No On-Sale Bar From Manufacturing Agreement Without An Actual Sale of the Invention

The Medicines Co. v. Hospira, Inc. (Fed. Cir. July 11, 2016) (Before Newman, Lourie, Dyk, Moore, O’Malley, Reyna, Wallach, Taranto, Chen, Hughes, Stoll and Prost, CJ.) (Opinion for the court, O’Malley, J.)

federal-circuit-cafc-335zHospira filed an Abbreviated New Drug Application (“ANDA”), requesting approval to sell a generic form of Angiomax, an anticoagulant drug sold by The Medicines Company (“MedCo”).  MedCo sued Hospira, alleging that the ANDA infringed two patents that covered the manufacture of bivalirudin, which is the active ingredient in Angiomax.  Hospira argued that the patents were invalid under the on-sale bar of § 102(b), due to a commercial sale of the patented bivalirudin product more than one year before the patents were filed (the “critical date”).  Specifically, MedCo contracted with Ben Venue to manufacture bivalirudin, and contracted with ICS to store and distribute the bivalirdun. Both contracts were entered into before the critical date.

The agreement with Ben Venue required Ben Venue to manufacture three commercially-saleable batches of bivalirudin using the methods covered by MedCo’s patents.  MedCo paid $347,500 for this service, although the approximate market value of the bivalirudin Ben Venue manufactured was $30 million. The contract further specified that the bivalirudin would be owned by MedCo, “filled for commercial use” and would be “placed on quality hold until all testing had been successfully completed.”  Each batch received a “Commercial Product Code” and a customer lot number, and each batch was “released [to MedCo] for commercial and clinical packaging.”

The agreement with ICS required ICS to store and distribute the bivalirudin. That agreement made ICS the exclusive distributor of Angiomax, and stated that the “title and risk of loss” would pass to ICS once the bivalirudin was released by the FDA for commercial sale.

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The district court applied a two-step analysis for determining whether an alleged sale triggered the on-sale bar, under Pfaff v. Wells Electronics, Inc. A patent is barred by a sale under § 102(b) where the claimed invention was (1) the subject of a commercial offer for sale, and (2) ready for patenting.  The district court held that there had been no commercial sale which would trigger the on-sale bar under the first prong of Pfaff.  The agreement with Ben Venue was a manufacturing services contract, and not for sale of the product itself.  The contract with ICS was a “contract to enter into a contract” for future sales of Angiomax, and also was not a commercial sale that would trigger § 102(b). Hospira appealed.

A panel of the Federal Circuit reversed the district court, holding that the contract with Ben Venue was a commercial sale, because the contract demonstrated that the inventor had “commercially exploited” the invention more than one year before filing a patent application, even if the inventor did not transfer title of the commercial embodiments. In short, the Court did not distinguish between an offer to sell products prepared by a patented method, and the commercial sale of a services that would result in a patented product.  MedCo requested re-hearing of the case en-banc.

The Federal Circuit, sitting en banc, unanimously reversed the prior panel, holding that MedCo was not barred from seeking its patents due to a commercial sale under § 102(b).  The sale of manufacturing services by a contract manufacturer to an inventor to create an embodiment of a patented product for the inventor does not constitute a “commercial sale” of the invention.  Further, “stockpiling” a product prior to the bar date is not a “commercialization” that would trigger § 102(b).  Instead, the transaction must be one in which the product is “on sale” in the sense that it is commercially marketed.

Here, only manufacturing services were sold to the innovator, its own invention was not sold back to it.  This is clear, in that MedCo paid less than 1% of the market value of the drug to Ben Venue for its services.  Further, the Uniform Commercial Code is helpful in understanding whether a “sale” has taken place. The UCC requires that title pass from the seller to the buyer for a price.  The contracts with Ben Venue and ICS did not allow either of them to possess title to the bivalirduin, and thus were not “sales” under the UCC.  Instead, the inventor maintained control of the invention, as shown by its retention of title in the bivalirudin until after the critical date for § 102(b).  Finally, stockpiling alone does not constitute a “commercial sale.”  Stockpiling, even through a vendor, is merely a preparation for future commercial activity, not a commercial sale itself.

Before a patent is applied for, an innovator should take steps to ensure that its contracts with third-party manufacturers and distributors provide that: (1) the contracts are for services rendered and not for sale of product that embodies the invention; and (2) the innovator retains title in all products that embody the invention. Further, compensation under such agreement should reflect a fee for services rendered and not the value of the product itself.

Also contributing to this summary was Parker Hancock and Puja Dave.

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The Author

Joseph Robinson

Joseph Robinson has over 20 years of experience in all aspects of intellectual property law. He focuses his practice in the pharmaceutical, life sciences, biotechnology, and medical device fields. His practice encompasses litigation, including Hatch-Waxman litigation; licensing; counseling; due diligence; and patent and trademark prosecution. He has served as litigation counsel in a variety of patent and trademark disputes in many different jurisdictions, and has also served as appellate counsel before the Court of Appeals for the Federal Circuit. Joe also focuses on complex inter partes matters before the U.S Patent and Trademark Office, inventorship disputes, reexaminations and reissues. His experience includes numerous interferences, a particular advantage in new U.S. Patent and Trademark Office post-grant proceedings. He also counsels on patent–related U.S. Food and Drug Administration issues, including citizen petitions, Orange Book listing, and trademark issues. For more information and to contact Joe please visit his profile page at the Troutman Sanders website.

Joseph Robinson

Robert Schaffer is an intellectual property partner at Troutman Sanders. Bob applies more than 30 years of experience to IP counseling and litigation. His work includes patent procurement, strategic planning and transactional advice, due diligence investigations, district court patent cases, and Federal Circuit appeals. He regularly handles complex and high-profile domestic and international patent portfolios, intellectual property agreements and licensing, IP evaluations for collaborations, mergers, and acquisitions. In disputed court cases Bob’s work includes representing and counseling client in ANDA litigations, complex patent infringement cases and appeals, and multidistrict and international cases. In disputed Patent Office matters his work includes representing and counseling clients in interferences, reexaminations, reissues, post-grant proceedings, and in European Oppositions. For more information and to contact Bob please visit his profile page at the Troutman Sanders website.

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Discuss this

There are currently 3 Comments comments.

  1. Anon July 15, 2016 9:13 am

    I think that the headline chosen for this article is the most blatant sign that something is wrong with this decision.

    The “on sale” prohibition is NOT just “actual sale” completed.

    “Offer for sale” is a separate and distinct item from “actual sale” and certainly can have an earlier – much earlier – date than any “actual sale.”

    I am curious if the lower court (since this en banc decision is a remand) can make the distinction that has been missed by the en banc court.

    That point of law just does not seem to have been addressed in this decision.

  2. Edward Heller July 15, 2016 6:16 pm

    Just a small point, while the statute literally requires that the invention be on sale, the on sale bar really requires a sale (or offer to sell) by the inventor or his privies of an embodiment of the invention, a product made by a patented process or machine that embodies the invention; or a service that employs the invention (as one might see with a computer implemented service).

  3. Anon July 16, 2016 9:26 am

    Mr. Heller, how expansive is your use of the term “privies” here?

    The court was very clear that they were not making a bright-line rule along the lines of a supplier exception.

    As I take your comment though, either there is such a bright line or your comment does not matter for this immediate situation, and the matter of conflating actual sale (not before critical date) and offer for sale (prior to critical date) STILL may be a critical factor that the en banc court missed and that largely remains not discussed in the blogosphere.