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9 *****
10 THE COURT: Good morning. Plaintiffs may call their
11 next witness.
12 MR. SWEDLOW: Dr. Jeffrey Harris.
13 ******
14 (Witness was sworn.)
15 JEFFREY HARRIS
16 called as a witness herein, having been duly sworn,
17 was examined and testified as follows:
18 DIRECT EXAMINATION
19 BY MR. SWEDLOW:
20 MR. SWEDLOW: Good morning. Please state your name
21 for the record?
22 THE WITNESS: Jeffrey Harris. May I turn the
23 microphone off?
24 MR. SWEDLOW: Yes, it's okay with me.
0003
 1 MR. WAGNER: I think we can hear him.
2 THE COURT: Okay, if you can't back there, can't hear
3 him, let me know, we will turn it back on.
4 MR. SWEDLOW: Dr. Harris, you have already testified
5 here, and without repeating your qualifications, I would like
6 you to just briefly discuss again your qualifications, or
7 experience, excuse me, in economics.
8 Can you do that for us?
9 A. I have been a professor, well, I have been a
10 faculty member in the economics department of the
11 Massachusetts Institute of Technology since 1976, and a
12 tenured faculty member since 1983.
13 I have written a number of articles in peer reviewed
14 journals concerning the economics of the tobacco industry.
15 I have been asked to testify in front of U.S.
16 Congressional Committees, in both the House and the Senate,
17 concerning the economics of the tobacco industry.
18 Q. What do you understand you to be here, to discuss
19 today?
20 A. I understand that I am here to discuss the
21 damages caused by the defendant's alleged misrepresentations.
22 Q. And briefly, what do you understand the alleged
23 misrepresentations to be in this case, and I would like to do
24 this by product.
0004
 1 First, with respect to Marlboro Lights, what do you
2 understand the alleged misrepresentations to be?
3 A. I understand the alleged misrepresentations to
4 include the word lights in the brand name, that is the
5 descriptor of the product. And in addition, with respect to
6 Marlboro Lights, the phrase lowered tar and nicotine that
7 appeared on the Marlboro Lights pack.
8 Q. With respect to Cambridge Lights, what do you
9 understand the alleged misrepresentations to be?
10 A. The descriptor or word lights in the brand name,
11 Cambridge Lights.
12 Q. What do you understand to be the difference
13 between the way the Marlboro Lights and Cambridge Lights
14 products were represented to consumers, and the way in which
15 these products were actually delivered to consumers?
16 MR. WAGNER: Objection, lacks foundation.
17 MR. SWEDLOW: Well, I am only laying the foundation
18 for his damages opinion in this case. He is basing this on
19 his understanding.
20 THE COURT: Overruled.
21 A. It is my understanding that both Marlboro Lights
22 and Cambridge Lights were represented to consumers as less
23 hazardous cigarettes. And that consumers understood the
24 cigarettes to be such.
0005
 1 However, contrary to fact, neither of those brands
2 were actually less hazardous cigarettes, and in fact could be
3 even more hazardous than their regular filtered counterparts.
4 Q. When you --

19 MR. SWEDLOW: Were you, what were you told to utilize
20 as the proper measure of damages from these alleged
21 misrepresentations in this case?
22 A. I was told to utilize a measure which represents
23 the difference between the value of what was promised to the
24 consumer, and the value of what the consumer actually
0006
 1 received.
2 Q. Independent of any instructions that you were
3 provided for your damages analysis, is that measure that you
4 just identified consistent with your understanding of the
5 proper economic measure of damages?
6 A. Yes. A measure that compares the value of what
7 was promised to the consumer, and the value of what was
8 received at the time of the transaction, would be regarded as
9 a legitimate economic measure of damages.
10 That said, however, I would seek the advice of
11 counsel or the Court as to what the proper application of the
12 law is in the case.
13 Q. Why is it that you would seek advice from counsel
14 or the Court as to the proper application of the law?
15 A. Well, if this were a patent case, then I would
16 ask for instruction as to whether or not, for example, this,
17 the proper measure of damages was foregone profit versus
18 reasonable royalty.
19 And in general, it is my understanding that a damage
20 expert would seek the guidance of the law rather than simply
21 testify about economics in a vacuum.
22 Q. What do you understand to be the definition of a
23 class member in this case? And lets focus, first, well, lets
24 group them together, if you can, for class members in this
0007
 1 case, covering both products?
2 A. A class member is an individual who purchased
3 either Marlboro Lights or Cambridge Lights in the State of
4 Illinois, from 1971, which is the date at which Marlboro
5 Lights first came on the market, up through the date of class
6 certification, in the beginning of February, 2001.
7 Q. With respect to these class members, what was the
8 good or product that was promised?
9 A. The good or product that was promised was a
10 Marlboro Lights or Cambridge Lights cigarette that genuinely
11 reduced the harm to the consumer, or, put differently, was
12 genuinely less hazardous.
13 Q. And when you say genuinely less hazardous,
14 compared to what?
15 A. Compared to their conventional, non-light, filter
16 tip counterparts.

3 MR. SWEDLOW: I think where we left off is, we have
4 identified what the promised good or product was, is that
5 correct?
6 And now I would like to focus on the product that was
7 received by the consumers, based on your understanding of the
8 evidence in this case.
9 MR. WAGNER: Objection, lacks foundation.
10 THE COURT: Overruled.
11 A. If you are asking me my understanding of the
12 product that was actually received, based on the testimony of
13 a number of experts in the case, as well as my own testimony
14 last week, the product that was actually received was no less
15 harmful than its regular filtered counterpart. And in fact,
16 could be more harmful.
17 MR. SWEDLOW: Now, briefly, first, in summary
18 fashion, and we will focus on all the details, how did you
19 compute, for your damages calculation in this case, the value
20 of the good or product that was promised to the class
21 members?
22 A. I used as the value of the good that was
23 promised, the full retail price of the cigarette as sold in
24 Illinois. I computed that value as a total aggregate
0009
 1 expenditure by essentially multiplying the price of the good,
2 the retail price, as sold, by the total quantity sold.
3 Q. You previously identified that your method of
4 calculation is the difference between the value of what was
5 promised and the value of what was received.
6 So the second part of my question would then be, how
7 did you calculate or compute the value of what was received
8 by class members in this case?
9 A. I multiplied the value of what was promised, that
10 is total consumer expenditures, by a discount percentage.
11 The discount percentage reflects the discount that consumers
12 would need to get in order to be willing to pay the product
13 that was actually received.
14 Q. Now, what do you mean when you say the discount
15 that consumers would need to get? Can you explain that a
16 little?
17 A. You think of the product that was promised and
18 the product that was actually received as on the shelf, on
19 the same shelf or counter in the store. And now the product
20 as promised is available at the full retail price, but the
21 product that was actually received is available with a
22 certain percentage off.
23 The question is, what discount is necessary, how much
24 off the full price is required before the consumer will say,
0010
 1 okay, I will accept the product as received.
2 And in that case I am asking, what is the discount
3 required to get an individual cigarette smoker in the class
4 to purchase the Marlboro Lights that was in fact no less
5 hazardous or could be more hazardous.
6 Q. And for purpose of measuring this discount, what
7 was the tool that you used in this case?
8 A. I relied on a survey of Marlboro, of current or
9 recent Marlboro Lights smokers that was performed by
10 Knowledge Networks. And it is my understanding that the
11 survey has been described in previous testimony.
12 Q. We will, in fact, discuss it a little bit today.
13 But I want to turn back now to the first part of your
14 calculation, your measurement of the value of what was
15 promised.
16 You testified that your calculation of consumer
17 spending, total consumer spending, on Marlboro Lights and
18 Cambridge Lights, for the class period, is in fact the value
19 that was promised. Can you explain why that would constitute
20 the value of the promised product?
21 A. I specify the value of each and every unit of the
22 promised product as the full retail price. And therefore, I
23 am to get the total value, I am multiplying the full retail
24 price by the quantity sold.
0011
 1 Q. So if you aggregate all of the class members in
2 this case, taking your total consumer spending, is it correct
3 that, taken together, that is the price that consumers
4 actually paid for their products, in the aggregate?
5 A. Correct.
6 Q. Why do you regard the full retail price,
7 including all taxes, as the appropriate measure of the
8 promised product or the market value of this product?
9 A. Well, it is well known in economics that when a
10 consumer comes to a store and pays the full retail price,
11 rarely, or infrequently, does the consumer know what
12 proportion of that price is going to the federal treasury,
13 the state treasury, the retailer's mark up, or back to the
14 manufacturer. In fact, rarely does the consumer care.
15 What matters, in economics, is just the total amount
16 paid. Because that reflects what the consumer was willing to
17 pay, regardless of who got the money.
18 Q. And in order to calculate the total consumer
19 expenditure, you take the total quantity of the product sold,
20 times the price for that product, is that the math that you
21 are doing here?
22 A. Correct.
23 Q. Lets take the first part of that. How did you
24 determine the total quantity of the product sold in Illinois
0012
 1 to class members?
2 A. To determine the total quantity, I relied on
3 standard industry sources, which have been repeatedly used by
4 economists and other analysts in the field.
5 Q. I am handing you what has been marked as
6 Plaintiff's Exhibit #129. Can you tell the Court what this
7 document is?
8 A. This is a reproduction of my copy of the Tax
9 Burden on Tobacco, Historical Compiliation, an annual
10 cumulative volume that was originally published by The
11 Tobacco Institute. And then after the dissolution of The
12 Tobacco Institute, the volume was continued by two
13 individuals who I understand were former, are now former
14 employees of the Tobacco Institute.
15 Q. Who specifically issued this book, or, excuse me,
16 this copy of your book?
17 A. A firm called Orzechowski, I can spell it if you
18 want, and Walker. Who I understand were formerly affiliated
19 with The Tobacco Institute.
20 Q. What is The Tobacco Institute?
21 A. The Tobacco Institute was the trade organization
22 of the U.S. tobacco industry.
23 Q. Is this Tax Burden on Tobacco Data relied upon
24 for the study of cigarette economics?
0013
 1 A. It is widely used by economists in studying the
2 tobacco industry.
3 Q. Did The Tobacco Institute itself rely upon this
4 Tax Burden on Tobacco Data?
5 A. Oh, yes. I mean, it relied on it in part to
6 establish or advocate the position that there was a heavy tax
7 burden on tobacco, just as the title says.
8 Q. Is there, are there any limitations on the use of
9 this Tax Burden on Tobacco Data, to estimate the quantity of
10 cigarettes sold?
11 A. Yes, there are.
12 Q. What is or are those limitations?
13 A. The Tax Burden on Tobacco Data in this volume are
14 based on the number of cigarettes that are taxed in a
15 state. Whether it is Illinois or another, say a low tax
16 state, like Kentucky.
17 As a result, any cigarettes that were purchased
18 through tax evasion of one form or another, would not be
19 counted in the data supplied in this volume. Since Illinois
20 is a relatively high tax state, the degree of understatement
21 of the total number as a result of tax evasion would be
22 greater for Illinois than some other state.
23 Q. So is it your opinion, to a reasonable degree of
24 scientific certainty, that your estimate of the quantity of
0014
 1 Marlboro Lights and Cambridge Lights sold to class members in
2 this case is necessarily conservative because of the lack of
3 inclusion of tax evasion sales in the TBT Data?
4 A. Correct.
5 Q. Can you put up 900927? By the way, Dr. Harris,
6 where did you get your copy of the Tax Burden on Tobacco?
7 A. My copy, I called up Bill Orzechowski and I asked
8 him to send it to me.
9 Q. Who is Bill Orzechowski?
10 A. He is one of the two principles of the firm of
11 Orzechowski and Walker. Actually says it on the back page of
12 this, in Arlington, Virginia, who are continuing to publish
13 this volume.
14 Q. Do you know how long he has been personally
15 involved in compiling this data --
16 A. I'm sorry, I missed the beginning of your
17 question.
18 Q. I'm sorry. Do you know how long he has been
19 personally involved in compiling the data that you used in
20 estimating or measuring the quantity of Marlboro Lights and
21 Cambridge Lights sold to class members in this case?
22 A. I know that, I understand that he worked in The
23 Tobacco Institute, but I can't tell you for a fact how long.
24 Q. What is, can you please explain to us what is
0015
 1 displayed here on the overhead?
2 A. The charts title is State Cigarette Sales,
3 Illinois, 1971 to 2001, based upon data reported in the Tax
4 Burden on Tobacco.
5 The first column represents the calendar year, and
6 that is the left column. The right-hand column represents
7 the total state cigarette sales in millions of packs.
8 Q. So if I understand this correctly, lets take a
9 year, for example, 1990. The state cigarette sales in
10 Illinois was over one billion packs of cigarettes, is that
11 correct?
12 A. That's correct. That actually is calendar year,
13 1990. The original data provided in this volume are based on
14 a fiscal year data basis ending June 30th of every year. And
15 I made a simple mathematical average, year by year, to
16 calculate the equivalent sales on a calendar year basis,
17 ending in December 31st of each year.
18 Q. Now, this State Cigarette Sales Data Table that
19 you have compiled here, is this the sales of Marlboro Lights
20 and Cambridge Lights in Illinois for these years?
21 A. No, it is not. It is the sale, it is, the
22 numbers represent the quantity of all cigarettes sold,
23 whether they are Cambridge Lights, Marlboro Lights, or any
24 other brand.
0016
 1 Q. So what is the next step in your analysis to
2 determine the quantity of Marlboro Lights and Cambridge
3 Lights sold in Illinois to class members for any particular
4 year?
5 A. Well, now I have to find out what fractions in
6 any one year of the total cigarettes sold represent the sales
7 of, lets say, Marlboro Lights.
8 Q. And, the quantity that, of Marlboro Lights
9 cigarettes sold in any given year, can you explain what this
10 equation represents?
11 A. This is an equation that was actually adapted
12 from my Expert Report, which simply says, I'm going to
13 compute the quantity of Marlboro Lights sold in Illinois in a
14 given year by multiplying the number of cigarettes taxed in
15 Illinois in that year, which I have already computed from the
16 data from the Tax Burden on Tobacco, times an estimate of the
17 market share of Marlboro Lights cigarettes in Illinois in the
18 same year.
19 Q. Okay. How would you determine the, the
20 measurement of market share of Marlboro Lights cigarettes in
21 Illinois for a particular year?
22 A. To do that, I spelled out a second equation,
23 which was also taken from my report.
24 Q. Well, can you identify for us, without the
0017
 1 benefit of our overhead, oh, here it comes. This is the
2 market share of Marlboro Lights cigarettes in Illinois in a
3 given year.
4 Now, just to be clear, that was the last portion of
5 the previous equation we were just looking at, is that
6 correct?
7 A. That's correct. That was the right-hand term,
8 the Marlboro Lights purchases in a given year equals the
9 total cigarette purchases times the Marlboro Lights share.
10 This equation, which is adapted from my report, then says,
11 well, how do we compute the Marlboro Lights share?
12 And I broke that down into two terms. The first term
13 is what fractions of Philip Morris cigarettes were Marlboro
14 Lights. And the second term is, of what fraction of all
15 cigarettes sold were Philip Morris cigarettes.
16 In this equation in particular I delineate that the
17 Marlboro Lights share of all Philip Morris cigarettes
18 actually came from Philip Morris shipments data. That is
19 the term in the bottom left.
20 The Philip Morris share of the market came from
21 National Market Share Data.
22 Q. And this first term that you say came from Philip
23 Morris Shipment Data, where specifically did you get that
24 data?
0018
 1 A. That came from Philip Morris's response to
2 interrogatories in this particular case.
3 Q. And for the second, the Philip Morris National
4 Share in the same year, where specifically did you get that
5 data?
6 A. I got that from national publications that are
7 widely used in the field. For earlier years I used a series
8 called the Maxwell Reports, which were published regularly.
9 In later years, I believe I rely on data directly
10 from Philip Morris, either in their annual reports, or in
11 press releases concerning their own market share.
12 Q. I just handed you a copy of a Group Exhibit
13 marked #130-A, B, etc. And you have yours in that folder
14 there.
15 Will you describe for the Court what those documents
16 are? Not individually, but in the aggregate?
17 A. Well, these are reports called the Maxwell
18 Report. They were issued frequently during the year to
19 clients with year-end estimates. And those year-end
20 estimates would represent, include statements of Philip
21 Morris total sales or shipments, and total national sales,
22 from which the author calculated a Philip Morris national
23 share of the market.
24 Q. The clients, I'm sorry --
0019
 1 A. Well, in addition to that, there are other, there
2 is other information such as cigarette sales by brand,
3 cigarette sales by filter versus non-filter, and cigarette
4 sales by full price cigarettes versus discount cigarettes.
5 Q. You said you also relied, in addition to the
6 Maxwell Reports, to another source of data for these Philip
7 Morris National Market Share for particular years? What was
8 that other source of data?
9 A. One source that is also issued by Maxwell is the
10 year 2000 Maxwell Fact Book, I think it is called, or year
11 book, which is a cumulative compilation.
12 Q. Was there in fact another source of data, in
13 addition to the 2000 Maxwell Fact Book compilation that you
14 just relied on?
15 A. I believe I relied, I testifed, either on Philip
16 Morris annual reports or in the most, for the most recent
17 year, a press release issued by Philip Morris concerning its
18 market share.
19 Q. I'm going to hand you a group that is marked
20 separately as Exhibits #131, #132 and #133. And if you could
21 identify for the Court what those three exhibits are?
22 A. They are Philip Morris annual reports for the
23 year 2000, 2001, and 1997, respectively.
24 Q. And did you use those documents as information
0020
 1 for purpose of rendering your opinion here today?
2 A. Yes.
3 Q. You also mentioned the 2000 Maxwell Fact Book,
4 and I'm going to hand you Group Exhibit, hopefully related to
5 that, but I want you to identify it for me. This has been
6 marked as Group Exhibit #134. Can you identify what is group
7 Exhibit #134, and also identify where it came from, if you
8 know?
9 A. This is a portion, but not the full copy, of the
10 2000 Maxwell Tobacco Fact Book, which is indicated on the
11 bottom right of the first page, for example. And in
12 particular, the appendices from which these copies are taken
13 represents data on industry statistics, including the sales
14 of brand by company, as you can see from the first page.
15 Q. Where specifically, if you know, did that group
16 of excerpts from the Maxwell Fact Book come from? How did I
17 get it to walk it into court today, this morning?
18 A. I believe I had copies of them and I transmitted
19 them to you.
20 Q. I would like to move for admission of Plaintiff's
21 Exhibits #129, #130, #131, #132, #133 and #134.
22

