In The Medicines Co. v. Hospira, Inc., the Federal Circuit held that for the on-sale bar to apply, 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 Uniform Commercial Code § 2-106. The Federal Circuit found that a commercial sale did not occur under the facts of this case because the mere sale of manufacturing services, and not the patented drug, did not constitute a commercial sale of the invention.
The Medicines Company (MedCo) owns two United States patents covering the formulation of anti-coagulant drugs marketed under the trade name Angiomax. MedCo lists both patents in the FDA’s Orange Book as covering Angiomax. The patents were filed on July 27, 2008 and therefore had an on-sale bar critical date of July 27, 2007. In 2006 (before the critical date) MedCo paid Ben Venue to manufacture three batches of the drug. After manufacture, the batches were placed in quarantine and were not available for sale until August 2007 (after the critical date).
Defendant Hospira submitted two Abbreviated New Drug Applications (ANDAs) which sought FDA approval to sell generic drug products with the same active ingredient as Angiomax before the expiration of MedCo’s patents. In District Court, Hospira alleged that the patents were invalid because the on-sale bar was triggered when MedCo paid Ben Venue to manufacture Angiomax before the critical date under § 102(b). The District Court disagreed, finding that because title to the Angiomax batches always remained with MedCo, the transactions only involved a sale of contract manufacturing services, not a commercial sale of Angiomax.
On appeal from the District Court, a Federal Circuit panel reversed, finding that MedCo triggered the on-sale bar because it “commercially exploited the invention,” regardless of whether title to the Angiomax batches remained with MedCo. MedCo requested an en banc review of the panel’s decision, and the Federal Circuit granted the request.
The Supreme Court’s Pfaff decision clarified that the on-sale bar under §102(b) applies when, before the critical date, the claimed invention (1) was the subject of a commercial offer for sale; and (2) was ready for patenting. The Federal Circuit focused on the first prong to determine if MedCo’s payment to Ben Venue to manufacture the patented drug before the critical date triggered the on-sale bar.
The Federal Circuit concluded that the mere sale of manufacturing services by contract manufacturer Ben Venue to create embodiments of the patented product for MedCo did not constitute a “commercial sale” of the invention. The Federal Circuit cited the following reasons for its holding: (1) the sale to MedCo was for manufacturing services, not the invention; (2) MedCo, the inventor, maintained control of the invention, as shown by the retention of title of the embodiments and the absence of any authorization to Ben Venue to sell the products to others; and (3) “stockpiling,” standing alone, does not trigger the on-sale bar.
The Federal Circuit made clear that the existence of a commercial benefit, even to both parties, is not enough to trigger the existence of the on-sale bar. Instead, the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.” A commercial sale is one that bears the general hallmarks of a sale pursuant to the Uniform Commercial Code § 2-106. § 2-106 describes a “sale” as the passing of title from a seller to a buyer for a price. The Federal Circuit stated that the passage of title is therefore “a helpful indicator of whether a product is ‘on sale’ for the purpose of the on-sale bar under § 102(b).” In the absence of a transfer in title, the confidential nature of a transaction is a factor which weighs against the conclusion that the transaction was commercial in nature. In this case, the scope and nature of the confidentiality imposed on Ben Venue further supported the conclusion that there was no commercial sale of the invention.
The Federal Circuit also held that building inventory, or stockpiling, when it is not accompanied by a sale or offer for sale of the invention, is merely pre-commercialization activity that does not trigger the on-sale bar. On the contrary, stockpiling by an inventor with the assistance of a contract manufacturer, as MedCo did in this case, is no different than stockpiling by an inventor in-house. The Federal Circuit noted that discouraging stockpiling is not a goal of the on-sale bar.
The Federal Circuit clarified that it was not creating a bright-line rule that transfer of title satisfies the on-sale bar. Further, although the confidential nature of MedCo’s dealings with Ben Venue weighed against finding those transactions as commercial sale, confidentiality does not necessarily defeat the finding of a commercial sale. Lastly, the Federal Circuit made clear that it was not recognizing a blanket “supplier exception” to the one-sale bar. Rather, the courts will look at and weigh a number of factors to determine whether or not a transaction satisfies the on-sale bar.
The Federal Circuit’s decision thus limits the reach of the on-sale bar, which is welcome news to inventors. The decision provides inventors with useful guidance on how to structure agreements with contract manufacturers to reduce the risk of the on-sale bar. To avoid triggering the on-sale bar, a manufacturing agreement for products that may be patentable but for which a patent application has not been filed, should be structured as a sale of services and not as a sale of the product. The agreement should also expressly state that title to the product remains at all times with the inventor. Since the confidential nature of the transaction can weigh against a conclusion that the transaction is commercial in nature, the agreement should be designated as confidential information and should be kept confidential. Following these guidelines when structuring an agreement with a contract manufacturer will reduce the risk of triggering the on-sale bar.