Dec
06

A Trade Secret Is a Trade Secret…. Until It’s Not

Unlike a patent, registered copyright, or registered trademark, all of which are the result of a formal grant by a government agency such as the United States Patent & Trademark Office, a trade secret has no such formal governmental recognition.  Instead, the trade secret owner must take proactive steps to both establish and protect its trade secrets.  To prevail in a trademark misappropriation lawsuit, the trade secret claimant must be able to define the trade secret, explain why it’s a trade secret, and demonstrate the steps it has taken to protect the trade secret from dissemination.

A common mistake in the world of trade secret IP is that many think that simply designating a document as confidential will automatically confer trade secret status on that document and its underlying content.  As discussed in our Nov. 21, 2023 blog entitled “Boosting Enterprise Value Through Trade Secrets,” this understanding is incorrect.

Consider a recent 2023 case out of Texas where the jury concluded that a telecom company acted in bad faith by filing a $23 million trade secret misappropriation lawsuit against a competitor; the court found that the underlying technology was not a trade secret.  Telegistics, Inc. v. Advanced Personal Computing, Inc. d/b/a/ Liquid Networx, no. 2019-15000 in the 190th District Court of Harris County, Texas.  Telegistics alleged that its former employee obtained a copy of Teligistic’s internal Request for Proposal (“RFP”) and used it as the basis for tweaking his new employer’s (Liquid Networx) internal RFP.  That is, the former employee altered the RFP so that it could be used by his new employer.  As such, Liquid Nerworx did not itself spend time and resources developing its own RFP.

Telegistics had made its RFP available to on-line to bidders who were invited to submit responses for Telegistics’ products and services.  The document included a confidentiality notice and information that permitted bidders to submit responses for Telegistic’s telecom products and services.  Telegistics claimed that the RFP was a trade secret.

Defendant Liquid Networx challenged the existence of Teligistic’s alleged trade secrets, claiming the plaintiff had not clearly defined its trade secrets.  Liquid Networx argued that while the source code of Telegistic’s platform, for example, could qualify as a trade secret, the actual output generated by the platform, such as the RFP, was not entitled to trade secret protection just because a confidentiality label was affixed to it.  Unfortunately for it, Telegistics was also unable to demonstrate any reasonable efforts it had made to keep the information it received from bidders confidential once received.

The jury agreed.  Interestingly, the jury went a step further and additionally found that Teligistics acted in bad faith by filing its lawsuit.  Networx is now seeking its attorneys’ fees as a result.

As our earlier blog emphasized, the plaintiff in a trade secret misappropriation lawsuit must at the get-go establish that it does indeed have protectable, definable trade secrets.  Telegistics did not meet this threshold.  Texas, as with almost all of the other fifty states, including Florida, has adopted the Uniform Trade Secrets Act as its statutory trade secret law.  Accordingly, it is highly likely that the same decision would have been reached no matter what jurisdiction the Telegistics case had been brought, namely, that the RFP was not a trade secret.

Take-Home Points.

The “confidential” labelling of a document, without more, will likely be insufficient for converting the confidential document into a trade secret.   Moreover, documents generated automatically by a software program that itself qualifies as a trade secret (e.g., source code and/or object code) may not qualify as a trade secret if other factors are not present.  For example, what steps has the trade secret claimant made to limit the dissemination of the collected information within the organization?

Here are some tips for consideration.

  1. Consider the nature of the document. Is it a general information form or something highly unique to be used in generating a potential economic benefit, e.g., a manufacturing document containing trade secret raw material specifications and which has limited access within the company.
  2. What is the purpose of the document?  Does it contain information about a trade secret (e.g., generally unknown information about a critical raw material component) where the development of the underlying trade secret involved creativity, considerable time, and considerable resources from human resources to financial resources (e.g., R&D spending)?
  3. Is the “confidential” document more of a general information form or a specially developed form?
  4. Is there an economic value that comes from maintaining the document’s confidence?
  5. What steps are taken to keep it from third parties and to limit access to the document within the company?
  6. If it is to be disseminated to third parties, what safeguards are in place to limit the dissemination of the document?
  7. When hiring an employee who has worked for a competitor, consider having the employee sign a document stating that, if he had any access to his/her former employer’s trade secrets, that he/she will not use any such trade secrets in the course of his new employment.  Such a document may help the new employer, if ever accused of trade secret misappropriation, establish that it took reasonable precautions to prevent the “entrance” of any trade secret information belonging to the trade secret claimant into new employer’s business.   This approach could help reduce the amount of any damages award.