12 MR. SWEDLOW: Can you please explain for the Court,
13 Dr. Harris, what the 2000 Maxwell Fact Book is, and what it
14 consists of?
15 A. The Maxwell Fact Book, I believe was actually
16 issued, it may have been issued as a special supplement to a
17 periodical called the Tobacco Report. But it included
18 additional commentary on industry conditions, on agriculture,
19 what they call leaf.
20 The data here are taken from the data appendices that
21 were in the back of the Maxwell Fact Book. I don't know if
22 I can describe it any better than that.
23 Q. Are you sure that the excerpts that are marked
24 there as Group Exhibit #134, are taken from that Maxwell Fact
0022
 1 Book publication?
2 A. Oh, yes, I am. I mean, it says it on the bottom
3 of each page, the 2000 Tobacco, Maxwell Tobacco Fact Book.
4 Q. Are those portions that are marked as Group
5 Exhibit #134, the portions that include all you relied upon
6 from that fact book for purposes of rendering your expert
7 opinion here today?
8 A. Yes.
9 Q. Well, that, I believe I have now established what
10 those documents are.
11 THE COURT: I will admit the exhibit. All these
12 other items are admitted, too.
13 MR. SWEDLOW: Do you know how The Tobacco Institute,
14 and then later I think you said the firm of Orzechowski and
15 Walker, found or obtained their price information for use in
16 this data that we have now introduced?
17 A. The Tobacco Institute, and later Orzechowski and
18 Walker, performed regular annual surveys of cigarette
19 prices. These surveys were typically done in November of
20 each year.
21 The surveys ascertained the retail prices of
22 cigarettes in numerous locations throughout each state. And
23 then the authors of the survey published what they described
24 as weighted average retail prices on a state by state basis
0023
 1 for each and every year.
2 Q. Do you know, first, whether these surveys
3 included information on both individual pack sales and carton
4 sales?
5 A. Yes, they include both.
6 Q. Do you know whether or not the sales weighted
7 average that you just referred to, includes packs sold as
8 individual packs, as well as packs sold as cartons?
9 A. Yes, it does.
10 Q. How do you know that, in addition to the review
11 of the particular documents that you now have in front of
12 you? Is there another basis for your knowledge?
13 A. I have talked to Mr. Orzechowski, I think I did
14 it about a year ago, in connection with some research I was
15 doing on cigarette prices. And went over with him the nature
16 of the survey, and what kind of cigarettes were surveyed, and
17 where, in each particular state.
18 Q. Do these surveys that we are discussing, not the
19 survey in this case, but the surveys that form the basis for
20 the price information and the TBT data, do the TBT data
21 surveys obtain actual prices to consumers that include
22 discounts and special bargains?
23 A. Yes. These are not list prices. These are
24 actually the net prices after discount, with the possible
0024
 1 exception that if there is a coupon that says mail it in and
2 get a rebate from the manufacturer, I think Mr. Orzechowski
3 said that it is not likely that particular discount was
4 included.
5 Q. So for purpose of the sales weighted average
6 retail price, this price would include individual pack sales,
7 carton sales, and discounts offered to the consumer, all
8 discounts offered to the consumer at the time of the purchase
9 of his pack or carton of cigarettes, is that correct?
10 A. That's correct. And that is why it was called a
11 weighted average.
12 Q. Did the Tax Burden on Tobacco show prices each
13 year for both Marlboro Lights and Cambridge Lights
14 individually?
15 A. No, not specifically.
16 Q. So how then did you calculate the price that you
17 used for Marlboro Lights, first, and then for Cambridge
18 Lights?
19 A. Well, what is represented in the Tax Burden on
20 Tobacco is an estimate for the State of Illinois, and every
21 other state, of the weighted average retail price of premium
22 brand cigarettes, and of all cigarettes.
23 The data on the price of premium brand cigarettes, of
24 which Marlboro Lights is an example, were available
0025
 1 throughout the entire class period. And I therefore took the
2 price of premium brand cigarettes as the price, as a valid
3 indicator of the price of Marlboro Lights.
4 Q. How do you know that the price of premium brand
5 cigarettes, the sales weighted average price, included in
6 this TBT data, is a valid or reasonable measure of the price
7 for Marlboro Lights?
8 A. Cigarettes are sold at retail in different price
9 tiers. And there are a number of different price tiers when
10 it comes to discount cigarettes. But premium brand
11 cigarettes are pretty much sold across the board at the same
12 price.
13 So if you know the average price of premium brands,
14 or what are called full price cigarettes, then you know the
15 price of Marlboro Lights.
16 Q. Now, was the calculation different for Cambridge
17 Lights cigarettes?
18 A. Cambridge Lights came on the market in 1986. The
19 Tobacco Institute did not begin to provide sufficient data to
20 break down the discount price until 1990. From 1990 onward,
21 The Tobacco Institute data allowed me to compute the price of
22 a discount cigarette.
23 For 1986 to 1989, a relatively small period, I had to
24 make an additional assumption that the spread in price
0026
 1 between Marlboro Lights and Cambridge Lights was thirty-six
2 cents a pack.
3 Q. Can you explain, briefly, for the Court, how you
4 made the assumption or measurement that the average discount
5 between a Marlboro Lights and Cambridge Lights for 1986 to
6 1989 would be thirty-six cents per pack?
7 A. Well, I had data for other years. And in
8 addition, I could perform a consistency check by looking at
9 the difference in the list prices, rather than the retail
10 prices of Cambridge Lights and Marlboro Lights as posted by
11 Philip Morris.
12 Q. When you say list price, is that the wholesale
13 list price?
14 A. That's correct.
15 Q. And what is the result of that consistency
16 check?
17 A. The consistency check indicated to me that the
18 thirty-six cents per pack differential was a reasonable,
19 scientifically reasonable assumption.
20 Q. We are now looking at a chart here on the board.
21 Can you please explain what is represented on this chart?
22 Can you read the one on your screen?
23 A. Yes.
24 Q. What is this chart?
0027
 1 A. Title of the chart is Average Retail Price of
2 Marlboro Lights, 1971 to 2001, and Cambridge Lights, 1986 to
3 2001, in Illinois.
4 Each row represents a calendar year, all the way down
5 to 2001. The first column is the average retail price in
6 cents per pack of Marlboro Lights. And the last column is
7 the corresponding data from 1986 onward for Cambridge Lights.
8 Q. So, for example, if we look at 1976, the average
9 retail price for a pack of Marlboro Lights in 1976 was about
10 fifty cents, is that correct?
11 A. Where are you?
12 Q. 1976 calendar year?
13 A. Yes, 50.2 cents, that's correct.
14 Q. Did you, are these numbers adjusted at all for
15 inflation or for interest, at this point?
16 A. No, they are not.
17 Q. Now you have the average retail price, what is
18 the next step in calculating the total consumer expenditure?
19 A. I need to multiply the retail prices by the
20 quantity sold in each year, and then add them up.
21 Q. Okay. Now, look at the next chart that,
22 actually, what is this chart? Do you know where this data
23 came from and what it is?
24 A. This chart is extracted from data that are
0028
 1 contained in my Expert Report.
2 Q. So is this data a summary of your expert opinion
3 that you are expressing here today? Not the only thing, but
4 a portion of it?
5 A. Yes.
6 Q. I am handing you what has been marked as Group
7 Exhibit #135. Can you flip through that and tell me what
8 that is?
9 A. That represents, and I am just checking it for
10 its completeness, all of the tables that were contained in my
11 original Expert Report in this case of, I believe it was
12 June, 2002.
13 Q. So is this, this Exhibit #135, is this the data
14 or calculation underlying your measurement of the total
15 consumer expenditure for class members for Marlboro Lights
16 and Cambridge Lights in Illinois for the relevant period?
17 A. Yes, it should be. And it should be that the
18 data in these tables from my report correspond to the data
19 which are on the demonstrative overhead or the front of my
20 screen.
21 Q. Can you please identify, if you can read your
22 screen, the total consumer expenditure on Marlboro Lights in
23 Illinois for the class period?
24 A. That looks like 51660, but what you just
0029
 1 indicated looks like another column. It looks like 51660.
2 Q. And can you please identify the total consumer
3 expenditure for Cambridge Lights by class members for the
4 class period in this case?
5 A. That would 24 -- No, that is an interest, that
6 somebody is circling there. The next column over is 241.2.
7 But let me make it clear, 5166.0 is in millions of
8 dollars, so that means that the total retail consumer
9 expenditure on Marlboro Lights in the State of Illinois, from
10 1971 through the end of the class period, is five billion one
11 hundred sixty-six million dollars.
12 Correspondingly, the total retail consumer
13 expenditure on Cambridge Lights in the State of Illinois,
14 from 1986 through February of 2001, would be 241.2 million
15 dollars.
16 Q. And for each year, the period you have listed,
17 the consumer expenditure, so if I wanted to know what the
18 total consumer expenditure was for any particular year, I
19 would just follow the column over for that year?
20 A. The row over.
21 Q. The row over, excuse me. Now, what was circled
22 previously was the column you referred to as interest. How
23 did you calculate this interest on retail consumer
24 expenditures, for example, the Marlboro Lights column, the
0030
 1 second column of your table?
2 A. That is computed as 5% non-compounded interest.
3 Q. And you break this down by year, too, so if I
4 understand your table correctly, for any given year, the
5 interest column, excuse me, the interest item corresponding
6 to that consumer expenditure is in fact the interest on that
7 particular consumer expenditure?
8 A. That's correct. Because the interest on a
9 consumer expenditure on a given year, like 1982, would mean
10 the interest that was accumulated from the close of 1982, all
11 the way up to the year, of the start of year 2001.
12 Q. Okay.
13 A. Without compounding.
14 Q. So if we added up all of these items, we would
15 then have, for your calculation, the value of the aggregate
16 of what was promised to class members, is that correct?
17 A. If we take the data on retail consumer
18 expenditure for Marlboro Lights and Cambridge Lights, and add
19 them together, we will get the value of what was promised,
20 absent interest.
21 If we add, in addition, the computed non-compounded
22 interest, along with that, then we get the value of what was
23 promised, inclusive of interest.
24 Q. And here we have a summary of total consumer
0031
 1 spending, accumulated non-compounded interest, and present
2 value for each brand.
3 What does that mean, present value?
4 A. That is a term used in economics to mean the sum
5 of the actual value and the accumulated interest.
6 Q. And if you could please identify for me the
7 present value of consumer spending for Marlboro Lights,
8 Cambridge Lights, and then the sum of the two brands
9 together?
10 A. For Marlboro Lights, I am simply adding the two
11 numbers in the rows corresponding to consumer spending and
12 accumulated non-compounded interest. So the present value
13 for the entire class period of Marlboro Lights spending is
14 seven billion three hundred fifty-two million nine hundred
15 thousand.
16 The corresponding value of Cambridge Lights, reading
17 along the bottom row, is three hundred fifty point six
18 million.
19 And the cumulative total for both brands, during the
20 entire class period, would be seven billion seven hundred
21 three million six hundred thousand dollars.
22 Q. Now, in order to determine the damages in this
23 case under your economics model, is it possible to simply
24 compare the market value of this promised good with a market
0032
 1 value of the good that was actually received?
2 A. Not exactly.
3 Q. Why not exactly?
4 A. In order to assess the value of what was
5 received, we need to reproduce or recreate the bargain at the
6 time of sale.
7 As I testified earlier, that bargain has two
8 components or two goods on the shelf, the value of what was
9 promised, which in this case represents the price actually
10 paid, but we also need to ascertain the value of what was
11 received, which is not directly observable in the market.
12 Q. So how would you, or how did you place a value to
13 the class members in this case, place a value on what was
14 received by those class members for purposes of your
15 calculation?
16 A. For that purpose, I relied on a survey, a portion
17 of which was intended to reproduce for a representative
18 sample of Marlboro Lights consumers exactly the bargain at
19 issue. And then ask the consumers, if you have available to
20 you both the good that was promised, a good that I will call
21 in shorthand the genuine lights cigarette, and on the same
22 counter shelf, the good that was received, which I will call,
23 for shorthand, the misrepresented light cigarettes. Then the
24 survey asks, what discount would you need to get to be
0033
 1 willing to buy the misrepresented light cigarettes, when both
2 brands are on the shelf at the same time.
3 Q. Why do you have to provide or should you provide
4 the genuine light cigarette as an option in order to value
5 the harm reduction attribute of these products?
6 A. If you don't have both products on the shelf at
7 the same time, and don't reflect that in a valuation survey,
8 then from the economics standpoint, you are not reducing, you
9 are not reproducing the bargain that the consumer was
10 offered.
11 Q. You said that you relied upon a survey, and I
12 think we have already identified it as The Knowledge Networks
13 survey.
14 Did you rely upon the entire survey in order to
15 calculate your damages or, more specifically, the value of
16 what was received, for purposes of your damages model?
17 A. No, I only relied on the second part of the
18 survey that concerned questions comparing different kinds of
19 Marlboro Lights.
20 Q. Can we display 900882?
21 Now, did you have involvement or input in the
22 structure or requirements for this part of the survey that
23 you relied upon?
24 A. Yes, I did.
0034
 1 Q. What was your input with respect to this part of
2 the survey?
3 A. Provided feedback on the nature and wording of
4 questions that were designed to elicit this discount or
5 valuation between the good that was promised and the good
6 that was delivered.
7 In this particular, I wanted to ensure that the
8 survey questions reproduced the bargain at issue. And
9 second, that the descriptions of the two types of cigarettes
10 in the bargain were scientifically accurate and fit with my
11 own testimony, as well as the testimony of others.
12 Finally, I wanted the questions to provide sufficient
13 detail so that I could calculate with reasonable accuracy
14 exactly what the discount required would be.
15 Q. Did you decide that the discount required
16 information from the survey would be broken into 10%
17 increments?
18 A. That's right. I understand that originally
19 there was a pre-test, and I recommended that the final survey
20 permit consumers to describe, in 10% increments, meaning 0%,
21 10%, 20%, etc., what their discounts would be.
22 Q. Okay. Here's one question from the survey. And
23 I will tell you that this is question thirteen. We are not
24 going to run through the entire survey again, but I want you
0035
 1 to identify for me again the choices that the consumer, or,
2 excuse me, the respondent is given in this particular case.
3 A. Well, let me focus on the bottom panel, which is
4 sort of in blue. The bottom panel has two bullets, and the
5 two bullets describe the two products.
6 The first bullet in the choice represents the product
7 as promised, or equivalently, the genuine lights. It
8 describes Marlboro Lights that delivers less tar and is less
9 harmful or safer than Marlboro Reds. Marlboro Reds being
10 the corresponding conventional regular filter cigarettes in
11 the Marlboro family.
12 The second choice is a Marlboro Lights cigarette that
13 delivers the same amount of tar as a Marlboro Reds, and is
14 just as harmful. That describes the product as received,
15 based on the scientific evidence in this case, as I
16 understand it.
17 In this particular question, the consumer is asked
18 whether they would be willing to pay the product that, buy
19 the product that was received, if that product was offered at
20 a 50% discount, in comparison to the product that was
21 promised.
22 Q. Now, after you would get the results from this
23 question, were those usable at that point, for your damages?
24 A. Well, if a particular consumer or respondent to
0036
 1 the survey said, no, I will, I would not buy the Marlboro
2 Lights cigarette that delivers the same amount of tar and is
3 just as harmful, even at half price, then I recommend that
4 the survey probe, well, how about a 60% discount or a 70%
5 discount. And if necessary, a 100% discount.
6 If the consumer said no, even at a 100% discount, I
7 still want to buy the genuine Marlboro Lights, then I took
8 that to mean that the consumer would not buy the
9 misrepresented Marlboro Lights, even at that zero price.
10 Q. Okay. We just went through the less harmful or
11 genuine light compared to a just as harmful light.
12 Was there another comparison that was made in your
13 damage calculation and therefore in the survey?
14 A. Yes, there was.
15 Q. Well, what was the other comparison that was made
16 in your damage calculation and in the survey?
17 A. That comparison is reflected on the slide which
18 is in front of us now.
19 Q. Okay, can you describe here, focusing on the blue
20 again, what is being compared in this case?
21 A. In this case, the product as promised, the genuine
22 light, is described in the same way. But in the second
23 bullet, the product as received, that is the misrepresented
24 light, is described not as just as harmful, but could be more
0037
 1 harmful.
2 I recommended that two types of questions be asked to
3 elicit consumer's discounts, to reflect two different
4 determinations about the scientific evidence.
5 On the one hand, if the Court determines that the
6 record shows that the Marlboro Lights that were actually
7 received were just as harmful than the first or former, then
8 the first or former set of questions would apply.
9 If, on the other hand, it is determined that Marlboro
10 Lights in fact could be more harmful, then this set of
11 questions, the second one, which is up on the screen now,
12 would apply.
13 The preamble to this question sets forth for the
14 respondent the two main bases upon which the conclusion,
15 scientifically, that such a cigarette could be more harmful
16 are based.
17 First, that there is increased genotoxicity. And I'm
18 speaking here not in a direct quote, but by way of summary.
19 And second, that there is a higher delivery of some of the
20 most toxic substances in cigarette smoke.
21 Q. Did you have involvement in deciding how to
22 inform respondents of the way in which the Marlboro Lights in
23 this comparison could in fact be more harmful?
24 A. Yes, I did.
0038
 1 Q. And did you in fact choose some of this language
2 that appears on what you call the preamble?
3 A. Yes.
4 Q. Can we put up 900923? Now, what did you find
5 when you measured for these respondents the discount required
6 in order to purchase a misrepresented light as opposed to the
7 genuine light?
8 A. Well, this particular slide, which also comes
9 from my report of November 11th, corresponds to the results
10 for that series of questions in which the product as received
11 is described as just as harmful, the first series of
12 questions.
13 It is a frequency diagram, so that the horizontal
14 represents the valuation. I should be careful here. A 0%
15 valuation is the equivalent of a 100% discount. It would
16 mean the consumer would not buy the misrepresented Marlboro
17 Lights at any price.
18 Q. So this number is the price, or the percentage of
19 the full price, they would be willing to pay for the fake or
20 misrepresented light?
21 A. Conversely, if you subtract these numbers from
22 100%, you get the discount that would be required.
23 Q. So this, the difference, for example, for someone
24 who puts a 10% value on the misrepresented light, the
0039
 1 valuation of the reduced harm attribute of the cigarettes
2 would be 90%, is that correct?
3 A. Yes, you are correct in the phrase the valuation
4 of the reduced harm attribute, because by my recommendation,
5 the two cigarettes were to be the same, except for the harm
6 reduction attributes.
7 Q. So other than the harm reduction --
8 A. Right.
9 Q. These two cigarettes, in all of these
10 comparisons, were kept identical, is that correct?
11 A. That is the way the questions were phrased, by my
12 recommendation. So that in this case, a fraction of the
13 people had a 10% valuation. It is clear that the fraction is
14 less than point one. Or equivalently, that number of people
15 wanted a 90% discount before they would be willing to buy the
16 cigarette that was just as harmful.
17 Q. Okay. Can we go to the next one? Now, the next
18 comparison that we discussed was the could be more harmful
19 comparison. And briefly explain this distribution for us.
20 A. This is the same as the previous chart in the
21 description of the horizontal and vertical axes, with the
22 exception that it represents the second set of questions in
23 which the product that is received, the misrepresented
24 lights, are described as could be more harmful rather than
0040
 1 just as harmful.
2 And in this case, if you were to compare the two
3 charts side by side, you would see that the portion of
4 consumers who attach zero value to the misrepresented lights,
5 or equivalently a 100% discount, has gone, has gone up.
6 Q. Are these charts taken from your Expert Report
7 directly? If you know? In fact, what I'm saying, I guess
8 you would call it a figure, rather than a chart?
9 A. With the exception of the figure captions, they
10 are.
11 Q. Okay. I have handed you Group Exhibit #136, are
12 those pieces of paper the way that the figures appeared
13 actually in your Expert Report dated November 11th, 2002?
14 A. Yes, pages #136-B and #136-C do in fact represent
15 reproductions from my original report.
16 Q. Okay. What do we have, well, after you do the
17 math, what is the result in terms of what I called the
18 valuation of the health attribute, or looks like what you
19 call the diminution in value here? Can you identify or
20 describe what those results show?
21 A. Well, actually it would be helpful to go back to
22 the previous slide. Is that allowed?
23 Q. There we are.
24 A. If we take this case, we have got a large number
0041
 1 of respondents attaching zero valuation, or, equivalently, a
2 100% discount. Averaging all the consumers or respondents
3 in the survey, I could get an average valuation, or
4 subtracting it from 100%, a value after discount.
5 I could also compute the range surrounding, and using
6 standard statistical methods, the range around that
7 estimate. And those estimates of the average discounts
8 appear in the next slide.
9 In this case, this was taken from my report in the
10 series of questions in which the product as received, the
11 misrepresented lights, were described as just as harmful.
12 The average discounts in the sample was 77.7%.
13 Reading further down in the column, mean, in the case
14 where the product was received, was described as the could be
15 more harmful cigarette, then the average discount was 92.3%.
16 In addition, for each mean estimate, I also computed
17 a 95% confidence interval. And those are shown in the
18 remaining two right-most columns in this picture.
19 Q. Now, in your prior testimony we discussed what
20 the, what you mean or what is meant by 95% confidence
21 interval. Can you give me a brief summary of what that means
22 again?
23 A. It is a standard, conventional statistical means
24 of representing the error range, in this case the sampling
0042
 1 error range, surrounding a point estimate. And it is,
2 frequently appears, for example, in descriptions of surveys
3 or polls, as the plus or minus error in the polls.
4 Q. Would this survey have been improved if the
5 respondents were limited to only Illinois Marlboro Lights
6 smokers as, and Cambridge Lights smokers, as opposed to a
7 nationally representative sample of Marlboro Lights smokers?
8 MR. WAGNER: Objection. Lacks foundation, calls for
9 speculation.
10 THE COURT: Overruled.
11 A. I cannot see scientifically any clear and valid
12 reason why a survey limited to Illinois Marlboro Lights
13 smokers would give a scientifically meaningful difference
14 than the results of this survey which apply nationwide to all
15 Marlboro Lights smoker.
16 Q. And on what do you base that conclusion?
17 A. I'm not sure of any known demographic difference
18 between a Marlboro Lights smoker in Illinois and a Marlboro
19 Lights smoker anywhere else.
20 MR. WAGNER: Objection, move to strike. Lacks
21 foundation.
22 MR. SWEDLOW: Have you --
23 THE COURT: Read that answer again.
24 (Answer read back by this
0043
 1 reporter.)
2 THE COURT: What is, what is the certainty?
3 MR. SWEDLOW: Dr. Harris, in your study of health
4 economics over the past twenty-five years, as it relates to
5 cigarettes, have you studied the demographics of smokers
6 generally?
7 A. Yes, I have.
8 Q. And is it your opinion, to a reasonable degree of
9 scientific certainty, that there is no demographic difference
10 of any significance of Illinois Marlboro Lights smokers and a
11 nationally representative sample of Marlboro Lights smokers?
12 MR. WAGNER: Objection.
13 THE COURT: I will overrule you on this one.
14 A. With respect to the narrow question you have
15 asked, I, my opinion is that there is no such demographic
16 difference.
17 If I may elaborate, there are demographic differences
18 between states in the general population. And there are
19 demographic differences in the population of smokers overall
20 in each state.
21 But when it comes to the demographics or
22 characteristics of the smokers of a particular brand, which
23 is at issue here, I haven't seen any data suggesting that a
24 Marlboro Lights smoker in Illinois is significantly different
0044
 1 than that nationwide.
2 And I do recall reading the deposition of a
3 representative of Philip Morris, I think her name is Oramas,
4 which I would, in addition, rely upon for that conclusion.
5 Q. What is it about the deposition of Miss Oramas
6 that you are relying upon specifically?
7 A. I can't remember the page and the line, but she
8 has a comment about whether there are any material
9 differences between smokers in Illinois and nationwide, that
10 would bear on this comparison.
11 Q. Is it your opinion --

4 MR. SWEDLOW: Dr. Harris, who do you understand this
5 Miss Oramas, whose deposition you reviewed, to be, with
6 respect to Philip Morris?
7 A. I believe that she is an officer or vice
8 president of the company, focusing on marketing.
9 Q. And what is the gist of what it is from her
10 deposition, that you identify as information relevant to the
11 conclusion that we just discussed?
12 MR. WAGNER: Dr. Oramas, O-R-A-M-A-S, is a vice
13 president in the financial department of Philip Morris. She
14 is not in marketing, she does not do demographics.
15 And the deposition testimony Dr. Harris is referring
16 to has to do with paying money and collecting revenues.
17 Nothing else.
18 MR. SWEDLOW: Well, let me short circuit this, see if
19 I can back out of this whole line.
20 Dr. Harris, independent of anything that we have
21 discussed at all relating to Miss Oramas, is your opinion the
22 same as what you rendered prior to your reference to Miss
23 Oramas?
24 A. Yes.
0046
 1 Q. Do you need Miss Oramas' testimony in any way
2 whatsoever to come to the conclusion that we have already
3 discussed, prior to our discussion of Miss Oramas' testimony?
4 A. I would have the same opinion without reference
5 to her testimony.
6 Q. Then I will just leave the testimony of Miss
7 Oramas off to the side, if that is okay with the Court.

