Federal Circuit asked to eliminate supplier-to-inventor transactions from “on-sale” bar to patentability

22702093_s[NOTE:  see important update at the end of this post.]  It is well known that if an inventor sells an invention prior to applying for a patent application, the sale can preclude the inventor from obtaining a patent for the invention. In the United States, the inventor also gets a one-year grace period before the on-sale bar applies. In most other countries, the on-sale bar is absolute with no grace period.

It is not so well-known that the on-sale bar can be triggered by the inventors’ (or patent applicant’s) own purchase of the invention from its suppliers. In 2001, the Federal Circuit considered whether to establish a “supplier exception” to the on-sale bar and decided against such an exception. (Special Devices, Inc. v. OEA, Inc. 270 F.3d 1353, 1357 (Fed. Cir. 2001).)

More recently, in The Medicines Co. v. Hospira, Inc., 791 F.3d 1368, 1370 (Fed. Cir. 2015), the court again refused to grant a supplier exception and noted that the case at hand involved a situation where the supplier was manufacturing a product in preparation for commercial exploitation by the patent holder.

The “no supplier exception” rule may be ripe for change. After the patent holder filed a petition for rehearing, the Federal Circuit vacated its decision in the Medicines Co. case and asked the parties to submit new briefs in the case. Since then, the American Intellectual Property Law Association filed an amicus brief urging the court to rule that a transaction between an inventor and its supplier is not a commercial offer for sale, and therefore should not trigger the on-sale bar to patentability.

The Federal Circuit should issue a new decision in the case during the first half of 2016. The court’s willingness to entertain the rehearing petition suggests that it may be willing to retract, relax, or otherwise change its rule that has stood since the Special Devices case.

UPDATE:  in a July 2016 en banc opinion, the Federal Circuit withdrew the panel decision discussed above and reached the opposite conclusion.  In its July 2016 opinion, the court stated that “the mere sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a ‘commercial sale’ of the invention.”

[Image credit:  Stuart Miles ]

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