New Issues at the Intersection of Intellectual Property and Government Contracts David S. Bloch Partner Winston & Strawn LLP
Introduction I am an intellectual property lawyer and litigator. While my practice developed in the context of Silicon Valley and the San Francisco Bay Area, my interest in government contract law dates back to my years at law school in Washington, D.C. While I focused from the start on intellectual property law, I worked at GW’s Government Contracts Programs during my first law school summer and found the interplay of sovereign immunity and contract law fascinating. I ultimately took most of the government contracts courses offered at GW Law, summered at a firm specializing in government procurement issues, and have maintained my personal and professional interest in the field ever since. The intersection of intellectual property and government contracts is important but understudied. Government contract disputes that touch on IP are part of a narrow discipline within procurement law. IP is an increasingly important part of American business. We are less an industrial manufacturing country and more a country that produces higher end and IP-related goods and services. In the DOD, in particular, the demand is driven by advances in information technology. Health care is increasingly driven by advances to chemistry and biotechnology. There is a need for improved technology in homeland security, agriculture, and education. Further, we are becoming a much more IP intensive society and that is a good thing. The implication is that the government will need more and more IP-rich goods and services. This will cause the overlap between government contracting and IP to expand over time. This will give rise to more disputes, of course. Authorization and Consent Normally, in a government contract dispute involving IP, a contractor is accused of infringing a particular piece of intellectual property. But an IP right holder cannot proceed against the contractor if it is acting with the government’s “authorization and consent.” Instead, the plaintiff must sue the government in the Court of Federal Claims for compensation under 28 U.S.C. §1498. Under Section 1498, a plaintiff can only recover “reasonable and entire compensation” for patent or copyright infringement—injunctive relief is not available, nor (usually) are attorneys’ fees or punitive damages.
That is just a reiteration of long-standing law. The idea is that if a government contractor is making a product for the government, the infringing product sold to the government cannot be enjoined and the plaintiff cannot sue the manufacturer. It must sue the government itself. That way, the IP-holder is compensated while the government is able to obtain the best-quality goods and services from multiple sources without regard to proprietary rights. Note, though, that the government contractor defense only applies to sales to the government. If there are sales both to the government and to private parties, the patentee can still sue, get damages, and enjoin the private-party sales. In addition, authorization is an affirmative defense in litigation between private parties; it is not jurisdictional. However, it is jurisdictional if the United States is a party. Post Hoc Authorization and Consent There has always been some question as to when the government’s authorization and consent applies, whether there needs to be an explicit government contract, and whether the government has to expressly state in advance that the contractor is acting on its behalf. The plaintiff does not really want to be in the Court of Federal Claims seeking compensation from the government. Damages are lower, the process is different, and there is never the opportunity to get to a jury. But the scope of authorization and consent is getting broader. In Advanced Software Design Corp. v. Federal Reserve Bank of St. Louis, the Federal Reserve Bank of St. Louis implemented some anti-fraud technologies based on government directives, but not in response to any government procurement contract. The plaintiff sued, claiming patent infringement. The Federal Reserve Bank, and then the government itself, by intervention, asserted authorization and consent even though there was no contract and no money changed hands. Advanced Software Design Corp. v. Federal Reserve Bank of St. Louis, No. 4:07CV185 CDP, 2007 WL 3352365 (E.D. Mo., Nov. 9, 2007), aff’d, __ F.3d __ (Fed. Cir. 2009) (“Though the government did not explicitly direct the defendant to infringe, and no formal contract existed between the government and the contractor, the only purpose in the demonstration was to comply with a government directive. ... Section 1498 by its terms does not require that there be a government contract mandating infringement”).
