US patency laws now rule that a patent holder can obtain damages as a result of the use of a non-infringing product that is exported from the USA and used in another country as part of a US patented process. Steven Ludwig, partner at Sterne, Kessler, Goldstein & Fox discusses four federal cases that influence drug patency.
Bringing a drug to market is a multi-phased process consisting of research, development, clinical trials, marketing and sales. Frequently, one or most of these phases occurs in a country other than the USA. If a company has ties to the USA, it must be concerned about the long arm of US patent law for every phase of a drug's life cycle, specifically, how the law applies to those phases performed outside the USA.
A US patent is granted to whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof. As the US Supreme Court held, Congress chose this language to include 'anything under the sun that is made by man'. Diamond vs Chakrabarty (1980).
In July 1998, the US Court of Appeals for the Federal Circuit affirmed the patentability of business method-related software in State Street Bank & Trust vs Signature Fin. Group. The State Street ruling opened the floodgates at the US Patent and Trademark Office (USPTO) for issuance of business-method patents in all technical areas. Healthcare and pharmaceutical companies have taken advantage of these opportunities to protect their intellectual property and have filed patent applications seeking claims to products, processes and business methods.
The USA is known for h3 enforcement of its patent laws. Accordingly, businesses often produce goods in other countries to avoid infringement of US patents. However, many companies have the mistaken belief that if they produce a product oversees, they are immune from damages for infringement of US patents. In certain instances, this is not correct. Obtaining damages in the USA for a competitor's sale of a product outside of the USA is a possibility for some US patent holders.
Obtaining damages based on the sale of goods outside the USA was the topic of four key Federal Circuit cases in 2005. The Federal Circuit is an Appeals Court that handles patent cases and is only one step below the US Supreme Court. These four cases discussed the US law of infringement involving sales outside the 35 U.S.C 271 (Patent Laws).
The most far reaching of these Federal Circuit cases is perhaps Union Carbide vs Shell Oil, where in 2005, the Court held that it is possible for a patent holder to obtain damages as a result of the use by another of a non-infringing product which is exported from the USA and used in another country as part of a US patented process. Healthcare and pharmaceutical companies would be well served to keep this case in mind when using competitor's US patented processes in countries around the world.
In 1972, the Supreme Court in Deepsouth Packing Co vs Laitram Corp acknowledged that unauthorised manufacturers of patented products could avoid liability for infringement under the then-existing law by manufacturing the unassembled components of those products in the USA and then shipping them outside the USA for assembly. Consequently, in 1984, Congress enacted 35 U.S.C 271 (Patent Laws) to prevent manufacturers from producing components in the USA and assembling them in another country in order to avoid infringement of a USA patent on the assembled product.
While not involving healthcare products or pharmaceuticals, the following four key Federal Circuit cases of 2005 have significant importance to these industries.
The first Federal Circuit case in 2005 dealing with sales outside the USA was Eolas Techs vs Microsoft Corp. Here, the Federal Circuit affirmed the ability to invoke 35 U.S.C 271 (Patent Laws) to include sales outside the USA of Internet Explorer in the royalty awarded to Eolas.
The central issue in Eolas was whether software code could be a 'component of a patented invention' under 35 U.S.C 271 (Patent Laws). Microsoft argued that Congress' use of 'components' in 35 U.S.C 271 (Patent Laws) must be identical to the type of 'components' found in the patented invention of Deepsouth - physical components. However, the Court found no support for this argument in the language or history of the statute.
The Court commented upon how the statutory language uses the broad and inclusive term 'patented invention'. Referring to 35 USC ¤ 101, the Court explained that an invention includes 'any new and useful process, machine, manufacture or composition of matter'. The Court reasoned that since software code alone qualifies as an invention eligible for patenting, software code claimed in conjunction with a physical structure, such as a disk, also qualifies as a 'patented invention' under 35 U.S.C 271 (Patent Laws).
Microsoft also argued that there should be no infringement under 35 U.S.C 271 (Patent Laws) did not apply to components manufactured but never physically shipped from the USA. However, the Court noted that 35 U.S.C 271 (Patent Laws) requires only that components be physically supplied from the USA. The Court found that the case law does not impose on 35 U.S.C 271 (Patent Laws) a tangibility requirement since such a requirement does not appear anywhere in the language of that section.
