RJ Reynolds Tobacco v. Cigarettes Cheaper! ( 2006 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-1456
R.J. REYNOLDS TOBACCO COMPANY and GMB, INC.,
Plaintiffs-Appellees,
v.
CIGARETTES CHEAPER!,
Defendant-Appellant.
____________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 99 C 1174—Charles P. Kocoras, Judge.
____________
ARGUED SEPTEMBER 12, 2005—DECIDED AUGUST 24, 2006
____________
Before COFFEY, EASTERBROOK, and EVANS, Circuit
Judges.
EASTERBROOK, Circuit Judge. R.J. Reynolds sells ciga-
rettes (Camel, Winston, Salem, and Doral are its principal
brands) in both domestic and foreign commerce. For several
years Cigarettes Cheaper!, which operates a chain of retail
outlets, reimported Reynolds products for domestic sale.
(We refer to the practice as “reimportation” even though
some of the cigarettes in question were manufactured
outside the United States by firms licensed to use the
trademarks in their own countries.) That practice led to this
litigation, which Reynolds commenced under the Lanham
Act. GMB, one of Reynolds’s subsidiaries, owns the marks
2 No. 05-1456
and is an additional party for that reason. To prevent
needless repetition, for the rest of this opinion we treat
Reynolds as the sole plaintiff.
Reynolds argued that the sale of gray market products
violates the Lanham Act, 15 U.S.C. §§ 1050 to 1127, which
protects trademarks used in interstate commerce. Ciga-
rettes Cheaper! replied that the marks are genuine (after
all, they were applied by Reynolds or under its license) and
took the offensive with two antitrust counterclaims, one
based on the Sherman Act and the other on the Robinson-
Patman Act. 15 U.S.C. §13. The Sherman Act theory is that
Reynolds conspired with retail dealers, in violation of 15
U.S.C. §§ 1 and 2, to drive it out of business; the Robinson-
Patman theory is that Reynolds charged different prices to
different retail dealers and in particular refused to sell
cigarettes to Cigarettes Cheaper! at its lowest level of
discounts (which is, Cigarettes Cheaper! maintains, why it
searched abroad for cigarettes to reimport).
The three claims took separate paths. The district court
granted summary judgment for Reynolds on the Sherman
Act claim after concluding that Reynolds lacks market
power. The Robinson-Patman Act claim went to trial, which
lasted five weeks. A jury returned a general verdict in favor
of Reynolds. Finally the trademark claim was tried to a
different jury, after the district judge rejected Cigarettes
Cheaper!’s argument that the Lanham Act always permits
the use in the United States of trademarks affixed by their
proprietor. If the products designed for domestic and foreign
markets are materially different, then sale of the reim-
ported product under a mark that consumers associate with
the domestic product could be confusing and hence unlaw-
ful, the district court ruled. The trial to determine whether
the domestic and foreign cigarettes are materially different
lasted two weeks. The jury concluded that they are different
and awarded Reynolds approximately $4 million in dam-
ages. Having lost on all three claims, Cigarettes Cheaper!
No. 05-1456 3
has appealed; it complains not only about the principal
decisions but also about a large number of evidentiary and
other procedural rulings that it says prevented the juries
from approaching the issues correctly.
I
As its name implies, Cigarettes Cheaper! is a discounter.
That makes it unpopular with other retailers, which don’t
like competition—but, one would suppose, pleases manufac-
turers, whose sales increase as the costs of distribution
falls. From a manufacturer’s perspective, the cost of retail
distribution is the difference between the wholesale price it
realizes and what the ultimate customer pays. As this cost
of distribution drops, the manufacturer sells more units for
the same wholesale price, raises the wholesale price to
capture the gains, or does a little of each. A manufacturer
can gain by increasing the gap between wholesale and
resale price only if the retailer supplies services that are
worth more than the increase in the cost of distribution. In
the cigarette business, retailers furnish at least one impor-
tant service: advertising. Cigarette manufacturers lack
access to television and radio, billboards, many magazines,
and some other normal promotional channels. That in-
creases the importance of point-of-sale signs, placards, and
other attention-getting devices. And manufacturers are
willing to pay for these through selective wholesale dis-
counts. The more a retailer promises to do in promoting a
product, the lower the wholesale price.
