ORAL ARGUMENT NOT YET SCHEDULED. Nos & IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

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1 USCA Case # Document # Filed: 09/29/2014 Page 1 of 76 ORAL ARGUMENT NOT YET SCHEDULED Nos & IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT UNITED STATES OF AMERICA, Plaintiff-Appellee, v. PHILIP MORRIS USA INC., et al., Defendants-Appellants. On Appeal From Orders Of The United States District Court For The District Of Columbia 1:99-cv GK APPELLANTS OPENING BRIEF Noel J. Francisco Robert F. McDermott Peter J. Biersteker JONES DAY 51 Louisiana Avenue, N.W. Washington, D.C Telephone: (202) Facsimile: (202) Counsel for Appellant R.J. Reynolds Tobacco Company Miguel A. Estrada Amir C. Tayrani Carlo D. Marchioli GIBSON, DUNN & CRUTCHER LLP 1050 Connecticut Avenue, N.W. Washington, D.C Telephone: (202) Facsimile: (202) Counsel for Appellants Philip Morris USA Inc. and Altria Group, Inc. [Additional Counsel Listed On Inside Cover]

2 USCA Case # Document # Filed: 09/29/2014 Page 2 of 76 Geoffrey K. Beach R. Michael Leonard WOMBLE CARLYLE SANDRIDGE & RICE, PLLC One West Fourth Street Winston-Salem, NC Telephone: (336) Facsimile: (336) Counsel for Appellant R.J. Reynolds Tobacco Company Thomas J. Frederick WINSTON & STRAWN LLP 35 West Wacker Drive Chicago, IL Telephone: (312) Facsimile: (312) Counsel for Appellants Philip Morris USA Inc. and Altria Group, Inc. Michael B. Minton Bruce D. Ryder A. Elizabeth Blackwell THOMPSON COBURN LLP One U.S. Bank Plaza, Suite 3500 St. Louis, MO Telephone: (314) Facsimile: (314) Counsel for Appellant Lorillard Tobacco Company

3 USCA Case # Document # Filed: 09/29/2014 Page 3 of 76 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to D.C. Circuit Rule 28(a)(1), Defendants-Appellants Philip Morris USA Inc., Altria Group, Inc., R.J. Reynolds Tobacco Company (individually and as successor to Brown & Williamson Tobacco Corporation), and Lorillard Tobacco Company file the following Certificate as to Parties, Rulings, and Related Cases. Parties, Intervenors, and Amici 1. District Court The following is a list of parties, intervenors, and amici that appeared before the district court. Parties: Plaintiff was the United States of America. Defendants were Philip Morris USA Inc., Altria Group, Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corp.,* Lorillard Tobacco Company, British American Tobacco (Investments) Ltd., The Council for Tobacco Research U.S.A., Inc., The Tobacco Institute, Inc., and Liggett Group, Inc. Intervenors: Tobacco-Free Kids Action Fund, American Cancer Society, American Heart Association, American Lung Association, Americans for * Effective July 30, 2004, the U.S. assets, liabilities, and operations of Brown & Williamson Tobacco Corporation s cigarette and tobacco business were merged with R.J. Reynolds Tobacco Company. Contemporaneously, Brown & Williamson Tobacco Corporation changed its name to Brown & Williamson Holdings, Inc., and ceased manufacturing, researching, selling, or marketing cigarettes. i

4 USCA Case # Document # Filed: 09/29/2014 Page 4 of 76 Nonsmokers Rights, National African American Tobacco Prevention Network, Elan Corporation, PLC, Glaxosmithkline Consumer Healthcare, L.P., Impax Laboratories, Inc., Pfizer, Inc., Pharmacia Corporation, Smithkline Beecham Corporation, and Novartis Consumer Health Inc. Amici: Citizens Commission to Protect the Truth, Regents of the University of California, Tobacco Control Legal Consortium, Essential Action, City and County of San Francisco, Asian-Pacific Islander American Health Forum, San Francisco African American Tobacco Free Project, Black Network in Children s Emotional Health, the Attorneys General of Arkansas, Connecticut, Hawaii, Idaho, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Nevada, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Tennessee, Vermont, Washington, Wisconsin, Wyoming, and District of Columbia, National Association of Black Owned Broadcasters, Fox Broadcasting Company, National Newspaper Publishers Association, National Association for the Advancement of Colored People, Viacom Inc., A&E Television Networks, LLC, Interactive One, LLC, Radio One, Inc., TV One, LLC, Univision Communications Inc., CW Television Network, Little Rock Sun, and Turner Broadcasting System, Inc. 2. Court of Appeals Parties: Appellants are Philip Morris USA Inc., Altria Group, Inc., R.J. Reynolds Tobacco Company (individually and as successor to Brown & ii

5 USCA Case # Document # Filed: 09/29/2014 Page 5 of 76 Williamson Tobacco Corporation), and Lorillard Tobacco Company. Appellee is the United States of America. Intervenors: Tobacco-Free Kids Action Fund, American Cancer Society, American Heart Association, American Lung Association, Americans for Nonsmokers Rights, and National African American Tobacco Prevention Network. Amici: The Washington Legal Foundation has given notice of its intention to file an amicus curiae brief in support of Defendants-Appellants. Rulings Under Review In these consolidated appeals, Defendants-Appellants appeal from Order #34-Remand (D.E. 5991; JA 157), entered by Judge Gladys Kessler on November 27, 2012, which ordered the text of corrective statements, as well as from the Memorandum Opinion (D.E. 5992; JA 161) accompanying Order #34-Remand. The Memorandum Opinion accompanying Order #34-Remand is available at 907 F. Supp. 2d 1 (D.D.C. 2012). Defendants-Appellants also appeal from Memorandum Opinion And Order #50-Remand (D.E. 6094; JA 428), entered by Judge Gladys Kessler on June 2, 2014, which granted the Joint Motion For Consent Order Implementing The Corrective Statements Remedy Under Order #1015 And Order #34-Remand (D.E. 6021), as well as from the accompanying iii

