V. PHILIP MORRIS, INC., ET. AL.,
DEFENDANTS.
TOPIC: TRIAL TRANSCRIPT
TRANSCRIPT OF PROCEEDINGS
DOCKET-NUMBER: C1-94-8565
VENUE: Minnesota
District Court, Second Judicial District, Ramsey County.
YEAR:
March 17, 1998
A.M. Session
JUDGE: Hon. Judge Kenneth J. Fitzpatrick, Chief Judge
THE CLERK: All rise. Ramsey County District Court is again in session, the Honorable Kenneth J. Fitzpatrick now presiding.
(Jury enters the courtroom.)
THE CLERK: Please be seated.
THE COURT: Good morning.
(Collective "Good morning.")
(Jury collectively says "Top of the morning to you.")
(Laughter.)
THE COURT: And a happy St. Patrick's Day.
(Laughter.)
THE COURT: In observance of this grand occasion,
we'll be taking a two-hour lunch period.
(Laughter and applause.)
MR. CIRESI: Good morning, professor.
THE WITNESS: Good morning, Mr. Ciresi.
MR. CIRESI: Good morning, ladies and gentlemen.
(Collective "Good morning.")
ROBERT J. DOLAN called as a witness, being previously
sworn, was examined and testified as follows:
BY MR. CIRESI:
Q. Professor, when we recessed yesterday, we were
addressing the issue of the primary objectives of the defendants' total
marketing and communications program as indicated in and disclosed by their
documents, and you had stated that there were four, and the first two you
had listed were to get new smokers, and secondly, to keep the consumers
of the present smokers in to prevent them from leaving.
A. That's right.
Q. I believe that's where we were when we recessed.
A. I think that's right.
Q. Can you continue, then, with the primary objectives
of the total marketing/communications programs of the defendants as disclosed
by their documents.
A. Okay. Surely.
The -- the third thing that would be an objective
-- objective or -- or task for marketing is that we know that even though
the second objective is to keep people in the market, in fact people do
quit and leave the market, and so the third effort would be to induce those
people who have left the market for a time to come back into the market.
So we know that there are quite a number of relapsed quitters, is the terminology
used, people who have left the market but then come back into the market.
So those first three things all have to do with the overall size of the
market.
The fourth thing that your total marketing and communications
package would be directed to would be to, once you have somebody in the
market and with your brand, you would like to keep them with your brand.
So even though, as we talked about yesterday, this is a product category
which shows a lot of brand loyalty, as a marketer, you don't just take
that for granted and say, "Well, brand loyalty has always been exhibited,
so anybody who comes in is going to stay with me. I don't have to enhance
my brand image or reinforce my brand image over time."
*2 As we talked about yesterday, the -- the third
phase of marketing is really sustaining your ability to create this perception
of value so that you have a relationship with your customer. So the fourth
job of marketing, really, is to say I want to keep those people that I
have, to -- to really enhance that -- that brand loyalty that naturally
occurs in this market because of the nature of the product.
And I think the flip side of that is that, given
that some people do switch brands, a fourth -- the second part of the fourth
job of marketing would be those people who are giving up the brands that
they have been loyal to for a while, you'd like to position yourself as
a brand that would be acceptable to them so that they might switch to you
if they're leaving the brand that they have typically been loyal to.
So those would be the four major aspects or objectives
of marketing which flow right out of the special characteristics of the
cigarette market that we talked about yesterday.
Q. Professor, then if we could direct your attention,
first, to the replacement or starter smokers, did the defendants' documents
reflect their objective and their total marketing and communications program
to get starters and replacement smokers?
A. Yes, they did. You can see quite clearly the
objective, the focus on the starter market and the objective of getting
new people into the market as replacement for those who are leaving.
Q. Can you direct your attention to Exhibit 13430,
which is a Brown & Williamson document dated July 9th to 12th of 1984.
It's in volume two, professor.
Is this one of the documents that you reviewed?
A. Yes, it is.
Q. And is it representative of other of the defendants'
documents?
A. Yes, it is.
Q. And does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we would offer Exhibit 13430.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13430.
BY MR. CIRESI:
Q. If you turn to actually what is the second page
of the document, professor, the title of the document stated "PROCEEDINGS
OF THE SMOKING BEHAVIOR - MARKETING CONFERENCE," which was held in Montreal,
Quebec, on the 9th through the 12th of July of 1984. The upper part of
the document has the Brown & Williamson notation, and you'll see at
the bottom a distribution list. It is --
The first two names, Dr. Blackman, who was the R&D
manager of BATCo, and Mr. A. M. Heath, who is the executive director of
marketing. You then see various individuals from the various companies
of B& -- of BATCo and the B.A.T family, as they've been referred to,
from Germany, the United States, Australia, the U.K. and Canada. And if
you direct your attention over to the page which bears the Bates number
004, the titles of those individuals who attended the 1984 smoking behavior
- marketing conference are set forth, and from the United States we see
that it's a W. H. Deines, D-e-I-n-e-s, who is the section head of sensory
evaluation, Tilford Riehl, division head product development, and Andy
-- Andy Mellman from marketing.
*3 And if you could, sir, could you direct your
attention to page 016, and specifically to the second-to-the-last paragraph.
Is there addressed there the importance of the starter population on the
market?
A. Yes. Basically the -- this second-to-the-last
paragraph on -- on the page talks about having some information about quitters
but saying that they have inadequate data on -- on starters. And then the
-- the key sentence here is, you know, reflecting their understanding of
how critical this starter group is to them, they say that our future business
depends on the size of this starter population set. So it's really important
for us to know why it is that -- that people start to smoke.
Q. Okay. And can you direct your attention to the
page which bears the Bates number 086, and please describe for the jury
and the court what is disclosed on that page.
A. Well here, this is -- this is sort of going back
to the umbrella approach of marketing or the -- the -- the demonstrative
exhibit that we have up still on -- on the easel over there from yesterday,
and it's basically saying that, you know, people don't just buy the products,
they buy the enhancement of that -- those products with everything else
that you put around it.
So it goes and it says people buy brands and brands
are a combination of the elements of the marketing mix or the total marketing
and communications program as we've been talking about it; that is, the
name, the product, the price, the packaging, the image, so and on so forth.
Really going back to this issue of the brand image that a product has is
-- is the result of all kinds of communications about the brand. Rather
than just one single element, it's -- it's a whole -- as they say here,
the combination of elements. So it's going back to the umbrella approach
that we talked about yesterday.
Q. And if you turn to the next page, sir, is that
marketing mix also set forth?
A. Right, it is. This is basically the same -- the
same kind of thing that we -- we've already talked about, that you've got
the product that we talked about yesterday, the -- right around our little
target customer person on that exhibit, we got the product, then we got
the packaging, the price, the advertising, promotion.
Word of mouth is -- is important here. I mean there
are situations where you -- you use a marketing program to induce word-
of-mouth communications by other people. So clearly they're seeing that
the peer influence which we know, I think Dr. Perry covered with you as
-- as being important in this product category, that peer influence is
a part of their marketing mix. So the fact that somebody would talk to
somebody else, as we were talking yesterday when we were talking about
the Minnesota Twins, that you might have a bat day where -- or a helmet
day where somebody goes home and they're wearing their helmet and you hope
that they talk to their friends about what a wonderful time they had at
the Twins game. So this word of mouth and peer influence is a part of the
marketing mix that they are talking about here as part of their overall
marketing and communications package.
*4 Q. And if you turn to the next page, is that
theme carried forward on that page with regard to potentially relevant
product differentiation?
A. Yes. It -- it sort of goes through the whole
-- the whole list of attributes on which a firm might differentiate its
product: taste, specifications, the price, the packaging, the health, whether
it offers the best health or is the best compromise, its image, is it the
in-brand, is it the youth brand, macho, so on and so forth. So -- they
go on and say et cetera, et cetera, meaning there's a large number of things
that you bring together here.
Q. And can you direct your attention now to an RJR
document, Exhibit 12579, which would be in volume one. This is an RJR document
dated February 29th, 1984 from Diane S. Burrows to Mr. G. H. Long, who
was the president of RJR.
Is this one of the documents that you reviewed,
sir?
A. It is.
Q. And does it form part of the basis of your opinion?
A. It does.
Q. And is it representative of other of the defendants'
documents that you reviewed?
A. It is.
Q. Can you direct your attention, please, to page
8464, which is the table of contents.
A. Uh-huh.
Q. And does this set forth the overall young adult
smoker strategy and opportunity issues that are dealt with in this document?
A. Right, it -- it does. And in particular section
one of the document is "THE IMPORTANCE OF THE YOUNGER ADULT SMOKERS," the
replacements for those people who are leaving the market.
Q. And can you direct your attention, then, to the
next page, professor. This page is entitled "MANAGEMENT SUMMARY, YOUNGER
ADULT SMOKERS: STRATEGIES AND OPPORTUNITIES."
Is there set forth here the position of RJR with
regard to the importance of younger adult smokers?
A. Right. It -- it's quite clearly laid out here
in the -- in the part of the text which is -- which is underlined where
we see them saying that the -- their recognition -- they're recognizing
that the younger adult smokers have been the critical factor in the growth
and decline of every major brand and company over the last 50 years. So
that's how critical this -- this new smoker is to -- to the market overall
and -- and to companies. And then they say this is true for two simple
reasons, the renewal of the market -- that is, the replacement of the people
who were leaving the market -- the renewal of that market stems almost
entirely from 18-year-old smokers. And -- and in fact we know that the
adoption rate, the large majority of people adopt -- begin smoking earlier
than the age of 18, and secondly, as we talked about yesterday, the brand
loyalty of that 18-year-old smoker far outweighs any tendency to brand
switch.
So then it goes on to talk about the success of
Marlboro and how, because of the ability to attract these people at a very
early age and then retain them over time, they refer to this fact that
it's -- the 18-year-old smokers provide an effortless momentum due to the
successful first brands. And then the asterisk next to "first brands,"
if you -- we go down to the bottom of the page there, you see that basically
they're saying that, you know, this applies to -- this will -- would appeal
to 18-year-olds rather than switchers.
*5 So they're saying 18-year-old smokers, but we
know that the vast majority -- the majority of the people who come into
the mraket in fact do so before they're age 18.
Q. And can you turn, then, to page 8467, and is
there then an implication and recommendation with regard to the younger
adult smokers concerning RJR's future?
A. Right. Basically up at the top in -- in the box
there, they're saying because this is so critical to us, it's critical
to our long-term performance, what we at RJR ought to do is we ought to
make a substantial long-term commitment of manpower and money dedicated
to this particular program. So we really ought to dedicate our efforts
to this segment of the market to induce those people to start.
And then as you go down a little bit on the page,
down to the -- the third bullet point, it talks about this younger adult
market and how is it that we're going to go after this younger adult market.
It says because of the sensitivity, it says, brand development/management
should encompass all aspects of the marketing mix and maintain a long-term,
single-minded focus to all elements, product, advertising, name, packaging,
media, promotion and distribution. So again, we're back to this notion
of the whole total marketing and communications program that we've talked
about yesterday and in the first two documents from today, one from Brown
& Williamson and one from RJR, really reflect again that all of these
elements of the marketing mix are being brought together to induce people
to start smoking.
Q. And the marketing mix that you're referring to
are those that are set forth on Exhibit 30225 which was introduced for
illustrative purposes.
A. That -- that's correct, the same overall marketing
and communications program that we've -- we've talked about yesterday.
Q. Now with regard to the fact that younger smokers
start before the age of 18, can you turn to page 8471, and is that reflected
in this document under the title "THE IMPORTANCE OF YOUNGER ADULT SMOKERS,"
number one, "VOLUME?"
A. Right. Right. It -- it basically poses -- poses
the question of why are these smokers important? And then it says volume,
that less than one-third of the smokers, so the younger -- saying the younger
adults are where we get our replacement smokers, and then it says repeated
government studies have shown that less than one-third of smokers start
after the age of 18. So we're back to the idea of the narrow window of
vulnerability that I talked about yesterday as a special characteristic
of the market is reflected here in this RJR document.
Q. And can you turn, then, to page 8526, and is
there a graph there and a chart showing the age at which RJR was tracking
young smokers?
A. Yes. Basically the -- this is the Appendix B
that the text just referred to a moment ago, so they have this histogram
up -- up at the top of the page here, and it's -- it's a little bit hard
to read, but basically what you can see is, you know, there are a lot of
people coming into the market at ages 13, 14 and 15, and, you know, the
-- the ages at which people are most likely to come in are ages 16 and
17.
*6 And then if we go down the page a little bit,
you can see these cumulative statistics that are reflected in this document
where it's basically saying that 10 percent -- if we look at male smokers
-- 10 percent of the male -- people who are smoking, male smokers -- males
who are smoking started by the time they were 12 years old. Then it goes
up, 30 percent of them had started by the time they were 15 years old.
And this 68.7 percent number, 69 percent of them have started by the time
they're 18 years old. And these are data from 1970 and 1975. And I think,
as Professor Perry covered with you the other day, the percentage of people
who are adopting by time 18 has gone up to something like eighty something
percent, 82 percent I believe it was. And we see here what's reflected
is, over on the right-hand side of the page, is that the median age of
adoption is 16.7 years old. So a typical adopter, a typical starter is
16 years old when they start smoking.
Q. Professor, can you direct your attention now
to a Philip Morris document regarding this same subject of replacement
smokers, and it is Exhibit 10339, which was introduced previously when
Mr. Bible was testifying. That's in the same volume, sir.
A. Yes, I have it. Thank you.
Q. And the date of this document is March 31, 1981.
Its title is "Young Smokers -- Prevalence, Trends, Implications, and Related
Demographic Trends," it's written by Myron Johnston and approved by Harry
Daniel and Carolyn Levy, and it was distributed to a number of -- of individuals.
And if you go to page 806 of that document, you'll see again the carbon
copies to those individuals which included Mr. Thomson, director of development,
Mr. Daniel, an R&D scientist, Mr. -- or Dr. Levy, who was senior VP
for marketing and sales, Mr. Meyer, a scientist, and Mr. Zoler, director
of marketing research.
If you could direct your attention, please, to page
805, which is the first page of text, and we see there that it's directed
to Dr. Seligman, who was vice-president of research and development, from
Mr. Johnston. And can you tell us, sir, what's significant with respect
to that page concerning the replacement smoker objective of the industry?
A. Well, this is the -- sort of the cover memo to
the -- to the -- to the study which follows, and in this memo, in the --
in the -- in the study, Mr. Johnston is more or less sounding the alarm
about how important this starter group is. They're saying that what has
happened over time is that the demographic trends have really helped Philip
Morris because there's been an increasing number of 15- to 19-year-olds,
just because of the demographics of the U.S. market, and that these people
have been adopting cigarette smoking at a particular rate, but now he's
saying, you know, the -- the factors that are turning against us, is the
term that he uses, he says that the prevalence of teen-age smoking is now
declining sharply, and if we go down to point number three, he's saying
that the absolute number of 15- to 19-year-olds will decline 19 percent
during the '80s.
*7 So so concerning is this to him that he -- that
if we go to the next page, page two, he says that this report deals with
only one of these trends, the teen-age smoking and their attitudes toward
smoking, and subsequent reports will cover the social, economic and psychographic
characteristics of teen-age smokers. So they're basically saying we'll
study this teen-age group in -- in more depth in subsequent studies.
But then he notes in his last paragraph, "Because
the major data sources have just become available, and because of the importance
of these data to the company," the critical importance of this teen-age
group to the company, "I have elected to report the data in a series of
memoranda rather than wait and issue all the material at once." So he's
getting this information out to the senior management in the corporation
as quickly as he can.
Q. And can you direct your attention to page 808,
and please explain what the significance of that summary page is with respect
to the objective of the industry to get replacement smokers from young
smokers.
A. Well the -- the summary document really -- really
shows - - again, reinforces this point about the critical importance of
this -- of this teen-age group. Right at the beginning Mr. Johnston says
we have to understand as much as we can about teen-age smoking patterns
and attitudes. "Today's teen-ager is tomorrow's potential regular customer,
and the overwhelming majority of smokers first begin to smoke while in
the -- while in their teens."
So the second paragraph, he says it is during these
teen-age years that the initial brand choice is made, and goes on to say
how this has been a -- this has been a critical part of the success of
their -- of their Marlboro brand.
And then in the third -- the third paragraph there,
he talks about the daily consumption of these young smokers has increased,
as we talked about yesterday. So that between 1980 -- 19 -- I'm sorry --
1968 and 1974, the number of 12- to 18-year-olds who smoked 10 or more
cigarettes per day has doubled. So they're tracking their information down
to the level of 12-year-olds in this marketplace.
Q. And can you direct your attention, please, to
page 828, which is the "Conclusions and Implications" section of
this Philip Morris document, and tell us what if anything is significant
on that page, sir.
A. Well the -- what's important in this conclusion
here is that he talks about what --
What's going on is that he's saying the decline
in the percent -- right at the top of the page -- the decline in the percent
of teen-agers who smoke, their decreased levels of consumption and the
decline in absolute numbers mean that we can no longer rely on an ever-increasing
pool of teen-agers to replace adult smokers lost through natural attrition.
So they know that they're going to have this natural attrition to the marketplace
-- from the marketplace as we talked about yesterday, the people are continually
moving out of the market, so he's now saying we really face a challenge
in getting the number of starters that we need to renew the marketplace.
*8 Q. And if you look at the last paragraph, does
he report there on the implications of the fact that Marlboro was a brand
of choice among young teen- agers?
A. Yeah, he -- he does. What he says -- what he
says in the last paragraph is basically this decline in the number of 15-
to 19-year-olds, because of the demographics, that's -- that's bad news
for the industry overall, and it's not great news for Philip Morris, but
it's not as bad for Philip Morris as the others because what they have
is having the dominant market share among the people who have already adopted
smoking, the young people who have adopted smoking, and because of the
brand loyalty, that effect is going to carry through to the future. So
the fact that they at the time of this document have the dominant share
of the people in the 14 to 18 kind of age group, those people are going
to age, they're going to stay with the brand, they're going to increase
their consumption rate, so all of that would help Philip Morris, and that's
a benefit that their competitors won't have.
Q. Now did your review of the documents of the defendants
indicate that the defendants tracked teen-age smoking behaviors?
A. Oh, absolutely.
Q. And what would be the purpose in doing that for
the marketing departments of these companies?
A. Well, as we talked about yesterday, the -- the
first thing you do in -- in coming up with a marketing program is you figure
out who your target market is going to be, and then you try to understand
the behaviors of that market, what are their attitudes, what are their
-- as the phrase from the first document we looked at yesterday -- what
are their hot buttons is the -- the terminology that RJR used. So you try
to understand what it is that they're going to look for in a product. All
of that is input into phase two of the marketing activity, which is to
design this total marketing and communications package.
So you set your target market, you try to understand
it so you can then develop a marketing program which is basically going
to work in helping you achieve your objectives with respect to that particular
group.
Q. And did your review of the defendants' documents
reflect whether or not the defendants did, in fact, plan marketing and
communications programs to capture the groups that they intended to?
A. Oh, absolutely. They recognized the importance
of this group, and then they set specific objectives to -- to capture this
group.
Q. Can you direct your attention in volume two to
Exhibit 13854, which was a document introduced during Document Day Two.
13854.
Do you have it, professor?
A. I do, yes. Thank you.
Q. This is a Brown & Williamson document entitled
"KOOL FAMILY UTOPIAN OBJECTIVES, 1979 to 1985." It's an August 1978 document.
Can you describe, sir, what is of importance on
the first page of this document.
A. Surely.
Basically in -- in late -- in the late '70s here,
Kool has done very well throughout the 1970s and -- and now it's having
some difficulties. And basically it says, you know, we -- we really want
to supplant Winston as the number two cigarette in the country, so here
are the obstacles that we have to overcome under point two there. So the
first thing they say is that Kool must move into the health reassurance
segment, so this is the low tar and low nicotine segment, so this HR or
health reassurance segment, saying we got to position our brands in there
because we know that that's a segment of the market that's growing.
*9 The second thing that they say, second obstacle
they have to overcome, second thing they're going to try to do is they
say we must attain a user image that is acceptable to the majority of young
adult and starter smokers.
So this specific focus on starters is one of their
objectives that they're setting out here for 1979 through '85.
Q. And part of their strategy down below, 3.A.,
does this also direct itself to the health reassurance?
A. Right. The first thing we mentioned a moment
ago under there, things they were going to try to do, was to move into
the health reassurance, the HR segment, and under "Strategies" they're
saying, well, the way we're going to do that is we're going to provide
product safety reassurance while enhancing the satisfaction. So try to
get their brands associated with product safety is one thing that they'll
be trying to do as they move into the HR segment.
Q. If you turn to the next page under "Strategy,"
paragraph D., does that again relate to the total marketing/communications
programs that you have already testified about, professor?
A. Right. They're, you know, focusing on the social
acceptability of really the entire -- the entire product line that they've
got -- that -- that they have out there, so -- so that's basically what
they're going to be trying to do.
Q. And do they relate there that they're going to
do this through creative management as well as specific media targeting?
A. Yeah, that -- that's correct.
Q. And can you direct your attention to page 152.
Under "Demographic Objectives," is there reference there to the starting
segment of the market?
A. Right. Particularly under -- under point three
there, the "Demographic Objectives," they first start talking about the
-- the black and the Hispanic market, and then they say what we'd like
to do, our objective is to return our starter index to 11 percent by 1982
and maintain this level as the highest starter index in the industry. So
it's reflecting, again, this -- this -- this focus on starters.
And then if we go down the page a little bit under
"Rationale," down to point C., it reflects the fact that this starter index
has been, as they call it, the historical pillar of Kool's strength, and
that's -- they wanted to return it up to 11 percent so it's going to build
longevity into the franchise.
So again this goes back to the brand loyalty notion
that we had. If we can get these people as starters, they'll stick with
us and they're going to build longevity, they're going to stick with us
and help us get into a relationship and maintain the franchise over time.
Q. And if you turn over to the next page, Bates
number 153 under the "Strategies" section, they first deal with the
black submarket, then the Hispanic portion of the market, and then C.,
"Starter Index," and what is disclosed there, sir?
A. Well basically here they're setting out the strategy
to achieve what we just talked about of improving their starter index,
and they, point one of two points will be that we'll "Flight advertising
pressure against high filtration styles in young adult skewed publications,"
and what "young adult skewed publications" means is that they'll go into
publications with a lot of young adults reading them. And then the second
point, over on the -- right at the top of the next page, is that they say
that they will dominate specific young adult publications with a particular
style.
*10 So this is going from their objectives down
to the media- selection issue, where they'll be placing their advertising.
Q. Now can you direct your attention, professor,
to Exhibit 12493, which will be in volume one, and this is an RJR document
which the jury and court has seen before and has heard testimony on. It's
a presentation to the RJR board of directors on September 30th, 1974. And
you can see on the first page it's a marketing plan, Mr. C. A. Tucker's
presentation to RJR Industries' board of directors on September 30, 1974.
Now sir, with regard to this document, if we could
-- the jury's heard about this document. What I'd like you to do is discuss
this document in terms of Exhibit 30225 and what you've talked about as
the total marketing and communications programs that have been undertaken
and instituted by the industry over the years, if you can do it from that
perspective.
A. Okay, fine.
Q. First off, we direct our attention to the first
page. Is there a reference there to the necessity and importance of re-
establishing RJR's share of the marketing growth in the domestic industry?
A. Yes. That's basically right -- right at the top,
the first thing they talk about.
Q. And what is one of the key opportunities that
is reflected there?
