Guest Post: Secret Software Sales

Guest post by Matthew Fagan, Principal at KDP where he handles patent matters.  Much of the post-Helsinn analysis has focused on its impact on pharma where substantial strategic pre-filing activity is the norm. I asked Mr. Fagan to come at the problem from the computer and software perspective.  – DC

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When the Federal Circuit decided Helsinn v. Teva last month, the patent world expected to the Court to resolve an issue simmering since 2011: namely, do purely private, secret sales toll the on-sale bar of post-AIA §102?  The court declined to provide an answer, instead reframing Helsinn’s activity as a public sale in which the details of the invention were not publicly disclosed.

Practitioners may be inclined to dismiss Helsinn as a judicial dodge in which the Court avoided the more interesting “secret sales” question.  But the issue the case turned on may ultimately be of more significance.  Cases of purely private sales are relatively rare as compared to public sales in which the details of an underlying technology are not fully disclosed or are actively hidden – especially in the software industry.

When combined with the Federal Circuit’s 2010 decision in Finjan v. Secure Computing and its 2006 decision in Plumtree Software v. Datamize, the Helsinn case raises interesting questions about how developers release software products.  There are several techniques available for distributing software to customers; after these cases, the date on which patented software is “sold” to the public may vary depending on the distribution method.  In fact, a patent directed to a single algorithm might have two different on-sale dates arising from the same transaction.

Most software patent claims are constructed as method claims or medium/apparatus claims.  In a computer-implemented method, a computing device performs a series of steps in an algorithm.  Plumtree offered two scenarios under which a computer-implemented method would be placed on sale: first, if the patentee “made a commercial offer to perform the patented method (even if the performance itself occurred after the critical date);” second, if the patentee “in fact performed the patented method for a promise of future compensation.

In medium claims, computer code is embedded in a computer-readable medium or implemented in an apparatus.  Finjan stands for the proposition that, because medium claims are directed to the device storing code rather than the actions embodied in the code, they do not necessarily require performance of a patented algorithm for infringement.  Any medium storing the instructions can infringe (or anticipate) a medium claim regardless of whether the claimed steps are actually performed.

What Helsinn adds to this line of cases is the concept that a sale of a medium holding an algorithm, or a performance of a method embodying the algorithm, will trigger the on-sale bar even if the invention is not discernible to the end-user.

Helsinn could be problematic for software developers using typical software development methods.  For example, one common software engineering strategy is the “continuous release” technique, whereby a publisher releases software and then rolls out updates repeatedly over short intervals (e.g., every two weeks).

Because the cycle is so rapid, oftentimes new features are partially developed but not ready for release by the time that the next update is due.  Accordingly, some developers use feature toggles or feature flags, like the following:

if(version == “test”)

              <implement new feature>

if(version == “release”)

              <implement old feature>

This allows the developer to control which version of the code is available to the public by changing the “version” variable: if set to “test,” the new features are enabled for use by programmers; if set to “release,” the old feature becomes active to avoid exposing undeveloped features to the end user.  When the new feature is tested and ready, the programmer can copy the code to the release section and the next version of the code can be implemented in the test section.  This technique is currently used by Netflix, Gmail, Reddit, Flickr, and Etsy, among others.

The critical observation is that, although the new feature will not be performed in the version of the software released to the public, the released software may include both the old version of the feature and an inaccessible copy of the code for the new version.  Even though users may not be able to invoke the test code, Helsinn does not require “that members of the public be aware that the product sold actually embodies the claimed invention.”  Consequently, under Finjan the on-sale bar may be triggered for a medium claim.

In contrast, under Plumtree this scenario may not implicate a corresponding method claim.  Assuming the public was not informed of the new features, there was likely no promise to perform the method in the future.  The method may not be considered sold until the code for the new feature is moved to the “release” section and performed by the user base.

Therefore, although the release might not immediately trigger the on-sale bar for a patented method arising out of the test code, it might trigger the on-sale bar for a patented medium.

Other software distribution methods raise similar risks.  One recent trend in software engineering is to leave software in an open- or limited-beta test for an extended period.  The beta may be offered at a reduced cost as compared to the full-release version (a similar trend has more recently been labeled as “early access”).  For example, Gmail remained in limited beta for five years before being identified as “released;” the popular simulation game Kerbal Space Program was in beta for nearly four.  The beta software might include under-development code callable only by developers, which is interspersed with active code invokable by end users.  If the developer-only portion of the code includes patentable technology, then beta users may unwittingly receive a medium embodying a patentable invention even though the corresponding method is not publicly performed.

Similarly, a normal software update cycle may incorporate “code freezes,” after which programmers are instructed not to modify certain portions of the source code.   When a code freeze is called, unfinished patentable features may become stranded in the source code; these unfinished features may be flagged for inclusion in a future patch or update.  Although not used in the released version, inactive features embodied in the source code could trigger the on-sale bar for the medium holding the code.

To some extent, this problem can be alleviated with optimizing compilers that remove dead or unreachable code.  However, such optimizations take time that developers of large, complex programs may not wish to spend.  Moreover, dead code elimination is primarily used to reduce the size of a deployed program and hence might not be prioritized by developers of code deployed on servers where storage space is readily available.

These release techniques could hurt a patentee’s chances to secure a medium claim, while still possibly rendering method claims patentable.  Another release scenario called “pre-patching” implicates the opposite combination: method claims may be placed on sale while medium claims might remain protectable.

Pre-patching is typically used when software developers provide client software that works with a back-end server.  On the software’s release date, the back-end server is activated and the client can access the server’s services.  Sometimes, if the client software is particularly large, developers may allow the end-users to purchase and download the client before the release date, even though the client will not be able to immediately access features on the server.  This technique is employed for complex online games such as World of Warcraft to avoid swamping download servers on release day.

In this case, patentable activities may be performed on the server, or through a combination of actions by the client and server.  Whether the server’s software was “sold” remains ambiguous in light of the Federal Circuit’s analysis in Minton v. National Association of Securities Dealers.  Consequently, there remains a chance that the on-sale bar is not triggered for medium claims directed to software partially or entirely stored on the server.

On the other hand, it seems clear that a sale of pre-patched software in which a patentable method is performed on the server constitutes a promise to perform the patentable method when the server code is unlocked, falling under the first “on-sale” scenario of Plumtree.  Consequently, the on-sale bar is likely triggered with respect to method claims even though the user base may not be aware that the method will be performed by the server.

In each of these release scenarios, the technology remains locked in unused or inaccessible software code prior to an official release.  Helsinn makes it clear that hiding away patentable features will not prevent the on-sale bar from being triggered in these situations.  Avoiding the on-sale bar may require that programmers be aware of these issues and take special care to remove test features from the release version of the software.

Although the situations described above specifically relate to software development, there are myriad examples from other industries in which an invention is sold without disclosing implementation details.  Thus, although Helsinn does not tell us whether purely secret sales will be patent invalidating, the case may ultimately have a greater impact than whichever dispute ultimately decides the private sales issue.

 

 

En Banc Denied: Secret Sales Remain a Bar to Patentability under AIA

by Dennis Crouch

Helsinn Healthcare v. Teva Pharmaceuticals (Fed. Cir. 2018).

Without open dissent, the Federal Circuit has denied Helsinn’s petition for en banc rehearing on the definition of “on sale” under the AIA-amended prior art statute 35 U.S.C. 102.

secretsales

An invention that is “on sale” prior to the associated patent application’s critical filing date is not patentable. 35 U.S.C. 102.  Although the AIA used the same “on sale” wordage as pre-AIA 102(b), many (including the USPTO and US Government) believe that it should interpreted differently based upon the statutory change.  The particular question up for dispute is whether private and non-public offers-to-sell still serve as a bar to patentability post-AIA — or instead do sales activities only count as prior art if made available to the public. In Helsinn, the Federal Circuit did not fully answer this question since some information regarding Helsinn’s pre-filing sale had been made public.  Rather, Helsinn made the limited holding that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”

Helsinn petitioned for en banc rehearing and that petition has now been denied — setting up a likely petition for certiorari to the U.S. Supreme Court.

Apart from the direct Supreme Court challenge to Helsinn noted above, open questions remain as to (1) does a fully-secret sales offer count to bar a patent under section 102? (Imagine here an offer subject to a binding confidentiality agreement and that would be considered a trade secret); (2) Even if it serves as a bar to patentability under 102, to what extent does a secret sale count as “prior art” for obviousness purposes (rather than simply being a “bar” under 102)?

Judge O’Malley, who was also a member of the original Helsinn panel penned a solo concurring opinion explaining her view that the AIA “did not change longstanding precedent governing the on-sale bar.” The concurring opinion also attempts to highlight some mischaracterizations of the original Helsinn panel decision.

  1. The original panel stated that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”  Judge O’Malley argues that this sentence does not mean that public announcement of a sale triggers the on-sale bar.  Rather the determination of whether an action is a sale (or offer) is based upon a multi-factor analysis that may be influenced by the public nature.
  2. O’Malley also explained her view that supply-side arrangements can still avoid the on-sale bar if structured properly.
  3. Finally, O’Malley argued that the Helsinn panel is consistent with the en banc MedCo decision.

