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Sales of Marlboro HeatSticks halted in U.S. as federal official lets BAT's patent-infringement victory against Philip Morris stand
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Sales of Marlboro HeatSticks halted in U.S. as federal official lets BAT's patent-infringement victory against Philip Morris stand

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The U.S. Trade Representative affirmed Monday a pivotal legal victory by British American Tobacco Plc involving its patent-infringement lawsuit against rival Philip Morris International Inc.

On Sept. 29, the U.S. International Trade Commission issued a final determination of a violation of the Tariff Act of 1930 by Philip Morris USA Inc. and Altria Client Services LLC as it related to two BAT product patents.

Altria Group Inc., parent of PM USA, asked trade representative Katherine Tai to overturn the ban.

Tai had 60 days, or until Monday, to do so. Bloomberg News reported Monday it received an email from the U.S. Trade Representative’s office that confirmed no action was taken by Tai.

As a result of the ITC ruling, PM USA is barred from importing PMI’s IQOS 2.4, IQOS 3, IQOS 3 Duo heat-not-burn cigarette products. It also was ordered to halt future sales of those products — marketed as Marlboro HeatSticks — already in the U.S.

Some retailers of the Marlboro HeatSticks, including convenience stores, already had displayed notifications to customers that those products could no longer be sold as of Monday.

The next legal step is a likely appeal by Altria to the U.S. Court of Appeals for the Federal Circuit, which handles patent lawsuits. That process could take up to a year to reach a decision, with the likelihood of a successful appeal not favorable, according to industry analysts.

“Today’s announcement provides a measure of success for our enforcement of intellectual property rights to ensure we can continue to innovate, as is common practice among innovation-based industries,” Gareth Cooper, BAT’s assistant general counsel, said in a statement.

“As we have strenuously noted, there was no reason to overturn the policy.”

Altria said in a statement that “we’re disappointed in this decision. We continue to believe that the plaintiff’s patents are invalid and that IQOS does not infringe on those patents.”

“The ITC’s importation ban makes the product unavailable for all consumers who have switched to IQOS, reduces the options for the over 20 million smokers looking for alternatives to cigarettes, and ultimately is detrimental to the public health.”

PMI echoed much of the Altria comments in its statement, saying "we are disappointed in the disregard not only of the scientific evidence supporting IQOS, but also the wishes of American adults who are searching for a better alternative to continued smoking--which should have been the most important consideration of all."

PMI said that "our contingency plans to return IQOS to the U.S. market are under way."

"While this decision will cause near-term disruption, we continue to see a large opportunity for IQOS and other FDA authorized smoke-free products in the U.S. over the coming years.”

PMI also took a shot at BAT and Reynolds that glossed over those manufacturers' significant roles in developing smokefree tobacco and nicotine product options.

"This process ... delivered a victory for only one party: a tobacco company that last year contributed to increasing U.S. cigarettes sales for the first time in 20 years, while at the same time desperately launching litigation to block innovative alternatives," PMI said.

It is likely PM USA also contributed to increase U.S. cigarette sales in 2020, particularly after the FDA further tightened regulations on e-cigarette products and banned most flavorings.

An additional two patents are involved in a separate legal proceeding before the patent and trademark office.

Background

The lawsuit was filed by three Reynolds business units — R.J. Reynolds Tobacco Co., RAI Strategic Holdings Inc. and R.J. Reynolds Vapor Co.

The complaint, filed in April 2020, focuses on three heat-not-burn technology patents held by BAT.

The patents were issued by the U.S. Patent and Trademark Office between November 2012 and December 2019.

The Reynolds affiliates requested a temporary and a permanent injunction against the importation, sale and distribution of PMI’s IQOS products, as well as “enhanced damages,” alleging “defendants’ infringement has been and continues to be deliberate, willful and unlicensed.”

The international version of IQOS gained Food and Drug Administration authorization for sale in April 2019 — with the caveat that it does not mean “these products are safe or FDA approved.”

The IQOS products debuted in test markets in Atlanta in October 2019 and Richmond, Va., in November 2019.

During the second quarter, PM USA expanded retail distribution of Marlboro HeatSticks into the Triad and other metro areas of North Carolina, as well as northern Virginia and Georgia.

However, on July 29, PM USA said it had paused further U.S. expansion of Marlboro HeatSticks in response to the ITC’s July 27 reviewing decision.

“We’ve been focused on our contingency plans surrounding sales and distribution and have been in communication with PMI on their domestic manufacturing plans,” Altria said.

Cooper said BAT and Reynolds are not trying to thwart the progress of non-combustible tobacco and nicotine products in the U.S.

“Reducing the harm from cigarettes is one of the most important public health movements globally, thus developing a wide range of consumer-acceptable choices of FDA-regulated products that may be less harmful than cigarettes requires a tremendous investment in innovation,” Cooper said.

“Innovation is laborious and cost-intensive work, and we remain confident in our patent defense strategy and the ITC’s findings.”

Gregory Conley, president of American Vaping Association, took a public-health approach to his criticism of the ITC decision on Sept. 30.

“By potentially denying them the opportunity to switch to a harm reduction production IQOS, the real losers of this protracted court battle could end up being American adult smokers,” Conley said.

“While some may use vaping, snus, or pouches in the absence of IQOS, far too many American adults will choose to just smoke cigarettes instead.”

Anti-smoking analyst David Sweanor said he has been puzzled by the "lack of involvement in and response to this litigation from US anti-smoking groups." Sweanor is an adjunct law professor at the University of Ottawa and the author of several e-cigarette and health studies.

"Surely, the banning of a product that has been the key driver in a near-40% decline in cigarette sales in Japan in the past five years, and now appears to be replicating that success in many other markets, should attract some commentary," Sweanor said.

"Especially after it had been approved by the FDA as appropriate for the protection of public health.

"Just imagine the reaction if intellectual property litigation had prohibited the importation of batteries for electric cars, or a COVID vaccine."

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@rcraverWSJ

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