A. Well the key opportunity, as they -- they set
out in this document is, you know, point one is to increase our young adult
franchise, which, as you probably recall from the other day, they explicitly
define as the 14-to-24 age group. And so what this is really saying is,
if we go back to the exhibit we've got, the demonstrative exhibit we've
got over -- over there, the -- that little person in the middle, that little
target of this overall marketing and communications campaign, that little
guy is the 14- to 24-year-old age group, basically, as they're setting
it out here.
Q. And we again see down at chart three the use
of the term "young population skew." And I think that was just in the Kool
document, that Brown & Williamson document that we just saw; is that
correct?
A. Right, uh-huh.
Q. And what is reflected there, sir?
A. Well it's basically showing that -- how critical
this 14- to 24-year-old age group is, that they represent 21 percent of
the population, but again they say they represent tomorrow's cigarette
business. So it's back to the idea of saying, boy, this starter population
is -- is really the key. They're going to represent tomorrow's business,
and as they mature, they will account for a key share of the total cigarette
volume for at least the next 25 years.
And again, the importance of brand loyalty, the
degree of brand loyalty, as we know, makes it critical to get the people
as they're starting and then try to hold them over time.
Q. Now in designing a total marketing and communications
program for a company, if you're on the inside, is it important to understand
what the competition is doing?
A. Yes. Basically -- I mean the -- the two kinds
of major analysis you do in terms of input into your marketing plan is
the consumer analysis that we talked about yesterday in terms of specifying
your target market, trying to understand their wants and how you're going
to satisfy them, that sort of thing, and then the second thing you do is
you take a look at your competition because you want to understand what
their strategies are and how you should position yourself relative to your
competition. So those two things -- typically you look at your --
*11 As well as looking at your consumers, you look
at your competition in terms of input into the formulation of your plan.
Q. And if you turn to the next page, page 1312 at
chart four, is RJR here looking at its competition in the cigarette market?
A. Yes. Basically the -- the whole page is sort
of related to that. They -- they --
Again, our target market is, as is said here, the
14- to 24- year-olds, so they're specifically looking at how well Philip
Morris and Brown & Williamson are doing with respect to this age group.
So they note there what Philip Morris's share is, and then - - and then
they move down on chart six, down on the bottom of the page, they look
at -- they go down to the brand level. They're saying, look, we -- we have
-- our two major brands are Winston and Salem, so Winston has only a 14
percent share whereas Marlboro has a 33 percent share, and Salem has a
nine percent share versus a similarly positioned brand, Kool, they have
a 17 percent share. So the first thing they -- they're doing here, having
specified their target market, they're looking to see what their competitive
position is at the moment.
Q. And they're talking about, there, the 14-to-24
age group; is that correct?
A. Right. That's explicitly -- explicitly noted
there, right.
Q. And at the bottom, then, do they show that this
suggests slow market- share erosion for us in the years to come?
A. Right, it does, for exactly the kind of reasons
that we - - we talked about yesterday and went through an RJR document,
sort of mapping through what happens to your share over time if you have
a low share of starters. So again it's reflecting in 1974, '75, that they
really understood even at that time the criticality of getting the starters
in, and because of the brand loyalty effect, that's going to -- that's
going to carry on over over the years to come.
Q. And once a company looks at the competitive marketplace
and who their targets are, I take it it's then necessary to implement a
strategy?
A. Right. Then you design a strategy in light of
the information that you have about your target market and your competitors
and your competitive position, you then go into the next stage, is to develop
a total marketing and communications program against that target market
segment, and then you implement it in the marketplace.
Q. And if you turn to the next page, page 1313,
does that portion of this presentation to the board of directors of RJR
start addressing the issue of strategy?
A. Yes, it does. And -- and I think what's -- you
know, what's important about what -- what's done in this document, I think,
is that, number --
Number one, what it tries to do is it looks at all
of the major brands within the RJR portfolio, so it will look -- it looks
at Winston, it looks at Salem, it looks at Camel, it looks at Vantage,
and tries to see how all of those can work together to create for RJR what
it wants -- what they want to do. And the second thing that, you know,
that this document does, which, you know, I think warrants going back through
it even though you're probably groaning, "Oh, no, not this one again,"
is that it really shows you the level of detail to which the people are
-- to which RJR and generally -- this is reflective of what the other companies
do as well -- kind of the level of detail to which they think through their
marketing programs.
*12 Q. And if we look at page 1313, they're talking
about direct advertising appeal to the younger smokers --
A. Right.
Q. -- at number one. And then number two, they say
they want to be true to the brand's basic product attributes, and three,
without alienating the brand's current franchise.
Can you describe what's going on there, sir, from
a marketing standpoint?
A. Sure.
If I can just try to put it in -- in context here,
at this time, around 1974, '75, Winston has about a 15 percent market share.
It's more or less tied to Marlboro for market-share leadership in the market.
Marlboro has been increasing rapidly just prior to this time. But Winston
has a very valuable franchise with its current product positioning. So
what they're basically saying here is, gee, we want to go to these younger
smokers, but in the process of going to these younger smokers, we don't
want the people who represent -- who give us our 15 percent market share
now, we don't want them saying, oh, this brand is no longer for me. So
they're really trying to avoid the -- the Black & Decker/DeWalt effect
that we saw where Black & Decker, doing so well with the homeowner
like me, the -- you know, the incompetent do-it- yourselfer like me, that
Black & Decker was doing so well with them that the tradesman looks
and says, "Oh, well that product is not for me." So they don't want Winston
to become such a kids' brand that the adults that are making a big part
of their franchise at the moment say, "Well that's not for me."
So that's why it's -- it's a hard -- it's not an
easy thing to do, to appeal to a couple groups. They -- you get a little
flexibility because you can do product line extensions. Right? We can have
Winstons, we can have Winston Lights and so forth. So one of the things
we'll see, I think, is how they try to hit these dual audiences.
Remember, we talked about you want to keep the people
that you've got, giving you the 15 percent market share, that's an extremely
valuable franchise for RJR, so they say, look, we can't move away from
the value that those people see in our brand as we try to go for this younger
group. So that's what they're going to be trying to do here.
Q. And in this document, do they report to the board
that in following that strategy -- and that is, appealing to the young
without alienating the brand's current franchise -- that they followed
that strategy in developing the new "Candid" advertising campaign?
A. That's correct. Basically they're saying we're
-- we're following this strategy with the new -- with the new "Candid"
campaign. And you may remember seeing some advertisements of that type
the other day where they tried to hit this younger market.
At the same time, around this same time period,
as I was looking through the advertisements which had been sent to me from
RJR, there is advertising copy that's saying "Winston for when your taste
grows up." So it's -- you know, they're doing a couple different things
here in terms of not having the advertising look so youthful that they're
alienating their current franchise, but trying to go to the younger market
as well.
*13 Q. Okay. And do they report to the board at
this time the results of their research on the campaign?
A. Right. I think this is -- this is reflective
of the -- of the kind of level of detail and sort of, you know, doing --
doing the right things from a marketing point of view, that they're going
in researching, that they're developing new advertising copy, and they're
basically going and doing the research to see whether it's more effective
than the campaigns they've had in the past, and how would it compare to
what Marlboro is doing.
Q. If we go down to chart nine, then, professor,
does this report to the board on one aspect of a total marketing and communications
program?
A. Right. Now it's -- it's basically --
We're switching from Winston to Salem, and they're
basically saying, well, for Salem, we -- we've improved the advertising
campaign. And if we -- if we can go over to the next page, it kind of goes
through at the top there what they've done to improve the advertising campaigns
for Salem, but as you go a little bit further down the page, I think as
we go down to chart 10 here, it's saying further young adult emphasis is
being placed through the successful Salem box denim campaign, and so we're
down to the level of -- of talking about the packaging to really show the
box, the crush-proof box in with blue jeans and that sort of thing. So
-- so that's the --
We've got a strategy and we're kind of going back
to our diagram over -- over here where -- sort of in the packaging realm
of -- of our diagram that we looked at yesterday. That's the level of detail
that we are operating at here.
Q. And if you go over to chart 12 on page 1315,
now addressing the Camel Filter, moving past Salem, what is being addressed
there with regard to the total marketing and communications campaign?
A. Right. Well now we're talking about -- about
Camel, and - - and I think we should note here that they're saying that
this new marketing program is -- it's put into a test market, so it's not
necessarily the case that it -- that this -- that this has been rolled
out nationally yet, but you see these three bullet points are saying what
we're doing with the new program for Camel Filter, we've got a new advertising
campaign, but we've got a new Marlboro- like blend in the product. So if
we go back to our diagram over there, what they're saying is that inner
circle, right around the little target market, the product design, we're
going back to product design and coming out with a new Marlboro-like blend,
and then we're significantly increasing the advertising spending and we're
also coming up with a new package design which is going to be -- which
is being developed and will be tested in early 1975. So you can again see
how they're touching on a lot of the points under -- in the overall umbrella
approach with respect to Camel right here.
Q. And with regard to product line extensions, is
that addressed in chart 13 regarding the Vantage cigarette?
*14 A. Well it's -- it's more a new-product introduction
than a -- than a product line extension in the sense that they're saying
that Vantage is one of their entries into the -- into the low tar and low
nicotine segment of the market, the health reassurance segment. So they're
saying here on chart 13 how Vantage has shown the ability to attract --
you know, we have to jump over to the next -- next page -- it's saying
how Vantage has been able to attract, the second bullet point there, new
and younger smokers, and that field sales reports Vantage has pockets of
strength on college campuses and close to home for me. For example, in
the book store at Harvard Square, Vantage is among the top 10 sellers.
So the idea here is that they've got a brand, this new -- new -- newer
-- relatively new brand, Vantage, which is allowing them to get new smokers,
new and younger smokers.
Q. And do they also address in the first bullet
point the segment of the market that is switchers?
A. Yes, they do. Right. They're basically saying
that, you know, this -- this low tar/low nicotine positioned brand is getting
a significant number of switchers from normal-flavor filter smokers.
Q. And right before chart 14, is there reported
to the board that ad spending has been increased with certain targeted
efforts?
A. Yes, that's right. What chart 14 is about is
media saying we've increased our media effort towards young adults, and
then they give some specific examples of, as they go toward young adults,
the kinds of magazines that they're inserting their advertising in, and
they specifically mention Sports Illustrated, Playboy, Ms. Magazine, new
young adult special interest magazines such as Road & Track and Motorcycling.
And then they're doing expanded outdoor with selective locations for maximum
young adult exposure, Greenwich Village and areas with large college-student
populations.
Q. And if you go over to the next page, sir, page
1317, is there addressed there the issues of promotion of a product?
A. Right. Basically what we have over here on --
on page 15 is they're talking about special events, which, you know, would
go back to our demonstrative exhibit over there, would correspond to sponsorships
over there. And what happens over the next couple pages of this document
is really to lay out in -- in detail for the board of directors the total
communications program that they bring together at these special events.
So they're saying here with -- they're mentioning some of their major special
events are the NASCAR car races with Winston, the -- and then they go down
a little further down the page, right at the bottom of the -- there we
go. Now come up to the top -- to sponsor rodeos for Camel Filters. What
they're doing is they're pinpointing sponsorship of sports car races and
motorcycling. So this is -- this is another element of their overall marketing
and communications package, these special events sponsorship-type things.
Q. And professor, if you would direct your page,
then, over -- or "direct your page" -- direct your attention over to the
next page, which is 1318, and chart 17, and what is then depicted there,
sir?
*15 A. Well what they're telling the board here
is that these special event kind of things are relatively -- relatively
new for us, and they want to review with the board of directors the kind
of things that they're doing at these -- at these special events.
So kind of, as I -- as I read this, I guess what
was really striking to me was the extensiveness of their efforts here.
And also, remember yesterday we talked about the importance of getting
all of your different communications messages to kind of link up with one
another? If we see how -- we can see here how they're really -- they're
really doing that.
So in this chart 17, the first thing they do is
they say, okay, imagine we're at a site, it's a stock car race or whatever
kind of race a NASCAR race is, what do we do? What do we, RJR, do at the
site itself? And basically what we say here is, well, we do five things,
there's five different things that we do at this site in addition to having
the cars running around out on the track with our name on them.
They say, first of all, we have -- we have permanent
billboard advertising is number one. Brand exclusivity at concession stands,
meaning, you know, the only brands that are available at the concession
stands would be RJR brands. Third thing is we have branded event-related
items, so we sell our Winston hats, shirts and jackets. So this is the
-- kind of the walking billboard idea to get our advertising, get people
to pay to put our advertising on their --themselves and wear them around
town. The fourth thing they do, they have tie- in banners and pasters with
strong brand identification. And then the fifth thing they're doing is
they're having the brand featured in commercials over the public address
system. So as you're sitting there, you know, watching the race, you're
hearing public address announcements. So not only are you seeing advertising
while you're at the races, you're -- you're hearing advertising. So that's
what's going on at the site itself.
But then they say, well look, that's not all we
do. Remember yesterday we talked about the importance and the potential
power about public relations? What they then go on to say is we have done
strong press outreach through the wire services, so in something that would
not show up anywhere in our advertising and promotion budget of RJR. What
they do is they say, well, for this Winston Western 500, the race got heavy
mention of Winstons in newspapers having a circulation of 10 million and
on a two-hour radio program reaching 30 million people. So that's the public
relations effort, that they're getting other people to mention the -- the
Winston brand. So that's sort of the sixth thing they're doing.
The seventh thing they're doing is they've got their
sales force going around to retail stores trying to get the convenience
stores and the gas stations and so forth putting up posters. So that's
item number seven.
Then if we look over on the top of the next page,
they've got item number eight, they're running around to shopping centers
to put the Winston Number One and Camel Filters GT cars in the shopping
centers so that when you go there you see the cars on -- on display. So
that's number eight.
*16 And then number nine, they say we do our own
advertising.
So again, what you see here is you've got -- you
got this special event, and then within the special event you've got nine
other things sort of all coming together to really put the brand name and
the image of the brand out in the face -- in the face and in the ears of
the -- of the target market.
Q. And in the next paragraph, do they indicate whether
or not that type of effort produces results?
A. Right. This is a presentation to the board of
directors, and, you know, you could easily -- I could easily imagine people
on the board of directors saying, "Well gee, this is all nice, it sounds
good, but does it work?" And basically they're anticipating the board's
question here, and they say, well, you might logically ask what does all
this mean in terms of sales, and then they go on to say, yeah, it -- it
is having a sales impact. Winston's share of smokers is 60 to 70 percent
greater among -- than among non-racing fans. Among rodeo fans, Winston's
share of smokers is 50 percent greater -- greater than non- -- non-rodeo.
So they're really saying all of these activities which we're undertaking
in such an extensive, coordinated fashion are really having the impact
that we want.
Q. And in the last sentence there, do they state
that while they don't have directly comparable data for the newer Camel
Filter special events, that their research indicates a dramatic increase
in purchase rate among fans attending?
A. Right. And so they're -- they're following through
checking to see whether their efforts are working, and basically they say
that -- that -- that they are.
Q. And in the last paragraph, what is addressed,
then, from the standpoint of the total marketing and communications program?
A. Well if -- it goes on to -- to list some other
things that they're doing. I -- I think I was up to number nine a moment
ago, but what they're saying is we have other programs to reach the young
adults where they work and play, so number 10 is we have these free on-pack
trial inducement promotions, so we're, you know, using the promotions element
of the total marketing and communications program, and number 11 is we
have permanent counter displays in 35,000 outlets.
If we go over to the next page, number 12 is that
successive waves of couponing will be tested in 1975 by way of explanation,
we target a specific market of -- of young adults. And we go down to the
next paragraph, number 13 is we've got a special merchandising division
and it's got these successful wholesale operations offering premiums at
beaches and special events through a separate sales force. All right. So
they've got a dedicated sales force set up to do this, and they anticipate
selling over a million items in 1975, a million walking billboards for
the company. And then number 14, I think, is that they're going to continue
doing their special sampling programs, giving away cigarettes at beaches,
resorts -- resort areas and sports arenas where there are large congregations
of -- of young adults.
*17 So just in this one document alone, under the
heading of "Special Events," there's 14 different things that they're doing
to really speak to the target customer where they live. So you can imagine
that -- you know, the extensiveness and the manner, if you -- and the manner
in which they're talking to people. They -- they've done the research,
they understand what these young people's hot buttons are, they're talking
to them from these variety of venues.
Meanwhile we have perhaps the Surgeon General in,
you know, saying what he or she has to say, and it's a completely different
venue and not near the kind of extensiveness.
So this one is really kind of on the street and
in the face and in the ears of -- of the young adults that they're targeting.
Q. And if you turn over to page 1328 and chart 32,
again is there presented to the board there where the key opportunity for
new brands lies?
A. Right. Everything we have talked about up until
now was - - was built around existing brands. Right? And so now what they're
saying is we have a key opportunity with new brands, so -- so that would
be bringing out an entirely new brand name or -- or line extensions with
new benefits or new personality. So this line extension idea is something
that could help you with hitting the -- the dual audiences, not risking
one franchise when you go after another.
So we've seen a lot about what you do in terms of
marketing existing brands, and here they're pointing out the opportunities
with new brands and product line extensions.
Q. Professor, can you turn now to volume two, Exhibit
13759, which is a Brown & Williamson Kool strategic plan of 1981. 13759.
Is that a document that you have reviewed in this case?
A. Yes, it is.
Q. Does it form part of the basis of your opinion?
A. It -- it does.
Q. And is it representative of other of the defendants'
documents?
A. Yes, it is.
MR. CIRESI: Your Honor, we would offer Exhibit 13759.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13759.
BY MR. CIRESI:
Q. The first page is the title and table of contents,
"KOOL STRATEGIC BRAND PLAN, Table of Contents." I'd like to direct your
attention, professor, if we could, to the first page of text which is the
next page, Bates number 653.
A. Uh-huh.
Q. Does that page address the issue of the markets
that are being addressed by the Kool family?
A. Well I -- I basically -- the -- the document
--
This is a point in time when the Kool brand has
-- has had some difficulties, and so it starts out by noting some weaknesses
of the brand, but then they -- but then they go down on the positive side,
they're saying that, if we go down a little further on the page, it's saying
that the -- the Kool family can be characterized as, number one, having
a consistently strong heritage of product benefits which has had historic
appeal to starter smokers and to non-menthol switchers.
Q. Okay. And can you direct your attention to the
next page with regard to the key marketing strategies of this plan under
paragraph C.
*18 A. Uh-huh.
Q. And is the target audiences addressed there?
A. Right. Under "Key -- Key Marketing Strategies,"
they've both -- the first point is that they're going to support the entire
Kool family; that is, all of their Kool product line extensions, but then
the second point sets out who is it that's going to be our target market.
And as we -- as we noted yesterday when we were kind of going through the
Minnesota Twins story, you may have multiple target audiences at any one
point in time. Right? I may have an audience, trying to get the corporate
people to take more season tickets, while I go after youth groups. And
basically what -- what Kool is saying here, that our target audiences in
priority order are, first, our current Kool ethnic franchise, but then
secondly is these young adult starting smokers and non- menthol switchers.
Q. And do they talk about targeting or using promotional
resources against the target groups?
A. Right. Right at -- right at the bottom of the
page, point number four there, they say how their promotional resources
will be targeted against the above groups with the objectives of increasing
inner- city business, increasing awareness and interest, and developing
competitive trials among the selected target audiences.
Q. And can you direct your attention to page 690,
which is toward -- toward the end of the document. And that's the last
three Bates numbers, 690.
A. Uh-huh.
Q. And is there referenced there the fact that they
were watching the starter market, Brown & Williamson was monitoring
that market?
A. Right. Right. A few minutes ago we saw the Brown
& Williamson document in which they referred to this starter index,
and what you can see here is they have market research going on in -- in
1974, which is designated as wave 16. And a wave typically means -- you
know, it's like the 16th in a series. So they're tracking starters in 1974,
and you can also see that they're tracking them in wave 27 over there in
1979. So this means to me that they're regularly tracking through market
research their -- their share of starters that -- that they're getting.
Q. And did your review of the defendants' documents
indicate whether or not the defendants' marketing and communications strategies
to attract starters was successful?
A. Yes, I did.
Q. And was it?
A. Yes, it was.
Q. Can you direct your attention to Exhibit 10133,
which would be in volume one.
Do you have it, professor?
A. I do. Thanks.
Q. Is this one of the documents that you've reviewed?
A. Yes, I did.
Q. Does it form part of the basis of your opinion?
A. It does.
Q. And have you found it representative of other
of the defendants' documents?
A. Yes, I have.
Q. And this is a Lorillard document dated September
15th, 1964 from Mr. Yellen, who was the general counsel and who headed
up advertising, to Mr. Cramer, who was the president and chief executive
officer; correct?
A. That -- that's correct.
*19 MR. CIRESI: Your Honor, we'd offer Exhibit 10133.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 10133.
BY MR. CIRESI:
Q. Can you direct your attention, first, to the
page which bears the Bates number 262.
And the subject on this is "LORILLARD SALES POSITION."
A. Right.
Q. And if we go down to the second-to-the-last paragraph,
does it state here what Newport was marketed for, which group?
A. Yes, that it was marketed to the -- what they
call a youthful group as well as, it says inmature, i-n-mature, but I suppose
that's supposed to be immature group of smokers. So the target market,
back to our diagram over there, that little person in the middle is this
youthful group, and they're positioning this cigarette as a -- as a fun
cigarette.
Q. And do they reflect here in the memo or disclose
whether or not their marketing was successful?
A. Yes. They state that market -- Newport was marketed
successfully according to the plan that they had.
Q. And can you go back, then, to page one of --
of this document.
A. Uh-huh.
Q. And in the first paragraph, does Mr. Yellen state
what the purpose of the letter is?
A. Yes, he does.
Q. And what does he -- what does he state, sir?
A. Well basically he wants a comprehensive --
He's saying he's been asked to set out a comprehensive
letter stating the position of their various cigarette brands, the major
ones of which at this time would be Kent and Newport.
Q. And in the --
At the bottom of that first page, does he address
the issue of Kent and what it was addressed to?
A. Yes, he does. As -- as he says here, that basically
Kent was positioned as a -- as a safer cigarette for the smoker who was
concerned about smoking and health. And then in 1956, when Reader's Digest
came along and created an awareness among consumers that Kent was the safest
of all cigarettes, Lorillard exploited this advantage. Right? So they --
there's -- the Reader's Digest sort of surfaces the health concern, says
Kent is the safest, and then the company exploits this advantage so that
within a short period of two years, basically, Kent volume goes -- grows
by a factor of nine, it grows from less than four billion cigarettes to
38 billion cigarettes annually.
And then it goes on to note how a number of other
brands, having seen the success of Kent, try to -- try to come along and
-- and do what -- and sort of jump on Kent's bandwagon and erase the Kent
image of safety. But basically what -- what Lorillard did is they protected
their -- their bread and butter brand, protected their differentiation
and the brand image that they had for Kent.
Q. Okay. And they did that in order to retain the,
quote, Kent safety image, end of quote?
A. That -- that -- that's correct.
Q. Can you direct your attention to Exhibit 13679,
which would be in volume two. Is this another document that you have reviewed,
professor?
A. Yes, it is.
Q. Does it form part of the basis of your opinion?
*20 A. It does.
Q. And this is a memorandum of Brown & Williamson
dated September 10th, 1979, "RE: KOOL Analysis of Brand Switching Study,"
and I'd like to direct your attention, if we could, to page 3816. This
letter is on the letterhead of Ted Bates Advertising, and the conclusion
section --
A. Right. Yeah. This -- this is back in -- in 1975,
and this is their -- their advertising agency reflecting back on -- on
how Kool has done, and they say under point one there that Kool's efforts
against the 16- to 25-year-old group continues to be working. And then
related to that, in point two they say Kool's effort is successfully attracting
new smokers. So they're reflecting back on a time when Kool is doing --
is doing very well, and they're saying -- they're attributing that success
to their ability to attract -- attract these new -- these new smokers.
