The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Pavis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Tuesday, 31 December 2013

Monk fruit, the soft drink industry and the IP challenge

The story (“A sweet Asian fruit tempts the troubled soft drink industry”), as reported by Marina Lopes in the December 22, 2013 edition of, here, begins as follows:
“An obscure melon once cultivated by Buddhist monks in China to sweeten tea could give the $8 billion U.S. diet soda industry a shot at winning back consumers concerned about artificial ingredients”.
Within Ms Lopes’ compact story is an engrossing tale of how IP plays out in the broader context of products, markets regulation and legal rights. Forget the IP battles between the hi-tech heavyweights -- Apple, Google, Samsung and the rest. For those Kat readers who simply like a great IP story, this is the one for you.

The Problem-At the beginning of the story are the commercial woes of the low-calorie soft drink industry. Simply put, sales are down and the downward trajectory is only expected to accelerate (a drop of approximately 7% this year with a possible fall of up to 20% by 2020). The decline is attributed to increasing consumer concern over the possible health risks from consuming artificial sweeteners. As a result, consumers are eschewing such soft drinks in favor of juices, teas and the like, anything that does not contain an artificial sweetener. How serious is this trend? In the words of Bonnie Herzog, an analyst from Wells Fargo Securities, “we believe we are seeing a fundamental shift in consumption behavior as diet drinkers leave the category altogether.”

The Paradox--What is particularly interesting is how this apparent change in consumer behaviour runs in the face of regulatory and branding messages to the contrary. Aspartame, here, the ingredient that fueled the diet soda boom, is FDA-approved. Nevertheless, there is relentless dissonance between the regulatory position and the views held by at least some consumers. Cyberspace is replete with commentary challenging the safety of the ingredient. Indeed, within the halls of MBA programs, for a long time the most interesting aspect of the Aspartame story was how G.D. Searle, the owner of the seminal invention, managed to maintain a respectable market share in the product under the NutraSweet mark (the product has since changed owners), even after patent protection expired.

The Solution (?)--To stem this downward trajectory, the soft drink industry continues its multi-decade quest for its own form of “holy grail”, namely “a natural product with great taste and no calories”. A few years ago, great hopes were placed on stevia, here, which is a sweetener made from a Paraguayan plant. Alas, soft drink products containing stevia have enjoyed only modest success, in large part due to consumer complaints that its bitter aftertaste actually changes the flavour of the soda. Enter the Chinese melon known as monk fruit, here. Once raised only in southern China, products based on monk fruit have spread across China in dried form as a natural flavour substitute. Its dietary attractiveness is based on the fact that a single gram of monk fruit is reported to replace eight (!) teaspoons of sugar while at the same time maintaining a sweet taste.

In particular, attention is being drawn to the activities of a California company named Zevia, here, which has launched a soft drink concoction containing both stevia and monk fruit. The result: “Using the two side by side, we were able to get a higher level of sweetness without the bitterness”, said the CEO of Zevia. For the price of approximately $1.00, Kat readers can enjoy a 12-ounce can of this drink, available in nearly 16,000 “high-end grocery stores in the United States.” Among the heavy weight players, Coca Cola is reported to be interested in monk fruit, but Pepsi Cola apparently is not.

The Challenge—Against this backdrop, there have been a number of IP and regulatory measures, some working at apparent cross purposes, that have made monk fruit a particular challenge. Thus, it is reported that no less than Procter & Gamble (“P&G”) obtained a patent back in 1995 for an extraction based on monk fruit as a sugar substitute, but P&G did not seem to develop the product commercially. Instead, it was left for a New Zealand company to obtain US Food and Drug Administration (“FDA”) approval in 2012, which enabled the product to be used for mass consumption purposes. Given P&G’s reputation for innovative product development, its apparent failure (or reluctance) to pursue the patented extraction commercially is particularly interesting. Unfortunately, the article does not delve into the reasons for why P&G did not play an active role in securing FDA approval (it has not yet been approved in Europe).

From the Chinese side, it appears that the fruit is raised only in certain areas in southern China. This is not likely to change, because local Chinese law forbids monk fruit seeds as well as its genetic material from leaving China. This is particularly interesting given the Chinese penchant for buying up huge swathes of land in Africa and elsewhere for agricultural purposes. True, as described by The Economist, Brazil has led the way in developing a world-class domestic bio-agricultural industry, here, but the regulatory restrictions on limiting cultivation of monk fruit to only certain areas seems to be a drag on the current potential for the fruit. Add to this certain cost and production factors that make monk fruit expensive to cultivate, and a giant question mark hovers currently over the ultimate potential for the product.

What about the IP?—For this Kat, what is especially interesting in this tale is the multi-faceted role of IP and related considerations. First, there is the intersection of the traditional knowledge accumulated by the Buddhist monks in the fruit, perhaps augmented by more contemporary know-how developed within the areas in which the fruit is cultivated. Add to this the special factors that define IP knowledge in the seed space (patents, breeder’s rights, breeder’s know-how), a sort of “tangible” form of intangible property, all set against the Chinese regulator and its own views on how to “protect Chinese interests” in this potentially lucrative food-related product.

Second, there is the related patent activity. The article does not discuss whether companies other than P&G have sought to invent products based on the monk fruit. Whatever the current status of patent activity based on monk fruit, what is curious is that P&G did not pursue the invention (perhaps the company did not ascertain any material commercial application for the product, perhaps the invention got lost within the company, it is not clear) and it was left to a company in New Zealand to take the product through FDA approval.

Third, there is the issue of names and branding. Aspartame was marked by Searle as NutraSweet, enabling the company and its successors to continue to derive value from the artificial sweetener product long after the patents had expired. What will happen in the current circumstances, assuming that there are no patents that are or will likely cover the product (either based entirely on monk fruit or a combination of the two)? If differential product branding takes place, what will be the status of monk fruit as the generic source of the product? Could it nevertheless be protected as geographic indication, assuming that the legal requirements are met?

This Kat suspects that the IP headlines in 2014 will once again highlight patent wars and the related activities of the mega-companies. But for those Kat readers who like their IP nuanced and multifaceted, they can do no better than to continue to follow the monk fruit saga.

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