A-13069, MARCH 9, 1926, 5 COMP. GEN. 713

A-13069: Mar 9, 1926

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THERE IS NO PRESUMPTION OF AN IMPLIED CONTRACT FOR THE PAYMENT OF A ROYALTY AND A CLAIM BASED UPON THE USE OF SUCH PATENT IS ONE IN THE NATURE OF UNLIQUIDATED DAMAGES FOR A TORTIOUS USE TO BE ENFORCED BY SUIT IN THE COURT OF CLAIMS IN ACCORDANCE WITH THE ACT OF JULY 1. A PATENT ISSUED TO A PARTY IS ONLY PRIMA FACIE EVIDENCE OF THE VALIDITY OF THE PATENT AND IN A PROCEEDING BASED UPON THE UNAUTHORIZED USE THEREOF. 1926: I HAVE YOUR LETTER OF FEBRUARY 5. HAS MADE A CLAIM AGAINST THE GOVERNMENT FOR INFRINGEMENT OF THE PATENT IN THE GOVERNMENT'S OWNERSHIP AND USE OF CERTAIN PAY ROLL MACHINES PURCHASED FROM THE INTERNATIONAL COMPANY WAS OPERATING. IT IS PROBABLE THAT THE CLAIMS ARE VALID AND LITIGATION BASED ON THE PATENT WOULD BE SUCCESSFUL AS AGAINST THE GOVERNMENT.

A-13069, MARCH 9, 1926, 5 COMP. GEN. 713

PATENTS - PAYMENT OF ROYALTIES WHERE THE GOVERNMENT PURCHASED COUNTING MACHINES UPON THE MARKET, HAVING A PATENTED ATTACHMENT THEREON, AND USED THEM WITHOUT THE KNOWLEDGE OF CLAIMANT'S PATENT, THERE IS NO PRESUMPTION OF AN IMPLIED CONTRACT FOR THE PAYMENT OF A ROYALTY AND A CLAIM BASED UPON THE USE OF SUCH PATENT IS ONE IN THE NATURE OF UNLIQUIDATED DAMAGES FOR A TORTIOUS USE TO BE ENFORCED BY SUIT IN THE COURT OF CLAIMS IN ACCORDANCE WITH THE ACT OF JULY 1, 1918, 40 STAT. 705. A PATENT ISSUED TO A PARTY IS ONLY PRIMA FACIE EVIDENCE OF THE VALIDITY OF THE PATENT AND IN A PROCEEDING BASED UPON THE UNAUTHORIZED USE THEREOF, ANY AND ALL DEFENSES MAY BE AVAILED OF.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF WAR, MARCH 9, 1926:

I HAVE YOUR LETTER OF FEBRUARY 5, 1926, IN WHICH YOU REQUEST MY DECISION OF A QUESTION ARISING OUT OF FACTS SET FORTH IN A LETTER OF THE ATTORNEY GENERAL, DATED DECEMBER 15, 1925, AS FOLLOWS:

"THE OWNER OF PATENT 1,464,683, GRANTED TO N. C. OVAITT AUGUST 14, 1923 FOR COUNTER ATTACHMENT FOR COUNTING MACHINES, HAS MADE A CLAIM AGAINST THE GOVERNMENT FOR INFRINGEMENT OF THE PATENT IN THE GOVERNMENT'S OWNERSHIP AND USE OF CERTAIN PAY ROLL MACHINES PURCHASED FROM THE INTERNATIONAL COMPANY WAS OPERATING. THE INTERNATIONAL COMPANY HAS GONE THROUGH BANKRUPTCY AND IT CAN NOT BE LOOKED TO FOR INDEMNIFICATION FOR INFRINGEMENT OF PATENTS. IT SEEMS CLEAR THAT THE INTERNATIONAL MACHINES OWNED AND USED BY THE GOVERNMENT INFRINGE SOME OF THE CLAIMS OF THE OVAITT PATENT, AND IT IS PROBABLE THAT THE CLAIMS ARE VALID AND LITIGATION BASED ON THE PATENT WOULD BE SUCCESSFUL AS AGAINST THE GOVERNMENT.

