Federal Trade Commission Challenging Altria's Stake in Juul

RICHMOND, Va. — The Federal Trade Commission (FTC) has thrown a flag on Altria Group Inc.'s investment in Juul Labs Inc.

On April 1, the FTC filed an administrative complaint alleging that Altria and Juul entered into a series of agreements, including Altria's 35-percent stake in Juul, that eliminated competition in violation of federal antitrust laws.

As Convenience Store News previously reported, Altria made a $12.8-billion investment in Juul in December 2018.

"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," said Ian Conner, director of the Bureau of Competition. "Altria and Juul turned from competitors to collaborators by eliminating competition and sharing in Juul's profits."

The FTC alleged that as competitors, "Altria and 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.

According to the FTC, although early competition resulted in Altria's MarkTen e-cigarette becoming the second most popular brand by market share, by late 2018, Juul passed industry leaders Altria and Reynolds American to become the leading e-cigarette company in the country.

In the complaint, the commission alleged that Altria dealt with this competitive threat by agreeing not to compete in return for a substantial ownership interest in Juul. The pact gave Altria the ability 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.

The FTC 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.

In response, Altria stands by its investment in San Francisco-based Juul.

"We believe that our investment in Juul does not harm competition and that the FTC misunderstood the facts," said Murray Garnick, Altria's executive vice president and general counsel. "We are disappointed with the FTC’s decision, believe we have a strong defense and will vigorously defend our investment."

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, according to the FTC.

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.

Based in Richmond, Altria's wholly owned subsidiaries include Philip Morris USA Inc. U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Sherman Group Holdings LLC and its subsidiaries, Ste. Michelle Wine Estates Ltd. and Philip Morris Capital Corp. Altria owns an 80-percent interest in Helix Innovations LLC. It also holds equity investments in Anheuser-Busch InBev SA/NV, Juul and Cronos Group Inc.