[00:00:00] Speaker 02:
Before we begin our proceeding, I'd just like to, on behalf of the panel on our court, thank Suffolk University, their dean, and all their professors who've been so helpful with our staff in organizing this event.

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And thank you, of course, always to our wonderful staff.

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OK, ready to begin?

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First case for argument this morning is 21-2049, Arlton v. Arrow, Violent, Incorporated.

[00:00:29] Speaker 02:
How do you pronounce your last name?

[00:00:31] Speaker 02:
Pollock Millgate.

[00:00:32] Speaker 02:
Good morning.

[00:00:33] Speaker 02:
Please begin when you're ready.

[00:00:34] Speaker 03:
Good morning.

[00:00:35] Speaker 03:
Good morning, Your Honor.

[00:00:36] Speaker 03:
To make police a court, I'm Deborah Pollock-Milgate on behalf of the Arltons.

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And I'd like to start with the SBIR statute today.

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It states that whenever practicable, the federal agencies and federal crime contractors shall issue, without further justification, phase three awards relating to the technology, including sole source awards to the recipients who developed the technology.

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That's the Arltons here.

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This appeal thus asked this court to confirm that the district court erred in determining that the government could immunize air environment under 28 U.S.C.

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1498 precisely because the government was not obligated to contract with life.

[00:01:21] Speaker 02:
So a lot of your argument seems dependent on really a bid protest or a contract type issue rather than the patent issue in 1498, correct?

[00:01:31] Speaker 03:
That is true for purposes of the Court of Federal Claims case, yes, Your Honor.

[00:01:35] Speaker 02:
Yes, but the issue before us is slightly different, is it not?

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The issue is slightly different.

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So the question of phase three rights, first of all, under the SBIR is of the utmost importance to patent rights, but jumping right to the question of section 1498.

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The 1498 case law, which is not very much, but

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repeatedly focuses on the policy that the government is free to contract, irrespective of private concerns of patent infringement.

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But no government policy is served by finding the government's consent to immunity and liability here.

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This policy simply doesn't apply.

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None of these justifications would exist, and discovery would show that and explain why the government ignored the law, but discovery was denied.

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So our concern- Council, what relief

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do you want from an air environment that you cannot get from the government before the court of federal claims?

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Well, with respect to this, we would like relief.

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The Arltons would like relief with respect to, well, let me stand corrected.

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First of all, there's the question of the Mars helicopter specifically.

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Is the Arltons position that that is not covered under section 1498 because the government did not validly consent?

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But moving to Terry, which is the terrestrial version of Mars.

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Why don't you give us a two minute background about the technology and what's happening, what these contracts are about, because it's really quite interesting.

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Sure, absolutely.

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So this is technology that the Arltons started back in 2005.

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They have about 50 patents.

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This one is directed to a rotary vehicle.

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The Mars helicopter specifically has a rotary system and a structural non-rotating mast.

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And in particular, the development shows, and the record shows in this matter, that the AeroVironment had a very primitive design, which was like a stick-like figure that didn't work at all.

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And so after the government actually went to AeroVironment to make this, they first started out looking at this stick-like figure and found that it wouldn't work.

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What happened instead is that the government, or we don't know, because we don't know exactly what happened, but what we do know is that it ended up being the Arlton's

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the Arlington's technology that was flying on Mars.

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And the reason this is so important is that this is based on rights holders and SBIR across the country.

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They may be shocked to learn that the rights they thought they were guaranteed, technical developments, technological developments happen all the time.

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They thought they were guaranteed, and yet they do not prevent the government under this holding, under section 1498,

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from taking the technology, giving it to another, and then at their whim, immunizing their competitors.

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So that's the real issue that is here.

[00:04:31] Speaker 02:
But you say that your concern is they're immunizing the competitors.

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But going back to Judge Cunningham's question, the relief you see under the statute is that the government assumes or accepts liability.

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for patent infringement, and that's a remedy that you can seek at the Court of Federal Claims, right?

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Theoretically, yes, Your Honor.

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The Arltons have been and light has been before the Court of Federal Claims since 2018.

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And while in this instance, the government says, we consent, which includes, as Your Honor I think just indicated, we accept liability,

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At the same time, they've moved to dismiss in the Court of Federal Claims.

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So the application of Section 1498 under this circumstance, when we have the SBIR rights in play, ends up with these types of gains.

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But they're not moving to dismiss saying that you should instead get relief at the

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Federal District Court, correct?

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Your Honor, I cannot answer that question because for reasons that are not clear to us, the government has decided that that's all classified.

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And so I don't know.

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I don't have insight into the basis for their motion to dismiss.

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I was just going to say, can you sum up what relief you're seeking before the district court that you cannot otherwise get from the government before the Court of Federal Claims?

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I just want to make sure I have my

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Yes.

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And let me start with Terry, because I haven't talked about Terry very much.

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So we have an issue now, which is the government says that with respect to certain uses of Terry, now after the fact, again, there was a summary judgment procedure.

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The government was nowhere to be found.

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Afterwards, they told this court, we consent to certain uses.

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We don't consent to others.

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The district court, however, relied on the fact that these were related issues, and they were immunized.

[00:06:22] Speaker 04:
Let me just, because I know the time's going to run out.

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I just want a short answer, succinct answer, to what relief you want from the district court that you cannot get from the government before the court of federal claims.

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Just go with that, give me a couple sentences.

[00:06:34] Speaker 04:
Sure.

[00:06:35] Speaker 04:
Short sentences, too.

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With respect to the terrestrial vehicle,

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those uses.

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That's number one.

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So that's the relief.

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You're talking about Terry.

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Are you talking about Terry right now?

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Yes.

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Number two, with respect to the Mars helicopter, that does not

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There's the royalty rate analysis that does apply in the court of federal claims, but the patent statute damages do not.

