Supreme Court Holds “Confidential Sales” Still Prior Art under America Invents Act

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In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court held on Tuesday that “private” or “confidential sales” are still prior art despite the amendments to U.S. patent law enacted by the America Invents Act (AIA). In some ways, this seems like a ho-hum decision, as the pre-AIA law regarding the “on sale bar” still applies. But in other ways, this decision potentially paves the way to other, more drastic changes to U.S. law regarding patent prior art. Patent owners and innovators would be well advised to take additional precautions to maintain patentability.

Private or Confidential Sales Remain Prior Art…

The Helsinn decision builds on the state of the law prior to the passage of the AIA. Section 102(b) of the 1952 Patent Act defined as prior art an inventor’s act of putting an invention “in public use or on sale” more than one year before the application filing date. If an invention is in the prior art, then the inventor is not entitled to a patent.

In 1998, the Supreme Court held in Pfaff v. Wells Electronics, Inc. that to be “on sale,” the invention must be “the subject of a commercial offer for sale” and “ready for patenting.” Crucially, Pfaff did not require that either the offer for sale or the technical details of the invention be publicly disclosed. While not expressly stated in Pfaff, subsequent lower court decisions held that such “secret,” “private,” or “confidential” sales were still prior art if they occurred more than one year before the inventor filed a patent application for the invention.

The AIA fundamentally restructured the definition of prior art Section 102. AIA section 102(a)(1) defines as prior art when “the claimed invention was … in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” The new phrase “otherwise available to the public” seemed to imply that for an invention to be “on sale,” it too must be available to the public. Some legislators even suggested during debate on the AIA that the “otherwise available” phrase was intended to modify the “on sale” term to require a public disclosure of the invention in order to be prior art.

The Helsinn case presented just such a situation where the invention was clearly the subject of a sale, but the invention itself was not disclosed to the public. In April 2001, Helsinn entered into a supply and purchase agreement with a distributor to sell the drug palanosetron in a dosage of 0.25 mg. Helsinn issued a press release regarding the agreement and disclosed it in SEC filings. However, the details of the drug to be produced were not included in any public statements. In January 2003, the first patent application was filed, which disclosed a 0.25 mg dose of palanosetron. A later patent application, which was filed in 2013 and claimed back to the January 2003 provisional application, specifically claimed the 0.25 mg drug dose. This application later issued as a patent under the AIA prior art rules.

Helsinn then sued Teva for patent infringement. Teva asserted the claimed dosage was “on sale” in April 2001, 20 months before the January 2003 filing date. Initially, the district court found that under the AIA “on sale” required a public disclosure of the invention as part of the sale. However, the Federal Circuit reversed, holding that the AIA did not alter the scope of the phrase “on sale,” and Pfaff’s holding still applied.

The Supreme Court unanimously affirmed the Federal Circuit in a short, nine-page opinion. Justice Thomas wrote that in adopting the same phrase “on sale” in the AIA, Congress intended to adopt all the judicial precedent interpreting that phrase in the 1952 Act. The introduction of the catch-all phrase “otherwise available to the public” was too oblique to suggest an intent to re-write the settled interpretation of “on sale.” Accordingly, Pfaff still defines when a product is “on sale,” and public disclosure of the invention is not required.

…But Beware of Adverse Side Effects

With its short unanimous opinion reaffirming a decades-old precedent, Helsinn would seem to be an unremarkable case. However, this ignores the AIA’s restructuring of Section 102.

Under the 1952 Patent Act, putting an invention “on sale” was only prior art if the offer for sale occurred more than a year before the filing date. Under AIA Section 102(a)(1), putting the invention “on sale” at any time prior to the filing date of the patent application now qualifies as prior art, unless it is subject to an exception. The applicable exception is in Section 102(b)(1), which states that “disclosures” by the inventor within one year prior to the filing date are not prior art against that inventor’s patent.

The looming problem is this: Does a “sale” within one year of the filing date that does not publicly disclose the details of the invention count as a “disclosure” under Section 102(b)(1)? Like “on sale,” the word “disclosure” also has a long history as a term of art in patent law. Generally a disclosure means that the details of the invention have become public. However, Helsinn holds that an invention need not be publicly disclosed to be “on sale.” In that case, is it really a “disclosure” for purposes of Section 102(b)(1)?

Helsinn does not address this situation, but the following thought experiment shows the real-world consequences. If Helsinn had entered the exact same sale agreement only eight months before filing the patent application instead of 20 months, it would have been entitled to a patent under the 1952 Patent Act without question. But under the AIA, Helsinn’s agreement might be “on sale” under Section 102(a)(1), but not “disclosed” under Section 102(b)(1). If Section 102(b)(1) is construed that way, even an inventor’s private sales within one year before the application filing date would block a patent.

It seems that in order to be sure the exception applies, an inventor that enters a sale agreement prior to filing a patent application would be well advised to also publicly disclose the invention as part of the sale if they intend to seek patent protection. (Of course, if the inventor wants to keep the invention secret, trade secret protection remains a possible option.) The courts will inevitably address this issue at some point. In the meantime, companies seeking to exploit their new inventions should be doubly sure to file for patent protection before entering any sale agreement. And if they do make such a sale, they should consider whether a public disclosure of the invention might be worthwhile to preserve patent protection.