[House Report 104-373]
[From the U.S. Government Publishing Office]
104th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 104-373
_______________________________________________________________________
JUST COMPENSATION OF PATENT OWNERS FOR UNLICENSED USE BY UNITED STATES
_______
November 30, 1995.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______________________________________________________________________
Mr. Moorhead, from the Committee on the Judiciary, submitted the
following
R E P O R T
[To accompany H.R. 632]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 632) to enhance fairness in compensating owners of
patents used by the United States, having considered the same,
report favorably thereon without amendment and recommend that
the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 1
Background and Need for Legislation.............................. 2
Hearings......................................................... 3
Committee Consideration.......................................... 3
Vote of the Committee............................................ 4
Committee Oversight Findings..................................... 4
Committee on Government Reform and Oversight..................... 4
New Budget Authority and Tax Expenditures........................ 4
Congressional Budget Office Estimate............................. 4
Inflationary Impact Statement.................................... 6
Section-by-Section Analysis...................................... 6
Agency Views..................................................... 6
Changes in Existing Law Made by the Bill, as Reported............ 9
Purpose and Summary
The purpose of H.R. 632 is to help small business,
independent inventors and nonprofit organizations recover the
legal costs associated with defending their patents when the
Federal government is found liable for taking and using them.
Background and Need for the Legislation
When the government takes a person's patent, he or she may
bring suit to recover damages against the United States in the
Court of Federal Claims under the Tucker Acts, 28 U.S.C.
Sec. Sec. 1346(a)(2) and 1491. 28 U.S.C. Sec. 1498 provides the
remedy for a patent owner plaintiff stating that he shall be
awarded ``reasonable and entire compensation'' for the taking
of his patent rights by the government. Courts have ruled that
this ``reasonable and entire compensation'' is equal to the
``just compensation'' required by the Fifth Amendment for
government takings by eminent domain. See Waite v. United
States, 282 U.S. 508, 509 (1931). The assessment of litigation
fees and costs against the United States in eminent domain
cases is not required by the Fifth Amendment, and thus is not
part of the ``reasonable and entire compensation'' required
under 28 U.S.C. Sec. 1498. Accordingly, such fees and costs can
only be authorized by statute. United States v. Bodcaw Co., 440
U.S. 202, 203 (1979).
Congress provided such authorization for legal fees and
costs in cases related to the taking of real property by the
United States when it passed the ``Uniform Relocation
Assistance and Real Property Acquisition Policies Act of
1970,'' 42 U.S.C. Sec. 4654.\1\ No such provision exist,
however, for the taking of intellectual property, specifically
in the case where the government is found liable for taking a
patent. See Calhoun v. United States, 453 F.2d 1385, 1395-96
(Ct. Cl. 1972). H.R. 632 provides this authorization so that
independent, non-profit and small business patent owners who
have had their patents expropriated can recover the value of
the patent as well as the expensive costs required to obtain
their damages.
\1\ 42 U.S.C. Sec. 4654(c) provides:
(c) Claims against the United States--
The Court rendering a judgment for the plaintiff in a proceeding
brought under section 1346(a)(2) or 1491 of Title 28, awarding
compensation for the taking of property by a Federal agency, or the
Attorney General effecting a settlement of any such proceeding, shall
determine and award or allow to such plaintiff, as a part of such
judgment of settlement, such sum as will in the opinion of the court or
the Attorney General reimburse such plaintiff for his reasonable costs,
disbursements, and expenses, including reasonable attorney, appraisal,
and engineering fees, actually incurred because of such proceeding.
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Some have suggested that the Equal Access to Justice Act of
1980, 28 U.S.C. Sec. 2412 (``EAJA''), which makes the
government liable for attorney's fees and costs to the extent
that any such fees would be awarded against a private party, be
relied upon in lieu of enacting the specific provisions of H.R.
632. Private parties are liable for fees and costs in
``exceptional cases of patent infringement'' under 35 U.S.C.
Sec. 285. The problem arises in the differing nature of a
patent infringement suit against a private party compared with
one levied against the government. A suit against a private
party is based in tort whereas one against the government is
based on eminent domain. Leesona Corp. v. United States, 599
F.2d 958, 966-969 (Ct. Cl. 1976). Suits against the government,
unlike suits against a private party, authorize the government
to take a license in any patent, and the government is never
guilty of direct infringement of a patent insofar as direct
infringement means tortious or wrongful conduct. Decca Ltd. v.
United States, 640 F.2d 1156, 1166 (Ct. Cl. 1980); ITT Corp. v.
United States, 17 Cl. Ct. 199, 202 (1989). Because the suits
are not directly analogous, it has been held that the EAJA does
not apply to patent owners who must sue the government for
infringement to recover just compensation. De Graffenried v.