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The Arltons would like a declaratory relief so that it is clear that this, in fact, was their invention, as well as damages pursuant to the patent statute.

[00:07:16] Speaker 02:
What damage is pursuant to the patent statute?

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Is that why we have 1498?

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Because a scheme is created so that the government assumes liability when it's in contractual arrangements such as the one before us?

[00:07:31] Speaker 03:
Again, the case has been going on since 2018.

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And so far, we're not past the pleading stage.

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And the application of Section 1498 under these circumstances has produced an unjust result when there is absolutely no policy purpose that is served here by allowing the government to file a defense.

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But you need to answer Judge Crowe's question.

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She asked you a very specific question about what the statute does 1498.

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And you're seeming to imply that you think you can get some additional relief before the district court.

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why you think that and what's your basis.

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1498 does have a particular framework.

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There's no question about that.

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That is the framework for immunizing contractors.

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That is the framework.

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The Arltons are arguing, however, that that framework should not apply here so that they are able to pursue relief against the contractor in this case.

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And in particular, what I'd like to say as well, the Arltons position is the problem here is really it was a rush to summary judgment.

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So we went straight to summary judgment without understanding the who, where, when, why of consent.

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And now we have the other problem compounded by Terry, which was used, flown around on national television by Anderson Cooper, also having that use.

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So we have all those issues.

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You know, a whole second round of summary judgment after Anderson Cooper.

[00:08:52] Speaker 01:
So it seems a little bit of a misnomer to say this was a rush to summary judgment.

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The discovery that was received after summary judgment the first time was quite limited.

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And one of the problems here we have is that we haven't had consistent facts from the defendant.

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It's been very difficult.

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Before Terry, the line from the government, or sorry, the line from the air environment was, this is the only use.

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There are no other helicopters.

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That was the statement.

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That was what they told the court.

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That was what their client told the court.

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Then Terry comes to light.

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Then, the next statement we hear from them, opposing the motion to vacate, says, oh, the only use is for the government.

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Then, he's deposed, and all of a sudden, there is a use that is not for the government at all.

[00:09:44] Speaker 01:
Have you appealed the fact that you apparently didn't get all the discovery you were seeking prior to the second entry of summary judgment?

[00:09:51] Speaker 03:
We, yes, we disputed the scope of discovery that the district court was in.

[00:09:56] Speaker 01:
Is that before us?

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Is that on appeal?

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The scope of discovery?

[00:10:02] Speaker 03:
The shifting of the burden and the scope of discovery, yes, Your Honor, and so far as we've asked for summary judgment to be vacated, and this is remanded back to the district court for discovery.

[00:10:13] Speaker 02:
But the judge, before he ultimately moved, had before him all of the evidence and the arguments you have with respect to these outside uses, like 60 minutes and the demonstrations and so forth.

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And he drew a conclusion with respect to those, that they weren't sufficient.

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That is the district court's conclusion.

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And the problem with that conclusion now is that the government has, with respect to Terry again, your honor, that the government has contradicted what the district court concluded.

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And they've contradicted it by saying some uses are not immunized, and we do not immunize those.

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And we'd like the federal circuit to tell us, or sorry, the district court, we want to go back and have the district court tell us what uses are immunized or not.

[00:10:53] Speaker 03:
The other problem was a faulty analysis with respect to de minimis.

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The court, the district court, found it de minimis, which required a commercial sale, and that's not the law of this court.

[00:11:04] Speaker 02:
What's your best case for that?

[00:11:06] Speaker 03:
The best case for that is the Mbrex case.

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I also think the Mady case is also very clear on this point.

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with respect to the experimental use.

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However, experimental use of de minimis at least as far as we've been able to determine should be on all fours.

[00:11:23] Speaker 02:
Can I ask you, before your time runs out, just on your motion to amend?

[00:11:27] Speaker 02:
Yes.

[00:11:28] Speaker 02:
Are you free or were you free at that time to just go ahead and file a new complaint with regard to trade secrets?

[00:11:36] Speaker 03:
Yes, Your Honor.

[00:11:37] Speaker 02:
So why didn't you do that?

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Because at the time, the Arltons were not interested in even more litigation, Your Honor.

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The place where we wanted to have all of these disputes was with respect to whatever patent claims we were going to hear, as well as the motion to amend.

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I would also say, Your Honor, that to the extent that there is ongoing trade secret infringement, that that would still be an option.

[00:12:04] Speaker 03:
if there is the continuing wrong doctrine under the Defense Trade Secrets Act.

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In other words, you still have that option to seek a motion to amend or to file a new complaint.

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That is something that we would consider and we would have to reveal.

[00:12:17] Speaker 01:
Did you tell the disparate court in your motion to amend about the problems you were having with the meeting and conferring, the timing of when the documents were produced, and the difficulty with sharing it with your clients?

[00:12:32] Speaker 03:
Yes, Your Honor.

[00:12:32] Speaker 03:
We laid out the chronology very carefully.

[00:12:34] Speaker 03:
It came with, again, receiving the discovery on December 30, being under confidentiality requirements, discovering trade secrets in January.

[00:12:44] Speaker 01:
But you did explain all of that.

[00:12:45] Speaker 03:
Yes, we explained all of that to the court.

[00:12:47] Speaker 02:
But did you explain why, since you did it as you had the trade secret claims as of January 31, according to you, you still waited another period of time to file your motion to leave to amend?

[00:13:01] Speaker 03:
Your Honor, the process to be able to file a motion to leave to amend would have had to commence on January 8.

[00:13:09] Speaker 03:
and by the time that was discovered.

[00:13:11] Speaker 04:
That's just leave without a motion, right?

[00:13:13] Speaker 04:
I thought there were two different deadlines.

