NC Juul settlement: It’s a start

On June 28, 2021, North Carolina Attorney General Josh Stein announced the first settlement of a state lawsuit against Juul for its marketing to youth “to hold JUUL accountable for its instrumental role in sparking the epidemic of youth vaping and its resulting nicotine addiction.” 

While the settlement represents a first step, a close reading reveals several problems.  Indeed, several of the provisions codify Juul’s preferred responses to meaningful public health regulations similar to provisions Juul tried to enact through the initiative process in its $19 million campaign to pass Proposition C in San Francisco.  San Francisco voters resoundingly rejected Juul’s effort.

The settlement, however, contains a most favored nation clause (Section X) that requires that any better provisions in subsequent state settlements also become available to North Carolina.  This clause means that when other states can learn from and remedy the problems in the NC settlement NC will share in that benefit.

This is precisely what happened as the individual states settled their lawsuits against the cigarette companies in the 1990s.  Each subsequent settlement increased the money and, more important, strengthened the terms of the ones that came before, benefiting more and more people.

In particular, the first state to settle its lawsuit against the cigarette companies, Mississippi, just got money to reimburse the state for smoking-caused medical costs and some marketing restrictions.  The second state to settle, Florida, increased the amount of money as well as created an anti-smoking program (the original “truth” campaign), but with a “vilification” clause that prohibited the state from “vilifying” the cigarette companies.  That increased the money for Mississippi and created an anti-smoking program.  Texas, the third settling state, further increased the funds and eliminated the vilification clause.  Then Minnesota further upped the financial ante and required the disclosure of millions of pages of internal industry documents. Finally, the Master Settlement Agreement settled the remaining state cases.

The most favored nation clause is important and all future settlements should contain such clauses.

The NC settlement is the beginning of this process for Juul.  For the reasons discussed below, it is very important for other states to learn from the NC settlement and to work to improve upon it in subsequent settlements.  The NC settlement should be used as a learning experience, not a model, for future settlements.

THE MONEY

Juul agrees to pay the State of North Carolina $40 million over six years ($13 million immediately, then annual payments of $8.0, $7.5, $7.0, $2.25, and $2.25 million).  Juul can apply for a waiver of the last two payments, totaling $5 million, if their compliance with the terms of the agreement and other actions have “substantially contributed to a significant decline” of Juul use by youth.  “Significant decline” is not defined.

This is a trivial amount of money for Juul.  For comparison, Juul was estimated to have made between $130 million and $650 million of its $1.3 billion net revenue from youth age 12-17.  (This estimate leaves out the 18-20 year olds, who are probably heavier Juul customers.) Probably more important, these are only Juul’s revenues for a single year, but once youth are addicted to nicotine (at least in cigarettes), many keep consuming it for decades. Viewed this way, even if Juul didn’t make a cent on current consumption, it would still be worth addicting kids as a capital investment that would generate revenues for decades to come. Future settlement payments need to account for this fact.

Another measure of how small the settlement payments are for Juul: The annual payments are each less than the $19 million Juul spent over 4 months before it dropped its losing campaign to override San Francisco’s e-cigarette laws.

Future settlements should be modeled on the cigarette settlements in which payments continued in perpetuity and were based on estimated medical costs borne by the states because of long-term addiction.  Any reductions should be based on actual consumption by youth of Juul products in the future – including increased payments if Juul consumption increases- — preferably structured in a way that produces financial incentives for Juul to actually prevent youth use.

Also concerning, the money goes to the State of North Carolina General Fund, where it will be up to the legislature to appropriate the funds for these purposes, something that may not materialize.

In addition, in contrast to the cigarette settlements, the Attorney General will have to cover legal costs out of the settlement rather than from a separate payment by Juul determined by the Court.  This will further reduce actual funds available for e-cigarette prevention, cessation, research and the costs of the document depository created by the settlement. 

A better solution would be to allocate separate funding beyond the payments to the state to an independent third party for education, cessation, research and documents, as the MSA did when it created what is now called the Truth Initiative to run these programs.

DOCUMENT DISCLOSURE

The settlement requires that documents created on or before May 19, 2019 and produced to the State to be made available at a Depository run by a NC public university. 

There are provisions for withholding and redacting documents. While many of these rules are reasonable, such as not making attorney-client privileged and trade secret documents public and redacting things like Social Security numbers, the fact is that the tobacco industry has a long history of abusing these rules.

