Historically, patent applicants have been entitled to their patents unless the claimed invention is in public use or on sale in the U.S. more than one year before the filing date (pre-AIA 35 U.S.C. 102(b)). Under new regulations, the “public use or sale” criterion has been expanded geographically, such that it now applies if the claimed invention was on sale or otherwise available to the public anywhere—even outside the U.S.—more than one year before the filing date (AIA 35 U.S.C. 102(a)(1)). If the invention was on sale more than a year before the filing of a patent application in the U.S., an issued patent is invalid and the filer loses right to exclude others from making, using and selling the resulting product. 

But when it comes to determining when a product went “on sale,” there are some gray areas. July’s landmark The Medicines Co. v. Hospira, Inc. decision goes a long way in clarifying this issue.

The case involved a dispute relating to The Medicines Company, a New Jersey-based pharmaceutical provider, which had obtained U.S. patents 7,582,727 and U.S. 7,598,343 (the ‘727 and ‘343 patent, respectively), both of which cover the injectable anticoagulant drug Angiomax (bivalirudin) and are set to expire on July 27, 2028.  MedCo’s form of bivalirudin is prepared using an improved compounding process that reduces the formation of impurities—that otherwise render the drug unusable for human injection—to less than 0.6%. 

The ‘727 patent claims pharmaceutical batches of a drug product comprising bivalirudin, wherein the batches have a maximum impurity level of Asp9-bivalirudin that does not exceed about 0.6% as measured by HPLC. The ‘343 patent addresses a product by process claim, describing the drug product prepared by the improved compounding process.

Despite The Medicine’s Company’s patents, Hospira sought FDA approval to sell generic bivalirudin. Following Hospira’s submission of two abbreviated new drug applications (ANDAs), The Medicines Company (MedCo) sued Hospira, Inc. (Hospira) for infringement of the ‘727 and ‘343 patents.

In defense, Hospira raised three grounds for patent invalidity: indefiniteness, obviousness, and the contention that the invention was sold or offered for sale more than one year before the U.S. filing date under the on-sale bar of pre-AIA 35 U.S.C. 102(b). 

Because the applications for the ‘727 and ‘343 patents were filed on July 27, 2008, the critical date from which the on-sale bar must be measured for Angiomax is one year earlier: July 27, 2007.

Since 1997, MedCo had contracted with Ben Venue Laboratories for commercial supply of Angiomax. MedCo’s contract for a commercial supply prepared by the new, patented compounding process began in October 2006. In late 2006, MedCo paid Ben Venue $347,500 to manufacture three batches of bivalirudin according to the patented compounding process. These batches were all completed between October and December of that year. Collectively, the three batches had a market value of over $20 million. Once manufactured by Ben Venue, the batches were placed in quarantine with MedCo’s distributor, Integrated Commercialization Solutions (ICS), pending FDA approval. The distribution agreement between Medco and ICS, which made ICS the exclusive authorized U.S. distributor of Angiomax, stated that ICS would place individual purchase orders with MedCo on a weekly basis. MedCo would be able to accept or reject those orders, and the title and risk of loss would pass to ICS following release from quarantine. MedCo released the three batches from quarantine in August 2007, making them available for sale.  

Hospira contended that the issued patents were invalid because the Angiomax that had been produced according to the patents had been on sale or offered for sale more than one year before filing based on two transactions: first, when MedCo paid Ben Venue to manufacture Angiomax, and, second, when MedCo offered to sell Angiomax to ICS under the agreement.   

The district court found that MedCo failed to show infringement, but also that all three of Hospira’s grounds for invalidity were not met. 

Controlling Supreme Court precedent provides that the on-sale bar applies when two conditions are satisfied before the critical date: The product must be the subject of a commercial offer for sale, and the invention must be ready for patenting. The latter condition is beyond the scope of this article.

The district court found that the three batches did not trigger the on-sale bar, although the claimed invention was ready for patenting prior to the critical date. 

With respect to the first transaction, the court found 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, on its own without a request by a party, that the batches were for “validation” and therefore for experimental purposes—i.e., not for commercial profit. With regard to the second transaction, the court held that the agreement was a contract to enter into a contract for future sales of Angiomax, as opposed to a contract immediately in effect, per se.

MedCo appealed two of the district court’s claim construction rulings and the non-infringement ruling. Hospira cross-appealed the court’s decisions regarding the on-sale bar, obviousness and indefiniteness. 

With regard to the on-sale bar prong, Hospira had three arguments. First, because MedCo had not relied upon the experimental use exception to 102(b), Hospira had no incentive or opportunity to address the issue; if it had, Hospira would have been able to point to eight subsequent batches of Angiomax manufactured by Ben Venue after MedCo was satisfied that the process would result in a product that did not exceed the impurity level of 0.6%. Second, Hospira argued that because MedCo was able to stockpile its product for future sale, and thus replenish the pipeline that had been depleted when it ceased its previous manufacturing methods, MedCo received a commercial benefit from the Ben Venue transaction. Third, Hospira argued that the fact that title did not transfer was irrelevant, because MedCo’s immediate financial benefit of having a ready supply of product for sale constituted “commercialization” or “commercial” exploitation, which was enough to trigger the on-sale bar. 

