In Helsinn Healthcare v. Teva Pharmaceuticals USA, the Court affirmed a Federal Circuit decision invalidating the patent for Helsinn=s nausea drug Aloxi, based on patent law=s Aon sale@ bar.  In short, the Court found that the sale of an invention to a third party who is obligated to keep the invention confidential by agreement may place the invention “on sale” for purposes of the Leahy‑Smith America Invents Act (AAIA@), which bars a person from obtaining a patent on an invention that was Ain public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.@  An exception to the on sale bar is made if a sale or offer to sell is made 1 year or less before the effective filing date of a claimed invention, and certain other conditions are met.

The facts of the case are as follows.  While Helsinn was in development of a drug, which uses the active ingredient palonosetron to treat chemotherapy‑induced nausea and vomiting, it entered into two agreements with a third party, MGI Pharma, Inc., a license and supply and purchase agreement.  These agreements gave MGI the right to distribute, promote, market and sell two specific dosages of the palonosetron in the United States.  In exchange, MGI made up-front payments to Helsinn and agreed to future royalties on distribution.  Most importantly, the agreements required MGI to keep confidential any proprietary information regarding palonosetron.  The agreements were disclosed to the public in a joint press release and related filings with the SEC, but the specific dosage formulations covered by the agreements were not included in the disclosure.

On January 30, 2003, nearly two years later, Helsinn filed a patent application covering the two doses of palonosetron.  Over the next 10 years, it filed additional patent applications, all claiming priority to the January 30, 2003 date.  Years later, Teva Pharmaceuticals sought FDA approval to market a generic palonosetron at one of Helsinn=s dosages.  Helsinn brought suit claiming the product infringed its patent.  Teva argued that the fourth patent was invalid because the specific dose was Aon sale@ more than one year before Helsinn filed its initial patent application in 2003.  The District Court held that the “on sale” provision did not apply because the public disclosure of the agreements did not disclose the specific dosages.  The Federal Circuit court, however, reversed, and concluded that the sale was publicly disclosed, regardless of whether the details of the invention were publicly disclosed in the terms of the agreements.

In a unanimous ruling, SCOTUS found that an inventor=s commercial sale of an invention to a third party invalidates the patent, even if the third party is obligated to keep the invention confidential due to the “on sale” bar.  The Court recognized that the pre-AIA statute included the “on sale” bar and noted the precedent that secret sales could invalidate a parent.  It then applied the presumption that Congress intended the same with the AIA, which includes the same “on sale” language.  Further, the Court found that the addition of the catchall phrase “or otherwise available to the public” is not enough of a change from the pre-AIA statute to conclude that Congress intended to alter the meaning of “on sale.”

The practical application and effect of this ruling is interesting to note.  On the one hand, a modest inventor can argue that upholding the Federal Circuit=s decision would discourage innovation in the biotech sector, particularly among small or start-up companies who lack resources to have their drugs developed and distributed in-house, as they frequently rely on third party investment and partnerships which can help with costs of further research and development. Third party investments and partnerships, however, subjects them to the “on sale” bar and can discourage them from engaging in time-consuming and costly research, because it causes them to lose the ability to receive patent protection.  Also, being forced to file costly patent applications for the sole purpose of avoiding future patentability issues will further discourage small businesses from entering the industry, especially when their invention has not been tested to be commercially viable.

On the other side, competitors can argue that the Aon sale@ bar is triggered only when the invention is at a stage when it is ready for patenting and sale, or when the inventor is ready to start making profits before patenting it, and thus, the Aon sale@ restriction is appropriate.  Further, a one-year grace period provided in the AIA is sufficient in which to assess commercial viability.

In any event, all inventors should be aware of the fact that this decision has vast implications for patent-holders in the United States as well as for investors intending to sell their invention pre-patent application.