U.S. Environmental Products Inc. v. Westall, s. 89-1580

• Decision Date: 16 August 1990
• Docket Number: 89-1581,Nos. 89-1580,s. 89-1580
• Parties: U.S. ENVIRONMENTAL PRODUCTS INC. and International Sludge Reduction Co., Plaintiffs/Counterclaim Defendants/Appellants, v. George B. WESTALL, Jr., individually as statutory trustee of SDS Company, and d/b/a SDS Company; SDS Company; and Solids Dewatering Systems, Inc., Defendants/Counterclaim Plaintiffs/Cross-Appellants, v. Felix G. JANSSEN, R. Kimball Stedman, Robert L. Roberts, Morris M. Riise, Walter R. Strothman and Irving M. Jahnig, Counterclaim Defendants/Cross-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

Page 713

911 F.2d 713

15 U.S.P.Q.2d 1898

U.S. ENVIRONMENTAL PRODUCTS INC. and International Sludge

Reduction Co., Plaintiffs/Counterclaim Defendants/Appellants, v. George B. WESTALL, Jr., individually as statutory trustee of

SDS Company, and d/b/a SDS Company; SDS Company; and Solids Dewatering Systems, Inc., Defendants/Counterclaim Plaintiffs/Cross-Appellants, v. Felix G. JANSSEN, R. Kimball Stedman, Robert L. Roberts, Morris M. Riise, Walter R. Strothman and Irving M.

Jahnig, Counterclaim Defendants/Cross-Appellees.

Nos. 89-1580, 89-1581.

United States Court of Appeals, Federal Circuit.

Aug. 16, 1990.

Kenneth J. Jurek, Mayer, Brown & Platt, Chicago, Ill., argued for plaintiffs/counterclaim defendants/appellants. With him on the brief were Ronald A. Jacks, Rosanne J. Faraci and Carrie Huff. Also on the brief was Paul H. Berghoff, Allegretti & Witcoff, Ltd., Chicago, Ill.

Melvin G. Berger, Brand & Leckie, Washington, D.C., argued for defendants/counterclaim plaintiffs/cross-appellants. With him on the brief was John D. Whitler. Also on the brief were William G. Bruns and Frederick M. Woodruff, Gravely, Leidler & Woodruff, St. Louis, Mo. Sean T. Beeny, Brand & Leckie, Washington, D.C., of counsel.

Before NIES, Chief Judge, ^* and MILLER, Senior Circuit Judge, and LIFLAND, District Judge. ^**

LIFLAND, District Judge.

This appeal is from the judgment of the United States District Court for the Eastern District of Missouri, U.S. Environmental Products, Inc., et al., v. George B. Westall, Jr., et. al., No. 87-196C(A), slip op. (E.D.Mo. May 19, 1989), in a patent infringement action brought by U.S. Environmental Products Inc. and International Sludge Reduction Co. ("USEP/ISR") alleging infringement of United States Patent No. 4,632,764 (the " '764 patent"). Following a bench trial, the district court held that the patent was invalid because it did not contain a true statement of inventorship and the invention was on sale more than one year prior to the patent application. The district court also found that even if the patent had been valid, it was not infringed by defendants George B. Westall, Jr., individually as statutory trustee of SDS Company and d/b/a SDS Company; SDS Company; and Solids Dewatering Systems, Inc. (hereinafter "Westall"). Finally, the district court denied defendants' request to find the case exceptional within the meaning of 35 U.S.C. Sec. 285, thereby warranting attorney fees. Both USEP/ISR and Westall appeal.

We affirm solely on the basis that the '764 patent is invalid by virtue of the on-sale bar of 35 U.S.C. Sec. 102(b) (1982). We remand the cross-appeal on the attorney's fees issue for factual findings in accordance with this opinion.

I.

In 1976, Forrest Stannard, Morris Riise and others formed Sludge Reduction System ("SRS") to develop and market a sludge dewatering system. During the late summer or fall of 1976, SRS was successful in selling a sludge dewatering system to the City of Sunrise, Florida. The Sunrise system became operational in January, 1977. By the spring of 1977, the relationship among the SRS principals had deteriorated, culminating in the break up of the company. ISR purchased the rights to the patent application and appointed USEP as its exclusive licensing agent in the United States.

SRS first filed a patent application in 1976. The subject matter of the application was a sludge dewatering system referred to as a vacuum-assisted sludge dewatering bed, or VASDB. The 1976 application claimed only a single filter plate. After several rejections and amendments, a continuation-in-part application was filed on August 2, 1978, claiming a multiple layer filter plate. This CIP application ultimately resulted in the issuance of the '764 patent on December 30, 1986. The '764 patent covers a method for dewatering sludge by the use of a rigid, multi-layer filter plate, which is a type of VASDB.

George Westall, Jr. is the president, sole director and sole shareholder of the other defendants. He became involved with sludge dewatering systems when his company, Sears-Westall, became a manufacturer's representative for USEP. After Sears-Westall was terminated as a manufacturer's representative, George Westall became a competitor of USEP and developed and marketed a multi-layer filter plate. USEP/ISR allege that Westall's filter plate infringes the '764 patent.

