Petition for Writ of Certiorari — Hayes Lemmerz International, Inc. v. Lacks Industries, Inc. (No. 08-1177)
Supreme Court brief2009
Ask Donna
What actually matters in this document.
Text
if 2, O Supreme ‘Court U.S.
[ 081177 MAR18 2009
No. . — OFFICE OF THE CLERK
In The
Supreme Court of the United States
Haves LEMMERZ INTERNATIONAL, INC.,
McKEcunik VEHICLE COMPONENTS U.S.A., INC.,
D/B/A THOMPSON INTERNATIONAL,
Petitioners,
Vv.
LACKS INDUSTRIES, INC.,
Respondent.
On Petition for Writ of Certiorari to the United
States Court of Appeals for the Federal Circuit
PETITION FOR WRIT OF CERTIORARI
J. Michael Huget Stephen E. Glazek
John C. Blattner Counsel of Record
Butzel Long Josh J. Moss
350 S. Main, Suite 300 Barris Sott Denn & Dniker, L.L.C.
Ann Arbor, MI 48104 211 W. Fort Street, #150
(734)995-3110 Detroit, MI 48226-3211
(313) 965-9725
Attorneys for Petitioner
McKechnie Vehicle Mark Sobanski
Components U.S.A., Inc.. MacMillan, Sobanski & Todd, L.L.C.
720 Water St., 5" Floor
Toledo, OH 43604
(419) 255-5900
Attorneys for Petitioner Hayes Lemmerz
International, Inc.
March 18, 2009
Becker Gallagher + Cincinnau, OH + Washington, D.C. - 800.890.5001
l
QUESTION PRESENTED
Has the United States Court of Appeals for the
Federal Circuit misinterpreted Pfaff v. Wells Elec.,
Inc., 525 U.S. 55 (1998), and thereby misconstrued the
phrase “on sale” in 35 U.S.C. § 102(b), by defining “on
sale” to require that an invention be the subject of a
commercial offer for sale that the other party could
make into a binding contract by simple acceptance
(assuming consideration)?
il
PARTIES TO THE PROCEEDING
AND RULE 29.6 STATEMENT
There are no parties to the proceeding other than
those listed on the caption.
Pursuant to Supreme Court Rule 29.6, Petitioners
make the following disclosures:
Petitioner Hayes Lemmerz International, Inc., f/k/a
Hayes Wheels International, Inc., states that it has no
parent company.
Petitioner McKechnie Vehicle Components USA,
Inc. states that its parent company is DLO
Investments, Inc.
lil
TABLE OF CONTENTS
Dp cel eo By ny |} br i
PARTIES TO THE PROCEEDING AND RULE
a re il
py 8 Bee yy 6. yy rn ili
TABLE OF AUTHORITIES CITED ............ vi
Bog Ss | ae 1
Ne eS gly vb See ee vase 2
STATUTORY PROVISIONS INVOLVED ....... 2
STATEMENT OF THE CASE ...............- 3
LE SO ETE CECE EET CR Cees 3
B. Proceedings Leading up to the 2000 Bench
ee ee i pas ed ads CK bw os 4
C. The Special Master’s Post-Trial Amended
Findings of Fact and Conclusions of Law .. 6
a ee 8
hk kk ke se ee ee eee 9
D. Be ene AMOR... . . ww ee ee es 10
lV
REASONS FOR GRANTING THE WRIT ...... 11
A. The Group One Test is Not Supported By the
Language of Sectionl102(b) ............. 12
B. The Group One Test Is Based Upon a
Misinterpretation of this Court’s Opinion in
Pfaff and Conflicts with the Policies
Underlying the On-Sale Bar ........... 14
1. The Federal Circuit Misinterpreted
| AIRE rr ts rmeir i een a eee 14
2. The Group One Test Undermines the
Primary Policy Consideration Behind the
On-Sale Bar of Preventing Inventors
from Extending the Statutory Patent
I oes cs dace chon oo A Oe meas ee eee 17
3. The Group One Test Results in a Lack of
Clarity and Certainty for Inventors and
for Courts, as well as a Lack of
Uniformity Among Industries ....... 23
CE os os eae eecasd ae tees 25
APPENDIX
Appendix A: Federal Circuit Opinion (Nov. 21,
CR Sn ie ae kak Kier wa ale la
Appendix B: District Court Order on Cross-
Motions for Summary Judgment (Nov. 20,.
ae re re ee ear Sarre ee ee l3a
Vv
Appendix C: District Court, Special Master’s
Report and Recommendation on Cross-Motions
for Summary Judgment Concerning Patent
Invalidity Defense Based on Alleged On-Sale
Se ie a gs ea ee eh Oe 18a
Appendix D: Federal Circuit Opinion (Mar. 13,
a rae ha Soke FS ae a ee ee Oe, 12la
Be hy a Wig ak wie h-ei ew aeR e aS 168a
Appendix F: District Court, Special Master's
Amended Report and Recommendation
Amended Findings of Fact and Conclusions of
DE, BP oh 8 koa ee wk eam 17la
Appendix G: Federal Circuit Order re Rehearing
I i a a a aa oe 274a
Appendix H: District Court Stipulation and
Order Regarding Appointment of Special
Pe CGO. FO, We 66 en es oe sees 276a
v1
TABLE OF AUTHORITIES CITED
Cases
Elizabeth v. American Nicholson Pavement Co.,
BAS SS LSS ye: Sara 17, 18
Engine Manuf. Assoc. v. South Coast Air Quality
Management Dist.,
a 5 rrr 13
Gould Inc. v. United States,
op gk 2 vo Ie To a) ) 14
Group One, Ltd. v. Hallmark Cards, Inc.,
254 F.3d 1041 (Fed. Cir. 2001) ......... passim
Linear Tech. Corp. v. Micrel, Inc.,
275 F.3d. 1040 (Fed. Cir. 2002)... 13, 21, 22, 23
Metalizing Eng’g Co., Inc. v. Kenyon Bearing &
Auto Parts Co.,
153 F.2d 516 (2nd Cir. 1946) ............... 14
Park ’N Fly, Inc. v. Dollar Park & Fly, Inc.,
P,P) 6 ee cee ee eas 13
Pfaff v. Wells Elec., Inc.,
ee Se, SO CRD oo ct ee eee ee eee passim
RCA Corp. v. Data Gen. Corp.,
887 F.2d 1056 (Fed. Cir. 1989) ..... 7, 8, 13, 21
Statutes
a 8) 2
ee We oo ee ee ec cdawe sevens passim
Other Authorities
CORBIN ON CONTRACTS § 1.12, P. 33, Revised Edition
SO I a ee rn el 24
Lord, Richard A., Williston on Contracts § 4:13, at
ee es i ee, Sis ot 24
The Random House Dictionary of the English
Language, Unabridged Edition, p. 1262
> MYARTS ole nil ce ote Hn aatiee PeLg aD Nt cen rn 13
Restatement of Contracts (Second) § 24 (1981)... 23
Ser EE oan hah oe oa os ke ae 24
Webster’s Ninth New College Dictionary, p. 1037
| ee ere eer rn ere ere 13
1
IN THE
SUPREME COURT OF THE UNITED STATES
PETITION FOR WRIT OF CERTIORARI
Petitioner respectfully prays that a writ of
certiorari issue to review the judgment below.
OPINIONS BELOW
The District Court has entered judgment for
Petitioners Hayes Lemmerz International, Inc. and
McKechnie Vehicle Components U.S.A., Inc.
(“Petitioners”) twice in this case, both times based
upon rulings by a Special Master appointed by the
court pursuant to the stipulation of the parties. The
United States Court of Appeals for the Federal Circuit
has reversed and remanded twice, and the case is
currently before the District Court again on the second
remand. The relevant opinions are listed below.
The 2008 opinion of the United States Court of
Appeals for the Federal Circuit is unreported, but is
unofficially reported at 300 Fed.Appx. 904, 2008 WL
4962687. (App. la-12a.)
The 2007 order of the United States District Court
for the Eastern District of Michigan adopting the 2007
Special Master’s Report and Recommendation is
unreported. (App. 13a-17a.)
The 2007 Special Master's Report § and
Recommendation is unreported. (App. 18a-120a.)
The 2003 opinion of the United States Court of
Appeals for the Federal Circuit is reported at Lacks
Indus., Inc. v. McKechnie Vehicle Components USA,
2
Inc., et al., 322 F.3d 1335 (Fed. Cir. 2003). (App. 121a-
167a.)
The 2001 Judgment of the United States District
Court adopting the 2001 Special Master’s Amended
Findings of Fact and Conclusions of Law and entering
judgment on the same is unreported. (App. 168a-170a.)
The 2001 Special Master’s Amended Findings of
Fact and Conclusions of Law is unreported. (App.
171a-273a.)
JURISDICTION
The judgment of the United States Court of
Appeals for the Federal Circuit was entered on
November 26, 2008. Defendants’ petition for rehearing
was denied on December 18, 2008. (App. 274a-275a.)
This Court has jurisdiction under 28 U.S.C. § 1254(1).
STATUTORY PROVISIONS INVOLVED
This case involves the following provision of the
United States Code:
A person shall be entitled to a patent unless —
(b) the invention was patented or described
in a printed publication 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
35 U.S.C. § 102(b).
3
STATEMENT OF THE CASE
A. Introduction
The Court should grant certiorari in this case
because the Court of Appeals for the Federal Circuit
has misinterpreted the federal statute that precludes
an inventor from obtaining a patent claiming an
invention that was on sale more than one year prior to
the date of application. See 35 U.S.C. § 102(b). In
Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d
1041 (Fed. Cir. 2001), the Federal Circuit abandoned
its own precedent and decades of law developed in
other courts based upon a clear misreading of this
Court’s decision in Pfaff v. Wells Elec., Inc., 525 U.S.
55 (1998). Under the new test set forth in Group One,
an invention is deemed to be “on sale” under Section
102(b) only if it is the subject of a commercial offer for
sale that the other party could make into a binding
contract by simple acceptance. The Federal Circuit’s
change to the on-sale bar analysis upsets the balance
of interests struck by Congress in spurring invention
on the one hand and preventing inventors from
enlarging their government-granted monopoly period
on the other.
The absurd result in this case shows that the
Federal Circuit's new standard allows inventors to
commercially market their inventions for years prior
to filing a patent application without triggering the on-
sale bar. The facts found by the Special Master after
the 2000 trial that remain unchallenged showed that
for two years before the critical date, Respondent Lacks
Industries, Inc., the patent owner, conducted a
thorough and widespread commercial marketing
campaign promoting its ready for-patenting invention.
4
The campaign included, among other things, dozens of
sales calls to automobile manufacturers and
automotive wheel manufacturers during which Lacks
sought purchasers for its later-patented invention.
Lacks’ marketing efforts before the critical date also
included multi-day technology shows in which the
invention was marketed to automobile manufacturers,
and numerous meetings with wheel manufacturers in
which Lacks marketed the invention.
The Special Master and the District Court found
that under the controlling on-sale bar jurisprudence,
Lacks’ pre-critical date commercial activities clearly
triggered the on-sale bar. Between the District Court’s
entry of judgment and oral argument on Lacks’ appeal,
the Federal Circuit issued its opinion in Group One.
Because the Federal Circuit dramatically changed the
on-sale bar analysis in Group One, thirteen (13) years
after this case was filed, the parties are still litigating
what constitutes a binding offer for sale in the
automotive industry.
B. Proceedings Leading up to the 2000 Bench
Trial
The patent at issue in this case relates to
decorative overlays or claddings that are affixed to the
outwardly facing surface of automotive wheels. (App.
175a.) The resulting composite wheels are
aesthetically attractive, but less expensive than the
chrome-plated wheels for which they are a substitute.
(App. 175.) The claims of the patent at issue relate to
a method for securing the claddings to wheels with
adhesive. (App. 175a-76a.)
5
Plaintiff Lacks Industries, Inc. (“Lacks”) filed this
patent infringement action in the Eastern District of
Michigan in February, 1996 alleging infringement of
three patents. Only claims 11-13, 20-22, 24, and 25 of
U.S. Patent No. 5,597,213 (the “213 Patent”) survived
summary judgment and remain at issue (the
“Remaining Claims”). As part of its summary
judgment decision, the District Court ruled that the
invention of the Remaining Claims was ready-for-
patenting in May 1992. Lacks Indus., Inc. ov.
McKechnie Vehicle Components USA, Inc., 55 F. Supp.
2d 702, 734 (E.D. Mich. 1999).
On February 15, 2000, the parties stipulated to the
appointment of a Special Master. (App. 278a.) The
stipulation and order of appointment directed the
Special Master to make all factual findings and legal
conclusions necessary to determine whether
Petitioners’ accused products infringed the Remaining
Claims. (App. 278.) The Special Master was also
directed to make all factual findings and legal
conclusions necessary to determine whether the
Remaining Claims were invalid under 35 U.S.C.
§ 102(b) as a result of Lacks’ efforts to commercialize
the invention prior to the June 6, 1994 critical date. '
The parties also stipulated that the Special Master’s
findings of fact would be final and that the District
Court would review only his conc)usions of law. (App.
279a.)
The application that matured into the '213 Patent was filed on
June 6, 1995
6
C. The Special Master’s Post-Trial Amended
Findings of Fact and Conclusions of Law
After a one-week bench trial, the Special Master
issued Amended Findings of Fact and Conclusions of
Law. The Special Master found that Petitioners’
accused products infringed the Remaining Claims of
the ’213 Patent.” (App. 272a.) The Special Master also
concluded, however, that the Remaining Claims were
invalid because Lacks had the claimed invention on
sale for more than a year before the patent application
was filed. (App. 273a.) The Special Master made
several factual findings underlying his invalidity
ruling that Lacks never challenged. Regarding Lacks’
pre-critical date sales efforts, the Special Master found
as follows:
The record abundantly establishes a thorough
and extensive campaign by Lacks to exploit
competitively, to use for profit and _ to
commercialize the ready-for-patenting method,
commencing two years before the June 6, 1994
critical date. After the May, 1992 ready-for-
patenting date, Lacks made pre-critical date
commercialization efforts with both wheel
manufacturers and OEMs.* Lacks widely
promoted the use of a specific composite wheel
assembly technique, namely, the assembly
techniquc of its later-granted method claims, to
make wheels for any and all future vehicle
* Prior to trial, Lacks conceded that Defendants’ products did not
infringe claims 21-22.
3u n- . : — .
OEMs’ is an abbreviation for original equipment manufacturers
of automobiles.
7
models. Its sales and solicitations took the form
of demonstrations of physical samples of
prototypes made in accordance with the
asserted method claims, and repeated sales
contacts with the same potential customers to
highlight the advantages of the resulting
products.
(App. 259a-60a.)
Regarding the correlation between the invention of
the Remaining Claims and Lacks’ commercial
activities, the Special Master found as follows:
Lacks’ own contemporaneous documentation
and trial testimony, summarized above,
abundantly establish that (1) the assembly
method that Lacks was offering to perform
corresponded precisely with the invention of the
Remaining Claims, and (2) the overlays and
composite wheels that it was offering to sell in
conjunction with a_ wheel-manufacturing
partner were to be made by the claimed method.
(App. 260a.)
The Special Master analyzed the facts under the
then prevailing Federal Circuit law articulated in RCA
Corp. v. Data Gen. Corp., 887 F.2d 1056 (Fed. Cir.
1989) and conciuded that the Remaining Claims were
invalid under 35 U.S.C. § 102(b). (App. 273.) Under
RCA Corp., for commercial activity to trigger the on-
sale bar, it had to be more than “merely indefinite or
nebulous discussion about a possible sale.” RCA Corp.,
887 F.2d at 1062. The commercial activity, however,
need not rise to the level of a “formal commercial ‘offer
8
under contract law principles.” Jd. Because Lacks’ pre-
critical date commercial activity satisfied this
requirement by clear and convincing evidence, the
Special Master ruled that the Remaining Claims were
invalid under Section 102(b).
On April 23, 2001, the District Court adopted the
Special Master’s Findings of Fact and Conclusions of
Law and entered judgment in favor of Petitioners and
against Lacks. (App. 168a-70a.)
D. The First Appeal
After the District Court entered judgment, but
before argument on the appeal, the Federal Circuit
changed the on-sale bar analysis. In Group One, Ltd.
v. Hallmark Cards, Inc., 254 F.3d 1041 (Fed. Cir.
2001), based on a misinterpretation of this Court’s
decision in Pfaff, the Federal Circuit abandoned the
RCA Corp. standard and held that an invention is on
sale under Section 102(b) only if it is the subject of a
commercial offer for sale “which the other party could
make into a binding contract by simple acceptance
(assuming consideration).” Jd. at 1048. The Federal
Circuit rejected Petitioners’ argument that Lacks’
commercial activities in the record amounted to
contractual offers for sale based upon automotive
industry practice, holding that the record was
insufficient to make such a ruling as a matter of law.
(App. 144a.) Consequently, the Federal Circuit vacated
the on-sale determination by the Special Master
because he had applied the outdated RCA Corp.
standard. (App. 144a-45a.) The court remanded for
consideration under the new standard and instructed
that “[oJn remand, the district court (or the Special
Master) may need to take additional evidence on the
9
practice in the industry to determine if the activities
by Lacks rise to an offer for sale under the UCC.” (App.
145a.) Lacks did not appeal, and the Federal Circuit
did not address, the Special Master’s findings of fact
regarding Lacks’ pre-critical date activities.
