Alticor Defends Artistry Line

December 27, 2005
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ADA — Alticor has found itself in the midst of what could be an extremely costly patent lawsuit concerning its use of alpha-hydroxy acid (AHA) skin care technology by its best-selling Artistry cosmetics line.

On Nov. 10, the $6.4 billion Ada-based direct sale giant filed suit in U.S. District Court in Grand Rapids for declaratory relief against TriStrata Technology Inc. (TTI) and its parent company, The NeoStrata Co. Inc.

TTI first contacted Alticor with an August 2003 letter from legal counsel Mayer, Brown, Rowe & Maw identifying five TTI patents allegedly infringed upon by Artistry's use of AHA in products such as its Alpha Hydroxy Serum Plus, AHA Body Refiner Moisturiser and Moisture Rich Refreshing Toner.

"Based upon Alticor Incorporated's clear interest in using alpha hydroxy acid technology, …" the letter stated, "TTI anticipates that Alticor may be interested in discussing the possibility of a license agreement under TTI's patents."

The founders of The NeoStrata Co., Eugene Van Scott and Ruey Yu, are largely credited with discovering AHA in the early 1970s as researchers at Temple University's Skin & Cancer Hospital. They noticed that certain substances in edible fruits and vegetables, when applied to the skin, promoted the generation of new skin cells to replace the outermost skin layer — reducing skin lines and wrinkles.

The NeoStrata Co. and its subsidiary, TTI, are the worldwide patent holders of the technology, which is today worth hundreds of millions of dollars and incorporated into 40 percent of skin-care products worldwide, according to McGovern Capital, which runs the NeoStrata licensing program.

The company has more than 40 licensees, including cosmetic icons L'Oreal, Chanel, Avon, Pond's, Beiersdorf, Johnson & Johnson, Estee Lauder and Neoteric. Dozens of these licenses were the result of successful litigation, including a victory in March 2005 against Mary Kay Inc. in U.S. District Court in Wilmington, Del. The five-day jury trial resulted in a $26 million award for TTI.

The victory for TTI was the highlight of the next letter to Alticor, written two years later on Aug. 4, 2005: "TTI is diligently enforcing its patents and is putting you on notice that your continued infringement will result in litigation."

Instead of waiting to join the ranks of TTI's ongoing litigation, Alticor filed its complaint last month.

"They threatened to sue and didn't act on that threat for several months," said James Sobieraj of Brinks Hofer Gilson & Lione, the Chicago firm representing Alticor. "Rather than just have a cloud hang over the business, Alticor decided to take the bull by the horns. … (Alticor is) confident that it does not infringe on these patents."

Sobieraj noted that Alticor has been making AHA products for more than a decade. Some Artistry offerings predate the patents, the oldest of which was in 1992.

TTI has filed a motion to dismiss Alticor's complaint, and has also filed a corresponding patent infringement suit, along with a motion to move the entire case to Delaware, where the New Jersey-headquartered company is incorporated.

"They perceive that to be a more favorable forum," Sobieraj said.

For TTI, it very well may be. Recently, the company has faced off in Wilmington with Valeant Pharmaceuticals, Mary Kay cosmetics, BeautiControl cosmetics and others.

Sobieraj believes Alticor has grounds to keep the lawsuit in Grand Rapids, noting that a company should have the right to be sued in its forum.

The potential financial impact of an adverse decision is unknown. However, Artistry is one of Alticor's leading revenue streams, and according to a 2003 study of global retail sales by Euromonitor International, is among the world's top five prestige brands of facial skin care and color cosmetics.    

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