On Dec. 4, 2018, the U.S. Supreme Court heard oral arguments in Helsinn Healthcare v. Teva Pharmaceuticals. The question before the court was whether the America Invents Act of 2011 altered the “on-sale bar” such that sales and offers for sale that do not make the claimed invention “available to the public” no longer qualify as invalidating prior art. The oral arguments, which the authors of this article attended, were spirited and filled with laughter-inducing but challenging hypotheticals.
But while the oral arguments highlighted the stark differences between and exposed key weaknesses in each party’s position, they did not provide much definitive insight into how the court will ultimately decide this question. Still, the justices’ focus on the statutory language, and the relative lack of focus on the specific facts of the case, suggest that the court may be poised to tackle the question of the meaning of the AIA’s newly added “otherwise available to the public” language broadly, and may not be seeking a path to a narrow, fact-specific holding.
Why Does This Matter?
The court’s decision is likely to significantly impact the consequences of engaging in commercial transactions involving inventions before filing patent applications. This could particularly impact small and midsize pharmaceutical and biotech companies, which often rely on early-stage development partnerships to defray the costs and risks of developing new therapeutics. As discussed below, regardless of the outcome, there are actions that companies can take to maximize their chances of securing patent protection for their inventions.
What Is the “On-Sale Bar”?
Under pre-AIA law applicable to U.S. patents and patent applications filed before March 16, 2013, a sale or offer for sale of an invention occurring in the United States qualifies as prior art, and if it occurred more than one year before the earliest U.S. filing date, can act as an absolute bar to patentability. While courts have held that third-party sales or uses must make an invention publicly accessible in order to qualify as prior art, even an inventor’s “secret sales” — sales/offers in which the existence of the sale/offer and/or details of the invention are confidential — can trigger the pre-AIA “on-sale bar.”2
The AIA moved the United States from a “first-to-invent” system to a “first-inventor-to-file” system and made other substantial changes throughout the pre-AIA statute. Most significantly for this case, the statutory provision containing the on-sale bar was rewritten as follows:
the claimed 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, or otherwise available to the public more than one year prior to the date of the application for patent in the United States before the effective filing date of the claimed invention.3
The question at the heart of Helsinn is whether these changes — particularly the addition of “or otherwise available to the public” — changed the law such that secret sales/offers no longer qualify as prior art. The U.S. Patent and Trademark Office, for its part, has issued guidelines interpreting the AIA on-sale bar to exclude secret sales/offers.4
In Helsinn, the sale at issue resulted from a Supply and Purchase Agreement between Helsinn, a small pharmaceutical company that was developing formulations of palonosetron, a drug for reducing chemotherapy-induced nausea and vomiting, and MGI Pharma, a pharmaceutical distributor. In the agreement, MGI committed to funding Helsinn’s development efforts in return for the right to purchase any resulting FDA-approved product. The existence of the agreement, but not the details of the drug formulations, was publicly announced in a joint press release and MGI’s U.S. Securities and Exchange Commission filings. More than one year after executing the agreement, Helsinn filed a patent application that led to U.S. Patent No. 8,598,219 (the ’219 patent), which is governed by the AIA.
In 2011, Teva, a generic drug manufacturer, filed an abbreviated new drug application alleging that certain Helsinn patents, including the ’219 patent, were invalid and/or not infringed. Helsinn subsequently sued Teva under the Hatch-Waxman Act for patent infringement in the U.S. District Court for the District of New Jersey, and Teva challenged the validity of the ’219 patent based on the supply and purchase agreement. The district court upheld the validity of the ’219 patent, finding that the agreement did not trigger the AIA’s on-sale bar because it did not make the claimed invention available to the public. On appeal, the Federal Circuit reversed, holding that the agreement triggered the on-sale bar because the AIA did not require that a sale publicly disclose the claimed invention, at least in cases where the existence of the sale was publicized.
