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Key Takeaways From the U.S. Supreme Court's Patent Decision Regarding Prior Art and Secret Sales

By Procopio Partner Miku H. Mehta and Attorney Ernest Huang

Nearly eight years after the passage into law of the America Invents Act of 2011 (AIA), the U.S. Supreme Court is still weighing in on the historic reform’s impact on established patent law. In a closely watched case within the patent community, in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., U.S., No. 17-1229 (Jan 22, 2019) the High Court ruled that the AIA did not upset long-understood interpretations of how sales of a patented product—even if kept confidential—could be cited as prior art to invalidate an issued patent. There are several lessons patent applicants, owners, and challengers of patents can take from this decision.

First, let’s get a better understanding of the Supreme Court’s ruling. It was considering whether non-public or “secret” offers for sale constituted a bar to patentability under the “on sale” provision of 35 U.S.C. 102(a)(1) of the AIA. The Act states that “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”. The pre-AIA standard under Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998) applied the on-sale bar if the product was the subject of a commercial offer for sale in the United States (e.g., under the Uniform Commercial Code contract law standards for “offer for sale”); and the product could have been patented at that time (e.g., reduced to practice).

Patent owner Helsinn entered into agreements granting another company the right to distribute, promote, market, and sell a 0.25 mg dose of palonosetron in the United States, and requiring that confidentiality be maintained for any proprietary information received under the agreements. Nearly two years later, Helsinn filed a provisional patent application covering a 0.25 mg dose of palonosetron. Per the agreement, the particular dosage was kept confidential and not disclosed to the public. Teva challenged the validity of the resulting patent based on the confidential agreement between Helsinn and the other company.

The District Court and the Federal Circuit held that “on sale” had to be available to the public, with the District Court holding that Helsinn’s agreement was not an on-sale bar because the sale was not public, whereas the Federal Circuit held that the sale was a public sale. However, the Supreme Court reversed the lower courts, and unanimously held that the AIA did not overturn the pre-AIA standard. Thus, a sale or offer of sale need not make an invention available to the public, and that the addition of the term “or otherwise available to the public” in the statute is insufficient to conclude that Congress intended to alter the meaning of the term “on sale.”

Even though many practitioners have cautiously followed the pre-AIA standard, there are several practical considerations that flow from this decision.

  • Understand that including the terms of a sale in a non-disclosure agreement or a licensing agreement will not necessarily prevent the transaction from being considered as an offer for sale if it was ready for patenting, even if such terms are not made public.
  • Carefully consider whether communications during negotiation, even if they are held in confidence or secrecy under a non-disclosure agreement (NDA), might still be considered an “offer for sale.” Relevant situation may include companies that are licensing products to third parties under NDA, or startups that get into funding agreements in exchange for licensing agreements under NDA. 
  • Keep in mind that the 12-month grace period exceptions may not be used for secret sales, because there is no public disclosure to trigger the grace period, and that publication of secret sales to trigger the grace period under U.S. law might negatively implicate patent rights in other jurisdiction such as EP and China.
  • It is unclear how “offer for sale” will be applied to cross-border offers for sale. The Supreme Court held that the pre-AIA standard for “offer for sale” still applies, but the pre-AIA statute was limited only to offers for sale in the U.S., whereas AIA extends offers for sale to worldwide. There is uncertainty as to how the courts will react to offers for sale made under non-U.S. legal standards and business customs.
  • Avoid these issues by filing for patent protection before disclosing an invention to any third party.

 

Miku H. Mehta is a Partner in Procopio’s Silicon Valley Office, a member of the firm’s Intellectual Property team and the leader of its Asia-Pacific Cross-Border Practice Group. Miku advises clients on intellectual property, patent prosecution and counseling, as well as trademarks and copyrights. Miku’s practice focuses on the preparation and prosecution of patent applications, due diligence projects, including preparation of opinions in the areas of patentability, validity, infringement and product clearance, and patent licensing. He has extensive experience in technology including computer software and hardware, networks, internet-related applications, environmental technologies, optics, mechanical engineering, business processes and medical devices, as well as registration and renewal of trademarks.

Ernest Huang is an attorney in Procopio's Intellectual Property team and its Asia-Pacific Cross-Border Practice Group in its Silicon Valley office. He counsels clients in patent prosecution and counseling, and intellectual property counseling. Ernest’s practice focuses on the preparation and prosecution of patent applications in a broad range of technology areas in the electrical, mechanical and computer arts. He has extensive experience prosecuting applications directed to semiconductor manufacturing and design, digital circuit design, connectors, printed circuit board design and storage media.