have hospitality and friendliness in the house and something you can build a meal around. Bacon always looks good to you even when you're ill, tired and finicky. Bacon unlocks the gates of your appetite." This ad is much different than you would see today, the point being that when you look at the cigarette ads, please keep in mind that they have changed also.

Now let me just cover with you, if I may -- I don't think we'll use any more of the ads -- some of the regulations that the companies have been faced with over the years so you can get a feel for just how heavily regulated this industry is. Starting in 1955 the Federal Trade Commission banned any -- its guidelines banned any advertisements, direct or indirect, that were health related that the FTC thought made health-related claims. This meant that originally when the Federal Trade Commission first spoke to the subject of tar and nicotine, that's what I'm talking about, that the Federal Trade Commission said you cannot mention anything about tar and nicotine because its health related.

Now the Federal Trade Commission, as you may know, is a federal commission created by Congress, and it's -- one of its responsibilities is to review what's going on in advertising and to take issue with and prosecute people who advertise falsely. That's one of its mandates. And the Federal Trade Commission has been in existence since the early 1920s and it has followed advertising in this country, including cigarette advertising. It has been the watchdog, if you will, for advertising throughout the United States.

So in 1955 the FTC said -- and I'll refer to it as the FTC -- said no advertising of tar and nicotine to the tobacco companies. 1959, four years later, the FTC came back and reaffirmed this, no tar and nicotine advertising. However, we will see that in years later the FTC made a complete flip-flop and said now you must include tar and nicotine levels on the package. And the FTC prescribed the method by which these tar and nicotine levels were to be measured; you have to measure them in a certain way according to the FTC, and that is the way we measure those, and that is what's on the pack of cigarettes.

Now going on with my chronology, in 1964 the landmark Surgeon General's report came out that Mr. Bleakley has talked to you about, the first Surgeon General's report which talked about smoking and health and the problems that could be involved with smoking. Then in 1966, two years later, that's when the Surgeon General started requiring these warnings on cigarettes. Originally they were only on cigarettes, and then subsequently they were also required for all advertising, so when you see a cigarette advertising in magazines and on billboards, you will see the same type of warnings on those types of advertising.

Then in 1967 the FTC did its about-face and it said that the companies had to begin putting tar and nicotine levels, and it asked Congress to mandate that companies put tar and nicotine levels on the packs of cigarettes and on the advertising. And in 1971 the industry agreed to start putting tar and nicotine levels on their advertisements, which they have done.

1971, the same year radio and TV advertising was stopped for cigarettes, that's some 25 years ago, a year later in 1972 the industry agreed to put the Surgeon General warnings on advertisements.

That brings us up to 1985, which is the last date that I have there, where the new Surgeon General warnings were disseminated, and we've used those warnings since that time and they have been included on every advertising and on every pack of cigarettes.

In addition to us having to deal with the regulations, annual reports have been required. The companies have had to file annual reports with the FTC, giving the FTC certain information for the past 30 years. And in addition, the state of Minnesota regulated tobacco also. As you may know, at one time the state prohibited the sale of tobacco, and then the state through its legislature, the body that should make public policy, changed its mind and decided that it would be proper and legal to sell cigarettes and advertise cigarettes. The state has regulated tobacco, it has licensed the sale of tobacco, and it has heavily taxed tobacco in this state.

Today the oversight of the tobacco industry is still very, very heavy and continues by different governmental agencies. The Federal Trade Commission still regulates, the Department of Health and Human Services looks at what the tobacco companies are doing and it requires a list of ingredients from the companies on an annual basis. You have the OSHA regulations, which are the indoor air regulations, and you have the possibility of the Federal Drug Administration regulating tobacco. That is something that has been proposed and it's under review, and that would be another step if it subsequently is put into effect.

You may wonder why there has been a turning-about, but you have to -- you saw reference in some of the demonstratives and some of the statements of Mr. Ciresi about attorneys being involved in the business of the tobacco companies, it should not be any wonder that there are attorneys involved in giving guidance to the tobacco companies, just as there are attorneys involved in any business, especially when you have such a heavily regulated business.

The companies have complied with society's mandates. The companies have included the notices, they have stopped advertising on radio and TV, and they have operated under what they thought was the society's consensus for all participants, the state, the tobacco government -- or the tobacco companies and the federal government. We operated under these mandates consistently over the years and, as I said, now we find ourselves being sued for billions of dollars.

