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1980 2451 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Now, I see in the middle a paragraph which is one (I) sentence long all by itself, and it reads as follows: It is a fundamental law of marketing in a mature market that increased sales must come from other brands within the category. You wrote that? Yes, I did. This fundamental law -- did you read that somewhere? Yes. Or did you make that up? It was based on my understanding of markets, my reading of this, reading of the literature that a fundamental law of mature markets is that increased sales come from brands within categories. Now, could you please tell the Court if this fundamental law -- where this -- where you have seen it stated that it's a fundamental law of marketing? This is not like Newton's law; this isn't a very important law, is it, Dr. Reid? It's a relative law. It's a relative law. It's not physical science. Where have you seen this relative law espoused as a principle anywhere? One (i) person that has espoused it as a principle is a fellow by the name of Scott Ward. Right. And who was this fellow, Scott Ward? AUDIOTRANSCRIPT, Di~i,ioo a~ P~erre Vilaire & As,o¢i@s Lt~e

2452 1981 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Am Am Scott Ward is a professor of Marketing at the University of Pennsylvania. Right. And did Scott Ward call this a fundamental law of marketing? I'm not -- I don't remember if he called it a fundamental law or not. Well, did he call it a law? I can't recall whether it was called a law or a principle or a tenet. But from -- you're citing one (i) person, this Scott Ward, of the University of Pennsylvania as though it's, you know, really special. I mean, before you call something a fundamental law, I'd presume that you're sufficiently careful, Dr. Reid, that you'd determine that it is in fact a fundamental law. So in connection with what I have just said, would you be good enough to tell the Court if anybody whose work you have ever read -- be it academic or otherwise -- has called this -- this mature market thing a fundamental law? I cannot say that it was -- it was described in the words of fundamental law, but it is a principle and a well-accepted point, a tenet in -- in marketing, that people believe that a mature market exists and increased sales come from inter-brand competition. Does Philip Kotler say that? AUDIOTRANSCRIPT, Division de P~erre Vilaire & Associ~s Lt~e

1982 2453 LEONARD REID, Pet., Cr-Ex I0 15 20 25 AE He doesn't say it -- he doesn't say it in his book that I've read right there that you've given me. This book that you've read right there? That I've read this -- no, it doesn't say that. Well, you're pointing to a book, parts of which have just been filed as AG-58. But does he say that in any of his other books? You know the one you referred to in -- at page eight (8) of your report, Philip Kotler's 'Principles of Marketing', Englewood Cliffs, New Jersey? In fact, that's a primer, isn't it, that book? It's for principles. Yes, for first-year marketing students? A principle's book, correct. Principles, right. And, in fact, this book that I've put to you this afternoon, 'Marketing Management', is for students who are in Masters programs at a lot of business schools in the United States; isn't that a fact? Or seniors. Or seniors, right. So maybe you want to tell the Court, given that you haven't read 'Marketing Management', where Philip Kotler has ever written anything that comes even close to what you have called a fundamental of marketing on page six (6) of your expert's report?

2454 1983 LEONARD REID, Pet., Cr-Ex 10 15 2O 25 A- As I've said, those -- the cite was used in terms of my general -- general response to the question. Philip Kotler in the 'Principles of Marketing' talked about product life cycles; he talked about the nature of the market; and he talked about the functions of advertising, to inform, persuade and to ... Q- No, that's not what I asked you. I asked you ... Me IRVING: Just a moment... Me BAKER: That is not responsive to the question, My Lord, and I don't think it's open to Mr. Irving to object. I asked him where he has read anything by Kotler that comes close. THE COURT: No, he can object anytime. That's for me to decide if it's well-founded. Me BAKER: I'll withdraw my objection to his objection. Me IRVING: And I do so now, My Lord: not for the first time this afternoon, but for the fourth or fifth time Mr. Baker has interrupted the witness and not let him finish his answer. He is coming very close just to harassing. He is now raising his voice continuously. I would ask that AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt4e

2455 1984 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 he stop doing that and simply put questions in the ordinary and normally polite way to the witness, and let him answer. The witness was not finished answering -- again. THE COURT: With respect, Mr. Irving, I don't think Mr. Baker has been harassing the witness. He's been asking a question and he hasn't got an answer to that question. What is -- on what is the witness' assertion that it is a fundamental law of marketing in mature markets that increased sales must come from other brands within the category? And I don't think -- well, from my notes and from my ear -- that he's answered that question yet. Me IRVING: Well, I think that he was just trying to answer it just a moment ago. THE COURT: Well ... Me BAKER: Well, I'll try and put it to the witness in a more kindly manner. Q- Dr. Reid ... A- Yes? Q- Page six (6), your expert's report. fundamental law of marketing. You say that it's a Tell the Court if you've AUDIOTRANSCRIPT, o~,io, d~ ~ Viloi~ ~ Associgs Lt~e

2456 1985 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Am ever read anything by Philip Kotler that comes close to saying what you have called a fundamental law of marketing? I do not recall reading anything where the terms 'new' or 'mature' market were used by Philip Kotler. I beg your pardon? I do not recall reading the terms 'new' or 'mature' market in Philip Kotler. Isn't it fair to say, Dr. Reid, that it is simply unreliable as expert testimony to say that increased sales must come from other brands within the category as a fundamental law of a mature market? That's simply unreliable, isn't it, Dr. Reid? It is my opinion that -- and based on my readings, and understanding of what the role of advertising is in the marketplace, that it is true that sales must come from other brands within the category. But Dr. Reid, you're not even a marketing specialist! I was called to testify on advertising and its relationship to ... Ah -- but why you were called to testify is not my problem, sir. We're talking about your expertise now. You're not a marketing expert, are you? I am an advertising person and I have a degree, an undergraduate degree in marketing. I have taught in a AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Li'4e

2457 1986 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 business school, I've taught in marketing depart- ments. Q- As a matter of academic discipline, Dr. Reid, is it part of your everyday work and the research that you have done, until you started to work on this case, that you would even have the right to make the assertion that you've made on page six (6) of your expert's report? A- That I would have the right? Q- Yes, as a matter of academic discipline, any more than anybody in the street would have the right, Dr. Reid? A- I teach advertising management and to understand the limitations and power of advertising, you have to understand marketing in corporate strategy. That's why I'm familiar with this terminology that we're talking about. I have had courses in marketing. I have read -- published in Marketing. I have read marketing books. I don't know -- I do not teach marketing management. THE COURT: But, I mean, the statement 'fundamental law of marketing', it's pretty strong. I mean, it's -- what the question was is whether -- what authorities, if any, support that proposition? A- As I said, although it's not stated in Kotler ... THE COURT: Maybe not Kotler, but anybody else? I mean, what proposition supports that -- because it's a pretty AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt4e

2458 1987 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 strong statement. A- The -- again, I've read the statement attributed to Scott Ward and the book that I previously cited by Martin Bell in Ginch -- talks about mature and new markets. It's accepted fact, and -- I shouldn't say fact -- an accepted belief that in mature markets, brand competition is where sales come from and advertising's role in mature markets is to reinforce and to persuade brand switching. Me BAKER: Q- Okay. Now, you've talked about a person by the name of Scott Ward; is that W-A-R-D? A- M'hm. Q- What was the name of the book that you're referring to? A- It was an article. Q- Where was the article? A.... Q- But didn't you just say attributed to Scott Ward? Does that mean that he didn't write it but somebody said that he wrote it? A- He wrote it. He wrote it. Q- Okay. Where did he write it, this fundamental law? A- I believe it was published in a paper in -- it was published in a paper in -- a journalism publication reported in the press, and I cannot recall the AUDIOTRANSCRIPT, Div~,~on de Pierre Vilolre & Associ~s Lt4e

2459 1988 LEONARD REID, Pet., Cr-Ex i0 15 20 25 9 publication at this point. I'm sorry? I cannot recall the title of the publication. Have you ever met this Scott Ward? Yes, I have. This is the Scott Ward -- do you know him well? No; I know him. You know him? Yes. And could you tell the Court where you met him? I met him at -- I believe -- in Miami at the Association for Consumer Research conference -- which is an academic meeting -- probably in nineteen seventy-eight (1978). Are you aware that, Dr. Reid, that Scott Ward is a man who testified on behalf of the U.S. tobacco companies in front of a U.S. Congressional Committee? No. You don't know that? No. Would it surprise you? I have no reason to be surprised or not surprised. Now ... THE COURT: Of course, that's not evidence. you've put. That's a question AUDIOTRANSCRIPT, Division de Pierre Vilaire & Assoc;@s Lt@e

2460 1989 LEONARD REID, Pet., Cr-Ex 10 15 20 25 Me BAKER: Q- That's why I didn't file the document. Did you ever read an article in the Harvard Business Review called, "Forget the Product Lifestyle Concept?" A- No, I have not. Me POTTER: Lifestyle? A- Life cycle. Me BAKER: Did I say "style?" Me IRVING: You said "lifestyle." Me BAKER: Thank you for correcting me, Mr. Potter. Q- Product Life Cycle Concept. THE COURT: What is the answer? A- No. I thought I'd said no. Me BAKER: Qm Are you sure? Yes, I think I'm sure. I do not recall it. He's going to need it again, Mr. Irving. In the literature of the product lifestyle. Cycle. Cycle, excuse me. I'm having a great deal of difficulty AUDIOTRANSCRIPT, D;~,~o. a~ Pi,rr, Milalre ~ As~oci~s L,~e

2461 1990 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 with that word this afternoon. Do you accept that as a way that your mature market -- or the mature market, as you've described it, theory is itself called in the academic literature? I think it's one way that it's been described, yes. M'hm. Now, have you ever -- I turn your attention to page three fifty-one (351) of the book that I referred you to by Philip Kotler, that your counsel now has. Mr. Irving, could we have the book back? Thank you. You see at the top of page three fifty-one (351) a little blue chart, it's white in our copy, My Lord. M'hm. Sticker twelve dash three (12-3). And it says -- under twelve dash three (12-3) it says, "PLCs for product category, product form and brand." Do you see that? Where are you referring that to? You see it right here, twelve point three (12.3) PLCs, for product category, product form and brand. Yes. And it goes from nineteen twenty-five (1925) to nineteen sixty-five (1965), the chart does. Do you see that? Yes. And there are three (3) different kinds of lines on the AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s L~e

2462 1991 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Am chart; correct? Yes. One is for the product category of cigarettes. Yes. Do you see that? Right. And one is for the product form. So that's filter cigarettes... Yes. ...plain, filter cigarettes. M'hm. And then another one is for a regular non-filter, a brand, Philip Morris; right? Yes. So according to this chart used by Philip Kotler, you could have a -- a brand could be stable or in decline as it appears in that chart, but the product category could be rising, as it was in that chart; correct? Yes. Could you explain that? How could that happen, do you know? The product -- the brand is the product form. Yes. Which the product form is of the product category. Yes, and you see, if you look at the product form for

