SCOTUS to Clarify AIA’s On-Sale Bar

July 30, 2018
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When the U.S. Supreme Court reconvenes in the fall, one of the most closely-watched intellectual property cases on the docket will be Helsinn Healthcare v. Teva Pharmaseuticals.

The issue before the justices is whether, under the Leahy-Smith America Invents Act (AIA), 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. 

SCOTUS to Clarify AIA’s On-Sale Bar

Pre and Post AIA On-Sale Bar 

The on-sale bar, a long-standing principle of U.S. patent law, provides that an invention is ineligible for patent protection if it has been offered for sale for over one year prior to the patent filing. There are several rationales that support the on-sale bar, one of which is to obtain widespread disclosure of new inventions to the public via patents as soon as possible. Another reason is to discourage “the removal of inventions from the public domain which the public justifiably comes to believe are freely available.” Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 549, 16 USPQ2d 1587, 1591 (Fed. Cir. 1990). 

The on-sale bar is codified under the Patent Act. Under the Pre-AIA 35 U.S.C. 102(b):

A person shall be entitled to a patent unless … (b) 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. 

In interpreting the above provision in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), the Supreme Court held that two conditions must be satisfied for the on-sale bar to apply: first, “the product must be the subject of a commercial offer for sale,” and, second, “the invention must be ready for patenting.” 

The AIA dramatically altered the U.S. patent system by converting it to a first-inventor-to-file system. The AIA also redefined prior art, including the on-sale bar. As amended by the AIA, 35 U.S.C. 102(b) now states:

A person shall be entitled to a patent unless— (1) 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. 

The crux of the case before the Supreme Court is how the insertion of the language “otherwise available to the public” impacts the on-sale bar. Petitioner Helsinn Healthcare S.A. (Helsinn) argues that the phrase limits the scope of the on-sale bar to only cover publicly available sales activity, a view which is supported by the U.S. Patent and Trademark Office (USPTO). Under its revised guidelines to patent examiners following enactment of the AIA, the USPTO explained, sales “among individuals having an obligation of confidentiality to the inventor” do not constitute prior art under the AIA.

Facts of Helsinn Healthcare v. Teva 

The case involves Helsinn’s flagship drug, Aloxi®, which is used to treat cancer patients suffering from chemotherapy-induced nausea and vomiting. The patents-in-suit purport to disclose novel intravenous formulations using unexpectedly low concentrations of palonosetron that were not taught by the prior art. All four of the patents-in-suit claim priority to a provisional patent application filed on January 30, 2003. Thus, the critical date for the on-sale bar is one year earlier, January 30, 2002. 

In 2001, Helsinn entered a license agreement and a supply and purchase agreement with MGI Pharma. Under the agreements, MGI agreed to make upfront payments, and to pay future royalties if Helsinn’s products obtained approval from the U.S. Food and Drug Administration (FDA). The agreements, which described the 0.25 and 0.75 mg palonosetron doses, bound MGI to keep confidential petitioner’s proprietary knowledge related to the products, including the proposed novel formulations. As a public company, MGI was required to file a Form 8-K with the Securities and Exchange Commission (SEC) disclosing the agreements. While MGI attached the agreements to the filing, it redacted the covered palonosetron formulations, consistent with its contractual obligation. Helsinn and MGI simultaneously announced the agreements in a press release, again omitting the details of the palonosetron formulations. 

In 2011, Teva Pharmaceuticals USA, Inc. (Teva) filed an abbreviated new drug application (ANDA) seeking FDA approval to market a generic version of Helsinn’s 0.25 mg palonosetron product. Its ANDA included a so-called “Paragraph IV” certification that Helsinn’s patents were invalid or would not be infringed by Teva’s generic version. Pursuant to the Hatch-Waxman Act, Helsinn filed a patent infringement action.

Federal Circuit’s Decision 

While the district sided with Helsinn, the Federal Circuit Court of Appeals reversed. It held that the public disclosure of the existence of a commercial sale invalidates a patent, even if the claimed invention itself remains secret and is not available to the public.  “[T]he asserted claims of the patents-in-suit were subject to an invalidating contract for sale prior to the critical date of January 30, 2002, and the AIA did not change the statutory meaning of ‘on sale’ in the circumstances involved here,” the court wrote. 

In reaching its decision, the Federal Circuit noted that, prior to the AIA, it held that an inventor’s secret sale of an invention to another party could constitute a “commercial offer for sale.” It went on to conclude that there was insufficient evidence to reverse that precedent, finding that Congress’s intent to change the law was not sufficiently clear. Accordingly, the Federal Circuit rejected the argument that the AIA’s legislative history strongly suggests that Congress’s intent in adding the residual phrase “or otherwise available to the public” was to eliminate “secret sales” as prior art. 

Supreme Court Review of On-Sale Bar 

The Supreme Court granted Helsinn’s petition for certiorari and will hopefully provide much-needed clarity regarding the America Invents Act’s on-sale bar provision. Given that prospective patentees often enter into similar confidential agreements, which may also be subject to disclosure under federal securities laws, the Court’s decision could have significant implications. Oral arguments have not yet been scheduled for next year’s term. However, a decision is expected by next June.

If you have any questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Jason LaBerteaux, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.