[00:13:15] Speaker 04:
One deadline related to being able to file without a motion, right?

[00:13:19] Speaker 04:
I thought that was the January 8th deadline.

[00:13:21] Speaker 04:
I understand there was a February 21st-ish deadline.

[00:13:24] Speaker 04:
if you want to have a motion like to move to amend the pleadings.

[00:13:27] Speaker 04:
Is that not true?

[00:13:28] Speaker 03:
This is all sort of part of the same process in California, which goes through a number of different steps in order to get to a hearing.

[00:13:35] Speaker 03:
So you have to notice the hearing a particular amount of time.

[00:13:37] Speaker 03:
Wait, wait.

[00:13:37] Speaker 04:
You haven't answered my question.

[00:13:39] Speaker 04:
My understanding is that there were two different deadlines, right?

[00:13:41] Speaker 04:
Is there one deadline in the schedule where you could move without a motion?

[00:13:45] Speaker 04:
I thought that was the January 8 deadline.

[00:13:47] Speaker 04:
Is that accurate?

[00:13:48] Speaker 03:
No, the one deadline to move to amend was the February

[00:13:52] Speaker 03:
21st or something?

[00:13:53] Speaker 03:
Something right around there.

[00:13:54] Speaker 03:
Yes, that was the one deadline.

[00:13:56] Speaker 03:
Also, again, we were meeting and conferring up until we filed it right on March 22nd.

[00:14:05] Speaker 03:
So we were moving toward filing that along the way according to the process that's permitted.

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Again, the Arltons could identify no case.

[00:14:16] Speaker 04:
But why didn't you file before the deadline?

[00:14:19] Speaker 03:
Your Honor, we were not able to.

[00:14:20] Speaker 03:
We didn't know about the claim until the 31st.

[00:14:24] Speaker 03:
The process we would have had in order to have the hearing on February 16th, because that's the hearing, had already expired by the time that the Arlington's learned of the trade secrets claim.

[00:14:35] Speaker 01:
But why not tell the court on February 1st, hey, we're not ready to file yet, but we've got a claim.

[00:14:41] Speaker 01:
We're meeting and conferring.

[00:14:43] Speaker 01:
We're going to move as quickly as possible.

[00:14:45] Speaker 03:
Your Honor, that's not the process that we were aware of.

[00:14:49] Speaker 03:
We also did not have, our court had no indication at that point in time or right away that this was going to be an issue with the defendants.

[00:15:01] Speaker 03:
Quite frankly,

[00:15:03] Speaker 03:
The schedule was so draconian in the way that it was applied by the district court that this is not something that the Arltons considered to be an issue based on good faith.

[00:15:17] Speaker 04:
Council, did you ever move to extend the deadline given the fact that you said you didn't think you had everything that you needed to file by the deadline that was in the schedule?

[00:15:25] Speaker 03:
Oh, we moved for leave to amend is what we did, Your Honor.

[00:15:28] Speaker 04:
But not to extend the deadline so that you could have some additional time, correct?

[00:15:32] Speaker 03:
We moved to amend.

[00:15:34] Speaker 03:
Yes, we moved for leave, Your Honor.

[00:15:35] Speaker 03:
Yes, you were correct.

[00:15:37] Speaker 02:
OK, thank you.

[00:15:38] Speaker 02:
Can I ask you just one more quick question, which is, in response to my earlier question, where you could have gone and filed a new complaint with respect to the trade secrets, you said you didn't want to be involved in new and other litigation.

[00:15:50] Speaker 02:
But if the district court had allowed you to amend your complaint, you'd be in that position, right?

[00:15:56] Speaker 02:
Because he's reached a conclusion with respect to your other applications.

[00:16:00] Speaker 02:
So now you'd be starting over with a new trade secret.

[00:16:03] Speaker 02:
So what would be the practical difference for you in terms of filing a new complaint or pursuing this as an amendment to the complaint?

[00:16:10] Speaker 03:
Your Honor, I do see I'm out of time.

[00:16:12] Speaker 02:
Go ahead, please proceed.

[00:16:13] Speaker 02:
Yeah, just ask.

[00:16:14] Speaker 03:
Yes.

[00:16:15] Speaker 03:
The difference would be not having this case in one context.

[00:16:19] Speaker 03:
The Arltons were interested in pursuing this together as one case.

[00:16:23] Speaker 03:
The Arltons were looking for discovery that was pertinent to all of the facts, which they could only have if things were confined.

[00:16:30] Speaker ?:
OK.

[00:16:31] Speaker 02:
Thank you.

[00:16:32] Speaker 02:
We'll restore some rebuttal time.

[00:16:33] Speaker 02:
Thank you.

[00:16:47] Speaker 02:
Ms.

[00:16:47] Speaker 02:
Pan, good morning.

[00:16:48] Speaker 02:
You're representing the government here.

[00:16:50] Speaker 05:
That's right.

[00:16:51] Speaker 05:
Good morning, Your Honors.

[00:16:53] Speaker 05:
And may it please the Court of Caroline Tan for the United States.

[00:16:57] Speaker 05:
Congress channeled patent infringement claims involving government contractors or subcontractors with the authorization or consent of the United States to the Court of Federal Claims.

[00:17:07] Speaker 05:
The question today is whether such authorization and consent exists for three set of circumstances at issue here.

[00:17:14] Speaker 05:
One, the user manufacture of the Mars helicopter for NASA's Mars mission.

[00:17:19] Speaker 05:
Two, the user manufacture of the Earth-based helicopter in performing anomaly tests for the Mars mission.

[00:17:26] Speaker 05:
And three, the user manufacture of the Earth-based helicopter in certain educational and marketing activities.

[00:17:32] Speaker 05:
Which is Terry?

[00:17:33] Speaker 02:
What are we calling Terry?

