Appendix — Kock v. Quaker Oats Co.

Appendix

United States Court of Appeals

For the Ninth Circuit

No. 80-4072

D.C. No. C78-1254-SAW

Bruce A. Kock

Plaintiff-Appellant,

vs.

The Quaker Oats Company, et al.,

Defendants-Appellees.

[Filed July 15, 1982]

OPINION

Appeal from the United States District Court

for the Northern District of California

Honorable Owen E. Woodruff, Jr.,

United States Magistrate, Presiding (By Stipulation)

Argued and Submitted: November 12, 1981

Before: Wallace, Kennedy, and Pregerson, Circuit

Judges.

Kennedy, Circuit Judge:

The appeal comes from a patent infringement suit where

the trial court, within the confines of a summary judgment

motion, determined the patent invalid. The court ruled that

35 U.S.C. § 102(b) (1976) operates to invalidate the patent

because the invention had been on sale for longer than one

year before the date of the patent application. All concede

that certain rights to the invention were transferred by an

agreement executed more than a year before the patent

application. The inventor argues that the transfer was for

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an experimental purpose and so not within the bar of the

cited statute, while the defendant in the infringement suit

argues the contract was 9 sale not limited to that purpose.

We agree that summary judgment must be entered for the

defendant below based on the cited statute, although on

reasoning somewhat different from that of the court below,

and we affirm.

Bruce A. Kock, the inventor in this case, was the plaintiff

below and is appellant here. Kock undertook a project for

Merry Manufacturing Company (Merry). Kock was to be

paid one thousand dollars “for the development and build—

ing of one working prototype toy watch movement, exclu-

sively for Merry Manufacturing Company.” The toy watch

had to be accurate, tick when running, run for one hour per

winding, be easily assembled, and be marketable at one

dollar retail, allowing for a thirty percent profit margin.

Kock came up with a prototype he thought met these spe-

cifications. On April 28, 1967, Kock and the Company

signed the agreement here in question.’ One clause states,

The relevant provisions of the contract state:

1. The INVENTOR hereby sells, assigns, and transfers all

rights to his novelty toy watch movement and any invention

embodied therein to the COMPANY.

“2. At the time of execution of this agreement, the INVEN-

TOR shall deliver to the company the working prototype toy

watch movement developed in accordance with the letter

agreement, and the COMPANY shall pay to the INVENTOR

the sum of [$1,500]. The COMPANY shall pay to the INVEN-

TOR the sum of [$1,000] for each subsequent watch move-

ment requested of INVENTOR by the COMPANY, but the

inventor shall not be obligated to supply any such additional

movements.

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“The INVENTOR hereby sells, assigns and transfers all

rights to his novelty toy watch movement and any invention

embodied therein to the [Merry] COMPANY.” The agree-

ment supplies the basis for the contention of the alleged

patent infringers that the patent was void under section

102(b). The district court granted summary judgment for

the defendants, reasoning, first, that under the case of Rob-

bins Co. v. Lawrence Mfg. Co., 482 F.2d 426 (9th Cir. 1973),

the court may not look beyond the four corners of the

written contract in search for an experimental purpose, and

“3. Within [90 days] of the execution of this AGREE-

MENT, the COMPANY shall, in its own exclusive judgment,

determine whether or not commercial production of a toy

watch in accordance with the prototype delivered as specified

above is desirable. If such production is, in the exclusive judg-

ment of the company desirable, the company shall notify in-

ventor, and shal’ pay to INVENTOR the sum of [$1,800] as

an advance against the royalties provided hereinafter. . . .

“10. All improvements and changes in design shall be sub-

mitted to the INVENTOR by the COMPANY. Such submis-

sions to INVENTOR are for his information only, and it is to

be understood that the COMPANY may make any change in

design which in its judgment is desirable. . . .

“12. INVENTOR shall be available to the COMPANY for

consultation on seventy-two (72) hours notice. Such consul-

lation shall be at no expense to INVENTOR and shall be for

periods not exceeding three (3) days. In the event INVEN-

TOR’s consulting services are required by the COMPANY

more than once during any calendar year, he shall be compen-

sated for his services at the rate of [$100] per day, including

travel time, for all consultation after the first period requested.”

Other provisions of the contract discuss royalties, automatic ex-

piration in event of insolvency, and the obligation of the company

to secure a patent for Kock. This last provision states that if the

company commences commercial production, “the COMPANY shall

research patent aspects of the watch movement and endeavor to

patent all patentable features thereof” and “diligently” and “actively

pursue” all necessary steps to obtaining a patent for Kock. Clause 4.

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second, that the experiments undertaken by Merry were

commercial and so not the sort within the experimental

purpose exception to the on sale bar of section 102(b).

We begin by exploring the history and rationale of the

on sale bar and the experimental purpose exception to it.

35 U.S.C. 5 102 (b) (1976) states:

A person shall be entitled to a patent unless... (b) the

invention was patented or described in a printed publi-

cation in this or a foreign country or 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.

(Emphasis added.)

The public use or on sale bar has been part of patent law

in some form since 1836. The last amendment to section

102(b) occurred in 1939, when Congress shortened the

grace period from two years to one year. Act of August

5, 1939, ch. 450, §1, 53 Stat. 1212. See generally 2 D.

Chisum, Patents: A Treatise on the Law of Patentability,

Validity and Infringement § 6.02 (1979) at 6-5 to 6-16.

The one year grace period gives inventors an incentive

to pursue diligently the patent process after their inven-

tion is ready for commercial application. This serves to

limit the monopoly to the stautory period, Pickering v.

Holman, 459 F.2d 403, 406 (9th Cir. 1972), and also en-

courages inventors to place their handiwork in the public

domain as soon as possible so all may benefit from it.

Pennock v. Dialogue, 27 U.S. (2 Pet.) 1, 19 (1829); Gould

Inc. v. United States, 579 F.2d 571, 580 (Ct. Cl. 1978);

Atlas v. Eastern Air Lines, Inc., 311 F.2d 156, 159 (Ist Cir.

1962), cert. denied, 373 U.S. 904 (1963). See also Note,

New Guidelines for Applying the On Sale Bar to Patent-

ability, 24 Stan. L. Rev. 730, 732-736 (1972).