E. On Remand
On remand, the Special Master determined that
additional evidence regarding sales practices in the
automotive industry was needed. The parties
conducted extensive discovery regarding sales
practices in the industry. (App. 48a-49a.) Two aspects
of this evidence are relevant to this petition. First, the
uncontested evidence showed that the complex process
for incorporating new products into automobiles
requires collaboration between the supplier providing
the new product and the OEM. This product
development time period is often 36 to 42 months.
(App. 54a-55a, 67a-68a.) It is important to note that
this product development period occurs after the
supplier has marketed its new product to OEMs and
succeeded in convincing one or more OEMs to
incorporate the new product into its vehicles. (App.
56a-57a, 68a.) -
Second, the uncontested evidence demonstrated
that the first document containing formal contract
“offer” language is produced shortly before production
of a new vehicle model incorporating the new product
begins. (App. 59a, 62a, 65a, 68a.) When the OEM is
about to begin production, the OEM issues a purchase
order to the supplier stating that the purchase order is
an offer to buy the new part. (/d.) Thus, because of the
OEMs contracting procedures, by the time the first
formal contractual document is issued, the supplier
10
has commercially marketed its new product, succeeded
in securing an OEM’s (unwmtten) commitment to
purchase and use the new product in its vehicles,
worked collaboratively for between 36 and 42 months
with the OEM to develop the product so that it passes
the OEM’s safety and durability requirements, and
refined the product so that the vehicle can
accommodate inclusion of the new part. (App. 52a-
69a.)
On August 17, 2007, the Special Master issued his
Report and Recommendation in which he concluded
that the undisputed evidence demonstrated that Lacks
had made five commercial offers for sale that satisfied
the Group One standard. (App. 112a-l3a.) Ina
separate section titled “Additional Considerations,” the
Special Master articulated his belief that the Federal
Circuit in Group One had misinterpreted Pfaff and
discussed the shortcomings of the Group One test.
(App. 113a-20a.)
On November 11, 2007, the >: crict Court adopted
the Special Master’s Report and Recommendation.
(App. 138a-15a.) The District Court specifically
endorsed the Special Master’s Additional
Considerations. (App. 15a.)
F. The Second Appeal
On November 26, 2008, the Federal Circuit
reversed in part and affirmed in part. (App. la-12a.)
The Federal Circuit affirmed the District Court’s
denial of Lacks’ motion for summary judgment. The
court, however, reversed the District Court’s grant of
summary judgment of invalidity, holding that there
were genuine issues of material fact precluding
11
summary judgment. The Federal Circuit remanded for
the District Court to determine whether Defendants
could establish by clear and convincing evidence: (1) if
any of the five offers at issue rose to the level of a
commercial offer for sale under the Group One
standard; (2) if so, was the offer communicated to the
offeree; and (3) did the product or process offered
satisfy each element of the Remaining Claims. (App.
12a.)
On December 18, 2009, the Federal Circuit denied
Defendants’ petition for rehearing. (App. 274a-75a.)
REASONS FOR GRANTING THE WRIT
The Court should grant the petition because the
United States Court of Appeals for the Federal Circuit
decided an important issue of federal law that has not
been, but should be, settled by this Court. The Group
One test is not supported by the statutory language
and conflicts with this Court’s repeated statements
that any attempts by inventors to commercialize their
inventions prior to the critical date will trigger the on-
sale bar. Group One is based upon an obvious
misinterpretation of this Court’s ruling in Pfaff. It is
also plainly inconsistent with the primary policy goal
of the on-sale bar — preventing inventors from
extending their government-granted monopolies
beyond the statutory term. The absurd result in this
case 1s a concrete example of Group One’s destructive
effect on the policies underlying Section 102(b). By
extending patent protection to inventions already in
the public domain, or allowing inventors to increase
the length of their monopolies by delaying the filing of
a patent application, the Group One test results in
unwarranted monopolies that stifle competition.
12
Finally, as a practical matter, the Group One test
leaves inventors and the courts with less, rather than
more, clarity and certainty in the on-sale bar analysis.
Because the Federal Circuit has adopted an
erroneous construction of the on-sale bar that will
continue to have adverse consequences on the
economic engines of competition and innovation, the
petition raises an important national issue that should
be resolved by this Court.
A. The Group One Test is Not Supported By the
Language of Section102(b)
The Court should grant the petition because the
Federal Circuit’s test for whether an invention is on
sale under 35 U.S.C. § 102(b) is not supported by the
language of the statute. Section 102(b) provides that:
A person shall be entitled to a patent unless...
the invention was... on sale in this country,
more than one year prior to the date of the
application for patent in the United States.
35 U.S.C. § 102(b) (emphasis added). From the short
phrase “on sale,” the Federal Circuit has generated its
binding contractual offer for sale test:
Only an offer which rises to the level of a
commercia! offer for sale, one which the other
party could make into a binding contract by
simple acceptance (assuming consideration)
constitutes an offer for sale under § 102(b).
Group One, 254 F.3d at 1048.
13
The Federal Circuit’s extrapolation violates the
basic rule that statutory construction begins “with the
language employed by Congress and the assumption
that the ordinary meaning of that language accurately
expresses the legislative purpose.” Engine Manuf.
Assoc. v. South Coast Air Quality Management Dist.,
541 U.S. 246, 252 (2004) quoting Park ’N Fly, Inc. v.
Dollar Park & Fly, Inc., 469 U.S. 189, 194 (1985).
Nothing in the language of Section102(b) suggests that
Congress intended that the phrase “on sale” be
construed so narrowly or that it be given a formalistic
gloss. The Federal Circuit’s interpretation bears little
resemblance to the ordinary meaning of the phrase “on
sale.” The plain meaning of the phrase “on sale” is
“available for purchase.” For example, Webster’s
Dictionary defines “sale” as “opportunity of selling or
being sold.” Webster’s Ninth New College Dictionary,
p. 1037 (1988). See also The Random House Dictionary
of the Engiish Language, Unabridged Edition, p. 1262
(1967) (“opportunity to sell”).
This ordinary use of the phrase “on sale” is
consistent with the Federal Circuit’s own precedent,
which it abandoned in Group One. See Linear Tech.
Corp. v. Micrel, Inc., 275 F.3d. 1040, 1048 (Fed. Cir.
2002) (noting that in Group One, the court had
“expressly held that our previous enunciation of the
law in RCA Corp. is incorrect in light of Pfaff.”) In
RCA Corp., the Federal Circuit recognized that an
invention could be on sale under Section 102(b) even if
the inventor’s commercial activities fell short of a
binding commercial] offer for sale. RCA Corp. , 887 F.2d
14
at 1062.4 The Federal Circuit’s renunciation of this
principle detached the on-sale bar analysis from the
statutory framework. The Court should grant the
petition so that it can settle this important issue of
federal law.
B. The Group One Test Is Based Upon a
Misinterpretation of this Court’s Opinion in
Pfaff and Conflicts with the Policies
Underlying the On-Sale Bar
1. The Federal Circuit Misinterpreted Pfaff
The Federal Circuit based its departure from the
statutory language and from its own precedent upon a
misreading of this Court’s opinion in Pfaff, 525 U.S.
55. In Pfaff, the Court addressed “whether the
commercial marketing of a newly invented product
may mark the beginning of the 1-year period [under
Section 102(b)] even though the invention has not yet
been reduced to practice.” Jd. at 57. The Court held
that an invention need not be reduced to practice in
order to trigger the on-sale bar. Rather, the one-year
grace period under Section 102(b) begins “when an
invention that is ready for patenting is first marketed
commercially.” Id. at 67 (emphasis added). The ready-
for-patenting prong, which was the focus of the opinion
and the issue on which the Court granted certiorari,
could be established either by showing that the
invention had either been reduced to practice or by
proof that the inventor had “prepared drawings or
* See also Gould Inc. v. United States, 579 F.2d 571, 580 (Ct. Cl.
1978); Metalizing Eng'g Co., Inc. v. Kenyon Bearing & Auto Parts
Co., 153 F.2d 516, 518 (2" Cir. 1946).
15
other descriptions sufficiently specific to enable one
skilled in the art to practice the invention.” Id. at 67-
68. Thus, the Court concluded that the on-sale bar
applies when two conditions are satisfied. “First, the
product must be the subject of a commercial offer for
sale.” Id. at 67. “Second, the invention must be ready
for patenting.” Id.
Even though the Court had given no indication that
it attached new or special meaning to it, the Federal
Circuit seized upon the phrase “commercial offer for
sale,” and surmised that Pfaff “strongly suggests that
the offer must meet the level of an offer for sale in the
contract sense, one that would be understood as such
in the commercial community.” Group One, 254 F.3d at
1046. Consequently, the Federal Circuit ruled that the
first prong of Pfaff would be satisfied only if the
invention was the subject of a commercial offer for sale
that the other party could make into a binding contract
by simple acceptance. Id. at 1048.
The phrase on which the Federal Circuit relied, the
paragraph from which it was excised, and the entirety
of the Pfaff opinion, all make clear that the Federal
Circuit misinterpreted Pfaff, reading into it worlds of
meaning not intended by this Court. The full
paragraph from Pfaff reads as follows:
We conclude, therefore, that the on-sale bar
applies when two conditions are satisfied before
the critical date. First, the product must be the
subject of a commercial offer for sale. An
inventor can both understand and control the
timing of the first commercial marketing of his
invention. The experimental use doctrine, for
example, has not generated concerns about
16
indefiniteness, and we perceive no reason why
unmanageable uncertainty should attend a rule
that measures the application of the on-sale bar
of § 102(b) against the date when an invention
that is ready for patenting is first marketed
commercially. In this case, the acceptance of the
purchase order prior to April 8, 1981, makes it
clear that such an offer had been made, and
there is no question that the sale was
commercial rather than experimental in
character.
Pfaff, 525 U.S. at 67 (emphasis added).
The phrase “commercial offer for sale,” without
more, does not suggest that only a legally binding offer
for sale under contract law will trigger the on-sale bar.
Rather, it requires only that the product be available
for sale. The Court’s elaboration of the point in the
remainder of the paragraph vividly illustrates the
Federal Circuit’s mistake. The Court twice equates
“commercial offer for sale” with “first commercial
marketing.” it also states repeatedly in other parts of
the opinion that any pre-critical date efforts by
inventors to exploit their inventions for profit will
trigger the on-sale bar. Consequently, the Court’s use
of the phrase “commercial offer for sale” does not imply
that it intended to create a new, narrow, and
formalistic test under contract law for whether
something was “on sale” for the purposes of patent law.
As the Special Master noted in his Additional
Considerations, which the District Court explicitly
adopted, the phrase “commercial offer for sale” comes
after a discussion of the experimental use doctrine.
Under this exception to Section102(b), transactions or
17
uses involving an invention that are in furtherance of
a bona fide effort to perfect the invention do not trigger
the on-sale bar. (App. 117a.) Thus, the Court’s use of
this phrase was merely to maintain the distinction
between activities that are primarily for experimental
purposes and activities that are for commercial
purposes. (App. 116a-17a.) Nothing in Pfaff supports,
let alone commands, the Federal Circuit’s legally
binding commercial offer for sale test set forth in
Group One.
2. The Group One Test Undermines the
Primary Policy Consideration Behind the
On-Sale Bar of Preventing Inventors from
Extending the Statutory Patent Term
The Court should grant the petition because the
Group One test is inconsistent with the policy
considerations underlying the on-sale bar as
articulated in Pfaff and other cases reaching back
more than 100 years. The Court notes in Pfaff that the
purpose of Section 102(b) is to both exclude from
patenting things that are already in the public domain
and to confine the duration of the patentee’s
government-granted monopoly to the statutory term.
Id. at 64. The patent system represents “a carefully
crafted bargain that encourages both creation and the
public disclosure of new and useful advances in
technology, in return for an exclusive monopoly for a
limited period of time.” Pfaff, 525 U.S. at 63 (emphasis
added). Quoting a case decided in 1877, the Court
reiterated that any attempt by an inventor to
commercialize his invention prior to the critical date
will invalidate the patent. Jd. at 65 (quoting Elizabeth
v. American Nicholson Pavement Co., 97 U.S. 126, 137
(1877)):
18
It is sometimes said that an inventor acquires
an undue advantage over the public by delaying
to take out a patent, inasmuch as he thereby
preserves the monopoly to himself for a longer
period than is allowed by the policy of the law;
but this cannot be said with justice when the
delay is occasioned by a bona fide effort to bring
his invention to perfection, or to ascertain
whether it will answer the purpose intended.
His monopoly only continues for the allotted
period, in any event; and it 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
profit, and not by way of experiment, for a longer
period than two years before the application,
would deprive the inventor of his right to a
patent.
Id. at 64-65 (quoting Elizabeth, 97 U.S. at 137 (1877))
(emphasis added).
The Federal Circuit has drawn an artificial line
between (a) commercial marketing, advertising, and
other pre-contracting promotional activity that is
clearly intended to exploit inventions for profit and
(b) offers for sale that are definite enough to allow the
offeree to form a contract by mere acceptance. This
unwarranted distinction flies in the face of this Court’s
reiteration in Pfaff of the principle that any attempt to
use an invention (that is ready for patenting) for profit
triggers the on-sale bar. Id.
This Court’s intervention is necessary because the
Group One court’s misinterpretation of Section 102(b)
allows inventors to commercially market their
19
products for years without triggering the on-sale bar,
thereby extending the statutory monopoly term. Even
under the most innocent circumstances, the Group One
test delays commencement of the one-year grace period
until the point where an inventor enters into formal
contract negotiations with a particular customer. This
removes from the one-year grace period the time an
inventor may spend promoting his ready-for-patenting
invention to potential customers, touting the
invention’s advantages, and bringing potential
customers to the point where at least one of them is
ready to negotiate a purchase. This phase of
promotional activity is no less an attempt by an
inventor to exploit his invention for profit than the
following phase in which a contract is negotiated and
concluded. Thus, under the Group One test, an
inventor is free to commercially market his invention
for as long as it takes to find a potential buyer willing
to negotiate for the purchase of the invention.
Depending on, among other things, the nature, value,
cost, and complexity of the invention, this could last
for years — as it did in this case.
This case is a paradigmatic example of monopoly
extension resulting from application of the Group One
standard. The unchallenged findings of fact by the
Special Master after the 2000 bench trial establish
that Lacks embarked on a thorough and extensive
marketing campaign to commercialize the ready-for-
patenting invention of the Remaining Claims that
commenced more than two years before the June 6,
1994 critical date. (App. 259a.) Lacks’ pre-critical date
promotional activities that the Special Master found
Lacks had undertaken to commercialize the ready-for-
patenting invention of the Remaining Claims included
execution of confidentiality agreements with General
20
Motors Truck & Bus Division and with three different
wheel manufacturers. (App. 262a-63a.) Additionally,
between August 31, 1992 and June 2, 1994 — the 21
months preceding the critical date — one of Lacks’
independent sales representative had at least fifteen
(15) meetings with representatives of Ford Motor
Company (“Ford”) to persuade Ford to purchase wheels
made with the method of the Remaining Claims. (App.
263a-64a.) In June 1993, Lacks staged two
promotional “Technology Updates” — one for Chrysler
representatives and one for Ford — to show off its new
technologies. At both shows, Lacks displayed sample
cladded wheels that would, if purchased by an OEM,
be manufactured using the method of the Remaining
Claims. (App. 265a.) Additionally, Lacks sales
representatives also had several meetings Accuride, a
wheel manufacturer, to promote its new technology.
(App. 265a-66a.)
Not surprisingly, based on this and other evidence,
the Special Master found that:
The record abundantly establishes a thorough
and extensive campaign by Lacks to exploit
competitively, to use for profit and _ to
commercialize the ready-for-patenting method,
commencing two years before the June 6, 1994
critical date. After the May, 1992 ready-for-
patenting date, Lacks made pre-critical date
commercialization efforts with both wheel
manufacturers and OEMs. Lacks’ widely
promoted the use of a specific composite wheel
assembly technique, namely, the assembly
technique of its later-granted method claims, to
make wheels for any and all future vehicle
models. Its sales and solicitations took the form
21
of demonstrations of physical samples of
prototypes made in accordance with the
asserted method claims, and repeated sales
contacts with the same potential customers to
highlight the advantages of the resulting
products. (App. 259a-60a (emphasis in
original).)
Notwithstanding that Lacks had been actively
promoting ard seeking to profit from the invention of
the Remaining Claims for two years before the critical
date, the Federal Circuit reversed because the Special
Master had applied the RCA Corp. commercialization
standard. (App. 141a-45a.) The court remanded so that
the evidence could be reviewed under the new Group
One standard to see if any of Lacks’ pre-critical date
activities rose to the level of a binding commercial offer
for sale. (App. 145a.) Thus, application of the Group
One standard potentially gave Lacks as much as two
extra years before the critical date in which to
commercially exploit its invention — yet without
triggering the on-sale bar.
This case is not isolated. In Linear, after a bench
trial, the district court found that the plaintiff had
undertaken extensive pre-critical date promotional
activities, including distributing data sheets detailing
the new product, distributing newsletters, and
promoting the product at trade shows. Linear, 275
F.3d at 1046. These efforts had resulted in orders for
the product from several customers. Id. at 1047. The
Federal Circuit acknowledged that these activities
would have triggered the on-sale bar under the RCA
Corp. standard. Jd. at 1049. Nevertheless, it reversed
the trial court’s invalidity ruling because none of the
22
activities rose to the level of a binding offer to sell
under the Group One test. Id. at 1051.
