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Lowered Risk for Inventors Who Use Contract Product Development or ManufacturingAuthored by: Douglas W. Kim
July 18, 2016

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On July 11, in The Medicines Company v. Hospira, Inc., the Federal Circuit held that a contract manufacturer's sale of manufacturing services to an inventor did not constitute a commercial sale of the patented invention for purposes of the "on-sale bar," a provision which prohibits the patentability of an invention that has been for sale for over one year prior to the patent filing. While this decision affects businesses of various size and structure, it is especially valuable to companies that lack manufacturing capabilities and rely on contract manufacturers to make their products.
 
Background

The Medicines Company ("MedCo") is a specialty pharmaceutical company that does not own a manufacturing facility and is incapable of making its products in-house. MedCo contracted with a third party, Ben Venue Laboratories ("BVL") to manufacture its anticoagulant drug, Angiomax®. During production, MedCo developed a process that reduced impurities in the product, and later (July 27, 2008) obtained two patents on the process. Medco paid BVL to manufacture three batches of the Angiomax® for validation testing. Once testing was completed, they were made available for sale to consumers.
 
The lawsuit arose when competitor Hospira sought FDA approval to market generic versions of MedCo's Angiomax®. MedCo sued Hospira, alleging patent infringement, to which Hospira countered that the patents were invalid under the on-sale bar provision. They argued that BVL's sale of batches of the manufactured drug to MedCo was sufficient to trigger the on-sale bar, and cited MedCo's manufacturing and "stockpiling" activities in support of its position.
 
The district court rejected Hospira's argument, holding that the arrangement between MedCo and BVL did not constitute a commercial sale of the patented product. On appeal, the original Federal Circuit panel reversed the decision, and MedCo petitioned for rehearing en banc.

Decision

In its July 11 decision, the en banc Court concluded that the transactions between MedCo and BVL did not constitute commercial sales of the patented product, stating "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."
The Court identified three reasons for upholding the validity of MedCo's patents:
  1. Only manufacturing services were sold to the inventor - the invention was not. The Federal Circuit stated that the "most natural conclusion to draw from all of the evidence presented in this case is that Ben Venue sold contract manufacturing services-not the patented invention."**
  2. The inventor maintained control of the invention. The Federal Circuit stated that BVL "was not free to use or sell the claimed products or to deliver the patented products to anyone other than MedCo," noting that the Uniform Commercial Code defines a sale as "passing of title from the seller to the buyer for a price."
  3. "Stockpiling," standing alone, does not trigger the on-sale bar. Stockpiling, when not accompanied by a sale or offer for sale of the invention, is merely preparation for its future sale.
Impact

The Medicines Company v. Hospira, Inc. is a triumph for enterprises that need or choose to use a third-party product developer or manufacturer. This decision eliminates penalization of companies that lack the capabilities and/or funds, to secure a supplier before obtaining the needed supplies. As stated by the Court, "[t]here is no room in the statute and no principled reason raised by the parties or any of the amici to apply a different set of on-sale bar rules to inventors depending on whether their business model is to outsource manufacturing or to manufacture in-house."
 
In light of these changes, businesses that employ contract manufacturing organizations should consult with a legal professional to ensure that transactions with contracted suppliers do not endanger their patents.
 
**The Federal Circuit did note that the results may differ for patents that claim a method manufacturing a product, where (1)inventors sought compensation (2) from the buying public for (3) performing the claimed processes or methods - hallmarks of a sale.

If you have questions or would like more information, please contact the author of this alert, Douglas W. Kim, a member of the firm's Intellectual Property andLitigation practice groups.