Per Ctjeiam :
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 E. Lane, Associate Judge, United States Court of Customs and Patent Appeals, sitting by designation as Trial Judge in this case, pursuant to 28 U.S.C. § 293 (a) and § 2505, in accordance with United States Court of Claims Buie 134(h). In an earlier decision, Autogiro Company of America v. United States, 181 Ct. Cl. 55, 384 F. 2d 391, 155 USPQ 697 (1967), rehearing denied, 184 Ct. Cl. 801 (1968), the court held that some 59 patent claims in 11 patents owned by plaintiff were valid and specific claims were infringed by seven different models of helicopters manufactured for defendant under contracts by Vertol, Hiller, Bell, Kaman and McCul-loch. The case is before the court now on (1) the similarity or non-similarity of some 39 models of rotary-wing aircraft to any of the representative models which the court has already held to be infringing, and (2) computation of the reasonable and entire compensation which plaintiff is entitled to recover under 28 U.S.C. § 1498.
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, Experimented 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. We ¡have deleted those parts of the trial judge's recommended decision entitled Royalty Compensation, Part II, and Royalty Adjustment Compensation, Part VII, and have substituted our own Part II, Royalty Compensation, in the modified trial judge's opinion which follows. We have also added our own discussion of Delay Compensation to Part V, infra, in supplementation of the trial judge's consideration of that subject. The conclusion of law has been changed to reflect our different view of Royalty Compensation.
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, 181 Ct. Cl. 55, 384 F. 2d 391, 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 phase 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 the court has already held to infringe one or more valid patent claims, and (2) how to compute the amount of the reasonable and entire compensation which plaintiff is to recover under 28 U.S.C. § 1498, for defendant's unauthorized use of plaintiff's inventions. After over 20 years of litigation, including some 62 trial sessions for the testimony of 57 witnesses on the two present issues, the parties are still poles apart on the end result. Examination of the voluminous record shows that there is little the parties can agree upon except that defendant spent over $639 million, engine costs excluded, in the recovery period, 1946-64, for over 2,200 rotary-wing aircraft.
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.
I. Similarity
The order of the trial judge filed April 17,1969 provided:
(1) In the proceedings herein under Pule 47(c) (2), neither party shall challenge the determinations of infringement, the validity, or the scope as construed by the court, of any claim found 'by the court to be valid and infringed in Autogiro Company of America v. United States, 181 Ct. Cl. 55, 384 F. 2d 391 (1967), and
(2) The decision whether "other specified types or models of aircraft or parts thereof, procured by defendant" are infringing aircraft or parts for which defendant is liable shall be based on proofs of "similarity or non-similarity" of construction and mode of operation between (a) such other aircraft or parts and (b) those found by the court to infringe. Marconi Wireless Telegraph Co. v. United Stales, 99 Ct. Cl. 1 (1942); Fauber v. United States, 112 Ct. Cl. 302 (1948).
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, 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, 197 Ct. Cl. 41, 51, 453 F. 2d 1385, 1391, 172 USPQ 438, 443 (1972):
The theory underlying a patent suit in this court pursuant to that section [1498] is that the Government, when a patented device or invention is made or used by or for the United 'States, ipso facto takes by eminent domain a compulsory compensable license in the patent; the patentee obtains his Fifth Amendment just compensation for that taking through 'his action here under § 1498.
See, Waite v. United States, 282 U.S. 508 (1931); Crozier v. Krupp, 224 U.S. 290 (1912); Irving Air Chute Co. v. United States, 117 Ct. Cl. 799, 93 F. Supp. 633, 87 USPQ 246 (1950).
The first step in determining reasonable compensation is to ascertain when the "talcing" occurred. We are guided in this by our prior decision in Irving Air Chute Co., supra. The Government there urged that if it manufactured or used any devices covered by any of plaintiff's patents more than six years before the petition was filed, the cause of action should be barred by the statute of limitations. The Government argued that by using or manufacturing a patented article, it acquired a license to continue to manufacture or use the article for the duration of the patent, that the taking occurred once and for all with this first unauthorized use. Plaintiff urged that it should be able to recover for articles manufactured within six years of the date of the filing of its petition, even as to patents covering devices manufactured by or for the Government more than six years before the petition was filed. We explained that "The statute, 28 U.S.C. § 1498 does not tell us, expressly, whether only one cause of action, or several, will accrue from a succession, perhaps with long intervals 'between, of manufactures or uses by the Government." 117 Ct. Cl. at 804, 93 F. Supp. at 636, 87 USPQ at 248. Since it was not possible to ascertain the scope and duration of the interest taken at the time of the first unauthorized use, we held in Irvi/ng Air Chute that the cause of action did not accrue at the first taking for all future acquisition by the Government. See also, Coakwell v. United States, 178 Ct. Cl. 654, 372 F. 2d 508, 153 USPQ 307 (1967); Regent Jack Mfg. Co. v. United States, 167 Ct. Cl. 815, 337 F. 2d 649, 143 USPQ 136 (1964); Gage v. United States, 122 Ct. Cl. 160, 103 F. Supp. 1022, 93 USPQ 103, cert. denied, 344 U.S. 829 (1952). So too in the instant case.
