The U.S. International Trade Commission (ITC) will investigate Altria and Philip Morris after a complaint was filed by R.J. Reynolds. The ITC will look into certain tobacco heating elements and components.
The ITC has not made a decision on the case but has said it will make its “final determination … at the earliest practicable time.”
The US Food and Drug Administration (FDA) has submitted a letter to the U.S. District Court for the District of Maryland asking Judge Grimm to extend the May 12, 2020 court-ordered PMTA deadline by 120-days to September 9, 2020 “in light of the global outbreak of respiratory illness caused by a new coronavirus.”
The FDA explained in its submission that “the global coronavirus outbreak poses unforeseen challenges and has made the May 12 deadline a public health risk to those who cannot comply with the deadline through telework.” In addition, FDA explained that telework also will complicate and delay FDA’s review of applications, according to a release by the Vapor Technology Association (VTA).
In deciding to request a 120-day extension, the FDA noted that it had received requests from numerous trade associations and companies, including consultants involved in the PMTA process, for extensions “between 8 weeks and 180 days, with the majority of requests for 180 days.” The VTA was one of those entities that submitted a request to FDA and did so on March 20, 2020 outlining the basis and necessity for deadline extensions for large manufacturers and small manufacturers.
At this point in time, no one can predict the length and severity of the COVID-19 commercial shutdown. The FDA explicitly recognized this point in the Second Declaration of Director the FDA’s Center for Tobacco Products (CTP) Mitch Zeller which accompanied the letter to the Court.
In his Declaration, Zeller stated that “it is not clear at this point what the precise impact of the COVID-19 outbreak will be on the scope of FDA’s ability to complete application reviews within the 12-month period of time once applications are filed.”
That is precisely why VTA requested a new deadline of November 2020 (or at least 180 days from business resumption) for large manufacturers, and a new deadline of February 2021 (or at least 270 days from business resumption) for small manufacturers, according to the VTA statement. “To that end, VTA explained that ‘the question of whether these deadline changes are sufficient or ultimately realistic can and must be re-evaluated in the coming months as more information comes to light about the length and severity of the commercial shutdown due to COVID-19.’”
In its letter to the District Court, FDA notes that the plaintiffs (American Academy of Pediatrics, et al.) will not oppose the FDA’s request, though the plaintiffs have requested the opportunity to “express their misgivings about the extension on the record.” In order to rule, Judge Grimm still will have to have the case remanded to him by the Fourth Circuit and then he would need to make his decision on whether or not to grant the FDA’s request.
However, given the strong case made by the FDA, the obvious insurmountable obstacles created by the coronavirus, and the apparent lack of opposition by the plaintiffs, a ruling extending the deadline is reasonably likely though still not certain.
Minimizing exposure to product liability lawsuits
By Bob Alpert, Lauren Dugas and Patrick Lowther
As the use of electronic cigarettes, vaporizers, vape pens and other electronic nicotine-delivery system (ENDS) products increases, so too have product liability claims in the United States arising out of the overheating or combustion of e-cigarettes and their component parts, including batteries and chargers. This article provides recommendations for retailers, distributors, manufacturers and others in the chain of distribution of e-cigarettes and their counsel for mitigating potential exposure to an e-cigarette product liability lawsuit through proactive steps before an incident occurs and through an early defense strategy when faced with such a claim.
As e-cigarette product liability cases become more common, proactively considering ways to limit risk before facing a claim is essential. Initial steps include setting up your company in compliance with applicable laws and regulations. Once this is accomplished, there are a number of other steps to take, which are the focus of this article. Examples include negotiating indemnification clauses with suppliers, purchasing appropriate insurance, obtaining assurances regarding product authenticity, issuing warnings and requiring waivers at the point of sale, and ensuring proper record keeping.
Indemnification clauses/assurances of authenticity: Before facing an e-cigarette product liability suit, companies that sell or distribute e-cigarette products should consider negotiating indemnification clauses in their favor into their contracts with suppliers, distributors and manufacturers. Such clauses can shift risk among the parties, allocating it to the entity most able to effectively mitigate said risk (often the manufacturer). Engaging experienced counsel in connection with this process can help ensure that indemnification language is enforceable under applicable law.
In addition, retailers and distributors should consider requiring assurances or certificates of authenticity from their suppliers for the products they purchase, which can limit exposure to a claim based on the sale of a purported knockoff that failed.
