<DOC>
[110 Senate Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:37168.wais]
S. Hrg. 110-127
PROCESS PATENTS
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 1, 2007
__________
Serial No. J-110-31
__________
Printed for the use of the Committee on the Judiciary
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37-168 PDF WASHINGTON DC: 2007
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts ARLEN SPECTER, Pennsylvania
JOSEPH R. BIDEN, Jr., Delaware ORRIN G. HATCH, Utah
HERB KOHL, Wisconsin CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California JON KYL, Arizona
RUSSELL D. FEINGOLD, Wisconsin JEFF SESSIONS, Alabama
CHARLES E. SCHUMER, New York LINDSEY O. GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland SAM BROWNBACK, Kansas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
Bruce A. Cohen, Chief Counsel and Staff Director
Michael O'Neill, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Feinstein, Hon. Dianne, a U.S. Senator from the State from
California, prepared statement................................. 59
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 82
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 2
WITNESSES
Cotropia, Christopher A., Professor of Law, University of
Richmond School of Law, Richmond, Virginia..................... 8
Herrington, Wayne W., Assistant General Counsel, U.S.
International Trade Commission, Washington, D.C................ 3
Kirk, Michael K., Executive Director, American Intellectual
Property Law Association, Arlington, Virginia.................. 6
Thomas, John R., Professor of Law, Georgetown University Law
Center, Washington, D.C........................................ 5
QUESTIONS AND ANSWERS
Responses of Christopher Cotropia to questions submitted by
Senators Specter and Whitehouse................................ 17
Responses of Wayne Herrington to questions submitted by Senators
Specter........................................................ 24
Responses of Michael Kirk to questions submitted by Senators
Specter and Whitehouse......................................... 28
Responses of John R. Thomas to questions submitted by Senators
Specter and Whitehouse......................................... 34
SUBMISSIONS FOR THE RECORD
American Federation of Labor and Congress of Industrial
Organizations, William Samuel, Director, Department of
Legislation, Washington, D.C., letter.......................... 38
Cotropia, Christopher A., Professor of Law, University of
Richmond School of Law, Richmond, Virginia, statement.......... 40
Department of Commerce, John J. Sullivan, General Counsel,
Washington, D.C., letter....................................... 48
Herrington, Wayne W., Assistant General Counsel, U.S.
International Trade Commission, Washington, D.C., statement.... 65
Kantor, Mickey and Theodore B. Olson, Hoffman-LaRoche Inc.,
Washington, D.C., article...................................... 69
Kirk, Michael K., Executive Director, American Intellectual
Property Law Association, Arlington, Virginia, statement....... 71
Thomas, John R., Professor of Law, Georgetown University Law
Center, Washington, D.C., statement............................ 84
United Steelworkers, Leo W. Gerard, International President,
Pittsburgh, Pennsylvania, letter............................... 89
PROCESS PATENTS
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TUESDAY, MAY 1, 2007
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, pursuant to notice, at 2:43 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Cardin, Whitehouse, Specter,
Graham, and Coburn.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. I would like to apologize to the four of
you, and especially to Senator Specter and Senator Coburn, for
being late. I have actually been in the Agriculture Committee,
which was running somewhat behind, and everything has been
running behind today with the funeral of our good friend, Jack
Valenti. Senator Specter and I were both at that earlier today.
I joined with Senator Hatch and other Senators, and with
Chairman Berman and Representative Smith from the House
Judiciary Committee, just a few weeks ago to introduce sweeping
bipartisan, bicameral patent reform legislation. We are trying
to update our patent laws to provide help to patent seekers and
patent holders. The Supreme Court is also more engaged in
patent law decisions than it has been in decades. It has
decided three important cases already this term. In two
decisions released just yesterday, the Supreme Court ventured,
first, into the fundamental issue of the standard for
``obviousness'' that would prevent patentability and, second,
spoke to the extraterritorial effect of U.S. patent laws.
We have heard a great deal about another issue involving
U.S. patents and overseas manufacturing--the issues surrounding
products produced overseas using processes patented in the
United States. One of those issues is the importation of these
products. So we will turn today about what defenses should be
available to a party accused of importing products manufactured
abroad by infringing a U.S. process patent, the so-called
271(g) question.
Sometimes litigation brings important issues to our
attention. It should always be the case that we do not intend
to interfere with that litigation. We are well aware that
private parties are interested, and we will proceed carefully
today.
Prior to Congress' amending the patent laws in 1988, a
company holding a U.S. process patent could sue for
infringement of that patent only if the infringement took place
within the United States. If it took place overseas, they only
had the International Trade Commission. In 1988, we amended
that law.
The ITC has held that our 271(g) defenses are not available
in ITC exclusion proceedings because the plain language of the
statute, confirmed by its history, applies them only to patent
infringement claims being considered in Federal court pursuant
to the 1988 amendment. So we will decide whether this
distinction should remain.
I have heard from those who argue that the defenses were
never intended to be limited to infringement claims, and the
law should be changed to harmonize ITC and district court
litigation. Others argue that the purpose of an ITC exclusion
proceeding and district court patent infringement litigation
are simply different. But if we permit products to enter the
United States that were made abroad by a process patented
here--where the creation of the product would itself be an act
of infringement if it occurred here--well, then, we are doing
nothing less than offshoring infringement and outsourcing jobs.
