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Blue Cross/Blue Shield of NJ v. Philip Morris - Complaint

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

BLUE CROSS AND BLUE SHIELD OF
NEW JERSEY, INC., and its subsidiary, Medigroup of New Jersey, Inc. (d/b/a HMO Blue);

ASSOCIATED HOSPITAL SERVICE OF MAINE

(d/b/a Blue Cross and Blue Shield of Maine), and its subsidiaries, Machigonne, Inc. (d/b/a Benefit Management of Maine) and Benefit Management, Inc.;

BLUE CROSS AND BLUE SHIELD OF FLORIDA, INC., and its affiliates, Health Options, Inc. and Capital Group Health Services of Florida, Inc. (d/b/a Capital Health Plan);

BLUECROSS BLUESHIELD OF GEORGIA, INC.;

BLUE CROSS AND BLUE SHIELD OF MASSACHUSETTS, INC.;

BLUE CROSS BLUE SHIELD OF MICHIGAN;

BLUE CROSS & BLUE SHIELD OF RHODE ISLAND,

and its subsidiary, Coordinated Health Partners. Inc.;

BLUECROSS AND BLUESHIELD OF TENNESSEE, INC.;

CALIFORNIA PHYSICIANS' SERVICE (d/b/a Blue Shield of California), and its affiliates, CareAmerica -Southern California, Inc., CPIC Life Insurance Company, and CareAmerica Life Insurance Company;

CAPITAL BLUE CROSS,

and its subsidiaries, Capital Administrative Services, Inc. and Keystone Health Plan Central, Inc.;

CAREFIRST OF MARYLAND, INC.;

EMPIRE BLUE CROSS AND BLUE SHIELD;

GROUP HOSPITALIZATION & MEDICAL SERVICES, INC. (d/b/a Blue Cross Blue Shield of the National Capital Area);

HIGHMARK INC.,

and its subsidiaries, Keystone Health Plan West, Trans-General Services, Inc.; Trans-General Life Insurance Company, Trans-General Life and Casualty Insurance Company, Healthguard of Lancaster, Inc., Inter-County Health Plan, Inc., Inter-County Hospitalization Plan, Inc.;

INDEPENDENCE BLUE CROSS;

LOUISIANA HEALTH SERVICE & INDEMNITY COMPANY, INC.

(d/b/a Blue Cross and Blue Shield of Louisiana);

MOUNTAIN STATE BLUE CROSS & BLUE SHIELD, INC.,

and its subsidiary, Parker Benefits, Inc. (d/b/a Super Blue HMO);

NEW HAMPSHIRE-VERMONT HEALTH SERVICE

(d/b/a Blue Cross Blue Shield of New Hampshire), and its subsidiaries, Matthew Thornton Health Plan, Inc., Matthew Thornton Insurance, Inc., and Health Initiatives, Inc.;

NEW YORK CARE PLUS INSURANCE COMPANY, INC., (d/b/a Blue Cross and Blue Shield of Western New York, Blue Shield of Northeastern New York); and

UNYS, INC., and its subsidiaries, The Finger Lakes Companies, Inc. (and its subsidiaries, Finger Lakes Health Insurance Company, Inc. and Finger Lakes Medical Insurance Company, Inc.), Excellus, Inc. (and its subsidiary Excellus Health Plan, Inc.), and Upstate Holding Company, Inc. (and its subsidiary, Utica-Watertown Health Insurance Co., Inc.),

Plaintiffs, – against –

PHILIP MORRIS, INCORPORATED;

R.J. REYNOLDS TOBACCO COMPANY;

BROWN & WILLIAMSON TOBACCO CORPORATION;

B.A.T. INDUSTRIES P.L.C.;

BRITISH AMERICAN TOBACCO COMPANY, LTD.;

LORILLARD TOBACCO COMPANY;

LIGGETT & MYERS INC.;

UNITED STATES TOBACCO COMPANY;

THE TOBACCO INSTITUTE, INC.; THE COUNCIL FOR TOBACCO RESEARCH -U.S.A., INC.;

THE SMOKELESS TOBACCO RESEARCH COUNCIL, INC.;

HILL AND KNOWLTON, INC.;

and

UNKNOWN CORPORATIONS A-Z,

Defendants.

COMPLAINT (JURY DEMAND)

Plaintiffs, twenty independent Blue Cross and/or Blue Shield Plans (collectively, the "BC/BS Plans"), which provide comprehensive health plan and benefit financing and related services to millions of Americans (referred to herein as their "members"), including health plan benefits for smoking-related illnesses, by and through their counsel of record, Dewey Ballantine LLP, for their complaint against Defendants in this action -- the major tobacco companies in the United States (collectively, the "Tobacco Companies") and their trade associations, research agents and public relations firm -- allege as follows:

I. NATURE OF THIS ACTION

Summary of Plaintiffs' Claims

1. These BC/BS Plans, together with all other Blue Cross and Blue Shield plans, have for decades paid for a broad range of health care benefits and related services to hundreds of millions of Americans and today serve more than 68 million people as the largest non-governmental provider of health benefit plans and related services in the country. The BC/BS Plans have since their inception been dedicated to furnishing their members with comprehensive, economical and timely access to health care benefits.

2. As the direct and proximate cause of the Tobacco Companies' and other Defendants' ongoing conspiracy and deceptive, illegal and tortious acts described herein, the BC/BS Plans have suffered and are suffering extraordinary injury in their business and property, having been required to expend many millions of dollars on costs attributable to tobacco-related diseases caused by Defendants. This action seeks to hold the Tobacco Companies and other Defendants accountable for that conduct.

3. In 1953, the Tobacco Companies and their allies entered into a conspiracy that continues to this day -- a conspiracy that was intended, with great success, to perpetuate smoking and nicotine addiction among American citizens. From the outset, the Tobacco Companies and the other Defendants knowingly and intentionally embarked on a scheme to addict millions of people, including members of the BC/BS Plans, to smoking cigarettes and other tobacco products -- all with the intent of increasing their annual profits. As a result, millions of Americans have died and millions more will die. As part of their continuing conspiracy, the Tobacco Companies and their allies also intended to force and, again with great success, have forced others to bear the cost of the diseases and deaths caused by the conspiracy. Blue Cross Blue Shield plans are perhaps the largest cost-bearers of Defendants' deceptions and wrongful conduct.

4. The Tobacco Companies have known for decades, as a result of their internal scientific studies, that (i) nicotine is addictive; (ii) cigarettes serve primarily as devices to deliver nicotine into people's blood streams; (iii) smoking and chewing tobacco cause or substantially contribute to a myriad of debilitating illnesses, including lung, throat and other cancers, emphysema, heart failure and stroke; and (iv) millions of people die as a result of using tobacco products. They have also known for decades that full public awareness of the truth about their products would have a devastating impact on their financial performance, and ultimately their profits, which, in their view, has counted for much more than appropriate public disclosure concerning the deadly and addictive products they have been purveying. Defendants intended to, did, and continue to impose on health care payers, such as the BC/BS Plans, the enormous cost of treatment of tobacco-related illnesses and addiction. Through their conspiracy of lies, deceit and other unlawful conduct, the Tobacco Companies have avoided paying such health care costs and, as a result, have unlawfully shifted a large amount of such costs to the BC/BS Plans.

5. Smoking-related illnesses account for one out of every five deaths each year in the United States; cigarette smoking is thus the leading cause of premature death in this country, killing more than 400,000 Americans annually. The ruinous health impact caused by the Tobacco Companies' products is unprecedented. For example: (1) cigarette smoking causes as much as 85% of all lung cancer; (2) smoking causes more than 80% of deaths from pulmonary diseases, such as emphysema and bronchitis; and (3) smoking causes thousands of deaths from cardiovascular diseases, such as stroke, heart attack, peripheral vascular disease and aortic aneurysm. All told, annual smoking-related deaths exceed the combined deaths caused by automobile accidents, AIDS, alcohol use, illegal drug use, homicide, suicide and fires.

6. Commencing in 1953, the Tobacco Companies conspired to and did embark upon a massive and prolonged program of purposeful deception and misrepresentation and unreasonable restraint of trade that continues to this day. Repeatedly, they have made and continue to make knowingly false public pronouncements -- and have given knowingly false sworn testimony -- to the effect that they were in possession and had knowledge of no evidence that nicotine is addictive or that the use of their tobacco products caused any illnesses or diseases. This was exactly the nature of the blatantly false testimony provided by chief executives of a number of the Tobacco Companies in 1994 before a committee of the U.S. House of Representatives. Even today as the Tobacco Companies attempt to use their political muscle to enact legislation immunizing their legal liabilities, the Tobacco Companies continue to mislead Congress about their knowledge of the deadly and addictive nature of smoking and chewing tobacco. This campaign continues today through, among other things, the use of scare tactics and misleading statements published in nationally-circulated newspapers and magazines. Such statements were published as recently as April 1998. Through this public campaign of deception and lying to Congress and other public health authorities, the Tobacco Companies and other Defendants intended that, among others, the BC/BS Plans and their members would rely to their detriment on such statements and that as a result the BC/BS Plans would be required to bear a large share of the cost of the national health calamity knowingly and intentionally caused by the Tobacco Companies.

7. Defendants rationalize that smoking is a matter of individual choice. In fact, the American public has never been given an opportunity to make a well-informed choice about smoking because Defendants' own deception has prevented the public from fully understanding the depth and severity of the addictive nature of cigarettes and other tobacco products. For example, in an internal 1978 memorandum, Defendant Brown & Williamson Tobacco Corporation acknowledged that "very few consumers are aware of the effects of nicotine, i.e., its addictive nature and that nicotine is a poison."

8. The Tobacco Companies' and the other Defendants' conspiracy went further and relied on a subtler campaign of subterfuge. While falsely claiming that their products were becoming healthier, they spent millions of dollars on research to ensure that their products continued to contain addictive amounts of nicotine. While falsely claiming to assume a public duty with regard to the relationship between smoking and health, they actually concentrated their efforts on marketing methods that were meant to increase nicotine consumption and addiction. Targeting children and minorities has been and continues to lie at the foundation of the Tobacco Companies' plot to increase tobacco and nicotine consumption and to ensure that they capture an addicted customer base for the future. The Tobacco Companies have known for years that, as a result of their ongoing illegal conduct and conspiracy, millions of addicted smokers would be unable to quit smoking and would be customers until the smoking killed them.

9. The Tobacco Companies also have violated the antitrust laws of the United States and of the states, laws that protect competition over quality and innovation just as they protect price competition. Defendants have broken these laws by entering into, and continuing to this day to abide by the terms of, a combination and conspiracy in unreasonable restraint of trade:

to suppress innovation and competition in product quality -- by agreeing not to engage in research, development, manufacturing and marketing of less harmful cigarettes and other tobacco products;

to suppress output in a market, and to engage in a concerted refusal to deal -- by agreeing to zero output of less harmful cigarettes and other tobacco products; and

to suppress competition in marketing -- by agreeing not to take business from one another by making claims as to the relative safety of particular brands, whether or not such claims would have been truthful.

This willful violation of the antitrust laws resulted in clearly foreseeable injury to members of the BC/BS Plans. It was foreseeable that their antitrust violations would cause the precise type of injury that the BC/BS Plans have suffered in their business or property -- increased costs for health care and related services needed by smokers -- injury that is inextricably intertwined with that suffered by the smokers themselves. Moreover, but for the unlawful agreement, the BC/BS Plans would have had the opportunity to be customers for less harmful cigarettes, and other tobacco or nicotine products, purchasing such products as part of an effort by providers of health services with which the BC/BS Plans contract, to wean their members from addiction to smoking or using other tobacco products to ameliorate the consequences of that addiction.

10. In this action, the BC/BS Plans intend to bring the Tobacco Companies to account for the business and financial injuries, primarily in the form of payments for treatments of tobacco-related diseases, that the BC/BS Plans have suffered as a direct and proximate result of Defendants' decades-long conspiracy of deceit, manipulation and death.

