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Dec 22, 2009

Part 2—Tips for Biotech/Pharma Complainants and Respondents When Going to the ITC

Going to the ITC provides needed tools like foreign discovery that are not available in a district court.

Part 2—Tips for Biotech/Pharma Complainants and Respondents When Going to the ITC

ITC can grant relief to claims covering processes used to make chemical precursors or intermediates of a product, unlike district courts. (NiDerLander/Fotolia)

  • The U.S. International Trade Commission (ITC) can provide one of the most powerful and fastest weapons that a U.S. intellectual-property owner can invoke to block competitors from selling infringing imported products in the country. In Part 1—The U.S. International Trade Commission and Intellectual Property, we explored the various benefits of filing a Section 337 complaint at the ITC.

    While the ITC is not necessarily available or even desirable as a forum in every case, in many cases it may be the better choice, especially for biotech and pharmaceutical companies. The following are some instances in which a Section 337 complaint is better suited.

    Process/Method Claims

    More than half of all patents have one or more method (or process) claims, up from about 30% in 1975. Many biotech and pharmaceutical patents have method claims, typically either on the method for making the product or for using the product.

    Section 271(g) of the U.S. patent law, adopted largely at the behest of the pharmaceutical industry, allows an action for infringement involving items made offshore using a patented process. That provision also provides certain defenses in U.S. district courts where the item has been materially changed by a subsequent process or has become a trivial and nonessential component of another product.

    These defenses, however, largely do not apply at the ITC. For instance, the ITC confirmed that it could grant relief in its recent Sucralose investigation even though the claims at issue were on the processes used to make chemical precursors or intermediates of sucralose, not on sucralose itself. While the ITC noted that there are undoubtedly limits to the overseas reach of Section 337, it confirmed that the statute does encompass processes used overseas to manufacture an intermediate input of a then further-processed article.

    Effective Discovery

    Enforcement of process or method patent claims is often frustrated because it is impossible to tell exactly what process an overseas manufacturer is using. The ITC can help here. Not only is the ITC’s subpoena power nationwide, it can often effectively provide discovery over foreign parties and facilities.

    In particular, the complainant will usually need to inspect the accused infringer’s facilities to determine whether its process infringes the asserted patent(s). That’s often a problem in district court cases, where the judges may not have jurisdiction to require such discovery in a foreign location.

    The ITC, on the other hand, will draw adverse inferences against respondents that do not cooperate in discovery. Consequently, foreign respondents generally are forced to comply with ITC discovery orders. The complainant, nonetheless, must take into account foreign restrictions on the taking of evidence or depositions. As a practical matter, however, such restrictions have not been a major problem in Section 337 practice.

    Gray-Market Goods

    Section 337 can be invoked against gray-market goods. For example, the ITC recently issued a general exclusion order banning the importation of gray-market cigarettes and their packaging bearing Philip Morris USA’s Marlboro, Virginia Slims, and Parliament trademarks.

    Section 337 Is Not Ideal for Every Case

    An ITC investigation will often not be desirable in the ANDA context where the plaintiff may not necessarily desire a quick resolution. If FDA approval for a generic formulation of a drug will be delayed pending resolution of the infringement action, the patent holder may in fact prefer a slow district court proceeding over the speed of a Section 337 investigation.

    Moreover, importation and use of pharmaceuticals for which FDA approval is being sought may be subject to the Section 271(e)(1) safe harbor. In Amgen’s recent ITC investigation against Hoffman-La Roche concerning EPO, the Federal Circuit held that Section 271(e)(1) has the same effect at the ITC as it does in district court, protecting importation of a product made for the purpose of gaining FDA approval. The court also initially held that a complainant could bring a Section 337 complaint against a drug still under the safe harbor if importation for nonprotected use or sale was “incipient” or “imminent” but later retracted that portion of its opinion. Consequently, it is not entirely clear at what point a product subject to Section 271(e)(1) will become subject to exclusion.

    Some cases may be better and/or less expensively dealt with through the FDA. Indeed, in some matters the agency may have exclusive jurisdiction under Section 337 of the Food, Drug, and Cosmetic Act, which provides that “all proceedings for the enforcement or to restrain violations of [the FDA act] shall be” brought by the FDA. In other words, there is not a private right of action under that act.

    Section 337 Requirements

    Not all potential complaints can satisfy the requirements of Section 337. First, the accused products must be imported. Second, U.S. economic presence is required to be a complainant. This domestic industry requirement requires substantial U.S. exploitation of the intellectual property.

    Such exploitation commonly consists of the use of U.S. land, labor, and/or capital to produce the patented product or use the patented process. It can also consist of one or more of the following: manufacturing components, engineering or R&D, licensing of the patent, supporting and customizing product designs that are manufactured abroad, customer training, field engineering, product support or repair, and/or servicing activities.

    Some Strategic Considerations for Potential Respondents

    No one wants to face a patent infringement or similar action. This is especially true if that action has been filed without warning, in a forum where you will have to come up to speed almost immediately, and where the ramifications of losing include being blocked from the largest market in the world.

    But there are a few silver linings for respondents in that rather ominous gray cloud. District court juries are often biased against foreign respondents accused of copying U.S. products. There are no juries in Section 337 investigations, and the ITC administrative law judges (ALJs) and commissioners have a track record demonstrating that they are not prejudiced against foreign respondents.

    Moreover, the ITC ALJs are technology-friendly, understand patent and IP law, and are not afraid of complex issues. A respondent need not be afraid of making those arguments that might be lost or misunderstood before a jury or district court judge not familiar with such complex, technological issues.

    When an unprepared respondent is hit with an unexpected Section 337 investigation, it should first think about potential exposure. Is it importing products for which a company with a U.S. economic presence might bring an action? If so, do some due diligence, investigating the quality of their IP.

    There are many important best practices for a Section 337 respondent, but perhaps key among them is that a respondent should consider whether it can design around the asserted patents. Even a less desirable new design may preserve access to the U.S. market while the respondent litigates the case or explores settlement options. In fact, a good design-around may effectively moot the case.

    Once an exclusion order issues, a respondent can ask customs to permit entry of a new design, arguing that it does not infringe and therefore is not subject to the exclusion order. However, that process may take time, and customs may tend to defer to the ITC and read the exclusion order broadly. Hence, if the respondent can develop the new design sufficiently quickly to make it part of the ITC investigation, it may be able to have the new design carved out from the exclusion order from the very beginning.

    In many instances going to the ITC allows a complainant to bring a case that it could not bring in a district court or may provide needed tools such as foreign discovery that would not have been available in a district court. It puts an unprepared respondent under extraordinary pressure with precious little time for the respondent to prepare and fight.

    Potential respondents would be well-served to think through possible Section 337 exposure and prepare as appropriate. And, once named, a respondent should be prepared to move vigorously, quickly, and thoughtfully. Otherwise, it could face possible loss of the U.S. market. Companies on both sides of this divide should know about and understand the ramifications of Section 337.

     


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