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` IN THE UNITED STATES DISTRICT COURT
` FOR THE EASTERN DISTRICT OF VIRGINIA
` Alexandria Division
`- - - - - - - - - - - - - - - - - -x
`RAI STRATEGIC HOLDINGS, INC. : Case No.
`and R.J. REYNOLDS VAPOR : 1:20-cv-00393-LO-TCB
`COMPANY, :
` Plaintiffs and :
`Counterclaim Defendants, :
` v. :
`ALTRIA CLIENT SERVICES LLC; :
`PHILIP MORRIS USA INC.; and :
`PHILIP MORRIS PRODUCTS S.A., :
` Defendants and :
`Counterclaim Plaintiffs. :
`- - - - - - - - - - - - - - - - - -x
`
` CONFIDENTIAL BUSINESS INFORMATION
` SUBJECT TO PROTECTIVE ORDER
`
`Videotaped Deposition of RAI STRATEGIC HOLDINGS, INC.
` and R.J. REYNOLDS VAPOR COMPANY
` By and through its Corporate Representative
` NICHOLAS RAY GILLEY
` And in his Individual Capacity
` Conducted Virtually
` Thursday, December 3, 2020
` 7:07 a.m. PST
`
`Job No.: 337459
`Pages: 1 - 283
`Reported By: Rhonda Norberg, CSR No. 9265, CCRR No. 185
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`Transcript of Nicholas Ray Gilley, Corporate Designee & Individually
`Conducted on December 3, 2020
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`and therefore would be a direct or primary
`competitor of R.J. Reynolds Tobacco Company.
`BY MR. SANDFORD:
` Q And that is true from 2013 to the present,
`correct, sir?
` MR. VITT: Beyond the scope.
` THE WITNESS: Yes, that would be true from
`2013 to the present time.
` MR. SANDFORD: Okay. Let's switch to then
`and talk a little bit about the United States vapor
`market. All right?
` Q You've been working specifically with the
`Vuse product line since, I think you said, October
`2016; is that right?
` A Yes, that's when I first started working on
`the -- in the categories, correct.
` Q Were you familiar with the vapor market
`from your time at Reynolds from 2013 when the Vuse
`Solo was first released?
` A I was aware of the Vuse product line when
`it launched in 2013.
` Q Is it fair to say that the -- the vapor
`market in the United States has changed pretty
`significantly from 2013 to the present?
` A I would say it's evolved quite a bit from
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`Conducted on December 3, 2020
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`2013 to the present.
` Q How has it evolved quite a bit, in your --
`in your -- based on your understanding?
` Let me -- let me ask a better question. I
`apologize.
` How has the United States e-vapor market
`changed or evolved quite a bit from 2013 to 2020?
` A The product as well as the consumer trends
`as well as the regulatory environment have all
`changed from 2013 to the present time.
` Q In the 2012/2013 time frame, the -- several
`traditional suppliers of combustible cigarettes
`began entering the e-vapor market in the
`United States, right?
` A I believe it was about that time frame,
`correct.
` Q And that includes Reynolds, right?
` A Yes, that includes Reynolds.
` Q And that also includes NuMark LLC, which is
`an Altria subsidiary, correct?
` A Yes, I believe NuMark also entered in
`somewhere in that time frame.
` Q Is it fair to say that the -- you mentioned
`product as well as consumer trends and the
`regulatory environment have all changed from 2013 to
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`the present.
` What did you mean that -- when you said
`product has changed from 2013 to the present time in
`the U.S. e-vapor market?
` A In general terms, products, based on my
`understanding, in the early days were sourced from
`China, low-quality disposables primarily. They have
`evolved to closed systems as well as open systems
`that can be refilled with various flavors that have
`been introduced.
` And then in August of 2016, the FDA gained
`regulation over the category; and therefore, the
`category has had to adjust and adapt based on those
`regula- -- the new regulatory environment.
` Q And the technology relating to e-vapor
`products in the U.S. market has advanced
`significantly since 2013, correct?
` MR. VITT: Beyond the scope.
` THE WITNESS: It's my understanding that
`technology has continued to change.
`BY MR. SANDFORD:
` Q My question was the technology related to
`e-vapor products in the United States market has
`advanced significantly since 2013, right?
` MR. VITT: Beyond the scope.
