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 23, 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 presiding.

 (Jury enters the courtroom.)
 THE CLERK: Please be seated.
 THE COURT: Good morning.
 (Collective "Good morning.")
 THE COURT: Counsel.
 MR. BLEAKLEY: Thank you, Your Honor.
 ADAM B. JAFFE called as a witness, being previously sworn, was examined and testified as follows:
BY MR. BLEAKLEY:
 Q. Good morning, Professor Jaffe.
 A. Good morning, Mr. Bleakley.
 MR. BLEAKLEY: Good morning, ladies and gentlemen.
 (Collective "Good morning.")
 Q. When we broke on Friday, I was asking you some questions about the first prong, as you call it, of -- of the conspiracy that you believe there existed with respect to fundamental competition, and that was the prong dealing with in-house animal research. Do you recall that?
 A. Yes.
 Q. Now is my understanding correct that it is your opinion that this prong of the conspiracy prevented confirmation of the causation hypothesis? Is that one of the -- one of the explanations that you gave?
 A. I don't know if I used the word "prevention." I think what I -- what I said was that it avoided a situation in which there would be confirmation of the causation hypothesis coming out of the laboratories of the companies themselves.
 Q. Okay. And it permitted the defendants to "avoid," I think the term you used was, very large research expenditures and efforts?
 A. Yes.
 Q. Okay. And it is your opinion that this prong of the conspiracy did this despite the fact that the defendants did do animal research through contracts with outside research laboratories; right?
 A. Yes.
 Q. And despite the fact that defendants, at least on some occasions, cheated and actually did in-house animal research.
 A. Yes.
 Q. And I take it your view on this is also held despite the fact that there was animal research being done by organizations other than the defendants throughout this period of time; right?
 A. Yes. As I explained in my testimony, I think that the defendants' own documents made clear that they thought it was important that smokers be reassured and that that would be undermined if confirmation causation came from the laboratories of tobacco companies themselves.
*2 Q. But there was in fact animal research being done throughout this period of time by researchers other than the defendants, too; wasn't there?
 A. That's correct.
 Q. Such as Dr. Wynder, for example.
 A. Yes.
 Q. And the National Cancer Institute.
 A. Yes.
 Q. And other organizations.
 By the way, it's not unusual for American corporations, American business corporations, to have contract done -- or research done by contract with outside research laboratories; is it?
 A. In general American corporations do use contract research; although, as I discussed the other day, when it comes to research that is crucial for product development, it is much more common for it to be done internally. And both the economic and management literature on this subject and the company documents explain why that's the case.
 Q. And in fact, there are many very fine independent research organizations in the United States; aren't there?
 A. There are fine research organizations in the United States. But as we saw, for example, in the American Tobacco document, the scientists at American Tobacco felt very strongly that they were going to get research that was of the kind that they needed with the security that they needed if they did it in house. Then they were very unhappy with the way they had gotten that kind of research both from academic researchers at the Medical College of Virginia, and also from independent consultants that they'd used.
 Q. For example, the Arthur D. Little Company in Boston is a very fine independent research organization; isn't it?
 A. As far as I know, yes.
 Q. And the Battelle Memorial Institute, that's another very fine independent research organization; isn't it?
 A. I don't have any knowledge of that.
 Q. Well you've heard of the Rand Development Corporation; haven't you?
 A. Excuse me?
 Q. Rand Development Corporation.
 A. There is --
 If that's the Rand Corporation in Santa Monica, I've heard of them.
 Q. And that's a very fine independent research organization; isn't it?
 A. The Rand Corporation that I know of in Santa Monica doesn't do biological research. Maybe we're thinking of different organizations.
 Q. Rand Development Corporation.
 A. If it's not the one that I know of in Santa Monica, then I don't know the organization that you're referring to.
 Q. In any event, you do know that there are many fine independent research organizations in the United States.
 MR. GILL: Repetitious, Your Honor.
 THE COURT: It's been asked and answered.
BY MR. BLEAKLEY:
 Q. And you also know, do you not, that many American business corporations often use independent research organizations to help them in product development; don't they?
 MR. GILL: This has been asked and answered as well, Your Honor.
 THE COURT: It's been asked and answered.
 MR. BLEAKLEY: Your Honor, I did not ask about product development before, I asked about general research.
 THE COURT: All right. You can answer it.
 *3 A. Yes, I believe to a certain extent companies do use outside research to assist them in product development.
 Q. And indeed, many good ideas, many new products, many innovations have been produced at least in part through the efforts of independent research organizations; haven't they?
 MR. GILL: Objection, vague, Your Honor.
 THE COURT: You can answer it if you know.
 A. Well in general, as I talked about earlier, companies do not rely on outside researchers exclusively for product development. It is certainly the case that in situations where a company is engaged in product development in its own laboratories, that where there are particular aspects of that research that they feel they can more effectively undertake through a contract with an outside party, they will -- they will do that. But what's relevant for what we're talking about here is a situation in which the fundamental core of the product development research is not going on, and I don't think in general that you would very often observe private companies relying essentially entirely on outside research for product development.
 Q. Not entirely, but to a substantial degree.
 A. Well I don't think I would even necessarily agree with "to a substantial degree." And if the basic core of the research program is something that they cannot undertake in-house so that they don't have even the capability within their own scientists to understand what's going on with the research, to understand its implications and to evaluate it, I don't think most companies in America would feel that that was a good position to be in with respect to product development.
 Q. In fact, one of the promising ideas that was being explored by one of the defendants in this very case was substantially the result of work being done by that company with an outside research laboratory; wasn't it? The XA project at least?
 A. Yes, it's true that the palladium catalyst with the nitrate palladium process was developed largely through the efforts of A. D. Little in Boston, correct.
 Q. Arthur D. Little in Boston, which is a very fine, highly reputable research organization; isn't it?
 MR. GILL: It's been asked and answered, Your Honor.
 THE COURT: You can answer it again.
 A. I -- I already said it was.
 Q. Professor Jaffe, can you honestly say that the fact that the defendants used contract annual research instead of in-house research exclusively was of sufficiently low quality that it prevented confirmation of the causation hypothesis?
 A. I don't think I said that the primary reason --
 First of all, I didn't say it prevented confirmation of the causation hypothesis, and second of all, I didn't say it was because of the low quality. What I said was that the almost exclusive avoidance of in-house animal research avoided a situation or substantially avoided a situation in which confirmation of the causality hypothesis came from the labs of the tobacco companies and that the companies themselves believed that that was important.
 *4 Q. And can you honestly say, Professor Jaffe, that the fact that the defendants used some contract animal research permitted them to avoid very large research costs?
 A. Well the only information I have about the magnitude of the research costs is the information you talked about that came from the interrogatories, and I would certainly say that the amount of money that they spent based on those interrogatories looked at in the context of the problem they faced in the size of the industry, they did avoid very large research costs, yes.
 Q. Is it your testimony that the defendants spent less money because they did animal research through contracts rather than in- house?
 A. I'm not saying that any particular work they did was cheaper because they did it through contracts than in-house, but what I'm saying is that because contract research was inherently far less effective for the reasons we've discussed several times now, they did far less of it than the amount of research that they would have done in their own laboratories, probably in conjunction with additional contract research, if they had been pursuing the competitive objective of creative destruction rather than having it held back by the limitation on in-house research.
 Q. How do you know that?
 A. I know that based on the economic analysis that I've performed and the company documents that we've looked at. And we've -- we've discussed this over the last several days. The incentives were there. We look at the industry, we look at what the people in the industry understood were the incentives, we look at the programs proposed by people like Dr. Wakeham, which he clearly understood to be of tremendous competitive significance, and we look at the economic stakes, and I think it's clear that the industry that we've seen, the four decades of history that we've seen is very different from the four decades of history that would have proceeded if the fundamental forces of competition hadn't been suppressed.
 Q. Let me ask you this, Professor Jaffe: If the defendants want to -- wanted to avoid confirmation of the causation hypothesis and they wanted to avoid very large research costs, why did they choose a conspiracy that was limited to in-house animal research?
 MR. GILL: Your Honor, assumes facts not in evidence. There's no testimony that the conspiracy was limited solely to this.
 THE COURT: Well you may answer that.
 A. Well I think that a collusive agreement is inherently an attempt to suppress behavior that the individual companies would like to undertake. And when firms in an industry are attempting to collude, they -- they draw the boundaries of that agreement in the way that they think, given the circumstances that they face, is most likely to succeed. And they may have felt that an agreement to completely shut down the research process, including contract research, was something that they weren't going to be able to enforce and that it wasn't going to work, and so they did it as best they could.
 *5 But I don't -- I don't think that it's necessary for my analysis to try to figure out exactly why they constructed it the way they did.
 Q. Let's talk about the second prong of the conspiracy that you have expressed the opinion the defendants engaged in, and that is the so-called reassurance suppression conspiracy. If I'm using the wrong terms to describe it, you correct me. That is what you called it; wasn't it?
 A. Yes.
 Q. Now you don't have a document, like those documents that you referred to in connection with the first prong, you don't have that gentlemen's agreement document here; do you?
 A. No, I don't think that's correct. I think the Hill & Knowlton documents, for example, describe the fact that the companies understood that their own competitive practices were contributing to the health problem as perceived by the companies, and it also lays out that they needed to reach agreement as to how all of them were going to respond to unfavorable research reports as they evolved. And so I think that that is basically laying out the agreement, or -- or, among other things, it's describing that component of the agreement.
 Q. Did you find a document that said we agree to suppress research?
 A. Excuse me?
 Q. Did you find a document that said we agree to suppress research?
 A. I don't believe I've seen a document that contains that phrase.
 Q. You basically inferred the existence of such a conspiracy from your review of all of the documents; right?
 A. I don't think that's correct. I certainly saw documents that talked about agreement, I saw documents about suppression, I saw documents about solving the problem that was created when we got into a competitive dog fight. All of those things are talking about agreement, even if they didn't contain the phrase that was in your previous question.
 Q. In any event, you inferred the existence of a conspiracy from these documents; did you not?
 MR. GILL: It's been asked and answered, Your Honor.
 THE COURT: It's been asked and answered.
 Q. All right. One of the elements or components of this, as I understand it, is that The Council for Tobacco Research, originally The Tobacco Institute -- Tobacco Industry Research Committee, was going to engage only in what you described as basic research; right?
 A. I don't think I said that only. I said that one of the ways that the CTR was used was that it was presented as an organization that was going to seek out the truth on smoking and health and was going to communicate that, but that primarily what the organization did, instead, was to engage in basic research. I didn't say they did no research on smoking and health. I think we saw in Dr. Glenn's testimony in the '90s, he said that there were 10 out of some several hundred studies they had focused that related to smoking and health, so they did do some of that research. But I think primarily the research that they did was far removed from the smoking-and-health issue relating to the basic science. And as we saw the other day, when they did fund research that came up with results, for example relating to addiction, they didn't treat this as something significant that should be communicated to the public when they summarized what it was they were doing.
 *6 Q. You mean other than publishing it.
 A. I'm sorry?
 Q. That research was published; wasn't it?
 A. I -- I didn't --
 I said yesterday it was published. The researchers published it and CTR included an abstract in their report, but they didn't choose to highlight it as something significant to bring to the attention of the people reading the report of the scientific director.
 Q. Highlight. But the fact of the matter is that research was published and available to the public and available to researchers in the area to review and take into account; wasn't it?
 A. I have answered that question several times. Yes, the scientists published it.
 Q. Okay. Now let's talk about basic research. Are you saying that basic research is not relevant to smoking and health?
 A. I don't think I'm saying that basic research is not relevant to smoking and health. I think what I'm saying, which is articulated in the documents, is that the basic research by focusing on the disease generally rather than specifically on the connection between smoking and health allowed the CTR to maintain the position that nothing had been proven, that more research was necessary and they were working on it, but for the most part did not focus on the kinds of research that would tend to lead to direct confirmation of the causation hypothesis and thereby really give smokers more information about the health consequences of smoking.
 Q. Your testimony is that the direct research -- I mean the basic research that the CTR did -- I'm not sure I got these words down right so you correct me if I misstate them -- this basic research was not the kind of focus that would tend to lead to confirmation of the causation hypothesis. Is that your testimony?
 A. Well we're talking in generalizations here, and I think there was a variety of things that came under that -- that rubric, but in general I think that the documents clearly show a strategy to research the disease, to understand the fundamental mechanisms of the disease, rather than to look at specifically the link between smoking and health.
 Q. Is it your testimony that research dealing with the fundamental causes of disease cannot lead to a confirmation or denial of the causation hypothesis?
 A. I didn't say cannot. The fact of the matter is the CTR has been doing the research it's been doing for 40 some odd years now, and we still have Dr. Glenn testifying that more research is necessary and that causation has not been proven. I think that if you look at the kind of research that was funded and you look specifically at what the people both in the CTR and in the companies said about why they were doing the kind of research that they were doing, what you find is that for the most part they were focusing their attention on research that was not going to lead to confirmation of the causation hypothesis.
 Q. Well let me ask you this: Do you think the Surgeon General of the United States would agree with you that this basic research that the Council for Tobacco Research funded was not important?
 *7 A. I don't believe I said it wasn't important. What I said was that it was the kind of research which generally was not going to lead to confirmation of the causation hypothesis.
 Q. Do you think the Surgeon General would agree that the basic research that The Council for Tobacco Research funded was not important to smoking and health?
 A. I don't think I said that either.
 Q. Do you think that the American -- the National Cancer Institute would agree that the research that was funded by CTR was important to smoking-and- health issues?
 MR. GILL: Your Honor, this line is beyond the scope of the direct.
 THE COURT: You may answer it.
 A. Well you've just --
 The only thing you've done now is you changed who might agree. But as I said last time, I don't think I said it wasn't important.
 Q. Would you turn to Exhibit 17873, which is one of the plaintiffs' exhibits that you discussed in your direct testimony.
 A. Yes, I have that.
 Q. Would you turn to page 48 of that document.
 A. Okay.
 Q. Page 48 has the two abstracts or summaries of CTR funded research that you talk about in your direct testimony; doesn't it?
 A. That's correct.
 Q. The first of which was "TASTE THRESHOLDS, CIGARETTE SMOKING, AND FOODS DISLIKES," do you remember that?
 A. That's correct.
 Q. And I believe your testimony was this wasn't very relevant; is that right?
 A. Well I think what it says -- what I said was that it does not appear to be the kind of research that is going to lead to confirmation of the causation hypothesis.
 Q. If you look down there at the bottom of that abstract, it says "Other grantor: U.S. Public Health Service?"
 A. That's correct.
 Q. So the U.S. Public Health Service obviously thought it was worthwhile at least to co-sponsor and co-fund this research; right?
 A. The U.S. Public Health Service clearly thought that this research was worthwhile for some purpose.
 Q. Well you're not suggesting they didn't know that The Council for Tobacco Research was the other co-sponsor; are you?
 A. I am certainly not suggesting that.
 Q. And when you said that The Council for Tobacco Research did in fact fund some tobacco research, specific tobacco research, you know that this document is filled with abstracts of such research; isn't it?
 MR. GILL: Assumes facts not in evidence. It's vague, unless counsel wants to be specific.
 THE COURT: Okay. You may answer it if you understand it.
 A. I don't know that I would characterize this document as being filled with that kind of research, as you put it. It has a variety of abstracts, some of which, I think, are closely related to the issue of smoking and health, some of which are not. And I think this is just one year's report. We've seen the documents that describe the overall strategy, and we've heard Dr. Glenn's testimony about where that situation stands in the '90s.
 Q. The other of the two abstracts to which you referred during your direct testimony is one such study; isn't it?
 *8 A. Yes.
 Q. That is, one involving directly tobacco.
 A. Yes. I'm sorry, that's what I said yesterday -- or the other day when I discussed it.
 Q. The one entitled "ADDICTIVE ASPECTS IN HEAVY CIGARETTE SMOKING;" right?
 A. That's correct.
 Q. Which was co-sponsored by the -- co-funded by the American Cancer Society.
 A. That's correct.
 Q. But there are numerous other abstracts summarized in this annual report of research directly related to tobacco; isn't that right?
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: It's been asked and answered.
 Q. Now let me ask you this: Have you reviewed all of the studies that are summarized in Exhibit 17873?
 A. I'm sorry, the studies themselves?
 Q. Yes.
 A. No, I have not.
 Q. Have you reviewed all of the abstracts that are contained in this annual report?
 A. I looked through them. I wouldn't say I read all of them.
 Q. How many studies funded by The Council for Tobacco Research have you read?
 A. The studies themselves?
 Q. Yes.
 A. None.
 Q. How many abstracts of studies co-sponsored by The Council for Tobacco Research have you read other than those contained in this Exhibit No. 11873?
 MR. GILL: Seventeen thousand --
 MR. BLEAKLEY: Sorry, 17873.
 A. Probably a couple of dozen. In my review of the CTR reports, particularly in the early decades, I focused more on the summary and description of significant findings that appeared in the front of the report, which is what I think any lay person would be likely to do rather than reading the abstract.
 Q. So your knowledge of the actual research funded by The Council for Tobacco Research is limited to the review of the summaries or abstracts contained in Exhibit 17873 and a couple of dozen other abstracts.
 A. No, I don't think that's correct. It includes, for example, the memo that we discussed the other day from Mr. Brady, the associate director of CTR, to the scientific director describing what he thought CTR was doing, it includes the meetings of the Executive Committee of the CTR, which describe what the companies that funded and ran the organization thought it was doing, and includes, as I've mentioned, Dr. Glenn's congressional testimony a few years ago.
 Q. My question was your review of the actual research, not comments on research, but the research co-funded by The Council for Tobacco Research is limited to these abstracts in this exhibit and a couple of dozen others that you've read.
 A. Well that was not your previous question. Your previous question was what was my basis for my conclusion. If you want to ask me what have I reviewed that specifically describes the studies that were conducted, I think that I have looked at the summaries that are in the scientific director's own report and the abstracts that you've mentioned.
 Q. Do you know how many studies have been funded by The Council for Tobacco Research over the roughly 40-year period of its existence?
 *9 A. I've seen a reference to that number; I think it's in the thousands. I don't remember the exact number.
 Q. Do you know what institutions have been given grants?
 A. I couldn't identify all of them. I know that they have gone to many of the standard universities and -- and other organizations that engage in biological research, including basic research.
 Q. Including Johns Hopkins University in Baltimore, for example?
 A. Wouldn't surprise me.
 Q. And Yale University?
 A. I would believe that.
 Q. And Stanford University in California?
 A. Sure.
 Q. And Columbia University and Duke and the University of Chicago?
 A. Sure.
 Q. And the University of Minnesota?
 A. Sure.
 Q. Did you know that there are 17 grantees in Minnesota?
 MR. GILL: Counsel is testifying, Your Honor.
 THE COURT: Sustained.
 Q. Do you know how many grantees there are in the state of Minnesota?
 A. No, I don't.
 Q. Do you know how many Nobel Prize winners have been granted --
 A. Yes.
 Q. -- funds for research by The Council for Tobacco Research?
 A. I believe Dr. Glenn testified there were three.
 Q. Do you know whether any grants have been made to people who are now high public officials in the public health community?
 A. Yes, I think Dr. Glenn mentioned Dr. Varmus.
 Q. The current head of NIH, for example, National Institutes of Health?
 A. I know he had or has had a high position. I don't remember his current position.
 Q. Do you know whether or not some of these or any of these research studies funded or co-funded by The Council for Tobacco Research have been published in peer-reviewed journals?
 A. I believe that many of them have.
 Q. Do you know whether any of them, other than the couple that we referred to right here, have been co-funded by the Public Health Service?
 A. I believe that many of them have.
 Q. And the National Cancer Institute?
 A. Yes. Those organizations fund a lot of basic research.
 Q. The American Heart Association?
 A. I don't know one way or the other.
 Q. Do you know whether any studies funded or co-funded by The Council for Tobacco Research have been cited in Surgeon General's reports on smoking-and-health issues?
 A. I believe they have.
 Q. Do you know what percentage of all of the studies cited in the 1964 Surgeon General's report were funded by The Council for Tobacco Research?
