In Merck & CIE v. Watson Laboratories, Inc., the Federal Circuit found communications between Merck and a potential joint venture partner amounted to a commercial offer to sell that invalidated the Orange Book-listed folate patent at issue. Despite the confidentiality agreement that was in place, a footnote in the court’s opinion indicates that it was an offer for sale to the public. That fact may not matter in the pre-AIA context applicable here, but could be significant for patents governed by the AIA.

The Patent At Issue

The only claim before the court was claim 4 of U.S. Patent No. 6,441,168:

4. A crystalline calcium salt of 5-methyl-(6S)-tetrahydrofolic acid with 2 theta values of 6.5, 13.3, 16.8 and 20.1 (Type I) said crystalline salt having a water of crystallization of at least one equivalent per equivalent of 5-methyltetrahydrofolic acid.

The claim relates to the folate component (“MTHF”) of the combination birth control products sold by Bayer under the trademarks Safyral® and Beyaz®. (There are four other Orange-book listed patents for these products.)

The Invalidating Offer For Sale

The ‘168 patent has a priority date of April 17, 2000, making April 17, 1999 its “critical date” under the pre-AIA version of 35 USC § 102(b). According to the Federal Circuit decision, it was as early as 1997 when Merck began “exploring a strategic partnership [with Weider Nutrition International, Inc.] to introduce dietary supplements with Merck ingredients into the United States.” The Federal Circuit decision highlights the following communications between the parties:

• “In February 1998, Merck and Weider executed a Confidentiality and Noncompetition Agreement …. Section 5.2 of the Confidentiality Agreement provided: ‘Unless and until such definitive agreement regarding a transaction between Weider and Merck has been signed by both parties, neither party will be under any legal obligation of any kind with respect to such a transaction.'”

• In August 1998, “Weider notified Merck that it was no longer interested in forming a joint venture …. [but] would like to purchase two kilograms of MTHF on a stand-alone basis.” Weider stated “in order to complete the transaction, it needed information on the price for the product.”

• “On September 9, 1998 … a manager in Merck’s Health, Cosmetic and Nutrition Business Unit, sent Weider a signed fax stating:

• [W]e would like to handle your purchase of [MTHF] very simpl[y]. Therefore please send the order to my attention and I will arrange everything. In addition we need the exact delivery address/person. The price is 25,000 US$ per kg [of MTHF] free delivered to your R&D center in the U.S. Payment terms are 60 days net. With Rick Blair and Richard Bizzaro we discussed a purchase of 2 kg [of MTHF]. If you need more, we have no problem for an immediate[] delivery. After receiving your order you will get the official confirmation of the order.“

• “On September 16, 1998, … Weider’s purchasing manager, responded … stating that Weider would order two kilograms of MTHF for delivery to its Salt Lake City, Utah facility,” and requested “the information … needed to complete [the] purchase order, including the ‘[s]pecification sheet for the raw material outlining physical, analytical, and microbial characteristics’ of the MTHF product as well as the ‘material safety data sheets.'” He also “asked for a certificate of insurance naming Weider as an additional insured.”

• On September 25, 1998, Merck sent the specification and analytical data sheet for the MTHF product, and “informed [Weider] that Weider would receive a certificate of insurance naming it as an additional insured ‘after dispatch of [the] product.'” The communication “reiterated … that the purchase price for the MTHF would be $25,000 per kilogram and that it would be delivered, free of charge, to Weider’s Utah facility.”

• “Merck sent Weider a letter confirming that it had placed a ‘first order’ for two kilograms of MTHF.”

Notwithstanding these communications, the order never was completed. Rather “[o]n January 9, 1999, Weider sent Merck an email noting that the parties had made a ‘mutual decision’ to cancel Weider’s “existing order for [MTHF].'”

The District Court Decision

Watson filed Abbreviated New Drug Applications (ANDAs) seeking FDA approval to market generic versions of Safyral® and Beyaz®, in response to which Merck and Bayer brought ANDA litigation in the U.S. District Court for the District of Delaware. Watson stipulated to infringement of claim 4, but challenged its validity on a number of grounds, including the on-sale bar of the pre-AIA version of 35 USC § 102(b).

The District Court rejected Watson’s invalidity arguments, and found that the there had not been a commercial offer for sale because (i) the September 9, 1998 fax “was not sufficiently definite to qualify as a commercial offer because it did not include ‘important safety and liability terms,'” and there was no “definitive agreement” that had been “signed by both parties” as required by the Confidentiality Agreement.

Watson appealed to the Federal Circuit.

The Federal Circuit Decision

The Federal Circuit decision was authored by Judge Mayer and joined by Judges Dyk and Hughes.

Judge Mayer commenced the analysis noting that “[i]nvalidity under the on-sale bar is a question of law based on underlying questions of fact,” and specifically “is a matter of Federal Circuit law, to be analyzed under the law of contracts as generally understood.”

Judge Mayer summarized the principles behind the on-sale bar as follows:

Our patent laws deny a patent to an inventor who applies for a patent more than one year after making an attempt to profit from his invention by putting it on sale. …. Section 102(b)’s on-sale bar is triggered when a claimed invention is: (1) ready for patenting; and (2) the subject of a commercial offer for sale prior to the critical date.

Merck did not challenge the district court’s finding that the invention was “ready for patenting,” so the Federal Circuit focused on whether there had been “a commercial offer for sale.”

Only an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration), constitutes an offer for sale under § 102(b).

Considering the communications between Merck and Weider, the Federal Circuit determined that Merck’s September 9, 1998 “detailed fax—providing essential price, delivery, and payment terms—contained all the required elements to qualify as a commercial offer for sale.” The Federal Circuit explained further:

Regardless of whether the communications between Merck and Weider in the fall of 1998 were sufficient to establish a binding contract for the sale of MTHF, they confirm that, at a minimum, both parties understood that Martin’s September 9, 1998, fax was an offer to sell the product.

The Federal Circuit disagreed with the district court’s finding that essential terms were missing that prevented the fax from being a complete offer for sale, and also disagreed with the district court’s finding that the terms of Confidentiality Agreement required both parties to sign an offer for sale. The court concluded:

Because Merck’s September 9, 1998, offer to sell MTHF was a premature commercial exploitation of its invention, claim 4 of the ’168 patent is invalid under the on-sale bar.

Thus, the Federal Circuit reversed the district court’s decision.

Was This A Public Office For Sale?

In a footnote, the Federal Circuit distinguishes this case from The Medicines Co. v. Hospira, Inc., which is under en banc review:

While this court is currently considering whether an inventor’s agreement with another party to manufacture the inventor’s product is sufficient to trigger the on-sale bar, see The Medicines Co. v. Hospira, Inc., 805 F.3d 1357, 1358 (Fed. Cir. 2015) (order granting en banc review), there is no dispute that the bar arises when a product is marketed to the public prior to the critical date.

But is an offer for sale made between parties to a confidentiality agreement a “public” offer for sale? The answer to that question may not matter under the pre-AIA version of 35 USC § 102(b) applicable here, but it could make a difference under the AIA’s 35 USC § 102(a)(1), which the USPTO has said  does not apply to secret sales.