Yesmoke Tobacco S.p.A.

Philip Morris Vs Yesmoke

Fake bomb from Philip Morris, sent to the logistics department at the Yesmoke online shop

Philip Morris in 2001 initiated a suit that was to go on for almost three years and would bring Yesmoke into newspapers and television reports all over the world, increasing Yesmoke's online cigarette sales to up to 6 million cartons a year.

Philip Morris wanted Yesmoke to black out to American customers its online shop pages that offered Philip Morris products, just because they not destined by the manufacturer to his specific market.

Cronology

• 23 June 2001: Philip Morris orders Yesmoke to stop selling Marlboros;
• 15 September 2001: the trial begins - Philip Morris accuses Yesmoke of “Unfair Competition” and “Copyright violation”;
• 29 January 2003: The first sentence is issued, Philip Morris wins on all points,  but the American customs office and post office, not greatly concerned about  Philip Morris’s “Copyright problems”, continue to deliver Yesmoke’s cigarettes to buyers.
• 3 August 2004: Philip Morris asks from Yesmoke 548 million dollars in damages;
• 19 August 2004: The virtual victory of Big Tobacco, Philip Morris takes possession of the Yesmoke.com, domain. Yesmoke continues to sell cigarettes through its Swiss domain  Yesmoke.ch;
• 12 November: The sale begins on the Yesmoke.ch site of the new “Yesmoke” cigarettes, made in Switzerland, the  “Anti Big Tobacco” brand. The site sells more Yesmokes than Marlboros;
• 16 November 2004: The J.F. Kennedy Airport of New York: an “anti-contraband” Blitz - all the cigarettes are confiscated;
• 13 March 2005: The verdict - 548 million dollars, with the discount, it comes to 173 million…
• 30 August 2006: Philip Morris takes possession of the “Yesmoke” brand name in the USA

The online cigarette sale - How it worked - Why didn’t the American Customs make the buyers pay taxes

Goods ordered online and shipped by international post, first had to be purchased wholesale by the reseller as products destined to export, then they would be sorted, repackaged and sent in small packages to the final consumers from a logistics site located in the "Foreign trade zone or free zone" inside a customs area. Accompanied by a regular customs declaration, the products had to be taxed only in the country of final destination. So, what were the customs offices doing in the countries of destination of the goods?

Surprisingly, only a few applied duties when the goods arrived, like Canada, where a new legitimate distribution channel was opened, functional and considerably cheaper than the traditional one. In Canada, in fact, though the buyers had to pay the customs duties to the mailman when the packages were delivered, in Ontario they saved up to 26 Canadian dollars per carton compared to the traditional shop prices. Bravo Canada!

But most of the countries, starting from the USA, never asked for any payment of customs duties at all, leaving the cigarettes completely duty-free, in spite of the pressure of the Swiss Post.

Perhaps the explanation lies in the fact that if the goods were taxed, the cigarettes purchased by mail would cost still cost less than at the local store, and this would start up a new and legitimate distribution system, not favorable to Big Tobacco.

The position of the Swiss Authorities and the Swiss banks

The Swiss Customs Office is not interested in Philip Morris's copyright problems. It answered negatively to David H. Katz, director of the P.M. Brand Integrity Dept., who had asked that the shipments of EU-produced Marlboros cease insinuating also possible funding to international terrorists.

The only thing that can stop Yesmoke is an order of Swiss Justice, nothing else. But a Swiss judge, would be unlikely to acknowledge the requests of Philip Morris. That's why the tobacco giant has not started a lawsuit in Switzerland : Philip Morris sued in the USA , and now they are trying to make the sentence applicable also in Switzerland.

But there is another term that appears frequently in Philip Morris's communications: “Contraband”. If Yesmoke's cigarettes reach their destination duty-free, it is because the payment of taxes is not requested by the United States Customs Office, even though every package is accompanied by a customs declaration.

