B-170698, MAY 4, 1971

B-170698, MAY 4, 1971

BID PROTEST - PATENT INFRINGEMENT - REMEDIES DENYING PROTEST OF LOE INDUSTRIES AGAINST THE FAILURE TO CANCEL AN IFB ISSUED BY THE NAVAL SUPPLY SYSTEMS COMMAND, AVIATION SUPPLY OFFICE, PHILADELPHIA PENN., FOR HYDRAULIC FILL SERVICE UNITS BECAUSE IT DID NOT INCLUDE A PATENT INDEMNITY CLAUSE AND DID NOT PROVIDE A PARTIAL SMALL BUSINESS SET-ASIDE AND AGAINST AWARD TO SUN ELECTRIC CORPORATION, LOW BIDDER. WHILE THE IFB DID NOT CONTAIN A PATENT INDEMNITY CLAUSE, SUN (THE SUCCESSFUL BIDDER) STATED THAT IT WOULD ACCEPT A CONTRACT WITH THAT CLAUSE AT NO INCREASE IN COST TO THE GOVERNMENT. THE COMP. GEN. FINDS NO LEGAL OBJECTION TO THE ACCEPTANCE OF THIS GUARANTEE, IT BEING IN BEST INTERESTS OF THE GOVERNMENT. BUT EVEN IF THE CONTRACT AWARDED SUN DID NOT CONTAIN A PATENT INDEMNITY CLAUSE, THE POSSIBILITY OF GOVERNMENT LIABILITY FOR PATENT INFRINGEMENT WOULD NOT REQUIRE THAT THE CONTRACT BE CANCELLED (B- 158790, APRIL 15, 1966). LOE CONTENDS THAT INFRINGEMENT OF ITS PATENTS WILL OCCUR IF ANY OTHER BIDDER PRODUCES THE DESIRED UNITS IN ACCORDANCE WITH IFB SPECIFICATIONS AND THAT UNDER SUCH CIRCUMSTANCES THE COMP. GEN. SHOULD NOT FOLLOW 46 COMP. GEN. 205 (1966) WHEREIN 28 U.S.C. 1498 WAS INTERPRETED TO BE AN EMINENT DOMAIN STATUTE WHICH VESTS IN THE GOVERNMENT THE RIGHT TO USE ANY PATENT UPON PAYMENT OF REASONABLE COMPENSATION. THE FACT THAT IN NO OTHER CASES HAS THE PATENT HOLDER'S DATA BEEN USED AS SPECIFICATIONS FOR THE PROCUREMENT IS NOT PERSUASIVE OF THE POSITION THAT 46 COMP. GEN., SUPRA, IS NOT FOR APPLICATION HERE. MOREOVER, THE COMP. GEN. IS IN NO POSITION TO MAKE SUSTANTIVE DETERMINATION CONCERNING POSSIBLE PATENT VIOLATIONS.

TO MR. ROBERT B. BOWYTZ:

WE REFER TO YOUR LETTER DATED DECEMBER 14, 1970, AND PRIOR CORRESPONDENCE, ON BEHALF OF LOE INDUSTRIES (LOE), REQUESTING THAT INVITATION FOR BIDS (IFB) NO. N00383-71-B-0118, ISSUED BY THE NAVAL SUPPLY SYSTEMS COMMAND, AVIATION SUPPLY OFFICE (ASO), PHILADELPHIA, PENNSYLVANIA, BE CANCELED PRINCIPALLY BECAUSE IT WAS NOT TOTALLY SET ASIDE FOR SMALL BUSINESS AND BECAUSE IT DID NOT INCLUDE A PATENT INDEMNITY CLAUSE. FOR THE REASONS DISCUSSED BELOW, WE FIND NO LEGAL BASES TO FAVORABLY CONSIDER YOUR REQUEST.

