Philip Morris Faces Import Ban in Reynolds Patent Fight

(Bloomberg) -- Philip Morris International Inc. is facing a possible import ban of its IQOS heated-tobacco sticks to the U.S. after it lost the first round of a legal trade battle with British American Tobacco Plc.

Philip Morris and Altria Group Inc. infringes two patents owned by BAT’s subsidiary Reynolds American Inc., International Trade Commission Judge Clark Cheney said in a notice on the agency’s website.

The judge’s findings aren’t public to give both sides time to redact confidential information. The next step is a likely review by the full commission, which has the power to halt products at the U.S. border and is scheduled to complete the investigation by Sept. 15.

Big Tobacco is facing some of the biggest changes in the industry’s history as fewer people smoke cigarettes and U.S. regulators consider banning menthol cigarettes altogether. Some analysts even forecast that cigarettes will become extinct in countries like the U.S. and the U.K. by 2050. Companies have been spending billions of dollars to develop cigarette alternatives, including heated tobacco, vaping products and oral nicotine pouches to ensure future growth.

Philip Morris’s IQOS device, arguably the pioneer in the alternatives market, is the only heat-not-burn product authorized for sale in the U.S., where it’s sold by Altria. The device also got the U.S. Food and Drug Administration’s nod last year to be marketed as reducing consumers’ exposure to harmful chemicals found in cigarettes, and is Philip Morris is seeking the same approval for its newest IQOS version, giving it even more of an edge against competitors.

Read more: Philip Morris Says Cigarettes May Start Disappearing in a Decade

Reynolds said it expects the judge will recommend an import ban, adding that the unauthorized use of its inventions “undermines our ability to invest and innovate and thereby reduce the health impact of our business.”

Philip Morris called the judge’s findings “one step in a long process that does not have an immediate effect” and it will present its position to the commission.

“BAT’s litigation in the U.S. is part of a worldwide attempt -- which has been entirely unsuccessful to date -- that is meant to undermine the heated-tobacco segment, where they lag far behind,” the company said.

Philip Morris said that the U.S. Patent and Trademark Office is taking a second look at the patents, with decisions in those cases scheduled to be released early next year.

“So far we’ve been on right side of the decisions,” Philip Morris Chairman Andre Calantzopoulos told Bloomberg News last month. “Some of these claims are frivolous, but there are always contingency plans to work around these situations.”

Reynolds claimed that Philip Morris infringed three patents -- two for an electrically-powered device with a heater to generate an aerosol and one for a control body. Cheney found infringement only of the two device patents.

The IQOS products, which heat the tobacco enough to create an aerosol but not enough to combust, are made in Malaysia, Switzerland and Italy, according to Reynolds’ original complaint.

Philip Morris has argued that, even if a patent violation is found, it’s not in the public’s interest to keep the IQOS out of the U.S.

“The judge has to make a determination on whether even temporarily removing such products is appropriate for public health and what alternatives there are for consumers,” Calantzopoulos said. “If we remove a product that exists, and the only alternative that people have are cigarettes, it’s a consideration of public-health interest and that has to be taken into account.”

Reynolds argued that Philip Morris is overstating both the benefits and popularity of IQOS when compared with other so-called “potentially reduced risk products” or PRRPs, saying there are “literally thousands” of alternatives.

Philip Morris and Altria “predict IQOS will be robustly adopted in the future based on their self-serving, biased, and outcome-driven consumer testing,” Reynolds said in a post-trial filing with the judge. It accused Philip Morris of getting third parties to weigh in on its behalf by offering things like “all-expense-paid trips to Europe and Formula One races.”

Philip Morris’s argument is “built on hopeless speculation and unsubstantiated conjecture” and is insufficient to override patent rights,” Reynolds said. “Reynolds agrees that smokers should have choice, but they are not entitled to every conceivable choice if one of them infringes Reynolds’s patents.”

Reynolds sued in April 2020, with a case in federal court in Alexandria, Virginia, and the complaint at the ITC. Reynolds claims that Philip Morris and Altria copied patented technology that it had developed for its Vuse Vibe and Vuse Solo vaping products, for which it’s filed for FDA approval.

Altria responded with its own patent-infringement claims in the Virginia case, and a separate suit against Reynolds in May. Altria also lodged petitions with the U.S. Patent and Trademark Office challenging the validity of a half-dozen Reynolds’ patents, including the three in the ITC case.

The cases are In the Matter of Certain Tobacco Heating Articles, 337-1199, U.S. International Trade Commission (Washington); RAI Strategic Holdings Inc. v. Altria Client Services LLC, 20-393, U.S. District Court for the Eastern District of Virginia (Alexandria); and Altria Client Services v. R.J. Reynolds Vapor Co., 20-472, U.S. District Court for the Middle District off North Carolina (Greensboro).

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