Today’s oral arguments in U.S. Supreme Court case Helsinn Healthcare v. Teva illustrate the power that a successful appeal could have to change a longstanding doctrine and significantly impact how businesses handle intellectual property transactions. The issue at hand is whether secret sales will still be considered prior art despite their potential to invalidate claims.
In concrete terms, this could have a large impact on several industries. In the pharmaceutical industry, companies often identify potential drug candidates but may choose not to further develop every candidate because of the time or money required. Similarly, in the software and high technology fields, employees often develop inventions that may be highly innovative, but peripheral to the core business of the employer.
But because the time between identifying a potential invention and bringing a product to market may be long, it is risky to purchase early-stage drug candidates or software concepts since this triggers the start of the patent clock. The first round of patents could expire before marketing is possible, reducing potential profits. A change in law could result in more transactions involving early-stage innovations.
As further background, the patent system relies on the exchange of exclusive rights to a patented invention for a limited time in exchange for the public disclosure of that new invention. Accordingly, a company or inventor who profits financially from the sale of an invention should be encouraged to get a patent application on file—and disclose the invention to the public—as soon as possible if they want patent protection in the future. To achieve this encouragement, historically, any sale of an invention or product used in part of an invention made more than one year before the filing of a patent application could be considered “prior art.” This encouragement exists in the law whether the sale was made publicly, i.e., in an SEC filing or press release, or was held secret between the two parties to the transaction. On the other hand, a company would generally like to file its patent application as late as possible to delay starting the clock on its exclusive rights.
This “prior art” designation may have grave consequences for a patent. When a court or jury evaluates whether a patent is valid, it compares the patent claims to the prior art. For this reason, companies have a strong reason to coordinate transactional activity between the business units and the patent department. A sale of an invention is not harmful to patent rights if a patent application is filed less than a year after the sale. In other words, businesses or inventors have controlled what is prior art—and weighed against the patent in validity challenges—by carefully coordinating patent filings with transactions. Many companies use similar coordination strategies to coordinate the release of publications, presentations, or press releases about new products with the filing of patent applications.
The appeal in Helsinn could dramatically change this historical practice. In Helsinn, a pharmaceutical company is challenging whether under the recent patent reforms of the America Invents Act (AIA), the statutory language has eliminated secret sales from possible prior art. If successful, then a secret sale of an invention, no matter when it takes place, may not be used as prior art to invalidate a patent covering that same invention.
The direct impact is that a company may seek to sell potential patentable inventions secretly to outside companies without fear of starting the patent clock. In other words, a company that has secretly developed a new product, but chooses not to bring the product to market, could sell that invention to an interested third party without creating prior art against the potential patent. Then, the new owner of the invention could coordinate its own publication and patent filing strategy.
To prepare for a potential reversal, companies can take two steps now. First, companies can implement confidentiality policies for sales and transactions involving pre-patented products. If the Supreme Court reverses, then maintaining confidentiality may delay the required filing date for patent applications.
Second, it may be useful for companies to look through their files for potential patentable inventions that were never developed. There may be potential to extract value from innovations that were outside of the core business, but now can be confidentially sold for further development by third parties without starting the patent clock.