6 USCA Case # Document # Filed: 09/29/2014 Page 6 of 76 Order #51-Remand (D.E. 6095; JA 436). Memorandum Opinion And Order #50- Remand and the accompanying Order #51-Remand are available electronically at 2014 WL (D.D.C. 2014) and 2014 WL (D.D.C. 2014), respectively. Related Cases This case was previously before this Court in the following appeals: (United States v. Philip Morris Inc.); (United States v. Philip Morris Inc.); , (United States v. British American Tobacco (Investments) Ltd.); (United States v. Philip Morris USA Inc.); , (United States v. British American Tobacco Australia Services Ltd.); , , , , , , , , , (United States v. Philip Morris USA Inc.); (United States v. Philip Morris USA Inc.); (United States v. Philip Morris USA Inc.). iv

7 USCA Case # Document # Filed: 09/29/2014 Page 7 of 76 CORPORATE DISCLOSURE STATEMENT Pursuant to Fed. R. App. P and D.C. Circuit Rule 26.1, Defendants make the following disclosures: Philip Morris USA Inc. is a wholly owned subsidiary of Altria Group, Inc. Altria Group, Inc. is the only publicly held company that owns 10% or more of Philip Morris USA Inc. s stock. Altria Group, Inc. has no parent company, and no publicly held company owns 10% or more of its stock. R.J. Reynolds Tobacco Company is a wholly owned subsidiary of R.J. Reynolds Tobacco Holdings, Inc., which in turn is a wholly owned subsidiary of Reynolds American Inc., a publicly held company. Brown & Williamson Holdings, Inc. holds more than 10% of the stock of Reynolds American Inc. Brown and Williamson Holdings, Inc. is an indirect wholly owned subsidiary of British American Tobacco, p.l.c., a publicly held corporation. Lorillard Tobacco Company is a wholly owned subsidiary of Lorillard, Inc. Lorillard, Inc. is the only publicly held company that owns 10% or more of Lorillard Tobacco Company s stock. v

8 USCA Case # Document # Filed: 09/29/2014 Page 8 of 76 TABLE OF CONTENTS INTRODUCTION... 1 JURISDICTIONAL STATEMENT... 4 STATEMENT OF ISSUES... 4 PERTINENT STATUTORY PROVISIONS... 5 STATEMENT OF FACTS... 5 SUMMARY OF ARGUMENT STANDARD OF REVIEW ARGUMENT I. The District Court s Corrective Statements Violate The First Amendment And This Court s Mandate A. Compelled Commercial Disclosures Must Convey Purely Factual And Uncontroversial Information About A Product B. The District Court s Corrective Statements Are Not Purely Factual And Uncontroversial Within The Meaning Of Zauderer The Confessional Preambles Are Improper Numerous Other Aspects Of The Corrective Statements Are Improper a. The Corrective Statements Contain Additional Language That Forces Defendants To Shame And Denigrate Themselves b. The Corrective Statements Characterization Of Defendants Prior Conduct Conflicts With The Conclusions Of Other Fact- Finders vi

9 USCA Case # Document # Filed: 09/29/2014 Page 9 of 76 c. Many Aspects Of The Corrective Statements Are Not Supported By The District Court s Findings Of Fact C. The District Court s Corrective Statements Are Unduly Burdensome D. Because The District Court s Corrective Statements Do Not Satisfy Zauderer s Commercial-Disclosure Standard, They Violate The First Amendment E. The District Court s First Amendment Analysis Is Fundamentally Flawed II. The District Court s Corrective Statements Violate RICO And This Court s Mandate III. The District Court s Corrective Statements Violate Due Process CONCLUSION vii

10 USCA Case # Document # Filed: 09/29/2014 Page 10 of 76 Cases TABLE OF AUTHORITIES Page(s) * Am. Meat Inst. v. U.S. Dep t of Agric., F.3d, 2014 WL (D.C. Cir. 2014) (en banc)... 2, 22, 23, 24, 26, 27, 28, 48, 51 Aspinall v. Philip Morris Cos., No , 2012 WL (Mass. Super. Ct. Mar. 13, 2012) Austin v. United States, 509 U.S. 602 (1993) Blue Cross & Blue Shield of New Jersey Inc. v. Philip Morris, Inc., No. 98-cv-3287 (E.D.N.Y.) Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60 (1983) Bullock v. Philip Morris USA Inc., 198 Cal. App. 4th 543 (2011) Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm n of N.Y., 447 U.S. 557 (1980) City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410 (1993) City of St. Louis v. Am. Tobacco Co., No , 2010 WL (Mo. Cir. Ct. June 2, 2010)... 37, 53 Cobell v. Norton, 334 F.3d 1128 (D.C. Cir. 2003) * Authorities upon which we chiefly rely are marked with asterisks. viii

