CASRIP Newsletter - Fall 1998, Volume 5, Issue 3
When Is an Invention on Sale? The Vagueness of the Totality-of-the-Circumstances Standard; Anti-Trust Liability for Patent Holders
C. R. Bard, Inc. v. M3 Systems, Inc.1
In a case involving numerous claims and counterclaims, the Federal Circuit on September 30, 1998 handed down a decision notable for disagreements on two issues: how to tell when an invention is on sale and whether a patent allows the patent holder to practice exclusionary behavior. With respect to the first issue, what constitutes a sale for the purposes of triggering the on-sale bar of 35 U.S.C. §102(b), the three-judge panel had three different views, a situation which caused one judge to criticize the totality-of-the-circumstances standard for determining whether a sale has occurred. Second, a majority indicated that holding a patent does not protect all exclusionary behavior, but that result is clouded by the patent holder's failure to raise the issue of his patent rights. Thus, this case may not signal an expansion of a patentee's exposure to antitrust liability, but rather a warning not to forget to assert one's patent rights. Although the Supreme Court's decision in Pfaff v. Wells Electronics (see following article) was announced after Bard and both cases dealt with the issue of the on-sale bar, the Supreme Court did not discuss the totality-of-the-circumstances standard. The Court, however, in general terms agreed with Judge Newman in trying to make more clear the legal standards applying to patents.
The inventions at issue were mechanical biopsy guns, which improved upon the speed, accuracy, and patient comfort of manual biopsy guns. These devices were the work of Dr. Per Gunner Lindgren and two engineers, Jan Allard and Dan Akerfeldt. Lindgren and Allard filed a patent (assigned to Radiplast AB) on the first generation device under the Patent Cooperation Treaty in 1982 and the application was published in 1983. Lindgren and Akerfeldt developed a second-generation gun, which eliminated an awkward manual procedure. A patent for this device was issued in 1987 and reissued in 1992 as United States Reissue Patent No. RE 34,056, the first patent in suit. Akerfeldt's subsequent improvements resulted in a third generation gun and U. S. Patent No. 4,944,308, issued in 1990. C. D. Bard, Inc., the plaintiff-appellant, acquired both the '056 and '308 patents from Radiplast in 1989.
Bard sued M3 Systems, Inc. for infringement of its two biopsy-gun patents. M3 defended itself by asserting that the two patents were invalid and were not infringed and that Bard had engaged in fraud, antitrust violation, and patent misuse. At the trial court level, the jury found in favor of M3 on every issue. Damages awarded for the antitrust violation amounted to $1.5 million.
On appeal, the Federal Circuit affirmed the invalidity of the '056 patent and accordingly vacated the judgment of non-infringement of that patent. With respect to the '308 patent, the court reversed the judgment of invalidity but affirmed the judgment of non-infringement. The court reversed the judgments of fraud and patent misuse. Finally, although the panel affirmed the judgment that Bard violated the antitrust laws by its attempt to monopolize, the court vacated the damages award and remanded the case for a redetermination of the award amount.
The court unanimously reversed the trial court's invalidation of the '056 patent on the grounds of anticipation, obviousness, incorrect inventorship, and violation of reissue requirements. Nevertheless, Bard still lost because a divided court affirmed the jury's judgment on the fifth ground: that the new device had been on sale in the United States for more than one year before the filing date of the '154 patent application in the U. S. Chief Judge Mayer and Judge Bryson agreed that the on sale bar applied, but they differed as to the reason; Judge Newman dissented. Chief Judge Mayer found that either one of two bases was sufficient to support a judgment of the patent's invalidity due to violation of the on sale bar: the transfer from Radiplast to Pharmaseal, Radiplast's potential U.S. distributor, of needles in June of 1985 or the offer from Radiplast to Dr. Ronald Phelps in November of 1984.2 Judge Bryson concentrated on the first of these events, the June 1985 transaction, and found it indisputably a sale. The only issue for him was whether the sale fell within the "experimental purpose" exception to the on-sale bar. This exception applies only if commercial exploitation is "merely incidental to the primary purpose of experimentation to perfect the invention."3 Bard had argued that the purpose of the sale was for experimental testing purposes, but to Judge Bryson the primary purpose of the sale was to market the invention through Pharmaseal and not to conduct tests. Crucial for Bryson was the fact that while Pharmaseal, the purchaser, did conduct tests on the device, the tests were not under the control of the inventor or of Radiplast. In her dissent, Judge Newman viewed the June 1985 transaction as providing devices for use in clinical trials. She interpreted the event as a cost-defrayal arrangement between collaborators and cited as evidence Bard's undisputed claim that the "sole purpose of this transaction was to make the devices available to the four selected hospitals for a limited test period."4 Newman also considered the November 1984 letter to Dr. Phelps as merely informational since in concerned the second-generation gun, which was not yet commercially available.