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Not all transfers from an inventor to a third party trig-

ger the bar of section 102(b). If a transfer is made for the

dominant purpose of experimentation, that is, to perfect

the invention, and only incidentally for the profit of the in-

ventor, then there is no public use or sale within the mean-

ing of the statute.

The classic case for the experimental use exception is

City of Elizabeth v. American Nicholson Pavement Co., 97

U.S. 126 (1878):

It is sometimes said that an inventor acquires an un-

due advantage over the public by delaying to take out

a patent, inasmuch as he thereby preserves the monop-

oly to himself for a longer period than is allowed by

the policy of the law; but this cannot be said with

justice when a delay is oceasioned by a bona fide effort

to bring his invention to perfection, or to ascertain

whether it will answer the purpose intended.. . [I]t

is the interest of the public, as well as himself, that

the invention should be perfect and properly tested,

before a patent is granted for it. Any attempt to use

it for a profit, and not by way of experiment, for a

longer period than two years [the grace period at

that time], would deprive the inventor of his right to

a patent. Id. at 137.

Thus, City of Elizabeth held that “the use of an invention

by the inventor himself, or of any other person under his

direction, by way of experiment, and in order to bring the

invention to perfection” was not a public use within section

102(b). Id. at 134.

The experimental purpose exception applies to the sale

of an invention under § 102 (b), just as it does to its use.

Although the Supreme Court has never had occasion to so

hold, we think the law is clear on the point. Robbins Co. v.

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Lawrence Mfg. Co., 482 F.2d 426, 430 (9th Cir. 1973); Red

Cross Mfg. Corp. v. Toro Sales Co., 525 F.2d 1135, 1144

(7th Cir. 1975); In re Yarn Processing Patent Validity

Litigation, 498 F. 2d 271, 277 (5th Cir. 1974), cert. denied,

419 U.S. 1057 (1974); see generally, Chisum, supra, see-

tion 6.02 [6], [7].

To insure that abuses section 102(b) is de.igned to pre-

vent do not arise, the burden of proof that sale is for an

experimental purpose is on the inventor. The Supreme

Court so indicated in Smith d Griggs Mfg. Co. v. Sprague,

123 U.S. 249 (1887) :

In considering the evidence as to the alleged prior use

for more than two years of an invention which, if

established, will have the effect of invalidating the

patent, and where the defense is met only by the alle-

gation that the use was not a public use in the sense

of the statute, because it was for the purpose of

perfecting an incomplete invention by tests and ex-

periments, the proof, on the part of the patentee, the

period covered by the use having been clearly estab-

lished, should be full, unequivocal, and convincing.

Id. at 264; see also Omark Industries, Inc. v. Carlton Co.,

652 F.2d 783, 787 (9th Cir. 1980); Aerovox Corp. v. Poly-

met Mfg. Corp., 67 F.2d 860, 861 (2d Cir. 1933).

The appellees argue, and the district court agreed, that

the testing which occurred in this case, even if it was the

purpose for the sale, was “that of a trader, not of an in-

ventor.” They insist that the experimentation required to

stop the running of the time period is limited to determin-

ing the operability of the patented invention itself. We

think that is too narrow a formulation.

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In determining whether the transfer fell within the

statutory exception, or the closely related question whether

the pleadings presented a triable issue of fact on the point,

we must examine the distinction between tests and re-

search for experimental purposes and those for commer-

cial purposes. The dichotomy may not be easy to apply

since experimentation, for most inventors, is only a means

to later commercial exploitation. The precedents allow

such a distinction to be stated, however. Where the pur-

pose of a sale is to investigate or stimulate the demand

for the product, the object of the transfer is deemed com-

mercial, not experimental, and the exception does not

apply. Such a sale is within the bar of section 102(b).

Omark Industries, Inc. v. Carlton, 652 F.2d 783, 787-88

(9th Cir. 1980); Kalvar Corp. v. Xidex Corp., 556 F.2d

966, 967-68 (9th Cir. 1977); Cataphote Corp. v. DeSoto

Chemical Coatings, Inc., 356 F.2d 24, 27 (9th Cir. 1966),

aF g, 235 F. Supp. 931 (N.D. Cal. 1964), cert. denied, 385

U.S. 832 (1966) ; Paeco, Inc. v. Applied Moldings, Inc., 562

F.2d 870, 874-75 (3d Cir. 1977); Dart Industries, Inc. v.

E. I. Dupont DeNemours d Co., 489 F.2d 1359, 1366 (7th

Cir. 1973).

On the other hand, where the purpose of the sale, as re-

vealed by objective circumstances, is to determine whether

the invention can be improved, or reduced to operable,

manufacturable, and useful form, a valid experimental

purpose exists.

When an invention has been reduced to practice, fur-

ther public testing and demonstration may well sup-

port an inference that the inventor's intent is to exploit

the invention, but “there may be an experimental use

even following reduction to practice where the experi-

ments are an attempt to further refine the device.”

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Del Mar Engineering Laboratories v. Physio-Tronics, 642

F.2d at 1169 (9th Cir. 1981), quoting Cataphote Corp. v.

DeSoto Chemical Coatings, Inc., 235 F. Supp. 931, 934

(N.D. Cal. 1964). [Ain inventor may. . . wait until he

learns whether his invention is of enough vaiue to justify

an application for a patent.’” Yarn Processing, 498 F.2d

at 282, quoting Aerovox Corp. v. Polymet Manufacturing

Corp,, 67 F.2d 860, 862 (2d Cir. 1933). As the Fifth Circuit

held in Yarn Processing, “a public use or sale will be ex-

cused if the invention is still undergoing experimentation

that is reasonably necessary to test its utility or to deter-

mine whether further refinement is needed.” Jd. at 285.

The Second Circuit is in accord. Cali v. Eastern Airlines,

Inc., 442 F.2d 65, 70-71 (2d Cir. 1971). See generally

Chisum, Patents Treatise 9 6.0217] at 6-52 to 6-56.

