Penalizing Collaborative Product Development – a critical glance at the Federal Circuit’s recent decision, Hamilton Beach Products v. Sunbeam (Fed. Cir. Aug. 14, 2013)
Hamilton Beach invented and introduced a new “portable slow cooker” that became quite popular with its customers, and then Sunbeam came out with its own version. The key to success was a system that clamped the lid in place so that the slow cooker wouldn’t leak and spill food out when the item was being carried around. Getting an acceptable seal to prevent leakage around the lid proved to be a difficult task for Hamilton Beach.
Hamilton Beach obtained a patent on its portable slow cooker, and then sued Sunbeam for patent infringement.
Sunbeam defended itself by asserting that Hamilton Beach’s product had been on sale before the crucial date of one year prior to Hamilton Beach’s earliest patent application filing date. The sale involved was a purchase order for an initial quantity of Hamilton Beach slow cookers from its OEM manufacturer, in China. Hamilton Beach had sent its original specifications to its overseas supplier to get a manufacturing contract, as was the usual practice, and the overseas supplier agreed to make a number of these units and sell them to Hamilton Beach as soon as Hamilton Beach sent them its “release” for those slow cookers.
The trial court found this action to have placed the Hamilton Beach invention “on sale” earlier than a year before the Hamilton Beach patent application date, and so the HB patent was invalid. The Federal Circuit agreed, pointing out there is no “supplier exception”, and that an offer from a third party to sell the product of that invention, even to the inventor’s company, is as much as sale as if Hamilton Beach had sold the item to the supplier. The Federal Circuit said this was the holding of an earlier case, Special Devices, Inc. v. OEA, Inc., 270 F3d 1353, 60 USPQ2d 1537 (Fed. Cir. 2001). They did note however, that since Hamilton Beach’s order was for a small number of units, if the contract had stated specifically that those units were for evaluation and testing, then the order might not have triggered the statutory “on sale” bar.
In my view, though, the Court was too quick to find a “sale” of the invention.
The problem I see is that the product that Hamilton Beach had first ordered from their overseas supplier did not actually work as intended. The original product’s clamps did not actually create a seal between the lid and the rim of the cooker, and so there was significant food leakage. The clamps that held the lid down against the gasket did not prevent the contents from leaking out. This was an issue that neither Hamilton Beach nor its overseas supplier was able to solve until several iteration of the slow cooker were constructed and tested. The portable slow cooker was not deemed acceptable by either Hamilton Beach or its supplier until it could make a reliable seal between the lid and the rim of the container.
According to the Uniform Commercial Code, especially Article 2, a sale is defined as the change of title between a seller and a buyer on the goods that are purchased. Section 2-108 of the UCC makes it quite clear that the goods have to be “conforming goods”, or else the purchaser does not have to accept them. So the question exists whether goods are actually “on sale” to a specific buyer when the goods cannot satisfy the requirements that the buyer (Hamilton Beach) and the seller (their overseas supplier) were both aware of and knew the portable cooker had to satisfy.
The original order had been for a portable slow cooker with a clamp-down lid that sealed against leakage of food when the cooker was being carried around. However, using the specification that Hamilton Beach gave its supplier, the supplier was unable to make a portable slow cooker that conformed, i.e., one that did not leak. The overseas supplier was unable, at that time, to provide the buyer, Hamilton Beach, with “conforming goods.”
According to this logic, the goods of the invention could not have been “on sale” when the defendant Sunbeam said that they were, and the contract between Hamilton Beach and its supplier should not have been a statutory, on-sale bar to Hamilton Beach’s patent.
Moreover, contractual arrangements like the one here between Hamilton Beach and its supplier seem to be quite common and usual. The product originator, such as Hamilton Beach, designs the product to satisfy the needs that its customers tell it about. Today, very few companies are vertically integrated, so many or most of them need to use a third-party OEM or “foundry” to do the large scale manufacturing. Some of the initial manufacture of the products has to take place so the product can be tested for design flaws (such as leaky lids), and has to be tested as to whether it is even possible to make a satisfactory product.
The “on sale” test that the Federal Circuit follows is a two-part test, based on the Supreme Court decision, Pfaff v. Wells Electric, 525 US 55, 48 USPQ2d 1641 (1998). This test asks: (a.) was the invention “on sale”? and (b.) was it ready for patenting at that time? Here it is not clear that the “invention” i.e., a reliably sealing portable slow cooker, was actually on sale or, for that matter, whether the portable slow cooker was ready for patenting, as it did not work as it should.
The purpose of the “on sale” bar is to limit the term of exclusive use that the patent owner obtains, so it is not unduly extended by waiting (more than a year) to patent it while the patent owner has been marketing the product. The patent owner gets the right to sell the inventive product for the statutory term of the patent, but it would not be fair or equitable for him to sell the product, and then wait until an infringer comes along, so Congress has limited that front-end sales term to one year.
Commercial activity like this one involving Hamilton Beach and its overseas supplier does not, and could not create any market for their portable slow cooker. The entire process at the time of the initial order involved product development and had no real marketing aspect to it. There is no useful economic policy that comes of this decision, and it is difficult to see how the progress of useful arts is advanced from the course that the Majority takes in this decision.
As a matter of commercial practice, Hamilton Beach’s initial order of slow cookers did not place them on sale, at least not as slow cookers that conformed to the expectations of the parties or meeting the objectives of the invention.
I would like to see this decision overruled, either statutorily or judicially. Being “on sale” should mean at least that the goods that are “on sale” or “sold” are satisfactory and conform to the requirements and objectives for that invention. Otherwise, this doctrine will either discourage manufacturers from cooperating with their outside suppliers in product development, or discourage patenting improvements. Or have them sell portable slow cookers that leak.