[00:17:35] Speaker 02:
Two and three refer to Terry, the Earth helicopter.

[00:17:38] Speaker 02:
Can I just ask you, the other slide mentioned

[00:17:40] Speaker 02:
that your position now is that some of the uses are not immunized?

[00:17:46] Speaker 02:
Did you hear that?

[00:17:48] Speaker 02:
I did hear that, Your Honor.

[00:17:50] Speaker 02:
And is that your position?

[00:17:51] Speaker 02:
Because I thought we were operating here under the government saying that all of these other uses, everything is immunized, which is an important fact.

[00:18:00] Speaker 05:
Yes, absolutely.

[00:18:02] Speaker 05:
Everything with respect to the Mars helicopter falls within section 1498.

[00:18:06] Speaker 05:
And so that includes all manufacturers and uses involving the development and putting engineering onto Mars.

[00:18:13] Speaker 05:
What about Terry?

[00:18:15] Speaker 05:
Uses of Terry in performing anomaly tests and work related to the Mars mission fall within 1498.

[00:18:23] Speaker 05:
The educational and marketing activities, we take no position on the application of 1498 to that set of circumstances, but we do want to emphasize that 1498 does not categorically exclude these kinds of activities from 1498's protection.

[00:18:39] Speaker 02:
So how do we get that decided?

[00:18:41] Speaker 02:
Let's just keep this narrow thing, which is the uses that the government is not conceding or authorized.

[00:18:48] Speaker 02:
Those would take us out of 1498, would they not?

[00:18:54] Speaker 05:
So it's your question.

[00:18:55] Speaker 05:
I mean, I think for purposes of what I'm calling category three, so it's uses of Terry involving certain educational and marketing activities,

[00:19:07] Speaker 05:
We, again, take no position on the application of the statute to those uses, but we don't think that the mere fact that they involve marketing or educational activities categorically means that they're not a part of 1498.

[00:19:22] Speaker 02:
Well, is the government going to go to the Court of Federal Claims when they're seeking relief under 1498?

[00:19:28] Speaker 02:
And is the government going to say, no, we're not liable for those activities?

[00:19:32] Speaker 02:
I mean, this is like ping-ponging the plaintiff here.

[00:19:36] Speaker 05:
So we think that, I mean, I think it might be helpful to respond to your question with two particular points.

[00:19:42] Speaker 05:
The first is sort of the reasoning why we think that category three doesn't act, isn't categorically precluded from 1498.

[00:19:50] Speaker 05:
And the second might be to respond to some of the questions you have about the parallel court federal claims litigation.

[00:19:55] Speaker 05:
That's the first point.

[00:19:57] Speaker 05:
You know, we were looking at this court decision in TBI, which recognized that there might be some circumstances in which activities of not even part of the contract can nevertheless fall within section 1498.

[00:20:08] Speaker 05:
And the reasoning behind that is because the purpose of 1498 is to permit government contractors to perform the kind of work

[00:20:15] Speaker 05:
But the government needs them for sure.

[00:20:18] Speaker 02:
I take all that.

[00:20:19] Speaker 02:
I'm very sorry because we're limited on time.

[00:20:21] Speaker 02:
What I'm concerned about is that you won't say, I mean you've kind of been loved and not willing to say here, that yes, those activities will authorize and are covered.

[00:20:32] Speaker 02:
So you're arguing here, yes, they very well might be.

[00:20:36] Speaker 02:
But that doesn't matter to me, and it certainly doesn't matter to them.

[00:20:39] Speaker 02:
What matters to them is when they get to the Court of Federal Claims, are they going to be able to capture whatever liability there is against someone?

[00:20:48] Speaker 02:
So unless you concede that those activities were authorized, then that leaves them with nothing with respect to that small law.

[00:20:55] Speaker 05:
So what I can say about that court of federal claims case, which is classified, is that our position is they haven't sufficiently filed infringements.

[00:21:03] Speaker 05:
That's all I can say about that ongoing classified case.

[00:21:07] Speaker 04:
But we do provide a massive issue in respect to the category that Judge Gross was talking about.

[00:21:16] Speaker 04:
Or are you talking broader?

[00:21:17] Speaker 04:
Just keep being more specific.

[00:21:20] Speaker 05:
I, that case is classified, but I'm not aware of the particular uses that plaintiffs bring in that case.

[00:21:28] Speaker 05:
So it's unclear to me whether or not, I don't know whether or not they have brought the same set of uses in that case that they are alleging should apply in this case.

[00:21:38] Speaker 05:
I will say, to the extent it's helpful, we do provide three points that we think would help this court analyze the Category 3 framework.

[00:21:47] Speaker 05:
Wait, before you go to those three points.

[00:21:50] Speaker 04:
Okay.

[00:21:50] Speaker 04:
conversations we were having with the opposing counsel was they were complaining about there was a motion to dismiss that was pending before the court federal claims, but because of that, they were warning us about not giving it a leap.

[00:22:03] Speaker 04:
And I think this kind of piggybacks off of what Judge Proves was speaking to you about.

[00:22:08] Speaker 04:
What I want to understand is, I recognize that some assets may be classified, but is there a pending motion to dismiss that will try to eliminate this smaller bucket

[00:22:20] Speaker 04:
of uses for and prevent them from getting any form of relief from any court, whether it is the government.

[00:22:28] Speaker 04:
I would say whether getting any relief from the government actually is like that.

[00:22:34] Speaker 05:
So their dispute, I think, is that we are challenging substantive infringement in the court of federal claims.

[00:22:40] Speaker 05:
They appear to misunderstand 1498's

[00:22:45] Speaker 05:
you know, consent and authorization clause, and the fact that the government would hold itself liable if such infringement is found, of course we can dispute whether or not there is infringement.

