Early this month, the Federal Circuit issued its opinion in Arlton v. AeroVironment, Inc., a patent case we have been following because it attracted an amicus brief. In this case, the Arltons appealed from a summary judgment entered by the Central District of California, which held that AeroVironment could not be held liable for infringement. AeroVironment cross-appealed the district court’s denial of its motion for attorneys’ fees. In an opinion authored by Judge Stark and joined by Judges Prost and Cunningham, the Federal Circuit affirmed the district court. This is our summary of the Federal Circuit’s opinion.
Judge Stark began by outlining the facual and procedural background:
The Arltons are the inventors and co-owners of . . . []’’763 patent'[]. . . . The Arltons licensed the ’763 patent to their company, . . . []’Lite Machines'[], which produced Unmanned Aerial Vehicles (‘UAVs’). . . . Beginning in 2005, the Navy, Air Force, and Special Operations Command awarded contracts to Lite Machines pursuant to the Small Business Innovation Research (‘SBIR’) and Small Business Technology Transfer (‘STTR’) programs. . . . SBIR and STTR contracts are awarded in three phases. . . . Lite Machines received multiple Phase I and Phase II contracts to develop the technology it ultimately patented in the ’763 patent. In 2016, however, the Air Force informed the Arltons that Lite Machines would not be awarded any further follow-on work, including any Phase III contract. Consequently, the Arltons ceased operations and closed Lite Machines. Meanwhile, in 2013, AeroVironment became a subcontractor to the Jet Propulsion Laboratory (‘JPL’), a federally-funded research center managed by the California Institute of Technology (‘Caltech’) under a contract between Caltech and the National Aeronautics and Space Administration (‘NASA’). . . . Together, AeroVironment and JPL developed a small, autonomous helicopter, named the “Ingenuity[.]”
In August 2020, the Arltons sued AeroVironment in the U.S. District Court for the Central District of California, alleging that AeroVironment’s making, using, offering for sale, and sales of Ingenuity within the United States infringe the ’763 patent. . . . AeroVironment informed the Arltons it intended to move for summary judgment based on immunity from liability provided to it by 28 U.S.C. § 1498, on the grounds that any patent infringement AeroVironment engaged in was for the benefit of, and with the consent of, the federal government. AeroVironment filed its summary judgment motion in February 2021. . . . The district court granted AeroVironment’s motion for summary judgment. It determined there was no genuine dispute over the material fact that AeroVironment is a government subcontractor and was contracted specifically to work on Ingenuity. . . . While the summary judgment motion was pending, the Arltons moved for leave to amend their complaint to add trade secret claims. The district court denied this motion. The court concluded that the Arltons had not been diligent and failed to show good cause to amend after the deadline provided in the governing scheduling order. . . . [I]n May 2021, . . . AeroVironment appeared in a segment on the television program . . . [and] demonstrated the functionality of a terrestrial version of Ingenuity, which AeroVironment called the “Terry.” Based on the newly discovered evidence of the existence of Terry, the Arltons moved to vacate the summary judgment order and to reopen discovery. In June 2021, the district court granted the Arltons’ motion and the parties proceeded to take additional discovery. . . . In August 2023, the district court again granted summary judgment to AeroVironment. The court determined that AeroVironment’s demonstrations of Terry were de minimis uses and . . . could not support a judgment of liability . . . . AeroVironment then moved for an award of attorneys’ fees pursuant to 35 U.S.C. § 285. It asserted that the Arltons’ decision to proceed with litigation when any reasonable person would have recognized that AeroVironment was not a proper defendant made this patent case ‘exceptional’ within the meaning of the statute. . . . [T]he court denied AeroVironment’s motion for fees. Both parties timely appealed.
After explaining the standard of review, Judge Stark first addressed the Arltons’ “challenge to the district court’s grant of summary judgment of no liability based on AeroVironment’s § 1498 affirmative defense.” To prevail on that defense, according to Judge Stark, “an accused infringer must show that the patented invention was used ‘by or for the United States,’ . . . which requires proof that such use was ‘for the Government’ and ‘with the authorization or consent of the Government.'” Judge Stark noted that the Arltons argued that “the government could not validly authorize or consent to AeroVironment’s patent infringement, under § 1498, because doing so conflicts with the government’s obligation to award any SBIR Phase III contract to Lite Machines, which was the SBIR recipient responsible for the research and development of the pertinent technology during Phases I and II.” The judge noted that the argument specifically relied on 15 U.S.C. § 638, which “according to the Arltons, obligates the government to award Phase III contracts to Phase I and II awardees unless doing so would be ‘completely infeasible.'” Judge Stark rejected this argument, concluding that “[t]here is simply no incompatibility, or even conflict, between § 638 and § 1498.” He explained that, “[w]hereas § 638 guides the government’s award of contracts among different private entities, § 1498 governs who a patentee must sue for patent infringement . . . and in which court.”
Judge Stark next addressed the Arltons’ contention that, “even if AeroVironment’s work on Ingenuity is immunized under § 1498, its work on Terry is not also protected.” Judge Stark observed how the Arltons argued that “AeroVironment used Terry for a non-governmental, commercial purpose by demonstrating and displaying Terry at various public events.” He, however, was not persuaded. He concluded “there is simply not sufficient evidence from which a reasonable jury could find that AeroVironment engaged in infringing conduct that was not for the benefit of, and with authorization of and consent from, the government.”
Judge Stark then turned to the Arltons’ final argument that the district court erred by “denying their motion for leave to file an amended complaint, which sought to add trade secret claims.” Judge Stark did not agree with the Arltons’ rationale that “the district court abused its discretion by ignoring their evidence of good cause, namely that they did not receive relevant discovery from AeroVironment until December 30, 2020.” He pointed out that, “[f]or one thing, the Arltons, after obtaining new evidence supporting a potential trade secret claim on December 30, 2020, did not (until after the deadline for amendment had passed) inform the district court of what they had recently learned or of their need for additional time to prepare their amendment.” He also emphasized that, although the Arltons suspected from the outset that Ingenuity incorporated their trade secrets, “for whatever reason, they did not pursue the trade secret claim until very close to the scheduling order’s deadline for amendment of pleadings.” He concluded that “there is no clear error in the district court’s finding that much of the information about Ingenuity on which the Arltons predicate their trade secret claim was publicly available, and therefore accessible to the Arltons if they had acted with diligence, long before January 2021.”
Finally, Judge Stark addressed AeroVironment’s cross-appeal, which sought “to overturn the district court’s denial of its motion for attorneys’ fees.” He noted that “AeroVironment predicated its attorneys’ fees motion principally on its contention that ‘the readily-apparent and indisputable applicability of § 1498 made the Arltons’ claims frivolous from the start.'” Judge Stark, however, concluded the district court did not abuse its discretion. He explained how the “district court found this case was not ‘cut and dried’ and that the Arltons did not ‘ma[k]e frivolous arguments in opposing summary judgment.’ He noted that, “[j]ust because the district court rejected the Arltons’ claim does not mean this was an easy call or that this is an exceptional case.”
As a result of Judge Stark’s analysis, the panel affirmed the district court’s grant of summary judgment in favor of AeroVironment, its denial of the Arltons’ motion for leave to amend, and its denial of AeroVironment’s motion for attorneys’ fees.