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When a prospective patent owner files an application for a patent on an invention with the U.S. Patent and Trademark Office, the “on-sale bar” is one of the potential pitfalls facing the applicant. The on-sale bar may prevent the patent from being issued, or may render an issued patent invalid. The on-sale bar is a statutory prohibition under 35 U.S.C. � 102(b). A critical date is triggered when two events occur: (1) an invention becomes the “subject of a commercial offer of sale” and (2) the invention is “ready for patenting.” Once the critical date is triggered, the clock begins to run. The applicant must file for a patent within one year of the critical date; otherwise no valid patent can be obtained. In many cases, the commercial offers of sale involve sales by the patent applicant to others, such as customers, distributors, franchisees, licensees or other ultimate users of the invention. In a recent appellate opinion, Special Devices Inc. v. OEA Inc., [FOOTNOTE 1]the U.S. Court of Appeals for the Federal Circuit held that the critical date can be triggered by a sale by a supplier to the applicant. In the Special Devicescase, OEA owned the patent rights to an invention, namely, an “all-glass header” relating to automobile air bags. More than a year before filing a patent application for the invention, OEA began negotiations with a supplier to mass-produce the invention. [FOOTNOTE 2]The supplier had the capacity for mass production, and OEA did not. OEA proposed that the supplier manufacture and deliver 20,000 units of the invention, and the supplier agreed to do so. After some negotiation, the terms of the deal were finalized. [FOOTNOTE 3] The district court entered summary judgment for Special Devices that the OEA patent was invalid in light of the offer of sale from OEA’s supplier. On appeal, OEA conceded: (1) there was an “offer of sale” under section 102(b) and (2) the transactions were commercial, rather than experimental. [FOOTNOTE 4]In addition, OEA did not argue that the invention was not “ready for patenting.” [FOOTNOTE 5]Instead, OEA argued that the Federal Circuit should recognize a “supplier exception” to the on-sale bar. The Federal Circuit declined to recognize the exception, saying “neither the statutory text, nor precedent nor the primary purpose of the on-sale bar allows us to grant OEA’s request.” [FOOTNOTE 6]The statutory text did not recognize the exception because there is no mention of any such exception in the statute. “Congress indicated that it does not matter who places the invention ‘on sale’; it only matters that someone — inventor, supplier or third party — placed it on sale.” [FOOTNOTE 7] The Federal Circuit found no support for the exception in precedent. In previous cases, the court found the on-sale bar triggered by transactions between related, but separate entities. These entities had more “overlap” than OEA and its supplier. If the critical date is triggered by transactions between separate closely related entities, then the critical date should be triggered by transactions between OEA and its supplier, who are less closely related. [FOOTNOTE 8] The primary purpose of the on-sale bar, said the Federal Circuit, is to encourage inventors to enter the patent system promptly. [FOOTNOTE 9]A patent application should be filed within a year of commercial activities, and it should make no difference whether the commercial activities are public or in secret. OEA commercially exploited the invention, the court said, by “stockpiling” it. [FOOTNOTE 10]“Given the sheer numbers of units purchased, as well as the unrebutted finding that OEA had purchased them for commercial [as opposed to experimental] purposes, we conclude that the invention was commercially exploited before the critical filing date.” [FOOTNOTE 11] Although the Special Devicescase may still be appealed to the U.S. Supreme Court, the chances that the Supreme Court will hear the case are very slim. A prospective patentee should be aware of the effect of the Special Devicescase. In particular, a prospective patentee must understand that the on-sale bar critical date may be triggered by a commercial offer of sale of the invention, even if the offer of sale is made by someone other than the prospective patentee. Moreover, the critical date may be triggered if the prospective patentee commercial offers to buy its own invention from a supplier. This rule will not apply in every case in which there is a potential patentee and a supplier. In Pfaff v. Wells Elecs., Inc., [FOOTNOTE 12]the Supreme Court set