If you were concerned that outsourcing the manufacture of your invention before you filed your patent application triggered a "sale" that could put your patent at risk, you can rest easy.

In The Medicines Company v. Hospira, Inc., the Federal Circuit sitting en banc clarified the pre-AIA §102(b) on-sale bar (that limits an inventor's ability to get a patent) for inventors who outsource manufacturing to third parties. The on-sale bar provides that an invention cannot be patented if it has been commercially marketed for a year or more before a patent application is filed. In this case, the court held that a sale of manufacturing services by a contract manufacturer to an inventor—where neither title nor the right to market the product passed to the manufacturer—was insufficient to trigger the bar.

The case arose when defendant Hospira filed two Abbreviated New Drug Applications (ANDAs) seeking to market a generic version of plaintiff MedCo's Angiomax, a drug used in coronary surgery. As part of these ANDAs, Hospira argued in part that the two patents covering Angiomax, which claimed a product with fewer impurities and the same by a specific compounding process, were invalid. Specifically, Hospira claimed that MedCo had triggered the on-sale bar when it paid a third-party manufacturer to make its product more than one year before the patent applications were filed.

The Federal Circuit rejected Hospira's argument. The court held 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." In determining that it was a sale only for manufacturing services—and not the patented product itself—the court relied on U.C.C. §2-106(1), which describes a "sale" as "the passing of title from the seller to the buyer for a price," and observed that title never transferred between MedCo and its third-party manufacturer. The court also observed that the confidentiality requirements imposed on the third-party manufacturer supported the view that the sale was not for commercial marketing purposes, and that any related "stockpiling" of inventory was "mere pre-commercial activity in preparation for future sale."

This ruling clarifies the standard set forth by the U.S. Supreme Court in Pfaff v. Wells Electronics, Inc.. But importantly, the case does not establish a "blanket 'supplier exception'" to the on-sale bar. In determining if the on-sale bar has been triggered, the Court noted that the focus must be on the "commercial character of the transaction, not solely on the identity of the participants." For example, "[w]here 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)."

Ballard Spahr's Intellectual Property Group comprises trial lawyers and counselors who are on the cutting edge of patent, trademark, unfair competition, copyright, trade secret, Internet, licensing, and trade dress matters. We bring and defend IP cases in courts throughout the country, and before the PTAB and TTAB. We have a deep bench of lawyers with advanced technical degrees who identify and protect our clients' global intellectual property interests, and offer strategic prosecution and due diligence guidance relating to strategic product development, mergers and acquisitions and licensing, and portfolio restructuring.


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