Manufacturers also reduce wholesale prices in order to
match (and sometimes exceed) price reductions by rivals.
Reynolds perceives that it must meet or beat the price for
Marlboro cigarettes, the market’s leading brand. Marlboro,
produced by Philip Morris, accounts for about one-third of
all cigarette sales in the United States; all of Reynolds’s
brands combined, by contrast, account for only 25% of
4 No. 05-1456
domestic sales. Cigarettes Cheaper! made life difficult for
Reynolds and its retailers by charging particularly low
prices for Marlboro cigarettes, having negotiated with
Philip Morris a contract that afforded it very low wholesale
prices in exchange for extensive signage and other promo-
tional services. Reynolds contends that this was an “exclu-
sive” contract that prevented Cigarettes Cheaper! from
offering the same level of promotion to any other producer
and says that this is why it was unwilling to give Cigarettes
Cheaper! its lowest-price-for-highest-promotion package;
Cigarettes Cheaper! denies that its deal with Philip Morris
deserves the label “exclusive” but allows that it did require
especially prominent signs and vigorous promotion of the
Marlboro brand and afforded Philip Morris some weeks
when other firms’ brands could not be promoted.
The district court concluded that Reynolds’s 25% share of
the cigarette market is too small to create market power.
That decision is both questionable and irrelevant. It is
questionable as an empirical matter because the record
(which on summary judgment must be construed favorably
to Cigarettes Cheaper!) does not demonstrate that Reynolds
lacks power to make significant price increases without
substantial loss in sales. The cigarette market is concen-
trated (the Herfindahl-Hirschmann Index exceeds 3,000);
new entry is difficult if not impossible; customers perceive
quality differences among brands (so that a price increase
for one brand does not immediately divert customers to
rivals); Reynolds’s own discounting practices show that it
regularly changes price substantially without creating
dramatic swings in its sales. See generally William M.
Landes & Richard A. Posner, Market Power in Antitrust
Cases, 94 Harv. L. Rev. 937 (1981); George J. Stigler &
Robert A. Sherwin, The Extent of the Market, 28 J.L. &
Econ. 555 (1985). The Supreme Court has found market
power in circumstances more favorable to the defendant.
See United States v. Philadelphia National Bank, 374 U.S.
No. 05-1456 5
321 (1963). What’s more, the subject may be irrelevant if, as
Cigarettes Cheaper! maintains, Reynolds has engineered (or
serves as an agent of) a horizontal conspiracy among retail
dealers, for then market power need not be shown. See
United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224
n.59 (1940).
This does not lead to a remand for trial, however, for
Cigarettes Cheaper! must surmount additional hurdles. It
is doubtful that Cigarettes Cheaper! suffers antitrust
injury: the discounts to rivals of which it complains are
beneficial to consumers. See Atlantic Richfield Co. v. USA
Petroleum Co., 495 U.S. 328 (1990); Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977). Because
Reynolds has not argued this point, however (a passing
citation to Atlantic Richfield is short of focused argument),
and it does not affect subject-matter jurisdiction (for
Cigarettes Cheaper! suffers injury in fact, even if not the
sort of injury that the antitrust laws guard against), we
bypass this subject in favor of the topics on which issue has
been joined. We ask first whether Cigarettes Cheaper! has
a good claim if Reynolds acted unilaterally, and next
whether evidence supports Cigarettes Cheaper!’s argument
that a horizontal conspiracy was formed.
Reynolds gave other retailers discounts that it denied
to Cigarettes Cheaper!. That creates a claim under the
Robinson-Patman Act, which we take up in Part II. So far
as the Sherman Act is concerned, however, there’s nothing
wrong with price discrimination. See, e.g., Schor v. Abbott
Laboratories, No. 05-3344 (7th Cir. July 26, 2006), slip op.