 A. No, I don't.
 Q. You didn't look to see that?
 A. It didn't occur to me to look, no.
 Q. Do you know how many CTR-funded studies are cited in the 1995 Food and Drug Administration analysis regarding the Food and Drug Administration's jurisdiction over nicotine-containing cigarettes and smokeless-tobacco products?
 A. I don't know, no.
 Q. You didn't look in there to see what CTR-funded studies might be cited by the Food and Drug Administration?
 A. No, I didn't.
 Q. Did you make any effort to determine whether there were any CTR-funded studies that came up with results that could be characterized as unfavorable to the tobacco industry?
 *10 A. I've seen a number of CTR-funded studies that came up with results that were unfavorable to the tobacco industry.
 Q. Incidentally, let me ask you to take a look, if you would, at Plaintiffs' Exhibit 21804.
 Did you find that, Professor Jaffe?
 A. Yes.
 Q. This is a Brown & Williamson document in which there was a discussion of possibly reorganizing The Council for Tobacco Research. Do you remember that?
 A. Yes.
 Q. Do you know whether or not the recommendations for reorganization -- reorganizing The Council for Tobacco Research were ever carried out?
 A. Well it's difficult to tell from this document exactly what they had in mind in terms of reorganization. If a reorganization did occur, we know, for example, from the notes of the Executive Committee meeting in 1970 and Dr. Wakeham's discussion following that regarding the fact that CTR was for the benefit of the industry, that the basic points that I made about the role that CTR played in the conspiracy would have remained true whatever reorganization may have occurred here.
 Q. Did you take the time to find out whether or not the recommendation to reorganize The Council for Tobacco Research was ever followed up on?
 A. Well I'm not sure what you mean by "take the time." I've looked at all the materials that I have to try to determine from the 1950s through the 1960s through the 1970s and '80s and into the '90s what CTR was in fact doing at each of those time periods. I don't think I have focused on the question of its organization in terms of whether they changed, you know, the number of associate directors they had or anything else. It seems to me what was relevant for my opinion is what they were doing.
 Q. So you didn't take the time.
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: It's been asked and answered.
 Q. Do you remember Exhibit 21127? Would you take a look at that, please.
 A. Yes, I have that.
 Q. You remember this was a document, the appendix to the document, there's a summary of a meeting in which, among other things, there is a discussion of whether Mr. Spears of Lorillard was going to go or should go to a meeting at the National Cancer Institute. Do you remember that?
 A. Yes, that's correct.
 Q. And you talked about that meeting and used it in your direct testimony; didn't you?
 A. The meeting of the Committee of Counsel, yes.
 Q. And the discussion of whether Dr. Spears should go to the National Cancer Institute.
 A. Yes.
 Q. Would you turn to page nine.
 A. I don't have a page nine. What's the Bates number?
 Q. I'm sorry, page seven of the attachment.
 A. Oh, page seven I have.
 Q. You cited the language, the comment attributed to Mr. Jacob, "He will not help us. If Dr. Spears goes, he may stop us from attacking it later." Do you remember that?
 A. Yes.
 Q. You didn't read the statement made by the next gentleman, Stevens, "I am inclined to let them go."
 MR. GILL: Contrary to the record, Your Honor.
 *11 THE COURT: Well you can answer that.
 A. I think we did read that sentence.
 My discussion of this whole section was mainly to make the point that the whole notion that Dr. Spears and his superiors at Lorillard would think that the question of whether Dr. Spears should go to a meeting is something that should be discussed with the attorneys from all the other firms, so it's not material to the relevance of this section that they in fact made the decision to let him go. What was relevant about this was the fact that people at Lorillard felt that this was an issue that should be decided by the industry collectively rather than by individuals at Lorillard.
 Q. Was this decision made by the industry collectively?
 A. Well we have at this meeting attorneys from a number of the different firms, and -- and plus outside attorneys, and it -- this document shows that Mr. Stevens from Lorillard raised the issue for discussion at this meeting to get their at least advice if not concurrence as to whether or not Spears should go to the meeting.
 Q. Was the decision made that he shouldn't go?
 A. I'm sorry, should or shouldn't?
 Q. Was the decision made that he shouldn't go?
 A. No. As you indicated and as I indicated, the decision was made to let him go.
 Q. And who is Mr. Stevens?
 A. Mr. Stevens is an attorney from Lorillard.
 Q. So you cited this for the proposition that the industry was discussing whether Mr. Stevens should go -- whether Mr. Spears should go to this meeting, but you acknowledge the fact that the general counsel of Lorillard made the decision that he should; right?
 A. Well he says, "I am inclined to let them go," after his discussion with the other attorneys, the gist of which was that they would collectively be better off if he goes than if he doesn't.
 Q. Is that what Mr. Stevens says?
 MR. GILL: Asked and answered, Your Honor, previously.
 THE COURT: You may answer.
 A. Is what was Mr. Stevens said?
 Q. That they decided collectively that he should be permitted to go?
 A. I didn't say that. I said he discussed it with them and they all collectively expressed various opinions. And then it says, as we've read several times now, Stevens says that he's inclined to let him go.
 Q. He made the independent decision to let him go.
 A. I would not characterize it as an independent decision.
 Q. I see.
 A. I would agree with you he says that he is inclined to let him go, but he clearly made that decision in the context of discussing this issue, which really had nothing to do with the other companies, with the attorneys from the other firms.
 Q. You also cited the Auerbach smoking dog study as evidence that supports your view that the industry was attempting to suppress research; correct?
 A. I think what I cited was the fact that there was -- there was a series of meetings at CTR involving people from CTR and people from the industry and attorneys, the gist of which was to organize criticisms of Auerbach and then also to organize a campaign to prevent the National Cancer Institute from further funding of Auerbach, and I don't see how those activities are consistent with the publicly stated purpose of the CTR, regardless of whether people at CTR did or didn't think that the Auerbach studies were good or not good scientific research.
 *12 Q. Now the fact of the matter is, the Auerbach research and the Auerbach study was not suppressed; was it?
 A. Well it was not a fund -- it was not --
 If we're talking about the first round, the study with the beagles that found they had cancer, that was not a study that was funded by CTR. They were not in a position to suppress it.
 Q. My question was: Was it suppressed?
 A. It was not suppressed. I never said it was.
 Q. And in fact it was published; wasn't it?
 A. That's correct.
 Q. It not only was published, it was widely publicized in the press; wasn't it?
 A. I don't think I know one way or the other how widely publicized it was in the press.
 Q. You didn't think it was important to know whether or not this Auerbach study was widely publicized?
 A. It was not relevant. I haven't ever testified that people other than CTR were unable to engage in research and unable to publish that research regarding the connection between smoking and health, so I can't for the life of me see why the publication and the dissemination of the Auerbach results has anything to do with the opinion that I offered.
 Q. Now do you know whether the National Cancer Institute did or did not fund additional work by Dr. Auerbach?
 A. I don't know, no.
 Q. You didn't think that important to find out whether or not the NCI --
 A. Again --
 Again, the issue is not was -- was Dr. Auerbach able to do his -- his work, the issue was what was CTR trying to do, what was the function of CTR as perceived by people at CTR and the companies, and it's very clear that at that moment they saw their function as trying to prevent Dr. Auerbach from doing further research. And I think in terms of what that says about my opinions in terms of the function of CTR, it's immaterial whether in fact they succeeded in that effort to stop the NCI from funding him.
 Q. Would it be immaterial even if the NCI concluded on its own that further funding of Dr. Auerbach's work wasn't a good idea, made no sense?
 MR. GILL: Assumes facts not in evidence.
 MR. BLEAKLEY: Doesn't assume facts. It's a question, Your Honor.
 THE COURT: You'll have to rephrase it.
BY MR. BLEAKLEY:
 Q. Well let me ask you this: Do you know what the ultimate medical and scientific judgment was on the Auerbach study?
 A. I think as I explained in my previous answer, even if NCI and everybody else ultimately concluded that the Auerbach work was not good work, which I haven't seen evidence to support, but even if that were true, it doesn't change the fact that what we saw the CTR doing was organizing its efforts to tell another funding organization how to spend its money, and I don't see, if -- if -- particularly, given the documents from the companies which indicated that although there were problems with the Auerbach work and clearly it raised issues that needed to be resolved, I would think if CTR was in the business that it said it was in, which was to find out the truth, they would have said, gee, we think there are big problems with what Dr. Auerbach has done, so what we need to do is replicate these experiments, we need to encourage him to pursue this work so that it can be -- those problems can be clarified and we can find out what the answer is, and that's not what I saw CTR doing.
 *13 Q. Are you testifying that the tobacco industry could tell the National Cancer Institute what studies to fund and what studies not to fund?
 A. What I'm saying is what the document said, which was that Dr. Gori had agreed that he was going to have a meeting with them - - Dr. Gori from the National Cancer Institute -- and what the people from the industry were going to do is going to organize all the information they could to present to Dr. Gori to try to convince him not to fund that research. That's what the document says they were going to do. I think it's a separate question whether Dr. Gori ultimately paid attention to them or not.
 Q. Okay. In any event, your opinion is that the fact that The Council for Tobacco Research was attempting to persuade the National Cancer Institute that this was not the kind of research they should be funding is evidence of conspiracy.
 A. Well I think what it is, which is what I characterized it as, is evidence that CTR was not what it was presented as being. And I think when you take that, then, in the context of all the other evidence that we have, is part of the basis for my opinion that CTR was a component of the conspiracy.
 Q. Well let's turn to the third prong of the conspiracy that you say existed to suppress fundamental competition, and that is the conspiracy not to warn unless compelled to do so.
 You discussed only one document in connection with that, and that was Exhibit 13416. Would you turn to that, please.
 A. Yes, I have it.
 Q. And this is a letter from the assistant Secretary for Health of the Department of Health and Human Services to the chairman of The Tobacco Institute; right?
 A. That's correct.
 Q. And it refers to negotiations that the Department of Health and Human Services was having with the industry about the precise warnings that were going to be -- might be adopted; right?
 A. That's correct.
 Q. Do you know the circumstances under which these negotiations were taking place?
 A. I'm not sure what you mean by "the circumstances."
 Q. Why were they --
 Why were they negotiating?
 A. Well I --
 Why were they negotiating? You mean --
 Q. Yes.
 A. -- why was the Assistant Secretary of Health -- why did he need agreement of The Tobacco Institute as to what the warning was going to be?
 Q. That was going to be my next question, but you can answer that one.
 A. Well I don't know the answer to that. I wondered about that myself. I would have thought that the Assistant Secretary for Health would just recommend whatever agreement he or she thought was the appropriate agreement from a public health point of view, but it's clear from this letter that he felt that this was an issue that had to be discussed with the industry.
 Q. You made no effort to find out why the Assistant Secretary for Health was negotiating with the industry over warnings?
 A. Well again I don't know why that's relevant to my opinion. All I was using this document for was to characterize the industry position, which clearly is, based on this document, a collective position that warnings should meet the criteria in numbers one, two, three, four, five and six there, which includes the insistance that it retain reference to the Surgeon General.
 *14 Q. So it made no difference to you why these negotiations were taking place.
 A. Well if you --
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: It's been asked and answered.
 Q. Let's go on to the fourth prong of the conspiracy that you believe existed, and that is one dealing with the development of safe or safer cigarettes. Okay?
 A. Okay.
 Q. Is it your testimony that the defendants -- strike that.
 It isn't your testimony or your opinion that the defendants conspired to refrain from attempting to develop a safer cigarette; right?
 A. I'm not saying that they agreed to undertake no efforts with respect to a safer cigarette, that's correct.
 Q. Because we know that in fact they did make efforts to develop so-called safer cigarettes; right?
 A. Several of them did, yes.
 Q. On more than one occasion.
 A. Yes, I think that's true.
 Q. Your testimony is that the conspiracy was to refrain from -- and again, correct me if I don't use the right words
 A. Uh-huh.
 Q. -- to refrain from communicating to the public the health benefits that might exist with respect to these products, and change it to make it your words.
 A. Sure. I mean what I said was that the agreement was not to competitively exploit a safer product in a way that would rely on health concerns. But as I talked about the other day, the fact of that agreement, because it made the potential competitive gains from such a product so much smaller, in my opinion significantly reduced the incentives to engage in research on safer cigarettes and thereby reduce the efforts that were made in that direction, although I have not testified that it eliminated them entirely.
 Q. Well, it's more than not limiting entirely. The defendants did research on the development of filter cigarettes since at least the 1960s; right?
 A. Well I don't believe that that's directly relevant, because they did research on filters, but they never -- (clearing throat) excuse me -- made an attempt, other than the ones we've talked about, with specific products to figure out whether those products with improved filtration were in fact safer. They didn't do the kinds of, for example, studies that were done with respect to XA and Premier to try to show that filter cigarettes were in fact safer products. So although that effort was, I believe, motivated by an attempt to respond to consumers' demand for safer products, I wouldn't characterize filter cigarettes as an attempt to develop a safer cigarette that really was the kind of thing that in terms of creative destruction would have been expected.
 Q. Is it your testimony that the defendants did not attempt to develop proof that filter cigarettes were safer than non-filter cigarettes? Is that your testimony?
 A. I haven't seen any evidence that they -- that they did that.
 Q. Is it your testimony that the defendants never attempted to establish proof that low delivery cigarettes were safer than non-low delivery cigarettes? Is that your testimony?
 *15 A. Well again, I haven't seen any evidence of it. And that's what Mr. Schindler said when he testified.
 Q. I thought Mr. Schindler testified that they didn't have any such proof. Am I wrong about that?
 MR. GILL: Your Honor, if counsel could show him the transcript, perhaps it would be clearer.
 THE COURT: He can answer that.
 A. I don't recall the distinction between what you just said and what he said, so I don't know which it was.
 If they didn't have any proof, it either means they didn't look for it, or they looked for it and couldn't find it, which means that -- that they found evidence that they weren't safer, which would seem to me to suggest that that would have been something that they should have communicated.
 Q. Well let's talk about that for a second.
 Your testimony is that if they didn't find proof, that means they weren't safer; is that your testimony as an antitrust economist?
 A. Well I guess what I'm saying is if they had done studies -- which again I haven't seen the evidence that they did -- but if they did a study to try to determine whether filter cigarettes, for example, were safer, you know, logically there are three possible outcomes: They could have found they were safer, they could have found conclusive evidence that they were not safer, or they could have found that they couldn't determine one way or the other whether they were safer or not.
 It seems to me if their intent in this process was to respond to the consumer demand for a safer cigarette and they were marketing a product that, even if the result was that, gee, we tried, but we couldn't find -- we couldn't verify that these things were safer one way or the other, I would think that that would be information that they would want to share with their customers.
 Q. Isn't there a fourth possibility, Professor Jaffe, and that fourth possibility is that the Federal Trade Commission would not allow them to make claims that the products were safer? Isn't that right?
 MR. GILL: Assumes facts not -- assumes facts not in evidence, Your Honor.
 MR. BLEAKLEY: It assumes nothing. It's a question.
 I'm sorry, Your Honor, I withdraw my --
 THE COURT: May I rule --
 MR. BLEAKLEY: I withdraw --
 THE COURT: -- or are you going to rule?
 MR. BLEAKLEY: No, Your Honor. I take it back.
 THE COURT: Why don't you rephrase it.
BY MR. BLEAKLEY:
 Q. You know, do you not, that the Federal Trade Commission has had the responsibility and authority for regulating advertising of products sold in the United States since well before the 1960s; isn't that right?
 A. That is correct.
 Q. And you also know that the Federal Trade Commission has been active with respect to cigarette advertising; don't you?
 A. I think that's fair.
 Q. And that the Federal Trade Commission has frequently intervened with regard to cigarette advertising; hasn't it?
 A. It's done so on several occasions, yes.
 Q. And you know that in order for the defendant tobacco companies to promote any product as safe or safer or may be safer, it as a practical matter would be necessary to have the Federal Trade Commission let them do it; isn't that right?
 *16 A. I think for them to present any information to consumers, they would have to do that in a way that the Federal Trade Commission would not deem to be false or misleading. And what I was saying in my testimony a minute ago was that any scientific experiments that the companies had done which generated information that was of relevance to consumers in their decisions regarding the purchase of products is information which, if they were intent on competitively exploiting the opportunity that consumers' demands offered, they would have at least tried to find a way to present that information, factual, scientific, valid information, to the public in a way that the Federal Trade Commission would not deem to be false or misleading.
 Q. Now, going back to the question I started with a few moments ago, it is not your contention that the defendants conspired to refrain entirely from developing safer products; right?
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: You can answer it again.
 A. That's correct.
 Q. And we know that in fact the defendant tobacco companies have spent time developing filter and low delivery products; right?
 A. That's correct.
 Q. And we know that the defendant tobacco companies have spent many years developing methods for ventilating tobacco; right?
 A. That's correct.
 Q. And for the use of expanded tobacco.
 A. That's correct.
 Q. And for treated tobacco.
 A. That's correct.
 Q. And for tobacco substitutes.
 A. They have done some work on tobacco substitutes, yes.
 Q. And charcoal filters.
 A. That's correct.
 Q. And cigarettes with no nicotine in them or virtually no nicotine.
 A. Yes, that's correct.
 Q. So we know --
 And cigarettes that have virtually all of the particulate or tar removed from them, we know that, too; don't we?
 A. That's correct. But you've mixed together in that list a variety of different things, some of which I think, based on valid data, could be shown to be responses and efforts to make the product safer, but many of which I think it's very questionable whether either the intent in doing it or the result when it was done was to make the product safer.
 Q. But you're not an expert on whether the products were or were not safer; are you?
 A. No.
 What I've looked at are the documents that the companies have themselves about what they think they had accomplished, what they were trying to accomplish, and how far they got.
 Q. Based on the selected review of the documents that were provided to you by plaintiffs' counsel.
 A. Well there's nothing selective about it. And I've looked at as many documents as we could find, and if you have documents that are from the rest of the 30 million that you think show something else, I would be happy to see them.
 Q. There was nothing selected by it -- about them?
 A. Well when you say "selective," you're implying that there was some choice made to reach a particular result, and all I'm saying is we looked at everything that -- or we attempted to look at everything that we could find that was relevant to my opinion, and I've always assumed that if we missed something important that would change the opinion, that I would see it now.
*17 Q. Well I meant to say "selected." Maybe it wasn't clear.
 A. Okay.
 Q. My question is: And this opinion is based on your review of the documents that plaintiffs' counsel selected for you to review; isn't that right?
 MR. GILL: Your Honor, that assumes facts not in evidence based upon his direct testimony.
 THE COURT: You may answer it.
 A. Well we've been over this several times. What I did would indicate topic areas that I wanted to see documents related to and asked the attorneys to provide them, and I believe that they had every incentive to provide me with all of the documents that related to those topics because if there were documents that were troublesome, it was better for me to see them early rather than later.
 Q. And you don't deny that the defendants have spent hundreds of millions of dollars, if not billions, in the effort to develop these products; do you?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: You'll have to rephrase that, counsel.
BY MR. BLEAKLEY:
 Q. Did you not testify the other day that you don't -- that you know the defendants spent substantial sums of money on the efforts to develop these products?
 A. My understanding from the evidence that was tabulated that we saw was that, based on interrogatories, they spent something like three billion dollars over a period of four decades. And for the reasons that I've talked about the other day -- though any time you talk about a billion dollars, I guess that sounds like a lot of money -- given the resources they had and stakes that they faced and the amount of money they spent on short-term competition, 47 billion dollars on advertising and other forms of promotions, that even though three billion dollars may seem like a lot of money, that in fact it is a relatively meager sum of money given the stakes that they faced.
 Q. And there should have been more.
 A. I think if these firms were competing, there would have been much more.
 Q. Much more.
 A. Much more.
 Q. How much more?
 A. Well I think, for example, if you look at other industries, you look at typical decisions regarding R&D investment, if they had spent, for example, half what they spent on advertising, if they'd spent that on research, that would have been eight or 10 times as much as they actually spent, and that would still be a small fraction of their sales and profits compared to what many other industries invest in the development of new products.
 Q. But you can't put a number on it; can you?
 MR. GILL: It's been asked and answered, Your Honor.
 THE COURT: It's been asked and answered.
BY MR. BLEAKLEY:
 Q. Now let's go back for a moment to the role of the Federal Trade Commission. You're very critical of the involvement of lawyers in scientific matters; aren't you?
