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To: be krpt on f ile for 30 years ~ocket Nn. ~ 0 19149/64 Vi Aublished on. iov. 20, 1981' ;ignature ('8art1) :ourt Inspector. )ocument Clerk State Court of'Munich I IBi THE RAKE OF' T8E PEOPLE+.'. DSC I SI 4'R In the auit 1. Philip Morris GmbR, F41lstrasse 40, 8!00i0 Munich 70, officially roprosented'by itc Direotoro, Gtaf'Een Gunnarason, Dr. Dietrich Flugs, Berndt Rei'der and Guinter Will'e, and 2. The ii!mitedi partnership, H. F. i Ph. F. Reemtsma i Co.,, represented' by its general partner, Reemtema Cigarettenfabriken GmbR, which is ica turn represented by Its Directors, Dr. Horst Wiethi;ichter and' Wolf Schulemann,p Parkstrasse 51, 2000 Hamburgi 52, N ~ ~. The Pla int i f f s, (a. Representedi in court by: Attorneys Rlaus Storchi, Dr. R. SchWanhBuss'er, Dr. B. Eichmann, Dr. B. von Linstow, and Gerhard Earth,, Mauerkirchezstrasse 8', 8000 Munich 80

2 versus ( s.A.T. Cigerretten-FaDriken Gmbli, officially repxesented by its Directors, Dieter von Specbt and GOnttr tihe, histerufer 4, 2000 8amburq 16, The Defendants, Represente,& in court by: Attorneys Rainer Klaka, Dr. Michae2 Nieder, Guidb Diemer, Dr. Christof 1trOger, Delpstrasse e, 8000 Munich eo,. Concerning a petition for an order t!o cease and Aesist (ilnfair Competition I;aw), The State Court of Mnnich,•I, 7th Civil Chamber,, with State Court Judge Dr. Ernst-T4+o11 presiding and State Court Judges Drs. Streicher and Sturm, having,heatd both paxties at the hearing on Nov. 20, 1984, does hereby proclaim the following Final Decision 1. The petition for a Temporary Injunction is refused. II. The Plaintiffs shall bear the court costs. III. The deciaion, is for the present prowisional!ly enforceable. The Plaintiff's may pastpone execution by posting a, bond in the amount of DM 25,000.-- if the Defendant faile to post a bond'in the aame N O. G~. amount pr ior to enforcement.,

. Argumenis. The parties to~ the present suit manufacture cigarettes for sale in t'he Federal Republic of Germany as well as other couintr iea.. The Defenaient has recently introduced the cigarette brand BARCLAYS in the Federal Republic of Cermany„ Cigarettes bearing this brand`feature a paper mouthpiece wrapper' which is perforated around the circumference of the cigarette approximately midway between the two ends of the filter' as well as four semi-cylin,dr i~cal aucts parallel' to the centerline of, the filter which, are pressed& into a paper filter wrapper impermeable to air and wtii'ch extend approximately from a point midway between the beginning of the filter and the perforatea area to the end of the filter. The cigarette packages bear the nicotine and condensate values determined in accordance with DIN iin compliance wi'th $ 3'a of the Tobacco Ordinance. These values werr determined on the basis of the pertinent DIN regulations and, are indicated as being 0.2 mgi and 1 mg for nicotine ana condensate respectively. one of the points argued by the Plaintiffs is that the sale of BARCLAYS cigarettes inevi'tably results in gross deception of purchasers and potential purchasers i'~n, the sense of 5 3 of the Unfair Competition Law andi s 1 of the Unfair Competition Law in conj'uinction with $il 23 and 17, Par. 1,. No. S of the Food'and Drug Law, because the values given for. BAFtCLAYS' do not x-e-s~orad to the nicotine and condensate values actually given "of~~ by these cigarettes. It i~s argued', that the: discrepancy between the values indicated and those actually obtained is a! result of the dlesi'gn, of the filters of BARCLAYS ci'garettes and the way these filters work. According: to the Plaintiffb, the special configuratiorr of BARCLAYS filters is such that air

