United States: Contract Manufacturing Is A Commercial Transaction For Purpose Of "On-Sale" Bar

The Medicines Company v. Hospira, Inc.

Addressing the application of the on-sale bar under § 102(b), the U.S. Court of Appeals for the Federal Circuit found that the claims of an asserted patent were invalid based on an agreement, dated more than one year prior to the application filing date, to have a third party manufacture the patented drug. The Medicines Company v. Hospira, Inc., Case Nos. 14-1469; 14-1504 (Fed. Cir., July 2, 2015) (Hughes, J.).

The Medicines Company (TMC) brought a patent case under the Hatch-Waxman Act against Hospira asserting two patents related to the drug bivalirudin, which is sold under the brand name Angiomax. The patents were filed in July of 2008 and were directed to a method of adding pH-adjusting solution during the compounding process that minimized the Asp9-bivalirudin impurity to less than 0.6 percent. More than a year before, however, TMC hired third party Ben Venue to prepare three batches of bivalirudin. The invoice for the batches described the invoiced work as a "charge to manufacture Bivalirudin lot." These lots were marked with a commercial product code and a customer lot number. Thereafter, TMC received the product for commercial and clinical packaging. Hospira claimed that it did not infringe and that the patents were invalid under the pre-AIA § 102(b) on-sale bar.

The district court found that Hospira did not infringe and that the claims were valid because there was no offer for sale that would trigger the on-sale bar. TMC appealed the non-infringement finding, and Hospira cross-appealed the finding that the claims were not invalid. Applying a clear error standard of review, the Federal Circuit reversed the district court's validity determination, finding that the asserted claims were anticipated by batches of the bivalirudin peptide product manufactured by Ben Venue more than one year before the critical date of the claimed invention.

The Federal Circuit determined that the lots of bivalirudin were both the subject of a commercial offer for sale and ready for patenting. According to the Federal Circuit, a commercial "sale" took place even if Ben Venue did not take title of the commercial embodiment of the claimed invention. Comparing the facts of this case to the 1983 Federal Circuit Decision in D.L. Auld v. Chroma Graphics, the panel emphasized that Ben Venue's manufacturing services were performed for TMC's commercial benefit. In particular, TMC sought Ben Venue's services to secure Food and Drug Administration (FDA) approval for a finished bivalirudin product. That sale was not insignificant, as each batch prepared by Ben Venue for TMC boasted a commercial value of over $10 million. The Federal Circuit reasoned that because the parties' agreement to secure the bivalirudin lots amounted to "commercial exploitation" as opposed to "secret, personal use," it qualified as a sale under the on-sale bar. Noting that Federal Circuit case law does not recognize a supplier exception, the Court explained that finding the on-sale bar inapplicable under these facts would allow TMC to circumvent the purpose of the on-sale bar by narrowly drafting its manufacturing services agreement. Where, as here, there was no dispute that the Ben Venue product lots fell within the claim limitations, it made no difference whether the parties to the agreement realized the bivalirudin lots produced the claimed product.

The Federal Circuit also found error in the district court's application of the experimental use exception. The evidence indicated that the inventor knew the batches had levels of Asp9-bivalirudin below 0.6 percent and that manufacturing the product at this level fell within the claims. The invention was thus reduced to practice at the time of manufacture, and the experimental use exception was no longer available.

Practice Note: Although the Federal Circuit's decision applies a pre-AIA version of the on-sale bar in § 102(b), the broad interpretation of what constitutes a "commercial" sale or transaction, as explained in this case, may be controlling for post-AIA decisions applying § 102(a)(1). It will be important going forward to recognize that "manufacturing services" may constitute a commercial sale even if title to the product does not change hands.

Contract Manufacturing Is a Commercial Transaction for Purpose of "On-Sale" Bar

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