HelsinnEnBancDenial.

Helsinn En Banc Status

Helsinn: Post-AIA Public Sales are Prior Art Even Without Disclosing the Invention

 

Helsinn En Banc Status

TopSecret

Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. (Fed. Cir. 2017)

An invention that is “on sale” prior to the associated patent’s critical filing date is not patentable. 35 U.S.C. 102.  Although the AIA used the same “on sale” wordage as pre-AIA 102(b), many believe that it should interpreted differently.  The particular question is whether private and non-public offers-to-sell still count as prior art post-AIA. In Helsinn, the Federal Circuit did not fully answer the question since some information regarding Helsinn’s pre-filing sale had been made public — still the invention was not publicly disclosed.  Thus, Helsinn made the limited holding that “after the AIA, if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of the sale.”

In its petition for en banc review, Helsinn asks the following question:

Does mere public disclosure of the “existence” of a sale trigger the on-sale bar under 35 U.S.C. § 102(a)(1) of the America Invents Act (“AIA § 102(a)(1)”), even though the invention was not made “available to the public” before the critical date?

In June, Helsinn filed for en banc review with support from the big players:

  • Helsinn-Petition
  • Teva-Response
  • AIPLA (prior “on sale” activity must make the invention available to the public)
  • BIO (negative consequences will flow from the panel decision)
  • Boston (court should take the case and decide the issue)
  • IPO (court should rule en banc, decision is contrary to MedCo)
  • PhRMA (the legislative history “reflects [Congress’s] unmistakable intent to limit the invalidating effect of the on-sale bar to public activities”)
  • Lamar Smith (arguing that the statute now limits “on sale” to sales activity that makes the invention available to the public)

 

I agree that the Federal Circuit should hear the case en banc, reconcile with MedCo, and substantially settle the law.

Helsinn Healthcare S.A. v. Teva Pharma USA, Inc.

by Dennis Crouch

Helsinn Healthcare S.A. v. Teva Pharma USA, Inc. (Supreme Court 2018)

In Helsinn, the Supreme Court will focus on the new definitions of prior art found in the Leahy-Smith America Invents Act of 2011 (AIA). The language and history of Section 102(a)(1) suggest that the provision is limited only to prior art that is “available to the public.” However, pre-AIA precedent held that secret sales activity and commercial uses by the patentee could negate patentability.  And nothing in the AIA directly addresses that old precedent.

In its interpretation of the statute, the USPTO determined that secret sales and other secret commercialization activities do not count as prior art under the new statute.  However, the Federal Circuit rejected that statutory interpretation (giving no deference to the PTO) and instead held that the new law did not change the meaning of “on sale.”

The question before the Supreme Court:

Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

The Supreme Court granted certiori in June 2018.  Helsinn has now filed its merits brief as has Rep. Lamar Smith (Namesake of the Leahy-Smith Act) and the Intellectual Property Owners Ass’n. (IPO).

We’ll provide a broad review of the petitioner’s side next week once all the Amicus briefs have been filed.

Uncertainty: Helsinn Foreshadows Trouble with AIA Patents

By Dennis Crouch

The AIA was passed back in 2011 and the changes have gradually been implemented through the patent system.  We are finally at the point where most newly issued U.S. patents are post-AIA patents whose patentability is individually based upon the first-to-file provisions of re-drafted 35 U.S.C. § 102.  We’re talking here about hundreds-of-thousands of patents interpreted under the new rules with millions on their way.  As this huge stone is slowly building momentum, the PTO has faced a startup problem: The Agency must apply the new law even though it has almost no guidance from the courts as to how the new portions of the statute will be interpreted.  Because the PTO interpretation is given no deference and because of the many drafting holes in the AIA, I expect that the PTO interpretation will be repeatedly found incorrect.

The only substantive area that has been thus-far decided by the Federal Circuit involves the recent Helsinn decision.  In that case, the Federal Circuit rejected the PTO approach to on-sale prior art and ruled that a pre-filing sale whose existence was disclosed to the public counts as 102(a)(1) prior art even if the elements of the invention were not publicly disclosed (just the fact of the sale).  In its incorrect interpretation of the statute, the PTO had judged the statute as only counting sales as public if the elements of the invention were also disclosed publicly.[1]

There are many other potential examples of questionable language from the AIA first-to-invent provisions that will eventually come to a head:

  • Effective Filing Date: In a patent claiming priority to a prior application, does the claim’s ‘effective filing date’ depend upon whether the relied-upon filing discloses and enables the claimed invention? Section 100(i) suggests that we look only to whether there is a claimed right for priority or benefit. This could impact many written description cases.
  • On Sale: Does a purely private sale or offer to sell count as prior art? Helsinn reserves this question for a later date.
  • Public Use: Does non-disclosing public use count as prior art? Helsinn suggests yes.
  • Commercialization: Does non-disclosing commercialization of the invention by the patentee count as prior art?
  • Otherwise available to the public: Under what conditions apart from the listed publications and uses will we consider an invention to be “otherwise available to the public?” How much further does this go beyond publication and public use? Is public knowledge of the existence of the invention sufficient, or must the public be made aware of the inventions elements and how to make and use the invention? Does the invention need to be discoverable in some way?
  • Grace Period: What level of proof is required for the patentee to show its prior disclosure?
  • Disclosure: For an inventor’s disclosure to trigger the grace period, must it enable the entire invention?
  • Public Disclosure: What counts as a pre-filing ‘public disclosure’ under 102(b)(1)(B) sufficient to knock-out prior art? Is the publicness the same as 102(a)(1)?
  • Changed Disclosure: For intervening third-party disclosures or patent applications that differ from an inventor’s disclosure, what scope (if any) is knocked-out from the scope of prior art? This may be different depending upon whether focusing on 102(b)(1)(a); 102(b)(1)(b); 102(b)(1)(c); or 102(b)(1)(d).
  • Date of 102(a)(2) prior art: 102(d) modifies the 102(a)(2) prior art date for published applications and patents by looking to whether the application claims priority / benefit to a prior filing. Congress certainly intended that the priority date only counts if the priority filing disclosed the subject matter being relied upon in the rejection.  However, the statute is not so clear and suggests instead that all we need is a proper claim of priority or benefit. .

These are a handful of examples, and more certainly exist.

I have some thoughts on how provisions of the statute should be interpreted – both as a matter of statutory interpretation and a matter of patent policy.  My larger concern, however, is that we are still years away from seeing court decisions interpreting these elements in ways that settle the law.  Up to now, for instance, there are not even any public PTAB decisions interpreting the new elements of 102(b).  With the disposing of more than 500,000 patent applications per year, the office is likely to churn through millions before these issues go before the Federal Circuit.  If the first case on point (Helsinn) is any indication, the Federal Circuit is likely to disagree with at least several of the PTO’s statutory interpretations – potentially creating swaths of improperly issued patents or improperly rejected applications depending upon whether the PTO interpretation is too broad or too narrow.  Although temporary, we have the potential here of creating a real bubble that will give us another 20+ year headache in similar fashion to the PTO’s low-quality examination of software and business methods in the late 1990s and early 2000s.

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[1] MPEP 2152.02(d) (“The phrase ‘on sale’ in AIA 35 U.S.C. 102(a)(1)  is treated as having the same meaning as ‘on sale’ in pre-AIA 35 U.S.C. 102(b), except that the sale must make the invention available to the public.”).

Helsinn v. Teva: On Sale Bar Post AIA

by Dennis Crouch

Helsinn Healthcare v. Teva Pharma (Supreme Court 2018) [Helsinn cert petition]

Helsinn has now filed its much anticipated petition for writ of certiorari focusing on the question of how exactly the 2011 AIA changed the “on sale bar.”

Question Presented:

Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

The well drafted petition from Williams & Connolly top Supreme Court lawyer Kannon Shanmugam has a good shot of being granted — especially if supported by a strong amicus brief from the Federal Government.  The difficulty here is that the petition asks the Supreme Court to shed an approach it has developed over the past 200 years without (in my view) a clear statutory statement from Congress.

Prior to the AIA, the On Sale Bar prevented the patenting of inventions that had been on-sale more than one year before the application’s filing date. 35 U.S.C. 102(b).  Pre-AIA, on sale activities include non-enabling secret offers to sell the invention (so long as the invention was otherwise ready-for-patenting).  Because most companies outsource elements of product development and manufacture — the rule has created potential for trapping the unwary.

I will return to this in a separate post, but the basic statutory question is whether the statutory revision eliminates secret or non-enabling sales (or some aspect thereof) from the scope of prior art.

Pre-AIA 102: A person shall be entitled to a patent unless … (b) the invention was … on sale in this country [before the critical date]

Post-AIA 102: A person shall be entitled to a patent unless . . . (1) the claimed invention was … on sale, or otherwise available to the public before the [critical date]

The statutory hook is the “otherwise available to the public” clause that the patentee here argues should be seen as also limiting the scope of the on sale bar to only include publicly available sales activity.  This statutory hook is coupled with supporting evidence from the AIA’s passage and about making prior art  is coupled with the USPTO’s interpretation of the statute in accord with Helsinn’s approach.

