Charging "beta testers" to place calls with a fledgling telecommunications invention more than a year prior to filing a patent application did not qualify as experimental use and thus triggered the on-sale bar, the U.S. Court of Appeals for the Federal Circuit recently decided in affirming a summary judgment invalidating two patents. Cygnus Telecommunications Technology v. Telesys Communications, LLC, et al., Case Nos. 07-1328, 08-1023 (Fed. Cir., Aug. 19, 2008) (Bryson, J.).
In the late 1980s, inventor James Alleman developed technology to take advantage of a pricing discrepancy that made a telephone call from the United States to a foreign country was cheaper than vice versa. With a computer system that interacted with telephone exchange carriers, Alleman enabled a foreign user to initiate a call to the United States, enter the destination number and then hang up. Next, the computer in the United States would call back the foreign user and simultaneously bridge the user to the desired United States destination line. Thus, the call was effectively initiated in the United States and therefore cheaper for the foreign user.
During ongoing development as early as March 1990, Alleman billed several beta testers who used the technology to make long-distance phone calls. Alleman filed a patent application on the system in April 1992; this application matured into two U.S. patents. The subsequent patent owner, Cygnus, later asserted both patents in two infringement suits against 18 defendants including Telesys and AT&T. The suits were consolidated into a single multidistrict (MDL) proceeding. After the district court granted the defendants' motions for summary judgment on invalidity (based on on-sale bar) and non-infringement, Cygnus appealed.
Before analyzing the substantive issues, the Federal Circuit, applying regional circuit procedural law—in this case, the Ninth Circuit—refused to consider "any part of the record that was not presented to or cited to the district judge in connection with [the] motion [giving rise to the appeal], even if that evidence can be found somewhere in the voluminous materials that are part of the record on appeal." Thus, Cygnus was unable to introduce evidence that it had left out of its original district court summary judgment briefs even if such evidence existed elsewhere in the district court record.
Based only on the record presented to the district court, the Federal Circuit addressed the on-sale bar, under which a patent may be held invalid under § 102(b) if prior to the critical date the invention was ready for patenting and was the subject of a commercial sale or offer for sale.
Here, the Federal Circuit agreed with the district court that the invention met the "ready for patenting" prong due to a sworn declaration made in 1997 by Alleman to the U.S. Patent & Trademark Office that the claims of the invention had been reduced to practice before June 27, 1990, prior to the critical date (of April 14, 1991). Even though the USPTO did not ultimately rely on his declaration to issue the patents, Cygnus was unable to contradict or at least qualify the inventor's earlier statement due to the narrowed record. Moreover, even if additional evidence was allowed, the Court indicated an unwillingness to discount an inventor's clear statement of reduction to practice.
Additionally, the Court concluded that the existence of paying users was sufficient to constitute a sale for purposes of § 102(b) (and not experimental use)—whether or not that particular paid-for version of the invention actually proved commercially viable or generated a profit. The court noted that under well-established Federal Circuit case law, "experimental use cannot occur after a reduction to practice." Therefore, the beta testers' use of the system could not be excluded as a commercial use under the experimental use doctrine because such use persisted after Alleman's admitted reduction to practice.
Practice Note: Along with highlighting what does not constitute experimental use, this case serves as a reminder to practitioners that, depending on the procedural law of the circuit in which the case arose, the mere existence of evidence somewhere in the district court record is an insufficient basis to argue such evidence at Federal Circuit if it was not relied on in presenting the issue to the district court.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.