9th Circuit Finds Failure to Report Subject Inventions Not a False Claim under False Claims Act

In Cafasso, United States ex rel., v. General Dynamics C4 Systems, Inc., 637 F.3d 1047 (C.A. 9 2011), Mary Angela Cafasso brought a qui tam action in Ninth Circuit Court of Appeals alleging False Claims Acts (“FCA”) violations and retaliation by General Dynamics C4 Systems, Inc. (“GDC4S”).  Ms. Cafasso worked as the chief scientist/technologist at GDC4S, a technology company that services the military. GDC4S was a participant in the Advanced Telecommunications & Information Distribution Research Program (“ATIRP”) and as a result had contracted with the Army to assign to the United States certain rights to “subject inventions” developed in performance of military contracts. These rights included a royalty-free right to use or have used on its behalf subject inventions, as well as the right to allow the Government to take over prosecution of the subject invention should GDC4S not pursue patenting of the subject invention.  ATIRP required from GDC4S timely disclosure of applicable subject inventions to the government to ensure these rights are secured. Ms. Cafasso worked in the office that identified, documented, and protected GDC4S’s intellectual property. Her responsibilities included ensuring that GDC4S complied with ATIRP’s requirements by, among other things, disclosure of subject inventions. Continue reading 9th Circuit Finds Failure to Report Subject Inventions Not a False Claim under False Claims Act

Feature Comment: Supreme Court To Decide How Technology Licensing Will Proceed Under Bayh-Dole

By James G. McEwen[1]

I.        Brief overview of Bayh-Dole Act

The Bayh-Dole Act[2], through Federal Acquisition Regulations and/or 37 CFR 401, applies to the typical government funding agreements: procurement contracts, grants, and cooperative agreements.[3]  While seemingly an obscure act, Bayh-Dole is often held up as one of the most important pieces of legislation governing patent rights resulting from collaborations between private institutions and the Government, and is a model on which other countries have based their attempts to promote technology transfer between Government and the private sector.

Under Bayh-Dole, small businesses, universities, and other non-profit organizations may elect to retain title to subject inventions rather than conferring title to the Government.[4]  In return, the Government receives a license right to the subject inventions to use for Government purposes (including procurement).[5]  Pursuant to executive order, these same rights are conferred on large contractors[6] to the extent permitted by law.[7]   Thus, under a normal funding agreement, a contractor is entitled to title in their subject inventions.

At the same time, not all inventions are subject inventions.  Thus, whether the Government obtains rights under Bayh-Dole is entirely dependent on how the invention was developed. Specifically, the Government only obtains rights to those inventions accruing under funding agreements, where the invention is first conceived or actually reduced to practice.[8]  Thus, unless the work is being performed outside of the United States,[9] the Government typically only obtains a license right as opposed to ownership to the subject invention.[10]  Importantly, this definition specifically disclaims certain inventions: i.e. those which are outside of the statement of work of a funding agreement.  As such, the Bayh-Dole Act only governs rights where the invention is an “invention of the contractor” which was “conceived or first actually reduced to practice in the performance of work under a funding agreement.”[11] Continue reading Feature Comment: Supreme Court To Decide How Technology Licensing Will Proceed Under Bayh-Dole

Feature Comment: The Impact of Uniloc USA, Inc. v. Microsoft Corp. on Patent Damages under 28 U.S.C. §1498(a)

By James G. McEwen[1]

While many of the aspects of infringement claims against the Government have seemingly similar elements to actions against private parties under 35 U.S.C. §271, it is important to understand that 28 U.S.C. §1498(a) is not an exact counterpart to 35 U.S.C. §271.  For instance, 28 U.S.C. §1498(a) does not allow for actions against the Government for inducement and contributory infringement, or infringement through infringement of product by process claims.[2]  At the same time, the Government is directly liable for infringement by its contractors if the Government has authorized and consented to such uses of the patented invention, which outside of claims of inducement, contribution, or vicarious liability, does not exist in private party litigation under 35 U.S.C. §271.  The requirement for such authorization and consent claims is to ensure that the Government is able to secure contractor-provided goods and services by extending its immunity to contractors and thereby ensure that the contractors cannot be enjoined.[3]

