United States: Non-Disclosing Sales Under The AIA's On-Sale Bar

On May 1, 2017, the United States Court of Appeals for the Federal Circuit (the "CAFC") issued an opinion in Helsinn Healthcare S.A. v. Teva Pharms USA, Inc.7 discussing the prior-art provisions of the America Invents Act (the "AIA"). The case presented an issue of first impression for the CAFC: did the AIA's prior-art provisions change the law about what kinds of activity would create an on-sale bar and, if so, how? The court's answer to this question is startling. It appears to contradict the Patent Office's own view of the law, as expressed in the Manual of Patent Examining Procedure, and to raise more questions than it answers about what triggers an on-sale bar under the AIA.

The AIA's on-sale bar

The AIA represents the most significant amendment to the U.S. patent system since 1952. In a long-awaited but radical change, the AIA altered the U.S. patent apparatus from a "first to invent" system to a "first inventor to file" system. To implement this change, Congress re-wrote 35 U.S.C. § 102.

The AIA version of § 102 defines at its outset the types of prior art that would prevent an inventor from obtaining a patent. The new phrase central to the Helsinn case is in bold:

  • NOVELTY; PRIOR ART.–A person shall be entitled to a patent unless–
    • 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 . . . .

In § 102(b), the statute provides a one-year grace period for certain types of disclosures made (directly or indirectly) by the inventor, and it provides some additional protection for an inventor who discloses prior to another's disclosure:

(b) EXCEPTIONS.–

  1. DISCLOSURES MADE 1 YEAR OR LESS BEFORE THE EFFECTIVE FILING DATE OF THE CLAIMED INVENTION.–A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if–
    1. the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor; or
    2. the subject matter disclosed had, before such disclosure, been publicly disclosed by the inventor or a joint inventor or another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor.

The U.S. patent system has traditionally emphasized the patent system's role in encouraging inventors to disclose their inventions to the public as quickly as possible. Thus, the pre-AIA on-sale bar prevented an inventor from obtaining a patent if the inventor waited to file a patent application for more than one year after putting the invention "on sale." The bar was triggered by sales and offers to sell regardless of whether the sales were public knowledge,8 and regardless of whether the public could learn anything at all about the invention from the inventor's sales activity.9

At first blush, it would appear that both the grace period and the additional protection in § 102(b) represent a continued emphasis on encouraging prompt disclosure. However, the addition of the phrase "or otherwise available to the public" in § 102(a) raises the question of whether (i) sales that do not disclose the invention, or (ii) sales made in secret, which would have triggered a bar under the old law, would still trigger the bar under the new law. If not, an inventor might be able to commercialize an invention secretly for years and still obtain patent protection later.

Factual Background and Proceedings Below

Helsinn sued Teva on four patents relating to a drug used to treat chemotherapy-induced nausea and vomiting.10 Teva's invalidity defense focused on the on-sale bar of § 102.11

Before the critical date for the patents (i.e., more than a year before the patents' effective filing date), Helsinn entered into a license agreement and a supply and purchase agreement with a third party.12 The parties included in a joint press release redacted versions of the agreements that disclosed the sale of the drug in general terms but did not contain the allegedly novel dosage of palonosetron.13 In other words, only the fact that the sale of the drug occurred was publicized; the dosage—i.e., in terms of patentability, the invention—was not publicly disclosed.

Teva argued that, under both pre-AIA and AIA § 102 (pre-AIA § 102 applying to the first three patents, and current AIA § 102 applying to the fourth), Helsinn's sale was invalidating prior art to the asserted patents.14 The district court rejected Teva's arguments, finding that, with respect to the three pre-AIA patents, the drug was not ready for patenting, and, with respect to the AIA patent, because the AIA changed the law to require a public sale or offer for sale of the claimed invention, the sale under an NDA was a "secret," non-qualifying sale, and the joint press release also did not qualify, as it did not disclose the details of the invention.15

The CAFC's Reversal

The CAFC reversed the district court's decision, but declined to address the issue of whether the AIA's amended § 102(a) abolished secret sales as prior art. Instead, the CAFC held only 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.16

The CAFC, in effect, found that the AIA did not change the pre-AIA precedent that offers for sale are prior art even if no details of the claimed invention are disclosed in the offer,17 and that a sale of a product that embodies an invention, regardless of whether the parties to the sale know that the product embodies the invention, is prior art18—as long as the fact of the sale is public knowledge.

