STATE OF MINNESOTA AND BLUE CROSS AND BLUE SHIELD OF MINNESOTA,

PLAINTIFFS,
 

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 19, 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.")
 

THE COURT: Counsel.
 

MR. GILL: Thank you, Your Honor.

Good morning, ladies and gentlemen.
 

(Collective "Good morning.")
 

ADAM B. JAFFE called as a witness, being previously sworn, was examined and

testified as follows:
 

BY MR. GILL:
 

Q. Good morning, Professor Jaffe.
 

A. Good morning, Mr. Gill.
 

Q. Do you recall toward the end of the day yesterday you were discussing a number of

exhibits that dealt with a verbal agreement, gentlemen's agreement not to conduct

in-house animal testing?
 

A. That's correct.
 

Q. And the very last exhibit that we dealt with yesterday concerned the closure of

RJR's biological testing facilities on March 19, 1970. Do you recall that?
 

A. That's correct.
 

Q. Now Professor Jaffe, in your review of the defendants' internal

documents, did you locate in the files of any of the other defendants any reference to

an agreement between defendants not to conduct in-house animal testing?
 

A. Yes, I did.
 

Q. Would you turn, then, to Exhibit 2549.

Professor Jaffe, this is a document that was produced by which defendant?
 

A. BATCo.
 

Q. In the upper left-hand corner it indicates that it is strictly private and confidential?
 

A. That's correct.
 

Q. It concerns a meeting with Dr. Helmut Wakeham, vice- president and director of

research, Philip Morris Inc., 10th September 1970; is that correct?
 

A. Yes.
 

Q. And if you go to the final page of this document, do you find the initials of the

author?
 

A. Yes, DGF.
 

Q. And he dated his initials on 16th September, 1970?
 

A. That's correct.
 

Q. And DGF, are those initials familiar to you?
 

A. Yes. I believe that's Dr. Felton, who was a BATCo scientist. Q. Now where in this

report does Dr. Felton reference an industry agreement not to conduct in-house

biological testing?
 

A. On page two, in the paragraph under the heading "Philip Morris Affairs."
 

Q. Why don't you take us through what Dr. Felton had to say about what he and Dr.

Wakeham discussed with respect to that subject.
 
 

*2 A. Okay. Dr. Felton reports that Dr. Wakeham told him, "One result of the greater

influence which Wakeham has with Mr. J. Cullman has been the agreement, albeit

reluctant, to permit Philip Morris to do 'in-house' biological work. When this was first

mooted, Wakeham was told that there was a tacit agreement between the heads of the

US Companies that this would not be done."
 

Q. Let me stop you right there.

What is your understanding of the meaning of the term "mooted?"
 

A. What it means is when it was first raised or suggested by Wakeham.
 

Q. Now do any of the documents that you have reviewed in this case provide any

support for the notion that Dr. Wakeham at some point suggested the need to conduct

in-house biological testing to senior management at Philip Morris?
 

A. Yes. There's a document from 1964, a report that he produced in response to the

Surgeon General's report, where he -- he lays out a suggested program for Philip Morris

in response to that report that included biological research.
 

Q. Now there's a further reference in that second sentence to a tacit agreement. How

would a tacit agreement relate to a verbal agreement or a gentlemen's agreement?
 

A. I think they're all basically the same ideA. It's an agreement that is not written

down but that is understood among the companies.
 

Q. Did you find any support in the documents that you reviewed for the notion that Dr.

Wakeham was told there was a tacit agreement between the heads of the U.S.

companies, and that this type of research would not be done?
 

A. Yes. We know that in 1964 he had advocated this kind of program, and that in

1968, when he set about to write another memo advocating a similar program, we

know that in the first draft of that memo he acknowledged that this proposal would be

inconsistent with the gentlemen's agreement, which certainly suggests that

somewhere between 1964 and 1968 he was told or learned about the existence of this

agreement.
 

Q. And going outside the defendants' internal documents, did you come across any

other information that would support the notion that Dr. Wakeham had been informed

of this tacit agreement, verbal agreement, or gentlemen's agreement?
 

A. Well as we talked about yesterday in his deposition, he -- he said that he did know

about this agreement.
 

Q. All right. Would you continue, professor.

A. Okay. It says, "Wakeham had countered by saying he knew that Reynolds, Lorillard

and American were all undertaking some and that Liggett and Myers had never been

party to the agreement."
 

Q. Now did you find in your review of the internal documents any support for the

proposition that Dr. Wakeham had indicated concerns about the activities of Reynolds,

Lorillard and American with respect to their compliance with this agreement?
 

A. Yes. This sentence is essentially a summary of several paragraphs of the document

we looked at yesterday, the -- the memorandum entitled "NEED FOR BIOLOGICAL

RESEARCH," in which Wakeham had laid out in his memo to Mr. Goldsmith precisely

these concerns regarding Reynolds, Lorillard and American, as well as his view that

Liggett & Myers had not been party to the agreement.
 

*3 Q. All right. What else did Dr. Felton have to say about this conversation?
 

A. He goes on to say that, "Cullman had been incredulous" -- Cullman was the CEO of

Philip Morris -- "had been incredulous and had phoned Galloway, the President of R.

J. Reynolds who had denied Reynolds were doing any bioassay." And then it says,

"When Cullman had told Wakeham this, Wakeham's response had been to quote the

Reynolds work on the Senkus smoking machine and to claim that he had floor plans

showing outline area allocations."
 

Q. Let me stop you again, professor. Did you find any support in the documents for the

proposition that Cullman had had a conversation with Wakeham in which Cullman

could have conveyed to Wakeham that Galloway had denied any involvement in any

such research?
 

A. Yes. As we saw yesterday, the memo from Mr. Cullman to Mr. Wakeham refers to a

conversation that they had when Mr. Cullman went to Richmond, Virginia, sometime

in late February 1970.
 

Q. And prior to that time, did you see any documents that would have suggested that

Dr. Wakeham's superiors had been informed of Dr. Wakeham's views with regard to

testing occurring at RJR that they might have passed along to Mr. Cullman?
 

A. Yes. The document to -- which was addressed to Mr. Goldsmith laid out Mr.

Wakeham's concerns.
 

Q. So at some point in time, Wakeham and J. Cullman had had a conversation with

respect to Dr. Wakeham's concerns.
 

A. That's correct. And as we discussed yesterday, we know that Mr. Wakeham did have

-- or Dr. Wakeham did have in his possession floor plans of the Reynolds facility,

because we saw the memorandum from Mr. Carpenter to Dr. Wakeham which

contained as an attachment literally floor plans of the Reynolds facility. So Wakeham

had those floor plans and could well have showed them to Mr. Cullman when they met

in Richmond in late February of 1970.
 

Q. And please continue.
 

A. It says, "This too had been relayed to Galloway by Cullman," meaning that Mr.

Cullman, the CEO of Philip Morris, had told Galloway, the CEO of Reynolds, that

Cullman had floor plans showing the Reynolds research facility where animals were

used, it says, "This too had been relayed to Galloway by Cullman, incredible though it

may seem, and Galloway had visited the Reynolds Research Department to find it was

substantially true."
 

Q. Now let me ask you, Professor Jaffe, if Mr. Galloway, the president and CEO of RJR

Tobacco, had visited the research facilities of RJR sometime between late February

1970 and March 19, 1970, what would he have found?
 

A. Based on the documents including the floor plans that Dr. Carpenter had, he would

have found a facility that was doing animal -- in-house animal research related to

smoking and health.
 

Q. What is your interpretation, professor, of the significance of Dr. Felton's expression,

"incredible though it may seem?"
 

A. Well --
 

MR. BLEAKLEY: Your Honor, I object, that calls for speculation.
 

THE COURT: You may answer that.
 

*4 A. I think what it shows is that Dr. Felton had the same reaction to this chain of

events that I had, which was the notion that the CEO of one company would call up the

CEO of a competitor and tell them "I know you're doing research of a certain kind

which I think you shouldn't be doing," is incredible. That's not the behavior that --

"incredible" in the sense of hard to believe, not "incredible" in the sense of he wouldn't

believe that it happened. That's not the kind of behavior that competitors engage in,

and the notion that Galloway took those calls or paid any attention to them would not

be the kind of behavior you would expect from competitive firms.
 

Q. What else did Dr. Felton have to say?
 

A. Well he says at the bottom of the page, "There had been a sudden reorganization at

Reynolds, resulting in the closure of the biological section, the severance of product

development (which remained with the tobacco division) from the research department

(which became a corporate activity) and ultimately the resignation of Dr. Eldon

Nielsen, who had been in charge of biology."
 

Q. Now Professor Jaffe, based upon Exhibit 12756, which we discussed at the end of

yesterday's session dealing with the closure of the biological facilities at RJR, is it your

opinion that the closure was sudden, as expressed in this particular exhibit?
 

A. Yes. We saw that Dr. Senkus said that in his speech.
 

Q. And what about the remaining information that's contained at the top of the page

that's now on the screen, is there any support for that information in the -- in Exhibit

12756?
 

A. Yes. We do know that Dr. Nielson was the head of biology, that was referred to in the

memorandum from Mr. Carpenter describing his visit to the facility, and we also know

that Dr. Nielson did eventually leave Reynolds based on Dr. Senkus's deposition where

he confirmed that that had in fact occurred.
 
 

Q. Now do you recall that there were questions put to Dr. Senkus in his deposition

with respect to the timing of the departure of Dr. Nielson?
 

A. Yes.
 

Q. Now as we have previously seen, the meeting between Wakeham and Felton occurs

on September 10 of 1970, approximately six months after the closure.
 

A. That's correct.
 

Q. Now what is your recollection of Dr. Senkus's recollection of the timing of Dr.

Nielson's departure with respect to the specific matter of whether or not it occurred

before or after September 1970?
 

A. Dr. Senkus couldn't recall whether Dr. Nielson's departure from Reynolds had been

before or after September of 1970.
 

Q. Do you recall the explanation that Dr. Senkus gave for the closure of RJR's

biological facilities?
 

A. Yes.
 

Q. What was it?
 

A. Well it was not very clear, but the gist of it was that there had been some kind of

management change or broader reorganization at Reynolds, and that that had been the

reason for this -- the termination of the biological research in North CarolinA.
 

Q. A change in the viewpoint of management with respect to this type of work?

*5 A. Yes.
 

Q. Now I'll ask you -- and --

And of course what we've seen from the documents so far is that Mr. Galloway was the

president and CEO of RJR Tobacco.
 

A. That's correct.
 

Q. Now I'd like you to assume, based upon answers to interrogatories that have been

supplied by defendants in this case, that Mr. Galloway continued to be the president

and CEO of RJR Tobacco until June 18, 1970, when he was replaced by William Smith.

Would those facts be consistent with Dr. Senkus's explanation?
 

A. They don't seem to be, since he was suggesting that it was a change in

management that was the explanation for the termination of the biological research in

March of 1970.
 

Q. Based upon everything that we have discussed this morning and yesterday, do you

have any opinion -- have you reached any opinion with respect to the accuracy of the

account of this incident that is contained in Dr. Felton's report?
 

MR. BLEAKLEY: Objection, Your Honor, calls for speculation. Also invading the

province of the jury.
 

THE COURT: Sustained. BY MR. GILL:
 

Q. If Dr. Felton's report were accurate, Professor Jaffe, what would be the significance

of these events?
 

A. Well what we have here, if this report is accurate -- and Dr. Wakeham in his

deposition didn't dispute the accuracy of this report, he said that he did meet with Dr.

Felton but couldn't recall whether he had discussed these matters with Dr. Felton --

and if this is accurate, then what we have here is -- is a blatant example -- (clearing

throat) excuse me -- of communications at the absolute highest levels of these two

companies in a successful attempt to suppress in-house animal research, which, as

we've discussed, was a component of this agreement. And this research is a

competitive activity -- or it should have been a competitive activity that, if these firms

were competing, should not have been discussed, and certainly the CEO of Reynolds

should not have terminated this activity as a result of a conversation with the CEO of

Philip Morris.
 

Q. Was the closure of this biological facility in the competitive interests of RJR?
 

A. No, I don't think so. I think we've seen in the documents of several of the companies

how, from a competitive point of view, it was very important to do this kind of research

and in fact important to do it in-house, and so from the competitive perspective of

Reynolds, this would have been something that they would have wanted to continue.
 

Q. Absent a collusive agreement, Professor Jaffe, can you conceive of any other

explanation for this conduct?
 

MR. BLEAKLEY: Objection, Your Honor, calls for speculation.
 

THE COURT: You may answer that.
 

A. Absent a collusive agreement, I can't see any explanation for this conduct, if I

include in this conduct the discussions between Mr. Cullman and Mr. Galloway.
 

Q. All right. Professor, do you recall that among the concerns that Dr. Wakeham had

been expressing, one of his concerns was that American Tobacco had been violating

the agreement not to conduct in-house animal testing?
 

*6 A. That's correct.
 

Q. Based upon your review of the industry's internal documents, was Dr. Wakeham

correct in his concerns?
 

A. No, he wasn't, not regarding American.
 

Q. All right. Let's turn to Exhibit 21951, please. This exhibit was produced by what

company, professor?
 

A. American Tobacco.
 

Q. And it is a "CONFIDENTIAL MEMORANDUM TO MR. HETSKO RE CONFERENCE

WITH MESSRS. HARLAN AND HARLOW ON WEDNESDAY, AUGUST 25, 1965, AT" -- or "AMERICAN TOBACCO LAW LIBRARY;" is that correct?

A. That's correct.
 

Q. Who was Mr. Hetsko?
 

A. I believe Mr. Hetsko was the general counsel of American Tobacco.
 

Q. And who was --

Who were Messrs. Harlan and Harlow?
 

A. Harlan and Harlow were scientists or researchers at the American research facility.
 

Q. And who is the author of this memorandum?
 

A. The author is an outside attorney for American named Janet Brown.
 

Q. All right. The second paragraph on the first page reads, "I" --

That would be referring to Janet Brown?
 

A. That's correct.
 

Q. -- "opened with the explanation that we were there at your request."

"Your" would refer to whom?
 

A. Mr. Hetsko.
 

Q. "Our only purpose was to explore with them," --

And that would be whom?
 

A. Dr. Harlan and Dr. Harlow.
 

Q. -- "first, the background, purposes and proposed modus operandi of the postulated,

quote, biological, unquote, program which you had only recently learned about, and

second, to review some of the most fundamental problems a program of the nature

indicated in Mr. Harlow's memorandum to you would pose for the Company in its

public, medical and legal positions in the health controversy."

What is the significance of what Ms. Brown is reporting in that introductory

paragraph?
 

A. Well what she's saying -- this is explained further later in the memorandum -- is

that it had come to Mr. Hetsko's, the general counsel's attention that Harlan and

Harlow and other scientists at American were about to embark on a program of in-

house biological research, and that basically he had asked Janet Brown to come and

speak to them about essentially why they shouldn't do that.
 

Q. Would you expect that scientists in a competitive company would be reporting to

lawyers with respect to their intentions to conduct biological research?
 

MR. BLEAKLEY: Objection, Your Honor, that calls for speculation. That's not within his

competence.
 

THE COURT: Sustained.
 

Q. Let's go on, Professor Jaffe. The final sentence of that paragraph reads, "You would, I

explained, wish to review these matters with them (and us) again on your return, and

perhaps with Messrs. Hager and Heimann as well."

Do you know who Mr. Heimann is?
 

A. Yes. I think at this time Mr. Heimann was the president of American Tobacco.
 

Q. Or as of 1965, at least a very senior executive prior to becoming the president and

CEO of American Tobacco; is that correct?
 

A. Okay.
 

Q. Now what does this indicate with respect to referencing that these matters may be

discussed not only between the lawyers and the scientists, but also senior

management?
 

*7 A. Well I think it would just indicate that this was an important issue, an issue of

significant concern for the company.
 

Q. All right. It goes on to state, "At the conclusion of our conference Harlow stated that

the opinion that the program contemplated would make the Company's past and

current position in the health fields 'untenable'. Harlan thought, quote, we'll have to

give it up, bracket, the program, bracket, end quote. Harlow ultimately stated that,

while the program was important and he wanted very much to do it, he would certainly

not want to do anything that, quote, has an impact on the Company's position or if it

makes that position any less sound than it now is,' end quote.

How would this type of a program, suggested by Harlow, have fit into the process of

creative destruction?
 

A. Well I think, as indicated by Harlow when he says it's important and he wanted to

do it, this kind of research program is among the kinds of research that the company

would have to be doing if it was going to engage in -- competitively in the process of

creative destruction, because as we'll see later in the document, they understood that

from a competitive point of view this was research that they needed to be doing and

that it was important that they be doing it in-house.
 

Q. Did Ms. Brown go on in her memorandum to report on the origin of the idea to

engage in this type of a program?
 

A. Yes.
 

Q. All right. If you'd look at page seven, please. Directing your attention to the middle

of the page, there is a section that deals with the genesis of proposed biological

research program.
 

A. That's correct.
 

Q. What generally is being reported in this section of the memorandum, professor?
 

A. Well what's being reported here by Ms. Brown is what the scientists told her about

why they had made the decision that it was important to undertake this new in-house

biological program.
 
 

Q. And apparently there were two motives?
 

A. That's correct.
 

Q. And what were the two motives?
 

A. Well it says there right under the heading, "Two prime motives engendered the

move to institute a Company biological research program. One was deep dissatisfaction

with the conduct of experimental work by independents in this areA." And "The other

was the need for commercial security in the development of new products."
 

Q. What does "independents" refer to?
 

A. "Independents" here refers to outside researchers who American had been using to

do some biological research on a sort of, quote, outhouse basis rather than an in-house

basis, and what Harlan and Harlow were reporting was that they were very dissatisfied

with what that was producing for the company in terms of the company's needs.
 

Q. Does the memo go on to explore the basis for the two objections that the scientists

had to having this type of work conducted by an outside research firm?
 

A. That's correct.
 

Q. All right. If we turn, I think, to the next page, the first full paragraph on that page

starting out with "There is strong feeling, thus, that experimental work which has --

which has to be farmed out to others lacks the scientific standards the Company and

the nature of the work demands."
 

