Supreme Court Reaffirms Scope of “On Sale” Bar Under 35 U.S.C. § 102

In a short and unanimous decision, the Supreme Court reaffirmed that “a commercial sale to a third party who is required to keep [an] invention confidential may place the invention ‘on sale’ under the AIA.” Slip Op. at 1-2.

A.          Historical Background

Every U.S. patent statute since 1836 has included an on-sale bar. Slip Op. at 5 (citing Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 65 (1998)). The on-sale bar reflects the balance between “‘motivating innovation and enlightenment’ while also ‘avoiding monopolies that unnecessarily stifle competition.’” Slip Op. at 5 (citing Pfaff, 525 U.S. at 63). Prior to passage of the America Invents Act, 35 U.S.C. § 102 read in relevant part:

A person shall be entitled to a patent unless —

(a) the invention was known or used by others in this country, or patented or described in a printed publication in this or a foreign country, before the invention thereof by the applicant for patent, or

(b) the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States . . ..

35 U.S.C. §§ 102(a)-(b) (emphasis added).

In interpreting the “on sale” bar of § 102(b), in 1998, the Supreme Court held that “an invention was ‘on sale’ … when it was ‘the subject of a commercial offer for sale’ and ‘ready for patenting.’” Slip Op. at 1 (citing Pfaff, 525 U.S. at 67). The Pfaff decision did not consider whether the commercial offer for sale included any confidentiality obligations, and decisions by the Court of Appeals for the Federal Circuit that have applied the Pfaff test have not addressed the issue of confidentiality either. Slip Op. at 1 (“We did not further require that the sale make the details of the invention available to the public.”); 7 (citing Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001)).

The fact that the “on sale” bar in pre-AIA § 102 applied even to “secret” sales is also consistent with how courts have interpreted the “in public use” prong of pre-AIA § 102(b). Slip Op. at 7 (citing Woodland Trust v. Flowertree Nursery, Inc., 148 F.3d 1368, 1370 (Fed. Cir. 1998) (“Thus an inventor’s own prior commercial use, albeit kept secret, may constitute a public use or sale under § 102(b), barring him from obtaining a patent.”); see also Metallizing Eng’g Co. v. Kenyon Bearing & Auto Parts, 153 F.2d 516 (2d Cir. 1945) (L. Hand, J.).

In adopting the AIA, Congress adopted many of the limitations on novelty in pre-AIA into the current version of 35 U.S.C. § 102—while both simplifying that section and broadening the (geographic) scope of the bars to patentability. Currently, § 102(a)(1) states, in relevant part:

“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 ….”

35 U.S.C. § 102(a)(1).

In this decision, the Supreme Court was asked to consider whether by adding the catchall phrase “or otherwise available to the public” to the statute, Congress intended to restrict the “on sale” bar to just those instances where the sale would lead to disclosure of the invention itself.

B.           Factual Background

Helsinn, a Swiss pharmaceutical company makes Aloxi, a drug that treats chemotherapy-induced nausea and vomiting. In 1998, Helsinn acquired the rights to develop the active ingredient in Aloxi (palonosetron). In early 2000, Helsinn submitted protocols for Phase III clinical trials—proposing a 0.25 and a 0.75 dose of palonosetron—to the FDA. Helsinn announced that it was beginning Phase III clinical trials and was seeking a marketing partner for its product in September 2000. Slip Op. at 2.

Helsinn entered into two agreements—a licensing agreement and a supply-purchase agreement—with MGI Pharma, Inc. shortly thereafter. Neither agreement disclosed dosage information and both agreements required MGI to keep Helsinn’s proprietary information confidential. Helsinn and MGI, however, announced their partnership publicly, and MGI even included redacted copies of its agreements with Helsinn in its SEC filings. Slip Op. at 2.

Nearly two years after Helsinn and MGI entered into—and publicly announced—their partnership, Helsinn filed a provisional patent application covering 0.25 mg and 0.75 mg doses palonosetron. Helsinn went on to file four non-provisional patent applications seeking priority to the provisional application over the next ten years. The patent-at-issue covers a fixed dose of 0.25 mg of palonosetron in a 5 ml solution. Slip Op. at 3.

Teva sought FDA approval to market a generic 0.25 mg palonosetron product in 2011. Helsinn sued Teva for patent infringement, including the patent-at-issue. In its defense, Teva asserted that the patent-at-issue was invalid under the “on sale” bar of 35 U.S.C. § 102(a)(1). Slip Op. at 3. The district court rejected Teva’s because it held that when Congress added the clause “or otherwise available to the public,” Congress intended the “on sale” bar to apply only in those situations where the “sale or offer [for sale] made the claim invention available to the public.” Slip Op. at 4. The Federal Circuit reversed, holding that “if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale” to fall within § 102(a)(1)’s “on sale” bar. Id.

Helsinn sought certiorari, but did not challenge whether the test for the on-sale bar under Pfaff was the correct test (assuming the “secret” sales could trigger the on-sale bar) or whether the Federal Circuit was correct in its interpretation that its supply-purchase agreement with MGI was a “sale.” Thus, the Supreme Court was asked to interpret a very narrow question.

C.           Analysis

In its short and succinct opinion, the Court presumed that “when Congress reenacted the same language [as was in pre-AIA § 102] in the AIA, it adopted the earlier judicial construction of that phrase.” Slip Op. at 7 (citing Shapiro v. United States, 335 U. S. 1, 16 (1948) (“In adopting the language used in the earlier act, Congress ‘must be considered to have adopted also the construction given by this Court to such language, and made it a part of the enactment’”)). Slip Op. at 7. Here Congress had adopted the exact same language as existed in the pre-AIA Patent Act, and as the United States acknowledged as amicus, “adding the phrase ‘or otherwise available to the public’ to the statute ‘would be a fairly oblique way of attempting to overturn’ that ‘body of law.’” Id. at 7-8.

The Court rejected Helsinn’s argument—based on the associated-word canon—that “or otherwise available to the public” must be read to limit the clauses that preceded that clause. Slip Op. at 8. The Court found instead that the catchall phrase was exactly that—a catchall. Id. (“Like other such phrases, ‘otherwise available to the public’ captures material that does not fit neatly into the statutes enumerated categories but is nevertheless meant to be covered.”).

Given that the phrase “on sale” had acquired a well-settled meaning when the AIA was enacted, we decline to read the addition of a broad catchall phrase to upset that body of precedent.

Slip Op. at 8.

D.           Conclusion and Takeaways

When the Supreme Court granted certiorari, most observers noted that it was highly unlikely that it would reverse over 180 years of precedent and hold that only those sales that disclosed an invention would trigger the “on sale” bar. The Supreme Court’s aversion to granting patent protection for inventions that the inventor has previously commercially (or otherwise—such as to impress one’s fiancée as in Egbert v. Lippman, 104 U.S. (14 Otto) 333 (1881)) exploited has a long and impressive history. This precise (and unanimous) decision continues that jurisprudence and helps settle any open questions as to the affect of the catchall phrase “or otherwise available to the public” not just for the “on sale” bar of § 102(a)(1) but also the “public use” prong of that statute.

Inventors who are weighing the pros and cons of seeking patent protection (with its requisite term limits and quid pro quo of disclosing the invention with sufficient detail to enable others to make the invention) versus other forms of intellectual property protection would be well advised to keep this decision in mind and to seek competent legal advice well in advance of any commercial activity.