Merck Uses Pre-Negotiation Agreement to Defeat On-sale Bar Claim

Written By: Jacob Blumert

In Merck & Cie v. Watson Labs., Inc., No. CV 13-1272 (D. Del. Aug. 31, 2015), Judge Andrews analyzed the requirements of the offer for sale bar in the context of pharmaceutical compounds. Merck asserted infringement of U.S. Patent No. 6,441,168 (“‘168 Patent”) in response to Watson’s filing of two ANDAs. Id. at 1-2. Watson asserted that Merck’s patent was invalid for being anticipated, under 35 U.S.C. § 102, for being on-sale or being offered for sale more than one year prior to the filing date of the patent application. Id.

More than one year prior to filing the application resulting in the ‘168 Patent, Merck entered into negotiation with Weider Nutrition International (“Weider”) regarding a strategic partnership to introduce dietary supplements which utilized the compounds covered by the ‘168 Patent. Id. at 3-4. As part of this negotiation, Merck and Weider entered into a Confidentiality and Noncompetition Agreement (“CDA”) which stated that “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.” Id. at 3. Though Merck later provided terms for the purchase of the new compounds including price, quantity, delivery, and payment, ultimately, Merck did not complete a sale of the claimed compounds.

At trial, Watson introduced evidence that employees of Weider believed that a sale had occurred and had expected Merck to deliver the new compounds. Id. at 4-5. Additionally, Watson asserted that Plaintiffs’ communications contained all necessary terms for a sale, and thus, the new compounds were at least offered for sale. Id. at 4. In response, Merck argued that, pursuant to the CDA, no transaction was legally binding until there was a signature by both parties. Id. at 5-6. Merck also argued that a sale could not have occurred without additional negotiation, as there were outstanding terms that were not specified in the communications between Plaintiffs and Weider. Id. at 6.

Finding in favor of Merck, the Court held that because further “manifestation of assent” was required by the CDA, i.e., the signature of both parties to specific terms of an agreement, the communications between Plaintiffs and Weider were not an offer that could be made binding upon acceptance. Id. Additionally, the Court found that the missing industry-standard terms would be important terms for a sale of a new compound: “[i]t seems to me that determining liability apportionment for a potentially dangerous new drug would be very important to a sale.” Id. Thus, Judge Andrews concluded that the communications between Merck and Weider were not definitive enough to constitute an offer. Id. at 7-8.