THE IFB, ISSUED AUGUST 3, 1970, WITH A SCHEDULED BID OPENING DATE OF AUGUST 18, 1970, SOLICITED BIDS ON AN UNRESTRICTED BASIS FOR 800 EACH HYDRAULIC FILL SERVICE UNITS TO BE MANUFACTURED IN ACCORDANCE WITH NAVAL AIR SYSTEMS COMMAND (NAVAIR) SPECIFICATION XAS-1832, REV. "A," JULY 7, 1969, ENTITLED "FLUID SERVICE UNIT, HYDRAULIC, HAND PUMP OPERATED, SELF CONTAINED, LIGHTWEIGHT," AS WELL AS THREE SEPARATE LINE ITEMS OF DATA: ENGINEERING DRAWINGS AND ASSOCIATED DATA, TECHNICAL MANUALS, AND PROVISIONING DATA. ASO HAD ORIGINALLY INTENDED TO PURCHASE 1,075 UNITS; HOWEVER, THE PROCURING ACTIVITY CONTRACTED WITH LOE ON A SOLE-SOURCE BASIS UNDER THE PUBLIC EXIGENCY AUTHORITY OF 10 U.S.C. 2304(A)(2) FOR 275 UNITS ON AUGUST 6, 1970. MODIFICATION 0001 OF AUGUST 14, 1970, TO THE IFB EXTENDED THE BID OPENING DATE TO AUGUST 25, 1970, AND LENGTHENED THE DELIVERY SCHEDULE. BIDS WERE OPENED ON AUGUST 25, 1970, AND WERE ABSTRACTED AS FOLLOWS:

UNIT

PRICE TOTAL

SUN ELECTRIC CORP. (LARGE BUSINESS) $319.54 $256,177

BENDIX CORP. (LARGE BUSINESS) 340.00 273,600

HENRY SPEN & CO., INC. (SMALL BUSINESS) 335.00 275,750

LOE INDUSTRIES (SMALL BUSINESS) 356.43 288,619

(ALTERNATE BID) 354.12 284,046

ON AUGUST 27, 1970, YOU PROTESTED TO OUR OFFICE. BY LETTER DATED SEPTEMBER 4, 1970, ASO WAS ADVISED BY THE PATENT ATTORNEYS FOR LOE THAT THE "MANUFACTURE, SALE OR USE OF HYDRAULIC FLUID HANDLING APPARATUS HAVING FEATURES SET FORTH IN THE MILITARY SPECIFICATION XAS-1832 REV. A, DATED JULY 7, 1969 *** WITH RESPECT TO WHICH WE UNDERSTAND BIDS WERE SUBMITTED (UNDER THE IFB) *** CONSTITUTES AN INFRINGEMENT OF U.S. PATENT NO. 3,385,475, ISSUED TO WALLACE D. LOE ON MAY 28, 1968 AND ASSIGNED TO OUR CLIENT, LOE INDUSTRIES." IN ADDITION, THE LETTER NOTIFIED ASO THAT LOE "HAS RETAINED FULL PROPRIETARY RIGHTS IN ITS DESIGN DATA, MANUFACTURING DRAWINGS, INCLUDING MICROFILMS OF THE SAME, PREVIOUSLY FURNISHED BY OUR CLIENT TO THE UNITED STATES GOVERNMENT." PURSUANT TO THE PROVISIONS OF PARAGRAPH 2-407.8(B)(3) OF THE ARMED SERVICES PROCUREMENT REGULATION (ASPR), THE CONTRACTING OFFICER DETERMINED THAT THE ITEMS TO BE PROCURED WERE URGENTLY REQUIRED AND RECEIVED APPROVAL TO MAKE AN AWARD PRIOR TO THE RESOLUTION OF THE PROTEST. ON FEBRUARY 22, 1971, A CONTRACT UNDER THE IFB, WHICH CONTAINED AN AUTHORIZATION AND CONSENT CLAUSE, WAS AWARDED TO SUN FOR 800 UNITS.

ONE OF THE PRINCIPAL BASES FOR YOUR PROTEST IS THAT "THE PROCUREMENT WAS IMPROPERLY NOT SET ASIDE 100% FOR SMALL BUSINESS." HOWEVER, WE MUST REJECT THIS BASIS OF PROTEST. SECTION 15 OF THE SMALL BUSINESS ACT, 15 U.S.C. 644, PROVIDES THAT THE DETERMINATION AS TO WHETHER A PARTICULAR PROCUREMENT, OR PART THEREOF, SHOULD BE SET ASIDE FOR SMALL BUSINESS IS WITHIN THE JURISDICTION OF THE PROCURING ACTIVITY AND THE SMALL BUSINESS ADMINISTRATION. WE HAVE HELD THAT ABSENT A CLEAR SHOWING OF ABUSE OF DISCRETION, THE ADMINISTRATIVE DETERMINATION AS TO WHETHER A PROCUREMENT SHOULD BE SET ASIDE FOR SMALL BUSINESS WILL NOT BE DISTURBED. SEE B- 170837, MARCH 8, 1971.

YOU REFER TO A PREVIOUS SOLICITATION (IFB NO. N00383-69-B-1125), FOR IDENTICAL ITEMS, WHERE, IT IS ALLEGED, SEVERAL SMALL BUSINESS CONCERNS PARTICIPATED. IT IS REPORTED THAT FIVE BIDDERS RESPONDED TO IFB -1125, A NON-SET-ASIDE FOR 283 UNITS, AS FOLLOWS:

UNIT PRICE

LOE INDUSTRIES (SMALL BUSINESS) $351.12

AUTO-CONTROL LABS. DIV. OF RUCKER CO.

(LARGE BUSINESS) 395.00

BENDIX CORP. (LARGE BUSINESS) 518.55

LIQUIDONICS, INC. (LARGE BUSINESS) 728.00

ALTON IRON WORKS, INC. (SMALL BUSINESS) 939.00

IN VIEW OF THE FACT THAT LOE, THE ONE SMALL BUSINESS BIDDER, SUBMITTED A BID AT A REASONABLE PRICE, WHICH WAS ACCEPTED, WHILE THE OTHER SMALL BUSINESS BIDDER QUOTED AN UNREASONABLE PRICE ALMOST THREE TIMES THAT OF THE EVENTUAL AWARD PRICE TO LOE, THE CONTRACTING OFFICER, WITH THE CONCURRENCE OF THE SMALL BUSINESS SPECIALIST, DID NOT RECOMMEND THAT THE INSTANT PROCUREMENT BE SET ASIDE FOR THE EXCLUSIVE PARTICIPATION OF SMALL BUSINESS CONCERNS. IN THIS REGARD, ASPR 1 706.5(A)(1) REQUIRES THAT THE ENTIRE AMOUNT OF A PROCUREMENT SHALL BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION IF THE CONTRACTING OFFICER DETERMINES THAT THERE IS REASONABLE EXPECTATION THAT BIDS WILL BE OBTAINED FROM A SUFFICIENT NUMBER OF RESPONSIBLE SMALL BUSINESS CONCERNS SO THAT AWARDS WILL BE MADE AT REASONABLE PRICES. SEE, ALSO, PARAGRAPH 1-706.5 OF THE NAVY PROCUREMENT DIRECTIVES. WE ATTACH NO PARTICULAR SIGNIFICANCE TO THE FACT THAT THE RESULTS OF THE BIDDING ON THE INSTANT IFB DISCLOSED THAT TWO SMALL BUSINESS CONCERNS SUBMITTED BIDS AT APPARENTLY REASONABLE PRICES. SUCH A RESULT IS NOT DETERMINATIVE OF THE QUESTION AS TO WHETHER THERE WAS AT THE TIME OF ISSUING THE INVITATION A REASONABLE EXPECTATION OF SUFFICIENT COMPETITION FROM SMALL BUSINESS CONCERNS. SEE B-157581, NOVEMBER 22, 1965. IN LIGHT OF THE PROCUREMENT HISTORY OF THIS ITEM, THE ADMINISTRATIVE DETERMINATION NOT TO SET ASIDE THE PROCUREMENT FOR SMALL BUSINESS CONCERNS WAS NOT AN ABUSE OF DISCRETION.

