United States: On-Sale Bar Is No Bar For Selling Manufacturing Services To The Inventor

Addressing what constitutes an invalidating "sale" under § 102(b), the US Court of Appeals for the Federal Circuit sitting en banc affirmed the lower court's ruling and concluded that a third-party manufacturer's sale to the inventor of services to manufacture the product, where title to the product never passed to the manufacturer, does not constitute an invalidating sale under § 102(b). The Medicines Company v. Hospira, Inc., 119 U.S.P.Q.2d 1329 (Fed. Cir., July 11, 2016) (O'Malley, J.)

The case concerned whether the on-sale bar was triggered when The Medicines Company (MedCo) paid a third-party contract manufacturer, Ben Venue, to manufacture improved Angiomax® (bivalirudin), the brand name drug that is an embodiment of the patented claims before the critical date. MedCo does not have its own manufacturing facilities and cannot make its products in-house. MedCo therefore contracted with Ben Venue to make commercially saleable improved Angiomax. The transaction was confidential in nature, and title to the Angiomax batches was never transferred to Ben Venue.

To trigger the on-sale bar, the claimed invention must be (1) the subject of a commercial offer of sale and (2) ready for patenting. Pfaff v.Wells Electronics, Inc., 525 US 55 (1998). Applying the Pfaff framework, the district court determined that Ben Venue's manufacture of Angiomax did not trigger the on-sale bar because step one of Pfaff was not met, although step two was met. The district court explained that the title to Angiomax always resided with MedCo and that the batches of Angiomax made by Ben Venue were for experimental purposes, and not for commercial profit.

On appeal, Hospira argued that any transaction that provides a commercial benefit to the inventor, in this case by stockpiling its product for future sale, was sufficient to trigger the on-sale bar. The lack of transfer of title to Angiomax was irrelevant, according to Hospira, because the stockpiling provided financial benefit to constitute "commercialization" or "commercial exploitation" to thereby trigger the on-sale bar. A panel of the US Court of Appeals for the Federal Circuit agreed with Hospira focusing on the commercial exploitation of the invention before the critical date and the lack of experimental use because the invention had been reduced to practice, and reversed the lower court's ruling.

Sitting en banc, the Federal Circuit reversed the panel ruling and concluded that the Ben Venue's manufacture of the Angiomax batches before the critical date was not a commercial sale of the invention under step one of the Pfaff framework. The court did not address the question of experimental use in step one of Pfaff or address step two of Pfaff.

The court explained that in determining whether a sale or offer for sale of an invention is commercial in nature, the focus should be on activities that would be understood to be commercial sales or offers for sale "in the commercial community" and that the Uniform Commercial Code (UCC) is an appropriate avenue to determine whether the transaction rises to the level of a commercial transaction. However, the court cautioned that "the UCC does not have 'talismatic significance' with respect to the on-sale bar," noting that an invention may be considered on-sale where the inventor charges the user fee to use the invention, but no title is passed. Nonetheless, the absence of transfer of title is a significant factor to consider, the court explained, because in most instances it "indicates an absence of commercial marketing of the product by the inventor."

The court also addressed other factors that could influence the determination of a "commercial" sale. The confidential nature of the transaction, although not of talismatic significance, can weigh against the commercial nature of a transaction, the court concluded. Likewise, the identity of the participants is not key, the focus must be on the commercial nature of the transaction. A sale made by a supplier does not stop being a commercial transaction merely because the sale is made by a supplier, i.e., there is no 'supplier exception' to the on-sale bar. "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 court further clarified that "not every activity that inures some commercial benefit to the inventor can be considered a commercial sale," rejecting Hospira's argument to the contrary. "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."

In the case at bar, the court determined that the invention at issue was a product, Angiomax, not a method of making the product. "[W]e have never espoused the notion that, where the patent is to a product, the performance of the unclaimed process of creating the product, without an accompanying "commercial sale" of the product itself, triggers the on-sale bar." The court concluded that Ben Venue sold "manufacturing services—not the patented invention—to MedCo" and therefore "there was no sale of the invention." The court also noted that the absence of transfer of title to Angiomax batches and the scope and nature of the confidentiality imposed on Ben Venue further underscored that the sale was for manufacturing services and was not for commercial marketing purposes. The court also rejected Hospira's "stockpiling" argument finding that "mere stockpiling of a patented invention by the purchaser of manufacturing services does not constitute a 'commercial sale' under § 102(b). Stockpiling—or building inventory—is, when not accompanied by an actual sale or offer for sale of the invention, mere pre-commercial activity in preparation for future sale."

The court further noted that there was no justification to apply a different set of on-sale bar rules depending on whether the inventor manufactures the product in-house or outsources it. "Yet, penalizing a company for relying, by choice or by necessity, on the confidential services of a contract manufacturer, does exactly that."

Practice Note

Do not assume that the nature of the transaction, from supplier to inventor, its confidentiality nature or the lack of transfer of title will automatically prevent on-sale bar. The specific activities and the nature of the invention matter.

On-Sale Bar Is No Bar For Selling Manufacturing Services To The Inventor

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.

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