 

In conclusion, every business, no matter how small, should be looking into trade secrets as a valuable asset, meaning one which can be monetized and form a part of an IP portfolio.  However, claiming something is a trade secret in a trade secret misappropriation lawsuit does not necessarily make it so as the Telegistics case demonstrates.    Any attorney who commences a trade secret lawsuit on behalf of a client needs to honestly assess whether the alleged trade secret will actually qualify as a trade secret under state statues and case law.   The same also applies where federal trade secret theft claims are involved as under, e.g., the Defend Trade Secrets Act.  Contact Susan at Troy & Schwartz (305-279-4740) to request a complimentary copy of her trade secret implementation checklist and work with her to conduct a trade secret audit, create appropriate protection systems, etc. or to represent you in trade secret misappropriation matter.

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL, THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT LEGAL ADVICE.


© 2023 by Troy & Schwartz, LLC

 

 

 

 

 

 

 

 

 

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OTHER RECENT POSTS

Jul
31

AMBIGUOUS PATENT CLAIM WORDING – WHAT’S THE BIG DEAL?

Just because a patent is granted does not mean that it will not be subjected to attempts to have one or more of its claims invalidated during the lifetime of the patent.   Such invalidation attempts by the defendants in a patent infringement lawsuit are not uncommon.  Grounds for invalidation include claim indefiniteness.  The public policy behind trying to prevent indefinite patent claims is that the public is entitled to know what the claim is really about. This blog discusses the recent opinion in University of Massachusetts, Carmel Laboratories, LLC  v. L’Oréal S.S., L’Oréal USA, Inc. by the Court of Appeals for the Federal Circuit (CAFC) where the court held that the patent claims were indefinite.  The opinion provides an excellent discussion of the type of analysis that goes into such a determination.

This is a long blog and hopefully instructive in its approach to explaining what went wrong for the patentee so that a similar mistake can be avoided by others during patent prosecution.

Some background information

A patent application examiner may reject a claim on the basis of indefiniteness.  Amendment of the claim by the applicant is an option to try to overcome the indefiniteness conclusion.  If an allegation of indefiniteness is made by the defendant during a patent infringement lawsuit, the court may engage in a process known as Claim Construction to determine what the claim is “really” saying or “not” saying.  In doing so, the court may refer to the patent’s specification to try and ascertain what the inventors were contemplating, how a particular word was defined, etc. and the prosecution history.  For a previous blog on the importance of the patent’s specification to claim construction, click here.   Generally, the court will rely on the plain reading of the claim.

The Questionable Claim in U Mass

A method for enhancing the condition of unbroken skin of a mammal by reducing one more of wrinkling, roughness, dryness, or laxity of the skin, without increasing dermal cell proliferation, the method comprising [1] topically applying to the skin a composition comprising a concentration of adenosine in [2] an amount effective to enhance the condition of the skin without increasing dermal cell proliferation, [3] wherein the adenosine concentration applied to the dermal cells is 10-4 to 10-7 M.

Can you see the problem with this claim?  First it says that a topical solution containing adenosine is applied to the skin but clause [1] does not recite the concentration of adenosine in this topical solution effective for achieving the result stated in clause [2].  Clause [3] with its “wherein” clause can be interpreted to mean that the amount of adenosine which ends up coming into contact with dermal cell falls in the specified range.  What is the actual adenosine concentration in the topical solution?  If clause [3] is intended to mean the resultant adenosine concentration in the dermis, was this concentration actually measured?  Furthermore, there are 2 objects intended for contact with the adenosine: the skin and the dermal cell.

The dermis is the skin layer under the outer epidermis layer.  Common sense would tell us that the topical solution would have to have an adenosine concentration greater than the amount of adenosine which ends up in a dermis cell for a number of physiological and structural skin reasons based on the topical solution’s absorption properties and the skin’s level of hydration and texture.   For example, the epidermis layer protects the dermis layer.  Anything intended for the dermis layer must first get through the epidermis layer. But what exactly is that concentration and why didn’t the claim just state “a topical solution having an adenosine concentration in the range of X-Y?”  Does clause [3] really refer to adenosine’s concentration in the dermis or is the clause the result of inartful drafting which has caused a big problem for the patent owner?

