Njoy has asked the U.S. International Trade Commission (ITC) to ban on the importation and sale of certain Juul products, including its currently marketed Juul device and Juul pods, citing patent infringements.
“Protecting our intellectual property is critical to achieving our vision,” said Murray Garnick, executive vice president and general counsel of Njoy parent company Altria Group, in a statement. “Juul has infringed upon our patents through the sale of its imported products, and we ask the ITC to impose appropriate remedies in response to these trade violations.”
Njoy has also filed a complaint against Juul in the U.S. District Court for the District of Delaware based on the same patent infringement. Njoy Ace is currently the only pod-based e-vapor product to have received marketing authorization from the FDA, which deemed the marketing of the ACE device and three ACE tobacco-flavored pods as “appropriate for the protection of public health.”
Njoy’s ITC complaint against Juul alleges trade violations associated with the sale of imported products that, according to Njoy, infringe U.S. Patent No. 11,497,864 and U.S. Patent No. 10,334,881. Njoy acquired the Asserted Patents from Fuma International, concurrently with the settlement of a patent infringement lawsuit filed against the company by Fuma.
Njoy’s complaint is the latest development in a broader intellectual property dispute.
In July, Juul Labs asked the ITC to block sales and imports of Njoy Ace, claiming that the product infringes several Juul patents. It has also filed a complaint against Njoy with the U.S. District Court for the District of Arizona.
The U.S. Federal Trade Commission dismissed a complaint against NJOY parent Altria Group and e-cigarette maker Juul Labs that was brought after Altria bought a 35 percent stake in Juul Labs.
The agency also said on Monday it would vacate an FTC administrative law judge’s decision in favor of the companies in February 2022. Since it has been vacated, it cannot be cited as precedent, the agency said in the statement announcing it was dropping the litigation.
The FTC said in 2020 that Altria’s $12.8 billion investment violated antitrust law because the company acquired the position rather than continuing to compete against Juul in the market for closed-system e-cigarettes, according to Reuters.
Altria had exited the stake earlier this year and had asked the FTC to drop the challenge. As of December, its share of Juul was valued at $250 million, down from $12.8 billion in 2018.
Altria said on Monday it was pleased by the FTC dropping its complaint.
Juul Labs has asked the U.S. International Trade Commission (ITC) to block sales and imports of the NJOY Ace vapor device, claiming that the product infringes several Juul patents. It has also filed a complaint against NJOY with the U.S. District Court for the District of Arizona.
“Our technology, designed internally and in the U.S. and protected by our robust patent portfolio, has been the most effective product development to transition adult smokers from combustible cigarettes—switching over 2 million adult smokers in this country. Innovation is critical in this space to advance tobacco harm reduction,” said Juul Labs Chief Legal Officer Tyler Mace in a statement.
“When others infringe on our technology, we have no choice but to protect our intellectual property rights.”
This ITC complaint follows three prior successful actions from Juul Labs at the Commission, which all resulted in barring the importation and sale of infringing products, according to Juul Labs.
“Just like we have in three prior successful ITC actions that vindicated our company’s IP rights, we intend to reach the same result here,” said Mace.
The Juul Labs complaint also targets Altria Group, which agreed to acquire the NJOY in March after exchanging its minority investment in Juul for a heated tobacco product intellectual property license.
The NJOY Ace device received marketing authorization from the Food and Drug Administration in April 2022.
Altria Group has completed its acquisition of Njoy Holdings. The tobacco giant has also updated its guidance for 2023 full-year adjusted diluted earnings per share (EPS) in connection with the transaction.
“The completion of this transaction is a transformative step in our goal of ‘Moving Beyond Smoking,’” said Billy Gifford, Altria’s CEO. “We are pleased to have received antitrust clearance, and we are now fully focused on responsibly accelerating U.S. adult smoker and adult vaper adoption of Njoy Ace, currently the only pod-based e-vapor product to receive marketing authorization from the FDA.
