Electromotive Division Of General Motors Corporation v. Transportation Systems Division Of General Electric Company

417 F.3d 1203 (2005)

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Nature of the Case

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Facts

P designs and manufactures component parts for locomotive engines, including the two kinds of bearings at issue in this case. Both types of bearings are embedded in turbochargers, which are in turn embedded in the engines of locomotives that P sells. With new bearings, P initiates a two-phase testing program before releasing the new bearing for commercial production. P tests its new bearings indoors at its engineering facilities on multiple unit turbocharger cells. The goal is to ascertain the durability and reliability of the new bearings. The second phase of testing involves a field program where testing occurs outdoors under actual use conditions. P integrates the new bearings into existing orders and the customer railroads use the new bearings in their routine operations. The purpose of this second phase is to verify durability. In the field program, P does not engage in ongoing monitoring or periodic inspections of its new bearings because they are buried inside turbochargers and cannot readily be examined. P inspects the new bearings only if a particular turbocharger fails and is sent back to P. P disassembles the failed turbocharger to assess whether the failure was caused by the new bearings or some other part. In the late 1980s, P developed a new compressor bearing. On July 17, 1989, Blase, a P employee and one of the named inventors, reported that the in-house program had been completed. P started its field program by substituting the new compressor bearings into locomotive orders previously placed by Norfolk Southern, Go Transit, and LXO railroads. The three railroads agreed to accept the new bearings. None signed a confidentiality agreement or any other contract consenting to participate in the field program. They were not restricted or supervised in their use of the new bearings and were not under any obligation to collect data, keep progress records, or even operate the subject locomotives during the time of the field program. On August 28, 1989, P modified its original specification of February 1, 1989, for the Norfolk Southern order, agreeing to supply more new compressor bearings to Norfolk Southern than originally planned for in its prior locomotive order. P agreed to 'provide spare parts for [Norfolk Southern] 's GP59 locomotives,' including the 'Turbo' of part number 40021531. The specified Turbo included the new compressor bearings. Between January 1989 and November 1989, P purchased a total of 303 new compressor bearings from Allison Gas & Turbine (Allison), another division of General Motors Corporation, for a price of $298.80 each. P substituted them into locomotives previously sold to Norfolk Southern, Go Transit, and LXO. On November 27, 1990, P filed a patent application for its new compressor bearings. The critical date for applying the on-sale bar for the '242 patent is November 27, 1989. The '242 patent issued on December 8, 1992. On August 19, 1991, P released the new compressor bearings for production. P did not advertise, market, or create promotional materials for the new compressor bearings prior to the August 1991 release. In September 1992, P designed a new planetary bearing. In January 1993, P initiated the in-house program for this new bearing type. In March 1993, P decided to proceed with the field program. TP approached Union Pacific railroad for permission to substitute its new planetary bearings for prior art bearings in an order for two locomotives that Union Pacific placed earlier in 1992. Union Pacific allegedly agreed and it did not sign a confidentiality agreement or any other type of contract consenting to participate in the field program. Union Pacific was not placed under any restrictions or supervision regarding the use of the locomotives containing new planetary bearings. Nor was Union Pacific given any design details for the new planetary bearings or required to monitor or document its usage of the subject locomotives during the field program. On July 6, 1993, P ordered 105 new planetary bearings at $88.87 per bearing from its supplier Daido Industrial Bearings, Ltd. (Daido). On August 6, 1993, P installed six planetary bearings that it had purchased from Daido into turbochargers for the two locomotives destined for Union Pacific. P shipped those locomotives to Union Pacific that same day. On September 7, 1994, P released the planetary bearings for production. On September 29, 1994, D filed a patent application for its new planetary bearings. The critical date for the '056 patent is September 29, 1993. The '056 patent issued on October 22, 1996. P sued Ds asserting infringement of the '242 and '056 patents. In December 2003, Ds moved for summary judgment that the '242 and '056 patents are invalid under the on-sale bar of §102(b). P claimed that its sales of the new compressor and planetary bearings did not raise the on-sale bar provision of §102(b) because those sales were for purposes of experimentation. The district court held that P's purchase of new compressor bearings from Allison before the critical date was a commercial sale within the meaning of §102(b). It also held that the substitution into actual orders also raised the on-sale bar. The district court found that D exercised no control over its customers' use of the new bearings after they were sold. It also found that there was little evidence of experimentation in that P nor its customers maintained any test data, progress reports, or other records; P sold a large number of new compressor and planetary bearings during the periods of alleged experimentation; and P inspected failed turbochargers in the ordinary course of business, not as part of any experimental protocol. It found that the field program was unnecessary because P had established that both types of new bearings were durable through the in-house program. P appealed.