Case Title: State ex rel. Petro v. R.J. Reynolds Tobacco Co.

Citation: 2004-Ohio-7102

Docket Number: 20030860

State: ohio

Court: Ohio Supreme Court

Date: 2004-12-30T00:00:00Z

Document:
[Cite as State ex rel. Petro v. R.J. Reynolds Tobacco Co., 104 Ohio St.3d 559, 2004-Ohio-7102.] 
 
 
THE STATE EX REL. PETRO, APPELLEE, v. R.J. REYNOLDS TOBACCO COMPANY, 
APPELLANT, ET AL. 
[Cite as State ex rel. Petro v. R.J. Reynolds Tobacco Co., 104 Ohio St.3d 559, 
2004-Ohio-7102.] 
Tobacco settlement — Tobacco advertising on matchbooks — Matchbooks are 
merchandise, and the free distribution of matchbooks advertising brand-
name tobacco products in venues not limited to adults is prohibited by the 
Master Settlement Agreement — Judgment affirmed. 
(No. 2003-0860 – Submitted March 16, 2004 – Decided December 30, 2004.) 
APPEAL from the Court of Appeals for Franklin County, No. 02AP-591, 152 Ohio 
App.3d 345, 2003-Ohio-1654. 
_________________ 
PFEIFER, J. 
Factual and Procedural Background 
{¶ 1} The state of Ohio on the relation of appellee, the Attorney General, 
sued defendant-appellant, R.J. Reynolds Tobacco Company (“RJR”), and other 
tobacco companies in 1997, alleging deceptive trade practices, antitrust violations, 
and other claims.  The state sought various forms of relief, including recovery of 
Medicaid expenditures for alleged tobacco-related illnesses resulting from the use 
of tobacco products by Ohio Medicaid recipients.  In November 1998, Ohio, 
along with the 45 other states and the government territories that had sued tobacco 
companies, settled the lawsuits with the nation’s five largest tobacco companies, 
including RJR. 
{¶ 2} The parties set forth the terms of their settlement in the Master 
Settlement Agreement (“MSA”).  On November 25, 1998, the Court of Common 
Pleas of Franklin County entered a consent decree approving the MSA. 
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{¶ 3} Under the MSA, the tobacco companies agreed to pay the states 
and territorial governments several hundred billion dollars and to accept certain 
restrictions on their marketing efforts.  For example, the companies agreed to 
refrain from any “advertising, promotion or marketing of Tobacco Products” 
targeted at youth.  In addition, the companies agreed to refrain from certain 
defined marketing practices, including the “[u]se of [c]artoons” in advertisements, 
the display of certain “[o]utdoor [a]dvertising and [t]ransit [a]dvertisements” such 
as advertising in malls, video arcades, or in or near public transportation, and 
advertising on billboards and signs larger than 14 square feet, except within an 
“Adult-Only Facility.”  The companies further agreed to “bans on youth access to 
free samples” and gifts to underage persons based on proofs of purchase, and a 
limitation on tobacco brand-name sponsorships. 
{¶ 4} The specific portion of the MSA at issue in this case is Section 
III(f), which provides: 
{¶ 5} “Beginning July 1, 1999, no Participating Manufacturer may, 
within any Settling State, market, distribute, offer, sell, license or cause to be 
marketed, distributed, offered, sold or licensed (including, without limitation, by 
catalog or direct mail), any apparel or other merchandise (other than Tobacco 
Products, items the sole function of which is to advertise Tobacco Products, or 
written or electronic publications) which bears a Brand Name.” 
{¶ 6} This case concerns the distribution of paper matchbooks that 
contain RJR brand names and whether those matchbooks constitute 
“merchandise” under Section III(f) of the MSA.  Appellee claims that in 2000, 
more than one billion matchbooks bearing RJR’s signature brand names were 
distributed in the United States.  RJR has had three separate matchbook programs 
in recent years.  In one program, RJR purchases matchbooks with advertising 
promoting its brands and distributes them in bars, nightclubs, and lounges in 
conjunction with RJR’s sponsorship of venues.  In another program, RJR 
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distributes matchbooks at musical and sporting events that it may sponsor under 
the MSA.  The venues where RJR distributes matchbooks pursuant to these two 
programs are restricted to adults, and the state does not now challenge RJR’s 
distribution of matchbooks in those contexts. 
