Sale of Manufacturing Services not a Bar to Patentability under 35 U.S.C. §102(b)

The U.S. Court of Appeals for the Federal Circuit (CAFC) sitting en banc recently held that the sale of manufacturing services to an inventor more than one year before filing for a patent where neither title nor right to market the invention passes to the supplier does not create an on-sale bar to patentability under 35 U.S.C. §102(b).  The Medicines Company v. Hospira, Inc., No. 14-1469, slip op. at p. 33 (Fed. Cir. July 11, 2016) (en banc).  While the holding is limited to pre-AIA patents, some commentators have suggested the decision is also relevant to post-AIA patents.  §102(b) is applicable to pre-AIA patents and states that a person is not entitled to a patent if the invention was “on sale in this country, more than one year prior to the date of the application for patent in the United States.”  The U.S. Supreme Court clarified that the on-sale provision of §102(b) applies when “before the critical date, the claimed invention (1) was the subject of a commercial offer for sale; and (2) was ready for patenting.”  The Medicines Company, No. 14-1469, slip op. at p. 17 (citing Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 67-68 (1998)).  The CAFC interpreted the first part of the Pfaff two-step test stating:

We conclude that, to be “on sale” under § 102(b), a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to Section 2-106 of the Uniform Commercial Code.

Id. at p. 3.

The Medicines Company (“MedCo”) is a pharmaceutical company that does not have in-house manufacturing capability, but instead contracts with Ben Venue Laboratories (“Ben Venue”) to manufacture drug products for Medco.  MedCo had developed a new compounding process to produce an improved bivalirudin drug product used as an anticoagulant and obtained patents having product and product by process claims directed to bivalirudin product having improved purity.  The patents had a filing date of July 27, 2008 and therefore had a critical date for purposes of the on-sale bar provision under §102(b) of July 27, 2007.  Medco had contracted with Ben Venue to manufacture commercial quantities of the improved bivalirudin drug product and paid Ben Venues for manufacturing the product in late 2006.  After the patents issued, Medco sued Hospira, Inc. (“Hospira”) for patent infringement and Hospira asserted in defense that the on-sale bar to patentability of §102(b) was triggered when Medco paid Ben Venue to manufacture the bivalirudin.

The CAFC stated that to meet the on-sale bar provision of §102(b) “the transaction must be one in which the product is ‘on sale’ in the sense that it is ‘commercially marketed,’” and that the sale of manufacturing services between Medco and Ben Venue was not a transaction where the product manufactured was commercially marketed.  Id. at p. 19.  The CAFC stated that Ben Venue acted instead as a pair of “laboratory hands” to manufacture the product that Medco could not product in-house.  Id. at p. 22.  According to the CAFC, there was no reason to treat Medco at a disadvantage to a company with in-house manufacturing capability.  Id. at p. 28.

In particular, invoices for the manufacturing services specifically indicated that charges were for manufacturing the bivalirudin, and Medco only paid Ben Venue 1% of the total market value for the drug.  Id. at p. 22.  In addition, control of the invention was maintained by the inventor since Medco retained title to the product and Ben Venue did not have the right to market the product it produced.  Id. at p. 19.  While Medco may have benefitted commercially by the ability to stock pile inventory, the CAFC noted that stock piling alone does not trigger the on-sale bar of §102(b).  Id.  Therefore, the CAFC determined that Ben Venue sold only manufacturing services to Medco, not the patented invention, and that the CAFC has “never espoused the notion that, where the patent is to a product, the performance of the unclaimed process of creating the product, without an accompanying ‘commercial sale’ of the product itself, triggers the on-sale bar.”  Id. at p. 20-22.

The CAFC cautioned that there still is no blanket “supplier exception” to the on-sale bar.  Id. at p. 31.  The fact that a transaction occurred between an inventor and supplier may be an indication that no commercial sale occurred, but that fact is not dispositive.  Id.  For instance, a commercial sale may be found if the supplier has title to the invention, authority to market the product or disclose the manufacturing process, or the sale is for full market value of the product.  Id.  According to the CAFC, for a commercial sale under §102(b) the “focus must be on the commercial character of the transaction, not solely on the identity of the participants.”  Id.

The impact of the decision for patent holders is to emphasize the importance of maintaining records clearly indicating only manufacturing services were purchased in any transaction that occurred prior to the critical date.  The decision clarifies that the on-sale bar to patentability under §102(b) applies only to a commercial sale or offer for sale of the invention more than one year prior to the application date.  If manufacturing services were the subject of a prior sale or offer for sale regarding the patented invention, maintain purchase orders and invoices that indicate charges were only for manufacturing services, that the amount billed reflects the costs to manufacture the patented product and not the full market value of the product itself, that title and control of the product was at all times maintained by the patent holder, and that the supplier did not have authority to market the product or disclose the manufacturing process.  These records will aid in proving the prior transaction was only for manufacturing services and not a commercial sale of the invention itself.