This same distinction exists in relation to damages.  Under 35 U.S.C §271(a), a court can award an injunction under 35 U.S.C §283 and “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer” under 35 U.S.C §284.  In contrast, the Government may not be enjoined for infringing a patent or authorizing a contractor to do the same. Instead, where the Government utilizes a privately owned patent, the exclusive remedy available to the owner is set forth in 28 U.S.C. § 1498 (a), which limits relief to “recovery of [the patentee’s] reasonable and entire compensation for such use and manufacture.” This limit also prevents the imposition of damages for willfulness under in 28 U.S.C. § 1498 (a) even where such damages would be appropriate under 35 U.S.C §284.[4]

Accepted measures of damages under 28 U.S.C. §1498(a) include (1) a “reasonable royalty” based on the hypothetical willing buyer/willing seller approach,[5] (2) a lost profits analysis,[6] or (3) the savings-to-the-Government approach.[7] The “reasonable royalty” analysis is the preferred approach.[8] Importantly, the “reasonable royalty” analysis generally tracks the analysis performed under 35 U.S.C §284 in regards to what royalty rate would be reasonable under a hypothetical negotiation, and what systems are included in the entire market of the invention.  Thus, given the distinction between damages awarded under 35 U.S.C §283 and those available under 28 U.S.C §1498(a), the Federal Circuit’s decision in Uniloc USA, Inc. v. Microsoft Corp.[9] is of interest to the procurement community as well as to third parties believing that the Federal Government has infringed their patent.

As noted in Gargoyles Inc. v. U.S,[10] “[w]hile perhaps in some cases government contractors can expect less profit when licensing to the government than in the private sector, the success in the private marketplace was a reasonable starting point for the trial court to analyze the hypothetical royalty negotiation.”  Given the reliance on commercial practices for royalty rates, the Unlioc decision at the very least is going to require use of true license comparisons to arrive at damages.  Short cuts, such as the now-discredited 25% rule of thumb, will not be usable as a matter of law.

In theory, starting without this 25% rule should result in lower royalty rates.  For instance, in Uniloc, there was evidence that the actual starting royalty rate used in licensing within the industry was rarely 25%.  At the same time, the starting point in a particular industry is generally not well known or publicized.  Therefore, what is likely to happen is experts will be sought who start at higher rates (and can testify that their normal starting point for negotiations is high), and then to a negotiated rate.  Indeed, it was Dr. Gemini’s whole reliance on a rule of thumb as opposed to testifying that, in fact, the industry standard is to start at 25% and work downward which doomed his testimony.  Therefore, it is just as likely that the battle of the experts will now focus on justifying a high starting royalty rate in order to obtain, from the plaintiff’s point of view, an adequate measure of damages.  And this battle will extend into damages under 28 U.S.C. §1498 in like manner. Continue reading Feature Comment: The Impact of Uniloc USA, Inc. v. Microsoft Corp. on Patent Damages under 28 U.S.C. §1498(a)

11th Circuit Finds That University Can Be Subjected to Injunction to Prevent Continuing Infringement

In National Association of Boards of Pharmacy v. Board of Regents of the University System of Georgia, 97 U.S.P.Q.2D 1931 (11th Cir. 2011), the National Association of Boards of Pharmacy (hereinafter “NABP”) owns copyrighted tests which it uses to accredit pharmacists.  Professor Flynn Warren of the University of Georgia offered a review course for these tests, and used actual questions from the tests in his review course.  After receiving a tip, the NABP confirmed that Professor Warren was using the actual copyrighted questions, after which Professor Warren and the University of Georgia agreed to cease and desist using the copyrighted questions.  Subsequently, NABP again determined that Professor Warren was again gathering copyrighted test questions for use in his course in violation of agreement previously reached.  To confirm their suspicions, the NABP purchased a copy of Professor Warren’s course materials for $100, and after confirming that 150 questions were copied from the NABP test, the NABP was forced to replace the 150 questions with new questions. Continue reading 11th Circuit Finds That University Can Be Subjected to Injunction to Prevent Continuing Infringement

Federal Circuit Finds Declaratory Judgment Not Available Against Field of Use Licensee Where Patent Owner Could Not Be Joined