The court thus interpreted the AIA sales bar to apply regardless of whether the sales activity teaches the public anything about the invention, just as the pre-AIA sales bar had done. However, in a nod to the "or otherwise available to the public" language in the new statute, and to the copious legislative history suggesting that the bar in the new statute was not intended to be triggered by secret sales activity, the court emphasized that the fact of the sale in this case was public.

The court's holding is contrary to the Patent Office's understanding of the law, as expressed in the M.P.E.P. In § 2152.02(d) of the Manual, the Office explains that the phrase "on sale" in the new statute has the same meaning as in the old statute, "except that the sale must make the invention available to the public." Under the Office's view, Helsinn's sales activity would not be a bar to patentability, because the sale neither taught the public anything about the claimed invention, nor placed the invention physically in the hands of the public.

Regardless of whether sales activity must "make the invention available to the public" (per the Patent Office) or whether it can create a bar even if only the fact of the sale, not anything about the invention, is public knowledge (per the CAFC), there is a second step to the analysis, one that the court did not need to reach in Helsinn. Does the one-year-grace period of § 102(b) apply in all cases? Or can there be sales activity that creates a bar but does not trigger the grace period?

Based, again, on the M.P.E.P., it appears that the Patent Office believes that all activities that trigger a bar under § 102(a) also invoke the one-year grace period of § 102(b):

The AIA does not define the term "disclosure," and 35 U.S.C. § 102(a) does not use the term "disclosure." 35 U.S.C. §§ 102(b)(1) and 102(b)(2), however, each state conditions under which a "disclosure" that otherwise falls within 35 U.S.C. §§ 102(a)(1) or 102(a)(2) is not prior art under 35 U.S.C. §§ 102(a)(1) or 102(a)(2). Thus, the Office is treating the term "disclosure" as a generic expression intended to encompass the documents and activities enumerated in 35 U.S.C. § 102(a) (i.e., being patented, described in a printed publication, in public use, on sale, or otherwise available to the public, or being described in a U.S. patent, U.S. patent application publication, or WIPO published application).19

It is not yet clear whether the CAFC agrees, or if instead the court will hold that sales activities like Helsinn's trigger the bar (because the fact of the activity was public knowledge) but are not entitled to a grace period (because they do not "disclose" the invention to the public).

This second reading would be consistent with the idea that patent systems should encourage prompt disclosure. Under this reading, the bar and the grace period would interact so that non-disclosing sales can create a bar, but only disclosing sales are permitted a grace period.

It appears likely that the CAFC will have to revisit en banc the on-sale provision of the AIA to resolve both issues (When is the bar triggered? Is there always a corresponding grace period?).

Until the issue is resolved, inventors should assume that any sales activity that would have created a bar under the old law might also create a bar under the new law, but that the new law might not provide a grace period. This means making sure to file applications—even if only "document dump"-style provisional applications—before undertaking any sales activity.

Footnotes

7 855 F.3d 1356 (Fed. Cir. 2017).

See, e.g., Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1357–58 (Fed. Cir. 2001).

See, e.g., RCA Corp. v. Data Gen. Corp., 887 F.2d 1056, 1060 (Fed. Cir. 1989), overruled in part on other grounds by Grp. One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1048 (Fed. Cir. 2001).

10  Helsinn, 855 F.3d at 1360.

11  Id.

12  Id. at 1361.

13  Id. at 1362.

14  Id. at 1360.

15  See Helsinn Healthcare S.A. v. Dr. Reddy's Labs. Ltd., Civil Action No. 11-3962 (MLC), 2016 WL 832089, at **49, 52 (D.N.J. Mar. 3, 2016).

16  Helsinn, 855 F.3d at 1371 (emphasis added).

17  See, e.g., RCA Corp., 887 F.2d at 1060.

18  See, e.g., Abbott Labs., 182 F.3d at 1319.

19  M.P.E.P. § 717 (emphasis added).

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