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A LICENSE TO KILL: WHY HITKANSUT LLC V. UNITED STATES SPELLS THE END OF PATENT RIGHTS

By: Ian Kecskes

Patent holders have the right to exclude others from their patented technology, including the U.S. government. Patent holders are given a cause of action against infringers; 28 U.S.C. § 1498 gives patent holders a cause of action against the government. § 1498 entitles the patent holder to the costs of the infringement and, if the government is not substantially justified, the costs of litigation. Recently, in Hitkansut LLC v. United States, the United States Federal Claims Court held that, when evaluating whether the government was substantially justified, the court can evaluate the prelitigation conduct, including the nature of the infringement itself.  This blog will examine the underlying yet significant ramifications of this decision. Because of the incredibly high costs of patent litigation, the government can easily abuse this system. Patent holders will be more reluctant to bring a claim and risk spending significantly more on litigation costs than what the patent is worth. Ultimately though, since there has not been a significant change in government infringement since § 1498 was expanded, it is unclear how significant of an impact Hitkansut will have.


INTRODUCTION

            How far would you go to enforce your patent? Would you proactively litigate every possible infringement or only when you know a win is guaranteed? Would you be willing to take a loss just to prove a point? How far would you actually go? Due to a recent Federal Claims Court decision, Hitkansut LLC v. United States, which broadly interpreted the scope of the government’s infringing conduct evaluated under 28 U.S.C. § 1498, patent holders must answer these questions.[i]

Under 28 U.S.C. § 1498, the United States government must always compensate a patent holder whenever it infringes upon his patent by paying fair market value for a license.[ii] Now, however, due to Hitkansut, the United States government is only liable to pay a patent holder’s litigation costs when its prelitigation conduct is not substantially justified.[iii] The prelitigation conduct includes the actual infringement itself.[iv]

This raises some significant problems. If the United States can show substantial justification for the infringement, the government can effectively force licenses with patent holders. Since the government would only be liable for the minimal infringement fee, and avoid the more costly litigation fees, the government would simply pay the fair market value for a license for using technology the patent holder never wanted to give. Further, if a patent holder decides not to sue, because litigation costs may be greater than the infringement fee, the government would not have to pay any compensation. 

BACKGROUND

            Patent holders are given a cause of action against the United States government whenever it uses or manufactures an invention as described or covered by the respective patent without a license.[v] They can recover from the government the “reasonable and entire compensation” from the infringement, which includes the patent holder’s reasonable costs, fees for expert witnesses, and attorneys’ fees when litigating in the United States Court of Federal Claims.[vi] However, “if the court finds that the position of the United States was substantially justified,” then none of those fees will be included within the reasonable and entire compensation for the infringement. 

            Of course, a patent holder must bring a claim under § 1498 in order to recover when the government infringes. Unfortunately, patent “litigation costs are definitely expensive.”[vii] Even infringement claims less than $1 million have median legal costs around $650,000 for both plaintiffs and defendants.[viii] Although patent litigation is known as “a high-priced, high-stakes” affair, there is little to do to avoid it.[ix] To make matters worse, “more than 60% of all patent suits” are brought by companies that “rely on litigation as a key part of their business model.”[x]

            Because of the extreme costs associated with patent litigation, it is now recommended that companies take precautions while designing new products.[xi] Some precautionary steps include developing a portfolio of patents as a purely defensive tactic or attempting to negotiate to avoid litigation entirely.[xii] Plaintiffs must be especially cautious when evaluating their position, since meritless claims and wasteful motions will invariably lead to overspending.[xiii]

            In Hitkansut, the Federal Claims Court interpreted the exact scope of 28 U.S.C. § 1498, particularly section (a), for the first time.[xiv] Section (a) of the code provides the patent holder with reasonable and entire compensation for government infringement.[xv] However, the compensation award will be significantly limited if the government was “substantially justified” in its infringement.[xvi] The Federal Claims Court held that the entirety of the government’s conduct, including not just the procedural actions taken once a lawsuit was initiated but actions taken before the claim was filed, will be evaluated under the substantially justified standard.[xvii] Although the government was not substantially justified in Hitkansut, due to the government’s blatant and immediate redirection of its own research to match what was disclosed in Hitkansut’s patent, the court’s decision begs the question: what happens if the government is substantially justified?

