Litigation and Failure with a New Product
Labor disturbances and wartime restrictions on manpower and materials were not the only concerns of Reynolds management in the 1940s. During the same period the company, along with the other major tobacco manufacturers, was sued by the U.S. government on charges of violating the nation's antitrust laws and tried in Kentucky. This was a serious matter for a corporation that had never experienced any noticeable public disfavor as had the old American Tobacco Company. Moreover, the company and some of its officers were convicted, and the feeling that this judgment was unmerited did nothing to assuage the embarrassment of many of the directors. Almost simultaneously with this litigation, a derivative suit was filed against the company in New Jersey by a very small segment of its stockholders who had been influenced by a firm of unscrupulous lawyers. Though Reynolds won this case, it was also embarrassing and aggravating. Both trials meant the employment of expert legal counsel, many days spent in preparing the cases and in giving testimony, and distraction from normal business operations. The Reynolds company crowned its misfortunes by bringing out the Cavalier cigarette, which proved to be a complete failure. In doing so it lost some $30 million, almost the exact sum involved in the stockholders' suit. In the end, however, the troubled decade seemed to gird the company for new and successful ventures in the 1950s.
The second antitrust suit against the tobacco industry, known informally as the Kentucky Trial, got underway at Lexington in the eastern district of