IN THE ALTERNATIVE, YOU URGE THAT THE PROCUREMENT QUALIFIED FOR A PARTIAL SMALL BUSINESS SET-ASIDE UNDER ASPR 1-706.6, WHICH PERMITS A PORTION OF A PROCUREMENT TO BE SET ASIDE FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION WHERE, INTER ALIA, THE PROCUREMENT IS SEVERABLE INTO TWO OR MORE ECONOMIC PRODUCTION RUNS OR REASONABLE LOTS. ON JUNE 24, 1970, THE SMALL BUSINESS SPECIALIST, PRIOR TO THE SOLE-SOURCE BUY OF 275 UNITS FROM LOE, RECOMMENDED THAT THE PROCUREMENT BE EFFECTED AS A 50 PERCENT SMALL BUSINESS SET-ASIDE FOR 537 UNITS OF THE TOTAL QUANTITY OF 1,075, CITING THE PRIOR CONTRACT FOR 283 UNITS AWARDED TO LOE. THE CONTRACTING OFFICER REJECTED THE SMALL BUSINESS SPECIALIST'S RECOMMENDATION STATING THAT THE PROCUREMENT WAS NOT SUSCEPTIBLE OF A SEVERANCE INTO TWO ECONOMIC PRODUCTION RUNS FOR FOUR REASONS: (1) THE REDUCTION IN QUANTITY FROM 1,075 TO 800; (2) THE FACT THAT THE SPECIFICATIONS ARE OF THE PERFORMANCE TYPE NECESSITATING ADDITIONAL DESIGN AND ENGINEERING COSTS; (3) THE FACT THAT THE THREE SEPARATE LINE ITEMS OF DATA WOULD HAVE TO BE PROCURED FROM BOTH THE "SET-ASIDE" AND "NON-SET-ASIDE" CONTRACT, RESULTING IN A DUPLICATION OF COSTS; AND (4) THE INCREASED COSTS OF ADMINISTRATIVE SUPPORT INVOLVED IN ANY SET-ASIDE PROCUREMENT. THE SMALL BUSINESS SPECIALIST ACCEPTED THE CONTRACTING OFFICER'S BASES OF REJECTION OF HIS ORIGINAL RECOMMENDATION.

YOU HAVE RESPONDED TO THE CONTRACTING OFFICER'S POSITION AS FOLLOWS:

"THE ONLY PREREQUISITE THAT THE CONTRACTING OFFICER MENTIONED FOR THE ESTABLISHMENT OF THE PARTIAL SET-ASIDE THAT IS RECOGNIZED BY ASPR (1 706.6(A)) IS THE ABILITY TO SEVER THE PROCUREMENT INTO ECONOMIC PRODUCTION RUNS, AS WAS DISCUSSED ABOVE UNDER PARAGRAPH (A); DUPLICATION OF EFFORT AND INCREASED COST OF SUPPORT ARE NOT PROPERLY BEFORE THE CONTRACTING OFFICER IN MAKING HIS SET-ASIDE DECISION. YET, IN PARAGRAPH 11 OF THE CONTRACTING OFFICER'S STATEMENT HE ADMITS THAT ONE OF THE THREE REASONS FOR DENIAL OF THE SMALL BUSINESS SPECIALIST'S RECOMMENDATION FOR A PARTIAL SET-ASIDE WAS THE DUPLICATION IN THE PROCUREMENT OF DATA ITEMS; HE REITERATES THIS RATIONALE AT PARAGRAPH 13 OF HIS STATEMENT. BECAUSE THE CONTRACTING OFFICER SERIOUSLY ERRED IN HIS DETERMINATION THAT THE PROCUREMENT COULD NOT BE SPLIT INTO TWO ECONOMIC PRODUCTION RUNS, A DECISION WHICH RAN COUNTER TO THE EVIDENCE HE HAD AVAILABLE, AND BECAUSE THE CONTRACTING OFFICER USED AS ONE OF THE BASES OF HIS DECISION A MATTER WHICH WAS NOT PROPERLY CONSIDERED (DUPLICATION OF PROCUREMENT OF DATA) THE PROTESTANT RESPECTFULLY URGES THAT THE DECISION BE REVERSED BY CANCELLATION OF THE SOLICITATION." IN THE ABOVE REGARD, WE NOTE THAT ASPR 1-706.6(A)(II) REFERS TO ASPR 1 804.1(A)(2) WHICH SETS FORTH FACTORS TO BE CONSIDERED IN THE DETERMINATION OF WHETHER A PROPOSED PROCUREMENT IS SUSCEPTIBLE OF DIVISION INTO TWO OR MORE ECONOMIC PRODUCTION RUNS AS FOLLOWS:

