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SHARON A. PRICE et al., Appellees, v. PHILIP MORRIS, INC.,
Appellant.

Opinion filed December 15, 2005.

JUSTICE GARMAN delivered the opinion of the court:

After a bench trial in the circuit court of Madison County, the court found defendant, Philip Morris USA, Inc. (PMUSA) (formerly known as Philip Morris, Inc.), liable for fraud in violation of the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq. (West 1998)), and the Uniform Deceptive Trade Practices Act (Deceptive Practices Act) (815 ILCS 510/1 et seq. (West 1998)), and awarded the estimated 1.14 million members of the plaintiff class compensatory and punitive damages, attorney fees, and prejudgment interest totaling $10.1 billion. We ordered that PMUSA's appeal be taken directly to this court pursuant to Supreme Court Rule 302(b) (134 Ill. 2d R. 302(b)).

We have permitted the Chamber of Commerce of the United States and the Illinois Chamber of Commerce; the National Association of Manufacturers and the Illinois Manufacturers' Association; and the Product Liability Advisory Council, Inc., to file briefs amici curiae on behalf of the defendants. We have also permitted Public Citizen, Inc., along with various public health organizations; economists Robert Solow and George Akerlof; the Trial Lawyers for Public Justice, along with various consumer advocacy groups; the American Medical Association, along with numerous medical societies; and the Citizens' Commission to Protect the Truth to file briefs amici curiae on behalf of the plaintiffs. 155 Ill. 2d R. 345. In addition, 11 Illinois law schools that, depending on the outcome of this appeal, may receive some of the proceeds of the punitive damages award have been permitted to intervene. 735 ILCS 5/2-408 (West 2002).

We now reverse the judgment of the circuit court on the basis that this action is barred by section 10b(1) of the Consumer Fraud Act (815 ILCS 505/10b(1) (West 2000)).

I. BACKGROUND

A. History of FTC Regulation of the Cigarette Industry

The immense documentary record reveals the following industry history, which is essentially undisputed.

The FTC's jurisdiction over the advertising and testing of cigarettes is premised on the Federal Trade Commission Act, section 45(a) of which declares unlawful: "unfair methods of competition in or affecting commerce, and unfair and deceptive acts or practices in or affecting commerce." 15 U.S.C. §45(a) (2000). As early as the 1930s, the FTC took action against tobacco companies that made unsupported claims about the health benefits of smoking their particular brand of cigarettes. See, e.g., Julep Tobacco Co., 27 F.T.C. 1637 (1938).

In September 1955, the FTC issued its first Cigarette Advertising Guidelines, which permitted cigarette manufacturers to make claims regarding tar and nicotine yields, but only if they could substantiate their claims by "competent scientific proof":

"No representation, claim, illustration, or combination thereof, should be made or used which directly or indirectly:

2. Represents that any brand of cigarette or the smoke therefrom is low in nicotine or tars, acids, resins, or other substances, by virtue of its ingredients, method of manufacture, length, added filter, or for any other reason or without any assigned reason, than any other brand or brands of cigarettes when it has not been established by competent scientific proof applicable at the time of dissemination that the claim is true and, if true, that such difference or differences are significant.

Note: Words, including those relating to filtration, which imply lesser substances in the smoke, through filter comparisons or otherwise, are considered subject to this guide." 6 Trade Reg. Rep. (CCH) par. 39,012 (1988) (FTC Release, September 22, 1955, entitled "Guides").

Different manufacturers used different testing methods, however, making cross-brand comparison unreliable. In late 1959, the FTC Bureau of Consultation issued an industrywide advisory stating that "all representations of low or reduced tar or nicotine, whether by filtration or otherwise," would be construed as health claims. The purpose of the advisory and the accompanying demand for prompt compliance by the tobacco industry was to "eliminate from cigarette advertising representations which in any way imply health benefit." Letter of William H. Brain, Attorney, FTC Bureau of Consultation (December 17, 1959). The FTC indicated its intent to take enforcement action against cigarette manufacturers making such representations, effectively banning advertising regarding tar and nicotine levels. See 3 Trade Reg. Rep. (CCH) par. 7853.51, at 11,730 (1988) (reporting that, in 1960, FTC and the tobacco industry reached an agreement that the companies would refrain from advertising tar and nicotine content).

In 1964, Dr. Luther Terry released the groundbreaking Report of the Surgeon General's Advisory Committee on Smoking and Health. The Report concluded that "[c]igarette smoking is a health hazard of sufficient importance in the United States to warrant appropriate remedial action." Department of Health, Education, and Welfare, U.S. Surgeon General's Advisory Committee, Smoking and Health, at 33. Later that same year, the FTC promulgated a trade regulation rule defining it an unfair and deceptive act within the meaning of section 5 of the FTC Act to "fail to disclose, clearly and prominently, in all advertising and on every pack, box, carton or other container in which cigarettes are sold to the consuming public that cigarette smoking is dangerous to health and may cause death from cancer or other diseases." Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 Fed. Reg. 8324, 8325 (1964).

Congress' enactment in 1965 of the Federal Cigarette Labeling and Advertising Act (Labeling Act) (Pub. L. 89-92, 79 Stat. 282, codified at 15 U.S.C. §1331 et seq. (2000)), contained a preemption provision that vacated the newly promulgated trade regulation rule. The Labeling Act served two purposes. First, it was intended to inform the public of the hazards of smoking. Second, it was designed to address the emerging problem of inconsistent state regulation of cigarette labeling and advertising. Pub. L. 89-92, §2. The Labeling Act required manufacturers to place a specific warning label on all cigarette packs. Pub. L. 89-92, §4. The Act also required both the Secretary of Health, Education, and Welfare and the FTC to make annual reports to Congress on the health consequences of smoking and the advertising and promotion of cigarettes. Pub. L. 89-92, §5. (The content of the warning was subsequently revised on two occasions: in 1969, when the Labeling Act was amended by the Public Health Cigarette Smoking Act (Pub. L. 91-222, 84 Stat. 87 (1969)), and in 1984, when the Labeling Act was again amended by the Comprehensive Smoking Education Act (Pub. L. 98-474, 98 Stat. 2200 (1984)). Prior to the adoption of the 1984 revisions, both the FTC and the Surgeon General recommended to Congress that the required warnings address the phenomenon of compensation, which refers to smokers' alteration of smoking behavior to achieve their accustomed level of nicotine consumption. This recommendation was not adopted by Congress.)

In 1966, the United States Public Health Service reported that scientific evidence strongly suggested that the lower the levels of tar and nicotine in cigarette smoke, the less harmful the effects on the health of the smoker. United States Department of Health and Human Services, The Health Consequences of Smoking: The Changing Cigarette, at i (1981) (quoting 1996 statement by Public Health Service). Later that same year, the FTC announced that it had sent letters to each of the major United States cigarette manufacturers ending the ban on including tar and nicotine content on labels and in advertising of cigarettes. The letters stated:

"The Cigarette Advertising Guides promulgated by the Commission in September 1955 provided that no representation should be made that any brand of cigarette or the smoke therefrom is low in nicotine or tars *** when it has not been established by competent scientific proof applicable at the time of dissemination that the claim is true, and if true, that such difference or differences are significant. On the basis of the facts now available to it, the Commission has determined that a factual statement of the tar and nicotine content (expressed in milligrams) of the mainstream smoke from a cigarette would not be in violation of such Guides, or of any of the provisions of law administered by the Commission, so long as (1) no collateral representation (other than factual statements of tar and nicotine contents of cigarettes offered for sale to the public) are made, expressly or by implication, as to reduction or elimination of health hazards, and (2) the statement of tar and nicotine content is supported by adequate records of tests conducted in accordance with the Cambridge Filter Method ... . It is the Commission's position that it is in the public interest to promote the dissemination of truthful information concerning cigarettes which may be material and desired by the consuming public." 6 Trade Reg. Rep. (CCH) par. 39,012.70 (1988).

When public concern about the health effects of smoking began to increase, the FTC determined that it might be desirable for consumers to be able to choose among cigarette brands based on their yield of tar and nicotine. In support of this goal, the FTC, in 1967, adopted the "Cambridge Method" (FTC method) as the single acceptable means of measuring tar and nicotine yields in cigarettes. The record is clear that both the FTC and the cigarette manufacturers were aware at that time that no method of measurement, including the FTC method, could accurately predict the actual exposure of individual smokers who smoked any particular brand of cigarette. The variations in smoking habits, including the phenomenon of compensation, are simply too complex to account for in any uniform test. However, despite this awareness that the test data would not be accurate as to any individual smoker, the FTC found this concern outweighed by the need for a basis for comparison among brands. Thus, the FTC method was adopted for the purpose of providing a consistent benchmark, not as a means of measuring the actual exposure of individual smokers to tar and nicotine. FTC Press Release-Statement of Considerations 2 (August 1, 1967).

The FTC later declared that a manufacturer's use of tar and nicotine measurements based on the FTC method would be deemed substantiated and would not result in any regulatory action. Eventually, the FTC authorized cigarette manufacturers to include in their advertising a statement of the tar and nicotine content of their cigarettes, expressed in milligrams, as measured by the FTC method. Indeed, the FTC itself presented these measurements in its reports to Congress and published the data for circulation to consumers. 4 Trade Reg. Rep. (CCH) par. 39,012.70. See also Letter from Federal Trade Commission to major cigarette manufacturers and to Robert. B. Meyner, Administrator of the Cigarette Advertising Code (March 25, 1966).

The FTC made its first Report to Congress, pursuant to the Labeling Act, in 1967. In that report, the FTC recommended that Congress strengthen the language of the warning statement that was then required on all cigarette packages. The warning statement stated that cigarette smoking "may be hazardous" to health. The FTC recommended a more direct statement that smoking is hazardous to health. The FTC also recommended that a "statement setting forth the tar and nicotine content of each cigarette should be required to appear on the package and in all cigarette advertising." Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 30 (June 30, 1967). The recommendations were not adopted at that time.

In its 1968 Report to Congress, the FTC responded to the emerging consensus regarding the possible benefit to smokers of reducing tar and nicotine yields. "Based upon the proposition that lower yield cigarettes present a lessened hazard to the American public," the Commission explained, it had acted during the previous year to: "(1) augment information available to the public on the tar and nicotine content of cigarettes and (2) prompt cigarette manufacturers to develop less hazardous cigarettes." Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 17 (June 30, 1968). However, the FTC observed:

"An analysis of sales data provided by cigarette manufacturers indicates that sales of comparatively low yield cigarettes, e.g., for purposes of this report only, those having 15 milligrams (mg.) of tar or less, have not been extensive thus far. Three categories of cigarettes, classified according to tar yields, divided the market in 1967 as follows: 15 mg. and under-2%; 16-21 mg.-59%; 22 mg. and over-39%." (Emphasis added.) Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 19 (June 30, 1968).

The 1968 report also reported that only a small number of companies were making voluntary tar and nicotine disclosures on their packaging, despite there being "every reason to believe that the promotion of low tar and nicotine yield cigarettes can be profitable." Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 19 (June 30, 1968). "[R]ather than alert smokers to less hazardous low yield cigarettes, advertisers sought for the most part to allay smoker anxiety by proclaiming the wonders of their filters." Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 19 (June 30, 1968).

In its 1969 Report to Congress, the FTC continued to press for mandatory disclosure of tar and nicotine content on each cigarette package and in all cigarette advertising and for stronger warnings. In addition, the FTC urged repeal of the Labeling Act and a complete ban on cigarette advertising on television and radio. Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 35 (June 30, 1969). Congress did not adopt these recommendations.

A subsequent FTC proposal that would have declared it an unfair or deceptive practice under section 5 of the FTC Act for cigarette manufacturers to fail to disclose in their advertising the tar and nicotine content of the product, based on the most recent FTC test results (see 35 Fed. Reg. 12,671 (August 8, 1970)), was dropped after five major industry members and three of the smaller companies voluntarily agreed to provide this information on all cigarette packages (see 36 Fed. Reg. 784 (1971)). See also Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 18-19 (December 31, 1970).

