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May 28, 2013 Articles

Foreign Infringement in Imported Products

An analysis of the implementation of 35 U.S.C. § 271(g).

By Jillian A. Centanni

Section 271 of Title 35 of the U.S. Code sets forth the statutory basis for patent infringement. Sections (a) and (g) of section 271 specifically deal with the importation of products into the United States. Under section 271(a), any person or corporation who imports any patented invention during the term of the patent into the United States is liable for patent infringement. Section 271(g) narrows section 271(a) by identifying the product as being made by a process patent and by additionally carving out two exceptions. Under the first exception, there is no liability under section 271(g) if the product made by the patented process is "materially changed by subsequent processes." Further, under the second exception, the product made by the patented process becomes "a trivial and nonessential component of another product."

This article briefly analyzes the legislative history, the statutory interpretation, and how courts have applied 35 U.S.C. § 271(g), including the Federal Circuit's decisions in Bayer v. Housey and NTP, Inc. v. Research In Motion, Ltd.

Legislative History
In 1988, Congress enacted the Process Patents Amendment Act, 35 U.S.C. § 271(g), so that U.S. federal courts had jurisdiction to address extraterritorial patent infringement claims over "[w]hoever 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. . . ." Congress designed section (g) to provide new remedies to supplement existing remedies available from the International Trade Commission (ITC) under 19 U.S.C. § 1337, which defines "unfair methods of competition" in import trade. Prior to the enactment of section 271, U.S. courts did not have any power to enforce foreign infringement of U.S. process patents. Essentially, a manufacturer (either U.S. or non-U.S.) could evade liability for patent infringement by using a patented process abroad and then importing the product into the United States.

Both the Senate and House agreed that there was a strong need for process patent protection. As Senator Grassley stated,

There, of course, is something very inherently unfair about U.S. research-based industries pouring resources into a product or a process patent and then having that product or process pirated abroad and shipped back into this country for sale. The inventor, of course, is required to disclose his or her process patent, and it is available in the Patent Office just like some recipe in a cookbook for all to see.

Marion Merrell Dow, Inc. v. Am. Cyanamid Co., 1994 U.S. Dist. LEXIS 5950, at *3–4 (D.N.J. May 4, 1994).

The House of Representatives also stressed the "remedial character of the legislation" and the need to include it within 35 U.S.C. § 271. Congress also recognized the availability of redress from the ITC but felt the remedies available were insufficient to protect the owners of process patents fully. As a result, Congress added section (g) to 35 U.S.C. § 271 and provided two significant limitations. These two limitations narrowed the scope of protection to target offshore products that were not materially changed by subsequent processes or became a trivial and nonessential component of another product. Otherwise, every foreign product subject to a U.S. process patent would have fallen within section 271(g), and this would have defeated Congress's intent.

Although Congress enacted 35 U.S.C. § 271(g) in 1988, it was not until 1996 that an amendment added to the Patent Act the importation of a patented product as an exclusive right. The Trade-Related Aspects of Intellectual Property agreement of the 1994 Uruguay Round trade agreements enacted the amendment, which stated that patent holders held the exclusive right of importation. Specifically, 35 U.S.C. § 271 was amended to include "import into the United States."

Bayer AG v. Housey Pharmaceuticals, Inc.
In Bayer AG & Bayer Corp. v. Housey Pharmaceuticals, Inc., 340 F.3d 1367 (Fed. Cir. 2003), the seminal case for section 271(g) jurisprudence, the Federal Circuit held that in order for there to be patent infringement under 35 U.S.C. § 271(g), a product made by a process patented in the United States must be "physical and tangible"; the generation of intangible information is not included. In Bayer, the four patents at issue covered various methods of screening for substances that affect protein expression in a cell. The District Court of Delaware dismissed Housey's claim for infringement under section 271(g) for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The district court interpreted section 271(g) to mean that it applies only to products derived from patented manufacturing processes—methods of actually making or creating a product as opposed to methods of gathering information about, or identifying, a substance worthy of further development. On appeal, Housey argued that the information produced by Bayer using the patented processes claimed in the Housey patents was a product made by a patented process. Bayer argued that the word "made" meant "manufactured" and that "information" was not a manufactured product. The Federal Circuit agreed with Bayer in its interpretation of section 271(g) and based its decision on section (g)'s legislative history and canons of statutory interpretation. As a result, the Federal Circuit affirmed the district court's decision. In turn, Housey's drug products were not manufactured by a process claimed in the asserted patents; therefore, under section 271(g), Housey did not infringe Bayer's patents.

NPT, Inc. v. Research In Motion, Ltd.
Section 271(g) was revisited two years later in NPT, Inc. v. Research In Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005). In NPT, the dispute was whether RIM's BlackBerry system infringed NTP's system and process claims, by sending email messages from a relay server in Canada to BlackBerry devices in the United States.

In reversing the lower court, the Federal Circuit held that NTP's claims were directed to methods for the "transmission of information," which does not entail the manufacturing of a physical product. The Federal Circuit therefore held that section 271(g) does not apply to the asserted process claims any more than the "production of information" did in Bayer.

The Federal Circuit further tried to reconcile the "physical and tangible" requirement of Bayer by addressing the scope of section 271(a). The court held that "[t]he use of claimed system under § 271(a) is the place at which the system as a whole is put into service, i.e., the place where control of the system is exercised and beneficial use of the system obtained." Therefore, even though the relay server was located in Canada, under section 271(a) RIM could infringe NTP's system claims in the United States, as long as the beneficial use of the system is obtained and control of the system is exercised in the United States. The Federal Circuit then differentiated the application of section 271(g) for process claims, holding that "a process cannot be used 'within' the United States as required by section 271(a) unless each of the steps is performed within this country."

Future Implications of Bayer and NTP
Under Bayer and NTP, the Federal Circuit determined that section 271(g) applies only to physical products that have been manufactured. Thus, U.S. patent owners who own process patents that produce intangible information cannot prevail on patent infringement against competitors who import from overseas. For example, imagine a hypothetical U.S. patent for diagnostic assays that analyze blood samples to determine whether a patient has a certain disease. Under Bayer and NTP, competitors in the United States could avoid infringement simply by collecting the blood samples locally and then sending the samples abroad for analysis pursuant the patented process.

Section 271(g) enables U.S. patent owners to bring suit for foreign infringement where a product was made by a patented process and imported into the United States. However, under both Bayer and NTP, practitioners need to be careful when employing this statute because the Federal Circuit limited infringement claims under section 271(g) to imported products made by a process patented in the United States so long as the products are physical and tangible and the process patent at issue describes a production process, and not merely a distribution or transmission process.

Keywords: litigation, intellectual property, Federal Circuit, importation, foreign infringement, process patent, Bayer v. Housey, NTP, Inc. v. Research In Motion, 35 U.S.C. § 271(g)

Jillian A. Centanni – May 28, 2013

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