The Strange and Complicated Future of the E-Cigarette Industry

Editor’s Note: This post is brought to you by Camille Wilson, a patent attorney in Jacksonville, Florida, with extensive experience researching e-cigarettes. Enjoy!

Last January, in 2015, I[1] wrote about the patent evolution of e-cigarettes up until that point. I also made some general predictions about the e-cigarette industry, mostly favoring Big Tobacco. Only a short twenty months later, the entire landscape is about to change…and it will most likely favor Big Tobacco, in one way or another.

But why the shift?

In May 2016, the FDA finalized a rule (a very dense 134 page rule, to be exact) extending their regulatory power established by the Tobacco Control Act in 2007 to cover all tobacco products, which now includes e-cigarettes. That rule officially went into effect on August 8, 2016, starting the clock for the entire industry to disprove that their products are “not appropriate for the protection of public health.” (“Deeming Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act”, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 81 Fed. Reg. 28975, May 10, 2016) (Amending 21 C.F.R. §§ 1100, 1140, and 1143). I use the term “disprove” because the entire rule seems to presume that all e-cigarette products do not protect public health; so, the onus is placed on the manufacturers to prove otherwise.

The rule contains an abundance of regulatory requirements, but three main definitions seem to be fatal to the industry: (1) how they define the regulated products, (2) how they define manufacturers, and (3) the date to be grandfathered out of the adhering to the regulation. Unlike traditional cigarettes, electronic delivery systems comprise a myriad of complex components that may be researched and manufactured by separate companies and then assembled by another party. So, the FDA determined that all of those products and all of the parties involved should fall under this new rule.

ECig 1The FDA defines a new group of cigarette technology as Electronic Nicotine Delivery Systems (“ENDS”), which includes “vaporizers, vape pens, hookah pens, electronic cigarettes (E-Cigarettes), and e-pipes,” among others. Despite the term “nicotine” being included in the terminology, the FDA extends their regulation to any tobacco-related product, regardless of whether it contains nicotine. Further, the regulation extends to ENDS and any component of ENDS products, such as e-liquids, atomizers, batteries, cartridges, flavorings, and even software. These vague definitions seem to lasso all technology related to electronic delivery systems that may or may not involve nicotine, may or may not look like cigarettes, and may or may not directly relate to the nicotine aspect. It seems almost arbitrary to regulate such diverse technology so generically.

ECig 2

Coupled with that broad definition of regulated products is a broad definition of the term “manufacturer,” which includes all companies that “make, modify, mix, manufacture, fabricate, assemble, process, label, repack, relabel, or import ENDS.” This language is so broad that it essentially includes any company directly or tangentially involved in the ENDS industry. The high expense of compliance seems to apply in a one-size-fits-all manner, whether the company is a brick and mortar vape shop, a battery manufacturer, or an e-cigarette titan. Actually, that is not completely accurate; vape shops that mix e-liquids and sell e-cigarette products are considered both vendors and manufacturers and must comply with the strict regulations for both.

But, you may say, only “new” products will be affected by these new regulations. That is absolutely true. Unfortunately, “new” simply means any product commercially marketed after Feb. 15, 2007…so, practically every e-cigarette product on the market. Interestingly, according to the Smoke-Free Alternatives Trade Association (SFATA), NJOY is one of the few products that was on the market prior to the 2007 grandfather date. My previous post noted that NJOY was an anomaly to the rest of the e-cigarette landscape. Their website highlights their role as industry advocates, and their blog suddenly had four posts in early 2016 about the regulation of e-cigarettes after a year of no new posts. Since the regulation exempts products that substantially derive from products offered prior to the grandfather date, NJOY may be able to keep introducing authentically new products with some careful strategizing.