The voluntary approach was seen by the FTC as a more efficient means of accomplishing its goal. As then-chairman Fitzpatrick said, "Trade regulation rules, if contested in the courts, might take a long time to become effective. A workable voluntary plan by the industry could be put into effect immediately." (As late as 1997, the voluntary agreement remained in effect. See Cigarette Testing; Request for Public Comment, Federal Trade Commission, 62 Fed. Reg. 48,158 (September 12, 1997). Nothing in the record suggests that the agreement has been terminated since that date.) As a result of this voluntary agreement, PMUSA and the other major manufacturers of cigarettes have, since 1971, included information on tar and nicotine yields as measured by the FTC method on packaging and in advertising. See Federal Trade Commission, Staff Report on the Cigarette Advertising Investigation, May 1981, at 4-5.

The descriptor "low tar" began to appear in cigarette advertising by the late 1960s as the industry responded to public interest in lowered tar and nicotine by adopting innovations, such as the use of filters, aeration holes, or wrapping paper that burned more quickly. Each of these innovations caused reductions in the amounts of tar and nicotine measured by the FTC method. As noted above, the FTC and industry members were well aware that the FTC method did not replicate actual smoking behavior. They were also aware that smokers who switched from a brand that was higher in tar and nicotine to a brand with one of these features tended to compensate by smoking more cigarettes or by smoking differently.

In 1969, the FTC informed cigarette manufacturer American Brands of its intent to charge the company with engaging in unfair, misleading, and deceptive advertising with respect to the tar content of its Pall Mall and Lucky Strike cigarettes. (American Brands, Inc., was formed in 1969 as the parent company of the American Tobacco Company, which traced its corporate roots to the founding of W. Duke & Sons in North Carolina in 1864.)

Shortly thereafter, but before a formal complaint was filed, the Code Authority of the National Association of Broadcasters sought an advisory opinion from the FTC. See 16 C.F.R. §1.1 (permitting any person, partnership, or corporation to request advice from the FTC "with respect to a course of action which the requesting party proposes to pursue"). By letter to the FTC, the Code Authority inquired whether the FTC had formulated a policy regarding the use of words such as "low," "lower," and "reduced" in describing the level of tar and nicotine in cigarettes. American Brands, Inc., 77 F.T.C. 1623 (1970). The FTC responded, by letter, that "the use of 'low' and 'less' or similar words when describing tar and nicotine content, create[s] an imprecise picture, which, absent a full and fair disclosure, could lead to a mistaken conclusion that the advertised brand is lower in tar and nicotine than many other brands." American Brands, Inc., 77 F.T.C. at 1624. The FTC also stated that the "degree of imprecision created would vary," depending on what representations were being made and the actual tar and nicotine levels of the advertised cigarette, but that "imprecision could almost always be avoided" if "clear and conspicuous disclosure" was made of the tar and nicotine content, in milligrams, of the advertised cigarette, that brand to which it was being compared, and the domestic cigarettes with the highest and lowest yields. American Brands, Inc., 77 F.T.C. at 1624. The FTC further advised the Code Authority that all representations regarding tar and nicotine levels in cigarette advertising should be based on recent test results. Finally, because the topic was of substantial public interest, the exchange of correspondence between the FTC and the Code Authority was made public. American Brands, Inc., 77 F.T.C. at 1624.

On April 1, 1970, the Public Health Cigarette Smoking Act became law, making several significant changes to the Labeling Act. Pub. L. 91-222, 84 Stat. 87 (1969). First, since November 1970, all cigarette packages have been required to carry the following warning statement: "Warning: The Surgeon General Has Determined That Cigarette Smoking Is Dangerous To Your Health." Pub. L. 91-222, §4. Second, since January 2, 1971, the Public Health Cigarette Smoking Act has barred cigarette advertising from television and radio. Pub. L. 91-222, §6. And, third, a new preemption provision forbids any "requirement or prohibition based on smoking and health *** imposed under State law with respect to the advertising or promotion of cigarettes." Pub. L. 91-222, §5(b). As the new preemption provision was directed only at actions by the states, the FTC remained free to regulate cigarette advertising. See Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 545, 150 L. Ed. 2d 532, 553, 121 S. Ct. 2404, 2416-17 (2001).

In its 1970 Report to Congress, the FTC described the exchange with the Code Authority under the heading "Voluntary Regulation." The FTC reported that the Code Authority had "adopted as its policy a position similar to the order" that the FTC "believed to be appropriate" as a resolution of its pending complaint against American Brands. The FTC's clearly stated policy was that:

"if a broadcast cigarette advertisement used comparative language such as 'low' or 'lower' to describe the tar and nicotine content of the advertised cigarette, the advertisement must also disclose:

1. The tar and nicotine content in milligrams of the advertised cigarette;

2. The tar and nicotine content in milligrams of the lowest and highest yield domestic cigarettes; and

3. If the tar and nicotine content of the advertised cigarette is compared to any other specific cigarette, the brand name and tar and nicotine content in milligrams of the smoke produced by such other cigarettes." Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 21 (December 31, 1970).

One result of the advisory opinion rendered to the Code Authority, according to the Report, was that several television commercials had been withdrawn and that only two brands made comparative claims in broadcast advertisements during 1970. Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 21 (December 31, 1970).

Subsequently, when the formal complaint against American Brands was filed, the FTC accused the company of creating the false impression that its cigarettes were low in tar when, in fact, Pall Mall Gold 100s and Lucky Filters contained approximately 20 and 21 milligrams of tar, respectively, at a time when the brand containing the lowest level of tar contained only 4 milligrams. In re American Brands, Inc., 79 F.T.C. 225 (1971). By this time, the voluntary agreement had been reached, but American Brands had not signed on to it.

The dispute between the FTC and American Brands was resolved in 1971, with the entry of a consent order that required American Brands to cease and desist from:

"Stating in advertising that any cigarette manufactured by it, or the smoke therefrom is low or lower in 'tar' by use of the words 'low,' 'lower,' or 'reduced' or like qualifying terms, unless the statement is accompanied by a clear and conspicuous disclosure of:

1. The 'tar' and nicotine content in milligrams of the smoke produced by the advertised cigarette; and

2. If the 'tar' content of the advertised brand is compared to that of another brand or brands of cigarette, (a) the 'tar' and nicotine content in milligrams of the smoke produced by that brand or those brands of cigarette, and (b) the 'tar' and nicotine content in milligrams of the lowest yield domestic cigarette." American Brands, 79 F.T.C. at 225.

The consent order further defined the term "tar" as "the total particulate matter in the mainstream smoke of cigarettes as determined by the testing method employed by the Federal Trade Commission in its testing of the smoke of domestic cigarettes." American Brands, 79 F.T.C. at 225.

The content of the consent order was slightly different from that of the order the FTC anticipated in its 1970 Report to Congress. Significantly, the FTC originally intended to require that any claim of low or lower tar be accompanied not only by the tar and nicotine content in milligrams, but also by the tar and nicotine content of the lowest yield domestic cigarette. See Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 21 (December 31, 1970). In the end, the order allowed the use of the words " 'low,' 'lower,' or 'reduced' or like qualifying terms," so long as the tar and nicotine content of the cigarette being advertised was clearly and conspicuously disclosed. Only if the advertised brand was being compared to another specific brand or brands of cigarettes was the manufacturer required to disclose the additional information.

Later in 1971, after having reached a voluntary agreement with most cigarette manufacturers to disclose tar and nicotine levels in their advertising (and having obtained the compliance of American Brands and other nonsigners through the 1971 consent order), the FTC announced its intention to file complaints against six cigarette companies if they failed to display in their advertising, clearly and conspicuously, the same warning that Congress had already required on cigarette packages. Again, negotiations between the FTC and the major cigarette manufacturers resulted in the entry of a consent order. In re Lorillard, 80 F.T.C. 455 (1972). (In 1975, the FTC sought civil penalties against the six major cigarette manufacturers for violations of these consent orders. See United States v. R.J. Reynolds Tobacco Co., No. 76 Civ. 813 (JMC) (S.D.N.Y., February 20, 1981) (disposing of last remaining enforcement action after five other companies entered into consent judgment approved by the FTC).

In its 1971 Report to Congress, the FTC described the resolution of the American Brands dispute via consent order as part of its "[r]egulatory activity" for the year. Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 13-14 (December 31, 1971). In addition, the FTC reported under the heading of "Regulatory activity" its "extended negotiations" with "six proposed respondents" in the Lorillard matter. Settlement by consent order would "meet the public interest in this matter" and would "take effect much sooner than orders resulting from adjudicative proceedings." Such orders, the FTC observed, would "carry the force of law" and violation of the orders could carry civil penalties. The FTC did not comment on the effect or application of the orders on companies that were not parties thereto. Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 16 (December 31, 1971).

By the early 1970s, in addition to including the tar and nicotine content numbers in their packaging and advertising in accordance with the voluntary plan and the 1971 and 1972 consent orders, several manufacturers were advertising their products as being "low" or "lower" in either or both tar and nicotine. Vantage, True, and Doral, for example, were advertised as low tar and nicotine cigarettes. Pall Mall Extra Mild, Silva Thins, Pall Mall Gold 100s, Lucky Ten, Carlton, and Iceberg 10 were advertised as low or lower in tar. Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 5 (December 31, 1973). In its 1974 Report to Congress, the FTC noted that "as the manufacturers of Raleighs, Kools, Pall Malls, Viceroy's and Marlboros are doing, Winston now offers a Winston Light with lowered 'tar' and nicotine content." Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 5 (December 31, 1974).

By 1978, the FTC was reporting to Congress that low tar cigarettes, which it defined as those with 15 milligrams or less of tar, had increased in market share from 2% in 1967 to 28% in 1978. Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 3 (1978). In addition, the FTC noted that "[m]arketing shifts to lower 'tar' and nicotine cigarettes may be another way of assessing the effects of health warnings." The increasing market share of the low tar brands was seen as an indication that the public health message was reaching consumers. The FTC also noted, however, that "[w]hile there is evidence suggesting that cigarettes with lower 'tar' and nicotine are less hazardous, the evidence is not conclusive and even the lowest yield of cigarettes presents health hazards much higher than would be encountered without smoking at all." Federal Trade Commission, Report to Congress Pursuant to the Public Health Cigarette Smoking Act, at 3 (1978).

By 1979, the FTC was reporting that the market share of low tar cigarettes had increased to 40.9%. Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 8 (1979). In this report, the FTC provided data on the total advertising expenditures and market shares for cigarettes with 15, 12, 9, 6, and 3 milligrams of tar. The report noted that advertisers sometimes described cigarettes with 3 milligrams or less of tar as "ultra low 'tar.' " Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 11 (1979). In a footnote, the FTC stated that it had not defined " 'ultra-low tar', or any term related to 'tar' level except for 'low tar', which the FTC defines as 15.0 mg. or less tar." Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, 1979, at 11 n.8 (1979). "As a result," the FTC observed, "advertisers use a variety of terms to distinguish among 'tar' levels." Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 11 n.8 (1979). (An identical footnote appeared in the FTC's 1980 Report to Congress. Federal Trade Commission, Report to Congress Pursuant to the Federal Cigarette Labeling and Advertising Act, at 11 n.8 (November 15, 1982).

The FTC also employed the term "low 'tar' " when it issued a press release on December 15, 1981, announcing the release of a report entitled "Report of 'Tar,' Nicotine and Carbon Monoxide of the Smoke of 200 Varieties of Cigarettes." The lead paragraph in the press release stated that "Test results released today by the Federal Trade Commission show an increase in the number of cigarettes with low 'tar,' nicotine and carbon monoxide levels." In addition, the report showed that 150 of the 200 brands tested had 15 milligram or less tar, compared to 125 of 187 brands tested the previous May. FTC Press Release-FTC Cigarette Report Shows More Brands on Market with Low "Tar," Nicotine, Carbon Monoxide Levels (December 15, 1981).

