Nespresso rival fights back in patent battle

The Ethical Coffee Company plans to sue Coop supermarket for refusing to stock its biodegradable coffee capsules Keystone

A coffee capsule firm intends to sue Coop supermarket for breach of contract and drag Nestlé to the courts as a patent protection arm-wrestle develops into a brawl.

The Ethical Coffee Company (ECC) has threatened legal action after Coop refused to stock coffee capsules compatible with Nespresso machines. A court banned two other distributors from selling the capsules earlier this month.

German retailer Media Saturn has vowed to appeal against the court order after selling some 50,000 ECC capsules in its Media-Markt and Saturn stores in a three day period before being told to cease stocking them.

Nestlé blocked sales of another rival coffee capsule at discount chain Denner in June and is fighting ECC and United States firm Sara Lee in the French courts over sales of rival capsules in France.

At a media conference in Zurich on Wednesday, ECC chief executive Jean-Paul Gaillard accused Coop and Nestlé of putting Swiss consumers at a disadvantage. Gaillard said Coop had reneged on a verbal agreement to stock its capsules, which was enough under Swiss law to sue for lost time and potential profits.

“Coop is so big it can do what it likes with small manufacturers and that is a problem that has to be addressed,” Gaillard said. “It is time that Switzerland came back to the free market.”

Complaints denied

Gaillard also repeated earlier warnings that he would bring Nestlé – owner of the iconic Nespresso machine – before trade competition courts in Switzerland, France and the European Union.

“Nestlé is denying consumers the basic right of freedom of choice,” he said. “When someone buys a Nespresso machine they can use it any way they want to.” He urged consumers to strike back by boycotting Nestlé products.

Gaillard said he also suspected Nestlé of pressuring Coop into its decision not to stock cheaper ECC capsules – a charge Coop denied.

“It is true that we were in negotiations with Ethical Coffee Company, but no contract was signed and at no point was there an agreement to stock their product,” Coop spokesman Urs Meier told swissinfo.ch.

“We have very exacting standards for quality, taste and on ecological matters and these capsules simply did not meet them. It is also important that our suppliers prove to us that their product does not infringe other companies’ patents.”

Cash cow

Nestlé has always maintained it is in favour of competition, but that it will defend its patents vigorously. It has also previously denied it had tried to nullify cuckoo capsules with a “harpoon” device in its new Pixie range of machines that would cause them to jam.

The company could not be reached for comment on Wednesday.

The coffee capsule business has become one of the most lucrative growing markets in the food and beverages industry in the last decade.

After a slow start following its launch in 1986, Nespresso suddenly took off in the late 1990s and has achieved stellar sales growth in the last few years. Sales in the George Clooney-endorsed pods hit SFr3.22 billion ($3.5 billion) in 2010, with Nestlé predicting around SFr500 million growth this year.

Nespresso has found success targeting high end consumers, but rivals hope to expand the appeal of the concept to more modest income earners. ECC has also tapped into the ecological market by producing biodegradable pods.

All’s fair?

The success story has spawned a host of imitators, first with a range of copycat machines, and more lately, with pods that can be used in Nespresso machines.

Last year, Sara Lee started selling its L’Or in France and the Netherlands, closely followed by the French entrance of ECC.

ECC plans to open a second French factory next year to increase capacity from one billion capsules a year to three billion by the end of 2012.

The company revealed that sales would start in Germany and Austria in a week’s time and roll out to Britain, Italy and Scandinavia by the end of the year. Rollouts to Spain and Portugal are also planned.

Gaillard predicted that his capsules could eventually capture half of Nespresso’s market share, but did not put a time frame on reaching this milestone.

“The law is here to view both small and big companies in the same way. The Swiss legal system is fair but is the system of fair competition is lagging behind,” Gaillard told swissinfo.ch.

“Large corporations in Switzerland have too much power. They get their way by threatening to move out of the country if the authorities do not do want they want. They could not do this in other countries.”

Coffee wars

In April 2010, US company Sara Lee first challenged Nestlé’s resolve by launching a range of cheaper capsules in France that could be used in Nespresso machines.

The Ethical Coffee Company also started selling its own biodegradable capsules in France in the same year.

Despite legal opposition from Nestlé, ECC continues to sell its product from 9,600 stores around France.

Swiss discount supermarket chain Denner began stocking its own range of pods – also twisting Nespresso’s distinctive marketing motto into: Denner – What Else?

In January, Nestlé obtained a court order banning Denner from selling its product in Switzerland. Denner won a temporary reversal of the decision, but Federal Court in Lausanne again ruled in favour of Nestlé in June.

The see-saw legal battle went back in favour of Denner in August, but sales may have to cease again if Nestlé wins the next round.

ECC launched in Switzerland at the start of this month, but outlets Media-Markt and Saturn had to remove the product from its shelves a few days later. They say they will appeal the canton Vaud court decision.