Before an inventor will build 10,000 units of a new invention, he or she will first build a prototype – or many prototypes – to make sure that the invention works as it should. For many inventions, the inventor does not have the resources to build the prototype and will farm out prototype production to a manufacturer. A question arises when the inventor orders the prototype prior to filing a patent application: is the purchase of the prototype from the manufacturer a ‘sale’ of the invention? If so, then the purchase of the prototype can terminate the inventor’s patent rights.
The patent statute includes several events that can terminate patent rights. In addition to placing the invention ‘on sale,’ those events include public use of the invention, describing the invention in a printed publication, or making the invention ‘otherwise available to the public,’ all prior to filing a patent application. These laws changed recently and no courts have reviewed the new versions of the law; nonetheless, the older law is similar and court decisions under the older law still are useful.
The Supreme Court considered whether an invention is ‘on sale’ in 1998 in Pfaff v Wells Electronics. The Court concluded that a transaction was a ‘sale’ for purposes of terminating patent rights if (a) the invention was the subject of a ‘commercial offer for sale’ and (2) the invention was ready for patenting. The Federal Circuit Court considered the ‘on sale’ issue in Medco v Hospira, decided July 11, 2016. The court applied the older law and the Supreme Court’s Pfaff decision and concluded:
…we first clarify that the mere sale of manufacturing services by a contract manufacturer to an inventor to create embodiments of a patented product for the inventor does not constitute a “commercial sale” of the invention.
In other words, the contract manufacturer is selling manufacturing services to the inventor and is not selling the invention. We believe that Medco v Hospira will apply equally to the new law and that an inventor does not jeopardize his or her patent rights by ordering a prototype from a contract manufacturer.
The Medco v Hospira decision is good news for inventors. To make absolutely sure that an order for a prototype is treated as a service contract rather than a sale of a product, we recommend that the inventor’s contract with the manufacturer specify that the contract is for manufacturing services.
— Robert Yarbrough, Esq.