[00:22:55] Speaker 05:
And my understanding is that's what's happening in this other case.

[00:22:58] Speaker 04:
What's the worth of the consent and authorization here?

[00:23:01] Speaker 04:
Does it encompass that budget that Judge Gross was talking to you about?

[00:23:06] Speaker 05:
It encompasses all uses related to Mars and all uses related to Terry that helps the Mars project, including the audio anomaly tests.

[00:23:13] Speaker 05:
And it could encompass a third category if, for example, the work is minimal, closely associated with government work, and results in no commercial use.

[00:23:23] Speaker 02:
But if it doesn't, do they have a potential cause of action against the other party in district court?

[00:23:31] Speaker 05:
If this court decides that these Category 3 uses do not fall within 1498, then we would abide by this court's decision.

[00:23:40] Speaker 05:
But we think, I think the main, the important point here is that those kinds of uses could apply in some circumstances.

[00:23:48] Speaker 05:
It's a fact-intensive inquiry.

[00:23:50] Speaker 05:
And that's in part because contractors perform work for the government, or contractors need breathing rooms to perform work for the government that might not be directly mandated by a contract.

[00:24:01] Speaker 05:
So for example,

[00:24:02] Speaker 05:
We think a test demonstration at an academic conference of a particular device in question might be the sort of thing that in some circumstances would fall within Section 1498 scope, even if it's not directly mandated by a contract or a particular government program.

[00:24:18] Speaker 04:
What about the Anderson Cooper situation?

[00:24:21] Speaker 04:
Was that all within 1490 years ago?

[00:24:23] Speaker 05:
I am not authorized to take a position on those particular uses that are alleged in this case.

[00:24:29] Speaker 05:
But again, what I can say is the mere fact that this is some kind of more

[00:24:35] Speaker 05:
does not preclude 1498 from applying.

[00:24:37] Speaker 01:
But if the day after Anderson Cooper, they launched a product, you know, Terry Junior at Walmart, and sold it to consumers, the government's not accepting liability for that, correct?

[00:24:49] Speaker 05:
No, commercial profit would not qualify.

[00:24:52] Speaker 05:
And do not accept liability for uses involving commercial profit.

[00:24:56] Speaker 05:
I think we tried, in page 19 of our brief, we sort of set out the particular

[00:25:03] Speaker 05:
principles that help this court in understanding the application of Category 3 to the provision here.

[00:25:11] Speaker 05:
But I think the governing sort of framework that this court has applied in understanding 1498 is whether or not this is the sort of thing that benefits the government, whether we want our contractors to be able to perform this sort of work without the burdens of patent litigation

[00:25:29] Speaker 02:
One other quick question.

[00:25:33] Speaker 02:
I know it's well classified.

[00:25:34] Speaker 02:
Do you have any sense that you can share with us in terms of when this court of claims proceeding may come to an end or some?

[00:25:43] Speaker 05:
I have no information on the timing of that particular case.

[00:25:46] Speaker 05:
All right.

[00:25:47] Speaker 05:
Thank you.

[00:25:48] Speaker 05:
Thank you.

[00:25:49] Speaker 05:
Mr. Felder.

[00:26:04] Speaker 00:
Good morning.

[00:26:09] Speaker 00:
May it please the court, Scott Felder, representing Air Environment.

[00:26:13] Speaker 00:
I think it's important to focus first on procedural posture in this case.

[00:26:18] Speaker 00:
This was a one-product complaint.

[00:26:20] Speaker 00:
Ingenuity was the only product of accused infringement.

[00:26:23] Speaker 00:
That was the subject of air environments and summary judgment motion.

[00:26:27] Speaker 00:
What the Arltons are complaining of in part today is that the district court only reopened discovery following summary judgment for a limited purpose.

[00:26:38] Speaker 00:
The court doesn't have to address the other uses of Terry here in this decision.

[00:26:44] Speaker 00:
in order to reaffirm or in order to affirm the district court's decision not to reopen the summary judgment in their environment's favor on ingenuity.

[00:26:54] Speaker 00:
And as this court pointed out when my colleague was speaking, the altons could have filed another complaint related to Terry

[00:27:03] Speaker 00:
just like they could have filed another complaint related to the alleged trade secrets appropriations.

[00:27:08] Speaker 02:
But maybe I'm just not lost in this case.

[00:27:11] Speaker 02:
But my understanding was the summary judgment was in part predicated for these other uses.

[00:27:17] Speaker 02:
The district courts concluded that they were either de minimis or that they would come under the 1498 bucket, which would be adjudicated by the Court of Federal Claims.

[00:27:26] Speaker 00:
You're out of the original summary judgment, just to make sure that I'm very clear here, was ingenuity was made for the government with the government's authorization consent.

[00:27:36] Speaker 01:
Ingenuity is the copter on Mars.

[00:27:37] Speaker 00:
That's correct.

[00:27:38] Speaker 00:
That's ingenuity.

[00:27:39] Speaker 02:
Yeah, but this whole discussion is on the Terry stuff, right, in 60 minutes and all that stuff.

[00:27:44] Speaker 00:
Right.

[00:27:44] Speaker 00:
So after the summary judgment hearing and concluded, after the judgment and air vibrancy had been entered, there was a segment on 60 minutes entitled, Ingenuity, or Personerics and Ingenuity.

[00:27:57] Speaker 00:
about the Mars helicopter mission.

[00:27:59] Speaker 00:
During that segment, AeroVar had demonstrated Terry, as a stand-in friend, knew it would be very difficult to point to an aircraft on Mars and say, this is how we achieve aircraft flight, first ever extraterrestrial aircraft flight.

[00:28:14] Speaker 00:
The district court looked at that against a question that my colleague alluded to during the summary judgment hearing.

[00:28:23] Speaker 00:
I think to be more specific about the question was, does AeroViron have any plans to sell this product commercially?

