Linear Technology Corporation v. Micrel, Inc., Defendant-Cross

Citations: 275 F.3d 1040; 61 U.S.P.Q. 2d (BNA) 1225; 46 U.C.C. Rep. Serv. 2d (West) 334; 2001 U.S. App. LEXIS 27386; 2001 WL 1669382Docket: 99-1598

Court: Court of Appeals for the Federal Circuit; December 27, 2001; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

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In the case Linear Technology Corporation v. Micrel, Inc., the Federal Circuit reviewed a patent infringement dispute involving U.S. Patent No. 4,755,741, related to adaptive transistor drive circuitry. The district court ruled the patent invalid under the on-sale bar of 35 U.S.C. § 102(b), determining that an invalidating sale or offer occurred before the critical date of November 18, 1985. Linear Technology Corp. (LTC) appealed this judgment, while Micrel cross-appealed evidentiary rulings that excluded letters supporting their claim of an invalidating sale. The Federal Circuit found that the legal standard for determining an offer for sale had changed after the district court's decision, following Group One, Ltd. v. Hallmark Cards, Inc. As a result, the court concluded that neither the district court's findings nor the existing evidence indicated that an invalidating offer for sale had occurred, leading to a reversal of the invalidity judgment. The court affirmed the district court's other rulings. LTC, the patent holder, was represented by Robert C. Morgan and others, while Micrel's defense was led by Robert B. Morrill and his team. The inventor, Carl Nelson, developed the patent while working on a silicon chip known as the LT1070, which implemented the patented switching regulator circuitry.

In the months leading up to the November 18, 1985, release of the LT1070 chip, LTC undertook extensive marketing efforts to stimulate interest in the product domestically and internationally. The company employed independent sales representatives in the U.S. and utilized European distributors who both purchased and marketed the products. Product data sheets were crucial for informing customers about LTC products, and a preliminary data sheet for the LT1070, detailing its features, was distributed to sales representatives before the official release. 

In July 1985, LTC hosted a sales conference in Santa Clara for its representatives, where unannounced products, including the LT1070, were discussed. Attendees received information to help identify potential customers, and while they could speak about the LT1070, the details shared were limited compared to released products. A newsletter circulated around November 1, 1985, highlighted the LT1070's advantages, claiming it would appeal to accounts deciding between manufacturing or purchasing power supplies. 

LTC's Director of International Sales described the LT1070 as a groundbreaking product, and by October 1985, the excitement generated led independent sales representatives to actively promote the chip to customers prior to its official launch, emphasizing its potential in the market.

LTC received purchase orders from four European distributors for LT1070 chips prior to the official release date. Following its standard procedure for unreleased products, LTC did not confirm these orders but entered them into its order tracking system using a "will-advise" notation, indicating that the product was not yet released. The orders were logged with "0" in the price field and "1" in the quantity field, regardless of actual quantities, to comply with system requirements. LTC later deleted and reentered these orders as normal once the LT1070 was officially released on November 18, 1985, a year before filing the '741 patent application. 

In subsequent legal proceedings, Micrel, a competitor, claimed LTC's actions constituted an offer for sale of the LT1070 chip before the patent filing date, invoking the on-sale bar under 35 U.S.C. § 102(b). The district court denied Micrel's motion for summary judgment on invalidity and conducted a separate trial on this issue. Before the court's ruling, the Supreme Court's decision in Pfaff v. Wells Electronics changed the standard for assessing the on-sale bar, requiring proof that a product was subject to a commercial offer and was ready for patenting. The district court concluded that the LT1070 met both prongs of this test, affirming that it was ready for patenting before the critical date of November 18, 1985, a conclusion LTC did not contest on appeal.

The district court evaluated whether LTC made a commercial sale or offer for sale of the LT1070 in the U.S. before the critical date. Applying the precedent from RCA Corp. v. Data General Corp., the court determined that commercial activities not amounting to a formal sale could still invoke the on-sale bar. The court highlighted LTC's extensive promotional efforts, including collecting feedback from sales representatives and distributors, disseminating data sheets, and conducting a sales conference introducing the LT1070. Evidence of LTC's active marketing included newsletters about the product and participation in a European trade show. 

The court found that LTC anticipated its sales force would engage with end-users, providing them with necessary information and samples for marketing. Notably, discussions led to 26 requests for LT1070 samples from both domestic and international sales representatives prior to the critical date. The court concluded that these interactions surpassed vague discussions, confirming a commercial offer that activated the on-sale bar.

Additionally, the court determined that LTC's entry of pre-critical date purchase orders from international distributors, although not formally booked, constituted completed sales. This "will-advise" procedure was deemed a mere facade for LTC's acceptance of orders before the critical date. Ultimately, the district court ruled that LTC had offered for sale and sold the LT1070 prior to the critical date, leading to a judgment of invalidity for the asserted claims of the '741 patent. LTC subsequently appealed, granting jurisdiction under 28 U.S.C. § 1295(a)(1).

