B-76676, MAY 25, 1933

B-76676, MAY 25, 1933

PRECIS-UNAVAILABLE

THE HONORABLE, THE SECRETARY OF WAR:

YOUR LETTERS OF SEPTEMBER 1, 1936, OCTOBER 26, 1936, AND FEBRUARY 6, 1937, WERE RECEIVED IN REFERENCE TO THE LETTER TO YOU OF AUGUST 11, 1936. CONCERNING THE MATTERS SUGGESTED IN THE LETTER OF AUGUST 11, 1936, AS REQUIRING AMPLIFICATION, YOUR LETTER OF SEPTEMBER 1, 1936, IS AS FOLLOWS:

"YOUR LETTER A-76676 DATED AUGUST 11, 1936, WITH REFERENCE TO THE PROPOSED LICENSE AGREEMENT BETWEEN THE COLT'S PATENT FIRE ARMS MANUFACTURING COMPANY AND THE UNITED STATES HAS BEEN NOTED. SEVERAL POINTS HAVE BEEN RAISED IN YOUR LETTER AND EACH WILL BE ANSWERED IN THE ORDER MENTIONED BY YOU.

"1. HAS SEARCH BEEN MADE BY GOVERNMENT PATENT EXPERTS TO DETERMINE (A) OWNERSHIP AND (B) RIGHT OF DISPOSITION?

THE PATENTS LISTED IN ARTICLE I, SCHEDULE A, COVER AUTOMATIC MACHINE RIFLES. PATENT ATTORNEYS OF THE WAR DEPARTMENT HAVE MADE A THOROUGH INVESTIGATION AND FIND THAT THESE PATENTS ARE OWNED BY THE J.M. AND M.S. BROWNING COMPANY, A CORPORATION OF UTAH, AND THAT THE RIGHT TO USE SAID PATENTS AND TO LICENSE OTHERS TO USE SAID PATENTS ARE RECORDED IN THE UNITED STATES PATENT OFFICE IN LIBER V-139, PAGES 29 TO 39. IN ADDITION THERE HAS BEEN ATTACHED TO THE PROPOSED LICENSE AGREEMENT A CERTIFICATE FROM THE PRESIDENT OF THE J.M. AND M.S. BROWNING COMPANY AS FOLLOWS:

THE J.M. AND M.S. BROWNING COMPANY, A CORPORATION OF UTAH, HEREBY ACKNOWLEDGES AND WARRANTS THAT THE COLT'S PATENT FIRE ARMS MANUFACTURING COMPANY HAS AUTHORITY TO GRANT THE LICENSE (W-ORD-267) AS ABOVE SET FORTH AT THE ROYALTIES THEREIN STATED WITHOUT PREJUDICE TO EXISTING AGREEMENTS BETWEEN THE SAID J.M. AND M.S. BROWNING COMPANY AND THE COLT'S PATENT FIRE ARMS MANUFACTURING COMPANY.

IN TESTIMONY WHEREOF, J.M. AND M.S. BROWNING COMPANY HAS CAUSED THIS ACKNOWLEDGEMENT AND WARRANT TO BE EXECUTED BY ITS PROPER OFFICERS, THIS *** DAY OF ***, 1936.

"2. BY WHAT AUTHORITY OFFICERS OF THE WAR DEPARTMENT WILL REPORT TO THE LICENSOR ALL AUTOMATIC MACHINE RIFLES MANUFACTURED UNDER THIS AGREEMENT.

