Supreme Court Holds Sale Requiring Confidentiality Can Qualify as Prior Art

Intellectual Property Law

In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court affirmed the Federal Circuit’s decision that the sale of an invention to a party who is contractually obligated to keep the invention confidential can qualify as prior art to place the invention “on sale” within the meaning of the America Invents Act (AIA).1 The Court framed the issue and summarized its holding as follows:

The Leahy–Smith America Invents Act (AIA) bars a person from receiving a patent on an invention that was “in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” 35 U.S.C. § 102(a)(1). This case requires us to decide whether the sale of an invention to a third party who is contractually obligated to keep the invention confidential places the invention “on sale” within the meaning of § 102(a).
 
More than 20 years ago, this Court determined that an invention was “on sale” within the meaning of an earlier version of § 102(a) when it was “the subject of a commercial offer for sale” and “ready for patenting.” . . . We did not further require that the sale make the details of the invention available to the public. In light of this earlier construction, we determine that the reenactment of the phrase “on sale” in the AIA did not alter this meaning. Accordingly, a commercial sale to a third party who is required to keep the invention confidential may place the invention “on sale” under the AIA (quoting Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 67, 119 S.Ct. 304, 142 L.Ed.2d 261 (1998)).

The Court observed that the AIA prevents a patent on an invention that was “on sale”:
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 (quoting 35 U.S.C. § 102(a)(1) (2012 ed.) (emphasis added)).
 
The “on-sale bar” provision in effect before the AIA included a comparable prohibition:
A person shall be entitled to a patent unless—

(a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or

(b) the 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, more than one year prior to the date of the application for patent in the United States (quoting 35 U.S.C. §§ 102(a)-(b) (2006 ed.)) (emphasis added).

The Court explained that the Constitution empowers Congress “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Art. 1, § 8, cl. 8.

Every patent statute since 1836, the Court explained, has prevented patents with an on-sale bar. The AIA also included the on-sale bar, but added the catchall phrase “or otherwise available to the public” (quoting 35 U.S.C. § 102(a)(1) (2012 ed.) (“A person shall be entitled to a patent unless” the “claimed invention was . . . in public use, on sale, or otherwise available to the public . . .”). The issue was whether these changes to 35 U.S.C. § 102 altered the meaning of the “on sale” bar. The Court held that they did not.

The Court remarked that Congress passed the AIA in 2011 with knowledge of an extensive body of law applying § 102’s on-sale bar. The Court acknowledged: “Although 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.”

The Court explained that the Federal Circuit has long held that confidential sale can qualify as prior art and invalidate a patent (citing, e.g., Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368, 1370 (1998) (“Thus an inventor’s own prior commercial use, albeit kept secret, may constitute a public use or sale under § 102(b), barring him from obtaining a patent.”)). The Court reasoned:

In light of this settled pre-AIA precedent on the meaning of “on sale,” we presume that when Congress reenacted the same language in the AIA, it adopted the earlier judicial construction of that phrase. . . . The new § 102 retained the exact language used in its predecessor statute (“on sale”) and, as relevant here, added only a new catchall clause (“or otherwise available to the public”). . . . The addition of “or otherwise available to the public” is simply not enough of a change for us to conclude that Congress intended to alter the meaning of the reenacted term “on sale.” 

The Court explained that since the phrase “on sale” had an established meaning when the AIA was enacted, it would not interpret the broad catchall phrase “or otherwise available to the public” to change that meaning. Therefore, the Court held the following:

Because we determine that Congress did not alter the meaning of “on sale” when it enacted the AIA, we hold 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 § 102(a).

Why it matters:

The Helsinn decision has significant implications, particularly for companies that license inventions to others for testing during the development process. Companies will need to be cognizant of where a product is in the development cycle, and monitor interactions outside the company that might be construed as marketing or selling the product. The decision also highlights the need for companies to file their patent applications as early as possible, which is consistent with the “first-inventor-to-file” system also enacted by the AIA.

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Irah Donner is a partner in Manatt’s intellectual property practice and is the author of Patent Prosecution: Law, Practice, and Procedure, Tenth Edition, With 2018 Supplement, published by Bloomberg Law/BNA. This case analysis will be included in the next edition of the treatise.

1Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., ---- S.Ct. ----, 2019 WL 271945 (U.S., Jan. 22, 2019).