Defense to Patent Infringement if Acts Were Performed in a “Quasigovernmental” Capacity Pursuant to a Legal Obligation

A recent Federal Circuit opinion highlights a defense that is available to defendants whose alleged infringement occurred through activities that were undertaken for the United States. In particular, where the United States Government requires private parties to perform quasigovernmental functions pursuant to a legal obligation, a patent owner’s exclusive remedy is to bring a claim against the United States in the U.S. Court of Federal Claims, rather than against the private party in a U.S. District Court.

In IRIS Corp. v. Japan Airlines Corp., _ F.3d _, No. 2010-1051 (Fed. Cir. 2014), the patent owner (“IRIS”) accused Japan Airlines Corporation (“JAL”) of infringing U.S. Patent No. 6,111,506, titled “Method of Making an Improved Security Identification Document Including Contactless Communication Insert Unit.” According to IRIS, certain passports that JAL examined during pre-flight procedures were made using the ’506 Patent’s method, and, therefore, JAL was liable for infringement pursuant to 35 U.S.C. § 271(g). Notably, however, JAL examined the passports pursuant to federal law, “including the Enhanced Border Security Act, 8 U.S.C. § 1221 et seq., the Visa Entry Reform Act of 2002, 19 C.F.R. § 122.75a(d), and certain international treaties.”

In the district court, JAL successfully moved to dismiss, arguing, among other things, that the United States had assumed liability pursuant to 28 U.S.C. § 1498(a). That statute states:

Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States . . . 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.

28 U.S.C. § 1498(a) (emphasis added). For alleged infringing activities to be considered “for the United States,” two requirements must be met:  1) the activity “is conducted for the Government,” and 2) the activity “is conducted with the authorization or consent of the Government.” The district court found that, in JAL’s case, both these criteria were satisfied. On appeal, the Federal Circuit agreed.

As to the first criteria, the Federal Circuit reasoned (emphasis added):

[T]he government benefits here because JAL’s examination of passports improves the detection of fraudulent passports and reduces demands on government resources. This, in turn, directly enhances border security and improves the government’s ability to monitor the flow of people into and out of the country. When the government requires private parties to perform quasigovernmental functions, such as this one, there can be no question that those actions are undertaken “for the benefit of the government.”

Addressing the second criteria, the Federal Circuit noted that all the parties, as well as the United States, agreed that JAL could not perform its obligations under federal law without engaging in the allegedly infringing acts. The Federal Circuit found that “[u]nder such circumstances, the government has expressly authorized or consented to those activities.”

Ultimately concluding that JAL’s alleged infringement occurred “for the United States” under 28 U.S.C. § 1498(a), the Federal Circuit affirmed the dismissal of IRIS’s infringement claims.

As the Federal Circuit’s decision illustrates, when confronted with patent infringement allegations, defendants in highly regulated industries should consider whether their alleged infringing activity was performed in a quasigovernmental capacity or pursuant to a legal obligation under federal law. Where the alleged infringing conduct occurred for the United States, the defendant may be able to exit the litigation at the motion to dismiss stage and avoid protracted litigation.