Patent Law | Expert Legal Commentary
September 18, 2012
Zoltek Corp. v. United States: Federal Circuit Revisits Case, Allows Process Patent Claim Against United States
Zoltek Corp. v. United States
Tom Zuber and Jeff Zuber of Zuber Lawler & Del Duca
The Federal Circuit recently reinterpreted its own holdings to allow process patent holders to sue the United States when part of the process occurs in a foreign country. In Zoltek Corp. v. United States, 672 F.3d 1309 (Fed. Cir. 2012), the Federal Circuit revisited its holding in Zoltek III and vacated that decision. The Court then held that § 1498(a) was not limited to § 271(a) claims of direct infringement, and thus allowed Zoltek to proceed on a claim against the United States for process patent infringement.
Zoltek is the assignee of reissue patent ‘162, which relates to methods used to make carbon fiber sheets. Zoltek alleged that Lockheed Martin infringed on the ‘162 patent in constructing the F-22 fighter jet for the United States government, as the F-22 uses carbon fiber materials. Lockheed Martin did not obtain any license from Zoltek for the use of ‘162’s methods. The carbon fiber used by Lockheed Martin was manufactured in part in Japan and then finished in the United States. Id. at 1312.
In 1996, Zoltek sued the United States for infringing the ‘162 patent under 28 U.S.C. § 1498(a). Generally, this statute allows a patent holder to sue the United States in the United States Court of Federal Claims when the invention in the patent is “used or manufactured by or for the United States” without proper license or lawful right. Id.
Several rounds of litigation ensued. In the initial trial, Zoltek I, the court limited the scope of § 1498, holding that the statute did not waive the United States’ sovereign immunity as to all forms of direct infringement under 35 U.S.C. § 271. In Zoltek II, the court allowed Zoltek to assert a takings claim under the Fifth Amendment. However, in Zoltek III, a majority panel at the Federal Circuit reversed, denying the takings claim. Id. at 1313.
Further, the court in Zoltek III held that Zoltek’s infringement claims were precluded by § 1498(a), relying on NTP v. Research in Motion for the principle that “direct infringement under section 271(a) is a necessary predicate for government liability” under § 1498. Under § 271(a), “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.” Because part of the manufacturing process covered by ‘162 occurred in Japan, the infringement fell outside of § 271 and thus § 1498, therefore foreclosing Zoltek’s claims against the United States. Id.
Zoltek changed strategies and attempted to sue Lockheed for infringement and transfer the claim to the Northern District of Georgia. The Court of Federal Claims then sent up an interlocutory appeal, asking the Federal Circuit whether § 1498(c) nullifies contractor immunity when a claim otherwise covered by § 1498 arises in a foreign country. Id. at 1313-14.
Sitting En Banc, Court Vacates Zoltek III
The Court first focused on its holding in Zoltek III, which limited § 1498(a) to direct infringement defined under § 271(a). The Court found that holding problematic, as plaintiffs such as Zoltek would be without a clear cause of action. Ultimately, the Court voted en banc to hear and vacate Zoltek III, finding four major problems in that case’s holding. Id. at 1317.
First, the Court found that the plain meaning and history of § 1498 pointed to the two goals of protecting process patent holders from infringement and government contractors from infringement claims. The Court examined the history of § 1498 and its predecessors, finding that the statute shifted liability to the United States exclusively and waived the liability of government contractors. Id. at 1316. Further, the Court notes that § 1498 “makes no reference to direct infringement as it is defined in § 271(a),” and “so interpreting § 1498(a) is contrary to its plain language.” Id. at 1319.
Second, the Court blamed the problematic holding in Zoltek III on a “fundamental misreading of the statute.” Id. Specifically, the Court found that the court in Zoltek III relied on a misreading of dicta from NTP v. Research in Motion, which contained problematic interpretations linking § 271 and § 1498 for the purposes of illustrating § 271. Id. at 1319-20. In the end, the Court found no holdings predicating § 1498 liability on § 271(a) direct infringement. Id. at 1320. To the contrary, the Court found support in Decca v. United States for the rule that “any direct infringement that would normally require a license by a private party falls under § 1498.” Id.