This may seem like is a very narrow legal issue, but the
policy can have a very wide reach, and I think we should be
fully informed. So I am looking forward to the witnesses today.
But before we begin, of course, I yield to Senator Specter.
[The prepared statement of Senator Leahy appears as a
submission for the record.]
STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE
OF PENNSYLVANIA
Senator Specter. Thank you, Mr. Chairman. This is a very
important hearing focusing on a very narrow issue, as you have
stated, whether the defenses ought to be available in the
International Trade Commission contrasted with the Federal
court. And this is part of a broader picture of patent reform
where we are deeply involved at the present time, and there is
a great deal of thought being given to the whole field, and
especially to this specific issue.
I regret that I cannot stay. We are in the midst of a whole
series of meetings on immigration reform. We are trying to
craft a bill to come before the Senate in the last 2 weeks of
this month if we are to have any chance to deal with
immigration this year, because once we pass Memorial Day, we
get involved in the appropriations process. So there have been
very heavy efforts on that, and there had previously been
scheduled a meeting at 3 o'clock today, which I am hosting. But
my staff is here, and my cerebrum will be here. My cerebellum
is going to Hart 711. And the third part of my brain, medulla
oblongata, is unoccupied at the moment.
[Laughter.]
Chairman Leahy. Can I borrow it?
Senator Specter. So it is a rest period for part of me. But
as I say, my staff will be here, and I will be watching the
proceedings very closely.
I have talked to the combatants. This is a Herculean
struggle, and we will listen carefully and try to come to a
sound legislative judgment. We will try to change our spots and
do it rationally.
Chairman Leahy. Thank you. If you are going to immigration,
you are going to another Herculean battle, and I wish you well.
Senator Specter. Well, the only regret I have about going
to immigration is that I am not taking Coburn and Leahy with
me.
Thank you.
Chairman Leahy. Gentlemen, would you please stand and raise
your right hand? Do you solemnly swear that the testimony you
will give in this matter will be the truth, the whole truth,
and nothing but the truth, so help you God?
Mr. Herrington. I do.
Mr. Thomas. I do.
Mr. Kirk. I do.
Mr. Cotropia. I do.
Chairman Leahy. Thank you. Our first witness will be Wayne
Herrington, who is Assistant General Counsel at the United
States International Trade Commission. After he got his law
degree from Columbia University, he clerked for Judge Giles S.
Rich of the U.S. Court of Appeals for the Federal Circuit. I
knew Judge Rich. Mr. Herrington then held jobs both with the
Government and in the private sector. He is co-author of the
book ``Intellectual Property Rights and United States
International Law.''
We will begin with you, Mr. Herrington.
STATEMENT OF WAYNE W. HERRINGTON, ASSISTANT GENERAL COUNSEL,
U.S. INTERNATIONAL TRADE COMMISSION, WASHINGTON, D.C.
Mr. Herrington. Thank you. Good afternoon, Chairman Leahy,
Ranking Member Specter, and members of the Committee. The
Commission appreciates the opportunity to appear before this
Committee to discuss its administration of Section 337 of the
Tariff Act of 1930 and process patents.
The Commission is an independent, nonpartisan, quasi-
judicial agency. It administers a wide variety of trade-related
statutes, including Section 337 of the Tariff Act of 1930.
Section 337 prohibits unfair practices in the import trade,
including imports which infringe intellectual property rights.
In fact, the overwhelming majority of our cases under Section
337 involve allegations of patent or trademark infringement,
with allegations of patent infringement predominating. We
conduct our Section 337 proceedings under the adjudicative
provisions of the Administrative Procedure Act, with an
administrative law judge making an initial determination and
the Commission making the final determination. If the
Commission finds a violation of Section 337, it may issue an
order excluding the infringing products from entry into the
United States. It may also issue cease and desist orders to
infringing firms and persons prohibiting them from selling
infringing goods already located in the United States.
The subject of this hearing is the law applicable to the
unauthorized importation and sale of products made abroad by a
process covered by the claims of a United States patent. The
Commission has had statutory authority to address such
unauthorized importation since 1940, when Congress enacted what
used to be known as Section 337a. Section 337a was eventually
incorporated in Section 337 itself as Section 337(a)(1)(B)(ii)
as a result of the amendments to Section 337 in the Omnibus
Trade and Competitiveness Act of 1988.
The current version of that provision provides that the
importation, sale for importation, or sale within the United
States after importation of a product will be a violation of
Section 337 if it is ``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 U.S. district courts did not obtain statutory authority
under the patent law to address the unauthorized importation
and sale of products made abroad by a patented process until
1988, when 35 U.S.C. 271(g) was added to the patent law by the
Process Patent Amendments Act. Besides providing for
infringement, Section 271(g) 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.''
In 2002, in the Abrasives case, the Commission affirmed an
order of one of its administrative law judges that the defenses
to infringement contained in 35 U.S.C. 271(g)--that is,
271(g)(1) and (g)(2)--were not available in a case based on the
Commission's process patent provision. Specifically, the
Commission found that Section 9006(c) of the Process Patent
Amendments Act made it clear that the defenses of Section
271(g)(1) and (2) would not apply to Section 337 cases. As an
additional reason, the Commission found that Section 271(g)
explicitly restricted its application to cases under Title 35.
