This case comes before the court on plaintiff's and defendant's exceptions to the recommended opinion, findings of fact and conclusion of law, submitted by Judge Donald
The case has been submitted to the court on the briefs and oral arguments of counsel. Upon consideration thereof, since the court agrees with several portions of the trial judge's recommended decision, it adopts (with minor modifications) Part I, Similarity; Part III, Contribution; Part IV, Spare Parts; Part V, Delay Compensation; and Part VI, Experimental Use. The court also adopts with modification the trial judge's findings of fact, except with respect to royalty compensation, and has made its own findings on that subject.
The opinion and conclusion of law of the trial judge, as modified and supplemented by the court, follow:
In Autogiro Company of America v. United States, 384 F.2d 391, 181 Ct.Cl. 55, 155 USPQ 697 (1967), rehearing denied, 184 Ct.Cl. 801 (1968), some 59 patent claims in 11 patents owned by plaintiff were held to be valid and specific patent claims were held to be infringed by seven different models of helicopters manufactured under contracts for defendant by Vertol, Hiller, Bell, Kaman and McCulloch. In 1973, the Autogiro Company of America was liquidated, and all of its assets, including its claims against the United States, one of which is the subject matter of this action, were transferred to its stockholders who appointed Stephen Pitcairn as their Agent. Pursuant to motion filed January 30, 1974, unopposed by defendant, Stephen Pitcairn, Agent, was substituted for Autogiro Company of America by the court's order filed February 12, 1974.
The parties to this suit agreed that during the accounting phase, both parties would have the right to present evidence as to the similarity or non-similarity between any model of rotary-wing aircraft or part thereof on which no proofs of infringement were offered at the original trial and those models of rotary-wing aircraft on which proofs were offered and which the court in its decision noted above found to infringe any of the patents remaining in suit. The parties have presented such proofs and have presented proofs on various methods of computing the reasonable and entire compensation due plaintiff.
The main issues in the current phrase of this litigation are (1) the similarity or non-similarity of some 39 models of rotary-wing aircraft to any of the seven models which
Defendant now contends that the maximum amount of compensation which this court should allow is $532,279. This represents compensation at a rate of less than 1%, i. e., 0.0832%, on the total procurement cost of $639,257,969. Defendant contends that delay compensation (if any) should be computed at the rates at which the defendant might have borrowed money by hypothetical long term Government bonds, the estimated rates varying from 2.4% to 4.6% per annum, the average being 3.33% for the period 1947-75.
Plaintiff contends that "reasonable and entire compensation" which this court should adopt should include royalties at established rates amounting to $24,570,525, plus delay compensation amounting to $27,851,192 through 1973, plus upward adjustment by $15,034,439 of the royalties to compensate for inflation, plus additional delay compensation for the period 1974 to date of payment, a total of some $67,500,000 plus. The amount sought by plaintiff represents royalty compensation at a rate of 3.85% of the total procurement cost, and delay compensation at rates varying from 4% to 9% per annum, the average being 6.07% for the period 1947-73. The patents, patent claims, and models of rotary-wing aircraft now involved in this litigation are identified in the following table.
Adjudicated infringing model Patent Number (and dates of relative to which similarity Issue/Expiration) Claims proofs were presented Similar models 1,948,457 (2-20-34/2-19-51 __ 9,12, 13, 14 & 18 __________ Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HRP-1 & HRP-2. 1,990,291 (2-5-35/2-4-52) ___ 4 __________________________ Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HRP-1 & HRP-2. Do ______________________ 4 & 6 ______________________ Bell HTL-4 ______________ Bell HTL-1, HTL-2, HTL-3, HTL-5, YH-12B, YH-13, YH-13A, H-13B, H-13D & H-13E. Do ______________________ 4 & 6 ______________________ Hiller H-23A ____________ Hiller HTE-1. 1,994,465 (3-19-35/3-18-52) _ 1, 5, 6, 7, 10 & 13 ________ Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HRP-1, HRP-2 & HUP-2. 2,151,215 (2-21-39/3-20-56) _ 1, 2, 3, 5, 6, 8 & 9 _______ Kaman HOK-1 _____________ Kaman HTK-1. Do ______________________ 1, 5, 6 & 9 ________________ Kaman HOK-1 _____________ Bell HSL-1. 2,321,572 (6-15-43/6-14-60) _ 8, 9, 28 & 29 ______________ Kaman HOK-1 _____________ Kaman HTK-1, HUK-1, H-43A & H-43B. 2,339,836 (1-25-44/1-24-61) _ 1 __________________________ Kaman HOK-1 _____________ Kaman HTK-1, HUK-1, H-43A & H-43B. 2,344,966 (3-28-44/3-27-61) _ 1 __________________________ Kaman HOK-1 _____________ Kaman HTK-1, HUK-1, H-43A & H-43B. 2,344,967 (3-28-44/3-27-61) _ 1, 2, 3, 4, 13 & 18 ________ Kaman HOK-1 _____________ Kaman HTK-1, HUK-1, H-43A & H-43B. 2,380,582 (7-31-45/7-30-62) _ 6-9, 12, 13, 16 & 17 _______ Bell HSL-1 ______________ None. Do ______________________ 1-5, 7-9, 12, 13, 16-21 ____ McCulloch MC-4C _________ McColloch YH-30. Do ______________________ 1-5, 7-9, 12, 13, 16-21 ____ Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HUP-2 & HUP-3 (H-25A). 2,380,582 (7-31-45/7-30-62) _ 1, 2, 3, 5, 7, 8, 9, 12, 13, Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HRP-1. 16, 19, 20 & 21. Do ______________________ 1-5, 7, 8, 12, 16, 18, 19, Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HRP-2. 20 & 21. Do ______________________ 1, 3, 4, 5, 16, 17, 18, 19 & Vertol/Piasecki HUP-1 ___ Vertol/Piasecki YHC-1B (YHC-47A) HC-1B 20. (CH-47A). Do ______________________ 1-5, 7-9, 12, 13, 16-21 ____ Vertol/Piasecki H-21B ___ Vertol/Piasecki YH-21, H-21A, H-21C & H-21 (V-44). Do ______________________ 1, 3, 4, 5, 16, 17, 18, 19 & Vertol/Piasecki H-21B ___ Vertol/Piasecki YHC-1A, HRB-1 (CH-46A). 20. Do ______________________ 1-5, 19 & 20 _______________ Vertol/Piasecki H-21B ___ Bell YH-40, HU-1, HU-1A, HU-1B & YHU-1D. Do ______________________ 1-5, 19 & 20 _______________ Vertol/Piasecki H-21B ___ Cessna YH-41 & CH-1C. Do ______________________ 1-5, 16, 18, 19 & 20 _______ Vertol/Piasecki H-21B ___ Gyrodyne DSN-1 & DSN-3. Do ______________________ 1, 2, 3 & 5 ________________ Vertol/Piasecki H-21B ___ Kaman HU2K-1.
