Holding patent not invalidated where contract manufacturer was paid by inventor to make the patented product

The Federal Circuit en banc unanimously ruled that a contract manufacturer who was paid to manufacture embodiments of a patented invention for the inventor did not make a “commercial sale” triggering an “on-sale bar” invalidating a patent.

Whether an invention is “on-sale,” and therefore not eligible for patenting, under pre-AIA section 102(b) continues to be governed by the two-step test set forth by the Supreme Court in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998): more than one-year before the patent’s filing date the invention was (i) subject to a commercial offer for sale and (ii) ready for patenting. Only the test’s first prong was at issue in this case. The Federal Circuit considered en banc whether the invention was the subject of a commercial offer for sale under pre-AIA section 102(b)[1] when the invention’s owner, MedCo, a specialty pharmaceutical company without its own in-house manufacturing capability, paid a contract manufacturing company, Ben Venue, to make three commercial batches of a patented drug product valued at more than $20 million before the critical date of the relevant patents. The invention at issue was a version of MedCo’s Angiomax® product (bivalirudin used as an anticoagulant in heart surgery) with a lower level of an impurity called Asp9. Ben Venue made more than 61,000 vials of the patented product by following the teachings of the patent, but MedCo controlled the manufacturing process and retained title to the patented Angiomax product produced, and MedCo quarantined the products after production and did not release any product for sale to customers until after the critical date of the relevant patents. The district court found no invalidating commercial sale took place, but a panel of the Federal Circuit disagreed, finding the transaction between MedCo (inventor) and Ben Venue (supplier) to be an invalidating “sale” under pre-AIA § 102(b).

The Federal Circuit en banc voted unanimously to reverse the panel decision. The en banc court concluded the “on-sale” bar did not apply because (i) only manufacturing services were sold—the invention itself, the patented product, was not “sold,” (ii) the inventor maintained control of the invention, as shown in part by its retention of title and the absence of authorization to the manufacturer to sell the patented product, and (iii) “stockpiling” is pre-commercial activity that does not alone trigger the on-sale bar. The court found at the outset that there was no “sale” of the “invention,” which was a product covered by product-by-process claims. The contract manufacturer acted only as the “laboratory hands” of the inventor to make the patented product confidentially and under strict controls and was paid less than 1 percent of the market value for the patented product, which the court concluded meant there had been no “sale” of the patented product. Further, the contract manufacturer never had title to the patented product and was required to keep the transaction confidential, which are two points the court also noted as significant, although it remarked they were not dispositive of whether a “sale” had taken place. Finally, the court also rejected the notion that an inventor cannot “stockpile” for future sale a patented product by having a third-party manufacture that product for a price; inventors can themselves stockpile product, and the court found no principled reason why this pre-commercial activity could not be outsourced to a third party manufacturer. Not every activity that ensures some commercial benefit to the inventor is a “sale,” the court found.

While the court clarified, and arguably relaxed, the on-sale bar rule, it did not create a blanket “supplier exception” to what would otherwise constitute a commercial sale. Where a supplier has title to the patented product or process, authority to sell, or the sale is at full market value, the transaction may constitute an invalidating “sale.” Patent owners and accused infringers must therefore carefully evaluate the specific facts of each transaction to determine whether it triggers the “on-sale” bar under pre-AIA section 102(b).