Eminent Domain: The U.S. Giveth, the U.S. Taketh

A fundamental tenet of patent law is that the owner of a patent can preclude others from using or manufacturing inventions that the patent covers. Because of eminent domain, however, that there is a major loophole regarding the U.S. government.

Section 1498(a) of Title 28 of the U.S. Code says, in part:

“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 action against the United States in the United States Court of Federal Claims for recovery of his reasonable and entire compensation for such use and manufacture.”

(Section 1498(b) provides similarly with respect to copyright infringement by the United States.)

Eminent Domain = Reasonable Royalty

In other words, if the U.S. government – or any of its contractors or subcontractors – uses or manufactures an invention covered by your patent, you cannot get a court to stop that use or manufacture. Neither can you sue for infringement. Your only judicial remedy is to seek “reasonable and entire compensation.” You may file suit only in the sole court (located in Washington, D.C.) that handles non-tort claims against the United States.

Such suits are based on eminent domain, i.e., government taking of private property for public use. Courts have held that the proper measure of recovery is a “reasonable royalty” based on “what the owner has lost, not what the taker has gained.”

Unfortunately, litigating a reasonable royalty is expensive and time-consuming. So even though Section 1498(a) allows individuals, nonprofit organizations and small companies (no more than 500 employees) to recover litigation costs, often the most realistic approach is to file an administrative claim (i.e., start negotiating) with the applicable government agency. Under these circumstances, however, government bureaucrats generally will have the upper hand, knowing that many patent owners lack the staying power to bring suit if negotiations end unfavorably.

Making the Best of Limited Options

If you find yourself a victim of patent-related eminent domain, here are some ways to make the best of your limited options.

• Research the agency’s claim procedures. The sooner you provide all required information, the sooner you will receive your royalty.
• If you have licensed your patent commercially, claim a royalty comparable to the commercial royalty. The agency is unlikely to approve any greater amount unless you can show a strong business reason for the difference.
• If you have not licensed your patent commercially, investigate public- and private-sector licenses in related industries to determine whether there is a range of prevailing royalty rates that can be adapted to your patent.

Photo credit: Cameron H via freeimages

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.