In reversing a district court’s decision declaring a patent invalid due to a prior offer to sell, the U.S. Court of Appeals for the Federal Circuit clarified the parameters of the on-sale bar under 35 USC §102(b) in the licensing context. Elan Corp., PLC v. Andrx Pharmaceutical, Inc., Case Nos. 30-1354, -1355, -1386, -1387 (Fed.Cir. May 5, 2004) (Lourie, J.).

Elan planned to develop a time release formulation of naproxen, a non-steroidal anti-inflammatory drug sometimes sold under the name Aleve, for projected sale in 1993. In 1987, Elan sent letters to Lederle Labs and others, proposing a license with specified up-front fees, milestone payments and a running royalty. In addition, Elan offered to supply bulk tablets at a price "based on current naproxen price." Approximately three years later, Elan filed a patent application claiming a once-daily naproxen formulation, which issued as U.S. Pat. No. 5,637,320.

When Andrx filed an Abbreviated New Drug Application (ANDA) to market once-daily naproxen, Elan brought suit for patent infringement. The district court held that Elan’s letter to Lederle constituted an offer for sale and held the `320 patent invalid. In reversing, the Federal Circuit held that the letter was not an offer for sale, but rather an offer to enter into a license for sale of the licensed product "when and if it has been developed." The Court based its reasoning on the letter’s failure to provide material sales terms, such as price, finding that "current naproxen sales" could only be determined at the time the product was marketed.

Moreover, because the letter did not specify definite quantities, it lacked a further material term and, therefore, did not constitute an offer.

Practice Note: This case provides useful guidance for those seeking licensees prior to the filing of a patent application. The Court cautioned that merely disguising a sales price as a licensing fee would not prevent a proposal from being construed as an offer. However, where, as in this case, a material term such as price or quantity is not provided, the on-sale bar will not be triggered.

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