11 USCA Case # Document # Filed: 09/29/2014 Page 11 of 76 Craft v. Philip Morris Cos., No , 2010 WL (Mo. Cir. Ct. Dec. 28, 2010) Curtis v. Altria Grp., Inc., No. 27-cv , 2009 WL (Minn. Dist. Ct. Oct. 14, 2009) In re Daniel Chapter One, 2010 WL (FTC Jan. 25, 2010) Daniel Chapter One v. FTC, 405 F. App x 505 (D.C. Cir. 2010)... 32, 33 Edenfield v. Fane, 507 U.S. 761 (1993) Empire Healthchoice, Inc. v. Philip Morris USA Inc., 393 F.3d 312 (2d Cir. 2004) Entm t Software Ass n v. Blagojevich, 469 F.3d 641 (7th Cir. 2006) Hall v. R.J. Reynolds Tobacco Co., No (Fla. Cir. Ct.) Hicks v. Reiock, 485 U.S. 624 (1988) Ibanez v. Fla. Dep t of Bus. & Prof l Regulation, 512 U.S. 136 (1994) Inzerilla v. Am. Tobacco Co., No /96 (N.Y. Sup. Ct.) Iron Workers Local Union No. 17 Ins. Fund v. Philip Morris, Inc., No. 1:97-cv-1422 (N.D. Ohio) Lucier v. Philip Morris Inc., No. 02AS01909 (Cal. Super. Ct.) McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d Cir. 2008) ix

12 USCA Case # Document # Filed: 09/29/2014 Page 12 of 76 Milavetz, Gallop & Milavetz, P.A. v. United States, 559 U.S. 229 (2010) * Nat l Ass n of Mfrs. v. SEC, 748 F.3d 359 (D.C. Cir. 2014)... 27, 28, 30, 50, 51 Novartis Corp. v. FTC, 223 F.3d 783 (D.C. Cir. 2000) Pac. Gas & Elec. Co. v. Pub. Utils. Comm n, 475 U.S. 1 (1986) Pooshs v. Philip Morris USA Inc., 904 F. Supp. 2d 1009 (N.D. Cal. 2012) * R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205 (D.C. Cir. 2012)... 26, 27, 30, 38 Rubin v. Coors Brewing Co., 514 U.S. 476 (1995) Schwab v. Philip Morris USA, Inc., 449 F. Supp. 2d 992 (E.D.N.Y. 2006) Shaffer v. R.J. Reynolds Tobacco Co., 860 F. Supp. 2d 991 (D. Ariz. 2012) In re Tobacco Litig.: C. Blankenship/J. McCune, No. 2: (W. Va. Cir. Ct.) Tune v. Philip Morris Inc., No (Fla. Cir. Ct.) Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622 (1994)... 22, 49 United States v. Gementera, 379 F.3d 596 (9th Cir. 2004) United States v. Nat l Soc y of Prof l Eng rs, 555 F.2d 978 (D.C. Cir. 1977) x

13 USCA Case # Document # Filed: 09/29/2014 Page 13 of 76 * United States v. Philip Morris USA Inc., 566 F.3d 1095 (D.C. Cir. 2009)... 1, 3, 8, 9, 15, 17, 19, 20, 21, 22, 27 29, 34, 45, 47, 48, 49, 50, 53, 54, 55, 56 United States v. Philip Morris USA Inc., 396 F.3d 1190 (D.C. Cir. 2005)... 6, 19, 54 United States v. Philip Morris USA Inc., 449 F. Supp. 2d 1 (D.D.C. 2006)... 1, 6, 7, 8, 39, 42, 43 * Warner-Lambert Co. v. FTC, 562 F.2d 749 (D.C. Cir. 1977)... 25, 26, 52 Welch v. Brown & Williamson Tobacco Corp., No. 00-CV (Mo. Cir. Ct.) Wooley v. Maynard, 430 U.S. 705 (1977)... 16, 22, 49 * Zauderer v. Office of Disciplinary Counsel of Supreme Court, 471 U.S. 626 (1985)... 2, 8, 16, 17, 23, 24, 26, 27, 29, 44, 48 Statutes * 18 U.S.C , 6, 9, 26, U.S.C U.S.C U.S.C U.S.C The Family Smoking Prevention and Tobacco Control Act of 2009, Pub. L. No , 123 Stat Rule Fed. R. Evid xi

14 USCA Case # Document # Filed: 09/29/2014 Page 14 of 76 Other Authorities BBC, Tobacco firms told to pay for adverts warning of dangers (Mar. 22, 2013), 31 Lorillard Tobacco Co., Smoking and Health, 41 Philip Morris USA Inc., Smoking and Health Issues, Cigarettes/Health_Issues/default.aspx?src=top_nav R.J. Reynolds Tobacco Co., Guiding Principles and Beliefs, 41 Gideon Resnick, Big Tobacco s Biggest Lies, Daily Beast (Jan. 20, 2014), 31 Tom Schoenberg, Tobacco Companies Must Admit They Lied on Products, Ads, Bloomberg (Nov. 28, 2012), 31 xii