Insurance: In lieu of or in addition to seeking indemnification clauses in contracts with suppliers, companies should consider requesting to be added as an “additional insured” to their suppliers’ insurance policies.
Regardless of whether your company is an additional insured under another policy, companies should also consider purchasing their own insurance. In connection with this, it is important to use an experienced insurance broker to identify the proper type of insurance to purchase—including, for instance, protection against claims arising from products sold or distributed by you related to incidents that occur off the premises of your property. An experienced broker can also help you balance managing insurance premiums with policy limits and deductibles. Equally important is reading the language of the insurance agreement carefully to understand the bounds of coverage and such issues as whether the policy is based on claims made or based on occurrence, which impacts the policy period and when new claims must be reported to your insurer.
Point of sale: E-cigarette retailers should consider providing written and verbal warnings to customers at the point of sale. For example, retailers should consider warning that improper battery storage and use can result in combustion incidents. Such warnings can be a key defense to future product liability lawsuits and can be used to argue that a claimant was aware of the risk she was taking through her improper device or battery usage, which resulted in an injury. The more visible and obvious the warnings are, whether on signs, receipts, pamphlets or on the website, the more powerful they are likely to be in a lawsuit.
Similarly, retailers can consider requiring customers to sign a point of sale waiver of claims, or acknowledgment that the company is not responsible for incidents arising from customer misuse, such as improper device or battery usage, charging or storage. Such documents can potentially limit liability or preclude claims altogether.
Record keeping: Organized record keeping is of the utmost importance to limiting the risk of product liability lawsuits. Companies with clear, organized records are able to easily and quickly identify key facts, including whether they could have sold the product at issue, where they purchased the product, whether the claimant received any warnings or signed documents that could defeat the claims and whether the claimant previously reported to the retailer instances of having misused products. By keeping organized records, it will be more readily apparent whether the case involved a product sold by you, and if so, it will allow for a more focused, cost-effective defense of the case.
When faced with an e-cigarette lawsuit, developing a comprehensive early defense strategy is crucial to minimizing risk and limiting exposure. There are several initial steps that we recommend companies facing an e-cigarette product liability suit consider.
First, identify the product and your relation to it. Many e-cigarette manufacturers are foreign, often based in China. This can make identifying the proper parties in the chain of distribution difficult for plaintiff’s lawyers, who frequently name any and all possible parties as defendants in a lawsuit, including those who may have had no connection to the product. Accordingly, it is critical to determine at the outset of the case whether you are a properly named party.
In this regard, it is important to investigate whether the product and its component parts are authentic. Many manufacturers include unique product ID numbers on their products, which allow you to identify authentic products on their websites. This can help determine whether a product might be counterfeit. So too can conducting an inspection of the product with an experienced expert.
Even if a product is authentic, you should understand whether it was a product sold by or otherwise related to you. Some retailers require their customers to provide contact information at the point of sale, which can be used to verify a plaintiff’s allegations. This is important for cash purchases in which case a plaintiff’s credit card/bank records would not necessarily refute the claim. Early in a case, a plaintiff should be asked to provide receipts and proof of purchase for their e-cigarette, battery and other device components, some of which may contain waivers of claims/limitations of liability.
Taking the time to determine the authenticity of a product and whether you were involved in the chain of distribution at the outset of the case is one of the best ways to save time and money in connection with defending an e-cigarette claim. Often, it becomes apparent that a plaintiff erred in naming a defendant and a plaintiff may agree to dismiss that defendant early on before they are forced to incur the expense associated with an extensive discovery and motion practice.
The second step we recommend is identifying other potentially responsible parties. If you establish that your company could have manufactured or sold the e-cigarette product at issue, it is important to then consider other potentially responsible parties for a number of reasons. First, it allows you to notify them of the proceeding and ask them to take steps to preserve relevant information. Second, securing their participation and cooperation in any testing of the e-cigarette and battery can be helpful in connection with comparison testing to exemplar products and can spread out the cost of the defense. Third, these parties can often assist in determining your connection to the product through, for instance, their tracking data or purchase records. Fourth, you may also have agreements with these parties that contain indemnification clauses or other provisions that negate your liability. Finally, this helps spread potential risk among the various responsible parties to the extent they are able to contribute to a judgment or a settlement.
