Court: Court of Appeals for the Federal Circuit; October 26, 2001; Federal Appellate Court
OEA, Inc. appeals a summary judgment from the U.S. District Court for the Central District of California, which ruled OEA's U.S. Patent No. 5,404,263 invalid due to an on-sale bar under 35 U.S.C. § 102(b). The court found that OEA had engaged in commercial dealings with a supplier, Coors Ceramics, Co., more than one year before filing the patent application. Specifically, OEA negotiated with Coors in April 1991, ordered 20,000 units in June 1991, and established a requirements contract for future supplies, all of which occurred before the application filing date of August 27, 1992. These transactions were not disclosed to the Patent and Trademark Office (PTO) during the patent prosecution. The PTO later learned of them from Coors, which led to a rejection of claims in Coors' reissue application based on the on-sale bar. Consequently, Special Devices, Inc. filed a lawsuit against OEA, seeking a declaratory judgment of invalidity and non-infringement of the patent, resulting in the district court granting partial summary judgment in favor of Special Devices. The Federal Circuit affirmed the lower court's decision, rejecting OEA's request to create an exception to the on-sale bar, emphasizing the statute's intent to encourage timely patent filings.
Summary:
The court reviews summary judgment de novo, referencing precedents that clarify the on-sale bar under 35 U.S.C. § 102(b). This bar applies when an invention is subject to a commercial offer for sale over one year prior to the patent application filing and is ready for patenting, either by being reduced to practice or sufficiently described. OEA's proposal to Coors and subsequent agreements constituted commercial offers, which OEA does not contest. OEA has also conceded that these transactions were commercial rather than experimental and did not argue that its product was unready for patenting.
OEA's infringement counterclaim fails under the on-sale bar since the relevant patent had been involved in commercial transactions before the application was filed. OEA seeks to establish a 'supplier' exception to the on-sale bar, but the court rejects this, stating that the statutory language does not allow for such an exception. The law emphasizes that it is irrelevant who initiates the sale; the fact that a sale occurred is sufficient to invoke the bar. The court reiterates that even if a third party sells the invention, it triggers the on-sale bar, and patentees can protect themselves by filing patent applications within the one-year timeframe. OEA had the opportunity to do so and cannot claim an exemption based on its relationship with Coors. Delivering a product to a distributor does not exempt it from the on-sale bar provisions.
The OEA's reliance on precedent does not substantiate its position against the on-sale bar. In *Brasseler, U.S.A. I, L.P. v. Stryker Sales Corporation*, the court reaffirmed that offers to sell under section 102(b) must occur between distinct entities, indicating that the relationships between parties are critical. Despite similarities in employment of inventors and development initiation, the court found no compelling evidence of shared corporate relationships that would exempt Brasseler's situation from the on-sale bar.
OEA's relationship with Coors is even less integrated, lacking shared inventors or exclusive supply agreements. The *Brasseler* decision clearly indicates that the existence of separate entities does not support a supplier exception to the on-sale bar. OEA’s attempt to differ its situation from *Brasseler* by citing hypothetical scenarios fails, as OEA's transactions involved substantial commercial orders rather than a few samples. OEA has admitted its dealings with Coors were commercial, which further confirms that the invention was commercially exploited prior to the critical filing date.
Additionally, OEA's reference to *Zacharin* does not help its case. The court in *Zacharin* affirmed that a developmental contract with the government constituted a commercial sale, a point OEA conceded in lower court proceedings. OEA does not revive this argument in its current appeal, and there is no indication in *Zacharin* that supports a supplier exception to the on-sale bar. Overall, the findings suggest that OEA's transactions qualify as commercial exploitation, thereby affirming the applicability of the on-sale bar.
The court expresses disinterest in the reasoning of the district court in M. R. Marking Sys. Inc. v. Top Stamp, Inc., which OEA relies on. It notes that it is not obligated to follow that reasoning and distinguishes the facts of M. R. Marking from those in Brasseler. M. R. Marking involved the sale of patented inventions more than a year prior to the patent filing date, where the district court rejected the on-sale analysis and applied the now-abandoned 'totality-of-the-circumstances' test, ruling that the on-sale bar was inapplicable to sales from a manufacturer to the inventor.
Despite the factual similarity, the court finds no reason to follow M. R. Marking due to its origin in the district court and the Supreme Court's disavowal of the 'totality-of-the-circumstances' test. The court emphasizes its analysis under the new on-sale bar regime established by Pfaff and asserts that no 'supplier' exception exists for the on-sale bar, stating that any such exception must come from Congress.
The ruling aligns with the on-sale bar's primary policy of encouraging timely patent applications. The court reiterates that the on-sale bar applies even if commercial activities occur in secret, and prior secret commercial use can invalidate a patent claim. Consequently, it concludes that the on-sale bar invalidates claims 1-9 of the '263 patent, as the invention was the subject of three commercial sales over a year before the patent application, and OEA and its supplier Coors do not constitute the same entity for these purposes. OEA fails to provide statutory or precedential support for a 'supplier' exception, leading to the affirmation of the district court's partial summary judgment.
