Written Direct Testimony of Jeffrey E. Harris, M.D., Ph.D. Table of Contents I. QUALIFICATIONS TO TESTIFY AS AN EXPERT ...........................1 A. Introduction and Educational Credentials .............................1 B. Work on Surgeon General’s Reports ..................................2 C. Consulting for Public Health Authorities on Smoking and Health ..........4 D. Publications Related to Smoking and Health ...........................9 E. Testimony before Congress and Other Governmental Bodies Related to Smoking and Health ..............................................14 F. Sponsored Research Related to Smoking and Health ....................18 G. Public Service Related to Smoking and Health .........................19 H. Expert Reports and Testimony in Smoking and Health Cases .............19 I. Teaching Background ............................................19 J. Additional Public Service and Consulting Work ........................20 K. Additional Publications ...........................................21 L. Medical Experience ...............................................21 II. ECONOMIC CONCLUSIONS: OVERVIEW AND SUMMARY OF ECONOMIC CONCEPTS .........................................................22 A. Overview of Conclusions ..........................................22 B. Materials Reviewed...............................................23 C. The Role of Economic Analysis .....................................26 D. The Cigarette Industry is an Oligopoly ...............................28 -i- E. Oligopoly and Strategy ............................................33 G. The “Inferior Widget” Case ........................................39 H. Firms’ Private Profits & The Consuming Public’s Harm ................40 I. Basic Conditions Facilitating or Impeding Collusion among Oligopolists ...41 J. Oligopolistic Cooperation: Explicit Collusion versus Tacit Collusion .......51 K. Evidence that Collusion has Ended ..................................58 III. ECONOMIC CONCLUSIONS: ANALYSIS OF THE CONDUCT OF DEFENDANT CIGARETTE MANUFACTURERS WITH RESPECT TO SMOKING AND HEALTH ISSUES ..............................................................59 A. The “Health Scare” of the Early 1950's and the Response of Manufacturers59 B. The Emerging Scientific Consensus that Smoking Caused Lung Cancer and Other Diseases ...................................................83 C. Joint Denial by Defendant Manufacturers ............................90 D. The “King Sano” Exchange, June 1957 ..............................92 E. The 1958 Report on the Visit to U.S. and Canada .......................99 F. The 1962 Research Conference in Southampton, England ..............106 H. Tobacco Institute Executive Committee, January 12, 1964 ..............119 I. Wakeham Memo on the Surgeon General’s Report, February 1964 .....122 J. Report on Policy Aspects of the Smoking and Health Situation in U.S.A., October 1964 ..................................................125 K. Operations Department Presentation to the Philip Morris Board of Directors, October 1964 ..................................................135 L. CTR’s Open Question Strategy, Yeaman Memo, January 1968 ...........148 M. “The Need for Biological Research by Philip Morris Research and Development,” November 1968 ....................................152 -ii- N. Meeting with Dr. Wakeham, September 1970 .........................161 O. An Apology from United States Tobacco, March 1977 ..................165 P. Operation Berkshire and the Formation of ICOSI, June 1977 ...........166 Q. Project XA Presentation to Liggett Board of Directors, January 1979 .....173 R. The Holland Barclay Incident between Philip Morris and BAT, Fall 1983 ..............................................................187 S. Meeting with BAT/B&W and Philip Morris, January 1989 ..............199 T. Premier - Concept and Product Reactions, November 1988 ..............202 U. CEOs of Defendant Cigarette Manufacturers Testify Before the Waxman Subcommittee, April 1994 .........................................211 V. Recent Developments ............................................223 -iii- 1 I. QUALIFICATIONS TO TESTIFY AS AN EXPERT 2 A. Introduction and Educational Credentials 3 Q. Dr. Harris, please introduce yourself to the Court. 4 A. My name is Jeffrey E. Harris. 5 Q. Have you been retained by the United States to testify as an expert witness in this 6 case? 7 A. Yes. 8 Q. What compensation did you receive from the United States for your work in this 9 case? 10 A. I am compensated at a rate of $400 per hour. 11 Q. Have you provided the Court with a copy of your curriculum vitae? 12 A. Yes, at U.S. Exhibit 78,533. 13 Q. You are both an economist and a physician, is that correct? 14 A. Yes, that is correct. 