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Introduction1
Prior to 1988, a patentee holding a United States patent claiming a method or process of making products had no cause of action if others used the method overseas to manufacture products and then imported, used or sold the products in the United States. In 1988, Congress closed the perceived gap in the scope of protection provided by process patents by enacting 35 U.S.C. Section 271(g):
Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent.2
The legislative history of this statute demonstrates that Congress intended to prevent the circumvention of the rights of process patentholders through the use of such processes abroad. For example, Congress expressly cited as an example of infringement the use of a patented process of preparing a DNA molecule comprising a specific genetic sequence. If a foreign manufacturer used the method to insert the DNA molecule into a plasmid and then into a host organism, and then imported that organism, Section 271(g) would apply. However, Congress did not specifically consider how its new law should apply to what is commonly known in biotechnology circles as "research tool patents" or to methods for diagnosing medical disorders, for instance. Thus, Congress did not directly address or answer the question of whether the importation, sale or use of information or data obtained through the exploitation of a patented method qualifies as a "product of a patented process," subject to the restrictions of Section 271(g). Nor does the legislative history expressly address the situation where the foreign subsidiary of a large corporation employs a patented process, gains information about desired target molecules or genetic variants, and transmits that information to its U.S. subsidiary.
This article explores the policy, legislative history and case decisions pertinent to these perplexing and important questions. While district courts are currently grappling with the issues, the Federal Circuit Court of Appeals has not yet heard a case in which the application of Section 271(g) to the "importation" of information or data obtained through the use of a patented research tool patent was at issue. However, because one such case, Bayer AG v. Housey Pharm., Inc., 169 F.Supp.2d 328 (D. Del. 2001), is currently on appeal, we should soon receive more guidance as to the scope of the rights held by the process patentholder and to the permissible activity in which competitors may engage.
Background on Research and Diagnostic Method Patents
Many biotech/biopharma companies have invested a great deal of time and money in the patenting of research tool inventions.3 For example, companies today make use of many research tools during the development of a new drug. Some of the tools involved in drug discovery include bioinformatic methods for identifying the interaction of certain proteins and their association with disease, methods for confirming protein targets, screening assays to identify molecules active against a target, and safety profiling assays.4 The end result of each of the above processes is not necessarily the discovery of a new chemical or biochemical compound that will become the marketed drug, or even a component of the final drug product. Rather, information gleaned from carrying out the patented methods will provide valuable data that can be used to identify new compounds or their targets.
There are many examples of research tools whose end product is essentially information, not a physical product. One example of this type of research tool is the GeneChip System marketed by Affymetrix. Although a product in themselves, the probe arrays (chips) sold by Affymetrix are research tools created to supply the user with data on gene expression for expression monitoring, diagnostics and genotyping. The Affymetrix chips and related system technologies are claimed in many issued U.S. patents with as many pending U.S. applications. The patents themselves claim not only the arrays and array synthesis, but also methods of using the chips and related databases. Would expression analysis work performed in another country using a probe array that would otherwise infringe a process patent of Affymetrix constitute infringement under Section 271(g) if information from that expression analysis were "imported" into the United States by mail, telephone or email? This article explores this and related queries.
Other examples abound of research or diagnostic tools that are likely to be covered by some existing process claims: methods of making and using transgenic animals or animals such as mice with genes knocked out for the purpose of testing or validating compounds already synthesized and tested in vitro; methods of making and using vectors, such as plasmids and BACs for the movement of foreign genes into microorganisms; methods for using protein structures, crystals and X-ray coordinates useful for rational drug design; and methods for identifying an individual's genetic polymorphisms to predict the likelihood of disease or assess potential treatments for diseases. The common element of all such method patents is that the patent claims often do not cover the final product that ultimately will be made and sold in this country.5 Although an individual research tool or other method may be patented, the value of the tool lies in the information it provides on the way to discovering a very different product that ultimately will be commercialized--perhaps a decade or more in the future.