Q. And the age in that paragraph is 16 to 25?
A. Right. The age in -- the age note in the second
paragraph is the same as in the first, it's the 16- to 25-year-old group.
Q. And what if anything do they state there with
regard to their strength among female starters?
A. Well, it's that basically Kool has shown an ability
to attract new female smokers. Although they're having some difficulty
in -- in -- in keeping them, they are -- have some ability to get them
in in the first place.
Q. Can you direct your attention now to Exhibit
10195, which is back in volume one, and that's a Lorillard document.
THE COURT: Counsel, I think we'll take a short recess.
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.
THE COURT: Counsel.
MR. CIRESI: Thank you, Your Honor.
BY MR. CIRESI:
Q. Professor, if you could turn to Exhibit 10195,
which is a Lorillard document directed to the CEO, Mr. Curtis Judge, from
Mr. Achey dated August 30th, 1978, does that document reflect that Lorillard
was being successful with regard to attracting starters?
A. Well yes. This is basically a letter to the CEO
talking about the Newport brand. And so it says -- it says in that third
paragraph of the -- the document the success of the Newport -- of Newport
has been fantastic during the past few years. Our profile taken locally
shows this brand usually being purchased by black people of all ages, young
adults, usually college age, but the base of our business is the high school
student.
Q. And in the next paragraph, does the author of
this memorandum to the CEO compare Newport to the competition, specifically
Marlboro?
A. Yes, it does. It's basically saying that Newport
is turning into what Marlboro used to be. Whereas, you know, Marlboro was
the in-brand, Newport is -- is trying to supplant Marlboro as that brand
for the -- for the starters.
Q. Can you now direct your attention in the same
volume to Exhibit 11780, which is a Philip Morris document. This document
is dated January 23rd to 24th, 1984, about six years after the Lorillard
document we just saw. It's entitled "PRODUCT TESTING, SHORT COURSE," it
is authored by Mr. Ennis, Mr. Tindall and Mr. Eby, and it's -- they are
in the product evaluation division, R&D department, Philip Morris in
Richmond.
*21 Sir, can you please direct your attention to
page 504 of that document. I'd like to read one paragraph to you, the second
full paragraph.
"Marlboro floundered for eight years and then hit
a responsive chord among post-war baby-boom teen-agers with the theme from
the Magnificent Seven and an image uncalculatedly right for the wave of
teen-agers coming of smoking age."
Now on the next page, does -- do the authors of
this document track the growth of Marlboro and Kool and Newport, the other
brands that we have been referring to this morning?
A. Yes, they do. They -- they look at the shares
of the brands over -- over time, going -- starting back late '50s, early
'60s sort of thing.
Q. And do they show a continuing growth in those
brands?
A. Right. Basically what -- what they show for Marlboro
here is the first part of -- of the line from -- over to 1965 is sort --
or late maybe '63 is sort of the floundering years, and then they come
out with this theme that is uncalculatedly right, this -- this theme that
these teen-aged baby-boomers increases the perception of the value of --
of Marlboro, and you see Marlboro then takes -- its market share takes
off. And similarly during this time period some of the other -- Kool and
Newport, the other youth-oriented brands, are growing. And their -- their
market shares taper off, as you see there, you know, around a little before
1975, whereas Marlboro just keeps on growing -- growing.
Q. Now from your review of other of the defendants'
documents, are the documents that we saw today and yesterday consistent
with the efforts of the total marketing/communications programs to attract
starters?
A. Yes, they were. They were. I believe people consistently
recognized the importance of starters, set objectives against them, and
implemented marketing programs to increase the perception of their value
in the minds of starter -- potential starters.
Q. I'd like to direct your attention now, professor,
to one of the other objectives which you described, was to keep smokers
in the market.
A. Right.
Q. From your review of the defendants' documents,
did the defendants utilize various marketing and communications programs
to keep smokers in the market?
A. Right. I would say that they basically energized
the total marketing/communications package program that we talked about
yesterday to keep people in the market as well. Probably two particularly
important aspects of that are the product line extensions, the growth into
the low tar/low -- low nicotine segment of the market, and also the general
communications strategy which they used.
Q. Did your review of the defendants' documents
indicate whether they ever disclosed what they knew about the addictiveness
of tobacco?
A. Not to my knowledge, no.
Q. Can you direct your attention, please, to Exhibit
10585, which would be in volume one. Now this is a B.A.T. Company document
dated April 14th, 1977. You can see that on the last page. It was authored
by the marketing manager, P. L. Short, and the date again is April 14th,
1977.
*22 If we could go back, then, to the first page,
professor, the title of this is "SMOKING AND HEALTH ITEM 7 : THE EFFECT
ON MARKETING."
Can you describe what is being reflected on this
page of this document, sir?
A. Yes. Well basically what happened is a number
--
Given the increasing health concerns at this time
period, there were some conferences held, and you can see here that there
were -- this conference that was held was attended by the No. 1s; that
is, the number one person in the company, and the marketing directors from
North America, Australia, Europe and Brazil.
Q. That's in the first paragraph?
A. Right, it is.
Q. Okay.
A. So the highest levels of management are participating
in -- in these meetings. And basically what they're trying to do is come
up with a set of new marketing policies for the 1980s in light of the --
the changing environment. So what this document does is it sets out what
the new principles of marketing, the new approach to marketing as they
use the term -- terminology, what their approach to marketing for the 1980s
is going to be.
Q. And what do they say in paragraph one with respect
to that future prospect of new approach?
A. Right. Well it sets out here the -- what the
new approach is going to be right in -- under point number one of "Future
Prospects," and -- and basically they're saying that "The new approach
to marketing, supported by suitable strategies, offers distinct opportunities
to create brands and products which reassure consumers, by answering to
their needs." So this theme -- you know, the theme here is reassurance
that you consistently see keep coming up. There's a -- there's a health
concern that is coming up in the marketplace, and basically they're saying,
look, our marketing approach -- and we're going to use lots of different
vehicles to do this -- our marketing approach is going to be to reassure
consumers that it's okay to continue in this smoking habit.
So they go on and say "Overall marketing policy
will be such that we maintain faith and confidence in the smoking habit,
whether brand choice is traditional or not in particular markets. This
means that B.A.T will not remain on the defensive by simply reacting to
alleged 'health' hazards and related competitive challenges: instead, we
shall seek out all worthwhile prospects for brand and product reassurance
in marketing throughout the world."
So to me this basically means we're going to take
all of the elements of the total marketing and communications strategy
and energize them around offering product reassurance and brand reassurance
in order to keep people in the market rather than have them quit because
of health concerns.
Q. And can you direct your attention, then, to page
794 of this document, which deals with communication with regard to health
reassurance.
A. Right.
Q. And what -- what is reflected there?
A. Okay. Well here we're under -- under the heading
of "Communication," which would mean advertising, promotion, public relations,
the whole gamut of things we talked about yesterday, and again the theme
is customer reassurance where they say "All work in this area should be
directed toward providing customer reassurance about cigarettes and the
smoking habit. This can be provided in different ways, by claimed lower
deliveries, by the perception of lower deliveries and the perception of
'mildness'. Furthermore, advertising for low delivery or traditional brands
should be constructed in ways so as to not provoke anxiety about health,
but to alleviate it, and enable the customer to feel assured about the
habit and confident in maintaining it over time."
*23 So it's -- it's this theme of reassurance, maintaining
confidence, and not having people quit, that's what all of their communications
should be directed to, is what this principle of marketing for the 18 --
1980s is saying.
Q. And if you direct your attention to page eight,
which is the second-to- the-last page of this memorandum regarding the
conference that was attended by all No. 1s and marketing directors from
North America, Australia, Europe and Brazil, is there set forth there the
tactics that would be implemented?
A. Right. Particularly they're talking about the
tactics for publicity down on the bottom of the page here, that we started
out this document with a statement of the overall principles of what they're
going to be doing, and then we stepped down to the communications campaign,
and now we're stepping down into a subheading under communications, the
publicity.
And again you see the exact same thing. "The main
objective for all tactics on publicity is directed towards achieving reassurance
amongst a variety of 'publics', including smokers particularly, in the
face of the increasing social unacceptability of smoking.
"A few options were outlined in the Tobacco Division
Board," is what TDB stands for, and further recommendations developed.
And so what they're talking about here is, you know, we're going to directly
communicate this reassurance with the -- to the consumer, but we're also
going to see if we can utilize what they call pressure groups, that they
will influence the consumer as well.
So they're saying who is it that will be able to
bring favorable opinion to bear on the industry? So they say, A, segments
of the tobacco distributive trade. Okay, the people who distribute our
products and sell them, maybe we can get them -- help -- get their help
in getting this reassurance message across. The tobacco growers, the people
that we buy our supplies from. C is suppliers, advertising and research
agencies, media, the people that we buy our advertising space from, maybe
they can help get across in reassurance medium. Sports and cultural organizations
that take our sponsorship money. Favorable -- over on the next page --
favorable medical opinion where it exists. Individual liberty groups. Industries
with problems similar to our own. Employee unions and so forth.
And then they go out and basically close the document
by saying in order to communicate well- attested and, quote, unquote, proven
benefits of smoking, the most promising vehicles appear to be reputable
research journals, public relations releases to the media and other specified
groups, symposia/lectures, or to the smoker directly via pack and outer
inserts, and leaflets.
So, you know, in general we want our communications
by third parties and by the industry, it's going to be best that a -- and
that we're going to maintain a high standard of publication. So basically
what they're saying is that, you know, we will directly get this idea of
reassurance across through the media messages which we control; that is,
the advertising and the promotion and so forth, but we're also going to
exert efforts to have others really acting on our behalf in getting across
this reassurance.
*24 So again, it goes back to this idea of the total
communication strategy, not just advertising, but taking advertising, promotion,
public relations, getting your partners in the business, basically, to
work on your behalf as well.
Q. Professor, can you direct your attention now
to Exhibit 13804, which is a Brown & Williamson document.
Before we talk about that document, professor, have
there been studies published dealing just with advertising and its effect
on smokers?
A. There have been a number of academic studies
which have been published in -- in -- in the literature trying to look
at the effect of advertising on cigarette consumption.
Q. Have any of those studies dealt with the internal
documents of the cigarette industry?
A. No. Basically these -- these studies have typically
used data which were publicly available that you -- you kind of look at
--
The advertising expenditure data is available because
it's been reported to the FTC. The sale data is available publicly through,
I -- I believe the Maxwell Reports would be one place you can get it. But
you don't need company access to get sort of what's going -- the advertising
dollars going in or the sales going out. So a lot of academics, because
of the easy availability of that data, have tried to say, okay, let me
see what the effect of advertising on -- on consumption is, because basically
they were never permitted access to the internal documents which would
let them look at the total strategy and understand all of the elements
of the communications program.
Q. Are you aware of any of these studies which have
had access to the total marketing and communications programs that were
implemented by the defendants?
A. No, I'm not aware of any studies of that type.
Q. Can you then direct your attention to Exhibit
13804. Is this one of the documents that you've reviewed for your testimony?
A. It is.
Q. Does it form part of the basis of your opinion?
A. It does.
Q. Is it representative of other of the defendants'
documents with respect to the subjects that it addresses?
A. It is representative of.
MR. CIRESI: Your Honor, we would offer Exhibit 13804.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13804.
BY MR. CIRESI:
Q. Professor, Exhibit 13804, the first page of which
is on the overhead, is directed to B. L. Broecker, who is the manager of
product publicity for B&W, it is from F. E. Latimer, who was the assistant
brand manager. There's a carbon copy to M. J. McCue, the brand manager.
And the subject is "Cigarette Advertising History."
Can you describe, sir, what is being reported in
this document.
A. Well there's a couple things being reported.
I mean, first of all, Mr. Latimer talks about advertising in and of itself,
that if you take advertising and just look at it divorced from the rest
of the total communications environment, he says -- he basically, you know,
doesn't see that cigarette advertising alone could cause lots of people
to be -- to begin smoking. So, you know, as we've been saying, you really
have to look at advertising within the context of the total marketing/communications
-- and communications program that the firms implemented.
*25 Q. And is that at the bottom of the first paragraph
that's underlined, "Cigarette advertising has not and does not cause most
people to start smoking," and then at the bottom of that paragraph it says,
"In the face of such powerful opposition," he's talking about religious
bodies, parents, medical bodies, --
A. Uh-huh.
Q. -- "it is hard to believe that cigarette advertising
alone could cause such vast amounts of people to begin smoking?"
A. Right. That -- that's what I was just referring
to. Yes, uh-huh.
Q. Please continue then, professor.
A. Right. And then he goes on to say, well, you
know, what - - what role does advertising -- advertising play? And -- and
he talks about how this -- in this time, in this history of advertising,
that cigarette smoking is a high performance risk/ high ego-involving activity
for most people, and he says that -- what is the last sentence under --
let's see, right above the point one there, he says, "Good cigarette advertising
in the past has given the average smoker a means of justification on the
two dimensions typically used in anti- smoking arguments." So he's basically
saying the average smoker is looking for self- justification, reassurance
that -- that this is okay.
And so the two dimensions that he lays out then
and sets up this role for advertising is providing a means of justification
for, is to say this high performance risk -- that before 1954, he says
the performance risk dimension revolved around kind of the undesirable
cosmetic or what he calls semi-health side effects of smoking, but then
over on the next -- the next page, he says how after 1954 the anti-smoking
performance argument became increasingly focused on the deeper health threats.
So this is what the consumer, what the smoker is
really looking for justification and re -- reassurance on, are these --
these deeper health threats.
Q. And --
A. So -- I'm sorry.
Q. I'm sorry.
A. Go ahead.
Q. And I was going to ask you to direct your attention,
then, to the paragraph after number two. Does he talk about the history
of cigarette advertising as a history of reaction to the anti-smoking arguments
listed above?
A. Right. He's saying that -- that basically cigarette
advertising doesn't control its own destiny; that is, you know, there --
there is -- that he's saying it's a reactive device that provides justification
and rationalization for those who already smoke. And then the last line,
the last sentence in that same paragraph, he goes down and says that "All
good cigarette advertising has either directly addressed the anti-smoking
arguments prevalent at the time or has created a strong, attractive image
into which the besieged smoker could withdraw."
So the idea is that this reassurance offers a sanctuary
for this beseiged person who is looking for some justification and reassurance
that it's okay to continue in the smoking habit.
Q. And if you turn over, then, to page 6042, he
talks about a period in 1964 to '72, the beginning of the high filtration
derby mentioned in the Reader's Digest articles, and does he then address
what good product copy would be addressed to during this time period?
*26 A. He does. About six or eight lines down there,
right -- right after the "in 1970" part, he says, "In this type of environment,
good product copy directly addressed the health arguments by focusing on
lowered tar and nicotine while also claiming to retain tobacco taste."
So again this idea, even in this time period, the idea of -- of health
-- of health reassurance addressing the health issue that's in the mind
of the consumer potentially.
Q. And does he at that same point, then, talk about
the overall themes in the advertising during this period?
A. He does, basically talking about the -- the --
the themes that need to be -- need to be developed in terms of providing
to this younger and lower socioeconomic groups and so forth. And then he
goes on to say at the bottom of the page there that the marketing implications
of all this are that, at point B, as anti- smoking arguments become more
serious, each brand's advertising will have to become more directed and
specific in order to overcome opposition and give specific justification
to its franchise for continuing its use.
Q. And if we go on to the next page, does he talk
about what good advertising copy will have to include?
A. He does. Right at the -- right at the very top
of that page he talks about how good advertising copy will have to be consistent,
you know, which is something we -- we saw yesterday, appeal to various
segments by focusing on specific concrete promises and focus on the end
benefit the brand supposedly provides rather than the process or the manner
in which it delivers it. So what's the benefit that you're going to receive
as a consumer from using my brand.
Q. Now in point number four, does the author then
expand beyond advertising and address the issues that you've been discussing
in Exhibit 30225, the total marketing and communications program?
A. Right. It -- exactly. So what -- what he says
there is that in line with these targeted marketing efforts, the really
successful brands are going to build, as he says, their complete marketing
program. So this goes back to our total marketing and communications program
that we've talked about that -- that will build that entire marketing program
by extensive use of premiums, contests, sponsored events, all reinforcing
the basic image of the brand. And he's also noted in this document that
good timing of new product introductions will pay off.
So taking the product strategy and the communications
strategy together and building the total marketing and communications program
is what's going to be successful here.
Q. And in number five, then, does he talk about
the specific implications for a brand like Raleigh, and set forth various
points concerning that, carrying over onto the next page?
A. Right. He's basically saying with Raleigh, for
specific implications for a brand like Raleigh, you should continue to
point out the brand's strong points, you should create an image that's
consistent with the lifestyle of a narrowly defined audience. So this is
going to the point of consistent with what the audience wants, really understanding
your target market as we talked about. Reinforce the brand image created
in our advertising by offering premiums and sponsored -- sponsoring other
events that appeal to the target audience. So this is sort of integrating
all of the elements of the communications plans.
*27 And then over on the next page he says that
the next thing we should do is we should do brand line extensions, taking
advantage of what's been established with the brand already, but in order
to get flexibility to meet the slightly different needs of our target audience.
Q. Now professor, can you direct your attention,
then, to Exhibit 13787. It is just a couple in front of that exhibit.
A. Right.
Q. This is --
This is another B&W document that was introduced on Document Day
One, it's Exhibit 13787, and this document is dated July 1, 1983, or approximately
seven years after the previous B&W document that you just went over.
A. Right.
Q. First of all, can you tell us what is being reported
there in the background section of this document?
Before you do that, let me just identify some of
the people as they've been identified by the defendants.
Mr. Blott, who this is directed to, was the senior
vice- president of marketing; Mr. Domantay, who received a carbon copy,
is a vice-president of brand management; and the author, Mr. Ward, is promotions
manager. And the subject "RALEIGH/BELAIR COUPON STRATEGY."
Can you describe, then, sir, what is being reported
in the background section.
A. Sure. We're -- we're down now to a very specific
element of their total marketing and communications program, and they're
saying what -- what is the role that couponing can play? And there's a
couple different kinds of coupons. You know, one would be the one-dollar-off
coupon that you -- you know, for three packs that you give in, but this
is the kind of coupon that you collect over time and then once you've accumulated
so many, you trade in the coupons for -- for a gift. And so that's the
kind that this -- the second of those two is -- is the kind that's being
spoken about here.
So the first thing they're doing in this document
is saying, basically, looking at my target market for these coupons, let
me -- let me sort of draw out what the -- the situation that these people
face. What is the role that couponing can -- these coupons can play for
them? So that's the first part of the discussion here down at the bottom
of the page when it starts to talk about its current Raleigh and Belair
franchise which they're trying to retain rather than have them quit smoking
cigarettes and move out of the -- out of the market.
So they're saying on the economic dimension, both
the Raleigh and Belair franchises have very low incomes, so this expenditure
on cigarettes represents something significant to them. They undoubtedly
feel they must make every penny count. They lack self-confidence. They
still need to smoke a brand image while they retain extra value.
Then they go -- the document goes on on the next
page to amplify on the characteristics and the feelings of the Raleigh
and Belair smoker. They're saying this Raleigh and Belair smoker is very
family- oriented but they have low self-esteem. They tend to deny themselves
pleasure. And they redeem their coupons for household items more so than
personal items to reinforce their sense of sacrifice. They have a feeling
that they're not worthy of self- indulgence. So if they're redeeming these
coupons for something for the family, they can feel less guilty, and that's
really what point three is all about, these coupons are a method of guilt-reduction.
*28 Now one way to reduce your guilt about smoking
and taking this money away from your family that needs it would be to quit
smoking, but as it says in point three here, it says Raleigh and Belair
smokers are addicted to smoking. So a way to assuage their guilt while
they continue to smoke is to give them these -- give them these kind of
coupons.
So they go on and talk about the depression mentality
and how both -- point five there, that both brands' franchises skew to
older traditional values, these people tend to not be very optimistic,
they need control in their lives and so forth. So basically what's -- what's
being set out here is how this one specific element, they're using this
one specific element and an in-depth understanding of their target market
to formulate a program in a way which is going to reduce the guilt of these
people, reassure them that it's okay because they can't quit because the
nature of the product is -- is keeping them from quitting because, it says
right here that the Raleigh and Belair smokers are addicted to smoking.
Q. Now professor, I want you to assume that Mr.
Schindler, the CEO of RJR, testified here that he did not have any data
to confirm that low tar/low nicotine cigarettes were safer, and he was
not aware of any such data that the industry has. Did you, in your
review of the defendants' documents, find any indication that they had
data that would confirm that low tar/low nicotine cigarettes were safe?
A. No, I saw no data that would show that low tar/low
nicotine cigarettes were safe.
Q. Can you direct your attention now to some of
the advertising that was done by the defendants. I'd like to direct you,
first of all, to Exhibit 6609, which would be in volume one. Now we're
going to span a number of decades here, professor, with these advertisements.
A. Okay.
Q. First all, did you review 6609?
A. I did.
Q. Does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 6609,
which is a Brown & Williamson ad for Viceroys.
MR. BLEAKLEY: Your Honor, we do object to this exhibit.
This is a 1954 ad which predates any of the issues in this case. 1952 ad,
I'm sorry.
MR. CIRESI: It relates directly to the statements
made in 1953 and 1954 by the industry, Your Honor, specifically in Exhibits
18904, 18905, Hill & Knowlton documents regarding what the industry
knew, and then following up to what they actually said in the Frank Statement
in -- on January 4th, 1954.
THE COURT: All right. The court will receive 6609.
BY MR. CIRESI:
Q. And can you describe, sir, what is being depicted
in this ad.
A. Yes. As was mentioned a moment ago, this is a
Brown & Williamson ad in 1952, and, you know, the headline is about
as straightforward as it -- you can get. It basically says "Filtered Cigarette
Smoke Is Better For Your Health," period, end of sentence. Right. So it's
a very explicit health claim. So it's just straight out, straight at you.
*29 And then they say, okay, the reason -- and then
they offer some justification. They say "Viceroys filter your smoke," and
then down in the bottom the copy reads "Yes! The Nicotine and Tars Trapped
by the VICEROY FILTER Cannot Reach Your Throat or Lungs. Viceroy filters
your smoke. Buy them by the carton!" So this is a point in time when the
health claim is extremely explicit, and we'll see later on the health claims
become more implicit than explicit. But this was a stage in -- in the history
of the industry where explicit health claims were being made.
Q. Can you direct your attention now to Exhibit
19875, which would be in volume two.
Is this another document that you reviewed?
A. It is.
Q. And does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 19875,
a Brown & Williamson 1953 ad for Viceroy.
MR. BLEAKLEY: Same objection as to the prior one,
Your Honor. This is 1953, before any of the issues involved in this case,
and therefore is not relevant.
MR. CIRESI: Same statement, Your Honor.
THE COURT: All right. The court will receive 19375
-- 875, excuse me.
BY MR. CIRESI:
Q. Can you describe what is depicted in this ad
for Viceroy.