Nature of Plaintiffs' Business

11. Blue Cross and Blue Shield plans are independent licensees of the Blue Cross and Blue Shield Association, through which the Blue Cross and Blue Shield plans, including Plaintiffs, license the right to use the Blue Cross® and Blue Shield® names and symbols. Blue Cross and Blue Shield plans and their predecessors have been providing health care insurance coverage, and other related services, to their members since the beginning of the 1900s. Today, the BC/BS Plans, together with all other Blue Cross Blue Shield plans, constitute the largest private provider of health plan benefits and payer of health care benefits in the United States, paying for health care financing for more than 68 million people.

12. The Blue Cross and Blue Shield plans, including Plaintiffs, are independent, locally-operated companies, that provide health plan benefits and related services with their corporate affiliates, within defined geographic regions, in most cases based on state lines. The first Blue Cross and Blue Shield plans -- in Texas and the Pacific Northwest -- were created to provide access to hospital and physician services for the segment of the population that could not afford private medical services.

13. Throughout their histories, many Blue Cross and Blue Shield plans have been "insurers of last resort" in their respective states. To the extent that a Blue Cross Blue Shield plan has been an "insurer of last resort," it provided health care insurance coverage and other services to any individual regardless of that person's medical condition. This open-door policy -- mandated by state law -- has had the effect of causing those Blue Cross Blue Shield plans to insure a disproportionately higher number of individuals with smoking-related diseases. Through their deceptive and unlawful conduct, the Tobacco Companies and other Defendants have increased the costs of all Blue Cross Blue Shield plans and disproportionately increased the costs of those plans who are or have been "insurers of last resort."

14. The Blue Shield symbol was informally adopted in 1948 by a group of nine health care contractors, all dedicated to making health care benefits more economical and available to the American public. This group increased its numbers and eventually became the National Association of Blue Shield Plans, which was formed to hold and license the Blue Shield symbol and related marks to independent physician-sponsored health care plans.

15. Meanwhile, the Blue Cross symbol became a nationally recognized symbol for health care plans that would guarantee payment of covered hospital charges in consideration for periodic payments by members. In 1962, these plans formed the Blue Cross Association to hold and license the Blue Cross symbol and related marks to independent hospital health care plans. In 1982, the Blue Shield and Blue Cross Associations merged to enable independent Blue Cross and Blue Shield plans to serve their members more economically and efficiently.

16. The BC/BS Plans directly contract with thousands of health care service providers, including doctors, clinics, hospitals, and other health care providers (collectively referred to herein as "health care providers"). The BC/BS Plans are purchasers of products and services used in, and are providers of benefits for, treatment of nicotine dependence and addiction. The BC/BS Plans also make payments as claims administrators acting on behalf of group health plans. As a provider of health benefit plans and related services, the BC/BS Plans have paid and will continue to pay the cost of health care services required in connection with smoking-related diseases.

17. The BC/BS Plans also contract directly with individuals, employee and other groups, associations and labor groups in their specific service areas across the United States to provide health plan benefits and related services through risk and risk sharing arrangements. The BC/BS Plans bear risk in entering into contracts with groups and individuals because the BC/BC Plans have paid and continue to pay for their members' covered health care costs, regardless of the total amount of costs for those services. The BC/BS Plans also enter into contracts to act as claims administrators for and to make payments on behalf of health plans that are wholly or partially self-funded. The BC/BS Plans charge and collect an amount from their groups and individuals for providing health care coverage and related services under these services arrangements.

18. Under applicable laws and regulations in many states, the Blue Cross Blue Shield plans are required to offer to private groups various types of health coverage and benefits that include coverage for the treatment of tobacco-related diseases. In furtherance of their contractual obligations to groups and individuals, the BC/BS Plans have paid and will continue to pay substantially higher amounts to health care providers, including amounts paid on behalf of self-funded groups. The BC/BS Plans have also paid and will continue to pay substantially higher amounts for drugs and other products and services which aid in the treatment of nicotine addition. These increased expenditures have been caused by the unlawful actions of the Tobacco Companies and other Defendants.

19. In addition, many of the Blue Cross Blue Shield plans have expended and will continue to expend substantial sums of money to fund and promote wellness and healthy lifestyle programs in order to reduce health care costs. These increased expenditures have also been caused by the unlawful actions of the Tobacco Companies and other Defendants.

II. JURISDICTION AND VENUE

20. Jurisdiction of this Court is predicated upon federal question jurisdiction, 28 U.S.C. § 1331, and the original jurisdiction granted under 28 U.S.C. § 1337(a). Jurisdiction is based on 15 U.S.C. §§ 15 and 26 (the Clayton Act) and 18 U.S.C. §§ 1962 and 1964 (Federal Racketeer Influenced and Corrupt Organizations Act ("RICO")).

21. The Court has supplemental jurisdiction under 28 U.S.C. § 1367(a) over Plaintiffs' state law claims because they are so related to the federal question claims that they form part of the same case or controversy and stem from the same nucleus of facts on which the federal antitrust and RICO claims are based.

22. At all times material hereto, the Defendants resided and did business in this District. Venue is thus proper in this District under 28 U.S.C. § 1391(b). Moreover, at all times material hereto, the Defendants were found or transacted business in this District, and accordingly venue is proper in this District under 15 U.S.C. § 22 and 18 U.S.C. § 1965.

III. THE PARTIES

Plaintiffs

23. Plaintiff Blue Cross Blue Shield of New Jersey, Inc. ("BC/BS New Jersey") is a not-for-profit corporation incorporated under the laws of the State of New Jersey, with its principal place of business located at 3 Penn Plaza East, Newark, New Jersey. Plaintiff Medigroup of New Jersey, Inc. (d/b/a HMO Blue) is a subsidiary of BC/BS New Jersey and is a New Jersey corporation with its principal place of business located at 3 Penn Plaza East, Newark, New Jersey. For over 65 years, BC/BS New Jersey and its predecessor companies have been providing health care insurance coverage to the citizens of New Jersey and, up until 1992, was the State of New Jersey's "insurer of last resort" in the individual insurance market. As an "insurer of last resort," BC/BS New Jersey was required to provide health care insurance coverage to any person regardless of his or her medical condition. Today, BC/BS New Jersey is, with its corporate affiliates, the largest provider of health plan benefits and related services in New Jersey. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS New Jersey has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

24. Associated Hospital Service of Maine, doing business as Blue Cross and Blue Shield of Maine (referred to herein as "BC/BS Maine"), is a non profit hospital and medical service organization formed and existing under the laws of the State of Maine, with its principal place of business located at 2 Gannett Drive, South Portland, Maine. Plaintiffs Machigonne, Inc., doing business as Benefit Management of Maine, and Benefit Management, Inc., doing business as MHP, are subsidiaries of Associated Hospital Service of Maine and both are Maine corporations with their principal places of business located at 110 Free Street, Portland, Maine. BC/BS Maine and its subsidiaries are collectively referred to herein as "BC/BS Maine." BC/BS Maine is the largest provider of health plan benefits and related services in Maine. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Maine has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

25. Plaintiff Blue Cross and Blue Shield of Florida, Inc. is a mutual insurance company incorporated under the laws of the State of Florida, with its principal place of business located at 4800 Deerwood Campus Parkway, Jacksonville, Florida. Plaintiff Health Options, Inc. is an affiliate of Blue Cross and Blue Shield of Florida, Inc. and is a Florida corporation with its principal place of business also located at 4800 Deerwood Campus Parkway, Jacksonville, Florida. Plaintiff Capital Group Health Service of Florida, Inc. (d/b/a Capital Health Plan) is an affiliate of Blue Cross and Blue Shield of Florida, Inc. and is a Florida corporation with its principal place of business at 2140 Centerville Place, Tallahassee, Florida. Blue Cross and Blue Shield of Florida, Inc. with its corporate affiliates (collectively "BC/BS of Florida") is one of the largest providers of health plan benefits and related services in Florida. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Florida has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

26. Plaintiff BlueCross and BlueShield of Georgia, Inc. ("BC/BS Georgia") is a corporation incorporated under the laws of the State of Georgia, with its principal place of business located at 3350 Peachtree Road, N.E., Atlanta, Georgia. BC/BS Georgia, with its corporate affiliates, is the largest provider of health plan benefits and related services in Georgia. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Georgia has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

27. Plaintiff Blue Cross and Blue Shield of Massachusetts, Inc. ("BC/BS Massachusetts") is a non-profit hospital service corporation and a medical service corporation incorporated under the laws of the Commonwealth of Massachusetts, with its principal place of business located at 100 Summer Street, Boston, Massachusetts. BC/BS Massachusetts is one of the largest providers of health plan benefits and related services in Massachusetts. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Massachusetts has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

28. Plaintiff Blue Cross Blue Shield of Michigan ("BC/BS Michigan") is a non-profit corporation incorporated under the laws of the State of Michigan, with its principal place of business located at 600 Lafayette East, Detroit, Michigan. BC/BS Michigan and its corporate affiliates are the largest provider of health plan benefits and related services in Michigan. BC/BS Michigan is the "insurer of last resort" in the State of Michigan. As a result, BC/BS Michigan is required to provide health care insurance coverage to any person regardless of his or her medical condition. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members and pursuant to the Michigan Non Profit Health Care Corporation Act, BC/BS Michigan and its affiliates have paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

29. Plaintiff Blue Cross & Blue Shield of Rhode Island is a non-profit, hospital service corporation incorporated under the laws of the State of Rhode Island, with its principal place of business located at 444 Westminster Street, Providence, Rhode Island. Plaintiff Coordinated Health Partners, Inc. is a wholly-owned subsidiary of Blue Cross & Blue Shield of Rhode Island and is a health maintenance organization formed and existing under the laws of the State of Rhode Island, with its principal place of business located at 15 LaSalle Square, Providence, Rhode Island. Blue Cross & Blue Shield of Rhode Island and its subsidiary are collectively referred to herein as "BC/BS Rhode Island." BC/BS Rhode Island is the largest provider of health plan benefits and insurance coverage and related services in Rhode Island. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Rhode Island has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

30. Plaintiff BlueCross BlueShield of Tennessee, Inc. ("BC/BS Tennessee") is a non-profit corporation incorporated under the laws of the State of Tennessee, with its principal place of business located at 801 Pine Street, Chattanooga, Tennessee. BC/BS Tennessee is, with its corporate affiliates, the largest provider of health plan benefits and related services in Tennessee. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Tennessee and its corporate affiliates have paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

31. Plaintiff California Physicians' Service, doing business as Blue Shield of California ("Blue Shield California"), is a not-for-profit mutual benefit corporation incorporated under the laws of the State of California, with its principal place of business located at 50 Beale Street, San Francisco, California. Plaintiff CareAmerica - Southern California, Inc. is an affiliate of Blue Shield California and is a California corporation with its principal place of business located at 6300 Canoga Avenue, Woodland Hills, California. Plaintiff CPIC Life Insurance Company is an affiliate of Blue Shield California and is a California corporation with its principal place of business located at 50 Beale Street, San Francisco, California. CareAmerica Life Insurance Company is an affiliate of Blue Shield California and is a California corporation with its principal place of business located at 6300 Canoga Avenue, Woodland Hills, California. Blue Shield California and its affiliates are collectively referred to herein as "Blue Shield California." Blue Shield California is, with its corporate affiliates, one of the largest providers of health plan benefits and insurance coverage and related services in California. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Blue Shield California has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

32. Plaintiff Capital Blue Cross ("Capital") is a not-for-profit corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal place of business located at 2500 Elmerton Avenue, Harrisburg, Pennsylvania. Plaintiff Capital Administrative Services, Inc. (d/b/a NCAS Pennsylvania) is a wholly-owned subsidiary of Capital Blue Cross and is a Pennsylvania corporation, with its principal place of business located at Harrisburg, Pennsylvania. Plaintiff Keystone Health Plan Central, Inc. is jointly owned by Capital Blue Cross and plaintiff Highmark Inc. and is a Pennsylvania corporation, with its principal place of business located in Camp Hill, Pennsylvania. Capital is, with its corporate affiliates, the largest provider of health plan benefits and related services in Central Pennsylvania. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Capital has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

