Navigate Up
Sign In

Mere Sale of Manufacturing Services To Inventor Did Not Trigger On-Sale Bar

The on-sale bar under 35 U.S.C. §102(b) was not triggered by the mere sale of manufacturing services to an inventor to create embodiments of a patented product for the inventor, the en banc Federal Circuit held July 11, 2016. The Medicines Company v. Hospira, Inc., Fed. Cir., No. 2014-1469, 7/11/2016.

Noting that any offer or sale covered by the statute must be "commercial," the Court looked to the Uniform Commercial Code and concluded that the product-by-process patent in this case was not affected by a transaction which conveyed no title to the covered product. The Court also declined to interpret the statute as extending to contracts for services outside of the grace period by which the patent owner stockpiles claimed products.

Background

The Medicines Company ("Medicines") owns patents relating to the drug bivalirudin (sold as Angiomax), a synthetic peptide used as an anti-coagulant.

Medicines purchased batches of Angiomax from Ben Venue Laboratories between 1997 and 2006. In 2005, one of those batches contained impurities, and Medicines discovered that it could reduce the impurities by adding a pH-adjusting solution. In 2008, Medicines filed patent applications which include product-by-process claims describing this discovery.

However more than one year before filing, Medicines hired Ben Venue Labs to prepare three batches of the drug using an embodiment of the patented method.

In 2010, Medicines sued Hospira for infringement, and the district court rejected Hospira's on-sale invalidity defense, finding (1) that Ben Venue only sold manufacturing services, and (2) that the batches fell under the experimental use exception. A unanimous Federal Circuit panel reversed, relying on decisions that applied the Section 102(b) bar to sales outside of the grace period of products made by a patented process.

The panel decision was vacated when the en banc Federal Circuit review was granted.

Commercial Sale

A unanimous en banc Federal Circuit agreed with the district court that the on-sale bar does not apply under the facts of this case. Writing for the Court, Judge O'Malley noted that the Supreme Court in Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998), rejected the Federal Circuit's "totality of the circumstances" test, requiring instead that the invention be "ready for patenting and that there be a "commercial" offer for sale. She added that the appellate court looks to Section 2-106 of the Uniform Commercial Code for the characteristic features of a commercial sale.

Judge O'Malley pointed out that the product-by-process claim is a "product claim." Without a commercial sale of the claimed product, she explained, the on-sale bar is not triggered by the performance of the unclaimed process that produces the claimed product. In this case, what was sold was manufacturing services, not the patented invention, the court found. "[T]he mere 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," Judge O'Malley wrote.

Underscoring fact that the sale was only of manufacturing services is the absence of any transfer of title in the transaction, precluding a buyer's ability to freely use or sell the claimed products, the Court added. The passage of title, according to the Court, is a helpful indicator of whether a product is "on sale," as it suggests when the inventor gives up its interest and control over the product.

"While we agree with Hospira that the UCC does not have 'talismanic significance' and we decline to draw a bright line rule making the passage of title dispositive, we find the absence of title transfer significant because, in most instances, that fact indicates an absence of commercial marketing of the product by the inventor," Judge O'Malley wrote.

Stockpiling

The Court also rejected the argument that Section 102(b) should be interpreted to apply to transactions by which the patent owner stockpiles embodiments of the patented product before the statute's one-year grace period.

According to the Court, "stockpiling" by the purchaser of manufacturing services is not an improper commercialization under the statute. Judge O'Malley pointed out "commercial benefit" is not enough to trigger the on sale bar, and that the transaction must be one in which the product is "on sale" in the sense that it is "commercially marketed." The mere stockpiling of a patented invention by the purchaser of manufacturing services does not constitute a "commercial sale," she explained, adding the following:

It is well-settled that mere preparations for commercial sales are not themselves "commercial sales" or "commercial offers for sale" under the on-sale bar. pointing out that mere preparations for commercial sales are not themselves "commercial sales" or commercial offers for sale under the statute. ... Instead, when no actual sale is present, "[o]nly an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration)" triggers the on-sale bar. ...

Indeed, we have held that an inventor that has publicized that a product will soon be placed on sale has not created an offer that another party could make binding by simple acceptance. ... To the contrary, such an inventor has told buyers that it cannot have access to the invention yet, regardless of a customer's interest in buying.

And, we have never held that stockpiling by an inventor in-house triggers the on-sale bar. ... Stockpiling is merely a type of preparation for future commercial sales. If Congress wanted to prevent stockpiling or any form of commercial benefit, it could have added "or stockpiled" or "engaged in a transaction conferring commercial benefit" to the list of statutory bars in §​102(b), in addition to "public use or on sale." It did not. Stockpiling by the purchaser of manufacturing services is not a trigger to the on-sale bar; discouraging it is not even an identifiable goal of the on-sale bar.

Expanding the on-sale bar to encompass stockpiling by inventors that outsource manufacturing might encourage earlier filing of patents. But we cannot endorse any blunt instrument that rewards earlier patent applications when so doing ignores the wording Congress chose when enacting the on-sale bar.

Judge O'Malley concluded that there is no room in the statute to apply a different set of on-sale bar rules to inventors depending on whether their business model is to outsource manufacturing or to manufacture in-house.

Supplier Exemption

The appellate court distinguished the case law offered to oppose the conclusion in this case. Lest there be any doubt, Judge O'Malley wrote, to the extent language in those cases might be viewed as dictating a different result here, they are overruled, but with one important caveat: the court continued its opposition to a blanket "supplier exception" to Section 102(b). Judge O'Malley explained as follows:

While the fact that a transaction is between a supplier and inventor is an important indicator that the transaction is not a commercial sale, understood as such in the commercial marketplace, it is not alone determinative. Where the supplier has title to the patented product or process, the supplier receives blanket authority to market the product or disclose the process for manufacturing the product to others, or the transaction is a sale of product at full market value, even a transfer of product to the inventor may constitute a commercial sale under § 102(b). The focus must be on the commercial character of the transaction, not solely on the identity of the participants.

We believe our focus on those characteristics that make a sale "commercial" in the most well-understood sense of that term and on what constitutes commercial marketing of a product, as distinct from merely obtaining some commercial benefit from a transaction, best adheres to the language of § 102(b), the Supreme Court's guidance in Pfaff, and the policy and jurisprudential concerns, respectively, underlying both.

To read the Court's opinion in this case, click here​.