"THE OWNER OF THE PATENT HAS EXHIBITED TO US A LONG LIST OF LARGE CORPORATIONS IN THE UNITED STATES WHICH HAVE ENTERED INTO LICENSE AGREEMENTS AND HAVE PAID FOR PAST INFRINGEMENT AND THE RIGHT TO FUTURE USE $50 FOR EACH MACHINE. WE HAVE DIRECTLY COMMUNICATED WITH SOME OF THESE CORPORATIONS AND FIND THAT THE ROYALTY WAS PAID AFTER A CAREFUL INVESTIGATION OF THE PATENT. OUR OWN INDEPENDENT INVESTIGATION OF THE PATENT CONFIRMS THE IMPRESSION THUS ACQUIRED THAT THE PATENT IS PROBABLY VALID AND BEING INFRINGED BY THE GOVERNMENT.

"THE REPORTS FROM THE VARIOUS DEPARTMENTS OF THE GOVERNMENT INDICATE THAT AT LEAST 145 MACHINES ARE OWNED BY THE GOVERNMENT. AT THE USUAL ESTABLISHED ROYALTY FOR THE PATENT--- NAMELY, $50 FOR EACH MACHINE--- THE OWNER MIGHT THEREFORE EXPECT TO RECOVER UPWARDS OF $7,000. HE HAS INDICATED, HOWEVER, THAT HE WILL BE WILLING TO SETTLE WITH THE GOVERNMENT FOR $2,000, IN CONSIDERATION OF WHICH HE WILL RELIEVE THE GOVERNMENT OF ALL CHARGES FOR PAST INFRINGEMENT AND ALSO GIVE THE GOVERNMENT A LICENSE FOR FUTURE USE OF ITS MACHINES. THE DEPARTMENT OF JUSTICE RECOMMENDS THIS ARRANGEMENT PROVIDED THE MONEY IS AVAILABLE.

"THE LETTER OF THE ACTING SECRETARY OF WAR TO THE ATTORNEY GENERAL OF AUGUST 7, 1925, INDICATES THAT YOUR DEPARTMENT HAD 84 OF THESE MACHINES IN USE AND 47 IN STORAGE. SINCE YOUR DEPARTMENT HAS 131 OF THE 145 MACHINES LOCATED IN THE GOVERNMENT, WE SHOULD BE GLAD TO HAVE YOU INDICATE WHETHER YOU WISH TO ENTER INTO THE LICENSE ARRANGEMENT PROPOSED BY THE OWNER OF THE PATENT AND WHETHER YOU HAVE AVAILABLE THE NECESSARY $2,000 TO PURCHASE THE LICENSE.'

YOU ADD TO THE STATEMENT OF THE ATTORNEY GENERAL THAT, IN EFFECT, THE PAYMENT PROPOSED TO BE MADE IN THIS CASE WOULD COVER ROYALTIES THAT SHOULD HAVE BEEN INCLUDED IN THE ORIGINAL PURCHASE PRICE OF THE MACHINES IN QUESTION, AND CHARGED TO THE APPROPRIATIONS THAT BORE THE ORIGINAL COST, BUT THE RECORDS SHOW THAT SOME OF THE 131 MACHINES USED IN THE WAR DEPARTMENT WERE PURCHASED AS LONG AGO AS 1912 AND THE OTHERS AT VARIOUS TIMES THEREAFTER TO INCLUDING 1919, AND FURTHER STATE:

HOWEVER, IN VIEW OF THE LENGTH OF TIME DURING WHICH ALL OF THESE MACHINES HAVE BEEN IN USE THE CONSIDERATION MOVING TO THE UNITED STATES FOR THE LICENSE WHICH IT IS DESIRED TO OBTAIN WOULD RELATE PRINCIPALLY TO THE UNAUTHORIZED USE OF THESE MACHINES IN PAST FISCAL YEARS, AND IT WOULD SEEM, THEREFORE, THAT THE PROPOSED PAYMENT MIGHT FAIRLY BE MADE FROM SOME APPROPRIATION NO LONGER CURRENT PROVIDED AN AVAILABLE BALANCE REMAINS THEREUNDER. THERE IS ALSO FOR CONSIDERATION IN THIS CONNECTION THE FACT THAT IF THE ROYALTY OF $50.00 FOR EACH MACHINE WHICH, IT IS STATED, IS BEING CHARGED PRIVATE OWNERS, WERE TO BE APPLIED TO THE MACHINES IN USE IN THE ARMY ALONE, THE TOTAL AMOUNT OF SUCH ROYALTIES WOULD BE FAR IN EXCESS OF $2,000.00, THE SUM WHICH THE OWNER OF THE PATENT IS WILLING TO ACCEPT FOR A LICENSE COVERING ALL THE MACHINES NOW IN THE POSSESSION OF THE UNITED STATES. ACCORDINGLY, IT WOULD SEEM ADVISABLE TO PROCURE A LICENSE FOR THE MACHINES IN USE UNDER THE WAR DEPARTMENT IN THE VARIOUS BRANCHES OF THE ARMY, WHICH CONSTITUTE PRACTICALLY ALL THE MACHINES OWNED BY THE UNITED STATES; AND SINCE IT APPEARS THAT, WITHOUT EXTRA COST, THE LICENSE MAY BE MADE TO COVER THE FEW OTHER MACHINES IN USE IN OTHER DEPARTMENTS OF THE GOVERNMENT IT WOULD, OF COURSE, BE IN THE INTEREST OF ECONOMY TO INCLUDE THESE MACHINES WITHIN THE OPERATION OF THE WAR DEPARTMENT LICENSE.

THE APPROPRIATION "REGULAR SUPPLIES" FOR THE FISCAL YEAR 1924, THE YEAR IN WHICH, IT IS UNDERSTOOD, THE CLAIM FOR ROYALTIES AROSE, WAS AVAILABLE FOR THE PURCHASE OF MACHINES OF THIS CHARACTER AND AN UNOBLIGATED BALANCE REMAINS THEREUNDER FAR IN EXCESS OF $2,000.00. ACCORDINGLY, IN VIEW OF THE CONSIDERATIONS STATED, YOUR ADVANCE DECISION IS REQUESTED OF THE QUESTION WHETHER, IF AN AGREEMENT BE ENTERED INTO WITH THE HOLDER OF THE OVAITT PATENT REFERRED TO FOR A NONEXCLUSIVE LICENSE COVERING, AND IN FULL DISCHARGE OF ALL PAST INFRINGEMENT AND FUTURE USE OF ALL THE MACHINES COVERED BY HIS PATENT NOW IN THE POSSESSION OF THE UNITED STATES, PAYMENT FOR SUCH LICENSE MAY LAWFULLY BE MADE FROM THE APPROPRIATION "REGULAR SUPPLIES, 1924," OR FROM ANY OTHER APPROPRIATION UNDER THE WAR DEPARTMENT.

