B-151411, JUN. 10, 1963

B-151411, JUN. 10, 1963

TO THE ASSOCIATED AIRCRAFT INDUSTRIES, INC.:

REFERENCE IS MADE TO YOUR LETTER DATED APRIL 29, 1963, IN WHICH YOU CRITICIZE AND REQUEST RECONSIDERATION OF OUR CONSTRUCTION AND APPLICATION OF THE PROVISIONS OF 28 U.S.C. 1498 PROVIDING FOR THE RECOVERY OF COMPENSATION BY PATENT OWNERS FOR THE USE AND MANUFACTURE OF PATENTED INVENTIONS UNDER GOVERNMENT PROCUREMENT CONTRACTS. YOUR CRITICISM APPARENTLY IS DIRECTED AT OUR DECISION OF AUGUST 25, 1958, B 136916, TO THE SECRETARY OF THE AIR FORCE SUPPLEMENTED BY A FURTHER DECISION TO HIM DATED OCTOBER 6, 1958, PUBLISHED IN 38 COMP. GEN. 276, COPIES ENCLOSED.

YOU STATE IN YOUR LETTER THAT YOU "ARE THE EXCLUSIVE LICENSEE UNDER CERTAIN U.S. LETTERS PATENTS AND HAVE SUFFERED GREATLY FROM NUMEROUS INSTANCES OF GOVERNMENT INFRINGEMENTS THEREOF.' YOU ALSO STATE THAT YOU "UNDERSTOOD THAT THE LAW OF 1910, AS AMENDED IN 1918, MADE SUCH PURCHASES LEGAL BUT WE WERE SHOCKED AND DISTURBED TO LEARN THAT ALTHOUGH THE ACT STATED THAT GOVERNMENT PROCUREMENT AGENCIES "MAY" BUY FROM THE LOW BIDDER, EVEN THOUGH SUCH ITEMS ARE INFRINGING PARTS, YOUR OFFICE, IN 1958, LAID DOWN A MANDATORY RULING TO THE EFFECT THAT SUCH INFRINGING PROCUREMENTS "MUST" BE MADE.' THE IMPORTANCE OF REALIZING "THE DIFFERENCE BETWEEN MAY AND MUST, THE FORMER OF BEING PERMISSIVE AND THE LATTER BEING MANDATORY" IS EMPHASIZED IN YOUR LETTER. YOUR LETTER ALSO CONTAINS THE STATEMENT "YOUR FINE OBJECTIVE OF SLASHING GOVERNMENT EXPENDITURES MEETS WITH OUR FULL ENDORSEMENT, HOWEVER EXTENSIVE RESEARCH HAS PROVED THAT THE INDISCRIMINATE PATRONAGE OF INFRINGING SUPPLIERS, AS REQUIRED BY YOUR MANDATE, IS RUINOUS FROM AN ECONOMIC STANDPOINT.' YOU ASSERT "THE REASON IS OBVIOUS.' IN THIS LATTER CONNECTION YOU ALLEGE THAT YOU "ARE INFORMED THAT THE RATE OF RECOVERY FROM INFRINGERS, EVEN WHERE SUCH INFRINGERS HAVE OBLIGATED THEMSELVES TO INDEMNIFY THE GOVERNMENT AGAINST INFRINGEMENT LOSS, IS FAR LESS THAN FIVE PERCENT, SINCE VIRTUALLY NO SOLVENT, ETHICAL FIRM WILL INFRINGE A VALID PATENT.' YOU ALLEGE FURTHER "WHEN YOU ADD THE COST OF A COURT OF CLAIMS INVESTIGATION AND TRIAL TO THE COST OF THE ACCOUNTING WHICH IS LIKELY TO ENSURE AND THEN ADD THE EXPENSE OF THE AWARD, ALL OF WHICH MUST BECOME A PART OF THE TOTAL COST OF THE INFRINGING PRODUCTS, YOU ARRIVE AT A PRODUCT COST WHICH IS USUALLY SEVERAL TIMES AS GREAT AS THAT FOR WHICH THE PRODUCT COULD HAVE BEEN HAD FROM THE PATENTEE.' NO EVIDENCE SUPPORTING THESE ALLEGATIONS, HOWEVER, WAS RECEIVED WITH YOUR LETTER.

IN CONCLUSION, THE VIEW IS EXPRESSED IN YOUR LETTER THAT "WE FEEL THAT NO GOVERNMENT AGENCY, BUREAU, DEPARTMENT OR BRANCH SHOULD LEGISLATE BY INTERPRETATION, AND WE FEEL THAT THIS IS MORE PARTICULARLY TRUE WHERE THE VERBIAGE OF AN ACT OF CONGRESS IS AS FREE FROM AMBIGUITIES AND/OR CONTRADICTIONS AS THE ACT OF 1910 AS AMENDED IN 1918," AND FURTHER, THAT "SINCE YOUR AIM IS TO CONSERVE PUBLIC FUNDS WE FEEL THAT A CLOSE STUDY BY YOU OF THE SITUATION WILL CONVINCE YOU OF THE ECONOMIC FEASIBILITY OF RESCINDING YOUR DIRECTIVE OF 1958 AND PERMITTING THE PROCUREMENT AGENCIES TO BUY IN THE BEST INTERESTS OF THE PUBLIC.'

FROM A CAREFUL CONSIDERATION OF YOUR CONTENTIONS AND ALL THE FACTS AND INFORMATION AVAILABLE WE FIND NO SOUND BASIS FOR RESCINDING OR MODIFYING OUR DECISIONS.

PURSUANT TO THE ACT APPROVED JUNE 25, 1910, 36 STAT. 851, REFERRED TO IN YOUR LETTER IT WAS PROVIDED IN PERTINENT PART:

"THAT WHENEVER AN INVENTION DESCRIBED IN AND COVERED BY A PATENT OF THE UNITED STATES SHALL HEREAFTER BE USED BY THE UNITED STATES WITHOUT LICENSE OF THE OWNER THEREOF OR LAWFUL RIGHT TO USE THE SAME, SUCH OWNER MAY RECOVER REASONABLE COMPENSATION FOR SUCH USE BY SUIT IN THE COURT OF CLAIMS: * * *"

THIS STATUTORY PROVISION WAS AMENDED BY THE ACT APPROVED JULY 1, 1918, 40 STAT. 705, TO READ AS FOLLOWS:

"THAT WHENEVER AN INVENTION DESCRIBED IN AND COVERED BY A PATENT OF THE UNITED STATES SHALL HEREAFTER BE USED OR MANUFACTURED BY OR FOR THE UNITED STATES WITHOUT LICENSE OF THE OWNER THEREOF OR LAWFUL RIGHT TO USE OR MANUFACTURE THE SAME, SUCH OWNER'S REMEDY SHALL BE BY SUIT AGAINST THE UNITED STATES IN THE COURT OF CLAIMS FOR THE RECOVERY OF HIS REASONABLE AND ENTIRE COMPENSATION FOR SUCH USE AND MANUFACTURE: * * *"

THE LANGUAGE NOW CARRIED IN THE CODIFICATION OF THESE STATUTES UNDER TITLE 28, SECTION 1498, OF THE U.S.C. IS SUBSTANTIALLY THE SAME AS QUOTED ABOVE FROM THE ACT OF 1918.

AT THE OUTSET IT IS SEEN THAT THE WORD "MAY" APPEARS IN THE ACT OF 1910 IN RELATION TO THE RIGHT TO SUE THE UNITED STATES GRANTED TO THE OWNER OF A PATENT. THIS WORD WAS CHANGED TO "SHALL" BY THE AMENDMENT OF JULY 1, 1918. NEITHER ACT PROVIDED THAT GOVERNMENT PROCUREMENT AGENCIES MAY" BUY FROM THE LOW BIDDER AS STATED IN YOUR LETTER AND WE ASSURE YOU THAT WE ARE AWARE OF THE DIFFERENCE BETWEEN "MAY" AND "MUST" AS GENERALLY USED. THIS INSTANCE, THE CHANGE MADE IN THE STATUTE FROM "MAY" TO "SHALL" WOULD SEEM TO INDICATE A CLEAR INTENTION THAT THE RIGHT TO FILE SUIT AGAINST THE UNITED STATES IS CONTINGENT UPON A MANDATORY REQUIREMENT SUCH SUIT BE FILED IN THE COURT OF CLAIMS.