Metallizing Forfeiture Post-Helsinn

The following guest post is by Daniel Taskalos. After reading his 2013 Stanford Technology Law Review article on Metallizing Engineering post-AIA, I asked Mr. Taskalos to revisit those issues here in Patently-O. – DC

In Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., the Federal Circuit had its first opportunity to address the impact of the “or otherwise available to the public” clause contained in post-AIA 35 U.S.C. § 102.  In finding that the AIA “did not change the statutory meaning of ‘on sale’ in the circumstances involved here,” the Federal Circuit provided insight into the continued relevance of the forfeiture doctrine of Metallizing Engineering v. Kenyon Bearing.

The critical issue in Helsinn was whether the post-AIA definition of prior art requires public disclosure of the details of an invention in order to trigger the on-sale bar.  In the AIA, Congress revised § 102—otherwise known as the “novelty provision.”  As revised, the new novelty provision states:

(a)  NOVELTY; PRIOR ART. — 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.

While the AIA maintained the pre-AIA language of “patented,” “described in a printed publication,” “in public use,” and “on sale,” it added the emphasized clause above (the “catch-all clause”).  The AIA does not provide any elaboration on the import of the catch-all clause, leaving many to wonder exactly what its presence means for the interpretation of the other, well-known categories of prior art.

Since its enactment in 2011, scholars have debated the effect of the catch-all clause on the “public use” and “on sale” statutory bars.*  Helsinn asserted that the catch-all clause modifies prior-art categories such that only disclosures that publicly disclose the details of the invention qualify as prior art.  Advocates like Helsinn contend that the intention of Congress was to overrule “secret” use and sale decisions, like Metallizing Engineering.

Others, including Teva, argue that the addition of the catch-all clause does not invalidate the years of case law interpreting “public use” and “on sale.”  These advocates contend that interpreting the catch-all clause to impose a “public” requirement would be a foundational change to the purpose and rationale for the public use and on sale bars support—in the absence of a clear repudiation by Congress of the pre-AIA law.

*The number of articles discussing both sides of the debate is far too numerous to provide a full list.  You can find a few of these articles listed here.

The facts of Helsinn presented a unique situation in which to consider this important question.  Helsinn sued Teva for allegedly infringing four patents directed to a formulation of palonosetron for reducing chemotherapy-induced nausea and vomiting (“CINV”).  All the asserted claims covered a specific palonosetron amount in a solution—0.25 mg.  The parties agreed that the critical date for all four patents was the same—but different laws were implicated by the patents.  Three of the patents were governed by the pre-AIA patent laws, while the last patent fell under the AIA.

Teva alleged that Helsinn’s asserted patents were invalid under § 102.  The conduct in question concerned an agreement entered into by Helsinn with another party to market and distribute Helsinn’s palonosetron formulation.  Almost two years before the critical date, Helsinn agreed with MGI Pharma, Inc., that MGI would market and distribute one or more formulations of palonosetron, contingent on approval by the FDA.  The agreement identified the 0.25 mg dosage as one of the potential formulations to be purchased and sold.  Although the existence of the deal was made public (through a required SEC filing), the specific formulation details were redacted.

Thus, the district court faced analyzing the same conduct under two sets of laws:  pre-AIA and post-AIA.  Under either, however, the same two-prong framework explicated in Pfaff v. Wells Electronics applied: the on-sale bar is triggered where before the critical date (1) there is a sale or an offer for sale and (2) the claimed invention was ready for patenting.  Under the Pfaff framework, the district court found that the distribution agreement constituted a sale with respect to the three pre-AIA patents.  But the district court interpreted Congress’ addition of the catch-all clause as a modification to the “on sale” category that placed a public requirement on the disclosure itself.  The district court found that under the AIA, a § 102-triggering sale must publicly disclose the details of the invention; a public sale that did not disclose the claim limitations was insufficient.

The Federal Circuit reversed this decision and provided an analysis may prove instructive in future cases concerning public uses and other non-informing disclosures.  In its opinion, the Federal Circuit noted that the support for Helsinn’s argument that § 102’s requirements changed with Congress’ addition of the catch-all phrase rested outside of the text of the amended provision; Helsinn relied primarily on floor statements by a few individual members of Congress.

The Federal Circuit noted that those floor statements appeared to show “at most” an intent to do away with case precedent concerning “public use” cases, not “on sale” cases.  According to the Court, the only “precedent” cited by the Congressmen were cases in which the invention was used in public, but that use did not disclose to the public the details of the claimed invention.  E.g., Egbert v. Lippman; Beachcombers International v. Wildewood Creative Products; Jumpsport, Inc. v. Jumpking, Inc.  Moreover, the Federal Circuit explained that even assuming the statements could be stretched to cover sale cases as well, the “secret sale” cases “were concerned entirely with whether the existence of the sale or offer was public,” not whether the details of the invention were disclosed.  Thus, the Court found the floor statements were of little support for a different interpretation of the statutory meaning of “on sale” under the AIA.

The Federal Circuit further found Helsinn’s argument unpersuasive because imposing a publicity requirement would  “work a foundational change in the theory or the statutory on-sale bar.”  In fact, the Federal Circuit noted that the issue of whether to impose a publicity requirement was exactly the situation in Pennock v. Dialogue, in which Justice Story created the on-sale bar.  In Pennock, Justice Story found that allowing a patent to stand after a sale that did not disclose the claim limitations “would materially retard the progress of science and the useful arts, and give a premium to those who should be least prompt to communicate their discoveries.”  Relying heavily on its prior case law, the Court also explained why  such a publicity requirement has never been considered necessary.  The Federal Circuit concluded by hold that at most, the catch-all clause just requires that the sale must put the patented product in the hands of the public,* not that it must be informed of all the limitations of the claim.

*Of course, the Federal Circuit did not mean that the product must be explicitly in the hands of the public.  As discussed in the opinion, “our prior cases have applied the on-sale bar even when there is no delivery, when delivery is set after the critical date, or, even when, upon delivery, members of the public could not ascertain the claimed invention.”

Looking at the Federal Court’s reasoning in Helsinn and The Medicines Co. v. Hospira, Inc., that Metallizing Engineering may remain good law under the AIA.  As the Federal Circuit made clear, it does not view the floor statements in Congress as evidencing a clear intent to overturn the “on sale” precedent, instead “at most” supporting an argument that the intent was to overturn the “public use” case law.  In The Medicines Co., the Federal Circuit referred to Metallizing as an “on sale” case: the conduct at issue in Metallizing was the sale of performing a particular claimed process for compensation before the critical date, i.e. activity triggering the on-sale bar.  Thus, the Federal Circuit would likely find mere floor statements to be of little relevance to a factual situation similar to Metallizing.  Moreover, as the Federal Circuit identified, the law regarding “secret sales” has always been concerned with whether the existence of the sale itself was publicly disclosed—not the details of the invention.  There is no indication in Metallizing that the sales at issue were not publicly known, so the same rationale from Helsinn should apply.

In Helsinn, the Federal Circuit anchored its holding on the fact that imposing a requirement that a triggering sale disclose the details of the invention directly contradicts Justice Story’s reasoning in Pennock for creating the on-sale bar.  As Justice Story saw it, to allow an inventor to exploit commercially his or her invention for an extended period and still maintain the ability to seek patent protection would undercut the “progress of science and the useful arts” and promote undesirable behavior.  This principle has been consistently reiterated by the Federal Circuit.  See The Medicines Co.; Atlanta Attachment Co. v. Leggett & Platt, Inc. (“The overriding concern of the on-sale bar is an inventor’s attempt to commercialize his invention beyond the statutory term.”).  The aim of discouraging the inventor from improperly extending the monopoly was one of the underlying reasons behind Judge Learned Hand’s decision in Metallizing.  Thus, it is possible that the Federal Circuit may find Metallizing to remain applicable after the AIA, despite the reduced ability for such conduct under the first-to-file concept of the AIA.*

*This is one argument raised in support of the view that the AIA explicitly overrules Metallizing.  Under the first-to-invent approach, this type of secret commercialization provided a greater incentive because even if another filed a patent on the claimed invention prior to the commercial exploiter, the exploiter could, in theory, establish prior invention and obtain the patent.  As prior invention is no longer a valid argument under first-to-file, the incentive to secretly exploit an invention is diminished.  However, the fact that success may be more difficult does not, in and of itself, mean the forfeiture doctrine no longer has value or applicability.  As long as one person is still able to commercially exploit his or her invention in a manner like that in Pennock or Metallizing, the reasoning for the doctrine would still apply.

