D\u27Amore, Matthew

Tian, Zong-Qiang Bill

English

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Full Federal Circuit Curbs On Sale Bar\u27s Threat to Patents

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Cornell University Law School
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Cornell Law Faculty Publications Faculty Scholarship
7-12-2016
Full Federal Circuit Curbs On Sale Bar's Threat to
Patents
Zong-Qiang Bill Tian
Morrison & Foerster, LLP
Matthew D'Amore
Cornell Tech, mmd28@cornell.edu
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This Article is brought to you for free and open access by the Faculty Scholarship at Scholarship@Cornell Law: A Digital Repository. It has been
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more information, please contact jmp8@cornell.edu.
Recommended Citation
Tian, Zong-Qiang Bill and D'Amore, Matthew, "Full Federal Circuit Curbs On Sale Bar's Threat to Patents," Morrison Foerster Client
Alert, July 12, 2016
  
1 © 2016 Morrison & Foerster LLP | mofo.com           Attorney Advertising 
 
Client Alert 
July 12, 2016 
Full Federal Circuit Curbs On Sale Bar's Threat 
to Patents 
By Zong-Qiang Bill Tian and Matthew D'Amore 
Biotech and pharmaceutical companies received critical guidance from the Federal Circuit yesterday, when the en 
banc court exempted a broad category of common manufacturing and supply arrangements from the reach of the 
patent law’s “on sale” bar.  In The Medicines Company v. Hospira, Inc., App. No. 14-1469 (Fed. Cir. 2016) (en 
banc), the Federal Circuit ruled unanimously that “the mere sale of manufacturing services by a contract 
manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a 
‘commercial sale’ of the invention” and does not create a potential bar to patentability under 35 U.S.C. § 102(b).  
The decision reduces the IP risk that smaller pharmaceutical companies faced when contracting out for 
manufacturing services during commercial development, and provides in-house counsel with signposts to craft 
agreements that will stay clear of the on sale bar.  
BACKGROUND 
The Medicines Company (MedCo) is a specialty pharmaceutical company that does not have its own 
manufacturing facilities and is not capable of making its products in-house.  MedCo contracted with Ben Venue 
Laboratories (“Ben Venue”) to manufacture its Angiomax® (bivalirudin) drug product.  During production, MedCo 
developed a new process that reduced impurities in the drug product.  MedCo paid Ben Venue to manufacture 
three commercial batches of the drug product in late 2006 for validation testing and ultimately commercial sale.  
Once manufactured by Ben Venue, the batches were placed in quarantine with MedCo’s distributor (ICS) while 
testing was completed, and they were released from quarantine and made available for sale to consumers in 
August 2007.   
MedCo filed two patent applications on this process in July 27, 2008, more than a year after receiving the 
commercial batches from Ben Venue but less than a year before the batches were released from quarantine and 
sold to consumers.  
PROCEDURAL HISTORY 
In 2010, MedCo sued Hospira in the District Court for the District of Delaware after Hospira filed Abbreviated New 
Drug Applications (ANDA) to market generic versions of Angiomax®.  Hospira argued that the arrangements 
between MedCo and Ben Venue, and between MedCo and its distributor ICS, both violated the on sale bar and 
rendered MedCo’s patents invalid.   
  
