U.S. Supreme Court Upholds Federal Circuit Ruling on “Secret Sales”

Intellectual Property
March 6, 2019
 

In Helsinn Healthcare S.A. v. Teva Pharm. USA, Inc., 139 S. Ct. 628 (2019), the United States Supreme Court ruled that the sale of an invention to a third party who is contractually obligated to keep the invention confidential (e.g., under a nondisclosure agreement) places the invention “on sale” under the Leahy-Smith America Invents Act (AIA), 35 U.S.C. § 102(a)(1).

The primary issue was whether the AIA’s addition of the phrase “or otherwise available to the public” to the classes of prior art means that only public sales, i.e., sales “available to the public,” qualify as invalidating prior art. The Supreme Court’s decision makes clear that even “secret sales” of an invention can invalidate a patent.

Background

Helsinn Healthcare S.A. (Helsinn) makes a drug called Aloxi, which treats chemotherapy-induced nausea and vomiting. The active ingredient in Aloxi is called palonosetron. During development, Helsinn entered into two agreements with MGI Pharma, Inc. (MGI), a U.S. distributor. The agreements granted MGI the right to distribute, promote, market, and sell a 0.25 mg and 0.75 mg dose of the drug in exchange for upfront payments to Helsinn and future royalties. Importantly, the agreements required MGI to keep any proprietary information revealed under the agreements confidential.

Nearly two years after entering into the agreements with MGI, Helsinn filed a provisional patent application on January 30, 2003 covering the 0.25 mg and 0.75 mg doses of palonosetron. Helsinn filed four additional patent applications claiming priority to the provisional application over the next ten years. The fourth patent application, which issued as U.S. Patent No. 8,598,219 (‘219 patent), was filed in May 2013 and is governed by the AIA.

In 2011, Teva Pharmaceutical Industries, Ltd. and Teva Pharmaceuticals USA, Inc. (collectively Teva) sought approval from the FDA to market a generic 0.25 mg palonosetron product. Helsinn sued Teva for patent infringement, including infringement of the ‘219 patent. In defense, Teva asserted that the ‘219 patent was invalid because the 0.25 mg dose of palonosetron was “on sale” more than one year before January 30, 2003, the date Helsinn filed the provisional application to which the ‘219 patent claims priority, by virtue of Helsinn’s agreements with MGI.

Lower Court Decisions

Under AIA § 102(a)(1), “[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.” Id. (emphasis added). (Notably, disclosures made one year or less before the effective filing date of a claimed invention are not prior art to the claimed invention if, among other things, the disclosure was made by the inventor or by another who obtained the subject matter from the inventor.)

Interpreting § 102(a)(1), the District Court found that the “on-sale” provision did not apply because an invention is not “on sale” unless the sale made the claimed invention available to the public. Because the agreements between Helsinn and MGI did not disclose the 0.25 mg dose, the District Court found the claimed invention was not “on sale” before the critical date.

The Federal Circuit reversed, finding that the “on-sale” bar applied. The Court determined 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 “on-sale” bar. According to the Federal Circuit, the on-sale bar applied because the sale between Helsinn and MGI was publicly disclosed.

Supreme Court Decision

The Supreme Court unanimously upheld the Federal Circuit’s decision, holding 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).” The Court noted that its prior decisions suggested that “a sale or offer of sale need not make an invention available to the public” and that the Federal Circuit had long “made explicit what was implicit” in the Supreme Court’s precedent, i.e., that “secret sales” can be invalidating prior art. In light of the settled pre-AIA precedent on the meaning of “on sale,” the Court “presume[d] that when Congress reenacted the same language in the AIA, it adopted the earlier judicial construction of that phrase.”

The Supreme Court disagreed with Helsinn, who argued that the phrase “otherwise available to the public” limited the preceding terms in § 102 to disclosures that make the claimed invention available to the public. The Court found that the phrase “on sale” had acquired a well-settled meaning prior to the AIA and declined to read the addition of “otherwise available to the public” to upset the prior body of precedent.

Key Takeaways

Although the Supreme Court’s decision may initially appear to affect only a relatively small category of potential prior art, i.e., confidential sales, the real-world implications of the case are likely much broader. The Court’s decision makes clear that even “secret sales” may qualify as prior art under the AIA and serve to invalidate a later-filed patent. Thus, it is crucial to understand that prior to engaging in sales or entering into agreements involving a product or innovation, patent protection should be sought, whether or not the details of the sale or agreement are confidential.

The Supreme Court’s decision may have implications for parties in a variety of situations. For example, the decision appears to prevent parties from selling a “secret” invention (e.g., a trade secret) but then applying for patent protection more than one year later. Moreover, the Court’s decision may limit the ability of innovators to rely on confidential licensing agreements to secure funds to patent or commercialize their inventions without filing a patent application within one year of entry into the license agreement. The decision emphasizes the importance of seeking early patent protection on innovations in most situations.

While the full effect of the Supreme Court’s decision remains to be seen, we urge our clients to contact us to seek patent protection prior to engaging in any activity that could be considered a “sale,” whether confidential or not. Please contact us with any questions or to discuss specific legal strategies.


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