2463 1992 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Am about ten (i0) years, it was sort of stable and then it went up; right? M'hm. But it didn't go up as high on the chart as the product category "cigarettes" altogether; did it? See that way up at the top... No. ...way above that, it's cigarettes? No, it's absurd, because that is the generic demand curve, the product category curve. Right. And you don't make any observations about that? About -- it seems to me within the product category that there's some shifting between a product form and a particular brand. Now, if you remember the testimony you gave last week, I think you said, if I'm not mistaken, that cigarettes by the definition that you had given to it that everybody'd known about it for a very long time as mature pretty much most of the twentieth century; do you remember saying that? Yes. So if we look at this chart, twelve point three (12.3) on page three fifty-one (351), you see that there was quite a pretty dramatic rise between nineteen thirty-five (1935) and nineteen sixty-five (1965). How AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Lt4e

2464 1993 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 do you explain that in terms of your mature market theory, Dr. Reid? A- I define mature market basically in terms of the number of people who are aware of the product category itself. Obviously, during this period of time there was -- there were people who smoked, smoked with increasing propensity. There were people who changed their habits, their behaviours, and the demand for the product was increasing. Q- But it more than doubled in thirty (30) years, you see, and you said it was mature through the century. So how could that happen? I mean everybody knew about it, so how come it more than doubled? A- I contend again that in terms of definition of a mature market the product was mature and since the individuals -- everyone knew about them. Q- Everyone knew about them... A- Were aware. Q- ...except that -- except that the -- all those people that contributed to its virtually more than doubling in the thirty (30) years. THE COURT: Of course, in your question, I understand, I haven't said it, but I don't want to interrupt you all the time -- but in your question, I understand your question, AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s U'~e

1994 2465 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 assuming that the cigarette market has increased since nineteen thirty (1930) or thirty-five ('35), whatever, to nineteen sixty-five (1965), how could he explain his theory? Me BAKER: Yes. THE COURT: Because obviously that fact is not before me yet. Me BAKER: I'm giving him an opportunity to explain it in terms of his theory, because I don't understand his theory when I read what the learned authors write about. Q- You see, that's my problem, Dr. Reid. Would you... Me POTTER: Excuse me, My Lord, you're quite right in putting forth that assumption. But there's another one behind the question that Mr. Baker puts which also is not in proof yet. Mr. Baker is assuming that everyone who contributed to that growth was not aware of the product category. THE COURT: Well, no, I don't think he's assuming that. The question was pretty straightforward. I just wanted to make sure that everybody knew that I don't have evidence yet of an increase in cigarettes from thirty-five ('35), AUDIOTRANSCRIPT, D~vision c~e Pierre Vilaire & Associ~s

2466 1995 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 in the U.S. anyway, to nineteen sixty-five (1965). But, again, he's in cross-examination and he may ask hypothetical questions. Me BAKER: Well, it's -- of course, My Lord, I'm saying this with respect. I'm assuming, for the purposes of the question only, the accuracy of the chart. THE COURT: Okay. Me BAKER: Q- You understood that, didn't you, Dr. Reid? A- Yes. Q- Right. Could you file this page three hundred and fifty-one (351) of Philip Kotler's book, "Marketing Management," as AG-59. THE COURT: Couldn't we... Me BAKER: Yes. Okay. Part of the liasse under 58? THE COURT: Yes. Me BAKER: Certainly. THE COURT: And under the same reserve, I gather. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associgs Lt4e

2467 1996 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Me BAKER: Yes. Me IRVING: If anything is to be filed at all, My Lord, under reserve of my objection, I would prefer that this whole segment should be filed because there's -- and not just the individual page. Me BAKER: In theory, My Lord, I would have, I can assure you, absolutely no objection to the very kind undertaking or offer by my friend, but I was afraid he'd make another objection, so I didn't do that, because then he would probably say that that would lead to the filing of that pretty blue book and the roof could fall in. Q- Now, just bear with me. I'll be with you in a second. Dr. Reid, I'm having a little bit of difficulty with your theory of substitutability. That theory on page seven (7) of your report. A- M'hm. Q- As I understand it, your report and your testimony is to the effect that when there's a substitutability of a product for another product category, that's an exception to your rule of a mature market; right? A- Substitutability is a fundamental factor of demand. Q- Substitutability is a fundamental factor of demand. AUDIOTRANSCRIPT, o~,,~,io,~ de Pierre Vilaire & Asso¢i~s Lt%e

2468 1997 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Am Factor of demand. Where did that come from? Demand is composed of a number of things. A person's willingness and ability to buy, wants and needs. Yes, well, I know about demand, but you've made a whole proposition that substitutability is a fundamental factor of demand. It's a factor of demand. But the substitutability part is the part that I'm having trouble with. somewhere? It's an economic principle. A principle of economics? Demand deals with substitutability. That is, demand is derived when we substitute one product for the other, that is in the case I've given -- the example I've given: electricity for natural gas. And you gave some other examples in your testimony, you might remember. I think you talked about coffee. Coffee, yes. And soft drinks, remember that? Yes. And I think you even had water in there; right? I don't recall that. Yes, you did, you had water in there. Coffee, soft Does that come from a learned text AUDIOTRANSCRIPT, ~ivi,ion de Pierre Vilaire & Associ~s Lt~e

2469 1998 LEONARD REID, Pet., Cr-Ex I0 15 20 25 drinks and water. I can find it for you if you want. Me IRVING: I wish you would, because he didn't. Me BAKER: Okay. Well, I'll see if I can find it. Yes, I think, Mr. Irving, page -- unless I'm wrong, and if I am I'll apologize, but I think at page thirteen eighty-seven (1387), you see he's got -- at line eighteen (18). "In a sense the example..." -- this is you talking now, Dr. Reid -- treize quatre vingt-sept (1387), Votre Seigneurie. "In a sense the example I used of meat, types of meat: beef versus pork versus chicken. Beverages: soft drinks versus coffee versus water versus juices or whatever." So -- water? People substitute water for coffee? A- It's a beverage. Q- Yep! I can't disagree with that. Now, did you ever do any research to determine that people substitute water for coffee? No, I did not. So you just assumed because it's a beverage? I defined a product category is a type of product, it's a beverage. You defined -- let's see if I understood. What did you AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ~s Lt4e

1999 2470 LEONARD REID, Pet., Cr-Ex 10 15 2O 25 just say? A product category. A type of product. Water is considered -- tap water is considered a product? Or are you referring to that fancy stuff like Evian water? I'm referring to a beverage. Water is a beverage. So, in the case of -- let's for the moment stick with soft drinks and coffee and water. You're calling them a beverage but for the purpose of, so we understand each other and the record makes some sense, we're talking about a liquid that goes down the throat, right? To quench one's thirst. To quench thirst or whatever else a beverage is used for. It could be used for other purposes too, couldn't it? It certainly could. Right. But basically it's something soft and liquid and it goes down the throat, right; that's what a beverage is. So, we're talking -- and you said, "quench thirst," so we're talking about use; aren't we? Yes, okay. So when you talk about types of meat, beef versus pork versus chicken, which is -- do you want to see this? If it'll make you more comfortable, I'll show it to you. Oh, you've got -- no. This is your testimony I'm

2471 2000 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 reading from, you see. Oh, okay. At page thirteen eighty-seven (1387). Now, so you're talking about use, right? Because there isn't that much of a difference between meat and chicken or soft drinks and water? Would you rephrase that again? Is there not much difference? Well, is there much difference between say meat and chicken for the purposes of your definition of substitutability? A meat would be defined as meat. Meat would be a product category. And chicken is a product category? Chicken would be with meat. I beg your pardon? A form of meat. Chicken is a form of meat. So if chicken is a form of meat and meat is a product category, how can you use meat and pork and chicken as -- in your example of substitutability to your exception to the mature market theory that generic advertising doesn't make the market grow? In a sense, the example I used of meat, types of meat, beef versus pork, beef and pork would be a type of meat

2472 2001 LEONARD REID, Pet., Cr-Ex i0 15 20 25 that would compete against each other in terms of subsitutability. The Pork Growers Association would like for people to eat more meat at the expense of some other food and if it's meat that these people eat, it would be at the expense of chicken, beef. THE COURT: But that's within the same product category. A- Within the same product category: meat. Q- Your example on the substitu... Me BAKER: ...tutability. THE COURT: Right. Is among product categories, not in size, the product category. A- Well, the -- another example would... Me IRVING: That's page seven (7), at the bottom of the page. Me BAKER: I beg your pardon, Mr. Irving? Me IRVING: His Lordship was referring the witness to the bottom of page seven (7) of his report, last paragraph. A- What is... THE COURT: Well, I said, the example you've given us was

2002 2473 LEONARD REID, Pet., Cr-Ex i0 15 20 25 substitutable -- I have a problem with that word -- among a product category, while your report deals with -- among product categories. Beef and chicken are the same product. Beef on the television is not the same product. A- Right. Q- And the question that he had asked is: what is -- I forgot. Me BAKER: Q- Now... A- I'm having trouble. Q- I beg your pardon? A- I said: and I'm having trouble. Q- Yes, I know that. Now... A- It also says, "meat with other foods." Q- Yes. A- This thing. Q- So things are substituted for other things that are sort of alike. Let's try and simplify it if we could. So by sort of alike, I mean chicken is sort of like meat in a way; right? A- It's something we consume for nourishment. Q- Yes. It's got the same use. You get hungry and you eat chicken or you eat meat, depending on what you feel like eating, right? AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ#s Lt~e

2474 2003 LEONARD REID, Pet., Cr-Ex 5 l0 15 20 25 Am Am Right. Depending on... And what you can afford and, you know... ...et cetera. ...other variables. Like cholesterol and stuff like that; right. So that's with meat and chicken. And then you have beverages. If you feel like tickling your throat, you have a cola of some kind and if you're just plain thirsty and -- depending on your upbringing -- you just may drink water, right? And so it's the use, it's got a purpose to it; right? Yes. And I think you have an example of electricity and natural gas. That's got a use and a purpose too. Either heat the home or heat the utensils or to make things work in the home; right? Like electric, you know... So, the definition, then, of substitutability could be altered somewhat, couldn't it be to where there is an alternate, where something else could give you the same -- not exactly the same but a kind of the same use. It serves the -- sort of a similar purpose; right? Most people buy things and consume things based on the fact that it serves, it fulfills their wants and needs. Of some purpose or another; right?