Helsinn’s and Teva’s Positions
Helsinn’s and Teva’s briefing to the Supreme Court focused on: (1) statutory construction; (2) legislative history; and (3) policy implications. During the oral arguments, the justices’ inquiries focused almost exclusively on the parties’ statutory construction positions.
First, Helsinn and Teva disagree on how to interpret the text of the AIA’s on-sale provision. Helsinn and its amici, including the U.S. Government, interpret 35 U.S.C. § 102(a)(1) as requiring that all enumerated categories of prior art, including sales, make a claimed invention “available to the public.”
During oral arguments, Helsinn’s counsel went so far as to argue that even the pre-AIA on-sale bar should not properly encompass secret sales because the body of secret sale case law to the contrary was only developed by the Federal Circuit and other lower courts and was never applied or ratified by the Supreme Court. Several justices seemed skeptical of this argument, with Justice Stephen Breyer noting that the Supreme Court had seemingly approved the Federal Circuit’s secret sale precedent in Bonito Boats v. Thunder Craft Boats.5 Moreover, the government’s counsel conceded that if the meaning of “on sale” were understood to be settled based on Federal Circuit precedent and the court’s decision in Pfaff v. Wells,6 the AIA’s language would be “a fairly oblique way of attempting to overturn … a settled body of law.” This position could make it more difficult for the court to find in favor of Helsinn.
The justices appeared unpersuaded by the government’s argument that “on sale” means available for purchase by the “ultimate customers,” not “distribution intermediaries.” Justice Sonia Sotomayor, in particular, criticized the government’s approach as improperly reading “on sale” to mean “on sale to the public.” However, Justice Breyer, noting the pre-AIA “experimental exceptions” to the on-sale bar, appeared open to considering other exceptions or, at minimum, ensuring that a “sale” involves “exploitation” of an invention.
The justices appeared much more receptive to Helsinn’s argument that the newly added “otherwise available to the public” provision, like similar catch-all provisions interpreted in prior Supreme Court cases, informs the preceding provisions7 and thereby clarifies that “on sale” does not encompass secret sales.
Teva, on the other hand, contends that since Congress retained the words “on sale” from the pre-AIA statute, “on sale” should mean what it has always meant under long-standing pre-AIA precedent. Thus, an invention is “on sale” if it is available for purchase, regardless of whether any details of the invention are publicly disclosed. According to Teva, if Congress had intended to change this ordinary and settled meaning of “on sale,” it would have done so expressly and directly.
Teva also posits that the addition of “otherwise available to the public” does not narrow the meaning of the preceding prior art categories but instead stands solely as a catch-all category that broadens the universe of invalidating prior art. During oral arguments, the justices appeared confused and very skeptical of this interpretation and challenged Teva’s counsel to interpret several similarly phrased hypotheticals, such as “in public use, on sale publicly or on sale privately, or otherwise available to the public,” “football, basketball, running, swimming, or games that otherwise involve a ball,” and “Fiber One bran flakes, fruit, tea, and food that otherwise is … fiber heavy.” A number of the justices, including Justices Samuel Alito, Breyer, and Sotomayor, appeared to agree that the result of interpreting these examples in accord with Teva’s interpretation was, at best, “awkward,” or even “nonsense.” Even Teva’s counsel fumbled an additional hypothetical from Justice Elena Kagan, questioning whether an instruction not to buy “peanut butter cookies, pecan pie … brownies, or any other dessert that otherwise contains nuts” would allow purchase of nutless brownies. He ultimately responded that purchasing nutless brownies would be permitted, but, as Justice Brett Kavanaugh observed, this answer was “the wrong answer to the brownies hypothetical” given Teva’s position.
Second, Helsinn and Teva have diametrically opposed interpretations of the legislative history.
In support of its reading of the AIA, Helsinn’s briefing points to the Senate Judiciary Committee’s explanation that it added “otherwise available to the public” to a predecessor bill for the specific purpose of eliminating “secret collaborative agreements” as prior art8 — an explanation that was echoed by the House Judiciary Committee when enacting the AIA.9 Helsinn also cites floor statements by AIA sponsors.