{¶ 7} The state challenges RJR in this case for its distribution of 
matchbooks at venues that are not limited to adults.  This distribution was 
achieved through RJR’s relationship with D.D. Bean & Sons Company (“Bean”), 
a New Hampshire-based matchbook manufacturer and distributor.  RJR 
contracted with Bean, not to purchase matchbooks, but to purchase space on those 
matchbooks for advertising. Bean has an extensive distribution network through 
which it sells matchbooks to wholesalers who distribute tobacco products.  These 
distributors sell the matchbooks once again to a variety of retailers like tobacco 
specialty stores, convenience stores, grocery stores, gas stations, bars, and liquor 
stores.  The branded matchbooks are then generally distributed free to consumers, 
primarily to people who purchase tobacco products. 
{¶ 8} It has been said that “Close cover before striking” is the most 
printed phrase in the history of the world, and Bean’s promotional materials relate 
the pervasiveness of branded matches, not just to the smoking set, but to millions 
of other consumers: 
{¶ 9} “[Bean’s] matches can be found in just about every convenience 
store, supermarket, liquor store, wholesale club and candy/tobacco stand in the 
country.  While a direct link to smokers, matches are used and seen on a daily 
basis by millions of non-smokers as well. * * * [An advertiser’s] logo or message 
will be picked up by millions of consumers in virtually every city and town in 
America.  Matches are a direct link to smokers, but millions of non-smokers also 
use the product to light candles, stoves, grills, campfires, etc.” 
{¶ 10} Bean also relates that “for every person who picks up a matchbook, 
there are 8 other people who typically see it as well.  These exposures, along with 
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other opportunities for non-smokers to see the match covers, * * * will give [an 
advertiser] an extended consumer reach.” 
{¶ 11} RJR claims that the focus of its matchbook marketing effort is 
adult smokers.  To that end, RJR matchbooks have traditionally contained a 
statement that they are not to be distributed to minors.  The wrappers on packs of 
matchbooks have long contained a similar statement.  In 2001, RJR revised its 
package wrappers to include the statement that the matches are to be distributed 
“at no extra charge with the purchase of tobacco products.” 
{¶ 12} RJR matchbooks are given away for their advertising benefit, a 
practice consistent with the history of matchbooks in this country.  In the 1890s, 
the Diamond Match Company opened a paper-matchbook-production facility in 
Barberton.  A Diamond Match salesman, Henry Traute, is not only credited with 
putting an end to pocket fires – by insisting that the striker be moved from the 
inside to the outside of the matchbook – but also with sparking the use of 
matchbooks as an advertising medium.  Traute’s first customers were the Pabst 
Brewery in Milwaukee, which bought 10 million matchbooks advertising Pabst 
Blue Ribbon beer.  James Duke, a tobacco tycoon, purchased 30 million books.  
William Wrigley ordered a billion books advertising Wrigley chewing gum.  Over 
time, match manufacturers began distributing the matchbooks themselves.  
Consumers have become accustomed to the availability of free paper matchbooks. 
{¶ 13} However, while most matchbooks are given away, many are 
purchased at retail.  As the appellate court below observed, the United States 
Consumer Product Safety Commission has estimated that “12-20 percent of 
matchbooks are purchased at retail by consumers.”  Further, Bean manufactures 
and sells private-label matchbooks for supermarket chains, drug stores, and mass 
merchandisers, who offer them for sale to consumers.  Matches sold at retail 
account for 40 percent of Bean’s total business.  Also, even RJR’s Winston 
branded matchbooks have been sold at retail in Ohio. 