Section 337 is under Title 19.
The accused infringer in the Abrasives case, Kinik, Co.,
appealed the Commission's final determination to the Federal
Circuit, arguing numerous points, including that the Commission
erred in holding that Kinik could not rely on the defenses in
271(g)(1) and (2). On appeal, the Federal Circuit agreed with
the Commission's interpretation of the statutory provisions and
the legislative history with respect to the inapplicability of
those defenses. The case is Kinik Company v. International
Trade Commission, a 2004 decision of the Federal Circuit.
However, the court reversed the Commission's finding of
infringement on an entirely unrelated basis because it
disagreed with the Commission's claim construction.
The foregoing is a summary of the Commission's practice and
the development of the law. The Commission would be pleased to
provide technical advice on legislative language the Committee
may be considering.
Thank you.
[The prepared statement of Mr. Herrington appears as a
submission for the record.]
Chairman Leahy. Thank you very much.
Our next witness is John R. Thomas, a professor of law at
my alma mater, Georgetown, where he teaches classes on patent
law and intellectual property and world trade. He recently
received a grant from the MacArthur Foundation--
congratulations--in order to continue working as a visiting
scholar at the Congressional Research Service. Professor Thomas
is an author of several books on intellectual property law and
patent law and pharmaceutical patent law.
And I will also take this moment to do some housekeeping
and put a statement from Senator Feinstein and a letter from
the AFL-CIO in the record at this place.
Go ahead, Professor Thomas.
STATEMENT OF JOHN R. THOMAS, PROFESSOR OF LAW, GEORGETOWN
UNIVERSITY LAW CENTER, WASHINGTON, D.C.
Mr. Thomas. Thank you, Mr. Chairman.
Chairman Leahy, Ranking Member Specter, and other members
of the Committee, I appreciate the opportunity to appear before
you today. I testify here on my own behalf, and my views are
not necessarily those of any institution with which I am
associated.
The issue of process patent enforcement is complex. Yet in
the view of many observers, the question of process patent
enforcement reduces to an elemental proposition of a just
system of laws: that like cases should be decided alike,
regardless of the forum in which the case is heard.
Competing views certainly exist, and I will rely upon Mr.
Kirk to articulate them effectively, but let me focus my
testimony instead on the concerns that have arisen with respect
to the Kinik case and its consequences.
The Kinik opinion has attracted criticism for several
reasons. First, its holding is purely dicta. It is hastily
considered and not necessarily the result of the dispute before
the court.
Second, the Federal Circuit arguably misinterpreted
language from the statute and legislative history that it read
to say that the limitations in 271(g) do not apply to the ITC.
But a sensible and alternative reading of that language is
merely that 271(g) does not affect wholly domestic situations
involving process patents, and that the ITC is not usurped by
the availability of a similar remedy in the trial courts.
Finally, the Federal Circuit did not account for the strong
presumption against extraterritorial application of U.S. laws.
Mr. Leahy, you referenced the Microsoft v. AT&T case that came
out yesterday. There the Supreme Court emphasized that the
presumption that U.S. law governs domestically but does not
rule the world applies with particular force to patent law. The
court further explained that this presumption is not defeated
even with respect to provisions like 271(g) that have some
extraterritorial effect. In those cases, the presumption
remains instructive as to the extent of the statutory
exemption. Application of this presumption suggests that the
271(g) defenses should apply not just to the district courts,
but also to the ITC.
Now, regardless of whether the Federal Circuit got it right
in Kinik, there are a number of concerns that its outcome has
raised.
First, Congress intended the two exemptions of the Process
Patent Amendments Act to balance the traditional competing
objectives of patent law, and one of them is to encourage the
labors that lead to innovation, but the other is to disseminate
the fruits of those labors to members of the public. The
``materially changed'' and ``nonessential component''
limitations both balance the interests of patent proprietors,
on one hand, with follow-on innovators, and they also recognize
the territorial limitations of the patent instrument. These
congressional intentions, this balance, simply cannot be
achieved if, at whim, the patent holders can simply go to
another forum and bypass them.
Second, our current fragmented enforcement policy may limit
the access of U.S. consumers to innovative products that bear a
tangential relationship to the patented process. The two
exemptions in 271(g) evidence a Congressional intent not to
provide patent holders in the United States with an
extraterritorial proprietary interest on products too distant
from the marketplace value of the patented process. Again, that
goal cannot be achieved if a plaintiff on its whim can simply
bypass the forum in which they apply.
Finally, the remedial disparity between the district courts
and the ITC potentially favors domestic industry over foreign
firms. Because the availability of exclusion orders is premised
upon the existence of a domestic industry, U.S.-based firms are
favored over importers. Although the analysis of whether this
regime is effectively a violation of our WTO agreements which
bind us is a complex issue, but the perceived favoritism of
U.S. industry over foreign firms may send a conflicting
message.
Also issued yesterday was the U.S. Trade Representative's
report about intellectual property rights in foreign firms, the
special 301 report, and the USTR faulted no fewer than 43 of
our trading partners for violations or lapses, perceived lapses
in intellectual property policy. The U.S. may be subject to
similar criticism so long as it maintains a regime of
substantive patent law that favors domestic industry over
foreign firms.