Appellees suggest that the prototype delivered to Merry

was identical with the movement later identified in the

patent application. The issue, however, is not whether

experimentation found that the prototype was sufficiently

workable to be patentable without further change, but

whether such experimentation took place at all. There are

some cases intimating, although none that we have found

holding, that the limits of permissible experimentation are

defined by the limits of the eventual patent claims. E. g.,

Application of Theis, 610 F.2d 786 (CCPA 1979); Minne-

sota Mining and Mfg. Co. v. Kent Industries, 409 F.2d 99

(6th Cir. 1969). In both of those cases, there was commer-

cial purpose so a correct result was achieved, despite a

possibly over narrow view of “experimental purpose.” In

Minnesota Mining and Mfg. Co., the inventor distributed

samples to prospective purchasers and “conducted a sub-

stantial sales program.” 409 F.2d at 100. In Theis, there

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was little, if any, objective evidence of experimental pur-

pose, and the court found “the context in which all of

appellant’s activities in the period immediately preceding

the critical date exist is clearly that of an attempt at

market penetration.” 610 F.2d at 793.

The dictum in these cases is thus at odds with our own

view, and with the broad scope of experimentation the

Supreme Court allowed in the City of Elizabeth case,

supra, To the extent there is a conflict, we adopt what

Chisum calls the “better and prevailing view.” latents

Treatise at 6-53. Experimentation may occur even if no

change in the patent proves to be necessary. See City of

Elizabeth, 97 U.S. at 134-35; Yarn Processing, 498 F.2d at

277. Even if tests are not directly relevant to the claims

eventually put forward in the patent, such tests are within

the “experimental purpose” exception if their purpose is

to determine whether the invention is sufficiently useful

to justify a patent or could be improved.

Absent a transfer or use, an inventor may determine

when to apply for a patent. An inventor with adequate

financing may perfect and refine his invention for a life-

time, if that is his wish. The inventor of more limited

means should also be able to test and refine his work

before filing for a patent, even if he must sell an interest

in the invention to develop a product with which he is

fully satisfied, provided always the dominant purpose of

the sale is for experiment, and that the transferee may not

exercise the right to exploit or use the invention.

As we said in Pickering v. Holman, 459 F.2d 403 (9th

Cir. 1972), “the so-called ‘experimental purpose exception,’

[vliewed in light of the policy underlying the public use

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provision . . . is no exception at all. A bona fide experi-

mental use involves no commercial exploitation.” Id. at

406. The same could be said of a sale made to improve

or perfect the invention. In such a case, where the profit

motive is only incidental to the experimental, the goals

of section 102(b) would not be served by applying the on

sale bar.“

In this case, the affidavits of the inventor in opposition

to summary judgment stated that:

When I sold the prototype to Merry, it was for re-

search and study. We did not know at the time that

the prototype would be in its final form. It was only

after considerable study and work on my part, and

research on Merry’s part, that the prototype was

adopted as the final form of the toy watch that would

be offered for sale to the public.

This would support the view that Kock’s purpose in

transferring the invention to Merry was to see if the

invention could be improved, or if it was worth patenting

in its present form.

An inventor must do more than allege his experimental

goals to avoid the statutory bar, however. As we said in

Robbins, “an inventor's testimony of his subjective intent

has no probative force against overwhelming evidence to

the contrary.” 482 F.2d at 431. Thus, where a prima facie

sale has been proven, to come within the exception it is

the inventor’s burden to produce clear and objective evi-

*It is settled, since the Supreme Courts Smith & Griggs case, 123

U.S. 249, 266 (1887), that the inventor is entitled to profit inci-

dentally from a sale for experimental purposes. As we perceive the

meaning of this rule, so long as there is an experimental purpose

for the sale, the sale is not within the bar of section 102(b) no mat-

ter how profitable for the inventor it may be. See generally Chisum,

Patents Treatise section 6.02[7] at 6-59 tc 6-64.

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dence of experimental purpose as the law defines it. Rob-

bins, id.; Omark Industries, 652 F. 2d at 787.

Whether a sale is made for an experimental purpose may

turn on many factors. Relevant considerations include the

necessity for the inventor to transfer the design to an

entity with resources or knowledge superior to the inven-

tor’s, or similar factors tending to show the inventor trans-

ferred to obtain development assistance; the need to pro-

tect the public safety by limited and cautious experiments,

e.g., Del Mar Engineering Laboratories; the stage of com-

pletion of the prototype sold; whether reports of the re-

sults of the tests or experiments are to be made to the

inventor; and whether confidentiality by the buyer is en-

forced or expected.

It is not, however, enough that an inventor demonstrates

by objective evidence that further experiment was neces-

sary and was in fact performed by the transferee. To avoid

the on sale bar, the inventor must further show that the

transferee lacked authority to use the invention or exploit

its commercial value. Where an inventor makes a simple

outright sale, with the buyer to manufacture, refine, or

sell the invention as the buyer chooses, and with no en-

forceable obligation on the buyer to hold the invention or

design for experimental purpose only, the sale is for profit

and, if made before the critical date, will invalidate the

patent.

If the invention is out of the inventor’s hands, it is irrele-

vant what experiments the buyer does or does not do with

the invention. Tool Research and Engineering Corp. v.

Honcor Corp., 367 F.2d 449, 453 (9th Cir. 1966), cert. de-

nied, 387 U.S. 919 (1967); Dart Industries, Inc. v. E. I.

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DuPont DeNemours d Co., 489 F. 2d 1359, 1366-67 (7th Cir.

1973), cert. denied, 417 U.S. 933 (1974); Cali v. Kastern

Airlines, Inc., 442 F.2d 65, 69 (2d Cir, 1971). The Supreme

Court in the City of Elizabeth case recognized this by re-

quiring that tests made by one other than the inventor be

“under his direction” if there is to be an experimental pur-

pose. 97 U.S. at 134. To quote the Court in Egbert v. Lipp-

mann, 104 U.S. 333, 336 (1881), if an inventor “gives or

sells [his invention] to another, to be used by the donee

without limitation or restriction, or injunction of secrecy,”

there is public use (or public sale) within the statute.‘

The inventor in such a case has no control over whether

commercial exploitation can begin by the buyer immediately.

If the buyer has the authority to use an invention com-

mercially or sell it to others without regard to any duty

"We note that while the court in Cali v. Eastern Airlines, Inc.,

442 F. 2d 65, 69-70 (2d Cir. 1971), recognized the general rule cited

in the text, the court reversed a summary judgment against the in-

ventor, although it appeared that the inventor put no restrictions on

the use to be made of his invention by the transferee, in that case

his employer. Cali is distinguishable in that no “sale” actually oc-

curred; the inventor simply “communicated a raw idea to his su-

periors for evaluation and exploitation.” Id at 69. His finencial re-

ward, if any, would be “after it was examined, tried, and ultimately

adopted” by his employer. Id. It may also be that separate rules

apply to the employment relation at issue in Cali than to the arms

length transaction at issue here. Further consideration of the point

can await a more appropriate case.

