Beta Testers Who Paid Create an On Sale Bar

CYGNUS TELECOMMUNICATIONS TECHNOLOGY, LLC, v. TELESYS COMMUNICATIONS, LLC, [2007-1328, -1329, -1330, -1331, -1332, -1333, -1354, -1361] (August 19, 2008) [BRYSON, Newman, Pogue] The Federal Circuit affirmed summary judgment that U.S. patent numbers 5,883,964 and 6,035,027 are invalid under the on-sale bar of 35 U.S.C. § 102(b); summary judgment of non-infringement as to defendant AT&T; and dismissal of Cygnus’s trade secret misappropriation claims.
DISCUSSION: The district court ruled, on summary judgment, that the ’964 and ’027 patents are invalid under the on-sale bar of 35 U.S.C. § 102(b). The district court’s ruling was based on Alleman’s sale of the 386 system to paying users before the critical date for both patents, April 24, 1991. The district court determined that the 386 system had been reduced to practice based on Mr. Alleman’s sworn declaration to the PTO that the invention had been reduced to practice before June 27, 1990. The Federal Circuit began with a statement of the general rule A patent is invalid under the section 102(b) on-sale bar if, prior to the critical date, the invention was ready for patenting and was the subject of a commercial sale or offer for sale.
The Federal Circuit approved the district court’s ruling that the question whether the system would work on a commercial scale was distinct from whether the system embodied the claims in the two patents at issue. Because the system embodied the claims, sales relating to its use can constitute an invalidating commercial sale, regardless of the state of development of a commercial system. Regarding the “beta testers” the Federal Circuit said that the district court properly concluded that in light of the undisputed evidence that they paid to use the system, there was a sale of the service. The Federal Circuit noted that there did not need to be a profit in order for there to be a sale within the meaning of section 102(b). The Federal Circuit also affirmed that “experimental use cannot occur after a reduction to practice.”