French regulator orders Nestle to allow rival coffee capsules on Nespresso

The French regulator yesterday ruled that Nestle should allow its competitors' branded coffee capsules to be used on its single-serve Nespresso coffee system, the latest setback for the Swiss food giant in the $8 billion annual single-serve coffee market in Europe.

In a case filed with the French competition authority by Nestle against its rival coffee capsule maker Ethical Coffee Co, the regulator ordered Nestle to make technical changes to its Nespresso coffee machines so that it becomes compatible with coffee capsules / pods of rival manufacturers.

The regulator also ordered Nestle to inform manufacturers of competing coffee capsules / pods three months before it makes any changes to its Nespresso coffee machine, which may not be compatible to the coffee capsule / pods of its rivals.

Nespresso has also agreed to remove captions on capsules and machines saying only Nespresso capsules should be used, and not to make any comments on the capsules of competitors, both in the press and within the Nespresso Club.

The French competition authority said that it will conduct a "market test" until 19 May to see if these changes are made, and added that it reserves the right to initiate court proceedings if the barriers to competition are not removed by Nespresso.

The regulator said that its investigation found that ''Nespresso is likely to have abused its dominant position by tying the purchase of its capsules with coffee machines, without objective justification, crowding, therefore, manufacturers of competing capsules.''

The regulator said that more than 25 per cent of French households use espresso machines, which allow easy and quick preparation of an espresso by using coffee machines and servings of coffee capsules / pods.

In France, 73 per cent of espresso machines sold are Nestle's Nespresso and 85 per cent of coffee capsules sold with Nespresso are its own branded capsules. Nespresso in France generates a quarter of its global turnover. 

The European Patent Office (EPO) had first granted Nestle a patent on its single-serve Nespresso coffee machine in 2010 for the way the coffee capsule / pods was fitted in Nespresso machine. The patent was later modified in April 2011.

The modification was opposed by Nestle's competitors who argued that the modification was just a ruse to stop consumers from using other branded coffee capsules / from others like Ethical Coffee Co, Mondelez International, UK's Dualit Ltd, Swiss retailer Migros and Dutch coffee maker D E Master Blenders in Nespresso machines.

The EPO Appeals Board then revoked Nestle's patent in 2013 saying that the modified patent was invalid for the way its coffee capsules are ejected from Nespresso machines.

In April 2013, the London High Court of Justice rejected Nestle's suit of trying to block Dualit from selling its coffee pods to customers using its Nespresso machine. (See: Nestle loses Nespresso refill patent infringement lawsuit against UK's Dualit)

Judge Richard Arnold ruled that customers using Nespresso machines are entitled to buy coffee capsules from any source they please, including from Dualit.

The ruling came eight months after German and Swiss courts also rejected Nestle's plea to ban the sale of unlicensed coffee capsules that are used on its Nespresso machines in their respective countries.

Nespresso capsules are made and sold exclusively by Nespresso and cost three times more than those of rivals or loose ground coffee.

Nespresso products generated around $4.2 billion of Nestle's overall revenue of $97.7 billion.