forth two conditions that must exist before the critical date is triggered. First, there must be a commercial offer for sale of some kind. Whether a commercial offer is made or not is usually within the control of the prospective patentee. [FOOTNOTE 13]Second, the invention must be “ready for patenting.” An invention may be shown to be ready for patenting in at least two ways: (1) the invention was reduced to practice; or (2) the drawings and descriptions were sufficiently specific to enable a person skilled in the art to practice the invention. [FOOTNOTE 14]Establishing a commercial relationship with a supplier, therefore, might not trigger the critical date if the invention is not ready for patenting. Furthermore, courts have suggested (but have not formally held) that there may be some exceptions to this rule. One such exception is the purchase of experimental units. In Special Devices, OEA did not assert that its purchase was experimental, [FOOTNOTE 15]and so this exception was not specifically addressed by the Federal Circuit. The Supreme Court, in its most recent opinion concerning the on-sale bar, said: “The law has long recognized the distinction between inventions put to experimental use and products sold commercially.” [FOOTNOTE 16]The Court further suggested that any attempt to use the invention for profit would not be deemed experimental. [FOOTNOTE 17] A second possible exception may exist when the supplier is so closely related to the prospective patentee that the two are not “separate entities.” Although this exception is not suggested by Special Devicesor by Pfaff, earlier case law suggests it may have some viability. Even if it is viable, however, the exception has a very narrow applicability. [FOOTNOTE 18] Prospective patentees, and especially those patentees who outsource manufacture, should be aware of the Special Devicescase. In particular, prospective patentees that make deals with suppliers should be mindful that those transactions may trigger the critical date for the on-sale bar. It is especially important to recognize that the critical date may be triggered even if the transactions are confidential and even if no products are sold to any customers, distributors, franchisees, licensees or other ultimate users of the invention. Daniel J. Hanson is an associate in St. Paul, Minn.’s Shumaker & Sieffert, a law firm devoted to the intellectual property needs of high technology companies. He may be reached at (651) 735-1100 or [email protected] ::::FOOTNOTES:::: FN160 USPQ2d 1537 (Fed. Cir. 2001). FN2The supplier was Coors Ceramics Co. Special Devices was the party that initiated the litigation, via declaratory judgment action, seeking to have OEA’s patent declared invalid. FN360 USPQ2d at 1538. FN460 USPQ2d at 1539. Before a lower court, OEA had argued unsuccessfully that the transactions were not commercial offers for sale because they were “merely sales by a supplier to the inventor and were used merely for experimentation and testing.” Special Devices Inc. v. OEA Inc., 56 USPQ2d 1627, 1632 (C.D. Cal. 2000). The lower court concluded there was no experimental exception to the on-sale bar. Id. FN5The lower court had found that the invention was ready for patenting. 56 USPQ2d at 1633. FN660 USPQ2d at 1539. FN7 Id. FN8 Id.at 1540. FN9 Id.at 1541. FN10 Id.at 1538, 1541. FN11 Id.at 1540. FN12525 U.S. 55, 48 USPQ2d 1641 (1998) FN13 Pfaff, 48 USPQ2d at 1646. FN14 Id.at 1647. FN15Before ordering 20,000 units from the supplier, OEA ordered 100 “test units” from the supplier. The lower court found that these test units were not the subject of a commercial offer for sale. Special Devices ,56 USPQ2d at 1631, 1632. The order of 20,000 units, however, was another matter. Even though OEA did not argue the point, the Federal Circuit nevertheless opined that there was no way that a purchase of 20,000 units could be experimental. See60 USPQ2d at 1540. FN16 Pfaff, 48 USPQ2d at 1645. FN17 Id.at 1645-46 (quoting City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126, 137 (1877)). FN18 See Ferag AG v. Quipp Inc., 33 USPQ2d 1512 (Fed. Cir. 1995). The Federal Circuit opined that when the seller so controls the purchaser that the invention remains out of the public’s hands, then the seller and purchaser might not be deemed to be “separate entities.” Id.at 1515. The viability of Feragis in question, however, because Feragwas decided by the Federal Circuit using a “totality of the circumstances” test, which was repudiated in Pfaffin favor of a more certain rule. 48 USPQ2d at 1646-47.

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