Processing All Things Federal Circuit
May 10, 2022 - Federal Circuit Insights

Last Week In The Federal Circuit (May 2-6): Experimenting With The On-Sale Bar

Last Week In The Federal Circuit (May 2-6): Experimenting With The On-Sale Bar

With another busy week of arguments last week, the Federal Circuit took a break from issuing precedential decisions. But it still pushed out several non-precedential decisions along with some quick affirmances without opinions from the week’s arguments. Below we provide our usual weekly statistics and a detailed discussion of our case of the week—our highly subjective selection based on whatever case piqued our interest.

Precedential opinions: 0

Non-precedential opinions: 10

Rule 36: 9

Longest pending case from argument: Auris Health, Inc. v. Intuitive Surgical Operations, No. 21-1733 (55 days)

Shortest (non-Rule 36) pending case from argument: Sheppard v. McDonough, No. 21-1928 (2 days)

Case of the (recent) week: Sunoco Partners Marketing & Terminals L.P. v. U.S. Venture, Inc., No. 20-1640

Panel: Prost, Reyna, and Stoll, with Judge Prost writing the opinion

You should read this case if: you have a matter involving the on-sale bar.

Under the pre-AIA version of 35 U.S.C. § 102, selling an invention more than a year before filing a patent application potentially invalidated any later-issued patent. But in the face of potential proof of an invalidating sale, a patent owner could argue an exception—that the sale occurred primarily for the purposes of experimentation. This week’s case-of-the-week deals with this experimental-use exception to the on-sale bar.

The case involves Sunoco and U.S. Venture, competitors in the market for gasoline distribution. Sunoco sued Venture for supposedly infringing several butane-blending patents. Venture argued, among other things, that the patents were invalid because of an offer for sale that occurred more than a year before patenting. That offer had involved an agreement to sell and install an automated butane-blending system in exchange for a commitment to purchase a specific number of barrels of butane for a set period. The district court held at summary judgment that the offer for sale was primarily for experimental purposes and so did not trigger the on-sale bar. Sunoco then won a multi-million dollar judgment in a bench trial.

On appeal, the Federal Circuit reversed the district court’s on-sale-bar determination and vacated the judgment. The Court reviewed the question of whether the pre-patenting sale was for experimental or commercial purposes as “a question of law to be analyzed based on the totality of the surrounding circumstances.” The question turned on “the law of contracts.” The Court noted that the agreement itself described the transaction as a sale, “without reference to any experimental purpose.” The agreement used language consistent with a sale, referring to selling and installing the purchased equipment. The language also showed transfer of title over the installed equipment, another fact common to a commercial sale.

The Federal Circuit rejected the district court’s reasoning that the sale was experimental because there was no direct payment for the patented butane-blending system. In the Court’s view, the purchaser had purchased the patented butane-blending system in exchange for committing to buy butane from the seller going forward. The Court explained that the agreement repeatedly interrelated the transfer of the patented system with the purchase of butane barrels going forward. For example, if intervening events prevented the purchaser from purchasing the agreed-upon number of barrels, the agreement provided for a termination fee “representing the balance of the purchase price of the Equipment.”

Although the agreement also included a section titled “Equipment Testing,” the Federal Circuit read that section as merely indicating that the seller would ensure the patented system satisfied minimum operating standards. Such testing was consistent with the sale being for commercial purposes. That made it clear that any testing “occurred to effectuate the sale, rather than the sale occurring to occasion the testing.”

In the end, the Court held that the totality of circumstances showed that “the primary purpose of the inventor at the time of sale, as determined from an objective evaluation of the facts surrounding the transaction,” was commercial and not “to conduct experimentation.” The district court thus had erred in applying the experimental-use exception to the on-sale bar.