Senate Judiciary Committee Holds Hearing on Process Patents

May 1, 2007. The Senate Judiciary Committee (SJC) held a hearing titled "Process Patents". The issue concerns whether the exceptions contained in  271(g) should apply to proceedings under  337.

On April 18, 2007, Sen. Patrick Leahy (D-VT) and others introduced S 1145, the "Patent Reform Act of 2007". On the same day, Rep. Howard Berman (D-CA) and others introduced HR 1908, the companion bill in the House. However, these bills do not address process patents and the  271(g) issue.

See, also, Patent Reform Act of 2007 [50 pages in PDF]. And see, stories titled "Patent Reform Act of 2007 Introduced", "Summary of Patent Reform Act of 2007", and "Reaction to the Patent Reform Act of 2007" in TLJ Daily E-Mail Alert No. 1,567, April 19, 2007.

Sen. Leahy spoke with reporters after the hearing. He was asked about when the SJC might mark up S 1145. He had no answer. He was also asked whether the bill would be amended to include language regarding the 271(g) issue. He said, "don't know". However, he did say that other Democratic Senators have approached him to ask about the bill.

Summary of the 271(g) Issue. This issue pertains to the unauthorized importation and sale in the U.S. of products made outside of the U.S. by a process that is covered by claims of a U.S. patent. Holders of U.S. patents have two general remedies -- an action in U.S. District Court for patent infringement under the Patent Act, and a proceeding in the U.S. International Trade Commission (USITC) for imports that infringe patents under the Tariff Act of 1930. The Patent Act now allows an action for importation of products made by a patented process, and provides two exceptions. A recent Court of Appeals opinion states that these two exceptions are not applicable in USITC proceedings under the Tariff Act. Hence, there exist the arguments that U.S. laws are being applied inconsistently, that this favors U.S. producers, and hence, that this violates treaty obligations

The patent infringement statute is codified at 35 U.S.C. 271. Subsection (a) provides that "whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent."

The Patent Act protects process patents, for which claims are expressed as a series of steps.

Previously, the Patent Act did not protect patent holders from infringement of their patents that occurred outside of the U.S. In the case of process patents, there was no protection under the Patent Act if the performance of the series of steps occurred outside of the U.S., and the goods produced thereby were then imported into the U.S.

The Congress made changes now codified at 271(f) and (g). 271(f) was not the subject of the SJC hearing. 271(g), which was the subject of the hearing, was added to the Patent Act by the Process Patent Amendments Act (PPAA) in 1988. It is Public Law 100-418.

35 U.S.C. 271(g) now provides, in part, that "Whoever 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 shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent. 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 under this title for infringement on account of the importation or other use, offer to sell, or sale of that product."

Moreover, 271(g) contains two exceptions. It provides that "A product which is made by a patented process will, for purposes of this title, not be considered to be so made after -- (1) it is materially changed by subsequent processes; or (2) it becomes a trivial and nonessential component of another product".

Patent holders can enforce their rights under the Patent Act by bringing an action in a U.S. District Court. Appeals of final judgments in District Court actions brought under the Patent Act lie in the U.S. Court of Appeals for Federal Circuit.

In addition to remedies under the Patent Act, patent holders are protected by the Tariff Act of 1930.

The PPAA in 1988 also revised the Tariff Act to protect process patent holders from importation of products made by the patented process. 19 U.S.C.  1337(a)(1)(B) now makes "unlawful" the "importation into the United States, the sale for importation, or the sale within the United States after importation by the owner, importer, or consignee, of articles that -- (1) infringe a valid and enforceable United States patent or a valid and enforceable United States copyright registered under title 17; or (2) are made, produced, processed, or mined under, or by means of, a process covered by the claims of a valid and enforceable United States patent".

The issue now is the applicability of the two  271(g) exceptions (i.e., "materially changed by subsequent processes" and "becomes a trivial and nonessential component of another product") in proceedings before the USITC for enforcement of 19 U.S.C. 1337(a)(1)(B)(ii).

In 2002 the USITC concluded that the Kinik Company imported into the U.S. products made in Taiwan that infringed a process patent held by 3M. The USITC also concluded that the two  271(g) exceptions do not apply in  337 proceedings. This ruling came in what is sometimes referred to as the "Abrasive Products" proceeding. (See, USITC Inv. No. 337-TA-449.)

Then, in an appeal to the U.S. Court of Appeals (FedCir), the Court reversed on other grounds. However, it wrote, in dicta, that the  271(g) exceptions are not applicable in  337 proceedings. See, March 25, 2004, opinion in Kinik Co. v. International Trade Commission, 362 F.3d 1359.

The Court of Appeals wrote that the 271(g) exceptions did not apply to  1337(a)(1)(B)(ii) actions.

The Court of Appeals cited the Senate Report on the PPAA, which states that "There is no intention to impose any of these limitations on owners of products or on owners of process patents in suits they are able to bring under existing law.  Neither is there any intention for these provisions to limit in any way the ability of process patent owners to obtain relief from the U.S. International Trade Commission."

While Judge Randall Rader did not sit on the three judge panel in Kinik, he was a member of the staff of the Senate Judiciary Committee when the PPAA was drafted.

May 1 Hearing. Sen. Patrick Leahy (D-VT) read an opening statement at the start of the hearing. He stated that "If we permit products to enter the United States that were made abroad by a process patented here -- where creation of the product would itself be an act of infringement if it occurred here -- we are doing nothing less than outsourcing infringement and offshoring jobs." He made the same point during his questioning of witnesses.

Sen. Arlen Specter (R-PA), the ranking Republican on the SJC, stated at the outset that the   271(g) issue is part of the bigger issue of patent reform, which will be "a Herculean struggle". He then left for another meeting.

Sen. Tom Coburn (R-OK), who is also a physician, complained that U.S. drug companies are getting the "short end" on intellectual property protection "throughout the world". He added that "if we have true intellectual property, we ought to protect it".

Sen. Ben Carden (D-MD) said that "I want to make our IP rights are enforceable".

The witnesses were Wayne Herrington (Assistant General Counsel, U.S. International Trade Commission), John Thomas (Georgetown University Law Center), Mike Kirk (Executive Director, American Intellectual Property Law Association), and Christopher Cotropia (Richmond School of Law).

Herrington summarized the issue and the proceeding in Abrasive Products and Kinik in his prepared testimony.

Thomas argued that the Federal Circuit "arguably misinterpreted" the statute. He said that 271(g) defenses should apply in both District Court cases and in USITC proceedings. See also, prepared testimony.

Kirk argued that the 271(g) defenses are inappropriate for 337 proceedings. He said that "the Federal Circuit got it right". He therefore opposed any amendment to existing law.

He also said that this this issue impacts semiconductor manufacturing. He wrote in his prepared testimony (and read aloud at the hearing) that "a company in South Korea might employ a patented method for forming conductive lines on semiconductor wafers as an initial step in manufacturing integrated circuits for use in cell phones that could be imported into the United States under either defense."

Kirk also wrote that amending the law "would create a perverse incentive to offshore domestic manufacturing and jobs".

Cotropia wrote in his prepared testimony that "there is reason to think that Congress should not be distracted by the 271(g) exceptions issue." He suggested that it would complicate the legislative debate, consume the energy of the Congress, and perhaps "negatively impact the likelihood of passage of any broader reaching patent reforms currently before Congress".

Six Senators participated in at least part of the hearing (Sen. Leahy, Sen. Specter, Sen. Whitehouse, Sen. Carden, Sen. Graham, and Sen. Coburn). The audience section of the hearing room (Room 226 of the Dirksen Building) was full.