from the outside i's drawn to the end ofl the filter In addition to the main stream of smoke, which causes the mixture of the main stream of smoke and the outside air to contain only a fiaction of' the nicotine and condensate which would result without this epQci'al, filter contig!uration. The Plaintiffs continue to the effect that the filter, ventilation of BARCLAYS cigarettes presents the unique feature of functioning properly when smoked on a machine, as specified, for iinistance, Lin the~ releva~ntDZ~ta norms but no~t, however, if' smoked by an actual smoker. The filter ventilation required to achieve the particularly low smcking values with BARCLAYS cigarettes can only be insured if the flow of'air In the ducts is not inhi'bi'ted, the Plaintiffs go on, and' this condition is only fulfill!ed when the cigarette is smoked on a machine but not when smoked normally. The P1aintiffs conclude that the ends of the ducts are partiall'y or completely covered by the lips when smoked normally, and, moreover, that the moisture of'tfie lips can cause the paper mouthpiece wrapper to collapse partially near the end of the canals and that the pressure of'the fingers can also very often result In additional narrowing or blocking of the ducts. The auestion as to whether the use of a legally prescribed designation is not permissable because the interpretation of the designation by the concerned public differs from that of the law is irrelevant because the Plaintiffs did not oppose the fact that the values are indi'cate& •according to DIN!"' but rather contend' that the design of the BARCLAYS f ilter circumvents the DIN norm and that mislead'ingi information cannot be tolerated either temporarily or in partial areas in matters concerning, the protection of the health of the consumer. The Plaintiffs argue that the Defendante cannot defend the indicated values for BARC'I.AYS by claiming that the values

must 'be ind'iceted accord ing to DIN because the us.e of a norm is ineffecti've i'f it is only adhered to formal!1y, if the content of the regulation Is circ»mvented, and, as is the case here, if ita intent iis perverted. The argumrnt continues to the effect that the Defendant is attempting to justify misleading purchasers by cl'aiming that the values, given for RARCLAYS formally comply with the DIN norms anQ that the Defendant at least tacitly accepts the fact that the basic principle of making, it possible to compare the var iious brands of cigarettes i's abxogated' as far as BARCLAYS are concerned. The Rlaintiffs petition for the following injunction: In accordance with 5 S 890, 935 ff of the Civil Practice i.aw, the Defendent shall' be prohibited, upon penalty of a fine of up to DM 50i0,000.--, or up to six months confinement for its Directors in the event of failure to pay this fine, from selling and'/or c]'istr ibuting cigarettes in the Federal Republic of Germany, ~ which feature a paper mouthpiece wrapper which is perforated around the circumference of the cigarette approximately midway between the two ends of the f'ilter as well, az four semi'-cylindrical ducts parallel to the centerline of the filter which are pressed into & paper filter wrapper impermeable to air and whith extend approximately from a poiint inidway between the beginning of the filter and the perforated area to the end of the filter if cigarettes providedi with thiie filter are sold and'Jor distributed with tne. values determined' in accordance with DxN. 10. 240/10.1. 212/1'0 . 216'.

6 The Defendant requests that the petition for the injunctl'~on, be refused. The Defendant argues thafi the- use of a legally prescribed desi9nation, is permissable even if the interpretation of this designation by a not unsubstantial portion of the concerned publ'ic differs from, that intendeA by the law and claims that this is.the prevailing opi'nion found in the literature an,& court ruli'ngs. The Defendant further statess that he i's.in compliance with S 3 a of the Tobacco Ordinance as well as the pertinent DINinorms and that the law makes nol pro isions for using an alternate procedure to determine the values. Moreover, the Defendant goes on, the differences between DIN values determined with the use of ' a, machine and the actual quantities bsor:be 'by smokers are not at all greater than those found for other cigarettes, and the assertion to the contrary, which is based on the assumption that the ventilation system of the Actron filter used in BARCLAYS cigarettes di'ffers from other filter designs by becoming inevitably blocked when smoked by human, beings such that the stream of smoke contains many times that which it would contain if smoked on a machine because it is not not thinned down, is incorrect;, the.venti'lation ducts also remain intact and effective when the cigarette i's' smoked by human being,s. The Defendant then argues that the investi'gations presented by the plaintiffs are not pertinent and that the quantity of harmful matter actually taken i'n by the smok r is the criterion to be applied for quantifying the health hazard. ~ The actual quanti'ti'es, can best be determined by means of the recoginized!Ciotin Tp t the Defendent clai'ms,i which, method did not show, any significant difference between BARCLAYS and other brands of cilgarettea. The Defendant statea that the hctron filter was not chosen exclusively because it makes it possible to obtain misleadingly low values,accordling to DIV.

