B-132729, SEPTEMBER 19, 1957, 37 COMP. GEN. 199

B-132729: Sep 19, 1957

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BEFORE SUIT IS BROUGHT. IS EXPRESS AUTHORITY UNDER WHICH THE DEPARTMENT OF THE AIR FORCE MAY ENTER INTO AN AGREEMENT FOR THE SETTLEMENT OF CLAIMS ARISING OUT OF PATENT INFRINGEMENTS OCCURRING PRIOR TO 1953. 1957: REFERENCE IS MADE TO YOUR LETTER OF JULY 25. IT IS STATED IN YOUR LETTER THAT THE SITUATION WHICH GIVES RISE TO YOUR REQUEST IS THE PURCHASE AND USE BY THE MILITARY DEPARTMENTS BEGINNING PRIOR TO JUNE 11. IT IS STATED IN YOUR LETTER THAT THE COMPANY FIRST OFFERED TO DISPOSE OF ITS CLAIM UPON PAYMENT BY THE GOVERNMENT OF A ROYALTY OF 2 PERCENT. WHICH IT IS ESTIMATED ON THE BASIS OF THE AGGREGATE DOLLAR VALUE OF THE DEVICES USED WITHOUT LICENSE. UNDER THE SETTLEMENT AGREEMENT NOW PROPOSED THE COMPANY IS WILLING IN CONSIDERATION OF THE PAYMENT BY THE GOVERNMENT OF A TOTAL SUM OF $10.

B-132729, SEPTEMBER 19, 1957, 37 COMP. GEN. 199

PATENTS - INFRINGEMENT - CLAIM SETTLEMENT AGREEMENTS - AUTHORITY THE PROVISION IN SECTION 609 OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1954, WHICH MAKES PROCUREMENT APPROPRIATIONS AVAILABLE FOR ACQUISITION OF RELEASES FOR PATENT INFRINGEMENTS, BEFORE SUIT IS BROUGHT, AND WHICH HAS BEEN CODIFIED AND ENACTED INTO POSITIVE LAW AS 10 U.S.C. 2386, IS EXPRESS AUTHORITY UNDER WHICH THE DEPARTMENT OF THE AIR FORCE MAY ENTER INTO AN AGREEMENT FOR THE SETTLEMENT OF CLAIMS ARISING OUT OF PATENT INFRINGEMENTS OCCURRING PRIOR TO 1953.

TO THE SECRETARY OF THE AIR FORCE, SEPTEMBER 19, 1957:

REFERENCE IS MADE TO YOUR LETTER OF JULY 25, 1957, REQUESTING OUR DECISION AS TO WHETHER THE PROVISIONS OF 10 U.S.C. 2386, RELATING TO THE USE OF APPROPRIATED FUNDS FOR THE ACQUISITION OF COPYRIGHTS, PATENTS, DESIGNS, ETC., PROPERLY MAY BE REGARDED AS ALSO GRANTING AUTHORITY TO DO ALL ACTS NECESSARY TO COMPLETE SUCH ACQUISITION INCLUDING AN AGREEMENT EMBODYING TERMS SUBSTANTIALLY THE SAME AS THOSE SET FORTH IN THE DRAFT ACCOMPANYING YOUR LETTER. THIS AGREEMENT WOULD PROVIDE FOR THE SETTLEMENT OF ALL CLAIMS AGAINST THE UNITED STATES ARISING OUT OF ALLEGED INFRINGEMENTS OF CERTAIN PATENTS BY THE DEPARTMENTS OF THE ARMY, THE NAVY, AND THE AIR FORCE, WHICH ACCRUED TO THE OWNER OF THE PATENTS UNDER THE PROVISIONS OF THE ACT OF JUNE 25, 1948, 62 STAT. 941, AS AMENDED, 28 U.S.C. 1498.