One of the categories, “Information that cannot be disclosed without violating the contractual rights of third parties that JLI may not unilaterally abrogate” (Section 35(iv)) creates a huge loophole. Juul could simply avoid disclosure of important documents with contractors (like social media influencers) by simply including a term committing itself not to release the relevant documents. This provision should not be included in future settlements.

The settlement also creates a process for the AG to challenge withholding of any documents Juul claims are protected by attorney-client privilege or trade secrets.  This is an important provision to challenge overly aggressive claims by Juul.

There are several unaddressed details that could derail this important provision:

  • It is not clear whether or not depositions and expert opinions are included in the disclosure requirements; they should be
  • As noted above, there is no guarantee that the Legislature will adequately fund the Depository either in the short or long run
  • There is no requirement that Juul provide indexes (metadata) for the documents
  • There is no requirement that Juul will provide the documents digitally

These last two items are particularly important because they dramatically impact the cost of making the documents available to the public. If Juul provided the documents on paper without an adequate index the cost of making them available could be $1-2 a page, more than will likely be available.

Juul is given an entire year to review and redact the documents, which is a long time, especially at a time that the FDA is considering Juul’s application for authorization to legally sell its products.  By comparison, the MSA (Section IV)  only gave the cigarette companies 180 days to create websites to make much larger collections of documents publicly available and 45 days to release new documents.

It is also not clear why only documents over two years old are included in the agreement.

Future settlements should be modeled on the MSA and federal RICO judgement:

  • All documents, regardless of date, should be included
  • The AG should be allowed to immediately release any documents that would have been entered into the public record at trial
  • The AG should be allowed to immediately release all documents without redaction to the FDA for it to consider while assessing Juul’s application for authorization to sell its products in the USA (PMTA)
  • Juul should be required to produce all additional documents within 90 days
  • Juul should be required to produce the privilege log and metadata for any other withheld documents, and this information should be included in the Depository; there should be a process by which the public can contest privilege or confidentiality claims and seek to have privileged documents released
  • There should be a requirement to continue making documents available for 12 years into the future, as specified in the MSA
  • Juul should be required to provide the documents digitally in accordance with specifications provided by the AG to minimize costs of making them available
  • Juul should be required to index the documents according to specific specifications, such as included in the RICO judgement.  (The UCSF Library submitted an amicus brief on these points in 2005 in the RICO case and is preparing a suggested metadata specification for the Juul documents.)
  • Copies of unredacted or withheld documents should be retained by the AG — not returned to Juul — in the event that that they are later deemed to be made available to the public
  • Funding to digitize and maintain the collection for online public access should be included, including any additional indexing that is needed.

In addition, it would be less expensive to simply add the new documents to the UCSF Truth Tobacco Industry Documents, which already has some Juul documents in its collection, rather than to create a separate state depository.  Doing so would also allow the Juul documents to be cross-searched with all the other tobacco document collections.

RESTRICTIONS ON HEALTH AND THERAPEUTIC CLAIMS

The settlement commits Juul not to make health or therapeutic (i.e., smoking cessation) claims unless they are specifically authorized by the FDA.  This provision simply commits Juul to obey federal law.

The settlement contains a huge loophole: Juul is allowed to promote “testimonial videos of the experiences of persons thirty-five (35) years of age and older who are or were habitual combustible cigarette smokers using JUUL products” (clause 11c).  These testimonials have included many people claiming Juul helped them quit smoking, which are therapeutic (cessation) claims that violate federal law. 

This provision expires on March 31, 2027.

Future settlements should prohibit such testimonials unless explicitly authorized by FDA (something it should not do for e-cigarettes as consumer products).

In addition, future settlements should not have sunset dates for restrictions on Juul’s advertising. (The MSA does not have sunset dates on any of the equitable relief in the settlement.)

OUTDOOR ADVERTISING

While the settlement eliminates some outdoor advertising, it explicitly allows advertising at retailers facing the outdoors up to 14 sq ft (section 10aa definition).  This would permit large ads, such as 2×7 feet or 3’-9” square. 

The settlement prohibits outdoor advertising within 1000 feet of schools or playgrounds but because advertisements of up to 14 sq ft at retailers are defined as not being outdoor advertising,  the settlement would effectively allow ads at retailers across the street from of schools and playgrounds. 

Future settlements should end all outdoor advertising.

RESTRICTIONS ON THE USE OF SOCIAL MEDIA

The settlement limits the use of social media influencers, but allows Juul, not independent authorities, to determine the appropriateness of using these based on industry (not public health) standards. 

Most of the restrictions on social media end on March 31, 2027.