A merits panel of the Federal Circuit reversed the district court’s ruling, holding that the asserted claims were invalid under 35 USC 102(b). The panel’s reasoning for this was that the evidence demonstrated that the inventor commercially exploited the invention before the critical date, despite the fact that the inventor did not transfer title to the commercial embodiment of the invention. The panel concluded that because MedCo paid Ben Venue for services that resulted in the patented product, the transactions were commercial sales. Furthermore, the panel reasoned that because the invention had been reduced to practice, the inventor could not have been experimenting to determine whether the process by which the product was formulated achieved the desired results. Therefore, the panel concluded, the district court erred in applying the experimental use exception to Ben Venue’s batches. 

The panel also affirmed the district court’s determination that the claimed invention was ready for patenting prior to the critical date because the invention was sold. The panel did not reach the claim construction, non-infringement rulings, or other grounds of invalidity.

MedCo petitioned for panel rehearing or rehearing en banc. On November 13, 2015, the Federal Circuit granted a rehearing en banc, vacated the panel’s decision, and reinstated the appeal.

The focus of the en banc appeal is whether the invention was the subject of a commercial sale or offer for sale—a matter of Federal Circuit law analyzed under the laws of contract—and whether The Medicines Company’s activities would be understood to be commercial sales and offers for sale “in the commercial community.” Generally, the court looks 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. In Sec. 2-106, the UCC defines a “contract for sale” to include both a present sale of goods and a contract to sell goods at a future time; a “sale” as consisting of the passing of title from the seller to the buyer for a price; and a “present sale” as meaning a sale accomplished by the making of the contract.

For the following reasons, the en banc panel held that BenVenue’s sale of manufacturing services to inventor MedCo, where neither title to the embodiments nor the right to market the embodiments passes to the supplier, does not constitute an invalidating sale under 102(b), because there was no commercial sale of the invention.
In other words, only manufacturing services—not the invention—were sold to the inventor. The court found that all of the asserted claims cover products. For validity purposes, the invention in a product-by-process claim is the product itself, and not the process of making it. Therefore, for the on-sale bar to apply, there must have been a commercial sale of the product, and there was not. 

The inventor maintained control of the invention, as shown by its retention of title to the embodiments, and the absence of any authorization to Ben Venue to sell the product to others. First, the court found that Ben Venue sold contract manufacturing services, not the patented invention, to MedCo under the latter’s instructions, and that a contract manufacturer’s mere “sale” of manufacturing services to an inventor for the purposes of creating embodiments of the patented product does not constitute a “commercial sale” of the invention. Second, the court found that using an API supplied by MedCo, Ben Venue acted to reduce the invention to practice. Third, the court found that MedCo paid Ben Venue only about one percent of the ultimate market value of the product Ben Venue manufactured. And finally, because Ben Venue lacked title, it was not free to use or sell the claimed products or to deliver the patented products to anyone other than MedCo. Accordingly, since MedCo had not given up its interest and control over the product, the absence of title transfer indicates an absence of commercial marketing of the product by MedCo as the inventor. 

“Stockpiling” alone does not trigger the on-sale bar. When no actual sale is present, the on-sale bar is only triggered by an offer that rises to the level of a commercial offer for sale—one, which the other party could make into a binding contract by simple acceptance. The court found that stockpiling is mere pre-commercial activity in preparation for future commercial sales. MedCo did not market or release its invention to any purchasers by contracting with Ben Venue, nor did it give Ben Venue approval to do so. Rather, MedCo made a pre-commercial investment—an outlay of $347,500—when it paid Ben Venue for the service of reducing its invention to practice.

Notably, the court declined to recognize a blanket “supplier exception” to what would otherwise constitute a commercial sale, stating that while the fact that a transaction is between a supplier and inventor is an important indicator that the transaction is not a commercial sale, and is understood as such in the commercial marketplace, this fact alone is not determinative. Instead, the court focused on those characteristics that make a sale “commercial” in the most well understood sense of the term, and on what constitutes commercial marketing of a product. Commercial benefit—even to both parties in a transaction—is not enough to trigger the on-sale bar. However, even a transfer of product to the inventor could constitute a commercial sale under 102(b), in cases where the supplier has title to the patented product or process, the supplier receives blanket authority to market the product or to disclose the manufacturing process to others, or the transaction is a sale of product at full market value.
These rules apply to inventors regardless of whether their business model is to outsource manufacturing or to manufacture in-house. The court noted that it did not address whether or to what extent the on-sale bar may differ post-AIA from the pre-AIA-description that is the basis of this decision.

The court declined to resolve the question of experimental use, and remanded the merits panel’s appeal addressing the issues of the ready for patenting condition of the on-sale bar, the question of whether the Distribution Agreement triggered the on-sale bar, and the rulings relating to claim construction, obviousness, indefiniteness, and non-infringement. 

Although some of the legal issues remain unresolved, the en banc decision will have significant impact on contract manufacturing. Through its rulings on stockpiling and other parameters of what defines a commercial transaction, The Medicines Co. v. Hospira, Inc. goes a long way toward clarifying the on-sale bar in the industry. 

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Beverly W. Lubit, Ph.D., a member of the firm Chiesa Shahinian & Giantomasi (CSG) in the firm’s intellectual property group, advises clients on complex intellectual property matters, focusing on the pharma, biotechnology and medical device and energy industries. She has experience in Hatch-Waxman (small molecule drugs) and BPCI Act (biosimilar drugs) issues relating to litigation and transactional matters, patent litigation, IP due diligence evaluations, opinion letters, licensing, patent prosecution and regulatory issues with a particular emphasis on life sciences. In addition, Beverly works closely with emerging companies, venture capitalists and company boards to develop practical IP strategies to help bring new companies to market.