On-sale provision: the status quo remains

In December 2018, with the US Supreme Court hearing arguments in Helsinn Healthcare v Teva, some patent lawyers who spoke to WIPR were confident. They were confident not only that the court would reverse the previous ruling in the case, but that it was important it did so. In the end, however, the refusal to change the status quo surrounding the “on-sale” provision—the doctrine in dispute—will come as a disappointment to inventors.

On January 22, the court delivered a unanimous and concise verdict, finding that companies that sell their inventions to third parties under confidential agreements may still end up invalidating their own patents based on the on-sale provision. This doctrine states that patent protection cannot be granted for an invention that was on sale before the effective filing date of the application.

Even though the lawyers told WIPR that, over the past 20 years, the Supreme Court has not often affirmed the US Court of Appeals for the Federal Circuit, the highest court did just that. According to the court, the America Invents Act (AIA)—which came into effect in 2012—did not change the meaning of the on-sale doctrine, a legal concept that dates back to 1836. The court outlined that the ruling was supported by both Supreme Court and Federal Circuit precedent; essentially, it seemed to be saying, the decision should not have come as a surprise.

The case was brought by Swiss company Helsinn Healthcare after the Federal Circuit invalidated claims of four patents directed to Aloxi (palonosetron hydrochloride), a treatment for chemotherapy-induced nausea and vomiting.

Helsinn had sued Teva for patent infringement after Teva sought approval to market a generic version of Aloxi in 0.25 mg form. Teva counterclaimed that one of the patents was invalid under the on-sale doctrine because the 0.25 mg dose was on sale more than one year before Helsinn filed the provisional patent application in 2003.

Not cut and dried

Despite the Supreme Court’s declining to usher in changes to patent law, as lawyers had hoped, the implications may not be completely cut and dried.

According to Ronald Abramson, partner at Lewis Baach Kaufmann Middlemiss in New York, there are fine points that the court’s decision did not address, for example, when the fact that the sale took place is itself a secret. The court only addressed sales that
did not make the patented technology publicly known due to a confidentiality obligation on the part of
the buyer.

Grantland Drutchas, managing partner at Chicago-based IP law firm McDonnell Boehnen Hulbert & Berghoff, says that in this alternative scenario, a patent owner may try to argue that the issue of a truly secret sale was not before the court.

There are other questions too, says Abramson. What if somebody else who is truly unconnected with the inventor has developed the same technology and independently made a sale that is either secret or does not inform the purchaser (or the public) of the details needed to implement the invention?

He explains that the opinion repeatedly focuses on the inventor’s acts pre-patent application, but the effect of third-party sales appears to be beyond the scope of the decision. If in this situation the technology is not visible, there are numerous questions about whether this act would be patent-invalidating, bearing in mind that the AIA is theoretically based on a first-to-file rather than a first-to-invent system, Abramson adds.

Drutchas agrees, saying that the question remains whether such sales—particularly ones that do not involve any public disclosure—may still be invalidating prior art. But he believes that a broad reading of this decision would suggest that they are still invalidating prior art under the AIA.

Implications

Drutchas claims the ruling puts the US out of step with every single patent system in the world. This presents many pitfalls for companies, problems which differ substantially on an industry-by-industry basis, he continues.

“This includes industries that rely on third-party suppliers to manufacture and supply finished products or patented components (nearly the entire electronics industry), and industries where companies rely on third parties to market and distribute their products (such as many players in the pharmaceutical industry),” he says.

However, he adds, the ruling’s impact is manageable, “particularly where companies carefully supervise their commercial obligations and patent portfolios”, and it does not present the broad range of
problems that the Supreme Court’s Mayo and Alice decisions continue to impose on patent owners,
he explains.

Sandip Patel, partner at Marshall Gerstein & Borun in Chicago, adds that the decision should urge innovators to file patent applications more promptly and to maintain their contracts in secret until such applications are on file.

For companies seeking to overcome the ruling’s findings, the solution seems simple, as it was before: file a patent application before you put an invention on sale.