IT IS STATED IN YOUR LETTER THAT THE SITUATION WHICH GIVES RISE TO YOUR REQUEST IS THE PURCHASE AND USE BY THE MILITARY DEPARTMENTS BEGINNING PRIOR TO JUNE 11, 1953, OF APPROXIMATELY 5,335 DEVICES EMPLOYING RADIO FREQUENCY TUNERS COVERED BY U.S. PATENTS NOS. 2161183, 2179748, AND 2281640, WITHOUT LICENSE OF THE OWNER--- THE OAK MANUFACTURING COMPANY, INC.--- AND AN OFFER BY THE COMPANY IN SETTLEMENT AND RELEASE OF ALL CLAIMS AGAINST THE GOVERNMENT FOR PRESENT, PAST, AND FUTURE USE OF SUCH PATENTED DEVICES HAVING AN AGGREGATE TOTAL VALUE OF $785,006.90 PRORATED AS FOLLOWS: ARMY $551,945.10; NAVY, $50,619; AND AIR FORCE $183,442.80. IT IS STATED IN YOUR LETTER THAT THE COMPANY FIRST OFFERED TO DISPOSE OF ITS CLAIM UPON PAYMENT BY THE GOVERNMENT OF A ROYALTY OF 2 PERCENT, WHICH IT IS ESTIMATED ON THE BASIS OF THE AGGREGATE DOLLAR VALUE OF THE DEVICES USED WITHOUT LICENSE, WOULD TOTAL ABOUT $15,720.14. UNDER THE SETTLEMENT AGREEMENT NOW PROPOSED THE COMPANY IS WILLING IN CONSIDERATION OF THE PAYMENT BY THE GOVERNMENT OF A TOTAL SUM OF $10,000--- TO BE PRORATED BETWEEN THE MILITARY DEPARTMENTS ON AN ACTUAL USE BASIS--- TO GRANT AND CONVEY TO THE GOVERNMENT A PAID-UP, IRREVOCABLE, NONEXCLUSIVE LICENSE BEGINNING NOVEMBER 1, 1956, AND EXTENDING UNTIL THE EXPIRATION OF THE PATENTS, TO MANUFACTURE, USE, AND DISPOSE OF ANY OF THE DEVICES REPRESENTING THE PATENTED INVENTIONS, AND ALSO TO RELEASE THE GOVERNMENT FROM ALL CLAIMS ARISING OUT OF "THE MANUFACTURE, USE, SALE, OR OTHER DISPOSITION OF ANY ARTICLE OR MATERIAL, OR THE USE OF ANY PROCESS COVERED BY SAID PATENTS, OCCURRING PRIOR TO THE EFFECTIVE DATE OF THIS CONTRACT, AND BY REASON OF THE USE, SALE, OR OTHER DISPOSITION THEREAFTER OF ANY ARTICLE OR MATERIAL MANUFACTURED OR CONTRACTED FOR PRIOR TO THE EFFECTIVE DATE OF THIS CONTRACT.' IT IS STATED FURTHER THAT YOUR INVESTIGATION HAS DISCLOSED THAT THE TITLE TO EACH ASSERTED PATENT IS IN THE CLAIMANT AND THAT NOTHING HAS BEEN FOUND TO QUESTION THE STATUTORY PRESUMPTION OF THE VALIDITY OF THE PATENTS PURSUANT TO THE PROVISIONS OF 35 U.S.C. 232.

SECTION 1498, TITLE 28, U.S.C. PROVIDES, IN PART, AS FOLLOWS:

WHENEVER AN INVENTION DESCRIBED IN AND COVERED BY A PATENT OF THE UNITED STATES IS USED OR MANUFACTURED BY OR FOR THE UNITED STATES WITHOUT LICENSE OF THE OWNER THEREOF OR LAWFUL RIGHT TO USE OR MANUFACTURE THE SAME, THE OWNER'S REMEDY SHALL BE BY ACTION AGAINST THE UNITED STATES IN THE COURT OF CLAIMS FOR THE RECOVERY OF HIS REASONABLE AND ENTIRE COMPENSATION FOR SUCH USE AND MANUFACTURE.

