When Invisalign's key patents began to expire in 2017: what Align told investors, in its own words

What it says#

Align warned before it happened. Its annual report for 2016, filed February 28, 2017, told investors in the Competition section that "the expiration of certain of our key patents commencing in 2017, may result in additional competition," and in its risk factors that "as a result of the expiration of certain key patents owned by us, commencing in 2017, we expect that these existing competitors as well as new entrants into the clear aligner market will begin offering an orthodontic system more similar to ours in the near future." That filing put the expiry range of its active U.S. patents at 2017 to 2035.

The report for 2017, filed February 28, 2018, records the event. Under Intellectual Property: "As of December 31, 2017, we had 420 active U.S. patents, 456 active foreign patents, and 416 pending global patent applications." Then: "Certain of our issued U.S. patents expired in 2017. In addition, corresponding foreign patents will start to expire in 2018. Our active U.S. patents expire between 2018 and 2035. When patents expire, we lose the protection and competitive advantages they provided to us, which could negatively impact our operating results." The risk factor names names: "as a result of the expiration of certain key patents owned by us, which began in 2017, we expect that existing competitors such as Danaher Corporation, Dentsply Sirona Inc., Straumann AG, 3M, 3Shape and Angel Align as well as new entrants into the clear aligner market such as start-ups will begin offering an orthodontic system more similar to ours in the near future." It adds that "Large consumer product companies may also enter the orthodontic supply market" and that Align faces "competition from companies that now offer clear aligner therapy directly to the consumer eliminating the need for the consumer to visit a dental office."

A year on, the report for 2018 (filed February 28, 2019) states it as fact: "Due in part to the expiration of certain key patents owned by us beginning in 2017, we are facing increased competition in the clear aligner market as a result of the entry of new, large companies into certain markets who have the ability to leverage their existing channels in the dental market to compete directly with us. In addition, corresponding foreign patents started to expire in 2018." The portfolio had grown to 449 active U.S. patents, 423 foreign and 486 pending, expiring between 2019 and 2037. On the consumer channel, the 2018 filing draws its line: "Unlike these direct to consumer competitors, we are committed to a doctor in the core of everything we do, and Invisalign Treatment requires a doctor's prescription and an in person physical examination of the patients dentition before treatment can begin."

The 2017 filing gives the business the patents protected. Align received FDA 510(k) clearance to market the Invisalign System in 1998; it is regulated as a Class II device; to offer it, orthodontists and general dentists must first complete an Invisalign training course; over 5.2 million people had been treated with it; and the Clear Aligner segment was 89 percent of 2017 net revenues. The same filing describes a July 28, 2016 supply agreement under which Align became, from October 2016, SmileDirectClub's exclusive third-party supplier of non-Invisalign aligners for SDC's "doctor-led, at-home program," up to 20 stages without attachments or interproximal reduction, with a referral program sending cases too complex for that product to Invisalign providers; "Align does not market or sell SDC products."

Who it applies to#

Any practice selling aligners. For an Invisalign provider the filings describe the ground shifting under the product that made up most of Align's revenue, and they name the competitors Align expected to respond. For a practice that added another system after 2017, the filings are the manufacturer's own account of why those systems became possible: the key patents that had covered the method began to lapse in the United States in 2017 and abroad in 2018.

The filings also frame the direct-to-consumer question a general dentist fields at the front desk. Align says in 2017 that it faces companies selling aligners without a dental visit, and in 2018 that Invisalign requires a prescription and an in-person examination; in the same 2017 filing it discloses that it was manufacturing SmileDirectClub's aligners. Both are in the record.

What the filings do not cover is as important. They do not say which patents expired, how many, or whether any particular competitor's product depended on them. Align lists the competitive factors it believes matter, "effectiveness of treatment," price, software features, aesthetics, customer support, brand awareness, innovation, distribution, comfort, oral hygiene, ease of use and "dental professionals' chair time," and says its products compare favorably on each; that is a claim, not a finding.

What changed#

In Align's telling, 2017 is the year its patent position stopped being a wall. Before it, the company called its intellectual property "a substantial business advantage"; in 2017 it reported the first expirations and predicted more similar systems; in 2018 it reported the competition had arrived, from large companies with existing dental channels and from companies selling direct to consumers. The number of active U.S. patents went up over the same period, from 420 to 449, so the shift was in which patents remained, not in whether Align held any.

Nothing in the filings quantifies the effect on price, share or on the practices that sold Invisalign. This page reports the disclosures; it does not extend them.

Where the source is#

All three documents are annual reports on Form 10-K filed with the Securities and Exchange Commission and hosted on EDGAR at sec.gov: the report for fiscal 2016 (filed February 28, 2017), fiscal 2017 (filed February 28, 2018, the source link) and fiscal 2018 (filed February 28, 2019). The patent language sits in Item 1 under Intellectual Property and Competition and again in Item 1A, Risk Factors; the SmileDirectClub supply agreement is in Item 1 of the fiscal 2017 report. EDGAR asks automated tools to identify themselves but opens directly in a browser, and the filings are public records.