[00:28:29] Speaker 00:
It wasn't part of their other uses, it wasn't part of their intent to, you know, part of their other aircraft.

[00:28:34] Speaker 00:
It was, does AeroViron have intention to commercialize this product?

[00:28:39] Speaker 00:
The answer then, as it is today, was no.

[00:28:43] Speaker 00:
And so this report said,

[00:28:45] Speaker 00:
We'll reopen the judgment.

[00:28:46] Speaker 00:
We'll give you limited discoveries so you can explore whether that representation is correct.

[00:28:51] Speaker 00:
But if you can't show that there are substantial commercial uses, again, this is a case about ingenuity.

[00:28:57] Speaker 00:
I'm going to reenter some of your judgment.

[00:28:58] Speaker 00:
And that's where we are today.

[00:29:03] Speaker 00:
What the cross appeals here ask this court to grapple with is the intersection between 28 U.S.C.

[00:29:08] Speaker 00:
1498 and 35 U.S.C.

[00:29:11] Speaker 00:
285.

[00:29:12] Speaker 00:
We have over a century of jurisprudence between the Supreme Court and this court.

[00:29:17] Speaker 00:
that section 1498 provides the party with.

[00:29:19] Speaker 01:
Could you just talk about their motion to amend before you get into 285?

[00:29:23] Speaker 01:
I can't.

[00:29:25] Speaker 01:
It seems like the district court was holding them to a pretty high standard of diligence.

[00:29:32] Speaker 01:
Shouldn't we have some concern about not incentivizing parties to bring claims before they're really ready to bring them?

[00:29:42] Speaker 00:
Your Honor, what I would say is that the weight here

[00:29:46] Speaker 00:
demonstrates that they were not diligent.

[00:29:48] Speaker 00:
So in the Ninth Circuit, which is the law that would apply for a motion to amend after the deadline set by the court, which in this case was a deadline that the Arltons themselves had proposed, requires a satisfying good-cost standard of Rule 16, not the Rule 15 standard.

[00:30:03] Speaker 00:
The Orals themselves concede the primary determinant of that is good cause.

[00:30:08] Speaker 00:
The primary determinant of good cause is diligence.

[00:30:11] Speaker 00:
The deadline here, again the deadline the Orals proposed originally, was February 12th of 2021.

[00:30:17] Speaker 00:
They admit that they discovered their trade secret claims by no later than January 31st, 2021.

[00:30:23] Speaker 01:
And then they entered into discussions with you to meet and confer and see if you would agree to an amendment and how this impacted your summary judgment motion.

[00:30:33] Speaker 01:
Isn't that behavior we want to encourage?

[00:30:36] Speaker 00:
It is, with one caveat, Your Honor.

[00:30:39] Speaker 00:
They didn't make that outreach until a week after the deadline to amend, at last.

[00:30:45] Speaker 00:
They didn't even approach air environment.

[00:30:47] Speaker 01:
So had they come to you just one week earlier, we'd be in a completely different world.

[00:30:52] Speaker 00:
I think that the decision to wait even to approach air environment to amend, the decision not to approach us about the extension to the schedule, the decision not to seek legal court to amend the schedule, all demonstrate a lack of diligence.

[00:31:08] Speaker 00:
I can't really speak to what would be the height of the world if we weren't in that situation.

[00:31:17] Speaker 04:
I know you're maybe anxious to get to 285, but before you go there, can you tell me whether or not you're disputing whether Terry should be part of the case?

[00:31:25] Speaker 04:
Because when I was listening to some of what you were talking about with respect to the various summary judgment motions, you of course are focused on ingenuity, which I understand was part of the original case.

[00:31:34] Speaker 04:
Are you contesting in any way that Terry is not also part of that case?

[00:31:40] Speaker 00:
Terri was the basis for reopening the Sari judgment on anonymity.

[00:31:45] Speaker 00:
This court can avoid assessing any uses of Terri.

[00:31:50] Speaker 00:
By simply saying, we are affirming the district court's decision not to reopen the case entirely, only to reopen it for limited purposes.

[00:31:58] Speaker 00:
You see if there have, in fact, been commercial uses of the single accused product or its associated technology.

[00:32:04] Speaker 00:
I'm happy to discuss.

[00:32:05] Speaker 00:
the various uses of terror in this court alike.

[00:32:09] Speaker 00:
And I think the government is quite rightly not saying we are not taking a position on any particular use of terror other than it's manufactured.

[00:32:23] Speaker 00:
and its uses for audio and audiovisual testing, and our environment's position is that if the court were to look at the uses of Terry outside of those contexts, that they are what the government characterizes in their brief as associated infringement.

[00:32:37] Speaker 00:
Things incidental to

[00:32:39] Speaker 00:
the work that was required on the issue?

[00:32:42] Speaker 02:
Yeah, but the problem for us, or for me at least, is that the government won't take a position.

[00:32:46] Speaker 02:
They won't say that the uses that we know of now were indeed consented to or authorized.

[00:32:53] Speaker 02:
And so it leaves the other side in never, never land.

[00:32:57] Speaker 02:
It's a small sliver of this case, but it seems to leave.

[00:33:01] Speaker 02:
If the government ends up taking a position at the Court of Federal Claims that no, these uses were not authorized,

[00:33:08] Speaker 02:
then can they go back to the district court and say, uh-huh, we can file a claim there?

[00:33:13] Speaker 02:
It may not be successful.

[00:33:14] Speaker 02:
It may be far-fetched.

[00:33:15] Speaker 02:
But don't they have the ability to go back to the district court?

[00:33:22] Speaker 00:
I do not necessarily know, Your Honor, that the community afforded, the broad community afforded a contractor under Section 1498.