Future settlements should prohibit all such marketing in perpetuity.

RESTRICTIONS ON PROMOTIONAL ACTIVITIES

Juul commits itself not to “use content (including but not limited to cartoons, caricatures, gifs, videos, images, vape tricks, or phrases) that, in the exercise of reasonable diligence by JLI [Juul Labs Inc], is known or believed by JLI to appeal to, or be likely to appeal to Underage Individuals …”  This provision delegates to Juul to police itself.  Future settlements should simply prohibit these messaging techniques and enforcement should be based on the AG’s judgement, not Juul’s.

Juul is prohibited from funding or providing educational materials directed at youth without express permission from the AG.  If Juul seeks such permission, it will be deemed to have been granted if the AG does not respond to a request for approval in 30 days.  (This provision expires on March 31, 2027.)  Future settlements should prohibit these activities without exception.

SALES AT RETAIL STORES

Juul products are required to be behind the counter and not available for self-service sales. 

The settlement accepts Juul’s voluntary electronic age verification system and assigns Juul responsibility for seeing that it controls underage sales.  To verify compliance Juul agrees to send representatives age 21 to 27 to test whether stores are using Juul’s electronic system and has a program in which retailers are subject to increasing restrictions on sale of Juul products with Juul ceasing to do business with retailers who commit 4 violations during a single year.  Juul also notifies FDA of violations. 

There are three fundamental problems with this approach:

  • It allows Juul to collect data on customers and potential customers, including people who fail the age test.  While Juul commits to not using this information for marketing, it is not clear how that would be policed or enforced, especially for people who “age up” to 21, making them legal customers.
  • Juul polices itself, an inherent conflict of interest
  • The “testers” are all over 21; more effective compliance tests are done when testers are 15-20 to determine if the retailer is actually selling to underage consumers.

Most of these provisions expire on March 31, 2027.

Future settlements should assign compliance testing to the State Department of Health using testers age 15-20 with penalties ramping up over three violations within 2 years.  Health Departments would be authorized to bill Juul for reimbursements of cost and use records of violations for civil enforcement (such as license suspension or revocation if that is available in the state).   Juul would agree to reimbursing the Department for costs of enforcement up to a reasonable limit.  These provisions should not expire as long as Juul is available in retail stores.

INTERNET SALES

The settlement has a similar online verification protocol that also expires on March 31, 2027.  The online age verification systems are problematic for the same reasons that the verification systems are problematic for in-person sales.  In addition, it is practically impossible to police internet sales.  Future settlements should prohibit internet sales.

LIMITS ON SALES VOLUME

The discussion of compliance checks limits sales to 16 pods/purchase (sections 10q and 25d) and 60 pods/month for internet sales (section 21).  These are huge amounts.  While not precise, a Juul pod delivers the nicotine of around 2 packs of cigarettes, meaning that these limits amount to about 32 and 120 packs of cigarettes.  Future settlements should limit sales to no more than 5 pods (about a carton of cigarettes).

LIMITATION ON EDUCATION CAMPAIGN

The settlement includes a “vilification” clause stating that funding provided under the settlement for cessation, education and research may not be used “directly or indirectly to disparage” Juul.  A similar clause included in the MSA opened the door for litigation against Truth Initiative (then the American Legacy Foundation) attacking their award-winning truth campaign.  While Truth ultimately prevailed, it took years and cost Truth millions of dollars in legal fees.  This is an important point because messages exposing the industry’s manipulative behavior are effective prevention and cessation messages.  This clause could also preclude funding of research on Juul and other e-cigarette companies’ behavior.

Future settlements should avoid such vilification clauses.

THE BOTTOM LINE

The North Carolina settlement with Juul provides some money for North Carolina, important document disclosure, and places some modest (and temporary) limits on Juul’s marketing.  A careful read of the settlement in the context of the strengths and, more important, the weaknesses of earlier settlements can inform AGs in other states (and private litigators) on how to write progressively stronger settlements to remedy the weaknesses in the NC settlement.

Because the NC settlement contains a most favored nation clause, it will share in those benefits.DISLOSURE:  Truth Initiative supported creation of the tobacco documents archive at UCSF and my work as a member of the faculty for many years until I retired.  I continue to collaborate with them on Smokefree Media

Here is the settlement text:

Published by Stanton Glantz

Stanton Glantz is a retired Professor of Medicine who served on the University of California San Francisco faculty for 45 years. He conducts research on tobacco and cannabis control and cardiovascular disease/

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