B-141459, MAR. 29, 1962

B-141459, MAR. 29, 1962

TO GARDNER, MORRISON AND ROGERS:

REFERENCE IS MADE TO YOUR LETTERS OF AUGUST 18, 1961, AND MARCH 9, 1962, PROTESTING ON BEHALF OF YOUR CLIENT, CHARLES PFIZER AND COMPANY, INC., AGAINST THE AWARD OF CONTRACTS TO THREE OTHER BIDDERS UNDER REQUEST FOR QUOTATIONS NO. 9487, ISSUED BY THE MILITARY MEDICAL SUPPLY AGENCY, COVERING VARIOUS QUANTITIES OF TETRACYCLINE HYDROCHLORIDE TABLETS. THE SUBSTANCE OF YOUR PROTEST IS THAT THE PROCUREMENT AGENCY, IN ITS APPLICATION OF THE PROVISIONS OF THE BUY AMERICAN ACT, 41 U.S.C. 10A ET SEQ., AND EXECUTIVE ORDER NO. 10582, COMPUTED THE AD VALOREM DUTY ON THE BASIS OF THE CONTRACT PRICES INSTEAD OF A MORE REALISTIC VALUE OF $8 PER UNIT, AND FAILED TO INCLUDE IN SUCH COMPUTATION ANY DAMAGES FOR PATENT INFRINGEMENT AND SPECIAL DUMPING DUTY, BOTH OF WHICH ARE ALLEGED TO BE APPLICABLE TO PURCHASES INVOLVED. WHILE WE FEEL THAT THE CONTENTIONS RAISED IN YOUR CURRENT PROTEST WERE THOROUGHLY CONSIDERED IN OUR PREVIOUS DECISIONS OF MAY 10 AND AUGUST 5, 1960 (SEE 39 COMP. GEN. 760), THE MATTER WILL AGAIN BE REVIEWED IN THE LIGHT OF THE ARGUMENTS NOW MADE IN SUPPORT OF YOUR CONTENTION THAT THE AWARDS WERE IMPROPER.

THE CITED ACT PROVIDES, SO FAR AS IS PERTINENT TO THIS CASE, THAT--

"NOTWITHSTANDING ANY OTHER PROVISION OF LAW, AND UNLESS THE HEAD OF THE DEPARTMENT OR INDEPENDENT ESTABLISHMENT CONCERNED SHALL DETERMINE IT TO BE INCONSISTENT WITH THE PUBLIC INTEREST, OR THE COST TO BE UNREASONABLE, * * * ONLY SUCH MANUFACTURED ARTICLES, MATERIALS, AND SUPPLIES AS HAVE BEEN MANUFACTURED IN THE UNITED STATES SUBSTANTIALLY ALL FROM ARTICLES, MATERIALS, OR SUPPLIES MINED, PRODUCED, OR MANUFACTURED, AS THE CASE MAY BE, IN THE UNITED STATES, SHALL BE ACQUIRED FOR PUBLIC USE.'

THE IMPLEMENTING EXECUTIVE ORDER NO. 10582, DATED DECEMBER 17, 1954, PROVIDES IN PART AS FOLLOWS:

"SEC. 2 (B) FOR THE PURPOSES OF THE SAID ACT OF MARCH 3, 1933, AND OTHER LAWS REFERRED TO IN THE FIRST PARAGRAPH OF THE PREAMBLE OF THIS ORDER, THE BID OR OFFERED PRICE OF MATERIALS OF DOMESTIC ORIGIN SHALL BE DEEMED TO BE UNREASONABLE, OR THE PURCHASE OF SUCH MATERIALS SHALL BE DEEMED TO BE INCONSISTENT WITH THE PUBLIC INTEREST, IF THE BID OR OFFERED PRICE THEREOF EXCEEDS THE SUM OF THE BID OR OFFERED PRICE OF LIKE MATERIALS OF FOREIGN ORIGIN AND A DIFFERENCE COMPUTED AS PROVIDED IN SUBSECTION (C) OF THIS SECTION.

"/C) THE EXECUTIVE AGENCY CONCERNED SHALL IN EACH INSTANCE DETERMINE THE AMOUNT OF THE DIFFERENTIAL REFERRED TO IN SUBSECTION (B) OF THIS SECTION ON THE BASIS OF ONE OF THE FOLLOWING-DESCRIBED FORMULAS, SUBJECT TO THE TERMS THEREOF: (1) THE SUM DETERMINED BY COMPUTING SIX PERCENTUM OF THE BID OR OFFERED PRICE OF MATERIALS OF FOREIGN ORIGIN.'

IN RESPONSE TO THE SUBJECT REQUEST FOR QUOTATION THE LOWEST DOMESTIC OFFERS WERE SUBMITTED BY YOUR CLIENT, WHICH COMPARE TO THE THREE LOWEST PROPOSALS OF FOREIGN ORIGIN, FOR THE QUANTITIES INDICATED, AS FOLLOWS:

TABLE

QUANTITY FOREIGN PFIZER

126,352 $602,699.04 $768,927.73

37,000 156,410.10 224,590.00

25,000 115,000.00 152,140.00

188,352 $874,109.14 $1,145,657.73

PURSUANT TO THE REQUIREMENTS OF THE BUY AMERICAN ACT, THE CITED EXECUTIVE ORDER AND REGULATIONS, THE FOREIGN OFFERS WERE EVALUATED BY ADDING THERETO THE FREIGHTS COSTS AND DUTY, PLUS THE ESTABLISHED DIFFERENTIAL OF SIX PERCENT OF THE CONTRACT PRICES, RESULTING IN A DIFFERENCE OF $97,809.82, IN FAVOR OF THE FOREIGN SOURCES, WHILE THE ACTUAL SAVING TO THE PROCURING AGENCY IS EQUAL TO $266,387.49.

IT IS YOUR CONTENTION THAT THE AD VALOREM DUTY OF 12 1/2 PERCENT SHOULD HAVE BEEN APPLIED TO A PRICE OF $8 PER HUNDRED, RATHER THAN THE CONTRACT PRICES RANGING FROM $4.27 TO $4.77; THAT THE SUGGESTED PRICE OF $8 IS THE LOWEST PRICE FOR WHICH THE DRUGS ARE SOLD IN ITALY; AND THAT THE CONTRACT PRICES DO NOT FURNISH A PROPER VALUE FOR THE COMPUTATION OF APPLICABLE DUTY WITHIN THE MEANING AND INTENT OF 19 U.S.C. 1401A. THAT SECTION OF THE CUSTOMS SIMPLIFICATION ACT OF 1956, ESTABLISHES THE PROPER METHOD OF DETERMINING THE VALUE OF IMPORTED MERCHANDISE. THE RECORD SHOWS THAT IN THE EVALUATION OF THE FOREIGN OFFERS THE CONTRACTING OFFICER BASED HIS COMPUTATION OF DUTY ON THE CONTRACT PRICES PURSUANT TO ADVICE FURNISHED BY THE TREASURY DEPARTMENT'S BUREAU OF CUSTOMS. WE REQUESTED AMPLIFICATION OF THIS POINT AND BY LETTER OF FEBRUARY 13, 1962, THE ACTING COMMISSIONER OF CUSTOMS ADVISED US THAT A SELECTED PURCHASER MAY BE CONSIDERED TO FALL WITHIN THE MEANING OF "FREELY SOLD OR, IN THE ABSENCE OF SALES, OFFERED FOR SALE" AND "THEREFORE THE CONTRACT PRICE OF A SALE TO MMSA BY A FOREIGN CONTRACTOR COULD BE ACCEPTED AS REPRESENTATIVE OF THE EXPORT VALUE AS DEFINED IN SECTION 402 (B) OF THE TARIFF ACT.' WE RECOGNIZE THE POSSIBILITY OF A CHANGE IN THE MARKET PRICE OF THE COMMODITY DURING THE TIME BETWEEN THE DATE OF THE CONTRACT AND THE ACTUAL EXPORTATION DATE. HOWEVER, IT IS OUR OPINION THAT THE CONTRACT PRICE IS THE BEST EVIDENCE OF THE TRUE, OR AT THE LEAST REALISTIC, EXPORT VALUE OF THE TABLETS UNDER THE TRANSACTIONS INVOLVED AND, SO FAR AS CONCERNS THE BUY AMERICAN ACT, IS THE PROPER AMOUNT FOR USE IN THE EVALUATION, FOR COMPARATIVE PURPOSES, OF THE FOREIGN AND DOMESTIC COSTS TO THE DEPARTMENT OF THE NAVY. FOR THAT REASON WE MUST REJECT YOUR CONTENTION THAT THE ITALIAN WHOLESALE PRICE OF $8 PER UNIT SHOULD BE USED IN SUCH COMPUTATION. WE RECOGNIZE THAT ACCEPTANCE OF THE CONTRACT PRICE AS THE VALUE UPON WHICH TO COMPUTE THE THEORETICAL DUTY LACKS THE CERTAINTY WHICH WOULD EXIST IF THE ADMINISTRATIVE OFFICE CHOSE NOT TO ISSUE A REQUEST FOR EXEMPTION FROM DUTY AND REQUIRED THE FOREIGN SUPPLIER TO AGREE TO A DEDUCTION FROM ITS PRICE OF THE DUTY ACTUALLY IMPOSED AT THE TIME OF ENTRY. HOWEVER, SINCE THOSE MATTERS PRIMARILY ARE FOR CONSIDERATION BY THE ADMINISTRATIVE OFFICE INVOLVED AND THE BUREAU OF CUSTOMS, WE DO NOT DEEM IT APPROPRIATE FOR US TO SUGGEST THE CONDITIONS UNDER WHICH THE SUPPLIES SHOULD BE PURCHASED, OR IMPORTED FREE OF DUTY INTO THE UNITED STATES UNDER THE PROVISIONS OF 10 U.S.C. 2883.

YOUR SECOND CONTENTION IS THAT THE ADMINISTRATIVE OFFICE ERRED IN FAILING TO INCLUDE IN THE EVALUATION OF THE FOREIGN OFFERS A REASONABLE AMOUNT FOR DAMAGES FOR PATENT INFRINGEMENT, SINCE THE PATENT RIGHTS ON TETRACYCLINE ARE HELD BY YOUR CLIENT. SECTION 6-101 OF THE ARMED SERVICES PROCUREMENT REGULATION STIPULATES THAT FOR PURPOSES OF EVALUATION IN THESE TRANSACTIONS ONLY DUTY AND TRANSPORTATION COSTS ARE TO BE ADDED TO A FOREIGN OFFER. IN A PRIOR REPORT DATED APRIL 4, 1960, RELATING TO A SIMILAR PROCUREMENT THE DEPARTMENT OF THE NAVY POINTED OUT THAT POSSIBLE INFRINGEMENT DAMAGES WERE TAKEN INTO ACCOUNT NOT BECAUSE OF THE LAW OR REGULATIONS, BUT RATHER TO DETERMINE WHETHER A PROVIDENT PURCHASE WAS BEING MADE. WE ARE ADVISED THAT THE LEGALITY OF THE PATENT HAS BEEN CHALLENGED BY AN ACTION NOW PENDING IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. IN VIEW THEREOF, AND SINCE THERE HAS BEEN NO SHOWING OF ANY LIABILITY ON THE PART OF THE GOVERNMENT FOR REASONABLE COMPENSATION UNDER 28 U.S.C. 1498, IN CONNECTION WITH THE PREVIOUS PURCHASES MADE UNDER LIKE CIRCUMSTANCES, WE CONCUR WITH THE ADMINISTRATIVE DETERMINATION THAT SUCH SPECULATIVE COSTS ARE NOT WITHIN THE CONTEMPLATION OF EXECUTIVE ORDER NO. 10582.

THE THIRD CONTENTION MADE IN YOUR PROTEST IS THAT IN THE COMPUTATION OF FOREIGN COSTS THERE SHOULD BE INCLUDED A SPECIAL DUMPING DUTY PURSUANT TO THE PROVISIONS OF 19 U.S.C. 160-171, WHICH IMPOSE ADDITIONAL DUTIES ON IMPORTS THAT THREATEN TO UNDERMINE THE AMERICAN MARKET FOR DOMESTIC PRODUCTS. THIS MATTER WAS CONSIDERED IN OUR DECISION OF MAY 10, 1960, 39 COMP. GEN. 760, AND WE CAN ONLY REPEAT THAT SUCH DUTY EVEN IF APPLICABLE TO PURCHASES MADE BY THE UNITED STATES, BECOMES OPERATIVE ONLY AFTER A DETERMINATION BY THE SECRETARY OF THE TREASURY AS TO THE FOREIGN MARKET PRICE, AND A FINDING BY THE UNITED STATES TARIFF COMMISSION THAT A DOMESTIC INDUSTRY IS INJURED, OR IS LIKELY TO BE INJURED BY THE IMPORTATIONS INVOLVED. THE MERE FILING OF A NOTICE BY THE COMMISSIONER OF CUSTOMS IN CONTEMPLATION OF THE ADMINISTRATIVE PROCEDURES TO BE FOLLOWED UNDER THE FOREGOING STATUTE DOES NOT RENDER THE DUTY APPLICABLE. IN ANY EVENT SUCH MATTERS ARE NOT FOR CONSIDERATION BY THE GENERAL ACCOUNTING OFFICE.

WE DO NOT BELIEVE THAT YOUR PROTEST PRESENTS ANY LEGAL BASIS FOR THIS OFFICE TO TAKE EXCEPTION TO THE ACTION OF THE DEPARTMENT OF THE NAVY AND, THEREFORE, THE AWARDS MADE UNDER THIS PROCUREMENT WILL NOT BE DISTURBED.