While biotechnology companies and their patent practitioners have been diligently prosecuting and obtaining broad claims to research and diagnostic methods in the United States and around the globe, their efforts may go unrewarded in this country, depending on the resolution of critical legal issues raised in several pending case. Some foreign and domestic companies believe that they have found a lawful way to use the patented processes, without paying royalties, simply by employing the methods in a foreign country in which the patentee does not have patent protection and then providing the relevant data to a customer (or subsidiary) in the U.S., who then proceeds to construct or use the molecule identified by the patented method--but without ever using the method itself in the U.S.
This article explores the legal justification for such belief and the very limited legal support for--and opposition to--that position. The hypothetical scenario we posit for purposes of this article is as follows: a U.S. biotechnology company ("U.S. Bio Co.") seeking to develop a new drug sends potential candidates ("leads") to a foreign company for evaluation using research tools patented in the United States. Alternatively, U.S. Bio Co. sets up a foreign affiliate for this very purpose. The foreign entity uses the patented method to screen and evaluate the candidates and sends back to U.S. Bio Co. the best of the multiple candidates. Alternatively, the foreign entity simply places a call to U.S. Bio Co. and reports the test results. In any of these situations, has U.S. Bio Co. imported a "product made by a patented process" in violation of Section 271(g)? If not, has it violated any other subpart of Section 271? Is the foreign company guilty of direct infringement or inducing infringement under Section 271? As discussed below, to date these questions have been answered in inconsistent ways by the federal district courts.6
Legislative History Underlying the Process Patent Amendments Act of 1988
The Process Patent Amendments Act of 1988 ("the PPAA") was enacted as part of the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, 102 Stat. 1107. Prior to 1988, U. S. law contained no prohibition against the importation of products made by processes patented in the United States. The PPAA was enacted to address this "perceived loophole" in the statutory scheme for protecting owners of United States process patents. Eli Lilly and Co. v. American Cyanamid Co., 82 F.3d 1568, 1571 (Fed. Cir. 1996). The purpose of the PPAA, as reflected in the legislative history, was to provide patent owners "the new right to sue for damages and seek an injunction in Federal district court when someone, without authorization, uses or sells in the United States, or imports into the United States a product made by their patented process." S. Rep. No. 83, 100th Cong., 1st Sess. 29 (1987) ("Senate Rep.").
Consistent with this stated purpose, 35 U.S.C. Section 271(g) imposes infringement liability on one who "offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States." Section 271(g) states, in relevant part:
Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer . . . . A product which is made by a patented process will, for purposes of this title, not be considered so made after –
(1) it is materially changed by subsequent processes; or
(2) it becomes a trivial and nonessential component of another product.
35 U.S.C. Section 271(g).
The PPAA was designed to "prevent circumvention of a U.S. process patentee's rights" through the performance of patented processes abroad. Senate Rep. at 48. Further, Congress intended to extend patent protection to processes which "present[] an economic value only through the product" and where the importation, use and sale of products produced by such processes "severely diminishes the value of such patents." Senate Rep. at 31 ("This practice must be effectively countered by changes in the patent laws to protect the legitimate interests of U.S. inventors."); see also House Rep. No. 60, 100th Cong., 1st Sess. 1 (1987) ("House Rep."). In sum, the purpose of the legislation was to "provide meaningful protection to owners of patented processes." House Rep. at 3.
In keeping with Congress' recognition of the economic value that may reside in process patents, and its intent to protect United States process patentholders against foreign infringement, the legislative history touts the importance of protecting "new manufacturing techniques" and emphasizes the need to prohibit importation of any "product," "substance," "good," and "tangible item" made by patented processes. House Rep. at 3. See also Senate Rep. at 29-31, 39. On the other hand, there are no specific examples of prohibited activities that involve the use of information in the U.S. that is derived from the performance of a patented process outside of the U.S. See, e.g., Senate Rep. at 29-31, 39. Most likely this is because the issue simply was not raised during committee and Congressional deliberations.