The CAFC’s Conclusion

The district court had relied on subjective determination precedent to conclude that the claim was indefinite because of clause [2] which focused on the topical solution’s effectiveness: “Indeed, the determination of whether the skin is enhanced provides a paradigmatic example of indefiniteness. Beauty after all, is ‘in the eyes of the beholder.’ ”

The Federal Circuit decided claim construction de novo because of the district court’s wrong approach to finding indefiniteness.  Upon appeal to the CAFC, U Mass contended that the “concentration” in the wherein clause is the concentration of adenosine in the dermis after it has entered the dermis.  In other words, to overcome an indefiniteness finding, U Mass would have to establish exactly what the suspect wording actually meant because the wording was ambiguous and not clear on its face.

The CAFC concluded that the claim was ambiguous about what clause [3] referred to:  “We first conclude that the relevant claim language, especially when viewed in the context of the whole claim, is not plain on its face, much less plain in supporting U Mass’s interpretation of it.”  Slip opinion at 8.  The court went on to emphasize the U Mass’s view of clause [3] is referring to something that has no existence before the application – that it refers to an adenosine concentration of the dermal layer after the adenosine particles per unit of dermal layer, after the adenosine particles have suffused into the dermis and thus already come into contact with the dermal cells.  Slip opinion at 10.   Therefore, the claim cannot be definite.

After the district court’s construction, U Mass had retained an infringement expert to conduct various experiments to assess the concentration as moles of applied adenosine in the dermis over liters of the dermis to “come up” with numbers within the range specified in the claim.  The CAFC emphasized that the expert’s methodology actually revealed an interpretation that would call for a rewrite of the wherein clause to say something like “wherein the adenosine permeating to the dermal layer results in a concentration of adenosine in the dermal layer of 10-4 to 10-7 M.   As such, the need for a departure from the natural meaning confirmed that U Mass’s asserted meaning is not plain.  Slip opinion at 10.

Next the court looked to the specification to see if it supported U Mass’s claim construction.  It did not.  Tellingly, the disclosure never implied that the invention included measuring adenosine concentrations beneath the skin surface after topical application. “U Mass has not shown that, even in this context, the specification makes clear that the inventors contemplated the adenosine concentration after exposure to the cells, rather than in a solution before application in the cells.”  Id. at 12.

The court also looked at the prosecution history, emphasizing that the histories resolve the ambiguity surrounding the meaning of “the adenosine concentration applied to the dermal cells” in the wherein clause. As with most patent applications, the prosecution history involved amendments to the original claims.  To overcome a prior-art rejection, U Mass imported a previous dependent claim which had only referred to an adenosine concentration with no mention of dermal cells into the preceding independent claim to create the problematic claim which now included the wording: formal “wherein the adenosine concentration applied to the dermal cells is …..” Slip opinion at 13.

The accompanying remarks made by the applicant are inconsistent with the “new wording” because they stated: “All [claims] are based on the application of certain concentrations of adenosine to the skin to achieve certain results.”   The applicants also stated that the amendment included no new matter suggesting that the invention was still and always was the topical solution at the specified concentration.  The new wording changed the scope and resulted in an indefinite claim. Interestingly, the examiner made the following comment in writing after accepting the amendment:  “the [i]nstant claims are directed to a method of enhancing the condition of unbroken skin . . . where the method comprises administering adenosine at a concentration of 10-4 M to 10-7 M, to the skin.” Slip opinion at 13.

According to the CAFC, U Mass’s amendments and comments clearly conveyed that U Mass had never veered from its pre-amendment reliance on the adenosine composition in the topical solution which had resulted in its two patents.  During prosecution, no mention had ever been of the materially different, unexplained notion of an adenosine concentration being determined after contact with the object (the dermis) of the topical solution.   Slip opinion at 14.   Even in its response to the examiner’s reasons for allowance, the applicants never communicated a disagreement with the examiner’s clear statement of what the language meant.

