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HOUSE/SENATE PROCESS PATENT DRAFT COMPROMISE AMENDMENT INCLUDES DISCLOSURE REQUIREMENT; REPORT LANGUAGE, FURTHER FINE-TUNING COULD COME WEEK OF MARCH 28

Executive Summary

The House and Senate have struck a tentative agreement on process patent legislation that contains a requirement for patent holders to disclose their process patents. A draft of the new provisions was prepared for conferees on March 21. A disclosure provision, which requires process patent holders to identify their patents for importers, was contained only in the Senate bill. During the week of March 28, staff reportedly will try to work out minor changes, including further fine-tuning of the disclosure provision, and statements for inclusion in a report on the bill. The draft defines a request for disclosure as a written document asking a manufacturer "to identify all process patents" that are "owned by or licensed to" it and "could be asserted to be infringed" by use of such processes in making products "imported into, or sold or used in the U.S. by an unauthorized party." In the case of a process patent dispute between brandname and generic drug manufacturers, the legislation states that a request for disclosure should be made by the generic firm before its "first importation, use, or sale of units of product produced by an infringing process and before notice of infringement" is received from the brandname company. In addition, the draft stipulates that the request for disclosure should include "a representation" that the generic manufacturer "will promptly submit the patents identified" in the patent holder's response to the generic company's supplier and that the generic firm "will request from that manufacturer or supplier a written statement that none of the processes claimed in those patents is used in the manufacture of the product." The House is expected to draft additional language to stipulate that the foreign supplier will provide assurance that its products are not made by the patented process. The compromise requires brandname firms to reply to requests for disclosure "promptly," but, unlike the Senate bill, does not require that responses be made within 60 days. In addition, the draft provides that a brandname company which marks "the number of the process patent on all products made by the patented process . . . is not required to respond to a request for disclosure." Requests for disclosure received by brandname companies that license their process patents "must either identify the patent or promptly notify the licensor of the request for disclosure," the draft adds. The generic company must pay the brandname company for the patent search involved in responding to a request for disclosure. The draft stipulates that a requester "shall pay to the person to whom the request was made a reasonable fee to cover actual costs incurred in complying with the request, which may not exceed the cost of a commercially available automated patent search of the matter involved, but in no case more than $500." Although it is designed to obviate litigation, the disclosure provision becomes a key factor of the bill in determining "good faith" of litigants in court cases. In determining proper remedies, courts "shall consider the good faith and reasonable business practices" of the defendant and "the good faith demonstrated by the plaintiff with respect to a request for disclosure," the compromise states. The draft defines as evidence of good faith the defendant's request for disclosure, "a response within a reasonable time" by the plaintiff in responding to the request, and "submission of the response by the" defendant to its supplier "together with a request for a written statement that the [patented] process . . . is not used" by the supplier. Products In Transit Or In Possession Of Infringer Before Notification Are Not Violative The draft adds: "Failure to perform any acts described in the preceding sentence is evidence of absence of good faith unless there are mitigating circumstances." Examples of mitigating circumstances include instances in which "a request for disclosure is not necessary or practicable to avoid infringement," the legislation explains. Such instances may be "due to the nature of the product, the number of sources for products, or like commercial circumstances." As in earlier versions of the legislation, stockpiling is presumed to be evidence that defendants are aware that their products are infringing existing patents. If a generic company "obtains a product made by a process patented in the U.S. in a quantity which is abnormally large," compared to normal volume of business and efficient inventory levels, the company "shall be rebuttably presumed to have actual knowledge that the product was made by such patented process." However, the draft does not contain a Senate provision that exempted from infringement products for which a binding commitment to purchase was made by the generic company before being notified of infringement. The compromise simply exempts from penalty "any product in the possession of, or in transit to" the defendant before the patent owner's notification of infringement. Congress has been working on process patent legislation since 1985 to address what has been perceived as a loophole in U.S. intellectual property protection. The draft compromise is on schedule to be voted on by House/Senate trade bill conferees shortly after Congress returns from its Easter recess on April 11. The compromise makes it infringement to import, sell, or use without authority in the U.S. "a product which is made by a process patented in the U.S. . . . if the importation, sale, or use of the product occurs during the term of such priocess patent." Like earlier versions of the bill, the draft limits penalties against users or retailers by requiring that remedies first be sought against importers and nonretailers. "In an action for infringement of a process patent, no remedy may be granted for infringement on account of the noncommercial use or retail sale of a product unless there is no adequate remedy . . . for infringement on account of the importation or other use or sale."

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