Investive Versus Divestive Actual Reductions To Practice

1996Journal of the Patent and Trademark Office Society, volume 78 (1996), pages 195-200

by Charles L. Gholz [1]

I was the patent law expert for the losing party (i.e., Nordberg, Inc.) in Nordberg Inc. v. Telsmith Inc., 881 F. Supp. 1252, 36 USPQ2d 1577 (E.D. WI 1995), so everything I write here, should, no doubt, be taken with an appropriate grain of salt. However, since the case was settled prior to appeal to the Federal Circuit, I wish to appeal to the "court" of informed public opinion.

One of the many issues in Nordberg was whether certain activities (referred to by Judge Randa as "Nordberg's test center tests") constituted actual reductions to practice of the invention claimed in Nordberg's patent. The issue was important for two different reasons, and those two different reasons were, I will concede, in tension.

First, Telsmith claimed to have made the same invention before Nordberg had made it, thereby invalidating Nordberg's patent under 35 USC 102(g). However, if Nordberg's test center tests qualified as an actual reduction to practice for purposes of the priority contest between Nordberg and Telsmith, Nordberg had made the invention first, and its patent was not invalid under 35 USC 102(g).

Second, Nordberg had conducted subsequent tests (referred to by Judge Randa as "the subsequent field tests of the Model B at the Tanner site") on which Telsmith relied as a 35 USC 102(b) public use of the invention, but which Nordberg sought to excuse as an experimental use of the invention. Telsmith of course argued that, if the invention was actually reduced to practice by Nordberg's test center tests, it could not have been in experimental use during the subsequent field tests of Model B at the Tanner site.[2]

According to Judge Randa:

Nordberg's legal expert, Charles Gholz, suggested that there are two definitions of reduction to practice, one applicable to interferences -- where priority challenges are made -- and one applicable to the on-sale and public use bars. (TT, Vol. 5 at 826 27, 924-32.) He refers to the former as [an] "investive" reduction to practice, presumably because it is critical to the issuance of a patent, and the latter as a "divestive" reduction to practice, presumably because it is critical to the invalidation of a patent. (Id.) Gholz suggested, inter alia, that Nordberg's test center tests qualify as an "investive" reduction to practice, thereby giving Nordberg's Model B priority over Telsmith's 1100F, but do not qualify as a "divestive" reduction to practice, thereby leaving open the possibility that the subsequent field tests of the Model B at the Tanner site were still an "experimental use". Gholz was unable to cite, however, a single opinion expressly recognizing this convenient distinction. More importantly, the Federal Circuit has expressly stated that no such distinction exists:
Various phrases concerning an advanced stage of development of a device in order to fall under the "on sale" bar have appeared in the opinions of some circuits. This has led commentators to opine that a dichotomy exists between interference cases and "on sale" cases with respect to the meaning of "reduction to practice." We discern no distinction in our precedents.

Barmag Barmer Maschinenfabrik AG v. Murata Machinery Ltd., 731 F.2d 831, 838, n. 6 [221 USPQ 561] (Fed. Cir. 1984). Based on the foregoing, the Court rejects Gholz's suggested dichotomy in the definition of the phrase "reduction to practice."[3]

In response, let me say that I knew that there was no opinion expressly, recognizing "this convenient distinction." What I was doing was suggesting that the courts should recognize this distinction -- which I based on the distinction that the courts used to recognize between investive and divestive publications under the 1909 copyright law. That is, the courts expressly recognized that it took less of a publication with a copyright notice to invest a copyright holder with a statutory copyright than it took of a publication without a copyright notice to divest a copyright holder of a common law copyright.[4] That distinction was made for good public policy reasons, and what I was suggesting was that the courts should draw a similar distinction between what it takes to constitute an actual reduction to practice for priority purposes (where an inventor is struggling for the earliest possible date in order to obtain or maintain a statutory right) and what it takes to constitute an actual reduction to practice for prior art purposes (where an inventor is asking for a later date, so as not to lose a statutory right).[5]

Expressly drawing a distinction between investive and divestive actual reductions to practice could, I submit, be readily justified on the basis of the different policy considerations underlying the two situations.

As stated in Moy's Walker on Patents[6]§A.20:

Two justification have traditionally been offered for including actual reduction to practice in the definition of priority.
The first justification for considering proof of an actual reduction to practice in the priority analysis is that requiring an actual reduction to practice is a means of ensuring that the inventor provides a contribution to the useful arts that is meaningful. Conception is only an abstract mental recognition of the invention. Taken alone, it may be of some benefit to industry, but real progress requires that the mental recognition of the invention be put to productive use. This, in turn, requires that the invention receive physical manifestation. Thus, it is argued, an actual reduction to practice is the truly meaningful event associated with the process of invention. [Footnote omitted.]