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{¶ 14} In 1999, a number of state attorneys general, including then 
Attorney General Betty Montgomery, raised concerns with RJR regarding its 
matchbook advertising.  RJR was the only signatory to the MSA that continued to 
distribute branded matchbooks.  Informal attempts to resolve the issue failed, and 
Ohio and 15 other states notified RJR that they would seek enforcement of the 
MSA. 
{¶ 15} On March 19, 2001, the state moved for a show-cause order in 
contempt against RJR, contending that RJR’s use of advertising matchbooks 
violated the portion of the consent decree incorporating MSA Section III(f)’s 
brand-name-merchandise ban.  The state later withdrew the request for civil-
contempt sanctions and instead sought a declaration that the MSA’s bar on 
distributing brand-name merchandise included matchbooks bearing brand names.  
The parties submitted stipulated facts and memoranda for the court’s 
consideration. 
{¶ 16} On April 26, 2002, the trial court denied the state’s  motion, 
finding that the RJR matchbooks are not “merchandise” within Section III(f)’s 
prohibition of “apparel or other merchandise * * * which bears a Brand Name.”  
Since the MSA does not contain a definition of “merchandise,” the court applied a 
definition that included “goods, wares, commodities, finished articles, or wares 
held in temporary inventory by a merchant/business or which are bought and sold, 
wholesale, retail or in trade, in commerce, for profit.”  The trial court recognized 
that matchbooks constituted merchandise in the transactions between the 
manufacturer and the wholesalers and in the transactions between the wholesalers 
and the retailers.  However, the fact that most matchbooks are given away at the 
retail level, the court found, disrupts “the merchandise definitional chain,” 
transforming the matchbooks into nonmerchandise.  The court found that while 
some matchbooks are sold at retail, most are not.  The court found the purpose of 
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the matchbooks to be promotion and that they “have little or no indicia of 
merchandise as defined by either party.”  The trial court concluded: 
{¶ 17} “In the context of this case, the matchbooks are a medium of 
communication designed to promote the sale of RJR’s tobacco products.  Having 
considered the context of the word ‘merchandise’ * * *, this Court believes that 
Mr. and Mrs. Joe Ohio would agree that the imprinted matchbooks are 
advertising.” 
{¶ 18} The state appealed from the trial court decision, and the Tenth 
District Court of Appeals reversed the judgment of the trial court.  The appellate 
court disagreed with the trial court’s conclusion that “merchandise somehow loses 
its character as merchandise because it is subsequently offered for free as a 
promotional item.”  The appellate court opined that the trial court’s holding 
“would eviscerate the ban on marketing and distribution of brand name apparel 
and other merchandise contained in the MSA.” 
{¶ 19} The appellate court also addressed RJR’s contention that its 
matchbooks never were “merchandise” in the first place because they are 
commonly given away.  The court found that 12 to 20 percent of matchbooks are 
purchased at retail by consumers, a significant enough percentage for matchbooks 
to be considered merchandise: “To find otherwise would open the door for 
tobacco companies to flood the market with free goods in order to circumvent the 
ban on distribution of apparel or other merchandise.” 
{¶ 20} Finally, the appellate court found that the historical advertising 
function of matchbooks does not take them “outside the common understanding 
of the term ‘merchandise,’” since the consumer sees their primary function as a 
source of fire.  The court found no functional difference between matchbooks and 
T-shirts or other apparel that sport a tobacco brand name. 
{¶ 21} The cause is before this court upon the acceptance of a 
discretionary appeal. 
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Law and Analysis 
{¶ 22} In this case, we are called upon to resolve a narrow question: For 
the purposes of Section III(f) of the MSA, do paper matchbooks constitute 
“merchandise”?  The parties disagree on how to interpret the term “merchandise.”  
The state argues for a broad interpretation that would include items that are 
bought and sold at the wholesale level but that can be given away at the retail 
level.  RJR argues that the term is ambiguous and that when using the MSA for 
context, the term should be read narrowly and should encompass only items 
typically bought and sold at retail.  We find that common usage and the context of 
the MSA dictate a broader interpretation of “merchandise,” one that includes 
matchbooks in its purview. 