[00:33:30] Speaker 00:
It's perfectly co-extensive with the way for a sovereign community.

[00:33:33] Speaker 00:
there would be a jurisdictional predicate of a court of law.

[00:33:36] Speaker 02:
What would help?

[00:33:36] Speaker 02:
It would become extensive, right?

[00:33:40] Speaker 00:
I have argued that there are some gaps in previous motions, so I think it would be difficult for me to stand here and say they're not.

[00:33:46] Speaker 00:
I don't think, however, that any of those gaps are applicable to the fact pattern we have here today.

[00:33:51] Speaker 00:
So if we look, for example, at some of those uses of Terry, I've already spoken about 60 minutes.

[00:33:56] Speaker 00:
We could use the AUVSI trade show where Terry was there at an exhibit, Flame on Mars.

[00:34:03] Speaker 00:
It's a stand-in for ingenuity.

[00:34:05] Speaker 00:
It is tied to the work that the Air Department did

[00:34:09] Speaker 00:
for the United States and with the government's authorization.

[00:34:13] Speaker 02:
Move to 285.

[00:34:14] Speaker 02:
I'm sorry.

[00:34:16] Speaker 00:
Move to 285.

[00:34:17] Speaker 00:
Certainly, Your Honor.

[00:34:19] Speaker 00:
So the issue here, 285 is designed in part to deter litigation that is meritorious or fearless or otherwise exceptional.

[00:34:30] Speaker 02:
And the standard of review?

[00:34:33] Speaker 00:
Our standard of review?

[00:34:34] Speaker 00:
Abuse of discretion, Your Honor.

[00:34:36] Speaker 00:
And here, I think we want to juxtapose the pertinent care person, 285, against the broad immunity of the 1498 abhors.

[00:34:45] Speaker 00:
And the reason the 1498 abhors a broad immunity, again, essentially a jurisprudence from the Supreme Court and this court, is that we don't want government contractors put off from doing work for the federal government

[00:34:56] Speaker 00:
by considerations of private patent infringement.

[00:34:59] Speaker 00:
And that's not just the liability, it's also the burden and expense of litigation.

[00:35:04] Speaker 00:
The very burden and expense that air environment has had to shoulder here.

[00:35:07] Speaker 00:
This litigation, which has used ingenuity, which the complaint itself establishes the Arlington Zoo, was for the government.

[00:35:14] Speaker 00:
The complaint refers to what NASA did, what JPL did, in conjunction with air environment.

[00:35:21] Speaker 00:
The contract provided the express authorization consent for ingenuity is publicly available on the JPL website.

[00:35:29] Speaker 00:
They could have gone and seen that it contains the authorization consent clause.

[00:35:32] Speaker 00:
They could have gone and seen that that authorization consent clause flows down to every subcontract, even if it's not expressly included.

[00:35:40] Speaker 01:
Despite all that, as you know, the district court said it did not find this case easy, said it's not a slam dunk.

[00:35:48] Speaker 01:
and further that the patent issues don't stand out from the rest, and this is not an exceptional case.

[00:35:56] Speaker 01:
How do we tell the district court it abused its discretion in making those findings?

[00:36:01] Speaker 00:
I think we would look rather at the Adjustacan case as an example.

[00:36:04] Speaker 00:
The Adjustacan case started as

[00:36:07] Speaker 00:
Objectively weak, this court's characterization of it on appeal, and after Markman became objectively paceless.

[00:36:15] Speaker 00:
Error opposition in this case started out objectively weak.

[00:36:19] Speaker 00:
The coverage of 1498 for ingenuity, the only accused product, quite clear.

[00:36:24] Speaker 00:
We made it clear fairly quickly thereafter.

[00:36:27] Speaker 00:
We pointed out the existence of Fortune 98.

[00:36:29] Speaker 00:
We laid out the Fortune 98 argument.

[00:36:31] Speaker 00:
At some point, there is a line that's crossed when the case becomes exceptional.

[00:36:36] Speaker 00:
As I said, the adjust-can case books are when it became objectively marvelous.

[00:36:39] Speaker 00:
Here, that line is no later than when the government filed a statement of interest saying, yes, in fact,

[00:36:46] Speaker 00:
We do accept liability for ingenuity.

[00:36:49] Speaker 01:
And that was after you filed your summary?

[00:36:50] Speaker 00:
That was on the day after you filed your summary, Judge.

[00:36:53] Speaker 00:
OK.

[00:36:53] Speaker 00:
OK.

[00:36:53] Speaker 00:
To pursue beyond that point is pursuing an objectively garbless case.

[00:36:57] Speaker 00:
It adjusted campus court found that it was an abuse of discretion for a court district court not to award fees in that circumstance.

[00:37:04] Speaker 02:
OK.

[00:37:05] Speaker 02:
Thank you.

[00:37:05] Speaker 00:
Thank you, Your Honor.

[00:37:07] Speaker 02:
Thank you.

[00:37:07] Speaker 02:
Will we store four minutes at the bottom, the other side, to keep things even?

[00:37:20] Speaker 03:
Thank you, Your Honors.

[00:37:22] Speaker 03:
Just a few points on Roboto.

[00:37:24] Speaker 03:
First of all, I would be remiss if I did not come back to the point with respect to what the District Court concluded here.

[00:37:30] Speaker 03:
The District Court concluded in its second summary judgment that the government was not obligated to contract with life.

[00:37:37] Speaker 03:
That is wrong as a matter of law.

[00:37:39] Speaker 03:
This has ping-ponged, this holding has ping-ponged back and forth between the Court of Federal Claims

[00:37:45] Speaker 03:
and this district court.

[00:37:46] Speaker 03:
It is essential that the court correct this error with respect to the meaning of the SBIR statute.

[00:37:52] Speaker 04:
But you don't have any standing to raise issues with respect to light, right?