IT HAS BEEN HELD THAT THIS SECTION IS IN EFFECT AN EMINENT DOMAIN STATUTE, WHICH ENTITLES THE GOVERNMENT TO MANUFACTURE OR USE A PATENTED ARTICLE BECOMING LIABLE TO PAY COMPENSATION TO THE OWNER OF THE PATENT, IRVING AIR CHUTE COMPANY V. UNITED STATES, C.1CLS. 1950, 93 F.1SUPP. 633, AND IT IS WELL ESTABLISHED THAT THE REMEDY THUS PROVIDED IS EXCLUSIVE IN NATURE. SEE THE CASES COLLECTED IN 28 U.S.C.A. 1498, NOTE 14.

AS A GENERAL PROPOSITION, OFFICERS AND AGENTS OF THE GOVERNMENT MAY NOT BIND THE UNITED STATES BY CONTRACT UNLESS THEY ARE EXPRESSLY AUTHORIZED BY LAW TO DO SO, OR UNLESS SUCH AUTHORITY NECESSARILY MUST BE IMPLIED BY REASON OF SOME DUTY IMPOSED UPON, OR FROM SOME AUTHORITY GIVEN TO, THE PERSON ASSUMING TO CONTRACT, AND AN APPROPRIATION ADEQUATE TO THE FULFILLMENT OF SUCH CONTRACT HAS BEEN MADE. SEE SECTION 9 OF THE ACT OF JUNE 30, 1906, 34 STAT. 764, 31 U.S.C. 625; SECTION 7679, REVISED STATUTES, AS AMENDED, 31 U.S.C. 665; AND SECTION 3732, REVISED STATUTES, AS AMENDED, 41 U.S.C. 11. IN CONSTRUING THE PROVISIONS OF SECTION 3732, REVISED STATUTES, PROVIDING THAT NO CONTRACT OR PURCHASE ON BEHALF OF THE UNITED STATES SHALL BE MADE "UNLESS THE SAME IS AUTHORIZED BY LAW OR IS UNDER AN APPROPRIATION ADEQUATE TO ITS FULFILLMENT," THE COURT OF CLAIMS EXPRESSED THE VIEW IN ITS OPINION OF FEBRUARY 12, 1883, SHIPMAN V. UNITED STATES, 18 C.1CLS. 138, THAT THESE RESTRICTIONS ARE FOR APPLICATION IN THE ALTERNATIVE, POINTING OUT THAT WHERE AUTHORITY TO MAKE CONTRACTS IS COMPLETE AND UNRESTRICTED, A LIABILITY ARISING THEREUNDER IS NOT AVOIDED BY OMISSION OF CONGRESS TO PROVIDE THE MONEY TO DISCHARGE IT, BUT WHERE AN ALLEGED LIABILITY RESTS WHOLLY UPON AUTHORITY OF AN APPROPRIATION THEY MUST STAND OR FALL TOGETHER. A SIMILAR VIEW WAS EXPRESSED BY THE ATTORNEY GENERAL IN HIS OPINION DATED SEPTEMBER 20, 1890, 19 OP.ATTY.GEN. 650, ADVISING THE POSTMASTER GENERAL THAT THE FIRST CLAUSE OF SECTION 3732 APPLIES TO DIRECT AUTHORITY TO CONTRACT GRANTED BY STATUTE, AND THAT THE SECOND CLAUSE COVERS AN IMPLIED AUTHORITY ARISING OUT OF THE APPROPRIATION OF MEANS TO FULFILL.

WITH SPECIFIC REFERENCE TO THE AUTHORITY TO ACQUIRE BY CONTRACT A PATENT OR A LICENSE TO USE IT, THE ATTORNEY GENERAL ADVISED THE SECRETARY OF THE NAVY IN 19 OP.ATTY.GEN. 407, DATED OCTOBER 4, 1889, THAT NO SUCH AUTHORITY COULD BE DEDUCED FROM AN ANNUAL APPROPRIATION PROVIDING FOR THE FURNISHING OR MANUFACTURING OF AN ARTICLE USED IN THE NAVAL SERVICE. AND, WITH RESPECT TO THE AUTHORITY TO ADJUST BY CONTRACT A CLAIM FOR THE INFRINGEMENT OF PATENT RIGHTS BY OR FOR THE GOVERNMENT WITHOUT OBTAINING THE CONSENT OF OR A LICENSE FROM THE OWNER, IT WAS HELD IN A DECISION OF OUR OFFICE TO THE SECRETARY OF WAR DATED AUGUST 4, 1931, 11 COMP. GEN. 44, THAT SINCE THIS INVOLVED THE SETTLEMENT OF A CLAIM AFTER THE INFRINGEMENT HAD TAKEN PLACE SUCH ADJUSTMENT WAS NOT WITHIN THE AUTHORITY OF THE DEPARTMENT, THAT THE OWNER'S REMEDY AGAINST THE UNITED STATES WAS RESTRICTED TO A SUIT IN THE COURT OF CLAIMS, AND THAT ANY ADJUSTMENT TO AVOID SUCH A SUIT WAS FOR CONSIDERATION OF THE CONTRACTOR WHO HAD OBLIGATED ITSELF TO PROTECT THE GOVERNMENT AGAINST SUCH CLAIMS UNDER THE PROVISIONS OF THE "HOLD HARMLESS" CLAUSE OF THE SUPPLY CONTRACTS INVOLVED. CF. 5 COMP. GEN. 713, 13 ID. 173, AND 22 ID. 904.

REFERENCE IS MADE IN YOUR SUBMISSION TO THE PROVISIONS OF SECTION 3 OF THE ROYALTY ADJUSTMENT ACT OF OCTOBER 31, 1942, 56 STAT. 1013, 1014, 35 U.S.C. 1946 USED. 91, BY WHICH EXPRESS AUTHORITY WAS GRANTED TO HEADS OF GOVERNMENT DEPARTMENTS AND AGENCIES TO ENTER INTO AGREEMENTS IN SETTLEMENT OF CERTAIN PATENT INFRINGEMENTS CLAIMS, AS FOLLOWS:

SEC. 3. THE HEAD OF ANY DEPARTMENT OR AGENCY OF THE GOVERNMENT WHICH HAS ORDERED THE MANUFACTURE, USE, SALE, OR OTHER DISPOSITION OF AN INVENTION, WHETHER PATENTED OR UNPATENTED, AND WHETHER OR NOT AN ORDER HAS BEEN ISSUED IN CONNECTION THEREWITH PURSUANT TO SECTION 1 HEREOF, IS AUTHORIZED AND EMPOWERED TO ENTER INTO AN AGREEMENT, BEFORE SUIT AGAINST THE UNITED STATES HAS BEEN INSTITUTED, WITH THE OWNER OR LICENSOR OF SUCH INVENTION, IN FULL SETTLEMENT AND COMPROMISE OF ANY CLAIM AGAINST THE UNITED STATES ACCRUING TO SUCH OWNER OR LICENSOR UNDER THE PROVISIONS OF THIS ACT OR ANY OTHER LAW BY REASON OF SUCH MANUFACTURE, USE, SALE, OR OTHER DISPOSITION, AND FOR COMPENSATION TO BE PAID SUCH OWNER OR LICENSOR BASED UPON FUTURE MANUFACTURE, USE, SALE, OR OTHER DISPOSITION OF SAID INVENTION.

YOU URGE THAT, WHILE THE ROYALTY ADJUSTMENT ACT WAS PRIMARILY A WAR EMERGENCY MEASURE, SECTION 3 THEREOF, AS DISTINGUISHED FROM SECTIONS 1 AND 2, WAS INTENDED AS PERMANENT LEGISLATION AND MIGHT THEREFORE BE CONSIDERED AS ADDITIONAL AUTHORITY FOR THE PROPOSED LICENSE AND RELEASE CONTRACT. THE LIGHT OF THE TERMS OF THE EMERGENCY POWERS CONTINUATION ACT OF JULY 3, 1952, 66 STAT. 330, AND THE AMENDATORY ACT OF MARCH 31, 1953, 67 STAT. 18, AND THE OMISSION OF ANY REFERENCE TO THE ACT FROM THE AMENDMENT OF JUNE 30, 1953, 67 STAT. 131, THERE APPEARS TO BE CONSIDERABLE QUESTION AS TO WHETHER ANY PART OF THE ACT IS CURRENTLY IN FORCE. SEE ALSO THE REFERENCE IN TABLE 4 OF THE REPORT OF THE HOUSE COMMITTEE ON THE JUDICIARY ON THE CODIFICATION OF TITLE 35, U.S.C. (H.1REP. 1923, 82D CONGRESS). HOWEVER, WE DO NOT REGARD THE QUESTION AS DECISIVE OF THE MATTER PRESENTED AND THEREFORE DO NOT UNDERTAKE TO DECIDE IT.

AS SET FORTH IN YOUR LETTER, LEGISLATION PROVIDING APPROPRIATIONS FOR THE MILITARY DEPARTMENTS FOR THE FISCAL YEARS 1949 THROUGH 1953 INCLUDED LANGUAGE MAKING SUCH APPROPRIATIONS AVAILABLE FOR THE ACQUISITION OF COPYRIGHTS, PATENTS, DEVICES AND PROCESSES, AS WELL AS LICENSES THEREUNDER, BUT THIS LEGISLATION DID NOT AUTHORIZE THE SETTLEMENT OF CLAIMS FOR PAST INFRINGEMENTS. POSSIBLY AS A RESULT OF THE LAPSE OF THE ROYALTY ADJUSTMENT ACT NEW LEGISLATION WAS RECOMMENDED BY THE HOUSE COMMITTEE ON APPROPRIATIONS IN CONSIDERING THE DEPARTMENT OF DEFENSE APPROPRIATION BILL 1954, REPORT NO. 680, 83D CONGRESS, JUNE 27, 1953, WHERE IT IS STATED AT PAGE 54:

THE FOLLOWING LIMITATIONS AND LEGISLATIVE PROVISIONS NOT HERETOFORE CARRIED IN CONNECTION WITH ANY APPROPRIATION BILL ARE RECOMMENDED: * * *

ON PAGE 36, LINE 11:

SECTION 609. APPROPRIATIONS FOR THE MILITARY DEPARTMENTS AVAILABLE FOR PROCUREMENT OR MANUFACTURE OF SUPPLIES, EQUIPMENT, AND MATERIALS SHALL HEREAFTER BE AVAILABLE FOR THE PURCHASE OR OTHER ACQUISITION OF (A) COPYRIGHTS, LETTERS PATENT, APPLICATIONS FOR LETTERS PATENT, (B) LICENSES UNDER COPYRIGHTS, UNDER LETTERS PATENT, AND UNDER APPLICATIONS FOR LETTERS PATENT, AND (C) DESIGNS, PROCESSES, AND MANUFACTURING DATA; AND SHALL ALSO BE AVAILABLE FOR THE PURCHASE OR OTHER ACQUISITION OF RELEASES, BEFORE SUIT IS BROUGHT, FOR PAST INFRINGEMENT OF LETTERS PATENT. ANY SUCH PURCHASE OR OTHER ACQUISITION SHALL PERTAIN TO SUPPLIES, EQUIPMENT, MATERIALS, OR PROCESSES PRODUCED OR USED BY OR FOR, OR USEFUL TO, THE DEPARTMENT CONCERNED. ( ITALICS SUPPLIED.)