2,380,583 (7-31-45/7-30-62) _ 56, 59, 60, 64 & 65 ________ Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HUP-2 & HUP-3 (H-25A) & HRP-1. Do ______________________ 56, 60, 64 & 65 ____________ Vertol/Piasecki HUP-1 ___ Vertol/Piasecki HRP-2. Do ______________________ 56, 59, 60, 64 & 65 ________ Vertol/Piasecki H-21B ___ Vertol/Piasecki YH-21, H-21A, H-21C, H-21 (V-44A), YHC-1A, HRB-1 (CH-46A), YHC-1B (YHC-47A) & HC-1B (CH-47A). Do ______________________ 59 & 60 ____________________ Vertol/Piasecki H-21B ___ Kaman HOK-1, HUK-1, H-43A & H-43B. Do ______________________ 60 _________________________ Vertol/Piasecki H-21B ___ Gyrodyne DSN-1 & DSN-3. Do ______________________ 60 _________________________ Vertol/Piasecki H-21B ___ Cessna YH-41 & CH-1C. Do ______________________ 62 _________________________ McCulloch MC-4C _________ McCulloch YH-30, Cessna YH-41 & CH-1C. Do ______________________ 62 _________________________ McCulloch MC-4C _________ Kaman HU2K-1. 2,421,364 (5-27-47/5-26-64) _ 33, 44 & 45 ________________ Kaman HOK-1 _____________ Kaman HTK-1, HUK-1, H-43A, H-43B & HH-43B.
The order of the trial judge filed April 17, 1969 provided:
Neither party requested review or modification of that order.
The evidence relating to the similarity or the identity between adjudicated infringing models and the additional assertedly similar models consisted of comparison of the pertinent structures and the operation of the adjudicated infringing helicopters with the corresponding structure and the operation of the assertedly similar models. That proof-procedure is in accord with the principles enunciated by this court in Marconi Wireless Telegraph Co. v. United States, 99 Ct.Cl. 1, 53 USPQ 246 (1942), modified, 320 U.S. 1, 63 S.Ct. 1393, 87 L.Ed. 1731, order on remand, 100 Ct.Cl. 566 (1943).
Plaintiff's similarity proofs could have been limited to the subject matter of but a single claim of each of the patents in suit found valid and found to be infringed by the adjudicated models, thereby establishing the required proof of similarity in reference to the subject matter. The plaintiff's proofs were not so limited. The patent claims in suit are of varying scope and it is not required that "similarity" be established as to a given structure in respect to all claims of varying scope as found to be infringed. By the same token, the scope of the royalty base for the various patent claims in suit varies in accordance with the scope of the claimed subject matter. In view of the unchallenged and uncontradicted evidence establishing similarity, and in most instances the identity, as to the assertedly similar structures, and in view of the paucity of any credible evidence of non-similarity, plaintiff's assertions on similarity are found to be fully supported by the record.
II. Royalty Compensation
The use or manufacture by or for the Government of a device or machine embodying any invention protected by a United States patent, is a taking of property by the Government under its power of eminent domain. The nature of the property thus taken is a license in the patent, the claimed invention of which is used or manufactured by or for the Government, and such license continues throughout the life of the patent, or the period of the infringing procurement, whichever is shorter.
As this court recently stated in Calhoun v. United States, 453 F.2d 1385, 1391, 197 Ct.Cl. 41, 51, 172 USPQ 438, 443 (1972):
See, Waite v. United States, 282 U.S. 508, 51 S.Ct. 227, 75 L.Ed. 494 (1931); Crozier v. Krupp, 224 U.S. 290, 32 S.Ct. 488, 56 L.Ed. 771 (1912); Irving Air Chute Co. v. United States, 93 F.Supp. 633, 117 Ct.Cl. 799, 87 USPQ 246 (1950).
The trial judge refused to consider transactions occurring after November 8, 1946, in establishing the reasonable royalty because he deemed that they were not material, as a matter of law, since they took place after the date of the first infringement by defendant. The trial judge determined that the defendant's first unauthorized use of plaintiff's patents, on or about November 8, 1946, constituted a taking, all at once, of plaintiff's entire property. This analysis runs contrary to Irving Air Chute, which we think was correctly decided. The takings occurred whenever the Government procured or used a device covered by any of plaintiff's patents without a license. Our analysis accords, not only with Irving Air Chute but also with the terms of 28 U.S.C. § 1498, which provides in part: "Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture." (Emphasis added.)
The recovery period runs from November 1946, when the Government first infringed one of the patents in suit, until late in May 1964, the expiration date of the last patent involved. It is not easy to fix upon appropriate royalties for the takings during that long time-span, but we think it can be done with fairness to both parties.
The evidence shows that Autogiro received patent royalties under some nine licenses during the period (1932-1946) before the years now at issue. Some were at a 5% rate, some at 7% and some at an .85% nominal wartime rate.
Likewise, we reject the pre-war rates as proper guidelines for the post-war period because, in our view, plaintiff itself established, roughly contemporaneous with the beginning of the recovery period, a new post-war rate, for general use, which it deemed satisfactory to it.
It has been suggested on behalf of the plaintiff that the 2% figure cannot serve as an established royalty rate used by the patentee in commercial licensing (see the test set forth in Calhoun v. United States, 453 F.2d 1385, 1393-94, 197 Ct.Cl. 41, 55-56, (1972) because (a) the first (1947) United agreement was mainly the product of compromise to avoid litigation, and (b) mere
The record does not show that the 1947 United License was a one-sided effort by United to force Autogiro to compromise its true position or face years of grinding litigation in this court under 28 U.S.C. § 1498.
It is a truism that patents can change or decline in value, and that seems to have been the case for Autogiro, even in its own eyes, during the post-war years. It wanted a package deal for any and all of its patents, and some of these were expiring from time to time. Engineering data for autogiros (manufactured in the pre-war era) were not useful for helicopters (the article made after the war). The post-war procurement of devices using plaintiff's inventions was bound to be very much larger than the pre-war purchases — and the royalty rates could therefore decline significantly. Nor is it a sign of invalidating compromise that, especially where a packet of patents is involved, there may have been some doubts as to the validity of some of the claims.
As for the offers not translated into actual agreements, the authorities which reject such use (see the cases cited in 4 Nichols, Eminent Domain (3d ed. rev. 1975), §§ 12.311 and 12.3113) concern attempts by the condemnee to seek a higher award on the basis of offers made by or to him (or to utilize a third-party offer with respect to comparable property to gain a higher award). They do not involve an effort by the condemnor to rely on an offer made by the condemnee as proof of the value of the property. It is obvious that, although the inherent defects of offers made by condemnee-owners prevent the opposite party, the condemnor, from being bound by such offers, there is no reason why the owner himself should not be held to his own offer. In this instance, the post-1946 offers were not casual or ad hoc but were circulated "fairly widely" in the industry. It is appropriate to take them into account and to give them great weight.
All this means that the post-1946 United agreement at 2% as well as the post-1946 offers made by Autogiro at that same level — plaintiff's own position deliberately taken in 1947 and 1948 — have a prima facie title to acceptance as the reasonable royalty for 1946-1964. The question remains whether the royalty should be set at a still lower figure, as defendant requests. This is not a simple skein to unravel, but our conclusion is that the 2% rate should be accepted for all infringements (after 1948, see note 16). The main reason is that, quite unlike the 2% figure, there is no indication from Autogiro that any lesser royalty was ever satisfactory, acceptable, or offered generally. The patentee's situation was unusual in that the Government was the dominant consumer of the articles embodying the patents, and this put the plaintiff to a disadvantage since it was very unlikely that an injunction could be obtained against United (or other infringers).