A product's placement on sale prior to the critical date constitutes a legal conclusion based on factual findings, which are reviewed for clear error. Under Title 35 U.S. Code § 102, a patent is barred if the invention was on sale in the U.S. more than one year before its patent application date. To successfully assert an on-sale bar defense, the accused infringer must prove by clear and convincing evidence that there was a definite sale or offer for sale of the invention before the critical date. The Supreme Court's decision in Pfaff established a two-part test for determining when the on-sale clock begins: (1) there must be a commercial offer for sale of the product, and (2) the invention must be ready for patenting. This standard aims to protect both public knowledge and the inventor's patent rights by imposing a clear timeframe for filing applications. Although Pfaff clarified the "ready for patenting" aspect, it provided limited guidance on defining a "commercial offer for sale." In a related case, Group One, the court noted that pre-sale negotiations could trigger the on-sale bar even if they did not constitute a formal offer under contract law. However, it concluded that only offers that meet the criteria of a commercial offer for sale, which could be accepted to form a binding contract, qualify under § 102(b). This ruling overruled previous interpretations that allowed broader definitions, reinforcing the need for certainty in application as intended by Pfaff.

Under Group One, the interpretation of Pfaff's commercial offer-for-sale prong necessitates applying traditional contract law principles to the specific facts of each case. The on-sale bar requires uniformity in patent law, leading Group One to determine that the existence of an offer for sale should be assessed "under the law of contracts as generally understood," rather than the law of the state where the transaction occurred. The analysis should be informed by the Uniform Commercial Code (UCC), although it does not possess the force of law itself and varies by state. Guidance will be drawn from case law interpreting individual state versions of the UCC to develop a federal common law of contract relevant to the on-sale bar.

The district court's application of Pfaff occurred without reference to Group One's precedent. The appellate review focuses on whether the district court's finding that LTC's actions invoked the on-sale bar can be upheld under Group One's legal principles. The district court identified two bases for its conclusion: first, LTC's active promotion of the LT1070 prior to the critical date, and second, actual sales to four independent European distributors before the critical date. 

The appellate court agrees with the district court's finding that LTC's promotional activities could have triggered the on-sale bar under RCA Corp., noting that LTC's efforts went beyond vague discussions. However, the reliance on RCA Corp. is flawed due to Group One's binding precedent, which invalidated the flexible standard that allowed pre-release commercialization activities to trigger the on-sale bar. Despite applying the incorrect legal standard, the appellate court can still affirm the district court’s decision if the facts indicate an offer for sale according to Group One's criteria.

The district court's findings may indicate a violation of the on-sale bar, warranting an examination of four specific fact categories: (1) LTC's solicitation of pricing from distributors and sales representatives; (2) publication of preliminary data sheets and promotional material for the LT1070; (3) communications to the sales force via newsletters and a July 1985 sales conference, including sharing LT1070 preliminary data sheets with customers; and (4) requests by sales representatives for LT1070 samples before the critical date. Micrel contends that these activities allow the court to infer invalidating offers for sale; however, under general contract law principles, none qualify as an offer for sale. 

The Uniform Commercial Code (UCC) lacks a definition for "offer," necessitating reliance on common law, which defines an offer as a manifestation of willingness to enter into a bargain that justifies another's belief that acceptance will conclude the agreement. Internal communications soliciting pricing from sales representatives do not constitute offers to customers unaware of these discussions. Although one sales representative communicated with potential customers to assist LTC in pricing, these interactions lack the intent to bind required for an offer. Instead, they suggest that LTC was still gathering information, as evidenced by a telex requesting user input on pricing without establishing a specific price. Additionally, LTC's publication of preliminary data sheets and promotional information does not convey intent to make a binding offer, merely indicating preparation for sale, which does not satisfy the on-sale bar criteria.

The district court's finding of an on-sale bar is based on LTC's distribution of advertising materials about the LT1070 to customers, which included both oral presentations at a sales conference and written materials such as preliminary data sheets and newsletters. The sales conference was intended for informational purposes, helping sales representatives and international distributors familiarize themselves with potential customers, rather than making direct offers for sale. 

The November "Newsline" newsletter promoted the LT1070 but did not constitute an offer for sale; it described the product in a forward-looking manner, indicating it was not yet available. The newsletter invited interest but did not commit to a sale, as it merely prepared the audience for future offers. 

Similarly, data sheets provided by LTC sales representatives aimed to solicit design-ins for the LT1070 without indicating a willingness to sell, as they facilitated customer understanding of the product's potential applications. Even if the data sheets contained sufficient information for design-in considerations, their distribution did not amount to an offer for sale but rather constituted preliminary negotiations intended to allow customers to make purchase requests. Thus, no definitive offers to sell the LT1070 were made by LTC.

The district court found an offer for sale based on numerous sample requests made by LTC sales representatives prior to the November 18 release date, indicating communication with specific customers. However, these requests did not constitute actual offers for sale that could trigger the on-sale bar under Group One, as they lacked the necessary contractual elements. 

