May 5, 2020
During the COVID-19 pandemic, the U.S. government may find it necessary to direct companies to use a patented technology owned by others in order to serve the public good. The essence behind patent rights is to exclude others from making, using, or selling a patented invention, except by authorization of the patent holder in negotiated license agreements to ensure compensation for the efforts and costs invested in developing the patented invention. Under 28 U.S.C. § 1498(a), however, the U.S. government can forcibly license a patented invention during times of need, in particular when there is a threat to public safety. In addition, § 1498 provides immunity to a private company from infringement claims where that company is working on behalf, expressly or implicitly, of the U.S. government.
The outbreak of the novel coronavirus has created a scarcity of resources needed to combat and manage the spread of the virus. The federal administration is committed to an all-of-government approach to providing relief, which includes asking private companies to support the government’s COVID-19 efforts. Currently, many companies are providing an essential service or product — e.g., drug development, manufacturing ventilators or parts necessary to make ventilators, manufacturing PPE, sterilization processes, manufacturing raw materials necessary for COVID19 testing and treatment, etc. — that supports the U.S. government’s COVID-19 efforts.
The federal government’s response to the COVID-19 pandemic raises two issues: (1) whether a business accused of patent infringement may raise § 1498 as a defense, and (2) the strategic options available to patent owners.
“[W]henever 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 for such use and manufacture.” 28 U.S.C. § 1498(a).
The Federal Circuit has held 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.” Madey v. Duke Univ., 307 F.3d 1351, 1359 (Fed. Cir. 2002).
This scheme allows the government to obtain what it needs — whether goods, services or research, regardless of potential patent infringement — with compensation provided later to patent holders in a suit against the U.S. government in the Court of Federal Claims.
The original purpose of § 1498 was “to stimulate contractors to furnish what was needed for the War, without fear of becoming liable themselves for infringements to inventors or the owners or assignees of patents.” See Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 345, 48 S.Ct. 194, 197, 72 L.Ed. 303 (1928). The Federal Circuit has noted that, in order to further this purpose, “[t]he coverage of § 1498 should be broad so as not to limit the government’s freedom in procurement by considerations of private patent infringement.” Id.
In a lawsuit between private parties, § 1498(a) operates as an affirmative defense, and where a private party's use of a patented invention is “for the Government” and with the “authorization and consent of the Government,” that private party cannot be held liable for patent infringement. See Madey, 307 F.3d at 1359. Federal courts applying § 1498(a) have interpreted the “used or manufactured by or for the United States” liberally to minimize the risk of a patent infringement lawsuit interrupting the government’s procurement of critical supplies. See, e.g., TVI Energy Corp. v. Blane, 806 F.2d 1057 (Fed. Cir. 1986) (finding that governmental authorization need not be explicit, and could be implied instead).
Section 1498 “is more than a waiver of immunity and effects an assumption of liability by the government.” See Advanced Software Design Corp. v. Fed. Res. Bank, 583 F.3d 1371, 1375 (Fed. Cir. 2009). The Supreme Court explained the import of § 1498, stating that it was meant to “relieve the contractor entirely from liability of every kind for the infringement of patents in manufacturing anything for the government” in order “to stimulate contractors to furnish what was needed for the war, without fear of becoming liable themselves for infringements.” See Richmond Screw Anchor Co. v. U.S., 275 U.S. 331 (1928). These protections extend to products created through the use of a patent process as prohibited by 35 U.S.C. §§ 154(a)(1) and 271(g). See Zoltek Corp. v. U.S., 672 F.3d 1309, 1325 (Fed. Cir. 2012).
Most often, patent infringement claims under § 1498 are based on products that are made by or for the United States directly, such as pursuant to a government contract. See, e.g., Zoltek (involving alleged infringement based on the use of certain carbon fiber sheets in fighter jets made by a private government contractor for the U.S. military). But express authorization from the government is not required, and in proper circumstances, authorization can be implied. See Hughes Aircraft Co. v. U.S., 534 F.2d 889, 901 (Ct. Cl. 1976). Notably, when a suit arising under § 1498 is brought against a private party, the claims must be dismissed in favor of a suit against the United States. See Saint-Gobain Ceramics & Plastics, Inc. v. II-VI Inc., 369 F.Supp.3d 963 (2019) (granting motion for summary judgement because of defendant’s immunity under § 1498); see also Toxgon Corp. v. BNFL, Inc., 312 F.3d 1379, 1382 (Fed. Cir. 2002) (“If appropriate, a defense arising under section 1498(a) should be resolved by summary judgment under Rule 56 rather than a motion to dismiss under Rule 12.”).
In light of the government’s response to the COVID-19 pandemic, the protections afforded by § 1498 could possibly apply to products made in response to governmental orders, even if the products are not provided directly to the United States. Arguably, products made at the direction of the government — such as disinfectants, medical devices and PPE — are made for the benefit of the government. And the statute makes it clear that the person or entity making or using the patented invention need not be a contractor of the government. See 28 U.S.C. § 1498(a) (“...by a contractor, a subcontractor, or any person, firm, or corporation...”). Section 1498 appears to be a viable defense for individuals and companies accused of patent infringement in the wake of COVID-19.
For any company accused of patent infringement based on ventilators, PPE, diagnostic test kits, or any other products or services related to combating the COVID19 pandemic, § 1498(a) should be considered as part of a defensive strategy.
On the other hand, if a company plans to assert a patent covering a technology or method used in connection with combating the COVID-19 pandemic, it should consider whether the suit should be filed in the Federal Court of Claims under § 1498, particularly because patent infringement suits filed in federal district courts (where almost all patent cases are brought) could result in a motion to dismiss as § 1498 provides an affirmative defense to such suits. In some instances, a patent owner may be entitled to recovery of attorneys’ fees, as well. See Hitkansut LLC v. United States, No. 2019-1884 (Fed. Cir. May 1, 2020) (affirming the Federal Claims Court award of attorneys’ fees).
During these difficult times, § 1498 is a statute that should be carefully considered where patented products or services related to combating COVID-19 are involved.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.