Case 1:06-cv-06336-CBA-ALC Document 53 Filed 09/30/09 Page 1 of 13 PageID #: 675
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF NEW YORK
`---------------------------------------------------------X
`IRIS CORPORATION,
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`Plaintiff,
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`-against-
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`JAPAN AIRLINES INTERNATIONAL CO.,
` LTD.,
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`Defendant.
`---------------------------------------------------------X
`AMON, United States District Judge.
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`NOT FOR PUBLICATION
`MEMORANDUM & ORDER
`06-CV-6336 (CBA)
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`Plaintiff IRIS Corporation (“IRIS”) filed suit against defendant Japan Airlines
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`International Co., Ltd. (“Japan Airlines”) alleging direct infringement of U.S. Patent No.
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`6,111,506, in violation of 35 U.S.C. § 271(g). On June 1, 2007, Japan Airlines moved to dismiss
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`the action for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P.
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`12(b)(6). By order dated June 4, 2007, this Court referred the motion to the Honorable Kiyo A.
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`Matsumoto, then United States Magistrate Judge, for a Report and Recommendation.
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`The Court has received the Report and Recommendation (“R&R”), dated January 14,
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`2008, recommending that defendant’s motion be granted. IRIS and Japan Airlines both filed
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`timely objections to the R&R. After reviewing the objections to the R&R, this Court solicited
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`the views of the United States on issues raised in this motion. The United States filed its
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`Statement of Interest on August 7, 2008. Having reviewed all of these materials and for the
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`reasons set forth below, the Court adopts Judge Matsumoto’s R&R as its opinion and grants
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`Japan Airlines’ motion to dismiss.
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`I.
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`Background1
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` IRIS’s amended complaint alleges patent infringement by Japan Airlines stemming from
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`Japan Airlines’ examination of passenger passports at its terminal in New York’s John F.
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`Kennedy International (“JFK”) Airport and other check-in locations within the United States.
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`IRIS is the assignee of U.S. Patent No. 6,111,506 (the “’506 patent”), entitled “Method of
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`Making an Improved Security Identification Document Including Contactless Communication
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`Insert Unit.” The ’506 patent contains claims directed to a process for manufacturing a secure
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`electronic passport consisting of a computer chip embedded in a multi-layered document which
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`contains biographical or biometric data about the passport holder.
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`Japan Airlines examines passports at its terminal within JFK Airport pursuant to federal
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`laws and regulations, including the Enhanced Border Security Act, 8 U.S.C. § 1221 et seq., the
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`Visa Entry Reform Act of 2002, 19 C.F.R. § 122.75a, and applicable international treaties. The
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`passport examinations occur prior to each departing flight and after each arriving flight.
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`IRIS brings its patent infringement claim pursuant to 35 U.S.C. § 271(g) which provides
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`that:
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`Whoever without authority imports into the United States or offers to sell,
`sells, or uses within the United States a product which is made by a
`process patented in the United States shall be liable as an infringer, if the
`importation, offer to sell, sale, or use of the product occurs during the
`term of such process patent.
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`35 U.S.C. § 271(g). IRIS alleges that the passports of Japan Airlines passengers were made
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`using their patented ‘506 process, that they constitute “products” as defined by the patent laws,
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`1
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` Judge Matsumoto’s Report and Recommendation sets forth the factual background of
`this motion in detail. (See R&R at 2-6.)
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`and that Japan Airlines’ inspection of the passports at their terminal constitutes an infringing
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`“use” under § 271(g).
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`A.
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`Motion to Dismiss
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`Japan Airlines raises four arguments in its motion to dismiss. First, it claims that the
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`terms “product” and “use” in 35 U.S.C. § 271(g) do not encompass the government-owned
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`electronic passports handled by Japan Airlines because passports are not “products” under the §
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`271(g) definition and Japan Airlines does not “use” the issued passports as a manufacturer,
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`importer, seller or purchaser in the chain of commercial distribution and supply. Second, Japan
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`Airlines contends that if its examination of passports is found to constitute infringement under
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`271(g) then federal laws requiring the examination of passports conflict with patent laws and
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`must be reconciled by exempting Japan Airlines from infringement. Japan Airlines further
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`argues that IRIS’s claim is barred under the “doctrine of foreign sovereign compulsion” because
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`the airline is compelled by foreign sovereigns to examine passports. Finally, insofar as IRIS’s
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`claims relate to U.S. passports, Japan Airlines contends that it is immune from suit and IRIS’s
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`exclusive remedy is against the U.S. government in the Court of Federal Claims pursuant to 28
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`U.S.C. § 1498(a).
