Ferag AG v. Quipp, Inc., No. 94-1048

• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit
• Writing for the Court: Before MAYER, MICHEL, and LOURIE; MAYER
• Citation: 33 USPQ2d 1512,45 F.3d 1562
• Parties: FERAG AG, Plaintiff-Appellee, v. QUIPP INCORPORATED, Defendant-Appellant.
• Docket Number: No. 94-1048
• Decision Date: 24 January 1995

Page 1562

45 F.3d 1562 33 U.S.P.Q.2d 1512 FERAG AG, Plaintiff-Appellee,
v.
QUIPP INCORPORATED, Defendant-Appellant. No. 94-1048. United States Court of Appeals,
Federal Circuit. Jan. 24, 1995.
Rehearing and Suggestion for Rehearing En Banc Denied March 2, 1995.

Page 1564

Richard G. Lione, Willian Brinks Hofer Gibson & Lione, Chicago, IL, argued, for plaintiff-appellee. With him on the brief were John K. Lucas and Gustavo Siller, Jr.

Joel M. Reed, Howrey & Simon, Washington, DC, argued, for defendant-appellant. With him on the brief were Richard H. Kjeldgaard, Celine T. Callahan and Jennifer L. Alvey. Also on the brief were L. Lawton Rogers, III and Joseph M. Killeen, Rogers & Killeen, Alexandria, VA.

Before MAYER, MICHEL, and LOURIE, Circuit Judges.

MAYER, Circuit Judge.

Quipp Inc. appeals the judgment of the United States District Court for the Southern District of Florida, Ferag AG v. Quipp Inc., No. 90-CV-712 (S.D.Fla. Sept. 15, 1993), holding United States Patent No. 4,381,056, which has been reexamined, not invalid, enforceable, and infringed. We reverse.

Background

Ferag AG (Ferag), a Swiss corporation, is the owner of U.S. Patent No. 4,381,056 (the Ferag patent or the patent), entitled "Conveyor Apparatus, Especially for Printed Products." Ferag manufactures mailroom equipment for the publishing industry and sells that equipment in the United States through Ferag, Inc., a Pennsylvania corporation partially owned by Ferag. At issue are reexamined claims 2, 10, 13-19, and 21 of the Ferag patent. ^*

Ferag's patent issued on April 26, 1983, from an application filed on January 15, 1981. The patent protects a conveyor apparatus. As claimed, a traction element, or chain,

Page 1565

carries a number of specialized gripper clamps along a predetermined track. These clamps transport items, primarily newspapers and magazines, by gripping them between a stationary tongue and a movable tongue.

The claims at issue cover a conveyor apparatus, but aside from a brief reference to a traction element they focus exclusively on the details of the gripper clamps. It is the particular design of these clamps that distinguishes the patented invention from the prior art. Ferag concedes that the claimed clamps are embodied in Ferag's Model EP-100 clamps, incorporated in the Ferag EP-I/EP-II conveyor apparatus. Ferag had successfully tested the EP-100 gripper clamp by September of 1979.

Prior to March 31, 1979, Ferag owned all of the outstanding 100,000 shares of Ferag, Inc. stock. Then Ferag sold 100,000 additional shares of stock to Robert Smallacombe, and Smallacombe became chief executive officer and president of Ferag, Inc., and a member of Ferag, Inc.'s board of directors. Ferag and Smallacombe agreed to the creation of two voting trusts, whereby both Ferag and Smallacombe appointed independent voting trustees for 1,000 shares of Ferag, Inc. stock. Ferag appointed Susanne Reist, daughter of Walter Reist, Ferag's principal owner as a trustee; Smallacombe appointed his wife, Theresa Smallacombe. Ferag and Smallacombe could each vote a 49.5% interest in Ferag, Inc. Smallacombe's stock was subject to a buy back provision that allowed Ferag to reclaim the shares on March 31, 1987 if Ferag, Inc. had not eliminated its existing debt by that time.