Defendant's requested findings of fact assert that the order of magnitude of the contribution of each of the patents in suit to the rotary-wing aircraft industry is "zero, minimal, or negative." Defendant bases such requested findings primarily on a rehash of the several patent application files and the prior patents cited therein. The court has already found specific patent claims valid and infringed by one or more of seven helicopter types procured by defendant. The weight of the evidence shows that such prior art items are either totally irrelevant to the subject matter of the patent claims in suit or are fundamentally deficient, impractical and/or inoperative. There is no credible evidence that the helicopters made for or used by the defendant might have been more satisfactory if plaintiff's patented inventions had not been incorporated therein. Defendant's contention that royalty compensation should be computed at rates of less than 1%, based on its contention that plaintiff's contributions to the industry were minimal, is without merit.
IV. Spare Parts
The United license defines "Licensed Aircraft" as not only "aircraft with sustaining rotors * * * embodying or manufactured or operating according to any or all of the inventions covered by Patents of Autogiro," but also "parts and assemblies of parts embodying or manufactured or operating according to any or all of said inventions for use in such aircraft. * * *" With regard to spare-part rotor hub assemblies for the HUP-1 helicopter, in accord with plaintiff's per-patent royalty the royalty base for claim 14 of the '457 patent is each spare-part HUP-1 rotor hub assembly, and the royalty therefor would be 10% of its retail sale value. However, spare-part rotor hub assemblies which embody or which are manufactured according to the subject matter of claim 14 of the '457 patent are, per se, Licensed Aircraft, i. e., parts "for use in" the Government's infringing helicopters for which such spare-part hub assemblies are procured; and in accord with the 2% royalty ceiling provision of plaintiff's established royalty for Licensed Aircraft, the total royalty for such spare-part hub assemblies may not exceed 2% of their retail sale value. The foregoing comments are equally applicable in respect to the effective 2% royalty for spare-part rotor hub assemblies for the HRP-1 and HRP-2 helicopters.
Plaintiff has limited its requests for royalties on all spare-part Vertol, Kaman and Gyrodyne rotor blades which are within the scope of this accounting, to the subject matter
V. Delay Compensation
The "reasonable and entire compensation" due plaintiff under 28 U.S.C. § 1498 includes not only reasonable royalties but also an appropriate amount which compensates plaintiff for defendant's delay in payment of those royalties. This additional amount has been referred to as "delay compensation." As stated by Justice Holmes in Waite v. United States, 282 U.S. 508, 509, 51 S.Ct. 227, 75 L.Ed. 494 (1931), the "reasonable and entire compensation" provided by the statute "was intended to accomplish complete justice as between plaintiff and the United States." The amount due as delay compensation is determined by multiplying the annually accrued royalties by an appropriate annual percentage rate. The periods of time covered by the computation of that additional amount extend from the dates of defendant's procurements until the date of payment of the court's judgment herein.
The amounts heretofore awarded as delay compensation by this court in eminent domain cases, including cases under 28 U.S.C. § 1498, have been computed at various rates. From 1927-37 the rate was 6%. During 1937-44 the rate was 5% and after 1944 the rate of 4% has been used. In the court's decisions in those earlier cases there is little or no discussion of the theory or basis upon which a particular percentage rate of delay compensation was chosen.
The rates used by the court in the past to calculate delay compensation have generally followed trends of changes in investment yield rates during the 1920's, 1930's and 1940's. The rate to be used during the delay compensation periods involved in this suit, i. e., from 1946 until payment of the court's judgment herein, should also follow the changes in yield rates. These may be determined by reference to an established, well recognized, widely used and authoritative index of investment yields. Plaintiff urges that the court use for this purpose Moody's Composite Index of Yields on Long Term Corporate Bonds.
Defendant has urged that the court should establish, as the rate of delay compensation due plaintiff, an amount equal to the average annual yields on a series of hypothetical long term Government bonds which defendant constructs subjectively. Both plaintiff and defendant thus urge that a varying rate of delay compensation should be established by the court in this case. However, defendant's position is that the various rates of delay compensation should be established without reference to the court's own varying rates of delay compensation in prior periods, and defendant ignores any relationship between the rates it now proposes and the rates of delay compensation which this court has used just prior to the beginning of the accounting period in this case. Both parties recognize that the 4% annual rate of delay compensation which was applied by this court after 1944 should not arbitrarily be continued in this case. Both parties agree that the court should establish a varying annual percentage rate for delay compensation which is appropriate under the facts and circumstances in this case. The parties disagree on the principles which determine an appropriate varying rate, and on the varying rate
Examination of evidence of record relating to the trends indicated by Moody's Composite Index of Yields on Long Term Corporate Bonds leads to the conclusion that in view of all the circumstances involved in this prolonged litigation, it is reasonable to divide the delay period into several periods and to utilize a rate of 4% for the period 1947-55, a rate of 4 1/2% for 1956-60, a rate of 4 3/4% for 1961-65, a rate of 6 1/2% for the period 1966-70, and a rate of 7 1/2% for the period 1971-75. It is noted that Pub.L. No. 93-625, § 7, 88 Stat. 2108, signed by the President on January 3, 1975, now provides for the payment of interest by the Government at the rate of 9% per annum on overpayments of federal internal revenue taxes, effective July 1, 1975. Said law also provides for annual adjustment of the interest rate when the prime rate charged by banks during September is at least a full point more or less than the Government interest rate then in effect. The Congress thus gives statutory sanction to the use of a commercial rate index or indicator in determining the rate of interest to be paid by the Government.
Plaintiff has urged that the delay compensation should run from the mid-point of each year during the accounting period since the actual procurement dates for the many aircraft involved in this case are scattered throughout each calendar year. In Calhoun, supra, the court selected August 15, 1954, mid-point of the period from April 29, 1954 to November 21, 1956, for the start of delay compensation. In Amerace Esna Corp. v. United States, 172 USPQ 305, 308 (1972), the trial judge selected March 8, 1955, mid-point of the period September 8, 1952 to September 8, 1958, for start of delay damages. The court adopted that computation in a per curiam opinion reported at 462 F.2d 1377, 199 Ct.Cl. 175, 174 USPQ 517 (1972). In Breese Burners, Inc. v. United States, 140 Ct.Cl. 9, 115 USPQ 179 (1957), the court decided that interest would run from December 31 of each year involved until date of payment. In Badowski v. United States, 278 F.2d 934, 150 Ct.Cl. 482, 125 USPQ 656 (1960), the court held that reasonable and entire compensation should include interest to date of payment to compensate plaintiff for the delay in payment. In van Veen v. United States, 386 F.2d 462, 181 Ct.Cl. 884, 156 USPQ 403 (1967), the court held that plaintiff was entitled to recover interest as part of just compensation from January 1, 1967 to the date of payment. Defendant objects to the allowance of interest from the mid-point of each calendar year and asserts that the acceptance date of each infringing aircraft is available. Plaintiff's license agreement with United in 1947 provided for the payment of royalties semi-annually within 45 days after June 30 and December 31 of each year on all licensed aircraft sold, leased or put into use during the preceding 6-month period. In view of all the circumstances involved in this litigation, it is concluded that reasonable delay compensation herein should be computed on a calendar year basis with interest starting on January 1 of each year on the royalties accrued during the preceding calendar year. Delay compensation is part of reasonable and entire compensation and is not considered as interest per se.