2 MR. SWEDLOW: I'm going to repeat the question for
3 the record. Is it your opinion, to a reasonable degree of
4 scientific certainty, that the survey, specifically the
5 portion upon which you relied in order to ascertain the value
6 of what was received by the class members, provides valid
7 measurements of the comparitive valuation for the class
8 members in this case?
9 MR. WAGNER: Same objection, Your Honor.
10 THE COURT: Overruled.
11 A. Yes.
12 MR. SWEDLOW: Is it your opinion, to a reasonable
13 degree of scientific certainty, that the survey, specifically
14 the portion for which you had an authorship interest, and
15 relied upon to determine the valuation of the received
16 product, that it provides valid measurements of the
17 comparitive valuation for Cambridge Lights smokers in this
18 case?
19 MR. WAGNER: Objection, Your Honor, lacks foundation.
20 THE COURT: Overruled.
21 MR. WAGNER: There is no survey at all on Cambridge
22 Lights.
23 MR. SWEDLOW: Well, lets explore that a little bit.
24 How can you say that the, first of all, I didn't get an
0051
 1 answer to my question, I'm sorry.
2 A. Well, I do remember your prior question, the
3 answer is yes.
4 Q. How can you obtain measurements of these
5 valuations from the Marlboro Lights survey, for Cambridge
6 Lights smokers?
7 A. The survey fundamentally is addressing the
8 valuation of the harm reducing or health improving
9 attribute. The two cigarettes, that is the cigarettes
10 promised and the cigarettes received, are represented in the
11 survey as differing only with respect to those, the health
12 attributes.
13 Accordingly, it is my opinion that a survey of the
14 valuation of the health attributes among Marlboro Lights
15 smokers is an accurate representation of the corresponding
16 valuation of the health attributes among Cambridge Lights
17 smokers.
18 Q. Do you believe, to a reasonable degree of
19 scientific certainty, that the information obtained in the
20 Knowledge Networks survey, provides reliable and valid
21 measurement information for former smokers who are also
22 included in this class?
23 MR. WAGNER: Objection, lacks foundation, and the
24 same objection I raised before.
0052
 1 THE COURT: Overruled.
2 A. While only current and recent former smokers are
3 surveyed in the Knowledge Networks survey, it is my opinion
4 that the resulting valuations from the survey are accurate
5 representations of the corresponding health valuations of
6 those individuals who no longer smoke Marlboro Lights or
7 Cambridge Lights cigarettes.
8 Q. Do you have information, knowledge or/and
9 opinion, as to what percentage of this class, in fact, are
10 current smokers?
11 A. As I represented in a deposition this past
12 Saturday morning, based on those calculations, it is more
13 likely than not that current cigarette smokers represent at
14 least one-third, perhaps up to one-half of the overall class.
15 Q. Based upon your estimate of the class size, which
16 I understand was the reason for this deposition on Saturday,
17 approximately how many members of the class are current
18 smokers?
19 A. Approximately four hundred thousand. But
20 certainly at least three hundred thousand.
21 Q. Would it be more reliable to survey non-recent
22 former smokers, and that is to say smokers who quit a long
23 time ago, to determine their comparitive valuation, or
24 valuation of this reduced tar attribute, for the period of
0053
 1 time when they used to smoke?
2 MR. WAGNER: Objection, lacks foundation, calls for
3 speculation.
4 THE COURT: Overruled.
5 A. Based on my economic training, and specifically
6 my understanding of cigarette smoking, and the economics of
7 smoking, I do not think that attempts to poll individuals who
8 quit many years ago about their current, currently about
9 their health valuation, would yield reliable results.
10 MR. SWEDLOW: And can you give me an example or
11 describe why you do not believe that polling former, former
12 smokers, would yield reliable results?
13 A. Well, as I actually testified in the other
14 deposition at issue, and as I teach in class, when valuation
15 surveys are performed, they are more accurate when they are
16 posed to individuals who actually have the choice at hand.
17 I teach in class that if you want to address the
18 value of a drug to reduce nausea, the best population to
19 survey is the people who just came out of surgery and they
20 are nauseated. You will not get as accurate an answer if
21 you ask somebody about the value of a nausea reducing drug
22 based on an experience or symptom they had long ago.
23 Likewise, you will get the most accurate valuation
24 answer when the individual is faced with exactly that choice
0054
 1 contemporaneously. And it may be difficult to put a distant
2 former smoker of Marlboro Lights or Cambridge Lights in the
3 position of making that choice.
4 Q. Now, we have here the difference in value between
5 the two products, or the valuation of the reduced harm
6 attributes, and we also have the total consumer expenditure.
7 What is the next step in your damages model?
8 A. Well, now, based on the Knowledge Networks
9 survey, I have the percentage discounts from the full price,
10 either for the just as harmful set of questions, or the could
11 be more harmful set of questions.
12 And on the slide here, those percentage discounts are
13 represented by the columns entitled diminution in value.
14 I then multiplied those discounts by the total value
15 of consumer spending, which is indicated at the bottom in the
16 footnote of the slide, at seven billion seven hundred three
17 million six hundred thousand. Each percentage is multiplied
18 by that same number, 7.7 billion dollars, and the results of
19 the multiplication are shown in the three right most columns
20 under the title, aggregate damages.
21 So, for example, if one multiplies the discount of
22 7.7%, for the just as harmful case, by the total expenditure
23 of seven billion seven hundred three million six hundred
24 thousand indicated in the footnote, I end up with an
0055
 1 aggregate damage estimate of five billion nine hundred
2 eighty-five million seven hundred thousand.
3 Q. So the damage measure is the total spending,
4 times the discount, which is the total spending times the
5 reduced harm attribute of the product valuation. And when
6 you take 7.7 billion, times 77.7%, you get 5.985 billion, is
7 that correct?
8 A. That's correct.
9 Q. And that is the valuation of damages if the
10 Marlboro Lights and Cambridge Lights cigarettes are just as
11 harmful as the regular counterpart, is that correct?
12 A. Yes.
13 Q. Now, what if the Marlboro Lights and Cambridge
14 Lights cigarettes could in fact be more harmful than the
15 regular counterparts? Then how do you do the damage
16 valuation?
17 A. Then the average discount, based on the Knowledge
18 Networks survey is 92.3%. Or equivalently valued, that the
19 percentage diminution in value, one would multiply 92.3% by
20 the same number in the footnote, 7.7 billion dollars, to get
21 an aggregate damages of seven billion one hundred ten million
22 four hundred thousand.
23 Q. Those two numbers there, your damage
24 measurements, do you believe those two numbers, to a
0056
 1 reasonable degree of scientific certainty, to be the measure
2 of total damages inclusive of all non-compounded interest
3 that you have just identified, as an accurate, reliable and
4 valid measure of the difference between the value of what was
5 promised to the consumers in this class and the value to
6 these class members of what was actually received by the
7 consumers in this class?
8 A. Yes.
9 Q. Okay. What if, can you put up 900966? What if
10 you were told that damages for this class could not start
11 until October, 1973? Can you, from the information that you
12 have provided in your tables, calculate new damages numbers
13 for the just as harmful case and could be more harmful case?
14 A. Yes, I could.
15 Q. What is it, methodologically, that you change if
16 you decide that damages must start from October, '73, through
17 the end of the class period?
18 A. If the class period starts in October of '73, as
19 opposed to the beginning of 1971, as in the previous slide,
20 then the total consumer spending on Marlboro Lights would go
21 down, because I would be excluding two and three quarters
22 years.
23 Q. Okay.
24 A. As a result, the total spending number on the
0057
 1 bottom goes down from 7.7 billion, to 7.6928 billion, as
2 shown on the bottom.
3 Q. So when you change whatever factor you change of
4 total consumer expenditure, be it the interest, be it the
5 date you start calculating the total spending, whether or not
6 you include taxes, and we are going to run through these
7 options, the only thing that changed is the number you
8 multiply the diminution in value by, is that correct?
9 A. Yes. In the cases that you mentioned, changing
10 in the starting point of the class period, whether or not one
11 includes interest, and whether or not one includes taxes, all
12 of those changes effect total consumer spending as reflected
13 in the bottom number.
14 My calculations differ only in that is the number in
15 which you multiply the discounts by. In this case, the 7.7%
16 discount for the just as harmful case is multiplied by a
17 different bottom line number.
18 Q. And then, without reading every number on the
19 page, these would be, the mean column would be measurement of
20 damages, if in fact you started in October of '73, is that
21 correct?
22 A. Correct.
23 Q. Okay, the next one. Lets assume, lets assume
24 that you eliminated all interest from your consumer spending
0058
 1 calculation, meaning somebody told you don't include any
2 interest, the class is not entitled to any interest.
3 Same, explain to me what would change for this
4 calculation?
5 A. The only thing that changes is the bottom line
6 value is reduced to five billion four hundred seven million
7 two hundred thousand. And all the multiplication proceeds as
8 in the previous slides.
9 Q. Can this number, the mean number or your damage
10 number, be calculated from the tables which you have in front
11 of you from your first Expert Report?
12 A. Yes, they can.
13 Q. Now, what if, what if you were told that not only
14 was there no interest, but also start the calculation in
15 October, 1973. And now I would like to speed this process
16 up. What changes here?
17 A. The only thing that changes is the bottom number
18 in the footnote, which then gets multiplied by the same
19 discounts.
20 Q. And the mean column would be the measurement in
21 that case, is that correct?
22 A. Same, yes.
23 Q. Next one. Can we go back one? This represents
24 the aggregate damages for no interest starting October, 1973,
0059
 1 is that correct?
2 A. Correct.
3 Q. And the next, CKT900916, assumes, that says here
4 in the description, based on pre-tax price. What does that
5 mean?
6 A. That means that I excluded any payments to, taxes
7 to federal, state, or local authorities, in calculating total
8 consumer expenditure. But as shown in the slide, after
9 having done so, I still computed 5% non-compounded interest.
10 Q. And you started from 1971, is that correct?
11 A. That's correct.
12 Q. Let me take a step back. Are these charts your
13 own calculations?
14 A. Yes, they are.
15 Q. These charts calculations made from the tables
16 that were attached to your first Expert Report?
17 A. Yes, they were.
18 Q. 900964, shows pre-tax price, 5% interest,
19 starting October, 1973, is that correct?
20 A. Correct.
21 Q. And just as in all the other examples, what
22 changes when you change all those factors?
23 A. Only the total consumer spending number at the
24 bottom, which then gets multiplied by the same discounts and
0060
 1 as a result, the aggregate damages change.
2 Q. On this page, the mean column represents the
3 measurement for the criteria identified in the top part, is
4 that correct?
5 A. Yes, in the caption at the top.
6 Q. Next one? 900962, says pre-tax prices, no
7 interest, 1971, 2001. Are these your calculations for that
8 scenario, for consumer spending?
9 A. Yes, they are.
10 Q. And what changes here?
11 A. Again, the same thing, only the total consumer
12 spending at the bottom line. That number again gets
13 multiplied by the same percentage discounts. And as a result
14 the aggregate damage estimates change.
15 Q. And the mean column represents your measurement
16 of damages under those circumstances, correct?
17 A. Correct.
18 Q. Next one, 900963. Pre-tax price, no interest,
19 starting October, 1973, through the end of the class
20 period. Same, I will lead you now, if that's okay, the same
21 thing changes with respect to this slide?
22 A. The methodology is the exactly the same, but the
23 total consumer spending is recomputed to reflect the
24 conditions in the caption.
0061
 1 Q. And the mean column represents your calculations
2 under these circumstances, correct?
3 A. Correct.
4 Q. Okay, previously we discussed, very briefly, your
5 estimate of the class size. But we only identified that
6 portion of the class that would constitute current smokers.
7 What is your estimate of the class size in this case?
8 A. I gave an estimate in connection with a response
9 to an interrogatory that Plaintiff submitted in this case.
10 And that estimate was the subject of my deposition on
11 Saturday.
12 And in the response to the interrogatory, my estimate
13 of the total class size was 1.1 million individuals.
14 Q. I would like you to turn to the various and
15 sundry annual reports that you have in front of you. In
16 fact, I think I have your copy here somewhere. Yes, I do.
17 And if you can, please identify, when I ask you this
18 question, what you are looking at by page number, to answer
19 the questions that I will ask.
20 Can you tell, from those annual reports, what the
21 revenues are for Philip Morris Domestic Tobacco Operation?
22 MR. WAGNER: Objection to relevance, Your Honor.
23 THE COURT: Well, it could well be relevant, I don't
24 know where he is going with it. But overruled, until he
0062
 1 shows me.
2 MR. SWEDLOW: Can you tell the revenues for any
3 particular year?
4 A. Yes. In each one of the annual reports, as well
5 as the Form 10-Q, which covers the first three quarters of
6 the calendar year, 2002, one can ascertain what the revenues
7 of the Domestic Tobacco Division of Philip Morris would be.
8 Q. I have marked as Exhibit #137, the form 10-Q that
9 you just referred to. Can you identify for me, from
10 whatever source you want to look at, the most recent annual
11 data on revenues and income for domestic tobacco operations?


5 MR. SWEDLOW: Can you, lets focus with laser
6 precision here. Can you identify, for any particular year,
7 the net income for Philip Morris's Domestic Tobacco
8 operation?
9 A. I will take the 2001 Annual Report. I will go to
10 page twenty, and stop for a second. There is a table on page
11 twenty, of the 2001 Annual Report, entitled Consolidated
12 Operating Results. It has two panels, one called operating
13 revenues, the second called operating income.
14 Under operating income, there is a category about
15 line of business, referring specifically to domestic tobacco.
16 And for 2001, the operating income in the domestic tobacco
17 line of business is five billion two hundred sixty-four
18 million.
19 Q. Do you have an understanding --
20 MR. WAGNER: Your Honor, I move to strike the
21 testimony as being outside the scope. There has been no
22 disclosure of this.
23 THE COURT: Overruled.
24 MR. SWEDLOW: Do you have an understanding as to what
0066
 1 the historic net income from the domestic tobacco has been
2 for Philip Morris?

 1 MR. SWEDLOW: I have handed to the Court what has
2 been marked as Group Exhibit #138.
3 These are the slides that not only show demonstrative
4 information, but they show actual calculations which we
5 discussed in different consumer expenditures scenarios.
6 And they are in fact a summary of Dr. Harris's
7 testimony, and I would like to offer them into evidence.
8 But, not only for purposes of demonstration, but for the
9 purpose of the calculations with which they contain.

