SCOTUS ruling on confidential sales: lawyers comment
A decision by the US Supreme Court yesterday will mean no change to the long-standing rules that apply to the “on-sale” bar, but may reduce the incentive for inventors to carry out confidential sales of their inventions, lawyers have told WIPR.
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, the court said yesterday.
The ruling comes after SCOTUS had to decide whether confidential sales can qualify as patent-invalidating prior art under the on-sale doctrine after the Federal Circuit invalidated claims of four patents belonging to Swiss company Helsinn Healthcare for its anti-nausea and vomiting treatment Aloxi (palonosetron hydrochloride).
The court ruled unanimously that the America Invents Act (AIA) did not change the meaning of the “on-sale” doctrine under which patent protection cannot be granted for an invention that was “on-sale” before the effective filing date of the application.
Justice Clarence Thomas, who wrote the opinion for the court, said the ruling was supported by earlier Supreme Court precedent.
Thomas said the Federal Circuit’s earlier ruling had “made explicit what was implicit in this court’s pre-AIA precedent”, that “secret sales” could invalidate a patent.
Irena Royzman, partner at Patterson Belknap Webb & Tyler in New York City, said the ruling “chills innovation, particularly for small entities that need funding to pursue their inventions”, because it “makes clear that secret sales can invalidate important patents”.
She added that SCOTUS’s decision was disappointing as it is “inconsistent with Congressional intent” and the interpretation of the US Patent and Trademark Office.
However, in its decision, the Supreme Court said there was nothing to suggest that Congress intended to alter the meaning of “on-sale” when it enacted the AIA.
David Bassett, a partner at WilmerHale in New York, said the ruling means that there will be no change to the long-standing rules that apply to the “on-sale” bar.
“For many years, the rule has been that, to be invalidating, a sale or offer to sell does not need to make an invention available to the public. That will now continue to be the rule.”
He added that the risk for patent owners continues to be that even a confidential sale can invalidate their patent.
The ruling will likely have “minimal impact on the current licensing practices of patent owners”, Bassett concluded.
Lawyers at Gibson, Dunn & Crutcher said the “decision will particularly affect companies in the pharmaceutical industry, where inventors often need to raise capital early on in the research and development process”.
As a result of the ruling, “companies must now think even more strategically about when and how to best raise capital”, they added.
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