The "On Sale Bar" Remains a Trap for the Unwary


Inventors should not delay the filing of their patent applications, and preferably should file within one year of any commercialization of the invention, as confirmed by the Supreme Court on January 22, 2019.

Smaller companies, in particular, should take heed, as they often put off intellectual property expenditures in favor of addressing more immediate operational needs. Delaying patent filings, however, can—€”in hindsight—€”become a costly mistake.

The problem is the existence of "secret" prior art, which sets the United States apart from most other jurisdictions. That is, generally, to be patentable, an invention must offer something new and non-obvious over what was publicly known before the invention. If someone else came up with the idea first, but kept it a trade secret, you can usually obtain a patent even though you were second.

However, to encourage prompt patent filing, the United States patent system requires that an inventor file for a patent within one year of placing the invention on sale. This is called the "on sale bar." After the passage of the America Invents Act in 2011, there has been uncertainty as to whether a sale must put the invention in the public domain to trigger the "on sale bar" or whether a secret sale will invalidate a patent (if the patent application is filed more than a year after the sale). The Supreme Court just resolved the question; in Helsinn Healthcare S. A. v. Teva Pharmaceuticals, USA, Inc., the Supreme Court held that a sale creates an "on sale bar" to patentability even where the sale is protected from disclosure by a Non-Disclosure Agreement.

In that case, Helsinn Healthcare S. A., a Swiss pharmaceutical company developed Aloxi, a drug that treats chemotherapy-induced nausea. Helsinn sought a partner in the United States and entered into confidential license, supply, and purchase agreements with MGI Pharma, Inc. of Minnesota. Helsinn, a publicly-traded company, reported the existence of the agreements in its SEC filings, but did not disclose the details of those agreements or the specific dosage formulations Helsinn subsequently sought to patent.

At the time of the agreements, Helsinn had not sought patent protection in the United States for its invention. However, nearly two years later, Helsinn filed for a patent in the United States and was awarded the patent in question in 2013. After Teva sought to market a competing drug, Helsinn filed an infringement suit. Teva responded by asserting that the patent was invalid because it was "on sale" more than a year before Helsinn filed for its patent.

Helsinn had argued its patent was valid and enforceable because the details of the invention were confidential, the purchase agreements were likewise confidential and thus could not be used as prior art against its subsequent patent filing. The case went up on appeal to the Federal Circuit, which held that the confidential agreements constituted an "on sale bar" and thus Helsinn's patent was invalid. Interestingly, in finding the "on sale bar" triggered, the Federal Circuit relied on the fact that the existence of the sales contracts was publicly known, even if the invention itself was kept confidential.

Helsinn then petitioned for review by the Supreme Court. The Supreme Court affirmed the Federal Circuit but did not rely on the public disclosure of the sale. Rather, the Supreme Court focused on the existence of the sale, and not whether the sale itself was publicized. The Supreme Court noted that "[a]lthough this Court has never addressed the precise question presented in this case, our precedents suggest that a sale or offer for sale need not make an invention available to the public."

The Supreme Court quoted from what is often one of the first cases taught in a patent law class, Elizabeth v. Pavement Co., 97 U.S. 126. In that case, the Court stated over 140 years ago that "[i]t is not a public knowledge of his invention that precludes the inventor from obtaining a patent for it, but a public use or sale of it." In Elizabeth Paving, the question was whether a public use was an invalidating event where the use was experimental. The Supreme Court held that so long as the use by the inventor was experimental, it could not invalidate a subsequently filed patent, even if the use was public. However, the Supreme Court noted in 1878 that "any attempt to use [the invention] for a profit" was a different matter. The Court noted that commercialization—€”even if secret—€”well before a patent filing would give the inventor an "undue advantage over the public by delaying to take out a patent, inasmuch as [the inventor] thereby preserves the monopoly to himself for a longer period than is allowed by the policy of the law."

For those seeking patent protection, the lesson of Helsinn Healthcare is to file early, and ideally, at the time an invention is first commercialized (or at least within one year of commercialization). Of course, not all commercial contracts constitute a "sale" of an invention, but whether a particular contract constitutes a sale is not always clear and the case law is still developing in this regard. The fuzziness of that boundary creates unnecessary risk and may lead to a costly, but avoidable, fight in litigation over the nature of the commercial contract. The risks and costs can be avoided by filing the patent application within the year regardless of whether the commercial contract constitutes a sale.

The risk-averse inventor should ideally file a patent application before making any disclosures to third parties, particularly where the disclosure is for the purpose of commercial gain. Although not every confidential disclosure will trigger an "on sale bar," it is likely that any disclosure for commercial purposes more than one year before a patent filing will be scrutinized in litigation by the opposing side and will at a minimum cause a costly sideshow. Furthermore, and worse, it may lead a judge or jury to decide that the agreement, in fact, commercialized the invention and should thus be treated as a sale.

For those defending a patent suit, it is important to discover all facts that may suggest that the inventor commercialized the invention more than one year before filing for the patent, and in particular any agreements concerning the invention that may have been reached with third parties, whether or not those agreements were kept confidential and thus hidden from public view.