2475 2004 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Right. Okay. Now, you have said that you don't know much about cigarettes, but you know a lot about beer -- or you know something about beer because you drink beer, right? Yes, I drink beer. And you talked about the beer market and so I assume you know a little bit -- were you talking about the American beer market? Yes, I believe I would be talking about the American. Right. But let's go back, get away from beer for just a moment and get back to cigarettes and do a hypothesis, if you don't mind. In the connection with your theory of substitutability, you know, similar kinds of uses, okay? You with me? Okay. Good! Now, for the purpose of this question, would you accept the proposition that a lot of people who try to quit smoking chew gum. Do you know that as a fact or do I have to put it to you as a hypothesis? Can you accept that as a fact? I accept that as a fact. That a lot of people are, who want to chew gum; right. Have you ever thought why? Have I ever thought why? Yes. That people who are trying to quit smoking AUDIOTRANSCRIPT, Division de Pierre Vilaire & Asso¢i~s Lt4e

2005 2476 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 cigarettes chew gum? And for the purpose of the question, to be a bit careful about it, I'm not talking about any Nicorette gum or anything like that, I'm talking about, you know, the Wrigley's stuff we were talking about last week, just regular gum. THE COURT: I think you've already asked the question in the past about the gum. Me BAKER: We talked about gum, but I haven't put the question that I'm about to put the witness, My Lord. Me IRVING: It's pretty difficult -- I mean, you just put a question which, in my submission, is utterly irrelevant to anything that this witness can possibly deal with. Does anybody know why somebody chews gum instead of smoking a cigarette? That's not Dr. Reid's area at all. It may very well be the area of some other experts... Me BAKER: Well, that's what -- exactly what I'm trying to probe, My Lord, exactly what Dr. Reid's area really is. That's the purpose of this cross-examination. Me IRVING: I was also going to observe, My Lord, it's three seventeen (3H17). If Your Lordship was going to... AUDIOTRANSCRIPT, Division de Pierre Vilolre & Associ4s

2477 2006 LEONARD REID, Pet., Cr-Ex 10 15 20 25 THE COURT: Well, do you want me to adjourn? time so ... Me IRVING: No, no. I... THE COURT: I didn't want to lose Because I know -- I know that you have a re-examination, I'm told, so. If you want me to adjourn for ten (i0) minutes, I can do so, I mean. Me BAKER: I just, speaking for myself, I'd just as soon keep going until I'm finished, but there's a matter of the courtesy Me IRVING: My Lord, I think, considering the witness stands through all of this and so on, I think we'd be just as well to have our ordinary adjournment if the Court wouldn't mind. THE COURT: Ten (i0) minutes. Me IRVING: I may say, we're quite prepared if the Court is to go a little later than the four thirty (4H30), if need be this afternoon. AUDIOTRANSCRIPT, alvi,ioo de Pierre Viloire & As,oci~s Li'~e

2478 2007 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 SHORT RECESS THE COURT: Before we proceed, the -- le jugement que j'ai rendu ce matin, est-ce que vous aviez l'intention de le faire faire en forme de jugement? Me BAKER: Sur ... si c'est possible. THE COURT: Oui; j'ai aucun probl~me, i~. La seule chose c'est que j'imagine que si madame vous remet une copie de ce qu'elle a transcrit, vous allez faire ... Me JOYAL: La transcription, pour que ~a soit sur du huit et demi sur quatorze (8 1/2 x 14) reliC. THE COURT: Oui, puis en forme de jugement aussi -- pas besoin de dire 'et je cite' quand je cite. Me JOYAL: Ce que je pourrais probablement faire, c'est vous le transmettre ~ votre bureau mercredi, ou bien dans la journ~e demain, ga pourrait ~tre fait. THE COURT: O.K. Et puis vous me l'envoyez ~ Longueuil Ace moment-l~. AUDIOTRANSCRIPT, o~,,i~io,-, d~ P~ W~oi~, ~. A,~o~i~ L~

20O8 2479 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 Me JOYAL: Oui, je pourrais probablement vous le faire livrer dans la journ~e de mercredi. THE COURT: Et le faire signer -- de route faqon, 9a pourra toujours servir. Me BAKER: I have an arrangement with Mr. Irving, My Lord. I'm going to try to make it under thirty (30) minutes and he will try and make it in a reasonable period of time. Is that a fair reflection of our understanding? Me IRVING: It's wasn't quite a best efforts arrangement, My Lord. Mr. Baker indicated that after thirty (30) minutes, and not a second more, I could stop him, so that we could finish by 4:30! Me POTTER: Obligation de r~sultats! Me BAKER: Q- Dr. Reid, you said that the American beer market is mature. A- Yes. Q- Have you studied the American beer market? A- I have read articles about the American beer markets; some of those are cited in the evidence. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ4s Lt4e

2480 2009 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Qm Am Qm AM Am What are you referring to? I'm referring to Anita Brown, 'Barreling Through', which is the first citation on page 8. Yes? I'm referring to William Oscar Johnson, 'Sports and Suds', which is the third citation. And the fifth citation deals with scotch and blended whiskies, but basically beer. Those are the Brown and Johnson cites. So does that mean the beer market is going down, the total consumption is going down every year? That means that in the U.S., beer consumption is flat; it's not growing. That, meaning it sort of doesn't go up and it doesn't go down? It means it's flat, nearly stable. Some years it goes up, some years it goes down. Right. Do you know how long it's been flat for? I can't recall from memory exactly the number of years it's been flat, but it's been flat over the last three (3) or four (4) years, I think. All parts of the beer market in the United States have been flat for the past two (2) or three (3) years? I think that's -- the years I wouldn't -- it's been flat at least the last two (2) years in the United States, the beer, the category of beer. AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Ltge

2010 2481 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 Am The category of beer. How about the category of light beer? Light beer is a product form under the beer category. I do not know exactly the shape of that product form curve. No idea? It has -- that particular brand form has been growing, I do believe. There's been success enjoyed by various breweries in the U.S. by the introduction of light beer. Have you made any attempt prior to testifying to look at the numbers of the beer market beyond, you know, the vague references you've just given the Court on page 8? And do you actually know anything about the numbers in the United States beer market? The numbers? The statistics, yes. No, I cannot tell you exactly what the statistics are. Well, would it surprise you if I told you that between 1985 and 1988, the market share of light beer increased from 20.5% to 25.6% , over a 5% increase in three (3) years? No, it wouldn't. It wouldn't surprise you? No. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ~s Lt~e

2011 2482 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Now, that doesn't -- that's about 5%. So that's not a huge increase. But does that indicate to you that the light beer market is mature, or is it sort of wrong? Again, the light beer market is a product form under the product category of beer. So you've said. That's not what I asked you. Is the form -- remember, in Kotler's book there is ... Yes. ... a separate little line on that ... It was for ... ... chart, yes, hold on ... Yes. It's a chart on page 351. So is light beer flat like all beer, or has it got its own cycle and it's rising? As a product form, with -- under the overall demand curve of beer -- by your statistics is rising, and it does not surprise me, because one of the most successful beers over the last three (3) years has been the introduction of Budweiser Lite. M'hm. And if I told you that in the same time period, between 1985 and 1988, the total beer sales in the United States increased by 2.8%, does that shock you? No. Do you accept that as a fact as coming from Jokes and Jobson's Liquor Handbook, 1989 Edition? Was that ... AUDIOTRANSCRIPT, Di,,i,io,~ d~ Pierre Vilaire & A,$oci4, Lt4e

2012 2483 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Om Om I'm not familiar with that, but a two per cent, a two point ... Eight. .. eight increase would be -- over that period of time, this would be acceptable. Remember you said in your testimony last week that advertising can contribute to sales, if the aggregate demand is growing? Yes, it can contribute if the aggregate demand is growing. Okay. So we know that the -- you've accepted the proposition that the aggregate demand for light beer is growing in the United States. It's growing by at least 5% in the last three (3) years, so my question to you is: do you know whether advertising contributed to the sales in the light beer market in the United States? I would say that advertising -- advertising the introduction of the product -- first of all, light beer -- would lead me to believe that there is a demand for the product, light beer, and that advertising, the marketing of the product, the distribution of the product, the pricing of nthe product and the advertising of the product has been directed towards stimulating that demand. The question is: do you think advertising contributed AUDIOTRANSCRIPT, D;,,~,;oo a~ Pierr~ Vilolre & Assoc;@s

2484 2013 LEONARD REID, Pet., Cr-Ex i0 15 20 25 to sales? Me POTTER: Of light beer. A- Of light beer? Me BAKER: Well, of course. A- If there is a demand for light beer, yes, there's a chance that advertising did contribute to the sales of light beer. Q- Well, you said 'if there's a demand for light beer'. And you said you knew the beer market. Now, do. you know -- and to what extent -- whether advertising contributed to the sales of light beer in the United States between 1985 and 19887 A- Do I know to a -- as a point of fact that it contributed to the sales of beer? Q- Well, what's your opinion? You're an expert. A- My opinion would be that the demand exists for the product, and advertising as a form of marketing is one tool. If it could work, it would work in that particular category, among users, drinkers of beer. Q- So sort of a little bit like a motor that made the light beer market move? A- I don't understand the reference. Q- Well, advertising is part of marketing and promotion, AUDIOTRANSCRIPT, Division c~e Pierre Vilaire & AssO¢~@S U@e

2014 2485 LEONARD REID, Pet., Cr-Ex i0 15 20 25 isn't it? Yes, it is. It's a feature of it; correct? Yes, it is. The object of all these things together, individually or together, is to get people to buy more product, right? Right. Right. So if it's being driven by a motor, then in this case the motor I referenced you to is advertising. So advertising is sort of like a motor, along that pathway, to get people to know about the product -- light beer -- and then to buy it, right? As I have stated, advertising stimulates demand if there is a demand for the product. Advertising can, you know, along with other controllable marketing variables, and uncontrollable influences, stimulate demand for that product. Not controllable? Controllable. There are uncontrollable factors in the marketplace, and there are controllable factors. Marketers have control of factors such as product, such as price, such as promotion, such as place of distribution. But there are other factors -- marketplace interactions among individuals, groups of AUDIOTRANSCRIPT, oivi,loo de Pierre Vilc~ire & Associ@s Lt~e

2486 2015 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Am individuals, economic conditions, social conditions --that also have an impact upon the effectiveness of marketing, the effectiveness or the resulting behaviour of consumers. Excuse me for just a moment. Yes, I would like to talk to you just for a brief moment about information in advertising. Do you remember the ad we were looking at the other day, AG-2 .. Yes, I do. ...the young fellow, the youngish fellow in the ... Canoe. ... canoe, coming through the white water, and I referred you to Export 'A', and you said that these things are for smokers. "I'm a non-smoker. Your answer was: I don't know what the information is for a smoker in that ad." I'm reading from page 1506 of the transcript. Okay? Do you see that, right at the top of page 15067 Yes, I do. Do you think in reference to that ad when you gave that answer, you meant that -- or can the Court interpret what you meant -- by saying that the meaning, or the information in an advertisement like AG-2 is apparent only to smokers and hidden to non-smokers?