The CAFC reversed the district court’s claim construction of the wherein clause and vacated the court’s subsequent summary-judgement determination.  The case has been remanded for further proceedings consistent with the opinion.

Commentator’s Comments

This is a situation which seemingly could have been avoided.  The claims at issue in two related patents were not complicated.  The examiner made very clear that the adenosine was applied to the skin at the concentration range specified but somehow the claims ended up stating that the adenosine was applied to the dermal cells.   It is not clear why U Mass changed the wording in the amendment. Sloppy drafting?  Not carefully reading the new independent claims as whole?  Why didn’t the examiner mention anything about an incongruity between the amended claim and what the concentration range was referring to.  A few simple word changes could have resolved the ambiguity.

Patent prosecution can be a long, tedious process.  This case is a good lesson on how every aspect of the prosecution process must be monitored and the documents read and reread by both the patent attorney and the inventors.  An issued patent is in no way a guarantee that the patent will withstand scrutiny if push comes to shove in a court of law.   And if an amendment is made, make sure that it’s supported by the specification.   Remember, no new matter can be introduced in an amended specification.

                WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE OR ANY ATTORNEY-CLIENT RELATIONSHIP.

 

©2022

Troy & Schwartz, LLC

Serving Entrepreneurs & SMBs Through Conscientious, Rigorous & Empathetic Legal Services

(305) 279-4740

 

 

 

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Posted in Uncategorized on July 31,2022 09:07 PM
Jul
21

BLANDING: THE NEXT ERA OF BRANDING? 4 MARKETING AND TRADEMARK LAW FACTORS TO CONSIDER BEFORE YOU BLAND

As part of a new branding trend, a growing number of companies (e.g., Burberry London England) are trending towards using more austere logos, i.e., logos which are designed to blend in and not stand out.  The trend seems contrary to the very purpose of trademark law where trademarked brands and logos have traditionally derived their value from their ability to enable consumers to readily identify the source of a product sold in brick-and-mortar stores.   Moreover, the display of branded products in brick and mortar stores selling multiple brands is often the luck of the “space” and “shelf” location.  Accordingly, more intricate, readily-identifiable logos brands sold in physical locations such as department stores are often seen as an essential marketing tactic to make the brand standout amongst competing brands.

The blanding trend has largely been attributed to the digital economy wherein goods and services are advertised and increasingly sold across multiple trade channels including social media, websites, and billboards.   Brands viewable on-line are often clearer and immediately recognizable compared to their presentation in a bricks and mortar store where they may be surrounded by competing brands.   Even Google, Inc. has modernized its logo over the years; its current type face makes the logo look clean and modern.  Such brand modernization is viewed by blanding proponents as a way to scale in today’s rapidly changing business climate driven by technology.

The following is an illustration of blanding.

     !YAZOW!    YAZOW

If you are in the process of developing a new brand or considering updating your brand to a bland, what are the factors you should consider before you jump on the bland bandwagon?

  1. For a new brand, would it be preferable to utilize a logo which stands out from the competition? Do you want to use a logo that looks a lot like the logos of other companies in your industry?
  2. For an existing brand, is your brand associated with goodwill and immediate recognition in the relevant market? That is, have you demonstrated your commitment to building the original brand by your actions which made your brand stand out from the competition?  If yes, the time may be opportune to bland by dialing back on your brand’s uniqueness to better encompass your company’s current direction.  You should have a good understanding of the potential response to a change in a previously-held logo recognized and beloved by consumers.  Will the change inadvertently suggest that you’ve changed the nature of the good/service and not for the better?
  3. If your brand is a registered trademark, will the bland still reflect the commercial impression of the brand as it was trademarked and used in interstate commerce? If not, the registered trademark status could be in jeopardy.   The brand owner may be able to rely on the legal doctrine of “tacking” in a later registered trademark procurement matter or infringement matter which allows the mark owner to “ ‘clothe a new mark with the priority position of an older mark’ ” providing the original brand and the bland are legally equivalent.  Click here for a previous blog on tacking.   The establishment of legal equivalency requires that the brand and bland marks “ ‘create the same, continuing commercial impression such that the consumer would consider them both to be the same mark.’ ”
  4. For trademark registration maintenance purposes, will the bland mark meet the requirements for maintaining the mark’s status as a previously registered mark because they are legally equivalent?

