ARTICLE
26 March 2025

The On-Sale Bar And Commercial Exploitation By Patentees

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Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

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The patent system rewards inventors by granting them exclusive rights, including allowing them to commercially exploit their inventions for the full patent term...
United States Intellectual Property

Introduction

The patent system rewards inventors by granting them exclusive rights, including allowing them to commercially exploit their inventions for the full patent term, in exchange for disclosing their inventions to the public. This is commonly referred to as the "patent bargain." However, given these lengthy exclusive rights, it is essential to prevent a patentee from commercially exploiting an invention for even longer than the 20-year statutory term. The on-sale bar addresses this issue.

The U.S. Supreme Court and U.S. Court of Appeals for the Federal Circuit have specified a multi-pronged analysis for determining whether the on-sale bar applies. But decisions such as Crown Packaging Tech., Inc. v. Belvac Prodn. Mach., Inc., 122 F.4d 919, 924 (Fed. Cir. 2024) and others suggest the on-sale bar analysis actually rests on a context-driven approach of determining whether actions by patentees (in Part I of this series) or the patentee's suppliers or third-parties (in Part II of this series) demonstrate attempts to "commercially" exploit an invention for longer than the statutory term.

Background

The on-sale bar has been part of the patent code for almost 190 years. See Patent Act of 1836, ch. 357, § 6, 5 Stat. 117, 119; Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 65 (1998). It prevents a patent applicant from commercially exploiting the invention before the required time for filing. The current on-sale bar is codified in § 102(a)(1), defining prior art under § 102 and § 103 to include subject matter "in public use, on sale, or otherwise available to the public before the filing date of the claimed invention." 35 U.S.C. § 102(a)(1)(emphasis added).

In Crown Packaging, the Federal Circuit listed five factors for an on-sale bar under the pre-America Invents Act (AIA) version of the statute, § 102(b):

"The statute requires that (1) the subject of the offer for sale must embody the claims of the asserted patent; (2) the offer for sale must have been 'in this country'; and (3) the offer for sale must occur before the critical date of the asserted patent. Meds. Co v. Hospira, Inc. (Medicines I), 827 F.3d 1363, 1372, 1374 (Fed. Cir. 2016) (en banc) (quoting 35 U.S.C. § 102(b) (pre-AIA)).

Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), also makes clear that, for the on-sale bar to apply, two additional conditions must be met before the critical date: the invention is (4) 'the subject of a commercial offer for sale' and (5) 'ready for patenting.' Id. at 67; see also Quest Integrity USA, LLC v. Cokebusters USA Inc., 924 F.3d 1220, 1227 (Fed. Cir. 2019) (citing Pfaff, 525 U.S. at 67)."

122 F.4d at 924. Although Crown Packaging involved a pre-AIA patent, the same analysis applies post-AIA, except that § 102(a)(1) does not require the sale to have been made "in this country" (factor (2) above). Thus, for post-AIA patents, factor (2) does not apply.

A five-factor test under § 102(b), or a four-factor test under § 102(a)(1), may seem daunting to a defendant in patent litigation. In reality, factors (2) (if applicable) and (3) rarely require in depth analysis, as it is usually clear when and where an alleged offer was made.

Further, although factor (1) refers to the subject matter of the offer for sale embodying the claims of the asserted patent, it has long been accepted that the on-sale bar applies when assessing obviousness as well as anticipation, thus limiting the analysis required by the court. See LaBounty Mfg., v. U.S. Int'l Trade Comm'n, 958 F.2d 1066, 1071 (Fed. Cir. 1992) ("'If a device was in public use or on sale before the critical date, then that device becomes a reference under section 103 against the claimed invention.'") (quoting Baker Oil Tools v. Geo Vann, Inc., 828 F.2d 1558, 1563 (Fed. Cir. 1987)).

The remaining Crown Packaging factors for the on-sale bar are those articulated by the Supreme Court in Pfaff: the invention must have been (4) the subject of a commercial offer for sale, and (5) ready for patenting. Pfaff, 525 U.S. at 67.