‘The inventor argues that the sale here should not be regarded

as within section 102(b) since it did not create an opportunity for

public use, citing Galland-Henning Mfg. Co. v. Dempster Bros.,

Inc., 315 F.Supp. 68, 80 (E. D. Tenn. 1970) (dictum). We do not

approve or disapprove this argument, but we note that the “pub-

lic use” required by the statute does not have to be very broad, or

very public. See Egbert, 104 U.S. 333 (1881). For a wry discussion

of the case, see Chisum, Patents Treatise, § 6.0212] (d), at 6-18 to

6-20.

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to experiment further, there is a sale within section 102(b),

and the exception for experiment does not apply. It is not

enough that the parties do not think it is likely that com-

mercial exploitation will occur. While the limits of per-

missible experimental purpose are the same in “public use”

and “on sale” cases, the relevant question is somewhat dif-

ferent. In “public use” cases, such as Del Mar Engineering

Laboratories, the inventor has maintained control, and so

the question is whether the use actually made is within the

realm of permissible experimentation. In the case of an

actual sale, the issne is what use the buyer might make

of the invention. If a sale of an invention made before the

critical date allows the buyer the possibility of non-

experimental use, any patent obtained will be invalid under

section 102(b).

For reasous that will be stated shortly, we think the

inventor has failed to show all of the elements necessary

to invoke the exception here, but our analysis differs from

that followed by the court below. While the record is not

entirely clear on the point, it appears that the court held

that in determining whether experimental purpose was

shown, the court is confined to the written agreement of

transfer. We agree that the written contract is the begin-

ning point of the analysis, and that considered alone it

fails to support the experimental purpose as defined by

the standards shown above and indeed points strongly

against such a conclusion.

The agreement is an archetype of unfortunate drafts-

manship, at least from Merry’s standpoint. It is entitled

“Manufacturing Agreement,” and the opening covenant re-

cites a simple sale. The thrust of the entire agreement, ar-

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guably, is somewhat broader in that it contemplates that

Merry, within ninety days, will determine “whether or not

commercial production of a toy watch in accordance with

the prototype delivered as specified above is desirable.” If

so, then Merry is charged to act with diligence to obtain

a patent in the inventor’s name. There is no express recital

of any experimental purpose in the contract.

There was no indication on the face of the agreement

that Kock would direct the experiments, or even that

Merry would make reports of the tests to Kock. The con-

tract’s mention of experiments by Merry thus does not

state or clearly imply a permissible experimental purpose.

The inventor here appears to argue that the contract

was only an offer to sell for ninety days. If the purpose

of the offer is not shown to be experimental by other evi-

dence, an offer is also sufficient to put an invention “on

sale.” Robbins, 482 F.2d at 431. See also Johns-Mansville

Corp. v. Certain-Teed Corp., 196 USPQ 152 (C.D. Cal.

1977) and Yarn Processing, 498 F. 2d at 277.

In this case, even if the contract were interpreted so that

the buyer had the right to return the invention and reseind

the sale if not satisfied with its tests, nevertheless, a trans-

fer for experiment would not necessarily be established.

Application of Theis, 610 F.2d 786, 789 (CCPA 1979);

Philco Corp. v. Admiral Corp., 199 F. Supp. 797, 816-17

(D. Del. 1961).

The contract contains provisions which encourage the in-

ference that the invention was patentable and complete at

the time of sale, and hence there is no experimental pur-

pose explaining the transfer. The ninety day limit for de-

ciding whether commercial feasibility exists does not sug-

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gest that the operative prototype itself was still subject to

experimentation or testing. The contract did not foreclose

the possibility of such experimentation, but there is cer-

tainly no clear implication that experiment was the domi-

nant purpose for the transfer.

The contract did state that “all improvements and

changes in design shall be submitted to the inventor by the

company.” Without more, this might have supported an in-

ference of experimentation, but the surrounding contrac-

tual language explodes any such argument. “Such submis-

sions to inventor are for his information only, and it is to

be understood that the company may make any change in

design which in its judgment is desirable.” Clause 10. We

are unable, within the boundaries of the written contract,

to find any clear implication of an experimental purpose,

and, if the inquiry were to end here, the inventor would be

foreclosed without further explanation.

The district court erred, however, in holding that evi-

dence of experimental purpose must appear on the face

of the contract. It is true that in Robbins Co. v. Lawrence

Mfg. Co., 482 F.2d 426 (9th Cir. 1973), we held:

[A] sale or an offering for sale precludes any inquiry

into the experimental nature of the sale unless the

contract of sale or the offering for sale contains an

express or clearly implied condition that the sale or

offering is made primarily for experimental use.

Id. at 433. The rule is, then, that in an on sale case the

purpose to experiment must be express or clearly implied

in the original agreement of the parties. The contract

which courts are charged to interpret in this respect is not

limited to the written agreement, except in the polar case

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of a document conceded to be completely integrated.’ Rob-

bins did not create some new sort of parole evidence rule

which bars proving a transfer for experiment by evidence

of conduct after the transfer has occurred.

As with other questions of contractual interpretation,

the conduct of the parties and other evidence of events

occurring after the transaction may be relevant to show

an intent to transfer for an experimental purpose. It

would not be sensible to read Robbins as hostile to proof

of experimental purpose by objective circumstances rele-

vant to the parties’ intent. If between the parties it is

clear that the sale is intended as a step on the way to

perfecting the invention, and the transferee’s rights of use

and control are appropriately limited, there may be no

particular reason to recite such purpose in a written agree-

This would be the case under the California parole evidence

rule, as explicated in Pacific Gas & Electric Co. v. G.W. Thomas

Drayage & Rigging Co., 69 Cal. 2d 33, 442 P.2d 641, 69 Cal. Rptr.