“Our updated 2023 full-year EPS guidance range includes planned investments behind the U.S. commercialization of Njoy Ace and reflects our goal to deliver strong shareholder returns while making progress toward our vision.”
“We are excited to combine our resources with Njoy’s talented team to benefit adult tobacco consumers across the country,” said Shannon Leistra, the new president and CEO of Njoy.
As a result of the transaction, Altria expects to deliver 2023 full-year adjusted diluted EPS in a range of $4.89 to $5.03, representing a growth rate of 1 percent to 4 percent from an adjusted diluted EPS base of $4.84 in 2022.
“Our 2023 full-year adjusted diluted EPS guidance range includes planned investments in support of the company’s vision, such as (i) continued smoke-free product research, development and regulatory preparation expenses, (ii) enhancement of the company’s digital consumer engagement system and (iii) marketplace activities in support of the company’s smoke-free products, including planned investments behind the U.S. commercialization of Ace,” Altria wrote in a press note.
Altria’s updated guidance range also includes estimated amortization charges of approximately $50 million for the remainder of 2023 related to intangible assets acquired in the transaction.
Altria Group today announced that the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 has expired in connection with the company’s previously announced pending acquisition of NJOY Holdings.
This confirms that no further regulatory review by the federal antitrust authorities is required in connection with the transaction. Subject to the satisfaction of other customary closing conditions.
Altria states that it expects to complete the acquisition in the second quarter of 2023.
In 2022, the U.S. vapor category comprised nearly 14 million U.S. adult tobacco consumers, including 9.5 million exclusive adult vapers, according to Altria. The segment generated approximately $7 billion in U.S. retail sales and represented approximately 15 percent of total estimated equivalized U.S. tobacco volumes and more than 50 percent of total estimated equivalized smoke-free tobacco volumes.
To date, the U.S. Food and Drug Administration has approved the marketing of 23 vapor products and devices. In 2022, NJOY received marketing granted orders for the NJOY Ace device, along with several tobacco-flavored pods. The regulatory agency is still reviewing NJOY’s premarket tobacco product applications for several NJOY menthol-flavored e-vapor products.
Altria said it had multiple sources of funding for the deal, including cash from a $2.7 billion agreement with Philip Morris International last year for the IQOS Tobacco Heating System.
The NJOY deal followed an announcement by Altria that it would exchange its entire minority investment in embattled Juul Labs for a nonexclusive global license for certain of Juul’s heated tobacco intellectual property.
In total, Njoy Holdings has received six of the 23 marketing orders granted by the FDA as of this writing for the entire vaping product category, including pods, disposables and open systems.
A major factor in Altria purchasing Njoy is the Ace device didn’t come with the stigma tied to youth vaping, according to Altria CEO Billy Gifford.
“We believe Njoy has taken a responsible approach to marketing its products. According to the 2022 National Youth Tobacco Survey, Njoy-branded products are not included among the top usual brands among middle school and high school e-cigarette users. Additionally, Njoy is developing access restriction technology for its devices to further address underage use,” explains Gifford. “Our consumer research indicates that once consumers try Njoy Ace, it is a competitive product for both smokers and vapers. After trying the authorized nonmenthol Ace variant, 19 percent of surveyed smokers and 27 percent of surveyed vapers indicated that they would definitely buy the product.”
The trial of the San Francisco Unified School District’s lawsuit against Marlboro maker Altria continues this week. At the end of the first week, jurors heard testimony that use of vape pens by students had declined before more than doubling from 2017 to 2019.
Only a little more than 7 percent of students throughout the district had reported using vape pens in 2017, former district health administrator Erica Lingell testified Friday. By 2019, she said, that figure had more than doubled to 16 percent.
Lingell said students were using Juul and the district was scrambling to build support systems and give guidance to teachers and staff about them, according to Courthouse News.
