Los Angeles – Nestle has encountered a huge setback as the European Patent Office (EPO) this week threw out a patent that has to do with its popular Nespresso single serve coffee system. The regulatory body, which covers 28 European countries, did not set forth its exact reasons for invalidating the patent, but noted that such an explanation will be forthcoming in the next few weeks. This blow comes at a crucial time for Nestle as it has been publicly attempting to stop several rivals, such as Ethical Coffee Company SA and Mondelez International Inc., from producing coffee pods that fit in the Nespresso machines.
The now thrown out patent was originally granted by the EPO in 2010 and covered the way the pods fit into and are ejected from the device. With its patent protection now eliminated, Nestle is in a weakened position to prevent others from making compatible pods. In April of this year, a London Judge ruled that Nespresso customers have a right to purchase coffee pods from any maker they choose and that Nestle could not prevent this. Just a few months before that ruling, courts in Germany and Switzerland refused to ban the unlicensed sale of coffee pods that fit into Nespresso machines. Notably, the Nespresso brand coffee pods are the only ones authorized by Nespresso and cost about three times the price of the rival brands.
With so many recent impediments, Nestle executives are predictably upset. In a recent statement, a spokesperson responded to the patent revocation stating, “We believe that the decision fails to recognize the unique innovations inherent in the design of the Nespresso system.” The statement went on to say that the invalidation was unlikely to significantly impact Nespresso sales. This comes as welcome news for investors of the brand, which makes up about 4% of Nestle’s total $100 billion in annual sales.
Despite Nestle’s predictions of how much the recent drawbacks will or will not affect Nespresso, several outside sources have identified a negative effect already taking place. One estimate proffered by Bank Vontobel said that Nespresso sales growth momentum has decelerated to 16% in 2012, down from 28% three years prior.