Nov. 01, 2018 (original article)
Summary
- Canopy Growth filed a patent for a smart vape pen – one of their first patent applications.
- Canopy Growth has only the third-largest R&D spend of the big five cannabis companies, despite being the market cap and revenue leader (ex-MedReleaf).
- Their smart vape looks interesting – it allows for smartphone locking of a vape and custom vaping settings automatically detected based on the cartridge in the vaporizer.
- Cannabis vaporizers are not yet legal in Canada, but should be legalized in 2019 when Health Canada is satisfied that they are safe.
Summary
Canopy Growth (NASDAQ:CGC) has filed one of its first patent applications – this one for a smart vape pen. As a former patent attorney, I analyse their patent to see what’s new here and how interesting the technology looks.
Canopy’s smart vape pen patent application describes a unique payload identifier on a vape cartridge that helps the smart vape determine settings such as an optimal temperature for vaping the contents. Canopy also describes a smartphone app that can be used with the smart vape, which could allow parents to lock and unlock the vaporizer to ensure that children cannot use a parent’s vaporizer.
(Author’s estimates based on company filings; Cronos doesn’t break out R&D spending; date is date of last quarter end)
The patent is currently still in prosecution and is facing a Final Rejection. Despite how “final” that might sound, it is anything but. This is just a normal step in prosecution and Canopy Growth could receive a patent soon or prosecution could continue unsuccessfully for years. Time will tell if this invention – or other potential inventions, published or unpublished – will move the needle for this C$14 billion company. With that valuation, it will be difficult for any one patent to meaningfully contribute to their top or bottom line, but it may demonstrate the Canopy is using their small R&D spending (C$756,000 last quarter) wisely.
I remain long Canopy Growth as well as Aphria (APHQF) and Aurora (ACB), from the “big five” cannabis companies.
Canopy Growth’s Smart Vape Patent Application
(U.S. Patent Publication No. 2018/0263283)
Cannabis vaporizers are still illegal in Canada as Health Canada believes more evidence is needed to show they are safe. But that is not stopping Canopy Growth from inventing – and filing patents on – new vape pens.
In September, the United States Patent and Trademark Office (“PTO”) published Canopy Growth’s patent application for a “System and Method for an Improved Personal Vapourization Device” as U.S. Patent Publication No. 2018/0263283. This publication was based on a patent filed by Canopy Growth in March 2018, which itself was based on a provisional patent application filed in March 2017.
The patent covers a smart vape, with the abstract describing:
“A vape device system including a payload reservoir that is identified by a payload identifier and that is configured to hold a substance for atomization. A processor is configured to determine an operational setting based on at least one of the payload identifier and a secondary data, which may include user information, prescription information, location information, payload information, historical vape device usage information, and historical payload reservoir information. A vape device system, and method of using the same, that includes a vape device and a computing device that includes the processor. A method of controlling a vape device including determining an operational setting of the vape device based on the payload identifier and/or secondary data. The operational settings may include a duty cycle setting, a temperature setting, an operational time duration, a dosage setting, and a security setting.”
U.S. Patent Publication No. 2018/0263283
Vaporizers are old technology. They are commonplace with notable vaporizer company Pax Labs raising $126 million so far and a vaping spinoff from Pax, Juul, being valued at $15 billion in a $1.25 billion funding round.
To get a patent on a vaporizer, Canopy Growth will need to show that what they are doing is both novel and non-obvious over prior vaporizer technology.
(U.S. Patent Publication No. 2018/0263283)
Canopy Growth’s “point of novelty” here is that their vaporizer is “smart.” As illustrated in Figure 3, one embodiment of the device includes a transmitter in the vape (e.g., BlueTooth, Wi-Fi, Zigbee) that allows it to communicate with a smartphone or other device. This might allow, for example, the smartphone to locate the vape or to lock or unlock the vape. The patent application also describes that unlocking can require a fingerprint, retinal scan, or other user-identifying action. This technology could reduce the risk that children are able to use a parent’s vaporizer.
“In some embodiments, application 74 can use the unique payload identifier received from ID tag 28 as a means to determine if the person in possession of vape device 10 and computing device 72 is a permitted user.”
U.S. Patent Publication No. 2018/0263283 at para. [0079].
Canopy Growth’s smart vape also describes an ability for the vape to recognize the payload (i.e., tobacco or cannabis) and to auto-detect optimal settings for that payload. A payload (vape cartridge) may have an ID tag that uniquely identifies the vape cartridge and provides operational settings to the vape. This can allow for the smart vape to obtain “the specific parameters of operation of atomizer[], or operational settings, that are optimal for vapourizing the specific liquid or oil contained in reservoir” (para. [0059]). This ID tag can also be used to determine if the user of the vape has a prescription for the payload based on recognizing the user through their smartphone (para. [0071]).
The vape may also be able to monitor whether the payload is nearly empty and alert a user before it runs out of fluid or other materials (para. [0072]).
