Excluding Prior Art Based on Private Sales? Federal Circuit Says No.

A private sale may start an inventor’s one-year filing clock, but it likely won’t save a patentee from an intervening prior art reference. On July 31, 2024, in a precedential decision, the U.S. Court of Appeals for the Federal Circuit (CAFC) elaborated on the prior art public sale exception set forth in 35 U.S.C. §102(b)(2)(B).  Specifically, the CAFC affirmed that a secret sale of a product would not be sufficient to pre-date a prior art reference under 35 U.S.C §102(b)(2)(B). 

What patent owners should know:

• Private sales are not likely to help you avoid patent applications of another filed between the private sale and your patent application.
• If you’re ready to make a sale, try to get your patent application filed first. 
• When arguing a prior art exception based on a prior public disclosure, be sure to provide all relevant corroborating evidence to support sufficiency of the prior public disclosure.
• Don’t forfeit potential arguments through failure to raise them in your opening brief.  

Generally speaking, 35 U.S.C §102(a) sets forth criteria for novelty and disclosures that qualify as prior art, and 35 U.S.C. §102(b) sets forth criteria for exceptions to the disclosures that would qualify as prior art under 35 U.S.C. §102(a). This case turns on the applicability of the 35 U.S.C. §102(b)(2)(B) exception, which says a disclosure is not deemed prior art under (a)(2) if “the subject matter disclosed had, before such subject matter was effectively filed under subsection (a)(2), been publicly disclosed by the inventor … who obtained the subject matter disclosed … from the inventor.” Basically, if you disclose your invention to the public, and someone files an intervening application after that public disclosure but before you file, you can pre-date the intervening application based on the earlier public disclosure.

In this case, the Appellant, Sanho Corp., challenged the decision by the Patent Trial and Appeal Board (PTAB), which held that all challenged claims (as part of an Inter Partes Review petition filed by Kaijet Technology International Limited, Inc.) of U.S. Patent No. 10,572,429 (“the ‘429 patent”) were unpatentable as obvious over, in part, U.S. Patent Application Publication No. 2018/0165053 (“Kuo”). Sanho Corp., v. Kaijet Technology International Limited, Inc., 2023-1336 at 2-3 (Fed. Cir. July 31, 2024). Sanho asserted that the inventor of the ‘429 patent, prior to its effective filing date, “publicly disclosed” the relevant subject matter of Kuo through a private sale of a product (referred to as the HyperDrive) that allegedly embodied the claimed invention. Id. at 2-3.  Sanho argued Kuo is disqualified from being prior art. Id. The PTAB disagreed, stating that Sanho had failed to demonstrate that the invention was “publicly disclosed.” Id. at 2-4.

The CAFC agreed with the PTAB. First, the CAFC analyzed the plain language of the statute, reasoning that the terms “publicly disclosed” are not the same as “disclosed.” Id. at 8-9. Second, the CAFC looked at Sanho’s assertion in view of the purpose of 35 U.S.C. §102(b), holding that “publicly disclosed by the inventor” means that the invention “is available to the public.” Id. at 9-10. Third, the CAFC explained that the legislative history behind the prior art exceptions further supports the requirement that a “public disclosure” be made “available to the public.” Id. at 11. Sanho further argued that the sale constituted “public use,” but the CAFC reasoned that such an assertion improperly conflated “public use” and “public disclosure.” Id. at 11-13.

The CAFC explained that the testimony established the sale of 15,000 HyperDrive products was private and arranged via private messages, and there was no “public disclosure” of the invention through this sale. Id. at 13-14. The CAFC also acknowledged the PTAB’s rejection of Sanho’s arguments pertaining to public disclosure of the alleged product via a Kickstarter campaign with descriptions and photographs due to Sanho’s failure to raise this in its opening brief, as it was brought up instead in a reply brief. Id. at 4, n.1.

Please reach out to your Dinsmore attorney should you have any questions about this ruling.