Defendant's debtor theory that delay compensation should be based on the yields on a series of hypothetical Government bonds was recently rejected by one of the court's trial judges in Arcata National Corp. v. United States, No. 771-71, report filed July 25, 1974. The trial judge in that case concluded that delay compensation should be paid for the period involved at the rate of 6.6% simple annual interest, a rate based on his reference to corporate AAA bond interest rates and prime interest rates. A
After considering all the circumstances involved in the present protracted litigation it is concluded that delay compensation computed at the varying rates for varying periods set out above is both reasonable and justified. The determination of a proper amount of delay compensation is a judicial function. The discharge of that function requires the exercise of judgment.
Plaintiff has presented evidence of the expenditure of $1,669,658 during the period 1951-73 for attorneys' fees, witness fees and other expenses allocable to the 11 patents which the court has held valid and infringed. But plaintiff did not include attorneys' fees in his requested reasonable and entire compensation before the trial judge, and no determination with respect to attorneys' fees, witness fees and expenses is called for from the court.
As indicated in subpart A, supra, the trial judge has recommended delay compensation based on a stepped percentage rate varying from 4% for the years 1947-55 up to 7 1/2% for the years 1971-75. The trial judge determined these percentages after examining the trends in investment yields, as indicated by Moody's Composite Index of Yields on Long Term Corporate Bonds. The trial judge noted that in many cases the court awarded delay compensation at a rate of 6% during the period 1927-37, 5% during the period 1937-44, and 4% during the period 1945-48, which rates were about 1 to 2 percentage points higher than the long term corporate bond yields during the same periods. The Government urged the trial judge and the court to calculate delay damages based on the average annual yields of a series of hypothetical long term Government bonds, in effect, the cost to the Government of borrowing money. This measure of damages is contrary to the established rule of eminent domain that damages should be determined by what the condemnee has lost, not what the taker has gained. 3 Nichols, Eminent Domain, (3rd Ed. Rev. 1975), § 8.61:
(Fn. omitted citing, e.g., Boston Chamber of Commerce v. Boston, 217 U.S. 189, 30 S.Ct. 459, 54 L.Ed. 725 (1910, per Holmes, J.)) The yield on a series of hypothetical Government bonds is not relevant in ascertaining the injury plaintiff has suffered. It measures compensation only according to the point of view of the taker without reference to that of the owner since he is hardly likely to be able to borrow money at the rates the Government can.
The court has considered Arcata National Corporation v. United States, (order reported), 513 F.2d 638, 206 Ct.Cl. 819 (1975), for two reasons: first, Judge Lane mentions it in his recommended decision (supra, subpart A) as a case in which the trial judge rejected defendant's theory that delay compensation should be based on the yields of a series of hypothetical Government bonds, and, second, that trial judge awarded a 6.6% covering a period for part of which Judge Lane awarded 7.5%. The trial judge in Arcata recommended an award which included 6.6% for delay damages (No. 777-71 decided July 25, 1974), but the court subsequently, by order, accepted a stipulation of the parties that plaintiff's written offer of settlement with 6.6% interest had been accepted. Arcata is not a judgment of the court, but is a compromise settlement, and as such, it is not an appropriate measure of just compensation. 4 Nichols, Eminent Domain, (3rd Ed. Rev. 1975) § 12.3113.
In Arcata, the Government urged that interest at a rate of 6%, the statutory rate, 16 U.S.C. § 79c(b)(2), satisfied the requirements of just compensation, relying on the fact that on or about October 2, 1968, the taking date, the Government was paying 6% on its debt obligations. Plaintiff sought to recover interest at a rate of 7.36% representing the average rate of interest it actually incurred on its debt obligations from the date of taking to a date just before trial. The parties recognized that ascertainment of just compensation was a judicial function and thus the court was not limited to the statutory figure of 6%, in effect, that the statutory 6% figure in the Redwood National Park Act, 16 U.S.C. §§ 79a-79j, was not binding. The trial judge rejected defendant's method as being too narrow and restricted in failing to consider other relevant data. We also reject such an approach.
The Arcata trial judge did not accept the plaintiff's method per se, but concluded that on the basis of the entire record, 6.6% was a fair rate of interest. In reaching this conclusion, the trial judge consolidated the prime interest rate for the period September 1968 through March 1973 (6.56%) with plaintiff's computed average on its borrowings for the same period (7.36%), achieving an average of 6.86%. The trial judge reconstructed plaintiff's interest computations to account for compensating balances and recognized that plaintiff did receive significant interest payments for 1969 and 1971. Prior to 1969, plaintiff was a prime customer at various banks and lending institutions and was able to negotiate loans at very favorable rates. After 1969, plaintiff had to pay higher rates. It is clear that the rate used by the trial judge was based in part on the actual cost to plaintiff of borrowing money. The court does not approve of this actual cost
The court agrees with the method used by Judge Lane in this case. As the trial judge explained in the findings of fact, long-term corporate bond yields are an indicator of broad trends and relative levels of investment yields or interest rates. They cover the broadest segment of the interest rate spectrum. The corporate bond market is large, substantially in excess of long-term Government bonds and long-term corporate yields measure basic trends and relative levels of interest rates from one period to another.
It is true that the court has computed interest in eminent domain cases at a rate of 4% since 1944. It should be noted that the prime interest rate was below 4% during the years 1944-1956. From 1956 through 1960, the prime rate fluctuated between 3 and 5%. Our awards covering that period allowed a rate, as we think they should have, higher than the prime rates and the rates at which the Government could then have borrowed money. The prime rate increased steadily, from 4.5% in 1960 to 8.5% in 1969. During the period 1971-72, the prime rate ranged from 4 3/8% to 6%. Most recently, in 1973-76, the prime rate has varied from 6.75% to 12%. When the prime rate or Moody's Corporate Index increased, the court failed to increase its interest award, not because of any affirmative determination that such an increase was improper or unwarranted, but rather because it was not confronted with a case that presented the necessary evidence properly. See, Amerace Esna Corporation v. United States, 462 F.2d 1377, 199 Ct.Cl. 175, 174 USPQ 517 (1972), (no evidence offered to prove requested 6% rate); Drakes Bay Land Co. v. United States, 459 F.2d 504, 198 Ct.Cl. 506 (1972), (no proof offered other than stipulated fact that defendant paid 6% interest on district court judgment condemnation cases involving land which became part of the same National Park); Confederated Salish & Kootenai Tribes v. United States, 437 F.2d 458, 193 Ct.Cl. 801 (1971), (statistical data offered to court, but not to trial judge); Carlstrom v. United States, 177 F.Supp. 245, 147 Ct.Cl. 297 (1959), (no special circumstances warranted award higher than 4%).
The parties in this case have briefed the issue and presented sufficient evidence to the trial judge to allow an informed and reasoned determination as to the appropriate measure of just compensation, just as we said they should have done in Confederated Salish, if they wanted the time-honored rates to be reconsidered in light of new economic conditions. Accordingly, the court adopts Part V of the trial judge's recommended decision as its own in addition to these added comments.
Plaintiff has not shown any basis for recovery of further delay compensation on account of inflation, and its claim for this is denied.