"(2) IN DETERMINING WHETHER A PROPOSED PROCUREMENT IS SUSCEPTIBLE TO DIVISION INTO TWO OR MORE ECONOMIC PRODUCTION RUNS OR REASONABLE LOTS, CONSIDERATION SHOULD BE GIVEN TO THE FOLLOWING FACTORS AND ANY OTHERS DEEMED APPROPRIATE:

(I) PRICE AND PROCUREMENT HISTORY OF THE ITEMS,

(II) OPEN INDUSTRY CAPACITY,

(III) STARTUP COST INCLUDING SPECIAL TOOLING

REQUIREMENTS,

(IV) DELIVERY SCHEDULE, AND

(V) NATURE OF ITEM AND QUANTITY BEING PROCURED." WE DO NOT AGREE THAT THE CONTRACTING OFFICER PLACED RELIANCE ON IMPROPER FACTORS IN NOT RECOMMENDING A PARTIAL SMALL BUSINESS SET-ASIDE FOR THIS PROCUREMENT IN VIEW OF THE BROAD LANGUAGE OF THE ABOVE-CITED REGULATION. THEREFORE, WE FIND NO LEGAL BASIS UPON WHICH TO DISTURB THE DETERMINATION BY THE CONTRACTING OFFICER AND THE SMALL BUSINESS SPECIALIST NOT TO SET ASIDE A PORTION OF THE PROCUREMENT FOR EXCLUSIVE SMALL BUSINESS PARTICIPATION.

THE OTHER BASIS FOR THE PROTEST IS THAT THERE IS A PATENT AMBIGUITY BETWEEN THE DELIVERY SCHEDULE AND THE REQUIRED QUANTITY OF UNITS. LENGTHENING THE DELIVERY SCHEDULE, MODIFICATION 0001 PROVIDED FOR THE DELIVERY OF 850 UNITS, INCLUDING 150 IN THE LAST MONTH OF THE PROPOSED CONTRACT, IN CONFLICT WITH THE BASIC SCHEDULE WHICH CALLED FOR A QUANTITY OF 800 UNITS. A REVIEW OF THE BIDS OF LOE AND SUN REVEALS THAT, IN THE WORDS OF THE CONTRACTING OFFICER, "ALL BIDDERS BID ON A QUANTITY OF 800, AS IS EVIDENT FROM THE EXTENSION OF THEIR UNIT BID PRICES." COMPETITION HAS NOT BEEN ADVERSELY AFFECTED IN THIS CASE SINCE ALL BIDDERS BID ON THE BASIS INTENDED AND THUS NO BIDDER OBTAINED ANY ADVANTAGE BECAUSE OF THE AMBIGUITY. IN SIMILAR CIRCUMSTANCES, WE HAVE TAKEN THE POSITION THAT, RATHER THAN READVERTISE, THE AWARD SHOULD BE PERMITTED TO STAND WITH THE OMISSION OR CORRECTION OF THE DEFECTIVE PROVISION. SEE 43 COMP. GEN. 23, 26 (1963). CF. B-170768(1), FEBRUARY 17, 1971. WE HAVE BEEN ADVISED THAT THE CONTRACT AWARDED TO SUN REFLECTED A MODIFICATION OF THE DELIVERY SCHEDULE TO REQUIRE THE DELIVERY OF 100 UNITS IN THE LAST MONTH OF THE PROPOSED CONTRACT. IN VIEW OF THE FOREGOING, WE FIND NO BASIS TO QUESTION THE AWARD OR THE RESULTING CONTRACT.

NEXT, YOU PROTEST THAT ASO IMPROPERLY OMITTED THE PATENT INDEMNITY CLAUSE FROM THE SOLICITATION. WHILE THE IFB DID NOT CONTAIN THE PATENT INDEMNITY CLAUSE, BY LETTER DATED JANUARY 26, 1971, TO ASO, SUN STATED THAT "AT NO INCREASE IN COST TO THE GOVERNMENT, (SUN) WILL ACCEPT A CONTRACT RESULTING *** WITH THE INCLUSION OF THE PATENT INDEMNITY CLAUSE PER ASPR 9-103.1 AND BY ADDING TO THE END OF THE CLAUSE: 'THE FOREGOING SHALL APPLY ONLY TO THE FOLLOWING: LOE INDUSTRIES, U.S. PATENT 3,385,475, MAY 28, 1968.'" THE CONTRACT AWARDED TO SUN INCLUDED THE PATENT INDEMNITY CLAUSE PURSUANT TO ITS JANUARY 26 LETTER. WE FIND NO LEGAL OBJECTION TO THE ACCEPTANCE OF THIS GUARANTEE AT NO INCREASE IN COST SINCE IT WAS IN THE BEST INTERESTS OF THE GOVERNMENT. SEE B 158790, APRIL 15, 1966. EVEN IF THE CONTRACT AWARDED UNDER THE IFB TO SUN DID NOT CONTAIN THE PATENT INDEMNITY CLAUSE, WE HAVE HELD THAT THIS WOULD NOT REQUIRE OUR OFFICE TO OBJECT SOLELY BECAUSE THE GOVERNMENT MIGHT INCUR PATENT INFRINGEMENT LIABILITY. SEE B- 158790, SUPRA.

WE NEXT TURN TO YOUR CONTENTION THAT THE USE OF LOE'S PRIVATELY DEVELOPED DATA AS THE SOURCE OF THE SPECIFICATION USED IN THE IFB WAS IN VIOLATION OF LOE'S PROPRIETARY RIGHTS. YOU SUPPLIED OUR OFFICE WITH EXTENSIVE DOCUMENTATION AND AFFIDAVITS TO SUPPORT YOUR CONTENTION THAT LOE SUPPLIED ITS DATA TO NAVAIR ON A CONFIDENTIAL BASIS. NAVAIR DISPUTES THIS CLAIM AND DIRECTS OUR ATTENTION TO THE ADMITTED FACT THAT LOE "DID NOT STAMP THE SPECIFICATION WITH ANY PARTICULAR LEGEND" TO RESTRICT USE OF ITS DATA FOR COMPETITIVE PROCUREMENT PURPOSES. WE NEED NOT RESOLVE THIS CONFLICT SINCE THIS POINT OF PROTEST MAY BE RESOLVED ON OTHER GROUNDS.

