B-154001, JUN. 22, 1964

B-154001: Jun 22, 1964

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INC.: REFERENCE IS MADE TO YOUR TELEGRAM OF APRIL 20. THE CITED INVITATION FOR BIDS WAS ISSUED ON JUNE 20. WHICH WAS SUBSEQUENTLY EXTENDED TO OCTOBER 4. " CONTAINED IN ASPR 9-103.2 WHICH IS USED IN FORMALLY ADVERTISED CONTRACTS FOR SUPPLIES OR COMPONENT PARTS THEREOF WHEN IT HAS NOT BEEN DETERMINED IN ADVANCE OF ISSUANCE OF THE INVITATION THAT SUCH SUPPLIES OR COMPONENT PARTS NORMALLY ARE OR HAVE BEEN SOLD OR OFFERED FOR SALE BY ANY SUPPLIER TO THE PUBLIC IN THE COMMERCIAL OPEN MARKET. WAS THE LOW BIDDER ON IFB 600 896-63S. THE BUREAU OF SHIPS IS IN EFFECT PENALIZING THOSE BIDDERS WHO DO. YOU WERE THE LOW BIDDER. THAT YOU WERE ONLY AWARDED THE CONTRACT FINALLY BECAUSE YOU QUICKLY WORKED OUT AN AGREEMENT TO PAY A ROYALTY EQUAL TO 5 PERCENT OF THE SELLING PRICE OF THE PDR-43 INSTRUMENT INVOLVED TO VICTOREEN.

B-154001, JUN. 22, 1964

TO ELECTRO-NEUTRONICS, INC.:

REFERENCE IS MADE TO YOUR TELEGRAM OF APRIL 20, 1964, AND YOUR LETTER OF APRIL 22, 1964, PROTESTING THE AWARD OF CONTRACT TO ANY OTHER FIRM UNDER BUREAU OF SHIPS INVITATION FOR BIDS NO. 600-896-63S.

THE CITED INVITATION FOR BIDS WAS ISSUED ON JUNE 20, 1963, WITH A CLOSING DATE OF JULY 26, 1963, WHICH WAS SUBSEQUENTLY EXTENDED TO OCTOBER 4, 1963. THE INVITATION, AS AMENDED, COVERED 657 (AN/PDR-43) ( RADIAC SETS TOGETHER WITH RELATED REPAIR PARTS, TECHNICAL DOCUMENTATION AND AN OPTION FOR 20 ADDITIONAL AN/PDR-43) ( RADIAC SETS. THE INVITATION INCLUDED THE CLAUSE ENTITLED ,PATENT INDEMNITY (NOT PREDETERMINED)," CONTAINED IN ASPR 9-103.2 WHICH IS USED IN FORMALLY ADVERTISED CONTRACTS FOR SUPPLIES OR COMPONENT PARTS THEREOF WHEN IT HAS NOT BEEN DETERMINED IN ADVANCE OF ISSUANCE OF THE INVITATION THAT SUCH SUPPLIES OR COMPONENT PARTS NORMALLY ARE OR HAVE BEEN SOLD OR OFFERED FOR SALE BY ANY SUPPLIER TO THE PUBLIC IN THE COMMERCIAL OPEN MARKET. THIS CLAUSE PROVIDES, IN SUBSTANCE, THAT THE CONTRACTOR SHALL INDEMNIFY THE GOVERNMENT AGAINST LIABILITY, INCLUDING COSTS, FOR INFRINGEMENT OF UNITED STATES PATENTS ARISING OUT OF THE FURNISHING OF SUPPLIES OR COMPONENT PARTS SO SOLD OR OFFERED FOR SALE.

IN YOUR LETTER OF APRIL 22, 1964, YOU CONTEND THAT ANGELES ELECTRONICS CO. OF GARDENA, CALIFORNIA, WAS THE LOW BIDDER ON IFB 600 896-63S, ONLY BECAUSE IN SUBMITTING ITS BID, YOUR FIRM, ELECTRO NEUTRONICS, INC., INCLUDED $8.83 TO COVER THE VICTOREEN ROYALTY PAYMENT, WHEREAS ANGELES MADE NO PROVISION FOR ROYALTY PAYMENTS. YOU STATE AS YOUR POSITION THAT BY NOT MAKING NEW BIDDERS AWARE OF VICTOREEN'S PATENT POSITION, THE BUREAU OF SHIPS IS IN EFFECT PENALIZING THOSE BIDDERS WHO DO, AND WHO ACCORDINGLY INCLUDE A 5 PERCENT ROYALTY PROVISION, THEREBY INCREASING THE PRICE TO THE GOVERNMENT. YOU AVER THAT THIS COULD BE CONSIDERED A FORM OF ENTRAPMENT. BY WAY OF COMPARISON, YOU STATE THAT ON AN EARLIER PROCUREMENT UNDER INVITATION NO. 600-259-61S, ISSUED ON APRIL 25, 1961, YOU WERE THE LOW BIDDER, BUT THE BUREAU OF SHIPS DECLINED TO MAKE AWARD TO YOU BECAUSE NO LICENSING AGREEMENT HAD BEEN REACHED BY YOUR FIRM AND VICTOREEN (ELECTRONIC PRODUCTS), AND THAT YOU WERE ONLY AWARDED THE CONTRACT FINALLY BECAUSE YOU QUICKLY WORKED OUT AN AGREEMENT TO PAY A ROYALTY EQUAL TO 5 PERCENT OF THE SELLING PRICE OF THE PDR-43 INSTRUMENT INVOLVED TO VICTOREEN. YOU APPARENTLY FEEL THAT THE SAME SYSTEM SHOULD HAVE BEEN USED BY THE BUREAU OF SHIPS IN EVALUATING BIDS UNDER INVITATION NO. 600-896- 63S.

THE REPORT FROM THE BUREAU OF SHIPS, SUBMITTED AT OUR REQUEST, SETS FORTH THE FOLLOWING IN RESPONSE TO THE POINTS RAISED IN YOUR PROTEST:

"ELECTRO-NEUTRONICS IS ESSENTIALLY CORRECT IN ITS REVIEW OF PREVIOUS AN/PDR-43 PROCUREMENTS. HOWEVER, GULF AEROSPACE HAS NEVER BEEN AWARDED A CONTRACT FOR THE AN/PDR-43 AND THE BUREAU IS UNAWARE OF ANY ROYALTY PAYMENTS MADE BY GULF AEROSPACE TO VICTOREEN ON THE AN/PDR 43.

"THE BUREAU'S FILES INDICATE THAT PRIOR TO THE AWARD OF CONTRACT NOBSR- 87003 TO ELECTRO-NEUTRONICS, INC., ON 4 AUGUST 1961 AS A RESULT OF IFB 600 -259-61S, THE AN/PDR-43 PROCUREMENTS HAD ALL BEEN AWARDED TO ELECTRONICS PRODUCTS COMPANY, INC., NOW VICTOREEN INSTRUMENT COMPANY.

"THESE EARLIER AN/PDR-43 CONTRACTS CONTAINED A REQUIREMENT FOR INTERCHANGEABILITY WHICH, BY ITS NATURE, RESTRICTED THE MANUFACTURER TO THE USE OF THE SO-CALLED VICTOREEN PATENTS.

"AT THE TIME OF THE AWARD OF CONTRACT NOBSR-87003 TO ELECTRO NEUTRONICS THE GOVERNMENT HAD RECEIVED NINE BIDS UNDER IFB 600-259-61 S. IT WAS FELT ONLY FAIR TO DRAW THE BIDDERS ATTENTION TO THE "PATENT INDEMNITY," (PREDETERMINED) CLAUSE OF THE IFB AND TO ACQUAINT THEM INSOFAR AS PRACTICABLE WITH THE INFORMATION REGARDING THE PATENTS AS SUBMITTED TO THE BUREAU BY VICTOREEN.

"ELECTRO-NEUTRONICS WAS LOW BIDDER, FOLLOWED BY NUCLEAR CORPORATION OF AMERICA AND LIONEL. THE LATTER TWO BIDDERS CLAIMED TO HAVE CIRCUITS WHICH WOULD NEGATE THE USE OF THE VICTOREEN PATENTS BUT THE INTERCHANGEABILITY REQUIREMENTS COULD NOT HAVE BEEN MET. A SURVEY BY THE BUREAU INDICATED THAT IN THE ABSENCE OF A FAVORABLE ROYALTY AGREEMENT WITH VICTOREEN, ELECTRO-NEUTRONICS WOULD INCUR A LOSS OF APPROXIMATELY $50,000 IN ENGAGING IN THE RESEARCH AND DEVELOPMENT EFFORT NECESSARY TO AVOID INFRINGING THE VICTOREEN PATENTS. THE CONTRACTING OFFICER DETERMINED THAT, BEING A NEWLY ORGANIZED COMPANY WITH SOMEWHAT LIMITED FINANCIAL CAPABILITY, SUCH A LOSS WOULD PRECLUDE SATISFACTORY PERFORMANCE OF THE CONTRACT REQUIREMENTS. THUS THERE WAS SERIOUS QUESTION ON THE PART OF THE CONTRACTING OFFICER AS TO THE RESPONSIBILITY OF ELECTRO-NEUTRONICS. THIS QUESTION WAS ELIMINATED WHEN ELECTRO-NEUTRONICS ENTERED INTO A ROYALTY AGREEMENT WITH VICTOREEN AND THE CONTRACTING OFFICER DETERMINED THAT FIRM TO BE RESPONSIBLE.

ACCORDINGLY, THE BUREAU AWARDED CONTRACT NOBSR-87003 TO ELECTRO NEUTRONICS.'

"IN MAY OF 1961 THE BUREAU WAS MADE AWARD OF THE EXISTENCE OF CIRCUITS AND TUBES DESIGNED BY LIONEL ELECTRONIC LABORATORIES, (FORMERLY ANTON ELECTRONIC LABORATORIES, INC.) AND EON CORPORATION, WHICH, IF USED, WOULD EFFECTIVELY NEGATE THE NECESSITY FOR EMPLOYING THE VICTOREEN PATENTS. A RESULT, SUBSEQUENT INVITATIONS FOR THE AN-PDR-43 WERE ISSUED WITHOUT THE INTERCHANGEABILITY REQUIREMENTS. THE ONLY AWARD UNDER SUCH INVITATIONS, NOBSR-87625, WAS MADE 28 JUNE 1962 TO SPECTRON CORPORATION, CORAL GABLES, FLORIDA. THE BUREAU DID NOT, IN THAT INSTANCE, REQUIRE EVIDENCE OF A VICTOREEN ROYALTY AGREEMENT, HAVING BEEN ADVISED THAT SPECTRON INTENDED TO USE THE LIONEL CIRCUITRY AND TUBE.

IN THE INSTANT PROCUREMENT THE BUREAU HAS BEEN ADVISED BY THE LOW BIDDER, ANGELES ELECTRONICS, INC., THAT (I) IT HAS BEEN AWARE OF THE VICTOREEN PATENTS AT LEAST SINCE 8 OCTOBER 1963, (II) IT HAS SINCE THAT DATE BEEN NEGOTIATING WITH THE VICTOREEN REGARDING ROYALTIES, (III) IT HAS ALSO BEEN NEGOTIATING WITH THE LIONEL ELECTRONIC LABORATORIES FOR THE USE OF THE LIONEL TUBE HAVING SEEN EVIDENCE THAT SUCH TUBE DOES NOT INFRINGE THE VICTOREEN PATENTS, (IV) IT HAS DEVELOPED A SOLID STATE DEVICE OF ITS OWN WHICH PERFORMS THE REQUIRED FUNCTION AND IS MORE SUITABLE TO THE INTENDED PURPOSE, (V) ALL ASPECTS OF THE PROBLEM HAVE BEEN THOROUGHLY INVESTIGATED BY IT. IN ADDITION ANGELES HAS, IN EFFECT, REAFFIRMED ITS BID BY SIX SEPARATE EXTENSIONS OF ITS BID ACCEPTANCE DATE. THE BUREAU HAS EXAMINED INTO THE FINANCIAL AND TECHNICAL COMPETENCY OF ANGELES AND FINDS THAT FIRM SATISFACTORY ON BOTH COUNTS.'

WHERE PATENTED INVENTIONS MAY BE INVOLVED IN A PROCUREMENT THERE ARE SEVERAL FACTORS FOR CONSIDERATION IN DETERMINING THE ADVISABILITY OF REQUIRING INDEMNIFICATION FOR POSSIBLE PATENT INFRINGEMENTS. THE USE OF INDEMNIFICATION CLAUSES IS NOT COVERED BY STATUTE. WE HAVE HELD THAT THIS MATTER IS ONE FOR DETERMINATION BY THE ADMINISTRATIVE AGENCIES. SUCH DETERMINATIONS ARE MADE PURSUANT TO ADMINISTRATIVELY PRESCRIBED CRITERIA AND ARE SUBJECT TO REVIEW BY OUR OFFICE ON THE BASIS OF THE FACTS AND CIRCUMSTANCES OF EACH CASE PRESENTED. IN THIS RESPECT, THE BUREAU OF SHIPS CONSIDERS THAT THE CAUTIONARY LANGUAGE USED IN THE EARLIER INVITATION CITED BY YOU IN SUPPORT OF YOUR PROTEST WAS JUSTIFIED UNDER THE THEN EXISTENT CIRCUMSTANCES, AND FURTHER, THAT UPON BECOMING AWARE OF THE AVAILABILITY OF THE NONINFRINGING APPROACH, AND DELETING THE INTERCHANGEABILITY REQUIREMENTS, FURTHER USE OF SUCH CAUTIONARY LANGUAGE WAS NEITHER NECESSARY NOR DESIRABLE. WE FIND NO BASIS FOR LEGAL OBJECTION TO THE DETERMINATION MADE BY THE BUREAU OF SHIPS IN THIS MATTER.

IT MIGHT BE POINTED OUT THAT, IN THE PROCUREMENT OF ITS REQUIREMENTS, THE PROTECTION OF THE INTERESTS OF THE GENERAL PUBLIC REPRESENTED BY ADMINISTRATIVE AGENCIES OF THE GOVERNMENT IS OF PARAMOUNT IMPORTANCE. AND, WHILE THIS, OF COURSE, INCLUDES FAIR DEALING WITH SUPPLIERS, IT DOES NOT INCLUDE A DUTY OR OBLIGATION TO ELIMINATE THE USUAL RISKS OF DOING BUSINESS, ONE OF WHICH MAY BE AN UNAUTHORIZED USE OF PATENTED INVENTIONS.

FOR THE FOREGOING REASONS, WE PERCEIVE NO LEGAL OBJECTION TO THE PROPOSED AWARD TO THE LOW BIDDER, ANGELES ELECTRONICS, INC., AND ACCORDINGLY YOUR PROTEST MUST BE DENIED.