VI. Experimental Use
The order of the court filed July 12, 1973, Autogiro Company of America v. United States, 202 Ct.Cl. 1105, permitted the defendant to make "offers of proof" with respect to the manufacture and use of accused helicopters by the defendant "for testing and experimental purposes." At the accounting trial, defendant presented such offers of proof through the testimony of 13 witnesses and 147 documentary exhibits pertaining to about 93 of the 2,237 rotary-wing aircraft involved in this litigation. Defendant has requested 153 detailed findings of fact relative to experimental use, all based on its offers of proof. No findings of fact are or need be made on the testing and experimental use of accused aircraft. It
Defendant contends that under this court's decisions in Ordnance Eng'r Corp. v. United States, 84 Ct.Cl. 1 (1936), cert. denied, 302 U.S. 708, 58 S.Ct. 28, 82 L.Ed. 547 (1937) and 96 Ct.Cl. 278 (1942), and Chesterfield v. United States, 159 F.Supp. 371, 141 Ct.Cl. 838 (1958), devices of an infringing construction which were used for experimental or test purposes are to be excluded from the computation of compensation under 28 U.S.C. § 1498. That statute provides:
Defendant's interpretation and attempted expansion of the court's decisions in the two Ordnance cases supra, pertaining to what those decisions refer to as "ballistic shell" and "experimental shell," are erroneous; and those decisions are inapplicable to the present case. Although in Ordnance the court did exclude from the accounting the so-called "experimental shell," there is no discussion in the opinion in either of those cases as to the rationale for their exclusion. The only statement in the Ordnance decisions are "experimental" is one sentence: "Experimental shell are shell built for experimental purposes." There is no elucidation as to the determinants of "experimental purposes." Thus, the Ordnance decisions provide no rationale for, or guidance for determining the propriety of, excluding from an accounting so-called "experimental" devices except that they are devices "built for experimental purposes." In the present case there is no evidence in defendant's offer of proof that any of the helicopters to which defendant's "experimental use" contentions pertain were built solely for experimental purposes. For that reason alone, the Ordnance decisions are inapposite.
Defendant's reliance on the court's opinion in Chesterfield, supra, is likewise without merit. The court's statement in its opinion there that experimental use does not infringe constituted pure obiter dictum. The court's opinion specifically stated:
The court's reference to experimental use was clearly unnecessary to the disposition reached in Chesterfield. It is also noted that in Chesterfield the defendant procured by purchase, not by manufacture by or for the Government, certain alloys which had been developed and used for supercharger buckets and blades. In Chesterfield, the claim arose from defendant's use of purchased alloys. In the present case, the infringing aircraft were clearly manufactured for the defendant.
Plaintiff has excluded from its present claim static test mechanisms manufactured for defendant. Numerous research and development contracts were entered into by the defendant and various manufacturers for the design, development and manufacture of experimental helicopters and none of those specific helicopters are the subject of this litigation.
Defendant urges the court to exclude from compensation any aircraft used by the defendant for testing, evaluational, demonstrational or experimental purposes. Use for such purposes is use by or for the Government and is compensable. Obviously every new helicopter must be tested for lifting ability, for the effect of vibration on installed equipment, flight speed and range, engine efficiency, and numerous other factors. Tests, demonstrations, and experiments of such nature are intended uses of the infringing aircraft manufactured for the defendant and are in keeping with the
Defendant has also referred to the experimental use portion of Trial Judge Cooper's opinion and report to the court in Douglas v. United States, 181 USPQ 170 (1974). The court's opinion in that litigation, 510 F.2d 364, 206 Ct.Cl. 96, 184 USPQ 613 (1975), cert. denied, 423 U.S. 825, 96 S.Ct. 40, 46 L.Ed.2d 41, did not rule on experimental use since the patent claim was held to be invalid. While the trial judge's discussion of the experimental use rule in various courts is not the law of the case in Douglas, it is a well reasoned and historical analysis. In Douglas, the testing of the Kestrel aircraft conducted by the Army, Navy and Air Force, to evaluate the aircraft was found by the trial judge to be use of the aircraft which served a valuable governmental purpose.
CONCLUSION OF LAW
Upon the foregoing opinion and on the findings of fact which are made part of the judgment herein, the court concludes that the plaintiff is entitled to recover from the United States in accordance with the opinion. Judgment is entered for plaintiff to that effect. The amount of recovery, including both the basic amount of compensation and the delay compensation, will be determined pursuant to Rule 131(c) under the opinion.
NICHOLS, Judge, with whom KUNZIG, Judge, joins, concurring in the result:
I concur in the decision of the court and in the Per Curiam opinion except for part II, Royalty Compensation. As to that, I concur in the result, because I believe the Royalty Compensation should be at least as much as the conclusions stated in that part will lead to, and, indeed, considerably larger yet. The opinion is correct so far as it rejects the further cuts in Royalty Compensation proposed in Judge Kashiwa's dissent.
The court's decision will slash almost in half the trial judge's proposed decision, which would have awarded $50,926,278, of which $24,570,525 was the principal amount of reasonable and entire compensation, and the remainder was compensation in the nature of interest for delay in payment. The change serves to reward a cynical exploitation of the costs and delay of suing in this court, and its inevitable effect upon a claimant's valuation of this claim.
I would not quarrel with some reduction in the above figures, but I would make it for different reasons and to a lesser extent. It is normal in valuation proceedings to reject the testimony of retained experts on both sides and to award something in between. The trier of fact is not helpless if the testimony is all unacceptably high or low. Conqueror, 166 U.S. 110, 131, 17 S.Ct. 510, 41 L.Ed. 937 (1897); United States v. Northern Paiute Nation, 393 F.2d 786, 800, 183 Ct.Cl. 321, 346 (1968). When we have fully in effect the utopia of court-appointed experts under the Federal Rules of Evidence, Rule 706, as adopted in Pub.L. 93-595, this kind of splitting of differences may become less respectable.
Here however, the court has rejected one error only to embrace another. The trial judge unfortunately held that the taking occurred all at once on the occasion of the first infringement by or on behalf of the Government. The court rightly holds that takings occurred from time to time over the years; as helicopters were built. But it wrongly holds that the 1947 royalty agreement with United Aircraft Corporation and the offers by plaintiff to other companies are binding on it, as admissions, and necessitate a royalty reduction to 2% from the trial judge's 3.85%.
After the end of World War II hostilities the wartime .85 rate lapsed though the Royalty Adjustment Act was, as the court admits, at least technically in effect. The Government apparently made no effort to rely on it; rather, it required indemnity agreements from suppliers. This relegated the plaintiff to making the best deal it could with manufacturers amid all the dog eat dog atmosphere of private patent controversy, but without the injunction relief normally available to wronged patentees,
The court describes the two agreements with United Aircraft Corp. It professes to derive support for its position from the fact that United's letter, quoted in its fn. 11, was written a year after the 1947 agreement. However, the letter discusses and characterizes that 1947 agreement as purely and simply, on its side, a resultant of assessing the royalty plaintiff demanded against the projected outcome of litigation. No reason appears why the lapse of a year would make that assessment less valid. It is, in my view, a telling letter and vividly portrays the predicament that Autogiro was placed in. Plaintiff's patent counsel testified that plaintiff's assessment of the situation was the same. This is why plaintiff cut its demands from 5% to 2%. If it had done this because its inventions were not salable, we would have a different case. It knew its inventions were not only salable but indispensable; that manufacturers could not build helicopters "around them," in the patent lawyers' term, i.e., they could not build helicopters without infringement. It also knew that whether manufacturers procured licenses or not, they would build helicopters in the same manner, infringing or not, and would defy any lawsuits that might be brought.