33. Plaintiff CareFirst of Maryland, Inc., doing business as Blue Cross and Blue Shield of Maryland ("BC/BS Maryland"), is a not-for-profit corporation incorporated under the laws of the State of Maryland, with its principal place of business located in Owings Mills, Maryland. BC/BS Maryland is, with its corporate affiliates, the largest provider of health plan benefits and related services in Maryland. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Maryland has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

34. Plaintiff Empire Blue Cross and Blue Shield ("Empire") is a not-for-profit corporation incorporated under the laws of the State of New York, with its principal place of business at 622 Third Avenue, New York, New York. Empire is, with its corporate affiliates, one of the largest providers of health plan benefits and related services in New York. Prior to July 1, 1993, Empire was the insurer of last resort in the small group market in New York, and prior to July 1, 1997, Empire was the insurer of last resort in the direct pay market in New York. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Empire has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

35. Plaintiff Group Hospitalization & Medical Service, Inc., doing business as Blue Cross Blue Shield of the National Capital Area (collectively, "BC/BS NCA"), is a federally-chartered not-for-profit corporation incorporated by an Act of Congress, with its principal place of business located at 550 12th Street, S.W., Washington, D.C. BC/BS NCA operates in the Greater Washington D.C. area, including, the District of Columbia, Maryland, and Virginia. BC/BS NCA is, with its corporate affiliates, the Greater D.C. area's largest provider of health plan benefits and related services. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS NCA has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

36. Plaintiff Highmark Inc., doing business as Highmark Blue Cross Blue Shield ("Highmark"), is a not-for-profit corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Keystone Health Plan West is a wholly-owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Trans-General Services, Inc. is a wholly owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Trans-General Life Insurance Company is a wholly-owned subsidiary of Highmark and is a Connecticut corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Trans-General Life and Casualty Insurance Company is a wholly-owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Healthguard of Lancaster, Inc. is a wholly-owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at 280 Granite Run Drive, Lancaster, Pennsylvania. As described above, plaintiff Keystone Health Plan Central, Inc. is jointly owned by Capital and Highmark. Plaintiffs Inter-County Health Plan, Inc. and Inter-County Hospitalization Plan, Inc. are Pennsylvania non-profit, non-stock membership corporations with their principal places of business located at 720 Blair Mill Road, Horsham, Pennsylvania. Highmark Inc. and Independence Blue Cross are the sole members. Highmark and its subsidiaries are collectively referred to herein as "Highmark." Highmark is, with its corporate affiliates, the largest provider of health care benefits and related services in Pennsylvania. As a provider of health care benefits and other services to individuals and employee and other groups and as a direct payer of health plan costs incurred by its members, Highmark has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

37. Plaintiff Independence Blue Cross ("Independence") is a not-for-profit corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal place of business located at 1901 Market Street, Philadelphia, Pennsylvania. Independence is the largest provider of health plan benefits and related services in its service area, which includes the Greater Philadelphia Area. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Independence has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases and treatment for nicotine addiction.

38. Plaintiff Louisiana Health Service & Indemnity Company, Inc. is a non-profit mutual insurance company incorporated under the laws of the State of Louisiana, with its principal place of business located at 5525 Reitz Avenue, Baton Rouge, Louisiana. Louisiana Health Service & Indemnity Company, Inc. does business under the name Blue Cross Blue Shield of Louisiana. Louisiana Health Service & Indemnity Company, Inc. is referred to herein as "BC/BS Louisiana." BC/BS Louisiana is, with its corporate affiliates, the largest provider of health care benefits and related services in Louisiana. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Louisiana has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

39. Plaintiff Mountain State Blue Cross & Blue Shield, Inc. ("Mountain State") is a not-for-profit corporation incorporated under the laws of the State of West Virginia, with its principal place of business located at 700 Market Square, Parkersburg, West Virginia. Plaintiff Parker Benefits, Inc. (d/b/a SuperBlue HMO) is a wholly-owned subsidiary of Mountain State and is a West Virginia corporation, with its principal place of business located in Parkersburg, West Virginia. Mountain State and Parker Benefits, Inc. are collectively referred to herein as "Mountain State." Mountain State is, with its corporate affiliates, the largest provider of health plan benefits and related services in West Virginia. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Mountain State has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

40. Plaintiff New Hampshire-Vermont Health Service is a non-profit health service corporation, incorporated under the laws of the State of New Hampshire, with its principal place of business located at 3000 Golf Falls Road, Manchester, New Hampshire. New Hampshire-Vermont Health Service does business as Blue Cross Blue Shield of New Hampshire. New Hampshire-Vermont Health Service's wholly-owned subsidiary, plaintiff Matthew Thornton Health Plan, Inc. ("MTHPI"), is a health maintenance organization organized under New Hampshire law with its principal place of business located at 43 Constitution Drive, Bedford, New Hampshire. Plaintiffs Matthew Thornton Insurance, Inc. and Health Initiatives Inc. are wholly-owned subsidiaries of MTHPI (with the same principal place of business) and are corporations incorporated under New Hampshire law. New Hampshire-Vermont Health Service and its subsidiaries are collectively referred to herein as "BC/BS New Hampshire." BC/BS New Hampshire is, with its corporate affiliates, the largest provider of health plan benefits and related services in New Hampshire. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS New Hampshire has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

41. Plaintiff New York Care Plus Insurance Company, Inc. ("New York Care") is a non-profit corporation incorporated under the laws of the State of New York, with its principal place of business located at 1901 Main Street, Buffalo, New York. New York Care does business under several trade names including, but not limited to, Blue Cross and Blue Shield of Western New York and Blue Shield of Northeastern New York. New York Care and its corporate affiliates provide health care benefits and related services to more than 660,000 members in the State of New York. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, New York Care has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

42. Plaintiffs UNYS, Inc. and its wholly-owned subsidiaries, Plaintiffs The Finger Lakes Companies, Inc. ("Finger Lakes"), Excellus, Inc. ("Excellus"), and Upstate Holding Company, Inc. ("Upstate") are not-for-profit holding companies incorporated under the laws of the State of New York, with its principal place of business located at 150 East Main Street, Rochester, New York.

a. Plaintiff Finger Lakes Health Insurance Company, Inc. ("Finger Lakes Health") is a wholly-owned subsidiary of Finger Lakes doing business as Finger Lakes Blue Cross. Finger Lakes Health is a not-for-profit New York corporation incorporated with its principal place of business in Rochester, New York.

b. Plaintiff Finger Lakes Medical Insurance Company, Inc. ("Finger Lakes Medical") is a wholly-owned subsidiary of Finger Lakes doing business as Finger Lakes Blue Shield. Finger Lakes Medical is a not-for-profit New York corporation with its principal place of business located in Rochester, New York.

c. Excellus Health Plan, Inc. ("Excellus Health") is a wholly-owned subsidiary of Excellus doing business as Blue Cross and Blue Shield of Central New York. Excellus Health is a not-for-profit New York corporation with its principal place of business in Syracuse, New York.

d. Utica-Watertown Health Insurance Company, Inc. ("Utica") is a wholly-owned subsidiary of Upstate doing business as Blue Cross Blue Shield of Utica-Watertown. Utica is a not-for-profit New York corporation with its principal place of business located in Utica, New York.

UNYS and its subsidiaries are collectively referred to herein as "UNYS." As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, UNYS has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

Defendants

43. Defendant Philip Morris, Incorporated ("Philip Morris") is a Virginia corporation whose principal place of business is 120 Park Avenue, New York, New York. Philip Morris manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

44. Defendant R.J. Reynolds Tobacco Company ("R.J. Reynolds") is a New Jersey corporation whose principal place of business is Fourth & Main Street, Winston-Salem, North Carolina. R.J. Reynolds manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

45. Defendant Brown & Williamson Tobacco Corporation ("Brown & Williamson") is a Delaware corporation whose principal place of business is 1500 Brown & Williamson Tower, Louisville, Kentucky. Brown & Williamson manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States. Brown & Williamson has also been named defendant as successor in interest to The American Tobacco Company ("American Tobacco"), which was merged with and into Brown & Williamson in 1994. As such, Brown & Williamson is legally liable for the conduct of American Tobacco.

46. Defendant B.A.T. Industries P.L.C. ("B.A.T.") is a British corporation whose principal place of business is Windsor House, 50 Victoria Street, London SW1H ONL. Through a succession of intermediary corporations and holding companies, B.A.T. is the sole shareholder of Brown & Williamson. Through Brown & Williamson, B.A.T. has placed cigarettes into the stream of commerce with the expectation that substantial sales of cigarettes would be made in the United States. B.A.T. has also conducted, or through its agents, subsidiaries, affiliated companies and/or co-conspirators conducted significant research for Brown & Williamson on the topics of smoking, disease and addiction. Brown & Williamson and B.A.T. conspired to remove from the United States and to send to B.A.T. in England quantities of research conducted in the United States on the topics of smoking, disease and addiction in order to remove sensitive and inculpatory documents from U.S. jurisdiction. B.A.T. is a participant in the conspiracy described herein and has caused harm and affected commerce in the United States.

47. Defendant British American Tobacco Company, Ltd. ("BATCO") is a British corporation whose registered office is at Milbank, Knowles, Green, Staines, Middlesex, England TW18 1DY. Defendant BATCO is or was a related corporation of defendant Brown & Williamson. Both are owned by B.A.T. BATCO advertises, promotes and sells its own nicotine tobacco products throughout the United States. At all times pertinent to this complaint, defendant BATCO, individually or through its affiliate, agent and alter ego, subsidiary and/or division defendant Brown and Williamson, designed, tested, manufactured, marketed and sold cigarettes for use in the United States. BATCO has itself or has through its affiliated companies, agents, or subsidiaries also conducted significant research for Brown & Williamson on the topics of smoking, disease and addiction. Upon information and belief, Brown & Williamson also sent to England research conducted in the United States on the topics of smoking, disease and addiction in order to remove the sensitive and inculpatory documents from U.S. jurisdiction. BATCO is a participant in the conspiracy described herein and has caused harm and affected commerce in the United States.

48. Defendant Lorillard Tobacco Company ("Lorillard") is a Delaware corporation whose principal place of business is 1 Park Avenue, New York, New York. Lorillard manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

49. Defendant Liggett & Myers Inc. ("Liggett") is a Delaware corporation whose principal place of business is Main and Fuller, 710 Main Street, Durham, North Carolina. Liggett manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

50. Defendant United States Tobacco Company ("U.S. Tobacco") is a Delaware corporation whose principal place of business is 100 West Putnam Avenue, Greenwich, Connecticut. U.S. Tobacco manufactures, advertises and sells cigarettes. U.S. Tobacco also manufactures, advertises and sells approximately 88 percent of the smokeless tobacco (snuff and chewing tobacco) sold in the United States under various brand names.

51. Defendant The Tobacco Institute, Inc. is a New York non-profit corporation with its principal place of business at 1875 I Street N.W., Suite 800, Washington D.C. At all relevant times, the Tobacco Institute operated as a propaganda and lobbying arm of the Tobacco Companies and was an agent and employee of the Tobacco Companies. The Tobacco Institute has been involved in the conspiracy described in this complaint, and the actions of the Tobacco Institute have affected commerce and caused harm throughout the United States.

52. Defendant The Council for Tobacco Research - U.S.A., Inc. ("CTR") is a New York non-profit corporation with is principal place of business at 900 Third Avenue, New York, New York. CTR is successor in interest to the Tobacco Institute Research Committee ("TIRC"). At all relevant times, both CTR and TIRC operated as propaganda and lobbying arms of the Tobacco Companies and as an agents and employees of the Tobacco Companies. CTR and TIRC have been involved continuously in the conspiracy described herein, and their actions have affected commerce and caused harm throughout the United States.