{¶ 23} The MSA, like all settlement agreements, is a contract between the 
parties. Continental W. Condominium Unit Owners Assn. v. Howard E. Ferguson, 
Inc. (1996), 74 Ohio St.3d 501, 502, 660 N.E.2d 431.  We thus employ our usual 
method of contract construction in defining disputed terms.  “The purpose of 
contract construction is to effectuate the intent of the parties,” and that intent “is 
presumed to reside in the language they chose to employ in the agreement.” Kelly 
v. Med. Life Ins. Co. (1987), 31 Ohio St.3d 130, 132, 31 OBR 289, 509 N.E.2d 
411.  Courts resort to extrinsic evidence of the parties’ intent “only where the 
language is unclear or ambiguous, or where the circumstances surrounding the 
agreement invest the language of the contract with a special meaning.” Id.  The 
fact that the parties fail to specifically define a term within the contract does not 
make the term ambiguous. Nationwide Mut. Fire Ins. Co. v. Guman Bros. Farm 
(1995), 73 Ohio St.3d 107, 108, 652 N.E.2d 684.  Instead, common, undefined 
words appearing in a written instrument “will be given their ordinary meaning 
unless manifest absurdity results, or some other meaning is clearly evidenced 
from the face or overall contents of the instrument.” Alexander v. Buckeye Pipe 
SUPREME COURT OF OHIO 
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Line Co. (1978), 53 Ohio St.2d 241, 7 O.O.3d 403, 374 N.E.2d 146, paragraph 
two of the syllabus. 
{¶ 24} We look, then, to the ordinary meaning of “merchandise.”  The 
temptation is to define merchandise as Justice Stewart famously identified 
obscenity in Jacobellis v. Ohio (1964), 378 U.S. 184, 197, 84 S.Ct. 1676, 12 
L.Ed.2d 793 (Stewart, J., concurring), and simply say that we know merchandise 
when we see it.  We do, but we will delve deeper. 
{¶ 25} The trial court presided over a battle of dictionaries, statutes, and 
case law and meticulously listed at least 15 definitions of “merchandise” from 
different sources submitted by the parties.  The latest edition of Black’s Law 
Dictionary, not yet published at the time of the trial court’s decision, defines 
“merchandise” as: 
{¶ 26} “1. In general, a movable object involved in trade or traffic; that 
which is passed from hand to hand by purchase and sale. 2. In particular, that 
which is dealt in by merchants; an article of trading or the class of objects in 
which trade is carried on by physical transfer; collectively, mercantile goods, 
wares or commodities, or any subjects of regular trade, animate as well as 
inanimate.” Black’s Law Dictionary (8th Ed.2004) 1008. 
{¶ 27} Black’s definition is not at odds with the trial court’s distilled 
version of all the definitions that the parties submitted.  The trial court wrote: 
{¶ 28} “Nearly all the cited definitions of merchandise include goods 
‘bought and sold’ or ‘held for sale’ in a commercial setting either by a merchant 
or to a consumer.  A ‘merchant’ is defined as ‘a person who buys and sells 
commodities for profit.’ The Random House College Dictionary 836 (revised 
edition 1984).” 
{¶ 29} We accept the definition of “merchandise” adopted by the trial 
court – “goods, wares, commodities, finished articles, or wares held in temporary 
inventory by a merchant/business or which are bought and sold, wholesale, retail 
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or in trade, in commerce, for profit” – and find that matchbooks fall within that 
definition. 
{¶ 30} The manufacture and distribution of matchbooks are not altruistic 
enterprises.  Only at one end of the stream of commerce are matchbooks 
commonly distributed without a charge.  On at least two other levels – from 
manufacturers to wholesalers and wholesalers to retailers – matchbooks constitute 
goods that are bought and sold by merchants for profit.  We agree with the 
appellate court that there is no transformational or redemptive power in being 
distributed free at retail.  Matchbooks are indisputably in the stream of commerce, 
and once the plunge into that stream is made, the items remain merchandise.  