2487 2016 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 No, I did not. I didn't imply that, I hope. Well, the information is information -- isn't that why As I said in the testimony -- and I think I've said in the page that you've cited -- information is determined by the receiver as to what is information. The information is determined ... By the interpreter of the message. Information resides not in the message; it does not reside in the source that creates the message; it resides in the receiver of that message -- that is, what is information to me may not necessarily be information to another population or group of individuals. I see. It is receiver-specific. I see. And that is cited in the Shelby Hunt piece; that's the second reference. I see. So when we use the word 'information', it is sort of different from the way it's generally used? I don't understand. Well, don't bother. It's not important. Now, you've said that you've never studied the Canadiah cigarette market, and I don't remember asking -- you've never studied the American cigarette market either, have AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ4, Lt4e

2488 2017 LEONARD REID, Pet., Cr-Ex i0 15 20 25 Ow you? I've never taken an in-depth study of the American cigarette market. And you haven't done a particular study about smokers, per se? You know, what kind of people they are, and things like that? No. So could you tell the Court what you meant -- not what you meant, but where you got the information from when you testified last week that smokers perceive themselves -- I'm referring to page fifteen ten (1510), Dr. Reid -- "smokers perceive themselves to be healthy individuals"? I mean, how do you know that? I mean, have you ever done any research or read any research to that effect? Well, I can't recall the specific studies that I've read that would lead me to say unequivocally that smokers perceive themselves as healthy individuals, but I have no reason to think that they would not perceive themselves as healthy individuals. So therefore when you made that statement, you were guessing? No, I was stating my opinion. As a person or as an advertising expert? I would state it as an advertising expert. I suspect that if you did a segmentation study, there would be a AUDIOTRANSCRIPT, oi,,~io,~ de Pierre Vik:*ire & A,,~ci~, Lt~e

2489 2018 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 proportion of the population of smokers out there -- I cannot give you a specific example -- that perceive themselves to be as healthy as... Q- But you haven't ... Me IRVING: Let him finish. Me BAKER: Yes, sorry. Sorry. A- ... as the typical person. BY Me BAKER: Q- But you haven't -- you see, Doctor, you haven't read a segmentation study. That's the point. You haven't read any studies about smokers -- smokers, have you? A- About smokers? That's not true. I have read studies about smokers. Q- Oh, really? Which ones? A- There's one study that I can recall. There's a study by Barbara Loken that looked at beliefs of non-smokers -- female non-smokers versus smokers. Q- That looked at female non-smokers? A- In comparison with smokers. Q- Well, what aspect of the females was it looking at? A- It looked at differences in their beliefs about the health consequences and the social consequences of smoking. AUDIOTRANSCRIPT, oi,,;,;oo ~ Pierre Vilaire & Associ~s Lt6e

2490 2019 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 Q- Non-smokers and smokers alike, females? A- Females, college students. I believe there were two hundred and seventeen (217) of them, or something like that. Q- And this person's name is Barbara Loken? A- Loken. Q- L-O-... A- L-O-K-E-N. Q- And where did she write this? A- I believe it was published in a psychology journal. I do not recall the exact publication. I'm sure it was a psychology journal. Q- Is she -- well, I mean, is there any way I could find out about Barbara Loken, if I wanted to, that you could think of? A- Sure. I'd be willing to find out about Barbara Loken and I'm sure ... Q- I'm not asking if you could help me, but how would the Court -- if the Court wanted to verify this, how would you go about doing it? Me POTTER: Excuse me. to say how -- one lawyer should do his homework. THE COURT: No, I think the question is pertinent. We're not My Lord, it's not the place of this witness AUDIOTRANSCRIPT, o~i,~o~ ~ ~i~ viIo~, & A,,o~i~ L~¢~

2020 2491 LEONARD REID, Pet., Cr-Ex 5 I0 15 2O 25 playing games. Could you give more information, where is that reference is, if it's possible? It's in a psychological ... A- It's in a psychology journal, in ... THE COURT: Well, the last ten (I0) years, twenty (20) years? A- Oh, it was in the last -- yes, I do believe it was late 'seventies ('70s), early 'eighties ('80s). I cannot give an exact date. BY Me BAKER: Q- And this article by Barbara Loken concluded that smokers, female smokers, think of themselves as healthier -- as healthy? A- It dealt with that particular issue. Q- Did it conclude that, Dr. Reid? A- I do not recall what it concluded. Q- But I asked you the question in connection with testimony that you have given, Dr. Reid, and your testimony has been that smokers think of themselves as healthy. I asked you what you read to support that proposition, and you're referring to Loken, and I asked you if Loken says that, and you say you don't know. Me POTTER: Excuse me, My Lord. That's incorrect. Mr. Baker said very pointedly to the witness, "You have not read any

2492 2021 LEONARD REID, Pet., Cr-Ex i0 15 20 25 studies, have you?" And the witness, quite rightly, replied, "No, that's incorrect. I have read some studies about smokers," and recalled, unaided, this article. Me BAKER: Marvellous. He recalled, unaided ... Q- Does -- is this article that you've referred the Court to, by Barbara Loken, indicative that female smokers -- which you say is the subject of that article -- think of themselves as healthy individuals? A- And my point would be I believe that there are -- female smokers think of themselves as healthy. Q- I didn't ask you your opinion, Dr. Reid. I asked you if that was the conclusion of Barbara 'Looken' in the article to which you referred the Court. A- Loken -- and I responded I do not know what the conclusion is. It's been some time since I've read the article. Q- So then why when I asked you the question did you give that reference, Dr. Reid? Now, do you know what content analysis means? A- Yes, I do. Q- What does it mean? A- It is a study of the content of something, such as an ad, the manifest content, the objective content of the AUDIOTRANSCRIPT, o~v~,io, de Pierre Vilcllre • Associ~s LtEe

2493 2022 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Qm ad. So it's an analysis of an advertisement? It could be an advertisement. It could be a television program, it could be speeches. It could be the transcript of this trial. Yes, but I meant content analysis of -- in reference to advertising. Right. So it's an analysis of an advertisement? It's a methodology to study the content of advertising. It can be applied. So that doesn't have anything to do with your mature market theory, does it? Doesn't have anything to do with my mature ... Mature market theory. ... theory. Content analysis is a methodological approach to doing a study. Of an advertisement, if we're talking about advertisements. The content of ads. The content of ads. Right. Because, you see, what I didn't understand is I asked you on the eleventh (llth) of October about mature markets and where you learned about whether the market

2494 2023 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 in Canada was mature, and if you look at -- at page fifteen seventeen (1517), I asked you about the academic -- what kind of academic journals, and your answer at line twenty-one (21) is: "There have been content analyses published by academic authors and academic journals." Remember that? M'hm. That's when you referred us to Warner. Right. But -- so that didn't have anything to do with mature markets, which is what we were talking about on that page fifteen seventeen (1517). Take your time and look it. I see it, yes. It didn't have anything to do with mature market, did it? Oh, Warner has written about mature and new markets. No, but you've referred the Court to content analysis and then, if you remember, we got into a whole discussion about what you've read by Warner, and you pointed the Court to an article, the one (I) article that you said you've read by Warner, remember? M'hm. And that wasn't about mature market. It was about content analysis, wasn't it?

2495 2024 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 Me IRVING: Just a moment. witness said. It was about content of cigarette ads. That's a misrepresentation of what the He said he'd read two (2) or three (3) articles by Dr. Warner. I wish Mr. Baker would, if he's going to put specifics like that, would put them accurately. Me BAKER: I'm not going to get really angry with my friend, My Lord, for saying that I've misrepresented to him, but this witness went through the Warner book, and at page fifteen forty-seven (1547), Mr. Irving, Volume XI ... Me IRVING: Yes, Mr. Baker, go ahead. Just carry right on. Me BAKER: Right. "That's the only one that I've read." Me IRVING: That's right. Now, My Lord, may I just nail this point down finally? That is misrepresentation another time. Dr. Reid has said very clearly, in his original evidence and cross-examination -- and Mr. Baker owes the Court and everyone else an apology here -- at page fifteen eighteen (1518), he's asked: "What have you read by Dr. Warner? Have you

2496 2025 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 ever read, for example, the book that was written, 'Why People Smoke?' A- No. Q- What have you read by him? A- I cannot tell you the number of articles I've read. I've read some of his academic research that has been published in journals." All right, and he goes on. Then, when he is shown the book, he looked at the index, as you may recall, My Lord, and he said, looking -- because he had not read the book, "Selling Smoke" -- Mr. Baker says, "I see you're reading through the index at the back of the book." If he'd started you on the right page, we'd have got the right answer, page fifteen forty-six (1546). "Is that helping you to identify Dr. Warner? A- Yes." And he goes on. "I was hoping to see if there is anything I've read by him, and cited on page one zero eight (108) there is a reference number, one nineteen (119). That's the only one (i) I have read..." -- and what he doesn't read to you -- "...that is cited in this report.' AUDIOTRANSCRIPT, Division de Pierre Vilaire & Asso:i~s Lt~e

2026 2497 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Now, that's three (3) times Mr. Baker has suggested to the Court that Dr. Reid has been misleading or has changed his answers. He said the first (ist) time, "I have read two (2) or three (3) of his articles." When he was shown the book, he said, "The only one I've read that's in the index..." -- that's in the bibliography -- "...is that one.' That is what he said, and that's what the record shows absolutely clearly. And I must say, My Lord, I am very tired of hearing that kind of misrepresentation put to the Court. Me BAKER: Well ... Me IRVING: Just read it. Me BAKER: The article in question is "Tobacco Industry Response to Public Health Concern and the Content Analysis of Cigarette Ads," Kenneth E. Warner, Ph.D. BY Me BAKER: Q- Is that the article that you ... A- May I see it? AUDIOTRANSCRIPT, o~,io, de P~erre Vil,~ire & Associ~s Lt~e

2498 2027 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Yes. Yes. Have you read anything else by Dr. Warner? And if so, could you tell the Court what it is? Yes, I've read something else by Dr. Warner. It's not -- as I said, I do not recall exactly what it is that I've read by him. Can I look at the citations? Sure, just like you did the last time, and I'll read through that index with you. Terrific. No, I do not see anything that I recognize that I've read, other than this. I take it you've read this article? Yes, I've read this article. And you do know that Kenneth E. Warner, Ph.D. is an authority in the things which he writes about, which is Public Health and tobacco, yes? I would say that he is an authority on Public Health, since he is the Professor and Chairman, as it describes in here, at the University of Michigan. M'hm. So, I'd ask you to turn to page one sixteen (116) of the article I've just given you -- no, excuse me, you'll have to go back one (I) page to page one fifteen (115), you'll see the last line. It refers to three (3) tactics of the cigarette industry.