53. Defendant The Smokeless Tobacco Research Council, Inc. ("STRC") is a New York non-profit corporation whose principal place of business is 1627 K Street N.W., Washington, D.C. Founded in 1969, STRC for most of its history was dominated by U.S. Tobacco, the largest manufacturer of smokeless tobacco products in the United States. In September 1996, U.S. Tobacco resigned from STRC, leaving as its members Brown & Williamson and several small producers of smokeless tobacco, including The Pinkerton Company, National Tobacco Company, Swisher International and Conwood Company LP. At all relevant times, STRC operated as a propaganda and lobbying arm of the Tobacco Companies and as an agent and employee of the Tobacco Companies. STRC has been financially supported by several of the largest tobacco companies, including at least Brown & Williamson, Lorillard and R.J. Reynolds, and has been involved continuously in the conspiracy described herein. By its conduct, STRC has affected commerce and caused harm throughout the United States.

54. Defendant Hill and Knowlton, Inc. is an international public relations firm whose principal place of business is 420 Lexington Avenue, New York, New York. Hill and Knowlton has been continuously and centrally involved in the wrongful conduct and conspiracy since its creation, and Hill and Knowlton's actions have affected commerce and caused harm throughout the United States.

55. Various other persons, firms, and corporations, who have been named as Unknown Corporations A-Z, which are parent corporations, alter egos, holding corporations, aliases, subsidiaries, affiliates, agents or otherwise related to the named defendants, participated in the wrongful acts alleged in this Complaint.

IV. THE DEFENDANTS' CONSPIRACY

The Health Consequences of Tobacco

56. The human tragedy of smoking-related disease is enormous. Cigarette smoking is the leading cause of premature death in the United States. According to the Federal Centers for Disease Control and Prevention, each year smoking-related illnesses kill more than 400,000 Americans, exceeding the combined deaths caused by automobile accidents, AIDS, alcohol use, illegal drug use, homicide, suicide and fires. Smoking-related illnesses account for one of every five deaths each year in the United States.

57. At least 43 chemicals in the smoke inhaled by persons using the Tobacco Companies' products have been determined to be carcinogenic. Cigarette smoking causes as much as 85% of all lung cancer. Tobacco products are also linked to cancers of the mouth, larynx, esophagus, stomach, pancreas, uterus, cervix, kidney and colon, among others. All told, tobacco use is responsible for at least 30% of all deaths from cancer. Smoking is the cause of more than 80% of deaths from pulmonary diseases such as emphysema and bronchitis. Smoking is also responsible for thousands of deaths from cardiovascular diseases, including stroke, heart attack, peripheral vascular disease and aortic aneurysm. Tobacco use is also linked to a large number of other serious illnesses.

58. The health consequences of smoking among women are of special concern because of the deleterious effect on reproduction. Smoking reduces fertility, increases the rate of miscarriages and stillbirths, retards uterine fetal growth and results in lower birth weight in infants.

59. As a direct result of the unrestrained and unlawful conduct of the Tobacco Companies and other Defendants, tobacco use has become the most pervasive public health issue of our time and the single most preventable cause of death in our society.

60. Medical research has now established that smoking cigarettes also creates a behavioral addiction and habit because it contains nicotine. The addiction created by nicotine is not merely a behavioral or psychological addiction, however, but is physiological as well and but involves physical alteration to a smoker's brain structure and functioning. In the absence of nicotine, the addicted smoker suffers symptoms of physical withdrawal, including headaches, constipation, insomnia, depression, inability to concentrate and anxiety. Defendants have known this for decades but have lied about and suppressed these facts as documents they previously successfully conspired to conceal have been revealed.

61. Once a person starts smoking, it is extremely difficult to stop, and most who try do not succeed. Many smokers are unable to quit until they have heart or lung surgery. Even after a heart attack or lung cancer surgery, approximately one-half of all survivors return to smoking. The changes to the central nervous system involved in nicotine addiction are similar to those involved in cocaine addiction. According to the Surgeon General of the United States:

The pharmacological and behavioral processes that determine tobacco addiction are similar to those that determine addiction to drugs such as heroin and cocaine.

62. In 1996, the Food and Drug Administration ("FDA") promulgated regulations establishing the FDA's assertion of jurisdiction over tobacco products as medical drugs and devices under the Federal Food, Drug and Cosmetic Act. After the Tobacco Companies unsuccessfully challenged the FDA's jurisdictional authority in federal court, these regulations became effective in August 1997. The FDA concluded that cigarettes and smokeless tobacco are combination products consisting of nicotine -- a drug that causes addiction and other significant pharmacological effects on the human body -- and medical device components that deliver nicotine to the body.

63. Smokeless tobacco, which contains nicotine, can also cause cancer. The risk of oral cancer in particular increases with increased exposure to smokeless tobacco products, especially in those areas of the mouth where smokeless tobacco products are used. The risk of cheek and gum cancers is nearly fifty times greater in long-term snuff users than in non-users. Snuff and chewing tobacco contain potent carcinogens, including nitrosamines, polynuclear aromatic hydrocarbons and radioactive polonium.

64. Smokeless tobacco use can cause oral leukoplakia, a precancerous lesion of the soft tissue around the mouth that consists of a white patch or plaque that cannot be scraped off. One study of 117 high school students who were smokeless tobacco users revealed that nearly 50% of those students had oral tissue alterations. There is a 5% chance that oral leukoplakias will transform into malignancies in 5 years.

65. Smokeless tobacco can cause oral cancer and oral leukoplakia and may be associated with an increased risk of cancer of the esophagus. Smokeless tobacco use has been implicated in cancers of the gum, mouth, pharynx and larynx. Snuff use also causes gum recession and is associated with discoloration of teeth and fillings, dental cavities and abrasion of the teeth.

The Concentration of the Industry

66. Cigarette manufacturing has been one of the most concentrated industries in the United States throughout this century. Until 1994, Philip Morris, R.J. Reynolds, Brown & Williamson, American Tobacco, Lorillard and Liggett together comprised the Big Six cigarette manufacturers, which controlled virtually 100% of the market in the United States. In 1994, American Tobacco was acquired by B.A.T. and merged with and into Brown & Williamson. Philip Morris and R.J. Reynolds are the industry leaders with national market shares of approximately 48% and 25%, respectively, as of March 31, 1998. The approximate market shares of the other cigarette manufacturers are: Brown & Williamson, 17%; Lorillard, 8%; and Liggett, 2%. U.S. Tobacco manufactures 88% of the smokeless tobacco products sold in the United States.

67. The tobacco industry is a tight-knit oligopoly, with a history of collusion. There are substantial barriers to entry into the tobacco market. These barriers include substantial capital costs for entry, the existence of patents, reputational barriers, firmly entrenched incumbent firms with stable market shares, substantial economies of scale and production and regulatory barriers. These barriers to entry are evidenced by the absence of entry in the tobacco market, and a history of high profit margins among participants in the industry.

68. In part because of its concentration, and in part because its customers are physically addicted to the product, making demand relatively inelastic, the tobacco industry is enormously profitable, with profit margins by each of the Tobacco Companies estimated at over 30 percent. The Tobacco Companies earn billions of dollars in profits each year. For example, in 1996, Philip Morris's parent corporation reported record earnings of $4.2 billion (on worldwide sales of $36.5 billion). Philip Morris's record earnings in 1996 were driven, in part, by increased sales of nicotine products in the United States with shipments of 230.8 billion cigarettes.

69. In addition, industry concentration and high barriers to entry have allowed the Tobacco Companies and their trade associations to engage in a decades-long conspiracy not to compete in research, development, production and marketing of less harmful cigarettes.

Overview of Defendants' Wrongful Conduct And Conspiracy

70. For nearly a half-century, the Tobacco Companies and the other Defendants have pursued an unlawful course of conduct and conspiracy of deceit and misrepresentation against the public and the health care industry in order to promote and maintain sales of tobacco products and the profits derived therefrom, to shield themselves from having to pay the health care and other costs attributable to tobacco-related diseases, and to shift those costs to others, including the BC/BS Plans. The conspiracy and other wrongful conduct is ongoing and continues to this day. The Tobacco Companies continue to misrepresent and conceal facts and information from the public, including the BC/BS Plans.

71. Defendants' conspiracy consists fundamentally of four strategies: first, they agreed to represent falsely to the public that they were creating a new, unbiased and therefore trustworthy, source to address issues concerning smoking and health; second, they counted on the public's acceptance of their representations of trustworthiness to allow them to pursue a massive and sophisticated effort to misrepresent, suppress, distort and confuse the facts about the health dangers of tobacco products, including nicotine addiction, while at the same time manipulating the levels of nicotine in their products to foster continued addiction; third, they agreed among themselves to refrain from competing with each other to produce and market less harmful cigarettes and other nicotine tobacco products; and fourth, they agreed not to compete among themselves with respect to any claims relating to the relative health superiority of specific tobacco products.

72. The Tobacco Companies set their plan in motion by creating a joint industry research organization in 1954, originally called the Tobacco Industry Research Committee and later named the Council for Tobacco Research. Since that time, the Tobacco Companies have used the credibility derived from these and other ostensibly disinterested industry-funded research organizations to suppress and/or misrepresent material facts about the effects of tobacco use to the public. Although they had knowledge of the serious health dangers inherent in the use of their products, including the addictiveness of nicotine, Defendants have complemented the above scheme by constructing and disseminating the fallacious argument that (i) there is insufficient "objective" research to determine whether the use of tobacco products causes disease and death and (ii) tobacco products are not addictive.

73. The Defendants' interconnected and conspiratorial strategies -- suppressing material information, misrepresenting the facts about the harmful effects of smoking, using the credibility gained by such misrepresentations to deceive Congress, regulators, the public, the health care industry, and health benefit payers including the BC/BS Plans, about smoking and health and restraining trade and competition by agreeing not to compete in the research, development and marketing of a less harmful cigarette -- have been repeated continuously for more than four decades. Defendants have been and are engaged in a continuous conspiracy to deceive Congress, regulators, the public, the health care industry, and health benefit payers including the BC/BS Plans, regarding facts material to reaching an informed understanding of the health consequences of smoking and to deciding whether to purchase and use tobacco products.

74. Moreover, as confidential industry research confirmed the dangers of using tobacco products, including the addictiveness of nicotine, Defendants' deception rose to a new level. Although promising the public that they would make full disclosure of the results of their research, Defendants concealed their own negative health and addiction research results from Congress, regulators, the public, public health officials, the health care industry, and health and benefit payers including the BC/BS Plans. These research results have not been voluntarily released to this day. Defendants also have not disclosed and in fact have denied that the Tobacco Companies manipulate and control the content and delivery of nicotine in their products to create and sustain consumers' addiction to tobacco products. Defendants have further conspired to suppress the development, testing and marketing of less harmful cigarettes, while fraudulently maintaining that their products are safe or that there are no less harmful alternatives to their products. Defendants also have conspired to discredit or cast doubt upon the results of legitimate and accurate scientific research and findings confirming the adverse health effects of nicotine and tobacco use.

75. The success of the Tobacco Companies' campaign of deceit, concealment and misinformation has depended, in large part, on Defendants' acting in concert. Without the agreement of each of the Tobacco Companies to suppress the truth about the health consequences and addictive nature of using tobacco products, the deception that the joint industry research efforts were objective would have been revealed and the claim that "not enough facts are known" to indict the use of the products would have been debunked. Defendants agreed to come and stay together in order to accomplish what would not otherwise have occurred -- the unified and consistent dissemination of false information and the distortion of public information about the use of tobacco products and their impact on health and addiction. Similarly, the strategy of restraining competition by refraining from producing and marketing less harmful products arose from Defendants' conspiratorial and concerted action.

76. Defendants were aware that unless they took the actions they agreed to take and subsequently took, the volume of tobacco product sales would have substantially decreased, and the size of their profits would have diminished substantially. Defendants were also aware that if they were required to pay the health care costs, caused by, and resulting from, the use of their products including the costs of diagnosis, treatment, prescription drug benefits and surgical procedures -- such as those costs incurred by the BC/BS Plans -- the Tobacco Companies' profits would have decreased substantially.

77. The BC/BS Plans were directly and indirectly injured by Defendants' wrongful and unlawful conduct in several significant ways, as alleged in detail below. The Tobacco Companies have known since at least the 1950s that their products are inextricably linked to the health care market. Indeed, 1968 internal draft Philip Morris memorandum stated: "Most Philip Morris products, both tobacco and non-tobacco, are related to the health field." Defendants have known that health benefit and insurance payers, including the BC/BS Plans, would be directly affected in their business and property by the Tobacco Companies' actions. Defendants have known that health care payers and insurers, including the BC/BS Plans, would and did rely to their detriment on Defendants' false and misleading statements.

