On May 1, 2017, the Federal Circuit issued its opinion in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., Nos. 2016-1284 and 2016-1787 (Fed. Cir. May 1, 2017). In a panel decision authored by Judge Dyk, the Court held that sales or offers for sale that do not publically disclose the details of an invention may still qualify as prior art for post-AIA patents. Notably, the USPTO has been operating under the presumption that such sales or offers for patents filed after March 16, 2013 are not prior art. See, e.g., M.P.E.P. § 2152.
Before the passage of the AIA, both the Supreme Court and the Federal Circuit held that “secret” prior art (such as certain uses, sales, or offers for sale) may serve as invalidating prior art without disclosing the “details of the invention” to the public. Slip Op. at 22-23. In enacting the AIA, Congress amended § 102 to prohibit patenting of an “invention [that] 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.” 35 U.S.C. § 102(a)(1) (emphasis added). Helsinn (the patentee) argued that by including the phrase “or otherwise available to the public,” Congress legislatively repealed the jurisprudence allowing for the use of “secret” prior art. Slip Op. at 22.
The Federal Circuit rejected Helsinn’s argument as overbroad. Helsinn relied primarily on several floor statements suggesting that Congress intended to prevent “secret” prior art from invalidating a patent. Slip Op. at 20-21. The Federal Circuit reviewed these statements, and determined that they were all directed to secret “uses,” not to secret “sales” or “offers for sale.” Id. Because the issue of secret “use” was not raised in this case, the Court did not determine whether the AIA excludes “secret uses” from serving as prior art. Id.
With respect to whether “sales” or “offers for sale” must disclose details of the invention, the Federal Circuit found “no indication” that Congress intended to overrule the Court’s prior cases. Slip Op. at 26. The Court reasoned that, “[i]f Congress intended to work such a sweeping change to our on-sale bar jurisprudence and wished to repeal these prior cases legislatively, it would do so by clear language.” Id. (quotations omitted). Accordingly, “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.” Id. at 27.
The Federal Circuit did not address the circumstance in which a sale (or offer) is itself “secret,” as opposed to a publically known sale that fails to disclose the “details of the invention.” Rather, in Helsinn, there was no dispute that the sale itself (which was announced in a public filing) was public. Slip Op. at 21. Therefore, the Court noted that “[e]ven if the floor statements were intended to overrule [pre-AIA] secret or confidential sale cases … that would have no effect here since those cases were concerned entirely with whether the existence of a sale or offer was public.” Id. The Court’s reasoning leaves open whether the AIA changed the law with respect to non-public sales or offers, whether or not such sales disclose the “detail of the invention.”
Today, the Supreme Court issued its opinion in Impression Products, Inc. v. Lexmark International, Inc., No. 15-1189, 581 U.S. ___ (2017), and considered two important issues relating to patent exhaustion: whether post-sale restrictions can prevent the application of patent exhaustion, and whether foreign sales should be treated differently than domestic sales. The Court answered both questions in the negative. Chief Justice Roberts authored the majority opinion, which reversed an en banc decision of the Federal Circuit, and held that “restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale.” Slip. op. at 5.
In the first part of the opinion, the unanimous Court (Justice Gorsuch did not participate in this decision) concluded that post-sale restrictions do not enable the patent owner to avoid application of the patent exhaustion doctrine. Focusing on the doctrine’s relation to the common-law doctrine against restraints on alienation, the Court stated that “extending the patent rights beyond the first sale would clog the channels of commerce, with little benefit from the extra control that the patentees retain.” Id. at 7-8. In the Court’s view, the Federal Circuit’s Opinion which held that post-sale restrictions were valid contained “a misstep in . . . logic,” because “the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on the scope of the patentee’s rights.” Id. at 10 (citing United States v. General Elec. Co., 272 U.S. 476, 489 (1926)) (internal quotation marks omitted). Therefore, application of the doctrine of patent exhaustion is “ uniform and automatic,” and the first sale, “whether on its own or through a license . . . exhausts [the] patent rights, regardless of any post-sale restrictions the patentee purports to impose. ” Slip. op. at 13.
On the issue of whether foreign sales exhaust patent rights in the United States, a 7-1 majority of the Court applied reasoning from a recent copyright case, Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519 (2013), and held that “an authorized sale outside the United States, just as one within the United States, exhausts all rights under the Patent Act.” Id. at 13. The Court rejected Lexmark’s argument that the patent rights should not be exhausted by foreign sales because of the “territorial limit on patent rights,” stating that “[e]xhaustion is a separate limit on the patent grant, and does not depend on the patentee receiving some undefined premium for selling the right to access the American market.” Id. at 15. The Court also rejected a “middle-ground position” advocated by the U.S. in an amicus brief, that a foreign sale exhausts the patentee’s rights “unless those rights are expressly reserved.” Id. at 16-17. The Court concluded that the “sparse and inconsistent decisions” cited by the government for the express-reservation rule “provide no basis for any expectation, let alone a settled one, that patentees can reserve patent rights when they sell abroad.” Id. at 17. Therefore, the first authorized sale, whether in the U.S. or not, exhausts the patentee’s rights under the Patent Act.
Justice Ginsburg dissented from the Majority’s opinion regarding international exhaustion, arguing that because of the territorial nature of patent law, “it makes little sense to say that [a foreign] sale exhausts an inventor’s U.S. patent rights.” Slip. Op., Ginsburg, J., dissenting. Justice Ginsburg also disagreed with the Majority’s application of the reasoning in Kirtsaeng, and would have held that a foreign sale does not exhaust the patentee’s U.S. patent rights. Id.