Source: https://www.schwabe.com/newsroom-publications-14598
Timestamp: 2019-04-24 08:20:00+00:00

Document:
Medicines v. Hospira – A unanimous en banc Circuit reverses the panel decision, ruling that two product-by-process patents directed to bivalirudin drug products used as anticoagulants to prevent blood from clotting during coronary surgery are not invalid despite an alleged on-sale bar under § 102(b). In an instructive analysis of the Supreme Court’s 1998 Pfaff v. Wells case and other on-sale cases, the Circuit rules that in order to be an invalidating sale, title must have passed from the seller to the buyer for a price pursuant to UCC § 2-106(1). Here there was no title transfer, and this underscores that the sale was only of a third party’s manufacturing services and not of the patented products.
Ben Venue Laboratories was paid by MedCo to manufacture what became MedCo’s Angiomax product in order to make sure that the drug met USDA requirements. According to the opinion, for there to be a sale, the product must be commercially marketed, and that did not happen here until after the bar date. The opinion notes that it should not make a difference that the patentee contracted to have the product manufactured by a third party instead of having it manufactured in-house, which clearly would not have established a bar.
The district court had found that the patent was not invalid and that Hospira’s generic version of Angiomax did not infringe. Both parties appealed, but this opinion deals only with the validity issue. MedCo had sold almost $600 million of Angiomax in 2014, so the case is a significant one for MedCo and Pfizer, which acquired Hospira in 2015.
Applying § 102(b) in light of Pfaff, the Circuit concludes that the transactions between MedCo and Ben Venue in 2006 and 2007 did not constitute commercial sales of the patented product. The opinion holds that the mere sale of manufacturing services by a contract manufacturer to create embodiments of a patented product does not constitute a "commercial sale." The commercial benefit—even to both parties in a transaction—is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is "on sale" in the sense that it is "commercially marketed." The invention was not commercially marketed in this case because: (1) only manufacturing services were sold to the inventor—the invention was not; (2) the inventor maintained control of the invention, as shown by the retention of title to the embodiments and the absence of any authorization to Ben Venue to sell the product to others; and (3) "stockpiling" by the purchaser of manufacturing services, standing alone, does not trigger the on-sale bar.
Comments: This ruling could prove to be quite helpful to pharmaceutical companies, which sometimes have early versions of drugs manufactured by outside suppliers. Readers will recall that on July 5 in the Rapid v. Cellzdirect case, the Circuit upheld a patent on medical diagnostics that had been ruled by the district court as not being directed to patentable subject matter. These recent Federal Circuit decisions are a breath of fresh air to an industry that has seen a series of negative rulings ever since the Supreme Court’s broad patentable subject matter decisions in Myriad and Mayo.
In deciding that the patents were invalid under § 102(b), the panel decision also ruled that the experimental use exception does not apply here because experimental use cannot occur after a reduction to practice. The en banc opinion did not review this experimental use ruling by the panel since it held that this was not a commercial sale.
SkyHawke v. Deca –Taking guidance from the Supreme Court that appellate courts “review judgments, not opinions,” the Circuit dismisses an appeal over claim construction by the prevailing patent owner in an inter ‎partes reexamination. ‎SkyHawke sued Deca for patent infringement on a patent directed to golf course range finders. In response, Deca filed a request for inter partes reexamination, where patentability was confirmed. Deca appealed to the Board, which affirmed the Examiner’s rulings.
In its decision the Board performed a lengthy analysis of the meaning of “means” for determining the distance to the pin. The Board identified particular algorithms in the patent as providing the corresponding structure, as required for a means-plus-function claim under § 112 ¶ 6. Based on this claim construction, the Board concluded that none of the prior art references disclosed the algorithmic structure corresponding to the means-plus-function element, and thus affirmed patentability.
SkyHawke, the prevailing party, appealed, requesting correction of the claim construction but affirmance of the Board’s ultimate decision upholding the examiner’s validity determination. The panel notes that courts of appeals employ a prudential rule that the prevailing party cannot ordinarily seek relief in the appellate court, and that SkyHawke’s appeal fits cleanly into this prudential prohibition. SkyHawke alleges a generalized concern that the Board made an erroneous, overly-narrow claim construction, impacting SkyHawke’s patent rights and its right to exclude others from practicing its invention, but does not seek to alter the judgment of the Board. Therefore, the appeal must be dismissed.
