Are Patents Property: Zoltek v. US

F22-Rapter The Takings Clause of the Fifth Amendment to the US Constitution provides that the Government shall not take private property “for public use, without just compensation.”  The question now before the Supreme Court in Zoltek is whether patent rights constitute private property protectable under the Fifth Amendment.

Zoltek’s Fifth Amendment claim was denied by the CAFC and Zoltek has now petitioned the Supreme Court to hear its case. According to petitioner’s counsel, amicus briefs will be due by March 22, 2007 unless the Government requests an extension of time to file its response (something that is likely).

For many Patently-O readers, this case is a no-brainer — just like you thought that patents came with a right to exclude . . .

[More to come in a later post

Notes:

21 thoughts on “Are Patents Property: Zoltek v. US

  1. Has anyone noticed that patents are *created by* the federal government, pursuant to the “Progress of Science” clause? This makes it clear that the government can refuse to grant patents at will, and can issue exceptions to them as well (assuming legislation passed by Congress say so).

    The Consitutional question is whether, *once granted by law*, the patent counts as property for purposes of the Takings Clause. Arguably it does; it’s a reliance issue.

    But it seems clear that Congress could pass a law specifically allowing it to revoke or create exceptions to patents without providing compensation; then there would be no reliance issue, because any revocation would be within the scope of the original patent grant. It didn’t, as it happens, but it’s interesting to think about.

  2. CaveMan,

    The paper is a good “top-level” review of why the system was created, its intended scope, and how it works.

    It is no coincidence that the author cited the same quote I made above. Prior to 1910 the question was NOT “Are patents property?” The question was where to pigeonhole a claim within our federal court system.

    Along the way people, lawyers and lay alike, have lost sight of history. Zoltek is a manifestation of this loss.

    I sincerely hope the petition for cert is granted and that those of us who labor in this field we call IP lend meaningful support to the petitioner.

    By the way, and in view of the subject discussed in the paper, should anyone have questions about how the USG contracting process works vis a vis IP in general, feel free to ask me. I have spent the better part of 20 years trying to educate both the government and business in what the laws and regulation really say. What the law “really” says has universally shocked and encouraged business, not to mention the vocal animus hurled at me by those in government used to getting their way by the use of brute force. I have always said that USG implementation of IP law in the contracting process, to the extent it comports with law, is purely coincidental and unintentional. The DOE lays claim to every invention arising under its contracts despite the clearly limiting language of the Atomic Energy Act. The same can be said of NASA. DOD is a whole nother ball of wax crafted in such a manner as to consign IP to the trash bin.

    Perhaps a SCOTUS decision may help bring some measure of rationality and reality to this stupefying process.

    Make no mistake about it…Zoltek IS an important case, one that makes cases like eBay and the recent spate of SCOTUS decisions on other aspects of patent law look like mere child’s play.

  3. “That the government of the United States when it grants letters-patent for a new invention or discovery in the arts, confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the government itself, without just compensation, any more than it can appropriate or use without compensation land which has been patented to a private purchaser, we have no doubt. The Constitution gives to Congress power ‘to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries,’ which could not be effected if the government had a reserved right to publish such writings or to use such inventions without the consent of the owner. Many inventions relate to subjects which can only be properly used by the government, such as explosive shells, rams, and submarine batteries to be at ached to armed vessels. If it could use such inventions without compensation, the inventors could get no return at all for their discoveries and experiments. It has been the general practice, when inventions have been made which are desirable for government use, either for the government to purchase them from the inventors, and use them as secrets of the proper department; or, if a patent is granted, to pay the patentee a fair compensation for their use. The United States has no such prerogative as that which is claimed by the sovereigns of England, by which it can reserve to itself, either expressly or by implication, a superior dominion and use in that which it grants by letters-patent to those who entitle themselves to such grants. The government of the United States, as well as the citizen, is subject to the Constitution; and when it grants a patent the grantee is entitled to it as a matter of right, and does not receive it, as was originally supposed to be the case in England, as a matter of grace and favor.”

    Perhaps someone will entertain the task of elaborating on why the above bears little of no relevancy to what is comprehended by 1498…

  4. “A major contributor to the problem is that 1498 and its predecessors have never been written coextensive with rights accorded by a patent.”

    Not entirely true.