3; In re Brand Name Prescription Drugs Antitrust Litiga-
tion, 186 F.3d 781 (7th Cir. 1999). The problem is not
discrimination (exemplified by lower prices to favored
customers) today, but monopoly and higher prices tomorrow
if the pricing scheme knocks firms out of the market and
prevents new entry. Antitrust also has a framework for
6 No. 05-1456
assessing claims that low prices today will produce monop-
oly tomorrow: predatory pricing.
To make out a predatory-pricing claim, the plaintiff
must establish not only that the defendant has sold prod-
ucts below cost but also that exit from the market has
occurred or is imminent, enabling the aggressor to recoup
by setting monopoly prices that injure consumers. See
Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,
509 U.S. 209 (1993); Matsushita Electric Industrial Co. v.
Zenith Radio Corp., 475 U.S. 574 (1986). Yet Cigarettes
Cheaper! does not contend that Reynolds sold to any dealer
below any measure of cost (sparing us the need to deter-
mine which is the appropriate measure). Nor does it
contend that it has been knocked out of the market or is
in imminent danger of leaving. Cf. Spectrum Sports, Inc. v.
McQuillan, 506 U.S. 447 (1993). In 2000 Cigarettes
Cheaper! signed a retail contract with Reynolds and has
been selling legitimate domestic cigarettes ever since,
enjoying Reynolds’s discounts.
Not that any one firm’s departure from retail sales would
enable Reynolds or its favored customers to recoup: There
are so many cigarette retailers, and entry into retail sales
is so easy, that the market approximates economists’ vision
of perfect competition. To the extent Cigarettes Cheaper!
invites us to rule in its favor without insisting that the
requirements of a good predatory-pricing claim have been
met, we are unwilling to oblige; price cutting is expensive
enough to producers without adding antitrust risks. See
Monahan’s Marine, Inc. v. Boston Whaler, Inc., 866 F.2d
525, 527-28 (1st Cir. 1989) (Breyer, J.); see also Bruce
Kobayashi, The Economics of Loyalty Discounts and
Antitrust Law in the United States, 1 Comp. Policy Int. 115
(2005); Herbert Hovenkamp, The Law of Exclusionary
Pricing, University of Iowa Legal Studies Research Paper
05-34 (Jan. 2006).
No. 05-1456 7
Instead of proffering evidence about the likely economic
effect of Reynolds’s selective discounts, Cigarettes Cheaper!
wanted to regale a jury with evidence that its retail rivals
(and perhaps Reynolds too) intended to deal it a fatal blow.
One memo, for example, discusses ways to “shut down” and
“kill” Cigarettes Cheaper! “on the beach” (though presum-
ably without machine guns and tank traps). Cigarettes
Cheaper! found plenty of such tidbits in discovery. Ciga-
rettes Cheaper! sold Marlboros for less than many outlets
sold Camels and Winstons; neither Reynolds nor its retail
outlets were willing to take this lying down. They re-
sponded with discounts of their own and generated reams
of paper expressing unhappiness about the need to do so.
Yet as we remark frequently in antitrust litigation, “cut-
throat competition” is a term of praise rather than condem-
nation. Joseph Schumpeter called capitalism a “gale
of creative destruction.” Capitalism, Socialism and Democ-
racy 84 (3d ed. 1950). Businesses need not love their rivals
(or firms that compete with their customers); consumers
gain when firms try to “kill” the competition and take as
much business as they can. See, e.g., Israel Travel Advisory
Service, Inc. v. Israel Identity Tours, Inc., 61 F.3d 1250,
1255-56 (7th Cir. 1995); A.A. Poultry Farms, Inc. v. Rose
Acre Farms, Inc., 881 F.2d 1396, 1403-04 (7th Cir. 1989);
Schachar v. American Academy of Ophthalmology, Inc., 870
F.2d 397, 399 (7th Cir. 1989). The question is not whether
the defendant has tried to knock out other businesses but
whether the means it has employed to that end are likely to
benefit or injure consumers. Cigarettes Cheaper! accused
Reynolds of using a means— lower prices—that usually if
not always brings benefits to consumers.
