In Brief:  The first sale of a patent is determined by contract law.

Here’s What Happened:

In the mid-1980s, Larry Junker started developing a new design for an introducer sheath associated with a catheter kit. In 1998, Larry entered into a business relationship with James Eddings to handle manufacturing of Larry’s design. James created a company, Xentek, to do the manufacturing. The parties never entered into a written agreement.

In 1999, Xentek provided Larry with a prototype that had all of the features of the design. At about the same time, Xentek initiated communications with a prospective purchaser for the sheath product. Xentek sent the prospective purchaser a letter with pricing information, delivery conditions, risk allocations and payment terms. A month later, Xentek sent another letter to the purchaser with the same terms. Over a year after Xentek’s letters to the purchaser, Larry filed a patent application for the design.

The timeline of the patent application and the offer letter was critical to determine if Larry’s patent is invalid. According to the Patent Act, an on-sale bar to the issuance of a patent is triggered if, before the critical date, the claimed invention was both (i) the subject of a commercial offer for sale and (ii) ready for patenting.

Larry brought suit for patent infringement against MedComp for manufacturing and selling the sheath design. After a bench trial, the court found MedComp’s accused products willfully infringed  Larry’s patent and awarded Larry over $1.2 million in damages. MedComp appealed to the Federal Circuit.

The Federal Circuit reexamined whether the Xentek offer letter was a “commercial offer” within the meaning of the Patent Act. The Federal Circuit looked at the actual language in the letters and applied general contract law and the Uniform Commercial Code. The Federal Circuit concluded that the letters had enough critical terms to fit within the definition of a “commercial offer”. Thus, Larry’s patent was invalid because it was filed one year after a commercial offer. The judgment was reversed.

Why You Should Know This: The best way to keep on the good side of the patent sale bar is to keep to a strict timeline for developing and selling a product. If you think that the patent isn’t developed enough to file a patent application, you shouldn’t be offering it for sale.

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