What is any claim worth, in present value, if one knows one must sue in the Court of Claims for 25 years to recover anything upon it? It is fair to take the fellow who would settle it at the outset for 40¢ on the dollar, and assess his claim at 40¢, though he has not got the quid pro quo his sacrifice of 60¢ would have obtained if accepted?
Nobody ever actually paid any royalties at the 2% rate. Plaintiff would have obtained under its 1947 United agreement, if not superseded, and under its offers to others, if accepted, an immediate cash flow. It would also have obtained from anyone who accepted a license, an estoppel to challenge the patents, as the law was before Lear Inc. v. Adkins, 395 U.S. 653, 89 S.Ct. 1902, 23 L.Ed.2d 610 (1969), which overruled Automatic Radio Mfg. Co. v. Hazeltine Research Co., 339 U.S. 827, 70 S.Ct. 894, 94 L.Ed. 1312 (1950). Most valuable of all, it would have saved 25 years of litigation. Plaintiff finally sold a paid up license at an even cheaper rate to United, to obtain these blessings. Defendant, and its indemnitors, did not furnish any of the quid pro quo that United furnished, and yet now they want the discount that United got. Even the court can see that the under 1% rate is not "reasonable and entire compensation" but somehow the 2% rate is different.
The court's decision not only violates the most elementary notions of reason and justice, but also established law. The general rule in eminent domain is that a landowner's right to recover just compensation may not be measured by the amount another landowner received as a settlement of possible litigation. 4 Nichols On Eminent Domain, (3d Ed.Rev. 1975), 12.3113.
Calhoun v. United States, 453 F.2d 1385, 197 Ct.Cl. 41 (1972), does not require a different result, but by implication indicates we should disregard the post-1946 transactions. In Calhoun, plaintiff licensed the patent throughout the industry at a rate of twenty-five cents per unit. The trial judge increased this commercial royalty by one-third since he felt the rate was set by plaintiff with a view to avoiding litigation and since defendant's failure to keep records increased plaintiff's costs in litigation. The court refused to accept the trial judge's figure because:
Considering the casualties that patents suffer by invalidity determinations in the Federal Courts, a bargained license under any patent not yet litigated would possibly show some discount for litigation avoidance, but the teaching of Calhoun is that this mere surmise does not per se preclude use of a widely accepted commercial rate to establish reasonable and entire compensation. That is all Calhoun teaches to me.
The case before us is very different from Calhoun. There is conclusive evidence in the record that the parties considered the costs of litigation in negotiating the license agreements. There were not many "takers" of Autogiro's patents after 1946, only United. Further, post-1946 manufacture of helicopters was primarily for the Government, not commercial sales. We can properly infer from the record that the 1947 and 1949 agreements with United were not valid reflections of the patents' fair market value.
I agree with the remainder of the court's decision, as to which, therefore, I need not spell out my views. The amount the trial judge would have awarded is large, perhaps unprecedented. Even this court's meat axed award will be substantial. Large as the involved sums are, here, as always, the precedential effect of our decision is even more important. Do we really want to tell litigants that we have so little concern about the costs and delay of suing in this court, that we will take as the full value of a claim herein the discounted value which a desperate claimant must accept, if he is to realize anything at all before 25 years of litigation? If that is our position, we have a self-activating mechanism for reducing awards, which the defendant will know how to make the best use of. It is not my idea of justice.
Plaintiff's offers in 1947 do establish that the 5% royalty rate was abandoned. I would consider them to that extent. The situation appears to me to be appropriate for one of those miscalled "jury verdicts" (cf. A. C. Ball Co. v. United States, 531 F.2d 993, 209 Ct.Cl. 223 (1976)). I would come up with a $20,000,000 figure for the royalties, to which should be added the compensation for delay in payment.
As a parting shot, I will add I fail to see why this Jarndyce v. Jarndyce of a case has got to be further prolonged with Rule 131(c) proceedings. Could not the court, by a few minute's work with a pencil, calculate the amount of the award to which its reasoning leads, and convert this claim at long last into a money judgment?
SKELTON, Judge, concurring in part and dissenting in part:
I concur in all the per curiam opinion, except the award of interest of 6 1/2 percent for the period 1966-1970 and the award of interest of 7 1/2 percent for the period 1971 to date of payment. I think the interest awarded for these years is too high and should be reduced to six percent for the entire period of 1966 to date of payment. This would be in line with 16 U.S.C. § 79c(b)(2) (1970) which provides in pertinent part:
It is true that this statute refers to the taking of real property for the Redwood National Park, nevertheless, it deals with a fifth amendment taking of property by the Government and provides the payment of an appropriate rate of interest.
Also, the Declaration of Taking Act, 40 U.S.C. § 258a (1970), 46 Stat. 1421, provides in pertinent part with reference to just compensation for a taking by the United States of any land or easement or right of way in land for public use:
These two statutes establish guidelines for the payment of interest in fifth amendment
In the case before us, the majority approves the decision of the trial judge in awarding 6 1/2 and 7 1/2 percent interest for the designated period based on Moody's Composite Index of Yields on Long Term Corporate Bonds. In my opinion, this is not a proper yardstick to measure or determine the amount of interest to be awarded in a fifth amendment taking by the Government. We are not dealing with corporate bonds, which may be speculative as to yield as well as to risk of default, but with an obligation of the United States which usually bears a lower interest rate than that applicable to other borrowers, is not speculative as to yield and bears no risk of default.
The Ninth Circuit Court of Appeals discussed this very point in United States v. Blankinship, 543 F.2d 1272 (9 Cir. 1976), in considering the proper way to determine the amount of interest to be paid for a fifth amendment taking by the Government under the Declaration of Taking Act cited above. The court held:
I agree with the decision of the Ninth Circuit Court in the above case. The method of determining the rate of interest in that case was not the procedure followed by our trial judge. It does not appear that there was any evidence at the trial of the yield of public securities of the United States during the designated period. It is true that the defendant suggested at the trial that the interest rate should be "an
It does not appear that there was any evidence at the trial showing the rate of interest that would have been available to the plaintiff if it had invested, on the dates of taking, the total amounts due it in marketable public debt securities issued by the United States Treasury during the periods involved here. Without such evidence, we are not justified in awarding interest of more than six percent as specified in the two statutes cited above.
The case of Arcata National Corp. v. United States, No. 771-71, report filed July 25, 1974, wherein the court approved interest of 6.6 percent in a taking case, is not applicable here, because the parties agreed to the 6.6 rate and the court merely approved their agreement. The majority agrees that this is true.
Neither is Pub.L. No. 93-625, § 7, 88 Stat. 2108 of January 3, 1975, providing for payment by the Government of interest of nine percent per annum on overpayments of internal revenue taxes, cited by the majority, controlling in this case. There is not the slightest evidence or indication that Congress intended the Act to apply in any way to eminent domain cases. Besides, there is a big difference between interest on an overpayment of taxes and interest in a taking case. An overpayment of taxes allows the Government to use the taxpayer's money until a refund is made and the nine percent interest is payment by the Government for such use. Whereas, in a taking case, interest is not paid for use of money belonging to the party whose property is taken, but is awarded to him as a part of his damages in the form of delayed compensation.
