United States: Fed. Circ. Clarifies Infringement Liability For Contractors

Performance of a government contract often requires use of patented processes and products, which may not be owned by or licensed to the United States or the performing contractor. Section 1498 of Title 28 of the U.S. Code establishes an exclusive remedy for patent owners to obtain just compensation when the United States or its contractors infringe their patents, while also shielding contractors from infringement liability and ensuring private patent rights do not obstruct government operations. Under that statutory framework, when a contractor performing work "for the Government and with authorization or consent of the Government" is accused of patent infringement, § 1498 generally shields the contractor from liability and provides that any infringement action must be brought as a claim for money damages against the United States in the Court of Federal Claims.

In other words, § 1498 "waives the Government's sovereign immunity and provides a remedy '[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.'"1 "By waiving the Government's sovereign immunity, § 1498 'provides a cause of action against the United States' and [a]t the same time, ... protects government contractors against infringement liability and remedies where it applies.'"2 Over a century old, § 1498 implements important, long-standing policies that (1) contractors should not bear the risk associated with performing work for the government that may be infringing, and (2) the government may be liable for money damages (i.e., just compensation) for its infringing activities, but its operations will not be enjoined.3

While the government's liability for infringement under § 1498 is often analogous to the liability imposed on private parties by 35 U.S.C. § 271, the frameworks are different, and the government's liability ultimately depends on the express waiver of immunity provided in § 1498.4 Thus, the ability to enforce patent rights involving infringement based on a government contractor's performance depends on judicial interpretation of the terms of § 1498, including "used or manufactured."

In FastShip LLC v. United States, a unanimous panel of the Federal Circuit addressed an issue of first impression, construing "manufactured" in § 1498 to mean "suitable for use," thereby affirming Court of Federal Claims Judge Charles Lettow, who rejected FastShip's argument that "manufactured" means "substantially manufactured."5 In effect, the Federal Circuit held that the government will not be liable under § 1498 where an allegedly infringing product is not completed to the point of being "suitable for use" prior to expiration of the asserted patent claims.

The Federal Circuit's FastShip decision will likely prove consequential for companies seeking to enforce their patent rights against federal contractors and the U.S. government, as well as federal contractors and agencies that rely on § 1498 to anticipate and manage infringement risk. This article provides background for the FastShip decision and describes the circuit's interpretation of "manufactured."

Factual Background

The case involves alleged infringement of two FastShip patents6 during the manufacture of the Navy's Freedom-class Littoral Combat Ships, specifically, as relevant here, the LCS-3. The Navy awarded a design-build contract for the Freedom class LCS to a team comprised of Lockheed Martin and Gibbs & Cox. As relevant here, the government's liability turned on the question of whether the LCS-3 was "manufactured" before FastShip's asserted patents expired in May 2010.

As described by Judge Lettow, "LCS-3 is powered by a combination of two diesel engines and two gas turbines that are connected to four waterjets using shafts and gearboxes."7 "Inlets on the bottom portion of the ship's hull draw in water, and the waterjets discharge the water at high velocity, providing propulsive force to the ship."8

FastShip's asserted patents relate to a "'fast ship whose hull design in combination with a waterjet propulsion system permits, for a ship of about 25,000 to 30,000 tons displacement with a cargo carrying capacity of 5,000 tons, transoceanic transit speeds of up to 40 to 50 knots in high or adverse sea states.'"9 The patent specification indicates that, prior to the patented invention, these speeds were "'not achievable in ships of such size without impairment of stability or cargo capacity such as to render them impracticable.'"10

The Freedom class is constructed in modules, which are developed in a phased process and later assembled. Construction began on the LCS-3 in July 2009. The LCS-3 waterjet impeller systems were installed in July 2010, and LCS-3's final module was erected in September 2010.11 Both of FastShip's asserted patents expired on May 18, 2010, just before the LCS-3 waterjet impeller systems were installed in July 2010.12

Prior Proceedings and Posture of Appeal

FastShip sued the government at the Court of Federal Claims, seeking damages for infringement of the asserted patents pursuant to § 1498. Following claim construction, the government filed a motion for partial summary judgment, arguing that LCS-3 was not "manufactured" within the meaning of § 1498 before the patents expired.13 FastShip defended by arguing that LCS-3 was "substantially manufactured" at the time the patents expired.14

Judge Lettow granted the government's motion and dismissed Fastship's infringement claims relating to the LCS-3.15 FastShip appealed, challenging the holding that LCS-3 was not "manufactured" prior to the patents' expiration.

The Federal Circuit's Decision

In a unanimous decision authored by Judge Evan Wallach and joined by Judges Kimberly Moore and Raymond Chen, the Federal Circuit affirmed the Court of Federal Claims' grant of the Government's motion for partial summary judgment, and in doing so analyzed an issue of first impression; that is, the meaning of "manufactured" in § 1498.