Today, we consider the circumstances under which a product produced pursuant to the claims of a product-by-process patent is "on sale" under 35 U.S.C. § 102(b). This suit arises from the submission of two ANDAs in which Hospira sought FDA approval to sell generic bivalirudin drug products before the expiration of MedCo’s '727 and '343 patents. The two patents cover Angiomax, a bivalirudin that MedCo markets in the U.S.
MedCo is a specialty pharmaceutical company that does not have its own manufacturing facilities. Instead, MedCo contracts with Ben Venue Laboratories, for Ben Venue to manufacture commercial quantities of an original formula of Angiomax, which is not covered under the patents-in-suit. In June 2005, Ben Venue manufactured a batch of bivalirudin drug product with an Asp9 level of 3.6%, which exceeded the FDA's approved maximum level of 1.5%. MedCo discarded that batch and shut down production of Angiomax for six months to investigate the problem and revise its process. In 2006, another batch had an unacceptable Asp9 level, so MedCo again shut down production of Angiomax and hired a peptide specialist to investigate and resolve the issue.
The investigation led to the development of the new compounding process claimed in the patents-in-suit. MedCo incorporated the new process into a revised Master Batch Record, and Ben Venue has made all batches since October 2006 using the new process. This compounding process produces an improved Angiomax product that does not have randomly high Asp9 levels, but instead has a maximum Asp9 level of 0.6%. The '727 and '343 patents contain product and product-by-process claims, respectively, for pharmaceutical batches of the improved drug product with a maximum impurity level of Asp9 of 0.6%. The applications for the '727 and '343 patents were filed on July 27, 2008, so the critical date is July 27, 2007.
In late 2006, MedCo paid Ben Venue $347,500 to manufacture three batches of bivalirudin according to the patents-at-issue. Ben Venue completed the first such batch on October 31, 2006 for $67,500. On November 21 and December 14, 2006, Ben Venue completed two more batches of bivalirudin containing 27,594 and 26,918 vials, respectively, for $140,000 each. Each full commercial-sized batch of 28,000 vials of Angiomax has a market value of approximately $10 million. Thus, collectively, the three batches had a market value of well over $20 million.
The manufacturing protocol between MedCo and Ben Venue governing the three batches stated that "the solution will be filled for commercial use" and that the three batches "will be placed on quality hold until all testing has been successfully completed." The invoice for each of the three batches stated: "Charge to manufacture Bivalirudin lot," and indicated that the bivalirudin lot was or will be released to MedCo. Each batch received a "Commercial Product Code," a customer lot number, and each stated that the batch was "released to MedCo for commercial and clinical packaging." Once manufactured by Ben Venue, the batches were placed in quarantine with MedCo's distributor and logistics coordinator, Integrated Commercialization Solutions ("ICS"), pending FDA approval. MedCo and ICS entered into a Distribution Agreement effective February 27, 2007. The Distribution Agreement made ICS the exclusive authorized distributor of Angiomax in the U.S. and stated that title and risk of loss would pass to ICS following release from quarantine. ICS was to place individual purchase orders with MedCo on a weekly basis, which MedCo could accept or reject. It was not until August 2007, after the July 27, 2007 critical date, that MedCo released the three batches from quarantine and made them available for sale.
On August 19, 2010, MedCo sued Hospira, alleging that Hospira's two ANDA filings infringed the two patents. In a bench trial the district court found the patents not invalid and not infringed. As to validity, which is the only issue being addressed in this opinion, Hospira had alleged that the invention was sold or offered for sale before the critical date based on two sets of transactions: (1) when MedCo paid Ben Venue to manufacture Angiomax before the critical date, and (2) when MedCo offered to sell the Angiomax produced according to the patents to its distributor, ICS, before the critical date.
Applying the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the district court found that the three batches Ben Venue manufactured for MedCo did not trigger the on-sale bar. Pfaff’s two-step framework requires that the claimed invention was (1) the subject of a commercial offer for sale; and (2) ready for patenting. The court held that the claimed invention was ready for patenting but concluded that the first prong of Pfaff was not met because the claimed invention was not commercially offered for sale prior to the critical date. The court agreed with MedCo that the transactions between MedCo and Ben Venue were sales of contract manufacturing services in which title to the Angiomax always resided with MedCo. But it determined that this does not end the inquiry. The district court identified the purpose of § 102(b) as precluding attempts by an inventor or its assignee to profit from the commercial use of an invention for more than a year before filing for a patent. Because the batches were for "validation purposes," the court held that the batches were not made for commercial profit, but were for experimental purposes, thereby avoiding the on-sale bar.
