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Homeland Security Sales: Patently Unfair

A DECISION in federal court could put homeland security technology companies at risk of having competitors steal their patents with impunity, but other safeguards may limit its reach.

The culprit is the interpretation of a federal statute that shields companies selling technology to the government from claims of patent infringement by the owner of that technology. Under the statute, Company A may spend millions developing a technology, then be underbid on winning a contract to sell that technology to the government by company B, which stole it—yet the statute would prevent Company A from successfully suing Company B. Underlying the law is that national security interests override all others.

The law, 28 U.S.C. Section 1498, does give the aggrieved party one option: It can sue the U.S. government, but that puts it in the unenviable position of having to alienate a potentially lucrative customer, not to mention putting it up against great odds.

In the recent case that’s part of a broader ongoing litigation, L-3 Communications Security and Detection Systems asked a federal district court in Massachusetts to enjoin Reveal Imaging Technologies from developing an explosives-detection system and selling it to the government. L-3 claimed that the new system infringed on its patents. The trial court denied the request for an injunction, invoking 28 U.S.C. Section 1498, which it said cloaks Reveal from claims by L-3 arising from the sale of the technology to the government. (An attorney for the firm representing L-3 declined to answer questions about the statute, citing ongoing litigation in the case.)

At first blush, the law appears to reward companies who appropriate patented technologies from their competitors and do business with the government. But the statute’s effect is not that sweeping, says Martin J. Adelman, a professor of intellectual property and technology law at the George Washington University Law School.

For one thing, he says, the government does not want to get tied up in litigation. And the law serves an important purpose, Adelman explains, which is to get the best and newest technology to the government with minimal legal hindrances.

The statute arose during World War I so that the Germans couldn’t use patent claims to stop U.S. war production. The war on terror similarly demands that the U.S. government be free of legal impediments, says attorney Joseph D. Lipchitz, cofounder of the Homeland Security Practice Group at Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, P.C., in Boston, which represents Reveal Imaging.

The provision is also crucial because businesses often use patent infringement suits as a sword to discourage competitors from innovating, Adelman adds. Patent litigation is exceedingly expensive, Lipchitz says, requiring the use of experts and intensive interpretation of language.

Several other factors deter companies from blithely appropriating patented technology and purveying it to the government, however. For example, safeguards exist in the federal procurement process, Lipchitz says. During this process, government officials request a “very detailed analysis of what your technological solution is, whether patents are outstanding, whether it’s still in development,” and so on, Lipchitz says. “You have to make warranties about the technology.”

Government technology officers are familiar with the industry and technology that exists, he adds. (Government review of technology didn’t preclude the L-3/Reveal case because the parties disagreed over the scope of the patents at issue.) The government also includes indemnification clauses in its Federal Acquisition Regulations. “It says, ‘If we’re sued for infringement, we’ll come after you to defend ourselves,’” Lipchitz explains. This limits companies’ “willingness to play fast and loose with the government.”