Have you bargained away patent rights?
by Breffni X. Baggot
info@biotechlawyer.com

Inventors and entrepreneurs need to consider a recent Supreme Court ruling in their patent strategies. The United States Supreme Court recently considered whether the "on-sale" bar should apply to inventions "substantially completed" at the time of sale-as the United States Federal Circuit would have it-or when the invention is "fully completed." The result clarifies a slippery area of patent law, with implications for holders and seekers of patents on electronic, chemical, and biotechnological inventions.

The on-sale bar of the United States Patent Act, which disqualifies from patent protection any invention offered for sale more than one year before patent filing, has two effects: First, an invention that has been offered for sale becomes part of the public domain. In addition, an invention involved in a prohibited offer of sale becomes part of the prior art, and can be used against any later invention-including one filed by the same inventor. One can avoid both effects of the on-sale bar by marketing an invention only after the patent is pending in the US Patent Office.

In Pfaff v. Wells Electronics¹, the United States Federal Circuit Court of Appeals held that the on-sale bar takes effect when an invention is "substantially completed," not necessarily when a completed invention is sold or actually delivered as a finished product. The inventor, William Pfaff, appealed to the United States Supreme Court. In its decision on November 10, 1998², the Supreme Court unanimously ruled that detailed drawings of an invention on the day of sale are proof that the invention is developed sufficiently to be copied. Therefore, the court held, an offer for sale of the invention more than one year prior to filing a patent application invalidates that patent application. One might think that the Wells Electronics decision has little to teach about your field.

Note where the decison was made-the United States Supreme Court. Regardless of the subject, be it civil rights or patent rights, the Supreme Court only grants a hearing when it wants to influence policy at the national level. Moreover, the court did not make its recent ruling technology-specific; the law will apply as much to biotechnology companies as to electronics or chemical companies. But even before Wells Electronics, many companies had ignored the on-sale bar. Their oversight did not become apparent until they tried to enforce their rights and found that the patent did not hold up in court.

For example, the CEOs of two biotechnology companies invented an improvement in high pressure liquid chromatography equipment and sent a prototype to a customer to induce him to buy the equipment. Later, they got a patent to secure their market niche. But when they took their competitor, Beckman Instruments, to court, these two CEOs found that their earlier commercial activity had resulted in an invalid patent³.

Rationale

The on-sale bar is based on four policy considerations that derive from the goal that the Founding Fathers had when they provided for patents in the Constitution: "to promote the progress of science⁴."

The first consideration prohibits an inventor from commercially exploiting the invention beyond the statutory grant of exclusive patent rights. A patent grants exclusive rights for 20 years from the date of patent filing. An inventor who puts marketing before patenting is trying to get more than he or she bargained for.

Second, patent law recognizes that the policy against prolonged commercial exploitation must be balanced against the competing policy of giving inventors a reasonable time to determine whether a patent is worth pursuing. This policy concern is fulfilled by a one-year grace period from the date an invention is offered for sale.

A third consideration takes into account what the public has come to believe. Courts are slow to recognize an inventor's rights where the inventor's particular sales activities have led the public to believe the invention was freely available to all. Moreover, where the sale of the invention is for experimental purposes rather than for profit, an "experimental use" exception to the on-sale bar applies, because both the inventor and the public benefit when an invention is properly tested before a patent is granted.

A fourth policy consideration recognizes that imposition of the on-sale bar for mere discussions of inventions that are only conceptual would tend to encourage the premature filing of patent applications on those undeveloped inventions.

Evolution in law

The law sounds clear enough, right? Historically, courts said that if the patented articles were not on hand, ready to be delivered to the purchaser, they could not be said to be on sale within the meaning of the Patent Act, even though the invention itself was complete⁵. But in 1975, the Second Circuit ruled that an offer of an invention for sale would trigger the bar if (1) the complete invention was embodied in or obvious in view of the thing offered for sale; (2) the invention had been tested sufficiently to verify that it was operable and commercially marketable (in effect, that it had been reduced to practice); and (3) the sale was primarily for profit rather than for experimental purposes⁶. However, not all courts have followed this rule, and the lack of consensus has made product strategy for US companies difficult.

In 1982, the United States Federal Circuit Court of Appeals was set up by Congress to hear all patent appeals. The Federal Circuit rejected the Second Circuit's ruling, holding that "if the inventor had merely a conception, or was working towards development of that conception, it can be said that there is not yet any invention which could be placed on sale⁷." So while a "mere conception" of an invention offered for sale would not lead to a bar on its patent, the court decided that an invention's "substantial embodiment" would. But the Federal Circuit has not closely followed this ruling either. In a seemingly contradictory decision⁸, in 1996 the court stated that the "general rule is that the on-sale bar starts to accrue when a complete invention is offered for sale." A complete invention is "known [to] work for its intended purpose without further testing or evaluation." Is an idea on paper an invention?

These decisions preceded Pfaff v. Wells Electronics, which the Federal Circuit decided in 1997. Wayne Pfaff, a small-town inventor from Texas, owns United States Patent No. 4,491,377, relating to a socket for testing leadless chip carriers. In November 1980, Texas Instruments contacted Pfaff and asked him to develop a socket for its chip carriers. After developing a concept, Pfaff prepared detailed engineering drawings, and in February or March 1981, sent them to a tooling company for production. On April 8, 1981, a Texas Instruments agent issued a purchase order to Pfaff's company for sockets. Pfaff did not file a patent application on the socket until April 19, 1982-over a year after the purchase order. The patent was issued in 1985. Years later, Pfaff sued Wells Electronics, a company he claimed was selling a device infringing his patent.