Let's take a look at some of the statements that were made by Mr. Ciresi about advertisements. We will offer you an expert, Dr. Ronald Faber. He's from the University of Minnesota, right here. He's a full tenured professor of mass communications. He has taught and researched advertising for 18 years and he specializes in the subject of media impact on children, so he's quite an authority and we're proud to present him to you when we start presenting evidence. He will explain to you why people start smoking. He will explain to you the impact that advertising has on people's decisions to smoke. And you will hear him tell you that people start smoking because of peer pressure and because of family influence. When you are younger, if your friends are smoking, you tend to smoke. If your family members smoke, you tend to smoke. These are the most important factors in young people deciding to begin to smoke.

Advertising is only one source of information that anyone has, and advertising is a rather impersonal medium. It is not something that is personal to you, it's something you look up on a billboard or you see in a magazine. The most striking, if you will, the most important subjects that you hear are from your loved ones, from your friends and from your family. These are the subjects that really make an impact on you.

Now Mr. -- or Dr. Faber will explain to you just how cluttered the environment is that you see today as far as advertising. He will explain to you that on the average a person in one day's time will see from three to six hundred advertisements. As you drive down the street, as you walk through the skyways, you see advertisements for such companies as the First Bank, Lifetime Fitness, St. Paul Hotel, Miller Chevrolet. You see -- you're being bombarded with all these advertisements and you see approximately three to six hundred a day, but of these you form -- the average person forms a mental reaction to only 12 of these. Only 12 of these really make an impression on you and you have a negative reaction to a third of these, so only approximately eight out of 12 even leave you with a positive impression.

Dr. Faber will explain to you how this fact impacts on advertising. Advertising has its place, but advertising cannot cause people to -- to do something that they don't want to do.

This is vividly shown by three ads that I quickly want to show you. I'm now going to show you three things that -- I want to show you things that people don't drive, that people don't drink and that people don't eat, because advertising did not do the trick, advertising did not cause these products to be successful.

MR. CIRESI: Your Honor, I'm going to object. Excuse me, counsel. I'm going to object to that statement. It's contrary to the court's order.

THE COURT: Proceed, counsel.

MR. MONICA: Thank you, Your Honor.

You all remember the Edsel? "The Edsel look is here to stay." Try to find an Edsel today. You may find one in the field somewhere, you may find a collector's item, but you'll not find an Edsel and -- not find an Edsel on the street very often.

Here's another one. You remember Crystal Pepsi, the Pepsi you could see through? This is another product that is no longer around.

And thirdly, just to make the point, one of my favorites is his McLean Deluxe, the hamburger,they called it, and I think it had a bit of soy in it, I'm not sure exactly, but this was McDonald's answer to the health concerns of people. You will not find this around even though millions of dollars were spent on this product, the point being that advertising can do a certain amount, can educate people, but it can't cause people to do what they don't want to do, and it doesn't cause people to smoke.

And I think that this is definitely shown by some studies that were done in foreign countries and that our expert will talk to you about, Mr. Faber. Again, let me put something up for you. Mr. Faber will talk to you about studies done in the countries of Norway, Finland and Canada. These countries instituted advertising bans, and if what people say about advertising is true, that it causes people to smoke, you would expect that smoking consumption would go down in these countries. However, these studies will show that in fact it did not go down, that it either held constant or in fact it may have even increased, and that's true of youth smokers also.

So advertising, as I said, does have its place. It can be utilized to promote your product, but it will not cause people to use your product if they do not want to do so anyway.

Now you may ask, well -- and I think Mr. Ciresi raised this question -- if advertising doesn't cause people to smoke, why do you advertise? That's a very good question.

This is a very, very competitive business. You may be number one today, but Chesterfield and Liggett were, and you may be at the bottom tomorrow, and that's where they're at today as far as sales. It's a very competitive market. The companies compete with each other vigorously for the smoker.

