Medicines Company v. Hospira, Inc.
2016 U.S. App. LEXIS 12667, 827 F.3d 1363, 119 U.S.P.Q. 2d (BNA) 1329 (2016)
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Rule of Law:
A transaction in which an inventor pays a third-party supplier for the service of manufacturing embodiments of a patented product does not constitute a 'commercial sale' under 35 U.S.C. § 102(b)'s on-sale bar, provided that the inventor retains title to the product and the supplier is not authorized to sell or market the product to others.
Facts:
- The Medicines Company (MedCo), a pharmaceutical company without its own manufacturing facilities, developed a new process for making its anticoagulant drug, bivalirudin (Angiomax), which reduced impurities.
- In late 2006, MedCo contracted with Ben Venue Laboratories, a third-party manufacturer, to produce three commercial-scale batches of bivalirudin using the new, soon-to-be-patented process.
- MedCo paid Ben Venue approximately $347,500 for the manufacturing services, a fraction of the batches' estimated market value of over $20 million.
- The terms of the arrangement stipulated that MedCo retained title to the bivalirudin at all times; Ben Venue was merely providing a manufacturing service and had no authority to sell the product.
- The batches were designated for 'commercial use' and were completed before the critical date of July 27, 2007 (one year prior to MedCo's patent application filing).
- After production, MedCo had the batches placed in quarantine with its distributor and did not release them for sale to the public until August 2007, after the critical date.
Procedural Posture:
- The Medicines Company (MedCo) sued Hospira, Inc. in the U.S. District Court for the District of Delaware for patent infringement.
- Hospira defended by arguing that MedCo's patents were invalid under the 35 U.S.C. § 102(b) on-sale bar because MedCo had paid Ben Venue to manufacture the drug before the patent's critical date.
- Following a bench trial, the District Court found the patents were not invalid under the on-sale bar because the transaction with Ben Venue was for services, not a sale of the invention.
- Hospira, as cross-appellant, appealed the district court's validity finding to the U.S. Court of Appeals for the Federal Circuit.
- A three-judge panel of the Federal Circuit reversed the district court, holding that the transaction was a commercial sale that invalidated the patents.
- The Federal Circuit granted MedCo's petition for rehearing en banc, vacating the panel's decision to reconsider the on-sale bar issue.
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Issue:
Does a transaction in which an inventor pays a contract manufacturer to produce embodiments of a patented product constitute a 'commercial sale' that invalidates the patent under the on-sale bar of 35 U.S.C. § 102(b), when title to the product remains with the inventor at all times?
Opinions:
Majority - O’Malley, Circuit Judge.
No. A contract manufacturer's sale of manufacturing services to an inventor, where title and the right to market the invention do not pass to the supplier, does not constitute an invalidating commercial sale under § 102(b). The on-sale bar requires a 'commercial sale' of 'the invention' itself, which is best understood through the lens of commercial law, such as the Uniform Commercial Code (UCC). Here, Ben Venue sold services, not the patented product; the invoices were for manufacturing, and title never transferred from MedCo. The transaction was not a sale in the commercial law sense because MedCo, the inventor, never gave up its property rights or control over the product. The court distinguished this from 'commercial marketing,' stating that merely stockpiling inventory with the help of a contractor is a pre-commercial preparatory activity, not a sale. To hold otherwise would unfairly penalize inventors who must outsource manufacturing compared to vertically integrated companies that can stockpile in-house without triggering the on-sale bar.
Analysis:
This decision significantly clarifies the 'commercial sale' prong of the on-sale bar test from Pfaff v. Wells Electronics, Inc., particularly for industries like pharmaceuticals and technology where outsourced manufacturing is standard practice. The court narrowed the definition of a 'sale' to exclude transactions for contract manufacturing services where the inventor maintains ownership and control, focusing on actual 'commercial marketing' rather than any transaction yielding a 'commercial benefit.' This provides inventors greater certainty, allowing them to engage in necessary pre-launch activities like manufacturing and stockpiling through third parties without jeopardizing their patent rights. The ruling effectively harmonizes the treatment of inventors who outsource manufacturing with those who manufacture in-house.
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