United States: Supreme Court Unshrouds The ‘On Sale' Bar As Applied To Secret Sales

This week, the Supreme Court issued a decision holding that a secret sale qualifies as prior art. At issue was whether the America Invents Act (AIA) changed the "on sale" bar to patentability to exempt secret sales as prior art.¹ The case, Helsinn Healthcare v. Teva Pharmaceuticals USA, arose out of agreements entered into by Helsinn and MGI Pharma, to which Helsinn granted the right to sell a treatment used to reduce nausea caused by chemotherapy. The agreements included a provision requiring MGI Pharma to keep confidential any proprietary information received under the agreements. Approximately two years after execution of the agreement, Helsinn filed four provisional patent applications covering the treatment.

Helsinn asserted its patents against Teva, which sought to market a generic version of the treatment. Teva raised a defense contending that Helsinn's patents were invalid under the "on sale" provision of the AIA. The District Court sided with Helsinn and held that the "on sale" provision did not apply because the public disclosure of the agreements did not disclose the specific dose of the treatment. On appeal, the Federal Circuit reversed and held that the sale was publicly disclosed, regardless of whether the details of the invention were publicly disclosed in the agreements.

The Supreme Court unanimously affirmed the Federal Circuit's holding. The Supreme Court held that "[a] commercial sale to a third party who is required to keep the invention confidential may place the invention 'on sale' under §102(a)."² The holding articulated that the AIA's addition of the catchall phrase "or otherwise available to the public" to §102(a) "is not enough of a change for the Court to conclude that Congress intended to alter the meaning of 'on sale.'"³

The Supreme Court's opinion in Helsinn reiterated Federal Circuit precedent holding that even a sale that is not publicly known would qualify as prior art. The opinion clarifies that the pre-AIA criteria for a sale under §102(a) have not changed. Those criteria, established in the 1998 case Pfaff v. Wells Electronics, merely include (1) that the product is the subject of a commercial sale or offer for sale and (2) that the invention is ready for patenting.⁴ Public disclosure of the sale itself is not a criterion. Additionally, the opinion cites to long-standing Federal Circuit precedent to support the ruling that secret sales qualify as prior art.⁵

Not addressed by the Court in Helsinn was whether secret sales are afforded different treatment under AIA §102(b), which provides for a one-year grace period for disclosures made by or derived from the inventor.⁶ Congress did not define the term "disclosure" when drafting the AIA. One reading of the law would lend to an understanding of a secret sale as not constituting a disclosure, and thus not benefiting from the grace period. A stricter interpretation of the law is that a sale, secret or otherwise, goes beyond a disclosure. Under this interpretation, the execution of an agreement pertaining to an invention or commercialization of the invention instantly terminates all patent rights in the invention. Another take on the text of AIA §102(b) is that its provisions modify the bar-triggering prior art defined by AIA §102(a). Thus, the grace period would apply to a sale, whether secret or not. Presently, the intricacies of AIA §102(b) remain unsettled.

Overall, the Supreme Court's decision in Helsinn establishes a bright line for what constitutes prior art. Effectively, the Court clarified that a sale that meets the Pfaff criteria qualifies as a sale under §102(a), regardless of an obligation to keep the sale or invention secret. The holding precludes speculative inquiry as to how much public disclosure of a sale or of details of an invention in terms of an agreement is necessary to trigger the bar. The Helsinn holding may inform strategic decisions between seeking protection of an invention by pursuing a patent versus protecting an invention by maintaining its secrecy, such as with trade secrets or nondisclosure agreements. Also, in light of the decision, caution should be exercised in the engagement of any activity that could be construed as a sale before an application is filed, lest the activity qualify as prior art. If such activity is to be conducted, an application should be filed in advance.

Footnotes

1 The "on sale" provision of the AIA precludes a person from obtaining a patent on an invention that was "in public use, on sale, or otherwise available to the public after the filing date of the claimed invention," 35 U.S.C. §102(a)(1).

2 Helsinn Healthcare v. Teva Pharmaceuticals USA, No. 17-1229, Slip. Op. at 2 (2019).

3 Id.

4 Pfaff v. Wells Electronics, 525 U.S. 55 (1998).

5 "The Federal Circuit – which has 'exclusive jurisdiction' over patent appeals, 28 U.S.C. 1295(a) – has made explicit what was implicit in our precedents. It has long held that 'secret sales' can invalidate a patent," Helsinn at 7 (citing Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1357 (2001); Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368, 1370 (1998)).

6 "A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if—(A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or (B) the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor," 35 U.S.C. §102(b)(1).

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