78. But for the Tobacco Companies' and the other Defendants' campaign of misinformation regarding the dangerous and deadly effects of nicotine and tobacco consumption, third party payers, including the BC/BS Plans, would have had the opportunity to pay for counseling by health care providers with respect to smoking and health. By preventing or causing the delay of such counseling efforts and programs, the Tobacco Companies and other Defendants have substantially increased the number of BC/BS Plan members requiring medical treatment for tobacco-related diseases and addiction. Through their illegal course of conduct, the Tobacco Companies have substantially increased the costs incurred by the BC/BS Plans.

79. In addition, had the Tobacco Companies and other Defendants disclosed their confidential research demonstrating the deadly and dangerous effects of smoking and chewing tobacco and otherwise refrained from their conspiracy of deceit, governmental entities which bear responsibility for the public's health would have initiated or initiated sooner programs that would have reduced the incidence of smoking and chewing tobacco among the general population and among the BC/BS Plans' members. By staving off government regulation, Defendants caused the perpetuation of cigarette smoking, thereby increasing the incidence of smoking-related diseases among the public at-large and Plaintiffs' members. Defendants' unlawful conduct directly injured the BC/BS Plans by increasing the number of members requiring medical treatment for tobacco and nicotine-related illnesses and addiction.

The Tobacco Companies' Ongoing Public Deception About Smoking and Health

80. Inhalable tobacco became widely popular in the 19th century when W. Duke and Sons ("Duke") introduced a mechanized cigarette-rolling machine. Through this device, cigarettes were mass-produced, distributed and sold nationwide.

81. In 1881, Duke's factory produced 9.8 million cigarettes, 1.5 percent of the total market share. Only five years later, Duke manufactured 744 million cigarettes, more than the national total in 1883. By 1890, Duke's competitors, who by that time had become mechanized, joined forces with Duke to establish The American Tobacco Company. By the turn of the century, nine out of every ten cigarettes were manufactured or sold by W. Duke and Sons.

82. Shortly after the formation of The American Tobacco Company, the State of North Carolina initiated an antitrust suit against the company. In May 1911, the Supreme Court dissolved The American Tobacco Company, which was succeeded by four large firms: Liggett, R.J. Reynolds, Lorillard and American, plus many smaller firms.

83. Cigarette smoking increased dramatically in the first half of the 20th century, followed by an increase in incidences of lung and other cancers and diseases. As a result, issues concerning the health effects associated with smoking cigarettes began to arise. In a 1946 letter from a Lorillard chemist to its manufacturing committee, it was reported that: "Certain scientists and medical authorities have claimed for many years that the use of tobacco contributes to cancer development in susceptible people. Just enough evidence has been presented to justify the possibility of such a presumption." Similarly, in 1945, Dr. Alton Ochsner, a New Orleans surgeon and regional medical director of the American Cancer Society, told an audience at Duke University that "there is a distinct parallelism between the incidence of cancer of the lung and the sale of cigarettes . . . [that] the increase is due to the increased incidence of smoking and that smoking is a factor because of the chronic irritation it produces."

84. In response to such medical concerns about smoking, the Tobacco Companies through industry spokesmen dismissed such reports as "the health scare." The Tobacco Companies also engaged in advertising campaigns to induce the public to believe that cigarette smoking was actually beneficial to one's health. The Tobacco Companies made express claims and warranties as to the healthfulness of their products with reckless disregard to the falsity of their claims and the consequential adverse impact on consumers. Examples of their health warranties include the following: Old Gold, "Not a cough in a Carload"; Camel, "Not a single case of throat irritation due to smoking Camel"; Philip Morris, "The Throat-tested cigarette." Brown and Williamson also claimed that Kool cigarettes would keep the head clear and/or provide protection against colds.

85. These health-claim advertising campaigns were disseminated nationally in popular magazines, as well as on radio and television, and were calculated to persuade non-smokers to begin smoking and to persuade smokers to continue their use of products already causing them harm and injury. These campaigns were materially false and misleading.

86. There are numerous other examples of the Tobacco Companies' materially deceptive campaigns. In 1952, Liggett conducted a test for advertising purposes to demonstrate the absence of harmful effects of smoking Chesterfield cigarettes on the nose, throat and affected organs. The tests were designed to have no real scientific value. Nonetheless, the test's rigged conclusion that smoking Chesterfield cigarettes had no harmful effect on the stated organs was widely publicized, and the purported results were used by Liggett to assure the general public that smoking Chesterfield cigarettes was harmless.

87. During the 1950s, Liggett sponsored the nationally popular Arthur Godfrey radio and television show wherein health claims were made based on alleged scientific studies assuring that "smoking Chesterfields would have no adverse effects on the throat, sinuses or affected organs."

88. Earlier consumer-oriented ads from the 1930s and 1940s often spouted wide-ranging medical claims that depicted physicians holding cigarettes in the company of endorsers including Santa Claus ("Luckies are easy on my throat"), movie stars, sports heroes and circus stars. Similar ads even appeared in medical journals, targeted directly to physicians. One, for example, touted the Camel cigarette booth at the American Medical Association's 1942 Annual Meeting.

89. Chesterfield cigarette ads begun running in the New York State Journal of Medicine as early as 1933. The ads carried claims such as "Just as pure as the water you drink… and practically untouched by human hands."

90. The Tobacco Companies sponsored cigarette ads in the New England Journal of Medicine, the Journal of the American Medical Association ("JAMA") and The Lancet from the 1930s through the 1950s.

91. For years, Philip Morris made various claims that its cigarettes were less irritating than other brands. An advertisement in a 1943 issue of the National Medical Journal urged: "Don't smoke is hard advice for patients to swallow. May we suggest instead 'Smoke Philip Morris?' Tests showed three out of every four cases of smokers' cough cleared on changing to Philip Morris. Why not observe the results for yourself?" Another Philip Morris ad published in JAMA in 1949 averred: "Why many leading nose and throat specialists suggest, 'Change to Philip Morris! . . . '"

92. Other companies employed different marketing techniques aimed at physicians. For example, Camel cigarettes paid tribute to medical pioneers and concluded: "Experience is the best teacher…[e]xperience is the best teacher in cigarettes, too." Old Gold reacted to early negative medical studies with the slogan: "If pleasure's your aim, not medical claim. . . ."

The Tobacco Companies' Conspiracy Began in Earnest In Order To Counter A Public Health "Scare" Over Tobacco

93. The conspiracy and combination among the Tobacco Companies was formed no later than the early 1950s in response to the release of information about scientific research linking health hazards to tobacco consumption.

94. The Tobacco Companies knew well before the 1950s that tobacco use was deadly. However, in 1952, Sir Richard Doll, an eminent British epidemiologist, issued a report stating that lung cancer was more common among people who smoked and that the risk of lung cancer was directly proportional to the number of cigarettes smoked. Brown & Williamson and the other Tobacco Companies were aware of the implications of this research. Indeed, a Brown & Williamson review of published statistical research, including the 1952 report by Doll, noted that the studies offered "frightening testimony from epidemiological studies."

95. In December 1953, Dr. Ernest Wynder of the Sloan-Kettering Institute published a report confirming that cigarettes cause cancer based on experiments in which the skin of mice had been painted with residues of cigarette smoke. Dr. Wynder's report represented an experimental confirmation of earlier epidemiological studies linking tobacco with cancer. Following publication of the Wynder study, sales of both nicotine tobacco products and tobacco stock prices fell. These events provoked an immediate response by the Tobacco Companies.

96. On December 14, 1953, Brown & Williamson President Timothy V. Hartnett circulated a memorandum to the other Tobacco Companies proposing that in response to the "health issue," the Tobacco Companies should (a) assist "scientific research," with a group decision in advance about "how to handle significantly negative research results if, as, and when they develop" and (b) carry out the best public relations campaign ever. Hartnett noted that no public relations firm "ha[d] ever been handed so real and yet so delicate a multimillion dollar problem."

97. The next day, the presidents of Philip Morris, R.J. Reynolds, American Tobacco, Brown & Williamson, Lorillard and U.S. Tobacco met at The Plaza Hotel in New York City. This meeting was unprecedented because the participants had been previously subject to the terms of an earlier dissolution decree and found guilty of price-fixing.

98. At the meeting, six of the Tobacco Companies conspired and agreed on the strategy to deal with the "health issue" -- a strategy they have followed to this day. The strategy involved carrying out an illegal, fraudulent conspiracy involving violation of antitrust laws and other wrongdoing, as described in detail herein. Among other things, these Defendants agreed to (a) stop competing with each other in making or developing less harmful cigarettes; (b) continue knowingly and willfully to engage in misrepresentations and deceptive acts by, among other things, denying knowledge that cigarettes caused disease and death and agreeing not to disseminate harmful information showing the destructive effects of nicotine and tobacco consumption; (c) shut down research efforts and suppress medical information that appeared to be adverse to the Tobacco Companies' position that tobacco was not harmful; (d) not to compete with respect to making any claims relating to the relative health-superiority of specific tobacco products; and (e) to confuse the public about, and otherwise to distort, whatever accurate information about the harmful effects of their products became known despite their conspiracy of deceit. Throughout the course of this conspiracy, the Tobacco Companies fraudulently promised the public and those involved in financing public health care, including the BC/BS Plans, that they would accept paramount responsibility for the health of smokers, would fund independent research in an honest effort to discover the objective truth about cigarettes and health and would disclose all information about smoking and health.

99. Defendant Hill and Knowlton, a public relations company, coordinated and later prepared a memorandum summarizing this meeting. According to the memorandum, each of the company presidents attending the meeting emphasized that he considered the program to be a "long term one," and that the meeting participants were "emphatic in saying that the entire activity is a long-term, continuing program."

100. As stated in the Hill and Knowlton memorandum, the participants at this meeting recognized that "their own advertising and competitive practices have been a principal factor in creating a health problem," and that their agreement to "do something about it," might "very clearly fall within the purview of the antitrust act." The memorandum thus set forth an explicit intent to violate the antitrust laws by suppressing competition based on claims of superior health benefits associated with an individual company's products. As a result and part of this anticompetitive intent and agreement the Tobacco Companies suppressed research, development, and marketing of less harmful products. To enforce this unlawful agreement, the Tobacco Companies further agreed not to compete based on claims of superior health benefits. By doing so, Tobacco Companies ensured the unprofitability of marketing a less harmful cigarette.

101. The participating cigarette executives recognized that the "problem is one of promoting cigarettes and protecting them from these and other attacks that may be expected in the future." The participating cigarette executives also "agreed to go along with a public relations program on the health issue" through an informal enterprise rather than a more formal association. The memorandum stated that "because of the antitrust background, the companies do not favor the incorporation of a formal association. Instead, they prefer strongly the organization of an informal committee which will be specifically charged with the public relations function and readily identified as such."

102. The six Tobacco Companies involved at the time and Hill & Knowlton intended that Hill and Knowlton play a central role in the conspiracy. "The current plans are for Hill and Knowlton to serve as the operating agency of the companies, hiring all the staff and disbursing all funds."

The Tobacco Companies Undertook a Duty To Investigate and Tell the Truth About the Adverse Effects of Smoking, But Repeatedly Lied to the Public and Governmental Agencies, Breaching This Duty

103. On January 4, 1954, Philip Morris, R.J. Reynolds, Brown & Williamson, American Tobacco, Lorillard and U.S. Tobacco, in furtherance of their conspiracy, organized and became members of the "Tobacco Industry Research Committee" ("TIRC"). Liggett became a member in 1964 at the same time the TIRC changed its name to the Council for Tobacco Research ("CTR"), one of the Defendants in this action. Similar "research" groups were formed in other countries. TIRC, CTR, and the other "research" groups were not true research groups; they merely used propaganda and public relations techniques to advance the Tobacco Companies' false claim that there was no known connection linking the use of tobacco products and nicotine consumption with disease.

