Tobacco Documents Online

Louis U. Fink .... P. O. Box 5685 Orlando, Florida 32805 • U.S.A. ~ Upon the request-of the Director of the National Commission on Smoking and Public Policy (created by American Cancer Society), that I submit an analysis of the marketing practices of the American Tobacco Industry for inclusion in the Commission's forum in Atlanta scheduled for June 14, 1977, I have noted below the h~~to~y of the American Tobacco industry and its growth practices. . The American Tobacco industry, in the main, consists of three major corporations: R. J. Reynolds, Inc., Philip Morris, Inc., and American Brands Inc., (formerly American Tobacco Company). These three entities comprise the large.majority of the industry in sales, profits, and policy. For common purposes, the American Tobacco industry..i~i:.~958 structured theTobacco the lnstitute ~hich continues to represent members of , :i~ob~c¢o industry:.collectively in all matters relating to the industry as a super~.l~bby,/:~ Its budget ~s..undisclosed, and its principals are norm~lly identical with the principals of the major tobacco corporations. I have divided this analysis into be!o-; noted catagorles ~o that an overview of the guiding philosophy of the control of the industry's marketing decisions may be visible to the reader. Histor,v .of toba'cco nmrketin At the advent of the 20th century, tobacco products consumPtionl.had continued to be limited to a small percentage of male adults, with smoking, chewing, and sniffing considered generally as socially unacceptable conduct..Production of tobacco products was on a limited scale and there was no organized distribution industry wide. The advent of automated production machinery caDable-0f ~mss cigarette output, created a need for mass marketing techniques and the structuring of widening distribution patterns, As but one example of now available auto~mtic produCtion~i"~achines u~sed by the ~-~arg Nine machine ~roduces 70 cigarettes per second cigarette makers, the Molins '" " packaged and ready for distribution, and requires merely.SUperviscr.y::iabor its rou:~d-the-clock production capability. Hundreds-of these machi:nes are cigarette factory installations. Domestically, 'vertical pattern' distribution structuring included the franchizinB of wholesale distributors with large warehousing and financin~ capabilities on a national geographical saturation basis to, in turn, penetrate every, type of re~sil establis~a~ent catering ~o every level of the consumer public, offering i~ediate availability of cigarettes in pack or carton quantities. Wholesale distributors were granted geographical/population market area protection incentives and a continuous flow of promotion aids. o

Cigarette automateci.~ef~din~.m~zeh!, nes were designed, and incentives wer~::~Eranted to such machine distributors and make~% co_~in~ure their profitability in promoting the establishing and servicing of ~id machines by localized franchize~si:iof the vending machine companies..._This, to encourage ever increasing cigarette sales through the vending machines placed strategically in locations capturing'impulse' potential buying of cigarettes, by every type of age of humans. Internationally, American tobacco products manufacturers extended their~marketing in foreign countries with the control purc~msing of already established ~nufactures and/or distributors in such foreign nations, welding these to their corporations as controlled subsidiaries. Tobacco cash crops production was encouraged.and controlled =o provide increased availability of tobacco leaf suitable for satisfying increased marketing of cigarette consumption. . Current status of international expansion of tobacco marketing by American. tobacco corporations via acquisitions and subsidiary joint/~ent~e combinations ~s noted R. J. Reynolds: As of December, 1975, operated via S~bsidiary companies in foreiEn nations,, twelve cigarette manufacturing plants, one ciEar/cigarette plan t. Philip Morris, Inc.: As of December, 1975, operate.d~i~ subsidiary foreign companies cigarette manufacturing plants and/or wholesale distri- bution companies, in Canada, VedezueLa.~;~U.K., Australia, Hew Zealand, Brazil, Netherland Antilles, Motherland, Spain,~ Wast Germany, Switzerland, Nigerfa, Costa Ri~, ~a~ma, Indonesia, Belgium, Luxemberg. American Brands, Inc.: As of December, 1975, operated via subsidiary companies in forei~n~ nations cigarette_ manufacthring ...... plants and/or distri- bution comoanies, in U.K., Nor=hern'i~reland, Republic of Ireland, Netherlands, Italy. • ...... ....... ' With continued increase of initiation cf cash crop tDb~cco growth avail~.bility in developing nations, together with succeeding= implants of auto.