No Sale: Unanimous Federal Circuit Says “Commercial Sale,” Not “Commercial Benefit,” Applies to the Patent Act’s On-Sale Bar for Product and Product-By-Process Claims

July 12, 2016

Yesterday, in The Medicines Co. v. Hospira, Inc. (Case Nos. 2014-1469, -1504), the en banc Federal Circuit unanimously 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.”

The Opinion addresses the on-sale bar of 35 U.S.C. § 102 (which prohibits patenting an invention that was on sale more than one year before its filing date) and application of the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998) (which “requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting”). The Federal Circuit not only provides guidance with respect to the first prong of the Pfaff test – “what constitutes a patent-defeating ‘commercial offer for sale’” – but also confirms that there is no “blanket ‘supplier exception’ to what would otherwise constitute a commercial sale….”

In 2010, The Medicines Company (“MedCo”) sued Hospira, Inc. (“Hospira”) for alleged infringement of two product and product-by-process patents directed to the “Angiomax” blood thinner. Hospira countered that MedCo’s claims were invalid under the on-sale bar of 35 U.S.C. § 102(b) based on payments by MedCo to its contract manufacturer, Ben Venue Laboratories (“Ben Venue”), for the production of Angiomax more than one year before the filing date. MedCo kept that Angiomax in a “quarantine” stockpile and “made [it] available for sale” by its distributor only after the critical date.

The district court found that the transaction between MedCo and Ben Venue did not trigger the on-sale bar because “title to the Angiomax always resided with MedCo” and the Angiomax was for non-commercial “experimental purposes.” Hospira appealed, maintaining that transfer of title “is of no moment because the on-sale bar is triggered by ‘any commercialization’ that confers a commercial benefit.” The Federal Circuit panel reversed the district court, finding that “the inventor commercially exploited the invention before the critical date,” notwithstanding that title did not pass from MedCo to Ben Venue.

The Federal Circuit subsequently granted rehearing en banc to consider, inter alia: “(a) do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. § 102(b)”; and “(b) should this court overrule or revise the principle…that there is no ‘supplier exception’ to the on-sale bar of 35 U.S.C. § 102(b)?”

No “Commercial Sale” of Patented Angiomax

In its unanimous opinion, the Federal Circuit affirmed the district court’s ruling that the transaction was not an invalidating sale under § 102, holding that “a contract manufacturer’s sale to the inventor of manufacturing services where neither title to the embodiments nor the right to market the same passes to the supplier does not constitute an invalidating sale under § 102(b).”

Following consideration of the historical development of the on-sale bar, the Court explained “that commercial benefit – even to both parties in a transaction – is not enough to trigger the on-sale bar” because, on the facts “in this case:

(1) only manufacturing services were sold to the inventor – the invention was not;

(2) the inventor maintained control of the invention, as shown by the retention of title to the embodiments and the absence of any authorization to Ben Venue to sell the product to others; and

(3) ‘stockpiling,’ standing alone, does not trigger the on-sale bar.”

The en banc Federal Circuit found “particularly significant” that various cases cited by Hospira were to process or method claims – not product or product-by-process claims – when distinguishing those cases.

The Court further considered facts underlying the Medco-Ben Venue transaction, and concluded that “there was no sale of the ‘invention’” because the agreement was for “contract manufacturing services” where title did not change hands. The Opinion expressly notes that although “we decline to draw a bright line rule making the passage of title dispositive, we find the absence of title transfer significant because, in most instances, that fact indicates an absence of commercial marketing of the product by the inventor.”

And, the Federal Circuit rejected Hospira’s contention that the on-sale bar is triggered by ‘any commercialization’ that confers a commercial benefit” by citing the Supreme Court’s directive in Pfaff that “we are not to look to broad policy rationales in assessing whether the on-sale bar applies; we are to apply a straightforward two-step process….” Thus, “the mere stockpiling of a patented invention by the purchaser of manufacturing services does not constitute a ‘commercial sale’ under § 102(b).”

There Was, And Is, No “Supplier Exception” To The On-Sale Bar

The Court distinguished several of its rulings in prior supplier/inventor cases from the case at hand. However, the en banc Federal Circuit declared those cases “overruled with one important caveat” – although there is no “blanket ‘supplier exception’ to what would otherwise constitute a commercial sale…the fact that a transaction is between a supplier and inventor…is not alone determinative. 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 focus must be on the commercial character of the transaction, not solely on the identity of the participants.”

On these findings, the Federal Circuit remanded the case to the original panel for further proceedings to address various other issues. Those proceedings, and proceedings before the Supreme Court (should the issue be appealed further), are likely to provide further insight into the scope of the on-sale bar under 35 U.S.C. § 102.

If you would like to discuss how this may affect your business, please contact a member of Bryan Cave’s Intellectual Property Client Service Group.