Federal Circuit Clarifies Scope of On-Sale Bar

Editor: Philip Nelson

Federal Circuit Summaries

In Medicines Co. v. Hospira, Inc., 2014-1469; 2014-1504 (Dyk, Wallach, Hughes), the Federal Circuit affirmed the district court’s finding of non-infringement but reversed the district court’s determination that an agreement to distribute the Angiomax drug product did not constitute an offer for sale under 102(b). The panel remanded for a determination of whether the agreement covered the patented invention. This holding, and the prior en banc holding of the Court in Medicines Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016) (Medicines I), help clarify what may be an invalidating “offer for sale” or “sale” under 35 U.S.C. § 102(b).

As with many cases involving an “on-sale” bar, the timing of an offer for sale is often critical. The timeline of facts as set forth below provides background for the Federal Circuit’s rulings.

At trial, the district court found that the claimed improved manufacturing process was ready for patenting, but was not offered for sale before July 27, 2007—the one year bar date. The district court concluded that the 2007 Distribution Agreement was merely an agreement for ICS to be the United States distributor of Angiomax, but was not itself an offer to sell Angiomax. The district court did not make any findings regarding whether the Distribution Agreement concerned Angiomax made by the original method or made by the new methods of the patents-in-suit. The district court also found Hospira did not infringe the asserted claims.

The Medicines Co. appealed the finding of non-infringement, and Hospira cross-appealed the district court’s on-sale decision. Hospira argued that both the earlier manufacturing contract with Ben Venue as well as the later Distribution Agreement with ICS barred The Medicines Co. from obtaining a patent on the underlying process for manufacturing Angiomax. A Federal Circuit panel agreed with Hospira’s first argument and reversed the district court’s decision, holding that the on-sale bar applied to the contract with Ben Venue. Medicines Co. v. Hospira, Inc., 791 F.3d 1368, 1370-72 (Fed. Cir. 2015). The panel did not reach the question of whether the on-sale bar also applied to the Distribution Agreement.

The Medicines Co. petitioned for en banc review of the panel decision, which was granted. In Medicines I, the en banc Federal Circuit concluded that the 2006 payments from the Medicines Co. to Ben Venue to manufacture Angiomax according to the later-patented method did not constitute an invalidating sale or offer for sale. Medicines Co. v. Hospira, Inc. 827 F.3d 363 (Fed. Cir. 2016) (en banc). The Federal Circuit determined that this transaction did not constitute a commercial offer for sale because: (1) the invoices issued by Ben Venue covered manufacturing charges, not the product itself; (2) the payment was only 1% of the market value of the product made; and (3) title for the product never transferred to Ben Venue. Id. at 1375. Therefore, the Federal Circuit concluded that “Ben Venue sold contract manufacturing services—not the patented invention . . . .” See id.

The en banc Federal Circuit further explained that the analysis of whether there is an offer for sale requires turning to “the law of contracts as generally understood,” to focus “on those activities that would be understood to be commercial sales and offers for sale ‘in the commercial community.’” Id. at 1373. Although the Uniform Commercial Code (UCC) is not dispositive to such questions, the Court explained it can be useful for determining whether “a communication or series of communications rises to the level of a commercial offer for sale.” See id. In general, an offer for sale is “one which the other party could make into a binding contract by simple acceptance.” Grp. One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1047 (Fed. Cir. 2001).

Medicines I did not address the 2007 Distribution Agreement between The Medicines Co. and ICS. Instead, the case was remanded to the original appellate panel with instructions to consider whether the Distribution Agreement triggered the on-sale bar under the appropriate framework. Id. at 1381. On remand, The Medicines Co. contended that the Distribution Agreement was not a commercial offer for sale because the agreement allowed the Medicines Co. to reject a purchase order submitted by ICS. Therefore, ICS could not make a binding contract by accepting any offer. In this sense, The Medicines Co. argued, the Distribution Agreement simply set out the terms by which ICS could “offer to buy” the product, but was not itself a sale or an offer to sell Angiomax.

The Medicines Co. argued its position was supported by Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir. 2001), where the Federal Circuit determined that “preliminary proposals or invitations to negotiate,” did not rise to the level of an offer for sale under 102(b). In Group One, the Federal Circuit determined that the “language of the proposal itself” must be reviewed, and language such as “I offer,” or “I promise,” is different from preliminary language such as “I quote,” or “are you interested.” See id. at 1048. Similarly, in Linear Technology Corp. v. Micrel, Inc., 275 F.3d 1040, 1049-50 (Fed. Cir. 2001), the Federal Circuit held that a company’s solicitation of pricing information, publication of promotional information and communication with customers about the product were not offers for sale “because they do not indicate [an] intent to be bound.”

In its decision after remand from the en banc court, the Federal Circuit panel rejected The Medicines Co.’s arguments on the remaining on-sale issue. The panel explained that the terms of the Distribution Agreement show that an offer to sell was made in view of the wording that the parties “desire[d] to sell” and “purchase and distribute” the product, and because the agreement would give ICS title to the product upon receipt. Opinion at 6-7. The Federal Circuit also determined that although The Medicines Co. could theoretically reject a purchase order from ICS, the terms of the agreement required The Medicines Co. to use “commercially reasonable efforts” to fill the purchase orders. Id. Moreover, the Federal Circuit determined that because the Distribution Agreement was an exclusive distribution agreement, the UCC requires “the seller to use best efforts to supply the goods.” Based on those facts, the Federal Circuit concluded that “The Medicines Company could not simply reject ICS’s orders for any reason, but instead was required to fill them unless it was commercially unfeasible to do so.” Id. at 8.

The Federal Circuit’s holding illustrates that in any dispute regarding the 102(b) on-sale bar, the terms expressed in the written exchanges or agreements between the parties may control when determining whether an offer for sale was made. Because contract interpretation is a question of law reviewed de novo, the Federal Circuit will likely give little deference to a district court’s prior contract interpretation. Moreover, while invalidity under the on-sale bar is a legal determination based on underlying questions of fact, the central role of contract interpretation may, in many circumstances, make review of an on-sale bar issue almost entirely de novo. Accordingly, those litigating 102(b) on-sale bar issues should ensure that all written agreements and exchanges between the parties of a possible offer for sale are part of the record before the district court and on appeal before the Federal Circuit. Attorneys drafting and negotiating such agreements should also be aware of how UCC standards and precedent may affect these patent law issues.