The legislative history of the PPAA indicates Congress' expectation that the courts would resolve issues of the proximity of the imported product to the product of the patented process on a case-by-case basis. See Senate Rep. at 46 ("Inevitably the courts will have to assess the permutations of this issue of proximity to or distance from the process on a case-by-case basis."); id. at 49 ("The Committee expects the courts to exercise careful judgment in distinguishing those products that are too far removed from the patented process, and those that have been changed only in insignificant ways."). In order to "provide additional resources to the courts," Congress provided several examples of activity that should be encompassed by Section 271(g). These examples were provided in the context of determining whether a product fell within the "materially changed" exception and are instructive as to the types of activity Congress intended to capture through the new law. One of those examples pertained to importation of a polypeptide made by use of plasmids containing a specific DNA sequence:
In the biotechnology field it is well known that naturally occurring organisms contain within them particular genetic sequences composed of unique structural characteristics. The patented process may be for the process of preparing a DNA molecule comprising a specific genetic sequence. A foreign manufacturer uses the patented process to prepare the DNA molecule which is the product of the patented process. The foreign manufacturer inserts the DNA molecule into a plasmid or other vector and the plasmid or other vectors [sic, vector] containing the DNA molecule is, inturn [sic], inserted into a host organism; for example, a bacterium. The plasmid-containing host organism still containing the specific genetic sequence undergoes expression to produce the desired polypeptide. Even if a different organism was created by this biotech procedure, if it would not have been possible or commercially viable to make the different organism and product expressed therefrom but for the patented process, the [polypeptide] product will be considered to have been made by the patented process.
Senate Rep. at 51. While the example above does confirm that Congress did not intend to limit the reach of the statute to the single, direct product of the patented process (here, a DNA molecule rather than a polypeptide), it does not expressly address situations other than use of manufacturing processes that produce physical products.
The above example also introduces the concept of whether the patented process is the "only commercially viable way" to make or synthesize the imported product. Senate Rep. at 51. While mentioned several times in the legislative history, Congress did not directly address the extent to which this concept should be relied upon in construing the scope of Section 271(g). Id. at 51; House Rep. at 13 ("a product will be considered made by the patented process, regardless of any subsequent changes, if it would not be possible or commercially viable to make that product but for the use of the patented process"). Congress elected not to include this concept in the statute itself, as it did the notion of "materially changed" products. As many break-through research tools are designed specifically to replace a cumbersome, inefficient and expensive method with some other--much more costly, risky and expensive--way of obtaining the same end product, this concept is highly relevant to the use of many research tools.
The legislative history is not without some sign posts relevant to the issues pertinent to this article. Congress attempted to foresee and forestall ways in which competitors would evade the reach of the statute. In addressing the situation in which a "product made by a patented process" is incorporated into a second product and then imported, Congress stated that liability should exist if "the immediate product of the process becomes an integral, important or essential feature of the second product." House Rep. at 14. Thus, Congress clearly evinced an intent that the statute encompass more than just "direct" products of patented processes. The examples it used, however, were limited to manufacturing processes where physical products are produced.
In sum, while the legislative history of Section 271(g) is quite lengthy, it does not provide an easy answer to the situation involving importation of data resulting from the practice of a patented process abroad, as in the U.S. Bio Co. scenarios posited above.
General Interpretation of the PPAA by the Courts
Case law interpreting Section 271(g) is limited, despite the fact that the statute is now nearly 15 years old. Cases interpreting the applicability of Section 271(g) to the importation of information generated from the use of patented research or diagnostic methods are even fewer. To understand the body of law against which the importation of information will be measured, a review of the leading cases applying Section 271(g) generally, and in the field of biotechnology, is instructive. While the cases discussed in this section are important background to the question presented in this paper, they each deal with a patented process that is comparable to traditional manufacturing processes and analyze the proximity of the "product" to the patented process under the "materially changed" defense to infringement under Section 271(g).