IN FACT, IT HAS BEEN JUDICIALLY DETERMINED THAT 28 U.S.C. 1498 IS IN EFFECT AN EMINENT DOMAIN STATUTE; THAT ITS PROVISIONS RELIEVE THE CONTRACTOR ENTIRELY FROM LIABILITY OF EVERY KIND FOR THE INFRINGEMENT OF PATENTS IN MANUFACTURING ANYTHING FOR THE GOVERNMENT AND LIMITS THE OWNER OF THE PATENT TO A SUIT IN THE COURT OF CLAIMS FOR REASONABLE COMPENSATION, WHICH REMEDY IS EXCLUSIVE AND COMPREHENSIVE IN CHARACTER. CF. RICHMOND SEE. V. UNITED STATES (1928), 275 U.S. 331, 343; BERESLAVSKY V. ESSO STANDARD OIL CO. (C.A.MD. 1949), 175 F.2D 148; AND IRVING AIR CHUTE CO. V. UNITED STATES (CT.CL. 1950), 93 F.SUPP. 633. SEE ALSO 37 COMP. GEN. 199. IN OTHER WORDS, BY VIRTUE OF THE STATUTORY PROVISIONS ENACTED JULY 1, 1918, AND NOW CARRIED IN 28 U.S.C. 1498, THE RIGHT TO BRING AN ACTION IN THE DISTRICT COURTS OF THE UNITED STATES FOR AN INJUNCTION AND THE RECOVERY OF DAMAGES FOR PATENT INFRINGEMENTS, AS PROVIDED GENERALLY UNDER THE PROVISIONS OF 28 U.S.C.1338 AND 35 U.S.C. 281 -293, WAS TAKEN AWAY INSOFAR AS GOVERNMENT CONTRACTORS ARE CONCERNED.

THE SUPREME COURT OF THE UNITED STATES HAS POINTED OUT THAT A SUIT TO ENFORCE PATENTS AND RELATED CONTRACTS INVOLVES THE PUBLIC INTEREST, AS WELL AS INTERESTS OF THE ADVERSE PARTIES, AND HAS REPEATEDLY EMPHASIZED IT IS THE PUBLIC INTEREST WHICH IS DOMINANT IN THE PATENT SYSTEM. CF. MERCOID CORP. V. MID-CONTINENT CO. (JANUARY 3, 1944),320 U.S. 661, 665, 666, AND PRECISION CO. V. AUTOMOTIVE CO. (APRIL 23, 1945), 324 U.S. 806, 815, 816.

IT WAS STATED BY MR. CHIEF JUSTICE TAFT IN HIS OPINION DELIVERED JANUARY 3, 1928, IN THE RICHMOND CASE, SUPRA, THAT THE LEGISLATION OF JULY 1, 1918, WAS ENACTED IN RESPONSE TO A LETTER DATED APRIL 20, 1918, FROM THE ACTING SECRETARY OF THE NAVY TO THE CHAIRMAN OF THE COMMITTEE ON NAVAL AFFAIRS OF THE SENATE, TO THE EFFECT THAT THE DEPARTMENT WAS CONFRONTED WITH A DIFFICULT SITUATION AS A RESULT OF THE COURT'S DECISION IN CRAMP AND SONS V. INTERNATIONAL CURTIS MARINE TURBINE CO., 246 U.S. 28, HOLDING THAT THE ACT OF 1910, WHICH PROVIDED FOR THE RECOVERY OF REASONABLE COMPENSATION BY SUIT IN THE COURT OF CLAIMS FOR USE BY THE UNITED STATES OF A PATENTED INVENTION WITHOUT LICENSE OR LAWFUL RIGHT TO USE IT, DID NOT EFFECT A LICENSE TO THE UNITED STATES OR A CONTRACTOR MAKING THE PATENTED INVENTION AND THAT THE CONTRACTOR WOULD BE SUED FOR AN INJUNCTION AND FOR INFRINGEMENT IN SPITE OF THAT ACT; THAT MANUFACTURES HAD BECOME EXPOSED TO EXPENSIVE LITIGATION INVOLVING THE POSSIBILITIES OF PROHIBITIVE INJUNCTION, PAYMENT OF ROYALTIES, RENDERING OF ACCOUNTS, AND PAYMENT OF PUNITIVE DAMAGES, AND WERE RELUCTANT TO TAKE CONTRACTS WHICH MIGHT BRING SUCH SEVERE CONSEQUENCES; THAT THE SITUATION PROMISED SERIOUS DISADVANTAGES TO THE PUBLIC INTEREST, AND THAT VITAL ACTIVITIES OF THE DEPARTMENT MIGHT BE UNDULY RESTRICTED. IN HOLDING THAT THE REMEDY PROVIDED BY THE ACT OF JULY 1, 1918, CONSTITUTED AN ASSUMPTION OF LIABILITY BY THE GOVERNMENT, THE COURT'S OPINION STATED THAT IT WAS THE PURPOSE AND INTENT OF CONGRESS TO STIMULATE CONTRACTORS TO FURNISH WHAT WAS NEEDED FOR THE WAR WITHOUT FEAR OF BECOMING LIABLE THEMSELVES FOR INFRINGEMENTS TO INVENTORS OR THE OWNERS OR ASSIGNEES OF PATENTS; THAT TO ACCOMPLISH THIS GOVERNMENTAL PURPOSE THE CONGRESS EXERCISED THE POWER TO TAKE AWAY THE RIGHT OF THE OWNER OF THE PATENT TO RECOVER FROM THE CONTRACTOR FOR INFRINGEMENTS.

