Michael Hawes is a partner at Baker Botts L.L.P. He assists individuals and companies who are resolving disputes over technology access and ownership, initiating technology-driven ventures, or forming technology-focused relationships. He frequently represents clients when software rights are contested in arbitrations, trials, and on appeal. He can be reached at email@example.com. Natalie Alfaro is an associate at Baker Botts L.L.P. She represents clients in patent litigation matters involving a variety of technologies, including mechanical and electrical devices, computer systems, and computer software. She can be reached at firstname.lastname@example.org.
Proving an “on sale” event as prior art in software patent cases can be challenging under current case law, especially where a software patent includes one or more claims directed at methods or processes performed or carried out by the software. The difficulty involves determining: (1) what constitutes a “commercial offer for sale” for purposes of the on-sale bar, including what exactly must be offered for sale or sold in order to invoke the on-sale bar; and (2) when such software or method is “ready for patenting.” Currently, there is a fine line between activities that will trigger an on-sale bar and those that will not—adding to the difficulty of establishing an “on sale” event. Even better, the America Invents Act will inject additional ambiguity into the current landscape of the on-sale bar once patents subject to the Act start issuing.
Pursuant to 35 U.S.C. § 102(b), an invention cannot be patented if it was “on sale” in this country more than one year prior to the filing of a patent application.1 The date one year prior to the filing of a patent application is commonly referred to as the “critical date,” because this is the date before which public uses, sales, or offers for sale can be used to bar the applicant from receiving a patent on his or her invention. In addition, the statute itself does not specify what actor must perform the barring activities for purposes of § 102(b). While the Federal Circuit has discussed an exception for a third party’s sale of a product made by a secret process,2 the general rule is that the on-sale bar applies to sales activities performed by anyone, be it the inventor, a supplier, or any other third party.3
In Pfaff v. Wells Electronics, Inc., the Supreme Court set forth the current standard for determining whether an invention is “on sale” for purposes of § 102(b). The court held that an on-sale bar applies when the following two conditions are met: (1) the product embodying the invention was the subject of a commercial offer for sale, and (2) the invention is ready for patenting.4 The Federal Circuit has since clarified that a “commercial offer for sale” is “one which the other party could make into a binding contract by simple acceptance (assuming consideration).”5 As such, an executed contract establishes a commercial offer for sale.6 Further, the “ready for patenting” prong of Pfaff may be satisfied by proving that: (1) the invention was reduced to practice before the critical date; or (2) prior to the critical date, the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.7
Despite the Supreme Court clarifying the on-sale bar framework in Pfaff, and the Federal Circuit applying Pfaff many times since, there are still unanswered questions regarding the proper application of the on-sale bar, particularly in the area of software inventions. Unlike traditional tangible product purchases, software can be licensed without any physical product. Software licenses include “shrink-wrap” or “click-wrap” agreements.8 In addition, software patents often include claims directed at the method(s) performed by the software. Thus, proving an “on sale” event in a case involving software inventions raises interesting questions regarding each of the Pfaff prongs.
The Federal Circuit has often held that “an assignment or sale of the rights in the invention and potential patent rights is not a sale of ‘the invention’ within the meaning of section 102(b).”9 Licenses and other agreements can complicate the Pfaff analysis, particularly when the scope of the license is not clear. In Group One, Ltd. v. Hallmark Cards, Inc., the Federal Circuit clarified that any activity short of an actual commercial offer for sale would not trigger the on-sale bar.10 In Group One, the court found that pre-critical date communications between the patent owner and the defendant to generate interest in the patented invention did not constitute a commercial offer for sale.11 The court held that to constitute a commercial offer for sale, the offer must at least “meet the level of an offer for sale in the contract sense, one that would be understood as such in the commercial community.”12 The court reversed the district court’s finding that the patent was invalid due to the on-sale bar and remanded for further proceedings to determine whether the offer was to license only the patent rights or to sell the invention itself.13
Following Group One, the Federal Circuit decided two cases in which it distinguished licenses that merely grant rights to an invention from licenses that constitute a “sale” of the invention for purposes of the on-sale bar: In re Kollar14 and Minton v. National Association of Securities Dealers, Inc.15
In In re Kollar, the Federal Circuit found that the patent owner’s pre-critical date agreement with a third party to “share technology and coordinate their research efforts with the ultimate goal of designing and building a commercial plant capable of implementing the claimed process” did not bar a patent on that process.16 The court determined that the agreement constituted a license under any future patents relating to the claimed process and a transfer of technology and know-how related to the claimed process.17 The court stated that merely “licensing the invention, under which development of the claimed process would have to occur before the process is successfully commercialized,” does not constitute a commercial offer for sale under § 102(b).18 Because the agreement in Kollar did not involve the sale of a product that performed the claimed process, or performance of that process for a fee, it did not trigger the on-sale bar.19