Over the years, the FTC conducted multiple investigations regarding the use of tar and nicotine levels and of descriptors such as "lights" and "low tar" in cigarette advertising. Such investigations took place in 1976, 1981, 1988, and 1992.

In 1981, the FTC concluded that the warning on cigarette packages and in cigarette advertising was not effective and did not provide sufficient information to consumers regarding the health risks of smoking. Federal Trade Commission, Staff Report on the Cigarette Advertising Investigation, May 1981, at 4-7. The staff report concluded that even though warnings and disclosure of FTC test measurements of tar and nicotine were required by the FTC, the then-current state of cigarette advertising might be deemed deceptive under section 5 of the FTC Act because a substantial segment of the purchasing public was likely to be deceived. Federal Trade Commission, Staff Report on the Cigarette Advertising Investigation, May 1981, at 4-17. This conclusion was based on data in the report indicating that a large portion of the public lacked sufficient knowledge of the hazards of cigarette smoking. Federal Trade Commission, Staff Report on the Cigarette Advertising Investigation, May 1981, at 4-21, 4-36. The Commissioners unanimously agreed that this staff report should be transmitted to Congress. With only one Commissioner objecting, the staff report was released to the public. The entire Commission endorsed the substance of the report. See letter from David A. Clanton, Acting Chairman of the FTC, to George Bush, Vice President (May 21, 1981) (transmitting the staff report to the Senate). Nevertheless, neither the FTC nor Congress acted upon this staff suggestion that cigarette advertising under the then-current FTC policy and regulations should be deemed deceptive.

Also in 1981, the FTC began an investigation of Barclay cigarettes. The investigation was triggered by complaints from manufacturer Brown & Williamson's competitors, who claimed that the design of the Barclay filter caused it to falsely register very low tar measurements on the FTC smoking machine. Federal Trade Comm'n v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 37 (D.C. Cir. 1985). The FTC determined that the Barclay claim of 1 milligram of tar was false and deceptive and attempted to require Brown & Williamson (B&W) to state an estimated tar content of 3 to 7 milligrams. B&W refused, but changed its advertisements to state that the 1 milligram tar measurement was obtained using a method recognized by "independent laboratories." Brown & Williamson, 778 F.2d at 38. The FTC thereafter sought an injunction to prevent such advertising and the district court granted injunctive relief. The Court of Appeals, although affirming the finding that B&W violated section 5 of the FTC act (Brown & Williamson, 778 F.2d at 43), reversed on first amendment grounds (Brown & Williamson, 778 F.2d at 45).

After the 1988 investigation, the FTC recommended to Congress that it not adopt a proposed amendment to the Labeling Act that would have permitted states to impose additional duties with respect to such advertising. The FTC argued that allowing individual states to impose their own rules would conflict with the FTC program.

In the 1992 investigation, the FTC considered whether the use of terms such as "low tar" and "light" in cigarette advertising should be banned because they were deceptive, given what was known about the limits of the FTC method and the real world phenomenon of compensation by smokers. The FTC concluded, however, that if the use of such terms was substantiated by FTC method results, they were not false, unfair, or misleading under the provisions of the FTC Act.

In the course of at least two of the investigations, the FTC reexamined the test method and considered whether the protocol should be changed to render it a more accurate representation of human behavior, given the changes in cigarette design. In both cases, the FTC solicited public comment on the FTC method. The first reexamination occurred in 1977 and was triggered by the suggestion of Lorillard, Inc., that the protocol of the FTC method be changed so that the cigarette being tested would not be inserted quite as far into the machine. Lorillard's concern was that when its cigarettes were inserted to the prescribed depth, the machine blocked the ventilation holes, resulting in a higher tar and nicotine rating than if the holes had remained uncovered. In the end, Lorillard was the only industry member to advocate altering the standard insertion depth. The FTC concluded that the protocol should not be changed. The agency reiterated its 1967 statement that the purpose of the testing was not to predict the tar and nicotine exposure of any individual smoker but, rather, to determine the amount of tar and nicotine generated when the cigarette was smoked by a machine under a prescribed protocol. 43 Fed. Reg. 11,856 (March 22, 1978). Noting that innovations such as aerated filters had complicated the task of providing comparability among cigarette brands, the FTC concluded that "a change in the insertion depth would cause a lack of continuity with previous test results." 43 Fed. Reg. 11,856-57 (March 22, 1978). Further, the FTC noted that if a consumer "smoked each different cigarette the same way, he would inhale 'tar' and nicotine in amounts proportional to the relative values of the FTC figures." 43 Fed. Reg. 11,856 (March 22, 1978). Thus, "in the absence of information indicating that a new insertion depth would be me more consistent with the manner in which smokers insert cigarettes in actual use," the FTC decided not to modify the protocol. 43 Fed. Reg. 11,857 (March 22, 1978). In the end, the FTC concluded this investigation by issuing an advisory opinion stating that the tar values set forth in cigarette advertisements must be consistent with the latest applicable FTC tar number, based on the FTC methodology, and that any tar and nicotine claims not so substantiated were not permitted. See In re Lorillard, 92 F.T.C. 1035 (1978).

The second reexamination of the FTC method occurred in the early 1980s, when some manufacturers began using channel ventilation systems rather than air holes. The channels remained open when the cigarette were inserted in the machine, yielding very low numbers. Competitors complained that the results were inaccurate because the channels did not remain open when the cigarette was in the hands of an actual smoker. In addition to initiating the Barclay investigation, noted above, the FTC invited public comment on this development and on possible modifications of its method that might render it a more accurate representation of actual smoking behavior. 48 Fed. Reg. 15,953-54 (April 13, 1983). The FTC also asked for comments on whether such modifications might result in unintended consequences or affect further innovation in cigarette design. 48 Fed. Reg. 15,954-55 (April 13, 1983). In addition, the FTC sought comment on the possibility of using a system of ranges or "bands" of tar content, as opposed to specific numerical values expressed in milligrams of tar. Finally, the FTC reiterated its long-standing position that its ratings were intended to be relative, not absolute, even as it posed the question: "should consumers be advised that the cigarettes' actual 'tar' delivery depends on how it is smoked?" 48 Fed. Reg. 15,955 (April 13, 1983).

Comments were received not only from those in the cigarette industry, but also from a number of health organizations. The opinions expressed were widely disparate, ranging from a call for development of a testing system that did approximate actual smoking behavior to a suggestion that all such testing be abolished. In response to the idea of a "banding" system, which would categorize cigarettes as high tar, medium tar, low tar, and ultra low tar, several manufacturers noted that this would tend to concentrate brands near the upper level of each range, in contrast to the existing system that gave manufacturers an incentive to create a product that would deliver the lowest possible level of tar. In the absence of a consensus on any means of eliminating or reducing the limitations of the FTC test method, the FTC made no changes to its testing methodology.

The issue of cigarette labeling and advertising rules remained status quo until February 27, 1992, when The Coalition on Smoking OR Health (made up of the American Heart Association, the American Lung Association, and the American Cancer Society), filed a petition with the FTC in which it sought the issuance of an administrative complaint against PMUSA and other tobacco companies pursuant to section 5 of the FTC Act. Specifically, the Coalition alleged that PMUSA's labeling and advertising of one of its low tar products and similar labeling and advertising by other manufacturers were false and misleading because the use of terms such as "low tar," "light," and "ultra low tar" falsely implied that these cigarettes were safer than other products. The Coalition charged that the failure of PMUSA and other manufacturers "to disclose that while the tar yield of their low tar cigarettes may be less than other tobacco-related products, there are numerous known carcinogens in the constituents of these tobacco products, carcinogens which pose a health hazard to the consumer," and that this failure to make such additional disclosures "is a material omission in violation of the Federal Trade Commission Act." Petition of The Coalition on Smoking OR Health before the Federal Trade Commission, par. 25 (February 27, 1992).

The FTC responded to the Coalition's petition by means of a letter from C. Lee Peeler, the Associate Director of the FTC. Peeler's letter stated that after giving careful consideration to the questions raised in the Coalition's petition, the FTC had asked the National Cancer Institute (NCI) to convene a "consensus conference" on this topic. Letter from C. Lee Peeler to Matthew L. Myers, Counsel to Coalition on Smoking OR Health (August 8, 1994).

The National Cancer Institute Conference on the FTC Cigarette Test Method was also brought about by the request of Representative Henry A. Waxman, chairman of the Subcommittee on Health and the Environment of the House Committee on Energy and Commerce, who asked the NCI to convene a conference to review the FTC's method of determining the relative tar and nicotine content of cigarettes. At the "direction of the Commission," the FTC chairman wrote to the NCI director, noting the substantial overlap between the issues identified by Chairman Waxman and those the FTC was then examining. The FTC chair asked that the consensus conference "provide a comprehensive review of the existing scientific evidence on issues relating to low-tar and ultra-low tar cigarettes." The letter further asked that the conference consider whether the "current rating system is sufficiently flawed as to pose harm to consumers who rely on the ratings." Among the list of specifically suggested topics for the conference, the letter listed:

"are low-tar cigarettes (cigarettes rated at 15 mg. or less of tar) less dangerous than high-tar cigarettes (those rated at more than 15 mg. of tar) and, if so, what is the extent of their health benefit?"

and:

"are ultra low-tar cigarettes (cigarettes rated at 6 mg. or less of tar) less dangerous than low-tar and/or high-tar cigarettes and, if so, what is the extent of their health benefit?"

Letter from Janet D. Steiger, FTC Chairman, to Samuel Broder, M.D., Director, National Cancer Institute (July 20, 1994).

The conference was held on December 5 and 6, 1994, in Bethesda, Maryland. The conferees concluded that yield numbers and descriptors of yield numbers, such as "light" and "ultra light," were health claims. They recommended that such numbers and descriptors in labeling and advertising be accompanied by appropriate disclaimers as to health consequences of smoking, but did not recommend banning such descriptors. See NCI Monograph 7: The FTC Cigarette Testing Method for Determining Tar, Nicotine, and Carbon Monoxide Yields of U.S. Cigarettes (1996). The FTC, in the end, did not adopt a trade regulation rule or take other regulatory action to require such disclaimers for light and low tar descriptors.

In 1994, the FTC initiated an investigation into the practices of the American Tobacco Company, which by this time had been sold by its corporate parent, American Brands. American Tobacco was advertising its Carlton brand cigarettes by showing 10 packs of Carltons next to a single pack of another brand. The tar and nicotine ratings for each brand was shown, along with a claim that 10 packs of Carltons had less tar than one pack of the other brand. In other ads, the claim was made that an entire carton of Carltons had less tar than a single pack of the other brand. The FTC complaint alleged that these ads were false and misleading because consumers would not, in fact, get less tar by smoking 10 packs of Carlton than by smoking one pack of the other brands. Although the other cigarettes were, indeed, rated as having 10 times or more tar, measured in milligrams, than Carltons, "those ratings are obtained through smoking machine tests that do not reflect actual smoking, in part because the machines do not take into account such behavior as compensatory smoking." In re American Tobacco Co., 119 F.T.C. 3 (1995).

Again, the matter was resolved by agreement. American Tobacco agreed to abandon any representation of the tar and nicotine levels of Carlton cigarettes by using "a numerical multiple, fraction or ratio" of the tar or nicotine levels of other brands or by depicting more than one pack of Carltons versus one pack of any other brand. The agreed order provided, further, that "presentation of the tar and/or nicotine ratings of any of respondent's brands of cigarettes and the tar and/or nicotine ratings of any other brand (with or without an express or implied representation that respondent's brand is 'low,' 'lower,' or 'lowest' in tar and/or nicotine) shall not be deemed" to violate the ban on numerical comparisons. American Tobacco, 119 F.T.C. at 11. Prior to the entry of the agreed order, the FTC described this provision as a "limited 'safe harbor' for advertising that complies with certain requirements in its use of official tar and nicotine ratings." Analysis of Proposed Consent Order to Aid Public Comment, In re American Tobacco Co., F.T.C. File No. 932 2268 (August 31, 1994).