Metaphorically speaking, an item cannot enter the stream of commerce without 
getting wet. 
{¶ 31} We fail to find a meaningful definitional distinction between items 
that are sold at retail and those that are sold at wholesale vis-à-vis whether they 
constitute merchandise.  The matchbooks do not change in character once they 
leave the manufacturer.  They are not incorporated into another, separate product.  
At either level of commerce, they fit within the ordinary meaning of merchandise 
— they are traded and trafficked by merchants for sale.  The wholesale/retail 
debate seems solved by the apocryphal Winston Churchill quip: “We’ve 
established what you are, madame – now we’re just quibbling over price.” 
{¶ 32} RJR would have us apply a definition of “merchandise” that 
includes the restriction “typically sold at retail.”  The evidence submitted by the 
parties indicates that paper matchbooks are indeed commonly sold at retail.  Bean 
relates that 40 percent of the matchbooks it manufactures are sold at retail; United 
States Consumer Product Safety Commission has estimated that 12 to 20 percent 
of all matchbooks are purchased at retail by consumers.  Thus, while not the 
norm, the retail sale of matchbooks is not rare.  Matchbooks are often sold at the 
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retail level.  If there were a retail sale requirement for merchandise, the common 
sale of matchbooks in the retail marketplace would fulfill it. 
{¶ 33} The fact that most matchbooks are given away is not noteworthy.  
Certainly, “free merchandise” is a type of “merchandise.”  Free merchandise is 
attractive because it has worth but comes without a charge.  Its usefulness makes 
it desirable to possess.  Matchbooks are not a birthright or an entitlement.  People 
realize that they are manufactured by someone and sold to someone who 
distributes them with the hope that they will be a successful advertising tool. 
{¶ 34} Moreover, RJR focuses on branded matchbooks.  That focus jumps 
a step ahead of the MSA.  The first question is whether matchbooks in general are 
merchandise; if they are, then they cannot contain a brand name of a tobacco-
company MSA signatory.  In other words, would they be merchandise if they did 
not contain tobacco advertising?  We have already established above that 
nonadvertising matchbooks are sold at retail.  Unbranded matchbooks would thus 
fit even within RJR’s narrow definition of merchandise. 
{¶ 35} We find that the term “merchandise” in Section III(f) of the MSA 
is unambiguous and that its ordinary meaning encompasses matchbooks that are 
given away at retail.  However, we will still consider the context of the term 
within the agreement. 
{¶ 36} The contract language leaves no doubt that a broad interpretation 
of the term “merchandise” is to be employed when analyzing the contract.  The 
section at issue here states: “[N]o participating Manufacturer may * * * distribute 
* * *or cause to be * * * distributed * * * any apparel or other merchandise (other 
than Tobacco Products, items the sole function of which is to advertise Tobacco 
Products, or written or electronic publications) which bears a Brand Name.”  The 
parenthetical exclusions after the words “other merchandise” indicate that the 
parties to the contract have employed an expansive definition of “merchandise.”  
The contract excludes from “merchandise” items “the sole function of which is to 
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advertise Tobacco Products.”  By implication, then, items that have a function 
besides advertising tobacco products do constitute merchandise. 
{¶ 37} Advertising is not the sole purpose of paper matchbooks.  They are 
popular among advertisers because they are so popular among consumers for their 
usefulness.  They are a source of fire.  They light birthday candles, pilot lights, 
firecrackers, and kindling; they can be used to mend a frayed shoelace, remove a 
stray thread; they can function as notepads, bookmarks, souvenirs, or, in a pinch, 
dental floss.  Advertising is not their sole function. 
{¶ 38} But for the “sole function” limitation, the contract language 
implies that advertising items such as placards, countertop displays, and signage 
would be considered merchandise pursuant to the contract.  Those are items not 
typically sold at retail, yet they were specifically excepted from consideration as 
merchandise.  The contract thus narrows for certain items the otherwise expansive 
definition.  Matchbooks are not included in the limiting language and thus reside 
within the broader definition of “merchandise.” 