The evidence developed after remand in this case
regarding sales practices in the automotive industry
shows that product development, safety testing, and
product validation — all of which occur after an OEM
has decided to use a new product — typically take more
than two years to complete. (App. 68a.) The record
demonstrates that under the OEMs’ standard
contracting procedures, the first document in these
long-term relationships that uses formal contractual
offer language comes at the end of the product
development period, not the beginning — and is styled
as an offer to buy from the OEM, not an offer to sell
from the patentee. (App. 59a, 65a, 67a-69a.)
Group One’s formalistic contract law standard is
easily manipulated. Inventors can aggressively
commercialize their inventions while delaying the
start of the one-year grace period by omitting from
documents shared with potential customers key
contractual terms necessary to show a binding offer for
sale. Indeed, they can accomplish the same end by
reciting that a particular document is not intended to
be a binding offer and that the inventor will not be
bound without a fully-executed agreement. (App.
118a.) “Such calculated maneuvers could potentially
avoid the otherwise potentially binding effect of their
offer, and enable them to freely prolong their pre-filing
commercial exploitation without jeopardy to their
patent rights.” (App. 118a.)
Nothing in Section 102(b), Pfaff, or any other
precedent prior to Group One, suggests that Congress
intended to allow inventors more than one year to
23
commercially market their inventions without
triggering the on-sale bar. To the contrary, and as the
result in this case demonstrates, the Group One test
contravenes the policy considerations clearly stated in
Pfaff and the other cases discussed above.
3. The Group One Test Results in a Lack of
Clarity and Certainty for Inventors and for
Courts, as well as a Lack of Uniformity
Among Industries
The Group One test also undermines the interest 1n
providing inventors with “a definite standard for
determining when a patent application must be filed.”
Pfaff, 525 U.S. at 65. Contrary to the Federal Circuit’s
view, questions of whether a party has made a binding
offer, which party made an offer, or what the terms of
a particular offer are, cannot be answered by the
application of a bright iine rule of law. When it first set
forth the new test, the Federal Circuit advised that as
a general proposition, it would look to the Uniform
Commercial Code (“UCC”) for guidance on the issue.
Group One, 254 F.3d at 1047. As the Federal Circuit
was quickly forced to acknowledge, however, the UCC
does not define “offer.” Linear, 275 F.3d at 1050. Thus,
the Federal Circuit’s bright-line test quickly dissolved,
and it stated that henceforth it would “look to the
common law to guide {its} inquiry.” Id. It set forth the
following guidelines for determining whether a
commercial offer for sale had been made:
An offer is the manifestation of willingness to
enter into a bargain, so made as to justify
another person in understanding that his assent
to that bargain is invited and will conclude it.
Restatement of Contracts (Second) § 24 (1981));
24
accord Richard A. Lord, Williston on Contracts
§ 4:13, at 367 (4° ed. 1990) (explaining that “in
order for an offer to exist, it must constitute a
manifestation communicated to the offeree so as
to justify his understanding that by assenting a
bargain will be concluded”).
Id.
This adds nothing in terms of clarity or certainty.
The UCC recognizes that “[a]n agreement sufficient to
constitute a contract of sale may be found even though
the moment of its making is uncertain.” UCC §2-
204(2). There are also “many cases at common law, not
governed by the Uniform Commercial Code, where it
is clear that a contract has been formed, but the
process of offer and acceptance—if there was
one—cannot be reconstructed.” CORBIN ON CONTRACTS
§1.12, P.33, Revised Edition West Pub. 1993 (emphasis
added).
That fact that a contract can be made, even though
the offer remains unidentifiable, highlights a serious
defect in the Group One test. Situations will arise
where an inventor and a purchaser have made a
contract for the purchase of a new product, but the
date of the offer for sale — if there was one — cannot be
reconstructed from the evidence. In such
circumstances, the Group One test utterly collapses.
The Group One test also undermines the interest of
having national uniformity in the application of patent
law, which the Federal Circuit hoped to promote. See
Group One, 254 F.3d at 1047 (noting the importance of
having a uniform national rule regarding the on-sale
bar). The post-remand discovery in this case is filled
25
with evidence regarding intricacies of contract
formation that are peculiar to the automotive industry.
(App. 52a-69a.) Both remands by the Federal Circuit
in this case recognize that industry custom and
practice inevitably influence how industry participants
perceive communications, and thus impact whether a
communication can reasonably be perceived as a
binding offer for sale. Presumably, many other
industries also have their own unique modes of
communication and their own idiosyncratic standards
and customs regarding contract formation. In such
industries, application of the Group One test will
require litigants and courts to delve deeply into these
peculiarities every time the on-sale bar is an issue.
This is neither likely to create a definitive body of law
that is easy for the courts to apply, nor is it likely to
give clear guidance to inventors hoping to understand
when they must file their patent applications.
CONCLUSION
For the reasons stated above, the petition for a writ
of certiorari should be granted.
Respectfully submitted,
Barris, Sott, Denn & Driker, P.L.L.C.
By: Stephen E. Glazek, Esq. (P23186)
Counsel of Record
Josh J. Moss, Esq. (P64406)
211 West Fort Street, 15th Floor
Detroit, Michigan 48226
(313) 965-9725
Attorneys for Petitioner Hayes
Lemmerz International, Inc.
26
MacMILLAN, SOBANSKI & TODD, L.L.C.
By: Mark Sobanski
720 Water St., 5" Floor
Toledo, OH 43604
(419) 255-5900
Co-Counsel for Petitioner Hayes
Lemmerz International, Inc.
BUTZEL LONG
By: J. Michael Huget (P39150)
John C. Blattner (P52745)
350 S. Main, Ste. 300
Ann Arbor, MI 48104
(734) 995-3110
Attorneys for Petitioner McKechnie
Vehicle Components USA, Inc.
APPENDIX
la
APPENDIX A
NOTE: This disposition is nonprecedential.
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
No. 2008-1167
[Filed November 21, 2008] |
LACKS INDUSTRIES, INC.,
Plaintiff-Appellant,
be
MCKECHNIE VEHICLE COMPONENTS
USA, INC. (doing business as Thompson
International),
Defendant-Appellee,
and
HAYES WHEEL INTERNATIONAL, INC.,
Defendant-Appellee.
Before MICHEL, Chiet Judge, CLEVENGER and
MOORE, Circuit Judges.
2a
MICHEL, Chief Judge.
Plaintiff-Appellant Lacks Industries, Inc. (“Lacks”)
appeals from the grant of summary judgment of
invalidity in favor of Defendants-Appellees McKechnie
Vehicle Components USA, Inc. and Hayes Wheel
International, Inc. (collectively, “Defendants”), and the
denial of Lacks’ motion for summary judgment on
validity. See Order, Lacks Indus., Inc. v. McKechnie
Vehicle Components USA, Inc., No. 96-75692
(E.D.Mich. Nov. 20, 2007) (“Summary Judgment
Order”). The district court held that claims 11-13,
20-22, and 24-25 (“the Remaining Claims”) of United
States Patent No. 5,597,213 (“the ‘213 patent”) were
invalid under 35 U.S.C. § 102(b) due to Lacks’ alleged
pre-critical date on-sale activities. We heard oral
argument on November 6, 2008. We affirm the district
court’s denial of Lacks’ motion for summary judgment
as we find no abuse of discretion. However, because we
conclude that there remain genuine issues of material
facts, the district court’s grant of Defendants’ motion
for summary judgment is reversed, and the case is
remanded.
I. BACKGROUND
Lacks commenced a multi-patent infringement
action against Defendants in the United States
District Court for the Eastern District of Michigan on
December 18, 1996. In this appeal, the only patent left
is the ‘213 patent. The claims at issue, the Remaining
Claims, all relate to methods for assembling an overlay
to a wheel.
This is our second review of the protracted
litigation. In the first round, a special master found
3a
after a bench trial that Defendants infringed the
Remaining Claims but that the same claims were
invalid under § 102(b) as a result of Lacks’ pre-critical
date commercial activities. The Special Master found
that none of Lacks’ activities was a commercial offer
for sale as defined by contract law. However, he
concluded that under the totality of the circumstances,
there was a definite offer. The district court adopted
the Special Master’s findings and conclusions.
On appeal and cross-appeal to this court, we
affirmed the finding of infringement but vacated the
invalidity decision. Lacks Indus., Inc. v. McKechnie
Vehicle Components USA, Inc., 322 F.3d 1335 (Fed.
Cir. 2003). We concluded that the Special Master erred
by applying an outdated legal standard that was
superseded by Group One, Ltd. v. Hallmark Cards, 254
F.3d 1041, 1048 (Fed. Cir. 2001), a decision handed
down after the Special Master issued his findings and
conclusions. Lacks Indus., 322 F.3d at 1347. We
remanded the case with the instruction that “the
district court (or Special Master) should resolve
whether or not it needs to take additional evidence on
sales practice in the automotive industry to determine
if the sales promotion activities by Lacks rise to a
contractual offer for sale (and, of course, take such
evidence if necessary).” Id. at 1351.
On remand, the Special Master determined that
additional evidence regarding sales practice in the
automotive industry was indeed warranted and that
further discovery was also warranted to explore “what
subsequently occurred in ... [Lacks’] sales promotional
activities that [were] already of record.” After
extensive discovery, the parties filed cross-motions for
summary judgment on the issue of whether the
4a
Remaining Claims were invalid under § 102(b) because
of Lacks’ alleged on-sale activities. The Special Master
found that five pre-critical date documents constituted
commercial offers for sale, as defined in Group One.
The district court adopted the Special Master’s Report
and Recommendation in its entirety, denied Lacks’
motion for summary judgment on validity, and entered
summary judgment of invalidity in favor of
Defendants.
Lacks timely appealed. We have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(1).
II. DISCUSSION
A. Standard of Review
We review a district court’s grant of summary
judgment de novo. Ethicon EndoSurgery, Inc. v. U.S.
Surgical Corp., 149 F.3d 1309, 1315 (Fed. Cir. 1998).
By contrast, we give considerable deference to the trial
court, and “will not disturb a trial court’s denial of
summary judgment unless we find that the court has
indeed abused its discretion.” Little Six, Inc. v. United
States, 280 F.3d 1371, 1373 (Fed. Cir. 2002) (citation
and quotation omitted).
Summary judgment is appropriate when no
genuine issue as to any material fact has been shown
by the non-movant’s evidence and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P.
56(c). Thus, summary judgment may be granted when
no “reasonable jury could return a verdict for the
nonmoving party.” Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986). In deciding whether
summary judgment is appropriate, we view the
5a
evidence in a light most favorable to the opposing
party and resolve doubts in its favor. Ethicon, 149 F.3d
at 1315. This means all reasonable inferences must be
drawn in the non-movant’s favor. At the same time, “in
ruling on a motion for summary judgment, the judge
must view the evidence presented through the prism
of the substantive evidentiary burden.” Anderson, 477
U.S. at 254.
B. Analysis
The district court adopted the Special Master’s
findings and conclusions that five documents
constituted pre-critical date commercial offers for sale
under § 102(b) and that, all of the Remaining Claims
were invalid. The parties dispute: (1) whether any of
the documents rises to the level of a commercial offer
under the Group One standard; (2) whether some of
the documents were communicated to the alleged
offerees prior to the critical date; and (3) whether the
subject matter of any of the alleged offers correlates to
the methods of the Remaining Claims.
To prevail on an on-sale bar defense, an accused
infringer must demonstrate by clear and convincing
evidence that there was a definite sale or offer for sale
of the claimed invention prior to the critical date.
Linear Tech. Corp. v. Micrel, Inc., 275 F.3d 1040, 1047
(Fed. Cir. 2001) (citation and quotation marks
omitted). “Only an offer which rises to the level of a
commercial offer for sale, one which the other party
could make into a binding contract by simple
acceptance (assuming consideration), constitutes an
offer for sale under § 102(b).” Group One, 254 F.3d at
1048. In addition, to satisfy the on-sale bar, the subject
matter of the sale or offer for sale must satisfy each
6a
limitation of the claim, though it may do so inherently.
Scaltech, Inc. v. Retec/Tetra, L.L.C., 269 F.3d 1321,
1329 (Fed. Cir. 2001). Inherency, however, may not be
established merely by probabilities or possibilities. Id.
1. The Correlation Between the Alleged Offers and
the Methods of the Remaining Claims
Lacks argues that the five documents cannot
invalidate the Remaining Claims under the on-sale bar
because they “do not unambiguously require practice
of any of the methods of the Remaining Claims.” The
Special Master rejected Lacks’ argument on three
grounds: the law of the case, waiver, and the absence
of affirmative evidence. We address each in turn.
First, the Special Master noted that in the prior
round of litigation, he had found that.“the assembly
method that Lacks was offering to perform
coincided with the subject matter of the Remaining
Claims.” Acknowledging that we vacated and
remanded the invalidity ruling, the Special Master
nevertheless explained that “[nJothing is described as
vacated except the ‘finding of invalidity.” He stated
that his “earlier reliance on a later superseded legal
standard to reach the ultimate conclusion of invalidity
did not taint the underlying findings concerning such
issues as ... the correlation between the assembly
method that Lacks was attempting to commercialize
and the method covered by the Remaining Claims.”
Therefore, the Special Master concluded that his
factual conclusions on the correlation issue “survived
the Federal Circuit’s decision and are part of the
mandate” and “constitute the law of the case.” We
disagree.
7a
The doctrine of law of the case generally bars
retrial of issues that were previously resolved on
appeal, assuming one was taken. Intergraph Corp. \v.
Intel Corp., 253 F.3d 695, 697 (Fed. Cir. 2001). Issues
not decided by the reviewing court in a prior
proceeding are not covered by the law of the case
doctrine. E-Pass Techs., Inc. v. 3Com Corp., 473 F.3d
1213, 1218 (Fed. Cir. 2007) (citation and quotation
omitted). In addition, courts may depart from the law
of the case under certain circumstances, including the
discovery of new and different material evidence that
was not presented in the prior litigation, or an
intervening change of controlling legal authority, or
when the prior decision is clearly incorrect and its
preservation would work a manifest injustice. Id. at
698.
In the last appeal, we did not decide the correlation
issue. We first note that the Special Master’s findings
on correlation in the first round of litigation is
insufficient as it includes only general conclusions, and
no claim-by-claim and_ limitation-by-limitation
analysis, as we show later in this opinion. More
importantly, the five documents now at issue were not
even part of the record then. We faced no factual
findings by the Special Master on the correlation issue
regarding these newly-discovered documents. Thus, we
could not have affirmed, explicitly or implicitly, any
factual finding not in existence at the time of the last
appeal. The five specific documents were only
discovered post-remand and then’ used for
determination of the commercial offer for sale under
the new Group One standard. They are substantially
different from the evidence gathered and adjudicated
under the prior, totality-of-cireumstances standard.
8a
Therefore, law of the case does not settle the
correlation issue.
Similarly, in the last appeal, Lacks could not have
challenged the correlation issue regarding these
specific documents because they were not a part of the
record. Accordingly, Lacks did not waive its
no-correlation argument with respect to these five
documents.
Lastly, the Special Master faulted Lacks for “not
com(ing] forward with any affirmative evidence that
the offered assembly method was other than the
patented method.” Here again, the Special Master
erred. As we have previously stated, “lal nonmovant
need not always provide affidavits or other evidence to
defeat a summary judgment motion. If, for example,
the movant bears the burden and its motion fails to
_ satisfy that burden, the non-movant is not required to
come forward with opposing evidence.” Zenith Elecs.
Corp. v. PDI Comme’n Sys., 522 F.3d 1348, 1363 (Fed.
Cir. 2008).
In this case, Defendants, having the ultimate
burden of proving invalidity by clear and convincing
evidence, also have the initial burden of going forward
with evidence to support their allegation that there is
at ieast one such offer for sale that corresponds to the
methods of Remaining Claims. On appeal, Defendants
point to their Reply Briefin support of their motion for
summary judgment. They argue that “the record
includes a veritable mountain of case-by-case evidence
that the process offered by Lacks in each of the Five
Offers did indeed correspond to the invention of the
Remaining Claims.” They assert that “[t]his evidence
Ya
constitutes a powerful prima facie showing” on the
correlation issue.
However, the portion of the Reply Brief that
Defendants cite contains only vague, general
statements. We discern neither claim-by-claim nor
limitation-by-limitation analysis of whether the
subject matter of any of the five alleged offers
corresponds to the methods of any of the Remaining
Claims.’ For example, Defendants assert that during
the pre-critical date period, “Lacks focused exclusively
on the invention of the Remaining Claims as the
means for attaching a ‘closely-conforming’ cladding to
a wheel.” We first observe that during the same time
period, Lacks filed several other patent applications
covering different methods for assembling an overlay
to a wheel. Indeed, the ‘213 patent itself includes
several other assembly methods. Such objective
evidence appears to be in direct contradiction with
Defendants’ assertion. At the very least, under the
appropriate legal standard for summary judgment,
when the evidence is viewed in a light most favorable
to Lacks, we cannot conclude that the subject matter
of any document satisfies each and every claim
limitation of any of the Remaining Claims. See
Scaltech, 269 F.3d at 1329.