Take-Home Points

  1. Don’t rush into a bland brand without understanding the consequences. Be careful in particular about the potential loss of registered trademark rights in a prior logo or a stylized word mark.
  2. Unless there is a commercial/marketing purpose for not doing so,  initially register the brand at least as a plain word mark with no stylistic elements claimed. The marks distinctiveness will thus rest on the word itself rather than any stylization of the word(s) or a logo. Changes, made in e.g., the font should not defeat the distinctiveness of the plain word mark from a trademark law perspective.  Many of the commentator’s clients file 2 applications – one for the plain word mark and one for a design mark which may incorporate the word mark.

 

WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE OR ANY ATTORNEY-CLIENT RELATIONSHIP.

 

©2022

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

(305) 279-4740

 

 

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Posted in Business Law, Trademark Law - Current Issues, Uncategorized on July 21,2022 01:07 PM
Jun
23

POP CULTURE GOES TO COURT: THE TOP GUN MAVERICK COPYRIGHT INFRINGEMENT LAWSUIT

On June 6, 2022 a copyright infringement lawsuit was filed in the U.S. District Court for the Central District of California over the new blockbuster film Top Gun Maverick by the heirs of deceased Israeli author Ehud Yonay.  The lawsuit involves a relatively unknown area of copyright law – the recapture doctrine – codified in § 203 of the Copyright Act.  This law gives authors and their heirs the right to recapture ownership of valuable copyrights by “terminating” past assignments and licenses of copyrighted works starting at the end of the 35th year from the date of the grant and for five years thereafter.  The process is complex and requires a notice to the copyright holder as well as the filing of documents with the U.S. Copyright Office.   Recapture is available even if the original grant was for the entire life of the copyright.  The doctrine is attended to provide the copyright owner and heirs with the right to seek new opportunities to receive financial compensation for their copyrighted works.  Such an option is particularly desirable where the copyrighted work’s value has increased over time as is the case here.  The Top Gun Maverick plaintiffs are seeking an injunction and compensation.

Paramount, the movie’s producer and distributor, allegedly secured the exclusive motion picture rights to the author’s copyrighted story which resulted in the release of the first Top Gun film in 1986.  The plaintiffs assert that Paramount knowingly failed to re-acquire the rights to the requisite film and ancillary rights to the author’s copyrighted story prior to the completion and release of the 2022 sequel as a derivative work.  That is, Paramount knew it didn’t have the rights to the sequel but moved ahead with production and distribution anyway.

Mr. Yonay owned the original copyright in the story “Top Guns” which was published in a 1983 issue of California magazine.   The magazine piece described the high-adrenaline world of jet pilots at the US Navy’s “Top Gun” fighter training school. Yonay also later wrote a book, “NO MARGIN FOR ERROR: The Making of the Israeli Air Force.”

Paramount acquired the copyright to Yonay’s story immediately following its 1983 publication which resulted in the release of the 1986 film.  The copyright’s termination of the copyright became effective on January 24, 2020 or within the 5-year window from 2018, the 35th year following the story’s publication.  The copyright claimant for Yonay’s story was not, however, the author himself but “California Magazine.”  The registration listed in the complaint is for a copyright in a “serial publication,” with California Magazine seemingly claiming authorship under the work-made-for-hire doctrine according to the registration.  See copyright registration no. TX0001213463.

It is unclear whether this underlying registration helps the plaintiffs.  Copyright laws are applied according to the territory in which the lawsuit is filed.  Registration of a work in the U.S. is a prerequisite for the commencement of a copyright infringement lawsuit since the U.S. Supreme’s decision in Fourth Estate Pub. Ben. Corp. v. Wall-Street.com.  Plaintiffs, who are not U.S citizens, may argue that U.S. registration of Mr. Yonay’s underlying story which resulted in the California article is not necessary for foreign nationals and the lawsuit should proceed.  Even if this assertion is found to be a valid basis for proceeding with the lawsuit without registration, the Plaintiff’s will likely need to allege as such under U.S. law.

