Download 2015-08-28 Biotech-ITC Joint Session Paper - Giannelli

When and Why Biotech Companies Should Consider
Filing Suit at the International Trade Commission
by
Maximilienne Giannelli, Ph.D.,
Finnegan, Henderson, Farabow, Garrett & Dunner LLP
Biotechnology/International Trade Commission (Joint Session)
AIPLA Annual Meeting
October 22-24, 2015
I.
Overview
What makes the ITC an attractive forum for chemical and biotech companies? First and
foremost, the ITC has broad jurisdiction over products imported into the United States that
allows it to provide an effective, indeed draconian, remedy against foreign-produced infringing
imports by excluding them entirely from the U.S. market. Second, as an important corollary to
that jurisdiction, the ITC provides patentees with the ability to obtain discovery from foreign
entities—even if those entities might not be subject to personal jurisdiction in the United
States—and use that discovery to establish infringement in both the ITC and a related district
court action. Third, the fast pace of the ITC provides a rapid route to relief for a well-prepared,
successful patentee, as investigations often reach completion in less than half the time required
for district court cases. Fourth, the ITC has broader jurisdiction over process patents, unlimited
by the safe-harbor provisions in 35 U.S.C. § 271(g). Fifth, the ITC permits patentees to sue
multiple unrelated parties in a single action and forum, as it is not subject to the restrictions on
joinder of 35 U.S.C. § 299(a). Sixth, the ITC handles more patent trials each year than nearly any
other tribunal, allowing patentees to benefit from knowledgeable, patent-savvy Administrative
Law Judges (“ALJs”) and attorneys from the ITC’s Office of Unfair Import Investigations.
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Finally, the available remedies make the ITC a key strategic venue for patentees concerned about
infringing imports. This article explores these features of ITC investigations.
II.
The ITC’s Broad Jurisdiction over Foreign Imports
The ITC administers Section 337 of the Tariff Act of 1930, 19 U.S.C. § 1337. Pursuant to
that provision, the ITC has in rem jurisdiction over foreign products that are imported into the
United States, sold for importation, or sold within the United States after importation, and that
are accused of infringing a U.S. intellectual property right. As discussed below, this unique
jurisdiction allows the ITC to conduct a full and effective investigation of such products and, if
the elements of Section 337 are met, direct Customs and Border Protection to exclude the
products from entry into the United States. Such an exclusion order will prevent future
importation of the accused products. The Commission also has authority to issue a cease and
desist order that will prevent future sales in the United States of the accused products.
III.
Discovery at the ITC
At the ITC, patentees may obtain discovery from any and all named “respondents” in an
investigation, which can provide key information necessary to support allegations of
infringement, particularly in cases involving process patents.
The patentee selects the respondents to an investigation by naming them in the complaint.
Any entity named as a respondent in an investigation must appear and participate or risk a
default judgment, which could result in a default exclusion order and/or cease and desist order.
Because such orders would effectively bar the respondent from participating in the U.S. market,
any respondent that wishes to continue in that market is effectively required to fully participate
in the investigation, including full participation and cooperation in discovery.
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This is true regardless of the respondent’s jurisdictional ties to the United States. Because
the ITC exercises in rem jurisdiction over the products, it need not rely on personal jurisdiction
over the respondents for its authority (although it does need personal jurisdiction to issue a cease
and desist order). Thus, the patentee may name as a respondent any entity whose products enter
the United States, regardless of whether the entity has any other jurisdictional ties to the United
States.
The power to obtain to discovery from foreign manufacturers significantly enhances the
patentees’ ability to investigate and prove their allegations of infringement. By way of example,
Eli Lilly and Company was involved in a global dispute against Hospira, Inc., alleging
infringement of patents related to a process to prepare gemcitabine, marketed by Lilly as
Gemzar® for the treatment of several forms of cancer. Lilly filed suit in no less than seven
tribunals, including two United States district courts and courts in Canada, Singapore, Denmark,
the United Kingdom, and Australia. Certain Gemcitabine and Products Containing Same, Inv.
No. 337-TA-766, Complaint at ¶¶ 26-39. Central to Lilly’s claims of infringement was the
process used by the manufacturer to prepare gemcitabine. But, the manufacturer was not a party
to these actions. Thus, after unsuccessfully attempting to obtain this discovery about the
manufacturing process in other tribunals, Lilly filed suit at the ITC, naming the foreign
manufacturer as a respondent. Within weeks of institution of the investigation, Lilly obtained
manufacturing batch records related to the process at issue. Ultimately, Lilly questioned the
authenticity of the manufacturing batch records, and the ITC granted Lilly’s motion for a
forensic inspection (ink testing) of those records. Id., Order No. 10 at 10-14 (public version).
