MVS Filewrapper® Blog: Supplier's Agreement to Manufacture May Trigger On-Sale Bar

In an Opinion on August 14, 2013 (Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc.), the Federal Circuit ruled that the on-sale bar was triggered when a purchase order for slow cookers by patentee Hamilton Beach was confirmed by its supplier. The Court stated that Hamilton Beach’s transaction with its 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.

Under § 102(b) (pre-AIA), a person shall be entitled to a patent unless "the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States." Note that, post-AIA, § 102(a)(1) includes similar language, but the Hamilton Beach patent falls under the pre-AIA rules. The on-sale bar invalidates a patent when the invention was sold or offered for sale more than one year prior to the filing date of the patent application. Although Hamilton Beach neither sold nor offered its invention for sale, the Federal Circuit considered the Hamilton Beach supplier's offer to manufacture the invention an offer for sale. The Court noted in its opinion that there is no "supplier exception" to the on-sale bar. Since the supplier's offer to manufacture the invention was more than one year prior to the patent application filing date, the Court ruled that the claims were invalid.

MVS Filewrapper® Blog: U.S. Supreme Court Addresses Jurisdiction In Patent Related Case

In an unanimous decision in Gunn v. Minton, the United States Supreme Court clarified:  (1) 28 U.S.C. § 1338(a) does not necessarily deprive state courts of subject matter jurisdiction for cases dealing with patent law, such as a legal malpractice claim asserted against an attorney representing someone in patent litigation; and (2) a state-based malpractice claim asserted a patent attorney does not necessarily evoke federal subject matter jurisdiction. 

Gunn represented Minton in a patent infringement suit.  During that suit Minton’s patent was held invalid as violating the “on sale” bar in 35 U.S.C. § 102(b) for leasing the subject matter of the patent more than one year prior to the date of the patent application.  Minton argued, in a motion for reconsideration, that the lease was part of testing and fit within the experimental use exception to the on sale bar.  The district court denied the motion and the Court of Appeals for the Federal Circuit affirmed the district court’s ruling.  Subsequently, Minton sued his attorneys for legal malpractice claiming that they failed to timely raise the experimental use argument, which resulted in the improper invalidation of his patent and loss of the patent infringement lawsuit.  This malpractice lawsuit was brought in Texas state court.  The attorneys that represented Minton in the patent infringement suit argued that regardless of the timing of the experimental use argument, it would have failed.  The Texas trial court agreed.  Minton appealed the ruling to the Texas Supreme Court.  On appeal Minton argued that the Texas court did not have proper subject matter jurisdiction because this claim properly fits under federal question jurisdiction pursuant to 28 U.S.C. § 1338(a), which provides exclusive federal jurisdiction thereby depriving state courts of jurisdiction.  The Texas Supreme Court ruled in favor of Minton’s argument and Gunn appealed the holding to the United States Supreme Court.

The United States Supreme Court held that § 1338(a) does not deprive state courts of subject matter jurisdiction over the malpractice claim because federal law did not create the cause of action.  Section 1338(a) only deprives state court jurisdiction where the cause of action is created by federal law.  Specifically, § 1338(a) states, “No state Court shall have jurisdiction over any claim for relief arising under any Act of Congress relating to patents . . . .”  This cause of action, however, does not arise under the Patent Act; rather it is a state legal malpractice claim based on previous litigation arising under the Patent Act.  To determine whether federal jurisdiction would be proper at all the United States Supreme Court relied on its precedent Grable & Sons Metal and Prods., Inc. v. Darue Eng’g & Mfg. to determine whether a federal issue is actually disputed.  Grable provides four prongs that must each be met for federal jurisdiction to be proper over a state law claim.  The federal issue must be:  (1) necessarily raised, (2) actu­ally disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state bal­ance approved by Congress.  Slip. op. at p. 6 (citing Grable, 545 U.S. 308, 314 (2005)).  The Supreme Court held that Minton met the first two prongs, but failed on the third and fourth.  The Supreme Court’s analysis of the third prong determined that it did not matter how the state court handled the hypothetical questions related to the timing of the experimental use argument because either way it would not change the result of the actual patent litigation.  With respect to the fourth prong, the Court held that permitting state courts to engage in “a hypothetical patent issue” for the purpose of resolving a state legal malpractice claim does not disrupt the balance between state and federal responsibilities.  Id. at p. 12.  Moreover, the Court noted that states “have ‘a special responsibility for maintaining standards among members of the licensed professions.’”  Id. (quotation omitted).  The Court's conclusion was that no federal subject matter jurisdiction existed under 28 U.S.C. § 1338(a) and that state jurisdiction would be proper to handle this claim.  Therefore, the Texas Supreme Court's ruling was reversed.

Ninth Circuit: Sufficient evidence of fraud to defeat summary judgment on Walker Process claim

In a recent decision, the Ninth Circuit addressed the antitrust implications of so-called "reverse payments" between brand name and generic pharmaceutical companies.  A health care provider brought suit against the two companies, alleging their agreement to delay the introduction of a generic pharmaceutical (which involved payment to the generic manufacturer of $4.5 million per month) was a violation of antitrust laws that caused the provider to have to pay substantially more to obtain the pharmaceutical.  The provider also alleged the brand name pharmaceutical company filed for and obtained patents it knew were invalid and engaged in sham litigation to unlawfully extend its patent monopoly over the pharmaceutical.  The provider lost on both counts at the district court.  A jury found the agreement between the two providers had not caused a delay in the introduction of the generic, and the district court granted summary judgment on the attempted monopolization claim based on fraudulent filings.

