The 'On-Sale' Bar After Pfaff

Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998) is widely recognized as a milestone in the annals of patent law for providing direction as to how courts are to analyze and apply the statutory “on-sale” bar to the granting of patents. See 35 USC ' 102(b) (“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”). Prior to Pfaff, courts used the “totality of the circumstances” test in determining whether an invention was on sale under ' 102(b). This open-ended standard provided little guidance, however, with the result that courts did not apply the test uniformly. Thus, for example, while some courts held that an invention could not be on sale under ' 102(b) unless the invention had been “reduced to practice,” others did not. Pfaff provided a much needed, clear, and uniform test for lower courts to apply. This article explores how the Federal Circuit has applied Pfaff in more recent cases.

Pfaff

In Pfaff, Texas Instruments asked Wayne Pfaff (“Pfaff”) to develop a new computer chip socket. In response to this request, Pfaff prepared drawings that depicted in detail how to make the socket. Pfaff, 525 U.S. at 58. In February or March 1981, Pfaff sent the drawings to a manufacturer and soon followed up by showing Texas Instruments a sketch of the socket. Id.

On April 8, 1981, Texas Instruments gave Pfaff a written purchase order for the sockets for a specified purchase price. Id. When this written order was placed, Pfaff had not yet made or tested a prototype of the socket, it being Pfaff's customary practice not to conduct either of these activities before offering a device for commercial sale. Id. Pfaff filled the order in July 1981, having reduced his invention to practice that summer. Id. Pfaff filed a patent application on the socket in April 1982, and a patent issued in January 1985. Id. at 59.

Thereafter, Pfaff sued Wells Electronics, Inc. (“Wells”), alleging that Wells' modified socket infringed six of his patent claims. Id. The district court held that four of the six claims were valid, and that Wells had infringed three of these claims. Pfaff v. Wells Elecs., Inc., 1995 U.S. Dist. LEXIS 21747, at *2 (N.D. Tex. Dec. 29, 1995). The court rejected Wells' on-sale bar defense, reasoning that Pfaff had filed his patent application less than one year after reducing his invention to practice. Id.

The Federal Circuit reversed, holding all six claims invalid. Pfaff v. Wells Elecs., Inc., 124 F.3d 1429, 1435 (Fed. Cir. 1997). The court ruled that four of these claims were invalid because: 1) the invention was “substantially complete” at the time Pfaff sold it, and 2) Pfaff had offered his device for sale more than one year before he filed his patent application. Id. In so deciding, the Federal Circuit ruled that the fact that the invention was “substantially complete” was enough to trigger the one-year ' 102(b) period ' i.e., that it need not have been reduced to practice. Id.

The U.S. Supreme Court granted certiorari to settle the issue as to whether an invention that had not yet been reduced to practice could nevertheless be deemed to be on sale under 35 U.S.C. ' 102(b) so long as it was “substantially complete.” 525 U.S. at 66-67. In making this determination, the Supreme Court formulated a two-pronged test for establishing a ' 102(b) sale. Id. The test requires that the invention be: 1) the subject of a commercial offer for sale or sale before the critical date, and 2) “ready for patenting” at the time of such offer for sale or sale. Id. The critical date is one year before the filing date of the patent application. Id. at 57-58. By this measure, in Pfaff, the critical date was April 19, 1981, one year before the April 19, 1982 filing date of Pfaff's patent application. Id.

The record reflected that Pfaff had accepted Texas Instruments' purchase order on April 8, 1981, and that the resulting sale was decidedly commercial. Id. Thus, because there was little doubt that Pfaff's invention was the subject of a commercial sale or offer for sale before the critical date, the Court turned to whether the invention was at the same time “ready for patenting.” Id.

Upon analysis, the Supreme Court ruled that the “ready for patenting” prong of the two-part test may be satisfied: 1) “by proof of reduction to practice before the critical date” or 2) “by proof that prior to the critical date, the inventor had prepared drawings or other descriptions of the invention ' sufficiently specific to enable a person skilled in the art to practice the invention.” Id. at 67. The Court concluded that the second prong was satisfied because Pfaff sent detailed drawings that fully disclosed his invention to manufacturers before the critical date. Id.