 A. As a general matter?
 Q. In this case.
 A. Well we looked at certain specific contexts where what was being discussed was whether research was good research and what kinds of research to do, and we also looked at some contexts where we had decisions that involved a particular company that was being discussed with other companies, and in those contexts I expressed the opinion that that kind of participation seemed to me to be more consistent with a collusive agreement than with competition and in the case of CTR, the stated purpose of CTR.
 *18 Q. Well let's talk about the specific involvement of lawyers in decisions about what product safety claims can be made.
 Anything wrong with lawyers being involved in that?
 A. No.
 Q. Now let's talk about some of the specific product development ideas that you referred to in your direct testimony. One of the ones you discussed was the Saratoga product.
 THE COURT: Counsel, maybe we should take a recess now.
 MR. BLEAKLEY: Fine.
 (Recess taken.)
 THE CLERK: All rise. Court is again in session.
 (Jury enters the courtroom.)
 THE CLERK: Please be seated.
 THE COURT: Counsel.
 MR. BLEAKLEY: Thank you, Your Honor.
BY MR. BLEAKLEY:
 Q. Before the break, Professor Jaffe, we were -- I had started to ask you some questions about the fourth prong of the conspiracy you believe existed that had to do with safe cigarettes, safer cigarettes, and I had just started to ask you a question about Saratoga. I don't actually have much to ask there.
 We discussed Saratoga briefly the other day; right?
 A. Yes.
 Q. And that is potentially a filter -- charcoal filter cigarette that Philip Morris worked on many years ago; right?
 A. In the 1960s.
 Q. In the 1960s.
And you testified, I believe, that you didn't know why that product was never developed and wasn't a successful commercial product; is that right?
 A. Well I think what we talked about was Dr. Wakeham highlighted the decision not to tell people about the evidence they had regarding its physiological superiority as one of the reasons for its failure, and that's the only information that I have.
 Q. You don't know whether it was physiologically superior or not; do you?
 A. That's correct.
 Q. You don't know whether it was or wasn't safer; right?
 A. That's correct.
 Q. And then also briefly talked about a project at BATCo called ARIEL. Do you remember that?
 A. Yes.
 Q. And you know that BATCo had a product that it experimented with back in the 1960s as well which it called Project ARIEL; right?
 A. That's correct.
 Q. And you know that from the evidence that you -- that you saw, the documents that you read, that the cigarette product tasted bad; right?
 A. There was some discussion of that, yes.
 Q. Do you know that whether or not the ARIEL project was ever resurrected?
 A. Well there was a development in the '80s at BATCo which in -- in -- I don't know whether it's precisely a resurrection of the ARIEL, but they did do further work in the '80s on products that had apparently some of the same concepts as were in ARIEL.
 Q. And that was called AIRBUS.
 A. That's correct.
 Q. Or AIRBUS.
 But all you know about that again is what you read in the documents that you reviewed; right?
 A. That's correct.
 Q. You do know that it was, at least to some extent, B.A.T's -- BATCo's effort to respond to Premier from RJR.
 A. Yes, I think some of the documents do indicate that.
 Q. And you also know from the documents you reviewed that they had some fairly serious design problems with AIRBUS.
 *19 A. I do recall that at some point they decided not to pursue it very actively. I don't remember the details.
 Q. One of the problems was that the product, which was like Premier, supposed to be a product that didn't burn, was that it overheated; right?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: You can answer that if you know.
 A. I don't recall.
 Q. You don't recall one way or the other.
 A. That's correct.
 Q. Do you recall whether there was also a problem with a potential conflict with an RJR patent?
 A. I think I did see some reference to that.
 Q. Okay. Then we come to Project XA at Liggett. Do you remember that? You testified to that about -- about that on your direct testimony; right?
 A. Yes.
 Q. And the Project XA involved a cigarette in which Liggett would add a substance called palladium.
 A. That's correct.
 Q. Treat the tobacco with a substance called palladium; right?
 A. That's correct.
 Q. And palladium is a heavy metal; right?
 A. That's correct.
 Q. And you've testified that there came a point in 1979 when the project was referred to a legal project team. Do you remember that?
 A. I think it was '78, but yes.
 Q. Sorry, 1978.
 And that you didn't find any documents about the Liggett palladium product after it was referred to the legal project team; right?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: You may answer that.
 A. No, I think the document that we looked at had it referred to the legal product team in the summer of '78, and then we saw some discussion in January of '79, and then the last document that I saw was a document in the summer of ' 79 that instructed everyone to send all the materials relating to the project to the legal department.
 Q. Okay. I stand corrected.
 Now you do know, do you not, that the Liggett palladium project was public knowledge?
 A. Yes.
 Q. You know that Liggett obtained a number of patents on the palladium project; right?
 A. Excuse me --
 Yes, that's correct.
 Q. And those patents, of course, were all published as they're required to be by law.
 A. When they're granted they're published, yes.
 Q. And you know that the development of the palladium product or project was reported in the popular press; wasn't it?
 A. That's correct.
 Q. And was it --
 Is it not the case that the palladium product was also presented to the public health community?
 A. Yes, I think there were some discussions between some of the people involved and people in the government.
 Q. Do you know whether anyone in the public health community ever endorsed the palladium product as a safer product?
 A. I've seen no evidence that they did.
 Q. Do you know whether they didn't endorse it?
 A. Do I know that they didn't.
 No, I guess I don't know that they didn't. I've seen no evidence one way or the other.
 Q. You have not seen any evidence that public health authorities were concerned about the palladium product?
 *20 A. That's not what I said. What I --
 Q. Did you?
 A. I'm sorry.
 Q. Rather --
 I'm putting too many negatives in my question, professor.
 A. Okay.
 Q. But let's start over again. Did you see any evidence that public health authorities were concerned about the safety of this product?
 A. Yes, I think I've seen some discussion of that. I don't remember the details.
 Q. One of the concerns was that the product, when used, produced a substance called nitrosamines; isn't that right?
 A. Well there was a concern that is discussed in the documents that all cigarettes in fact produce nitrosamines, that the use of additional nitrates in the XA project -- or the XA product, which they found was necessary to maximize the effectiveness of palladium catalyst, there was a concern that the increase in nitrates would increase the level of nitrosamines in the smoke.
 The documents I saw indicated that they thought that, between the filter that they had designed which got the nitrates back down to the level of normal cigarettes and the other testing that they had done to try to see whether there was any evidence of increased activity, that overall there was -- there appeared to be a net reduction in the tumorigenic effects of the condensate.
 Q. Just so we're clear here, nitrosamines are carcinogenic themselves; aren't they?
 A. That is correct.
 Q. And you saw evidence in the files and records that you reviewed that palladium alone was not effective and that you had to have nitrate to make it effective; didn't you?
 A. It was not as effective without the nitrates present, yes.
 Q. And that those nitrates increased the amount of nitrosamines produced.
 A. Well I think at the end of the day it wasn't clear whether the product as marketed, with the higher level of nitrates but with a special filter that was designed to lower the nitrates to the level of normal cigarettes, did or didn't have more nitrosamines than other cigarette products.
 Q. So you don't know one way or another whether the product was in fact safer or less safe; do you?
 A. I think what I testified was that the evidence they had was that the so- called tar, the condensate from the smoke, produced significantly reduced tumor activity on the backs of mice, and that that was biological evidence that was potentially relevant to consumer choices. But I don't think I testified that it was -- that I had a basis to determine that it was a safer product.
 Q. Or even less safe possibly; do you?
 A. Well I think the data are what they are.
 Q. Do you have an opinion of whether or not this product would have been safer or less safe?
 A. I do not.
 Q. Would you turn to tab 24 in your book, please.
 MR. GILL: Exhibit number?
 MR. BLEAKLEY: Yes, it's MD000106.
 Q. This is the 1971 Surgeon General's report.
 A. I have it.
 Q. Would you turn to page 264.
 Got 264 there in front of you?
 A. Well I'm not sure.
 Q. Take your time.
 *21 A. The one in the tab has just a few pages, and I can't read it, so maybe I'll look at the big --
 Q. It is a bad copy. I apologize.
 A. I'll look at the big fat one. Maybe that's easier to read.
 Okay, I think I have 264. If you show me an excerpt, I'll be able to confirm that. I can't quite --
 Q. Down toward the bottom of the page there's a paragraph --
 A. Yes, I have that page.
 Q. -- that reads, "The notrosamine compounds listed are potent carcinogens affecting many organ systems."
 A. That's correct.
 Q. Now if you would turn to tab 12 where there should be a copy of the 1981 Surgeon General's report, hopefully a more legible copy. That is Exhibit number GJ000114.
 A. Yeah, I have it.
 Q. This is the Surgeon General's report entitled "The Health Consequences Of Smoking: THE CHANGING CIGARETTE."
 A. Yes.
 Q. Page 37. There's a little section there entitled "Tobacco-Specific N- Nitrosamines."
 A. Yes, I see that.
 Q. And in the middle of the page there appears the sentence, "These tobacco-specific N-nitrosamines may play a role in the development of several types of human cancer."
 A. That's correct.
 Q. Now various scientists have criticized the possible use of nitrosamines in cigarettes as well; haven't they?
 A. The use of nitrosamines in cigarettes?
 Q. Criticized the existence of nitrosamines in cigarettes.
 A. Yes.
 Q. Including Dr. Dietrich Hoffmann.
 A. I believe that's correct, yes.
 Q. Has any physician or scientist or public health organization called for the production of a cigarette using palladium?
 A. Not that I know of.
 Q. Has any scientist or doctor or physician or public health authority urged Liggett or any other company to place on the market a cigarette containing palladium?
 A. Not that I know of.
 Q. Do you know what happened, what Liggett did with its nitrosamine cigarette when it stopped the effort to develop one in the United States?
 MR. GILL: Your Honor, object to the characterization of XA as a "nitrosamine cigarette."
 MR. BLEAKLEY: Excuse me, I meant palladium. I misspoke.
 Q. The palladium cigarette.
 A. Well --
 Yeah, I guess based on some of the documents that you sent over the weekend, it appears that they made an attempt to license the technology to some of the tobacco companies in Europe.
 Q. Did they have any success?
 A. No, they didn't.
 Q. The next product that you talked about, I'm not sure it was in that order, but another product that you talked about was the Premier product developed by R. J. Reynolds. Do you recall that?
 A. Yes.
 Q. And you know that RJR spent a considerable amount of money on the development of the Premier product; don't you?
 A. Well we --
 I guess "considerable" means different things to different people. I -- from the documents it's clear they spent several hundred million dollars.
 Q. And you know that RJR obtained a number of patents on the processes by which this product would be made; correct?
 *22 A. That's -- that's correct.
 Q. Some 40 patents.
 A. I saw a reference to 20, but 40 wouldn't surprise me.
 Q. And you know that the process of prosecuting and obtaining patents from the United States Patent Office is itself a very extensive and expensive process; isn't it?
 A. Yes. In the literature it's usually estimated $10,000 a patent.
 Q. Now did I understand you -- and if -- if I'm misstating this, please correct me again. Did I understand you to say that RJR never made an approach to the Food and Drug Administration or the Federal Trade Commission about the Premier product?
 A. I believe what I said was in the documents I reviewed I wasn't able to find any evidence that they did.
 Q. So in fact you don't know whether RJR ever made an approach to the FDA or the FTC; do you?
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: You may answer that.
 A. I can only expect that --
 I mean we saw, for example, a presentation made to the board of directors in which the issue of FDA and FTC concerns was raised. I would have thought that if they had gone and actually discussed this issue with the FDA or the FTC, that that would have been mentioned. So I have inferred from the fact that I've seen lots of documents that talk about Premier and I've seen no evidence that they did it, that they didn't.
 Q. You infer that they did not go to the FDA or the FTC.
 A. That's correct.
 Q. But you don't know.
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: You may answer.
 A. Well I can't know for sure because the documents may have surprisingly not talked about the fact that that happened. But it seems to me that that is not likely based on the evidence that I have.
 Q. Do you know whether any public health organizations expressed a view about the Premier product?
 A. When you say "public health organizations," you mean government organizations?
 Q. Private or government.
 A. I do believe that some of the non-profit organizations that are concerned about smoking and health did express concerns about Premier.
 Q. Tried to fight it; didn't they?
 A. Yes, they did.
 Q. Like the American Medical Association, for example.
 A. That may have been one of them.
 Q. In fact the American Medical Association asserted that RJR was making health claims about the product; didn't it?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: Sustained.
BY MR. BLEAKLEY:
 Q. Do you know whether the basis upon which the American Medical Association opposed the Premier product?
 A. Well my recollection is their primary objection was that it was a nicotine-delivery device in their view, and that for that reason the FDA should regulate it. But I don't remember the exact details.
 Q. Do you know whether the American Medical Association argued that the product presents a substantial threat to the public health?
 MR. GILL: Your Honor, that assumes facts not in evidence.
 *23 THE COURT: Sustained.
BY MR. BLEAKLEY:
 Q. Do you know whether any government agencies were opposed to the Premier product?
 A. I haven't seen any evidence that federal government agencies expressed any opposition to the product.
 Q. What about state agencies?
 A. I've seen a reference somewhere along the way that there were -- there was some opposition, but I don't remember what it was.
 Q. What about the Minnesota Department of Health?
 A. That -- that may have been the state agency that I saw reference to.
 Q. In addition to these problems, you also know that the Premier --
 MR. GILL: Object to the characterization as "problems," Your Honor. There's no evidence for that.
 THE COURT: Rephrase the question, counsel.
 MR. BLEAKLEY: Yes, Your Honor.
 Q. You also know that the Premier product smelled bad; don't you?
 A. The documents do discuss the fact that there were taste or odor problems, that smokers perceived it to be very different from a traditional cigarette in that respect.
 Q. Taste and odor problems; weren't they?
 A. I believe that's correct, yes.
 Q. Also had problems keeping the product lit; didn't they?
 A. I have seen -- I'm sorry.
 I've seen references to that, yes.
 Q. And this was a product, one of the purposes of which was to design a product that did not actually burn; right?
 A. Well I believe that Premier does burn, it's just that the tobacco does not burn. It has a carbon element which burns.
 Q. Okay. It was designed so that the tobacco wouldn't burn.
 A. That's correct.
 Q. There would be none of what is called pyrolysis; right?
 A. Combustion or pyrolysis.
 Q. Which is one of the theories about possible adverse health consequences of smoking; right?
 A. That's correct.
 Q. And so Reynolds tried to develop a product in which the tobacco doesn't burn; --
 A. That's correct.
 Q. -- right?
 But one of the problems that R. J. Reynolds had with the Premier product was people had difficulty keeping it lit; right?
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: He's answered it.
 Q. Now, is it your testimony that R. J. Reynolds did not make any advertising claims about the Premier product?
 A. No, that's not my testimony.
 Q. Because you know that R. J. Reynolds did in fact make advertising claims about the product; didn't it -- don't you?
 A. Yes. They tried to test market it and they advertised it in the test market.
 Q. And among the advertising claims that R. J. Reynolds made were those about which the American Medical Association and the Minnesota Department of Health complained; isn't that right?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: You may answer if you know.
 A. I don't know that that's true.
 Q. You do know, however, in the RJR advertising for the Premier product they referred to the reduction of controversial compounds from the product; don't you?
 A. I believe that's correct.
 *24 Q. And that it --
 They claimed that the smoke dissipates instantly; right?
 A. There was something about the lack of sidestream smoke. I don't remember the exact wording.
 Q. And that it results in a change in the composition of cigarette smoke?
 A. I don't recall.
 Q. And some of their advertising referred to Premier as the most significant advance in cigarette history?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: You may answer if you know.
 A. I've seen some of the Premier ads and they had various general claims. I don't remember whether that particular phrase appears or not.
 Q. Did you look at some of the RJR ads for the product?
 A. Yes, I did.
 Q. And is it nevertheless your testimony that RJR had supportable health claims for the Premier product that it did not make?
 A. I don't know that I would characterize them as "health claims." I think what I said was that they had supportable scientific evidence regarding reduced biological activity of the products. Their outside scientists confirmed that the tests that had been done were valid and indicated reduced biological activity in several forms, and that in my opinion a company that had spent the hundreds of millions of dollars that we discussed regarding Premier that wished to exploit this technological development to its maximum potential would have used that information -- would have communicated that information in some form to consumers.
 As we've talked about, the FTC regulated the form in which any kind of claims could be made about cigarettes, and they would have had to have found a way to do it that was consistent with those regulations. But since the underlying goal of the FTC is to prevent claims that are false or misleading and they had extensive scientific information, it's my opinion that they could have at least tried to find a way to present the valid scientific information they had in a way that would not have been deemed false or misleading.
 Q. But because of the conspiracy that you believe existed and despite the fact that they spent hundreds of millions of dollars on this product, the only thing they claimed in their advertising was that it reduced controversial compounds, dissipated smoke instantly, that it was the most significant advance in cigarette history, and that it revolutionized smoking.
 MR. GILL: Assumes facts not in evidence, Your Honor, and it's compound.
 THE COURT: Rephrase the question.
 MR. BLEAKLEY: I'll withdraw it, Your Honor.
BY MR. BLEAKLEY:
 Q. By the way, did you testify that all of the biological studies that were conducted with respect to Premier were conducted by outside laboratories?
 A. I think what I said was that it was a little difficult to tell from the documents, but I saw no evidence that any of them were done in-house, and there was extensive discussion of tests that were done by outside consultants.
 Q. So in fact you don't know whether Reynolds did in-house biological testing of Premier; do you?
 *25 A. I have seen no evidence that they did.
 Q. So you don't know whether they did or didn't; do you?
 MR. GILL: Assumes facts not in evidence, Your Honor, it's argumentative and repetitious.
 THE COURT: I think -- I think he's answered the question.
BY MR. BLEAKLEY:
 Q. Now you also know that R. J. Reynolds has not abandoned the basic product design that was involved in the Premier product; don't you?
 A. I have seen some evidence of their continuing to work on related product designs, yes.
 Q. Using some of the technology developed in the course of the Premier project; right?
 A. Well since -- since I wasn't shown documents after 1994, it's a little hard to tell exactly what technology is being used, but it does appear to be related to technology of the Premier.
 Q. And you know that in fact R. J. Reynolds is currently test marketing such a product; don't you?
 MR. GILL: Objection, Your Honor, beyond the scope of discovery.
 THE COURT: Sustained.
 MR. BLEAKLEY: May we have a side-bar on this, Your Honor?
 THE COURT: Yes.
 MR. BLEAKLEY: Could I have the question read back, please.
 (Record read by the court reporter.)
 A. I do know that R. J. Reynolds is currently test marketing a product called Eclipse. I don't really know what technology it contained in the Eclipse product because I wasn't allowed to see documents. As I understand it, we were not produced documents from the last few years in which Eclipse was marketed.
 MR. BLEAKLEY: Your Honor, I move to strike the last part of that answer as non-responsive.
 THE COURT: Well I think it's sufficiently responsive. It will stand.
BY MR. BLEAKLEY:
 Q. Now you didn't mention a product by -- developed by Philip Morris called Next; did you?
 A. No, I did not.
 Q. But you know about it; don't you?
 A. Yes, I do.
 Q. You know that in fact Philip Morris marketed a product called Next several years ago; don't you?
 A. That's correct.
 Q. And this was a product that contained virtually no nicotine; right?
 A. It was a product that contained very little nicotine, yes.
 Q. And you know that product failed in the marketplace; don't you?
 A. That's my understanding, yes.
 Q. You also know that Philip Morris has another product that it is test marketing now called Accord; don't you?
 MR. GILL: Your Honor, object to questions dealing with test marketing now.
 THE COURT: The objection is sustained.
 MR. BLEAKLEY: Your Honor, could we have a side-bar on this? Promise it won't take any more time than the last one.
 THE COURT: Will there not be any more questions than the last one?
 MR. BLEAKLEY: Couple.
 THE COURT: All right. You better come up.
 MR. BLEAKLEY: Could I have the question read back.
 (Record read by the court reporter.)
 A. I've seen references to that in the newspapers, yes.
 (Document displayed on the screens.)
 MR. GILL: Your Honor, excuse me, I wonder if this could be taken down?