Thank you very much for the opportunity to present this
testimony, Mr. Chairman. I look forward to any questions that
you or your colleagues may have.
[The prepared statement of Mr. Thomas appears as a
submission for the record.]
Chairman Leahy. Thank you, Professor, and thank you for
keeping within our time limitations.
Mr. Kirk has been the Executive Director of the American
Intellectual Property Law Association since 1995--is that
correct? He previously held a number of positions at the Patent
and Trademark Office, including most recently Deputy
Commissioner. He has had extensive experience in patent law in
the international context. During his tenure at the Patent and
Trademark Office, Mr. Kirk represented the United States in
several international treaty obligations, including GATT and
WIPO and OECD. And to try to keep some continuity here, he is
also a graduate of the Georgetown University Law Center.
What year did you graduate?
Mr. Kirk. I graduated in 1965.
Chairman Leahy. Mr. Kirk knows why I am grinning. I
graduated in 1964.
[Laughter.]
Chairman Leahy. Go ahead, Mr. Kirk.
STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN
INTELLECTUAL PROPERTY LAW ASSOCIATION, ARLINGTON, VIRGINIA
Mr. Kirk. Thank you, Chairman Leahy, members of the
Committee. I am pleased to be here today to offer the views of
the American Intellectual Property Law Association on whether
the defenses to infringement in Section 271(g) should be made
applicable to Section 337 of the Tariff Act of 1930. I will not
go through the details that have already been covered by you,
Mr. Chairman, and by Mr. Herrington and Professor Thomas, but
let me say that there are significant differences between a
Section 337 proceeding in the ITC and an action for patent
infringement in a Federal court that make Section 271(g)
exceptions inappropriate for Section 337.
The ITC must find that a patentee is actively engaged in
exploiting the patent in the United States. The product must
have been made by a process covered by a valid and enforceable
patent. The remedy is limited to a prospective exclusion order,
no monetary damages. The ITC must also consider the public
interest, health and welfare, and competitive conditions in the
United States before issuing an exclusion order, and the
Section 337 determination is subject to Presidential review
before becoming final.
In contrast, the district court in a patent infringement
action only considers whether the patent is valid, enforceable,
and infringed, and both damages and injunctive relief are
available.
By adding 271(g) to the patent law, Congress intended to
provide additional remedies in Federal court for process patent
owners. Congress explicitly stated that it did not intend to
undermine any existing remedies available to patent owners in
Section 337 proceedings. The Senate report reinforces this
point. As we heard from Mr. Herrington, this intent was
confirmed by the ITC and the Federal Circuit in Kinik v.
International Trade Commission. We think the Federal Circuit
got it right. Congress closed the process patent loophole with
passage of 271(g) and was careful not to create a second one.
We believe this decision was correct.
The proposed amendment to Section 271(g) would be
detrimental to U.S. manufacturers. It would put domestic firms
at a competitive disadvantage relative to their foreign
competitors. A domestic manufacturer has no defense to a charge
of infringing a process patent under Section 271(a) on the
ground that the product will later be materially changed or
become a trivial and nonessential component of another product.
Its foreign competitors do not face this problem. The
practice outside the United States of a process protected by a
United States patent is not an infringement of the U.S. patent.
There is no Section 271(a) action that can be brought against a
foreign company for such activity outside the United States.
If the proposed amendment were adopted, a company in China
could transform an intermediate compound--produced according to
a patented process--into a chemically different final product
and import it with impunity into the United States. Or 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, perhaps
under either of the two defenses. Protecting American
intellectual property against foreign usurpation is already
difficult; the amendment would make it more so.
Moreover, the amendment would create a perverse incentive
to offshore domestic manufacturing and jobs, as you alluded to,
Mr. Chairman. It could provide an incentive for domestic
manufacturers to practice patented manufacturing processes
offshore in order to take advantage of the defenses in 271(g),
in the same manner as their foreign competitors could, were
this amendment to be adopted. Existing pressures already exist
to offshore American jobs to take advantage of low labor costs
in other countries. Aiding their exodus by weakening protection
for U.S. process patents would seem unwise.
For these reasons, AIPLA opposes any amendment to Section
271(g) to create new defenses that would only benefit foreign
manufacturers conducting unfair trade practices. Section 337
should not be amended in a manner that would benefit foreign
manufacturers at the expense of patent owners, manufacturers,
and workers in this country.
Thank you, Mr. Chairman. I would be pleased to answer any
questions you might have.
[The prepared statement of Mr. Kirk appears as a submission
for the record.]
Chairman Leahy. Well, thank you very much, Mr. Kirk.
Christopher Cotropia is an associate professor of law at
the University of Richmond School of Law, and a member of the
school's Intellectual Property Institute. He attended law
school at the University of Texas Law School. He clerked for
Judge Alvin Schall of the U.S. Court of Appeals for the Federal
Circuit. We have two people who clerked for the Court of
Appeals for the Federal Circuit. He teaches intellectual
property law, patent law, copyright law, cyberlaw, and
property.
Please go ahead.