~atic c:~arezte production machines, equal to the Nolins Mark 9, cigarette ava~ab!i~:y increaS~es compel the parent American ci~aretne giants ~o seek new means ~:on~tantlv to c6icbel increased percapita consumption in cigarettes, ~hus creating~n ~ev~r ending and created demand. For more than ten years to date, the tobacco industry through its ,ti~alc~o ~oeiin the congress' has, under Federal Law which defined '~obacc~ products' as: ~Food' been able to ship more than $700 millions value in tobacco preduct~ to'needy naeions~ with payment for same being made to the tobacco manufac~ur~rs by an agency Of t!~e federal goverr~ment. Not a single recipient nation ~ms evur repaid our govere~ent for these shipments. Thus, with American taxpayers funds, we Americans can state in truth that our money has served in this fashion to export to these needy nation.% Cancer, Emphesema, Heart Disease, and every other ailment related to smoking:

~istorX of Toba.cco.lndu~tr~.-Sale~._-Promotion Activities: .... .Page -3- The American tobacco industry, upon the advent of mass cigarette production capability, was faced with a problem of supply far outweighing market demand. Accordingly, in the early '30's the industry set out to establish new goals in cigarette consumption. First, it added women to their ~rket by an in~ense publicity campaign designed t~ convince women t~t smoking cigarettes Was: the way to avoid obesity. Second, it strongly promoted the conscept t~t smoking. cigarettes was now a socially acceptable act. In just one example of the above, American Tobacco Company ran a ~at~onwide advertising campaign illustrating in color, an attractive fe~le pickin~.:~Bp and smoking a cigarette while an opened but full box of chocolates was nearby with the bold cap=idn reading 'Don'~ reach for a swee~ a~d::get~fa= ... reach for a Lucky Strike instead". This was at the time when t~e ~n 'flapper' type of fe~le was the social rage. ~:~: ...... This very successful pro~tional campaign opened the ~dcors to the social accep=- anee of t~ female smoker and insured an annual increase of retie per capita cigarette cons~,p tion. Subsequently, to add ~he teenage-population se~ent:to the smoker marhe:, promo- tional displays were slanted to picture handsome young ~es l.eht~.n= cigarettes while attractive young fe~les gazed to them ~th obvious admirauion..~The r6versal of the sexes in other promotional pictured :job on young f~ales. All in all, the promotions were designed to c0ngey the social conditioning tPm~ ~eenagers were 'in' if they smoked~[and ~'oun~ if they did not. When the American ~ ban was effected, cigars=re makers poured multimillions increased advertising funds into the printed media :cigarette available brands from 15 to some 170, with each new b~randdesigned in shape, l~n~=h, color, and packaging so as to capture non-smokers b~ virt~ of impli~ 9r6~iNi ~ satisfy every need, real or i~gined, whether ~he nged be i~a~e,~ s~reng=h, virility, intelligence or a~eeDtance by others. ....... Ultra~sophistica=ion, unequalled in any other field; i~ ~Zlt.leTed by~:~!~are~e promotions to condition the ~sses no the licking, care-free activity and ~hat the majority of ~h'~ua~!~i, smoke, millions more joining the 'club' each year. The recent new issue of 'tar/nicotine.content' settled -..~:th the cigarette industry agreeing with the federal gevernment that tar/nicotine cigarette sales and promotion, It enabled the ci~areEt_ kars to develop even: more brands and to condition, with tha goverr~ment's (pos bly naive) help, ~he~non- smoking public that low tar/nicotine cigarettes were the ~nswer to (not the cigarette makers) considered harmful. Current ~ ta relative to salesiof high tar vs low tar cizarette brands, and increased per ~.~ita consumption, indicate that new smokers are switching to high tar cig.:~...~.tes. The advent of:the ~ssue of 'taste' in cigarette smoking, heavily promoted - . current C~garette ...... promotional campaigns, helps to drive the new smoker fr~,. his initi~l low far'to high tar cigarettes. o

To reinforce such c~aim7, ~fga~6~.makers employ gas chromatographs t~":"~olate the 25 or 30 compounds, out of the ~ous~n6s in cigarette smoke, ~hat impart taste out of proportion to tar content. T~ese isolated compounds are used to reinforce the "taste" of the smoke. In this manner, the agreement to print tar/nicotine contents, is exploited to advantage in increased smokers by. the tobacco, lndustry. Another gimmick employed is "puffing" whereby Freon is injected into the tobacco bulk so as to use less tobacco by allowing the "puffed" tobacco to expahdi To compensate for all these tar reducing steps, Reynolds adds flavoring to both tobacco AND filters. Cigarette free give-aways, in packages of five ci@arettes, were initiated..in trains, aircraft commercial flights, and on street corners, to have non-smokerS cry smoking. Although this practice was stopped domestically, it still continues ini:~.ii~ flights in those foreign nations where American cigarette makers have foreign Clg~rette brands marketed. Actually, airlines are favored wi~ii:spe.