Teva, by contrast, argues that Congress repeatedly tried and failed to remove reference to the on-sale bar in the AIA. Justice Kavanaugh seemed to agree, asking the government’s counsel if Helsinn’s position was “a classic example of trying to snatch victory from defeat.” Except for this exchange, there was little exploration of the legislative history during oral arguments.
Third, Helsinn and Teva disagree on whether allowing “secret sales” to trigger the on-sale bar is consistent with the broader structure and purpose of the AIA.
Helsinn contends that the move from a first-to-invent system to a first-inventor-to-file system obviates the need for a forfeiture doctrine since an inventor who does not promptly file for patent protection risks losing out to another inventor who files first. Helsinn also argues that its interpretation would better serve Congress’ goal of harmonizing U.S. patent law with other major foreign patent systems and would foster innovation by affording small companies flexibility to form partnerships to develop inventions, thereby placing small companies on more equal footing with larger companies.
Teva cautions that Helsinn oversells the effect of the first-inventor-to-file transition in removing incentives for inventors to secretly exploit inventions and later file patent applications to extend the term of their monopoly. Helsinn’s interpretation, according to Teva, thus would undermine a basic, still-relevant, purpose of the on-sale bar and facilitate rampant pre-patent commercialization via, for example, nondisclosure agreements that would render otherwise public sales “secret.”
Surprisingly, given the seeming importance of the policy implications, this aspect of the case received little attention, with only a few isolated questions posed by the justices during oral arguments.
Who Will Be Most Impacted by the Court’s Decision?
While this decision will likely have far-reaching impact, industries heavily reliant on patents, such as pharma and biotech, will likely be most affected.10 Given the extraordinarily high costs and risks associated with developing new drugs,11 many small and midsize pharmaceutical and biotech companies rely on partnerships to advance drug development.12 These companies often find that entering agreements with an outside partner (like the supply and distribution agreement at issue in Helsinn) is necessary to obtain sufficient upfront funding to advance products through clinical trials. Other common prefiling sales activities include manufacturing or engineering services contracts that involve payment for resulting products.
Companies in the “unpredictable arts” like pharma and biotech are the most negatively impacted by the forfeiture provisions of on-sale case law, as it can be virtually impossible to obtain meaningful patent protection at the stage of development that exists before signing on-sale bar triggering agreements. For example, a pharma or biotech company may be pursuing thousands of experimental molecules for which there is only incomplete knowledge of efficacy and safety. Not only may preemptively filing patent applications to cover each experimental molecule be prohibitively expensive, but insufficient information may be available to meet all the statutory requirements for patentability.
What Actions Can Companies Take?
Regardless of the outcome, the Supreme Court’s decision will have important ramifications for companies seeking patent protection. If the court affirms, the post-AIA on-sale bar will be even more far-reaching than the pre-AIA on-sale bar. The AIA removes the “in this country” restriction on sales, opening up secret sales throughout the world as potential on-sale bar triggers. The AIA also narrows the conditions under which prefiling sales can be excluded as prior art within the one-year grace period, with inventors no longer able to rely on their earlier date of invention.
