United States: Federal Circuit Defines Supplier Exemption To The On-Sale Bar

On July 11, 2016, the Federal Circuit in The Medicines Co. v. Hospira, Inc., No. 14-1469 (Fed. Cir. July 11, 2016) (O'Malley, J.) (en banc) narrowed the reach of the on-sale bar under 35 U.S.C. § 102(b) to exclude contract manufacturing activities, provided certain criteria are met. The Court held that even though some commercial benefit may be obtained by each party to a contract manufacture agreement, where the inventor retains control of the product and is the limited recipient of the manufactured product, the on-sale bar is not triggered. This was true even where the volume of manufactured product may be considered a "stockpile" for subsequent distribution. The Court remanded the case for further consideration of a related issue of whether a distribution agreement constituted an "offer for sale."

In addressing this contract manufacturing issue, the Federal Circuit provided further guidance as to how to apply the first prong of the Supreme Court's Pfaff decision. Under Pfaff, an on-sale bar occurs when, before the critical date, the claimed invention was (1) the subject of a commercial offer for sale; and (2) was ready for patenting. The Court's unanimous holding looked to Section 2-106 of the Uniform Commercial Code to guide application of the "commercial offer for sale" prong of Pfaff. Specifically, the Federal Circuit held that in order for an alleged sale to be a commercial sale triggering 102(b), the sale must "bear the general hallmarks of a commercial sale pursuant to Section 2-106 of the Uniform Commercial Code." Slip op. at 3.

Applying this rule to the issue of whether the contract manufacturer "sold" the product to MedCo, the court concluded that no sale, for purposes of assessing novelty, had occurred, identifying three reasons for its judgment in this case:

  1. Only manufacturing services were sold to the inventor—the invention was not;
  2. The inventor maintained control of the invention, as shown by the retention of title to the embodiments and the absence of any authorization to the contract manufacturer to sell the product to others; and
  3. "Stockpiling," standing alone, does not trigger the on-sale bar.

Slip op. at 19. This holding is significant because companies which outsource their manufacturing can now better understand how to avoid having commercial manufacturing activities considered to constitute an on-sale bar—i.e., by carefully maintaining control of the invention and limiting distribution from the commercial manufacturer to the inventor and not to the public generally. Although the relevant novelty statute (35 U.S.C. § 102) has changed following implementation of the America Invents Act ("AIA"), these considerations are still relevant with respect to the post-AIA novelty statute, which changed the date on which certain activities constitute an on-sale bar, but not the types of activities that constitute an on-sale bar. (We note that a similar on-sale bar issue, but under the new, post-AIA statute, is currently pending at the Federal Circuit in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., Nos. 16-1284, 16-1787 (Fed. Cir.).)

MedCo was seeking FDA approval of a generic form of a branded product. However, the original process MedCo used to prepare the product also produced a by-product, which made the product less shelf-stable. MedCo developed a new process, and engaged BenVenue, a contract manufacturer, to perform this chemistry on the commercial scale and provide MedCo with sufficient material to obtain FDA approval.

In terms of the contract manufacturing activity, MedCo paid BenVenue to make and deliver what was, in fact, a commercial quantity of the drug product in question. MedCo quarantined the product for an extended period of time to verify that it was shelf-stable. Once it was determined that the product was shelf-stable, MedCo sought patent protection. While the drug product itself was known, the new process produced a product with sufficiently low levels of the by-product. MedCo therefore sought and obtained "product-by-process" claims.

One of the key facts in this case is that BenVenue's "sale" of the drug product to MedCo occurred more than a year before MedCo's patent applications were filed.

MedCo's abbreviated new drug application ("ANDA") had to be approved by the U.S. Food and Drug Administration ("FDA") before MedCo's first commercial sale could occur, and the FDA could not approve the ANDA without verifying that MedCo's product met the necessary specifications. MedCo filed its patent applications before the ANDA was approved, and before MedCo's first commercial sale.

Since BenVenue's sale to MedCo occurred more than one year before MedCo filed for patent protection, Hospira argued that the sale by BenVenue invalidated MedCo's patent claims.

Accordingly, one of the key issues before the court was whether the date on which BenVenue sold the product to MedCo triggered an on-sale bar, in which case MedCo's patent claims would be invalid, or whether the date on which MedCo first sold its product is the relevant date, in which case MedCo's patent claims would not be invalidated by BenVenue's sale to MedCo.

Hospira also asserted that when MedCo stockpiled its product, this constituted a sale. Hospira contended that where a transaction provides a commercial benefit to the inventor, it is enough to trigger the on-sale bar (even though the stockpiled product was not yet sold), under a theory that MedCo received a commercial benefit from BenVenue by being able to stockpile its product for future sale.

In the earlier panel decision, the court had agreed with Hospira that contract manufacturing and stockpiling product for a later sale each constituted a sale because MedCo received a commercial benefit from the transactions with its contract manufacturer. The panel reasoned that, because MedCo paid its contract manufacturer for services that resulted in the patented product, the transactions were commercial sales. Medicines Co. v. Hospira, Inc., 791 F.3d 1370-71 (Fed. Cir. 2015).

MedCo petitioned for a panel rehearing or a rehearing en banc, which was granted on November 13, 2015. The panel's decision was vacated, the appeal was reinstated, and new briefing was ordered on a) whether the circumstances constituted a commercial sale, b) whether there was a sale, despite the absence of a transfer of title, c) whether the sale was commercial, or an experimental use, and d) whether the court should overrule or revise the principle in Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001), that there is no "supplier exception" to the on-sale bar of 35 U.S.C. § 102(b).

The full court has now appeared to revise the principle in Special Devices, by outlining relevant considerations under which there can be a "supplier exception" to the on-sale bar.

The full court evaluated the term "sale" as being a "commercial sale," pursuant to various UCC provisions. In a typical sale under the UCC, title to a product typically transfers from the manufacturer to the purchaser at some point after the purchase price is paid, and the product is shipped. In the instant case, title to the product always remained with MedCo, so this was one factor the court considered in determining that BenVenue's activities did not constitute a "commercial sale" for purposes of assessing novelty.

Further, in a typical "commercial sale," there is typically a reasonable correlation between the price paid for a product and the market value of the product. In this case, the product is a high-priced biological product. The price MedCo paid BenVenue related more to the cost of performing toll synthesis than the value of the product.

Looking at these factors, the court determined that BenVenue's activities did not constitute a commercial sale for purposes of establishing a lack of novelty.

One likely take-home message to companies outsourcing their product manufacturing is that, until their patent application is on file, they should ensure that title to the product being manufactured does not transfer, that the manufacturer is not permitted to sell the product to others, and that all transactions with the product manufacturer are held in confidence.

It is still possible that entering into a Distribution Agreement before a patent application is filed could be construed as an offer for sale, and this will be determined on remand. Further, Hospira could petition the Supreme Court to overturn the Federal Circuit's approach to a "supplier exception" to the on-sale bar. Since many small companies, including those in the pharma and biotech industries, outsource their manufacturing, and may do so before filing for patent protection, we expect that many amici will also weigh in with their views about the Federal Circuit's approach if this issue is considered by the Supreme Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.