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` THE WITNESS: I'm not an engineer, but it's
`my understanding that the products have continued to
`evolve over time.
`BY MR. SANDFORD:
` Q And when you say "the products," you're
`referring to the e-vapor products, correct?
` A That's correct.
` Q Now, RJRV and -- and NuMark directly
`competed in the United States e-vapor market from
`2013 through December 2018, correct?
` A I don't -- I don't recall the exact date
`when NuMark exited the market, but they were direct
`competitors for the period of time that NuMark was
`in the market.
` Q So it's fair to say that RJRV and NuMark
`were direct competitors up -- from 2013 until NuMark
`exited the e-vapor market, correct?
` A That's fair to say, correct.
` Q And the Vuse product line specifically
`directly competed with NuMark's MarkTen vaping
`product in the United States while the MarkTen was
`on the market, correct?
` A That is correct.
` Q And the Vuse product line also directly
`competed with NuMark's Green Smoke vaping product in
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`the United States while the Green Smoke product was
`on the market, correct?
` A Yes, that's correct.
` Q And RJRV considered NuMark to be one of its
`primary competitors in the e-vaping U.S. market from
`2013 until the time that NuMark exited the market,
`correct?
` MR. VITT: Object to form.
` THE WITNESS: Correct.
`BY MR. SANDFORD:
` Q Did RJRV consider NuMark to be its
`number-one competitor in the e-vaping U.S. market
`from 2013 until the time that NuMark exited the
`market?
` A E-vapor, at least in measured channels, was
`the industry leader for the period of time from its
`launch up until I would say 2018, and so they had a
`lot of direct competitors.
` MarkTen was certainly one of them, but
`there were other -- certainly other manufacturers in
`the space. It's a highly fragmented space so there
`were a lot of competitors.
` Q Which of the competitors would you
`characterize as a more significant competitor during
`the 2013 to 2018 time frame other than NuMark?
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` A I would say in addition to NuMark with the
`MarkTen products, we were also competing with
`Lorillard and then subsequently Imperial Brand Blu
`as well as the Njoy vapor products, as well as I
`believe JTI owns the Logic brand in the
`United States, and there are many other smaller
`companies that we also competed with.
` Q And the -- the Blu product you mentioned
`was sold by a subsidiary named Fontem of Imperial
`Brand, right?
` A I believe that's correct.
` Q And at least during the time that NuMark's
`e-vapor products were on the markets between 2013
`and 2018, did RJRV consider NuMark to be a more
`significant competitor than Fontem's Blu product?
` MR. VITT: Objection to form.
` THE WITNESS: What do you mean by
`"significant"?
` MR. SANDFORD: Well, I understand you
`testified earlier there's -- you know, the market
`was fragmented and there was a lot of competitors,
`and I'm trying to get a sense of, you know, which
`one tops the list and which -- where they fall
`relative to each other on -- in RJRV's view in terms
`of significance.
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` And so --
` MR. VITT: Objection to form.
` Sorry. I --
` MR. SANDFORD: Yeah, no -- yeah, no
`problem, Tom. I was just giving him some background
`so he understands my question. I'll ask my question
`again.
` THE WITNESS: Okay.
`BY MR. SANDFORD:
` Q During the time that NuMark's e-vapor
`products were on the market from roughly 2013 to
`2018, did RJRV consider NuMark to be a more
`significant competitor than Fontem's Blu e-vapor
`product?
` MR. VITT: Objection to form.
` THE WITNESS: I would say not necessarily
`more significant. I think they -- they had been
`somewhat better funded based on the size of Altria
`versus the Imperial company; but relative to their
`size and scale within the market, we would consider
`them to be similar.
`BY MR. SANDFORD:
` Q Would you rank NuMark's e- -- and its
`e-vapor products in terms of competitive position
`vis-à-vis RJRV higher or lower than Fontem and the
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`Blu e-vapor product during the 2013 to 2018 time
`frame?
` MR. VITT: Objection. It's -- objection to
`form. It's tough as to time. Right? The whole
`time, did it change? It's kind of an unfair
`question.
` MR. SANDFORD: You can answer if you can,
`Mr. Gilley.
` THE WITNESS: It -- it would -- it would be
`dependent on the time frame and the market
`conditions when you're talking about a five-year
`period.
` MR. SANDFORD: Let's look at 2018, then.