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 Ohute but also with the terms of 28 U.S.C. 1498, which provides in part: liWhenever 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.
We put aside the wartime rate, both because it preceded the years with which we are here concerned, and also because the particular circumstances of the wartime procurement of patent licenses make it veiy difficult to equate the very low-level wartime rate with fair market value for the post-war period or with an established post-war license policy.
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. Effective as of January 1, 1947, Autogiro entered into an agreement with United Aircraft Corporation for a royalty of $500 an aircraft for 1946-1948, with the $500 ceiling to change to 2% of the total retail sale value (including engine and standard equipment) on and after January 1, 1949. After this United agreement was executed, the plaintiff proposed similar licenses to other major manufacturers of helicopters, in effect announcing its post-war rate to be 2%. These companies all refused to take licenses but the significant fact is that plaintiff made the offer and made it widely. In 1949, after some months of negotiation triggered by United's disinclination to let the 2% rate go into effect, plaintiff granted United a paidup license at considerably less than 2% per aircraft. These two United licenses were the only ones actually made by Autogiro during the recovery period from November 1946 to May 1964. But as we have said plaintiff did make a general offer in 1947, at the 2% figure, to other manufacturers. That proffered rate was neither increased nor lowered before suit was 'brought here in 1951 (after which everyone concerned awaited the end of the litigation).
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, 197 Ct. Cl. 41, 55-56, 453 F. 2d 1385, 1393-94 (1972)) because (a) the first (1947) United agreement was mainly the product of compromise to avoid litigation, and (b) mere offers by the patentee are inadmissible to prove value. We can accept neither premise.
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. Whatever it may now say, plaintiff does not seem at all to have made that evaluation of the United agreement at the time it was signed. In a letter of October 1948 to Harold Pitcairn (president of Autogiro), one of Autogiro's patent counsel (Raymond Synnestvedt) wrote about a recent visitor whose "main purpose was to sound me out on whether the Autogiro Company might grant him a license — and what the current licensing terms are. Since written outlines of the present licensing terms have been distributed fairly widely, I saw no reason why I should not orally outline the terms to [the visitor], which I did. He had not heard of the reduction from the previous ceiling of 5% to the postwar ceiling of 2%, and I think he was quite interested." Again (as indicated above), Autogiro gave an outline of a proposed license agreement with a 2% ceiling to three manufacturing companies, with the royalty rates described 'as "being quite representative of what is currently being offered." These statements give not the slightest hint that Autogiro felt that the United agreement (or the like agreements proffered to the other manufacturers) was unfair or afforded it less than its due in the period now at issue.
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 he 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. Autogiro probably had some of those doubts itself and adjusted its demands accordingly. For these reasons the 2% United agreement seems to us highly probative under the rule we reiterated in Calhoun v. United States, 197 Ct. Cl. 41, 55-57, 458 F. 2d 1885, 1393-94 (1972). Oalhoim teaches that the mere surmise that a bargained license may possibly include some discount for litigation-avoidance does not per se preclude use of an accepted commercial rate as establishing reasonable and entire compensation. Earlier, Saulnier v. United States, 161 Ct. Cl. 223, 314 F. 2d 950 (1963), took heavy account, in setting compensation, of the plaintiff's previous settlement of infringement claims against the British gov- eminent where that settlement appeared to be satisfactory and reasonable. See 161 Ct. Cl. at 226-27, 314 F. 2d at 951-52.
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 [2] and 12.3113 [3]) 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 Toy 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 hoo 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 Auto-giro 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) . We therefore discount, in the absence of any expression of contentment, Autogiro's granting to United, at the latter's strong insistence, of a paid-up license in 1949. No offers to other companies, stemming from this paid-up license, were made by plaintiff. The theoretical constructions of defendant's expert — who reached a figure which was only a fraction of 2% — were based in largest part on the paid-up license; the expert did not consider plaintiff's hobbled position in trying to determine what the "parties might well have agreed upon" (Saulnier v. United States, supra, 161 Ct. Cl. at 227 (1963)) if Autogiro had been relatively free of this one-sided litigation pressure. For the present case, in which there was only one actual licensee during almost the entire span of the infringement years, and this suit began early in the recovery period, the best that we can do is to accept the only royalty rate "offered freely [by Autogiro] to everyone" in the industry during that period, a rate actually agreed to, for a time, by United, the largest manufacturer. See Calhoun v. United States, supra, 197 Ct. Cl. at 56, 453 F. 2d at 1394.
III. Contribution
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.
TV. 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 HKP-1 and HE.P-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 of claim 60 of the '583 patent as held to be infringed by either the HUP-1 or the H-21B rotor blades, and that subject matter is also the basis for plaintiff's requests for royalties on the rotor blades as installed on the Gyrodyne DSNs. Defendant's contentions concerning claim 65 of the '583 patent and the various features thereof, with respect to recovery of royalties for spare-part rotor blades are completely moot at this point. The various features of claim 65, none of which are included in claim 60, and to which defendant has referred, are totally immaterial to the determination of plaintiff's right to recover royalties for spare-part rotor blades with respect to the subject matter of claim 60 as held to be infringed. Defendant's contention that plaintiff is not entitled to royalties for spare-part hub assemblies and rotor blades is without substance.
V. Delay <G'ompemation
A.
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 (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 pai'ties 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 itself. The amount due as delay compensation in this case involves a determination by this court of an appropriate base or yardstick by which to measure and thereby establish the award for delay compensation. The method of determining delay compensation should be justified by the evidence, and the rate should be responsive to the ends of justice. The ultimate test, of course, is that the plaintiff must receive just compensation.
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 414% for 1956-60, a rate of 4%% for 1961-65, a rate of 614% for the period 1966-70, and a rate of 7%% 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 h'as 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 Oalhown, sufra, 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 199 Ct. Cl. 175, 462 F. 2d 1377, 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, 150 Ct Cl. 482, 278 F. 2d 934, 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, 181 Ct. Cl. 884, 386 F. 2d 462, 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 midpoint 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 he 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 stipulated settlement based thereon was confirmed by order of the court on January 3, 1975, Arcata National Corp. v. United States, 206 Ct. Cl. 819. The court's order entered judgment for Areata in the sum of $35,882,251.50 together with simple interest thereon at the rate of 6.6% per annum until date of payment.
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 lias presented evidence of tbe 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.
B.
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 7for 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. B.ev. 1975), §8.61:
The just compensation to which an owner is entitled when his property is taken by eminent domain is regarded in law from the point of view of the owner and not of the condemnor. In other words, just compensation in the constitutional sense is what the owner has lost, and not what the condemnor has gained.
(Fn. omitted citing, e.g. Boston Chamber of Commerce v. Boston, 217 U.S. 189 (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. King v. United States, 205 Ct. Cl. 512, 504 F. 2d 1138 (1974), does not require a different result. King turns on its facts and we do not extend that decision here. The parties in King stipulated that the interest rate awarded should be commensurate with the rates of interest paid by the Government in the market for its own borrowing purposes. Plaintiffs urged an interest rate of 6%, whereas the Government proposed a rate of 4%. The trial judge, in view of the special circumstances of the case, that is, the parties' stipulation described above, recommended an award based on the annually fluctuating rate on long-term United States Government bonds, which ranged from 3.95% in 1962 to 5.70% by the end of 1970. The court adopted the trial judge's recommended award in a per curiam opinion. It is clear that the use of the rate of interest on long-term Government bonds as a method of determining interest as part of just compensation rests on the stipulation and not on the independent determination of the court.
The court has considered Arcata National Corporation v. United States, (order reported) 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 Areata 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. Areata 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 [2].
In Areata, the Government urged that interest at a rate of 6%, the statutory rate, 16 TJ.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 Areata 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 method. Plaintiffs are not usually in the business of borrowing money and thus costs based on their own borrowing rates are highly speculative. A plaintiff with a poor credit rating could theoretically receive an award of just compensation at very high interest rates because its actual cost of borrowing money might be very high, while another might be penalized for having a good credit rating. Neither the cost to the Government nor to the plaintiff of borrowing money is an appropriate measure of just compensation, and therefore, we are not bound by the 6.6% rate used in Areata.
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%% 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, 199 Ct. Cl. 175, 462 F. 2d 1377, 174 USPQ. 517 (1972), (no evidence offered to prove requested 6% rate); Drakes Bay Land Co. v. United States, 198 Ct. Cl. 506, 459 F. 2d 504 (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, 193 Ct. Cl. 801, 437 F. 2d 458 (1971), (statistical data offered to court, but not to trial judge); Carlstrom v. United States, 147 Ct. Cl. 297, 177 F. Supp. 245 (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. Experimented 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 may be noted, however, that at least one of defendant's witnesses testified that the testing of helicopters "was use of those helicopters for the Government."
