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Altria Responds to FTC Antitrust Complaint

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On Monday, Altria Group, Inc. and Juul Labs, Inc., responded to the Federal Trade Commission’s (FTC) complaint from April, where the FTC accused Altria and Juul of eliminating competition in violation of federal antitrust laws by entering into a series of agreements, including Altria’s acquisition of a 35% stake in Juul.  Altria and Juul denied all of the FTC’s allegations of anticompetitive activity.

In an April press release, the FTC announced the suit being filed. Ian Conner, director of the Bureau of Competition, stated “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.  Altria and JUUL turned from competitors to collaborators by eliminating competition and sharing in JUUL’s profits.”  Specifically, the FTC’s allegations claimed Altria and Juul’s agreements “constitute an unreasonable restraint of trade in violation of Section 1 of the Sherman Act and Section 5 of the FTC Act, and substantially lessened competition in violation of Section 7 of the Clayton Act.”

This suit parallels other litigation filed against Altria and Juul. A case is currently in front of the International Trade Commission filed by competitor R.J. Reynolds Vapor April, and a customer antitrust class action was filed one day after this suit against Juul and Altria.

Altria and Juul claimed that the FTC “is seeking to unwind Altria’s $12.8 billion minority investment in JLI based on a fundamental misunderstanding of why Altria made that investment, a fundamental misunderstanding of why Altria shut down Nu Mark (its e—vapor subsidiary), and a fundamental misunderstanding of the regulatory framework in which Altria and JLI operate.”  Altria stated the reason it withdrew its e-vapor products was because it concluded those products would be unable to meet FDA’s regulatory requirements, there was lack of consumer appeal, and those products had lost money with no short-term or long-term path to profitability.  Furthermore, Altria went on to say that its efforts to compete in the e-vapor market via Nu Mark “was a failure.”

Altria said part of its motivation to stop producing e-vapor products was due to the FDA Commissioner Gottlieb’s letter written to Altria and Juul—as well as three other e-vapor manufacturers—back September 2018, in which concern of the “epidemic rate of increase in youth use” of flavored e-vapor products was stressed.  Ultimately, in October 2018, Altria saw the letter would create a new regulatory exposure for e-vapor products and it determined to discontinue flavored e-vapor products. Additionally, Altria argued the parties designed a “pro-competitive structure” under which Altria would “devote significant resources to help shore up JLI’s crucial [premarket tobacco product application] efforts.” 

The defendants called the FTC’s allegations “ill-conceived.” Furthermore, an order to divestiture would relieve Altria of the obligation it made to assist Juul in its effort to obtain regulatory approval for JUUL and allow Altria to attempt to develop its own e-vapor product—which would all benefit consumers. Overall, the defendants stated “[t]he transaction thus both made JLI more efficient and had no anticompetitive effect.”

The parties stated several affirmative defenses that denied claims and alleged the complaint failed to allege appropriate allegations.  Finally, Altira requested the administrative law judge to deny the FTC relief, dismiss the complaint, and award Altria its costs.

Altria is represented by Wachtell, Lipton, Rosen & Katz.  Juul is represented by Pillsbury Winthrop Shaw Pittman LLP and Cleary Gottlieb Steen & Hamilton LLP.

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