A-52686, DECEMBER 21, 1933, 13 COMP. GEN. 173

A-52686: Dec 21, 1933

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CONTRACTS - SPECIFICATIONS - PATENTS WHERE IT IS KNOWN WITH CERTAINTY THAT THE USE OF VALID PATENTS IS REQUIRED TO MANUFACTURE SUPPLIES FOR THE UNITED STATES IN ACCORDANCE WITH GOVERNMENT SPECIFICATIONS. WHERE THERE IS DOUBT AS TO THE INFRINGEMENT OF ANY VALID PATENT. THAT THERE ARE INVOLVED A CONSIDERABLE NUMBER OF PATENTS IN THE MANUFACTURE OF THE CRYSTAL CONTROL UNITS. YOU HAVE REQUESTED DECISION AS TO WHETHER THE LOW BID MAY BE ACCEPTED UNDER THESE CIRCUMSTANCES. THAT CONSEQUENTLY ANY GROUP THAT MAY HAVE THREATENED SUIT IS VIOLATING THE DECREE DATED NOVEMBER 21. THE PATENTEE WAS CUT OFF FROM SUCH SUIT AGAINST THE CONTRACTOR AND LEFT TO A SUIT AGAINST THE UNITED STATES IN A COURT OF CLAIMS FOR THE RECOVERY OF REASONABLE AND ENTIRE COMPENSATION FOR THE UNLICENSED USE AND MANUFACTURE OF HIS INVENTION. * * * THE COURT ALSO REFERRED TO RICHMOND SCREW ANCHOR COMPANY V.

A-52686, DECEMBER 21, 1933, 13 COMP. GEN. 173

CONTRACTS - SPECIFICATIONS - PATENTS WHERE IT IS KNOWN WITH CERTAINTY THAT THE USE OF VALID PATENTS IS REQUIRED TO MANUFACTURE SUPPLIES FOR THE UNITED STATES IN ACCORDANCE WITH GOVERNMENT SPECIFICATIONS, BIDDERS PROPERLY MAY BE REQUIRED TO SHOW LEGAL RIGHT TO USE THE PATENTS, OR THE UNITED STATES MAY DIRECTLY OBTAIN SUCH RIGHTS FOR ITS OWN USE OR USE THROUGH ITS CONTRACTORS, WITH NOTIFICATION IN THE ADVERTISED SPECIFICATIONS ACCORDINGLY, BUT WHERE THERE IS DOUBT AS TO THE INFRINGEMENT OF ANY VALID PATENT, THE INTERESTS OF THE UNITED STATES SHOULD BE PROTECTED THROUGH INCLUDING IN THE CONTRACT A PATENT INFRINGEMENT INDEMNITY CLAUSE WITH ADEQUATE SECURITY THEREFOR.

COMPTROLLER GENERAL MCCARL TO THE SECRETARY OF COMMERCE, DECEMBER 21, 1933:

THERE HAS BEEN RECEIVED YOUR LETTER OF DECEMBER 14, 1933, WITH ENCLOSURES, TO THE EFFECT THAT IN RESPONSE TO AN ADVERTISEMENT DATED OCTOBER 2, 1933, FOR BIDS TO BE OPENED OCTOBER 17, 1933, THERE HAD BEEN RECEIVED A LOW BID OF THE AUDIO RESEARCH, INC., IN THE AMOUNT OF $371 EACH AND A NEXT LOW BID OF THE GENERAL ELECTRIC CO. IN THE AMOUNT OF $489.50 EACH FOR FURNISHING APPROXIMATELY 70 CRYSTAL CONTROL UNITS TO BE USED AT AIRWAY RADIO STATIONS. THE GENERAL ELECTRIC CO. HAS STATED IN LETTER OF NOVEMBER 2, 1933, THAT THERE ARE INVOLVED A CONSIDERABLE NUMBER OF PATENTS IN THE MANUFACTURE OF THE CRYSTAL CONTROL UNITS; THAT IT OWNS OR OPERATES UNDER LICENSES THE PATENTS INVOLVED; AND THAT AUDIO RESEARCH, INC., DOES NOT OWN OR CONTROL THE USE OF ANY OF THE PATENTS. YOU HAVE REQUESTED DECISION AS TO WHETHER THE LOW BID MAY BE ACCEPTED UNDER THESE CIRCUMSTANCES.