“We didn’t have anything for this new substance that the kids were using,” Lingell said in answer to questioning by the school district’s attorney Dena Sharp. “We didn’t have lessons. We didn’t have enough research except for what experts were telling us.”
The school district was building systems to combat Juul from scratch, the attorney claimed. Even after the San Francisco Board of Supervisors banned the sale of e-cigarettes in the city — the corporate home of Juul Labs — in 2019, youth use continued.
For school district officials, it was a scramble to pull together the resources needed to combat Juul’s growth among students. “It was like flying the plane while we were building it,” said Lingrell.
For other substance use issues in the district, there were materials lesson plans, and support groups in place to help teachers tackle the problem. Students leaving class to smoke would interfere with teaching time for the rest of the kids, she said. “Teachers have an incredibly hard and busy schedule already. One kid being gone affects everybody.”
Much of the school district’s argument in its case against Altria involves the distraction which occurred when vaping became “endemic,” interfering not only with teachers’ abilities to control their classrooms but nearly all levels of student life.
The bellwether trial forces Altria to publicly defend itself solo for the first time as it faces thousands more cases that were brought against the company and Juul. In December, Juul Labs agreed to pay more than $1.2 billion to settle more than 5,000 suits blaming the company for a youth vaping epidemic across the U.S.
Juul and Altria defended the first trial that started in March over a case brought by Minnesota over deceptive marketing of e-cigarettes. The companies last month settled the state’s case, though details are yet to be disclosed.
In April, Juul agreed to pay $462 million to six states and the District of Columbia to resolve lawsuits and investigations into the marketing of addictive vaping products to children.
As Altria sheds the burden of Juul, its leaders are hoping investors ‘Njoy’ the company’s new outlook.
By Timothy S. Donahue
It would have been hard to imagine less than five years ago. In September of 2018, Juul had a U.S. vapor market share of 72 percent. By mid-March of this year, Juul’s market share had plummeted to 25.6 percent and continues to drop. Meanwhile, R.J. Reynolds Vapor Co.’s Vuse products have grown from single digits to a more than 47 percent market share during the same period.
Altria, Juul Labs’ largest minority shareholder, had to do something. Juul’s baggage of lawsuits for youth marketing and ongoing battle with the U.S. Food and Drug Administration over marketing denial orders just became too much to bear. After devaluing its $13 billion investment in Juul Labs to less than $250 million earlier this year, Altria stated that it would exchange its entire minority investment in Juul Labs for a nonexclusive global license for some of Juul’s heated-tobacco intellectual property to potentially boost its IQOS heated-tobacco products. It then did something that surprised no one in the industry.
The next day, Altria Group announced it had entered into an agreement to acquire Njoy Holdings for approximately $2.75 billion in cash. Altria said it had multiple sources of funding for the deal, including cash from a $2.7 billion agreement with Philip Morris International last year for IQOS. In less than a week, Altria went from vaping product purgatory to owning the best vaping product on the market with a U.S. marketing order, the Njoy Ace. In total, Njoy Holdings has received six of the 23 marketing orders granted by the FDA as of this writing for the entire vaping product category, including pods, disposables and open systems.
The other major factor in purchasing Njoy is the product didn’t come with the stigma tied to youth vaping, according to Altria CEO Billy Gifford. Speaking during an investor call, Gifford said that his company evaluated Njoy’s marketing practices and national survey data regarding underage use of Njoy tobacco products.
“We believe Njoy has taken a responsible approach to marketing its products. According to the 2022 National Youth Tobacco Survey, Njoy-branded products are not included among the top usual brands among middle school and high school e-cigarette users. Additionally, Njoy is developing access restriction technology for its devices to further address underage use,” explains Gifford. “Our consumer research indicates that once consumers try Njoy Ace, it is a competitive product for both smokers and vapers. After trying the authorized nonmenthol Ace variant, 19 percent of surveyed smokers and 27 percent of surveyed vapers indicated that they would definitely buy the product.