*8 What is the author referencing there and what further explanations of that concept

were attributed to Messrs. Harlow and Harlan?
 

A. Well basically what they're saying is they feel that the quality of the work that was

being done by the independents was not up to the standards of the company, contrary

to Dr. Wakeham's explanation at his deposition that the reason this work was going to

be done on the outside was because the companies weren't competent to do it.

What the American scientists are saying is they're finding that they can't get

competent outsiders to do it, and therefore it's important for them to do it in-house so

that they can maintain the scientific standards that they wish to maintain.
 

Q. You referenced Dr. Wakeham's testimony at his deposition in this case on that

subject.
 

A. That's correct.
 

Q. What had Dr. Wakeham said on this subject in internal memorandum -- internal

memoranda prior to -- well prior to the date of his deposition?
 

A. Well as we discussed briefly yesterday, Dr. Wakeham also, when he was writing

memos at the time in the 1960s, had made arguments similar to the arguments that

Dr. Harlan and Dr. Harlow were making about why it's important to do this research

in-house rather than through contracts with independents.

Q. Did Harlan and Harlow provide Ms. Brown with specific examples in support of their

views?

A. Yes, they did.

Q. All right. If you go to the next page, page eight, about the fourth line down from the

top of the page --

A. Yes.

Q. Are we on page eight? There we go. Fourth line from the top, please.

A. Wait, you want the --

Q. I'm sorry, I've been misspeaking. We need page nine. And I need to go see my

optometrist with respect to these glasses.

All right. "For example...," would you carry it from there, Professor Jaffe?

A. Sure. It says, "For example, Foster Snell's techniques for measuring nicotine (in

connection with Carlton) were so imperfect that their technicians failed to find any

nicotine at all on the first series of tests. The laboratory had to reconstruct all their

procedures (and, says Harlan, Company employees in effect ran the tests in the

Company's laboratory). This is almost uniformly Company experience with

independents. And Snell is one of the better consulting independents. In short,

outside research caliber is not high, competence in problem analysis is dubious, and

standards of technique development and execution have been far below the Company's

own standards."

Q. And in this memo, had Harlow and Harlan also registered concerns about security

in connection with having the work done by outside consultants?

A. Yes.

Q. Okay. Now at some point in this memorandum does Ms. Brown address the

scientists' understandings with respect to the potential value of doing this research?

A. Yes.

Q. And if we would go to page 11, please, in the middle of the page, what -- what was --

what is being discussed there, Professor Jaffe?

*9 A. Well she's again referring -- reflecting or recording what she was told, and she

says, "To Harlan and Harlow this is obviously the arena of the maximum future

commercial importance in terms of new products. And the fact that the biological work

necessary to compete effectively in this area is so intimately involved with new

products is the second compelling reason for wholly intra-Company work. Security is

in peril where independents are involved. And the Company has no means whatever of

insuring effective control in this important commercial and scientific areA."

Q. How do you rate the sophistication of these scientists with respect to their

appreciation for the potential benefits of long-term product development?

A. Well it seems clear that they -- they had a vision, that they understood that it was

important that the future of the company, the competitive future of the company was

intimately tied with this kind of research, and that not only was it important to do it,

but that when you're doing research that is of such tremendous commercial

significance, you don't want to be doing it with outsiders because you can't control the

security of what they're doing and you can't control the process.

Q. Does the memo then go on to discuss the purposes of the type of research that

Harlan and Harlow had in mind?

A. Yes, it does.

Q. I think going to the next page, near the -- the bottom third of page 12, it references

that "The over-all purposes appear to be several fold:"

The first is "To develop techniques to measure and evaluate the biological effects of

new American Tobacco Company, paren, and other, paren, products, and to compare

new American Tobacco products, paren, among themselves and with others, close

paren, with respect to such effects, paren, particularly in relation to ciliary function,

close paren."

Now just taking this as an example, is the type of research that is being proposed there

consistent or inconsistent with competitive behavior?

A. No, this kind of research would be very consistent with competitive behavior. They

would be trying to do the research necessary to improve their products, to figure out

how their products compare to other products, and to include them.

Q. So comparing their products to other products in this context is not

anti-competitive but it is pro-competitive.

A. Yes, I think so.

Q. Because who would benefit?

A. Well the outcome of this, if it was allowed to -- to reach fruition, would be that

American would be trying to improve their products relative to its competitors, and the

-- the customers, the smokers, would benefit.

Q. All right. Does the memorandum then go on to discuss Ms. Brown's assessment of

the fundamental problems involved in pursuing this research?

A. Yes, it does.

Q. All right. Let's go on to page 25, please. Down at the bottom of that page, what is

being discussed in this section, Professor Jaffe?

A. Well this --

The heading indicates that in this section of the memorandum they explore the

fundamental problems posed by the proposed program.

*10 Q. So the author states that in the afternoon she explained to the scientists at the

outset that Mr. Hetsko had asked the three of them -- had asked Ms. Brown, and

apparently there were some other attorneys that were with her from her law firm?

A. That's correct.

Q. So that's the reference to "us," she and two other lawyers from her firm?

A. Yes.

Q. To bring to the attention of Harlan and Harlow the most fundamental of the

problems that Ms. Brown and her associates anticipated the company would face when

it undertook the described program. And then down about in the middle of this next

page, 26, does she reference that the program would be most likely viewed with respect

to three potential descriptions?

A. Yes. She indicates that it would be viewed as a biological research program, as a

cancer research program, and as an animal research program.

Q. With respect to the first of those, "as a biological research program into certain

questions of tobacco use in relation to human health," does that phraseology have any

familiar ring in terms of the documents that you've reviewed in this case?

A. Well it describes really two things -- or there's two places we've seen similar

language. It describes the kind of research that the Frank Statement said that the TIRC

and then the CTR were going to do, and it also describes the kind of research that we

know the gentlemen's agreement said that the companies were not going to do

in-house.

Q. And you mentioned the gentlemen's agreement, and I'm now attempting to display

to the jury Exhibit 30210. Were you referencing the language in the Frank Statement

that reads, "We are pledging aid and assistance to the research effort into all phases of

tobacco use and health?"

A. Yes.

Q. Now not to belabor this, Professor Jaffe, but with respect to the possibilities that the

programs would be viewed in any of these three ways, would any of those ways be

inconsistent with the process of creative destruction?

A. No. All of these aspects of the research would be important parts of a competitive

research program.

Q. And do you recall whether Ms. Brown at some point in the memorandum reports on

the history up to then of American Tobacco's efforts with respect to biological research?

A. Yes.

Q. I think you'll find that on page 31. It would be the first full paragraph that starts

near the middle of the page.

What is being reported there, Professor Jaffe?

A. Well she said there "The Company has not, over the years, undertaken itself to

initiate research in its own laboratories to discover any pathological effects of tobacco,

nor has it conducted research in its own laboratories to refute or confirm any claims of

such effects asserted in the literature by others. The basis of that policy is that, as Mr.

Hamner testified in Green, quote, that it is entirely out of our field of competence here,

since this is a department, the staff of which is composed of chemists, physicists, and

technical and scientific people trained in allied fields."'

*11 Q. How does Mr. Hanmer's testimony in Green jibe with the opinions attributed to

American Tobacco scientists Harlan and Harlow in this memorandum?

A. Well he's basically saying the opposite of what they said. They said that when they

do it on the outside, that they have difficulty ensuring the quality, it's not up to their

scientific standards, they would rather do it in their own laboratories so that they

could be sure it was done right, whereas Mr. Hamner seems to be saying that they

couldn't do it in their own laboratories.

Q. Does Ms. Brown then go on to explain specific problems that might accrue if this

research were to proceed?

A. Yes.

Q. If you'd turn the page, down at the bottom of page 32, the last paragraph that starts

on that page, what is being reported at that place?

A. Well she says, "If the Company can now inform itself respecting biological effects of

smoking, it will be argued that it could and should have done so in all these areas,

years ago. Ample funds were at the Company's disposal. Researchers with M.D. degrees

were available to devise, conduct and evaluate experiments on animals and man.

Laboratory facilities for such work could easily have been provided."

Q. Then she goes on to state, "What has been funded -- What has been found by

independent scientists over the years, it will be argued, could have been found long

since by the manufacturer whose primary responsibility it was." Do you have any

reason to disagree with any of the notions set forth by Ms. Brown in this paragraph?

A. No, not at all. It's certainly true they had ample funds that they could have hired

researchers, that they could -- that they had laboratory facilities. As the scientists have

explained, there's really no reason why they couldn't be doing this research

themselves.

Q. In the middle of page 33, does Ms. Brown reference the crisis that arose in the

1950s?

A. Yes, she does.

Q. And what does she say about that?

A. She said, "It will be argued that, if such a program was not instituted earlier, it

should at least have begun in 1950 to 1953, with publication of the four retrospective

studies showing association with lung and other cancers; or in 1953, with publication

of the Wynder mouse-painting experiments, or in 1954, with publication of the first

Hammond- Horn report, or in 1957, with publication of the Study Group report on

Smoking and Health. Why were such programs not instituted, at least, in 1958, with

publication of the final Hammond-Horn report, or in 1959, with the publication by the

Surgeon General of an official statement pronouncing a causal link between smoking

and certain diseases, or in 1962, with publication of the report of the Royal College of

Physicians, or, if not then, why not a year ago, with publication of the report of the

Surgeon General's Advisory Committee."

Q. Is Ms. Brown posing rhetorical questions in this paragraph?

A. Yes, I think that's what she's doing.

*12 Q. And what is a rhetorical question?

A. A rhetorical question is a question that you know the answer to.

Q. Now Professor Jaffe, as an economist, are you familiar with the term "unilateral

action?"

A. Yes.

Q. Do economists view unilateral action as a specific form of competitive behavior?

A. Yes.

Q. What exactly does the term mean?

A. Well particularly in the context of an investigation of collusion, economists think

about unilateral actions because if the behavior that we're seeing could be interpreted

as unilateral action; that is, behavior by a single company acting not in cooperation

with other companies, then that behavior would not be evidence of collusion.

Q. Now in this particular memorandum we're seeing an outside attorney for American

Tobacco having a discussion with American Tobacco scientists and reporting to the

general counsel of American Tobacco about the prospect of further conferences with

high-ranking executives of American Tobacco.

A. That's correct.

Q. Based upon all of that, do you consider that the restrictions on competitive behavior

that this memo addresses would merely constitute some form of unilateral action with

respect to the competitive behavior of American Tobacco?

MR. BLEAKLEY: Objection, that's very leading, calls for speculation, invades the

province of the jury.

THE COURT: No. It is leading, though. You'll have to rephrase it.

MR. GILL: I'll be happy to rephrase it, Your Honor.

BY MR. GILL:

Q. What type of behavior, to your opinion, is being discussed and described in this

particular memorandum?

A. Well I think if you were to look --

If the only thing you looked at was this memorandum itself, and that was the only

information you had, were the words of this memorandum, it wouldn't be possible to

tell whether what was going on here was a unilateral decision on the part of American

absent any communication with its competitors not to undertake this program, but I

think when you look at this document in the context of the other facts in the case,

including American's participation in the meetings at the Plaza Hotel called by the

CEO of American, as well as the role that Janet Brown played with other attorneys in

the industry in devising the general industry approach to research questions and the

role that Mr. Hetsko played on the Committee of Counsel meeting with the other

generals counsel of the other companies in order to devise policy that related to

research, I think that the most likely interpretation of this document is that this was

not unilateral action, that this is evidence of American's continuing compliance with

the agreement in the conspiracy not to engage in in-house animal research relating to

smoking and health.

MR. BLEAKLEY: Your Honor, I move to strike that answer. It's invading the province of

the jury.

THE COURT: No. He's an expert and I think he's entitled to give that opinion.

BY MR. GILL:

Q. In addition to performing his duties as general counsel of American Tobacco, are

you familiar with any other duties that Mr. Hetsko had during this period of time?

*13 A. I don't recall.

Q. Well let me -- let me ask you this, Professor Jaffe: Have you seen any documents

indicating whether or not Mr. Hetsko, as general counsel of American Tobacco,

participated in any discussions with the general counsel of any of the other defendant

companies?

MR. BLEAKLEY: Objection, leading.

THE COURT: It is leading.

Q. Have you heard at any time or have you seen at any time in your review of

defendants' internal documents reference to the Committee of Counsel?

A. Yes. As I've mentioned in my answer a couple answers ago, Mr. Hetsko was a

member of the Committee of Counsel. I guess I didn't include that in my answer to

your question because I'm not sure I think of that as sort of an official position. But he

did participate with the Committee of Counsel, as I said. And as we'll see in some later

documents, the Committee of Counsel was very much involved in determining what

kinds of research were going to be done in the industry.

Q. And how, if at all, Professor Jaffe, would the documents authored and received by

Dr. Wakeham with respect to his understanding with respect to a gentlemen's

agreement within the industry affect your opinion with respect to whether or not the

events described in the Janet Brown memorandum were unilateral action on the one

hand or participation in a collusive agreement on the other?

MR. BLEAKLEY: Objection, leading. Also calls for speculation. Also invading the

province of the jury.

THE COURT: No, you may answer that.

A. Well I think as we discussed, what Dr. Wakeham said and confirmed at his

deposition was that there was an agreement, and that that agreement, the exact form of

which may have been somewhat unclear, but clearly in-house animal research

relating to smoking and health was the primary focus of it, and it was his

understanding that that agreement included American, and I think that that's part of

the factual framework in which you'd look at the document and evaluate it as evidence

of American's compliance with that agreement.

Q. On what basis do you state that Dr. Wakeham assumed that American Tobacco was

part of the agreement not to conduct in-house animal testing?

A. Well in the document we looked at yesterday, the 1968 memorandum, he

specifically says that -- I'm sorry, in the draft of the document we looked at yesterday,

he says there was a gentlemen's agreement in the industry. He specifically notes that

Liggett was not a party to it, and so the clear implication is that the other companies

other than Liggett were in fact party to it.

Q. And had he been concerned about American Tobacco's violation of the agreement?

A. He was, yes.

Q. Now there's nothing in the memorandum authored by Ms. Brown that addresses the

gentlemen's agreement; is there?

A. Not directly or explicitly, no.

Q. She does state reasons to Messrs. Harlan and Harlow as to why this research should

not proceed.

A. That's correct.

Q. What do you make of the fact that, in her account of their meetings with respect to

the content of this memorandum, that she does not appear to have informed Harlan

and Harlow of the existence of the gentlemen's agreement?

*14 MR. BLEAKLEY: Objection, leading.

THE COURT: It is leading.

Q. Have you --

In forming your opinion with respect to this particular issue, Dr. Jaffe, have you taken

into account the absence of any indication that Ms. Brown informed the scientists of

the existence of the gentlemen's agreement?

MR. BLEAKLEY: Still leading, Your Honor, Mr. Gill is testifying.

THE COURT: All right. Well I'll allow -- I'll allow the answer.

A. Well I think that the most logical inference is that she didn't think it was necessary

to tell these scientists about this agreement. She was able to convince them without

doing so that this program should not be undertaken, and so she didn't -- she didn't

feel it was necessary.

Q. Professor Jaffe, how, then, would you assess the impact of the prohibition against

in-house animal research in terms of its contribution to the broader conspiracy to

suppress fundamental competition within the U.S. cigarette industry on the

smoking-and-health issue?

A. Well the agreement not to engage in in-house animal research supported the

overall suppression of competition, really, in three ways. The first thing it did was that

it inhibited the process of creative destruction, the process of long-term competition to

come up with products that would truly deal with the health issue. And the reason it

did that are the reasons that were articulated by Drs. Harlan and Harlow that we just

saw, as well as by Dr. Wakeham, that this kind of animal research was crucial to

finding out exactly why the existing products were dangerous and developing new

products that would be more safe, and that to do that in the most effective and

successful competitive manner the companies needed to do it in- house. And so an

agreement not to do that inhibited or hobbled the process of creative destruction.

The second thing that it did was it -- again as articulated by Ms. Brown in her memo,

it prevented the substantiation of the so-called causation hypothesis by experiments

from the companies' own labs, and it's clear that the companies were very concerned

that since they were taking this line that causation had not been proven, it was

important that there not be any scientific experiments done that could be directly

attributed to a tobacco company that might have the effect of confirming the causal

connection between smoking and disease.

And then the third effect of the agreement not to engage in research of this form was

that it allowed the companies to avoid what could have been very large research

expenditures. If they had done this right and each of these companies had aggressively

pursued the kinds of programs that their scientists were saying were the appropriate

competitive response to the situation, the market situation that they faced, it would

have been a very expensive undertaking, and that expensive undertaking might have

succeeded for one or more of them, but might well or most probably would not have

succeeded for all of them, and so that at least some of the companies would have

expended large quantities of money with no commercial benefit from it.

*15 So all three of those aspects resulted from the successful attempt to prevent each

other from engaging in in-house animal research relating to smoking and health.

Q. And Professor Jaffe, on a year-by-year basis, these large expenditures would have

come at the expense of what group?

A. Well in the short run they would have come at the expense of the stockholders of

the company as the money was spent on research, and there would have been no

immediate benefit or return from that investment.

Q. Professor Jaffe, are you now ready to discuss the second prong of the broader

conspiracy dealing with the reassurance of smokers and the suppression of

unfavorable research?

A. Yes.

Q. Would you turn to Exhibit 14145, please.

A. I have it.

Q. Let's do a little rearranging here for a moment, Your Honor. I'm blocking your view

now, aren't I? Perhaps I could just stand over here a minute or two for Your Honor,

then I'll move it out of the way.

THE COURT: I do want counsel to be able to view this, too.

MR. BLEAKLEY: Actually, it was better now than it was, Your Honor.

BY MR. GILL:

Q. You're familiar, of course, Professor Jaffe, with the Frank Statement.

A. Yes.

Q. All right. Now you've viewed the Frank Statement from a somewhat different

perspective, for instance, than some of the other witnesses; correct?

A. Yes, I think that's right.

Q. All right. Now with respect to --

Does the Frank Statement essentially contain a mission statement on behalf of the

TIRC?

A. Yes, I think it does.

Q. All right. And the mission statement is set forth in -- on the right- hand column

next to the numbers one, two and three?

