Juul Labs in FTC’s Antitrust Suit Challenging Altria’s $12.8 Billion Investment

Cleary Gottlieb is representing Juul Labs Inc. (JLI) in the Federal Trade Commission’s (FTC) lawsuit challenging Altria Group’s (Altria) $12.8 billion investment in JLI.

On February 15, 2022, the administrative law judge (ALJ) ruled in favor of JLI and Altria and dismissed the FTC’s claims against Altria and JLI arising out of Altria’s 2018 minority investment in JLI. The ALJ decision is subject to appeal and review by the commission, and the final commission decision may be appealed to a U.S. Court of Appeals.

In December 2018, Altria purchased nonvoting convertible common shares, representing a 35% economic interest in JLI. JLI received $12.8 billion for these shares. Altria then made its Hart-Scott-Rodino filing with the antitrust authorities to convert these shares into voting securities.

After a lengthy investigation, in April 2020, the FTC filed an administrative complaint alleging that Altria and JLI entered a series of agreements, including Altria’s acquisition of a 35% stake in JLI, that eliminated competition in violation of federal antitrust laws. The FTC alleged that Altria agreed not to compete in exchange for its ownership interest in JLI, eliminating current and future competition in the closed system e-cigarette market violation of Section 1 of the Sherman Act, Section 7 of the Clayton Act, and Section 5 of the FTC Act. A trial was held in June 2021.

Altria converted its shares in late 2020, but has not exercised its governance rights, including the right to elect two directors to JLI’s board, pending the outcome of the FTC litigation. Under the terms of the deal, Altria has been supporting JLI’s efforts to seek FDA approval for its products and Altria agreed, for a period of time, to a limited noncompete.

JLI is a leading e-cigarette manufacturer in the United States. Altria is the largest combustible cigarette manufacturer in the United States. Altria previously sold e-cigarette products through its NuMark subsidiary. Altria, however, discontinued these products in fall of 2018.