Business and Legal Insights

Recent focus on the United States Supreme Court has surrounded who President Trump will nominate to replace retiring Associate Justice Anthony Kennedy.  (The nominee is Brett Kavanaugh of the D.C. Circuit.)  However, once October is here, the 2018 Term begins and focus will shift back to the cases before the Court.  One of those issues will be the extent that sales (or offers for sale) of an invention before the filing of a patent application will prevent the issuance of a patent.  Also known as the ‘on-sale bar’ doctrine, the outcome will have broad implications for startup companies and small businesses holding intellectual property assets.

The on-sale bar doctrine originally appeared in the Patent Act of 1952; “[a] person shall be entitled to a patent unless -- … the invention was … on sale in this country more than one year prior to the date of the application for patent in the United States…”[1]  The Leahy-Smith America Invents Act of 2011 (“AIA”) made the first changes to the on-sale bar in almost 60 years, adding the word “claimed” before “invention” and adding the phrase “or otherwise available to the public”.  Post-AIA, “[a] person shall be entitled to a patent unless – the claimed invention was…on sale, or otherwise available to the public before the effective filing date of the claimed invention...”[2]

Whether these changes substantively narrowed the on-sale bar doctrine is unclear.  One purpose of the AIA was to further harmonize United States patent law with global patent law.  Pre-AIA, the statute drew a hard line – generally any sale or offer for sale of any portion of an invention more than one year prior to the date of application for the patent was fatal to the application or patent.  Even ‘secret’ transactions between two private parties of a non-claimed portion of an invention would be fatal.  The purpose was twofold: (1) to encourage inventors to promptly disclose their inventions and (2) prevent inventors from commercially exploiting their invention for beyond the term of a patent.  Because this policy was in stark contrast to other countries where ‘secret sales’ generally do not invalidate patents,[3] some believed Congress intended to narrow the scope of the one-sale bar and harmonize U.S. law with the rest of the world.

It appeared the United States Patent and Trademark Office (“USPTO”) agreed when it issued guidance that “[t]he phrase ‘on sale’ in AIA 35 U.S.C. 102(a)(1) is treated as having the same meaning as ‘on sale’ in pre-AIA 35 U.S.C. 102(b), except that the sale must make the invention available to the public.”[4]

Others believed the AIA did not substantively change the on-sale bar and that ‘secret sales’ could still bar a patent.  This group generally believed that Congress retained the words “on sale” in the statute and if Congress intended to overturn or modify nearly six decades of statutory history and legal precedent it would have been explicit in its intentions, using clear, unambiguous language.

The question was called in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 855 F.3d 1356 (Fed. Cir. 2017).  The issue before the court was whether the addition of “or otherwise available to the public” to the statute limited the scope of the on-sale bar by exempting sales and offers for sale where the public could not discern the invention.  Helsinn, the patent-owner, argued that the additional language limited the scope of the on-sale bar; Teva, the accused infringer, argued the on-sale bar had not been altered.

Reviewing the statutory history and prior case law, the Federal Circuit sided with Teva, holding that ‘secret’ transactions, where the public could not discern the invention, still triggered the on-sale bar.  The court primarily reached its decision on two primary considerations.  First, the court determined that if Congress intended to alter decades of statutory language and judicial interpretation it would have done so explicitly.  Next, the court reviewed precedential decisions and found numerous instances where private or ‘secret’ sales had been grounds for invalidating a patent.  Moreover, the court found that “[r]equiring [public disclosure of the details of the claimed invention] as a condition of the on-sale bar would work a foundational change in the theory of the statutory on-sale bar.”[5]

The Supreme Court will review the matter.  In deciding whether the AIA narrowed the scope of the on-sale bar, the Supreme Court will consider an issue with important ramifications for startups and small businesses with intellectual property assets.  Many new and small businesses lack in-house manufacturing or distribution capabilities and require outside vendors to fulfill these roles.  Retaining such outside vendors is frequently a critical component in growing new and small businesses and obtaining critical funding, including angel and venture capital.  However, entering into manufacturing and supply agreements may trigger the on-sale bar, creating a substantial business problem for many companies.  The Supreme Court’s decision will therefore have substantial business implications.

[1] 35 U.S.C. § 102(b) (1952).

[2] 35 U.S.C. § 102(a)(1) (2011) (emphasis supplied).

[3] See, e.g., European Patent Convention Art. 54(2) (2007).

[4] Examination Guidelines for Implementing the First Inventor to File Provisions of the Leahy-Smith America Invents Act, 78 Fed. Reg. 11,509, 11.075 (Feb. 14, 2013) (emphasis supplied).

[5] 855 F.3d 1369.