Eli Lilly's patented process produced a multi-purpose intermediate compound useful in synthesizing a variety of cephem compounds, whereas subsequent processing by defendants produced the powerful antibiotic drug, cefaclor. Id. at 1570-71. As there was no question that the imported cefaclor was a "product" under Section 271(g), the Federal Circuit looked to whether the product had been "materially changed" after practice of the claimed method. Id. at 1571-78. Noting that Congress gave no clear definition of what constitutes "materially changed," the Court provided an exhaustive review of the legislative history of the PPAA. Id. The Court then determined that American Cyanamid's additional processing steps "materially changed" the product of the patented process from the intermediate compound to the ultimate drug. Eli Lilly's contention that the compound of the patented process and the accused antibiotic shared a cephalosporin nucleus as their "fundamental common core structure" did not warrant a contrary conclusion, since the two compounds were profoundly different in molecular structure, pharmacological purpose and biological properties. Id. at 1573. One of the key factors in the finding of no infringement under Section 271(g) was the absence of any process claim that extended to the imported product, cefaclor. Id.7
The Eli Lilly court also considered the House and Senate Reports' statements that a product "will be considered made by the patented process . . . if it would not be possible or commercially viable to make that product but for the use of the patented process." Eli Lilly, 82 F.3d at 1576-77. In this case, the record was clear that there was at least one commercially viable alternative process, so this query supported the Court's finding of no liability under Section 271(g). Id.
As to the second patent, the district court determined that even though the claim at issue was directed to a method for producing a replicable cloning vehicle (e.g., a plasmid) which was used to create the hGH, and not to the hGH itself, the hGH was a product "made by" the patented process under Section 271(g). Id. at 1560-61. In upholding the district court's decision, the Federal Circuit acknowledged that:
The statute does not directly answer this question, because it only defines, at least in part, what products "will . . . not be considered" to have been "made by" a patented process, namely, those that have been "materially changed by subsequent processes" or that have become "a trivial and nonessential component of another product." 35 U.S.C.A. Section 271(g) (emphasis added). The statute does not specify what products will be considered to have been "made by" the patented process, apparently because Congress wanted the courts to resolve this critical question of proximity to the product of the patented process on a case-by-case basis.
Id. at 1561, citing S. Rep. No. 83, 100th Cong., 1st Sess. 46 (1987). The Court further cited the fact that BTG used the claimed process of making a replicable cloning vehicle as "an essential part of an overall process for producing hGH." Id.
The legislative history of the PPAA, particularly the comparable example relating to the use of plasmids to express a desired polypeptide from the Senate Report quoted above, also supported the conclusion that Section 271(g) should apply. Id. at 1561, quoting S. Rep. No. 83, 100th Cong., 1st Sess. 51 (1987). Therefore, although the Court acknowledged that the plasmid product of the claimed process and hGH are "entirely different materials, one being more than materially changed in relation to the other," the above excerpt from the legislative history of the PPAA indicated Congressional intent that infringement of a process for making a plasmid is not to be avoided by using it to express its intended protein. Id.
Another factor in the Court's decision was that the patent at issue explicitly contemplated that the patented process would be used as part of an overall process for producing hGH and disclosed in detail how to make hGH by carrying out the claimed process and other necessary steps. Id. "Thus, it cannot be said as a matter of law that the production of hGH is too remote from the claimed process of making a replicable cloning vehicle." Id.
Recent Decisions Applying the PPAA to the Transmittal of Information
The above cases each involve a situation where a physical product was imported into the United States and thus became the target of the infringement allegation. Because the statute and the case law deal with the use of patented processes outside of the United States in terms of imported "products," the application of this law to "information" was not addressed until relatively recently. The district court decisions of the past year or so do not bring much principle to the situation, however. One federal district court simply held that information is not a "product made by a process " under Section 271(g). However, another district court found potential infringement liability for the importation of data generated by the use of a patent process abroad, but did so under Section 271(a), not Section 271(g). Finally, the ITC applies it own standard for prohibiting the importation of products made by patented processes under Section 337 of the Tariff Act of 1930, and may bar the importation of substances identified through the use of a patented research tool candidates, regardless of how Section 271(g) is interpreted. Each of these decisions is discussed below.
