Chinese e-cigarette inventor fights for royalties

Chinese e-cigarette inventor fights for royalties

BY TOM HANCOCK

AFP-JIJI

OCT 4, 2013

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Smokin’ clean: Hon Lik, widely acknowledged as the first person to develop a commercially viable electronic cigarette, smokes a pipe version on Sept. 23 at his office in Beijing. | AFP-JIJI

BEIJING – The Chinese inventor who dreamed up the electronic cigarette in a nicotine-induced vision says that despite its global popularity, copycat versions and legal disputes mean he has battled to cash in on his creation. “Smoking is the most unhealthy thing in people’s everyday lives. . . . I’ve made a big contribution to society,” said Hon Lik, 57, in a cramped office in Beijing, sending tobacco-scented smoke into the air as he puffed on a battery-powered pipe. “But I don’t live like a rich person, because of all the troubles our company has faced.”Hon, a soft-spoken man from northwest China, is the co-founder of Ruyan, a company that has produced electronic cigarettes and cigars, starting at 68 yuan ($11), for more than a decade.

His patents are set to be sold in a $75 million deal with Britain’s Imperial Tobacco, but Hon says that he will see little of the windfall and that years of copyright disputes and negative publicity have eroded his profits.

His battles highlight rising competition in a market that has skyrocketed to $2 billion in global sales, according to research firm Euromonitor International.

E-cigarettes, as the devices are commonly known, heat a liquid nicotine solution to turn it into vapor.

Manufacturers say a lack of tar and other ingredients, as well as an absence of smoke, makes the devices safer than conventional cigarettes. Research from the British medical journal The Lancet in August called them more effective than nicotine patches in helping smokers quit.

Early e-cigarette designs were drawn up in the U.S. as early as the 1960s, but Hon is acknowledged among industry commentators as the first person to develop a viable commercial version.

He came up with his design in 2003 while working as a medical researcher and trying to quit a pack-a-day habit he had developed in his teens.

“In the evenings, I sometimes forgot to take off my nicotine patch, which gave me nightmares all night,” he said.

In one dream, Hon said he found himself drowning in a sea that turned into a cloud of vapor, giving him inspiration for the product, which he scribbled down on a bedside notepad.

After a year spent perfecting the design, he said, sales took off. By 2006, Ruyan was “producing 24 hours a day, with demand still exceeding supply.”

But that same year, media reports that described his products as addictive and causing heart attacks dented sales.

China’s tobacco sales administration accused the company of irresponsible advertising and recommended that Beijing shops stop selling its products.

Hon said China’s state-run tobacco industry — a powerful lobby that contributes as much as 10 percent to total government revenues, according to the U.S.-based Brookings Institution — was wary of the competition.

“All tobacco companies disliked our products, especially the large ones, and they have influence over governments,” Hon said, accusing them of driving some of the negative coverage.

“It’s like how the inventor of a perpetual motion machine would receive pressure from the energy industry.”

Rival firms sprang up in China and abroad. Hon maintains they are copycats infringing patents owned by Dragonite International, a Hong Kong-listed company of which he is chief executive.

The firm has filed lawsuits against several manufacturers in the United States, and Hon said at least one has agreed to settle out of court.

“They have made some small adjustments, but their basic structure is the same,” he said.

“If I received just 1 mao (2 cents) from each cigarette sold, that would be a huge amount.”

Hon’s invention has also faced setbacks in Asia, with Australia, Singapore, Taiwan and Thailand banning the sale of e-cigarettes on safety grounds.

His biggest fear is that governments will classify them as medical products, as in Hong Kong, where sales are low — potentially limiting the market by subjecting them to standards they were not designed to meet.

His latest gambit is to team up with Europe’s second-largest tobacco company, Imperial Tobacco, which has announced plans to pay $75 million for the e-cigarette patents owned by Dragonite, in which Hon says he only has a small shareholding.

The inventor said the proceeds will be invested back into the company, and he will not get any immediate financial benefit.

Eric Bloomquist, an independent tobacco industry analyst based in London, said the patents may have been strong enough to be attractive to Imperial but that they could also lose relevance as the product evolves.

“They found the patents compelling,” he said, but added that it was not clear “to what degree Dragonite’s patents are critical components to the newest standards in the market.”

Hon will remain in the e-cigarette business as adviser to Imperial — he says there is “nothing contradictory” about working with a tobacco company — and will also work on new products.

He hopes his invention can eventually replace the conventional cigarette entirely — and perhaps bring him the recognition he says he deserves.

“My fame will follow the development of the e-cigarette industry. Maybe in 20 or 30 years, I will be very famous.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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