Federal Circuit to consider 'prototype manufacturer' exception to on-sale bar

The Court of Appeals for the Federal Circuit has agreed to consider en banc whether the manufacture of a prototype by a third-party supplier is a “sale” that triggers the one-year statutory bar under US patent law. The court will review a three-judge panel decision that invalidated a pharmaceutical patent in The Medicines Co v Hospira, Inc based on the patentee paying a third party to manufacture and package test lots of the drug.

The Federal Circuit has requested briefing on the following questions:

• Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 USC §102(b):
  • Was there a sale for the purposes of Section 102(b) despite the absence of a transfer of title?
  • Was the sale commercial in nature for the purposes of Section 102(b) or an experimental use?
• Should the court overrule or revise the principle in Special Devices, Inc v OEA, Inc (270 F 3d 1353 (Fed Cir 2001)) that there is no “supplier exception” to the on-sale bar of 35 USC §102(b)?

In The Medicines Co a drug research company developed a new injectable form of the drug Bivalirudin. Bivalirudin is a drug that is given to patients undergoing angioplasty, which in turn is a procedure used to clear clogged coronary arteries. Patents were obtained by The Medicines Company that included product-by-process claims covering a method for manufacturing the drug.

The Medicines Company sued Hospira for patent infringement. During discovery it was revealed that over one year before the applications that resulted in the patents were filed, The Medicines Company had hired a third-party drug manufacturer to manufacture Bivalirudin using an embodiment of the patented method. Each invoice for these services identified a “charge to manufacture Bivalirudin lot”.

Hospira defended the case by arguing that the patented method had been “sold” more than one year before the applications were filed based on the contract for manufacture. In other words, the invention had been sold when the patentee hired a third-party contractor to manufacture and package the drug. The US Court of Appeals for the Federal Circuit agreed, even though the lots had arguably been manufactured for testing purposes. The procedure itself was not being tested, only the drug.

Under the 1998 Supreme Court decision in Pfaff v Wells Electronics, Inc, the on-sale bar applies when, before the critical date, the claimed invention:

• was the subject of a commercial offer for sale; and
• was ready for patenting. 

The sale of the testing lots to The Medicine Company met this test. The Federal Circuit determined that the transaction with Ben Venue (the drug manufacturer) amounted to a commercial sale even though “title to the pharmaceutical batches did not change hands” because:

• The Medicines Company paid Ben Venue for performing services that resulted in the patented product-by-process, and thus a sale of services occurred;
• the services were performed to prove to the Food and Drug Administration that The Medicines Company’s product met the already approved specifications for the Bivalirudin product;
• each batch had a commercial value in excess of $10 million; and
• Ben Venue marked the batches with commercial product codes and customer lot numbers and sent them to The Medicines Company for commercial and clinical packaging.

This type of harsh holding is not unprecedented, and courts have not been kind to patentees that have waited too long to file their patent applications, even in the face of hard facts. For example, in Evans Cooling Sys, Inc v Patent Enforcement Fund, Inc (125 F 3d 1448 (Fed Cir 1997)) the Federal Circuit held that a patent was invalid when the patented product had been sold more than one year before the patent application was filed, even though the sale was made by a third party without the patentee’s knowledge or consent. Even worse, in Lorenz v Colgate-Palmolive-Peet Co (167 F 2d 423, 429 (Fed Cir 1948)) the Federal Circuit invalidated a patent where the patented product was actually stolen and “pirated” by a third party (see also Special Devices, Inc v OEA, Inc, 270 F.3d 1353 (Fed Cir 2001)), holding that sales of a patented product made by a supplier to the inventor invalidated the patent. Thus, in Special Devices the court refused to allow an inventor to stockpile a commercial embodiment of the patented invention using commercial contracts with suppliers more than one year before the filing of a patent application.

On November 13 2015 the Federal Circuit granted The Medicine Company’s petition for rehearing en banc, so the issue of the prototype manufacture exception remains. The court has requested briefing on several issues, including whether:

• there was a sale despite the absence of a transfer of title;
• the sale was commercial in nature or for an experimental use; and
• the court should overrule or revise prior rulings that there is no "supplier exception" to the on-sale bar under Section 102(b). 

Interestingly, the US Patent and Trademark Office Examination Guidelines takes the position that a “secret sale” does not constitute prior art under Section 102(a)(1) of the America Invents Act.