Bayer argued that Section 271(g) did not apply to patents claiming research methods. Id. at 330. The trial court agreed and dismissed Housey's infringement claim, stating "Section 271(g) addresses only products derived from patented manufacturing processes, i.e., methods of actually making or creating a product as opposed to methods for gathering information about, or identifying, a substance worthy of further development." Id., citing BTG, 80 F.3d at 1560-61; Eli Lilly, 82 F.3d at 1571-73; Mars, Inc., 855 F.Supp. at 672 (emphasis in original). By defining "product" to exclude "information", the court concluded that Section 271(g) did not apply, despite that the value in the patent at issue was, unquestionably, the information produced by the use of the claimed method. Instead, the court accepted Bayer's policy argument that "sweeping liability" would result if Section 271(g) were applicable to patents claiming screening methods and any products subjected to those methods in foreign countries would infringe upon importation. Id. n.2.
The Housey court held that the processes of "identification and generation of data are not steps in the manufacture of final drug products." Id. The court so held despite the fact that the patents clearly contemplated that the final product was information: representative claim 1 of the patents at issue claimed a "method of determining whether a substance is an inhibitor or activator of a protein . . . ." Cf. Eli Lilly, 82 F.3d at 1573; BTG, 80 F.3d at 1561. The "product" of the claimed process was "data." Thus, this was not an Eli Lilly situation where the claims failed to encompass the product at issue. The patent and the claims were specifically directed at a process of obtaining information. The Housey court, however, did not center its analysis on the product of the claims as drafted, as did the court in Eli Lilly, but simply held that "information," even if it is the apparent result of the claimed method, is not a "product."9
[T]he Senate Report appears to create a distinction between different categories of process patents that excludes method patents from the scope of § 271(g). The Report states that "U.S. patent laws recognize three basic types of inventions for which patents may be obtained: products, methods of use, and methods of manufacture. Patents on the last are also known as process patents, that is patents on process inventions." S.R. at 41. The Report then goes on to discuss § 271(g) as an important step in the protection of process patents. By defining methods of manufacture as "process patents" as distinct from "methods of use," Congress appears to exclude methods of use from the purview of the statute. This definition is by no means conclusive. It does, however, provide further evidence for the conclusion that Congress may not have intended § 271(g) to apply to the results of diagnostic assays.
Id. at 11-12. The Magistrate Judge also discussed the scope of the potential impact of expanding liability to include methods of testing, as recognized in the Housey decision. Id. at 13-14.
However, the Court denied summary judgment of non-infringement under § 271(a) because MDS' sales activities in the U.S., including its solicitation of U.S. customers through its catalogues and websites and the consummation of sales by delivery of assay results and making payment in the U.S., could be challenged as "offers to sell."" Id. at 15-17 (distinguishing district court decisions that recognized that an "offer to sell" made within the U.S. that contemplates a "sale" of goods outside of the U.S. does not fall within the scope of § 271(a)). The decision raises questions as to the permissible scope of U.S. sales activity for patented research methods practiced outside the U.S.
The ITC's definition of "unfair practices" in trade includes the "importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that . . . are made, produced, processed, or mined under, or by means of, a process covered by the claims of a valid and enforceable United States patent." 19 U.S.C. Section 1337 (titled "Unfair practices in import trade."). Given the broader language of this statute and the ITC's decision that the defenses set forth in Section 271(g) are not applicable, it may be that if Section 271(g) does not provide protection for the holder of a research method patent, that patentee may find recourse in the ITC.
However, the ITC forum may not present a perfect solution for the process patentholder. Because of the additional standards a complainant must show to prevail in an ITC proceeding (including the commercialization of the invention by the patentee in the United States in an efficient and economical manner), an ITC exclusion order may not be available.10 Even if available, the ITC may fall well short of providing an adequate remedy for the patentee.11 Further, the Commission may be reluctant to issue a cease and desist order as "in the public interest" if the development of a promising drug is well underway. As recognized in the legislative history of the PPAA, "in the best of circumstances, where the full ITC remedy is obtained, the patentholder is saddled with an expensive and burdensome proceeding, with no prospect of having his injury compensated, only brought to a hold prospectively." Senate Rep. at 38. Thus, Congress enacted Section 271(g) to expand the rights of process patentholders beyond those provided for in ITC proceedings. House Rep. at 1-2. Congress did not envision an ITC exclusion order as the "sole remedy available to process patentholders against competition from offshore manufacturers." Senate Rep. at 38; see also House Rep. at 6-11 (noting that without expanded protection for United States process patents, owners will be "relegated to the use of an inadequate administrative remedy and will suffer competitive disadvantages").