The Ninth Circuit affirmed and reversed in part.  The court affirmed the jury's verdict on the unlawful restraint of trade (§ 1 of the Sherman Act) claim, holding the district court's evidentiary decisions were not an abuse of discretion.  As to the summary judgment on the monopolization claim under § 2, the court agreed there was insufficient evidence that the brand-name manufacturer's litigation to prevent the introduction of the generic was a sham.  But, the Ninth Circuit held there was sufficient evidence to overcome summary judgment that one of the patents asserted in those cases was obtained by fraud, and remanded the case for further consideration of the § 2 claim under Walker Process.

More on Kaiser Found. Health Plan, Inc. v. Abbot Labs., Inc. after the jump.


Today's lesson for litigators: make sure you present all your arguments to the district court

In a decision Tuesday, the Federal Circuit affirmed a district court's holding that two patents were invalid under the on-sale bar of 35 U.S.C. § 102(b).  The inventor filed a declaration during prosecution that the invention was reduced to practice before the critical date of the patents, and thereafter sold the claimed method, also before the critical date.  The post-reduction to practice sales could not be considered experimental use, as once an invention is reduced to practice, experimental use is no longer possible.  Further, there was insuffucient evidence to call the inventor's declaration into question.  On this point, the plaintiff attempted to rely upon additional evidence not presented to the district court in opposition to the defendants' summary judgment motion.  The Federal Circuit rebuffed this attempt, limiting the plaintiff on appeal to the evidence presented to the district court in opposition to the summary judgment motion.  As a result, the court affirmed the finding of invalidity.

The Federal Circuit further affirmed the district court's dismissal of the plaintiff's trade secret claims as barred under the statute of limitations.  The court held the plaintiff had sufficient information to allege trade secret misappropriation at least as early as 1996, but did not file suit until 2005, well outside the applicable 3-year limitations period.  Accordingly, dismissal of the trade secret claims was proper.

More concerning In re Cygnus Telecomms. Tech., LLC, Patent Litig. after the jump. 


On-sale bar cannot be avoided by experimentation conducted by patentee's customer

In a decision Thursday, the Federal Circuit provided additional guidance on the on-sale bar of § 102(b).  In the case, the patentee developed a series of prototypes that were then sold to its customer, who then experimented with the prototypes and requested modifications to the prototypes.  The prototypes were also accompanied by offers to sell production models of the prototypes.  The court was clear in that the experimental use exception only concerns the actions of the inventors and their agents, not another party doing experimental testing for a particular purpose.  As a result, despite the fact that the customer was experimenting with the prototypes, that experimentation could not negate the on-sale bar of § 102(b).

Two of the panel's three judges also filed a concurring opinion.  In that opinion, Judges Prost and Dyk "point out the confusion" in Federal Circuit law when it comes to the interaction between experimental use and the on-sale bar.  While this case is not the proper vehicle, it's safe to add this issue to the list of near-future en banc issues for the court.

More detail of Atlanta Attachment Co. v. Leggett & Platt, Inc. after the jump.


Federal Circuit addresses claim construction, on-sale and public use bars, and DJ jurisdiction

In a decision Friday, the Federal Circuit vacated in part a district court's claim construction of a several terms as well as its decision to find no infringement of patents owned by Honeywell.  The court did, however, affirm the district court's retention of jurisdiction over the several withdrawn claims and the decision that Honeywell's pre-critical date activities were not barring sales or public uses under § 102(b).

More details of Honeywell Int'l Inc. v. Universal Avionics Sys. Corp. after the jump.


Dippin' Dots: brought to you by inequitable conduct, but not an antitrust violation

Dippin' Dots

What do Dippin' Dots, the little beads of ice cream sold at fairs, stadiums, and malls, have to do with patent and antitrust law? For the Federal Circuit, they presented the "close case" where a patent holder can be found to have engaged in inequitable conduct during prosecution of the patent but is not liable for a Walker Process antitrust claim by an infringement defendant. This is possible based on the differing standards of proof required by the infringement defendant, as explained by the Federal Circuit in the case. While both inequitable conduct and a Walker Process antitrust claim require proof that the patent holder either misrepresented or failed to disclose to the patent office something material to patentability and that it was done with intent to deceive. However, if evidence of one is scant, an inequitable conduct claim can still be proven if evidence of the other is strong; not so with a Walker Process claim. More details of the case after the jump.



Federal Circuit Addresses On Sale Bar

In Plumtree Software, Inc. v. Datamize, LLC, the Federal Circuit Court of Appeals revisited the issue of determining when an invention is on sale within the meaning of 35 U.S.C. 102(b). A claimed invention is considered to be on sale under § 102(b) if the invention is sold or offered for sale more than one year before the filing date of the patent application. If the applicant files a patent application after this bar date, the invention is then considered donated to the public domain. The Federal Circuit stated that the purpose of the on sale bar is to "preclude attempts by the inventor or his assignee to profit from commercial use of an invention more than a year before an application for [a] patent is filed."

While discussing the on sale bar the Federal Circuit reviewed the two part test established by the Supreme Court in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998). The Federal Circuit reiterated that "first, the product must be the subject of a commercial sale or offer for sale" and that "second, the invention must be ready for patenting." The Federal Circuit went further to then state that there are two alternative methods of showing that a product has been a subject of a commercial sale. The first method is to show that the patentee made a commercial offer to perform the patented method before the critical bar date (even if the performance is to occur after the critical date). The second method is for the alleged infringer to demonstrate that before the critical date the patentee actually performed the patented method for a promise of future compensation.

In deciding the specific case at hand, the Federal Circuit remanded the case to the district court for further litigation as the Federal Circuit found the established record was insufficient to determine whether the patented process was sold or offered for sale before the critical date.

To read the full text of the decision, click here.

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