Next, the court held that MedCo's distribution agreement with ICS also did not constitute an invalidating sale. It held that the agreement was merely "an agreement for ICS to be the sole U.S. distributor of Angiomax." The court concluded, citing In re Kollar, 286 F.3d 1326 (Fed. Cir. 2002), that the contract was merely "a contract to enter into a contract" for future sales of the Angiomax product.
MedCo appealed the non-infringement ruling and Hospira cross-appealed the decisions regarding the on-sale bar, obviousness, and indefiniteness. Because the district court found the invention was "ready for patenting," Hospira focused only on the first prong of Pfaff on appeal: whether the invention was the subject of a commercial offer for sale. A panel of the Circuit agreed with Hospira and reversed the ruling regarding the applicability of the on-sale bar. The panel acknowledged that "Ben Venue invoiced the sale as manufacturing services and title to the pharmaceutical batches did not change hands," but disagreed with the conclusion that Ben Venue's sale of services did not constitute a commercial sale of the claimed product, explaining that, "where the evidence clearly demonstrated that the inventor commercially exploited the invention before the critical date, even if the inventor did not transfer title to the commercial embodiment of the invention," the on-sale bar applies.
The panel also found that the district court erred in applying the experimental use exception to Ben Venue's batches. Because the invention had been reduced to practice, the panel concluded that the inventor could not have been experimenting to determine whether the process by which the product was formulated achieved the desired results.
Finally, the panel affirmed the district court's determination that the claimed invention was ready for patenting prior to the critical date and therefore ruled that the asserted claims were invalid under § 102(b). The panel did not reach the non-infringement rulings that MedCo had appealed nor addressed other grounds of invalidity raised in Hospira's cross-appeal.
(a) Do the circumstances presented here constitute a commercial sale under the on-sale bar of 35 U.S.C. § 102(b)?
(i) Was there a sale for the purposes of § 102(b) despite the absence of a transfer of title?
(ii) Was the sale commercial in nature for the purposes of § 102(b) or an experimental use?
(b) Should this 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 U.S.C. § 102(b)?
For many years this court applied a "totality of circumstances" standard in applying the on-sale bar. Under that test no single finding or conclusion of law was a sine qua non to a holding that the statutory bar arose. This changed with Pfaff, in which the Supreme Court replaced the totality of the circumstances test with a two-pronged test. Pfaff held that the on-sale bar 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. Pfaff itself said little about the first prong of the two-prong test, which is the focus of this en banc appeal; that is: whether the invention was the subject of a commercial sale or offer for sale. We have indicated that, "as a general proposition, we will look to the UCC to define whether a communication or series of communications rises to the level of a commercial offer for sale." And we have made clear that, post-Pfaff, the transaction at issue must be a sale in a commercial law sense, and that a sale is a contract between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.
Applying § 102(b) in light of Pfaff, we conclude that the transactions between MedCo and Ben Venue in 2006 and 2007 did not constitute commercial sales of the patented product. We, thus, affirm the district court's conclusion that those transactions were not invalidating under § 102(b). In the discussion that follows, we first clarify that the mere sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a "commercial sale" of the invention. We then address the issue of "stockpiling" by an inventor and clarify that "stockpiling" by the purchaser of manufacturing services is not improper commercialization under § 102(b). We explain that commercial benefit—even to both parties in a transaction—is not enough to trigger the on-sale bar of § 102(b); the transaction must be one in which the product is "on sale" in the sense that it is "commercially marketed." There are, broadly speaking, three reasons for our judgment in this case: (1) only manufacturing services were sold to the inventor—the invention was not; (2) the inventor maintained control of the invention, as shown by the retention of title to the embodiments and the absence of any authorization to Ben Venue to sell the product to others; and (3) "stockpiling," standing alone, does not trigger the on-sale bar.