KASHIWA, Judge, concurring in part and dissenting in part:
I concur with the views expressed in the majority opinion regarding: I. Similarity, III. Contribution, IV. Spare Parts, V. Delay Compensation and VI. Experimental Use. But with relation to the portion of the opinion entitled II. Royalty Compensation, I concur in part and dissent in part as hereinafter shown.
The majority found, relative to II. Royalty Compensation, that:
It is on these offers by plaintiff, made in 1947-1948, to other manufacturers of aircraft, mainly Piasecki, McDonnell and Bell, of licenses similar to that of United Aircraft Corporation's (United) license agreement effective January 1, 1947, that the majority decided on the post-war rate of 2%. A careful reading of the majority opinion shows that the opinion is not clear as to whether it meant that the 2% rate was only a maximum rate or whether the 2% rate was a flat rate with no downward, lower rate permitted. As to these offers, the majority states:
The phrase "prima facie title to acceptance" is ambiguous. The ambiguity is made more apparent when one reads the majority's footnote 16. It reads as follows:
The record in this case shows that United's $500 ceiling per aircraft at that time amounted to a .66% rate.
So one can only conclude that there is an inconsistency at this very important point of the majority opinion. This inconsistency caused the majority a problem in setting its post-1949 rate. The 1949 fully paid-up license to United was less than 2%. The majority answered defendant's argument for a lower than 2% rate for the post-1949 rate as follows:
Since the majority first refers to dominant Government consumption, injunctions and one-sided litigation pressure, the majority was referring to Governmental actions under 35 U.S.C. §§ 89-96, popularly known as
See, also, Yassin v. United States, 110 Ct.Cl. 211, 228, 76 F.Supp. 509, 519 (1948). The exact date of the Fulmer decision was June 1, 1948, and Yassin was decided March 1, 1948. It is clear that plaintiff in 1949 drafted its fully paid-up license to United under the Fulmer holding of this court to free itself of any possible litigation under said 35 U.S.C. §§ 89-96. So plaintiff was not under the "one-sided litigation pressure" referred to by the majority. The 1949 paid-up license from plaintiff to United provided as total consideration the sum of $325,000. Even if plaintiff had raised the amount from $325,000 to $5 million and United agreed to such raise, since it was a paid-up license it was not subject to the Royalty Adjustment Act. I shall hereafter again refer to the 1949 fully paid-up license under the damage computation aspects of this dissent.
So if the majority meant that the 2% rate was a flat rate "for all infringements" and that for the post-1949 years it was a flat 2% rate with no lower rate permitted, I disagree. I agree with the defendant that the 1947-1948 offers only set a "maximum ceiling of 2%" and that a lower percentage rate figure was permissible. I take this position not only on my foregoing Fulmer rebuttal but on grounds more fundamental and basic which I shall next discuss.
The United license by plaintiff contained in addition to the 2% rate clause and others the following most-favored licensee clause:
The record shows that the only three other substantial manufacturers in the United States then in the field competing with United were Piasecki, McDonnell and Bell. The package license written outlines and/or drafts containing the 2% rate offer separately sent in 1947 and 1948 to Piasecki, McDonnell and Bell contained the identical above-mentioned most-favored licensee clause. The early Kellett license also contained the same clause. The 1943 and 1944 Firestone licenses extensively discussed in the trial judge's opinion in this case contained the same most-favored licensee clause. It is axiomatic that competitors must be dealt with fairly and equally and in all of its licenses and proposals plaintiff recognized this basic principle by using and making it known that it offered in its future licenses the most-favored licensee clause. Plaintiff well knew that Piasecki, McDonnell and Bell were competing with United in the helicopter market and that Piasecki, McDonnell and Bell would not agree to a license without the protection of the most-favored licensee clause. Plain elementary economics of marketing and the very evidence in this case prohibit any other assumption.
Defendant has taken a license by eminent domain in any applicable patent or patents from plaintiff by reason of the unauthorized making or use of the patented invention(s) in each aircraft at the time of Governmental acceptance or use of that aircraft.
The majority held with relation to the 2% offer that it was the market rate because "the significant fact is that plaintiff made the offer and made it widely." The most-favored licensee clause accompanied each of the 2% rate offers so if the offers of the 2% rate were "offered generally," the accompanying most-favored licensee clause was also "offered generally," sufficient to tie the two together. They together established a lower rate than the 2% rate if plaintiff offered a preferred rate to one of the manufacturers. The result was that although the 2% rate offer was made, plaintiff also offered a lesser rate to all substantial manufacturers where the facts showed that any one of the manufacturers was offered a preferred rate by plaintiff. The majority felt and stated that the lower than 2% rate problem is "not a simple skein to unravel" because it did not take the most-favored licensee clause into consideration. I believe that if the majority had considered the most-favored licensee clause and had made it a part of the 2% offer, the unraveling would have been easy and without difficulty.
The evidence is undisputed that United was offered preferred rates by plaintiff. Autogiro in 1947-1948 allowed United a preferred $500 per aircraft advantage. We have heretofore discussed this 1947-1948 preference so I will not dwell on it again except to state that even without considering and taking into account the most-favored licensee clause, the majority felt that the $500 advantage (.66% rate) given by plaintiff to United must also be given defendant on the total damage question posed by this phase of the litigation. The majority must have felt the unfairness resulting from a refusal to allow the .66% rate because it was plaintiff which granted this lower .66% rate and plaintiff must suffer the consequences of its offering such a low rate.
Plaintiff also entered into a written agreement in 1949 with United for a lesser rate than the 2% rate. The majority found:
The paid-up license transaction in 1949 was initiated in 1948 with an offer by plaintiff to United to sell its entire patent holdings for $750,000. This is an established fact in this case. I do not take this self-valuation by plaintiff of the total worth of its patents lightly just because it was only an offer.
$136,477.98 Paid under 1943 and 1944 licenses. + 67,783.28 Paid under 1947 license. ___________ $204,261.26 $325,000.00 Total price. - 204,261.26 See above addition. ____________ $120,738.74 Difference.
We quote the above arithmetic to show that the sale price of $325,000 was not a figure picked out of the clear sky. The $204,261.26 was based on past royalties paid under prior licenses of United. This prevents any argument by plaintiff of guessing on the part of defendant because the arithmetic is exact. The paid-up license cost United $120,738.74. These breakdowns of figures are from plaintiff's own documents produced for the record in this case. It is important to observe the above arithmetic because, as it is hereafter shown, the defendant's expert found this analysis to be material in his opinion testimony in support of his views as to what the damages to plaintiff should be.
The majority, after unanimously rejecting the trial judge's single-taking theory, has in effect agreed with defendant that the 2% rate in the 1947 license to United and in plaintiff's offers to others in 1947-1948 is where this court should start. The majority in effect held that the material time frame was 1947-1948, when the offers were made. I agree with the majority.