0073
 1 THE COURT: Okay, be admitted.
2 MR. SWEDLOW: The witness has been on the stand for
3 about an hour and a half. I only have about four or five
4 more questions. Can you press on --
5 THE COURT: Well, you want to take a break?
6 MR. TILLERY: If we could.
7 THE COURT: Yes, sure. Fifteen minute break.
8 MR. TILLERY: And Your Honor, just for the record, it
9 has been one hour and forty-four minutes, exactly.
10 *****
11 (Brief recess was taken.)
12 *****
13 THE COURT: Go ahead, you may proceed.
14 MR. SWEDLOW: Doctor Harris, I think maybe we touched
15 on a little too briefly today, but I would like to re-vist
16 your specific experience as it related to economics, and even
17 more specifically your experience as it relates to the
18 economics of tobacco.
19 Can you identify some of that experience for us?
20 A. Yes. I am looking specifically at my curriculum
21 vitae of June 16th, 2002, which was attached to the First
22 Expert Report. And I can identify in particular articles in
23 reference journals, testimony before congressional committees
24 and public service consulting with specific federal and state
0074
 1 agencies that concern specifically the economics of the
2 tobacco industry. And I can give you some examples, if you
3 want.
4 Q. Lets take off some examples of invited testimony
5 first, related to the economics of the tobacco industry.
6 A. That would be testimony before the Senate
7 Agriculture Committee, the Senate Judiciary Committee, and
8 the House Democratic Task Force on Tobacco concerning the
9 impact of, economic impact of proposed legislation on tobacco
10 industry financial condition, as well as the effect on
11 cigarette prices nationwide, and cigarette consumption.
12 Q. Now, specifically, going to the consulting work
13 that you have done with agencies, public agencies, that is,
14 can you identify that for me?
15 A. With respect to public agencies, as I think I
16 testified, I had worked with the U.S. Veteran's
17 Administration on the impact of a proposed ruling that
18 smoking be made a service related disability, where at issue
19 was the economic impact on the U.S. Veteran's
20 Administration.
21 With respect to private agencies, like the American
22 Cancer Society, I did perform consulting in connection with
23 the economic impact of proposed legislation, what was called
24 a proposed resolution, in 1966, as it referred to the tobacco
0075
 1 industry's ability to pay any proposed judgments or
2 settlements, as well as the impact on price and on smoking
3 risks.
4 Q. And have you written, well, can you identify for
5 us, if you have written any, a couple journal articles that
6 relate to the economics of tobacco?
7 A. Yes, I can. I have written a number of articles
8 that talk about responses of consumers to price, for example,
9 an article with Sondra Chan, in the Journal of Health
10 Economics, in 1999.
11 Let me also draw your attention to an article in a
12 journal called Tobacco Control, which is a derivative journal
13 of the British Medical Journal, entitled U.S. Cigarette
14 Manufacturer's Ability to Pay Damages, overview in a rough
15 calculation, that was published in 1996.
16 Q. Well, I think --
17 A. I can go backwards from there, back to about
18 1980.
19 Q. Okay, I think that is sufficient. I want to turn
20 to a slightly different topic.
21 I'm going to display for you something that is
22 already offered into evidence, it is Plaintiff's Exhibit
23 #99. I believe this was created during the testimony of
24 Sharon Price, and what I want to ask you is, first,
0076
 1 generally, how would you calculate, on an individual basis,
2 damages for a class member in this case?
3 A. Well, the first thing I would do is to estimate
4 the total consumer expenditure on either Marlboro Lights or
5 Cambridge Lights cigarettes, or both, for that particular
6 person during the class period.
7 Q. And looks like the way it was done here is the
8 packs per day, excuse me, the packs per year, was multiplied
9 by the average retail price per pack, is that the correct
10 methodology for calculating, for any particular year of
11 consumer expenditures?
12 A. If you are asking me about methodology, yes. I
13 am not the author of the figures that you have shown here,
14 with the exception, as I can see it now, that you have
15 attributed the average price per pack to my calculations, but
16 with respect to your methodological question, yes, you would
17 multiply packs per year, times the average retail price per
18 pack and then add up the expenditures.
19 Q. I'm not asking you to offer an opinion as to
20 whether or not Sharon Price actually smoked, for example,
21 three hundred ten packs in 1991. Just that the methodology
22 for this calculation is in fact correct. Is that correct?
23 A. The methodology to arrive at the total consumer
24 spending for this person, that's right.
0077
 1 Q. And if I wanted to calculate the interest for any
2 particular year, for example, 1990, from this consumer
3 expenditure, simply put, how would I do that?
4 A. If I took the year 1990, you would have, you
5 would have 5% per year, if you assumed, as I did, that
6 interest didn't start until the end of 1990, but that
7 interest accumulated through the end of 2002, which I took in
8 my calculations to be the date of judgment, then you would
9 have twelve years of interest in that example, at 5% per
10 year, so you would take the value for 1990, lets say in this
11 case it is $501.26, you would multiply that by 5% times
12 twelve. And that would be the $501.26. And that would be
13 the interest for that alone.
14 Q. Here at the bottom there seems to be notes where
15 we have various deductions for out of state purchases; seems
16 to be a cessation attempt, which has a deduction; and another
17 cessation attempt.
18 My question to you is, well, first of all, is that an
19 appropriate methodology to determine the actual packs
20 purchased for any particular year, to make these deductions
21 when someone, for example, isn't smoking or buys them out of
22 state?
23 A. Without vouching for the accuracy of the numbers,
24 it would be correct. That if cigarettes smoked by
0078
 1 individuals in the State of Illinois is to be defined as the
2 smoking by the class members, then if an individual purchased
3 cigarettes out of state or stopped smoking cigarettes, that
4 should be taken into account in the calculation.
5 Q. Now, there are no references like this or
6 deductions on an aggregate basis in your total consumer
7 expenditure, why is this that you didn't deduct for each
8 individual member of the class when they were out of state
9 and bought a carton, for example, in Iowa, or when they may
10 have attempted to quit? How do you account for these kinds
11 of deductions?
12 A. They were already taken into account from the
13 data in the Tax Burden of Tobacco, which just simply reflects
14 the total cigarettes taxed in Illinois. Any person who quit
15 smoking, didn't smoke a cigarette. And they wouldn't be in
16 that tobacco data. Any person who left the state and
17 purchased a cigarette in Indiana, for example, would just be
18 in the Tobacco Tax Burden data for Indiana for that year.
19 Q. So, for example, in the TBT data that you used to
20 calculate the consumer expenditure for Illinois, it didn't
21 include the one carton bought out of state per year, or the
22 period of time where in fact Miss Price didn't purchase any
23 cigarettes at all? That is necessarily excluded from your
24 calculations?
0079
 1 A. The calculations is cigarettes purchased in the
2 State of Illinois, and already excludes anybody who quit
3 smoking, temporarily or permanently, and anyone who may have
4 been an Illinois resident who happened to purchase cigarettes
5 out of state for that year.
6 Q. So if we were to take this data, add the interest
7 which we just discussed to this damage column, what would we
8 do next to get a damage calculation for this individual, like
9 you did for the entire class?
10 A. Not knowing anything more about that individual,
11 I would multiply the total expenditure, inclusive of
12 interest, by the estimated discount that I derived from the
13 Knowledge Networks survey, which would be approximately 77%.
14 In the event that the Court rules that the delivered
15 product was just as harmful, and 93%, rounded off in the
16 event that the Court rules that the delivered product or the
17 product received was, could even be more harmful.
18 Q. Now, turning to another individual calculation,
19 which is already offered into evidence, this one is for a
20 class member named Mike Fruth. And in this one there
21 appeared to be different notes and deductions, but, without
22 going through each line item, is it your opinion that the
23 methodological discussion we just had with respect to
24 Plaintiff's Exhibit #99, would also apply to Mike Fruth, and
0080
 1 specifically Plaintiff's Exhibit #30?
2 A. The same methodological principles for
3 calculation would apply to this or any other specific class
4 member, provided that the input to the calculation would be
5 the number of packs purchased within the State of Illinois in
6 each and every year during the class period.
7 Q. So for Mike Fruth, you would take his, assuming
8 his numbers are right, you would take his total, you would
9 add, if necessary, the interest that we just discussed, and
10 then what would you do with those numbers?
11 A. Again, not knowing anything further about this
12 individual, I would multiply the total consumer spending for
13 that individual, inclusive of interest, by the discount
14 factors that I testified to.
15 Q. And I think you said this, but I may have been
16 conferring with counsel, would this calculation and the
17 methodology we just discussed, apply to each and every
18 individual class member, in order to determine their
19 individual damages from this misrepresentation?
20 A. Correct.
21 Q. There are two exhibits which I believe I forgot
22 to move into evidence, that I wanted to move in evidence, and
23 those are Group Exhibit #134, and Group Exhibit #135. These
24 group exhibits are the specific calculations, the tables in
0081
 1 fact, that were originally submitted in conjunction with Dr.
2 Harris's expert reports. And here again they constitute a
3 summary of his expert calculations for the damages model.
4 And I would be offering those, not only demonstrative, but
5 also for substantive evidence.
6 MR. WAGNER: #134 I think was the --
7 MR. SWEDLOW: Excuse me, that whole thing applied to
8 #135 and #136, as opposed to #134 and #135.
9 THE COURT: Yes.
10 MR. WAGNER: Are we talking about #135 and #136 now?
11 MR. SWEDLOW: Yes, #135 and #136. #135, the tables
12 from his first report, and #136, which are the tables from
13 his second report.
14 MR. WAGNER: I don't have objection to those, Your
15 Honor.
16 THE COURT: Okay.
17 MR. SWEDLOW: Okay. And then finally, Exhibit #137,
18 which I have not yet moved for admission, which is the
19 September, well, it is 2002 10-Q, I believe it is dated
20 November 13th, 2002. That is the filing for Philip Morris.
21 THE COURT: Any objection to that?
22 MR. WAGNER: No, Your Honor.
23 THE COURT: Okay, be admitted.
24 MR. SWEDLOW: No further questions at this time.
0082
 1 ******
2 THE COURT: You may cross examine.
3 MR. WAGNER: I have a little over two hours. I
4 should be right around two hours.
5 THE COURT: I will give you exactly two hours, play
6 it by ear.
7 MR. WAGNER: Okay, and I promise not to dawdle, Your
8 Honor.
9 THE COURT: Well, that's your business.
10 ******
11 CROSS EXAMINATION
12 BY MR. WAGNER:
13 MR. WAGNER: Good morning, and welcome back, Dr.
14 Harris.
15 THE WITNESS: Thank you.
16 Q. You will agree with me, will you not, that
17 Marlboro Lights cost the same to purchase in the market as
18 Marlboro Reds?
19 A. Yes, they do.
20 Q. The same true for Cambridge Lights and Cambridge?
21 A. Yes, they do.
22 Q. Okay. So before we discuss the hypothetical
23 world of hypothetical cigarettes, I want to discuss the
24 market choices that people actually might have faced when
0083
 1 they walked into the store, if they are class members during
2 this class period.
3 I want you to assume for a moment, that when class
4 members walked into the store, and wanted to purchase a pack
5 of Marlboro cigarettes, okay --
6 A. Marlboro Reds or Marlboro Lights?
7 Q. Marlboro cigarettes is what this customer wants,
8 okay, I am just getting to the beginning of it, okay. Here's
9 a customer, a class member that wants Marlboro cigarettes.
10 And he faces a choice between Marlboro and Marlboro Lights,
11 okay? You with me so far? That is the choice that the class
12 member is facing.
13 And these cigarettes, you can assume now, are
14 essentially the same, same blend, same length, same taste.
15 They are as close as possible to each other.
16 Now, this class member can either choose the higher
17 delivery Marlboro Reds -- By higher delivery I mean under the
18 FTC method and nothing more -- Or the class member can choose
19 Marlboro Lights, perhaps believing that they will deliver
20 less tar and nicotine and be safer.
21 Are you with me so far? That is the choice that the
22 class member is facing, are you with me?
23 A. So perhaps believing, meaning we don't know
24 whether that person believes --
0084
 1 Q. Assume he believes. So, okay, for the purpose of
2 this question.
3 Now, when that class members makes a choice, since
4 the price is the same, that class member does not pay any
5 greater amount at retail if he or she chooses the Marlboro
6 Lights as opposed to the Marlboro Reds, does he or she?
7 A. In that example, if I understand your
8 hypothetical, the consumer believes that the Marlboro Lights
9 delivers less tar and nicotine and is less hazardous than the
10 Marlboro Reds. And that consumer, comparing the two at the
11 same price, chooses the Marlboro Lights under that
12 circumstances instead, the price that was offered between
13 them is the same.
14 Q. So the consumer has not paid a penny more for the
15 Marlboro Lights when he or she makes that choice, right?
16 A. Well, the consumer never bought the Marlboro
17 Reds, but had the consumer bought the Marlboro Reds, they
18 were indeed, in that hypothetical, offered at the same price.
19 Q. And the same would be true if they substituted
20 Cambridge and Cambridge Lights in the hypothetical as opposed
21 to Marlboro and Marlboro Lights, correct?
22 A. Yes. If the consumer is offered the two brands
23 --
24 Q. Thank you, yes was fine.
0085
 1 Now, in your model, that you put into evidence in
2 this case, also does not identify or quantify any values
3 relating to any attributes other than health, correct? For
4 example, taste? There is nothing in your model which
5 purports to quantify or estimate the value that one might
6 have for the taste attribute of a cigarette, correct?
7 A. No, the Knowledge Networks survey did not, in the
8 portion that I devised, did not produce a valuation for any
9 attribute other than the purported health advantage.
10 Q. Now, in this case you presented three Expert
11 Reports, correct?
12 A. Correct.
13 Q. And two of them estimated an economic loss,
14 right?
15 A. Only the third estimated, well, yes, two of them
16 estimated economic loss, one --
17 Q. And the first report was --
18 MR. SWEDLOW: Your Honor, I'm sorry, if he is asking
19 about three reports, and he is talking about his reports, can
20 the witness at least finish the answer?
21 MR. WAGNER: He gave me a yes, that he had submitted
22 two reports that dealt with economic loss. This would go a
23 lot faster, if I ask a yes or no, and it is possible, for you
24 to answer yes or no. If you can't, tell me.
0086
 1 A. Well, I can't answer yes or no. The first report
2 I did say that there were economic damages in that report,
3 under the assumption that the Court might rule that the full
4 retail price constitutes damages.
5 Q. Understood. And that first report was last June,
6 correct?
7 A. Correct.
8 Q. Okay. And in that report, your theory was that
9 the money spent for all purchases for Marlboro Lights and
10 Cambridge Lights in Illinois could be refunded, right? Total
11 ball of wax?
12 A. No, that is not my theory.
13 Q. Okay. You arrived at different numbers though,
14 right? In your first report?
15 A. No, I did not.
16 Q. You did not. Okay, in your report, did you
17 calculate a direct buyer's method of estimating the amounts
18 spent on Marlboro Lights and Cambridge Lights?
19 A. Yes, in the report.
20 Q. And in the report you also had two different
21 numbers that you came up with under the direct buyer's
22 number, the full retail number and a pre-tax number, correct?
23 A. Yes, that's correct. Although I should clarify
24 --
0087
 1 Q. And you also had --
2 A. I'm sorry, sir. I am a scientist and a
3 professor, I really do think that I should be able to answer
4 the question.
5 Q. You did answer.
6 A. I'm not running the trial --
7 Q. You did answer the question. And you also had a
8 taxable sales method of estimating the quantities purchased
9 in Illinois, correct?
10 A. I did have a taxable sales method.
11 Q. Okay.
12 A. That estimated value.
13 Q. Correct.
14 A. Both at retail and exclusive of taxes.
15 Q. So you had a full retail price under the taxable
16 sales method and a pre-tax value under the taxable sales
17 method, correct?
18 A. Yes.
19 Q. Lets just see if we can figure out some of the
20 numbers now.
21 Under the direct buyer's method, full retail, the
22 number you reached was 6.27 billion dollars, correct?
23 A. Without reference to my report, I can't confirm
24 or deny that.
0088
 1 Q. I believe you do have the report in front of
2 you. Well, here, you put in as exhibit #135-M, is that in
3 front of you? Look for #135-M, Dr. Harris, I believe that's
4 table thirteen from your first report.
5 A. The present value, inclusive of interest, in the
6 case in which both, all retail spending is involved,
7 including taxes, for the Philip Morris direct buyer's method
8 for both brands, would be 8.7 billion dollars.
9 Q. Excellent. And how about pre-tax?
10 A. That would be the present value, inclusive of
11 interest, would be 5.5 billion. I am rounding off.
12 Q. Sure. And if we also look at the taxable sales
13 method, what do you get for the full retail value?
14 A. The full retail value would be 7.7 billion. That
15 is the amount I actually testified to. And, if you exclude
16 taxes. Then the present value would be four point, almost
17 4.9 billion, a number I also testified to.
18 Q. Okay. And if we exclude interest, then the
19 numbers are a little different, right?
20 A. That's correct.
21 Q. Under the direct buyers full retail, get 6.277
22 billion, correct?
23 A. Correct.
24 Q. And if you do the pre-tax number for that, would
0089
 1 be 3.9, call it 3.974 billion?
2 A. Correct.
3 Q. And if we look at the taxable sales method,
4 exclusive of interest, the number for full retail is 5.407
5 billion, right?
6 A. Yes.
7 Q. Okay. And if we look at the pre-tax number, it
8 would be 3.4424 billion?
9 A. Correct.
10 Q. Okay. Now, all I want to do is focus on the
11 swing, I don't want to talk about interest for a moment, I
12 want to talk about pre-interest, okay? The difference
13 between the full retail and pre-tax numbers on the direct
14 buyer's method, there is about a 37% swing there, isn't
15 there?
16 A. I don't know without a calculator. It has been a
17 while since I did these without a calculator, but let's see,
18 it is four out of six.
19 Q. How about this, the difference is about 2.03
20 billion dollars?
21 A. Yes.
22 Q. Okay. The difference under the taxable sales
23 method is 1.983 billion dollars?
24 A. Okay.
0090
 1 Q. And that adds up to about a 37% difference, isn't
2 that?
3 A. Should be about the same.
4 Q. Okay, to compare direct buyer's full retail to
5 taxable sales, full retail method, I get about a 14% swing?
6 Full retail to direct buyer's to taxable sales? I get about
7 a 14% swing?
8 A. What are you comparing?
9 Q. This number to this number. 6.277 to 5.4.
10 A. Okay.
11 Q. About a 14% swing, is that about right?
12 A. That is when you go from direct buyer's to
13 taxable methods. But you keep that it is at full retail.
14 Q. Correct?
15 A. Yes.
16 Q. I am just trying to get a magnitude of the swing
17 now.
18 Now, in calculating these numbers, you didn't
19 identify or quantify the numbers of class members who
20 actually were deceived as a result of anything Philip Morris
21 said or failed to say? You just assumed everybody was
22 deceived and would be an entitled to a full refund, if the
23 Court were to accept that analysis, correct?
24 A. Yes, indeed. I assume that the very fact of
0091
 1 purchase meant reliance and a concern for health, and a
2 reliance on the misrepresentations that are alleged.
3 Q. And you personally did not conduct any test,
4 study or analysis to verify the truth of that assumption?
5 You weren't asked to render such an opinion in this case,
6 correct?
7 A. With the exception that I did review corporate
8 documents that were identified by Dr. Cohen in his testimony,
9 in support of that conclusion.
10 Q. I understand you read the documents, but those
11 weren't material in any of the calculations you made in any
12 of your analysis, is that correct?
13 A. They were material to that assumption, but not to
14 the calculation.
15 Q. Okay, not to the calculation. Now, after you
16 submitted report number one, you received the defendant's
17 reports, including Professor Viscusi, correct?
18 A. Yes.
19 Q. And you understood Professor Viscusi's report to
20 criticize these numbers as not providing damages, for the
21 reasons that he provided in his report, correct?
22 A. Correct.
23 Q. And after that report, you understood the
24 Plaintiffs were now going to be changing their position on
0092
 1 calculating damages, correct?
2 MR. SWEDLOW: I guess I will object. We are asking
3 this witness to characterize the legal strategy of
4 Plaintiff's counsel. I don't think that is a proper subject,
5 even for cross examination.
6 THE COURT: I would agree with that, sustained.
7 MR. WAGNER: Okay, after you received those reports,
8 you appeared with a different damages model, didn't you?
9 A. Yes.
10 Q. And the damages model would be diminution in
11 value model based upon the Knowledge Networks survey, right?
12 A. Correct.
13 Q. This was a different analysis of damages, right?
14 A. Not entirely.
15 Q. Okay, well, you came up with some different
16 results, correct? You testified to them on direct, right?
17 Some new numbers, correct?
18 A. Correct.
19 Q. And if I got the numbers on dimunition of value,
20 we will just add those here. I just want to capture the
21 range. You went through about seven different scenarios with
22 Mr. Swedlow on direct, right?
23 You went from 1971 all the way through 2001. If we
24 included interest, began in 1971, worked our way all the way
0093
 1 through a number of different scenarios, leading to one where
2 you were, beginning in October of 1973, backed out the
3 interest and backed out the taxes and you had everything in
4 between, right?
5 A. Yes. I would say there were something like eight
6 different legal scenarios.
7 Q. And I just want to make sure I understand the top
8 and the bottom. I think the highest number you put on the
9 board this morning was 7.110 billion dollars, in the could be
10 more harmful case, right? With all in?
11 A. I can't, I would have to look at the chart. I
12 don't have it in front of me.
13 Q. Alright. Take a look at Group Exhibit #136-A.
14 MR. SWEDLOW: I actually didn't give a copy of that
15 to the witness, may he borrow --
16 MR. WAGNER: Sure, take a look at mine.
17 A. Thank you.
18 MR. WAGNER: Sure.
19 A. Now, you asked me about 7.11 billion dollars,
20 rounded off, as being the aggregate damages in the could be
21 more harmful --
22 Q. Right?
23 A. Legal option.
24 Q. That was the highest number you gave, right?
0094
 1 A. I believe so.
2 Q. Okay. And the lowest number you gave I believe
3 was 2.659 billion dollars?
4 A. If you could point me to it, I could verify it.
5 Q. Here's all the demonstratives, if you look
6 towards the back.
7 A. In the legal option described in the caption here
8 --
9 Q. Uh-huh?
10 A. No taxes, no interest, start the class period in
11 October, '73, and the Court rules that just as harmful
12 description applies, then you get six point, sorry, 2.659
13 billion, just as you have written down on that chart.
14 Q. Okay. So the differences depend on the
15 assumptions that you employ, correct?
16 A. No. They depend upon the legal decision that the
17 Court should make.
18 Q. Okay. Now, none of these statements are based
19 upon amounts that Philip Morris actually received, are they?
20 These amounts, in other words, are based upon amounts that
21 consumers spent at retail?
22 A. Oh, I see.
23 Q. With or without taxes, as opposed to using, as
24 your beginning point, the amounts that Philip Morris
0095
 1 received, and then looking at the diminution in value from
2 that amount?
3 A. Yes. The consumer's tobacco dollar goes to the
4 taxes, goes to the retailer's mark-up, wholesale distributor,
5 and then the remainder would go to Philip Morris. And
6 therefore you are correct.
7 Q. And even pre-tax figures, even pre-tax figures do
8 include amounts to wholesalers and distributors and
9 retailers? Money that never made it to Philip Morris?
10 A. I guess I just answered your question.
11 Q. So you did have in your possession though, when
12 you calculated your figures, Philip Morris's interoggatories,
13 didn't you?
14 A. Yes, I did.
15 Q. Okay, you refer to them in your direct testimony
16 at one point, correct?
17 A. Yes, I did.
18 Q. And those responses estimate year by year, at
19 least some of them, Philip Morris's net earnings attributable
20 to the Illinois sales of Marlboro Lights and Cambridge
21 Lights, correct?
22 MR. SWEDLOW: I will object, only for clarification.
23 The specific interrogatories that Dr. Harris was referring to
24 were the ones dated August 31st, 2002. He can testify about
0096
 1 anything else he has seen.
2 MR. WAGNER: Then I don't understand that there is an
3 objection.
4 The interrogatories answers that you reviewed, while
5 you were preparing your damages report, did in fact include
6 estimates year by year, of Philip Morris's net earnings
7 attributable to the Illinois sales of Marlboro Lights and
8 Cambridge Lights, correct?
9 A. Yes. Whether or not I relied on those, I
10 certainly did review every interrogatory answer that Philip
11 Morris provided up until the time of that report.
12 Q. Okay. And that total was in the range of 532 to
13 555 million dollars, correct? Do you recall that?
14 A. No, I do not.
15 Q. Okay. And that would be a total amount, I want
16 you to assume now that that is what the interrogatories
17 represent, Fifth Amended Answer to Plaintiff's First
18 Supplemental --
19 A. Could you write it down or put it someplace?
20 Q. Sure, we will put it, can you see down here?
21 A. Yes.
22 Q. 532 to 555, that is million dollars, not
23 billions, okay?
24 A. And that is the net earnings.
0097
 1 Q. The net earnings. And that is a total amount
2 before examining whether or not class members believed that
3 Marlboro Lights or Cambridge Lights were safer or would
4 assign a higher value, once they learned the facts that
5 Plaintiff's complained about, correct? In fact, that is what
6 all of these numbers are, right?
7 A. All of the numbers above that, concerning
8 calculations of gross retail expenditures, with or without
9 taxes or interest, are the total amount paid, is my
10 understanding. Whether or not you are asking me, whether or
11 not this is the total amount received by Philip Morris in
12 this case, that would be yes.
13 Q. Okay. Now, lets talk about the demographics of
14 the class which you now estimate to be over a million people.
15 You have not done any analysis to determine where
16 class members reside, have you?
17 A. Other than the State of Illinois.
18 Q. You haven't done any analysis to determine where
19 they reside, have you?
20 A. No.
21 Q. Nor do you know the age distribution of the
22 class, do you?
23 A. Not offhand, no.
24 Q. Nor do you know the income or education
0098
 1 distribution of this class, do you?
2 A. I, I should say that I know that the income and
3 age distribution should be similar to that for surveys of
4 Marlboro Lights smokers, but I cannot tell the specific
5 answer to your questions.
6 Q. Okay. In preparing your expert report and the
7 analysis in this case, you did not check to inquire what the
8 income, age or education distribution of Illinois is at the
9 current point in time, did you?
10 A. I did actually, yes. But I did not do that for
11 the class members.
12 Q. You did not do it for the class members. And you
13 didn't do it for any year in the class period, did you?
14 A. No. I did look at Illinois demographics
15 generally, and I have, during my career, looked at
16 demographics of cigarette smokers. And I have looked, even
17 in connection with this case, of the demographics of Marlboro
18 Lights smokers.
19 Q. Dr. Harris --
20 A. I didn't put it together and tell you the
21 demographics of the class in a way that I could testify to
22 right now.
23 Q. Thank you, Dr. Harris. Dr. Harris, you would
24 agree with me that the demographic variables of the class do
0099
 1 change from time to time, correct?
2 A. You mean over the class period?
