In The Medicines Company v Hospira, Inc, decided on July 11 2016, the Federal Circuit held that “to be ‘on sale’ under 35 USC § 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” under Uniform Commercial Code.
A unanimous en banc court found that the sale of contract manufacturing services relating to the drug Angiomax did not invalidate The Medicine Company’s (MedCo) patents.
Sale of manufacturing services not a commercial sale
MedCo does not have in-house manufacturing facilities and contracted Ben Venue Laboratories to manufacture batches of bivalirudin, the API in Angiomax, in late 2006. Once manufactured, these batches were placed in quarantine pending FDA approval of Angiomax. The batches were released from quarantine and made available for sale in August 2007, after the July 2007 critical date.
Hospira alleged that the sale of manufacturing services to Ben Venue constituted an invalidating sale under § 102(b). The Federal Circuit found that Ben Venue sold contract manufacturing services to MedCo, not the patented invention. The court found the absence of title transfer and the confidential nature of the transactions to be factors supporting its conclusion that the on sale bar had not been triggered.
Welcome news for brand-name pharmaceutical companies
This decision is good news for brand-name pharmaceutical companies. The decision limits the reach of the on sale bar and provides helpful insight to companies that seek to contract out manufacturing services. Whenever appropriate, agreements and invoices should be drafted to identify the services rendered as a sale of manufacturing services.
Agreements should also state that title to the products does not pass to the contract manufacturer. The court noted that Ben Venue “was not free to use or sell the claimed products or to deliver the patented products to anyone other than MedCo".The Uniform Commercial Code describes a ‘sale’ as ‘the passing of title from the seller to the buyer for a price'. The court found the passage of title to be “a helpful indicator of whether a product is ‘on sale'”.
Additional takeaways
The court also addressed the issue of whether stockpiling, or the building of an inventory, constitutes a commercial sale under § 102(b). Hospira argued that use of the contract manufacturing services would allow MedCo to stockpile its invention, conferring a commercial benefit by allowing MedCo to “restock its long depleted commercial pipeline". The court stated that it is not a commercial benefit that triggers § 102(b) – there must be a commercial sale or an offer for sale. Thus, stockpiling alone, without an actual sale or offer for sale, does not trigger § 102(b).
The court pointed out that the patents-in-suit were directed to a product as opposed to a process or method. The outcome may be different when a contract manufacturer performs the steps of a patented process.
The court noted that applying the on sale bar to the transaction at issue would create different sets of rules for those companies that contract out manufacturing services and those that manufacture in-house. Such a result would be arbitrary and would penalize a company for relying on the services of a contract manufacturer.
Although MedCo focuses on pre-AIA patents, it is likely that the outcome would be the same for post-AIA patents since the language of pre-AIA 35 USC § 102(b) is similar to AIA 35 USC § 102(a)(1). The Patently-O blog agrees and notes that it seems clear that “the limits here are equally applicable to post-AIA patents”.