Organizing firms into a cartel, however, injures con-
sumers, and Cigarettes Cheaper! maintains that Reynolds
has organized the retail dealers in this way. Why it
would do any such thing is a mystery. As we’ve observed
already, producers gain when the costs of distribution
8 No. 05-1456
are lowest; a retail cartel that charged a monopoly price for
distribution services would hurt Reynolds as well as (if not
more than) ultimate consumers, so it is a surprise to see
Reynolds accused of facilitating its own injury. Members of
a retail cartel might be able to compensate a producer that
organizes and coordinates their group, but there is no sign
of compensation: Cigarettes Cheaper! complains about
discounts that Reynolds gives to other retailers, not about
a hike in the wholesale price that might imply compensa-
tion. See Toys “R” Us, Inc. v. FTC, 221 F.3d 928, 932-34 (7th
Cir. 2000); cf. Denny’s Marina, Inc. v. Renfro Products, Inc.,
8 F.3d 1217 (7th Cir. 1993).
Concrete evidence that Reynolds has played the role
of cat’s paw in a retail conspiracy would suffice even if
it was hard to understand the motivation. Nothing to which
Cigarettes Cheaper! has pointed in this voluminous record
shows, however, that there is an agreement at the retail
level. And it is evidence, not allegations, on which the
appeal turns. Unlike Twombly v. Bell Atlantic Corp., 425
F.3d 99 (2d Cir. 2005), cert. granted, 126 S. Ct. 2965 (2006),
in which the district court dismissed a complaint for lack of
evidentiary detail about a potential conspiracy, this case
proceeded through discovery and was decided on summary
judgment; the complaint is no longer relevant.
At oral argument we asked Cigarettes Cheaper!’s counsel
to highlight the best evidence for the proposition that
Reynolds orchestrated a horizontal agreement. None of
the evidence to which our attention was directed would
allow a reasonable jury to infer that there was any horizon-
tal agreement. Take, for example, a document on which
Cigarettes Cheaper! harps in its brief. Someone at Vons
Groceries prepared a memorandum showing that Vons
is worried about losing business to Cigarettes Cheaper! and
wants to “keep Cigarettes Cheaper! from their required
carton volume” and “defeat [Cigarettes Cheaper!’s] format.”
The memorandum discusses what Vons sees as weaknesses
No. 05-1456 9
in Cigarettes Cheaper!’s business model and proposes to
exploit those weaknesses to achieve what the author in a
flight of fancy calls “a degree of pricing invincibility”. The
memo continues: “Once results are achieved Vons/Pavilions
slowly over time will reduce VonsClub discounts back to
normal Vons/Pavilions retail pricing”. The document tells
us that “RJR will underwrite $3.80 per carton and 20 cents
per pack for these brands as long as Vons maintains a $1.00
advantage over Marlboro and a 20 cent advantage over
Marlboro packs.” In other words, Reynolds reduced its price
so that Vons could sell RJR-brand cigarettes for $1.00 a
carton (or 20¢ a pack) less than what Vons (not Cigarettes
Cheaper!) charged for Marlboro products. Whatever this
memo shows about Vons hopes, it does not suggest that
there was any horizontal conspiracy. Nothing in the record
implies that the memo was seen or acted on by any other
retailer. For its part, Reynolds had every right, under
antitrust law, to condition discounts on agreement by its
customers to reduce the prices they charged to consumers.
See State Oil Co. v. Khan, 522 U.S. 3 (1997).
Another of Cigarettes Cheaper!’s featured documents
is a memorandum that one of Reynolds’s employees
wrote about the firm’s dealings with Albertson’s, another
retailer. Counsel highlighted this language:
We have established a program to offer buydown [=
discount] support in Albertson’s stores in direct
competition with Cheaper Stores. . . . Albertson’s
stores are matching Cheapers prices on all brands
except Camel and Winston where we have a $.50
per carton advantage on Marlboro. . . . [In some
stores] Marlboro [has] a price advantage on us. We
met with Albertson’s about this matter this
week . . . . As information, Albertson’s is very
pleased with their overall cigarette sales.
