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does the government pay royalties to patent holders?

Is there a special process or formality for the US government or other governments under its umbrella to pay royalties or compensate a patent holder?

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Each government is different on this point. In general, governments claim sovereign immunity against lawsuits. However, many government, including the US, have waived sovereignty as to certain issues, including patent infringement.

In the US, the particular statute on point is 28 U.S.C. § 1498. That statute provides that a patentee can sue the United States in the Court of Federal Claims for the recovery its "reasonable and entire compensation" when the US Government uses a patented invention without license. Just today, I received a note from the US Department of Justice because they are looking to hire more patent litigators to defend these section 1498 lawsuits. Outside of a lawsuit, each US agency typically handles its own licensing and are often willing to take a license when infringement is clear.

In the US, each of the 50-states are also considered sovereign, and it turns out to be much more difficult to sue a state in Federal Court. Here, the 11th Amendment to the US Constitution is also on point. Thus, state universities regularly claim sovereign immunity when sued for patent infringement.

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