WASHINGTON — The Federal Trade Commission (FTC) has filed an administrative complaint alleging that cigarette manufacturer Altria Group and Juul Labs, maker of the popular Juul e-cigarette, engaged in activities that eliminated competition in violation of federal antitrust laws.
The complaint points to Altria’s December 2018 purchase of a 35% minority stake in the e-cigarette maker for $12.8 billion, among other actions.
“For several years, Altria and Juul were competitors in the market for closed-system e-cigarettes, [but] by the end of 2018, Altria orchestrated its exit from the e-cigarette market and became Juul’s largest investor,” said Ian Conner, director of the Bureau of Competition at the FTC. “Altria and Juul turned from competitors to collaborators by eliminating competition and sharing in Juul’s profits.”
The FTC alleged that as competitors, Richmond, Va.-based Altria and San Francisco-based Juul monitored each other’s e-cigarette prices closely and raced to innovate. Altria also leveraged its ownership of leading brands across tobacco categories to secure favorable shelf space at retailers throughout the United States, the complaint alleged.
“We believe that our investment in Juul does not harm competition and that the FTC misunderstood the facts,” said Murray Garnick, executive vice president and general counsel for Altria. “We are disappointed with the FTC’s decision, believe we have a strong defense and will vigorously defend our investment.”
Although early competition resulted in Altria’s MarkTen e-cigarette becoming the second most-popular brand by market share, by late 2018, Juul had vaulted past industry leaders Altria and Winston-Salem, N.C.-based Reynolds American Inc. to become the leading e-cigarette company in the country, the FTC said. In December 2018, Altria made a $12.8 billion minority investment in Juul. In exchange for the investment, Altria received a 35% economic interest in Juul through nonvoting shares, with conversion to voting shares and the seating of representatives on Juul’s board of directors contingent on antitrust clearance.
The FTC alleged that Altria dealt with this competitive threat by agreeing not to compete in return for a substantial ownership interest in Juul. Weeks after Altria declared its intention to wind down its e-cigarette business, Altria and Juul announced an agreement that made Altria Juul’s largest shareholder, allowed Altria to appoint an observer to Juul’s board of directors, and would have permitted Altria to appoint three members of Juul’s board after converting its shares to voting securities. As part of the agreement, the FTC said Altria would not compete with Juul for six years and would offer Juul a range of support services.
The FTC also alleged that Altria’s acquisition of Juul shares and the associated agreements together 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.
The FTC’s internal vote to issue the administrative complaint was 5-0, and the administrative trial is scheduled to begin on Jan. 5, 2021.
Officials said the FTC issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the commission that a proceeding is in the public interest. The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge, FTC officials said.