An Invention May Still be On Sale if it is part of a Confidential Agreement with a Third Party

Under U.S. Patent law, patent applicants have a one year grace period to file a patent application after the invention is on sale[1] One year from the offer for sale or actual sale is referred to as the “on sale bar.”  Although seemingly straightforward, the on sale bar is still a trap for the unwary.

In 1998, the Supreme Court held in Pfaff v. Wells Electronics that a patent holder had violated the on sale bar when an inventor showed preliminary drawings of the invention to a potential customer and later entered into a purchase agreement for the sale of the product even though the product was not actually built. The inventor filed his patent application within one year of the purchase agreement but more than one year from when the preliminary drawings were shown to the customer. The Court reasoned that the invention was ready to be patented at the time the drawings were initially shown and therefore, the one year date started from the date the drawings were shown to the customer, not from the date of the purchase agreement.[2]  The decision in the Pfaff case made people much more cautious about activities that could be considered an offer for sale.

In 2013, when American Invents Act (AIA) took effect, the language surrounding the on sale bar changed from the pre-AIA language to read

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. (35. U.S.C. 102(a)(1)

Addition of “or otherwise available to the public” after “on sale” created some ambiguity about whether a secret sale or confidential sale was included in the on sale bar.

On January 22, 2019, the Supreme Court answered the question of secret sale in the Helsinn Healthcare v. TEVA Pharmaceuticals [3] opinion.

Helsinn entered into two agreements with MGI Pharma. The first agreement was a license. The second agreement was a supply and purchase agreement which allowed MGI Pharma to market and sell 0.25 and 0.75 mg doses of palonosetron. The existence of the agreement was announced in a joint press release and reported by MGI in an 8-k filing with the Security and Exchange Commission. The actual terms of the agreements were maintained in confidence. In 2003, two years after announcement of the agreements, Helsinn filed a provisional patent application for the 0.25 and 0.75 mg formulations.  A

fourth application filed claiming priority to the 2003 application was filed and was subject to the AIA interpretation of on sale bar which included the “or otherwise available” language. [4]

When Helsinn sued the generic pharmaceutical manufacturer TEVA Pharmaceutical for patent infringement, TEVA defended on the basis that the patent issued to Helsinn was invalid because the patent application was filed two years after the agreement with MGI.  The District Court of New Jersey held that the on sale provision did not apply because the sale or offer between Helsinn and MGI did not make the invention available to the public. [5] On appeal, the Federal Circuit reversed. [6] The Federal Circuit concluded that “’if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale’ to fall within the AIA’s on sale bar.”[7]

In its decision upholding the decision of the Federal Circuit, the Supreme Court noted that “a sale or offer of sale need not make an invention available to the public” in order to constitute an on sale bar under the patent statute. [8] The Supreme Court pointed to the long held rule that “secret” sales and prior secret commercial use can also constitute a public use or sale. [9] Importantly, the Supreme Court concluded that nothing in the AIA or the addition of “or otherwise available to the public” in 102(a)(1) altered the meaning of the term “on sale.”[10]

The bottom line is that patent applicants, whether solo inventor or large company, should be very careful when entering into agreements with third parties. An obligation to keep the invention confidential does not eliminate the risk that the agreement will result in an on sale bar for any US patents that are filed for the invention contemplated by the agreement.

[1] 35 U.S.C. 102(a) in the pre-AIA law, and 102(a)(1) in the post-AIA law.
[2] Pfaff v. Wells Electronics, Inc., 525 U.S. 57 (1998)
[3] Helsinn Healthcare v. TEVA Pharmaceuticals., S.Ct. 17-1299, January 22, 2019.
[4] The fourth application issued into U.S. Patent8,598,219
[5] Helsinn, p. 4
[6] 855 F.3d 2356, 1360 (2017)
[7] Helsinn, p. 4
[8] Helsinn, p. 6
[9] Citing Special Devices, Inc. v. OEA, Inc., 270 F. 3d 1353, 1457 (Fed. Cir. 2001) and Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368, 1370 (Fed. Cir. 1998)
[10] Helsinn, p. 8