The “on-sale” bar is triggered by a commercial sale that bears the general hallmarks of a sale pursuant to the Uniform Commercial Code

John M. Wang | July 18, 2016

The Medicines Company v. Hospira, Inc.

July 11, 2016

En Banc Decision by O’Malley.

Summary

Hospira submitted two Abbreviated New Drug Applications (“ANDA”) to seek approval of Food and Drug Administration (“FDA”) for selling generic bivalirudin drug products before the expiration of patents-in-suit: the ‘727 patent and the ‘343 patent. The two patents-in-suit cover Angiomax, the trade name of a form of bivalirudin that MedCo markets in the United States. On August 19, 2010, MedCo sued Hospira in the district court of Delaware alleging that Hospira’s two ANDA filings infringed the two patents-in-suit. The district court found the patents-in-suit not invalid and not infringed. MedCo appealed and Hospira cross-appealed. The original three-judge panel of the Federal Circuit agreed with Hospira and held that the patents-in-suit are invalid. MedCo petitioned for panel rehearing or rehearing en banc. The en banc panel affirmed the district court’s holding and remanded the appeal to the original three-judge panel for further proceedings.

Details

The applications for the ‘727 and ‘343 patents were filed on July 27, 2008. The two patents-in-suit have nearly identical specification and contain product and product-by-process claims respectively for pharmaceutical batches of improved drug products comprising bivalirudin with a maximum impurity level of Asp of 0.6%. Bivalirudin drug products are used to prevent blood from clotting and are regarded as highly effective anticoagulants for use during coronary surgery.

MedCo is a specialty pharmaceutical company that does not have its own manufacturing facilities. Instead, since 1997, MedCo has contracted with Ben Venue Laboratories (“Ben Venue”), a third-party provider, for Ben Venue to manufacture commercial quantities of an original formula of Angiomax, which is not covered under the patents-in-suit. In late 2006, MedCo paid Ben Venue $347,500 to manufacture three batches of bivalirudin according to the patents-at-issue. Ben Venue completed the three batches by December 14, 2006. Collectively, the three batches had a market value of well over $20 million. The manufacturing protocol between MedCo and Ben Venue governing the three batches stated that “the solution will be filled for commercial use” and that the three batches “will be placed on quality hold until all testing has been successfully completed.” The invoice for each of the three batches stated: “Charge to manufacture Bivalirudin lot” and indicated that the bivalirudin lot was or will be released to MedCo. Each batch received a “commercial product code,” a customer lot number, and each stated that the batch was “released [to MedCo] for commercial and clinical packaging.” Once manufactured by Ben Venue, the batches were placed in quarantine with MedCo’s exclusive distributor and logistics coordinator, Integrated Commercialization Solutions (“ICS”), pending FDA approval. MedCo and ICS entered into a Distribution Agreement effective February 27, 2007. It was not until August 2007, after the July 27, 2007 critical date, that MedCo released the three batches from quarantine and made them available for sale.

In determining whether the transactions between MedCo and Ben Venue in 2006 and 2007 trigger the on-sale bar, the en banc panel uses the two-pronged test in Pfaff, which specifies that the on-sale bar under 35 U.S.C. §102(b) applies when, before the critical date, the claimed invention (1) was the subject of a commercial offer for sale; and (2) was ready for patenting. The focus of this en banc appeal is on the first prong of the Pfaff test: whether the invention was the subject of a commercial sale or offer for sale.

First, the en banc panel found that Ben Venue sold contract manufacturing services-not the patented invention-to MedCo. The en banc panel distinguished this case over previous Federal Circuit cases cited and relied on by Hospira in that the present case involves product claims and product-by-process claims. By contrast, the cases on which Hospira relies uniformly involve process or method patents. Under MedCo’s instructions and using an API supplied by MedCo, Ben Venue acted as a pair of “laboratory hands” to reduce MedCo’s invention to practice. In other words, the en banc panel here found no sale of the “invention” under §102(b).

Second, the en banc panel found that the absence of title transfer in this case underscores that the sale was only of Ben Venue’s manufacturing services. Section 2-106(1) of the Uniform Commercial Code describes a “sale” as “the passing of title from the seller to the buyer for a price.” While the en banc panel declines to draw a bright line rule making the passage of title dispositive, the panel finds that the absence of title transfer significant because, in most instances, that fact indicates an absence of commercial marketing of the product by the inventor. In this case, the title to the three Angiomax batches always resided with MedCo, and MedCo does not give authorization to Ben Venue to sell the products to any others. Furthermore, the confidential nature of the transactions, though not dispositive, is also a factor which weights against the conclusion that the transactions were commercial in nature. The scope and nature of the confidentiality imposed on Ben Venue supports the view that the sale was not for commercial marketing purposes.

Third, the en banc panel found that the stockpiling is mere preparations for future commercial sales and, standing alone, does not trigger the on-sale bar. Hospira argues that finding the bar inapplicable here would improperly permit an inventor to commercially stockpile his invention in order to restock its long depleted commercial pipeline. However, the en banc panel held that commercial benefit generally is not what triggers §102(b); there must be a commercial sale or offer for sale. Stockpiling by an inventor with the assistance of a contract manufacturer is no more improper than is stockpiling by an inventor in-house.

The en banc panel also held that there is a limited “supplier exception” to the on-sale bar. As argued by Hospira, previous Federal Circuit cases have held that there is no “supplier exception” to the on-sale bar. However, the en banc panel here expressly overruled those prior cases with one important caveat. The en banc panel still does not recognize a blanket “supplier exception” to what would otherwise constitute a commercial sale as we have characterized it today. While the fact that a transaction is between a supplier and inventor is an important indicator that the transaction is not a commercial sale, understood as such in the commercial marketplace, it is not alone determinative. The focus must be on the commercial character of the transaction, not solely on the identity of the participants.

For the forgoing reasons, the en banc panel held 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 suppliers does not constitute an invalidating sale under §102(b). Accordingly, the en banc panel affirms the district court’s holding that the transactions between Ben Venue and MedCo in 2006 and 2007 did not trigger the on-sale bar, and remanded the case to the original three-judge panel for further proceedings.

Take away

1.  Multiple types of claims such as product claims, product-by-process claims, and/or process claims should be drafted in the specification to effectively protect the invention.

2.  The inventor should keep the title to the patented product and the right to market the same when contracting with a third party for manufacturing service.

3.  It is ok for an inventor to stockpile the patented product before a commercial sale or offer for sale.

4.  There is a limited “supplier exception” to the on-sale bar.

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