SECRET TOBACCO DOCUMENTS UNSEALED

A King County judge unsealed two previously secret tobacco-industry
documents this week and then declared they were evidence of an antitrust
conspiracy by cigarette companies to limit competitors' claims of health
benefits in cigarette advertising.

The records, which were found as part of state Attorney General Christine
Gregoire's lawsuit against the tobacco industry, reveal how cigarette
companies developed a written advertising code - one the state alleges was
part of a conspiracy to create doubt about the health hazards of smoking.

The ruling by Superior Court Judge George Finkle potentially strengthens the
state's case as it enters a week of hearings on whether the antitrust
lawsuit should be dismissed or go to trial in nine weeks.

John Phillips, Philip Morris' Seattle attorney, said the judge's ruling was
disappointing and poses a challenge. Even so, Phillips said, tobacco
companies will argue Monday that the antitrust, conspiracy, restitution and
other claims in the state's case should be dismissed for lack of evidence.

"Where we disagree with the judge is whether those particular documents
evidence any such fraud being perpetrated," Phillips said.

Antitrust laws forbid companies from getting together to limit advertising
or to advertise in a certain way and, therefore, these documents "certainly
sound incriminating," said Herb Hovenkamp, a University of Iowa
antitrust-law expert.

Next week's hearings come as Gregoire and 36 other states finish two weeks
of negotiations with tobacco companies over a potential $196 billion
settlement of their fraud and antitrust lawsuits. The states are seeking to
recoup lost Medicaid payments to sick smokers.

Settlement talks are on hold while Gregoire meets today with attorneys
general to discuss the potential settlement, which could mean for Washington
state $143 million a year in perpetuity - about $3.57 billion over 25 years.

One of the memos at issue in Finkle's ruling this week includes minutes from
a Dec. 3, 1964, meeting of attorneys for the major tobacco companies - R.J.
Reynolds, American Tobacco, Liggett & Myers, Philip Morris, Brown &
Williamson and Lorillard.

"The memorandum," Finkle said, "provides prima facie evidence that
defendants conspired to limit health-based advertising and that it was
written in furtherance of such conspiracy."

In that 1964 meeting at the Tobacco Institute, the attorneys held a heated
discussion over whether Kent cigarettes could be permitted to refer to a
special filter device called Micronite.

The memo outlines how companies discussed a compromise offered by Kent maker
Lorillard to remove the words "filter" from the front and back of cigarette
packages and place a statement on the side: "Made by the Micronite Process,
a name used to describe Kent's method of filter construction."

The second memo outlines a meeting with members of the Federal Trade
Commission in April 1964 in which tobacco-industry attorneys argued that the
industry's cigarette-advertising code should eliminate the need for the FTC
to require the industry to put warnings on cigarette packs.

FTC officials told tobacco-industry attorneys that the advertising code
raised serious antitrust problems that could bar an advertiser from "making
a truthful, nondeceptive representation about his brand."

Finkle ruled that the memo "is prima facie evidence of the state's
allegation that defendants conspired to limit health-based advertising by
creating a code of conduct that condoned, if not required, such limitations."

James V. Grimaldi's phone message number is 206-464-8550. His e-mail address
is: jgri-new@seatimes.com

Checked-by: Melodi Cornett