Recent Federal Circuit Case Demonstrates How Outsourcing Prototypes and Fabrication Can Invalidate Patent Claims

A case decided on August 14, Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc. (Fed. Cir. 2013), has held that patent claims may be invalidated when a patent applicant issues a purchase order to a foreign supplier to have products manufactured to the applicant’s specifications and delivered back to the United States. As the dissent noted in Hamilton Beach, “small enterprises and individuals who lack in-house prototyping and fabrication capabilities” may have the most to lose as a result of the decision.” Id. at *5 (Reyna, C.J., dissenting).The case focused on the version of 35 U.S.C. § 102(b) that applied to the facts of the case; this subsection has been subsequently modified by Congress by the Leahy-Smith America Invents Act, Pub. L. No. 112-29 (the “AIA”). The previous version of 35 U.S.C. § 102(b) provides the statutory basis in the case for what is commonly known as the “on-sale” bar to patent eligibility; this subsection states that a “person shall be entitled to a patent unless . . . (b) 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.” The on-sale bar not only precludes patentability, but as Hamilton Beach demonstrates, it also provides a basis for invalidating a previously issued patent. While Hamilton Beach does not necessarily represent a departure from precedent on the application of the on-sale bar, the case should alert inventors who are contemplating outsourcing prototypes or fabrication of their inventions prior to applying for patents for them that they ought to seek qualified legal counsel before taking any such steps.

The On-Sale Bar

The previous version of 35 U.S.C. § 102(b) provided several statutory bars that prohibited a person from obtaining a patent if he had patented or described his invention in a printed publication in the United States or a foreign country or if he had put his invention into public use or on sale in this country more than one year prior to the date for which he applied for the patent in the United States. The date that occurs exactly one year prior to the date of the patent application is known as the application’s “critical date.” The prohibition against putting an invention on sale prior to the critical date, the on-sale bar, applies when two conditions are satisfied prior to the critical date. Hamilton Beach at *8 (citing Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998)). First, the claimed invention “must be the subject of a commercial offer for sale.” Hamilton Beach at *8. Second, the invention must be ready for patenting, i.e., reduced to practice or “described in writing of sufficient nature to enable a person of ordinary skill in the art to practice the invention.” Id. Courts have determined that an invalidating commercial offer for sale does not require an actual offer for sale. Id. Instead, a commercial offer for sale occurs when a person makes a sufficiently definite attempt to sell so that the other party could create a binding contract if it were to accept the offer. Id.

Facts

In the case, Hamilton Beach Brands, Inc. (“Hamilton Beach”) is the assignee of U.S. Patent No. 7,947,928 (“the ‘928 patent”), which was filed on June 4, 2010 and is directed for a type of portable slow cooker. The ‘928 patent is a “grandchild” of an earlier patent, U.S. Patent No. 7,485,831 (“the ‘831 patent”). Id. at *2-3. Hamilton Beach’s commercial embodiment of its patented invention under the ‘831 patent was, according to Hamilton Beach, a great commercial success, which increased its market share by over thirty percent. Id. at *3. Sunbeam Products, Inc. (“Sunbeam”) attempted to design around the ‘831 patent claims by having the sealing clips mounted on the lid of the slow cooker instead of the body. Id. at *4. In response, Hamilton Beach filed a continuation of the patent application, which eventually issued as the ‘831 patent and matured into the ‘928 patent. The ‘928 patent claimed a slow cooker that had its sealing clips mounted on its lid. The United States Patent and Trademark Office (“USPTO”) issued the ‘928 patent after determining that a person with ordinary skill in the art would recognize that putting the clips on the lid “was wholly consistent with the original disclosure” that Hamilton Beach made in the application that eventually issued as the ‘831 patent. Id. at *4.

Once the ‘928 patent issued, Hamilton Beach alleged that the slow cooker that Sunbeam produced infringed several of its patent claims, filed suit, and moved for a preliminary injunction, which the district court denied. Both Hamilton Beach and Sunbeam later filed motions for summary judgment. Sunbeam argued, inter alia, that several of Hamilton Beach’s patent claims were invalid as anticipated because Hamilton Beach offered for sale and publicly used the commercial embodiment of the ‘831 patent “more than one year prior to the earliest possible filing date, i.e., one year prior to the ‘831 patent’s application date . . . , rendering the ‘928 patent claims invalid.” Id. at *6. The district court found, inter alia, that Hamilton Beach’s purchase order with its foreign supplier “amounted to an invalidating commercial offer for sale” under the on-sale bar of the pre-AIA version of 35 U.S.C. § 102(b). Id. at *7.

Holding

The Court of Appeals agreed that Hamilton Beach’s transaction with its foreign supplier was “an offer for sale of a product that anticipated the asserted claims and that the invention was ready for patenting prior to the critical date,” a dispositive fact that invalidated the asserted claims of the ‘928 patent because of the on-sale bar. Id. The Court of Appeals made this determination notwithstanding the fact that (a) Hamilton Beach had a corporate purchase agreement with its supplier that required a certified review and approval of Hamilton Beach before the supplier shipped any of Hamilton Beach’s products and (b) the foreign supplier stated in its response to the order that it “was ready to fulfill it upon Hamilton Beach’s ‘release.'” Id. at *12.

The Court of Appeals noted in its analysis that the on-sale bar does not have a “supplier exception.” Id. at *9. Consequently, the on-sale bar applied even though the “commercial offer for sale” was initiated by Hamilton Beach’s own supplier and was made to Hamilton Beach. Id. In addition, the Court of Appeals noted that when a foreign entity makes a commercial offer of sale to a customer in the United States at its place of business in the United States, the commercial offer may function as an invalidating activity. Id. Significantly, the Court of Appeals determined that “even if the parties had not entered into a binding contract when the supplier responded to the purchase order, the response, nevertheless, was a commercial offer for sale that Hamilton Beach could have made into a binding contract by simple acceptance.” Id. at *13.