United States, 29 Fed. Cl. 384, 386-87 (1993). No owner has yet
been able to recover any of its litigation costs under the
EAJA. Under the Act, costs are required to be assessed against
the government when a small business or non-profit claimant
prevails in a suit in which it otherwise could have claimed
fees and costs against a private party, but will not be awarded
when the government's position in the litigation is
``substantially justified.''
Currently, equity cannot be done in reimbursing patent
owners for fees and costs because the courts have generally
taken the position that if Congress had intended to include
such reimbursement, it should have said so specifically. That
is what this bill does--it says so specifically. It authorizes
the express recovery of reasonable costs and fees by small
businesses, non-profit entities or independent patent owners
who are forced to litigate against the government to obtain
compensation for infringement by the government. Under the
bill, the fees and costs in each case will be scrutinized by
the Court of Federal Claims to assure that they are
reasonable.\2\
\2\ As with other fee-shifting provisions, judges may determine the
amount of reasonable fees and costs based on the ``lodestar''
calculation, which is made on the basis of an hourly rate which may not
exceed that which the court considers acceptable in the community in
which the attorney practices law, taking into account the attorney's
qualifications and experience and the complexity of the case.
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Hearings
The Committee's Subcommittee on Courts and Intellectual
Property held a hearing on H.R. 632 on June 8, 1995. Testimony
was received from the following 8 witnesses: Representative
Martin Frost, 24th District of Texas; The Honorable Bruce A.
Lehman, Secretary of Commerce and Commissioner of Patents and
Trademarks, Patent and Trademark Office, U.S. Department of
Commerce; Mr. Gary Griswold, President, Intellectual Property
Owners, Inc.; Mr. Michael Kirk, Executive Director, American
Intellectual Property Law Association; Mr. Thomas Smith,
President, Section on Intellectual Property Law, American Bar
Association; Mr. Andrew Kimbrell, Director, International
Center for Technology Assessment; Mr. Kenneth Addison,
President, Oklahoma Inventor's Congress; Dr. Raymond Damadian,
President and Chairman, Fonar Corporation.
Committee Consideration
On July 27, 1995, the Subcommittee on Courts and
Intellectual Property met in open session and ordered reported
the bill H.R. 632 by a voice vote, without amendment, a quorum
being present. On October 17, 1995, the Committee met in open
session and ordered reported the bill H.R. 632, without
amendment, by voice vote, a quorum being present.
Vote of the Committee
Mr. Hyde called up H.R. 632 as reported by the Subcommittee
on Courts and Intellectual Property. Mr. Moorhead then moved
adoption of H.R. 632. The motion carried on a voice vote, a
quorum being present.
Committee Oversight Findings
In compliance with clause 2(l)(3)(A) of rule XI of the
Rules of the House of Representatives, the Committee reports
that the findings and recommendations of the Committee, based
on oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
Committee on Government Reform and Oversight Findings
No findings or recommendations of the Committee on
Government Reform and Oversight were received as referred to in
clause 2(l)(3)(D) of rule XI of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 2(l)(3)(B) of House rule XI is inapplicable because
this legislation does not provide new budgetary authority or
increased tax expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 2(l)(C)(3) of rule XI of the
Rules of the House of Representatives, the Committee set forth,
with respect to the bill, H.R. 632, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 403 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 3, 1995.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 632, a bill to
enhance fairness in compensating owners of patents used by the
United States.
Enacting H.R. 632 would affect direct spending. Therefore,
pay-as-you-go procedures would apply to the bill.
If you wish further details on this estimate, we will be
pleased to provide them.
Sincerely,
June E. O'Neill, Director.
congressional budget office cost estimate
1. Bill number: H.R. 632.
2. Bill title: A bill to enhance fairness in compensating
owners of patents used by the United States.
3. Bill status: As ordered reported by the House Committee
on the Judiciary on October 17, 1995.
4. Bill purpose: The remedy for unauthorized manufacture or
use of a patented invention by the United States government is
a suit in the U.S. Court of Federal Claims for reasonable and
just compensation. H.R. 632 would expand the definition of
reasonable and just compensation to include the fees of
attorneys and expert witnesses, if the owner of the patent is
an individual, a nonprofit organization, or a company with less
than 500 employees.
5. Estimated cost to the Federal Government: As shown in
the following table, CBO estimates that enacting H.R. 632 would
increase mandatory spending for the payment of attorneys fees
and expert witness fees from the Claims, Judgments, and Relief
Acts account by about $3 million in fiscal year 1996 and $7
million over the 1996-2000 period.
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1996 1997 1998 1999 2000
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Changes in direct spending:
Estimated budget authority........................... 3 1 1 1 1
Estimated outlays.................................... 3 1 1 1 1
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The costs of this bill fall within budget function 750.