LOE'S PATENT WAS GRANTED ON MAY 28, 1968. THE INITIAL SOLICITATION FOR THE ITEM, UNDER AN IDENTICAL SPECIFICATION, WAS ISSUED ON JUNE 17, 1969, ON A COMPETITIVE BASIS AND RESULTED IN AN AWARD TO LOE AS THE LOWEST OF FIVE BIDDERS. THE IFB IN THAT PROCUREMENT WAS AMENDED PRIOR TO BID OPENING ON JULY 17, 1969, AS THE RESULT OF DISCUSSIONS BETWEEN LOE AND NAVAIR, TO INCLUDE REVISION "A" OF THE BASIC NAVAIR SPECIFICATION XAS- 1832. WITH RESPECT TO THE INSTANT PROCUREMENT, LOE MADE NO ATTEMPT TO PROTEST THE ALLEGED IMPROPER DISCLOSURE OF ITS DATA UNTIL IT BECAME AWARE OF THE FACT THAT IT WAS NOT LOW BIDDER. SINCE LOE RAISED NO OBJECTIONS TO THE USE OF THE NAVAIR SPECIFICATION AS VIOLATIVE OF ITS PROPRIETARY RIGHTS DURING THE COURSE OF TWO COMPETITIVE PROCUREMENTS, WE CONCLUDE THAT THIS FACT, COUPLED WITH THE ADMINISTRATIVE POSITION, AFFORDS NO BASIS TO QUESTION ASO'S ACTIONS IN THIS REGARD. THE COURTS HAVE CONSISTENTLY TAKEN THE POSITION THAT IN ORDER TO MAINTAIN A PROPRIETARY CLAIM TO EXCLUSIVE RIGHTS IN INFORMATION, THE PARTY CLAIMING SUCH RIGHTS MUST TAKE REASONABLE ACTION TO PREVENT OR SUPPRESS ANY UNAUTHORIZED USE. SEE 46 COMP. GEN. 885, 889 (1967), AND CASES CITED THEREIN; 49 ID. 124, 128 (1969); AND B 168485(1), MARCH 30, 1970. WE FINALLY TURN TO YOUR ALLEGATION, AS SUPPORTED BY LOE'S PATENT ATTORNEYS, THAT INFRINGEMENT OF THE LOE PATENT WILL OCCUR IF ANY OTHER BIDDER PRODUCES THE DESIRED UNITS IN ACCORDANCE WITH THE NAVAIR SPECIFICATION. YOU STATE THAT WHERE A PATENT WILL BE INFRINGED, OUR OFFICE SHOULD NOT FOLLOW THE LINE OF REASONING IN 38 COMP. GEN. 276 (1958), WHEREIN WE INTERPRETED THE PROVISIONS OF 28 U.S.C. 1498, WHICH YOU CONSTRUE AS "NOT ALLOWING THE CANCELLATION OF IFB'S DUE TO POSSIBLE PATENT INFRINGEMENT BY THE WINNING BIDDER," AND IN 46 COMP. GEN. 205 (1966), TO THE EFFECT THAT:

" *** THE COURTS HAVE RECOGNIZED SECTION 1498 AS CONSTITUTING IN EFFECT AN EMINENT DOMAIN STATUTE, WHICH VESTS IN THE GOVERNMENT THE RIGHT TO USE ANY PATENT GRANTED BY IT UPON PAYMENT OF REASONABLE COMPENSATION TO THE PATENT HOLDER. *** " YOU NOTE THAT "IN NO CASE THAT OUR RESEARCH HAS DEVELOPED DID THE AGENCY USE THE PATENT HOLDER'S DATA AS THE SPECIFICATION FOR THE PROCUREMENT. BY USING THE SPECIFICATION, THE GOVERNMENT LAID BARE THE STEP BY STEP PROCESSES FOR THE PRODUCTION OF THE EQUIPMENT." FURTHER, YOU STATE:

"THE PROTESTANT PROPOSES THAT THE COMPTROLLER GENERAL ESTABLISH A DEFINITIVE RULE GOVERNING THE ALLOWANCE OF PRE-AWARD PROTESTS AGAINST SOLICITATIONS WHICH CONTAIN PATENT DATA AS AN INTEGRAL PART OF THE CONTRACT SPECIFICATION THEREBY MAKING PERFORMANCE UNDER THE RESULTANT CONTRACT ONE WHICH WOULD INFRINGE THE PATENT. THE ELEMENTS OF SUCH A RULE, CONSISTENT WITH CASE LAW AND THE INTENT OF SEC 1498, WOULD BE AS FOLLOWS:

