“No risk trial” is an offer for sale, and triggers the on-sale bar

And relying on the exemplary data provided with the offer as proof of reduction to practice, without disclosing the offer, is not a good idea.  GS Cleantech v Adkins Energy, No. 2016-2231 (Fed. Cir. March 2, 2020).

The US District Court for the Southern District of Indiana (“District Court”) found four of Appellants patents (US 7,601,858, 8,008,516, 8,008,517 and 8,283,484) unenforceable due to inequitable conduct.  But only after finding them all, as well as Appellant’s US 8,168,037, uninfringed, and invalid due to the on-sale bar, anticipation, obviousness, incorrect inventorship, inadequate written description, lack of enablement and indefiniteness.  Ouch.

Appellant developed an ethanol oil recovery system and in June of 2003 began communicating with one of Appellees regarding the capabilities of the system.  On August 1, 2003, Appellant emailed the Appellee a proposal, including a drawing, for a “no risk trial” of the “Oil Recovery System.”  Among other things, the proposal stated that “[t]he test module is designed to process 18,000 [pounds] per hour of evaporator condensate and recovers 16,000 [pounds] of oil per day adding annual profits of $312,000 to $530,000 per year.” After the trial, the proposal stated that Appellee would have the option of “purchasing the system for $423,000” or returning it.  Although the Appellants testified that the proposal sought an opportunity to perform in-plant tests, Appellees testified that they understood the proposal as an offer for sale.

Appellant contacted a first patent attorney in February of 2004, who informed them of the on-sale bar.  Appellants provided this first patent attorney with the test results from June and July 2003, but neglected to mention the offer for sale.  Without this information, the first patent attorney filed a provisional application on August 17, 2004 and a regular utility application claiming priority thereto in May of 2005.  The patents in suit claim priority to these initial filings in one form or another.  In an IDS filing, the first patent attorney disclosed a co-pending application (US patent application No. 10/619,833 to Prevost), but provided Appellants with an opinion that, based upon the June and July 2003 data, the inventors could swear behind the disclosed reference.

In March of 2008, Appellant transferred the prosecution of their oil recovery portfolio to Cantor Colburn.  In March of 2010, Appellant provided a copy of the proposal, and an IDS was filed in which it was claimed that the claimed method then being prosecuted “was never disclosed, carried out or performed” more than one year before the filing date and that the July 2003 proposal was “irrelevant.”

In 2010, Appellant met with a company that stated it had reason to believe Appellant’s oil recovery portfolio to be invalid due to a violation of the on-sale bar.  Appellant then offered Appellee a royalty-free license, which Appellee refused.  Cantor Colburn followed up with a letter asking Appellee to confirm certain “facts” including that Appellant had not provided Appellee with drawings and that the system that was the subject of the July 2003 proposal was for testing purposes only.  Appellee refused to do so.  In November of 2010, Cantor Colburn filed a declaration executed by Appellant with the USPTO for the patents-in-suit being prosecuted at that time, attaching a copy of the July 3 proposal and explaining that it had been hand delivered by Appellants on August 18, 2003, despite being dated 2 weeks earlier.  The USPTO issued the ‘516 and ‘517 patents in reliance on this information.

The District Court concluded that the July 2003 proposal constituted a commercial contract under the UCC and that a reasonable jury would not have concluded that the proposal was an offer to test, as the recovery system had already been reduced to practice.  After reaching its decisions on the summary judgment issues, the District Court held an inequitable conduct bench trial.  Though  District Court laid plenty of blame directly on Appellants for intentionally deceiving both the USPTO and their attorneys, the Court did not spare Cantor Colburn, holding that the firm either “purposefully evaded disclosing,” or failed to seek out, relevant information, thereby participating in the inequitable conduct.  Double ouch.

What should have the Cantor Colburn attorney done?  As relayed by the Federal Circuit in their opinion, the District Court was very clear where it found fault:

…Mr. Hagerty “never asked the inventors key questions about their invention or the meaning of contemporaneous documents and, after the litigation started, relied on the litigation team to do all the investigation.”  The District Court stated that Cantor Colburn’s focus on “pre-critical date documents” “was purposefully and … improperly narrow.”  The District Court determined that Cantor Colburn “ignored the red flags [waving] before them”, such as [Appellant’s] threatening of Appellees if it did not corroborate Appellant’s story, which Cantor Colburn supported by sending Appellees a “thinly-veiled threat.”  The District Court concluded that “the only reasonable inference is that [Cantor Colburn] believed the inventors had made an offer and, with the feasibility testing letter already before the USPTO in both prosecutions … which implied a later reduction to practice date, they chose advocacy over candor.”

The Federal Circuit affirmed the District Court in every respect, finding that the District Court did not abuse its discretion in determining that i) the patents in suit are unenforceable due to inequitable conduct; ii) the claimed invention was the subject of an offer for sale that preceded the filing date of the priority application by more than one year;  iii) the claimed invention was ready for patenting at the time of the offer; and the kicker, iv) Appellant and Cantor Colburn made a deliberate decision to withhold material information with the specific intent to deceive the USPTO.

Judge Wallach spent 7 pages painstakingly supporting the last determination, with the following five points:

1.  The District Court’s conclusion that Appellant knew that the July 2003 proposal threatened its chances of patent protection was supported by the evidentiary record.

2.  Appellant and their attorneys withheld evidence of successful testing in 2003 and made false representations by implying that the invention was not reduced to practice until 2004.  The Federal Circuit referenced the fact that Cantor Colburn commenced their representation of Appellants in 2008, and knew of the 2003 testing and proposal shortly thereafter.  And yet, Cantor Colburn referenced it only to the extent necessary to predate the Prevost reference.

3.  Appellant and their attorneys “threatened” Appellees to in efforts to garner their support of Appellants claims regarding the July 2003 proposal and reduction to practice after the proposal surfaced and during the pendancy of certain of the patents-in-suit. The Federal Circuit held that these attempts to threaten spoke to Appellant’s and Cantor Colburn’s “intent to deceive.”

4.  Appellant’s and Cantor Colburn’s ‘patently false’ statement that the July 2003 proposal was not emailed on the date indicated, but instead hand delivered a day after the anniversary date of the filing date of the priority application necessitates a conclusion of intent to deceive; and

5.  Neither Appellant nor Cantor Colburn, after it became even clearer that the July 2003 proposal had been delivered on the date of the email, corrected the record with the PTO.  Indeed, a second declaration filed with the PTO supplied the July 2003 proposal and the email to which it was attached, but noted that the proposal was unsigned, giving the impression that the unsigned proposal was less significant than the “signed” proposal allegedly hand delivered one day after the anniversary date of the filing of the priority application.