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 (1937) and 96 Ct. Cl. 278 (1942), and Chesterfield v. United States, 141 Ct. Cl. 838, 159 F. Supp. 371 (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:
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.
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 on "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 lecisions 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:
Where the court finds as a fact that the patent claims in suit are clearly invalid it may not be necessary to consider the issue of infringement. 141 Ct. Cl. at 840.
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 legitimate business of the using agency. Experimental use is not a defense in the present litigation.
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, 206 Ct. Cl. 96, 510 F. 2d 364, 184 USPQ 613 (1975), cert. denied, 423 U.S. 825, 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 OE 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.
We shall refer to the Autogiro Company as plaintiff, although Stephen Pitcairn, Agent, ha? been substituted.
Though the findings, as modified, are adopted by the court, they are not printed -with this opinion because they are so voluminous.
This part Ras been substituted for tbe similarly titled portion of Judge Lane's opinion. Only the Chief Judge, Judge Davis and Judge Skelton join in the discussion contained in this part II of the opinion. However, Judges Nichols and Kunzig concur in the result of this part of the opinion.
In 1930, plaintiff licensed Kellett Aircraft Corp. at the rate of 6% of retail sale price of the complete aircraft. This rate was changed to 5% during 1932-45. The Government procured rotary-wing aircraft from Kellett in the period prior to World War II and approved payment of the 5% royalty thereon to Autogiro. Pitcairn Autogiro Company was licensed during 1936-41 at the 5% rate. Pitcairn-Larsen Autogiro Company was licensed in 1941 at the rate of 5% of the retail sale price of the complete aircraft or at 7% of the sale price if sold without engine or standard equipment. A.G.A. Aviation Corporation was licensed 1941-43 at the same 5% and 7% rates. The Firestone Tire and Rubber Company was licensed by the plaintiff in 1943-46 at the same 5% and 7% rate subject to a sliding scale. Firestone was again licensed about March 12, 1946, as of September 1, 1944, at the rate of 10% of the retail sale value of the patent components, i.e., a per patent royalty, but with a royalty ceiling of 5% of the total retail sale value of the complete aircraft and spare parts, and subject to a sliding scale which reduced the rate as royalties exceeded stated amounts. The sliding scale provided that for the first $50,000 of royalties, the sum of the per patent royalties applicable to each such complete helicopter and spare parts therefor but not to exceed 5% of the total sale value; for the next $45,000 of royalties 9/10s of the initial rate ; for the next $40,000 of royalties 8/10s of the initial rate. The license taken by Firestone in March of 1946 was offered at the same rates to other manufacturers of rotary-wing aircraft.
In 1943, the plaintiff unilaterally selected and proffered to the Government and to industry a nominal wartime royalty rate of .85% of the contract price of the aircraft. Since the Royalty Adjustment Act of 1942 (Act), 56 Stat. 1013, later codified as 35 U.S.C. § 89-96 (1946 ed.), was in effect at that time, the Government could have reduced the rates by order if plaintiff had not been cooperative. Pursuant to that Act, any department or agency which ordered the manufacture or use of an invention could fix royalty rates which were deemed fair and just, taking into account the conditions of wartime production, if it believed that the rates provided by existing licensing agreements were unreasonable or excessive. The licensor's sole remedy was a suit to recover the difference between the royalties fixed and specified by the agency and tbe royalties found by the court to be fair and just compensation. Act § 1-2. Further, the head of any Government agency was authorized to enter into agreements and settlements in compromise of any claim by any inventor or licensor. Act § 3. Plaintiff granted wartime licenses, which covered all of plaintiff's patents including the patents here in suit, to Nash-Kelvinator Corporation, united Aircraft Corporation and Kellett Aircraft Corporation. These wartime licenses were at the rate of .85% of the contract price for rotary-wing aircraft made for and sold to the Government and these licenses expired on March 2, 1946, i.e., 6 months after the cessation of hostilities.
We include in the war and pre-war category the Firestone agreement, made in March 1946 as of September 1944 (see note 4, supra), since very early in the recovery period that license (which predated the recovery period) was definitely superseded, as .plaintiff's general policy, by the 1947 united Aircraft agreement. See the text immediately infra.
The agreement could be terminated at any time after December 31, 1948, upon the giving of a six-months written notice.
The defendant -was by far the largest consumer of products embodying plaintiff's inventions and had refused in 1947 to enter into license agreements, preferring to rely on indemnity agreements from its suppliers.
