An Aleve Headache

Some companies are vertically integrated, performing all functions from R&D to field service, but many other companies are focused on product development and find partners better equipped for production or sales and marketing. If your company is developing a new product, you are likely to be looking for these partners even before your product is finished and possibly before your patents are filed. If your partnership takes the form of a license agreement, do you risk losing your patent rights because of the "on-sale" bar ?

Syntex Corporation owns the patent on the active ingredient in Aleveﾮ but Elan Corporation, anticipating the December 1993 expiration of the patent, began development of a time release formulation of the pain reliever during the 1980's and started investigating potential marketing partners in the late '80s. In particular, in a letter dated August 7, 1997, Elan wrote (in part) to a potential partner : ...I would like to confirm to you our licensing and development plans...we...believe Lederle's marketing strengths make you ideal [as a partner]...we see any license involving two types of payment - a licensing fee in the form of recoverable advance royalties and a charge for the clinical [studies to obtain FDA approval]...Finally, I would confirm that we would [supply] bulk tablets with our objective being to achieve a price structure allowing you an initial gross margin...of not less than 70%...[ see full text of letter ]

Elan filed a patent application in 1991 and was issued a patent in 1997. In 1998 a competitor, Andrx, sought FDA approval for its own time-release version and was sued by Elan for patent infringement. Andrx defended itself successfully in district court by having the patent declared invalid under the on- sale bar, based on the letter to Lederle .

Elan appealed and the Court of Appeals for the Federal Circuit (CAFC) agreed that no offer to sell had taken place. It pointed out that the sale of rights in a patent (e.g., production rights or marketing rights), as distinct from the sale of the invention itself, is not an offer to sell , nor is an offer to license a patent claiming an invention after future R&D had occurred.

To the CAFC, the Lederle letter was clearly not an offer to sell naproxen tablets (the invention) "but rather granting a license under the patent and offering Lederle the opportunity to become [Elan's] partner in the clinical testing and eventual marketing of such tablets at some indefinite point in the future." Key to the Court's thinking was the fact that the licensing fees mentioned in the letter were not tied to the sale of any tablets by Elan to Lederle (they were advanced royalties against Lederle's commercial sales) and that although Elan clearly expected to sell the tablets in bulk to Lederle the letter included no details like price, volume, or delivery dates.

The message from the Court is clear. To avoid on- sale bar headaches avoid selling your invention before filing your patent application. It is fine, however, to sell or "rent" (viz., license) your intellectual property (your patent rights) at any time .