We begin with the language of § 102(b), which requires that “the invention” be “on sale.” The “invention” ‎is defined by the patent’s claims. The asserted claims of the ’727 patent cover ‎‎“pharmaceutical batches,” while the asserted claims of the ’343 patent claim the same subject matter but as a product-by-process, ‎viz. “pharmaceutical batches . . . prepared by a compounding process comprising the claimed steps. For validity purposes, the “invention” in a product-by-process claim is the ‎product.
The absence of title transfer further underscores that ‎the sale was only of Ben Venue’s manufacturing services. ‎Because Ben Venue lacked title, it was not free to use or ‎sell the claimed products or to deliver the patented products to anyone other than MedCo, nor did it do so. Section 2-106(1) of the Uniform Commercial Code describes a “sale” ‎as “the passing of title from the seller to the buyer for a ‎price.” UCC § 2-106(1). The passage of title is a ‎helpful indicator of whether a product is “on sale,” as it ‎suggests when the inventor gives up its interest and control ‎over the product. A “sale” under § 102(b) “occurs when ‎the parties . . . give and pass rights of property for ‎consideration.” Special Devices, 270 F.3d at 1355. As noted, since Pfaff, we have generally looked to the ‎UCC for the definition of a “sale.” While we agree with Hospira that the UCC does not ‎have “talismanic significance” with respect to the on-sale ‎bar, and we decline to draw a bright line rule making the ‎passage of title dispositive, we find the absence of title ‎transfer significant because, in most instances, that fact ‎indicates an absence of commercial marketing of the ‎product by the inventor.
It is with vigilance that we have held that the sale of ‎products made using patented methods triggers the on-sale bar, even though title to the claimed method itself did ‎not pass. In such cases, the literal subject matter ‎of the claims is incapable of being sold. Similarly, we held ‎that sales of software licenses to end-users can trigger the ‎on-sale bar.
We hold today that a contract manufacturer's sale to the inventor of manufacturing services where neither title to the embodiments nor the right to market the same passes to the supplier does not constitute an invalidating sale under § 102(b). We, therefore, affirm the district court's holding that the transactions between Ben Venue and MedCo did not trigger the on-sale bar. Because the original panel held that the '727 patent and the '343 patent were invalid under the on-sale bar as a result of MedCo's transactions with Ben Venue, it did not reach the other issues raised on appeal. Specifically, the original 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 Distribution Agreement between MedCo and ICS triggered the on-sale bar. It also did not reach either MedCo's appeal of the district court's claim construction and non-infringement rulings or Hospira's cross-appeal of the district court's obviousness and indefiniteness rulings. We, therefore, remand the appeal to the original panel for further proceedings consistent with this opinion.
Deca requested inter partes reexamination of a ’498 patent owned by SkyHawke. SkyHawke ultimately prevailed, with the Board finding the contested claims not obvious over the cited prior art. SkyHawke appeals, arguing that the Board decision should be affirmed but that the claim construction relied on by the Board to reach that decision should be corrected by this court. Deca now moves to dismiss SkyHawke's appeal for lack of jurisdiction. For the reasons set forth below, we grant the motion.
SkyHawke sued Deca for infringement of its ’498 patent and in response, Deca filed a request for inter partes reexamination. The district court stayed the litigation pending the outcome of the reexamination.
The Examiner found substantial new questions of patentability for claims 5 through 8, initially rejecting all claims based on obviousness. But the Examiner subsequently reversed course, confirming the patentability of all of the claims. Deca appealed to the Board, which affirmed the Examiner's confirmation of all claims. As part of its decision, the Board performed a lengthy analysis of the meaning of the phrase "means . . . for determining a distance," recited in claim 5. The Board identified particular algorithms in the '498 patent as providing the corresponding structure for that claim element, as required for a means-plus-function claim under § 112 ¶ 6. Based on this claim construction, the Board concluded that none of the prior art references disclosed the algorithmic structure corresponding to the means clause of claim 5. On this basis, the Board affirmed the Examiner's confirmation of patentability of claims 5-8.
SkyHawke appealed the Board's judgment, requesting the following relief: "Correction of the PTAB's claim construction and affirmance of the PTAB's ultimate decision upholding the examiner's withdrawal of the rejection of claims 5-8.” Deca subsequently filed what is essentially a conditional cross-appeal, which it intends to dismiss if SkyHawke's principal appeal is dismissed.