Emphasis omitted. That a retailer is “pleased” with its
ability to sell more after receiving a price reduction is
10 No. 05-1456
obvious and does not imply any agreement to raise prices in
the future. One of Albertson’s executives testified at a
deposition that in one market prices fell when Cigarettes
Cheaper! entered and returned to prior levels when its store
closed; once again this morsel would not permit a reason-
able jury to find that there was a retail conspiracy (or any
probability of recouping losses sustained during
a discounting campaign, for a return of price to a pre-
discounting competitive level differs from elevation of
price to a cartel level).
We could traipse through other documents from the
record, but there is no need. These documents are Ciga-
rettes Cheaper!’s best evidence; nothing else we have
seen is any more favorable. The district court properly
granted summary judgment against Cigarettes Cheaper!’s
claim under the Sherman Act.
II
Reynolds sold to other retailers for less than it sold
to Cigarettes Cheaper!; this threw on Reynolds the burden
to establish a justification. 15 U.S.C. §13(b). Reynolds
offered several: it maintained, for example, that the
lower prices were as available to Cigarettes Cheaper! as
to any other retailer (all it had to do was stop selling gray
market cigarettes and provide Reynolds with in-store
placards and other support equal to what Cigarettes
Cheaper! gave to Philip Morris products) and that the
discounts to other retailers were necessary to meet competi-
tion from Philip Morris, Lorillard, Liggett, and a handful of
smaller producers. The jury was persuaded by these
defenses.
According to Cigarettes Cheaper! the five-week trial, long
as it was, actually was far too abbreviated. Cigarettes
Cheaper! wanted to introduce the “intent” evidence that
we have discussed briefly. The district judge excluded it.
No. 05-1456 11
The Robinson-Patman Act prohibits certain price differ-
ences; a bad intent is not part of the plaintiff’s prima facie
case under §13(a), and a “good” intent (apart from its
bearing on the statutory justifications) does not excuse price
discrimination. Even if marginally relevant to some issue
(which we doubt), the sort of evidence that Cigarettes
Cheaper! wanted to introduce could have played little
role beyond confusing jurors who, not being professional
economists, may not have understood that markets respond
to deeds rather than thoughts or hopes or words. Keeping
this evidence out enabled the court to focus jurors’ attention
on the statutory requirements and defenses. The district
judge sensibly relied on Fed. R. Evid. 403, which authorizes
the exclusion of evidence whose tendency to create prejudice
substantially outweighs any benefit; this was not an abuse
of discretion.
Trying another tack, Cigarettes Cheaper! proposed to
use this evidence to impeach Reynolds’s witnesses, some
of whom testified (as part of Reynolds’s theory that the
discounts were available to any outlet) that Reynolds would
have been happy to cooperate with Cigarettes Cheaper!, the
better to sell more cigarettes. This led to the response that
Reynolds wanted to “kill” rather than “help” Cigarettes
Cheaper!. The district judge should have kept all claims
about motive or intent out of evidence; whether Reynolds
was “trying to help” Cigarettes Cheaper! or just engaging in
grudging compliance with its legal obligations is neither
here nor there. The instructions did not call on the jury to
resolve any dispute about the intent with which Reynolds
acted. This means that any error in not allow-
ing impeachment on the subject of intent was harmless.
There is one dispute about instructions. The judge told
the jury:
The law does not require RJR to meet competition
on a customer-by-customer basis. Rather, RJR can
12 No. 05-1456
meet competition on a broader basis so long as its
action was a genuine, reasonable response to
prevailing competitive circumstances in the market-
place. That is, RJR must simply show that its offer
of lower prices or greater allowances was reason-
ably tailored to the competitive situation that it
realistically faced in the marketplace.
