Zoltek Corp. v. U.S.: Federal Circuit En Banc Reverses Zoltek III and Rules That 28 U.S.C. § 1498(a) Can Waive Immunity for Infringement Under 271(g)

The Federal Circuit recently demonstrated how active the Court is, and will continue to be. After having ruled in Zoltek III that the United States did not waive immunity from suit except for acts that would constitute direct infringement under 35 U.S.C. § 271(a), the Court voted sua sponte to reconsider the question en banc.

On March 14, 2012, the Court of Appeals for the Federal Circuit decided the issue of whether the Court of Federal Claims, following the Federal Circuit decision in Zoltek III, erred in allowing Zoltek to amend its complaint and transfer its claim for infringement under 35 U.S.C. § 271(g) against Lockheed Martin to the United States District Court for the Northern District of Georgia. Although the trial court concluded that the requirements under the transfer statue, 28 U.S.C. § 1631, were satisfied and allowed the amendment and transfer, the Federal Circuit determined that this was clear legal error. The en banc panel overruled the portion of Zoltek III limiting the government’s immunity waiver to § 271(a), reversed the trial court’s decision and remanded the case to the trial court.

By way of background, Zoltek is the assignee of United States Reissue Patent No. 34,162 (the “RE ‘162 Patent”), titled “Controlled Surface Electrical Resistance Carbon Fiber Sheet Product.” In its infringement contentions, Zoltek only asserted the method claims of the RE ‘162 Patent, 1-22 and 33-38, which contained the two steps of partially carbonizing the fiber starting material and then processing the fibers into sheet products. The products at issue were used in the F-22 jet aircraft, which Lockheed designed and built as the result of a contract with the U.S. government.

In 1996, Zoltek sued the United States under 28 U.S.C. § 1498(a), alleging that the invention covered by the RE ‘162 Patent was infringed because the resulting product was used or manufactured by or for the United States. The United States moved for partial summary judgment and argued that Zoltek’s claim arose in a foreign country and therefore, its sovereign immunity was not waived under 28 U.S.C. § 1498(c). In Zoltek I, the trial court held that § 1498 “does not [waive the Government’s sovereign immunity] as to all forms of direct infringement as currently defined in 35 U.S.C. § 271.” 51 Fed. Cl. 828, 837 (2002). Subsequently, both parties appealed after the trial court stayed Zoltek’s taking claim and denied the government’s motion in Zoltek II. 58 Fed. Cl. 688, 707 (2003). Then, the Federal Circuit reversed the trial court’s ruling that Zoltek could allege patent infringement as a Fifth Amendment taking under the Tucker Act and also held that Zoltek’s infringement allegations were precluded by § 1498, but for different reasons than the trial court. Zoltek III, 442 F.3d 1345, 1353 (Fed. Cir. 2006). Specifically, the majority stated § 1498(a) was the basis without looking at § 1498(c), and remanded the case.

On remand, Zoltek sought leave to amend its complaint to add a claim against Lockheed for infringement of the RE ‘162 Patent’s method claims under 35 U.S.C. § 271(g) and to transfer the claim to the Northern District of Georgia under 28 U.S.C. § 1631. The trial court held that Zoltek lacked jurisdiction against the government, but Zoltek had jurisdiction against Lockheed. Zoltek IV, 85 Fed. Cl. 409, 413, 418 (2009). As a result of the trial court’s ruling, Zoltek amended its complaint and the Court of Federal Claims certified to the Federal Circuit for interlocutory appeal the issue of whether 28 U.S.C. § 1498(c) must be interpreted to nullify any government contractor immunity provided for in § 1498(a) when a patent infringement claim arises in a foreign country.

In deciding this issue, the Federal Circuit looked at the two consequences that would result. The Federal Circuit had to either conclude that the patentee’s well-pleaded complaint of infringement failed to state a cause of action against both the government and the government’s contractor, or override the longstanding principle that a contractor working for the government was immune from individual liability for patent infringement occurring during the course of business. The Federal Circuit concluded that Zoltek III panel’s limitation of § 1498(a) to infringement under § 271(a) is inconsistent with the plain language of the statute and the panel misapplied the case law in deciding to limit § 1498(a). The panel’s ruling created at least three results that were meant to be avoided: 1) The ruling results in Lockheed having liability for conduct immunized by § 1498(a); 2) The ruling creates the possibility that the procurement of the United States’ military materiel could be interrupted by infringement actions against government contractors; and 3) The ruling spoils the Congressional intent in 35 U.S.C. §§ 154(a)(1), § 271(g), 19 U.S.C. § 1337, and 28 U.S.C. § 1498.

After reviewing the legislative intent of § 1498 and Zoltek III panel’s interpretation, the Federal Circuit held that 35 U.S.C. § 1498(a) creates an independent cause of action for direct infringement by the government or its contractors and is not dependent on 35 U.S.C. § 271(a). Under § 1498(a), the government has waived its sovereign immunity for direct infringement, which extends to acts under § 271(a) and § 271(g). When the product of a patented process is used in or imported into the United States, there is direct infringement for the purpose of a § 1498 action. Having ruled that the United States could be sued, its contractor, Lockheed, was found immune from suit. Additionally, the Federal Circuit held that 35 U.S.C. § 1498(c) does not apply in this case.

In dissent, Judge Dyk demonstrated just how far the Federal Circuit needed to reach to address the issue. The dissent argued that the certified order from the Court of Federal Claims did not confer appellate jurisdiction over the earlier dismissal of infringement claims against the United States, citing United States v. Stanley, 483 U.S. 669 (1987). Judge Dyk also disagreed with the majority’s interpretation of 35 U.S.C. § 1498(a), and would have held the United States immune from suit and permitting a suit against the contractor.

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