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Weintraub Blogs


Can Secret Sales Prohibit Patenting Your Invention?

January 31 2019

 

by Jo Dale Carothers
The IP Law Blog

Prior to the Leahy-Smith America Invents Act (“AIA”), the patent statute (35 U.S.C. § 102(b)) prohibited patenting an invention that was “on sale in this country, more than one year prior to the date of the application for patent in the United States.”  This limitation on patentability is often referred to as the “on-sale” bar because it prohibits, or bars, an inventor from obtaining a patent when the invention was on sale more than one year before the patent application was filed.  In fact, all patent statutes since 1836 have included an “on-sale” bar provision.  The motivation behind the bar comes from the U.S. Constitution, which authorizes Congress “[t]o promote the Progress of Science and useful Arts.”  Long ago, the Supreme Court determined it would impede “the Progress of Science and useful Arts” to permit an inventor to sell his or her invention while keeping the secrets of his or her invention from the public and then later get a patent when faced with the danger of a competitor.  This would improperly offer a premium, such as longer protection than the standard patent term, “to those who should be least prompt to communicate their discoveries.”  See Pennock & Sellers v. Dialogue, 27 U.S. 2 Pet. 1 1 (1829).

But what does it mean for an invention to be “on sale”?  Does the sale have to make the invention available to the public?  Does the invention have to actually be sold? Does merely offering the invention for sale trigger the on-sale bar provision?  Interpreting the pre-AIA, “on-sale” bar, the Supreme Court determined that an invention was “on sale” when two conditions are met.  First, the invention is “the subject of a commercial offer for sale,” and second, the invention is “ready for patenting.”  In other words, a mere offer for sale triggers the “on-sale” bar whether or not the sale is made.  Further, the sale or offer for sale does not have to make invention available to the public for the invention to be “on sale” and thus subject to the “on-sale” bar provision.

The AIA, however, modified the language for the “on-sale” bar provision.  Under the AIA’s 35 U.S.C. § 102(a)(1), a person shall be entitled to a patent unless the claimed invention was “… on sale, or otherwise available to the public before the effective filing date of the claimed invention.”  This change raised a question as to whether, under the AIA, a sale has to make the invention available to the public to trigger the AIA version of the “on-sale” bar.  In other words, does the phrase “otherwise available to the public” limit the types of sales that trigger the bar or can “secret sales,” such as sales under a non-disclosure or confidential agreement, still trigger the bar as they did under the pre-AIA, “on-sale” bar.

On January 22, 2019, the Supreme Court answered these questions in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc.  Specifically, in Helsinn, the Court addressed “whether the sale of an invention to a third party who is contractually obligated to keep the invention confidential places the invention ‘on sale’ within the meaning of § 102(a).”  The Court unanimously held that a confidential sale to a third party triggers the “on-sale” bar provision.  Thus the AIA did not alter the meaning of “on sale.”

Looking at the facts in Helsinn and the Court’s reasoning provides further insight.  Specifically, Helsinn owns four patents, which all claim priority to a provisional patent filed in 2003, related to the drug palonosetron used to treat chemotherapy-induced nausea.  One of the patents, the ‘219 patent, is governed by the AIA and the other three are governed by pre-AIA law.  Nearly two years before filing the provisional patent application, Helsinn entered into two agreements with MGI Pharma, Inc. (“MGI”) whereby MGI would purchase the drug from Helsinn and keep all proprietary information received under the agreements confidential.  Helsinn and MGI announced the agreements in a joint press release, and MGI reported the agreements in its Form 8-K filing with the SEC.  However, they did not disclose specific dosage formulations covered by the agreements.

Teva Pharmaceuticals USA, Inc. (“TEVA”) sought FDA approval to market a generic version of the anti-nausea drug.  In response, Helsinn sued TEVA for patent infringement.  TEVA argued the ‘219 patent was invalid because the invention was on sale more than one year before Helsinn filed its provisional patent application.  The District Court agreed with TEVA concluding that “an invention is not ‘on sale’ unless the sale or offer in question made the claimed invention available to the public.”  On appeal, the Federal Circuit reversed finding that “’if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale’ to fall within the AIA’s on-sale bar.”  Therefore, “[b]ecause the sale between Helsinn and MGI was publicly disclosed, it held that the on-sale bar applied.”

The Supreme Court then “granted certiorari to determine whether, under the AIA, an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential” triggers the on-sale bar provision.  The Court pointed out that the AIA “retained the on-sale bar and added the catchall phrase ‘or otherwise available to the public.”  Therefore, the question was whether the altered language changed the meaning of the “on sale” bar.  The Court pointed to the well-settled, pre-AIA precedent that sales and offers for sale did not have to be public to trigger the on-sale bar provision.  In fact, the Court acknowledged that the Federal Circuit had explicitly recognized the implicit precedents of the Supreme Court that secret sales can invalidate a patent under the pre-AIA “on sale” bar.  “In light of this settled pre-AIA precedent on the meaning of ‘on sale,’” the Supreme Court presumed “that when Congress reenacted the same language in the AIA, it adopted the earlier judicial construction of that phrase.”  “The new § 102 retained the exact language used in its predecessor statute (‘on sale’) and, as relevant here, added only a new catchall clause (‘or otherwise available to the public’).”  The Court determined that merely adding “or otherwise available to the public” was “simply not enough of a change” to “conclude that Congress intended to alter the meaning of the reenacted term “on sale.”  Therefore, the Court held that “an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential” can bar patentability under the AIA “on sale” bar provision.

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