B-136916, MAY 28, 1970, 49 COMP. GEN. 806

B-136916, MAY 28, 1970, 49 COMP. GEN. 806

PATENTS -- DEVICES, ETC., USED BY THE GOVERNMENT -- PREPROCUREMENT LICENSES TO GAIN ADDITIONAL EXPERIENCE WITH PREPROCUREMENT LICENSING UNDER WHICH IF AN UNLICENSED BIDDER IS AWARDED A CONTRACT, THE PATENT OWNER RECEIVES THE ROYALTY PAYMENT USED IN BID EVALUATION, THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION MAY CONTINUE PREVIOUSLY APPROVED PROCEDURE, REVISED TO LIMIT THE PROCEDURE TO RESEARCH AND DEVELOPMENT CONTRACTS WHERE POTENTIAL PATENT INFRINGEMENT EXISTS; TO REQUIRE A PATENT OWNER TO FILE A TIMELY WRITTEN NOTICE OF A REQUEST FOR A LICENSE; TO DELAY THE OPENING OF BIDS TO ALLOW EVALUATION OF A PREPROCUREMENT LICENSE REQUEST; TO PROVIDE FOR A REASONABLE ROYALTY RATE, WHICH IF IT EXCEEDS THE LOWEST RATE TO A PRIVATE CONCERN WILL BE DOCUMENTED; TO ALLOW A DEMONSTRATION THAT CONTRACT PERFORMANCE WILL NOT RESULT IN INFRINGEMENT; TO EXCLUDE ANY PATENT THAT FORMS THE AS IS OF A UNRESOLVED CLAIM; AND TO PROVIDE FOR INCLUSION OF ROYALTIES IN BID EVALUATION WHERE THE GOVERNMENT ALREADY IS A LICENSEE.

TO THE ADMINISTRATOR, NATIONAL AERONAUTICS AND SPACE ADMINISTRATION, MAY 28, 1970:

REFERENCE IS MADE TO YOUR LETTER OF MAY 6, 1970, ENCLOSING PROPOSED REVISED REGULATIONS DEALING WITH THE PROCUREMENT OF PATENTED ITEMS BY NASA (THE SO-CALLED PREPROCUREMENT LICENSING PROCEDURE).

AS YOU INDICATE THE CURRENT REGULATIONS IN THIS AREA WERE ISSUED IN OCTOBER 1966 (NASA PRD NO. 66-10 DATED OCTOBER 24, 1966) AFTER CONSULTATION WITH OUR OFFICE, SEE 46 COMP. GEN. 205 (1966). IN BRIEF, THE REGULATIONS PROVIDE THAT IF A PRIVATE OWNED PATENT WHICH MEETS CERTAIN REQUIREMENTS OF ENFORCEABILITY AND COMMERCIAL ACCEPTANCE WILL BE INFRINGED BY A SPECIFIC NASA PROCUREMENT, NASA MAY TAKE A LICENSE UNDER THE PATENT, EFFECTIVE ONLY FOR THE PARTICULAR PROCUREMENT INVOLVED, AND CONSIDER THE ROYALTY IN EVALUATING COMPETING BIDS. IF AN UNLICENSED BIDDER IS AWARDED THE CONTRACT, THE PATENT OWNER WOULD RECEIVE THE ROYALTY PAYMENT WHICH WAS CONSIDERED IN EVALUATING THE BIDS.

IN 46 COMP. GEN. 205, CITED ABOVE, WE APPROVED THE USE OF THE PREPROCUREMENT LICENSING PROCEDURE ON A TRIAL BASIS. THEREAFTER, IN A LETTER TO OUR OFFICE DATED MARCH 26, 1968, YOU REPORTED THAT NASA EXPERIENCE WITH THE PROCEDURE AS OF THAT DATE WAS LIMITED, CONSISTING OF ONLY FOUR SPECIFIC REQUESTS FOR PREPROCUREMENT LICENSES, ALL OF WHICH, FOR VARIOUS REASONS, HAD BEEN DENIED. HOWEVER, YOU STATED THAT YOU PROPOSED TO CONTINUE WITH THE TRIAL OF THE LICENSING PROCEDURE FOR AT LEAST AN ADDITIONAL YEAR IN ORDER TO GAIN MORE CONCLUSIVE DATA ON ITS EFFECTIVENESS. WE INDICATED NO OBJECTION, AND EXPRESSED A DESIRE TO RECEIVE A FURTHER REPORT ON THE MATTER. B-136916 DATED APRIL 15, 1968.

YOU NOW REPORT THAT SINCE MARCH 1968, FOUR ADDITIONAL REQUESTS FOR PREPROCUREMENT LICENSES HAVE BEEN RECEIVED, ONE OF WHICH HAS RESULTED IN AN EXECUTED LICENSE AGREEMENT. ALTHOUGH YOU ACKNOWLEDGE THAT YOUR OVERALL EXPERIENCE WITH THE PREPROCUREMENT LICENSE POLICY HAS BEEN QUITE LIMITED, YOU NEVERTHELESS CONCLUDE THAT IT HAS MERIT, PROVIDING CERTAIN CHANGES ARE MADE. TO THIS END, YOU ARE PROPOSING TO MAKE SEVERAL REVISIONS, THE MOST SIGNIFICANT OF WHICH ARE AS FOLLOWS:

(A) LIMIT THE APPLICABILITY OF THE PROCUREMENT LICENSE IN THE AREA OF RESEARCH AND DEVELOPMENT CONTRACTS TO THOSE R & D CONTRACTS WHEREIN THE DELIVERY OF HARDWARE OR THE USE OF A SPECIFIC PROCESS IS CONTEMPLATED AT THE TIME THAT THE PROPOSALS ARE SOLICITED. PROPOSED PARAGRAPH 9.102- 2(D)(2).

THE PURPOSE OF THIS IS TO EFFECTIVELY NARROW THE APPLICABILITY OF THE PROCEDURES TO THOSE NEGOTIATED PROCUREMENTS WHEREIN POTENTIAL PATENT INFRINGEMENT EXISTS, EXCLUDING SUCH AREAS AS STUDY CONTRACTS AND OTHER EFFORTS NOT RELEVANT TO PATENTABLE SUBJECT MATTER.

WE AGREE WITH THIS PROPOSED REVISION. CASE HISTORY II IN ATTACHMENT B TO YOUR LETTER ILLUSTRATES THE DIFFICULTY OF ATTEMPTING TO APPLY THE PREPROCUREMENT LICENSE POLICY TO A STUDY CONTRACT.

(B) A REQUIREMENT THAT THE INITIAL FILING OF A REQUEST FOR A LICENSE BE IN WRITING. THE PATENT OWNER MUST FILE TIMELY WRITTEN NOTICE. PROPOSED PARAGRAPH 9.102-2(A).

THE PURPOSE OF THIS PROPOSED REVISION IS TO AVOID AMBIGUITIES IN THE INITIAL FILING OF THE LICENSE REQUEST. WE FULLY INDORSE THIS PROPOSAL.

(C) A PROVISION THAT THE CONTRACTING OFFICER IN HIS DISCRETION MAY DELAY BID OPENING FOR A PERIOD OF TIME TO ALLOW EVALUATION OF A PREPROCUREMENT LICENSE REQUEST. PROPOSED PARAGRAPH 9.102-2(C).

YOU STATE THAT SUCH A PROVISION IS NECESSARY IN THOSE CASES WHERE AN APPLICATION FOR A LICENSE IS RECEIVED JUST PRIOR TO BID OPENING. IN SOME CASES THE CONTRACTING OFFICER MAY DECIDE IT IS NOT IN THE BEST INTEREST OF THE GOVERNMENT TO DELAY BID OPENING, AND HE WOULD BE REQUIRED TO DOCUMENT HIS REASONS THEREFOR AND NOTIFY THE PATENT OWNER. HOWEVER, THE PROPOSED REVISION WOULD PERMIT THE CONTRACTING OFFICER TO DELAY THE PROCUREMENT IN THOSE CASES WHERE HE DECIDES THAT THE LICENSE REQUEST SHOULD BE INVESTIGATED. YOU ANTICIPATE THAT THIS DELAY WOULD BE ON THE ORDER OF 1 OR 2 WEEKS. WE APPROVE OF THE PROPOSED REVISION.

(D) A CHANGE IN THE REGULATION TO PROVIDE THAT THE ROYALTY RATE PROFFERED BE "REASONABLE UNDER THE CIRCUMSTANCES." PROPOSED PARAGRAPH 9.102- 2(A)(3).

THE INITIAL REGULATION PROVIDED AS A PREREQUISITE THAT THE PATENT OWNER MUST OFFER TO LICENSE NASA FOR THE PROPOSED PROCUREMENT AT A ROYALTY WHICH IN NO EVENT COULD EXCEED THE LOWEST RATE AT WHICH HE HAD LICENSED A PRIVATE CONCERN. YOU FEEL THAT THIS REQUIREMENT IS TOO HARSH IN SOME CASES. AS AN EXAMPLE, YOU CITE THE CASE WHERE A NUMBER OF COMPANIES ENTER INTO "CROSS-LICENSING" AGREEMENTS WHEREBY A NUMBER OF PATENTS ARE INTERLICENSED AMONG THE PARTIES EXECUTING THE AGREEMENT AT A VERY LOW ROYALTY RATE. YOU STATE THAT THE LOW RATE IS GENERALLY ATTRIBUTABLE TO THE BENEFITS CONFERRED, THE NUMBER OF PATENTS INVOLVED, AND THE DESIRE OF THE RESPECTIVE COMPANIES TO COOPERATE WITH CERTAIN SEGMENTS OF THEIR INDUSTRY. FURTHER, YOU REPORT THAT MANY PRIVATE LICENSE AGREEMENTS EXIST WHICH INVOLVE VERY LARGE NUMBERS OF PATENTED ITEMS, AND THAT IN SUCH INSTANCES IT IS COMMON TO NEGOTIATE A LOWER ROYALTY RATE PER ITEM THAN WOULD BE THE CASE IF ONLY A FEW ITEMS WERE INVOLVED, SUCH AS IN A NASA PROCUREMENT. IN THE ABOVE EXAMPLES, YOU SEE NO GOOD REASON WHY THE PATENT OWNER MUST BE FORCED TO ACCEPT A REDUCED ROYALTY WHICH WAS NEGOTIATED UNDER DIFFERENT CIRCUMSTANCES. YOU CONCLUDE THAT THE ONLY FAIR CRITERION IN ALL CASES IS THAT OF "REASONABLENESS" AS NOW PROPOSED IN THE REVISED PROCEDURES.

FOR THE REASONS SET FORTH, WE AGREE WITH THE PROPOSED 9.102-2(A)(3). HOWEVER, WE RECOMMEND FURTHER LANGUAGE IN (A)(3) AS ITALICIZED BELOW:

(A)(3) THE PATENT OWNER AGREES TO LICENSE NASA FOR THE PROPOSED PROCUREMENT AT A RATE WHICH IS REASONABLE UNDER THE CIRCUMSTANCES. GENERALLY SUCH RATE SHOULD NOT EXCEED THE LOWEST RATE AT WHICH THE PATENT OWNER HAS LICENSED A PRIVATE CONCERN. IF THE CONTRACTING OFFICER AGREES TO A HIGHER RATE, HE SHOULD DOCUMENT THE REASONS THEREFOR.

(E) A STATEMENT IN THE REGULATIONS THAT BEFORE PATENT ROYALTIES ARE CONSIDERED AS A FACTOR IN CONTRACT AWARD, EACH BIDDER/OFFEROR WILL HAVE AN OPPORTUNITY TO DEMONSTRATE THAT PERFORMANCE OF THE CONTRACT IN ACCORDANCE WITH HIS BID OR OFFER WILL NOT RESULT IN INFRINGEMENT OF THE ASSERTED PATENT. PROPOSED PARAGRAPH 9.102-2(C).

YOU STATE THAT EVIDENCE SO SUBMITTED WILL BE CONSIDERED BY NASA PATENT COUNSEL IN EVALUATION OF THE LICENSE REQUEST; BUT THAT THE FINAL DETERMINATION ON THE ISSUE OF INFRINGEMENT WILL BE IN THE HANDS OF YOUR AGENCY. WE HAVE NO OBJECTIONS TO THIS PROPOSED CHANGE.

(F) AN AMENDMENT IN THE REGULATIONS TO EXCLUDE FROM CONSIDERATION ANY PATENT WHICH FORMS THE BASIS OF AN UNRESOLVED ADMINISTRATIVE CLAIM AGAINST ANY GOVERNMENT AGENCY. PROPOSED PARAGRAPH 9.102-2(A)(1).

THE REASON FOR THIS PROPOSED REVISION IS SELF-EVIDENT, AND WE HAVE NO OBJECTION.

IN ADDITION TO THE ABOVE, OTHER REVISIONS ARE PROPOSED, BUT THESE ARE RELATIVELY MINOR IN NATURE AND WITH ONE EXCEPTION NEED NOT BE MENTIONED. THE ONE EXCEPTION IS COVERED IN PROPOSED PARAGRAPH 9.102-1 AND IN PART I OF THE PROPOSED "PATENT ROYALTIES" CLAUSE AND DEALS WITH THE SITUATION WHEREIN THE GOVERNMENT IS ALREADY A LICENSEE UNDER A PATENT AT THE TIME A SOLICITATION IS ISSUED. THE PROPOSED REVISION PROPERLY MAKES IT CLEAR THAT THE ROYALTIES APPLICABLE TO THE PROPOSED PROCUREMENT WHICH THE GOVERNMENT WILL BE REQUIRED TO PAY UNDER AN EXISTING PATENT LICENSE AGREEMENT WILL BE INCLUDED AS AN EVALUATION FACTOR. SEE ALSO ARMED SERVICES PROCUREMENT REGULATION 1-304.3 TO THE SAME EFFECT.

WE APPRECIATE THE OPPORTUNITY TO REVIEW THIS PROPOSED COVERAGE.