104. On that same day, those Tobacco Companies (American Tobacco, Brown & Williamson, Lorillard, Philip Morris, R.J. Reynolds and U.S. Tobacco) announced the formation of TIRC in a statement deceptively entitled "A Frank Statement to Cigarette Smokers." These defendants published the statement in newspapers in virtually every city with a population of 50,000 or more, reaching more than 43 million Americans out of a population at that time of approximately 150 million. The advertisement explicitly and specifically stated in part:

a. "Recent reports on experiments with mice have given wide publicity to a theory that cigarette smoking is in some way linked with lung cancer in human beings."

b. "Although conducted by doctors of professional standing, these experiments are not regarded as conclusive in the field of cancer research."

c. "That there is no proof that cigarette smoking is one of the causes" of lung cancer.

d. "We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business."

e. "We believe the products we make are not injurious to health."

f. "We always have and always will cooperate closely with those whose task it is to safeguard the public health."

g. "We are pledging aid and assistance to the research effort into all phases of tobacco use and health."

h. "For this purpose we are establishing a joint Industry group consisting initially of the undersigned. This group will be known as TOBACCO INDUSTRY RESEARCH COMMITTEE."

i. "In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition, there will be an Advisory Board of scientists disinterested in the cigarette industry."

j. "This statement is being issued because we believe the people are entitled to know where we stand on this matter and what we intend to do about it."

105. Shortly after creating the TIRC, the member cigarette manufacturers made an unambiguous pledge to the public. Liggett joined in this pledge in 1964 when it joined the TIRC. The Tobacco Companies represented that they would, through the TIRC, conduct and report objective and unbiased research regarding smoking and health. When they made this representation, Defendants knew or should have known that consumers and others throughout the country would consider the representation material to their decisions to purchase and smoke cigarettes. Defendants knew or should have known that health care payers and similar organizations, including the BC/BS Plans, would rely upon their statements. Similarly, Defendants also knew or should have known that responsible governmental agencies and authorities would fail to take or delay taking public health measures they otherwise would have taken had Defendants fulfilled their pledge. At that time, and continuing to the present, Defendants knew that their failure to fulfill the duty they undertook, and their other conduct as alleged herein, would result in increased health care costs to health care payers, including the BC/BS Plans. Indeed, one of the purposes of Defendants' conduct was to distort and manipulate the health care market in order to deflect responsibility and financial obligations from themselves to others, including the BC/BS Plans.

106. Defendants' undertakings in the "Frank Statement to Cigarette Smokers" were recognized as creating responsibility at the time that Statement was made. A Hill and Knowlton report to the TIRC, dated April 28, 1955, admitted the special responsibility of TIRC and the Tobacco Companies:

The Tobacco Industry Research Committee first appeared before the public with an assurance that the Industry itself would assume leadership in research into all aspects of tobacco use and health. . . .

This brings with it a greater responsibility to the press and the public. The TIRC will have to live up to the expectations it has created on two fronts:

First, by pushing ahead sound, but steadily to get at the facts. . . .

Second, to report to the public where it stands in the search for the desired information about cancer. . . .

107. Throughout the years, Defendants have many times repeated the promises and statements made in the "Frank Statement to Cigarette Smokers."

108. For example, the Tobacco Institute later published "A Statement About Tobacco and Health," which stated in part:

a. "We recognize that we have a special responsibility to the public -- to help scientists determine the facts about tobacco and health, and about certain diseases that have been associated with tobacco use."

b. "We accepted this responsibility in 1954 by establishing the Tobacco Industry Research Committee, which provides research grants to independent scientists. We pledge continued support of this program of research until all the facts are known."

c. "Scientific advisors inform us that until much more is known about such diseases as lung cancer, medical science probably will not be able to determine whether tobacco or any other single factor plays a causative role -- or whether such a role might be direct or indirect, incidental or important."

d. "We shall continue all possible efforts to bring the facts to light."

109. Similarly, on June 25, 1964, Bowman Gray, R.J. Reynolds's Chairman of the Board and a spokesperson for the Tobacco Industry, testified before a United States House of Representatives Committee that TIRC was free and independent and that it had found nothing injurious in cigarettes, but that, if it did, TIRC would bring it out.

110. In 1970, at the direction of the other Defendants, TIRC placed advertisements throughout the United States in which it again falsely claimed that there was no known link between cigarettes and disease, despite decades of "totally independent research." The Tobacco Institute further stated: "The tobacco industry recognizes and accepts a responsibility to promote the progress of independent scientific research in the field of tobacco and health."

111. On January 3, 1971 Joseph F. Cullman, III, Chairman of Philip Morris, stated on a nationally televised broadcast that:

We are also very concerned about the charges leveled against our product, and we are very anxious to do whatever we can to clear the air in this matter. We happen to be optimistic about the future, and we happen to feel that this is a great industry, and that this industry can face the future with confidence because when, as, and if any ingredient in cigarette smoke is identified as being injurious to human health, we are confident that we can eliminate that ingredient.

112. In 1982, Edward A. Horrigan, Jr., then Chairman of the Executive Committee of the Tobacco Institute, publicly stated:

After three decades of investigation and millions of dollars invested by the government, the Tobacco Industry and private organizations, the smoking and health controversy remains unresolved. The net result of all of this effort has been that no causal link between smoking and disease has been established. That is not merely the opinion of Tobacco Industry executives. That is scientific fact readily available to anyone willing to make an objective, unemotional study of the existing evidence.

113. A R.J. Reynolds executive wrote the following to a grade school principal in 1990, in response to a letter from fifth-graders:

Despite all the research going on, the simple and unfortunate fact is that scientists do not know the cause or causes of the chronic diseases reported to be associated with smoking. . . . We would appreciate your passing this information along to your students.

114. To this day, Defendants continue this deception and unless enjoined this deception will continue. In March 1998, Geoffrey Bible, the Chairman and CEO of Philip Morris, stated under oath to a committee of the U.S. Senate that he does not believe that people die from smoking. Mr. Bible subsequently stated in open court that his company has a duty to inform the public of the risks of smoking, to make as safe a product as it possibly can, to tell consumers what it knows about the risks of its products and that his company should be held accountable if it violated any one of those duties. Philip Morris has in fact violated all of these duties.

115. Mr. Bible's statements were false and designed to deceive. Mr. Bible knew at the time he made those statements that the Tobacco Companies (including Philip Morris) have in fact known and admitted in their internal records that smoking causes cancer and other diseases but Philip Morris and the other Tobacco Companies continue to claim falsely that they do not know whether smoking does so.

Defendants Knew For At Least Four Decades That Cigarettes And Other Tobacco Products Were Deadly and Addictive and that Tobacco Products and Defendants' Wrongful Conduct Would Increase Plaintiffs' Health Care Costs

116. Despite Defendants' continued statements that it has not been proven that cigarettes are deadly or addictive, secret internal company documents only released to the public in the past year or so show that Defendants have known all along that tobacco causes disease and death and that it is addictive. Moreover, Defendants used their so-called research councils to propagate their misrepresentations. Recently released, secret internal documents show that the Tobacco Companies were aware from the outset that they could not reveal their knowledge that their products were unsafe, nor could they develop less harmful alternatives without, in effect, indicting their own industry.

117. These documents indicate that, in 1958, three representatives of BATCO met during a month-long trip to the United States with over twenty American scientists and researchers, including at least nine representatives of the U.S. tobacco industry and the Scientific Advisory Board of TIRC. The BATCO representatives stated that all of the tobacco company researchers with whom they met (and all but one of the outside people) "believed that smoking causes lung cancer."

118. They also found "general acceptance of the view that the most likely means of causation is that tobacco smoke contains carcinogenic substances present in sufficient quantity to promote lung cancer when acting for a long time in a sensitive individual."

119. Defendants have known for almost four decades, if not longer, that people continue to smoke because they are addicted. Recently disclosed documents concerning BATCO's "Project Hippo" indicate that, at least as early as 1961, the Tobacco Companies knew of the physiological and pharmacological effects of nicotine. Project Hippo reports were circulated to TIRC, BATCO, Brown & Williamson and R.J. Reynolds. In 1962, Brown & Williamson's parent company conducted a meeting of its worldwide subsidiaries in Southampton, England. At this meeting, one researcher stated that "smoking is a habit of addiction" and "(n)icotine is not only a very fine drug, but the technique of administration by smoking has considerable psychological advantages." Several years later, in 1967, the researcher admitted that the company is in the "nicotine rather than the tobacco industry."

120. These recently released secret documents indicate that Addison Yeaman, General Counsel at Brown & Williamson, wrote in 1963, that the U.S. Surgeon General had concluded that cigarettes "cause, or predispose, lung cancer" and that "[t]hey contribute to certain cardiovascular disorders" and "may well be truly causative in emphysema, etc." Yeaman concluded that "[w]e are, then, in the business of selling nicotine, an addictive drug."

121. A secret report distributed to Philip Morris executives in 1971 noted that only 28 percent of those who tried to quit were still nonsmokers eight months later. The report also described the effects of quitting:

Even after eight months quitters were apt to report having neurotic symptoms, such as feeling depressed, being restless and tense, being ill-tempered, having a loss of energy, being apt to doze off. They were further troubled by constipation and weight gains which averaged about five pounds per quitter. . . . This is not the happy picture painted by the Cancer Society's anti-smoking commercial which shows an exuberant couple leaping into the air and kicking their heels with joy because they've kicked the habit. A more appropriate commercial would show a restless, nervous, constipated husband bickering viciously with his bitchy wife who is nagging him about his slothful behavior and growing waistline.

122. A 1983 R.J. Reynolds report concluded that people smoke to obtain "physiological satisfaction provided by the nicotine." A 1972 Philip Morris report presented at a CTR conference stated that the physiological effect of cigarettes is the "primary incentive; all other incentives are secondary;" "nicotine is the active constituent of cigarette smoke;" and "[w]ithout nicotine . . . there would be no smoking."

123. The report goes on to ask:

Why then is there not a market for nicotine per se, to be eaten, sucked, drunk, injected, inserted or inhaled as a pure aerosol? The answer, and I feel quite strongly about this, is that the cigarette is in fact among the most awe-inspiring examples of the ingenuity of man. Let me explain my conviction.

The cigarette should be conceived not as a product but as a package. The product is nicotine. . . .

Think of the cigarette pack as a storage container for a day's supply of nicotine. . . . Think of the cigarette as a dispenser for a dose unit of nicotine.

124. A 1956 confidential memorandum from a Philip Morris Vice President of Research and Development to top executives at the company regarding the advantages of "ventilated cigarettes" stated: "Decreased carbon monoxide and nicotine are related to decreased harm to the circulatory system as a result of smoking. . . . [D]ecreased irritation is desirable . . . as a partial elimination of a potential cancer hazard."

125. In a March 1957 confidential report, a Brown & Williamson affiliate conducting research for the company reported that "[a]s a result of several statistical surveys, the idea has arisen that there is a causal relation between zephyr and tobacco smoking, particularly cigarette smoking." "Zephyr" was the Brown & Williamson secret code name for cancer.

126. A 1958 confidential memorandum to a Philip Morris Vice President of Research, who later became a member of its Board of Directors, stated that "the evidence . . . is building up that heavy cigarette smoking contributes to lung cancer either alone or in association with physical and physiological factors."

127. A 1961 confidential document presented to the Philip Morris Research and Development Committee by the company's Vice President of Research and Development included a section entitled "Reduction of Carcinogens in Smoke," stating in part as follows:

To achieve this objective will require a major research effort, because. . . .

Carcinogens are found in practically every class of compounds in smoke.

This fact prohibits complete solution of the problem by eliminating one or two classes of compounds. The best we can hope for is to reduce a particularly bad class, i.e., the polynuclear hydrocarbons, or phenols. . . .

Flavor substances and carcinogenic substances come from the same classes, in many instances.

128. A 1961 confidential memorandum from a research consulting firm hired by Liggett stated that cigarette tobacco contains "biologically active materials" that are cancer causing, cancer promoting, poisonous, stimulating, pleasurable and flavorful.