Courts of appeals employ a prudential rule that the prevailing party cannot ordinarily seek relief in the appellate court. Even if the prevailing party alleges some adverse impact from the lower tribunal's rulings leading to an ultimately favorable judgment, the matter is generally not proper for review. SkyHawke's appeal fits cleanly into this prudential prohibition. SkyHawke alleges a generalized concern that the Board made "an erroneous, overly-narrow claim construction, impacting SkyHawke's patent rights and its statutory right to exclude others from practicing its invention." But SkyHawke does not seek to alter the judgment of the Board in this case.
California v. Rooney, 483 U.S. 307 (1987) was similar. Itinvolved a challenge to the validity of a search warrant. The State of California prevailed as to the validity of the search warrant but disagreed with a portion of the appellate court's reasoning. Fearing that the appellate court's reasoning might harm the State's position at trial, it petitioned the Supreme Court for review. The Supreme Court refused to hear the case, finding that the State's concern for some future, potential harm was too attenuated from the judgment actually entered by the appellate court. SkyHawke's appeal is nearly identical.
SkyHawke is primarily concerned that the district court will rely on the Board's claim construction and that Deca will thereby escape the infringement suit. However, SkyHawke will be able to appeal any such unfavorable claim construction should that situation arise. While administrative decisions by the PTO can ground issue preclusion in district court when the ordinary elements of issue preclusion are met, see B & B Hardware, Inc. v. Hargis Indus., Inc., 135 S. Ct. 1293 (2015) (holding that TTAB decisions on trademark registrations can ground issue preclusion in district courts for the question of likelihood-of-confusion when the ordinary elements of issue preclusion are met), we cannot foresee how the claim construction reached by the Board in this case could satisfy those ordinary elements.
Moreover, issue preclusion requires that the issues were actually litigated. Because the Board applies the broadest reasonable construction of the claims while the district courts apply a different standard of claim construction as explored in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), the issue of claim construction under Phillips to be determined by the district court has not been actually litigated. Likewise, judicial estoppel will not bind SkyHawke to the Board's claim construction, because judicial estoppel only binds a party to a position that it advocated and successfully achieved. SkyHawke clearly did not advocate the claim construction ultimately adopted by the Board. Finally, the claim construction adopted by the Board cannot create prosecution history disclaimer, at least because a party can avoid such disclaimer by opposing such statements when made by the PTO, which SkyHawke has done here.
Therefore, SkyHawke will have the opportunity to argue its preferred claim construction to the district court, and SkyHawke can appeal an unfavorable claim construction should that situation arise. With the present appeal, SkyHawke is merely trying to preempt an unfavorable outcome that may or may not arise in the future and, if it does arise, is readily appealable at that time. Therefore, we see nothing that warrants deviation from the standard rule counseling against our review of prevailing party appeals.
SkyHawke argues that the language of pre-AIA 35 U.S.C. § 141 requires us to take jurisdiction over this appeal contrary to the ordinary rule. Pre-AIA § 141 provides that a patent owner who is in any reexamination proceeding dissatisfied with the final decision in an appeal to the Board may appeal the decision only to this court. SkyHawke argues that it is dissatisfied with the claim construction leading to the Board's final decision, so the present appeal fits properly within the scope of pre-AIA § 141.
We disagree. Although the ordinary rule in Rooney is most clearly applicable with respect to appeals taken from district courts, where the statute providing for such appeals refers to "appeals from all final decisions," 28 U.S.C. § 1291, we see no material difference from the statute here that provides for appeals when dissatisfied with the final decision of the Board. SkyHawke points us to no authority to suggest that Congress intended the use of "dissatisfied with" in conjunction with "final decision" to broaden the appeal rights from Board decisions to include those of prevailing parties who are merely dissatisfied with the Board's reasoning.

References: v. 
 § 102
 v. 
 § 2
 § 102
 § 102
 v. 
 § 102
 v. 
 § 112
 § 102
 v. 
 § 102
 § 102
 § 102
 § 102
 § 102
 v. 
 § 102
 § 102
 § 102
 § 102
 § 102
 § 102
 § 2
 § 102
 § 102
 § 112
 v. 
 v. 
 v. 
 § 141
 § 141
 § 141
 § 1291