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The rise of vaping-related illnesses and deaths has put Juul squarely in the government’s sights.
Juul has dominated the e-cigarette market in the United States through its sales of flavored nicotine products. Michigan, Massachusetts and Rhode Island have banned sales of flavored e-cigarettes, while a similar move by New York was temporarily blocked by a court. The Trump administration also has announced that it wants to keep flavored e-cigarettes away from teenagers.
On top of that, the United States attorney’s office in San Francisco, the Food and Drug Administration, the Federal Trade Commission and several state attorneys general have all opened investigations into how the company marketed its products.
Juul’s website states: “As scientists, product designers and engineers, we believe that vaping can have a positive impact when used by adult smokers, and can have a negative impact when used by nonsmokers. Our goal is to maximize the positive and reduce the negative.”
That claim could be an issue for Juul because it might not be fully truthful.
Under the Food, Drug and Cosmetic Act of 1938, the F.D.A. can pursue a civil case if the labeling of a product does not provide “adequate warnings against use in those pathological conditions or by children where its use may be dangerous to health.” Last month, the F.D.A. issued a warning letter to Juul, asserting that the company marketed its e-cigarettes “as modified risk tobacco products without an F.D.A. order in effect that permits such sale or distribution.”
The letter said Juul’s products “are tobacco products because they are made or derived from tobacco and intended for human consumption.” The agency added that Juul’s claim that its products are “‘99 percent safer’ than cigarettes, ‘much safer’ than cigarettes, ‘totally safe’ and ‘a safer alternative than smoking cigarettes’ was particularly concerning because these statements were made directly to children in school.”
Section 331 of the Food, Drug and Cosmetic Act prohibits the “receipt in interstate commerce of any food, drug, device, tobacco product or cosmetic that is adulterated or misbranded.” If Juul were found to have shipped a misbranded product, or one that was not approved by the F.D.A. as a tobacco product, it may be subject to criminal prosecution.
Because that is a misdemeanor, the government would not be required to prove any intent to violate the act. The penalty is imprisonment for up to one year and a fine of $1,000. In other words, it is a strict liability provision that can be brought against the company and any individuals responsible for marketing to children.
In addition, the F.D.A. can impose a civil penalty of $15,000 for each violation, not to exceed $1 million, and can seek an injunction to stop sales of products that are found to have violated Section 331.
Criminal investigators could use another provision of federal law, the false statement statute, Section 1001. The law makes it a crime to “make any materially false, fictitious or fraudulent statement or representation” to a federal agency on a matter within its jurisdiction. This statute has been used in a number of criminal cases when a company or individual gave false or misleading information to an agency. The penalty is up to five years in prison.
Although Juul’s products have been successful, the state bans on flavored e-cigarettes are certain to crimp sales. The company’s chief executive resigned on Oct. 2, and it has suspended its product advertising.
Where is the criminal investigation likely to go? The false statement statute has proved a powerful tool for prosecutors. It covers any statement that is false or fraudulent, which covers a wide range of potentially misleading comments. Describing its products as “totally safe” or at least “much safer than cigarettes” may prove problematic for Juul because of the number of illnesses and deaths attributable to vaping.
The issue of marketing to children may also be problematic because the rapid increase in teen use of vaping products could be a basis to find Juul targeted teenage users. The question in the criminal investigation will be whether the company made false statements to the F.D.A. If so, then there is a basis to pursue a criminal prosecution, which would make it difficult for Juul to continue to sell its products by claiming that they are safer than cigarettes.