Can I Sell My Invention? The Courts Confirm “On Sale” Bar to Patenting

Intellectual Property Newsletter

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Recent court decisions have confirmed that inventors run the risk of destroying their patent rights in the U.S. and abroad if they publicize their inventions or put them “on sale” before applying for a patent.  Under traditional U.S. law, publicizing the invention, using it in public, or placing the invention “on sale” (selling it or making a binding offer for sale) more than a year before filing will destroy patent rights, and in many foreign jurisdictions, such acts instantly destroy patent acts. However, the “America Invents Act,” enacted in 2011, left the nature of the “on sale” bar in question. However, recent decisions by the U.S. Court of Appeals for the Federal Circuit clarify that most, if not all, offers for sale of an invention still have the same effect as publicizing the invention.

Why Do Contracts for Sale Foreclose Patent Rights?

The basis of the patent system is to provide a reward for disclosing an invention to the government, which will in turn disseminate knowledge about the invention to the public. Otherwise, inventors might keep the invention a secret, depriving the public of benefits from the new innovation. The same logic has been applied to sales of the inventive product (after a certain grace period expires). This extends to “private sales” and offers for sale; that is, where the nature and details of the invention are not publicly available as a result of the sale. The rationale was that inventors would otherwise maintain their inventions in secrecy until some other party independently invents the same thing, at which point the first inventor would run to the patent office. In such situations a second inventor has no notice of the first inventor’s rights and might invest heavily in the invention, only to be stopped by a belated patent.

Why Is the On Sale Ban an Issue Now?

The traditional “private sale” patenting ban introduced several quandaries. Because such sales are by definition unpublicized, it is difficult for the patent office to discover them and judge their effect on the patentability of an invention. The same applies to competitors trying to evaluate the validity of another’s patent. Because the private sale ban extends to sales by persons other than the patent applicant (i.e., a later inventor of the same thing who engages in private sales), even the patent applicant might be unable to discover such a sale. Finally, the developed countries of the world have been attempting to harmonize their patent laws to encourage international trade, and the private sale ban is an oddity of U.S. law. In short, the private sale ban has been a source of significant uncertainty.

In 2011, as part of the general revisions to the Patent Act of 1952, Congress revamped the portion of the statute that contained the ban on patenting after a private sale. The 1952 Act said, “A person shall be entitled to a patent unless… the invention was… in public use or on sale in this country.” In contrast, the 2011 Act says, “A person shall be entitled to a patent unless the claimed invention was… on sale, or otherwise available to the public.” Many reading this language concluded that Congress intended to change the ban on private sales to apply only if the sale makes knowledge of the invention “available to the public.” Others have interpreted the new act to merely add one more type of action that can destroy patent rights. In other words, patent rights are lost if there is any sale or if the invention becomes otherwise available to the public. Until recently, the courts had not had occasion to definitively answer this question.

Has Anything Really Changed in the Definition of “On Sale”? Two Cases Say No.

Two recent decisions by the U.S. Court of Appeals for the Federal Circuit (which handles all patent appeals) have held that private sales still eliminate patent rights, regardless of whether the sale provides any information to the public about the invention. Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. involved a contract to distribute a newly invented drug formulation that was signed over one year before a patent application had been filed for the new formulation.  Although the contract itself was announced in corporate disclosures to the shareholders, the details of the invention were struck from the disclosures. The contract was a legally binding offer for sale, although no actual sales occurred prior to the filing of the patent application.

The court’s decision rested on three main findings. First, the invention was well enough developed that it could have been patented when the contract was signed. Second, in general a binding supply contract will destroy patent rights in the product even if the contract does not make the invention itself known to the public. Third, and most importantly, the court held that the 2011 revisions to the Patent Act did not change the prior standard – if the invention is ready for patenting and the subject of a public offer for sale, this will bar patenting after the grace period even if the invention itself is not disclosed by the sale. This largely follows the pre-2011 standard, although the court refused to decide whether patent rights would have been preserved if the existence of the contract had not been publicized in corporate disclosures (i.e., a sale that was private both as to the disclosure of the invention and the sale’s existence).

In a second case, the Federal Circuit took up the question of all sales, private or public. In The Medicines Co. v. Hospira, Inc., the court considered an agreement between the company The Medicines Co. (or MedCo.) that invented the drug Angiomax, and a drug distribution company (ICS AmerisourceBergen Corp. or ICS). The agreement was executed over a year before filing the patent, and provided that MedCo. would provide Angiomax to ICS under certain terms. The terms included a price schedule and loose terms for amounts and schedules. The court decided that this was an offer for sale that could bar patenting, without regard to whether the offer for sale made the invention publicly available. In The Medicines Co., the court only considered two issues: whether the offer for sale was binding on the offeror (it was), and whether the invention was well enough developed (it was). 

Although the Helsinn decision left open the possibility that a secret sale might have a different impact on patent rights than a public sale, the court’s later decision in The Medicines Co. completely ignored any potential relevance of whether knowledge of the sale was “available to the public.”  Therefore any valid offer for sale of an invention that is ready for patenting creates a bar to patenting in the U.S.  This definition of being “on sale” is the same as the standard used before the 2011 amendments to the patent statute.

It is worth noting that the Federal Circuit has previously held that a contract to manufacture the invention does not destroy patent rights if the title in the manufactured products does not change hands. In that decision (involving an earlier chapter of the Angiomax dispute), MedCo. contracted with a manufacturer to make Angiomax so that MedCo. could stockpile the drug prior to selling to end users. The court decided this was not a sale of the invention itself, but rather a contract for manufacturing services. Therefore the court concluded that the contract did not affect MedCo.’s patent rights. In contrast, the other two decisions involved a contract for the sale of the invention itself.

How Should Innovative Businesses React?

It would appear that those hoping for a resolution of the problems caused by the private-sale doctrine have been disappointed.  Those seeking to patent inventions should continue to apply for the patent within one year of any known binding offer for sale by the inventor or his assigns. As the possibility cannot be dispelled that a private sale by a third party might have occurred, application for a patent should be made as soon as the invention is ready for patenting.

In many foreign countries, a sale of the invention before the filing of a patent destroys patent rights immediately, but only if the sale makes the invention itself known to the public. There is no grace period in such countries, but a private sale generally will not trigger the ban. If an invention might have a market outside of the U.S., a patent application should be filed before any public sale (or public disclosure of any kind) to preserve foreign patent rights. There will continue to be a discrepancy between the requirements for patenting in the U.S. and most other countries due to the private sale bar.