In Limited Circumstances, the Supreme Court Permits Businesses to Recover Patent Damages for Sales Made Outside the U.S.

By Lawrence Green. A member of our Patent Practice Group

The Supreme Court recently answered the question whether a patent owner can collect damages caused by an infringer’s sales outside the U.S.  Federal law typically reaches only conduct within the country, but the justices made an exception for a section of the Patent Act that makes it an act of infringement to supply U.S.-made components of an invention to be combined overseas in an infringing device. The Court held that lost profits are available from foreign sales if the patent owner proves such infringement.

The defendant in WesternGeco LLC v. ION Geophysical Corp. made components of its ocean-surveying products in the U.S. and shipped them abroad where they were assembled into an infringing product. All of ION’s profits from the infringing products arose from sales outside the United States.

The Court was careful to state that its holding was based on the patent statute at issue, 35 U.S.C. § 271(f)(2), which labels as infringing the shipping of components from the U.S. to be combined abroad.  This statute was enacted after the 1972 Supreme Court decision in Deep South Packing Co. v. Laitram Corp., in which the defendant was exporting components made in the U.S. for assembly in Brazil of a shrimp deveiner.

The Deep South patentee held so-called combination patents covering certain portions of the fully assembled deveiner, but had no patents covering the components.  The Supreme Court held that merchandise protected by a combination patent is “made”– and thus liable to be found infringing–only when it is fully assembled in the U.S. Because assembly of the deveiner occurred outside the U.S., the defendant was not liable for infringement under the statute as it then stood.  The Court suggested that only Congress, if it so chose, could close this loophole in the patent statute. Congress accepted this invitation and passed what now has become § 271(f)(2) of the Patent Act.

In the WesternGeco decision, the Court stated the established presumption that federal statutes “apply only within the territorial jurisdiction of the United States.”  Under the two-step framework for deciding whether this presumption should be overridden, a court first asks whether the text of the statute provides a “clear indication of an extraterritorial application.”  If it does not, the second step asks whether the case involves a domestic application of the statute.  Courts make this determination by identifying “the statute’s focus” and asking whether the conduct relevant to that focus occurred in the United States territory.  If it did, the case involves a permissible domestic application of the statute.

The Court skipped the first step, concerned that “resolving that question could implicate many other statutes besides the Patent Act.” Under the second step, the Court concluded that the statutory focus of Section 271(f)(2) is domestic. The statute provides that a company shall be liable as an infringer if it supplies certain components of a patented invention in or from the United States with the intent that they be combined outside of the United States in a manner that would infringe the patent if such combination occurred within the United States.

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New Guidance for Patenting Method-of-Treatment Inventions

By Alexander Smolenski, Jr.. A member of our Patent Practice Group

The U.S. Patent and Trademark Office (USPTO) issued a memorandum on June 7 (the “Memorandum”), providing much-needed guidance to patent examiners as to whether method of treatment claims are to be considered patent-eligible subject matter under 35 U.S.C. §101.  Guided by the recent Federal Circuit  decision in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals, the Memorandum explains that a method-of-treatment claim that practically applies natural relationships, as opposed to being directed to them (e.g., diagnostic steps aimed at gathering data about natural relationships), may be considered patentable subject matter.  The Memorandum provides a level of clarity for the life sciences industry, which has struggled with subject matter eligibility before the USPTO and the distinction between diagnostic and therapeutic claims.

At issue in Vanda were claims of a patent directed to a method of treating schizophrenia patients with iloperidone.^[i]  Iloperidone is a drug known to cause QTc prolongation (a disruption of the heart’s normal rhythm that can lead to serious health problems) in patients having a particular genotype associated with poor drug metabolism.

The claims of the patent include a diagnostic step of determining if a patient has the genotype associated with poor drug metabolism, followed by administering a quantity of the iloperidone based on the determination in order to treat a particular disease.  If the patient is found to have the genotype associated with poor drug metabolism, a smaller quantity of the iloperidone would be administered.

In Vanda, West-Ward challenged the claims of the patent as being directed to a natural relationship and thus covering unpatentable subject matter.  While § 101 of the Patent Act contains broad language regarding patent eligibility, the Supreme Court has long recognized important implicit exceptions for laws of nature, natural phenomena, and abstract ideas, which are not patentable.

The Federal Circuit panel in Vanda held that the claims at issue were patent eligible under § 101 because they are not directed to one of the judicial exceptions.  In doing so, the court applied the “two-step rule”  that has its roots in the Supreme Court’s 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc,  and its 2014 decision in Alice Corp. Pty. v. CLS Bank Int’l. Under step 1, a court determines whether the claims at issue are directed to a patent-ineligible concept.

If they are, then under step 2, the court searches for an inventive concept by considering elements of each claim both individually and as an ordered combination to determine whether they contain additional elements that transform the nature of the claim into a patent-eligible application.   In determining whether the claim contains such transformative elements, the court asks whether the claims contain matter beyond what is well-understood, routine and conventional. More...

^[i] A representative claim of the patent at issue in Vanda reads as follows:

1. A method for treating a patient with iloperidone, wherein the patient is suffering from schizophrenia, the method comprising the steps of:

determining whether the patient is a CYP2D6 poor metabolizer by: obtaining or having obtained a biological sample from the patient; and performing or having performed a genotyping assay on the biological sample to determine if the patient has a CYP2D6 poor metabolizer genotype; and
if the patient has a CYP2D6 poor metabolizer genotype, then internally administering iloperidone to the patient in an amount of 12 mg/day or less, and if the patient does not have a CYP2D6 poor metabolizer genotype, then internally administering iloperidone to the patient in an amount that is greater than 12 mg/day, up to 24 mg/day, wherein a risk of QTc prolongation for a patient having a CYP2D6 poor metabolizer genotype is lower following the internal administration of 12 mg/day or less than it would be if the iloperidone were administered in an amount of greater than 12 mg/day, up to 24 mg/day.

^[ii] A representative claim at issue in Mayo reads as follows:

1. A method of optimizing therapeutic efficacy for treatment of an immune-mediated gastrointestinal disorder, comprising:
(a) administering a drug providing 6-thioguanine to a subject having said immune-mediated gastrointestinal disorder; and
(b) determining the level of 6-thioguanine in said subject having said immune-mediated gastrointestinal disorder,
wherein the level of 6-thioguanine less than about 230 pmol per 8×108 red blood cells indicates a need to increase the amount of said drug subsequently administered to said subject and wherein the level of 6-thioguanine greater than about 400 pmol per 8×108 red blood cells indicates a need to decrease the amount of said drug subsequently administered to said subject.