2028 2499 LEONARD REID, Pet., Cr-Ex i0 15 2O 25 Me IRVING: My Lord, is my friend is going to ask the -- presumably, we're about to have questions about this article, I think we've been through the stages that are required in order to put extracts to a witness. Is my friend going to do that? Me BAKER: Well, let's see. I asked him if he read it. Me IRVING: Yes. Me BAKER: He said he read it. I asked him if he acknowledged him as an expert ... THE COURT: In Public Health, to do with ... Me IRVING: Yes. Your Lordship has my point already, so. The witness must be asked whether he considers this to be authoritative on the subject of -- whatever subject it is my friend is intending to ask questions. BY Me BAKER: Q- You've read this article, and you referred -- last week, unaided -- to Dr. Warner having written an article on content analysis and then when you were shown the book "Selling Smoke" you found the article, and this is the

2500 2029 LEONARD REID, Pet., Cr-Ex 5 i0 15 2O 25 article. So do you consider this article by Kenneth Warner authoritive in respect of the content analysis of cigarette advertising? I've read this article because of the methodology. I do not necessarily consider it to be particularly authoritative, even in the area of the content analysis of cigarette ads. Do you know much about the area of content analysis of cigarette ads, Dr. Reid? No, but I ... I thought you didn't do anything, any research of cigarette advertising. No, but I do know content analysis, the method of content analysis. In cigarette advertising, or ... No. ... just generally? The method of content analysis. On page one sixteen (116), in "Methods," Dr. Warner -- who I assume wrote this -- used one (I) magazine, Time Magazine, from nineteen twenty-nine (1929) to nineteen seventy-one (1971), or nineteen eighty-three (1983). Time Magazine is one (I) magazine that is directed and read by the American population. AUDIOTRANSCRIPT, o~,,~,~o,, ~, P~erre Vilalre & A~,oci~, Lt~e

2501 2030 LEONARD REID, Pet., Cr-Ex i0 15 20 25 There are different magazines -- there are many, many magazines, and those magazines are produced and targetted toward readers because of differences in those readers. It would be very difficult for me to buy the argument that these cigarette ads in Time Magazine represents the general nature of cigarette advertising. They represent the nature of cigarette advertising in one (i) magazine, Time Magazine, directed to an audience. When was the last time you read this article? I don't recall. It's been at least a month or more. And could you tell the Court, without even looking at the conclusions, what the conclusions are? No. So how could you say you didn't approve the methodology if -- because Time Magazine is supposed to be representative? I mean, is that what this article says in its conclusions? This article, whatever it says in its conclusions, again, is based on a sampling of cigarette ads from one (i) American magazine, Time Magazine. And I am saying that whatever conclusions are drawn from this study about the content of cigarette ads is limited to ads in that one (i) magazine. That is a methodological point. It's a sampling issue.

2031 2502 LEONARD REID, Pet., Cr-Ex 5 i0 15 20 25 Qm Dr. Reid, when you talk about, in your profession, targetting -- by the way, did I hear you say, a week or so ago, that you had done some focus groups? Yes, I have done focus groups. Were you hired by an advertising company to do that, or a company in industry, or ... I was hired by an advertiser to do that. I see. So you know what the advertisers mean when they talk about targetting? Advertisers, when they talk about targetting, means directing messages and media against a specific subsection of the population, a target, defined demographically, psychographically, in terms of rate of usage, a number of different factors. M'hm. Okay. Let's take a hypothesis, if you don't mind. Take the example of the cigarette company that's targetting eighteen (18) year olds, all right? Got that? Your hypothesis is that cigarettes The first part of the hypothesis is that you have a cigarette company in Canada that targets an eighteen (18) year old. All right? I wouldn't accept that hypothesis. Why not? Because, first of all, eighteen (18) year olds -- from AUDIOTRANSCRIPT, o;~,~oo ~e P~,~ MiJa;re ~ Associ~s L,4e

2032 2503 LEONARD REID, Pet., Cr-Ex I0 15 2O 25 eighteen (18) year olds -- if I recall correctly, I think there is a prohibition against directing ads to young people. Me BAKER: I've got no further questions. THE COURT: I'm going to give you back this. This also was not filed, I believe. This also was not filed, eh? Me POTTER: My Lord, Mr. Baker might be interested to learn that the article which was mentioned before by Barbra Loken, is 1982. It's entitled "Heavy Smokers, Light Smokers and Non-Smoker's Beliefs About Cigarette Smoking" It's in the Journal of Applied Psychology, Volume 67, page 616, and it is mentioned, it is cited in the report of one of his experts, the expert called Covell. Me BAKER: Let the record show that Mr. Baker is appreciative of the information that Mr. Potter has just imparted ... THE COURT: Thank you, Mr. Potter. Me BAKER: ... we'll smile all the way to London for that one. Me IRVING: We haven't got there yet, Mr. Baker. AUDIOTRANSCRIPT, Division de Pierre Vilolre & Associ~s Ltee

2033 2504 LEONARD REID, Pet., Re-Ex I0 15 2O 25 RE-EXAMINATION BY Me COLIN K. IRVING On behalf of Petitioner, RJR Macdonald Inc.: Q- Dr. Reid, just as a general matter dealing with the demand curves, which are, as you described them, flat, just as a matter of clarification, if -- if the increase in consumption of a product category is approximately the same as the increase in population in a country, is that still what you call a flat demand curve? A- If the increase ... Q- If the increase in overall consumption of a product category is equal to, or approximately equal to the increase in population in the country being studied, is that what you would call a flat demand curve? A- I would say so, yes. Q- Now ... THE COURT: Kind of leading -- kind of. Me BAKER: I, deliberately, through the course of this trial, My Lord, have declined the urge to object to leading questions. question. that answer. -- maybe. It's not so much that it's a leading I don't know whether he's competent to give It's a question to be put to an economist AUDIOTRANSCRIPT. O~,,~,~oo a. ~ Viloi~ & Associgs LtEe

2505 2034 LEONARD REID, Pet., Re-Ex i0 15 20 25 Me IRVING: The Court has the answer. THE COURT: Well, try, I mean, we're in re-examination, try not to be ... Me IRVING: I am, My Lord, and I won't be leading him. THE COURT: ... except for the obvious stuff. Me IRVING: Well, one of the exceptions to the leading question rule is where the matter is not really seriously in dispute. I don't think that is disputed. But if my friend disputes it, I would ... Me BAKER: It's okay. Me IRVING: ... rephrase it. Me BAKER: It must be a rule a bit like the fundamental law ... Me IRVING: Q- Now, Dr. Reid, I want to come back to the extract in 'Marketing Management' by Philip Kotler. One moment. Me BAKER: What page are you referring to? AUDIOTRANSCRIPT, ~,,~,~o,~ ~ P~,rre Vi~o~r~ & A,sod~r, L,~e

2506 2035 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 Me IRVING: I'm starting at page 359, which is the page already put to the witness, My Lord. The top part of that page, there is a heading in the margin 'Marketing Stategies in the Growth Stage'. Do you see that document? A- Yes. Q- And I read: "During this stage, the firm uses several strategies to sustain market growth as long as possible:" And under that there's a series of points. "The firm improves product quality..." Do you see that? Yes. The first: " * The firm adds new models ... • It enters new market segments. • It enters new distribution channels. • It shifts some advertising from building product awareness to bringing about product conviction and purchase, and • It lowers prices ..." Now, in general, do you agree that that is a feature of marketing strategies in the growth stage? Well, as I said -- and it's been my testimony that the

2507 2036 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 purpose of advertising in the mature market is to ... This is the growth stage now, Dr. Reid? In the growth stage. And I just was drawing your attention particularly to the reference to shifting advertising from building product awareness to bringing about product conviction and purchase. Is that a marketing strategy which you recognize and would agree with? Yes. Yes. 'Maturity Stage'. And my friend read you one sentence out of that, and went over to the next page. I Would ask you to look at the bottom of the page. The very last paragraph begins as follows, and I'm quoting: "The slowdown in the rate of sales growth creates overcapacity in the industry. This overcapacity leads to intensified competi- tion. Competitors scramble to find and enter niches. They engage in frequent markdowns and off-list pricing. They increase their advertising and trade and consumer deals. They increase their R & D budgets to develop product improvements and flanker products. They make deals to supply private brands. Now, at the bottom of the page, there's a heading, AUDIOTRANSCRIPT, ~,~o~ de Pierre Vilaire & Asso¢i4s lt~e

2508 2037 LEONARD REID, Pet., Re-Ex 5 i0 15 20 25 These steps mean some profit erosion. A shakeout period begins and the weaker competitors start dropping out. The industry eventually consists of well-entrenched competitors whose basic drive is to gain competitive advantage." Do you agree with that? Yes, I do. Okay. Can we come down to 'Marketing Strategies in the Mature Stage', which is the next section on page 360? And I want to direct your attention again to the part of that page which my friend referred to. There is that little section beginning: "We will examine each factor in turn." M'hm. "The company can try to expand the number of brand users in three (3) ways." And the first to which my friend referred you is to convert non-users: " * The company can try to convert non-users into users of the product category. For example, the key to the growth of air- freight service is the constant search for new users to whom air carriers can demonstrate the benefits of using air freight over ground

2509 2038 LEONARD REID, Pet., Re-Ex i0 15 20 25 Am transportation." Now, in your opinion, Dr. Reid, is that a validly-made point which describes the kind of process which a marketer can successfully engage in? This example to me -- as I thought I tried to make the point earlier -- it describes competition within the generic product category of freight services, whereby freight service is trying to convert people from ground freight services. To? They are users of ... To air freight? To air freight. Yes. They are users of freight services. So it's inter- product substitutability. I would not agree, as I tried to say, that these are examples of two (2) different product categories. Now, where there are differences, say in price or speed or convenience or whatever, between air freight and ground transportation, can marketing or advertising, in your opinion, be a tool to persuade people to switch from one form to the other? If a freight user -- if a freight user uses a particular service because of particular attributes, functions that AUDIOTRANSCRIPT, oi,,i,ioo ,~ ~io,~ Vilalre & Associ6, Lt~e

2510 2039 LEONARD REID, Pet., Re-Ex i0 15 2O 25 are served -- if this particular product is better than particular services, better than another type service, those attributes can be communicated to the user of the freight service. But the point is -- is that, again, the use of advertising is going to be based on the market demand for a product. It does not create the demand for a product, a product category, a product form, or brand. It is a function of the market. Q- I would like you to turn to page 367 of the same book. THE COURT: Page what? Me IRVING: 367, My Lord. This is Table 12-1. THE COURT: Well, I gave back what I had to Maitre ... Me IRVING: Well, do you not have that one? THE COURT: I gave it back. Me BAKER: My Lord, I question -- if only three (3) pages of this book have been produced -- whether the re-examina- -- because of his own objection, whether in re-examintion he's allowed to be referring to other parts of the book. AUDIOTRANSCRIPT, Division de Pierre Viloire & Associ4s Lt4e

