B-145164, MAY 24, 1961

B-145164, MAY 24, 1961

TO JANCY ENGINEERING COMPANY:

REFERENCE IS MADE TO A LETTER DATED MARCH 25, 1961, TO THE MILITARY INDUSTRIAL SUPPLY AGENCY, PHILADELPHIA, PENNSYLVANIA, FROM MR. HAROLD M. KNOTH, YOUR ATTORNEY, PROTESTING THE POSSIBLE AWARD OF CONTRACTS TO ATLANTIC HARDWARE AND SUPPLY CORPORATION, NEW YORK, NEW YORK, UNDER INVITATIONS FOR BIDS NOS. 63077-/24-1/-2667-61, 63077-/24-1/-2668-61, 63077-/24-1/-2669-61 AND 63077-/24-1/-2670-61, ISSUED FEBRUARY 20, 1961.

BIDS WERE REQUESTED ON 64 ITEMS OF SELF-CENTERING CIRCLE CUTTERS AND 2 ITEMS OF ADAPTERS FOR SAME. THE CONTRACTING OFFICER HAS REPORTED THAT YOU WERE THE LOW RESPONSIVE BIDDER ON 17 ITEMS IN THE TOTAL AMOUNT OF $14,991.36 AND THAT ATLANTIC HARDWARE WAS THE LOW RESPONSIVE BIDDER ON THE BALANCE OF THE ITEMS IN THE TOTAL AMOUNT OF $245,310.60. THE RECORD SHOWS FURTHER THAT ATLANTIC HARDWARE OFFERS TOOLS TO BE MANUFACTURED BY THE M. A. FORD COMPANY, DAVENPORT, IOWA.

YOU HAVE EMPHASIZED THE RECORD OF JANCY ENGINEERING COMPANY AS THE DEVELOPER AND SOLE MANUFACTURER OF THESE TOOLS AND HAVE QUESTIONED THE ABILITY OF THE M. A. FORD COMPANY TO MEET THE REQUIREMENTS OF THE CONTRACT. YOU HAVE CONTENDED FURTHER THAT AN AWARD TO ATLANTIC HARDWARE WOULD RESULT IN AN INFRINGEMENT OF PATENT NO. 2,852,968, OWNED BY YOU, AND THAT WHILE THE GOVERNMENT MAY HAVE THE RIGHT, PURSUANT TO 28 U.S.C. 1498, TO PURCHASE FROM OTHER THAN THE PATENTEE, THE INDISCRIMINATE USE OF THIS RIGHT IS CONTRARY TO THE PUBLIC POLICY CONSIDERATIONS UNDERLYING THE PATENT LAW, CITING 13 COMP. GEN. 173 AND 14 COMP. GEN. 298. YOU THEREFORE URGE THAT AN AGREEMENT BE NEGOTIATED WITH YOUR COMPANY UNDER 10 U.S.C. 2304 (A) (10) WHICH PROVIDES THAT PURCHASES MAY BE NEGOTIATED WHERE "IT IS IMPRACTICABLE TO OBTAIN COMPETITION.'

AS TO THE QUALIFICATIONS OF THE M. A. FORD COMPANY TO PRODUCE TOOLS MEETING THE SPECIFICATIONS, A COMPREHENSIVE PREAWARD SURVEY BY THE INSPECTOR OF NAVAL MATERIAL, CEDAR RAPIDS, IOWA, HAS SATISFIED THE DEPARTMENT OF THE NAVY THAT THE FORD COMPANY IS FULLY QUALIFIED. COURSE, IN THE EVENT OF FAILURE TO PERFORM, THE GOVERNMENT WOULD HAVE AVAILABLE LEGAL REMEDIES FOR BREACH OF CONTRACT.

WITH RESPECT TO THE GOVERNMENT'S EXERCISE OF THE RIGHT AFFORDED BY 28 U.S.C. 1498, AND YOUR SUGGESTION THAT THE CONTRACT BE NEGOTIATED, ATTENTION IS INVITED TO 38 COMP. GEN. 276, AT PAGE 278, AS FOLLOWS:

