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.).

17 thoughts on “When are Confidential Sales Prior Art?

  1. 7

    I’m not sure I that understand. Is the point that the AIA, in modifying the statutory definition of prior art, also obviated the judicial doctrine that was originally created as an analogy to the older version of the statute? In this regard, I note that at least two judicial doctrines that have no readily apparent statutory basis evidently survive the AIA, i.e. inequitable conduct and obviousness double patenting. Is their survival to be distinguished from the obviation of the inventor forfeiture rule of D.L. Auld because the later was modeled on a statutory provision that was amended?

    1. 7.1

      Not only that – but Congress was explicit in that they were overhauling that particular section (even going the extra mile and expressly changing the titles of the section of the law).

      Then, ON TOP OF THAT, add “The Soliloquy.”

      This is NO “elephant from a mouse hole” here: this is a mouse through an elephant hole.

  2. 6

    In view of the widespread current membership of the “Patent Doom & Gloom Club” note that taking cert in this case and applying the intended AIA 102 statutory construction would be pro-patent, like Halo. As recently noted, due to Halo, “enhanced damages for patent infringement are no longer a rarity in the two years since the Supreme Court lowered the bar for alleging and proving willfulness in Halo. In just the last few months, Illinois federal Judge Harry Leinenweber raised Chamberlain’s $3.8 million trial verdict to $11.4 million after finding the conduct of a rival garage door opener maker to be egregious. In May, Texas federal Judge Rodney Gilstrap found deliberate copying of a water filter design and awarded Whirlpool Corp. $3.8 million in enhanced damages on a $7.6 million verdict.”

  3. 5

    In honor of the late Ned Heller:


    (and noting that Pennock reflects the will of Congress and the then statutory law on the books (coupled with a Justice who paid scant attention to separation of powers and who thought that common law was somehow universally applicable).

  4. 4

    Yes, the prior art status of a secret “on sale” has been widely confused, more so than it needs to be, as discussed at length with specific citations and discussions of controlling case law [more than cited above] in “The Ambiguity in Section 102(a)(1) of the Leahy-Smith America Invents Act,” 2011 Patently-O Patent Law Review 29.
    That is, the difference between a sale of a product containing the invention and the commercial use of a secret process to make and sell products that do not contain or disclose the invention. The latter is a purely personal forfeiture, not statutory prior art, under Metallizing Engineering doctrine Fed. Cir. case law.
    A pre-AIA Fed. Cir. decision held a secret sale of a product containing the invention to be statutory prior art. But AIA 102 added “or otherwise available to the public” as its final words. So the issue is whether or not this 102 change in in the AIA 102 reversed that.
    Some argue, and the PTO said in a footnote to AIA rule changes, that this AIA 102 statutory change also overruled the case law on the Metallizing Engineering doctrine, even though that doctrine is equitable, not statutory, and not prior art. But this decision seeking cert does not rely on the Metallizing Engineering doctrine, nor does it have that applicable fact situation, so that even if cert is granted this latter question will not necessarily get decided here.

    1. 4.1

      >even though that doctrine is equitable…

      It always seemed odd that the equitable doctrine could overrule the express words of the statute: “A person *shall* be entitled to a patent unless…”

      1. 4.1.1

        OC, this is not an application opposition – these issues almost never come up until after the patent is issued and sued on, and of course at that point IC, estoppel and other non-statutory defenses against patent enforcement can apply.


          P.S. Not nearly as weird as “best mode” remaining a 112 statutory requirement for patent grant, but not usable any more as a defense to suit on that patent per the AIA. The opposite of your concern.

  5. 3

    If I remember Epstein correctly, the on-sale bar there was of software that was described in a document published after the critical date as having been sold before the critical date. Although none of the buyer(s) were identified, the document indicated that the software was generally available before the critical date. Not having the record of who bought the software is not the same thing as a “secret sale” to a private customer. The main holding of that case was that a Examiner can rely on documents that would be considered hearsay in a federal court to make a prima facie case that a claim is not patentable.

  6. 2

    This was a fairly unusual case. The defendant entered into a distribution contract with another company for a drug that was not FDA approved. The contract was subject to FDA approval, and defendant filed the patent application before the FDA approval but after the contract for sale was entered into.