In A123 Systems, Inc. v. Hydro-Quebec, 626 F.3d 1213 (Fed. Cir. 2010), Hydro-Quebec (HQ) is a licensee of U.S. Patent Nos. 5,910,382 and 6,514,640, which are owned by the Board of Regents for the University of Texas System (UT).  The license gives HQ an exclusive license within a specified field of use.  HQ had threatened suit against A123 for infringement of these patents, whereby A123 filed a Declaratory Judgment against HQ in the District of Massachusetts claiming non-infringement on August 14, 2006.  HQ moved to dismiss alleging that UT was a necessary party and could not be joined due to Eleventh Amendment immunity, and filed its own suit with UT in the Northern District of Texas.  A123 further filed a reexamination request for the patents, which resulted in the Texas action being stayed and the Massachusetts was dismissed without prejudice while the reexamination continued.  On conclusion of the reexamination, A123 motioned to reopen the Massachusetts action, which HQ opposed on the grounds that the Massachusetts action would be dismissed for failure to join UT as a necessary party.  The District Court denied’ A123’s motion, agreeing with HQ that the Massachusetts action would be dismissed and yielded jurisdiction to the later-filed action in the Northern District of Texas.

On appeal, A123 argued that the license conferred sufficient rights to HQ as to not require the joinder of UT, and further, that Rule 19 of the Federal Rules of Civil Procedure would allow the suit to continue even without UT.  On the issue of the license, A123 noted that HQ had held itself as an exclusive licensee having the right to enforce the patents, and had even brought suit against another party, Valence Technology, Inc. as this exclusive licensee.  In response, HQ argues that the suit against Valence Technology was within its exclusive field of use, and even assuming arguendo that HQ had made incorrect assertions about its rights, such assertions do not affect UT’s actual rights under the license.  The Federal Circuit agreed with HQ, noting testimony confirming that the license allowed UT the right to license in other fields of use, and that HQ’s statements in the other suit were consistent with this interpretation.  As such, since HQ did not receive all substantive rights in relation to the technology at issue with A123, A123 could not bring a Declaratory Judgment action against HQ without the participation of UT.

Having decided that UT was a necessary party, the Federal Circuit noted that UT could not be forced to join the Massachusetts action due to the sovereign immunity conferred by the Eleventh Amendment in light of College Savings Bank v. Florida Prepaid Postsecondary Education, 537 U.S. 666 (1999).  While A123 had relied upon a market participation theory, the Federal Circuit confirmed that this theory was rejected by the Supreme Court and by Federal Circuit precedent even where the same subject matter was brought by the state in another forum.  As such, despite being a necessary party, UT could not be joined in Massachusetts without its consent.

A123 next argued that Rule 19 allows a suit to be maintained despite the non-joinder of a necessary party except where party is indispensible, and that the District Court had not specifically found UT to be indispensible.  In reviewing this argument, the Federal Circuit noted that the court is required to review with to allow a suit to proceed without a necessary, but not indispensible, party.  Dainippon Screen Mfg. Co., Ltd. v. CFMT, Inc., 142 F.3d 1266, 1272 (Fed. Cir. 1998); Vaupel Textilmaschi-nen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 876 n.1 (Fed. Cir. 1991).  The factors as to whether a party is indispensible are set forth in Rule 19(b) as follows:

[T]he court must determine whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed. The factors for the court to consider include:

(1) the extent to which a judgment rendered in the person’s absence might prejudice that person or the existing parties;

(2) the extent to which any prejudice could be lessened or avoided . . . ;

(3) whether a judgment rendered in the person’s absence would be adequate; and

(4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder.

 

Citing to In re Olympic Mills Corp., 477 F.3d 1, 8-9 (1st Cir. 2007), A123 largely contended that only the first factor was relevant, and in weighing the first factor in favor of A123 was warranted as both UT and HQ share a common goal in defending the patents, and therefore there would be no prejudice to UT should it not be joined.  In rejecting this argument, the Federal Circuit first noted that the District Court did address the first factor, and noted that both parties did not have identical interests since HQ’s interest was in ensuring a claim construction that was consistent with its field of use, whereas UT’s interest was for the entire patent.  Thus, there was a risk to UT which was not ameliorated by the similar, but not identical, interests of HQ versus UT.

The Federal Circuit also reviewed the record and noted that the plaintiff, A123, does have an adequate remedy based upon the Texas action as all defenses available in Massachusetts would also be available in the Texas action to which UT had waived its sovereign immunity.  Thus, on balance, the Federal Circuit found that the Rule 19(b) weighed in favor of UT being labeled an indispensible party, and affirmed the dismissal on those grounds.

