UNDER THE MICROSCOPE: An In-Depth Look at the ‘On-Sale Bar’ under the Federal Circuit’s Opinion in Helsinn Healthcare

May 17, 2017

By: Christopher D. Bayne

Helssin Healthcare S.A., v. TEVA Pharmaceuticals USA, Inc. et al. (Fed. Cir., May 1, 2017) (before Dyk, Mayer, and O’Malley, J) (opinion for the Court, Dyk, J.)

In Helssin Healthcare the Federal Circuit reversed the trial court’s finding that four patents-in-suit (3 patents governed under pre-AIA, and 1 patent governed under AIA) were invalid under the on-sale bar provision of 35 U.S.C. § 102.  This article summarizes three issues adjudicated by the three-judge panel.

Relevant Facts: Helsinn brought suit against Teva alleging that the filing of Teva’s Abbreviated New Drug Application (“ANDA”) constituted an infringement of various claims of the four patents-in-suit. Teva defended, inter alia, on the ground that the asserted claims were invalid under the on-sale bar provision of 35 U.S.C. § 102.  The patents-in-suit were directed to intravenous formulations of palonosetron for reducing or reducing the likelihood of chemotherapy-induced nausea and vomiting (“CINV”).  The critical date for the on-sale bar in this case was January 30, 2002—one year before the January 30, 2003 filing of a provisional application to which all four of the patents-in-suit claimed priority. Almost two years before applying for a patent, Helsinn and MGI Pharma, Inc. (“MGI”), an oncology-focused pharmaceutical company that markets and distributes in the United States, entered into two agreements: (1) a License Agreement and (2) a Supply and Purchase Agreement.  Under the Supply and Purchase Agreement, MGI agreed to purchase exclusively from Helsinn, and Helsinn agreed to supply MGI’s requirements of the 0.25 mg and 0.75 mg palonosetron products, or whichever of the two dosages were approved for sale by FDA.  All of the above information about the transaction was publicly disclosed with two exceptions.  The two features of the agreements that were not publicly disclosed were the price terms and the specific dosage formulations covered by the agreements—that is the 0.25 and 0.75 mg doses.

Two-Step Test for On-Sale Bar:  In addressing the on-sale issue, the Federal Circuit applied the two-step framework of Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).  Under Pfaff, application of the on-sale bar requires that (1) “the product must be the subject of a commercial offer for sale” and (2) “the invention must be ready for patenting.” 525 U.S. at 67 (emphasis added).

After affirming the district court’s finding that the Supply and Purchase Agreement constituted a commercial offer for sale under pre-AIA § 102(b), the Court went on to address a number of other issues.

A. “There can be no real dispute that an agreement contracting for the sale of the   claimed invention contingent on regulatory approval is still a commercial sale as the commercial community would understand that term.”

The patent owner Helsinn argued that the Supply and Purchase Agreement was not invalidating because at the critical date it was uncertain whether FDA would approve the 0.25 mg dose, and FDA approval was a condition precedent to the sale. 

The Federal Circuit disagreed with this argument, and concluded that “[t]here can be no real dispute that an agreement contracting for the sale of the claimed invention contingent on regulatory approval is still a commercial sale as the commercial community would understand that term.”  In reaching this conclusion, the Court found that it was implicit in prior opinions that the absence of FDA or other regulatory approval before the critical date does not prevent a sale or offer for sale from triggering the on-sale bar.  The Court cited to Enzo Biochem, Inc. v. Gen-Probe, Inc., 424 F.3d 1276, 1279-82 (Fed. Cir. 2005) and C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1354 n.4 (Fed. Cir. 1998) as precedents supporting this conclusion.

In holding that FDA approval was not a condition precedent necessary to establish a commercial offer for sale under the two-step framework of Pfaff, the Court explained that “while the absence of FDA approval may be a relevant consideration depending upon the other circumstances surrounding a transaction relating to a pharmaceutical formulation, the fact that a transaction was subject to regulatory approval would not, absent more, prevent it from being a sale for purposes of the on-sale bar.”

B. “We conclude 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 sale.”

The Court also addressed the issue of whether the AIA changed the meaning of the on-sale bar such that Section 102(a)(1) now requires a public sale or offer for sale of the claimed invention.  Although the Supply and Purchase Agreement disclosed the sale agreement and substance of the transaction, it failed to publicly disclose the 0.25 mg dose.

The patent owner Helsinn, the government, and other amici argued that, because the AIA changed the law by adding the “otherwise available to the public” phrase, the on-sale bar now does not encompass secret sales and requires that a sale make the invention available to the public in order to trigger application of the on-sale bar.  The district court agreed with this argument and, therefore, found that the Supply and Purchase Agreement did not constitute a public sale or commercial offer for sale—due to the non-disclosure of the 0.25 mg dose. 

The Court began its analysis by examining precedents addressing whether confidentiality precludes the on-sale bar under pre-AIA § 102.  In doing so the Federal Circuit cited to the en banc opinion in Medicines Co. v. Hospira, Inc., 827 F.3d 1363 (Fed. Cir. 2016)—in which the Court concluded that, although confidentiality weighs against application of the on-sale bar, that fact alone is not determinative.  827 F.3d at 1376, 1377 n.2.  The Court also cited to In re Caveney, 761 F.2d 671, 673–74 (Fed. Cir. 1985)—in which the Court rejected the argument that a sale or offer for sale did not trigger the on-sale bar when it had been “kept secret from the trade.”  761 F.2d at 675.