 *26 MR. BLEAKLEY: Sorry. Yeah.
 (Display removed from the screens.)
 MR. BLEAKLEY: Absolutely.
 Q. I'm sorry, you said you've seen references to it in newspapers?
 A. That's right.
 Q. And what do you know about it?
 A. That Philip Morris is test marketing a product called Accord.
 Q. Do you know what its design features are?
 A. I don't recall.
 Q. Do you know whether it is, potentially at least, a safer or medically acceptable product?
 A. I don't know about medically acceptable. I believe the newspaper accounts suggested that part of the motivation was reduced health hazards, but I really haven't focused on that as part of my opinion in this case.
 Q. Okay. Fair enough.
 So we know about Saratoga, we know about ARIEL, we know about its successor AIRBUS, we know about Premier, we know about the Liggett palladium cigarette, we know about Eclipse, the successor to Premier, Next, a little tiny bit about Accord, all products in which the defendants have attempted to develop safer cigarette products; right?
 A. I think it's a fair characterization that the products you just listed all were attempts, to some extent, to develop safer cigarette products, yes.
 Q. And we also know that in addition to that there were efforts made to make tobacco substitutes.
 A. Yes.
 Q. Unsuccessful efforts to make tobacco substitutes.
 A. Generally, yes.
 Q. And finally we know that in fact the defendants have made and sold filter and low tar and nicotine cigarettes over the last 40 years; right?
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: Well you can answer it again.
 A. Yes, defendants have made and sold filter and low tar cigarettes -- low tar/low nicotine cigarettes over the last several decades.
 Q. In fact we know, do we not, that the tar level in the cigarettes has gone from an average of 35 milligrams per cigarette in the mid-1950s to about 12 milligrams per cigarette in the '90s?
 A. I think that average is about correct. And we also know from the company documents and -- and numerous other documents that if there has been any reduction in health consequences associated with that, it is at best significantly less than the proportional reduction in tar that has occurred.
 Q. We know that from the company documents. Is that your testimony?
 A. Yes. I've seen a company document that indicates that.
 Q. And so your testimony is that these products are not any safer based on your review of selected company documents; correct?
 A. I didn't say that. What I said was that if they are any safer, the amount of improvement that they represent is considerably less than proportional to the measured tar reduction, and I have seen company documents that discuss that.
 Q. Okay. So you acknowledge that there are -- that these are safer products; right?
 A. I didn't say that either. I didn't say that either. What I said is they may be safer. There have at points in time been indications they might be safer. On the other hand, the documents as well as public reports make clear that because of smokers' compensation, the delivery to individuals is not reduced as much as the rated delivery, that the low tar products are typically smoked more intensely and drawn -- the smoke is drawn deeper into the lung, which may create different kinds of health hazards or -- or more serious kinds of health hazards, and that in addition their low tar products that contain the many additives that aren't in the other products, that as far as we can tell haven't been tested for safety, and -- and thereby may create new health concerns. So --
 *27 Q. Do you know whether they create new health concerns?
 A. What I know is that there has not been established clearly the net benefit of these new products, and everyone from company scientists to the Surgeon General have expressed that these issues exist.
 Q. This is all based on your review of the company documents selected for you by plaintiffs' counsel.
 MR. GILL: Object to that characterization, Your Honor.
 THE COURT: Objection sustained. Rephrase the question.
BY MR. BLEAKLEY:
 Q. Well have you done any independent research of your own to determine whether or not these products are or are not safer?
 A. I'm not an epidemiologist or biologist, I'm an economist, and what is relevant for me is what was going on in terms of the competitive behavior of the companies. If the companies had perceived these products as their innovative response to the consumer demand, then I would have expected that they would have done the research to determine whether or not they were safer, and if they could show that they were safer, to utilize that information in the marketing of the product, and what I've seen is that they've reduced the tar and nicotine, they have advertised those products as reduced tar and nicotine, but they haven't made systematic efforts to determine whether those products are safer. They clearly understand the compensation phenomenon and rely on the compensation phenomenon to produce products that are lower tar but that smokers will still find satisfying, and the public health evidence as summarized, for example the Surgeon General, is that there is doubt about the significance of any net health benefit that these products may have produced.
 Q. Have you done any independent research of your own to determine whether or not this so-called compensation factor is important?
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: You may answer that.
 A. I have not gone out and done smoking behavioral studies, no.
 Q. Have you read any of the published literature on compensation?
 A. Yes, I've seen some of it.
 Q. Have you read the article by Benowitz and Henningfield?
 A. I don't recall.
 Q. Have you read articles in the published literature suggesting that compensation is not a significant factor?
 A. Yes, I have.
 Q. So you know that there are people out there who don't think compensation is a significant factor; don't you?
 A. I have seen some studies that indicate that, yes.
 Q. Including responsible researchers in the field of nicotine and addiction; right?
 A. As far as I know, that's true. However, again as an economist, what matters to me is how the companies are behaving, and the companies clearly, from their own documents, not only perceived that it occurred, but perceived that it was a phenomenon that they were going to exploit in the development of their products.
 Q. Have you read the Dr. -- the testimony of Dr. Samet in this case?
 A. No, I have not.
 Q. So you don't know what Dr. Samet said about whether low tar and nicotine cigarettes are or are not safer.
 *28 MR. GILL: Your Honor, no foundation based on the last answer.
 THE COURT: Okay. You may answer that though.
 A. It wasn't material to my analysis to know what Dr. Samet said. As I explained, what was material to my analysis was how the companies perceived these products and how they competed with respect to them.
 Q. It was not important to the opinions that you've been expressing here this morning whether the actual scientific evidence is that low tar and nicotine cigarettes are or are not safer? That wasn't important?
 MR. GILL: Argumentative, Your Honor.
 THE COURT: You'll have to rephrase it, counsel.
 Q. Is it your testimony that whether or not low tar and nicotine cigarettes are in fact safer is irrelevant to your opinions?
 A. I don't think I said that. I think that what I said was that I didn't need to read Dr. Samet or any other individual empidemiologist's testimony. For example, I've looked at the Surgeon General's reports which are intended by their nature to summarize the general state of knowledge on these topics, and what the Surgeon General report says is that while there may be some benefits, particularly if smokers don't compensate, that overall there is certainly significant doubt about the magnitude of the net health benefits from these products, and I think for the purposes of my opinion regarding what competition did or didn't occur in this industry, that that's sufficient basis.
 Q. Let me ask you a hypothetical: Let's assume that there was a document in the defendants' files that says low tar and delivery cigarettes are not any safer. Okay? Will you accept that - -
 A. Okay.
 Q. -- hypothetical?
 And in addition, will you except for purposes of this hypothetical that this opinion was expressed by a scientist at one of the tobacco companies?
 A. Okay.
 Q. Okay? And that it was expressed very strongly. Okay?
 A. Okay.
 Q. But the actual scientific evidence is that the product is safer. Would you just ignore that evidence and rely only on the opinion expressed by one employee of a tobacco company?
 MR. GILL: Your Honor, there are no facts in evidence to support the last predicate of that hypothetical.
 THE COURT: Okay. The objection is sustained.
BY MR. BLEAKLEY:
 Q. Is it your testimony that the Surgeon General of the United States, in the Surgeon General's reports that have been published, have not found there to be a reduction in the amount of disease attributable to smoking as the result of low tar and nicotine cigarettes?
 A. Well my understanding is that what the Surgeon General reports indicate, including the 1981 report that the jury saw when Professor Dolan was testifying, is that there is some evidence to suggest that particularly compensation doesn't occur, that there may be reduction in some diseases, but that there are other concerns that potentially offset that, and the magnitude of those concerns to some extent is not known, so that overall it's not possible to make a reliable determination that the net health benefits are significant.
 *29 Q. Would a 20 percent drop in lung cancer rates be significant?
 A. Depending on the context, it might be significant for some purposes.
 Even if there were a 20 percent drop, it would -- it would be very consistent with what I said earlier, which was that if there was any benefit, it seems to be far less than what would be suggested by the aggregate reduction in tar levels that you alluded to, which was far more than 20 percent.
 Q. Is that important?
 A. Is -- is which important?
 Q. Is it important that the reduction in risk is less than the reduction in tar and nicotine numerically? Is that a significant factor?
 A. Well I only mentioned that because you suggested that the reduction from, I believe, 40 to 12 or 35 to 12 was somehow indicative of a significant improvement in cigarettes. I didn't suggest that. But what I was saying was that if someone were to suggest that the reduction in overall tar levels connoted some kind of corresponding, very large reduction in the hazard of cigarettes, then I think it would be very relevant that the actual reduction is apparently far less than proportional to the measured reduction in tar levels.
 Q. But in terms of the impact on health, it doesn't make any difference whether there is a relationship between the percentage reduction in tar and nicotine and the percentage reduction in risk; does it?
 MR. GILL: Your Honor, he just answered that question. This is argumentative as well.
 THE COURT: Okay. I think he answered that.
 MR. BLEAKLEY: Judge, I'm about to move on to a new and a final topic.
 THE COURT: How long is your final topic?
 MR. BLEAKLEY: Probably 45 minutes to an hour.
 THE COURT: Okay. We better recess for lunch then, reconvene at 2:00 o'clock.
 THE CLERK: Court stands in recess, to reconvene at 2:00 o'clock.
 (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 23, 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. BLEAKLEY: Thank you, Your Honor.
 Good afternoon, professor.
 THE WITNESS: Good afternoon.
 MR. BLEAKLEY: Good afternoon, ladies and gentlemen.
 (Collective "Good afternoon.")
BY MR. BLEAKLEY:
 Q. Professor Jaffe, is it your testimony that the defendants spent all of this money and all of this effort on attempting to develop safer cigarette products but that they didn't really want them to be successful?
 A. No, that's not my testimony. I think that the companies that spent the money that they did spend on developing safer products did so because they recognized the competitive potential that such products offered and that they did hope that they would be successful, but that they weren't willing in that hope to go the last mile, which involved really exploiting the products in a way that would have taken advantage of their real -- their real superiority from consumers' point of view. So that they -- they in some sense wanted to have it both ways, they wanted to respond to the competitive incentives they saw because they realized that the potential is there, but they were -- they were ham- strung in their ability to really fully exploit it because of the agreement that they had.
 Q. And that last mile, that exploitation of these products, would have been to make safety claims for them; right?
 A. Well I think that what I said earlier with respect to the specific products we talked about is that the last mile would have been to utilize the scientific information that they had to inform the consumers about how these products really were different than the products that were on the market.
 Q. Well what difference would it make to a consumer that the product was different unless it was also safer?
 A. Well I think what they could have said regarding safety would have depended on the data that they had. As we've discussed at some length, with respect to the specific products that -- that were developed, there are some questions about exactly what they could have claimed about those products, and one of the things that I think I've been clear on is that anything that they claimed would have had to have been true. If they had reached the point where they had developed a product that was unquestionably safer or safe and that they had the scientific data to support the claim in whatever form they chose to make it, if they had the data to support it, then I believe that they would have made those claims. The exact nature of the claims they would have made would have depended on the exact nature of the scientific and technological results that they were able to develop.
 *2 Q. And would you agree with me that you don't know whether any of those products were unquestionably safe or unquestionably safer; do you?
 A. The products that were in fact developed, is that what you're referring to?
 Q. Whether or not --
 The products that you say the defendants should have exploited and gone the last mile with respect to the consumers, you don't have any personal knowledge that any of these products were unquestionably safe or unquestionably safer; do you?
 A. I don't have any personal knowledge, and I certainly don't have any basis from the documents to say that any of them were unquestionably safe.
 The documents certainly indicate with respect to Premier, for example, significant scientific evidence that they were less biologically active with respect to a battery of tests that the scientists had -- had -- had undertaken, and I'm not in a position to determine what kinds of statements about safety could have been made based on those tests. But there certainly was a significant amount of data which indicated that, along relevant dimensions, the product, based on those tests, appeared to be safer.
 Q. Now let me turn to the economic impact of what you have described as a conspiracy to suppress fundamental competition.
 You testified -- and again correct me if I don't state this exactly correctly -- that the second element of the analysis -- that is, the first step of the analysis is whether the conspiracy unreasonably restrained competition, the second element of the analysis was the impact on the market, which must be a significant economic impact. Is that right?
 A. I think that's fair, yes.
 Q. So it is necessary for the impact on the market to have been significant; right?
 A. Yes, I believe that's correct.
 Q. A minor and insignificant impact on the market would not have anti- competitive consequences that would be of concern to an antitrust economist; right?
 A. Well I think what I said was to call something an unreasonable restraint of trade, we look for a significant economic impact.
 Q. And you went on to say if this restraint had not been in place --
 And that's the conspiracy that we're talking about here; right?
 A. Yes.
 Q. If this restraint had not been in place, we would have seen a market for cigarettes in the United States today that would have been significantly different from the market that emerged under this competitive restraint; right?
 A. Well you appear to be reading from the transcript. It certainly sounds familiar.
 Q. And that is your opinion.
 A. I -- I agree with that statement, yes.
 Q. Okay. And we would have seen a significantly broader variety of products available to smokers, and they would also have had available to them the information necessary to make informed choices among those different products in purchasing and smoking them; right?
 A. I couldn't have said it better myself.
 Q. And finally, this would have been in a market in which consumers would have had the information necessary to make effective choices among those products. And then you went on to say, "And this was a significant contributing factor to health-care costs in Minnesota."
 *3 A. I did say that.
 Q. Okay. The bottom line of all of this is that health-care costs were higher as the result of this restraint or this conspiracy; right?
 A. That's correct.
 Q. And that if there hadn't been a conspiracy, they wouldn't have been as high.
 A. That's right.
 Q. Okay. In Minnesota.
 A. Well I think as I explained with Mr. Gill, I have not looked specifically at the damages calculations regarding Minnesota. What I have concluded is that because of the significant impact on the cigarette market that you just discussed, and relying on the testimony of others that smoking does cause significant health-care costs, taking those two things together I'm able to conclude that the conspiracy was a significant contributing factor to health-care costs in Minnesota.
 Q. And you also know that the specific health-care costs in Minnesota that are involved in this case are Medicaid, a state medical assistance program called GAMC, and Blue Cross insurance; right?
 A. I do know that, yes.
 Q. Okay. Now let me write up here the four elements of this opinion, and I'll apologize in advance for my writing; I'm not a professor, so I'm not very good at this.
 First was lower health-care costs. Okay?
 A. First --
 Q. First of the elements.
 A. Okay.
 Q. Let me write these down. Then you can tell me whether you agree with them.
 A. Fine.
 Q. Okay?
Two is significantly different market, three was significantly broader variety of products, and finally, more information. At least that's my shorthand. Now perhaps I should have put lower health-care costs down as number four, and that's probably what was confusing you.
 But you said there would be a significantly different market; right?
 A. I did say that.
 Q. And there would be a significantly broader variety of products.
 A. Yeah. In my mind that's part -- three and four are part of two. They're not really distinct from two. But --
 Q. Okay.
 A. -- I don't disagree with having said all those things.
 Q. And more information, relevant information would have been provided to consumers.
 A. Right.
 Q. And the result would be lower health-care costs.
 A. Yes.
 Q. Okay. Now let me ask you this: In order to know whether or not in fact you would have a significantly different market and significantly broader variety of products and more information for consumers and therefore lower health-care costs, we'd need to know a number of things; wouldn't we? We'd need to know what the answers are to a number of questions; wouldn't we?
 MR. GILL: Objection, vague, Your Honor.
 THE COURT: Do you understand the question?
 A. Yes, we would need to know some things, yes.
 Q. Okay. Would you agree with me that one of those things would be whether or not this significantly broader variety of products would be meaningful different products?
 A. Yes, I'd agree.
 Q. Okay. Let me --
 Another pack of cigarettes that's called X instead of Y wouldn't be meaningful.
 *4 A. I agree with that.
 Q. Okay. Meaningfully different products.
 Secondly, we would need to know whether any of these new products were safer; wouldn't we?
 A. Yes.
 Q. We'd also have to know, would we not, how much safer?
 A. No, I don't think so.
 Q. What if they were only a wee tiny bit safer, just an infinitesimal amount safer?
 A. Well I think you'd have to know that within the broader range of products there were products that were significantly safer.
 Q. Okay.
 A. But I don't think you would have to know in a quantifiable sort of measurable terms how much safer.
 Q. Okay. Significantly safer.
 The farther down the board we get, the harder it is to read my writing.
 We'd also need to know who made these products; wouldn't we?
 A. Well we would need to know that these products were offered by the defendants. I don't think we'd need to know which ones specifically.
 Q. That's a D -- I mean a Delta; that's supposed to be for defendants.
 A. Yeah, I got that.
 Q. You understood that. Okay.
 Sorry, I'm standing in front of this and blocking the view of some of the jurors.
 We would also need to know when in time these meaningfully different, safer -- significantly safer products could have been introduced; wouldn't we?
 A. Well again I think that issue is somewhat like the safer issue. We would need to know that they would have been introduced sufficiently early to have had a significant impact on the marketplace, but I don't think we would need to know exactly when.
 Q. Okay.
 A. And just to be clear, would number four -- I think my answer to your question is we would need to know it was the defendants, but we wouldn't need to know which defendants, but what you wrote down is "which defendants," so I'm not quite sure that we had understood each other there.
 Q. How about if I change that to "defendant."
 A. Fine.
 Q. Okay?
 A. Uh-huh.
 Q. So you're with me so far. We're with each other so far.
 A. And again, you just wrote down "when" when what I said was you wouldn't need to know exactly when, you would just need to know if that is sufficiently early on as to have had a significant impact.
 Q. Okay. I'm just trying to shorthand -- do the shorthand --
 A. Okay.
 Q. -- writing as we go down the page here.
 We'd also need to know whether or not any of these meaningfully different, significantly safer products that were introduced in time to have a significant impact could have been produced at a reasonable cost; wouldn't we?
 A. Yes, where "reasonable" takes into account consumers' willingness to pay for a product that was significantly safer.
 Q. I'm going to just put a dollar sign there for that. Is that all right?
 A. Okay.
 Q. Okay. Then we'd need to know whether or not these products would have been or would be acceptable to consumers; right?
 A. We would have to know that they would have been acceptable to a -- to a sufficiently large number of consumers to have had a meaningful impact on the market.
 *5 Q. Now acceptability in this context would include such things as taste; wouldn't it?
 A. Yes.
 Q. And smell?
 A. Yes.
 Q. And whether or not the product would stay lit?
 A. Yes.
 Q. All the things that we've been talking about here this morning, design features that would be acceptable to a sufficient number of consumers so that they would smoke them in significant amounts; right?
 A. I agree with that.
 Q. Okay. And finally we'd need to know what advertising and marketing claims could be made about those products; correct?
 A. I'll answer the question --
 I can't actually see what you wrote, so --
 Q. I wrote "claims."
 A. -- I'll assume that what you wrote is similar to what you said.
 Q. I wrote "claims."
 A. I think we would need to know what kinds of information the companies in general terms could have conveyed about these products.
 Q. And that would take into account, for example, whether or not the Federal Trade Commission or the Food and Drug Administration would allow them to make those claims; right?
 A. Yes, uh-huh.
 Q. And it would also have to take into account, would it not, the extent to which, if at all, other elements of the public health community attacked the product and attacked the claims that were being made.
 A. I'm not sure whether that would be relevant or not. I mean the public health community has certainly done plenty of attacking of the tobacco companies and it doesn't necessarily seem to affect their behavior, so I'm not sure that generic attacks by people other than the regulators who had some legal authority to do something about it would have made much of a difference.
 Q. Well is it your testimony, for example, that if one of the defendants attempted to market one of these products in the state of Minnesota, making whatever health claims that defendants thought were appropriate, and the Minnesota Department of Health took the public position that these claims were not supported, that would affect the ability of the defendants effectively to market this product in Minnesota; wouldn't it?
 MR. GILL: Assumes facts not in evidence, Your Honor, with respect to this hypothetical.
 THE COURT: You can answer that.
 A. I don't know what the state of Minnesota could have done. I'm sorry, I thought you were referring to, you know, the American Medical Association and other non-profit health organizations. But what I would say was that, obviously, any legal requirement that any legal entity, whether it's the federal government or state government, had some authority to enforce obviously would have to be complied with.