3 Q. Sure?
4 A. They could, yes.
5 Q. In fact, you would be surprised if these
6 variables were the same today as they were thirty years ago?
7 A. No, they wouldn't be exactly the same. They
8 should change some.
9 Q. Alright. Now, let's talk about what your models
10 show and don't show.
11 In developing the model, you did not survey or
12 examine any class members, did you?
13 A. No, I personally didn't interview or discuss or
14 examine any individual class member in Illinois.
15 Q. You didn't seek out class members in any way,
16 correct?
17 A. Correct.
18 Q. Okay. You did not rely on the testimony or
19 records of any class representatives or any class members to
20 build your model, correct?
21 A. Correct.
22 Q. You did not perform or rely upon any survey or
23 other data set of class members to estimate willingness to
24 pay or dimunition in value, correct?
0100
 1 A. Only to the extent that the respondents to the
2 Knowledge Network survey were a sample of individuals who
3 would be representative of the class. And in fact are class
4 members. But certainly not the named Plaintiffs.
5 Q. Okay. You do not know how many class members, if
6 any, were included in the Knowledge Network sample, do you?
7 A. No, I do not.
8 Q. And if Dr. Dennis testified that it was not
9 possible to get a large sample of Illinois residents for his
10 surveys, you would have no basis to dispute that, correct?
11 A. No, I would not.
12 Q. And you have not presented the Court with any
13 information today showing that the sample for Knowledge
14 Networks matches the class across income, age, gender, race
15 or education level, correct?
16 A. No, I have not presented such information today.
17 Q. Okay. Now, your model, even with the Knowledge
18 Networks survey, continues to assume that everybody was
19 deceived to the same extent and entitled to the same
20 percentage refund without distinction, correct?
21 A. No.
22 Q. Okay. When you applied your analysis of 77.7%
23 diminution, that would apply to every single Marlboro Lights
24 and Cambridge Lights package sold in Illinois during the
0101
 1 appropriate period, wouldn't it?
2 A. Oh, yes, the average would, if I were calculating
3 aggregate damages.
4 Q. Okay.
5 A. But the results of the Knowledge Networks survey
6 show that the diminution of value varies across individuals.
7 Q. Understood.
8 A. If I am calculating aggregate class injury, and
9 if a judgment is rendered, then you would use the average to
10 calculate that.
11 Q. Right, and when you got to the average numbers,
12 and you presented them in all of your scenarios, you were
13 then assuming that that single average applied to every
14 single pack of Marlboro Lights and Cambridge Lights purchased
15 over the class period?
16 A. For the purpose of assessing aggregate damages.
17 Q. Okay. And that would apply for thirty years,
18 whether or not those purchases actually were the result of
19 any deception, correct?
20 A. Well, my analysis is they were all the result of,
21 I am assuming the Court finds that they were all the result
22 of such deception. And if that assumption is adopted by the
23 Court, then my calculation follows through that you would
24 multiply the 74% discount or the 93% discount by the total
0102
 1 expenditure.
2 Q. And that is exactly my point. An assumption of
3 the model. You didn't do any test, study or analysis to
4 verify the truth of that assumption to the class members, did
5 you?
6 A. With the exception that I reviewed internal
7 corporate documents by Philip Morris which were tantamount to
8 stating that the very fact of purchase of those light
9 cigarettes is tantamount to a belief of a health benefit and
10 reliance on the statement light.
11 Q. Dr. Harris, you are not aware of, and you did not
12 identify for us, did you, a single document from inside
13 Philip Morris that surveyed Illinois purchasers of Marlboro
14 Lights or Cambridge Lights cigarettes, correct?
15 A. Specifically those groups?
16 Q. Yes?
17 A. Not when you get down to Illinois, no.
18 Q. That is what I thought. Now, Dr. Harris, I want
19 you to suppose that there is a person, a Marlboro Reds
20 smoker, who goes to a bar. He is having a night out, okay?
21 Wants to buy a pack of cigarettes, and he buys Marlboro
22 Lights.
23 And the reason he buys Marlboro Lights is it is the
24 only pack available, it is the only one the bartender has.
0103
 1 This has nothing to do with whether it says lights, lowered
2 tar and nicotine, or healthier.
3 That purchase would be included in your multi-billion
4 dollar estimate of economic loss, correct?
5 A. Yes, every purchase --
6 Q. And if the Court disagrees, Dr. Harris, if the
7 Court disagrees with including those kinds of purchasers in
8 your model, your model does not provide the Court with a
9 method to identify those class member's purchases that ought
10 to be excluded then, right?
11 A. So somebody is, it is not that he is bumming a
12 cigarette, he actually is coerced into buying a cigarette, he
13 only has one choice?
14 Q. Dr. Harris, that's it.
15 A. I think that would be the Court's determination
16 as to whether they are reliance. But it definitely is
17 included in my calculation as a purchase in Illinois.
18 Q. You already answered that. My question is
19 whether or not your model permits the Court, has any
20 methodology that would permit the Court to identify and
21 exclude such purchases, if the Court deemed that such
22 purchases should be excluded?
23 A. No, I have made no calculation --
24 Q. Alright.
0104
 1 A. Of the number of purchases that would correspond
2 to an individual simply being told, that is the only
3 cigarette you've got.
4 Q. Excellent. Let me give you another hypothetical.
5 Suppose you have got another person, working in the Illinois
6 Attorney General's Office. He has worked on the case and
7 sued Philip Morris and others in the industry, and alleged
8 that there is a gigantic low tar hoax as part of the
9 complaint.
10 And what I am trying to impart to you, Dr. Harris, is
11 this person knows, believes to a moral certainty all of the
12 same allegations that are raised in this case. In other
13 words, he doesn't believe that lights or lowered tar and
14 nicotine means less actual delivery of tar and nicotine,
15 doesn't believe there is any reduced risk.
16 But at the end of every day, this person goes out and
17 buys a pack of Marlboro Lights, every day. Smokes them.
18 Because he likes the taste. He wants to be with his
19 friends.
20 That person's purchases are included as part of your
21 multi-billion dollar estimate of economic loss, correct?
22 A. They are indeed, yes.
23 Q. And if the Court disagrees, your model does not
24 identify or quantify the reduction in the model that would
0105
 1 have to take place, correct?
2 A. If the Court says, well, I have trouble answering
3 your question. Because I don't think that example is
4 dispositive of anyone's valuation of Marlboro Lights in the
5 bargain in which an individual was actually offered --
6 Q. My only question is --
7 A. I don't know how to answer your question.
8 Q. Okay, my question is whether or not, in your
9 model, we can identify or quantify such purchases, should we
10 determine that they exist?
11 A. I have not provided data on the number of
12 individuals who --
13 Q. Okay.
14 A. Having learned that in fact the defendants
15 engaged in a misrepresentation, continued to buy Marlboro
16 Lights. My only problem with your premise is that I don't
17 think that fact is dispositive of what the valuation of the
18 consumer is at the time of the bargain, not after the fact.
19 Q. I understand you said that, I just want to know
20 about the methodological parameters of your model, Dr.
21 Harris.
22 Let me give you another assumption. Assume that a
23 person began smoking with Marlboro Lights, never switched
24 from Marlboro Reds or any full flavored cigarette, okay? Are
0106
 1 you with me?
2 A. Started with Marlboro Lights and stayed.
3 Q. There are such people, correct?
4 A. Who smoked Marlboro Lights their whole lives?
5 Q. Yes, who initiated with Marlboro Lights, did not
6 switch?
7 A. Fine, I am sure there are.
8 Q. You are aware that there have been studies
9 quantifying the number of people who are switchers as opposed
10 to non-switchers, correct?
11 A. Oh, yes, definitely.
12 Q. Okay. Let me give you one as an example. I'm
13 going to show you Exhibit #4191.
14 Exhibit #4191 is a study done by Janine Pillitteri,
15 and Others, entitled Cigarette Smokers Who Switch to Light
16 Cigarettes, United States, 1999.
17 Have you seen this before, Dr. Harris?
18 A. No, I have not.
19 Q. Okay.
20 MR. SWEDLOW: Your Honor, before I object, I just
21 want to clarify, for the record, I understand the ruling when
22 I was not present to be that a witness can be crossed with
23 any document, whether or not the witness has ever seen the
24 document before. If that is true, then I won't object. But
0107
 1 if it is not true, then I want to object.
2 MR. WAGNER: I just want to see if anything in here
3 looks familiar.
4 MR. TILLERY: We don't have any problem with it, so
5 long as it applies to all of their experts as well.
6 THE COURT: Well, I will adopt it.
7 MR. TILLERY: Alright.
8 MR. WAGNER: Dr. Pillitteri ran a nationally
9 represented panel of 2,205 current smokers, age eighteen and
10 older, and took a digit dial telephone survey. And then she
11 has some numbers at the bottom of the second page there.
12 It says overall, 47% of the sample smoked regular
13 cigarettes, 38.5% smoked lights and 14.5% smoked ultra
14 lights. Among smokers of lights and ultra lights, 65.1% had
15 switched from regular brands.
16 Do you see that?
17 A. I do see that.
18 Q. Does that comport with your basic understanding
19 of the percentage of smoker who are switchers?
20 A. You are talking about from regular brands to
21 ultra lights?
22 Q. Or lights.
23 A. I don't know if I can answer that one way or
24 another.
0108
 1 Q. Alright.
2 A. I can't recall offhand what the percentage is
3 from other sources I have seen.
4 Q. But you will agree that such people exist, that
5 initiate with Marlboro Lights and have not switched, correct?
6 A. Correct.
7 Q. Okay.
8 A. Your question is not switch? They did switch.
9 They started with regular and --
10 Q. No, I am back to my hypothetical now.
11 A. Oh, I'm sorry.
12 Q. We have got a person who began smoking Marlboro
13 Lights, who never switched from Marlboro Reds or any full
14 flavored cigarettes. So this person didn't have a daily dose
15 of nicotine or per cigarette nicotine quota, didn't need to
16 adjust his or her smoking behavior in any way.
17 That person's purchases are included as part of your
18 multi-billion dollar estimate of economic loss, aren't they?
19 MR. SWEDLOW: I will object. This witness was not
20 offered on the issue of compensation, and now he is being
21 asked questions about compensation.
22 MR. WAGNER: I am asking him a hypothetical question
23 to see whether or not they are included in his model for
24 loss.
0109
 1 THE COURT: Maybe we ought to open that up.
2 MR. SWEDLOW: Okay.
3 THE COURT: Overruled.
4 MR. WAGNER: Dr. Harris?
5 A. Alright, first of all, this estimate isn't
6 dispositive of the fact that they are switchers. But I will
7 agree there must be people who started with Marlboro Lights
8 from the very beginning, virtually from the very beginning,
9 and continued.
10 Q. Okay.
11 A. And my understanding is that those individuals
12 may have accomodated to the dosage of nicotine available to
13 that type of cigarette. And now I lost your question at that
14 point.
15 Q. Okay. The assumption is that we have a person
16 now, who because they initiated with Marlboro Lights, did not
17 have a daily dose of nicotine or a per cigarette nicotine
18 quota, and therefore did not need to adjust his or her
19 smoking behavior to reach a full flavor, because they have
20 never smoked a full flavor. And with that assumption in
21 mind, I want to know whether or not that person's purchases
22 are included as part of your multi-billion dollar estimate of
23 economic loss?
24 A. I am to assume that that person, had that person
0110
 1 smoked a Marlboro Red, that that person would have, that the
2 consumption would be different. I am just to assume that
3 that person smokes, I mean, this person is going to
4 compensate anyway, if you give them a Marlboro Red, that is a
5 fact of nicotine addiction.
6 Q. Dr. Harris, I didn't talk about a Marlboro Red,
7 except for the fact that that person has never smoked them.
8 This person smoked only Marlboro Lights, and never had to
9 adjust his or her smoking behavior to get to any full
10 flavored cigarette, because he or she never smoked one. That
11 is the assumption I want you to make.
12 A. Correct.
13 Q. Okay. Now, with that assumption in mind, to the
14 extent there are such smokers in the class, that all of their
15 purchases are included in your model's multi-billion dollar
16 estimate of economic loss?
17 A. Yes.
18 Q. Now, I want you to assume a different person. A
19 person who switched, but did not compensate by changing their
20 behavior. Same number of puffs, same puff duration, same
21 puff interval, same butt length. Now, you are assuming, now,
22 that there is no compensation when this person switched.
23 All of that person's purchases are included in your
24 multi-billion estimate of economic loss, correct?
0111
 1 A. Correct.
2 Q. Now, I want you to make another assumption.
3 Assume a person switched, but didn't compensate completely,
4 something we talked about last week, incomplete compensation,
5 so they got lower tar and nicotine.
6 That person's purchases are included in your model of
7 multi-billion dollar estimate of economic loss, correct?
8 A. I should say lower tar and nicotine, but not
9 necessarily lowered delivery of other toxic substances. But
10 nonetheless, those individual's purchases of Marlboro Lights
11 and Cambridge Lights are counted in the aggregate damage
12 estimate that I presented.
13 Q. Now, I want you to assume a person switched and
14 even compensated, and maybe even compensated completely, but
15 didn't do so permanently. After a month, after a couple of
16 months, they reverted back to their old smoking habits, so
17 that there is no longer compensation.
18 All of that person's purchases are included in your
19 multi-billion dollar estimate of economic loss, correct?
20 A. Correct.
21 Q. Okay. Now, I want you to assume that some people
22 made an initial decision to purchase or switch to Marlboro
23 Lights, believing they were safer, but later they became
24 disabused of that notion. They no longer believe they are
0112
 1 safer, but they keep buying them.
2 A. Just like the guy in the Illinois Attorney
3 General's Office.
4 Q. Perhaps. All of their purchases are included in
5 your multi-bilion dollar estimate of economic loss, aren't
6 they?
7 MR. SWEDLOW: Well, I will object. We are limiting
8 this only to the class period. I don't want the witness to
9 be encouraged to offer testimony --
10 MR. WAGNER: I asked him just about his model for
11 economic loss.
12 THE COURT: Yes, he is talking about the model.
13 Overruled.
14 A. If there are such individuals, who purchase
15 Marlboro Lights in the State of Illinois, in the class
16 period, then they are indeed included in my calculation.
17 MR. WAGNER: Okay. And the same would be true for
18 those who come to believe that lights are safer due to
19 information from sources other than Philip Morris, right?
20 Somebody came to believe that lights are safer, from
21 something they heard from the doctor, the Surgeon General,
22 from the public health community, had nothing whatsoever to
23 do with Philip Morris, all of their purchases of Marlboro
24 Lights or Cambridge Lights are included in your multi-billion
0113
 1 dollar estimate of economic loss, right?
2 A. Yes. And for the same reason there are purchases
3 of Marlboro Lights and Cambridge Lights within the State of
4 Illinois.
5 Q. And if the law says that such people are not
6 entitled to any recovery from Philip Morris, your model can
7 not identify or quantify them for exclusion, correct?
8 A. Alright, so this is different than they have a
9 different valuation, this is they are to be excluded
10 entirely?
11 Q. Right?
12 A. No, my model would not.
13 Q. Now, you do understand, Dr. Harris, that there
14 are people who came to believe that Marlboro Lights and
15 Cambridge Lights are no safer, could be more harmful, but
16 continued to purchase them, right?
17 A. Yes, that's correct.
18 Q. Okay. Example, Susan Miles, right?
19 A. That is my understanding, yes.
20 Q. Linda McHatton?
21 A. I don't know about that one.
22 Q. How about Sharon Price?
23 A. I haven't read her deposition, no, I don't know.
24 Q. Christine Witt?
0114
 1 A. I don't know about that one.
2 Q. Michael Fruth?
3 A. I only know of the first one you mentioned, Linda
4 Miles.
5 Q. Susan Miles, that would be. By the way, we have
6 heard from Mr. Fruth and Miss Price at this trial.
7 Now, neither one testified, to your knowledge, did
8 they, to an amount that they are willing to pay for Marlboro
9 Lights, now that they know the facts? They didn't testify to
10 that point, did they, in dollars and cents?
11 A. Not that, well, I haven't read the transcript of
12 their testimony.
13 Q. Right.
14 A. It is my understanding that Miss Miles has
15 continued to purchase Marlboro Lights, that's all I can say
16 for a fact.
17 Q. Neither Mr. Fruth nor Miss Price testified at
18 this trial that their willingness to pay for Marlboro Lights
19 or Cambridge Lights, after learning the facts that they are
20 complaining about, dropped a dime, did they?
21 A. I don't know the answer to your question.
22 Q. In fact it's true, is it not, Dr. Harris, that
23 after learning the facts, after speaking to lawyers, after
24 suing, both of those, Mr. Fruth and Miss Price, continued to
0115
 1 buy their Marlboro Lights and Cambridge Lights, without a 78%
2 discount, right?
3 A. Since I don't know their testimony, I don't know
4 for a fact what happened. I didn't read their testimony. I
5 just, I am given to understand that Miss Miles, having been
6 informed of the defendant's alleged misrepresentations,
7 continued to purchase Marlboro Lights.
8 Q. Okay. Your model assumes, by the way, that class
9 members beliefs and their actions taken on those beliefs have
10 stayed constant over the last thirty years, correct?
11 A. To the extent that they refer to class member's
12 beliefs concerning the interpretation of the words lights and
13 lowered tar and nicotine.
14 Q. Okay. There is nothing in your model to account
15 for any changes in those beliefs, source of beliefs or
16 behavior based upon those beliefs over the thirty year class
17 period, correct?
18 A. Indeed, my model continues to assume that
19 throughout the class period, the individuals relied upon the
20 descriptors light and lowered tar and nicotine, because they
21 were concerned about their health. And they will continue to
22 be concerned about their health.
23 Beyond that, whatever you said about behavior, I'm
24 not sure one way or the other. I don't know how it is
0116
 1 material. But I can't answer that part.
2 Q. Okay. Your model measures beliefs at only one
3 point in time, right?
4 A. My analysis of the Knowledge Network survey
5 indeed was conducted at, essentially, a single point in time.
6 Q. And it measured respondent's willingness to pay
7 in the scenario you presented, at the time of the survey,
8 which was in November of 2002, correct?
9 A. Correct. The discount that they would have to
10 pay.
11 Q. And if that applies, your model applies that
12 interpretation backward over the thirty year class period
13 that ended about two years before the survey was taken,
14 right?
15 A. Correct.
16 Q. Okay. You would agree with me, would you not,
17 that the information environment has changed over the last
18 thirty years?
19 A. Yes, it has.
20 Q. And you would agree with me --
21 A. In general, yes.
22 Q. And you would agree with me that people's beliefs
23 can change over time?
24 A. Absolutely.
0117
 1 Q. And would you agree with me that people's
2 willingness to pay for safer cigarettes changes over time?
3 It is possible isn't it?
4 A. As I already testified to, although it is
5 possible that they can change, I see no reason to, I don't
6 have any evidence that they, that the discount that they
7 would be willing to pay for a light cigarette has changed
8 materially.
9 Q. Okay. You haven't tested willingness to pay at
10 any point in the past though, have you?
11 A. Not empirically in connection with this case.
12 Q. Now, a person's income can change and effect his
13 or her willingness to pay over time?
14 A. Yes, it could, in pricinple.
15 Q. And a person's health status can effect a
16 person's willingness to pay over time, correct?
17 A. Yes, in principle.
18 Q. And a person's education level can change and
19 effect his willingness to pay over time, correct?
20 A. Yes, in principle.
21 Q. Okay, and a person's age can change and effect
22 his or her willingness to pay over time, correct?
23 A. Correct.
24 Q. And a person's concern over his or her health can
0118
 1 change and effect his or her willingness to pay over time,
2 correct?
3 A. Correct.
4 Q. So a person's willingness to pay for a safer
5 cigarette today may not be the same as that person's
6 willingness to pay for a safer cigarette ten years ago,
7 correct?
8 A. Yes, it is possible.
9 Q. Okay. And the Knowledge Network survey that you
10 relied on for your analysis only asked about current
11 willingness to pay, right?
12 A. Yes, among a cross section of people of different
13 age, education and health.
14 Q. Okay, it did not ask about respondent's previous
15 willingness to pay, correct?
16 A. Correct.
17 Q. Okay. Will you also agree with me, Dr. Harris,
18 that someone's willingness to pay can be effected by the
19 availability of alternative products on the market?
20 A. Absolutely.
21 Q. Okay, so if a desirable alternative appears, all
22 else being equal, the willingness to pay would go down,
23 correct?
24 A. As I understand your question, if there is a
0119
 1 substitute which is regarded as more attractive, and it comes
2 on the market, then the willingness to pay for the prior good
3 would go down, yes.
4 Q. Okay. Now --
5 THE COURT: Can we take a lunch break?
6 MR. WAGNER: Oh, sure. You want to do that right
7 now?
8 THE COURT: I don't want to interrupt your line.
9 MR. WAGNER: You know, I have got a couple more
10 minutes on this line, why don't we continue?
11 THE COURT: Go ahead, fine.
12 MR. WAGNER: I think we have already discussed that
13 your model does not attempt to break down discrete groups
14 within the class, right? In other words, we went through a
15 number of hypotheticals, questions where you might be
16 grouping people, and your model does not break down between
17 discrete groups in the class, right?
18 A. To the extent that those groups could be
19 identified reliably, no, it does not.
20 Q. Okay. So for example, your model doesn't break
21 down the class to the identity and limit award to only those
22 who believe Marlboro Lights and Cambridge Lights are safer
23 than full flavored cigarettes, right?
24 A. I think I made it clear that all, my assumption
0120
 1 is that all such people believed and relied upon the
2 descriptors.
3 Q. Okay, nothing in your model breaks down the class
4 to identify a limited award to only those who believe
5 Marlboro Lights or Cambridge Lights are safer than full
6 flavor, due to something that Philip Morris said, as opposed
7 to anybody else, correct?
8 A. Again, I am assuming that in fact, by relying on
9 the descriptors lights, and lowered tar and nicotine, that
10 they are relying on something Philip Morris said.
11 Q. That is an assumption, right. And nothing in
12 your model breaks down the class to identify and limit an
13 award to only those who believe Marlboro Lights and Cambridge
14 Lights are safer than full flavor, due to something Philip
15 Morris said? And then they base their purchase decision on
16 that, based on that belief, right?
17 A. So you are distinguishing between reliance
18 without purchase, and then reliance above and beyond that,
19 with purchase?
20 Again, I have to assume that the very fact of
21 purchase based on, based on my knowledge and experience, the
22 testimony of other experts, my examination of internal Philip
23 Morris documents, is that the statements by Philip Morris,
24 lights, lowered tar and nicotine, were relied upon, and, what
0121
 1 is more, that purchases were made based upon --
2 Q. Dr. Harris, my question is whether or not your
3 model breaks down the class to identify those particular
4 people, or you just assume it is 100%?
5 A. Yes, in essence, I assume that everyone was so
6 effected.
7 Q. Okay. And nothing in your model breaks down the
8 class to identify and limit an award to only those who,
9 having made it through all the beliefs and the purchase
10 decisions, then smoked the cigarettes and compensated, right?
11 A. No, nothing. Although, it could very well be
12 that individuals in the Knowledge Network survey have
13 different educational level, different race, different
14 preferences for taste, different compensation, have different
15 valuations. And that they refer, they are indeed reflected
16 in the spread in those diagrams I showed.
17 Q. Okay.
18 A. But whether the individual compensated a little
19 or a lot, or overcompensated, having purchased Marlboro
20 Lights, I make the same assumption that in that individual,
21 the very fact of the purchase involved reliance on the
22 statements light --
23 Q. Right.
24 A. And lowered tar and nicotine. And that that
0122
 1 person, having then made the purchase, was in the entire
2 class without any breakdown.
3 Q. And you assume that every single one of those
4 persons compensated, compensated fully, permanently, correct?
5 A. No.
6 Q. I see. In constructing your damages model, you
7 do, you did not perform any analysis to determine whether
8 class members, either individually or a percentage of the
9 class, initiated their smoking with Marlboro Lights or
10 Cambridge Lights, did you?
11 A. No, I made, for the purpose of the calculation --
12 Q. The no will do.
13 A. Excuse me?
14 MR. SWEDLOW: Your Honor --
15 MR. WAGNER: It is a yes or no question, and he was
16 able to answer it. Constructing --
17 THE COURT: Go ahead.
18 MR. WAGNER: In constructing your damages, Dr.
19 Harris, you didn't perform any analysis to determine which
20 class members, either individually or a percentage of the
21 class, switched to Marlboro Lights or Cambridge Lights from
22 their full flavored counterpart, did you?
23 A. No, I did not. Not in connection with my damage
24 estimate.
0123
 1 Q. Nor did you perform any analysis or study to
2 determine which class members, either individually or as a
3 percentage of the class, switched to Marlboro Lights or
4 Cambridge Lights from any full flavored cigarettes, did you?
5 A. No, I did not.
6 Q. Nor, in constructing your damages model, did you
7 perform any analysis to determine which class members either
8 individually or as a percentage of the class switched to
9 Marlboro Lights or Cambridge Lights from a different light
10 cigarette, did you?
11 A. No, I did not.
12 Q. Okay. And regarding smoker compensation, you
13 didn't perform any empirical analysis of the class regarding
14 any mechanism of compensation or whether it was employed by
15 class members or for what extent, correct?
16 A. Not that were specific to class members, although
17 obviously I have knowledge of compensation.
18 Q. Okay.
19 A. That might quite in general be relevant.
20 Q. Right. You did not attempt to measure the tar
21 and nicotine intake that the class members actually received
22 from the Marlboro Lights or Cambridge Lights cigarettes?
23 A. That's correct, not individually.
24 Q. Nor did you attempt to measure or quantify the
0124
 1 tar and nicotine that class members actually received from
2 the full flavor counterparts or any full favor cigarette, did
3 you?
4 A. No, I did no such analysis of smoking topography
5 of any class member. Although I might have knowledge of that
6 as applies to smokers generally.
7 Q. And nothing in your model identifies or
8 quantifies class members who received tar and nicotine yields
9 equal to or greater than the full flavored counterparts of
10 Marlboro Lights or Cambridge Lights or any full flavored
11 cigarette, correct?
12 A. I think my previous answer applies.
13 Q. And that would apply at any time during the class
14 period, right?
15 A. Correct.
16 Q. And that would apply for any length of time
17 throughout the class period, correct?
18 A. Correct.
19 Q. And nothing in your model, by the way, identifies
20 or quantifies the class members who actually received tar and
21 nicotine yields greater than FTC method results, correct?
22 A. No, nothing in my analysis makes any calculation
23 of the proportion of individuals who would get higher tar and
24 nicotine yields than the FTC method.
0125
 1 Q. Okay. Okay, Your Honor, we are at a break point.
2 THE COURT: Okay, we will take a break, half hour.
3 MR. WAGNER: Thank you Dr. Harris, see you after
4 lunch.
5 A. See you after lunch.
6 *****
7 (Lunch recess was taken.)
8 *****
9 (Which was all the evidence offered
10 and received in the morning session.)

