Overview of the On-Sale Bar
Novelty and non-obviousness requirements for patentability are assessed based on the contents of the “prior art”. Older patents and publications generally count as prior art. But public uses and on sale activities can count as prior art too. Prior “on sale” and public use activities of others (competitors) generally constitute prior art. Though an inventor’s own activities can potentially be treated as prior art as well. An inventor placing his or her claimed invention on sale prior to filing a patent application may be treated as prior art against that later application, unless a patent filing grace period applies. To account for the 1-year statutory grace period, it is common to say that an “on-sale bar” arises when an invention is commercially exploited by an inventor before a “critical date” that is one year prior to the effective filing date of the relevant claim(s) of the patent application. If an “on-sale bar” applies, it qualifies as prior art under 35 U.S.C. § 102(a)(1) against a given claim, for both novelty and obviousness analyses. Under current U.S. law, the on-sale bar applies to commercial sales activities that happen anywhere in the world—though older (pre-AIA) laws limited it to on-sale activities involving the U.S.
There are some nuances as to what does or does not qualify as placing an invention “on sale”. A two-part test is applied in the U.S. A patent claim is invalid or unpatentable under the on-sale bar if, before the critical date, the invention was both:
- the subject of a commercial sale or offer for sale; and
- “ready for patenting.”
Pfaff v. Wlls Elecs., Inc., 525 U.S. 55, 67 (1998).
This analysis hinges on how an invention is claimed. Depending on what specific subject matter is claimed in a patent or patent application, and how broadly or narrowly it is claimed, the on-sale bar analysis may lead to different conclusions. Also, the on-sale bar is subject to an experimentation exception when an inventor’s own activities are involved.
On-sale bars differ by jurisdiction. Many other countries have an absolute novelty requirement without a patent filing grace period. And some other countries have no on-sale bar at all, or one that applies only to sales in that particular country. It is important to consider the specific law in each individual country where patent protection is sought if sales activities have already taken place. Commercial exploitation of an invention might bar patenting in some countries but not others, depending on the specific circumstances involved.
Furthermore, it is important to note that the on-sale bar is just one among many potential bars to patentability. Public use or printed publication bars, for instance, might arise out an inventor’s or competitor’s activities occurring prior to filing a patent application.
Purpose
The on-sale bar serves a number of purposes. Principally, it avoids an extension of patent protection beyond the statutory term. Modern patent laws are premised on granting only a limited monopoly in a claimed invention in exchange for disclosure of the invention. If an inventor could commercially exploit or profit from an invention and then much later still seek a patent, the expiration of that patent would effectively be extended beyond the intended duration limits. Also, the public notice function around the exclusive rights granted in patents would be frustrated if patent rights could spring up long after an invention became commercially available. The on-sale bar also protects the public’s right to retain knowledge already in the public domain.
When dealing with an inventor’s own actions, this means an inventor has to make a choice between patenting his or her invention or keeping it secret:
“it is a condition upon an inventor’s right to a patent that he shall not exploit his discovery competitively after it is ready for patenting; he must content himself with either secrecy, or legal monopoly.”
Metallizing Eng’g Co. v. Kenyon Bearing & Auto Parts Co., 153 F. 2d 516, 520 (2nd Cir. 1946)
Inventors are not permitted to have things both ways, or, to have their cake and eat it too. Though, in practical terms, not all inventions lend themselves to secrecy. It may be possible to maintain secrecy over certain manufacturing processes or the identities of certain materials used in a liquid solution—like a proverbial “secret formula”. But it is usually impossible to keep the physical/mechanical configuration of a product secret except by not selling or publicly using it at all. That means patent protection may be the only way to have market exclusivity in certain types of inventions.
U.S. patent laws do, however, provide a one-year grace period for patent filings, unlike many other countries. And an inventor’s own experimental activities are excepted from the on-sale bar. But these are essentially the only exceptions to a general policy requiring that inventors promptly seek patent protection or forfeit rights patent rights by commercializing their inventions.
