A Chance for High Court to Clarify On-Sale Bar

This term, the U.S. Supreme Court will consider for the first time the scope of the “on-sale” bar under the America Invents Act, specifically with respect to nonpublic — or secret — sales of an invention. Helsinn Healthcare SA v. Teva Pharmaceuticals USA Inc. raises the question of whether a sale that imposes confidentiality restrictions on the purchaser, and does not make the details of the invention available to the public, constitutes an invalidating prior sale under the AIA, as it would have been under the pre-AIA framework.

This is an important question for life sciences and tech where product development often requires collaboration among several companies and years of work to launch a product. The on-sale bar blocks entities from securing patent protection for an invention that was on sale before the patent application date, subject to a one-year grace period for the applicants’ own activities. Uncertainty over what qualifies as an invalidating prior sale clouds product development and may call into question the validity of patent claims with an effective filing date after March 16, 2013 — the effective date for post-AIA Section 102. An on-sale bar with unclear contours undermines the patent system’s goal to promote progress of the useful arts because it leaves both patent owners and their competitors in the dark.

In Helsinn, the Supreme Court can provide further certainty regarding what activities place a claimed invention “on sale” to create a bar to patentability.

Innovation and Competition Benefit From Clear Rules of Patentability
In today’s economy, complex research and product development often involves cooperation among multiple companies. Innovators need to know which activities trigger the on-sale bar and start the clock on the one-year grace period for filing patent applications. Certainty also benefits competitors and other companies considering a challenge to a patent’s validity. Regardless of the outcome, the court can provide further clarity as to what constitutes a commercial offer for sale under the Supreme Court’s 1998 decision in Pfaff v. Wells Electronics Inc. In Pfaff, the high court held that a commercial offer for sale of an invention that is ready for patenting triggers the on-sale bar under pre-AIA law

The Helsinn case highlights the challenge of striking the right balance between innovation and competition, particularly in fields that require extensive testing and regulatory approvals. For example, many small companies researching pharmaceuticals or biologics require extensive testing and clinical trials to obtain regulatory approval. These companies may lack the resources and experience to perform the required testing so they must partner up with larger companies to bring the products through regulatory approval to market. Under pre-AIA law and the Federal Circuit’s ruling in Helsinn, the structure of any such relationship, as reflected in the governing agreements, is critical to determining whether the on-sale bar is triggered. Agreements that are more akin to joint development agreements or contracts for services (e.g., manufacturing or testing services), with title to the underlying product remaining with the potential patentee, are more likely to avoid the on-sale bar.[1]

Potential for Missteps and Abuse
Although MedCo and other cases have given some guidance as to what constitutes a commercial sale under Pfaff, the risk of contravening the on-sale bar remains. For example, a claim to a process may not be as amenable to a MedCo-type arrangement and a sale might be found for a process where the manufacturing services required performing the claimed process. Moreover, unlike MedCo’s partner, which received only a small fraction of the product value for its “manufacturing services,” a partner may not be willing to provide the needed services without some sort of guarantee for being involved in the ultimate commercialization of the invention. As in Helsinn, however, a requirements contract where a patentee agrees to purchase all future needs from the partner can trigger the on-sale bar.[2]

Although confidentiality played a part in the MedCo case, it was not dispositive. Helsinn and its supporters advance an argument whereby confidentiality would be dispositive because the invention would not be “available to the public.” If the court accepts Helsinn’s argument, even commercial sales could be exempt from the on-sale bar provided sufficient confidentiality restrictions are put in place to prevent the public from learning the details of the invention. While such an outcome does provide a measure of certainty, it raises the potential for abuse. As Teva and the amici supporting affirming the decision point out, such a rule without other limits could allow an inventor to commercially benefit from the invention for an extended period before seeking patent protection, particularly where the customer base is small and/or the invention is difficult to reverse engineer. Moreover, there is more than a little disagreement as to whether the AIA’s adoption of the first-to-file approach is itself sufficient to prevent this scenario.

Another area of potential concern arises with respect to patents that were examined under the U.S. Patent and Trademark Office’s interpretation of the post-AIA on-sale bar. The PTO has generally taken the position, contrary to the Federal Circuit’s decision in Helsinn, that confidential sales that do not make the invention available to the public do not trigger the on-sale bar.[3] If the Supreme Court affirms the Federal Circuit decision, patentees and applicants whose applications were examined under the PTO’s post-AIA approach may need to reevaluate prior art disclosures. Moreover, applicants who made filing decisions based on the PTO’s interpretation may be forced to reevaluate whether to pursue applications or rely solely on trade secret protection if their grace period expired before their applications were filed.

Alternative Solutions
If the on-sale bar is to balance allowing inventors time to develop their inventions and determine their viability — while preventing the inventors from extending the time that they can exclude competitors from doing so — then solutions other than those offered by the parties in Helsinn might be considered. What if the Supreme Court defined a commercial offer for sale to exempt transactions related to development and testing for regulatory approval? For example, could the Supreme Court find that any invention that requires U.S Food and Drug Administration approval cannot be “on sale” before FDA approval? This would provide a date certain upon which the inventors and competitors could rely as the earliest date to trigger the on-sale bar. Moreover, it has some parallel to the safe harbor provisions of 35 U.S.C. § 271(e), which shield from infringement certain acts reasonably related to obtaining regulatory approval. The challenge with such an approach is that policy making is more appropriately addressed by Congress than the courts.

Originally published in Law360 on December 3, 2018 (subscription required).

[1] Medicines Co. v. Hospira Inc. , 827 F.3d 1363, 1381 (Fed. Cir. 2016) (“MedCo”).

[2] Helsinn Healthcare SA v. Teva Pharmaceuticals USA Inc. , 855 F.3d 1356 (Fed. Cir. 2017).

[3] See MPEP § 2152.02(d) (post-AIA “on sale” does not reach sales between parties with confidentiality obligations to each other).