On January 22, 2019, the United States Supreme Court in Helsinn Healthcare S.A. v. Teva Pharms. USA, Inc. held that the sale of a patented invention to a party who is obligated to keep the invention confidential can trigger the "on-sale bar" of the America Invents Act (AIA). This decision emphasizes the ongoing need for intellectual property owners to take care that certain commercial transactions involving their inventions do not interfere with their patent rights.
The On-Sale Bar Explained
The on-sale bar is a doctrine that prevents an inventor from patenting an invention that was commercially sold or offered for sale before a patent application for the invention was filed. The stated policy rationale for the bar is that one should not be able to commercially exploit his or her invention by offering it to the public first, only to later exclude the public from the invention by obtaining a patent on it.
To the frustration of some patentees, courts—including the Federal Circuit, the appellate court tasked with hearing patent-related appeals—have been reluctant to draw bright lines as to when the bar will apply. Thus, whether any given transaction will trigger the bar depends in large part upon facts specific to each transaction.
For example, in Merck & Cie v. Watson Labs., Inc., 822 F.3d 1347 (Fed. Cir. 2016), Wieder Nutritional International, Inc. sought to purchase 2 kg of the chemical compound MTHF from Merck. Merck responded with a fax offering to sell Weider the MTHF for $25,000 per kg, delivered to Wieder's R&D facility, free of charge, payment due 60 days net. After some back-and-forth, Weider cancelled its order. Nevertheless, the Federal Circuit ruled that Merck's fax, "providing essential price, delivery, and payment terms—contained all the required elements to qualify as a commercial offer for sale," and on that basis invalidated a Merck MTHF patent. Id. at 1352.
Conversely, in Meds. Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016), the Federal Circuit declined to apply the on-sale bar to a situation in which The Medicines Co. ("MC") agreed to pay Ben Venue ("BV") $347,000 to manufacture three commercial lots of the drug bivalirudin. Here, the Federal Circuit concluded that the subject of the sale was BV's contract for manufacturing services—rather than the patented lots themselves—and that, because the patented invention was not the subject of the sale, the bar did not apply. To support that conclusion, the Federal Circuit noted that BV's invoices specified "charges to manufacture" the lots; that MC paid BV only about 1% of the commercial value of the lots; that title to the lots never passed to or from BV; and that the MC-BV transactions were kept confidential.
The Helsinn Case
In Helsinn, both the Federal Circuit and the Supreme Court concluded that, under the AIA, the on-sale bar may apply to the sale of an invention wherein the details of the invention are kept confidential from the public.
In this case, the drug-maker Helsinn in 2001 entered into agreements with MGI under which MGI would purchase and distribute in the United States the FDA-approved 0.25-mg dose form of Helsinn's Aloxi® drug product. The agreements were disclosed publicly in MGI's 8-K SEC filings, though they were redacted to shield the dosage strength and price terms. Helsinn subsequently sought and obtained a patent covering the 0.25-mg dose. That patent was filed after the March 2013 effective date of the AIA, and thus was subject to the AIA's provisions.
The Federal Circuit (55 F.3d 1356 (Fed. Cir. 2017)) found that the disclosure of the MGI agreements triggered the on-sale bar under the AIA, noting that the agreements "unambiguously contemplated the sale by Helsinn of MGI's requirements of the claimed invention." Although the agreements were made prior to FDA's approval of the 0.25-mg dose, the Federal Circuit found this detail irrelevant, noting that "a contract for sale that includes a condition precedent is a valid and enforceable contract." And, although the agreements required MGI to keep the details of the invention confidential, the Federal Circuit held that public disclosure of the existence of the sale was sufficient to trigger the on-sale bar under the AIA. Helsinn appealed.
In a January 22, 2019 decision, the Supreme Court affirmed the Federal Circuit. In so doing, the Supreme Court rejected Helsinn's argument that certain statutory language in the AIA had changed the scope of the on-sale bar. Specifically, the AIA bars patents for inventions that were "on sale, or otherwise available to the public before the effective filing date of the invention." According to Helsinn, the "otherwise" language required that the details of the invention had to be publicly disclosed in order to trigger the bar under the AIA. The Supreme Court disagreed, reasoning that the "otherwise" language was insufficient in the AIA to overturn "settled pre-AIA precedent" concerning the on-sale bar.
Considerations for IP Owners after Helsinn
The Supreme Court's Helsinn decision effectively affirms the status quo ante concerning the on- sale bar. IP owners should proceed on the assumption that the on-sale bar jurisprudence that applied before AIA applies equally to patents filed after the March 2013 effective date of the AIA.1
As illustrated by the above cases, there are no measures that in all instances will shield transactions from application of the on-sale bar. However, the following considerations should be kept in mind for those who seek to avoid the bar:
- Parties may wish to enter into agreements that omit the typical hallmarks of a commercial sale or offer for sale (e.g., definite price, delivery and payment terms).
- Where the patented invention is a product, parties may wish to enter into agreements for services (e.g., contract manufacturing services, programming services, testing services) rather than for products. In such agreements, the parties may wish to clarify that title to any patented or patentable material shall remain with the IP owner.
- There is a complementary patent law doctrine called the "experimental use" doctrine which, in some circumstances, may negate the on-sale bar. Although the experimental use doctrine itself is highly fact-specific—and too complicated to address here—parties to agreements concerning nascent inventions may wish to stress the experimental nature of that subject matter in the agreement.
- IP owners who contemplate entering into transactions with third parties concerning potentially patentable subject matter should consult with qualified patent counsel first. Some circumstances may warrant early patent filings, regardless of how the transaction is (or can be) structured.
- Last, prospective purchasers of a company with unpatented IP may wish to conduct due diligence into whether the company's IP is worth patenting, and, if it is, seek qualified patent counsel's advice as to whether any transactions between the company and any third parties might raise a potential on-sale bar.
 Note that the Supreme Court's Helsinn decision does not address the situation in which the existence of the sale itself is kept confidential from the public.