Consistent Inconsistency: Basf v. Snf & the Licensing Exception to 35 U.s.c. § 102 (b)'s On-sale Bar

• Publication year: 2022

Consistent Inconsistency: BASF v. SNF & the Licensing Exception to 35 U.S.C. § 102 (B)'s On-Sale Bar

James C. Durham
University of Georgia, jwt74222@uga.edu

Consistent Inconsistency: BASF v. SNF & the Licensing Exception to 35 U.S.C. § 102 (B)'s On-Sale Bar

Cover Page Footnote

Special thanks to Professor David Shipley for his feedback and advice in sponsoring this note. Thanks also to Charles Turner for his feedback and edits as well as to James W. Dabney of Hughes Hubbard & Reed, LLP, whose work on the BASF v. SNF case informed the ideas presented herein.

This notes is available in Journal of Intellectual Property Law: https://digitalcommons.law.uga.edu/jipl/vol30/iss1/5

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Durham: Licensing Exception to 35 U.S.C. § 102 (B)

CONSISTENT INCONSISTENCY: BASF V. SNF & THE LICENSING EXCEPTION TO 35 U.S.C. § 102 (B)'S ON-SALE BAR

James Cameron Durham^*

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TABLE OF CONTENTS

I. INTRODUCTION........................................................................................ 142

II. BACKGROUND..............................................................................................144

A. THE KOLLAR/GROUP ONE EMBODIMENT STANDARD...............144
B. BASF V. SNF........................................................................................147

III. ANALYSIS.......................................................................................................148

A. PATENT LICENSING IN THE CHEMICAL INDUSTRY: SPECIALIZED ENGINEERING FIRMS AND COMPETING TECHNOLOGIES..........152

1. Specialized Engineering Firms (SEFs)......................................155
2. Competing Technologies............................................................156
3. BASF vs. SNF: The Market for Super-Absorbent Polymers 157

B. BASF, PFAFF, AND §102(B)...............................................................158
C. THE KOLLAR/BASF RULE AND PREMATURE COMMERCIAL EXPLOITATION....................................................................................163

IV. CONCLUSION................................................................................................166

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I. INTRODUCTION

Inventors procure patents from the U.S. Patent and Trademark Office ("USPTO") to secure exclusive rights over their inventions.¹ These rights ensure that the inventor can profit from the invention, at least for a fixed period (typically 20 years).² Enjoyment of these rights depends on the fact that the invention, at the time of filing, is truly novel.³ In service of the novelty requirement, the "on-sale bar" limits patentability. The on-sale bar doctrine—codified at 35 U.S.C. § 102(b)—prevents inventors from patenting inventions that were "on[-]sale in this country[] more than one year prior to the date of the application for patent in the United States."⁴ Both before and after the Leahy-Smith America Invents Act ("AIA"),⁵ the principal function of the "on-sale" bar is preventing commercial exploitation—inventors offering their invention to the public through sale then excluding the public through a patent.⁶

The on-sale bar balances two important interests: (1) inventors' ability to realize the profit of their investment and (2) limitations on patent holders' monopoly.⁷ As a result, an alleged infringer may challenge a patent's validity on on-sale bar grounds by demonstrating clear evidence of a sale or offer for sale anticipating the claimed invention one year before the subject patent's application.⁸

Case law further establishes that an "invention" under the Patent Act (1952) "refers to the inventor's conception rather than to a physical embodiment of that

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idea."⁹ That conception is "the subject of a commercial offer for sale"¹⁰ for purposes of the on-sale bar if it meets two conditions: "First, the product must be the subject of a commercial offer for sale" that is not primarily for experimental use.¹¹ "Second, the invention must be ready for patenting."¹² Such readiness may be shown by a reduction to practice or proof that the inventor had prepared drawings or descriptions specific enough to permit someone skilled in the art to practice the invention.¹³ For example, in Pfaff v. Wells Electronics, Inc., providing detailed drawings and know-how, coupled with accepting purchase orders, established that the invention was ready for patenting and, thus, rendered the yet-to-be-produced product "on-sale."¹⁴ Federal Circuit precedent has also clarified, for § 102 purposes, that the term "commercial offer for sale," "analyzed under the law of contracts[,] [is to be] generally understood"¹⁵ as "[a sale when] the other party could [enter] into a binding contract by simple acceptance, assuming consideration . . . ."¹⁶ While applying a licensing exception to the on-sale bar is a "well-established principle," the Federal Circuit's decision in BASF Corp. v. SNF Holding Co. promotes inconsistency by diverging from the Supreme Court's conception of a commercial sale established under Pfaff.¹⁷ The Federal Circuit's arbitrary discrimination between classes of invention threatens the stability of the United States patent system through premature commercial exploitation.