    The contract was binding as of the date it was entered into, but subject to the condition that the FDA approved it. Because they were prohibited from selling anything under FDA rules, and the formula was kept confidential, they likely felt that they were not really commercializing the invention before filing the patent application as all they were selling was the rights to sell a product that could not legally be sold, not the product. Big mistake.

    So many biotech companies have been burned so badly on this issue, that now the patent on the drug is filed before the inventor is hired by the company to do the research to develop the drug. OK, that might be a slight exaggeration, but not by much.

    Of course, this means lots of worthless patents are filed, at fairly large expense, as most will file the patent application before the stage 1 trials, long before they know if the drug will actually work. That means 90% of the biotech patents filed these days are entirely worthless, but provide foreign competitors with valuable research. Not hard to see where the Trump administration will weigh-in here.

    1. 2.2

      Not if they had read the controlling case, which is Pfaff v. Wells. As even Wikipedia spells it out, “The on-sale bar of 35 U.S.C. 102(b) is triggered if the invention is both (1) the subject of a commercial offer for sale not primarily for experimental purposes, and (2) is ready for patenting. [period] Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67, 48 (1998).

  7. 1

    I guess I’ll be the first person to pipe in here and note that it’s important to remember the distinction between (1) the “personal bar” arising from “secret sales” where the bar applies to the parties involved in the “secret” transaction; and (2) the idea that such a sale could be considered to be prior art against parties who are NOT involved in the transaction. The former makes a lot of sense to me from a patent policy perspective (as set forth by Story et al); the latter, not so much (although there is an argument in favor of it, the better “progress-promoting” position would seem to be the one that encourages the earliest disclosure by way of patenting, i.e., the risk of exploiting an innovation in secret is that a third (fourth?) party might come along and independently file a non-derived patent application and foil your plans.

    1. 1.1

      On the theme of progress promoting, in a jurisdiction that publishes patent applications 18 months after the earliest declared priority date, what is needed is an incentive to file at the priority date a disclosure that enables the invention over the full width of the claims, thereby rendering all those A publications as informative and educational as possible.

      Perhaps something like the “whole contents” approach taken by Art 54(3) of the 1973 EPC and since adopted by the ROW.

      But wait. Some people in the USA don’t yet understand it. Or choose not to understand it. Including those who wrote the USA’s entry into the First to File world, the AIA. It’s what Max Planck maintained, isn’t it: No scientist ever switched to a new theory, better than the old one. Only with the arrival of a fresh generation of scientists does the old inferior theory fade away. As with scientists, so with patent lawyers.

      1. 1.1.1

        what is needed is an incentive to file at the priority date a disclosure that enables the invention over the full width of the claims, thereby rendering all those A publications as informative and educational as possible.

        As I just stated a few weeks back, the caselaw is that the actual document must enable the allegedly novel feature. The rule that you can avoid detailed disclosure only applies to well-known things.

        The fact that the office fails to adequately police the full width of the scope or, you know, 112a at all, doesn’t stop private people from correcting the issue.

    2. 1.2

      The actual binding precedent on the “personal bar” is not Metallizing but D.L. Auld v. Chroma Graphics, 714 F2d 1144
      (Fed Cir 1983) in which Judge Markey found the rationale of Metallizing convincing. By endorsing that concept it was Judge Markey who made it binding precedent. At that point the Federal Circuit was free to adopt or reject precedent from the Regional Circuits. This is important because Judge Markey, unlike Judge Hand in Metallizing, made it very clear without ambiguity that it was a judicially created “personal bar” and not an interpretation of the statute. In this regard the Federal Circuit also decided that third party secret sales did not effect patentability (i.e. didn’t create prior art in W.L. Gore v. Garlock, 721 F2d 1540 (Fed. Cir. 1983)

      1. 1.2.1

        Thanks LP.

        Makes the express removal of personal bars (serving AS prior art) by the AIA all the more compelling.

        As I used ithe like to tell the late Ned Heller, in the AIA, Congress made the new “new” to be “new to you” (finally getting it right that the different protections under the different laws of trade secrets and patents (with each having genesis in different portions of the Constitution) are – in fact -…

        … different.

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