' Under the patent statute, the validity of each claim must be
considered separately. See 35 U.S.C. § 282 (“Each claim of a
patent (whether in independent, dependent, or multiple
dependent form) shall be presumed valid independently of the
validity of other claims... .”). The district court, in adopting the
Special Master’s findings, erred in only considering a single claim
in the analysis.
10a
Because Defendants did not meet their initial
burden to support their allegation “that the process
offered by Lacks in each of the Five Offers did indeed
correspond to the invention of the Remaining Claims,”
the district court erred in adopting the Special
Master’s findings on the correlation issue and in
granting summary judgment of invalidity in
Defendants’ favor.
2. The Pre-Critical Date Offers for Sale
With respect to the pre-critical date offers, we hold
that genuine issues of material fact exist as to whether
any of the five documents in dispute rises to the level
of a commercial offer or whether some of the alleged
offerers were communicated to the offerees prior to the
critical date. Therefore, the grant of summary
judgment of invalidity in Defendants’ favor was
inappropriate for this reason as well.
For example, the Special Master concluded that “in
accordance with the course of dealing and usage of
trade in the automobile industry,” all five documents
satisfied the Group One test for a commercial offer. It
is true that when we remanded the case, we instructed
that the district court should consider the sales
practice in the automobile industry to determine if any
of Lacks’ documents of its sales activities rises to a
contractual offer for sale. Lacks Indus., 322 F.3d at
1351. On remand, Defendants’ experts submitted that
in the automobile industry, an OEM, such as Chrysler,
would often accept a supplier’s initial quote, such as a
SCORE proposal, subject to possible future revision.
However, Lacks’ witnesses testified that the purpose
of submitting a SCORE proposal! was “first to garnish
lif Chrysler is] even interested and then [if the
lla
proposal is] even valid... .” When viewing this record
in a light most favorable to Lacks and resolving doubts
in favor of Lacks, we cannot conclude that Defendants
have established an automobile industry practice by
clear and convincing evidence such that a reasonable
fact-finder could not decide in Lacks’ favor.
Similarly, one alleged offeree testified that there
was no reason for him to think that he received a
Lacks’ internal memorandum, an alleged offer, after
the critical date. However, he also stated that because
it had been so many years, his memory was very
vague.” Another alleged offeree testified that he did
not believe that another Lacks’ internal memorandum,
also an alleged offer, was ever given to him by Lacks.
We conclude, based on such evidence, especially when
viewed in a light most favorable to Lacks, that there
are genuine issues as to material facts regarding if and
when the documents at issue were communicated to
the alleged offerees. Because a reasonable fact finder
could find that there is no clear and convincing
evidence that these documents were communicated to
* At oral argument, our attention was brought to the witness’s
testimony stating that “there’s no reason for me to think it was
after [the critical date,} 1 guess. I guess that’s awful[ly] vague. It’s
been so many years.” When asked whether he considered this to
be clear and convincing evidence, Defendants’ counsel answered
“Yes!” We are aware of counsel’s zealousness in representing the
clients. We are also mindful that this litigation has been drawn
out for much too long. Still, we are hardpressed to equate
“awful[ly) vague” speculation to clear and convincing evidence. It
is our opinion that, an effective advocate would better serve the
clients’ interests, and become a more trustworthy officer of the
court, by using sound judgment to deal with less favorable facts,
not by asserting questionable statements, even when under
pressure.
12a
the alleged offeree prior to the critical date and
therefore, could return a verdict for Lacks, summary
judgment of invalidity in favor of Defendants is
inappropriate.
Lacks asserts that the district court incorrectly
denied its motion for summary judgment on validity.
However, the trial court has discretion to deny a
motion for summary judgment. Lacks does not argue,
and we do not find, any abuse of discretion. Therefore,
the district court’s denial of Lacks’ motion for
summary judgment is affirmed.
III.
In sum, we affirm in part, reverse in part, and
remand. We affirm the district court’s denial of motion
for summary judgment to Lacks on validity. We
reverse and remand the district court’s grant to
Defendants summary judgment of invalidity. On
remand, the district court should decide whether
Defendants’ can establish by clear and convincing
evidence: (1) that any of the five documents at issue
rises to the level of a commercial offer for sale under
the Group One standard; (2) if so, that the same
document was communicated to an offeree prior to the
critical date; and (3) that the subject matter of the
document satisfies each and every claim limitation of
any of the Remaining Claims. We assume that the
district court (or the Special Master) will apply the
correct legal standard in the further proceedings
consistent with this opinion. If it does not find the
Remaining Claims invalid, the court must then
determine the extent of the damages Lacks suffered as
a result of the infringement of the Remaining Claims
by Defendants.
l3a
APPENDIX B
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
No. 96-75692
[Filed November 20, 2007]
LACKS INDUSTRIES, INC., a Michigan
Corporation,
Plaintiff,
-vVS-
McKECHNIE VEHICLE COMPONENTS
USA, Inc., dba THOMPSON INTERNATIONAL,
a Delaware Corporation, and HAYES
WHEEL INTERNATIONAL, INC., a Delaware
Corporation,
Defendants
el ll
Hon. John Feikens
Richard D. Grauer, Special Master
l4a
ORDER ON CROSS-MOTIONS
FOR SUMMARY JUDGMENT
Before the Court are the parties’ cross-motions for
summary judgment on the dispositive issue of whether
the Remaining Claims (claims 11-13, 20-22 and 24-25)
of U.S. Patent No. 5,597,213 are invalid under 35
U.S.C.§102(b) because of alleged on-sale activities of
Plaintiff Lacks Industries, Inc.
Pursuant to a series of Orders of Appointment,
including this Court’s Second Amended Order of
Appointment of Special Master, dated December 13,
2006, these motions were referred to Special Master
Richard D. Grauer. The Master's Report and
Recommendation, dated August 15, 2007,
recommended that Defendants’ motion for summary
judgment of invalidity of the Remaining Claims be
granted, and that Plaintiffs motion for summary
judgment that the Remaining Claims are valid and
intringed be denied. Plaintiff filed its written
Objections to the Report and Recommendation, and
Defendants subsequently filed their Joint Response to
such Objections.
The Court has considered the Report and
Recommendation, as well as Plaintiffs Objections and
Defendants’ Joint Response. Paragraph 8 of the Second
Amended Order of Appointment directed that the
Special Master’s findings of fact will be final, as
permitted by Rule 53(g)(3)B), Fed. R. Civ. P. The
parties did not object to that procedure. Upon due
consideration, the Court adopts the findings of fact
contained within the August 15, 2007 Report and
Recommendation.
15a
Aided by Plaintiffs Objections and Defendants’
Joint Response, and as required by Rule 53(g)(4), the
Court has considered de novo the Special Master’s
recommended conclusions of law. The Court finds
Plaintiffs objections thereto to be without merit, and
therefore adopts those recommended conclusions of
law.
The Court has also noted the Master’s “Additional
Considerations” (pp. 78-83 of the Report and
Recommendation), and_ specifically endorses the
analysis and conclusions presented therein.
Accordingly, THE COURT HEREBY ADOPTS the
Special Master’s Report and Recommendation of
August 15, 2007, and ITIS HEREBY ORDERED that:
1. Defendants’ Joint Motion for Summary
Judgment that the Remaining Claims U.S. Patent No.
5,597,213 are invalid is GRANTED; and
2. Plaintiffs Motion for Summary Judgment that
such claims are valid and infringed by Defendants is
DENIED.
s/John Feikens
John Feikens
United States District Judge
Dated: 11/20/2007
16a
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
No. 96-75692
[Filed November 20, 2007]
LACKS INDUSTRIES, INC., a Michigan
Corporation,
Plaintiff,
-VS-
McKECHNIE VEHICLE COMPONENTS
USA, Inc., dba THOMPSON INTERNATIONAL,
a Delaware Corporation, and HAYES
WHEEL INTERNATIONAL, INC., a Delaware
Corporation,
Defendants
Ne eee ee Se”
Hon. John Feikens
Richard D. Grauer, Special Master
FINAL JUDGMENT
The Special Master’s Report and Recommendation
of August 15, 2007 in the above-captioned matter
having been considered by the Court, along with
Plaintiffs Objections and Defendants’ Joint Response,
and the Court having adopted the Report and
Recommendation and granted Defendants’ Joint
17a
Motion for Summary Judgment by a separate Order of
this date:
IT IS HEREBY ORDERED, ADJUDGED AND
DECREED that:
1. Final judgment is entered in favor of
Defendants on all of Plaintiff's claims, and Plaintiffs
claims are dismissed with prejudice;
2. The Remaining Claims (claims 11-13, 20-22 and
24-25) of U.S. Patent No. 5,597,213 are invalid under
35 U.S.C.§102(b); and
3. Costs shall be allowed to Defendants and taxed
against Plaintiff.
s/John Feikens
John Feikens
United States District Judge
Dated: 11/20/2007
18a
APPENDIX C
IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
No. 96-75692
[Filed August 15, 2007]
LACKS INDUSTRIES, INC.,
Plaintiff,
Ve
McKECHNIE VEHICLE COMPONENTS
USA, INC., d/b/a THOMPSON INTERNATIONAL;
HAYES WHEEL INTERNATIONAL, INC.; and
HAYES WHEELS INTERNATIONAL-
MICHIGAN, INC.
Defendants
ee ee ee ee ee ee ee ee
Hon. John Feikens
Richard D. Grauer, Special Master
Special Master’s Report And Recommendation
On Cross-Motions For Summary Judgment
Concerning Patent Invalidity Defense
Based On Alleged On-Sale
19a
I. Background
Before the Court are the parties’ cross-motions
concerning the one remaining defense in this patent
infringement lawsuit, namely, whether certain claims
of U.S. Patent No. 5,597,213 (“the ‘213 Patent) are
invalid under 35 U.S.C. §102(b) by virtue of an alleged
on-sale of the claimed invention by patent-owner Lacks
Industries (“Lacks”). Specifically, the invalidity
defense concerns claims 11-13, 20-22 and 24-25 (“the
Remaining Claims”) that remained after an earlier
summary adjudication of the other originally asserted
claims.
An understanding of the several legal and factual
issues addressed here requires familiarity with the
procedural history of this long-pending lawsuit. By
“Stipulation and Order Regarding Appointment of
Special Master,” dated February 15, 2000, the Special
Master was directed to “make all factual findings and
legal conclusions necessary to determine” whether the
method used to assemble Defendants’ accused products
infringed the Remaining Claims of the ‘213 patent, and
whether such claims are invalid under 35
U.S.C.§102(b) because of either Lacks’ own “on sale”
activities or Defendants’ “on sale” or public use
activities more than one year before the filing date of
the ‘213 Patent.
Following a five-day bench trial of the liability
phase in June, 2000, the Special Master found that (1)
Defendants iiad literally infringed all of the Remaining
Claims of the ‘213 Patent; (2) the Remaining Claims
were not invalid as a result of any prior offer for sale
or public use by Defendants; but (3) the Remaining
Claims were invalid as a result of Lacks’ own
20a
pre-critical date “on sale” activities in violation of
Section 102(b). After a hearing on the parties’
respective objections, and amendments by the Special
Master to his original Report and Recommendation
(hereafter, “Amended Liability R & R”), the District
Court adopted the Special Master’s amended findings
and conclusions of April 17, 2001 in their entirety, and
entered judgment against Lacks on April 23, 2001.
On appeal and cross-appeal to the Court of Appeals
for the Federal Circuit, the Court, inter alia, affirmed
the District Court’s finding of literal infringement of
the Remaining Claims of the ‘213 Patent and the
finding that those claims had not been proven invalid
as a result of the pre-critical date public use or on-sale
activities of the Defendants.’ With respect to the
finding that Lacks’ own on-sale activities violated
Section 102(b), the Court concluded that the Special
Master and District Court erred by applying an
outdated legal standard’ that had been superseded by
the Federal Circuit’s later decision in Group One,
Limited v. Hallmark Cards, 254 F.3d 1041, 1048 (Fed.
Cir. 2001). The Federal Circuit's Group One decision,
in turn, was based upon its interpretation of the 1998
U.S. Supreme Court decision in Pfaff v. Wells
' Lacks Industries, Inc. v. McKechnie Vehicle Components USA,
Inc. et al, 322 F.3d 1335, 1351 (Fed. Cir. 2003).
?In RCA Corp. v. Data Gen. Corp., the Court had held that “[t}he
requirement of a definite offer excludes merely indefinite or
nebulous discussion about a possible sale .... [T]he requirement
may be met by a patentee’s commercial activity which does not
rise to the level of a formal ‘offer’ under contract law principles
....” 887 F.2d 1056, 1062 (Fed. Cir. 1989) (emphasis in original).
2la
Electronics, Inc., 525 U.S. 55, which held in pertinent
part:
We conclude, therefore, that the on-sale bar
applies when two conditions are satisfied before
the critical date. First, the product must be the
subject of a commercial offer for sale. An
inventor can both understand and control the
first commercial marketing of his invention. The
experimental use doctrine, for examplc, has not
generated concerns uncertainty should attend a
rule that measures the application of the on--
sale bar of Section 102(b) against the date when
an invention that is ready for patenting is first
marketed commercially... .
Second, the invention must be ready for
patenting. ...
Id. at 67 (emphasis added).
The first condition or prong of Pfaffs two-part test
is the one that the Federal Circuit further defined in
Group One, as follows: “(O|nly an offer which rises to
the level of a commercial offer for sale, one which the
other party could make into a binding contract by
simple acceptance (assuming consideration),
constitutes an offer for sale under §102(b).” 254 F.3d at
1048.
In view of that intervening re-definition of what
constituted an invalidating on sale, the Federal Circuit
vacated the District Court’s conclusion that Lacks’ own
on-sale activities violated Section 102(b) and remanded
this case, as follows:
22a
Finally, we vacate and remand the court’s
adoption of the Special Master’s finding that
claims 11-13, 20-22 and 24-25 of the ‘213 patent
were invalid as a result of Lacks’ pre-critical
date commercial activities because he applied
an outdated lega) standard. On remand, the
district court (or Special Master) should resolve
whether or not it needs to take additional
evidence on sales practice in the automotive
industry to determine if the sales promotion
activities by Lacks rise to a contractual offer for
sale (and, of course, take such evidence if
necessary).
322 F.3d 1335, 1351 (emphasis added).
Also pertinent to the scope of the Mandate are the
following additional comments by the Federal Circuit:
According to the defendants, Lacks’ activities
amounted to a contractual offer for sale because
‘that is how business is done in the automotive
industry.’ We, however, cannot so conclude as a
matter of law on the record before us. Although
it contains some evidence about how sales are
made in the automotive industry, we cannot tell
what the fact-finder would have found had he
applied the correct legal standard. In fact, the
only evidence of industry practice defendants
point out to us on appeal is their unsupported
description of their own sales experience with
Ford. As a result, we vacate the Special
Master’s finding of invalidity and remand for
further consideration. On remand, the district
court (or Special Master) may need to take
additional evidence on the practice in the
23a
industry to determine if the activities by Lacks
rise to an offer for sale under the UCC. It may
also be possible to make new fact-findings based
on the existing record. We leave this
determination to the court’s sound discretion.
322 F.3d at 1348 (emphasis added).
With respect to the “ready for patenting” second
prong of Pfaff, the District Court had earlier found
that the invention of the Remaining Claims was ready
for patenting in May, 1992. 55 F. Supp. 2d 702, 734
(E.D. Mich. 1999). Additional evidence and findings in
the Special Master’s Amended Liability R & R were
consistent with that finding. The parties now dispute
whether the earlier rulings concerning the second
prong, as well as those still relevant to the first prong
of Pfaff, are governed by the law of the case. That issue
is addressed in a separate Section IIJ-C below.
II. Discussion
A. Relevant Contract Law Principles
The Federal Circuit’s earlier 2001 Group One
decision stated that the existence of an offer for sale
should be analyzed “under the law of contracts as
generally understood,” and, consistent with the
present mandate, also noted that “[aJs a general
proposition, we will look to the Uniform Commercial
Code (‘UCC’) to define whether, as in this case, a
communication or series of communications rises to
the level of a commercial offer for sale.” 254 F.3d at
1047.
24a
But as the Federal Circuit noted shortly thereafter,
“(t]he UCC does not define ‘offer,’ so we will look to the
common law to guide our inquiry.” Linear Technology
Corp. v. Micrel, Inc., 275 F.3d 1040, 1050 (Fed. Cir.
2001). Further noting that the UCC is a model code
that has been adopted in different versions by the
states, the Court determined that it “will search [the
body of state and federal decisions] for the common
denominator for assistance in crafting the federal
common law of contract that now governs the on-sale
bar.” Id. at 1048. See also, Group One, supra, 254 F.3d
at 1047.
The relevance of the UCC to the present case is also
limited by the fact that it applies to the sale of goods,
not methods or services. The UCC provides that
“(ujnless the context otherwise requires, this Article
[Article 2 — Sales] applies to transactions in goods”
(§2-102, emphasis added). “Goods,” in turn, are defined
in pertinent part as “all things (including specially
manufactured goods) which are movable at the time of
identification to the contract for sale other than the
money in which the price is to be paid, investment
securities (Article 8) and things in action’ (§2-105(1)).
The present issue concerns whether the method of the
Remaining Claims was the subject of a commercial
offer for sale. A method is the performance of a series
of steps, and therefore is in the nature of a service, not
goods. While an offer to sell a product (here, a cladded
wheel) that was assembled in accordance with that
method would be one way to establish an offer to sell
the method, that is not the only way such an offer may
be proven. This question of the necessary elements of
an on-sale of a patented method is further discussed in
Section II-B, infra.