ANALYSIS

            Hitkansut makes an important interpretation of § 1498 that needs mentioning before its consequences can truly be discussed. The analysis focused on whether Hitkansut could recover its litigation expenses based upon the government’s actions. What was not an issue, however, was whether Hitkansut was entitled to the reasonable and entire compensation for the use and manufacture of whatever the patent described. Therefore, regardless of the government’s actions, the Federal Claims Court implied that the patent holder should always be compensated for the infringement itself. The issue was only whether the government must reimburse the patent holder for the cost of claiming that compensation.

            Hitkansut opened the door for the entirety of the government’s actions to be evaluated, not just its conduct once litigation is initiated. Therefore, since both the reason for and nature of the infringement can be evaluated, it should be relatively easy to create a scenario where the government is substantially justified. For example, it is possible that someone discovers a way to terraform current land masses and create new ones in the ocean.[xviii] This could have incredible implications for the future of the United States.[xix] However, this would also become the most sought-after technology in the world. The patent holder, quickly becoming the richest person in the world, might not necessarily license his technology to the government. 

            The government conceivably will have any number of rationales as to why they want to license this technology to terraform land masses: for military bases in strategic locations throughout the world’s oceans, to expand borders to give more land to the American people, to reshape less hospitable areas to help the agriculture industry or support residential communities. Let’s focus upon creating military bases throughout the world’s oceans.

            The government interest is fairly high. The United States could now create a chain of hospitable islands off the Eastern coast, similar to how Hawaii functions in the Pacific Ocean, that could be used as an advanced military outpost and an early warning station. Instead of relying on land leases and the graciousness of other countries, the United States could build military outposts in the Indian and Arctic Oceans on islands created specifically for and by the United States. The government surely can articulate incredible national incentives if it could license this technology and would certainly have significant popular support.

            Upon refusing the government’s offer to purchase a license, and following the government’s infringement of the patent, the patent holder would of course litigate and argue that the government is not substantially justified since the mere convenience offered by terraforming is insufficient to justify the infringement. The patent holder could further posit that the government’s interests do not outweigh his own, namely that every patent holder has the absolute right to exclude and that compensation is necessary for patents.  

            Whatever the reason, this hypothetical is slanted in favor of the government. In this scenario, the courts shouldfind that any patent infringement by the government is substantially justified and allow a forced license. Although the right to exclude is the quintessential fundamental property right, it must have its limits.[xx] Without some further justification, a patent holder should not be allowed to jeopardize the safety of others purely for some self-serving rationalization. Congress acknowledged as much since it included this substantially justified regime in § 1498 in the first place. § 1498 does not contain any language actually prohibiting the government’s conduct.

The national security hypothetical poses a unique opportunity for the government: if substantially justified, the government would only need to compensate for the use and manufacture of the patent. However, to get compensation, the patent holder would have to prove that the government infringed in court. Unless actually sued and held liable, the government would not have to pay anything for the infringement.

As a practical matter, almost no patent holder would bring a claim. It would not make much fiscal sense. Take Hitkansut for example. Hitkansut spent over $3,000,000 in attorneys’ fees and almost $1,500,000 on experts and other necessary trial expenses.[xxi] The cost of the infringement itself was $200,000.[xxii] Paying 225% more than the available recovery is almost never recommended. Sure, an independently wealthy patent holder or a corporation with the sufficient financial backing might be willing to litigate to prove a point. However, there is little incentive for a patent holder to pay over $4,500,000 to recover $200,000. Is a $4,300,000 loss ever something a patent holder would choose? Thus, for the significant majority of patent holders, when there is a substantially justified government infringement, it is doubtful any sort of litigation will be brought.

