Monday, July 11, 2016

En banc CAFC in MedCo v. Hospira: 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)

The case is complex, with both parties appealing certain issues:

MedCo appealed two of the district court’s claim construction
rulings and the district court’s non-infringement
ruling. Hospira cross-appealed the district court’s 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. Among other
things, Hospira criticized the district court’s conclusion
that the batches of Angiomax were for experimental
purposes, pointing out that MedCo had not relied upon
the experimental use exception to § 102(b) and that
Hospira, accordingly, had no incentive or opportunity to
address the issue.

This en banc CAFC decision is about Hospira's appeal of the
district court's ruling that the on-sale bar was NOT triggered.
The CAFC affirmed that the on-sale bar was not triggered.

The CAFC began the opinion:

Today, we consider the circumstances under which a
product produced pursuant to the claims of a product-byprocess
patent is “on sale” under 35 U.S.C. § 102(b). This
is important because, if “on sale” more than one year
before the filing of an application for a patent on the
governing claims, any issued patent is invalid and the
right to exclude others from making, using, and selling
the resulting product is lost. We conclude that, to be “on
sale” under § 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 Section 2-106 of the Uniform Commercial
Code. We conclude, moreover, that no such invalidating
commercial sale occurred in this case. We, therefore,
affirm the district court’s judgment ...

But there was a remand on other issues:

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 Hos-
pira’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.

Of this en banc case:

Unlike Pfaff itself, the focus of this en banc appeal is
on the first prong of the Pfaff test: whether the invention
was the subject of a commercial sale or offer for sale. We
have held that “the question of whether an invention is
the subject of a commercial offer for sale is a matter of
Federal Circuit law, to be analyzed under the law of
contracts as generally understood.” Group One, Ltd. v.
Hallmark Cards, Inc., 254 F.3d 1041, 1047 (Fed. Cir.
2001). We also have held that, to be true to Pfaff when
assessing prong one of § 102(b), we must focus on those
activities that would be understood to be commercial sales
and offers for sale “in the commercial community.” Id.
We have also indicated that, “[a]s a general proposition,
we will look to the Uniform Commercial Code (‘UCC’) to
define whether . . . a communication or series of communications
rises to the level of a commercial offer for sale.”
Id. And we have made clear that, post-Pfaff, “[t]he 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.” Trading Techs., 595 F.3d at 1361 (quotation
marks omitted).

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).

Why Hospira lost on this issue:

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.

The text --(1) only
manufacturing services were sold to the inventor—the
invention was not; -- might sound peculiar because one is usually
worried about sales made by the inventor to others.

But the CAFC noted:

Section 1 of the Patent Act of
1793 required that an invention for which a patent was
sought be “not known or used before the application.” Act
of Feb. 21, 1793, ch. 11, § 1, 1 Stat. 318. The Supreme
Court interpreted this statute in Pennock v. Dialogue, 27
U.S. (2 Pet.) 1 (1829), holding that an inventor loses his
right to a patent “if he suffers the thing invented to go
into public use, or to be publicly sold for use, before he
makes application for a patent. His voluntary act or
acquiescence in the public sale and use is an abandonment
of his right.” Id. at 23-24 (emphases added). The
Court noted “that under the common law of England,
letters patent were unavailable for the protection of
articles in public commerce at the time of the application,
and that this same doctrine was immediately embodied in
the first patent laws passed in this country.” Bonito
Boats v. Thunder Craft Boats, 489 U.S. 141, 149 (1989)
(describing Pennock, 27 U.S. at 20-22); see also Shaw v.
Cooper, 32 U.S. 292, 320-21 (1833) (third-party sale
invalidating where statute required invention not be
“known or used before the [patent] application”).

***And remember

A merits panel of this court agreed with Hospira and
reversed the district court’s ruling regarding the applicability
of the on-sale bar. Meds. Co. v. Hospira, Inc., 791
F.3d 1368 (Fed. Cir. 2015). 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 district court’s conclusion
that Ben Venue’s sale of services did not constitute a
commercial sale of the claimed product. The panel explained
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. Id. at 1370-71 (emphasis added).

The panel found no distinction between the offer to
sell products prepared by a patented method in D.L. Auld,
714 F.2d at 1147, and the commercial sale of services that
result in a patented product-by-process. Id. at 1371. The
panel reasoned that, because MedCo paid Ben Venue for
services that resulted in the patented product, the transactions
were commercial sales. Id. According to the
panel, to hold otherwise would conflict with the “no ‘supplier’
exception” under Special Devices, Inc. v. OEA, Inc.,
270 F.3d 1353, 1355 (Fed. Cir. 2001). The panel also
found that the transactions between MedCo and Ben
Venue were “not the type of ‘secret, personal use’” described
in Trading Technologies International, Inc. v.
eSpeed, Inc., 595 F.3d 1340, 1362 (Fed. Cir. 2010), but
rather were “batches prepared for commercial exploitation.”
Meds. Co., 791 F.3d at 1371.

Metallizing Engineering is cited:

Hospira argues that, by manufacturing embodiments
of the patented product for MedCo, Ben Venue put the
invention “on sale.” But we have never espoused the
notion that, where the patent is to a product, the performance
of the unclaimed process of creating the product,
without an accompanying “commercial sale” of the product
itself, triggers the on-sale bar. (...)

In Metallizing Engineering Co. v.
Kenyon Bearing & Auto Parts Co., the patentee used a
secret process to recondition worn metal parts for its
customers, for compensation, before the critical date. 153
F.2d 516, 517-18 (2d Cir. 1946).

The on-sale bar is different as between products and processes:

Similarly, in In re
Kollar, we vacated a decision that “fail[ed] to recognize
the distinction between a claim to a product, device, or
apparatus, all of which are tangible items, and a claim to
a process, which consists of a series of acts or steps” in
applying the on-sale bar. 286 F.3d at 1332. We stated
that, while “[a] tangible item is on sale when . . . the
transaction ‘rises to the level of a commercial offer for
sale’ under the Uniform Commercial Code,” “[a] process,
however, is a different kind of invention . . . [and] thus [is]
not sold in the same sense as is a tangible item.” Id.



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