B-166072, MAR. 28, 1969

B-166072, MAR. 28, 1969

TO THE LORVIC CORPORATION:

THIS IS IN REPLY TO YOUR LETTER OF JANUARY 31, 1969, AND ENCLOSURES, REQUESTING THIS OFFICE TO DIRECT CANCELLATION OF TWO CONTRACTS FOR SODIUM FLUORIDE TABLETS WHICH WERE LET TO ANOTHER PRODUCER BY THE DEFENSE MEDICAL SUPPLY SUPPORT CENTER, PHILADELPHIA, PENNSYLVANIA.

ESSENTIALLY, IT IS YOUR POSITION THAT THE FORMULA SPECIFIED IN THE GOVERNMENT'S SOLICITATION IS COVERED BY AN EXISTING PATENT UNDER WHICH YOUR COMPANY HAS ACQUIRED THE EXCLUSIVE LICENSE TO MANUFACTURE AND DISTRIBUTE THE ITEM, AND THAT THE GOVERNMENT, BY CONTRACTING WITH ANOTHER PRODUCER, HAS BECOME A PARTY TO PATENT INFRINGEMENT. AS AN ALTERNATIVE TO THE REMEDIES PROVIDED IN PERTINENT STATUTES, WHICH PERMIT HOLDERS OF PATENT CLAIMS TO EITHER SEEK SETTLEMENT WITH AGENCIES AND DEPARTMENTS MENTIONED IN THOSE STATUTES OR BRING AN ACTION AGAINST THE GOVERNMENT IN THE COURT OF CLAIMS FOR REASONABLE COMPENSATION, YOU PROPOSE THE CANCELLATION OF THE SUBJECT CONTRACTS AND THE RETURN TO PROCUREMENT OF THE ITEM ON A SOLE SOURCE BASIS.

FOR THE REASONS STATED BELOW WE DO NOT CONSIDER THAT SUCH ACTION WOULD BE AUTHORIZED OR APPROPRIATE. WHILE THIS OFFICE MAY IN SOME INSTANCES UNDERTAKE TO PREVENT ACTION WHICH WOULD CLEARLY SUBJECT THE GOVERNMENT TO LEGAL LIABILITY FOR VIOLATION OF A RECOGNIZED OBLIGATION, WE HAVE TAKEN THE POSITION THAT THE GOVERNMENT IS AUTHORIZED BY 28 U.S.C. 1498 TO UTILIZE OR PERMIT THE USE OF A PATENTED INVENTION UNDER A GOVERNMENT CONTRACT WITHOUT A LICENSE, SUBJECT TO PAYMENT OF REASONABLE COMPENSATION FOR SUCH USE. THE ACT OF JULY 1, 1918, 40 STAT. 705, AMENDING THE ACT OF JUNE 25, 1910, 36 STAT. 851, FROM WHICH THE CITED SECTION WAS DERIVED, WAS DESIGNED TO FURNISH PATENT HOLDERS ADEQUATE COMPENSATION FOR THE USE OF THEIR PATENTS BY OR ON BEHALF OF THE GOVERNMENT, AND AT THE SAME TIME TO PREVENT THE OBSTRUCTION OF GOVERNMENT ACTIVITIES BY DISPUTES OR LITIGATION BETWEEN PRIVATE PARTIES CONCERNING SUCH PATENTS. WE HAVE ACCORDINGLY HELD THAT COMPETITIVE PROCUREMENT OF THE GOVERNMENT'S NEEDS SHOULD BE ENCOURAGED, REGARDLESS OF A POSSIBLE PATENT INFRINGEMENT, AND IT IS OUR POSITION THAT NEGOTIATION OF A CONTRACT ON A SOLE SOURCE BASIS IS NOT AUTHORIZED MERELY FOR THE REASON THAT THE PROCUREMENT MAY INVOLVE PATENTED ARTICLES. SEE 38 COMP. GEN. 276; 39 ID. 760, 762; AND WELCH, PATENT INFRINGEMENT IN GOVERNMENT PROCUREMENT: GAO'S ROLE, 10 WM. AND MARY L. REV. 39.

WHILE YOUR LETTER ALSO APPEARS TO OBJECT TO THE GOVERNMENT'S DECISION NOT TO REQUIRE CONTRACTORS TO PROVIDE INFRINGEMENT INDEMNIFICATION WITH RESPECT TO THIS ITEM, WE NOTE THAT SUCH INDEMNIFICATION IS NOT MANDATORY FOR PURPOSES OF NEGOTIATED PROCUREMENTS. SEE ARMED SERVICES PROCUREMENT REGULATION 9-103.3. IN ANY EVENT, THE PRESENCE OR ABSENCE OF AN INDEMNITY AGREEMENT BETWEEN THE GOVERNMENT AND ITS CONTRACTOR HAS NO EFFECT UPON ANY RIGHTS YOU OR THE PATENTEE MAY HAVE AGAINST THE GOVERNMENT.

AS TO YOUR COMPLAINT THAT THE CONTRACT SHOULD HAVE BEEN AWARDED TO YOU BECAUSE OF YOUR STATUS AS A SMALL BUSINESS, IT IS REPORTED BY THE DEFENSE SUPPLY AGENCY THAT PRIOR TO ISSUANCE OF THE SOLICITATIONS ON WHICH THE SUBJECT PROCUREMENTS WERE MADE IT WAS DETERMINED BY THE PROCURING ACTIVITY THAT A SMALL BUSINESS SET-ASIDE WOULD NOT BE APPROPRIATE. SINCE IT APPEARS THAT NO OTHER SMALL BUSINESS FIRM COULD HAVE BEEN EXPECTED TO BID, THAT DETERMINATION APPEARS TO BE FULLY IN ACCORD WITH THE SMALL BUSINESS ACT AND IMPLEMENTING REGULATIONS. SEE SECTION 1-706.6/A) (III) OF THE ARMED SERVICES PROCUREMENT REGULATION, WHICH PROHIBITS A PARTIAL SET-ASIDE WHERE THERE IS A REASONABLE EXPECTATION THAT ONLY TWO CONCERNS (ONE LARGE AND ONE SMALL) WILL RESPOND WITH BIDS OR PROPOSALS.