Certain patents cover products made or processes used by the United States government. In such a situation, Federal law states that the patent owner’s exclusive remedy “shall be by action against the United States in the United States Court of Federal Claims.”1 This law extends to a non-governmental party acting as a government contractor when allegedly infringing acts are “for the United States.”
The Federal Circuit has held that in such cases, the party may raise 28 U.S.C. § 1498(a) as an affirmative defense to a patent infringement suit. In a recent opinion, the Federal Circuit confirmed that otherwise infringing acts authorized or consented to by the government which reduce the use of government resources may be immune from a patent infringement suit.
§ 1498(a) - An Affirmative Defense for Government Contractors
28 U.S.C. § 1498(a) provides that when an act of infringement is “by or for the United States,” a patent owner’s remedy is to bring an action in the United States Court of Federal Claims:
Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation . . . .2
A defense to patent infringement under 28 U.S.C. § 1498(a) applies when the use or manufacture of a patented invention is (i) “for the United States,” and (ii) “with the authorization or consent of the Government.”3 With respect to the second factor, the authorization or consent of the government may be express or implied.4
The Federal Circuit has recognized that § 1498(a) has two important features: “[i]t relieves a third party from patent infringement liability, and it acts as a waiver of sovereign immunity and consent to liability by the United States.”5 The Government need not be the sole beneficiary of the accused product or service.6
IRIS Corp. v. Japan Airlines Corp. - Reducing the Government’s Burden Provides a Benefit
In IRIS Corp. v. Japan Airlines Corp.,7 IRIS held a patent generally directed to methods for making a secure identification document containing an embedded computer chip. IRIS filed suit in the Eastern District of New York in 2006, accusing Japan Airlines of infringement stemming from electronic passports manufactured according to the patented process and used at New York’s JFK Airport.
JAL filed a Rule 12(b)(6) motion in response to the complaint, raising arguments that 1) under § 1498(a), IRIS was barred from suing JAL for patent infringement in district court; and 2) JAL was not required to pay infringement damages due to the requirements of the Enhanced Border Security Act (“EBSA”),8 which required certain foreign citizens to have an electronic passport. The district court ruled that a conflict existed between the EBSA and U.S. patent law, and that the patent laws were subordinate to EBSA which precluded the recovery of patent infringement damages.9
On appeal, the Federal Circuit applied the two requirements of § 1498(a) to the facts of IRIS. First, it decided that there was express government authorization, as “JAL cannot comply with its legal obligations without engaging in the allegedly infringing activities,” citing support from both parties’ briefs.10
In deciding whether JAL’s activities provided a benefit to the United States, the Federal Circuit analogized to a previous case, Advanced Software Design Corp. v. Fed. Reserve Bank of St. Louis.11 In Advanced Software, the accused infringer used a “seal encoding” system for detecting fraudulent checks that was mandated by the United States Treasury.12 The Advanced Software court had found that the government benefitted from averting fraud in Treasury checks and in saving Treasury resources through use of a more efficient technology.13
Similarly, the IRIS court determined that “the government benefits here because JAL’s examination of passports improves the detection of fraudulent passports and reduced demands on government resources.”14 In other words, JAL was performing a “quasi-governmental function” on behalf of the United States government, and “there can be no question that those actions are undertaken ‘for the benefit of the government.’15 Based on this reasoning, the Federal Circuit determined that IRIS’s exclusive remedy in this case was against the United States government under § 1498(a), and affirmed the district court’s decision to dismiss the suit.16
IRIS confirms that allegedly infringing activities which are 1) authorized or consented to by the government and 2) provide a benefit to the government do not result in patent infringement liability to a non-government party involves in such activities. The IRIS court determined that reducing the government’s burden in enforcing and executing its laws qualifies as a benefit to the government. Parties such as government contractors should be aware of this affirmative defense.