AUDIO RESEARCH, INC., HAS STATED IN LETTER OF DECEMBER 15, 1933, THAT IT HAS NO KNOWLEDGE FROM ANY AUTHORITATIVE SOURCE AS TO THE VALIDITY OF ANY PATENTS INVOLVED UNDER THE PROPOSAL; THAT ITS COUNSEL HAS REPORTED THAT NO FINAL ADJUDICATION OR LEGAL OWNERSHIP HAS EVER BEEN ESTABLISHED ON THE ALLEGED PATENTS ON THE CIRCUITS IN QUESTION; AND THAT CONSEQUENTLY ANY GROUP THAT MAY HAVE THREATENED SUIT IS VIOLATING THE DECREE DATED NOVEMBER 21, 1932, ISSUED BY THE UNITED STATES DISTRICT COURT OF WILMINGTON, DEL. THE LOW BIDDER HAS AGREED TO THE STANDARD APPROVED PATENT CLAUSE FOR INCLUSION IN CONTRACTS WITH THE UNITED STATES, AS FOLLOWS:

PATENTS: THE CONTRACTOR SHALL HOLD AND SAVE THE GOVERNMENT, ITS OFFICERS, AGENTS, SERVANTS, AND EMPLOYEES HARMLESS FROM LIABILITY OF ANY NATURE OR KIND, INCLUDING COSTS AND EXPENSES, FOR OR ON ACCOUNT OF ANY PATENTED OR UNPATENTED INVENTION, ARTICLE OR APPLIANCE MANUFACTURED OR USED IN THE PERFORMANCE OF THIS CONTRACT, INCLUDING THEIR USE BY THE GOVERNMENT, UNLESS OTHERWISE SPECIFICALLY STIPULATED IN THIS CONTRACT.

THE ACT OF JUNE 25, 1910, 36 STAT. 861, AS AMENDED BY THE ACT OF JULY 1, 1918, 40 STAT. 705 (TITLE 35, SECTION 68, U.S.C.), PROVIDED--

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 * * * IN ANY SUCH SUIT THE UNITED STATES MAY AVAIL ITSELF OF ANY AND ALL DEFENSES, GENERAL OR SPECIAL, THAT MIGHT BE PATENTED BY A DEFENDANT IN AN ACTION FOR INFRINGEMENT, AS SET FORTH IN TITLE SIXTY OF THE REVISED STATUTES, OR OTHERWISE. * * *

THE COURT SAID IN VAN MEYER V. UNITED STATES, 47 FED./2D) 192, 195, THAT UNDER THE ACT OF JUNE 25, 1910---

* * * THE INVENTOR MIGHT SUE THE CONTRACTOR, WHO HAS MANUFACTURED AND USED THE INVENTION, FOR THE UNITED STATES, IN THE UNITED STATES DISTRICT COURT AND RECOVER THE CONTRACTOR'S PROFITS IN SUCH SUIT, BUT, BY THE AMENDMENT OF 1918, THE PATENTEE WAS CUT OFF FROM SUCH SUIT AGAINST THE CONTRACTOR AND LEFT TO A SUIT AGAINST THE UNITED STATES IN A COURT OF CLAIMS FOR THE RECOVERY OF REASONABLE AND ENTIRE COMPENSATION FOR THE UNLICENSED USE AND MANUFACTURE OF HIS INVENTION. * * *

THE COURT ALSO REFERRED TO RICHMOND SCREW ANCHOR COMPANY V. UNITED STATES, 275 U.S. 331, WHEREIN IT WAS SAID WITH RESPECT TO THE 1918 AMENDMENT TO THE 1910 ACT THAT:

THE PURPOSE OF THE AMENDMENT WAS TO RELIEVE THE CONTRACTOR ENTIRELY FROM LIABILITY OF EVERY KIND FOR THE INFRINGEMENT OF PATENTS IN MANUFACTURING ANYTHING FOR THE GOVERNMENT AND TO LIMIT THE OWNER OF THE PATENT AND HIS ASSIGNS AND ALL CLAIMING THROUGH OR UNDER HIM TO SUIT AGAINST THE UNITED STATES IN THE COURT OF CLAIMS FOR THE RECOVERY OF HIS REASONABLE AND ENTIRE COMPENSATION FOR SUCH USE AND MANUFACTURE. THE WORD "ENTIRE" EMPHASIZES THE EXCLUSIVE AND COMPREHENSIVE CHARACTER OF THE REMEDY PROVIDED. AS THE SOLICITOR GENERAL SAYS IN HIS BRIEF WITH RESPECT TO THE ACT, IT IS MORE THAN A WAIVER OF IMMUNITY AND EFFECTS AN ASSUMPTION OF LIABILITY BY THE GOVERNMENT.

THAT IS TO SAY, IF A CONTRACTOR WITH THE UNITED STATES INFRINGES A PATENT OR PATENTS, THE LEGAL LIABILITY THEREFOR IS PLACED ON THE UNITED STATES, AND THE VALUE OF A PATENT LIABILITY CLAUSE AS CONTAINED IN THE ADVERTISED SPECIFICATIONS AND AS ABOVE QUOTED DOES NOT EXTEND BEYOND THE ABILITY OF THE UNITED STATES TO ENFORCE SUCH GUARANTY AND TO COLLECT FROM THE CONTRACTOR OR ITS SURETY ANY AMOUNT WHICH THE GOVERNMENT MAY BE REQUIRED TO PAY TO THE OWNER OF THE PATENTS WHICH HAVE BEEN INFRINGED BY THE CONTRACTOR IN THE MANUFACTURE AND DELIVERY OF THE EQUIPMENT. IT IS APPARENTLY ADMITTED BY AUDIO RESEARCH, INC., THAT IT OWNS NONE OF THE PATENT RIGHTS AND HAS NO LICENSE FOR THE USE OF ANY OF THE PATENTS WHICH MAY BE INVOLVED OR CLAIMED TO BE INVOLVED IN THE CONSTRUCTION OF THESE CRYSTAL CONTROL UNITS NOR HAS IT ATTEMPTED TO SHOW THAT IT CAN MANUFACTURE THE RADIO EQUIPMENT WITHOUT THE INVOLVING OF SOME OR ALL OF THE PATENTS IN QUESTION. IT WILL BE NOTED THAT THE DE FOREST CO. APPEARS TO HAVE SUSTAINED ITS TITLE TO THE FEED-BACK OR OSCILLATING AUDION PATENT IN WESTINGHOUSE ELECTRIC AND MANUFACTURING CO. V. DE FOREST RADIO TELEPHONE AND TELEGRAPH CO., 21 FED./2D) 918 AND 278 U.S. 562, AND THIS PATENT APPEARS TO BE BUT ONE OF THE NUMBER OF PATENTS WHICH MAY BE INVOLVED IN THE CONSTRUCTION OF THE EQUIPMENT. IN OTHER WORDS, THE REPORT CONTAINED IN THE LETTER OF DECEMBER 15, 1933, FROM AUDIO RESEARCH, INC., THAT THERE HAD BEEN NO FINAL ADJUDICATION OR LEGAL OWNERSHIP ESTABLISHED OF ANY OF THE ALLEGED PATENTS IS IN ERROR AT LEAST AS TO THE FEED-BACK OR OSCILLATING AUDION PATENT INVOLVED IN THE DE FOREST RADIO TELEPHONE AND TELEGRAPH CO. CASE.