5 CROSS EXAMINATION

6 BY MR WAGNER:

7 Q. Welcome back, Dr. Harris. I think you said the

8 model you presented today is based entirely on your

9 analysis of the Knowledge Networks survey, correct?

10 A. Correct.

11 Q. And you do not consider yourself, though, an

12 expert in survey design. That's not our primary focus,

13 correct?

14 A. That's correct.

15 Q. You have had no formal training in the field of

16 survey design, have you?

17 A. No formal training with the exception that as

18 part of a regular economist training, but otherwise no.

19 Q. You've never published in the field of survey

20 design, have you?

21 A. Not in survey design journals, no.

22 Q. Now, the Knowledge Networks survey contains

23 certain questions, Numbers 12 through 17, that seek to

24 elicit information on the survey respondent's

3

 

1 willingness to pay for different products, right?

2 A. Correct.

3 Q. And that's known as a contingent valuation

4 analysis, correct?

5 A. Some economists would call it that, yes.

6 Q. And contingent valuation studies, your contingent

7 valuation study essentially posed hypothetical

8 questions, correct?

9 A. Correct.

10 Q. Okay. And contingent value analysis has come

11 under criticism in the economic literature for not

12 reflecting actual transactions, right?

13 A. In the general economic literature when you talk

14 about all contingent valuations, indeed, that is

15 correct.

16 Q. The criticism is that willingness to pay

17 questions are subject to the bias of being hypothetical

18 transactions not real ones, and, therefore, they're

19 talking about funny money, correct?

20 A. Yes. In fact, that's a phrase I cited in my

21 course and in my deposition.

22 Q. Right.

23 A. For example, if they asked people how much would

24 you pay to save the whales, that's a very difficult

4

 

1 hypothetical for people to deal with.

2 Q. And the funny money critique has been repeatedly

3 brought up in the economic literature, correct?

4 A. Yes. Especially in environmental contingent

5 valuations.

6 Q. But late October, you provided input that

7 resulted in the formulation of Questions 12 through 17

8 of the Knowledge Networks survey, the substance of what

9 the language should be, correct?

10 A. Correct.

11 Q. And at that time, at the time that you were

12 drafting those questions and even later when we took

13 your deposition in December, you couldn't identify any

14 textbooks or any other publications that you believed

15 authoritative in the field of contingent valuation,

16 correct?

17 A. Correct.

18 Q. At that time, the time you designed the

19 contingent valuation survey questions, you didn't know

20 whether any governmental agency had ever issued an

21 authoritative report regarding appropriate design

22 parameters for contingent valuation method surveys,

23 correct?

24 A. Correct.

5

 

1 Q. You couldn't even identify any experts in the

2 field of survey design, correct?

3 A. No. All I could tell you is the articles in peer

4 review journals, that I taught them.

5 Q. Okay. And at the time you designed the

6 contingent valuation survey questions then, you had no

7 formal training in the field, you were unaware of

8 authoritative texts or government guides. You also

9 didn't have any discussions with any economists or

10 anyone else who might be knowledgeable in the area of

11 contingent valuation in connection the construct of the

12 Knowledge Network survey or your analysis, correct?

13 A. No. Not in connection with the work in this

14 case.

15 Q. Okay. So you did not have those discussions,

16 correct?

17 A. No, not in connection with this case.

18 Q. All right. Now let's discuss what you did and

19 how you did it. Your diminution in value analysis

20 assumes both the reliability and the validity of the

21 Knowledge Networks survey, correct?

22 A. Those portions of the survey that I relied upon,

23 yes.

24 Q. The answer to my question is yes, you assumed the

6

 

1 reliability and the validity of those portions of the

2 Knowledge Networks survey, correct?

3 A. That I relied on, yes.

4 Q. All right. And it is a survey of respondent's

5 willingness to pay in November, 2002 when the questions

6 were asked, right?

7 A. Correct.

8 Q. The questions upon which you relied did not ask

9 about willingness to pay in the past, right?

10 A. Correct.

11 Q. And in fact, I think on direct you testified that

12 you shouldn't be asking questions about the past of

13 former smokers, right?

14 A. It would be difficult to get reliable answers.

15 Q. Okay. And you testified, I believe, that up to

16 two-thirds of the class consists of former smokers,

17 right?

18 A. Yes. Well, not former smokers. They're either

19 people who quit or who no longer smoke Marlboro Lights

20 or for that matter continue to smoke Marlboro Lights but

21 they're out of the State.

22 Q. Okay.

23 A. But some of them, indeed, are what we call former

24 smokers.

7

 

1 Q. All right. Now, the survey began with a question

2 about whether or not people could recall why they had

3 chosen to smoke light cigarettes. I mean the entire

4 survey. Do you recall that?

5 A. Vaguely.

6 Q. Okay. And you recall that 23 percent of the

7 people said no, they couldn't recall why they had chosen

8 to smoke a light cigarette?

9 A. No. I didn't scrutinize that material. I

10 couldn't tell you one way or another what the answer

11 was.

12 Q. Okay. Whatever the answer was to the question,

13 it will be what it was. I'll represent to you that it

14 was 23 percent of the sample. But we have no basis for

15 knowing that those people, whatever the percentage of

16 the sample was, or why they made any purchase decision

17 or that they made the purchase decision on the basis of

18 any particular representation or misrepresentation,

19 correct?

20 A. I have a problem answering your question because

21 there is a legal assumption or a -- well, the basis is

22 the testimony of other experts in the case. It isn't my

23 bailiwick. People testified that individuals relied

24 upon messages issued by the manufacturer. As to whether

8

 

1 we together in this courtroom have a basis, I don't

2 know. That's not my investigation.

3 Q. Mr. Harris, I'm talking about the Knowledge

4 Networks sample, those respondents, those respondents.

5 If 23 percent of that sample said they could not recall

6 why they initially made a purchase for Marlboro Lights,

7 then there is no basis for knowing that these people

8 made any purchase decision on the basis of any

9 misrepresentation, right?

10 A. You're going to have to ask Dr. Cohen,

11 Dr. Dennis, somebody else about that.

12 Q. But nevertheless, you included all of those

13 people in your hypothetical damages questions, didn't

14 you?

15 A. That is correct. Well, all of the people who

16 answered the question other than I don't know or

17 refused.

18 Q. Even though that 23 percent of the sample

19 couldn't recall why they first purchased Marlboro Lights

20 and, therefore, couldn't tie it to safety beliefs or the

21 descriptors, you put the hypothetical damages questions

22 to them and included their responses in your damages

23 estimates, right?

24 A. Well, your assumption has a conclusion that

9

 

1 because they couldn't recall something, therefore, some

2 other conclusion about tying the safety descriptors

3 occurs. Again, that is something for other experts. I

4 can't agree or disagree with the premise.

5 Q. Fine. The willingness to pay diminution in value

6 questions are contained in Questions twelve through

7 seventeen of the survey, right?

8 A. Correct.

9 Q. And to your knowledge, those questions weren't

10 pretested, were they?

11 A. If you mean by pretested the exact same wording

12 was asked of some prior group, the answer is no, they

13 were not pretested.

14 Q. Okay. You cannot and do not offer any testimony

15 today regarding whether Knowledge Networks conducted any

16 tests to measure or to ensure that the respondents

17 understood Questions 12 to 17, right?

18 A. You're going to have to ask Mr. Dennis that.

19 Q. Right. You don't know whether any focus groups

20 were conducted, do you?

21 A. Not that I am aware of.

22 Q. Okay. You're not aware of any cognitive

23 interviewing before putting any of those questions to

24 the sample, correct?

10

 

1 A. I know that Mr. Dennis has been doing surveys for

2 awhile. What he did that would bear on the survey is

3 something that you'll have to ask him. I don't remember

4 reading any cognitive interviewing.

5 Q. Right. Now, you asked a hypothetical question.

6 You asked consumers to choose between a Marlboro Light

7 cigarette that is just as harmful or could be more

8 harmful than a Marlboro Red and a hypothetical cigarette

9 that really is safer, right?

10 A. In essence, yes. They're two different

11 questions.

12 Q. Right. But the questions didn't identify this

13 hypothetical cigarette, did they?

14 A. They described them. I'm not sure what you mean

15 by identify them. You mean give a brand name to it?

16 Q. For example, in the just as harmful case, the

17 respondents weren't responded any information on the

18 meaning of less harmful or safer, were they?

19 A. I think they were. Let's look at the question.

20 Q. Well, do you recall testifying about that in your

21 deposition?

22 A. All I can remember is that the individuals were

23 offered information about do not deliver any less tar

24 and nicotine and were less harmful, so there is this

11

 

1 part about did not deliver any less tar and nicotine.

2 Beyond that, I don't think there is anything in the

3 survey on the just as harmful part.

4 Q. Okay. Was there anything in -- Was there any

5 information providing -- Question 12, for example, the

6 just as harmful case, on the meaning of less harmful or

7 safer, in that question?

8 A. Within that question?

9 Q. Yes.

10 A. No.

11 Q. Okay.

12 A. There is no footnote or elaboration as to what

13 those words mean.

14 Q. Was any participant told how much safer or to

15 what extent the hypothetical Marlboro Light cigarette

16 would be less harmful?

17 A. No. Again, the words are just as they are in the

18 question.

19 Q. No risk reference points were given to the

20 questions, right?

21 A. Well, the reference points were just as harmful

22 or less harmful than Marlboro Reds. I think my

23 knowledge of these things is that that's a risk

24 reference point.

12

 

1 Q. Okay. No attempt was made in the survey to

2 understand respondents' present risk beliefs, was there?

3 A. Unless it was in the first part of the survey,

4 no.

5 Q. And at least in the just as harmful case, no

6 information was given to respondents on the type of harm

7 that was reduced by the hypothetical cigarette, correct?

8 A. Insofar as I know -- I know those questions. In

9 the just as harmful case, it just simply says just as

10 harmful and that it delivered no less tar and nicotine.

11 But it does not in that case make any description as to

12 what just as harmful means other than the words as they

13 stand.

14 Q. And you obtained price points at ten percent

15 intervals, right?

16 A. Yes. The discounts at ten percent intervals.

17 Q. Discounts of ten percent intervals. And then you

18 applied those values for everyone in the class for the

19 last thirty years even though they only asked about

20 people's present willingness to pay, correct?

21 A. Correct.

22 Q. You'll agree with me that willingness to pay

23 varies by individual, correct?

24 A. Correct.

13

 

1 Q. And in fact, we saw from the survey results that

2 there were people, for example, in the just as harmful

3 case that were picking as every single one of those

4 price points between zero and 100 percent, right?

5 A. Virtually. There may have been some gaps.

6 Q. Okay. Now, willingness to pay not only varies by

7 individual, I think you have also agreed with me it can

8 vary over time, correct?

9 A. Yes. We did this already.

10 Q. Okay. And prior to completing your analysis and

11 presenting your expert report and testifying today, you

12 didn't check to see, did you, whether the results of the

13 data in the Knowledge Networks survey were internally

14 consistent -- for example, let me make sure that you

15 know what I mean by internally consistent. You didn't

16 check, for example, to see whether respondents who had

17 the strongest beliefs regarding descriptors were also

18 giving the lowest valuations to the misrepresented

19 lights, did you?

20 A. Well, I checked it but I didn't know more or less

21 with it than make that observation. As to whether

22 someone -- in regard to this inconsistent, you're going

23 to have to ask one of the other experts, Dr. Cohen,

24 Dr. Dennis, somebody else.

14

 

1 Q. Okay. And there was no external data set against

2 which you could check the validity of any of the results

3 from the Knowledge Networks survey, right?

4 A. What external data set would you use? I'm not

5 sure. I think the answer is no, there isn't.

6 Q. Okay. Very good. Now, let's talk about

7 economics. Let's get some fundamentals, some economic

8 fundamentals down regarding prices consumers are willing

9 to pay. As an economist, you are familiar with demand

10 curves, right?

11 A. Correct.

12 Q. Demand curves slope downward, right?

13 A. Almost all the time.

14 Q. Almost all the time. Which means, drawn here,

15 price, quantity, that is a demand curve, right?

16 A. Correct.

17 Q. Give or take. All right. Now, the sloping line,

18 the sloping line represents purchasers who are willing

19 to pay at various price points, correct?

20 A. Or different units that an individual would be

21 willing to pay at different price points.

22 Q. And for cigarettes, will you agree with me that

23 even though there is addiction, it has been studied, and

24 there is in fact a traditional downward slope in demand

15

 

1 curve for cigarettes?

2 A. Traditional in the sense that it has a price

3 elasticity that has been estimated, still thought to be

4 at approximately .4.

5 Q. Okay. That being the answer to my question is

6 yes, there is a downward sloping demand curve for

7 cigarettes?

8 A. Yes.

9 Q. Okay. Now, let's insert a point on the demand

10 curve right here. (Indicating.) And let's call that

11 price for Marlboro Lights. This point then would

12 represent the price at which the marginal consumer is

13 willing to purchase Marlboro Lights, correct?

14 A. This is with or without -- Which kind of Marlboro

15 Lights is this? This is the one that was promised or

16 the one that was delivered?

