United States: A Prior Agreement To Outsource Manufacturing Does Not Invalidate A Patent


A patent is invalid if a product embodying the claimed invention was "on sale" more than one year before the filing of an application for the patent. In a recent en banc decision, the Court of Appeals for the Federal Circuit held that, for an invention to be "on sale," a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code, specifically, the passing of title from the seller to the buyer for a price, evidencing relinquishment of interest and control over the product.

Under Supreme Court precedent, parties to a contract are released from their contractual obligations when a contract expires. But a court will compel arbitration under an expired contract if a dispute falls within the scope of the arbitration clause of that contract.

The courts will invalidate a patent, if an applicant commercially sells or offers a product for sale that practices the patent's claims more than one year before filing a patent application. Recently, in The Medicines Co. v. Hospira, Inc., an en banc Federal Circuit held that entering into a contract with a manufacturer to make a patented product does not constitute such an invalidating commercial sale.


The Medicines Company ("MedCo") holds two patents that cover an anticoagulant drug, bivalirudin, which MedCo sells under the trade name Angiomax. These patents were filed in July of 2008. Thus, any commercial sale of bivalirudin prior to July of 2007 would render the patents invalid.

MedCo does not have its own manufacturing facilities so in late 2006, MedCo contracted with Ben Venue to manufacture Angiomax according to the patented formula. By the end of 2006, Ben Venue manufactured three batches of Angiomax, valued at over $20 million. The contract between MedCo and Ben Venue stated that "the solution will be filled for commercial use" and that the manufactured product would be placed on hold until testing was completed. The invoices for each batch that Ben Venue manufactured stated that it would be "released to MedCo for commercial and clinical packaging."

MedCo placed the products into quarantine pending FDA approval. MedCo signed a distribution agreement making ICS the exclusive authorized distributor of Angiomax in the United States and made the quarantined Angiomax available for sale in August 2007.

Before MedCo's patents expired, Hospira filed applications with the FDA to request approval to sell a generic form of the drug. MedCo sued Hospira, alleging that Hospira's FDA applications to manufacture and sell bivalirudin infringed its patents for manufacturing the drug. During litigation, Hospira alleged that the patents were invalid because MedCo sold products manufactured according to the process claimed in the asserted patents when it paid BenVenue to manufacture Angiomax in 2006, and that MedCo offered to sell manufactured Angiomax to ICS for distribution in 2007.

Under the Supreme Court's decision in Pfaff v. Wells, a patent is invalid under the "on-sale bar" rule if a product embodying the claimed invention is both ready for patenting, and commercially offered for sale more than one year before the date of the patent application. Although finding that the claimed was invention ready for patenting more than a year before the application date, the district court found that the invention was not commercially offered for sale prior to the priority date of the patent applications. Specifically, the district court found that the transaction between MedCo and Ben Venue was a sale for contract manufacturing services, and that title to the Angiomax always resided with MedCo. The court also found that because the batches manufactured by Ben Venue were for "validation purposes," they were not made for commercial profit, as required by the "on-sale bar," but for experimental purposes. The district court also held that MedCo's agreement with ICS wasn't an invalidating sale, but rather, the agreement was merely an agreement for ICS to be the sole U.S. distributor of Angiomax—"a contract to enter into a contract." Hospira appealed.

On appeal, Hospira criticized the district court's conclusion that the batches of Angiomax were for experimental purposes, noting that MedCo had not claimed that the Angiomax manufactured by Ben Venue was for experimental use, and that, although title to the manufactured drugs never transferred between MedCo and Ben Venue, MedCo was able to stockpile its product for future sale, thereby enjoying a commercial benefit from the transaction, thus triggering the "on-sale bar" rule.

The En Banc Decision

An en banc Federal Circuit held that for the "on-sale rule" to apply, a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that in which title passes from the seller to the buyer for a price, evidencing relinquishment of interest and control over the product. The court found that in this case, no such invalidating commercial sale occurred. The court emphasized that it must focus on activities that constituted sales and offers for sale "in the commercial community." The court found that the transactions between MedCo, Ben Venue, and ICS in 2006 and 2007 did not constitute commercial sales of the patented Angiomax product.

The court first clarified that the sale of manufacturing services by a contract manufacturer to create embodiments of a patented product for the inventor did not constitute a "commercial sale" of the invention. Ben Venue merely sold contract manufacturing services to MedCo—not the patented invention. MedCo paid Ben Venue only about 1% of the ultimate market value of the product that Ben Venue manufactured, and Ben Venue invoiced the sale as manufacturing services.

The court further explained that the sale was only of Ben Venue's manufacturing services since title to the manufactured pharmaceuticals remained with MedCo. 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.

The court also explained that "stockpiling" was not improper commercialization that would invalidate the patent. Commercial benefit, even to both parties in a transaction, is not enough to invalidate a patent under the "on-sale bar" rule. Rather, the product "on sale" must be "commercially marketed," and did not include preparation for potential or eventual marketing The court therefore found that MedCo did not market or release its invention to any purchasers by contracting with Ben Venue. The court therefore vacated the panel opinion and remanded to the panel for further proceedings.

Strategy and Conclusion

This case illustrates how patent holders can structure transactions with suppliers before commercially marketing goods and services to avoid potentially negative consequences later on. For example, patent owners outsourcing manufacturing services should retain title to products embodying the patented invention and maintain confidentiality over contracted services.


1 The MedCo  opinion may be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2016/MedicinesCompanyvHospiraInc.pdf.

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.

Events from this Firm
18 Dec 2018, Webinar, Washington, DC, United States

As part of Strafford Publications’ webinar series, Finnegan attorneys Adriana Burgy, Chris Johns, and Show Summary

20 Dec 2018, Webinar, Washington, DC, United States

As part of Strafford Publications’ webinar series, Finnegan attorneys Amanda Murphy and Jeffrey Jacobstein will examine the patentability requirements in the USPTO and EPO for claiming a broad genus of antibodies.

2 Jan 2019, Conference, Washington, DC, United States

Finnegan is a Silver sponsor of the 36th annual National CLE Conference. Finnegan partner Erika Arner will co-present “The Interplay Between IPRs and Other PTAB Trial Proceedings and Litigation—Strategy and Lessons.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions