The On-sale Bar and the New Ucc Article 2: Arguments for Defining a Commercial Offer for Sale Pursuant to the United Nations Convention on Contracts for the International Sale of Goods

• Publication year: 2003

Matt Jamison⁰

I. Introduction

In today's global economy, it is not unlikely that an entrepreneurial inventor may work in the United States and service customers from around the world. Such an inventor is faced with an assortment of international legal concerns including shipping, tariffs, and customs. Additionally, such an inventor would have to manage the concerns that surround the patenting process: filing, novelty, usefulness, and the on-sale bar, to name a few. What happens when contracts for sale are formed with foreign customers? What happens when domestic patent law runs squarely into a product that is marketed and sold not only in the United States, but around the world? What source of law should be consulted to determine the body of law that governs when domestic law overlaps with international customs or treaties?

The modern inventor is compelled to create innovative products, generate a market for those products, and protect those products with a patent. The choice to file a patent application reflects an inventor's desire to protect her private interest in controlling a limited monopoly over the invention, subject to the statutes governing patents. Section 102 of the 1952 Patent Act¹ attempts to balance such private interests with the goal of increasing the pool of public knowledge. Specifically, § 102 states "[a] person shall be entitled to a patent unless . . . the invention was . . . on sale in this country, more than one year prior to the date of the application for patent in the United States." This particular provision of the Patent Act is known as the "on-sale bar." The Supreme Court in Pfaff v. Wells Electronics, Inc.² stated that the critical date for the on-sale bar is triggered when the invention is both ready for patenting and the "subject of a commercial offer for sale."³ Appearing simple on its surface, § 102 can be the source of deep and complex inquiry into what actions constitute a "commercial offer for sale."⁴ In 2001, the Court of Appeals for the Federal Circuit ("Federal Circuit") attempted to simplify this inquiry by holding that courts should look to Article 2 of the Uniform Commercial Code ("UCC") to determine whether a commercial offer for sale has occurred.⁵

On May 13, 2003, the American Law Institute ("ALI"), authors of the UCC, finalized its revisions of UCC Article 2.⁶ Faced with two versions of Article 2, the Federal Circuit eventually will be forced to decide whether to rely on the new version of Article 2 or continue to use the older version of Article 2. This comment will argue that instead of relying on either version of Article 2, the Federal Circuit should look to the United Nations Convention on Contracts for the International Sale of Goods ("CISG")⁷ to determine whether a commercial offer for sale has occurred in actions under § 102(b).

II. Development of § 102(b) On-Sale Bar Interpretation

The on-sale bar is essentially a one-year statute of limitations for filing a patent application.⁸ Once an inventor offers an invention for sale within the United States, the inventor has one year to file the patent.⁹ After the year expires, the United States Patent and Trademark Office will not issue a patent for the invention.¹⁰ Thus, § 102(b) indicates that there are two critical analyses to be performed: (1) whether an inventor has offered an invention for sale in this country and (2) whether the offer for sale occurred more than one year prior to the filing of the patent.¹¹ As a result, in on-sale bar actions the Federal Circuit must frequently examine the nature of an inventor's actions more than one year prior to the filing date to determine if the actions rise to the level of an offer for sale.

Since the formation of the Federal Circuit, the Supreme Court has rarely granted certiorari to a case involving a substantive patent issue, leaving the Federal Circuit with almost exclusive jurisdiction over substantive patent issues.¹² As a result, the Federal Circuit has established itself as the "preeminen[t] [court] in the patent community"¹³ and perhaps the "world's most influential patents court."¹⁴ Accordingly, when the Supreme Court granted certiorari in Pfaff, some commentators interpreted the Court's action as a managerial maneuver to provide more oversight to Federal Circuit decisions regarding substantive patent law.¹⁵

Before Pfaff, the Federal Circuit's interpretation of § 102(b) had evolved into a "totality of the circumstances" test to determine whether a particular set of actions constituted an offer for sale sufficient to trigger the § 102(b) statute of limitations.¹⁶ The test included an assessment of whether the invention had been reduced to practice or what level of completion the invention had attained when commercial sale activities were commenced.¹⁷ Thus, when the Federal Circuit decided Pfaff, it applied the well-established totality of the circumstances test.¹⁸ The Supreme Court reversed, stating the invention's relative level of completion may be informative but is not determinative of whether the on-sale bar has been triggered.¹⁹ The Supreme Court established the current two-part test requiring that the invention be both "the subject of a commercial offer for sale" and "ready for patenting" before the on-sale bar's critical date.²⁰

