Purchasing Canadian Drugs & Patent Infringement

In the recent Litecubes case, the Court of Appeals for the Federal Circuit (CAFC) held that a product may be considered “sold” in the US even though title is transferred abroad.  [Background] A broad restatement of the court’s focus is that the sale is “within the United States” whenever the selling act would be sufficient to create personal jurisdiction over the accused infringer.  That conclusion is bolstered by the CAFC’s continued reliance of personal jurisdiction cases in its analysis.

One astute Patently-O comment by patent attorney Paul Morgan queried whether Litecubes could open the door to patent infringement litigation against Canadian pharmacies who sell to US customers who cross the border to purchase cheaper drugs.  There are some strong parallels between Litecubes and the pharmacy example that should give some reason to believe that such a lawsuit has some merit — especially if Canadian drug sellers knew they were selling to US nationals for transport back to the US. However, direct infringement would be a stretch from the facts of Litecubes:

“Since the American customers were in the United States when they contracted for the accused cubes, and the products were delivered directly to the United States, under North American Philips and MEMC there is substantial evidence to support the jury’s conclusion that GlowProducts sold the accused cubes within the United States.”

Litecubes focused on the issue of direct infringement.  Canadian sellers might alternatively be liable as indirect infringers under theories of inducement and/or contributory infringement.

Some have suggested that the a patentee should not be allowed to block importation of drugs that the patentee sold abroad.  I.e., if Pfizer sells Lipitor in Canada at a low price, the patentee should not be allowed to control the downstream free market — even if the result is US imports that undercut the company’s US price.  In patent lingo, this follows the theory of patent exhaustion.  However, US Courts have made clear that a patentees foreign sales do not exhaust its US patent rights.*

This type of case may never come to pass. However, that result may be more due to politics and difficulties in detection and enforcement rather than a lack of a strong legal case.

Notes:

• Patent Exhaustion is currently being considered by the Supreme Court in a case titled Quanta v. LGE.
• * Jazz Photo v. ITC, 264 F.3d 1094 (Fed. Cir. 2001), cert. denied, 536 U.S. 950 (2002)("United States patent rights are not exhausted by products of foreign provenance. To invoke the protection of the first sale doctrine, the authorized first sale must have occurred under the United States patent.").

Comments

[drinky smurf]

huh? you paid royalties for a photo of jim carey for an article having nothing to do with him???

[e#6k]

Lulz, I didn't know Jim was canadian. He's possibly the best representative for all of the legal field in Liar Liar. He shoots, he scores!!!

"This type of case may never come to pass."

Can't say that's a bad thing. QQ me a river price gouging pharmas. I just bought a small bottle of perscription steroid the other day and used it like 8 times (8 drops), still have 90% of it left but now my doctor tells me to stop taking it now that we know what the problem is. So let me see, I just paid 90$ for stuff that I used 10%- of. That comes to around 80$ spent for nothing. Healthcare in this country is a joke. At least the doctor himself didn't gouge me too bad, I figure his rates were reasonable. Let's not even go there on the insurance rates.

[Leopold Bloom]

"A broad restatement of the court’s focus is that the sale is 'within the United States' whenever the selling act would be sufficient to create personal jurisdiction over the accused infringer."

Maybe I'm missing something, but I don't find support for this in the case itself. That seems like an unnecessarily broad restatement, and quite possibly inaccurate. Yes, if the contracting is done with customers in the US during the contracting, and if the products are shipped directly to the US, then there is a sale in the US, and the seller is subject to personal jurisdiction in the US. However, that's not the same as saying that all selling acts that are sufficient to create personal jurisdiction are also suficient to support a finding that the selling acts are performed in the US. The latter might be true, but it's not what the court said.

[big hairy rat]

"Canadian sellers might alternatively be liable as indirect infringers under theories of inducement and/or contributory infringement"

For those doctrines to apply doesn't there have to be some direct infringement by someone which infringement was induced or contributed to by the Canadian seller?

(As for Canadian imports: don't forget Pamela Anderson, 80% of whose body originated in Canada.)

[Confused]

I don't understand what this has to do with infringement. The Canadian pharmacies are selling legitimate drugs. They aren't selling illegal copies that infringe a patent. They simply aren't selling the drugs at the absurd U.S. prices.

[Dan Feigelson]

Confused, the issue isn't whether or not the product is the company's product - this isn't a trademark matter. The issue is that when a drug company sells something in Canada, it hasn't necessarily authorized the sale in the USA, so the sale of the product in Canada doesn't exhaust the company's U.S. patent rights. Thus, when the company's own product is imported into the USA without the company's consent - even if it was sold with the company's consent in Canada - the importation constitutes an act of direct infringement. If the re-seller in Canada knew that the drug would be imported into the USA (e.g. the shipping address was a U.S. address), then the Canadian re-seller could be liable for contributory infringment or inducement to infringe, even if the re-seller is not liable for the direct infringement.

