There’s a battle brewing in the teeth-whitening industry between the world’s largest consumer-products company and one that has three U.S.-based employees.
Procter & Gamble (NYSE:PG), the maker of Crest 3D White Whitestrips, has filed a patent infringement lawsuit against Clio, the maker of teeth-whitening strips for private-label brands and a subsidiary of a South Korean company.
P&G filed the lawsuit against Clio USA's distributor in 2012 and the following year accused Clio USA of infringing on three P&G patents that are essential to its Crest 3D products. Clio, which launched in 2009 and is headquartered in New Jersey, provides private-label teeth whitening kits to several stores, including Target (NYSE:TGT), Rite Aid (NYSE:RAD) and Kmart (NYSE:SHLD). These generic store brand whitening strips are often sold for around one-third the price of brand-name products.
“We are fighting this battle and aren’t backing down,” says Peter Cho, a vice president at Clio USA. “It’s taking a lot of time and resources, but we will see this through. This is an attack from a big corporation on small businesses.”
When asked about the lawsuit and the proceedings, P&G said in an email statement that the company “makes significant investments in the innovations behind our products, and it is our lawful right to protect these innovations.”
In 2013, Cho says total sales to two distributors came in at around $2.6 million, which translates into $7 million when converted into retail price, giving Clio a 2.6% market share. The teeth whitening industry has a total market size of close to $3 billion.
He also claims, based on an email from a seller, that P&G put pressure on Target, Clio’s largest account, to drop the company’s products. Target represents around $3 million in annual sales for Clio.
Target spokeswoman Sarah Van Nevel told FOXBusiness.com that the dispute didn’t involve the retailer, and questions about whether or not generic whitening strips were no longer going to be stocked at stores went unanswered.
“With regards to the issue you’ve inquired about, this is between Target vendors and doesn’t involve Target. Any additional questions on the issue should be directed to the respective parties,” she wrote in an email.
Target’s website says Clio’s products “are not sold in stores,” but some of its products are still available in some stores across the country. Clio says any inventory is left over from the last order.
“This means that consumers have limited and more expensive choices because of P&G’s actions,” Cho says.
David Berry, patent attorney and law professor at Thomas M. Cooley Law School, says the removal of the products could be a protective move. “You are liable of infringement if you make, sell, offer for sale or import a product under patent infringement.”
He adds that the threat of being sued for selling a product, even as a distributor, can be significant. “I would image P&G is a big customer to Target. I am not sure Target is motivated by the threat of litigation or just maintaining good relations with P&G. There is nothing wrong to say in good faith that ‘this guy is infringing and you shouldn’t carry it.’”
Cho claims that P&G’s infringement claims are invalid citing differences between the products and that the inventions and technology claimed in the patents already existed prior to P&G’s claim to them.
This isn’t the first time P&G has claimed patent infringement over its teeth-whitening products. In 2008, it sued Johnson & Johnson (NYSE:JNJ) and McNeil-PPC Inc., the manufacturer and distributor of Listerine Whitening Quick Dissolving Strips, for patent infringement. Johnson & Johnson stopped making its whitening products after being slapped with a lawsuit, as did Be-Well Marketing, a private-label manufacturer and distributor of whitening strips in 2012.
Clio filed a "inter partes review" (IPR) with the United States Patent and Trademark Office to prove that it is not infringing on the patents. IPRs were created in September 2011 as part of the American Invent Act to reduce the amount of patent litigation cases, explains Berry. The patent office started hearing these proceedings in 2012.
In order to qualify for an IPR, individuals must first petition to prove there is “reasonable likelihood that at least one claim is defective or invalidated,” says Berry.
Cho says his petition has cleared this first hurdle, and the proceedings will start in July. The patent office strives to complete IPRs in a year, which tends to be much quicker than normal court proceedings.
P&G’s lawsuit was filed in Cincinnati, where its headquarters are located, and is scheduled to start later this summer in August.
“Because IPRs are going to be resolved within a year, if the patent office ends up rejecting a claim in the IPR process, it can make the lawsuit go away. Many federal courts have been staying for the result of the IPR proceedings,” says Berry.