17 Q. Marlboro Lights on the market today.

18 A. Okay. So the Marlboro Lights that are on the

19 market today, there is a marginal consumer that would be

20 willing to pay exactly that price, and still others

21 would be willing, if they had to, to pay more.

22 Q. That's right. All of the people up here to the

23 left of our point would represent purchasers, right?

24 A. Purchasers who for the Marlboro Lights available

16

 

1 on the shelf today by itself would be willing, if they

2 had to, to pay even more than the current market price

3 but in fact are paying the current market price.

4 Q. If the price went up but it was still below the

5 price they were willing to pay, they would keep buying

6 them, right?

7 A. Some of these people like the marginal person

8 would drop out. And the others would, indeed, pay more.

9 Q. The people below the point, those are the ones

10 who it is too expensive for them. They're not buying,

11 right?

12 A. They're either not smoking or they're buying some

13 other cigarettes.

14 Q. The price would have to drop to induce them to

15 buy if they otherwise would buy Marlboro Lights, right?

16 A. Correct.

17 Q. Okay. For those who are purchasing Marlboro

18 Lights now in the market, those above the price point,

19 the downward slope in the demand curve tells us that

20 their willingness to pay is greater than or equal to the

21 market price, correct?

22 A. That is correct.

23 Q. Okay.

24 A. They would pay more if they had to, everybody

17

 

1 above the marginal consumer.

2 Q. Right. And all of these people are willing to

3 pay more than the current market price. That means

4 they're deriving some value from the cigarette greater

5 than the market price, right?

6 A. Yes. That's called the consumer surplus. I hope

7 I didn't answer your next question.

8 Q. Consumer surplus. All of the area in this

9 triangle we would call consumer surplus, right?

10 A. The cumulative sum of all of the excess valuation

11 is taught in about the fourth week of economics to be

12 called consumer surplus.

13 Q. Right. It is in basic microeconomics texts,

14 including the one used at M.I.T. in Economics 101,

15 right?

16 A. Yes.

17 Q. I don't know if it is Economics 101, but I called

18 the M.I.T. bookstore. (Indicating.)

19 A. That is the microeconomics textbook that has been

20 used in the first semester of economics at M.I.T.

21 Q. And it teaches that entire area under the curve

22 is consumer surplus. That is the benefit from the value

23 consumers are placing on the Marlboro Lights product but

24 they didn't pay for it, right?

18

 

1 A. It is, indeed, a benefit that they receive net of

2 their purchase price.

3 Q. Excellent. Well said. Now, your calculation of

4 economic logs as you testified to was an attempt to

5 implement a benefit the bargain of the rule, right?

6 A. That's what I understand the name of the rule to

7 be, yes.

8 Q. Okay. And for your dimunition in value analysis

9 as you calculated economic loss, you said economic loss

10 I think would be the difference between the actual value

11 of the property sold and what they were promised and the

12 value - or the actual value of the property sold, in

13 other words, what they got, and the value the property

14 would have had had the representations been true,

15 correct?

16 A. Yes. The value to the consumer of what was

17 promised less the value to the consumer of what was

18 received.

19 Q. Okay. So we could express this mathematically,

20 can't we? We could say that your model is the value of

21 the genuine good that really was lighter minus the value

22 of the fake good, you called it misrepresented, people's

23 loss?

24 A. Right.

19

 

1 Q. Okay. Now, in your view --

2 A. I should say, my understanding of the law, at the

3 time of purchase.

4 Q. At the time of purchase. That's fine. Now, in

5 your view, this equation, this calculation of economic

6 loss and damages that you have put forward permits loss

7 and the recovery of damages beyond the purchase price of

8 a product, right?

9 A. No.

10 Q. Okay. Do you recall giving a deposition in this

11 case?

12 A. Yes.

13 MR. SWEDLOW: Is there a page?

14 MR. WAGNER: Page 47.

15 MR. TILLERY: Which deposition?

16 MR. WAGNER: The December one.

17 Q. My question to you is whether or not you believe

18 the benefit of the bargain analysis allows the recovery

19 of damages beyond the purchase price of a product.

20 MR. SWEDLOW: Your Honor, the question is totally

21 different, 100 percent different than the one he asked

22 before. So if he's trying to impeach for a new

23 question, that's fine, but I think the witness should

24 get to answer the new question.

20

 

1 THE COURT: Which question are we on?

2 Q. My question is whether or not you believed -- I

3 think you told me you were employing a benefit of the

4 bargain analysis. That was your understanding. And so

5 I want to know whether the benefit of the bargain

6 analysis allows the recovery of damages beyond the

7 purchase price of a product.

8 THE COURT: Okay.

9 A. Well, I think I'm entitled to explain what I was

10 doing in this deposition question. The answer is in the

11 deposition, in the context that you asked it, yes. The

12 loss can exceed what was the difference in the price.

13 If the misrepresentation included a representation that

14 the product was in fact more valuable than the market

15 price, then in that case, under a benefit of the bargain

16 analysis, the recovery of damages can exceed what was

17 the price of the product. And I gave the example of the

18 diamond that was worth a certain amount but was

19 represented by the seller as worth even more. In that

20 case, it could exceed it.

21 Q. We're going to come to the diamond analysis.

22 We'll go over that at some length here. Okay? My

23 question to you now is using the analysis that you just

24 explained, the value of the genuine and the value of the

21

 

1 fake represent the consumer's subjective evaluations in

2 relation to each other. They're not necessarily the

3 price paid, right?

4 A. No. That's wrong.

5 Q. Well, isn't that what you just explained to me,

6 Dr. Harris? You said in a case where you have a

7 misrepresentation about what the value can be that it

8 can exceed the purchase price, right?

9 A. But that's not what I said, no. What I said is

10 -- First of all, in this case, the value of the good,

11 the genuine good was the market price of Marlboro

12 Lights. So, okay. Putting that aside, if you had a

13 case, a different hypothetical where somebody said

14 you've got a deal here on a diamond that is worth

15 $10,000 and then the consumer relied above and beyond

16 that on the representation that it was worth $10,000,

17 then in that case the damages could exceed the market

18 price because the misrepresentation resulted in a change

19 in the consumer's belief about the price.

20 Q. So, in your view, a consumer can then suffer an

21 economic loss greater than the price paid?

22 A. That is an example of a hypothetical case not

23 matching the facts here --

24 Q. Understood.

22

 

1 A. -- in which the benefit of the bargain rule can

2 exceed the out-of-pocket damages.

3 Q. Your rule was as follows: Even though you didn't

4 look for any, if there was a Marlboro Light smoker, a

5 class member whose decision to smoke Marlboro Lights was

6 not affected in any way by anything Philip Morris said

7 or failed to say, that smoker wouldn't suffer any out of

8 pocket loss, correct?

9 A. Could you repeat the question? I thought I lost

10 the beginning.

11 Q. Sure. If there was a Marlboro Light smoker, a

12 class member, whose decision to smoke Marlboro Lights

13 was not affected in any way by anything Philip Morris

14 said or failed to say, that smoker wouldn't suffer any

15 out of pocket loss, would he?

16 A. It sounds to me like you're saying Philip

17 Morris's actions were not a but for cause of anything

18 that the consumer did. That person would be out of the

19 class.

20 Q. That smoker would still suffer a loss under your

21 diminution in value theory, wouldn't he?

22 A. No.

23 Q. Okay. Let's turn to Page 50. Let's look at,

24 starting at Page 49 of your deposition. Okay? Line 19.

23

 

1 Tell me when you're at Page 49.

2 A. I'm there.

3 Q. Line 19, the Question: "Let me clarify because

4 I'm not, based on your answer I'm not sure I can get an

5 answer to my question appropriately. Please assume

6 there is a smoker of Marlboro Light cigarettes whose

7 decision to smoke Marlboro Light cigarettes was not

8 affected in any way by anything Philip Morris said or

9 did not say. Did that smoker of Marlboro Light

10 cigarettes suffer any out-of-pocket loss?"

11 Answer: "No."

12 MR. SWEDLOW: Your Honor, this is exactly the

13 testimony he just gave today. There is no impeachment

14 going on here.

15 MR. WAGNER: I'm not done.

16 THE COURT: He's not there yet.

17 Q. Answer: "No. He would not have because he would

18 have bought the cigarette anyway under that

19 hypothetical."

20 Question: "Would that smoker of Marlboro Light

21 cigarettes suffer any loss under the analysis reflected

22 in Harris Exhibit 2?" Which was your diminution in

23 value report.

24 Answer: "Yes, he would have. He or she would

24

 

1 have."

2 Question: "Does the analysis in Harris Exhibit 2

3 --"

4 And you said, Answer: "Wait a minute. I should

5 make sure I got the pretext for the preamble of your

6 last question. Your preamble was --"

7 And Mr. Swedlow speaks. Then there is a

8 question: "Dr. Harris, would it help to repeat my

9 question?"

10 Answer: "Sure."

11 And then the reporter read back the question as

12 requested. And then on Line 25, you say, "Yes. That's

13 correct."

14 Were those questions put to you and did you give

15 that answer?

16 A. I'm not sure I even understand now what the

17 question was or what the preamble was but I can testify

18 now that if you're going to find someone who is excluded

19 from the class because he did not rely in any way on

20 Philip Morris's representations, he was not injured in

21 any way, he wouldn't have any loss. He's out.

22 Q. He's out. Your model, of course, doesn't allow

23 us for identify those smokers, does it?

24 A. If such people existed, it could be reliably

25

 

1 determined. No, I've made no determination of that.

2 Q. Let's see if we can get the theory straight.

3 We'll begin with a hypothetical, okay? This is also one

4 you discussed at your deposition. Okay? A house. We

5 have a buyer of a house. The buyer of the house

6 believes that the value of this house is $225,000. The

7 seller has made a representation to him that the house

8 is dry. The buyer has gone around to banks seeing if he

9 could get a mortgage. The bank has even given him an

10 appraisal saying yes, we value the house at $225,000

11 assuming that it is dry.

12 A. Did the seller say you've got a deal?

13 Q. Hang on. The seller said it is dry.

14 A. All right.

15 Q. Now, they negotiate an actual price, $200,000.

16 The seller, though, believed it was worth $225,000.

17 Then it rains and the basement floods. It is not really

18 a dry basement at all. And the actual value is

19 $150,000. Okay? Those are your three prices. In this

20 hypothetical, you would find the loss to be $75,000,

21 wouldn't you?

22 A. Only if the representation of the $225,000 was

23 directly tied to the seller's representation. If the

24 seller said, Let me tell you something. I'm going to

26

 

1 give you a $225,000 house for $200,000. You've got a

2 deal. Then the misrepresentation is tied to the price.

3 This would be an example of where under the benefit of

4 the bargain standard, the value to the consumer of the

5 good that was promised is a promised $225,000. This is

6 different from the case where the seller had no part at

7 all and after the fact the consumer tried to drum up a

8 higher valuation. That is different. In that case, the

9 value of the good promised would be $200,000.

10 Q. You've said based upon the hypothetical that I

11 gave you that the value of this loss is $75,000, right?

12 A. Only when the seller's representations are you're

13 getting a deal are part of the bargain.

14 Q. Okay. And the seller has represented the house

15 is dry in the hypothetical. Under a benefit of the

16 bargain analysis as you've applied it, the loss would be

17 the difference between the $225,000, that is, what the

18 purchaser regarded as the fair market value of the

19 house, and $150, which was in fact the actual value of

20 the house, right?

21 A. Provided that the purchaser's assessment of the

22 value of what was promised relied upon the statement by

23 the seller that you're getting a deal rather than the

24 opposite case in which the buyer and the seller both

27

 

1 thought it was a $200,000 house but once they got into

2 court the buyer says I'm going to get the best

3 assessment I can. That's different.

4 Q. Let's see how Knowledge Networks matches up with

5 this. Marlboro Lights, Knowledge Networks. Okay? Does

6 Knowledge Networks tell us in dollars and cents the

7 value that any respondent places on the genuine lights?

8 A. It does, yes.

9 Q. It does? And what value in dollars and cents

10 does Knowledge Networks survey respondents tell you is

11 the value of a genuine light, in dollars and cents?

12 A. The price of what you could purchase your regular

13 Marlboro Lights.

14 Q. The Knowledge Networks hypothetical tells people

15 to assume that, right? It says assume that you can buy

16 a genuine lights for the price you've been purchasing

17 Marlboro Lights, right?

18 A. Correct. It assumes that.

19 Q. It doesn't ask people what are you willing to pay

20 for a genuine light, does it?

21 A. No, it doesn't. It attempts to obtain what the

22 market value of the promised good is and not the maximum

23 that people might be willing to pay, as we've just

24 learned from Pendite and Rubinfeld, would exceed that.

28

 

1 Q. Does the Knowledge Networks survey tell us in

2 dollars and cents what respondents are willing to pay in

3 dollars and cents for the value of the fake light?

4 A. Yes. As opposed to the genuine light, which is

5 put on the market at the market price, the

6 misrepresented light or you say fake light is not

7 something that is valued directly in the market but

8 whose value is obtained from the survey.

9 Q. Right. And it is a value in relation to a

10 hypothetical cigarette that you insert into the

11 equation. Nobody ever says that my willingness to pay

12 for Marlboro Lights is so many dollars and cents, do

13 they?

14 A. Be careful. Under the plaintiffs' claim, the

15 Marlboro Lights that were sold unpromised was not

16 hypothetical. It is what everybody thought they were

17 buying. It is not hypothetical. If in fact plaintiffs'

18 claim is true, then that is the market value -- the

19 price of Marlboro Lights is in fact the market value of

20 the good that was promised. And following that logic, I

21 asked consumers to assume that the genuine light was

22 available at the market price of Marlboro Lights.

23 Q. Right. That's an assumption. You did not ask

24 directly any respondent what is your willingness to pay

29

 

1 for a Marlboro Light if you just assume that it is just

2 as harmful as a Marlboro Red, right?

3 A. No. You do ask people that. You have them

4 assume that the value of the genuine light is the market

5 price because that's what they thought they were getting

6 under the plaintiffs' claim.

7 Q. Right. You asked them a price in relation to

8 this hypothetical cigarette. You have never asked them

9 what is in dollars and cents your willingness to pay.

10 That doesn't ever appear in the questions, right?

11 A. First, it is not a hypothetical cigarette.

12 People thought they were getting under the plaintiffs'

13 claim a genuine light cigarette. But second, I do not

14 ask in absolute value. Instead I thought it was more

15 appropriate to ask a percentage discount because I

16 thought people could -- It is very common in economic

17 analysis to ask people what percent off do you want from

18 the price.

19 Q. You told me now, and I just want to make sure I

20 get it. It didn't ask in absolute value, did it?

21 A. It did not ask in absolute value for the value of

22 the misrepresented lights in a bargain in which both the

23 promised and the misrepresented lights are on the shelf

24 at the same time. Instead, it asks for a percentage

30

 

1 discount.

2 Q. Now, I want to take our hypothetical cigarette

3 out of the equation for a minute, and I want to come

4 back to our downward sloping demand curve. Just suppose

5 Okay. Just suppose that we are talking about a consumer

6 who is willing to pay this much, way above the market

7 price, okay?

8 A. Yes. He might -- If you had to, he might spend

9 $20 for a pack.

10 Q. Right. He might be out there. Now, he learns

11 all of the facts the plaintiffs are complaining about,

12 okay? He learns that Marlboro Lights are not safer, in

13 fact could be more harmful. Knowledge Networks -- And I

14 want you to assume now that his willingness to pay money

15 goes down. Knowledge Networks doesn't tell us the point

16 at which it goes down, does it, in absolute terms?

17 A. I don't understand the question. Let's take the

18 individual at the point on your demo there.

19 Q. Right here.

20 A. This is the guy who is willing to pay $20 for

21 what he thinks is a safe cigarette.

22 Q. Right.

23 A. It's on the shelf on the market for, let's say,

24 $5. The question is asking him to discount off of the

31

 

1 $5, not the discount off of the $20.

2 Q. That's what your question said. What I am asking

3 you now is your question didn't identify the price he's

4 willing to pay in absolute terms nor did your questions

5 identify the willingness to pay the price, the absolute

6 value once he learns the facts the plaintiffs are

7 complaining about, does it?

8 A. If you were doing an analysis that focused not on

9 the value but on the maximum willingness to pay, you

10 actually, I believe, could infer how much that black dot

11 drops, but that's not what I was going after.

12 Q. That's not what you were doing. For all you

13 know, the price could drop to this point, right? It

14 could drop to right here once he learns the facts?

15 A. Once he learns the facts, you are changing the

16 bargain, and you've got to be careful.

17 Q. Um-hum.

18 A. Once the person is told that there is no longer

19 any such thing as the safe cigarette he thought there

20 was, even that fact alone is going to change his

21 willingness to pay. That happens all the time.

22 Q. Right.

23 A. When you found out that you don't got what you

24 wanted to get, you make do. So I would be very careful

32

 

1 about this willingness to pay thing. I would be very

2 careful about using the case where after a person is

3 told, they can't get this genuine light cigarette using

4 their willingness to pay after that. That's different.

5 Q. I see. Right. Because we don't know whether

6 that cigarette in fact exists. All right. Now, let's

7 see how your model works and make sure we have a very

8 good understanding of what you did. Okay? In your

9 model, you present this choice between a Marlboro Light

10 this just as harmful or more harmful than a Marlboro Red

11 and a different cigarette that really is safer than a

12 Marlboro Red, right?

13 A. Right, provided that the genuine lights was

14 available at the market price, which would be the value

15 that was promised.

16 Q. That's my next question. You anticipated me, Dr.

17 Harris. It costs exactly the same as they paid for

18 Marlboro Lights, right, a really safer cigarette?

19 A. Yes. That's right.

20 Q. Now, some people in response to that question

21 were going to choose Marlboro Lights, right? They did.

22 Some people when presented with a choice between a

23 really safer cigarette at the price they were paying for

24 Marlboro Lights or a just as harmful Marlboro Lights

33

 

1 chose the just as harmful Marlboro Lights, right?

2 A. Correct.

3 Q. Now, for those people, their willingness to pay

4 is 100 percent of the market price, right?

5 A. Yes, or equivalently that. A zero percent

6 discount.

7 Q. Zero loss, right?

8 A. Yes.

9 Q. Now, some people choose the really safer

10 hypothetical cigarette, right?

11 A. The rest of them.

12 Q. They won't buy the misrepresented lights. I'm

13 talking about the group of people who won't buy this

14 misrepresented lights at any price. There is a group of

15 those people, right?

16 A. Yes. That was the very top -- the bar that would

17 be on my diagram to the left, that's the group of people

18 who wouldn't pay any price for the misrepresented lights

19 when both are present in the bargain.

20 Q. Right.

21 A. They have a zero percent in my chart or, putting

22 the flip side of it, a 100 percent discount.

23 Q. They won't pay any amount, so their loss is the

24 full purchase price, 100 percent, right?

34

 

1 A. Correct.

2 Q. Okay. And then, based upon the questions that

3 you asked, you're getting a bunch of people who are

4 choosing at different price points in between, from 90

5 down to 10 percent, right?

6 A. Correct, or from zero up to 100 percent discount.

7 Q. 90, 80, all the way down to 10, and there is this

8 inverse relationship, right? If I am willing to pay 90

9 percent then my loss is only ten percent of the purchase

10 price, right?

11 A. Right. And I tried to use the word in my direct

12 testimony that that is the discount they wanted off the

13 price.

14 Q. I've captured all of your price points, right, or

15 all of your loss points, right?

16 A. All of them in the ten percent grid, yes.

17 Q. What you were doing is you were asking somebody,

18 Okay, if you weren't going to choose the Marlboro

19 Lights, how about if I give you this equation, if I let

20 you pick the safer, the really safer Marlboro at the

21 same price, but in the first shot you would say, or

22 would you choose Marlboro Lights that is just as harmful

23 at half off, right?

24 A. To be more precise, the wording was

35

 

1 demonstrative, or whatever it is that I showed, where I

2 said that you get the one that is genuinely harmful or

3 you get the one that is just as harmful or it could be

4 more harmful at half price. That would be the 50

5 percent point.

6 Q. Then if they said they would, then you wanted to

7 see how much are they willing to pay. So you ask them

8 at 60 percent, 70 percent, 80 percent or 90 percent,

9 right?

10 A. Yes. Depending on whether it is yes or no or

11 that they would either go over to a greater or lower

12 discount.

13 Q. All right. And if they said no, then you wanted

14 to see if there is any price at which we can induce them

15 to buy, and you asked them about 40 percent, 30 percent,

16 20 percent and 10 percent?

17 A. Or presently that you would have a discount even

18 higher than 50 percent.

19 Q. Right. So that gets all of our price points.

20 And you're asking people in this question to manipulate

21 then price, safety and different products, right?

22 A. Manipulate?

23 Q. Sure. They have to think about that in their

24 mind. They have to think about different price points,

36

 

1 they have to think about different products, and they

2 have to think about the risk, right? They just have to

3 think about all of those things in order to answer your

4 question, right?

