A-95494, JUNE 30, 1938, 17 COMP. GEN. 1123

A-95494: Jun 30, 1938

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A PROVISION IS INSERTED IN THE CONTRACT FOR THE WITHHOLDING OF A PERCENTAGE OF THE PURCHASE PRICE UNTIL "IN THE JUDGMENT OF THE SECRETARY OF COMMERCE. THE GOVERNMENT IS SATISFIED THAT THE UNITED STATES IS NOT OBLIGATED OR LIABLE ON ACCOUNT OF THE USE OF ANY SUCH INVENTION AS DESCRIBED ABOVE. " RETURN OF THE PORTION OF THE CONTRACT PRICE WITHHELD FROM PAYMENT IS NOT AUTHORIZED UNTIL THE CONDITION PRECEDENT THERETO IS MET. WHEN THE CONTRACT WAS ENTERED INTO. IN LIEU OF FURNISHING A PATENT INFRINGEMENT BOND THE FOLLOWING AGREEMENT WAS PREPARED AND MADE A PART OF THE CONTRACT: "IN LIEU OF THE PATENT INFRINGEMENT BOND SPECIFIED THE CONTRACTOR AGREES THAT FROM ANY AND ALL PAYMENTS PROVIDED FOR UNDER THE TERMS OF THE CONTRACT.

A-95494, JUNE 30, 1938, 17 COMP. GEN. 1123

BONDS - PATENT INFRINGEMENT - WITHHOLDING OF CONTRACT PRICE PERCENTAGE IN LIEU OF - PAYMENT CONDITIONS WHERE, IN LIEU OF THE BOND REQUIRED BY THE INVITATION FOR BIDS IN PROTECTION OF THE UNITED STATES AGAINST LOSS SHOULD THE CONTRACTOR DEFAULT IN THE OBLIGATION UNDER THE PATENT PROVISIONS OF THE BID, A PROVISION IS INSERTED IN THE CONTRACT FOR THE WITHHOLDING OF A PERCENTAGE OF THE PURCHASE PRICE UNTIL "IN THE JUDGMENT OF THE SECRETARY OF COMMERCE, THE GOVERNMENT IS SATISFIED THAT THE UNITED STATES IS NOT OBLIGATED OR LIABLE ON ACCOUNT OF THE USE OF ANY SUCH INVENTION AS DESCRIBED ABOVE," RETURN OF THE PORTION OF THE CONTRACT PRICE WITHHELD FROM PAYMENT IS NOT AUTHORIZED UNTIL THE CONDITION PRECEDENT THERETO IS MET, THE ADDITIONAL PROVISION INCLUDED IN THE CONTRACT THAT THE CONTRACTOR SHALL SAVE THE GOVERNMENT HARMLESS FROM ANY POSSIBLE PATENT INFRINGEMENT BEING A CONCURRENT AND NOT AN ALTERNATIVE PROVISION AND NOT PERMITTING PAYMENT OF THE WITHHELD AMOUNT PRIOR TO JUDGMENT DETERMINATION OF THE SECRETARY.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF COMMERCE, JUNE 30, 1938:

THERE HAS BEEN RECEIVED YOUR LETTER OF JUNE 3, 1938, AS FOLLOWS:

ON JUNE 17, 1935, THE SUPERINTENDENT OF LIGHTHOUSES, STATEN ISLAND, N.Y., WITH THE APPROVAL OF THIS OFFICE ENTERED INTO CONTRACT C3A-4023 WITH THE COLLINS RADIO COMPANY, CEDAR RAPIDS, IOWA, IN THE AMOUNT OF $1,453.50 FOR FURNISHING THREE RADIOTELEPHONE TRANSMITTERS. IN ADVERTISING FOR THIS PURCHASE THE ADVERTISEMENT PROVIDED THAT THE SUCCESSFUL BIDDER WOULD BE REQUIRED TO FURNISH PATENT INFRINGEMENT BOND IN THE AMOUNT OF TEN PERCENT OF THE CONTRACT PRICE, THE TERMS OF WHICH WOULD FULLY PROTECT THE GOVERNMENT AGAINST LOSS SHOULD THE CONTRACTOR DEFAULT IN THE OBLIGATION UNDER THE PATENT PROVISIONS OF THE BID. HOWEVER, WHEN THE CONTRACT WAS ENTERED INTO, IN LIEU OF FURNISHING A PATENT INFRINGEMENT BOND THE FOLLOWING AGREEMENT WAS PREPARED AND MADE A PART OF THE CONTRACT:

"IN LIEU OF THE PATENT INFRINGEMENT BOND SPECIFIED THE CONTRACTOR AGREES THAT FROM ANY AND ALL PAYMENTS PROVIDED FOR UNDER THE TERMS OF THE CONTRACT, THE GOVERNMENT MAY DEDUCT 10 PERCENT OF THE CONTRACT PRICE AND RETAIN THE SAME TO INDEMNIFY THE GOVERNMENT FOR THE PAYMENT OF ANY JUDGMENT AND COSTS OBTAINED AGAINST THE UNITED STATES OR EXPENSES INCIDENTAL THERETO, BY REASON OF OR FOR OR ON ACCOUNT OF ANY PATENTED OR UNPATENTED INVENTION, ARTICLE, OR APPLIANCE, MANUFACTURED OR USED IN THE PERFORMANCE OF THIS CONTRACT, INCLUDING ITS USE BY THE GOVERNMENT. THE 10 PERCENT SO DEDUCTED OR ANY BALANCE THEREOF REMAINING SHALL BE PAID THE CONTRACTOR WHEN IN THE JUDGMENT OF THE SECRETARY OF COMMERCE, THE GOVERNMENT IS SATISFIED THAT THE UNITED STATES IS NOT OBLIGATED OR LIABLE ON ACCOUNT OF THE USE OF ANY SUCH INVENTION AS DESCRIBED ABOVE.'

WHEN DELIVERY WAS MADE UNDER THIS CONTRACT PAYMENT WAS MADE LESS TEN PERCENT IN ACCORDANCE WITH THE ABOVE QUOTED PROVISION OF THE CONTRACT. THIS PAYMENT WAS MADE ON OCTOBER 4, 1935, ON VOUCHER NO. 2 36529 BY G. F. ALLEN, CHIEF DISBURSING OFFICER, SYMBOLS NOS. 108, 102, AND 95837. THE CONTRACTOR HAS NOW MADE CLAIM ON THE ENCLOSED VOUCHER FOR PAYMENT OF THE $145.35 WHICH WAS DEDUCTED WHEN THE ORIGINAL PAYMENT WAS MADE.

THIS MATTER HAS BEEN GIVEN CAREFUL CONSIDERATION, BUT THIS DEPARTMENT WOULD NOT BE IN POSITION NOW OR AT ANY TIME IN THE FUTURE TO CERTIFY THAT THE UNITED STATES IS NOT OBLIGATED ON ACCOUNT OF ANY POSSIBLE PATENT INFRINGEMENT IN CONNECTION WITH THE FURNISHING OF MATERIAL CALLED FOR UNDER THIS CONTRACT AS REQUIRED BY THE ABOVE QUOTED PROVISION, AS IT IS CONSIDERED THAT SUCH A DETERMINATION COULD ONLY BE MADE BY A PROPER COURT SHOULD SUIT BE INSTITUTED.

THE CONTRACT IN QUESTION ALSO CONTAINED THE FOLLOWING:

"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, UNLESS OTHERWISE SPECIFICALLY STIPULATED IN THIS CONTRACT.'

THIS DEPARTMENT FEELS THAT THE UNITED STATES IS SUFFICIENTLY PROTECTED BY THIS PROVISION, BUT RESPECTFULLY REQUESTS TO BE ADVISED WHETHER YOUR OFFICE WOULD HAVE OBJECTION TO THE PAYMENT AT THIS TIME OF THE $145.35 WHICH WAS WITHHELD.

THE RETURN OF THE ENCLOSED VOUCHER IS REQUESTED.