Also, many of the complaint’s allegations appear to involve the expression of ideas that would fully be expect to be present in any story or film about combat military pilots, in this case navy pilots.  Copyright law does not protect common themes which appear across different works, e.g., romantic themes, works involving detectives, love songs, impressionism in art, etc.  Thus, even if the Plaintiffs pass the “copyright registration” threshold issue, they may have a very difficult time proving actual copyright infringement.

One of the more interesting allegations in the Complaint suggests that the famous scene in the original Top Gun movie where Maverick and Goose’s F14 plane is inverted over a Russian MiG was the author’s original expression. The 1983 California magazine article does reportedly show a photograph with one F-14 plane inverted atop another plane but the article credits a C.J. Heatley as the photographer.  The Complaint makes no mention of Heatley or the photograph and it is not clear from the story whether the “inverted plane orientation” is the author’s original expression and the photograph is a secondary expression which captures the literary expression to add “color” to the story.

This case will either be thrown out early on due to the registration issue without addressing “copying” issues or it will be drawn out.   Dates will be critical since Paramount is maintaining that the sequel was “sufficiently completed” prior to the copyright termination date of January 24, 2020.  Work on the sequel began in 2018.  The plaintiffs allege that the movie was completed in 2021 or well after the copyright’s 2020 termination date. “Big screen” release was postponed until May 27, 2022 after the movie was completed in 2021 because of the pandemic. Mr. Yonay passed away in 2021 or after termination of the copyright.

Plaintiffs contend that they originally sent Paramount a “termination of rights notice” in 2018 based on the 1983 magazine’s publication date.  However, Paramount allegedly ignored the letter apparently believing that the termination was ineffective because they had acquired the rights from the California magazine and not Mr. Yonay himself.  Instead, Paramount moved ahead with the very lucrative sequel.  It’s not clear who advised Paramount on the potential seriousness of this matter in 2018 but that this lawsuit has now been filed should have come as no big surprise.  The heirs now surprisingly are seeking to share in the financial bounty of a terrific movie which may owe its existence to a story written by their loved one almost 40 years ago under a legal doctrine that allows such redress.  Whether or not their claim of copyright infringement will pass muster remains to be seen.

The lawsuit will also likely call into question the underlying contracts between Paramount and California Magazine and California Magazine and Mr. Yonay.  It is noted that if a contract includes a waiver of termination rights by the copyright owner, such a waiver is generally unenforceable.

Stay tuned for periodic updates as the case progresses.

 

THANK YOU FOR YOUR INTEREST IN THIS BLOG.  AS USUAL THE CONTENT IS FOR INFORMATIONAL PURPOSES ONLY                    AND IS NOT LEGAL ADVICE.

 

Intellectual property law is a complex area of the law.  Contact us at 305-279-4740 for a complimentary consultation on protecting your inventions, creative works, brands, and proprietary information through patents, copyrights, trademarks and trade secrets or our litigation services involving intellectual property disputes.   We represent both individuals and business entities.  Our mission is to serve innovators and creators in protecting the fruits of their hard work and ingenuity through our Client Services Creed:  Conscientious, Rigorous, Energic, Empathetic, and Diligent legal services. 


© 2022 by Troy & Schwartz, LLC

 

 

 

 

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May
05

BEWARE OF PATENT LAW’S ON-SALE BAR WHICH CAN THWART PATENT RIGHTS

Take Home Points

  1. File at least a provisional patent application before taking steps to commercialize and sell an invention.
  2. Understand the ramifications of the on-sale bar to patentability.
  3. If engaging in experimentation with others prior to filing a patent application, ensure that contracts are very clear concerning the experimentation purpose.
  4. 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:

  1. The contract expressly described the transaction as a sale without any mention of any experimental purpose.
  2. 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.
  3. The contract stated that MCE is willing to install the blending Equipment and to supply the butane required for such blending to Equilon.
  4. 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.
  5. 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.

 

WE THANK YOU READING THIS BLOG AND HOPE YOU FOUND IT INFORMATIVE.  HOWEVER, THE CONTENT IS PROVIDED FOR INFORMATION ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE.  IF YOU ARE CONTEMPLATING ANY ACTION THAT MAY HAVE LEGAL CONSEQUENCES, CONSULT WITH AN ATTORNEY.

 

©2022

Troy & Schwartz, LLC

Where Legal Meets Entrepreneurship™

(305) 279-4740

 

 

 

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