Monday, 1 October 2012

Day 64: Marketing and Controversy

See note at the end of this post for information on accessing documents

It was a very full day in the 17th floor courtroom at Montreal's Palais de Justice. The witness was Peter J. Hoult, who is both a former president of RJR-Macdonald (now JTI-Macdonald) and a former senior marketing executive with other branches of the now-reformulated Reynolds tobacco empire. His testimony was a whirl-wind tour of major themes in tobacco marketing.

But before we get there -- a word on other current events

Another victory for the plaintiffs at the Court of Appeal.

Last spring, the defendants in the class actions asked the Appeal Court for leave to appeal the mid-March decision of Justice Riordan to allow questions on contraband. Justice Hilton decided last May that a full panel of the court should consider in one sitting the question of whether an appeal should be permitted and, if so, how it should be decided.

And so it was that Suzanne Coté (BAT/Imperial Tobacco Canada), Guy Pratte (JTI-Macdonald), Simon Potter (PMI/Rothmans, Benson & Hedges) presented their arguments for an appeal to Justices Jacques Dufresne, Francois Pelletier and Louis Rochette. Arguing against the suggestion on behalf of the CQCT/Blais and Létourneau classes was Marc Beauchemin. (Many other counsel involved in the case were present in the ornate art-deco court room).

With a time limit on pleadings, by 11:25 a.m. it was all over but the deciding. The justices left the room for no more than 5 minutes, and then returned to announce their agreement that there was no basis for appeal. Marc Beauchemin, whose specialty in this class action lawsuit is covering the Appeal Court went home with yet another win for his side. Justice Riordan may also have felt a little celebratory at the court again upholding his management of this case.

There may be ripples to this decision. Last week, Justice Riordan had postponed deciding whether to reconsider another issue related to scope of questions "at least until after the Court of Appeal has taken a position on the question of the contraband, smuggling."  

More Statements of Claim!

This summer a number of provinces filed claims against tobacco companies, and English versions of two of the claims have recently become available. The Quebec government claim, prepared by the province's justice department, is a very detailed (and readable) analysis of tobacco industry actions.  The claim for the province of Prince Edward Island is the most recent claim prepared by the legal team that is supporting several provincial actions.

Peter Hoult's second day

Mr. Trudel picked up his questioning of Mr. Hoult and the day proceeded much as it had last week, with the witness speaking readily and at some length.

Much of last Thursday had been spent on general or background questions. Today, Philippe Trudel based almost all his questions on specific documents. They addressed four main themes: marketing to youth, RJR-Macdonald's lack of autonomy from its foreign owners, the marketing of low-tar Vantage cigarettes to discourage quitting, and the use of additives in Canadian cigarettes.

The more cordial and relaxed atmosphere that has taken over the court with the change to JTI-Macdonald witnesses wobbled a little this morning, as Doug Mitchell tried to defend his clients more energetically than he had done last week. For the first part of the morning, he stood frequently with new objections to the introduction of exhibits. Despite their creativity, these concerns seemed no more successful than previous attempts and by the afternoon he had reverted to a more subdued defence.

For example, the first document shown to Mr. Hoult was a 1982 memo showing the company directing the placement of ads for Export A cigarettes in the Junior Hockey magazine, (Exhibit 659). Mr. Mitchell tried to block the document, saying that it had "no evidentiary value." 

Justice Riordan gave him a sideways look and asked wryly "is this an objection based on usefulness?"   Mr. Mitchel explained that "the prejudicial effect of the document is greater than its probative value."

This novel suggestion did not win the day and a few minutes later Mr. Trudel was able to ask Mr. Hoult if he knew at what age junior hockey is played. Mr. Hoult replied "I don't know the answer to that. I don't  know anything about hockey". 

It was left unclear whether the prejudicial effect Mr. Mitchell was concerned about was the fact that a game for 16 and 17 year-olds was used as a vehicle for cigarette ads, or that a multinational company would put a man who knew nothing about hockey in charge of a Canadian marketing effort.

The man behind Joe Camel?

Mr. Trudel's next questions centred on Mr. Hoult's involvement with the international marketing of the Camel brand, and his involvement in the re-focusing of that brand's marketing to the youngest end of the market.

It was in his position of International Marketing Vice President for RJR international that he had chaired a strategy session for the Camel brand in 1983. (He worked at RJR-Macdonald from the end of 1979  to 1983 and then again from 1987 to 1988).

The review identified "Young Adult Opportunities" and noted "the key importance of young adults not only to the immediate development and growth of a brand, but also to its long term position in the market." (Exhibit 661). This approach was supported by a detailed strategy plan, originating in RJR's operations in the United States. (Exhibit 660-A).

Mr. Hoult never testified that this strategy resulted in the cartoon Joe Camel campaign, which he oversaw after moving to RJR's American operations after a year as president of RJR-Macdonald in 1987-88. The memory spoke for itself.

The candid campaign

Joe Camel was not the only controversial campaign that Peter Hoult was associated with. He was also a central figure in the Canadian roll-out of the "candid campaign" for Vantage cigarettes. This campaign he explained as an attempt to "offer the smoker a way out of his dilemma when he wanted to smoke lower tar and nicotine cigarettes but his experience was that these cigarettes were unsatisfying."  