            This is great news for the government. Because of the bloated patent litigation costs that make lawsuits cost-prohibitive, the government can infringe without fear of paying any sort of compensation to the patent holder. The government would not even pay for the infringement itself. Instead of creating forced licenses, as a practical matter, Hitkansut has created a government takings scheme. 

            For the government, there would be little remorse or second thought. If it is substantially justified, there would certainly be a pressing need for the technology. Compelling justifications like national defense almost always carry an air of immediacy. Although the government can say that they are willing to pay or even proactively provide some sort of compensation before a patent holder files a claim, the patent holder would be at the government’s mercy to actually pay. 

            Of course, this scheme goes against the entire purpose of § 1498. Congress wanted patent holders to be compensated for an infringement. That was why they were given a cause of action in the first place. However, without a change to the costs of patent litigation, it is unclear what sort of actions will remedy this problem.

Conclusion

            The Federal Claims Court made the right decision, at least as it pertains to Hitkansut LLC. The government’s blatant shift in research focus once it discovered Hitkansut’s patent was not substantially justified. The Court correctly found that Hitkansut could recover not just for the infringement but for the expended litigation costs.

            However, the repercussions from Hitkansut can be significant. By broadening the “substantially justified” language of 28 U.S.C. § 1498 to include the prelitigation conduct of the government, the nature of the infringement itself is evaluated. This will potentially increase government patent infringements, since it is now more difficult for a patent holder to recover their litigation expenses. 

            The government is now in an enviable position, able to use Hitkansut against patent holders and capitalize upon their hesitance to litigate. By knowing it is substantially justified or banking on a patent holder’s reticence to sue, the government could infringe without providing even the minimum license compensation. Unless a patent holder actually brings a claim under § 1498, which he might not be willing to do, the government would not be required to provide anything.


[i] See Hitkansut LLC v. United States, 142 Fed. Cl. 341 (2019).

[ii] 28 U.S.C. § 1498.

[iii] Id. (rejecting the government’s position that the government’s conduct during only the litigation itself should be evaluated); 28 U.S.C. § 1498.

[iv] Hitkansut, 142 Fed. Cl. at 357.

[v] 28 U.S.C. § 1498 (a).

[vi] Id.

[vii] Jim Kerstetter, How Much Is That Patent Lawsuit Going to Cost You?, CNET (April 5, 2012), https://www.cnet.com/news/how-much-is-that-patent-lawsuit-going-to-cost-you/.(quoting James Crowne, director of legal affairs at the American Intellectual Property Law Association).

[viii] Id.

[ix] Id.; Chris Neumeyer, Managing Costs of Patent Litigation, IPWatchdog (Feb. 5, 2013), https://www.ipwatchdog.com/2013/02/05/managing-costs-of-patent-litigation/id=34808/.

[x] Neumeyer, supra n.8 (some companies, instead of putting the patented technology to use, only raise revenue through licensing and litigating infringers).

[xi] Id.

[xii] Id.

[xiii] Id.

[xiv] Hitkansut, 142 Fed. Cl. at 365.

[xv] 28 U.S.C. § 1498.

[xvi] Id.

[xvii] Hitkansut, 142 Fed. Cl. at 356.

[xviii] This is inspired in part by Lex Luthor’s plan to create a land mass in the often, yet undeservedly criticized Superman Returns (Legendary Pictures 2006). Here, the user could create land to specific environmental conditions. This would be wholly distinct from current island-building techniques involving building concrete structures on partially submerged islands.

[xix] If this technology also uses kryptonite as intended, this would have significant implications on Superman’s future and spell certain doom.

[xx] James Penner, The Idea of Property Law (Oxford) (2000); Thomas W. Merrill, Property and the Right to Exclude, 77 Neb. L. Rev. (1998). 

[xxi] See Hitkansut, 142 Fed. Cl. at 345.

[xxii] Id.

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