129. A 1963 confidential memorandum from the Liggett consulting research firm stated:

Basically we accept the inference of a causal relationship between the chemical properties of ingested tobacco smoke and the development of carcinoma, which is suggested by the statistical association shown in the studies of Doll and Hill, Horn, and Dorn with some reservations and qualifications and even estimate by how much the incidence of cancer may possibly be reduced if the carcinogenic matter can be diminished, by an appropriate filter, by a given percentage.

130. Liggett withheld this information from the public, the health care industry, and health benefit payers including the BC/BS Plans, in 1963 by presenting to the U.S. Surgeon General a report that focused on alternative causes of disease (such as air pollution, coffee, alcohol, diet, lack of exercise and genetics) and that criticized the alleged statistical association between smoking and diseases as "unreliably conducted" and "inadequately analyzed." The Liggett report concluded that the association between smoking and disease was inconclusive and was in fact due to other factors coincidentally associated with smoking.

131. A 1963 confidential memorandum to Philip Morris's President and CEO from the company's Vice President of Research describes components of cigarette smoke as "known carcinogens" and identifies a link between smoking and bronchitis and emphysema:

Irritation problems are now receiving greater attention because of the general medical belief that irritation leads to chronic bronchitis and emphysema. These are serious diseases involving millions of people. Emphysema is often fatal either directly or through other respiratory complications. A number of experts have predicted that the cigarette Industry ultimately may be in greater trouble in this area than in the lung cancer field.

132. Brown & Williamson and its parent company BATCO researched the health effects of nicotine and were aware early on, as reported at a B.A.T. Group Research Conference in November 1970, that "nicotine may be implicated in the aetiology [cause] of cardiovascular disease."

133. As early as 1962, Defendants recognized that they had to misrepresent what they knew about smoking and health and that they could not afford to develop a less harmful cigarette because to do so would indict their own products, causing the Tobacco Companies to be liable for health care costs associated with tobacco use.

134. That same year, Brown & Williamson's parent company conducted a meeting of its worldwide subsidiaries in Southampton, England. A transcript of the meeting reveals the following regarding the health effects of smoking:

a. One research executive "thought we should adopt the attitude that the causal link between smoking and lung cancer was proven because then at least we could not be any worse off."

b. Another researcher stated:

[N]o industry was going to accept that its product was toxic, or even believe it to be so, and naturally when the health question was first raised, we had to start denying it at the P.R. level. But by continuing that policy, we had got ourselves into a corner and left no room to maneuver. In other words, if we get a break-through and were able to improve our product, we should have to about face, and this was practically impossible at the P.R. level.

c. The chairman of Brown & Williamson's British affiliate stated:

[It] was very difficult when you were asked as chairman of a tobacco company to discuss the health question on television. You had not only your own business to consider but the employees throughout the industry, retailers, consumers, farmers growing the leaf, and so on. And you were in much too responsible a position to get up and say, I accept that the product which we and all our competitors are putting on the market gives you cancer, whatever you might think privately.

d. The chairman also stated that if the company manufactured safer brands, "how to justify continuing the sale of other brands? . . . It would be admitting that some of its products already on the market might be harmful. This would create a very difficult public relations situation."

e. Addison Yeaman, then General Counsel, suggested that Brown & Williamson "accept its responsibility" and disclose the hazards of cigarettes to the Surgeon General. He noted that this would allow the company to research and develop openly a "safer cigarette." Yeaman warned, however, that such disclosure would show jurors that the cigarette companies had known of the hazards of their products and had had the means to make safer cigarettes, but had not. Yeaman's suggestion for full disclosure was rejected.

135. In 1963, Brown & Williamson engaged in an internal debate over whether to disclose what it knew about the adverse effects of smoking to the Surgeon General, who was preparing his first official report on cigarettes. It was decided that the information would not be disclosed. Some of the documents generated by Brown & Williamson as part of this process were shared with its London-based parent company, as well as other cigarette manufacturers and the TIRC/CTR.

136. Philip Morris also concealed from the public its actual views of the research conducted outside the influence of the industry. In a 1971 memorandum, Dr. H. Wakeham, then Vice President of Research and Development, in referring to a recent study that found inhalation of cigarette smoke caused lung cancer in beagles, stated: "1970 might very properly be called the year of the beagle. Early in the year, the American Cancer Society announced that they had finally demonstrated the formation of lung cancer in beagles by smoke inhalation in the now infamous Auerbach and Hammond Study." Although Dr. Wakeham criticized the mice cancer studies, he conceded that "the beagle test was a critical one . . . for the cigarette causation hypothesis."

137. Dr. Wakeham's memorandum demonstrates Philip Morris's approval of the industry's public dismissals of these independent studies: "The strong opposition of the industry to the beagle test is indicative of a new, more aggressive stance on the part of the industry in the smoking and health controversy. We have gone over from what I have called the 'vigorous denial' approach, the take it on the chin and keep quiet attitude, to the strongly voiced opposition and criticism. I personally think this counter-propaganda is a better stance than the former one."

138. Similarly, BATCO's internal view of the validity of mouse skin painting experiments differed markedly from the view expressed in public statements. Minutes from a confidential 1969 research conference stated: "Historically, bioassay experiments were undertaken by the industry with the object of clarifying the role of smoke constituents in pulmonary carcinogensis. The most widely used of these methods [was] mouse-skin painting. . . . In the foreseeable future, say five years, mouse-skin painting would remain as the ultimate court of appeal on carcinogenic effects." Two years later, a Brown & Williamson public relations document stated: "Much of the experimental work involves mouse-painting or animal smoke inhalation experiments. . . . [T]he results obtained on the skin of mice should not be extrapolated to the lung tissue of the mouse, or to any other animal species. Certainly such skin results should not be extrapolated to the human lung."

139. Notwithstanding the depth of knowledge held by the Defendants and their own certainty that smoking caused disease and death, they also understood that its deceptive public pronouncements had succeeded in defrauding the public, despite the warnings that they had been required by law to give. For example, in an internal 1978 memorandum, Brown & Williamson acknowledged that "very few consumers are aware of the effects of nicotine, i.e., its addictive nature and that nicotine is a poison." Defendants' disinformation and propaganda had, as intended by them, greatly reduced the impact of the limited information they were required to disclose or other, similar information provided by others.

140. Because of the Tobacco Companies' secret internal research, Defendants' knowledge regarding the dangerous and deadly effect of smoking and chewing tobacco, is and was superior to that of Plaintiffs and public access to these facts is and was limited because such facts have been exclusively within Defendants' control.

TIRC and CTR Were Tobacco Industry Propaganda Outfits, Fraudulently Presented as "Independent" Scientific Research Councils that in Reality Were Controlled by the Tobacco Companies and Used in Furtherance of the Conspiracy

141. To convince the public that they would use their best efforts to conduct independent and scientific research to determine and disclose the truth about the effects of smoking on individual's health, the Tobacco Companies created the TIRC and CTR and stated that their activities would be objective, independent, and unbiased. But from the very beginning, industry documents show, these groups were neither independent, scientific, nor objective. Instead, they were front groups for the Tobacco Companies whose sole objective was to conduct a campaign of deceit, misrepresentation and misinformation directed at misleading the public about the health risks of smoking.

142. A Hill and Knowlton report to TIRC's chairman, entitled "Confidential Report of Activities Through 1954," stated:

a. TIRC was not independent and was not run by scientists, but was run by Hill and Knowlton: "Since the Committee had no headquarters and no staff, Hill and Knowlton, Inc. was asked to provide a working staff and temporary office space. As a first organizational step, public relations counsel assigned one of its experienced executives, W.T. Hoyt, to serve as account executive and handle as one of his functions the duties of executive secretary for the Tobacco Industry Research Council."

b. Hill and Knowlton helped select the Scientific Advisory Board, "proposed" the Scientific Director, and "handled liaison, agendas, organizational plans, business affairs, reports, and materials for meetings of the TIRC [and] the Scientific Advisory Board, . . . in addition to developing operating procedures for the research program."

c. Hill and Knowlton used TIRC to mislead the public, rather than to discover and bring the truth to light. In essence, TIRC publicized any favorable studies and buried any unfavorable ones.

d. TIRC transformed an obscure scientific report favorable to the Tobacco Companies into national headline news and used other efforts to influence and bias the media's treatment of the issues about smoking and health. On information and belief, TIRC ghost-scripted ostensibly objective news stories.

e. In many instances, TIRC worked behind the scenes to influence the content of individual articles. In one case, TIRC's intervention resulted in extensive revisions to a story in Cosmopolitan that had already been set in type.

f. Freelance authors were hired to write favorable articles for TIRC: "Especially-written articles are being developed that can be used or adopted for use in various media receptive to or seeking material relating to the subject. . . . To achieve this objective more quickly and effectively, the freelance services of qualified science writers are being used."

143. This report was sent with a cover letter indicating that the report was "highly confidential" and warning that "no additional copies be made and that this copy not be placed in the files."

144. On July 31, 1954, Hill and Knowlton wrote a confidential report concerning TIRC's success in turning around the perception that cigarettes caused disease:

A FORWARD LOOK

Although the Industry has been bedeviled by sensational headlines generated often by publicity seeking researchers and a seeming revival of the anti-cigarette crusade, the trend is beginning to turn. In 1953, no voice was being raised on behalf of the Industry. Press comment was almost entirely limited to a reflection of unproven theories which most people were accepting as proven facts. No balancing information was being made available.

The progress of the [TIRC's] program is bringing greater acceptance of the Industry's sincere efforts. The publicity accompanying each step taken so far by the Tobacco Industry Research Committee, particularly since the selection of the Scientific Director and the Scientific Advisory Board, has helped bring understanding that the charges against tobacco are not proven and are not joined in by a large body of scientific opinion. The bulk of editorial comment now appearing approves and, at times, applauds the action of the Industry.

145. Another Hill and Knowlton memorandum describing projects from August through September 1954 indicated that TIRC's Scientific Director and Chairman met with publishers and repeated the promise that the Tobacco Companies intended to support a "long-range . . . research program devoted primarily to the public interest." This statement was made to publishers, presidents, or board chairmen of the New York Times, the New York Herald Tribune, Scripps-Howard Newspapers, Hearst Consolidated Publications, and Luce Publications.

146. The memorandum describes how TIRC influenced television shows:

A conference was held with Edward R. Murrow, Fred Friendly, his producer, at the [TIRC] offices in the Empire State Building. . . .The Murrow staff emphasized the intention to present a coldly objective program with every effort made to tell the story as it stands today, with special effort toward balanced perspective and concrete steps to show that the facts still are not established and must be sought by scientific means such as the research activities of the [TIRC] will support. Mr. Murrow was assured of continued cooperation from the [TIRC] to the extent possible under the scope of the TIRC program.

147. On April 28, 1955, Hill and Knowlton wrote a confidential "Public Relations Report" to the TIRC. The report found that after a year of intensive public relations activities "progress has been made":

The first "big scare" continues on the wane. There is much general awareness of the big IF factors involved. . . . Treatment of the cigarette-health issue in public media continues to improve from the [TIRC] point of view. Even adverse stories now tend to carry modifying statements. Positive stories are on the ascendancy.