- 7 - In the.preoent case; the Defendant continues, the petition for a Temporary Inju~nction Is inappropriate because the requisite urgency for & Temporary In juncti!on i's lacki'lng since the Plaintiffs bad already previously been in possession.of the complex content of the Aatter.. In addition, the arguments were complemented by thee correspondance between the partles and, appendices thereto as well as to the minutes of the hearing andiappendices thereto, especially as regards other extensive statements made by the: two parties. ((. Bases for the Decision: In the context of a suwamary temporary injunction proceeding, the Chamber concluded that the Plaintiffs are not entitled' to the cease and desist order they seek. As competitors, the plaintiffs must accept the fact that the public i's misled~--as is claimed to be the case--by the nicotine and condensate values indicated on the cigarette packages because tht Defendant iis legally bound to~ indicate precisely these values and because the Pl'aintiffs did not present a plausible argument to the effect that the Defendants could eliminatt or reduce the claimed danger of misleading the public by means of permissible and reasonable indi'catioms on the packages. 1. The use of a: legally prescribed'designati'on iss permissible even i'~t' the interpretation of this designation by a not unsubstantial portion: of the concerned public differs from that intended by the law. It must be possible for competing firms to use such designa.tions without i'ncurri'ng any risk. As a result, the intendiedi Interpretation is important, and not tha actual interpretation. For example, food laws contain numerous re~giulations concerning; designiationv. Ita

business uses these-designationa as prescribed by 1'aw; other interpretations by the public are not important (Beumbach vs eefermehl, Competition Law, 14th Zd., Note 9.7 to S 3 of the Unfair Competition L,aw with reference to r'ulings). This Is also the cast if the designation Is unclear and' the consumers appealed, to have incorrect notions as to their Weaning such that the merchandise appears in a too positive light. ((~ In its decisi,on, of October 310, 19712, the R'ansa Super ior State Court of Rambu'r% ruled that the use of ai legally prescribed or permissible designation--in this case `Pr5dikats8ekt1--is basically permissible as long as the merchandise complies with the qualities specified in the legal regulation. This is also the case even if the interpretation of a not unsubstanti'.al portion of the concerned public differs from that intended by the law (WRP 1973, 164) . In Its ruling of December 23,i 1981, the Aansa Superior State Court of Bamburg confirmed this legal opinion. In this case, the court decided that a grain liquor prodiucedl by a German firm and! containing one-fifth liquor from Germany and two-fifths from Great Britain andll the Netherlands could be labeled "'Product of Germany" for a transitional period although the baises for a vioIation of s 3 of the Unfair Com)petition Law do exist (wFB,P, 1983, 3471. in a ruling dated June 9, 198'3, the Superior State Court of Frankfurt also did not question the above-mentioned' principles ('wRP, 1984'., 557' "Branntwein"). The, first paragraph of the decision reads: "Although the designation `Branntwein' is intended for a product made of molasses or potatoes accordingl to the `'Branntwein" Monopoly Law, the way the designation `Branntwein` is displayed in connection with the reat of the presentationW of the labelling of the product (such as, for example, the th~e use of stars, lions bearing cre~sts and crowns) can br(,Q~ W

