MO Altria Group Inc

By Jennifer Maloney 

Altria Group Inc. and the Federal Trade Commission are squaring off over allegations that the Marlboro maker engaged in anticompetitive practices ahead of its 2018 investment in e-cigarette startup Juul Labs Inc.

In opening remarks at an antitrust trial Wednesday, the FTC argued that Altria pulled its e-cigarettes off the U.S. market illegally at the insistence of Juul as the two companies were discussing a deal. Altria argued that its e-cigarettes were failures, and it jettisoned them amid regulatory pressure and an internal reckoning about the company's inability to develop a vaping product that consumers liked.

If the FTC prevails, it could unwind Altria's 35% interest in Juul, which the cigarette maker bought in December 2018 for $12.8 billion. The agency is seeking to force Altria to divest its stake and terminate the companies' noncompete agreement. The case is being heard by an administrative law judge, who will make an initial decision; the agency's commissioners will then vote on the matter.

Altria made a big bet on Juul because its sleek vaporizers were fueling a surge in the e-cigarette market and hastening the decline of traditional cigarettes. Its investment made Juul one of the highest-valued startups in the U.S.

But the e-cigarette maker's sales have tumbled, dimming its growth prospects. Blamed for an increase in underage vaping, Juul has faced regulatory crackdowns, lawsuits and investigations into its marketing practices. Altria valued its stake in Juul at $1.5 billion as of March. Altria's losses led to the departure last year of Chief Executive Howard Willard, who spearheaded the deal.

The FTC in April of last year sued to unwind the deal. The trial is taking place via teleconference at the agency's office of administrative law judges. Mr. Willard and Juul board members Riaz Valani and Nick Pritzker, two of Juul's lead negotiators, are among the witnesses expected to be called by the FTC.

A key question at trial is why Altria, when it was in talks with Juul, stopped selling its own e-cigarettes.

Altria's explanations for exiting the e-cigarette market were pretexts, FTC attorney Stephen Rodger said in his opening remarks Wednesday. "But for the transaction, Altria would still be competing with [Juul] today."

Altria in October 2018 announced it was halting the sale of its pod-based and fruity-flavored e-cigarettes in response to a call by the Food and Drug Administration for e-cigarette makers to help stem a surge in vaping among children and teens. Then in December of that year, two weeks before the Juul agreement was signed, Altria pulled its remaining e-cigarettes off the market.

Altria and Juul in pretrial legal filings said Altria's e-cigarettes were "absolutely terrible," didn't deliver nicotine successfully enough to convert cigarette smokers and probably weren't going to pass an impending FDA review.

"We ended up at the very, very bottom of the market after spending years and years and millions and billions of dollars," Altria attorney Beth Wilkinson said in her opening remarks.

"Did you mean billions?" Chief Administrative Law Judge Michael Chappell interjected.

"I did, your honor," she said.

Altria and Juul negotiated a noncompete agreement that would allow Altria's existing e-cigarettes to remain on the market, which Juul didn't see as a threat, according to the companies' legal filings. Juul did insist in negotiations that Altria couldn't develop new e-cigarette products while Altria had access to detailed information on Juul's products and research, the filings said. Both of Altria's announcements about halting e-cigarette sales took Juul by surprise, the filings said.

Juul and Altria argue that since the deal was struck, competition in the e-cigarette market has increased, not decreased: Juul's market share has fallen, as have e-cigarette prices.

Write to Jennifer Maloney at jennifer.maloney@wsj.com

(END) Dow Jones Newswires

June 02, 2021 15:26 ET (19:26 GMT)

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