Federal Circuit Clarifies Scope of On-Sale Bar

by Knobbe Martens
Contact

Knobbe Martens

Editor: Philip Nelson

Federal Circuit Summaries

In Medicines Co. v. Hospira, Inc., 2014-1469; 2014-1504 (Dyk, Wallach, Hughes), the Federal Circuit affirmed the district court’s finding of non-infringement but reversed the district court’s determination that an agreement to distribute the Angiomax drug product did not constitute an offer for sale under 102(b).  The panel remanded for a determination of whether the agreement covered the patented invention.  This holding, and the prior en banc holding of the Court in Medicines Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016) (Medicines I), help clarify what may be an invalidating “offer for sale” or “sale” under 35 U.S.C. § 102(b).

As with many cases involving an “on-sale” bar, the timing of an offer for sale is often critical.  The timeline of facts as set forth below provides background for the Federal Circuit’s rulings.

Date

Event

2002-09

The Medicines Co. enters into a distribution agreement with Integrated Commercialization Solutions, Inc. (“ICS”).  ICS does not take title to Angiomax under this agreement.

2006-10-25

The Medicines Co. incorporates a new mixing method into its master batch record.

2006-10-31

The Medicines Co.’s contract manufacturer, Ben Venue Labs, begins using the new mixing method for all batches of Angiomax.  The method is later claimed in the patents in suit.

2007-02-27

The Medicines Co. enters into a new agreement (the “Distribution Agreement”) with ICS.  The agreement stated that The Medicines Co. “now desire[d] to sell the Product” to ICS and ICS “desire[d] to purchase and distribute the Product.”  Unlike the prior agreement, title passes to ICS “upon receipt of the Product at the distribution center.”

The agreement includes price of the product and requires The Medicines Company to “use its commercially reasonable efforts” to fill the orders within 2 days of receipt.  ICS’s orders would be deemed accepted unless The Medicines Co. rejected the order within two business days.

2007-07-27

One year bar date

2007-08

ICS first receives batches of Angiomax produced by the improved process.

2008-07-27

Medicines Co. files applications leading to U.S. Patent Nos. 7,582,727 and 7,598,343 (“the patents-in-suit”) claiming an improved process for manufacturing Angiomax.           

At trial, the district court found that the claimed improved manufacturing process was ready for patenting, but was not offered for sale before July 27, 2007—the one year bar date.  The district court concluded that the 2007 Distribution Agreement was merely an agreement for ICS to be the United States distributor of Angiomax, but was not itself an offer to sell Angiomax.  The district court did not make any findings regarding whether the Distribution Agreement concerned Angiomax made by the original method or made by the new methods of the patents-in-suit.  The district court also found Hospira did not infringe the asserted claims.

The Medicines Co. appealed the finding of non-infringement, and Hospira cross-appealed the district court’s on-sale decision.  Hospira argued that both the earlier manufacturing contract with Ben Venue as well as the later Distribution Agreement with ICS barred The Medicines Co. from obtaining a patent on the underlying process for manufacturing Angiomax.  A Federal Circuit panel agreed with Hospira’s first argument and reversed the district court’s decision, holding that the on-sale bar applied to the contract with Ben Venue.  Medicines Co. v. Hospira, Inc., 791 F.3d 1368, 1370-72 (Fed. Cir. 2015).  The panel did not reach the question of whether the on-sale bar also applied to the Distribution Agreement.

The Medicines Co. petitioned for en banc review of the panel decision, which was granted.  In Medicines I, the en banc Federal Circuit concluded that the 2006 payments from the Medicines Co. to Ben Venue to manufacture Angiomax according to the later-patented method did not constitute an invalidating sale or offer for sale.  Medicines Co. v. Hospira, Inc. 827 F.3d 363 (Fed. Cir. 2016) (en banc).  The Federal Circuit determined that this transaction did not constitute a commercial offer for sale because:  (1) the invoices issued by Ben Venue covered manufacturing charges, not the product itself; (2) the payment was only 1% of the market value of the product made; and (3) title for the product never transferred to Ben Venue.  Id. at 1375.  Therefore, the Federal Circuit concluded that “Ben Venue sold contract manufacturing services—not the patented invention . . . .”  See id

