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Executive Summary

A draft process patent bill being circulated in the Senate contains a provision for a five-year follow-up to monitor the legislation's impact on the supply of products made legitimately overseas. According to the draft legislation, expected to be introduced jointly by Sens. Mathias (R-Md.) and Lautenberg (D-N.J.) later this month, the Commerce Dept. will be required to submit annual reports to Congress "on the effect of this act on the importation of ingredients to be used for manufacturing of products in the U.S. in those domestic industries that submit formal complaints to the department alleging that their legitimate sources of supply have been adversely affected." The follow-up provision was included in the draft in response to concerns raised by the generic drug industry that process patent legislation would encourage increased litigation that could intimidate foreign suppliers of products made by non-infringing processes. According to a summary of the June 21 draft, the provision was "added in an effort to respond to arguments raised by the generic pharmaceutical industry." The provision has no counterpart in the House bill (HR 1069) introduced by Rep. Moorhead (R-Calif.) in February, nor in the bills that passed the House and the Senate Judiciary Cmte. last year ("The Pink Sheet" Oct. 8, T&G-5). The draft legislation states that its goal is "to protect patent owners from importation into the U.S. of goods made overseas by use of a U.S. patented process." Under the draft, anyone who "without authority uses or sells within, or imports into, the U.S. during the term of the patent . . .a product produced by such process infringes the patent." In a June 25 "Dear Senator" letter to encourage cosponsorship, Lautenberg and Senate Judiciary/Patents Subcmte. Chairman Mathias noted that "when a U.S. patented process is copied abroad, infringement under [current] U.S. law never occurs, even if the resulting product is used or sold in the U.S." The "only concerns," the letter continues, "have been those of the generic pharmaceutical industry, which . . . fears that improved process patent protection might cause [foreign] sources of supply to dry up." Two other aspects of the draft were also included in last year's House bill to allay generic drug industry concerns: prospectivity and a provision that infringement can occur only after an infringer is placed on notice. The prospectivity clause grandfathers existing arrangements. The "act shall apply only to products produced or imported after the date of enactment"; the bill "shall not abridge or affect the right of any persons or their successors in business to continue to make, use, sell, or import any specific product already in substantial and continuous commercial production on the date of introduction," the draft states. On the other hand, the bill would "not deprive a patent owner of any other remedies available" under current law. The notice clause of the draft provides that "no damages shall be recovered by the patentee for infringement . . . except on proof that such infringer knew of or was notified of the infringement and continued to infringe thereafter." To protect a company who is unaware that an overseas supplier manufactures the product by unauthorized use of the patented process, the legislation adds that "damages may be recovered only for infringement occurring after such knowledge or notice. Filing of an action for infringement shall constitute such notice." According to the Senate draft's summary, the measure "says nothing about a 'presumption' that products have been produced by the patented process," whereas HR 1069 "specifies that such a presumption would exist in certain situations." However, the Senate Judiciary Cmte., as it did in its report on last year's legislation, is expected to provide legislative history that would lead courts "to invoke a presumption in appropriate cases." Such a presumption has been a concern to the generic drug industry because it places the onus on the defendant in litigation to prove that a defendant's process differs from the patented one.

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