2 © 2016 Morrison & Foerster LLP | mofo.com           Attorney Advertising 
 
Client Alert 
The district court applied the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).1  The 
district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on sale bar 
because the transactions between MedCo and Ben Venue were sales of contract manufacturing services and the 
claimed invention (the drug product) was not commercially offered for sale prior to the one-year critical date of 
July 27, 2007.  The district court further held that the batches were made for experimental purposes in order to 
validate the new manufacturing processes.  Additionally, the district court held that MedCo’s contract with ICS 
was “a contract to enter a contract” and not an invalidating sale. 
On appeal, a three-judge panel at the Federal Circuit reversed the district court’s ruling regarding the applicability 
of the on sale bar, holding that the on sale bar applies because the inventor commercially exploited the invention 
before the critical date.2  The panel also reversed the finding that the experimental use doctrine applied, because 
the invention had been reduced to practice and known to work for its intended purpose. 
In November 2015, the Federal Circuit granted MedCo’s petition for rehearing en banc. 
HOLDINGS 
In its July 11, 2016 decision the en banc Court 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 
supplier does not constitute an invalidating sale under §102(b).”  It thus concluded that the transactions between 
MedCo and Ben Venue in 2006 and 2007 did not constitute commercial sales of the patented product.3   
The Court laid out three reasons for its holding:   
(1) Only manufacturing services were sold to the inventor; the invention was not.  Ben Venue invoiced 
MedCo for manufacturing services, not for sale of an article of manufacture.   
(2) The inventor maintained control of the invention.  Ben Venue lacked “title” to the products, and “was 
not free to use or sell the claimed products or to deliver the patented products to anyone other than 
MedCo.”  Noting that 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,” the court held that the absence of the transfer of title is a 
helpful (but not dispositive) indicator that a sale did not occur.  
(3) “Stockpiling,” standing alone, does not trigger the on sale bar.  Stockpiling—or building inventory prior 
to a commercial sale—is, when not accompanied by an actual sale or offer for sale of the invention, mere 
pre-commercial activity in preparation for future sale.  The court found it irrelevant that the manufacturing 
and “stockpiling” provided commercial benefit to both MedCo and Ben Venue; the important question was 
whether the transaction was a sale or offer for sale.  
                                                 
1 Under Pfaff, the on sale bar renders a patent invalid if, more than a year before the subject patent applications were filed, the claimed 
invention was (1) the subject of a commercial offer for sale and (2) ready for patenting. 
2 The Medicines Company v. Hospira, Inc., 791 F.3d 1368 (Fed. Cir. 2015).  Because the three-judge panel concluded that the transactions 
between MedCo and Ben Venue violated the on sale bar, it did not address the transactions between MedCo and ICS. 
3 The Court did not reach the questions of whether the transactions were subject to the experimental use exception, or whether the MedCo-
ICS transaction gave rise to an independent on sale bar.  These may be addressed by the original panel on remand. 
  
3 © 2016 Morrison & Foerster LLP | mofo.com           Attorney Advertising 
 
Client Alert 
In reaching these conclusions, the Court gave weight to the real-world consideration that the prior decision would 
discriminate between companies that relied on outside manufacturers and those that did not.  Recognizing that 
“we have never held that stockpiling by an inventor in-house triggers the on-sale bar,” the full Court found “no 
reason to treat MedCo differently than we would a company with in-house manufacturing capabilities.”   
Notably, unlike some precedent cited by Hospira, the MedCo patents at issue covered the product itself, not the 
method of making it; the en banc Court suggested that the result might be different for patents that claim a 
method of manufacturing a product.  In that situation, the sale of “manufacturing services” that performed the 
patented manufacturing method may be found to have put the method “on sale.”4 
CONCLUSION 
The en banc decision limiting the reach of the on sale bar should be welcome news in the life sciences industry.  
The Federal Circuit also provides useful guidance to companies that engage contract manufacturers but hope to 
ensure that their transactions do not trigger the on sale bar.  And it provides insight for patent prosecutors and 
due diligence attorneys reviewing earlier manufacturing agreements to evaluate patentability of later-issued 
patents.   
Note, however, that the Federal Circuit expressly limited the decision to pre-AIA § 102(b).  It remains to be seen 
whether the reasoning in this case will hold under the AIA. 
 
Contact:    
Zong-Qiang Bill Tian 
(650) 813-5752 
btian@mofo.com 
Matthew D'Amore 
(212) 468-8168 
mdamore@mofo.com 
  
 
About Morrison & Foerster: 
We are Morrison & Foerster—a global firm of exceptional credentials. Our clients include some of the largest 
financial institutions, investment banks, Fortune 100, technology and life science companies.  We’ve been 
included on The American Lawyer’s A-List for 12 straight years, and Fortune named us one of the “100 Best 
Companies to Work For.”  Our lawyers are committed to achieving innovative and business-minded results for our 
clients, while preserving the differences that make us stronger.  This is MoFo.  Visit us at www.mofo.com. 
Because of the generality of this update, the information provided herein may not be applicable in all situations 
and should not be acted upon without specific legal advice based on particular situations.  Prior results do not 
guarantee a similar outcome. 
                                                 
4 The court distinguished D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144, 1147 (Fed .Cir. 1983), Metallizing Engineering Co. v. 
Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 518 (2d Cir.1946), Scaltech, Inc. v. Retec/Tetra, LLC, 269 F.3d 1321, 1328-29 (Fed. Cir. 
2001), and Plumtree Software, Inc. v. Datamize, LLC, 473 F.3d 1152, 1163 (Fed. Cir. 2006), all on the basis that they found the on sale bar 
triggered by the use, sale, or offer for sale of patented methods. 