15 USCA Case # Document # Filed: 09/29/2014 Page 15 of 76 INTRODUCTION In 1999, the Government brought this suit against the major domestic tobacco companies alleging that they violated RICO by engaging in a decades-long conspiracy to deny the health risks of smoking cigarettes. After finding Defendants liable in 2006, the district court issued a series of injunctions, one of which requires Defendants to disseminate corrective statements on five topics related to the health effects and addictiveness of smoking in multiple media formats, including television, websites, newspapers, and cigarette package onserts. United States v. Philip Morris USA Inc., 449 F. Supp. 2d 1, (D.D.C. 2006). On appeal from the district court s 2006 final judgment, this Court upheld the general concept of a corrective-statements remedy but had no opportunity to pass upon the text of those statements, which the district court had not yet formulated. To ensure that the statements ultimately crafted by the district court complied with both the First Amendment and RICO, this Court directed that the corrective statements be confined to purely factual and uncontroversial information geared towards thwarting prospective efforts by Defendants to deceive the American public about their products. United States v. Philip Morris USA Inc., 566 F.3d 1095, 1144 (D.C. Cir. 2009) (citation omitted) (quoting 1

16 USCA Case # Document # Filed: 09/29/2014 Page 16 of 76 Zauderer v. Office of Disciplinary Counsel of Supreme Court, 471 U.S. 626, 651 (1985)). Consistent with this Court s 2009 decision, Defendants stand ready and willing to implement the corrective-statements remedy by disseminating factual public-health information about cigarettes. The district court, however, did not heed this Court s clear mandate. Instead of focusing on the health effects of Defendants products, the district court ordered Defendants to make corrective statements about their past conduct. Those statements require Defendants to disparage themselves as reprehensible and untrustworthy wrongdoers who deliberately deceived the American public, JA 158, to confess publicly to allegations of past misconduct that other finders of fact have rejected, and to embrace assertions that are unsupported by the district court s findings of fact in this case. In short, these statements are designed to ensure that the public does not believe anything Defendants say on any topic. Without question, compelling Defendants to make public confessions about their own supposedly bad character is a far cry from the purely factual and uncontroversial commercial disclosures of product-related information upheld by this Court. See, e.g., Am. Meat Inst. v. U.S. Dep t of Agric., F.3d, 2014 WL , at *9 (D.C. Cir. 2014) (en banc). These fundamental First Amendment shortcomings are exacerbated by the requirement that Defendants bear 2

17 USCA Case # Document # Filed: 09/29/2014 Page 17 of 76 the unnecessary burden of disseminating the corrective statements in multiple media formats that will reach overlapping audiences without any incremental benefit in preventing future misstatements by Defendants regarding their products. In addition, the district court s backward-looking remedy which requires Defendants to condemn their own credibility and reputation based on alleged conduct that occurred as long as six decades ago falls well outside the district court s limited jurisdiction to prevent and restrain future RICO violations. Philip Morris USA Inc., 566 F.3d at 1140 (emphasis added). Those statements are designed to punish and humiliate Defendants based on their past conduct, not to prevent future RICO violations by [r]equiring Defendants to reveal the previously hidden truth about their products. Id. at 1140 (emphasis added). By promulgating corrective statements that effectively require Defendants to brand themselves with a Scarlet Letter that labels them Liars, the district court contravened this Court s mandate and exceeded the bounds of the First Amendment, RICO, and due process. Defendants are willing to provide the public with factual information about the health effects and addictiveness of cigarettes and, indeed, Defendants proposed numerous alternatives that would have accomplished that goal. But the wholly unprecedented self-vilification required by the district court is well beyond the court s authority and squarely foreclosed by the First Amendment. This Court should vacate the district court s corrective- 3

18 USCA Case # Document # Filed: 09/29/2014 Page 18 of 76 statements orders and remand with instructions to craft a remedy that is consistent with this Court s prior mandate and the limitations imposed by the Constitution and RICO. JURISDICTIONAL STATEMENT The district court had subject matter jurisdiction under 28 U.S.C. 1331, 1345, and On January 25, 2013, Defendants filed their Notice of Appeal from Order #34-Remand and the Memorandum Opinion accompanying Order #34- Remand, both entered by the district court on November 27, That appeal was docketed as No On June 25, 2014, Defendants filed their Notice of Appeal from the Memorandum Opinion and Order #50-Remand and Order #51- Remand, both entered by the district court on June 2, That appeal was docketed as No and consolidated with No This Court has jurisdiction over Defendants timely appeals under 28 U.S.C. 1292(a). STATEMENT OF ISSUES 1. Whether the district court s corrective statements violate the First Amendment and this Court s 2009 mandate because they would compel Defendants to confess past misconduct and make assertions unsupported by the district court s findings of fact, rather than provide purely factual and uncontroversial public-health information about Defendants products. 4

19 USCA Case # Document # Filed: 09/29/2014 Page 19 of Whether the district court s corrective statements violate RICO and this Court s 2009 mandate because they are not geared toward prevent[ing] and restrain[ing] future RICO violations. 18 U.S.C. 1964(a). 3. Whether the district court s corrective statements violate due process because they impose criminal-like sanctions in a civil proceeding. PERTINENT STATUTORY PROVISIONS The relevant portion of RICO provides: The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons. 18 U.S.C. 1964(a). I. The Government s Suit STATEMENT OF FACTS The Government brought this suit against Philip Morris USA Inc., Altria Group, Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company, as well as other tobacco companies and industry groups, alleging that they had violated RICO by associating together to provide false information to the American public about the health effects and addictiveness of smoking. The 5