25a
In Group One, the Federal Circuit held that a
qualifying offer under 35 U.S.C.§102(b) is one “which
the other party could make into a binding contract by
simple acceptance (assuming consideration).” 254 F.3d
at 1048. In Linear Technology, the Court quoted from
Restatement (Second) Contracts, §24 (1981), which
defines an offer as “the manifestation of willingness to
enter into a bargain, so made as to justify another
person in understanding that his assent to that
bargain is invited and will conclude it.” 275 F.3d at
1050. However, as stated in §26, also cited by the
Court: “manifestation of willingness to enter into a
bargain is not an offer if the person to whom it is
addressed knows or has reason to know that the
person making it does not intend to conclude the
bargain until he has made a further manifestation of
assent.”
Williston, another noted secondary authority,
states that:
“The only gencral test for determining in any
particular case whether an offer exists is to ask
whether the facts show that some performance
was promised in positive terms in return for
something requested by the person making the
promise, and asking whether the person to
whom the manifestation is made might
reasonably have supposed that by acting in
accordance with it a contract could be
concluded.”
Richard A. Lord, WILLISTON ON CONTRACTS §4.7,
at 296-97 (4'" ed. 1990).
26a
To determine whether a communication is an offer,
Corbin states that the court tries to determine “the
meaning given to the words and actions” by the
speaker and by the person to whom they were
communicated. Joseph M. Perillo, CORBIN ON
CONTRACTS §2.2, at 107 (Rev. ed. 1993). Continuing,
Corbin observes that:
Id.
Fisher-Price, Inc. v. Safety 1, Inc., 2004 U.S. App.
“Factors to consider include the ordinary
meaning of the language; the context of any
prior communications between the parties;
whether the communication was private or to
the general public; any previous course of
dealings between the parties; local usage or
usage of the trade; the relative completeness of
the terms (the more complete, the more likely it
is an offer); the subject matter of the offer; and
whether it is foreseeable that the recipient
would rely upon it.”
at 109-10.
Finally, in 2004, the Federal Circuit noted:
“In sum, whether or not the alleged offer in this
case rose to the level of a commercial offer for
sale is a factual question to be judged in view of
the circumstances surrounding its making,
taking into account such factors as the status of
negotiations, the language of the documents,
the terms of any previous inquiry, and the prior
course of dealings between the parties
lsecondary source citations omitted].”
LEXIS 17110, **10 (emphasis added).
27a
Notwithstanding the Federal Circuit’s direction
that inquiry is to be made into the “circumstances
surrounding {the alleged offer’s] making,” Lacks
accuses Defendants of trying to resurrect the “totality
of circumstances” analysis that was rejected in Group
One and Pfaff. But that very analysis is clearly what
the Federal Circuit has endorsed and directed. The
Federal Circuit’s mandate in the present case directs
the District Court to examine, and possibly take
additional evidence on, the “sales practice in the
automotive industry.” 322 F.3d at 1351. See also, Id. at
1348. Sales practices are comprised of a series of
customary actions and circumstances. Furthermore,
the fact that Pfaff replaced the “totality of
circumstances” on-sale bar analysis with the
two-prong test, requiring (1) a commercial offer for
sale and (2) the invention be ready for patenting, does
not ipso facto prohibit reliance upon those surrounding
circumstances that both judicial and secondary
authorities generally apply to the inquiry required by
the “commercial offer” prong. Lacks errs in conflating
these two distinct uses of the “circumstances”
phraseology. In Group One, Linear, Lacks and
Fisher-Price, the Federal Circuit has defined the
Supreme Court’s “commercial offer of sale” prong in a
way that compels and fully justifies Defendants’
detailed presentation of a circumstance-based analysis
of the issue.
Although the UCC does not directly apply to the
present issue of an on-sale of a method, the
UCC-defined terms, “course of dealing” and “usage of
trade” may still be useful in the mandated inquiry into
“sales practice in the automotive industry.” Under
UCC §1-303(b), a “course of dealing is a sequence of
conduct concerning previous transactions between the
28a
parties to a particular transaction that is fairly to be
regarded as establishing a common basis of
understanding for interpreting their expressions and
other conduct” (emphasis added). Section 1-303(c)
provides in pertinent part that a “usage of trade is any
practice or method of dealing having such regularity of
observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the
transaction in question. The existence and scope of
such a usage must be proved as facts” (emphasis
added)’ Sub-section (d) further states that these terms,
along with “course of performance’ (?.e., conduct under
or after an agreement), “are relevant in ascertaining
the meaning of the parties’ agreement, may give
particular meaning to specific terms of the agreement,
and may supplement or qualify the terms of an
agreement.” Finally, sub-section (e) provides that if it
is not reasonable to construe these concepts consistent
with each other, then express terms (of an agreement)
prevail over course of performance, course of dealing,
and usage of trade; course of performance prevails over
course of dealing and usage of trade; and course of
dealing prevails over usage of trade.
Of these UCC-defined terms, “course of dealing”
and “usage of trade” appear to offer the most guidance
to the present facts and issues.
° These sections were found in Section 1-205 (“course of dealing”
has been slightly amended), as cited by the parties in their
pleadings on the present motion. The amendments appear in text
bearing “Copyright 2004, by The American Law Institute and
National Conference of Commissioners on Uniform State Laws.”
The draft of these revisions was dated December 31, 2001.
29a
Lacks stresses that, both at common law and under
the UCC, course of dealing and usage of trade may be
used to explain ambiguities in an agreement or to add
missing terms, but cannot be used create an
agreement where none previously existed. Defendants
agree. Consistent with the definition of “course of
dealing,” Defendants contend that sales practices in
the automotive industry can be used to establish a
“common basis of understanding for interpreting their
expressions and other conduct,” whereby a particular
communication would reasonably have _ been
interpreted as an offer, consistent with the Restatement
definition cited in Linear Technology. Lacks does not
disagree with that general proposition. Rather, it
contends that Defendants are improperly attempting
to use industry practice, whether in the form of a
course of dealing or usage of trade, to supply the
missing manifestation of intent to make an offer that
the other party could reasonably believe would
conclude the bargain if accepted. As will be discussed
further below, industry practices in the automotive
industry are characterized by a sequence of steps and
relatively informal documentation that precede
issuance of the type of formal documentation and
purchase orders typically found in conventional
commercial transactions in other industries, but yet
may be accepted and treated by industry members as
potentially binding.
The test defined by Group One is whether the offer
in question is one “which the other party could make
into a_ binding contract by simple acceptance
(assuming consideration)” (emphasis added). It is not
*UCC §1-303b, supra.
30a
whether a given offerce would accept the offer. An
offeree might reject an offer form many reasons, é.g.,
unfavorable terms, lack of need for the product or
service, or poor reputation of the offeror or the offered
product or service. Or, as will be shown below in the
case of the automotive industry, the offeree/OEM may
have substantial interest in the offered product or
service, and find the offered terms acceptable, but
nevertheless consider acceptance premature because
of the offeree/OEM’s need to conduct its own approval
testing or further development; or because numerous
revisions in the product design after the OEM has
selected a particular supplier (“sourced” the product)
would otherwise require costly issuance of revised
purchased orders following each part design change; or
because specific purchasing procedures may mandate
that the OEM’s purchase order (generated many
months or even years later) be treated as the formal
“offer.”
Under that course of dealing and usage of trade,
both parties have “a common basis of understanding”
that the initial quotation or offer would not be
accepted until much later, and only then after
formalized procedures and paperwork were completed.
But in the meanwhile, the offeree’s actions (such as
joint development work) may signal (7.e., generate the
“expectation”) that there is a deal. As with any
contract, it may be subject to modification as the
development project proceeds, or even total
cancellation if the OEM cancels the project. But under
contract law, the early offer would have been binding
if it had been accepted.
Nothing in Group One suggests to the Special
Master that inquiry into these offeree/OEM
3la
motivations or restraints is or should be material to
the disposition of an on sale bar issue under the
controlling patent law. Rather, the test appears to be:
would the offer be binding on the offeror/supplier if it
were acceptec by the OEM, not would the offer
conceivably have been accepted at that early point in
the typical pre-production sequence of steps.
B. Commercial Offer of Method Claims
The Remaining Claims are method claims, each
directed to a series of steps for assembling an overlay
or cladding to a wheel. For present purposes, claim 11
of the ‘213 Patent is representative:
11. A method for assembling an overlay to a
wheel having a disk portion and a rim portion
circumscribing said disk portion, said disk and
rim portions defining an outboard surface of
said wheel, said method comprising the steps of:
forming said overlay to have an inboard
surface configured to face said outboard surface
of said wheel upon assembling said overlay to
said wheel, said overlay being configured so as
to form a gap between said inboard and
outboard surfaces upon assembling said overlay
to said wheel;
selectively depositing a curable adhesive on
at least one of said inboard and outboard
surfaces such that said curable adhesive is
between said overlay and said wheel upon
assembling said overlay with said wheel, said
curable adhesive being deposited in an amount
that is insufficient to entirely fill said gap; and
32a
assembling said overlay to said outboard
surface of said wheel with said curable adhesive
so as to form said gap and permanently secure
said overlay to said wheel, at least one void
being present between said overlay and said
outboard surface of said wheel.
The parties disagree on what must be shown to
establish a commercial offer of an invention that is a
method, rather than a physical product.
Lacks relies upon Jn re Kollar, 286 F.3d 1326 (Fed.
Cir. 2002), for the proposition that Defendants must
establish that an offer was made to sell a product in
which the claimed method had actually been practiced
or performed. Defendants dispute that Kollar or any
other authority so holds, contending that all that is
required is that Lacks have made a commercial offer
to perform the steps of the claimed method, without
the further requirement that there was an offer to sell
a fully-assembled composite wheel in which the
claimed method had actually been practiced to make
the assembly.
Kollar does not support Lacks’ position. The facts
there concerned an executed agreement entered for the
purpose of conducting research and development,
providing for the disclosure of technical information
concerning the later-patented process and the grant of
a patent license authorizing the operation of plants
and the sale of products made by such process. /d. at
1330. The agreement contained no indication “that a
product of the claimed process was actually offered for
sale.” Ibid. The USPTO had held that this pre-critical
date agreement constituted a firm offer to sell
embodiments of the claimed process, thus tnggering
33a
the §102(b) bar. The Federal Circuit reversed, holding
that the agreement was merely a license under future
patents, and restating the general rule that “merely
granting a license to an invention, without more, does
not trigger the on-sale bar of §102(b).” Jd. at 1330-31.
More to the point concerning patented processes, the
Court noted that:
We cannot articulate in advance what would
constitute a sale of a process in terms of the
on-sale bar. Surely a sale by the patentee or
licensee of the patent of a product made by the
claimed process would constitute such a sale
because that party is commercializing the
patented process in the same sense as would
occur when the sale of a tangible patented item
takes place. ... Actually performing the process
itself for consideration would similarly trigger
the application of §102(b). See Scaltech, Inc. v.
Retec/Tetra, LLC, 269 F.3d 1321, 1328, 60
USPQ2d 1687, 1691 (Fed. Cir. 2001)(holding
that a claim to a process for treating oil refinery
waste was invalid under §102(b) because the
patentee offered to perform the claimed process
more than one year before filing for a patent).
286 F.3d at 1333 (emphasis added). Significantly, in
vacating the USPTO’s holding that the claimed process
was on sale within the meaning of §102(b), the Court
stated that the USPTO Board, on remand, may inquire
both as to whether there was a pre-critical date offer
“for sale of a product made using that process... [or
an act} that commercially exploits the claimed process
by offering to actually perform _that process to
commercially produce [various compounds]” (citing
34a
Scaltech, supra) (italics in original, underlining
added). 286 F.3d at 1334.
Notably, the Federal Circuit in the cited Scaltech
case further held that “the fact that the process itself
was not offered for sale but only offered to be used by
the patentee to process waste does not take it outside
the on sale bar rule.” 269 F.3d at 1328 (emphasis
added). The particular pertinence of that holding will
become evident in the subsequent analysis of the facts
of the present case.
Unlike the facts in Kollar, the present case does not
involve either the grant of a license, the transfer of
know-how or an offer to transfer such rights.
Furthermore, Lacks’ argument, quoted below, appears
to be based on a failure to distinguish between Kollar’s
discussion of an alleged sale of a patented process (7.e.,
the intangible rights in the executed license
agreement) and the present case’s alleged commercial
offer to perform the patented wheel-cladding process.
Lacks contends:
The Remaining Claims are a method for
assembling a cladded wheel. As such, under
Kollar, because it is a process, it must be
carried out or performed as a result of the
transaction to constitute a sale of the invention
within the meaning of §102(b). Kollar at
1332-33. In other words, until there is an offer
to sell a tangible product upon which the
claimed method was practiced or performed, the
claimed process is not on sale for the purposes
of the §102(b) on-sale bar.
35a
Lacks’ Brief of November 23, 2005, p.19. This
misreading of Kollar seems to be fundamental to
Lacks’ opposition to the on-sale defense. The cited
support in Kollar refers to the executed know-how
transfer and license in that case, which the Court was
treating as_sale of such rights, rather than an “on
sale.” Hence, the Court’s reference to the absence of
actual performance of the patented process:
“Know-how describing what the _ process
consists of and how the process should be
carried out may be sold in the sense that the
buyer acquires knowledge of the process and
obtains the freedom to carry it out pursuant to
the terms of the transaction. However, such a
transaction is not a ‘sale’ of the tnvention within
the meaning of $102(b) because the process has
not been carried out or performed as a result of
the transaction. The same applies to a license to
a patent covering a process. The [USPTO]
Board in this case failed to recognize this
distinction, and therefore erred in concluding
that the license to the process under any future
patents and the accompanying description of
that process, constituted a sale of the subject
matter of those patents, viz., the process.”
286 F.3d at 1332 (emphasis added). Lacks’ apparent
reliance on this particular language is misplaced for
two reasons. First, the statement deals with a mere
license (an intangible property right), not an offer to
physically perform a patented process. Second, its
reference to actual performance of the process was in
the context of a completed sale or transfer of the
know-how and licensed rights, an element of proof not
required here, where the alleged triggering event is a
36a
patent-barring offer to perform the patented process.
See, Scaltech, supra.
Thus, Kollar merely holds that sale of a product
made according to the patented process is sufficient to
trigger the on-sale bar, not that such a sale of the
resulting product is necessary.
Lacks also cites Elan Corp. v. Andrx Pharm., Inc.,
366 F.3d 1336, 1341 (Fed. Cir. 2004) and Minton v.
Nat'l Ass’n of Sec. Dealers, Inc., 336 F.3d 1373 as cases
that “recently followed” Kollar. Neither case supports
Lacks’ position. Elan held that an offer to enter a
license under a patent for future sale of a product
invention is not an offer to sell the patented invention.
Minton held that a lease that actually conveyed a fully
operational computer program embodying the claimed
process was an offer for sale within the meaning of the
on-sale bar. Neither case dealt with the issue of
whether an offer to perform the steps of a claimed
method triggers an on-sale bar under §102(b).
Neither precedent, public policy nor logic suggests
any reason that an offer to perform a
ready-for-patenting process for consideration should be
less sufficient to satisfy §102(b) than an offer to sella
ready-for-patenting product for consideration. In both
cases, the claimed invention is being offered. Scaltech,
Inc., supra, 269 F.3d at 1328.
C. Law of the Case
The Court found that the invention of the
Remaining Claims was ready for patenting in May,
1992. 55 F. Supp. 2d 702, 734 (E.D. Mich. 1999). The
Special Master’s Amended Liability R & R, adopted by
37a
the District Court, noted that the patentee Chase had
admitted that one skilled in the art could practice the
invention from a May 26, 1992 Lacks drawing.
Amended Liability R & R at 61. A Chase-authored
chronology (Trial Exh. 58) stated that Lacks
had“satisfactorily completed all testing” by October,
1993, and “released product to sales and marketing
staff’ in January, 1994 (Amended Liability R & R at
72). Furthermore, Lacks admitted that the invention
of the Remaining Claims was ready for patenting
before the June 6, 1994 critical date. Id. at 61. That
earlier trial record thus established that the second
prong of the Pfaff on-sale test had been proven.
The Amended Liability R & R also made extensive
findings of fact pertinent to the first prong of Pfaff.
Among them were the following findings concerning
Lacks’ pre-critical date efforts to promote customer
interest in and sales of the wheel cladding assembly
method of the Remaining Claims:
Lacks is not a wheel manufacturer.
Presently, Lacks is both a tier one and tier two
supplier. As a tier one supplier, it purchases
wheels from the wheel manufacturer, assembles
the overlay to it and ships the composite wheel
to the OEM. As a tier two supplier, Lacks does
not purchase the wheel but the wheel travels
the same path, with Lacks performing the
assembly steps for the wheel manufacturer.
Therefore, a potential Lacks customer might be
either the tier one wheel manufacturer or the
OEM. In both cases, Lacks would manufacture
the overlays and perform the assembly steps of
the claimed method ....