Significance for Technology Companies

While the Supreme Court’s decision in MedImmune, Inc. v. Genentech Inc., 549 U.S. ___; 81 USPQ2d 1225 (2007) did broaden the standard for bring declaratory judgments, it is apparent that this standard remains confused where a sovereign entity is involved.  While some courts have allowed suits to be maintained where the Federal Government refused to be joined under Rule 19 as in Sourceone Global Partners LLC. V. KGK Synergize, Inc., Civ. Case No. 08 C 7403 (N.D. Il. May 13, 2009), A123 Systems shows that Rule 19 does not always allow such suits to be maintained where the non-joining sovereign is amendable to suit in another jurisdiction.  Thus, prior to bringing such a declaratory judgment action involving a sovereign actor, plaintiffs need to account for the uncertainties involved in Rule 19 in case the sovereign entity refuses to be joined.

 

Northern District of Illinois Finds That Declaratory Judgment Action Available Against Private Sector Owner of Patent Owned in Common with Government

In Sourceone Global Partners LLC. V. KGK Synergize, Inc., Civ. Case No. 08 C 7403 (N.D. Il. May 13, 2009), KGK Synergize (“KGK) is an assignee of U.S. Patent No. 6,987,125 (the ‘125 patent), which generally relates to a nutritional supplement for lowering cholesterol.  The ‘125 patent was invented by Najla Guthrie, Elzbieta Kurowska, John Manthey, and Robert Horowitz pursuant to a partnership between the Department of Agriculture and KGK.  Pursuant to the partnership agreement, Mr. Mathaney and Mr. Horowtiz assigned their rights to the Federal Government, and Ms. Guthrie and Ms. Kurowska assigned their rights to the KGK.  KGK later exclusively licensed their interest in the ‘125 patent to Sourceone Global Partners (Sourceone) for the purpose of making and selling Sytrinol.  The Government is not a signatory to this license.

Subsequently, Sourceone developed on its own Cholesstrinol, which Sourceone believed did not infringe the ‘125 patent and therefore was not subject to the royalty provisions of the license.  KGK sent threatening letters to Sourceone’s partners, suppliers, and customers indicating that Cholesstrinol infringed a number of patents, including the ‘125 patent.  In response, Sourceone filed a Declaratory Judgment Action alleging, among other issues related to tortuous interference with contracts, that Cholesstrinol does not infringe the ‘125 patent and that the ‘125 patent was invalid.

KGK moved for dismissal of the Declaratory Judgment Action as to those claims related to the ‘125 patent since the ‘125 patent is co-owned by the Federal Government.  As any judgment resulting from the Declaratory Judgment Action affecting the validity of the ‘125 patent will affect a property owned by the Federal Government, the Declaratory Judgment Action violates the Federal Government’s sovereign immunity to Declaratory Judgment Actions. In essence, KGK’s position was that any patent commonly owned by a private party and the Federal Government could not be the subject of a Declaratory Judgment Action to the same extent that a Declaratory Judgment Action cannot lie against a patent wholly owned by the Federal Government since Rule 19 requires joinder of the Federal Government in such situations.

In disagreeing with KGK, Magistrate Judge Schenkier found that the court retained subject matter jurisdiction over the Declaratory Judgment Action since the mere fact that one owner enjoys sovereign immunity does not affect the liability of the remaining owners. In reaching this decision, the court first acknowledged that Rule 19 does not require joinder since KGK is a co-owner of the patent.   In this manner, the court distinguished the situation from the situation in Enzo APA & Son, Inv. V. Geapag A.G., 134 F.3d 1090 (Fed. Cir. 1998) where the failure of a join the patent owner prevented a Declaratory Judgment Action since the non-exclusive licensee who was actually sued lacked standing to bring suit.  Since KGK was a co-owner, KGK was not in the same situation as a non-exclusive licensee and therefore could be the subject of a Declaratory Judgment Action without the remaining co-owners.

The Court further noted that the failure to join a party is not a matter of subject matter jurisdiction, but instead falls within the joinder requirements of Rule 19.  While Rule 19 requires joinder of indispensible parties and the parties agreed that the Government is an indispensible party, Rule 19(b) provides an exception where the court determines, according to a set of four factors, whether “in equity and good conscience, the action should proceed among the existing parties or should be dismissed.” Quoting Rule 19(b).