 Q. Well, and if a reputable organization such as the American Cancer Society took the position publicly that the claims that the defendants were making for one of these products were untrue, that would affect their ability to sell them; wouldn't it?
 MR. GILL: Assumes facts not in evidence, Your Honor.
 THE COURT: No, you may answer that.
 *6 A. Well I'm a little confused about the relevance to what we're talking about, because the predicate here was that we were going to have scientifically defensible, factual information that the companies were going to present regarding these safer -- these significantly safer products, so I guess if the American Cancer Society took the public position that something that was scientifically demonstrable was nonetheless false, I'm not sure that would have any effect on anything.
 Q. Well you testified that RJR had a scientific basis for making claims about Premier; didn't you?
 A. I testified that they had a scientific basis to make some claims. I didn't testify as to specifically what was the nature of the claims that they could make that would be defensible, and I haven't seen any evidence that anything that the American Cancer Society or other non-profit organizations did with respect to Premier had any consequences.
 Q. Your testimony is that the opposition to Premier by the American Medical Association had no -- played no role in the lack of success of Premier?
 A. Well I've seen company documents that groused about the fact that it was opposed by anti-smoking organizations. I'm not sure I've really seen any evidence that shows that that actually had any effect.
 Q. In any event, you would agree with me that we'd need to know the answers to these questions in order to know whether or not a significantly different market, significantly broader variety of products, more information, would result in lower health costs; isn't that right?
 A. Yes, I think as characterized in my earlier answers with respect to the, you know, the summary points you've put up there.
 Q. Okay. Well let's take them one by one.
 We don't know whether the defendants could have developed meaningfully different products; do we?
 A. In my opinion I think we do know to a reasonable degree of confidence, that given the economic analysis that we've talked about, the huge stakes that were perceived by the companies, the opportunities that they saw, the progress that was made, incomplete as it was, the progress that was made with the meager resources that were invested, I think one can conclude that if the last four decades of this industry had been allowed to play out competitively with the forces that we've seen were operating rather than being suppressed, that the industry would look significantly different, and that there would be meaningfully different products, safer products along a variety of dimensions. They would have been significantly safer.
 We've seen evidence even with the meager resources that were invested that progress was made in that direction. I think a lot more progress would have been made if greater resources had been invested. And I think that it's not -- it's not hard to conclude that if -- if we'd had four decades to progress without the restrictions that we've talked about, that all of those things would have been in place.
 *7 Q. Every one of them.
 A. That's what I just said.
 Q. The defendants would have been able to develop safer products than they have already.
 MR. GILL: Asked and answered, Your Honor.
 THE COURT: Well go ahead, you can go through it again.
 A. Yes.
 Q. Significantly safer product than they have already.
 A. Yes.
 Q. And it would have been one or more of the defendants in this case.
 A. One or more of the defendants, yes.
 Q. And you have no hesitancy whatsoever in opining to a reasonable degree of scientific probability that this could have been done in time to have a significant impact on the market.
 A. Yes.
 Q. And you also have no hesitancy whatsoever to testify to a reasonable degree of scientific probability that this could have been done on a cost- effective basis.
 A. Where "cost-effective" is defined to recognize that consumers quite clearly would have been willing to pay somewhat more for products that were demonstrably safer.
 Q. And you have absolutely no doubt that they could have designed products that would have been acceptable to consumers; right?
 MR. GILL: Your Honor, improper question, certainly not the relevant standard, as counsel knows.
 THE COURT: Sustained.
BY MR. BLEAKLEY:
 Q. And you would testify here today to a reasonable degree of scientific probability that these companies could have developed products that would have been acceptable to a significant number of consumers in time to have a significant impact.
 A. Yes. I mean, for example, we know that the low tar -- the ultra low tar products are viewed by many smokers as not as desirable along various dimensions. I'm not saying that every smoker would have adopted them and I'm not saying that they would have been indistinquishable from traditional products, what I'm saying is we would have had a variety of products available which would have offered sufficient satisfaction to smokers along the various dimensions that they care about that a significant number would have purchased them.
 Q. And you will testify to a reasonable degree of scientific probability that the defendants would have been able successfully to make claims about these products in their advertising and marketing that would have resulted in a significant impact on the market?
 A. Well again, we've already talked about this. The -- the standard --
 The basis of the FTC regulation is that the claims not be false or misleading, and I think if the companies had had valid scientific information that they could have developed, if they'd invested the appropriate resources, that there would have been a way to express that information that was not false or misleading but nonetheless was sufficiently specific and clear that smokers would have understood what was being communicated, and it would have affected their choices.
 Q. There would have been a way.
 MR. GILL: Asked and answered, Your Honor.
 Q. Is that right?
 THE COURT: It's been asked and answered.
 *8 Q. But despite your opinion to a reasonable degree of scientific probability, you can't identify any such product; can you?
 A. I think that that's not the issue. I mean we're talking about an industry that four decades of the history of which has been changed significantly by a conspiracy to suppress the forces of competition and creative destruction, and so I don't think it would be reasonable to expect that someone could say, sitting here today with the four decades having played out the way they did, specifically what those products would look like or specifically which company would have introduced them. It would be like going back to the 1950s and looking from the perspective of the 1950s, trying to anticipate in a modern, dynamic industry what that market would look like in the year 1998. I don't think anyone doing that in 1950s, looking at the cola industry, would have thought that you were going to see sugar-free colas that people -- or most people, including me, couldn't distinguish from regular cola. I don't think they would have anticipated computers the size of a shoe box that would do what the computers the size of a building did then. You can tick off industry after industry where the products that are available today could not possibly have been anticipated in their specific form four decades ago, and yet what we have in this industry is a market that has been arrested in its development relative to that dynamic process that would have occurred. And I think it's -- it's impossible to say what the specific products would have been, but it's not at all hard to say that the range of products would have been significantly different.
 Q. It's not just impossible to say what the specific products would have been, it's impossible to say how much safer they would have been; isn't it?
 A. Well we have some information. We know that with --
 THE COURT: Excuse me, counsel.
 MR. BLEAKLEY: Sorry.
 THE COURT: You're --
 (Mr. Bleakley resumes his position behind
 the podium.)

 THE COURT: Sorry to interrupt you. Go ahead.
 MR. BLEAKLEY: That's okay.
 A. Okay. I'll start over. We do have some information. We know with respect to Premier, for example, that a product was developed that eliminated the products of combustion and pyrolysis and along a number of scientific dimensions clearly had reduced the biological activity. Now as we've discussed, there were problems with Premier, there were issues with its consumer acceptability, but any time you introduce a new product, it takes a while to get the bugs out of it, to get kinks out of it. I think Premier was a significant strive forward.
 Based on the work that we saw that B.A.T did on ARIEL in the 1960s, I think that, you know, we -- we -- we would have gotten to the point that we got to with Premier far earlier if this competition had -- had been unfettered, and I think with that as an indication of what happened, even with limited resources, I don't think it's hard to conclude that we could have come up with products that were significantly safer.
 *9 Q. And what prevented all of this from happening was an agreement between the defendants not to do in-house animal research and not to exploit the benefits of their products.
 MR. GILL: Your Honor, assumes facts not in evidence in that it omits several prongs and it omits reference to the overall conspiracy.
 THE COURT: Well you can answer this question.
 A. Well the different elements of the conspiracy, as I discussed, are interrelated. I think with respect to each of the other elements I noted that one of the things it did was contribute to the suppression of the demand for safer products, so I don't think I testified that you could isolate out the first and the last aspects as the mechanism for preventing the dynamic evolution of the industry that otherwise would have occurred. I think all of the different aspects of the conspiracy were mutually reinforcing and contributed to the result.
 Q. Isn't it a fact, Professor Jaffe, that the opinion that you have expressed about the economic impact of this alleged conspiracy is pure speculation?
 A. No. I don't know why you would conclude that. I think I spent three days here explaining exactly why, based on the economic analysis and based on the evidence that I have looked at, I've come to the conclusion I've come to.
 MR. BLEAKLEY: I have no further questions.
 MR. GILL: Your Honor, I only have 10 or 15 minutes, so I think we can just proceed straight away.
 Mr. Bleakley, could you move this out of the way?
 (Easel moved by Mr. Bleakley.)
 MR. GILL: Good afternoon, ladies and gentlemen.

 (Collective "Good afternoon.")
BY MR. GILL:
 Q. Good afternoon, Professor Jaffe.
 A. Good afternoon, Mr. Gill.
 Q. Professor Jaffe, do you recall some questions this morning from Mr. Bleakley that dealt with the testimony of Dr. Samet?
 A. Yes, I do.
 Q. And do you recall some testimony along the lines suggested to you by Mr. Bleakley that Dr. Samet had testified to a 20 percent reduction in lung cancer as measured in epidemiological studies due, according to Mr. Bleakley, to use of low tar/low nicotine cigarettes?
 A. That was the suggestion of his question, yes.
 Q. And you told Mr. Bleakley that you had not read the testimony of Dr. Samet at the time.
 A. That's correct.
 Q. I'd like to show you some of Dr. Samet's testimony on February 13, 1998, at pages -- at page 3761 in the record, starting at line two.
 MR. BLEAKLEY: Your Honor, I object to this. This is not recross- examination -- or redirect examination, this is just reading the testimony of another witness, which, unless it's all read on the entire subject, would be inappropriate in any event.
 THE COURT: You mean you don't --
 On what subject, the subject that you crossed on?
 MR. BLEAKLEY: The subject that I crossed him about and which he said he had no knowledge.
 THE COURT: Okay. I think he can redirect on a subject that you crossed on.
 MR. GILL: That's all I intend to do, Your Honor.
 *10 THE COURT: All right.
BY MR. GILL:
 Q. You see a question at the top of the page, line two, that says, "Now what has happened to the disease risks of smoking over the past 40 years?"
 A. Yes.
 Q. All right. And Dr. Samet asked -- answers, "Well we've seen, certainly, no drop in the disease risks associated with smoking, and evidence of increasing risks for some diseases."
 Now is that consistent with the understanding that you got from Mr. Bleakley regarding the testimony of Dr. Samet?
 A. Well Mr. Bleakley seemed to be suggesting that Dr. Samet had testified that there was a reduction, and this doesn't seem to indicate that.
 MR. BLEAKLEY: Your Honor, --
 Q. Is it fair --
 MR. BLEAKLEY: -- I object to that. Now the witness is actually testifying on the nature of this prior testimony. If he wants to display the testimony of Dr. Samet, I objected to that, too, but I can understand it, but engaging in this dialogue with Professor Jaffe I submit is inappropriate.
 THE COURT: Well your question characterized Dr. Samet's testimony. I think he is entitled to --
 MR. BLEAKLEY: I characterized it accurately, Your Honor.
 THE COURT: All right. Well --
 MR. BLEAKLEY: Now what he wants to do --
 THE COURT: That's what we're here to find out.
 MR. BLEAKLEY: But he's asking this witness questions about it. He's never seen it until lunch time, apparently.
 THE COURT: All right. You can answer the question.
BY MR. GILL:
 Q. And Professor Jaffe, I think you did answer the last question; did you not?
 A. Yes, I believe I did.
 Q. All right. Let's go on to the question that starts at line seven on that page.
 A. It says --
 Q. Okay. You can go ahead and read it.
 A. It says, "What do we see when we measure the disease risk in specific studies, doctor?"
 And the answer is, "We saw some -- I talked about some information yesterday, for example, of the CPS-I study, that was the 1959-1960 to 1972 study that showed some drop, about a 20 percent drop in risk of dying from lung cancer for those who were smoking the lower tar cigarettes of the time '59 to ' 72, compared to the higher tar cigarettes of the time. So just remember that the higher tar cigarettes in that study had -- were in the range of 25 and higher in terms of the milligrams of tar, the lower tar were about -- under 17.6 milligrams of tar, if I remember correctly, so with that degree of reduction, there was about a 20 percent drop in the lung cancer risk."
 Q. All right. Let me interrupt you right there.
 Now that does refer to a 20 percent reduction in the lung cancer risk; does it not?
 A. Yes, it does.
 Q. And it references a timeframe between what years?
 A. 1959-'60 compared to 1972.
 Q. Now further on on the very next page, 3762, do you see the question that starts at line 19?
 A. Yes.
 Q. Would you read that question and that answer, please.
 A. "But what do we see when we measure the risks of smoking over the past 40 years?
 *11 "Answer: Well there we have some information that I discussed yesterday. We have the two studies of the American Cancer Society, the two studies of one million Americans, the earlier study across the '60s, '59 to ' 72, the later study beginning in the '80s. And what I showed yesterday was that in that study, the disease risk, lung cancer and the other major smoking-caused diseases, had actually gone up comparing the two studies, one looking at the risks in persons who were enrolled towards the left side of that exhibit and the other more towards the right side of that exhibit.
 "And also, in terms of the results of the individual epidemiological studies in the animations as I showed the findings of those studies over time, there was no evidence that risks had begun to drop off in the later studies."
 Q. So what is your interpretation, Professor Jaffe, of the testimony from Dr. Samet with regard to any reduction in the epidemiological risks associated with the smoking of low tar cigarettes after 1972?
 MR. BLEAKLEY: Objection to any interpretation of this testimony by this witness.
 THE COURT: Well I think you should --
 You'll have to rephrase that, counsel.
BY MR. GILL:
 Q. Let me ask the question this way, Professor Jaffe: Is the answer to the last question that you just read to the jury, is that consistent with the understanding that you gained from the nature of the question put to you by Mr. Bleakley this morning regarding Dr. Samet's testimony?
 MR. BLEAKLEY: Same objection.
 THE COURT: No, you may answer that.
 A. No. I think what this shows is that Dr. Samet's testimony was quite consistent with what I had said, which was that the evidence indicated it was unclear that there was a significant health benefit from low tar cigarettes.
 Q. And that in the latter timeframe it appeared to Dr. Samet that the risk had actually gone up?
 A. That's what the testimony says, yes.
 Q. Do you also recall some questions from Mr. Bleakley with regard to Exhibit 12513?
 A. Yes, I do.
 Q. These were questions that were put to you last Friday by Mr. Bleakley in connection with a 1983 internal memorandum from the files of RJR discussing the Philip Morris biological research and development activities?
 A. That's correct.
 Q. And do you recall that Mr. Bleakley asked some questions relating to any biological research that Philip Morris might have undertaken at its plant in Richmond?
 A. Yes.
 Q. And Mr. Bleakley was juxtaposing the research at Richmond, which would be in-house, within the United States, versus research occurring in Cologne as you discussed during your direct testimony.
 A. That's correct.
 Q. Would you look at page Bates stamp 3508, please, of Exhibit 12513.
 All right. Down at the bottom of that page do you recall some questions from Mr. Bleakley with regard to part of the information that's contained there?
 A. Yes.
 Q. Would you read the relevant sections of that paragraph with respect to the nature of the testing that is occurring at Richmond.
 *12 A. Well it says, "In Richmond, Philip Morris's R&D department has one group called basic research and extramural activities under Dr. Tom Osdene. It numbers 86, of whom 80 are involved in research and six in collecting and critiquing smoking and health literature. Of the 80, about 12 are involved in smoking behavior research compared to six at RJR, about 30 are involved in radioisotope work compared to three at RJR, in such areas as air dilution effects, flavor transfer and decomposition filter efficiency. As shown in slide seven, PM has also advertised explicitly for pharmacologists, physiologists, psychologists, experts in the cardiovascular and regulatory systems."
 Q. All right. Do you recall the suggestions that perhaps some or many of the 86 employees at Richmond might have been conducting in-house biological research of the --
 MR. BLEAKLEY: Objection to Mr. Gills' characterization of my questions.
 THE COURT: Rephrase it, counsel.
BY MR. GILL:
 Q. What do you recall about the nature of -- of -- of those questions in terms of the identity of the researchers?
 A. Well Mr. Bleakley's questions were asking me about my -- my opinion regarding biological research and in particular whether or not this information showed that Philip Morris was in fact doing biological research in its Richmond, Virginia facility.
 Q. Would research regarding radioisotope work, as far as you can tell from your review of defendants' internal documents, have involved the biological activity of the type which you have testified was proscribed by the conspiracy?
 MR. BLEAKLEY: Object to the question, it's leading.
 THE COURT: Well it is leading. I'll allow it though.
 A. Well I think radioisotope work in general might be, but it says specifically here "such areas as air dilution effects, flavor transfer and decomposition of filter efficiency," and I don't think those are the kinds of biological research that we've been talking about with respect to the conspiracy.
 Q. Do you recall responding to those questions by pointing to the term "smoking behavior research" as being an area that was unclear as to whether that related to biological research?
 A. Yes, I did.
 Q. I'm going to go now to Bates stamp 3513 of this same exhibit.
 A. I have it.
 MR. BLEAKLEY: What is the number, Mr. Gill?
 MR. GILL: 3513. Exhibit number is 12513.
BY MR. GILL:
 Q. Do you recall -- or excuse me. In looking at the top of that page, is there some further information presented by the author of this memo with respect to behavioral research?
 A. Yes. It says, "Slide 11 describes some of Philip Morris's activities and extent of involvement in behavioral research. Information from this research may be meaningful in defining beneficial effects of smoking, the effect of key smoke components such as nicotine on smoker behavior, physiology, and smoking habits, smoker compensation with high and low tar cigarettes."
 Q. Any indication that that behavioral research as discussed there relates to the type of biological research to which you have opined as the conspiracy proscribed activity?
*13 A. It doesn't seem to, no.
 Q. And if you'd look at page 3510 of Exhibit 12513, up at the top of the page, does the author specifically indicate the type of research that's -- that the author believes Philip Morris is conducting at Cologne?
 A. Yes. It says, "The one in Cologne, owned and operated by Philip Morris," but "(Philip Morris' name not attached), is devoted to such biological activities as animal experiments, toxicology and short-term screening, paren, (mutagen tests)."
 Q. Is that information consistent with the information that you found in the internal documents of Philip Morris related to the type of testing being conducted in Cologne at the facility called INBIFO?
 A. Yes.
 Q. You also testified during direct with respect to a Philip Morris memorandum in 1978 that also dealt with the subject of Philip Morris research and development; did you not?
 A. Yes, I did.
 Q. That's Exhibit 12512?
 A. Yes, it is.
 Q. Would you look at page 3077, please, of that exhibit.
 A. I have it.
 Q. Now during your testimony on direct, you provided testimony regarding this particular page of that exhibit dealing with research and development at Philip Morris; did you not?
 A. Yes. At the bottom of the page it talks about the research in Cologne and the verbal agreement among the domestic companies not to perform animal testing in-house.
 Q. This particular section of the memorandum goes on for three or four pages; does it not?
 A. Yes.
 Q. It contains information above the last paragraph on the last page dealing with the type of research that RJR believed Philip Morris was conducting at this time frame in 1978.
 A. Yes.
 Q. Did you find, in reviewing the three or four pages of this memorandum dealing with Philip Morris research, any indication that the author believed that Philip Morris was conducting research at the Richmond facility that was biological in nature, or at any other location in the United States of an in- house nature that related to biological research?
 A. No.
 Q. Now the two documents to which I just referred, they are RJR documents; are they not?
 A. That's correct.
 Q. It's an RJR employee attempting to inform RJR management of what Philip Morris has been doing in several areas, including research.
 A. That's correct.
 Q. No indication that Philip Morris is cooperating in providing this information; is there?
 A. No.
 Q. And you understand that Mr. Bleakley, in addition to representing all the defendants with respect to your testimony, specifically represents Philip Morris in this case.
 MR. BLEAKLEY: Objection, Your Honor, Mr. Bleakley does not represent any defendant in this case other than Philip Morris.
 MR. GILL: That's why I said with regard to his cross- examination, Your Honor, of this witness.
 THE COURT: I do not wish to have more than one person stand.
 The objection is sustained.
BY MR. GILL:
 Q. You do understand, Professor Jaffe, that Mr. Bleakley represents Philip Morris.
 *14 A. Yes, that is my understanding.
 Q. Okay. Now did you find any documents in your review of the internal documents of defendant from the files of Philip Morris, his client, indicating that Philip Morris was conducting biological research at its facility in Richmond?
