Advanced Software v. Federal Reserve Banks and Fiserv (CAFC 2008-1152) precedential

Patents in dispute: 6,792,110; 6,549,624; and 6,233,340.

The technology charged with infringement is called "seal encoding" technology, whereby certain check identifying data such as the check number, payee, date, and amount payable are encoded, using appropriate software, in a "seal" on the face of the check when the check is printed. Using software programmed with the encryption system, a bank at which the check is processed after its deposit can decode the seal and compare this decoded information to the information that appears on the check. Any discrepancy will alert the bank to a possible altered or counterfeited check. Because the procedure involves both encoding, which takes place when the checks are issued, and decoding and verification, the technology depends upon participation by both the check issuer and the bank that processes the check after its deposit. As concerns the involvement of the United States, the assertions of infringement arise from use of this system with checks of the United States Treasury.

Anything "for the United States" falls under special protection.

On motion of the defendants, the district court dismissed the infringement claims that were based on U.S. Treasury checks, ruling that the alleged acts of infringement were "for the United States" and could be litigated only in the Court of Federal Claims pursuant to 28 U.S.C. §1498(a). The statute is as follows:

28 U.S.C. §1498(a). Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, 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. . . .

For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.

In the district court the United States had moved to intervene and had also moved for summary judgment on the ground that the accused acts of infringement were for the United States. The district court denied these motions of the United States as moot, upon granting the defendants' motion for dismissal on the ground that §1498(a) applied insofar as Treasury checks were concerned.

Section §1498(a) was first enacted in 1910, and was subsequently broadened in order to aid the government's procurement efforts during World War I. As the Court explained in Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 345 (1928): "The intention and purpose of Congress in the act of 1918 was to stimulate contractors to furnish what was needed for the war, without fear of becoming liable themselves for infringements to inventors or the owners or assignees of patents." This court has further explained that "[t]he coverage of §1498 should be broad so as not to limit the Government's freedom in procurement by considerations of private patent infringement." TVI Energy Corp. v. United States, 806 F.2d 1057, 1060 (1986).

The statute has the effect of removing the threat of injunction, although it provides for "reasonable and entire compensation" for infringing use. See Motorola, Inc. v. United States, 729 F.2d 765, 768 n.3 (Fed. Cir. 1984) (injunctive relief is unavailable against the United States under §1498); Leesona Corp. v. United States, 599 F.2d 958, 968-69 (Ct. Cl. 1979) (distinguishing recovery permitted under §1498(a) from the patent infringement remedies of Title 35).

As the Court explained in Richmond Screw Anchor, the statute "is more than a waiver of immunity and effects an assumption of liability by the government." 275 U.S. at 344; see also Madey v. Duke Univ., 307 F.3d 1351, 1359 (Fed. Cir. 2002) ("[Section 1498(a)] relieves a third party from patent infringement liability, and it acts as a waiver of sovereign immunity and consent to liability by the United States."). When raised between private parties, reliance on §1498(a) is deemed an affirmative defense. See Toxgon Corp. v. BNFL, Inc., 312 F.3d 1379, 1381 (Fed. Cir. 2002).

Precedent has considered, under various factual situations, the scope and applicability of the phrase "for the United States" in §1498(a). When the alleged infringement is by a non-government entity ("a contractor, a subcontractor, or any person, firm, or corporation"), the statute states that the accused activity is "for the United States" if it is conducted "for the Government" and "with the authorization or consent of the Government." §1498(a) ¶2; see also Sevenson Envtl. Servs., Inc. v. Shaw Envtl., Inc., 477 F.3d 1361, 1365 (Fed. Cir. 2007) (stating the two criteria for application of §1498(a) to activity of private parties); Hughes Aircraft Co. v. United States, 534 F.2d 889, 897-98 (Ct. Cl. 1976) (same).

The district court found that these two criteria were met and that the Reserve Banks and Fiserv were acting "for the United States" and with its "authorization and consent," in the sense of §1498(a).

We have reviewed the applicability of 28 U.S.C. §1498(a), and agree with the district court that the proper forum is the Court of Federal Claims with respect to infringement based on use of this technology with Treasury checks. The communications from the United States to the Federal Reserve Banks, reinforced by the request by the United States to intervene in the district court and its representations to this court that the accused activities are "for the United States" and with its authorization or consent, established the applicability of §1498(a).

We discern no error in the district court's ruling that the Reserve Banks acted "for the Government" when they contracted to adopt technology designed to detect fraudulent Treasury checks. The ruling that §1498(a) applies to the counts involving Treasury checks is affirmed.

Affirmed.