Proposal Establishes On Sale Bar

Posted on | January 21, 2010 | No Comments

2010-1121 Honeywell v Nikon
D/DE 04-cv-1337
Judge Joseph Farnan

Patentee Honeywell appeals from the order of Judge Farnan finding that claim 3 of U.S. Patent No. 5,280,371 is invalid under the on-sale bar provisions of § 102(b).  The '371 patent s directed generally to a directional diffuser for a flat panel LCD of the type used, for example, in aircraft cockpit displays.

The '371 patent was filed in July 1992.  In June 1990, Honeywell submitted to Boeing a four-volume sales proposal (the "AIM Proposal"). This proposal included a 313 page volume on "Technical Proposal & Plans," and 125 pages entitled "Price Offering & Contractual Terms & Conditions."

Proving on-sale bar requires showing that, before the critical date, that (i) the product embodying the claimed invention was the subject of a commercial offer for sale and (ii) the invention was ready for patenting.  See Order, p. 3. 

Honeywell conceded the latter, but argued that the product described by the AIM Proposal was not covered by claim 3 and that the AIM Proposal was not a commercial offer for sale.  On the first point, although Honeywell argued that evidence showed at least an issue of fact, the court concluded that the product described in the proposal did include all of the elements of claim 3.  Order, pp. 13-16.

As to whether the AIM Proposal was an offer for sale, the court reviewed the relevant law under Pfaff v Wells, 525 U.S. 55 (1998) and subsequent Federal Circuit decisions.  Despite Honeywell's insistence that the AIM Proposal would not have been accepted by Boeing without additional negotiation (and therefore wasn't an "offer"), the court found the express language of the proposal evidenced an intent to make an offer even if the parties' expectations might have been otherwise:

As the Court has noted, however, acceptance is not required for a proposal to be considered a commercial offer of sale.  Rather, the focus of the inquiry is whether the offer could have been made into a binding contract by formal acceptance. In this case, Honeywell relies on the parties' business relationship and the alleged custom and practice in the industry to argue that the AIMS Proposal could not be a formal offer for sale because further negotiation between the parties was expected. In the Court's view, however, the fact that further negotiations might arise or even be expected does not preclude the AIMS Proposal from being an invalidating offer where, as here, the AIMS Proposal contained the essential terms of an offer and Honeywell manifested its intent to make an offer to Boeing.

Order, p. 10.

Although the evidence and proposal language is a little different, this case reminds me of the Lacks Indus. v. McKechnie Vehicle case (2008-1167) decided by the Federal Circuit in 2008.  That case involved the question of whether a proposal made in the automotive industry was an "offer for sale" to trigger the on-sale bar.  In a non-precedential opinion, that panel appeared to reject the "could have been accepted" theory of Judge Farnan and found summary judgment inappropriate where there was a disputed fact as to whether such a proposal would be accepted under industry practice.

Defendants’ experts submitted that in the automobile industry, an OEM, such as Chrysler, would often accept a supplier’s initial quote, such as a SCORE proposal, subject to possible future revision.  However, Lacks’ witnesses testified that the purpose of submitting a SCORE proposal was “first to garnish [if Chrysler is] even interested and then [if the proposal is] even valid . . . .”  When viewing this record in a light most favorable to Lacks and resolving doubts in favor of Lacks, we cannot conclude that Defendants have established an automobile industry practice by clear and convincing evidence such that a reasonable fact-finder could not decide in Lacks’ favor. 

Lacks opinion, p. 9.

2010-1121 on Sale Order

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