Take Home Points
- File at least a provisional patent application before taking steps to commercialize and sell an invention.
- Understand the ramifications of the on-sale bar to patentability.
- If engaging in experimentation with others prior to filing a patent application, ensure that contracts are very clear concerning the experimentation purpose.
- Be very careful about making an offer for sale of the invention prior to filing a patent application. An offer for sale can take many forms including a contract, proposal and/or invoice.
Section 102(b) of the Patent Act involves the on-sale bar to patentability. The America Invents Act (“AIA”) amended § 102(b). Any patent issuing from an application filed before May 16, 2013 which is later subjected to an on-sale bar analysis in a patent infringement analysis will be analyzed under pre-AIA § 102(b). This section states that a patent claim is invalid under 35 U.S.C. § 102(b) if “the invention was . . . on sale in this country more than one year prior to the date of the application for patent in the United States.”
This commentator recently published a blog on the CAFC’s February 2022 opinion in Junker v. Medical Corp., Inc where the Court held that the patentee had not timely filed a patent application under § 102(b) of the Patent Act. Also see that blog for a comparison of the pre-AIA § 102(b) and the post AIA statute. In Junker, the patent owner’s damages for patent infringement awarded by the district court were negated. Now we have another decision in just over two months where the patent owner has had patent claim rights adversely affected because of failure to timely file a patent application.
On April 29, 2022, in Sunoco Partners Marketing v. U.S. Venture, Inc., the CAFC again addressed the on-sale bar to patentability. The patent at issue involved an application filed on February 9, 2001. Accordingly, based on 35 U.S.C. § 102(b), the critical date (the latest date on which the patentee could have made an offer for sale without violating the on-sale bar) was Feb. 9, 2000. Here, the patentee’s offer for sale was Feb. 7, 2000. Put another way, once the offer for sale was made, the patent applicant had exactly one year to file the patent application or until Feb. 7, 2001.
In Sunoco, the defendant asserted an on-sale bar defense to invalidate claims in two of Sunoco’s patents. To prevail, the defendant needed to demonstrate by clear and convincing evidence that the patented invention was both: (1) “the subject of a commercial offer for sale”; and (2) “ready for patenting.” Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 57 (1998).
A factor which may allow the patent owner to negate an on-sale bar invalidation is whether the offer for sale occurred primarily for purposes of experimentation. The “experimentation” exception to the on-sale bar was first articulated by the U.S. Supreme Court in City of Elizabeth v. Am. Nicholson Pavement Co., 97 U.S. 126, 137 (1877): [E]xperimental use allows inventors to delay patenting to engage in “bona fide effort[s] to bring his invention to perfection or to ascertain whether it will answer the purpose intended.” At the same time, “[a]ny attempt to use [the invention] for a profit and not by way of experiment” before the critical date will “deprive the inventor of his right to a patent.” Ultimately, as the City of Elizabeth court explained, the on-sale bar is related to the monopoly afforded to a patentee – to have the government-granted right to seek legal recourse for the unauthorized use of the patented invention for a statutory period of time. The on-sale bar prevents a subsequent patentee from “acquiring an undue advantage over the public by “preserv[ing] their monopoly . . . for a longer period than is allowed.”
Sunoco, the current owner of the patents at issue, argued the on-sale bar was not violated because the inventor’s company, MCE Blending (“MCE”) offer to sell the invention to Equilon Enterprise, LLC (“Equilon”) was primarily for experimentation purposes. The district court agreed and held found that the defendant’s on-sale bar defense was negated by the experimental use doctrine.
The CAFC disagreed on the basis of the terms of a contract between the inventor’s company and MCE. The opinion is instructive because it demonstrates how a contract’s terms can play a critical role in upholding or defeating patent rights. Whether such a transaction was for primarily for experimental or commercial purposes is a “question of law to be analyzed based on the totality of the surrounding circumstances.” The Sunoco court assessed the transaction “under contract law as generally understood, focusing on those activities that would be understood to be commercial offers for sale in the commercial community.”
The invention was for an automated butane-blending system to maximize a desirable property of combining butane and similar gasoline components.
Based on the following contractual words and terms, the transaction was deemed to be a commercial offer for sale for the following reasons:
- The contract expressly described the transaction as a sale without any mention of any experimental purpose.
- The contract stated that MCE already developed the relevant technology and equipment, that Equilon wanted to purchase it, and that MCE was willing to sell it, install it, and supply butane for it in return for Equilon’s agreement to purchase several hundred barrels of butane from it over a period of five years.
- The contract stated that MCE is willing to install the blending Equipment and to supply the butane required for such blending to Equilon.
- The contract stated that the ownership and title to the Equipment shall be conveyed to Equilon by MCE upon completion of the installation and training. MCE was to execute a bill of sale to effectuate the conveyance of ownership of the Equipment to Equilon.
- The contract referred to Equipment Testing and not Experimental Evaluation.
The district court concluded that there had been no offer of sale of the invention because the contract “did not require Equilon to pay MCE anything in exchange for the system which incorporated the invention. In contrast, the CAFC opined that Equilon purchased MCE’s equipment by committing to buy MCE’s butane. In other words, it incurred a real if indirect cost. Had the contract not intertwined the equipment’s required installation with Equilon’s obligation to buy butane, the CAFC indicated that it would not have characterized the transaction as a sale.
The CAFC further emphasized that the concept of experimental use can be difficult to establish. For example, the contract had a section entitled “Equipment Testing” with two sets of testing: pre-installation testing and post-installation testing. Sunoco argued that MCE wanted “to experiment at the actual tank farm and determine whether their inventive idea was capable of performing its intended purpose in its intended environment.” MCE therefore would need access to Equilon’s facility to test under action conditions. However, testimony revealed that the testing, which focused on determining whether that system could communicate with one of the equipment’s components was not done at Equilon, after all but by a third party. Additionally, the testing could have been done at any time prior to entering into the offer for sale with Equilon. This was not a situation involving, e.g., street pavement, which cannot be experimented upon satisfactorily except on a highway. Sunoco court quoting City of Elizabeth, 97 U.S.C. 134.
The commentator adds that large, expensive equipment is often set up and qualify assurance tests conducted by the seller’s employees. However, these are not “experimental purpose” activities because the buyer is expecting the equipment to work. A good example is medical diagnostics equipment.
The inventor’s subjective intent concerning experimentation is of minimal importance. The courts have generally looked to objective evidence to show that a precritical date sale was primarily for experimentation. The opinion includes a useful list of objective indicia relied on by the courts in footnote 5. In this case: 1) the terms of the sale agreement itself constituted objective evidence; and 2) the nature of the experimentation was such that it could have been done prior to the sales offer.
In conclusion, the CAFC held that the Equilon agreement was an offer for sale to commercially exploit the invention rather than primarily for experimentation purposes. Equipment which incorporated the invention was ready for use at the time the contract was entered into and ready for patenting based on objective evidence. The district court’s experimental-use determination was reversed and its infringement determination with respect to the pertinent claims was vacated. The decision involved some other issues which are separate from the 102(b) discussion of this blog for those interested.
If you have any questions about when you should file a patent application to preserve your rights, contact Susan at 305-279-4740.
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