ALSO IN BROOME V. HARDIE-TYNES MFG. CO., DECIDED BY THE 5TH CIR., NOVEMBER 15, 1937, 92 F.2D 886, WHERE A SUIT HAD BEEN BROUGHT FOR INJUNCTION, FOR ACCOUNTING AND FOR DAMAGES FOR INFRINGEMENT OF PATENTS FOR SLUICE GATES BEING MANUFACTURED FOR A GOVERNMENT PROJECT, THE COURT POINTED OUT AT PAGE 888, THAT THE STATUTE WAS DESIGNED TO FURNISH THE PATENTEES AN ADEQUATE AND EFFECTIVE REMEDY WHILE SAVING THE GOVERNMENT FROM HAVING ITS PUBLIC WORKS TIED UP AND THWARTED WHILE PRIVATE PARTIES WERE CARRYING ON A LONG-DRAWN-OUT LITIGATION, AND THAT THE EFFORT TO STOP THE PROGRESS OF THE WORK INVOLVED THROUGH AN INJUNCTION AGAINST THE CONTRACTOR PRESENTED "THE EXACT CASE THE STATUTE WAS DESIGNED TO MEET.' SEE, ALSO, THE MANY OTHER CASES COLLECTED IN THE ANNOTATIONS IN 28 U.S.C.A. 1498.

WITH RESPECT TO YOUR ALLEGATIONS RELATING TO "PRODUCT COST," BUT FOR THE PROVISIONS OF 28 U.S.C. 1498 POTENTIAL SUPPLIERS PROBABLY WOULD BE RELUCTANT TO BID ON ITEMS REQUIRING THE USE OR MANUFACTURE OF PATENTED INVENTIONS, DEVICES AND PROCESSES UNLESS THEY WERE PATENT HOLDERS OR LICENSEES AS WAS THE SITUATION PRIOR TO THE ACT OF 1918, AND AS A CONSEQUENCE, THE SOURCE OF SUPPLY WOULD BE SUBSTANTIALLY CURTAILED AND POSSIBLY LIMITED TO PATENT HOLDERS AND THEIR LICENSEES. IN SUCH EVENT THE COST TO THE GOVERNMENT FOR ITS REQUIREMENTS, WHICH MORE FREQUENTLY THAN NOT INVOLVE THE USE OR MANUFACTURE OF MANY PATENTED ITEMS, NO DOUBT WOULD BE INCREASED DUE TO SUCH REDUCTION OR RESTRICTION OF COMPETITION.

