One very important segment of nanotechnology is nanomaterials (e.g., carbon nanotubes, nanoparticles, quantum dots, nanocrystalline diamond, nanowires, and the like). Companies operating in this space must be able to protect themselves with patents, particularly as commercial manufacturing progresses to larger scales and international markets. While trade secret protection may be appropriate, patents often provide better intellectual property protection. However, a recent court case made clear that the business strategy must include consideration of two key factors: international trade and government contracting. Specifically, Zoltek v. United States (Fed. Cir., No. 04-5100, 3/31/06) demonstrates some pitfalls that arise. This article reviews the Zoltek case and discuss business, legal, and policy strategy in view of modern realities of international trade and government contracting.

What Happened?

Zoltek is a U.S.-based carbon fiber company. Carbon fibers are advanced carbon materials that connect with other forms of nanostructured carbon such as carbon nanotubes and nanodiamond. Zoltek patented in the United States a method of manufacturing carbon fiber sheets that have controlled electrical resistivity on their surface.

The U.S. government contracted with Lockheed Martin Corporation (Lockheed) to design and build the F-22 fighter. Lockheed then subcontracted with foreign companies to make advanced material fibers for use in the F-22 fighter. These fibers were manufactured in Japan and then imported into the United States to be incorporated into the F-22 fighter.

In 1996, Zoltek sued the U.S. government for patent infringement in the U.S. Court of Federal Claims under 28 U.S.C. § 1498(a). Under this section of the U.S. Code, whenever a patented invention is manufactured for the U.S. government by a contractor without license from the patent owner, the patent owner’s remedy is a patent infringement suit against the U.S. government, rather than against the government contractor.

Court Holdings and Reasonings

The Court of Federal Claims held that it lacked jurisdiction for the § 1498(a) infringement claim because the accused fiber sheets were made in Japan, and 28 U.S.C. § 1498(c) excludes claims for patent infringement that arise in a foreign country. The Court of Federal Claims also held, however, that it had jurisdiction to treat the infringement as a constitutional Fifth Amendment taking under 28 U.S.C. § 1491. Each of the parties then appealed to the Court of Appeals for the Federal Circuit. Zoltek wanted its rights under § 1498 recognized, whereas the federal government denied that a constitutional Fifth Amendment taking can be the basis for suit.

The Federal Circuit effectively sided with the U.S. government and reversed the Court of Federal Claims. In ruling against Zoltek, it held that there was no separate jurisdiction for patent infringement as a Fifth Amendment taking when there is no jurisdiction under § 1498(a).

More troubling to nanotechnology companies seeking to protect their nanomaterials, the Federal Circuit held that under § 1498, the U.S. government is liable for use of a method patent only when the government (or its contractor) practices every step of the claimed method in the United States. Thus, the U.S. government and its contractors can escape infringement of method claims in U.S. patents if they outsource to foreign countries the production which uses the claimed method.

Practical Implications

Unless the Federal Circuit overrules or limits its Zoltek holding in a future case, nanomaterials manufacturers can lobby Congress to amend the law to close the gap between private company and U.S. government infringement.

In the meantime, unless the law is changed, the practical lessons from the case include for business and patent strategy:

  • Seek to obtain and enforce composition or device claims wherever possible

  • Consider whether the federal government is involved in the market and the impact of that on patent licensing and enforcement

  • Consider filing for foreign patent protection, particularly in Japan and Europe

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.