A. Yes.

Q. And the first one deals with pledging aid and assistance to the research effort into

all phases of tobacco use and health, and it mentions that this joint financial aid will,

of course, be in addition to what is already being contributed by individual companies.

A. Yes.

Q. Do you see any problem with that from the standpoint of competitive behavior?

A. No.

Q. The second portion of the mission statement indicates "For this purpose we are

establishing a joint industry group consisting initially of the undersigned. The group

will be known as TOBACCO INDUSTRY RESEARCH COMMITTEE." So we just have an

identification that's being made there.

A. Right.

Q. The third element of the mission statement states, "In charge of the research

activities of the Committee will be a scientist of unimpeachable integrity and national

repute. In addition there will be an Advisory Board of scientists disinterested in the

cigarette industry. A group of distinguished men from medicine, science, and

education will be invited to serve on this Board. These scientists will advise the

Committee on its research activities."

Do you have any quarrel from the standpoint of competitive behavior with any aspect

of the mission statement as publicly announced in several hundred newspapers in

early January 1954 through the publication of the Frank Statement?

*16 A. No. In fact I think if the TIRC and its successor had done what is stated here

they're going to do, that would have been a pro-competitive activity, because what they

would have done is they would have developed general information about the

connection between smoking and health which would have spurred the process of

creative destruction, both by increasing the demand on the part of customers for safer

products, and also by providing general scientific background that the individual

companies then could have used in their individual competitive efforts to develop safer

products.

Q. Now I take it at the time that the committee was formed, there were, broadly

speaking, two possible directions that the research might take one.

A. Yes, I think so.

Q. One might tend --

One direction might tend to show, perhaps, that smoking wasn't a cause of serious

health problems.

A. That's true.

Q. That would tend to have been good for everyone involved; true?

A. Yes. Yes, I think so.

Q. Good for the companies.

A. Certainly.

Q. Certainly good for the smokers.

A. Yes.

Q. And probably good for the TIRC, if they sponsored research that validly established

such a principle. A. Yes, I would think so.

Q. The other broad direction that the research might take could be to show a causal

link between smoking and disease.

A. That's correct.

Q. And that wouldn't be good for anyone involved; would it?

A. I guess that's right.

Q. It certainly wouldn't be good for the smokers if that were true.

A. That's right.

Q. And certainly in the short-term it wouldn't be good for the companies that made the

cigarettes.

A. That's correct.

Q. But how might such research establishing a causal link have fostered the process of

creative destruction?

A. Well I think what it would have done is it would have increased the demand for

different products and therefore increase the motivation and incentive to compete, and

it also would have provided technical scientific information which the companies then

could have picked up and taken and used in their competitive efforts to develop safer

products.

Q. Do you believe it was important that the scientific director of this organization be a

person of unimpeachable integrity?

A. Well I think, given what the committee set out to do and the fact that there was

potentially a conflict of interest in an organization that was funded by the tobacco

industry but which said it was committed to an objective search for truth, I think it was

very important to have a scientific director of unimpeachable integrity.

Q. Would the conflict of interest arise if the research funded by the committee proved

reliably that smoking did not cause disease?

MR. BLEAKLEY: Your Honor, I would object to the leading nature of these questions.

Mr. Gill is testifying again and again and again.

THE COURT: Okay. It is leading.

Q. Under what different circumstances would conflict of interest come into play?

*17 A. Well the conflict of interest that I referred to was the fact that the tobacco

companies, as I had said previously, obviously would be financially injured by the

demonstration that smoking did in fact cause disease, and so that would be something

they would prefer not to happen. They set up this organization, they clearly were aware

of that potential for conflict of interest, and wanted to create an impression that they

were setting up an organization that was independent and that would pursue the

truth, notwithstanding the financial consequences for the companies that were

funding it, and the selection of the scientific director was part of that effort to appear to

deal with that potential conflict of interest.

Q. Now in discussing the Hill & Knowlton memoranda yesterday, based upon your

interpretation of those memoranda, did the Hill Knowlton memoranda also contain a

mission statement for TIRC?

A. Well the Hill Knowlton memoranda did contain a description of, I believe, a credo,

which, as we talked about yesterday, was very similar to what's laid out here. The Hill

Knowlton memoranda also discussed the fact that this organization was going to serve

an important public relations function, which is not particularly -- not the impression

you would get from reading the Frank Statement.

Q. Now have you come to an opinion that the CTR ultimately played a role in the effort

to reassure smokers and to suppress unfavorable research?

A. Yes.

Q. In the course of --

MR. BLEAKLEY: Objection, leading again, Your Honor.

THE COURT: I'll let the answer stand.

Q. In the course, Professor Jaffe, of your analysis of this prong of the broader

conspiracy, did you make an effort to determine whether or not CTR adhered to the

mission statement contained in the Frank Statement?

A. Yes, I did.

Q. And were you particularly interested in attempting to determine whether or not the

scientific director of the TIRC exhibited unimpeachable integrity in carrying out his

duties?

A. Yes.

MR. BLEAKLEY: Your Honor, may we have a side-bar?

THE COURT: Let's 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. GILL: Thank you, Your Honor.

BY MR. GILL:

Q. Professor Jaffe, will you turn to Exhibit 10493.

A. I have it.

Q. This is a letter on the letterhead of the Tobacco Industry Research Committee dated

August 26, 1958, and it's addressed to Mr. T. V. Hartnett, chairman, at his office on

42nd Street in New York City.

Who was Mr. Hartnett?

A. Well in addition to being chairman at this time of the TIRC, he was the chairman of

Brown & Williamson and one of the signers of the Frank Statement on behalf of Brown

& Williamson.

Q. So back in 1954 Mr. Hartnett had signed the Frank Statement on behalf of Brown &

Williamson as its president?

*18 A. That's correct.

Q. And now four and a half years later he's the chairman of the committee that's going

to be funding scientific research into all phases of tobacco use and health.

A. That's correct.

Q. And this letter is authored by whom?

A. It's authored by a Dr. Little, the first scientific director of the TIRC.

Q. And that's shown on page three.

A. Correct.

Q. So Dr. Little, the scientific director, is writing a letter to the chairman of the TIRC.

A. Yes.

Q. Now what is Dr. Little discussing in the first paragraph of his letter to Mr. Hartnett?

A. Well he says, "As Scientific Director of the Tobacco Industry Research Committee it

is my duty to warn the members of that body of the serious and dangerous effects on its

research program if the present trend continues toward the emphasis on 'tar reduction'

in advertising of cigarettes."

Q. Do you find anything in the mission statement of the TIRC with respect to warning

the tobacco industry of anything?

A. No. The TI -- the --

The Frank Statement describes the mission of the TIRC and its independent scientific

director as someone whose job is going to be to find out the truth about smoking and

health and to communicate that information to smokers.

Q. Dr. Little goes on to give reasons for his warning; does he not?

A. Yes.

Q. If you direct your attention to reason number three at the bottom of page one.

A. Yes. It says, "Representatives of the American Cancer Society and other believers in

the, quote, tobacco-guilt, unquote, theory are already asking the question as to why

the vast financial resources of the tobacco industry are not being used to promote

research in the removal of the, quote, guilty, unquote, substances from smoke."

Q. Now if the process of creative direction were fully underway at this point in 1958

with respect to the threat to the industry that occurred in late 1953, would you have

expected the industry to pursuing -- to be pursuing the very things that Dr. Little is

directing the industry's attention to in that particular paragraph?

A. Yes, I would. I would be expecting them to -- to try to find -- use their financial

resources to identify the guilty substances, so to speak, and to remove them.

Q. All right. Let's look at some of the other reasons for Dr. Little's concern as set forth

on the second page. If you'd direct your attention to reason number six.

A. Yes. It says, "The Scientific Advisory Board has consistently refused to accept the

hypothesis of, quote, tar, unquote, guilt for lack of substantiating evidence and has

insisted that basic research of various types must precede satisfactory understanding

of the relation of tobacco to human health."

Q. And what is your understanding from a review of the documents, Professor Jaffe, of

the term "basic research?"

A. Well I think what he means here by basic research is research that would not focus

directly on looking at smoking and health, but instead would be focused on more

general research that would attempt to determine biological factors related to the

diseases that have been considered.

*19 Q. And Dr. Little is using the past tense at this point in August of 1958 with

respect to the focus of the TIRC's research program being directed toward basic

research?

A. Yes.

Q. Is that consistent with the mission statement to engage in research into all phases

of tobacco use and health? MR. BLEAKLEY: Your Honor, this was the objection I raised

during the side- bar.

THE COURT: No, you may answer that.

A. Well I think that if they were going to do what the Frank Statement said they were

going to do, then they would be trying to understand all aspects of the connections

between smoking and health. And as we'll see later on, some of the documents discuss

specifically the fact that they're going to use the need for more basic research,

essentially, as the smoke screen to cover up or to divert attention from research that

directly connects smoking and health.

MR. BLEAKLEY: Your Honor, I move to strike that answer both as non- responsive and

outside the competence of this witness's expertise.

THE COURT: It is non-responsive.

MR. GILL: We'll get to that other document in a little while, Professor Jaffe.

THE WITNESS: Okay.

MR. GILL: If you direct --

MR. BLEAKLEY: I move -- I would ask the court to direct Mr. Gill not to make

commentary and just ask questions.

THE COURT: Just direct questions to the witness, please.

MR. GILL: I apologize, Your Honor.

BY MR. GILL: Q. Professor Jaffe, if you direct your attention to paragraph seven, what is

being discussed there?

A. It says, "Should increased or insistent outside demand occur for the concentration

or limitation of the S.A.B. planned research to the field of identifying and/or removing

suspected components from tobacco smoke, extremely unfortunate and possibly

destructive influences on the TIRC program may well develop."

Q. Why would such influences have been destructive on the program of TIRC?

A. Well I read this -- this section to be saying that Dr. Little wants to preserve the

course of the TIRC in terms of basic research and is concerned that the competitive

behavior of the companies, which is described at the beginning of the letter, is going to

create increased demands for a different kind of research; that is, research that would

focus more directly on the connection between smoking and health, in particular,

smoke constituents.

Q. Does the next paragraph of the letter also shed light on Dr. Little's attitude toward

his duties?

A. Yes.

Q. How so?

A. Well he says, "Although this serious danger exists, I believe that it can and should

be eliminated by prompt and unanimous action by the industry. This, I believe, should

take the form of a simple statement or statements by the public" -- I'm sorry,

"statements to the public by press, radio and television to the effect that," and then he

goes on to list several things that companies should all unanimously say, which is that

the increase in manufacturing of filter cigarettes is in response to public demand and

to nothing else, that the industry does not admit adverse health effects of smoke

constituents or nicotine contained in its products previously or now sold, with or

without filters, and that the industry will continue to support research that will help to

answer the many questions asked concerning the possible relationship of tobacco to

human health and well-being.

*20 Q. Let me stop you right there, professor.

Do you find anything significant about the attitude expressed by Dr. Little in this

letter to Mr. Hartnett?

MR. BLEAKLEY: Your Honor, I object. The question is too broad, it's leading. It should

be limited to this witness's expertise.

THE COURT: Okay. Rephrase the question.

MR. GILL: Yes, Your Honor.

BY MR. GILL:

Q. In connection with the analysis that you have performed, Professor Jaffe, in

connection with your review of the internal documents of the industry, and further in

connection with your entire background and experience in the area of antitrust

economics, did you find any significance in the statements expressed by Dr. Little in

this letter with respect to the opinions you've reached in this case?

A. Yes. What this letter is doing is the scientific director of the CTR is writing to the

chairman, who also happens to be the president of one of the tobacco companies, and

urging him and his competitors to cease to engage in competitive activities that are

increasing smokers' concerns about the constituents of tobacco smoke, mainly the tar,

and instead, to reform the unanimous and united position that the Hill & Knowlton

document talked about them agreeing to four years earlier, and in so doing, to make

sure that they, in effect, maintained this unified position, that they don't communicate

by their actions that they believe that cigarettes are harmful, and that's not what the

Frank Statement said the scientific director's responsibilities were going to be. The

scientific director's responsibilities were going to be to be independent of the tobacco

companies and to seek out the truth, and what we see is that, instead, he's playing an

active role in essentially maintaining the reassurance of smokers and trying to help

avoid actions by the companies that would do the opposite.

Q. Let's look for a moment, professor, at the specific suggestions offered by Dr. Little to

the tobacco industry.

In connection with the first suggestion, the increase in manufacture of filtered

cigarettes is a response to public demand and to nothing else, based upon your review

of the industry's internal documents, did the industry conform to Dr. Little's

suggestion?

A. Yes, I think they did.

Q. How about with respect to the second suggestion, that the industry does not admit

adverse health effects of smoke constituents or nicotine as contained in its products

previously or now sold, with or without filters, did the industry conform to that

suggestion?

A. Yes, they did.

Q. And with respect to the third suggestion, what action did the industry take in

response to the suggestion that it continue to support research that will help to answer

the many questions concerning the possible relation of tobacco to human health and

well-being?

A. That's what they did.

Q. They continued to support the attempt to find the answer to those questions.

A. Yes.

Q. Was there a fourth suggestion on the next page?

*21 A. Yes. The last suggestion at the top of the next page.

Q. Okay. What is Dr. Little discussing in that suggestion?

A. Here he says that the -- the companies should also unanimously say that the

industry will at the same time try to meet the wishes of the public by providing tobacco

for smoking in the form most conducive to maintaining and increasing the

pleasurable, satisfying, and emotionally balancing effects of this very old and almost

universal custom.

Q. Based on your analysis, Dr. Jaffe, how does that suggestion relate to Dr. Little's job

description as set forth in the Frank Statement?

MR. BLEAKLEY: Objection. This goes beyond this witness's competence, calls for

speculation.

THE COURT: No, you may answer that.

A. I think it is completely inconsistent with what the Frank Statement said he was

going to be doing.

Q. Did you find other documents in the 1958 timeframe that presented some insights

into the attitude of Dr. Little and the staff at TIRC?

A. Yes.

MR. BLEAKLEY: Objection, Your Honor, Mr. Gill is leading again.

THE COURT: Sustained.

Q. Would you turn, Professor Jaffe, to Exhibit 11028. Now this is an exhibit that the

jury has seen many times, Professor Jaffe. We won't spend a large -- long period of time

on it. But you are familiar with the nature of this exhibit?

A. Yes.

Q. And you understand that it's a report by three scientists from BATCo-related

companies with respect to a trip to the United States in the spring of 1958 and it

provides information regarding various interviews that occurred.

A. That's correct.

Q. All right. And you know that one of the -- or several of the interviews concerned

members of management of TIRC, including an interview with Dr. Little on May 8th of

1958.

A. Yes, it indicates that on the next page.

Q. All right. Would you --

Would you turn, then, to page two of the memorandum, next page of the

memorandum. And dealing down below, in the bottom half of the page, with causation

of lung cancer, you're familiar with the statement, "With one exception (H.S.N. Greene)

the individuals whom we met believed that smoking causes lung cancer if by

'causation' we mean any chain of events that leads finally to lung cancer and which

involves smoking as an indispensable link," now --

A. Yes.

Q. -- that statement would presumably include which members of the TIRC?

A. Well it indicates on the previous page that they did meet with Dr. Little, the

scientific director, as well as Mr. Hoyt, who was on the staff of the C -- the TIRC.

Q. Now how would you compare the attitude expressed in this paragraph attributed to

Dr. Little and Dr. Hoyt with the attitude expressed by Dr. Little in his letter to Mr.

Hartnett a few months later with respect to the causation issue?

MR. BLEAKLEY: Objection, again leading, it again asks for the witness to speculate.

THE COURT: Well you may answer that.

A. Well as we saw in the letter to Dr. Hartnett, what Dr. Little is saying there is that we

-- we -- we want to keep doing research because we don't yet know whether smoking

causes cancer, and we want to do -- we're not -- we want to make sure the companies

don't take any action that would reinforce smokers' belief in the causation hypothesis,

which according to this document he himself had already accepted.

*22 Q. If you turn to page five of this exhibit, Professor Jaffe, do you see there's a

section of the memorandum dealing with "ATTITUDE OF U.S. INDUSTRY TO

BIOLOGICAL TESTING?"

A. Yes.

Q. And it quotes some information that the authors apparently received from

representatives of Liggett & Myers.

A. Yes.

Q. In fact, the Liggett & Myers representatives are actually Drs. Darkis and Pates;

correct? A. Yes, according to the memo.

Q. All right. And Liggett & Myers representatives go on to express the opinion in the

fourth line that "...TIRC has done little if anything constructive, the constantly

reiterated, quote, not proven, unquote, statements in the face of mounting contrary

evidence has thoroughly discredited TIRC, and the SAB of TIRC is supporting almost

without exception projects which are not related directly to smoking and lung cancer."

To your understanding, what type of projects are the Liggett & Myers representatives

referencing in that sentence?

A. Well what they're saying is very consistent with what Dr. Little said in the letter to

the chairman, that what they're going to do is, instead of doing research that would be

directly related to smoking and health, that they're going to engage in more basic

research along -- along the lines of the argument that that was what was -- all that was

called for.

Q. And how does the assessment of the constantly reiterated, quote, not proven,

unquote, statements jibe with the advice that Dr. Little was giving to the industry in

his letter a few months later?

A. Well it is precisely the line that he was urging the companies to stick to in his letter

that we looked at.

Q. In your review of the companies' internal documents, did you also attempt to

analyze and investigate the attitude of staff members of TIRC with respect to their

duties?

A. Yes.

Q. Would you turn to Exhibit 11922. This is one of the documents that you relied

upon in support of your opinions --

A. Yes.

Q. -- in this case?

MR. GILL: Your Honor, we'll offer Exhibit 11922.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 11922.

BY MR. GILL:

Q. This is an internal TIRC memorandum to Dr. C. C. Little from J. K. Brady. Perhaps I

misread the middle initial, but J. Brady. Who was J. Brady?

A. I think he was the assistant or associate director of the TIRC. I don't remember the

exact title.

Q. Associate scientific director?

A. Right.

Q. So this would be a member of the CRT's management staff reporting to his superior.

A. To his superior, the scientific director, Dr. Little.

Q. Now does Dr. Brady in the very first paragraph indicate his tenure with the -- with

the TIRC?

