88 TOBACCO BUSINESS | JULY / AUGUST | 22 The company struggled, but news of Lik’s invention soon spread throughout the tobacco industry and spawned the development of many similar devices. Lik sued the creators of some of these copycat devices but was unable to keep up with the number of e-cigarette products that were being created and brought to market. In 2013, Lik sold the e-cigarette division of his company, Aragonite International, to Imperial Tobacco’s Fontem Ventures for $75 million. The deal included his e-cigarette patent, and Fontem Ventures began filing patent infringement lawsuits against other e-cigarette companies. In 2016, Fontem Ventures filed patent lawsuits against Altria, which manufactured e-cigarette products MarkTen XL and Green Smoke, as well as R.J. Reynolds, which manufactured Vuse. The aim of the lawsuits was to block the manufacturing and use of these devices and also to be awarded some of their sales. Altria and R.J. Reynolds pushed back and became entangled in a long, costly legal battle waged in an effort to see who would dominate the early e-cigarette business. One of the most recent patent cases to dominate headlines involving the tobacco industry was the patent dispute between R.J. Reynolds, a subsidiary of British American Tobacco, and PhilipMorris International (PMI). Through an exclusive 2019 licensing agreement with Philip Morris International, Altria Group was able to sell and market PMI’s popular heat-not-burn tobacco product IQOS in the U.S. In April 2020, R.J. Reynolds filed complaints with the U.S. International Trade Commission (ITC) and the U.S. District Court of the Eastern District of Virginia against PMI, Altria and some of its affiliates in an effort to stop the defendants from importing and selling its popular IQOS heated tobacco device system in the U.S. In late September 2021, the ITC ruled that the IQOS device did infringe upon two of R.J. Reynolds’ patents. Although PMI and Altria were forced to stop importing IQOS into the U.S., this decision was not the end of this “patent war.” In January 2022, a three-judge panel from the federal Patent Trial and Appeal Board determined that all of R.J. Reynolds’s claims for the “915 patent” and several claims associated with its “542 patent” were unpatentable. A PMI affiliate earned two federal patent victories involving its heat-notburn technology that was at the center of its dispute with R.J. Reynolds. Even these Patent Trial and Appeal Board decisions are not truly “final,” however, and R.J. Reynolds indicated they would continue to pursue this patent dispute in the courts by appealing the Patent Trial and Appeal Board’s decision. This is becoming an all-too-common story for tobacco businesses today. It’s important to understand what a patent is and the role that patents play in modern business. Patents protect intellectual property and give companies a temporary competitive advantage over their competition. In recent years, however, patents have been weaponized and used as a way to sideline other businesses, stifle innovation and dominate a product category by clearing the marketplace of any product that offers even the slightest bit of competition. The Neverending Trial Kretek International, the parent company of Tobacco Business magazine publisher Tobacco Media Group, found itself involved in one of these long, drawn out patent infringement cases. This specific instance of the patent dispute begins with U.S. Patent No. 9,161,908 (the “908 patent”), which was issued in October 2015. This patent, which named Per-Gunnar Nilsson as the inventor, covered pouches containing nicotine bitartrate in free salt form. Early manufacturing of these nicotine pouch products was performed by Thomas Ericsson and his company, TillCe AB, which owned 50 percent of the patent. In 2016, Swedish Match North Europe and TillCe AB entered into business agreements for the acquisition of rights to certain intellectual property, including the rights to the 908 patent. Through this agreement, Swedish Match purchased TillCe’s 50 percent share in the 908 patent to manufacture Zyn. The other half of the patent was and is owned by Burger Söhne Holding AG, maker of the on! nicotine pouch. Ericsson is a well-known industry figure and had his own relationship with Kretek International stretching back a decade or more. In 2016, Kretek International began working with Ericsson on the development of a pouch product that used a nicotine polacrilex complex in lieu of a free nicotine salt that did not utilize the patent sold to Swedish Match. That product became Dryft and was introduced in the market in 2016 in 24 different varieties prior to the U.S. Food and Drug Administration’s deeming rule cutoff date of Aug. 8, 2016. Shortly after Dryft began appearing on store shelves, Swedish Match sent Kretek International a letter claiming that Dryft was in violation of not only patent rights but also trade dress infringement because Dryft’s branding looked too similar to that of Zyn. By mid-2017, Swedish Match and Kretek International had negotiated a comprehensive settlement agreement where Kretek International agreed to make some changes to Dryft’s packaging in exchange for a full release of all claims. Separately, Swedish Match pursued legal action against Ericsson and TillCe AB in a private Swedish arbitration. In 2019, Kretek International announced that it had formed a new operating company, Dryft Sciences LLC, which was responsible for leading the national rollout efforts for the Dryft nicotine pouches through expanded production, distribution and marketing efforts. In response to this news, in February 2020, SwedishMatch again asserted its intellectual property rights claims against Kretek International, Dryft Sciences, The Art Factory AB and TillCe AB by filing three cases against the parties in three different jurisdictions: 1) a patent infringement action in the ITC, 2) a trade secret action in the Western District of Kentucky and 3) a patent infringement action in the Central District of California—thus restarting the legal battle that appeared to have been settled years before. In response to the ITC complaint, Kretek International argued that its Patents are not only being used to create new products in the tobacco industry; they also are being used to limit competition and dominate new product categories.
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