THERE HAS BEEN NO ADMINISTRATIVE REPORT AS TO WHETHER EQUIPMENT MEETING THE NEEDS OF THE GOVERNMENT, THE MANUFACTURE OF WHICH WOULD NOT INVOLVE THESE OR OTHER PATENTS, IS AVAILABLE FOR PURCHASE, AND IF NOT, WHETHER IN THE OPINION OF THE DEPARTMENT THE MANUFACTURE OF THE CRYSTAL CONTROL UNITS BY THE LOW BIDDER AND AS SPECIFIED WOULD LIKELY INVOLVE INFRINGEMENT OF PATENTS AS MENTIONED BY THE GENERAL ELECTRIC CO. IN ITS LETTER OF NOVEMBER 2, 1933, OR OTHER PATENTS, THOUGH THERE IS WITHIN THE DEPARTMENT OF COMMERCE THE BUREAU OF PATENTS THE PRINCIPAL DUTY OF WHICH IS TO CONSIDER APPLICATIONS FOR PATENTS AND ISSUE PATENTS THEREON, INCLUDING PATENTS IN THE RADIO ART, AND WHICH UNDOUBTEDLY WOULD BE ABLE TO REPORT AS TO THE PROBABLE INFRINGEMENT OF ANY OF THESE PATENTS IN THE MANUFACTURE OF THE EQUIPMENT REQUIRED BY THE SPECIFICATIONS. IT IS JUST POSSIBLE THAT SOME OF THE LICENSES CANNOT BE ENFORCED. SEE RADIO CORPORATION OF AMERICA V. LORD ET AL., 28 FED. 258, CERTIORARI DENIED, 278 U.S. 648. SEE, ALSO, LETTER DATED MARCH 11, 1932, FROM THE ATTORNEY GENERAL TO THE COMMITTEE ON THE JUDICIARY, UNITED STATES SENATE, CONCERNING CONTRACTUAL RESTRICTIONS ON COMPETITION AMONG CERTAIN RADIO MANUFACTURERS.

IN VIEW OF THE PROVISIONS OF THE ACT OF 1910, AS AMENDED BY THE ACT OF 1918, IT IS THE DUTY OF THOSE ACTING FOR THE GOVERNMENT IN MAKING PURCHASES WHERE PATENTS MAY BE INVOLVED TO SECURE FULL PROTECTION FOR THE GOVERNMENT'S INTERESTS. YET, IN SUCH CONNECTION AND ESPECIALLY WHERE THERE IS DOUBT THAT VALID PATENTS WILL BE INFRINGED EXCESSIVE DEMANDS MAY NOT BE TOLERATED.

WHERE IT IS KNOWN WITH CERTAINTY THAT PATENTS ARE INVOLVED, BIDDERS MAY PROPERLY BE REQUIRED TO SHOW LEGAL RIGHT TO MANUFACTURE THEREUNDER, OR THE UNITED STATES MAY DIRECTLY OBTAIN SUCH RIGHT FOR ITS OWN USE OR USE THROUGH ITS CONTRACTORS, WITH PROVISION IN THE SPECIFICATIONS ACCORDINGLY, BUT WHERE THE MATTER IS DOUBTFUL, THE INTERESTS OF THE GOVERNMENT SHOULD BE PROTECTED THROUGH INCLUDING IN THE CONTRACT THE PATENTS INFRINGEMENT INDEMNITY CLAUSE AND REQUIRING AMPLE SECURITY.

THE LOW BID MAY NOT PROPERLY BE DISREGARDED MERELY BECAUSE IT IS ASSERTED BY A PATENT OWNER THAT ITS PATENT WILL BE INFRINGED AND THAT SUCH LOW BIDDER IS WITHOUT LEGAL RIGHT TO MANUFACTURE THEREUNDER.

WITHOUT VASTLY MORE INFORMATION THAT IS SUPPLIED, THIS OFFICE COULD NOT UNDERTAKE TO DETERMINE WHETHER IN MANUFACTURING THE CRYSTAL CONTROL UNITS AUDIO RESEARCH, INC. WOULD INFRINGE ANY VALID PATENT, BUT IF AFTER SUCH INVESTIGATION AS IS POSSIBLE THE DEPARTMENT DOUBTS THERE WILL BE INFRINGEMENT BY SUCH LOW BIDDER, THIS OFFICE WILL OFFER NO OBJECTION TO AN AWARD OF CONTRACT TO SUCH LOW BIDDER, THE CONTRACT TO CONTAIN, HOWEVER, THE PATENT INFRINGEMENT INDEMNITY CLAUSE, AND TO BE SUPPORTED BY ADEQUATE SECURITY.