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United States Is Liable for Infringement of a Method Claim Under 28 U.S.C. § 1498 Only When It Practices Every Claimed Step in the United States

March 31, 2006

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Last Month at the Federal Circuit - April 2006

Judges: Per Curiam; Gajarsa (concurring), Plager (dissenting), Dyk (concurring)

In Zoltek Corp. v. United States, Nos. 04-5100, -5102 (Fed. Cir. Mar. 31, 2006), the Federal Circuit affirmed the Court of Federal Claims’s determination that 28 U.S.C. § 1498 bars Zoltek Corporation’s (“Zoltek”) claims of patent infringement by the United States. The Federal Circuit further reversed the Court ofFederal Claims’s determination that it had jurisdiction under the Tucker Act based on a violation of the Fifth Amendment.

Zoltek is the assignee of U.S. Patent Re. 34,162 (“the ’162 patent”) directed towards methods of manufacturing carbon sheets with controlled surface electrical resistivity. Zoltek brought suit in the Court of Federal Claims under § 1498(a) alleging that the United States and Lockheed Martin Corporation (“Lockheed”) used the methods claimed in the ’162 patent when Lockheed’s subcontractors made fiber products used in the F-22 fighter jet.

The United States moved for partial SJ that Zoltek’s claims were barred by § 1498(c) because at least one step in the claimed method was performed outside the United States in Japan. The trial court agreed that Zoltek’s § 1498(a) claim was barred under § 1498(c), a subsection that specifically bars § 1498 claims that “aris[e] in a foreign country.” However, the court directed Zoltek to amend its complaint to allege a taking under the Fifth Amendment. The trial court determined that Zoltek could assert patent infringement under 28 U.S.C. § 1491(a)(1) (the Tucker Act). The Tucker Act grants the Court of Federal Claims jurisdiction to render judgment upon any claim against the United States founded upon the Constitution. Pursuant to the Tucker Act, the trial court reasoned that jurisdiction lies under a taking in violation of the Fifth Amendment. The court certified its analysis under 28 U.S.C. § 1292(d)(2) and both parties appealed.

On appeal, the Federal Circuit affirmed the trial court’s determination that § 1498(c) barred Zoltek’s claims but reversed the court’s determination that a taking occurred in violation of the Fifth Amendment. Relying on its recent decision in NTP, Inc. v. Research in Motion, Ltd., 418 F.3d 1282 (Fed. Cir. 2005), the Court noted that (i) direct infringement under 35 U.S.C. § 271(a) is a necessary predicate for government liability under § 1498; and (ii) a process cannot be used within the United States as required by § 271(a) unless each of the steps is performed within this country. Here, because not all steps were performed in the United States, government liability could not exist pursuant to § 1498(a).

Regarding the trial court’s Fifth Amendment determination, the Federal Circuit held that the Supreme Court decision in Schillinger v. United States, 155 U.S. 163 (1894), is still controlling law. In that case, the Supreme Court rejected the argument that a patentee could sue the government for patent infringement as a Fifth Amendment taking under the Tucker Act.

Moreover, the Federal Circuit disagreed with the trial court’s determination that the Supreme Court overruled Schillinger sub silentio in its later decision in Crozier v. Fried. Krupp Aktiengesellschaft, 224 U.S. 290 (1912). The Federal Circuit reasoned that although Crozier analyzed the 1910 Patent Act (later amended and recodified as § 1498) in terms of takings and protecting property rights, the Supreme Court was merely analogizing patent infringement by the government to “taking” a compulsory license. The Federal Circuit further noted that in response to Schillinger, Congress provided a specific sovereign immunity waiver in the 1910 Patent Act to allow a patentee to recoverfor patent infringement by the government. The Court reasoned that had Congress intended to clarify patent rights as property interests under the Fifth Amendment, then there “would have been no need for the new and limited sovereign immunity waiver.” Slip op. at 11.

Judge Gajarsa, concurring, agreed that the Court was bound by its panel decision in NTP that held that direct infringement under § 271(a) is a necessary predicate for government liability under § 1498. However, Judge Gajarsa wrote, “the NTP proposition is, in my view, the result of an unchecked propagation of error in our case law, and its viability may eventually be challenged.” He further explained that reliance on NTP is not necessary since there exists an independent line of reasoning to affirm the Court of Federal Claims’s determination that Zoltek was barred under § 1498. Judge Gajarsa reasoned that § 1498(c) curtails the § 1498(a) sovereign immunity waiver and precludes an action based on infringing a method claim if at least one step of the method is practiced abroad.

Judge Dyk concurred to explain that the NTP decision correctly held that the government can only be liable for patent infringement under § 1498(a) if the same conduct would give rise to liability for a private party under § 271(a). Judge Dyk reasoned that the omission of “within the United States” language from § 1498(a) does not indicate that the government’s liability for patent infringement is broader than that of private parties. Judge Dyk relied on the legislative history of the 1910 Patent Act and the 1918 Amendments to show that Congress was not creating liability; rather, Congress simply provided a remedy upon an existing liability and did not expand the rights of the United States beyond the rights of a private party. According to Judge Dyk, the NTP decision correctly interpreted § 1498(a) to require “use within the United States” and there was no need to decide the scope of § 1498(c) in this case.

Judge Plager dissented on both the Fifth Amendment takings and § 1498 analysis. Judge Plager disagreed with the majority’s interpretation of Schillinger equating a takings claim with an infringement action. Judge Plager reasoned that a takings claim is independent of a § 1498 claim. Judge Plager pointed to Supreme Court precedent to show that a takings claim is neither a contract nor a tort claim but a separate cause of action arising out of the Fifth Amendment. Judge Plager also pointed to the opening clause of the Tucker Act to show that a Fifth Amendment takings action may be brought in the Court of Federal Claims. Regarding the § 1498 claim, Judge Plager disagreed with the majority that § 1498 incorporates the territorial limitation of § 271(a). The dissent would hold the United States liable under § 1498(a) for an unauthorized use of a method patent unless all of the steps of the method are practiced abroad.