A. Yes. This is an ad from 1953, a year later than
the ad we -- we saw a moment ago, and again you see the very explicit health
claim is saying that the "New KING-SIZE Viceroy Gives DOUBLE- BARRELED
HEALTH PROTECTION." So what's going on here is we've got a product line
extension. In the last ad we just had Viceroy filter tip cigarettes, and
now we've got King Size Viceroy filter tip cigarettes. So they're saying
you get this double-barreled health protection, the first part of that
being as shown there in point number one, "Viceroy's Amazing HEALTH-GUARD
Filter - 18 percent Longer than OLD-STYLE FILTERS," and secondly, "PLUS
KING-SIZE LENGTH! Viceroys Now Are 21 percent Longer - to Filter the Smoke
Still Further!" And then the copy goes on and it says, you know, that it
costs only slightly more than small-size brands with -- small- size brands
without filters. So again, it's a very explicit - - explicit health claim,
and providing some seeming justification for the health claim by saying,
well, we're longer and we've got a better filter than -- than before.
Q. And professor, can you turn now to the exhibit
right before that, which is Exhibit 18905. It is a Hill & Knowlton
document that has been introduced into evidence already and the jury has
already seen this document. It's dated December 15th, 1953. It's entitled
"BACKGROUND MATERIAL ON THE CIGARETTE INDUSTRY CLIENT."
And if you could direct your attention, please,
to page three of that document, which is within the section of the document
which is entitled "Responses to Questions," which meant that the industry
was asked certain questions by the Hill & Knowlton agency, I'd like
to direct your attention to the second further indented paragraph starting
"Do the companies...." Do you see that?
*30 A. I do.
Q. All right. "Do the companies consider that their
own advertising and competitive practices have been a principal factor
in creating a health problem?"
"The companies voluntarily admitted this to be the
case even before the question was asked."
Do you see that?
A. Yes, I do.
Q. Now these ads that we just looked at, they were
ads that were published prior to December 15th, 1953; correct?
A. Just immediately prior to that, right before
that time period, yes.
Q. Thank you.
Could you turn your attention now to Exhibit 13422,
which is another Viceroy ad. Excuse me, a Viceroy -- a Brown & Williamson
document regarding Viceroy.
A. Right.
Q. This is a 1985 document. Have you reviewed this
document, sir?
A. Yes, I have.
Q. Does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we would offer Exhibit 13422.
MR. BLEAKLEY: No objection, Your Honor.
THE COURT: Court will receive 13422.
BY MR. CIRESI:
Q. Now this is a historical memorandum of Brown
& Williamson regarding the Viceroy cigarette; correct?
A. That's correct.
Q. And it has certain time periods by which it is
described the type of advertising that was done during that time period
for the Viceroy cigarettes?
A. Right, that's correct.
Q. The first period is 1936 to 1945.
A. Uh-huh.
Q. That's on page one.
A. Right.
Q. The second page, 1946 to 1956.
A. Right.
Q. If you could, with regard to that period, would
you direct your attention to page two, the second-to-the-last paragraph,
and please describe for the jury and court what is being reported at that
point regarding advertising in the '46 to '56 time period.
A. Well this specific paragraph refers to the success
of the advertising copy which we saw offering the double-barreled health
protection, and so they say that in 1953, the demand for Viceroys went
well beyond our production capacity. We couldn't produce enough of the
things. Because why? Well we had the new filter, we had the King Size,
and greatly increased public attention to the health aspects of smoking.
Once again we see this terminology about exploitation.
"Viceroy advertising exploited this to the fullest extent as 'double-barreled
health protection' copy, which introduced the new King Size Viceroy, and
was backed up with factual evidence of the nicotine and tar reduction offered
by Viceroy." So it's just reflecting on how successful this particular
campaign and this health reassurance was.
Q. Professor, could you now turn to Exhibit 6641.
We'll look at some representative ads from the '60s.
MR. BLEAKLEY: Excuse me, counsel, what was that
exhibit, please?
MR. CIRESI: 6641.
BY MR. CIRESI:
Q. Is this a document that you reviewed, sir?
A. It is.
Q. And does it form part of the basis of your opinion?
A. Yes, it does.
Q. Is it representative of other of the defendants'
documents?
A. It is.
*31 MR. CIRESI: Your Honor, we'd offer Exhibit 6641.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 6641.
BY MR. CIRESI:
Q. Now they're a little faint, professor, and I
understand that, but let's deal with it as best we can.
A. Okay.
Q. This is a Lark advertisement, and Lark was sold
by Liggett; correct?
A. That's correct.
Q. Okay. Can you describe what's being depicted
here during this era.
A. Well basically what's being depicted here is
-- you see in the little box there, it's saying that Lark has a gas-trap
filter, it's got a tar and nicotine filter number one, and then a gas filter,
and then a tar and nicotine filter number two, and what this filter does
is it makes -- it makes Lark cigarettes the pack- a-day smoker's best friend.
So --
And then the copy down at the bottom, which you
can only read if your eyes are a heck of a lot better than mine, says "Do
you smoke more than you like? Then maybe you should get with a cigarette
that's got a filter that does more than most filters are supposed to."
Okay. So it's -- so it's basically offering this reassurance. You've got
a friend in this cigarette brand because of the filter that we put in here,
and this friend will protect you, and this friend reassures you that it's
okay and offers you piece of mind.
Q. If you could direct your attention to Exhibit
11028, which is a report on a visit to the United States by people from
the tobacco industry in England where they visited a number of companies
and institutions, including Liggett & Myers, and this -- these visits
took place on April 17th through May 12th, 1958.
Have you reviewed this document?
A. Yes, I have.
Q. Okay. And if you turn to page two of the document,
which has the itinerary, and you'll see Liggett was visited on April 23rd.
A. Yes, I -- I see that.
Q. And Mr. Darkins -- Darkis, excuse me, and Mr.
Pates were visited; is that correct?
A. Yes.
Q. And I should correct myself, it's Dr. Pates and
Dr. Darkis.
A. Uh-huh.
Q. Okay. If you turn to the next page then, sir,
it's talking about causation of lung cancer, and it's reported here that
"With one exception," and that's Mr. Greene, who was from Yale, "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."
Now sir, did you see any ads of Liggett or any of
the other defendants that said that smoking causes lung cancer?
A. No, I did not.
Q. Can you direct your attention now to Exhibit
6643, which is another Lark ad, and have you reviewed this document, sir?
A. Yes, I have.
Q. And does it form part of the basis of your opinions?
A. It does.
MR. CIRESI: Your Honor, we would offer Exhibit 6643.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 6643.
BY MR. CIRESI:
Q. Now the picture itself cannot be made out, but
we're interested over here in the text, if you could, professor.
*32 A. Yes, uh-huh.
Q. It states "RELAX WITH LARK."
A. Uh-huh.
Q. "When you've done the whole job as best you can,
you're able to put your feet up with full peace of mind. And Lark does
the job like no other cigarette -- no other cigarette ever invented." Then
down at the bottom, "No! Lark isn't perfect. But it lets you have a lot
less on your mind."
What message was being delivered by this type of
advertising?
A. Well I think it goes back to where we started
with looking at the BATCo documents a little while ago, talking about,
you know, the major theme as we move into the -- this time period because
of a health concern was going to be product reassurance, and there's a
health concern and a health reassurance, and basically we once again have
an ad which cites the gas-trap filter as saying, look, this gas-trap filter
offers you the benefit of having not to be concerned. So relax, it lets
you have less on your mind. And, you know, it basically offers you -- offers
you peace of mind because it offers you reassurance that it's okay to continue
with smoking. You don't have to quit.
Q. Was this ad representative of other types of
ads during that time period?
A. It was.
Q. Can you direct your attention now to Exhibit
10602, and that's in the same volume, professor.
A. Yes. Thank you.
Q. Now before we discuss that document, in your
previous testimony you mentioned that one of the objectives was to keep
people in the market.
A. Right.
Q. And that was accomplished, in part, through line
extensions; is that correct?
A. That's correct.
Q. All right. Exhibit 10602 is a B.A.T document;
correct?
A. Yes, it is. Uh-huh.
Q. And it's one of the documents that you reviewed?
A. Yes. Yes, it is.
Q. And does it form part of the basis of your opinions?
A. Yes, it does.
Q. And is it representative of other of the defendants'
documents that you reviewed?
A. It is.
Q. Okay. Can we direct your attention, then, to
page one. First of all, this is a document of a conference; is that correct?
A. I believe so, yes.
Q. If you can direct your attention to page 583
-- that's the last three Bates numbers.
A. Okay.
Q. And this is entitled "DISCUSSION NOTE, SMOKING
AND HEALTH."
A. Right.
Q. Now you mentioned, professor, previously in your
testimony that in the -- in the '50s, there were explicit health claims,
and then it moved -- the advertising moved to implicit health claims.
A. Right.
Q. Is that correct?
A. Yes, that's what I said.
Q. Does this document reflect that type of movement?
A. It -- it does. If you look down at points 14
and 15, what the document says is that "On legal grounds" -- and then somebody
has written in, I believe it's "alone" -- "On legal grounds alone, it will
continue to be to the industry's advantage not to make explicit health
claims," not to make the kind of claim that we saw in the Viceroy commercial
advertisement, for example. But then point 15 is that "The industry will
make increasingly competitive use of products for which health claims are
implied."
*33 So we're not moving away from health and health
reassurance, but we're just moving from explicit claims that this product
is better for you to an implicit representation of the same thing.
Q. And the date of this document was May 3rd, 1974;
correct?
A. That's correct.
Q. If you'd direct your attention now to page 599
of this document. Now the title of this is "SMOKING AND HEALTH;" correct?
A. Yes, it is.
Q. Okay. And under "ASSUMPTIONS" and "HEALTH CLAIMS,"
the two points that we just saw back on page 583 are made again; are they
not?
A. That's correct. Those are some -- same two points
we just -- we just covered.
Q. And if you move over again to the second column,
it's "POLICIES," and what's reported there?
A. Well it's saying what BATCo's policy is going
to be is, number one, not to make explicit health claims, and to, number
two, discourage unsupportable health claims from any source.
Q. And then for the "GUIDELINES," can you move over
to that column. Is there reported there the fact that BATCo was going to
seek the agreement of the industry with regard to this policy?
A. Right. They're basically saying, you know, we
should get everybody -- see if we can get everybody to go along with this,
to seek the agreement of the industry and suppliers in basically not making
health claims for their products.
Q. And during the period of the 1970s and '80s,
was there a consistency in the advertising of the defendants?
A. There -- there was.
Q. Okay. And with respect to health reassurance,
was there a consistency to it?
A. There -- there was in the -- in the sense that
there was -- we did see this movement from explicit health claims into
implicit health claims, and -- but consistently offering the -- the reassurance
that we've talked about.
Q. Can you direct your attention now to Exhibit
10193. It's back a few documents in the same volume, professor.
A. Okay.
Q. This is a Lorillard 1976 switching study summary
that was introduced on Document Day One. Did you review this document?
A. I did.
Q. Does it form part of the basis of your opinion?
A. It does.
Q. Is it representative of other of the defendants'
documents which address the same subjects?
A. Yes, it is.
Q. Can you direct your attention, first, to page
484.
A. Uh-huh.
Q. And does it show that this was prepared for Lorillard
and produced by Lorillard by Marketing Corporation of America?
A. Right. And they're -- they're basically a market
research firm.
Q. And can you turn, then, to the next page, page
485, which is the confidential memorandum of Mr. R. E. Smith, who was vice-
president of marketing, to Mr. J. R. Ave, head of marketing and who became
president of Lorillard in 1985. And this is dated November 30th, 1976;
correct?
A. Yes, that's correct.
Q. And can you tell us what is of significance on
-- on this page, professor?
A. Well basically this is an internal memorandum
which is agreeing with the conclusions that their market research agency
has drawn, and basically at point number one here they're saying that the
five-year plan of -- of Lorillard to focus the company's efforts against
smokers' health concerns, Mr. Smith is sort of agreeing with that, agreeing
with that plan. And then he notes how low tar and nicotine brands, in that
little indented bullet point there, seem to be satisfying smokers' intellectual
T&N, tar and nicotine concerns. And then he talks -- talks about positioning
the Lorillard brands that -- to directly address the smokers' health concerns.
*34 Q. And can you turn to page 6498, which is the
conclusion section of this document, and what if anything with regard to
the implied health claim issue is significant on this page?
A. Well I think what's important is that they are
developing brands. In point number one here, they're talking about focusing
marketing and R&D against brands which are responsive to the cigarette
controversy. And that is --
Q. And let me ask you something, professor.
A. Sure.
Q. And is that --
Does the first introductory sentence there relate
to results from research?
A. Right. Right. From this research, which is the
research that has been reported in this document that we just sort of jumped
over, the -- the -- the one -- the research which is done by the marketing
research company for the firm.
Q. All right. Please continue then.
A. Right. So it's just saying that, you know, the
-- the research fully supports the idea that Lorillard has the strategy
that they have to really go against these brands which are responsive to
the cigarette controversy, and "the cigarette controversy" meaning the
-- the health issues that had been raised about cigarettes.
Q. And point two states what then?
A. Well they're saying that a -- another part of
the strategy, then, is to concentrate on fundamental innovations and products
which address specific consumer problems and -- and need to protect their
existing business, and then they talk about the specific moves underway
for both their established and their new brands.
So one of the brands that they have is True cigarettes,
which I believe at this time is something in the 10-milligram range, it's
something higher than five milligrams anyway, so they're talking about
restaging through in the five- milligram range and then rapidly developing
new products, and then restaging their Kent brand around lower tar and
nicotine numbers. So increasing its ability to attract new -- new users
from -- from other -- smokers from other brands.
Q. And if you go over to page 499, do they have
listed there major findings supporting the overall conclusions?
A. Yes, they do. On point number one, again they
use this terminology of these low tar and nicotine brands being brands
which are addressing the cigarette controversy, meaning that they're addressing
the health issues, and they have a list there of the -- of the major brands
-- some of the major brands that are in this segment of the market. You've
got your two line extensions there of Marlboro Lights and Winston Lights,
you know, the parent brand being -- let's just take Marlboro, the parent
brand being Marlboro, and then the extension into a lower tar and lower
nicotine version of Marlboro, but extending the Marlboro brand name over
into that - - into that segment. And then same thing with Winston by RJR.
Then we have Merit, which is Philip Morris's new-product
introduction into the low tar/low nicotine segment. Then we have Vantage,
which is RJR's. Then we have, it says "Carton," but I assume that means
-- that should be Carlton, which would be American Tobacco's. And then
-- and then we have these other new brands, the True, which was just mentioned
here in this -- in this document of -- of Lorillard's, and then we have
Doral and Now, which, if memory serves me, are both RJR new brands in --
in the low tar/low nicotine segment.
*35 Q. And if we go over to the next page, is there
a reference there to the ability to attract smokers by these line extensions
or new products in the health reassurance field?
A. Right. It -- it's basically saying that the --
the -- up right at the top of the page, that these cigarettes which address
the -- the controversy, the cigarette controversy, have a demonstrated
ability to draw business from all segments of the market. And then down
in -- in point three it's saying the volume has grown for brands which
address the cigarette controversy. Major segmentation opportunities have
emerged. So it's this idea that what's going on with the people's health
concerns is creating an opportunity for the cigarette manufacturers.
Q. Very good.
THE COURT: Counsel, we'll recess at this time, reconvene
at 2:00 o'clock.
THE CLERK: Court stands in recess, to reconvene
at 2:00 o'clock.
(Recess taken.)
THE CLERK: All rise. Court is again in session.
(Jury enters the courtroom.)
THE CLERK: Please be seated.
THE COURT: Counsel.
MR. CIRESI: Thank you, Your Honor.
Good afternoon, ladies and gentlemen.
(Collective "Good afternoon.")
BY MR. CIRESI:
Q. Good afternoon, professor.
A. Good afternoon, Mr. Ciresi.
Q. When we recessed this morning, we were discussing
the total marketing/communications campaign during the '70s when it moved
from more of explicit to implicit messages with regard to health reassurance.
Do you recall where we were, sir?
A. I do.
Q. Can you direct your attention in volume one to
Exhibit 7382, which is a True ad from Lorillard in 1975. Is this one of
the documents that you reviewed in preparation for your testimony?
A. I did.
Q. And is it one of the documents that you rely
in part on for your -- basis of your opinions?
A. It is.
MR. CIRESI: Your Honor, we'd offer Exhibit 7382.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 7382.
BY MR. CIRESI:
Q. Sir, this is a Lorillard ad for True cigarettes.
Down in the right-hand corner, it's difficult to make out, but you'll see
that it ran in Family Circle.
A. Right.
Q. Can you describe what's being depicted in this
ad.
A. Well I think this -- this is an ad which -- which
is a health reassurance ad in the sense that it explicitly positions True
as a substitute for quitting. So we have a picture of a woman here and
she's reflecting back and said, "I thought about all I've read and -- and
said to myself either" I am going to quit or I'm going to smoke True. So
I'll either leave the market or, because no -- because now True is here,
I smoke True. So for this woman, she's had this health concern, I -- I
believe that's what the "I thought about all that I'd read," and now it's
basically saying it's either quit, either leave the market, but no, I'll
stay in the market because True is available, so I can smoke True.
Q. Okay. And can you direct your attention to Exhibit
7069, which is an ad that was introduced during Dr. Hurt's testimony. It's
also in volume one. Is this another ad that you've reviewed?
A. Yes, it is.
Q. And does it form part of the basis of your opinion?
A. It does.
*2 Q. And what is the message that's being delivered
here?
A. Well pretty much just the same. It's a shift
from a female in the ad, obviously, to a -- to a male, and it appears to
be a locker room at a golf course, and basically the -- the person says
pretty much the same thing, I -- "I'd heard enough to make me decide one
of two things," either I'm going to quit, I'm going to leave this market,
or I'm going to stick in the market because True -- True is available,
this low tar/low nicotine cigarette. Think about it. And now with low tar/low
nicotine, the person is saying, I was going -- you know, the alternative
was to quit, but now I'm going to smoke True, so stay in the market.
Q. Okay. And can you direct your attention now to
Exhibit 7498. 7498. And that's also in volume one, professor.
Do you have that?
A. I do.
Q. All right. Is this another ad that you've reviewed?
A. It is.
Q. And does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 7498.
MR. BLEAKLEY: I don't have a copy of that, counsel.
Can you let me see a copy?
(Document handed to Mr. Bleakley.)
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 7498.
BY MR. CIRESI:
Q. Is this another ad directed toward keeping smokers
in through the health reassurance message?
A. Yes, it is. It's similar to the previous two
that we looked at -- looked at with this woman depicted in the ad saying,
you know, "All the fuss about smoking got me thinking," and once again,
it's either -- either I'm going to leave the market, I'm going to quit,
or I'm going to smoke True, and she says I stay in the market, "I smoke
True."
Q. Now are these ads representative of the message
that you found in the defendants' documents with regard to health reassurance
that was being given to the public by the industry in its total marketing
and communications programs?
A. Yes. With respect to the general theme of health
reassurance, yes, they are representative.
Q. Were these Lorillard ads of True some of the
more explicit ones in the health reassurance area?
A. Well they're more explicit in the regard of very
clearly positioning the brand as an alternative to quitting. So they were
most explicit in terms of using quitting as an option, mentioning quitting
as an option in the ad, and offering True as an alternative to leaving
-- leaving the market.
Q. Can you direct your attention to Exhibit 7694,
which is a Merit ad.
A. Right.
Q. That would be the next exhibit in the book.
A. Uh-huh.
Q. And is this one of the documents that you've
reviewed with regard to your opinions?
A. Yes, it is.
Q. And does it form part of the basis of your opinions
in this case?
A. Yes, it does.
Q. And is it representative of documents of others
of the defendants in this case?
A. Yes.
MR. CIRESI: Your Honor, we'd offer Exhibit 7694.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 7694.
*3 BY MR. CIRESI:
Q. And this is an ad relating to Philip Morris's
Merit and it's in 1976. Can you describe what is of significance in this
ad with regard to the health reassurance message.
A. Uh-huh. Well this is Philip Morris's bringing
out a new brand to participate in the low tar/low nicotine segment, and
basically what they're -- what they're claiming here is that now with Merit's
entry into the market, it has enriched flavor and it - - it gives the same
taste as -- it gives a better taste than the other low tar brands that
-- that are in the marketplace. So basically it's saying the reason is
enriched flavor and extraordinary taste developed and perfected in our
research after - - I guess the years of research at our Richmond Research
Center. So it's saying, look, we made this technological development offering
this enriched flavor, and it's -- it has the taste of cigarettes that have
a lot more -- a lot more tar.
And then over on the -- the right-hand paragraph,
you can see that it says, up at the top there, "Even if -- Even if the
cigarette tested had 60 percent more tar than MERIT, a significant majority
of all -- of all smokers tested responded new, quote, "Enriched Flavor"
MERIT delivered more taste." And then it just goes down a little bit and
it says, "You've been smoking 'low tar, good taste' claims long enough.
Now smoke the cigarette" that delivers both good taste and low tar.
Q. And can you direct your attention, then, professor,
to Exhibit 8578, which is another Philip Morris ad from two years later,
a 1978 ad. Is this another document that you reviewed and which forms part
of the basis of your opinion in this case?
A. Yes, it is.
Q. And is it representative of other of the defendants'
documents in this case?
A. Yes, it is.
MR. CIRESI: Your Honor, we'd offer Exhibit 8578.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 8578.
BY MR. CIRESI:
Q. Again, professor, with respect to the health
reassurance message, can you describe what if anything is significant in
this ad.
A. Well it's, again, talking about the best move
being the move down to a lower-tar cigarette, and basically it's saying
that here is -- here is an alternative to switch from a high tar cigarette
down to a low tar cigarette and not have to give up the taste. And so it's
-- it's basically talking about the National Smokers Study that they've
done, the overwhelming majority of Merit smokers say their former high
tar brands weren't missed, and so it's an easy switch; 85 percent of Merit
smokers say it was an easy switch from high tar brands. And then it bills
Merit, over in the other column, as the first major alternative to high
tar smoking.
Q. All right. And can you now direct your attention
to Exhibit 8931, which is the last Merit ad that will be presented. Is
that a document that you reviewed and does it form part of the basis of
your opinion in this case?
A. It does.
Q. And is it representative of other of the defendants'
messages that were given with regard to health reassurance?
*4 A. Yes, it is.
MR. CIRESI: Your Honor, we would offer Exhibit 8931,
a Philip Morris ad for Merit.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 8931.
BY MR. CIRESI:
Q. Professor, can you tell us what is significant
in this ad with respect to the health reassurance?
A. Well it's basically offering the opportunity,
it's saying you can switch down to lower tar and still get satisfying taste.
So here -- here's the picture of a woman sort of celebrating this ability
to do this. And then you see that there's three different kinds of packages
listed, and what we see here is the brand extension strategy that we talked
about a couple times. We've got - - on the left are Merit as they first
came out, they're low tar, and then we have Merit, I believe it's Ultra,
which are lower tar, and then Merit Ultima, which are lowest tar. So we
have the product-line-extensions strategy or expansion strategies under
the -- under the brand name.
And then you can also see down on the bottom of
the ad that there is a promotion offered within the advertisement, offering
one dollar off on a carton or a three-pack purchase, good on any one of
the three styles of Merit that's -- that's mentioned in the advertisement.
Q. Now under the cigarette packs themselves, that
is difficult to make out on the screen, that's low, lower and lowest?
A. Right, low, lower and lowest. That's correct.
Q. Can you direct your attention now to Exhibit
15610, which is a Vantage ad, and it's in volume two, professor. This is
an RJR ad for Vantage.
Is this one of the documents that you reviewed in
this matter?
A. Yes, it -- it was.
Q. And does it form part of the basis of your opinion?
A. It does.
Q. And is it representative of others of the defendants'
documents with regard to the message on health reassurance?
