U.S. patent law has long included an “on-sale bar,” which limits the time for filing a patent application to one year from the date the invention was sold or offered for sale. Perhaps the strongest public policy justification for the on-sale bar is to incentivize inventors to promptly apply for their patents.
The 2011 Leahy-Smith America Invents Act overhauled U.S. patent law and, among other changes, altered the wording of the provision that includes the on-sale bar.
Before the AIA, 35 U.S.C. § 102(b) prevented the grant of a patent if “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 the application for patent in the United States” (emphasis added).
The AIA version of the on-sale bar, now codified at § 102(a)(1), bars a patent if “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” (emphasis added).
The change in language — in particular, the addition of the phrase “or otherwise available to the public” — left commentators wondering whether under the AIA, a so-called “secret sale” — a sale that takes place unbeknownst to the public and subject to confidentiality obligations — avoids triggering the on-sale bar.
The Helsinn Case
The U.S. Court of Appeals for the Federal Circuit found an opportunity in 2017 to interpret the on-sale bar under the AIA. In Helsinn Healthcare v. Teva Pharmaceuticals USA, the court addressed the question of whether private and non-public offers for sale are considered the same post-AIA as pre-AIA. More recently, the Federal Circuit declined to review the issues en banc, with Judge Kathleen O’Malley elaborating in a non-precedential concurrence on the reasoning for and implications of the 2017 Helsinn panel decision.
Helsinn owned four patents related to reducing the side effects of chemotherapy-induced nausea and vomiting. Three of the patents were subject to pre-AIA law, and the fourth was evaluated under the AIA. More than a year before applying for the patents, Helsinn and another company, MGI Pharma, agreed that MGI would pay Helsinn an initial sum, together with future royalties on distribution of the products in the United States. The agreement was publicly disclosed by MGI in a public filing with the SEC, although the filing did not include the price terms or specific dosage formulations.
Teva challenged the validity of Helsinn’s patents. The district court found that the contract for sale constituted a sale under pre-AIA § 102(b), but not under the AIA’s § 102(a)(1). The court held that the AIA had changed the meaning of the on-sale bar to require that the sale or offer for sale be public, rather than secret, and that in this case, since the dosage amount was not disclosed, the sale was not public.
At the Federal Circuit, Helsinn and the United States, with the support of several amici, argued that by adding “otherwise available to the public” to § 102, Congress intended to exclude secret sales from the prior art. While acknowledging the argument, the court “decline[d] the invitation by the parties to decide this case more broadly than necessary.” Instead, the court pointed out that the existence of the agreement was not secret, having been disclosed by MGI in its public filing, and considered only the narrower question of whether the exclusion of the price and dosage amounts from the public filing saved the invention from being (publicly) “on sale.” The court answered that question in the negative, concluding that, “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.” So, while Helsinnprovides some insight on the Federal Circuit’s approach to the on-sale bar under the AIA, many related questions — as the court acknowledged — remain to be addressed another day.
Helsinn petitioned the Federal Circuit for rehearing, which the court denied on January 16, 2018. Judge O’Malley, one of three judges on the original panel, wrote a detailed concurrence to the denial, offering a glimpse into her approach.
Several of Judge O’Malley’s points reiterated the Helsinn panel’s emphasis on the flexible nature of the (pre-AIA) “offer for sale” test — which focuses on whether the parties’ activities would be understood as commercial offers for sale in the commercial community — and the non-determinativeness of the individual factors. For example, she rejected the suggestion that all sales disclosed to the public will necessarily trigger the on-sale bar, regardless of the exact nature of the disclosure. Rather, she determined, the confidentiality of a transaction is but one factor in determining whether there has been an offer for sale. Judge O’Malley similarly rejected the assertion that all supply-side arrangements for future sales will invalidate a later-filed patent, theorizing that — although admittedly difficult — it would not be impossible to structure a supply-side arrangement that does not trigger the on-sale bar.
As to whether the AIA narrowed the scope of the on-sale bar, the concurrence relied heavily on textual canons of statutory construction, such as using grammar-based analysis to reject the notion that the language “otherwise available to the public” implies that all activities triggering the on-sale bar must be fully available to “the public.” Judge O’Malley also concluded that the legislative history does not suggest a desire to alter the on-sale bar, characterizing Helsinn’s citations to senatorial statements as “at best equivocal.”
Finally, Judge O’Malley pointed out that public policy considerations behind the on-sale bar remain unchanged, and that in any event, the Supreme Court’s two-step Pfaff test is rigid and affords little room for the Federal Circuit to apply its own policy considerations.
Although there remain open questions about the on-sale bar’s application as applied to secret sales, it may be instructive to summarize the pertinent law, as set forth by the Supreme Court in Pfaff and elaborated upon in Helsinn and The Medicines Company v. Hospira. At the outset, as required by Pfaff, for the on-sale bar to apply to an offer for sale of a product embodying a claimed invention, (1) “the product must be the subject of a commercial offer for sale,” and (2) “the invention must be ready for patenting.”
Commercial Character and Coverage of Agreement
Regarding the first Pfaff prong, The Medicine Company decision held that for the on-sale bar to apply, the activity constituting the alleged offer for sale must be found to have the appropriate commercial character when “analyzed under the law of contracts as generally understood.” Relevant factors include (1) whether communications between the parties rise to the level of a commercial offer for sale under the UCC, (2) whether there is passage of title, (3) whether the transaction is confidential and (4) whether there is commercial marketing of the invention, although — as emphasized by Judge O’Malley in her concurrence — none of these factors is itself dispositive.
In addition, Helsinn clarified that “the offer or contract for sale must unambiguously place the invention on sale, as defined by the patent’s claims” (emphasis in original). Thus, it must be clear from the agreement that the claims themselves are covered.
Readiness for Patenting
Regarding the second prong of Pfaff, the Helsinn panel stated that “[u]nder Pfaff, there are at least two ways in which an invention can be shown to be ready for patenting: ‘by proof of reduction to practice before the critical date; or by proof that prior to the critical date the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.’” Reduction to practice is established when “the inventor (1) constructed an embodiment … that met all the limitations and (2) determined that the invention would work for its intended purpose.” One need only show that an invention would work for its intended purpose “beyond a probability” of failure, not “beyond a possibility” of failure. In particular, official government approval (e.g., FDA approval) is not required, and later, more refined tests do not imply that the “probability” threshold was not already met earlier. Evidence that the “probability” threshold was met can include statistical studies, statements of the inventors, meeting minutes of the engineering team, press releases and inventor declarations.
Given the emphasis of the Federal Circuit — and Judge O’Malley — on the non-determinative nature of any given one of the factors pertinent to the applicability of the on-sale bar, uncertainty remains, both as to private and to public agreements. Helsinn has filed a request for a writ of certiorari to clear up some of this uncertainty by addressing the question: “Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.” Unless and until the Supreme Court takes up and resolves this question, however, inventors should take a conservative approach and presume that even a non-public sale or offer for sale will serve as the beginning of the one-year grace period within which to file an application