~ial prices on_..clgarette cartons to induce them to promote carton sales during f:lights at reduced~~:rices in foreign countries. American airlines do the same during.Overseas greatly reduced prices (tax free). To insure constant supply of cigarettes in homes, cigarette producers continue to promote bulk cigarette sales via incentive programs a~med:.at the consumer. These include refund checks mailed to carton purchasers at .food marke~s, coupon credits redeemable in many types of luxury hons~r.er commodities on a pyramid ba~s of increasing ciga~etue purchasing by each consumer, and Other incentive promotions of similar format. This is based upon the concept that the smoker %iil..smoke more frequently if he has bulk'inventory of cigarettes on~hand. Sequentially,:~he more frequently he smokes, the stronger will be his addict.ion to smoking. Concurrently, more cigarettes available in a house in bulk ~ill possibly induce non-~mokers in tha~ house to initiate smoking experimently, and fall victim eventually to the addiction. Chain food markets encourage bulk cigarette Sales and the refund check promotion with each carton sold, to encourage added consumer traffic. Premi~ give-away makers encourage cigarette coupon give-away programs with Special pricing to cigarette makers to expand their penetration of consumer: American Tobacco Company le~.ters have recently been mailed nationall~ to individuals offering a free carton of CARLTON cigarettes in the ih0m~~hzt the recipient of the letter will accept the free offer and have pers0ns'ini.ihis or he~rlhome zest, by smoking the letter's s~atement tha~ "C~_RLT0.N has~heen ~in~ied m~ntion by SCIENTISTS interested in ul~ra-low ~ar delivery". • .................. ~ ........ : ...... In its international markets expansion of sales, the American tobacCO i~d0stry stands accused by ~he press of corruption of foreign gover~nent officials:and violation of foreign tsx laws. The expansion of foreign cigarette~a.es~ ..... ~s ~..~," ..... ....... .._d by top-level cigarette e>:ccu~ives as the primary goal for the coming years. (R. J. Re~olds Quarterly Report #3, 1976). .~.. =jot bribing a developing nation's president, tax official, and !e~islators, ~o gain exclusive production and sales of its cigarettes in that country. Another giant in the industry of using an employee's fund in another developihg~na~ion, to pay off its American officials in violation of t~t nation's laws -Security Exc~nge Co~ission 8-K and 10-K filed reports contain admissions of such activities negative to t~ American concept of fair play in co~ercial dealings~ and destruc- tive of the American image in developing countries. O -4

!Page -5- In 1975, foreign clgmret~e-~s~les-pr.o.duced an increase uf 33°/. in profltS~:~::~:~!~ one American cigarette maker. ~ ~ ::::i:, The Union International Contre Cancer (headquartered in Ceneva) is curren~:ty ag~st at the rate of increase in cigarette cons~p~ion in developing c0~ntries and the compatible increase in stocking-related diseases. :::~ .... Above noted methods employed in tobacco sales promotions from DecaYer 3i:;~:i966 to Dec~ber 31, 1975 indicated t~ following financial statistics on a :i~::~ =o 1975 Company R. J. Reynolds Philip Morris American Brands Sales in Millions of U.S. Dollars U.S. Millions of Dollars Operating .Income After Depre ci~:~n (1966) 1,804.2 .. ~ (1966) 309.161 (1975) 4,837.6 (1975) 97~; i:ii • (1966) 767.5 (1966) 65.14 (1975) 3,642.4 :: :i~ (1975) 360.81 (1966) 1,427.6 "i .i (1966) 161.19 (1975) 4,055.3 . ..... (1975) 302.98 Above data by Standard and Poors (July 1976) indicated thRt while prices were raised, during 1974 and 1975, by the three leading cigarette makers to their wholesale distributors, in identical amounts and at almost identical dates, no antz-~rust proceedings for price fixing were initiated by the federal.goverm~ent, nor did the ensuing retail price increase ever deter increasing sales ~th~incre~sed~ per capita consumption as well as increasing operating ~ ~ncome for the manufacEurers in spite of compatible increases in advertising budgeKs, ~. The following facts reported in the press, although not Cl~ssified literally.as ~sales promotion', nevertheless have a salient effect upon increased ~igarette sales domestically: Published by the Wall Street Journal (Seotember 15thand 17th, !976) increased cigarette gales via reduced s=ate and City ~cigarette are accomplished by orzanized crime mobs freightinB carloads of