A. Yes, it is.
MR. CIRESI: Your Honor, we'd offer Exhibit 15610.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 15610.
BY MR. CIRESI:
Q. Maybe if we can see the full ad first, then we'll
move back to -- all right.
If we could start, then, at the top, professor,
and can you take us through this ad and point out what if anything is significant
with respect to the health reassurance campaign.
A. Okay. It's basically starting out, as you see
at the top, it's saying, you know, anyone who's old enough to smoke is
old enough to make up his own mind. So, you know, there's a decision for
you to make here. And basically what it does, I think the significant part
of this, from -- with respect to health reassurance, is they're talking
about this what was a new product introduction several years earlier for
-- for R. J. Reynolds' new Vantage brand which we saw in that Hilton Head
presentation you may recall from this morning, and it says, "Vantage gives
you real flavor, like any high 'tar' and nicotine cigarette you've ever
smoked, without the high 'tar' and nicotine." And then the important part
of this text being "And since it is the high 'tar' and nicotine that many
critics of cigarettes seem most opposed to, even they should have some
kind words for Merit" -- I -- I'm sorry, "for Vantage."
*5 So the idea is that we've got lower tar and nicotine,
we've taken the bad things out, and consequently even the people who have
been opposed to this kind of thing, we -- we're offering a -- a -- more
reassurance and a benefit in Vantage cigarettes.
Q. Now if you go to the second paragraph of the
ad, it says, "If you don't smoke, we aren't -- aren't going to try to get
you to start." Do you see that?
A. I do see that.
Q. Is that an accurate statement?
A. No, I don't believe so.
Q. Is it even accurate with regard to Vantage itself?
A. No. Because as we saw this morning in the --
in the Hilton Head presentation, if you recall, it said Vantage has shown
the ability to attract -- to attract new and younger smokers, and then
there's an adjustment of the marketing plan to -- to take advantage of
that potential. And so this was best seller -- you know, one of the 10
best sellers in Harvard Square brand that we saw had this morning.
Q. All right. Now these ads were run into late 1972.
Do you see that at the bottom? It's difficult to make out.
A. Right, I do -- I do see that they were widely
run in the late -- in the latter part of 1972, it appears.
Q. Right. It's in the handwritten portion. That's
what I wanted to show.
A. Right. Right.
Q. Now can you go to Exhibit 13 -- I'm sorry, 12493,
which was the RJR presentation to the board. That's in volume one, sir.
A. Right. I have it now.
Q. And as you recall, that was presented to the
board on September 30, 1974. Do you recall that?
A. I do.
Q. And if you can turn to page 1316, that's the
last four Bates numbers of that exhibit, and the second bullet point there,
"New and younger smokers. Field sales reports Vantage has pockets of strength
on college campuses (e.g., in the book store at Harvard Square, Vantage
is among the top 10 sellers, 15th nationally)."
A. Uh-huh.
Q. And then it states, "Ad spending has been increased
in '75 with more targeted efforts against young adults to more fully exploit
this potential."
A. Right.
Q. Was that what you were just referring to with
respect to Vantage?
A. Right, that -- that's exactly what I was referring
to. In the sentence that -- that comes -- we don't have to go to the previous
page, but the last -- the sentence that leads into this, it says, "Vantage
has shown the ability to attract, colon," you know, bulletpoint one and
bullet point two. So that's exactly -- this is exactly what I was referring
to.
Q. All right. We'll put that up on the board. And
that's -- that paragraph that's up there right now, "Vantage with its fast
growth rate...?"
A. Right, it's -- it's just the last line on that
-- on that page, that "Vantage has shown the ability to attract,"
and then colon, and then, right, the "Significant numbers" and the -- the
"new and younger smokers."
Q. Now professor, the ads that we've looked at,
were they representative and consistent with the messages of the other
defendants with regard to health reassurance?
*6 A. Yes, they were.
Q. And were the ads consistent over time in presenting
a health reassurance theme?
A. Yes, they were.
Q. Can you direct your attention to Exhibit 12242,
which is an RJR document that was admitted on Document Day One, and it
bears the date of August 5th, 1980. And that would be in volume one, sir.
A. Yes, I have it.
Q. And is this a document that you reviewed with
respect to preparing for test -- for testimony in this case?
A. Yes, it is.
Q. And does it form part of the basis of your opinions
in this case?
A. It does.
Q. And does it address the health reassurance issues?
A. It does introduce the health reassurance issues,
yes.
Q. All right. If we could direct our attention first
to the top, we see that it says "RJR SECRET." Do you see that?
A. I do.
Q. And the subject is "Project HR?"
A. That's correct.
Q. And then over on the right-hand side there's
some handwriting that says "Please do not circulate or copy." Do
you see that?
A. I do see that.
Q. And on the very last page, Mr. Shannon, who is
the author of this document, states that "Because of the nature of the
information presented in this memo, it should be treated as highly confidential."
Do you see that?
A. I do, uh-huh.
Q. All right. Now if you direct your attention back
to the first page in the very first paragraph, does it describe project
HR?
A. It does, describing it as an interdepartmental
effort serving vital, immediate needs of the company.
Q. And in the second paragraph, then, does it state
its mission?
A. It does. That it -- it's to -- the product --
project HR is to develop a new solo ULT -- I believe would mean Ultra Low
Tar product -- in the three- to five-milligram tar range. I -- I'm not
certain what "solo" means. I -- I would -- I would imagine -- my -- my
best judgment on what it means is that it's a -- it's a new brand as opposed
to a brand extension, but I can't be certain from -- from what's written
there.
Q. And if you go down in that paragraph, you'll
see that it states, "The project represents a unique attempt to incorporate
representatives from TDD, MRD, Research, Marketing, and NPI, paren, (advertising
consultants) into a 'core team' that works together to develop all phases
of the new brand. Concepts, appeal, and advertising ideas have been involved
over -- have been evolved over a period of time as a result of in-depth,
one-on-one interviews with ULT smokers."
A. Right.
Q. Do you see that?
A. Right.
Q. Now first of all, when they're talking about
the -- the brand concept's appeal and advertising ideas, are they directing
their attention to some of the total marketing communication aspects that
you've discussed?
A. Right. I mean this -- this is a -- as -- as they
say, this is an inter -- interdepartmental effort, so we're really hitting
on the product design and -- and all of the -- what's going to be the basic
appeal of this -- of this project -- product. And what they're doing here
is where you see that they're -- that the concepts have evolved as a result
of in-depth, one-on-one interviews, what they're doing is -- we see a lot
-- there's a lot of surveys that are done where somebody would call you
up on the telephone or come to your house, perhaps, and they would ask
you things like, "Well, do you smoke?" And you say yes/no. And "How old
are you?" And "What is your income?" Well these in-depth interviews really
try to probe much more deeply than you get with simple questions and answers.
*7 So an in-depth interview really is done by a
-- usually a highly trained person who will really have a long, extended
discussion, really trying to get at the deeper motivations, maybe ones
you would not even articulate yourself if you are asked in a typical survey
questionnaire. So this is their effort, really, to get at the underlying
motivations of people in this segment of the market.
Q. And with respect to characterizing the HR target
smoker, is there a section in the memo starting at the beginning of page
one which deals with that subject?
A. Yes, there is.
Q. And again, in the middle of your illustrative
Exhibit 30225, you've got the targeting of the customers; is that correct?
A. Right. That's right. So we're talking here about
the person who will be the target for their efforts.
Q. And can you describe what their in-depth, one-on-one
interviews disclose to RJR with regard to this target smoker?
A. Yes, I can. Basically, first of all starting
out with some demographic information that they're educated, upscale and
over 35 years old and of both genders, but in terms of their motivations
they are very health-conscious, they are well aware of the smoking-and-health
controversies, and they have switched to ultra low tar -- ultra low tar
products in an effort to decrease their tar intake. They feel that the
-- their in-depth interviews have revealed to them that these people are
victims of pressure from peers and loved ones to quit smoking or to reduce
their smoking, and therefore that their basic motivation in smoking an
ultra low tar brand is to, as it says here, get people off their backs.
And they're referred to as the get-off-my-backers people.
Q. And can you direct your attention, then, over
to the second page, which continues with the characteristics of this target
smoker, the ULT smoker.
A. It goes on to say that these people, like our
Belair and Raleigh coupon users earlier today, have feelings of guilt about
smoking that are very strong. The feelings come as a result of peer pressure,
anti-smoking campaign, and personal lack of control. They're basically
addicted. They're unable to control their smoking. The HR target no longer
enjoys smoking because he is not mentally free to do so. Many would like
to quit smoking but cannot; again the addiction idea. And this leads to
having low self-esteem, again as we saw this morning with the Raleigh/Belair
kind of customer.
So the target group is then broken down into two
particular types, type number one, dieters, and type number two, get-off-my-
backers. The dieters just smoke the lowest tar brands that are out there.
The get-off-my-backers, this is the people who have switched to ULT brands
because of pressure from family and friends. So you can imagine that the
-- you know, the pressure is -- is to quit, but -- but basically it was
just said right above here, these smokers would like to quit, but they
can't.
So generally these HR targets are, as it says here,
no longer fighters. Many of them started smoking because it was popular
and socially acceptable to do so. Now the tables have turned. They feel
that they are the victims of the system here.
*8 Q. And they go on and state that -- how these
smokers feel about themselves.
A. Well they've -- as it says, the last line is
they've kind of abandoned the idea -- the idea of the American dream and
they don't feel very good about themselves.
Q. And does RJR then look at concepts and approaches
for attracting that particular target audience?
A. Right. So, you know, consistent with -- with
a model of marketing that we've been talking about so far, having developed
this product -- this target market definition and come to understand their
motivations, what they then do is develop these concepts to appeal to these
people.
So basically they say what we are going to do for
this HR target is to offer a product that -- that gives them a payoff or
a reward, as it says there in point -- in point one, and what we're trying
to do is give them a pat on the back, positive reinforcement, reassurance,
have a brand that is their friend, and increase their self-esteem.
Secondly, they want to convince this person that
it's a sensible -- it's a rational, sensible decision, they're doing the
smart thing to switch to low tar, to appeal to their intellect. Again,
as they say, an attempt is made to make him feel better. So this whole
notion of about reassurance that we said was the general theme of this
low tar/low nicotine segment is -- is what they're trying to hit here.
And that continues on over to -- to the next page.
So that on point three, they're talking about the
new brand being specifically formulated to provide the type of smoking
enjoyment that goes along with private intimate relaxation. Specific appeals
will be made by our advertising portraying these cigarettes as the thing
to have with the morning cup of coffee, with a good book and so forth.
And fourth, to convince the HR target that the new brand is closer to the
traditional concept of smoking than other low tar cigarettes to sort of
go back to the memory of how -- the good old days of how good smoking used
to be when this person was able to enjoy the full-flavored brand like Carlton
and -- I'm sorry, like Camel and Pall Mall and Winston, before the days
that they were forced via the peer pressure to switch to the low tar kind
of -- type of cigarette.
Q. Professor, the type of opinions with respect
to health reassurance that were found in this document, did you find those
through others of the defendants' documents?
A. I -- I -- I did.
Q. Can you direct your attention now to Exhibit
13927, which would be in volume two, which is a Brown & Williamson
document dated January 1982. Do you have that, professor?
A. I do, yes, uh-huh.
Q. And that's dated April of 1982?
A. Yes, it is.
Q. And that's down in the lower right-hand corner,
April 1982.
A. That's correct.
Q. And in the upper part it says January 1982; right?
A. Right. Right.
Q. And it's entitled "CONFERENCE ON MARKETING LOW
DELIVERY PRODUCTS?"
A. Right.
Q. Is this one of the documents that you reviewed
in this case?
*9 A. It is.
Q. Does it form part of the basis of your opinion?
A. It does.
MR. CIRESI: Your Honor, we'd offer Exhibit 13927.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 13927.
BY MR. CIRESI:
Q. We have the title page up, "CONFERENCE ON MARKETING
LOW DELIVERY PRODUCTS, January of 1982."
Can you turn, please, to page 0725. Now this is
a BATCo document produced by B&W. Is there a preface here by the marketing
director regarding the conference?
A. Yes, there is.
Q. And can you just briefly describe what is included
in that preface --
A. Well --
Q. -- with respect to the purpose of the conference.
A. Well basically that they see that the low --
the low delivery is -- is -- is an important issue, so they say because
of the importance of this subject, you know, we're -- we want to capture
what went on at this meeting, and is inviting other people in the marketing
department to sort of contribute if -- if they can, and they say we wish
you success in your plans to gain a major share of the low delivery segment
in your market. So they're bringing together the information that they
have about this segment so that they can share the information among their
company.
Q. And can you direct your attention to the page
which bears the Bates number, last three numbers, 726. That would be the
next page.
A. Yes.
Q. 726. Do you have that?
A. I do.
Q. And toward the bottom, do they have an operational
definition of "low delivery" that was used at the conference?
A. Right. They're basically saying here that low
delivery, the term is used to encompass three different things, the lowering
of deliveries of existing brands, so, for example, if you had a -- had
a current product on the market and you lowered the tar and nicotine in
it, that would be one; the second would be the development of single-digit
tar brands no matter -- so new brands; and then the third thing is the
line extension idea, the development of line extensions or milder versions
of existing full- flavor parents. So all three of those things sort of
modifying the product you have, bringing out a new brand and introducing
a product line extension all fall under this -- this designation of "low
delivery."
Q. And would that be directed toward that segment
of the market that you mentioned earlier in your testimony of keeping people
in the market?
A. Right. Basically the idea is lower deliveries
are going to be the mechanism of health reassurance and the intent and
result of that is to keep people in the market rather than have them quit.
Q. And is there an example in this document, professor,
of the umbrella approach that you've described in illustrative Exhibit
30255?
A. Yes.
Q. Excuse me, 30225.
A. Yes, there is an example of it with respect to
their introduction of their Barclay brands into the low tar/low nicotine
segment of the market, the health reassurance segment.
Q. Can you direct your attention, then, to Exhibit
-- the same exhibit, page 733, and does that address the -- the Barclay
introduction?
*10 A. Yes, it does. It's basically the beginning
of the explanation of why Barclay has been successful in the U.S. market,
which they -- they they say is fiercely competitive with 130 brand styles
making up 99 percent of all -- all cigarettes, and over a billion dollars
spent on -- on advertising. So they say that the reason Barclay was successful
was this idea, as they call it, the full -- fully worked-out package or
mix of elements which Barclay represents. So this is exactly the same as
we have been calling the total marketing and communications package.
So they're attributing the success of Barclay to
the fact that they took all of these elements of the marketing mix, the
communications and marketing program, and put them together, and that's
what really drove the success.
Q. And on the next page, do they describe the Barclay
package?
A. Yes, they -- they do. And -- and "package" here
does not mean the thing that the cigarettes are in, it means the entire
-- the total marketing and communications program for Barclay. So basically
they say being successful in this -- in this market, the -- the -- the
particular strategic objectives translated into having the promise of taste
encapsulated in the copy line, and the second point is the reassurance
element that we've been talking about, the reassurance element became 99
percent tar free and the one-milligram tar claim printed on the pack. And
then they go on to say the -- the product delivered considerably more taste
in point three. Point four it says Barclay is not just a filter development,
but rather it required a strong all-lamina blend. So a new type of blend,
new type of product. Then over the next page, number five is the Barclay
name itself, what they refer to as a comfortable cigarette name. The pack
colors were considered important. The setting of the advertising, conveying
an upscale image with a male model who was provocatively satisfying, engaging
major interest by respondents. Number eight, the male model's command and
look. Number nine, the offer of a free carton, which -- which was unique.
When -- when they brought Barclay out, basically
they would give you a free carton if you -- if you wrote in for it. And
they also talk about how this free carton helped to gain distribution,
as the trade could be informed of the telephone response in their area
to the free offer and encouraged to stock up.
Number 10, the substantial weight of advertising
expenditure that they pay. Number 11, the way that they bought two separate
pages in the same magazine to -- to place ads in. And also the way, point
12 is, that they tested the Barclay offer in specific areas of the United
States, and then took that learning and leveraged it across the rest of
the country to develop a national launch.
So here they're putting together 12 different elements
to construct the overall Barclay package which they think was essential
to their success.
Q. Now professor, another segment of the market
that you referred to were switchers that the cigarette companies wanted
to keep in the market and get to their brand; correct?
*11 A. Yes, that's correct.
Q. Can you direct your attention to Exhibit 13004,
which would be in the same -- same volume. This is an "RJR STRATEGIC PLAN,
1990 to 1992," Exhibit 13004, which was introduced on Document Day Two.
Is this one of the documents that you have reviewed
in preparing to testify?
A. Yes, it -- it was.
Q. And does it form part of the basis of your opinion?
A. Yes, it does.
Q. Can you direct your attention first to page 3004,
which is the page right after the title page.
A. Okay.
Q. Does that set forth the strategic plan agenda?
A. It does.
Q. And is one of those agenda items key issues?
A. It is.
Q. Can you direct your attention to page 3010.
A. I have it.
Q. And does that refer to the key issues of the
strategic plan?
A. Right. It -- it refers -- it refers to the one
of -- one of the key issues in the strategic plan, yes.
Q. Okay.
A. Yes.
Q. And can you describe what is set forth on this
page.
A. Right. Basically it -- it's talking about RJR's
performance among first usual brand smokers, and it goes on to say that
loyalty, as we've seen a number of times since I've been testifying, that
loyalty, not switching is the major factor driving any tobacco company's
business. And it talks about how switching has occurred over the past 30
years, that in the 1970s the concern -- the major problem, as they say,
with smoking was tar, and so we had the emergence of the low tar/low nicotine
segment. And so that was an occasion of switching in the market. And then
in the 1980s what we had was sort of premium-priced cigarettes, the Marlboros
and the Camels of the world increased in price at a greater rate than inflation,
and so we saw -- that's when the generic cigarettes picked up some business.
And so they're saying those -- we had some major -- most -- when most switching
has occurred was with major problems -- in eras of major problems with
smoking.
And then the last bullet point is to say other than
these occasions of major switching -- switching opportunities, brands almost
never gain more than .1; that is, one-tenth of a share point per year in
switching. And the reasons for this are, as we know, the high brand loyalty,
the fact that there are over 60 brands out there competing, and the diverse
wants of consumers.
Q. And on the next page of the strategic plan, do
they address the starters?
A. Yes, they do. They come back and say that people
start smoking as younger adults and maintain high loyalty. And as we've
seen before, that every brand and company in the cigarette industry on
a long-term growth trend can trace success to attracting first usual brand
smokers, the starters.
Q. Now professor, can you direct your attention
to Exhibit 14361, which is also in volume two. 14361. Do you have it, sir?
A. I do.
Q. That's a Tobacco Institute document?
A. Yeah. Yes, it is.
Q. And have you reviewed that document in preparation
for testimony?
*12 A. I have.
Q. And does it form part of the basis of your opinion?
A. Yes, it does.
MR. CIRESI: Your Honor, we'd offer Exhibit 14361.
MR. BLEAKLEY: No objection.
THE COURT: Court will receive 14361.
BY MR. CIRESI:
Q. On -- on the front we see the title, it's "Fact
or Fancy?" And if we go to the bottom portion, we see it's put out by The
Tobacco Institute in 1979.
Can you direct your attention, then, to the next
page.
A. Uh-huh.
Q. They again repeat the title, "Fact or Fancy?"
And they have four bullet points.
A. Right.
Q. "Smoking causes wrinkles in women
"Smoking causes low-weight babies
"Women who smoke harm their babies before and after
birth" and
"Women are smoking like men and dying like men."
A. Uh-huh.
Q. Now this document then addresses those issues,
and I'd like to direct your attention to page 52, which is the last page
of the document. And by "52," I'm using the regular number on the --
A. Okay.
Q. -- page. I'm sorry, I'm not using the Bates number.
A. Okay.
Q. Now during the course of your review of the documents,
did you see any documents which reflected whether or not the cigarette
industry attempted to create doubt about the smoking-and- health problems?
A. Yes, I did. I saw many documents of that type.
Q. And is that issue addressed in the second-to-the-last
paragraph here?
A. It is, basically saying that causality has not
been proven in any of the diseases and conditions linked statistically
with cigarette smoking - in women or men. And then it goes on to repeat
the usual contention here that the controversy must be resolved by scientific
research. So there's this idea of there's a continuing controversy which,
at this time in 1979, requires more research.
Q. Now directing your attention to the last paragraph,
"The tobacco industry does not try to persuade anyone to smoke. Nor does
it discourage anyone who makes up his or her mind to quit. Smoking is an
adult custom, to be decided by mature, thinking persons - men or women."
First of all, with regard to the first two sentences,
based on your review of the documents, is that an accurate statement?
A. No, I would say neither one of those sentences
are accurate. The tobacco industry does try to persuade people to start
smoking, and it does, through the kinds of programs we've just talked about,
try to induce people to not quit.
Q. And the last statement, "Smoking is an adult
custom, to be decided by mature, thinking persons - men or women," did
the cigarette total marketing and communication campaigns direct themselves
to young people?
A. Yes, they did.
Q. And did the cigarette industry, through The Tobacco
Institute, ever say what age they felt would be the mature age when someone
could make a decision to smoke or not to smoke?
A. They did.
Q. What age did they state?
A. Not until the age of 21.
Q. Did their documents show younger ages?
*13 A. I'm sorry?
Q. Did their documents show that they directed smoking
to younger ages?
A. Oh, yes. They said 21 would be the first age
at which somebody could make a reasonable -- was mature enough to make
a reasonable decision, but then as we know from the documents we've been
through, they were tracking smoking behavior down to 12-year- old levels,
and we know that the vast majority of people who enter the market, back
to this window-of-opportunity idea, are under the age of 18 when they enter
the market. So clearly they were targeting much younger people than the
age of maturities that they are insisting here is necessary to make a reasonable
decision about what should be an adult custom.
Q. Now based upon your training, experience, and
expertise in the field of marketing, and your review of the documents,
do you have an opinion to a reasonable degree of certainty whether the
total marketing and communication programs of the defendants represented
low tar/nicotine cigarettes as health reassurance products?
A. I have an opinion on that.
Q. And what is your opinion, sir?
A. My opinion is that they did represent them as
health reassurance cigarettes.
Q. And based upon your training, experience, expertise
in the field of marketing, and your review of the defendants' documents,
do you have an opinion to a reasonable degree of certainty as to whether
the defendants' total marketing and communications program failed to disclose
the addictive nature of cigarettes?
A. I have a judgment on this, yes.
Q. And what is your opinion?
A. That the -- that is, that it failed to disclose
the addictive nature of cigarettes.
Q. And based upon your training, experience, expertise
in the field of marketing, and your review of the defendants' programs
and documents, do you have an opinion to a reasonable degree of certainty
whether their programs were directed to starters, replacement smokers,
and current smokers, including switchers?
A. Yes, I have an opinion on that.
Q. And what is your opinion, sir?
A. And that's basically that their programs were
directed to starters, current smokers, and switchers.
MR. CIRESI: Thank you. I have no further questions,
professor.
THE WITNESS: Thank you.
MR. BLEAKLEY: Your Honor, we'll need a few minutes
here to rearrange the courtroom.
THE COURT: All right. We'll take a short recess.
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.
THE COURT: Counsel.
MR. BLEAKLEY: Thank you, Your Honor.
BY MR. BLEAKLEY:
Q. Good afternoon, Professor Dolan.
A. Good afternoon.
MR. BLEAKLEY: Good afternoon, ladies and gentlemen.
(Collective "Good afternoon.")
