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IP Alert: Federal Circuit Clarifies On-Sale Bar in The Medicines Company v. Hospira

July 15, 2016

Earlier this week, in The Medicines Company v. Hospira, Inc., the U.S. Court of Appeals for the Federal Circuit issued a significant en banc decision addressing the on-sale bar under pre-AIA section 102 of the patent statute. In a unanimous decision, the Federal Circuit held that under the facts of the case, a third party’s manufacture of a drug product for the patentee and the mere stockpiling of the drug product by the patentee more than one year prior to filing the patent applications did not trigger the on-sale bar for a patent covering the drug product. The case offers significant guidance not only in the context of contract manufacturing, but also more generally for parties concerned with a potential on-sale bar.

The Medicines Company (“MedCo”) owns patents that cover its Angiomax drug product used to prevent blood clotting. MedCo, a specialty pharmaceutical company, did not have its own drug manufacturing facilities. In late 2006, MedCo contracted with a third party, Ben Venue Laboratories (“Ben Venue”), to manufacture several thousand doses of Angiomax, which MedCo then stockpiled. MedCo filed its patent applications in 2008, more than one year after the drug products had been made and stockpiled.

In 2010, MedCo sued Hospira for infringement of the Angiomax patents. Hospira raised numerous defenses, including that there was an on-sale bar under section 102(b) due to MedCo’s activities with Ben Venue and its own stockpiling of the drug product more than one year before the filing date of the Angiomax patents. Section 102(b) precludes patentability where an invention has been placed on sale more than one year before filing the patent application.

Hospira was unsuccessful with the on-sale defense at the district court. However, on initial appeal, the Federal Circuit reversed, holding that MedCo’s activities with Ben Venue had indeed created an on-sale bar. The Federal Circuit subsequently agreed to rehear the case en banc.

On rehearing, the Federal Circuit reversed the earlier panel decision and held that the contract manufacturing and stockpiling activities did not amount to an on-sale bar. The court began its reasoning with the Supreme Court’s decision in Pfaff v. Wells Electronics, Inc. Pfaff established a two-part test for finding an on-sale bar under section 102(b). Specifically, an on-sale bar arises when, before the critical date, the claimed invention (1) was the subject of a commercial offer for sale, and (2) was ready for patenting.

In Medicines, the focus was on the first part of this test. The Federal Circuit determined that two transactions between MedCo and Ben Venue were not commercial sales of the patented product. Hospira argued that by manufacturing embodiments of the patented product for MedCo, Ben Venue placed the invention “on sale.” The Federal Circuit rejected this argument, holding that the mere sale of manufacturing services by a contract manufacturer does not give rise to a “commercial sale” of the invention.

In analyzing the first part of the Pfaff test, the Federal Circuit ruled that “we must focus on those activities that would be understood to be commercial sales and offers for sale ‘in the commercial community.’” According to the Federal Circuit, an important guide in this analysis is how the Uniform Commercial Code defines a commercial sale. Under the UCC, title must be transferred for there to be a sale. In this case, the Federal Circuit found that there was no sale “[b]ecause Ben Venue lacked title, [and] it was not free to use or sell the claimed products or to deliver the patent products to anyone other than MedCo, nor did it do so.”

Hospira argued that this result would improperly allow stockpiling. The Federal Circuit held that stockpiling in and of itself does not trigger a statutory bar. The court observed that that there is a distinction between a commercial benefit (e.g., stockpiling) and a commercial sale, a commercial sale being required to trigger an on-sale bar under section 102(b). The court further observed that stockpiling is simply an activity undertaken in preparation for future sales, and that mere stockpiling itself does not involve a transfer of title and does not amount to a sale. The court also reasoned that penalizing a company that utilizes third-party contract manufacturers would be unfair, since companies with in-house manufacturing are not penalized for their own manufacturing activities or for stockpiling.

Finally, Hospira argued that not finding an on-sale bar in the instant case would be inconsistent with prior case law holding that there is no “supplier exception” to the on-sale bar. The court disagreed because, on these facts, there was no commercial sale and consequently no on-sale bar. The court further clarified that “[l]est there be any doubt, however, to the extent language in those cases [prior case law] might be viewed as dictating a different result here, they are overruled with one important caveat. We still do not recognize a blanket ‘supplier exception’ to what would otherwise constitute a commercial sale as we have characterized it today.”

The Medicines Company decision provides substantial guidance on the on-sale bar. The Federal Circuit applied section 102 as it existed before the enactment of the America Invents Act. Although the court did not comment on whether the same result would occur under post-AIA section 102, the same result could be argued for, given the court’s reasoning.

For more information on this decision, please contact Mark W. Hetzler, author of this alert.

Fitch Even summer associate Vincent R. Meyer contributed to this alert.

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