In the last blog post, I reviewed a patent search trail that began with the Herbert A. Gilbert patent. I would do a search to learn whether the enactment of the new regulations affected the patent filing strategies of various companies, but patent applications are generally published eighteen months from their filing date. The FDA finalized the rule to extend their regulatory power over ENDS in 2016, so, if any patent applications were filed in response to the rule, they may not be public for another year. Although many of the patents cited in the last blog post were filed prior to the Feb. 15, 2007, date, it generally takes a significant amount of time to take a product from research and development to market, and entry into the commercial market (not just test market) is the date that matters for this regulation. (See Id. at 28978.) If I am invited back for a third guest blog post, I may write a further update regarding how the new regulation is affecting innovation within the industry once more information becomes available about how the e-cig industry is reacting.

What does it take to be approved by the FDA for ENDS products? Every manufacturer must submit an application to market each of their new tobacco products, which may not actually be new or a tobacco product. The term “each” is accurate, as an application must be submitted for each separate SKU (stock keeping unit), and each application must include studies that support their assertion that their product is appropriate for the protection of the public health. Estimates for each application submission range from two million to thirty million dollars, and most manufacturers must submit the applications within twenty-four months of the effective date of August 8, 2016. Even worse, it is likely that the FDA will still deny entry into the market for most ENDS products for non-compliance with the regulatory requirement.

Be prepared for the near extinction of the e-cigarette market. It is likely that only a few titans will endure. Even if all e-cigarettes are edged off the market because of this broad and cost-prohibitive regulation, Big Tobacco will still be standing with their traditional cigarettes, which, by their simplicity, have less stringent requirements than the e-cigarette market. Smaller players will have to rethink their strategies on how to break into the market or how to stay competitive and viable. If anything, this new regulation confirms what most people already think: The government is slow to change and often responds to new technology before it fully understands it. Because the government does not fully understand the technology, it shifts the burden to the industry to teach them. With less resources available to most newcomers, it comes as no surprise that this new regulation favors an older regime and stifles innovation in an otherwise up-and-coming growth area.

[1] Camille A. Wilson is a registered patent attorney with Wilson Dutra, PLLC. Through her firm, which focuses on patents and trademarks, she works with innovative entrepreneurs who want to be the visionaries of tomorrow today and proactive small businesses who want to stay of the forefront of technology in their industry. Her technical background is based on her biomedical engineering education from Johns Hopkins University, and her professional background began as a contractor for Vistakon, a Johnson & Johnson company, where she helped develop a patent portfolio around powered ophthalmic lenses with a team in the Research and Development department.

4 thoughts on “The Strange and Complicated Future of the E-Cigarette Industry

  1. What is the result of failing to apply? An expanding market for vape pens is marijuana in states where that is legal. What if a small manufacturer just clearly labels a vape pen “This device is NOT approved by the FDA for use with tobacco or products containing nicotine. Use of this device with tobacco may damage your health”?

    • These are great questions. I think first it is important to clarify that the FDA does not “approve” any tobacco products. They have regulatory power over them to limit the harm to the public. The FDA is currently exploring how they will approach marijuana, which has both medical and recreational applications, though the FDA seems to focus on the potential for medical applications. (See http://www.fda.gov/newsevents/publichealthfocus/ucm421163.htm)

      There is definitely overlap in e-cigarette technology for tobacco and marijuana. This was actually a question presented to the FDA when the media was trying to get clarification on these new rules. (See http://www.fda.gov/downloads/newsevents/newsroom/mediatranscripts/ucm499834.pdf)

      When asked whether similar tech with marijuana may be affected, the representative carefully stated that it may if the technology fell under the new definition of tobacco product, which is quite broad. For example, “e-liquids that do not contain nicotine or other substances made or derived from tobacco may still be components or parts and, therefore, subject to FDA’s tobacco control authorities. FDA will review these products on a case-by-case basis.” (See http://www.fda.gov/TobaccoProducts/AboutCTP/ucm378205.htm#2)

      So, the broad definition of tobacco product coupled with the current classification of marijuana as a drug makes it unlikely that disclaiming an intended use for tobacco in favor of marijuana will adequately meet or overcome the current labeling requirements.

      As to your first question, noncompliance, which includes failing to apply, may lead to warnings, monetary penalties, seizures, injunctions, and even criminal prosecution. Because of the public safety aspect, the FDA has a wide range of enforcement options, much of which is determined on a case-by-case basis.

Comments are closed.