Fresh off their acquisition of Dragonite International, which was founded by e-cigarette inventor Hon Lik, Imperial Tobacco is making great use of their newly purchased assets by going after many of the large e-cigarette companies in the US.
Imperial Tobacco, the fourth-largest tobacco company in the world, agreed to purchase Dragonite International back in September from founder and executive director Hon Lik. The $75 million deal gave Imperial Tobacco a window back into the burgeoning e-cigarette market and now it appears they are looking to recoup that investment via the federal court system.
When the purchase was announced the media made sure to point out Dragonite’s website, which boasted of the extensive portfolio of patents that Hon Lik and his business owned. Not only is Mr. Lik credited with being the inventor of the modern electronic cigarette, he was also prudent enough to file an array of patents that are wide enough in breadth to encompass most e-cigarette products on the market today.
Even if patent law can be shaky in his home country of China, Hon Lik saw the potential in his newly developed devices and did his best to protect his intellectual property against the many copycats that would follow. And boy did they follow, with the industry now spanning well over 300 companies and far beyond $1 billion in sales last year.
Now industry giants like Lorillard (which owns Blu), NJOY, and Vapor Corp are firmly in the crosshairs of Imperial Tobacco’s legal team. Marc Michelson, Fontem Ventures’ director of communications and corporate ventures, was quoted in Bloomberg explaining the lawsuit as one that aims to
“protect our intellectual property and seek fair compensation for the infringements of our patents.”
This isn’t the first shot fired in the patent battle, as Hon Lik himself sued another Chinese company (Cixi E-Cig) in 2009 for similar infringements. Still, that’s nothing like going after big American companies. Especially when the third-largest tobacco company in the US, Lorillard, backs one of the biggest of them, Blu eCigs. This is different ballgame for Mr. Lik and maybe that’s why the standoff had to wait until he had his own big tobacco backer in the form of Imperial Tobacco.
What does this all mean?
We at ECCR obviously smell a battle brewing between some of the heavyweights in the e-cigarette world, as well as big tobacco. This couldn’t have caught any of these players by surprise, so expect a protracted legal fight. Back in November Allison Cooper, CEO of Imperial Tobacco, insisted that her company was not far behind in terms of entering the e-cigarette market.
Ms. Cooper explained that they did not want to “…do a lot of investment that may or may not pay off.” In purchasing Dragonite and Lik’s intellectual property, Cooper may have seen a much surer route in recouping that type of investment, while still keeping an eye toward future industry growth. Whether this spawns into a battle similar to the current Apple vs. Samsung tit-for-tat legal seesaw is yet to be seen.
The best-case scenario for Imperial Tobacco wouldn’t simply be a large cash settlement, but one that is so big that it pushes some of the medium-sized players out of the market. We can’t imagine they will have Lorillard shaking in their boots, nor will Altria or RJ Reynolds feel much heat if they decide to go after the other two big tobacco firms in the future.
Imperial does need to get their foot in the door somehow and this may be the way to do it. We only hope that the industry isn’t heading for the type of legal malaise that would slow down the many companies out there that are trying to advance their products even further and give consumers the best electronic cigarette options they can have. That wouldn’t be good for anyone, so we’ll cross our fingers and keep our eyes peeled for the latest news on these impending court cases.