IP Law Daily Purchase of manufacturing services did not trigger on-sale bar for drug patents
Monday, July 11, 2016

Purchase of manufacturing services did not trigger on-sale bar for drug patents

By Thomas Long, J.D.

After rehearing the case en banc, the U.S. Court of Appeals for the Federal Circuit has held that two patents relating to the drug bivalirudin—a synthetic peptide used as an anti-coagulant—were not invalid for violating the on-sale bar of 35 U.S.C. §102(b). Paying a third-party manufacturer to make "validation batches" of the product did not trigger the bar. The en banc court reached a different conclusion from a three-judge panel that held in a July 2, 2015, decision that patent-holder The Medicines Company could not go forward with infringement claims against generic drug maker Hospira, Inc., because bivalirudin batches prepared by Ben Venue Laboratories before the critical date were sold to The Medicines Company and were not prepared primarily for an experimental purpose. In today’s opinion, the court explained that, to be "on sale" under Section 102(b), a product must be the subject of a commercial sale or offer for sale, and that a commercial sale is one that bears the general hallmarks of a sale pursuant to the Uniform Commercial Code. No such invalidating commercial sale occurred in this case, the court concluded; Ben Venue had sold manufacturing services, not the invention covered by the patents (The Medicines Company v. Hospira, Inc., July 11, 2016, O’Malley, K.).

Patents-in-suit. The Medicines Company ("MedCo") owned the patents-in-suit, U.S. Patent Nos. 7,582,727 and 7,598,343. With nearly identical specifications, the patents claimed pH-adjusted pharmaceutical batches of a drug product comprising bivalirudin, a synthetic peptide composed of 20 amino acid residues that was used as an anticoagulant, and a pharmaceutically acceptable carrier. The patents were listed in the Food and Drug Administration’s Orange Book as covering the brand-name drug Angiomax. MedCo did not have its own manufacturing facilities; it contracted with third-party provider Ben Venue Laboratories to manufacture commercial quantities of an original formula of Angiomax, which was not covered by the patents-in-suit. After two batch failures involving unacceptably impure bivalirudin, MedCo developed a new compounding process, which led to the issuance of the patents-in-suit. The patents contained product and product-by-process claims for pharmaceutical batches of the improved drug product below a certain level of impurity. The applications for the patents were filed on July 27, 2008; the critical date for measuring the on-sale bar of Section 102(b) was, therefore, July 27, 2007.

Initial production of drug under patented process. In late 2006, MedCo paid Ben Venue nearly $350,000 to manufacture three batches of bivalirudin according to the patents-in-suit. The first batch of approximately 5,700 vials of the drug was completed on October 31, 2006. Ben Venue completed a batch of 27,500 vials on November 21, 2006, and almost 27,000 vials on December 14, 2006. A full commercial-sized batch of 28,000 vials of Angiomax had a market value of approximately $10 million.

Once they were manufactured, the batches were placed in quarantine with MedCo’s distributor and logistics coordinator, pending FDA approval. MedCo and the distributor entered into an exclusive distribution deal on February 27, 2007. MedCo did not release the three batches from quarantine—making them available for sale—until August 2007.

Infringement dispute. Hospira filed Abbreviated New Drug Applications (ANDAs) seeking FDA approval to sell generic bivalirudin drug products before the expiration of the patents-in-suit. MedCo filed suit against Hospira for infringing several claims of the patents-in-suit. Among other defenses, Hospira raised the "on-sale bar" of Section 102(b). The on-sale bar under 35 U.S.C. § 102(b) applies when, before the critical date, the claimed invention (1) was the subject of a commercial offer for sale; and (2) was ready for patenting. Hospira asserted that the invention of the patents-in-suit was sold or offered for sale before the critical date under Section 102(b) based on two sets of transactions: (1) when MedCo paid Ben Venue to manufacture Angiomax; and (2) when MedCo offered to sell the Angiomax produced by Ben Venue to its distributor.

The district court determined that the claimed invention was not commercially offered for sale before the critical date because, under the arrangement between MedCo and Ben Venue, title to the Angiomax always resided with MedCo. Additionally, the district court held that the batches were made for experimental purposes, not for commercial profit. With respect to the distribution deal, the district court held that the agreement was merely "a contract to enter into a contract" for future sales of Angiomax. A three-judge panel of the Federal Circuit reversed the district court’s ruling, holding that MedCo had commercially exploited the invention of the patents-in-suit. The panel did not reach the issue of whether the invention was ready for patenting at the time of the 2006 and 2007 transactions or whether the agreement between MedCo and its distributor triggered the on-sale bar. On November 13, 2015, the court granted Hospira’s petition for rehearing en banc.

Commercial sale or offer for sale. The focus of the en banc appeal was on the first prong of the test for the on-sale bar: whether the invention was the subject of a commercial sale or offer for sale. Examining the transactions at issue in the context of how a sale or offer for sale was understood in "the commercial community," and looking to the Uniform Commercial Code (UCC) for guidance, the court determined that the transactions between MedCo and Ben Venue in 2006 did not constitute commercial sales of the patented product. The mere sale of manufacturing services by a contract manufacturer (Ben Venue) to an inventor (MedCo) to create embodiments of a patented product (Angiomax) for the inventor did not constitute a "commercial sale." Nor was MedCo’s "stockpiling" of the Angiomax produced by Ben Venue an improper commercialization under Section 102(b). A commercial benefit to the parties in the transaction was not enough, by itself, to trigger the on-sale bar; the transaction must be one in which the product is commercially marketed to the public.

First, the court said, only manufacturing services were sold to the inventor; the invention was not sold. MedCo paid Ben Venue only about one percent of the market value of the product Ben Venue manufactured, which supported the view that MedCo had purchased manufacturing services. Second, MedCo retained title to the invention throughout its dealings with Ben Venue. MedCo did not authorize Ben Venue to sell the product to others. Section 2-106(1) of the UCC described a "sale" as "the passing of title from the seller to the buyer for a price." The absence in this case of title transfer indicated an absence of commercial marketing of the product by the inventor, the court said. In addition, the manufacturing agreement required Ben Venue to keep the transaction confidential, which further supported the conclusion that a commercial sale did not take place.

Finally, although Hospira argued that permitting MedCo to "stockpile" supplies of Angiomax would improperly confer a commercial benefit upon MedCo that resulted from the patents-in-suit, Section 102(b) did not bar all activities that provided a commercial benefit; its bar was only triggered by a commercial sale or offer for sale. Stockpiling, or building inventory, was merely pre-commercial activity in preparation for future sale.

Accordingly, the on-sale bar did not apply to the transactions between MedCo and Ben Venue, the court concluded.

The case is Nos. 2014-1469 and 2014-1504.

Attorneys: Edgar Haug (Frommer Lawrence & Haug LLP) for The Medicines Company. Bradford Peter Lyerla (Jenner & Block LLP) for Hospira, Inc.

Companies: The Medicines Company; Hospira, Inc.

MainStory: TopStory Patent FedCirNews

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