“The Ace results were on par with the post-trial findings for Vuse Alto nonmenthol and better than those for Juul nonmenthol. We observed similar post-trial results for the Ace menthol variants when compared to Vuse Alto and Juul menthol products. This encouraging research supports our belief that Ace is a compelling proposition.”
The FDA said that it authorized Njoy’s products because they were found to meet the appropriate for the protection of public health standard as, among several key considerations, chemical testing was sufficient to determine that overall harmful and potentially harmful constituent (HPHC) levels in the aerosol of these products is lower than in combusted cigarette smoke.
Further, data provided by Njoy demonstrated that participants who had used only the authorized Njoy Ace products had lower levels of exposure to HPHCs compared to the dual users of the new products and combusted cigarettes. Therefore, these products have the potential to benefit adult smokers who switch completely or significantly reduce their cigarette consumption.
Additionally, the FDA considered the risks and benefits to the population as a whole, including users and nonusers of tobacco products and, importantly, youth. This included review of available data on the likelihood of use of the product by young people. For the authorized products, the FDA determined that the potential benefit to adult smokers who switch completely or significantly reduce their cigarette use would outweigh the risk to youth, provided that the company follows postmarketing requirements to reduce youth access and youth exposure to their marketing.
Open access
Altria has the ability to take Njoy products to the top. Gifford said that a large number of tobacco consumers are not currently aware of nor have access to the Ace vaping system. Njoy’s Ace, the most technologically advanced FDA-authorized vaping product, is currently available only in an estimated 33,000 stores. Altria services more than 200,000 U.S. stores. Njoy’s sales force is fewer than 50 people. Altria has 1,600.
“As a result, total U.S. retail share for Ace pods in 2022 was only 3 percent. Yet, we know that Ace has performed better in stores where it’s visibly merchandised and has consistent distribution. In the top 5 chain accounts where Ace competes with Vuse Alto and Juul, the weighted average share for Ace is approximately 11 percent,” Gifford said. “We believe we can responsibly accelerate U.S. smoker and competitive vaper adoption of Ace in ways that Njoy could not as a standalone company.”
During the session, Bonnie Herzog, managing director with Goldman Sachs, questioned whether Altria would need to reposition the Njoy brand or change its strategy considering the brand’s relatively small share of the market. After all, several devices have done very well in the market and then disappeared or lost their position. Chris Growe, with Stifel Financial Corp., wanted to know what made the Ace device so unique. Could the Ace device develop another level of brand loyalty it had yet to reach? Gifford said Altria has an extensive relationship with retailers that its “sales force has built over decades.” It’s all about consumers having better access.
“You’re going to see loyalty in these new spaces that we experience in the tobacco category. When you see the consumer, they’re trying various products. They’re looking for products that satisfy their unmet needs and desires, and once they find a satisfying product, it’s up to us to build a brand around that. I think when you look at Njoy, and I’d reference you back to the consumer research, it was both smokers looking to transition and how they rank the products in the marketplace as well as existing vapers, people that have already converted, and their preference there,” Gifford told the investment advisers.
“I think you see that we believe this is a strong asset because not only does it bring certainty around the authorization but the consumer is telling us they have preference for this product over some of the other products in the marketplace. That’s the way we think about it and are extremely excited to, again, have that base IP, have a product ready in the marketplace, but then be able to develop on it as we move forward,” Gifford said.
Gifford told Priya Ohri-Gupta, with Barclays, that prior to closing the deal, Altria would offer none of its services to Njoy but that after closing, Njoy would experience all of the assets Altria has at its disposal. “Our sales force, our regulatory team, our government affairs team, all of that would be available subsequent to close,” said Gifford.
Gifford said that in the next few years the company expects the FDA will complete marketing determinations on the remaining premarket tobacco product applications, including those filed for synthetic products. He said he also hopes the agency will implement the suggestions from the Reagan-Udall Foundation report.