561 (1968). As the California Supreme Court later said, the task

of the trial court in interpreting a contract is to consider “all cred-

ible evidence,” including testiniony as to the circumstances sur-

rounding the making of the agreement including the object, nature

and subject matter of the writing, so that the court can place itself

in the same situation in which the parties found themselves at the

time of contracting.” Gribaldo, Jacobs, Jones and Associates v. Ag-

gripina Versicherunges A.G., 3 Cal. 3d 434, 476 P.2d 406, 411, 91

Cal. Rptr. 6 (1970). See also Cal. Civ. Code § 1647; Restatement

(Second) of Contracts, §§ 202, 223; U. C. C. §2-202. The approach

of federal courts in those cases in which state law is not relevant

is the same. See, e.g., Martin v. United States, 649 F.2d 701 (9th

Cir. 1981); W.G. Cornell Co. of Washington, D.C., Inc. v. United

States, 376 F.2d 299 (Ct. Cl. 1967). We need not decide whether

to apply the state law approach to contract interpretation, or a fed-

eral common law approach based on section 102(b); in this case,

the two would lead to the same result.

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ment, if indeed a written agreement exists. The court may

not ignore the reality of an experimental purpose where

it is shown to exist by objective evidence properly admitted

to interpret the contract.“

In Robbins, moreover, we rested in part on the fact that

reports of the experimentation alleged in that case were

never in fact made from the buyer to the inventor. Id. at

430 n.2. This court in Cataphote Corp. v. De Soto Chemi-

cal Coatings, Inc., 356 F. 2d 24 (9th Cir.), cert. denied, 385

U.S. 832 (1966), described the resolution of the question

of experimental purpose in an on sale case as depending

“principally upon a careful examination of each item of

evidence and an evaluation thereof to judge the nature

and purpose of the course of conduct of the purported

patent holder.” Jd. at 26." See also Del Mar Engineering

Laboratories v. Physio-Tronics, Inc., 642 F.2d 1167, 1169

(9th Cir. 1981).

Appellees at oral argument “conceded” that the actions of Merry

and the inventor in this case would have been as consistent with a

written contract containing boiler plate recitals of experimental

purpose, as with the present contract of sale. They nonetheless

argue that they were entitled as a matter of law to summary judg-

ment because of the words of the written contract. We do not

accept this concession, and search the record for a triable fact issue,

but we cite this concession as an indication of the manifest unfair-

ness of adopting any rule such as appellees urge.

Some of our cases speak of the inquiry into experimental pur-

pose as investigating the inventor's intent; others speak of the ques-

tion as one of contract interpretation. Compare the cited language

from Cataphote with Robbins, 482 F.2d at 433. This conflict is more

apparent than real. The motivating force for the experiments will

normally come from the inventor, but if the buyer does not have

reason to know of the experimental purpose, it is unlikely, under

the rules cited in the text, supra, that a court will either.

A-18

The various aspects of experimental purpose we have

outlined can be shown, therefore, by events after the trans-

fer, but in all cases the inquiry is directed to the purpose

and intent of the parties at the time the transfer agree-

ment was made. See, e.g., U.C.C. §§ 1-205, 2-205; Restate-

ment (Second) of Contracts 55 223, 202(4).

It may be that the inventor here presented sufficient

evidence to create a triable issue of fact as to part of

the required showing of experimental purpose based on

the parties’ subsequent conduct. There was evidence from

which the trier of fact might have found the inventor

continued to be involved in design after the date of sale.

The invention, while concededly a working prototype at

the time of sale, might have undergone further refinements

before reduction to useful and manufacturable form. The

pleadings at least admit the possibility the inventor was

unable to determine whether the invention was worth

patenting, or could be improved, without use ? Merry’s

superior testing facilities.

The defect in the appellant’s case, however, is that there

is no basis at all for finding that Merry was required to

perform further experiments. The agreement must be

interpreted to permit Merry to exercise complete control

over commercial use and exploitation of the invention,

wi .out any obligation to experiment. A limit on the buy-

er’s full dominion over the invention need not be spelled

out in terms in the agreement; it might, for example, be

implied where the parties clearly contemplated that the

inventor, by participating in permissible experiments,

would dictate their scope. The agreement at issue here,

in particular clauses 3, 10, and 12, makes clear that the

inventor waived all control over the future course of the

A-19

invention. Nothing that would lead us to a contrary opin-

ion was put forward by the inventor. Mere participation

as a volunteer, or as a paid consultant, in experiments

decided upon by the buyer and under the direction of the

buyer is insufficient to show the existence of permissible

experimental purpose. Here, Merry was not limited to

experimentation and had the absolute right of immediate

commercial exploitation. The defendants were, therefore,

entitled to prevail.“ The summary judgment granted them

is, accordingly, AFFIRMED.

*Here lies our major disagreement with our dissenting colleague.

An inventor who makes an unrestricted sale to a third party, re-

taining only an interest in future royalties, has made the kind of

“sale” which, under 35 U.S.C. § 102(b), requires a patent applica-

tion be filed within one year to be timely. See supra at 9-10. Since

all the evidence shows Kock made such a sale, and made no timely

application, his tardy patent is invalid. For the same reason, an in-

ventor who has lost all control over the later course of an invention

cannot argue that an unrestricted “sale” was a mere “transfer”

within his “production or distribution system.”

This was not a case where the inventor entered into a joint ven-

ture, or where the transfer was to an agent who would only test

and refine the invention. It is clear that the buyer here would

eventually make commercial use of the invention. We do not hold

that transfer to a buyer in such circumstances is automatically

within section 102(b), An exception can be imagined where the

transferee is limited by contract, for a time, to permissible experi-

mentation so that he cannot make a commercial use or sale with-

out prior notice to the inventor, or passage of the allotted time

period. In the event of a sale with this “two-stage” nature, it is

arguable the time when the inventor is informed of impending com-

mercial use, cr the expiration of the predetermined experimental

period, would represent the point of sale within section 102(b).

Cf. Cali v. Eastern Airlines, Inc., 442 F.2d 65 (2d Cir. 1971), where

it was held that an inventor's transfer to his employer for testing

and later commercialization did not trigger section 102(b) until

the employer “first publicly used Cali's concept with a predom-

inantly commercial intent.” Id. at 71. We need not decide this

issue here.

A-20

Pregerson, Circuit Judge, Dissenting.

[Filed July 15, 1982

The majority opinion thoughtfully examines the issues

mvolved in determining what constitutes a sale for experi-

mental purposes under 35 U.S.C. § 102(b).' The opinion,

however, overlooks decisive inferences and case law and

frustrates an independent inventor's ability to market his

invention and reap the rewards of his creativity. Therefore,

I respectfully dissent.

