In Arlton v. AeroVironment the Federal Circuit held that section 28 U.S.C. § 1498(a) supplies Government contractors with immunity from liability for patent infringement even if (1) the Government was obligated to award a corresponding contract to the patent owner; (2) the contractor did not originally develop the product for Government use; and (3) the contractor used the allegedly infringing product for non-government purposes.[1]
Under 28 U.S.C. § 1498(a), patent infringement claims based on products used or manufactured by or for the United States, with authorization or consent from the Government, must be asserted against the United States in the Court of Federal Claims (“CFC”), not against a private contractor in district court. A defendant contractor sued in district court must raise § 1498(a) to obtain immunity. However, “by or for the United States” and “authorization or consent” have generally been low bars. Indeed, defendants regularly succeed when moving for summary judgment based on § 1498(a), and the Federal Circuit typically upholds such decisions.
For example, the Federal Circuit has upheld that § 1498(a) shields contractors where the contractor demonstrated its product to support a government contract bid as part of a bid.[2] Moreover, procurement contracts often include a standard clause affirmatively providing authorization and consent.[3]
Arlton v. AeroVironment is the latest case where § 1498(a) shielded a contractor from liability for patent infringement. Paul and David Arlton sued AeroVironment – a leading UAS manufacturer – for infringing U.S. Patent No. 8,042,763 (“Rotary Wing Vehicle”). AeroVironment developed “Ingenuity,” a small helicopter intended for Mars, under a NASA Jet Propulsion Labs contract. AeroVironment also created “Terry,” a terrestrial version of Ingenuity.
The Arltons alleged that Ingenuity and Terry infringed the ’763 patent. AeroVironment moved for summary judgment based on § 1498(a), and the district court found in its favor. On appeal, the Federal Circuit addressed three arrows launched by the Arltons against the § 1498(a) shield.
Arrow #1 – The Government Lacked Authority To Authorize and Consent to the Allegedly Infringing Use
15 years before suing AeroVironment, the Arltons (through their company – Lite Machines Corporation) won contract awards from the Navy, Air Force, and Special Operation Command to develop technology embodied in the ’763 patent. Specifically, Lite Machines received Phase I and II SBIR and STTR contracts.[4] Under 15 U.S.C. § 638(r)(4), Phase III contracts shall “to the greatest extent practicable,” be awarded “to the SBIR and STTR award recipients that developed the technology.” Lite Machines, however, did not receive a Phase III contract or any other follow-on contract.
The Arltons contended that 15 U.S.C. § 638(r)(4) barred the Government from providing “authorization and consent” to AeroVironment because the Government was obligated to provide the contract award to Lite Machines. The Federal Circuit did not agree.
The court reasoned § 638 concerns bid disputes, which must be litigated in the CFC, and that “§ 638 does not narrow the applicability of § 1498.”[5] The court further asserted “there is simply no incompatibility, or even conflict, between § 638 and § 1498.”[6] In short, the Government’s obligation to award a contract to one party does not prevent the Government from authorizing another to develop infringing technology.
Arrow #2 – AeroVironment Did Not Originally Develop Terry for Government Use
The Arltons also argued summary judgment was improper because AeroVironment developed the terrestrial version of Ingenuity (Terry) for marketing and business development, not for the Government. The court reasoned that even if AeroVironment did not originally manufacture Terry for the government, NASA’s “subsequent use of Terry to conduct acoustic testing and the government’s express consent (including through this litigation) to Terry’s creation establish” that Terry’s manufacture and uses are covered under § 1498.[7] Effectively, because NASA consented to AeroVironment creating Terry and participated in the appeal, the Government provided the “authorization or consent” required under § 1498.[8]
Arrow #3 – AeroVironment Used the Patented Technology for Non-Government Purposes
The Arltons also relied on evidence that AeroVironment used Terry for public display at industry conferences, a “60 Minutes” episode, and demonstrations to potential investors. The court focused on whether these non-government uses were connected to AeroVironment profits.
“While AeroVironment may have received reputational benefits from its demonstrations, including its appearance on “60 Minutes”, there is no evidence that AeroVironment derived any commercial profit from the demonstrations. AeroVironment’s uses of Terry with potential investors, which as far as the record reveals also did not lead to any profit, cannot reasonably support a contrary finding.”[9]
Ultimately, absent any evidence that AeroVironment offered Terry for sale (e.g., to a non-government entity), the Federal Circuit held that § 1498 covered Terry’s development and use.
Enforcement Considerations
Although the Arlton opinion appears to be business as usual, the modern government procurement industry is not. As the aerospace and defense industry aims to accelerate technological advancement and meet growing manufacturing demands, the number of participants is increasing. Also, contractors are consistently seeking non-government applications (“dual-use”) to build diverse revenue streams. As a result, the industry is seeing record private investment and increased patent filings.
Given the current increase in government procurement for defense and dual-use technologies, patent owners facing a government-backed infringer should consider the advantages of asserting infringement at the Court of Federal Claims. While injunctive relief and jury trials are not available, monetary damages include “entire and reasonable compensation,” typically a reasonable royalty plus interest accrued during the entire period of infringement. Patent owners with fewer than 500 employees may also be entitled to attorney and expert witness fees.[10]
Indeed, notwithstanding the immunity provided by 28 U.S.C. § 1498(a), the remedies available at the Court of Federal claims may be desirable relative to those available in district court. For example, injunctive relief may be a moot point if the infringing contractor is no longer developing the technology, and lost profits may be insufficient where the patent owner lacks relevant sales. Ultimately, patent owners may find the Court of Federal Claims provides favorable remedies without having to overcome the § 1498(a) shield.
[1] Arlton v. AeroVironment, Inc., Nos. 2021-2049, 2024-1084, 2024-1159, slip op. (non-precedential)
[2] E.g., TVI Energy Corp. v. Blane, 806 F.2d 1057, 1060 (Fed. Cir. 1986).
[3] FAR 52.227-1. (“The Government authorizes and consents to all use and manufacture, in performing this contract or any subcontract at any tier, of any invention described in and covered by a United States patent…”).
[4] Small Business Innovation Research (“SBIR”) and Small Business Technology Transfer (“STTR”) Phase I contracts are generally provided to determine technical merit. Phase II contracts are generally awarded to fund proposals that meet a particular program need. Phase III contracts involve commercial application and follow-on funding.
[5] Arlton, Nos. 2021-2049, 2024-1084, 2024-1159, slip op. at 8-9.
[6] Id. at 9
[7] Id. at 11
[8] Id. Quoting the Government’s brief (“[T]he government’s authorization and consent extend to the manufacture of Terry and its use in the tests for resolution of Ingenuity’s audio anomalies. . . . [T]o the extent any doubt remains, the United States hereby provides its authorization and consent through its participation in this appeal.”).
[9] Id. at 12.
[10] 28 U.S.C. § 1498(a)