The court also concluded that LTC's entry of pre-critical date purchase orders from European distributors constituted a sale, but this conclusion was legally flawed. For a sale to occur, contract law requires an offer, acceptance, and consideration. The purchase orders were indeed offers with clear terms, but the question remained whether LTC accepted them before the critical date. Acceptance requires a manifestation of assent, which was not communicated in this instance; merely entering the orders into a system was insufficient. LTC's established practice was to confirm acceptance via fax, which did not occur in this case. Thus, LTC did not validly accept the purchase orders before the critical date, and the evidence did not support that an invalidating sale had taken place.

An acceptance must demonstrate the offeree's assent objectively, as established in Superior Boiler Works, Inc. v. R.J. Sanders, Inc. The formation of a sales contract between merchants necessitates a clear offer and a definitive expression of acceptance. The intent of the parties, as expressed objectively, governs the existence of a contract, not their private intentions. LTC's intention to accept the offers did not constitute a binding contract until communicated to the distributors. The key issue is whether distributors could reasonably interpret LTC's will-advise acknowledgment as acceptance of their orders. LTC argued that these acknowledgments indicated a lack of acceptance of premature orders, a claim Micrel contested. Evidence showed that LTC's system-generated acknowledgment indicated the order was "NOT BOOKED," leading to the conclusion that a reasonable distributor would understand there was no acceptance. Micrel failed to provide compelling evidence that the distributors interpreted the will-advise notation as acceptance or understood its meaning. Testimony suggesting the notation merely indicated future shipping timelines did not clarify how distributors perceived it, and the record lacked any evidence of their actual understanding.

Evidence was lacking to support the assertion that "WILL ADVISE-NOT BOOKED" indicated acceptance of orders. Micrel contended that the parties' conduct suggested a contract existed prior to the critical date, particularly noting that distributors did not need additional communication before LTC converted "will advise" orders to "normal orders" for shipment. However, LTC viewed the "will advise" notation simply as a delay indicator, and it was Micrel's responsibility to provide clear and convincing evidence that LTC communicated its intent to accept the orders, which it failed to do. The absence of further communication from the distributors does not imply they understood that acceptance occurred; it only indicates they recognized acceptance at some unspecified time. Under UCC 2-206(b), shipment can constitute acceptance, implying that distributors might have inferred acceptance upon receipt of the LT1070s. Despite LTC's internal interpretation of "will advise," crucial evidence—testimony regarding the distributors' understanding upon receiving acknowledgments—was missing. Additionally, there was no evidence indicating that distributors could not withdraw their offers before LTC's post-critical date acceptance. Consequently, without proof of acceptance, no contract existed, leading to the reversal of the district court's judgment that invalidated the '741 patent under the on-sale bar.

Micrel also cross-appealed a district court ruling that excluded letters from LTC's sales representative, Robert Stenstrom, to customers, which discussed the LT1070 and referenced an enclosed preliminary data sheet. Micrel aimed to use these letters to demonstrate that LTC solicited orders before the critical date. The district court excluded the letters on authentication grounds under Fed. R. Evid. 901, and Micrel argued this exclusion was erroneous on appeal.

Micrel's attempt to use letters as evidence of commercialization was deemed irrelevant for proving an offer for sale, as they lacked proper authentication. The letters, dated before the critical date, were unsigned, not on company letterhead, and showed no evidence of being mailed. They were found in files belonging to John Moore, a former sales representative. Micrel sought to authenticate the letters through testimony from Moore and the purported author, Robert Stenstrom. Stenstrom acknowledged he sent data sheets but could not confirm mailing the specific letters. Micrel claimed the letters must have been mailed as they originated from a reading file, but the district court found this argument unconvincing, noting discrepancies like the absence of three-hole punching typical of reading file letters. Stenstrom’s vague recollection and Moore's general knowledge about reading files did not adequately establish the letters' source. Given the uncertainty surrounding their authenticity, the district court properly excluded the letters under Fed. Rule Evid. 901(a). Consequently, the judgment of invalidity in favor of Micrel was reversed, but the evidentiary rulings were upheld, and the case was remanded for further proceedings without costs.

The court affirmed in part, reversed in part, and remanded the case regarding a purchase order from the international distributor Neye. The order documented an actual quantity of fifty and a price of 5.25 but included a "will-advise" notation, categorizing it similarly to other orders in that status. The district court explained that the process for a design engineer to incorporate a component product into applications is termed "design-in." The disputed purchase orders also featured offers to purchase previously released parts, which were not subject to the will-advise procedure. LTC's ability to accept these offers demonstrated that the orders constituted binding offers upon acceptance. However, the district court did not explicitly determine if LTC accepted the distributor's offers. If the court's conclusion that a sale occurred implied acceptance by LTC, this finding was deemed clearly erroneous due to a lack of evidence for an objective manifestation of assent by LTC. Additionally, there was ambiguity regarding whether evidentiary rulings in patent cases are reviewed under regional circuit law or Federal Circuit law. In this case, both the Federal Circuit and the Ninth Circuit, the relevant regional circuit, aligned in their legal standards. The Federal Circuit requires that a challenger must demonstrate that evidentiary exclusions were an abuse of discretion and resulted in substantial prejudice.