Binding Contract or Completed Sale Not Necessary to Raise On-Sale Bar

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Addressing the minimum requirements for raising an on-sale bar defense to patent infringement, the US Court of Appeals for the Federal Circuit reversed the district court, explaining that “[a]n offer to sell is sufficient to raise the on-sale bar, regardless of whether that sale is ever consummated.” Merck & CIE v. Watson Labs., Inc., Case Nos. 15-2063; -2064 (Fed. Cir., May 13, 2016) (Mayer, J).

In 2000, Merck filed a patent directed to a crystalline calcium salt of tetrahydrofolic acid (MTHF). In 2013, Bayer (a Merck subsidiary) brought suit against Watson for infringing the patent based on Watson’s Abbreviated New Drug Application (ANDA) filing. Watson stipulated to infringement and the key issue on appeal was whether the asserted claim was invalid under the on-sale bar.

Under the pre-America-Invents-Act version of § 102(b) (applicable here), an on-sale bar is triggered when a claimed invention (1) is ready for patenting and (2) is the subject of a commercial offer for sale prior to the critical date. On appeal, Merck did not challenge the district court’s determination that MTHF was ready for patenting by September 1998, limiting the issue in this case to whether there was an invalidating commercial offer to sell the product prior to the critical date of April 17, 1999.

Prior to the critical date, Weider contacted Merck requesting information on the price for two kilograms of MTHF. In September 1998, Merck responded with a signed fax containing details regarding the price, payment and delivery terms. Weider responded to Merck’s fax, requesting an order of two kilograms of MTHF for delivery to Weider’s Salt Lake City, Utah, facility, as well as a specification sheet for the raw material, material safety data sheets and a certificate of insurance. Merck sent Weider the requested materials along with a letter confirming that Weider had placed a “first order” for two kilograms of MTHF. In 1999, the parties made a mutual decision to cancel Weider’s existing order for MTHF. The district court concluded that because the agreement for the sale of MTHF was not reduced to writing and signed by both parties, there had been no legally binding sale and thus no invalidating commercial offer for sale or sale of the product. Watson appealed.

On appeal, the Federal Circuit reversed. At the district, Merck highlighted post hoc testimony by those involved in the agreement to support its argument that the agreement was insufficient to constitute an offer for sale because it was allegedly missing key terms. However, the Federal Circuit found that such post hoc testimony cannot override what was “abundantly plain from the price, quantity and delivery terms” on the face of the September 1998 fax. The offer was not qualified in any way, and in the weeks following Merck’s fax setting forth the relevant details, both parties proceeded on the understanding that Merck had made an offer to sell MTHF. Prior to the cancellation of the order, the parties exchanged further information about the transaction, and Merck sent a letter confirming Weider’s order for two kilograms of MTHF. The Court noted, “[a]n offer to sell is sufficient to raise the on-sale bar, regardless of whether that sale is ever consummated.” Thus, the Court found that because Merck’s September 1998 offer to sell MTHF was a premature commercial exploitation of its invention, complete with essential price, delivery and payment terms, the asserted claim was invalid under the on-sale bar.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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