UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLUMBIA 

UNITED STATES OF AMERICA, 

Plaintiff, 

and 

TOBACCO-FREE KIDS ACTION FUND, 

et al., 

Plaintiff-Intervenors: 

v. Civil Action No. 99-2496(GK) 

PHILIP MORRIS USA INC., et al.,: 

Defendants, 

and 

ITG BRANDS, LLC, COMMONWEALTH 

BRANDS, INC., AND 

COMMONWEALTH-ALTADIS, INC., 

Post-Judgment Parties: 

Regarding Remedies. 

MEMORANDUM OPINION 

I. INTRODUCTION 

Defendants R.J. Reynolds Tobacco Company ("RJRT") and 

Lorillard Tobacco Company ("Lorillard") (collectively, 

"Defendants") 1 seek to sell and transfer certain cigarette brands 

1 Of course, Lorillard and RJRT are not the only Defendant tobacco 

companies in this case; however, Defendants Altria Group Inc. and 

Philip Morris U.S.A., Inc. have indicated that they do not oppose 

the Motion. 
and businesses to ITG Brands, LLC ("ITG"), which is not a party to 

this case. Under ~ 20 of this Court's Final Judgment and Remedial 

Order ("Order# 1015") entered on August 17, 2006, a non-defendant 

may acquire cigarette brands and businesses from Defendants only 

if it first "submits itself to the jurisdiction of the Court" and 

"applies for and obtains" an Order "subjecting it to the 

provisions" of Order # 1015. 

On April 30, 2015, Defendants and ITG filed an Unopposed 

Motion for an Order Authorizing Transfer of Certain Cigarette 

Brands and Businesses to ITG Brands LLC, Pursuant to Order # 1015, 

Paragraph 2 O ("the Motion") [Dkt. No. 6142] . Defendants and ITG 

have also submitted a lengthy Proposed Order [Dkt. No. 6142-1], 

which sets forth how Order # 1015 will apply to ITG and its U.S. 

affiliates (Commonwealth Brands, Inc. and Commonwealth-Altadis, 

Inc.) , 2 and allocates certain burdens among Defendants and the 

Acquiring Companies. As the Motion's title suggests, the 

Government and Plaintiff-Intervenors do not oppose the Motion or 

the terms of the Proposed Order. 

On May 19, 2015, the Court held a Hearing to discuss the 

Motion and Proposed Order with counsel for all Parties and the 

2 The Court refers 

Commonwealth-Altadis 

throughout. 

to ITG, Commonwealth Brands, 

collectively as the "Acquiring 

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Inc. and 

Companies" 
Acquiring Companies. Motion Hearing Transcript ("Tr.") 3: 1-4: 22 

May 19, 2015. Upon consideration of the Unopposed Motion, counsel's 

representations at the Hearing, and the entire record herein, and 

for the reasons stated below, the Unopposed Motion for an Order 

Authorizing Transfer shall be granted. 

II. BACKGROUND 

A. ITG Brands, LLC 

ITG was formed in 1986 under the name Lignum-2, Inc. It is a 

Texas limited liability company with headquarters in Fort 

Lauderdale, Florida. ITG's ultimate parent company, Imperial 

Tobacco Group PLC, is a United Kingdom company and is the fourthlargest tobacco company in the world. ITG is not a defendant in 

this case. Neither ITG nor its U.S. affiliates have ever been 

covered by Order # 1015. ITG currently owns only one cigarette 

brand sold in the United States called "Rave." 

If the proposed sales and transfers occur, ITG will be the 

third-largest cigarette company in the United States, with brands 

comprising just over seven percent of the domestic cigarette 

market. Following the transaction, ITG plans to move its 

headquarters from Florida to facilities currently operated by 

Lorillard in Greensboro, North Carolina. 

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B. The Proposed Transaction 

The details of the proposed transaction are extremely 

complicated, as the facts presented in the Parties' submissions 

demonstrate. The essential facts are as follows. ITG will acquire 

several cigarette brands currently manufactured by RJRT and 

Lorillard, along with associated intellectual property and the 

inventory and assets necessary to manufacture and sell those 

brands. ITG will acquire at least three RJRT brands: Winston, Kool, 

and Salem. A fourth brand, Doral, will be transferred to ITG if 

the other three brands do not meet particular market-share 

thresholds. ITG will also acquire one Lorillard brand: Maverick. 

Defendants and ITG refer to all of these brands collectively as 

the "Acquired Brands. 11 In addition to the Acquired Brands, ITG 

will acquire Lorillard' s manufacturing facility in Greensboro, 

North Carolina and certain other assets. 

In a transaction separate from but related to the transfers 

to ITG, RJRT and Lorillard's corporate families plan to merge. In 

July 2014, RJRT's indirect parent company, Reynolds American, 

Inc., entered into an agreement with Lorillard's parent company, 

Lorillard, Inc., under which Lorillard, Inc. will merge into a 

subsidiary of Reynolds American, Inc. 

On April 7, 2015, the Parties provided the Court with the 

merger's details by filing a Notice of Transaction [Dkt. No. 6141]. 

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• 

Because Lorillard and RJRT were already Defendants in this case, 

they were not required to seek the Court's approval of the merger. 