- 9! - misleading sn& represent. unf'air competition in that a mot unsubstantial portion ofl the consumers assumes that, the product ia made of' wine'. . Iin the present case, the Defendant complied with S 3 a, of' the Tobacco Ordi'nance and the pertinent DTNregulati'ons by providing the correspondingi values for nicotine and condensate. The Defendant must indlicate precisely these values on the packages of BARCT.AYS cigarettes because the law reqpiires that these values, which.are determined by means of' an automatic smoking, machine, be indicated. As a result, because of the unambiguity of the law, the. Defendant may not replace the Wordis whi'ch, are actually printed on the packages by higher values such as might conceivably be determinedi on the basi's of a natural smoking test. in their petition, the Plai'ntitfs seek to have the use of the Actron filter generally prohibited for eigarettes because the Defendant is legally obliged to indicate the values dietermined on, the basis of the DIN requlati'ons. it may in fact be true that the prescribedi test procedure (;smoking machine) results in misleading values with BARCLAYg' cigarettes because of the Actron filter which iss used due to the fact that higher values would result in natural smoking as a result of the constri'ction of the air ducts., If this is true, the legally prescribed test prcaced'ure Wi'll have to be considered defective or unsuitable. This does not, however, make it possible to, conclude that those cigarettes for which the test procedure, in accordance with the DI'N~ norms t& not suitable should be generally prohibited because the test ~ yields misleading, values. The more correct solution to ~. the problem would!' rather seem to be to modify the ~ prescribed test procedure. ~ ~ Prohibiting the sale of' cigarettes which are not ~

- 10 - compatible with the prescribed tes.tproceaure would alao entail problemsof econstitution& l_nature, whicbi theDefendiant correctly pointed out at the hearing. The stipulation of 5 3 a, of the Tobacco Ordinance regulates professional activity In the sense ofArt. 12, Sect. 1, par. 2, of the Constitution. In concrete terms, In order to be constitutional, a regulation effectingi the exercise of professional activity must meet several conditionss it must seem just if i able for the common goodi on reasonable grounds; the chosen means must be appropridte and necessary to achieve the Intended pucpose; andi the restriction must be reasonable from the point of view of the individual' affected .(Federal Constitutional Court, Decision, of Jan. 16, 19$0, NJW 19810, 1511, 1512 left-hand column). Prohibiting the sale or distribution of an, article is one of the most drastic means conceivable to protect consumers from confvsionand deception. In general, such a danger can be just as effectively, albeit less drastically, averted' by means of a law requiring a specific: designation (Federal Constitutional Court, I'bidl., p. 1512, right-hand column)i. One can therefore conclude that the legizlature should improve a potentially inadequate testing, procedure in this case. It seems, however, unreasonable to prohibit the Defendant from selling this new cigarette because the legally prescribed desig,nation ia nisleading. This Chamber remained unconvincedl that the Defendant developed and introduced the Actron filter exclusively for the purpose of circumventing the testing procediure prescribed in the Federal Republic of Germany andi the obligation to accompany the product with specific informmtion based u!pon this testing procedure. The possibility can also not be excluded that the Actron filter also serves to improve the taste of the cigarette by creating, atr turbulence in the oral cavity. ~

1, The question..as to. whethere the possilb.ili:ty of misleadin% the consumer could be precludea' by providiing additional information on the cigarett* packages was also broached at the hearing. However, the Chamber sees no reason to take a, final position with respect to ttals question because the petition for an injunction seeks the general prohibition of the sale and distribution of BARCLAYSS cigarettes. In addition, the Plaintiffs did' not request that the sale and diatribution of the cigarettes be prohibited only until certain clarityi!ng additions can bee providedl. The Plaintiffs also did not specify what the nature of' such additional information should be. The Chamber therefore sees no reason, or way to avoid rejecting; the petition for an injlunction outright and to decide at least in favor of such a limited restriction. Given the stipulations of 5 3 al of' the Tobacco Crdinance, there is also some question as to whether additional information on the n1cotine and condensate values woulf3 even be permissible. Any modification of the information which is precisely prescribed by law, namely the text, through addi'tions would'at the very least seem tenous. Moreover, given the extremely controversial complex of' different testing methods and tezting results, the Chamber would not know what additional info_mation to suggest or impose ul the Defendant.. 4. The petition of' the nefendants for an injunction is refused, and' the latter shall bear the court costs. The pronouncement of ' provisional execution results from 55 7®R, Dr. Ernat-Mo11 Par. 6, and 711 of'the Civil Practice LaW.. (Signature) (Signature) (Signaturr)' or. 8treicher Sturm State Court Judge State Court Judge State Court Judge id'