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Avoiding the On-Sale Patent Bar

by • August 7, 2016 • No Comments

If you or your company has designed a thing, be careful to apply for the patent inside a year of its firstly sale. Otherwise, the right to receive a patent can be forever lost. This is commjust referred to as the “on-sale” bar. This advice appears easy, but as noted in the new decision of the Court of Appeals for the Federal Circuit[1] in The Medicines Company v. Hospira, Inc., Docket No. 2014-1469, 2014-1504, issued on July 11, 2016 (“Hospira”), what constitutes a sale under the patent statutes may be a matter of interpretation.

First, a few basics. Many types of activities do not constitute a sale, such as contracting with a third party to create prototypes for experimentation. There are several policies underlying the statutory on-sale bar: to promote the early filing of patent applications – i.e., to foster disclocertain of patented inventions to the public; to practuallyt an inventor of profiting of the commercial use of an invention for a prolonged period preceding filing a patent application claiming that invention; to discourage the removal of inventions of the public domain; and to donate inventors a reasonable time to discern the next value of an invention.

Historically, the courts have applied a “totality of the circumstances test” and considered all of the factors around the transaction to determine if there was a commercial exploitation of the invention. In Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the Supreme Court clarified the test, holding the on-sale bar under 35 U.S.C. § 102(b) applies when, preceding the significant date, the claimed invention (1) was the subject of a commercial contribute for sale; and (2) was eager for patenting.

In Hospira, the patents-at-suit involved pH-adjusted pharmaceutical batches of a drug product, known as Angiomax, comprising bivalirudin, a synthetic peptide. Bivalirudin drug products are utilized to practuallyt blood of clotting and are regarded as highly effective anticoagulants for use during coronary surgery. The Medicines Company (“MedCo”), the patent holder, is a specialty pharmaceutical company that does not have its own manufacturing facilities and is not capable of manufacturing its products in-house. Instead, since 1997, MedCo has contracted with Ben Venue Laboratories (“Ben Venue”), a third-party createer, to make its Angiomax products.

The applications for the patents at issue were filed on July 27, 2008. The significant date of that the on-sale bar of the patent statute, 35 U.S.C. § 102(b) must be meacertaind is, therefore, July 27, 2007.

In late 2006, MedCo paid Ben Venue $347,500 to make three batches of bivalirudin according to the patents-at-issue. Ben Venue accomplished the firstly such batch on October 31, 2006. Each full commercial-sized batch of 28,000 vials of Angiomax has a market value of nearly $10 million when sold on the open market as anticoagulants. So, collectively, the three batches had a market value of well over $20 million. Specifically, Hospira represented that the three batches were “worth between $23 million and $45 million.”

The manufacturing protocol between MedCo and Ben Venue governing the three batches noted that “[t]he solution can be filled for commercial use” and that the three batches “can be placed on high end hold until all testing has been that successfully accomplished.” Each batch attained a “Commercial Product Code,” a customer lot number, and every noted that the batch was “[r]eleased [to MedCo] for commercial and clinical packaging.”

Once maked by Ben Venue, the batches were placed in quarantine with MedCo’s distributor and logistics coordinator, Integrated Commercialization Solutions (“ICS”), pending FDA approval. MedCo and ICS entered into a Distribution Agreement effective February 27, 2007. The Distribution Agreement created ICS the exclusive authorized distributor of Angiomax in the United States and noted that title and risk of loss may pass to ICS next release of quarantine. Under the Distribution Agreement, ICS may place individual purchase orders with MedCo on a weekly basis, that MedCo may accept or reject. It was not until August 2007, after the July 27, 2007 significant date, that MedCo released the three batches of quarantine and created them on the market for sale.

(Photo: Thinkstock)

In the outcomeing patent litigation, Hospira contended that the on-sale bar was triggered when MedCo paid Ben Venue to make Angiomax preceding the significant date. Hospira in addition contended that the on-sale bar was triggered for the reason MedCo contributeed to sell the Angiomax generated according to the patents to its distributor, ICS, preceding the significant date.

Using the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court discovered that the three batches Ben Venue maked for MedCo did not trigger the on-sale bar. Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial contribute for sale; and (2) eager for patenting.