A. Yes, he says he's been there for two years.

Q. And what is the purpose of his communication to Dr. Little as expressed in that

paragraph?

A. What he says is the purpose of the memo is to clarify his feelings about the program

and convey some thoughts about it to Dr. Little.

*23 Q. And does he convey some thoughts in the last full paragraph on that page?

A. Yes, he does.

Q. All right.

A. He says in the last full paragraph on that page, "To date, the TIRC program has

carried its fair share of the public relations load in providing materials to stamp out the

brush fires as they arose. While effective in the past, this whole approach requires both

revision and expansion. The public relations problem created by Hammond et al. was

like the early symptoms of diabetes - certain dietary controls kept public opinion

reasonably healthy. When some new symptom appeared, a shot of insulin in the way of

a news release, a Berkson antidote, a Rosenblatt television rebuttal, et cetera, kept the

patient going. Again characteristic of the same disease with age, the problem becomes

more complex, response to treatment is slower and treatment far more complex.

Troublesome symptoms are appearing in the almost constant reference to cigarette

smoking or the use of tobacco in some form in practically every article written about

disease (all forms of lung disease as well as cardiovascular disease), tumor formation of

the upper respiratory tract, gastrointestinal disorders, e.g., ulcer, et ceterA."

Q. Let me interrupt you there, Professor Jaffe. Is the assessment of the TIRC program

provided by Dr. Brady in this written memorandum to his superior, Dr. Little,

consistent with the mission statement of the TIRC?

A. No. This is not consistent with what the Frank Statement said the TIRC was going to

be; rather, it seems to be consistent with the Hill & Knowlton description of the broader

strategy which included the formation of this committee as essentially a public

relations endeavor by the industry.

Q. Did you find in your review of the documents provided to you any response by Dr.

Little to this memorandum?

A. No, I did not.

Q. Now were you also interested in reviewing the CTR annual reports that that

organization issued on an annual basis?

A. Yes.

Q. All right. Let's look at Exhibit 17873. Is this one of the documents that you've relied

upon in support of your opinions?

A. Yes.

Q. And is this particular CTR annual report representative of the other annual reports

that you reviewed between the timeframe of the mid-'50s to the late '70s?

A. That's correct.

MR. GILL: We'll offer, Your Honor, Exhibit 17873.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 17873.

MR. GILL: Your Honor, just for the sake of clarity for the record, I would point out that

this particular exhibit has already been introduced in the case by defendants as

MD000027, but we've used this other copy because we found it very difficult to read

the exhibit that was introduced.

THE COURT: All right. The record will show that.

BY MR. GILL:

Q. Professor Jaffe, what we're looking at now is the second page, it says "ANNUAL

REPORT of the

A. That's correct.

Q. And if we went back to the first page, would we see that this is an annual report for

the period 1963-1964?

*24 A. Yes.

Q. It's difficult to read --

A. If you had very good eyes, you could see that it says '63 to '64.

Q. All right. And if you would go to page five of the annual report --

This annual report contains over 50 pages; does it not?

A. Yes.

Q. And it's essentially a summary of the activities of the CTR over the 12- month

period consisting of the last half of '63 and the first half of '64?

A. That's correct.

Q. And at page five there are some introductory remarks with respect to the nature of

the report?

A. Yes. They're called observations.

Q. All right. What's being discussed there?

A. Well it gives a general overview and it indicates at the very beginning that a decade

has passed since the TIRC, which has now had its name changed to the CTR, began its

work.

Q. And in the third paragraph, what's being discussed there?

A. It says, "Significant advances have occurred in scientific knowledge and

understanding. It now seems appropriate to review the progress and the problems of

this first decade, and to consider their implications for the future."

Q. And does the next paragraph provide some perspective?

A. Yes. It says, "Perhaps the most significant aspect of such a review is the realization

that the passage of a substantial period of time -- and the accomplishment of a

substantial body of work -- have not changed the fundamental problems. As is often

the case in basic scientific exploration, intensive research has raised more new

questions than it has answered; the task before us is, if anything, larger and more

complex than it appeared a decade ago, and the major research problems underlying

the relationships of smoking to health, although somewhat better defined, remain

formidable."

Q. What's the essential thread of that paragraph?

A. Well the essential thread of that paragraph is the same line that we have seen now

in several places, which is we don't know what the connection between smoking and

health is, we need to do more research, particularly basic research, and until we do

that we won't be able to say anything about the problems.

Q. Would you direct your attention to page 48 of this exhibit, please.

A. Yes, I have it.

Q. Now we're in a portion of the exhibit in which the CTR is setting forth abstracts of all

of the research funded by CTR that happened to be published during the 12-month

period in time in question. Is that correct, professor?

A. Yes, that's -- that's what the report says, yes.

Q. And this is a section of the report that started back at page 30 or so and then

proceeds to cover about 40 pages' worth of the report.

A. That's right. There are many, many abstracts of different studies in this section of

the report.

Q. And the abstracts are broken down into various categories?

A. That's correct.

Q. And this is a category that deals with psychophysiological studies.

A. That's correct.

Q. And there are two abstracts that are reported under that category at pages 48 and

49; is that correct?

*25 A. That is correct.

Q. And what we're looking at now on the screen is the first of those two studies.

A. Yes.

Q. And what type of a study is this one, the first one?

A. Well this first one, the title of it is "TASTE THRESHOLDS, CIGARETTE SMOKING,

AND FOOD DISLIKES."

Q. And then it lists the authors.

A. Right.

Q. These authors were funded by CTR and they had their study published in a -- in a

journal.

A. That's correct.

Q. And if we go to the very last sentence of this abstract, does that indicate a summary

of what this particular study involved?

A. Yes. It says, "Apparently, food and cigarette aversions are analogously related to

taste thresholds for the four 'classical' taste qualities."

Q. Based upon your review of the information contained in this abstract, does this

study appear to fit into the process of creative destruction?

A. Not really. I mean I -- it's hard to tell what it's exactly about. It seems to be

something about how people's tastes for cigarettes and foods are related.

Q. Let's look at the second, then, of the two abstracts under this category of

psychophysiological study. What's the title of this study?

A. It's called "ADDICTIVE ASPECTS IN HEAVY CIGARETTE SMOKING."

Q. And based upon your review of this abstract, does this particular study appear to

have any relationship to the process of creative destruction or potential creative

destruction?

A. Yes, I think this is the kind of study that the Frank Statement suggested that CTR

would be doing, because it's looking at the question of addiction, which is an attribute

or a characteristic of cigarettes that relates to health, and that smokers would want to

know about.

Q. And once again we see the -- the researchers who authored this study?

A. Yes.

Q. We see an indication that it was published in the American Journal of Psychiatry --

A. That's correct.

Q. -- in April of 1963.

A. Yes.

Q. And what of significance does the abstract show with respect to the findings and

conclusions of these authors?

A. Well at the very beginning it indicates that 15 heavy smokers were observed in a

state of sudden abstinence from cigarettes and were contrasted with a comparable

group of eleven subjects allowed to smoke as much as they wanted. So this was an

experiment where, essentially, they took heavy smokers and made them stop smoking.

Q. And then starting at the very bottom of that page with the -- with the last paragraph

that appears on the page, are there some findings reported?

A. Yes. It says, "Cardiac slowing, presumably vagotonic, and a lowering of diastolic

blood pressure occurred in the withdrawal group. Other less clear-cut complaints of

distress, such as 'emptiness' and slow passage of time, seemed related to the state of

abstinence."

And then if you skip down to the next paragraph, it says, "Heavy smokers thus appear

to exhibit some addictive features, showing not only social habituation but mild

physiological withdrawal effects."

*26 Q. Now did you review the deposition of Robert Heimann?

A. Yes, I did.

Q. Do you recall in that deposition that he was asked questions by the attorney for the

plaintiff in that case with respect to Mr. Heimann's awareness of this study?

A. Well he was asked, in general, about whether he was aware of studies funded by

CTR that showed that cigarettes appeared to be addictive.

Q. And what did Mr. Heimann say in response?

A. He -- he could not recall being -- being aware of this kind of study funded by CTR.

Q. Now having found this particular abstract at page 48 and 49 of the annual report,

what then did you do?

A. Well I looked to see --

I went back to the beginning of the report where the scientific director is summarizing

the significant developments that they have found in their research to see whether this

report was mentioned and what the scientific director in his report was going to say

about the significance of this study when he is summarizing the significant research

funded by CTR.

Q. If you go to page 16, please.

A. Okay.

Q. Is this the beginning of the section where the scientific director calls attention to

significant research results achieved over the previous 10 years?

A. That's correct.

Q. And directing your attention to the fourth paragraph under that heading, does the

scientific director report in connection with the level of funding and the number of

grants that have been approved for funding?

A. Yes. It lists that and it says, "After a decade of support of research it seems

appropriate to review some of the scientific findings that have been made." And then

further down at the end of that little introductory section it says, "Of course, it is

impossible to list all of the achievements of the Council's research. However, this

review will attempt to cite some significant illustrative examples."

Q. And then does the report break down the significant illustrative examples in

various categories?

A. That's right.

Q. And is one of the categories psychosocio- logical -- psychophysiological studies?

A. Yes, that's correct.

Q. All right. Is that contained on page 26?

A. Yes.

Q. Let's go there, please.

Now are we now looking on the screen at the entire section of the report devoted to the

significant studies relating to psychophysiological studies?

A. Yes. Dr. Little chose to mention -- (clearing throat) excuse me -- only two studies in

this section, and they're indicated on the screen.

Q. And what is the nature of the discussion that appears at this portion of the report

relative to those studies? A. Well both of these are studies that look at characteristics of

people who smoke and basically find that smokers are different from other people in

various respects, which is the kind of information that the industry used to put forward

the so-called constitutional hypothesis, which tried to explain the epidemiological

evidence linking smoking to cancer on the basis of the possibility that smoking didn't

cause cancer, it was just that people who smoked were different from people who didn't

smoke, and -- and in some ways it might be related to the possibility of their getting

cancer.

*27 Q. So you found no mention of the study with respect to addictive aspects in heavy

cigarette smoking in this section of the report.

A. That's correct.

Q. Did you check to see if you might find the study on addiction mentioned in some

other category?

A. Yes. I thought, because of the nature of the abstract, that it might have been

included in the section on cardiac studies.

Q. All right. And is that on page 20, bottom of the page?

A. Yes, cardiovascular research.

Q. And that section goes on to page 21 as well; does it not?

A. Yes. And page 22, there are a total of 13 different studies that are summarized in

the section on cardiovascular -- (clearing throat) excuse me -- research.

Q. Let me direct your attention to item number four on cardiovascular research on

page 21. What is Dr. Little reporting there?

A. He's describing studies with a new instrument, called a vibrocardiograph, have

shown that the overall effect of nicotine is closely analogous to that of mild exercise.

Q. Is Dr. Little's treatment of that study similar or dissimilar to the fourth suggestion

he gave to the tobacco industry with respect to its treatment of smoking?

A. Well his identification of this study as one of the significant findings of the CTR in

the first 10 years would seem to be quite consistent with his suggestion to the overall

tobacco industry that they should try to emphasize the desirable aspects of smoking.

MR. BLEAKLEY: Your Honor, I move to strike that answer, and I move -- object to these

questions. This is the subject matter we discussed at side-bar, I believe that the

witness is going far beyond his qualifications as an antitrust economist and is now

giving the jury his own interpretation, which includes medical and scientific, and it

shouldn't be allowed.

THE COURT: Okay. That answer will be stricken. You'll have to rephrase your

question, counsel.

BY MR. GILL:

Q. What interpretation did you place on the report that Dr. Little gave regarding this

particular study on the effects of nicotine with respect to Dr. Little's attitude toward his

job responsibilities?

MR. BLEAKLEY: Same objection, Your Honor, and also asking the witness to speculate.

THE COURT: You can answer that.

A. Well my reason for looking at the CTR annual reports to begin with was to try to

determine whether the CTR and Dr. Little as scientific director of CTR were doing what

the Frank Statement said the CTR was going to do, which was to try to objectively look

at the issue of smoking and health and to convey to smokers what they found. And

what's significant to me is that what he finds to be a significant accomplishment in

their first 10 years is a study that appears to show a benefit of smoking, whereas the

study that they also funded that found that smoking appeared to be addictive related to

nicotine he did not choose to mention as a scientific -- as a significant finding.

MR. BLEAKLEY: I repeat my objection, move to strike the answer, both on the grounds

that I previously stated and also it was non-responsive.

*28 THE COURT: No, that answer will stand.

BY MR. GILL:

Q. Professor Jaffe, are you aware of when the first Surgeon General's report was

issued?

A. Yes, it was issued the beginning of 1964.

Q. In January of '64?

A. That's correct.

Q. And the CRT's annual report came out sometime after June of '64?

A. I believe that's correct, yes.

Q. How did the CTR annual report treat the issuance of the Surgeon General's report?

A. As far as I can tell, it doesn't -- didn't even mention that the Surgeon General's

report had been issued or that there were any significant scientific findings reported

by the Surgeon General.

Q. Did you continue to investigate the focus of CTR research through your review of

the industry's internal documents?

A. Yes, I did.

Q. Would you turn to Exhibit 21804, please. Is this a document that you have relied

upon in support of your opinions, Professor Jaffe?

A. Yes, it is.

Q. And it's already been admitted into evidence. It is a January 19, 1968 letter, and it

is from Addison Yeaman, who is listed as the vice-president and general counsel of the

Brown & Williamson Tobacco Corporation; is that correct?

A. That's correct.

Q. And it is addressed to Messrs. Grant,--

And I'd like you to assume that Mr. Grant was the general counsel of Lorillard.

A. Okay.

Q. -- Mr. Haas, who was the general counsel of Liggett, Mr. Hetsko, who as you know

was the general counsel of American Tobacco, Mr. Ramm, who was the general

counsel of RJR, Mr. Smith, the general counsel of Philip Morris, to Mr. Forsyth with a

carbon copy to Dr. Little.

A. That's correct.

Q. Now, what is being discussed in this letter?

A. What's being discussed in this letter is the issue of a possible reorientation of the

research program of the CTR.

Q. And in the first paragraph of the letter there's an indication that the author, Mr.

Yeaman, was joined by Janet Brown and Cy Hetsko at a luncheon.

A. That's correct.

Q. And they had a discussion with respect to two principal items.

A. Yes, the idea of increased participation by our respective R&D directors and/or

overall problems relating to health, and Brown & Williamson's concern, which the

author understood to be shared generally, in varying degrees, for some reassessment

and possible realignment or reorientation of CTR.

Q. Given the mission statement of CTR as set forth in the Frank Statement, can you

account for a situation in which the general counsel of the tobacco- company sponsors

of CTR are discussing a reorganization of that body? MR. BLEAKLEY: Objection, Your

Honor.

THE COURT: You may answer that.

A. Well as I said when I first talked about the Frank Statement, there was inherent

potential conflict of interest between the financial interests of the tobacco company --

companies and their stated financial -- sorry -- their stated goal with respect to CTR,

which was to find out the truth about smoking and health. I would think that if they

were trying to avoid that conflict of interest and let CTR do the job that they said it was

going to do, the last people you'd want deciding what the policy for CTR would be

would be the general counsel of the tobacco companies.

*29 Q. Do you find any significance to the fact that Mr. Yeaman let Dr. Little know

what Mr. Yeaman and the other general counsel were discussing in terms of a

reorganization of the CTR?

A. Well it suggests that Dr. Little was certainly aware of the fact that this was the way

things were going.

Q. What's being discussed in the second paragraph --

MR. BLEAKLEY: Excuse me, Your Honor, can I have a continuing objection to

questions asking the witness to comment on the involvement of lawyers?

THE COURT: I think you better make your objection, counsel, when you feel it's

appropriate.

MR. BLEAKLEY: All right. Then I move to strike that answer.

THE COURT: That answer will stand.

BY MR. GILL:

Q. What's being discussed in the second paragraph, Professor Jaffe?

A. It says, "The discussion was highly useful. I got the impression that Lorillard, like

Brown & Williamson certainly and others of us possibly, has considerable concern as

to whether we are spending our dollars in the most useful way and specifically

whether we might derive greater value, both short and long term, from CTR were it

re-oriented and perhaps - in a sense - re- organized."

Q. According to the Frank Statement, Professor Jaffe, who was to benefit from the

operation of CTR?

A. The smokers.

Q. What's being discussed in the third paragraph?

A. Well in the third paragraph he then goes in to talking about this orientation, and he

talks about discussing it with Janet Brown, and he lays out an argument that he

represents Janet Brown as having articulated at the meeting, and basically the gist of

that argument is that CTR should not be reoriented. And the two arguments that he

lays down from Janet Brown as to why it should not be reoriented, he says, "With

apologies to Janet if I misstate her position, the argument seems to be that by operating

primarily in the field of research of the disease we do at least two useful things: "First,

we maintain the position that the existing evidence of a relationship between the use

of tobacco and health is inadequate to justify research more closely related to tobacco.

"Secondly, that the study of the disease keeps constantly alive the argument that,

until basic knowledge of the disease itself is further advanced, it is scientifically

inappropriate to devote the major effort to tobacco."

Q. And what type of research is the research of the disease?

A. Essentially basic research looking at fundamental biological mechanisms rather

than research that would focus on the link between tobacco and disease.

MR. BLEAKLEY: I object to that, Your Honor, and move to strike it. This witness is not

competent to give that kind of testimony.

THE COURT: Sustained.

BY MR. GILL:

Q. Professor Jaffe, are the views attributed to Ms. Brown with respect to the focus of the

TIRC's research consistent or inconsistent with the mission statement contained in

the Frank Statement?

A. This articulation of the purpose of CTR is inconsistent with the mission that was

laid out in the Frank Statement.

*30 Q. Would Ms. Brown's views promote the process of creative destruction?

A. No. This approach was clearly designed to suppress creative destruction.

Q. And have you reviewed Dr. Glenn's testimony before Congress with respect to the

focus of CTR research as of the 1990s?

A. Yes, I did.

Q. Would you turn to Exhibit 4700, please. This concerned testimony by Dr. Glenn,

who was then the former scientific director of CTR and the present CEO of CTR before

Congress in the spring of 1994. Do you understand that?