This case is here on appeal from the district court's

order granting summary judgment for the defendants.

Thus, the primary question before us is whether, after

construing all evidence in the light most favorable to plain-

tiff, the non-moving party, there remains a material ques-

tion of fact whether the sale of the prototype was for an

experimental purpose. Fed. R. Civ. Pro. 56(c); Pegasus

Fund, Inc. v. Laraneta, 617 F.2d 1335, 1339 (9th Cir. 1980).

Since material questions of fact exist, we should remand

for trial.

Our court has stated that resolution of the question

whether a sale had an experimental purpose depends upon

“the totality of evidence presented by both parties, of the

nature of the acts committed prior to the critical date and

the purpose that motivated the commission of those acts.”

Cataphote Corporation v. DeSoto Chemical Coatings, Inc.,

‘I agree wx) the majority's views that experimentation may oc-

cur even if ..o change in the invention proves necessary, Majority

at 7, and that Robbins bv. Lawrence, 482 F.2d 426 (9th

Cir. 1973), allows evidence of experimental purpose beyond that

contained in the written contract. Majority Opinion at 13.

A-21

356 F.2d 24, 26 (9th Cir.), modified on other grounds and

reh denied, 358 F.2d 732, cert. denied, 385 U.S. 832 (1966).

In analyzing the “totality of evidence” a number of factors

should be examined to determine whether a sale had an

experimental, not a commercial, purpose. These factors in-

clude: conditions placed on the sale, Robbins v. Lawrence,

482 F.2d 426, 432 (9th Cir. 1973); further testing required

on the product, Amerio Contact Plate Freezers, Inc. v. Belt-

Ice Corp., 31 F.2d 459, 464 (9th Cir.), cert. denied, 375 U.S.

902 (1963), Timely Products Corp. v. Arrow, 523 F.2d 288,

302 (2d Cir. 1975) ; explicit statements of an experimental

purpose, Austin Machinery Co. v. Bukeye Traction Ditcher

Co., 13 F.2d 697, 700 (6th Cir. 1926) ; cert. denied, 273 U.S.

474 (1927), Robbins, 482 F.2d at 433; inventor's intent that

transfer be for an experimental purpose, In Re Yarn Proc-

essing Patent Validity Litigation, 498 F.2d 271, 288 (5th

Cir.), cert. denied sub nom. Sauquoit Fibers Co. v. Leesona

Corp., 419 U.S. 1057 (1974); requirement that invention be

kept confidential, A jem Laboratories, Inc. v. C. M. Ladd, 424

F.2d 1124, 1125-26 (6th Cir.), cert. denied, 400 U.S. 830

(1970), Robbins, 482 F.2d at 432; further experimentation

on the invention, Del Mar Engineering v. Physio-Tronics,

642 F.2d 1167, 1169 (9th Cir. 1981) ; commercial motive in-

cidental to the experimental motive, Jn Re Yarn Processing

Patent Validity, 498 F.2d at 277-78, Pickering v. Holman,

459 F.2d 403 (9th Cir. 1972); and reports to the inventor

on transferee’s use of the invention, Robbins, 483 F. ad at

433.

A number of these factors exist in this case. The April

28th agreement required Merry to notify Kock of all design

changes and secure his approval of the patent application.

Since reports to the inventor on the use of the invention

A-22

by the transferee indicate a transfer for an experimental

purpose, Robbins, 482 F.2d at 433, the notification require-

ment raises an inference that Kock and Merry intended the

experimental process to continue.’

The transfer here required secrecy in the use of the

device—another indicator of an experimental purpose. Rob-

bins, 482 F.2d at 433. Kock swore in an affidavit that he

and Merry agreed to keep the newly invented watch secret.

There is no evidence that Kock revealed the workings of

his invention to anyone other than his patent attorney and

Merry, with whom he had an exelusive contract. Again, the

evidence raises an inference that the transfer was for an

experimental purpose.

A sale from an inventor to a manufacturer before the

product has been “tested sufficiently to verify that it is

operable and commercially marketable” raises an inference

of an experimental purpose. Timely Products Corp. v.

Arrow, 523 F.2d at 302. Fer example, in Amerio Contact

Plate Freezers v. Belt Ice Co., 316 F.2d at 465, this court

held that selling activity does not activate section 102(b)’s

one year period until an operative “prototype has been

completed and tested,” because such activity may be nec-

essary to ascertain what product changes are required for

Laraneto, 617 F 2d, 1335, 1339 (9th Cir. 1980).

A-23

successful commercial exploitation. The April 28th agree-

ment contained a provision that Merry had ninety days to

test the product and decide whether to produce it commer-

cially. The agreement also required Kock to provide addi-

tional prototypes, if requested. This evidence raises the in-

ference that, as of April 28, Kock’s invention had not been

sufficiently completed and tested to verify that it was

operable and commercially marketable. This inference

places the sale within the experimental purpose exception

to section 102(b).

The majority acknowledges that section 102(b) does not

apply “to a sale to improve or perfect the invention

where the profit motive is only incidental to the experi-

mental... Majority Opinion at 8. The majority, however,

fails to apply this rule to the facts of this case. Here, as

discussed in the previous paragraph, the inference can be

drawn that the purpose of the transfer was to improve or

perfect the invention. Kock, after three months of work,

transferred a prototype embodying his invention to Merry

for an initial payment of $1,500. Under the contract, Kock

was also to receive $1,000 for each additional prototype he

was asked to produce. Moreover, he was to receive a three

percent royalty based on the net selling price of all watches

produced pursuant to the invention. The initial payment

was minor compared to the eventual profits Kock hoped to

reap. Thus, one might infer that Kock’s profit motive,

exhibited when he accepted $1,500 for three months work,

was incidental to his experimental motive—that the inven-

tion be improved or perfected through the use of Merry’s

superior facilities. Again, one may draw the inference that

the transfer was for an experimental purpose.

A-24

The majority opinion overlooks the inferences discussed

in the preceding paragraphs.’ Nonetheless, it concedes that

[i]t may be that the inventor here presented sufficient

evidence to create a triable issue of fact as to part of

the required showing of experimental purpose based on

the parties’ subsequent conduct. There was evidence

from which the trier of fact may have found the inven-

tor continued to be involved in design after the date of

sale. The invention, while concededly a working pro-

totype at the time of sale, might have undergone fur-

ther refinements before reduction to useful and manu-

facturable form. The pleadings at least admit the

possibility the inventor was unable to determine

whether the invention was worth patenting, or could be

improved, without use of Merry’s superior testing

facilities.