cigarettes from the big tobacco states of Kenzucky, Virginia ~arolina, to northern states where they are bootlegged at reduced prices. For example, North Carolina has a tax of 20 cents a carton of Lucky Strike cigarettes while in New York City the combined city and state ta~ on the same carton is $2.30 per carton plus sales tax of 30 ceor.s. Thus New York City natives can buy the bootlcgged cigarettes for$Z:.00 per carton to yield a profit of $66,000.00 to the bootlegger on a single trailer load. Though New York, Connecticut, Massachusetts, New Jersey, and Pennsylvania have all loudly protested their loss of tobacco taxes via this boo~leBging (by organized mob factions) and Zhough this has resulted since {!968 each year with an anti-contraband bill introduced in Congress ~o st0P[~this interstate smuggling of cigarettes, each bill has failed to pass due to the strong opposition from the tobacco industry via its lobby inCongress. O t~

:::"~!!::: !"P a 8 e (UPI press release Jaf%uary-2,-.._1977) noted that William O'Flaherty~:~=~e , 'spokesman for the tobacco ind~tr~' s-tared that no federal legislation was needed and "if the profit motiv~ was removed by reducing cigarette.~axes, organized crime would lDok elsewhere for quick money". Meanwhile,~ via the bootlegging with resultant lower consumer costs due to illegal.means to reduce the legislated taxes in the noted city and states, consumption of cigarettes per capita is increased. On September 17, 1976, ten men were arrested and charged with operating a counterfeit cigarette tax combine via producing counterfeit cigare=~e stamps to be placed on the bootlegged cigarettes being smuggled in~from above noted states. Seven of the ten arrested men are described as flegitimate businessmen' while one of them is the president of She Cigarette Wholesalers Association and president of one of the very larg~ wh01es~ale cigarette companies, i~::~. Certainly, any natiorml m~nufacturer in any industr#~ know~~ very well h6~ £o deal with any one of its distributors caught transhippin~.ilt$.j~:roducts into distributor areas for the purpose of price deviationJ Manufacturers in such cases, who do not quickly intervene to prevent such-~=ranshipping either condone or promote such anti-=mrke=ing practices. O

Page -.7- The facts noted in ~his-_paper are a sad.reflectlon upon the various vo!~.i)~ary groups in the U.S., "dedicatGd ~E'publlc health, which have been either unable to, or unwillingoto, utilize the combing p~te~tlal forces of their millions public supporters to intervene in th'~ presently critical smoking ep£demi=:and provide strong support to th~se dedicated public officials who have seeme.d power- less against the tobacco lobby and its satraps. :;~; The continuing mounting profits gathered by American cigarette producerlS .in.their saturation of the American market, are actively and agressively being emp~0yed to invade developing nations with the same smoking epidemic. The National Commission on Smoking and Public Policy (American Cancer Society) has requested testimony from numerous dedicated persons who continue to strive, to curtail tho~e elements which negatively affect human health. .. - ~ Let us hope that this Commission will not offer mere.:.!ip:...service, having:ilg~thered the requested testimony, but ~ill instead, ~-ithout d~la~,~"iinitiate ~he fgllowing i. To persuade the American Cancer Society to join with all other anti- smoking voluntary group organizations for $helpurpose of solidifying action by their millions of supporters toward legislation designed to the 'eventual end of the current smoking epidemic:. 2. To work for the establishing of a joint legislative committee chosen from the. leadership of all of the above no~ed gro~ organizations. Said corm~ittee to designate priorities'of selected .legislative targens for sequential action. . " ..:i .. 3. To fully support, w/~h all group organizations in..con-blned effort, those legislators who work for passage of the selected legislative targets, and those who initiate governmental action against. ¢i.garette manufactlurers who are guilty of violaEions of anti-trust laws.and bribery laws, and those guilty of an=i-consumer/health activities;::-~:i .... 4. To fully publicize ~hose legislators -~ho accept financial support from individuals or entities connected in any way ~it.h the tobacco~industrv or its lobby, and those legislators who seek %o ilunder~.ine antl-smohing legislation. 5. To mobilize the public to ener.~etically support anti-s~,okin.~ !egi~l~ti0n, by acknowledging that a cure for cancer is not "just around the corner" or a "few short years away", and by emphasizing in~tead, with all possible effort, that cancer control is now a critical neces_.'.ity, and smoking its most deadly enemy.

