Keurig Facing $600 Million Lawsuit for 2.0

Photo of a 2.0 brewers stacked in a shop

Club Coffee, one of Canada’s largest coffee producers, has launched a $600M lawsuit again Keurig Mountain Coffee Inc. as a result of Keurig introducing its new 2.0 series of coffee brewers and what Club Coffee claims to be anti-competitive behavior. This type of behavior is deemed to have taken place where a firm’s actions lead to “higher prices, reduced quality or levels of service, or less innovation” (Federal Trade Commission, 2014).

The lawsuit centers around Keurig’s use of radio frequency identification (RFID) and the special ultraviolet ink used on its new coffee pods. Also known as “invisible ink”, this approach enables information and identification markings to be invisible to the naked eye, but visible and readable through ultraviolet light readers – such as Keurig is using in its new 2.0 brewers. Through this technology, and not sharing with firms that produce third part K Cups, Keurig is able to rebuild the exclusivity that it once had in being the sole suppliers of pods for its machines.

Back in 2012 Keurig’s patent expired on its pod technology, which in turn opened up the market to third party producers. As a result this was great news for consumers as it saw the general price of pods it could use reduce and the variety and quality improve. Of course for Keurig it found itself in a much more competitive market with pressure on its ability to move price without adversely affective market share. As a result Keurig’s growth in the single cup coffee market has largely been driven by the overall market growing rather than it maintaining or increasing its market share.

Competitors points to this fact through the rise in prices, around 9%, of the new pods compared to those that can be used on Keurig’s older brewers and for which third parties currently supply the market with.

And there is precedence in the coffee industry for such legal action and I’m sure which Keurig are well aware of. Back in April 2014 Nespresso took a similar approach in trying to exclude third parties being able to supply to the market pods for its proprietary brewers. However the French government took a very dim view of this and launched a formal state review of Nspresso’s actions and whether it was anti-competitive in nature.

Although Keurig are confident of the robustness of its technology and the ability to defend against the lawsuit, companies such as Club Coffee and Mother Parkers claim they have already cracked the code required to read the pods and will be launching their own capsules sometime later in the year.

It will be interesting to see how this “little” battle pans out. But one thing we can probably be assured of as consumers of coffee using the pod systems, more competitors in the market will mean greater variety and better quality for us.