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Pre-critical Date Commercialization Deemed Not a Commercial Offer for Sale

December 28, 2001

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Last Month at the Federal Circuit - January 2002

Judges: Clevenger, Gajarsa, Dyk

In Linear Technology Corp. v. Micrel, Inc., No. 99-1598 (Fed. Cir. Dec. 28, 2001), the Federal Circuit reversed a district court's holding of invalidity under the on-sale bar of U.S. Patent No. 4,755,741 and its Reexamination Certificate (collectively "the '741 patent").

The '741 patent relates to linear integrated circuits that provide regulated voltages and currents to electrical devices within the context of adaptive transistor-drive circuitry. The '741 patent application was filed on November 18, 1986. Linear Technology Corporation ("LTC"), the assignee of the '741 patent, incorporated the technology taught in the patent into a product known as the LT1070 chip.

Before the critical date, LTC had engaged in extensive marketing and commercialization of the LT1070 chip both in the United States and abroad. LTC provided its sales force with preliminary data sheets and newsletters concerning the LT1070 chip, which were forwarded to prospective customers. LTC also conducted a sales conference for its foreign and domestic sales representatives where it provided information about the LT1070 chip and touted its capabilities. LTC even received purchase orders for the chip from four of its European distributors. Following its protocol for unreleased products, LTC entered the orders in its order-tracking system under a "WILL ADVISE" and "ORDER NOT BOOKED" notation rather than entering part number, quantity, and price terms. LTC then faxed the order form with these notations to its foreign distributors acknowledging their request. LTC released the chip for sale on the critical date, November 18, 1985.

LTC sued Micrel, Inc. ("Micrel") for infringement of the '741 patent. The district court had bifurcated the case to hold a separate early trial on the on-sale bar issue and stayed all other issues pending the outcome of the early trial. The district court had found the '741 patent invalid because LTC (1) had actively promoted the LT1070 chip to customers before the critical date; and (2) actually sold the LT1070 chip under its "WILL ADVISE" procedure to four of its European distributors prior to the critical date. In so finding, the district court had relied on the Federal Circuit's precedent in RCA Corp. v. Data General Corp., 887 F.2d 1056 (Fed. Cir. 1989), which held that an on-sale bar could be triggered by commercial activity not rising to the level of a formal offer for sale.

LTC appealed the decision, arguing that under the Federal Circuit's decision in Group One v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir. 2001), decided after the district court had entered judgment, its activities did not trigger the on-sale bar.

In Group One, the Federal Circuit clarified the test for determining an offer for sale using traditional principles of contract law. Thus, an offer that could create a binding contract by simple acceptance (assuming consideration) constitutes an offer under 35 U.S.C. § 102(b).

Applying the principles of Group One, the Court found that LTC's promotion of the LT1070 chip and offers to purchase by LTC's customers before the critical date did not trigger the onsale bar because none of these activities constituted an offer under contract-law principles.

Specifically, the Court reasoned that LTC's publication of preliminary data sheets, promotional information, and newsletters about the chip amounted only to preparation to put the chip on sale and communicated nothing about LTC's intent to be bound. The purchase orders received from the European distributors, the Court concluded, may be considered offers to buy the chip, but, under LTC's "WILL ADVISE" procedure, LTC did not accept the offers. LTC had made no objective manifestation of assent that the offeror reasonably could have believed to be an acceptance of the offer, as required by contract law. Entry of the purchase requests into LTC's order-tracking system communicated nothing to the customers who had requested purchases. In addition, LTC's faxed confirmation of receipt of the purchase requests indicated that LTC had received but not booked the orders. Micrel had offered no evidence to show that the distributors had thought otherwise.