According to Cigarettes Cheaper!, this statement is errone-
ous because, if all the defendant must do is show that the
market is generally competitive, then the Robinson-Patman
Act might as well be repealed. That’s why the statute
“places emphasis on individual competitive situations,
rather than upon a general system of competition.” FTC v.
A.E. Staley Mfg. Co., 324 U.S. 746, 753 (1945); see also, e.g.,
Great Atlantic & Pacific Tea Co. v. FTC, 440 U.S. 69 (1979);
Hoover Color Corp. v. Bayer Corp., 199 F.3d 160, 165 (4th
Cir. 1999).
Although this instruction could have been misunder-
stood to embody the mistake that Cigarettes Cheaper!
highlights, that would not have been a plausible reading.
Another instruction told the jury that to prevail on a
meeting-competition defense Reynolds had to establish that
the prices it was meeting were available to customers from
another source. It would not be sound to read the chal-
lenged instruction as taking back that limitation.
Reynolds did not argue “this market is rivalrous” and
stop. Instead it maintained that discounts on Winstons and
other brands were generally available to retailers because
Philip Morris made its discounts generally available. If
producer A makes a generally available offer, then a
generally available response meets the competition. The
Robinson-Patman Act favors general price schedules, see
Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S.
428, 450-51 (1983), and the district judge did not err in
providing the jury with this information in a concise
No. 05-1456 13
instruction. Cigarettes Cheaper! would have a sounder
point if it had proposed language to distinguish “general
competition” from “generally available price schedules,” but
it did not do so and cannot blame the judge for failing to
come up with language unaided.
III
At last we arrive where the case began: the trademark
claim. Apart from formalities, it is easy to see why Reynolds
cares about the reimportation of cigarettes initially sold
abroad. Cigarettes Cheaper! perceives the lower price of
foreign cigarettes as yet another form of price discrimina-
tion, but from Reynolds’s perspective the price difference
reflects a cost difference. Tort litigation and the tobacco
settlement between the states and the cigarette industry
impose a substantial cost (equivalent to an excise tax) on
every pack of cigarettes sold in the United States. Reynolds
must charge more for domestic product to cover this cost; to
sell domestic and foreign product at the same price would
be a form of economic price discrimination and would
cripple Reynolds in competition with foreign producers that
do not bear the extra costs of selling tobacco in the United
States. Reimporting cigarettes originally sold abroad
exposes Reynolds to the U.S. litigation tax without compen-
sation. It turned to the Lanham Act to find a means to keep
domestic and foreign markets separate.
The Lanham Act does not block the reimportation and
sale of genuine articles under their real trademarks. See
NEC Electronics v. CAL Circuit Abco, 810 F.2d 1506 (9th
Cir. 1987). But this principle does not apply if the domestic
and foreign products are materially different, for then
sale of the foreign product in the United States under the
domestic marks has a potential to mislead or confuse
consumers about the nature or quality of the product
they are buying; they will assume it to be the same as
14 No. 05-1456
the normal domestic product and be disappointed. See Lever
Brothers Co. v. United States, 877 F.2d 101 (D.C. Cir. 1989),
981 F.2d 1330 (D.C. Cir. 1993); Société Des Produits Nestlé,
S.A. v. Casa Helvetia, Inc., 982 F.2d 633, 641 (1st Cir.
1992). Reynolds’s principal argument therefore has been
that the cigarettes it sells abroad are materially different
from those it sells in the United States under the same
brands.
Reynolds initially maintained that the distinguishing
factors included differences in the cigarettes’ additives
and taste. That led Cigarettes Cheaper! to demand detailed
disclosures about what, exactly, is in Reynolds’s cigarettes
here and abroad. Rather than reveal documents that it
believes to be trade secrets, Reynolds withdrew this
contention—except with regard to Winston, for, in the
United States, Reynolds sells that brand under a represen-
tation that it contains nothing other than tobacco and
water. The district court issued a protective order fore-
closing discovery about additives except with respect to
Winstons, and then only on the question whether it con-
tains any additive at all. At trial the district court excluded
the sort of evidence that had been placed outside the scope
of discovery. Reynolds then argued that the existence of
some additives made foreign-market Winstons materially
different from the domestic product and that all of the
brands differed with respect to loyalty programs (domestic
Camels packages, for example, include coupons called “C-
Notes” that can be collected and redeemed for merchandise)
and post-manufacturing quality control (domestic cigarettes
are inspected and removed from sale at the end of their
shelf life; reimported gray market products are not).