.Control of ~overnment..~ii~7 by-the Tobacco Industry Every attempt in the past by-government officials to control or limit the smoking epidemic has been carefully modulated by the tobacco industry, ~nd usually via the Tobacco Institute, to insure that such official goals are~defeated. The tobacco industry has obviously employed more~ legal talent for such :~0ses than any other industry in the world! The following are a few of the prominent attorneys employed by the tobac¢0 industry: Arnold & Porter (formerly Arnold, Fortes & Porter) 1229 Nineteenth Street, NW Washington, D.C., 20036 Abe Fortas left the firm in 1965. Philip Morris Inc. Joseph Califano, Presider7: Johnson's chief adviser for: domestic affairs, joined the firm soon after leaving the White House. He left in a~ar's time--June 1971. He became a name-partner in the firm headed by Edward Bennett Williams. Of course, he is now Secretary of HEW in =he Carter Adminis~ratioh. ~ ...... fi~ for about ten years. He !eft to e=tablish Center fo=~Law and Socia~Policy. Thu~an Arnold, was Chief of Justice Department's ant~tt~.N~t division. Resigned to become Judge of the Court of Appeals; private pra~i~sin~e~1945. Paul A. Porter was FCC c~i~an and head of the wartime Office of Pri~eAdminis~ration which gave him wide acquaintance throughout the bur:~a~y. Later Pres~Sen=~. Tr~n sen~ Porter to Greece as a special roa~ng am~~r. In 1961 the Washington office of Paul, Weiss, Rifkind, ~t ~i, joined:Arnold, Fortes & Porter -- there were nine la~ers involved led by Fortas~s tax-ia~i~wife, C a ro lyn A Bg e r. ~.~.~ ~ Clifford, l.~arnke. Glass, ~nl!~zin, and FJnncv ....... Washington, D.C., 20006 R..J, ..R.e~nuolds Clark Clifford: Advimer to Senator Muskie, adviser to Truman, handled transition from Eisenhower to Kennedy, Secretary of Defense under Johnson -~ Non, ember i~967: =o January 1969 -- originated Whi~e House Historical Association for Ken=iedy. Paul Warnke was a Covington and Burling partner from 1957 to 1966, wh.en he went to the Pentagon, first as general counsel, then Assisnant Secretary f0= Inter~ national Security Affairs. He came into Clifford's firm in 1969. Samuel D. Hcllwain was in the Reconstruction Finance Corporation and~thei:Jumtice Department under Truman, and then counsel for the Senate Finance Corr~mittee in 1957-5P

:: Page -9- Larry L. Williams was an"~ant£-trus~...trlal lawyer for Justice Department :19~8-1965. Carson M. Glass also spent a decade i~ the Justice Department. It has been said that Clifford hires only from the government~ He says' .~e have to because we are specialists in dealing with the government." Covington & Burlin~ 888 Sixteenth Street, NW Client: Washington, D.C., 20008 The Tobacco Institute For an organization whose founder was a congressman (Covington) and who/had Dean Acheson as a partner from 1960 through his death in 1971 and added John :Sherman .Cooper (former Senator from Kentucky), it has few business-drawing John Douglas, sob of former Senator Paul Douglas ran::i~:i:~?ii~F:.::.committee for iS~nator George McGovern's Political campaign. .William P. Bundy, Acheson's son-in-law, worked with =he firm for three years before joining the government in 1951, first with the CIA, ~tlhen with the Defense and State departments. : "C & B does recognize the value of government serviee,)~6 much so, in fact, that it has a more or less per~anent slot reserved for i~s lawyers, and a very