As I sat down to a cup of coffee this morning and put a non-Nespresso pod into my legitimate, made under licence, Nespresso machine, I got thinking about the change we have seen in the Nespresso market over the last few years as the original Nespresso patents around the pods have expired.
Nespresso patents – Nespresso pods are the only game in town
When I was first introduced to Nespresso quite some time ago, as Henry Ford would have said if he was a Nespresso consumer, you could buy any pods you wanted, as long as they were Nespresso.
Nestle, the creator and owner of Nespresso had for an IP lawyer such as myself, done what we IP lawyers love to see, they had as part of the innovation process (not after the fact!), surrounded the Nespresso product with IP protection in the form of patents, registered designs and trade marks, along with their automatic more limited copyright protection. Their first patent was filed way back in 1976 and it took until the 1990s for an international launch and in reality it wasn’t until the 2000s and “Clooney Time” in 2006 that Nespresso really took off.
Nestle’s Nespresso IP rights, especially their patents, gave Nestle a monopoly on the machines and especially the pods, allowing Nestle to keep out competing coffee manufacturers wishing to sell non-Nestle, but Nespresso compatible pods. Nestle did not underestimate the power of the dark side, i.e. patents over the Nespresso pods and machines (I am pro-IP by the way, I just couldn’t resist a Star Wars play on words here).
I won’t repeat the Nespresso timeline here, but a short version is here – http://www.ecommerce-digest.com/nespresso-case-study.html and the offical version here – https://www.nestle-nespresso.com/about-us/our-history# .
Did the Nespresso IP portfolio make Nestle lazy in product innovation?
While I have not conducted a detailed empirical evidence based study, my impression is that while Nestle had these core patents in place and while it continued to innovate technically, the range of Nespresso pods available remained relatively stable and restricted to the core flavours, with the occasional “special” flavour. Why not? Nestle has a strong patent portfolio (which they enforced vigorously) and they were able to keep out competing pods for many years.
That didn’t stop us all buying Nespresso pods online or in store and we all readily parted with our cash to buy official Nespresso pods.
What happened after the core Nespresso patents started to expire?
Only in the last few years have we seen non-offical Nespresso pods come to market. When making my coffee this morning, I have a choice from Robert Timms, LOR or Grinders non-official Nespresso pods. Each of these I was able to buy at the local Coles supermarket for 50c a pod, rather than 68c-78c a pod for official Nespresso pods. I also didn’t have to jump online and wait or drive out of my way to find a Nespresso store.
In response to this, I have noticed, especially recently as I re-engaged with Nespresso after some time off, that Nestle has gone all out on various special flavours and promotions. Right now and not co-incidently timed with the Rio Olympics, you can now buy a very flash Brazilian Nespresso pod for the bargain price of 93c a pod :
Over recent years, other limited editions have arrived with increasing frequency in an attempt not just to innovate, but to differentiate from the generic competitors :
What are the lessons from the Nespresso and Intellectual Property story?
As I finish my Grinders Nespresso compatible espresso as I type this post, I am reflecting on the lessons from the Nespresso story. First and foremost, it is an excellent real world example of the importance and value of intellectual property. Imagine if Nestle had not put in place IP protection around the Nespresso concept? With the unauthorised competition, it is unlikely Nestle would have continued to invest in a product that was in fact unprofitable in its early days.
Instead, Nestle enjoyed in return for its investment in innovation various monopoly periods around the world and became the success it is today. Now that the core patents have expired, consumers can now choose to buy offical Nespresso pods online or in Nespresso stores or those made by competitors and sold at a cheaper price and more conveniently in supermarkets and elsewhere.
Does this spell the end of profitability for Nespresso? Certainly not. Nespresso is now firmly established and while I would expect some decline in profit from the emergence of competing pods, Nestle continues to innovate and continues to vigourously protect and enforce its IP.
For me, I’ll keep buying the cheaper and more convenient competing products. I do however seem to have accumulated 3 legitimate “made under licence” Nespresso machines, so don’t forget a royalty got paid back to Nespresso on each of those by the manufacturers too. I must say some of the non-authorised pods do get stuck in the machine…
Do you still by real Nespresso pods or buy the non-authorised competitor products? Please comment below and please do follow my blog itself if it is of interest.