2511 2040 LEONARD REID, Pet., Re-Ex l0 15 2O 25 Me IRVING: My Lord ... Me BAKER: I'm not quite finished Mr. Irving. He seems to be wanting to have it both ways, My Lord. And if he now wants to refer to parts of the book that I didn't refer to in cross-examination, and he's raising an issue that I didn't directly refer to in the cross-examination, then maybe you just ought to have the benefit of the whole book -- I mean, and make your own decision. But I seem to understand from your ruling this morning that you took a rather restrictive view in that sense of these kinds of documents, and that thesis or theory would be applicable to a re-examination by Mr. Irving; and he's -- or put it another way, My Lord: he made the objection initially, to broaden the base of the questioning, and now he wants it both ways by having other parts of that book in. And ... THE COURT: I didn't hear the question, first of all. So ... Me IRVING: There wasn't one yet, My Lord, but I was simply referring to page 367 of the extract from the book which my friend gave to me, which I thought was before the Court, under reserve of the general objection. AUDIOTRANSCRIPT, Division de Pierre Vila;re & A,so~i~, L,~e

2512 2041 LEONARD REID, Pet., Re-Ex 5 i0 15 20 25 Me BAKER: Well, it wasn't before the Court. look at it, so I showed it to you. Me POTTER: You just wanted to No, my memory of it, My Lord, is that this whole extract -- Mr. Irving said, 'Why not put the whole extract before the Court?' and my notes show that it is -- all those pages are before. But even if that is not the case, it's preposterous to suggest that if it is possible for Mr. Baker to refer to one page of a book, it is then prohibited for everyone else to refer to any other page. It's simply preposterous. Me BAKER: But that's not the basis of the objection, My Lord. The basis of the objection is that he's in a re-direct examination. Me POTTER: And we can only refer to the pages you did. Me BAKER: No, the subject matter, Mr. Potter. That's what we're talking about. Me IRVING: It's simply a matter, My Lord, of putting it into context, and it's obviously ... AUDIOTRANSCRIPT, oi~io~ d~ Pierre Viloire & As~.o¢i~s Lt~e

2042 2513 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 THE COURT: Why don't you ask the question now? re-examination or if it's not. Me IRVING: I'll know if it's Q- Now, I would ask you to look at page 367, Dr. Reid, which seems to -- which is Table 12-1, and across the top there is a box with four (4) categories: Introduction, Growth, Maturity, and Decline. And under that -- the headings are not legible on my copy -- but there are, down the left-hand column, a series of categories, such as sales, characteristics ... Have you got that, My Lord? Okay. Do you see that? And then down at the bottom, there's advertising. Now, reading across, under the first category, which is Introduction, I see for Advertising: "Build product awareness among early adopters and dealers." Then in the Growth section ... Me BAKER: My Lord, I object, because he's reading into the record a part of the book now which is not ..... Me IRVING: Me BAKER: AUDIOTRANSCRIPT, D~vlsion cle Pierre Vilaire & Assoc~4~ ~.t~e

2043 2514 LEONARD REID, Pet., Re-Ex 5 i0 15 20 25 Excuse me, Mr. Irving -- you are doing exactly what you suggested earlier on I was guilty of doing, which is doing something indirectly which you can't do directly. My Lord, I didn't talk to this witness in cross-examination about the growth stages of a product or the strategies to be followed in a growth stage. Accordingly, it is not open to Mr. Irving to ask this witness in re-examination what happens in a growth stage, in terms of strategies. Not so much because it's the same book, and another page in the same book; it's the subject matter. objection, My Lord. But it's the substance of the And the fact that it's a page, it's just the page that I'm objecting to, because it's an easy reference. I object to the question as a question. Therefore, I objection to the production of the page, or any discussion of the page. It doesn't come from the cross-examination. THE COURT: I haven't heard the question yet. Me IRVING: My Lord, let me tell you what I'm going to do before I do it, then. Mr. Baker put the Kotler work in front of Dr. Reid and suggested to him that where Dr. Reid was using mature market, other people used different terms, and was suggesting, I think, that Dr. Reid's evidence on AUDIOTRANSCRIPT, Division

2515 2044 LEONARD REID, Pet., Re-Ex i0 15 2O 25 this issue of maturity and the use of advertising in different markets was contradicted by Kotler, amongst others. I am intending by reference to the same work to show that Kotler says exactly the same thing as Dr. Reid; and I'm certainly entitled, since my friend has read parts of this book to the Court, and has read them to the witness to put the context before the Court, and before the witness, so that we're not caught looking at one single page of a book with one line on it, which my friend read in his own way without looking at anything else. So the whole series of questions is under reserve of an objection, in any event, My Lord. So there can be THE COURT: Let's go -- let's go under reserve on this one, too. Me IRVING: Q- Right. So that under the category Growth, then, for advertising, this author shows: "Build awareness and interest in the mass market." And then under Maturity -- the Maturity Stage, as he puts it, for advertising, it says: "Stress brand differences and benefits." And then finally, in Decline:

2516 2045 LEONARD REID, Pet., Re-Ex l0 15 20 25 "Reduce to level needed to retain hard core loyals." Now, I just want to ask you if once you've seen that, Dr. Reid, if you agree with Philip Kotler, that that reasonable description of the process of advertising through the four (4) phases of product cycle which he describes? A- As I testified, advertising in a mature market, in a mature situation, the competition is for users of the product. The competition is to take from one user, from brand to brand, it's inter-brand competition, and the function of advertising is to reinforce existing loyalties and to move people, users to switchers, brand switching. Me IRVING: Q- Now, Dr. Reid, my friend put a hypothesis to you in the course of the cross-examination which I want to come back to. He asked you to consider the case of -- I think it was a sixteen (16) year old who was a non-smoker, whose parents didn't smoke, whose siblings, if he had any, didn't smoke. Do you recall that... A- Yes. Q- ...particular example, I can't remember if his name was Peter or John? Perhaps my friend will help me. In any event, that -- that hypothesis was put to you. I want AUDIOTRANSCRIPT, D;,,~,;o,~ de Pierre Viloire

2046 2517 LEONARD REID, Pet., Re-Ex 10 15 20 25 to put the same hypothesis to you and I want to expand it. Please, Dr. Reid, would you consider the case of a sixteen (16) year old who has never, ever smoked and whose parents do not smoke, whose siblings do not smoke, but add to that that this hypothetical sixteen (16) year old has seen people using cigarettes on the street, wherever, for a number of years. Where the person is aware of the controversy regarding the health effects of cigarettes and where even the sixteen (16) year old has seen cigarette advertising for many years. Let us say this particular advertisement for cigarettes. I'm showing you from Exhibit ITL-21 which is Playboy and I'm showing you the centerfold foldout, the first page foldout which is a Marlboro ad. Now -- so have we got that hypothesis? A sixteen (16)... A sixteen (16) year old comes from a family of non-smokers... Q- Of non-smokers. A- No friends smoke. Q- Right. THE COURT: You had not said friends. siblings. He's never smoked himself. He doesn't smoke himself. You had said parents, AUDIOTRANSCRIPT, oi,,i,io,-, de Pierre Vik~ire & Associ~s Lt4e

2047 2518 LEONARD REID, Pet., Re-Ex 5 i0 15 20 25 Me IRVING: Siblings, I'm sorry, My Lord, I meant to add that his peer group doesn't smoke either. THE COURT: So, he has never smoked, parents, siblings and friends do not smoke? Me IRVING: Q- Yes, he -- but he knows what cigarettes are and he's seen people use them. He has seen ads such as that particular ad and he is aware of the controversy concerning smoking and health. Me BAKER: Just show it to the judge for a moment, Mr. Irving. He seems to... Me IRVING: My Lord, I hate to ask on the record if the Court has the same copy of Playboy but... THE COURT: If it's been put in the record... Me BAKER: Let the record show that Mr. Irving just blushed. THE COURT: It's not what they call a bull market, is it? Me BAKER: You're on dangerous territory now. AUDIOTRANSCRIPT, D;vlsion tie Pierre Vilaire & Asso¢i~s Lt@e

2519 2048 LEONARD REID, Pet., Re-Ex 10 15 2O 25 THE COURT: Go ahead. Me IRVING: Q- Now, Dr. Reid, you were asked some questions about the effect of advertising on -- on such a hypothetical individual and I will ask you, now, for that hypothetical sixteen (16) year old, in your opinion, could an advertisement such as the one you're looking at or any other advertisement, be it billboard or other, for cigarettes, cause that person to start smoking? A- I would say no. The prediction -- the assumption is that this exposure to this ad, and the processing of this ad, would wipe out all previous knowledge, would override knowledge that this sixteen (16) year old who doesn't smoke, is not around smokers, who is exposed to both through education, through interaction, through reading of the media, all of these sorts of things, then that would just not happen in my opinion. Q- Now, let's -- let's take the same example, same sixteen (16) year old from the same surroundings, except this time the sixteen (16) year old did try smoking. We'll say when he was twelve (12) years old, behind the barn, to use my friend's expression, tried a cigarette. Tried it once, didn't like it but you can't say he's never smoked, this kid has smoked. Is he in any different AUDIOTRANSCRIPT, Division de Pierre Viloi,"e & Associ~s Lt~e

2520 2049 LEONARD REID, Pet., Re-Ex i0 15 2O 25 position? Would advertising have any more impact? A- This, this sixteen (16) year old has smoked, he has tried the product, he has formed, I'll just use the term attitude, negative attitude about the product. It's very unlikely that that decision was a brand decision. Certainly this ad is -- is not going to cause that person to smoke. Not overrule his experience, which was negative. Me IRVING: Now, we didn't make extra copies of this. This is the cat food article. But we got it from you so I presume you have copies yourself. Me BAKER: It's produced, isn't it? Me POTTER: No, they're not produced. Me IRVING: No, you didn't -- you didn't ask to have them produced. They're about to be produced. Me BAKER: Does everybody -- do you want to produce it? Me IRVING: Yes. THE COURT: I gave it back to you. I'm going to start with the cat food. AUDIOTRANSCRIPT, Di~i,io. d~ ~erre Viloire 8. Associ~$ ~2@e

2050 2521 LEONARD REID, Pet., Re-Ex 5 10 15 2O 25 Me BAKER: No, I have -- it's okay. I brought a copy. Me IRVING: My Lord... Me BAKER: Yes, cat food. THE COURT: Well, I gave it back to... Me BAKER: The one with Tom the tiger. Me IRVING: This is Morris the cat. Me BAKER: Morris the cat. Yes, I've got it, My Lord. THE COURT: Oh, I prefer the short form, if you don't mind. Me IRVING: Well... Q- Dr. Reid, I want to show you the article which my friend originally showed you in cross-examination, which is called a shopping list experiment and impact of advertising on brand images. Do you recall Mr. Baker showing you that article? A- Yes. Q- That's the one which deals with cat food. Would you AUDIOTRANSCRIPT, Di~'ision cl~ Pierre Vilaire & Asso¢i~s Lt~e