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`The Report & Recommendation rejects Japan Airlines’ contention that its conduct does
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`not fall within the provisions of 271(g). Specifically, the R&R found that passports which were
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`manufactured using the patented ‘506 process are “products” for the purposes of 35 U.S.C. §
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`271(g) and Japan Airlines’ examination of the passports at its terminal constitutes a “use” under
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`the statute. The R&R found more persuasive Japan Airlines’ alternative argument—that 35
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`U.S.C. § 271(g) conflicts with the Enhanced Border Security Act of 2002, 8 U.S.C. § 1221
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`et seq. The R&R resolved this conflict by considering the underlying purposes of both statutes
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`as well as the statutes’ priority of enactment and concluded that Japan Airlines should not be
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`held liable under § 271(g) for infringement of the ‘506 patent because of its compliance with the
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`Enhanced Border Security Act. Accordingly, the R&R recommends that IRIS’ amended
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`complaint be dismissed. In light of this conclusion, the R&R declined to address Japan
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`Airlines’ remaining two grounds for dismissal.
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`B.
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`Objections
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`IRIS and Japan Airlines filed timely objections to the R&R. IRIS objects to the finding
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`that a conflict exists between 35 U.S.C. § 271(g) and the Enhanced Border Security Act, and to
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`the R&R’s reliance on SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms.,
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`Inc., 211 F.3d 21 (2d Cir. 2000). Japan Airlines, while concurring with the R&R’s
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`recommendation that its motion be granted, objects to the R&R’s conclusion that Japan
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`Airlines’ examination of passports constitutes a “use” of a “product” under 35 U.S.C. § 271(g).
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`Rather than finding that a conflict exists between § 271(g) and the Enhanced Border Security
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`Act, Japan Airlines argues that the preferred approach would be to construe § 271(g) to avoid a
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`conflict by analyzing the terms “use” and “product” to exclude the examination of passports.
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`Lastly, while Japan Airlines agrees with the R&R that, for reasons of judicial economy, the
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`Court need not address its remaining two grounds for dismissal, it reasserts these arguments in
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`its objections to the extent that this Court does not adopt the R&R on other grounds.
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`II.
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`Discussion
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`This Court reviews the R&R de novo. See Fed. R. Civ. P. 72(b)(3). It turns first to the
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`objections of Japan Airlines.
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`A.
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`“Product” and “Use” under 35 U.S.C. § 271(g)
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`35 U.S.C. § 271(g) provides a remedy for process patent holders when the claimed
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`process is employed outside the United States and the resulting products are imported into the
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`United States or offered for sale, sold, or used domestically. In its motion papers and again in
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`the objections to the R&R, Japan Airlines contends that the electronic passports at issue in this
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`case are not “products,” and the airline’s inspection of the passports is not a “use” under the
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`proper interpretation of § 271(g).
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`The R&R concluded that the word “product” is not limited to products with a
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`commercial purpose. In reaching this conclusion, the R&R relied upon well-established
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`principles of statutory interpretation, including examination of the statutory language itself to
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`determine the ordinary meaning of the term at issue. (See R&R at 11-13.) The R&R also noted
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`that the Federal Circuit has never interpreted the word “product” as containing a commercial
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`component and properly found that the word refers to any “physical article that was
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`manufactured.” (Id. at 13-14.) Further, the R&R cited to ample evidence that Congress
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`considered the legislative purpose of the statute and deliberately declined to limit the word
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`“product” to commercial products. (Id. at 14-16.)
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`In its objections to the R&R, Japan Airlines argues that the word “product” is
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`ambiguously defined in § 271(g), and that the R&R failed to adequately consider the legislative
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`history of the section in resolving the ambiguity. To the contrary, the R&R directly addressed
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`these arguments and found them wanting. (Id. at 14-15.) Japan Airlines does not point to any
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`part of the statute’s legislative history which would indicate that Congress intended to limit this
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`remedy to commercial products.
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`The R&R also found that Japan Airlines’ inspection of the passports constitutes a “use”
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`for the purposes of 35 U.S.C. § 271(g). The R&R considered the ordinary dictionary meaning
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`of the term “use” as well as the Federal Circuit’s history of interpreting the term broadly in this
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`section of the patent statute. (See R&R at 19-20.) The R&R concluded that Japan Airlines’ use
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`of the electronic passports to identify its passengers and compile passenger lists is the very use
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`for which the passports are intended and thus constitutes a “use” under the patent statute.
