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Big Tobacco Goes After Independents

Imperial Tobacco (Players and other cigarette brands) has made its move.

This week the British tobacco megalith filed a lawsuit (through its subsidiary Fontem Ventures, registered in the Netherlands) against a number of US makers of electronic cigarettes (most of them non-Big Tobacco) for infringement of intellectual property rights it had acquired a few months earlier, from the inventor of the electronic cigarette, "infringements" which occurred long before Imperial owned the patent. This is an event of staggering importance in commerce, in technology, in international relations, and in recreational popular culture.

Here we have a purveyor of certifiable poison seeking "damages" from independent suppliers of what is increasingly seen as the primary antidote to that poison, based on the plaintiff's recent purchase of rights to the invention used in that antidote, which they had no part in creating. Everyone involved with e-cigs has been wondering what Imperial plans to do with its new patent.

While virtually all of the other Big Tobacco juggernauts had already made their move into the e-cig market in the past couple of years, beginning with Lorillard's purchase of Blu, and followed by the other cigarette giants, either with products they developed themselves, or with subsidiaries they had purchased, Imperial had seemed to be lagging behind in Big Tobacco's attempt to take over the nascent industry. Turns out they've been planning something much bigger, much more fundamental. Not just buying a company, buying the industry itself.

If Imperial makes this demand stick, they can potentially demand a cut on every vaping device ever sold by anybody. Imperial bought the Chinese e-cig company Dragonite, formerly Ruyan, the firm that brought out the first electronic cigarette, invented by Hon Lik in 2004. (A similar American invention had been patented in the 1960s, but not marketed successfully.) Imperial paid 75 million, probably a bargain if their lawsuit succeeds. Although the purchase of Dragonite was finalized and announced in September, Imperial did not bring out its own e-cig line, Puritane, until a few weeks ago, in late February 2014. They reportedly plan to bring out another brand later this year. Imperial's cigarette brands include Galoises, Players, West, Davidoff, and others. The specific patents involved in the current lawsuit include rechargeable e-cigs, cartridge refill packs, batteries, and disposables.

The list of defendants in the lawsuit includes Lorillard, now owner of Blu and Skycig – at the top of the list in fact. But this may well be a decoy. No other Big Tobacco company is on the defendant list. All of the others are independents, sometimes called "dedicated" e-cig companies, what this blog has termed "clean-hands" companies, that is, firms that do not sell poisonous cigarettes and have never done so.

It could well be that the lawsuit is designed to capture the e-cig industry more thoroughly for Big Tobacco by weakening the clean-hands companies. The defendants include: Lorillard (Blu, Skycig), NJOY, Vapor Inc., VMR Products (V2), Ballantyne Brands (Mistic, NEO), CB Distributors (Vapin Plus), Spark Industries (Cig2 0), Logic, FIN, Victory (now merged with FIN), and DR Distributors.

Watch this space. Don't buy Puritanes.