A COPY OF THE PATENT IN QUESTION DISCLOSES THAT IT WAS ORIGINALLY FILED OCTOBER 13, 1911, SERIAL NO. 654442, AND ANOTHER APPLICATION FILED JULY 2, 1917, SERIAL NO. 178116, WHILE THE PATENT WAS NOT GRANTED UNTIL AUGUST 14, 1923. IF THE PATENTEE IS CLAIMING DAMAGES FOR INFRINGEMENT FOR ALL PRIOR USE--- THAT IS, FOR USE PRIOR TO ISSUANCE OF PATENT--- NO SUCH RIGHTS APPEAR TO EXIST. SEE STANDARD SCALE AND FOUNDRY CO. V. MCDONALD, ET AL., 127 U.S. 709. ALSO, THERE IS FOR CONSIDERATION THAT THE LAPSE OF TIME BETWEEN THE FILINGS OF THE TWO APPLICATIONS, DURING WHICH OTHERS WERE MANUFACTURING, MAY ESTABLISH CONSTRUCTIVE ABANDONMENT. THE ISSUANCE OF A PATENT IS ONLY PRIMA FACIE EVIDENCE OF VALIDITY WHICH MAY BE REBUTTED, AND THERE IS, IN ADDITION TO THE FOREGOING, RECORD THAT PROCEEDINGS WERE INSTITUTED IN THE EASTERN DISTRICT OF PENNSYLVANIA, DATED OCTOBER 16, 1925, OVAITT V. WALTER A. ULSHOOFER, CASE NO. 3469, WHICH PLACES IN ISSUE SOME QUESTION OF INFRINGEMENT NECESSARILY INVOLVING THE VALIDITY OF THE PATENT.

THE STATEMENTS IN THE SUBMISSION INDICATE THAT THERE WAS NO SUCH USE OF THE CLAIMANT'S PATENT AS WOULD ESTABLISH A CONTRACTUAL RELATION EITHER EXPRESS OR IMPLIED, FOR WHATEVER WAS USED WAS WITHOUT KNOWLEDGE OF CLAIMANT'S PATENT, THEREBY PRECLUDING ANY PRESUMPTION OF AN AGREEMENT CONCERNING IT. THEREFORE THE CLAIM BASED UPON AN ALLEGED USE OF CLAIMANT'S INVENTION IS ONE IN THE NATURE OF UNLIQUIDATED DAMAGES AS FOR A TORTIOUS USE.

IN THIS CONNECTION YOUR ATTENTION IS INVITED TO THE ACT OF JULY 1, 1918, 40 STAT. 705, PROVIDING THAT WHENEVER AN INVENTION DESCRIBED IN AND COVERED BY A PATENT OF THE UNITED STATES SHALL HEREAFTER BE USED OR MANUFACTURED BY OR FOR THE UNITED STATES WITHOUT LICENSE OF THE OWNER THEREOF OR LAWFUL RIGHT TO USE OR MANUFACTURE THE SAME, SUCH OWNER'S REMEDY SHALL BE BY SUIT AGAINST THE UNITED STATES IN THE COURT OF CLAIMS FOR THE RECOVERY OF HIS REASONABLE AND ENTIRE COMPENSATION FOR SUCH USE AND MANUFACTURE, AND PROVIDING FURTHER:

* * * THAT SAID COURT OF CLAIMS SHALL NOT ENTERTAIN A SUIT OR AWARD COMPENSATION UNDER THE PROVISIONS OF THIS ACT WHERE THE CLAIM FOR COMPENSATION IS BASED ON THE USE OR MANUFACTURE BY OR FOR THE UNITED STATES OF ANY ARTICLE HERETOFORE OWNED, LEASED, USED BY, OR IN THE POSSESSION OF THE UNITED STATES: PROVIDED FURTHER, THAT IN ANY SUCH SUIT THE UNITED STATES MAY AVAIL ITSELF OF ANY AND ALL DEFENSES, GENERAL OR SPECIAL, THAT MIGHT BE PLEADED BY A DEFENDANT IN AN ACTION FOR INFRINGEMENT, AS SET FORTH IN TITLE SIXTY OF THE REVISED STATUTES, OR OTHERWISE; * * *.

ANSWERING YOUR SPECIFIC QUESTION, PERMIT ME TO ADVISE THAT FROM THE FACTS DISCLOSED THERE APPEARS NO OBLIGATION OF THE UNITED STATES CHARGEABLE AGAINST THE APPROPRIATION "REGULAR SUPPLIES, 1924," OR ANY OTHER APPROPRIATION BROUGHT TO THE ATTENTION OF THIS OFFICE.