Federal Circuit Rules for The Medicines Company in Patent Litigation

In an en banc decision on July 12, 2016 in The Medicines Co. v. Hospira, Inc., the Federal Circuit established the circumstances under which a product manufactured according to product-by-process claims is invalid under the “on sale” bar of 35 U.S.C. § 102(b). The Federal Circuit concluded that, to be “on sale” under § 102(b), 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 (“UCC”).

Case Background

The Medicines Co. (“MedCo”) brought suit against Hospira on two of its FDA Orange Book-listed patents in the District of Delaware based on Hospira’s filing of two Abbreviated New Drug Applications (“ANDAs”). Hospira’s ANDAs sought approval to market generic bivalirudin drug products before the expiration of the patents-in-suit. MedCo’s patents-in-suit claim processes that lower impurities in MedCo’s bivalirudin products, which are used as anticoagulants during coronary surgery, and which MedCo markets under the trade name Angiomax.

In the district court, Hospira argued that the patents were invalid based on the “on-sale bar” of 35 U.S.C. § 102(b), which bars patenting of anything that was on sale more than one year prior to the patent filing. Hospira argued that the on-sale bar was triggered because, more than one year before the applications for the patents-in-suit were filed, MedCo paid its supplier Ben Venue to manufacture Angiomax, and because MedCo offered to sell Angiomax to its distributor.

The District Court analyzed the issue under the Supreme Court’s 1998 decision in Pfaff v. Wells, which sets forth a two-step framework for establishing an on-sale bar, i.e., that the invention was (1) the subject of a commercial offer for sale, and (2) ready for patenting. The District Court determined that MedCo’s activities did not amount to a commercial offer for sale because the products made by the manufacturer were “validation” batches that were not made for commercial profit, and that MedCo’s agreement with its distributor was merely “a contract to enter into a contract” for future sales.

Federal Circuit Takes Case En Banc

After the Federal Circuit merits panel reversed the district court’s decision, the Federal Circuit took the case en banc to define a commercial sale or offer for sale under the first prong of the Pfaff test. The Federal Circuit relied upon its earlier precedent that defined commercial sales pursuant to the UCC, which establishes sales as contracts between parties to give and pass rights of property. The Federal Circuit noted that under its precedent, for validity purposes the invention in a product-by-process claim is the product alone. The Court held that MedCo’s actions did not constitute a commercial sale because the relevant invoices only described “manufacturing” services – the products at issue were never the subject of a sale. The Court also noted that those manufacturing services cost only a small fraction of the full market value of the products. Additionally, the Court found that MedCo had maintained control and title to the products, and that MedCo’s stockpiling of products did not trigger the on-sale bar.

Takeaway #1: Existence of a Commercial Benefit is not Enough to Trigger “On-Sale” Bar

In setting forth the standard for a commercial sale sufficient to satisfy the on-sale bar, the Federal Circuit made clear that the existence of a commercial benefit, even to both parties, is not enough to trigger the on-sale bar. Rather, the Court will look to see if a sale bears the “general hallmarks” of a sale pursuant to Section 2-106 of the UCC. Based on the MedCocase, those hallmarks can include whether (1) there is a transfer of title in the patented products for a price, (2) the patentee no longer maintains control over the patented products, (3) a third party can sell the product itself, or (4) the transaction costs at issue reflect full market value of the products.

Takeaway #2: Stockpiling is Merely a Pre-Commercialization Activity that Does Not Trigger the “On-Sale” Bar

The Court found that building inventory, or stockpiling, when it is not accompanied by a sale or offer for sale of the invention, is merely pre-commercialization activity that does not trigger the on-sale bar. On the contrary, an inventor who outsources manufacturing to build up inventory is no different than an inventor who stockpiles through in-house manufacturing. The Court further noted that discouraging stockpiling is not an identifiable goal of the on-sale bar.

Takeaway #3: Court Clarified What Precedent It Was NOT Setting

The Court clarified what precedent it was not setting. The Court noted that it was not creating a bright-line rule that transfer of title satisfies the on-sale bar. And although the Court found that the confidential nature of MedCo’s transactions with its supplier weighed against finding those transactions were commercial in nature, the Court warned that confidentiality does not necessarily defeat the finding of a commercial sale. Finally, the Court made clear that it was not recognizing a blanket “supplier exception” to the on-sale bar. Rather, the Court emphasized that it will look at and weigh a number of circumstances to determine whether or not a transaction satisfies the on-sale bar of 35 U.S.C. § 102(b), not simply the identity of the parties to the transaction.