Q. All right. You and I may be the only people of
Irish heritage here that don't have green on.
A. Well the suit comes close, but --
THE COURT: And you should be ashamed.
*14 (Laughter.)
MR. BLEAKLEY: Believe me, I noticed it this morning
earlier.
THE WITNESS: Day's still young.
MR. BLEAKLEY: I apologize to everybody.
BY MR. BLEAKLEY:
Q. Professor Dolan, my name is Peter Bleakley and
I'm counsel for Defendant Philip Morris in this case.
A. Uh-huh.
Q. We've never met before; have we?
A. Not to my knowledge, no.
Q. Yesterday Mr. Ciresi asked you, during the course
of your review of the internal company documents and your investigation
in this case --
Could you tell us what your investigation in this
case consisted of?
A. Surely. Maybe I could start by describing the
process and you can follow up as you like.
Basically I started, I think as I mentioned yesterday,
that the firm called me in -- toward the -- late 1996, and then I began
working in January of 1997, started out by looking at some background information
which was publicly available before the confidentiality agreements had
been gone through to the extent where I could receive internal company
documents, and then, as I recall, I received sort of an initial batch of
internal company documents. Then I came out to Minneapolis and I met with
the lawyers and we started to talk about what some of the issues might
be. And I specified here's how I would think about approaching it, and
here's the kind of information that I need in order to address the questions
in this particular way.
So I then said I would like documents of these particular
types. And then we began sort of an iterative process where documents would
be sent, I would review the documents, and I'd get more of a sense of kind
of what the issues are and what the specific information that I would be
needing would be.
So the way I think about it is that, first, I --
I really try not to develop a very specific framing of the issues until
I've read some documents and really get a little understanding of what
they might be, and then as I get a better understanding of just how the
problems might be structured, I can then be more specific about the kinds
of documents I would like. So then I asked counsel to provide me with more
documents of a particular type. And then we iterated around, doing that
a while, through the first half of 1997.
I wrote an expert report, I think that would be
in June 2nd as I recall, and at that time, really, my -- my expert report
was really primarily based on internal company documents. It was my --
I'm basically following the same style as I do in -- in my academic work,
developing case studies, that if I can really look -- I mean the way I
think about it is, you know, here's a box of what a company is, if I can
get to look inside the box and have their internal company documents, that's
a much better source of information to me to understand what's going on
with the company than anything that somebody who hasn't gotten access to
these documents has written about -- written about the company. So -- so
my expert report really was based very prominently on internal company
documents.
*15 I had some prior knowledge of what was going
on in the tobacco industry just from being a marketing person. And, you
know, you have to know -- you should know something about what's going
on with a brand like Marlboro. And then subsequent to writing my expert
report and having my deposition taken, I did go back and look at the marketing
literature, what the documents -- what people had published in the marketing
literature about the marketing aspects of the cigarette -- cigarette industry.
So that's basically the process.
Q. Okay. Is it fair to say, then, that up to the
time of your expert report --
Which was filed when in 1997?
A. I believe it was June 2nd, 1997. Right around
the middle of the year anyway, some -- something around there.
Q. As of that point in time, your investigation
had consisted of reviewing internal company documents that were provided
to you by plaintiffs' counsel; is that right?
A. Not entirely. There would be like a Surgeon General's
report and your companies' annual reports and that sort of thing. There
were -- there were some things which were available in the public domain,
but a -- a large proportion, I would say, of the documents upon which I
based my expert report were internal -- internal company documents that
had been given to me in fulfillment of my requests for particular type
of documents that I made to the people at Robins Kaplan.
Q. Did you actually read any of the Surgeon General's
reports?
A. Yes, I did.
Q. Which ones?
A. Hmm, let's see. I mean I'm not sure that I read
entire ones. I certainly have read pieces of the 1994, 1981. And there's
a couple that are referenced, I think -- certainly I remember talking about
having read them at my deposition. I honestly don't remember the particular
years.
Q. Okay. We have the internal company documents
that were sent to you by plaintiffs' counsel, and --
A. Right, in fulfillment of my request for particular
kind of information, right.
Q. And we have some Surgeon General's reports. You
can't remember precisely which ones now.
A. Right.
Q. Anything else?
A. Some annual reports from Philip Morris and --
and RJR.
Q. How many of those did you read?
A. Just a couple from each company, I believe.
Q. Okay. And is that all of the research or investigation
you did as of the time of your expert report?
A. I believe that's correct. As I said, you know,
I gathered some background information. There were FTC documents, as I
recall now, that were sent to me, Surgeon General's thing, sort of background
information. But largely I focused on the internal documents which were
provided to me by -- by counsel.
Q. And the opinions that you have expressed here
yesterday and today you formulated by the time of your -- your expert report;
is that right?
A. That -- that's true, I had. I -- I continued
studying, I continued my analysis since the time I filed my expert report,
and I have subsequent to filing my expert report gone and looked at the
marketing literature on the tobacco industry and done a systematic search
of that, but that search did not in any way change my opinions.
*16 Q. Because you had already reached your opinions.
A. Excuse me?
Q. You had already reached the opinions you expressed
here in the courtroom.
A. No. I would say -- here's -- here's the way it
works. I expressed some opinions at my -- in my expert report and in my
deposition. Subsequent to that time I went and I did a systematic review
of the marketing literature as it's published, and that literature that
I read did not cause me to want to file an amended expert report, which
I understand I was free to do, if I in any way want to change my opinion.
So it wasn't anything like, well, I've got these opinions, I'm sticking
with them; it was that I had formulated my opinions based largely on the
internal company documents, I read the external literature, then I found
that there was nothing in the external literature which really influenced
my opinions.
Q. All right. How many documents did you review?
A. As I said yesterday, you know, I really wasn't
counting. It's lots and lots, I mean boxes and boxes. I think you have
a list and you probably counted them up, or maybe you've counted them up.
But I haven't counted them.
Q. Does the number 4,000 ring a bell?
A. I remember at my deposition that was the -- that
was the number which was quoted to me by the person who was taking my deposition,
that that was the number of documents, but I didn't then go back and check
out to see whether they were correct or incorrect. I presume they counted
them and they were correct, but I couldn't attest to that.
Q. Did you review all of the marketing documents
that were produced by all of the defendants in this case?
A. I would doubt that I have reviewed every marketing
document produced, what might -- one might characterize as a marketing
document produced by all the defendants in this case. I would doubt it.
Q. Would it surprise you to know that there were
over 250,000 marketing documents produced by the defendants in this case?
MR. CIRESI: I'm going to object to the form of the
question. Counsel is testifying.
THE COURT: Okay. Well you can answer it if you know.
A. Would it surprise me was your question?
Q. Yes.
A. I guess I hadn't formulated a -- an expectation.
I mean I do understand there's a big depository somewhere, that all the
documents didn't fit into somebody's office somewhere. So there's a lot
-- a lot of documents. So if you told me -- you know, I think there is
somewhat of a definitional question about what a marketing document is.
But, you know, if you stipulated to me that there are 250,000 marketing
documents, I wouldn't say, "Oh, my gosh, I never thought of that" or anything
like that. I understand there's a lot of documents in the -- involved in
this case.
Q. You never went to the depository, however, and
made an examination of documents there; did you?
A. No, I did not myself go to the depository. I
relied on counsel to fulfill the requests that I -- that I specifically
made for specific kinds of information.
*17 Q. Did you ever ask for an index of all of the
documents that had been produced in the depository?
A. No, I did not. I did not ask for an index. The
way it worked is I -- as I proceeded along in my work, I said, "Gee, I
really need information of the following types." And then I said, "Do we
have documents of the following types?" And then counsel fulfilled those
requests.
Q. And you accepted what they sent you.
A. Yes, I did accept what they sent me. I -- sometimes
I came back and said, "Gee, do we have any more of this type? I thought
there would have been some from another company." But I worked with counsel
before and know that they fulfill my requests in an appropriate fashion,
so I had no -- so I accepted what -- what counsel provided me.
We did have some discussions about whether there
would be more, what other kinds of things we would -- we would look to,
but I was completely satisfied with the kind of -- that process that we
were going through.
Q. Now before you prepared and filed your expert
report and gave your deposition in this case -- let me go back a moment.
Strike that question.
You talked yesterday, in response to some questions
from Mr. Ciresi, about case studies that you do as a part of your marketing
research work.
A. Yes, I did.
Q. And did you not say that as a part of a case
study you normally try to interview the managers? Did you say that?
A. I -- I normally try to do that, yes, if that's
possible. I try to gain the company's cooperation, and that cooperation
would involve looking at their internal documents and then also talking
to their managers.
Q. Talking to the people who are actually involved
in marketing and marketing research is useful in determining what people's
strategies and plans are; isn't that right?
A. It certainly is useful to me, typically useful
to me in writing my case studies, that when I'm writing about a particular
protagonist, to have a chance to interact with them about what's going
on in the company. Surely, that's -- that's typically useful to me. I mean
it's not the case that everybody that you interview provides new insight
or anything, but typically I would like to visit the company and go walk
around there and talk to the people who are there in the course of my research.
Q. Did you do that here?
A. I wish I could have, but I didn't.
Q. You didn't talk to anyone who is involved in
marketing or marketing research at any of the defendants in this case.
MR. CIRESI: Well, Your Honor, I'm going to object
to that. It's outside the scope of discovery. Nobody was offered to be
talked to.
THE COURT: Okay. The objection is sustained.
BY MR. BLEAKLEY:
Q. Well you know that there were depositions of
marketing people taken in this case; do you not?
A. Yes, I do.
Q. Have you read those depositions?
A. I don't believe I have, no. If they -- my judgment
on that being that I had a standing request with counsel for particular
kinds of documents and particular kinds of information, and if the -- those
depositions were relevant to the kinds of information I was looking for,
they would be provided to me.
*18 Q. Well would it --
In determining what the purposes of Philip Morris's
marketing activities over the years had been, for example, would it be
useful to talk to the head of marketing at Philip Morris?
MR. CIRESI: Your Honor, I'm going to object to the
same -- same grounds.
THE COURT: Yes, sustained.
BY MR. BLEAKLEY:
Q. All right. Would it be useful to read the deposition,
the sworn deposition taken in this case by plaintiffs' counsel of the man
who was the head of marketing at Philip Morris for over 20 years?
A. Well I can't tell you that -- that that's necessarily
the case. I -- as I said a moment ago, counsel and I worked quite intensively
together. They understood exactly the kind of information that I was --
that I was looking for and the particular issues that I was wishing to
see addressed, and if the deposition of the marketing person was going
to be helpful in that regard, I really believe it would have been provided
to me.
Q. So you relied on counsel to tell you whether
or not you should read the sworn depositions of marketing people from the
defendants.
MR. CIRESI: Objection, Your Honor, it's a misstatement
of what he testified to, and the question has already been asked and answered.
THE COURT: Okay. You can answer that.
A. No, I -- I relied on counsel to fulfill my requests
for information, which they understood very well because there's been a
great deal of face-to- face time going over it and iterating through it
on a number of occasions, to fulfill my requests for information in the
most efficient fashion.
Q. In any event, it is true that you did not read
any of the seven sworn depositions of marketing people from the defendants
in this case; is that right?
MR. CIRESI: Objection, asked and answered.
THE COURT: It's been asked and answered.
BY MR. BLEAKLEY:
Q. Now did you read --
Do you know what a brand plan is in the cigarette
industry?
A. Well I know generally what a brand plan is, yes.
Q. And as a specialist in marketing, you know what
a brand plan is.
A. Excuse me?
Q. As an expert in marketing, you know what a brand
plan is; is that right?
A. That sounds fine. Right. I know what a brand
plan is.
Q. I'm asking you do you know what a brand plan
is?
A. Yeah, I know what a brand plan is.
Q. Okay. Do you know that a brand plan is what the
defendants in these cases use for their marketing strategies? Do you know
that?
A. Yeah, I would say I -- I, you know, imagine that
they use brand plans in their -- in their business, yeah.
Q. Well do you know, or are you just guessing?
A. No, I would say -- I -- I would say I've seen
documents that would qualify as a brand plan to me.
Q. Have you reviewed all of the brand plans of the
defendants in this case over the years covered by your testimony?
A. I have no way of knowing whether that's true
or not.
Q. Have you reviewed all of the media plans developed
by the defendants in this case over the years covered by your testimony?
*19 A. No, I'm sure I have not. I did --
You know, that would be a level of detail that I
really didn't have to go -- I don't believe was necessary to go to to offer
the kinds of judgments that I framed as my analysis in this case.
Q. Why is that?
A. Why is that? Because I was able to gain, in my
view, a sufficient understanding of the overall marketing programs as I
set them out in the last day without going down to the level of detail
of how much -- how many ad insertions in this magazine versus that magazine.
So as I saw -- and it's -- it's my -- my judgment that the documents that
I reviewed were sufficient to give me the consistent information that I
needed to formulate my opinion.
Q. Is it your understanding that the media plans
employed by the defendants only provided the number of inserts that are
going to be put in particular magazines?
A. Oh, no, no, I just used that as a specific kind
of information that was generally in a media plan.
Q. Isn't it possible that a media plan might actually
show you, if you read it, who the target audience was for advertising?
A. A media plan would typically specify what the
objective was of that media plan, and that would include the particular
target audience that's in mind for -- to impact with that media plan, yes.
Q. But you didn't need to know that in order to
reach the conclusions you reached in this case.
A. Well we've gone through a number of documents
over the last couple days that have looked at the strategic plans of the
company, which have quite clearly set out who the -- who the target for
their overall marketing and communications strategy was. And the media
plan derives directly from the strategic plan. So if you understand who
the target market was in the strategic plan, then the media plan basically
carries out the strategic plan.
Q. How do you know that?
A. How do I know that?
Q. Yes. You haven't talked to anybody who's in marketing,
you haven't read any depositions of the marketing people, you haven't read
any of the media plans, you don't know whether or how many of the brand
plans you read. How do you know?
MR. CIRESI: Well, Your Honor, I'm going to object
to that on two bases: number one, it's a compound question; but number
two, there's been no representation by the defendants that they produced
all media plans. They produced them in accordance to certain requests;
i.e., children, et cetera. It's a misstatement of discovery.
THE COURT: You can answer that.
A. Okay. How do I know that? Well it's standard
operating procedure that if you -- if your strategy specifies that this
is what we're going to do, we're going to target this group of people,
and then you step down from the strategy down to tactics. You don't have
as an overall strategy to go after one group, and then when you get down
to your tactical plan, do something else. The tactics follow out of the
strategy. So it -- it's standard operating procedure among marketing companies
that the -- the tactics follow out of the strategy.
*20 Q. Is it your testimony that all of the brands
and media plans employed by these companies flowed from the strategic documents
that you saw?
MR. CIRESI: Same objection, Your Honor, not all
media plans were produced in discovery.
THE COURT: You may answer that.
A. No, I -- I'm not saying that the strategic plans
-- that every media plan filed by every company flowed from the strategic
plans that I've -- that I've talked about over the last couple days.
Basically what I've done in the course of my testimony
is to provide a representative sample of strategic plans so we could see
what was going on in the history of this industry.
Q. How do you know that they were representative?
A. Well, the way I know it's representative, basically
what I told counsel is these -- this is the kind of information that I
want on --
I want things which set out the strategic plans
of the companies, and the documents were provided to me. And what I've
provided here was a representative sampling of the ones which I received.
Q. So you didn't make your own independent determination
of whether or not the documents that you looked at were representative
of the defendants' marketing plans and strategies. You didn't make your
own determination of that.
A. Well again, I -- this seems to me to be ground
we've already covered. But, you know, as I've described the process, what
I -- what I did is I articulated quite clearly to counsel the kinds of
documents that I needed, and -- and they were provided to me in answer
to my very specific requests for types of information. Are there other
strategic plans somewhere in the depository? I imagine there probably are.
Q. Now you testified, I believe -- and correct me
if I --
A. Sure.
Q. -- am not stating this quite right -- but there
were four primary objectives of the defendants' total marketing and communications
plans. Am I describing that correctly?
A. Yeah. That would be a fair characterization,
yeah.
Q. Okay. Let me ask the question first.
A. Okay.
Q. Does that term "total marketing and communications
plans," is that something the defendants use to describe what they do?
Is that a term that they use in any of these documents?
A. I did not see that particular terminology. That's
the terminology that I use. But you remember that the first document we
looked at yesterday with the umbrella approach and the total marketing
mix. So I don't know that there was a particular company document -- I
don't believe there was a particular company document that used the terminology
"total marketing and communications program" that I have used. The spirit
of what they're doing was precisely in line with what I've described --
what I'm describing when I use that particular terminology.
Q. The spirit disclosed in the documents that you
reviewed; is that right?
A. Well that's fair enough. I mean the -- I -- as
we --
I think I pointed out a number of times in my direct
testimony the -- the compatibility between what I said in my description
of what is marketing and the total marketing and communications plan or
program, the terminology that I used, and continually what comes up in
the documents that we've been through during my direct testimony.
*21 Q. All right. You said, I think, there were
four primary objectives, the first --
And forgive me if I change a word or two.
A. All right. Sure.
Q. I'm trying to come as close as I can.
-- was to try to get new people to smoke?
A. Get new people into the market, right.
Q. You listed that as number one.
A. I did.
Q. And to stop people from quitting you said was
number two.
A. That's correct.
Q. And you said to get people back who had quit,
--
A. Yeah, relapse, yes.
Q. -- number three?
And finally brand loyalty.
A. Brand loyalty and -- and brand switching.
Q. Did you use the term "brand switching" when you
listed those four this morning?
A. I think I did. I mean what I -- what I said was
--
I think the way I expressed it was that, first of
all, you don't take -- you don't take brand loyalty for granted. You know,
you do -- you do -- even though the characteristics of the product tend
to lead to high brand loyalty, you don't just say, "Oh well, these people
are going to stay me for the rest of their lives." You do reinforce your
brand image. But I did something about on the flip side of that is you
position yourself to capture those people who are moving away or switching
from other brands. Whether I used the particular word "switch" or not,
I'm not certain. But certainly the concept of wanting to have brand loyalty,
but then some people moving away from your brand to other brands, and you
should be positioning your brand as a brand that could pick up people coming
from those other brands, I -- I'm sure that I -- I'm sure that I covered
that concept.
Q. Well does brand switching just contemplate picking
up those people who are thinking about switching, or does it also include
an active and aggressive effort to persuade people to switch?
A. It -- it could include an active effort to persuade
people to switch.
Q. Well is it that it could or that it does? I mean
based on the documents that you reviewed, was a part of the strategy of
these defendants, or at least some of them, to go aggressively out and
seek switchers?
A. I would say with some of their brands it probably
was. The -- the Merit advertisements that we looked at were probably a
pretty good example of -- of brand -- a brand which positioned itself for
switching. I mean the -- the ads that we looked at were saying, look, here
is a chance to switch to a low tar/low nicotine cigarette that has good
taste. So at some point in time as part of their overall marketing strategy,
a brand would be positioning itself as a brand which other smokers should
switch to, so to increase the overall -- increase the overall value perception
of that brand and to induce it as something that somebody who was currently
smoking might switch to.
Q. It's not just limited to brands like Merit, is
it, this brand switching? It includes the major, the leading, the biggest
selling brands in the marketplace; doesn't it?
A. I -- I would say that, you know, virtually all
of the brands aspire to have -- have switching to them.
*22 Q. For example, Marlboro and Winston have fought
bitterly for switchers for years; haven't they?
A. Marlboro and Winston, in addition to having their
programs to introduce -- you know, get new people into the market and to
-- and to select their brand as these new people came into the market,
in addition to that, they have tried to have people switch.
Q. And in fact there has been an enormous amount
of switching between Marlboro and Winston smokers over the years; hasn't
there?
A. Well over the -- there has --
As we've gone through a couple times, the concept
of brand loyalty comes right out of the company documents, and by and large
this is an industry with very high degrees of brand loyalty. If you start
to add up the number of people who switch over the lifetime of being in
the -- in the product category, there is a significant number of -- amount
of switching going on in the -- in the industry --
Q. Well --
A. -- even though it's small in percentage terms.
And we've seen documents over and over say, you know, this is a loyalty
game, loyalty is more important than -- than switching.
Q. Small in percentage terms. Isn't the most significant
thing that's happened in the marketplace over the last 35 years is the
move of Winston from number one to down the road, and Marlboro from nowhere
to number one?
A. Isn't that the most significant thing?
Q. All right, one of the most significant things.
Isn't that one of the most significant things that has occurred in the
marketplace over the last 30 years?
A. Well I'm not -- not sure from what perspective
you mean "significant." I mean one of the most -- one of the most interesting
things to a marketing academic is to look at Marlboro's market share over
the last 30 years and say, "Wow, how did they do that?" So -- so yeah,
that's -- that's interesting.
Q. And a lot of it came from Winston; didn't it?
A. You know, I -- I -- I haven't investigated that
in -- in detail, but I would say if you just put up a graph of Marlboro
share going up and Winston share going down, which is what has happened
over time, one might draw that -- draw that conclusion based on that kind
of level of analysis. But if you were specifically asking me that, I'd,
you know, like to look beyond what seems to be correct from -- you know,
what seems sort of intuitively appealing and caused you to have that as
a hypothesis, the market shares of the brands over time.
But I can't tell you that, you know, those people
who are smoking Marlboros would in fact have been smoking Winston if they
weren't smoking Marlboro; they might be smoking nothing.
Q. You didn't see that in the marketing documents
you reviewed?
A. I'm sorry?
Q. You didn't see that in the marketing documents
you reviewed?
A. What is "that?"
Q. You didn't see Marlboro marketing people looking
for ways to take business away from Winston, and marketing to people from
Winston looking for ways to get it back from Marlboro?
*23 A. Oh, I -- I did -- I did see that each one
of them was trying to improve their share position. And as I mentioned
this morning, when we were there in 1975 and both of them had about 15
percent market share, but Marlboro's is going up real fast and Winston's
isn't, I mean basically RJR is saying, look, how are we going to get back
our share -- you know, our share? And the way we're going to do it is we're
going to try to go after these young adults -- young adults as they're
entering the market, and here's our plan for doing it.
Q. Now when you listed these four primary objectives
of the defendants' marketing activities, you listed brand loyalty and switching
fourth. Is it your testimony that it is the fourth most important, or the
least important of those four marketing activities?
A. No, I didn't say that.
Q. You didn't mean to rank order them then.
A. Well I had to put them in some order, and I was
-- I knew that the two things that I was going to talk about next were
attracting starters and keeping people in the market, so that's why I --
I listed them that way. I did not say that, look, this is -- you know,
this -- this is the order of importance of this thing.
I mean the way I look at it is, you know, all four
of those things kind of -- kind of come together, and I don't sort of parcel
out that, well, this one is that important and it's 20 percent more important
than the other. Just as the whole marketing and communications program
comes together, so do I think those four objectives are pursued.
Q. Do you think they're equal?
A. As I --
I just said I haven't -- I haven't ranked them in
any priority order. I don't think -- you know, it's not proper to disentangle
them. They are all part of a whole of the marketing system.
Q. Well let me ask you this: Of those four primary
objectives, which one do you see discussed most frequently in the marketing
documents?
A. In the marketing documents?
Q. Yes.
A. Of the people in this -- in this case?
Q. The marketing documents of the defendants in
this case that you reviewed, assuming for the moment that it was around
4,000.
A. Right.
Well I would say that -- I would say that there
is less discussion probably of the relapsed quitters, at least as I've
seen it, less discussion of that than the other three. But I would sort
of put the other three, as I said, sort of in a -- in an overall system
where I --
You know, I really wasn't trying to say how much
they're talking about this, how much they're talking about that.