This appears to have precipitated settlement, as the ITC terminated the investigation based on
settlement shortly after the order granting Lilly’s request for a forensic inspection issued. Id.,
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Order No. 15. Thus, after unsuccessfully pursuing discovery through no less than seven
litigations outside the ITC, Lilly finally obtained key discovery and resolved its dispute at the
ITC.
The ITC allows patentees to obtain more than just documents from foreign manufacturers
that are named as respondents. For example, parties can request plant inspections of parties at
foreign facilities in the course of ITC investigations, particularly when process patents are at
issue. 19 C.F.R. § 210.30.
Notably, patentees subsequently have the opportunity to rely on ITC discovery from
foreign manufacturers in related district court cases, even if the foreign manufacturer is not a
party to the district court action. As discussed below, patentees often file a parallel action in U.S.
district court when they file suit in the ITC. This allows the patentee to pursue an injunction at
the ITC and later obtain damages in district court. Such district court actions are often stayed
pending the outcome of the ITC investigation. Indeed, the district court must stay the related
litigation at the request of any party that is named as a respondent in the ITC, provided the
request is timely and the case involves the same issues (e.g., the same patents). See 28 U.S.C.
§ 1659(a). By statute, if the patentee files such a related action in district court and that action is
stayed pending completion of the ITC investigation, upon completion of the ITC investigation
and dissolution of the stay, the record from the ITC investigation transfers to the district court.
See 28 U.S.C. § 1659(b). As a result, the patentee can rely on same evidence in the district court,
regardless of whether the foreign manufacturer producing such information is a party in the
district court action.
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In short, if a patentee wishes to obtain discovery from a foreign entity to establish
infringement, the ITC provides an effective means of obtaining that discovery, without regard to
personal jurisdiction over that foreign manufacturer.
IV.
Fast pace
The ITC provides a fast route enjoining importation and sales in the United States. At the
ITC, the hearing occurs on average just six to nine months after institution of the investigation,
and final resolution by the Commission generally occurs within sixteen months. By contrast,
district court cases often involve protracted periods of discovery and typically take two to three
years to reach trial (and longer than that to reach judgment).
This fast pace often provides an edge to well-prepared patentees. By contrast, the
respondents often find themselves scrambling to keep up with the rapid pace of fact and expert
discovery.
Additionally, this fast pace reduces the likelihood that the respondents can have the case
stayed following institution of an inter partes review (IPR). The ITC rarely stays an investigation
in favor of another proceeding, including an IPR, even if the other proceeding is already
underway. In particular, even if a respondent files a petition for IPR on the same day the ITC
institutes an investigation, the ITC case will likely have progressed too far to favor a stay in the
event the IPR is instituted, as the discovery may well have ended, and trial preparation may have
already begun. The figure below compares the timelines of an IPR and an ITC investigation
when the IPR is filed on the same day the ITC investigation is instituted.
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As shown above, even if an IPR is filed the day an ITC case officially begins, the ITC
investigation will likely have progressed to the point that a stay pending resolution of the IPR is
disfavored. In particular, if the ITC trial is scheduled to take placed six months after institution,
then the decision on IPR institution will likely arrive on the eve of trial. And, even if the ITC
case has a more leisurely schedule allowing nine months from institution to trial, fact discovery
may well have ended before the parties receive the decision on IPR institution. Under either
scenario, the ITC will likely issue a final decision before the PTAB issues a final written
decision on the IPR.
Notably, if the respondent files a petition for IPR a few months after the investigation is
instituted (a far more likely scenario), the decision on institution will likely issue after the ITC
trial has begun, or even after the ALJ renders a decision on the merits, as shown below.
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Thus, the fast pace of ITC litigation renders a stay following institution of an IPR highly
unlikely (especially if the petition is filed on or after institution and perhaps even if filed
beforehand). By contrast, if a defendant files a petition for IPR within a few months of receiving
a district court complaint, the slower pace of district court litigation increases the likelihood of a
stay in the event that the IPR is instituted.
V.
Process Patents
As noted above, the ITC provides unique advantages to patentees seeking to obtain
discovery from foreign manufacturers. This discovery often plays a key role in cases involving
process patents, as it may not be possible to obtain sufficient information about the process used
to make a particular product just by inspecting or testing the product.