Federal Circuit Struggles with Commercial 'Offer for Sale'

Since Pfaff, the Federal Circuit's rulings as to whether an invention is on-sale for purposes of the ' 102(b) bar have been clear. Generally, the Federal Circuit has had minimal difficulty in applying Pfaff to determine whether an invention has been the subject of a commercial sale. The court has been similarly unambiguous in applying the “ready for patenting” prong of the Pfaff analysis. In contrast, the Federal Circuit seems to have struggled at times in determining whether an invention has been the subject of a commercial “offer for sale.”

In deciding whether there has been a commercial “offer for sale,” the Federal Circuit has been guided by principles of contract formation. In keeping with these principles, the Federal Circuit has looked to whether a commercial offer is definite enough that the other “party could make a binding contract by simple acceptance, assuming consideration.” Atlanta Attachment Co. v. Leggett & Platt, Inc., 516 F.3d 1361, 1365 (Fed. Cir. 2008) (citing Netscape Commc'ns. Corp. v. Konrad, 295 F.3d 1315, 1323 (Fed. Cir. 2002)). Similarly, in making this “definiteness” determination, the Federal Circuit has parsed the language of the offer in accordance with principles of construction under general contract law. See Enzo Biochem, Inc. v. Gen-Probe Inc., 424 F.3d 1276, 1281 (Fed. Cir. 2005).

The Federal Circuit has ruled that an attempt to sell will be enough to establish an offer for sale for purposes of ' 102(b) “if it rises to an offer upon which a contract can be made merely by accepting it.” Atlanta Attachment Co., 516 F.3d at 1365. Thus, for example, in Atlanta Attachment Co., the Federal Circuit held that the patentee's sending, and buyer's resulting payment, of an invoice for a prototype of the invention were together sufficient to establish a ' 102(b) sale ' even though the prototype was never delivered to the buyer ' because these acts constituted sufficient offer and acceptance to satisfy the statute. Id.

In contrast, in Elan Corp., PLC v. Andrx Pharms., Inc., 366 F.3d 1336, 1341 (Fed. Cir. 2004), where the patent owner sent multiple letters offering to sell his invention, the court ruled that these letters failed to constitute a cognizable offer. This ruling would seem contrary to the teaching of Atlanta Attachment, since in Atlanta Attachment, the court held that a contract can be made merely by accepting the terms of a bare invoice. 516 F.3d at 1365. In Elan, however, although the letters disseminated by the patent owner contained both material price and quantity terms, they were nonetheless ruled insufficient to invite a contractually binding acceptance. Elan, 366 F.3d at 1341. Given the specific, definite, and material content of these letters, it appears that the holding of Elan is at odds with that of Atlanta Attachment.

'Ready for Patenting'

With regard to the second prong of the Pfaff test, namely whether the invention was “ready for patenting,” the Federal Circuit has looked closely at the facts of the case to determine whether, as of the critical date, the invention had been: 1) reduced to practice, or 2) sufficiently described to allow a person of ordinary skill in the art to make the invention. See Honeywell Int'l Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982, 996 (Fed. Cir. 2007). In making these determinations, the Federal Circuit has shown flexibility, for example, in admitting the use of declarations submitted to the Patent Office as evidence that the invention had been reduced to practice prior to the critical date. See, e.g., In re Cygnus Telecomm. Tech., LLC v. AT&T Corp., 536 F.3d 1343, 1353 (Fed. Cir. 2008). However, even when allowing that the invention has been reduced to practice or sufficiently described, the Federal Circuit has held that the “ready for patenting” requirement cannot be satisfied unless the invention also works for its intended purpose. See Honeywell Int'l, Inc. at 997; EZ Dock v. Shafer Sys., Inc., 276 F.3d 1347, 1351 (Fed. Cir. 2002).

Conclusion

Pfaff has brought clarity to the on-sale bar analysis and has become a cornerstone of patent law precedent. The “totality of the circumstances” test the Federal Circuit applied prior to Pfaff provided little guidance as to how a court should determine whether patent claims run afoul of the on-sale bar. The Supreme Court's two-pronged Pfaff test made straightforward a very fact-intensive analysis. The Federal Circuit's application of this test has shown that when there is a clear rule, the Federal Circuit can be consistent in applying it.

Robert W. Morris is a partner and Franciscus Ladejola Diaba is an associate at Kramer Levin Naftalis & Frankel LLP.

Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (1998) is widely recognized as a milestone in the annals of patent law for providing direction as to how courts are to analyze and apply the statutory “on-sale” bar to the granting of patents. See 35 USC ' 102(b) (“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”). Prior to Pfaff, courts used the “totality of the circumstances” test in determining whether an invention was on sale under ' 102(b). This open-ended standard provided little guidance, however, with the result that courts did not apply the test uniformly. Thus, for example, while some courts held that an invention could not be on sale under ' 102(b) unless the invention had been “reduced to practice,” others did not. Pfaff provided a much needed, clear, and uniform test for lower courts to apply. This article explores how the Federal Circuit has applied Pfaff in more recent cases.

Pfaff

In Pfaff, Texas Instruments asked Wayne Pfaff (“Pfaff”) to develop a new computer chip socket. In response to this request, Pfaff prepared drawings that depicted in detail how to make the socket. Pfaff, 525 U.S. at 58. In February or March 1981, Pfaff sent the drawings to a manufacturer and soon followed up by showing Texas Instruments a sketch of the socket. Id.

On April 8, 1981, Texas Instruments gave Pfaff a written purchase order for the sockets for a specified purchase price. Id. When this written order was placed, Pfaff had not yet made or tested a prototype of the socket, it being Pfaff's customary practice not to conduct either of these activities before offering a device for commercial sale. Id. Pfaff filled the order in July 1981, having reduced his invention to practice that summer. Id. Pfaff filed a patent application on the socket in April 1982, and a patent issued in January 1985. Id. at 59.

Thereafter, Pfaff sued Wells Electronics, Inc. (“Wells”), alleging that Wells' modified socket infringed six of his patent claims. Id. The district court held that four of the six claims were valid, and that Wells had infringed three of these claims. Pfaff v. Wells Elecs., Inc., 1995 U.S. Dist. LEXIS 21747, at *2 (N.D. Tex. Dec. 29, 1995). The court rejected Wells' on-sale bar defense, reasoning that Pfaff had filed his patent application less than one year after reducing his invention to practice. Id.

The Federal Circuit reversed, holding all six claims invalid. Pfaff v. Wells Elecs., Inc. , 124 F.3d 1429, 1435 (Fed. Cir. 1997). The court ruled that four of these claims were invalid because: 1) the invention was “substantially complete” at the time Pfaff sold it, and 2) Pfaff had offered his device for sale more than one year before he filed his patent application. Id. In so deciding, the Federal Circuit ruled that the fact that the invention was “substantially complete” was enough to trigger the one-year ' 102(b) period ' i.e., that it need not have been reduced to practice. Id.

The U.S. Supreme Court granted certiorari to settle the issue as to whether an invention that had not yet been reduced to practice could nevertheless be deemed to be on sale under 35 U.S.C. ' 102(b) so long as it was “substantially complete.” 525 U.S. at 66-67. In making this determination, the Supreme Court formulated a two-pronged test for establishing a ' 102(b) sale. Id. The test requires that the invention be: 1) the subject of a commercial offer for sale or sale before the critical date, and 2) “ready for patenting” at the time of such offer for sale or sale. Id. The critical date is one year before the filing date of the patent application. Id. at 57-58. By this measure, in Pfaff, the critical date was April 19, 1981, one year before the April 19, 1982 filing date of Pfaff's patent application. Id.

The record reflected that Pfaff had accepted Texas Instruments' purchase order on April 8, 1981, and that the resulting sale was decidedly commercial. Id. Thus, because there was little doubt that Pfaff's invention was the subject of a commercial sale or offer for sale before the critical date, the Court turned to whether the invention was at the same time “ready for patenting.” Id.

Upon analysis, the Supreme Court ruled that the “ready for patenting” prong of the two-part test may be satisfied: 1) “by proof of reduction to practice before the critical date” or 2) “by proof that prior to the critical date, the inventor had prepared drawings or other descriptions of the invention ' sufficiently specific to enable a person skilled in the art to practice the invention.” Id. at 67. The Court concluded that the second prong was satisfied because Pfaff sent detailed drawings that fully disclosed his invention to manufacturers before the critical date. Id.

