CASRIP Newsletter - Spring/Summer 2006, Volume 13, Issue 2
No Taking, No Government Liability if Method Step Performed Abroad: Zoltek Corp. v. United States
By Signe H. Naeve 
Under section 1498 of the Patent Act, the United States government can be held liable for the use of a method patent only when it practices every step of the claimed method within the United States, the Federal Circuit held in a per curiam opinion on March 31, 2006. The Court also rejected the trial court's jurisdictional assertion under the Tucker Act for a taking without compensation in violation of the Fifth Amendment. The panel was split with a per curiam ruling, two concurrences and a dissent. One concurrence supported the holding from NTP, Inc. v. Research In Motion, Ltd.  requiring direct infringement before imposing government liability; the other concurrence questioned the viability of NTP, while the dissent argued that there was a basis for a takings claim.
II. Split Opinions
A. Per Curiam Ruling: No Taking, Steps Performed Abroad
Zoltek Corporation owns U.S. Reissue Patent No. 34,162 ("'162 patent") for a "controlled surface electrical resistance carbon fiber sheet product." The method claims are directed toward "'partially carbonizing' fibers, and weaving or processing them into controlled resistivity carbon fiber mats or sheets." The United States contracted with Lockheed Martin Corporation to design and build the F-22 fighter and Lockheed subcontracted with two different companies for silicide fiber products. The first contract involved fibers that were partially carbonized and made into sheets in Japan and then imported into the United States . The second contract involved fibers that were manufactured in Japan and then processed into mats in the United States .
Zoltek sued for violation of the '162 method patent and the government moved for partial summary judgment claiming that Zoltek's §1498 claims were barred because some of the steps were completed in Japan . Even though the trial court agreed that §1498(c) barred Zoltek's §1498(a) claims, the trial court denied the motion, directing Zoltek to amend its complaint to allege an improper taking. Both parties appealed the District Court's ruling.
On appeal, the Federal Circuit stated that, "direct infringement under section 271(a) is a necessary predicate for government liability under section 1498." The Court further stated that "a process cannot be used 'within' the United States as required by section 271(a) unless each of the steps is performed within this country." The Court thus concluded that because not all of the steps were performed in the U.S. , i.e. some were performed in Japan , there was no government liability pursuant to section 1498(a).
Turning to the takings issue, the Federal Circuit relied upon the 1894 Supreme Court decision, Schillinger v. United States, which it concluded was not overruled by Crozier v. Fried. Krupp Aktiengesellschaft. In Schillinger, the Supreme Court had rejected a similar claim and the Federal Circuit followed the Schillinger reasoning in this instance.
B. Gajarsa Concurrence: Questions NTP
Judge Gajarsa in his concurrence, questions the viability of NTP. Specifically, he questions the reasoning behind the NTP holding. He argues that the requirements for direct infringement and for infringement under section 271 are not the same. Rather, infringement under section 271 is a subset of direct infringement. In addition he argues that the case relied upon in NTP, Decca v. United States, was carelessly extended in Motorola Inc. v. United States . Thus, according to Gajarsa, there is a shaky foundation for the NTP premise that direct infringement, including all method steps being performed in the U.S. , must be found for government liability under section 1498.
C. Dyk Concurrence: Affirms NTP
In Judge Dyk's concurrence, in contrast, he argues that NTP got it right. He concludes that "the government can only be liable for infringement under section 1498(a) if the same conduct would render a private party liable for infringement under section 271(a)." He reasons, "the purpose of section 1498(a) was to make the United States and its contractors liable for 'use' of a patented invention that would in similar circumstances constitute direct infringement by a private party/"
D. Plager Dissent: Fifth Amendment Claim Viable
Judge Plager, meanwhile, questions the premise that a government cannot be held liable under section 1498 if any of the steps are performed abroad. He would invert the proposition and find a cause of action under 1498 unless all of the steps were performed abroad. With regard to the Fifth Amendment claim, he concludes that the Court of Federal Claims was right when it determined that it had jurisdiction to consider Zoltek's takings claim.
Zoltek adopts the basic premise from NTP- that all of the requirements under section 271(a) must be satisfied for a section 1498 claim and additionally dismisses an alternative route for liability under the Fifth Amendment. Although the per curiam opinion recognizes the precedential value of NTP, not all of the judges agree with its viability or historical support, specifically whether direct infringement and section 271(a) should have the same requirements.
In addition to the questionable legal development of the NTP hypothesis, there is fear that Zoltek and NTP will incentivize companies and the government to circumvent patent infringement liability in the United States by simply performing at least one of the method steps abroad. As Plager notes in his dissent, "that is an invitation to strategic conduct if ever there was one." This loophole could impact both the patent holder as well as the industry that it serves. The patent holder would be left without recourse in the United States , not even a takings action according to Zoltek, if the infringer simply out-sources part of its production abroad. Industries and their employees could be harmed as jobs, manufacture and production are sent overseas instead of keeping them in the United States , in an effort to take advantage of this loophole.
These issues may be visited in the future, but in the meantime, the Federal Circuit is bound by its en banc decision in NTP.