Altria Halts IQOS Expansion After British American Tobacco Wins Patent Infringement Ruling

Altria (NYSE:MO) just handily defeat analysts’ earnings anticipations, but did the tobacco firm’s primary development driver just get stubbed out?

The IQOS heated tobacco electronic cigarette is embroiled in a patent infringement scenario that Philip Morris Global (NYSE: PM) just lost, which is foremost Altria to put its prepared nationwide rollout of the gadget on maintain. Simply because e-cigs are likely exactly where the foreseeable future of cigarette smoking is heading internationally, Altria may well come across its possess growth ambitions in ashes.

Image Supply: Getty Photographs.

E-cig competition heats up

Philip Morris Global, which is in essence the global arm of Altria soon after the two separated in 2008, is the globally leader in electronic cigarettes. The IQOS is ​​available in 64 international locations like the U.S., and it has a top marketplace share in quite a few of people nations. In Japan, where it has been offered for sale the longest, IQOS owns around 20% of the blended cigarette and heated tobacco industry.

British American Tobacco (NYSE: BTI) is hoping to unseat its rival in a quantity of markets, but it is really no Johnny-occur-these days to e-cigs. In point, its Reynolds American division was an field pioneer, introducing warmth-not-burn technological innovation as considerably back again as the early 1990s with its Eclipse manufacturer of digital cigarette. But there is a little something to being in advance of one’s time and the sector was not ready to take e-cigs as a viable substitute back again then.

Having said that, British American invested billions of pounds in lowered-chance merchandise like its glo brand of heated tobacco and Vuse e-cigs, and in its have recent earnings report reported e-cig income surged 59% more than the initial 6 months of 2021, with its glo model growing 38% year about year.

Impression supply: British American Tobacco.

Patent violation accusations

E-cigs and warmth-not-burn off devices are actually different technologies. The former heats up a liquid that makes a vapor allowing for buyers to inhale nicotine, when the latter heats up precise tobacco to the issue where it vaporizes, but would not burn. 

British American states Philip Morris International’s IQOS violates its patents in excess of the device’s heating blade, the ceramic piece that heats the tobacco adhere to 350 levels Fahrenheit and monitors the temperature to continue to keep it from burning. It alleges Philip Morris is working with an previously edition of the recent technological know-how it utilizes in the glo system. 

British American sued the IQOS maker past yr right before the Intercontinental Trade Commission and in federal court docket in Virginia. British American was trying to find to have an import ban into the U.S. imposed on the IQOS unless Philip Morris Global licenses the technological know-how from it. 

An administrative law judge at the U.S. ITC to begin with upheld British American’s patents, but Philip Morris Worldwide was in a position to convince the agency to assessment element of the judge’s conclusions. This investigation need to wrap up by September 15th.

In its quarterly earnings report, Altria mentioned its Philip Morris United states subsidiary will delay further more expansion of IQOS in the U.S. as a outcome of the choice.

Picture supply: Getty Images.

A protracted fight

By way of a series of agreements signed with Philip Morris International, Altria and the world-wide tobacco giant partnered on research and development of lessened-risk products and solutions, a single of which was IQOS. Altria was given accountability for the manufacture, distribution, and sale of the IQOS in the U.S. when PMI was responsible for the relaxation of the environment.

Altria, although, has been shifting at a glacial tempo in rolling out the unit domestically, only introducing it in a handful of find marketplaces to day. It predicted to get the machine nationwide afterwards this yr, but that is now on maintain due to the continuing patent battle.

The U.S. trade agent nonetheless has to indicator off on the selection and the federal court scenario is different from the trade ruling. Philip Morris Global also says British American’s patents are becoming reviewed by the U.S. Patent and Trademark Business.

Still, this is a major setback for the e-cig maker and for Altria, which killed its have e-cig technological innovation as it bet on Juul Labs and the IQOS. With Juul in a tailspin and IQOS now on hold, Altria’s fast progress ideas may go up in smoke.