Pre-AIA and Post-AIA Issues Presented by the On-Sale Bar

Article co-written by Yuri Levin-Schwartz, Ph.D., a law clerk at MBHB.

The “on-sale” bar to patentability refers to a sale or offer for sale of an invention that can invalidate the patent for that invention. The America-Invents-Act (AIA), which altered the language in the statutes that apply to the on-sale bar, has made it difficult to determine what actions might constitute a “sale” or an “offer for sale” under current law. Nevertheless, a clear understanding of the on-sale bar is necessary to enable entities of all sizes—from single inventors to large corporations—to effectively monitor activities surrounding their inventions, and to enable attorneys to provide such entities with accurate and useful advice.

Pre-AIA On-Sale Bar

According to the pre-AIA on-sale bar, a patent cannot be obtained if the invention was on sale in the U.S. before a date exactly one year before the patent application was filed.[1] This date is known as the application’s “critical date.” An inventor’s activities trigger the pre-AIA on-sale bar when two conditions are satisfied before the critical date (an analysis known as the Pfaff test): (1) the invention must be the subject of a commercial offer for sale, not primarily for experimental purposes; and (2) the invention must be ready for patenting.[2]

Generally, both public and private offers/sales can trigger the pre-AIA on-sale bar. An offer/sale may be considered “public” when information regarding the offer/sale is made known or sufficiently available to the public, or when the sale itself results in the claimed invention being made known or sufficiently available to the public. On the other hand, a “private” offer/sale is one not known or available to the public, such as when the offer/sale is subject to a formal or informal confidentiality agreement.

To determine whether there has been a commercial offer, courts look to see whether the actions of the inventor satisfy the standards of an offer under the Uniform Commercial Code. Offers/sales may not be considered commercial if the seller controls the buyer such that the invention remains out of the public’s hands.[3] Examples of offers/sales that qualify as “commercial” include, but are not limited to: (i) offers/sales made even where delivery occurs after the critical date[4]; (ii) offers/sales on consignment or otherwise subject to approval of customer; (iii) offers/sales made, but rejected or unreceived; (iv) offers/sales made without the product on hand; (v) offers/sales by an independent third party with or without authorization; and (vi) offers/sales involving oral or written purchase orders[5] provided by a customer, supplier, or the like, even if such orders are not accepted.

There are notable exceptions that do not constitute bar-triggering commercial offers/sales. For instance, the sale by a first party of an unpatented product does not trigger the bar for another party to patent the method used to produce the unpatented product, if the method is kept secret and remains secret after the sale.[6] The most notable exception is when the primary purpose of the offer/sale is experimental.[7] Some courts have acknowledged that, in certain circumstances, a sale with an experimental purpose “may be necessary to legitimately advance the experimental development of an invention;”[8] thus, experimental offers/sales signify inventions that have not yet been commercialized.

The MPEP helpfully provides numerous factors courts have considered when determining whether the primary purpose of a pre-AIA offer/sale is experimental.[9] One factor is whether the offer/sale was necessary for public testing. Courts have acknowledged that, in certain circumstances, a sale with such a purpose “may be necessary to legitimately advance the experimental development of an invention.”[10] Note, however, that “public testing” does not include testing to gauge a consumer’s subjective needs and interests. Another factor is whether there was a low or merely incidental degree of commercial exploitation. For this factor, courts often consider payment made (if any) and contacts made with existing or potential customers. Yet another important factor is the degree of control the inventor/patentee had over how the testing party tested the invention. For instance, if the patentee continually monitored the invention and the testing party throughout the testing period, courts are more likely to find an experimental purpose.

For the second prong of the Pfaff test, there are two ways to satisfy the test of whether an invention is “ready for patenting.” First, one can show proof of a reduction to practice.[11] Second, one can show “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.”[12] The Federal Circuit has found that an offered/sold product—whether in the form of a sample, working prototype, CAD drawing, public or private presentation, or the like—is ready for patenting if the product meets each of the claimed limitations, even if the product does so inherently.[13] In this manner, if a product is “ready for patenting” at the time the product is offered or sold, the on-sale clock starts once the offer/sale is made, even if the product is not yet patented.

Several important Federal Circuit cases have dealt with pre-AIA on-sale activities. Perhaps most notable is the rule from Special Devices, Inc. v. OEA, Inc. that there is no “supplier exception” with respect to a patentee-supplier relationship, provided the offer/sale was not for experimental use.[14] This rule arose from a situation in which a patentee had secretly stockpiled his invention more than one year before filing a patent application in order to ensure adequate supplies upon launch. The Federal Circuit held that such behavior nevertheless qualifies as a sale, objecting to the practice of patentees “stockpil[ing] commercial embodiments of their patented invention via commercial contracts with suppliers more than a year before they file their patent application,” regardless of whether done publically or in secret.[15]

The Federal Circuit has applied the “no supplier exception” rule various times since Special Devices. Most recently, in The Medicines Company v. Hospira, the Federal Circuit cited the rule in their holding that a private order placed with a pharmaceutical supplier constitutes an invalidating sale.[16] The supplier in this case was to prepare batches of a drug for the plaintiff using an embodiment of a patented method. The preparation consisted of marking batches of the drug with commercial product codes and customer lot numbers, and sending the batches back to the plaintiff for commercial and clinical packaging, all of which the Court noted was consistent with commercial sale of pharmaceutical drugs. Interestingly, however, the Court then granted an en banc rehearing, and requested the parties to file new briefs addressing various issues including (i) whether the private order constituted a sale for experimental use and (ii) whether the Federal Circuit should overrule or revise the “no supplier exception” rule of Special Devices.[17] Other parties have weighed in as amici, such as the American Intellectual Property Law Association (AIPLA), which argued in its brief that not all transactions between inventors and suppliers should trigger the on-sale bar, and that a supplier-to-inventor transaction is not necessarily a commercial offer for sale because the inventor does not place the invention on sale to the general public and also does not profit from the invention.[18]

The forthcoming en banc decision in Hospira may have a huge impact on how courts analyze pre-AIA sale activities. At a minimum, the decision is likely to provide a framework for pre-AIA private offers/sales, including a further distinction between commercial and experimental offers/sales in the context of private commercial dealings with suppliers. In addition, courts may even consider this framework in the future when dealing with post-AIA offer/sale activities.