Third, the Court found that limiting § 1498(a) to § 271(a) would render § 1498(c) superfluous, violating a canon of statutory construction. Id. at 1321. The redundancy comes as § 271(a) requires that the infringing activity occurs within the United States, while § 1498(c) eliminates the United States’ liability for “a claim arising in a foreign country.” Id. The Court found these provisions to provide the “exact same limitation.” Id. Further, the Court noted that the court in Motorola v. United States noted that § 1498 created a “parallel and not identical” cause of action to a § 271 action.
Fourth, the Court deemed that Zoltek III’s interpretation of § 1498 eliminated the effect of 19 U.S.C. § 1337(l), this violating the principle that statutes must be read to give effect to each while preserving their sense and purpose. Id. Under § 1337, process patent holders can petition the ITC to exclude infringing products from importation, but under § 1337(l), products for use by the United States cannot be excluded and patent holders are entitled to a § 1498 claim. Id. at 1322-23. Thus, the Court found that the statute clearly intended that patent holders in such situations shall have a § 1498 claim, and thus to require § 271(a)’s requirement of “within the United States” would be contradictory to Congressional intent. Id. at 1322.
Thus, the Court, sitting en banc for this portion only, vacated Zoltek III.
Court Finds Liability for the United States Under New Interpretation of § 1498
The Court then asked whether Lockheed’s actions created liability for the United States under § 1498(a). The Court first established that under § 271(g), Lockheed allegedly infringed Zoltek’s patent when it used or imported into the United States the carbon fiber made using the patented process. Id. at 1323.
The Court then sought whether this act fell under § 1498(a), which would give Lockheed immunity and give Zoltek a claim against the United States. The standard was whether Lockheed used Zoltek’s patent without a license or lawful right. Id. More specifically, the Court examined for “use of an invention that, if done by a private party, would directly infringe the patent.” Id. Thus, the Court found that § 1498 liability is linked to the “scope of the patent holder’s rights as granted by the patent grant in title 35 U.S.C. section 154(a)(1).” Id.
As part of § 154(a), the Court found that for process patents, the patent grant includes the right to exclude others from using, selling, or importing into the United States products made by that process. Id. at 1324. Further, § 271(g) deemed that as an act of infringement. Id. Thus, the Court found that these moves showed that § 1498(a) covered “the use of a product that incorporates the patented process by which it was created.” Id. On application, the Court found that that Lockheed indeed used the patented process, and thus use of the invention, without lawful right under § 1498(a). Id. at 1325-26.
Court Finds No Application of § 1498(c)
The Court then faced the issue of whether § 1498(c) limited Zoltek’s claim. Section 1498(c) states that “the provisions of § 1498 (a) shall not apply to any claim arising in a foreign country.” The issue for the Court was whether the partial manufacture of the carbon fiber in Japan would trigger the statute. The Court, however, found that “infringing acts” included “use or importation of the products resulting from the process.” Id. at 1326. In this case, since the products were imported into the United States, the Court held that “Zoltek’s claim for relief does not “arise” in a foreign country and § 1498(c) does not apply to this case.” Id.
On the en banc issue of whether § 1498(a) is limited to infringement under § 271(a), Judge Dyk had two major issues with vacating Zoltek III. First, Judge Dyk found a problem with jurisdiction — namely that the certified order from the lower court dealt only with transferring claims against Lockheed and did not confer jurisdiction over the dismissal of infringement claims against the United States. Id. at 1328. Second, on the merits, the dissent argued that the majority’s interpretation of § 1498(a) was incorrect. The dissent notes that patent laws must be “interpreted in light of the presumption against extraterritoriality,” and thus should be limited to “use or manufacture of the invention only within the United States.” Id. at 1330. Specific to process patents, the dissent explains that a “process is not ‘used’ in the United States ‘unless each of the steps is performed within this country,” citing NTP v. Research in Motion. Id. at 1333.
The holding in the latest Zoltek line of cases clears the way for process patent holders to assert claims against the United States, even if part of the process occurred in a foreign country. Process patent holders should contact experienced patent counsel to see how Zoltek may affect your intellectual property rights.
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