 A. No, I didn't.
 Q. Did Mr. Bleakley show you any such document during his cross- examination?
 A. No, he didn't.
 Q. Mr. Bleakley also put to you several questions dealing with the manner in which documents were provided to you for your review. Do you recall those questions?
 A. Yes.
 Q. During the course of Mr. Bleakley's cross-examination of you, did he show you any internal documents from the files of any defendant that you had not previously seen?
 A. No, he did not.
 Q. Did he show you any document at all during cross- examination from the internal files of any of the defendants that in any way affected or altered the opinions that you gave on direct?
 A. No, he didn't.
 Q. Now do you also recall some questions dealing with the identities of researchers that were funded by CTR and the institutions that those researchers may have been associated with?
 A. Yes, I do.
 Q. Did you see in the review of any of the internal documents of CTR any indication that CTR at any time during its 44- year existence ever polled or surveyed any of those researchers to determine whether or not those researchers believed that smoking caused lung cancer and other diseases?
 A. No, I didn't.
 Q. During your work in this case, have you come across any mention of any such survey or poll?
 A. Yes. It was discussed in Dr. Glenn's testimony before Congress that such a survey had been conducted by an outside organization and found that the majority of the researchers did in fact accept the causation hypothesis.
 Q. Back last Friday on cross-examination, do you recall responding to a question from Mr. Bleakley with an answer that you felt that it was, quote, "fairly widely believed that cigarettes are harmful?"
 A. I said something like that, yes.
 Q. In your review of the industry's internal documents, Professor Jaffe, did you arrive at any opinion with respect to the target audience or the industry's efforts to convince that target audience that the case was not proven?
 MR. BLEAKLEY: Objection, Your Honor, that's beyond the scope of cross, it's beyond the scope of direct, and it's also beyond the scope of this witness's expertise, his expert report.
 THE COURT: You'll have to rephrase that question, counsel.
BY MR. GILL:
 Q. When you testified, Professor Jaffe, about knowledge that smoking may be harmful being fairly widely believed, in what context were you providing that testimony?
 A. Well there was a question by Mr. Bleakley as to whether in fact I thought that was the case. I think the context related to the part of my opinion where I said that part of the purpose of the conspiracy was to prevent confirmation of the causation hypothesis. And certainly while it's true that I think most people, certainly adults, have a general understanding that smoking is harmful, we also saw in the documents that the companies understood that it was important to provide reassurance, to provide rationalization, so that smokers, even if they did on some level understand that smoking was harmful, would have something to fall back on to rationalize continuing to smoke.
 *15 Q. Did you see documents from the files of defendants on that very point?
 A. Yes, I did.
 Q. And finally, Professor Jaffe, do you recall some questions dealing with the amount of funding that the defendants provided for research and development in relation to the funding of research and development by other industries?
 A. Yes.
 Q. Professor Jaffe, do you know of any other industry whose products have been reported to have caused the death of 400,000 individuals per year?
 A. No, I don't.
 MR. BLEAKLEY: Objection, Your Honor, beyond the scope of cross-examination.
 THE COURT: Sustained.
 Q. Given the situation reported with respect to the harm caused by cigarettes, what type of funding would have been appropriate, given an unrestrained use of the process of creative destruction?
 MR. BLEAKLEY: Objection, Your Honor, beyond the scope of cross, it's also beyond the scope of this witness's expertise, and it's argumentative.
 THE COURT: You may answer that.
 A. Well I think, as I described somewhere along the way in the last couple of days, I think it's hard to put an exact dollar figure on the amount that would have been spent, but I think that the amount that would have been spent would have been dramatically greater than the amount that actually was spent. There are other industries that didn't face the same kind of crisis that this industry faced that routinely spend a much larger fraction of their resources on research than this industry has, and I think, given the crisis that it faced, if it had been competing, it would have spent dramatically more.
 MR. GILL: Thank you, Professor Jaffe. Nothing further.
 MR. BLEAKLEY: Your Honor.
 THE COURT: You may step down.
 MR. BLEAKLEY: May I approach the bench for a second?
 THE COURT: Okay.
 MR. BLEAKLEY: Shall I just read it, Your Honor, or ask the question?
 THE COURT: Pardon me?
 MR. BLEAKLEY: Shall I just read it or ask the question?
 THE COURT: Well did you want to highlight it and put it on the screen? Why don't you highlight it and put it on the screen.
 MR. GILL: Your Honor, the difficulty is that that's our only copy here.
 THE COURT: That's your only copy? Okay, then don't highlight it. You better read it and ask him the question.
BY MR. BLEAKLEY:
 Q. Professor Jaffe, I'm reading from page 3839 to 3841 of Dr. Samet's trial testimony, and then I'm going to ask you a question. Okay? Starts at line two.
 "Question: Well you had the results of the CPS-II study at the time you rendered your expert report -- that you prepared your expert report in this case; correct?
 "Answer: Correct.
 "Question: And in preparing your expert report, you were careful to review all pertinent literature on the subject matters covered in that expert report; right?
 "Answer: Correct.
 "Question: And in your expert report you stated -- well you gave the opinion that smokers of filtered cigarettes, in comparison with smokers of non- filtered cigarettes, have an approximately 20 percent lower risk of lung cancer; correct?
 *16 "Answer: Yes."
 There's a colloquy with the court and Mr. Hamlin.
 At page 14, "You stated in the expert report that smokers of filter cigarettes in comparison with smokers of non-filter cigarettes have an approximately 20 percent lower risk of lung cancer, although the absolute risk remains substantially above that for never smokers.
 "Answer: Yes.
 "Question: And in fact, the state of medical knowledge today is that low tar cigarettes or -- let me strike that.
 "The state of medical knowledge today is that smokers of filter cigarettes, in comparison with smokers of non-filter cigarettes, have an approximately 20 percent lower risk of lung cancer; correct?
 "Answer: I think the distinction I was trying to draw this morning, that at any one particular time, as in my study or other studies, let's say 1980-'82 or later, looking at smokers, higher tar versus lower tar or filter versus non- filter, there's been evidence of a reduction in risk, approximately 20 percent or so as mentioned here. That speaks to what I meant by this cross-sectional comparison of the risks in smokers of, in this case, filter compared to non- filter, or as we saw in the CPS-I study, that span of time, cases occurring '59 through '72, given that study, a reduction of risk. And that's what I meant early this morning when I said these works, they're snapshots in time of what the risks are of smoking these different types of products.
 "Question: Let me see if I understand. What you're saying is that if you compare smokers of filtered cigarettes with smokers of non-filtered cigarettes at the same time, the smokers of filtered cigarettes will have a 20 percent lower risk of lung cancer; is that it?
 "Answer: I think that's a reasonable interpretation of what I said is cross-sectional snapshots."
 Did you read that testimony at lunch today?
 A. No.
 MR. BLEAKLEY: I have nothing further.
 MR. GILL: Just on this point, Your Honor.
BY MR. GILL:
 Q. Professor Jaffe, did you read any testimony from Dr. Samet at lunch this afternoon?
 A. I haven't read Dr. Samet at lunch or any other time.
 Q. The only thing you know about Dr. Samet's testimony since the noon break is what I read to you on the witness stand and what Mr. Bleakley just read to you; is that correct?
 A. That's correct.
 Q. And in connection with what Mr. Bleakley just read to you, did you see any difference in Dr. Samet's testimony with regard to the period between '59 and '72 regarding the 20 percent lower risk of lung cancer than before lunch, during that timeframe?
 A. No.
 Q. And the questions that I put to you dealt with the timeframe since 1972?
 A. That's correct.
 MR. BLEAKLEY: Objection, Your Honor, asked and answered.
 MR. GILL: That's all I have, Your Honor.
 THE COURT: You may step down.
 MR. GILL: Thank you, Professor Jaffe.
 (Witness excused.)
 THE COURT: Let's take a short recess.
 (Recess taken.)

 THE CLERK: All rise, court is again in session.
 *17 (Jury enters the courtroom.)
 THE CLERK: Please be seated.
 THE COURT: Counsel.
 MS. WALBURN: Thank you, Your Honor.
 Good afternoon, ladies and gentlemen.
 (Collective "Good afternoon.")
 MS. WALBURN: The plaintiffs call Paul Much.
 THE CLERK: Mr. Much, could you please stand, raise your right hand.
 (Witness sworn.)
 THE CLERK: Please state your name and spell your last name.
 THE WITNESS: Paul J. Much, M-u-c-h.
 THE CLERK: Thank you. Please have a seat.
 PAUL J. MUCH called as a witness, being first duly sworn, was examined and testified as follows:
BY MS. WALBURN:
 Q. Good afternoon, Mr. Much.
 A. Good afternoon.
 Q. What is your current position?
 A. I am senior managing director of the investment banking firm Houlihan Lokey Howard & Zukin. I am a member of the firm's operating committee. I am on the firm's board of directors. I am the senior-most valuation officer in the firm.
 Q. And what is your area of expertise?
 A. I'm a specialist in the valuation of businesses and their securities and financial analysis.
 Q. And are you going to be testifying here today primarily about profitability of the tobacco industry?
 A. Yes.
 Q. First can you give us a little background on your firm in Chicago?
 A. Sure. Houlihan Lokey Howard & Zukin is an investment banking firm consisting of some 250 people. We have nine offices throughout North America. I'm based in the Chicago office. Our firm's clients range in size from small privately- held companies to very large New York Stock Exchange companies. We also do work for governmental agencies; I've done work for the Internal Revenue Service, for the United States Department of Justice, the United States Department of Labor, the Office of Thrift Supervision. And we work on about 1200 client assignments every year.
 Q. Can we discuss your educational background.
 A. Sure.
 Q. Where did you get your undergraduate degree?
 A. I did my undergraduate work at the University of Illinois. I received a bachelor's degree in finance with a concentration in accounting, then I graduated in June 1971.
 Q. And then did you go on to receive a graduate degree?
 A. Yes. I did my graduate work at Northwestern University where I received a masters in business administration with concentrations in finance and accounting a year later in June 1972.
 Q. And what was your first job after receiving your M.B.A.?
 A. Immediately upon graduation I joined the Harris Trust & Savings Bank in Chicago where I joined their corporate finance group doing work for the bank, their own senior management, and the bank's customers as well, on various financial matters, both with regard to the bank's strategies and the bank's clients' financial strategies.
 Q. And did you then join a different company in 1978?
 A. In 1978 I joined Duff & Phelps in Chicago. Duff & Phelps is a firm that was principally involved in evaluation of securities and financial analysis.
 *18 Q. And while you were at Duff & Phelps, did one of your projects involve Arthur Andersen?
 A. Yes. In the 19 --
 In the early 1980s, Arthur Andersen, which is the world's largest public accounting firm, it's the world's -- the largest firm of CPAs, they were going through an international restructuring, and our firm was retained and I led the project team in terms of analyzing the profitability of Arthur Andersen for Arthur Andersen for the international partnership on a global basis, by country, by city, and I was asked to allocate a value among all their offices worldwide.
 Q. Did this project involve valuation determination?
 A. It was a determination of value, yes.
 Q. And what is the underlying basis of a valuation determination?
 A. Profitability. Profitability is at the heart of any determination of valuation.
 Q. And did you then join your present firm in 1984?
 A. Yes.
 Q. Can we discuss a couple of the representative projects or clients that you have worked with at Houlihan and Lokey.
 A. Okay.
 Q. And have you worked on a project involving Cesar's World?
 A. Yes. Cesar's World -- and this is the company that has the hotels and casinos throughout the United States, most well known is Cesar's Palace in Las Vegas, Lake Tahoe, Reno and Atlantic City, and Cesar's World, which was and still is a New York Stock Exchange company, was going through a restructuring of their ownership. We were retained to do a financial analysis of Cesar's in connection with their ability to repay their debt that they borrowed in connection with that ownership restructuring.
 Q. Have you also worked on a project involving Lockheed Corporation?
 A. Yes. In the early 1980s. And Lockheed, this is the major aircraft manufacturer, was undergoing a dispute. Its existing management wanted to focus on commercial aviation as a primary strategy in the business. Existing management was under attack by a raider, and that raider wanted to change management and refocus the company on military aviation. My client was the trustee for the employee shareholders, and we were being retained to address the alternative profitability and alternative valuation implications of those two different strategies, the military aviation on the one hand and commercial aviation on the other, to assist the trustee for the employee shareholders in deciding which way to go.
 Q. Have you worked on a project involving Phillip's Petroleum?
 A. Yes. Also in the 1990s Phillip's Petroleum was undergoing some ownership changes, and I was retained by, again, the trustee for the employee shareholders to do an analysis and a determination of value in their possible investment in the firm in receiving back various stock/securities.
 Q. And have you also worked on valuation and profitability issues involving sports franchises?
 A. Yes. Throughout my career I've done work for approximately 40 different sports teams, sports leagues, stadiums and governmental agencies in connection with questions on sports economics.
 *19 Q. Has your work included any of the Chicago sports teams?
 A. I've done work for both the Chicago Bears and the Chicago Bulls.
 Q. And can you tell us about one of your assignments involving the Chicago Bulls and broadcast rights.
 A. Sure.
 Several years ago the Chicago Bulls, the team, was in a dispute with the league, with the National Basketball Association, on the allocation of revenue in connection with their TV broadcasts on WGM. WGM not only broadcasts locally in the Chicago metropolitan area, but you can watch WGN here in Minnesota, you can watch WGN in California. WGN is what's commonly known as a super station. So WGN was telecasting the Bulls team not only in Chicago but throughout the nation. Under the rules of the NBA, the local team gets to keep the local revenue and the NBA, the league, is entitled to all the revenue in the national marketplace, and the question became, since it was one station broadcasting both in the local marketplace and the national marketplace, the question came how to allocate that revenue for the team and the league on a fair basis, and that was my job.
 Q. And have you worked with our law firm in the past?
 A. Yes.
 Q. And without revealing any confidential information, can you tell us whether you have performed work for any of the law firms representing the defendants in this case on other matters?
 A. I have.
 Q. And in this case were you asked to perform a financial analysis of the tobacco companies for the state of Minnesota and Blue Cross and Blue Shield of Minnesota?
 A. Yes, I was.
 Q. And how, if at all, does profitability relate to financial condition?
 A. Profitability is at the heart of financial condition. Profitability is the basis upon which to determine the value of a company. Profitability is the basis upon which to determine whether or not a company can repay the debt it has borrowed. Profitability is the key to financial condition.
 Q. And does profitability over a period of time also affect financial condition?
 A. Yes. When you look over a period of time, if you have a consistent history of profitability, growing profitability, stable profitability, you will find that that will enhance financial condition.
 Q. And looking at the cigarette industry generally, is there anything in particular about the history of the profitability of the cigarette industry that affects your general statement on how profitability relates to financial condition?
 A. When you look at the cigarette industry, the cigarette industry has enjoyed a very long history of stable and growing profits, and as a result the cigarette companies have a very strong financial position.
 Q. And is the financial condition of every cigarette company in the United States the same?
 A. Generally they all have a history of profitability, history of stable profitability. You will find differences in size; for example, Philip Morris is the largest competitor, where you have others like Liggett which are significantly smaller.
 *20 Q. And in addition to profitability, are you also prepared to testify today as to your opinions on the money the defendants have spent on advertising, marketing and promotion?
 A. Yes.
 Q. On research and development?
 A. Yes.
 Q. And on youth prevention programs?
 A. Yes.
 Q. And are the opinions the calculations that you will be presenting here today?
 A. Yes.
 Q. And are all the opinions you are giving here today based on your education, training, experience, and expertise as a financial analyst?
 A. Yes.
 Q. And are all your opinions here today held to a reasonable degree of certainty?
 A. Yes.
 Q. Can you generally describe the information and the sources of information you used in performing your analysis of the tobacco companies.
 A. The information I used fits in three general categories. First, we have information from the companies themselves in terms of their annual reports published to their shareholders and various filings of financial information they have made with the governmental agency, the Securities and Exchange Commission, which would be the first source of information for the first general category.
 Second would be information also available in the public domain; for example, the Maxwell reports, reports which are viewed to be authoritative and reliable in the tobacco industry for market-share information. Also in the public domain are reports that are generally published sources of investment information that other financial analysts would generally rely upon.
 And the third area would be the discovery process in this case. What I mean by "the discovery process" here is where the plaintiffs have asked the defendants certain questions in writing and the defendants have responded back to the plaintiffs with answers in writing. And that's the discovery process I'm referring to here.
 Q. And how would you describe the volume of information which you reviewed in this case?
 A. It was vast. We're talking about 42 years of annual reports and Securities and Exchange Commission filings, we're talking about tens of thousands of pages of information, file box after file box, file cabinet after file cabinet. The information that was reviewed was very substantial.
 Q. Did you have assistance in preparing your analysis?
 A. Yes. Working with me in my analysis there were two senior financial analysts from my office in Chicago and one senior associate who also worked with me in this case.
 Q. And did these colleagues work under your supervision, control and direction?
 A. Yes, they did.
 Q. Were there any gaps in the information which you had available in conducting your analysis?
 A. Yes, there were gaps in the information that I received.
 Q. And in the course of your work generally as a financial analyst, is it typical or atypical to have missing information when you're performing an analysis?
 A. It's quite typical that you would have gaps in the information.
 *21 Q. And in your profession, how do you account for those gaps?
 A. Well, when you have a gap in information, you take a look at what information is available and you make a judgment about the gap, and then what you do is you cross check what your conclusions are regarding that gap based upon the information that is available. It's quite typical in financial analysis.
 Q. And in your analysis in this case, was everything you relied on disclosed to the defendants?
 A. Yes, it was.
 Q. And did you provide reports to the defendants summarizing your work?
 A. Yes, I did.
 Q. Have you provided amendments to those reports?
 A. I have.
 Q. And why was that?
 A. Two general reasons. There were amendments to the reports because, first of all, the information we received from the defendants had been changed from time to time. Part of that was errors that they made in providing information. They amended it and they provided us with new information.
 At the same time -- and this is the second reason there were amendments -- in reviewing all the materials and in going through some 10,000 computations in our analysis, we also made errors, and as we corrected those errors we amended our reports.
 Q. Would you turn in your exhibit book to Exhibit 24305.
 A. Okay.
 Q. Was this exhibit prepared under your supervision and direction?
 A. Yes, it was.
 Q. And without getting into the specifics, can you generally describe the contents of this exhibit.
 A. This is my analysis on profitability where we look at the companies on a global basis, both tobacco and non-tobacco, we look at just tobacco globally, we look at their profitability domestically from tobacco, we look at their profitability as far as Minnesota, and we also do some various market-share information.
 Q. And what sources of information did you use in preparing this summary?
 A. In preparing this summary we relied upon the annual reports and the filings of the Securities and Exchange Commission as well as other discovery in this case.
 Q. And does your analysis as reflected in this summary, Exhibit 24305, accurately summarize these sources of information?
 A. Yes.
 MS. WALBURN: Your Honor, we would offer Exhibit 24305 under Rule 1006.
 MR. BERNICK: No objection.
 THE COURT: Court will receive 24305.
BY MS. WALBURN:
 Q. Would you turn to page nine of this exhibit.
 A. Okay.
 Q. And can you describe this chart, please.
 A. First of all, this chart identifies the six companies that have historically been involved with tobacco in the United States. It also identifies how they began first in domestic tobacco, then, based upon their profits in their domestic tobacco, they were able to expand into international tobacco, and then, based upon their profits in both domestic and international tobacco, they were able to expand beyond tobacco into other consumer products. It's the general background on the companies.
 Q. And are there still six tobacco manufacturers in the United States?
 *22 A. No, there are not. American Tobacco was acquired by Brown & Williamson, whose parent company is B.A.T Industries, in late 1994.
 Q. And with respect to Brown & Williamson, does the same general rule apply on their domestic versus international tobacco operations and how those operations evolved?
 A. Brown & Williamson would be the one exception. Brown & Williamson, which was acquired by a predecessor to B.A.T, British- American Tobacco, back in the late 1920s, what you found is that Brown & Williamson, being the domestic operation, expanded domestically, while the then British-American Tobacco, which ultimately became B.A.T Industries, expanded internationally. So you had a simultaneous expansion, both domestic and international, at the same time, unlike the other companies that started first with domestic and then went international.