20 USCA Case # Document # Filed: 09/29/2014 Page 20 of 76 Government premised its claims on Section 1964(a) of RICO, which grants district courts jurisdiction to issue appropriate orders that prevent and restrain RICO violations. 18 U.S.C. 1964(a). Under that narrow remedial provision, the Government sought injunctive relief restricting nearly every aspect of Defendants cigarette business, as well as the disgorgement of $280 billion in profits that Defendants had earned from past cigarette sales. In 2005, this Court held on interlocutory appeal that disgorgement of past profits was not an available remedy because jurisdiction under Section 1964(a) is limited to forward-looking remedies that are aimed at future violations of RICO. United States v. Philip Morris USA Inc., 396 F.3d 1190, 1198 (D.C. Cir. 2005) ( Disgorgement Opinion ) (emphasis added). Accordingly, the only relief that the Government was permitted to seek, and that the district court purported to grant, was prospective injunctive relief. After a bench trial, the district court issued a Final Judgment and Remedial Order, which contained a lengthy set of factual findings regarding Defendants past conduct dating back to the early 1950s, and entered a series of sweeping injunctions. See Philip Morris USA Inc., 449 F. Supp. 2d 1. The district court found that Defendants had violated RICO by associating together to misinform the American public regarding the health effects of smoking and environmental tobacco smoke, the addictiveness of nicotine, the health benefits from low tar, 6

21 USCA Case # Document # Filed: 09/29/2014 Page 21 of 76 light cigarettes, and the manipulation of the design and composition of cigarettes in order to sustain nicotine addiction. Id. at The district court also found that Defendants were likely to commit similar RICO violations in the future, and issued an extensive set of injunctions designed to prevent such future violations of RICO. Id. at 911, One of the district court s injunctions ordered Defendants to make corrective statements concerning the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking low tar, light, ultra light, mild, and natural, cigarettes, Defendants manipulation of cigarette design and composition to ensure optimum nicotine delivery, and the adverse health effects of exposure to secondhand smoke. Philip Morris USA Inc., 449 F. Supp. 2d at The order required Defendants to disseminate the corrective statements through newspapers, television, Defendants websites, cigarette package onserts, and retail point-ofsale displays. Id. at The district court did not specify the wording of the 1 Among other things, the district court s injunctions prohibit Defendants from committing any act of racketeering... relating in any way to the manufacturing, marketing, promotion, health consequences or sale of cigarettes, and from making any material false, misleading, or deceptive statement or representation... that misrepresents or suppresses information concerning cigarettes. Philip Morris USA Inc., 449 F. Supp. 2d at 938. There have been no violations of those injunctions since they were entered in

22 USCA Case # Document # Filed: 09/29/2014 Page 22 of 76 corrective statements in its 2006 Final Judgment and Remedial Order, but stated that it would determine their precise content at a future date after receiving proposals from the parties. Id. at 939. Defendants appealed the district court s Final Judgment and Remedial Order. This Court affirmed in part, but vacated several aspects of the injunctive relief and remanded the case for the district court to reconsider those aspects of its injunctions. See Philip Morris USA Inc., 566 F.3d at With regard to the corrective statements, the Court upheld the district court s general authority to require Defendants to make corrective disclosures, but underscored that the court must ensure the corrective disclosures are carefully phrased so they do not impermissibly chill protected speech. Id. at Consequently, the Court continued, the district court must confine the statements to purely factual and uncontroversial information, geared towards thwarting prospective efforts by Defendants to either directly mislead consumers or capitalize on their prior deceptions by continuing to advertise in a manner that builds on consumers existing misperceptions. Id. at (citation omitted) (quoting Zauderer, 471 U.S. at 651). The Court emphasized that only if the corrective statements me[t] these requirements would they constitute a permissible restraint on Defendants commercial speech. Id. at

23 USCA Case # Document # Filed: 09/29/2014 Page 23 of 76 The Court further held that, under Section 1964(a) of RICO, the correctivestatements remedy must be tailored to [r]equir[e] Defendants to reveal the previously hidden truth about their products, which will prevent and restrain them from disseminating false and misleading statements, thereby violating RICO, in the future. Philip Morris USA Inc., 566 F.3d at Finally, the Court vacated the provision of the district court s order requiring that the corrective statements be displayed at retail point-of-sale locations because the district court had fail[ed] to consider the rights of retailers, who were not parties to the court s remedial proceedings. Id. at The Court directed the district court on remand to evaluate and make due provision for the rights of innocent persons, either by abandoning this part of the remedial order or by crafting a new version reflecting the rights of third parties. Id. at 1142 (alteration omitted) (quoting 18 U.S.C. 1964(a)). II. The District Court s Corrective Statements Before Defendants noticed an appeal from the district court s Final Judgment and Remedial Order, each party submitted proposed language for the district court to consider in crafting its corrective statements. Defendants each proposed their own formulations of statements that conveyed factual public-health information on the five topics designated by the district court. See JA 54, 64, 67, 9

24 USCA Case # Document # Filed: 09/29/2014 Page 24 of On remand, the Government submitted yet another set of proposed corrective statements, and the parties then filed briefs addressing the various proposals. Consistent with this Court s mandate, Defendants stated their willingness to provid[e] consumers with factual and noncontroversial information about the health effects and addictiveness of smoking, but objected to the Government s proposal, which contained numerous inflammatory and inaccurate statements that bore no resemblance to the factual and uncontroversial statements contemplated by this Court. D.E. 5881, at 1-2. While the district court did not adopt any of the Government s proposals wholesale, it nonetheless largely rejected Defendants arguments and ordered the following corrective statements: A. Adverse Health Effects of Smoking A Federal Court has ruled that Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA deliberately deceived the American public about the health effects of smoking, and has ordered those companies to make this statement. Here is the truth: 2 For example, on the topic of the adverse health effects of smoking, Philip Morris USA proposed the following statement: Cigarette smoking causes lung cancer, heart disease, emphysema, and other serious diseases in smokers. Smokers are far more likely to develop serious diseases, like lung cancer, than non-smokers. Smoking by pregnant women increases the risks for fetal injury, premature birth, and low birth weight. There is no safe cigarette. JA 56. Each of the other Defendants submitted similar statements conveying factual public-health information about their products. See JA 64, 67,

