District Court Rules Non-Public Sales or Offers for Sale No Longer Apply to the “On-Sale” Bar Under the AIA. The on-sale statutory bar is a limitation on patentability that prohibits an inventor from obtaining a patent, when his invention has been sold or offered for sale for over one year prior to filing for a patent. Although Congress has never defined what constitutes a “sale” for purposes of the “on-sale” bar, courts have historically held that secret sales and offers for sale, could be prior art and preclude patentability under the on-sale bar. See, e.g., Metallizing Eng’g v. Kenyon Bearing, 153 F.2d 516 (2d Cir. 1946) (Hand, J.).
In 2011, the America Invents Act (“AIA”) changed the statutory language surrounding the on-sale bar by adding the catchall phrase “or otherwise available to the public” at the end of the enumerated list of prior art categories under 35 USC § 102(a)(1). Shown below are the AIA amendments made to the original statutory language:
Novelty; Prior Art—A person shall be entitled to a patent unless—(1) the claimed 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, or otherwise available to the public more than one year prior to the date of application for patent in the United States before the effective filing date of the claimed invention;
These changes suggest that the on-sale bar now requires sales and offers for sale to be made “available to the public” in order for them to be eligible as prior art, which would mean that defendants may no longer use non-public, secret sales activity for an on-sale bar defense.
The District Court of New Jersey recently analyzed the effect of this amendment in Helsinn Healthcare v. Dr. Reddy’s Labs., No. 11-3962, 2016 U.S. Dist. LEXIS 27477 (D.N.J. Mar. 3, 2016). In Helsinn, four patents from the same family were in dispute. Each patent claimed priority to the original provisional application date, January 30, 2003, although each had different effective filing dates. Defendants raised the on-sale bar defense for all four patents, asserting as prior art various agreements that Helsinn had entered into with third parties before the critical date, which was January 30, 2002. Because of their different effective filing dates, three patents were subject to the pre-AIA on-sale bar, and one was subject to the new post-AIA on-sale bar (the post-AIA on-sale bar applies to patents with effective filing dates on or after March 16, 2013).
Although the Court concluded that Helsinn’s agreements could not be invalidating prior art because the evidence did not establish that the claimed invention was “ready for patenting” as of the critical date, the Court engaged in a lengthy statutory interpretation analysis on the meaning of the phrase “otherwise available to the public” and whether it requires sales activity to be publicly available in order to potentially qualify as prior art under the AIA. The Court concluded that only evidence of a public sale could qualify as potential prior art under the AIA, arriving at that conclusion based on: (i) statutory construction principles; (ii) published guidelines from the USPTO; (iii) legislative history of the AIA; and (iv) public policy goals underlying the AIA.
First, the Court cited the “associated-words” canon of statutory construction, which states that “when several words are followed by a clause which is applicable as much to the first and other words as to the last, the natural construction of the language demands that the clause be read as applicable to all.” See Paroline v. United States, 134 S.Ct. 1710, 1721 (2014). Second, the USPTO guidelines, which the Court noted are instructive but not binding, state that the Office views the AIA as “indicating that secret sale or use activity does not qualify as prior art,” and the relevant inquiry is focused on “whether the sale . . . made the invention available to the public.” 78 Fed. Reg. 11,062–63 (Feb. 14, 2013). Third, the legislative intent, including the “undisputed” AIA Committee Report, as the Court put it, includes statements in Senate hearings such as: “The word ‘otherwise’ makes clear that the preceding clauses describe things that are of the same quality or nature as the final clause . . . all of them are limited to that which makes the invention ‘available to the public.’” (Mar. 8, 2011 Congressional Record); and “contrary to current precedent, in order to trigger the bar in new 102(a) … an action must make the patented subject matter ‘available to the public.’” (Sept. 8, 2011 Congressional Record). Fourth, with respect to public policy goals underlying the AIA, the Court found that the new requirement comports with Congress’s goal to modernize and streamline the patent system.
Applying these principles to the facts, the Court found that Helsinn’s agreements could not be invalidating on-sale art under the AIA because they were essentially non-public agreements that were entirely subject to and performed under confidentiality restrictions. One noteworthy example was the MGI Agreement, which contracted for the supply and purchase of Helsinn’s commercial product. The Court found that the MGI Agreement did not make the claimed invention available to the public and therefore was not a public sale under the AIA. However, the Court ruled it was a “sale” under the pre-AIA on-sale bar because it was a contract for a “future commercial product,” and therefore could be considered a potentially invalidating sale for the three patents that were governed by the pre-AIA law. Thus, in theory, Defendants could have invalidated three patents in a family, but not a fourth patent, based on the same sales activity, depending on nothing other than when the patent was filed.
One Defendant, Teva Pharmaceuticals, has appealed the ruling and, as of yet, no court decisions have commented on or cited to Helsinn. However, the ruling is significant in several ways. First, it departs from decades of precedent holding that secret, non-public sales apply to the on-sale bar and eliminates a whole category of disclosures available as potential prior art. Second, it allows sales activity to be potential prior art to some patents in a family, and to not others, even though they share the same critical date. Third, it raises the issue of whether inventors may commercially exploit their inventions substantially beyond the patent term by first conducting secret sales and then filing a patent application. Fourth, it will eliminate the substantial discovery efforts often needed to obtain evidence of a secret sale, which can be an expensive endeavor, particularly where those sales may be in foreign countries. Finally, it eliminates a whole category of evidence that is heavily or wholly reliant on potentially interested third-party witness testimony. By requiring the sale or offer for sale to be publicly available, evidence to support an on-sale defense will necessarily be, by definition, publicly available.