***

The second justification for considering proof of an actual reduction to practice in the priority analysis focuses on the evidentiary value of such proof. It is easy for a party to assert that it conceived the invention on a previous date. This is particularly true where the prior invention is being offered solely to invalidate another's patent, rather than as part of an attempt to obtain a patent, and so may not be corroborated by the filing of a patent application. Proving that the invention was actually reduced to practice, it is argued, provides some more assurance that the alleged conception actually took place. Under this rationale, proof of the actual reduction to practice bolsters the proof of conception. [Footnote omitted.]

While Prof. Moy criticizes both traditional justifications for including proof of actual reductions to practice in many priority determinations, it is sufficient for my purposes to note that neither traditional justification requires that the alleged actual reduction to practice be anywhere near ready for commercial exploitation -- and indeed the cases have repeatedly indicated that, for purposes of prevailing as to priority, an alleged actual reduction to practice can be very far indeed from being ready for commercial exploitation.[7]

On the other hand, the "four identifiable policies underlying the 'on sale' bar"[8] identified in Barrett's seminal article New Guidelines for Applying the On Sale Bar to Patentability, 24 Standford L. Rev. 730 (1972), all require that, for purposes of invalidating another's patent, an alleged on sale activity be very close to, if not a part of, commercial exploitation. As summarized by the Court of Claims in a frequently cited opinion, those policies are:

First, there is a policy against removing inventions from the public which the public has justifiably come to believe are freely available to all as a consequence of prolonged sales activity. *** Next, there is a policy favoring prompt and wide spread disclosure of new inventions to the public. *** A third policy is to prevent the inventor from commercially exploiting the exclusivity of his invention substantially beyond the statutorily authorized 17-year period. *** The fourth and final identifiable policy is to give the inventor a reasonable amount of time following sales activity (set by statute as 1 year) to determine whether a patent is a worthwhile investment.[9]

Since the courts (and, to the extent that it decides such issues, the board) have recognized that an "on sale" bar should not come into existence until an invention is very close to, if not actually in, commercial exploitation, whereas the board (and, to the extent that they decide such issues, the courts) have recognized that an invention can have been "made" for priority purposes when it is very far from being ready for commercial exploitation, it is unfortunate that the courts and the board use the same term (actual reduction to practice) to describe what are really two very different things. Putting the adjectives "investive" and "divestive" in front of the term "actual reduction to practice" would help to clarify thinking, and it would also explicitly recognize that at least some courts do in fact already draw what Judge Randa called, perhaps sarcastically, "this convenient distinction." That is, I most respectfully submit that what the Federal Circuit said in Barmag is a legal fiction.[10] Even if the Federal Circuit can "discern no distinction in . . . [its] precedents," everyone else can, and it is time for the court to admit that such a distinction exists.[11] Doing so would (I) facilitate analysis of the court's opinions (which otherwise cannot be harmonized) and (2) enhance the reputation of the court for candor.

First published in the Journal of the Patent and Trademark Office Society, volume 78 (1996), pages 195-200.


Endnotes



[1].Partner in Oblon, Spivak, McClelland, Maier & Neustadt, P.C. of Arlington, Virginia. Short as this article is, it has profited from helpful suggestions from Steven B. Kelber and former Administrative Patent Judge James R. Boler of this firm; William C. Rooklidge of Howard, Rice, Nemerovski, Canady, Falk & Rabkin; Prof. R. Carl Moy of the William Mitchell College of Law; and C. Eugene Gholz of MIT's Center for International Studies.

[2].See generally Rooklidge and Weil, The Application of Experimental Use to Design Patents: A Square Peg in a Round Hole, 77 JPTOS 921 (1995), particularly Section I., "The Lost Experimental Use Policy," and cf. RCA Corp. v. Data General Corp., 887 F.2d 1056, 1061, 12 USPQ2d 1449, 1453 (Fed. Cir. 1989) ("having been reduced to practice, a sale or offer to sell the Cole invention is no longer justifiable as experimental use.").

