[Senate Hearing 110-127]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-127
 
                            PROCESS PATENTS 

=======================================================================

                                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

                              -------

                     U.S. GOVERNMENT PRINTING OFFICE

37-168 PDF                 WASHINGTON DC:  2007
---------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office  Internet: bookstore.gpo.gov Phone: toll free (866)512-1800
DC area (202)512-1800  Fax: (202) 512-2250 Mail Stop SSOP, 
Washington, DC 20402-0001




















                 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

                              ----------                              

                    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

                              ----------                              


                          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.]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
