There appears to be no slowing down for litigation surrounding JUUL, the electronic cigarette company named in a flurry of lawsuits in the past few years. Most recently, a derivate shareholder lawsuit was filed against Altria Group, a major investor in JUUL with a 35% stake in the company. The complaint, filed by plaintiffs’ attorneys Shuman, Glenn & Stecker and Kaskela Law, alleges that Altria and its officers misled the market about the regulatory risks when it acquired its holdings. It further alleges that the defendants purposely made false statements as to the safety of JUUL’s products, such as concealing its nicotine content, in an effort to attract young customers. An answer from the defendants have yet to be filed in the case and is currently pending in the United States District Court of the Eastern District of Virginia, docketed as Gilbert v. Gifford Jr. et al., 20-cv-00772.
The Rise of JUUL
The case of Gilbert v. Gifford Jr., et al., is just one of many lawsuits—along with federal investigations and country-wide bans on its products—that have plagued JUUL and its investors in a relatively short time period. JUUL was officially unveiled in 2015, with a launch campaign that was considered “patently youth-oriented,” by practicing Stanford physician and principal investigator into tobacco-image collections, Robert Jackler. JUUL’s popularity rapidly grew, with sales rising 700% in 2016, and by 2017, JUUL held a third of the e-cigarette market. By 2018, Wall Street analysts warned that JUUL’s sales were encroaching on the Big Tobacco industry. Later that year, the tobacco company Altria purchased a 35% stake in JUUL for $12.8 billion, increasing JUUL’s valuation to $38 billion. The purchase resulted in Altria owning more of the e-cigarette market share than the next seven companies combined.
History of Litigation
JUUL’s popularity, however, soon became marred with controversy, with the Federal Drug Administration and the Federal Trade Commission investigating JUUL’s marketing practices to minors. As e-cigarette use among minors and teens skyrocketed by 78%, the FDA began looking into potential safety concerns with e-cigarettes, after receiving a number of reports that users were suffering from seizures and lung-related illnesses. In one warning letter to the company, FDA found that JUUL’s erroneous statements that their products are “99% safer than cigarettes,” were particularly concerning because they were made directly to school-age children. By 2019, a number of lawsuits were filed against the e-cigarette manufacturer, mainly alleging that JUUL’s deceptive marketing practices in concealing the addictive nature and safety concerns of e-cigarettes caused injury to its unsuspecting, and oftentimes very young, customers.
By the beginning of 2020, the FDA had announced it was banning most flavored e-cigarettes after reports indicated that minors were more likely to purchase sweet and fruit-flavored products instead of menthol-flavored. At that point, however, the company had already voluntarily discontinued the production of these flavors due to public pressure. Interestingly, the ban had provided a critical loophole which allowed sellers to continue to sell all flavors as long as they were in devices that could not be refilled. As such, it is unclear if the FDA’s ban will have any long-term consequences on teen e-cigarette usage.
How Can the Experts Help?
Whether the current lawsuit against Altria will succeed is largely based on whether JUUL’s products are, as previously marketed, a safer alternative to traditional cigarettes. As such, many of the same experts consulted in the consumer lawsuits filed by families of teenagers will remain major players in the shareholder’s actions. Public health experts and other specialists such as oncologists and pulmonologists will be able to testify as to the safety of e-cigarettes. This includes their effects on the lungs and the potential to cause cancer—while also weighing those effects against those found in traditional cigarette usage.
Whether Altria engaged in purposely concealing regulatory risks will also require an examination of its marketing practices. Unlike the tobacco industry’s mandates, e-cigarettes did not enter the market with the same regulations or requirements. As such, whether e-cigarettes were manufactured and marketed in compliance with all applicable laws has not been a necessarily clear-cut issue. Regulators and investigators from the FTC and FDA will be best suited to opine here, particularly as more and more information concerning e-cigarettes is still being uncovered.
Overall, the e-cigarette industry’s current turmoil is reminiscent of the Big Tobacco litigation of decades past. And if the past is any indicator, it is likely that JUUL will see massive changes to its market in the near future.