B-168264, DEC. 15, 1969

B-168264: Dec 15, 1969

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BIDDERS WERE GIVEN VERBAL ASSURANCE BY GOVT. INSERTION OF AUTHORIZATION AND CONSENT CLAUSE IN SOLICITATIONS UNDER WHICH CONTRACTS WERE AWARDED. WHICH WERE AWARDED BY THE BUREAU OF MINES. THE BASIS FOR THE REQUEST IS THAT THE CONTRACTS. IT IS REPORTED. BY THIS PROCESS THE FIRES ARE ISOLATED FROM AVAILABLE SOURCES OF OXYGEN AND ARE SMOTHERED. (A COPY OF THE PATENT ON FILE IN OUR OFFICE SHOWS THAT THE APPLICATION WAS FILED ON SEPTEMBER 20. WAS ISSUED TO DAYTON ON JANUARY 14. IT IS STATED. BIDDERS ON MINE FIRE CONTROL PROJECTS WERE THREATENED BY DAYTON WITH PATENT INFRINGEMENT SUITS UNLESS THEY AGREED TO LICENSING ARRANGEMENTS WITH DAYTON. BIDDERS WERE ASSURED VERBALLY BY THE BUREAU THAT THEY WOULD NOT BE HELD LIABLE FOR ANY INFRINGEMENT OF THE DAYTON PATENT.

B-168264, DEC. 15, 1969

PATENTS--INFRINGEMENT--GOVERNMENT LIABILITY--CONSIDERATION IN BID EVALUATION SIX CONSTRUCTION CONTRACTS EMPLOYING INJECTION TECHNIQUE DEVELOPED BY BUREAU OF MINES, BUT PATENTED BY FIRM NOW SUING GOVERNMENT FOR PATENT INFRINGEMENT, MAY BE REFORMED TO EXCEPT ANY INFRINGEMENT BY CONTRACTORS OF ANY PATENT COVERING USE OF SAID TECHNIQUE FROM OPERATION OF INDEMNITY CLAUSES, UNDER RULE OF CONTRACT CONSTRUCTION THAT WHERE WRITTEN AGREEMENT DOES NOT CONFORM TO ACTUAL INTENTION OF BOTH PARTIES, IT MAY BE REFORMED TO ACCORD WITH SUCH INTENTION. HERE, BIDDERS WERE GIVEN VERBAL ASSURANCE BY GOVT. THAT NO PATENT INFRINGEMENT LIABILITY WOULD ATTACH AND SUBMITTED BIDS ACCORDINGLY. ALSO, IRRESPECTIVE OF INDEMNITY PROVISIONS IN CONTRACT, INSERTION OF AUTHORIZATION AND CONSENT CLAUSE IN SOLICITATIONS UNDER WHICH CONTRACTS WERE AWARDED, SHIFTED LIABILITY FOR PATENT INFRINGEMENT TO GOVT.

TO MR. SECRETARY:

BY LETTER DATED OCTOBER 23, 1969, THE DEPUTY ASSISTANT SECRETARY FOR ADMINISTRATION HAS REQUESTED THIS OFFICE TO APPROVE REFORMATION OF SIX CONSTRUCTION CONTRACTS FOR THE CONTROL OF MINE FIRES, WHICH WERE AWARDED BY THE BUREAU OF MINES, DEPARTMENT OF THE INTERIOR, PURSUANT TO THE PROVISIONS OF 30 U.S.C. 551-558. THE BASIS FOR THE REQUEST IS THAT THE CONTRACTS, EACH OF WHICH INCLUDES THE TERMS AND PROVISIONS OF STANDARD FORM 23A, GENERAL PROVISIONS (CONSTRUCTION CONTRACT), DO NOT STATE THE ACTUAL INTENT OF THE PARTIES WITH RESPECT TO LIABILITY FOR INFRINGEMENT OF A CERTAIN PATENT WHICH MAY RESULT FROM PERFORMANCE OF THE CONTRACTS.

DURING 1967, IT IS REPORTED, THE PITTSBURGH OFFICE OF THE BUREAU DEVELOPED A NEW TECHNIQUE FOR THE CONTROL OF MINE FIRES BY MEANS OF PNEUMATICALLY INJECTING DRY FLY ASH INTO MINE WORKINGS THROUGH BOREHOLES. BY THIS PROCESS THE FIRES ARE ISOLATED FROM AVAILABLE SOURCES OF OXYGEN AND ARE SMOTHERED. THE BUREAU HAS SINCE AWARDED A NUMBER OF MINE FIRE CONTROL CONTRACTS EMPLOYING THE FLY ASH INJECTION TECHNIQUE.

IN JUNE 1968 THE BUREAU LEARNED THAT DAYTON FLY ASH COMPANY, INC. (DAYTON), HAD FILED A PATENT APPLICATION COVERING THE FLY ASH INJECTION TECHNIQUE. (A COPY OF THE PATENT ON FILE IN OUR OFFICE SHOWS THAT THE APPLICATION WAS FILED ON SEPTEMBER 20, 1967, AND THAT THE PATENT, NO. 3,421,587, WAS ISSUED TO DAYTON ON JANUARY 14, 1969.) DURING THE LATTER PART OF 1968, IT IS STATED, BIDDERS ON MINE FIRE CONTROL PROJECTS WERE THREATENED BY DAYTON WITH PATENT INFRINGEMENT SUITS UNLESS THEY AGREED TO LICENSING ARRANGEMENTS WITH DAYTON. THE BUREAU, WITH THE INTENT OF ASSUMING ALL LIABILITY FOR INFRINGEMENT OF ANY PATENT COVERING PNEUMATIC FLY ASH INJECTION, AND IN AN EFFORT TO AVOID THE ADDITION BY PROSPECTIVE CONTRACTORS OF CONTINGENCY CHARGES TO THEIR BIDS TO COVER POSSIBLE LIABILITY FOR PATENT INFRINGEMENT, AMENDED THE VARIOUS BID SOLICITATIONS TO INCLUDE A CLAUSE WHEREBY THE GOVERNMENT AUTHORIZED AND CONSENTED TO INFRINGEMENT OF ANY PATENT COVERING USE OF PNEUMATICALLY INJECTED FLY ASH IN EXTINGUISHING FIRES.

IN CONNECTION WITH THE ABOVE AMENDMENTS TO THE BID SOLICITATIONS, BIDDERS WERE ASSURED VERBALLY BY THE BUREAU THAT THEY WOULD NOT BE HELD LIABLE FOR ANY INFRINGEMENT OF THE DAYTON PATENT. THROUGH OVERSIGHT AND INADVERTENCE, HOWEVER, NO ACTION WAS TAKEN TO MODIFY THE INDEMNITY CLAUSE IN SECTION 15 OF STANDARD FORM 23A (UNDER WHICH THE CONTRACTORS AGREED TO INDEMNIFY THE UNITED STATES AGAINST LIABILITY FOR PATENT INFRINGEMENT ARISING OUT OF PERFORMANCE OF THE CONTRACT) SO AS TO REFLECT THE UNDERSTANDING OF THE BIDDERS AND THE GOVERNMENT THAT THE GOVERNMENT WOULD ASSUME ALL LIABILITY FOR INFRINGEMENT OF ANY PATENT OBTAINED BY DAYTON ON THE PNEUMATIC INJECTION OF FLY ASH.

ON JUNE 3, 1969, DAYTON FILED SUIT IN THE UNITED STATES COURT OF CLAIMS AGAINST THE GOVERNMENT, PURSUANT TO 28 U.S.C. 1498, ALLEGING INFRINGEMENT OF PATENT NO. 3,421,587 AND REQUESTING JUDGMENT FOR REASONABLE AND ENTIRE COMPENSATION THEREFOR. THE PETITION, WHICH HAS BEEN DOCKETED AS CT. CL. NO. 261-69, CITES CONTRACTS ON FOUR MINE CONTROL PROJECTS, APPALACHIAN MINE FIRE CONTROL PROJECTS NOS. 17, 20, 33 AND 39, AND ALSO REFERS TO A MARCH 1969 SOLICITATION FOR BIDS COVERING MINE FIRE CONTROL WORK IN OR AROUND NATALIE, PENNSYLVANIA. THE DEPUTY ASSISTANT SECRETARY'S LETTER ADDS TO THE LIST OF PROJECT CONTRACTS CITED IN THE PETITION ONE CONTRACT EACH ON PROJECTS NOS. 7 AND 38 AND STATES THAT ALL SIX CONTRACTS ARE AFFECTED BY THE LITIGATION. TWO FIRMS HOLD TWO PROJECT CONTRACTS EACH; THEREFORE, ONLY FOUR CONTRACTORS ARE INVOLVED.

