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A Private Sale Can be a Bar to Obtaining a Patent

The U.S. Patent Statute, 35 U.S.C. 102(a), states that “A person shall be entitled to a patent unless – (1) 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….”  (emphasis added). One exception to this rule is: “A disclosure made 1 year or less before the effective filing date of a claimed invention shall not be prior art to the claimed invention under subsection (a)(1) if – (A) the disclosure was made by the inventor or joint inventor or by another who obtained the subject matter disclosed directly or indirectly from the inventor or a joint inventor….” 35 U.S.C. 102(b). 

Generally speaking, a sale of an invention more than a year prior to the filing of a patent application is prior art that can be used to invalidate a patent. Not only does this law apply to the sale of a physical product, but it applies to contractual agreements.

On Monday, May 1, 2017, the U.S. Court of Appeals for the Federal Circuit provided some guidance regarding the on-sale bar in its decision, Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 2016-284, 2016-1787 (Fed. Cir. May 1, 2017). The case was an appeal of a District Court decision by the U.S. District Court for the District of New Jersey. Helsinn sued Teva for patent infringement based upon several patents for pharmaceutical compositions. Teva challenged the validity of the patents, alleging that Helsinn was barred from obtaining a patent based upon the on-sale bar. According to the facts set forth in the decision, almost two years before applying for a patent Helsinn and MGI Pharma, Inc. entered into two agreements: a license agreement; and a supply and purchase agreement. Moreover, these agreements were announced in a joint press release of the two entities and in an SEC filing. The license agreement provided that initial payments were to be made to Helsinn, as well as additional future royalties based upon distribution of products in the US. The supply and purchase agreement was an agreement by Helsinn to supply, and an agreement by MGI to purchase exclusively from Helsinn, whichever product was approved for sale by the FDA. The supply and purchase agreement included specifics regarding price, method of payment, and method of delivery. “Products” under the agreements were those claimed in the patents, but the details of the “invention” were not disclosed.

One or more patents at issue in the case were governed by the Leahy-Smith America Invents Act (AIA) which went finally into effect March 16, 2013, while others were governed by the old law. An on-sale bar exists under both forms of the law, but the New Jersey District Court was the first to consider the on-sale bar as it applied to the AIA. The District Court ruled that the AIA changed the meaning of the on-sale bar and that Section 102(a), under the AIA, now requires a public sale or offer for sale of the claimed invention, and public means the sale must publicly disclose the details of the invention. The Federal Circuit disagreed and overturned the decision of the New Jersey District Court, finding that the agreements entered into by Helsinn before the filing of the respective patent applications triggered the on-sale bar and rendered its patents invalid. 

In its decision, the Federal Circuit provided some guidance regarding what types of agreements may give rise to an on-sale bar. The court stated that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclose in the terms of sale.” In doing so, the Federal Circuit also maintained what it claimed to be decades old law that even confidential sales trigger the on-sale bar. To be an on-sale bar according to the court, “the offer or contract for sale must unambiguously place the invention on sale, as defined by the patent’s claims.” Helsinn, citing Medicines Co. v. Hospira, Inc., 827 F.3d 1363, 1364 (Fed. Cir. 2016).  “A sale occurs when there is a ‘contract between parties to give and to pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.’” Helsinn, quoting Trading Techs. Int’l, Inc. v. eSpeed, Inc., 595 F.3d 1340, 1361 (Fed Cir. 2010). Moreover, an agreement contracting for the sale of the claimed invention contingent on regulatory approval is still a commercial sale. According to the court, publicly offering a product for sale that embodies the claimed invention places it in the public domain, regardless of when or whether actual delivery occurs. The patented product need not be on-hand or even delivered prior to the critical date to trigger the on-sale bar. On the other hand, the court noted that the absence of the passage of title, the confidential nature of a transaction, and the absence of commercial marketing of the invention are all factors that may suggest that no on-sale bar exists. 

For more information, please see Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 2016-284, 2016-1787 (Fed. Cir. May 1, 2017).  

DISCLAIMERThe information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

DISCLAIMER: The information provided is for general informational purposes only. This post is not updated to account for changes in the law and should not be considered tax or legal advice. This article is not intended to create an attorney-client relationship. You should consult with legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.

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