The United States government enjoys immunity from suit under the doctrine of sovereign immunity, the legal privilege by which American federal, state, and tribal governments cannot be sued. There are, however, statutes that grant limited waivers of the U.S. government’s sovereign immunity, e.g. with respect to: claims of monetary damages arising out of contracts with the government or for bad faith actions of government employees against a plaintiff.

In 28 U.S.C. §1498, the U.S. government has granted patent holders a limited waiver of its sovereign immunity with respect to those instances in which the U.S. government or its contractors infringe a U.S. patent.1 Congress enacted the precursor to § 1498 in 1910 to allow the U.S. government to utilize patented products during wartime. The statute was quickly expanded to include infringement by U.S. government contractors.

The statute allows the holder of an infringed patent to seek “reasonable and entire compensation” from the U.S. in the U.S. Court of Federal Claims. In doing so, the U.S., by “assum[ing] liability when its contractors” infringe a U.S. patent, relieves its contractors “entirely from liability of every kind for the infringement of patents” when such infringement was for the benefit of the U.S. government.2However, § 1498 only refers to “use and manufacture” of patented inventions in relation to government contractors which arguably limits § 1498 to only direct infringers under 35 U.S.C. § 271(a).3 This is a critical issue particularly with respect to methods of medical treatment claims which are generally enforced under a theory of indirect infringement by inducement under § 271(b).4

Recently, the en banc Federal Circuit in Zoltek Corp. v. United States, clarified when and how § 1498 applies to government contractors. Reversing a previous decision limiting the immunity afforded by § 1498(a) to the direct infringement under 35 U.S.C. § 271(a), the en banc court in Zolte held that a third party U.S. contractor (Lockheed Martin Corp.) was relieved from liability to Zoltek under § 271(g) for importing into the U.S. patented products (F-22 wings) that were manufactured abroad by Zoltek’s patented method.5

Reversing its previous decision, the court interpreted legislative history to indicate that Congress intended § 1498 to be applied broadly and not be limited to only possible infringements under 35 U.S.C. § 271(a) (i.e. “making” and “using”).6

In interpreting the scope of § 1498(a), the court summarized the case law to embody a three-part test that contractors must meet in order to claim the benefit of § 1498(a). The three-part test requires that the otherwise infringing product or service being commercialized by a contractor is:

(1) an invention [] claimed in a United States patent; (2) [] used or manufactured by or for the United States, meaning each limitation is present in the accused product or process.7

Lastly, the contractor must show that:

(3) the United States has no license or would be liable for direct infringement of the patent right for such use or manufacture if the United States was a private party.8

In a subsequent decision, the Federal Circuit in IRIS Corp., clarified the requirement “for the United States” under § 1498(a).9 The court emphasized that an infringing use or manufacture was “for the United States” if:

  1. it is conducted ‘for the Government;’ and
  2. it is conducted ‘with the authorization or consent of the Government.’10

The court stated that the government’s authorization could be express or implied, although such grant of authorization is not by itself enough to prove that an infringing use or manufacture was “for the government” under § 1498(a).11 The court held that an infringing use or manufacture must also be for the “benefit of the government,” whereby an “incidental benefit to the government is insufficient [but] it is not necessary for the Government to be the sole beneficiary.”12 The court further held that the Japan Airlines Corporation examination of passports which infringed IRIS Corp’s patents was implicitly authorized by compliance with federal requirements and was of benefit to the government as it improved the detection of fraudulent passports and reduces the demand on government resources.13

In Zoltek, the Federal Circuit has expressly stated that it did not opine on whether the immunity granted to government contractors under § 1498(a) would attach to those accused of indirect infringement, e.g. under § 271(a) or (b). A 1980 case, Decca Ltd. v. United States, from the Court of Federal Claims held that it would not.14 However, in view of its broad interpretation of § 1498(a) inZoltek in 2012, it is possible that the Federal Circuit could overrule Decca.