On July 11, 2016, the Federal Circuit issued a unanimous decision, which addressed what constitutes a “sale” for the purposes of the “on sale” bar to patentability pursuant to 35 U.S.C § 102(b) (pre-AIA).  See The Medicines Co. v. Hospira, Inc., Nos. 2014-1469, 2014-1504, slip op. (Fed. Cir. June 11, 2016) (en banc) (“MedCo”).

The Court in MedCo provides guidance with respect to what constitutes a “sale”, which could trigger a bar to patentability under 35 U.S.C. § 102(b). Transactions that are found to be a “sale” can preclude patentability. “[I]f ‘on sale’ more than one year before the filing of an application for a patent on the governing claims, any issued patent is invalid and the right to exclude others from making, using, and selling the resulting product is lost.”  Id. at 3; see also 35 U.S.C. § 102(b) (“A person shall be entitled to a patent unless… b) the invention was… on sale in this country, more than one year prior to the date of application for patent in the United States.”)).

In MedCo, the Court ruled that for an invention to be precluded from patentability pursuant to the “on sale” bar of 35 U.S.C. § 102, “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 3.

In MedCo, the Court held that no such commercial sale of the patented products occurred, and therefore, the patent was not invalid pursuant to the “on sale” bar of 35 U.S.C. § 102.  Id. at 3.

The patents at issue in MedCo include pharmaceutical product and product-by-process claims related to the drug Angiomax ®.  Id. at 4-6.

In MedCo, the Court applied the two-pronged test set forth by the United States Supreme Court in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).  “Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting.” MedCo, at 9. The issues in MedCo required the Court to focus on the first prong of the two-pronged Pfaff test: “whether the invention was the subject of a commercial sale or offer for sale.” MedCo at 18.

The Court explained the applicable law in part:

‘[A]s a general proposition, we will look to the Uniform Commercial Code (‘UCC’) to define whether . . . a communication or series of communications rises to the level of a commercial offer for sale.’ And we have made clear that, post-Pfaff, ‘[t]he transaction at issue must be a ‘sale’ in a commercial law sense,’ and that ‘[a] sale is a contract between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.’

Id. at 19 (internal citations and some internal quotation marks omitted).

The Court held that transactions between the inventor (MedCo) and its drug manufacturer (Ben Venue Laboratories) more than one year prior to the 2007 filing date of the patents “did not constitute commercial sales of the patented product.” Id. The Court stated 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.” Id. The Court further stated that the inventor’s (MedCo’s) “stockpiling” of patented products purchased from the manufacturer (Ben Venue Laboratories) “is not improper commercialization” subject to the “on sale” bar of 35 U.S.C. § 102(b). Id. The Court explained:

[C]ommercial benefit—even to both parties in a transaction—is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is “on sale” in the sense that it is “commercially marketed.” There are, broadly speaking, three reasons for our judgment in this case: (1) only 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 [(the manufacturer)] to sell the product to others; and (3) “stockpiling,” standing alone, does not trigger the on-sale bar.

Id.

Because the transaction between the inventor and the manufacturer was merely for manufacturing services and the transaction did not include the transfer of title of the patented products, themselves, the Court held that “there was no sale of the ‘invention’” and, therefore, no “on sale” bar to patentability.  MedCo, at 22. Additionally, the Court reasoned that, while not dispositive, “the confidential nature of the transactions is a factor which weighs against the conclusion that the transactions were commercial in nature” or “for commercial marketing purposes.”  Id. at 24-25.

The Court elaborated that the “on sale” bar of 35 U.S.C. § 102(b) “prevent[s] inventors from filing for patents a year or more after the invention has been commercially marketed, whether marketed by the inventor himself or a third party.”  MedCo, at 25. The Court explained that the present case is coherent with previous cases, which have stated: “[a]ny attempt to use it for a profit, and not by way of experiment, for a longer period than [the grace period] before the application, would deprive the inventor of his right to a patent,”; “it is a condition upon an inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting”; “The overriding concern of the on-sale bar is an inventor’s attempt to commercialize his invention beyond the statutory term.”; “the intent of [§ 102(b)] is to preclude attempts by the inventor or his assignee to profit from commercial use of an invention for more than a year before an application for patent is filed”.  Id. at 25-26 (internal citations omitted; emphasis in original).

Further, the Court held that the commercial benefit of “stockpiling” patented products does not constitute “a commercial sale or offer for sale” under 35 U.S.C. § 102(b) because a commercial benefit, by itself, does not necessarily equate to “a commercial sale or offer for sale”.  MedCo, at 26.  The Court explained:

Stockpiling—or building inventory—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 on-sale bar is triggered by actual commercial marketing of the invention, not preparation for potential or eventual marketing. … [N]ot every activity that inures some commercial benefit to the inventor can be considered a commercial sale. … [S]tockpiling by an inventor with the assistance of a contract manufacturer is no more improper than is stockpiling by an inventor in-house.

Id. at 26.

After concluding that MedCo’s transactions with its manufacturer did not amount to on-sale bars, the Court further ruled that it would “not recognize a blanket ‘supplier exception’ to what would otherwise constitute a commercial sale as we have characterized it today.”  MedCo, at 31. The Court explained:

While the fact that a transaction is between a supplier and inventor is an important indicator that the transaction is not a commercial sale, … it is not alone determinative. Where the supplier has title to the patented product or process, the supplier receives blanket authority to market the product or disclose the process for manufacturing the product to others, or the transaction is a sale of product at full market value, even a transfer of product to the inventor may constitute 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. at 26.