The two primary purposes of advertising in the cigarette industry are to promote brand loyalty and to appeal to smokers who may want to switch brands. By "brand loyalty" I mean this. We of course are very interested in keeping people smoking Newports. We don't want them to change to a different brand, we don't want them to change to Kools. We advertise to maintain brand loyalty in our smokers. Likewise, if we can cause a smoker of Kools to switch to our brand, to Newport, we certainly want to do that. So we advertise to appeal to smokers, to get them to try our brand. The same is true of Marlboros and Camels and all the major brands of cigarettes, they're all trying to hold their customers while at the same time trying to get our or get somebody else's customers. It's only natural; it's a competitive marketplace.

Studies will show and our expert will -- experts will testify that about ten percent of smokers are susceptible to switching cigarettes. Not everybody will switch brands, but about ten percent of them will at least consider switching brands, and that ten percent, when you only have an eight percent market share like Newport does, is very important. If somebody took our eight percent, we'd be out of business. And ten percent of a total population of smokers are at least willing to listen and are considering switching brands. That's why companies heavily advertise. And a one percent market share, if you can just get a one percent shift, that is worth hundreds of millions of dollars in sales. There is your motive, that is your incentive to advertise right there.

Tobacco/cigarettes operate in what we refer to as a mature market, very mature market, and our advertising experts will talk to you about this. This is a market where everyone knows what the product is, it's been around for years, and the demand for the product is very stable or it's actually declining, as in our situation. In these markets the advertising does two things, it tries to promote loyalty to your brand and to get people to switch to your brand.

Let me give you some examples of other mature markets. It might help you understand what I'm talking about. Two examples are beer and toothpaste. Beer is a very mature market. Everybody knows what beer is, everybody knows the beer they like. You cannot get people to start smoking -- or pardon me, to start drinking beer because you advertise beer. What the beer companies are trying to do is get people to change to their brand of beer or keep them drinking Budweiser, keep them drinking Coor's beer or whatever the case may be. The same is true of toothpaste. Toothpaste operates in a very mature market. No one starts brushing their teeth because they see a toothpaste advertisement. They change brands because they see a toothpaste advertisement. The same is true of cigarettes. Cigarettes are trying -- the tobacco companies are trying to get people to either be loyal or to switch to them. I think that you'll readily see this when our advertising expert, Mr. Faber, is here and testifies.

Now some mention was also made about the amount of money that the companies spend on advertising, and we do, we spend quite a bit of money on advertising, as do most major industries; however, we do not spend as much as many, many other industries. And let me just show you -- give you an example of what I'm talking about.

If you compare what the tobacco companies spend for advertising with some of the other industries, I think you can kind of get an idea of where we fit in. See the games and toys? Much, more than we spend. In fact we're at the bottom of this particular chart. You have dolls that are advertised much more. Motion pictures, beverages and ice cream, all of these products are advertised much more than our cigarettes.

Here's another graph that shows advertising. At the top you'll see automotive, 11.5 billion dollars. And this is a 1966 study -- or pardon me, 1996 study. Entertainment and amusement is 5.4 billion dollars. And there are cigarettes down at the bottom, .6 billion, which is, of course, 600 million.

So yes, we spend quite a bit of money on advertising, but it's well in line with what other industries spend on advertising also. In fact, if you look at advertising as a whole across the country, cigarette advertising accounts for less than one percent of the total U.S. spending in advertising, and this is a 1993 figure.

Now let's address for a moment the issue of advertising to young people. Plaintiffs attack us saying that we pander to, if you will, try to make young people to smoke. Ladies and gentlemen, we do not do that. There are -- they're attempting to appeal to your passions, they're attempting to incite you. This is a case, a lawsuit about money. The money they are trying to collect is for adults who have smoked. They are trying to collect money, they contend, for medical services that they have to pay on behalf of adult smokers, not young people but adult smokers. This is not a referendum, as Mr. Bleakley told you, on smoking, whether or not you think smoking is good or bad, this is a question of whether the plaintiffs can collect damages, whether or not they can show that health-care costs have been increased because of the conduct of the defendants.

We will bring to you an expert, Dr. Everett Morse. Dr. Morse is a sociologist from Louisiana State University, has been a consultant to the president, and he's an advisor to the public school system there. He will explain to you why young people begin smoking. And in this regard, ladies and gentlemen, in this very lawsuit the court permitted us to take some depositions of Medicaid recipients, of the very people that plaintiffs are trying to recover money that they paid on behalf of. We were permitted to take the depositions of 13 persons from the Minneapolis-St. Paul area. The plaintiffs were present, we were present. These people volunteered to come in and give their deposition. They spoke freely and frankly under oath with both sides present and both sides permitted to ask questions. These people explained why they started smoking. They explained they started smoking because of peer pressure and because of what their family and friends were doing. When asked if they started because of advertising, they said no, we did not start because of advertising, we started because of the -- that's what our friends were doing, that's what our family members were doing. So we have taken those depositions and we have heard from the people right here in this area as to why young people start smoking.

Now to go with that we'll offer the testimony of Dr. Everett Morse, and Dr. Morse will testify about how young people take risks, how young people sometimes get excited about taking risks. I used to take a few risks myself. As I get older and older, I find I get more conservative and I won't jump off of the high dive any more, maybe I'll jump off of the low dive. There are certain things that I won't do any more that I would do when I was younger. Dr. Morse will explain to you how one-third of our young people endanger themselves regularly by doing very risky things such as using marijuana, drinking and driving, having unsafe sex, carrying weapons, different types of things that young people do. Young people just do not perceive the risk that a more seasoned person does, and they're willing to take risks. That is -- that is the mental makeup, if you will, of a -- of a younger person. And you have to put this in context when you look at why people begin to smoke. They are risk-takers. They see the message but yet they -- they think it just does not apply to me and they go ahead and they do what they want to do.

Now the companies do not target children and the companies do not want children to smoke. In fact the companies have taken specific steps to try to educate children in not to begin smoking, and the proof of this is this: Look at the advertisements that will be shown to you. When you see some of these documents that are flashed up on the screen, you'll see some advertisements that came after these particular documents and you'll see that regardless of what somebody's bright idea was, what somebody's concept was that they thought might work, you will see that the companies did not advertise to youth. In fact, the companies adopted a voluntary advertising code by which they abided.

I seem to be having a little technical problem. Let me try it again.

Okay. We're going to switch over to the different -- to a different visual then.

Here is the advertising code. We have it up on the screen. Here's the introduction, and this is a voluntary code that the companies adopted themselves and that the companies abide by. "Cigarette smoking is an adult custom. Children should not smoke. Laws prohibiting the sale of cigarettes to minors should be strictly enforced. The cigarette manufacturers" -- excuse me. "The cigarette manufacturers advertise and promote their products only to adult smokers. They support the enactment and enforcement of state laws prohibiting the sale of cigarettes to persons under 18 years of age."

Now I'm not going to go through this entire document, but I would just like to point out some paragraphs to show you what the advertising code is. Let's look at number -- paragraph number one. "Cigarette advertising shall not appear in any publications directed primarily to those under 21 years of age, including school, college or university media (such as athletic, theatrical or other premise), comic books or comic supplements," and B, again "Cigarette advertising shall not appear on billboards located within 500 feet of any elementary school, junior high school or high school or any children's playground."

Skipping down to number three, and again you will have this document in evidence to you to read in its entirety, I'm just trying to point out some of the paragraphs to you at this time. Number three, "No one depicted in cigarette advertising shall be or appear to be under 25 years of age." So we do not use models that appear to be young; the models have to actually be and appear to be 25 years of age.

Let's look at paragraph number five again. "Cigarette advertising may picture attractive, healthy looking persons provided there is no suggestion that their attractiveness and good health is due to cigarette smoking." Of course we use attractive persons to sell our products, to advertise our products. Any person, any company would. It is the -- you -- you want to portray a person who is a happy person and a person that people can identify with, and so yes, we do use people who are happy and who are using the product.

Number six talks about -- and I will just kind of summarize it -- not using advertising that depicts anyone engaging in a -- I'm jumping to the end here -- a physical activity requiring stamina or athletic conditioning beyond that of normal recreation.

Plaintiffs, I'm sure, will bring in some of our ads and they will show some tennis players, some golfers, things like this. This is normal recreation. This is very consistent with the code. So when you see these ads that they bring in, please keep in mind that the code provides that we can provide -- portray people enjoying normal recreation, it's just intensely physical recreation that the ads are not supposed to portray.

And again, just to save time and not read everything, I'll just mention that we also have a sampling code that is in paragraph one. A sampling is where you hand out the samples of your product. And paragraph number one says, "People who engage in sampling shall refuse to give a sample to any person whom they know to be under 21 years of age or who, without reasonable identification to the contrary, appears to be less than 21 years of age."