2051 2522 LEONARD REID, Pet., Re-Ex i0 15 2O 25 tell the Court just in very brief terms, Dr. Reid, what you set out to do in that article and what it says? A- What... Me BAKER: My Lord, I don't know that it's necessary for the witness to do that. On page twenty-six (26), on the left-hand, leftmost column where you see in bold face abstract, he actually says what the purpose of the study was and it's in one (i) quick line. Me IRVING: So that the witness... Me BAKER: It says: "The purpose of this study was to examine the impact of advertising on brand images" He doesn't have to interpret it for you. Me IRVING: Well, My Lord, as it happens, and Dr. Reid can refer to that, is that abstract an accurate description of the -- the article? A- Yes, this is an accurate description of the article. Q- Now, I want to talk to you for a moment about cat food, Dr. Reid. First of all, let me ask you to have this marked, please, as an exhibit. It should become RJR-17. Can advertising, Dr. Reid, in your view, have any AUDIOTRANSCRIPT, oi,,i~io~ d~ Pi~ W~oi,~ ~. A~o~;~ L,~,

2523 2052 LEONARD REID, Pet., Re-Ex i0 15 2O 25 impact on overall consumption of cat food? Can advertising have effect on overall consumption of cat food. It can affect consumption of cat food -- of cat food if there is an increasing demand in the number of cats that are owned by -- by the population, in a generic sense. The number of cats -- and cats are becoming -- I think they are now the number one pet. But I take it from that article that at least in the United States, there is considerable brand advertising for varieties of cat food, is that true? Yes. Yes? Yes. Is that -- is that a competitive market like others that you've been describing? It's an extremely competitive market, I believe. Looking at the cat food market, Dr. Reid, and if I was the manufacturer of brand X -- and we will assume for the moment that I am unable to control the number of cats which are extant in the United States, and I want to increase my market share of the cat food market -- where could I get extra market share from? The competition, other brands, other forms of... Is that an example of what you have referred to as a law of marketing, that -- that increased sales must come AUDIOTRANSCRIPT, Division de Pierre Viialre & Associ~s Ltbe

2053 2524 LEONARD REID, Pet., Re-Ex i0 15 20 25 from other sellers within the brand category, the product category? A- Yes, unless, again, there is a growing generic demand curve, overall demand for the product, the sales must come from other competitors. Q- Now, the -- so we can put that in, that's RJR-17. You were then asked by my friend about an article you had written regarding the use of models, attractive models in advertisements. Do you recall that, Dr. Reid? A- Yes. Q- And my friend asked you... Me BAKER: I think that... THE COURT: I gave it back to you, too. Me IRVING: And we don't have a copy of that one. I don't think you distributed that particular one to the Court. Me BAKER: Well, there were several articles on -- there were two (2) separate articles on attractive models. Me IRVING: May I just see whatever one it was you showed the witness? AUDIOTRANSCRIPT, D;vlsion de Pierre ViVa're & Associ~s L'~

2054 2525 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 Me BAKER: No, I don't have them, sorry. THE COURT: A qui vous l'avez redonn~, Monsieur le Greffier, tout ~ l'heure les documents? Me JOYAL: C'est ~ moi, Votre Seigneurie, mais je ne l'ai pas trouv~ l~-dedans. Me BAKER: Non, non pas celle-l~. And there were two (2) separate articles that I was referring to. There was decorative female models, and then it was revisited a few years later, and I've left them both at the office. Me IRVING: All right. Well, perhaps my friend would forgive my being a little leading. Was it one of the conclusions you reached in the article you were shown yesterday, Dr. Reid, that where attractive models were used, where an attractive female model was used, first of all, the result was that there was higher advertising recognition, recognition of the advertisement, I should say, by male readers. A- Yes. Q- Yes. And did you reach any conclusion concerning the use of attractive male models amongst female viewers? AUDIOTRANSCRIPT, Division de Pierre Vilaire & AssociEs L,@e

2526 2055 LEONARD REID, Pet., Re-Ex 5 l0 15 20 25 Male models versus female viewers, I do believe and I do not have the... Well, the witness... Me BAKER: I, My Lord, please, the article is not here. There were two (2) of them. THE COURT: It was dealt during the afternoon just a few minutes prior to the adjournment, the mid-afternoon adjournment. Me IRVING: Page fourteen seventy-five (1475), My Lord, where Dr. Reid said that he did look at male models as well. Whether it was in that same article or not, I'm not... Me BAKER: Only the female model. Me IRVING: The question by Mr. Baker is: except you didn't do research on male models, you did research on female models, didn't you, Dr. Reid? Yes. And then he goes on -- and in fact you've never done research on the effect of the use of male models, have you, Dr. Reid? And the answer is -- if I recall, and I don't have the studies before me -- I do believe the ads were coded by males alone, females alone and males and females together. AUDIOTRANSCRIPT, Divis;on de Pierre V;l~;re & A,so¢ies L~e

2527 2056 LEONARD REID, Pet., Re-Ex 10 15 2O 25 Me BAKER: That's who did the coding. A- That's not the... No, no, no. I studied decorative models, I believe the coding was confined not only to females but also to male models and females and males together in the ads. In any event ... Me IRVING: Q- Let's stay with the female models just for the moment because we're all in agreement that they were looked at. And you found, if I recall your evidence correctly, that the use of an attractive model, female model in this case, produced higher recognition scores for the advertisement amongst males? A- Yes. Q- Right. Did that have any effect on brand recognition? A- No... Me BAKER: My Lord, I object to any further questions to this witness in respect of the article. The article is not here. Me IRVING: Well, let's -- My Lord, my friend chooses to ask the witness about an article in cross-examination, doesn't choose to put it in as an exhibit. He cannot very well, now, object to my clearing up issues which arose out of AUDIOTRANSCRIPT, Division cle Pierre Vilaire & Associ~s Lt6e

2528 2057 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 his cross-examination. That's what reexamination is for. Me BAKER: My Lord, when I put the questions to the witness in respect of the article, the witness had the article in front of him and Mr. Irving had a copy of the article in front him. The Court had a copy, and you all gave it back to me, and there's nothing wrong with that. What there is something wrong with is ten (i0) days later, when he doesn't alert me to the fact that he might be wanting to use the concept from the article to get specific answers and not bother to call me to tell me to bring the article to Court. So he can't ask him to hypothesize perhaps about an article that's no longer in front of the Court. Me POTTER: I believe it was never in front of the Court, My Lord. Me IRVING: My Lord, it was not put in front of the Court and we were never given a copy or we would have it. THE COURT: Well, anyways, under reserve. with him. Me IRVING: Q- Let's just get finished Did that higher level of advertising recognition have AUDIOTRANSCRIPT, Oi,,i~ioo d~ Pierre Vilalre & Asso¢i~s Lt~e

2529 2058 LEONARD REID, Pet., Re-Ex i0 15 2O 25 any bearing on brand recognition? Not as measured by the Starch system. That is, again, as I tried to point out what Starch does, takes various methods, measures an ad readership to take the ad that -- that you have given me, the bull ad. What Starch does is a professional research service that Philip Morris would hire to track the readership of their ads. They would go sample a group of Playboy readers, in this instance, hand them the issue of the magazine and if they qualify as saying yes, I remember reading or seeing this issue, then they would ask the person to thumb through the magazine and to point out which ads they remembered seeing, which is scene associated. And then they asked them another question: "did you read more than half of the ad". In terms of the scene associated score, which is ad recognition, using those -- using those scores that Starch had collected that are for ad, and ads with decorative models versus ads with non-decorative models controlling the product category, because the product category has an interactive effect on these scores. That is, people interested in different scores. Size of the ad has an effect. Those ads that had decorative models, both male and female, tended to have an association between the higher ad recognition score, Seen/Associated. There was no AUDIOTRANSCRIPT, ~,~o~ ~o Pierre Vilc~ire

2530 2059 LEONARD REID, Pet., Re-Ex i0 15 20 25 difference in those ads with decorative models versus non-decorative models in the "Read Most" score, which means they had read half ad, had nothing really to do with whether they've read the ad or not. They remembered seeing it. That is, they paid attention to the ad. That's what that is all about. You were then asked to look at another article of yours, Dr. Reid, called "Towards an Associative Model of Advertising Creativity", a copy of which I'm putting in front of you and in particular you were -- well, first of all, that is an article which you wrote, Dr. Reid? Yes. I'd like to have that marked, please, as Exhibit RJR-18. Do you have it, My Lord? Now, you were asked about the paragraph which appears on page twenty-six (26) in the right-hand column under the heading, 'Toward a Conceptual Model'. And in particular, Mr. Baker asked you about the second paragraph which begins, "Every advertising campaign is essentially an attempt to assist the other elements of the marketing mix in solving the problems of a particular marketer." And then it goes on to talk about undesirable image, which was the subject of most of the cross-examination AUDIOTRANSCRIPT, Division ae Pierre Vilaire & Associ~s Ltge

2531 2060 LEONARD REID, Pet., Re-Ex 15 A- 20 25 on that particular document, Dr. Reid. What kind of advertising are you talking about there? In the context of this article, which first of all was simply a model that dealt with who's creative and who's not creative, this was given as an example of one of the communication functions that would be assigned to advertising. In this particular case it says of a particular marketer, which would mean in the case of brand advertising, a brand with an undesirable image. All right. Now, is there a difference in your view between using advertising to correct an undesirable image for a brand and advertising intended to create -- to remedy an undesirable image for a brand category, a product category? Well, as I've stated in my evidence, using the coffee example, that was an attempt by the coffee industry to correct a misperception, a negative image of coffee which turned out to be unsuccessful. In a brand category it is often -- advertising is often used to try to change a person's perception of a brand. The cat food example that was introduced into the record, one of the reasons that we selected that -- we selected in the sample only cat food users -- is because these were the people that would have a tendency to be exposed to cat

2532 2061 LEONARD REID, Pet., Re-Ex i0 15 2O 25 food advertising. They have an interest in it: they have cats, and cats consume the cat food. Because of that, it's more likely they would be attendant to, in this case, Nine Lives, Morris the Cat, which was millions of dollars spent for this product, well known, well received. Brand X was a comparable product; what I mean, a parity, basically in terms of same quality, same price, but did not have a distinct image. This marketer of brand X -- and I cannot recall the brand that we chose -- could use advertising as well as other forms of promotion to try to change that image of their product, to create a personality for their particular product -- if we define that as an undesirable image. Now, Dr. Reid, you were finally referred to an article entitled, 'Is the Perception of Informativeness Determined by the Quantity or the Type of Information in Advertising?' which you wrote with Lawrence C. Soley, and which I am putting in front of you. Is that, indeed, a copy of your article? Yes, it is. I'd like to have that marked, please. RJR-19. Now, Dr. Reid, you were asked about advertising imagery at various times in the cross-examination. Let me just ask you this: Wwhen an ad succeeds in the sense that it has the right imagery and that that imagery AUDIOTRANSCRIPT, Divislon de P~erre Vilaire & Associ~s L,ee