The recent Supreme Court decision in TC Heartland LLC v. Kraft Food Grp. Brands LLC also provides support for the continued relevance of MetallizingSee No. 16-341 (May 22, 2017).  At issue in TC Heartland was the impact of Congressional amendment of the general venue statute (28 U.S.C. § 1391(c)) on the interpretation of the patent venue statute that was not amended (28 U.S.C. § 1400(b)).  The patent venue statute has remained unchanged since the Supreme Court interpreted its scope, holding that a domestic corporation only “resides” for purposes of venue in a patent infringement action in its state of incorporation.  See Fourco Glass Co. v. Transmirra Products Corp. (1957).  However, after Congress amended the general venue statute in 1988, the Federal Circuit held that Congress’s amendment also changed the scope of where a corporation “resides” under § 1400(b) (although § 1400(b) remained unchanged).  See VE Holding Corp. v. Johnson Gas Appliance Co. (1990).  In TC Heartland, the Supreme Court reversed the Federal Circuit’s ruling in VE Holding, emphasizing that “[w]hen Congress intends to effect a change [to the statutory meaning of legal language], it ordinarily provides a relatively clear indication of its intent in the text of the amended provision.”

Accordingly, the TC Heartland decision can be interpreted as requiring clear congressional intent within the text of an amended provision itself to modify the settled meaning of statutory language.  Such an interpretation would further undermine the persuasiveness of the minimal floor statements discussed in Helsinn, given that those statements were by individual senators, put forth their interpretations of post-AIA § 102, and are not included within the text of the AIA.  Moreover, the Federal Circuit in Helsinn appears to have found the catch-all clause to not be a “clear indication if [Congress’s] intent in the text of the amended provision” to change the interpretation of “on sale” in the statute.  In light of the large amount of scholarly debate on the meaning of the clause, it seems unlikely that the Supreme Court would disagree with the Federal Circuit’s apparent determination.

After Helsinn, it appears that on-sale bar precedent has survived the AIA.  Applying the Court’s reasoning, and in view of other recent cases such as The Medicines Co. and TC Heartland, it appears the Metallizing Engineering precedent may also have survived the AIA, at least for now.  However, there is still the possibility that the Federal Circuit may take the opportunity presented by the ambiguity caused by the catch-all clause to revisit the ultimate decision in Metallizing.  Although the Federal Circuit may consider Metallizing to be an “on sale” case, Judge Hand’s opinion does rely on principles underlying both the “public use” and “on sale” bars.  As such, the forfeiture doctrine of Metallizing would appear to be an extra-statutory bar, not falling within either the “public use” or “on sale” categories entirely.  Because of this, some have questioned whether Judge Hand’s decision is actually correct.  See Dimitri Karshtedt, Did Learned Hand Get It Wrong?: The Questionable Patent Forfeiture Rule of Metallizing Engineering, 51 Vill. L. Rev. 261 (2012).  Moreover, although the Federal Circuit was not persuaded as to the “clear indication” of intent to change the meaning of “on sale” as advocated by Helsinn and others, that is not to say the Supreme Court would hold the same.

Daniel Taskalos is an intellectual property associate at Sheppard Mullin Richter & Hampton LLP.  His practice covers a range of issues, including litigation and counseling.

Guest post from Prof. Yelderman: How Much Did the AIA Change Prior Art in the District Court?

Stephen Yelderman is a Professor of Law at the University of Notre Dame Law School.

This week we’ll take a closer look at “activity” prior art—prior uses, sales, and “invention by another.” As I mentioned in my last post, a little more than half the time district courts find a claim anticipated, they rely on art in this category. Activity prior art is less common for obviousness invalidations, but still quite routine: just over a quarter of obviousness invalidations cite activity prior art. (For more background on this project, you can find the full paper here.)

The 2011 America Invents Act (“AIA”) changed the rules for determining when activity qualifies as prior art in several respects. At a minimum, the AIA constricted this category of prior art by removing the “prior invention by another” path previously found in § 102(g). Arguably, the AIA trimmed the category in another way too—by imposing a new “available to the public” requirement on prior uses and sales. (Whether it did or not is the question the Supreme Court will take up next week in Helsinn Healthcare v. Teva Pharmaceuticals.) In the opposite direction, the AIA eliminated the limitation that uses and sales qualify as prior art only if they occurred in United States. Given all this, one might wonder: just how significant are the AIA’s changes when it comes to the prior art district courts actually rely on?

All of the district court invalidations in our study (except for one) involved applications of pre-AIA law, so we can use our data to predict how many cases might come out differently if the stricter aspects of the new prior art rules had applied instead. The answer is not many. For prior invention by another, this exercise was straightforward: under pre-AIA law it was its own legally distinct category, and there is no question that it was eliminated by the AIA. Based on our coding, we found that prior invention by another constituted about 8% of anticipation events relying on activity, and was a basis for roughly 1% of obviousness invalidations citing any activity. From the perspective of anticipation and obviousness overall, just a little more than 2% of district court invalidations relied on this prior art path. (And we can’t rule out the possibility that some of that art might have qualified by a different path anyway.)

The effect of requiring prior uses and sales to be “available to the public” is slightly harder to predict, since we do not yet know what that language will mean (or, until Helsinn is decided, if it applies to prior uses and sales at all). To get a bit of purchase on this question, we coded prior uses and sales that were potentially kept secret from the public: offers / sales made to an identified counterparty (fact patterns like Pfaff v. Wells), internal commercial uses (fact patterns like Metallizing Engineering), and uses by a limited and identified group of outsiders (fact patterns like Egbert v. Lippmann). It’s important to note that this classification scheme is likely overbroad: from the documents before us, we could not always determine whether a use or sale was in fact secret at the time. Instead, we categorized activity based on whether the use or sale could have potentially been secret.

Despite our likely overbroad classification scheme, potentially secret uses or sales appeared to be cited only rarely. When a court found a claim anticipated based on activity, that activity was potentially secret about 14-15% of the time. (These figures are presented as ranges because of a few cases in which we could not determine whether the cited activity was potentially secret under our framework.) When activity was cited in support of obviousness, the cited activity was potentially secret somewhere between 2-7% of the time. To look at the same data from another angle, among all the uses and sales district courts relied upon to invalidate patents, 88-90% lacked any indications of potential secrecy. As a share of anticipation and obviousness invalidity overall, potentially secret uses and sales were cited in about 4-5% of claim invalidations.

So if the past is a guide, it appears that few of the cases litigated to a decision of invalidity under the old law would be flipped under the AIA’s (purported) constriction of the activity prior art category. We must hedge a bit here, however, since we cannot say what the post-Helsinn law will be, or how inventors and litigants might adapt their behavior in light of new rules. What we can say with certainty is that, among the set of all recent court decisions invalidating patents under pre-AIA law, we find only a small number (an average of 3-4 patent invalidations a year) that would be affected by the question in Helsinn.

Unfortunately, the nature of our study does not allow us to predict the effects of the AIA’s amendments in the opposite direction—that is, the changes that made it easier for some activities to qualify as prior art. As mentioned above, the AIA eliminated the longstanding rule that uses and sales may qualify as prior art only if they were conducted in the United States. Because we were observing cases litigated under pre-AIA law, all of the activities we coded had occurred within the United States. We therefore did not observe the non-U.S. activity prior art that may have been waiting in the wings but was excluded by the pre-AIA’s domestic limitation on this category. Likewise, we cannot predict what the effect of adding “otherwise available to the public” as a distinct prior art category might be (not to be confused with the Helsinn question of whether that language modifies other categories).

Finally, some might expect the importance of activity prior art in district courts to be increasing over time, for reasons that are related to the AIA but unrelated to the prior art rules themselves. Readers of this blog do not need to be told of the overwhelming popularity of inter partes review (“IPR”) as an alternative forum for adjudicating patent validity. (By my count, in 2016, roughly 380 patents were invalidated in IPR, dwarfing the number of patents invalidated on prior art grounds by district courts.)  But activity prior art is categorically excluded from consideration in IPR, leaving district courts as the primary venue for adjudicating validity when activity prior art is at issue. It would seem logical, therefore, for the share of district court cases involving activity prior art to grow over time, as defendants challenging patents based only on non-activity art select into IPR for its speed, cost, and lower burden of persuasion.

Surprisingly, however, this is not what we found:

This chart illustrates the percentage of district court patent invalidations relying on activity prior art to invalidate any claim. As this chart shows, this number has remained remarkably stable throughout the advent of IPR. Though defendants may be opting in to IPR in large numbers, it is not the case that only activity-based invalidations remain in district court.

To be clear, the availability of IPR could still be having an effect on the kinds of cases that remain for validity decisions in district court. For example, courts may now be deciding only validity challenges in which the defendant made a strategic decision not to petition for IPR, or did petition for IPR without success. Moreover, during the time period illustrated above, the patent system was undergoing a number of changes simultaneously, so it is difficult to isolate the effects of IPR.

All of this is to say that the relationship between IPR and the work of district courts defies a simple explanation. But we can say with confidence that prior art patents and printed publications continue to play an important role in district court invalidations, notwithstanding the availability of IPR.

 

Edited 11/30: Clarified that 2% reliance on “prior invention by another” and 4-5% reliance on potentially secret uses and sales are stated percentages of claim invalidations for anticipation or obviousness. As a share of invalidations on any grounds, these numbers would be even smaller.

