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IP Alert: Offer Made by Supplier Can Result in On-Sale Bar

August 15, 2013

Yesterday, in Hamilton Beach Brands, Inc. v. Sunbeam Products, Inc., the Federal Circuit clarified the statutory “on-sale” bar under 35 U.S.C. § 102. The court held that a statutory bar may arise when the patentee’s supplier offers to sell the patented product to the patentee more than one year before the effective filing date of the patent. The court addressed the on-sale bar under the pre-America Invents Act (AIA) version of section 102 and did not comment on how the post-AIA version would apply.

Hamilton Beach and Sunbeam are competitors in the small kitchen appliance industry. The case concerned slow cookers, which are electrically heated pots that are used to cook food at low temperatures for long periods. Sunbeam sold a slow cooker product that competed with a similar product sold by Hamilton Beach, and Hamilton Beach sued Sunbeam for patent infringement.

At the district court, Sunbeam established that Hamilton Beach’s foreign supplier had offered to sell the commercial embodiment of the patent in suit to Hamilton Beach more than one year before the patent’s effective filing date. The offer was received by Hamilton Beach in the United States. The district court held that the patent was therefore invalid in light of this prior offer for sale. Hamilton Beach appealed.

On appeal, the Federal Circuit affirmed. In Pfaff v. Wells Electronics, Inc., the U.S. Supreme Court held that the on-sale bar applies when two conditions are satisfied: (1) the claimed invention must be the subject of a commercial offer for sale; and (2) the invention must be ready for patenting. An invention is “ready for patenting” when it is reduced to practice or is depicted in drawings or described in writings of sufficient nature to enable a person of ordinary skill in the art to practice the invention. Following Pfaff, the Federal Circuit determined that the supplier had made a commercial offer for sale accompanied by mechanical drawings that would enable a person skilled in the art to practice the claimed invention. The court held that it was of no consequence that the commercial offer for sale was made by the patentee’s own supplier to the patentee itself. Also, the court observed that prior case law had established that an offer for sale made by a foreign entity to a U.S. customer at its place of business in U.S. may serve as an invalidating offer for sale.

Hamilton Beach argued that certain contractual terms in the offer signified that the offer was not legally valid because it required that a certain condition be met before Hamilton Beach could accept the offer. The court rejected this argument because, under Pfaff, invalidating activity can occur via an offer for sale alone, and it was undisputed that the offer for sale would have been effective had the condition been satisfied. Hamilton Beach further alleged that the subject matter that had been offered for sale failed to fully meet the claims of the patents. The Federal Circuit rejected this argument because “as an admitted commercial embodiment of the patent-in-suit,” these drawings “would meet every limitation of the asserted claims.”

In dissent, Judge Reyna argued that the majority’s decision portended “grave consequences” for innovation and experimental use. The dissent expressed concern about implications for future innovators, including especially small enterprises that lack in-house prototyping and fabricating capabilities.

The Hamilton Beach decision is noteworthy for its explication of the on-sale bar as applied to commercial suppliers. It remains to be seen how the post-AIA version of section 102 would apply to similar circumstances.

For more information, please contact Fitch Even partner Mark W. Hetzler, the author of this alert.

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