Another important purpose of the on-sale bar mentioned above is to prevent patents from removing things that are already commercially available from the public domain. While much of the discussion that follows emphasizes inventors’ own activities, which is often the primary question when these issues arise, on-sale bars can apply to commercial activity by anyone. If someone else had already placed something on sale, it usually counts as prior art against a later-filed patent claim (unless the later-filing inventor qualifies for the prior disclosure exception under 35 U.S.C. § 102(b)(1)(B)). It does not matter if the person or entity that previously commercialized something chose not to patent it. The on-sale bar is an independent bar to later patenting that does not depend on someone having previously patented or attempted to patent something.
Sales
Commercial sale of an invention before the critical date gives rise to an on-sale bar. Though a sale for experimental purposes is distinguished from a commercial sale and is excluded from the on-sale bar. A commercial sale normally involves transferring property rights (that is, title to the goods) for consideration that the buyer pays or promises to pay the seller for the thing bought or sold. However, in this context, commercially leasing an inventive product is treated as a commercial sale even though title to the goods is not transferred—this includes standard computer software licenses for software-enabled inventions, for example. Even a single commercial sale can give rise to an on-sale bar. It does not matter whether or not the details of the invention are made available to the public through the sale, or that it was a sale subject to buyer approval (that is, in a “sale on approval” where the buyer could potentially return the goods to the seller). Moreover, using an inventive product while providing commercial services triggers the on-sale bar too.
When an invention is for a method or process, a sale of that inventive method or process before the critical date will give rise to an on-sale bar. For example, if an invention is a method of manufacturing something, selling goods manufactured using that inventive process constitutes a sale. Additionally, selling a product that embodies the essential features of an inventive method of use will constitute an on-sale bar for the claimed method of use. However, whether inventive activity pertains to an invention involving a method, an apparatus, or both, may not be apparent until a patent application is prepared—or possibly not until much later when particular claims are allowed or granted.
Merely licensing or assigning rights to an invention does not constitute a sale. Though a commercial sale of an invention by a licensee before the critical date would give rise to an on-sale bar, because the licensee is considered to stand in the shoes of the patentee, and that would include commercial use of a method of making a product by a licensee.
However, an inventor outsourcing manufacturing to validate the manufacturing process for regulatory approval only and stockpiling the invention only for that inventor do not, without more, constitute a sale where the inventor maintains control of the invention. But commercial agreements between a patentee and its supplier or distributor are not exempt from the on-sale bar, such as where title to the goods passes to the distributor or where the manufacturer/supplier is free to market the product or disclose the process for manufacturing the product to others. Also, method or process inventions cannot be stockpiled, and outsourcing the commercial use of an inventive method/process of making something would generally trigger the on-sale bar.
Commercial Offers for Sale
A commercial offer for sale before the critical date, without a sale actually being completed, also establishes an on-sale bar. The U.S. Supreme Court has described commercial offers for sale as occurring when an invention is first marketed commercially. The offer must be commercial rather than experimental in character, just as with completed sales. Also, as with completed sales, a commercial offer for sale of a method/process invention before the critical date give rise to an on-sale bar, though mere licenses and assignments of rights do not.
However, lower courts have effectively read-in a significant limitation on what constitutes a “commercial offer for sale” based on commercial contract law. “Only an offer which rises to the level of a commercial offer for sale, one which the other party could make into a binding contract by simple acceptance (assuming consideration), constitutes an offer for sale . . . .” Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1048 (Fed. Cir. 2001). Lower courts have pointed to general commercial law for these determinations rather than the law of the particular state where the transaction took place, looking to the Uniform Commercial Code (UCC) for guidance. Though the UCC does not define “offer”. So courts have further looked to the Restatement (Second) of Contracts, which says, “An offer is 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.” (§ 24). The Restatement also says there must be intent to be bound, because “[a] manifestation of willingness to enter into a bargain is not an offer if the person to whom it is addressed knows or has reason to know that the person making it does not intend to conclude a bargain until he has made a further manifestation of assent.” (§ 26). Although no particular language is required to constitute an offer for sale, lower courts have said (citing and extending § 33(3) of the Restatement, which says that leaving proposed term(s) open indicates a non-“offer”) that a communication that fails to include material terms (such as quantities, time of delivery, place of delivery, or product specifications) is not an “offer” in the contract sense. Though a “quote” (sent in response to a request for quotation) has been considered equivalent to a commercial offer for sale when it included essential price, delivery, and payment terms (plus alternative product amounts that reflected multiple distinct offers for sale).