Helsinn: On Sale Bar at the Supreme Court

Helsinn Healthcare v. Teva Pharma (Supreme Court 2018)

Helsinn’s petition for certiorari received strong support this week from a bevy of ten briefs amici.  The missing element now is a call from the Supreme Court for the views of the Solicitor General (CVSG) and a resulting brief from the U.S. Government supporting the petition.

The Patent Act bars the patenting of inventions that were “on sale” prior to to the invention’s filing date.  The question on appeal here is whether the AIA limited “on sale” to only include publicly available information — or instead do secret and confidential business deals also count as invalidating prior art (if ever discovered). Question Presented:

Whether, under the [AIA], an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

I previously wrote about the petition here:

Helsinn v. Teva: On Sale Bar Post AIA

Briefs:

  • Brief amicus curiae of Congressman Lamar Smith. Brief filed by Robert Armitage who was a major shepherd of the AIA argues that new law eliminates inventor-focused forfeiture provisions.  17-1229 Amicus Brief of Lamar Smith
  •  Amicus brief of American Intellectual Property Law Association. Statute amended the old law — eliminating secret prior art. Final AIPLA Amicus Brief Helsin v Teva 3-30-18
  • Amicus brief of Intellectual Property Owners Association. Federal Circuit approach is at odds with PTO interpretation. 17-1229 Brief for Amicus
  • Brief amicus curiae of Pharmaceutical Research and Manufacturers of America.  Federal Circuit decision here calls into question “countless” issued patents. 17-1229_tsac_PhRMA
  • Amicus brief of Bar Association of the District of Columbia. Decision will chill innovation. 17-1229 Amicus Brief–PDFA.
  • Amicus brief of The Naples Roundtable. The “Sense Of Congress” harmonization portion of the AIA should be helpful in the interpretation.  17-1229 Brief of Amicus Curiae
  • Amicus brief of The Massachusetts Biotechnology Council.  There is currently too much uncertainty in the law. MassBio Amicus Brief Apr 2 2018 Efile Final – PDFA
  • Amicus brief of Boston Patent Law Association.  The case is ripe for review.  17-1229 ac The Boston Patent Law Association
  • Amicus brief of The Biotechnology Innovation Organization (BIO). The Federal Circuit’s “Atextual Interpretation” sends mixed messages. 17-1229 Amicus Brief
  • Amicus brief of US Inventor, Inc. “The ‘little guy’ stands to bear a disproportionate and the most destructive brunt of this “on sale” bar storm.  17-1229 TSAC Brief

 

Supreme Court: Secret Sales are Still Prior Art

by Dennis Crouch

Helsinn Healthcare v. Teva Pharma USA (Supreme Court 2019)

The Supreme Court has affirmed the Federal Circuit’s interpretation of the “on sale bar” — holding that “Congress did not alter the meaning of ‘on sale’ when it enacted the AIA.” The particular focus here was whether “secret” sales continue to qualify as prior art under the revised Section 102.  Here, the court says yes — “an inventor’s sale of an invention to a third party who is obligated to keep the invention confidential can qualify as prior art under §102(a).”

In light of this settled pre-AIA precedent on the meaning of “on sale,” we presume that when Congress reenacted the same language in the AIA, it adopted the earlier judicial construction of that phrase. . . . 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 [otherwise available to the public] to upset that body of precedent.

After deciding that the AIA did not change the law, the Supreme Court also took some time to address the question of what is the law.  An interesting aspect of the decision here is that the Supreme Court has never expressly addressed the question of whether or the extent that an offer or sale must be public. However, the court noted its prior implicit precedent that secret sales count as prior art:

Although this Court has never addressed the precise question presented in this case, our precedents suggest that a sale or offer of sale need not make an invention available to the public. . . . The Federal Circuit … has made explicit what was implicit in our precedents. It has long held that “secret sales” can invalidate a patent. E.g., Special Devices, Inc. v. OEA, Inc., 270 F. 3d 1353 (2001) (invalidating patent claims based on “sales for the purpose of the commercial stockpiling of an invention” that “took place in secret”); Woodland Trust v. Flowertree Nursery, Inc., 148 F. 3d 1368 (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”). . . .

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.

The Supreme Court decision is short – nine pages of text – and unanimous – authored by Justice Thomas.

Helsinn: Dueling Questions

I don’t know what the Supreme Court thinks of alternative statements of the question presented — but it has become a regular practice of parties opposing certiorari to restate the question in an attempt to shift attention of the court.

The pending petition in Helsinn is on point.  Compare the question presented in the petition with its complete restatement by the opposition:

Petition: Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the  patentability of the invention.

Opposition: Whether this Court should review the Federal Circuit’s factual conclusion that Helsinn’s sale agreement with a third party publicly disclosed its claimed invention “in detail” (Pet. 33a) more than a year before it filed  its patent application, thus triggering the “on sale” bar on patentability set forth in 35 U.S.C. §102(a).

[Docket with Briefs] The difference between the two is typical — with the petition asking the court to focus on an important question of law and the opposition focusing on already-decided factual minutia.

Later this month, the Supreme Court is holding conference in the case and I would expect a call for the views of the Solicitor General.

Of Brownies and Other Nutty Desserts: Supreme court considers whether the “on sale” bar is limited to public sales

Guest Post by Dmitry Karshtedt, Professor at GW Law.  Prof. Karshtedt attended the Supreme Court oral arguments in Helsinn v. Teva, and provides the following discussion.  A transcript of the arguments is available here: Helsinn Transcript.

The oral argument in Helsinn Healthcare v. Teva Pharmaceuticals had a little bit of everything. First, the Court extensively aired the statutory interpretation question whether the phrase “otherwise available to the public” in the America Invents Act (AIA) expanded or contracted the universe of prior art or perhaps did a bit of both. More to the point of the question presented, the advocates argued extensively over whether the statutory revision modified the meaning of “on sale.” Second, the Justices explored weighty issues of patent policy, such as the role of Section 102 in preventing withdrawal of inventions from the public domain and effective extensions of patent term through pre-patent secret commercial exploitation. Third, undergirding these points were debates on the notion of “congressional ratification” and the role of various facets of legislative history in statutory interpretation—and even what an ordinary consumer would understand “on sale” to mean. As one would expect, there was no shortage of creative hypotheticals, one of which generated an extensive discussion of the meaning of “brownie.” All in all, the Court repeatedly praised the advocates for excellent briefing, and the Chief Justice promised that the Court will issue an excellent opinion—another thing to look forward to in 2019!

Petitioner’s counsel, Kannon Shanmugam, began the argument with the point that the AIA “clarified” the meaning of “on sale” with the phrase “otherwise available to the public.” He explained a that a private offer to his friend on the opposing side, William Jay, should not be a patent-barring event, but an offer to the courtroom audience to sell something to the highest bidder would be. This contention drew immediate, skeptical responses from the Chief Justice and Justice Kavanaugh. Isn’t the phrase “on sale” self-defining, and thus in no need of clarification? And, as relevant to this case, doesn’t a private offer still put something “on sale” under the plain meaning of this term—why should a public availability requirement be read in? Justice Breyer then entered the discussion with the policy argument that, since the time of Pennock v. Dialogue, the purpose of the on sale bar has been to prevent extensions of patent monopolies via initial commercial exploitation of the invention followed by patenting. Petitioner’s response here was that the precedent is better read as focusing on protection the public domain after the public has gained possession of the invention, which implies some level of public availability. In addition, in a point that the government later returned to, the counsel explained that the “extension” policy cannot be all that robust because the on sale bar clearly cannot reach certain pre-patent invention exploitation activities, such as using the invention to draw in venture funding.

Judge Kavanaugh then returned to the statute. If Congress sought to modify the meaning of “on sale,” then weren’t there clearer ways to do this, and didn’t early drafts of the AIA actually have some direct language abrogating the “secret prior art” case law? Further, Justice Ginsburg asked the petitioner to clarify whether or not he thought the AIA was actually a change in the law on the “secret prior art” point. Petitioner’s response here was that Congress wanted to keep the term “on sale” to retain much the underlying jurisprudence around it (such as the “ready for patenting” test) while abrogating certain outlier Federal Circuit cases like In re Caveney and Special Devices, which deemed secret sales to be patent-barring. That, in his view, was not inconsistent with adding an extra “catchall” category of publicly available art that didn’t formally fall into any of the preceding categories. He also maintained that the petitioner’s reading of the AIA was not inconsistent with Supreme Court case law, which has not endorsed the lower-court secret prior art decisions, so there was no clear rule for Congress to ratify in this area. Finally, he explained that the AIA’s first-to-file rule would discourage pre-patent commercial exploitation.