38a
The record abundantly establishes a
thorough and extensive campaign by Lacks to
exploit competitively, to use for profit and to
commercialize the ready-for-patenting method,
commencing two years before the June 6, 1994
critical date. After the May, 1992 ready-for
patenting date, Lacks made pre-critical date
commercialization efforts with both wheel
manufacturers and OEMs. Lacks widely
promoted the use of a specific composite wheel
assembly technique, namely, the assembly
technique of its later-granted method claims, to
make wheels for any and all future vehicle
models. Its sales solicitations took the form of
demonstrations of physical samples. of
prototypes made in accordance with the
asserted method claims, and repeated sales
contacts with the same potential customers to
highlight the advantages of the resulting
products.
Amended Liability R & R at 71-72 (italics in original;
underlining added).
The Special Master finds that the activities
summarized above were primarily motivated by
Lacks’ desire to commercialize its later-patented
method of assembling overlays to wheels.
Throughout the May, 1992 to June 6, 1994
period, Lacks (1) vigorously solicited wheel
manufacturers to whom Lacks could sell
overlays and on whose wheels Lacks could
perform its overlay-bonding method, and (2) and
vigorously solicited OEMs to specify and
purchase wheels clad by the later-patented
method. The documentary references’ to
39a
“development programs” involved programs to
design and submit specific wheels to OEMs for
their customer acceptance and_ validation
testing. These programs were not the inventor’s
programs of experimentation to perfect the
patented method itself. Well before the critical
date, Lacks’ own test results were sufficiently
conclusive that any remaining interest by Lacks
in having potential customers perform tests was
incidental and far subordinate to its dominant
commercial motivation to persuade the
customers to evaluate the resulting product and
satisfy themselves that it was acceptable for
their purchase and use.
Id. at 77-78 (Gtalics in original; underlining added).
Lacks’ own contemporaneous documentation
and trial testimony, summarized above,
abundantly establish that (1) the assembly
method that Lacks was offering to perform
corresponded precisely with the invention of the
Remaining Claims, and (2) the overlays and
composite wheels that it was offering to sell in
conjunction with a _wheel-manufacturing
partner were to be made by the claimed method.
* * * *
Lacks’ own documents and testimony negate its
attempt to bring its customer contact activity
within the experimental use exception.
Id. at 75-81 (emphasis added).
The parties now dispute whether those earlier
findings, indeed, whether any of the earlier findings of
fact relating to the on-sale defense, survived the
40a
Federal Circuit’s decision vacating the judgment of
invalidity and its remand for further consideration in
the light of the intervening Group One standard and
sales practices in the automotive industry.
Defendants contend that, under the law of the case
doctrine, the following findings concerning previously
litigated issues became the law of the case and
continue to govern the present continuing adjudication
of the on-sale defense: (1) Lacks’ pre critical date
activities were not undertaken merely to gauge market
interest; (2) the invention of the Remaining Claims
had been sufficiently tested to negate any claim of
“experimental use;” and (3) the assembly method that
Lacks was attempting to commercialize to Ford,
Chrysler, Motor Wheel and Accuride during the
1992-94 time period was the method covered by the
Remaining Claims. According to Defendants, Lacks
waived any challenge to those findings because Lacks
failed to contest them on appeal to the Federal Circuit,
and the Federal Circuit implicitly adopted such
findings in its decision and mandate.
To the contrary, Lacks contends that the law of the
case doctrine does not apply here because: (1) the
Federal Circui. did not consider or adopt any of the
on-sale findings of the District Court; (2) the vacating
of the on-sale portion of the judgment by the Federal
Circuit extinguished all underlying findings of fact; (3)
the doctrine does not apply where, as here, there has
been an intervening change in the law or discovery of
new and highly pertinent evidence.”
* During the course of the present remand proceedings, Lacks filed
a motion requesting that the Court reconsider its 1999 summary
4la
Under the law of the case doctrine, “findings made
at one point in the litigation become the law of the case
for subsequent stages of that same litigation.” U.S. v.
City of Detroit, 401 F.3d 448, 452 (6" Cir. 2005),
quoting U.S. v. Moored, 38 F.3d 1419, 1421 (6" Cir.
1994). In Exxon Corp. v. U.S., 931 F.2d 874 (Fed. Cir.
1991), the Federal Circuit summarized the doctrine as
follows:
The law of the case is a judicially created
doctrine, the purposes of which are to prevent
the relitigation of issues that have been decided
and to ensure that trial courts follow the
decisions of appellate courts. The doctrine
requires a court to follow the decision on a
question made previously during the case... .
When a judgment of a trial court has been
appealed, the decision of the appellate court
determines the law of the case, and the trial
court cannot depart from it on remand.
judgment ruling (discussed above) that the invention of the
Remaining Claims was ready for patenting as of May 1992. Lacks
contended that the law of the case doctrine did not preclude the
requested reconsideration because of (1) an alleged intervening
change in the controlling law, and (2) the Court of Appeals for the
Federal Circuit had vacated this Court’s decision invalidating the
Remaining Claims concurrently with the present remand. The
District Court’s Order of February 14, 2007 adopted the Special
Master’s Amended Report and Recommendation on Lacks’ Motion
for Reconsideration of Seven- Year-Old Summary Judgment, dated
December 18, 2006, that recommended denial of that motion.
Much of the following analysis of the applicability of the law ofthe
case doctrine to the present issue concerning the first prong of the
Pfaff test is taken from that December 18, 2006 R & R.
42a
931 F.2d at 877 (quoting from Jamesbury Corp uv.
Litton Indus. Prod. Inc., 839 F.2d 1544, 1550 (Fed. Cir.
1988). The Court also noted that the foregoing
statement about the law of the case doctrine “is
commonly accepted in federal jurisprudence, and
should be considered the law of the Federal Circuit as
well.” Jbid. at n.4. Clearly, the trial court “is without
choice in obeying the mandate of the appellate court,”
In re Roberts, 846 F.2d 1360, 1363 (Fed. Cir. 1988),
and it “must implement both the letter and the spirit
of the mandate, taking into account the appellate
court’s opinion and the circumstances it embraces.”
Brunet v. City of Columbus, 58 F.3d 251, 254 (6 Cir.
1995).
As a general proposition, Lacks appears to be
correct in asserting that “a vacated judgment has no
preclusive force either as a matter of collateral or
direct estoppel or as a matter of the law of the case.”
Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320, 1332
(Fed. Cir. 2003). “(W]hen a judgment is vacated ‘all is
effectively extinguished.” Falcon v. Gen. Tel. Co, 815
F.2d 317, 320 (1987). But a vacated judgment
accompanied by a remand with specific instructions to
the lower court requires further analysis. The Exxon
decision, cited by both parties, quoted with approval
1B Moore’s Federal Practice, 10.404[10] at 174 (2d ed.
1988), as follows:
In the case of a remand for further proceedings,
the mandate constitutes the law of the case only
on such issues of law as were actually
considered and decided by the appellate court,
or necessarily to be inferred from the disposition
on appeal.
43a
931 F.2d at 877, fn.7 (Fed. Cir. 1991) (emphasis
added). See also, Laitram Corp. v. NEC Corp., 115
F.3d 947, 951 (Fed. Cir. 1997) (“.. . rule is actually
applicable only to those issues decided by necessary
implication.”) (emphasis added).
Application of the law of the case doctrine to the
District Court’s underlying on sale findings therefore
requires analysis of the Federal Circuit’s opinion in
this case to ascertain what was intended by its
mandate. Laitram, supra, 115 F.3d at 952. As stated
by the Federal Circuit, “(tlhe crux of the dispute is
whether the Special Master applied the proper legal
standard to the first prong of the test: whether there
was a ‘commercial offer for sale.” 322 F.3d at 1347.
The relevant portion of the Federal Circuit’s opinion
states:
Defendant-cross appellants urge that any such
error [failure to apply the Group One standard
for “commercial offer for sale”] was harmless
because the factors that inform whether there
was a contractual offer under the UCC include
course of dealing and evidence of the practice in
the industry. U.C.C. §1-205. According to the
defendants, Lacks’ activities amounted to a
con.ractual offer for sale because “that is how
business is done in the automotive industry.”
We, however, cannot so conclude as a matter of
law on the record before us. Although it contains
some evidence about how sales are made in the
automotive industry, we cannot tell what the
fact-finder would have found had he applied the
correct legal standard.
* * a
44a
As a result, we vacate the Special Master’s
finding of invalidity and remand for further
consideration. On remand the district court (or
Special Master) may need to take additional
evidence on the practice in the industry to
determine if the activities by Lacks rise to an
offer for sale under the UCC.
Lacks Indus., Inc. v. McKechnie Vehicle Components
USA, Inc. and Hayes Wheels Int'l, Inc. , 322 F.3d 1335,
1348 (Fed. Cir. 2003) (emphasis added). Once again, in
its summary of its holdings on the multiple issues that
were appealed, the Court stated:
On remand, the district court (or Special
Master) should resolve whether or not it needs to
take additional evidence on sales practice in the
automotive industry to determine if the sales
promotion activities by Lacks rise to a
contractual offer for sale (and, of course, take
such evidence if necessary).
Id. at 1351 (emphasis added).
Nothing is described as vacated except the “finding
of invalidity.” No criticism, or even discussion, of the
underlying factual findings appears in the Court’s
opinion, except regarding the incompleteness of
findings regarding “how sales are made in the
automotive industry.” Only the legal standard applied
by the Special Master is found to be erroneous. Most
°As discussed below in this section, Lacks’ appeal only challenged
“the Special Master’s application of the pre-Group One standard
as to what. constituted a definite offer for sale.”
45a
significantly, the Court states that additional evidence
“may” need to be taken, implicitly approving the
possibility that the fact-finder may conclude that the
mandated findings on how sales are made in the
automotive industry can be prepared without taking
“additional evidence” on that or any other relevant
subject. The remand is “for further consideration,” not
for an entirely new trial of the on-sale defense.
Furthermore, the Special Master’s earlier reliance
on a later superseded legal standard to reach the
ultimate conclusion of invalidity did not taint the
underlying findings concerning such issues as Lacks’
motivation for its pre-critical date customer contacts,
alleged experimental use or the correlation between
the assembly method that Lacks was attempting to
commercialize and the method covered by the
Remaining Claims. The change in the law effected by
Group One provides no basis for disturbing those
subsidiary findings. Those findings were not
implicated by the Federal Circuit’s decision in Lacks,
and therefore the law of the case doctrine encompasses
those findings.
Therefore, the Federal Circuit’s acceptance of the
District Court’s Amended Findings of Fact and
Conclusions of Law is “necessarily to be inferred from
the disposition on appeal,” excepting only the vacated
“finding of invalidity” (because it was based on the
incorrect /egal standard) and the need for
supplemental findings on automotive industry sales
practices. Exxon, supra. Based upon his interpretation
of the Federal Circuit’s mandate, the Special Master
concludes that the remaining portions of the Amended
Findings of Fact and Conclusions of Law survived the
46a
Federal Circuit’s decision and are part of the mandate.
They therefore constitute the law of the case.’
As part of the law of the case, those remaining
portions of the District Court’s earlier decision are, for
a second reason, no longer subject to challenge by
Lacks. In the appeal to the Federal Circuit, Lacks, by
its own admission, “confined its challenge solely to the
Special Master’s application of the pre-Group One
standard as to what constituted a definite offer for
sale” (Lacks’ Reply Brief, p.32). Unchallenged in the
appeal were the findings that the assembly method
that Lacks was offering to perform, and the composite
wheels that it was offering to sell in its various
pre-critical date promotional] efforts, coincided with the
subject matter of the Remaining Claims. Unchallenged
were the findings that such activities were not within
the experimental use exception, and that the claimed
’ This interpretation of this particular mandate, that underlying
findings regarding the on-sale issue survived the Federal Circuit’s
vacating of the invalidity finding in the context of a remand for
further consideration, is reinforced by the Federal Circuit's
ultimate disposition of an appeal from a district court’s decision
following a similar remand. In Scaltech, Inc. v. Retec/Tetra, LLC,
178 F.3d 1378 (Fed. Cir. 1999), the Court concluded that “on the
record before us, the district court erred by failing to address
whether an embodiment of the claimed invention was offered for
sale.” Id. at 1383. The Court vacated the summary judgment of
invalidity by reason of an on-sale, and remanded “for a
determination as to whether the process on sale inherently
satisfies each claim limitation.” Jd. at 1384. As stated in the
Court's decision on a subsequent appeal, “[o]n remand, the district
court sua sponte granted summary judgment on the existing record
” 269 F.3d 1321, 1326 (Fed. Cir. 2001)(emphasis added), and
that decision was affirmed. The district court was not required to,
and did not, make new findings on the other aspects of the on-sale
transaction and events
47a
invention was “ready for patenting” at the time of
those activities. Lacks has therefore waived its right to
challenge those underlying findings. Tronzo v. Biomet,
Inc., 236 F.3d 1342, 1347-48 (Fed. Cir. 2001) (issues
within the scope of the initial district court judgment
and not raised on appeal are within the scope of the
remand and “foreclosed from further review on
remand”); U.S. v. Adesida, 129 F.3d 846, 850 (6" Cir.
1997) (“|a] party who could have sought review of an
issue or a ruling during a prior appeal is deemed to
have waived that decision thereafter, for ‘it would be
absurd that a party who has chosen not to argue a
point on a first appeal should stand better as regards
the law of the case than one who had argued and
lost”).
D. Summary Judgment Standards
Summary judgment is appropriate “if the
pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material
fact and that the moving party is entitled to a
judgment as a matter of law.” Fed. R. Civ. P. 56(c). To
defeat summary judgment, the non-moving adverse
party “may not rest upon the mere allegations or
denials of the adverse party’s pleading, but the adverse
party’s response, by affidavits or as otherwise provided
in this rule, must set forth specific facts showing that
there is a genuine issue for trial.” Fed. R. Civ. P. 56(e).
The court’s function is not to weigh the evidence or to
determine the truth of the matter, but only to
determine whether the evidence of record is such that
a reasonable jury could return a verdict for the
non-moving party. Anderson v. Liberty Lobby, Inc.,477
U.S. 242, 248 49 (1986). “Where the record taken as a
48a
whole could not lead a rational trier of fact to find for
the non-moving party, there is no ‘genuine issue for
trial.” Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986). Under these
standards, the non-moving party must do more than
show there is “some metaphysical doubt” as to the
material facts. Id. at 586.
E. Sales Practices in the Automotive Industry
The record presented by the parties’ respective
motion papers includes a substantial amount of
documentary and testimonial evidence generated by
post-remand discovery authorized by the Special
Master. At an earlier stage of the current remand
proceeding, when the scope of permissible discovery
was vigorously disputed by the parties, the Special
Master concluded that discovery should be confined to
industry sales practices and subsequent transactional
history relating to Lacks’ sales promotional activities
that were “already of record” (Report and
Recommendation Concerning Discovery Following
Remand, May 13, 2004, pp. 13-14).° The Special
Master concluded at that time, consistently with his
“Interestingly, the parties’ respective interpretations of the
mandate at that time were reversed from those they now espouse.
Defendants asserted that “the reason that the case was remanded
in the first place was to re-try the on-sale issue in light of a change
in the law that could not have been anticipated when the case was
originally tried” (Defendants’ Joint Opposition to Plaintiff's
Motion for Protective Order, p.11, emphasis added). Lacks, on the
other hand, argued that “The Mandate was specific: it allowed
‘additional evidence on the practice in the industry” only and did
not authorize a new trial on all aspects of Defendants’ on-sale
defense” (Lack’s Memorandum in Support of Motion for Protective
Order, p.6, emphasis added).
49a
present interpretation of the mandate, that there was
“no authority or justification for either a complete
re-trial of the on-sale issue or an_ unrestricted
re-opening of discovery on that issue” (/d. at p. 9). A
necessary ingredient of that conclusion was the fact
that those original findings remained viable as the law
of the case, and did not need to be re-litigated.
The augmented record provides a comprehensive
overview of the procedures followed by the original
equipment manufacturers (“OEMs”) such as Ford and
Chrysler in acquiring vehicle components and systems
from their suppliers. Verified expert reports were
submitted by the following four witnesses, and such
reports were tested by deposition cross-examination by
the respective opposing party:
e Frank S. Schwartz (on behalf of Lacks) has been
employed by Lacks since 2002, currently as
Director of Marketing for Advanced Technology
since 2002. Before joining Lacks, his relevant
experience was in sales of automobile lighting
equipment to the automobile industry beginning
in 1993.
e Jan Ekholm (also on behalf of Lacks) has been
employed by Lacks since 2002, currently as
Commercial Manager for the Trim Systems
division. He was employed by Chrysler from
1965 until his retirement in 2001. His relevant
experience there was in various purchasing
positions starting in 1985, initially as a buyer
for interior and exterior plastic parts, and rising
to senior commodity specialist for exterior trim
and ornamentation (not including wheel parts).
50a
Charles D. Ross (on behalf of Defendants),
currently an independent consultant regarding
purchasing operations, was employed by Ford
Motor Company from 1965-2000 in a variety of
mid-level and senior management positions,
primarily in the field of production purchasing.
Ultimately, he became executive director in
charge of purchasing for body and assembly.
During and shortly before the period relevant to
this case, Mr. Ross was director of purchasing
for all components that went into engines and
transmissions, a sum of $13 billion in
purchases, and he was also Ford’s purchasing
representative in the reorganization of the
company’s policies and procedures.
Richard J. Matton (also on _ behalf of
Defendants), currently provides consulting
services for automotive suppliers. After serving
as a buyer at Ford, he was employed by
Chrysler in various purchasing-related positions
from 1982-2004, including all aspects of the
procurement process for the small car platform
(Viper, Sebring convertible and Neon) from
1992-95 and director of chassis quality and
supplier management (which included wheels
and wheel trim) from 1995-2000.