Most recently, in 1997, the FTC solicited public comment on various proposals for altering the FTC testing method and for changing cigarette advertising so that it would more accurately reflect the limits of the testing method. The request for comment explained that the 1970 voluntary agreement between the FTC and most cigarette manufacturers "remains in effect today, and it forms the basis for current disclosure of tar and nicotine yield." The request for comment also raised the issue of compensation and noted the inability of the current testing method to allow for compensatory behavior by smokers. See Cigarette Testing: Request for Public Comment, Federal Trade Commission, 62 Fed. Reg. 48,158 (September 12, 1997). The record suggests that this inquiry is still ongoing.

B. PMUSA's Marlboro Lights and Cambridge Lights

Against this industry backdrop, in 1971, PMUSA responded to increasing consumer concerns about the health effects of smoking by introducing Marlboro Lights cigarettes as an alternative to its Marlboro Reds. PMUSA began selling Cambridge Lights in 1986. In addition to the use of the word "light" in the names of these new products, which suggested that they were in some way "lighter" than their "full-flavored" counterparts, the Marlboro Lights label promised "lowered tar and nicotine."

Marlboro Lights became the most popular cigarette brand in the country and inspired many imitators. Light cigarettes, including the PMUSA brands, eventually constituted 89% of the United States cigarette market.

The tobacco contained in Marlboro Lights did not carry any less tar or nicotine than the tobacco in so-called "full-flavor" cigarettes. Instead, the claim of low tar and nicotine was premised on the use of a different type of filter, which was designed to dilute the smoke and to make it more difficult for the smoker to draw smoke, and therefore tar and nicotine, into his or her lungs. When subjected to testing by the FTC method, Lights indeed delivered less tar and nicotine.

In actual experience, however, smokers who changed from regular cigarettes to Lights were likely to compensate for the lower amount of nicotine delivered by the more restrictive filter by smoking more cigarettes, smoking them longer, taking more frequent drags as they smoked, or inhaling more deeply. As a result, many smokers of Lights likely inhaled just as much tar as they would have had they remained smokers of regular cigarettes.

C. Procedural History

1. The Pleadings

On February 10, 2000, plaintiffs, as individuals and on behalf of a class of similarly situated individuals, brought this lawsuit alleging violations of the Consumer Fraud Act and the Deceptive Practices Act. They did not seek damages for the health effects, if any, of their consumption of Lights. Instead, they sought only economic damages based on their claim of having purchased a product in reliance on statements by PMUSA that were fraudulent, deceptive, and unfair.

In response to plaintiffs' first amended complaint, PMUSA raised 27 separate affirmative defenses including laches, waiver, the statute of limitations, federal preemption, and the statutory exemption contained in section 10b(1) of the Consumer Fraud Act for conduct that is specifically authorized by a state or federal regulatory body (815 ILCS 505/10b(1) (West 1998)).

On February 11, 2003, plaintiffs filed their second amended complaint and a motion for withdrawal of three of the five named plaintiffs, which was granted by the circuit court.

The second amended complaint establishes the parameters of this litigation. The relevant factual allegations contained in plaintiffs' second amended complaint are:

"7. At all relevant times, Defendant sold and packaged Cambridge Lights and Marlboro Lights as 'light' and as having decreased tar and nicotine.

8. While marketing and promoting decreased tar and nicotine deliveries, Defendant designed Cambridge Lights and Marlboro Lights cigarettes to register lower levels of tar and nicotine to the 'Cambridge' or 'Ogg' testing apparatus-the testing machine used by the tobacco industry to 'measure' tar and nicotine levels in cigarettes-than would be delivered to the consumers of the product. Defendant controlled the tar and nicotine delivery of Cambridge Lights and Marlboro Lights under machine testing conditions to achieve apparent support for their representations that their Cambridge Lights and Marlboro Lights cigarettes are 'light' and contain decreased tar and nicotine and that their Marlboro Lights cigarettes contain 'lowered tar and nicotine.'

9. Defendant's representation that Cambridge Lights and Marlboro Lights cigarettes are lower in tar and nicotine than regular cigarettes is deceptive and misleading.

10. Not only do consumers receive higher levels of tar and nicotine than the testing apparatus registers, the smoke produced by Cambridge Lights and Marlboro Lights is more mutagenic (causing genetic and chromosomal damage) per milligram of tar than 'regular' cigarettes."

Plaintiffs' second amended complaint further alleged the following "deceptive and unlawful conduct" by PMUSA in connection with its "manufacture, distribution, and marketing and sale of Cambridge Lights and Marlboro Lights cigarettes":

"a. falsely and/or misleadingly representing that their product is 'light' and/or delivers lowered tar and nicotine in comparison to regular cigarettes;

b. describing the product as light when the so-called lowered tar and nicotine deliveries depended on deceptive changes in cigarette design and composition that dilute the tar and nicotine content of smoke per puff as measured by the industry standard testing apparatus, but not when used by the consumer.

c. intentionally manipulating the design and content of Cambridge Lights and Marlboro Lights cigarettes in order to maximize nicotine delivery while falsely and/or deceptively claiming lowered tar and nicotine. These manipulations include, but are not limited to, the modification of tobacco blend, weight, rod length, and circumference; the use of reconstituted tobacco sheets and/or expanded tobacco; and the increase of smoke pH levels by chemical processing and additives, such as ammonia, which resulted in the delivery of greater amounts of tar and nicotine when smoked under actual conditions than Defendant represented by use of the 'light' description;

d. employing techniques that purportedly reduce machine-measured levels of tar and nicotine in Cambridge Lights and Marlboro Lights cigarettes, while actually increasing the harmful biological effects, including mutagenicity (genetic and chromosomal damage) caused by the tar ingested by the consumer per milligram of nicotine."

In answer to the second amended complaint, PMUSA continued to assert the same 27 affirmative defenses.

2. Class Certification and Class Representatives

On September 8, 2000, plaintiffs moved for class certification pursuant to section 2-801 of the Code of Civil Procedure (735 ILCS 5/2-801 (West 1998)). A hearing on plaintiffs' motion for class certification was held on November 28, 2000, with a supplemental hearing on January 12, 2001.

On February 8, 2001, the circuit court granted plaintiffs' motion to certify a plaintiff class of consumers who purchased Cambridge Lights and Marlboro Lights in the State of Illinois for personal consumption between their introduction and February 8, 2001. Thus, the class period for purchases of Cambridge Lights was from 1986 to 2001; the class period for Marlboro Lights was from 1971 to 2001.

On July 7, 2002, PMUSA filed a motion to decertify the class based on this court's decision in Oliveira v. Amoco Oil Co., 201 Ill. 2d 134 (2002). In Oliveira, this court held that "to properly plead the element of proximate causation in a private cause of action for deceptive advertising brought under the Act," the plaintiff must allege that he was "in some manner" deceived by the advertisement. Oliveira, 201 Ill. 2d at 155. The circuit court denied the motion to decertify the class, rejecting PMUSA's argument that class certification was improper because the question of deception was necessarily an individual question, not a common question of fact that could be determined for the class as a whole.

Notice of the class action was published in 21 newspapers, including the Chicago Tribune, the St. Louis Post-Dispatch, USA Today, and 18 regional Illinois newspapers. In addition, notice was given to the general public via the Internet and a press release to PR Newswire International Newslines Service. PMUSA's request that notice be given to individual Illinois residents whose names and addresses were available from its own database of consumers was denied.

PMUSA requested that the circuit court adopt a trial plan that would allow it to address the questions of actual deception, actual reliance, and other issues that, it argued, were individual issues. The circuit court rejected the proposed trial plan. Similarly, PMUSA's request to depose individual class members other than the named plaintiffs and those selected by plaintiffs' counsel was denied by the circuit court.

At the close of evidence, on March 10, 2003, PMUSA again moved for decertification of the class. In the final judgment order, the circuit court again found that class certification was proper because common issues of law and fact predominated. Specifically, "Philip Morris has engaged in a course of conduct that affects this Class in such a way that all members share various elements of this cause of action." The following factual issues were determined by the circuit court to be common to all members of the class:

"a. whether Class members understood the descriptor 'lights' and 'lowered tar and nicotine' to mean less harmful, safer and/or delivering less tar;

b. whether these representations were false and/or misleading to Class members;

c. whether Defendant Philip Morris intended for the Class to rely upon these representations;

c. [sic] whether Philip Morris's conduct violated the Illinois Commerce Fraud Act [sic] and whether this violation was willful and wanton; and

d. whether Class members sustained damage as a result of Philip Morris' deceptive conduct."

On appeal, PMUSA argues that the circuit court erred in certifying the class because of the predominance of individual issues. In particular, PMUSA questions whether it was proper for the circuit court to conclude that the elements of actual deception and reliance could be established for all members of the class. PMUSA argues that the expert testimony offered by plaintiffs on these issues could not and did not establish the existence of these facts as to every member of the plaintiff class.

In addition, PMUSA argues that the circuit court improperly applied the discovery rule to toll the running of the statute of limitations (815 ILCS 505/10a(e) (West 1998)). According to PMUSA, Consumer Fraud Act claims based on purchases that occurred more than three years prior to the filing of this lawsuit are barred by section 10a(e) of the Consumer Fraud Act. The discovery rule tolls the running of the limitations period with respect to claims that would have put a reasonable person on notice of the need to investigate " 'whether actionable conduct is involved.' " Hermitage Corp. v. Contractors Adjustment Co., 166 Ill. 2d 72, 86 (1995), quoting Knox College v. Celotex Corp., 88 Ill. 2d 407, 416 (1981). Thus, PMUSA asserts, application of the discovery rule to extend the class period beyond three years raises additional individual questions of fact regarding when individual class members were exposed to public information about the controversy regarding "light" and "low tar" cigarettes.

Plaintiffs respond that because the circuit court found each of the factual elements of the fraud claimed proven, PMUSA cannot now argue that the class certification was improper without demonstrating to this court that each of the court's factual findings was against the manifest weight of the evidence.

3. Motion for Summary Judgment Based on PMUSA's
Claims of Preemption and Exemption

PMUSA filed a motion for summary judgment on its affirmative defenses of express and implied federal preemption and exemption from liability under sections 2 and 10b of the Consumer Fraud Act (815 ILCS 505/2, 10b (West 1998)).

On October 28, 2002, a hearing was held to consider PMUSA's motion for summary judgment. PMUSA argued that plaintiffs' claim is expressly preempted by the Federal Cigarette Advertising and Labeling Act, which provides that "[n]o requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes the packages of which are labeled in conformity with [this Act]." 15 U.S.C. §1334(b) (2000). PMUSA also argued that under the Supreme Court's decision in Cipollone v. Liggett Group, Inc., 505 U.S. 504, 120 L. Ed. 2d 407, 112 S. Ct. 2608 (1992), plaintiffs cannot base their claim on an allegation that defendant has neutralized the warning Congress requires on cigarette packages and, under Buckman Co. v. Plaintiffs' Legal Committee, 531 U.S. 341, 148 L. Ed. 2d 854, 121 S. Ct. 1012 (2001), plaintiffs' claim cannot be predicated on an alleged fraud upon the FTC. Based on the comprehensive federal regulatory scheme governing the labeling and advertising of cigarettes as well as the disclosure of tar and nicotine levels, PMUSA argued implied preemption.

