When can Government Contractors Assert Immunity in a Patent Infringement Case?

© 2007, Gallagher & Dawsey Co., LPA
August 2007

In the past, the government placed contractors who used or manufactured an unlicensed patented invention for the government’s benefit in a legal gray area. Liability remained unclear between the government and the contractor for any patent infringement. Now, a recent decision clarified certain circumstances under which a government contractor could shield themselves for all liability for patent infringement under 28 U.S.C. §1498.

Under 28 U.S.C. §1498, whenever the government uses or manufactures a invention covered by a patent of the United Stated, without a license from the owner, the owner may only bring an action, against the United States, in the United States Court of Federal Claims. In addition, whenever a party uses or manufactures an invention for the government and with the authorization or consent of the government, the act is construed as use or manufacturing for the United States. Much confusion has flowed out of the interpretation of the clause “for the government and with the authorization or consent of the government.”

In Severson Environmental Services, Inc v. Shaw Environmental, Inc; 477 F.3d 1361, the government hired Shaw Environmental to clean up a lead-contaminated site in New York. In the contract, the government gave authorization and consent for use and manufacturing of any invention covered by a United States patent. In each delivery order, the government required the contractor to submit a written work plan, in which, the contractor described in detail the activities performed in the field or office as outlined in the individual delivery orders.

The trial court found that the work plans approved by the government required the use of a chemical contamination remediation method covered by Sevenson’s patents. The issue before the Court was not that of patent infringement, but the issue as to whether Shaw could invoke 28 U.S.C. §1498 to avoid any potential infringement liability.

The United States Court of Appeals for the Federal Circuit upheld the District Court’s finding that Severson’s sole remedy was an action against the United States, and that Shaw was not liable for the infringement.

Severson attempted to argue that the phrase “for the government” implied that the primary purpose “for the government” implied that the primary purpose of the contract had to be a traditional governmental function, that is, a benefit that ran directly to the government. They cited cases where the government received an oil drilling royalty and where Medicare providers were reimbursed for providing infringing products for this theory. The Court distinguished these cases, stating that they were cases where the government merely funded an activity, not where they required the use of an allegedly infringing product.

The Court rejected Sevenson’s argument, finding that Shaw's infringement of Sevenson’s patent was done under its capacity as a government contractor, and the infringement was done under its contract for the benefit of the government. In similar cases, where infringing activity has been performed by a government contractor pursuant to a government contract and for the benefit of the government, courts have all but bypassed a separate inquiry into whether infringing activity was performed “for the Government.” Instead, the inquiry has reduced to the “very simple question” of whether the plaintiffs “establish that the government authorized or consented to the ... infringement ..., and if such infringement in fact occurred.”

Sevenson argued, however, that at most, the government had given its “implied” consent to the infringement, and therefore that any infringement was not “with the Authorization and Consent of the Government,” based on Carrier Corp. v. United States, 534 F.2d 244 (Ct. Cl. 1976).

The Court in Sevenson easily distinguished this case, noting that in Carrier, the use of infringing equipment was not “necessary” to the contract because “neither the contract specifications nor any specific written instructions ... required the contractor to use any particular type of equipment” and “containers were available in the open market which could have been purchased and used, and which would not have infringed plaintiff's patent.”

Here, in contrast, the government did more than an “inspection and acceptance;” it required in the contracts the development of a detailed written work plan, and that work plan required the use of the infringing method. Unlike the contractor in Carrier, Shaw's use of a non-infringing alternative to the accused method would put it in breach of its contracts. Thus, Shaw's use of the accused method was “necessary” in a way that use of patented devices in Carrier was not. Accordingly, Shaw's use of the accused method was both “for the Government” and “with the authorization and consent of the government,” and the court found that Shaw was entitled to immunity from suit under § 1498(a).

Sevenson indicates that “a contract with the government and for the benefit of the government” is not otherwise disqualified because there may be third party benefit. Furthermore, the key to the Sevenson decision is clearly the satisfaction of the “with the Authorization and Consent of the government” clause in the government’s exact specification as to how the work was to be performed. If the government expressly mandates the use of a particular invention, and especially if they use language similar to that of the Sevenson contract authorizing use of “any invention,” there should be an excellent chance of coming under the 28 U.S.C. §1498 immunity umbrella, particularly if the government is made aware of the potential infringement.

The Court in Sevenson expressly left open the possibility that Shaw may have agreed to defend (indemnify) the government, calling this a matter “between Shaw and the government” and not relevant to the issue of Sevenson’s ability to bring action against Shaw. As a result, it appears that all of the benefits of the above could be lost if the government contract provides indemnification by a company to the government for patent infringement.

In summary, careful contract negotiations and drafting opens a significant possibility for a company to invoke the benefit of 28 U.S.C. §1498, thereby, providing immunity for patent infringement to government contractors.