The ITC’s jurisdiction over process patents differs from that of district courts. In
particular, 35 U.S.C. § 271(g) limits the enforceability of process patents in U.S. district courts in
two ways. Section 271(g) provides:
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A product made by a patented process will not be considered to be
so made if:
(1) it is materially changed by subsequent processes; or
(2) it becomes a trivial and nonessential component of another
product.
35 U.S.C. § 271(g). Thus, in district courts, even if the product is prepared by a patented process,
the district court will not find infringement if the product is “materially changed” by a later
process or if the product becomes a “trivial and nonessential component” of another product.
This provision creates uncertainty as to whether district courts can enforce patents
covering processes used overseas to prepare intermediates, when those intermediates are used to
prepare final products sold in the United States. For example, the Federal Circuit affirmed the
denial of a patentee’s request for a preliminary injunction because (among other things) it
concluded that the patentee was not likely to prevail on infringement in view of § 271(g)(1). Eli
Lilly and Company v. Am. Cyanamid Co., 82 F.3d 1568, 1573 (Fed. Cir. 1996); see also Eli Lilly
and Company v. Am. Cyanamid Co., 66 F. Supp. 2d 924, 932, 936 (S.D. Ind. 1999) (granting
summary judgment of noninfringement under § 271(g) because the intermediate was materially
changed when converted to the final pharmaceutical product). Specifically, the Federal Circuit
concluded that the accused product (generic ceflacor) likely did not infringe an asserted patent
covering a process to prepare an intermediate, concluding that the intermediate was likely
materially changed in the process of synthesizing a final pharmaceutical product. Eli Lilly, 82
F.3d at 1573. The Federal Circuit rejected the patentee’s argument that the final product should
not be considered “materially changed” under § 271(g) where the patented intermediate serves
the primary commercial purpose of preparing the final pharmaceutical product. Id. at 1572.
While the court acknowledged that the argument had “considerable appeal,” it determined that it
strayed too far from the statutory text. Id. at 1572-73. The court determined that “[i]n the
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chemical context, a ‘material change in a compound is most naturally viewed as a significant
change in the compound’s structure and properties.” Eli Lilly, 82 F.3d at 1573. Thus, “[w]hile the
addition or removal of a protective group, standing alone, might not be sufficient to constitute a
‘material change’ between two compounds (even though it could dramatically affect certain of
their properties),” other synthetic steps may well result in a material change. Id. As a result, in
district courts, § 271(g) limits the enforceability of patents covering processes used to prepare
intermediates, when the allegations of infringement are based on sales or importation of the final
product.
The Federal Circuit concluded that the limitations of § 271(g) do not apply at the ITC.
Kinik Co. v. ITC, 362 F.3d 1359 (Fed. Cir. 2004). Thus, the ITC can enforce patents covering
processes for the preparation of intermediates and precursors based on the importation of the
final product, without regard to whether the intermediate is “materially changed” when
converted to the final product. See Certain Sucralose, Sweeteners Containing Sucralose, and
Related Intermediate Compounds Thereof, Inv. No. 337-TA-604, Commission Op. at 13-36
(Apr. 29, 2009) (discussing the ITC’s jurisdiction over process patents and applying its analysis
to the asserted patents). This renders the ITC’s jurisdiction over process patents broader than that
of district courts, at least with respect to the enforcement of patents covering processes used to
prepare chemical intermediates.
VI.
One Venue
Unlike district courts, the ITC does not have any restrictions on pursuing infringement
against multiple, unrelated entities. Thus, a patentee may name all accused infringers in a single
investigation in a single venue.
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In district courts, patentees may not sue multiple, unrelated defendants in a single district
court action. Specifically, patentees may only sue multiple defendants in the same action in two
situations: (1) the patentee seeks relief “jointly, severally, or in the alternative with respect to or
arising out of the same transaction, occurrence, or series of transactions or occurrences relating
to the making, using, importing into the United States, offering for sale, or selling of the same
accused product or process”; or (2) “questions of fact common to all defendants or counterclaim
defendants will arise in the action.” 35 U.S.C. § 299(a). Allegations of infringement do not
provide a basis for joinder. 35 U.S.C. § 299(b). If neither situation provided in § 299(a) applies,
the patentee must bring separate suits against unrelated defendants in district court, and may
have to do so in different venues around the United States.
By contrast, the ITC has no restrictions on naming unrelated respondents. A patentee may
name all entities alleged to infringe the asserted patents as respondents in one investigation.
Thus, the ITC provides a potential forum for patentees interested in stopping wide-spread
infringement by multiple unrelated parties. As an example, in Investigation No. 337-TA-855,
Hitachi Metals sued for infringement of patents covering methods of making rare earth sintered
magnets, naming 29 respondents in the complaint. After obtaining over 20 settlements, Hitachi
Metals withdrew its complaint prior to trial. This result may not have been so readily achieved in
district court.