PMUSA further argued that section 10b(1) of the Consumer Fraud Act "exempts conduct that complies with federal laws or the rules, regulations, or decisions of federal agencies" and that the "enormous record" of "advertising guides, agreements, proposed trade regulation rules, consent orders, investigations, determinations, and rulemakings *** related specifically to the use of 'low tar' and 'lights' " in cigarette advertising and labeling. Because the record clearly demonstrates that PMUSA has used these terms only on products "below the fifteen milligram cutoff," PMUSA asserted that such compliance provided a "full defense" to plaintiffs' Consumer Fraud Act claim. Relying on this court's decisions in Lanier v. Associates Finance, Inc.,114 Ill. 2d 1, 18 (1986) (finding compliance with disclosure requirements of federal Truth in Lending Act as interpreted by Federal Reserve Board staff to be a defense to liability under the Consumer Fraud Act), Jackson v. South Holland Dodge, Inc., 197 Ill. 2d 39, 47 (2001) (finding compliance with federal statute to be a defense to liability under the Consumer Fraud Act), and Jarvis v. South Oak Dodge, Inc., 201 Ill. 2d 81, 88 (2002) (recognizing state policy against extending consumer disclosure requirements beyond those mandated by federal law), PMUSA attempted to rebut plaintiffs' argument that the lack of trade regulation rules governing the use of these descriptors meant that their use could not have been "specifically authorized" by the FTC.

Plaintiffs' argument on this point was that the FTC had not specifically authorized PMUSA to use the terms "lights" or "lowered tar and nicotine" and, "in fact, lacks the authority to do so."

The circuit court took the matter under advisement. Between that date and November 8, 2002, the date upon which the circuit court issued its order, plaintiffs filed their first amended complaint. In the first amended complaint, plaintiffs abandoned some of the claims that defendants had argued were preempted. The remaining complaint, according to plaintiffs, was that defendant's use of the terms "lights" and "lowered tar and nicotine" was an affirmative misrepresentation and, thus, according to Cipollone, not preempted by the Act.

The circuit court's order noted PMUSA's argument that this claim of affirmative misrepresentation necessarily depends on plaintiffs' proving neutralization of the warning and a fraud on the FTC and acknowledged that "to the extent that their claims do depend on such a showing," such claims would be preempted under Cipollone and Buckman. However, the circuit court reserved judgment on the preemption question, finding it premature to address these defenses because there were "significant disputes about several material facts" that could not be resolved without live testimony. "A trial," according to the circuit court, would be required before the court could decide, "on a full and complete record whether the plaintiffs have stayed within the bounds of Cipollone and whether they are attempting to cross the line laid down in Buckman."

The November 8, 2002, order did not address PMUSA's affirmative defense based on the exemption provision contained in section 10b(1) of the Consumer Fraud Act. The order did not, however, reject this defense. Thus, when the circuit court "specifically reserve[d] judgment until trial on the issues presented in defendants' motion for summary judgment," judgment on this defense was reserved, presumably in order for the circuit court to determine, at trial, whether the FTC had specifically authorized the use of the disputed terms.

4. Trial

At trial, plaintiffs' case in chief consisted of the testimony of the 2 class representatives, 4 other class members, and 12 expert witnesses. PMUSA presented the testimony of 18 class members (one of the class representatives, 3 of the originally named plaintiffs who had withdrawn, and 14 others) and 7 experts. On rebuttal, plaintiffs recalled 2 of their experts and offered 2 additional experts.

Little of the testimony presented by plaintiffs in their case in chief was directed at PMUSA's affirmative defenses for the obvious reason that the burden of proving these defenses rested with the defendant. For purposes of resolving the issue that this court finds dispositive, only the testimony of two expert witnesses is relevant.

Plaintiffs' expert witness Dr. Neil Benowitz holds an M.D. from the University of Rochester and is board certified in internal medicine, clinical pharmacology, and medical toxicology. He is a full professor on the faculty of the University of California at San Francisco, where he is chief of the clinical pharmacology division in the department of medicine. In addition to teaching and seeing patients, Dr. Benowitz does research involving the actions of various drugs, including nicotine, and has written numerous articles on the subject of smoking and health.

Dr. Benowitz testified at length about nicotine addiction, the health effects of smoking, compensatory behavior, and the limitations of the FTC testing method. On cross-examination, Dr. Benowitz testified that he had recently received a letter from the FTC eliciting his opinion on a number of issues, including the FTC testing method and the use of the term "lights" and other descriptors. A copy of the letter was admitted into evidence. In addition to replying to the FTC inquiry, Dr. Benowitz and other scientists who had received similar inquiries wrote a joint letter to the FTC in which they expressed their concern that their responses to the FTC inquiries might be used to suggest that they supported the FTC's testing method. The joint letter also expressed the scientists' opinion that the terms "low tar," "light," and "ultra-light" are deceptive. The joint letter was also admitted into evidence. Dr. Benowitz stated that the FTC had not yet concluded the inquiry and that the use of the descriptors was still under consideration.

At this point in the cross-examination, the circuit court sustained plaintiffs' objection to further questioning on the subject of descriptors on the basis of relevance. PMUSA argued that the FTC's ongoing consideration of the use of descriptors was "directly relevant to pre-emption." The court ruled that there was "no question in this court on pre-emption." Although counsel for PMUSA reminded the circuit court that it had reserved ruling on its affirmative defenses pending the resolution of factual issues, the court would not permit further questioning of this witness with regard to his knowledge of or participation in the recent FTC inquiry into the use of low tar descriptors.

The circuit court thereafter sustained a series of objections to questions regarding the FTC testing method and the use of descriptors, but allowed PMUSA to make a written offer of proof. Nothing in the redirect or re-cross-examination of this witness related to the question of whether the FTC authorized use of the disputed descriptors. At the conclusion of re-cross-examination, counsel for PMUSA clarified that the written offer of proof would be filed, addressing three of its affirmative defenses. The circuit court reiterated its ruling that any currently pending FTC consideration of the use of descriptors was not relevant to this case.

Plaintiffs have not called our attention to any other portion of the trial transcript in which they elicited testimony, either on direct examination or cross-examination, on the question of whether the FTC may or may not have specifically authorized the use of descriptors such as "light" or "low tar" in cigarette labeling or advertising.

Dr. John Peterman testified as an expert witness on behalf of PMUSA. Dr. Peterman holds a Ph.D. in economics and has taught at the University of Chicago and the University of Virginia. He was employed at the FTC from 1976 to 1993. From 1988 until he left the FTC, he was the director of its Bureau of Economics. His area of expertise is regulatory economics. He testified that he had made an extensive study of regulation of the tobacco industry, including the history of FTC regulation of cigarettes, especially those described as "light" or "low tar."

According to Dr. Peterman, the FTC tar and nicotine program, which began in 1966, has two goals. First, it aims to provide consumers with information about tar and nicotine yields with the aim of facilitating their movement from higher yield products to lower yield products. Second, the FTC seeks to promote an overall reduction in tar and nicotine yields by encouraging tobacco companies to compete to bring lower yield products to market. The FTC adopted several mechanisms in support of these goals. First, it adopted a "single uniform protocol" to derive the tar and nicotine numbers that could be conveyed to consumers. Second, it published the numbers derived from the testing program. Initially, the numbers were reported to Congress. Later, the FTC permitted (and eventually required) that the numbers be included in cigarette packaging and advertising. Thus, in keeping with both goals, the FTC encourages competitive advertising of tar and nicotine yields. Dr. Peterman further testified that a third part of the FTC program is the permitting of the use of certain designators such as "light" and "low tar" if the product meets certain conditions specified by the FTC.

In response to questions regarding the FTC's regulatory activity, Dr. Peterman testified that the FTC can undertake the promulgation of formal rules. In lieu of formal rulemaking, the FTC can withdraw proposed rules if those affected voluntarily agree to comply. In addition, the FTC can issue advisory opinions upon request by an industry actor or other interested party. Finally, the FTC can undertake investigative and enforcement efforts pursuant to section 5 of the FTC Act. 15 U.S.C. §45(a) (2000). After filing a formal complaint charging a violation of the Act, the FTC can resolve the complaint and achieve its regulatory objective by means of a consent order. Such orders are a matter of public record and are published in the Federal Register. According to Dr. Peterman, the FTC uses such orders to "provide guidance to other firms in the industry." He stated, "While I was at the Commission, we considered all the activities that resulted in changes in firm behavior in response to Commission action as the FTC regulation of that activity." Thus, the FTC selected cases for enforcement "with the aim" of providing "significant guidance" to industry members.

A substantial part of Dr. Peterman's testimony involved the history of the regulation of cigarette advertising that this court has already summarized, above, based on the documentary record. In addition, he testified regarding the FTC's own use of and definitions of the terms "low tar" and "ultra low tar." Specific reference was made to the FTC's annual Report to Congress, which Dr. Peterman described as a report summarizing "what's going [on with regard] to cigarette advertising, the regulatory activities the commission is engaged in, and to make recommendations to Congress for changes in the law." The Annual Report is an official statement of the FTC, which the FTC is required by the Labeling Act to prepare.

Copies of the annual FTC Reports to Congress from 1967 to 2000 were identified by Dr. Peterman and admitted into evidence without objection. Dr. Peterman testified that he reviewed the reports in preparation for his testimony and that they reflected the official position taken by the FTC at the time they were transmitted to Congress. Specifically, he called attention to the portions of the 1968, 1970, 1971, 1979, and 1980 reports in which the FTC used or defined the term "low tar." He opined that the FTC has adopted an "official definition" of the term as a cigarette containing 15 milligrams or less tar.

Through the testimony of Dr. Peterman, PMUSA also called the circuit court's attention to several reports prepared by FTC staff that were placed on the public record and transmitted to Congress. According to Dr. Peterman, such reports represent the position of the FTC. In one report, the FTC staff noted that FTC annual reports to Congress "began in early 1967 and signaled the beginning of a new submarket trend based upon the FTC's official definition of low-tar cigarettes (15 or less milligrams of tar)." See FTC Staff Report, Bureau of Economics, Brand Performance in the Cigarette Industry and the Advantage to Early Entry, at 35 (June 1979). In 1981, the FTC reported to Congress on the conclusion of a study undertaken in 1976, in response to FTC's taking notice of extensive promotion and development of low tar and nicotine cigarettes. According to Dr. Peterman, the staff report "reconfirmed" that FTC "formally defines" low tar as 15 milligrams or less. See FTC Staff Report, Cigarette Advertising Investigation, at 1-50 n.175 (May 1981).

Over plaintiffs' objection, PMUSA was allowed to admit into evidence a copy of a November 24, 1998, letter from Senator Frank R. Lautenberg of New Jersey to then-FTC Chairman Robert Pitofsky. The Senator urged Chairman Pitofsky "to begin a proceeding to suspend the right of tobacco companies to market any cigarettes as 'Light' or 'Ultra Light' or list supposed nicotine and 'tar' ratings on their products and advertisements until and unless an accurate system of measuring the health implications of smoking is established." Lautenberg accompanied the letter with copies of "tobacco industry documents" that provided, in Lautenberg's words, "strong evidence that the tobacco industry knows that the nicotine and tar ratings used to determine what constitutes 'Light' cigarettes are false and misleading to consumers." Peterman described the Senator's request as specifically targeting the use of the word "light" as a descriptor by PMUSA and other tobacco companies.

The FTC responded to the letter in a news release, a copy of which was also admitted into evidence. The FTC acknowledged receipt of documents of which it was not previously aware and that the "existing testing methodology both significantly understates actual tar and nicotine intakes and doesn't properly account for differences in tar and nicotine intakes." The FTC also announced that its staff had been working with the Department of Health and Human Services on an informal basis to address these issues and that it had "now formally requested, and HHS has agreed," to conduct a review of the FTC testing methodology and of the "limited health benefits, previously believed to be associated with lower tar and nicotine cigarettes." FTC Statement in Response to Senator Frank Lautenberg's Release of Tobacco Documents, November 24, 1998.

