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Protecting the Marlboro brand has become a lot trickier since states started raising taxes on cigarettes in 2002. Nowadays an intrepid peddler in New York State, where a carton of Marlboros costs about $75, can travel to Richmond, Va., where Marlboro’s owner Philip Morris USA is based, and buy a carton for $30, or simply go online and order them from abroad for less than $15. Clearly, there’s a huge incentive to buy cigarettes cheaply in one place and sell them illegally in another. That undercuts legitimate sellers, and ultimately undermines Philip Morris’ ability to sell cigarettes, explains company spokesperson Dana Bolden. To combat the growing problem, Philip Morris took the unusual step of creating a brand integrity department in 2002, and named Jack Holleran, who had spent seven years at the company in various legal and managerial positions, senior vice president of compliance and brand integrity. Holleran describes his job as “disrupting, reducing, and eliminating contraband cigarette trafficking.” Holleran goes after counterfeit cigarettes, illegal imports of genuine cigarettes made for sale in the international market, and genuine cigarettes sold illegally across state lines. (The Marlboro brand, with an estimated worth of $22 billion, is a prime target for counterfeiters. “Marlboro’s retail market share is bigger than the next ten cigarette brands combined,” Holleran says.) Philip Morris’ biggest ally in the brand protection fight has been law enforcement officials from state and local governments with an interest in protecting their tax revenue. Gone are the days when state governments and Big Tobacco faced off in the courtroom, with hungry states filing multimillion-dollar lawsuits against cigarette companies. Now, the former adversaries are working hand-in-hand in Philip Morris’ brand-protection fight. Holleran oversees six former law enforcement officials from the Secret Service, Federal Bureau of Investigations, and the department of Alcohol, Tobacco and Firearms, who advise the company on how to work with law enforcement to stop illegal cigarette trafficking and imports. The brand integrity group also includes four lawyers, and a few employees trained in sales and distribution, who help retail and wholesale cigarette sellers identify counterfeit and illegally imported products. When litigation comes up — Philip Morris sued more than 2,500 retailers for selling counterfeits in 2003 alone — the company typically calls in either Heller Ehrman White & McAuliffe or Hunton & Williams. Philip Morris works closely with all levels of law enforcement. Sometimes, if state law permits, the company funds buy-and-bust operations. In other instances, Holleran’s department and law enforcers team up. In New York, for example, Philip Morris and the attorney general’s office jointly devised a scheme to catch smugglers. The team ran ads in Arabic-language newspapers advertising cheap cigarettes for sale at a warehouse in Richmond. (The newspapers were sold in New York stores that had sold large amounts of counterfeit cigarettes in the past.) After calling the toll-free number advertised, buyers drove their trucks to the warehouse, purchased cases of Marlboros (provided free to the AG’s office by Philip Morris), then drove back to New York to sell them. They were promptly arrested after crossing the state border. Overseas, Philip Morris International has its own brand integrity group, headed by Gregory Prager in Switzerland, which hunts down counterfeits and trademark infringers around the globe, and works with close to 50 countries to encourage their governments and law enforcement officials to help root out illegal cigarettes. (Philip Morris International also uses outside counsel for litigation, but won’t name the firms.) Law enforcement has its limits. Philip Morris began litigating against online retailers about two years ago and has won every case decided so far. But a court win doesn’t always mean much to overseas retailers. One of Philip Morris’ most significant recent legal victories illustrates the problem. Otamedia, a Belizean corporation based in Switzerland, was selling Marlboro cigarettes through its Web site. In 2002 Philip Morris — represented by Heller Ehrman — sued Otamedia alleging violations of the Imported Cigarette Compliance Act (a federal law enacted in 2000 to thwart low-cost imports), unfair competition, and false advertising under the Lanham Act. A federal district court in New York ruled in favor of Philip Morris and enjoined Otamedia’s sales. Otamedia flouted the order; the company’s owners insisted that because they’re operating from Switzerland, they’re not subject to U.S. law. So in August 2004 the court took the unprecedented step of transferring Otamedia’s domain name — yessmoke.com — to Philip Morris USA. It was an innovative remedy and a huge victory for Philip Morris. But was the injunction effective? Visitors to the site yessmoke.com are now automatically diverted to a Philip Morris-owned Web site. But Otamedia has registered a new yessmoke Web site in Switzerland. Today visitors to yessmoke.ch can buy a carton of Marlboros for $12.95. Holleran says the company will soldier on. “One of the greatest lessons of the success we’ve had in hunting down Otamedia is that persistence pays off,” he says. “It’s costly and time-consuming to go after an entity that’s elusive, that changes locations and tactics, but we’ve been successful at our litigation every step of the way. The challenge now is how can we leverage that success against other illegal operators?” That’s sure to be a tough task — even for the Marlboro Man.

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