Electromotive Div. Gen. Motors v. Transp. Systems

• Decision Date: 28 July 2005
• Docket Number: No. 04-1412.,04-1412.
• Citation: 417 F.3d 1203
• Parties: ELECTROMOTIVE DIVISION OF GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. TRANSPORTATION SYSTEMS DIVISION OF GENERAL ELECTRIC COMPANY, Defendant-Appellee, and Daido Industrial Bearings, LTD., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

417 F.3d 1203

ELECTROMOTIVE DIVISION OF GENERAL MOTORS CORPORATION, Plaintiff-Appellant, v. TRANSPORTATION SYSTEMS DIVISION OF GENERAL ELECTRIC COMPANY, Defendant-Appellee, and Daido Industrial Bearings, LTD., Defendant-Appellee.

No. 04-1412.

United States Court of Appeals, Federal Circuit.

July 28, 2005.

COPYRIGHT MATERIAL OMITTED

Ernie L. Brooks, Brooks Kushman P.C., of Southfield, Michigan, argued for plaintiff-appellant. With him on the brief were Frank A. Angileri and Thomas W. Cunningham.

Martin R. Lueck, Robins, Kaplan, Miller & Ciresi L.L.P., of Minneapolis, Minnesota, argued for defendant-appellee Transportation Systems Division of General Electric Company. With him on the brief was Jan M. Conlin. Of counsel on the brief were David P. Swenson, of Washington, DC, and David G. Mangum, C. Kevin Speirs, and Catherine A. Agnoli, Parsons Behle & Latimer, of Salt Lake City, Utah.

Before MICHEL, Chief Judge, PLAGER, Senior Circuit Judge, and LINN, Circuit Judge.

MICHEL, Chief Judge.

The Electromotive Division of General Motors Corporation ("EMD") appeals the United States District Court for the Eastern District of Michigan's grant of summary judgment of invalidity of United States Patent Nos. 5,169,242 and 5,567,056 ("the '242 and '056 patents," respectively) under the on-sale bar of 35 U.S.C. § 102(b). Electromotive Div. of Gen. Motors Corp. v. Transp. Sys. Div. of Gen. Elec. Co. & Daido Indus. Bearings, Ltd., No. 03-70940 (E.D.Mich. May 4, 2004). The '242 patent is generally directed to compressor bearings for use in turbochargers for diesel locomotive engines. The '056 patent relates generally to planetary bearings for use in turbocharger planetary drive trains. The appeal was submitted after oral argument on March 8, 2005. Because the patented compressor and planetary bearings were subject to pre-critical date sales that were commercial and not primarily experimental, we agree with the district court that the '242 and '056 patents have been proven invalid as a matter of law under the on-sale bar of § 102(b). Accordingly, we affirm the district court's grant of summary judgment of invalidity of both patents in favor of the Transportation Systems Division of General Electric Company and Daido Industrial Bearings, Ltd.

I. BACKGROUND

A. EMD's General Design and Testing Procedures

EMD is a division of General Motors Corporation focused on the design and production of locomotives. As part of that business, EMD designs and manufactures component parts for locomotive engines, including the two kinds of bearings at issue in this case. Both types of bearings are embedded in turbochargers, which are in turn embedded in the engines of locomotives that EMD sells.

After developing a new bearing, EMD typically initiates a two-phase testing program before releasing the new bearing for commercial production. In the first phase, termed Reliability Growth Testing, EMD tests its new bearings indoors at its engineering facilities on multiple unit turbocharger cells ("in-house program"). The purpose of the in-house program is to ascertain the durability and reliability of the new bearings.

Upon completion of the in-house program, EMD commences the second phase of testing, termed Reliability Verification Testing ("field program"). This testing occurs outdoors under actual use conditions. That is, after EMD integrates the new bearings into existing orders, the customer railroads use the new bearings in their routine operations. The purpose of this second phase is to verify durability.

During the field program, EMD does not engage in ongoing monitoring or periodic inspections of its new bearings because they are buried inside turbochargers and cannot readily be examined by visual inspection. Rather, EMD inspects the new bearings only if a particular turbocharger fails and is sent back to EMD. In such case, EMD disassembles the failed turbocharger to assess whether the failure was caused by the new bearings or some other part.