"Manufactured" Means "Suitable for Use"

The circuit began by noting that § 1498 does not define "manufactured" and that neither the Court of Federal Claims, nor the parties, nor the panel found any binding precedent interpreting the term in this context.16 The Court of Federal Claims' decision identified available guidance from U.S. Supreme Court and Federal Circuit cases interpreting "manufactured" in the context of 35 U.S.C. § 271, and was apparently persuaded in part by those decisions that the term "manufactured" in § 1489 could not mean "substantially manufactured," as FastShip argued. While the Federal Circuit affirmed the Court of Federal Claims' conclusion, a fair portion of the circuit's analysis is devoted to explaining why decisions interpreting "manufactured" in the arguably analogous context of § 271 are not the proper guideposts.17

Declining the help of any potentially persuasive judicial authority, the circuit considered the question anew, relying instead on statutory interpretation. Beginning with the "'ordinary, contemporary, common meaning,'"18 the circuit noted that, in 1910 and 1918, when the relevant provisions were enacted, the prevalent dictionary definitions suggest: "The plain meaning of 'manufactured' in § 1498 encompasses products 'ma[d]e' or 'work[ed]' into a form that is 'suitable for use.'"19

The circuit found further support for interpreting "manufactured" to mean "suitable for use" by looking to the rest of the statutory scheme, as interpreted by prior Federal Circuit decisions. Specifically, in Zoltek Corp. v. United States, the circuit interpreted "use" in § 1498, and concluded: "to 'use' an invention, each limitation of the claims must be present in the accused product or process." 20

Finally, the circuit explained that the legislative history, although not speaking directly to the meaning of "manufactured," nevertheless militates towards the panel's interpretation:

The legislative history informs our interpretation of § 1498. Congress added "manufactured" to § 1498's predecessor after government contractors were found liable for patent infringement when producing warships in accordance with the Navy's comprehensively detailed specifications during World War I. This prompted a swift reaction from Acting Secretary of the Navy Franklin D. Roosevelt, who wrote to the Senate Committee of Naval Affairs to explain the "difficult situation" where contractors that manufactured patented articles for the Government "are exposed to expensive litigation" and "are reluctant to take contracts." He thus proposed revisions to § 1498's predecessor. "In response to this letter." Congress amended § 1498's predecessor to provide compensation for contractors that "manufacture" patented articles for the Government. Although the legislative history does not directly speak to the meaning of "manufacture" in § 1948, it indicates Congressional intent to protect government contract awardees, such as Lockheed Martin and Gibbs & Cox here, from infringement claims from patent holders, such as FastShip.21

LCS-3 Was Not Manufactured Prior to the Patents Expiration

While FastShip raised several arguments challenging the grant of partial summary judgment, once the circuit defined "manufactured" to mean "suitable for use," affirming the summary judgment ruling appears to have been a foregone conclusion. The circuit observed that the asserted claims require a "'vessel'" comprising, among other things, "'at least one waterjet coupled to the at least one inlet for discharging water which flows from the inlet to the waterjet for propelling the vessel.'"22 It was undisputed that the contractors did not install the LCS-3 waterjets until July 2010, after the patents expired in May 2010. Similarly, the vessel further comprises a "'hull,'" but the contractors did not complete construction of the LCS-3 hull until August 2010, again, months after the patents expired.23 Accordingly, because the LCS-3 was not "manufactured" within the meaning of § 1498 prior to the patents expiring, the circuit affirmed the decision to grant the government's partial motion for summary judgment with respect to LCS-3.

Conclusion

By interpreting when products are "manufactured" within the meaning of § 1498, the Federal Circuit's opinion in FastShip is sure to be important to companies seeking to protect their patent rights against the United States and its contractors, contractors seeking to ensure they are protected from patent infringement liability when performing government contracts, and agencies assessing potential infringement liability.

Footnotes

1 Liberty Ammunition, Inc. v. United States, 835 F.3d 1388, 1394 n.3 (Fed. Cir. 2016) (citation omitted) (quoting 28 U.S.C. § 1498(a) (emphasis added)).

2 Fastship, LLC v. United States, Nos. 2017-2248, 2017-2249 at *2 (June 5, 2018) (quoting Astornet Techs. Inc. v. BAE Sys., Inc., 802 F.3d 1271, 1277 (Fed. Cir. 2015)).

3 See e.g., Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 343-44 (1928) ("The purpose of the amendment was to relieve the contractor entirely from liability of every kind for the infringement of patents in manufacturing anything for the government, and to limit the owner of the patent and his assigns and all claiming through or under him to suit against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. The word 'entire' emphasizes the exclusive and comprehensive character of the remedy provided. As the Solicitor General says in his brief with respect to the act, it is more than a waiver of immunity and effects an assumption of liability by the government.").

4 See e.g., FastShip LLC v. United States, 122 Fed. Cl. 71, 78 (2015) (Lettow, J.).

5 Nos. 2017-2248, 2017-2249 (June 5, 2018).

6 Specifically, claims 1 and 19 of U.S. Patent No. 5,080,032 ("'032 patent") and claims 1, 3, 5, and 7 of U.S. Patent No. 5,231,946 ("'946 patent").

7 FastShip, 122 Fed. Cl. at 73.

8 Id. at 73-74.

9 FastShip, Nos. 2017-2248, 2017-2249 at *3 (quoting '032 patent col. 1 ll. 3-13).

10 Id at *4 (quoting '032 patent col. 1 ll. 13-15).

11 Fastship, Nos. 2017-2248, 2017-2249 at *6 & n.5.

12 Id. at *7.

13 Id. at *3.

14 See FastShip, 122 Fed. Cl. at 72.

15 See id. at 86.

16 Id. at *8.

17 Id. at *10-14.

18 Id. at *8 (quoting Sandifer v. U.S. Steel Corp., 134 S. Ct. 870, 876 (2014)).

19 Id. at *9 (alterations in original) (citing a variety of dictionaries from the relevant time

20 Id. (citing 672 F.3d 1309 (Fed. Cir. 2012)).

21 Id. at *10 (internal citations and quotations omitted).

22 Id. at *14 (quoting '032 Patent Col. 14 ll. 15-17).

23 Id.

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