Dr. Peterman then testified that the FTC does regulate the use of the descriptor "lights" and that it permits "the use of the descriptor 'lights' in cigarette advertising under certain conditions." He based this conclusion on his expert understanding of the FTC's functions and operations and on the 1971 consent order, the 1995 consent order, and the results of the various FTC investigations and deliberations on the subject of the use of measurements and descriptors of tar in cigarette advertising. He further testified that, based on his investigation and experience, that PMUSA's advertising of Marlboro Lights and Cambridge Lights is in compliance with the FTC requirements. Both cigarettes yield less than 15 milligrams of tar based on the FTC test method and both brands are lower in tar than their full-flavor counterparts, Marlboro Reds and regular Cambridge cigarettes.

Regarding the 1971 American Brands consent order, Dr. Peterman testified that the order was an "official act" of the FTC and that it was published for the purpose of providing guidance to industry members regarding the use of descriptors. He stated that the consent order said to industry members, in effect: "If in the future you use the term 'low,' 'lower,' or any light [sic] qualifying terms to describe your product, it [will be] necessary to put the tar and nicotine yield in the ad."

Regarding the FTC investigation into the "channel" filter used by the manufacturer of Barclay cigarettes, Dr. Peterman explained that because the construction of the filter caused the mandatory FTC method to produce unreliable results, there were no accurate yield numbers that the manufacturer could include on the package or in its advertising. Thus, he opined, the FTC "indicated to Barclay that if it wished, it could advertise the product simply as low tar," because the FTC estimated that, if not for the channel filter construction, the yield under the FTC method would have measured in the 3 to 7 milligrams range, well within the 15 milligrams or less definition of a low tar cigarette.

Similarly, when it investigated Carlton cigarettes in 1994, the FTC acted to ban use of "fractions, multiples, or ratios that implied actual intake differences" between Carlton and other brands. Nevertheless, Dr. Peterman stated, the FTC allowed American Brands, the manufacturer of Carltons, to make the claim that Carlton cigarettes were "low" or "the lowest" in tar. He was allowed to testify, over plaintiffs' objection, that the publication of the consent order in this matter was intended by the FTC to give guidance to the rest of the industry.

Dr. Peterman further testified that on September 12, 1997, the FTC caused the publication in the federal register of a request for comments regarding cigarette descriptors. Specifically, "it asked for comments as to whether the descriptors 'low tar' and 'light,' which covered products between [sic] 15 milligrams and less, should be changed or in any way are potentially misleading. And they asked for similar comments with respect to 'ultra light' products, which were cigarettes ranked using the FTC test method from 6 and under milligrams of tar." According to Dr. Peterman, that investigation remained open as of the date of his testimony.

PMUSA's expert summarized the FTC's rules regarding the use of "low," "lower," "light," and similar descriptors as follows: use of the terms "low tar" and "lowered tar" is permitted if the cigarette yields 15 milligrams or less of tar under the FTC test method; it is not permissible for a manufacturer to make representations of specific numeric reductions in tar intake by smokers; the term "lights" is deemed by the FTC to be synonymous with the term "low tar"; and, finally, the FTC "intended the industry generally to conform its advertising to these rules." Dr. Peterman specifically relied upon the various consent orders to formulate this opinion.

Questioned further about the terms "light" or "lights" as applied to cigarettes, Dr. Peterman testified that the FTC equates the term "light" with "low tar." He based his opinion on an internal study conducted during his tenure at the FTC which revealed that the two terms were used synonymously to refer to cigarettes with a tar yield of 15 milligrams or less. The FTC considers the term "lights" to be a description of a "low tar" cigarette.

He testified further regarding the FTC investigation that began in 1976 and concluded in 1981 with an FTC staff report to Congress. The staff report stated that the FTC had determined that such descriptors were not false or misleading. As a result, the report did not recommend banning the use of such descriptors. Instead, the report recommended strengthening the required warnings on cigarette packages and rotating several different warnings to keep the message fresh in the minds of consumers. According to Dr. Peterman, the FTC responded to the staff report by recommending changes in the warning program, but continued to permit use of the descriptors.

The cross-examination of Dr. Peterman focused almost entirely on questions related to the issue of federal preemption. He was not asked in any detail about the FTC's authorization of the use of the terms "low tar," "lower tar," "lights," or other descriptors. Rather, he was questioned in great detail about whether state regulation of the use of such terms would conflict with the FTC's program.

During a recess in the cross-examination of Dr. Peterman, the circuit court indicated to counsel for PMUSA that "if you're relying on [sic] just on him, you lose preemption, and I-I'll just go ahead and not waste your time and strike your defense." Counsel for PMUSA explained that Dr. Peterman's testimony also went "directly to the primary jurisdiction defense," and that the testimony regarding "the use of descriptors is very direct evidence of our primary jurisdictional affirmative defense."

After cross-examination resumed, Dr. Peterman admitted that he could not identify any FTC trade regulation rule that regulated the use of low tar descriptors. He also agreed with plaintiffs' assertion that no FTC trade regulation rule either requires the use of such descriptors or approves the use of such descriptors. He was then asked if the use of such descriptors by a tobacco company was "a voluntary one." He replied that it would be a decision to be made by the individual firm. A cigarette manufacturer could drop the use of the term "light" or other low tar descriptors if it chose to do so, but would still, under FTC policy, have to publish the tar and nicotine numbers.

With regard to the 1971 consent order entered into by the FTC and American Brands, Dr. Peterman was asked whether he believed that the consent order provided guidance to the cigarette industry and if, even though PMUSA was not a party to the order, it would "sort of know how far they can go and how far they can't go." He agreed with this statement.

The evidence offered by plaintiffs on the issue of damages is worthy of mention. Plaintiffs' expert Jeffrey Harris, M.D., testified regarding the "contingent valuation analysis" that he conducted using data obtained by J. Michael Dennis, Ph.D. Dr. Harris holds a bachelor's degree from Harvard University and masters and doctoral degrees from the University of Pennsylvania. He is currently on the faculty of the economics department of the Massachusetts Institute of Technology and holds an appointment with the Harvard Medical School. Dr. Dennis is the vice president and managing director of the Government and Academic Research Department of Knowledge Networks in California.

Dr. Dennis testified that Knowledge Networks conducts surveys on the Internet, primarily for university professors or other academics who are conducting federally sponsored research. The company has "web-enabled" a panel of some 40,000 randomly selected United States households to participate in various surveys. The demographic characteristics of these households is generally similar to the United States population as a whole.

For purposes of this case, 2,701 panel members were invited to participate in a survey on the basis of their being current or recent smokers. 1,779 of these responded to the on-line invitation by completing the "screening survey"; 276 of these "qualified for the main interview" based on their answers to three screening questions. The screening questions eliminated those who had not smoked in the previous year, those who did not smoke Marlboro or Cambridge products, and, finally, those who did not smoke Lights. In addition, the panel members were eliminated if they answered "no" to the question whether they could recall the reason they initially chose to smoke a light or lower tar and nicotine cigarette. About 23% of those remaining could not. In addition to answering a series of questions about their beliefs regarding the relative safety of lower tar cigarettes compared to full-flavor cigarettes, the remaining respondents were asked to assume that Marlboro Lights were more hazardous than full-flavor cigarettes and to imagine the existence of a Marlboro Light that was identical in all other respects to the current product, except that it was truly safer to smoke. The respondents were then asked to state how much of a discount would be required to cause them to purchase the more hazardous product if the safer version were actually available.

Based on the answers to this question, Dr. Harris calculated that class members, on average, would demand a 92.3% discount from the market price if they were to continue to purchase Marlboro Lights. Applying this discount to all purchases of Marlboro and Cambridge Lights during the relevant class periods, and calculating prejudgment interest at 5%, noncompounded, Harris concluded that the 1.14 million members of the class had suffered $7.1005 billion in economic damages.

On cross-examination, Dr. Harris agreed that he had provided input into language used in the survey questions used by Knowledge Networks. He agreed that he was not an expert in survey design and did not consult such an expert before formulating the questions. He was unaware of any texts or guides for the formulation of contingent valuation surveys, although he was aware that such surveys are controversial. When asked if his diminution-in-value analysis "assumes both the reliability and the validity of the Knowledge Networks survey," he answered "yes," but offered no basis for his assumption.

PMUSA's expert, W. Kip Viscusi, Ph.D., is a professor of economics who holds four degrees from Harvard University. He has taught at Northwestern University and the University of Chicago and is presently on the faculty at Harvard University, where he holds an endowed chair and heads the program on Empirical Legal Studies. Dr. Viscusi described his particular expertise in the area of survey design and analysis. He has been analyzing survey data since 1976 and designing surveys since 1981 and has been published in numerous peer-reviewed books and journals. His specialty is the subject of risk and uncertainty.

Dr. Viscusi testified that the price of Marlboro Lights and Cambridge Lights has always been identical to the price of their full-flavored counterparts and, therefore, because the plaintiffs did not pay a premium for the claimed "lightness" of these products, they could not have suffered any economic loss. With regard to Dr. Harris' reliance on the Knowledge Networks survey offered by plaintiffs as evidence of economic damages, Dr. Viscusi explained that a contingent valuation survey attempts to determine the value in the marketplace of a hypothetical product. He offered three guidelines that he described as "good, sound practice" for such surveys. First, the survey should be pretested to ensure that the people taking the survey understand the questions. Second, the hypothetical "good" that is being described must be made fully understandable to the survey respondents, so that they will be able to "value the good." Third, because the "good" is a hypothetical product, "not a real market transaction," it is necessary for the survey to contain "internal consistency checks." When real market data is not available to compare to the survey answers and the survey itself does not ensure consistency, it may not be possible to determine whether the survey respondents took the questions seriously. They may perceive the hypothetical transaction as involving only "funny money." Dr. Viscusi testified that the Knowledge Networks survey violated all three of these guidelines.

At the close of evidence, PMUSA again sought decertification of the class and moved for judgment as a matter of law. After considering proposed findings of fact and conclusions of law submitted by both parties, the circuit court declined to decertify the class, rejected each of PMUSA's 27 affirmative defenses, and entered judgment for the plaintiffs on the issue of liability.

5. Judgment Order

The circuit court issued its judgment order on March 21, 2003. The portion of the order relating to the issue of class certification was noted above.

In the judgment order, the circuit court ruled on issues upon which it had earlier reserved judgment. Ruling that the Labeling Act does not expressly preempt plaintiffs' claims under the Consumer Fraud Act, the circuit court stated that plaintiffs' Consumer Fraud Act claims are based upon " 'a state-law duty not to make false statements of material fact or to conceal such facts' " (quoting Cipollone, 505 U.S. at 528, 120 L. Ed. 2d at 430, 112 S. Ct. at 2623). Further, the circuit court ruled that even if plaintiffs' Consumer Fraud Act claim is expressed in terms of an omission rather than misrepresentation, the omission of information qualifying the claim of lower tar cannot be read as a claim of failure to warn. See Cipollone, 505 U.S. at 528, 120 L. Ed. 2d at 430, 112 S. Ct. at 2623. A claim of concealment of a material fact-that the claim of lowered tar was based on a laboratory measurement that was known to be an inaccurate representation of the actual delivery of tar-is a claim of fraud, not a claim of failure to warn.

Further, the circuit court noted that neither the Labeling Act nor the regulations of the FTC govern a cigarette manufacturer's voluntary use of the terms "lights" and "lowered tar and nicotine" as descriptors on packaging. The mere fact that the FTC has, at times, considered and rejected such regulations does not create conflict preemption. The circuit court also rejected defendant's reliance on the first amendment and on article I, sections 4 and 5, of the Illinois Constitution as bases for finding plaintiffs' claim preempted. The circuit court stated that neither the federal nor the state constitution protects commercial speech that is false and misleading.

Then, without specifically referring to section 2 or section 10b(1) of the Consumer Fraud Act, the circuit court stated:

"Philip Morris' Seventh Affirmative Defense-Compliance with Government Regulations-is denied. The false and misleading use of the descriptors 'Lights' and 'Lowered Tar and Nicotine' has never been specifically authorized by law. Philip Morris voluntarily chose to use these terms on its packages of Marlboro Lights and Cambridge Lights. No regulatory body has ever required (or even specifically approved) the use of these terms by Philip Morris. The court finds that Philip Morris has not established that its conduct is 'specifically authorized' by law."