Judge Kavanaugh then referred to the Law Professors’ amicus brief, led by Mark Lemley, which maintained that the Court did indeed endorse the secret prior case law. Petitioner disagreed here, and reiterated that none of the Supreme Court on sale or public use rulings would be disturbed under Helsinn’s reading of the AIA. Justice Breyer countered with a discussion of Bonito Boats, which did address the notion of a “monopoly” going beyond the patent term, though in a different context. He also suggested that perhaps the petitioner’s real argument is that the transaction at issue in this case doesn’t really fit within the definition of the sale. Petitioner offered a variation on this theme, suggesting that a contract with a distributor subject to various contingencies was maybe not the kind of a sale meant to be covered by Section 102.

Malcom Stewart, representing the Solicitor’s office, then argued in support of Helsinn. He emphasized the point that MGI, Helsinn’s “buyer,” was only an intermediary, and there was no assurance of a passage of title to MGI—let alone to the end user of a drug at issue in this case. Indeed, the consumer might not see a transaction at issue in Helsinn as a sale at all. This situation contrasts with Pfaff, which the parties and the government seem to agree remains good law post-AIA, as Pfaff involved a firm offer to an end user. Justice Sotomayor retorted that, surely, commercial entities understand a sale to a distributor to still be a sale, as the product has left the hands of the inventor and begins to wind its way through the stream of commerce. Moreover, she maintained that there seemed to be no precedent, or even textual support, for the government’s definition.

Justice Kagan then picked up on a particularly important point in this case. Was there really settled law in this area, and did it include secret sales as prior art? The government responded that there was no such settled law, and what Congress was doing in the AIA is clarifying and modifying some prior decisions, rather than ratifying any secret prior art rule. Assuming such a rule was in fact settled, the government conceded that the “otherwise available to the public” phrase would be an oblique way to overturn it. Justice Kavanaugh amplified this point, again noting that more direct efforts to overturn the secret prior art case law have failed (which, incidentally, also suggests that such case law was at least somewhat settled). Here, the government responded by contending that the early proposals have failed because they were going so far as to take non-informing sales to the public out of the universe of the prior art, an unpalatable proposal. Instead, Congress reached a happy medium by overturning some outlier secret prior art case law, but not non-informing public sale case law.

William Jay argued for respondent. He started with the plain language argument that the phrase “on sale” just means “sold” or “subject to an offer for sale”—no public availability is required. The “otherwise available to the public” art is an entirely different category. Here, justice Alito zeroed in on the meaning of “otherwise available to the public.” That phrase would seem incompatible with the notion that “on sale” means “on sale publicly or on sale privately.” Indeed, the string “on sale publicly, on sale privately, or otherwise available to the public” seems incoherent. The response was that some “on sale” events are surely public, and if the “otherwise available to the public” does refer back to “on sale,” it concerns only those the public sales (of course, a possible response here is that a sale, any sale, is simply deemed in the eyes of the law to make the invention “available to the public”). Petitioner further contended that the new Section 102 is better read as mainly adding an extra category of prior art, such as oral presentations, with the “otherwise available to the public” language—and it would be odd to have a category broadening the definition of prior art that at the same time narrowed it by eliminating secret sales from the definition.

After noting that other countries do not seem to recognize secret art as patent-barring, Justice Sotomayor returned Mr. Jay to Justice Alito’s “otherwise” question. He responded that the role of “otherwise” is, in part, to avoid the potential for interpreting terms like “printed publications” so as to include non-public documents and, more generally, to prevent unsettling the other categories by making clear that “otherwise available to the public” is a residual category of its own. Justice Breyer continued with an inquiry into the phrase by noting that a hypothetical string of “basketball, running, swimming, or otherwise -­ or games that otherwise involve a ball” as being incoherent. Respondent explained that, while awkward, this phrase doesn’t change the meaning of “swimming” into something like water polo. Justice Kagan added a particularly insightful hypothetical: “suppose I say don’t buy peanut butter cookies, pecan pie—this is the key one, ready—brownies, or any dessert that otherwise contains nuts. Do I—do I violate the injunction if I buy nutless brownies?” The implication, of course, is that nutless brownies are ok to buy, and maybe by analogy then non-public sales (like nutless brownies) are not a danger from the inventor’s perspective. The response here was that, while brownies might have nuts or be nutless, a notion of sale encompasses both public and private sales, though Justice Kagan retorted than maybe the meaning sale is not so clear. Justice Kavanaugh returned to point that maybe “otherwise available to the public” is there to summarize the preceding terms, but Mr. Jay’s response that “on sale” has a definitive meaning—”make available to a willing purchaser”—that this phrase could not unsettle.

Justice Gorsuch asked whether, assuming “on sale” is at all ambiguous, the PTO is entitled to some deference to its interpretation, which excludes secret prior art. The respondent countered that, as a plain language matter, that interpretation is just not persuasive. He then maintained that there is no dispute that the transaction at issue in Helsinn was a sale, and that the industry would so understand it. Indeed, he noted that most drugs are sold to distributors, and rule that such a transaction is not a sale will be unduly lenient to the pharmaceutical industry. Justice Kagan then finally brought up the point of third-party secret sales (the fact that Section 102 is party-neutral always seemed important to me), and Mr. Jay responded that they are patent barring. This is correct—the holding in Caveney supports this point. But the implication of this law for the “inventor forfeiture” view was unfortunately not further explored.

In rebuttal, petitioner emphasized the context of the phrase “on sale” and maintained that respondent’s reading would read the word “otherwise” out of the statute. The next “otherwise” string was from a case called United States v. Standard Brewery, which concluded that the phrase “beer, wine, and other intoxicating liquor” excluded alcohol-free beer. After presenting this example, Mr. Shanmugam maintained that there is no legislative history support for respondent’s interpretation. Perhaps more importantly for making the Court comfortable with its position, he reiterated that Pfaff would not be overruled under Helsinn’s interpretation of the AIA. Thus, the parties and the government all agree at least on that. As a patent law Professor, I took this to heart because, whatever happens in Helsinn, my Section 102 notes will not be completely upended by whatever the Supreme Court decides.

 

When are Confidential Sales Prior Art?

by Dennis Crouch

In the pending case of Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., et al., No. 17-1229 (Supreme Court 2018), the petitioner has asked the Supreme Court to offer its statement on whether Congress altered the “on sale bar” to now apply only to non-confidential sales or offers.

Question Presented: Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

In its decision, the Federal Circuit held that the on sale bar attaches even if the details of the invention are kept secret.  In this particular case, the sale was partially public – i.e., although the details of the invention were kept secret, the existence of the sale was publicly known.

The Supreme Court held its first conference regarding Helsinn on June 14, 2018 and took no action in the case — likely relisting it for a later conference.  Most petitions for writ of certiorari are denied immediately following the first conference — and so this is an important step toward certiorari in this case.  I expect that the next step in the case would be CVSG — seeking views of the Trump Administration.

The On Sale Bar has its origin in Justice Story’s decision in Pennock v. Dialogue, 27 U.S. 1 (1829). There, Story wrote:

If an inventor should be permitted to hold back from the knowledge of the public the secrets of his invention; if he should for a long period of years retain the monopoly, and make, and sell his invention publicly, and thus gather the whole profits of it * * * and then, and then only, when the danger of competition should force him to secure the exclusive right, he should be allowed to take out a patent * * * it would materially retard the progress of science and the useful arts, and give a premium to those who should be least prompt to communicate their discoveries.

IN 1836, the rule was expressly stated in the revision of the patent laws:

Sec. 6. That any person or persons having discovered or invented any new and useful art, machine, manufacture, or composition of matter . . . not known or used by others before his or their discovery or invention thereof, and not, at the time of his application for a patent, in public use or on sale, with his consent or allowance, as the inventor or discoverer; . . . may make application in writing  . . . and the Commissioner, on due proceedings had, may grant a patent therefor.

Since then, and even before, secret sales were seen as a bar to patenting (except when within the grace period).  In Metallizing Engineering, Judge Learned Hand expanded the doctrine to encompass any commercial exploitation by the inventor:

[H]e shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly. It is true that for the limited period of two years he was allowed to do so, possibly in order to give him time to prepare an application; and even that has been recently cut down by half. But if he goes beyond that period of probation, he forfeits his right regardless of how little the public may have learned about the invention; just as he can forfeit it by too long concealment, even without exploiting the invention at all.

Metallizing Engineering Co. v. Kenyon Bearing & Auto Parts Co., 153 F.2d 516 (2d Cir. 1946).

Third Party Sales: In an interesting question – not at issue directly in Helsinn — involves secret sales by third parties. 1985 footnote, the Federal Circuit explained its position that the on sale bar is only directed at activities by the inventor:

The “on sale” provision of 35 U.S.C. § 102(b) is directed at precluding an inventor from commercializing his invention for over a year before he files his application. Sales or offers made by others and disclosing the claimed invention implicate the “public use” provision of 35 U.S.C. § 102(b).

In re Caveney, 761 F.2d 671, 676 (Fed. Cir. 1985); explanation restated in ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010).  On the other hand, other cases have applied the on-sale bar to activities by third parties. See In re Epstein, 32 F.3d 1559 (Fed. Cir. 1994).   Professor Carl Moy aptly explained the situation in his treatise: “The current authorities plainly evidence a difference of opinion about the underlying purpose of the on-sale bar.” 2 Moy’s Walker on Patents § 8:227 (4th ed.).

