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On-Sale Bar By Upgrade? An Invention May Be Put On-Sale By a Contract Made Before the Date of Invention

By Nicholas A. Brown

A straightforward reading of the existing on-sale bar law suggests that companies and inventors, particularly in the software industry, may be unwittingly putting their inventions on sale by agreeing to deliver future improvements or versions of their product to their customers. This is a consequence of the initially counterintuitive principle that an invention may be put on sale by a contract or offer made before the invention even exists. This principle will often apply in the context of 'upgrade' contracts, where a seller contracts, at the time of a sale, to provide future 'upgrades' to a product. In that situation, the seller's pre-existing obligation to provide the invention as an 'upgrade' can put the invention on sale, even though the obligation arose before the invention was conceived.

The Supreme Court's decision in Pfaff v. Wells Electronics established a now-familiar two-part test for the on-sale bar: '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. . . . Second, the invention must be ready for patenting.' Pfaff v. Wells Electronics, 525 U.S. 55, 67 (1998). Though the Supreme Court did not say so expressly, it is clear that to invalidate a claim, the subject matter that is 'on sale' must anticipate or render obvious the claimed invention. In other words, the subject matter that is sold or offered is the prior art that is compared to the patent claims to determine validity.

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