On July 11, 2016, the Federal Circuit issued an en banc decision in Medicines Co. v. Hospira, Inc. The court unanimously held that, while there is no “supplier exception” to the on-sale bar of pre-AIA 35 U.S.C. § 102(b), the purchase by a patentee of manufacturing services from a third party is not a commercial sale that triggers the bar, even though the third party is paid to manufacture a product covered by a product-by-process claim.
Background and Initial Panel Decision
Pre-AIA Section 102(b) provides that a “person shall be entitled to a patent unless . . . the invention was . . . in public use or on sale in this country, more than one year before the date of application for patent in the United States.” To determine whether an invention was “on sale,” courts have applied a two-part test: “First, the product must be the subject of a commercial offer for sale . . . . Second, the invention must be ready for patenting.” 5 The focus of Medicines Co. was on the first part of this test.
The Medicines Co. (“MedCo”) owns a patent covering an improved formulation of bivalirudin, an anticoagulant. Before applying for its patent, MedCo contracted with an outside firm, Ben Venue Laboratories, to manufacture its formulation in significant quantities, packaged for commercial sale. The contract, the manufacturing, and the delivery all occurred more than one year before the filing date of the patent application. Thus, when MedCo sued Hospira in district court for infringement, Hospira argued that the patented invention was “on sale” under pre-AIA Section 102(b), rendering the patent invalid. The district court disagreed.
On appeal, the Federal Circuit panel first agreed with Hospira. Reversing the district court, the panel found that Ben Venue’s manufacture of the patented product was an invalidating sale.6 The court relied on D.L. Auld Co. v. Chroma Graphics Corp., 7 which applied the on-sale bar to the sale of a product made by a patented process. “We find no principled distinction between the commercial sale of products prepared by the patented method at issue in D.L. Auld co. and the commercial sale of services that result in the patented product-by-process here,” the court wrote, because MedCo “paid Ben Venue for performing services that resulted in the patented product-by-process.” 8
En Banc Decision
Sitting en banc, however, the Federal Circuit reversed its earlier decision and determined that “Ben Venue sold contract manufacturing services—not the patented invention—to MedCo.” 9 Several points bear mentioning.
First, the full court rejected the panel’s failure to distinguish the product-by-process claims from prior cases involving process claims. A product-by-process claim defines a product by the process used to create it, but the claim ultimately is directed to the product itself, at least for validity purposes—a point which the court found “particularly significant.” 10
Second, the court determined that stockpiling the patented invention by using outside manufacturers does not automatically trigger the on-sale bar. The court reasoned that in-house manufacturing and stockpiling do not render a product “on sale;” rather, that is merely “preparation for future commercial sales.” 11
Third, the court looked to numerous factors to determine whether there was a “commercial offer for sale.” It found several factors significant: for example, an invoice indicating that manufacturing services, rather than products, were provided by Ben Venue; the fact that Ben Venue never held title to the product; the disparity between the price paid to Ben Venue and the market value of the product; the confidential nature of the transaction; and the absence of any right for Ben Venue to sell to others. These factors were not dispositive, but rather were viewed as a whole through the lens of the statute’s objective: “preventing inventors from filing for patents a year or more after the invention has been commercially marketed.” 12
This en banc decision instructs courts to take a holistic view of the on-sale bar and gives patentees some guidance as to how they should structure their pre-marketing activities. While the Federal Circuit declined to address the on-sale bar under current law, the AIA uses similar language to pre-AIA Section 102(b), which should lead to a similar result on similar facts. Therefore, patent owners would be well advised to model their pre-marketing and pre-filing transactions after the one in Medicines Co. to avoid relinquishing their patent rights.