25 USCA Case # Document # Filed: 09/29/2014 Page 25 of 76 Smoking kills, on average, 1200 Americans. Every day. More people die every year from smoking than from murder, AIDS, suicide, drugs, car crashes, and alcohol, combined. Smoking causes heart disease, emphysema, acute myeloid leukemia, and cancer of the mouth, esophagus, larynx, lung, stomach, kidney, bladder, and pancreas. Smoking also causes reduced fertility, low birth weight in newborns, and cancer of the cervix. B. Addictiveness of Smoking and Nicotine A Federal Court has ruled that Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA deliberately deceived the American public about the addictiveness of smoking and nicotine, and has ordered those companies to make this statement. Here is the truth: Smoking is highly addictive. Nicotine is the addictive drug in tobacco. Cigarette companies intentionally designed cigarettes with enough nicotine to create and sustain addiction. It s not easy to quit. When you smoke, the nicotine actually changes the brain that s why quitting is so hard. C. Lack of Significant Health Benefit From Smoking Low Tar, Light, Ultra Light, Mild, and Natural Cigarettes A Federal Court has ruled that Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA deliberately deceived the American public by falsely selling and advertising low tar and light cigarettes as less harmful than regular cigarettes, and has ordered those companies to make this statement. Here is the truth: Many smokers switch to low tar and light cigarettes rather than quitting because they think low tar and light cigarettes are less harmful. They are not. Low tar and filtered cigarette smokers inhale essentially the same amount of tar and nicotine as they would from regular cigarettes. 11

26 USCA Case # Document # Filed: 09/29/2014 Page 26 of 76 All cigarettes cause cancer, lung disease, heart attacks, and premature death lights, low tar, ultra lights, and naturals. There is no safe cigarette. D. Manipulation of Cigarette Design and Composition to Ensure Optimum Nicotine Delivery A Federal Court has ruled that Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA deliberately deceived the American public about designing cigarettes to enhance the delivery of nicotine, and has ordered those companies to make this statement. Here is the truth: Defendant tobacco companies intentionally designed cigarettes to make them more addictive. Cigarette companies control the impact and delivery of nicotine in many ways, including designing filters and selecting cigarette paper to maximize the ingestion of nicotine, adding ammonia to make the cigarette taste less harsh, and controlling the physical and chemical make-up of the tobacco blend. When you smoke, the nicotine actually changes the brain that s why quitting is so hard. E. Adverse Health Effects of Exposure to Secondhand Smoke A Federal Court has ruled that Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA deliberately deceived the American public about the health effects of secondhand smoke, and has ordered those companies to make this statement. Here is the truth: Secondhand smoke kills over 38,000 Americans each year. Secondhand smoke causes lung cancer and coronary heart disease in adults who do not smoke. Children exposed to secondhand smoke are at an increased risk for sudden infant death syndrome (SIDS), acute respiratory infections, ear problems, severe asthma, and reduced lung function. There is no safe level of exposure to secondhand smoke. 12

27 USCA Case # Document # Filed: 09/29/2014 Page 27 of 76 JA ; see also JA 437 (adopting minor textual modifications and specifying the order in which the four Defendants names will appear in each iteration of the statements). In an accompanying opinion, the district court held that its corrective statements complied with the First Amendment. Despite the inflammatory language requiring Defendants to condemn their own conduct and character, the court concluded that the statements are purely factual and uncontroversial because they are based in specific Findings of Fact, are simple declarative sentences, and use basic, uncomplicated language. JA 185, 193. And although dissemination of the statements imposes significant collateral consequences on Defendants including likely tainting future jury pools the court determined that the statements do not impermissibly chill Defendants protected speech or otherwise impose undue burdens on Defendants because the statements are supposedly aimed at thwarting future efforts by Defendants to misinform the public. JA 207. The court also rejected Defendants argument that imposing confessional corrective statements in a civil proceeding violates their due process rights. The court did not dispute that its statements require Defendants to shame and humiliate themselves in public, but instead stated without further explanation that the remedy s purpose is not punitive, but corrective. JA

28 USCA Case # Document # Filed: 09/29/2014 Page 28 of 76 In its order accompanying the corrective statements, the district court directed the parties to participate in discussions with a Special Master regarding the implementation of the remedy. JA 160, 224. The parties thereafter engaged in more than a year of mediation and ultimately filed a Revised (Proposed) Consent Order that addresses implementation of the corrective statements in four media: newspapers, television, websites, and package onserts. D.E On June 2, 2014, the district court entered the parties proposed consent order, which provides that Defendants must: Purchase space to publish each of the corrective statements in separate Sunday editions of the print versions and on the Internet homepages of more than 45 newspapers, which cover thirty-three States and the District of Columbia, JA 431, ; Run the corrective statements in five primetime television spots per week for one year, for a total of 260 television spots, JA ; 3 3 The Consent Order requires Defendant R.J. Reynolds Tobacco Company ( RJRT ) to run two sets of television spots one on its own behalf and one on behalf of Brown & Williamson Tobacco Corp. As expressly anticipated by the Consent Order, JA 457, RJRT has filed a motion challenging that requirement. See D.E That motion has been fully briefed and is now awaiting decision by the district court. 14

