Licensing of a Method Does Not Place the Method on Sale

In vacating a decision by the U.S. Patent and Trademark Office Board of Appeals & Interferences, the U.S. Court of Appeals for the Federal Circuit held that granting a royalty bearing license to use a method and conveying technical know-how related to implementing the method does not place the method on sale because the method is not carried out as a result of the transaction. In re Kollar, Case No. 01-1640 (Fed. Cir., April 11, 2002).

Redox Technologies, Inc., the assignee of Kollar, filed a patent application directed to a process for preparing a dialkyl peroxide. Approximately 15 years prior to its filing date, Redox reduced the invention to practice and entered into an agreement with Celanese Corporation for the purpose of "conducting research and development (R&D) in the Field … with a goal to achieving, by the end of 5 R&D years, Celanese approval for a commercial plant in the Field." In the agreement, Redox, in exchange for a series of annual royalty payments, licensed to Celanese a method covered by the claims of the Kollar application and disclosed to Celenese technical information concerning the claimed process.

The Board held that the agreement constituted a firm offer to sell embodiments of the claimed process, thus triggering an on-sale bar. The Board reasoned that Redox had granted to Celanese a "right to commercialize" Kollar’s invention and disclosed to Celanese the necessary technical information to utilize that invention in exchange for royalty payments, which constituted the firm offer to sell. On rehearing, the Board further stated that "a claimed process can be physically represented by a written description in a document which not only identifies the process but also enables the practice of that chemical process by one of ordinary skill in the art," and that transferring this written description for consideration is a commercial exploitation of the claimed process.

The Federal Circuit reversed, noting that, although the claimed method was ready for patenting (under the second prong of the Pfaff test), it was not the subject of a commercial offer for sale (the first prong of the Pfaff test). The Federal Circuit noted that a claim to a process, unlike a claim to a device or apparatus, consists of doing something, and, therefore, has to be carried out or performed. Thus, the Federal Circuit reasoned that the grant of a license to perform a process and conveyance of know-how describing the process and how it should be carried out, "is not a ‘sale’ of the invention within the meaning of § 102(b) because the process has not been carried out or performed as a result of the transaction." The Court noted that the sale of a product will bar the process used to make the product because, under its Chroma Graphics decision, the process is being commercialized. The Court also noted that the sale of a product used to perform a claimed process will bar claims to the process (citing Petrolite) and actually performing (or offering to perform) the process for consideration will bar claims to the process (citing Scaletech).

The Court went on to explain that early licensing of an invention is not inconsistent with the traditional policies underlying the on-sale bar because "licenses further the objective of making inventions available to the public by enabling inventors to place their inventions into the hands of parties that are in a better position to commercialize the invention and thus disclose it to the public." The Court also explained that although an inventor may economically benefit from licensing his invention, the license "is only part of the pre-commercialization process aimed at making the invention commercial."