Following Kollar, the Federal Circuit considered whether leasing a computer program embodying the steps of a claimed process constituted a “sale” of the process. In Minton, the patent holder leased his fully operational computer program and telecommunications network, which implemented the claimed process, to a brokerage firm prior to the critical date.20 The lease included a warranty of workability, which the court found instructive regarding any further development of the process for commercialization.21 Given these facts, the Federal Circuit distinguished Kollar and held that the patentee’s lease of the computer program was an offer for sale of the claimed process for purposes of the on-sale bar.22
Minton involved the lease of a computer program implementing the claimed process, rather than the lease or sale of the claimed process itself. Nevertheless, the Federal Circuit found that this was barring activity under the on-sale bar. As one commentator has noted, the Federal Circuit’s on-sale bar determination may have been based on the idea that had the claims been directed at a computer program, rather than a process performed by a computer, the lease of the computer program clearly would have triggered the on-sale bar.23 In other words, the sale in Minton “appeared to put form above substance.”24 However, the court did note that the patentee did not distinguish between the asserted patent’s method and apparatus claims.25 The Federal Circuit’s decisions in Kollar and Minton illustrate that the point at which the invention is commercialized for purposes of the on-sale bar will depend on the facts of the case. In Kollar, only the development of the claimed process by the licensee constituted successful commercialization of the invention for purposes of the on-sale bar, whereas in Minton, the patentee commercialized the invention upon leasing his fully developed computer program that implemented the claimed process.
Kollar and Minton also are instructive on the issue of whether and how a method or process can be sold. In Kollar, the Federal Circuit recognized the distinction between a claim to a tangible item (i.e., a product, device, or apparatus) and a claim to an intangible item (i.e., a method or process, consisting of a series of acts or steps).26 The court clarified that while “[a] tangible item is on sale when . . . the transaction ‘rises to the level of a commercial offer for sale’ . . . [or] [w]hen money changes hands as a result of a transfer of title to the tangible item,” a process “has to be carried out or performed.”27 “A process is thus not sold in the same sense as is a tangible item.”28 We know from Kollar a sale of “know-how” describing the process and how it should be carried out likely is not, without more, a sale of the invention within the meaning of the on-sale bar, because the claimed process is not carried out or performed.29 The question then becomes: What will constitute a sale of a method or process in terms of the on-sale bar?
In Kollar, the Federal Circuit provided some examples of transactions involving processes that could trigger the on-sale bar. First, “a sale by the patentee or a licensee of the patent of a product made by the claimed process” can be enough “because that party is commercializing the patented process in the same sense as would occur when the sale of a tangible patented item takes place.”30 In addition, performing the process itself for consideration could trigger the on-sale bar, as was the case in Scaltech, Inc. v. Retec/Tetra, L.L.C.31 In Scaltech, the patentee offered to perform the claimed process for treating oil refinery waste for consideration—raising the on-sale bar.32 Minton also provides an example of a process sale, even though the subject of the “sale” was not the claimed process itself, but rather a software program implementing the claimed process.33
While the Federal Circuit in Kollar indicated that a sale of a product “made by the claimed process” would constitute an on-sale bar, the Federal Circuit’s decisions on this issue have been, and will continue to be, fact specific. For example, in Plumtree Software, Inc. v. Datamize, LLC, the method claim was directed at a process for creating a kiosk system.34 Prior to the February 27, 1995, critical date, the inventor’s company made an agreement with the trade show host to “provide software/hardware package necessary to produce” a network kiosk system and demonstrate the kiosk at the trade show in March 1995, in exchange for the trade show host waiving a sponsorship fee normally charged to show participants.35 The inventor’s company did in fact provide and demonstrate the kiosk system at the trade show in March 1995.36 Relying on the inventor’s testimony that “the network kiosk system that was demonstrated in March of 1995 at the [trade] show embod[ied] all the claims” of the patents-in-suit, the district court determined that the method claims were invalid under the on-sale bar rule because “the agreement with [the trade show host] embodied all of the claims of the [patents-in-suit].”37
