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 cigarettes (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. Cigarettes 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 RobinsonPatman 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 RobinsonPatman 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 reimported product under a mark that consumers associate with

the domestic product could be confusing and hence unlawful, 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 damages. 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 manufacturers, 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 important service: advertising. Cigarette manufacturers lack

access to television and radio, billboards, many magazines,

and some other normal promotional channels. That increases the importance of point-of-sale signs, placards, and

other attention-getting devices. And manufacturers are

willing to pay for these through selective wholesale discounts. 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 promotional services. Reynolds contends that this was an “exclusive” 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 concentrated (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 Litigation, 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 monopoly tomorrow: predatory pricing.

To make out a predatory-pricing claim, the plaintiff

must establish not only that the defendant has sold products 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 determine 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 presumably without machine guns and tank traps). Cigarettes

Cheaper! found plenty of such tidbits in discovery. Cigarettes 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 responded 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, “cutthroat competition” is a term of praise rather than condemnation. Joseph Schumpeter called capitalism a “gale

of creative destruction.” Capitalism, Socialism and Democracy 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 consumers, 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 compensation. 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 horizontal 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 reasonable 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 prediscounting 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 Cigarettes 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 competition 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 differences; 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 allowing 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 marketplace. That is, RJR must simply show that its offer

of lower prices or greater allowances was reasonably tailored to the competitive situation that it

realistically faced in the marketplace.

According to Cigarettes Cheaper!, this statement is erroneous 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 misunderstood 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 challenged 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 discrimination, 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 compensation. 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 representation that it contains nothing other than tobacco and

water. The district court issued a protective order foreclosing discovery about additives except with respect to

Winstons, and then only on the question whether it contains 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 “CNotes” 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 contention 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 difference. 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 evidence 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 trademarks. 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 unreliable, 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