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1-4 would automatically expose the Government to litigation and liability for infringement of the great majority of these "avoidable" patents. However, only in a few rare procurement situations would most Government agencies be in a position to identify specific patents as to which it would withhold its authorization and consent. The price in terms of increased Government liability exposure is too much to pay for a limited advantage available in only a few cases.

V. Discussion

It is recognized that automatic authorization and consent provision of the Recommendation would avoid the consequences of contractors' uncertainties as to the scope of their authorization to infringe third party's patents. However, the areas of uncertainty are considered to be relatively few or largely avoidable by improved administrative practices. This consideration plus the resulting loss of Governmental control against contractors' indiscriminate use of avoidable infringing manufacturing practices prompted a majority vote against adoption of the Recommendation.

As an alternative to the Recommendation, it is proposed that the authorization and consent provisions of the agencies be reviewed to determine whether the areas of uncertainty may be avoided by administrative action.

The benefits to the Government resulting from the withholding provision of the Recommendation are recognized. However, the likely rarity of use of this provision during the procurement negotiation stage as well as the possibility of disruption of the procurement process by unmeritorious assertions of infringement of patents by potential contractors further prompted a majority vote against adoption.

VI. Implementation

The proposed nonadoption of the Recommendation renders unnecessary a proposed implementation approach. However, it is suggested that the Executive Subcommittee, Committee on Government Patent Policy, be assigned the task of undertaking a review of agency authorization and consent practices to determine whether the areas of contractor uncertainties may be corrected by administrative action.

VII. Dissenting Views

The view was expressed that procurement situations may arise in which the Government's interest will be served by an

agency's withholding of authorization and consent as to specific patents and agencies should have the discretionary authority of doing so. In light of the view expressed by the Comptroller General in B-159356 that absent express Congressional authorization, an agency cannot withhold authorization and consent as to a patent covering an item furnished to the Government, adoption of the Recommendation is in the Government's interest.

The NASA and HEW representatives dissented from the majority report and expressed the view that the Executive branch should adopt the portion of the Recommendation that deals with the amendment of 28 U.S.C. 1498 to permit the withholding of authorization and consent as to a specific patent. Some of the majority rejected this portion of the Recommendation not because of disagreement with the concept, but rather because some ambiguity would arise in separating this portion of the Recommendation from the remaining portion. Agencies have sought the flexibility of removing authorization and consent as to specific patents in particular procurements, 46 Comp. Gen. 227. This authority can be provided without the resulting ambiguities expressed by the majority through legislative drafting or by a clear legislative history.

Removing authorization and consent as to specific patents merely places the Government purchase, of articles or services, on the same basis as any commercial sale as to these patents. A number of cases have occurred where the grant of authorization and consent (including patent indemnity) has resulted in copiers of commercial products offering what appeared to be lower cost items to the Government. In one case this has led to over 8 years of administrative consideration and litigation (Soundscriber v. U.S., No. 479-59, 175 Ct. Cl. 644) and perhaps even higher costs to the Government. An agency should, after assessing the impact of removing authorization and consent, have the flexibility to do so in advantage cases. Such a move would strengthen the patent system and encourage private innovators.

FINAL VERSION

Proposed Executive Branch Position for

Recommendation 1-5 of the

Report of the Commission on Government Procurement

Rendered October 31, 1973 I. Summation

a. Recommendation 1-5
Amend agency regulations and clauses to provide that all
contractual warranties against patent infringement be pro-

vided by specific contractual language and not by implication. The Recommendation appears on page 123 of Volume 4 of the Report, and is in Category B.

b. Proposed Position
It is proposed that the Recommendation, as interpreted,
should be adopted.

II. Background

The Report indicates the objective of the Recommendation to be the preclusion of contractors from reading an obligation of implied warranties into their contracts in those instances where the Government does not desire such protection. The Report expresses the view that patent indemnification provided by specific contractual language, and not by implication, will tend to minimize the inclusion of contingencies in contract costs.

It is somewhat unclear whether the Recommendation contemplates a contractual provision expressly negating the availability to the Government of commercial warranties against patent infringement; e.g., principles of U.C.C. $ 2–312, or a contractual provision expressly setting forth the availability of such warranties to the Government.

The Recommendation is being interpreted under the latter connotation since such an interpretation appears to be more in accord with the several expressions in the Report and the reports of Study Groups 6 and 8 advocating placing of suppliers of standard commercial items to the Government in the same infringement liability footing, excepting injunctive relief, as when supplying such items to commercial vendees.

III. Findings

The following findings were developed during consideration of the Recommendation.

A contractual provision expressly indicating the applicability of commercial warranties will encourage bidders, especially unlicensed suppliers, to more seriously evaluate their potential infringement liabilities and to reflect the same in their bid prices thereby enabling a more realistic Governmental assessment of the complete cost of a purchased item.

A contractual provision expressly indicating the applicability of commercial warranties will not necessarily increase contract costs of items by the inclusion of contingencies since established commercial vendors of the items are fully cognizant of any associated infringement hazard and any such contingency will likely represent the actual cost of such hazard.

An agency concerned with the possible excessiveness of the cost of indemnification and warranties against infringement may solicit bids on the dual basis of such protection being provided and not provided by the bidders. This practice received the approval of the Comptroller General in his Decision B-77738 dated January 10, 1949 and April 4, 1949.

The adoption of the Recommendation raises the possibility of the loss of commercial warranties to the Government in contract situations where the contractual provision has not been included. This situation is especially likely to occur at lower-tier contracting levels.

IV. Conclusions

The objective of the Recommendation can be achieved by adoption of the Recommendation. The objective is deemed to be a meritorious one since it serves to alert contractors of the scope of their potential infringement liability which would appear to be proper. Adoption of the Recommendation will not create operational difficulties in the Government procurement process.

V. Discussion

The benefits to contractors and the Government realizable from the adoption of the Recommendation are considered to overshadow any disadvantages to the Government resulting from the Recommendation. The major disadvantage to the Government is the possible loss of commercial warranties because of the omission of the contractual provision. This possibility may be minimized by agency regulations making inclusion of the provision mandatory in all contracts, unless expressly excluded. The provision should have a flow-down requirement to all lower-tier contracts in which a likelihood exists of a standard commercial item being furnished to the Government. The possibility of inadvertent omission may be still further reduced by contractually providing for the assumption of any infringement liability by a higher-tier contractor negligently failing to include the contractual provision in the

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