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Cornell University Law SchoolScholarship@Cornell Law: A Digital RepositoryCornell Law Faculty Publications Faculty Scholarship7-12-2016Full Federal Circuit Curbs On Sale Bar's Threat toPatentsZong-Qiang Bill TianMorrison & Foerster, LLPMatthew D'AmoreCornell Tech, mmd28@cornell.eduFollow this and additional works at: http://scholarship.law.cornell.edu/facpubPart of the Intellectual Property Law CommonsThis Article is brought to you for free and open access by the Faculty Scholarship at Scholarship@Cornell Law: A Digital Repository. It has beenaccepted for inclusion in Cornell Law Faculty Publications by an authorized administrator of Scholarship@Cornell Law: A Digital Repository. Formore information, please contact jmp8@cornell.edu.Recommended CitationTian, Zong-Qiang Bill and D'Amore, Matthew, "Full Federal Circuit Curbs On Sale Bar's Threat to Patents," Morrison Foerster ClientAlert, July 12, 2016  1 © 2016 Morrison & Foerster LLP | mofo.com           Attorney Advertising  Client Alert July 12, 2016 Full Federal Circuit Curbs On Sale Bar's Threat to Patents By Zong-Qiang Bill Tian and Matthew D'Amore Biotech and pharmaceutical companies received critical guidance from the Federal Circuit yesterday, when the en banc court exempted a broad category of common manufacturing and supply arrangements from the reach of the patent law’s “on sale” bar.  In The Medicines Company v. Hospira, Inc., App. No. 14-1469 (Fed. Cir. 2016) (en banc), the Federal Circuit ruled unanimously that “the mere sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a ‘commercial sale’ of the invention” and does not create a potential bar to patentability under 35 U.S.C. § 102(b).  The decision reduces the IP risk that smaller pharmaceutical companies faced when contracting out for manufacturing services during commercial development, and provides in-house counsel with signposts to craft agreements that will stay clear of the on sale bar.  BACKGROUND The Medicines Company (MedCo) is a specialty pharmaceutical company that does not have its own manufacturing facilities and is not capable of making its products in-house.  MedCo contracted with Ben Venue Laboratories (“Ben Venue”) to manufacture its Angiomax® (bivalirudin) drug product.  During production, MedCo developed a new process that reduced impurities in the drug product.  MedCo paid Ben Venue to manufacture three commercial batches of the drug product in late 2006 for validation testing and ultimately commercial sale.  Once manufactured by Ben Venue, the batches were placed in quarantine with MedCo’s distributor (ICS) while testing was completed, and they were released from quarantine and made available for sale to consumers in August 2007.   MedCo filed two patent applications on this process in July 27, 2008, more than a year after receiving the commercial batches from Ben Venue but less than a year before the batches were released from quarantine and sold to consumers.  PROCEDURAL HISTORY In 2010, MedCo sued Hospira in the District Court for the District of Delaware after Hospira filed Abbreviated New Drug Applications (ANDA) to market generic versions of Angiomax®.  Hospira argued that the arrangements between MedCo and Ben Venue, and between MedCo and its distributor ICS, both violated the on sale bar and rendered MedCo’s patents invalid.     2 © 2016 Morrison & Foerster LLP | mofo.com           Attorney Advertising  Client Alert The district court applied the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).1  The district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on sale bar because the transactions between MedCo and Ben Venue were sales of contract manufacturing services and the claimed invention (the drug product) was not commercially offered for sale prior to the one-year critical date of July 27, 2007.  The district court further held that the batches were made for experimental purposes in order to validate the new manufacturing processes.  Additionally, the district court held that MedCo’s contract with ICS was “a contract to enter a contract” and not an invalidating sale. On appeal, a three-judge panel at the Federal Circuit reversed the district court’s ruling regarding the applicability of the on sale bar, holding that the on sale bar applies because the inventor commercially exploited the invention before the critical date.2  The panel also reversed the finding that the experimental use doctrine applied, because the invention had been reduced to practice and known to work for its intended purpose. In November 2015, the Federal Circuit granted MedCo’s petition for rehearing en banc. HOLDINGS In its July 11, 2016 decision the en banc Court 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 supplier does not constitute an invalidating sale under §102(b).”  