Merck & CIE v Watson Labs., Inc. (Fed. Cir. May 13, 2016) (Before Dyk, Mayer, and Hughes, J.) (Opinion for the court, Mayer, J.). Click Here for a copy of the opinion.
Merck owns a patent directed to a folate supplement—tetrahydrofolic acid (“MTHF”). MTHF is a synthetic form of natural folate produced by the body. In 2013, Merck sued Watson for infringement of Merck’s MTHF patent. Watson argued that the patent was invalid because Merck offered to sell MTHF more than a year before the filing date of the patent in a series of communications by fax, and thus Merck was barred from obtaining a patent under § 102(b). These communications contemplated a possible sale of two kilograms of MTHF with another company. The district court held that the patent was not invalid because those communications did not constitute an offer for sale that would trigger the on-sale bar. Watson appealed.
The Federal Circuit reversed, holding that the communications did constitute an offer to sell. Applying basic tenets of contract law, the Court held that an offer must be complete, such that acceptance creates a binding contract. Merck’s communications were a complete offer because they were solicited and contained prices, terms of payment, and terms of delivery. For these reasons, they were also more than mere advertising. The Court rejected Merck’s argument that the communications did not constitute an offer because neither party treated them as an offer. Instead, both parties acted unequivocally as if there was an offer. For example, Merck described the prior communications as a “first order,” and indicated that it would fulfill the order. The Court emphasized that § 102(b) does not require that the offer be accepted, or that the contract be executed. It is sufficient that an offer was made.
The Federal Circuit further rejected the finding of the district court that the communications were not an offer because they did not contain industry-standard safety and liability terms. The district court found that the communications were not an offer because no sale would have occurred absent these terms. Therefore the communications were not complete enough to be an offer. The Federal Circuit held that testimony that Merck would not have made a sale without these terms should weigh far less than contemporaneous documentation, such as the communications by fax that constituted the offer. That contemporaneous documentation clearly indicated that Merck would have sold without those terms.
The Federal Circuit also found that a prior contract that required future agreements be signed by both parties did not require offers themselves be signed or invite signature. The Court found that only the final agreement needed signature because the prior contract did not require the offer and the final agreement to be the same document. For these reasons, the Federal Circuit held that the discussion constituted an offer for sale, Merck was barred by § 102(b) from obtaining its patent on MTHF, and thus its patent was invalid.
Parker Hancock and Puja Dave contributed to this summary.
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Paul F. MorganMay 21, 2016 09:03 am
The Fed. Cir. “Applying basic tenets of contract law” is consistent with the Sup. Ct. requirement in Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67–68 (1998) to apply a standard commercial contract law meaning of “on sale” in 35 USC 102, not Fed. Cir. sua sponte definitions of that term. However [and not that it would have changed the outcome here] is it consistent with Erie v. Tomkins, et al for the Fed. Cir. to pick and choose among contract law treatises to arrive at its own views of contract law when contract law is an issue that is properly a matter of state law?