Summary: A State of Uncertainty
Section 271(g) speaks in terms of the "importation" of a "product," not the transmittal of information. Likewise, both the Senate and House Reports speak in terms of a physical product and do not provide any example that fits the U.S. Bio Co. scenario we have set forth. On the other hand, the legislative history confirms the Congressional intent to provide meaningful protection for process patentholders and preventing the circumvention of the rights of such patentholders through foreign use. Certainly, the ability to use data in the U.S., even where information was obtained overseas from a patented genetic diagnostic assay or a new method for screening clinical candidates, would drastically reduce the value of many U.S. patents. The examples provided by Congress can be (and have been) used to support or oppose the application of Section 271(g) to the transmission of information. As aptly stated by the Federal Circuit, "there is something in the legislative history for each side." Eli Lilly, 82 F.3d. at 1573. Finally, while appellate decisions pay homage to the tremendous commercial value of process patents, they also indicate that the Federal Circuit may be reluctant to apply the statute to situations not specifically contemplated by the legislature.12
Those opposed to the imposition of liability for the sale or use of information resulting from the use of patented processes abroad contend that United States patent laws were not designed to and should not cover all activity outside its borders.13 See House Rep. at 5 ("To provide that American law should govern conduct that occurs in other countries would conflict with basic notions of national sovereignty"). U.S. companies can seek global patent protection if there is a concern about the use of their inventive process abroad. However, this position ignores the "reality that the offending act is the importation of a product made through the use of a protected process patent or its subsequent sale in the United States." House Rep. at 6. It also ignores the practical reality that truly "global" patent protection is extraordinarily expensive and virtually impossible to enforce. Most major pharmaceutical companies have major research campuses abroad, along with other satellite research centers scattered throughout the world. It is a simple matter for many companies to direct research – and thus research jobs and technical innovation – away from domestic locations in order to avoid injunctions and royalties obligations based on U.S. patents. On a policy level, such an outcome may not promote the commercial or scientific interests of the United States. See House Rep. at 3 (noting consequence of the "unfettered ability of others" to practice patented processes abroad may be the "loss of American jobs, particularly in new technology areas"). Moreover, the U.S. is the largest pharmaceutical market in the world, rendering it more than a little ironic that U.S. companies would need to look to foreign patent laws to protect their inventions in this country.
The uncertainty surrounding the scope of Section 271(g) may be resolved in connection with the Housey appeal. Regardless of the outcome of that case, any resulting clarification of the law will assist in decisions concerning the scope of protection to seek for their research tool and diagnostic inventions.14 If The Federal Circuit takes a narrow view of Section 271(g), there is likely to be a swift and concerted cry for Congressional intervention from both biotechnology and information technology industries in the United States.
1The authors also wish to acknowledge the assistance of Hans Hull, now a third-year student at Boalt Hall University of California, Berkeley, School of Law, whose legal research contributed to this article.Resolution 757-2 International Issues Resolved, that the Section of Intellectual Property Law favors, in principle, a clarification of Section 271(g) of title 35 of the United States Code to provide that structured or ordered data that is produced by and transmitted into the United States from a computer system outside the United States as a result of a process patented in the United States will be deemed a "product" within the meaning of that section, and that said transmission of said data will be deemed an "importation" within the meaning of that section.A.B.A. Section of Intellectual Property Law Res. 757-2, reported in Section of Intellectual Property Law ABA 1999-2000 Annual Report, Mark K. Dickson and James A. Forstner, eds.