Majority Opinion at 14-15.

This acknowledgment of a triable issue of fact as to the

experimental purpose of the April 28th transaction should

by itself require a remand.

There is also a question of fact whether the April 28th

transfer was a transaction between an inventor and a third

party within the product’s production or distribution sys-

F.2d 1370, 1377 (9th Cir. 1978); see also Pegasus, 617 F. 2d at 1339.

A-25

tem. Such transfers, which reflect an experimental rather

than a commercial purpose, do not constitute sales under

section 102(b).*

The evidence suggests the April 28th transaction could

have constituted a transfer within a production and distri-

bution system. Kock began working on the invention after

Merry sent Kock a letter, dated September 15, 1966, which

detailed the watch movement Merry desired. Thus, the in-

vention was built exclusively for Merry to meet its specific

requirements. Since Kock maintained a royalty interest,

most of his remuneration would derive from Merry’s mar-

keting of the ultimate product, not the initial $1,500 pay-

ment. As the majority notes, the worth of the product

could have depended on the “use of Merry’s superior test-

ing facilities.” Majority Opinion at 15. The contract called

for Kock to continue to work as a consultant for Merry.

Neither Kock nor Merry disclosed the invention to anyone

other than Kock’s patent attorney. The evidence recited

above raises a strong inference that Kock and Merry

constituted a production entity, a subject the majority fails

to address.“

‘For example, in Baker-Commack Hosiery Mills Inc. v. Davis

Co., 181 F.2d 550 (4th Cir.), cert. denied, 340 U.S. 824 (1950),

the Fourth Circuit upheld the patent after such a transfer because

“there was no sale within the terms of the statute, but only certain

preliminary steps looking toward sales which in fact never oc-

curred.” Id. at 558. In Jack Winter, Inc. v. Koratran Company, Inc.,

375 F. Supp. 1 (N.D.Cal. 1974), supp. op., 409 F. Supp. 1019

(1976), the court upheld a patent when the “sale” was within the

“patentee’s own distribution system.” Id. at 37. See also Marvin

Glass & Associates v. Sears, Roebuck & Co., 318 F.Supp. 1089 (S.D.

Tex. 1970), affd in part, remanded in part on other grounds, 448

F.2d 60 (5th Cir. 1974); Note, New Guidelines for Applying the

On Sale Bar to Patentability, 24 Stan. L. Rev. 730, 745 (1972).

The majority opinion does, however, conclude that It Ihis is

not a case where the inventor entered into a joint venture.” Major-

A-26

The majority opinion also ignores the policy behind

section 102(b). As Robbins noted: “The underlying policy

[of section 102(b)] appears to be that an unconditional

placing ‘on sale’ creates an opportunity for public use.”

(Emphasis in the original.) 482 F.2d at 431. Here, the

“sale” simply did not create an opportunity of public use.

Thus, under Robbins, there should be no sale within the

meaning of section 102(b).

Further, applying the on sale bar to this case does not

advance the purpose of section 102(b)—that is, to prevent

an inventor from having the advantage of a monopoly for

more than the statutory period by engaging in the com-

petitive exploitation of his invention.” Amerio Contact

Plate Freezers, Inc. v. Belt-Ice Corporation, 316 F.2d at

465; see also Pickering v. Holman, 459 F.2d at 406; Note,

New Guidelines for Applying the On Sale Bar to Patent-

ability, 24 Stan. L. Rev. 730, 734 (1972). Here the inventor

was not attempting to prolong his monopoly but was try-

ing to prepare the product for commercial exploitation.

The purpose of section 102(b) is not served by applying

the on sale bar to the sale of a single prototype produced

under an exclusive contract with a production company.

ity Opinion at 18. Thus, the majority apparently believes that trans-

fers within a joint venture do not constitute a sale under section

102(b). The majority's observation is perplexing. First, it does not

explain why transfers within a joint venture should be immune from

the on sale bar, while transfers within a production system should

be subject to the on sale bar. Second, the basis for the majority s be-

lief that the agreement between Kock and Merry did not constitute

a joint venture is that “the buyer here would eventually make com-

mercial use of the invention.” Id. It is not clear why future com-

mercial exploitation is relevant to whether a sale for commercial

purposes had already occurred. Furthermore, Kock, through the re-

ceipt of royalties, anticipated that he would “eventually make com-

mercial use of the invention” concurrently with Merry—thus, Mer-

rys anticipated commercial exploitation should not indicate the

April 28th transaction was a transfer outside a production entity.

A-27

Cf. Cali v. Eastern Airlines, 442 F.2d 65, 69 (2d Cir, 1971)

Here, the commercial exploitation contemplated by section

102(b) would have occurred when Merry marketed the com-

pleted watches. Compare American Machine d Hydraulics,

Inc. v. Mercer, 585 F.2d 404 (9th Cir. 1978) (on sale bar

applies to sales of 147 mufflers to ultimate customers) ;

Robbins, 482 F.2d at 428 (on sale bar applies to sale of 50

cutters to the ultimate customer); Super Mold Corp. v.

Clapp’s Equip. Div. Ind., 397 F.2d 932 (9th Cir. 1968)

(on sale bar applies to sale of 248 tread aligners to the

ultimate customer).

The majority opinion disregards the inferences of an

experimental purpose raised by the evidence, disregards

its own acknowledgement that a triable issue of fact exists,

disregards the question whether the sale constituted a

transfer within a production company, and disregards the

policy and purpose of section 102(b). Instead, the majority

concludes that defendants are entitled to summary judg-

ment because “there is no basis fei finding that Merry was

required to perform further experimentation,” the inventor

“waived all control over the future course cf the invention,”

and “Merry had the right of immediate exploitation.”

Majority Opinion at 15. The majority also seems to create

an apparent per se rule for determining whether a sale

has an experimental purpose. The majority states

[i]t is not, however, enough that an inventor demon-

strates by objective evidence that further experiment

was necessary and was in fact performed by the trans-

feree. To avoid the on sale bar, the inventor must

further show that the transferee lacked authority to

use the invention or exploit its commercial value.