A. Yes.

Q. All right. And if you would direct your attention to page 368 of that exhibit. A

transcript appears there of a portion of the sworn testimony that Dr. Glenn gave before

a congressional committee; correct?

A. Yes.

Q. All right. Directing your attention to the second question that appears on that page,

Congressman Synar asks Dr. Glenn whether he's familiar with the CTR council report

of 1993, and Mr. Glenn indicates that he is.

A. Yes.

Q. And then how does the exchange continue?

A. The congressman asks: "Out of the 296 studies in your index, where you funded

about 19.5 million in grants; as I see from the index only 10 or about 10 of the projects

have anything to do with tobacco. Do you dispute that?"

And Mr. Glenn says, "No, sir."

Q. Okay. And does Mr. Glenn then go on to explain the basis for the disparity between

studies that are focused on smoking and health versus other types of studies?

A. Yes, he does.

Q. What does he say?

A. He says, "Because, Mr. Synar, medical research in general has taken the turn

towards basic fundamental understanding of cell regulation and deregulation. Until

we understand these processes, we cannot explain any diseases. And our research is

at the forefront, along with the National Cancer Institute and the National Institutes of

Health and the various other private funding agencies."

Q. How do Dr. Glenn's views on that subject compare with Attorney Brown's views as

expressed in the previous exhibit that was authored some 26 years previously?

A. Well he's basically 26 years later still making the same argument, which is we've

got to work on basic fundamental understanding before we can turn to the specific

question of the connection between smoking and health.

Q. In your review of the industry's internal documents, have you found documents

that indicated attempts to suppress research that was occurring in the field of smoking

and health?

A. Yes, I have.

Q. Would you turn to Exhibit 13909, please. Is this one of the documents you relied

upon in forming your opinions, Dr. Jaffe?

A. Yes.

Q. And is this document consistent with other documents that you've reviewed on the

same subject?

A. Yes, it is.

MR. GILL: We'll offer, Your Honor, Exhibit 13909.

MR. BLEAKLEY: No objection, Your Honor.

THE COURT: Court will receive 13909.

BY MR. GILL:

Q. Now this is a three-page document; is it not?

A. That's correct.

*31 Q. And if we go to the second page, we see that it relates to a report dealing with

the Auerbach-Hammond paper.

A. That's correct.

Q. And if we go to the last page, we see the author.

A. Yes. It's by I. W. Hughes from Brown & Williamson.

Q. And he also gives the date.

A. February 11th, 1970.

Q. All right. And I'd like you to assume that Dr. Hughes was then a scientist working

for Brown & Williamson and that he ultimately served as the president and CEO of

Brown & Williamson during the period 1980 to 1986. A. Okay.

Q. Now from your review of the internal documents of the industry, do you have some

understanding of the nature of the work that Dr. Auerbach was doing in connection

with smoking and health?

A. Yes. Dr. Auerbach had conducted an experiment or a series of experiments where

he had dogs inhale cigarette smoke through an incision in their throat, and he found

-- or he reported that he had found that several of the dogs that were smoking had

developed lung cancer.

Q. Now in your analysis of this matter, did you try to evaluate the merits of Dr.

Auerbach's discoveries in either direction?

A. No. My purpose was not to determine whether Dr. Auerbach's results were valid or

not, my purpose was to look at how the companies dealt with this in order to

understand whether they were acting consistent with what I believe to be the collusive

agreement or whether they were acting with respect to this event in a way I would

expect competitive firms to act.

Q. Now directing your attention back to the first paragraph of the report by Dr. Hughes,

does he set forth there his general assessment of Dr. Auerbach's work as of February

1970?

A. Yes. He says, "Although open to criticism on several counts, the general standard of

the paper is good. I am of the view that" -- that is Dr. Hughes -- "that this shows it is now

possible to produce tumors in the respiratory system of an animal by direct

inhalation."

Q. All right. And then if you go to the very last paragraph of the report on page two --

actually it is the third page of the exhibit, but it's marked page two on the report. It's

labeled (h).

A. Yes, I see that.

Q. Does he basically sum up his views with respect to this Auerbach research there?

A. Yes. He says, "All the above" -- meaning his various analyses of the paper -- "All the

above leads me to the view that correlation with the human is still way off; but I accept

that significant tumorigenic conditions following inhalation has been achieved."

Q. Now at the very beginning of this exhibit, did Dr. Hughes express some other

thoughts regarding the potential implications of the Auerbach work?

A. Yes.

Q. All right. Let's go back, then, to the very first page of Exhibit 13909. What is Dr.

Hughes discussing there?

A. Well he's, in effect, thinking about the implications of the Auerbach work for the

industry, and he says, "I would imagine that the industry could be asked what it's

going to do following the Auerbach publication.

*32 "Is it possible to adopt the stance that 'the work is significant and important, and

the industry will sponsor a research project (in which Auerbach collaborates) aimed at

repeating the experiment under statistical control to determine the significance of the

rate of incidence of invasive squamous carcinoma in relation" --

Q. Now let -- let me interrupt you right there. As far as you can tell, Professor Jaffe, did

the industry ever untake -- undertake those types of studies?

A. No, it didn't.

Q. Please continue.

A. And then he says, "(This type of experiment needs to be done so that the industry

can become aware of how it might have to change its products, as inhalation

techniques and experimental procedures become more sophisticated and possibly

produce even more damaging results.)"

Q. Now how do the last thoughts expressed there by Dr. Hughes on the implications of

the Auerbach work relate, if at all, to the process of creative destruction?

A. Well I think what Dr. Hughes is saying here is very similar to something I said

earlier, which is that if these companies were competing, then findings of this sort

would be viewed as something that required a competitive response, that required the

companies to think about the consequences for their own research program, and what

he's saying is, you know, this -- this seems to be an important result and we need to be

doing the work that's going to put us in a position to deal with similar results as they

come out in the future.

Q. Professor Jaffe, did you come across any documents that indicated that CTR and

other cigarette companies also took an interest in Dr. Auerbach's work?

A. Yes.

Q. All right. Would you go to Exhibit 12607. Is this a document that you relied upon in

forming your opinion, Dr. Jaffe?

A. Yes.

MR. GILL: Your Honor, we'll offer 12607.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 12607.

BY MR. GILL:

Q. Now first of all, Professor Jaffe, let me ask you: Did you gain an understanding as to

whether or not CTR, as a funding organization, played any role in the Auerbach beagle

studies?

A. I haven't seen any evidence that they were providing research support to Dr.

Auerbach.

Q. Now Exhibit 12607 is a document produced by RJR; is that correct?

A. Yes, that's correct.

Q. It's an interdepartment memorandum to Mr. Vassallo, who was vice- president of

research and department at RJR, in November of 1970, and it's from Dr. Murray

Senkus, who was the director of research and development at that time.

A. That's correct.

Q. And it concerns "MINUTES OF MEETING TO DISCUSS RESULTS OF EXPERIMENTS

WITH SMOKING DOGS CONDUCTED BY DR. OSCAR AUERBACH" at the office of The

Council for Tobacco Research on November 3, 1970; correct?

A. Yes. Yes.

Q. This meeting, then, occurred approximately nine months after Dr. Hughes had

offered his assessment of the implications of the Auerbach beagle study; correct?

*33 A. That's correct.

Q. All right. And does the memorandum then go on to identify the participants of this

meeting?

A. Yes.

Q. And could you summarize what's contained in that section, please.

A. Well the first group of participants, Dr. Kensler, Dr. Spears, Dr. Wakeham and Dr.

Senkus, are scientists; the latter three are scientists employed by tobacco companies. I

believe Dr. Kensler was an outside consultant to the tobacco industry.

Q. And it indicates that they are TWG participants. What is a TWG participant?

A. The TWG was the Tobacco Working Group which had been set up by the

government through the National Cancer Institute that involved both scientists from

the industry as well as outside the industry working on the issue of the possibility of a

safer cigarette.

Q. And so it indicates above that a discussion was held preliminary to the

presentation to be made by Dr. Auerbach to the Tobacco Working Group of the National

Cancer Institute on November 9, 1970.

A. That's correct.

Q. So six days before that meeting, the meeting is occurring at CTR in which four of

the members of this TWG working group that will be hearing Dr. Auerbach are now

going to be discussing his work.

A. That's correct.

Q. Who else was participating?

A. Well the next group of participants, there's a Dr. Fagan, who apparently has some

affiliation with Philip Morris, and then two individuals, Mr. Holtzman and Mr. Hall

from the legal department at Philip Morris, and a Mr. Shinn from the law firm of Shook,

Hardy in Kansas City.

Q. Who else was there?

A. And last group are the CTR staff, basically either employees of the CTR, and then

also Dr. Sheldon Sommers, who's the chairman of the SAB.

Q. And Dr. Sommers at that point had apparently succeeded Dr. Little?

A. Well he's indicated here as the chairman of the SAB.

Q. All right. And so there may be the chairman of the SAB as well as the scientific

director of the CTR?

A. As I understand it, those were typically different people.

Q. They were typically different people?

A. Different people, yes.

Q. Okay.

A. I'm not sure who was the scientific director as of 1970, whether it was still Dr. Little

or whether that was after he left.

Q. But in any case, Dr. Sommers is referenced under the heading of "CTR Staff."

A. That's correct.

Q. And Drs. Kreisher, Lisanti and Hockett are all associate scientific directors; are

they not?

A. Yes.

Q. All right. Does the last paragraph, then, indicate what occurred at the meeting?

A. Yes. It says, "The medical people at the meeting, namely, Fagan, Kreisher, Lisanti,

Hockett and Sommers, emphasized the following points which should be raised with

Dr. Auerbach after his presentation with the NCI on November 9:"

Q. All right. Now before we go to the next page, let me ask you whether -- In your

opinion, is the makeup of this group of people that got together on this day consistent

with the pledge in the Frank Statement that CTR would assist the research effort

impartially with respect to the smoking-and-health issues that had arisen?

*34 A. Well again if the -- if the purpose of this meeting within the broader context of

CTR was to learn the truth, the presence at the meeting of the lawyers from both Philip

Morris and from an outside law firm would seem to suggest the possibility of conflict of

interest.

Q. All right. Let's go on --

MR. BLEAKLEY: I didn't hear the last part to that question.

THE COURT: "Conflict of interest."

MR. BLEAKLEY: I object to that, move to strike that as irrelevant, improper, and not

within the scope of this witness's expertise.

THE COURT: Sustained.

Why don't we take a break and go to lunch.

MR. GILL: Thank you, Your Honor.

THE CLERK: Court stands in recess, to reconvene at 1:45.

(Recess taken.)
 

*1 TITLE: STATE OF MINNESOTA AND BLUE CROSS AND BLUE SHIELD OF

MINNESOTA, PLAINTIFFS, 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 19, 1998

P.M. Session
 

JUDGE: Hon. Judge Kenneth J. Fitzpatrick, Chief Judge
 

AFTERNOON SESSION.
 

THE CLERK: All rise. Court is again in session. (Jury enters the courtroom.)

THE CLERK: Please be seated.

THE COURT: Counsel.

MR. GILL: Thank you.

Good afternoon, Your Honor. Good afternoon ladies and gentlemen.

(Collective "Good afternoon.")

BY MR. GILL:

Q. Good afternoon, Professor Jaffe.

A. Good afternoon, Mr. Gill.

Q. When we broke for lunch, I believe we were discussing Exhibit 12607. Could you

turn to the first page of that exhibit, please.

A. Yes, I have it.

Q. I think we mentioned down at the very bottom of that page there was an indication

that the group of people who had gathered at CTR on November 4, 1970 were going to

have a discussion about points which should be raised with Dr. Auerbach after his

presentation at the National Cancer Institute, which was six days away.

A. That's correct.

Q. And then the memo goes on on page two to list three points that the group intends

to raise with Dr. Auerbach.

A. That's correct.

Q. And in this context, the group would apparently be the participants in this meeting

who happened to be members of the TWG committee of NCI.

A. That's right.

Q. Now the -- the first is -- is rather difficult to read. What -- what is being discussed in

the second of the three points that are going to be raised after Professor Auerbach

speaks at NCI?

A. The second point is essentially a -- a criticism about the way the experiment was

conducted. It says, "first, the surgeries on the tracheas and then the insertion of plastic

smoking tubes into the incisions no doubt were disturbing to the dogs. These

conditions probably caused chronic infections, hemorrhaging, swelling of tissues -

just a whole host of traumatic and damaging experiences. It was reported that the dogs

were docile and friendly and appeared to enjoy the smoking." And then it says, "This is

a misinterpretation" because "in the desire to please, the dogs covered up the stress

and traumA."

Q. So the members discussed the notion that somehow the dogs covered up the stress

from this trauma induced by Dr. Auerbach's experiment due to a desire to please Dr.

Auerbach?

A. That's what --

MR. BLEAKLEY: Objection, Your Honor, he's leading the witness again.

THE COURT: It is leading.

*2 Q. Now let's move on, Professor Jaffe, to the next point that the participants

discussed.

A. Yes. The next point has to do with the slides in which Dr. Auerbach shows that in

his judgment there had been cancerous -- cancers developed in dogs. And it says -- it

says, "In medical terms these are referred to as squamous cell carcinomA. And "In Dr.

Sommers' opinion, the photographic quality of the slides is unbelievely poor." And he

couldn't understand why Dr. Auerbach did not employ the readily available

professional skills for the preparation of the slides.

Q. And then he goes on to discuss "Purely on the basis of the quality of the slides, the

interpretation is meaningless...?"

A. He said it's meaningless. And then the next paragraph says, "Under any

circumstances, only one of the slides suggests a carcinomA."

Q. Now we had previously reviewed Dr. Hughes' of B&W assessment of the Auerbach

work some nine months before.

A. That's correct.

Q. How does this assessment compare with Dr. Hughes' assessment?

MR. BLEAKLEY: Objection, Your Honor, this goes beyond this witness's competence.

THE COURT: Well you can compare what you read.

A. Well Dr. Hughes indicated in his memo that although there were questions about

the technique, that it was his opinion that on the whole it did show that tumorigenic

response had been elicited.

Q. Now we've seen that three of the participants in this meeting at CTR were attorneys;

is that correct?

A. That is correct.

Q. Two were in-house attorneys at Philip Morris, and the third was an outside attorney

from the firm of Shook, Hardy.

A. That's correct.

Q. From an economic point of view, Professor Jaffe, what type of incentive would

attorneys for cigarette companies have had with respect to the notion of pursuing Dr.

Auerbach's experimental work through further funding?

MR. BLEAKLEY: Objection, Your Honor, it calls for speculation, it's irrelevant.

THE COURT: You may answer.

A. Well I think the economic incentive of the lawyers would have been to preserve the

financial interests of their clients, the tobacco companies, which would have --

So for that reason they would have desired to undermine the credibility of Dr.

Auerbach's results.

MR. BLEAKLEY: Move to strike that answer, Your Honor.

THE COURT: Yes. That's non-responsive.

Q. Professor Jaffe, were there any other occasions that you found in your review of the

industry's internal documents where CTR and industry representatives addressed Dr.

Auerbach's work?

A. Yes.

Q. Would you move to Exhibit 12296, please. This is another memorandum produced

from the files of RJR; is that correct?

A. That is correct.

Q. And the date of this memorandum is December 22, 1971?

A. That's correct.

Q. So we're just about one year beyond the date of the last memorandum?

A. Little more than a year, yes.

Q. And this is another memorandum that's to Mr. Vassallo?

A. That's correct.

*3 Q. And again as seen on page one, the author is Dr. Senkus.

A. That's correct.

Q. And this is another meeting at The Council for Tobacco Research that occurred on

December 21, 1971, as shown in the upper left-hand corner.

A. That's correct.

Q. Does it indicate the purpose of this meeting?

A. Yes. It says the meeting was held at CTR to discuss further Auerbach smoking

experiments on dogs under the sponsorship of the NCI.

Q. So Dr. Auerbach is apparently seeking further funding from NCI to do additional

research work relating to smoke- inhalation studies involving dogs.

A. That's correct.

MR. BLEAKLEY: Objection, Your Honor, leading.

THE COURT: Well it is leading. I'll let it stand.

Q. Who was present at this meeting?

A. Well again there's a list of participants on the first page. There's three people from

The Council for Tobacco Research, Vincent Lisanti, William Hoyt and Robert Hockett;

three people from Philip Morris, Alex Holtzman, Roger Saleeby and Helmut Wakeham;

and two people from RJR, Mr. Roemer and Murray Senkus.

Q. And Mr. Holtzman was one of the participants in the meeting that occurred

approximately a year before?

A. As indicated in the previous document, yes.

Q. And he's an in-house attorney at Philip Morris.

A. That's correct.

Q. Are you aware of the fact that Mr. Roemer was an in- house attorney at RJR at that

time?

A. I believe that's correct, yes.

Q. All right. What's indicated in the first portion of the next section dealing with the

background to this meeting?

A. Well what it indicates is that the NCI -- (clearing throat) excuse me -- is negotiating

with Auerbach to conduct further smoking experiments on dogs, and these additional

experiments, it says, as defined by the NCI, the objective would be to determine the

effect of nicotine on smoking dogs.

Q. From what you've reviewed in the documents, does the type of research that Dr.

Auerbach was now proposing to be funded at NCI have anything to do with the issue of

smoking and health?

A. Yes, I think it would, because it would -- it would -- by looking at the effect of

nicotine on dogs, it would provide potentially useful information about the effect of

nicotine on humans.

Q. If we look at the next page of this exhibit, does it indicate what conclusions this

group of people reached with respect to their attitude toward Dr. Auerbach's request for

funding?

A. Yes. It says, "It was concluded that discussion of the pertinent scientific data with

Dr. Gori will convince him that the Auerbach experiments should be abandoned. The

staff at CTR will assemble the information that is to be submitted to Dr. Gori. The

Research Directors of the tobacco companies will meet with the CTR staff on January

17 to prepare the final report at that time. In a telephone conversation, Dr. Gori has

agreed to meet with the Research Directors on January 18 to discuss these datA."

Q. From an economic point of view, Professor Jaffe, what type of competitive behavior is

being discussed in that paragraph?

