SAN FRANCISCO — Nicotine pouch maker Dryft is suing Swedish Match, alleging the company drove it off the market with “a series of sham legal actions.”
Swedish Match brought these legal actions against Dryft because it knew it could not compete fairly with Dryft based on the qualities and prices of its nicotine pouch product, Zyn, Dryft alleged in a lawsuit filed on Aug. 2 in the U.S. District Court of the Central District of California. Swedish Match declined comment to CSP, saying it does not comment on pending litigation.
The lawsuit said Swedish Match controls at least 80% of the market for tobacco-derived nicotine pouch products, also referred to as modern oral nicotine (MON) pouches, in the United States.
“[Swedish Match] filed a series of costly, time-consuming and baseless legal actions against Dryft to impede Dryft’s ability to compete, raise Dryft’s costs, limit investment by third parties, distract its business focus, interfere with its business relationships and opportunities and effectively drive it from the market by forcing it to sell its business at a discount,” Dryft said in the lawsuit.
In November 2020, the U.S. business of the BAT Group (BAT) acquired the nicotine pouch assets of Dryft Sciences LLC, Moorpark, Calif. BAT later rebranded Dryft’s U.S. portfolio under its global MON brand, Velo. Dryft had an estimated valuation of $458 million before Swedish Match took several legal actions against it. After the filing of three legal actions, Dryft’s value dropped to $150 million, the figure for which it was ultimately acquired by BAT, the lawsuit stated.
The company is asking for damages of $1.2 billion, among other items.
Companies’ Legal History
Dryft owner Kretek International Inc. announced in September 2019 it was spinning off Dryft Sciences. The release made it clear that Dryft would be substantially expanding its manufacturing capacity in the U.S., and that it anticipated manufacturing 30 million cans of Dryft in 2021 and 60 million cans in 2021, Dryft said in the lawsuit. It also expressed the intent to expand the brand globally.
Five months later, Swedish Match and its related entities asked the International Trade Commission (ITC) to investigate Dryft and its related entities for alleged patent infringements. That same day, Swedish Match and a group of plaintiffs also sued Dryft and related entities for infringement of the same patent in the U.S. District Court for the Central District of California.
A couple days after the California suit, a subset of those plaintiffs filed trade secret misappropriation claims under Kentucky and federal law against Kretek and Dryft in the Western District of Kentucky.
“By filing three back-to-back legal actions in three different venues, [Swedish Match] was using and abusing the United States’ legal processes to harass and financially devastate a competitor in the Relevant Market by ensnaring it in baseless legal complications. Because of [Swedish Match’s] actions, Dryft was never able to manufacture or sell the amount of product it reasonably anticipated it would when it issued its September 2019 press release.”
Dryft said its product could not have infringed on Swedish Match’s asserted patent infringement claims because Dryft pouches use nicotine polacrilex, different from the nicotine salts used in Swedish Match’s product and patent, the lawsuit stated.
The California court ruled for Dryft, which was later appealed. The Kentucky case was moved to California, where it is ongoing, and Swedish Match dropped its ITC case, according to a news article from Reuters.
“[Swedish Match’s] ability to successfully intimidate or harm other competitors in the Relevant Market with sham legal actions was limited as the other competitors (aside from Dryft) were owned by “Big Tobacco” companies with their own well-staffed legal departments and significant financial resources to fight such frivolous claims,” Dryft said.
Swedish Match’s pattern of anticompetitive actions seeking to stifle competition and bully a smaller market participant, seriously harmed consumers, Dryft alleges, limiting consumer choice to four products instead of five. Other major MON manufacturers include Altria (On), R.J. Reynolds Vapor Co. (Velo) and Swisher (Rogue).
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