So this is the Cigarette Advertising Code which the industry adopted itself and which the industry has adhered to. But in addition to this code there have been other programs that the industry has instituted, and I just would like to mention a few of those to you. And again, this will be in a document that will be placed in evidence.

This is a document put out by The Tobacco Institute on behalf of the companies, and the introductory paragraph clearly says, "The tobacco industry has long taken the position that smoking is an adult practice to be considered solely by mature, informed persons. For this reason, the industry has taken strict measures to assess -- to address," rather, "youth smoking. For example," and then it recounts what the industry has done, "The tobacco industry ended advertising and promotion in school and college publications on campuses in 1963." Next paragraph, "In 1964 the industry adopted the code," the code I just covered with you. And the -- as you go on into the document, it -- it points out the various programs that the industry has instituted.

Particularly I'd like to call your attention down to the bottom of the first page here of the program entitled "Do tobacco companies want kids to smoke? No, as a matter of policy. No, as a matter of practice. No, as a matter of fact." That was a very heavily promoted campaign on behalf of the industry.

On the next page there's another program referred to as called -- referred to as the "Responsible living program and helping you to decide, helping you to say no." This was a -- a booklet put out for parents to discuss with their children whether or not the children should smoke. This was disseminated widely and it was -- the program was expanded in 1986, two years later, and actual grants were given under the community alliance programs. More than 700,000 of these booklets have been distributed nationwide.

But in addition to these general programs, there have also been company-specific programs, and I would just like to point out a couple of these programs to you. One program is referred to "Right decisions, right now," and this is a program that was instituted by the R. J. Reynolds Company. That company makes Camels. And this is a pamphlet, if you will, the first page of a pamphlet about how to talk to your kids about smoking even if you do, that means even if you do smoke, and it again is a pamphlet for parents to use with their children to discuss smoking.

You've heard many theories about what it takes to keep young people from smoking, and I think we realize that one answer is strict enforcement by retailers of not selling to children, and the companies have also realized this, of course, and have instituted programs to deal with this specific avenue of dissemination. Again, the R. J. Reynolds Company had another program called -- called "Support the law, it works," and this is a program to help retailers deal with the situation of young people coming in and trying to buy cigarettes. And in fact, under this program signs were distributed that could be displayed in the retail premises -- it says, "Support the law, it works. We check IDs." -- to let young people know that they just cannot come in and buy cigarettes, that their IDs will be checked. These signs were disseminated to retailers in an effort to help them deal with the youth smoking problem.

In addition, there was a form circulated for use by the retailer where the retailer could have his or her employees sign this form acknowledging -- the store clerk would acknowledge that they had been advised of the program and that they had -- they had agreed to check IDs of -- of people who looked like they were under-age to make sure that they were of legal age before cigarettes were sold to them. So this was a program used by the R. J. Reynolds Company. Other companies have used similar type programs, and I'll not show you any more visuals of those, but I would like to mention a couple or three programs by philip Morris Company.

In 1995 Philip Morris instituted the "Ask first, it's the law program," again directed at retailers. The same year it instituted the "Action Against Access" program for retailers. And in 1996 it instituted the "Responsible Retailer Program," all aimed at educating retailers and trying to get retailers, who are the people of course on the front lines, to be aware of the youth smoking problem and try to get their cooperation in not selling to young people.

The advertising that takes place today for tobacco does so mainly through two mediums, and they are billboards and magazines. Now studies will show and our experts will testify that billboards are designed to appeal to commuters, people who are driving by. It's obvious. And in fact, there's so little interest in young people, in trying to appeal to young people through billboards, that the billboard companies don't even keep statistics or data on how many young people look at billboards. So they're designed for adults, they're designed for people who drive by.

Magazines, likewise the companies have a program that they've instituted to only advertise their products in magazines that are not designed to appeal to children. We do not advertise in teen magazines and other magazines that are specifically designed for children.

The companies use the same type of messages, if you will, same type of advertising that you'll see in other industries. They, of course, want to have catchy slogans, something that you'll remember if they can, such as some of the ones that have been used in the past, "I'd walk a mile for a Camel." Or "I'd rather fight than switch." Things of that nature, things that you would remember. And by the same token, they use images that they hope people will remember, and again they -- they show healthy, attractive people using their product and they use images that are familiar to people.

