CINCINNATI - Procter & Gamble Co. could soon lose patent protections on Crest Whitestrips, a teeth-whitening product that was launched in 2000 that still commands a 67 percent market share.
It’s a high-margin product that delivers about $250 million in annual revenue to the Cincinnati-based consumer products company, according to figures supplied by Euromonitor International.
But now it appears that the global company could lose all that, which would be bad for P&G but good for consumers.
It's a high-stakes drama that is largely playing out in federal courtrooms.
Is P&G bullying small company?
P&G has vigorously defended its patents on Crest Whitestrips, forcing Johnson & Johnson out of the market in 2008 and shooing away Be Well Marketing in 2012. But it’s having a tougher time against Clio USA, a small, private-label manufacturing company that has supplied store-branded whitening strips to CVS, Rite Aid and Target.
P&G sued Clio and its distributors for patent infringement in U.S. District Court for the Southern District of Ohio in July, 2012. Clio responded with a petition for an inter partes review (IPR) before the U.S. Patent and Trademark Office in 2013. The IPR forum is less friendly to patent holders than the federal courts. In its IPR petition, Clio claimed P&G’s patents could be deemed invalid because they violate other patents.
In January, the Patent Trial and Appeal Board granted Clio’s petition in a ruling that said there is “a reasonable likelihood that Clio will prevail” on three of its claims.
“What P&G has done to date – try and bully Clio – is wrong,” said Peter Cho, president of Clio USA, the Englewood Cliffs, NJ -based subsidiary of a Korean company that makes tooth brushes. Cho said Clio did careful research before launching to ensure its whitening strips did not violate P&G patents. The company generated $2.6 million in revenue last year, but spent more than $1 million defending itself against P&G legal actions.
P&G wouldn’t answer questions for this story, but released a statement that said it “made significant investments” in Crest Whitestrips and treats infringements on its intellectual property rights very seriously.
'They both have a lot to lose'
Columbus attorney Joseph Dreitler, who worked at P&G for 10 years ending in 1993, said Clio’s January win is unusual and puts P&G patents at risk.
“Any time you bring a lawsuit and put your patents in play there is always a chance that you will not only lose the case but wind up with a ruling that your patents are invalid,” said Dreitler, founder of the trademark and copyright firm, Dreitler True LLC.
“If these patents go down, anybody and their brother can make this product that is basically using the claims that are knocked out,'' he said. "… Clearly, they both have a lot to lose.”
But the risk doesn’t end there.
Last week, P&G also withdrew four of its patent claims against Clio because of a recent U.S. Supreme Court ruling, Nautilus Inc. vs Biosig Instruments Inc., that makes it easier for courts to throw out patents on grounds of “indefiniteness.” The June 2 ruling was widely seen as a blow against “patent trolls,” who’ve been known to use vaguely-worded patents to chase licensing fees through nuisance suits and legal settlements.
Clio’s attorneys seized on the ruling with a motion that argued portion’s of P&G’s case against Clio “relied on a theory that has now been explicitly overturned” by the high court.
That led to a June 16 P&G filing in which the company abandoned four of its claims against Clio and sought the court’s permission to amend its arguments on more than a dozen others.
“That was a very good win for us because those were some difficult claims,” said Joseph Zito, a Washington-based lawyer who represents Clio and its distributors. “The broader claims were the tougher ones to defend … So, yes, our claims got stronger.”
Still, the case is a long way from over.
Trial set for August
The Patent Trial and Appeal Board has scheduled a July 28 hearing to consider Clio’s claims case against P&G. A ruling is expected by October. U.S. District Judge Timothy Hogan has scheduled an Aug. 4 trial date for P&G’s case against Clio. The trial is expected to last nearly two months. After that, the appellate process could delay final rulings in the case until after P&G patents expire in 2017.
“Unless these guys run out of money this case has at least three more years left,” Dreitler said. “Maybe they’re just trying to run out the clock.”
Most of the pleadings in the case are filed under seal, so it’s difficult to tell the full range of arguments made on both sides.
Product 37 percent cheaper
But Clio’s president said in a recent interview that there are significant differences between his product and Whitestrips, which he thinks will lead to a decision that its product does not violate P&G patents. For starters, Whitestrips has a two-layer structure, Cho said. Clio strips have three. Whitestrips are transparent. Clio strips are white in color. Cho said the products have different active ingredients and “ours is a dissolvable strip … It’s not a simple copy cat.”
Born in Seoul, South Korea in 1963, Cho has a liberal arts degree from Korea University and came to the U.S. in 2009 to launch Clio’s private-label tooth whitening product. Because his product sells at a price that’s about 37 percent cheaper than Whitestrips, he is convinced consumers will benefit from his case against P&G. WCPO found Clio’s private label product in a local CVS store, selling for $19.99, compared to $31.79 for Whitestrips.
“Everybody knows that Colgate is direct competition,” Cho said. “Johnson and Johson, Glaxo Smith Kline, Church and Dwight, they would like to launch these whitening strips ... But I think they don’t want to fight against P&G based on the whitening strip patent.”
Euromonitor analyst Tim Barrett said demand for whitening strips is declining in the U.S. because P&G and other consumer-product companies have introduced whitening toothpaste and mouthwash that are more enticing to bargain hunters. As the economy improves, consumers are more likely to trade up for more expensive dental treatments to whiten their teeth.
“We’re going to see continued market decline,” said Barrett. “It’ll bottom out somewhere. There’ll still be a need for this.”
Barrett credits P&G for maximizing the value of its patents on teeth whitening and making “marginal technology improvements” that made Whitestrips easier to use. P&G also joined its rivals in adding whitening products to toothpaste and mouthwash.
“Crest 3D White has grown market share in the U.S. for 48 consecutive months. On its own worldwide it’s a billion dollar business at retail,” P&G Chief Financial Officer Jon Moeller told analysts in Paris June 16.