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Commercial Offer Before Critical Date Is Not Sufficient to Satisfy On-Sale Bar

December 18, 2006

Decision icon Decision

Last Month at the Federal Circuit - January 2007

Judges: Newman, Friedman, Dyk (author)

[Appealed from: N.D. Cal., Chief Judge Walker]

In Plumtree Software, Inc. v. Datamize, LLC, No. 06-1017 (Fed. Cir. Dec. 18, 2006), the Federal Circuit affirmed that Plumtree Software, Inc. (“Plumtree”)showed a reasonable apprehension of suit as required to establish DJ jurisdiction but vacated the grant of SJ that Datamize, LLC’s (“Datamize”) patents were invalid pursuant to the on-sale bar doctrine of 35 U.S.C. § 102(b).

Plumtree sued Datamize for DJ of noninfringement of two patents, U.S. Patent Nos. 6,460,040 (“the ’040 patent”) and 6,658,418 (“the ’418 patent”). The patents disclose a computer program, or “authoring tool,” used to create other software. The inventive technology can be used for interactive electronic kiosks, such as those used at ski resorts to provide information about ski conditions. The invention encompasses both the method of creating the kiosk software and the authoring tool for creating that software, but does not encompass the kiosk itself.

Plumtree filed a motion for SJ that the patents were invalid under the on-sale bar doctrine because the methods of the patent claims had been on sale or offered for sale more than one year before the date the patent applications were filed. Datamize, in turn, filed a motion to dismiss for lack of subject matter jurisdiction, alleging that Plumtree had not established a “reasonable apprehension” that Datamize would sue for infringement of the two patents.

This was not the first lawsuit between the parties related to the kiosk technology. In 2002, Datamize sued Plumtree in the U.S. District Court for the District of Montana (“Montana action”), alleging infringement of U.S. Patent No. 6,014,137 (“the ’137 patent”), the parent of the ’040 and ’418 patents. At the same time, Datamize sent a letter to Plumtree warning that Plumtree will infringe the claims in a continuation patent application to the ’137 patent upon its issuance. That application later issued as the ’040 patent. Plumtree filed a motion to dismiss the Montana action but also filed a DJ action in California (“first California action”), seeking judgment that it did not infringe the ’137 patent. Datamize then counterclaimed for infringement. In July 2003, the district court dismissed the Montana action for lack of personal jurisdiction. In a third lawsuit (“Texas action”), Datamize sued nine defendants for infringement of the ’040 and ’418 patents but did not include Plumtree. Datamize did, however, list Plumtree’s products in response to an interrogatory seeking a list of products embodying the inventions claimed in the ’040 and ’418 patents.

In July 2004, the district court in the first California action granted Plumtree’s SJ motion and held the ’137 patent invalid for indefiniteness. The same day, Plumtree filed the present DJ action with regard to the ’040 and ’418 patents (“second California action”). Plumtree filed a motion for SJ that the patents were invalid under the on-sale bar. Datamize subsequently filed a motion to dismiss for lack of subject matter jurisdiction.

The district court in the second California action held that DJ jurisdiction was proper because a “case or controversy” existed with regard to both patents. Specifically, the district found that the totality of the circumstances, including (1) the Montana action, (2) the Texas action, and (3) the letter referencing the patent application that later issued as the ’040 patent, was sufficient to cause Plumtree to have a reasonable apprehension of suit. With regard to the SJ motion, the district court held both patents invalid under the onsale bar of § 102(b). The district court found that Datamize’s predecessor in interest offered in January 1995 to provide its interactive kiosk system to the sponsors of a ski industry trade show in exchange for waiver of a sponsorship fee. It further found that this offer occurred prior to the critical date of February 27, 1995, and was made in exchange for valuable consideration. Moreover, it concluded that the kiosk embodied all of the claims of the ’040 and ’418 patents. For these reasons, the district court granted SJ of invalidity in favor of Plumtree.

On appeal, the Federal Circuit affirmed the district court’s holding that DJ jurisdiction was proper. Despite Datamize’s argument that, because the DJ action was filed more than two years after the ’137 patent infringement action, the passage of time had dissipated any reasonable apprehension of suit, the Court explained that, absent a covenant not to sue, a reasonable apprehension may be eliminated only in narrow circumstances not present in this case. Applying its reasoning from Goodyear Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953 (Fed. Cir. 1987), the Federal Circuit concluded that, between the two lawsuits, Datamize continued to engage in a course of conduct that demonstrated a willingness to protect its technology. Thus, Plumtree had a reasonable apprehension of suit.

With regard to the on-sale bar, the Federal Circuit vacated the district court’s grant of SJ and remanded for further proceedings. The Court rejected Datamize’s argument that waiver of the $10,000 sponsorship fee did not constitute consideration, and concluded that it could not sustain the district court’s invalidity decision because the kiosk system itself is not patented. The Federal Circuit discounted the district court’s reliance on testimony that the kiosk itself embodied all claims of the patents-in-suit. Rather, the Court applied the test from Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998), under which invalidity under the on-sale bar requires (1) that the product be the subject of a commercial offer for sale, and (2) that the invention be ready for patenting. The Court noted that the first prong of the Pfaff test could be established if Plumtree could show that either (1) Datamize’s predecessor made a commercial offer to perform the patented method before the critical date, or (2) it actually performed the patented method for a promise of future compensation. The Court concluded that Plumtree failed to demonstrate facts sufficient to satisfy either option.

With regard to the first option, a commercial offer for sale, the Federal Circuit found that there existed a commercial offer before the critical date because there was a binding contract between Datamize’s predecessor and the ski industry association. The Court concluded, however, that, because the agreement between the parties did not require Datamize’s predecessor to provide the kiosk system software or perform the patented method, SJ based on this commercial offer theory was not appropriate.

Turning to the second option, performing the patented process, the Court concluded that Plumtree could prevail on SJ only if it demonstrated that Datamize’s predecessor in fact performed each of the steps of the patented process before the critical date pursuant to the contract. The Court found that the kiosk system intended for use at the trade show was not completed until after February 27, 1995, and Plumtree did not establish performance of each of the steps of the patented process prior to that date. Thus, the Federal Circuit concluded that the record does not support SJ.