The merger transaction will result in RJRT taking on four 

Lorillard brands: Newport, Old Gold, Kent, and True. Tr. 5:12-18. 

Transfer of the Greensboro facility from Lorillard to ITG will 

occur immediately before Lorillard, Inc. merges with the 

designated Reynolds American, Inc. subsidiary. 

Preliminary approval of the proposed transfers, sales, and 

related merger has been given by the Federal Trade Commission 

("FTC"). The approval will allow two companies, Altria and RJRT to 

control more than 80% of the $100 billion U.S. tobacco market. 

Altria has an estimated 47% share of that market and RJRT will 

control 34% of the market following its merger with Lorillard, 

Inc. See Brent Kendall and Tripp Mickle, Reynolds-Lorillard 

Tobacco Merger Gets FTC Clearance, The Wall Street Journal, May 

26, 2015, http://www.wsj.com/articles/reynolds-lorillard-tobaccomerger-gets-ftc-clearance-1432679612. 

C. The Court's Review 

Order# 1015 limits Defendants' ability to sell or·transfer 

elements of their tobacco businesses. Order # 1015 ~ 20. 

Paragraph 20 provides:3 

3 The Court here omits language relating to sales and transfers to 

acquirors and transferees who will use the sold or transferred 

items exclusively outside of the United States. 

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No Defendant shall sell or otherwise transfer or permit 

the sale or transfer of any of its cigarette brands, 

brand names, cigarette product formulas or cigarette 

businesses . . . to any person or entity unless (1) such 

person or entity is already a Defendant subject to this 

Final Judgment and Remedial Order, or (2) prior to the 

sale or acquisition, such person or entity (a) submits 

to the jurisdiction of this Court; and (b) applies for 

and obtains an Order from this Court subjecting such 

person or entity to the provisions of this Final Judgment 

and Remedial Order as of the date of the sale or 

transfer. No such Order will be entered, and no sale or 

transfer of any Defendant's cigarette brands, brand 

names, cigarette product formulas or cigarette 

businesses shall be allowed, unless this Court 

first determines that such person or entity has the 

capacity to comply with the obligations contained in 

this Final Judgment and Remedial Order. The sale or 

transfer by a Defendant of any of its cigarette brands, 

brand names, cigarette product formulas or cigarette 

businesses shall not relieve that Defendant from its 

joint and several liability under this Final Judgment 

and Remedial Order. 

In order to comply with the strictures of Order # 1015, 

Defendants and the Acquiring Companies have jointly submitted a 

Memorandum of Points and Authorities [Dkt. No. 6143], which 

confirms ITG and its U.S. affiliates' submission to the Court's 

jurisdiction and sets forth ITG's capacity to comply with Order 

# 1015. Defendants and the Acquiring Companies have also filed a 

Proposed Order that would subject the Acquiring Companies to this 

Court's jurisdiction, as well as modify and apply the terms of 

Order # 1015 to the Acquiring Companies as of the date of the sales 

and transfers. 

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III. ANALYSIS 

Upon receipt of the Unopposed Motion, the Court convened a 

hearing to discuss and fully understand the substance of the 

Proposed Order. On May 19, 2015, a hearing on the record was held 

with all Parties represented. Counsel for Defendants, the 

Acquiring Parties, 4 the Government, and Plaintiff-Intervenors 

assured the Court in the strongest terms that this Order would not 

in any possible way diminish the effectiveness of the injunctive 

relief originally entered in Order# 1015. E.g., Tr. 24:5-14 ("The 

Court: The defendants have said very clearly today that the motion 

will in no way limit or exclude any other protection contained in 

Order [#] 1015. Does the government agree with that statement? Mr. 

Crane-Hirsch: Yes, Your Honor. [T] here are some minor 

rewordings to adjust for a transition of ownership. The major 

elements of the permanent injunction are absolutely in place, and 

the only changes are intended to just adjust logistic issues that 

arise as a natural part of the transaction."). 

The Court asked ITG's counsel whether "the new arrangement in 

any way [would], if this motion [were] granted[,] eliminate any 

requirement that is contained in [Order#] 1015[.]" Tr. 16:1-5. To 

4 Counsel for ITG also appeared on behalf of Commonwealth Brands, 

Inc. and Commonwealth-Altadis, Inc., but did not represent 

Imperial Tobacco Group, the three companies' U. K. -based parent 

company. Motion Hearing Transcript ("Tr.") 3:21-25, May 19, 2015. 

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which counsel responded, "No. It will not, and, in fact, it will 

extend -- other than publication of the corrective statements, it 

will extend the provisions of [Order #] 1015 in most instances not 

only to the [A]cquired [B]rands . but to ITG['s] Rave brand 

and Commonweal th Brands' existing [] USA Gold and other brands." 

Tr . 16 : 6 - 12 . 

ITG's counsel explained that in crafting the Proposed Order 

"the ultimate goal was to . . set up a structure that 

allowed [this] Court" to have jurisdiction over "the entire U.S. 

tobacco business" of ITG and its U.S. affiliates. 5 Tr. 12:4-10. "A 

second and important goal was to make sure that not only 

[would] the . 'thou shall not' provisions of [Order # 1015] 

apply to [ITG's] tobacco business in the United States . . but 

also that [there] would not be a diminution in the kind of exposure 

to corrective statements that consumers would get." Tr. 12:11-17. 

