Neptune, Aker end patent struggles with licensure agreement

The agreement removes Aker and its subsidiaries from the case brought by Neptune before International Trade Commission. The hearing in that case was scheduled to start today and run for about a week with a decision expected in the first quarter of 2014. An official at Enzymotec, the Israel-based lipid chemistry company that was also named in the case, confirmed that this morning’s hearing was stayed. But he declined further comment on the case or on the Neptune-Aker agreement and also declined comment on Enzymotec’s current position vis-à-vis Neptune. The Neptune-Aker agreement also in effect dismisses all of the current lawsuits that Neptune has filed against Aker in markets where the two companies compete such as North America, Europe and Australia.

Preserving shareholder value​

"Neptune's intellectual property is an integral part of shareholder value creation and today's announcement is an important milestone for Neptune and the industry,"​ said Henri Harland, president and CEO of Neptune and Acasti. "Recognition of a company's intellectual property, promotes a spirit of cooperation amongst industry members.  We look forward to working together with Aker BioMarine to further develop the fast-growing krill industry."  ​

Aker BioMarine's CEO Hallvard Muri added: "We are content to have contained all current patent conflicts with Neptune within the framework of a license securing our customers the ability to operate in the US and other licensed countries."​

Different companies, different approaches​

Neptune was the pioneer of krill oil as a nutraceutical and did some of the first human clinical studies on the ingredient’s heart health and other benefits and filed the first patents.  Neptune has always purchased its raw material from fishing companies operating in the Antarctic, and as such always conceived of the strength of the company as residing in its extraction expertise and intellectual property portfolio.

Aker BioMarine, on the other hand, is vertically integrated. The division is at its core a fishing company (Aker as an organization is also involved in shipping, offshore oil rig services and marine engineering).  The company operates two vessels harvesting krill in the far South Atlantic via a proprietary perpetually-submerged net technology.  The company harvests more than half of the global krill catch, most of which is sold as meal to the aquaculture industry. Delving into krill oil as a nutraceutical was a way for the company to derive additional, higher value ingredients to help make the high-cost fishing operations pay their way.

History of the struggle​

The so-called Krill Wars originally was a struggle between Neptune on one side and Aker and Enzymotec on the other.  While a complete retelling of the tale would run to book length and would frankly be of interest to only a few patent attorneys, in short the contest featured numerous patents filed for and granted in various markets, requests for reexamination of patents and patents struck down whole or in part and a number of patent infringement lawsuits and, of course, the ITC case. Neptune’s consistent position has been that its patents granted it senior rights that required potential future market entrants to sign licensure agreements. From Aker’s point of view, the patents were overbroad and were granted without sufficient consideration of prior art.

The picture become somewhat more complicated with the entry of a fourth company in the space, Norway-based Olympic Seafood AS, which harvested and marketed krill oil under its Rimfrost subisidiary.  Rimfrost was duly added to the list of companies being sued by Neptune.

The picture was clouded yet again with the destruction by fire of Neptune’s lone production facility in Sherbrooke, Quebec in November, 2012 (a replacement facility is said to be nearing completion).  Neptune, in a bid to retain market share, was selling off krill oil inventory and reportedly was buying krill oil on the open market (reportedly from Rimfrost though this has not been confirmed.)  In early October of this year Neptune and Rimfrost entered into a licensure and supply agreement.

Details of the agreement​

As part of the settlement, Neptune granted a world-wide, non-exclusive, royalty-bearing license to AKBM, allowing AKBM to market and sell its nutraceutical products in the patented countries.  Under the terms of the settlement, royalty levels are dependent on the outcome of the pending inter partes​ review proceedings before the U.S. Patent and Trademark Office (USPTO) regarding Neptune's '351 composition of matter patent (No. 8,278,351). AKBM also agreed to pay Neptune an additional non-refundable one-time payment for the manufacture and sale of krill products prior to the effective USPTO decision date. The financial terms of the license are confidential between the parties.

Future of the sector​

While the parties to the agreement had nothing to say today beyond the announcement of the agreement, it’s clear that the pact removes the principal road barrier to further growth of an already fast-growing corner of the omega-3 market. Cash that has been spent prosecuting the legal fight (reportedly millions of dollars annually between the three companies) can now presumably be devoted toward more productive uses, such as additional research or customer acquisition.

"Krill is an important source of EPA and DHA, so the less external distraction there is in the marketplace, the better it will be for krill and other sources to make a meaningful contribution to human nutrition needs,"​ said Adam Ismail, executive director of the Global Organization for EPA and DHA Omega-3s (GOED).

The fish oil companies managed to avoid a similar patent bloodbath with collaborative efforts that began around 2000 and eventually led to the creation of GOED in 2006. Principal among GOED's achievements has been the production of a fish oil omega-3s monograph that delineated the specification that ingredients must meet.  Similar work on a GOED krill oil monograph had been stalled by the inability of the major krill oil players to cooperate, though a Food Chemicals Codex krill oil monograph was recently finalized.