Unanimous en banc Federal Circuit holds that on-sale bar only applies where a commercial sale “bears the general hallmarks of a sale.”

On July 11, in a unanimous en banc ruling, the full US Court of Appeals for the Federal Circuit vacated a panel decision that The Medicines Company’s (MedCo’s) patents were invalid under Section 102(b) because its blood-thinning Angiomax product was “on sale” one year before the filing of the patent applications.[1] The Federal Circuit held that to be “on sale,” a product must be the subject of a commercial sale “that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.”[2]

BACKGROUND

MedCo contracted with a third party to manufacture commercial quantities of Angiomax. The third party manufactured batches that produced high levels of impurities exceeding FDA-approved levels.[3] As a result, MedCo initiated an investigation that led to the development of the products claimed in the patents. As part of that development, the third party completed three batches of Angiomax from October 31, 2006 until December 14, 2006.[4] Under the manufacturing protocol, these three batches would be available for commercial sale but would be placed on hold until all testing was complete. MedCo then placed the batches on quarantine with its distributor. It released the batches for sale just after the critical date.[5]

Hospira, Inc. argued that the invention was on sale before the critical date based on two transactions: (1) MedCo’s payment to the third-party manufacturer, and (2) MedCo’s offer to sell to its distributor. The district court disagreed and refused to apply the on-sale bar. [6]

On Hospira’s appeal, a panel of the Federal Circuit agreed, reversing the district court’s on-sale bar decision because “where the evidence clearly demonstrated that the inventor commercially exploited the invention,” it did not matter whether title changed hands or whether the offer concerned products or services to produce products.[7] On MedCo’s appeal of the panel’s decision, the full Federal Circuit reversed.

NO COMMERCIAL SALE OF PRODUCT

The on-sale bar applies when, before the critical date, the claimed invention was (1) the subject of a commercial offer for sale and (2) was ready for patenting.[8] The Federal Circuit determined that MedCo’s pre-critical date activities did not rise to a commercial sale.

MedCo’s patents claim products, not methods or processes to produce products, and “where the patent is to a product, the unclaimed process of creating the product” does not trigger the on-sale bar.[9] The Federal Circuit concluded that MedCo did not sell the invention to the third party manufacturer, but merely paid it as “a pair of ‘laboratory hands’ to reduce [its] invention to practice.”[10] It noted that MedCo paid the third-party manufacturer significantly less than the commercial value of the batches it completed. It also found the fact that title did not pass significant, in part because the UCC defines a sale as the passage of title: “[T]he passage of title is a helpful indicator of whether a product is ‘on sale,’ as it suggests when an inventor gives up its interest and control over the product.”[11] The court further noted that the confidential nature of the transactions weighs against a finding of a commercial sale.[12]

The Federal Circuit rejected Hospira’s argument that not applying the on-sale bar would encourage inventors to stockpile their inventions to restock its commercial pipeline because the on-sale bar concerns commercial sale, not commercial benefit.[13] According to the court, stockpiling is “mere pre-commercial activity in preparation for future sales” that does not trigger the on-sale bar.[14] It concluded that applying the on-sale bar to MedCo would be “arbitrary,” “ineffective,” and “unnecessary.”[15]

The Federal Circuit also made it clear that the on-sale bar has no supplier exception. As the court explained, “the focus must be on the commercial character of the transaction, not solely on the identity of the participants.”[16]