TRANSACTIONS WITHOUT PRIMARY EXPERIMENTAL-USE PURPOSE DO NOT INSULATE FROM THE ON-SALE BAR
| June 3, 2022
Sunoco Partners Marketing & Terminals L.P., v. U.S. Venture, Inc., U.S. Oil Co., Inc.
Decided: April 29, 2022
Before PROST, REYNA, and STOLL, Circuit Judges.
Summary
The Federal Circuit affirmed in part, reversed in part, vacated in part, and remanded judgement of the United States District Court for the Northern District of Illinois regarding patent infringement. In one of the decisions, the Federal Circuit overturned a district court judgment on some of Sunoco’s claims insulating from the on-sale bar.
Background
Sunoco Partners Marketing & Terminals L.P. (“Sunoco”) sued U.S. Venture, Inc. and U.S. Oil Co., Inc. (collectively, “Venture”), alleging that Venture’s operation butane-blending systems infringed claims of U.S. Patent Nos. 7,032,629 (“the ’629 patent”), 6,679,302 (“the ’302 patent”), 9,494,948 (“the ’948 patent”), and 9,606,548 (“the ’548 patent”) owned by Sunoco.
The patents claimed systems and methods that are directed to blending butane into gasoline before the end chain of distribution. Butane blended with gasoline has some advantages: butane’s volatility helps cars start more easily at low temperatures, and butane is cheaper than gasoline. However, since butane causes air pollution when burned in warm climate, the Environmental Protection Agency (EPA) established regulations on butane blending. Sunoco’s patented technology seeks to maximize butane content while complying with EPA’s (U.S. Environmental Protection Agency) regulations.
The district court ruled on various summary judgment motions and sided with Sunoco in a bench trial to affirm the award of $2 million in damages, later trebled to $6 million.
Discussion
Venture appealed the district court’s decision on (I) rejection of its on-sale-bar defense, (II) determination that it infringed two patents, (III) construction of two claim terms, and (IV) decision to enhance damages. On cross-appeal, Sunoco challenged the district court’s decision not to grant lost-profits damages and its reasonable-royalty award.
The discussion is focused on the topic of on-sale-bar. Venture’s on-sale-bar defense, if successful, would invalidate some claims in two of Sunoco’s patents. The “on-sale-bar” provides the principle that “no person is entitled to patent an ‘invention’ that has been ‘on sale’ more than one year before filing a patent application” (i.e., before the critical date). “On sale” defined by the courts should meet two criteria that the invention is both “the subject of a commercial offer for sale” and “ready for patenting.” Pfaff v. Wells Elec’s., Inc., 525 U.S. 55 (1998). In addition, the on-sale bar can be negated if the patent owner demonstrates that the sale qualifies as “primarily for purposes of experimentation.”
The inventor’s company (MCE) offered to sell and install a butane-blending system to Equilon on February 9, 2000, two days before the critical date. The agreement indicated that Equilon would not pay anything for the machine, but would agree to purchase at least 500,000 barrels of butane from MCE over the next 5 years. The district court found that the equipment was being given away since “the contract did not require Equilon to pay MCE anything in exchange for the system in the normal course of events.” The district court later determined that Sunoco’s systems were sold for experimental-use purposes rather than commercial purposes. However, the Federal Circuit disagreed and opined that the sale “agreement bears ‘all the hallmarks of a commercial contract for sale.’”
The Federal Circuit states that “the agreement begins by expressly describing the transaction as a sale, without reference to any experimental purpose” as recited in the agreement:
MCE agrees to sell to Equilon, and Equilon agrees to purchase, the Equipment (as hereinafter defined) along with a license to use certain technology and software owned by MCE pertaining to the computerized blending of Butane and gasoline stocks, in consideration for the purchase and sale of Butane as set forth herein.
The section of the agreement characterized the sale’s commercial purpose and indicated that “MCE already ‘developed’ the relevant technology and equipment, that Equilon wanted to purchase it, and that MCE was willing to sell it, install it, and supply butane for it.”
Sunoco argued that a primarily experimental purpose is a section of the agreement entitled “Equipment Testing” including two sets of testing: pre-installation testing and post-installation testing. Sunoco drew an analogy to the Supreme Court’s seminal City of Elizabeth case. However, the Federal Circuit pointed out that “the nature of a street pavement,” the invention in the case of the City of Elizabeth, “is such that it cannot be experimented upon satisfactorily except on a highway, which is always public,” City of Elizabeth, 97 U.S. at 134. The Federal Circuit found that the testing was not done by Equilon but a third party. Sunoco also acknowledged that the test could have been done at any time prior to entering the deal with Equilon in January of 2000.
For the posit-installation testing, the section of the agreement states:
Upon completion of installation of the Equipment, MCE shall provide Equilon with written notice of such completion. Within three (3) days of said notice, Equilon shall (i) make all necessary arrangements within the Terminal to enable MCE to test the Equipment to determine whether the Equipment is properly blending butane, and (ii) provide notification to MCE that said arrangements have been made. MCE shall test the Equipment according
to parameters set forth in Schedule 1.10. MCE shall proceed with testing in a timely manner and have a period not to exceed ninety (90) days from the date of said notification by Equilon to complete its testing.
The Federal Circuit found that the post-installation tests were also not experiments, but are acceptance tests to confirm that the equipment “is properly blending butane”—that is, that it is working as promised. It further noted that there was no objective evidence that supported a conclusion that the “primary purpose” of the sale was “to conduct experimentation.”
The Federal Circuit further noted that the district court should have considered “whether the invention was under development, subject to testing, or otherwise still in its experimental stage at the time of the asserted sale.” But that consideration is not the question of Pfaff prong 1. The district court’s “still under development” observation would be better considered at Pfaff prong 2.
Therefore, the Federal Circuit reversed the district court’s experimental-use determination and remand the district court to assess whether the invention was “ready for patenting.”.
Takeaway
- Transactions without primary experimental-use purpose do not insulate from the on-sale bar.
