Eli Lilly and Company v. American Cyanamid Company
82 F.3d 1568 (1996)
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Rule of Law:
Under the Process Patent Amendments Act, 35 U.S.C. § 271(g), a product made by a patented process is considered "materially changed" if it undergoes a significant change in its chemical structure and properties before importation. The test focuses on the substantiality of the physical alteration, not on whether the primary commercial value of the initial product lies in its conversion to the final imported product.
Facts:
- Eli Lilly and Company (Lilly) developed and sold the antibiotic drug cefaclor.
- Lilly held U.S. Patent No. 4,160,085 (the ’085 patent), which claimed a process for producing an intermediate chemical known as 'compound 6.'
- Biochimica Opos, S.p-A. (Opos), an Italian company, used the process from the '085 patent to manufacture compound 6 in Italy.
- Opos then subjected compound 6 to a four-step chemical process to convert it into the final drug, cefaclor.
- This conversion process altered three different chemical groups on compound 6's core structure, resulting in cefaclor, which had significantly different chemical properties and biological utility (oral antibiotic effectiveness) than compound 6.
- Zenith Laboratories, Inc., American Cyanamid Company, and Biocraft Laboratories, Inc. obtained large quantities of the Opos-manufactured cefaclor for importation and sale in the United States.
- The primary commercial use of compound 6 in the United States was as an intermediate for producing cefaclor.
- At least one other commercially viable, non-infringing process existed to produce cefaclor that did not involve the patented process for making compound 6.
Procedural Posture:
- Eli Lilly and Company (Lilly) sued Zenith Laboratories, American Cyanamid Company, Biocraft Laboratories, and Biochimica Opos (Opos) in the U.S. District Court for the Southern District of Indiana, a federal trial court, for patent infringement.
- Lilly filed a motion for a preliminary injunction to prevent the defendants from importing and selling cefaclor manufactured by Opos.
- After a three-day hearing, the district court denied Lilly's motion for a preliminary injunction.
- The district court found that Lilly had failed to demonstrate a likelihood of success on the merits of its infringement claim and had also failed to show it would suffer irreparable harm.
- Lilly (appellant) appealed the district court's denial of the preliminary injunction to the U.S. Court of Appeals for the Federal Circuit.
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Issue:
Does the conversion of an intermediate chemical compound into a final drug product through a four-step chemical process constitute a 'material change' under the Process Patent Amendments Act, 35 U.S.C. § 271(g), thereby preventing the imported final product from infringing the patent on the process for making the intermediate?
Opinions:
Majority - Bryson
Yes, the conversion of the intermediate compound into the final drug product constitutes a 'material change' under the statute. The court held that the statutory term 'materially changed' refers to substantial changes in the product itself, not its economic value or market purpose. The court rejected Lilly's argument that no material change occurs if the intermediate's principal commercial use is its conversion into the imported product. Instead, in the chemical context, a 'material' change is a significant alteration in the compound's structure and properties. Here, the conversion from compound 6 to cefaclor involved four distinct chemical steps that changed the compound's structure in three places and resulted in a product with vastly different properties and a completely different 'basic utility' as an effective oral antibiotic, which compound 6 lacked. The court found this transformation to be far more than a minor or trivial modification, thus concluding the change was 'material' and infringement was unlikely.
Concurring - Rader
Judge Rader concurred only in the result, agreeing to affirm the denial of the preliminary injunction because Lilly failed to show irreparable harm. However, he strongly dissented from the majority's reasoning on the 'material change' standard. He argued that the majority's interpretation creates a 'massive loophole' in the Process Patent Amendments Act that undermines its purpose of providing meaningful protection to U.S. process patent holders. In his view, the court should have focused on the Act's purpose, which would lead to the conclusion that compound 6 and cefaclor are 'essentially the same product' because compound 6 has no other commercial use in the U.S. except to make cefaclor. He criticized the majority's reliance on the 'intoxicating witches brew of enactment history,' which he viewed as an unreliable product of industry lobbyists, and warned that the decision would effectively deny protection to patents on chemical intermediates.
Analysis:
This decision significantly shapes the interpretation of the 'materially changed' exception under 35 U.S.C. § 271(g), particularly within the chemical and pharmaceutical industries. By rejecting an 'economic value' or 'commercial use' test in favor of a test based on physical and chemical changes, the court made it more difficult for owners of patents on processes for making intermediates to prevent the importation of finished products. The ruling provides a pathway for generic drug manufacturers to design around U.S. process patents by performing significant chemical conversions abroad. This precedent narrows the scope of protection for process patents on intermediates and has a lasting impact on patent enforcement strategies for 'pioneer' pharmaceutical companies.
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