LICENSE AGREEMENTS AND CONTRACTS MUST BE MADE IN THE NAME OF THE UNITED STATES. IT IS POSSIBLE TO OBTAIN THIS AGREEMENT TO INCLUDE ALL GOVERNMENTAL AGENCIES AT THE SAME COST TO THE UNITED STATES AS WOULD PREVAIL SHOULD THE LICENSE AGREEMENT BE RESTRICTED TO PERMIT THE MANUFACTURE OF THIS MATERIAL FOR THE WAR DEPARTMENT ONLY. THE AGREEMENT WAS THEREFORE MADE BROAD IN ITS TERMS SO THAT ADDITIONAL ROYALTY PAYMENTS WOULD NOT BE REQUIRED FOR RIFLES MANUFACTURED FOR, OR BY, OTHER GOVERNMENTAL AGENCIES. IN ADDITION, THE ORDNANCE DEPARTMENT OF THE ARMY IS BEST EQUIPPED TO MANUFACTURE, OR HAVE MANUFACTURED, EQUIPMENT OF THIS TYPE. IT HAS LONG BEEN THE POLICY OF OTHER GOVERNMENTAL AGENCIES, I.E., THE NAVY DEPARTMENT, INCLUDING THE MARINE CORPS, THE COAST GUARD, ETC., TO PROCURE THIS TYPE OF EQUIPMENT THROUGH THE WAR DEPARTMENT. MANUFACTURING ORDERS ARE PLACED ANNUALLY COVERING THE KNOWN NEEDS OF ALL GOVERNMENTAL AGENCIES, THUS RESULTING IN ECONOMY IN PROCUREMENT. SINCE THE WAR DEPARTMENT CONSOLIDATES THESE REQUIREMENTS, AND IS THE ONLY AGENCY OF THE UNITED STATES EQUIPPED TO UNDERTAKE MANUFACTURE, IT IS IN A POSITION TO REPORT ON ALL MANUFACTURING ACTIVITIES UNDER THIS AGREEMENT. FURTHERMORE, ANY GOVERNMENTAL AGENCY THAT WOULD DESIRE TO TAKE ADVANTAGE OF THIS AGREEMENT WOULD CONTACT THE WAR DEPARTMENT FOR A COPY THEREOF AND IN SO DOING A MUTUAL AGREEMENT BETWEEN THE VARIOUS GOVERNMENT DEPARTMENTS WOULD BE ARRANGED FOR NECESSARY REPORTING TO THE LICENSOR IF THE WORK IS TO BE PERFORMED OTHER THAN UNDER THE JURISDICTION OF THE WAR DEPARTMENT.

"3. AUTHORITY OF THE WAR DEPARTMENT TO OBLIGATE THE UNITED STATES TO PAY ROYALTY.

IN THE ANNUAL SUPPLY BILLS FUNDS ARE PROVIDED FOR THE PROCUREMENT OF VARIOUS TYPES OF EQUIPMENT. THE UNIT COST OF EACH ITEM INCLUDES NOT ONLY THE COST OF MANUFACTURE BUT ALSO ANY ROYALTY PAYMENTS INCIDENT THERETO. WHEN WORK IS UNDERTAKEN BY THE WAR DEPARTMENT FOR OTHER GOVERNMENTAL AGENCIES THE TOTAL COST THEREOF IS MADE AVAILABLE TO THE WAR DEPARTMENT WITHOUT REFERENCE TO THE ITEMS PROPERLY ENTERING INTO THE UNIT COST. THE WAR DEPARTMENT DOES NOT BY THIS AGREEMENT INCUR ANY DIRECT OBLIGATION. ROYALTY PAYMENTS ARE DUE ONLY WHEN, AND IF, AUTOMATIC MACHINE RIFLES ARE ACTUALLY MANUFACTURED. SUCH MANUFACTURE WILL NOT BE UNDERTAKEN EXCEPT AS RESULT OF FUNDS BEING PROVIDED BY CONGRESS FOR THE PROCUREMENT OF RIFLES. SHOULD NO FUNDS BE APPROPRIATED FOR THIS PURPOSE NO ORDER WILL BE PLACED AND THERE IS NO OBLIGATION ON THE PART OF THE UNITED STATES TO MAKE ANY ROYALTY PAYMENTS. THE ROYALTY PAYMENT IS OPERATIVE ONLY AS A PART OF THE COST OF PROCUREMENT.

"4. SOME PATENTS EXPIRE BEFORE THE EXPIRATION DATE OF THE PROPOSED AGREEMENT.

IT IS TRUE THAT SOME OF THE PATENTS WILL EXPIRE BEFORE THE EXPIRATION DATE OF THIS AGREEMENT. HOWEVER, ALL OF THESE PATENTS ARE INTERRELATED WITH THE BASIC PATENT AND IN DETERMINING THE AMOUNT OF ROYALTY PAYMENT CONSIDERATION WAS GIVEN TO THIS FACT. IT IS DIFFICULT TO EVALUATE EACH SEPARATE PATENT AND IMPROVEMENT THEREON. TO DO SO WOULD INCREASE THE COST OF OPERATION UNDER THIS AGREEMENT AND WOULD REQUIRE A LARGER PAYMENT OF ROYALTY BY THE UNITED STATES.