So 28 U.S.C. § 1498 does not require that there be a government contract mandating infringement. Both the district court and the Federal Circuit noted with approval that the federal government had explicitly intervened and asserted that it did authorize and consent to the challenged conduct. The government thus has the right post hoc to intervene, and extend the mantle of authorization and consent over a party in private litigation. This is an important development, because it means as long as a defendant timely asserts the authorization-and-consent affirmative defense, it does not need to plead a government contract containing an explicit authorization FAR clause. The government has the right to walk in midstream, assert authorization and consent, get the district court case dismissed, and force the plaintiff to proceed in the Court of Federal Claims. This is a valuable tool for government contractors and entities responding to government directives. Would Implied Authorization and Consent Apply to CALEA? The logic of Advanced Software Design ought to apply with equal force to companies complying with other governmental mandates. For example, the Communications Assistance for Law Enforcement Act of 1994 (CALEA) requires private telecommunications companies to provide certain information and create software to allow the FBI to wiretap and conduct electronic surveillance. 28 C.F.R. § 100.20. This technology may or may not read on private patents. In the event of litigation over CALEA-compliant technology, however, the telecoms companies ought to be able to assert implied authorization and consent, just like the Federal Reserve Bank of St. Louis. Strategy for Asserting Section 1498 An IP case against the government involves the same issues of infringement and validity as any other case. A patent case involves claim construction, validity, and infringement. A copyright claim will involve the same use of defenses, and a trademark claim will have the same issues. Trade secrets are a bit different because of how the government treats copyrights and trade secrets as technical data and computer software. But fundamentally, the core issues are IP legal issues and they are familiar to any reasonably
competent IP litigator. The overarching procedural and technical questions tend to differ, so they are important to consider when preparing a case. As a government contractor defendant, I am trying to get the government involved as early as possible, especially if there is a possibility that someone might think I infringed something. My focus is to get authorization and consent: I will try to get a letter from the government stating explicitly that authorization and consent will apply to any claims against my client. That affirmative defense will be my initial response to any lawsuit—and then I will move for summary judgment immediately. My initial pleading may include my affirmative defense authorization and consent. I will disclose my contract with the government and share a letter from the contracting officer saying that the work is happening on behalf of the government, that I have the consent of the government, and that the contracting officer has the authority to bind the government. I have that defense and I want to assert it immediately and then let the government take care of its affair. The beauty of this approach: if I am working on behalf of the government contractor and have a Section 1498 defense, the government pays for the lawyers and the damages and all I do is cooperate. The Zoltek Saga: Does the Fifth Amendment Apply to Patents? Another trend—perhaps it’s better to say a “development” or an “area of controversy”—is the broad question of jurisdiction over IP disputes—what a court can and cannot hear. This relates to the continuing saga of Zoltek versus Lockheed Martin (or versus the United States, depending on how you look at it). This dispute arose in 1996, and has been up and down through the courts ever since. The case involves Lockheed Martin’s contract to build the F-22 stealth fighter. The F-22’s stealth technology relies in part on a particular carbon fiber material; Zoltek owns a patent covering a method of manufacturing this material. Lockheed Martin, however, makes carbon fiber for the F-22 in Japan, and under NTP Inc. v. Research in Motion, 418 F.3d 1282 (Fed. Cir. 2005), Section 271 (a) of the Patent Act only reaches methods performed within the United States. So Zoltek’s remedy, in a normal lawsuit, would be under 35
U.S.C. § 271 (g), a 1984 amendment to the Patent Act that makes it an infringement to import non-patented products made abroad by patented processes. The problem is that the government’s patent (and copyright) sovereign immunity waiver at 28 U.S.C. § 1498 only applies when a patent “is used or manufactured by or for the United States” and “shall not apply to any claim arising in a foreign country.” The interplay of these two statutes has created an interesting but complex series of decisions that are still playing out. Zoltek Sues Lockheed Martin, and Then the Government Zoltek’s initial lawsuit against Lockheed Martin was dismissed by the Northern District of Georgia based on the government’s authorization and consent. Zoltek was told it needed to proceed before the Court of Federal Claims instead. So Zoltek duly filed in the Court of Federal Claims, which initially ruled against Zoltek because “[t]he provisions of [28 U.S.C. § 1498] shall not apply to any claim arising in a foreign country.” Zoltek v. United States, 51 Fed. Cl. 829, 62 U.S.P.Q.2d 1366 (Fed. Cl. 2002). But the Court of Federal Claims did not leave Zoltek without a remedy. It held instead that Zoltek was entitled to proceed on the Fifth Amendment “Takings” theory. Zoltek v. United States, 58 Fed. Cl. 688 (Fed. Cl. 2003). Intellectual Property Infringement under the Fifth Amendment The Fifth Amendment’s Takings Clause holds that the government cannot take private property without just compensation. In 1984, the U.S. Supreme Court held that the Takings Clause applies to trade secrets, a form of intangible intellectual property. Ruckelshaus v. Monsanto, 467 U.S. 986 (1984). Ruckelshaus states explicitly that trade secrets are “property” for Fifth Amendment purposes. Thus, a trade secret claim against the government can be brought in any Federal District Court. And it ensures that the government cannot take trade secrets without compensating the rightful owner. It was not unreasonable to think that other forms of intellectual property would likewise be protected by the Fifth Amendment. But the United States Court of Appeals for the Federal Circuit held that patents are not “property” for purposes of the Fifth Amendment, and thus dismissed Zoltek’s Takings Clause claim in a decision the Supreme Court
declined to review. Zoltek v. United States, 442 F.3d 1345 (Fed. Cir.), reh’g en banc den., 464 F.3d 1335 (Fed. Cir.), cert. den. (2006).