UNDER THE PROVISION OF THE CONTRACT WHEREBY 10 PERCENT OF THE PURCHASE PRICE WAS WITHHELD FOR THE PURPOSES SET FORTH THEREIN, THE CONDITION UNDER WHICH THE AMOUNT SO WITHHELD WOULD BE PAID TO THE CONTRACTOR WAS THAT IT WOULD BE PAID "WHEN IN THE JUDGMENT OF THE SECRETARY OF COMMERCE, THE GOVERNMENT IS SATISFIED THAT THE UNITED STATES IS NOT OBLIGATED OR LIABLE ON ACCOUNT OF THE USE OF ANY SUCH INVENTION AS DESCRIBED ABOVE.' COMPLIANCE WITH THAT PROVISION CONSTITUTES A CONDITION PRECEDENT TO THE PAYMENT OF THE AMOUNT WITHHELD. ON THE PRESENT RECORD, THE CONDITION HAS NOT BEEN MET.

THE FACT THAT THE CONTRACT CONTAINS THE FURTHER PROVISION, ALSO QUOTED IN YOUR LETTER, TO THE EFFECT THAT THE CONTRACTOR SHALL SAVE THE GOVERNMENT HARMLESS ON ACCOUNT OF ANY POSSIBLE PATENT INFRINGEMENT, DOES NOT OBVIATE THE NECESSITY FOR COMPLIANCE WITH THE CONDITION MENTIONED ABOVE BEFORE PAYMENT OF THE AMOUNT WITHHELD MAY BE AUTHORIZED. THE INVITATION FOR BIDS INCORPORATED BY REFERENCE AS PART OF THE CONTRACT, PROVIDED, AMONG OTHER THINGS, THAT:

THE SUCCESSFUL BIDDER SHALL GIVE BOND IN THE AMOUNT OF 10 PERCENT OF THE CONTRACT PRICE, THE TERMS OF WHICH SHALL FULLY PROTECT THE GOVERNMENT AGAINST LOSS SHOULD THE CONTRACTOR DEFAULT IN THE OBLIGATION UNDER THE PATENT PROVISIONS OF THIS BID. * * *

IT IS THUS APPARENT THAT THE BOND THEREIN REFERRED TO--- IN LIEU OF THE FURNISHING OF WHICH 10 PERCENT OF THE CONTRACT PRICE WAS WITHHELD-- WAS INTENDED AS SECURITY FOR THE PERFORMANCE BY THE CONTRACTOR, SHOULD OCCASION ARISE, OF THE REFERRED-TO PROVISION THAT THE CONTRACTOR SHALL SAVE THE GOVERNMENT HARMLESS FROM ANY POSSIBLE PATENT INFRINGEMENT. SINCE THE AMOUNT WITHHELD WAS UNDER A PROVISION THAT WAS IN LIEU OF THE BOND, IT IS APPARENT THAT THE AMOUNT WITHHELD WAS INTENDED AS IN THE NATURE OF SECURITY SIMILAR TO THAT FOR WHICH THE BOND WAS TO BE GIVEN. IT IS OBVIOUS, THEREFORE, THAT THE PROVISION FOR WITHHOLDING THE 10 PERCENT AND THE PROVISION THAT THE CONTRACTOR SHALL SAVE THE GOVERNMENT HARMLESS FROM ANY POSSIBLE PATENT INFRINGEMENT ARE NOT ALTERNATIVE PROVISIONS BUT ARE CONCURRENT PROVISIONS HAVING A DEFINITE RELATION TO EACH OTHER. THEREFORE, THE FACT THAT THE LATTER PROVISION APPEARS IN THE CONTRACT CANNOT IN ITSELF CONSTITUTE A BASIS FOR PAYMENT OF THE AMOUNT WITHHELD UNDER THE FORMER.

ACCORDINGLY, THERE APPEARS NO BASIS, ON THE PRESENT RECORD, UPON WHICH PAYMENT OF THE AMOUNT WITHHELD MAY BE AUTHORIZED. THE VOUCHER SUBMITTED IS RETURNED AS REQUESTED.