In applying the exception, the court noted that it needed to balance the harm against the missing party should the action proceed as compared to the harm against the party opposing dismissal.  According to this balance, the court found that there was greater harm in dismissing the action to Sourceone than there was harm to the Federal Government in forcing dismissal under Rule 19 for failure to join an indispensible party. 

In applying the first factor, the Court cited to the Federal Circuit’s decision in Dainippon Screen Mfg. Co. v. CFMT, Inc. 142 F.2d 1266 (Fed. Cir. 1998) for the proposition that, in the case of a licensee who is sued under a Declaratory Judgment Action, Rule 19(b) should allow the suit to proceed where the interest of the licensee is aligned with the interest of the patent owner.  In Dainippon, CFMT was the licensee of a patent, and patent was owned by the parent of CFMT.  In the same way, while the Government had argued that its interest in the ‘125 patent would be prejudiced should the Declaratory Judgment Action proceed and the ‘125 patent be found invalid, the Court found that there was no action of adverse interests between the coowners of the ‘125 patent.  As such, this alignment of interest indicated that the first factor weighed heavily in favor of maintaining the suit.

After finding the second and third factors were also in favor of Sourceone, the court applied the fourth factor, which considers whether Sourceone would have an adequate remedy outside of the Declaratory Judgment Action.  The court found that there was no alternative remedy available should the action be dismissed.  Specifically, while KGK noted that the Government can be sued under 28 U.S.C. §1498 for patent infringement, there was no allegation of Government infringement.  Moreover, since the Court of Federal Claims can only grant money damages under 28 U.S.C. §1498, there would be no available remedy for Sourceone should a Declaratory Judgment Action be filed under 28 U.S.C. §1498. Therefore, 28 U.S.C. §1498 failed to provide a remedy.  Thus, the court held that, while KGK and the Government “see no unfairness in requiring Sourceone to wait until they together decide to sue Sourceone before Sourceone can raise its invalidity and noninfringement defenses” as KGK continues threatening infringement against Sourceone and its partners, when viewed from the perspective of equity, the court “failed to see how the public interest is advanced by allowing a private patentee such as KGK that kind of unreviewable sway in exercising its patent rights.”   Thus, the fourth factor also weighed heavily in favor of maintaining the suit.

Therefore, the court found that merely because the Federal Government could not be joined under Rule 19, Rule 19(b) provided an exception which allowed the Declaratory Judgment Action to continue.

Significance for Government Licensed Patents

Sourceone demonstrates that co-ownership of a patent does not always require joinder of all owners for purposes of declaratory judgment actions, and that even where joinder is others necessary, an exception is available.  Thus, merely because one owner enjoys sovereign immunity does not mean that the remaining owners enjoy the same immunity.  However, the situation in Sourceone is relatively unique.  Unanswered is the question of what would have happened if the patent is not commonly owned with the Government.  In the more typical situation, the Government will license the patent and it is the licensee who, with authority to bring suit in its own name, sends such letters which can result in a declaratory judgment action.  In this situation, the result may well not be the same.  For instance, unless the license is fully paid up, the interests of a licensee is not exactly the same as that of the patent owner since the licensee may want to reduce royalties is owes. An example of this situation was recently demonstrated in MedImmune, Inc. v. Genentech Inc., 549 U.S. 118 (2007).  Further, since all licenses for Government patents, even exclusive ones, allow the Government to re-license the patent to others under limited circumstances as set forth in 37 CFR 404.5, the Government may be in a position to terminate a suit by negotiating a deal directly with the accused infringer in limited circumstances.  Therefore, unlike the situation in  Sourceone, the parties’ interests are not wholly aligned and the Government may well be required for maintaining a declaratory judgment action in order to ensure that public assets are adequately protected.  Therefore, while declaratory judgment actions appear more viable against private parties who own patents commonly with the Government, the same may not be possible for exclusive licensees of Government owned patents.

Court of Federal Claims Indicates Contractor Liable Where Government is Immune

Federal Claims Allows Transfer To Allow Patent Infringement Suit Against Contractor Where Government Immune from Infringement

In Zoltek Corp. v. United States, No. 96-166 C (Fed.Cl. Jan. 23, 2009), Zoltek Corporation owns Patent No. Re. 34,162 (“the ‘162 patent).  Originally, Zoltek asserted the ‘162 patent against the Federal Government under 28 U.S.C. § 1498(a).  28 U.S.C. §1498(a) sets forth a remedy for patentees whose patents are “used or manufactured” by government contractors acting with the “authorization or consent” of the Government. Zoltek has alleged that the Government caused the manufacture of carbon fiber products according to processes covered by the ‘162 patent and that these products were incorporated into Lockheed Martin Corporation’s F-22 Fighter Planes. 

