FTC Wants To Break Up JUUL, Altria After Discovering E-Cigarette Non-Competition Clause

Federal regulators want to end the tobacco giant Altria’s investment in the leading vape manufacturer, JUUL Labs, indicating that the agreement between the two companies violates antitrust laws.

An administrative complaint (PDF) was filed last month by the Federal Trade Commission (FTC), after investigators discovered Altria made a secret agreement to stop competing against JUUL in the e-cigarette market, in return for a massive investment in the vape pen manufacturer.

Altria Group is one of the world’s largest tobacco companies, and made a controversial $12.8 billion investment in JUUL Labs, Inc. in December 2018, acquiring a 35% stake in the market-leader for e-cigarette products.

“For several years, Altria and JUUL were competitors in the market for closed-system e-cigarettes. By the end of 2018, Altria orchestrated its exit from the e-cigarette market and became JUUL’s largest investor,” Ian Conner, Director of the Bureau of Competition, said in an FTC press release. “Altria and JUUL turned from competitors to collaborators by eliminating competition and sharing in JUUL’s profits.”

The deal included not only an agreement that Altria would not compete against JUUL for six years, but also allowed Altria to appoint an observer to JUUL’s Board of Directors, and would also have let Altria appoint three members to JUUL’s Board after its shares were converted to voting securities.

In September 2019, JUUL’s previous CEO was forced to step down amid increasing pressure over claims the company marketed its products to children, resulting in a teen vaping and nicotine addiction epidemic. The CEO was replaced by the Altria executive who was originally only supposed to be an observer.

The FTC’s lawsuit alleges the agreement represents an unreasonable restraint of trade and lessened competition in violation of federal law. The FTC voted 5-0 to file the complaint.

JUUL Lawsuits

In addition to the FTC complaint, hundreds of JUUL lawsuits are being pursued by individuals who have now developed life-long nicotine addictions, which were allegedly caused by false and misleading advertisements for the vaping pods that targeted teens and prior non-smokers. In addition, a number of school districts are also pursuing claims for damages that resulted from the vaping epidemic, which has disrupted classes and have diverted resources in recent years.

Given similar questions of fact and law presented in claims filed throughout the federal court system, about 600 lawsuits are currently centralized before U.S. District Judge William H. Orrick III in the U.S. District Court for the Northern District of California, which is where JUUL Labs, Inc.’s San Francisco headquarters are located.

As JUULing addiction lawyers continue to review and file claims for teens and young adults in the coming months and years, the litigation is expected to continue to grow, likely to include thousands of complaints against the manufacturer fo the controversial vaping pod.

As part of the consolidation into a MDL, it is expected that Judge Orrick will establish a “bellwether” process, where a small group of representative claims will be prepared for early trial dates to help the parties gauge how juries are likely to respond to certain evidence and testimony that will be repeated throughout the litigation. However, if the manufacturer fails to reach JUUL settlements or another resolution for the claims following the consolidated pretrial proceedings, each individual case may be remanded back to U.S. District Courts nationwide for individual trials in the future.