15 Q. What is your understanding of the expertise for which you are being offered in this 16 case? 17 A. I understand that I am being offered as an expert who has been asked to perform an 18 economic analysis of Defendant cigarette manufacturers’ conduct with respect to smoking 19 and health. More specifically, I understand that I have been asked to determine, from the 20 economist’s standpoint, whether the conduct of Defendant cigarette manufacturers is best 21 described as competition or collusion. 22 Q. We’ll return to these issues shortly. Please tell the Court about your educational 23 qualifications. Written Direct: Jeffrey E. Harris, MD, PhD: US v. PM, 99-cv-02496 (D.D.C.) (GK) Page 1 of 236 1 A. I received a bachelor's degree, summa cum laude, from Harvard University in 1969. In 2 1974, I earned my M.D. degree from the University of Pennsylvania. The following year, I 3 also received a Ph.D. in Economics from the University of Pennsylvania. During 1974- 4 1977, I was an intern, resident and fellow in medicine at the Massachusetts General 5 Hospital. 6 Q. Do you actively practice medicine and perform work as an economist? 7 A. Yes, since 1977, I have been a primary-care physician at Massachusetts General Hospital, 8 where I currently see adult patients in my office two days each week. I am also a tenured 9 Professor of Economics at the Massachusetts Institute of Technology ("MIT") where I have 10 been a faculty member for over 25 years. During that time, I have also been on the faculty 11 of the Harvard Medical School-MIT Division of Health Sciences and Technology. 12 B. Work on Surgeon General’s Reports 13 Q. Before you testify about your general background as an economist and physician, let's 14 focus the Court's attention on your specific experience relating to smoking and health 15 issues. As early as 1979, you were asked by the Office of the Surgeon General to draft 16 or edit portions of the Surgeon General's Reports on smoking and health, is that 17 correct? 18 A. Yes, I was invited to do so. 19 Q. Please describe your work in connection with the 1979 Surgeon General’s Report. 20 A. In 1979, I contributed a chapter to the fifteenth anniversary Surgeon General’s Report, in 21 which I explained trends in cigarette consumption, smoking rates, changes in the type of 22 cigarettes smoked, and the responses of consumers to information about the risks of 23 smoking. In particular, I described changes in per capita cigarette consumption after new Written Direct: Jeffrey E. Harris, MD, PhD: US v. PM, 99-cv-02496 (D.D.C.) (GK) Page 2 of 236 1 scientific reports on the health risks of smoking received widespread public attention in the 2 early 1950s, after the Surgeon General’s Report of 1964, and during the prime-time 3 televised airing of anti-smoking campaigns in the late 1960s. The chapter was entitled 4 “Cigarette Smoking in the United States, 1950-1978.” 5 Q. What has been your contribution to various Surgeon General’s Reports since the 1979 6 Report? 7 A. I have also been a consulting scientific editor, invited contributor, or senior reviewer to 8 Surgeon General’s Reports on smoking and health in 1980-1983, 1986, 1988, 1989, and 9 1996. For the 1980 Surgeon General’s Report, in particular, I wrote a review of trends in 10 smoking in the United States throughout the twentieth century, entitled “Patterns of 11 Cigarette Smoking.” For the 1989 Surgeon General’s Report, I was commissioned to write 12 a chapter entitled “Trends in Smoking-Attributable Mortality.” This chapter provided a 13 detailed analysis of the concept of “attributable risk,” that is, the number of cases of a 14 disease that can be attributed to a specific environmental factor such as cigarette smoking. 15 The chapter has become the standard reference for the calculation of the number of deaths 16 attributable to smoking annually in this country. 17 Q. In editing, reviewing, and contributing to the Surgeon General Reports, what types of 18 materials did you normally consult? 19 A. I consulted a wide range of sources, including articles in the peer-reviewed scientific 20 literature, government reports, survey data, vital statistics, newspapers and other 21 periodicals, and Defendant cigarette manufacturers' internal documents. Written Direct: Jeffrey E. Harris, MD, PhD: US v. PM, 99-cv-02496 (D.D.C.) (GK) Page 3 of 236 1 Q. How, if at all, did your work as a consulting scientific editor, contributor and senior 2 reviewer to the Surgeon General Reports contribute to your knowledge, 3 understanding, and expertise of smoking and health issues and the tobacco industry? 4 A. I acquired specific expertise in both the economics of the cigarette industry and health 5 effects of tobacco use above and beyond the general knowledge that an economist or 6