Other knowledgeable fact witnesses testified by
deposition, including:
Lee Chase, the patentee of the ‘213 Patent, was
Product Development Manager at Lacks at the
relevant time period, and was Director of
Advanced Technology at Lacks at the time of his
2005 deposition.
5la
Richard “Terry” Eifert has been employed as a
Ford engineer since 1976, with all but the first
year or two in tires and wheels. At the time of
his 2005 deposition, he was Senior Wheel
Engineer, and at the time of the relevant 1993
contacts with Lacks he was Design and Release
Engineer on wheels and wheel-related hardware
for the F-series trucks, responsible for
coordination of design and testing of such
components. He submitted a written statement
(certified by him to be under penalty of perjury)
in 2003, and he was_ subsequently
cross-examined by Lacks concerning that
statement and the documents he produced from
Ford’s files.
Kent Van Timmeren has been employed by
Lacks since 1984, serving as a cost estimator
since 1989. His duties included compiling cost
estimates or quotes in response to requests from
potential customers received through Lacks’
sales department.
Nicholas Mendes was employed by Motor Wheel
in various Sales capacities from 1968-97, serving
as Sales Manager of Automotive Products from
1983-96. He had complete responsibility for the
Chrysler account and was knowledgeable of
Chrysler’s purchasing procedures. His written
statement is in evidence, and ne _ was
subsequently deposed.
David Haviland was employed in various sales
and marketing capacities at Motor Wheel from
1967 to 1996, the last ten years as Director of
52a
Marketing for Automotive Products. His
deposition transcript is in evidence.
As described by Ross, the “lead time” required by
North American automobile manufacturers to bring a
new vehicle from its program approval stage to
commencement of actual vehicle production (“Job #1”
launch) during the 1990’s was 36-42 months. Parts,
systems and the entire vehicle must be designed and
tested for integrity, durability, safety, quality and
customer acceptance before production tooling could be
constructed and manufacturing process capability
confirmed. Upon completion of all those _ steps,
component part production and vehicle assembly could
begin. The cost for design, testing tooling and
manufacturing equipment for a new model vehicle
ranged from $800 million to more than $2 billion.
Thousands of parts, assemblies and materials, ranging
from screws and gaskets to wheels and brake systems
to engines and automatic transmissions, had to go
through these stages. Competitive pressures caused
OEMs to seek ways to shorten this lead time. Ross
Report, Exh. 1080, (QIV-1 through 6.
Before the late 1980s, parts procurement by the
OEMs followed a rather standardized process for both
“off-the-shelf”? commodities and for more complex -
components. As described by Mr. Ekholm, a current
Lacks employee and former Chrysler buyer, Chrysler
engineers did all the design, development and testing,
and prepared all necessary drawings and
specifications. That information was given to the
appropriate buyer, who prepared a Request for
Quotation (“RFQ”). The RFQ typically gave the part
number, model year, volume, and plant location, and
asked the supplier for weight, material, price, tooling
53a
cost, volume and scheduling. This RFQ and the
information prepared by Chrysler Engineering
constituted a bid package given to prospective
suppliers, who then completed and signed the RFQ
and submitted it to the buyer. The Engineering and
Finance departments reviewed the returned RFQs,
met with the suppliers to resolve remaining questions,
and one supplier was ultimately selected. The buyer
assigned a purchase order (“PO”), sent it to central
processing, from which a PO comprised of the
information in the RFQ and Chrysler’s standard terms
and conditions was sent to the supplier. Ekholm
4/20/95 Dep. at 28-38.
In the late 1980s, however, the OEMs shifted much
of the responsibility for design, development and
testing to their suppliers.? At Chrysler, parts sourced
in this new manner were referred to as “ODD Box”
parts (“Outside Design and Development”). Ekholm
4/20/05 dep. at 38-40. At Ford and elsewhere they were
referred to as “black box” parts, or, if design
responsibility was shared, as “gray box” parts. Ross
*See, Ben-Shahar and White, Boilerplate and Economic Power in
Auto Manufacturing Contracts, 104 Mich.L.R. 953 (2006). The
authors of this comprehensive article read and compared industry
boilerplate contracts and spoke to lawyers who drafted them and
to other industry participants. Consistent with the evidence
submitted herein, this article states that General Motors, for
example, which earlier had produced up to seventy percent of its
parts internally, is now only thirty percent integrated. The OEMs
have shed whole divisions (such as Delphi and Visteon, and now
buy large subassemblies from outside suppliers. Jd. at 955. At
Chrysler, “approximately 70% of the dollar value to make a
vehicle (excluding labor) was procured from outside suppliers”
(Matton Expert Report, Exh. 1084, YVI-D).
54a
Dep. at 52-53; Ross Report, Exh. 1080, {IV-8;
Schwartz Report, Exh. 1085, (B.1.
Chrysler and Ford developed programs _ to
“encourage suppliers to submit cost reduction ideas,
provide a disciplined means for assuring the ideas are
reviewed and considered, reward suppliers who
actively participate in the program, and establish a
rigorous follow-up process for submissions” (Ross
Report, Exh 1080, pp. 15-16; see also, Matton Report,
Exh. 1084, J VI-C). The Chrysler program (introduced
in 1989) was called “SCORE” (Supplier Cost Reduction
Effort), and the Ford program was called “SPECS”
(Ford Supplier Purchasing Engineering Cost Savings).
Lacks’ expert Schwartz testified that the whole goal of
the supplier from the time of submission of a SCORE
or SPECS proposal was “to sell parts at a proper
profit” (Schwartz Dep. at 37).
As described by Ross, Ford developed written
procedures, described in its “Full Service Supplier
(FSS) Guide” (Exh. 1008), to achieve better control of
new model timing (Exh. 1080, {JIV-5-8; Schwartz
Report, Exh. 1085, 9C). Codified in 1993, these
procedures had been developing for almost ten years.
Ross Dep. at 53. The Guide included a timetable of
events for each step of a new vehicle development
process, measured in months before Job#1. In the
words of the Guide, the “Early Sourcing/Target
Agreement” or “ESTA” (one of the “key documents in
the Fult Service Supplier relationship”) “states
intention of Ford to source to Supplier; obtains
agreement to the Full Service Supplier guide and
Statement of Work; and obtains commitment to work
towards Targets” (Exh. 1008, Section 2, p.17). The
timetable provides that the ESTA is to be finalized by
5da
42 months” before Job#1, “work towards obtaining
supplier commitment to ESTA” by 40 months, and
complete Early Sourcing by 33 months (/d. at Section
4, p.43).
The FSS Guide includes a sample ESTA, which
includes spaces to fill in the name of the supplier,
identification of component or system, “piece price
target,” and “Job#1 Date” Ud. at Appendix p.A-3).
Under the “Commitment” heading, the Agreement
states: “As a member of the [Program Team}, your
Company will participate in the design and
development process outlined in the Full Service
Supphter Guide and the Statement of Work. As the
program approaches Job#1, a Purchase and Supply
Agreement for production parts will be issued. Ford
and your Company will each absorb their own cost of
work for this program should a Purchase and Supply
Agreement not be issued due to any of the following
conditions [including change in program or
subsystem/component direction] . . . .” Under the
“Targets” heading, it states: “Targets have been
developed as follows: Piece Price — at current economic
and efficiency levels.” Finally, over spaces for
signature of the Supplher and various’ Ford
functionaries, the ESTA states: “We accept the
conditions stated above and commit to work toward
achievement of the targets.”
Mr. Ross stated that the three parties to this
lawsuit would have been designated by Ford as Full
“The listed benchmark timings are for “Single Model Programs,”
whereas “Multiple Model Programs” specify an additional 3-5
months of lead time.
56a
Service Suppliers during the time period covered by
this case (Exh. 1080, FIV-8), and that clad wheels
made in accordance with the Lacks Chromtec method
would have been considered “more complex” parts
under that FSS category, because they were to be used
in a high wear area near the road, used chrome-plated
plastic on a high visibility component and involved
unproven technology of gluing a cover to the wheel (Jd.
at JIV-6).
Quotations from suppliers can take a number of
forms. Among the alternatives described by Ross are
several that are at issue in the present proceedings.
For early sourced, more complex components,
particularly in non-competitive sourcing situations, the
suppliers submit their own written narrative to the
OEM as a quotation. Ross cited as examples the
following significant quotations exhibits that are
discussed below: 1002 to Ford; 1039 and 1040 to
Chrysler; and 1044 and 1053 to Accuride (Exh. 1080,
q1V-9(b). If the supplier is the successful bidder:
the written narrative ‘quotation’ will often be
accepted as a binding quotation and a formal
RFQ not issued until shortly before Job#1. This
delay in issuing a formal RFQ is a relatively
common buyer practice used to _ reduce
paperwork during program development, a
period during which many design and part
number iterations occur prior to Job#1.
Ibid. See also, Jd. at pp. 14-15; see also, Schwartz Dep.
at 34; Schwartz Report, Exh. 1085, 1{/A4, B8; Ross
Dep. at 68-69; Matton Report, Exh. 1084, {VI-G;
Matton Dep. at p. 53.
57a
Suppliers also commonly solicit sales by making
presentations to OEM engineering and purchasing
departments for new technologies, design ideas or
manufacturing methods (Exh. 1080, ]9c). Referring to
his Ford experience, Ross stated that when the new
process or material is believed ready for production
application, Ford Purchasing normally regarded these
presentations as “sales pitches,” with the supplier’s
goal being “to sell the new product, process or idea
being presented.” Such presentations often included
specific cost data, relevant vehicle programs, tooling
line-up and cost and timing for production part
availability.
When asked during cross-examination how he
determined whether a particular activity or document
was an offer for sale by Lacks, he replied:
A. ... The degree of detail tended to tell you
whether it was a legitimate offer or whether
they were winging it or guessing at the
numbers ....To the degree you began to get
very specific data that said for this program,
for this model, at this volume, for this price
you'll get it and it’s to the nearest penny and
it’s to the nearest $10 on tooling, you say,
okay, tooling, they've gone out and gotten
quotes from a tool source as to providing it.
The timing, they’re not telling me it’s about
a half a year, they’re telling me it’s 34
weeks, which says that’s very specific and it
says, okay, you’ve gone and found out how
long it will take to tool, how long it’s going to
take you to set up the manufacturing line,
and I count on that timing to fit within the
model of our program and what it needs.
58a
And if it’s an attractive proposal, then what
we will do is choose you as the supplier to do
it.
Dep. at 42. Lacks’ expert Schwartz agreed that the
OEM could determine if the supplier intended to be
bound by whether the part was defined (Schwartz Dep.
at 17).
With further regard to the relatively informal, yet
potentially binding, nature of these sales practices in
the automotive industry, Ross observed:
Representatives in the process are expected to
be able to speak for their’ respective
organizations and to commit to cost, timing,
design, delivery, quality, etc. issues involving
their company and activity. They are also
expected to deliver any commitments made by
them on behalf of their “home” activity. The
point being made here is that, while a great deal
of business between Ford and production parts
suppliers is conducted on an informal basis,
these informal commitments are regarded as
binding as if they were part of a formal written
contract.
Ross Report, Exh. 1080, J1V-10 (emphasis added).
Matton, the former Chrysler purchasing executive,
described the environment this way:
In the team environment that we're talking
about, again, 1990 to 1994, which was the
platform and the SCORE process, things were
much more open, there was much more trust.
59a
People didn’t demand purchase orders, many
times being invited to a source selection
meeting as the supplier was sufficient for the
supplier to know that he was the supplier, even
though a purchase order wasn't issued.
Matton Dep. at 23 (emphasis added). He added that
the formal RFQ (request for quote), usually after the
part was formally released, “was primarily just a
confirming paperwork trail,” “confirming what was
previously established” Ud. at 51-52).
Chrysler's SCORE program was described by
former Chrysler procurement official Richard J.
Matton. Suppliers would “test the water” concerning
their new _ internally-developed technology by
reviewing it with Chrysler engineering and purchasing
personnel before submitting a SCORE proposal. If
Chrysler decided to pursue the proposal, a SCORE
team consisting of Chrysler engineers and a buyer and
the supplier would develop an action plan _ to
implement the proposal, including test milestone
events, approval requirements and so forth. For new
model programs, Chrysler would establish variable
cost targets for the team to meet at the part level. Any
changes in the part design that would impact the
supplier’s piece price or tooling cost would be formally
documented. A formal purchase order would not be
issued until all the action plan items had been
completed, including receipt and testing by Chrysler of
parts made from production tooling and processes from
the supplier’s plant. Matton Report, Exh. 1084, JVI-F.
Matton contrasted this new SCORE procedure with
Chrysler’s former purchasing procedures:
60a
The traditional quotation process once a design
was completed by Chrysler with the subsequent
issuance of the Purchase Order were [sic]
replaced by a “letter of intent”, “confirmation of
sourcing” letter, or perhaps an e-mail from the
buyer that would reference a pre-assigned
Purchase Order number or just being invited to
a new model program related meeting as “The
Supplier” was sufficient commitment for most
suppliers until the Purchase Order was actually
issued by Chrysler just prior to New Model
Launch startup.
Id. at { VI-G (emphasis added).
Evaluation of these supplier-submitted proposals
by Ford and Chrysler required substantial OEM time
and resources, and “supplier submissions were
expected to be sincere offers to ‘deliver’ the design
features, weight reductions and/or cost savings being
proposed” (Ross Report, Exh. 1080 at p.16). According
to Matton:
“when a supplier submitted a SCORE proposal,
Chrysler assumed that the supplier had
sufficiently researched, developed and validated
the SCORE idea... since considerable internal
resource time and expense is required to review,
test, validate, approve and track each SCORE
proposal... .”
Exh. 1084, | VI-F-1; Matton Dep. at 15-16. Ekholm,
Lacks’ expert and former Chrysler buyer, agreed that
the supplier “has to prove to themselves that it’s even
a good idea before they can submit it to Chrysler”
(Ekholm Dep. at 88-89). However, because suppliers
6la
were under pressure to submit proposals in order to be
considered for new business, they sometimes
submitted proposals having little chance of success.
Schwartz Report, ~xh. 1085, JD and Dep. at 31-32,
45-46. See generaliy, Ekholm Report, Exh. 1088, at
Comment on Matton Report, 9/4, and 4/20/05 Dep. at
54-63, 75-94.
The significance of a SCORE proposal from the
viewpoint of Tier 1 supplier Motor Wheel was
described by Nicholas Mendes. As Motor Wheel’s sales
manager for automotive products from 1983-96, he had
complete responsibility for the Chrysler account.
According to Mendes:
“A SCORE proposal was an offer to Chrysler to
sell to Chrysler the specified part at a specified
price, which represented a specified savings per
part. . . . The SCORE proposals were a
commitment by Motor Wheel to provide the
proposed parts to Chrysler based upon the
terms of the SCORE proposals.”
Mendes Statement, Exh. 1013, 1914, 16 (emphasis
added). Such proposals would not be submitted unless
Motor Whee! was “fully satisfied that we could produce
the part ... and reflect the cost savings” indicated in
the proposal, because “we would have to live to all of
the numbers and all of the commitments.” Mendes Dep.
at 41 (emphasis added). According to David Haviland,
who was Motor Wheel’s Director of Marketing of 1986
96, unless there were very real changes in design or
performance of the product, it would be “difficult, if not
impossible,” for the vendor to increase the price after
submission of a SCORE proposal — the vendor was
62a
“committed to what’s in the SCORE proposal.”
Haviland Dep. at 7-17, 61-62 (emphasis added).
Ford’s Purchase Order, typically not issued until
shortly before Job#1, specifies that it is the offer.
Based on that standard language, Lacks argues that
the earlier submitted quotes from a supplier cannot be
considered offers to sell. Lacks’ cross examination of
Defendants’ expert, retired Ford purchasing executive,
Ross, included the following colloquy:
Q@. So basically this [a standard Ford
purchasing order] is essentially regarded as
an offer from Ford to the supplier?
A. IT didn’t treat it as an offer. This was a
confirmation of a quote we received from the
supplier normally.
* * * *
Q. So basically the terms and conditions
specifically state that the purchase order is
the offer?
A. Fine. I understand it from a legal context.
Q. Well, that’s what we’re talking about.
A. Well, I would say there’s also the practical
context of how was it used.
Dep. at 64-65 (emphasis added). In Matton’s words,
“that’s not consistent with how business practices were
done” (Matton Dep. at 72, emphasis added).
63a
Thus, in view of this and other previously cited
testimony, it is clear that the OEM’s could accept the
supplier’s offering quotation, creating a binding
contract, but that would more often than not require
numerous subsequent contract revisions as_ the
development program runs its extended course until
the purchase order is finally issued just before Job#1.
Instead, as a matter of “administrative convenience”
(Ross Dep. at 68) rather than avoidance of a
contractual commitment, the OEMs choose to defer
that forma! step. Instead, pursuant toa “common basis
of understanding (course of dealing), the OEM
manifests its “willingness to enter into a bargain” by
“sourcing” the part (i.e. selecting a supplier) and
moving forward together with that supplier in the
development process. The supplier, based on the
regularity of observance of this practice in the
automotive industry, has “an expectation that [the
OEM’s practice of eventually issuing a subsequent
purchase order] will be observed” (usage of trade).