The en banc Federal Circuit further explained that the analysis of whether there is an offer for sale requires turning to “the law of contracts as generally understood,” to focus “on those activities that would be understood to be commercial sales and offers for sale ‘in the commercial community.’”  Id. at 1373.  Although the Uniform Commercial Code (UCC) is not dispositive to such questions, the Court explained it can be useful for determining whether “a communication or series of communications rises to the level of a commercial offer for sale.”  See id.  In general, an offer for sale is “one which the other party could make into a binding contract by simple acceptance.”  Grp. One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1047 (Fed. Cir. 2001).

Medicines I did not address the 2007 Distribution Agreement between The Medicines Co. and ICS.  Instead, the case was remanded to the original appellate panel with instructions to consider whether the Distribution Agreement triggered the on-sale bar under the appropriate framework. Id. at 1381.  On remand, The Medicines Co. contended that the Distribution Agreement was not a commercial offer for sale because the agreement allowed the Medicines Co. to reject a purchase order submitted by ICS.  Therefore, ICS could not make a binding contract by accepting any offer.  In this sense, The Medicines Co. argued, the Distribution Agreement simply set out the terms by which ICS could “offer to buy” the product, but was not itself a sale or an offer to sell Angiomax. 

The Medicines Co. argued its position was supported by Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir. 2001), where the Federal Circuit determined that “preliminary proposals or invitations to negotiate,” did not rise to the level of an offer for sale under 102(b).  In Group One, the Federal Circuit determined that the “language of the proposal itself” must be reviewed, and language such as “I offer,” or “I promise,” is different from preliminary language such as “I quote,” or “are you interested.”  See id. at 1048.  Similarly, in Linear Technology Corp. v. Micrel, Inc., 275 F.3d 1040, 1049-50 (Fed. Cir. 2001), the Federal Circuit held that a company’s solicitation of pricing information, publication of promotional information and communication with customers about the product were not offers for sale “because they do not indicate [an] intent to be bound.”

In its decision after remand from the en banc court, the Federal Circuit panel rejected The Medicines Co.’s arguments on the remaining on-sale issue.  The panel explained that the terms of the Distribution Agreement show that an offer to sell was made in view of the wording that the parties “desire[d] to sell” and “purchase and distribute” the product, and because the agreement would give ICS title to the product upon receipt.  Opinion at 6-7.  The Federal Circuit also determined that although The Medicines Co. could theoretically reject a purchase order from ICS, the terms of the agreement required The Medicines Co. to use “commercially reasonable efforts” to fill the purchase orders.  Id.  Moreover, the Federal Circuit determined that because the Distribution Agreement was an exclusive distribution agreement, the UCC requires “the seller to use best efforts to supply the goods.”  Based on those facts, the Federal Circuit concluded that “The Medicines Company could not simply reject ICS’s orders for any reason, but instead was required to fill them unless it was commercially unfeasible to do so.”  Id. at 8. 

The Federal Circuit’s holding illustrates that in any dispute regarding the 102(b) on-sale bar, the terms expressed in the written exchanges or agreements between the parties may control when determining whether an offer for sale was made.  Because contract interpretation is a question of law reviewed de novo, the Federal Circuit will likely give little deference to a district court’s prior contract interpretation.  Moreover, while invalidity under the on-sale bar is a legal determination based on underlying questions of fact, the central role of contract interpretation may, in many circumstances, make review of an on-sale bar issue almost entirely de novo.  Accordingly, those litigating 102(b) on-sale bar issues should ensure that all written agreements and exchanges between the parties of a possible offer for sale are part of the record before the district court and on appeal before the Federal Circuit.  Attorneys drafting and negotiating such agreements should also be aware of how UCC standards and precedent may affect these patent law issues.

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.

© Knobbe Martens | Attorney Advertising

Written by:

Knobbe Martens
Contact
more
less

Knobbe Martens on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.