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Pitfalls When Commercializing Products Developed From Joint Research.

Joint development agreements often contain supply terms by which one party agrees to sell products to the other party. Those products might already exist or might exist after some joint development.

Supply terms in a joint development relationship can constitute an offer to sell or a sale of an invention as of the date that the product is reduced to practice and/or is transferred to the other party. This was at issue in Enzo Biochem Inc. v. Gen-Probe Inc.1

Enzo sued Gen-Probe under a patent issuing from an application filed in January 1986. However, in 1982, Enzo entered into a joint research agreement with another party under which Enzo developed the patented technology. The joint research obligated Enzo to supply, and the other party to buy, products incorporating the technology. Such a product was in fact transferred to the other party in 1984.

Gen-Probe successfully argued (1) that the agreement constituted a binding, commercial offer to sell at least as early as the date that Enzo supplied the product to the other party and (2) that the offer to sell took place more than one year before Enzo filed its application; therefore, the Enzo patent was invalid.

Enzo tried but failed to sidestep the on-sale bar. Enzo unsuccessfully asserted that the joint research agreement was primarily related to research and development, shielding the supply provisions from triggering the on-sale bar. The Federal Circuit disagreed. The fact that the supply provisions existed within the confines of a research program did not alter the commercial nature of the supply provisions. One party was obligated to sell, and the other party was obligated to buy. This was not an experimental sale, because the product at issue had already been reduced to practice.

One lesson from Enzo is that joint development parties should not delay identifying patentable inventions resulting from the joint research and then should promptly file patent applications on selected opportunities. Another lesson is that research and supply terms perhaps should be set forth in separate agreements2 and perhaps condition the binding aspect of the supply terms on the occurrence of a future milestone.

Many joint development agreements include license grants between the parties. Commonly, the license grant allows a party to commercialize a product yet to be developed. A license grant does not necessarily trigger the on-sale bar in the same manner as Enzo-type supply obligations.3

In re Kollar involved a license for a patented method, and part of the court’s analysis involved the observation that a process is not a tangible item that is sold like a product. This suggests that In re Kollar might apply only when patented methods are at issue. However, its overall analysis that a license confers merely a right to commercialize should apply conceptually just as well to product licenses. The better view, therefore, is that mere grant clauses in a joint development agreement are not an offer to sell or a sale. Mere grants should not trigger the on-sale bar absent other provisions in the agreement that constitute an offer for sale or constitute binding supply terms.

1 76 USPQ2d 1616 (Fed. Cir. 2005).
2 For example, a supply agreement might be attached to a joint research agreement as an exhibit.
3 Such a grant “only contemplates that ‘resultant products’ could potentially be sold[.]” In re Kollar, 62 USPQ2d 1425 (Fed. Cir. 2002).