[00:37:57] Speaker 04:
I'm not sure exactly, wouldn't you need light to be a party or something to be able to have it raise those issues as opposed to all of them?

[00:38:08] Speaker 03:
The Arltons did move to amend the complaint to actually add light, and that was objected to by their requirement.

[00:38:19] Speaker 03:
But secondly, this is still first and foremost a question of patent infringement and a question under 1498.

[00:38:26] Speaker 03:
And the district court decided that because there were no contract rights as part of the holding, that section 1498 could apply.

[00:38:34] Speaker 03:
So that is a holding of the district court that needs to be aided.

[00:38:38] Speaker 03:
The second thing to point out is AeroVironment's position that substantial commercial uses are the standard for de minimis.

[00:38:51] Speaker 03:
That is not the standard.

[00:38:52] Speaker 03:
The standard is, and this is something that the district courts have shown some confusion over, but so long as the act

[00:39:00] Speaker 03:
that we're talking about is in furtherance of the alleged infringer's legitimate business and is not solely for amusement to satisfy idle curiosity or very strictly philosophical inquiry.

[00:39:12] Speaker 03:
The act does not qualify for the very narrow and strictly limited experimental use defense.

[00:39:18] Speaker 01:
But that's 271.

[00:39:20] Speaker 01:
That's not 1498, is it?

[00:39:23] Speaker 01:
Have we ever said what the de minimis exception, if any, is under 1498?

[00:39:27] Speaker 03:
This is in connection with the Mady versus Duke case.

[00:39:31] Speaker 03:
And it is a Section 1498 case.

[00:39:34] Speaker 03:
Is that our case?

[00:39:35] Speaker 03:
That is the Federal Circuit case.

[00:39:37] Speaker 03:
It's 307 F1351.

[00:39:41] Speaker 03:
And it's in the context of the experimental use.

[00:39:44] Speaker 03:
which I've understood or we've understood in our briefing to be on all fours with de minimis and it carries over some of those same cases.

[00:39:54] Speaker 03:
So that is fair.

[00:39:55] Speaker 03:
And again, this is not, Terry, just to make sure that this is clear, is not in Arlton's view a small sliver.

[00:40:03] Speaker 03:
When you go on national television,

[00:40:06] Speaker 03:
and talk about this is the greatest invention and that achievement that is extraordinarily valuable from a commercial perspective and that is a commercial benefit that has been lost to the Arltons again and again.

[00:40:19] Speaker 03:
And of course, all of that is outlined in our brief.

[00:40:22] Speaker 03:
With respect to the motion to amend,

[00:40:27] Speaker 03:
I'd like to point out that, from a procedural perspective, that if the Arltons had gone to file a complaint somewhere else, then AeroVironment would have almost certainly moved to amend, because it was compulsory in the pending case, in the current pending case.

[00:40:44] Speaker 03:
And then we would have gone back to the same loop again with respect to good cause.

[00:40:49] Speaker 03:
So filing another case procedurally would not have been the prudent move from a procedural perspective at that time.

[00:40:58] Speaker 03:
Also to point out that with respect to the schedule, there was still six months approximately left of fact discovery here.

[00:41:07] Speaker 03:
There was no need.

[00:41:09] Speaker 03:
There was no prejudice.

[00:41:10] Speaker 03:
There was no need to move to have

[00:41:14] Speaker 03:
to have the motion to amend denied when the procedural schedule was still in play.

[00:41:21] Speaker 03:
It was not at the end of the case.

[00:41:23] Speaker 03:
And then finally, with respect to the attorney's fees.

[00:41:28] Speaker 02:
Well, your time is up.

[00:41:29] Speaker 03:
My time is up.

[00:41:31] Speaker 02:
And if you respond, then the other side has a right to respond to what you say.

[00:41:35] Speaker 02:
So you might want to reconsider what you're going to say about that.

[00:41:38] Speaker 02:
But it's your show.

[00:41:41] Speaker 03:
Will you allow me to finish my?

[00:41:43] Speaker 03:
My sentence on that, it's up to me to decide whether to do it.

[00:41:49] Speaker 03:
Your Honor, the defendant or the appellee here would have essentially a section, anytime someone files a section 1498 as an affirmative defense, that that automatically renders this case exceptional.

[00:42:03] Speaker 03:
That's in essence what they've asked for.

[00:42:05] Speaker 03:
And that's not the law.

[00:42:07] Speaker 03:
Plaintiffs should still be free to pursue those kinds.

[00:42:10] Speaker 03:
Thank you.

[00:42:11] Speaker 02:
All right.

[00:42:12] Speaker 02:
We'll give you 30 seconds.

[00:42:18] Speaker 00:
Thank you, Your Honor.

[00:42:19] Speaker 00:
So I just want to pick up that very last point about the assertion of a 1498 case immediately making a case exceptional.

[00:42:27] Speaker 00:
That's not Aerovagan's position.

[00:42:29] Speaker 00:
Aerovagan's position is that this case is exceptional because the applicability of Section 1498 was so clear.

[00:42:36] Speaker 00:
Again, their complaint says NASA did this, JPL did this, the contract provided express authorization consent was publicly available.

[00:42:44] Speaker 00:
All that the Arltons can test is whether the government can validly give that authorization consent.

[00:42:49] Speaker 00:
Setting aside the civil argument, we outlined in our brief whether the civil argument has multiple problems, not the least.

[00:42:56] Speaker 02:
OK, I'm going to cut you off, because I don't want to do another ping pong.

[00:42:59] Speaker 00:
I just saw the yellow light.

[00:43:02] Speaker 00:
Thank you.

[00:43:02] Speaker 02:
Thank you.

[00:43:03] Speaker 02:
We thank all sides.

[00:43:04] Speaker 02:
The case is submitted.