Although product liability law varies by jurisdiction, generally speaking, any party in the chain of distribution of a product could potentially be liable. Therefore, we recommend identifying all parties in the chain of distribution for the e-cigarette device and each of its component parts early on, including manufacturers, wholesalers, distributors and retailers. In addition to parties in the chain of distribution of the component part of the device you are alleged to be connected to, you should also investigate parties connected to the device’s other component parts. Oftentimes, such parts are manufactured, distributed and sold by different parties. Because any one of the component parts could potentially cause or contribute to a failure in the assembled device, it is important to identify each distinct component part and all parties in the chain of distribution for each part.
The end user of the device should also be considered a potentially responsible party because a user can cause or contribute to an e-cigarette malfunction in a number of ways. Perhaps the most common user error we encounter is improper battery storage. Keeping batteries loose in a pocket or purse where they can come into contact with metal like loose change or keys can result in a battery short—causing a combustion and the potential for serious injury. Warnings against such storage are frequent in the e-cigarette and vapor industry, and a claimant’s failure to heed these warnings presents an opportunity to argue that the claimant knowingly engaged in dangerous and risky behavior.
As e-cigarette product liability cases become more common, having a proactive business plan before facing a lawsuit can limit exposure before an incident occurs. Once you’re named in a lawsuit, an early litigation strategy focused on product identification issues and identifying other potentially responsible parties allows you to focus your defense on the key issues, which in turn allows for a more narrowly tailored and efficient defense of the case.
This article is intended for informational purposes only and should not be construed as legal advice.
Bob Alpert, a partner at Morris, Manning & Martin, is the founder of the law firm’s e-cigarette/vape practice, which represents a broad spectrum of companies in the e-cigarette/vapor industry, including retailers, distributors and manufacturers. Associate Lauren Dugas and partner Patrick Lowther are also in the e-cigarette/vape practice.
Their work frequently involves defending companies in state and federal courts around the U.S. against complex and high-exposure product liability claims, including single-plaintiff and multi-plaintiff claims arising from allegedly defective e-cigarettes and/or their component parts. For more information, visit www.mmmlaw.com.
By Maria Verven
It all started last fall when Juul Labs, the leading maker of e-cigarettes in the U.S., filed lawsuits against two dozen individuals and businesses alleging patent infringement. All 24 entities—including Ziip Lab, maker of ZPens and ZPods—make, sell or distribute pods that are compatible with the Juul vapor device’s pods.
Scores of defendants have already settled with Juul Labs, which is seeking swift resolution in several other actions in their quest to permanently eliminate “illegal products” from the marketplace.
Juul Labs then filed two patent infringement cases with the U.S. International Trade Commission (ITC), seeking to ban what it views as counterfeiters and purveyors of illegal plug-compatible cartridges from being imported or sold in the U.S. It also filed “mirror lawsuits” in 10 U.S. district courts.
Citing the fact that the products named in its complaint came onto the market in 2018, Juul Labs contends that they’re subject to FDA premarket review. (To date, no vapor product manufacturer, including Juul Labs, has submitted a premarket tobacco product application—PMTA—to the FDA.)
In March of this year, Juul Labs filed a design patent lawsuit in New Jersey against Ziip Lab. When the New Jersey judge denied Juul Labs’ preliminary injunction request, the company dismissed the complaint without prejudice. However, Juul Labs’ “mirror lawsuits,” and most notably its case before the ITC, are now heating up, with hearings scheduled in early August and later in September.
In June, Ziip Lab filed a lawsuit against Juul Labs in California Federal Court, accusing Juul Labs of falsely creating the impression that Ziip Lab wasn’t fighting the patent infringement case. A month later, Juul Labs filed a motion to dismiss Ziip Lab’s complaint. Among its arguments was that Ziip Lab’s action is a strategic lawsuit against public participation, and Ziip Lab failed to sufficiently plead any of its causes of action. This motion will likely be heard this fall.
This case could have huge implications for what’s becoming a very competitive industry. Let’s delve into the two sides of the story and then look at the larger implications.
Source: Ted Kwong, Juul Labs spokesperson
Juul Labs believes its intellectual property (IP) enforcement actions have merit and intends to litigate them aggressively. Similarly, Juul Labs believes the action Ziip Lab brought in June in Northern California has no merit and will vigorously defend itself.