    1498 was written to waive the government’s liability to infringement. At that time, the definition of infringement meant only in the United States. Therefore, 1498 was written to be the equivalent, although distinct from, 271. When the legislature noticed that the new express definition as written in 271 included a territoriality restriction, “within the United States,” and that 1498 did not, they realized that 1498 was not the equivalent of 271, and in fact, it was broader. Therefore, the legislature amended it. This legislative history shows intent for 1498 to keep pace with 271. When subsection (g) was added to 271, 1498 and 271 became uneven again. There again needs to be a correction.

    The majority ignored this history and went with a more outcome determinate approach as to how they interpreted 1498.

  5. “Can someone direct me to the controlling case law that led the CAFC in NTP to declare that a method patent can only be infringed if all of the claimed steps are performed within the United States?”

    The problem goes back to an early section 1498 case, Decca Ltd. v. U.S. Decca involved a patent owner who sued the United States for allegedly infringing the owner’s patent for a three-frequency radio navigation system. The court in Decca explained that section 1498 requires direct infringement, meaning that inducing and contributory infringement “do not give rise to government liability because the Government has not waived its sovereign immunity with respect to such activities.” Decca never mentioned 35 U.S.C. 271.

    Four years later, the Court revisited Decca to support the proposition that “concepts, phrases, and words . . . under Title 35 . . . do not and cannot always connote or denote the same meaning under section 1498.” However, the footnote supporting this contention cites to Decca, stating that “the Government can only be sued for any direct infringement of a patent (35 U.S.C. §271(a)), and not for inducing infringement by another section (section 271(b)) or for contributory infringement (section 271(c)).” Instead of just using the general term “direct infringement,” the court equated direct infringement under section 1498(a) to that under section 271(a). This slip of the pen did not pose immediate problems because it was mere dicta, hidden away in a footnote until it became binding precedent twenty years later.

    In 2005, the court heard “the BlackBerry case,” where a patent owner sued a competitor for using a method of allowing mobile users to receive email wirelessly. The court needed to decide whether “using, offering to sell, or selling of a patented invention is an infringement under section 271(a) if a component or step of the patented invention is located or performed abroad.” The court cited to Decca to determine this question because it believed that “section 271(a) is a necessary predicate for government liability under section 1498.” In this way, what was only dicta in Motorola became precedent in NTP.

  6. Not a comment, but a question. Can someone direct me to the controlling case law that led the CAFC in NTP to declare that a method patent can only be infringed if all of the claimed steps are performed within the United States?

  7. “I think it is interesting that everyone is focusing on the takings issue so much considering it received so little consideration in the opinions.”

    …and that is one of the problems associated with the CAFC majority who viewed Schillinger as controlling regarding Tucker Act claims. It certainly did not help that the phrase “sovereign immunity” kept rearing its ugly head.

    “I think an equally interesting issue is why 1498 has not kept pace with 271, which was clearly the drafters’ original intent. 1498 was originally created to be the parallel of 271.”

    A major contributor to the problem is that 1498 and its predecessors have never been written coextensive with rights accorded by a patent. Compare: 19 USC 1337. At least the ITC has tried to keep up with the times.

  8. I think it is interesting that everyone is focusing on the takings issue so much considering it received so little consideration in the opinions. I think an equally interesting issue is why 1498 has not kept pace with 271, which was clearly the drafters’ original intent. 1498 was originally created to be the parallel of 271. Through the years and many amendments, 1498 now confers less liability to the government that 271 does on a private party.

  9. “For many Patently-O readers, this case is a no-brainer — just like you thought that patents came with a right to exclude . . . ”

    A patent holder has what Congress has chosen to confer on him, subject to the constitutional limits on Congress’s ability to mandate monopolies. If when the patent was issued it included a term that you could not sue the government except in very specific circumstances then there is no issue of a taking – the government cannot take from you what you never had.

  10. The issue discussed below was analyzed to some extent in the lower court decision(s) of Zoltek, though its relative importance here might be debatable. Not intending to hijack the discussion, but this seems related, and is in an area where I did some research (though I do not have a perfect grasp on all the nuances). At the very least, the brief language and legislative history of section 1498(c) might be noteworthy in someone’s eyes.

    I wrote my masters thesis (LLM in IP requirement) generally on extraterritoriality and the impact of the CAFC’s NTP decision. Thus, I have some familiarity with the topic and the overlapping issues that emerge in other cases, as demonstrated by Zoltek.