Q. Well let's talk for a moment about the relapsed
-- relapsed smokers. Is that the term you used? That's the one trying to
get people back.
A. Yeah. Fine.
Q. You didn't refer to any documents during your
testimony herein which indicated that a part of the marketing objective
of the defendants was to get people back. Was there a reason for that?
A. Well, I -- I -- I guess I just -- I didn't --
I mean it seems obvious to me that, you know, once
people are outside the market, and we know that the relapse rates are pretty
high, and they know -- I mean we could have gone through what they knew
about relapsed quitting rates and so forth and -- and all that sort of
thing, but, you know, I just focused on the -- the initiation of people,
of bringing new people into the market and -- and keeping new people in.
And I think, you know, what you would do to get relapsed quitters back
into the market, I mean I think it flows really pretty much out of the
same kind of things we talked about with respect to the others.
*24 Q. Are there in fact any documents that indicate that one of the
four primary objectives of the defendants in this case were to get people
back to smoking who had relapsed?
A. Well I mean certainly my sense of -- of the documents
is -- I mean they were well aware -- the documents do show an awareness
of how many people have left the market and -- and the fact that by and
large a good percentage of them come back in and that most quitting is
temporary. So I would say reflected in the documents to me is -- is an
understanding of the importance of that potential -- of that group to the
overall size of the market.
Q. Did you see any marketing documents that targeted
relapsed smokers?
A. I don't recall seeing anything, you know, which
would say "target market, colon, current quitters" together. I -- I don't
recall a specific document that had that -- down to that level of preciseness
about it. But as I did say, certainly throughout the documents is -- there
is reflected quite consistently knowledge of this notion about people leave
the market and they come back in, and part of our marketing effort is devoted
to maintaining and improving the perception of value of our brands and
to get them to come back in.
Q. Let's talk about the item that you listed first
for a few minutes; that is, trying to get new people to smoke.
One of the documents that you discussed this morning
in your testimony was Exhibit 12989. Can you get that out of your --
A. Sure.
Q. -- your book there?
Do you have it?
A. I do, yes. I think this was a yesterday rather
than today.
Q. I'm sorry, you're right, it was yesterday afternoon.
A. Yeah, right. Right.
Q. Do you know what this document is?
A. I'm sorry?
Q. Do you know what this document is?
A. Do I know what it is?
Q. Yes. Do you know what it is?
A. Right. It's an R. J. -- it's an R. J. Reynolds
--
It's a document produced by R. J. Reynolds.
Q. But do you know what it is?
A. What it is? Yeah, it's a -- it's a Camel Y&R
orientation, which, as we described yesterday, sets out the strategic importance
of young -- young smokers and the guidelines for effective marketing to
young adult smokers.
Q. Do you know who prepared it?
A. Oh, whether it was prepared by RJR or whether
it was prepared by their advertising agency Young & Rubicam, I could
not tell from the -- from the document.
Q. So you don't know who prepared it. You don't
know for whom it was prepared. Is that right?
A. Excuse me?
Q. You don't know who prepared it and you don't
know for whom it was prepared; right?
A. Well what -- what I -- what I know is that it's
a -- it's an RJR document, and it is a -- a document for the marketing
people at Camel -- at -- at RJR, particularly about Camel, and Young &
Rubicam. Which sections of it came from a typewriter at Young & Rubicam
and which sections came from a typewriter at R. J. Reynolds, I don't know,
and I didn't consider it important to formulating my opinions to know that.
*25 Q. Did you consider it important to know the
purpose for which it was prepared?
A. Well I see the purpose that -- in terms of my
-- in terms of my testimony, what I see here is it's reflecting the guidelines
that they are developing for effective marketing to young smokers.
Q. To young smokers. Is that what that document
is?
A. Well it says YAS, young -- young -- I guess the
proper terminology as we noted yesterday was younger adult smokers. That's
what YAS stands for in this document.
Q. It doesn't say young smokers anywhere in the
document; does it?
A. The two words "young" and "smokers" used next
to one another in this document?
Q. If you know.
A. Oh, I -- I -- I wouldn't know whether "young"
-- I don't know whether the term "young" -- these two words are used next
to another in this document or not.
Q. Does that document anywhere state that one of
the marketing objectives of R. J. Reynolds is to target people under the
age of 18?
A. It does not explicitly say that we are targeting
people under the age of 18, but as we covered yesterday, what this is saying
is that the YAS, the younger adult smokers, are the only source of replacement
smokers. Okay? And then, as you recall, there is the notation that less
than one-third of smokers start after the age of 18.
Q. Let's assume for the moment that you were only
attempting to target the one-third of the people over 18 that start smoking.
That would still be a pretty substantial market; wouldn't it?
A. Let's see, the one-third --
Yeah, it would be one -- one-third of the size of
the market that you were targeting if you went under the age of 18, but
it would be one-third of it. But it would represent -- I don't know. When
you think about the value of a market share point in -- in this business,
it would be -- it would be a substantial number by most -- by most persons'
reckoning, I think. It would be ignoring two-thirds of the market which
they in fact did induce to start smoking, but it would be a substantial
number, I would think.
Q. But it would be a legitimate marketing objective
to go after that one- third of the people who start smoking over the age
of 18; wouldn't it?
A. And to ignore the two-thirds who were younger
than the age of 18?
Q. Just try answering my question, will you?
A. Sure.
Q. Would it be a legitimate marketing objective
to try to obtain the business of the one-third of the new smokers who are
over the age of 18?
A. Well, let's see, it's saying --
The document tells us that each year one million
new -- new smokers come into the market and they represent two share points.
So let's see, if I went after one-third of that -- those people, I'd be
getting two-thirds of a share point, so a share point is, you know, 250,
300 million, so it's still a --
Yeah, it's a 200-million-dollar proposition rather
than a 600-million- dollar proposition. So 200 million dollars, that's
--
Q. Nothing to scoff at.
*26 A. That's pretty good business by some -- some
standards.
Q. Now --
And in fact, this document talks only about people 18 and over, doesn't
it, in terms of target market?
A. Well --
Q. This document --
A. Right. Right.
Q. -- talks only about people 18 and older; doesn't
it?
A. Well it --
No. It --
Q. As a target market.
THE COURT: Counsel, allow him to finish the answer.
MR. BLEAKLEY: Sorry. I -- I made a mistake in my
question, I was just trying to clarify it.
THE COURT: Okay.
A. No, I -- I would say it -- it -- it talks about
people under the age of 18, and we have the -- the data on the extent to
which they represent the new people who are coming into the market. So
it quite clearly sets out the demographic profile of these replacement
smokers.
Q. Does this document suggest targeting people under
the age of 18? Does it set forth a plan to target people under the age
of 18?
A. I think the -- you know, the -- the document
specifically -- I mean it -- it --
When it gets to targeting, it talks about things
like 18- to 20-year-olds, but I think if you look at this document in the
context of the tracking which the companies are doing when they're tracking
people down to the age of 12, when they're looking at market research,
they're telling their market -- Philip Morris is telling its market research
agency that, "Well, go out and find people at the beaches and talk to them
and make -- make sure they're under the age of 21, we don't care how --
how young they are," you have to interpret -- I interpret this document
in light of the context of the other things which are going on in this
marketplace.
Q. Let me ask you to address -- turn to page 1724,
Bates number 1724 --
A. Okay.
Q. -- of Trial Exhibit 12989. Do you see that?
A. I do.
Q. "Recent Big Life Changes." This is a description
of recent big life changes for the target group according to this document;
isn't that correct?
A. I'm going back to -- to see where this comes
from, if you don't mind.
Okay. So this is under the section of lifestyle
cues and symbols for -- and this is under the section of developing these
guidelines; right? So, you know, it would be -- so recent big life changes
for these -- these folks, uh-huh.
Q. They're talking about the target group; aren't
they?
A. For the young -- younger adult smokers, yes,
uh-huh.
Q. All right. And among the recent big life changes
-- changes are "Became Unemployed;" right?
A. Well that --
I'm sure that wouldn't characterize everybody in
their -- in their target market, but, you know, this would be -- might
be one characteristic.
Q. That's what it says there; isn't it?
A. I'm sorry?
Q. That's what it says, though; isn't it?
A. That's what what -- that's what the three words
--
Q. Words -- sorry. I apologize. You go ahead.
A. Well I see the words "Became Unemployed," --
Q. This page --
A. -- if that was the question.
*27 Q. -- lists four recent big life changes of
the target market according to this document; is that correct?
A. That's what the title of this page is, and it
lists four things that would be recent big life changes. I would not say
-- I would not interpret this document to mean that each person in that
group had these four characteristics.
Q. And the four characteristics are became unemployed,
got a promotion, returned to work, and became responsible for own support;
correct?
A. I believe you read those correctly, right.
Q. And do those sound like characteristics of people
under the age of 18?
A. Certainly some of them could be. I mean these
are not things that exclusively happen to people over the age of 18.
Q. What do you think, do you think those characteristics
apply primarily to people 18 and older or people under the age of 18?
A. Well, you know, I -- I would say that some of
them are likely to apply to people under the age of 18.
Q. What percentage do you think?
A. I'm sorry?
Q. What percentage do you think?
A. Oh, I -- I don't have a basis for answering that
question.
Q. You think the majority of the people who became
unemployed, got a promotion, returned to work, and/or became responsible
for their own support are under the age of 18?
A. The majority of the people to whom all four of
those characteristics applied?
Q. Yes.
A. I don't know. I don't -- I don't have a basis
for -- for answering that question.
Q. Take a look, if you would, at Exhibit 12579.
Let me ask you a question before you do that.
A. Okay.
Q. You would agree with me that the term "starters"
appears in a lot of these marketing documents; wouldn't you?
A. I think I can agree with you on that.
Q. And what is your understanding of the word "starters"
as used by these defendants in this case?
A. Well basically my understanding is it's the --
It probably varies from different times that it's
used, and you have to look at it within the context. I think as Professor
Perry laid out, this -- this adoption process that a young person goes
through, you know, progresses -- progresses along. It doesn't sort of happen
(snapping fingers) instantaneously that somebody goes from being a non-smoker
to a regular smoker. So there's a process. So I think you have to look
at how "starter" is used within the particular document that it's used
in in order to be able to make an interpretation.
Q. Do you know whether that term as used by the
defendants refers to people who have already made a decision to smoke or
who have already started to smoke? Do you know that, whether that's true
or not?
A. Oh, I would say in some contexts the term "starters"
as it's used would be referring to, you know, if somebody had experimented
with cigarettes at some point in time, that they then -- that they could
still become a starter. Am I -- am I clear? I'm --
Q. I think so.
A. Okay.
Q. And it may apply to people who have already begun
to smoke, not just experimented, but already begun to smoke who have not
yet settled on a brand; right?
*28 A. No, I -- I -- I think once a regular -- you
know, once somebody has begun to smoke, they are no longer a starter.
Q. How do you know that's what the defendants mean
by the use of the term "starter?"
A. I -- I -- I looked at the documents and -- and
assessed it on the basis of the documents.
Q. So on the basis of your assessment of the documents,
without talking to anybody or reading any depositions, it is your testimony
that the term "starters" could not apply to someone who has already started
to smoke; is that correct?
A. No. I -- I said a moment ago that you could have
somebody who had experimented, had several cigarettes, and then when that
person entered the market, if they were targeting that person, that person
would still be considered a starter when they came into the market.
Q. Okay. Let's turn to Exhibit 12579. Sorry, they're
Mr. Ciresi's; I don't know which volume they're in.
A. I've got it. That's okay. Thanks.
Q. Does this document mention targeting anyone under
the age of 18?
This is an RJR -- R. J. Reynolds document.
A. Right. Well again, it -- in terms of targeting,
it -- I don't know --
I don't believe it explicitly says that we are going
to go after people under the age of 18. By 1984, I believe there was a
sensitivity to those kind of statements in -- in -- in documents. But again,
the same kind of thing, basically it cites -- as we covered this morning,
it quite clearly cites that the younger adult smokers are the only source
of replacement smokers. "Repeated government studies have shown that less
than one-third of smokers (30 percent) start after age 18, only five percent
of smokers start under age 24."
Q. But it doesn't mention anybody under the age
of 18 in that document, does it, as a target for RJR's marketing plans?
A. Well it mentioned that 69 percent of the smokers
start under the age of 18, so --
Q. Does it say anywhere let's go out and target
people under the age of 18?
A. It does not say that in this document, no. That's
what people --
Q. And it talks about people 18 and over.
A. Excuse me?
Q. The target group in that document is 18 and over;
isn't it?
A. It's -- I would say -- I would say that the --
you know, the --
Explicitly what they say here is that they're looking
at the -- if we go back to the first page, they're talking about appealing
to 18-year-old smokers. But again, I think if you look at the total context
in which this is written, the knowledge that they have of the fact -- the
number of people who have already adopted by the time they're 18, the tracking
that they're doing of people under the age of 18, while it doesn't explicitly
say we're going to go after people under the age of 18, there are lots
of references in here to people under the age of 18 and the strategic importance
of them to RJR and the industry overall.
Q. Take a look, if you would, at Exhibit 10339.
This is a Philip Morris document.
A. Right. I'm with you.
*29 Q. I'm going to take a break and get a glass
of water myself.
A. Okay.
Q. Do you have that one in front of you?
A. I do, yes. Uh-huh.
Q. You can't read that (displaying unreadable exhibit
on courtroom screens).
This is a document from the Philip Morris Research
Center that Mr. Ciresi asked you some questions about. Do you recall that?
A. Yes, I do.
Q. And it's written by a man named Myron Johnston?
A. Yes, uh-huh.
Q. Do you know who Myron Johnston is?
A. Let's see, I believe he was one of the market
research people. I know from other documents he -- he did a lot of the
tracking studies. I forget his precise title.
Q. Do you know for a fact that Myron Johnston is
a marketing research person?
A. Well what I know is that there's a document in
which he's talking about the NFO studies, the National Family Opinion studies,
and then he says from my own data which I collect, I have data on 15-year-olds
which I use to supplement this. So whatever title he might have, he was
collecting data on the behaviors of 15-year- olds. What --
But if he has a marketing research title in his
-- in his official Philip Morris title, I -- I don't know that I -- I couldn't
tell you that at the moment.
Q. Do you know whether Myron Johnston even works
in the marketing or the marketing research department at Philip Morris?
A. Well that would be similar to the answer that
I gave you a second ago. If I don't know --
You know, I don't know precisely what his title is. I do know that
he's collecting market research information, holding it within the company,
and disseminating it out to other people. Whether the people at Philip
Morris call that market research or Mr. Johnston is not in the market research
department really isn't as significant to me as the fact that he's collecting
this information about the market and disseminating it throughout the organization.
Q. Do you know why he prepared this document?
A. Yes. He says why he prepared it.
Q. Do you know that Mr. Johnston's deposition has
been taken? Do you know that?
A. Yes, I do know that.
Q. Have you read his deposition?
A. Um --
MR. CIRESI: Your Honor, it's a misstatement. His
deposition was not taken in this case. And we've already had this question
six times, whether he read depositions. Asked and answered.
THE COURT: Was a deposition taken, counsel?
MR. BLEAKLEY: Yes, it was. It wasn't taken in this
case, but it was taken, and plaintiffs' counsel have it.
THE COURT: Okay. This is not taken in this case?
MR. CIRESI: No.
THE COURT: Okay. All right. Well you can answer
it if you know.
A. I -- I do understand that his deposition was
taken in -- I forget what state it was, but I understand that, yes.
Q. In any event, you haven't read that deposition.
MR. CIRESI: Your Honor, objection, asked and answered.
THE COURT: Okay. I think he's answered the question.
BY MR. BLEAKLEY:
Q. Do you know --
*30 Do you know what happened with Mr. Johnston's
recommendations?
A. He really doesn't have recommendations here so
much as -- as market research information that he's providing to other
people.
Q. So this isn't a marketing plan; is it?
A. Oh, no, this isn't a marketing plan. I didn't
characterize it as a marketing plan, no.
Q. This is not a marketing plan by which Philip
Morris has targeted people under the age of 18 in its marketing or communications
program; is it?
A. Well no, it isn't a marketing plan, so it couldn't
be a marketing plan of the things that you added on to the end of a marketing
plan. No, it is not a marketing plan. I never said it was a marketing plan.
Q. Would you turn to Plaintiffs' Exhibit 13854.
A. I'm with you.
Q. This is a Brown & Williamson document; correct?
A. Correct.
Q. Did you describe this as a marketing plan?
A. Gee, I forget whether I used that particular
term in -- in -- this morning or not.
Q. The title of this document is "KOOL FAMILY UTOPIAN
OBJECTIVES." Correct?
A. The title of the document is "OBJECTIVES," then
it goes on to state the obstacles that they have to overcome, the strategies,
the rationale, so on and so forth. So there are objectives, but it does
also say strategies.
Q. The title of the document is "KOOL FAMILY UTOPIAN
OBJECTIVES;" is it not?
A. You read that correctly, yes.
Q. And what does the word "utopian" mean to you?
A. Utopian means to me, you know, in a -- in a good
-- in a -- we're having a good day, you know, and the best -- the best
we can do.
Q. Utopian doesn't mean a day that you can't find
at all, utopian doesn't mean the unachievable?
A. I'm sorry?
Q. Utopian does not mean the unachievable?
A. Oh, I don't know. Maybe if we look it up in the
dictionary that is what it would say. It means sort of a good day to me.
I don't know. Maybe.
Q. Does this document anywhere state that the marketing
objective of Brown & Williamson is to target people under the age of
18?
A. I don't believe it refers to people under the
age of 18. It does say that they're targeting young adult starter smokers,
and we know that the vast majority of them are under the age of 18.
Q. Young adult smokers are defined as 18 and older;
are they not?
A. I'm sorry?
Q. Young adult smokers are defined as 18 and older;
are they not?
A. In this document? In this document?
Q. Yes.
Am I wrong? Is it not there in this one?
A. Well I don't -- I don't know. Well I don't see
it. I mean maybe it's here.
Q. In any event, it doesn't say that the marketing
strategy of Brown & Williamson for the Kool brand of cigarettes is
to target people under the age of 18.
A. Well it sort of does say that, because it says
in point two Kool must achieve a user image that is acceptable to the majority
of young adults and starter smokers. In order to be acceptable to the majority
of young adult and starter smokers, you have to go under 18 because only
31 percent of them are over 18.
*31 Q. Well now I thought we already -- you already acknowledged that
several hundred million dollars a year of business for people over the
age of 18 is a substantial market; is that right?
MR. CIRESI: Your Honor, that's a non sequitur. That's
not the question that was asked.
Q. Well let's put it differently. It's a clumsy
question, I agree.
A person who starts smoking at the age of 19 is
a starter, is he not or is she not?
A. Yeah, I would agree with that.
Q. And a person who starts at the age of 24 is a
starter; right?
A. That sounds fair to me.
Q. So the starter smokers in subparagraph B of this
document could very well be applying to that one-third of the new smokers
who are over the age of 18; couldn't it?
A. No.
Q. Why not?
A. Because it says right here they are -- they're
-- they're saying they achieve a user image that is acceptable to the majority
of young adult and starter smokers, and we know that the majority of young
adult and starter smokers are under the age of 18.
Q. That's your interpretation.
A. Well that's a fact. No, that's not an interpretation
of mine.
Q. It's your interpretation that what Brown &
Williamson meant here was the majority of young adult and starter smokers
was specifically intended to target people under the age of 18.
MR. CIRESI: Objection.
Q. Is that correct?
MR. CIRESI: Asked and answered and argumentative.
THE COURT: You can answer it again.
A. Well I -- I'll be repeating myself, I know, but
I mean basically what -- what it says in the document here is that Kool
must achieve a user image that is acceptable to the majority of younger
adult and starter smokers. Now if you're looking for that majority of younger
adult and starter smokers, we know from market research that that majority
is under the age of 18. The median age of adoption is 16, the majority
are under the age of 18. That's a fact.
Q. Unless young adult and starter smokers refers
to people 18 and older.
A. You -- you lost me with that one. I -- I'm sorry.
Q. Well I know you don't accept that, but that is
a possible interpretation; isn't it?
THE COURT: Counsel, please don't comment on the
questions, just ask the questions.
MR. BLEAKLEY: Sorry, Your Honor.
BY MR. BLEAKLEY:
Q. Turn to Exhibit 12493.
MR. CIRESI: Counsel, just so you have it, volume
one goes up to 12613.
MR. BLEAKLEY: Thank you.
BY MR. BLEAKLEY:
Q. Do you have that?
A. I do, uh-huh.
Q. Now you testified this morning --
Let me first ask: This document was prepared in
1974, 24 years ago; is that right?
A. I'm sorry, I missed the last part of what you
said.
Q. This document was prepared in 1974, 24 years
ago; right?
A. That sounds right to me, yes.
Q. And you referred this morning to the statements
in the charts in this presentation, charts one, two, and in particular
chart two, three and four, in which the author referred to the 14- to-24
age group; is that correct?
*32 A. Yes. I referred to those charts, among others,
yes.
Q. Okay. And then the --
Let me ask you first: Do you know the purpose for
which this was prepared?
A. It was a briefing to the board of directors.
Q. Do you know who prepared it?
A. I don't.
Q. Do you know what was done with it?
A. I'm sorry?
Q. Do you know what was done with it?
A. What was done with it?
Q. After the presentation.
A. After the presentation?
Q. Yes.
A. No. It was prepared as a presentation to the
board of directors. I don't know, I suppose it served its purpose in presenting
what they were doing to the board of directors.
Q. Now charts one through six do not set forth the
strategy that is being proposed in this document; do they?
A. They set forth a crucial piece of the strategy
that's being set forth. They do not set forth the entire strategy. They
set forth the target market, which is a part of the strategy.
Q. Where does it say "target market?"
A. Well, I mean it says --
I don't know if they use the particular term "target
market," but it says in chart number two that we're going to speak to four
key opportunity areas that will increase our young adult franchise, and
this -- 1960, this young adult market represents 24 percent -- represents
21 percent of the population. You know, it's the target market. I mean
it's -- and then the competitive analysis follows along on the 18- -- the
14- to 24-year-old group. So I think it's quite explicit in setting out
that the young adult market. They're defining it as the 14- to 24-year-old
group, and then they go on to specify other elements of the marketing plan,
including -- that would be directed to this target market.
Q. But the words "target market" do not appear in
charts one through six; do -- do they?
A. I don't see them in a quick scan here. But certainly
the -- the concept of a specification --
If the question was does -- do charts one through
six result in the specification of the target market, I would say yes,
they do. Did they use the specific term "target market, colon, such and
such, I don't see it on a quick scan that they did.
Q. And the actual strategy proposed in this document,
that begins with chart seven; doesn't it?
A. No, I would -- I would disagree with that. I
mean I --
No.
Q. That's what it says; isn't it?
A. Well it says -- chart seven says strategy, but
I mean if --
Basically they have their competitive analysis and they talk about
younger smokers here. So as we've talked about, a key part of your marketing
strategy is the specification of your target market group. That's what's
done in charts one through six. Specify the target group, we do the competitive
analysis that reveals our position with those target groups, and then we're
going to set out the rest of the elements of the marketing mix.
So a strategy, a marketing strategy requires you
to have a target market.
Q. But the author of this document and the person
who was making the presentation did not use the words "target market" to
describe people under the 18, and he began the discussion of the strategy
with chart seven; isn't that correct?