"5. HAS PROPER CHECK BEEN MADE BY GOVERNMENT PATENT EXPERTS TO DETERMINE VALIDITY AND OWNERSHIP OF MACHINE GUN PATENTS AND WHETHER THEY COVER BONA FIDE INVENTIONS?

AS STATED IN THE ANSWER TO QUESTION 1 ABOVE, THESE PATENTS HAVE BEEN CHECKED BY PATENT ATTORNEYS IN THE WAR DEPARTMENT EMPLOY AND THIS OFFICE FEELS SATISFIED THAT ALL PATENTS COVER BONA FIDE INVENTIONS, AND THAT THE PATENTEE IN EACH CASE HAS ASSIGNED TO THE COLT'S PATENT FIRE ARMS MANUFACTURING COMPANY THE RIGHT TO MANUFACTURE, AND TO LICENSE OTHERS TO MANUFACTURE, MACHINE GUNS WHICH INCLUDE FEATURES COVERED BY THE PATENTS. IN EACH CASE THERE HAS BEEN RECORDED IN THE UNITED STATES PATENT OFFICE THE ASSIGNMENT OF THE PATENTEE TO THE COLT'S PATENT FIRE ARMS MANUFACTURING COMPANY AND PROPER REFERENCE OF SUCH RECORDING IS CONTAINED IN ARTICLE I, SCHEDULE B, OF THE PROPOSED AGREEMENT.

"6. YOU AGAIN RAISE THE QUESTION WITH REFERENCE TO MACHINE GUNS THAT WAS RAISED WITH REFERENCE TO AUTOMATIC MACHINE RIFLES AND COVERED IN THE ANSWER TO QUESTION 2 ABOVE. THE SAME CONDITIONS PREVAIL WITH REFERENCE TO MACHINE GUNS.

"7. LIABILITY OF LICENSOR WITH REFERENCE TO PATENT INFRINGEMENT.

EVER SINCE THE BASIC PATENTS REFERRED TO IN THIS AGREEMENT WERE ISSUED ON AUTOMATIC MACHINE RIFLES AND MACHINE GUNS THE COLT'S PATENT FIRE ARMS MANUFACTURING COMPANY HAVE BEEN THE ONLY MANUFACTURERS. LARGE QUANTITIES OF THESE WEAPONS HAVE BEEN MANUFACTURED AND SOLD THROUGHOUT THE WORLD AND AT NO TIME HAS ANY QUESTION BEEN RAISED AS TO THE VALIDITY OF THE PATENTS OR THE POSSIBILITY OF PATENT INFRINGEMENT. THIS OFFICE IS SATISFIED THAT THE POSSIBILITY OF ANY CLAIM BEING MADE AT ANY TIME ON ACCOUNT OF PATENT INFRINGEMENT IS PRACTICALLY NIL. HOWEVER, THE LIABILITY OF THE LICENSOR FOR PATENT INFRINGEMENT WAS INCLUDED IN THE AGREEMENT AND FIXED AT AN AMOUNT EQUAL TO THAT WHICH HE MAY RECEIVE AS ROYALTY PAYMENTS FROM THE UNITED STATES, IN ORDER THAT SUCH SUM WOULD REIMBURSE THE UNITED STATES IN THE EVENT IT WOULD BE NECESSARY TO DEFEND ITSELF IN ANY COURT ACTION. PAST EXPERIENCE AND EXTENSIVE STUDY BY PATENT ATTORNEYS OF THE WAR DEPARTMENT HAVE ESTABLISHED THE VALIDITY OF THESE PATENTS SO THAT THERE IS LITTLE POSSIBILITY OF ANY CLAIM BEING MADE FOR PATENT INFRINGEMENT.