STATEMENT OF CHRISTOPHER A. COTROPIA, PROFESSOR OF LAW,
UNIVERSITY OF RICHMOND SCHOOL OF LAW, RICHMOND, VIRGINIA
Mr. Cotropia. Thank you, Mr. Chairman, and I thank the
Committee and the Chairman for the opportunity to testify
before the Committee today on the extraterritorial enforcement
of a United States process patent. I appear today on my own
behalf, as a concerned observer of the patent system.
As has been mentioned before, the issue before the
Committee today is very narrow and incredibly complex. I hope
to cut through some of this complexity with my testimony today
and provide a fair and balanced presentation of the issues that
271(g) exceptions and their inapplicability to the ITC present.
To put it succinctly, there are three issues that are
presented by the inapplicability of these exceptions to the
ITC: the first is inconsistency of judgments; the second are
these international trade issues; and, third, the possible
hindrance of the policies behind the exceptions.
One of the other things I would like the Committee to
consider is exactly how this issue sits within the context of
the broader patent reform that is facing us currently today.
As has been previously mentioned, the Kinik decision
presents the possibility, although yet not applied, that the
exceptions to 271(g) would only apply in district court cases
as opposed to cases before the ITC. I would like to proceed
with my testimony just talking about these three issues that I
think it presents.
First, inconsistency of judgments. Professor Thomas
presents this as one of the potential concerns, the idea being
that for the same patent and the same claims someone would not
win in the district court proceedings because the exceptions
would be applicable. But then at the ITC, with the same patent
and the same claims, I could prevail because the exceptions do
not apply. This is a potential concern.
There are, however, reasons to not label these judgments as
``inconsistent.'' In some ways, we could be looking at apples
and oranges here. If Congress purposely created separate and
different types of enforcement mechanisms, then in some ways
there is no reason to compare these as equals. This same
argument can actually be made at even a higher level. There are
different purposes that these two tribunals try to effectuate.
United States district courts are tasked with enforcing the
patent laws of Title 35, while the ITC is actually tasked with
enforcing our trade-related laws and protecting domestic
industries.
The second potential concern is the international concerns,
and this is more specifically the concern that not allowing
these exceptions to apply in the ITC realm would cause us to be
in incompliance with TRIPs, particularly Article III of TRIPS,
which requires us to not provide someone of foreign origin with
less favorable protections than a domestic counterpart. You
could see how this could play out. A foreign importer would be
subject to in some ways the heightened standards at the ITC,
would not be able to avail themselves of those defenses, and,
thus, might be found liable at the ITC, while a domestic
counterpart in district court would be able to avail themselves
of these exceptions. And, thus, we would have a less favorable
application to a foreign company.
The problem here with this type of analysis is that we have
to look at the totality of the circumstances to determine
whether it is less favorable. And as has already been mentioned
by Mr. Kirk, there are certain differences between the two
jurisdictions, and in some ways district court proceedings can
be more onerous because of the monetary relief that is there,
and there are some advantages to foreign companies in the ITC.
One in particular that was adopted with these amendments is 35
U.S.C. 295, which only applies in district court settings and
creates a presumption of infringement in that context, but does
not create a presumption of infringement in the ITC context.
The third area of concern is to see whether this might
actually hinder the policy concerns behind Section 271(g). In
some ways, I think that this is the most important issue, and
we really need to consider how much we want to limit the
enforcement of process patents outside the United States. To
put it another way, how strong do we want process patents to
be?
Professor Thomas presents a good argument why this might
actually upset the balances in this type of situation, but on
the flip side, there could be good arguments to be made that we
are just extending the natural protection that you get in the
United States to extraterritorial regions. We do not care
traditionally under process patents what product was made by
the patent or the value the process presented to that patent.
And, thus, we could be simply extending this in the ITC realm
to those things that are done abroad.
My final point--and in some ways this is not directly
relevant to the 271(g) issue--is that I really think the
Committee and Congress should consider this issue in the
context of broader patent reform. To get 271(g), the first go-
around, it took many years. It also took a bitter battle
between industries and much congressional testimony. In some
ways, I would like the Committee to take a look at this, an
issue that has not actually been applied, and think about it in
the broader context, and also think about it being a moving
part in the patent reform that has in some ways a higher impact
and greater range, that is currently before the Committee and
Congress, both the House and the Senate.
Thank you very much, and I look forward to your questions.
[The prepared statement of Mr. Cotropia appears as a
submission for the record.]
Chairman Leahy. Thank you, Professor.
Mr. Herrington, let me refer to Mr. Cotropia's testimony.
Senator Graham. Mr. Chairman, pardon me. I am going to have
to leave. Could I submit for the record an article by Mr.
Kantor and Mr. Olson reflecting my views? And I apologize to--
Chairman Leahy. No, it is quite all right. In fact, we will
keep the record open for any Senator, we will keep it open for
at least 24 hours if any Senator wants to--
Senator Graham. I will take you up on that. This is a very
important issue for me in South Carolina, and I appreciate your
having this hearing.
Chairman Leahy. I understand.
Senator Graham. Thank you very much.
Chairman Leahy. Thank you, and I appreciate your coming
here. I know you spent a lot of time on this.
Mr. Herrington, in Professor Cotropia's testimony, he
explores whether you apply the 271(g) defenses--if you apply
them in the district court but not at the ITC, would that
really result in inconsistent decisions? He speaks of the
different institutional goals of patent infringement litigation
in ITC proceedings. I think I am correctly stating it.