5 A. Correct.

6 Q. And the price of cigarettes, by the way, might

7 affect someone's willingness to pay? You agreed with me

8 earlier on that point, right?

9 A. No. It is the availability of substitutes that

10 would affect a person's willingness to pay.

11 Q. Price has nothing to do with somebody's

12 willingness to pay?

13 A. Under the top dot on your diagram is the matter

14 of an individual's preferences.

15 Q. I see.

16 A. The prices of substitutes could but the price of

17 the good itself is separate. You'll buy the good if

18 your willingness to pay exceeds that price.

19 Q. All right. All right. I understand what you're

20 saying. Now, the price of cigarettes, by the way, here

21 in Edwardsville might be different than the price in

22 Chicago, correct, at any given point in time?

23 A. Correct.

24 Q. But you use a statewide average and apply that to

37

 

1 everybody, right?

2 A. Yes. Once I have got the discounts, I'm in

3 essence doing that.

4 Q. Now, in your calculation then, even though you've

5 got all of these different percentages of loss, you take

6 an aggregate and apply it to everybody, right?

7 A. That's right. Once I get the average of cross

8 individuals in the survey, I apply it in the aggregate

9 to everyone in the class.

10 Q. So the Marlboro Lights purchaser who is willing

11 to continue buying Marlboro Lights and who is willing to

12 pay the full price and have zero loss, that person gets

13 a 77.7 percent refund in the just as harmful case,

14 right?

15 A. Oh, I don't know how the damages are going to be

16 distributed. I haven't even addressed that at all. No,

17 I don't think that is right.

18 Q. Well, you have included every single pack of

19 Marlboro Lights and Cambridge Lights ever sold in

20 Illinois, correct?

21 A. The direct absent to your question is yes, I've

22 compared it. The direct answer to your prior question

23 still is no.

24 Q. And in calculating damages then, you got an

38

 

1 average of 77.7 percent, and you apply it to all of the

2 packs that were sold in Illinois, right?

3 A. The answer to that question is yes.

4 Q. Okay. So there would be 77.7 percent for all of

5 the packs in this category, right, to calculate

6 aggregate damages?

7 A. That's where I have a problem. My purpose of my

8 calculation is to give total damages and not the

9 distribution of damages. And whether that distribution

10 on an individual basis would be contingent on individual

11 preferences is something I haven't addressed.

12 Q. Okay.

13 A. It is indeed true that once the total pie is

14 established, there could be separate economic analysis

15 of which I have not done as to what the pie's

16 distribution is.

17 Q. I accept everything you have just said.

18 A. Okay.

19 Q. Okay. For the purpose of calculating your

20 damages in this case, you would have taken all of the

21 purchases and apply the same 77.7 percent figure to

22 them, right?

23 A. To get an aggregate pie.

24 Q. Okay. I'm having trouble with the economics, but

39

 

1 I think you took the time at your deposition to say --

2 there was a hypothetical that you said would be

3 illustrative and be analogous to the case, and it

4 involved diamonds. And you began to talk about it a few

5 minutes ago, correct?

6 MR. SWEDLOW: I guess I'll object. If he is

7 going to talking about something, he can just ask him.

8 MR. WAGNER: I want to put his mind in the place

9 where he was.

10 THE COURT: He's trying to reference his mind in

11 this area. There was not a question.

12 Q. Now, this was your hypothetical, I believe.

13 Okay? You said there is a diamond sale and the diamond

14 seller represents to the purchaser that this is a very

15 valuable diamond. It is worth $10,000, right?

16 MR. SWEDLOW: He's saying you said, you said. He

17 can ask him about his diamond hypothetical. This is all

18 hearsay testimony.

19 THE COURT: Well, he's hypothesizing.

20 Q. Dr. Harris, I want to put you back in the mind of

21 your hypothetical so we can get it out here, okay?

22 There is a diamond seller that represents to a buyer

23 that there is very valuable diamond. It could be worth

24 up to $10,000, okay?

40

 

1 A. Yes. The representation leads the buyer to

2 believe that the diamond is worth $10,000. It is not

3 something that -- What is key in the example I gave is

4 that the seller's representation is integral to the

5 buyer's belief about the value rather than the buyer

6 after the fact drumming up what the value is.

7 Q. Okay. The price he actually sells it for,

8 though, is $1,000, okay?

9 A. Yes.

10 Q. And then the consumer goes home and finds out it

11 is not really a clear diamond, it is not -- It is just

12 an ordinary stone that is worth $1,000. Okay? Are you

13 with me?

14 A. Yes. I believe that is the example that I --

15 except with the clarifying comments now, that was the

16 example I was trying to give you to explain a particular

17 idea.

18 Q. Okay. So in this example, the loss, Dr. Harris's

19 loss was $9,000, right?

20 A. Yes. In that example, using the benefit of the

21 bargain standard in which it is the difference between

22 the value of what was promised and the value of what was

23 received, in that example, that would be $10,000 whereas

24 in an out of pocket loss, that would be zero -- I'm

41

 

1 sorry. $9,000, it would be zero.

2 Q. This analogy applies to this case, right?

3 A. Only in the sense that the genuine Marlboro

4 Lights was promised and the misrepresented lights was

5 received, but what is -- And that is true. But in this

6 case, what is different is that I'm just using for the

7 value of what was promised the market price.

8 Q. I understand.

9 A. What is different in this hypothetical is the

10 buyer isn't saying about you've got a deal on the price.

11 I'm sorry. The seller isn't saying that.

12 Q. You believe that your hypothetical is analogous

13 to your analysis in this case, correct?

14 A. To the extent that the Marlboro Light that was

15 promised is indeed like the diamond that was promised,

16 but there is distinction.

17 Q. Now I want to work through then exactly how the

18 Knowledge Networks approach, your methodology, would

19 apply to this hypothetical and see if we can't figure

20 out whether or not things really work. Okay? In your

21 hypothetical or in the Knowledge Networks approach, you

22 said let's assume they really could get the genuine

23 article at the price they had paid for the Marlboro

24 Lights, right? So in this example, you would have a

42

 

1 consumer buying the real diamond for $1,000, right?

2 A. Well, in this case, the seller is not

3 representing that you are getting a deal on the price.

4 The seller is just saying Marlboro Lights are light,

5 lower in tar and nicotine at a price.

6 Q. Right.

7 A. Okay? So there isn't the -- The additional

8 factor is there isn't a diamond example that there is a

9 representation of a deal, that this is some kind of high

10 quality diamond that you're buying for $1,000.

11 Q. The plaintiffs have alleged in this case that

12 there is a representation that there is more safety,

13 okay?

14 A. Correct.

15 Q. Here we have a representation that the diamond is

16 real and good. Okay? I want just you to bear with me

17 on that.

18 A. Yes. That it is a special diamond.

19 Q. Special diamond, special cigarette. And in the

20 Knowledge Networks approach, you said let's pose as the

21 first part of the hypothetical that the consumer could

22 buy the real deal, the valuable diamond, the valuable

23 cigarette, at the price they paid in the market for what

24 they actually bought, right? That was the way you

43

 

1 constructed the Knowledge Networks question is all I'm

2 asking, right?

3 A. Right.

4 Q. Okay.

5 A. So in the application to this case, the value of

6 what was promised would just be the market price because

7 nobody is saying, Hey, this is a $10,000 cigarette.

8 They're just saying -- The Knowledge Networks survey

9 says you're getting the genuine article at the price you

10 regularly pay for Marlboro Lights.

11 Q. Okay. If the seller said this is a really

12 valuable diamond and tied it to the consumer's belief

13 that it is really valuable and this $10,000 was

14 something that the consumer subjectively believed tied

15 to the representation but there was never a

16 representation about the specific price, would your

17 analogy still hold?

18 A. It would depend to me -- and I don't think I

19 pursued this carefully in the hypothetical in my

20 deposition -- what exactly the seller said. If the

21 seller said that this was a Tiffany diamond and it was

22 common knowledge that Tiffany was -- that you could get

23 a Tiffany for $10,000, then the value of what was

24 promised was $10,000. If the seller said in vague terms

44

 

1 you're getting a deal without mentioning a price, I

2 would have to think about it.

3 Q. Okay.

4 A. If the seller said this is a $10,000 diamond,

5 you've got a deal, then I think there is a

6 representation, and now the value to the consumer is

7 $10,000 because the valuation is linked to the $10,000.

8 Q. I want you to assume for me that this $10,000 is

9 the same as a representation of safety of Marlboro

10 Lights. Okay? I just want you to assume for me that

11 those are the equivalent for my followup questions. All

12 right? Because I want to follow the methodology of

13 Knowledge Networks and how it works through the example

14 you offered, through this example. Okay?

15 A. I'm not sure I'm going to be able to do this

16 because the Knowledge Networks is basically assuming

17 that the value of what was promised is the market price.

18 It does not assume that there is some premium value

19 above that.

20 Q. Yes, but I need to understand how Knowledge

21 Networks works before we can get to who has got what

22 premium, okay? So you've got a belief of a much more

23 valuable diamond at a lower price, right?

24 A. In the diamond example.

45

 

1 Q. In the diamond example. If we use the Knowledge

2 Networks methodology, then we would say the consumer

3 could buy the diamond, the real deal value for $1,000,

4 right?

5 A. Yes.

6 Q. Okay.

7 A. The market price in the Knowledge Networks survey

8 of a good is what the consumer purchased it for. And in

9 the diamond example, it is also $1,000, right.

10 Q. I'm sorry?

11 A. In the Knowledge Networks survey, the genuine

12 article was being offered at the market price of

13 Marlboro lights.

14 Q. Right. So you could buy --

15 A. In the diamond example, the diamond, whatever

16 representations are made about it, is being offered at a

17 market price of $1,000.

18 Q. Okay. So you could buy the $10,000 diamond for

19 $1,000 if we apply the example, right?

20 A. In the diamond case, with the seller's

21 representation of expensive value, the seller is

22 offering the buyer a false deal.

23 Q. All I asked, Dr. Harris, was whether or not in

24 the Knowledge Networks example if you apply the same

46

 

1 methodology a consumer could buy the $10,000 diamond for

2 $1,000. That was the first half of the question, isn't

3 it?

4 A. No. I don't think the Knowledge Networks

5 methodology addresses that question. The Knowledge

6 Networks survey does not reflect this circumstance in

7 which there is a representation that you're getting a

8 deal.

9 Q. Okay.

10 A. It simply says there is a good at a market value,

11 and you can get a genuinely safe cigarette at that

12 price.

13 Q. Let me ask you the question this way, Dr. Harris.

14 A. All right.

15 Q. If the rule is -- Instead of the rule about the

16 genuines versus the fakes in relation to each other and

17 the consumer expectations, if the rule is that loss is

18 price minus actual value, if that's the rule, okay,

19 under your hypothetical, what would be the loss in this

20 case?

21 A. The loss would be zero in an out-of-pocket loss

22 analysis.

23 Q. Okay. Now, I want to come back then and perhaps

24 then we've found a place where we can agree. If this is

47

 

1 the formula and this is our analogy, the loss is zero,

2 correct?

3 A. Yes, because an out-of-pocket loss is the

4 difference between the price and the actual value. A

5 benefit of the bargain is the difference between the

6 value as promised and the actual value.

7 Q. Right. And now let's go back then, circle back

8 to where we began. When any class member walked into a

9 store at any time in the class period and chose between

10 Marlboro Lights and Cambridge Lights, even if they

11 believed they were worth more, they didn't pay any extra

12 at retail for those light cigarettes, did they?

13 A. No, they didn't. They paid the market price.

14 That's right.

15 Q. They paid the market price. That's right.

16 That's the only question I needed to have answered under

17 this theory. And Dr. Harris, I thank you for your time.

18 A. Thank you.

19 THE COURT: Redirect?

20 MR. SWEDLOW: Your Honor, first a housekeeping

21 matter. Dr. Harris specifically referred to

22 interrogatory responses as part of the basis for his

23 damage calculation, and I forgot to offer Philip

24 Morris's interrogatory responses into the Record. So I

48

 

1 would like to offer Plaintiff's Exhibit 139 into the

2 Record, which is the Second Amended and Supplemental

3 Response of Defendant Philip Morris Incorporated,

4 Plaintiff's First Set of Interrogatories and First

5 Supplemental Set of Interrogatories Directed to

6 Defendant Philip Morris Inc. This document is verified

7 by the now famous Ms. Oramas who was the subject matter

8 of previously stricken testimony.

9 MR. WAGNER: Your Honor, we don't need his

10 characterization here.

11 MR. SWEDLOW: All right. The now famous part

12 aside, this is the verified interrogatory response.

13 THE COURT: Thank you.

14 MR. SWEDLOW: I would like to offer this into

15 evidence.

16 THE COURT: Any objection?

17 MR. WAGNER: No.

18 THE COURT: It will be admitted.

19 REDIRECT EXAMINATION

20 BY MR. SWEDLOW:

21 Q. Dr. Harris, while you were speaking with

22 Mr. Wagner, you were discussing the hypothetical

23 attorney who I think worked for the Illinois Attorney

24 General's Office and somehow became aware of the truth,

49

 

1 meaning a light cigarette was neither less harmful nor a

2 reduction in tar compared to a regular Marlboro Light

3 cigarette. And the question was asked, What would be

4 the impact upon your damages model if that person after

5 learning the truth kept smoking. I'm going to ask you

6 that. What is the impact on your damages model if

7 somebody after learning the truth continues to purchase

8 Marlboro Lights?

9 A. That fact is not dispositive of the damages in

10 this case, and I can elaborate. It does not prove any

11 essential fact about the model that I use. It cannot be

12 relied upon to assess the difference between the value

13 that was promised and the value that was received at the

14 time of the bargain, and I can elaborate more.

15 Q. I would like you to elaborate, but first I want

16 you to explain what is the bargain being offered to this

17 Illinois attorney working for the Attorney General's

18 Office after he learns the truth, so to speak, about the

19 product? What are his options? What are the bargains

20 available to him at that point after learning the truth?

21 A. That would be my point. It would be a different

22 bargain because the genuine article is off the shelf. I

23 think I said in answer to one of Mr. Wagner's questions,

24 once the genuine article is off the shelf, there is a

50

 

1 different bargain. And when there is a different

2 bargain, the consumer's valuation can change because

3 he's got to make do with what he's got left. I can give

4 you a million analogies that would show that was the

5 case. Once there is no genuine Marlboro cigarette, he

6 might just keep -- do what you can, and you might even

7 be willing to pay the market price if that's what you

8 have got.

9 Q. If the consumer purchases the Marlboro Lights

10 after learning the truth, -- And I guess "after learning

11 the truth" means that he learns there is no such thing

12 as a harm reduction cigarette. -- is there any way at

13 that point, based upon market information, to value a

14 harm reduction attribute to the product?

15 A. No. You've got to put the two cigarettes on the

16 same shelf for the consumer in order to assess the

17 valuation to the consumer of the harm reduction. If you

18 take one of them away, you're going to get the

19 consumer's reaction to a different bargain in which the

20 consumer had to make do with what was left.

21 Q. And if we're talking about an individual's

22 willingness to pay or an individual's -- I'm not going

23 to find the right sheet. -- or an individual's demand

24 curve, so to speak, is that willingness to pay impacted

51

 

1 by the available alternatives for the consumer decision?

2 A. Yes, it would be. If you remove a substitute,

3 then the willingness to pay for the good that is left

4 will change.

5 Q. You were talking about here -- You were asked

6 questions about whether you applied that 77.7 percent to

7 everybody in the class, and I think you explained that

8 you used that number as an aggregate; is that correct?

9 A. I used the 77 percent to take apply in the

10 aggregate only.

11 Q. So that is the average damage for the entire

12 class; is that correct?

13 A. That is correct.

14 Q. That doesn't mean that each person in the class

15 would, if measured individually, have 77.7 percent

16 damages; is that correct?

17 A. That's correct.

18 Q. For example, just to explain this concept of

19 averaging, if you had four people on a basketball team

20 and one was six feet, one was 6'4", one was 6'8", and

21 one was seven feet, what would be the average height of

22 those four basketball players?

23 A. I kept the numbers in my head. 6'6".

24 Q. Does that mean that each player on the basketball

52

 

1 team is 6'6"?

2 A. Obviously not.

3 Q. If you calculate the loss as price minus actual

4 value as you understand the applicable standard in this

5 case, whose actual value do you use for determining the

6 loss?

7 A. The actual value in the market that consumers

8 pay.

9 Q. If you're trying to determine the actual value of

10 the misrepresented product, meaning a light cigarette

11 that isn't actually reducing harm, whose perspective do

12 you view that value from?

13 A. The consumer's perspective.

14 Q. Which consumers matter for purposes of this

15 damage calculation?

16 A. The consumers of the cigarettes.

17 Q. Right. In this case, who would those consumers

18 be?

19 A. The members of the class.

20 Q. You were asked questions about the consumer

21 expenditure calculation and why you didn't use Philip

22 Morris's revenues received from these sales. Why

23 wouldn't you use Philip Morris revenues when determining

24 total consumer expenditures?

53

 

1 A. Because of my understanding of the legal rule to

2 be applied, plain and simple. It is my understanding

3 that the damages are measured as the difference between

4 the value to the consumer of what was promised and the

5 value to the consumer of what was received. Philip

6 Morris's net profits have to do with the value to the

7 seller. And while they may be material to economic

8 analysis, I don't see how they figure in this case.

9 Q. So what you're saying is whatever amount Philip

10 Morris got is irrelevant to what the consumer paid?

11 A. Well, the consumer, as I testified earlier,

12 doesn't really know or probably in virtually all cases

13 doesn't care what proportion of the total retail

14 purchase price goes to the gas station owner, the

15 grocery store owner, the middle man or the ultimate

16 manufacturer. The consumer just knows whether or not he

17 or she is willing to buy the product for the full price.

18 Q. So when you're determining the value to the class

19 members of the product that was promised minus the value

20 to the class members of the product that was actually

21 received, is it relevant what Philip Morris's profits

22 were from these products?

23 A. If that is --

24 MR. WAGNER: Objection. By relevance he's asking

54

 

1 for a legal conclusion.

2 THE COURT: It will be sustained.

3 Q. Does the profit to Philip Morris from these

4 products have any economic impact whatsoever on either

5 the value to the consumer of the promised product or the

6 value to the consumer of the product received?

7 A. They do not figure into the calculation of either

8 of those quantities.

9 Q. When we were discussing the diamond hypothetical,

10 you stated that the diamond hypothetical has a

11 distinction from the Knowledge Networks survey. What is

12 that distinction that you were trying to --

13 A. I would just be repeating myself. In the diamond

14 hypothetical, the seller's representation of greater

15 value is tied -- the representation of greater value is

16 tied to the seller's representation. So even though the

17 market value of the diamonds is $1,000, the seller in

18 the hypothetical that I came up with is making

19 representations that lead the consumer to believe it is

20 more valuable. In the case of the Knowledge Networks

21 survey, I made no such assumption when I designed the

22 questions. I assumed that the value to the consumer of

23 the promised Marlboro Light was in fact the market price

24 of Marlboro Lights.

55

 

1 Q. In your damage model then, using the Knowledge

2 Networks survey and your consumer expenditure

3 calculations, isn't the amount of damage calculable from

4 your model necessarily limited to the total consumer

5 expenditure of the class?

6 A. Yes, because I assumed that the value to the

7 consumer of the promised cigarette was in fact the

8 purchase price.

9 MR. SWEDLOW: I don't have anymore questions.

10 Thank you.

11 RECROSS EXAMINATION

12 BY MR. WAGNER:

13 Q. Just a couple more questions, Dr. Harris, on this

14 aggregation point, this 77 percent. You testified this

15 morning on direct with regard to damage calculations

16 with regard to Sharon Price and Michael Fruth. Do you

17 recall that?

18 A. Yes, I do.

19 Q. You do not know and cannot testify to this Court

20 about the value they place on so-called misrepresented

21 lights, can you?

22 A. No.

23 Q. You don't know whether it is higher or lower than

24 the 77 percent, do you?

56

 

1 A. No.

2 Q. And you haven't done anything to test whether or

3 not it is higher or lower than 77 percent with respect

4 to those individuals, have you?

5 A. Having just learned their names today, no.

6 Q. Okay. And you wouldn't be able to identify their

7 values unless you examined them individually with

8 respect to their beliefs and their values, correct?

9 A. Without such information, the best I could do is

10 just say 77 percent.

11 Q. Right. And you didn't examine any class member

12 in connection with your aggregate damage estimation,

13 correct?

14 A. Correct.

15 MR. WAGNER: Thank you. That's it. Thank you,

16 Dr. Harris.

17 MR. SWEDLOW: Thank you. I don't have any

18 refollows.

19 THE COURT: May the doctor Doctor be excused?

20 MR. SWEDLOW: Yes.

21 THE COURT: You may be excused.

22 (Witness excused.)