"1. A PATENTEE PROTESTS THE USE OF PATENTED INFORMATION IN A SOLICITATION, ASSERTING THAT PERFORMANCE THEREUNDER WOULD RESULT IN PATENT INFRINGEMENT, AND

"2. THE PROTEST IS RECEIVED PRIOR TO CONTRACT AWARD, AND

"3. (A) THE GOVERNMENT, REPRESENTED BY THE PROCURING ACTIVITY, ADMITS THE USE OF THE PATENTED DATA IN SOLICITATION, PERFORMANCE UNDER WHICH WOULD RESULT IN PATENT INFRINGEMENT OR

(B) THE GOVERNMENT STATES THAT IT DOES NOT KNOW, OR THAT IT DENIES, THAT THERE IS PATENT INFORMATION IN THE SOLICITATION OR THAT PERFORMANCE UNDER THE SOLICITATION WILL VIOLATE THE PATENT, AND THE PATENTEE DEMONSTRATES TO THE GOVERNMENT (EITHER THE PROCURING ACTIVITY OR THE GENERAL ACCOUNTING OFFICE), BY THE SUBSTANTIAL WEIGHT OF THE EVIDENCE, THAT THERE IS BOTH PATENT INFORMATION IN THE SOLICITATION AND THAT PERFORMANCE THEREUNDER WILL VIOLATE THE PATENT.

"IF THE SPECIFIED ELEMENTS OF THE RULE ARE MET, THE SOLICITATION WOULD THEN BE CANCELLED AS PROVIDED FOR IN ASPR 2-404.1(B)(VIII) - ' FOR OTHER REASONS, CANCELLATION IS CLEARLY IN THE BEST INTEREST OF THE GOVERNMENT.'"

WE HAVE CAREFULLY CONSIDERED YOUR LEGAL ARGUMENTS BUT WE ARE NOT PERSUADED THAT OUR POSITION AS ANNOUNCED IN 46 COMP. GEN., SUPRA, IS INAPPLICABLE HERE.

MOREOVER, OUR OFFICE IS IN NO POSITION TO MAKE SUBSTANTIVE DETERMINATIONS CONCERNING POSSIBLE PATENT VIOLATIONS. WE INVITE YOUR ATTENTION TO OUR DECISION B-162385, NOVEMBER 20, 1967, WHERE WE RECOGNIZED THAT OUR OFFICE HAS NO JURISDICTION IN THE ADMINISTRATIVE SETTLEMENT OF PATENT INFRINGEMENT CLAIMS. FURTHER, WE STATED IN B 160745, JULY 27, 1967, AS FOLLOWS:

" *** AND SINCE WE HAVE NEITHER THE NECESSARY EXPERTISE REQUIRED TO PASS UPON THE VALIDITY OF THE PATENT INVOLVED NOR THE REQUISITE FACILITIES FOR MAKING A SOUND JUDGMENT AS TO THE ALLEGED INFRINGEMENT AND VALUE OF THE USE OF THE PATENT, WE FEEL THAT SUCH CLAIMS PROPERLY MAY NOT BE CONSIDERED OR SETTLED BY OUR OFFICE." ALSO, WE HAVE HELD THAT EVEN IF A CLAIM OF PATENT INFRINGEMENT IS MERITORIOUS, IN CONSONANCE WITH OUR POSITION ON THESE MATTERS, SUCH A FACT WOULD NOT PREVENT THE AWARD OF A CONTRACT. SEE B-157485, NOVEMBER 26, 1965; AND B-166788, JULY 31, 1969. IN LIGHT OF THE FOREGOING, WE BELIEVE THAT LOE MUST RELY ON THE STATUTORY REMEDY PROVIDED BY 28 U.S.C. 1498 OR UPON THE PROCEDURES FOR ADMINISTRATIVE SETTLEMENT OF PATENT INFRINGEMENT CLAIMS PRESCRIBED BY ASPR 9-401, ET SEQ.

ACCORDINGLY, THE PROTESTS OF LOE INDUSTRIES ARE DENIED.