Federal Circuit Struggles with Commercial 'Offer for Sale'

Since Pfaff, the Federal Circuit's rulings as to whether an invention is on-sale for purposes of the ' 102(b) bar have been clear. Generally, the Federal Circuit has had minimal difficulty in applying Pfaff to determine whether an invention has been the subject of a commercial sale. The court has been similarly unambiguous in applying the “ready for patenting” prong of the Pfaff analysis. In contrast, the Federal Circuit seems to have struggled at times in determining whether an invention has been the subject of a commercial “offer for sale.”

In deciding whether there has been a commercial “offer for sale,” the Federal Circuit has been guided by principles of contract formation. In keeping with these principles, the Federal Circuit has looked to whether a commercial offer is definite enough that the other “party could make a binding contract by simple acceptance, assuming consideration.” Atlanta Attachment Co. v. Leggett & Platt, Inc., 516 F.3d 1361, 1365 (Fed. Cir. 2008) (citing Netscape Commc'ns. Corp. v. Konrad, 295 F.3d 1315, 1323 (Fed. Cir. 2002)). Similarly, in making this “definiteness” determination, the Federal Circuit has parsed the language of the offer in accordance with principles of construction under general contract law. See Enzo Biochem, Inc. v. Gen-Probe Inc. , 424 F.3d 1276, 1281 (Fed. Cir. 2005).

The Federal Circuit has ruled that an attempt to sell will be enough to establish an offer for sale for purposes of ' 102(b) “if it rises to an offer upon which a contract can be made merely by accepting it.” Atlanta Attachment Co., 516 F.3d at 1365. Thus, for example, in Atlanta Attachment Co., the Federal Circuit held that the patentee's sending, and buyer's resulting payment, of an invoice for a prototype of the invention were together sufficient to establish a ' 102(b) sale ' even though the prototype was never delivered to the buyer ' because these acts constituted sufficient offer and acceptance to satisfy the statute. Id.

In contrast, in Elan Corp., PLC v. Andrx Pharms., Inc. , 366 F.3d 1336, 1341 (Fed. Cir. 2004), where the patent owner sent multiple letters offering to sell his invention, the court ruled that these letters failed to constitute a cognizable offer. This ruling would seem contrary to the teaching of Atlanta Attachment, since in Atlanta Attachment, the court held that a contract can be made merely by accepting the terms of a bare invoice. 516 F.3d at 1365. In Elan, however, although the letters disseminated by the patent owner contained both material price and quantity terms, they were nonetheless ruled insufficient to invite a contractually binding acceptance. Elan, 366 F.3d at 1341. Given the specific, definite, and material content of these letters, it appears that the holding of Elan is at odds with that of Atlanta Attachment.

'Ready for Patenting'

With regard to the second prong of the Pfaff test, namely whether the invention was “ready for patenting,” the Federal Circuit has looked closely at the facts of the case to determine whether, as of the critical date, the invention had been: 1) reduced to practice, or 2) sufficiently described to allow a person of ordinary skill in the art to make the invention. See Honeywell Int'l Inc. v. Universal Avionics Sys. Corp. , 488 F.3d 982, 996 (Fed. Cir. 2007). In making these determinations, the Federal Circuit has shown flexibility, for example, in admitting the use of declarations submitted to the Patent Office as evidence that the invention had been reduced to practice prior to the critical date. See, e.g., In re Cygnus Telecomm. Tech., LLC v. AT&T Corp., 536 F.3d 1343, 1353 (Fed. Cir. 2008). However, even when allowing that the invention has been reduced to practice or sufficiently described, the Federal Circuit has held that the “ready for patenting” requirement cannot be satisfied unless the invention also works for its intended purpose. See Honeywell Int'l, Inc. at 997; EZ Dock v. Shafer Sys., Inc. , 276 F.3d 1347, 1351 (Fed. Cir. 2002).

Conclusion

Pfaff has brought clarity to the on-sale bar analysis and has become a cornerstone of patent law precedent. The “totality of the circumstances” test the Federal Circuit applied prior to Pfaff provided little guidance as to how a court should determine whether patent claims run afoul of the on-sale bar. The Supreme Court's two-pronged Pfaff test made straightforward a very fact-intensive analysis. The Federal Circuit's application of this test has shown that when there is a clear rule, the Federal Circuit can be consistent in applying it.

Robert W. Morris is a partner and Franciscus Ladejola Diaba is an associate at Kramer Levin Naftalis & Frankel LLP.