Federal Circuit's Distinctions Between Product and Process (Tool) Inventions May Place Patents at Risk for Invalidation Under On Sale Bar

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January 31, 2007

Plumtree Software, Inc. v. Datamize, LLC

In its recent Plumtree Software, Inc. v. Datamize, LLC, (No. 06-1017) decision, the Court of Appeals for the Federal Circuit vacated the Northern District of California’s summary judgment ruling that Datamize’s patents were invalid under the one year on sale bar, 35 U.S.C. § 102(b). Specifically, it held that the record did not contain sufficient facts to determine whether the patented process was sold or offered for sale before the critical date.

Datamize owns two patents claiming a computer program used to create other computer programs called an “authoring tool.” The patents, which claim priority to a provisional patent application filed on Feb. 27, 1996, cover both the method of creating the computer program and the software for creating the program. The authoring tool may be used, for example, to create customized electronic kiosks that provide information to users.

Plumtree brought a declaratory judgment action in the Northern District of California, asserting that it did not infringe Datamize’s patents. The district court granted summary judgment in favor of Plumtree on the ground that Datamize’s patents were invalid under the on sale bar doctrine of 35 U.S.C. § 102(b).

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Under 35 U.S.C. § 102(b), a claimed invention is considered to be on sale if it is sold or offered for sale for more than one year before the filing date of the patent application. This is the so-called critical date.

The inventions that resulted in Datamize’s patents were developed by Multimedia Adventures (MA), which later assigned its rights to Datamize. On Jan. 17, 1995, MA representatives gave a presentation to Ski Industry of America (SIA) representatives offering to create a kiosk for a ski industry trade show. At that time, the authoring tool had been reduced to practice, but it had not yet been used to create a kiosk for SIA. On Jan. 25, 1995, more than one month prior to the critical date, SIA sent MA confirmation of an agreement that MA would provide a kiosk at the trade show in exchange for SIA waiving a $10,000 sponsorship fee. The trade show was held between March 3 – 7, 1995, in Las Vegas, Nev., and the kiosk created by MA was displayed when it was completed at the end of the show’s first day. The record establishes that the kiosk was created with an authoring tool that embodied all the claims of Datamize’s patents.

In determining whether there was a sale or offer for sale under §102(b), the Federal Circuit applied the Supreme Court’s two-prong test from Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998). According to this test, the product must first be the subject of a commercial sale or offer for sale. Second, the invention must be ready for patenting. In this case, the second prong of the test was met by proof of reduction to practice in the winter of 1994, before the critical date of Feb. 27, 1995. When considering the first prong of the Pfaff test, the Federal Circuit concurred with the district court’s finding that an offer for sale was made, and that the consideration was the waiver of the $10,000 sponsorship fee.

The Federal Circuit, however, did not sustain the district court’s conclusion that the method claims were invalid under the on sale bar. The Federal Circuit reasoned that the invention reflected in the method claims is a process for creating a kiosk system, not the kiosk system itself. The kiosk system itself is not patented, and the district court’s focus on whether the kiosk system embodied the claims of the patent was therefore misplaced. The Federal Circuit further noted that the record was unclear whether the patented process was used before the critical date to create the kiosk.

The Federal Circuit offered two theories under which the patent challenger, Plumtree, could meet the first prong of the Pfaff test. Under the first theory, Plumtree should demonstrate that before the critical date, MA made a commercial offer to perform the patented method, even if the performance itself occurred after the critical date. This determination would be governed by the Federal Circuit’s decision in Scaltech, 269 F.3d 1321, 1328 (Fed. Cir. 2001), where it was held that “the fact that the process itself was not offered for sale but only offered to be used by the patentee . . . does not take it outside of the on sale bar rule.” In this case, there was an offer before the critical date of Feb. 27, 1995 because there was a binding contract, but the written agreement between MA and SIA did not unambiguously require use of the patented method. Plumtree would have to show that MA was bound to perform the patented method to fulfill its agreement with SIA.

For Plumtree to prevail under the second theory, it would be necessary to demonstrate that before the critical date, MA performed the patented method for a promise of future compensation. Citing In re Kollar, 286 F.3d 1326 (Fed. Cir. 2002), the Federal Circuit stated that performing the steps of a patented method for a commercial purpose constitutes a sale under §102(b).

Accordingly, Plumtree would have to prove that MA actually performed all of the patented steps before the critical date, pursuant to its contract with SIA. While it appears that the patented authoring tool was used to create the kiosk system, the kiosk system was not finished until after the critical date, and it is unclear whether MA performed each of the patented method steps before the critical date.

Although Datamize won this battle, it may ultimately lose the war and have its patents invalidated. Datamize’s situation provides valuable lessons to patent applicants. For example, this case reminds patent applicants to apply for patents promptly to avoid an on sale bar. In addition, it is important to note that while U.S. patent law gives applicants a one-year grace period between a sale or offer for sale of an invention and the filing of patent application, most foreign countries do not. Thus, it is critical for patent applicants seeking foreign patent protection to refrain from all sales or offers for sale until after a patent application is filed. Further, this case cautions applicants to carefully monitor the activities of their predecessors and affiliates with regard to sales or offers for sale of patentable inventions.

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