At trial, the court determined that Pfaff's invention was not "on sale" within the meaning of 35 USC Section 102(b), and that Wells Electronics' device infringed the patent. On appeal, the Federal Circuit reversed, reiterating that "reduction to practice is not necessarily a prerequisite to application of the on-sale bar." Instead, "the appropriate question is whether the invention was substantially complete at the time of sale such that there was reason to expect that it would work for its intended purpose upon completion." Because Pfaff had engineering drawings with precise requirements before the purchase order, sent the drawings to the tooling company to prepare customized tooling, and in the past had gone directly into production without manufacturing prototypes, the Federal Circuit concluded that Pfaff had expected that his invention would work for its intended purpose at the time of sale.

The court rejected Pfaff's contention that he was not certain his invention would work until it had survived a 72,000 cycle test, which occurred after the critical date, because the durability of the socket was neither a claimed nor an inherent feature of the invention, and was not needed for the substantial completion of the invention. The court emphasized that no prototype was necessary because the invention was not complicated, and it found that Pfaff was in fact confident that his invention would work.

Inventor appeals

The Supreme Court considered this question posed by Pfaff's lawyers: In view of the longstanding statutory definition that the one-year grace period to an on-sale bar can start to run only after an invention is fully completed, should the Pfaff patent have been held invalid under 35 USC Section 102(b) when Pfaff's invention was admittedly not fully completed more than one year before he filed his patent application? Lawyers for Pfaff asserted that the Federal Circuit had "impermissibly substituted its own judgment for that mandated by the Congress."

The Supreme Court disagreed: "The primary meaning of the word 'invention' in the Patent Act unquestionably refers to the inventor's conception rather than to a physical embodiment of that idea," wrote Justice John Paul Stevens, continuing, "The statute does not contain any express requirement that an invention must be reduced to practice before it can be patented." The Supreme Court opinion also quoted language from an 1888 case, when it upheld Alexander Graham Bell's telephone patent, which he was awarded before having built a working model.

Conclusion

Though Pfaff v. Wells Electronics deals with an electronics patent, the Supreme Court decision will have far-reaching application to all patent cases, includingthose for inventions in the biotechnology, chemical, and software industries.

The ruling reduces uncertainty concerning the on-sale bar. Until then, each person in the innovation chain-from the solo inventor to the chief executive overseeing a research staff-must decide when an invention can be offered for sale and when the inventor must apply for a patent. Inventors considering foreign markets should bear in mind foreign laws. Throughout most of the world, an offer of an invention for sale will bar patentability, and inventors are not allowed a one-year grace period as they are in the United States.

A few points should be kept in mind. The crux of the issue is the idea's stage of development. An offer of sale of an invention is less likely to result in a loss of patent rights if untested features of the invention are included in the claims. If an inventor does not claim a feature in a patent, he or she will have a hard time later convincing a court that the invention was incomplete at the time of sale on the grounds that the feature was not tested.

Second, if a feature cannot be written into the patent claims, it should at least be written into the specification. In Pfaff v. Wells Electronics, neither the claims nor the invention's specification showed strong support for Pfaff's assertion that durability of the sockets was essential to the invention.

Third, the marketing of a simple invention is more likely to be prohibited than the marketing of a complex one. Inventors who have offered such inventions for sale in the past few months should expect that their patent rights will evaporate on the one-year anniversary of the offer. An offer of sale of a complex invention is less likely to be construed as a prohibited offer of sale, especially if the invention's essential features are untested.

Fourth, note that what is judged as simple or complex varies with the type of invention, and specifically the predictability of the type of invention. The functions of mechanical designs have historically been held to be predictable. Electrical inventions were thought to be less predictable, but this is changing with the growing ubiquity of electronics and software. The workability of untested chemical conceptions has always been held to be unpredictable; anyone can theorize a given polymer, but making it to industrial specifications is another matter. The functionality of biological inventions is considered the least predictable.

The bottom line for inventors is that whether products are completed or not, their sale starts the one-year countdown during which inventors must file for patent protection or risk losing their rights. For management, the bottom line is communication. Neither marketing nor patenting can be done in a vacuum. Those in charge of R&D need to send the same messages to the legal and marketing departments. The legal department must know what is being offered for sale, and the marketing department must know what is to be patented. If all the essential departments hold together, so should the elements of the invention.

Footnotes

1. 124 F.3d 1429 (Fed. Cir. 1997).
   
2. 48 USPQ2d 1641, 124 F.3d 1429 (US Supreme Court 1998).
   Stearns et al. v. Beckman Instruments, 222 USPQ 457 (CAFC 1984). See also Paragon Podiatry Laboratory v. KLM Laboratories, 25 USPQ.2d 1561 (CAFC 1993); Biodex v. Loredan Biomedical, 20 USPQ.2d 1252 (CAFC 1991).
   
3. Article I, section 8, US Constitution.
   
4. See Burke Elec. Co. v. Independent Pneumatic Tool Co., 234 F.2d 93 (2d Cir. 1916).
   
5. Timely Products v. Arron, 523 F.2d 288 (2d Cir. 1975).
   
6. UMC Electronics v. United States, 816 F.2d 647, (Fed. Cir. 1987).
   
7. Seal-Flex v. Athletic Track, 98 F.3d 1318 (Fed. Cir. 1996).
   

Breffni Baggot is an MBA student at the University of Chicago and can be reached at attorney@uchicago.edu or www.biotechlawyer.com.