Federal Circuit Elucidates On-Sale Bar

September 2016

By: Caroline Roush

Many companies do not manufacture their own products and instead utilize the services of a contract manufacturer. A recent Federal Circuit decision raised the question as to whether this type of relationship threatens intellectual property rights associated with the manufactured products. In The Medicines Company v. Hospira, Inc., the Federal Circuit held that outsourcing a process to a third party contracted to manufacture a claimed invention does not trigger the on-sale bar.

The on-sale bar renders a patent invalid if it has been on sale for over one year prior to the filing date. This law is intended to preclude attempts by an inventor to profit from the commercial use of an invention for more than a year before filing for a patent. The Supreme Court’s two-prong Pfaff test for establishing when an invention is “on sale” includes inquiries into whether the invention was (i) the subject of a commercial sale, and (ii) ready for patenting. The issues in this case were related to the first prong of this test.

In this instance, the two patents-in-suit both had on-sale bar dates of July 27, 2007. The patents were directed to an improved Angiomax® drug product used for blood thinning. The Medicines Company (“MedCo”) had a previous relationship with a third party supplier, Ben Venue Laboratories (“Ben Venue”) to manufacture the original formula of Angiomax®. In late 2006, MedCo paid Ben Venue to make several batches of the improved drug product covered by the patents. All of the batches were manufactured by the end of 2006 and then placed in quarantine until August 2007 (after the July 27, 2007 critical date), when they were made available for sale.

MedCo sued Hospira for patent infringement and Hospira responded, in part, by asserting invalidity of the patents based on the on-sale bar. Specifically, Hospira contended that the on-sale bar was triggered when Ben Venue was paid in 2006 to manufacture batches of the improved drug before the critical date. Hospira argued that even though title to the patented product did not transfer to Ben Venue, “any transaction that provides a commercial benefit to the inventor is enough to trigger the on-sale bar.” During the time period that MedCo was working on improving their process, the pipeline of Angiomax® product was depleted. Hospira viewed the manufacturing activity in late 2006 as a form of stockpiling the product for future sale and was therefore a commercial benefit to MedCo.

There were three main reasons for the Court’s decision. First, only manufacturing services were sold to MedCo, not the patented drug product itself. The Court noted that Ben Venue acted as a “pair of laboratory hands” for the purpose of reducing MedCo’s invention to practice. Importantly, since the patents were directed to the product and not the process of making the product, performing the process in absence of a “commercial sale” of the actual product did not trigger the on-sale bar.

Second, MedCo maintained control of the drug product by retaining title and not authorizing Ben Venue to sell the drug. The Court reasoned that since Ben Venue lacked title, it was not authorized to use or sell the claimed product or to deliver the product to anyone but MedCo. The absence of title was significant, since it indicated an absence of commercial marketing of the patented drug by MedCo and therefore bolstered the conclusion that the sale was only of Ben Venue’s manufacturing services. The confidential nature of the transactions between MedCo and Ben Venue also supported the Court’s conclusion.

Third, stockpiling on its own does not trigger the on-sale bar. Building inventory in isolation of an accompanying actual sale or offer for sale of the invention was deemed by the Court to be “mere pre-commercial activity” and viewed stockpiling as “merely a type of preparation for future commercial sales.” The Court noted that the on-sale bar is triggered by actual commercial marketing of the invention, not the preparation for it. MedCo’s stockpiling efforts with the assistance of Ben Venue was viewed as being no different and no less improper than if MedCo had manufactured and stockpiled the drug itself.

The Court noted that it was not adopting a blanket “supplier exception” to the on-sale bar. Rather, this assessment is dictated by the commercial character of the transaction and not just the identity of the participants.  If the supplier (i) has title to the patented product process, (ii) receives “blanket authority” to market the product or discloses the process for manufacturing the product to others, or (iii) sells the product at full market value, the transfer from a supplier to the inventor could constitute an invalidating sale.