{¶ 39} In a larger sense within the agreement, the parties were agreeing to 
put an end to subtle but ubiquitous marketing of tobacco products.  When in a 
retail establishment, one can expect to encounter the marketing efforts of cigarette 
purveyors.  The ban on brand-name merchandise bans tobacco advertising from 
useful items that make their way into Americans’ lives on a daily basis.  We find 
matchbooks to be of the same character as key chains, pens, and clothing – items 
that, because of their usefulness, become tempting billboards for marketers.  The 
MSA prohibition eliminates their availability for tobacco-product advertisement. 
{¶ 40} We thus find that the ordinary meaning of the word 
“merchandise,” as well as its use within the MSA, necessarily includes 
matchbooks. 
{¶ 41} Accordingly, we affirm the judgment of the court of appeals. 
Judgment affirmed. 
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MOYER, C.J., RESNICK, F.E. SWEENEY, LUNDBERG STRATTON and 
O’CONNOR, JJ., concur. 
 
O’DONNELL, J., concurs in judgment only. 
__________________ 
Jones Day, Jeffrey J. Jones, Matthew A Kairis, Donald B. Ayer, Daniel H. 
Bromberg, Jack W. Campbell IV, and Thomas R. McCarthy, for appellant. 
Jim Petro, Attorney General, Douglas R. Cole, State Solicitor, Stephen P. 
Carney, Senior Deputy Solicitor, Joseph L. Piccin, Susan C. Walker, and Michael 
D. Allen, Assistant Attorneys General, for appellee. 
Vorys, Sater, Seymour & Pease, L.L.P.; J. Scott Jamieson and C. William 
O’Neill, urging reversal for amicus curiae, D.D. Bean & Sons Co. 
Gregg Renkes, Alaska Attorney General; Terry Goddard, Arizona 
Attorney General; Mike Beebe, Arkansas Attorney General; Bill Lockyer, 
California Attorney General; Ken Salazar, Colorado Attorney General; Richard 
Blumenthal, Connecticut Attorney General; Mark J. Bennett, Hawaii Attorney 
General; Lisa Madigan, Illinois Attorney General; Steve Carter, Indiana Attorney 
General; Tom Miller, Iowa Attorney General; Albert Benjamin Chandler III, 
Kentucky Attorney General; Steve Rowe, Maine Attorney General; J. Joseph 
Curran, Jr., Maryland Attorney General; Tom Reilly, Massachusetts Attorney 
General; Mike Cox, Michigan Attorney General; Mike Moore, Mississippi 
Attorney General; Jeremiah W. Nixon, Missouri Attorney General; Mike 
McGrath, Montana Attorney General; Jon Bruning, Nebraska Attorney General; 
Brian Sandoval, Nevada Attorney General; Peter Heed, New Hampshire Attorney 
General; Peter C. Harvey, New Jersey Attorney General; Patricia Madrid, New 
Mexico Attorney General; Eliot Spitzer, New York Attorney General; Pamela 
Brown, Northern Mariana Islands Attorney General; W.A. Drew Edmonson, 
Oklahoma Attorney General; Hardy Myers, Oregon Attorney General; Gerald J. 
Papert, Pennsylvania Acting Attorney General, Joel M. Ressler, Chief Deputy 
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Attorney General, and Timothy P. Keating, Deputy Attorney General; Anabelle 
Rodriquez, Puerto Rico Attorney General; Patrick Lynch, Rhode Island Attorney 
General; Henry McMaster, South Carolina Attorney General; Lawrence E. Long, 
South Dakota Attorney General; Paul G. Summers, Tennessee Attorney General; 
Mark L. Shurtleff, Utah Attorney General; William H. Sorrell, Vermont Attorney 
General; Christine Gregoire, Washington Attorney General; Darrell V. McGraw, 
West Virginia Attorney General; Peg Lautenschlager, Wisconsin Attorney 
General; and Patrick J. Crank, Wyoming Attorney General; amici curiae, urging 
affirmance. 
__________________