FOR EXAMPLE, IN OUR DECISION OF AUGUST 25, 1958, THE DEPARTMENT OF THE AIR FORCE REQUESTED CONSIDERATION OF A PROPOSAL TO REJECT THE LOW BID RECEIVED UNDER AN ADVERTISED INVITATION FOR BIDS ON REQUIREMENTS URGENTLY NEEDED AND THEN NEGOTIATE A CONTRACT WITH A LICENSEE OF A PATENT HOLDER SUBMITTING A HIGHER BID FOR THE PURPOSE OF ENFORCING AND PROTECTING THE RIGHTS OF THE PATENT OWNERS AND THEIR LICENSEES. WE ADVISED THE AIR FORCE THAT SUCH ACTION WOULD, IN OUR OPINION, CONSTITUTE AN IMPROPER RESTRICTION OF COMPETITION UNDER THE CIRCUMSTANCES AND WOULD LIMIT THE APPLICATION OF THE PROVISIONS OF 28 U.S.C. 1498. IN THIS CASE THE LOW BIDDER HAD PREVIOUSLY FURNISHED THE ITEM AT A PRICE SUBSTANTIALLY LESS THAN THAT WHICH HAD BEEN CHARGED BY LICENSEES FOR ITEMS OF INFERIOR MANUFACTURE. THE PATENTEES RESORTED TO LITIGATION, INCLUDING A SUIT IN THE DISTRICT COURT FOR THE DISTRICT OF COLUMBIA AGAINST THE SECRETARY OF DEFENSE REQUESTING A DECLARATORY JUDGMENT THAT 28 U.S.C. 1498 COULD NOT BE USED BY A GOVERNMENT AGENCY AS LONG AS THE AGENCY COULD PROCURE THE PATENTED ARTICLES INVOLVED FROM QUALIFIED LICENSEES AT REASONABLE COST, A PERMANENT INJUNCTION RESTRAINING THE DEPARTMENT OF DEFENSE FROM INVOKING 28 U.S.C. 1498 IN SUCH CIRCUMSTANCES, AND AN INJUNCTION AGAINST AWARD OF THE PROCUREMENT IN QUESTION TO OTHER THAN A LICENSEE. THIS SUIT WAS DISMISSED.

THE DEPARTMENT OF THE AIR FORCE IN A LETTER DATED SEPTEMBER 16, 1958, REQUESTED CLARIFICATION OF OUR DECISION OF AUGUST 25, 1958. IN THIS REQUEST IT WAS STATED THAT "NOTWITHSTANDING THE RIGHT AFFORDED THE GOVERNMENT TO INVOLVE 28 U.S.C. 1498 TO PRECLUDE AN ACTION AGAINST A GOVERNMENT CONTRACTOR FOR INFRINGEMENT OF A PATENT, THE INDISCRIMINATE USE OF SUCH AUTHORITY IS INIMICAL TO AND DESTRUCTIVE OF THE PUBLIC POLICY CONSIDERATIONS UNDERLYING THE PATENT LAW.' IT WAS ALSO STATED IN THIS LETTER THAT THE "EXERCISE OF THE AUTHORITY CONFERRED ON THE GOVERNMENT BY 28 U.S.C. 1498 IS DISCRETIONARY AS THE INTEREST OF THE GOVERNMENT MAY DICTATE" AND THAT OUR DECISION WAS NOT CONSTRUED "TO SUGGEST THAT 28 U.S.C. 1498 SHOULD BE INVOLVED WHEREVER POSSIBLE SOLELY TO PROMOTE GREATER COMPETITION IF AS A RESULT IT WILL TEND TO IMPAIR THE INTEGRITY OF THE PATENT SYSTEM.'

WE ADVISED THE SECRETARY OF THE AIR FORCE IN OUR DECISION DATED OCTOBER 6, 1958, 38 COMP. GEN. 276, THAT IT WAS OUR VIEW "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 ALSO EXPRESSED THE VIEW THAT NEGOTIATION UNDER 10 U.S.C. 2304 (10) WAS NOT AUTHORIZED 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. EXPRESSED THE FURTHER VIEW THAT WHAT IS A FAIR AND REASONABLE PRICE UNDER SUCH CIRCUMSTANCES PROBABLY COULD NOT BE DEFINITELY ASCERTAINED EXCEPT UNDER FORMAL ADVERTISING CONDITIONS, AND THAT NEGOTIATION IN THOSE CIRCUMSTANCES WOULD APPARENTLY 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.' WE ADHERE TO THE VIEWS EXPRESSED IN OUR DECISIONS OF AUGUST 25 AND OCTOBER 6, 1958, WHICH WE BELIEVE ARE CONSISTENT WITH THE CONGRESSIONAL PURPOSE AND INTENT OF 28 U.S.C. 1498, RELATING TO THE USE OR MANUFACTURE OF PATENTED INVENTIONS BY OR FOR THE UNITED STATES, AND THE CARDINAL PRINCIPLE THAT CONTRACTS FOR GOVERNMENT REQUIREMENTS BASED ON FORMAL ADVERTISING MUST BE AWARDED TO THE LOWEST RESPONSIBLE BIDDER.