Sunstein Kann Murphy & Timbers LLP

February 2009 IP Update

Stealth Infringement: A Government Contractor Using an Infringing Process Abroad Loses Immunity

from Liability

A federal court has closed a long-standing gap in the relief available for patent infringement arising from government contracts. Until now, government contractors used a statutory immunity to fend off all infringement claims.

The gap arose because the statute holding the government liable for its contractors’ infringement is limited to claims that arise in the United States. 28 U.S.C. § 1498(c). As a result, when products are imported into the United States after they are made abroad from a patented method, the anomaly existed of a wrong under the patent law without a remedy: The government had not waived its sovereign immunity, yet the contractor appeared to be protected by the statutory immunity covering work done for the government. Id. § 1498(a).

Our story begins in 1986, when the United States government contracted with defense-industry giant Lockheed Martin for the production of the F-22 Raptor fighter plane. This stealth fighter incorporates carbon fiber sheet products that Zoltek claims were made by a process that infringed its patent. Because the contractor performed pertinent steps of the process in Japan, however, Zoltek could not maintain a suit against the United States or, it seemed, the contractor.

Zoltek, which initiated suit more than 12 years ago, has seen its fate debated and decided by various courts. But last month, in Zoltek Corporation v. United States, the U.S. Court of Federal Claims for the first time held that a government contractor may be liable for patent infringement.

Because patentees have been historically barred from enforcing their rights against contractors, Zoltek brought a case for infringement against the U.S. government in the Court of Federal Claims, a specialized tribunal that has jurisdiction over claims for monetary relief against the United States government. It now has the promise of adding another court to the roster when the case moves to the Northern District of Georgia.

In analyzing the relevant statutes and the immunities that they provided, the Court of Claims refused to permit a legal gap to arise that would leave Zoltek without a remedy. Instead, it held that the law immunizing government contractors from patent infringement only applied where the government itself had waived its sovereign immunity.

Where no waiver of sovereign immunity exists because of infringing activities conducted abroad, the contractors were not protected by a statutory immunity. In other words, someone had to be accountable for the infringement: if not the government, the contractor.

It was not enough for Zoltek to convince the court that the law of contractor liability left certain patent-infringement claimants high and dry. Zoltek also had to navigate a procedural minefield to bring Lockheed Martin into the lawsuit. While cases against the government are properly brought in the Court of Federal Claims, that tribunal could not hear the case against Lockheed. Of course, when it commenced the suit, Zoltek had no reason to believe it could succeed in asserting patent rights against Lockheed.

At this late date, the statute of limitations prevented Zoltek from filing a timely case in federal court in Georgia. Yet without Lockheed in the original lawsuit, Zoltek could not simply transfer the case to Georgia because the federal court there would not have had the right to decide the case as filed.

Resolving a procedural conundrum unique to this case, the court held that Zoltek could amend its complaint by asserting claims against Lockheed and thereafter have the suit transferred to the federal court in Georgia.

The holding gives patent owners long-awaited clarity on the scope of their rights in situations where government contractors import items into the United States after they are made abroad by an infringing method. For the government contractors, this clarity spells new exposure to litigation. As for Zoltek, it wins the chance to extend this already protracted litigation to what promises to be a hard-fought dispute with Lockheed Martin.

	Articles Our Newsletters Speaking/Press Other Useful IP Links	February 2009 IP Update Stealth Infringement: A Government Contractor Using an Infringing Process Abroad Loses Immunity from Liability By Meredith Ainbinder A federal court has closed a long-standing gap in the relief available for patent infringement arising from government contracts. Until now, government contractors used a statutory immunity to fend off all infringement claims. The gap arose because the statute holding the government liable for its contractors’ infringement is limited to claims that arise in the United States. 28 U.S.C. § 1498(c). As a result, when products are imported into the United States after they are made abroad from a patented method, the anomaly existed of a wrong under the patent law without a remedy: The government had not waived its sovereign immunity, yet the contractor appeared to be protected by the statutory immunity covering work done for the government. Id. § 1498(a). Our story begins in 1986, when the United States government contracted with defense-industry giant Lockheed Martin for the production of the F-22 Raptor fighter plane. This stealth fighter incorporates carbon fiber sheet products that Zoltek claims were made by a process that infringed its patent. Because the contractor performed pertinent steps of the process in Japan, however, Zoltek could not maintain a suit against the United States or, it seemed, the contractor. Zoltek, which initiated suit more than 12 years ago, has seen its fate debated and decided by various courts. But last month, in Zoltek Corporation v. United States, the U.S. Court of Federal Claims for the first time held that a government contractor may be liable for patent infringement. Because patentees have been historically barred from enforcing their rights against contractors, Zoltek brought a case for infringement against the U.S. government in the Court of Federal Claims, a specialized tribunal that has jurisdiction over claims for monetary relief against the United States government. It now has the promise of adding another court to the roster when the case moves to the Northern District of Georgia. In analyzing the relevant statutes and the immunities that they provided, the Court of Claims refused to permit a legal gap to arise that would leave Zoltek without a remedy. Instead, it held that the law immunizing government contractors from patent infringement only applied where the government itself had waived its sovereign immunity. Where no waiver of sovereign immunity exists because of infringing activities conducted abroad, the contractors were not protected by a statutory immunity. In other words, someone had to be accountable for the infringement: if not the government, the contractor. It was not enough for Zoltek to convince the court that the law of contractor liability left certain patent-infringement claimants high and dry. Zoltek also had to navigate a procedural minefield to bring Lockheed Martin into the lawsuit. While cases against the government are properly brought in the Court of Federal Claims, that tribunal could not hear the case against Lockheed. Of course, when it commenced the suit, Zoltek had no reason to believe it could succeed in asserting patent rights against Lockheed. At this late date, the statute of limitations prevented Zoltek from filing a timely case in federal court in Georgia. Yet without Lockheed in the original lawsuit, Zoltek could not simply transfer the case to Georgia because the federal court there would not have had the right to decide the case as filed. Resolving a procedural conundrum unique to this case, the court held that Zoltek could amend its complaint by asserting claims against Lockheed and thereafter have the suit transferred to the federal court in Georgia. The holding gives patent owners long-awaited clarity on the scope of their rights in situations where government contractors import items into the United States after they are made abroad by an infringing method. For the government contractors, this clarity spells new exposure to litigation. As for Zoltek, it wins the chance to extend this already protracted litigation to what promises to be a hard-fought dispute with Lockheed Martin.