Judge Newman criticized the totality-of-the-circumstances standard which Federal Circuit precedent requires when evaluating whether the on sale bar applies: "while a wide variety of factors may influence the on sale determination, no single one controls the application of section 102(b), for the ultimate conclusion depends on the totality of the circumstances."5 The fact that there were three different views on this panel on the on sale bar points up "the need for a more certain law than today exists. Inventors and those who commercialize inventions should reasonably know when the on-sale bar starts to accrue, instead of awaiting litigation-borne post hoc judicial evaluations of the totality of the circumstances. . ."6 Newman favors a bright-line rule: in order for the on-sale bar to apply, the invention must exist in commercial form at the time the offer of sale is made.7
With respect to the antitrust allegations, M3 presented three theories, all of which were accepted by the jury, but only one theory was affirmed on appeal: "that Bard modified its Biopty gun for the purpose of preventing its competitors' needles from being used in that gun."8 Two members of the deeply divided panel found sufficient evidence to support the jury's special verdict that Bard's modifications were restrictive or exclusionary conduct. The dissenter, Judge Newman, disagreed vigorously: "To hold that Bard could violate the Sherman Act by changing these products, if M3's business was adversely affected, is a novel and pernicious theory of antitrust law that is contrary to the principles of competition, and fraught with litigation-generating mischief."9
In defense of its holding, the majority pointed to evidence that Bard modified its device not in order to improve it but to injure competitors. Although Bard contended that it made the modifications in order to make the gun easier to load and unload, Bard documents showed that the modifications had no effect on gun or needle performance. Thus, the majority found that substantial evidence existed to support the jury finding that Bard's conduct was exclusionary because it modified its device in order to exclude competing replacement needles. Judge Newman, on the other hand, asserted that a patent holder has the right to exclude others from using devices protected by the patent; thus, Bard's behavior cannot be a violation of the anti-trust laws. The majority replied that Bard cannot raise the issue of its patent rights because it failed to object to jury instructions which did not mention the patentees' right to exclude. Thus, the issue of insufficient jury charge was not properly before the court on appeal.
Therefore, it is not clear that this case has wide-ranging implications for expanding the anti-trust liability of patent holders. The majority seemed to indicate that if a party can show that a patentee's modification of his device was not an improvement but an exclusionary tactic, an antitrust violation may have occurred. However, the patentee's failure to raise the issue that his patent rights allow exclusionary behavior limits the precedential value of this case.
1. 48 U.S.P.Q.2d 1225 (Fed. Cir. 1998).
2. Id. at 1250.
3. Id. at 1255 (quoting Barmag Barmer Maschinenfabrik AG v. Murata Mach., Ltd., 731 F. 2d 831, 839, 221 U.S.P.Q. 561, 567 (Fed. Cir. 1984)).
4. 48 U.S.P.Q.2d 1225 at 1236.
5. Ferag AG v. Quipp, Inc. 45 F.3d 1562, 1566, 33 U.S.P.Q.2d 1512, 1514 (Fed. Cir. 1995).
6. 48 U.S.P.Q2d 1225 at 1237.
8. Id. at 1256.
9. Id. at 1257.