Overseas Infringement by A Government Contractor: Who, if Anyone, is Liable?

Thomas C. Carey

By Thomas Carey. Chair of our Business Practice Group

March 2012 IP Update

Zoltek Corp. v. United States involved a federal contractor that had apparently infringed a U.S. process patent, engaging in one step of the process in the United States and the other overseas. The international aspect of the matter confounded the trial court, which led to a series of district court and appellate decisions that had spun out of control. The question confounding the courts was who, if anyone, could the patentee sue for infringement?

An en banc panel of the Federal Circuit has now decided that the government is the proper defendant. Its conclusion was based upon a statute originally enacted during World War I to solve a problem that was hindering the war effort. Then, a Navy contractor had been prevented from making a patented item for a ship because it infringed a U.S. patent.

Congress responded to a plea from Acting Secretary of the Navy Franklin D. Roosevelt by enacting a statute in 1918 to provide immunity to contractors in this circumstance, and to establish a remedy of infringement damages –  but not injunctive relief – against the United States government.

The statute in question, 28 USC §1498(a), states:

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States . . . for the recovery of his reasonable and entire compensation for such use and manufacture.

Zoltek is a carbon fiber maker that had a patent for a process for making that product. The process included two steps, a carbonization step and a step for making the fibers into sheets. Zoltek alleged that Lockheed, as a government contractor, caused the first step in this process to occur in Japan and the second to occur in the United States.

In 2005, while Zoltek’s case was wending its way through the courts, the Federal Circuit ruled in the Blackberry litigation that infringement of a process patent cannot be proven unless every step of the process occurs in the United States. The court pointed to §271(a) of the Patent Act, which says that a claim of direct infringement arises when a person “without authority makes, uses, offers to sell, or sells any patented invention, within the United States” or “imports [the invention] into the United States.”

In 2006, when Zoltek came to the Federal Circuit on appeal, the court noted theBlackberry holding. Because Lockheed practiced some of Zoltek’s patented process in Japan, the Federal Circuit upheld the trial court’s ruling that the  government had not waived its sovereign immunity against this claim of alleged infringement.

This opinion was premised on the idea that direct infringement under §271(a) is a prerequisite to a claim against the government under §1498(a). Since no direct infringement could be established, no case against the government could be maintained.

On remand in 2009, the Court of Claims was clearly reluctant to leave Zoltek with no remedy, and held that Zoltek could sue Lockheed, the government contractor.
On appeal from that ruling, the Federal Circuit convened an en banc panel of eleven judges so that it could overrule its own earlier conclusion that Zoltek could not sue the government. Its reasoning centered upon a de-linking of the two statutes described above.

The court held that liability under section §1498(a) can be established regardless of whether the standards applicable to §271(a) are met. Under §1498(a), governmental liability for infringement of a process claim can be established if the product made using that process is used in the United States, regardless of where the process occurs.

Having found the government to be liable for any infringement that may have occurred, the Federal Circuit then restored the immunity of Lockheed as a government contractor, thereby carrying out the intent of Congress when it enacted §1498(a).

The logic of the Zoltek opinion is more tangled than this brief recounting would suggest. The result, however, seems simple, logical and straightforward.

What defies understanding is how long it took the courts to reach this result. Zoltek filed its complaint against the United States in 1996. The case has thus been in process for over 15 years, and Zoltek has yet to be given the opportunity to prove its claim of infringement. Instead, its case has been the subject of five written opinions providing contradictory guidance as to whom to sue, where to bring the suit and under what theory.

In the end, Zoltek’s original legal theory – that it should sue the federal government for damages in the Court of Claims – was upheld. Zoltek had it right 15 years ago.  Now it gets to try its case, long after the patent has expired.