And as for the “Contraband” claim, Swiss authorities were categorical: shipping cigarettes to the USA is legal, based on the Universal Postal Convention, dated September 15th, 1999. These provisions of international law have been ratified by the United States and by Switzerland and cigarettes are among the permitted products. If it forbade these shipments, Switzerland would be violating the above agreement.

The problem is not in Switzerland ; the problem is the failure of American customs to tax the incoming goods. Every parcel is accompanied by a truthful customs declaration meant to be used by the competent American authorities. Furthermore, the Swiss Customs Office, during Yesmoke's five years of activity, advised U.S. Customs that the cigarettes had to be taxed there on arrival. They even packed them all in separate containers to make it easier, and sent all the required taxation procedures.

But, in the U.S. nothing was done: the cigarettes always arrived at the customers' doorsteps completely duty-free. This was clearly stated by Fritz Weber, director of Swiss Customs, in the Swiss television broadcast “Falò” dedicated to Yesmoke on March 24th 2005.

Perhaps the explanation lies in the fact that if the goods were taxed the cigarettes purchased by mail would cost still cost less than at the local store, and this would start up a new and legitimate distribution system, not favorable to Big Tobacco.

Swiss banks & Big Tobacco

Philip Morris sued the Yesmoke Online Shop on September 15, 2001, when the Yesmoke Tobacco Co., with its cigarette factory, did not even exist yet. But the problems with banks had already begun some months before: UBS, Banco di Lugano, Banca del Gottardo, Corner Bank, Credit Suisse, one after the other, all turned their backs on a client, with the most ridiculous and disconcerting excuses, and creating serious problems for the client.

The fears, the paradoxical situations, the bourgeois respectability.. the answers of the Swiss banks, like “..wère sorry, unfortunately the product is harmful for health” reveal a narrow-minded provincialism. Their real fears is due to the risks their accounts in the USA might run with behavior not pleasing to a big multinational Tobacco maker. And on this point, there is a total lack of a critical approach.

UBS

From the beginning of its activity, January 2000, Yesmoke entrusted its accounts to the Unione Banche Svizzere (UBS), the number one bank in the country. But in 2001 here came the surprise: “Yesmoke markets tobacco, a product harmful for the health”. This is ridiculous as Switzerland holds the capital of the giants of tobacco, but above ally, Yesmoke sells cigarettes online, therefore, it was invited to take its accounts from UBS.

But what had on-line sales got to do with it? Up to that time, no authority of any country had ever notified anything to Yesmoke on this. Moreover, Swiss authorities had always been quite clear: Shipping cigarettes to the USA is legal. But in fact, another authority had entered the game: Philip Morris.

Banco di Lugano

This bank is property of UBS; it handles asset management. Here, there are the private accounts of the top Yesmoke officials, who were invited to take their accounts out of the bank, as “Persona non grata”. And this on the eve of the trial that Philip Morris was starting in New York against Yesmoke.

But there is no provision by any authority, there is no charge by anyone, no rumors, no gossip? these are clients just like all the others. But for this bank, these clients have become undesirable.

Banca del Gottardo

So Yesmoke transferred its accounts to the Banca del Gottardo on the eve of the Philip Morris attack. But as soon as the Colossus started the suit, on the 15th of September 2001, the clients were again invited leave because: “You market products harmful for the health”.

Cornèr Bank

This bank first asked Yesmoke to make a deposit of 3 million dollars to protect itself in case PM succeeded in creating “Problems” for the bank without having any idea of what these problems might be. But a bit later, after taking in the 3 million dollars the bank refused the account. The money was returned after several months.

Credit Suisse

This bank shows unexpected bravery, accepting the client Yesmoke in the autumn of 2003. But on August 19, 2004 Philip Morris takes possession of the Yesmoke.com domain, that from that moment it shows off as a “trophy”. This is the first case of this type in the history of Internet.

This event, for Credit Suisse, instead of meaning the potential closure of a Swiss company, made by telematic means from the United States and without a Swiss judge having any say in the matter, for the Swiss bank it was the pretext to free itself of this awkward client. The problem is always the same: “The marketing of a product harmful for the health”.