Mr. Cotropia. That is correct, Chairman.
Chairman Leahy. Now, can you elaborate, Mr. Herrington, on
how the purposes of ITC exclusion proceedings and the remedies
available there are distinct from district court patent
infringement litigation?
Mr. Herrington. Yes, Mr. Chairman. I can tell you that with
respect to the distinctions and similarities, as I mentioned
earlier, we adjudicate under the adjudicative provisions of the
Administrative Procedure Act. There is an administrative law
judge and then potential review by the Commission.
The proceedings before the administrative law judge are
very much like a bench trial in a United States district court.
There is discovery very similar to the type of discovery that
you could get in a district court proceeding. The response
times tend to be shorter. The rules of evidence that we apply
are the ABA Rules of Evidence, reliable, probative, substantial
evidence. We do not directly apply the Federal Rules of
Evidence, but we can look to them for some guidance. There is
not a jury, of course. It is just the administrative law judge
and ultimately the Commission. We do not award damages.
There are three parties to a Commission 337 proceeding: one
is the complainant; one is the respondent, the accused
infringer; and the other is the Commission investigative
attorney. We have an office at the Commission called the Office
of Unfair Import Investigations, and they provide an attorney
who acts as a party in every one of our Section 337
investigations at the Commission level, and the purpose of that
attorney is to make sure the record is complete and to address
public interest concerns.
Of course, our jurisdiction is limited to imports. We do
have a domestic industry requirement. Our appeals, appeals from
our determinations, are to the Federal Circuit, which is the
same court, of course, that hears all appeals from patent cases
in district courts.
Chairman Leahy. Well--oh, go ahead.
Mr. Herrington. I hope I--
Chairman Leahy. It is such a complex hearing. I may do a
followup question on this, but I wanted to go to Professor
Thomas for a moment because he had stated several reasons why
Congress should change the law so that 271(g) defenses apply in
ITC proceedings as well as in patent infringement cases in
district court. And the defenses assumed the process used to
manufacture the product abroad was a process that, if it was
used in the U.S., it would violate a U.S. process patent and,
thus, be patent infringement.
The 271(g) defenses simply excuse that action for patent
infringement cases where the manufacturing occurred abroad, if
the foreign product is sufficiently different than the original
product. If you are going to apply the defenses to ITC
proceedings, would we not be encouraging companies to produce
these products abroad instead of doing them here in the U.S.?
Mr. Thomas. Well, Mr. Chairman, being just a lawyer and,
gee, not only that, just a law professor, these sorts of
economic calculations can be difficult to make. But what I
would observe--
Chairman Leahy. I am just a small-town lawyer who lives on
a dirt road in Middlesex, Vermont, so I mean, what the heck.
Mr. Thomas. Well, we will give you credit for your choice
of law school, at a minimum, sir.
[Laughter.]
Mr. Thomas. What I would observe is that simply this
situation is complex. For example, when I go to places like
South Carolina, I see large Japanese automakers with large
plants by the side of Route 95. Many foreign firms have
substantial manufacturing in the United States, and many of
them, I am sure, want to import component parts for their
products that they make in the United States from abroad. Would
they cease these activities if they cannot actually import
products from abroad because they can be accused of patent
infringement in the ITC, but not the district courts?
So it seems to me this account of offshoring in a world
with multinationals and distributed manufacturing facilities is
a complex one. I am not sure the story is as straightforward
that they will simply be saying this is going to promote
offshoring.
Chairman Leahy. Mr. Kirk and Professor Cotropia, do you
want to add anything to that?
Mr. Kirk. Chairman Leahy, I come from the perspective that
I am not terribly concerned about the difficulties faced by a
foreign company, that practices a process that was created and
patented in the United States by an American company, which
would like to avail itself of the defenses in 271(g) to import
that product into the United States. It deprives the patent
holder of the revenue it rightly deserves, and it makes a
mockery, I believe, of the situation.
The article that Senator Graham asked be put into the
record states in part ``There is no real harm done to the
holder of a process patent if someone produces and imports a
significantly different product into the United States. On the
other hand, real damage to the economy and to innovation could
ensue if these limitations were not built in the law.''
I am sorry, sir, but I do not believe a foreign copyist is
an innovator. I think they are a copyist, and I do not believe
they should be entitled to these defenses.
Chairman Leahy. I gather that is the way you felt.
Professor Cotropia?
Mr. Cotropia. The only point I would add to this discussion
is that maybe the focus needs to be on the actual incentives of
the creation of the process in the first place. In some senses,
that is where patent law is trying to target, not a kind of
post hoc after the fact taking up of value. So the question
becomes whether someone innovating a process needs to have this
added protection for its extraterritorial use or not, and
clearly Congress thought that it would not be that much harm on
the incentive to take that away from them at the district court
level.
The question then becomes if we take away that at the ITC
level, does that erode too much of the incentive that is there,
and I think that is the balancing question that Congress is
faced with here.
Chairman Leahy. Thank you.
Senator Coburn?
Senator Coburn. Just a couple of questions.
It is your opinion, Professor Thomas, that 271(g) right now
favors domestic industry.
Mr. Thomas. It is my opinion that the inapplicability of
271(g) defenses to ITC actions favors domestic industry.