Post-AIA Changes to the On-Sale Bar

According to the post-AIA on-sale bar, a patent cannot be obtained if the invention was “on sale, or otherwise available to the public” anywhere in the world one year or more before the effective filing date of the claimed invention.[19] There is notable ambiguity surrounding the post-AIA bar because the statutory language implies that only public offers/sales can trigger the bar (“on sale, or otherwise available to the public”). It remains unclear as to whether the bar applies to private offers/sales, and as to whether the experimental use exception has survived the AIA.

MPEP sections pertaining to the post-AIA bar merely reference pre-AIA case law such as Pfaff for defining pre-AIA on sale activity and for designating pre-AIA exceptions, including experimental use. The legislative history surrounding AIA, however, supports the interpretation that private offers/sales do not trigger the post-AIA bar, stating, for instance: “An inventor’s confidential sale of his invention, his demonstration of its use to a private group, or a third party’s unrestricted but private use of the invention will no longer constitute [prior] art. Only the sale or offer for sale of the invention to the relevant public or its use in a way that makes it publicly accessible will constitute prior art.”[20] Sen. Patrick Leahy has stated that AIA § 102(a) “was drafted in part to do away with precedent under current law that private offers for sale or private uses or secret processes practiced in the United States” constitute prior art.[21]

To date, the Federal Circuit has not interpreted the new statutory language. However, a district court judge in the Third Circuit very recently interpreted the post-AIA on-sale bar. In Helsinn Healthcare S.A. v. Dr. Reddy’s Laboratories Ltd., Judge Mary L. Cooper agreed with the plaintiff’s argument that private offers/sales do not trigger the post-AIA bar and stated in her supplemental opinion that “[t]he new requirement that the on-sale bar apply to public sales comports with the plain language meaning of the amended section, the USPTO’s interpretation of the amendment, the AIA Committee Report, and Congress’s overarching goal to modernize and streamline the United States patent system.“[22]

Still, applicants engaged in private offers/sales are sure to be concerned with the ambiguity surrounding the post-AIA bar. Because the statute has indeed changed, courts might not apply the same pre-AIA analysis to post-AIA patents, and may instead agree with Judge Cooper’s decision that private offers/sales do not trigger the bar. Alternatively, applicants can play it safe and proceed with caution by assuming that courts may end up applying the Pfaff test to post-AIA patents. Of course, applicants who file post-AIA patents run the risk that courts could end up interpreting the new statute to include private offers/sales and maintaining the “no supplier exception” rule. It is yet to be seen what impact the Hospira en banc decision will have on the post-AIA bar, if any, and it is also yet to be seen whether the Federal Circuit will agree with Judge Cooper’s opinion on the scope of the post-AIA bar.

[1] See 35 U.S.C. §102(b) [pre-AIA].

[2] See Pfaff v. Wells Electronics, 525 U.S. 55, 67-68 (1998).

[3] See Netscape Commc’ns Corp. v. Konrad, 295 F.3d 1315, 1324 (Fed. Cir. 2002).

[4] See, e.g., Buildex Inc. v. Kason Indus., Inc., 849 F.2d 1461, 1464 (Fed. Cir. 1988).

[5] See Hamilton Beach Brands, Inc. v. Sunbeam Prods., Inc., 726 F.3d 1370 (Fed. Cir. 2013).

[6] See In re Caveney, 761 F.2d 671, 675 (Fed. Cir. 1985).

[7] See MPEP § 2133.03(e).

[8] Id.

[9] See MPEP § 2133.03(e)(4).

[10] MPEP § 2133.03(e)(1).

[11] Pfaff, 525 U.S. at 67-68.

[12] Id.

[13] See, e.g., Atlanta Attachment Co. v. Leggett & Platt, Inc., (Fed. Cir. 2008); Scaltech, Inc. v. Retec/Tetra, LLC, 269 F.3d 1321, 1329 (Fed. Cir. 2001).

[14] See Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353 (Fed. Cir. 2001).

[15] Id. at 1354.

[16] 791 F.3d 1368 (Fed. Cir. 2015).

[17] See The Medicines Company v. Hospira, 805 F.3d 1357 (Fed. Cir. 2015).

[18] See Brief of Amicus Curiae American Intellectual Property Law Association, 2016 WL 325470 (C.A.Fed.).

[19] 35 U.S.C. § 102(a)(1) [AIA]; 35 U.S.C. § 102(b)(1) [AIA]

[20] See 157 Cong. Rec. S5320 (daily ed. Sept. 6, 2011)

[21] See 157 Cong. Rec. S1496 (daily ed. Mar. 9, 2011) (statement of Sen. Leahy)

[22] No. CV 11-3962 (MLC) (D.N.J. Mar. 3, 2016), supp. op., page 100.



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