Is this RIP for the "On Sale" Bar (to Harmonize with Other Countries), or are Secret Sales Still Prior Art in the U.S.? Helsinn Healthcare S.A. v. Dr. Reddy's Labs., Ltd.
March 18, 2016
By Samuel Frost
One of the prerequisites of a patentable invention is that it must be new or novel, and in US patent law, the requirements for novelty are found in § 102 of the Patent Statute, much of which addresses actions that are "public" in the sense of putting details of the invention in the public domain. For nearly two centuries this has included a requirement that the invention must not have been "on sale" before a critical date. This provision has been subject to much judicial interpretation, and it is well-settled that it covers "secret" sales that disclose no details of the invention. § 102 has been amended by the America Invents Act (AIA), to add a new provision “otherwise available to the public”, sometimes described as a “catchall”. It has been a matter of much discussion whether this catchall provision limits the “On Sale” language to exclude "secret" or "non-disclosing" activities.
This recent District Court decision concerned a number of Patents, one of which is found to be an AIA Patent, so the Court had to address the question of whether "secret" or "non-disclosing" sales of the invention before the critical date fall within the redefined scope of prior art in AIA § 102(a) (1).
As a first Decision interpreting this aspect of the AIA statute, the Court held that the “otherwise available to the public” language does indeed modify and restrict the “On Sale” provision to sales and offers for sale that meet the “otherwise available to the public” test, i.e. it does not include "secret" or "non-disclosing" sales. The Decision refers to numerous sources, but the Court appears to have been strongly influenced by the USPTO’s own interpretation and guidelines.
Appeal to Federal Circuit
An Appeal has been filed. As nearly one third of the 170 page decision is concerned with an analysis of the “On Sale” bar provision, there appears to be plenty of scope for the Federal Circuit to find fault with the decision, although much of the “On Sale” analysis is concerned with the pre-AIA law. Teva have recently filed their Brief, and two Amicus Briefs has been filed, one by a large group of 42 Intellectual Property law Professors supporting Teva’s argument, to the effect that the “On Sale” provision was not changed or limited by the AIA.
Interestingly, while the exact meaning of the key phrase added by the AIA, “otherwise made available to the public”, is not discussed or analyzed in detail in the original Decision, the Professors in their Amicus Brief do address this basic question. They argue that the best interpretation is that this defines “a residual category meant to capture all publicly accessible prior art that does not fit into one of the other enumerated categories” and could cover future technology, e.g. a publicly accessible digital file.
The Professors also argue for a “crucial distinction” between “disclosures” and “public disclosures” in AIA §102(b)(1).
The District Court, in its review of the legislative history, relied upon a House Committee Report that incorporated Senate floor statements, but Teva’s Appeal Brief notes that one of these was added after the Senate vote on the bill. This has a certain Alice in Wonderland quality; first we pass the bill, then we decide what it means.
What has not been discussed is the change to the heading of § 102 effected by the AIA. The heading now is: CONDITIONS FOR PATENTABILITY; NOVELTY. Pre-AIA, the heading also included: AND LOSS OF RIGHT. The principle or concept of Loss of Right is valuable and very useful in distinguishing an ‘on sale’ element of the Section from other pure novelty elements. In particular, the Loss of Right concept applied to an on sale bar inherently; (i) indicates that it applies to the inventor’s own actions; and (ii) is based on an entirely different principle from the novelty requirement, so as not to require any aspect of disclosure or communication of enabling information to others.
Public Policy Considerations
The District Court decision notes that, in a first inventor-to-file system, an inventor is adequately incentivized to promptly apply for a patent because the applicant risks having her invention patented by another that may have invented later. It can additionally be noted that limited prior user defences to infringement should also incentivize prompt filing. Accordingly, there should be no need for prior art to include secret sale activities by the inventor.
However, the holding in this Decision does mean that many inventions can now be commercially exploited outside of the one year grace period without losing patent rights. Further, as some of the sale activities in question were held to be confidential by virtue of a contract, it seems that, for a large class of inventions where commercial use would normally result in disclosure of the invention, patent rights can be reserved by suitable confidentiality provisions in a contract of sale (e.g. sale of a tunneling machine).
Comparison to Novelty Standards in Other Countries
In the AIA, § 102 provides that:
A person shall be entitled to a patent unless – (1) 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; or ….
If the “otherwise available to the public” is a governing or overriding element of this provision, then the reference to “patented, described in a printed publication, or in public use, on sale”, is merely a non-exclusive list of activities that fall within broad principle of “available to the public”, without otherwise being limiting. It therefore seems that this part of § 102 reduces down to:
A person shall be entitled to a patent unless (1) the claimed invention was available to the public before the effective filing date of the claimed invention …..
This language is very similar to that found in novelty standards of many countries. If the District Court’s finding on the “On Sale” Bar stands, then this, internationally, is another step in the evolution of a common novelty standard. The mainstream of international patent law favours such an approach and almost identical phrasing can be found in the proposed Substantive Patent Law Treaty. It is attractively simple and one would think that a single, simple test would treat all inventions equally, but this is deceptive. Setting aside the issue of preserving secrecy by contract, such a test simply has the effect of dividing inventions into those that can be commercially exploited before a critical date and those that cannot; it is further complicated by a small subset of inventions, where commercial exploitation may or may not lead to making the invention "available to the public" depending on how the invention is commercially exploited. (Consider a new machine for making different types of pasta, the pasta being of standard shapes and revealing no details of the machine.)
Despite the observations above, some countries do not consider that an inventor is sufficiently incentivized to file promptly in a first to file system and do retain a “commercial use” provision in their patent law.
For example, in Australia, the Patent Act, 1990, s.18(1)(d) provides:
An invention is a patentable invention … so far as claimed in any claim: … was not secretly used in the patent area before the priority date of that claim by, or on behalf of, or with the authority of, the patentee …
In South Africa, the Novelty Requirements include:
All matter which has been made available to the public anywhere by written or oral description, by use or in any other way before the priority date;
secret use on a commercial scale in South Africa before the priority date.
However, the clear trend internationally is to remove any provision covering commercial use, secret use, or the like. For example, both the United Kingdom in the Patents Act, 1977 and Canada in the Patents Act, 1989 removed provisions that covered, respectively, “secret use” and “on sale”. The current provision in the UK law provides that an invention is new if it does not form part of the state of the art, the art comprising all matter which “been made available to the public” before the critical date, and the basic provision in Canadian law requires that the subject matter defined by the claims “must not have been disclosed….in such a manner that the subject matter became available to the public….” The definitions used both include the “available to the public” standard now incorporated in §102.
Assuming the District Court decision stands, when consulted about an invention that is capable of secret commercial exploitation, the practical advice now must be to include the possibility of practicing the invention in secret. There are few countries where this will prevent a valid patent being obtained, and there are clear dangers in this approach, but it does have the advantages of deferring the cost of filing a patent application and effectively extending the term of a patent. Additionally, when considering a sales contract for patentable technology, consideration should be given to including a confidentiality provision, to preserve patent rights.
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