SCOTUS: “On Sale” Bar Unchanged and Still Covers Secret Sales

January 24, 2019

By Sam Frost

In a concise opinion the US Supreme Court had no difficulty in finding that the scope of the ‘on sale’ bar is unchanged by the AIA (America Invents Act) holding:

The patent statute in force immediately before the AIA included an on-sale bar. This Court’s precedent interpreting that provision supports the view that a sale or offer of sale need not make an invention available to the public to constitute invalidating prior art. The Federal Circuit had made explicit what was implicit in this Court’s pre-AIA precedent, holding that “secret sales” could invalidate a patent. Given this settled pre-AIA precedent, the Court applies the presumption that when Congress reenacted the same “on sale” language in the AIA, it adopted the earlier judicial construction of that phrase. The addition of the catchall phrase “or otherwise available to the public” is not enough of a change for the Court to conclude that Congress intended to alter the meaning of “on sale.” (citations omitted)

Helsinn Healthcare S. A. (Helsinn) is a Swiss pharmaceutical company that acquired the right to develop palonosetron, the active ingredient in a drug Aloxi. Helsinn entered into two agreements with MGI Pharma, Inc. (MGI), a Minnesota pharmaceutical company, as its marketing partner for its palonosetron product: a license agreement and a supply and purchase agreement.

Both agreements included dosage information and required MGI to keep confidential any proprietary information received under the agreements. Helsinn and MGI announced the agreements in a joint press release, and MGI also reported the agreements to the Securities and Exchange Commission, without disclosing the specific dosage formulations covered by the agreements.

Nearly two years after the agreements were made, Helsinn’s filed a first provisional patent application on Jan 30, 2003, followed by a series of later applications. A fourth application in this series was filed in May 2013, and issued as U. S. Patent No. 8,598,219 (’219 patent). The ’219 patent covers a fixed dose of 0.25 mg of palonosetron in a 5 ml solution. By virtue of its effective date, the ’219 patent is governed by the AIA.

Both the pre-AIA and AIA include an “on-sale” provision, present in AIA §102(a)(1) as:

“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.” (emphasis added).

While the AIA made numerous significant revisions to the novelty provisions, for the present case, the critical change was the inclusion of the catchall “otherwise available to the public”.

As we reported, The District Court determined that the “on sale” provision did not apply. It concluded that, under the AIA, an invention is not “on sale” unless the sale or offer in question made the claimed invention available to the public. The Federal Circuit reversed. It concluded that “if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale” to fall within the AIA’s on sale bar. Because the sale between Helsinn and MGI was publicly disclosed, it held that the on-sale bar applied.

Quoting from various early decisions, the Supreme Court noted that to further the goal of “motivating innovation and enlightenment” while also “avoiding monopolies that unnecessarily stifle competition”, Congress has imposed several conditions on the “limited opportunity to obtain a property right in an idea”. One such condition is the on-sale bar, which reflects Congress’ “reluctance to allow an inventor to remove existing knowledge from public use” by obtaining a patent covering that knowledge. (Explaining from another decision that “it would materially retard the progress of science and the useful arts” to allow an inventor to “sell his invention publicly” and later “take out a patent” and “exclude the public from any farther use than what should be derived under it”.)

The Court observed that Congress enacted the AIA in 2011 against the backdrop of a substantial body of law interpreting §102’s on-sale bar. The Court further observed that while “this Court has never addressed the precise question presented in this case, our precedents suggest that a sale or offer of sale need not make an invention available to the public”. It further noted that The Federal Circuit has made explicit what was implicit in the Court’s precedents, i.e. it has long held that “secret sales” can invalidate a patent. Referring to oral arguments of amicus United States, it noted that: if “on sale” had a settled meaning before the AIA was adopted, then adding the phrase “or otherwise available to the public” to the statute “would be a fairly oblique way of attempting to overturn” that “settled body of law”.

Accordingly, the Court found that; “given that the phrase “on sale” had acquired a well-settled meaning when the AIA was enacted, we decline to read the addition of a broad catchall phrase to upset that body of precedent”.

At least one amicus brief argued that restricting the novelty provision to only activities that disclose the invention aligns the US with the absolute novelty standard present in most major industrial countries. While this is correct, a provision ensnaring non-disclosing sales or commercial use is not incompatible with an absolute novelty standard. The novelty provision of South African patent law includes “inventions used secretly on a commercial scale in South Africa before the filing date (priority date)”.

Aside from the geographical limitation, such a two part test, based on public disclosure and commercial use, arguably provides a more level playing field for all inventions; all patent applications must then be filed before the first public disclosure AND first commercial use (without considering any applicable grace period). A novelty standard based solely on a disclosure to the public test may well treat all inventions equally, in terms of public disclosures. However, considered from the standpoint of commercial exploitation, it simply divides inventions into those that can be exploited without public disclosure before filing, and those that cannot. Commercial exploitation of nearly all mechanical inventions results in public disclosure so such inventions cannot practically be exploited before the critical date; on the other hand, many technologies, such as some process inventions, can be extensively exploited in secret without disclosing the invention.

Interestingly, Canada is believed to be the only country that has expressly eliminated an “on sale” provision from its patent law, over 20 year ago, that was worded very similarly to the current US provision. The present Canadian novelty standard is based solely on disclosing the invention so as to make it available to the public, aligning Canadian law with prevailing international norms which some suggest was the intent with the AIA.

While the decision is clear, it is suggested that the exact scope of the “on sale” bar may still cause difficulties and may require further clarification by the courts. A broad provision, based on a principle not a specific activity, such as “commercial exploitation”, would surely make it much easier for a court to find that any activity, if it amounted to “commercial exploitation”, triggers the provision. There are many newer inventions where commercial exploitation may be far removed from simple sale of a patented, physical product. For example, many computer related inventions, assuming they clear the patentability hurdle of §101, may be exploited by delivering a service, which may be a service over the internet, so that what has been “on sale” is not a physical product and is some steps removed from the patented invention.

A further potential difficulty, that did not need to be addressed in this case, is that the statute makes no distinction between “on sale” activities of the inventor and those of a third party. The pre-AIA §102, as indicated in its heading: CONDITIONS FOR PATENTABILITY; NOVELTY AND LOSS OF RIGHT TO PATENT, at least included the LOSS OF RIGHT concept, which provides a basis for distinguishing between the rights of the inventor and third parties. To protect third party rights, AIA includes §273 “The Defense to Infringement” provision; in drafting this, the clear premise is that prior third party “commercial use” would not be invalidating prior art. However, it was likely drafted on the interpretation that all secret prior “commercial use”, irrespective of who carried it out, would not be included in the prior art, due to the effect of the catchall “otherwise available to the public”. It can be noted that §273 uses the term “commercial use”, rather than “on sale” which, as suggested, is surely a more inclusive term that will readily enable courts to find that it covers all relevant uses of modern technology.

 

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Author(s):

H. Samuel Frost H. Samuel Frost
B.A. (Eng. Sci.), M.Sc. (Nucl. Eng.)
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