UNDER THE EXISTING PROVISIONS OF THE CONTRACTS, IT IS STATED, EACH OF THE CONTRACTORS MUST BE GIVEN NOTICE OF THE SUIT AND EACH MAY INTERVENE. AVOID SUCH RESULT AND TO REFLECT THE TRUE INTENT AND UNDERSTANDING OF THE PARTIES, IT IS THEREFORE REQUESTED THAT THE CONTRACTS BE REFORMED TO DELETE SECTION 15 FROM STANDARD FORM 23A. AS FURTHER SUPPORT FOR REFORMATION, IT IS STATED THAT SUCH ACTION WOULD NOT RESULT IN ANY INCREASED COST TO THE GOVERNMENT IN DEFENDING THE INFRINGEMENT SUIT AND THAT, SHOULD THE GOVERNMENT LOSE THE SUIT, ITS CHANCES OF OBTAINING INDEMNIFICATION FROM THE CONTRACTORS WOULD BE SLIGHT SINCE THE CONTRACTORS, IN LIGHT OF THE FACTS SET FORTH ABOVE, WOULD DOUBTLESS SUE FOR REFORMATION.

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

"/A) 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.

"FOR THE PURPOSES OF THIS SECTION, THE USE OR MANUFACTURE OF AN INVENTION DESCRIBED IN AND COVERED BY A PATENT OF THE UNITED STATES BY A CONTRACTOR, A SUBCONTRACTOR, OR ANY PERSON, FIRM, OR CORPORATION FOR THE GOVERNMENT AND WITH THE AUTHORIZATION OR CONSENT OF THE GOVERNMENT, SHALL BE CONSTRUED AS USE OR MANUFACTURE FOR THE UNITED STATES.'

UNDER SUCH PROVISIONS, THE GOVERNMENT, BY INSERTING AN AUTHORIZATION AND CONSENT CLAUSE IN EACH OF THE SOLICITATIONS FOR BIDS PURSUANT TO WHICH THE CONTRACTS IN QUESTION WERE AWARDED, SHIFTED LIABILITY TO ITSELF ALONE FOR THE INFRINGEMENT OF ANY PATENT NECESSARY TO PERFORM THE CONTRACTS. 158790, APRIL 15, 1966. THE CONTRACTORS WERE THEREFORE RELIEVED OF LIABILITY TO THE PATENTEE IRRESPECTIVE OF THE INDEMNITY PROVISIONS IN THE CONTRACT APPARENTLY INURING TO THE BENEFIT OF THE GOVERNMENT. DEARBORN CHEMICAL CO. V ARVEY CORP., 114 F.SUPP. 369 (1953).

TURNING NOW TO THE QUESTION WHETHER THE CONTRACTS SHOULD BE MODIFIED TO RELIEVE THE CONTRACTORS OF LIABILITY TO THE GOVERNMENT BY WAY OF INDEMNIFICATION IN THE EVENT THE PATENTEE PREVAILS IN ITS SUIT AGAINST THE GOVERNMENT, THE DEPUTY ASSISTANT SECRETARY'S LETTER DISCLOSES TWO SIGNIFICANT FACTORS. FIRST, AT THE TIME THE BIDDERS RESPONDED TO THE APPLICABLE SOLICITATIONS IT WAS THE INTENT OF YOUR DEPARTMENT THAT NO LIABILITY SHOULD ATTACH TO THE SUCCESSFUL BIDDERS FOR INFRINGEMENT OF THE DAYTON PATENT INCIDENT TO THE USE OF THE PNEUMATIC FLY ASH INJECTION TECHNIQUE IN THE PERFORMANCE OF THE CONTRACTS. SECOND, SUCH INTENT WAS MADE KNOWN TO THE BIDDERS WHEN THEY WERE GIVEN VERBAL ASSURANCE BY THE GOVERNMENT THAT THEY WOULD NOT BE HELD LIABLE FOR INFRINGEMENT OF THE DAYTON PATENT AND THE BIDS WERE SUBMITTED ACCORDINGLY. IN THE CIRCUMSTANCES, WE BELIEVE THAT THERE IS FOR APPLICATION THE LONG OBSERVED RULE OF CONTRACT CONSTRUCTION THAT WHERE A WRITTEN AGREEMENT DOES NOT CONFORM TO THE ACTUAL INTENTION OF THE PARTIES, IT MAY BE REFORMED TO ACCORD WITH SUCH INTENTION. 39 COMP. GEN. 363 (1959) AND DECISIONS THEREIN CITED. ACCORDINGLY, THE CONTRACTS MAY BE REFORMED TO EXCEPT FROM OPERATION OF THE INDEMNITY CLAUSES ANY INFRINGEMENT BY THE CONTRACTORS OF ANY PATENT COVERING THE USE OF THE PNEUMATIC INJECTION OF FLY ASH TO CONTROL MINE FIRES.

A COPY OF THIS DECISION IS BEING FORWARDED TO THE ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION, DEPARTMENT OF JUSTICE, FOR ASSOCIATION WITH THE FILE ON THE COURT OF CLAIMS LITIGATION.