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    Locke Lord QuickStudy: Federal Circuit Addresses On-Sale Bar in The Medicines Co. v. Hospira, Inc. . . . Again

    Locke Lord Publications

    On February 6, 2018, the Federal Circuit issued another decision in The Medicines Company v. Hospira, Inc., addressing whether an agreement satisfies the “commercial offer for sale” prong of the on-sale bar under 35 U.S.C. § 102(b). See The Medicines Co. v. Hospira, Inc., Nos. 2014-469, -1504, 2018 WL 717186 (Fed. Cir. Feb. 6, 2018) (“Medicines II”). Nearly two years ago, on July 11, 2016, the Federal Circuit held that an assignee’s entry into a manufacturing services contract to produce product for stockpiling the invented product where title to the product did not pass hands does not trigger the on-sale bar under 35 U.S.C. § 102(b). See The Medicines Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016) (“Medicines I”). In its recent decision, the Federal Circuit held that a distribution agreement constituted a commercial offer for sale because, among other things, title to the product did pass hands. See Medicines II, 2018 WL 717186, at *3-5.

    In Medicines II, The Medicines Company (“TMC”) entered into an exclusive Distribution Agreement (“the Agreement”) with Integrated Commercialization Solutions, Inc. (“ICS”) “to sell and purchase the product [Angiomax],” which included the price of the product, the purchase schedule, and the passage of title from TMC to ICS. Id. at *1, *3. TMC argued that the Agreement did not constitute an offer for sale because, under the Agreement, TMC was permitted to reject all purchase orders. See id. at *3. The Court disagreed with TMC’s argument for two reasons: (1) “the terms of the Distribution Agreement show it was an offer for sale”; and (2) the Agreement required TMC to use “commercially reasonable efforts” to fill the purchase orders. Id.

    As to the first reason, the Court explained that the Agreement was an agreement for TMC to sell the product and for ICS to purchase the product. See id. The Court further noted that TMC and ICS “explicitly and purposefully changed their previous distribution services relationship to let ICS take title to the product upon receipt at the distribution center.” Id. (emphasis added). Thus, the transfer of title to the product was “a helpful indicator” that the product was the subject of a commercial offer for sale. Id.

    Next, the Court found that TMC’s reliance on an ability to reject purchase orders was belied by the Agreement’s requirement that TMC make reasonable efforts to fill the purchase orders. See id. The Court further found that because the “vast majority” of TMC’s revenues were based on sales of the product and because ICS was designated (per the Agreement) as TMC’s sole purchaser of the product in the United States for a three-year period, TMC had to fill the purchase orders. See id. “Therefore, [TMC] 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. Accordingly, the Court held that the Agreement was not an optional sales arrangement that might not qualify as a commercial offer for sale. See id.

    In its analysis, the Medicines II Court affirmed that “the on-sale bar does not exempt commercial agreements between a patentee and its supplier or distributor.” Id. at *4; Medicines I, 827 F.3d at 1380. Thus, while the agreement in Medicines I did not constitute a commercial offer for sale, the terms of the Agreement in Medicines II “dictate a sale of product between [TMC] and ICS, including the ‘commercial price’ of the product and the transfer of title to ICS.” Medicines II, 2018 WL 717186, at *4 (emphasis in original); Medicines I, 827 F.3d at 1375.

    The Medicines II Court further held that the invention at issue was ready for patenting before the critical date, thus satisfying the second prong of the on-sale bar under 35 U.S.C. § 102. See Medicines II, 2018 WL 717186, at *5. Although the Court found that the Agreement was indeed a commercial offer for sale, the Court remanded to the district court to consider the question of whether the Agreement covered the patented product. Id.

    Medicines II further solidifies when a transaction between a patentee and a supplier/distributor constitutes a commercial sale such that the patent-at-issue may be invalid under 35 U.S.C. § 102(b) because the patented product or process was “on sale in this country, more than one year prior to the date of application for patent in the United States.” Parties to patent litigation should be conscious of any details and facts concerning the passing of title, commercial pricing, or other indications of a commercial sale when dealing with the on-sale bar defense.

    For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors.

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