An operations agreement between Ferag and Smallacombe granted Smallacombe management authority over the operations of Ferag, Inc. This authority was limited by an agreement that Ferag, Inc. was to use its best efforts to sell, manufacture, and service Ferag products, and by a provision requiring the mutual consent of Ferag and Smallacombe for certain management decisions. Ferag also retained the right to veto personnel decisions on some management positions. Ferag agreed to make its research and development available to Ferag, Inc., and Ferag, Inc. agreed to maintain Ferag's confidentiality.

Early in 1979, Ferag entered into discussions with the Bergen Evening Record (Bergen), a New Jersey newspaper publisher, about installation of Ferag equipment. In March of that year, Ferag, Bergen, and Ferag, Inc. entered into a three-way "Partnership Agreement" that provided for the installation of two Ferag inserting systems at Bergen's Hackensack facility. Each system was to be composed of an inserting drum, ancillary equipment, and conveyors to and from the inserting system. The agreement listed rough price estimates for each element of the system, and provided a schedule for Bergen's payments. The agreement did not provide specific operational details about the systems, but it did spell out general performance criteria, including the approximate conditions (in terms of number of papers per hour and pages per paper) under which the parties anticipated that the systems could operate. Finally, the parties noted "the experimental nature of the undertaking", and, in a handwritten addendum, recognized the confidential price concessions granted by Ferag "for the purpose of providing a 'showplace' in the United States."

On June 13, 1979, Ferag, Inc. and Bergen entered into an "Equipment Sales Agreement" that incorporates the March partnership agreement by reference. Ferag contends that the conveyor system offered in these agreements did not embody the claimed invention. Indeed, Ferag says that it did not even begin work on the EP-I/EP-II system until July of 1979, so that the sales activity of March and June could not have involved a product embodying the claimed invention.

On November 23, 1979, Ferag sent Ferag, Inc. a document confirming a Ferag, Inc. order (apparently dated July 6, 1979) of an inserting system destined for Bergen. Among other equipment, the order confirmation clearly specifies end product "EP-1" and "EP-2" conveyors, conceded by Ferag to include the EP-100 gripper clamps embodying the patent claims. The November 23 document sets out a provisional price for the whole system and delivery dates for many of

Page 1566

the system's components. Ferag apparently furnished no specific price or delivery date for the EP-I/EP-II system until January 24, 1980, when a subsequent order confirmation quoted prices and provided for a March 17, 1980 delivery date.

Quipp Inc. is a Florida corporation that, like Ferag, manufactures and sells a conveyor apparatus for printed products--the Quipp-Gripp Conveyor. Ferag filed this suit against Quipp on March 15, 1990, asserting that the Quipp-Gripp infringes the Ferag patent. In defense, Quipp argued that its product did not infringe the patent. It also alleged that the patent was invalid because Ferag had sold or offered for sale a product embodying the invention more than one year before the January 15, 1981, filing date, and that the patent was unenforceable because of Ferag's inequitable conduct during prosecution. On September 15, 1993, following a trial to the bench, the United States District Court for the Southern District of Florida found that Ferag had proved infringement by a preponderance of the evidence and concluded that Quipp had failed to carry its burden of showing invalidity and unenforceability by clear and convincing evidence. Quipp now appeals.

Discussion

Quipp challenges the district court's interpretation of the claims, its analysis of the scope and content of the prior art, and its application of the on sale bar. Because we conclude that the court misapplied the on sale bar, and that the patent was invalid under that bar, we do not reach the other grounds for appeal.

An inventor loses his right to a patent if he has placed his invention "in public use or on sale in this country, more than one year prior to the date of the application for patent in the United States." 35 U.S.C. Sec. 102(b) (1988). To invalidate a patent under the on sale bar, the party asserting the bar must demonstrate by clear and convincing evidence "that there was a definite sale or offer to sell more than one year before the application for the subject patent, and that the subject matter of the sale or offer to sell fully anticipated the claimed invention or would have rendered the claimed invention obvious by its addition to the prior art." UMC Elec. Co. v. United States, 816 F.2d 647,...