To minimize risk in any scenario, but particularly if the court affirms, companies should, when feasible, file patent applications before engaging in any sales activity, including offers for sale, anywhere in the world, and certainly within one year of such activity, even when such sales activity is conducted under nondisclosure agreements. But if filing a patent application before engaging in commercial activity is not possible (e.g., if a partnership is needed to fund candidate molecule selection), companies may avoid triggering the on-sale bar even under pre-AIA law by framing agreements as licenses13 or sales of manufacturing services rather than sales of the manufactured products that are the subject of later patent claims. For example, the Federal Circuit’s decision in The Medicines Company v. Hospira Inc. held that sales of contract manufacturing services do not constitute a “commercial sale” of an invention directed to a product. The language of the agreement is critical, as it is insufficient to merely characterize a sale as a joint development agreement14 — instead, the key is ensuring that there is no transfer of title to the claimed invention.15
If the court reverses the Federal Circuit and finds that the post-AIA on-sale bar is only triggered by sales that make the claimed invention available to the public, companies should have newfound flexibility to engage in partnerships to facilitate the development process and should be more secure in engaging in confidential sales prior to filing patent applications.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc. or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
1 See, e.g., Woodland Trust v. Flowertree Nursery, 148 F.3d 1368 (Fed. Cir. 1998) (“[W]hen an asserted prior use is not that of the applicant, § 102(b) is not a bar when that prior use or knowledge is not available to the public.”).
2 See, e.g., Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001) (holding that on-sale bar invalidated patent even though sales took place in secret); In re Caveney, 761F.2d 671 (Fed. Cir. 1985) (finding that a sale “kept secret from the trade” triggered the on-sale bar); Hobbs v. U.S. Atomic Energy Commission, 451 F.2d 849 (5th Cir. 1971) (rejecting argument that “conditions of secrecy” rendered on-sale bar inapplicable).
3 35 U.S.C. § 102(b) (2006); 35 U.S.C. § 102(a)(1).
4 Examination Guidelines for Implementing the First Inventor to File Provisions of the Leahy-Smith America Invents Act, 78 Fed. Reg. 11,059, 11062 (Feb. 14, 2013); Manual of Patent Examining Procedure, § 2152.02(d) (“The ‘or otherwise available to the public’ residual clause of AIA 35 U.S.C. 102(a)(1) … indicates that AIA 35 U.SC. 102(a)(1) does not cover secret sales or offers for sale. For example, an activity (such as a sale, offer for sale, or other commercial activity) is secret (non-public) if it is among individuals having an obligation of confidentiality to the inventor.”).
5 489 U.S. 141 (1989).
6 525 U.S. 55 (1998).
7 See, e.g., Paroline v. United States, 572 U.S. 434 (2014); Federal Maritime Commission v. Seatrain Lines, 411 U.S. 726 (1973).
8 S. Rep. No. 259, 110th Cong., 2d Sess. 39 (2008).
9 H.R. Rep. No. 98, 112th Cong., 1st Sess., Pt. I, at 42-43 and n.20 (2011).
10 Amicus briefs have been filed by, among others, the Pharmaceutical Research and Manufacturers of America, Biotechnology Innovation Organization (BIO), and Massachusetts Biotechnology Council (MassBio) on behalf of Helsinn, and the Association for Accessible Medicines, which represents the interests of generic and biosimilar medicines, on behalf of Teva.
11 BIO and MassBio report that commercializing a biotech drug can exceed $1.3-2.6 billion and even compounds that reach human testing experience a close to 90% failure rate.
12 Emerging companies account for 70 percent of global clinical pipelines, and roughly 42 percent of emerging companies are partnered with other companies. David Thomas and Chad Vessel, Emerging Therapeutic Company Investment and Deal Trends, BIO Industry Analysis 2017, https://www.bio.org/sites/default/files/BIO%20Emerging%20Therapeutic%20Company%20Report%202007-2016.pdf.
13 See, e.g., In re Kollar, 286 F.3d 1326, 1333 (Fed. Cir. 2002).
14 See, e.g., Brasseler v. Stryker Sales Corp., 182 F.3d 888, 890 (Fed. Cir. 1999) (declining to establish an exception for sales between joint developers); Buildex Inc. v. Kason Industries Inc., 849 F.2d 1461 (Fed. Cir. 1988).
15 See also Trading Technologies Intern. Inc. v. eSpeed Inc., 595 F.3d 1340 (Fed. Cir. 2010) (finding that inventor’s purchase of hourly programming services to make software for his own secret, personal use did not trigger on-sale bar).
Originally published in Law360
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