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Could Secret Sales Bar Your Ability to Patent a Medical Device?

Here are a few ways to avoid triggering the on-sale bar and losing patent rights, post-Helsinn v. Teva.

Image by succo from Pixabay

A recent Supreme Court decision could have a significant impact on medical device manufacturers. These companies must continue to exercise caution in engaging in confidential sales and offers with outside partners—such as in contracts for device prototype development or stockpiling of products—before filing patent applications. Medical device manufacturers should ideally file patent applications before entering into such agreements or, if not feasible, structure the agreements to reduce the risk of triggering the on-sale bar.

These guidelines are based on the Helsinn Healthcare v. Teva Pharmaceuticals decision in which the Supreme Court confirmed that an inventor’s “secret sales”—that is, sales or offers for sale in which invention details are not made available to the public—can still act as a bar to patentability under the America Invents Act of 2011 (“AIA”), which applies to U.S. patents and patent applications filed after March 15, 2013, as they had under pre-AIA law. 1 Though there had been hope that medical device manufacturers would have more leeway under the AIA to engage in confidential sales without jeopardizing patent rights, in line with other worldwide patent systems, that possibility has been laid to rest as a result of the decision.

Like the U.S. Patent and Trademark Office did in its own guidelines, 2 the district court in Helsinn interpreted the AIA as changing the law to preclude “secret sales” from triggering the on-sale bar, and it held that a Supply and Purchase Agreement 3 between Helsinn, a pharmaceutical company developing drug formulations, and MGI Pharma, a pharmaceutical distributor, did not trigger the AIA on-sale bar. While the existence of the agreement had been publicized via a press release and required SEC filings, the details of the drug formulations (i.e., the invention that was later patented) had not been made public. On appeal, the Federal Circuit reversed, holding that the agreement triggered the AIA on-sale bar because the AIA did not require a disqualifying sale to publicly disclose the claimed invention.

The Supreme Court unanimously affirmed the Federal Circuit’s decision and unambiguously held that the “or otherwise available to the public” language added by the AIA did not alter the settled meaning of “on sale” under pre-AIA case law.

Although the Supreme Court largely preserved the pre-AIA status quo with respect to “secret sales,” certain other changes made by the AIA make the on-sale bar even more far-reaching. For example, the AIA removed the “in this country” requirement for bar-triggering sales, now opening up “secret sales” throughout the world as potential on-sale bar triggers. The AIA also substantially narrowed the conditions under which pre-filing sales could be excluded as prior art within the one-year grace period, with inventors no longer able to rely on their earlier date of invention. Moreover, the scope and applicability of these conditions for excluding pre-filing sales activity within the one-year grace period are unclear and have yet to be defined by the courts. Thus, it is even more important under the AIA to file patent applications prior to beginning any sales activity, including offers for sale, whether or not confidential, anywhere in the world, whenever possible.

One way to mitigate the risks of engaging in sales activity during early-stage development before patent applications may be feasible is by moving certain operations, such as manufacturing prototypes or validation batches, in-house rather than contracting with outside partners. A vertically integrated company with little to no need to partner with outside companies to facilitate development activity faces a substantially lower risk of triggering the on-sale bar than companies that rely on third parties for testing and manufacturing.

To the extent that such a model is not feasible and companies are unable to avoid pre-filing sales activity, they should apply lessons from pre-AIA case law to minimize the risk of triggering the on-sale bar. For example, pre-AIA cases indicate that companies may frame agreements as licenses,4 assignments, or sales of the rights in the invention (e.g., potential patent rights) as opposed to sales of tangible products embodying the invention,5 or sales of manufacturing services rather than sales of the manufactured products6 that are the subject of later patent claims. The language of the agreement is critical, as it is insufficient to exclude a sale as a bar trigger simply because it is between only the parties to a joint development agreement7—instead, the key is ensuring that there is no transfer of title to the claimed invention.8 Sales that occur so early in the development pipeline that the technology in question has not been sufficiently defined to enable it to be described in a patent application, or for which it has not yet been demonstrated that the technology even works for its intended purpose, may also avoid triggering the on-sale bar as not being “ready for patenting” or as qualifying under the narrow “experimental use” exception.9 But these exceptions are narrow and fact-specific and should not be relied on without seeking the advice and counsel of a qualified patent attorney.

Thus, the AIA did not end up insulating secret sales as many expected and hoped it would—and, if anything, it increased the risk of patent forfeiture by sales activity. But by taking certain precautions, such as those discussed above—filing patent applications before engaging in any sales activity, moving outsourced development operations in-house, structuring transactions as licenses or payment for manufacturing services—companies can eliminate or substantially reduce the risk of triggering the on-sale bar and losing patent rights.

References

  1. 139 S.Ct. 628 (2019).  See, e.g., Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001) (holding that on-sale bar invalidated patent even though sales took place in secret); In re Caveney, 761F.2d 671 (Fed. Cir. 1985) (finding that a sale “kept secret from the trade” triggered the on-sale bar); Hobbs v. U.S. Atomic Energy Commission, 451 F.2d 849 (5th Cir. 1971) (rejecting argument that “conditions of secrecy” rendered on-sale bar inapplicable). 
  2. Examination Guidelines for Implementing the First Inventor to File Provisions of the Leahy-Smith America Invents Act, 78 Fed. Reg. 11,059, 11062 (Feb. 14, 2013); Manual of Patent Examining Procedure, § 2152.02(d) (“The ‘or otherwise available to the public’ residual clause of AIA 35 U.S.C. 102(a)(1) … indicates that AIA 35 U.SC. 102(a)(1) does not cover secret sales or offers for sale. For example, an activity (such as a sale, offer for sale, or other commercial activity) is secret (non-public) if it is among individuals having an obligation of confidentiality to the inventor.”).
  3. In the agreement, MGI Pharma agreed to fund Helsinn’s drug development efforts in exchange for the right to purchase and distribute any resulting FDA-approved product.
  4. See, e.g., In re Kollar, 286 F.3d 1326, 1330-31, 1333 (Fed. Cir. 2002) (“We have held that merely granting a license to an invention, without more, does not trigger the on-sale bar of § 102(b).”).
  5. See, e.g., Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261, 1267 (Fed. Cir. 1986).
  6. See The Medicines Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016) (holding that sales of contract manufacturing services do not constitute a “commercial sale” of an invention directed to a product).
  7. See, e.g., Brasseler v. Stryker Sales Corp., 182 F.3d 888, 890 (Fed. Cir. 1999) (declining to establish an exception for sales between joint developers); Buildex Inc. v. Kason Industries, Inc., 849 F.2d 1461 (Fed. Cir. 1988).
  8. See also Trading Technologies Intern., Inc. v. eSpeed, Inc., 595 F.3d 1340 (Fed. Cir. 2010) (finding that inventor’s purchase of hourly programming services to make software for his own secret, personal use did not trigger on-sale bar).
  9. See, e.g., Barry v. Medtronic, 914 F.3d 1310, 1331 (Fed. Cir. 2019) (“[E]xperimental use negates applicability of the on-sale bar”). In Barry, a doctor’s pre-filing performance of three surgeries fell under the “experimental use” exception because the doctor was not sure that the inventive device used in the surgeries would work for its intended purpose (in this case, to treat scoliosis) until he had performed the surgeries and evaluated the results in follow-up appointments.
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