After concluding that the legislative history of the AIA (including floor statements by Senators Leahy and Kyl) did not express a congressional intent to overturn pre-AIA precedents relating to the on-sale provision of Section 102, the Court also found that the “otherwise available to the public” provision in Section 102 of the AIA does not require that the details of the claimed invention be publicly disclosed before the on-sale bar is triggered.  In doing so the Court relied on a number of pre-AIA precedents including Pennock v. Dialogue, 27 U.S. (2 Pet.) 1, 19 (1829) (holding that the withholding the secrets of the invention from the public should not invalidate the on-sale bar, because doing so “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”) and RCA Corp. v. Data Gen. Corp., 887 F.2d 1056, 1060 (Fed. Cir. 1989), 254 F.3d at 1048 (rejecting the argument “that the bid documents themselves must disclose the invention with respect to all claim elements” since that is “clearly not legally correct” and there can be “a definite offer for sale or a sale of a claimed invention even though no details are disclosed”).

The Court ultimately concluded that the 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,” and that the legislative history did not express an intent by Congress to overrule these cases.

The Court held 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 sale.”

C. “The district court clearly erred by applying too demanding a standard. The completion of Phase III studies and final FDA approval are not pre-requisites for the invention here to be ready for patenting.”

The Court also addressed the issue of whether a pharmaceutical invention is “ready for patenting” for purposes of the on-sale bar when insufficient testing has been conducted to establish clinical efficacy under the FDA standard for approval of a new drug application.

As explained above, application of the on-sale bar requires that (1) “the product must be the subject of a commercial offer for sale” and (2) “the invention must be ready for patenting.” 525 U.S. at 67 (emphasis added).  Under Pfaff, there are at least two ways in which an invention can be shown to be ready for patenting: (a) “by proof of reduction to practice before the critical date; or (b) by proof that prior to the critical date the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.” 525 U.S. at 67–68 (emphasis added).

Because the Court in Helsinn Healthcare found that claimed inventions where reduced to practice (a) by the critical date—and therefore “ready for patenting” under Pfaff—the Court did not address the alternative enablement approach (b).

To assess reduction to practice, the Court relied upon the 2-prong test articulated in the opinion of In re Omeprazole Patent Litigation, 536 F.3d 1361 (Fed. Cir. 2008).  Under this test, an invention is reduced to practice when the inventor (1) constructed an embodiment that met all the limitations, and (2) determined that the invention would work for its intended purpose.  536 F.3d at 1373 (citing Z4 Techs., Inc. v. Microsoft Corp., 507 F.3d 1340, 1352 (Fed. Cir. 2007)). The Court also relied on the opinion in Streck, Inc. v. Research & Diagnostic Systems for the proposition that reduction to practice occurs if “the claimant had possession of the subject matter of the [claim] and that it was shown or known to work for its intended purpose.”  659 F.3d 1186, 1193 (Fed. Cir. 2011); accord Sanofi-Aventis v. Pfizer Inc., 733 F.3d 1364, 1367–68 (Fed. Cir. 2013).

Given that the claims of the patents-in-suit required the pharmaceutical formulations to “reduce the likelihood” of enesis and CINV, the issue addressed by the Court with respect to the “ready for patenting” prong of Pfaff was whether the patent owner Helsinn had determined that the invention would work for its intended purpose, which, according to the claims, is “reducing the likelihood” of emesis and CINV.

According to the Court, earlier precedents distinguish between the standard required to show that a particular invention would work for its intended purpose and the standard that governs FDA approval of new drugs, including the various stages of clinical trials. See, e.g., Scott v. Finney, 34 F.3d 1058, 1063–64 (Fed. Cir. 1994) (addressing reduction to practice in the priority context).

Based on precedents defining the requisite testing needed to establish that an invention works for its intended purpose, see below, the Court held that approval of a new drug by the FDA is a more demanding standard that what was required to show that the patents-in-suit were ready for patenting under Pfaff.

Under a standard articulated in Scott, the requisite testing, if any, for showing that an invention will “work for its intended purpose” varies depending on “the character of the invention,” including the claim language and the “nature and complexity of the problem” the invention seeks to solve. 34 F.3d at 1061–62; see also Slip Track Sys., Inc. v. Metal-Lite, Inc., 304 F.3d 1256, 1265 (Fed. Cir. 2002). Generally there must be some “demonstration of the workability or utility of the claimed invention.” Honeywell Int’l Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982, 997 (Fed. Cir. 2007).  This must show that the invention works for its intended purpose “beyond a probability of failure” but not “beyond a possibility of failure.” Scott, 34 F.3d at 1062. “[L]ater refinements do not preclude reduction to practice, [and] it is improper to conclude that an invention is not reduced to practice merely because further testing is being conducted.” Atlanta Attachment Co. v. Leggett & Platt, Inc., 516 F.3d 1361, 1367 (Fed. Cir. 2008).

The Court disagreed with the district court’s determination that the patent owner needed to meet the FDA standard, which requires finalized reports with fully analyzed results from successful Phase III trials. Because the evidence of record was “overwhelming” that,  before the critical date of January 30, 2002, it was established that the patented invention would work for its intended purpose of reducing the likelihood of emesis, the Court concluded that completion of Phase III studies and final FDA approval were not pre-requisites for the claimed inventions to be ready for patenting.

In considering the policy implications of affirming the district court’s finding, the Court explained that “under the district court’s unduly restrictive standard, Helsinn could not have filed a valid patent application before the critical date of January 30, 2002. Such a standard would preclude the filing of meritorious patent applications in a wide variety of circumstances.”

Therefore, the Court reversed the lower court and held that “the evidence that the formulation was ready for patenting is overwhelming, and the District Court’s contrary conclusion—applying the wrong standard—was clearly erroneous.