In 2001, the Government moved for partial summary judgment, raising 28 U.S.C. § 1498(c) as an affirmative defense to liability under 28 U.S.C. § 1498(a).  Specifically, the Government asserted that 28 U.S.C. §1498(c) provides that “[t]he provisions of this section shall not apply to any claim arising in a foreign country,” and therefore this provision provides an exception to 28 U.S.C. § 1498(a).  The Government next asserted that Zoltek’s F-22 claim arose in a foreign country within the meaning of 28 U.S.C. § 1498(c) because the accused processes included the manufacture of fibers inJapan, and therefore 28 U.S.C. § 1498(c) nullified the possibility for liability under § 1498(a).

To determine when a claim arises in a foreign country, the Court of Federal Claims looked to the Patent Act, which requires that the infringing act be performed within theUnited States. Zoltek argued that the remedies provided by 35 U.S.C. § 271(g) for the importation, sale, offer to sell, or use of a product made by a process patented in the United States would apply in this case, and that this type of infringement was within the scope of the authorization and consent allowed under 28 U.S.C. § 1498.  Thus, despite 28 U.S.C. § 1498(c), Zoltek would still have a cause of action against the Government even though the patented process was not practiced entirely in theUnited States. The Court of Federal Claims, however, held that 28 U.S.C. § 1498, by its terms, does not provide for such a remedy, and, thus, Zoltek could not bring such a claim against the Government. The Court stated that, “[b]ecause nothing in the legislative history indicates that Congress intended for the meaning and effect of section 1498 to change in congruence with changes in 35 U.S.C. § 271, the Court is constrained to hold that section 1498 does not apply to all forms of direct infringement as currently defined in 35 U.S.C. § 271.”

On appeal, the Federal Circuit affirmed the Court of Federal Claims’ judgment, but it used different reasoning. The Federal Circuit held that “direct infringement under section 271(a) is a necessary predicate for government liability under section 1498” and that “a process cannot be used ‘within’ the United States as required by section 271(a) unless each of the steps is performed within this country.”

On remand, Zoltek moved to transfer in order to directly bring an action against the contractor performing the work under 35 U.S.C. §271(g).  The transfer statute under which Zoltek has brought its motion for transfer, 28 U.S.C. § 1631, permits transfer of a civil action to another jurisdiction when: (1) the transferor court lacks jurisdiction, (2) the transferee court would have had jurisdiction at the time the original case was filed, and (3) transfer would serve the interests of justice. As discussed above, the Federal Circuit had already concluded that the Court of Federal Claims lacked jurisdiction to hear Zoltek’s claims against the Government regarding the F-22, so only the second and third requirements of 28 U.S.C. § 1631 remained to be discussed.

As to the second requirement, Zoltek argued that because 28 U.S.C. § 1498(a) does not apply, there was no question that the action could have originally been brought in the Northern District of Georgia, where Lockheed conducts a substantial amount of business and does a substantial amount of building for the F-22. In first looking to the plain language of 28 U.S.C. § 1498, the Court determined that there is no reason why a government contractor cannot be subject to suit under 35 U.S.C. § 271 when 28 U.S.C. § 1498(c) has been triggered. Next, because 28 U.S.C. §1498(a) is not a jurisdictional bar and does not procedurally prevent suit against Lockheed, the Court discussed whether the Northern District of Georgia could have heard any of Zoltek’s claims when Zoltek filed its original complaint. The problem lay in the fact that Zoltek had never expressly included a claim for infringement under 35 U.S.C. § 271 against Lockheed in its complaint. The Court refused to accept Zoltek’s promise that it would amend its complaint once the F-22 claim is transferred. It was not enough for Zoltek to point to factual allegations in the complaint that could support a transferable claim because 28 U.S.C. § 1631 requires a more certain finding that the transferee court would have had subject matter jurisdiction over the claim to be transferred, as it is alleged. For a transfer to take place, Zoltek’s complaint must allege an infringement claim against Lockheed of a type which is not precluded by 28 U.S.C. § 1498(a). The Court of Federal Claims specifically noted that if properly alleged under 35 U.S.C. §271(g), the Northern District of Georgia could have heard Zoltek’s claim of unauthorized importation or use in the United States of a sheet product made from partially carbonized fibers if it were alleged against Lockheed.

