Section 102 On-Sale Bar Invalidates Software Patent Claims

The Federal Circuit has upheld a jury verdict invalidating patent claims covering a software product that the plaintiff had demonstrated and sold prior to filing a patent application.  Leader Technologies, Inc. v. Facebook, Inc., No. 2011-1366 (May 8, 2012).

The claimed invention was conceived in August 1999.  Development of software based on the invention began “immediately” thereafter, and completed sometime in (or maybe a little before) 2002. The moral to this story is to not wait over three years to file a patent application; only on December 11, 2002, did Leader file a provisional patent application.  Subsequently, on December 10, 2003, Leader filed a utility application that issued as U.S. Patent 7,139,761.  The patent claims were drawn to a "data management system" that "allows users on a network to communicate and collaborate on a large scale."

Around the time that the software product was completed, Leader began offering it for sale.  A white paper published in January 2002 offered licenses for sale, and represented that Leader was “already commercializing” the product.  The white paper also detailed the product's functionality and advantages over prior systems.  One of the inventors, McKibben, gave a product demonstration to Boston Scientific in November 2002, and to "a number of other companies” by December 8, 2002.  Leader's discovery responses stated that the ’761 patent covered its software product.  When Facebook deposed McKibben, looking back in time, he could not point to any specific version of the product that the ’761 patent did not cover.

Based on these facts, the jury found that claims of the ’761 patent were invalid based on both on-sale and public use bars of 35 U.S.C. § 102(b).  Leader appealed after the District Court denied its post-trial motions to set aside the jury verdict.  The jury also found that Leader was not entitled to the benefit of the provisional application, which Leader did not appeal.

Leader did not deny that its “product was offered for sale and publicly used prior to December 10, 2002, the critical date.”  Further, Leader did not “contest that the invention was 'ready for patenting' prior to the critical date.”  Rather, Leader rested its hopes on the argument “that Facebook failed to offer clear and convincing evidence that the version of Leader2Leader® offered for sale or used prior to December 10, 2002 fell within the scope of the asserted claims.”  Facebook responded that Leader's own internal documents demonstrated the applicability of the on-sale and public use bars.

The Federal Circuit agreed with Facebook.  Leader's discovery responses admitted that its product was embodied in the patent claims.  Functionality described as early as January 2002 in Leader's documents, e.g., the white paper, demonstrated the existence of claimed functionality.  The jury was entitled to discredit McKibben's trial testimony that the 2002 product did not fall within the patent claims, especially where another witness's testimony supported the jury's finding.  Although recognizing that two versions of the same software product may function differently,” the Federal Circuit saw no “contemporaneous evidence in the record that indicates that [Leader's product] that existed prior to the critical date was substantively different from the post-critical date software; indeed, the evidence points in the opposite direction.”  Therefore, the judgment of the District Court was affirmed.

Presumably, this decision will remain relevant under the new Section 102(a)(1) of the America Invents Act, which becomes effective in March 2013, and provides that "[a] person shall be entitled to a patent unless—(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention."

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