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`In its objections, Japan Airlines argues that its handling of issued passports is
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`involuntary and outside of any commercial distribution and supply chain for passports, and
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`therefore beyond the scope of § 271(g). In support of its contention, Japan Airlines once again
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`refers the Court to the legislative history of the section.
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`Questions of statutory interpretation begin with the language of the statute itself. See
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`Bull v. United States, 479 F.3d 1365, 1376 (Fed. Cir. 2007). Where ambiguity persists after
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`analysis of the statutory language, it is appropriate to resort to legislative history to determine
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`Congressional intent. Hoechst Aktiengesellschaft v. Quigg, 917 F.2d 522, 526 (Fed. Cir. 1990)
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`(“[w]hen faced with such [statutory] ambiguity it is incumbent upon this court to examine the
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`legislative history to discern Congress’ intent”). However, there is a “strong presumption in
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`favor of the plain language of the statute.” Id. at 1377; See also Garcia v. United States, 469
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`U.S. 70, 75 (1984) (“While we now turn to the legislative history as an additional tool of
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`analysis, we do so with the recognition that only the most extraordinary showing of contrary
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`intentions from those data would justify a limitation on the ‘plain meaning’ of the statutory
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`language.”).
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`This Court concurs with the R&R’s finding that the examination of passports constitutes
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`a “use” of the passports under § 271(g) based on the ordinary meaning of “use” and review of
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`United States Supreme Court and Federal Circuit decisions construing the term broadly. (See
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`R&R at 18-19.) The Court notes that even if it considered legislative history for guidance in
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`interpreting the word “use” in § 271(g), Japan Airlines has not pointed to any “extraordinary
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`showing of contrary intentions” in the legislative history that would justify the limited
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`interpretation it seeks. Garcia, 469 U.S. at 75. Accordingly, the Court adopts the R&R’s
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`finding that Japan Airlines’ examination of passports constitutes a “use” under 35 U.S.C. §
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`271(g).
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`C.
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`Conflict between 35 U.S.C. § 271(g) and The Enhanced Border Security Act
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`Having determined that the allegations contained in IRIS’s amended complaint were
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`sufficient to constitute “use” of a “product” under 35 U.S.C. § 271(g), the R&R next considered
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`the question of whether in this case a conflict exists between § 271(g) and the Enhanced Border
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`Security Act. The R&R reasoned that because Japan Airlines is required to inspect passenger
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`passports under the Enhanced Border Security Act, and compliance with this law requires using
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`a product that was made by a patented process, a conflict exists between the Enhanced Border
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`Security Act and the patent laws. (R&R at 24-26.)
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`For guidance in resolving the conflict between the requirements of the Enhanced Border
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`Security Act and the protections offered to patent holders under 35 U.S.C. § 271(g), the R&R
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`relied on the decision of the Second Circuit in SmithKline Beecham Consumer Healthcare, L.P.
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`v. Watson Pharms., Inc., 211 F.3d 21 (2d Cir. 2000). SmithKline involved a conflict between
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`the Hatch-Waxman Amendments and the Copyright Act. The Second Circuit resolved the
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`conflict by examining the underlying purposes of the conflicting statutes and adopting “the
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`interpretation that preserves the principal purposes of each.” SmithKline, 211 F.3d. at 27-28
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`(citing Zenith Elecs. Corp. V. Exzec, Inc., 182 F.3d 1340, 1347 (Fed. Cir. 1999)). The
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`SmithKline court also gave weight to the statutes’ priority of enactment in determining that the
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`purposes of the earlier-enacted Copyright Act would not be undermined by the court’s decision
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`that the Hatch-Waxman Amendments took precedence over it. Id. at 28 n.3 (citing FDA v.
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`Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000)).
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`Following the analytical framework set forth in SmithKline, the R&R found that the
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`principal purpose of § 271(g) is to protect process patents holders from economic loss when the
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`holder’s patented process is performed abroad and the products of that process are brought into
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`the United States. Any abrogation of the exclusive rights of the patent holder would undermine
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`the overall purpose of the patent statute, namely, “to promote the progress of science.” U.S.