As to the third requirement, Zoltek argued that it is entitled to its day in court, that Lockheed was made aware of this litigation through participation in discovery for the last decade, and that transferring the F-22 portion of the case, as opposed to requiring Zoltek to file an entirely new suit, would potentially avoid a statute of limitations bar. The Government, on the other hand, argued that transfer would not serve the interests of justice.  Specifically, the Government argued that transfer would be futile since the Northern District of Georgia would not have had jurisdiction over the F-22 claim because Lockheed was acting with the Government’s “authorization or consent.” The Government’s additional argument against transfer is that it would be unfair to Lockheed because Zoltek’s original complaint against the Government under 28 U.S.C. § 1498 could not give Lockheed fair notice that it might be a defendant eleven years later on a claim of infringement under 35 U.S.C. § 271.

The Court of Federal Claims noted that, previously, the Federal Circuit in Texas Peanut Farmers v. United States, 409 F.3d 1370, 1374 (Fed. Cir. 2005) held that if a plaintiff will be time-barred by the statute of limitations if his case is dismissed and thus has to be filed anew in the right court, that is a compelling reason for transfer. The Court of Federal Claims was satisfied based on evidence that at least some importations of the alleged infringing products occurred more than six years ago and would, thus, be time-barred. As to the Government’s first futility argument, the Court reemphasized that 28 U.S.C. § 1498(a) does not prevent Zoltek from bringing its claim against a private party in a district court. Also, the Court of Federal Claims agreed with Zoltek that although being brought into an eleven year old suit without any prior warning seems unfair, Lockheed was aware that its product is at issue in this litigation. Lastly, the interests of justice favored transfer because Zoltek was stuck in the position as the unfortunate first plaintiff to encounter the legislative gap between the definition of infringement under 28 U.S.C. § 1498 and the definition of infringement under 35 U.S.C. § 271. Based on the law existing at the time it filed its complaint, Zoltek reasonably and diligently attempted to have its claim heard in what it thought was the proper court, and the Court decided that Zoltek is entitled to have its day in some court.

By operation of 28 U.S.C. § 1498(c), the 28 U.S.C. §1498(a) contractor immunity from suit for patent infringement when a patented invention is used or manufactured for the federal government has no effect for infringement under 35 U.S.C. § 271(g). Also, the Northern District of Georgia would have had jurisdiction over a patent infringement suit brought by Zoltek against Lockheed, and justice would favor transfer in these circumstances. Although Zoltek’s complaint does not recite any claim over which the Northern District of Georgia would have had jurisdiction when the present action was filed, the Court of Federal Claims recognized that due to the unique circumstances of Zoltek’s claim and the issues of first impression, there would have been no reason for Zoltek to have thought to present its original claim as one against Lockheed. The Court also noted that courts do not seem to have been particularly concerned with the requirement of the second prong of the transfer statute, and in the single case it found in which a district court appeared to be concerned by this requirement, it had allowed to the complaint to be amended before transfer. Therefore, the Court of Federal Claims granted Zoltek leave to amend its complaint to assert a claim against Lockheed under 35 U.S.C. § 271. Upon satisfaction that Zoltek has properly framed its F-22 claim, the Court will grant Zoltek’s present motion and enter an order transferring Zoltek’s claim to the Northern District of Georgia.

Significance to Patent Owners

In allowing a transfer of venue without requiring a refilling of a new infringement case, the Court of Federal Claims provides a hint as to how a District Court is likely to view a government contractor’s liability for patent infringement where the contractor is working without the Government’s authorization and consent.  Specifically, where a patent owner determines that a contractor is infringing under a government contract, it is reasonable to only file an action against the Government under 28 U.S.C. §1498 and the patent owner should not prejudiced if a concurrent suit is not brought in district court.  Moreover, the Court broadly hinted that, without 28 U.S.C. §1498 providing a shield against infringement, the government contractor is likely to be held liable for any infringement as would any commercial contractor.  However, it remains to be seen what liability will attach, and whether continued infringing use under a government contract could form grounds for willful infringement or even whether an injunction can even be granted in light of the likely substantial public interest in allowing the government to acquired the contracted-for good.