Reseller or Distributor Beware? Downstream Liability for Infringing a Patented Process
As retailers or distributors that are not manufacturers of a product, companies may believe they cannot infringe a patent claiming how the product is made. After all, the retailers or distributors are not performing any steps of the patented manufacturing process. The companies may have no say in, or even be aware of how the product is manufactured. The companies may conclude they are insulated from liability based simply on being downstream from the manufacturing process.
An ongoing case in the Southern District of California involving two biotech companies has demonstrated the potential pitfalls of relying on these assumptions. Shoreline Biosciences is a San Diego-based start-up that markets induced pluripotent stem cell (iPSC)-derived natural killer cells (iNK) and macrophages (iMACs) to treat cancer.[1] In May of 2022, Shoreline was sued by Fate Therapeutics. Fate alleged that Shoreline infringed its patented methods for reprogramming somatic cells to generate multipotent or pluripotent cells.[2]
Shoreline did not generate the iPSCs used to make the iNKs and iMACs it was selling. Nevertheless, Fate argued Shoreline should be held liable for infringement under 35 U.S.C. § 271(g) because Shoreline purchased cells from Lonza, who used Fate’s patented process to generate the iPSCs.[3] Section 271(g) provides:
Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent.[4]
Shoreline argued in its motion for partial summary judgment that it did not infringe Fate’s method patents because the iPSCs were manufactured by Lonza Walkerville, Inc. (Lonza). Shoreline insisted that section 271(g) should not apply to domestic manufacturers like Lonza and argued that even if subsection (g) applies domestically, that Lonza had express authorization from the National Institute of Health (NIH) to use Fate’s patented process to generate the iPSCs.
Despite not performing a single step of the patented process and sourcing the iPSCs from a domestic manufacturer with authorization from the NIH, the court ruled against Shoreline and is allowing the case to proceed.[5] The court held that subsection (g) expressly provides for liability where a product is manufactured domestically using a patented process.[6] The court also held that even though the NIH allowed Lonza to use the patented process, Shoreline could be held liable for infringement under subsection (g) because the authorization was limited to Lonza, and Shoreline had not been authorized by Fate or the NIH to use the cells.[7]
The case against Shoreline demonstrates the need for companies to do their due diligence regarding how materials used in their products are manufactured, even if those materials are manufactured domestically. Ignoring the potential for liability could lead to a years-long, costly litigation, which could be mitigated upfront. There are various contractual or licensing strategies to mitigate the risk of liability under 271(g). The use of these strategies may not be necessary or applicable in every situation. However, it’s better to be aware of and mitigate the risk of a potential infringement lawsuit involving a patented method of manufacture.
Editor: Jason J. Jardine
[1] Our Science, Shoreline Biosciences, https://shorelinebio.com/our-science/ (last visited July 3, 2023).
[2] Fate Therapeutics, Inc. v. Shoreline Biosciences, Inc., No.: 22-cv-00676-H-MSB, 2023 WL 2752860 at *1 (S.D. Cal. Mar. 27, 2023). Fate asserted claims under 35 U.S.C. § 271 (a), (b), and (g), alleging that Shoreline infringed U.S. Patent Nos. 8,071,369 (“the ’369 Patent”), 8,932,856 (“the ’856 Patent”), 8,951,797 (“the ’797 Patent”), 8,940,536 (“the ’536 Patent”), 9,169,490 (“the ’490 Patent”), 10,457,917 (“the ’917 Patent”), and 10,017,744 (“the ’744 Patent”). The method claims at issue in the case include claim 1 of the ’856 Patent, claim 1 of the ’536 Patent, claim 1 of the ’744 Patent, and claim 1 of the ’917 Patent, which all describe method of making a somatic cell more susceptible to reprogramming to a less differentiated state.
[3] Id.
[4] 35 U.S.C. § 271(g) (2010). It should also be noted that it is irrelevant if the steps of the process are performed by more than one party as long as the defendant is selling or using a product that is made using a patented process. Syngenta Crop Protection, LLC v. Willowood, LLC, 944 F.3d 1344, 1356-1363 (Fed. Cir. 2019) (“[B]ecause practicing a patented process does not trigger liability under § 271(g), it is immaterial whether that process is practiced by more than one entity.”).
[5] Fate v. Shoreline at *12.
[6] Id. at *4-9 (“[by its plain and unambiguous terms, § 271(g) applies to both foreign-made products and domestically manufactured products.”). The Federal Circuit has not affirmatively ruled on whether 35 U.S.C. § 271(g) applies to domestic manufacturers, but the consensus among Judges on the court appears to be that Section 271(g) applies to products manufactured internationally and domestically. See Momenta Pharms., Inc. v. Teva Pharms. USA Inc., 809 F.3d 610, 622 n.1 (Fed. Cir. 2015) (Dyk, J., dissenting) (“While the primary purpose of § 271(g) was to impose infringement liability for products shipped to the United States but made abroad by a United States patented process, the plain language of § 271(g) admits of no such geographic limitation. And the legislative history is clear that § 271(g) includes situations where the process is practiced in the United States.”); Cardiac Pacemakers, Inc. v. St. Jude Med., Inc., 576 F.3d 1348, 1369 (Fed. Cir. 2009) (en banc) (Newman, J., dissenting) (“§ 271(g) requires importation or sale of the product of a patented process practiced abroad, before infringement can be established under that provision”); and SGS-Thomson Microelectronics, Inc. v. Int'l Rectifier Corp., 1994 WL 374529 (Table), at *10 (Fed. Cir., Jul. 14, 1994) (Plager, J., concurring) (“The langua[g]e of 35 U.S.C. § 271(g) specifically covers the situation involved in this case. According to that language, it is an act of infringement to import or sell or use in the United States a product made by a patented process.”).
[7] Fate v. Shoreline at *9-11 (“[B]ecause Shoreline is the relevant direct infringer, Shoreline must show that its allegedly unauthorized use of the invention is for the benefit of the government and with the authorization and consent of the government.”).