This dilemma was not unprecedented. The court in Gould Inc. v. United States, 579 F.2d 571, 198 USPQ 156 (Ct. of Claims 1978) (per curiam), described a similar situation as follows:

Before proceeding with a resolution of the "on sale" issue, mention should be made of the legal tightrope, upon when plaintiff is balanced. While briefly alluded to hereinabove, it is necessary to flesh out the legal quagmire so that the parties' arguments may be better understood.
On the one hand, plaintiff, in order to have title to the claims at bar, must show that a reduction to practice of the inventions covered by the claims occurred before January 17, 1956, when plaintiff was awarded the NOrd 16753 contract. On the other hand, plaintiff must explain away what defendant has characterized as "sales" more than 1 year before its October 5, 1960, filing date of the Hamlin patent. In its explanation, plaintiff resorts to the "experimental use" exception to justify what might otherwise be proscribed as a sale under 35 U.S.C. § 102(b). However, in so doing, it seems that plaintiff also runs the risk of convincing the court that an actual reduction to practice of the claims at bar did not occur prior to its work under the Government contracts, but rather that the reduction to practice occurred during what it now chooses to label as experimentation work as either a prime or subcontractor of defendant. If the latter is true, defendant would, of course, be entitled to a license under the claims in suit. [579 F.2d at 579, 198 USPQ at 164; footnote omitted.]

The Gould Inc. court did not have to resolve this dilemma because it found that:

the exact reduction to practice date is not essential to a decision of this case. Specifically, since the "on sale" bar is adequate to dispose of the case, it is sufficient to observe that both plaintiff and defendant agree that claims 1, 2, 3 and 5 were actually reduced to practice at least by July 1958. [579 F.2d at 580, 198 USPQ at 164; footnote omitted.]

See also In re Josserand, 188 F.2d 486, 89 USPQ 371 (CCPA 1951).

[3].881 F. Supp. at 1285 n. 22, 36 USPQ2d at 1604 n.22.

[4].See, e.g., Nimmer on Copyright § 4.13[C], "The Distinction Between Divestive and Investive Publication."

[5].The same distinction should, of course, be drawn by the board in interferences. That is, like the courts, the board deals with both alleged investive actual reductions to practice (relied upon by parties to prove priority) and alleged divestive actual reductions to practice (relied upon by parties in 37 CFR 1.633(a) motions asking for judgments that their opponent's claims are invalid or unpatentable). See, e.g., Perkins v. Kwon, 886 F.2d 325, 12 USPQ2d 1308 (Fed. Cir. 1989), discussed in Gholz, A Critique of Recent Opinion of the Federal Circuit in Patent Interferences, 73 JPTOS 700, 705-07 (1991), which is a famous interference case involving both types of reductions to practice, and Smollar v. Cawley, 31 USPQ2d 1506 (PTOBPAI 1993). In Smollar the board considered focus group tests which occurred after the party Cawley's actual reduction to practice to determine if the purpose behind the tests was experimental or commercial. Finding that the purpose of the tests was commercial, the board held that the tests constituted public use bars against both parties.

[6].(Forthcoming 1997, Clark Boardmen Callaghan). This work is currently in draft, and there may be changes in the final version. However, Prof. Moy kindly gave me a draft copy of the sections on priority and authorized this quotation.

[7].See generally Moy's Walker on Patents §A.23.

[8].General Electric Co. v. United States, 654 F.2d 55, 61, 211 USPQ 867, 873 (Ct. of Claims 1981) (per curiam).

[9].General Electric Co., 654 F.2d at 61, 211 USPQ at 873.

[10].As an example of a situation where the Federal Circuit implied that an actual reduction to practice had not occurred for divestive purposes which would, in my opinion, have been found to be an actual reduction to practice for interference (i.e., investive) purposes, I cite Manville Sales Corp. v. Paramount Systems Inc., 917 F.2d 544, 16 USPQ2d 1587 (Fed. Cir. 1990), which is the example I used at trial in the Nordberg case. Judge Randa discusses my discussion of Manville in his conclusion of law No. 28, 881 F. Supp. at 1286-87, 36 USPQ2d at 1605. Judge Randa concluded that:

Manville Sales simply confirms that the point at which a device becomes "reduced to practice" depends heavily on the nature and purpose of the invention, insofar as the same dictates what kind of testing is requied before the inventor can be satisfied that the device will work for its intended purpose.

However, I conclude that, if there is to be any predictability in this field, we must admit that what happened in Manville would have been held to be an actual reduction to practice if it had been relied upon for priority in an interference.

[11].Manville, which implied that no actual reduction to practice had taken place despite a successful, albeit abbreviated test in actual use conditions, should be contrasted with Scott v. Finney, 34 F.3d 1058, 32 USPQ2d 1115 (Fed. Cir. 1994), discussed in Gholz, A Critique of Recent Opinions of the Federal Circuit in Patent Interferences, 77 JPTOS 427, 434-35 (1995), which held that an actual reduction to practice had taken place despite the absence of a test in actual use conditions or conditions even remotely approximating actual use conditions because, according to the court, "[o]nly . . . [a portion of the combination recited in the count] remained to be tested for workability." 37 F.3d at 1063, 32 USPQ2d at 1120.