Merck & Cie v. Watson Labs., Inc.

Because a fax containing essential price, delivery, and payment terms to sell the covered product was a premature commercial exploitation of the claimed invention, the asserted claim was invalid under the on-sale bar.

July 21, 2016

GENERICally Speaking: A Hatch Waxman Litigation Bulletin

Case Name: Merck & Cie v. Watson Labs., Inc., 2015-2063, -2064, 2016 U.S. App. LEXIS 8782 (Fed. Cir. May 13, 2016) (Circuit Judges Dyk, Mayer, and Hughes presiding; Opinion by Mayer, J.) (Appeal from D. Del., Andrews, J.)

Drug Product and Patents-in-Suit: Safyral® and Beyaz® (drospirenone / ethinyl estradiol / levomefolate calcium); U.S. Patent No. 6,441,168 (“the ’168 patent”)

Nature of the Case and Issue(s) Presented: In 1997, Merck and Weider Nutrition International, Inc. (“Weider”) began exploring a strategic partnership related to the sale of dietary supplements. The first major project concerned the marketing and distribution of a crystalline calcium salt of a tetrahydrofolic acid (“MTHF”), a compound covered by claim 4 of the ‘168 patent. In August 1998, Weider notified Merck that it was no longer interested in forming a joint venture to market MTHF but that it would like to purchase two kilograms of MTHF on a stand-alone basis. Weider needed information on the price for the product. In response, on September 9, 1998, Merck sent Weider a fax stating requesting the delivery address and to whom the delivery should be made, and setting a price of $25,000/kg of MTHF and further acknowledging an amount of 2 kg. On September 16, 1998, Weider responded to Merck that Weider would order 2 kg for delivery to its Salt Lake City, Utah facility, and further asked Merck to provide the information needed to complete Weider’s 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.” On September 25, 1998, Merck sent Weider a specification and analytical data sheet for the MTHF product. On October 8, 1998, Merck sent Weider a letter confirming that it had placed a “first order” for 2 kg of MTHF. On January 9, 1999, Weider sent Merck an e-mail message noting that the parties had made a mutual decision to cancel Weider’s existing order for MTHF.

The district court determined that MTHF was ready for patenting by September 1998, but it concluded that there had been no invalidating commercial offer for sale or sale of the product because the September 9, 1998 fax Merck sent to Weider was not sufficiently definite to qualify as a commercial offer, because it did not include “important safety and liability terms.” Watson appealed the final judgment of the district court, which held that claim 4 of the ’168 patent was not invalid under the on-sale bar of 35 U.S.C. § 102(b). The Federal Circuit reversed.

Why Watson Prevailed: The issue on appeal centered on whether the September 9, 1998 fax was an invalidating commercial offer to sell the claimed product. The Federal Circuit found that the fax was not an unsolicited price quote sent to numerous potential customers. To the contrary, it was sent in direct response to Weider’s request to purchase 2 kg of MTHF and provided essential price, delivery, and payment terms, or all the required elements to qualify as a commercial offer for sale. Merck argued that the fax was not an invalidating commercial offer because neither Weider nor Merck ever acted as if Merck had made a binding offer to sell MTHF. The Federal Circuit disagreed because the record evidence suggested otherwise. Weider sent Merck a confirmatory e-mail message and asked for the “MTHF safety data sheets” and the “certificate of analysis” it needed to complete its purchase order, which Merck subsequently provided. Thus, both parties acted as if the fax were an offer for sale.

The district court based its decision on the fact that MTHF was “a potentially dangerous new drug,” and important safety and liability terms, which Merck’s expert testified were standard in the industry, were missing. The Federal Circuit did not find this reasoning persuasive. First, the record did not show that MTHF was a dangerous new drug. To the contrary, as Merck represented to the district court, MTHF was “sold as a folate supplement, similar to folic acid in most people’s common understanding.” Second, Merck’s witness’ testimony could not trump the unambiguous documentary record. Although the witness testified that Merck would not have sold MTHF to Weider without first resolving certain safety and liability issues, his post hoc testimony could not override what was abundantly plain from the price, quantity, and delivery terms on the face of the September 9, 1998 fax. Simply put, a witness’ testimony—which was given in May 2015 about events occurring nearly seventeen years before—could not supersede the contemporaneous documentary evidence.

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