 Q. Would you turn to Exhibit 24306 and page 21 in that exhibit.
 A. All right.
 Q. Was this chart prepared under your direction?
 A. Yes, it was.
 Q. And without getting into the particulars, can you generally describe what this chart demonstrates.
 A. This chart demonstrates for Philip Morris the growth in their -- in the company, in their operations over time, as well as identifies some key milestones of acquisitions that they've made through the years.
 Q. And what sources of information were used in preparing this chart?
 A. This would be the annual reports, the SEC filings, and -- that would be the information I described earlier.
 MS. WALBURN: Your Honor, we would offer just this chart as Exhibit 24306A for illustrative purposes.
 MR. BERNICK: I have no objection to that.
 THE COURT: Court will receive 24306A for illustrative purposes.
BY MS. WALBURN:
 Q. Can you take us through this chart in more detail, please.
 A. Sure.
 The upper portion of this chart is a graph which shows the expansion of this company's sales over time. The lower portion of the chart identifies some key milestones. And this really illustrates the expansion beyond tobacco. For example, in 1970 Philip Morris expanded into alcohol beverages with the acquisition of a majority interest in Miller Brewing. Then in 1985 it moved into foods, it acquired General Foods in 1985 for 5.6 billion dollars. Then in 1988 the expansion of the food continues where it acquired Kraft Foods for a price of 12.9 billion dollars. And you see the increase in sales following those acquisitions. And it continued to expand in both alcoholic beverages and food throughout the 1990s as well, as shown by the illustration here.
 Q. And today what are the major business segments of Philip Morris, the parent company?
 A. The major business segments are tobacco, food, and alcoholic beverages.
 Q. And again, which segment came first?
 A. The tobacco segment came first. And that was the segment that fueled the expansion into the other areas.
 Q. Can we turn to another company, R. J. Reynolds. Would you briefly describe the diversification of RJR.
 *23 A. RJR diversified from cigarettes and from tobacco into the food industry in 1985. It acquired Nabisco. For example, Nabisco is well known for Oreo cooking, and that was its major expansion beyond tobacco, based upon the tobacco profits.
 Q. Where did Philip Morris and RJR, the two companies you've just been talking about, stand in terms of U.S. market share of the tobacco market?
 A. They are number one and two in the industry.
 Philip Morris commands about a 50 percent market share. RJR's market share is about 25 percent. The two combined have a 75 market share of the industry today.
 Q. And can you briefly describe the corporate structure of the other U.S. Tobacco companies.
 A. Sure. Let's start with Brown & Williamson. Brown & Williamson, as I previously mentioned, was acquired by a predecessor to B.A.T back in the 1920s, so Brown & Williamson is owned by B.A.T Industries and that is headquartered in the U.K.
 American Tobacco was previously part of American Brands, but it, too, was acquired by Brown & Williamson and B.A.T in late 1994, so its parent company is B.A.T Industries as well.
 You then have Liggett, and Liggett is owned by the Brooke Group, a publicly traded company.
 Lorillard is owned by Loews, and Loews is also a publicly traded company here in the United States. We've already talked about Philip Morris and RJR.
 Q. Would you turn back to Exhibit 24305, and page five of that.
 A. All right.
 Q. And can you describe this chart starting with the top half, "Global Consolidated Operations?"
 A. This is a summary of the tobacco companies and their parent companies for the years 1954 to 1996, identifying both revenues and operating profits for them. And the upper portion deals with global consolidated operations, and that would be the worldwide operations in everything, both tobacco and non-tobacco, for those 42 years.
 Q. And the actual company names that are on the chart, are those the names of the tobacco subsidiaries or the parent corporations?
 A. These identify the names of the individual tobacco companies. What you'll find is that through time these companies have changed their names, and you also will find that the individual tobacco companies, their names are very similar to their parent company names. Quick example is Philip Morris. The individual tobacco company, its name is Philip Morris Inc., but the parent company, its name is Philip Morris Companies, Inc. So they're very similar.
 Q. But for the global consolidated operations as reflected in this chart, this represents which entities?
 A. This represents the global consolidated operations of the parent companies.
 Q. And looking at the left-hand column under "Global Consolidated Operations" for revenues, what are revenues?
 A. Revenues are sales.
 Q. And what's the significance of revenues in a financial analysis?
 A. Well without revenues you have no profits, so revenues are a key determination of profitability. And also, as a result of that, they are a critical consideration in the context of financial condition and in an analysis of financial condition.
 *24 Q. Where did you obtain the information for the global consolidated revenues for this chart?
 A. Well this information came out of the annual reports to their public shareholders and their filings with the Securities and Exchange Commission.
 Q. What sort of calculation did you perform in arriving at the total revenues listed on the chart?
 A. Once you identify the information out of those reports, you then add up the numbers.
 Q. Was there any information that was missing to you when you were putting together this chart?
 A. In putting together these charts, or both -- both of these charts, what you have is that there were -- there were gaps in B.A.T where the company did not report its revenues for more than a decade. With respect to Lorillard, there was missing information on the tobacco segment for several years. And with respect to Brown & Williamson, there was also some missing information for several years.
 Q. And what assumption, if any, did you make to account for that missing information?
 A. If there was information missing for a particular year, we would basically assume that there were no revenues for that year and there were no profits for that year. If it was missing, it was treated as if it was zero.
 Q. And would that assumption overstate or understate the total revenues and profits?
 A. It would understate the total revenues and profits.
 Q. In looking at the total revenues for global consolidated operations, can you tell us what the aggregate is for the parent companies of the U.S. tobacco companies?
 A. The global consolidated revenues for all the operations worldwide aggregated 1,928,768,000,000 dollars for the years 1964 to 1996.
 Q. And moving, still on the top part of that chart, to the right-hand column, operating profits, what does that represent?
 A. That represents their profits from business operations. That basically is revenues less business expenses. It's the profit they had left over from -- or the profit they generate from running their businesses worldwide.
 Q. And where did you obtain the information for global consolidated operating profits?
 A. This comes out of the annual reports and the SEC filings.
 Q. What sort of calculation did you form in arriving at these totals?
 A. Again, after identifying the information -- or -- or the -- yes, the information out of the documents provided, it's again a matter of adding up those numbers.
 Q. How did you define "operating profits?"
 A. We defined operating profits as the companies defined operating profits, basically the profits from running their businesses.
 Q. And would that be before income tax and interest or after income tax and interest, as reflected by the companies and on this chart?
 A. Operating profits were identified before corporate income taxes and before interest expense.
 Q. And what is net income as opposed to operating profit?
 A. Net income would be operating profits less interest expense less corporate income taxes.
 *25 Q. In looking at this chart for operating profits on a global consolidated operation for the parent companies, what's the total aggregate for 1954 to 1996?
 A. The aggregate operating profits from global consolidated operations was 242,022,000,000 dollars.
 Q. And can we turn now to the bottom half of this chart, "Global Tobacco Operations." What do these numbers reflect?
 A. These numbers reflect the revenues and profits just from tobacco, but it's tobacco worldwide. It would include both domestic tobacco and international tobacco.
 Q. And what was the source of information you used in compiling this part of the chart?
 A. This would come from the annual reports, the SEC filings, and discovery in this case.
 Q. And what sort of calculations did you perform in arriving at these totals?
 A. Again, once the numbers were identified, it's a matter of adding up the information.
 Q. For global tobacco operations, can you give us the aggregate total for revenues and operating profits as reflected in this chart for the years 1954 to 1996?
 A. The global tobacco operations or the worldwide tobacco operations produced aggregate revenues of 995,166,000,000, or just under one trillion dollars in terms of the revenue. In terms of their operating profits, their aggregate operating profits for the same period -- and this is just from -- this is tobacco worldwide - - aggregated 167,038,000,000 dollars.
 Q. Now looking at this chart, American Tobacco, you said that American Tobacco was sold in late 1994?
 A. Yes. It was sold to B.A.T.
 Q. And does this chart include American Brands, the former parent company after 1994?
 A. It does.
 Q. And if you took the American brand numbers out from after 1994, how would those numbers change?
 A. All right. On the upper portion of the page, you see American Tobacco, those revenues would be 22 billion dollars lower, and the operating profits would be two billion dollars lower.
 With respect to the tobacco operations, the global tobacco operations, the lower portion of the page, American Tobacco's revenues would be some 13 billion dollars lower and their operating profits would be one billion dollars lower.
 Q. Will you turn to the next page of this exhibit, page six, please.
 A. Okay.
 Q. And can you tell us what this chart represents.
 A. Well this is the aggregate of revenue and -- and profit information for the same period for the tobacco industry just in the United States.
 Q. And what was the main source of information for this analysis?
 A. This would come from the annual reports, the SEC filings, and discovery in this case.
 Q. Did the annual reports and SEC filings break out domestic from global tobacco operations?
 A. Once segment reporting started in the 1970s, yes, they did. Prior to then they did not.
 Q. And how did you account for domestic tobacco operations for the years prior to the time when the information on the international sales and domestic sales was not broken out? And why don't we start with Philip Morris and Brown & Williamson.
 *26 A. Okay. Philip Morris provided us with a summary in the discovery process identifying their domestic revenues and profitability by year going all the way back.
 Brown & Williamson provided us with a summary as well, breaking out their revenues globally and their revenues domestically, and then they also provided operating profit information of -- globally, not domestically, so I had to do an additional calculation to calculate the domestic profit.
 Q. And did the other companies provide the same sort of breakout of information from their domestic U.S. operations and their international operations in discovery?
 A. They did not.
 Q. How did you allocate the domestic revenues versus the international revenues for those companies?
 A. Well for the years that they reported on a segment basis, you would take it as reported, but for those years where they did not, we would then allocate that information of those years to the domestic operation.
 Q. And what was the basis of making that allocation?
 A. Taking a look at the segment information as well as the summaries provided of the total 167 billion dollars of global profits, we could actually identify and account for 157 of that 167, so there was a gap of 10; just under -- just under six percent. And in going back and looking at the information and looking at, once they did segment report, how much of it was international versus how much of it was domestic, we could make the calculation confirming the reasonableness of our judgment to allocate that to domestic.
 Q. And when you say there was a gap of 10, 10 what?
 A. There was 10 billion dollars out of 167 billion dollars; it was just under six percent of the total.
 Q. And have you done any calculations to determine how much this allocation could overstate, if at all, the domestic revenues and profits?
 A. Yes, we did such a calculation. And in looking back at the information that was reported and working through the calculation, it was our estimate that if there was an overstatement, it would be no more than 1.75 percent.
 Q. And was that disclosed to the defendants in your reports in this case?
 A. Yes, it was. It was in the exhibit volume.
 Q. Would you run through the numbers on this chart for domestic tobacco operations, first giving us the aggregate domestic tobacco revenues for 1954 to 1996.
 A. The aggregate revenues in the United States from tobacco aggregated 463,238,000,000 dollars.
 Q. And can you take us through the operating profits by company as reflected on this chart.
 A. Sure. On the lower portion of the page, American Tobacco, looking at their operating profits on the right-hand side, were 10,200,000,000; for Brown & Williamson, 10,222,000,000; Liggett aggregate operating profits were 1,870,000,000; for Lorillard, 9,996,000,000; for Philip Morris it was 52,186,000,000; and for Reynolds, it was 30,430,000,000 dollars.
 Q. And what is the aggregate for the U.S. Tobacco operations, operating profits from 1954 to 1996?
 *27 A. The aggregate operating profits were 114,904,000,000 dollars.
 Q. Would you turn to Exhibit 26127.
 A. All right.
 Q. Can you tell us generally what this chart represents.
 A. This is a similar summary, but for 1996 only, identifying the companies' global consolidated operating profits, global tobacco operating profits and domestic tobacco operating profits, but just for one year.
 Q. And where did the information in this chart come from?
 A. The information in this chart came from the annual reports, the Securities and Exchange Commission filings, and discovery provided in this case.
 Q. And is this an accurate summary of those sources of information?
 A. Yes.
 MS. WALBURN: Your Honor, we would offer Exhibit 26127 for illustrative purposes.
 MR. BERNICK: No objection.
 THE COURT: Court will receive 26127 for illustrative purposes.
BY MS. WALBURN:
 Q. Could you tell us for the year 1996 what the total global consolidated operating profits was for the U.S. tobacco companies and their parent corporations?
 A. In 1996 the aggregate consolidated operating profit was 21,160,000,000 dollars.
 Q. And can you tell us for that same year, 1996, what the total global tobacco operating profits were for the U.S. tobacco companies and their parent corporations?
 A. Global tobacco operating profits were 11,773,000,000 dollars.
 Q. And for 1996, can you tell us by company what the domestic tobacco operating profits were for U.S. operations.
 A. By company.
 Q. Please.
 A. Brown & Williamson had 722 million dollars; Liggett five million dollars; Lorillard 722 million dollars; Philip Morris four billion two hundred six million dollars; R. J. Reynolds, 100 -- excuse me, one billion eighty-four million dollars.
 Q. And there's a dash and a line for American Tobacco?
 A. Yes. At that time American Tobacco had become part of B.A.T.
 Q. And what is the aggregate total of operating profits for the U.S. Tobacco industry from U.S. operations in the year 1996?
 A. U.S. operations only, 1996 operating profits, 6,739,000,000 dollars.
 Q. And again you relied on this chart for information including information in the 1996 annual reports and securities filings?
 A. Yes.
 MS. WALBURN: Your Honor, at this time the Philip Morris and RJR 1996 annual reports are already in evidence, and we would move the admission into evidence of the following exhibits with 1996 financial information: Exhibit 20157, which is the B.A.T Industries 1996 annual review, Exhibit 20147, which is the Loews Corporation Form 10-K for 1996, and Exhibit 20145, which is the Brooke Group Form 10-K for 1996.
 MR. BERNICK: No objection.
 THE COURT: Court will receive Exhibits 20157, 20147, 20145.
BY MS. WALBURN:
 Q. Now did you also --
 Did you also do an analysis of revenues and profits realized by the tobacco companies from sales in the state of Minnesota?
 A. I did.
 Q. Would you turn in Exhibit 24305 to page seven. And does this reflect your analysis for the Minnesota market?
 *28 A. Yes.
 Q. Were the tobacco companies asked to provide information on Minnesota revenues and profits in discovery in this case?
 A. They were.
 Q. And did the tobacco companies provide that information on the Minnesota market?
 A. They did not. Apparently it was not available.
 Q. How did you calculate the revenues and operating profits which are summarized on this chart?
 A. I began with information provided in terms of the number of packs sold in the state of Minnesota, number of packages of cigarettes sold by year, as well as the price per pack, and if you take the number of packs sold times the price per pack, you will have the total retail sales for the state of Minnesota.
 However, the manufacturers do not receive that amount, they receive something less than that. And we had a Philip Morris document that showed us that the difference between retail sales and manufacturer sales was around 56 percent for the years 1980 through 1989, going year by year. That difference is what I'll call the wholesale margin. So for every dollar of retail sales for those years, the manufacturers received on average some 56 percent. With that calculation, we're able to identify manufacturer sales in the aggregate in the state of Minnesota.
 The question then becomes how do we allocate manufacturer sales by company? From the Maxwell reports we know what their market share is by company. We can identify, if someone has 50 percent of the market nationally, we can identify what their share would be making that same assumption for the state of Minnesota. So we would go from total retail sales, adjusting for the wholesale margin, down to total manufacturer sales, and with market-share information, sales by manufacturer.
 From the information contained in the annual reports and the SEC filings, we knew what the manufacturer's operating profit margin was or operating profits were by year, by company by year, and so once we had manufacturer sales, we were able to identify manufacturer profits in the state of Minnesota.
 So as we worked down, again, from the retail level, taking the number of packs times the price per pack, adjusting for the wholesale margin, getting the total manufacturer sales, manufacturer sales by client, by -- by company, profits by company for every single year 1954 to 1996, you can add it up. About 10,000 calculations later you can identify the Minnesota profits for 1954 to 1996, and the result of that is what's on this chart.
 Q. And did you use any numbers from the Minnesota Department of Revenue in performing this calculation?
 A. Yes. There were a couple of years where information was not available from The Tobacco Institute, and that was one of our primary sources of information. We obtained the missing information on the number of packages sold in the state of Minnesota, cigarette packages sold in the state of Minnesota for those missing years. There were three years.
 Q. And looking at this chart, can you give us the total aggregate of all of the U.S. tobacco manufacturers for revenues in the state of Minnesota from 1954 to 1996.
 *29 A. The aggregate revenues for '54 to '96 for all these companies in the state of Minnesota was 7,430,922,000 dollars.
 Q. And moving to the right-hand column, operating profits by company, can you tell us what the operating profits have been from 1954 to 1996?
 A. Yes. American Tobacco's operating profits for that period were 146,777,000 dollars; Brown & Williamson, 173,950,000 dollars; Lorillard -- I'm sorry, Liggett, 26,470,000 dollars; Lorillard, 147,228,000 dollars; Philip Morris, 801,055,000 dollars; and R. J. Reynolds, 555,893,000 dollars.
 Q. And what is the total amount of operating profits earned by the U.S. tobacco manufacturers in Minnesota for the years 1954 to 1996?
 A. The aggregate operating profits were 1,851,373,000 dollars.
 Q. Did you perform any cross-checks of these numbers?
 A. I did.
 Q. Would you turn to page 18 of this exhibit. And can you explain this chart.
 A. Yes. This chart is in three components, and what this chart will do is we are going to identify the Minnesota share of profits, and we're going to compare that to the Minnesota share of revenues and dollars, and we're going to compare that to the Minnesota share of actual number of cigarettes.
 Now let's start in the bottom box of this chart. What you see in that box on the left-hand side, it says "Calculated Minnesota Profits," it's the second line in the box, and it shows the number we've just been talking about, the one billion eight hundred fifty-one million dollars. Those are profits for the state of Minnesota. Throughout the entire nation the profits from my previous calculations identifying company by company what they made in the United States from their annual reports and SEC filings aggregated 114,903,806,000 dollars. So if you look at Minnesota relative to the nation, Minnesota has a 1.61 share of profits nationally.
 Now let's compare their share based upon revenues and we'll also compare their share based upon numbers of cigarettes. So let's move to the top of the chart and we'll look at the revenues. The second line says "Minnesota Retail Revenue," 14,188,896,000 dollars. That was calculated taking the number of packs -- cigarette packs sold in Minnesota times the average price per pack for those cigarettes sold in Minnesota. So we get the retail sales every year, and we do that for every year from 1954 to 1996, and that's how we get Minnesota retail revenues of 14,188,000,000.
 You can do the same thing for the entire United States. The tobacco burden reports publish the number of packs sold throughout the entire United States. They also publish the average price per pack. So if you do the same calculation, the number of packs times the price per pack, you will get total retail sales by year, you go every year 1954 to 1996 and it will aggregate 856 billion dollars, 582,664,000. Well based upon retail sales, the share of Minnesota in terms of retail sales is 1.65 percent.
 Now let's look at the number of cigarettes sold. This is also public information. If you work through the public documents, you will see that within the state of Minnesota over the same period, going year by year by year, that there were actually 348 billion cigarettes sold. Working through that same information on a national basis, and it is published on a national basis, the total number of cigarettes sold throughout the United States in the same period was 22,631,000,000,000. Well if we examine the share of Minnesota relative to the total market based upon that, Minnesota's share is 1.54 percent.
 *30 So in terms of our overall analysis, we were able to identify that our calculations resulted in Minnesota's share of profit at 1.61 percent, dead center between Minnesota's share of retail sales at 1.65 percent, up on the top, and Minnesota's share of number of cigarettes at 1.54 percent. So this cross-check confirms the accuracy of our Minnesota profit analysis.
 Q. Would you turn in Exhibit 24305 that you have in front of you to page 13, please. Now is this chart back to the U.S. operations of the tobacco companies?
 A. Yes.
 Q. And can you -- can you describe this chart for us, please.
 A. This chart identifies the revenues and profits for the tobacco industry domestically. The left-hand side of the chart identifies the revenues by decades, going decade by decade, you see the aggregate domestic tobacco revenues, and then on the right-hand side of the chart you will see the profits for the same time period going decade by decade, and this is just domestic profits.
