This ease, originally involving two patents, was brought before this court pursuant to 28 U.S.C. § 1498(a) (1988) and 35 U.S.C. § 100, et seq. (the “Patent Act”). The underlying infringement dispute concerns the U.S. Department of the Army (“Army”)’s procurement of optical, infrared, and radar camouflage screens such as those used in Operations Desert Shield and Storm during the conflict in the Persian Gulf. Plaintiff, Brunswick Corporation (“Brunswick”), asserted that the camouflage screens supplied to the government by Teledyne Brown Engineering (“Teledyne”) having a polyester/steel base cloth, including all camouflage screens and repair kits supplied under Contract Nos. DAAJ10-84-C-A117 (the “A117 contract”) and DAAK01-85-D-B007 (the “B007 contract”) and 10,500 polyester/steel camouflage screens supplied under Contract No. DAAK01-87-D-A060 (the “A060 contract”), infringe U.S. Patent No. 3,678,675 (the “Klein patent,” “ ’675 patent” or “Klein ’675”). Brunswick also argued that camouflage screens manufactured or purchased by Teledyne and Sioux Manufacturing Corporation (“Sioux”) and provided to the government under the A117, B007, A060, DAAK01-87-A063 (“A063”), DAAK01-86-C-C288 (“C288”), DAAK01-86-C0180 (“C0180”), and DAAK01-86-C0182 (“C0182”) contracts infringe the Sven-Goran Johansson patent (U.S. Patent No. 3,733,-606) for “Camouflaging Means For Preventing Or Obstructing Detection By Radar Reconnaissance” (“Johansson patent,” “ ’606 patent” or “Johansson ’606”). Brunswick obtained an exclusive license of the Johans-son patent in 1974 from Diab-Barracuda AB (“Barracuda”), a Swedish company, under a royalty cost-savings incentive agreement.
Plaintiff is entitled to reasonable and entire compensation in the form of a reasonable royalty based on a compensation base of $35,503,039 and a royalty rate of 17%. In addition, plaintiff is entitled to delay compensation at an interest rate commensurate with the prime rate compounded annually and taxed only at the time of receipt.
BACKGROUND
This Opinion shall be read in conjunction with the court’s November 30, 1995 Opinion on liability, Brunswick Corp. v. United States,
DISCUSSION
Patent infringement actions involving the government implicate considerations not found in cases where the infringer is a private party, and these considerations render the two types of infringement less than perfectly analogous. Specifically, 28 U.S.C. § 1498 grants the government the absolute power to take a compulsory, nonexclusive license to a patented invention at will. See Motorola, Inc. v. United States,
I. Lost Profits
Plaintiff persists in claiming entitlement to all of its lost profits as damages for patent infringement. Section 1498 of the Patent Act provides that the measure of damages for patent infringement is “reasonable and entire compensation.” Cf. 35 U.S.C. § 284 (stating that for patent infringement by a private party, damages shall be awarded “adequate to compensate for the infringement, but in no event less than a reasonable royalty.”). Plaintiff contends that the law entitles it to actual damages or lost profits. While long ago this court, in cases cited by plaintiff, has awarded lost profits in patent infringement actions, e.g., Imperial Mach. & Foundry Corp. v. United States,
While the lost profits approach is frequently used in patent infringement actions involving private parties, the reasonable royalty rate most often provides the proper measure of damages in governmental patent infringement actions. This holds true in the present case. Moreover, given the absence of a reasonable expectation of exclusivity, lost profits are a fortiori inappropriate. “The award of lost profits assumes a right to exclusivity. The eminent domain theory of Section 1498(a) — allowing the United States to take a license under the patent for use or procurement — is at odds with such a right to exclusivity.” Donald S. Chisum, Patents (1992) § 20.03[6], at 20-207. In Leesona Corp. v. United States,
An aggrieved party is entitled to receive only reasonable and entire compensation, not more than that. Unlike his counterpart in a private infringement suit, he is not entitled to be the recipient of increased damages heaped on other parties as punishment or deterrence____ The award of [such damages] from the infringement to the patentee would be more characteristic of a tort claim than of a suit for reasonable and entire compensation.
