[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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------

                                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.

----------------------------------------------------------------------------------------------------------------
                                                              1996       1997       1998       1999       2000  
----------------------------------------------------------------------------------------------------------------
Changes in direct spending:                                                                                     
    Estimated budget authority...........................          3          1          1          1          1
    Estimated outlays....................................          3          1          1          1          1
----------------------------------------------------------------------------------------------------------------

    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.

------------------------------------------------------------------------
                                            1996       1997       1998  
------------------------------------------------------------------------
Change in outlays......................          3          1          1
Change in receipts.....................                                 
(2) Not applicable                                                      
------------------------------------------------------------------------

    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.
          * * * * * * *