Policy: Law

To encourage innovation, stop patent abuse

Opinion,Op-Eds,Law,Patent Law

From grade school on, we are taught that in American business, success results from delivering a better product for a lower price. Not that it always works that way in practice, but on the basic level, we view it as a given that consumers benefit when businesses are free to test new ideas in the marketplace.

Patent law, inscribed in the Constitution, was designed to support this notion, giving inventors and innovators the right to a time of exclusivity in order to profit from their idea. The exclusivity of patents creates an incentive for fresh innovation and development, as well as providing competitive fire for established market players to stay ahead of the next upstart.

In the last few years, however, patent law has been increasingly twisted to favor the complacent and harass the innovative. For the most part, these battles have been fought in the arcane realm of computer software. But a simmering patent fight involving consumer products giant Procter & Gamble and a small manufacturer of teeth-whitening strips stands to bring the harms of patent abuse to the attention of Main Street.

P&G has a longstanding track record of corporate bullying to seek product and market dominance. For example, in 2011 a European Union investigation found the company had conspired with rival Unilever to fix detergent prices in eight EU countries and was fined $456 million.

This year, P&G pushed New Jersey-based six-person start-up Hello Product out of the toothpaste market after an extended legal battle. The disagreement was based on Hello's labels saying the toothpaste was "99 percent natural" despite P&G's claims to the contrary and out of P&G's fear that Hello's toothpaste would cut further into its market. Hello consequently gave away free toothpaste on the streets of Manhattan - five days before the court date to stop distribution.

Today, P&G has used its market clout with its Crest-brand teeth-whitening strips to hold over 80 percent share of the annual $270 million market for strip-type whitening products. Not content with $8 of every $10 spent on tooth-whitening strips, the Cincinnati-based company has been suing smaller suppliers of store-labeled brands with dubious claims of patent infringement.

Its pending litigation against Clio USA, which supplies teeth whitening products sold by major retail chains such as Target, Rite-Aid, CVS and K-Mart under generic private label agreements, is a textbook case of "patent trolling," - the use of questionable patent claims in this case to shut down competition. For P&G, already the lawsuit has had an effect. Target, Clio's largest customer said it will stop selling the Clio-manufactured strips in April because of the litigation. This is a loss for consumers as Target's price for a generic strip package is half the price of Crest's package.

Moreover, like many instances of patent trolling, the facts don’t give much credence to P&G’s case. So far, reviews of Clio’s patents have found no infringement. On the other hand, the U.S. Patent and Trade Office reviewed the invalidity of P&G’s patents against Clio’s petition. After conducting the review the USPTO’s Trial and Appeal Board ruled in January that there is a reasonable likelihood of unpatentability of P&G’s patents.

Currently, the Trial and Appeal Board ruling on the “unpatentability” of P&G’s patents could likely harm investor confidence for P&G, whose reputation has otherwise rested on innovation and global brand building. U.S. authorities' calling into question P&G’s intellectual property should be a concerning development for P&G’s stock price.

The upholding of Clio’s products would be the best outcome for consumers, who would reap the benefit of having a choice of teeth-whitening products at diverse price points. It would also be good business for P&G, which could be investing its dollars in its core businesses rather than patent bullying. In this regard, Clio may prove one case too many.

P&G used similar patent litigation tactics to kick Johnson & Johnson out of the whitening strip market in 2008, and again against Be-Well Marketing, a private-label manufacturer similar to Clio, in 2012. Clio is the first competitor to stand up to it. Recall that in February, P&G announced it was shedding 5,700 nonmanufacturing jobs as part of a new plan to reduce costs by $10 billion. While one must be careful about making a causal connection between the layoffs and the aggressive patent litigation, P&G’s legal budget has to come from somewhere.

Lawmakers, for their part, are catching on to patent abuse. Bipartisan legislation to rein in patent trolling while still protecting genuine innovation is moving forward in Oregon, Vermont, Virginia and Wisconsin, just to name four states. There are a number of bills awaiting action in Congress as well. These steps, along with a Clio victory, would go a long way to restoring the original aim of patent law as a means of encouraging innovation, not straight-arming it.

Steven Titch is an independent technology policy analyst based in Sugar Land, Texas. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions for editorials, available at this link.

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