important one. The Solicitor General's office is tantamount to.i~grney for the feder~i "government. So far as Washington Lawyers ere concernedi'it~ most importnn~ function is deciding which federal cases are to be appealed t~.::~$gher courts. There are twelve la~yers in the .office, and for the past two decades one has always come from Covington & Burling -- generally for a two-year term ~i~h a partnership when he returns to private practice." . ~. Judge J. Covington spent his early years as a congressman from the Eastern Shore of Maryland. President Wilson relied upon him as a i=.lose ~dviser ~n the House. He managed the bill that created the Federal Trade C6rm-ni.~sion. During. ~he.Firs= World Wmr, Covington resigned from Congress to accep~I a~: appointment by Wilson as Chief Justice of the DisErict of Columbia Su.~remeCo~rt. Alter n~,o years judge, he tired of this life; in 1919 he and Ed~'ardilP..Buriing formed C0viu~ton & Bur ling. David E. McGiffart is a fob-mar Under Secretary of the Army, Patton, BoB~s & Blow 1200 Seventeenth S,~reet, ,NW Washington, D.C., 20036 Clients: , ~_ett. & Me,~ers ~obccce Co., and - Batten,B~rton,Durstin & Osborn Thomas Hale Boggs, Jr., son of the late House Majority Leader Hale Boggs of Louisiana and Lindy Boggs, congresswoman from Louisiana. Sources for information on Washington law firm~,: Mark J. Green: The Other Government (1975) Joseph C. Goulden: The Superla~ryers (1972) o 0

Paul, Weiss, Rifkin. Wharton & Garrison 345 Park Avenue New York, New York 10022 Source: Lions in th~Stree Paul Hof fman 1973 Clients: Brown Wi[liamson Tobacco Co. Young & Ruble,am .International, Inc. Randolph E. Paul was head of the firm in Washington. Simon H. Rikind is" called the "one man show" of the firm. Paul, who died in 1956, w~s a former general counsel to the Treasury. Rifkin, in 1941 was named a federal district judge by President Ro'os'evelt, He stepped down in 1950. He headed President Kennedy's railroad arbitrationpanel, represented Mrs. Kennedy in her suit to prevent publication of Williamii~Mi~chester's Death of a President. .~!:~:??~::~. Partners from the Chicago office, which is no longer:.~i~:e'xistence, wer~;~:~i: following: Adlai Stevenson, U.N.; Willard Wirtz, Labor Department; Newton Minow, chairman of the F.C.C. ; and William McCormick Blair, a.%bassador to Denmark. After Paul's death and Stevenson's departure, what was left of the Washington office was merged into the Washington firm of Arnold, Fortes and Porter. Political stars in the firm now: Theodore C. Scrensen. Arthur J. Goldherg, joined the f£rm in 1967 and left in 1971 Elizabeth Holtzman Congresswoman (D-.,oY.) Rams ey Clark• Marshall, Bratter, Greene, Allison & Tucker 430 Park Avenue New York, 10022 (212/421-7200) Client: LKP Int.ernation~l Ltd, This firm is mushrooming -- went from 12 to 95 lawyers in a dozen yeers. :Handles important cases, but has no political figures. Chndbourne, Parke. L~hiteside & Wolff 30 Rockefeller Plaza New York, 10020 (212/541-5800) Client: American B ra.,...~. This is an old New York firm whose chief client is American Brands (formerly American Tobacco Company). The firm got mixed up in a scandal (the ~nton scandai), and a name partner, Louis Levy, was disbarred as a result. Levy had acted es • middleman in securing a $250,000 loan -- never repaid -- for Manton ~h!lelAmeri~an Tobacco had a $6 million stockholders' suit pending before the judge. -