Part II of this Note will analyze the current legal framework surrounding §102(b)'s licensing exemption. Part III seeks to accomplish two tasks: First, it will argue that the Federal Circuit's decision in favor of BASF misinterprets both the statute and the established understanding of an "invention" under the

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common law. Second, it will outline the need for developers and users of licensed technology in the chemical industry to receive protection in the sale of intangibles, including process inventions, as established under Pfaff v. Wells Electronics, Inc. Part IV of this Note suggests that future cases involving patented processes and prior art should be based on the understanding that transmission of a process description to a user with the ability to perform that process fulfills 35 U.S.C. § 102(b)'s "on-sale" bar for purposes of determining novelty.

II. BACKGROUND

BASF Corp. v. SNF Holding Co.¹⁸ must be analyzed in light of the Federal Circuit's view that, under § 102(b), mere license of the right to practice an invention is not "commercial marketing" under § 102(b) unless, and until, a tangible product is made and placed on-sale.¹⁹ While claimed as a "well-established principle," this doctrine has been continuously debated, with two primary schools of thought developing around the question of licensing.

A. THE KOLLAR/GROUP ONE EMBODIMENT STANDARD

Receiving further development in In re Kollar, the foundations for a licensing exception, which centers around the embodiment of a claimed invention, were first outlined in Group One v. Hallmark one year prior.²⁰ In Group One, Judge Lourie, in his concurrence, articulated the court's perceived distinction between a sale and a license, making a licensing exemption to §102(b)'s on-sale bar necessary:

[A] license under a patent is not usually a sale of the patented product, and the statute bars a sale, not a license. A license is analogous to granting or waiving rights under the patent, which is distinct from selling the machine covered by the patent. A patent license, if it is non-exclusive, is an agreement to forbear from suit. If the license is exclusive, it may be tantamount to an assignment of the patent. In neither case is the invention of

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the patent necessarily on[-]sale when the license is executed.²¹

Lourie further cites potential adverse effects on the patent system if licensing agreements were considered to qualify as commercial offers for sale.²² He reasons that because the grant of licenses often precedes the commercial sale of an embodiment of the invention, "many patents would be invalidated long before the invention itself is put on[-] sale."²³ Thus, in Group One, the lack of definite terms, such as price and date of delivery in correspondence between the patentee and alleged infringer over a year before the patent application date, was dispositive of a commercial offer to sell.²⁴ In short, "[t]he law does not start the on-sale bar clock running when a license to an invention is executed."²⁵

In re Kollar revisits the precept that a sale of "know-how" regarding a process and how it is carried out does not trigger the on-sale bar.²⁶ Expanding upon Lourie's concurrence in Group One, the Federal Circuit held that a licensing agreement for the process of preparing dialkyl peroxide²⁷ was not a "sale" because the transaction was not about carrying out or performing the process.²⁸ Lourie, however, was careful to distinguish the concept of a "shrink-wrap license," wherein a working product is "just as immediately transferred to the 'buyer' as if it were sold"²⁹ and the sale of the license is "tantamount" to a sale of the final product.³⁰

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Lourie's conception of a "shrink-wrap license" was further explored in Minton v. Nat'l Ass'n of Securities Dealers, Inc.³¹ In Minton, the inventor conveyed to a lessee a fully operational computer program implementing, and thus embodying, the patent method claimed for interactive securities trading along with a warranty of workability, which enabled the lessee to practice the invention.³² The Federal Circuit held that the sale of a license qualified as an "offer for sale" within the meaning of the on-sale bar.³³ Writing for the majority, Judge Lourie reasoned that the license of process in Minton was distinguishable from that in Kollar, as it not only conveyed "know-how" but also a fully operational computer program embodying the claimed method and a warranty of workability.³⁴ In addition to the conveyance of the product itself, under this approach, the Federal Circuit has also held that the performance of a method invention for consideration may also trigger the on-sale bar.³⁵

Citing Group One and Kollar, the Federal Circuit in Elan Corp. v. Andrx Pharmaceuticals,³⁶ another Judge Lourie opinion, held that proposed patent...