Sour Grapes: When Can a Thief Spoil an Inventor’s Right to a Patent?

Thomas C. Carey

By Thomas Carey. Chair of the Business Practice Group

February 2015 IP Update

Imagine that your company has developed a proprietary technology that it expects to license to several potential customers.  The technology has great commercial potential but its use is not easy to detect. It may consist of a chip, embedded software, a manufacturing process, or even a medical implant.

Unbeknownst to you, an employee has pilfered the details of this technology.  Before your company has even filed a patent application, the employee has disclosed it covertly to some potential customers, telling them to be quiet about their use of the technology.

While you are readying your patent application covering the technology, these customers are integrating it into their own products (or making products with this new process).   Soon after your patent application is filed, they start selling those products without disclosing their use of the technology.

After the patent issues, you license the technology to several customers.  Later, they learn that their competitors have been using the technology without a license, and that this use can be traced to development activity that predates your own patent application.  As a result, they bring a lawsuit asking the court to rule that the patent is invalid because the technology was in public use before the patent application was filed.   Section 102(a) of the Patent Act provides that such public use deprives the inventor of the right to a patent.

What is the outcome of this nightmare?  The recent Federal Circuit court ruling in Delano Farms Company v. California Table Grape Commission suggests that your patent may yet survive.  The context of this case is unusual, however, involving grapes, an older version of the Patent Act, and some skulduggery.

The United States Department of Agriculture developed new grape varieties that it called Scarlet Royal and Autumn King.  The USDA obtained patents on these plant varieties and licensed them exclusively to the California Table Grape Commission, an agency of the State of California.  The Commission sublicensed the patents to grape growers in California and collected royalties that it shared with the USDA.

But before the patent applications for these new grape varieties were filed (and indeed more than one year prior to that date), the USDA held an open house at the University of California at Fresno, at which the grapes (but not the vines) were displayed.  Visiting growers were not allowed to view the plants in the field, only the grapes on the table.

Enter Jim and Larry Ludy, cousins who shared an interest in grapes.  They struck up a conversation with a USDA employee, Rodney Klassen, and asked him if he could get them some plant material for these new varieties.  Klassen had done like favors for the Ludys before and he obliged again this time. A few months later, in early 2002, Klassen gave Jim Ludy some plant material from these grape varieties and told Ludy not to let the material “get away from him” and not to “put them in a box.”  Ludy understood the former comment to mean that he should keep his possession of the plants a secret and the latter to mean that he should not sell the grapes until the varieties were commercially released.

Ludy knew that Klassen would be in big trouble if his actions were discovered and, to prove that there is indeed honor among thieves, Ludy later lied under oath in order to protect the secrecy of his source.  Oddly, this crime later helped the USDA.

Jim Ludy gave his cousin Larry some of the plant material and they both set out to grow vines that would bear the forbidden fruit.  But neither cousin sold any fruit from these plantings or provided plant material to other planters more than one year prior to the filing of the patent application.  They did, however, show Richard Sandrini, their marketing agent, their new vines before that one-year period.

Under the Patent Act then in effect, an inventor could file a patent application up to one year after the first public use of the invention.   Under the current Patent Act, any public use prior to the date of the filing makes the patent unavailable.  The first date when public use would not make a patent unavailable is referred to in the Court’s opinion, and in this article, as the “critical date”.

After the critical date but before the patent application was filed, the Ludy cousins sold their ill-gotten grapes through Mr. Sandrini, who mislabeled them “Thompson Seedless” in order to avoid detection.  At roughly the same time, the Ludys gave Mr. Sandrini some plant material so that he could grow his own forbidden fruit.

When the growers who had been paying royalties to California and the USDA for the privilege of growing Scarlet Royal and Autumn King grapes learned of these rogue grapes, they sued.  The growers argued that the Ludy cousins had engaged in a public use of the patented varieties before the critical date.

The trial court ruled that the Ludy cousins had not engaged in such a public use, and the plaintiffs appealed.  On appeal, the Federal Circuit accepted the factual findings of the trial court but examined anew whether the facts supported the conclusion that a public use had not occurred.

No discussion of public use would be complete without a description of the Supreme Court’s 1881 decision in Egbert v. Lippmann.  That case involved the inventor of a new type of corset.  The inventor gave such a corset to his lady friend (later his wife), who wore it for 11 years before the inventor applied for his patent.  While there was no suggestion that the woman showed her corset to anyone but the inventor, the court nonetheless held her use to be “public” because she was not under any obligation to maintain any secrecy regarding its construction.

Back to grapes.  The Federal Circuit said that the purpose of the public use statutory language was to prevent the removal from the public domain of inventions that the public reasonably has come to believe are freely available.  Thus, the court reasoned, the degree of confidentiality surrounding the use of the invention is important.   It is hard to reconcile this “public reliance” rationale with the result in Egbert v. Lippmann, since the public had no knowledge of the corset.  There is no doubt, however, that the case turned on the absence of a clear understanding of confidentiality regarding the design of the corset.

Reviewing the facts of Delano Farms, the Federal Circuit found that the secrecy of the Lunds, including their lying under oath about the source of the plant material, supported the argument that no public use had occurred prior to the critical date.  The involvement of Mr. Sandrini was deemed to be immaterial because he did not obtain any plant material until after the critical date.  The general conspiratorial attitude of these gentlemen was viewed as sufficient to satisfy the requirement of confidentiality, even without a written confidentiality agreement.

The court further supported its conclusion by noting that the Ludy plants were generic-looking and unlabeled, so that a passerby who looked at the vineyards would not be able to identify them.

The court left for a later day the question of whether a thief can ever deprive an inventor of the right to his invention by engaging in a public use of the patent.

The USDA’s patents survived in part because of a difference between the Patent Act then in effect and today’s Patent Act.  The America Invents Act moved the “critical date” forward one year to the date of the filing of the patent application.  Had the facts of Delano Farms Company been reviewed under the current statute, the events in the year preceding the patent filing would have been relevant, including the sale of the grapes and the release of plant material to Mr. Sandrini.

Would that have tipped the balance?  It’s hard to say, but the primary lesson is clear:  It is essential to employ and enforce a regime of confidentiality prior to a filing a patent application in order to preclude the possibility that your technology will fall into public use.  A second lesson is that it is useful to file a patent application at the earliest possible time, even if you aren’t concerned about someone else filing an application on the same invention first.

Samuel Barnes, the inventor of the innovative corset, dallied 11 years before filing his application, much to his regret.  Such delay greatly increases the risk that an invention will leak into public use, making a patent unavailable.  The courts demand diligence in safeguarding inventions before filing a patent application.