The district court concluded that the firstly prong of Pfaff was not met for the reason the claimed invention was not commercially contributeed for sale prior to the significant date. The court agreed with MedCo that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in that title to the Angiomax always resided with MedCo. It discovered that “this does not end the inquiry,” yet, for the reason the purpose of § 102(b) [the on-sale bar] precludes attempts by an inventor or its assignee to profit of the commercial use of an invention for extra
than a year preceding filing for a patent. Because the batches were for “validation purposes,” the court held that the batches were not created for commercial profit, but were for experimental purposes, thereby avoiding the on-sale bar.

Next, the court held that MedCo’s distribution agreement with ICS in addition did not constitute an invalidating sale. It held that the agreement was just “an agreement for ICS to be the sole US distributor of Angiomax.” The court concluded that the contract was just “a contract to enter into a contract” for next sales of the Angiomax product.

Needless to say, Hospira appealed the lower court decision and an first panel of the Federal Circuit agreed, holding “Ben Venue invoiced the sale as manufacturing services and title to the pharmaceutical batches did not alter hands,” but disagreed with the district court’s conclusion that Ben Venue’s sale of services did not constitute a commercial sale of the claimed product. The panel explained that, “where the evidence unquestionably demonstrated that the inventor commercially exploited the invention preceding the significant date, actually if the inventor did not transfer title to the commercial embodiment of the invention,” the on-sale bar applies.

The panel discovered no distinction between the contribute to sell products made by a patented method and the commercial sale of services that outcome in a patented product-by-system. The panel reasoned that, for the reason MedCo paid Ben Venue for services that outcomeed in the patented product, the transactions were commercial sales.

Finally, the first panel discovered that the transactions between MedCo and Ben Venue were “not the type of ‘secret, very own use’” but pretty were “batches made for commercial exploitation.” The panel in addition discovered that the district court erred in applying the experimental use different to Ben Venue’s batches. Because the invention had been reduced to practice, the panel concluded that the inventor may not have been experimenting to determine whether the system by that the product was formulated achieved the desired outcomes.

Medco and so appealed to the full panel of the Federal Circuit. Using § 102(b) in light of Pfaff, the Federal Circuit concluded that the transactions between MedCo and Ben Venue in 2006 and 2007 did not constitute commercial sales of the patented product and affirmed the district court’s conclusion that those transactions were not invalidating under § 102(b).

The Court cited three reasons for its judgment: (1) just manufacturing services were sold to the inventor—the invention was not; (2) the inventor maintained control of the invention, as shown by the retention of title to the embodiments and the absence of any authorization to Ben Venue to sell the product to others; and (3) “stockpiling,” standing alone, does not trigger the on-sale bar.

3dp_3dsjudgement_gavelWhere does this decision leave us in the world of 3D printing? As most may recall, 3D printing began its life as an efficient tool for rapid prototyping. Even in these times, for most companies, the most use of 3D printing equipment is to make models and prototypes preceding beginning the expensive system of dedicated manufacturing. Can exchanging creations over the internet lead to an on-sale bar? What of having a third party create the prototype for product createment and/or experimentation? Problems can occur if consideration to the intellectual property aspects of the transaction is ignored.

Practically speaking, a timely patent application and/or a well-crafted agreement can go a long way to avoid the pitfalls synonymous with the on-sale bar. First, if the new product can be subject to a patent, make certain you involve patent counsel early so that a patent application or at very least a provisional patent application (that provides an extra
year to additional create the invention) is on file preceding any commercial activity occurs. Second, make certain there is a non-disclocertain agreement in place between any third party and your company indicating that title to the invention (or prototype) remains with your company. Third, make certain the agreement maintains confidentiality. Fourth, make certain that the agreement spells out the manufacturing has been undertaken for prototyping and/or experimental purposes. The on-sale bar can cause valuable rights to be lost.

[1] The Federal Circuit hears appeals relating to patent matters

Bill Cass is a Partner and Co-Chair of the Litigation and Additive Manufacturing Practices at with Cantor Colburn LLP (www.cantorcolburn.com). Bill’s cases involve rigorous innovation, which include medical devices, circuitry, mechanical engineering, material science, chemistry, and desktop software. Bill has spoken on topics concerning intellectual property internationally at EuroMold, IVA Sweden, Rapid (SME), and in addition at a White House Symposium on Additive Manufacturing.