E-cigarette patent wars
IT IS perhaps a truism that when big tobacco marches in, its lawyers are never far behind. So it is proving with e-cigarettes. Earlier this month Fontem Ventures, a Netherlands-based subsidiary of Britain’s Imperial Tobacco, sued 11 American e-cigarette makers in federal court for a range of patent infringements. Among the companies Imperial wants to smoke out are NJoy, Logic Technology Development and LOEC, a subsidiary of tobacco-giant Lorillard that also owns e-cigarette maker Blu eCigs. The trio controls about three-quarters of high-street sales in America’s swiftly growing $1.5 billion “vaping” market (business online, where many e-cigarettes are sold, is less concentrated).
The defendants probably saw this coming. Imperial set up Fontem Ventures (and its sister co-plaintiff, Fontem Holdings) in late 2012 “to acquire, manage, operate, encumber and dispose of property, including patents and other intellectual property rights,” among other things. In November 2013 Fontem paid $75 million for a portfolio of global e-cigarette patents from Dragonite International, a Hong Kong-based firm. Dragonite’s co-founder, Hon Lik, also joined the company.
This was something of a coup for Imperial, because Mr Lik has been credited with the invention of the modern e-cigarette, initially using a piezoelectric ultrasound element to vaporise a solution containing purified nicotine. Today’s e-cigarettes (including his own) are simpler, using a battery-powered heating element as a vaporiser. But Mr Lik was canny. He registered (and won) patents around the world that cover far broader concepts. Those at the heart of Fontem’s lawsuits cover the concepts of “aerosol electronic cigarette”, “electronic atomization cigarette” and simply “electronic cigarette”.
In 2009 Mr Lik’s firm, then known as Ruyan, successfully sued Cixi E-cig, a Chinese competitor, for using his original piezoelectric e-cigarette technology. Three years later, newly renamed Dragonite filed broader suits against ten American rivals. These were unresolved when Imperial bought him out.
It is unclear how easy it will be for Imperial to enforce Mr Lik’s broad patents. In 1965 Herbert Gilbert, a scrapyard worker from Pennsylvania, was granted a patent for a “smokeless non-tobacco cigarette” that never saw production. In an interview last year, Mr Gilbert noted that “there is no electric cigarette today, that I have seen, that does not follow the basic road map set forth in my original patent.” Read the patent and you see his point—he even envisaged today’s multi-flavoured e-cigarettes. Although long expired, the existence of this and other prior art will make it harder for Imperial to win in court.
That will not stop Big Tobacco from substituting intimidation for innovation any time soon. Even though vaping is spreading like smokeless wildfire, and several hundred (at least: nobody really knows) e-cigarette makers are now selling their wares in both America and Europe, top tobacco makers have remained stubbornly focussed on the stagnant if still hugely profitable market for traditional smokes.
Lorillard, America’s third-largest tobacco company, remains the only one of the three to distribute e-cigarettes nationally, thanks to its purchase of Blu in April 2012 for $135 million; its e-cigarettes are now sold in more than 100,000 stores across America. Altria, which accounts for about half of the country’s $100 billion traditional cigarette market, is only now starting to sell its MarkTen e-cigarette nationally; last month it also bought e-cigarette maker Green Smoke for $110 million. Number-two Reynolds American says it plans a national roll-out for its Vuse e-cigarette later this year. In Britain, British American Tobacco (BAT) finally launched its Vype e-cigarette last summer, while Imperial—the world’s fourth-biggest tobacco company—launched its Fontem Puritane brand just last month. It will sell only in Britain’s Boots, a chain of chemist shops.
Imperial’s legal guns clearly will not be the last to be fired. A number of the companies sued by Fontem hold their own patents, as do Altria, Reynolds and BAT (which holds a 42% stake in Reynolds). Indeed, the two American giants may yet be targeted by Fontem’s current lawsuits, which name five potential “Doe” defendants—unnamed firms it might subsequently add to its complaints. If that happens, expect them to respond in kind—as will Lorillard and several other existing named defendants. Imperial’s move may also encourage other holders of basic e-cigarette patents, such as Britain’s Gamucci, to assert their intellectual-property rights too.
The e-cigarette business, then, will probably end up much like the smartphone industry (whose miniature-battery technology helped make modern e-cigarettes possible): awash in patent-related lawsuits and counter-lawsuits. Taken together with restrictive and ill-conceived e-cigarette regulations proposed on both sides of the Atlantic, all this may slow growth and innovation in an industry that could greatly reduce the number of smoking-related deaths worldwide. Not exactly a win for anyone involved.