In July 2005, the Federal Circuit again addressed an issue involving 35 U.S.C 271 (Patent Laws). In AT&T Corp vs Microsoft, the Court analysed an issue of first impression of whether software replicated abroad from a master copy exported from the USA - with the intent that it be replicated - could be deemed to be 'supplied' from the USA for the purposes of 35 U.S.C 271 (Patent Laws). Simply put, since the replicated copy was produced outside of the USA, could it still be an infringing product?
Microsoft argued that 35 U.S.C 271 (Patent Laws) liability should attach only to each disk that was shipped and incorporated into a computer assembled outside the USA. However, the Court rejected this theory as failing to account for the realities of software distribution. Specifically, Microsoft argued that software sent by electronic transmission must be treated differently for purposes of 35 U.S.C 271 (Patent Laws) liability as compared to software shipped from discs. The Court rejected this argument and stated: 'Liability under 35 U.S.C 271 (Patent Laws) is not premised on the mode of exportation, but rather the fact of exportation.'
The Court noted that 'Congress obviously intended the statute to have an extraterritorial effect to the extent that the exportation was facilitated by acts in the USA, and the acts at issue here originating from the USA can be understood to be similarly within the meaning of the statute.'
In the third case, NTP Inc vs Research In Motion Ltd, (2005), the Federal Circuit dealt with the issue of whether transmission of email using RIM's BlackBerry system infringed a patent assigned to NTP. The Court limited its infringement analysis under 35 U.S.C 271 (Patent Laws) to NTP's claims covering methods for transmitting information from an originating processor to a destination processor. The Blackberry relay component of the method claims was located in Canada. Here, the Court struggled with the concept of how one might supply or cause to be supplied all or a substantial portion of the steps of a patented method in the sense contemplated by 35 U.S.C 271 (Patent Laws). However, because RIM only supplied products to its customers in the USA, RIM was found not to be infringing under 35 U.S.C 271 (Patent Laws) the method claims which were performed partly outside the USA (note: RIM was found to have infringed certain claims of NTP's patent for other reasons.)
In the final case, Union Carbide vs Shell Oil, (2005), the Federal Circuit addressed the issue of 'how one might supply or cause to be supplied all or a substantial portion of the steps of a patented method in the sense contemplated by the phrase "components of a patented invention" in section 35 U.S.C 271 (Patent Laws)
Claim 4 of Union Carbide's US Patent No. 4,916,243 was to a process for the production of ethylene oxide using pure silver catalysts. Shell Oil sold these catalysts from the USA directly to non-US based affiliates who used the catalysts in Union Carbide's patented process.
The Court in Union Carbide found that Shell Oil's use of Union Carbide's catalysts in a US patented process that was performed outside the USA may result in liability under ¤ 271(f). The Court distinguished the facts of its case from those in NTP stating that in NTP, the Court declined to apply 35 U.S.C 271 (Patent Laws) when RIM itself did not supply any component outside the USA. However, the facts in Union Carbide were that Shell supplied catalysts from the USA directly to customers outside the USA.
The Federal Circuit's recent decisions have significantly expanded how one interprets the extraterritorial protections afforded by 35 U.S.C 271 (Patent Laws), causing some to seek its repeal.
Currently, the US Congress is considering enacting patent reform legislation. On 8 June 2005, HR 2795, the Patent Act of 2005 was introduced by Congressman Lamar Smith (R, TX). Since being introduced, various substitutes of the bill have been proposed in an attempt to reach agreement between interested parties. One proposed substitute known as The Coalition Print was suggested by a coalition of major US corporations in September 2005. Section 6(b) of The Coalition Print would repeal 35 U.S.C 271 (Patent Laws). Whether such a change will be adopted is uncertain.
While the extraterritorial protections afforded by a US patent are limited, it is now possible for a US patent holder to obtain damages for the exportation from the USA of a non-infringing product which is used as part of a process patented in the USA and performed in another country. The Federal Circuit's decision in Union Carbide vs Shell Oil (2005) confirmed that the protections afforded by 35 USC 35 U.S.C 271 (Patent Laws) apply equally to both patented products and patented processes. Producers of drugs in countries outside the USA should consider this development in their business plans.