It is in the court’s discretion to select the theory of compensation that most
II. Cost Savings
Plaintiff contends that it is entitled to the government’s cost savings as compensation for infringement of the ’606 patent. The government’s cost savings are not a preferred indicator for calculating the measure of compensation. Penda Corp. v. United States,
III. Reasonable Royalty
Awarding a reasonable royalty has long been recognized as the proper measure of damages for patent infringement by the government. Decca Limited v. United States, 225 Ct.Cl. 326,
A. Date of Hypothetical Negotiation
“[J]ust compensation is the value of the property taken at the time of taking.” Brooks-Scanlon Corp. v. United States,
One of the two components of “reasonable and entire” compensation for the license is the value of the license, determined ordinarily as of the time the Government takes the license. However, if the taking is an integral part of a governmental project involving more than one license-taking and if the Government announced, prior to the taking, that it would engage in the project, the value of the license must be determined as of the time the Government announced the project.
Decca Ltd.,
In late 1982, defendant issued a competitive solicitation for radar-scattering camouflage screens, which incorporated the standard Patent Indemnity Clause (“PIC”),
B. Reasonable Compensation Base
This court adopts the total cost of procurement as the compensation base by which to multiply a reasonable royalty. This base includes, to the extent they have been proven, closely-related, originally procured items that may not actually be covered by the claims of the Johansson patent. However, the compensation base does not include
Under the entire market value rule, it is not the physical joinder or separation of the contested items that determines their inclusion in or exclusion from the compensation base, so much as their financial and marketing dependence on the patented item under standard marketing procedures for the goods in question.
Id. (emphasis added); see also Hughes Aircraft,
C. Reasonable Royalty Rate
The court considers the 15 factors set forth in Georgia-Pacific Corp. v. United States Plywood Corp.,
1. Existing licenses under the patent at issue.
Courts may give considerable weight to existing licenses as approximations of a reasonable royalty rate to the extent they provide direct and reliable evidence of the fair market value a willing licensee would have paid for the right to make, use, or sell the patented subject matter. However, existing licenses are not necessarily probative or conclusive of a reasonable royalty rate where external market pressures, exploitation, or cultivation of the patented technology subsequently alters the patent’s licensing value. Defendant points out that Brunswick licensed-out the rights to the Klein ’675 patent to Bekaert S.A. and Nippon Seisen in 1975 and 1980, respectively, for royalty rates of between 2% and 5%. Thus, defendant argues that a similar royalty rate should be applied to the ’606 patent here at issue. Brunswick’s licensing of the Klein patent, however, is of minimal relevance to the Johansson patent, especially since the court held in Brunswick Corp. v. United States,
Defendant also argues that a .5% to 2.5% royalty is appropriate because that is the rate at which Brunswick licensed the ’606 patent from Barracuda beginning in 1974. Again, this previous license is of very little probative value, because inter alia it is too remote to accurately reflect a reasonable royalty rate. This licensing agreement occurred approximately nine years before the effective date of the hypothetical negotiation between Brunswick and the Army. It involved, what at the time was, technology of unproven utility, application, and marketability, and it did not account for all of Brunswick’s subsequent diligence in perfecting application of the technology in the radar-scattering camouflage screens embodiment. See Hughes Aircraft,
2. Royalty rates for comparable technology.
The patent at issue is a pioneer patent, and therefore, there are no exactly comparable patent licenses and royalty rates from which to draw wisdom. Nonetheless, by looking at Brunswick’s prior course of dealing while it was researching and designing its radar camouflage product line, the court recognizes that plaintiff paid between .145% and 5% in royalties. While these rates may prove helpful, they are not necessarily indicative of the rate that would actually have been agreed upon by the parties in this case since the