But if a Swiss sentence has absolutely no validity in the USA, why rush to get rid of a client in Switzerland? Evidently, it is a case of pure subservience; for it should be the sentence of a Swiss judge that determines the procedures taken by a Swiss bank.

And how can they take such irrational steps in awe of Philip Morris, a company that has been sentenced for smuggling? Yesmoke's alleged misdeed would be limited to unfair competition and copyright infringement, for having shipped to American customers Marlboros made in Switzerland and meant for the European market and those made in the Philippines, destined to the Asian market.

The story of the “close encounter” with the tobacco multinational

This is what can happen when Big Tobacco decides to impose himself on someone; this is how power intimates without making threats, how it isolates his enemy without committing any criminal act. The Philip Morris Company, in fact, tries to conquer using clichés and peoplès fears, creating paradoxical situations with surprising results.

This is the multinational effect: aggressiveness or blind fear

September 15, 2001: The lawsuit begins – Yesmoke is accused of “Copyright Offence and Unfair Competition”. Yesmoke began working to defend itself, and Yesmoke lawyers suggested that we should immediately accept the Philip Morris notification, without passing through the Hague Tribunal, “In this way we can save time and avoid irritating the American judges, and Philip Morris”.

Big Tobacco was trying to frighten us, and they started asking for documents including the lists of all of Yesmoke's suppliers and customers, the names of its employees, workers and auxiliaries and even the company balances. PM wanted to know everything, even how much our telephone bills amounted to. What was most surprising was that, according to our lawyers and our Fiduciary Office, Philip Morris's request was legitimate and the information was to be given freely because it would be used on a “Confidential” basis.

But the handover of this type of information, even to a magistrate of a foreign country, is a serious crime under Swiss law, even though our lawyers said it was “Obligatory”. So, our refusal to comply led to an open conflict with our legal advisors. At the ridiculous request for delivery of the information in encrypted form, Yesmoke abandoned both the suit and its lawyers.

Yesmoke's American lawyer, instead of “Doing nothing” as requested, sent an answer in Yesmoke's name, informing the court that it was the intention of his client to “Not present a response”. The sentence was in Philip Morris's favor on all points.

Although the Swiss authorities were categorical on the legitimacy of the Yesmoke's activity, Yesmoke was willing to appear before Swiss Justice. But Yesmoke's Swiss lawyer intervened: in a letter sent to the fiduciary studio working for Yesmoke, he recalled the obligations imposed on Yesmoke by the American sentence:

“I wish to underline also the importance of the prohibitions imposed on Yesmoke and on all of its employees, auxiliaries and workers. The American lawyer of Yesmoke is at your disposal for any clarifications; as far as I am concerned I believe it is indispensable to be aware of the possible consequences for you if the obligations imposed by the sentence are violated”.

Why is Yesmoke's American lawyer “At the disposal” of the studio for any clarification regarding the obligations of the sentence? Hadn't we already told him to “Do nothing more”? Why is everybody worried about informing the fiduciary studio of the “Risks” it incurs by working with Yesmoke?

Yesmoke, in fact, was conducting a perfectly legal activity, it had over 90 employees working under the watchful eyes of the Swiss Post Office and Swiss Customs; it even had offices inside Customs. But someone, apparently quite mad and paid by Yesmoke itself, was kept on trying to close the firm. This was only the beginning of the isolation building up around Yesmoke.

"Violation of the fiduciary mandate

Philip Morris had asked, in the first steps of the lawsuit, for all of Yesmoke's documents; following this request, and at the disconcerting pressure against the company of its own lawyers and its fiduciary studio, Yesmoke abandoned the lawsuit.

We all believe that in Switzerland the protection of business privacy is sacred; it is unthinkable that personal information might be provided by third parties to anyone that comes along. Only one authority, Swiss, of course, can breach this privacy under the law - that's what we all believe…!