The operational portion of a patent is its claims, especially its independent claims. This patent application includes three independent claims, with claim 9 (the shortest independent claim) reciting:
“9. A method of controlling a vape device comprising a payload reservoir that is identified by a payload identifier, the method comprising:
transmitting the payload identifier to a processor;
determining an operational setting of the vape device with the processor based on the payload identifier and a secondary data; and
controlling the vape device based on the operational setting.”
U.S. Patent Publication No. 2018/0263283, Claim 9
The first portion of this claim (up to “comprising”) is the preamble and merely recites that this is a method claim. The words of the preamble are generally not limiting (with some exceptions) – so this portion can largely be ignored.
This method claim then involves three steps – and any device carrying out all three steps would infringe this patent (but carrying out only two steps would not). The first step is “transmitting the payload identifier to a processor.” As described in the patent, the payload identifier is data that uniquely identifies that payload, such as listing what its contents are.
The processor then determines an “operational setting” based on the payload identified and based on secondary data. This means that the processor must have at least some other “secondary data” beyond what is in the payload identifier. We have some details on what this secondary data might be:
“The secondary data is preferably selected from a group consisting of user information, prescription information, location information, and payload information. The operational setting preferably includes at least one of a duty cycle setting, a temperature setting, an operational time duration, a dosage setting, and a security setting.”
U.S. Patent Publication No. 2018/0263283 at para. [0046].
As an aside, this is poor patent drafting. I worked for four years at a top-tier patent firm, and was specifically taught not to use language like “preferably selected.” Courts can interpret this language to be limiting – that the secondary data must be selected from this group – even though it isn’t intended to be limiting. It would be better to write a broader, more meaningless sentence like “The secondary data may be selected from…” as that is less likely to be limiting.
Meanwhile, there is no advantage to writing “preferably selected from…” – it will not get a patent allowed where my language would not, and a court may find the “preferably” language to limit patent scope where they wouldn’t find my language to limit patent scope.
Finally, the method calls for “controlling the vape device based on the operational setting.” This could mean anything from adjusting the temperature based on an optimal temperature for the payload to determining whether to unlock the device based on a combination of the payload and the current user of the device (which could be “secondary data” received from a smartphone, for example).
Patent Progress
Note that this is just a patent application – it has not been granted. The public can look up the status of published pending patent applications on the PTO’s Public Pair system.
Based on the file wrapper on Public Pair, we can see the following chronology:
- March 14, 2018: Patent application filed.
- May 18, 2018: The patent examiner rejects the patent (“Non-final rejection”).
- August 14, 2018: Canopy Growth amends the patent based on the rejection (“Amendment/Request for reconsideration after non-final rejection”).
- September 4, 2018: The patent examiner again rejects the patent (“Final rejection”).
- September 20, 2018: The patent application is published.
Prosecution is not over, and this patent has not been rejected, despite the connotations that “Final Rejection” might bring up. Instead, this patent prosecution is proceeding in normal fashion. Receiving a final rejection is typical and is not the end of the line – it just means that Canopy Growth is going to have to pay an additional fee to the PTO to continue. If the patent has any plausible value at all, they’ll pay the fee – the fee is low compared to the overall cost of patent prosecution.
Indeed, there are a lot of options for how to respond to a “final” rejection/final office action:
Thus, prosecution here is far from over. Two of the independent claims of the patent stand rejected as being anticipated (i.e., an earlier invention did the same thing but sooner) by U.S. Patent Publication No. 2018/0177231 (“System and method for managing concentrate usage of a user”) while the third independent claim is said to be obvious over the combination of the above patent combined with another patent.
Canopy Growth is likely to talk to the patent examiner on the phone and determine ways that they can narrow their own claims to be novel over these prior art references.
This process could potentially take years before Canopy Growth either receives a patent or gives up trying.
Takeaways
(Author’s estimates based on company filings; Cronos doesn’t break out R&D spending; date is date of last quarter end)
Overall, Canopy Growth’s R&D spending is smaller than that of both Tilray (TLRY) and Aurora. Cronos (CRON) does not break out its R&D spending separately. Canopy Growth’s smart vape patent is interesting and potentially provides insight into one direction that the company might go once vaporizers are legalized in Canada – likely in 2019.
It is also notable that this is an American patent application. Canopy has made clear that their target market is global and not just limited to Canada. Filing a U.S. patent is yet another indication of Canopy Growth’s plans to operate in the United States in the future.
It is still early in the patenting process, and it is not clear if Canopy Growth will be able to receive a patent on this invention or not. Further, they will have to narrow their claims as the patent prosecution proceeds – meaning that even if their patent is allowed, it is likely to be narrower (to cover fewer possible devices) than its currently-published claims.
The breadth of an allowable version of this patent is not known, nor whether that patent might add meaningful value to Canopy Growth – either through manufacturing their own smart vapes with technology others can’t use or through generating licensing revenue from licensing Canopy’s smart vape inventions. At this point, it would be premature to expect this patent to add meaningful value to Canopy Growth – which already trades at an enterprise value of ~C$14 billion.
For now, these inventions are still some ways away from commercialization – it will require both a legal change and Canopy to successfully prosecute this patent. However, it is a positive sign to see that these farmers are also inventing. Time will tell whether their relatively small investments pay dividends.
Happy investing!
danlargo.com 