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Scope of On-Sale Bar “Commercial Purpose” Standard Clarified

on Tuesday, 26 July 2022 in Technology & Intellectual Property Update: Arianna C. Goldstein, Editor

In its recent decision in Sunoco Partners v. U.S. Venture, the Federal Circuit affirmed that non-monetary consideration can prove the existence of a “commercial offer for sale” for purposes of the on-sale bar and explained the circumstances under which equipment testing is sufficient to satisfy the experimental use exception. This decision clarifies the commercial purpose standard of the on-sale bar, which bans patents on inventions that were “for sale” more than one year prior to the patent filing.

Application of the on-sale bar turns in part on the purpose of the transaction. If a patented invention was sold for a primarily commercial purpose, then the on-sale bar invalidates the patent, and any infringement claims stemming from that patent have no basis. But under the experimental use exception, a sale is excused from the on-sale bar if a patented invention was sold for a primarily experimental purpose, such as perfecting the invention or ensuring that it fulfills its intended purpose.

In Sunoco, the patent holder sold an automated butane-gasoline blending system in exchange for a commitment from the buyer to purchase a large volume of butane over several years. Rather than limiting its analysis to the simple question of whether or not the sale agreement required the buyer to pay the patent holder money, the Court instead focused on the totality of the circumstances in assessing whether the buyer exchanged value for the system it received.

Because the sale agreement (a) described the transaction as a sale; (b) identified “the purchase” of butane as “consideration”; (c) expressly contemplated transfer of title; and (d) otherwise bore all the hallmarks of a commercial contract for sale, the Federal Circuit determined the primary purpose of the sale was commercial rather than experimental, thus the on-sale bar applied and invalidated the blending system’s patent.

Importantly, the Sunoco Court also disregarded the patent holder’s arguments asserting the sale had a primarily experimental purpose, which focused on sale agreement provisions that required pre- and post-installation testing of the blending system.

The pre-installation testing provision was insufficient to show a primarily experimental purpose because the specified tests could have been performed almost anywhere, and certainly did not need to be performed at the buyer’s facility. The post-installation testing provision was insufficient because the specified tests simply served to verify that the system was working as promised, which is not experimental in the way the experimental use exception contemplates. The Court concluded that if equipment testing gives rise to a sale, the purpose of that sale is to commercially exploit the invention rather than to experiment with it.

The Sunoco decision establishes useful contours to the on-sale bar’s distinction between commercial and experimental purpose. Clarification that the commercial purpose requirement is satisfied by non-traditional sale transactions, where goods are exchanged for goods rather than for money, creates a bright-line rule for inventors to follow. Further, the lesson that an experimental purpose can exist only when a sale triggers testing, and not vice-versa, gives valuable guidance to inventors seeking to verify the functionality of their inventions through application in the field.

Andy D. McLandsborough

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