At trial, Autogiro's patent counsel testified that the cost, trouble and worry of litigation were factors in reducing the royalty rate to 2% in 1947.
4 Nichols, Eminent Domain (3d ed. rev. 1975), § 12.311 [2], declares that statements made in the process of malting an offer concerning facts in the controversy which are not mere concessions made for the purpose of such offer are admissible against the party malting them.
After tlie 1947 agreement but before the 1949 paid-up license, a United official wrote (in July 1948) to the president of Autogiro :
"The agreement as concluded provided, however, for an increase in royalty ceiling to 2 percent of retail sales value for the calendar year 1949 and succeeding years, united signed the license agreement with the expressed intention of reviewing the entire situation, with special reference to royalty rates, prior to assuming any obligation for royalties in 1949 or subsequent years.
"From the beginning, United's problem has been to determine what royalty, if any, it was warranted in paying under the Autogiro patents, in order that United might be free from possible litigation from that source in carrying forward its research, experimental and manufacturing programs. In this connection, since by far the greater part of our sales of helicopters for some time to come will be to the Government, any suit involving such sales would have to be brought against the Government in the Court of Claims.
"In each appraisal of the patent situation, royalty rates have been opposed to the possible results, both favorable and unfavorable, of litigation should we proceed without a license. Each successive appraisal has resulted in a lesser value to be placed upon Autogiro's patents, and we would fully expect this trend to continue in the future. As you know, United has never felt the need of engineering assistance from Autogiro and it has never received, nor does it contemplate receiving in the future, any such assistance."
It is to be noted that this letter was written over a year after the 1947 agreement became effective, and cannot retroactively turn that 1947 pact into a mere compromise-to-avoid-litigation, especially in view of Autogiro's clear acceptance of, and satisfaction with, the 1947 agreement.
There is no support for the view that, until six months after the Japanese Peace Treaty in April 1952, the plaintiff's licensing terms would be influenced by the Government's theoretical right to fix war-time royalties under the Royalty Adjustment Act of 1942. Plaintiff's own statements give no intimation of this nor does the record suggest that this theoretical power had any real impact after the actual end of the World War XI hostilities in 1945-1946. It should also be added that the Adjustment Act's standard was fair and just compensation, and it cannot be assumed without proof that the mere naked existence of that statute had such a depressing effect. Cf. United States v. Commodities Trading Corp., 339 U.S. 121 (1950).
We refer to the fact that a patentee cannot obtain an Injunction against a government-supplier or government-contractor and Is confined, for fils exclusive remedy, to a suit for "reasonable and entire compensation" (i.e. monetary compensation) against tbe united States under 28 U.S.C. § 1498. These suits generally take a long time to come to their conclusion and the patentee, even If he prevails, normally obtains no compensation until the litigation Is at an end. (The reference Is not to the Royalty Adjustment Act, see note 12, supra.)
See note 11, supra.
Suit was brought here in 1951, and It seems clear that after that date the problem of plaintiff's compensation would be, and was, left to the result of the litigation.
For the period before 1949, the 1947 United agreement provided that the royalty on any one aircraft should not exceed $500, and also that from 1947 (inward the minimum royalty per year should be $10,000. We consider these provisions of that agreement to be applicable to this case, though the only one that Is likely to be operative is the $500 celling for aircraft used by or manufactured for the defendant prior to January 1, 1949. From January 1, 1949, the 2% rate applies.
This subpart B of Part V of the opinion has been added by the court.
United States v. Blankinship, 543 F. 2d 1272 (9th Cir. 1976), Is not to the contrary. It dealt with relatively short-term, actual Treasury securities — not with hypothetical long-term Government bonds never actually issued. The Court of Appeals held that the trier had to consider and take into account such short-term actual Government obligations (not that the trier was bound by those rates). In the present case, in contrast, the defendant emphasized and emphasizes hypothetical very-long-term securities, "constructed" by the defendant for the purposes of this litigation. Judge Lane had before him, in addition to defendant's construction of hypothetical long-term Government bonds, record evidence of shorter-term, actual Government obligations of the type dealt with in BlanJdnsJiip — and he clearly took these latter into account. See the last three sentences of court finding 478 (trial Judge finding 526) : "One-year Government bonds produce an annual average simple interest equivalent rate of 6.91 percent average for the period 1946-1975. An average equivalent rate of 6.28 percent is produced by using 4-year Government bonds (the average of yield statistics for 3- to 5-year Government bonds). The delay compensation asserted by defendant, an average equivalent rate, from defendant's hypothetical long term Government bonds, of 3.10 percent, is both inadequate and improper."