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The Federal Circuit’s First Application of the AIA’s On-Sale Bar: Implications for Bio/Pharma

When a small pharmaceutical company discovers a new medicine, it’s not uncommon for the company – which may not itself have the resources or infrastructure to get that medicine to patients – to seek a distribution partner early in development.  If the partners make a deal – say the distributor pays for the right to sell the drug (if it gets approved) – and the partners publicize the existence of the deal (but not the full details of the medicine), does the deal bar a patent filed more than one year later?  In Helsinn Healthcare S.A v. Teva Pharms. USA, Inc. (May 1, 2017), a unanimous panel of the Federal Circuit ruled that the on-sale bar of the America Invents Act (AIA) precludes such a patent, just as the pre-AIA on-sale bar would.  But, in a decision with the potential to chill deals between small bio/pharma companies and potential commercialization partners, the court left unresolved some important questions about the meaning of the AIA’s on-sale bar. 

The Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (Sept. 16, 2011), also known as the AIA, was the first major overhaul of the United States patent system since 1952.  One of its principal purposes was to transition the United States from the first-to-invent to a first-inventor-to-file system, to more closely harmonize with global patent systems.  Under the pre-AIA first-to-invent system, a patent was awarded to the first inventor, leading to situations where the sometimes difficult-to-ascertain invention date, rather than the filing date of the patent application disclosing the invention, was determinative of what is prior art.  (For example, under pre-AIA 35 U.S.C. § 102(a), one could not obtain a patent if “the invention was known or used by others in this country . . . before the invention thereof by the applicant for patent.”)  Because a first-to-invent system could incentivize an inventor to keep an invention secret, U.S. law had incorporated a one-year grace period, embodied in pre-AIA 35 U.S.C. § 102(b), to prod inventors to get their inventions on file.  If certain activities or disclosures occurred more than one year before the filing of a patent application, pre-AIA section 102(b) would bar the patent. 

Specifically, under the pre-AIA regime, one could not obtain a patent if “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 application for patent in the United States.”  35 U.S.C. § 102(b).  Longstanding Federal Circuit precedent interpreted the pre-AIA on-sale bar as potentially applicable to any sale, even those not available to the public.  See, e.g., Meds. Co. v. Hospira, Inc., 827 F.3d 1363, 1376 (Fed. Cir. 2016) (en banc) (collecting cases finding “confidential transactions to be patent invalidating sales under § 102(b)”). 

With the AIA, the statutory language was changed for post-AIA filings: 

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 . . . .

35 U.S.C. § 102(a)(1).  While the AIA used the same “on sale” phrase that the pre-AIA statute used, it removed the geographical limitation of the on-sale bar (“in this country”) and added a new catch-all provision at the end of the list of prior art categories (“or otherwise available to the public”).  The statutory construction question of first impression facing the Helsinn panel was whether the “or otherwise available to the public” clause added by the AIA means that, to be “on sale” under the current statute, the invention must be “on sale” in such a manner as to be “available to the public,” and, if so, what it means for a sale to be “available to the public.” 

The district court in Helsinn, the USPTO (in examination guidelines issued following the AIA’s enactment), the U.S. Government as amicus, Representative Lamar Smith (amicus and co-sponsor of the AIA), and numerous other amici all agreed that the “otherwise” clause changed the on-sale bar law, and that a sale or offer for sale must be “available to the public” to be invalidating prior art under the AIA.  In advancing this interpretation, the United States and other amici have noted that one of the express goals of the AIA was to “promote harmonization of the United States patent system with the patent systems commonly used in nearly all other countries throughout the world with whom the United States conducts trade and thereby promote greater international uniformity.”  AIA § 3(p), 125 Stat. at 293.  Indeed, as the United States wrote in its amicus brief, “[n]o other industrialized nation includes secret sales within the prior art.”  As pointed out by other amici, since “the vast majority of patent applications filed outside the United States are filed in jurisdictions where secret commercialization is not regarded as prior art, the elimination of this category of prior art brings the U.S. patent system in line with the rest of the world.”  Brief of Amicus Curiae The Naples Roundtable, Inc.  

The relevant facts of Helsinn parallel the hypothetical discussed above.  In the late 1990s and early 2000s, Helsinn, a family-owned oncology company, was developing a drug formulation for treating chemotherapy-induced nausea and vomiting (CINV).  The formulation, then in clinical trials, included an unexpectedly low dose of a known drug (palonosetron).  Helsinn had never marketed a drug in the U.S., and found a partner (MGI Pharma) to do so.  Helsinn and MGI entered into a License Agreement (under which Helsinn licensed the formulation to MGI for an up-front fee and royalties) and a Supply and Purchase Agreement (under which Helsinn agreed to supply MGI the formulation, if it received FDA approval).  Though the companies kept the details of the low-dose formulation confidential, they publicized the existence of the agreements (in press releases and SEC filings).  More than a year after the deal, Helsinn applied for, and obtained, patents on its new formulation, including a patent subject to the AIA.  The district court upheld Helsinn’s AIA patent as valid since the “sale” was not “available to the public.”  The Patent Trial and Appeal Board denied institution of a post-grant review (PGR) on the same basis.

The Federal Circuit reversed the district court and held that Helsinn’s AIA patent was invalid under 35 U.S.C. § 102(a)(1) because Helsinn’s agreements with MGI was a “sale” and “the existence of the sale [was] public.”  That is, because the sale was reported in press releases and an SEC filing, the court held that the sale met the statutory requirements, whether or not “the details of the invention” were “publicly disclosed in the terms of sale.”

In holding that the on-sale bar applied to Helsinn’s post-AIA patent, the court did not directly address whether the AIA changed the scope of the on-sale bar.  That is, the court never stated whether the new statutory phrase “or otherwise available to the public” means that the “on sale” prior art must be “available to the public” and, if so, in what way.  Instead, the court concluded that whether or not there had been a change in law, any such change would not affect the outcome of the case.  The court “decline[d] the invitation by the parties to decide this case more broadly than necessary” by clarifying whether the AIA had changed the law. 

The court began its analysis of the AIA by addressing Helsinn’s (and its amici’s) legislative history arguments.  It specifically quoted floor statements made by Senators suggesting that the AIA was intended to change the scope of section 102(b), but dismissed them as “[a]t most” showing “an intent to do away with precedent under current § 102 law” relating to the “public use” prong of pre-AIA section 102(b), not its on-sale bar.  As to that, the court found that the legislative history did “not identify any sale cases that would be overturned by the [AIA] amendments,” but even if it had, “that would have no effect since those cases were concerned entirely with whether the existence of a sale or offer was public.”  To the panel, Helsinn’s sale was “public” and met the AIA’s “on sale” bar.

The court also addressed a separate argument in Helsinn’s papers, that the sale needed to have disclosed the invention itself (namely the specific low dose of palonosetron) to the public to meet the “otherwise available to the public” language of the AIA.  In rejecting that argument, the court, relying exclusively on pre-AIA cases, found that “[r]equiring such disclosure as a condition of the on-sale bar would work a foundational change in the theory of the statutory on-sale bar.”  The court concluded that the AIA was not intended to change the theory of the on-sale bar in that way. 

This decision is likely to garner en banc attention given both its importance to bio/pharma companies and the fact that many stakeholders, including the United States, view the Federal Circuit’s decision to be at odds with the text and purpose of the AIA.  In the meantime, small bio/pharma companies should be wary of making deals with marketing or distribution partners before applying for a patent.  At a minimum, making the existence of these deals public more than one year before the patent’s critical date would trigger the on-sale bar under the holding of Helsinn.

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