The Court of Appeals also rejected Hamilton Beach’s argument that the slow cooker that was the subject of the purchase order was not ready for patenting and that the lower court erred by not performing an element-by-element analysis on the prototypes and product samples on which it was working prior to the critical date. Id. at *15. The Court of Appeals provided several reasons for its determination. First, the slow cooker at issue was a commercial embodiment of the ‘928 patent. Id. at *14. Second, the slow cooker was the same product that Hamilton Beach ordered from its foreign supplier and marketed to its retail customers prior to the critical date. Id. Third, even though Hamilton Beach alleged that neither it nor its suppliers could meet an important limitation in the asserted claims until months after the critical date, Hamilton Beach had met with retail customers and provided specific descriptions (as well as CAD drawings) of the slow cooker that contained the limitations of the patents at issue. Id. at *15.Consequently, a person of ordinary skill could build the invention because the descriptions and depictions of the slow cooker were sufficiently precise to enable him to do so; therefore, the product was “ready for patenting.” Id. Furthermore, the Court of Appeals noted, Hamilton Beach conceded that it had at least one prototype that met all the limitations of the asserted patent claims. Id. at *15-16. Because the slow cooker at issue was ready for patenting prior to the critical date, the Court of Appeals found that no element-by-element analysis was required. See id. at *15.

Implications

Inventors should recognize that the Court of Appeals has not found a “supplier exception” to anticipatory offers for sale under 35 U.S.C. § 102(b). Id. at *9. Further, as the dissent noted in Hamilton Beach, factors that may have supported the experimental use defense, which generally exempts activities that are primarily experimental in nature from triggering the on-sale bar, were presented by Hamilton Beach but did not defeat the application of the on-sale bar in the case, although the defense was not explicitly asserted by Hamilton Beach. Id. at *1 (Reyna, C.J., dissenting). As far back as 1877, courts have recognized a distinction between experimental use and commercial use of an invention. See, e.g., Atlanta Attachment Co. v. Leggett & Platt, Inc., 516 F.3d 1361, 1365 (Fed. Cir. 2008) (citing Elizabeth v. Am. Nicholson Pavement Co., 97 U.S. 126, 137 (1877). Inventors should note that they may have the opportunity to avail themselves of the experimental use defense if they have made a disclosure during the period between the critical date and the filing date of their patent applications, but they—and their counsel—must remember to raise the defense explicitly for courts to consider it. Clearly, inventors rely on the experimental use defense at their peril, as the Federal Circuit has held in numerous cases that once an invention is reduced to practice, the experimental use doctrine cannot provide an exception to the on-sale bar. See, e.g., Atlanta Attachment Co. at1368.

For inventors obtaining patents under the AIA, inventors should notice that although Hamilton Beach analyzed the pre-AIA on-sale bar, which generally applies to applications and patents having an effective filing prior to March 13, 2013, the USPTO interpretation of the grace period afforded by the AIA is narrow and will likely fail to preserve patent eligibility for inventors who fail to file their patent applications after making a triggering disclosure. New 35 U.S.C. § 102(a)(1) states that “a person shall be entitled to a patent unless — (1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention.” Thus, the AIA does not eliminate the on-sale bar, and courts will likely look to pre-AIA precedent when examining the scope of the on-sale bar as it applies with respect to new § 102(a)(1). Inventors should also note that unlike the old 35 U.S.C. § 102(b), new § 102(a)(1) applies to offers and sales made outside of the United States.

Any type of commercial activity may implicate the on-sale bar. In Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1047 (Fed. Cir. 2001), the Federal Circuit held that “the question of whether an invention is the subject of a commercial offer for sale is a matter of Federal Circuit law, to be analyzed under the law of contracts as generally understood.” Generally, as the Federal Circuit noted, it “will look to the Uniform Commercial Code (“UCC”) to define whether . . . a communication or series of communications rises to the level of a commercial offer for sale,” although the Court of Appeals noted that “the Supreme Court has also cited the Restatement of Contracts with approval in the commercial law context.” Id. at 1047-8.(Determining the Federal Circuit’s interpretation of contract law in matters implicating the on-sale bar may prove difficult; as the Federal Circuit later noted in Linear Tech. Corp. v. Micrel, Inc., 275 F.3d 1040, 1050 (Fed. Cir. 2001), a case distinguished in Hamilton Beach, the “UCC does not define ‘offer'” and courts therefore must look to the common law.) The USPTO’s Examination Guidelines, which do not constitute substantive rulemaking and do not have the force and effect of law, show that the USPTO may apply the on-sale bar in a broader array of circumstances under the AIA than it did under the previous patent statute, as the Guidelines state that a “commercial transaction that does not constitute a sale under the Uniform Commercial Code” may implicate the availability of the subject matter of the patent to the public. 78 Fed. Reg. 31, 11059, 11075 (Feb. 14, 2013). (The Examination Guidelines do, however, state that the “on-sale” activity of § 102(a)(1) will be limited to public sales or public offers of sale and not to “secret sales or offers for sale,” such as “a sale, offer for sale, or other commercial activity . . . among individuals having an obligation of confidentiality to the inventor.” Id.) Consequently, given the importance of filing early under the new first-to-file provisions of the AIA and the precedent established by Hamilton Beach, inventors should consult legal counsel early in their development processes so as to avoid inadvertently losing patent eligibility for their inventions or providing a basis for invalidating patents that they may eventually obtain for their inventions.

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