Federal Circuit Clarifies Government Contractor Liability for Patent Infringement | Practical Law

Federal Circuit Clarifies Government Contractor Liability for Patent Infringement | Practical Law

In Zoltek Corp. v. United States, the US Court of Appeals for the Federal Circuit issued a partial en banc decision vacating a 2006 Federal Circuit decision that limited government liability for patent infringement under 28 U.S.C. § 1498(a) to acts constituting infringement under 35 U.S.C. § 271(a). The en banc decision clarifies that direct infringement under Section 1498(a) includes acts covered under both 35 U.S.C. § 271(a) and § 271(g).

Federal Circuit Clarifies Government Contractor Liability for Patent Infringement

Practical Law Legal Update 9-518-4650 (Approx. 6 pages)

Federal Circuit Clarifies Government Contractor Liability for Patent Infringement

by PLC Intellectual Property & Technology
Published on 20 Mar 2012 • USA (National/Federal)
In Zoltek Corp. v. United States, the US Court of Appeals for the Federal Circuit issued a partial en banc decision vacating a 2006 Federal Circuit decision that limited government liability for patent infringement under 28 U.S.C. § 1498(a) to acts constituting infringement under 35 U.S.C. § 271(a). The en banc decision clarifies that direct infringement under Section 1498(a) includes acts covered under both 35 U.S.C. § 271(a) and § 271(g).

Key Litigated Issues

In Zoltek Corp. v. United States (Zoltek III), a US Court of Appeals for the Federal Circuit panel held that the US government's liability for patent infringement under 28 U.S.C. § 1498(a) was limited to acts constituting direct infringement under Section 35 U.S.C. § 271(a). This precluded Zoltek's claim of infringement against the government under Section 1498(a) for allegedly infringing acts by Lockheed Martin, the government's contractor, because Zoltek's claim for infringement arose under 35 U.S.C. § 271(g).
The key issue for the Federal Circuit's en banc reconsideration was whether the earlier Federal Circuit decision limiting claims against the government under Section 1498 to patent infringement under Section 271(a) was in error.

Background

Zoltek Corporation is the assignee of a patent covering a method for manufacturing certain carbon fiber products. In 1996, Zoltek filed suit in the Court of Federal Claims against the US government, alleging that certain products designed and manufactured by Lockheed Martin for the government, and used in the F-22 fighter jet, infringed Zoltek's patent under 35 U.S.C. § 271(g).
Zoltek's suit against the US government was based on 28 U.S.C. § 1498(a), which provides that when an invention described in a US patent is used or manufactured by or for the US without license from the patent owner or under another lawful right, the owner's remedy is to bring a claim in the US Court of Federal Claims against the US for the recovery of the reasonable and entire compensation for the infringing use or manufacture.
However, the trial court court found that because the initial steps of the patented process were performed outside the US, the claim was barred by Section 1498(c), which precludes "claims arising in a foreign country." However, the trial court held that Zoltek could assert a takings claim under the Fifth Amendment. Both parties appealed to the Federal Circuit.
On appeal (Zoltek III), a Federal Circuit panel affirmed in a per curiam opinion that Zoltek's infringement allegations against the government were precluded, but under Section 1498(a) (the court did not address Section 1498(c)). The Federal Circuit held that direct patent infringement under Section 271(a) is a threshold requirement for government liability under Section 1498(a). Because not all steps of the patented process were performed in the US, no infringing acts under Section 271(a) occurred and no Section 1498 remedy was available to Zoltek. The majority also reversed the trial court's ruling that Zoltek could allege patent infringement as a Fifth Amendment taking claim.
On remand, Zoltek sought leave to:
  • Amend its complaint to include a claim for patent infringement under 28 U.S.C. § 271(g) directly against Lockheed Martin, the government contractor that designed and built the military jets and imported the allegedly infringed products.
  • Transfer the claim against Lockheed Martin from the Court of Federal Claims to the US District Court for the Northern District of Georgia under 28 U.S.C. § 1631.
Relying on Zoltek III, the trial court granted Zoltek's motion, finding that:
  • It lacked jurisdiction over Zoltek’s claims against the US government.
  • Lockheed was not immune from the patent infringement claims under Section 271(g) since Section 1498(a) only protects government contractors from suit when the government can be found liable.
Subsequently, the trial court certified a question to the Federal Circuit for interlocutory appeal concerning whether Section 1498(c) must be interpreted to nullify any government contractor immunity provided under Section 1498(a) when an infringement claim arises in a foreign country.

Outcome

Partial En Banc Decision Vacates Zoltek III

In its March 14, 2012, decision, the Federal Circuit, in a limited en banc decision, vacated its Zoltek III decision limiting Section 1498(a) to claims for direct infringement under Section 271(a). The court found that its earlier decision:
  • Is inconsistent with the plain language of 28 U.S.C. § 1498(a), which makes no reference to direct infringement as it is defined in Section 271(a).
  • Relied on dicta and a fundamental misreading of the statute.
  • Makes Section 1498(c), which states that the provisions of Section 1498(a) do not apply to any claim arising in a foreign country, superfluous.
  • Made ineffective 19 U.S.C. § 1337(l), which allowed patent owners to seek relief from the government for the unauthorized importation of products made using their process.
The court held that 28 U.S.C. § 1498(a) creates an independent cause of action for direct infringement by the government or its contractors that is not dependent on 35 U.S.C. § 271(a). Under Section 1498(a), the US government has waived sovereign immunity for direct infringement, which extends to both acts defined in Section 271(a) and acts covered under Section 271(g) resulting from unlawful use or manufacture.
Judge Dyk was the sole dissenter, arguing that the Federal Circuit lacked jurisdiction to consider whether Section 1498(a) is limited to infringement because this question was not within the scope of the order on appeal.

Panel Decision

The Federal Circuit panel went on to address whether:
The court held that when the US is subject to suit under Section 1498(a) for alleged infringement of a patent by a contractor acting by and for the US government, the contractor is immune from individual liability for alleged infringement. The court reversed the trial court's holding to the contrary.
The court further held that Section 1498(c) does not apply because the US patent at issue was allegedly infringed by activities taking place in the US, here, the importation into and use in the US of the product of a patented process. The court reversed the trial court's holding to the contrary.
Because the court found the US government's potential liability under Section 1498(a) is established, it did not reach the issue of the US government's possible liability under the US constitution for a taking and vacated the trial court's determination.
The case was remanded to the trial court for further proceedings on the merits.

Practical Implications

The Federal Circuit's decision clarifies the scope of the government's liability for patent infringement by their contractors and the scope of immunity provided to the contractors in these cases. The government is liable under 28 U.S.C. § 1498(a) for all types of direct infringement of a US patent, including claims for acts that would constitute process patent infringement under 35 U.S.C. § 271(g). Government contractors are immune from individual liability when the government is subject to a claim under 28 U.S.C. 1498(a).

Court Documents