Senator Coburn. And the purpose for favoring the domestic
industry was what?
Mr. Thomas. I believe the purpose speaks for itself. In
1930, the statute was passed to favor domestic industry over
foreign competitors.
Senator Coburn. OK. Well, let me go a little further. You
all have called in the question of economics and trade and
everything else. Tell me, when we look at ITC, where is the
legitimacy for a drug manufacturer in this country who may have
patent rights in Europe, but then is told what price they will
be paid for their drug? If you have intellectual property but
yet you have a price control on that otherwise--I guess the
thing I am challenging a little bit is how worried we are about
our trading partners when, in fact, we are the ones getting the
short end of the deal in intellectual property throughout the
world. That is my view. It may be slanted. It certainly is
going on in the Far East and in the Near East, where we lack
any capability to enforce our intellectual property.
I hear you and the other professor come and say we should
be worried about it. I think there is a cogent argument to be
made to say we should not disadvantage somebody under ITC, that
we are using two standards. But maybe that is a good standard
given the world where it is today rather than taking the
presumption that we are worried about trade in the future.
You know, I find that very strange that that figures in to
what you all are trying to testify today. We ought to be
talking about what are the effects of 271 and what are the
effects of the ITC process under it, and let trade fall where
it will. If we have true intellectual property, we ought to
protect it, and we ought to protect it equally. And trade
agreements or not, either that patent means something in this
country or it does not.
I know I am not a lawyer, so I am setting this down kind of
as a doctor: Where are the symptoms here and where is the
disease? The disease is if somebody has a patent on a process
and it is their patent, they ought to have adequate protection
for that, whether they are trying to do that overseas or they
are trying to do it here, especially if they have conquered the
patent law overseas.
So help me out. Where does the trade come into this versus
the inapplicability of the two sets of performance standards,
one under the ITC and one under 271(g)?
Mr. Thomas. Certainly, sir. First, my sense is that medical
pricing bears a tangential relationship to this issue, but I
think it is important to remember that the United States is a
member of a community of states. We were one of the founding
members of the World Trade Organization. As part of that
agreement, other member States of the WTO have pledged to
dramatically upgrade their intellectual property regimes. When
you start speaking about European States, patents on
pharmaceuticals are well available there, and there are
established enforcement systems, and pharmaceutical companies
that are based in the United States quite frequently obtain
patents covering processes in those jurisdictions. Those
patents remain ready for enforcement at any time by a U.S.
firm. In addition--
Senator Coburn. OK. Let me interrupt you just for a second,
if I can. Those patents are enforced as long as the
pharmaceutical company will agree to sell at the price at which
the European country says they are going to pay for it under
the threat of ``We will allow production of this drug if you do
not do that.''
Now, tell me in law how that patent is protected when it
is, in fact, hung out to dry under the threat of having no
patent protection? I mean, that is what we see. Am I incorrect
in that? Is that not why we have prices of pharmaceuticals one-
half the price they are in this country all across Europe
because a fixed price is demanded?
Mr. Thomas. Well, Mr. Coburn, while I do not claim to have
an extraordinary amount of expertise in pharmaceutical pricing
under the various laws of Europe, I am not familiar with any
regime that denies patent protection to drug companies that do
not sell at a particular price. Perhaps they exist. I am
certainly not aware of any European patent law that, in fact,
stipulates pricing for particular products as a condition to
obtain patent protection.
Senator Coburn. It is not a stated threat. It is an implied
threat.
Mr. Thomas. OK. Well, I am not aware of the express or
implied limitations, so your knowledge may exceed my own. I am
certainly not aware of it. Certainly many jurisdictions do use
an average pricing regime, just as the United States Government
uses an average wholesale price for its own Federal employee
pricing system.
So I think we cannot point fingers too quickly at prices of
medicines that we regulate certainly for Federal employees, and
we certainly regulate prices of other products.
I think ultimately, just going back again, we have entered
into an international agreement that stipulates, among other
things, that our firms can obtain intellectual property rights
and enforce them on a nondiscriminatory basis in those
countries, and as part of that deal, we have also agreed to
apply national treatment and most-favored-nation to our trading
partners. And I think as part of that deal, regardless of
whether you feel others are scalawags or others are not living
up to their bargain, it is important for the United States to
set an example and follow the terms of the agreement, in my
opinion.
Thank you.
Senator Coburn. Thank you.
Chairman Leahy. Thank you.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman.
I have two questions. The first is how we can make the
remedy under the ITC more effective. I appreciate, Mr.
Herrington, the work that is done at the Commission, but I know
it can take a long time. It can be very expensive, and
enforcement through denying entry into the United States is not
always effective. So I would be interested in how we could
improve the system so that those that violate our intellectual
property laws, that the domestic producers have a more
effective remedy through the ITC.
Second, Professor Thomas, I think you have sort of provoked
my interest. I must confess I do not know the entire history
behind the defenses in 271(g), and I am certain they were hard
fought and very controversial. But maybe you are convincing me
that we should repeal those two exemptions with the district
court matters, knowing full well that the dollar amounts that
are awarded there would take into consideration what would be
included in those defenses anyway.