The question now is what is the percentage below the 2% rate? When plaintiff's offers to all manufacturers are considered in the above time reference, one important factor, fundamental in market evaluation, looms above all the others. After United, the leader in the helicopter industry, had received its 1949 paid-up license, no other manufacturer could pay substantially more and expect to compete in either the Government or commercial market place. Those postwar arrangements, when properly compared and analyzed in light of the most-favored licensee clause, must operate under said clause to place a ceiling lower than the 2% rate on plaintiff's recovery. To view the case otherwise is simply to ignore the market value which plaintiff itself placed on a license under is patents.
When considering the merits of a proposed compensation scheme, it is often the practice to compare the recovery under that scheme to extrapolations from other agreements or transactions. Such comparisons give the court a guide to the comparative fairness of the scheme. Saulnier v. United States, 314 F.2d at 951-952, 161 Ct.Cl. at 226-227.
In the period from 1947 to 1948, on an aircraft which cost basically $75,000, United was paying a running royalty of $500 per aircraft. Clearly, United felt that continuation of such a running royalty beyond 1949
The average cost of the over 2,200 aircraft in this accounting is $287,273. Applying to each of these aircraft a running royalty of basically the same level as under the 1947 United agreement, i.e., ($287,273 ÷ $75,000) X $500 = $1,915, the plaintiff would receive a basic royalty compensation of $4,264,705. Clearly, this is more than United was willing to pay and, thus, is more than its competitors could reasonably afford to pay. However, this figure does demonstrate the unreasonableness of the $12.8 million figure under the flat 2% rate ceiling.
Relative to the use of expert testimony, Congress, under sections dealing with patent litigation in 35 U.S.C. § 284 (1952), specifically provided as follows:
And it is not only by statute but the Court as shown in Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 53 S.Ct. 736, 77 L.Ed. 1449 (1933), has encouraged reliance on expert testimony. In patent litigation with relation to the use of expert testimony to aid the Court in assessment of damages, the Court in Sinclair Refining Co., supra at 697-698, 53 S.Ct. at 739, stated that even in cases where there are no actual sales, expert testimony may be allowed:
Fortunately, in this case there was an admitted, fully paid-up sale of patent rights by plaintiff to United. The use of the expert by defendant herein was not to establish the sale. His testimony was an analysis of the admitted sale by plaintiff. This is a much stronger case for expert testimony than in Sinclair Refining Co. and the evidence in this case is on much firmer ground than what this court had to rely on in Saulnier v. United States, supra. In ascertaining damages resulting from defendant's use of aircraft canopy assembly patents owned by plaintiff, this court said in Saulnier:
With relation to expert testimony introduced by the parties in this case, it appears that the plaintiff submitted expert testimony to prove its claim for damages under its single-taking theory. The evidence plaintiff produced was relevant under the Firestone Tire and Rubber Company license. The facts and theory involved in plaintiff's approach did not fit into or answer defendant's entirely separate and different approach. Defendant brought forward Mr. Glassman as its expert witness to offer expert testimony in support of its computation of plaintiff's damages based on facts surrounding the United licenses of 1947 and 1949. It happens that as the case now turns out, we have uniformly rejected plaintiff's single-taking approach and plaintiff is without evidence to rebut Mr. Glassman's opinion evidence. Plaintiff in its brief before this court, answering Mr. Glassman's expert testimony, does not point to any expert testimony produced by plaintiff to refute Mr. Glassman's expert testimony. Mr. Glassman's opinion testimony remains uncontroverted. It cannot be refuted because it is plain arithmetic based on figures in the record.
Mr. Glassman has the following qualifications. He possesses both a law degree and an engineering degree. He worked in the Patent Office for about four years, mostly as a Patent Examiner, and thereafter was employed by the Department of the Army in the Office of the Chief Signal Officer and later, after an Army reorganization, in the Army Materiel Command, performing patent work for the Army from 1945 for about 27 or so years. During the time when he was working in the Office of the Chief Signal Officer and, for part of the time, in the Army Materiel Command in connection with investigation of infringement claims and offers of licenses, he personally negotiated on behalf of the Government some 15 to 20 license agreements or settlements of infringement claims. He also reviewed about 1,000 proposed license agreements between United States companies and foreign companies pertaining to the export of data relating to munitions of war under State Department Export Control Regulations, which often involved the transfer of patent or data rights. Mr. Glassman also had responsibility for determining or investigating the propriety of royalty charges to Army contracts involving companies, including those in the aircraft industry such as Lockheed, Boeing-Vertol, and Hughes. He has previously given testimony in four other patent accounting cases to determine reasonable royalty rates in the Court of Claims. I am impressed by his qualifications. These qualifications are substantial when compared to the qualifications of plaintiff's witnesses. Plaintiff's chief expert witness, H. F. Gregory, testified regarding damages on a patent-to-patent basis. It is clearly not relevant under the present status of the case. It is interesting to note that he didn't know what a "file wrapper" was. He had no prior experience in patent procurement.
Mr. Glassman used the methodology and calculations shown in the margin.
BENNETT, Judge, concurring in part and dissenting in part:
Though I join in most of the court's opinion, I cannot accept the majority's reasoning in part II (Royalty Compensation) in support of the 2-percent royalty rate. Rather, I basically agree with Judge Kashiwa's approach to that issue, and concur in his result. Like Judge Kashiwa, I find an unexplained, telling inconsistency between the majority's approval of the 2-percent rate for license compensation from 1946 onward, and its recognition that a $500-per-aircraft figure governed plaintiff's license agreement with United in 1947 and 1948. Even more undermining of the 2-percent rate is the fact that it was never actually used to measure a fair return to plaintiff on its patents; that rate was neither accepted by any other potential licensees nor allowed to go into effect under the 1947 United license agreement. The 2-percent figure may well have been satisfactory to plaintiff but then so was the $500-per-craft rate, and so further, as Judge Kashiwa demonstrates, was the return received under the 1949 paid-up license. Accordingly, there is no warrant for the majority's conclusion that a 2-percent compensation level should apply on the theory that no "lesser royalty was ever satisfactory, acceptable, or offered generally." Following Judge Kashiwa, I think that the 1949 paid-up license agreement was not so clearly the product of "one-sided litigation pressure," the assumption used by the majority to brush aside evidence that could lead to a more than tenfold reduction in plaintiff's recovery. That agreement should be taken into account, in keeping with the economic reality embodied in the "most favored licensee" clause of the typical royalty agreement that plaintiff offered to potential licensees. As Judge Kashiwa explains, "[a]fter United, the leader in the helicopter industry, had received its 1949 paid-up license, no other manufacturer could pay substantially more and expect to compete in either the Government or commercial market place." Defendant is unquestionably entitled, as a matter of law as well as by analogy to the "most favored licensee" provision, to enjoy a royalty rate no less favorable than any of plaintiff's licensees. The impact of the paid-up license was carefully and properly considered in the unrebutted testimony of defendant's expert witness Glassman, reaching a just compensation rate far less than 2 percent and more in line with that stated in Judge Kashiwa's opinion.
The majority in footnote 13 states:
From 3(c) ________________ $132,000,000 From 4(a) ________________ 7,171,852 From 4(b) ________________ 2,630,000 ____________ $141,801,852
1946 (December 27-31, 1946) _______ 0.00 1947 and 1948 _____________________ $63,500.00 January 1, 1949, to May 27, 1964___ 120,738.74 __________ $184,238.74
(Total Royalties) ----------------- X 100% = (Effective Royalty Rate) (Total Sales) 184,238.74 ----------- = .1299% 141,801,852