The Federal Circuit found improper the district court’s focus on whether the kiosk system embodied the claims because “the invention reflected in the method claims is a process for creating a kiosk system, not the kiosk system itself.”38 The court noted that while the inventor used the claimed process to create the system, the system was not finished until after the critical date.39 The court also identified that it was unclear whether the patented process was used to create the kiosk prior to the critical date.40 Because the record did not establish that all steps of the claimed process were performed for commercial purposes before the critical date, the Federal Circuit vacated summary judgment of invalidity.41
The Federal Circuit did, however, set forth two alternate theories under which the party seeking to invalidate the patent could prove a commercial offer for sale. First, it could demonstrate that a commercial offer to perform the patented method was made before the critical date, even if such performance did not occur until after the critical date.42 This theory is in line with the Federal Circuit’s determination in Scaltech, where the court 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 the on sale bar rule.”43
Second, the party seeking to establish the on-sale bar could demonstrate that the patented method was in fact performed for a promise of future compensation.44 In support of this alternate theory, the Federal Circuit pointed to its statement in Kollar that “[a]ctually performing the process itself for consideration would . . . trigger the application of § 102(b).”45 In order to proceed under this theory, a challenger would want to show that the prior user performed all of the steps of the patented process before the critical date, pursuant to its contract.46 In Plumtree, although it appeared the patented process was in fact used to create the kiosk system, it was unclear whether all of the patented steps were performed prior to the critical date given the March 1995 date of the trade show demonstration.47 The fact-specific nature of Plumtree and the other rulings in the on-sale bar arena illustrate the difficulty in lining up an “on sale” event in software cases.
In Pfaff, the Supreme Court held that an inventor can prove his or her invention is ready for patenting before the invention has actually been reduced to practice by proving that, prior to the critical date, the inventor had prepared drawings or other descriptions of the invention that were sufficiently specific to enable a person skilled in the art to practice the invention.48 The application of Pfaff’s “ready for patenting” requirement can prove difficult in the context of software-related inventions because, unlike an invention in the mechanical, chemical, or biotech fields, software may satisfy the “ready for patenting” requirement very early in the development process, oftentimes before the source code implementing the software is complete.49 In laying out the new “ready for patenting” framework, the Supreme Court rejected previous precedent which held that an “invention” is one that is “substantially complete,” but left open the question of whether software can be ready for patenting if the code implementing such software is incomplete.50
In Robotic Vision Systems, Inc. v. View Engineering, Inc., the Federal Circuit considered whether software was “ready for patenting” under the new Pfaff framework.51 The claim at issue was to a method of scanning the leads on integrated circuit devices that are arranged on a multi-pocketed tray.52 The claimed invention included the necessary software for implementing the full-tray scanning method.53 Prior to the critical date, a co-inventor of the full-tray scanning method explained the invention to a Robotic employee and asked him to write the software needed to implement it.54 The Robotic employee wrote the software program based on the co-inventor’s explanation.55 Because the co-inventor’s disclosure was sufficiently specific to enable the Robotic employee, a person skilled in the art, to practice the invention, the Federal Circuit found the invention was ready for patenting prior to the critical date.56
Importantly, the Federal Circuit clarified that “under Pfaff, actual completion of [the] software is not required, provided that there is a disclosure that is sufficiently specific to enable a person skilled in the art to write the necessary source code to implement the claimed method.”57 The Federal Circuit further indicated that while in Pfaff, “the Court interpreted the term ‘invention’ as requiring a complete conception[,] . . . the test for determining whether that invention is complete also requires proof that the invention was enabled prior to the critical date.”58
In Netscape Communications Corp. v. Valueclick, Inc., a district court relied on Pfaff and Robotic in applying the on-sale bar based on incomplete draft source code drafted only after an enabling disclosure from one Netscape employee to another prior to the critical date.59 The technology at issue was the cookies feature of the Netscape browser.60 Prior to the critical date, Netscape programmer Lou Montulli disclosed the cookie invention to senior Netscape programmer John Giannandrea in a series of design meetings.61 In these meetings, Montulli and Giannandrea reviewed the cookies design and drew the computer source code on a whiteboard.62 Following the meetings, Montulli began writing the cookie source code, and he placed a draft in the Netscape source code repository before the critical date.63