So why not just, if you are so concerned about our
international requirements, consider changing the defenses that
are available for those who have violated the patent laws of
this country but have the defenses because of the change in
status or the minor impact on the product?
Mr. Herrington. Senator Cardin, with respect to the first
question you addressed, I had not given that a lot of thought
before coming to this hearing. You may know that our caseload
has been increasing. It has been increasing very substantially.
We are still able to cope with that caseload, and we are taking
steps to ensure that we have the appropriate personnel and
facilities to make sure that that continues to happen.
I am not sure that I can comment any further on the
question.
Senator Cardin. Well, it may be that some of the procedures
or some of the requirements--we found that in some of the ITC
areas that I have been involved with on steel and
countervailing duties, et cetera, that some of the laws that
you operate under make it difficult to comply and some of the
court rulings have made it difficult to enforce our laws.
I happen to agree with Senator Coburn. I want to make our
intellectual property rights enforceable and I want to make our
rules enforceable. So I do not have a lot of sympathy for those
who violate them.
Mr. Herrington. Well, we will certainly give that some
thought and, mention anything that we think is appropriate.
Senator Cardin. Thank you.
Professor Thomas, I am looking forward to your reply.
Mr. Thomas. Mr. Cardin, I hope you have the same sympathy
for witnesses before this Committee. Certainly I agree with you
to the extent that symmetry of laws between the ITC and
district courts--
Senator Cardin. So you support repealing those?
Mr. Thomas. Well, I think let me offer a few observations
on that point. I am not that familiar with European medical
pricing. I am more familiar with European patent laws, and many
of them had a provision that essentially inspired 271(g). They
called for products that were directly -and I am
transliterating, but directly the result of the process.
Senator Cardin. You are suggesting that we pattern our
trade laws after Europe?
Mr. Thomas. We already have, Mr. Cardin. We--
Senator Cardin. Certainly that is not true in agriculture.
Mr. Thomas. Well, the Process Patent Amendments Act
certainly was--
Senator Cardin. Certainly it is not true in the Doha Round
where we are getting into all types of problems with Europe.
Mr. Thomas. All I am suggesting is--in fact, will tell you
directly is that the legislative history of the Process Patent
Amendments Act accounted for European laws that used words like
``directly the product of the process,'' and I think this was
an attempt to articulate a bit further--
Senator Cardin. So when the European laws favor our foreign
competitors, we should use those laws, but not the other ones?
I am not--
Mr. Thomas. Well, if you will allow me to continue, Mr.
Cardin, if I may.
Senator Cardin. Sure.
Mr. Thomas. One thing to remember is that when the product
of the process is subject to a number of modifications or is
only tangential to the product, there tends to be some
disconnect or at least some separation between the process and
the product. And so the notion is perhaps these individuals are
not the copyists of which you speak. Perhaps they have done
some follow-on innovation themselves to move further.
I would also state that--
Senator Cardin. Then that wouldn't violate the law. They
wouldn't violate the--they would have a defense there.
Mr. Thomas. Well, they might violate the process patent in
the jurisdiction from which that product is exported.
Senator Cardin. Then they have violated our law.
Mr. Thomas. Not necessarily under 271(g) in the district
courts.
Let me also observe that these situations arise because
there is no product patent in the United States. If there is a
product patent in the United States, that patent proprietor
could enforce the product patent directly. And the reason these
cases come up is because there is only a process patent in the
United States. And why is there only a process and not a
product patent? Usually because patent policy says that there
ought not to be, because it is a naturally occurring substance
or because the product is already known, and so the only
innovation that is done is a new way of making it or using it.
So those policy reasons are well established in the patent
law, and they are not by accident. They balance between
innovation and access. And so when we say, well, we ought to
have expanded protection for sort of a form of patent
protection that is regarded as weak, that is sort of at times
left to someone who cannot get a full-fledged product patent,
we should at least pause, respectfully, I think, before we
expand it.
Thank you, Mr. Cardin.
Senator Cardin. Thank you.
Thank you, Mr. Chairman.
Chairman Leahy. Senator Cardin, if you have more, feel
free.
Senator Cardin. No, Mr. Chairman. I think I got the answer
I expected. I would just come back to the point, if there are
additional suggestions that any of the panelists might have, we
would certainly appreciate it, because I do think we want our
laws enforced.
Thank you.
Chairman Leahy. In fact, I will keep the record open. There
are a couple of points that I would like to explore further.
For one thing, take a look at your testimony when you look at
it. If you want to add to it, and we will note it as an
addition, but we are keeping it open for that. We are not
trying to play ``gotcha'' here. This is too important an issue.
It is a highly complex issue, as you know. You have each spent
more time on this than most of us have. But it is a very, very
worrisome issue.
After I get a chance to read more thoroughly the two cases
from yesterday in the Supreme Court, I may followup with some
questions based on that. Some of the cases in the Supreme
Court--I mean, it is very easy to read a case about chasing a
fleeing suspect. The press and everybody else can usually pick
up on that, and as a former prosecutor, I read it with
interest. But on these, they get a little bit--they do not make
for exciting bedtime reading. Perhaps for the four of you they
do. They do not for me. But, fortunately, they do for Susan
Davies and other brilliant people on the staff. But I may
followup based on that, if you do not have any objection.
So we will stand in recess.
[Whereupon, at 3:34 p.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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