Thus, Acquiring Companies will be subject to the terms of 

Order# 1015 except for provisions specifically identified by ITG's 

counsel. Paragraph 16 of the Proposed Order will exempt the 

Acquiring Companies from paying the Government's litigation costs 

arising from this case. Tr. 16:25-17:4. 

5 Imperial Tobacco Group, the U.K.-based parent company of ITG and 

its U.S. affiliates, will not become a party to Order # 1015. Tr. 

11:12-14. 

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Additionally, Provisions of Order # 1015 limiting the 

transfer of cigarette brands will not apply to the Acquiring 

Companies' existing brands (i.e., brands that ITG and its 

affiliates already own and are not acquiring from Defendants) . 

Tr. 17:7-15; Proposed Order ~ 20. However, ITG would be bound by 

Order # 1015 if, at some point in the future, it took steps to 

sell or transfer to a non-party the Winston, Salem, Kool, Doral, 

or Maverick brands that it plans to acquire from Defendants. 

Tr. 18:9-16. 

Finally, the Proposed Order makes minor changes to Order 

# 1015's document disclosure and disaggregated marketing data and 

production requirements as applied to the Acquiring Parties. 

Tr. 18:18-20:9. These last changes reflect the fact that ITG and 

its U.S. affiliates were not named as defendants in this case. 

Counsel for the Government and Plaintiff-Intervenors 

described the many phone calls, e-mails, exchanges of proposed 

language, meetings, 40 to 50 multi-party conference calls, etc. 

that all Parties worked on in order to maintain the full scope of 

Order # 1015. Tr. 22:2-24:4. The Court inquired about the effect 

of ~ 7 of the Proposed Order, because of its concern as to whether 

it limited the Acquiring Companies' duty to publish the corrective 

statements. Counsel explained that the paragraph "was intended to 

exempt existing brands that were not owned by Defendants and not 

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currently subject to Order # 1015 from the corrective statement 

obligations." Tr. 14:7-12. 

Counsel were asked directly whether the Proposed Order would 

diminish the number of television spots broadcasting the 

corrective statements. The Court was strongly assured by all 

parties that that would not be the result of the Proposed Order. 

Tr. 7:11-21, 24:15-26:4. RJRT will run the television spots it is 

required to run to correct its own previous deception and will 

take on the burden of running the spots necessary to correct 

Lorillard's previous deception. Tr. 7:11-21 ("R.J. Reynolds 

Tobacco will be taking over Defendant Lorillard Tobacco's 

obligations under Order [#] 1015. And of particular note its 

obligations with respect to the corrective statements in 

newspapers and on TVs, the total number of ads will remain the 

same regardless of the transaction. We'll be doing Lorillard's TV 

ads, Lorillard' s newspaper ads. So the total number of 

corrective statements will be the same with the transaction or 

without the transaction."). Thus, the merger, sales, and transfers 

will have no ef feet on the number of television commercials to 

which the public will be exposed. 

Additionally, the Court was concerned that language in the 

Proposed Order, which modifies the corrective statements as 

applied to the Acquired Brands, would diminish the corrective 

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statements' effectiveness. See Proposed Order ~ 9. However, the 

Government explained that it had consulted with experts in the 

area of heal th communications, who concluded that the language 

would not adversely affect the interest or comprehension of the 

public. Tr. 26:14-28:3, 29:9-14 (~[w]e absolutely did consult with 

marketing experts on this wording, and they are pleased that it is 

as likely to achieve the desired results as the wording for all of 

the other statements on all of the other cigarette brands."). 

Finally, the Parties agree that the Acquiring Parties will 

have the capacity to comply with Order# 1015. Tr. 15:19-21, 24:1-

4. The Court has no reason to disagree with that assessment. 

IV. CONCLUSION 

Based upon the clear and comprehensive assurances by all 

counsel, as well as the Court's own detailed scrutiny of the 

Parties' submissions, the Court concludes that Order # 1015 will 

continue to apply as originally intended and the public interest 

will not be harmed by granting the Unopposed Motion. Therefore, 

for the forgoing reasons, the Unopposed Motion for an Order 

Authorizing Transfer of Certain Cigarette Brands and Businesses to 

ITG Brands LLC, Pursuant to Order #1015, Paragraph 20 [Dkt. No. 

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6142] shall be granted. An Order shall accompany this Memorandum 

Opinion. 6 

June 8, 2015 

Copies to: attorneys on record via ECF 

G After preliminary approval by the FTC on May 26, 2015, the Court 

ordered the Parties to submit "Statements as to whether the FTC's 

action in any way affects the information and assurances given to 

the Court at its May 19, 2015 hearing" [Dkt. No. 6146]. The 

Parties filed their Joint Response on June 4, 2015, assuring the 

Court that the "FTC action does not in any way affect the 

information and assurances given to the Court at the May 19 

hearing" [Dkt. No. 6149]. 

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