6. Basis of estimate: According to the United States Court
of Federal Claims, about 10 cases of patent infringement a year
are filed against the federal government, and in about half of
these filings the plaintiffs are not represented by attorneys.
Because this bill would allow for the payment of fees of
attorneys and expert witnesses, the Department of Justice
expects that there would be some increase in the number of
lawsuits filed against the United States. While it is difficult
to predict the number of additional cases that would be filed
under this bill, CBO expects a small increase in filings.
Based on information from the United States Court of
Federal Claims, CBO expects that about half of the cases that
are filed would result in the eventual award of attorneys'
fees. The amount of such awards would depend on the complexity
of the cases filed, the length of time it took to litigate the
cases, and the outcome of the litigation. Based on the value of
the judgments that have been awarded in past cases and the
expectation of a small increase in the number of cases filed,
CBO estimates that enacting this bill would increase direct
spending by about $3 million in 1996 and about $1 million in
subsequent years. The estimate for 1996 is slightly larger
because of a recent judgment against the United States by a
company that would meet the qualifications set forth in this
bill.
7. Pay-as-you-go considerations: Section 252 of the
Balanced Budget and Emergency Deficit Control Act of 1985 sets
up pay-as-you-go procedures for legislation affecting direct
spending or receipts through 1998. CBO estimates that enacting
H.R. 632 would increase direct spending by about $3 million in
fiscal year 1996 and $1 million in each of fiscal years 1997
and 1998. The following table shows the estimated pay-as-you-go
impact of this bill.
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1996 1997 1998
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Change in outlays...................... 3 1 1
Change in receipts.....................
(2) Not applicable
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8. Estimated cost to State and local governments: None.
9. Estimate comparison: None.
10. Previous CBO estimate: None.
11. Estimate prepared by: Susanne S. Mehlman and Rachel
Forward.
12. Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
Inflationary Impact Statement
Pursuant to clause 2(l)(4) of rule XI of the Rules of the
House of Representatives, the Committee estimates that H.R. 632
will have no significant inflationary impact on prices and
costs in the national economy.
Section-by-Section Analysis
Section 1
Section 1 of H.R. 632 amends 28 U.S.C. Sec. 1498(a) by
defining the term ``reasonable and entire compensation'' to
include attorney's fees and costs. 28 U.S.C. Sec. 1498 provides
for damages where a plaintiff sues the United States for
expropriating his patent.
Agency Views
U.S. Department of Justice,
Office of Legislative Affairs,
Washington, DC, October 17, 1995.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: This presents the views of the
Department of Justice on H.R. 632, a bill ``To enhance fairness
in compensating owners of patents used by the United States.''
We understand that this bill was marked up the Subcommittee on
Courts and Intellectual Property on July 27, 1995. For the
reasons set forth below, we oppose enactment of H.R. 632.
The remedy for unauthorized manufacture or use of a
patented invention by or for the government is a suit in the
Court of Federal Claims pursuant to 28 U.S.C. Sec. 1498(a) for
``reasonable and entire'' compensation. The ``reasonable and
entire'' compensation standard of recovery is identical to the
just compensation standard embodied in the Fifth Amendment of
the Constitution which is commonly applied in eminent domain
cases. See Leesona Corp. v. United States, 599 F.2d 958, 967
(Ct. Cl.), cert. denied, 444 U.S. 991 (1979). Just compensation
under the Fifth Amendment does not include costs or attorneys'
fees. This is true for all types of eminent domain takings for
which just compensation is required under the Fifth Amendment.
This bill would amend section 1498(a) by mandating that
reasonable and entire compensation include ``the owner's
reasonable costs, including reasonable fees for expert
witnesses and attorneys, in pursuing the action'' if the owner
is an independent inventor, a nonprofit organization or an
entity with less than 500 employees. This would single out
actions under section 1498(a) for a more expansive award of
costs and attorneys' fees than is available to claimants in
other actions against the government. There is no apparent
reason to accord such preferential treatment for suits under
section 1498(a).
Under the Equal Access to Justice Act (EAJA), 28 U.S.C.
Sec. 2412, Congress has already provided for recovery of costs
against the government. Section 2412(a) permits an award of
costs against the government when the claimant prevails. It
does not, however, mandate such an award. Moreover, section
2412(d) permits the award of attorneys' fees to certain
individuals, nonprofit organizations and entities with less
than 500 employees and having a net worth of less than
$7,000,000 when the government's litigation position is not
substantially justified. This was the result of long
consideration and debate over the proper balance between the
need to permit recovery of costs and attorneys' fees against
the government in some cases and the desire to avoid
encouraging claimants to advance untenable theories. There is
no sound reason for adopting a different rule in the case of
patent claims against the government from the EAJA rule on
recovery of costs and attorneys' fees in other claims against
the government.