[Paul F. Morgan]

Dennis, thanks very much for your comment on my prior question {copied below] but please note that I had said "from, or in" Canada, and by purchases "from" Canada I had meant the very same kind of mail orders from Canada that this "Litecubes" decision surprisingly held to be DIRECT infringement SALES occuring WITHIN the U.S.
Paul

P.S. As another commentator noted, you cannot have liability for inducing infrngement or for contributory infringement without related acts of U.S. DIRECT infringement, but THAT requirement would normally be met by the Canadian-source purchasors themselves "importing" and/or "using" the product in the U.S. However, both inducing infringement and contributory infringement have more proof element requirements than direct infringement, and thus are less desirable remedies for patent owners.
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{The Prior Question:} As you note, "the CAFC found that that the location of an infringing “sale” [which must be in the U.S. under Section 271] should not be limited by any 'formalistic' rules." [Here, sales solely "F.O.B. Canada", ignoring what that means in commerical law.]
Had it occured to anyone that this decision could have serious repercussions by direct application to the current major political 'hot potato' and serious economic issue of the numerous Americans buying patented prescription drugs [not just a few toy ice cubes] from, or in, Canada at much lower prices?

[Babel Boy]

I think you guys are pretty well scrambled on this whole issue, which is inevitable with Section 271 -- a law written by the mentally deranged for the mentally destitute.

The issue is one of grey-goods, isn't it? The drugs made and sold by Pfizer or by its assignees at wholesale can't infringe Pfizer's own patent on those drugs, regardless who sells or buys the drugs. A bona fide purchaser of non-infringing retail goods is not an infringer under any circumstances.

Are you trying to argue that if I buy a tank of Shell gas in Canada (at currently over $5.00/gal !!!) and the gas has an additive protected by a US patent, and I drive into the US I am infringing?

Are you suggesting that if I buy my FOTL skivvies at Wal-Marts in Canada, and the skivvies have a fly patented in the US, and I'm wearing them while crossing the border, I am infringing? Does Section 271 require that I leave my underwear at home?

I don't even think there's an infringement issue if a Canadian retailer buys US patented goods at wholesale from the patentee and resells across the border. There may be contractual issues, treaty issues, non-patent ITC issues, but not infringement issues.

I believe the infringement issues are more evident where the goods are knock-offs -- i.e., copies not produced by the patentee. In a sense generic drugs could be considered knock-offs.

But I'm not even sure that generic drugs legally sold in Canada (because, for instance, the Canadian patent expired on the parent drug) and taken by the consumer into the US where the patent is still in force are subject to 271. As a Canadian resident am I not permitted to carry my life-saving generic Vaigra [sic - PatObv won't allow the correct spelling of this dirty word. Talk about PC police run amok. . .], which I legally purchased in Canada, into the US? I mean, are Canadians required to drop all their prescription drugs at the border and buy new ones once they reach the Land of the Free? C'mon . . . .

[Ury Fischer]

Babel Boy,

I agree with you generally as to the ridiculousness of any action for infringement under these facts. However, regarding your comment about liability for importing gas in your car with a patented fuel additive, 35 USC 272 appears, for the most part, to allow such "infringement" with impunity. Motor on!

[Babel Boy]

Thanks, Ury, That helps. Now if I can just figure out what to do about my Fruit of the Looms. I'm headed down to Napa on Friday.

[Susan G. L. Glovsky]

There is a significant distinction in the Jazz case as it is a repair/reconstruction case, not just an importation case. Therefore, the first sale discussion in that case should be considered in that context.

[Robert L. Jacobson]

One minor note of disagreement... the suggestion that "this type of case may never come to pass" is incorrect. It already has come to pass, including in one case that I was involved with, Merck v. Mediplan et al.

Merck sued several Canadian pharmacies for selling both branded Zocor and generic simvastatin (a cholesterol medication). Merck alleged that these were sales "within the United States" under Section 271(a). Merck lost on several motions, including a major one that knocked out most of its damages for failure to mark under Section 287(a), and the case settled before the "within the United States" issue was resolved.

As discussed above, there was also the issue of patent exhaustion. However, that only applied for the name-brand product (in this case distributed by Merck's Canadian subsidiary), not the generic versions.

http://www.orangebookblog.com/2006/06/sdny_orange_boo.html

[Canadian Pharmacies Without Prescriptions]

thanks... very interesting!! nice nice blog!!!