Generating income is typically top of mind for any business. For technology companies, this often means that sales and marketing go hand-in-hand with product development. During product development, confidential clauses in agreements shield companies from public disclosure of the invention. However, the United States has an “on-sale” bar which prevents one from patenting an invention that has been offered for sale for more than one (1) year prior to the patent application filing date.
Recently, the U.S. Supreme Court held in Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. (Helsinn) that a sale made under confidentiality obligations (a so-called “secret sale”) qualified as prior art under the “on-sale” bar in 35 U.S.C. 102(a)[1]. In that case, Helsinn Healthcare S.A. entered into a confidential agreement that granted a partner company the right to, inter alia, sell Helsinn’s chemotherapy product. Helsinn filed the first patent application on their product more than a year after executing the agreement. The U.S. Supreme Court held that even though the agreement between Helsinn and its partner company was confidential, the “secret sale” was a bar to patentability and thus Helsinn lost their patent rights. Accordingly, although confidentiality clauses may work in many circumstances, caution should be exercised when discussing new products with prospective customers prior to filing a patent application.
So how does a company prevent the self-inflicted wound of invalidating its patent before the application is even filed? Consider what actually makes the “secret sale” a problem in the first place. The US Supreme Court cited Pfaff v. Wells Electronics, Inc., which provided the requirements for the conditions that create an on-sale bar:
- the product must be the subject of a commercial offer for sale; and
- the invention must be ready for patenting. [2]
A commercial offer for sale will typically require some manifestation of intent. However, determining when a product is ready for patenting can be confusing. The court held in Pfaff that drawings or other descriptions of the invention that enable a skilled artisan to practice the invention were sufficient to make a product “ready for patenting”. Notably, the Court in Pfaff held that even an offer for sale that did not disclose the details of the invention could cause an inventor to lose the right to patent.
Key Takeaway
Helsinn raises significant issues for early stage business activities. During early product development, offering
product solutions for sale can be easy and unintentional. For example, whiteboard
presentations to prospective customers may in fact provide enough detail of the
product to make the invention ready for patenting. Any suggestion of an offer
for sale during such discussions could easily run afoul of the on-sale bar. An
NDA is not enough, both parties should
be clear as to whether or not there is an intention to sell the product. The other option: file a patent application before
your one-year grace period lapses.
[1] US Supreme Court, No. 17 – 1229, 2019.
[2] US Supreme Court, No. 97-1130, 1998.