` Q In 2018, did RJRV consider NuMark to be a
`more significant competitor than Fontem and its Blu
`product?
` A Again, I don't think we considered it to be
`more significant competitors. We -- we considered
`them to be very similar in the way in which they
`operated and approached the market, although NuMark
`was certainly better resourced because of the Altria
`size and scale within the U.S. market.
` Q And because of those resources, at least in
`2018, NuMark had a competitive advantage vis-à-vis
`RJRV that Fontem did not have, correct?
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` MR. VITT: Objection to form.
` THE WITNESS: I would say that because of
`the scale with the Altria Group distribution
`company, NuMark most likely did have an advantage
`over the Fontem Blu product.
`BY MR. SANDFORD:
` Q In 2018?
` A In 2018, correct.
` Q You're familiar with a company named Juul,
`right?
` A Yes.
` Q And Juul released its first e-vapor product
`in the United States around 2015, roughly?
` A I think that's correct.
` Q Okay. Since the time that Juul released
`its first e-vapor product in the United States, RJRV
`and Juul have directly competed in the United States
`e-vapor market, right?
` A That is correct.
` Q And Juul currently is RJRV's biggest
`competitor in the U.S. e-vapor market, right?
` A Yes, that's correct.
` Q And for how long has Juul been RJRV's
`biggest competitor in the U.S. e-vapor market,
`approximately?
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` A Probably the last two or three years.
` Q So at least let's say -- let me ask a
`different question.
` Juul has been RJRV's biggest competitor in
`the U.S. e-vapor market for the years 2019 and 2020,
`correct?
` A That is correct.
` Q And Juul's currently the leader in terms of
`sales in the United States e-vapor market, right?
` A That is correct.
` Q And are you aware that Altria invested in
`Juul in December 2018?
` A Yes.
` Q Okay. And since it invested in Juul in
`December of 2018, RJRV has been competing directly
`with Altria in the United States e-vapor market,
`correct?
` MR. VITT: Objection to form, misstates the
`evidence.
` THE WITNESS: Can -- can you restate the
`time frame again, please?
` MR. SANDFORD: Sure.
` Q Since -- well, since Altria invested in
`Juul -- since -- let me -- since the time that
`Altria made its investment in Juul, Altria has
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`competed directly with RJRV via Juul in the
`United States e-vapor market, correct?
` MR. VITT: Objection to form, misstates the
`facts.
` THE WITNESS: Based on my understanding of
`their arrangement, Altria has a minority investment
`in the Juul business, but the Juul company and
`entity remains intact and remains the competitor to
`the RJR Vapor Company.
`BY MR. SANDFORD:
` Q Well, sales of RJRV's Vuse products cut
`into Juul's market share -- correct? -- in the
`e-vapor market?
` A Potentially.
` Q Why "potentially"?
` A Well, it depends on how the industry
`performs. It is possible that we both could grow
`and then it would be subject to who is growing the
`fastest, I guess, at that point.
` "Cut in" is a relative term. I guess I'm
`not following exactly what you mean by that.
` Q Okay. Let's switch gears a little bit.
` RJRV believes that the Vuse products are
`directly competitive with iQOS in the United States,
`correct?
`
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`Case 1:20-cv-00393-LMB-WEF Document 1462-22 Filed 04/05/23 Page 14 of 17 PageID#
`39782
`CONFIDENTIAL BUSINESS INFORMATION
`Transcript of Nicholas Ray Gilley, Corporate Designee & Individually
`Conducted on December 3, 2020
`
`129
`
`11:13:40
`11:13:45
`11:13:48
`11:13:51
`11:13:57
`11:13:59
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`
` A That is correct.
` Q And the Vuse products have directly
`competed in the United States with iQOS since iQOS
`was released in October 2019, correct?
` A That is correct.
` Q And R.J. -- well, the Reynolds --
`Reynolds -- let me take a step back.
` Reynolds also sells heat-not-burn products,
`right?
` A R.J. Reynolds Tobacco Company has a
`heat-not-burn product in the market.
` Q Right.
` RJRV doesn't have any heat-not-burn
`products, correct?
` A Not to my knowledge, correct.
` Q Are all the heat-not-burn products that are
`sold under the Reynolds umbrella sold by RJRTC?
` A Yes, that's correct.