Juul Labs is actively pursuing those involved in distribution and sales of infringing and potentially dangerous products (including the Ziip Lab entities), and it is enforcing its IP rights where possible. We are also communicating with government agencies to support their investigations of noncompliant products and are actively encouraging the agencies to ensure such products comply with regulations or are removed from the marketplace.
Juul Labs’ intellectual property enforcement actions focus on protecting investments in our valuable brands and many technological innovations. We will pursue any infringers that misuse Juul Labs’ intellectual property without permission as well as those that falsely imply association with Juul Labs.
Juul Labs is seriously concerned that “Juul-compatible” knock-off products are made with unknown ingredients under unknown quality and manufacturing standards outside of the U.S. This could pose potential health hazards for users and seriously damage the viability of this product category.
Many of these unregulated and potentially harmful products seem designed to target youth and are sold online without adequate age verification or limits on purchasing amounts. Indeed, just after Juul Labs voluntarily stopped the sale of nontobacco and nonmenthol flavored Juul pods—Mango, Fruit, Cucumber and Creme—to its traditional retail store partners last year, sales of these “Juul-compatible” knockoff products took off as they filled in the shelf space Juul Labs gave up. Many sell a much wider variety of flavors that have obvious if not deliberate youth appeal, such as “Pink Frosted Yellow Cakes,” “Berry Lemonade,” “Green Apple Candy,” “Sour Gummy Worm,” “Strawberry Milk” and “Cinnamon Roll.”
We believe Ziip Lab copied Juul Labs’ intellectual property in order to piggy-back on Juul Labs’ success. Moreover, we believe that their marketing efforts are designed to falsely imply association with Juul Labs in order to sell as many of their noncompliant and potentially dangerous “Juul-compatible” products as they can before the courts or the FDA stop them.
Source: Steven Susser, intellectual property and business litigation attorney with Carlson, Gaskey & Olds, the law firm representing Ziip Lab
Ziip Lab’s position is that the Juul Labs patents are invalid under patent law because they relate to a simple device that was invented long before Juul Labs claimed to have invented it.
Ziip Lab is a Shenzhen, China-based manufacturer of high-quality, reasonably priced Juul-compatible pods. Started by an e-cigarette user who didn’t like the draw of the Juul pods, ZPens and ZPods were first developed in 2015 and on the market by early 2016.
Though compatible with a Juul pen or device, the ZPod is more cost-effective and has better airflow or pull than the Juul pod. ZPens and ZPods are now available online and in retail stores in over 20 countries, including the U.S., Mexico and Canada, and they will soon be available in Europe.
Juul Labs brought the whole e-cigarette industry under a microscope because of its marketing practices—practices that generated a call for a Senate hearing. We believe Juul Labs is trying to shift blame for its problems by attacking companies like Ziip Lab. Thus far, there have been no findings that Ziip Lab products infringe any Juul Labs patent.
Ziip Lab simply wants consumers to have a choice. Ziip Lab offers a high-quality but lower cost alternative to Juul’s replaceable e-cigarette pods. Ziip Lab believes it can coexist with Juul Labs and is asking the court to end Juul Labs’ improper anti-competitive behavior as it violates the law.
Juul Labs and Ziip Lab are not alone in their patent battle. Earlier this year, the Ohio-based e-cigarette manufacturer Fuma sued British American Tobacco’s R.J. Reynolds Vapor Co. for patent infringement in federal court.
Fuma’s lawsuit states that R.J. Reynolds copied and used its design in its popular Vuse product—which has captured about 13 percent of the U.S. market, according to Nielsen numbers compiled by Wells Fargo analyst Bonnie Herzog. (For reference, Juul’s market is reportedly around 69 percent. However, online and vape shop sales are not included in this data.)
Fuma and R.J. Reynolds signed a confidentiality agreement in 2010 that allowed R.J. Reynolds to review Fuma’s e-cigarette designs as part of a potential investment or joint venture. Fuma is requesting a permanent injunction and unspecified damages. The case is still pending.
In 2014, Fontem Ventures, a Netherlands-based subsidiary of Britain’s Imperial Brand, sued 11 American e-cigarette makers in federal court on a range of patent infringements.