Altria expects the vaping market to remain “in flux” until the FDA goes through the enforcement process and removes unauthorized products from the market. Over the next 10 years, U.S. volumes will grow at a single-digit compounded annual growth rate, Gifford predicted.
After the Njoy acquisition is finalized, Altria will have a compelling portfolio of products and technology across the three largest smoke-free categories, according to Gifford. In the vaping segment, the company will fully own the only FDA-authorized, pod-based product on the market. In oral tobacco, it owns the largest brand, Copenhagen, and holds 100 percent of the global rights to On!, one of the fastest-growing nicotine pouch brands in the U.S. last year.
“We have differentiated new products in development. And in heated tobacco, we have the majority-owned joint venture with JT Group for the U.S. commercialization of the next-generation Ploom device and Marlboro heated-tobacco sticks,” said Gifford. “We [also] have full ownership of an exciting heated-tobacco capsule technology, which we will discuss further at our Investor Day.”
Gifford also explained that the Juul IP rights deal is centered on the Ploom device and the capsule technology. He told Herzog that Altria viewed the technology as “very interesting,” and it allows Altria to put it “in the toolkit” of its product developers. That would give Altria the ability to market the new product anywhere around the world. “Our focus, of course, would be the U.S. because that’s the biggest opportunity we see in products,” said Gifford.
When asked when new heated-tobacco products using the newly acquired IP would make it to the U.S. market, Gifford’s answer became lost in translation. Deciphering the double talk quickly, Herzog ended the conversation by clarifying Gifford’s answer, saying, “OK. So, in a few years. Appreciate it. Thank you.” Gifford did not disagree with Herzog’s assessment.
Lawyers for Altria Group Inc. told a jury that the company didn’t benefit from its 2021 $12.8 billion investment in Juul Labs Inc. in a trial over whether Altria helped Juul Labs promote sales that led to a rise in youth vaping. The trial is a test case brought by the San Francisco school system.
Altria played a passive role in Juul’s efforts to market e-cigarettes to young users and “hasn’t received a penny for this investment, they haven’t benefited,” Beth Wilkinson, an attorney for the company, argued as the trial kicked off Monday in San Francisco federal court, according to Bloomberg News.
The 2018 investment vaporized to $250 million, she said, referring to the value of the Juul investment at the end of 2022 that Altria announced earlier this year when the company exchanged that investment for rights to heated-tobacco product technology.
Attorneys representing the San Francisco Unified School District told U.S. District Judge William Orrick that Wilkinson’s statements on the Juul investment to the jury were “prejudicial” to plaintiffs and violated ground rules on excluding certain information at trial.
The judge said he’ll take up the objection Tuesday morning before the trial resumes.
The bellwether trial forces Altria to publicly defend itself solo for the first time as it faces thousands more cases that were brought against the company and Juul. In December, Juul Labs agreed to pay more than $1.2 billion to settle more than 5,000 suits blaming the company for a youth vaping epidemic across the US.
Altria’s “going to say, ‘We didn’t market the product,’” Thomas Cartmell, a lawyer representing the school district, told jurors. “That’s true, but it’s very important for you all to know what Altria knew as they pursued and partnered with Juul,” he said, adding that Altria knew Juul’s marketing tactics would appeal to and hook young people, including kids.
Juul sales “skyrocketed” after Altria’s 2018 investment and the tobacco company helped the startup market its products and set up 10,000 new stores, Cartmell said. Altria knew Juul’s plans to boost sales would frustrate the U.S. Food and Drug Administration’s efforts to curb youth e-cigarette use, he said.
The sprawling litigation in San Francisco federal court includes about 4,270 personal injury suits and more than 1,434 complaints brought by government entities and native Indian tribes, in addition to a proposed class-action fight, according to a recent court filing.
Juul and Altria defended the first trial that started in March over a case brought by Minnesota over deceptive marketing of e-cigarettes. The companies last month settled the state’s case, though details are yet to be disclosed.
In April, Juul agreed to pay $462 million to six states and the District of Columbia to resolve lawsuits and investigations into the marketing of addictive vaping products to children.