148. Many other confidential internal company documents indicate awareness that the so-called "research" councils were intended not to find out and provide the truth or objective facts, but to play a propaganda and public relations role, as the following examples demonstrate:

a. "CTR began as an organization called Tobacco Industry Research Council (TIRC). It was set up as an industry shield in 1954. That was the year statistical accusations relating smoking to diseases were leveled at the Industry; litigation began; and the Wynder/Graham reports were issued. CTR has helped our legal counsel by giving advice and technical information, which was needed at court trials. . . . [T]he public relations value of CTR must be considered and continued. . . . It is very important the industry continue to spend their dollars on research to show that we don't agree that the case against smoking is closed."

b. "CTR is the best & cheapest insurance the tobacco industry can buy and without it the Industry would have to invent CTR or would be dead."

c. "Historically, the joint industry funded smoking and health research programs have not been selected against specific scientific goals, but rather for various purposes such as public relations, political relations, position for litigation, etc. . . . In general, these programs have provided some buffer to public and political attack of the industry, as well as background for litigious [sic] strategy."

d. "Historically, it would seem that the 1954 emergency was handled effectively. From this experience there arose a realization by the tobacco industry of a public relations problem that must be solved for the self-preservation of the industry."

e. "To date, the TIRC program has carried its fair share of the public relations load in providing materials to stamp out brush fires as they arose. While effective in the past, this whole approach requires both revision and expansion. The public relations program . . . was like the early symptoms of diabetes -- certain dietary controls kept public opinion reasonably healthy. When some new symptom appeared, a shot of insulin in the way of a news release . . . kept the patient going."

f. "When the products of an industry are accused of causing harm to users, certainly it is the obligation of that industry to endeavor to determine whether such accusations are true or false. Money spent for such purpose should not be regarded as a charitable contribution but as a business expense -- an expense necessary to keep that industry alive. In view of the billions of dollars of annual sales of our industry our expenditures for health research has been of a minimal order."

g. "For nearly twenty years, this industry has employed a single strategy to defend itself on three major fronts -- litigation, politics, and public opinion. While the strategy was brilliantly conceived and executed over the years, helping us win important battles, it is only fair to say that it is not -- nor was it intended to be -- a vehicle for victory. On the contrary, it has always been a holding strategy, consisting of creating doubt about the health charge without actually denying it."

h. In the cigarette controversy, the public -- "especially those who are present and potential supporters (e.g., tobacco state congressmen and heavy smokers) -- must perceive, understand, and believe in evidence to sustain their opinions that smoking may not be the causal factor."

Defendants Fraudulently Hid, Concealed, and Destroyed Research

149. As discussed above, in many statements published in and following 1954, Defendants represented themselves as intending to discover and disclose the truth about smoking and health. Internal company documents reveal that in this period Defendants suppressed and concealed a great deal of research and information that was contrary to their public positions.

150. For example, Brown & Williamson continued to conduct and conceal biological research confirming that tobacco products cause adverse health effects. The more sensitive research was often undertaken by Brown & Williamson's British affiliate, acting on behalf of Brown & Williamson, including research at a laboratory called Harrowgate. This laboratory performed work for a number of cigarette manufacturers, and some of this research was shared with these other companies and TIRC. Brown & Williamson's use of the code name "zephyr" to refer to cancer helped suppress its confidential findings that there is a "causal relation" between "zephyr and tobacco smoking."

151. In the late 1960s, R.J. Reynolds had a state-of-the-art laboratory in Winston-Salem, nicknamed "the mouse house." There, scientists conducted research with mice, rats, and rabbits and began to uncover promising avenues of investigation into the mechanisms of nicotine-related diseases. One day in 1970, this entire research division was disbanded and all 26 scientists were fired without notice. R.J. Reynolds's in-house attorneys had collected dozens of research notebooks from the biochemists several months before the firings. These research notebooks remain undisclosed.

152. In the early 1980s, researchers working at a Philip Morris laboratory in Richmond further confirmed the addictive nature of nicotine and worked to develop a synthetic form of nicotine that would avoid its cardiovascular complications. The research was conducted by Victor J. DeNoble and his colleague Paul C. Mele. The research was so secretive that laboratory animals were brought in at night under cover.

153. The researchers discovered that nicotine demonstrated addictive qualities and that the animals self-administered the substance by pressing levers to obtain nicotine. The synthetic or artificial forms of nicotine or nicotine analogues under research affected the brain much like nicotine, without the harmful cardiovascular effects of nicotine or tobacco. Rats using the analogue behaved as though they had a nicotine "high," but did not show signs of heart distress, such as rapid heart beat.

154. In June 1983, DeNoble was called to the Philip Morris headquarters in New York to brief top executives. After the meeting, company lawyers visited the lab and reviewed research notebooks. There were discussions of shifting the research out of the company, perhaps to DeNoble and Mele as outside contractors or to a lab in Switzerland, to distance Philip Morris from the results.

155. In April 1984, Philip Morris representatives instructed the researchers to stop work, kill all the animals, turn in their security badges, and withdraw a paper on the addictive qualities of nicotine that had been accepted for publication by a scientific journal. Philip Morris closed the laboratory, fired the researchers, forced them to agree to remain quiet about their work, and threatened them with legal action if they published their work.

156. The researchers remained silent about their work until testifying in 1994 before a congressional committee in Washington, D.C.

157. Defendants did not merely conceal all negative research information, but they also assigned all research information indicating that cigarette smoking is addictive to a so-called "Special Projects" division of TIRC, where the information was secreted from the public and concealed from discovery in litigation against the Tobacco Companies by improper assertion of the attorney-client privilege.

158. The purpose of the "Special Projects" division was to choose selectively, and with bias, research projects regarding the links between smoking and disease in order to develop expert witnesses for defense purposes in tort suits against the Tobacco Companies. Consistent with this purpose, the Tobacco Companies' attorneys were substantially involved in strategic and specific decision-making within the "Special Projects" division in order to hide adverse information and evidence from the public through spurious claims of attorney-client privilege. For example, a memorandum from 1981 explained, "Difference between CTR and Special Four (lawyers' projects). Director of CTR reviews special projects -- if project was problem for CTR, use Special Four."

159. The Tobacco Companies have been successful in using the CTR Special Projects division to conceal harmful information. Research from the Special Projects division remains shielded from public scrutiny. Individual companies furthered the conspiracy by shielding company documents with bogus claims of attorney-client privilege and through tactics such as that undertaken by Brown & Williamson, which over the years has transferred highly relevant documents (described disingenuously but ironically as "deadwood") to its British parent company, B.A.T., so that they would not be discovered in legal proceedings in the United States.

Defendants Misrepresented Health Claims

160. As discussed below, Defendants restrained, concealed, and suppressed research and potential development, marketing, and manufacturing of less harmful and less addictive cigarettes. Despite their ability to produce less harmful cigarettes, Defendants did not market such products, except in limited test markets, which they later abandoned. Instead, Defendants fraudulently promoted filtered and low-tar cigarettes as safer or healthier, which was untrue.

161. During the early 1950s, when the first studies implicating smoking as a cause of lung cancer were being publicized, cigarette sales fell for the first time since the depths of the Great Depression. Defendants responded with massive advertising and public relations campaigns claiming that smoking filtered cigarettes was a reasonably safe alternative to quitting. In 1950, only about one percent of cigarettes were sold with filters. By the end of that decade, more than half of all cigarettes were sold with filters.

162. For example, Philip Morris ads claimed that "no other popular filter cigarette delivers less nicotine and tar." Its Viceroy cigarettes were promoted with the "health guard filter." Some of the claims included:

New health guard filter makes Viceroy better for your health; new king-size Viceroy gives you double-barreled health protection. Leading N.Y. doctor tells his patients what to smoke! Filtered cigarette smoke is better for health.

Prominent physician tells patients -- smoke Viceroy filter-tipped cigarettes. The nicotine and tar is trapped by the Viceroy filter and cannot reach mouth, throat, or lungs. You can see the health guard filter discolor from nicotine and tars which might otherwise be drawn into your mouth, throat, and lungs.

163. In 1952, Lorillard introduced Kent cigarettes with the "micronite" filter. Lorillard's ads claimed: "Don't be misled by conflicting claims. . . . Today as before you get less tars and nicotine in Kent than any other leading cigarette." It was represented that the micronite filter removed seven times more tar and nicotine than any other cigarette. Lorillard stated that the material in the Kent filter was developed for gas masks during the war and was at that time being used to remove radioactive particles from the air at atomic power plants. In an ad, Lorillard purportedly cited an article in the Journal of the American Medical Association:

These findings -- which show the effects of various types of cigarettes on the human system, and put Kent in a class all by itself where health protection is concerned -- have been made available to doctors. . . . It is known and provable that there is only one way to take the irritants out of tobacco smoke in sufficient quantity for the sensitive smoker. That is to take them out with a filter . . . [Kent is] a really good smoke and real protection. (Emphasis in original.)

164. In the first weeks after it was introduced, sales of Kent cigarettes greatly exceeded Lorillard's original expectations. In the early months, the biggest problem faced by the company was keeping dealers supplied.

165. Between 1952 and 1957, more than a dozen different filter cigarettes were introduced. In 1952, filter cigarettes accounted for less than one percent of the market. By 1958, there were filters on more than 40 percent of cigarettes. The decline in cigarette sales of 1953 and 1954 was reversed, and by 1957 cigarette sales exceeded the 1952 record.

166. There is no evidence that low-tar/low-nicotine cigarettes provide a significant health benefit or are materially less addicting. In most instances, low-tar/low-nicotine cigarettes increase the risk of emphysema, heart disease, and other diseases caused by smoking and are just as addictive as ordinary cigarettes. This is because smokers of low-tar/low-nicotine cigarettes tend to smoke more, inhale more deeply, and hold the smoke in their lungs longer, in order to maximize their intake of nicotine.

167. Most smokers compensate for the alleged reduced nicotine delivery from filtered cigarettes by smoking more. Since the advent of filters, average daily consumption for the typical smoker has increased from 20 to 30 cigarettes. Thus, any marginally reduced lung cancer risk from most conventional filters has been achieved at the cost of a greater risk of emphysema, heart disease, stroke, and other diseases.

168. The Tobacco Companies designed their so-called "light" products so that advertised tar and nicotine labels understate the amounts of tar and nicotine actually ingested by human smokers. Such design features include a technique called filter ventilation in which nearly invisible holes are drilled in the filter paper, or the filter paper is made more porous. Predictably, many smokers of advertised low-tar and nicotine cigarettes block the tiny, laser generated perforations in ventilated filters with their fingers or lips, thereby resulting in greater tar and nicotine yields to those smokers than those measured by the FTC smoking machine.

169. The Tobacco Companies know that the ability to block ventilation holes allows smokers to "compensate" for nicotine losses that would otherwise be caused by tar-reducing modifications. The Tobacco Companies have studied smoker compensation in order to design cigarettes that allow smokers to compensate for lower nicotine yields. One such design feature is known as "elasticity." This refers to the ability of a cigarette, whatever its FTC measured nicotine yield, to deliver enough smoke to permit a smoker to obtain the nicotine he needs, e.g., through more or longer puffs or by covering ventilation holes.

170. Industry studies show that smokers tend to ingest close to the same amount of nicotine from each cigarette despite differences in yield as measured by the FTC smoking machine. In a 1974 BATCO conference, researchers described the results of one such study:

The Kippa study in Germany suggests that whatever the characteristics of cigarettes as determined by smoking machines, the smoker adjusts his pattern to deliver his own nicotine requirements (about 0.8 mg. per cigarette).

Smokers' compensation to obtain adequate nicotine also results in the delivery of more tar than in the FTC test measure.

171. The use of ammonia is another method used by the Tobacco Companies to reduce the FTC-measured tar and nicotine levels in their cigarettes over the past two decades while still furnishing smokers with sufficient nicotine delivery. According to John Kreisher, a former associate scientific director for CTR, "[a]mmonia helped the industry lower the tar and allowed smokers to get more bang with less nicotine. It solved a couple of problems at the same time."

172. However, the use of the more potent "free" nicotine that ammonia helps release, as opposed to the slower acting salt-bound nicotine, also serves to increase the amount of nicotine delivered to smokers of "light" cigarettes. An ammoniated cigarette that delivers more potent nicotine to smokers measures the same as a cigarette with no such additives.

173. The Tobacco Companies maintain that nicotine levels follow tar levels. In the words of Dr. Alexander Spears, Vice Chairman of Lorillard, in his 1994 testimony before the Waxman Subcommittee -- "[n]icotine [level] follows the tar level," and the correlation between the two "is essentially perfect" and "shows that there is no manipulation of nicotine." Dr. Spears neglected to mention to Congress that, in a 1981 study not intended for public release, he stated explicitly that low-tar cigarettes use special blends of tobacco to keep the level of nicotine up while tar is reduced: "[T]he lowest tar segment [of product categories] is composed of cigarettes utilizing a tobacco blend which is significantly higher in nicotine." R.J. Reynolds, Lorillard, American Tobacco, and the Tobacco Institute have similarly represented to the public and to the FDA that the nicotine levels in their produc