2533 2062 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 reaches the eyes of people who are receptive to it, does that necessarily translate into sales of a product? A- No. There is a difference between the perception of the image of a product and the valuation of that image and how a person behaves in the marketplace. A person can go back to a demand again -- which I would say is a function of a person's willingness and ability to buy. A person can have an image of a product that does not necessarily translate into a sort of market behaviour. They may not even be in the market for the product, but still have an image of a particular brand of product. That image -- that imagery is used in advertising, I assume if it's a smart advertiser is going to be based on his analysis of the market and its wants and needs. THE COURT: Do you have an example where you would have a good marketing effort that was done in the past and the image was great, but sales didn't follow or the market share didn't follow? A- Oh, I think I can use the example, if I may, of Alka-Seltzer in the U.S., Alka-Seltzer being a seltzer that you put in in drops is the advertising. Most people were very familiar with their advertising campaign: "Mama Mia! I wish I hadn't eaten the whole thing!" As the recall scores and the communication AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ6s Lt~e

2534 2063 LEONARD REID, Pet., Re-Ex 5 10 15 2O 25 scores of this campaign went this way and people loved the ads and the product was perceived as -- the imagery projected by the advertising was very well loved, the product sales were going this way with the product. I mean people love -- for instance, I think this is another example: wine coolers. Wine coolers. Q- Wine coolers. A- Wine coolers were a very high product over the last five (5) or so years. Like other alcoholic beverages, wine coolers are now in declining sales, but people have a very strong imagery -- had very strong imagery of Ed and -- I can't remember the other guy -- Battles. Bartles and James. They're two (2) fellows, Ed and -- I can't remember the other fellow's name right now. So it hasn't struck me that closely. But these people are featured quite often and you see take-offs of them on T-shirts, take-offs of them in skits and other sort of mass media things. Very strong imagery. It certainly doesn't seem to have translated into the success of the product. Q- The sales. Me IRVING: Q- Do you recall, Dr. Reid, just from your general observation -- and back and on that subject -- about what percentage it is of new products all heavily AUDIOTRANSCRIPT, Oivi~ioo d~ P~,~, Vi~oi,~ ~. A~,o~¢,

2535 2064 LEONARD REID, Pet., Re-Ex 5 i0 15 20 25 advertised and all the marketing research and so on, that actually fail in the market place? Oh, the majority. I've heard figures bandied around nine (9), eight (8) to nine (9) of every product that's introduced in the marketplace. Eight (8) to nine (9) out of... Out of ten (i0). That fail! And there's an awful lot of product failure in the market place. And there are other competitive factors in operation other than advertising. Consumer advertising is only one form of advertising. There is trade advertising that's going on, too. Now, I want to put a hypothesis to you, Dr. Reid, and ask you to deal with it in the context of your answers to Mr. Baker on new markets and the role of adverti- sing. Let us assume that the product category is one which is virtually universally known, but at the period we're going to look at, it is only used by one part of the population for whatever reason. And over time the overall consumption of the product increases, increases quite sharply as different segments of the population, in my example, start to use the product where previously they had not; all right? Yes. AUDIOTRANSCRIPT, Di,,~,~oo d~ Pi~ V~loi~ & A~o~i~,

2536 2065 LEONARD REID, Pet., Re-Ex i0 15 20 25 Qw Qm Right. So there we have the situation where the product category is universally known, and has been all along, but because of the kind of factors I've asked you to hypothesize, the demand curve has risen quite sharply. Now, taking that kind of market, I want to ask you in your opinion whether advertising, in terms of media advertising, the kind of advertising we've been discussing, plays any different role than it did in the examples you gave earlier of advertising for a product which everybody knows about? I would say in the situation that you're describing that some of the social condition has changed, such as a product has become more acceptable to a particular population group, the availability of it is greater, economic means increase, et cetera; but people are aware of the product category and they're also aware of brands. I would suspect in the situation that you described that the competition would be among -- advertising's effects would be among brand categorization -- that is, my brand against other brands in a product category. My Lord, may I have just a minute or two? It was a rather long -- the cross-examination was fairly long and over a couple of days. I only need two (2) minutes. I just want to make sure that there aren't -- you can stay AUDIOTRANSCRIPT, D~v~s~oo de Pierre V~loi~e ~ As~oci~s Ltee

2537 2066 LEONARD REID, Pet., Re-Ex 5 i0 15 20 25 here, My Lord, if you like, or take two (2) minutes in the corridor. THE COURT: Do you want me to get up? Me IRVING: No, no, I don't want you to, My Lord. If you would prefer -- if you would prefer to be outside the door. THE COURT: Well, it's just to make you feel at home, since it seems we're going to spend a good deal of the evening here. SHORT RECESS Me IRVING: Q- Dr. Reid, I just have one or two further questions. Again, as a matter of clarification, in preparing yourself to come and testify here, Dr. Reid, were you asked at any time by anyone to make any examination of the Canadian cigarette market? A- No, I was not. I was asked to come and talk about the general effects of mass media and advertising. Q- Were you ever asked to look at internal documents from any of the companies? A- No, I was not. Q- No. Indeed, were you asked, in preparing yourself, to AUDIOTRANSCRIPT. Di,,i~io,~ a~ ~ V~oi~ ~. Associ~s Lt~e

2538 2067 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 talk about cigarettes as a product category at all? A- No. Q- Those are my questions in re-examination, My Lord. THE COURT: At the page three sixty-seven (367), you have examined him under reserve of my objection. Are we adding this page under the same reserve? Me IRVING: Yes, My Lord, if we may. In fact, I thought we were putting the whole little segment in. Me POTTER: That was my understanding, too. Me IRVING: May I -- I would... THE COURT: Well, you made an objection, so Mr. Baker filed those pages which he examined the witness on. Me IRVING: Well, I would renew the suggestion I made earlier. In fact, I'd make it a submission, My Lord, that if those pages are going in, the surrounding pages should be there because it is very difficult ... Me BAKER:

2539 2068 LEONARD REID, Pet., Re-Ex i0 15 2O 25 Me IRVING: Just a moment. It's like a matter of statutory interpretation, My Lord. The first Golden Rule is that the section must be read in its context. Well, the same is true for ... THE COURT: Well, the Golden Rule ended up having the book inside. Me BAKER: Right! THE COURT: That's what you're looking for! Me IRVING: Well, no, I'm not -- not in the least. But if we're going to talk about that particular section, then Your Lordship should have all the pages of that particular section and not every odd page. THE COURT: Mind you, also, you've got to remember that this document, this piece is filed not as proof of its content. Me IRVING: NO, no. THE COURT: It's filed on the question of credibility, not content. Me BAKER: AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ~s L,4e

2540 2069 LEONARD REID, Pet., Re-Ex i0 15 2O 25 Only! Me IRVING: Well, what I had asked the witness whether he agrees with what is said on various pages and that becomes ... THE COURT: Yes, okay, the last page that you had examined him ... Me IRVING: ...that becomes his opinion. THE COURT: ...was three six seven (367). And my question was whether or not you filed it in and if you don't, we'll take it back. Me IRVING: Well, it -- three six seven (367) should be there, My Lord, with the other pages, in my submission. THE COURT: Under the same reserve. Me IRVING: Under the same reserve. THE COURT: Of Mr. Baker's objection. Me IRVING: RJR-20. Me BAKER: My Lord, although you haven't asked me if I have any AUDIOTRANSCRIPT, Division de Pierre Vilaire & Associ4s Lt~e

2070 2541 LEONARD REID, Pet., Re-Ex 10 15 2O 25 other questions, it is my pleasure to tell you that I don't. THE COURT: I was going to. He wasn't finished. Me BAKER: Oh, I thought he was. Me IRVING: I was finished, My Lord, and I would have submitted, with great respect, that Mr. Baker finished half an hour ago and that there is no further re-cross-examination. Me BAKER: He says I just wanted to confirm that fact. Now, may I leave, quickly? Me IRVING: However, since we don't need -- we don't need to debate it since he doesn't wish to ask any questions. THE COURT: Okay. Alors, quelle cote va-t-on donner ~ cette page, I~, pour que je puisse la retrouver? Me IRVING: Pourquoi pas la m~me cote que les autres pages, Votre Seigneurie? THE COURT: Alors, O.K., on va la coter avec RJ 58. AUDIOTRANSCRIPT, D~,,i~;o,~ d, Pierre Vilaire & A,so¢i~s Lt~e

2542 2071 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 Me BAKER: This is an RJR Exhibit? Me IRVING: Yes. Me BAKER: Well, the first page is ours. I didn't produce the last page, My Lord. If he wants to produce it, it's under my objection. It's certainly not going under the Attorney General's cote. Me IRVING: All right. Me BAKER: RJR-20. THE COURT: Okay. And it's under reserve of Mr. Baker's objection. Me IRVING: I understand, My Lord, that we won't be sitting tomorrow because ... Me BAKER: Because that was decided last week. Me IRVING: Because we have finished for this week. And Mr. Baker Me BAKER: No, it has nothing to do with my being away. It was agreed that after Mr. Reid was finished, we were going AUDIOTRANSCRIPT, Division de Pierre Vilaire & AssociCs LtCe

2543 2072 LEONARD REID, Pet., Re-Ex 5 i0 15 2O 25 to defer until Mr. Waterson. Me IRVING: ... is going off to entertain himself. THE COURT: Do you have to keep arguing when we're adjourning in a few seconds? Thank you, Mr. Reid. AND FURTHER DEPONENT SAITH NOT THE COURT: Okay. Me BAKER: Yes, My Lord. Me IRVING: Monday at ten o'clock (10h00). THE COURT: With Mr. Michael ... ? Me BAKER: Waterson. Me IRVING: Michael Waterson. THE COURT: Waterson, okay. Me BAKER: So we'll resume next Monday, I assume? So have a nice trip and ... And I promise my colleagues that if Waterson and I are on the same plane coming from London, I won't talk to AUDIOTRANSCRIPT, Division de Pierre Vilalre & As,o<i4s Lt4e

2544 2073 LEONARD REID, Pet., Re-Ex THE him on COURT: Okay. Saturday ADJOURNMENT afternoon. AUDIOTRANSCRIPT, Division de Pierre Vilalre & Associ#s Lt4e

2545 I, the undersigned, SYLVIANE SAVO, recording monitor, swear that I have personally conducted the recording of the preceding evidence and representations, verifying continually the quality of said recording, that I have prepared minutes of this hearing with due attention and that in no case was the equipment used defective. AND I HAVE SIGNED : SYLVIANE SAVO I, the undersigned, JANE WEAVER, proof reader, swear that the preceding pages are and contain the faithful and accurate transcription of the English recording. AND I HAVE SIGNED : JANE WEAVER