*33 A. Well I -- you know, I -- I would disagree
with that. I -- I think the --
As I said a moment ago, the charts one through six
I think quite clearly specify the target market that they're talking about,
the 14- to 24-year-olds, and then when they talk about strategy, they say
our -- our strategy becomes clear for our established brand, and they say
direct advertising appeal to younger smokers. So I think again that's a
reinforcement of the idea of the specification of the target market.
I mean I do see, the same as everybody else does,
the word "strategy" next to chart number seven. But a marketing strategy
starts with the specification of the -- of the target market group, and
that's what they've done in charts one through six.
Q. And beginning with chart seven, from then on
in the strategies proposed by this author, do you see anywhere the author
proposing that the RJR target people under the age of 18?
A. Let's see. There are --
You know, there are some cases where you see the
under 35 group without it being specified what -- what the lower limit
on that is. But explicitly targeting the under-18 group? I -- I guess I
was here the other day when you talked to Professor Perry about this same
point and I went back and, you know, I -- I don't see that there's an explicit
reference to the targeting of 14- to 18- year-olds as we go forward in
this document. It's been quite clearly specified on the first two pages
and doesn't need repetition in my mind.
Q. One of the points that you make about this document
was that the strategy proposed sponsoring NASCAR races; correct?
A. That was one of the things that I pointed out
was mentioned in this document. I think it was not so much proposed as
a statement of what they were doing.
Q. Do you know what percentage of the people who
go to NASCAR races are under the age of 18?
A. That's not something I follow, no.
Q. Would it surprise you to learn that only about
three percent --
MR. CIRESI: Well, Your Honor, I'm going to object
to counsel testifying.
THE COURT: Sustained.
BY MR. BLEAKLEY:
Q. After Mr. Ciresi asked you about these documents
that we've just gone through here, he then asked you whether there were
documents that reflected that the strategy of attracting new smokers was
successful. Do you remember that question?
A. I do.
Q. And you cited some documents in support of your
conclusion that this -- this strategy was successful.
A. Uh-huh.
Q. The first of which, if I recall correctly, was
Exhibit 10133, which I now can't find.
THE COURT: Counsel, do you have a extra copy of
10133?
MR. BLEAKLEY: I'm sure I have it here, Your Honor.
I'm just a little disorganized.
THE COURT: That's all right.
MR. CIRESI: The only one I have, Your Honor, is
marked up, unless we have one --
MR. BLEAKLEY: I just found it.
THE COURT: Okay.
MR. BLEAKLEY: It was out of order. Sorry.
MR. CIRESI: Do you have it?
MR. BLEAKLEY: Yup. Thank you.
*34 BY MR. BLEAKLEY:
Q. This was one of the documents that you cited
as support for your conclusion that the strategy of attracting new smokers
had been successful; is that correct?
A. This was one that I cited as being -- as showing
that firms attracted young people to their brands.
Q. And this document is dated 1964; isn't it?
A. It is a 1964 document, and it's reflecting back
on --
With respect to Newport, it's reflecting back on
a period in 1956.
Q. And you mentioned the language that appears on
page six of this document, "The brand was marketed as a 'fun cigarette,'
it was advertised as such and obtained a youthful group as well as an immature
group of smokers."
A. Uh-huh?
Q. And that is the language that persuades you that
this document supports your conclusion that a campaign to attract new smokers
was successful?
A. Well the next line is that marketing was -- Newport
was marketed successfully according to this plan. I do understand, and
I understood this when I cited this, that this does not explicitly say
that there's a young -- youth -- immature group was -- were new smokers,
and, you know, I'm -- my interpretation is that, you know, when you're
young and immature, the likelihood is that a substantial number of those
folks are new smokers when you're that young and immature.
Q. This document doesn't say that it attracted any
substantial number of smokers under the age of 18; does it?
A. It does not explicitly say that, no. It says
youthful and immature, is what it says.
MR. BLEAKLEY: Sorry, Your Honor, I've allowed my
documents to get out of order here. Take me a minute to --
MR. CIRESI: If you tell us the number, counsel,
maybe we have an extra one.
MR. BLEAKLEY: Maybe we can have a real short break
and I can put these back in order. I seem to have mixed them up.
THE COURT: All right. Let's take a short recess.
Don't go too far.
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.
THE COURT: Counsel.
MR. BLEAKLEY: Thank you, Your Honor.
BY MR. BLEAKLEY:
Q. Professor, another of the documents that you
said supported your conclusion that the defendants' strategy of attracting
new smokers had been successful was Exhibit 10195. Do you remember that
document?
Can you find that one?
A. Yes, I do.
Q. Now this document, like Exhibit 10133, talks
about Newport cigarettes; isn't that correct?
A. Yes.
Q. Two of the four documents that you gave as examples
of the success are about Newport cigarettes.
A. I guess two of the --
Now that I think it, two of the specific ones that
I cited at this -- at this point in my testimony were about Newport, separated
22 years in time, but right.
Q. And this document does not say that Lorillard
has targeted people under the age of 18; does it?
A. It says that the base of their business is high
school students.
*35 Q. Well it also says our profile taken locally
shows this brand being purchased by young adults, usually college age;
isn't that correct?
A. Right. There are some black people purchasing
the brand, there are some young -- youth -- college-aged students, but
the base of our business is the high-school student.
Q. Does it say that they targeted high school students?
A. It does not specifically say that, that we targeted
high school students. It says we got them but it doesn't necessarily --
it doesn't explicitly say that they targeted them. They got them.
Q. Look at Exhibit 11780. This is a Philip Morris
document that you cited as support for your conclusion that the program
to attract new smokers had been successful. Do you recall this one?
A. Yes, I do.
Q. And the language that you cited was this language
that appears on page 504.
A. Right.
Q. "Marlboro floundered for eight years and then
hit a responsive chord among post-war baby teen-agers with the theme from
the Magnificent Seven and an image uncalculatedly right for the wave of
teen-agers coming of age -- of smoking age." Is that what it says?
A. I believe you read that correctly, yes, uh-huh.
Q. And is that the language upon which you rely
for your conclusion that the defendants' program of attracting new smokers
and targeting young people was successful?
A. That's one specific statement that I offered,
you know, in support of that, but it is not the total basis of my conclusion.
Q. Even though this document itself says that market
-- that Marlboro hit a responsive chord and an image uncalculatedly right
for the wave of teen-agers coming of smoking age; is that correct?
A. I'm sorry, I missed the question.
Q. Well it uses the word "uncalculatedly." Right?
A. Right.
Q. What does that mean to you?
A. Dead-on perfect.
Q. It means without calculation; doesn't it?
A. Well you asked me what it meant to me. As I read
it in the context, I mean they're saying, hey, we hit the ball out of the
park. How did we do it? We did it with the Magnificent Seven and an image
that was dead-on for these teen- agers.
Q. With an image that was uncalculated; correct?
A. Well un -- uncalculatedly right. Terrific.
Q. Now you said that the third of the primary objectives
of the defendants' marketing and communications programs was to keep people
smoking; correct?
A. I believe that was the second.
Q. Excuse me, the second. You're absolutely right.
I was thinking -- jumping ahead.
A. Right.
Q. The second one was to keep people smoking.
A. Right.
Q. And when you were discussing that, you referred
to Exhibit 13804, a Brown & Williamson document --
A. Uh-huh.
Q. -- and you referred specifically to the language
in this document which says that cigarette advertising has not and does
not cause most people to start smoking; right?
A. I did refer specifically to that language this
morning, yes.
Q. And then I believe you said -- and correct me
if I'm not stating this correctly -- that the person who wrote this document
said that advertising did not cause people to start smoking, divorced from
other communications. Do you remember using --
*36 A. Well --
Q. Do you remember using that language?
A. Yeah. I was specifically referring to the last
sentence in that same paragraph, "In the face of such powerful opposition,
it is hard to believe that cigarette advertising alone could cause such
vast amounts of people to begin smoking."
Q. Okay. So this author didn't say that other communications
programs of the tobacco industry had been successful in getting people
to start smoking; did he or she?
A. Um --
Q. That's your interpretation; correct?
A. Well did --
Did I say that he or she said that?
Q. You said --
That's what I'm trying to find out, is whether you
were attributing to the author of this document the statement that other
means of communication had succeeded in getting people -- keeping people
smoking.
A. No, I was not offering this document in support
of the notion that -- that the total marketing and communications program
gets people to start. This document --
Q. To keep smoking.
A. I'm sorry?
Q. To keep smoking I meant.
A. Well --
Q. I'm sorry.
A. -- let me finish my train of thought there.
Q. I apologize. You finish your answer and I'll
--
A. Let me try it this way. I mean let's -- let's
say what I did this morning. What I -- I offered this document in the part
of my testimony where I was referring to the efforts of tobacco companies
to keep people from quitting, and basically what this document does is
it gets into the ideas of, you know, we're offering reassurance, we're
providing strong, attractive image into which the beseiged smoker could
withdraw, so that was the context in which this was offered.
I did refer to the first part of this document,
which is talking about starters, and basically he's saying that cigarette
smoking all by itself -- cigarette advertising all by itself doesn't cause
vast amounts of people to begin smoking. The -- what I was using this document
for was to reference the part about keeping people from quitting.
Q. This --
The author of this document did not say that other
means of communication were successful in keeping people smoking; did it?
A. I don't believe -- believe that he does. The
-- in particular the -- most of the rest of this document is -- is really
addressing the -- the health -- the health reassurance arguments and so
forth, so I don't believe that there is an explicit statement here that
-- that it causes people to start. He does say the successful brand will
build the complete marketing program by extensive use of premiums, contests
and sponsored events and that sort of thing, but he isn't specific about
what he means by "a successful brand."
Q. Let me ask you: Of the -- assuming the number
is 4,000, approximately 4,000 documents that you read in this case, the
majority of those were ads; weren't they?
A. I would say not by volume, but by the way you
folks in this business count them, that may well be the case.
Q. Less than half of the documents were actually
marketing documents; weren't they?
*37 A. Are you saying ads are not marketing documents?
Q. If you want to call an ad a --
Marketing documents other than copies of ads.
A. I'm sorry, I lost the question.
Q. I'll start over again.
A. Yeah. Thank you.
Q. Less than half of the documents that you reviewed
in this case were marketing documents other than ads; right?
A. Well counting -- I --
Counting an ad as a document, one little thing,
ad that we looked at, and counting, you know, some of these big guys also
as documents, it may well be that the number of ads that were sent, counting
each ad as a document, that that was about the same number as other documents
that I was sent. If you put them on a scale, the documents would outweigh
the ads because the documents were typically much longer than -- than one
page. But I understand the way you count documents in your business is
sort of what's ever not stapled to something else, I think -- at least
that's my interpretation of it -- counts as a document. So it could be.
You know, if you have done that calculation and
want to represent that, I have no basis for disagreeing. But as I said
before, I myself haven't counted and haven't looked at the proportions.
Q. Mr. Ciresi asked you whether there were studies
about the effect of advertising on smokers and smokers' purchases of cigarettes.
Do you recall that?
A. Right. In the academic literature?
Q. In the academic literature.
A. Yeah, right. Uh-huh.
Q. And you said yes, there were.
A. Right.
Q. And then Mr. Ciresi asked you whether the authors
of any of those studies had had access to the internal company documents.
Remember that?
A. Yes.
Q. And you said no, they didn't.
A. Well I said as far as I know.
Q. As far as you knew they didn't.
A. They did not, yeah.
Q. The fact is, as you know, that there is a substantial
amount of published literature on the effects of cigarette smoking -- advertising
on cigarette smoking; isn't there?
A. The number of papers which have been published
doing econometric studies of the relationship between cigarette consumption
and advertising, there's a lot of them.
Q. And they cover a wide period of time; don't they?
A. I'd say that's fair. They -- they're spread out
over long periods of time.
Q. And the studies have been conducted by a number
of different researchers.
A. A number of different researchers, that's correct.
Q. And both in the United States and outside the
United States.
A. The outside the United States part, could well
be; I'm -- I'm not sure.
Q. And these studies you described, these econometric
studies --
A. Well that's what I -- that's one type that I
had -- that I had in mind that there's a lot of. They're -- you know, they're
- - You know, that's not the only kind. But econometric studies are
something that there's a lot of out there.
Q. And these studies uniformly conclude that advertising
does not affect cigarette consumption; don't they?
*38 A. No, they do not.
Q. All right. Would you agree with me that the overwhelming
majority of them conclude that cigarette advertising has little or no effect
on consumption?
A. No, I would not. I mean if you look at various
reviews of the literature, they come out sort of different ways. Some people
review the literature and say, well, based on these econometric studies,
you know, it appears that there is a slight impact, other people say it
doesn't look like it's very big. But mostly it's, you know, so and so found
this, so and so found this, and three people found this and three people
found that. And I think basically, as I was expressing this morning with
Mr. Ciresi, that my problem with those studies is that they are so -- so
limited in the amount of information that -- that they're based on that
they basically are just looking at the sales which are coming out and the
advertising which is going in, and it's very difficult to say what the
-- what the right lag structure that you build into those models is. So
there's -- you get results all over the place.
Q. All over the place?
A. There are some people who found -- who have found
it to be significant -- a significant effect and then some people who found
no effect.
Q. And you think it's roughly even?
A. You know, I have really --
I mean I've read a number of -- a number of studies
and, you know, I -- I think -- I haven't gone back to count them up because,
frankly, that particular methodology I don't think gives you a lot of insight
into what's going on because it's stripping out advertising --
There's two problems: one is sort of a methodological
issue, that it's just looking at whether little wiggles in advertising
affects sales; and the second thing is, as I've said, you know, stripping
out advertising and just looking at it all by itself divorced from the
rest of what's going on in the marketplace is not a very good way to understand
what the impact of a particular -- any element of the marketing, total
marketing and communications program is.
Q. Now you said that after you submitted your expert
report in this case, you reviewed the published literature or some published
literature. I don't remember which it was.
A. Right.
Q. Which published literature was it that you reviewed?
A. Basically I went back and looked at the journals
in the - - in the marketing field, such as the Journal of Marketing, the
Journal of Marketing Research, Marketing Science, Journal of Consumer Research,
that sort of thing.
Q. Did you review the studies dealing with the effect
of cigarette -- of cigarette advertising on consumption?
A. I saw some of them in the course of that -- in
the course of that investigation, yes.
Q. Just some?
A. Well you mean is there -- is there another one
that I didn't look at somewhere?
Q. Well I'm trying to get an idea of whether or
not you completed -- whether you conducted a complete review of the literature,
published literature on the effects of cigarette advertising on consumption.
*39 A. No, I did not myself make an exhaustive,
you know, go -- I didn't go read every paper, econometric study, or the
relationship between sales and advertising in the cigarette industry. I
did not go read every paper. That would not in my judgment have been a
very reasonable use of my time.
Q. But you know that there are in fact a number
of studies that have concluded that cigarette advertising does not materially
affect consumption; do you not?
A. I know that there are some people who have done
econometric studies where they get a sales history of cigarettes, typically
at the industry level, and an advertising history, they run this regression
model and they find when I strip -- when you strip out that element of
advertising, ignore what's going on with promotion, ignore what's going
on with public relations, ignore what's going on in the environment overall,
they do not find an effect of advertising stripped out from the rest of
the marketing, total marketing and communications package on overall consumption
in the industry.
As I said a couple minutes ago, I don't think the
methodological -- that methodology is really appropriate to studying the
question, and the main reason people are using that methodology is because
the only data they can get their hands on is basically the sales and advertising
time series.
Q. You know that there are also holes that show
that cigarette -- cigarette advertising does not play a major role in people's
decision to smoke; don't you?
A. I would not conclude -- I --
I think I'm familiar with the data to which you
are referring, but I would not say that that is an appropriate conclusion
from those.
Q. Are there in fact Gallup polls which show that
cigarette advertising plays no significant role in the decision that people
make to smoke?
A. I think that's an improper interpretation of
those polls.
Q. Which polls are we talking about?
A. The Gallup poll you just mentioned.
Q. Well which ones do you know about?
A. Well the ones that you sent over a few days ago
would be the ones that I had in mind.
Q. You looked at those?
A. I did.
Q. Okay.
A. I understood that I was under court order to
look at those.
Q. And -- and why do they not show that cigarette
advertising plays no significant role in the decision of people to smoke?
A. Well I think if you -- you know, if you look
at the particular wording of the question, you know, you can see whether
that's a reasonable inference to draw when you look at the wording of the
question which people were asked.
Q. Well let me ask you this: Do any of those polls
show cigarette advertising to be an important factor in what makes people
smoke?
A. I don't think those polls ask the question which
would be capable of showing that.
Q. What questions did they ask?
A. I may not get this exactly right, but I'll give
it a shot and you can show me in a minute, I imagine, how close I come.
But as I recall, the question is something of the variety: What person
or event was most influential in your starting smoking?
*40 Close?
Q. Not too close, but that's all right.
A. Not too close? Oh, rats.
Q. Does "Looking back, what do you think was the
main reason you started smoking?" does that sound familiar?
A. That may have been another -- another question,
right. But certainly the -- the one that I maybe didn't come too close
--
There is one that I came reasonably close on with
what I just said.
Q. Okay.
A. You're probably right.
Q. But these polls asked people why they started
smoking; didn't they?
A. I -- I don't recall the specific phrasing, but
if you stipulate to me that the Gallup poll had that question in it, you
know, it could -- it could well be.
Q. And would you agree with me that in none of these
polls did a significant percentage of the respondents say that cigarette
advertising played a significant role in their decision to smoke?
A. I'd really rather look at the study and see exactly
what the question was and -- and what people said rather than have me speculating
as to whether they said that, when, you know, we in fact do know what the
specific wording of the question was and what -- what the answers people
gave were.
Q. Are you familiar with the congressional testimony
given by former FTC Chairman Daniel Oliver on this subject?
MR. CIRESI: Your Honor, I'm going to object to that
as being hearsay. It's an improper question.
THE COURT: Well, I guess he can answer if he's familiar
with it.
A. Yes, I am familiar with it.
Q. Can you refer in your binder to tab 62.
A. We're over onto your set now, set of binders
-- your set of binders?
Q. Yes. I'm sorry, I didn't hear.
MR. CIRESI: May we have an exhibit number, counsel?
MR. BLEAKLEY: CW000150.
THE WITNESS: Sorry.
Q. Do you have the exhibit?
A. Yes, I do.
Q. I want to refer you specifically to page 12.
A. Okay.
Q. Full paragraph that appears on that page begins
with the word "Well...," and the last sentence.
A. Uh-huh.
Q. You've seen that before; have you not?
A. I read it last week, yes.
Q. And you know that is the -- the opinion expressed
by former Federal Trade Commission Chairman --
MR. CIRESI: Excuse me.
Q. -- Daniel Oliver in congressional testimony;
is that right?
MR. CIRESI: Your Honor, I'm going to object to the
form of the question, it's an improper use of a document.
THE COURT: Sustained.
Q. But you have read this testimony by Chairman
Oliver; have you -- have you not?
MR. CIRESI: Objection, asked and answered.
THE COURT: It's been asked and answered, counsel.
Q. And isn't it correct that former Federal Trade
Commission Chairman Oliver expressed the view that cigarette --
MR. CIRESI: Your Honor -- excuse me. I hate to interrupt
you, counsel, I'm sorry, but it's an improper use of a document. He's going
to quote from a document that is not appropriately being used.
THE COURT: Okay. The objection is sustained, counsel.
BY MR. BLEAKLEY:
*41 Q. Are you familiar with a study conducted --
reported in the Journal of Advertising Research in 1991 on this subject?
A. I am not --
I mean I know the Journal of Advertising Research
has -- has had a number of articles on this subject. Whether there was
one in the year 1991, I am not certain.
Q. Do you know whether you have read an article
in the Journal of Advertising Research that deals with the effect of cigarette
advertising on consumption?
A. I believe I have.
Q. Okay. And is the Journal of Advertising Research
a reputable journal?
A. It's not one of the top-tier journals in the
field, but it -- it is, as I understand, a peer-reviewed journal. But it's
not one of the top- tier journals in the field.
Q. And you have reviewed this; have you not? Is
that correct?
A. Excuse me?
Q. You've reviewed this article?
A. Well I'm not sure --
Q. The study in the journal -- well tell --
Why don't you take a look at tab 68.
A. Okay.
MR. CIRESI: May we have an exhibit number, counsel?
MR. BLEAKLEY: Yup. It's Exhibit No. 001415.
MR. CIRESI: Is there a prefix?
MR. BLEAKLEY: I'm sorry, I've got the wrong -- I
gave you the the wrong number. LZW502147. Gave you a Bates number instead
of an exhibit number, LZW502147.
MR. CIRESI: Thank you.
BY MR. CIRESI:
Q. I'm sorry, doctor.
A. No, I was just waiting.
Q. Okay. And you -- you had previously reviewed
this article; is that correct?
A. I believe I had.
Q. And this is a peer-reviewed journal; correct?
A. I believe so. I'm honestly not certain, but I
believe so.
Q. Okay.
MR. BLEAKLEY: Your Honor, we would offer this as
a learned treatise, exhibit LZW502147.
MR. CIRESI: There's no foundation for that. He hasn't
testified that he's relied on it or anything else. Improper foundation.
THE COURT: You'll have to lay foundation, counsel.
BY MR. BLEAKLEY:
Q. Is this the kind of journal article -- journal
and article that experts in the field of advertising rely in the normal
course of their duties and research?
MR. CIRESI: Objection, that's irrelevant.
THE COURT: You can answer that.
A. I -- I really wouldn't have a basis for answering
that.
Q. So you don't know whether this is the kind of
study that would be relied upon by experts in the field of advertising.
MR. CIRESI: Your Honor, I'm going to object to that.
Calls for speculation and conjecture. Which experts? For what purpose?
The issue is --
THE COURT: Counsel, just make your --
MR. CIRESI: Improper foundation.
THE COURT: All right. Sustained.
BY MR. BLEAKLEY:
Q. Have you read the economic report of the president
in 1987?
A. I believe I reviewed it.
Q. And have you read the statement made in the economic
report of the president that deals with the effect of cigarette advertising
on consumption?
A. I believe I did.
Q. And what did the --
What was the conclusion reached by --
MR. CIRESI: Objection, again improper use of a document.
Calls for hearsay.
*42 THE COURT: Do we have the document?
MR. BLEAKLEY: Yes, I do, Your Honor. Tab 64.
MR. CIRESI: May we have an exhibit number, counsel?
MR. BLEAKLEY: CW000158, The Economic Report of the
President. It's an official government report transmitted to the Congress
in January 1987, together with the annual report of the Council of Economic
Advisors.
Q. Are you having trouble finding it, Your Honor?
THE COURT: No, I found it. What are we are waiting
for?
MR. BLEAKLEY: I'm sorry. I was waiting for you to
find it.
THE COURT: Are you going to be introducing it?
MR. BLEAKLEY: Yes. I move the admission of --
THE COURT: Okay.
MR. CIRESI: Well it's not a complete document.
MR. BLEAKLEY: -- CW000158 as a government report.
MR. CIRESI: I note there's only one chapter. It's
an incomplete document.
THE COURT: Do you have the entire document, counsel?
MR. BLEAKLEY: I don't have it with me right now,
but I can certainly get it.
THE COURT: Okay. Well we'll be recessing now. We're
certainly not going to go late and St. Patrick's Day.
MR. BLEAKLEY: I thought you'd say that.
THE COURT: Especially I'm looking at this wave of
green in the jury box.
Could you provide a complete document then tomorrow?
MR. BLEAKLEY: Yes.
THE COURT: All right. We'll recess, reconvene tomorrow
morning.
THE CLERK: Court stands in recess, to reconvene
at 9:30 tomorrow morning.
(Recess taken.)