VII.
ALJs and OUII
The ITC ranks among the busiest venues for patent trials in the United States. In part due
to the rapid pace of investigations at the ITC, approximately 40% of ITC investigations go to
trial, compared to an estimated less than 5% of district court patent cases. Each year, the ITC
receives about forty new complaints. And, each year, the ITC typically conducts between ten and
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twenty hearings on patent infringement. Only a handful of U.S. district courts routinely conduct
as many patent trials each year. See Lex Machina, 2013 Patent Litigation Year in Review (listing
the district courts with the most patent trials in 2013 as having conducted twenty-five (D.
Delaware and E.D. Texas), seventeen (S.D. New York), nine (N.D. California), and seven (D.
New Jersey) patent trials).
As a result, the ITC’s six ALJs—who perform all the functions of a district court judge—
each typically preside over two or three patent trials each year. Each ALJ thus has considerable
invaluable experience overseeing complex patent litigation.
Litigants at the ITC further benefit from the participation of the ITC’s Office of Unfair
Import Investigations (OUII). In most cases, a staff attorney from OUII participates in the
investigation as an independent trial attorney. Staff attorneys often weigh in on both procedural
and substantive issues such as claim construction, validity, and infringement and thus provide the
ALJ with an independent assessment of the merits of the case. Notably, many of OUII’s staff
attorneys have strong technical backgrounds, and five have backgrounds in chemistry or biology.
VIII. Remedies
A.
Overview of Available Relief
As mentioned above, patentees may obtain two types of relief at the ITC: (1) exclusion
orders blocking importation of products into the United States, and (2) cease-and-desist orders
preventing future sales and marketing in the United States. The ITC does not have the authority
to award damages based on past infringement. Thus, patentees choosing to litigate at the ITC
often file a parallel action in district court to seek damages after completion of the ITC
investigation. As noted above, the record from the ITC case transfers to the district court
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pursuant to 28 U.S.C. § 1659(b), avoiding at least in part the need for duplicative discovery in
related district court actions.
B.
Exclusion Orders
Exclusion orders may take two forms: (1) a limited exclusion order, which blocks imports
of infringing products by named respondents, and (2) a general exclusion order, which blocks
imports of infringing products by anyone when certain conditions are met.
Limited exclusion orders prevent importation of products of named respondents found to
infringe. Notably, a limited exclusion order does not prevent entry of downstream products
imported by non-respondents that incorporate components made by named respondents that are
found to infringe. Kyocera Wireless Corp. v. ITC, 545 F.3d 1340, 1358 (Fed. Cir. 2008). As a
result, patentees typically name as respondents both the manufacturer of the accused component
and the downstream companies whose products incorporate those components.
General exclusion orders broadly prevent importation of products found to infringe,
regardless of whether the manufacturer and/or importer was identified as a respondent in the
investigation. General exclusion orders may issue in cases where (a) such relief is necessary to
prevent circumvention of an exclusion order limited to products of named respondents; or (b)
there exists a widespread pattern of violation of Section 337 and it is difficult to identify the
source of infringing goods. 19 U.S.C. § 1337(d)(2). For example, if “suppliers of infringing
products could readily mask their identity or be replaced by other suppliers,” a general exclusion
order may be appropriate. Certain Sildenafil or any Pharmaceutically Acceptable Salts Thereof,
Such as Sildenafil Citrate, and Products Containing Same, Comm’n Op. on Remedy, at 7 (Jul.
26, 2004) (public version). The Commission has clarified that for a general exclusion order to
issue, business conditions must exist from which one can infer that foreign manufacturers other
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than the named respondents may attempt to enter the United States with infringing articles. Id. at
5 (citing Certain Airless Paint Spray Pumps and Components Thereof, Inv. No. 337-TA-90,
U.S.I.T.C. Pub No. 1199, 216 U.S.P.Q. 465 (U.S.I.T.C. Nov. 1981)). For example, Pfizer
obtained a general exclusion order blocking importation of sildenafil, marketed by Pfizer as
Viagra®, based in part on evidence of widespread infringement, the ability of infringing
suppliers to mask their identities or be replaced by other suppliers, and the fact that foreign
sources could readily market infringing products directly to U.S. consumers over the internet. Id.
at 7-8. This meant that Pfizer could work with Customs to block infringing imports even from
companies that had not been a party to the ITC investigation, indeed may not even have tried to
enter the market until after that time.
C.