But Philip Morris has no constraints; their men are real magicians. Checking the folder of faxes sent in Yesmoke's name by its Fiduciary Studio, we found copies of documents sent to Yesmoke's American lawyer, attached to a paper saying: “We are sending you the following documents… An original legalized copy will follow”.

This document file contained all the information that “Obligatorily” had to be delivered to Philip Morris. There was everything in the collection that the American company had asked for; not only the exact amount of the telephone bills, but even the sums paid for furniture, travel expenses, revenue, taxes paid, etc. Fortunately, the file did not include Yesmoke's customer lists; this information is not released to a Fiduciary Studio, but we have no doubts that, it too, if available, would have been included.

Handing over documents to anyone, even to his lawyer, without the owner's authorization, is a crime of unparalleled gravity for Swiss Law: “Violation of fiduciary mandate”. And Yesmoke itself had clearly refused to hand over any document to its American lawyers.

The American lawyers told Yesmoke that “Nothing was given to Philip Morris”. However, a letter, dated August 2003, from David H. Katz, manager of the P.M. “Brand integrity” Dept., to the Head Office of the Swiss Post, opened: “Based on information that we have obtained”, and the letter goes on to refer to weekly quantities corresponding to those indicated in the fax of the Fiduciary Studio.

Later, Philip Morris produced the entire documentation at the trial, proving irrefutably the crime committed by Yesmoke‘s Swiss Fiduciary Studio and Yesmoke's American and Swiss lawyers. We must admit that Philip Morris now knows everything about Yesmoke - from A to Z. … Switzerland 's privacy protection laws are no obstacle for Big Tobacco.

The flight

The story continues, rich with mysterious and unexpected elements: so Yesmoke decided to take the most elementary precautions. The first was to protect its goods, its capital, trademarks and domains. But here the “Multinational effect” continued to be felt. To transfer funds, a bank transfer is necessary, but no one inside the Fiduciary Studio was willing to sign it. The story becomes more and more insane.

For these professional experts, in fact, it's true that the legal sentence is American, but Philip Morris might open a lawsuit in Switzerland, where according to the Studio, “It would certainly win”, and if financial damage compensation had to be paid, Philip Morris, not finding a single dollar in Yesmoke's account, would create problems for anyone who had signed the bank transfers. Yesmoke's Fiduciary Studio underlined also that “P.M. had made sure it got a list of all Yesmoke's employees, auxiliaries and workers…”

It was a Kafkaesque situation: a company does business in Switzerland to have stability and security, and finds itself in the position where it has neither, because it is tied down by a possible future lawsuit brought against it in Switzerland by Philip Morris, in which an equally improbable PM victory might lead to a personalized request for compensation for damages. After two weeks of struggle and absurd transactions, Yesmoke finally managed to free itself of the Fiduciary Studio with all its capital.

Were thy transmitters disguised as fake bombs, or fake bombs disguised as transmitters?

What were those three strange devices found in August 2003 in 6 cartons of Philip Morris cigarettes addressed to Yesmoke? The only thing that seemed certain, by direct admission, after Yesmoke's denunciation, was that they came from P.M., that is, the devices were Philip Morris property.

The explanation given to the newspaper, Corriere del Ticino, by Marc Fritsch, spokesman for PM international is touching: “The objective was to follow the path of the cigarettes, to check the final destination and prevent any unlawful sale, or fiscal and customs fraud”.

The strange objects did, in fact, transmit, but only up to a maximum distance of 2 km; they could never have followed a load of cigarettes, by ship, train and truck around the world. They had absolutely no practical use, except to look like bombs, but until further investigation, they were only “Transmitters”.

The devices used today by Big Tobacco are as thin as a sheet of paper, imperceptible and almost invisible. Why didn’t Philip Morris use these instruments in August 2003, when it created panic among the company employees?

Maybe the secret lies in the uproar that would have been caused in the press by the persons receiving the “Bombs”. If this were the case, merely buying the daily newspaper, the men of Philip Morris would have read news of the finding of the devices and would easily have found out the address of the recipient.