The year before, Fontem Ventures paid $75 million for the entire portfolio of global e-cigarette patents from Dragonite International Limited, a Hong Kong firm founded by Hon Lik, who is widely credited with inventing the modern e-cigarette. Lik, who now heads up Fontem Venture’s Chinese R&D team, sold his global patents for both new and core vapor technologies to Fontem Ventures, catapulting Fontem Ventures into the worldwide vapor market.
Lik was no dummy when it came to defending his concept. Although his original device used a piezoelectric ultrasound element (and not a lithium-ion battery as is used today) to vaporize nicotine solutions, Lik had registered and won patents based on the broader concept of an “aerosol electronic cigarette,” an “electronic atomization cigarette” and simply an “electronic cigarette.”
In 2016, Fontem Ventures filed four patent infringement lawsuits against R.J. Reynolds in federal court, defending Fontem Ventures’ 2013 patents for rechargeable e-cigarettes, cartridge refill packs, batteries and disposable e-cigarettes. In its response, R.J. Reynolds claims it had already developed internal e-cigarette technology.
In October 2018, Fontem Ventures and R.J. Reynolds finally reached a settlement. But because the terms of their agreement were undisclosed, it’s hard to know what precedent—if any—was sent to Juul Labs, American cigarette and e-cigarette giants Altria and Philip Morris, and the hundreds of other firms that hold their own e-cigarette patents. Simply Google “e-cigarette patents,” and you’ll find more than 600 patent citations.
Most would expect patent holders to respond by vigorously asserting their intellectual property rights. But that could mire the e-cigarette industry in patent infringement lawsuits—much like today’s smartphone industry has been.
Combine these time-consuming and costly lawsuits with the growing mountain of lawsuits against makers of Juul and other e-cigarettes on behalf of teens who have become “addicted to nicotine,” and you end up with a no-win situation.
The losers are not only the e-cigarette companies but also smokers who continue to hear nothing but bad news about a product that could greatly reduce the number of smoking-related deaths worldwide.
Maria Verven is a 35-year PR veteran and owner of Verve Communications, a marketing firm focused on the vapor industry.
North Carolina’s state motto could be changed from “First in Flight” to “First in Fight.” The state is the first in the U.S. to file a lawsuit accusing Juul Labs of targeting teens. Attorney General Josh Stein filed the suit in state court on May 15. It alleges that Juul Labs violated North Carolina’s Unfair and Deceptive Trade Practices Act by distorting the dangers of nicotine in its pod-style products. Stein also contends that Juul Labs designed, marketed and sold its vapor products in a way that attracts youth.
“Juul has long claimed that its e-cigarettes are intended only for adult smokers seeking to transition away from traditional cigarettes, even though it has not sought nor has the FDA [U.S. Food and Drug Administration] granted a designation as an approved smoking cessation device,” the letter states. “But the facts tell a very different—and sobering—story: Teens aged 15 to 17 are far more likely to use Juul than Juul’s supposed target demographic of 25- to 34-year-olds.”
Patricia Kovacevic, a former vapor and tobacco industry attorney and a current vapor industry consultant, says that, in her opinion, the North Carolina attorney general (AG) has yet to substantiate that Juul Labs’ alleged actions are “unfair, deceptive and illegal” under North Carolina law.
“I expect that the AG will amend the complaint and will seek to introduce evidence in support of these claims,” she says. “This is not the first time that an attorney general has challenged the behavior of a manufacturer of tobacco products.”
In the 1990s, attorneys general of more than 40 U.S. states sued tobacco companies to recover the cost of treating patients with smoking-related illnesses. The result was a Master Settlement Agreement (MSA) that, among other stipulations, imposed monetary obligations on the tobacco companies and restrictions on their behavior.
The MSA was finalized in November 1998, originally between what were then the four largest U.S. tobacco companies (Philip Morris, R. J. Reynolds, Brown & Williamson and Lorillard) and the attorneys general of 46 states as well as of the District of Columbia, Puerto Rico and the Virgin Islands. (Mississippi, Minnesota, Florida and Texas settled their lawsuits separately with the major tobacco companies.)
In the agreement, the tobacco companies agreed to limit or cease certain tobacco marketing practices as well as make annual payments to reimburse the states for some of the medical costs associated with smoking-related illnesses. The original participating manufacturers agreed to pay a minimum of $206 billion over the first 25 years of the agreement.
