In Search of Reasonable Compensation: Patent Infringement by Defense Contractors with the Authorization and Consent of the U.S. Government
Federal Circuit Bar Journal, Vol. 20, No. 1, pp. 79-99, 2010
29 Pages Posted: 27 Mar 2010 Last revised: 6 Dec 2014
Date Written: December 31, 2009
Federal patent legislation provides for the immunization of contractors for the U.S. Department of Defense (“DoD”) who infringe patents, with DoD’s authorization and consent, in the performance of government contracts. Where the government has authorized or consented to the patent infringement, the patent owner’s exclusive remedy, barring a settlement with DoD, is a royalty award in the U.S. Court of Federal Claims. In recent years, however, other federal courts (primarily the U.S. Court of Appeals for the Federal Circuit) have limited the remedy available to patent owners. Both the government and the infringing contractors have escaped paying royalties by finding technical loopholes in the patent legislation: By delegating infringing activities to subcontractors, by the government not directly accepting infringing products from the prime contractors, or by having the infringing activities conducted outside of the United States. In addition, courts have determined that the “reasonable royalty” available to patent owners in these situations need not fully compensate the patent owner for losing the government contract to its competitor.
In 2009, however, the pendulum appeared to shift strongly in favor of patent owners with two rulings from the Court of Federal Claims. In Zoltek Corporation v. United States, the Court rejected the government’s use of technical loopholes to avoid paying royalties to the patent owner. And in The Boeing Company v. United States, the Court required the government to fully compensate the patent owner for infringing activities that the government had authorized. These encouraging trends indicate that patent owners can expect to be fully compensated for innovations that benefit DoD, and bad faith actions by infringers may no longer be protected simply because they occur under government contract.
This work was awarded first place in the inaugural Court of Federal Claims Bar Association writing competition.
Keywords: Patent, Indemnity, Infringement, Procurement, Royalty
JEL Classification: N40, O34
Suggested Citation: Suggested Citation