It thus concluded that the transactions between MedCo and Ben Venue in 2006 and 2007 did not constitute commercial sales of the patented product.3   The Court laid out three reasons for its holding:   (1) Only manufacturing services were sold to the inventor; the invention was not.  Ben Venue invoiced MedCo for manufacturing services, not for sale of an article of manufacture.   (2) The inventor maintained control of the invention.  Ben Venue lacked “title” to the products, and “was not free to use or sell the claimed products or to deliver the patented products to anyone other than MedCo.”  Noting that 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,” the court held that the absence of the transfer of title is a helpful (but not dispositive) indicator that a sale did not occur.  (3) “Stockpiling,” standing alone, does not trigger the on sale bar.  Stockpiling—or building inventory prior to a commercial sale—is, when not accompanied by an actual sale or offer for sale of the invention, mere pre-commercial activity in preparation for future sale.  The court found it irrelevant that the manufacturing and “stockpiling” provided commercial benefit to both MedCo and Ben Venue; the important question was whether the transaction was a sale or offer for sale.                                                   1 Under Pfaff, the on sale bar renders a patent invalid if, more than a year before the subject patent applications were filed, the claimed invention was (1) the subject of a commercial offer for sale and (2) ready for patenting. 2 The Medicines Company v. Hospira, Inc., 791 F.3d 1368 (Fed. Cir. 2015).  Because the three-judge panel concluded that the transactions between MedCo and Ben Venue violated the on sale bar, it did not address the transactions between MedCo and ICS. 3 The Court did not reach the questions of whether the transactions were subject to the experimental use exception, or whether the MedCo-ICS transaction gave rise to an independent on sale bar.  These may be addressed by the original panel on remand.   3 © 2016 Morrison & Foerster LLP | mofo.com           Attorney Advertising  Client Alert In reaching these conclusions, the Court gave weight to the real-world consideration that the prior decision would discriminate between companies that relied on outside manufacturers and those that did not.  Recognizing that “we have never held that stockpiling by an inventor in-house triggers the on-sale bar,” the full Court found “no reason to treat MedCo differently than we would a company with in-house manufacturing capabilities.”   Notably, unlike some precedent cited by Hospira, the MedCo patents at issue covered the product itself, not the method of making it; the en banc Court suggested that the result might be different for patents that claim a method of manufacturing a product.  In that situation, the sale of “manufacturing services” that performed the patented manufacturing method may be found to have put the method “on sale.”4 CONCLUSION The en banc decision limiting the reach of the on sale bar should be welcome news in the life sciences industry.  The Federal Circuit also provides useful guidance to companies that engage contract manufacturers but hope to ensure that their transactions do not trigger the on sale bar.  And it provides insight for patent prosecutors and due diligence attorneys reviewing earlier manufacturing agreements to evaluate patentability of later-issued patents.   Note, however, that the Federal Circuit expressly limited the decision to pre-AIA § 102(b).  It remains to be seen whether the reasoning in this case will hold under the AIA.  Contact:    Zong-Qiang Bill Tian (650) 813-5752 btian@mofo.com Matthew D'Amore (212) 468-8168 mdamore@mofo.com    About Morrison & Foerster: We are Morrison & Foerster—a global firm of exceptional credentials. Our clients include some of the largest financial institutions, investment banks, Fortune 100, technology and life science companies.  We’ve been included on The American Lawyer’s A-List for 12 straight years, and Fortune named us one of the “100 Best Companies to Work For.”  Our lawyers are committed to achieving innovative and business-minded results for our clients, while preserving the differences that make us stronger.  This is MoFo.  Visit us at www.mofo.com. Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.  Prior results do not guarantee a similar outcome.                                                  4 The court distinguished D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144, 1147 (Fed .Cir. 1983), Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 518 (2d Cir.1946), Scaltech, Inc. v. Retec/Tetra, LLC, 269 F.3d 1321, 1328-29 (Fed. Cir. 2001), and Plumtree Software, Inc. v. Datamize, LLC, 473 F.3d 1152, 1163 (Fed. Cir. 2006), all on the basis that they found the on sale bar triggered by the use, sale, or offer for sale of patented methods. 

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Full Federal Circuit Curbs On Sale Bar\u27s Threat to Patents

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