29 USCA Case # Document # Filed: 09/29/2014 Page 29 of 76 Display the corrective statements prominently on their corporate and branded websites, possibly in perpetuity, JA ; and Six times evenly spaced over the course of two years, affix onserts that feature the corrective statements to the packaging of two weeks worth of estimated annual volume of all of their cigarette brands, JA The Consent Order reserves Defendants right to challenge on appeal the content of the Court-ordered Corrective Statements and the requirement that the Court-ordered Corrective Statements appear in the multiple media referenced in the Remedial Order and herein. JA 457. Defendants obligation to commence implementation of the corrective-statements remedy is triggered by the exhaustion of this appeal. JA 438. SUMMARY OF ARGUMENT This Court instructed the district court to craft corrective statements that are confined to purely factual and uncontroversial information and that [r]equir[e] Defendants to reveal the previously hidden truth about their products. Philip Morris USA Inc., 566 F.3d at 1140, 1144 (internal quotation marks omitted). In 4 The Consent Order did not address the point-of-sale component of the corrective-statements remedy that this Court vacated and remanded. JA 456. That issue was separately briefed by the parties and is now awaiting decision by the district court. 15

30 USCA Case # Document # Filed: 09/29/2014 Page 30 of 76 accordance with this Court s mandate, Defendants are willing to disseminate corrective statements that transmit public-health information about cigarettes. Indeed, Defendants proposed numerous alternative formulations of the corrective statements that plainly would have achieved this result. See JA 54, 64, 67, 76. The district court s corrective statements, however, go well beyond the statements contemplated by this Court and any compelled commercial disclosures ever upheld by an appellate court. The district court s statements require Defendants to shame and humiliate themselves by confessing to past misconduct and by branding themselves as liars who deliberately deceived the American public. These unprecedented, inflammatory statements which Defendants must publish in multiple media, ensuring repetitive and redundant exposure violate this Court s mandate, the First Amendment, the district court s remedial authority under RICO, and due process. I. Although compelled speech is generally subject to strict scrutiny, see Wooley v. Maynard, 430 U.S. 705, 714 (1977), the Supreme Court has recognized a narrow exception for disclosures of purely factual and uncontroversial information about a product that are not otherwise unduly burdensome. Zauderer, 471 U.S. at 651. In its 2009 opinion, this Court directed the district court to craft corrective statements that fall within this limited constitutional exception for purely factual and uncontroversial commercial disclosures about 16

31 USCA Case # Document # Filed: 09/29/2014 Page 31 of 76 Defendants products. Philip Morris USA Inc., 566 F.3d at 1144 (quoting Zauderer, 471 U.S. at 651). Rather than limiting the corrective statements to straightforward publichealth information about cigarettes, however, the district court mandated that Defendants make confessional disclosures about themselves, in which they must condemn and publicly shame themselves for engaging in the misconduct found by the district court. The preamble to each statement [a] Federal Court has ruled that [Defendants] deliberately deceived the American public requires Defendants to announce publicly that they are liars, and the Here is the truth declaration suggests (erroneously) that Defendants previously disputed all of the information conveyed in the accompanying bulletpoints. Moreover, several of those bulletpoints require Defendants to disparage themselves further based on both their past and ongoing conduct, including allegedly design[ing] cigarettes... to create and sustain addiction. The inherently controversial nature of these self-denigrating statements is underscored by the fact that numerous judges and juries have rejected the allegations on which the district court s statements are based. In addition, the statements are nonfactual in numerous respects because they require Defendants to declare as truth multiple items that lack support in the district court s own findings of fact and mischaracterize Defendants actual conduct. For example, 17

32 USCA Case # Document # Filed: 09/29/2014 Page 32 of 76 they require Defendants to confess to having deliberately deceived the American public, even though the district court never made any findings of such deception because the question whether any individual smoker actually believed Defendants alleged misstatements was not at issue in the case. These First Amendment deficiencies are compounded by the district court s unwarranted requirement that Defendants disseminate the same statements in multiple media formats that will repetitively reach overlapping audiences. It is impossible to square the district court s incendiary, counterfactual, and needlessly burdensome statements with this Court s mandate, which is a sufficient reason, standing alone, to vacate the district court s corrective-statements orders. The Court should also vacate those orders on First Amendment grounds because it is impossible to fit those statements within Zauderer s narrow exception for purely factual and uncontroversial statements. Indeed, because the corrective statements focus principally on Defendants conduct rather than their products they do not even qualify as commercial speech and should be subject to strict scrutiny. In any event, the statements are unconstitutional even under the Central Hudson standard for commercial speech because they are not narrowly tailored to further the Government s interest in preventing Defendants from committing future RICO violations. 18