A-28

Majority Opinion at 9. This rule has scant support in

past decisions.°

As I read the majority opinion, its holding is apparently

based on the proposition that Kock’s transfer of “all con-

trol” over the invention constitutes a sale under section

102(b). The degree of control relinquished by an inventor

through a sale does bear on whether the sale had an

experimental or commercial purpose. Relinquishment of

control, however, should not, as the majority believes, be

a conclusive indicator of a commercial purpose. The major-

ity does envision situations where giving up all control

might not compel application of the on sale bar. The

majority states that a transfer to a buyer might not come

within section 102(b)

where the transferee is limited by contract, for a time,

to permissible experimentation so that he cannot make

a commercial use or sale without prior notice to the

inventor, or passage of the alloted time period. In the

event of a sale with this “two-stage nature,” it is ar-

The legal authority for these holdings is unclear. The majority

supports its position by stating that “if the invention is out of the

inventor's hands, it is irrelevant what experiments the buyer does

or does not do with the invention.” Majority Opinion at 9. The fol-

lowing cases relied on by the majority, however, do not support

this position.

In Tool Research and Engineering Corp. v. Honcor Corp., 367

F.2d 449, 453 (9th Cir. 1966), cert. denied, 387 U.S. 919 (1967),

our court merely noted that the inventor put no limitation on his

product’s use. We held the patent invalid because the sales put

the invention into public use. Id. at 453. No such public use ex-

isted in the instant case.

In Dart Industries, Inc. v. E. I. DuPont De Nemours & Co., 489

F.2d 1359, 1366-67 (7th Cir. 1973), cert. denied, 417 U.S. 933

(1974), the court voided a patent because the inventor made sev-

eral unqualified sales of the identical product. Id. at 1366-67. Kock

sold only one prototype of the invention to a production company.

A-29

guable the time when the inventor is informed of im-

pending commercial use, or the expiration of the pre-

determined experimental period, would represent the

point of sale within section 102(b).

Majority Opinion at 18, n.8. While the inventor in the ma-

jority’s hypothetical would receive prior notification of a

sale which was more than Kock was entitled to, the hypo-

thetical inventor would, in reality, have no greater control

over the commercial exploitation of his invention than did

Kock. Therefore, the majority’s concession that its hypo-

In Cali v. Eastern Airlines Inc., 442 F. 2d 65 (2d Cir. 1971),

Cali submitted to his employer, Pan Am, an idea that became the

kernel of a patented invention. In an infringement action brought

by Cali against Eastern Airlines, the district court found that Cali,

by submitting his suggestion to Pan Am, put the idea in public use.

Since such submission occurred more than a year before Cali filed

his patent application, the district court applied section 102(b) and

invalidated the patent. In so doing, the district court “observed

that Cali placed no restrictions on Pan Am’s use” of his idea. Id.

at 69. The Second Circuit reversed because “absence of any con-

trol by Cali, or any attempt to impose control, should not be ele-

vated to the status of a per se test under the circumstances dis-

closed here in the posture in which we receive this case.” Id. Thus,

the Second Circuit held that the experimental process continued

and that the public use bar was inapplicable, even though the in-

vention was “out of the inventor's hands.”

The majority also supports its holding by suggesting that the

Supreme Court, in City of Elizabeth v. American Nicholson Pave-

ment Co., 97 U.S. 126 (1878), held that if there is to be an experi-

mental purpose “tests made by one other than the inventor [must]

be ‘under his direction.’” (cite omitted). Majority Opinion at 10.

This is an inaccurate reading of City of Elizabeth. The Court there

simply noted that when experiments are under the inventor's direc-

tion, no public use occurs. Obviously, since courts have found

experimental purpose even when the experiments were outside the

inventor's direction, the rule the majority espouses is questionable.

See Cali, 442 F.2d at 70, n.3 (It may be unrealistic and inconsistent

with the patent laws to require that the inventor maintain control

over experiments for the transfer to qualify as a sale with an ex-

perimental purpose.); Cf. Dart, 489 F.2d at 1366.

A-30

thetical inventor may avoid the on sale bar should apply

equally to Kock.

One can also envision a situation in which an inventor

with a partially completed prototype is forced by lack of

funds to sell his invention to a production company. The

company might not wish to devote its resources to com-

plete the prototype or produce the product that embodies

the invention, unless the company has the unqualified

right to control marketing of the product. Granting such

control should not terminate the experimental process. The

production company should have the right to continue ex-

perimenting with the product, even if such experimentation

takes longer than a year. Under the majority’s view, how-

ever, to obtain a valid patent, an application must be filed

within one year of the transfer of control.

The overriding consideration in applying section 102(b)

to a sale is whether the sale had an experimental or com-

mercial purpose. I suggest that the fact-finder treat trans-

fer of control as a factor, not as a conclusive indicator of

a sale within section 102(b). Courts should apply section

102(b) to invalidate a patent when the transfer of control

over the invention, considered as part of the totality of the

evidence, indicates the sale was for a commercial purpose.

Treating transfer of control as a factor, rather than as a

In fact, City of Elizabeth supports Kock’s claim. The case equates

a public use or sale with “abandonment” of the invention. Id., 97

U.S. at 134. Here, the evidence does not show that Kock abandoned

the invention.

The majority also relies on a quote from Egbert v. Lippman, 104

U.S. 333, 336 (1881) that “if an inventor ‘gives or sells [his inven-

tion] to another to be used by the donee without limitation or re-

striction, or injunction of secrecy, there is public use (or public

sale) within the statute.” Majority Opinion at 10. This rule does

not void the patent here because Merry and Kock agreed to main-

tain secrecy; therefore, an injunction of secrecy apparently existed.

A-31

conclusive indicator of a sale, encourages continuation of

the experimental process without fear of running afoul of

section 102(b)’s one year period.

In short, the evidence in this case raises a material ques-

tion of fact whether the April 28th transaction was pri-

marily for experimental or commercial purposes. Our court

has held that the question of experimental purpose in

cases involving section 102(b) is a question of fact to be

decided by the trier of fact after consideration of the total-

ity of the evidence. Cataphote Corporation v. DeSoto

Chemical Coatings, Inc., 356 F.2d at 26; Micro-Magnetic,

Inc. v. Advanced Auto Sales Co., Inc., 488 F.2d 771, 773

(9th Cir. 1973). See also, 2 Deller’s Walker on Patents,

714. I would therefore reverse the summary judgment and

remand for trial.