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`Const. Art. I, § 8. The R&R concluded, however, that the national security interests which
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`underlie the Enhanced Border Security Act outweigh the interest in protecting a process patent
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`holder’s rights under § 271(g) of the patent statute. (See R&R at 24-25.) In weighing the patent
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`interests, the R&R conceded that if infringement is permitted without recourse to damages
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`incentive to create is diminished. The R&R further observed that IRIS had not alleged in its
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`complaint that it had not been compensated for licensing or manufacturing the patent. (R&R at
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`27-28.) The R&R also considered the statutes’ priority of enactment—the fact that the
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`Enhanced Border Security Act was enacted fourteen years after the patent statute was amended
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`to include § 271(g) favored the conclusion that the Enhanced Border Security Act should
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`override § 271(g).
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`Both parties object to Judge Matsumoto’s conclusion that a conflict exists between 35
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`U.S.C. § 271(g) and the Enhanced Border Security Act. IRIS argues that there is no conflict
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`because Japan Airlines can comply with both statutes by compensating IRIS for the use of
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`passports made by its patented process. IRIS also contends that the R&R’s analysis is flawed
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`because it relied on the failure of IRIS to allege it was not compensated for manufacturing or
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`licensing the ’506 patent by the passport manufacturers. IRIS states it could easily amend its
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`complaint to make that allegation. Although supporting the reasoning of the R&R as an
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`alternate grounds to dismiss the case, Japan Airlines argues that the conflict between the
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`Enhanced Border Security Act and § 271(g) is more properly resolved by construing the terms
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`“product” and “use” in § 271(g) to exclude examination of electronic passports.
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`The Court agrees with the R&R’s finding that in this case a conflict exists between the
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`Enhanced Border Protection Act and 35 U.S.C. § 271(g). It is undisputed that the Enhanced
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`Border Protection Act requires Japan Airlines to examine the passports of departing passengers
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`at domestic airports and therefore the airline must infringe IRIS’s ‘506 patent, assuming,
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`arguendo, that IRIS’s claim has merit. Further, the Court concurs with the R&R’s analysis and
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`conclusion that the national security interests protected by the Enhanced Border Protection Act
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`outweigh IRIS’s commercial interest in its patent under § 271(g).
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`IRIS’s objections to the R&R are not persuasive. First, IRIS mischaracterizes the R&R’s
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`findings by claiming that the R&R based the decision principally on the fact that IRIS failed to
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`allege it was not compensated for any manufacturing or licensing of the patented process. The
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`R&R did mention this fact in weighing the patent interests but it did not rely exclusively or even
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`substantially on this fact in finding that the security interests trumped the patent interests in this
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`case. The compensation issue was one of several factors relied upon in reaching the R&R’s
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`recommendation. Moreover, in weighing the patent interests, this Court notes that creating an
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`exception to patent enforcement in this limited context will hardly open the floodgates to
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`widespread uncompensated infringement. This case is not within the heartland of patent
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`infringement suits. Japan Airlines, the alleged infringer, is not a competitor of the plaintiff nor
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`does it derive any commercial or financial benefit from the alleged infringing activities which an
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`Act of Congress compels it to commit.
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`The Court also finds unpersuasive IRIS’s argument that a conflict between the Enhanced
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`Border Protection Act and § 271(g) may be avoided by mandating that Japan Airlines secure a
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`license from IRIS. This Court concurs with the R&R’s finding that requiring Japan Airlines to
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`secure a license is not a satisfactory resolution of this conflict. IRIS argues that other U.S.
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`regulations governing the operation of commercial airlines require airlines to buy or lease
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`property from others; and, in those situations, there is no authority to take the property free of
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`charge. IRIS analogizes commercial airlines’s purchase of certain property—such as seatbelts
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`and high-frequency radios—to Japan Airlines’s use of the patented passports at check-in
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`locations. The Court finds this analogy unpersuasive. In this case, Japan Airlines is not being
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`provided passports for free. Rather, it is compelled to examine them pursuant to laws designed
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`to protect the national security of the United States. The airline has no control over the types of
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`passports presented to it for inspection and has no way to avoid the allegedly infringing activity.
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`And, as noted above, it obtains no commercial benefit whatsoever from its allegedly infringing
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`action.
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`D.
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`Relevance of 28 U.S.C. § 1498(a)
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` In its Statement of Interest, the United States cautions this Court not to resolve this case on
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`the grounds set forth in the R&R and not to extend the reasoning of the Smith Kline decision to
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`a case involving patents. The United States argues that there is no conflict between the Patent
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`Act and the Enhanced Border Security Act because § 1498(a) of Title 28 exempts Japan Airlines
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`from an infringement action under the Patent Act for examination of both U.S. passports and
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`2
`foreign passports. (See Statement of Interest of the United States (“Stmt. Int.”) at 8-13.) It
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`faults the R&R for not addressing this threshold issue.
