Extraterritorial Government Use of U.S. Process Patents after Zoltek

The federal government -- and its contractors and subcontractors -- have long enjoyed an effective ‘compulsory license’ for the use or manufacture of inventions covered by a U.S. patent. 28 U.S.C. §1498 relaxes the government’s sovereign immunity and supplies a special remedy to the patent holder. The patent holder may recover reasonable compensation from the federal government for the use or manufacture. Thus, a government contractor can carry out a contract without concern for an infringement action; the government will answer any patent holder’s claims.

The operation of Section 1498 applies to both product and process patents. Section 1498 contains an express limitation to any claims ‘arising in a foreign country.’ This limitation, as well as the territorial limitation found in the basic patent infringement statute [35 U.S.C. §271(a)], and their interpretation with respect to process patents, were the basis of the dispute between Zoltek Corporation and the federal government.

The eventual resolution of the Zoltek litigation by the Federal Circuit [672 F.3d 1309] settles various questions of interpretation concerning the extraterritorial dimensions of the government use ‘license’ with respect to process patents -- but it also leaves a rather worrisome ‘gap’ in the coverage of the basic provisions concerning process patent infringement. Consider these two propositions:

1. In the absence of authorization, where every step of a process patent is practiced in the United States, liability under 35 U.S.C. §271(a) results. However, if any step of a process patent is practiced outside the United States, there is no direct infringement. 
2. Where every step of a process patent is practiced outside the United States and the resulting product is imported into or used within the United States, liability under 35 U.S.C. §271(g) results. 

So here’s the gap (and the facts of Zoltek seem to fall into this gap): if a process patent is practiced partly in the United States and partly outside the United States, there may be no liability. This odd result seems to follow from the text of 35 U.S.C. §271(g), which is triggered by the importation or use of a product.

The Zoltek dispute seems to fall in this middle ground: what Lockheed (the F-22 general contractor) imported was not an infringing product, as it did not result from the completion of all the steps covered by the process patent. Rather, the imported good would be better described as a subassembly to be finished within the United States. But a subassembly -- resulting from the completion of some but not all the steps covered by a process patent -- cannot infringe -- and so it should not be read to be “a product which is made by a process patented in the United States.”

As Jason Rantanen correctly notes in his treatment of Zoltek at Patently-O, the court expressly avoided painting itself into this corner by instructing that “nothing in this opinion should be construed to affect our Title 35 [patent] jurisprudence.” 

There are possible ways out, of course, that would preserve the process patent holder’s rights in the event the process is completed in the United States. 35 U.S.C. §271(g) also covers one who “offers to sell, sells or uses within the United States” a product covered by a process patent. In other words, one might escape liability for infringing a process patent under 35 U.S.C. §271(a) where some steps are performed outside the United States, yet be subject to liability under 35 U.S.C. §271(g) when a product is sold or used “within the United States” regardless of where the various steps covered by the process patent are performed.

The other route would be to follow the line of reasoning found in Quanta. On pertinent facts, a court could hold that the importation of a subassembly that ‘embodied the essential features’ of a U.S. process patent even if a step or two remained for finishing in the United States. This approach would preserve liability -- and would reduce this odd ‘gap.’ Processes wholly performed within the United States would be protected by the basic infringement provision. Products resulting from processes wholly performed outside the United States -- and subassemblies that are far enough along to fit within a Quanta-inspired ‘close enough’ category -- would be infringing upon importation or use under 35 U.S.C. §271(g).

For the moment, there does seem to be a fairly clear route for arguable impunity: first, follow the U.S. process patent outside the United States (eliminating any risk of 35 U.S.C. §271(a) liability), and then freely import the non-infringing subassembly into the United States for finishing. Is Section 337 enough to close the gap?

Statutes

28 U.S.C. §1498(a) provides in part:
Whenever 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... For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.

28 U.S.C. §1498(c) provides:
The provisions of this section shall not apply to any claim arising in a foreign country.

35 U.S.C. §271(a) provides:
Except as otherwise provided in this title, whoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor, infringes the patent.

35 U.S.C. §271(g) provides in part:
Whoever without authority imports into the United States or offers to sell, sells, or uses within the United States a product which is made by a process patented in the United States shall be liable as an infringer, if the importation, offer to sell, sale, or use of the product occurs during the term of such process patent.