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SEN. MATHIAS' PROCESS PATENT BILL SHOULD REQUIRE IMPORTERS TO PROVE NON-INFRINGEMENT OF OVERSEAS GOODS, PMA's MOSSINGHOFF TELLS HILL CMTE.

Executive Summary

Sen. Mathias' (R-Md.) process patent legislation should be amended to require importers to prove that goods received from overseas are not made by a process covered under a valid U.S. patent owned by a competitor, PMA President Mossinghoff maintained at a Oct. 23 hearing of the Senate Judiciary/Patents Subcmte. The legislation should "include a provision for reversal of the burden of proof," and establish a "rebuttable presumption" that "a product that could have been made overseas by the unauthorized use of a patented process is presumed made by that process," Mossinghoff declared. "A shift in the burden of proof" onto the defendant "would not create a substantial hardship since the alleged infringer is in a much better position to establish that the product was made by a patented process. Such a shift is essential if the process patentee is to have an effective remedy against an importer since the laws of most countries do not have adequate discovery mechanisms of the types sanctioned by U.S. courts," he stated. The bill (S 1543), introduced by Subcmte. Chairman Mathias on July 31 ("The Pink Sheet" July 8, p. 4), is silent on the burden of proof issue, like similar legislation passed by the full Senate Judiciary Cmte. last year. However, in passing last year's measure, the cmte. established legislative history to induce courts to shift the burden of proof onto defendants. Process patent legislation (HR 1069) introduced in the House by Rep. Moorhead (R-Calif.) explicitly establishes a rebuttable presumption that a patent issue is infringed. Patent & Trademark Com. Donald Quigg agreed with PMA that such a provision should be included in the Senate bill but cautioned that "such presumptions should not be casually established. Legislation should ensure that an unfair burden is not placed on importers and distributors of noninfringing products and that patentees not be allowed to encumber competitors with ungrounded litigation, Quigg maintained. "Any provision dealing with this subject should, at a minimum, require the patentee to demonstrate on the basis of available evidence that a substantial likelihood exists that the product was produced by the patented process and, further, that a reasonable but unsuccessful effort was made to determine that the ]patented[ process was actually used in the production of the product," he said. "To establish a substantial likelihood" that a product was manufactured overseas through the unauthorized use of a patented process, Quigg said "a patentee might show that the patented process was the only known method, or the only commercially practical method, for producing the product; or that physical evidence, such as the exact chemical composition of the product, indicates the use of the patented process." A "reasonable effort" to discover the actual process might involve discovery procedures in a court action or, for a foreign mfr., "writing to the mfr. to determine how the product was made," he said. Asked by Mathias how a pharmaceutical company would determine that a competitor's imported product is made by a violative process, Mossinghoff replied that such determinations would be either apparent or based on written, "good-faith" correspondence between execs of the competing companies. For example, Genentech, whose biosynthetic human growth hormone Protropin was recently approved by FDA ("The Pink Sheet" Oct. 21, p. 3), has patented the only process for making the product, Mossinghoff said. "If that hormone were to be placed on the market ]by a competitor[, clearly there would be a conclusion that it would be made by the process invented by Genentech." On the other hand, he continued, with products "that might be made by any number of processes, at least among the better companies of PMA, a simple request, one business executive to another -- saying 'Are you using my process to make the product?' -- and a good-faith answer would take care of such a situation." The Natl. Assn. of Chain Drug Stores (NACDS) outside counsel Nancy Buc (Weil Gotshal & Manges) testified that although the assn. supports the general concept of process patent legislation, it "vigorously opposes" S 1543 insofar as the bill would implicate retailers in infringement suits. Noting that "the average chain drug store is some 10,000 square feet in size and . . . offers more than 12,000 different products for sale to consumers," Buc said: "This bill would be enacted cast a black cloud over every product on retailers' shelves." The measure also "makes even a somewhat casual lawsuit advantageous to plaintiffs," she contended. Although under the bill a retailer is not liable for an infringement claim after being put on notice by the patentee, Buc said, the retailer becomes "liable then and there, even though the retailer has no way of knowing whether it is infringing or not, and can't necessarily even find out. So the retailer must play process patent roulette -- it must either risk a substantial damage award or discontinue the sale of the product." Generic Pharmaceutical Industry Assn. (GPIA) Chairman William Haddad contended that generic mfrs. simply cannot be sure all their foreign suppliers are not violating U.S. process patents in force. "Those who would argue that ]litigation[ can be avoided merely by making sure that suppliers avoid infringement do not understand the complex workings of the patent system," Haddad said. "Each of the pharmaceutical companies owns thousands of patents; they do not list the identity of the particular patents which are relevant to a particular product in some central place. It would cost tens of thousands of dollars to conduct the patent studies needed to determine the presence of infringement, assuming the information in the processes used abroad was available to the generic mfr." Haddad argued that "patent holders should enforce their large foreign patent portfolios directly against the foreign mfrs. rather than bring coercive lawsuits against innocent mfrs." under legislation that makes it infringement to import products made by a violative process. GPIA's New York patent counsel Alfred Engelberg (Amster Rothstein & Engelberg) maintained that the Internatl. Trade Commission (ITC) system for protecting process patents works more efficiently than the court system proposed by S 1543 would. Because an action brought to the ITC "is a suit against the goods and not against a particular party," Engelberg said, "all parties who deal in the goods in the domestic market are usually notified and, in any event are affected by the ITC's decision." However, jurisdictional and venue problems would arise in district court litigation under the bill, he continued. "For example, a patent infringement suit against a New York importer, which resulted in an injunction against further infringement, would not bar a California corporation from continuing to import the same product or a similar product from the same or another foreign source." In addition, Engelberg disagreed with Mathias' contention that S 1543 would prevent the loss of manufacturing jobs to overseas firms. "The 'domestic industry' requirement in current ITC law provides a substantial incentive for establishing U.S. manufacturing facilities for the practice of a patented process because that is the only way in which the patent owner can obtain the enforcement of the process patent against foreign mfrs.," he said. "This incentive will disappear if the proposed legislation is enacted" because "patient owners will be free to move their domestic manufacturing operation abroad without losing any domestic patent enforcement rights."
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