Federal Circuit Narrows Application of the Experimental Use Exception

Federal Circuit Narrows Application of the Experimental Use Exception

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Sunoco Partners Marketing & Terminals L.P. v U.S. Venture, Inc. and U.S. Oil Co., Inc. No 20-1640 (Fed Cir, 2022)

Under the “on-sale bar”, privately offering to sell an invention before filing a patent application can void the patent rights in all but a few permissible scenarios. Those scenarios became even narrower as a US court recently ruled that a sales agreement referencing regulatory testing did not qualify for the “experimental use” exemption.

On April 29, 2022 the Court of Appeals for the Federal Circuit (the “CAFC”) issued an opinion on the application of the “on-sale bar” defense which in part reversed a decision of the United States District Court for the Northern District of Illinois (the “District Court”) to award $6M in damages to a leading gasoline production company.

Background

It is common practice in the petroleum industry for gasoline suppliers to blend butane into gasoline before selling it to lower costs and increase gasoline volatility.  The parties to this dispute are market competitors and each in the business of mixing butane into gasoline pre-retail distribution.

Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) holds a number of patents that cover ways of reducing smog production from butane-gasoline blends to conform with U.S. Environmental Protection Agency standards.[ii]  These patents were acquired by Sunoco when it purchased the butane blending business of another company in 2010 and were originally filed in 2001.  U.S. Venture, Inc. and Oil Co., Inc. (collectively, “Venture”) own and operate fuel terminals across the United States, and in 2012 installed a butane-blending system at three of its locations.

Sunoco first filed suit against Venture in 2015, alleging that Venture’s installation of butane-blending systems infringed three of Sunoco’s patents.  Venture counterclaimed that the asserted patents were not infringed, were invalid and were unenforceable.  The District Court largely decided in favour of Sunoco, rejecting Venture’s on-sale bar defense and finding them liable for willful infringement with damages.[iii] Sunoco and Venture appealed.[iv]

Applying the On-Sale Bar

Venture re-asserted that the claims of Sunoco’s patents at issue were invalid due to operation of the on-sale bar doctrine.  Pursuant to the U.S. Patent Act, a patent cannot be granted if the claimed invention was in public use, on sale or otherwise available to the public more than one year prior to the effective filing date of the corresponding patent application.

As previously referenced, the patents at issue were filed on February 9, 2001.  Significantly, the inventor company had offered to sell and install a butane-blending system to another entity on February 7, 2000.  Cash consideration did not immediately pass between the parties, but the offer was conditional on a third-party purchaser agreeing to purchase butane from the inventor company.  Based on these facts, Venture argued that the original patent application was filed outside of the statutory grace period.[1]

Sunoco, for its part, relied on the common law exception to the general rule. The statutory one-year time bar does not apply to applicants that are able to show that the actions relating to the use or sale were experimental in nature – this is known as the experimental use exception.  Sunoco argued that the agreement between the parties related to an experimental purpose, as there were provisions in the agreement expressly requiring pre and post installation testing.

As reasoned by the CAFC, for Venture to succeed with its on-sale bar defense, it had to show that before February 9, 2000, Sunoco’s patented invention was both (1) the subject of a commercial offer for sale and (2) ready for patenting.[v]  Notwithstanding this, Sunoco had an opportunity to negate the defense if they could show that the agreement was entered into substantially for experiential purposes.[vi]

In its analysis the CAFC considered the agreement under the “law of contracts” and in the context of the broader commercial community.[vii]  From this perspective, the CAFC was satisfied that the agreement met all aspects of a commercial sale, including the existence of a product, the passing of consideration (the purchase of butane constitutes value) and the transfer of ownership.  The CAFC was not convinced that the agreement related to an experimental purpose, reasoning that the purpose of the testing was not to experiment with the butane-blending system’s design, but rather to ensure that the product met minimum operating standards.[viii]

The CAFC reversed the District Court’s conclusion on experimental-use, remanding the case back to the lower court to consider the second part of the on-sale bar defense analysis as set out above.[ix]

Commentary

Though the experimental use exception can be a useful tool for companies intending to do development for regulatory-related purposes, this decision is a reminder of the boundaries of the exception, which continue to be narrowed by the Federal Circuit.  To best protect their IP rights, patent applicants should diligently file their patent applications before offering to sell the product.  When an agreement has been made before filing, applicants should consult a patent professional to assess whether the agreement qualifies under the experimental use exception.

Please contact a patent professional at PCK Intellectual Property for more information on filing and protecting your IP rights.


Footnotes

[1] A one-year grace period after disclosure is provided in a small number of jurisdictions including the United States and Canada, however, in many countries, patents cannot be obtained for inventions that have been previously disclosed.

[i] Sunoco Partners Marketing & Terminals L.P. v U.S. Venture, Inc. and U.S. Oil Co., Inc. No. 20-1640 (Fed Cir, 2022) [Sunoco].

[ii] Including, but not limited to, U.S. Patent Nos. 7,032,629 (the “‘629 patent”), 6,678,302 (the “‘302 patent”) and 9,606,548.

[iii] Sunoco Partnership Marketing. & Terminals L.P. v. U.S. Venture, Inc., 436 F. Supp. 3d 1099, 1107 (N.D. Ill. 2020).

[iv] Only two of the patents were at issue on appeal, the ‘629 patent and the ‘302 patent.  The other patents were invalidated by a judgment in a separate proceeding before the Patent Trial and Appeal Board, which was affirmed by the Federal Circuit. See Sunoco, supra note 1 at p 4.

[v] Ibid at p 4.

[vi] Ibid at p 6.  This is a question of law and the accompanying analysis ought to be based on the surrounding circumstances.

[vii] Ibid at p 4.

[viii] Ibid at p 10.

[ix] Ibid at p 16.


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Engineer at an oil refinery inspects centrifuge equipment.