 Q. Can you take us through the numbers for domestic tobacco operating profits by decades.
 A. Sure. Starting out on the left-hand side of the chart, you see that for the years '54 to '59, not quite a full decade, aggregate operating profits domestically were 2.5 billion dollars. As you move to the full decade of the ' 60s, aggregate operating profits were 6.5 billion dollars. For the next full decade they more than doubled, they go to 13.4 billion dollars. For the decade of the '80s they tripled, going to 44.1 billion dollars. And then we have the first seven years, '90 to '96, for the final decade where they're up again to 48.5 billion dollars. The aggregate would be 114.9 billion dollars.
 Q. And how, if at all, does this historical trend relate to the financial condition of the tobacco companies?
 A. At the heart of financial condition is profitability, and what you have here is consistent, stable, growing profitability, and that will lead to a strong financial condition.
 Q. Would you turn to the next page, page 14.
 A. Okay.
 Q. Can you describe this chart, please.
 A. Well this identifies the profit margin, this is the profitability measure for these companies for the same time period. And what I mean by "profit margin" here -- now let's look at the far right-hand chart where you go 29.9 percent. What that means is for every dollar of sales that these companies generate -- excuse me, for every thousand dollars of sales, they will have 299 dollars of operating profits. And what you see here is that operating profits have increased as a percentage of sales, they're taking up a growing slice of the growing pie. They've increased from the '50s at 12 percent to the '90s at just under 30 percent.
 Q. And again, this represents the entire U.S. tobacco industry?
 A. It does.
 Q. And how, if at all, does this relate to the financial condition of the U.S. tobacco industry?
 A. What you have is not only growing profits on an absolute sense but growing profits on a relative sense because they have improving margins, improving relative measure of profitability. What you see in the early years, there were 120 dollars of profits for every thousand dollars of sales, and the later years almost 300 dollars of profits for every thousand dollars of sales, so they're becoming more profitable on a relative basis. And what you have, therefore, is this improving and growing profitability that strengthens financial conditions, it enhances their ability to borrow money, it enhances their ability to repay money, it enhances the valuation of their firms.
 *31 Q. And do different tobacco companies have different operating profit margins over time?
 A. Yes.
 Q. Who has the highest operating profit margin today?
 A. Looking at the different companies, you will see that Philip Morris has the greatest profits and the largest profit margin. It is also the largest company with the largest market share.
 Q. And how would that information on Philip Morris, if at all, impact this composite chart for all the tobacco companies?
 A. It would significantly influence it. When you've got the largest company with a 50 percent share and the biggest margin, it will influence this chart.
 Q. Would you turn to Exhibit 20177A.
 A. Okay.
 Q. And is this an exhibit that was also prepared under your supervision and direction?
 A. Yes, it is.
 Q. Could you generally describe the contents of this exhibit.
 A. This is a summary of the advertising expenses, the R&D expenses, the youth prevention expenses provided by the defendant tobacco companies in answers to interrogatories in this case.
 Q. And were there years for which no information was provided by the tobacco companies in the discovery information provided in this case?
 A. Yes.
 Q. And what did you do for those years of information?
 A. In those years where there was no information provided, we would treat it as zero, as if they didn't make such an expenditure.
 Q. And did you recently amend this summary report?
 A. Yes, we did.
 Q. And why was that?
 A. We found some errors in connection with the Philip Morris numbers, and we also found a single error in connection with the American Tobacco numbers.
 Q. And were those errors disclosed to the defendants?
 A. Yes.
 Q. What is the difference in the calculations that those errors made in your report?
 A. With respect to Philip Morris it is less than two percent, and with respect to American Tobacco that was also less than two percent.
 Q. And there are certain pie charts in this report that compare different items of expenditures. Did these changes affect the pie charts?
 A. What you find in looking at the pie charts is that the numbers identified within the box but outside of the round pie chart did change, but the relative proportions within the pie chart itself of one classification to another did not change, the relative proportions remained the same.
 Q. And does your analysis as reflected in this amended summary, Exhibit 20177A, accurately summarize the discovery provided by the defendants in this case?
 A. Yes.
 MS. WALBURN: Your Honor, we would offer Exhibit 20177A under Rule 1006.
 MR. BERNICK: No objection, Your Honor.
 THE COURT: Court will receive 20177A.
BY MS. WALBURN:
 Q. Now Mr. Much, are you offering any opinions on the significance of these summaries of spending for advertising and promotion, research and development, and youth prevention programs?
 A. No, I am not.
 Q. Your opinions are the summaries?
 *32 A. My opinions are the numbers contained in this report, the summaries.
 Q. Can we look first at youth prevention expenditures, and would you turn to Exhibit 26121. Is this the question the defendants answered relating to their spending for youth prevention programs?
 A. Yes.
 MS. WALBURN: Your Honor, we would offer Exhibit 26121 for illustrative purposes.
 MR. BERNICK: No objection.
 THE COURT: Court will receive 26121 for illustrative purposes.
BY MS. WALBURN:
 Q. And this is interrogatory or question number 20 that states, "Identify by year, from 1952 to the present, the total amount of funds spent by your company in the United States to prevent or discourage smoking by persons age 18 and under."
 With this information, how did you arrive at a total for each defendant?
 A. Based upon the information each company provided, we added up the numbers.
 Q. Can we turn to advertising, marketing and promotion expenditures and Exhibit 26122.
 A. Okay.
 Q. And is this the question the defendants answered relating to spending on advertising, marketing and promotion expenditures?
 A. Yes.
 MS. WALBURN: Your Honor, we would offer Exhibit 26122 for illustrative purposes.
 MR. BERNICK: No objection.
 THE COURT: Court will receive 26122 for illustrative purposes.
BY MS. WALBURN:
 Q. And this states interrogatory or question number 21, "Identify by each year, for as far back as your company has records to the present, the total amount of funds spent by your company in the United States on the advertising, marketing or promotion of cigarettes."
 Did you receive information from the defendants pursuant to this question?
 A. Yes.
 Q. And how did you arrive at the total amount of money spent by each defendant for advertising, marketing and promotion?
 A. First of all, we added up all the information provided by each company. However, we had to do an additional calculation with respect to RJR where they deducted from this answer certain information provided to the FTC, and so we made an adjustment for that.
 Q. And what is the total amount spent by the U.S. tobacco manufacturers for advertising, marketing and promotion from 1954 to 1996?
 A. It was 47 billion dollars.
 Q. Did you also report in this summary on contributions to The Council for Tobacco Research?
 A. Yes.
 Q. Would you turn to Exhibit 26123. And are these the questions that CTR answered relating to spending for CTR?
 A. Yes.
 MS. WALBURN: Your Honor, we would offer Exhibit 26123 for illustrative purposes.
 MR. BERNICK: No objection.
 THE COURT: The court will receive Exhibit 26123 for illustrative purposes.
BY MS. WALBURN:
 Q. This states interrogatory 31 for CTR, "State, for each year since 1954, the total budget for The Council for Tobacco Research and the source of all funds." And for interrogatory 32, "State, for each year since 1954, the total budget for The Council for Tobacco Research general fund, for Special Projects and for the Literature Retrieval Division, and the sourse of all funds for each of these three categories."
 *33 Did you receive information from the defendants pursuant to these interrogatories?
 A. I did.
 Q. And how did you arrive at the total spending for CTR?
 A. Again, added up the numbers based upon the information provided.
 Q. And what was the combined industry contributions to CTR from 1954 to 1994?
 A. Three hundred twenty-six million dollars.
 Q. And did you also report in this summary exhibit on certain research and development expenditures from the defendants?
 A. Yes.
 Q. Would you turn to Exhibit 26124.
 A. Okay.
 Q. And is this the question that the defendants answered relating to spending on research and development?
 A. It is.
 MS. WALBURN: Your Honor, we would offer Exhibit 26124 for illustrative purposes.
 MR. BERNICK: No objection, Your Honor.
 THE COURT: Court will receive Exhibit 26124 for illustrative purposes.
BY MS. WALBURN:
 Q. This states interrogatory 18, "Identify by year, from 1952 to the present, the total amount of funds spent by your company on research relating to smoking and health (excluding funds spent on the Council for Tobacco Research)."
 Now did every company in response report on research and development for smoking and health in the same way?
 A. No. What we found is that they reported on total research expenditures, not just those research expenditures relating to smoking and health.
 Q. And did you disclose in your report what those research and expenditure sums were devoted to in accordance with how those sources of funds were identified by the tobacco companies?
 A. Yes. We identified in the report not only the amounts but also identified in the footnotes of our report the definitions that each company used.
 Q. And how did you arrive in your report at the total spending for research and development by the tobacco companies?
 A. We added up the numbers provided to us.
 Q. And what was the total amount spent for research and development by the domestic tobacco manufacturers from 1954 to 1994?
 A. Approximately 2.7 billion dollars.
 Q. And finally, do you also in this report do some comparisons of the results of your calculations of one category of spending as compared to another category of spending?
 A. Yes, I do.
 Q. And did you report some of those comparisons in charts and pie charts?
 A. Yes.
 Q. Does Exhibit 20177A accurately reflect those comparisons?
 A. Yes, it does.
 Q. Can we take a look at one of your pie charts in that exhibit, tab 1C, and about 10 pages in. It's an RJR chart.
 A. Okay.
 Q. And it's labeled R. J. Reynolds research and development expenditures and contributions to CTR to estimated advertising, marketing and promotion expenditures, 1964 to 1994.
 A. I have it.
 Q. And is this an example of how you presented some of the summaries in graph form in this exhibit?
 A. Yes.
 MS. WALBURN: Thank you, I have no further questions.
 MR. BERNICK: Your Honor, it will take me a few minutes to get set up. We can put a monitor on the stand, do a couple other things.
 *34 THE COURT: All right. Let's take a short recess.
 MR. BERNICK: Thank you.
 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. BERNICK: Thank you, Your Honor.
BY MR. BERNICK:
 Q. Good afternoon, Mr. Much.
 A. Good afternoon.
 Q. My name is David Bernick and I represent Brown & Williamson. I'll be doing the cross-examination this afternoon.
 MR. BERNICK: Good afternoon, ladies and gentlemen.
 (Collective "Good afternoon.)
 Q. Mr. Much, I want to go back to when you first became involved in this matter. Can you tell us when you were first contacted in connection with doing work on this case?
 A. It was late 1996.
 Q. Can you give me October, November?
 A. It would be late December when I was first contacted.
 Q. I want to focus on the period of time before you were first contacted to work on this case. Is it true that in the area of financial services or financial analysis, that there are people who follow given industries and make regular reports on the financial condition of those industries?
 A. There are people in security analysis that will follow given industries, and they will provide reports typically on either the -- what I'll call the equity side or the debt side, and they will provide investment research reports, for example, giving stock recommendations to buy, to hold -- hold or to sell. Or there are also some firms that specialize just looking at the debt of companies.
 Q. Okay. Is there a word -- are they --
 Are they financial analysts, are they securities analysts? What's the word that you would use to refer to those folks?
 A. There are a number of terms. The overall umbrella term I would call is a financial analyst. Within that you have security analysts, equity analysts, investment analysts and credit analysts.
 Q. Have you ever held yourself out as a financial analyst in the area of the tobacco industry prior to December of 1996?
 A. No.
 Q. Have you ever prepared or audited a regularly- issued financial statement for a tobacco company?
 A. No.
 Q. Are there people whose business it is to do that?
 A. You in your question identified a couple of different areas. I think one was audited a statement, the other one was prepared a report. There are auditors -- for example, I mentioned earlier the Arthur Andersen firm -- who would audit financial statements in connection with published materials of the tobacco companies, and they would be assigned to a team where they may be specialized in tobacco or may not be specialized in tobacco, or they may be in a variety of different specialties.
 Q. Have you ever --
 A. That's the first part to your question.
 I believe the second part to your question was publishing a research report, and no, I have not done that.
 Q. Have you ever written or published any kind of articles regarding the tobacco industry?
 *35 A. No.
 Q. Have you ever done any work at all on tobacco advertising prior to your work on this case?
 A. No.
 Q. And I listened to you carefully as you described the different valuation projects that you had done in explaining your background to the jury. Do you recall that?
 A. Yes.
 Q. Am I correct that none of the valuation projects that you described related specifically to tobacco; true?
 A. Correct, none were specific in relation to tobacco.
 Q. Indeed, you have never held yourself out as being an expert with regard to the tobacco business specifically; true?
 A. True.
 Q. Okay. Now I want to turn to your discussion of profitability for a few minutes this afternoon, and the first thing I want to do is to try to get back up on the screen -- let's see if this works, there we go -- what's already in evidence, has been shown to the jury is this poster here, which is Plaintiffs' Exhibit 30230. Are you familiar with this chart?
 A. I have seen this chart before. I did not prepare this chart. I'm familiar with the information in the chart though.
 Q. Okay. And do we see that on this chart, the chart reflects a bar for profits of 167 billion dollars. Do you see that?
 A. Yes.
 Q. And I'm going to try to use this for a second, see if I can do this right. It's this one right there.
 A. Correct.
 Q. Okay. Now it's true, is it not, that that bar on that chart actually reflects profits that go way beyond the profits that are associated with the sale of tobacco products in Minnesota specifically; correct?
 A. The 167 billion dollars refers to the profits from the sale of tobacco profits globally.
 Q. Okay.
 A. Both domestically and internationally.
 Q. Okay. And you've told us that if we wanted to know specifically the profits that have been made from the sale of cigarettes here in Minnesota, that we're talking about a number that you could hardly draw it here, it's about 1.8 billion dollars; correct?
 A. It is just over -- it's 1.851373.
 Q. And all the rest of this bar is profits that were made on cigarettes that were sold someplace else; true?
 A. Yes.
 Q. Okay. I want to focus now on the -- if we can get that off -- focus now on the analysis that you did in order to come up with that 1.8-billion-dollar figure.
 A. Okay.
 Q. The way that I want to begin is by asking you whether the profitability report that you previously referred to, Exhibit 24305, your volume one profitability report, that reflects the Minnesota analysis; does it not?
 A. Yes.
 Q. You may want to refer -- I've got that at tab nine in the book that's before you right there.
 A. Okay.
 Q. Is that the profitability report that reflects the Minnesota analysis that you've discussed?
 A. This includes not only Minnesota, but also the global analysis, the domestic analysis. So the Minnesota analysis is part of this exhibit.
 Q. Okay. Now didn't you also furnish as part of your report the materials that you relied upon in performing this analysis?
 *36 A. Yes.
 Q. Was there a separate volume of exhibits?
 A. Yes, there was.
 Q. Okay. I want you to turn to tab 12 in the book, and I'm going to ask you whether those are the exhibits for the report that's already in evidence.
 MS. WALBURN: Could we have the exhibit number, please?
 MR. BERNICK: Yes, it's Exhibit 24308.
 A. This is the exhibits volume, yes.
 Q. And Mr. Much, am I correct that 24308, the report or the volume that you have before you there, contains the information that you relied upon for purposes of the analysis, the results of which you've already presented to this jury?
 A. Yes.
 MR. BERNICK: We would offer 24308, Your Honor.
 MS. WALBURN: No objection.
 THE COURT: Court will receive 24308.
BY MR. BERNICK:
 Q. I want to direct your attention within 24308 to the detailed spreadsheet that you prepared in doing the Minnesota analysis. If you could -- I know you're familiar with that, if you could just try to pick that out, and I'm going to try to get it on the screen, which may be more difficult.
 A. Okay.
 Q. Is that the spreadsheet that gives the detailed backup for the analysis that you have done?
 A. It is one of the two spreadsheets.
 Q. Okay. I'll try to draw, a little bit better than some of my other drawings, a pack of cigarettes. Doesn't have much resemblance. But I'd like to go through the analysis that you have that's on this piece of paper and break out some of the information that you have there.
 If we go up to the upper portion here -- I'll blow it up so people can read something on this chart -- do we see, as you mentioned during your direct examination, that you began in talking about the price per pack of cigarettes?
 A. Yes.
 Q. Okay. And if we wanted to use 1994 as a year in which to kind of take a snapshot of how you did the analysis, and we looked further across the page, would we see that the average retail price in 1994 for a pack of cigarettes here in Minnesota was about two dollars and two cents?
 A. Yes.
 Q. That would be the amount of money on average that would actually change hands at the point of purchase; correct?
 A. Yes.
 Q. Okay. Now out of that two dollars and two cents in 1994, a lot of things have to come before you get -- finally get down to the profits that were made; true?
 A. Yes.
 Q. Okay. For example, isn't it true that out of that two dollars and two cents in 1994 -- I'll try to draw this just about right -- there was about 48 cents in Minnesota excise tax; correct?
 A. I have to go back and look at the Tobacco Burden Report.
 Q. The tobacco burden report's another document that you had reference to in the course of your work; correct?
 A. Yes.
 Q. And that's -- the tobacco --
 The Tobacco Burden Report was put out by The Tobacco Institute; right?
 A. That's right.
 Q. And the Tobacco Burden Report was a source of information that you considered to be reliable, and in fact you did rely upon in connection with your work on this case; correct?
 *37 A. That is correct.
 Q. Okay. If we take a look at Exhibit 24310, which is at tab one in your book -- tab one in the book I think is back to the beginning --
 A. Okay.
 Q. -- is that a copy of the Tobacco Burden Report?
 A. It is.
 MR. BERNICK: We offer it, Your Honor.
 MS. WALBURN: Your Honor, could we approach the side-bar on this exhibit?
 THE COURT: Sure.
 THE COURT: Tomorrow, counsel.
 MR. BERNICK: What?
 THE COURT: I said tomorrow.
 MR. BERNICK: Can we just close out this one last issue?
 THE COURT: Oh, okay. All right. Go ahead.
BY MR. BERNICK:
 Q. Mr. Much, if you wanted to go get a precise statement for the excise tax that was assessed each year by the state of Minnesota, or any other state for that matter, would you consider the Tobacco Burden Report to be a reliable source of that type of information for this industry?
 MS. WALBURN: Objection, outside the scope of direct testimony.
 THE COURT: You may answer the question.
 A. I have not done an assessment of excise taxes.
 Q. I understand that. But if you were to want to get the precise information on the -- for any given state on what the excise taxes were in any given year, would you regard the tobacco industry Tobacco Burden Report as a good and reliable place to go to get that summary of what those taxes were for any given state in any given year, if you were to go and get that information?
 MS. WALBURN: Objection, asked and answered, outside the scope of this witness's expertise.
 THE COURT: You may answer.
 A. Again, I have not done an assessment of excise taxes, I've not done a study of excise taxes. I don't think I can answer that question.
 Q. With regard to the Tobacco Burden Report, does the Tobacco Burden Report contain a variety of pieces of information on different aspects of the tobacco industry's business?
 A. I think the operative phrase in your question is "the tobacco industry's business."
 Q. Correct.
 A. And it contains information, for example, on price per pack, contains other information in terms of numbers of packs, but as far as providing a variety of information on the nature of the business, I think that's an entirely different type of situation, it requires an entirely different type of report.
 Q. I'll make my question more specific.
 A. Okay.
 Q. When it comes to information relating to sales, is the Tobacco Institute's Tobacco Burden Report, in your view and in your experience, a reliable source of information regarding sales of tobacco around the country?
 A. To identify sales per state, for example, you do have the price per pack and you've got the number of packs per state, so from that standpoint, in terms of identifying retail sales per state, not manufacturer sales but retail sales per state, it contains information from which you can make such a computation.
 Q. And in fact when it came to sales, the first place you went was to the Tobacco Burden Report before you then turned in certain areas to get information from the state of Minnesota itself; correct?
 *38 A. That is correct.
 MR. BERNICK: Okay. Your Honor, we would re-offer the Tobacco Burden Report for the purposes that have been articulated. The witness has established its reliability for purposes of developing information regarding sales, and sales includes the taxes that are assessed in connection with the sales process.
 MS. WALBURN: Same objection as before, Your Honor, with respect to the entire report. Certain portions, we have no objection.
 THE COURT: Okay. The objection is sustained with regard to the entire report.
 We'll recess now and reconvene tomorrow morning.
 THE CLERK: Court stands in recess, to reconvene tomorrow morning at 9:30.

 (Recess taken.)

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