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A federal jury determined Wednesday that R.J. Reynolds Vapor Co. owes tobacco industry rival Altria Client Services $95.23 million in damages involving an electronic-cigarette patent-infringement complaint.

The jury for the U.S. Middle District of N.C. determined Reynolds Vapor’s top-selling Vuse Alto product infringes on three patents cited in the complaint filed in May 2020.

Altria said in a statement the damages cover past infringements through June 30, 2022.

“Post-trial proceedings will address on-going damages through the expiration of Altria’s patents in 2035,” Altria said.

“At trial, Altria urged the jury to find a royalty rate of 5.25%, which the jury accepted in returning its award of past damages.”

Murray Garnick, Altria’s general counsel, said that “patents are at the core of innovation and we take very seriously protecting our intellectual property.”

“We are pleased that the jury recognized the importance of Altria’s innovation and the value of its patent rights.”

Reynolds said in a statement Thursday that it “intend to vigorously defend the issues remaining for the court, and, if necessary, we will appeal the decision to the United States Court of Appeals for the Federal Circuit for further review.”

“We take allegations of infringing the intellectual property rights of others seriously. When necessary and appropriate, we will take every available measure to defend against allegations that seek to undermine our investment in innovation and our ability to reduce the health impact of our business.

“For the same reason, we will continue to defend our intellectual property robustly across the globe.”

The complaint centers on three patents awarded to Altria Client Services by the U.S. Patent and Trademark Office based on filings dating back to April 2015.

Altria alleged Reynolds Vapor violated Altria’s patents covering the pod assembly used in Vuse Alto.

“Reynolds Vapor’s infringement ... has been and continues to be deliberate, willful and unlicensed,” according to the lawsuit.

Altria and its U.S. Smokeless Tobacco Co. subsidiary said the Vuse e-cigarette and Velo smokeless patents in dispute fit into three groups.

* Four patents involving e-vapor devices that have a battery, heater and associated liquid-filled pods.

* Two patents involving e-vapor devices with specific heating and mouthpiece designs. Those patents target Reynolds Vapor’s Alto and Vibe styles of Vuse.

* Three patents involving a container for a smokeless pouch product having a non-hermetic seal for freshness. Those patents target Velo.

“The Vuse Alto is a flagship e-vapor product of RJR Vapor that (British American Tobacco) has repeatedly touted to investors as critical to the Reynolds e-vapor business,” Altria said in May 2020.

Reynolds said in a May 2020 statement that it believes the lawsuit was filed in retaliation for patent infringement complaints filed by Reynolds in April 2020 for infringement by IQOS of six Reynolds patents.

In November 2021, the U.S. Trade Representative affirmed the pivotal legal victory for British American Tobacco Plc involving its patent-infringement lawsuit against rival Philip Morris International Inc.

On Sept. 29, 2021, the U.S. International Trade Commission issued a final determination of a violation of the Tariff Act of 1930 by Philip Morris USA Inc. and Altria Client Services LLC as it related to two BAT product patents.

As a result of the ITC ruling, PM USA is barred from importing PMI’s IQOS 2.4, IQOS 3, IQOS 3 Duo heat-not-burn cigarette products. It also was ordered to halt future sales of those products — marketed as Marlboro HeatSticks — already in the U.S.

The next legal step is a likely appeal by Altria to the U.S. Court of Appeals for the Federal Circuit, which handles patent lawsuits. That process could take up to a year to reach a decision, with the likelihood of a successful appeal not favorable, according to industry analysts.

Reynolds has been known as the industry’s leader in innovative tobacco and nicotine products for more than 20 years, particularly with e-cigarettes.

Meanwhile, Altria ceased in December 2018 production of its NuMark e-cigarettes as part of its industry-shaking $12.8 billion investment into Juul Labs Inc.’s then top-selling Juul e-cigarette.

NuMark was struggling to gain traction among U.S. e-cigarette users, while Juul held a more than 70% market share.

Since acquiring that 35% ownership stake in Juul, Altria has written down the value of the investment several times — mostly recently on July 28 to an estimated fair value of just $450 million.

At $450 million, the investment value is just 3.5% of the original Altria expenditure.

In explaining its decision, Altria raised the possibility of Juul Labs entering bankruptcy protection if Juul cannot “maintain adequate liquidity to fund projected cash needs.”

Not surprisingly, Altria noted the Food and Drug Administration’s decision on June 23 to ban Juul products at retail.

Altria made the reduced investment value decision even though a federal judge issued on June 24 a temporary hold on the FDA’s marketing denial order.

On July 6, the FDA agreed to put a temporary hold on the order, which allows Juul to continue selling its e-cigarettes and related products. The FDA did not indicate how long the additional scientific review would take.

The shadow of a potential banning of Juul Labs’ electronic-cigarettes products from U.S. retail shelves has accelerated the market-share gains of Vuse.

Vuse’s market share rose was at 39%, compared with Juul at 29.4%, in the latest Nielsen analysis of convenience-store data that covers the four-week period ending Aug. 13.

Two Reynolds American business units face a combined $10.76 million in damages from a June 15 federal jury verdict in a patent-infringement lawsuit involving Vuse.

Philip Morris Products SA is an affiliate of Philip Morris International Inc., commonly identified corporately as PMI.

The lawsuit in the Eastern District of Virginia involves PMI’s accusations of Reynolds Vapor infringement involving its Vuse Alto and Vuse Solo e-cigarette products. The other defendant is RAI Strategic Holding Inc.

The PMI U.S. electronic-cigarette patents are: a compact heater designed to increase vaporization efficiency; and a leakage preventer for the liquid used in e-cigarettes.

The jury reviewed six primary claims and 14 dependent claims.

For Vuse Alto, the jury determined Reynolds infringed on one independent and one dependent claim for the compact heater. The jury approved $8 million in damages for those infringements.

For Vuse Solo G2 product, the jury determined Reynolds infringed on one independent and two dependent claims for the leakage preventer.

However, the jury determined Reynolds did not infringe on two sets on one independent and three dependent claims for Vuse Alto involving the leakage preventer.

The jury found that Reynolds did not prove “by clear and convincing evidence” that the Philip Morris leakage preventer patent claims were “invalid as obvious.”

The jury awarded $2.76 million in damages for the leakage preventer patient infringements.

Reynolds said in a statement that “we are pleased that the jury found that Vuse Alto does not infringe” the leakage preventer patent.

“We are disappointed, however, by the jury findings that the same patent was infringed by Vuse Solo and that the (compact heater) was infringed by Vuse Alto.

“We intend to vigorously defend the issues remaining before the court, and, as necessary, appeal the decision to the U.S. Court of Appeals for the Federal Circuit for further review.

PMI said in a statement the jury’s findings of patent infringement “is yet another demonstration of PMI’s position as the clear innovation leader in new technologies that can help smokers switch to better alternatives.”

“This ruling rejects an attempt by BAT to free-ride on our hard work and investment.”

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