Secret Sales Trigger the On-Sale Bar under the Patent Statute, Says the Supreme Court

Arne Hans, Ph.D.

By Arne Hans. A member of our Patent Practice Group

March 2019 IP Update

Before enactment of the America Invents Act (AIA) in 2011, it was understood that an inventor’s secret commercialization of an invention through sale or use can operate like prior art against that inventor’s subsequent patent application. The U.S. Supreme Court recently considered  whether, under the AIA, 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 the patent statute.

In  Helsinn Healthcare v. Teva Pharmaceuticals, the court unanimously held that it does, based on the history of the on-sale bar, precedent under prior versions of the Patent Act, and Congress’s apparent agreement with such precedent. As the Court reasons, every patent statute since 1836 has included an on-sale bar.

In the patent statute in force immediately before the AIA took effect, a person could not be granted a patent if “more than one year prior to the date of the application for patent in the United States … the invention was on sale” in the U.S. The AIA retained the “on sale” language, but added a catchall phrase: “A person shall be entitled to a patent unless” the “claimed invention was … in public use, on sale, or otherwise available to the public.”

Helsinn is a Swiss pharmaceutical company that makes a drug to treat chemotherapy-induced nausea and vomiting. In 2001, it entered into an agreement with a U.S. distributor to market, distribute, and promote a certain dose of the drug in the United States. Under the agreement, the U.S. distributor was required to keep dosage and other proprietary information confidential, but the existence of the agreement itself was made public in a press release and in SEC filings. Almost two years later, in 2003, Helsinn filed a provisional patent application for the same dose of the drug as the one that was marketed and sold.

Teva Pharmaceuticals was sued by Helsinn Healthcare for patent infringement after manufacturing and marketing a generic version of Helsinn’s drug. In response, Teva argued that Helsinn’s patent, which claimed priority to the provisional patent application filed in 2003, was invalid based on the on-sale bar. It pointed out that the patented dose of the drug had been on sale in the U.S. for almost two years before Helsinn filed its patent application.

Helsinn contended that the on-sale bar should not apply because the dose of the medication, i.e., an important detail of the invention, was not available to the public. Helsinn argued that the AIA’s catchall phrase, “otherwise available to the public,” implied that the scope of the preceding word “sale” was limited to public sales. A sale subject to a confidentiality agreement was, according to Helsinn, not available to the public and should therefore not fall under the on-sale bar.

Although a federal judge in New Jersey agreed with Helsinn’s argument, that holding was reversed by the Federal Circuit.

The Supreme Court affirmed its own precedents and the long-held position of the Federal Circuit that, even under the AIA, secret sales can invalidate a patent. For example, the Federal Circuit has found that an inventor’s own prior commercial use, even if kept secret (such as in Woodland Trust v. Flowertree Nursery), or secret sales to a customer that wishes to stockpile inventory (such as in Special Devices v. OEA), may be considered a public use or sale and bar the inventor from obtaining a patent. A single sale, public or not, can be fatal to patent rights.

The Supreme Court noted that, in preserving the on-sale bar in the AIA, Congress had apparently agreed with prior interpretations of the on-sale bar, including cases that found secret sales to be sufficient to trigger the one-year period for filing a patent application.  The court agreed with a remark made at oral argument by the United States (acting as a friend of the court) that adding  “or otherwise available to the public” to the statute would be a “fairly oblique way of attempting to overturn” settled law.

Thus, the Court concluded that addition of a broad catchall phrase containing the word “otherwise” was not a sufficient basis for concluding that Congress intended to change the meaning of the term “on sale.” As a consequence, an inventor’s sale to a third party of a product embodying an invention, even if that third party is required to keep the invention confidential, can qualify as prior art under the patent statute and thus invalidate a patent.