Netscape argued that no software product sold prior to the critical date could have included the claimed cookie technology because the public Netscape browser was not released until after the critical date.64 The district court rejected Netscape’s argument, noting that the ready for patenting standard “may be satisfied despite the patentee’s continued refinement of the invention.”65 The district court found that Giannandrea, who had more years of experience than Montulli, was a person skilled in the art and would have been able to write the cookies computer code based on Montulli’s enabling disclosure.66 Although incomplete, the existence of Montulli’s draft source code prior to the critical date, drafted only after disclosing the initial design and source code to Giannandrea prior to the critical date, proved that the method was ready for patenting under Pfaff and Robotic.67 The court further cited to Robotic in ruling that “with respect to inventions involving computer code, Pfaff simply requires complete conception of the invention, not the source code’s actual completion, provided that there is an enabling disclosure that would allow one skilled in the art to complete the invention.”68
The district court clarified its ruling in a later decision denying Netscape’s motion for reconsideration. Netscape argued that “an enabling disclosure can only be proven under Robotic where the person to whom the disclosure is made actually reduces the invention to practice.”69 The court rejected Netscape’s argument, noting that “[u]nder Pfaff and Robotic, it is the fact of the enabling disclosure itself, not a subsequent reduction to practice based on this disclosure, that satisfies the ‘ready for patenting’ prong of the Pfaff test.”70 The court further indicated that while “evidence of an enabling disclosure is strongest when the enabling disclosure leads the non-inventor to write the computer source code, as in Robotic[,] . . . no decision holds that the eventual reduction to practice provides the only means of establishing that a disclosure is an enabling disclosure.”71 The court held that to announce such a rule would conflate the “enabling disclosure” theory with the “reduction to practice” theory.72
For one court, once there was complete conception of the invention, and a specification that was sufficiently specific to enable a person of skill to practice the invention, the invention was “ready for patenting.” Practically speaking, courts face a difficult task in determining whether a disclosure is sufficiently enabling. The enablement link is arguably supported when the invention is eventually reduced to practice by the person of skill in the art receiving the disclosure. However, assuming that a person with more experience than the inventor would have been able to practice the invention based on the inventor’s eventual reduction to practice, as the court in Netscape did, might arguably go further than what was envisioned by the Federal Circuit in Robotic.
Regardless, software inventions clearly differ from other inventions in that they may be inherently “ready for patenting” earlier than other inventions, solely due to the nature of the technology. A functional concept can often be enabling given the appropriate investment of time to write the source code.73 As such, it appears that in software cases, the “enabling disclosure” theory frequently proves to be a viable approach when seeking to invalidate software patents.
The current legal landscape will control patents filed before March 16, 2013, and thus will continue to be relevant for decades to come. However, patents issued from applications filed after March 16, 2013, will be governed by the on-sale bar set out in the America Invents Act (AIA).74 The current on-sale bar requires that the invention was on sale “in this country” more than one year before the date of the patent application.75 The AIA removes the territorial restriction on on-sale activities and in this way expands the scope of available prior art.76 Any sales or offers for sale of inventions outside the United States could trigger a bar to patentability of those inventions in the United States, depending on the specific facts of the case.
Further, the AIA permits a grace period of one year for “disclosures” made by the inventor or another who obtained the subject matter from the inventor.77 These “disclosures” are not considered prior art under the new statute.78 Interestingly, the AIA does not define the term “disclosure.” While some believe on-sale activities are not “disclosures” under the new statute, and thus the one-year grace period will be eliminated for on-sale activities,79 the general consensus is that the grace period is applicable to all the barring acts defined in the new § 102(a)(1): described in a printed publication, in public use, on sale, or otherwise publicly available.80 If the AIA does eliminate the on-sale grace period, however, any sale or offer for sale of an invention before seeking patent protection will bar patentability of that invention.
Finally, whether a sale or offer for sale is “available to the public” may determine whether the activity constitutes prior art under the AIA. The AIA includes language that quite possibly limits all prior art to that which was “otherwise available to the public.”81 While the significance of this phrase is far from clear, some read this phrase to modify “on sale,” such that only sales and offers for sale “available to the public” will invoke the on-sale bar.82 However, because the phrase “otherwise available to the public” is so vague, it is unclear whether simply enabling one of skill in the art to practice the invention would render the invention “available to the public.” If this is the case, a private offer for sale for consideration that provides an enabling disclosure may still satisfy both the commercial offer for sale and ready for patenting prongs of Pfaff and invoke the on-sale bar under the AIA.
1. 35 U.S.C. § 102(b) (“A person shall be entitled to a patent unless . . . the invention was patented or described in a printed publication in this or a foreign country or in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States . . . .”).
2. See In re Caveney, 761 F.2d 671, 675–76 (Fed. Cir. 1985) (citing W.L. Gore & Assocs., Inc. v. Garlock, Inc., 721 F.2d 1540, 1550 (Fed. Cir. 1983); D.L. Auld Co. v. Chroma Graphics Corp., 714 F.2d 1144, 1147–48 (Fed. Cir. 1983)).