*4 A. Well I think, taken in connection with the Frank Statement and what the

companies indicated the function of CTR was going to be, which was going to be to try

to learn the truth about smoking and health and communicate it, it seems to me it's

anti-competitive for the CTR and the research directors of the companies instead to

expend their efforts at trying to convince some other funding agency of the national --

of the government not to fund this research. If -- if they believed it was not valid

research, obviously, they could choose themselves not to fund it. But I don't see within

the mission of the Frank Statement why these folks would have gotten together to try to

convince the federal government not to engage in a certain kind of research related to

smoking and health.

Q. Would the very type of research that Dr. Auerbach was proposing have fallen within

the mission statement of CTR?

A. Yes, I believe so.

Q. In these last two exhibits, Professor Jaffe, we've seen meetings that have occurred

between staff members of CTR, industry scientists and industry lawyers; is that

correct?

A. Yes.

Q. Are these two exhibits --

Are these two documents representative of other documents that you have reviewed

that involve a similar cast of characters?

A. Yes.

Q. Have you seen any internal documents in which the cast of characters was

extended to the highest levels of management within these companies?

A. Yes, I have.

Q. Would you turn to Exhibit 10295, please.

Is this a document that you have relied upon in support of your opinions?

A. Yes.

MR. GILL: We'll offer, Your Honor, Exhibit 10295.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 10295.

BY MR. GILL:

Q. Just in general, Professor Jaffe, what is this document?

A. This document is a set of handwritten notes taken by Helmut Wakeham of a CTR

Executive Committee meeting on November 30th of nineteen seventy -- I guess on my

copy I cannot see the complete date, but I believe it was sometime in the early '70s,

and these are Dr. Wakeham's notes of the meeting.

Q. What is the rectangle, the vertical rectangle that appears in the middle of the first

page?

A. That appears to be the table around which the meeting was held, and what Dr.

Wakeham has done is written in the names of the participants in the meeting, where

they sat at the meeting.

Q. And do you see the initials HW in the lower right-hand corner of the table?

A. Yes.

Q. That's apparently Dr. Wakeham's position?

A. I believe so, yes.

Q. All right. Let's start up at 12:00 o'clock and work through the identities of the

participants in this meeting of the CTR Executive Committee on November 30, I believe

the evidence will show it's 1970.

First of all we have Hoyt. That would be Dr. Hoyt of CTR; is that correct?

A. Yes.

Q. And then Ramm?

A. Yes.

Q. Do you know who Mr. Ramm was?

A. Yeah, I believe -- (clearing throat) excuse me -- I believe Mr. Ramm was from R. J.

Reynolds.

*5 Q. And are you aware that in answers to interrogatories, defendants have indicated

that Mr. Ramm was formerly the general counsel of RJR?

A. Yes.

Q. And does this document show that at this particular meeting he was elected

chairman of CTR?

A. Yes. Just below the picture of the table, it indicates that.

Q. All right. And then going down the right side of the table, it indicates Dr. Sommers

is present?

A. That's correct.

Q. And we've just seen who Dr. Sommers was from the previous two exhibits.

A. That's right. He was the chairman of the Scientific Advisory Board of the CTR.

Q. And then outside of Dr. Sommers, to the right on the exhibit, is Dr. Hockett.

A. Yes. The associate director -- associate scientific director of CTR.

Q. And below Dr. Sommers is Alec Galloway. We know who he is; don't we?

A. Yes. He was the chairman of Reynolds.

Q. He was the chairman and CEO of Reynolds Tobacco until June 18, 1970,

approximately five months before this meeting; correct?

A. Yes. That's a good point.

Q. And below Mr. Galloway is William Smith?

A. Yes.

Q. And according to answers to interrogatories filed by the defendants in this case, it

was Mr. Smith who succeeded Mr. Galloway as president and CEO of RJR in June of

1970. Do you understand that?

A. That's my understanding.

Q. And then behind Mr. Smith is Dr. C. C. Little?

A. Yes.

Q. He at this time is the retiring chairman or he's the retiring scientific director of

CTR.

A. That's correct.

Q. Then below Mr. Smith is Lester Pollack, and it's indicated that he's with Loews

Lorillard?

A. I think it says Lorillard, yes.

Q. And behind him is Bob Tisch with Loews Lorillard. Mr. Tisch was the president and

CEO of Lorillard at that time.

A. That's my understanding.

Q. And below Mr. Pollack is Curtis Judge. Do you know who he was?

A. I'm forgetting as I sit here.

Q. Mr. Judge was the senior executive at Lorillard --

A. Okay.

Q. -- and eventually the president and CEO of Lorillard.

A. Right.

Q. And below Mr. Judge is Arthur Stevens. Do you recall that Arthur Stevens is the

general counsel of Lorillard?

A. Okay.

Q. And below him is Mr. Holtzman, the attorney that we've seen on the previous

exhibits from Philip Morris. A. Yes, I understand that.

Q. Now the --

We haven't been able to identify the two gentlemen outside of Stevens and Holtzman,

Brooks and whatever the other name is, but continuing down below Mr. Wakeham, we

have Mr. Bowling. Do you understand that he was a senior attorney at Philip Morris?

A. That's correct.

Q. And Mr. Cullman, who was the president and CEO of Philip Morris.

A. That's correct.

Q. And then going up the table we have P. Smith. Do you remember who Paul Smith

was?

A. No, I'm afraid I don't.

Q. From the earlier exhibit with regard to the letter to the Committee of Counsel from

Mr. Yeaman, do you recall that Mr. Smith was the general counsel of Philip Morris?

*6 A. Okay. That's right.

Q. And above him is Mr. Finch, Ed Finch. The defendants have indicated that he was a

senior executive, and I believe president at that time, of Brown & Williamson; right?

A. Right.

Q. Outside of those gentlemen would be J. Brown. Do you recognize that name?

A. I would believe that's Janet Brown, who was an outside attorney for American

Tobacco.

Q. And above Mr. Finch would be Mr. Yeaman, the general counsel of Brown &

Williamson?

A. Brown & Williamson, right.

Q. And later the CEO of the CTR.

A. Right.

Q. And above him would be Mr. Hetsko. We know Mr. Hetsko?

A. Yes. He's the general counsel of American Tobacco.

Q. And outside of Mr. Hetsko and just above him would be Mr. Kornegay. Do you

recognize his name?

A. Yes. I believe he's the head of The Tobacco Institute.

Q. So The Tobacco Institute president is also attending the CTR executive board

meeting.

A. The notes indicate that, yes.

Q. And above Mr. Hetsko would be B. Walker. Do you understand that he was the

president and CEO at the time of American Tobacco?

A. Yes.

Q. And outside of him would be Mr. Hardy. Do you know who Mr. Hardy was?

A. I believe he's an attorney with Shook, Hardy, one of the outside law firms.

Q. And above him would be Mr. Heimann, whose deposition you reviewed.

A. Yes. Another top executive from American Tobacco.

Q. And who succeeded Mr. Walker as president and CEO of American.

A. Okay.

Q. And then at the top of the table on the left side would be Mr. Shinn. Do you recall

seeing his name on one of the previous exhibits?

A. Yes. He was identified in one of the previous exhibits as an attorney, an outside

attorney.

Q. Now just below the table, as you previously indicated, there's a section that deals

with proceedings, and apparently the first proceeding that occurred was the election of

Mr. Ramm as chairman.

A. Yes, that's correct.

Q. And if you'd look at the third page of this exhibit, in the middle of that third page

there's an indication that Mr. Ramm makes a statement.

A. Yes. It says "Ramm" --

Q. See that?

A. "Ramm - makes statement."

Q. And he first mentions what the purpose of the CTR is.

A. That's correct.

Q. And then his statements, according to Dr. Wakeham's notes, appear to continue

through the remainder of that page into the next page; is that correct?

A. Yes, that's correct.

Q. Going to the next page, it becomes a little bit difficult to read, but about one-third of

the way down do you see a reference to Dr. Little?

A. Yes. It says, "Little has served well," and then has a dash and it says, "Scientific

Director Emeritus."

Q. What's your interpretation of that?

A. My interpretation of that is that Dr. Little is stepping down as scientific director and

will take the title of scientific director emeritus.

Q. And then a few lines below, does Dr. Wakeham indicate that there was some

discussion with respect to the nature of the person who should replace Dr. Little?

*7 A. Yes. It's a few lines down and it says, "Expect scientific director to be dedicated

to the 'truth'," and the word "truth" is in quotation marks.

Q. Are you accustomed to seeing the word "truth" used in quotation marks?

MR. BLEAKLEY: Objection, Your Honor. I don't think that his seeing the word "truth" in

quotation marks is relevant.

MR. GILL: I'll ask it another way, Your Honor.

THE COURT: Rephrase it. BY MR. GILL:

Q. Based on your interpretation of this document, Professor Jaffe, what is the

significance of placing "truth" in quotes?

MR. BLEAKLEY: Objection, Your Honor, it calls for speculation.

THE COURT: You may answer if you know.

A. Well I would have expected, based on the Frank Statement, that the scientific

director would be dedicated to the truth without quotation marks.

Q. And is there a further discussion on this page with respect to locating a scientific

director who will be dedicated to the, quote, truth, unquote?

A. Yes. A little --

It continues in the next set of notes, it says that Spencer Stuarts & Associates are

searching, it mentions someone in Philadelphia and five other candidates, and then it

says "Legal counsels interview and scientific directors of companies can give valuable

assistance."

Q. And what's your interpretation of that discussion?

A. It's indicating that the legal counsels are going to interview the candidates for

scientific director.

Q. The candidates who must be dedicated to the truth.

A. That's correct.

Q. And just above the reference to Spencer Stuart & Associates is there an indication

of the priority that the -- that Mr. Ramm places upon the location of such an

individual?

A. Yes. It says, "Finding scientific director most important and first order of business."

Q. Now did Dr. Wakeham write a follow-up memo to this one?

A. Yes, he did.

Q. Would you turn to Exhibit 11586, please.

A. I have it.

Q. Now this is a memorandum that Mr. -- Dr. Wakeham writes to Mr. J. F. Cullman III,

who of course attended the executive board meeting as shown in these notes.

A. That's correct.

Q. And the date is December 8, 1970.

A. Yes, about 10 days after the meeting actually occurred, which is referred to in the

first line of the memo itself.

Q. So we know that this memo is in reference to the handwritten notes of Dr.

Wakeham because he specifically mentions that this memo is with respect to the

November 30 meeting of the CTR Executive Committee; is that right?

A. That's correct.

Q. And what is the subject of this memo?

A. Well the title is "'Best' Program for CTR," and he's giving Mr. Cullman some views

about what should happen with CTR.

Q. Does he ask in the first paragraph, "What kind of CTR program is best for the

industry?"

A. Yes.

Q. And does he provide some observations with respect to that subject matter as the

memo continues?

A. Yes, he does. The first thing he does under his number one stated objective or

purpose of the CTR, he has here in quotation marks, "'To aid and assist research into

tobacco use and health, and to make available to the public factual information on this

subject, close quote."

*8 Q. Now is that part consistent with the mission statement of CTR --

A. Yes.

Q. -- as set forth in the Frank Statement?

A. Yes, it is.

Q. Okay.

A. And he says, "This is a very broad statement which has been interpreted more

narrowly to," and he quotes again, "'providing financial support for research by

independent scientists...' 'to provide significant data about lung cancer, heart disease,

chronic respiratory ailments, and other diseases,"' and he indicates that that second

quote is from the 1968-'69 report of the scientific director of the CTR-USA.

Q. So the more narrow interpretation is the interpretation provided by the scientific

director of CTR?

A. That's right. He's quoting the report of the scientific director who has narrowed the

original focus and is now -- is describing it in terms of essentially basic research

about these diseases rather than the broader statement about tobacco use and health.

Q. And who authored the 1968-'69 report of the scientific director?

A. Dr. Little.

Q. And how consistent is the statement attributed to Dr. Little with respect to the

'68-'69 report to the earlier sentiments expressed by Dr. Little with respect to the focus

of CTR research?

A. They are very consistent.

Q. Now what is your interpretation of this particular paragraph in terms of its

significance?

A. Well essentially it's just another indication, as perceived by Dr. Wakeham right

after this important Executive Committee meeting, that as of this time in 1970 Dr. Little

has taken the broad statement of research into tobacco use and health and narrowed it

in terms of a more focused program that looks more at the diseases than at the

connection between tobacco use and health.

Q. Then there's a second stated objective of the purpose of CTR as set forth by Dr.

Wakeham; is there not?

A. Yes.

Q. He says, "It has been stated that CTR is a program to find out, quote, the truth about

smoking and health, unquote. What is truth to one is false to another. CTR and the

Industry have publicly and frequently denied what others find as, quote, truth,

unquote. Let's face it. We are interested in evidence which we believe denies the

allegation that cigarette smoking causes disease."

What is your interpretation of the significance of that statement?

A. Well that statement, particularly taken together with the notes that we saw a few

minutes ago where that same word, "truth" in quotes, appeared at the meeting where

the CEOs of all of the companies were sitting around the table discussing the future of

CTR and the need for a new scientific director dedicated to finding the truth, in

quotation marks, I believe that Dr. Wakeham is now telling us exactly what that meant,

which was that we're interested in evidence which we believe denies the allegation

that cigarette smoking causes disease, which is not the mission that was set out for the

CTR in the Frank Statement.

MR. BLEAKLEY: Your Honor, I move to strike that answer as speculative, non-

responsive, and beyond the expertise of this witness.

*9 THE COURT: Well the answer will stand.

BY MR. GILL:

Q. Professor Jaffe, can you summarize for us at this time your opinions with respect to

the role that CTR played in the prong of the conspiracy related to the reassurance of

smokers and suppression of unfavorable research?

A. Yes. What we've seen from the documents that we've looked at, beginning, really, in

the very beginning of CTR in the 1950s, going through the 1960s and 1970s, and then

continuing even with the testimony of Dr. Glenn in the '90s, is that what was

originally portrayed as an effort to find out the truth about smoking and health and

convey that to smokers instead was used essentially as a cover. They funded scientific

research, they funded good scientific research, but the scientific research that they

funded was aimed generally at understanding the mechanisms of disease, was not

primarily focused on determining whether or not smoking was harmful, and in those

occurrences where they did fund research that found evidence that smoking was

harmful, that information was not treated as significant information, was not

highlighted by the scientific director or presented to the public as being the significant

findings that in 1954 they said they were going to pursue.

Q. Professor Jaffe, did The Tobacco Institute also play a role in the industry's efforts to

reassure smokers and to suppress the impact of unfavorable research findings?

A. Yes.

Q. Would you turn to Exhibit 14573, please. Is this a document that you've relied

upon in forming your opinions, Professor Jaffe?

A. Yes. MR. GILL: We'll offer, Your Honor, Exhibit 14573.

MR. BLEAKLEY: Excuse me a moment, Your Honor.

No objection.

THE COURT: Court will receive 14573.

BY MR. GILL:

Q. Professor Jaffe, this exhibit is a memorandum sent to Mr. Kloepfer at The Tobacco

Institute; correct?

A. Yes, that's what it indicates.

Q. And the date is October 18, 1968?

A. Yes.

Q. And it is from Hill & Knowlton?

A. Yes.

Q. And the subject is, "Tobacco and Health Research Procedural Memo."

A. Yes, that's correct.

Q. All right. And the author indicates that as requested, this is a memo on the writing

and production of Tobacco Health and Research.

A. Tobacco --

Q. And then he --

A. I'm sorry, Tobacco and Health Research, which is underlined, indicating that that's

a publication that is going to be produced.

Q. And the author indicates the target audience for this particular publication?

A. It says it's doctors and scientists.

Q. And then going to page two, at the top of that page does the author address what

types of stories this publication ought to focus upon?

A. Yes. It says, "The most important type of story is that which casts doubt on the cause

and effect theory of disease and smoking."

Q. Now based upon your review of the internal documents of the industry, what do you

view as the difference between CTR and TI in terms of the roles they played in the

prong of the conspiracy that we've been discussing?

*10 A. Well based on the documents I've seen, they played similar roles in the sense

that they were actively involved in the reassurance of smokers, with the difference

being that with respect to TI there was no pretense that the organization was anything

other than a public relations operation of the industry.

Q. Did you also review press releases issued by The Tobacco Institute over a span of

several years?

A. Yes, I did.

Q. Was there any particular thread that you found running through those press

releases?

A. The press releases of TI, and also the press releases of CTR for that matter, during

this period, tended to focus on emphasizing that causation had not been proven, that

there was still a controversy, and that more research needed to be done before it could

be concluded that smoking caused disease.

Q. Did those press releases of both The Tobacco Institute and the CTR tend to focus on

casting doubt on the cause-and- effect theory of disease and smoking?

MR. BLEAKLEY: Objection, Your Honor. Mr. Gill is leading again.

THE COURT: Sustained.

BY MR. GILL:

Q. How would you characterize the focus of those press releases?

A. Well I think, as I indicated in my previous answer, the focus in the press releases

was undermining the argument that smoking causes disease and highlighting

purported evidence to the contrary.

Q. Now based upon the documents that you reviewed, Professor Jaffe, did CTR and The

Tobacco Institute receive any help in connection with their roles in the conspiracy?

A. Yes.

Q. Would you turn to Exhibit 10165, please.

All right. This is a handwritten set of notes dated April 21, 1978.

A. That's correct.

Q. You understand that the author of this memo has been identified as Mr. Judge, who

in 1978 was the president and CEO of Lorillard. A. That's my understanding.

Q. One of the participants at the CTR Executive Committee meeting that occurred on

November 30th, 1970.

A. That's correct.

Q. All right. What did you find significant about this particular document in terms of

this prong of the conspiracy?

A. Well in the first paragraph there after the number one, what Mr. Judge says is that

"We have again 'abdicated' the scientific research directional management of the

Industry to the 'Lawyers' with virtually no involvement on the part of scientific or

business management side of the business." And from the point of view of a competitive

industry engaged in, first of all, collectively trying to find out the truth about disease

and then individually competing to provide consumers with what they wanted, I would

not expect that the scientific directional management of the industry would be

abdicated to the lawyers.