Supreme Court on the On Sale Bar

by Dennis Crouch

The Supreme Court has granted Helsinn’s petition for writ of certiori in the first case focusing on the 2011 rewriting of the prior art and novelty statute 35 U.S.C. 102.

Issue: Whether, under the Leahy-Smith America Invents Act, an inventor’s sale of an invention to a third party that is obligated to keep the invention confidential qualifies as prior art for purposes of determining the patentability of the invention.

Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA Inc., Docket No. 17-1229.  Expect a hearing this fall and a decision early 2019.

A major focus of discussions surrounding the AIA first-to-file provisions was to limit prior art to objective and publicly available references.  However, Congress did not expressly alter the “on sale” bar language that has been used as a source for the rule that an inventor’s pre-filing secret sales activities (or other commercializing uses) will bar later patenting.

My initial expectation is that the Federal Circuit decision will be affirmed — with a holding that Congress did not intend to overrule 190 year old Supreme Court precedent.  But, the conventional wisdom in patent cases is that the Supreme Court does not ordinarily grant certiorari in order to affirm the Federal Circuit.

A key underlying aspect of the focus here is that differential treatment of secret commercialization between the inventor and some random third party has never been express within the statute.  The Court need not wait for a new congressional statement to revisit that non-statutory approach.

In my mind, the biggest question in this area is how sales, offers, or other commercialization should be treated in an obviousness analysis.

Helsinn: Post-AIA Public Sales are Prior Art Even Without Disclosing the Invention

Helsinn v. Teva (Fed. Cir. 2017) [HelsinnDecision]

In an important decision, a Federal Circuit has interpreted the post-AIA on-sale bar of 35 U.S.C. § 102 to include sales made available to the public (i.e., noticed in an SEC filing), even if the published portion does not fully disclose the invention.

[Post-AIA On sale bar attaches] if the existence of the sale is public, the details of the invention need not be publicly disclosed in the terms of sale.

The court here refused to particularly decide whether truly secret sales still qualify as prior art under Section 102, but (in my view), appears to strongly suggest that the on sale bar will continue to apply in the truly secret cases as well.

The AIA did not directly change the pre-AIA “on sale” language, but did linguistically suggest that only public offers for sale should be considered as prior art.  This change from prior law comes from the rewritten Section 102 that bars patentability of an invention that “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).  Here, the linguistic argument is that the “otherwise available to the public” clause limits on-sale activity to those that are also available to the public.  This is the interpretation taken by the USPTO.  However, the PTO’s interpretation is given no deference by the Federal Circuit.  And, although some congressional history supports the change, the linguistic argument is not strong (in my opinion).

In the present case, the pre-filing sale was actually publicly announced in an SEC filing, and that filing included a redacted version of the contract.  According to the court, the disclosed agreement included “all the pertinent details of the transaction other than the price and dosage levels.”  Although the dosage levels were a key element of the claimed invention, the Federal Circuit ruled that the sale nonetheless created prior art:

Requiring such disclosure as a condition of the on-sale bar would work a foundational change in the theory of the statutory on-sale bar. Indeed, the seminal Supreme Court decision in Pennock addressed exactly such a situation— the public sale of an item but the withholding from “the public the secrets of [the] invention.” Pennock v. Dialogue, 27 U.S. (2 Pet.) 1, 19 (1829). Failing to find such a sale invalidating, said the Court, “would materially retard the progress of science and the useful arts, and give a premium to those who should be least prompt to communicate their discoveries.” Id.
It will be interesting to see how this develops moving forward.  PTO needs to immediately change its rules, and some prosecutors will need to start disclosing again.

Guest Post by Prof. Holbrook: Whose Law Controls On Sale Prior Art in Foreign Countries?

Guest post by Timothy R. Holbrook, Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law, Emory University.

The America Invents Act (AIA) effected a sea change in U.S. patent law.  One of the most significant changes was to shift the U.S. from a “first to invent” to a “first inventor to file” system for allocating priority.  This move is reflected in the restructuring of 35 U.S.C. § 102, the provision that defines prior art for assessing whether an invention is novel and non-obvious.

Aside from the shift in assessing priority, some contended that, by amending § 102, Congress had rejected long-standing Supreme Court precedent that allowed secret uses and sales of the invention to trigger the statutory bars under the 1952 Patent Act.  In Helsinn Health Care S.A. v. Teva Pharmaceuticals USA, Inc., the Supreme Court, in its first case addressing the AIA’s § 102, rejected this argument.

The AIA did more than shift the United States to a first-inventor-to-file system, however.  The AIA also eliminated geographic limits on prior art.  Under the 1952 Patent Act, activities triggering the public use and on-sale bars under then-35 U.S.C. § 102(b) had to take place “in this country.” The elimination the geographic limit greatly expands what qualifies as prior art under the AIA.  Moreover, the Supreme Court’s interpretation of the AIA in Helsinn makes that even more sweeping as secret sales activity that may not be accessible to the broader public can now qualify as prior art.

The removal of the territorial limits, however, also presents a different question: whose law will govern whether an invention is deemed “on sale”?  Under the 1952 Patent Act, to be on sale, an invention (1) had to be the subject of a formal commercial offer for sale and (2) had to be ready for patenting.  Whether the invention is subject to a formal commercial offer is assessed from basic contract principles.

In the foreign context, however, what constitutes a formal commercial offer may vary from U.S. law. Because these proposed or completed sales transactions could take place outside of the United States, the law of another country generally would govern any potential or actual agreements.

The elimination of the geographic limits to on-sale activity now presents a choice of law problem.  On one hand, one could argue that the law of the relevant country should control: the parties in the transaction have that law in mind and not necessarily U.S. patent law.  On the other, if the courts were to rely on foreign law to assess whether the invention is “on sale” under § 102(a) of the AIA, then what qualifies as on-sale prior art would vary widely, depending on the law of the country in which the commercial activity took place.  The same activity might qualify as prior art in one context and not in another.  Courts, therefore, would be better of creating U.S. law defining triggers on-sale prior art regardless of where the activity occurred.

So what route will the courts take?  I suspect it will be the latter, using Federal Circuit law to define the contours of on-sale prior art even when the activity arises overseas.

The Federal Circuit addressed an analogous situation in interpreting the statutory bars under § 102(b) of the 1952 Patent Act.  After the Supreme Court reworked the on-sale bar test in Pfaff v. Wells Electronics, Inc., the Federal Circuit in Group One, Ltd. v. Hallmark CardsInc., clarified step one of the two-part test by requiring a formal commercial offer for sale.  In so doing, the court confronted a similar choice of law issue: should the law of the state governing the transaction dictate whether the invention was on sale, or should Federal Circuit law?

The court opted for the latter, rejecting the district court’s use of Missouri law to determine whether the invention was on sale.  The court reasoned that reliance on state law would create variability in interpreting a federal statute and emphasized “the importance of having a uniform national rule.” As the court stated:

To hold otherwise would potentially mean that a patent could be invalid in one state, when the patentee’s actions amounted to an offer under the laws of that state, and valid in a second state, when the same actions did not amount to an offer under the laws of that second state. Such a result is clearly incompatible with a uniform national patent system.

If past is prologue, one could easily see the court reaching the same conclusion with respect to the use of foreign law to interpret § 102(a) of the AIA.  Applying the law of various countries where commercial activities arise could lead to widely varying standards for on-sale prior art.  Indeed, the situation would be fare more complex than applying state law not only because of differing legal standards but also differing legal systems.  It is a more complicated analysis for U.S courts to discern foreign law than to discern the law of a given state.  It seems highly likely, therefore, that the Federal Circuit choose to apply its own law, using basic contract principles, in interpreting § 102(a) on-sale prior art that arises in foreign countries.

The situation at the international level, however, is far more complex than refusing to apply state law.  Activities in a foreign country would be assessed, and indirectly regulated, through the application of a U.S. legal standard, implicating concerns of the extraterritorial application of U.S. law.  Unlike the state law situation – where state law is subordinate to federal law – the Federal Circuit will be applying the law of the United States to acts in a co-equal sovereign. Actors in the relevant country may be unaware that their commercial behavior is violating U.S. patent law if there are significant substantive differences. That said, I would be surprised if courts consider this activity to trigger the presumption against extraterritoriality, in the same way they failed to truly account for the presumption in the patent exhaustion context.

The removal of geographic limits on public uses and on-sale prior art is a rather sweeping change.  As yet, the importance of the removal of these territorial limits has not been explored by the courts.  Particularly as it relates to on-sale prior art, courts likely will be applying U.S. law to activities arising in foreign countries in the interest in having a uniform standard.

Tim Holbrook is Vice Provost for Faculty Affairs and Asa Griggs Candler Professor of Law at Emory University.  This essay is drawn from part of his article, What Counts As Extraterritorial in Patent Law?, 25 B.U. J. SCI. & TECH. L. 291 (2019).

Where are we with Secret Commercialization?

