Warren Buffett once described the tobacco industry as effortless money-making: spend one cent to make a cigarette, sell it for one dollar. Those days are long gone.
As heated tobacco, e-cigarettes, and nicotine pouches gain popularity, companies such as Philip Morris International and British American Tobacco are shifting their focus from simple cigarettes to high-tech, rechargeable devices.
The explosive growth of inventions offering nicotine without smoking, which have the most harmful impact, has sparked a lot of controversy over who owns the technology. Tobacco companies, once competing for top marketing executives, are now pursuing top patent lawyers.
Following Russia's invasion of Ukraine, Big Player has announced plans to withdraw from Russia, potentially escalating tensions. Russia is not only the world's fourth-largest cigarette market but also a significant region for heating tobacco products. This means that the company may try to compensate by pursuing growth in other regions.
According to a detailed patent review, a total of 73,758 patents related to electronic cigarettes, heated tobacco, and smokeless products were published in the decade leading up to 2020. The report was authored by Roya Ghafele, founder of the intellectual property consulting firm OxFirst, and commissioned by the Smoke-Free World Foundation, which is funded by Philip Morris.
A spokesperson reported that Philip Morris International submitted over 20 times more patents for smoke-free innovations between 2018 and 2020 than they did in the two years prior to that. Meanwhile, British American Tobacco claimed to have submitted over 350 patents related to new categories in 2021, a significant increase from the approximately 50 submitted in 2015. Typically, patent applications are submitted in the early stages of research and development, and receiving a patent grant gives the holder exclusive rights to commercialize their invention for a certain period of time.
Ghafele stated, "Tobacco companies are newcomers in the patent field, and leading companies are quickly retaining talent from other industries because they realize that a lack of intellectual property awareness could pose a risk to their business in the future.
Philip Morris has hired attorneys from Rui Sheng International Law Firm to represent them in litigation, including automobile manufacturers, technology companies, and winners in the decades-long battle over artificial blood vessels. Reynolds has hired lawyers at Zhongda to defend Alphabet Inc.'s Google and Johnson & Johnson in patent cases involving autonomous driving cars and semiconductor technology.
The industry is catching up on 50 years of innovation vacuum and suddenly someone started innovating with products aimed at reducing smoking - everyone is entering this field," said Jacek Olczak, CEO of Philip Morris in an interview. "More and more people are investing in innovation, which is a good thing. The effectiveness of patents is a separate issue, which we are studying.
Philip Morris was barred from importing its IQOS heated tobacco sticks into the United States last year following a legal battle with British American Tobacco. The company has repeatedly argued that this is a public health issue because the IQOS is the only heated non-burning product approved for sale in the US.
Reynolds American Inc., a subsidiary of BAT, filed a lawsuit in April 2020 alleging that Philip Morris and Altria had copied patent technology developed for its Vuse product. Since then, both companies have made additional patent infringement claims in US courts and requested that the US Patent and Trademark Office revoke the other company's patents.
The electronic cigarette that vaporizes nicotine is widely believed to have been invented in China twenty years ago. At that time, pharmacist Han Li was attempting to find a less harmful way to satisfy nicotine cravings. In 2013, he ultimately sold his company's patent to Imperial Brands Plc, triggering a series of patent infringement disputes.
After Juul Labs Inc. introduced nicotine salts to the world, which are absorbed more quickly into the bloodstream, competitors began selling similar e-cigarettes.
Advancing a Lawsuit in Advance
As companies venture into the smokeless category, which includes nicotine pouches and medical therapy, more lawsuits are looming. The segment's search for alternative electric heating methods means these companies are facing patent minefields in every expansion area.
Swedish Match AB attempted to shut down competitors of nicotine pouch manufacturers, which are similar to small tea bags placed on top of gum, although its lawsuit against Dryft Sciences LLC, a closely held company, failed. Kretek International Inc. sold its Dryft nicotine pouch business to BAT in 2020, which is sold under the Velo brand. Swedish Match is appealing the ruling.
For all the right reasons, the tobacco industry has been innovating on the margins to lower risk," said Jason Carignan, CEO of Dryft in an interview. "It feels like these predatory tactics are preventing consumers from accessing the low-risk nicotine alternatives they deserve.
According to Ghafele of OxFirst, if innovation is to help reduce the risks associated with nicotine products, the industry needs to "conceptualize intellectual property in a different way.
The industry should "move away from patents solely existing to prevent others from using your technology and shutting them down when they do, towards thinking about how patents can be used to build bridges and more positive things," said Rockefeller.
(Source: bloomberg.com)
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