3. See Special Devices, Inc. v. OEA, Inc., 270 F.3d 1353, 1355 (Fed. Cir. 2001).
4. Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67 (1998).
5. Grp. One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1048 (Fed. Cir. 2001); see also Scaltech, Inc. v. Retec/Tetra, L.L.C., 269 F.3d 1321, 1328 (Fed. Cir. 2001).
6. Robotic Vision Sys., Inc. v. View Eng’g, Inc., 112 F.3d 1163, 1167–68 (Fed. Cir. 1997).
7. Pfaff, 525 U.S. at 67–68.
8. See Robert Hulse, Federal Circuit Applies On-Sale Bar in Case Involving Software, San Francisco Daily J., Sept. 15, 2003, Focus, at 5.
9. Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261, 1267 (Fed. Cir. 1986).
10. Grp. One, 254 F.3d 1041; see also Hulse, supra note 8.
11. Grp. One, 254 F.3d at 1044.
12. Id. at 1046.
13. Id. at 1049.
14. 286 F.3d 1326 (Fed. Cir. 2002).
15. 336 F.3d 1373 (Fed. Cir. 2003).
16. Kollar, 286 F.3d at 1328–29.
17. Id. at 1333–34.
18. Id. at 1333.
20. Minton, 336 F.3d at 1375.
21. Id. at 1378.
23. See Stephen Bruce Lindholm, Revisiting Pfaff and the On-Sale Bar, 15 Alb. L.J. Sci. & Tech. 213, 248 (2004).
25. Minton, 336 F.3d at 1377.
26. Kollar, 286 F.3d at 1332.
27. Id. (citing Grp. One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041, 1047 (Fed. Cir. 2001)).
29. See id. at 1333–34.
30. Id. at 1333.
31. Scaltech, Inc. v. Retec/Tetra, L.L.C., 269 F.3d 1321, 1328 (Fed. Cir. 2001).
33. Minton, 336 F.3d at 1378.
34. 473 F.3d 1152, 1162 (Fed. Cir. 2006).
35. Id. at 1160–61.
37. Id. at 1162.
38. Id. (emphasis added).
39. Id. at 1163.
40. Id. at 1161–63.
42. Id. at 1162.
43. Scaltech, 269 F.3d at 1328.
45. Kollar, 286 F.3d at 1333.
46. Plumtree, 473 F.3d at 1163.
48. Pfaff v. Wells Elecs., Inc., 525 U.S. 55, 67–68 (1998).
49. See Paul A. Ragusa & Jack Chen, Software Developers, On Guard!: Offering Software for Sale Can Trigger a Bar to Patentability Even If the Software Is Untested and Incomplete, 1 N.Y.U. Intell. Prop. & Ent. L. Ledger 43 (2010).
51. Robotic Vision Sys., Inc. v. View Eng’g, Inc., 249 F.3d 1307 (Fed. Cir. 2001).
52. Id. at 1309.
53. Id. at 1311.
57. Id. at 1312 n.2 (retracting the court’s pre-Pfaff statement in Robotic Vision Sys., Inc. v. View Eng’g, Inc., 112 F.3d 1163, 1167 (Fed. Cir. 1997), that the method itself could not have been on sale unless the software was completed before the critical date).
58. Id. at 1312–13.
59. Netscape Commc’ns Corp. v. ValueClick, Inc., 684 F. Supp. 2d 699 (E.D. Va. 2010).
60. Id. at 703.
61. Id. at 707–08, 718–19.
62. Id. at 707, 719.
63. Id. at 708, 717–19.
64. Id. at 718.
66. Id. at 718–19.
67. Id. at 719.
68. Id. at 718.
69. Netscape Commc’ns Corp. v. ValueClick, Inc., 704 F. Supp. 2d 544, 562 (E.D. Va. 2010).
71. Id. at 563.
74. Leahy-Smith America Invents Act (AIA) § 3, 35 U.S.C. § 102 (effective Mar. 16, 2013).
75. 35 U.S.C. § 102(b) (emphasis added).
76. AIA § 3.
79. See David Connaughton, The AIA Hurts Small Companies and Individual Inventors, IP Pol’y Blog (Jan. 5, 2012), http://188ip.wordpress.com/2012/01/05/the-aia-hurts-small-companies-and- individual-inventors/.
81. AIA § 3.
82. See Michael J. Flibbert & Pier D. DeRoo, Does the AIA Require Public Availability for “On Sale” Prior Art?, Bloomberg L. Rep., Mar. 19, 2012.