` Q And which heat-not-burn products are
`currently offered for sale in the United States by
`RJRTC?
` A R.J. Reynolds Tobacco Company currently has
`an Eclipse-branded heat-not-burn product available
`for sale in the United States.
` Q Is the Eclipse heat-not-burn product the
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`Case 1:20-cv-00393-LMB-WEF Document 1462-22 Filed 04/05/23 Page 15 of 17 PageID#
`39783
`CONFIDENTIAL BUSINESS INFORMATION
`Transcript of Nicholas Ray Gilley, Corporate Designee & Individually
`Conducted on December 3, 2020
`
`130
`
`11:15:07
`11:15:11
`11:15:12
`11:15:17
`11:15:21
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`
`only heat-not-burn product that RJRTC is currently
`selling in the U.S.?
` A Based on my knowledge, that's correct.
` Q Does RJRTC intend to sell another
`heat-not-burn product in the foreseeable future?
` MR. VITT: It's beyond the scope.
` You can answer in your personal capacity.
` THE WITNESS: We're always evaluating
`opportunities for new product introductions to the
`extent that they may be appealing to consumers.
`BY MR. SANDFORD:
` Q I think that answers my question, but does
`RJRTC intend to sell another heat-not-burn product
`in addition to Eclipse in the United States in the
`next two years?
` MR. VITT: Beyond the scope.
` You can answer in your personal capacity.
` THE WITNESS: I do not know the time frame
`in which we would be prepared to launch an
`additional heat-not-burn product in the
`United States.
`BY MR. SANDFORD:
` Q As of today, do you know if RJRTC is
`intending to launch another heat-not-burn product in
`the United States?
`
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`Case 1:20-cv-00393-LMB-WEF Document 1462-22 Filed 04/05/23 Page 16 of 17 PageID#
`39784
`CONFIDENTIAL BUSINESS INFORMATION
`Transcript of Nicholas Ray Gilley, Corporate Designee & Individually
`Conducted on December 3, 2020
`
`131
`
`11:16:23
`11:16:31
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`11:18:00
`
` MR. VITT: Beyond the scope.
` THE WITNESS: Again, we're continuing to
`evaluate the market as well as the products, and we
`will make the determination based on market
`conditions at a future date.
`BY MR. SANDFORD:
` Q As of today, has RJRTC made a determination
`to launch another heat-not-burn product in the
`United States other than Eclipse?
` A I -- I do not know of one at this point in
`time.
` Q Okay. RJRTC's Eclipse product competes
`directly with iQOS in the United States, correct?
` A The RJR -- I'm sorry, the R.J. Reynolds
`Tobacco Company Eclipse product is a heat-not-burn
`product which is similar in nature to the iQOS
`product in the United States, and so it would be a
`competitive product.
` Q RJRTC's heat-not-burn Eclipse product
`competes directly with iQOS in the United States,
`right?
` MR. VITT: Asked and answered.
` THE WITNESS: Correct, it would be a
`competitive product.
` (Court reporter clarification.)
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`Case 1:20-cv-00393-LMB-WEF Document 1462-22 Filed 04/05/23 Page 17 of 17 PageID#
`39785
`CONFIDENTIAL BUSINESS INFORMATION
`Transcript of Nicholas Ray Gilley, Corporate Designee & Individually
`Conducted on December 3, 2020
`
`132
`
`11:18:00
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`
` THE WITNESS: I said "Correct, it would be
`a competitive product."
`BY MR. SANDFORD:
` Q When was RJRTC's Eclipse heat-not-burn
`product introduced into the market?
` MR. VITT: I think that's beyond the scope.
` You can answer if you know.
` THE WITNESS: I don't know.
`BY MR. SANDFORD:
` Q Do you have a -- okay.
` Can we mark Tab 30, please, Josh?
` THE VIDEOCONFERENCE TECHNICIAN: Stand by.
` (Exhibit No. 16 was marked for
` identification by the court
` reporter; attached hereto.)
` THE VIDEOCONFERENCE TECHNICIAN: Exhibit 16
`is onscreen and ready.
`BY MR. SANDFORD:
` Q Do you have Exhibit 16 in front of you,
`Mr. Gilley?
` A Yes.
` Q Do you recognize Exhibit 16?
` A Yes, I do.
` Q What is it?
` A It is the shipment to retail report for
`
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