Source: https://www.ipwatchdog.com/2018/02/23/cafc-271g-materially-changed-exception/id=94022/
Timestamp: 2019-04-20 16:15:24+00:00

Document:
35 U.S.C. § 271(g) was enacted in 1988 as part of the Process Patents Amendments Act to address instances where would-be infringers were avoiding infringement liability by using a process, patented in the U.S., outside of the country and then importing the product of the patented process into the U.S. Eli Lilly and Co. v. American Cyanamid Co., 82 F.3d 1568, 1571 (Fed. Cir. 1996). Under Section 271(g), such activity constitutes infringement. 35 U.S.C. § 271(g). The statute, however, carves out two exceptions: (1) where the product of the patented process that was made outside the U.S. is “materially changed” prior to importation; and (2) where the product of the patented process becomes a “trivial and nonessential component” of the product being imported. This article examines Federal Circuit case law addressing the circumstances that will (and will not) give rise to application of the “material change” carve out to infringement liability under Section 271(g).
Materiality is “context dependent.” Amgen Inc. v. F. Hoffman-La Roche Ltd., 580 F.3d 1340, 1379 (Fed. Cir. 2009). Accordingly, the patent itself is a good aid when analyzing whether or not the process of a patented product has undergone a material change. Id. Where, for example, the patent’s specification or the asserted claims teach structure and/or function for the product of the patented process, then “significant variations” from such structure and/or function support the notion that there has been a material change. Id. Whether or not a variation is significant enough to rise to the level of “material” is “a question of degree.” Id. However, application of the “material change” exception requires, at a minimum, a “real difference” between the product of the patented process and the product being imported; and that the product of the patented process be “significantly altered” prior to importation. Bio-Technology Gen. Corp. v. Genentech, Inc., 80 F.3d 1553, 1560 (Fed. Cir. 1996); Eli Lilly and Co., 82 F.3d at 1575.
In Bio-Technology, the Federal Circuit analyzed whether a plasmid (the product of the patented process) underwent a material change when used to express its intended protein. The court held that this does not constitute a material change. The court reasoned that the plasmid was “an essential part of an overall process for producing [the protein].” Bio-Technology Gen. Corp., 80 F.3d at 1561. The court rested its holding on both the teachings of the patent itself as well as the legislative history of the Process Patents Amendments Act. With regard to the patent, the opinion notes that the patent teaches that the claimed process for making the plasmid is to be used as part of an overall process for making the protein and teaches in detail, not only how to prepare the plasmid, but also the additional steps necessary to prepare the protein. With regard to the legislative history, the opinion notes that “[t]he legislative history precisely anticipated this fact situation and indicated Congress’s intent that infringement of a process for making a plasmid is not to be avoided by using it to express its intended protein.” Id. It bears mentioning that the court reached this decision despite expressly noting that “[t]here is little doubt that the plasmid product of the claimed process and hGH are entirely different materials, one being more than materially changed in relation to the other.” Id. While the court’s approach has some degree of intuitive appeal in that the factual scenario under consideration was directly addressed in the legislative history, the approach seems to be odds with the fundamental principle that courts are only to consult the legislative history if there is some degree of ambiguity in the application of the statutory text. Here, according to the court’s own pronouncements, there is no such ambiguity. Maybe then the court simply could have used different language instead of the “more than materially changed” language used in the opinion.
A month after the Bio-Technology case came down, the Federal Circuit again had occasion (in the preliminary injunction context) to analyze the “material change” provision of Section 271(g)(1) in Eli Lilly. The court counseled that “[i]n the chemical context, a ‘material’ change [is] … a significant change in the compound’s structure and properties.” Lilly and Co., 82 F.3d at 1573. The court held that the product of the patented process, referred to in the asserted patent as “compound 6,” would likely be found to have underwent a material change when transformed into the imported product, cefaclor. Id. The court traced the four discrete chemical reactions necessary to transform compound 6 into cefaclor and noted that each of these four reactions led to four corresponding important structural differences between compound 6 and cefaclor. Id. at 1570, 1573.