Federal Circuit decisions discussing these issues focus on evidence of commercial exploitation (or lack thereof). See, e.g., Honeywell Int'l Inc. v. Universal Avionics Sys. Corp., 488 F.3d 982, 996-97 (Fed. Cir. 2007) (determining that proposed commercial terms regarding a piloting program product were conditioned on successful testing, indicating that the system was neither "ready for sale" (factor (4)) or "ready for patenting" (factor (5))).

Consequently, court holdings often rest on a contextual analysis of whether a party's pre-critical date "activities [] would be understood to be commercial sales and offers for sale 'in the commercial community.'"Meds. Co. v. Hospira, Inc., 827 F.3d 1363, 1373 (Fed. Cir. 2016) (en banc).

Commercial exploitation of the invention

Sales by the patentee

The most common fact pattern for the on-sale bar involves pre-filing sales by the patentee of the claimed device or composition. For example, in Crown Packaging, a European subsidiary of Crown sent a "quotation" letter to potential customer (Complete) at that company's address in Colorado. 122 F.4d at 922-23. The quotation was for a CMB3400 necking machine, a high-speed machine for forming the neck portion of metal cans. Id.

Crown prevailed on its cross-motion for summary judgment at the district court regarding the on-sale bar. On appeal, Crown argued that a commercial offer for sale had not been made (factor (4) discussed above), and that the offer had not been made in the United States (factor (2) above).

Most of the Crown Packaging Court's analysis was devoted to dissecting the commercial nature of Crown's agreement with Complete.

First, the Federal Circuit concluded that the "quotation" was sufficiently definite to be considered a commercial offer for sale based on general contract law principles. Id. at 925. The appellate court noted that regardless of how the quotation letter was labeled, Crown had specifically sought out a potential customer, Complete. Id. at 925-26.

The court further emphasized that the letter included a detailed description of the CMB3400 product, listed a price for this product, and obligated Complete to pay 50% of that price up front with its order. Id. The letter likewise specified the timing of delivery, outlined the location for delivery, and specified that the offer was subject to Crown's standard "conditions of sale" that were to follow. Id.

Next, the Federal Circuit addressed Crown's argument that its unilateral ability to reject the order meant an offer for sale had not been made. Id. at 927-28. The court noted that it had previously found the on-sale bar to apply "notwithstanding the [patentee's] ability to reject orders." Id. at 927. Here, the court indicated that the terms of the letter obligated some form of performance by both parties, requiring Complete to pay an up-front price and Crown to immediately begin filling the request. Id.

The court also looked to Crown's treatment of similar orders, finding that Crown commonly treated orders from customers as effective upon receipt. In other words, had Complete responded to Crown's letter, there would have been a valid contract.

Considering the specific contractual terms and ability for the customer to commence performance of the contractual terms, the court ultimately concluded that "taken as a whole, the letter to Complete was a commercial offer for sale."Crown Packaging, 122 F.4d at 928.

The Federal Circuit has also made clear, through cases such as Celanese Int'l Corp. v. U.S. Int'l Trade Comm'n, that this on-sale bar analysis applies when a patentee later patents a process for making products that were sold before the critical date, in distinction to patenting the products themselves. 111 F.4th 1338 (Fed. Cir. 2024).

In Celanese, the patent owner asserted at the International Trade Commission (ITC) a patent claiming a process for making Ace-K, an artificial sweetener. It was undisputed that Celanese's patented process had been in secret use in Europe before the critical date, and that Celanese commercially sold Ace-K manufactured using this process. Id. at 1340-41.

In holding that the on-sale bar applied to the asserted process claims, the court reiterated that "[w]hatever the type of invention, the on-sale bar precludes one from commercially exploiting the invention and then continuing that exploitation through a patent, effectively extending the statutory term." Id. at 1346. Thus, a court's analysis of whether commercial exploitation has occurred is not limited by the type of patent a patentee has obtained.

Conclusion

When considering whether to raise an on-sale bar challenge, defendants should place particular emphasis on demonstrating the commercial character of a transaction. Although it is still necessary to prove the elements of the multi-factor tests of Crown Packaging and Pfaff, defendants should understand that this is not a rigid analysis. Instead, evidence indicating that an invention was previously commercially exploited by the patentee can be used to demonstrate that patent exclusivity would be at odds with the patent bargain.

Originally Published by Reuters

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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