Westall argues the '764 patent is invalid by virtue of the on-sale bar of 35 U.S.C. Sec. 102(b). According to Westall, the invention was on sale within the meaning of the statute because of the sale to the City of Sunrise and operation of the Sunrise facility.

35 U.S.C. Sec. 102 provides in pertinent part:

Sec. 102. Conditions for patentability; novelty and loss of right to patent

A person shall be entitled to a patent unless

. . . . .

(b) the invention was ... on sale in this country, more than one year prior to the date of the application for patent in the United States....

One of the primary purposes of the on-sale bar is to prevent an inventor from commercially exploiting the exclusivity of an invention in excess of the statutorily authorized period. See General Elec. Co. v. United States, 228 Ct.Cl. 192, 198, 654 F.2d 55, 61, 211 USPQ 867, 873 (1981). If SRS' sale to Sunrise triggers the provisions of Sec. 102(b), USEP/ISR's claim that Westall infringed the '764 patent must fail.

II.

We review the district court's conclusion of a Sec. 102(b) bar as a question of law, while the facts underlying the conclusion are subject to the clearly erroneous standard of review. See Moleculon Research Corp. v. CBS, Inc., 793 F.2d 1261, 1266, 229 USPQ 805, 808 (Fed.Cir.1986), cert. denied, 479 U.S. 1030, 107 S.Ct. 875, 93 L.Ed.2d 829 (1987).

The district court's relevant findings of fact regarding on-sale bar are as follows:

In June, 1976, SRS reached an agreement with the City of Sunrise, Florida to submit a proposal for the installation of a sludge dewatering system. The proposal contained a provision stating that the SRS was not allowed to conduct experiments without the written consent of the City Engineers. In the final offer-to-sell letter dated August 30, 1976, it was stated that the dewatering units would be completely under the control of Sunrise, and SRS needed a specific reservation of its right to retain limited access to insure that proper operating procedures were being followed. Further, it was stated that Riise was to be permitted to show the units to other potential customers, and that SRS was prevented from making changes in the units without the written consent of Sunrise. Sunrise signed this final offer to sell on September 29, 1976. After the Sunrise installation was completed, a sales brochure bulletin was released which contained photographs of the installation and language suggesting that the sludge dewatering systems were then available for purchase.

....

The Sunrise beds became operational in January, 1977. The evidence shows that Sunrise personnel assumed responsibility for operating the beds. Sunrise was responsible for regulating and enforcing security measures.

....

The testimony discloses that had the Sunrise facility been an experimental endeavor, plaintiffs would have adhered to a testing schedule and maintained detailed records of their progress achieved over a period of time. No such records were offered into evidence.

These facts provide the foundation for the district court's conclusion that the Sunrise facility was established for the purpose of commercial rather than experimental use.

Because the multiple layer filter plate in the CIP application, filed August 2, 1978, was not disclosed in the parent application filed in 1976, the CIP application was not entitled to the filing date of the parent application. The critical date thus became August 2, 1977. The parties do not dispute that a purchase agreement was signed by the City of Sunrise on September 29, 1976, that the system was a multi-layer filter plate system, and that the units were operational in January 1977. Westall has proven a prima facie case of an on-sale bar.

A section 102(b) bar is avoided if the primary purpose of the sale was experimental, Baker Oil Tools, Inc. v. Geo Vann, Inc., 828 F.2d 1558, 1563, 4 USPQ2d 1210, 1213 (Fed.Cir.1987); UMC Elecs. Co., v. United States, 816 F.2d 647, 657, 2 USPQ2d 1465, 1472 (Fed.Cir.1987), cert. denied, 484 U.S. 1025, 108 S.Ct. 748, 98 L.Ed.2d 761 (1988). USEP/ISR contends that the district court improperly imposed on them the burden of proving experimental use, in effect, the ultimate burden of persuasion that there was no on-sale bar.

We disagree. Once a defendant demonstrates a prima facie case of on-sale or public use, the patent holder must "come forward with convincing evidence to counter that showing." TP Laboratories, Inc. v. Professional Positioners, Inc., 724 F.2d 965, 971, 220 USPQ 577, 582 (Fed.Cir.1984), cert. denied, 469 U.S. 826, 105 S.Ct. 108, 83 L.Ed.2d 51 (1984). The district court's statements that USEP/ISR "failed to present sufficient evidence showing the experimental nature of the facility" and that "(n)o such records (of testing) were offered into evidence" does not indicate that the court shifted the ultimate burden of proof. Rather, the district court concluded that USEP/ISR failed to meet their burden of coming forward with sufficient evidence to counter Westall's prima facie showing of an on-sale bar.

III.

We now turn to our evaluation of that conclusion. This court has emphasized that the totality of the circumstances must be considered in determining whether a particular event creates an on-sale or public use bar. See, e.g., Harrington Mfg. Co. v. Powell Mfg. Co., 815 F.2d 1478, 1480-81 & n. 2, 2 USPQ2d 1364, 1366 & n. 2 (Fed.Cir.1986); Reactive Metals & Alloys Corp. v. ESM, Inc., 769 F.2d 1578, 1585 n. 4, 226 USPQ 821, 826 n. 4 (Fed.Cir.1985). The district court considered a number of factors that this court has identified as relevant to such a...