These judicially-created limitations on commercial offers for sale mean that the standard is an ambiguous one based on the involved parties’ subjective intents and understandings, rather than a bright-line one. As long as current lower court interpretations prevail, whether a communication naming a price constitutes a commercial offer for sale or mere preparations for future offers for sale (that alone do not give rise to an on-sale bar) depends upon the facts and circumstances of each particular case. So early sales, marketing, and promotional efforts may or may not trigger the on-sale bar, depending on the circumstances (including whether and how a customer responds to them). A salesperson vaguely discussing the possibility of offering a product in the future without the potential customer actually being able to accept a specific offer on specific terms may not qualify as a “offer for sale” under current lower court case law.
Keep in mind that other types of bars to patentability might apply even if there was no sale or commercial offer for sale. For instance, an advertisement of an invention before the critical date might qualify as a “printed publication” bar instead of (or in addition to) an on-sale bar. And a non-experimental public use of an invention before the critical date would give rise to a public use bar. The on-sale bar is only one among many potential bars to patentability that must be considered.
Secret Sales & Offers for Sale
In the U.S., the on-sale bar still applies to a confidential, private, or otherwise secret commercial sale or offer for sale before the critical date. This means that merely having a non-disclosure agreement (NDA) or other contractual confidentiality terms in place will not avoid triggering an on-sale bar. An NDA might still help establish that a sale or offer for sale was primarily experimental rather than commercial, depending on all the other relevant circumstances. And the existence of an NDA may mean that a given use of an invention does not give rise to a public use bar or that the confidential exchange of documents does not constitute a printed publication bar. Moreover, an NDA may make discovery of prior sales by third parties difficult to identify. But any commercial sale or offer for sale of an invention triggers the on-sale bar, regardless of the public versus confidential/secret nature of such commercial exploitation. While having an NDA in place may have certain advantages for the parties involved, it will not avoid an on-sale bar in the U.S. when there has been non-experimental commercial exploitation.
Applicable law in other countries may be different, however. Indeed, countries that lack a distinct on-sale bar might even allow a later inventor to obtain a patent and enforce it against the prior inventor who did not patent or publicly use the invention (because all use was confidential rather than public).
Experimentation Exception
There is an experimental sale exception to the on-sale bar. A sale or offer for sale that is primarily for experimental purposes, as opposed to commercial exploitation, does not raise an on-sale bar. Though the experimental sale exception applies only if the commercial exploitation is merely incidental to the primary purpose of experimentation to perfect the invention.
Only certain activities are considered experimental, depending on the purpose or intent behind them. A use may be “experimental” only if it is designed to: (1) test claimed features of the invention, or (2) determine whether an invention will work for its intended purpose. This judicial definition of what is experimental applies to both the public use bar and the on-sale bar. But experimental use cannot occur after an invention has actually been “reduced to practice”; once an inventor realizes that the invention as later claimed indeed works for its intended purpose, further alleged “experimentation” may constitute a public use and/or on-sale bar. Similarly, a contract characterizing commercial activities as “equipment testing” will be insufficient to establish experimental use if unnecessary, that is, if the testing could have been performed satisfactorily before or without the sale.