The vantage cigarette was designed to address the dissatisfaction of smokers with low-tar brands, he explained, and for a few years had a "distinguishing filter" with a hole running down the centre.

Mr. Trudel pushed him to clarify whether the smokers dilemma was not also whether or not to smoke. Only when shown a Vantage ad that made this hard to deny did Mr. Hoult acknowledge "I think in this case, yes."

The market research conducted for the Vantage brand shows the care with which the company tested health impressions of the brand (Exhibit 662  665), and modified it for a changing market (Exhbit 663  663A  664 ). Vantage was given a heavy marketing push (Exhibit 667) and was eventually supported through a more traditional lifestyle campaign (Exhibit 672).

Mr. Trudel introduced documents which showed that the marketing of Vantage in Canada was aligned with the desires of US-based owners. It also shows that the company decided to proceed with its "candid"  campaign despite knowledge that this triggered public concerns. (Exhibit 666671).

See more samples of Vantage ads in exhibits 572572A572B572C572D572E572F572G)

Losing the tempo

Another controversial campaign conducted by RJR-Macdonald concerned Tempo cigarettes. Under development for some years as the "third family" for RJR-Macdonald, Mr. Hoult revealed there were high hopes the brand would fill a market void that its Export and Vantage families didn't. (The Canadian plant was again working closely with head office -Exhibit 668).

Exhibit 670 - Tempo ad designs
The seemingly youth-friendly Tempo cigarettes were test marketed in Ottawa, but were never sold in Quebec. Mr. Mitchell  (unsuccessfully) objected to images from Tempo's campaign being introduced to the trial, as there was no evidence that the imagery had ever been used. (While he made this argument, I was able to watch a muted version of an archived CBC news story showing billboards and bus shelter ads with the same imagery.)

Putting the nicotine back in G-13

Last Thursday, Mr. Hoult had testified that RJR applied nicotine when manufacturing reconstituted tobacco.

"It was called a G-13 process, so I won't get into detail, except to say it expanded the tobacco like puffed wheat.... In part of this process the nicotine was extracted and it was therefore out of balance; therefore, the nicotine was put back."

Today the trial was told that this nicotine-adjusted G-13 tobacco was present in virtually all of the cigarettes made by RJR-Macdonald, and that it made up more than one-third of the tobacco in one brand (Macdonald Select Ultra Mild) (Exhibit 673673A).

Additives - natural and unnatural.

This trial continues to gather evidence of the intrigue that surrounded that the use of additives in Canadian cigarettes.

Today we learned that RJR's senior scientist, Derick Crawford, did not agree with the collective decision of "the CTMC presidents" that all flavours were on the Hunter of German Lists (of approved cigarette additives), and that RJR-Macdonald had a "specific request" from its USA 'sister company' to maintain the regulatory status quo in Canada. Mr. Crawford was concerned that three of the additives used by the company were on neither the Hunter nor German lists. Two of them were listed on the FEMA/GRAS list used by the American companies and one was a newly introduced "natural tobacco extract" with the "least concern from a toxicological point of view." (Exhibit 674)

The company's dilemma could be addressed if "natural tobacco extracts" were included on either the Hunter or German lists of permitted compounds. Sure enough, a couple of weeks later, Mr. Crawford is discussing the issue with the CTMC technical committee. Hearing that "'nature identified substances" were accepted on the German list, he takes comfort that "this would then clear our 'natural tobacco extract' used on Macdonald Select." (Exhibit 612-D)

The trial had already seen that Macdonald Select had high use of "nicotine-adjusted" G-13 reconstituted tobacco, and also that it was made with "natural tobacco extract." Mr. Trudel put two and two together and raised the issue of whether nicotine was the natural tobacco extract that had recently been put into use at RJR-Macdonald.

Mr. Hoult acknowledged that nicotine was a natural extract, but did not volunteer that it was the additive referred to in 1982.

He was then reminded of a memo sent to him in 1987 when RJR-Macdonald was facing the likelihood of having to disclose its additives to government. "We may have a unique additive which enables us to achieve product superiority to competition through the use of DM, and as such would not want to divulge it," Mr. Crawford had written him. (Exhibit 636)

The suggestion that DM was a form of nicotine was in the air when Mr. Trudel asked Mr. Hoult "What is DM?"
"I don't know"
"Presumably you asked?"
"Presumably I did, but I have no recollection of what it was or its characteristics." 

Will the mystery of DM ever be revealed?

A premier idea - but not a marketable one.

Towards the end of the day, Mr. Trudel turned to the topic of RJR-Macdonald's involvement in the plans for  "Premier Cigarettes" (Project SPA). Mr. Hoult explained this as a project aimed at selling a non-burning cigarette, and the desire of the company for government approval of its benefits. In the end it was not lack of approval that killed plans for it to be sold in Canada, he said. It had failed market tests in the United States. "It tasted terrible," he said. "It was clearly a lemon - a metaphoric lemon."

Mr. Hoult will testify again on Wednesday and Thursday. Tomorrow another former RJR-Macdonald scientist, Mr. John Hood, will testify.

To access trial documents linked to this site:

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