Supreme Court Confirms Secret Sales Can Invalidate Patents

January 24, 2019
Marshall Gerstein Alert

On January 22, 2019, the Supreme Court issued a unanimous decision in Helsinn Healthcare S. A. v. Teva Pharmaceuticals USA, Inc., affirming the Federal Circuit’s decision and “hold[ing] that an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential can qualify as prior art under [35 U.S.C.] §102(a).” The Leahy-Smith American Invents Act (AIA) revised Section 102 of the Patent Act.  Before the revision, that section specified that a person shall be entitled to a patent unless the invention was “in public use or on sale in this country, more than one year” before the application for the patent.  But the AIA revised this section to deny a person a patent if the invention was “in public use, on sale, or otherwise available to the public” before the application for the patent. The Court held that the revision did not alter the meaning of the “on sale” bar suggested by precedents that pre-date the AIA.

Helsinn is a Swiss pharmaceutical company that developed a drug product useful to treat nausea and vomiting.  Helsinn entered into agreements with another pharmaceutical company to market the drug after relevant regulatory authorities approve the drug. As part of the agreement, Helsinn would receive an up-front payment and future royalties from this partner who would market and sell the product. The two announced their agreement in a press release and the marketing partner disclosed the same in public filings with the Securities and Exchange Commission (SEC). These releases and filings did not, however, disclose to the public the details of the drug that Helsinn’s later-filed patents claimed. 

In an infringement lawsuit Helsinn brought against Teva, Teva asserted that the relevant claims in Helsinn’s patent were invalid because the invention recited in those claims was “on sale” (as pre-AIA precedents interpret this term) before Helsinn filed its patent application. The district court determined that the AIA’s “on sale” bar did not apply. Public disclosure of the sale did not, according to the court, make the claimed invention available to the public insofar as the details of the drug were not revealed in the press release or SEC filings. On Teva’s appeal, the Federal Circuit reversed, concluding 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 implicate the AIA’s “on sale” bar to patentability. The Supreme Court granted Helsinn’s petition for a writ of certiorari to “determine whether, under the AIA, an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.”

The Court acknowledged that it “has never addressed the precise question presented in this case,” but noted that its “precedents suggest that a sale or offer of sale need not make the invention available to the public.” The Court’s decision focused on caselaw—its own and the Federal Circuit’s—that conclude sales that do not make public the details of the invention nevertheless can invalidate a patent. The Court said that precedent is “settled,” and that Congress, in the AIA, reenacted the same “on sale” language, presumptively adopting the settled precedent. The Court declined to read the “otherwise available to the public” catchall phrase in the AIA version of the statute “to upset that body of precedent,” despite protestations from the Department of Justice and numerous bar and trade associations.

In view of the Court’s decision, the Patent Office will have to revise its examination guidelines,  prospective patent applicants may choose to maintain the existence of third party agreements in secret before filing applications, and putative patent challengers may continue to challenge patents based on the “settled” pre-AIA precedents underlying the Court’s decision.

For more information, please contact Sandip H. Patel or another attorney at Marshall Gerstein.

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