The America Invents Act (AIA), passed almost five years ago, continues to substantially change patent law in the United States — and questions about the law’s effects are still being litigated. One important question currently being litigated before the Court of Appeals for the Federal Circuit is at the heart of Helsinn Healthcare SA v. Teva Pharmaceuticals USA Inc.

In that case, patent holder Helsinn reached an agreement to sell rights in a drug it had developed but was still testing more than a year before it filed a patent application on that drug. Helsinn used the money from the sale to complete testing and work on the drug. Helsinn’s sale, however, did not result in any drug being available to the public. After the patent issued, Helsinn sued Teva for infringing its patent on the drug in question. Teva argued that the commercial sale of rights in the drug more than a year prior to the filing of the patent application barred Helsinn from obtaining a patent on the drug.

Prior to the AIA, this would have been a clear win for Teva. But, post-AIA, a Texas District Court ruled that the Helsinn patent was not invalidated by what would have historically been an on-sale bar. So how could this issue have recently been argued before the Court of Appeals for the Federal Circuit?

Does a secret sale of a product constitute prior art that can invalidate a patent?

Prior to the passage of the AIA, this question was well settled. Secret sales of a product were prior art that could be used to deny a patent as obvious or not new in light of the product secretly sold. For example, in Metallizing Eng’g Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516, 520 (2d Cir. 1946) the Court stated that “it is a condition upon an inventor's right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly.” This precedent interpreted the Patent Act of 1952 which predated the AIA and stated:

A person shall be entitled to a patent unless . . . the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of application for patent in the United States.

Patent Act of 1952, 35 U.S.C. § 102(b). Underpinning the inclusion of secret sales within “on sale” is the idea that an inventor should not be able to hold an invention as a trade secret for a number of years, profit from the invention, and thereafter be granted a patent. This, if allowed, would essentially extend an inventor’s patent monopoly beyond the specified term. Such a result would run counter to the purpose of the patent system, to promote the advancement of science by encouraging the public disclosure of inventions in exchange for a limited monopoly. Thus, the interpretation of “on sale” to include secret sales incentivized an inventor to more quickly file for a patent and disclose their invention.

But, the AIA changed the relevant language of 35 U.S.C. § 102:

A person shall be entitled to a patent unless . . . the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.

Before the Federal Circuit, Teva argued, consistent with the precedent described above, that Helsinn’s secret sale more than one year prior to filing its patent application invalidated the patent asserted against Teva. Helsinn argued that the AIA changes to the statute required a sale to be public for the sale to be invalidating prior art.

The answer to the question — Does a secret sale constitute prior art under the AIA? — therefore turns on the interpretation of the AIA and congressional intent.

Helsinn’s position, that only public sales constitute invalidating prior art, is premised primarily on the argument that the “otherwise available to the public” clause modifies the preceding “on sale clause.” The catch all, “otherwise available to the public,” indicates that all invalidating prior art must be available to the public. Thus, a secret sale cannot invalidate a patent.

The U.S. Patent and Trademark Office (PTO), supported Helsinn’s interpretation of the statute, pointing to evidence of legislative intent to require invalidating sales to be public. In amicus briefing the PTO pointed out, among other legislative history, that during consideration of the AIA, “Senator Leahy explained that the language was ‘drafted in part to do away with precedent under current law that private offers for sale or private uses . . . may be deemed patent-defeating prior art.’ 157 Cong. Rec. S1496 (daily ed. Mar. 9, 2011) (statement of Sen. Leahy).” The PTO also argued that the policy underlying secret sales as prior art, to encourage patent filing, is furthered by the AIA’s change to a first inventor to file system. The race to file a patent provided the incentive to file quickly, so the policy of including secret sales as prior art was no longer needed.

Teva, on the other hand, argued that the clause “otherwise available to the public” does not modify the preceding “on sale clause,” and that Congress would have been more explicit in overruling decades of precedent. Congress could have stated “on public sale” or “on sale publicly” rather than rely on the residual clause “otherwise available to the public.” Teva further asserted that the residual clause “otherwise available to the public” addresses communication not available during the drafting of the 1950’s Patent Act such as the use of computers, tweets, and videotapes. Teva noted that “All of those things are now potentially within the publicly available clause because it just reaches anything that is otherwise publicly available.”

Given the inherent vagaries of statutory construction, either side’s arguments could persuade the court. As such, this case is a good illustration of the ever-changing nature of patent law and the importance of following best practices. Since the AIA change to a first-inventor-to-file system, it has been best practice to have a patent application on file before any disclosure, secret or public. If a patent application is on file before a secret or public sale, as consistent with current best practices, the Helsinn/Teva issues can be avoided.

Although the outcome of this case is important at the margins (e.g., maintaining secret sales as prior art makes it easier to invalidate patents) filing a patent application before any disclosure or commercialization is and remains the best practice. And make sure you talk to your patent counsel about any plans to license or sell technology prior to filing a patent application.