Courts have applied the following factors to determine if a sale constitutes experimentation or commercial exploitation, though not all factors will apply in any given situation:
- the necessity for public testing,
- the amount of control over the experiment retained by the inventor,
- the nature of the invention,
- the length of the test period,
- whether payment was made,
- whether there was a secrecy obligation,
- whether records of the experiment were kept,
- who conducted the experiment,
- the degree of commercial exploitation during testing,
- whether the invention reasonably requires evaluation under actual conditions of use,
- whether testing was systematically performed,
- whether the inventor continually monitored the invention during testing, and
- the nature of contacts made with potential customers.
Allen Eng’g Corp. v. Bartell Indus., Inc., 299 F.3d 1336, 1353 (Fed. Cir. 2002).
While the experimentation exception to the on-sale bar has long been recognized in the U.S., it is rather difficult for an inventor to qualify for it. Successfully invoking it might even be more rare in the on-sale bar context than in the public use context. So think of it almost like a unicorn defense against invalidity. And when a patent is enforced, any reliance on this experimentation exception by the patentee is certain to be challenged by the accused infringer. Therefore, it may be advisable in many situations to avoid relying on it (other than as a backup plan or “plan B” fallback position). A better strategy is to file a patent application before accepting or seeking any payment for an invention, or at least to file within one year of any payment, request for payment, or any other activities that could potentially be seen as exploiting or seeking to profit from an invention.
All this makes sense if we turn back to the basic purposes of the on-sale bar. The experimentation exception arises because the inventor is not really extending the expiration of patent rights when he or she is not yet certain that the invention is viable or complete. A key reason the experimentation exception against the on-sale bar is so rarely established is that inventors normally don’t try to sell inventions that they know are not yet in working order. When they have sold or offered to sell things, that tends to give rise to an inference that the inventor really did believe the invention was sufficiently workable for the buyer’s purposes (despite after-the-fact inventor denials that often come across as self-serving). If anything, the exception is more likely to apply where the only reasonable experimental testing involves using the invention in connection with commercial services under close supervision—as in the famous case City of Elizabeth v. American Nicholson Pavement Co., 97 U.S. 126 (1878) where the inventor garnered more sympathy than most.
“Ready for Patenting”
An invention is “ready for patenting” when, prior to the critical date, the invention is either: (1) reduced to practice; or (2) depicted in drawings or described in writings of sufficient nature to enable a person of ordinary skill in the art to practice the invention.
Reduction to practice means being embodied in a distinct form, like through construction of a working prototype. Reduction to practice happens when occurs when the inventor/seller had possession of the claimed subject matter and that it was shown or known to work for its intended purpose. For something to qualify as a reduction to practice, it must show that the invention works for its intended purpose beyond a probability of failure but that need not be established beyond a possibility of failure. Importantly, reduction to practice does not require that the invention, when tested, be in a commercially satisfactory stage of development—for utility patents this analysis is from the standpoint of technical feasibility rather than marketability or saleable appearances. It does not, however, require that the seller recognize that his or her on-sale invention possesses specific later-claimed characteristics when there was no question that the invention was useful at the time it was placed on sale.
Whether or not an enabling disclosure has been documented (in the absence of actual reduction to practice) is generally assessed in the same way as for priority claims. In any event, any time there are engineering specifications available that are sufficient for use to manufacture an invention, or to allow a customer to know specifically what is being purchased, the invention will usually be considered ready for patenting.
