Patent Infringement Pursuant to a Government Contract

By Dick Lieberman, Consultant and Retired Attorney

The Court of Federal Claims recently found that the United States had infringed the patent of a small business by purchasing bullets from a contractor, Alliant Techsystems, who was operating the Lake City Army Ammunition Plant. Liberty Ammunition, Inc. v. United States, No. 11-84C (Fed. Cl. Dec. 19, 2014). The court found that by requiring Alliant to use a design patented by Mr. P.J. Marx (now associated with Liberty Ammunition), under a patent known as the “ ’325 patent,” the U.S. had infringed the patent. Since the mid-1990s, the DOD sought a lethal, lead-free bullet to take the place of the former .22 caliber standard-issue NATO round, the M855.

In 2010, the United States Department of the Army (“the Army”) began replacing the M855 with a new leadfree bullet, the M855A1 Enhanced Performing Round (“EPR”). The Army also replacing another bullet, the M80, with a similar lead-free design, designated as the M80A1 EPR. During the development of this ammunition, an individual now associated with Liberty Ammunition, Inc., Mr. PJ Marx, the inventor of the projectile covered by the ‘325 patent, contacted individuals at the DOD to share his design for a new, lead-free projectile. Liberty alleged that through these conversations with Mr. Marx, the Army copied its design and violated the terms of three nondisclosure agreements (“NDAs”) by disclosing confidential information within the Army to unauthorized recipients, including some who worked with vendors of ammunition to the Army.

THE PATENT INFRINGEMENT SCHEME FOR GOVERNMENT CONTRACTS

Section 1498(a) of Title 28 serves as a congressional waiver of the United States’s sovereign immunity and vests in the United States Court of Federal Claims the exclusive authority to adjudicate patent infringement claims against the federal government “[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.” 28 U.S.C. § 1498(a).

Section 1498, rather than the Tucker Act, 28 U.S.C. § 1491(a), grants the court jurisdiction over a claim for patent infringement. The statute further states, in pertinent part, that “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(a). Pursuant to 28 U.S.C. § 1498, the government is authorized to “take” a non-exclusive and compulsory license to any United States patent based on the theory of eminent domain. The government has consented to being sued only for the compulsory taking of a non-exclusive patent license, and therefore, the basis for recovery against the government under 28 U.S.C. § 1498 diverges from that in patent litigation between private parties under 35 U.S.C. § 271.

This article does not provide legal advice as to any particular transaction 2 Section 1498 is a waiver of sovereign immunity only with respect to a direct governmental infringement of a patent. Direct infringement of a patent occurs when the government directly uses or manufactures the patented invention without a license, when, through a procurement contract or otherwise, the government consents to the use or the manufacture of the patented invention for its benefit without first obtaining a license. The relief provided by 28 U.S.C. § 1498(a) for direct infringement is the “reasonable and entire compensation” for the compulsory non-exclusive patent license. 28 U.S.C. § 1498(a), generally, requiring the U.S. to pay a reasonable royalty for its license as well as damages for its delay in paying the royalty. The court held that the M855A1 and the M80A1 projectiles directly infringed Mr. Marx’s patent and awarded a reasonable royalty of $15.6 million to Liberty Ammunition, Inc., plus future royalty payments until the patent expires.

BREACH OF CONTRACT

The Tucker Act grants the Court of Federal Claims subject matter jurisdiction to hear claims “against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.” 28 U.S.C. § 1491(a)(1). To prevail on a breach-of-contract claim, the plaintiff bears the burden of proving: (1) the existence of a valid contract between the parties;(2) a duty arising from the contract; (3) a breach in duty; and (4) damages caused by the breach. For either an express or implied contract, the requirements are the same: (1) mutuality of intent; (2) consideration; (3) an unambiguous offer and acceptance; and (4) the existence of actual authority, express or implied, on part of the government signatory to bind the government to the contract.

Four persons signed the nondisclosure agreements on behalf of the U.S.: (1) Lt. Col. Dean, Chief of the Smalls Arms Branch; (2) Mr. John Amick, a contractor supporting the Small Arms Branch; (3), Mr. Thomas Campion, a contractor for the Special Operations Command; and (4) Mr. Charles Marsh, a Navy employee at the Crane Naval Surface Warfare Center. The court held that there was no breach of contract on these nondisclosure agreements because none of the four signers on behalf of the government had actual or implied contracting authority. Furthermore, these nondisclosure agreements were never ratified by a government official who knew about the contracts and had the power to ratify them.

TIPS: Recognize that the Court of Federal Claims has exclusive authority to adjudicate patent infringement claims against the federal government. This is a highly specialized area where a contractor should be represented by counsel familiar with patents and government contracts.

Copyright 2015 Dick Lieberman, Permission Granted to the Maryland PTAC. This article does not provide legal advice as to any particular transaction.