According to the National Association of Attorneys General (NAAG), the MSA has succeeded in its central objective of lowering combustible cigarette use in the U.S., the level of which has declined at a record rate since the MSA was executed. “Youth smoking has declined even more. Cigarette consumption in the United States is currently at its lowest level since 1951 and per capita consumption has not been this low since the 1930s,” the NAAG website states. “This decline is even more impressive because the United States population has more than doubled since 1951.” The NAAG credits the MSA as making important contributions in the lowering of smoking rates, especially in youth.
According to a statement on the American Lung Association (ALA) website, during the signing of the MSA settlement, several states made promises concerning how the MSA money would be used to reduce tobacco use. It goes on to state that states such as Alaska, North Dakota and Oklahoma did “the right thing” and set aside portions of their payouts for programs to reduce tobacco use based on the U.S. Centers for Disease Control and Prevention’s “Best Practices for Comprehensive Tobacco Control Programs.” Most states, however, used the funds improperly.
“The vast majority of states have failed to use the funds for their intended purpose—some have used them to fill budget holes or pay off debts. A couple of states have even in the past used it to benefit the tobacco industry. For instance, South Carolina gave 15 percent of settlement funds to tobacco farmers affected by the drop in prices for their crop, while North Carolina used 75 percent of its settlement funds for tobacco production,” the ALA website states. “Some of those North Carolina funds went to private tobacco producers, covering tobacco curing equipment, a tobacco auction hall, video production for a tobacco museum and plumbing for a tobacco processing plant.”
States were not the only government entities to sue tobacco companies. “There have also been other suits at the federal level,” Kovacevic says. For example, the U.S. v. Philip Morris Inc. case sought recovery of healthcare expenses under the Medical Care Recovery Act and the Medicare Secondary Payment provisions of the Social Security Act, as well as disgorgement under the Racketeer Influenced Corrupt Organization Act from nine companies and two affiliated organizations involved in the cigarette industry.
The North Carolina attorney general claims in the Juul Labs suit that in developing its vapor products, Juul Labs “deliberately designed the flavors, the look and even the chemical composition of the e-cigarettes to appeal to youthful audiences, including minors. Belying its claimed ‘corporate mission’ of helping experienced smokers wean themselves from traditional cigarettes.”
It goes on to allege that Juul Labs “developed dessert- and fruit-like flavors calculated to introduce tobacco in an appealing way to nonsmokers, especially young people. To further ease new smokers into the habit, Juul [Labs] manipulated the chemical content of its e-cigarettes to make the vapor less harsh on the throats of young and inexperienced smokers. Juul [Labs] also created a sleek design for its smoking device that it knew would be attractive to young people, in part because it is easily concealable.”
Juul Labs’ focus on youth is also evident in its marketing, according to the suit. Stein claims that Juul Labs has “consciously chosen social media platforms and marketing channels that are known to attract minors, has used models who look like teenagers or very young adults, and has sought out and paid youth-oriented sponsors.” He also alleges that Juul Labs used social media “influencers” that are popular among teenagers in order to “spread the popularity of Juul’s youth-focused brand identity among the young.”
Stein goes on to allege that “after knowingly creating an e-cigarette product that appeals to minors and knowingly marketing that product in a way that attracts minors, Juul pursued a sales strategy with a strong emphasis on internet-based sales, where the seller does not typically see the customer face-to-face and cannot directly confirm her age.” He accuses Juul Labs of relying on age verification techniques that the company knew were ineffective.
The suit asks that Juul Labs, among other vapor items, refrain from the following actions:
Stein also asked that the e-cigarette manufacturer hand over to the state a confidential database containing “all customer-related information, including but not limited to names, addresses, email addresses, telephone numbers and any other information in Juul Labs’ possession regarding any individual consumer that is under age 18 or that Juul is unable to confirm is at least 18 years of age.”
He then asks that Juul Labs delete “all such information in its possession, including but not limited to all account information on Juul’s website and inclusion of such individuals on Juul’s email marketing lists” within 10 days of the state receiving the list.
Victory in the case is far from certain for North Carolina, according to Kovacevic. “It will be interesting to follow the North Carolina case to understand, among other things, how will the attorney general quantify the alleged harm from which relief is sought,” she says.