"THE LICENSE AGREEMENT HERE PROPOSED IS DESIRED PRIMARILY TO CREATE AN ADDITIONAL SOURCE OF SUPPLY FOR MACHINE GUNS. THE DESIGNS FOR MACHINE GUNS STANDARDIZED FOR USE OF THE ARMY AND NAVY ARE BASED UPON PATENTS OWNED OR CONTROLLED BY THE COLT'S COMPANY. THIS COMPANY IS THE ONLY SOURCE OF SUPPLY IN THIS COUNTRY. A LITTLE OVER A YEAR AGO THERE WAS A STRIKE AT THE PLANT OF THIS COMPANY AND FOR THE PERIOD OF SUCH STRIKE THERE WAS NO SOURCE OF SUPPLY. IT IS ABSOLUTELY NECESSARY IN THE INTEREST OF NATIONAL DEFENSE THAT ADDITIONAL FACILITIES FOR THE MANUFACTURE OF MACHINE GUNS BE CREATED, AND THAT AT LEAST ONE OF THESE FACILITIES BE UNDER GOVERNMENT CONTROL. THIS LED TO NEGOTIATIONS WITH COLT'S COMPANY WHICH ARE ABOUT TO BE CONSUMMATED BY THIS LICENSE AGREEMENT. THIS AGREEMENT IS SIMILAR TO THAT ADOPTED WITH THIS COMPANY WHEN THEY AUTHORIZED THE GOVERNMENT TO MANUFACTURE ONE-THIRD OF ITS REQUIREMENTS OF AUTOMATIC PISTOLS. THIS AGREEMENT WAS RECOGNIZED BY THE ACCOUNTING OFFICERS AND VOUCHERS COVERING ROYALTY WERE PAID. IN THIS CONNECTION SEE CONTRACT WAR ORD P 13675-2272 SA DATED AUGUST 27, 1918, AND CERTIFICATE OF SETTLEMENT NO. 0301919-W DATED MAY 1, 1933.

"IN VIEW OF THE FACTS STATED ABOVE AND THE FURTHER FACT THAT NO FUNDS WILL BE OBLIGATED FOR THE PAYMENT OF ROYALTIES EXCEPT CONCURRENTLY WITH THE PLACING OF AN ORDER MANUFACTURE, AND THAT SUCH ORDERS WILL NOT BE PLACED EXCEPT AS THE RESULT OF APPROPRIATIONS MADE BY CONGRESS, IT IS RECOMMENDED THAT THE PROPOSED AGREEMENT BE APPROVED."

IN VIEW OF THE ADDITIONAL EXPLANATIONS AND REPRESENTATIONS THUS MADE, THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO THE PAYMENT OF ROYALTIES UNDER AN AGREEMENT SUCH AS IS PROPOSED FROM ANY APPROPRIATION UNDER YOUR ADMINISTRATIVE CONTROL IF OTHERWISE AVAILABLE FOR SUCH PAYMENTS. SEE IN THIS CONNECTION, HOWEVER, SEMPLE V. UNITED STATES, 59 CT.CLS. 664; E.W. BLISS CO. V. UNITED STATES, 74 ID., 1, CERTIORARI DENIED 287 U.S. 634.

MOREOVER, PAYMENTS UNDER THE PROPOSED AGREEMENT, MADE BY OR ON ACCOUNT OF THE WAR DEPARTMENT, WOULD NOT NECESSARILY BE OBJECTIONABLE, WHETHER THE RIFLES AND GUNS SO MANUFACTURED BY OR FOR THE WAR DEPARTMENT ARE FOR ITS OWN USE OR FOR THE USE OF SOME OTHER DEPARTMENT OR ESTABLISHMENT, BUT NO AUTHORITY HAS BEEN BROUGHT TO ATTENTION UNDER WHICH THE SECRETARY OF WAR OR ANY ONE ON HIS BEHALF MAY BIND OTHER DEPARTMENTS OR ESTABLISHMENTS BY CONTRACT CONCERNING PURCHASE MADE DIRECTLY BY THEM OR INDEPENDENTLY OF THE WAR DEPARTMENT, OR UNDER WHICH ANY OFFICIAL OF THE WAR DEPARTMENT PROPERLY MIGHT MAKE REPORTS TO A PRIVATE CORPORATION INFORMING IT OF THE EXTENT OR CHARACTER OF ARTICLES PURCHASED OR MANUFACTURED INDEPENDENTLY OF THE WAR DEPARTMENT BY OTHER PROCUREMENT AGENCIES.

YOU ARE INFORMED, ACCORDINGLY, THAT IF THERE SHALL BE ELIMINATED FROM THE FORMAL AGREEMENT THOSE TERMS WHICH MIGHT BE UNDERSTOOD TO RELATE TO PROCUREMENT INDEPENDENTLY OF THE WAR DEPARTMENT THIS OFFICE WOULD NOT BE REQUIRED OTHERWISE TO OBJECT TO PAYMENTS UNDER SUCH AN AGREEMENT.