Indeed, the bill expands the government's liability for
attorneys' fees beyond that provided under the EAJA in two
respects. First, under EAJA, attorneys' fees are only awarded
when the government is unable to establish that its litigating
position was substantially justified. Yet, under the present
bill, if the patentee were able to establish liability,
regardless of how close the questions of liability were, it
would be entitled to recover its expert witness and attorneys'
fees. Even in private patent infringement actions, which rest
on a tort theory, rather than on an eminent domain theory,
attorneys' fees are only awarded against a party in an
``exceptional case.'' 35 U.S.C. Sec. 285.
Second, section 2412(d) sets limits on the net worth of
individuals and entities who may receive an award of attorneys'
fees when the government's litigating position is not
substantially justified. While the present bill mirrors some of
the requirements of section 2412(d)(2)(B) in terms of the
parties eligible for an award of attorneys' fees, it contains
no limitation on the net worth of the individual inventor or
the entity. Again, there is no reason to permit a broader
measure of recovery of attorneys' fees for claims under section
1498(a) than provided generally against the government under
the EAJA.
Moreover, permitting mandatory recovery of a patent owner's
costs and attorney's fees can prolong cases and impede
settlement by encouraging claimants to pursue unsupportable
theories of recovery. At times, one of the most vigorously
litigated issues in patent claims against the government is the
amount of compensation that may be recovered. In three recent
cases, the Court of Federal Claims, the Claims Court and their
predecessor, the Court of Claims, noted that the claimants had
pursued far more in compensation than could reasonably be
supported. In Leesona, the Court of Claims stated that ``the
lengthy record'' in that case ``was dominated by plaintiff's
and the trial judge's pursuit of a large award, attempting to
make good the injury to business on a tort theory, wholly
inadmissible in eminent domain.'' 599 F.2d at 979. In ITT Corp.
v. United States, 17 Cl. Ct. 199 (1989), the court concluded
its lengthy and thorough assessment of compensation by noting
that the award was low ``relative to plaintiff's expenditure of
time and effort to achieve it.'' 17 Cl. Ct. at 243. Finally, in
De Graffenried v. United States, 29 Fed. Cl. 384, 386 (1993),
the court noted that the recovery by the patent owner,
excluding delay compensation, was about $89,000, whereas the
patent owner had sought an award of $5-$16 million, excluding
delay compensation. In all three cases, the claimants prolonged
the cases and added to the expense to the government in
refusing to settle after liability was found and pursuing
untenable theories of recovery. Under H.R. 632, the government
would be liable for the patentee's costs and attorneys' fees
even though they resulted from unwarranted contentions advanced
by the claimants. Moreover, the fact that a patentee is assured
of recovery of its attorneys' fees so long as it establishes
liability, regardless of whether the government has acted
reasonably in litigating the action, removes any incentive for
a patentee to settle a lawsuit on a reasonable basis after
liability has been established.
This bill also runs counter to Fed. R. Civ. P. 68
concerning offers of judgment. Under Rule 68, a party who fails
to recover a judgment more favorable than that offered by a
defendant prior to trial must pay the defendant's costs in
defending the action after the offer was made. Yet, by
mandating the award of costs to patentees in actions under
section 1498(a) regardless of the reasonableness of their
position, the bill departs from the goal of Rule 68 of
encouraging claimants to realistically evaluate their cases.
In sum, we see no need for the amendment of section 1498(a)
to provide for the mandatory recovery of costs and attorneys'
fees since these are not components of just compensation under
the Fifth Amendment, and the recovery of costs and attorneys'
fees against the government is already dealt with in the Equal
Access to Justice Act. We recommend against favorable
consideration of H.R. 632.
Thank you for the opportunity to comment on this
legislation. Please do not please to hesitate to call upon us
if we may be of additional assistance in connection with this
or any other matter. The Office of Management and Budget has
advised that there is no objection from the standpoint of the
Administration's program to the presentation of this report.
Sincerely,
Andrew Fois,
Assistant Attorney General.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3 of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
SECTION 1498 OF TITLE 28, UNITED STATES CODE
* * * * * * *
Sec. 1498. Patent and copyright cases
(a) 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 United
States Court of Federal Claims for the recovery of his
reasonable and entire compensation for such use and
manufacture. Reasonable and entire compensation shall include
the owner's reasonable costs, including reasonable fees for
expert witnesses and attorneys, in pursuing the action if the
owner is an independent inventor, a nonprofit organization, or
an entity that had no more than 500 employees at any time
during the 5-year period preceding the use or manufacture of
the patented invention by or for the United States.
* * * * * * *