Ticking Time Bomb

Many universities, corporations, and other organizations relying on U.S. government funding to support their development efforts may be surprised to learn their grant proposal, research and development contract, or other funding vehicle can hold a ticking time bomb that can devastate their patent rights later on.

The ticking time bomb is the “offer for sale” that is often part-and-parcel of any proposal or contract requiring a “deliverable” as a condition for receiving funds – even if the primary purpose of the funding is to allow “investigation” or “research.”

In the wake of the U.S. Supreme Court’s landmark decision in Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), those accused of infringing U.S. patents have been wise to investigate the pre-filing activities of the patent holder and others to determine whether a “commercial offer for sale” of the patented invention occurred more than one year before a patent application was filed. (It is irrelevant whether the patentee or some other person or entity made the “offer for sale;” an invalidating “offer for sale” can even be communicated to the patentee by a prospective manufacturer of the patentee’s goods.)

The court in Pfaff held the “on-sale bar” provision of the patent statute applies in any circumstance where, more than a year before a patent’s effective filing date, the invention was (1) the subject of a commercial offer for sale, and (2) ready for patenting.

The on-sale bar creates a “critical date” one year before an application is filed, which is the earliest date the commercial offer for sale of an invention could have occurred without invalidating patent claims covering that invention.

There does not have to be a completed sale of an invention before the critical date to render a patent invalid. A commercial offer for sale is all that is required.

The on-sale bar applies when a product that is sold (or offered for sale) before the critical date anticipates the later patented invention (i.e., includes all the limitations of the patent’s claims), and also applies when “the subject matter of the sale or offer to sell . . . would have rendered the claimed invention obvious by its addition to the prior art.”

It is based on 35 U.S.C. ��(b), which states a patent application cannot issue if the subject matter claimed in the application was “on sale in this country, more than one year prior to the date of the application for patent in the United States.”

Note that most foreign countries do not provide any grace period for filing a patent application following public disclosure or commercialization of an invention.

Courts have relied on established principles of contract law in interpreting the “commercial offer for sale” prong of the Pfaff test, and have defined an “offer” as “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.”

Likewise, courts have defined a “sale” in this context as a “contract between parties to give and pass rights of property for consideration which the buyer pays or promises to pay the seller for the thing bought or sold.”

Under these definitions, any proposal for a government grant, R&D contract, etc., that requires the delivery of an item to the funding entity could be considered an “offer for sale” of such an item.

The offer for sale does, of course, need to be an embodiment of the patented invention or an obvious variant of it. If the pertinent nature of the deliverable was not determined at the time the offer was made, and was not subsequently solidified prior to the critical date, then there will be no bar

If the vagueness in the nature of the deliverable is clarified at some point before the critical date, however, the on-sale bar may be triggered.

A sale will be deemed “experimental” rather than “commercial” – and thus not trigger the on-sale bar – if it can be proven that the primary purpose of providing a deliverable to the funding entity was to allow the inventors to conduct experimentation reasonably related to reducing the invention to practice.

If the purpose of providing the deliverable was merely to give the government a benefit of the bargain, not to allow experimentation, there is no refuge in the “experimental use” exception to the on-sale bar.

Under the second part of the Pfaff test, an on-sale bar will be triggered only if, prior to the critical date, the invention was developed to the point where it was “ready for patenting.” An invention will not be considered ready for patenting when the details necessary for preparing an enabling patent disclosure were conceived after the critical date, even if the limitations of the claims at issue had been conceived before it.

Whenever an invention has been developed to a point where a patent application could have been filed, however, it will be deemed to have been ready for patenting, regardless of the amount of subsequent developmental work performed

Even if an invention was not ready for patenting when an offer for sale was originally made, further development of the invention prior to the critical date can lead to an on-sale bar if an enabling disclosure could have been prepared based on such interim work.

Thus, if your organization relies on government funding to support its development efforts, take care when specifying deliverables in funding proposals. Failure to timely file a patent application can lead to a devastating loss of patent rights in at least some circumstances.

Robert M. Abrahamsen is a shareholder and member of the litigation group at Boston-based Wolf, Greenfield & Sacks, P.C., a leading intellectual property law firm. Bob can be reached at (617) 646-8256 or [email protected].