In The Medicines Company v. Hospira, decided July 2, 2015, the Federal Circuit held that a patent owner’s use of a contract manufacturer to prepare three “validation batches” of a drug formulation embodying the claimed invention created an invalidating on-sale bar, even though the contract was for manufacturing service, not for the sale of product, and title to the drug always resided with the patent owner, and even though the batches were produced for the purpose of demonstrating to FDA that the invention resulted in a formulation that safisfied FDA specifications. The decision illustrates the risk of using a contract manufacturer prior to filing a patent application, particularly now that the AIA has called into question the availability of the one year grace period previously available under pre-AIA 102(b).
The Medicines Company (TMC) owns U.S. Patent No. 7,582,727 and U.S. Patent No. 7,598,343, which claim formulations of the drug bivalirudin. TMC sells bivalirudin under the Angiomax® brand. From 1997 to October 2006, TMC used Ben Venue Laboratories (BVL) as a contract manufacturer of Angiomax®. In 2005, BVL ran into some production problems and began producing batches of Angiomax that contained an impurity (Asp9-bivalirudin) at levels exceeding FDA’s approved maximum of 1.5%.
TMC hired a consultant to investigate and resolve the issue, and the consultant discovered a method of formulating Angiomax that reduced the level of impurity to below 0.6%. In July 2008, TMC filed patent applications based on this discovery, resulting the ‘727 and ‘343 patents. Prior to the critical date, i.e., more than one year before the filing date, TMC hired BVL to prepare three “validation batches” of bivalirudin falling within the scope of the claims for the purpose of proving to FDA that the product met the already-approved specifications for finished bivalirudin product. Subsequently, post-critical date, TMC sold some of the drug produced by BVL.
In the The Medicines Company v. Hospira, an ANDA litigation, the district court upheld the validity of the patents, finding that the contract manufacture of the three validation batches by BVL did not create a 102(b) on-sale bar. The district court based its decision on its determination that TMC did not purchase the validation batches from BVL, but rather that the transaction was better characterized as “a contract manufacturer relationship in which Ben Venue was paid to manufacture Angiomax for The Medicines Company, [and] wherein title to the Angiomax always resided with The Medicines Company. [As] the invoices clearly stated, “Charge to manufacture Bivalirudin lot.”
The district court acknowledged that in Plumtree Software, Inc. v. Datamize, LLC, 473 F.3d 1152, 1163 (Fed.Cir. 2006), the Federal Circuit stated that “performing the patented method for commercial purposes before the critical date constitutes a sale under § 102(b).” However, the district court found that the “reasoning behind this statement is that the purpose of § 102(b) ‘is to preclude attempts by the inventor or his assignee to profit from commercial use of an invention for more than a year before an application for patent is filed.’” In contrast, TMC had the batches manufactured for validation purposes, and “at the time of the supposed sale, the batches were not for commercial purposes, but experimental batches made in order to verify that the invention worked for its intended purpose. [TMC] ‘purchased’ the validation batches for its own secret use, [and the] fact that the batches were subsequently sold does not change the underlying transaction from experimental to commercial. At the time of the transaction, the intent was experimental.”
On appeal, the Federal Circuit reversed, finding that under Federal Circuit precedent there is no “supplier” exception, so it did not matter that the patent owner was the purchaser, and that paying another entity to manufacture patented product constitutes an invalidating “sale” even though title never changed hands and the patent owner contracted for services, not for sale of a product.
The Federal Circuit acknowledged that under some circumstances use of a contract manufacturer in the development of an invention does not create an on sale bar. For example, in Trading Technologies Int'l, Inc. v. eSpeed, Inc., 595 F.3d 1340 (Fed. Cir. 2010) the inventor of an automated trading system paid a contractor on an hourly basis to produce software embodying the invention, because the inventor lacked the technical expertise to do so himself. The court in Trading Technologies stated that “[inventors] can request another entity's services in developing products embodying the invention without triggering the on-sale bar[, and thus the inventor’s request to the contractor] to make software for his own secret, personal use could not constitute a sale under 35 U.S.C. § 102(b)."
In The Medicines Company the Federal Circuit distinguished Trading Technologies, finding that TMC used the validation batches for commercial purposes, as opposed to the “secret, personal use” in Trading Technologies. The courted seem to find it significant that the verification batches were marked with commercial product codes and customer lot numbers and sent to TMC for “commercial and clinical packaging, consistent with the commercial sale of pharmaceutical drugs," and that each batch had a commercial value of over $10 million, i.e., a “not insignificant” amount. Furthermore, even though the verification batches were produced for the purpose of demonstrating to FDA that the drug met FDA specifications, and none of the drug was sold prior to the critical date, it appears that after the critical date TMC did sell drug produced in the verification batches.
The Federal Circuit also found that the district court had clearly erred in finding that the experimental use doctrine bars the application of the on-sale bar to the verification batches. The Federal Circuit’s explanation for this is a bit confusing. The court begins by stating that “experimental use cannot occur after a reduction to practice,’” but later in the same paragraph asserts that “the experimental use defense may be available even if the invention had been reduced to practice if the inventor was unaware that the invention had been reduced to practice (i.e., worked for its intended purpose) and continued to experiment.”
TMC argued that it had not reduced the invention to practice when the batches were made because at that time it did not appreciate the maximum impurity level limitation of the claimed invention. The Federal Circuit rejected this argument, however, finding that this “is not a situation in which the inventor was unaware that the invention had been reduced to practice, and was experimenting to determine whether that was the case. The batches sold satisfied the claim limitations, and the inventor was well aware that the batches had levels of Asp 9-bivalirudin well below the claimed levels of 0.6%."