Q. Did --

A. Certainly with virtually no involvement of the scientific or business management.

Q. Well based upon your understanding of the role of the process of creative

destruction in bringing benefits to consumers, what type of role would you expect

scientists to play in such a process versus attorneys? *11 A. Well I'd expect scientists

to be eager to pursue scientific research, and I would expect management to be eager

to pursue the competitive objectives of the industry. The lawyers, particularly where

they're clearly talking here about a collective group of lawyers, not just, for example in

Mr. Judge's case, Lorillard lawyers, I would expect to be interested in protecting the

industry and suppressing that kind of progress forward.

MR. BLEAKLEY: Move to strike the last part of that answer, Your Honor.

THE COURT: Well that will stand.

BY MR. GILL:

Q. Professor Jaffe, did you find any further indications as to whether or not Lorillard

continued to oppose the control of lawyers over scientific research?

A. Yes.

Q. Would you look at Exhibit 21127.

A. I have it.

Q. We'll just let Ms. Sutton catch up.

All right, Professor Jaffe, this is an exhibit that's previously been admitted into

evidence. The first page is a September 18, 1981 letter to Joseph Greer, Esquire, vice-

president and general counsel of Liggett. Do you see that?

A. Yes.

Q. And the letter is on the stationery, obviously, of Webster & Sheffield, a New York law

firm, and it's signed on the second page by a Francis K. Decker, Jr., --

A. Yes.

Q. -- an attorney with that firm.

Now Mr. Decker is apparently providing some type of report to Mr. Greer.

A. Yes. It indicates in the first line that the letter is essentially a cover letter for notes

taken at a meeting of the Committee of General Counsel held on September 10th, 1981

at the law firm of Chadbourne & Parke.

Q. So Mr. Decker apparently attended a meeting of that group, took some notes, and is

providing some synopsis of his notes to the general counsel of Liggett, his client.

A. That's my understanding.

Q. Okay. If you would go to Bates stamp document 748, please. Now at this portion of

the -- of the report by Mr. Decker of this meeting of the generals counsel of the

cigarette companies, Mr. Decker is reporting on, first of all, the status of the case, and

then in number three he's reporting on NCI workshop on sidestream smoke. Do you

see that?

A. Yes.

Q. What's being discussed there?

A. Well as it indicates in the paragraph right below that, Mr. Stevens from Lorillard is

reporting to the group that "Dr. Spears," who's a scientist at Lorillard, had "said that

Tom Owens, Gory's assistant" -- Gori being a scientist with the National Cancer

Institute -- had "called Spears. NCI received a grant application re side-stream smoke

and exposure of humans." NCI is proposing to have a workshop. They've invited a

bunch of people to the workshop, including Dr. Spears. Spears is recommending that

he go.

And then the document goes on to show that the attorneys at this meeting then

discussed whether or not it was desirable for Dr. Spears of Lorillard to attend this

meeting sponsored by the National Cancer Institute.

THE COURT: Counsel, counsel, we'll have to take a short recess.

*12 MR. GILL: Thank you, Your Honor.

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. GILL: Thank you, Your Honor.

BY MR. GILL:

Q. Before the break, Professor Jaffe, I think you were telling us that at Bates stamp

page 748 of Exhibit 21127, a discussion was occurring in which Mr. Stevens, the

general counsel of Lorillard, was explaining an incident that related to a contact by a

member at NCI to Dr. Spears at Lorillard.

A. That's correct.

Q. All right. And it related to a proposal that NCI fund a study on sidestream smoke.

A. Yes.

Q. And the date of this document, again, is what?

A. Was in 1981. The meeting was September 10th, 1981.

Q. And the previous document, the handwritten notes of Mr. Judge with respect to the

abdication to attorneys of scientific direction, that was occurring in 1978; correct?

A. That's correct.

Q. So we're about three years beyond the time of the Judge memo here.

A. That's correct.

Q. All right. And now do the attorneys then have a discussion, according to these

notes by Mr. Decker, of this particular proposal for a research project at NCI?

A. Yes. There's a discussion of it on page seven. This Dr. Epstein, who has made the

proposal, is characterized as being anti-tobacco and as being uncontrollable, and in

the end what they conclude is that if Dr. Spears goes, he may stop us from attacking

him later. And it says, "I am inclined to let them go."

Q. All right. First of all, Mr. Shinn, the attorney from Shook, Hardy, has some

comments with respect to Mr. Epstein having made an application and being in touch

with Mr. Panzer at The Tobacco Institute.

A. Yes.

Q. And then Mr. Finnegan, who was a partner of Mr. Jacob - -

Do you understand that the firm of Jacob Meninger did outside legal work for the

tobacco industry?

A. Yes.

Q. And they both indicate that Epstein is uncontrollable and will not help the

industry.

A. That's what Mr. Finnegan indicates, yes.

Q. But then Mr. Jacob indicates if Dr. Spears goes to this meeting, he may stop us from

attacking it later, referring to the Epstein project?

A. I believe so, yes.

Q. And Mr. Stevens says that he is inclined to let Dr. Spears attend the meeting.

A. Yes.

Q. What do you make of this exchange?

A. Well here we have Dr. Spears, a scientist at Lorillard who's been contacted by the

government about a meeting, and instead of deciding together with other people at

Lorillard whether it would make sense from Lorillard's perspective for him to go to this

meeting, this issue is brought to the Committee of Counsel, and it's discussed by this

group of lawyers from all of the companies as well as outside attorneys, and it appears

that this is exactly the kind of control of the scientific directional management of the

industry being in the hands of lawyers that Mr. Judge was referring to about three

years before.

*13 Q. And Dr. Spears has precipitated the entire discussion by informing the general

counsel of his company of the contact from the representative at NCI.

A. That's correct.

Q. Is this incident compatible or incompatible with the criticism offered by Mr. Judge

three years earlier?

A. Well it -- it would indicate that Lorillard by this point of time, three years later, is

going along basically with the scientific directional management being in the hands of

lawyers rather than trying to change that.

Q. Professor Jaffe, did you review other documents that addressed the leadership role

of the Committee of Counsel regarding the industry's response to health issues?

A. Yes.

Q. All right. Would you turn to Exhibit 10518, please. Is this a document upon which

you've relied, Professor Jaffe, in forming your opinions?

A. Yes.

MR. GILL: Your Honor, we'll offer Exhibit 10518.

MR. BLEAKLEY: Your Honor, we do object to this document. This is hearsay, it has

hearsay within hearsay in it.

MR. GILL: Your Honor, this document was produced from the files of Philip Morris, and

it is a report prepared by BATCo, apparently in the ordinary course of business. It

contains admissions under 801(d)(2), and it furthermore is an exception to the hearsay

rule with respect to records kept in the ordinary course of business under 803(06).

THE COURT: The court will receive 10518.

BY MR. GILL:

Q. Now the title of this report is "REPORT ON POLICY ASPECTS OF THE SMOKING AND

HEALTH STRATEGY IN U.S.A."

A. I think it says "...SMOKING AND HEALTH SITUATION IN THE U.S.A."

Q. You're correct. Once again, my glasses have failed me.

Professor Jaffe, does this document --

Was this document prepared by a scientist at BATCo?

A. Yes. That's what the document indicates.

Q. And do you realize that this document, based on the Bates stamp number, was

actually produced in this case from the files of Philip Morris?

A. That's my understanding, yes.

Q. And if you look in the upper right-hand corner of this face page of the document,

what do you see there?

A. The initial HW, which we've seen before.

Q. Indicating what?

A. I believe that those are Helmut Wakeham's initials. This was presumably his copy of

this document.

Q. And that for some reason someone at BATCo provided a copy of this document to

Mr. Wakeham.

A. Yes.

Q. Philip Morris is certainly not part of the BATCo family of tobacco companies; is it?

A. No.

Q. All right. The document also states at the top of the face page that it is strictly

confidential?

A. That's correct.

Q. Now basically is this document another report based on meetings with

representatives of the tobacco industry?

A. Yes. That's what it says.

Q. All right. Would you go to the page that bears the Bates stamp number 101, please.

In this portion of the document the author is reporting on legal matters and the

differences between U.S. and the United Kingdom?

*14 A. That's correct. That's correct.

Q. All right. In the second paragraph the author states, "In the U.S., by far the most

important factor conditioning action by the manufacturers is the law situation and the

danger of costly damages being awarded against the manufacturers in a flood of cases.

Not so long ago the drug industry was faced with some 300 lawsuits with claims

totaled 50 to 60 million dollars, almost all of which in the end were settled out of

court, so this type of danger is real. The leadership of the U.S. smoking and health

situation therefore lies with the Powerful Policy committee of senior lawyers advising

the industry, and their policy, very understandably, in effect is, quote, don't take any

chances, unquote."

What is the significance of that language with respect to the opinions that you have

formed in this case?

A. Well this BATCo document reporting on their impressions in 1964 on visiting the

U.S. is basically confirming what I said a few minutes ago about that when -- what the

lawyers, particularly acting collectively as a group from the different companies, are

going to do is they're going to act to try to protect the interests of their clients, which is

to protect the status quo and not take any chances, and that that is going to tend to be

inimical to the notion of creative destruction, which is inherently a risky proposition

when the firms are freely competing.

Q. Does the author state as much in the final sentence of that paragraph?

A. He says, "It is a situation that does not encourage constructive or bold approaches

to smoking and health problems, and it also means that the Policy Committee of

lawyers exercises close control over all aspects of the problems."

Q. And is that sentiment expressed in October of 1964 in this report consistent with

the sentiment expressed by Mr. Judge 14 years later in 1978?

A. Yes.

Q. And as indicated by the exchange among the Committee of Counsel regarding the

NCI workshop on sidestream smoke in 1981?

A. Yes.

Q. Now did you also find in your review, Professor Jaffe, of the internal documents of

the industry instances in which defendants used lawyers to suppress the potential

disclosure of scientific research?

A. Yes.

Q. Would you turn to Exhibit 11178. This is a document that was produced from the

files of BATCo Ltd.; is that correct?

A. That's correct.

Q. And it is a confidential memorandum from a Mr. M. J. Hardwick to three gentlemen

who are listed at the top of the page; correct?

A. Yes.

Q. Do you understand that Mr. A. L. Heard worked in the research and development

department of BATCo, and that he was head of biotechnology?

A. That's my understanding.

Q. And Mr. Hardwick, the author, is the manager of research and

development-production at the Southampton research facilities of BATCo.

A. Okay.

Q. Now he indicates that the subject of the memo is "MATERIAL FROM BROWN &

WILLIAMSON," and the date of the memo is January 9, 1985; correct?

*15 A. Correct.

Q. All right. What does he report?

A. He reports that he got a phone call from someone named Ray Pritchard, and that he,

that is, Mr. Pritchard, had received a letter from Dr. I. W. Hughes, who was with Brown

& Williamson, indicating a mechanism for our sending scientific information to B&W.

"In principle it will mean our mailing contentious information to a legal man called

Maddox" -- and he indicates he's not sure what company Mr. Maddox is with -- "with a

covering letter from us saying that Millbank has asked that he," that is Maddox,

"receive it."

Q. Now as of this point in time, January of 1985, do you recall what position Dr. I. W.

Hughes held at Brown & Williamson?

A. I believe he was the president of Brown & Williamson.

Q. President and CEO.

A. Okay.

Q. And do you understand that Mr. Pritchard, the gentleman who phoned Mr.

Hardwick, would become the president and CEO of Brown & Williamson upon the

retirement from that post of Mr. Hughes in 1986, the next year?

A. Yes, that's my understanding.

Q. All right. Is there further discussion of this incident in Exhibit 11180?

A. That's correct.

Q. Would you return to that, please.

Once again we have a document that is on the letterhead of the British- American

Tobacco Company Ltd., and this is a letter from Mr. Pritchard to Mr. Hardwick.

A. Yes.

Q. And it's January 10, 1985, so it's the next day, essentially, relative to the previous

exhibit.

A. That's correct.

Q. Okay. Now what is Mr. Pritchard reporting to Mr. Hardwick in this letter?

A. It says, "Would you please arrange for all reports and materials for worldwide

distribution emanating from G.R. & D.C.," which is the BATCo research facility in

England, "to be sent to Robert L. Maddox, Jr., of Wyatt, Tarrant & Combs," and it gives

an address in Louisville, Kentucky. And then it says, "This firm should not be listed as

a distributee in the documents nor should B&W. Any mail sent to Maddox should be

accompanied by a simple covering letter indicating that BAT Millbank has asked that

he should receive it."

Q. The previous document refers to contentious documents. What is your

interpretation of that term?

MR. BLEAKLEY: Objection, Your Honor, there's no foundation for this witness being

able to tell us what "contentious" means.

THE COURT: Well you can give us Webster's definition, I guess.

MR. BLEAKLEY: No, that -- that isn't what he asked for, Your Honor. He asked for him

to interpret this document.

THE COURT: Counsel, counsel, I told him what he could answer to the question.

MR. BLEAKLEY: Okay. Well I also object on the grounds that this witness has no

competence to interpret documents discussing matters over which he has no personal

knowledge, no foundation.

THE COURT: You may give us your definition of "contentious."

A. "Contentious" means material that people would want to argue about.

Q. Now from the standpoint of competitive behavior, how would you characterize this

incident?
 

*16 MR. BLEAKLEY: Objection, Your Honor, there's no foundation for that either.

THE COURT: You may answer that.
 

A. Well what's happening here is that Brown & Williamson, which is an affiliate of

BATCo, which has long-standing relationships whereby there's research that's done in

the facility in the United Kingdom that is commercially useful and relevant for -- for

B&W, is in -- from the -- from the president of B&W calling up and telling the people in

England that material from the research facility in England should not go directly to

B&W but instead should go to an attorney, one can only assume that that attorney was

then expected to perform some kind of function that -- that may have involved not all of

the material going on to Brown & Williamson, which is not what I would expect an

aggressive competitor who is trying to get the maximum advantage out of the research

of the affiliated companies to do.
 

MR. BLEAKLEY: Your Honor, I move to strike that answer in its entirety. It's sheer

speculation.
 

THE COURT: The answer will stand.
 

BY MR. GILL:
 

Q. Can you summarize for the members of the jury, then, Professor Jaffe, the various

roles played by CTR, The Tobacco Institute, and the -- and the lawyers of the industry

in connection with the suppression of unfavorable research information.
 

A. Well I think overall what we've seen is a picture whereby these various parts of the

industry, the CTR, the TI, and then this group of lawyers which was drawn from all of

the companies, essentially were engaged in a systematic effort to try to make sure that

smokers, consumers of cigarettes, did not receive information that would tend to

confirm their fears about cigarettes, but instead would receive this message that the

controversy is still alive, that causation has not been proven, and that that was, as I

indicated, an aspect of this overall agreement to suppress fundamental competition

relating to smoking and health.
 
 

Q. How did this prong, then, advance the goals of that broader overall agreement?
 
 

A. Well I think that this particular aspect of the conspiracy accomplished three things

within the broader objectives of the conspiracy. The first thing it did, obviously, was to

prevent the demand for existing cigarette products by -- from being undermined by

greater understanding of the health effects of cigarettes. Secondly, it would have

worked to suppress the demand for new products because the demand for those new

products would have been triggered or increased if there had been more

understanding of the causal connection between smoking and disease. And then the

third thing it did was it raised the height of the fence -- you remember we -- we saw Dr.

Mace in his memo talking about how, when you developed a new product, if you were

really going to exploit that competitively what you'd have to do is you'd have to have

the guts to jump on the other side of the fence in order to really exploit that product,

and by tying all the companies together through CTR and the TI and strongly keeping

them in line with this party line, this industry position that the controversy is alive

and causation has not been proven, it made it harder, it raised the height of that fence.

It made it more difficult. Any company that was contemplating going on the other side

would have to not only explain their own past association with this articulated

position, but would also have to then be arguing against the other companies in the

industry. And so what it did was increase the chances that nobody in the industry

would decide that they were going to take that chance and jump over to the other side.
 

*17 Q. And did the work of the Committee of Counsel, in your opinion, Dr. -- Professor

Jaffe, comprise any planks in this fence that had to be jumped?
 

A. Well clearly what the Committee of Counsel did was -- it was a set of collective

actions by the companies of the industry, and what we've seen in several of these

documents was that they were involved in determining and -- and ensuring what CTR

was doing as well as controlling what the companies individually were doing in terms

of what individual scientists would -- what actions they would take.
 

Q. Now the third prong of the overall conspiracy had to do with no warnings unless

compelled by the government; is that correct?
 

A. That's correct.
 

Q. All right. And did you pick out a -- a -- a document that you have relied upon in

support of that opinion?
 

A. Yes, I did.
 

Q. All right. And is that Exhibit 13416?

A. Yes, it is.
 

MR. GILL: We'll offer 13416, Your Honor.

MR. BLEAKLEY: No objection.
 

THE COURT: Court will receive 13416.
 

BY MR. GILL:
 

Q. All right. This is a letter on the stationery of the U.S. Department of Health and

Human Services, it's dated June 13, 1983, it's a letter addressed to Mr. Kornegay, the

chairman of The Tobacco Institute, and it is from Edward Brandt, Jr., M.D., the

Assistant Secretary for Health; is that correct?
 

A. That is correct.
 

Q. And in the upper right-hand corner it indicates that a copy of this letter to Mr.

Kornegay has been sent to Ernest Pepples, Esquire, at Brown & Williamson.
 

A. Yes, it does indicate that.
 

Q. Do you understand that Mr. Pepples was the general counsel of Brown &

Williamson at that time?
 

A. Yes.
 

Q. Do you also understand that the -- that the document was actually produced not

from the files of The Tobacco Institute, but from the files of Brown & Williamson?

A. That's what it indicates at the top.
 

Q. All right. Would you explain the significance of this letter, Professor Jaffe, with

respect to your opinions regarding warnings.
 

A. Yes. This is a letter from the government to Mr. Kornegay at The Tobacco Institute

on the subject of warnings to appear on cigarette packs, and it discusses in the letter

the position that the industry has collectively taken with respect to warnings.
 

Q. It indicates in the second paragraph that there was a first meeting in May of '83,

and that Mr. Kornegay apparently set forth certain conditions on any new warning

label, and then it lists those conditions.