Difficult questions arise when advance development agreements or pre-availability contracts are involved. In some situations, a contract may be signed for a seller to deliver to a customer at a later date something not yet invented. In other words, the customer understands that goods meeting certain requirements do not yet exist but believes that the seller will be able to devise one or more inventions that will make delivery of suitable goods possible in the future. This is a situation where the customer does not know upfront exactly how those goods will be configured. But certain general requirements, goals, or objectives that the goods be better, faster, lighter, etc. would likely be set forth in such an advance contract. When does the on-sale bar arise in these situations? The answer is it depends when the invention was conceived subsequent to the signing of the contract. For purposes of the on-sale bar, it is initially viewed as an open offer to sell an idea for a product (or service) that is converted into a “commercial offer for sale” at whatever time the relevant invention is later conceived:
“[A]n invention cannot be offered for sale until its conception date. Hence, if an offer for sale is made and retracted prior to conception, there has been no offer for sale of the invention. In contrast, if an offer for sale is extended and remains open, a subsequent conception will cause it to become an offer for sale of the invention as of the conception date. In such a case, the seller is offering to sell the invention once he has conceived of it. Before that time, he was merely offering to sell an idea for a product.”
August Tech. Corp. v. Camtek, Ltd., 655 F.3d 1278, 1289 (Fed. Cir. 2011)
When, exactly, conception happens may very well be disputed. But once there are drawings that might enable the invention to be made and used, or it is actually reduced to practice (even if the inventive aspect is not yet appreciated or recognized), an on-sale bar can arise.
Joint research & development agreements potentially raise further limits on application of the on-sale bar where they do not bear commercial fruit and are cloaked in confidentiality. That is to say that research & development activities, even where conducted jointly, may pertain only to the process of invention or related experimentation rather than to commercial activities. But, as always, this will depend on the specific circumstances involved, including what the applicable contract(s) say. There is not always a bright line separating research & development and on-sale activities when joint efforts are involved.
Anytime there is already a contract or commercial proposal of an idea for a product (or process), the inventor must diligently pursue a patent filing after something inventive is actually conceived to ensure that filing occurs within the one-year U.S. grace period. Though keep in mind that the ways these issues are treated in other countries may differ.
Best Practices and Words of Caution
Assessments of potential on-sale bars must be approached with caution. The treatment of potential on-sale bar activities is governed by somewhat subjective and imprecise standards in the USA. The consequences of incorrectly relying on an experimental sale exception to the on-sale bar can be severe for both the patentee and the patentee’s legal counsel. For instance, if a court later rejects an inventor’s determination that a pre-critical date sale was experimental, an entire patent might be found unenforceable in addition to specific claims being found invalid—if information about the on-sale bar was withheld from the USPTO with deceptive intent (which can be inferred). Moreover, because on-sale bar activities apply to obviousness analyses too, commercialization of an earlier version of a product or process before the critical date potentially be relevant to the obviousness of a later-developed variation or improvement.
The best strategy to avoid an on-sale bar worldwide is to file a patent application before any activities that could potentially be seen (in the light least favorable to the patentee) as exploiting or attempting to profit from an invention, or, at least in the USA, to file within one year of any such activities. But if there has already potentially been definite commercial sales activity before the critical date, or anything that might potentially be viewed as the commercial exploitation of an invention before the critical date, consider explicitly disclosing it to the USPTO in order to satisfy the duty of disclosure. This is because court rulings about experimental sales will happen only many years later and may be driven by sympathies and impressions given by witnesses at least as much as the “cold” factual record. And there are risks of self-serving biases when inventors make these determinations themselves.
In order to make a legal determination about whether or not an on-sale bar applies, there must first be a sufficient investigation of the relevant facts. It would be nice if the legal standards for on-sale bars allowed for a straightforward and uncomplicated assessment. But the reality is that these are complicated, nuanced legal determinations that depend on a variety of specific facts that will differ from one situation to the next. If important relevant facts are unknown, overlooked, or even concealed, then it may be impossible to reliably determine whether an on-sale bar applies in a given situation. So, beyond the lack of bright-line legal standards as to certain aspects, the dependency of these legal analyses on underlying fact gathering is yet another reason caution is merited.
Austen Zuege is an attorney at law and registered U.S. patent attorney in Minneapolis whose practice encompasses patents, trademarks, copyrights, domain name cybersquatting, IP agreements and licensing, freedom-to-operate studies, client counseling, and IP litigation. If you have patent, trademark, or other IP issues, he can help.