B. Events Involving the New Compressor Bearings

In the late 1980s, EMD developed a new compressor bearing for use in diesel locomotive turbochargers. On July 17, 1989, James L. Blase, an EMD employee and one of the named inventors on the two asserted patents, reported during an internal meeting that he had tested the new compressor bearings for approximately 3000 hours in a twelve-cylinder multiple unit locomotive engine. The minutes of that meeting document that the in-house program had been completed. Thus, EMD decided to proceed with the field program by substituting the new compressor bearings into locomotive orders previously placed by Norfolk Southern, Go Transit, and LXO railroads.¹

EMD contacted Norfolk Southern, Go Transit, and LXO for permission to substitute the prior art bearings, originally to be used in the purchased locomotives, with the new compressor bearings. According to Mr. Blase, the three railroads agreed to accept the new bearings. None of the three companies, however, signed a confidentiality agreement or any other contract consenting to participate in the field program. They likewise were not given any design details or other documentation regarding the new compressor bearings. Further, Norfolk Southern, Go Transit, and LXO were not restricted or supervised in their use of the new compressor bearings and were not under any obligation to collect data, keep progress records, or even operate the subject locomotives during the time of the field program.

After arranging for the substitution, EMD prepared internal memos documenting the change to be made in the Norfolk Southern, Go Transit, and LXO orders. For example, a July 19, 1989 internal memo stated: "Orders 887007 [for Norfolk Southern], C484 [for Go Transit], and 899110 [for LXO] are to have Turbocharger 40014638 replaced by Turbocharger 40021524. . . . The turbocharger and EMD make component schedules must be revised to reflect this change." A different July 19, 1989 memo stated that "[t]he drawings and bills of material for these orders must be changed to include this new bearing. This will be accomplished with an expedited RFC. Jim Korenchan will write this RFC and get it to the drafting room by 7-19-89." Similarly, a July 25, 1989 internal memo stated: "This new bearing addresses all known failure modes and MUST be included in upcoming 12-710GA engines. The orders affected are the [Norfolk Southern] GP59 order No. 887007, Go Transit order no. C484, and LXO no. 899110."

On August 28, 1989, EMD modified its original specification of February 1, 1989 for the Norfolk Southern order, agreeing to supply more new compressor bearings to Norfolk Southern than originally planned for in its prior locomotive order. In particular, EMD noted that it "will provide spare parts for [Norfolk Southern]'s GP59 locomotives," including the "Turbo" of part number 40021531. The specified Turbo included the new compressor bearings.

Between January 1989 and November 1989, EMD purchased a total of 303 new compressor bearings from Allison Gas & Turbine ("Allison"), another division of General Motors Corporation, for a price of $298.80 each. Allison manufactured these bearings according to specifications provided by EMD. After receiving the new compressor bearings from Allison, EMD substituted them into locomotives previously sold to Norfolk Southern, Go Transit, and LXO. Thereafter, EMD shipped the subject locomotives to the three railroads.

On November 27, 1990, EMD filed a patent application for its new compressor bearings. Based upon this filing date, the critical date for applying the on-sale bar for the '242 patent is November 27, 1989. The '242 patent issued on December 8, 1992. Claims 1 through 7 of the '242 patent are directed to a turbocharger assembly, and claims 8 through 18 are directed to the new compressor bearings.

On August 19, 1991, EMD released the new compressor bearings for production. All locomotive sales involving diesel engines after August 1991 included the new compressor bearings. Before this release, however, EMD employed prior art bearings in all customer orders, except the Norfolk Southern, Go Transit, and LXO orders discussed above. EMD likewise did not advertise, market, or create promotional materials for the new compressor bearings prior to the August 1991 release.

C. Events Involving the New Planetary Bearings

In September 1992, EMD designed a new planetary bearing for use in turbocharger planetary drive trains. In January 1993, EMD initiated the in-house program for this new bearing type. In March 1993, EMD decided to proceed with the field program. To do so, EMD approached Union Pacific railroad for permission to substitute its new planetary bearings for prior art bearings in an order for two locomotives that Union Pacific placed earlier in 1992. Union Pacific allegedly agreed. Nevertheless, it did not sign a confidentiality agreement or any other type of a contract consenting to participate in the field program. Union Pacific also was not placed under any restrictions or supervision regarding the use of the locomotives containing new planetary bearings. Nor was Union Pacific given any design details for the new planetary bearings or required to monitor or document its usage of the subject locomotives during the field program.

On July 6, 1993, EMD ordered 105 new planetary bearings at $88.87 per bearing from its supplier Glacier, now Daido Industrial Bearings, Ltd. ("Daido"). On August 6, 1993, EMD installed six planetary bearings that it had purchased from Daido into turbochargers for the two locomotives destined for Union Pacific. EMD shipped those locomotives to Union Pacific that same day. On September 7, 1994, EMD released the planetary bearings for production, meaning that the new planetary bearings were included in all future locomotive sales involving turbocharger planetary drive trains.

On September 29, 1994, EMD filed a patent application for its new planetary bearings. Based upon...