The Medicines Co. v. Hospira Inc.: Federal Circuit clarifies application of pre-AIA §102(b) on-sale bar

July 18, 2016

In The Medicines Co. v. Hospira Inc., the Federal Circuit further expounded upon which triggering events may invalidate a patent due to commercial activity occurring more than one year prior to filing the patent’s application.[1]

The Medicines Company (MedCo) brought suit in the District of Delaware against Hospira, Inc. (Hospira) after Hospira filed two Abbreviated New Drug Applications (ANDAs) to sell a generic version of MedCo’s patented pharmaceutical compound.[2] MedCo alleged that Hospira’s ANDAs infringed several claims of Medco’s patents. Hospira asserted that the patents for MedCo’s drug were invalid under the 35 U.S.C §102(b) on-sale bar because MedCo paid a manufacturing company, Ben Venue, to produce the patented drug prior to its critical date.[3] The District of Delaware held that Hospira’s products did not directly infringe MedCo’s patents and that MedCo’s patents were not invalid due to the §102(b) on-sale bar.[4] The district court applied the two-step Pfaff test for determining whether the on-sale bar applied[5] and found that although MedCo’s compound was ready for patenting, it was not commercially offered for sale before the critical date because the drug batches were made for experimental purposes and not for commercial profit. [6]

MedCo and Hospira appealed the decision on several grounds, although a Federal Circuit panel consisting of Circuit Judges Dyk, Wallach, and Hughes only issued a decision regarding the applicability of the §102(b) on-sale bar in MedCo’s transactions with Ben Venue.[7] The panel reversed the district court on this issue and held that MedCo had commercially exploited the invention prior to the critical date, even though MedCo did not transfer title of the compound to Ben Venue.[8] Since MedCo paid for services that resulted in the patented product, the panel reasoned that the transactions were commercial sales that fell within the on-sale bar.[9]

MedCo petitioned the Federal Circuit for either an en banc or a panel rehearing, which the court granted. In a unanimous en banc decision authored by Circuit Judge O’Malley, the court held that in order to qualify as a commercial sale for applicability of the §102(b) on-sale bar, the sale must be of the type pursuant to Section 2-106 of the Uniform Commercial Code (UCC), which requires transfer of title from a buyer to a seller for a price.[10] The court also held that a sale of manufacturing services to create a patented product does not generally constitute a commercial sale of the invention.[11] Since there was no transfer of title for the produced compound between MedCo and Ben Venue and because the transactions were only for manufacturing services, the court held that the on-sale bar did not apply under either the plain text of §102(b) or previous Federal Circuit precedent.[12] The court reiterated that in order for the on-sale bar to apply, the product must be “commercially marketed” and the buying and selling parties must exchange property rights for consideration.[13]  

In addition, the court held that stockpiling of manufactured products is not improper commercial activity under §102(b), independent of whether the manufacturing activities were undertaken in-house or contractually via a third party.[14] Such activity, without an offer for sale or actual sale, is only pre-commercial and preparatory for future sales. [15] The court again cited Federal Circuit precedent and examined the §102(b) language to support the proposition that promotional activity and preparations for commercial sales are not sufficient alone to cause a §102(b) on-sale bar triggering event.[16]

In applying Pfaff to analyze whether there was a commercial offer for sale, the court found that the confidential relationship between MedCo and Ben Venue weighed against a finding that the transaction was for commercial marketing purposes.[17] Although there was some commercial benefit from the transaction, this alone is not sufficient for finding a commercial sale.[18] The court also looked to different policy considerations, agreeing with amici that a holding against MedCo could increase drug development costs and unfairly punish the company and other inventors for outsourcing manufacturing operations.[19] Finally, the court noted previous cases applying the §102(b) on-sale bar and emphasized that there is no broad “supplier exception” to those transactions which would otherwise be commercial sales.[20] Although a transaction between a supplier and an inventor may indicate that the sale is not commercial, the transaction must be examined for its character and not only evaluated based upon the identity of the participants.[21] The court affirmed the district court’s prior judgment regarding inapplicability of the §102(b) on-sale bar and remanded the case to the Federal Circuit panel for proper consideration of all the relevant issues on appeal between the two parties.[22]

Authored by Ryan D. Borelo

 

[1] No. 2014-1469, 2016 WL 3670000 (Fed. Cir. Jul. 11, 2016).

[2] The Medicines Co., slip op. at 4.

[3] Id.

[4] Id., slip op. at 8.

[5] Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998).

[6] The Medicines Co., slip op. at 9-10.

[7] The Medicines Co. v. Hospira, Inc., 791 F.3d 1368, 1369 (Fed. Cir. 2015).

[8] Id. at 1370-71.

[9] Id.

[10] The Medicines Co., No. 2014-1469, slip op. at 4, 22. 

[11] Id., slip op. at 19.

[12] Id., slip op. at 34.

[13] Id., slip op. at 19.

[14] Id.

[15] Id., slip op. at 26.

[16] Id., slip op. at 27.

[17] Id., slip op. at 25.

[18] Id., slip op. at 26.

[19] Id., slip op. at 29.

[20] Id., slip op. at 31.

[21] Id.

[22] Id., slip op. at 34.