33 USCA Case # Document # Filed: 09/29/2014 Page 33 of 76 II. The district court s corrective statements also exceed its jurisdiction under Section 1964(a) of RICO and violate this Court s mandate because they would require Defendants to vilify themselves based on their alleged past wrongdoing, rather than [r]equir[e] Defendants to reveal the previously hidden truth about their products so as to thwart[ ] prospective efforts by Defendants to mislead consumers. Philip Morris USA Inc., 566 F.3d at 1140, As this Court has repeatedly recognized, Section 1964(a) does not authorize backward-looking remed[ies] focused on remedying the effects of past conduct, Disgorgement Opinion, 396 F.3d at 1198, but is instead limited to forward-looking relief that prevent[s] and restrain[s] future RICO violations. Philip Morris USA Inc., 566 F.3d at 1140 (emphasis added). The district court nevertheless ordered Defendants to make statements centered on their past acts of alleged misconduct acts that Defendants were found to have committed in a district court opinion issued nearly ten years ago, that were the subject of a lawsuit filed fifteen years ago, and that occurred as long as six decades ago. Each statement begins with a clause in which Defendants declare that at some undefined point in the past they deliberately deceived the American public about the health effects or addictiveness of smoking. This retrospective language serves to denigrate Defendants and punish them for past wrongdoing, not to prevent and restrain them from disseminating false and misleading statements, thereby violating RICO, 19

34 USCA Case # Document # Filed: 09/29/2014 Page 34 of 76 in the future. Id. And while such public shaming and self-castigation may so thoroughly discredit Defendants that the public would never believe anything that they say on any subject in the future, this Court has already made clear that a remedy may not be justified simply on the ground that whatever hurts a civil RICO violator necessarily serves to prevent and restrain future RICO violations. Id. at III. The punitive nature of the corrective statements also denies Defendants their due process rights. The requirement that Defendants disparage and vilify themselves through the dissemination of statements about their own acts of past wrongdoing is a form of punishment that can only be imposed in a criminal proceeding that provides enhanced procedural protections not afforded to Defendants in this civil RICO action. STANDARD OF REVIEW This Court reviews de novo the district court s legal conclusions that the corrective statements comport with its prior mandate, do not violate the First Amendment, are authorized by RICO, and are consistent with due process. Philip Morris USA Inc., 566 F.3d at 1110,

35 USCA Case # Document # Filed: 09/29/2014 Page 35 of 76 ARGUMENT In its 2009 opinion, this Court imposed several critical constraints on the district court s authority to craft its corrective statements: in particular, the statements had to be purely factual, purely... uncontroversial, and geared toward thwarting prospective efforts by Defendants to mislead the public by [r]equiring Defendants to reveal the previously hidden truth about their products. Philip Morris USA Inc., 566 F.3d at 1140, 1144 (emphases added). The statements adopted by the district court depart from each of this Court s requirements and, in so doing, violate the First Amendment, RICO, and due process. Defendants stand ready to publish corrective statements that provide the public with factual information about the health risks and addictiveness of cigarettes. But requiring Defendants to disseminate the district court s statements would compel them to denigrate and humiliate themselves in public. It would be one thing for a third party to make such statements. To coerce Defendants to vilify themselves in the public square, however, is to bring back the days of the Scarlet Letter. I. The District Court s Corrective Statements Violate The First Amendment And This Court s Mandate. The district court s corrective statements cannot be reconciled with the First Amendment or this Court s 2009 mandate because they are profoundly controversial, pervaded by inaccuracies, and needlessly burdensome. 21

36 USCA Case # Document # Filed: 09/29/2014 Page 36 of 76 A. Compelled Commercial Disclosures Must Convey Purely Factual And Uncontroversial Information About A Product. The freedom of speech protected by the First Amendment includes both the right to speak freely and the right to refrain from speaking at all. Wooley, 430 U.S. at 714. Subject to limited exceptions, government-compelled speech therefore must survive strict scrutiny. See Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 643 (1994). The Supreme Court and this Court have recognized a narrow exception to this rule for certain categories of compelled commercial disclosures. Commercial speech whether undertaken voluntarily by a manufacturer or retailer, or compelled by the Government is speech that focuses on a manufacturer s or retailer s product: It provides information related to proposing a particular transaction, such as price, and also include[s] material representations about the efficacy, safety, and quality of the advertiser s product. Philip Morris USA Inc., 566 F.3d at 1143 (emphasis added). To justify its regulation of commercial speech, the Government must establish that its chosen means directly advance[s] the state interest involved and [that] it is narrowly tailored to serve that end. Am. Meat Inst., 2014 WL , at *6 (first alteration in original) (quoting Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm n of N.Y., 447 U.S. 557, 564 (1980)). In the context of compelled commercial disclosures, this means-end 22

37 USCA Case # Document # Filed: 09/29/2014 Page 37 of 76 requirement is satisfied where the disclosure is reasonably crafted to provide only purely factual and uncontroversial information about a product and is not unduly burdensome. Id. at *7 (quoting Zauderer, 471 U.S. at 651). The Government s burden in demonstrating the constitutionality of compelled commercial disclosures is not slight. Ibanez v. Fla. Dep t of Bus. & Prof l Regulation, 512 U.S. 136, 143 (1994). As the Supreme Court has emphasized, the free flow of commercial information is valuable enough to justify imposing on would-be regulators the costs of distinguishing the truthful from the false, the helpful from the misleading, and the harmless from the harmful. Id. (quoting Zauderer, 471 U.S. at 646); see also Am. Meat Inst., 2014 WL , at *14 (Kavanaugh, J., concurring in the judgment) ( The majority opinion properly does not equate Zauderer to mere rational basis review.... ). Cases applying the commercial-disclosure exception to the general prohibition on compelled speech consistently draw a distinction between compelled disclosures regarding a product s characteristics which are generally valid if properly restricted to purely factual and uncontroversial information and compelled disclosures regarding a manufacturer s conduct which have been almost invariably rejected by appellate courts. In Zauderer, for example, the Supreme Court upheld a state-law requirement that attorneys include in their advertisements information about the terms under which [their] services will be 23