    One issue that strikes me as important and problematic is the interpretation of the section 1498(c) provision “[t]he provisions of this section shall not apply to any claim arising in a foreign country”, which was added to “remove the possibility of its [section 1498] being interpreted as applying to acts of infringement in foreign countries.” (S.Rep. No. 86-1877 at 6 (1960)).

    The phrase “any claim arising in a foreign country” is pregnant with possibilities – possibly two or three interpretations (depending upon how one does the labeling). One interpretation is that any step of a process performed outside the U.S. is a claim arising in a foreign country. A related interpretation, and perhaps a distinction without a difference, is that any step of a process performed outside the U.S. does not satisfy the all elements / steps rule (w/in the US), and thus must be labeled a claim arising in a foreign country, though that single step is not a cognizable action in the foreign jurisdiction, either. There is a subtle distinction that I believe exists, but I am probably failing to articulate the distinction.

    Another plausible interpretation (no. 2 or no. 3) is “any claim arising in a foreign country” is a mirror image to and has the same requirements as a cognizable claim that arises in the US – performing a single step of a patented process in a foreign jurisdiction would not necessarily rise to the level of patent infringement (all elements / steps rule) with that foreign jurisdiction, and thus, a single step of a patented process performed in a foreign jurisdiction does not REALLY give rise to a claim (cognizable) within the foreign country. Which is the correct or most reasonable interpretation?

    Pre-NTP, I believe the answer (consistent with patent law) was that a single step performed outside the US shielded both the private party and the US government from liability (Decca Ltd. is distinguishable b/c although some of the process steps were performed outside the US, the instrumentality used – naval ships, satellite equipment,towers – were the physical property of the US government). Post-NTP, if that case is to be taken seriously, the private party is probably liable – why should the government be treated differently and be able to shield itself from liability, now, esp. considering the section in question (1498(c)) was specifically enacted to treat the government the same as a private entity?

    Thoughts? Please be gentle. :o)

  11. This case really deserves far more analysis than the post (or, for that matter, the petition) gave it. The problem the CAFC decision created is obvious: the government and its contractors can avoid paying royalties on process claims (though not apparatus claims) simply by offshoring one single step.

    The CAFC majority clearly understood this problem. Their point was that the problem was statutory, not constitutional. Congress can quite constitutionally provide in 35 U.S.C. 271 something like “no infringement action shall lie against the United States or its contractors”. Presumably no one would argue that there is a Takings problem if the government then ignored all patents. And in fact, Congress did exactly this by implication: 35 U.S.C. 271(h) defines “whoever” as including a State, but does not define it to include the United States, leading to the presumption that the United States is excluded as a sovereign. (Notably, the effort even to include States in the definition of “whoever” failed due to the Supreme Court’s decision in Florida Prepaid).

    Policy-wise, it would be foolish to create a wholesale exemption for the United States from patent infringement, because there would be less incentive to invent — especially for military contractors whose primary customer is the government. So Congress created a seperate rememdy in 28 U.S.C. 1498, one that excluded process claims where one step is performed outside the United States. Surely Congress could have legislated the other way, but I fail to see why it must do so.

    The cry that “patents are property”, presumably to mean that the U.S. must grant patents that cover the government’s activities as well under the Fifth Amendment, simply makes no sense for the reasons above. It implies either (1) Congress cannot under the Fifth Amendment exempt the U.S. from section 271; or (2) Once Congress excludes the U.S. from section 271, it cannot create a more limited right against the U.S. in section 1498. It also makes zero sense considering that States have immunity from both infringment actions and Takings actions after Florida Prepaid — a different result in Zoltek would mean that the U.S. is on the hook for more liability than States are.

  12. Also bear in mind that there is much more at stake here in a business sense than merely the procurement of equipment by the USG for use by US agencies. There is also the matter of Foreign Military Sales by the DOD under the Arms Export Control Act, a program under with the DOD basically serves in the role of a retailer to foreign governments.

  13. Taken to its logical conclusion, the CAFC decision in Zoltek v. US essentially allows the US government to “take” any patented invention without paying just compensation.

    For a detailed background and analysis of the current case law please see my comment located at: link to jmripl.com

  14. It is useful to bear in mind that one of the reasons this case has proven problematic is the view by many that 1498 represents a waiver of sovereign immunity. This view was similarly articulated many years ago at the trial level by the COFC in the case of DeGraffenreid v. US.

