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Attorneys

En Banc Federal Circuit Rules A Product Must be the Subject of a Commercial Sale or Offer for Sale to Trigger On-Sale Bar

July 14 2016

By:  Eric Caligiuri

On July 11, 2016, the U.S. Court of Appeals for the Federal Circuit ruled in a unanimous en banc decision in The Medicines Co. v. Hospira Inc., Federal Circuit case number 2014-1469, that to be “on sale” under pre-AIA 35 U.S.C. § 102(b), a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.   If the product is “on sale” more than one year before the filing of an application for a patent, any issued patent is invalid and patent protection is lost.  The issue before the Court in Medicines Co. was whether a product is “on sale” under 35 U.S.C. § 102(b) when the product is produced by a third-party contract manufacturer.

The two patents at issue, U.S. Patent Nos. 7,582,727 (“the ’727 patent”) and 7,598,343 (“the ’343 patent”), are FDA Orange Book listed as covering Angiomax, which is the trade name of a form of bivalirudin.  Bivalirudin is a synthetic peptide comprised of twenty amino acid residues. Bivalirudin drug products are used to prevent blood from clotting and are regarded as highly effective anticoagulants for use during coronary surgery.  However, the bivalirudin active pharmaceutical ingredient is too acidic for human injection without further processing.  Thus, the patented compounding process produces Angiomax by creating a bivalirudin solution and then adjusting the solution’s pH with a base while controlling the creation of impurities.  The ’727 patent and ’343 patent contain product and product-by-process claims for pharmaceutical batches of the improved bivalirudin drug product.

Critically, plaintiff Medicines Co. (“MedCo”) did not sell Angiomax to the public before filing for the patents, but instead used a third-party contract manufacturing organization, Ben Venue Laboratories (“Ben Venue”), to ensure the drug met U.S. Food and Drug Administration requirements.  Thus, the Federal Circuit’s opinion touched on an important issue in the patenting of pharmaceuticals and other products, such as semiconductors: the use of contract manufacturers and the manufacturing processes necessary to produce these products.

The dispute at issue here traces back to August 2010, when MedCo sued Hospira in the United States District Court for the District of Delaware, alleging that two of Hospira’s ANDA filings infringed certain claims of the ’727 patent the ’343 patent.  After a three-day bench trial in September 2013, the district court found the patents not invalid and not infringed.  In considering invalidity, the court had to determine whether the invention was sold or offered for sale before the critical date under § 102(b), i.e. was it subject to the on-sale bar.

Applying the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on-sale bar.  Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting.  The district court concluded that the first prong of Pfaff was not met because the claimed invention was not commercially offered for sale prior to the critical date.  The court reasoned that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in which title to Angiomax always resided with MedCo.  The court also found that because the batches were for FDA “validation purposes,” the batches were not made for commercial profit, but were for experimental purposes, thus avoiding the on-sale bar.

On appeal, a panel of the Federal Circuit reversed the district court’s ruling regarding the applicability of the on-sale bar, finding MedCo “commercially exploited” the invention before the critical date, even if it did not transfer title to Angiomax.  The panel also found the experimental use exemption did not apply because the invention had already been reduced to practice, so MedCo could not have been experimenting.  At the request of MedCo, the Federal Circuit vacated the panel’s ruling to consider the case en banc.

Applying § 102(b) in light of Pfaff, the Federal Circuit en banc concluded that the transactions between MedCo and Ben Venue did not constitute a commercial sale of the patented product.  The full Court affirmed the district court’s conclusion that those transactions were not invalidating under § 102(b), and reversed the panel’s determination.  The Court reasoned that the sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a “commercial sale” of the invention.  MedCo did not market or release its invention by contracting with Ben Venue, but only paid the company to make batches of the drug because it did not have the manufacturing capabilities to do it in-house.  The Court saw no reason to treat MedCo differently than a company with in-house manufacturing capabilities.  “There is no room in the statute and no principled reason…to apply a different set of on-sale bar rules…depending on whether [a company] outsources manufacturing or manufactures in-house.”  Instead, the focus of the on-sale bar analysis should be on what makes a sale “commercial” in “the most well-understood sense of that term…as distinct from merely obtaining some commercial benefit from a transaction.”

More broadly, the Court explained that a commercial benefit alone is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.”  As a general proposition, the Court instructed that one should look to the Uniform Commercial Code (“UCC”) to define whether a communication or series of communications rises to the level of a commercial offer for sale.  However, the Court also cautioned that while “[t]he UCC has been recognized as the general law governing the sale of goods, [it] is another useful, though not authoritative, source in determining the ordinary commercial meaning of” terms used by the parties.

Given that the en banc Federal Circuit had found that there was no commercial sale of the inventions in the ’727 and ’343 patents, the Court declined to reach a ruling on the experimental use finding.  However, the Court did make clear that the panel’s statement that there can be no experimental use after a reduction to practice is inaccurate.  Finally, the Court addressed the issue of “stockpiling” by an inventor and clarified that “stockpiling” by the purchaser of manufacturing services is not improper commercialization under § 102(b).

Both the panel and en banc Federal Circuit only considered whether the patents were invalid under the on-sale bar, and did not consider other issues related to claim construction, infringement, and invalidity on other grounds.  Thus, the case has been remanded back to the original Federal Circuit panel for further proceedings on these issues and is still far from over.