The circuit court characterized plaintiffs' Consumer Fraud Act claim as being based on two distinct types of fraudulent statements by PMUSA. First, plaintiffs alleged that the representations "light" and "lower in tar and nicotine" on Marlboro Lights and Cambridge Lights labels were "material and false." Second, with regard to plaintiffs' claim that the smoke delivered by Marlboro Lights and Cambridge Lights is more mutagenic than the smoke delivered by their full-flavored counterparts, the circuit court characterized the claim as one of misrepresentation by omission. That is, the descriptors "light" and "lowered tar and nicotine" were "fraudulent and misleading because [they] did not state matters which materially qualify the statement as made." The "matters not stated," according to the circuit court, were that the tar from Marlboro Lights and Cambridge Lights "is higher in toxic substances and more mutagenic" than tar from regular cigarettes. The circuit court expressly noted its reliance on the testimony of plaintiffs' experts, whom it found more credible than PMUSA's experts. In its findings of fact, the circuit court stated that although PMUSA's "misrepresentations in this case were not in the form of an explicit statement" of increased health or safety, class members "universally understood the message of reduced risk from these products." The court also found that PMUSA was aware, as a result of its own research, of increased mutagenicity of the smoke from its light cigarettes. In addition, the court found that even if a smoker of light cigarettes does not compensate completely, he or she will receive higher levels of most of the toxic substances contained in cigarette smoke than a smoker of regular cigarettes.

As for the elements of the Consumer Fraud Act claim, the circuit court found:

"After considering all the testimony and evidence admitted at trial, the Court finds that the Plaintiffs have proven that Philip Morris has violated the Consumer Fraud Act through the deceptive act of misrepresenting its Cambridge Lights and Marlboro Lights products as 'Lights' and misrepresenting Marlboro Lights as 'Lowered Tar and Nicotine.' The Court further finds that Philip Morris intended that the Class members in this case rely upon the deception created by these misrepresentations. These misrepresentations occurred in the course of conduct involving trade or commerce and caused actual damage to the Plaintiffs in the amount of $7.1005 Billion. This actual damage to the Plaintiffs' was proximately caused by the misrepresentations of Philip Morris."

The circuit court awarded $3 billion in punitive damages, to be paid to the State of Illinois and attorney fees in the amount of 25% of the compensatory award.

In response to a posttrial motion raising the issue of whether the multistate tobacco settlement agreement barred the state from receiving any of the punitive damages amount, the court modified its judgment so that the punitive damages award would revert to the members of the plaintiff class if the state were found to be barred from receiving such funds. See People v. Philip Morris, Inc., 198 Ill. 2d 87, 92-93 (2001) (explaining the circumstances under which the State of Illinois joined the multistate "Master Settlement Agreement" of claims against several tobacco industry defendants).

II. ISSUES ON APPEAL

On appeal, PMUSA argues that (1) the circuit court erred by rejecting certain of its affirmative defenses, (2) the circuit court erred by certifying a plaintiff class, (3) plaintiffs failed to establish their claims and the claims of the class members, (4) the damages award is erroneous, and (5) the circuit court erred in finding that certain documents were not privileged. Under each of these issues, PMUSA raises numerous subissues.

III. PMUSA'S AFFIRMATIVE DEFENSES

Since the mid-1950s, the FTC has regulated the labeling and advertising of cigarettes, including the disclosure by manufacturers of tar and nicotine levels in their products. PMUSA unsuccessfully argued to the circuit court that the existence of a comprehensive federal regulatory scheme governing these topics bars plaintiffs' claim as a matter of law on four separate bases. PMUSA renews these arguments before this court. First, PMUSA asserts that sections 2 and 10b of the Consumer Fraud Act (815 ILCS 505/2, 10b (West 2000)) bar plaintiffs' claim. Second, PMUSA argues that even if state law permits such a claim, plaintiffs' Consumer Fraud Act action is expressly preempted by the Federal Cigarette Labeling and Advertising Act (Labeling Act) (15 U.S.C. §1331 et seq. (2000)). Third, PMUSA contends that this claim is barred by the doctrine of conflict preemption. Fourth, PMUSA argues that labeling of its light cigarettes comes within the protection of the first amendment and article I, section 4, of the Illinois Constitution. In addition, PMUSA cites the three-year statute of limitations applicable to actions brought under the Consumer Fraud Act (815 ILCS 505/10a(e) (West 1998)), which, it argues, precludes class certification and limits the damages period. Because we find section 10b(1) of the Consumer Fraud Act bars plaintiffs' claim, we need not address the other issues raised in this appeal.

The Consumer Fraud Act was enacted in 1961 as a regulatory and remedial statute for the purpose of protecting consumers and others against fraud, unfair methods of competition, and unfair or deceptive acts or practices in the conduct of any form of trade or commerce. Robinson v. Toyota Motor Credit Corp., 201 Ill. 2d 403, 416-17 (2002). It is to be liberally construed to effectuate this purpose. Cripe v. Leiter, 184 Ill. 2d 185, 191 (1998). Section 10b(1) of the Consumer Fraud Act provides that nothing in the Act shall apply to "[a]ctions or transactions specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States." 815 ILCS 505/10b(1) (West 1998).

Illinois enacted the Deceptive Practices Act in 1965 primarily for the purpose of defining and prohibiting deceptive trade practices (see 1965 Ill. Laws 2647, eff. January 1, 1966 (title of Act)) and unfair competition (see Chabraja v. Avis Rent A Car System, Inc., 192 Ill. App. 3d 1074, 1079 (1989) (noting that the prefatory notes to the statute specifically refer to deceptive conduct that unreasonably interferes with another in the promotion and conduct of his business). Section 4(1) of the Deceptive Practices Act provides: "This Act does not apply to: (1) conduct in compliance with the orders or rules of or a statute administered by a Federal, state or local governmental agency." 815 ILCS 510/4 (West 1998).

Before this court can determine whether section 10b(1) of the Consumer Fraud Act bars plaintiffs' claim, we must be clear about the precise nature of the conduct alleged by the plaintiffs to have constituted fraud. Having carefully reviewed the pleadings, we reject PMUSA's attempt to cast plaintiffs' claim as one of failure to make additional disclosures beyond the warning required by federal law. Plaintiffs' claim is not based on failure to warn or on neutralization of the required warnings. It is not a claim of fraud on the FTC, nor is it a claim for damage to plaintiffs' health.

Plaintiffs have pleaded a pure case of consumer fraud. They allege that PMUSA used the descriptive terms "light" and "lowered tar and nicotine" on its packaging and in its advertising with the knowledge that these terms are deceptive, and with the intent that consumers rely upon the false message in making purchasing decisions. Plaintiffs have further alleged that the class members relied, to their detriment, on these false claims. See Oliveira, 201 Ill. 2d at 149 (listing elements of a cause of action under the Consumer Fraud Act). In addition, plaintiffs assert that the smoke that was delivered by the PMUSA products was even more toxic and more mutagenic than smoke from full-flavor cigarettes.

If the use of these descriptive terms in the manner alleged has been specifically authorized by the FTC in the course of carrying out the duties assigned to it by Congress, this action cannot stand, even if the terms might be found deceptive by a trier of fact. 815 ILCS 505/10b(1) (West 1998). Similarly, if these terms have been used by PMUSA in compliance with the orders or rules of the FTC, an action under the Deceptive Practices Act is also barred. 815 ILCS 510/4 (West 1998).

A. Standard of Review

PMUSA suggests that its affirmative defenses raise questions of law and, therefore, the proper standard of review is de novo, citing Woods v. Cole, 181 Ill. 2d 512, 516 (1998). Plaintiffs have not objected to de novo review. We conclude that de novo review is warranted, but not for the reason suggested by PMUSA.

As a threshold matter, we must construe the language of section 10b(1). Statutory construction is a question of law, subject to de novo review. Advincula v. United Blood Services, 176 Ill. 2d 1, 12 (1996). Once the statute is properly construed, its terms must be applied to the circumstances of the individual case to determine whether it bars this action. It is arguably a question of fact whether the FTC did, or did not, specifically authorize the use of certain descriptive terms in cigarette labeling and advertising. Indeed, the circuit court felt it necessary to reserve judgment on the affirmative defenses pending the creation of a factual record at trial. It could, therefore, be argued that the application of section 10b(1) to the facts should be reviewed under a more deferential standard. See, e.g., Carpetland U.S.A., Inc. v. Illinois Department of Employment Security, 201 Ill. 2d 351, 369 (2002) (noting that when the "issue presented cannot be accurately characterized as either a pure question of fact or a pure question of law," it may be properly reviewed under an intermediate standard of review).

We, nevertheless, review de novo the application of section 10b(1) to the facts of this case. Although the circuit court made a finding that the FTC did not specifically authorize the use of the disputed terms, this is not a finding of fact that proceeded from the circuit court's assessment of credibility of witnesses or the weight it chose to give to conflicting pieces of evidence. Rather, the actions of the FTC with relation to the use of these terms in cigarette advertising and labeling are a matter of public record. Thus, the statute is being applied to facts that are essentially undisputed. Because we need not evaluate the credibility of witnesses or weigh conflicting testimony to determine whether the actions of the FTC have resulted in specific authorization of the use of these terms by cigarette manufacturers, we may properly draw our own conclusion on the issue. Steinbrecher v. Steinbrecher, 197 Ill. 2d 514, 523 (2001) (where the question on appeal is limited to application of the law to undisputed facts, the standard of review is de novo).

B. PMUSA's Argument

PMUSA argues that section 10b(1) bars this action based on the FTC's regulatory scheme and Congress' regulation of cigarette advertising through the Labeling Act. Citing this court's decisions in Lanier, 114 Ill. 2d at 17, and Jackson, 197 Ill. 2d at 49, which are discussed in detail below, PMUSA argues that its compliance with federal law, combined with the policy against extending disclosure requirements beyond what is mandated by law, satisfy the requirements of section 10b(1). At oral argument, counsel for PMUSA characterized section 10b(1) as a "safe harbor for those whose conduct does not violate federal law."

In the alternative, PMUSA argues that even if compliance with applicable law is not sufficient to bar Consumer Fraud Act liability (see Jackson, 197 Ill. 2d at 58-60 (Kilbride, J., specially concurring, joined by Harrison, C.J.) (rejecting view that mere compliance with the applicable regulatory scheme, by itself, is sufficient to trigger the operation of section 10b(1))), the FTC has specifically authorized the use of the disputed descriptors in cigarette labeling and advertising. PMUSA asserts that regulatory agencies, including the FTC, "use a wide array of tools other than formal regulations to control industry conduct."

Throughout the history of FTC regulation of cigarette marketing, PMUSA claims, the agency has used advisory opinions, voluntary cooperation obtained in response to threatened regulation, investigations of individual industry actors, reports to Congress, and other methods of influencing the behavior of industry actors. Specifically, PMUSA argues, the FTC "has found that one especially effective method of regulation is to bring an enforcement action against one company to announce to an entire industry what behavior is and is not authorized." By resolving such actions with a consent decree, as the FTC did in the 1971 and 1995 cases, the FTC communicated to all industry actors the circumstances under which they may use "low tar" descriptors. For this assertion, PMUSA relies, in part, upon National Labor Relations Board v. Bell Aerospace Co., 416 U.S. 267, 294, 40 L. Ed. 2d 134, 153-54, 94 S. Ct. 1757, 1771, (1974) (" '[A]djudicated cases may and do ... serve as vehicles for the formulation of agency policies, which are applied and announced therein' "), quoting National Labor Relations Board v. Wyman-Gordon Co., 394 U.S. 759, 765, 22 L. Ed. 2d 709, 714-15, 89 S. Ct. 1426, 1429 (1969) . Further, PMUSA insists, the FTC itself considers such conduct to be regulatory activity, as evinced by the testimony of Dr. Peterman and the many FTC documents admitted into evidence at trial.