    It is also useful to bear in mind the legal consequences of the continuing homage being paid to sovereign immunity. Try an exercise of articulating all rights covered by the grant of a patent, including provisional rights, and then weigh each of those rights against a sovereign immunity backdrop. 1498 speaks to “use and manufacture”. Even back when its predecessor was first enacted “sale” was a then existing right. Move forward in time to “import” and “offer for sale”, as well as provisional rights…and then ask the question what would the acceptance of sovereign immunity as the foundational basis for 1498 really mean? Moreover, what would such a foundational basis mean vis a vis a patentee and a government contractor? A sovereign immunity foundation for 1498 suggests to me that a private right of action can be pursued against the contractor by the patentee in federal district court for rights outside the scope of 1498.

    Suggested sources of reading:

    Schillinger
    Ruckelshaus
    Degraffenried (even though merely a COFC decision)
    ITC treatment of imports under circumstances such as here

    I view Zoltek as a quite important case involving issues that lie at the very heart of patent law, issues that tend to be overlooked in the “heat of rhetoric”. I do hope that cert is granted to address these very issues, and, perhaps, to provide for the first time a truly comprehensible discussion of just what it is that 1498 comprises.

  15. If anyone’s in Washington next month and wants to discuss the intricacies of the post title, there’s a panel discussion free of charge on the subject, with the following speakers:

    Prof. Shubha Ghosh, Southern Methodist University, Dedman School of Law
    Mr. Michael A. Gollin, Venable LLP
    Mr. Dean A. Monco, Wood Phillips
    Prof. Adam Mossoff, Michigan State University College of Law
    Hon. Loren A. Smith, United States Court of Federal Claims (Moderator)

    And it’s free.

    link to fed-soc.org

  16. Stephen is certainly right that any statement that “patents are property, and therefore patents are property for purposes of the Takings Clause” (which I realize, Dennis, is NOT what you implied) is overly simplistic. For one thing, there are other federal entitlements which the Supreme Court has found do constitute “property” for some purposes (such as requiring procedural due process), but does not constitute “property” for purposes of the Takings Clause. Indeed, I’ve just written an entire article on the subject (jumping off from the Zoltek case) which will be posted on SSRN next week.

  17. Mr. Lindholm, I don’t think Dennis is being “knee-jerk” here. There were 2 issues in the case: (1) the 28 U.S.C. sec. 1498 issue, and (2) the Takings Clause issue. “Are Patents Property” is a convenient shorthand for the second issue.

    Judge Plager’s dissenting opinion framed the issue as “may an owner of a United States patent bring a cause of action under the Fifth Amendment to the Constitution against the United States for a ‘taking’ as all other owners of property rights may; or is a patent right somehow less of a property interest, not worthy of such constitutional protection?”

    In her dissent from the court’s denial of rehearing en banc, Judge Newman stated: “[m]y concern with my colleagues’ position starts with their apparent rejection of the premise that patents are property and subject to the Fifth Amendment.”

    The title of the post is a fair way of characterizing the central dispute in just a few words. Of course there’s more to it than just that, but some corners must usually be cut if you’re going to distill a case the size of Zoltek down to a few words.

    Notably, the post also links to more detailed discussion of the case. I don’t think the blog has dumbed the case down beyond recognition.

  18. Stephen, Thanks for the comment.

    I agree that there is much more to this case, which is why I included that caveat at the bottom of the post.

    The most interesting question raised by the case is that of whether patents rights are considered property rights in a way that would give a patentee a claim against the government even when there is no statutory provision for such a claim.

  19. There’s a lot more to the analysis than “are patents property.” Patent claims against the U.S. are limited in certain ways, for instance, injunctions are not permitted. Additionally the Court of Claims held in this case that the enabling act for patent suits against the U.S. did not cover method claims where parts of the method were performed outside the U.S. (in this case, Japan). What the plaintiff did in the Court of Claims is argue that the 5th Amendment is a backstop which allows patent suits against the government even where the enabling act does not allow it. (You all remember that sovereign immunity is the default, right?) Clearly there are a lot of areas in the courts’ analysis here where reasonable people could differ, but boiling down the lawsuit to “are patents property” is knee-jerk and more to the point it’s well below the excellent standard which this blog used to set.

  20. Any suggestion that a mere citizen could ground the US military’s air force provides aid and comfort to our enemies.

    /freeper off

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