On January 30, krill oil supplier Neptune Technologies & Bioressources announced it had filed a complaint with the U.S. International Trade Commission (ITC) alleging that its competitors infringed on its intellectual property by importing, selling or marketing krill oil or krill paste products in the United States.
The complaint extends a legal battle over intellectual property that has persisted in the krill market for several years. Named in the complaint were all of Neptune’s major competitors selling krill products in the United States, including Aker BioMarine, Enzymotec, Olympic Seafood, Rimfrost USA, Bioriginal Food & Science Corp., and Avoca, Inc.
“We firmly believe that these companies are engaged in unfair trade practices relating to these products, and we have decided to take a very definitive step to stop this,” said Tina Sampalis, chief global strategy officer at Neptune.
The patent in question, U.S. Patent No. 8,278,351 (the ‘351 patent), was issued to Neptune on Oct. 2, 2012, and covers the composition of krill extracts.
“We have decided that now is the time to have a nuclear strike and vigorously enforce our rights through the ITC,” said Sampalis.
An ‘aggressive’ strategy
Assembling intellectual property has been a hallmark of Neptune’s business strategy since the company’s inception, Sampalis said. But much of Neptune’s IP portfolio has been challenged by competitors, and subsequent reexaminations have led to the denial of certain patents.
Most recently, on Jan. 25, the U.S. Patent and Trademark Office declared the claims of Neptune’s U.S. Patent No. 8,057,825 as unpatentable, following a reexamination request by Aker BioMarine. This is one of several challenges that Aker has brought against Neptune patents both in the U.S. and globally.
“It is unfortunate that we continue to have legal disputes within the krill market,” said Eric Anderson, vice president of sales and marketing at Aker BioMarine. “It only adds unnecessary uncertainty. But, as a participant in the market, we have a responsibility to challenge intellectual property we don’t think is legitimate.”
The constant patent litigation has drawn criticism from outside the krill market, as many in the nutrition industry see it as a distraction that could inhibit long-term growth of the category. “The ITC complaint is our way of breaking this vicious cycle,” said Sampalis.
The complaint has the potential to bring speedier resolution to the patent war than traditional litigation because, compared to patent litigation in federal court, ITC complaints move much faster. Neptune can expect an investigation to start within 30 days and a conclusion within 15 to 18 months.
“The procedures are different, the speed is much greater, the remedies are different, and the expense is higher,” attorney Jerry Schneider said of ITC proceedings. Schneider, a partner at Schneider Rothman IP Law Group, said that such complaints take a great deal more preparation than federal court cases. "It’s more expensive in terms of total dollars and the expenditures are more compressed because it's faster."
Defendants received immediate notification and now must develop a defense as quickly as possible. Sources on background suggested that litigating against the ITC complaint could cost millions of dollars. The inescapable expense, along with the element of surprise, suggest that the complaint filing was a strategic maneuver on Neptune’s part.
“It’s a very aggressive move that will substantially speed up the outcomes on infringement, invalidity and inequitable conduct,” said attorney Rakesh Amin, partner at Amin Talati, LLC. Should the Commission find in favor of Neptune, however, the results would be limited to preventing the defendants from importing infringing krill products into the United States. Neptune would not get any money out of it. “You still have to go to federal court for damages,” said Amin.
Does the case have legs?
Because an ITC request requires far more preparation than a federal court case, filing a complaint speaks to Neptune’s belief in the strength of their ‘351 patent.
“It’s actually the strongest type of patent because it’s a composition patent,” said Neptune’s Sampalis. “This patent says that a krill extract that contains phospholipids with EPA or DHA attached to them is protected. This is the heart of any krill oil or krill paste out there. This is what makes krill oil what it is.”
But considering past challenges from competitors, it’s a lot of faith to put in a single patent.
“They may think that, despite the expense, the ITC is a more patent-friendly forum,” said Schneider. “The ITC tends to be a little bit more favorable to the patent owner than the district court on average, but I’m not sure to what extent you can extrapolate that to any one particular case.”
Industry expert Anthony Almada, for one, thinks the patent will stand because it was already allowed, even after opposition from Aker and Enzymotec. "You can't try to invalidate a patent before it becomes allowed," he said. "What you can do is watch the patent applications and then submit your opposition before they actually allow the patent to be granted. Well, they [Aker and Enzymotec] did that. And it was insufficient to stop the patent from being issued by the patent office. That's a huge coup for Neptune." Neptune's competitors will have to rebuild their opposition and then some to fight the patent before the Commission.
"If I had that patent," said Almada, "I'd do the exact same thing."
Neptune has a great deal riding on this case. The company recently suffered a tragic loss when it’s Sherbrooke, Ontario, factory set fire and exploded in November, causing the deaths of three workers. Much of the company’s stock of krill was destroyed in the accident, putting a significant strain on fulfilling contracts with existing and future clients. Neptune was forced to temporarily lay off 70 members of its staff, and senior management and employees took a 20 percent reduction in salary to assist in implementing an interim rebuilding plan.
The company was also hit with a shareholder lawsuit in December, which alleges that Neptune’s management team misrepresented its successes and future prospects to achieve an artificially high stock price.
Meanwhile, competition has grown fiercer in the U.S. krill market, as the company’s competitors gain share and new contenders emerge.
Depending on how the ITC investigation plays out, it could profoundly change the landscape of the U.S. krill market, a burgeoning industry still very much in its infancy.