While the new standard was relatively easy to apply to the facts in Pfaff,²¹ this standard was indefinite and provided no guidance to the lower courts as to exactly what would constitute a commercial offer for sale.²² However, the Federal Circuit provided guidance in 2001 in Group One, Ltd. v. Hallmark Cards, Inc.,²³ pointing out that Pfaff "suggest[ed] that the offer must meet the level of an offer in the contract sense."²⁴ Group One held that courts applying § 102(b) should "look to the Uniform Commercial Code ('UCC') to define whether, as in this case, a communication or series of communications rises to the level of a commercial offer for sale."²⁵

The Federal Circuit explained its election to use the UCC, stating that the UCC is widely accepted as the "general law governing the sale of goods."²⁶ However, the Federal Circuit also recognized that while the UCC is a "useful" tool in determining whether certain communications rise to the level of a commercial offer for sale, it is not an "authoritative" source.²⁷ The court's reservation in the Group One holding opened the door for federal district courts to look to other sources for aid in judging commercial sale activities.²⁸ The actions of the district courts, combined with the Federal Circuit's hesitancy to declare the UCC the unequivocal authority regarding what constitutes a commercial offer for sale, indicates some uncertainty as to whether the UCC will or should remain the standard. This uncertainty, when coupled with the recent release of a new version of UCC Article 2, creates an ideal opportunity to consider implementing the clearer standard found in the CISG.

III. Which UCC Article 2?

As the Federal Circuit was deciding to look to the UCC in Group One, the ALI was simultaneously preparing amendments and revisions to UCC Article 2. Thus, as the Federal Circuit was indicating that the UCC would be considered a "useful" tool for evaluating whether certain communications rise to the level of a commercial offer for sale,²⁹ the ALI was already amending the very document that it was relying upon. In retrospect, the timing of these two events had the ironic effect of creating the possibility of even greater uncertainty in an area that the Federal Circuit sought to clarify.

A. Overview of Old Article 2

UCC Article 2 originates from a joint initiative between the National Council of Commissioners on Uniform State Laws ("NCCUSL") and the ALI in the 1940s. The objective was to increase certainty and consistency in a growing national commercial system.³⁰ The UCC was intended to address a particular subset of contract law known as "sales law," or the regulation of the exchange of goods for a price as between parties.³¹ Sales law is a creation of statutory law, as opposed to common law, and for domestic sales transactions, the UCC is the primary source of domestic statutory law.³² As a result of the UCC's preeminence, Article 2 has been adopted and enacted with some modifications by every state except Louisiana.³³ Additionally, the District of Columbia and the Virgin Islands have also enacted the UCC in their statutory regimes.³⁴

UCC Article 2 applies to sales or "transactions in goods,"³⁵ and its rules are based upon a general survey of statutory law and sales practices.³⁶ However, Article 2 does not attempt to displace all prior sales concepts.³⁷ Instead, remnants of the common law rules can be found in specific provisions of Article 2.³⁸ Generally, Article 2 expands the concept of a contract from traditional common law notions.³⁹ The crucial provision of Article 2 is § 2-204, which governs the formation of contracts. Under § 2-204, a contract for the sale of goods may be formed in any way that indicates the parties' intent to form a contract.⁴⁰ Thus, conduct of the two parties may be sufficient to form a contract, as opposed to the common law requirement of a formal exchange of offer and acceptance.⁴¹ Allowing the conduct of the parties to serve as a formative instrument relaxes the formality of forming a contract by focusing more on the agreement than the actual offer and acceptance.⁴²

Article 2 also relaxes the requirements for formation⁴³ by allowing a written instrument to "indicate" that a contract exists even if the terms are incomplete⁴⁴ and by loosening the requirements for a proper acceptance of an offer.⁴⁵ The drafters of Article 2 relaxed these requirements because it was believed that "commercial parties were in a better position than judges or legislators to determine socially desirable commercial arrangements."⁴⁶ As a result, Article 2 reflects private rules and practices that developed between merchants.⁴⁷ The drafters also intended for courts to...