Cease-and-Desist Orders
Patentees may also obtain cease-and-desist orders preventing future marketing, sale, or
distribution in the United States of products found to infringe. Cease-and-desist orders generally
apply to products already in the United States at the time a violation is found.
The ITC imposes strict penalties for violations of cease-and-desist orders. In particular, a
respondent may be fined up to $100,000 or twice the value of infringing goods, whichever is
greater, for each day the respondent is in violation of the order. 19 U.S.C. § 1337(f)(2).
D.
Injunctions at the ITC
Notably, although the ITC has the power to issue injunctive relief in the form of
exclusion orders (blocking importation of products) and cease and desist orders (preventing
future sales), it does not apply the four-fact test of eBay to determine whether to issue the
injunction. See eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837, 1839 (2006). In district
court, the patentee seeking an injunction must show (1) that it has suffered irreparable harm; (2)
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that damages are inadequate to compensate for that harm; (3) that the balance of hardships
between the plaintiff and defendant warrants a remedy in equity; and (4) that an injunction would
not disserve the public interest. Id. Notably, with respect to the first factor, the Federal Circuit
has held that the allegedly infringing feature must drive consumer demand for the product.
Apple, Inc. v. Samsung Electronics Co., 678 F.3d 1314, 1324 (Fed. Cir. 2012) (Apple I); Apple,
Inc. v. Samsung Electronics Co., 695 F.3d 1370, 1375 (Fed. Cir. 2012) (Apple II). This stringent
requirement does not exist at the ITC, which does not require any showing as to irreparable
harm. If it finds that the requirements of Section 337 are met, it will issue a remedial order
regardless of the four eBay factors. Additionally, the ITC does not require evidence that damages
would be inadequate to compensate for such harm. Indeed, such an analysis of the inadequacy of
damages would, arguably, be inappropriate, given the ITC’s lack of authority to award damages.
This provides an advantage to patentees that might not otherwise be able to satisfy the first two
eBay factors.
IX.
Additional Considerations
While there are numerous potential advantages to ITC litigation, the ITC imposes some
unique requirements on patentees. To prevail, patentees must, of course, establish that the
product is being imported in order to trigger the ITC’s jurisdiction. In addition, the patentee must
demonstrate certain qualifying economic activity in the United States related to the asserted
patents. (Such activity may be in the form of manufacturing or other investment in qualifying
plant and equipment or employment of labor or capital, or other qualifying investments including
engineering, R&D, or licensing.) Finally, the relief sought must not contravene the public
interest or important U.S. policy. Additional information related to these requirements may be
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found in the article provided with this joint session of the Biotech and ITC committees of the
AIPLA authored by Daniel Yonan.
X.
Disclaimer
These materials are public information and have been prepared solely for educational and
entertainment purposes to contribute to the understanding of U.S. intellectual property law.
These materials reflect only the personal views of the authors and are not a source of legal
advice. It is understood that each case is fact specific, and that the appropriate solution in any
case will vary. Therefore, these materials may or may not be relevant to any particular situation.
Thus, the authors and Finnegan, Henderson, Farabow, Garrett & Dunner, LLP cannot be bound
either philosophically or as representatives of their various present and future clients to the
comments expressed in these materials. The presentation of these materials does not establish
any form of attorney-client relationship with the authors or Finnegan, Henderson, Farabow,
Garrett & Dunner, LLP. While every attempt was made to ensure that these materials are
accurate, errors or omissions may be contained therein, for which any liability is disclaimed.
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Speaker Biographical Profile
Maximilienne Giannelli, Ph.D., focuses her practice on patent litigation in federal district
courts and at the U.S. International Trade Commission (ITC). Dr. Giannelli handles all aspects of
litigation, including pre-litigation counseling, Markman proceedings, motions and briefs, direct
and cross-examination of fact and expert witnesses at trial, and oral argument on trial motions.
She provides advice to clients on intellectual property matters, including opinions on patent
validity/invalidity and infringement/noninfringement. She has experience preparing patent
applications, prosecuting patents, and assisting in due diligence investigations.
Dr. Giannelli las litigated patents related to a wide range of technologies, including
lithium-ion batteries, opto-electronic materials and devices, pharmaceuticals, specialty chemical
manufacturing processes, and genetically modified plants. She received her Ph.D. in chemistry
for research related to cement hydration inhibition and cross-linking in a hydraulic fracturing
fluid. As a post-doctoral researcher, she investigated charge transport in organic photovoltaic
materials and liquid crystals.
Dr. Giannelli also devotes time to pro bono representation of military veterans before the
U.S. Court of Appeals for Veterans Claims.
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