Allegedly infringing activity by an entity is conducted for and with the authorization or consent of the Government when the Government participates in some way in, and benefits from, the activity, and thus, the alleged infringement can only be litigated in the Court of Federal Claims.

Advanced Software Design Corporation, et al. v. Federal Reserve Bank of St. Louis, et al., No. 2008-1152 (Fed. Cir. Sept. 30, 2009)

In a patent infringement case related to a method for detecting fraudulent bank checks, patentees appealed the district court’s grant of summary judgment dismissing certain infringement counts as proper only in the Court of Federal Claims because the relevant actions were “by or for the United States” under 28 U.S.C. § 1498(a). The Federal Circuit affirmed.

The relevant infringement assertions concern the use of seal encoding technology on U.S. Treasury checks. Regional Federal Reserve Banks (which are private entities) entered into a contract for a fraud prevention system that involved encoding and decoding seals on checks. While the United States was not a party to the contract, its involvement stemmed from Treasury’s printing of its checks with encoded seals.

When the alleged infringement is by a non-government entity (such as the regional Federal Reserve Banks), accused activity is “for the United States” if conducted “for the Government” and “with the authorization or consent of the Government.” Here, both criteria were satisfied. The Federal Circuit was persuaded that the allegedly infringing activity was done “with the authorization or consent of the Government” because of certain communications between Treasury and the Reserve banks adopting the system, the Government’s request to intervene in the district court, and, as amicus curiae, the Government counsel’s statements at oral argument that the United States authorizes the activity and will accept liability under § 1498. Prior explicit authorization or consent is not necessary; it may be implied.

Activity may be “for the Government” when it is for the benefit of the Government. The Government need not be a party to the contract nor the sole beneficiary. Even though the individual banks bore the loss of fraudulent Treasury checks, the United States has a substantial interest in averting fraud in Treasury checks and saved resources under the accused system. The court distinguished two cases that held that incidental government benefit is insufficient, noting that Treasury actively participated by encoding Treasury checks as part of the fraud detection system.

A copy of the opinion can be found here.