THE PROVISIONS OF SECTION 609 RECOMMENDED BY THE COMMITTEE WERE INCLUDED IN THE DEPARTMENT OF DEFENSE APPROPRIATION ACT 1954, APPROVED AUGUST 1, 1953, 67 STAT. 336, 350, AND WERE CARRIED AS PERMANENT LAW IN 31 U.S.C. 649B. IT SEEMS ABUNDANTLY CLEAR FROM THE LEGISLATIVE HISTORY AND THE PROVISIONS OF THIS LEGISLATION THAT THIS SECTION WAS ENACTED BY CONGRESS FOR THE PURPOSE OF PROVIDING EXPRESS AUTHORITY FOR MAKING THE ACQUISITIONS PREVIOUSLY AUTHORIZED BY SECTION 3 OF THE ROYALTY ADJUSTMENT ACT, SUPRA. IT MAY BE NOTED THAT THE AUTHORITY THUS GRANTED TO ACQUIRE RELEASES FOR PAST INFRINGEMENT OF PATENTS WAS LIMITED TO ACQUISITIONS "BEFORE SUIT IS BROUGHT," THE RESPONSIBILITY FOR DETERMINING THE ACTION TO BE TAKEN WITH RESPECT TO THE COMPROMISE AND SETTLEMENT OF SUCH CLAIMS PENDING AFTER SUIT IS BROUGHT HAVING BEEN VESTED IN THE ATTORNEY GENERAL OF THE UNITED STATES PURSUANT TO SECTION 5 OF EXECUTIVE ORDER NO. 6166, 5 U.S.C. 124, NOTE. CF. SULLIVAN V. UNITED STATES, 348 U.S. 170, 172.

UNDER THE ACT OF AUGUST 10, 1956, 70A STAT. 137, THE PROVISIONS OF SECTION 609 OF THE ACT OF AUGUST 1, 1953, 31 U.S.C. 649B, WERE REPEALED AND SUBSTANTIALLY THE SAME PROVISIONS WERE CODIFIED AS PERMANENT LAW UNDER SECTION 2386 OF TITLE 10, U.S.C. AS FOLLOWS:

COPYRIGHTS, PATENTS, DESIGNS, ETC.; ACQUISITION

FUNDS APPROPRIATED FOR A MILITARY DEPARTMENT AVAILABLE FOR MAKING OR PROCURING SUPPLIES MAY BE USED TO ACQUIRE ANY OF THE FOLLOWING IF THE ACQUISITION RELATES TO SUPPLIES OR PROCESSES PRODUCED OR USED BY OR FOR, OR USEFUL TO, THAT DEPARTMENT:

(1) COPYRIGHTS, PATENTS, AND APPLICATIONS FOR PATENTS.

(2) LICENSES UNDER COPYRIGHTS, PATENTS, AND APPLICATIONS FOR PATENTS.

(3) DESIGNS, PROCESSES, AND MANUFACTURING DATA.

(4) RELEASES, BEFORE SUIT IS BROUGHT, FOR PAST INFRINGEMENT OF PATENTS.

FOR THE REASONS INDICATED ABOVE, THE QUESTION PRESENTED IS ANSWERED IN THE AFFIRMATIVE. IT IS ASSUMED, HOWEVER, THAT IF ANY OF THE DEVICES INVOLVED WERE PROCURED UNDER CONTRACTS CONTAINING A ,HOLD HARMLESS" CLAUSE INDEMNIFYING THE GOVERNMENT FOR DAMAGES FROM PATENT INFRINGEMENTS THE MATTER WILL BE COORDINATED WITH THE DEPARTMENT OF JUSTICE WITH A VIEW TO PRESERVING ANY RIGHTS OF THE GOVERNMENT AGAINST THE CONTRACTORS INVOLVED.