In “battle of the forms” cases addressing which
party’s “offer” form was truly the offer, the case law
directs that the court must look beyond the words
employed on the forms and examine the “totality of the
circumstances” to determine which form constituted
the offer. The Mead Corp. v. McNally Pittsburgh Mfg.
Corp., 654 F.2d 1197, 1203 (6" Cir. 1981);
Weyburn-Bartel, Inc. v. Zagar, Inc., 1996 U.S. Dist.
LEXIS 16988 at *7 (W.D.Mich. 1996).
Manton testified that “all parts” are subject to
change (Matton Dep. at 80). When asked on
cross-examination to confirm that Chrysler wasn’t
committed until it issued a purchase order, he
responded, “I don’t think we’re ever committed ... We
64a
never have to order a part” (Jd. at 73). Ross testified
that even after the Purchase Order, both the supplier
and Ford could “bow out” of the agreement. Ross Dep.
at 60-61. Lacks’ employee-experts Ekholm and
Schwartz agreed that even a purchase order from
Chrysler doesn’t mean it is required to ever purchase
any parts. Ekholm Dep. at 95; Schwartz Dep. at 41-42.
Yet it cannot successfully be argued that these early
quotations from suppliers, merely because they are
often subsequently modified or even cancelled after
informal or formal acceptance, cannot therefore qualify
as acommercial offer for sale. Multiple rounds of offers
and counter-offers are a familiar part of many
commercial and private transactions, and those
subsequent negotiations do not negate the status of an
original offer as one that the offeror was willing to be
bound by if the offeree accepted it.
The specific documentation contended by
Defendants to support their commercial offer for sale
position typically omits terms that might generally be
found in typical commercial transactions in other
industries. Among such terms are FOB terms,
payment terms, shipping destination, etc. But in the
automobile industry, many seemingly missing terms
are governed by the OEM’s standard terms and
conditions and long-term contract documentation.
They “are generally assumed to already be known and
are normally the same from purchase order to
purchase order, based on ongoing dealings with the
supplier” (Ross Report, Exh. 1080, p.14; Ross Dep. at
39). Matton testified that the suppliers involved in this
lawsuit were all current suppliers, and they “know
when they submit somcthing to us, they’re going to be
bound by our terms and conditions, those are our
standard” (Matton Dep. at 52).
By way of example, the record contains the
November 19, 1992 long-term contract between Ford
and Lacks, which applied to certain specified (but not
here relevant) parts and to “all new parts sourced to
Lacks Enterprises, subsequent to August 1, 1992 (Exh.
1083). It specifies that “all terms and conditions of
Ford’s standard Purchase Orders (Attachment II) are
in effect.” Attachment II, headed “Terms and
65a
Conditions,” provides (with emphasis added):
3.
The provision of the Ford Long-Term Agreement
incorporating Ford’s standard terms and conditions is
OFFER, ACCEPTANCE, AND
MODIFICATION — This tooling order is an
offer to Seller by Buyer to enter into the
purchase and supply agreement it described,
and it shall be the complete and exclusive
statement of such purchase/supply
agreement. Modifications proposed by seller
are not part of the agreement without
Buyer’s written acceptance.
* * * *
CHANGES -— (a) Buyer at any time in
writing may change the design (including
drawings, materials and_ specifications),
processing, method of packing and shipping,
and the place of delivery. (b) If any such
change affects cost or timing, Buyer shal)
adjust purchase price and delivery schedules
equitably. (c) seller shall not make any
change in design, processing, packing,
shipping, or place of delivery without buyer’s
written approval.
66a
typical of the automotive industry OEM’s practice.
Each has its boilerplate form, entitled “Globa! Terms”
or “General Terms’ or the like, expressly incorporated
into every purchase order, and non-negotiable. They
cover issues such as termination rights, warranties
and remedies, ownership of tooling, intellectual
property rights and service parts. As acknowledged by
Lacks’ expert, the OEM’s standard terms and
conditions are “sacrosanct” and “pretty much set in
stone” (Schwartz Dep. at 33-34). As observed in the
Ben-Shahar & White article:
There may be no other merchant-to-merchant
contractual template that governs’ such
fantastic economic stakes — hundreds of billions
of dollars per year — and implemented through
a process that involves almost no negotiation of
the legal terms. Boilerplate rules these
transactions. . . . These are transactions in
which economic power is unevenly distributed;
much dickering takes place over prices and
product design; but everything else is packed
into boilerplate.
Supra footnote 9 at 953-54.
Ross concluded his Expert Report with this
overview:
Development and launch of a new model vehicle
is a complex process involving many variables
that must be managed within a _ large
bureaucracy. The process is made more
complicated by external market pressure to
provide the latest technology and styling and an
unrelenting drive to meet an unyielding Job#1
67a
date. To successfully deal with the conflicting
objectives that result from such a situation,
engineers and buyers must be flexible, have an
ability to work with inexact data and make
decisions based on less than _ perfect
information. Hence, sourcing decisions are often
based on less exact information than would be
available in a “perfect world,” relying on targets,
sometimes nebulous program assumptions,
close working relationships with suppliers,
integrity and trust between suppliers and Ford
and past experience. While “industry outsiders”
may view this process as “loose” or
“undisciplined,” it is an effective means for
transforming a somewhat chaotic situaton into
a disciplined design, test and launch process
that, in the end, produces a safe, affordable and
reliable vehicle.
Exh. 1080 at p.19.
Based upon the record set forth above, the Special
Master finds that there appears to be no genuine issue
of material fact concerning the sales practices in the
automobile industry during the relevant time period.
As applied to supplier-designed specialty products, the
sales practices had the following characteristics:
The process often began with a_ persona!
meeting by the supplier with the customer’s
engineers and/or purchasing agent to describe
and possibly demonstrate a sample or
prototype, followed by a somewhat informal,
seemingly incomplete, written quotation that
included a brief description or drawing or
reference to an existing customer’s part number
68a
or the vehicle program, a piece price and
weight, anticipated annual production volume
and estimated tooling lead time and costs.
Some contract terms, though often omitted from
early quotations, were generally known and
assumed to apply, because they were included
in the OEM’s standard terms and conditions
and long-term contract documentation and
therefore “set in stone.” These quotations were
assumed by the OEMs to be sincere, well
considered and realistic offers to deliver the
product under the specified terms.
Although the subsequent lengthy development
process preceding production Job #1 might
necessitate several design changes and
associated pricing adjustments, the supplier
and OEM customarily worked together under a
relatively informal and flexible understanding
once sourcing of a part had been determined.
The supplier’s initial quotation was often
accepted as a binding quotation, subject to those
possible future revisions. The delay in issuance
of a formal purchase order until shortly before
Job#1 was an administrative convenience for
the buyer to avoid repetitive issuance of
amended purchase orders during the
36-42-month lead time. The ultimately issued
formal purchase order therefore was essentially
a confirmation of what had been previously
understood between the parties.
The foregoing industry practices were generally
representative of the sales practices between
Tier 1 and Tier 2 supphers, as well as between
69a
OEMs and Tier 1 suppliers, during the time
period relevant to the transactions considered
here.
F. The Alleged Commercial Offers for Sale
Before analyzing the evidence and contentions of
the parties concerning the first prong of Pfaff (t.e., the
commercial offer for sale), it is significant to recall that
Judge Feikens previously concluded, on summary
judgment, that the second prong had been satisfied by
virtue of the inventions of claims 1, 8, 11 and 25 being
“ready to be patented as of May 1992.” 55 F. Supp.2d
702, 734. That finding was reinforced by subsequently
introduced evidence warranting the conclusion that
the claimed invention was ready for patenting before
the June 6, 1994 critical date. See, e.g., Amended
Liability R & R at 61, 72-73 and 80-81.''Furthermore,
it is also the law of the case that the assembly method
that Lacks was offering to perform, and the composite
wheels it was offering to sell in conjunction with a
wheel-manufacturing partner before the critical date
of June 6, 1994, corresponded with the invention of the
Remaining Claims. Amended Liability R & R at 79.
See also, Section II-C, supra.
As another preliminary point, the Special Master
notes that one of the challenges that Lacks raises
against each of the alleged commercial offer for sale
transactions is that Defendants have not shown by
'' Still further corroborating evidence is found in Exhibit 1039
from the present proceedings, a March 4, 1994 Lacks SCORE
submission to Chrysler stating that “CHROMTEC has passed all
required durability tests conducted at Lacks Inc.”
70a
clear and convincing evidence that the assembly
method contemplated by the quotation or proposal
corresponded to the method of the Remaining Claims.
As noted in Section II-C above, however, it is the law
of the case that the assembly method Lacks was
offering throughout the period covered by these
transactions was the ready-for-patenting method of
the Remaining Claims (Amended Liability R & R at
79). Defendants met their clear and convincing burden
on that issue in the original trial. Significantly, in the
present proceedings, Lacks has not come forward with
any affirmative evidence that the offered assembly
method was other than the patented method.
1. The Ford F-150 Wheel Offer
Defendants contend that) in June of 1993, Lacks
offered to perform the method of the Remaining
Claims of the ‘213 Patent to produce overlays and
apply them to wheels for the Ford F-150 pick-up truck,
and that such offer constituted a commercial offer for
sale before the June 6, 1994 critical date.
As documentary support for this contention,
Defendants principally rely on Exhibit 1002, one of a
series of documents produced from the files of Ford
Motor Company employee, Mr. Terry Eifert, following
remand of this case. This two-page document is an
internal Lacks memorandum, dated June 21, 1993,
from Mr. Kent Van Timmeren (Lacks’ cost estimator)
to Mr. Lee Chase (Lacks’ Product Development
Manager and the patentee of the ‘213 patent). The first
page provides an estimated piece price, tooling costs
and information regarding the timing for obtaining the
tooling for a PN-96 Sport Whee! Overlay (for the 1997
model year F-150 truck). It states that the price
Tla
includes assembly and that the cladding will be
assembled to the wheel with RTV adhesive and five
screws. The second page of this exhibit provides a
breakdown of the tooling costs. Of significance to
Defendants’ contention are Eifert’s handwritten notes
appearing on that second page, further discussed
below. Along with Exhibit 1002, Ford also produced
from Eifert’s file a preliminary design verification plan
and report (Exh. 1003), a preliminary drawing of a PN
96 wheel, which states in the title block “Preliminary
for quote” (Exh. 1004) and a series of Lacks’ brochures
(Exh. 1005).
In discovery before the original liability trial, Lacks
produced the first page of Exhibit 1002, without the
second page, and without Ejifert’s applied notes that
appeared on his own file copy. Defendants explain that
they did not originally pursue the subject of this
apparently one-page document during the liability
trial, because it appeared to be only an internal
memorandum. Post-remand discovery, however,
includes testimony of Ejifert, Chase and others
concerning this document and its’ disputed
significance, as well as Lacks’ own copy of the original
two-page memorandum.
According to Eifert’s deposition testimony, Ford
was planning to release several optional wheel
appearances for different vehicle packages, but in the
first half of 1993 Ford’s Chief Engineer asked him if
there was a way that Ford could use a single high-
volume wheel, but with multiple wheel cover options.
That idea would permit tooling costs and wheel-testing
to be substantially reduced (EFifert Dep. at 18-19).
72a
Coincidentally, Ford’s quest coincided with Lacks’
vigorous promotion of its new wheel-cladding
technology to Ford and others. As described in the
Special Master’s Amended Liability R & R following
the original liability trial, Lacks’ sales rep Czarnota
had at least 15 meetings with Ford between August
31, 1992 and June 2, 1994, and Lacks presented a pair
of “Technology Updates” in June of 1993, at which
samples, drawings and printed materials were shown
to “a couple of hundred” purchasing, engineering and
sales personnel of Ford and Chrysler (Amended
Liability R & R at 74-75).
When Ejifert asked Czarnota if he had any
suggestions responsive to the Chief Engineer’s request,
Czarnota informed him of Lacks’ composite wheel.
Following that initial conversation, Eifert and several
dozen other Ford personnel attended Lacks’ June 2-3,
1993 Technology Update and saw the composite wheel
technology displays and literature. EFifert thought that
might be a viable concept, and therefore asked Lacks
to make a proposal for producing chrome-plated
cladded wheels (Eifert Dep. at 15-16, 19-22). Lacks’
response was the June 21, 1993 memorandum of
Exhibit 1002 described above, along with the other
documentation of Exhibits 1003-07 (Jd. at 23-24; Exh.
1001, 99). Exhibit 1002 included a piece price of
$17.29; a breakdown of tooling costs; and details
regarding weight, mode of attachment (“five (5) screws
and RTV adhesive”), packaging and_ production
timeline measured from “completion of design.””” Eifert
'? Fifert testified that this piece price included installation by
Lacks and was independent of the quantity of wheels and of the
particular wheel to which the cladding would be applied, and that
73a
discussed these materials with Lacks personnel,
acquiring additional information, as reflected in his
contemporaneous handwritten comments on his file
copy of Exhibit 1002 (Exh. 1001, 711; Dep. at 29). He
testified that it was his understanding, consistent with
the memorandum?’s reference to RTV adhesive, that
Lacks’ proposal contemplated use of a thin film of
adhesive, with less than full-surface coverage, as
specified by the method of the Remaining Claims (d.
at 33, 35, 38).
Fifert’s signed statement commented on Lacks’
June 21, 1993 memorandum:
The June 21, 1993 Memorandum [Exh,. 1002]
contained all of the essential elements necessary
for me to have Ford’s purchasing department
prepare a purchase order for submission to
Lacks. Those necessary elements were the
weight of the part, pricing for the part and
tooling, and timing for delivery.
*
* *
Based upon Ford’s standard procedures, if we
had decided to accept Lacks’ proposal, the next
step would have been to issue Lacks a purchase
order for prototypes, based upon the
information provided in the June 21, 1993
proposal.
Exh. 1001, 913-14 (emphasis added); see also, Eifert
Dep. at 44-45, 81-82, 86-90.
the production timeline referred to full-scale production rather
than to prototype parts (/d. at 31, 34, 73, 92)
T4a
Similarly, Eifert testified that Exh. 1002 was an
offer “that [Ford] could take Lacks up on,” and that
Ford would consider Lacks to be bound by the terms of
the offer if Ford chose to accept it (42-43). Former Ford
purchasing executive Ross stated that when such
information is presented by a supplier, “in the absence
of any disclaimer that it should not be considered
binding, it is normally assumed by Ford Engineering
and Purchasing that the supplier is committing to
provide the product at the performance, cost and
timing levels presented, if Ford chooses to accept their
proposal.” Continuing, “these informal commitments
are regarded as binding as if they were part of a
formal written contract.” Ross Report, Exh. 1080,
119c, 10. Further agreeing with Eifert’s testimony,
Ross stated that Exh. 1002:
... had all the basic elements necessary for Ford
Purchasing to award PN96 business to Lacks
Industries and issue a purchase order. These
elements being; part price (including
installation), tooling, part weight, expected
volume, vehicle application, timing for tooling
completion, production part sample approval
and production availability. [Exhibits 1002
through 1007] include all the basic data that
normally would be considered necessary to issue
a purchase order and confirm sourcing. While
information pertaining to FOB terms, payment
terms, payment address, currency to be used,
economic level of cost data and shipping location
will also be needed to complete a formal
purchase order, such data are_ generally
assumed to already be known and are normally
the same from purchase order to purchase
75a
order, based on ongoing dealings with the
supplier.
Exh. 1080, pp.14-15 (emphasis added). See also,
Matton Report, Exh. 1084, pp. 6-7. As cited in Section
II-E above, Ross described how awards of business
during the relevant period confirmed by less formal
means than the traditional purchase order.
Lacks attack on the sufficiency of Exhibit 1002 as
a commercial offer to sell, because of its omission of
essential terms, is rebutted by the foregoing testimony
of Ejifert and Ross. The role of Lacks as a
process-performing Tier 2 supplier is further
justification for the absence of several of the otherwise
expected terms of Lacks’ Exhibit 1002 quotation. While
the product that Ford would purchase would be the
wheel with the overlay already assembled to it, Ford’s
purchase price would have built into it the cost of the
wheel itself (manufactured by a Tier 1 supplier), plus
the cost of the chrome-plated overlay (manufactured by
Lacks), plus the cost of assembling the overlay to the
wheel (performed by Lacks in accordance with the
method of the Remaining Claims). Lacks would be the
Tier 2 supplier. Lacks would receive a wheel from the
Tier 1 supplier and assemble the Lacks-made overlay
to it, and then either (1) return the assembly to the
Tier 1 supplier or (2) ship the assembly directly to
Ford. Either way, Lacks’ quoted cost estimate of
$17.29 would be built into the price paid by Ford, and
it was “independent of the [specific] wheel.” Eifert Dep.
at 73-75. Ford would have to approve the design and
performance of the assembled wheel, as well as Lacks’
price for the overlay itself and the assembly operation,
but because Lacks would be a Tier 2 supplier, its
76a
overlay/assembly charges would be covered by the Tier
1 wheel manufacturer’s total selling price to Ford.
Thus, that document does not _ include
specifications, drawings, price or manufacturer of the
unclad wheel itself, and quantity, each of which terms
were “independent of” the patented method according
to Eifert. Because Lacks was offering to perform its
process on the identified Ford wheels, those particular
omissions do not render the alleged commercial offer
either incomplete or indefinite.
Lacks also points to other missing contractual
terms, such as time and place of delivery and payment
terms. Ross testimony quote
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.