Supreme Court reinforces the longstanding rule that even a non-public sale may invalidate a patent

Argument: December 4, 2018

Decision: January 22, 2019

Petitioner Brief: Helsinn Healthcare S.A.

Respondent Brief: Teva Pharmaceuticals USA, Inc.,

Court below: Federal Circuit Court of Appeals

Helsinn Healthcare S.A. is a pharmaceutical company that sued another pharmaceutical company, Teva Pharmaceuticals USA, Inc., for infringing a patent covering a formulation for treating chemotherapy-induced nausea and vomiting.

Teva contends that it is not liable for infringement because the patent is invalid due to a sales agreement that Helsinn entered into more than one year before the filing date of the patent with respect to the patented formulation.  Helsinn contends that the sales agreement does not invalidate the patent because the details of the sales agreement were confidential.

Patent Law Background

A patent trial generally involves two main phases – infringement and validity.  In order to obtain damages for infringement, the patentee is required to prove that the alleged infringer performed at least one act of infringement – i.e., the alleged infringer made, used, sold or offered for sale a product covered by the patent.  To avoid liability for infringement, the alleged infringer can attack the validity of the patent on a number of grounds, with one ground of invalidity being that the patentee sold a product covered by the patent more than one year before an application for the patent was filed.

A new series of patent laws came into force in 2013 called the America Invents Act (AIA). Prior to the AIA, it was well established that a sale by the patentee more than a year prior to the filing date of the patent did not have to be public to invalidate the patent. In other words, even a confidential sales agreement was sufficient to invalidate the patent.

Patent Invalidating Activities

A patent is a monopoly – an “exclusive right to practice the invention for a period of years” – granted by the government for a fixed period of time (20 years from the filing date). Patents encourage “the creation and disclosure of new, useful, and nonobvious advances in technology and design.” The granting of patents is premised on a basic quid pro quo – in exchange for inventors or companies making their inventions available to the public, the government may grant a period of exclusivity to the inventors or companies.

Because U.S. patent law must perform a balancing act between promoting inventions and preventing monopolies, it includes restrictions on certain activities of inventors. The “on sale” bar is one of the restrictions (or a patent invalidating activity).

History of the “on sale” bar

The “on sale” language of patent laws is referred to as the “on sale” bar. The party seeking a patent is barred from selling the invention more than a year prior to filing a patent application covering the invention.  The “on sale” bar is used to prohibit an inventor from delaying filing for a patent and at the same time selling the invention. “[An inventor’s] voluntary act or acquiescence in the public sale and use is an abandonment of his [patent] right.” (Pfaff v. Wells Electronics (1998)).

Nevertheless, an inventor should be able to test out the invention at market. Thus, a party requesting a patent is granted a one-year grace period in the United States (other countries’ laws are different in this respect) to perform one of the following activities:  describe the invention in a printed publication, publicly use the invention or sell the invention. After the one-year grace period, such activities can be used to prevent the party from obtaining a patent or be used to invalidate the patent after it is granted. In other words, an inventor cannot commercially exploit an invention more than one year prior to the filing date of a patent, then receive a patent that is used to exclude others from making, using or selling the invention for twenty after the filing date of the patent.  For example, a company cannot enter into an agreement to have a supplier mass produce a product, then file for a patent more than one year after the date of agreement. (Special Devices, Inc. v. OEA, Inc. (Fed. Cir. 2001)). Also, a contract entered into with the government to develop an invention more than a year prior to the filing date of a patent can be used to invalidate a patent (Zacharin v. United States (Fed. Cir. 2000)).

The America Invents Act changed the law’s text on patent invalidating activities

Pre-AIA patent laws stated that a patent could be invalidated if the patented invention was “patented or described in a printed publication in this or a foreign country or in public use or on sale in this country.”  The AIA, which was passed in 2013, states that a patent can be invalidated if the patented invention was “patented, described in a printed publication, or in public use, on sale, or otherwise available to the public.”  Accordingly, the notable difference between the pre-AIA and AIA laws with respect to this portion of the laws was the “or otherwise available to the public” language.

Interpreting “on sale” in the AIA

Helsinn argued that adding the language “or otherwise available to the public” after “on sale” should be construed to limit invalidating sales to only public sales.  According to Helsinn, interpreting “on sale” to include non-public sales would improperly read “otherwise” out of the statute. Teva argued that, without specific intent by Congress, this slight change in language was insufficient to overcome years of established law holding that non-public sales could be used to invalidate a patent.

Supreme Court ruling

The Court sided with Teva.  The Court stated that both the Supreme Court and the Federal Circuit Court of Appeals, which has exclusive jurisdiction over patent appeals, have long held that “secret sales” can invalidate a patent.  Accordingly, it was presumed that when Congress used “on sale” in the AIA, there was no intent to change the judicial interpretation of this language. The Court stated that the language “or otherwise available to the public” was added in the AIA merely as a catchall clause used to cover activities that made the invention available to the public outside of describing the invention in a printed publication or publicly using the invention.  The magnitude of the change was simply not enough to lead to the conclusion that Congress intended to alter a “well-settled judicial interpretation” of “on sale.”