"* * * IT IS OUR VIEW, HOWEVER, THAT SECTION 1498 APPEARS CLEARLY TO CONSTITUTE A MODIFICATION OF THE PATENT LAW BY LIMITING THE RIGHTS OF PATENTEES INSOFAR AS PROCUREMENT OF SUPPLIES BY THE GOVERNMENT MAY BE CONCERNED, AND BY VESTING IN THE GOVERNMENT A RIGHT TO THE USE OF ANY PATENTS GRANTED BY IT UPON PAYMENT OF REASONABLE COMPENSATION FOR SUCH USE. WE BELIEVE THAT THE STATUTE IS NOT CONSISTENT WITH ANY DUTY ON THE PART OF A CONTRACTING AGENCY OF THE GOVERNMENT TO PROTECT THE INTERESTS OF PATENTEES OR LICENSEES WITH RESPECT TO ARTICLES WHICH IT PROPOSES TO PURCHASE, SINCE THE STATUTE ITSELF DEFINES AND PROVIDES AN EXCLUSIVE REMEDY FOR ENFORCEMENT OF THE PATENTEE'S RIGHTS AS TO THE GOVERNMENT. ANY OTHER INTERPRETATION WOULD APPEAR TO US TO IMPOSE AN IMPOSSIBLE BURDEN UPON GOVERNMENT PROCUREMENT OFFICIALS TO DETERMINE THE APPLICABILITY AND VALIDITY OF ANY PATENTS AFFECTING ANY ARTICLES DESIRED.

"WHERE THE PROCUREMENT IS TO BE MADE BY FORMAL ADVERTISING, IT IS OUR OPINION, NOTWITHSTANDING WHAT WAS SAID IN 13 COMP. GEN. 173, THAT THERE IS NO ALTERNATIVE TO THE SECURING OF THE MAXIMUM AMOUNT OF COMPETITION FROM FIRMS QUALIFIED AND WILLING TO UNDERTAKE THE PRODUCTION OF THE ARTICLES, SUBJECT, OF COURSE, TO THEIR WILLINGNESS AND ABILITY TO INDEMNIFY THE GOVERNMENT AGAINST CLAIMS OF PATENTEES. THERE MAY BE CERTAIN CONDITIONS INDICATING THAT IT IS IMPRACTICABLE TO SECURE COMPETITION IN A GIVEN CASE, IN WHICH EVENT THE AUTHORITY TO NEGOTIATE UNDER 10 U.S.C. 2304 (A) (10) MIGHT PROPERLY BE EXERCISED, BUT WE BELIEVE THAT THE ARMED SERVICES HAVE NO AUTHORITY TO DISPENSE WITH THE REQUIREMENTS OF FORMAL ADVERTISING SOLELY ON THE GROUND THAT SUCH PROCEDURE WOULD TEND TO IMPAIR THE INTEGRITY OF THE PATENT SYSTEM. THE CONGRESS HAS MADE NO EXCEPTION TO THE ADVERTISING STATUTES IN THAT RESPECT AND HAS SPECIFICALLY PROVIDED PATENTEES A REMEDY IN THE COURT OF CLAIMS FOR ANY PATENT INFRINGEMENTS INVOLVED IN THE PRODUCTION OF ARTICLES FOR THE UNITED STATES.

"NOR DO WE BELIEVE THAT NEGOTIATION UNDER 10 U.S.C. 2304 (A) (10) WOULD BE AUTHORIZED IN OTHER CASES MERELY ON THE BASIS THAT THE PROCUREMENT INVOLVED PATENTED ARTICLES, BUT RATHER THAT THE DETERMINING FACTOR SHOULD BE WHETHER OR NOT IT SEEMS LIKELY THAT PERSONS OR FIRMS OTHER THAN A PATENT HOLDER, CAPABLE OF PERFORMING IN ACCORDANCE WITH THE GOVERNMENT'S SPECIFICATIONS, WOULD BE INTERESTED IN SUBMITTING BIDS. WHAT IS A FAIR AND REASONABLE PRICE UNDER SUCH CIRCUMSTANCES PROBABLY COULD NOT BE DEFINITELY ASCERTAINED EXCEPT UNDER FORMAL ADVERTISING CONDITIONS. IT IS APPARENT THAT NEGOTIATION WOULD IN THOSE CIRCUMSTANCES BE IN CONTRAVENTION OF THE GENERAL REQUIREMENT OF 10 U.S.C. 2304 (A) THAT "PURCHASES OF AND CONTRACTS FOR PROPERTY OR SERVICES COVERED BY THIS CHAPTER SHALL BE MADE BY FORMAL ADVERTISING.'"

ALSO SEE 39 COMP. GEN. 6.

SINCE THE PATENT CONSENT AND INDEMNITY CLAUSES ARE INCORPORATED IN THE INVITATIONS BY REFERENCE AND WILL BE MADE A PART OF ANY CONTRACTS EXECUTED, THE HOLDING IN 38 COMP. GEN. 276 WOULD APPEAR TO BE EQUALLY APPLICABLE HERE AND THERE IS NO BASIS FOR CONCLUDING THAT AN AWARD TO ATLANTIC HARDWARE AND SUPPLY CORPORATION WOULD BE IMPROPER.

WE ARE THEREFORE ADVISING THE DEPARTMENT OF THE NAVY THAT AWARDS MAY BE MADE TO THE LOW RESPONSIBLE BIDDERS, AS PROPOSED.