In addition, PMUSA notes that the circuit court found in paragraph 148 of its judgment order that its practices "offend public policy, are immoral, unethical, oppressive and unscrupulous and that this course of conduct caused a substantial injury to the Class members," in violation of both the Consumer Fraud Act and the Deceptive Practices Act. Because an action under the Deceptive Practices Act is barred if the defendant's conduct is "in compliance with" FTC rules, PMUSA argues that it cannot be held liable under the Deceptive Practices Act in the absence of proof a violation of a governing rule or statute.

C. Plaintiffs' Response

Plaintiffs argue that the FTC has never "specifically authorized the fraudulent use of any descriptor, and it would lack the legal authority to do so in any event." They further argue that, whatever is meant by the term "specifically authorized," it clearly requires something more than mere compliance with federal law.

Plaintiffs point to Dr. Peterman's testimony on cross-examination in which he acknowledged that the FTC generally does not adopt trade regulation rules that approve conduct that a regulated entity may or may not choose to engage in. Rather, the FTC adopts regulations that require certain conduct or forbid other conduct. They note that no FTC document or official statement has ever announced that a tobacco company has "substantiated" its use of such descriptors. Further, they point to the FTC's "disavowal" of any "official" definition of these terms. See Cigarette Testing, Request for Public Comment, 62 Fed. Reg. 48,158, 48,163 (September 12, 1997) (noting that the FTC itself does not define terms such as "low tar," "light," "medium," "extra light," "ultra light," "ultra low," or "ultima," although "they appear to be used by the industry to reflect ranges of FTC tar ratings").

With regard to the 1971 and 1995 consent orders, plaintiffs dispute their relevance to the conduct of any industry actor other than the company that was a party to the enforcement action. The 1971 consent order, according to plaintiffs, did not mention "lights" and did not define "low tar." It imposed conditions upon the use of such terms with which, it argues, PMUSA has never complied. The 1995 consent order neither defined "lights" nor established a "numerical standard for 'low tar.' "

Plaintiffs distinguish Lanier on the basis that it involved an alleged fraudulent failure to disclose while this case involves PMUSA's "active and direct misrepresentations." In addition, plaintiffs offer Jenkins v. Mercantile Mortgage Co., 231 F. Supp. 2d 737, 752 (N.D. Ill. 2002), in which the federal district court, applying Illinois law, stated that Lanier did not hold that mere compliance with federal law does not bar liability under the Consumer Fraud Act.

D. Analysis

We begin our analysis with the observation that each party overstates its case with respect to this issue.

PMUSA asserts that mere compliance with applicable FTC regulations is enough to bar a Consumer Fraud Act action, correctly noting that application of section 10b(1) of the Consumer Fraud Act has never been held by this court to require that a federal agency or statute expressly authorize the conduct at issue. Rather, according to PMUSA, so long as the challenged conduct is in compliance with applicable federal law, section 10b(1) bars liability under the Consumer Fraud Act. Citing Lorillard Tobacco, 533 U.S. at 548, 150 L. Ed. 2d at 555, 121 S. Ct. at 2418. PMUSA notes that by enacting the Labeling Act, Congress not only mandated the precise warnings that must appear on cigarette packaging and in cigarette advertising but also vested authority in the FTC to enact additional targeted regulations of cigarette advertising. See Lorillard Tobacco, 533 U.S. at 550, 150 L. Ed. 2d at 556, 121 S. Ct. at 2419 (holding that the Labeling Act preempts state regulations specifically targeting cigarette advertising, but does not preempt state regulation of cigarette use or sales, or imposition of regulations of general applicability, such as zoning, which may have an effect on cigarette advertising). PMUSA argues that, pursuant to the authority vested in it by Congress to enact additional regulations regarding cigarette advertising, the FTC "has addressed precisely how cigarette manufacturers may communicate with consumers about tar and nicotine levels and has specifically considered and allowed the use of the descriptors at issue here." PMUSA asserts that its use of the terms "lights" and "lowered tar and nicotine" are in undisputed compliance with FTC regulations governing cigarette labeling and advertising and, as a result, plaintiffs' claims under the Consumer Fraud Act are barred.

We reject PMUSA's assertion that section 10b(1) operates to bar plaintiffs' claim merely because PMUSA may have been in compliance with applicable federal law. The plain language of section 10b(1) requires that two separate conditions be present before a claim is barred. First, a regulatory body or officer must be operating under statutory authority. In this case, the first condition is met. The FTC operates under the authority of the FTC Act (15 U.S.C. §45(a) (2000)), and the Labeling Act (15 U.S.C. §1331 et seq. (2000)), to regulate the packaging and advertising of cigarettes. Second, liability under the Consumer Fraud Act is barred by section 10b(1) only if the action or transaction at issue is "specifically authorized by laws administered" by the regulatory body. 815 ILCS 505/10b(1) (West 1998). As we explain in detail, below, PMUSA's mere compliance with the rules applicable to labeling and advertising is not sufficient to trigger the exemption created by section 10b(1).

Similarly, while the FTC's own use of the terms "low tar" and "ultra low tar" and its apparent adoption of definitions of these terms (15 milligrams or less of tar and 6 milligrams or less of tar, respectively) clearly invites others to use the same or similar terms to describe certain cigarettes, it cannot be said that the FTC's own use of such terms in its reports to Congress or elsewhere "specifically authorizes" cigarette manufacturers to use these terms in labeling and advertising. Conduct is not specifically authorized merely because it has not been specifically prohibited. Conduct is not specifically authorized merely because it has been passively allowed to go on for a period of time without regulatory action being taken to stop it. Instead, we must look to the affirmative acts or expressions of authorization by the FTC to answer this question.

Plaintiffs' argument that the FTC "has never 'specifically authorized' the fraudulent use of any descriptor, and it would lack the legal authority to do so in any event" (emphasis in original), is similarly overstated. Whether these terms are deceptive goes to the merits of the fraud claim, not to the threshold question of exemption under section 10b(1), under which the real issue is whether the FTC has specifically authorized PMUSA and other cigarette manufacturers to use these terms on their packaging and in their advertising, no matter how vague or unhelpful these terms might be to consumers.

Plaintiffs also claim that PMUSA's use of these terms cannot be deemed authorized by the 1971 consent order because PMUSA has not accompanied its use of these terms with "a clear and conspicuous disclosure of" the tar and nicotine content of the advertised cigarette and of the cigarettes to which it was being compared. This argument has no merit because the quoted language applies only when the manufacturer is making a direct comparison between its brand of cigarettes and a competing brand. See American Brands, 79 F.T.C. 255 (permitting advertising of cigarettes using "the words 'low,' 'lower,' or 'reduced' or like qualifying terms," if the statement is accompanied by a "clear and conspicuous disclosure" of the tar and nicotine content of the advertised cigarette; and, if a direct comparison is made to another brand or brands, disclosure of the tar and nicotine content of that brand or brands and of the "lowest domestic yield cigarette"). Indeed, the consent order expressly provides that "a comparison to a class of cigarettes, or to many or most of the cigarettes of a class, shall not be deemed a comparison to another brand or brands of cigarettes."

Having disposed of these arguments, we turn to the interpretation and application of section 10b(1) of the Consumer Fraud Act.

1. The Statutory Language

In determining whether section 10b(1) of the Consumer Fraud Act operates to bar the action at issue, we are guided by established principles. The primary rule of statutory construction is to ascertain and give effect to the intent of the legislature. Bridgestone/Firestone, Inc. v. Aldridge, 179 Ill. 2d 141, 149 (1997), quoting Illinois Power Co. v. Mahin, 72 Ill. 2d 189, 194 (1978). To do so, we examine the language of the statute, which is the most reliable indicator of the legislature's objectives in enacting the law. Michigan Avenue National Bank v. County of Cook, 191 Ill. 2d 493, 504 (2000). When interpreting statutes, this court gives undefined words their plain and ordinary meaning. Granite City Division of National Steel Co. v. Illinois Pollution Control Board, 155 Ill. 2d 149, 181 (1993). It is entirely appropriate to employ the dictionary as a resource to ascertain the meaning of undefined terms. People ex rel. Daley v. Datacom Systems Corp., 146 Ill. 2d 1, 16 (1991).

The statutory language at issue provides that the Consumer Fraud Act shall not apply to actions "specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States." 815 ILCS 505/10b(1) (West 1998). It is undisputed that the FTC acts under federal statutory authority to administer federal laws regarding the labeling and advertising of cigarettes.

To authorize is to "give legal authority; to empower," "[t]o formally approve; to sanction." Black's Law Dictionary 143 (8th ed. 2004). Although the dictionary definition clearly encompasses formally promulgated trade regulation rules of the FTC, neither the definition nor the statute itself limit the application of the provision to authorization via formal agency rulemaking. Rather, so long as the conduct is specifically authorized "by laws administered by" the regulatory body, it is exempt from Consumer Fraud Act liability. Based on the dictionary definition, therefore, the specific authority contemplated by section 10b(1) may be either express or implied.

Authorization is "specific" if it is "[o]f, relating to, or designating a particular or defined thing; explicit," "[o]f or relating to a particular named thing." Black's Law Dictionary 1434 (8th ed. 2004). The term "specifically" in section 10b(1) describes the substance or content of the authorization. It refers to the conduct that has been authorized, rather than the manner in which the authorization has been communicated. The term "specifically" indicates a legislative intent to require a certain degree of specificity or particularity in the authorization.

Neither party has offered any argument as to the meaning of the phrase "by laws administered by." However, we conclude that the legislature must have intended the phrase to require deference to agency policy and practice as it carries out the duties delegated to it by Congress or the General Assembly. If the legislature had intended to require that the specific authorization be contained in the law itself, it would have exempted conduct "specifically authorized by state or federal statute," not conduct "specifically authorized by laws administered by" a regulatory body.

Our focus, therefore, must be on the actions of the FTC with regard to cigarette labeling and advertising to determine whether, as a matter of state law, it specifically authorized PMUSA to use the disputed terms in its labeling and advertising. If the FTC has specifically authorized the use of the terms "lights" and "lowered tar and nicotine" by PMUSA in its labeling and advertising, PMUSA may not be held liable under the Consumer Fraud Act, even if the terms might be deemed false, deceptive, or misleading.

2. Legislative Intent and Public Policy

Our reading of the plain and ordinary meaning of the language of section 10b(1) is consistent with apparent legislative intent and with the public policy embodied in the Consumer Fraud Act. Although the Consumer Fraud Act is to be liberally construed to effectuate its purposes of protecting "consumers, borrowers, and business persons against fraud, unfair methods of competition, and other unfair and deceptive business practices" (Robinson, 201 Ill. 2d at 416-17), the legislature clearly intended for certain actions or transactions engaged in by entities otherwise subject to the Consumer Fraud Act to be exempt from liability under the Consumer Fraud Act and the Deceptive Practices Act, without regard to the possible merits of the asserted claim.

Section 10b(1) reflects a legislative policy of deference to the authority granted by Congress or the General Assembly to federal and state regulatory agencies and a recognition of the need for regulated actors to be able to rely on the directions received from such agencies without risk that such reliance may expose them to tort liability.

Further, section 10b(1), by exempting certain conduct from liability even if the conduct itself is objectionable, serves to channel objections to agency policy and practice into the political process rather than into the courts. See City of Chicago v. Beretta U.S.A. Corp., 213 Ill. 2d 351, 432 (2004) (suggesting that change in law affecting highly regulated industry be left to the legislature and the political process); Charles v. Seigfried, 165 Ill. 2d 482, 493 (1995) (noting that public and social policy should emanate from the legislature). Parties who desire to bring about change in agency policies or rules can take their complaints to the agency itself and can participate in the formal rulemaking process. If their concerns are not a