The AIA and the On-Sale Bar... It Still Applies to Confidential Sales
This January the US Supreme Court decided Helsinn Healthcare v. Teva Pharmaceuticals, Inc. et al., questioning whether the America Invents Act changed the meaning of “on-sale” under §102 to only apply to public offers for sale? Case No.: 17-1229 (SCOTUS Jan. 22, 2019). The Court found that given the AIA’s use of the exact same language as pre-AIA §102 and well-settled precedent on confidential sales, there was not a strong enough demonstration that Congress intended to alter the term’s meaning.
The on-sale bar prohibits patent applicants from obtaining patent protection where the invention was on-sale prior to application for patent. Pre-AIA, this bar applied to both public and confidential sales. The same is true under the AIA also, as indicated in Helsinn Healthcare; however, the AIA limited the 1-year grace period for the on-sale bar to apply only when the inventor or “another who obtained the subject matter disclosed []from the inventor…” made the disclosure – in this case an offer for sale – or public disclosure preceding it. §102(b)(1). The purpose of the on-sale bar, as Justice Thomas wrote for the unanimous Court, is to prevent
“allow[ing] an inventor to remove existing knowledge from public use” by obtaining a patent covering that knowledge. [Next quoting Pennock v. Dialogue (1829)] explaining that “it would materially retard the progress of science and useful arts” to allow an inventor to “sell his invention publicly” and later “take out a patent” and “exclude the public from any farther use than what should be derived under it.”
In other words, the on-sale bar serves to restrict inventors from manufacturing a de facto extension of patent term, obtaining an “undue advantage over the public by delaying to take out a patent, inasmuch as he thereby preserves the monopoly to himself for a longer period than is allowed by the policy of the law…” Elizabeth v. Pavement Co. One might expect that the confidentiality of a sale would not alter this term-gouging policy concern.
This case originated as an infringement suit in the District Court of New Jersey. Helsinn Healthcare obtained several patents to anti-chemotherapy-induced nausea medication. Almost two years before filing for patent protection, Helsinn partnered with a pharmaceutical company, MGI Pharm, to market and distribute its medication. MGI made royalty payments to Helsinn for these rights. Though announcements of the sale itself were made public, the licensing and purchase agreements required MGI to keep confidential any proprietary information related to the invention. Though Helsinn’s patenting began well before the effective date of the AIA, continuation-in-part US Pat. No.: 8,598,219, which is the subject of this litigation, is an AIA case due to its effective filing date after March 15, 2013. Helsinn asserted the ‘219 patent against Teva Pharm, who raised the on-sale bar in defense.
A redline version of §102 pre-AIA versus AIA shows the relevant language amended by Congress in 2011.
Helsinn argued that Congress likely intended to change the scope of the on-sale bar to exclude non-public sales since Congress added the catchall phrase “or otherwise available to the public” at the end of the list of circumstances barring patentability. Helsinn argued that the associated-words canon of legislative construction should apply “available to the public” to all the preceding terms in AIA §102(a)(1). Though this argument prevailed at the district court level, it failed at the Court of Appeals and the US Supreme Court.
Under its analysis, the Court reasoned that it is well-settled precedent that confidential sales outside of the grace period count as prior art against the invention for patent, without regard to whether the offer disclosed each detail of the invention. citing Pfaff, Consolidated Fruit-Jar and Elizabeth v. Pavement Co. The Court went on to cite Court of Appeals precedent Special Devices and Woodland Trust. This well-settled precedent combined with use of the same pre-AIA language in the AIA caused the Court to presume that Congress did not intend to alter the on-sale bar. “In light of this settled pre-AIA precedent on the meaning of ‘on sale,’ we presume that when Congress reenacted the same language in the AIA, it adopted the earlier judicial construction of that phrase. See Shapiro v. United States.” The addition of the catchall phrase alone was not strong enough to demonstrate congressional intent to change the meaning of the reenacted term “on-sale.” Moreover, the precedent offered by Helsinn was distinguishable because it did not address the reenactment of terms that had acquired a well-settled judicial interpretation as did §102’s on-sale bar.
Therefore, patent stakeholders should understand that the AIA did not change the on-sale bar with respect to confidential sales. Business should proceed as usual. Even confidential offers for sale will likely toll the one-year grace period for being “on sale” under §102. As the Court pointed out a mere two conditions are required for an invention to be on sale.
“First, the product must be the subject of a commercial offer for sale.”[] “Second, the invention must be ready for patenting,” which we explained could be shown by proof of “reduction to practice” or “drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.”
As a matter of habit, your corporate client’s engineers should document their inventions in the company’s record-of-invention system as soon as possible and alert patent practitioners of any associated commercial offers for sale as soon as they occur. This is especially true for suppliers.