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`Section 1498(a) provides in pertinent part:
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`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 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, 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.
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`28 U.S.C. §1498(a).
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`The United States points out in its Statement of Interest that 1498(a) serves two
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`purposes. It acts as a waiver of sovereign immunity for claims against the government in
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`the U.S. Court of Claims, and also codifies an affirmative defense for private parties who
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`can show that its use of the infringing invention is both “for the government” and with the
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`“authorization” or “consent” of the government. According to the United States, there is
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`nothing in the statute that requires these two purposes to be coextensive. The United
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`2
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` Japan Airlines in its original motion to dismiss claimed immunity only for its
`examination of U.S. passports. The United States provides no sound explanation for the
`applicability of Section 1498(a) to foreign passports in circumstances where there is no claim
`that as to foreign passports the United States engaged in any infringing activity.
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`States delivers to IRIS the bad news and the bad news: IRIS has no claim against the
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`United States because the United States has not waived sovereign immunity under §
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`1498(a) for § 271(g) violations, but Japan Airlines nonetheless is immunized under §
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`1498(a) from private suits for these same violations. Based on the cogent reasoning of
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`the decision of the Court of Federal Claims in Zoltek Corp. v. United States, 85 Fed Cl.
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`409 (Fed. Cir. 2009), this Court rejects this reading of § 1498(a).
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`IRIS and the United States agree that the United States has not waived immunity
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`under § 1498(a) for acts of infringement under § 271(g) of Title 35. NTP, Inc. v.
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`Research In Motion, Ltd., 418 F.3d 1282 (Fed Cir. 2005); Zoltek Corp v. United States,
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`442 F.3d 1345 (Fed. Cir. 2006) (direct infringement under § 271(a) is a necessary
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`predicate for liability under section 1498). Had the government waived immunity under §
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`1498(a), it is clear that Japan Airlines would be immunized against private suits. A party
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`is exempt from patent infringement suits under § 1498(a) where: “(1) the accused use or
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`manufacture was undertaken for the Government, i.e., for the Government’s benefit; and
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`(2) the Government gave its authorization or consent for the accused use or manufacture.”
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` Hughes Aircraft Co. v. United States, 534 F.2d 889, 897-98 (Ct. Cl. 1976). This Court
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`agrees with the government that Japan Airlines meets the two requirements of § 1498(a).
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`The reason the United States is not liable is because § 271(g) was enacted after §
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`1498(a) and as explained in Zoltek, § 1498(a) “did not automatically expand to include
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`the causes of action for patent infringement that were added by Congress after 1918 (such
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`as § 271(g)).” Zoltek, 85 Fed Cl. at 417. The Zoltek court quite logically concludes: “the
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`immunity of government contractors from infringement liability also did not expand, with
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`the result that the immunity of government contractors under § 1498(a) would correspond
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`only with the types of infringement included in § 271(a).” Id.
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`This Court agrees with the ultimate conclusion in Zoltek that “[a]ccording to its
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`language and purpose, § 1498(a) only insulates government contractors from suit when
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`the Government can be found liable.” Id. at 418.
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`Since it is conceded that the Government has not waived immunity under Section
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`1498(a), Japan Airlines has no immunity under this provision.
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`E.
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`Japan Airlines’s Remaining Arguments
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`In view of the above discussion, this Court does not address Japan Airlines’ final
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`argument that IRIS’s claim is barred under the “doctrine of foreign sovereign
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`compulsion.”
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`CONCLUSION
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`For the foregoing reasons, the Report and Recommendation, dated January 14,
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`2008, is hereby adopted as the opinion of the Court. The defendant’s motion to dismiss is
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`granted. The Clerk of the Court is directed to enter judgment in accordance with this
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`order and to close the case.
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`SO ORDERED.
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`Dated: Brooklyn, New York
`September 30, 2009
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`/s/ Carol B. Amon (electronically signed)
`______________________
`Carol Bagley Amon
`United States District Judge
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`13
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`PROTECTIVE ORDER MATERIAL
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`IRIS
`EXHIBIT 2039 PAGE 13
`DOJ v. IRIS
`IPR 2016-00497
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`