Although Cigarettes Cheaper! allows that the evidence
permitted the jury to find material differences with respect
to all of the brands, it maintains that the verdict is suspect
because the jury may have assumed that there were
unstated differences in additives and taste. To avoid such a
No. 05-1456 15
possibility, Cigarettes Cheaper! contends, it should have
been allowed to conduct discovery and introduce evidence
about the products’ additives. That proposes a graymail
tactic in defense of gray market sales. Additives were not
relevant to the trial (except with respect to Winstons);
“taste” was not relevant to any of the trademarks. The jury
was told to confine its attention to the arguments that were
made at trial.
The only function of the argument that Cigarettes
Cheaper! makes now would have been either to force
Reynolds to reveal trade secrets as the price of enforcing its
trademarks, or to forego protection of the Lanham Act in
order to retain its trade secrets. The district judge did not
abuse his discretion in deflecting that tactic. Reynolds had
to pay a price to keep its secrets: it abandoned any conten-
tion that additives and taste differentiated domestic and
foreign products; having prevailed (by default) on those
issues, Cigarettes Cheaper! was not entitled to any other
relief. (Cigarettes Cheaper! does insist that “taste” should
have been relevant to Winstons, but that’s wrong; given the
marketing of domestic Winstons as additive-free, the
existence of additives in product initially sold abroad was
material whether or not consumers could smell the differ-
ence. The palette is hardly the only part of the body affected
by the contents of cigarette smoke.)
It seems that we cannot escape arguments about intent.
Cigarettes Cheaper! maintains that in order to reduce the
damages it should have been allowed to introduce evi-
dence that it acted in “good faith” when selling the gray
market cigarettes—and one aspect of this “good faith,”
according to Cigarettes Cheaper!, is that “internal RJR
documents show[ ] that RJR thought” the sale of reimported
cigarettes to be lawful. This illustrates one of the problems
potentially caused by comprehensive discovery. A large firm
such as Reynolds, with thousands of employees, generates
mountains of internal paper. Some of the employees are
16 No. 05-1456
bound to take almost any view about almost every subject.
Yet only the CEO and Board of Directors speak for
Reynolds; that one or more subordinates reached one or
another conclusion does not demonstrate that “RJR
thought” anything in particular, let alone that it was
reasonable for Cigarettes Cheaper! to have thought the
same thing (if indeed it did). The district judge sensibly
prevented an excursion through Reynolds’s files, which
would have hijacked this trial.
Indeed, the judge properly excluded most of the “intent”
evidence that Cigarettes Cheaper! proposed to offer—
though the judge allowed some, Fed. R. Evid. 403 permitted
him to set limits to avoid waste of time. Mental states are
no defense to actual damages, which is all the jury awarded.
(There was a separate “wilful dilution” finding, but it
turned out not to affect damages.) If Cigarettes Cheaper!
had wanted to make a serious stand on the issue of good
faith or reasonable mistake, it should have allowed the jury
to learn the advice its lawyers furnished about the propriety
of selling reimported cigarettes bearing domestic trade-
marks. When Reynolds sought to learn what legal advice
Cigarettes Cheaper! had received, however, it was met with
an invocation of the attorney-client privilege. Cigarettes
Cheaper! had every right to take that position, but having
done so it could hardly insist that other, potentially unreli-
able, indicators of its executives’ thinking be paraded before
the jury.
The tail end of Cigarettes Cheaper!’s brief complains
about no fewer than five of the instructions given to the
jury. The arguments are undeveloped (not a single case
is cited, and the brief does not explain why the district
judge ruled as he did) and forfeited.
AFFIRMED
No. 05-1456 17
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-24-06