By Harry C. Alford
Procter & Gamble enjoys a long, proud history as a major Cincinnati employer. Its history goes back more than 175 years and today it owns many of the world’s most recognized brands with well-earned reputations for quality. My first corporate job was with this magnificent company. Its main strengths are research/development and marketing.
That’s why it’s all the more disappointing to see P&G take the low road of dubious patent litigation to compete in a marketplace where it has consistently prevailed with competitive products and the innovation needed to keep pace with changing consumer trends. Procter & Gamble has become a Patent Troll.
In the last few years, P&G appears to have shifted its competitive focus away from innovation and competitive product development and toward the courtroom. For example, the company has been aggressively pursuing makers of competing brands of toothpaste and teeth-whitening strips with questionable claims of patent infringement.
P&G used patent litigation to kick out Johnson & Johnson from the teeth whitening strip market in 2008. Since 2012, it has used the same tactics against Be-Well Marketing, Hello Product LLC and Clio Inc., three companies that were supplying oral care products to retailers such as Target, CVS and Rite-Aid.
It would be one thing if P&G had a case; every company has a right to defend its patents. But P&G’s claims are highly suspect. Be-Well and Hello Product exited the market simply because they could not afford the legal costs to defend their position. Clio, however, requested a review from the U.S. Patent and Trademark Office’s Trial and Appeal Board. This review upheld Clio’s petition for invalidation of P&G’s patents. In a further setback for P&G, the review board also found that P&G’s own patent claims might be invalid and concluded that Clio would likely prevail in the final USPTO ruling expected in this fall.
Rather than rethink its position, P&G decided to double down. It has petitioned the U.S. District Court in Southern District of Ohio, Western Division, located in Cincinnati, placing it literally on the company’s home court. It hopes to get a favorable ruling on its patent claim later this summer before the USPTO can invalidate its claim outright.
This is the wrong way to go because, in the end, everyone loses. In some respects, the damage has already been done. Generic brands often sell for half the price of name brands such as P&G’s competing Crest. When they disappear from store shelves, consumers lose. We can be thankful that the Ohio economy is slowly recovering, but many consumers are still economizing and store brands offer a real savings for households on a tight budget.
P&G’s shareowners and employees lose, too. Since it is looking doubtful P&G’s claims will stand up, the legal costs it is incurring to press the case will be wasted. This hurts doubly in light of P&G’s February announcement that it was shedding 5,700 nonmanufacturing jobs as part of a plan to reduce costs by $10 billion. These job losses and spending cuts hurt the Cincinnati community as well.
Unfortunately, P&G’s use of patent litigation is part of a disturbing trend in courts across America. For the past decade, frivolous patent suits have been the tool of entities that produced nothing and whose sole aim was to extract a royalty payment from a small entrepreneur. The claim generally is based on an otherwise worthless patent acquired for pennies in a bankruptcy sale during the dot.com bust. But the approach has since been adopted by companies, such as Apple, to stymie competition.
Ultimately, frivolous patent suits are a losing proposition. As I wrote in my blog on the National Black Chamber of Commerce website, Apple has been so busy in patent court that it lost its smartphone lead. Only a handful of Apple smartphone models are on the market today, while there are several dozen smartphones that are equipped with the Android operating system. And Android phones cost half as much as an iPhone.
The damage these baseless lawsuits are causing small businesses has not gone unnoticed. There is bipartisan legislation in Congress that would penalize frivolous litigants whose patent claims are found to be frivolous. President Obama also has spoken out for patent reform.
Meanwhile, not only does P&G stand to lose its case against Clio, it risks having its own patents invalidated as well, something that might not have happened had it not taken the litigious route. The company, its employees and Ohio consumers would all fare better if P&G were to redirect the aggressiveness it has shown in court back to the marketplace.