For example, I'm sure that you are all familiar with the Marlboro cowboy. However, other companies -- other industries besides Marlboro uses the cowboy. And I have an example here for purposes to show you that there are other industries using the type -- same types of advertising as we do. Here is one for Digital Computer Company, cowboy lassoing a horse. And here is -- I have one for Marlboro, very similar type. Again the difference between the two, of course, is that big warning in the upper right-hand corner that's on every tobacco advertising. The Surgeon General's warning is on every ad that is published.

You will hear, I'm sure you already have, reference made to the Joe Camel cartoon-type character. I'm not going to try to get into that and explaining that to you, our expert will address that, but I did want to point out to you that cartoon characters are used to appeal to adults, and if you think about it, you'll be able to think about many, many products that have been advertised to adults by using cartoon characters. Here are some examples that I've put up on the board. Speedy Alka-Seltzer, the Michelin tire -- I'm never sure exactly what this figure was, but a tire -- the Exxon tiger, Garfield the cat, who is used in Embassy Suites, you have the Metropolitan Life Insurance using Snoopy, and you have Owens-Corning Fiberglas using the Pink Panther. And one that I think you probably will remember, maybe a little closer to home, is the Hamm's beer commercial; remember that little bear that was beating on the tom-toms all the time? There is obviously an adult product that used a cartoon type character to appeal to adults. So it is not unusual to use these type of images to get your message across.

Now before I close, I would just like to point out something that I know we can expect you to do, and that is to pay close attention to the documents you are shown and to, before you make a judgment, ask to see the entire document. Give the companies a chance to explain how that document was written and what's in it. Give the companies a chance to explain what other documents go with that, because we saw here today, frankly, an example of something that could be very misleading. I'm sure Mr. Ciresi didn't do it on purpose, probably didn't take the time right now to look at this particular document, but he made reference to a Lorillard document talking about what -- who buys Newport cigarettes, and he made reference to a statement made about that document, about the base of our business is the high-school student. He didn't tell you, however, this document was written by a field man, a man out in the field who had limited scope, limited view, and he was writing to the president of the company with what he thought was a great idea. He thought that Newport should make a non-menthol cigarette that would compete with Marlboro and he was trying to get his idea across and he made the statement in his letter. Man out in the field, a field man. His job was to call on stores, to go into stores and make sure they were properly stocked, to make sure that they had the proper displays of showing Newport. That was his job. He wrote to the president of the company, gave the president his views.

What we didn't see today, what we didn't hear any made here was the formal company plan, the marketing plan of the company that was written approximately one year before this document that we heard about today was written. This was the formal five-year plan of Lorillard. Covered the period of 1977 through 1981. And that is a document we didn't hear about today, and if we had heard about that document, here's what that document says. It's talking about Newports, and this was written by people who know, this was written by people whose job it is to know, who we market our products through. These are the marketers, these are the people that -- that provide the document. Here's what that document says written right at the same time, covers the same period of time. "The target audience for the parent brand will continue to be smokers 21 through 44 in the core area with emphasis on young adults, blacks and women, who have all been important sources of business in the recent period of growth. Copy will continue to position Newport as a uniquely pleasurable smoking experience for fun-loving, easy-going adults. Promotion will capitalize on Newport's superior product vis-a-vis menthol-prone smokers, and surprising strength among Kool smokers, with concentrated trial effort against the target audence. My point being you need to put things in context. You need to see all of the documents before you make your minds up.

In closing, let me again end where I started, and that is, as Mr. Bleakley did point out to you, this is a lawsuit about money, about a couple of billion dollars, that's a lot of money, a very, very huge sum of money that the state and Blue Cross are asking that we pay, that we pay because we operated within the rules. We sold a legal product, we advertised a legal product, we put the warnings on our brands, on our packs and on our advertising. We complied with the rules. The FTC scrutinized us every day. Every day they looked at whatever advertising we disseminated, and we complied with everything the FTC told us to do. And now, even though society says we can sell our product, we can advertise our product, even though that was the agreement, even though that was the understanding, we're being asked to pay two billion -- two billion dollars.

Thank you.

THE COURT: Court will adjourn until 9:30 tomorrow morning.

(Court recesses.)



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