The court also rejected Eli Lilly’s proposed “economic value” test, by which Lilly proposed that if the entire economic value of the product of the patented process resides in its conversion to the imported product, then this should lead to a finding of no material change. The court reasoned that this would be “asking the statutory language to do too much work” and that, therefore, “[the court] look[s] instead to the substantiality of the change[.]” Id. at 1573. This analytical approach, however, seems to be directly at odds with the approach taken in the Bio-Technology case where the court based its holding on the fact that the entire purpose of the plasmid (product of the patented process) was to express the protein (imported product). One way to reconcile the two cases is to say that, as a general rule, courts will look to how the structure and properties have changed as between the product of the patented process and the imported product; but that if the legislative history directly addresses the scenario, then the legislative history will control. This approach, however, runs contrary to fundamental principles of statutory construction because the standard to be applied when assessing whether or not a product has undergone a material change should not depend on whether the legislative history discusses the factual scenario at issue. The Federal Circuit’s opinion in Eli Lilly appears to recognize this on some level at least when the court comments as follows: “to the extent that Congress intended the courts to look to the committee reports for guidance in construing the ‘materially changed’ clause.” Id. The court, thus, refused to hold that the legislative history constituted interpretive authority. Further along these lines, the court commented that “we cannot claim that the legislative background of the 1988 Act provides a conclusive answer to the question of how the ‘materially changed’ clause should be construed in general, and how it should be applied to the facts of this case in particular.” Id. at 1578. Such commentary again reflects the court’s aversion in Eli Lilly to reliance upon the legislative history of the Process Patents Amendments Act in contrast to the approach taken by the court in Bio-Technology.
The court in Eli Lilly nonetheless examines the two-part “material change” test outlined in the Senate Report for determining whether the “material change” exception does or does not apply. Under this two-part test, first, the “material change” exception will apply (i.e., no infringement will be found) if there are commercially viable, alternative ways to produce the product of the patented process (e.g., the chemical intermediate). Id. at 1576. Second, the “material change” exception will apply where there are changes to the chemical and/or physical properties of the product of the patented process that change its “basic utility.”. Id. at 1577. While declining to base its holding on this two-part test, the court notes that application of the test there would lead to a material change finding and, therefore, a finding of no infringement. Id. at 1578. Specifically, the court notes that there are alternative, commercially feasible processes for making cefaclor that do not involve the patented process; and that the chemical properties, chemical structure, and basic utility of compound 6 and cefaclor are different. Id. at 1576-77. While the legislative history does not speak to this issue with the same directness as the plasmid/protein scenario of Bio-Tech, given that the two-part test is couched in the legislative history in terms of a chemical intermediate (product of the patented process) and the final product (imported product), one could reasonably take the position, that, as in Bio-Tech, the legislative history directly contemplated the Eli Lilly scenario.
The Federal Circuit’s Amgen decision fleshes out the general principle that the “material change” analysis is focused on structure and function (possibly with the exception of where the legislative history directly addresses the scenario). The court held that there was no material change as between the product of the patented process (EPO) and the imported product PEGylated EPO (brand-name Mircera®). Amgen, 580 F.3d at 1379. The court notes that the structure of EPO remains in tact (albeit with PEG attached); Mircera® still binds to the EPO receptor; Mircera® retains the same biological function as EPO when the PEG is attached; and Mircera® and EPO stimulate erythropoiesis similarly. Id. The court arrived at this holding based on these similarities and despite differences in chemical and physical properties (including size, molecular weight, and atomic composition), and differences in pharmacokinetic properties such as a longer half-life which in turn allows for longer dosing intervals. Id. These appear to be substantial differences in properties; but perhaps the fact that these changes did not affect EPO’s “basic utility” (as provided for in the legislative history) led to the court’s decision (PEG-EPO retained the ability to produce reticulocytes and red blood cells). The court, however, does not reference the legislative history of the Process Patents Amendments Act in its opinion nor otherwise address the issue in these terms. The outcome may, therefore, reflect that biological function/utility reigns supreme as among all properties when assessing whether there has been a material change. Another reading of the case is that the court really viewed the PEG molecule as a separate molecule from the EPO to which it is attached. Or, until further guidance is provided, perhaps the court’s decision reflects that PEGylation simply constitutes another carve-out from Section 271(g)(1). Indeed, all of the sorts of differences identified by the court between EPO and PEG-EPO are applicable to PEGylation of many different molecules.
In the end then, what we know based on Federal Circuit case law analyzing and applying the “material change” exemption to infringement liability under 35 U.S.C. §271(g) is that the analysis will be context-dependent. But, as a general matter, significant variations in the structure, properties and/or function of the product of the patented process (as compared to the imported product) support a material change finding. However, even where, according to this standard, a compound can be said to have undergone a material change, the “material change” exception will not apply in at least the plasmid/protein scenario and where the transformation consisted of PEGylation.

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