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Sales with a Supplier Violates On-Sale Bar

October 26, 2001

Decision icon Decision

Last Month at the Federal Circuit - November 2001

Judges: Michel (author), Friedman, and Lourie

In Special Devices, Inc. v. OEA, Inc., No. 01-1053 (Fed. Cir. Oct. 26, 2001), the Federal Circuit affirmed a district court’s SJ of invalidity of the asserted claims of the patent at issue based on a violation of the on-sale bar.

OEA, Inc. (“OEA”) manufactures all-glass header assemblies that are used to trigger the inflation of automobile airbags. In April 1991, OEA sent Coors Ceramics Company (“Coors”) a proposal requesting that Coors manufacture at least half of OEA’s needs for these all-glass header assemblies. In May 1991, Coors had accepted OEA’s proposal and, in June 1991, OEA had ordered 20,000 units from Coors. In July 1991, OEA and Coors had further agreed to general terms of a requirements contract.

Over a year later, on August 27, 1992, OEA and Coors filed separate patent applications. Both patent applications were prosecuted by the same law firm, which did not disclose the 1991 sales to the PTO. The patent applications eventually issued as U.S. Patent Nos. 5,404,263 (“the ‘263 patent”) to OEA and 5,243,492 (“the ‘492 patent”) to Coors.

In 1995, after the patents had issued, Coors obtained new attorneys to prosecute a reissue application for the ‘492 patent, and the new attorneys informed the PTO about the 1991 Coors-OEA sales. OEA filed a protest, emphasizing that the 1991 Coors-OEA sales were an on-sale bar under 35 U.S.C. § 102(b). The PTO rejected all of Coors’s reissue application claims, and Coors abandoned the reissue application.

OEA later sought to enforce the apparatus claims of the ‘263 patent against Special Devices, Inc. (“Special Devices”). In 1999, after receiving threat letters from OEA, Special Devices sued OEA and requested a DJ that the apparatus claims of the ‘263 patent were invalid and not infringed. OEA counterclaimed for infringement of those same claims. On October 10, 2000, the district court granted partial SJ, holding that the on-sale bar from the 1991 Coors-OEA sales rendered the asserted claims of the ‘263 patent invalid.

On appeal, OEA asked the Federal Circuit to recognize a “supplier exception” to the on-sale bar rule. OEA argued that the Court had never expressly applied the on-sale bar to a patentee supplier relationship; therefore, precedent prevents such an exception.

The Federal Circuit disagreed, finding that neither the statutory text of § 102(b), nor any relevant precedent, nor the primary purpose of the on-sale bar rule justifies a “supplier exception.” The Court found no reasoning in its precedent to support such an exception and concluded that if such an exception is to be created, Congress must do so. In a related appeal, Special Devices, Inc. v. OEA, Inc., No. 01-1201 (Fed. Cir. Oct. 29, 2001), the Federal Circuit dismissed an appeal of the district court’s award of attorney fees for lack of jurisdiction.

Two weeks after entry of the district court’s judgment granting SJ of invalidity of the ‘263 patent, Special Devices had filed a motion for attorney fees. The district court had granted the motion, deeming the case exceptional within the meaning of 35 U.S.C. § 285. In particular, the district court had found that an award of attorney fees was warranted given (1) OEA’s failure to disclose the 1991 Coors-OEA sales and misrepresentation of inventorship to the PTO, and (2) OEA’s litigation misconduct concerning nonproduction of documents related to the 1991 Coors-OEA sales.

However, because the district court did not have evidence regarding the amount of attorney fees to which Special Devices was entitled, the court deferred quantifying the award. OEA filed an appeal before the district court could quantify the award.

On appeal, the Federal Circuit concluded that an unquantified award of attorney fees was not a final decision and, therefore, dismissed the appeal for lack of jurisdiction.