The Federal Circuit’s recent decision in Helsinn Healthcare S.A. v.  Teva Pharmaceuticals (Fed. Cir. May 1, 2017) held the public sale of an invention qualifies as prior art even if the details of the invention are not publicly disclosed.  The PTO has been operating for the past several years that such sales do not qualify as prior art. From the MPEP:

The phrase “on sale” in AIA 35 U.S.C. 102(a)(1) is treated as having the same meaning as “on sale” in pre-AIA 35 U.S.C. 102(b), except that the sale must make the invention available to the public.

MPEP 2152.02(d).  This statement is obviously wrong under Helsinn, and I expect that the Supreme Court would side with the Federal Circuit on this point (but probably won’t take the case).

The court expressly refused to determine whether a non-public sale (or offer-to-sell) also qualifies as prior art under the AIA or must at least the fact-of-the-sale be made public.  The court also refused to make any holding regarding whether secret commercialization (other than sales) by the patentee qualifies as prior art under the AIA.  The AIA does not support expressly support such a notion – of course neither did the statute pre-AIA.  The court also does not discuss the continued relevance of experimental use, but does fall-back on the Pfaff ready-for-patenting on-sale analysis.

Obviousness: These issues involve an interesting and largely unresolved mix between statutory prior art and “non-statutory  bars to patentability.”  The outcome of this mix becomes quite relevant and important once we begin focusing on obviousness.  The Post-AIA obviousness statute redoubles its focus on the prior art – as such any non-statutory-bars eventually developed by the courts should probably  not qualify as prior art for obviousness purposes.

ON-SALE BAR AFTER HELSINN: WHAT IS THE SCOPE?

I’ll be part of today’s (June 1, 2017) IPO Webinar discussing the ramifications of the Federal Circuit’s April decision in Helsinn v. Teva at 2:00 pm Eastern Time

Panelists:

  • Prof. DENNIS CROUCH, author of the Patently-O blog (University of Missouri),
  • Life science litigator DEBORAH FISHMAN (Arnold & Porter Kaye Scholer LLP), and
  • Assistant Chief IP-Counsel JENNIFER JOHNSON (DuPont).

Moderator and Organizer of the IP Chat Channel: Pamela Sherrid.

Register Online $$

Supreme Court End of Term Updates

by Dennis Crouch

The Supreme Court decided only two patent cases this term.  Helsinn is somewhat important for many patentees and certainly the PTO; while Return Mail more narrowly focuses on the role of Federal Government agencies in challenging patents:

  • Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc., 139 S.Ct. 628 (2019) (non-public sales are still “on sale” under the America Invents Act (AIA) rewriting of 35 U.S.C. 102).
  • Return Mail, Inc. v. United States Postal Service, et al., 139 S.Ct. 397 (2019) (IPR statute does not provide for petitions filed by the Federal Gov’t.).

Certiorari has been granted in only one additional patent case: Peter v. NantKwest. That case asks whether the USPTO is permitted by statute to recover attorney fees associated with § 145 civil actions.

An applicant dissatisfied with the decision of the [PTAB] . . . may . . . have remedy by civil action. . . . The court may adjudge that such applicant is entitled to receive a patent for his invention, as specified in any of his claims. . . . All the expenses of the proceedings shall be paid by the applicant.

35 U.S.C. § 145. In this case Laura Peter, USPTO Deputy Director, is the named petitioner on behalf of the Government, standing in for Dir. Iancu who has a conflict of interest in the case. (Irell & Manella represents NantKwest, and Iancu was managing partner at Irell when the representation began.)

In many other countries, litigation losers commonly pay the attorney fees of the victor.  One argument against that approach is an access-to-justice problem — parties without much money will not be able to find representation if there is a good chance that they’ll have to pay the other-side’s attorney fees upon losing.  In its amicus brief supporting the Government, R Street (Charles Duan) argued that only rich pharmaceutical companies are bringing these cases. “There is thus little reason to believe that those additional expenses will greatly affect the strategic calculus of those patent applicants likely to make legitimate use of § 145.”

As R Street‘s brief outlines, § 145 are used rarely — usually for the most potentially valuable pharmaceutical patents – with top lawyers handling the case (such as Irell & Manella).  The real shift from the outcome may come from the USPTO — if it knows someone else is footing the bill, the USPTO may fight these cases harder.

Upcoming Soon: The Supreme Court has one final conference set this term (June 20) and is slated to rule on a number of pending petitions for certiorari:

  • InvestPic, LLC v. SAP America, Inc., No. 18-1199  (physicality requirement for eligibility);
  • Romag Fasteners, Inc. v. Fossil, Inc., et al., No. 18-1233 (profit disgorgement under the Lanham Act);
  • Ariosa Diagnostics, Inc. v. Illumina, Inc., No. 18-109 (prior art date for unclaimed disclosures in a provisional filing);
  • Texas Advanced Optoelectronic Solutions, Inc. v. Renesas Electronics America, Inc., fka Intersil Corporation, No. 18-600 (infringement associated with and “offer” made in the US to actually “sell” a product in a foreign country);
  • Dex Media, Inc. v. Click-To-Call Technologies, LP, et al., No. 18-916 (Is the 315(d) time-bar triggered by prior lawsuits that were dismissed without prejudice?); Atlanta Gas Light Company v. Bennett Regulator Guards, Inc., No. 18-999 (same); Superior Communications, Inc. v. Voltstar Technologies, Inc., No. 18-1027 (same). .

Rather than guessing at the court’s potential decisions as to whether or not to grant certiorari, I’ll just wait a few days on these to know the outcome.

We also have the beginnings of a heap of new cases for consideration next term:

  • HP Inc., fka Hewlett-Packard Company v. Steven E. Berkheimer, No. 18-415 (fact-law divide in eligibility);
  • Hikma Pharmaceuticals USA Inc., et al. v. Vanda Pharmaceuticals Inc., No. 18-817 (threshold of a natural phenomenon);
  • Google LLC v. Oracle America, Inc., No. 18-956 (copyright for software interfaces).
  • Acorda Therapeutics, Inc. v. Roxane Laboratories, Inc., et al., No. 18-1280 (obviousness and blocking patents)
  • Hyatt v. Iancu, No. 18-1285 (reopening prosecution after successful appeal; “Whether MPEP § 1207.04 violates patent applicants’ statutory right of appeal following a second rejection.”);
  • Senju Pharmaceutical Co., Ltd., et al. v. Akorn, Inc., No. 18-1418  (R.36 judgments; holistic approach to obviousness)
  • Glasswall Solutions Limited, et al. v. Clearswift Ltd., No. 18-1448 (eligibility on the pleadings; Berkheimer question);
  • Enplas Display Device Corporation v. Seoul Semiconductor Company, Ltd., No. 18-1530 (can foreign sales qualify as induced infringement of a U.S. patent — if defendant knew that “the components might be incorporated by third parties into infringing products that might be sold by other third parties in the United States.”)
  • Zimmer, Inc., et al. v. Stryker Corporation, et al., No. 18-1549 (more on treble damages — is negligence enough?)

This last set of cases won’t see any light until at least October 2019 when the Court returns from its summer break.

Supporting Amendment to 35 U.S.C. Section 102(a) Clarifying Public Disclosure

Intellectual Property Owners Association (IPO) Board has proposed a “clarifying” amendment to Section 101(a)(1) of the Patent Act:

(a) Novelty; Prior Art.—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 publicly disclosed before the effective filing date of the claimed invention, provided that no act of patenting, publication, use, sale, commercialization, or any other act, shall constitute prior art with respect to this section, except to the extent the act results in a public disclosure of the claimed invention; or

The proposal here would legislatively overrule Helsinn Healthcare S.A. v. Teva Pharm. USA, Inc., 139 S. Ct. 628 (2019) and remove undisclosed sales activity & commercialization from the scope of prior art. Europe uses this approach found in Article 54 of the European Patent Convention:

  1. An invention shall be considered to be new if it does not form part of the state of the art.
  2. The state of the art shall be held to comprise everything made available to the public by means of a written or oral description, by use, or in any other way, before the date of filing of the European patent application.
  3. Additionally, the content of European patent applications as filed, the dates of filing of which are prior to the date referred to in paragraph 2 and which were published on or after that date, shall be considered as comprised in the state of the art.

EPC Art. 54. Note that 54(1) and 54(2) are parallel to 35 U.S.C. 102(a) while 54(3) is parallel to 102(a)(2) which the IPO does not propose to change.  Regarding these secret prior patent application filings identified in 54(3) and 102(a)(2); the European approach is broader than the US in some ways because it creates prior art even when the prior filing is the same inventor / owner; at the same time, the European approach is narrower than the US because 54(3) prior art does not apply to the inventive step (obviousness) analysis.

An invention shall be considered as involving an inventive step if, having regard to the state of the art, it is not obvious to a person skilled in the art. If the state of the art also includes documents within the meaning of Article 54, paragraph 3, these documents shall not be considered in deciding whether there has been an inventive step.

EPC Art. 54(3).