Altria Group has asked the U.S. Federal Trade Commission to drop its 2020 challenge of the company’s 2018 acquisition of a 35 percent share in Juul Labs, reports Reuters. On March 3, the tobacco giant announced it had exchanged its stake for a license to Juul’s heated tobacco intellectual property rights.
In its legal challenge, the FTC contends that the tobacco giant’s $12.8 billion investment in Juul violates antitrust law because the company acquired the position rather than continuing to compete against Juul in the market for closed-system e-cigarettes.
In February 2022, an administrative law judge dismissed the FTC claims, finding that the evidence failed to sustain the alleged violations.
The next step would have been for the full commission to decide whether to accept that decision and dismiss the FTC case.
“There is nothing left of the transaction to be challenged. Altria and JLI respectfully ask the Commission to dismiss this matter as moot,” Altria Group and Juul Labs wrote in a filing to the FTC.
Altria Group has exchanged its entire investment in Juul Labs for a non-exclusive, irrevocable global license to certain of Juul’s heated tobacco intellectual property.
“We believe exchanging our Juul ownership for intellectual property rights is the appropriate path forward for our business,” said Altria CEO Billy Gifford in a statement. “Juul faces significant regulatory and legal challenges and uncertainties, many of which could exist for many years. We are continuing to explore all options for how we can best compete in the e-vapor category.”
As of Dec. 31, 2022, the carrying value and estimated fair value of Altria’s Juul investment was $250 million. Altria will record the financial impact of the agreement in the first quarter of 2023 and intends to treat any such amounts as a special item and exclude it from its adjusted diluted earnings per share.
“The return of Altria’s equity stake and termination of underlying agreements affords us full strategic freedom—we are no longer limited by the terms of those agreements to pursue other strategic opportunities and partnerships,” wrote Juul in a statement. “We are free to take advantage of a range of options to maximize the value of our company while we continue to advance our leading product technology and innovation pipeline.”
In late 2018, Altria paid nearly $13 billion for a 35 percent stake in Juul. “We have long said that providing adult smokers with superior, satisfying products with the potential to reduce harm is the best way to achieve tobacco harm reduction,” said Altria’s then-CEO Howard Willard at the time. “Through Juul, we are making the biggest investment in our history toward that goal. We strongly believe that working with Juul to accelerate its mission will have long-term benefits for adult smokers and our shareholders.”
Over the years that followed, however, regulatory scrutiny and litigation relating to Juul’s marketing practices severely eroded Juul’s valuation. On June 23, 2022, the U.S. Food and Drug Administration ordered Juul Labs to pull its e-cigarettes from U.S. store shelves, saying the e-cigarette manufacturer had submitted insufficient evidence that they were “appropriate for the protection of the public health.” After Juul challenged the marketing denial order (MDO), the FDA agreed to take another look at the company’s pre-market tobacco product application.
The agency said it had determined that there are scientific issues unique to the Juul application that warrant additional review.
In early September, Juul Labs agreed to pay nearly $440 million to settle a two-year investigation by 33 U.S. states into the marketing of its vaping products, which critics have blamed for sparking a surge in underage vaping.
On Sept. 30, Altria announced it was ending its noncompete agreement with Juul. The tobacco giant is reportedly in talks to buy Njoy Holdings for at least $2.75 billion. Njoy has a roughly 2 percent of the U.S. vape market by volume, according to Jefferies. Juul, by contrast, accounts for around a quarter of American vapor product sales. Unlike Juul, however, Njoy has FDA permission to sell its products in the U.S.
“While our appeal of FDA’s now-stayed MDO remains pending, we remain as confident in our science and evidence to support the continued marketing of Juul products,” Juul wrote after Altria announced the exchange of its investment for a license. “We also continue to pursue future applications for new products to accelerate our mission and progress for the adult smoker, public health, and an end to combustible cigarettes.”