If this was the case, what contorted mind could have come up with such an idea? What impulses were there behind this choice? Maybe the fake bombs were only a small satisfaction for the prohibited desire of some aspiring “Rambo” to send real ones!

These carnival bombs, this time harmless, a “Transmitter against fiscal and customs fraud”, must not be taken too lightly, because they could have had various purposes:

The devices used today are as thin as a sheet of paper

• To frighten.
• To close down Yesmoke's logistics for inspections, inflicting a first real blow on Yesmoke…. but not even an hour of work was lost
• To induce mass worker losses: only 3 out of 90 employees have left.
• To make Yesmoke look bad, presenting it as a company involved in events that ought to be investigated - this can lead to all sorts of suspicions.

November 16, 2004 - JF Kennedy Airport: Yesmoke under siege

After 30 million cartons of Marlboros, the toy broke with the first carton of Yesmokes…

In 2004, while it was still selling Marlboros to its American customers, Yesmoke had built a factory in Switzerland, that had a yearly production capacity of 25 million cartons containing 200 cigarettes each.

On November 12th, 2004, the factory began its production of “Yesmokes”; these were put on sale on the site, fresh, on the day following production. And the company sold more Yesmoke cigarettes than Marlboros.

The “smugglers” airplane

On November 16 a blitz against regular mail, no less than nine federal state and local agencies, left senders and addressees of all the mail coming from Switzerland waiting and without news.

The DHL cargo plane that was transporting, for the Swiss Postal Service, the first load of the new Yesmoke cigarettes made in Switzerland, was blocked and 150,000 cartons of cigarettes were confiscated.

The blitz at the J.F. K Airport of New York seemed like those grotesque sequences of comic films worthy of Hollywood, where hundreds of agents, fully armed, attacked a DHL plane loaded with normal mail directed to American customs inspectors, packages provided with all the necessary documents and ready to be inspected.

Officials check mail sacks of cigarettes shipped from Yesmoke at JFK airport

But why hundreds of agents? The spectacular operation was part of the script of the film on the ”Smugglers” of Yesmoke, wanted by Philip Morris.

According to the press, the police said conducted a brilliant operation following a “Tip”, that had revealed the presence of an airplane full of “Smuggled” cigarettes that arrived every day from Switzerland. The law-enforcement forces declared enthusiastically that this was "The largest seizure of smuggled cigarettes in the history of the State of New York”.

From now on, in the name of the “Fight against smuggling“, every carton of cigarettes coming from Switzerland was confiscated at the U.S. customs. So Philip Morris won this battle. But something new had appeared on the distant horizon. It was Yesmoke, a new brand of cigarette that Big Tobacco will very likely have to compete with in the future.

More info

• Who doesn't want to give customs clearance to online sales?
• November 16, 2004 - Yesmoke under siege
• Una guerra (poco) virtuale… – Falò, RSI, La 1 24/03/2005 (Video, 27 minutes)
• Crooks Travel Light – NYPost.com, 11/17/2004
• Illegal Cigarettes Seized – Gothamist.com, 11/17/2004
• Feds stub out big cig racket – New York Daily News, 11/17/2004
• Massive Cigarette Smuggling Ring Busted At JFK Airport – Eyewitness News, 11/16/2004

• “Copyright infringment” and “Unfair competition”

  A federal law, known as the Imported Cigarette Compliance Act of 2000, prohibits the importation of cigarettes into the United States bearing registered U.S. trademarks without the authorization of the trademark owner. The absurd request of … Read more »

• 

  Domain name

  Judge Gerard E. Lynch of the Southern District of New York decided on the passage of the ownership of the Yesmoke.com domain to Philip Morris in a ruling issued on August 19th, 2004. But Yesmoke … Read more »

• Trademark ownership

  Big Tobacco, as soon as it gained possession of the Yesmoke.com Web domain, began a battle to take over, or to prevent the registration of the “Yesmoke” trademark around the world, starting from the USA. The … Read more »

• Updated on November 4th, 2011
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