A recent petition for cert addresses the question of what, if any, recourse is available to a patentee against the United States for infringed method claims, where some or all of the method steps are carried out in another country, but the product of that process is imported into the US. In addition, the petition raises the question of whether patents are property subject to the Fifth Amendment Takings Clause. See, Zoltek Corp. v. U.S., Docket No.04-5100o.

The petition, filed on behalf of Zoltek Corp., after the Federal Circuit declined to grant relief for allegedly infringing acts of the Federal government, illustrates a judicial loophole that compromises a patentee’s ability to protect patent rights against the government.

Zoltek, a publicly traded U.S. company, owns the rights to a patent which claims a method for making and processing paper-like sheet products made from carbon fibers. The product produced by the method is useful in military applications such as providing stealth qualities to aircraft. The U.S. contracted with Lockheed Martin Corporation to design and build an F-22 fighter, who in turn, subcontracted portions of the work. The subcontractors used materials made exclusively in Japan, while the product itself (fiberglass mats) was processed in the United States.

The federal government generally enjoys sovereign immunity which can be limited by Congress. For infringement of patents, 28 U.S.C § 1498(a) provides such a limitation, stating that:

whenever an invention described in and covered by a patent of the United States is used. .. 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 in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.
35 U.S.C § 1498(a) (Emphasis added.)

§ 1498(c) limits the scope of § 498(a), providing that the exception “does not apply to any claim arising in a foreign country.”

Zoltek brought suit in the Court of Federal Claims, alleging that the patent, RE34,162, was infringed in violation of 35 USC §1498. The U.S. defended on the grounds that the accused processes were used, in whole or in part, outside the U.S. and thus the claims were excluded from 1498(c) as “claim[s] arising in a foreign country.” The CFC held that 1498(c) barred Zoltek’s claims, but directed Zoltek to allege a taking under the Fifth Amendment.

The Federal Circuit affirmed on slightly different grounds, citing earlier opinions holding that § 271(a) must be satisfied for § 1498 to apply. The Federal Circuit held that the US did not meet 271(a), as “a process cannot be used ‘within’ the United States as required by the [infringement statutes] unless each of the steps is performed within this country.” Because one of the steps of the claimed process—the manufacture of the fibers—occurred outside of the U.S., the Federal Circuit held that there was no infringement under § 271, and §1498 could not apply. As such, the ruling created a “easy-out,” for the US government and its contractors for avoiding infringement of method claims: practice at least one step outside of the United States.

The Federal Circuit further denied the claims asserted under the Fifth Amendment, holding that Zoltek’s only grounds for judicial recourse was 28 U.S.C §1498. The Federal Circuit held that patent rights were not property, but rather, a “creature of patent law” protected only by such relief as the federal government saw fit to grant under 28 U.S.C § 1498(a). According to the Federal Circuit, “property interests… are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law,” and to hold otherwise would “read [§1498] out of existence.”

In its petition, Zoltek argues that the Federal Circuit’s opinion strips an entire class of property owners—patent holders—of their Fifth Amendment right to just compensation for the taking of their patent rights, and compromises the incentive to invent methods or processes that could be of import to the U.S. government.

Under the holding of the Federal Circuit, where the U.S. government outsources any one step of a patented process, the patentee no longer has a chance to recover for infringement. This compromises the economic incentive for inventors to provide valuable and useful technologies, making the practice of innovating in this sector a “far riskier endeavor.” (See Zoltek’s petition for cert., p. 15.)

As stated by Judge Plager in his dissent in the Federal Circuit ruling, allowing the government, without liability, to appropriate the products of a patented process merely by performing “any one step” of such process outside the United States “is an invitation to strategic conduct if ever there was one.” Id., citing 442 F.3d 1345, 1383 (Fed. Cir. 2006).

Zoltek further argues that patents should indeed be considered property that is subject to the takings clause of the 5th Amendment, citing the current Patent Act, which states that “[s]ubject to the provisions of this title, patents shall have the attributes of personal property,” and numerous Supreme Court holding acknowledging the same.

In view of the ease with which the federal government could avoid claims of infringement merely by enlisting foreign sources to practice steps of a claimed method or process, this case is worth watching. The Federal Circuit holding creates an illogical imbalance in the patent law: a patentee could pursue a private company for infringement under 271(g) for these acts, while the federal government and its contractors are immune. Judge Plager’s view — that this holding is an invitation to strategically practice patented processes so as to avoid the necessity of a license — certainly raises the question of whether this holding adequately serves patent policy in encouraging innovation.

For an alternative view on the issue of patents as property subject to the Takings Clause, see Professor Isaacs’s recent note entitled “Not All Property is Created Equal: Why Modern Courts Resist Applying the Takings Clause to Patents, and Why They are Right to Do So.”

  Print This Post Print This Post  

2 Comments

  1. Notice: Object of class WP_Comment could not be converted to int in /hermes/bosnacweb01/bosnacweb01ad/b2262/ipw.patentba/public_html/wp/wp-content/plugins/polldaddy/rating.php on line 7

    As C.J. Roberts told the committee during his confirmation hearings (saying Judge Friendly had told it to him), “read the statute. READ the statute. read the STATUTE.”

    The actual fourth through eigth words of 1498(a) are: “described in and covered by.” Does the statute say, “described in and CLAIMED by?” It does not. What the heck does “covered by” mean? I have no idea, but smarter people than me have decided that when Congress wrote “covered by,” Congress meant, “infringed under section 271.”

    Zoltek itself apparently agrees with established precedent on this interpretation, at least as far as its first “question presented” goes. Question 1 reads:

    1. Whether conduct by the government through its authorized contractors that would otherwise constitute patent infringement under § 271(g) or § 271(a) is a taking of property subject to the Fifth Amendment?

    The funny thing about that question is that two courts have already considered the factual question of whether this defendant’s actions constituted patent infringement under § 271(g) or § 271(a) and found, as a matter of fact, that they did not.

  2. Notice: Object of class WP_Comment could not be converted to int in /hermes/bosnacweb01/bosnacweb01ad/b2262/ipw.patentba/public_html/wp/wp-content/plugins/polldaddy/rating.php on line 7

    In Australia we have a Crown right to subsume an inventio n for the services of the government, subject to an obligation to pay remuneration. Is there a proscribed standard or cases which indicate the approach to be taken by the courts in the US in assessing such compensation payable to the patentee as a result of government use of the patent?