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Do Secret Sales Bar Patents?

Posted in Patent Law

There is some confusion about what constitutes an “on-sale bar” in patent law. The on-sale bar, set forth in 35 U.S.C §102, prohibits a patent if the invention sought to be patented was offered for sale or sold more than one year before the patent application was filed. In other words, there is a one-year grace period after an offer for sale or sale in which a patent application may be filed. The earliest date of an offer of sale or sale is the critical date, often referred to as the “statutory bar date.” The reason for the on-sale bar is that once an invention is offered for sale, it is in the public domain, and no one should be able to patent something in the public domain. 

If a patent issues and it is later found that there was an offer for sale or sale of the invention more than one year before the patent application was filed, the patent can be invalidated. The on-sale bar can be raised as a defense in patent infringement litigation to challenge the validity of the patent and it can be raised in a separate challenge to a patent’s validity.

Both the 2013 America Invents ACT (AIA) and the pre-AIA law include the on-sale bar in §102. Under pre-AIA §102(b), a patent is barred if the invention was on sale in the United States more than one year before the filing date of the patent application. The statutory bar applies regardless of whether the sale was public or secret. Under AIA §102(a)(1), the language of the statutory bar is different; a patent is barred if the invention was on-sale “or otherwise available to the public…” more than one year before the filing date of the patent application. Thus, the AIA broadened the scope of the on-sale bar to cover offers for sale and sales anywhere in the world, rather than just in the United States. However, the phrase “or otherwise available to the public…” created an ambiguity by implying that the on-sale bar only applies to public sales.

In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. (Fed. Cir. 2017), the Federal Circuit Court of Appeals considered the on-sale bar, but did not resolve the ambiguity. Helsinn owned four patents covering a drug used to prevent nausea in patients undergoing chemotherapy. In 2001, Helsinn entered into a supply and purchase agreement with a pharmaceutical company, MGI. The parties announced the agreement in a press release and MGI filed a redacted copy of the agreement (excluding the price and the dosage terms) with the SEC. At the time the agreement was entered into, the drug was undergoing clinical trials and had not yet been approved by the FDA. In 2003, Helsinn filed a provisional patent application for the drug. In 2005 and 2006, Helsinn filed three utility applications claiming priority to the provisional, and, in 2013 filed one utility application claiming priority to the provisional. In 2011, Teva, a competitor of Helsinn, filed a new drug application in the FDA seeking approval of a generic version of Helsinn’s drug.

Helsinn sued Teva for patent infringement. Teva argued that all four patents were invalid based on the on-sale bar because Helsinn had entered into the supply and purchase agreement with MGI in 2001, over one year before the provisional application’s filing date in 2003. The trail court ruled in favor of Helsinn, holding that the on-sale bar did not apply. Teva appealed to the Federal Circuit.

The Federal Circuit explained that there is a two-part test for whether the on-sale bar applies. First, there must be a commercial offer for sale or a sale of the invention sought to be patented. Second, the invention must be “ready for patenting.” Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).

The court analyzed whether the Pfaff on-sale bar test was met. Three of the patents were governed by pre-AIA §102(b); one patent was governed by AIA §102(a)(1).

The court addressed whether the first part of the Pfaff test was met: whether there was a commercial offer for sale or sale more than one year before the patent application was filed. As for the three patents governed by pre-AIA §102(b), the court found that there was an offer for sale to MGI and that Helsinn had also marketed its drug to others. The court rejected Helsinn’s argument that there was no sale because FDA approval was a condition precedent to the actual sale, and there was no FDA approval at the time of the agreement with MGI. The court held that the need for regulatory approval or the existence of other conditions precedent do not mean that there is no contract for sale.

As to the one patent governed by the AIA, the court acknowledged that in enacting AIA §102(a)(1), members of Congress stated that the new §102 on-sale bar would apply only to sales in which the invention was made public, not to confidential sales as does pre-AIA §102. However, the court found that MGI’s filing of the supply and purchase agreement with the SEC was a public sale. The court held that it was irrelevant that certain specific terms of the agreement were not publicly disclosed.

The court did not address the key question of whether a confidential offer for sale or sale is an on-sale bar. Because most of the terms of Helsinn’s supply and purchase agreement were publicly disclosed, the court did not have to reach that question.

Next, the court addressed the second requirement of the Pfaff test: whether the invention was ready for patenting more than one year before the patent application was filed. This requirement is met if the invention has been reduced to practice (i.e., actually made and shown to work for its intended purpose) or if the invention has been described in writing in such detail that a person skilled in the art could make the invention.

Helsinn argued that its drug was not reduced to practice more than one year before it filed its patent application because it had not yet obtained FDA approval. The court stated the standard to obtain FDA approval is higher than the standard to show that a drug works for its intended purpose under patent law. The fact that more testing is required for an invention does not mean that the invention has not been reduced to practice. The court held that Helsinn knew that its drug worked for its intended purpose and therefore had reduced its invention to practice more than one year before it filed its patent application.

Because the Pfaff test was met for all four patents, the court held that the four patents were invalid based on the on-sale bar, reversing the district court.

After this decision, Helsinn filed a petition with the Federal Circuit seeking an en banc rehearing of the case. The Federal Circuit denied Helsinn’s petition. Helsinn has just filed a petition to the United States Supreme Court for writ of certiorari, asking the Court to answer the question of whether confidential sales fall within the on-sale bar. If the Court grants the petition, it will then have to decide whether Congressional intent was clear enough to change the approach of longstanding patent law.