A. Yes.
 

Q. So Mr. Kornegay is setting conditions with respect to the government's

consideration of warnings.
 

A. Mr. Kornegay is taking -- is laying out the industry position on what those

warnings should be, yes.
 

Q. And is it your understanding that Mr. Kornegay would be speaking for the

membership of The Tobacco Institute at that time?

A. Yes.
 

Q. All right. And with respect to the conditions that he set forth, number two relates to

addiction; does it not?
 

A. Yes. It says that the warnings should not use the term "addiction."
 

*18 Q. And number five indicates that any new warnings should retain reference to

the Surgeon General.
 

A. Yes, by indicating that the warning is coming from the Surgeon General, and

avoiding an implication that the warning which is on the cigarette pack would be

coming from the tobacco company instead.
 

Q. The manufacturer of the product.
 

A. The manufacturer of the product, yes.
 

Q. In economic terms, what significance does it have for the process of creative

destruction if the manufacturer of a product issues warnings with respect to its use?
 

A. Well I think in the context of the agreement to suppress competition, the concern

was that a warning that came from the tobacco companies themselves would have

greater credibility with smokers than a warning from the government, and that was to

be avoided.
 

Q. And if a manufacturer of any consumer product admits through the publication of a

warning in connection with its product that there are hazards attendant to the use of

the product, what type of stimulation does such a warning provide to the process of

creative destruction?
 

MR. BLEAKLEY: Your Honor, Mr. Gill is leading again.
 

THE COURT: You are leading. Sustained.
 

BY MR. GILL:

Q. As an economist, Professor Jaffe, what are the types of things that spur the process

of creative destruction with respect to the knowledge of a manufacturer regarding its

products?
 

A. Well in -- in this context in terms of the smoking-and- health issue, as we've talked

about, what would spur creative destruction would be increased demand by

consumers for a new kind of product, and a warning from the manufacturer indicating

that the product was harmful would tend to spur that demand.
 

Q. And the sixth condition cited with respect to the earlier meeting is that the

warnings should not refer to specific diseases.
 

A. That's correct.
 

Q. Now a couple paragraphs down, Dr. Brandt from the government indicates that the

government has accepted in essence the first five of Mr. Kornegay's conditions;

correct?
 

A. That is correct.
 

Q. But he indicates that the government cannot agree with the lack of reference to

specific diseases. And he states why?
 

A. Yes. He says, "To do so would, in my view, be an abrogation of our responsibility to

inform fully the consumer of our current state of scientific knowledge as to the health

risks of cigarette smoking."
 

Q. And then does Dr. Brandt indicate in the following paragraph that he's made a

second proposal --
 

A. Yes.
 

Q. -- to Mr. Kornegay?
 

A. Yes, he does.
 

Q. All right. And with respect to the paragraph that starts out, "Our second proposal,"

what was the nature of that?
 

A. He says that that second proposal is consistent with those goals and that they have

also eliminated all references to death as you requested in response to our first

proposal that was previously submitted.
 

Q. And then what does Mr. Brandt indicate in the final paragraph?
 

A. It says, "In keeping with our discussion this morning, we are willing to delete the

reference to habit-forming in our June 9 submission. However, we feel that the

warning definitely needs to include reference to specific diseases. Please let me know

if there is any flexibility in your stand on this matter."
 

*19 Q. Now Professor Jaffe, how did the collective refusal of defendants to place

warnings on their products advance the goals of the conspiracy?
 

A. Well the agreement not to put on warnings unless forced to do so by the

government supported the conspiracy in two ways; by, as we talked about a minute

ago, avoiding a situation in which the manufacturer would be associated with the

information that the product was harmful, it reduced the chances that smokers were

going to turn away from existing products and demand safer products, and in that way

it protected the existing position of the manufacturers, and in addition, by

undermining the demand for safer products along with the other components of the

conspiracy, it generally suppressed this competitive contest that might otherwise have

broken out and endangered the industry.
 

Q. All right. Professor, are you ready to move now to a discussion of the fourth prong of

the overall conspiracy?
 

A. Yes.
 

Q. In your review of the industry's internal documents, did you find documents that

support your opinion that defendants conspired not to exploit health concerns in

connection with attempts to develop safer cigarettes?
 

A. Yes.
 

Q. All right. Would you turn to Exhibit 11663. Is this a document that you've relied

upon in connection with your opinions?
 

A. Yes. MR. GILL: We'll offer Exhibit 11663.
 

MR. BLEAKLEY: No objection.
 

THE COURT: Court will receive 11663.
 

BY MR. GILL:

Q. All right. This is a document that was produced from the files of Philip Morris;

correct?

A. Yes.

Q. It's entitled "OPERATIONS DEPARTMENT OCTOBER 28, 1964, RESEARCH AND

DEVELOPMENT." Is that correct?

A. That is correct.

Q. And do we know who the author is of this document?

A. Yes. Dr. Wakeham at his deposition indicated that he was the author of this

document.

Q. Now in what way did this particular report discuss the development of a safer

cigarette?

A. Well on the very first page it describes -- this is now in 1964 --

Q. Would this be in the last paragraph of that page?

A. Yes, at the bottom --

Towards the bottom of the page, Dr. Wakeham describes a sequence of events at Philip

Morris. He says, in the second -- beginning in the second sentence of that paragraph,

"Two years ago, in anticipation of a health crisis to be precipitated by the smoking and

health report of the Surgeon General's Committee, we," meaning Philip Morris,

"undertook to develop a physiologically superior product. For this we pioneered with

the aid of two competent outside biological laboratories in the establishment of two

new test methods involving the effects of cigarettes" -- sorry -- "cigarette smoke on (1)

in vivo mucus flow and (2) respiratory dynamics. Our strategy here was that if we could

define new acceptable criteria by which physiological performance of a cigarette would

be judged and then develop a product or products meeting these criteria, we stood an

excellent chance of having our product be best in the market and receive valuable

outside endorsement."

*20 Q. And then did Dr. Wakeham go on to describe in the next paragraph what Philip

Morris did accomplish in connection with this project?

A. Yes. He says, "With these tests as criteria, we did put together a charcoal filter

product with performance superior to anything in the marketplace. That product was

known as SaratogA. Physiologically it was an outstanding cigarette. Unfortunately

then after much discussion we decided not to tell the physiological story which might

have appealed to a health conscious segment of the market. The product as tested" --

sorry -- "The product as test marketed didn't have good taste and consequently was

unacceptable to the public ignorant of its physiological superiority."

Q. Is that report on the decision of Philip Morris with regard to the marketing of the

Saratoga cigarette consistent or inconsistent with your opinion regarding the prong of

the conspiracy relating to an unwillingness to exploit for competitive purposes safer

products in a manner relying on health fears?

A. Well it's consistent. At least as described here by Dr. Wakeham, Philip Morris had a

product which they believed, based on scientific tests that they had done, was

physiologically superior to the products on the market at the time, but they concluded

that they couldn't tell that story, that physiological story and because telling that story

would have relied on health fears to -- to exploit the product, and as a result the

product was test marketed but not tested successfully because, as Dr. Wakeham

indicates, the public was ignorant of its physiological superiority.

Q. Did you find any other documents in any of the files of the other defendants who

produced documents in this case in which there were attempts made to develop a safer

cigarette?

A. Yes.

Q. Would you turn to Exhibit 11942, please.

Is this a document that you've relied upon in support of your opinions?

A. Yes.

MR. GILL: We'll offer Exhibit 11942, Your Honor.

MR. BLEAKLEY: No objection. THE COURT: The court will receive 11942.

BY MR. GILL:

Q. This is a document produced from the files of British- American Tobacco Company

Ltd.?

A. That's correct.

Q. And it's from the research and development establishment at Southampton?

A. Yes.

Q. And it indicates down below that that it's a confidential report, property of

British-American Tobacco Company.

A. Yes.

Q. All right. If you go to the next page, what is the subject matter of the report that's

contained there?

A. It says "NICOTINE ADMINISTRATION: ARIEL SMOKING DEVICES."

Q. All right. And it gives the date of the report?

A. Yes, which would be August 2nd, 1966.

Q. Based upon the European system.

A. The British system, yes.

Q. And the authors are --

Do you see any familiar names there?

A. Well Dr. Hughes, a Mr. Hook, Nicholl and Willis.

Q. And the report was issued by Dr. D. G. Felton? A. Oh, yes, right.

Q. Now if you'd go to Bates stamp page 892, we have here a discussion of this nicotine

administration ARIEL smoking device.

*21 A. Yes. It says, "Project ARIEL was a research topic aimed at the development of a

smoking device from which a smoker can receive, in suitable form, sufficient nicotine

to give satisfactory physiological and psycological responses, unaccompanied by the

products of combustion and pyrolysis associated with normal cigarette smoking."

Q. And does this report indicated the nature of the different product design that ARIEL

involved?

A. Yes, it does.

Q. All right. If you'd turn the page, about halfway down there's a section "Present

Position."

A. Yes.

Q. See that?

Is it basically reporting on the status of this developmental product at that time?

A. Yes. It says, "ARIEL cigarettes have been assembled which will enable the smoker to

obtain a required amount of nicotine with or without cigarette smoke. Two which show

promise are described below," and then there's a drawing of one of the versions that's

referred to as a "Simple ARIEL with a Frangible Tube."

Q. And then two pages later at 985, does it show the design for the other version of the

ARIEL cigarette?

A. Yes. This is described as the Composite ARIEL with a Frangible Tube" and has a

slightly different design, including a different kind of filter that is not on the other

design.

Q. To your knowledge, and based upon your review of the documents, was this

particular cigarette ever marketed by British-American Tobacco Company or any of its

affiliates?

A. No, it was not.

Q. Whatever became of this project, as best you could tell from reviewing the internal

documents of BATCo?

A. The documents I've been able to find do not explain why the project was

terminated. There's a sequence of documents through the '60s, the last reference to it

is sometime in the late 1960s, and then there's no further information.

Q. Did you find other attempts to develop a safer cigarette based upon your review of

the documents?

A. Yes.

Q. If you'd go to Exhibit 11523. Is this one of the documents you've relied upon in

support of this portion of your opinion?

A. Yes.

MR. GILL: We'll offer Exhibit 11523, Your Honor.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 11523.

BY MR. GILL:

Q. Now this is a document produced from the files of Liggett; is that correct?

A. Yes, that's correct.

Q. And we've got an indication in the upper right-hand corner of the name of a Mr.

Africk?

A. Yes.

Q. We've got a date in the upper left-hand corner. Can you read that date?

A. Yes, I believe it's January 25th, 1979.

Q. And then there's a reference to "OPENING." Now what is being discussed on the first

page of this document, professor?

A. It says, "In order to better explain the significant importance of our XA project, we

have asked Dr. Mold, our assistant director of research, to record his scientific review

of this project. I would like to play this for you."

Q. So is it your understanding that this document then sets out what it was that Mr. --

that Dr. Mold had to say to the board of directors in connection with this XA project?

*22 A. Yes, that is my understanding.

Q. Okay. If you turn to Bates stamp page 591, please, Dr. Mold explains the purpose of

the project there?

A. Yes.

Q. Can you comment on that, please.

A. It says, "To introduce a major new brand into the U.S. market that will strengthen

Liggett & Myers and make an important contribution to its future growth and profits.

"To introduce a product offering with a significant and appealing consumer point of

difference to any cigarette currently marketed."

He states the objective is "To achieve a 1.6 SOM," or share of market, "after 12 months."

And then on this copy it's been written in that that "Equates to approximately 10

billion units. In excess of 150 million gross dollar business."

Q. Does this appear to be a significant objective?

A. Yes. This was expected at this time to be a significant product.

Q. Based upon your review of the documents, what was happening to Liggett's market

share at the time of the late '70s?

A. Liggett's market share generally was declining at this time.

Q. And with regard to the reference to a "consumer point of difference," does that

terminology have any impact with respect to the process of creative destruction?

A. Yes. What this indicates is that this would have been a distinctly different product

from the ones on the market at the time, the kind of potentially important long-term

innovations that we would expect the process of creative destruction to bring forth.

Q. On the next page of this exhibit, does Dr. Mold set forth the strategy to capitalize on

this project?

A. Yes.

Q. All right. Directing your attention to the third item, "To position XA as a major new

breakthrough product to smokers who are concerned about the smoking controversy."

Does that confirm your earlier indication that Liggett regarded this matter as a

significant developmental project?

A. Yes.

Q. All right. What else does Dr. Mold have to say with respect to strategy on this page

as it might have any impact whatsoever with pursuing the process of creative

destruction?

A. Well he goes on to say that they're going to "capitalize on a heavy and sustained,

hard-hitting PR program that:

"Generates high-level of immediate awareness concerning the consumer point of

difference." And he says it's going to present the "XA story in a complete and forthright

way, communicating clearly that while Liggett does not believe that mouse-painting

tests apply to humans, Arthur D. Little's replication of the original mouse- painting

tests demonstrates our discovery of an effective means of treating 'tars' that reduce

carcinomas," that is, cancerous tumors, "by 70 to a hundred percent on mice."

Q. So Dr. Mold is suggesting that this project -- or this product is a significant

breakthrough, and it's his suggestion strategy-wise that the public be told about that?

A. Yes.

Q. Now did you find other documents from Liggett that reflect what occurred with

regard to this project?

*23 A. Yes.

Q. If you'd turn to 11513, please. Is this one of the documents that you've relied upon

in forming your opinions?

A. Yes.

MR. GILL: We'll offer Exhibit 11513, Your Honor.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 11513.

BY MR. GILL:

Q. This document was also produced from the files of Liggett; is that correct, Dr. Jaffe?

A. Yes.

Q. It is marked "CONFIDENTIAL" and it indicates that it concerns some initial

observations on the patented cigarette project, and then it provides a background of

the project.

A. That's correct.

Q. Now in the second paragraph on that first page, is there further information

concerning the nature of this breakthrough cigarette that Liggett is attempting to

develop?

A. Yes. It says, "The new Liggett cigarette manufacturing process consists of treating

conventional tobacco with palladium and nitrates. Liggett has also successfully

developed a special filter to use with tobacco processed in this manner. The filter

incorporates a specially treated active charcoal, the principal purpose of which is to

remove irritant constituents of smoke and thereby to reduce toxicity. It also reduces

nitrate emissions to normal levels."

Q. Then it goes on to indicate that "Testing of various cigarettes is now in its final

phase to produce maximum taste acceptability and also to determine whether tumor

incidence in test rats and mice can be virtually eliminated."

A. Yes.

Q. Now does the memo go on to discuss which compounds in cigarette smoke Liggett

was attempting to target with regard to this project?

A. Yes, it does.

Q. If you turn the page, down at the very bottom of page two of this memo, what does it

say in that regard at the bottom of page two?

A. It says, "It was shown that the tumor-causing activity of cigarette smoke condensate

is primarily initiated by polycyclic aromatic hydrocarbon fraction," or PCAH, "fraction

of the condensate. A polycyclic aromatic hydrocarbon is a multi-ring molecule

containing carbon, hydrogen, and oxygen; it is produced by the combustion of

tobacco."

Q. And then in the following paragraph on page three, does the author indicate what

this substance, palladium, has got to do with targeting the polycyclic aromatic

hydrocarbons?

A. Yes. Down -- sort of the middle of that long paragraph it says, "Palladium, an inert

metal, apparently inhibits the formation of PCAH molecules by blocking molecular

linkages of carbon, hydrogen, and oxygen."

Q. Does the author then go on to discuss some of the obstacles that the company faces

in connection with this project?

A. Yes, it does.

Q. Could you turn to page seven. The author deals with the potential regulatory

obstacles to the palladium cigarette program?

A. Yes.

Q. What does he report in that regard?

A. Well he indicates that they had potential concern. It says, "Despite the promise of

significant public benefits which could result from the use of the patented cigarette

manufacturing process, Liggett could encounter serious difficulties in the marketing

and in the advertising of palladium-treated cigarettes. Either the Federal Trade

Commission ('FTC') or the Food and Drug Administration ('FDA') or both, might attempt

to prevent Liggett from advertising the non-carcinogenicity or non-tumorigenicity of

the product without Liggett's first demonstrating the cigarette's effectiveness to the

agencies' satisfaction."

*24 Q. All right. And then on the next age, is there further discussion with respect to

potential regulation by the FTC?

A. Yes, there is.

Q. Looking at the last paragraph on that page, what does the author indicate with

regard to that?

A. It says --

The author says, "Whether the Commission could in fact issue such an order," and

he's been talking about an order that would prohibit Liggett from marketing the

product, he says, "Whether the Commission could in fact issue such an order and

whether a court would uphold the order would depend upon whether Liggett's claims

for the product were misleading or deceptive in any way."

Q. What's your interpretation of that language?

A. Well what the author seems to be saying is that the issue that they would face with

respect to the FTC was that they couldn't market the product in a way that was false or

misleading, they would have to figure out a way to market it that the FTC would not

determine to be false and misleading.

Q. And that would require what type of data in support of claims?

A. Well if you --

You would have to have scientific information that would be valid and could be

demonstrated to be valid that could be presented to consumers so that you were not

possibly making a claim that was false or misleading.

Q. And have we seen indication that Liggett was attempting to develop that very type of

data?

A. Yes, in fact they were.

Q. Now if we go to page 14 of this memorandum, does the author provide some

concluding observations with respect to this issue of potential FTC regulation?

A. Yes. In the first paragraph there of the conclusion, the author says, "As the foregoing

brief and preliminary discussion underscores, there are substantial regulatory

obstacles to the marketing and advertising of a cigarette produced pursuant to the

patented technology. However, they are not insurmountable." Q. Now did Liggett's

lawyers get involved in this project?
 

A. Yes.
 

Q. Would you turn to Exhibit 11482, please. Is this a document that you've relied

upon in support of your opinions, Professor Jaffe?

A. Yes.

MR. GILL: We'll offer Exhibit 11482.

MR. BLEAKLEY: No objection.

THE COURT: Court will receive 11482.

We'll take just a 10-minute recess.

MR. GILL: Fine, Your Honor.

(Recess taken.)

THE CLERK: At this time court will recess and reconvene tomorrow morning at 9:30.
 

Minnesota v. Philip Morris, Inc.

Minn.Dist.Trans., 1998
 
 

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