3. Scope, exclusivity, and restrictiveness of license.
The hypothetical negotiation between the parties would certainly have taken into account the nature and effects of a license on plaintiffs ability to further exploit its rights to the ’606 patent. Licenses taken under 28 U.S.C. § 1498(a) are generally characterized as non-exclusive. Dynamics Corp. v. United States,
4. Established licensing and marketing practices.
The evidence shows that Brunswick’s Defense Division had a well-established practice of not licensing-out technology in areas where it could occupy a controlling market position. This was more the case where Brunswick felt it could secure a dominant proprietary position in a specific, growing, and freshly-cultivated market, such as the one at issue. While defendant argues that Brunswick’s purported refusal to license was the inevitable result of its inability or failure to license, the evidence presented at trial simply does not support this position. Actions by the Army, the Pentagon, and Brunswick’s competitor’s, including Teledyne, led to the deletion of the PIC from the government’s solicitation and indicates that several other companies were vying for positions from which to enter the radar camouflage business. Defendant argues that Brunswick’s eventual willingness to license-out blended yarn fabric, protected by the distinct and uninfringed Klein patent, to Mount Vernon Mills Inc. (“Mount Vernon”) and Riegal Corporation (“Riegal”), an unsuccessful bidder in the competitive camouflage solicitation, demonstrates Brunswick’s unadulterated eagerness to license-out its technology. This conclusion, however, does not follow as discussed above in sub-section 1. The court’s finding that Brunswick maintained a strict policy of not licensing out the technology protected by Johansson ’606 tends to increase the appropriate royalty rate under Georgia-Pacific.
5. Commercial/competitive relationship of parties.
The Army and Brunswick maintained a typical government-government contractor relationship. As defendant points out, the Army was largely responsible for “creat[ing]
6. Convoyed sales of unpatented, accompanying materials.
“Where a hypothetical licensee would have anticipated an increase in sales of collateral unpatented items because of the patented device, the patentee would be compensated accordingly.” TWM Mfg.,
7. Duration of patent & license terms.
Factor 7 embodies the conventional wisdom that the longer the remaining duration of a patent term, the more willing a hypothetical licensee is to pay a higher royalty rate. This principle rests on the fact that the longer the duration of the patent, the more likely the patent holder is to cultivate goodwill, an intangible economic asset representing the ability of a business to generate income due to business reputation, market position, management, technology, customer relations, and other elusive indicia of earning power, which would almost certainly persist and benefit the patent holder long after the patent expired. Given that the government engaged in negotiations with Teledyne well before patent expiration, that Brunswick’s competitor’s chose to infringe rather than attempt to design around the patent or wait for its expiration, that the Army refused to consider adjusting its specifications in light of the ’606 patent, and that the government’s need for optical, infrared, and radar camouflage screens for use in Operations Desert Shield and Storm was imminent, Brunswick’s ability to exploit its rights to the ’606 patent were severely damaged during the relevant period. By the court’s calculations, the date of the hypothetical negotiation is February 28, 1983, and the date of patent expiration is May 15,1990. Thus, there was a duration of over seven years in the ’606 patent’s term, and this strongly favors the award of a high royalty rate.
8. Profitability and commercial success of invention.
The court looks to the ’606 patent’s profitability and commercial success for guidance in determining a reasonable royalty rate. An invention’s profitability and commercial success, especially for pioneer patents with specific applications, allow the willing licensor to come to the hypothetical negotiating table with a strong bargaining position. A willing
9. Utility and advantages of invention over prior art.
Proven utility of an invention supports the award of a higher royalty rate. As discussed in the court’s November 30, 1995 Opinion on liability, the Johansson patent is valid and meets statutory requirements for patentability including novelty, non-obviousness, and §§ 101, 112 utility under the Patent Act. Defendant admits that the lightweight radar-scattering camouflage screens here at issue were a significant improvement over the pri- or art, which taught the use of burlap camouflage cover that “was heavy, smelled when wet, and had no radar scattering properties.” Df.’s Brief on Accounting Issues at 46. The claims of the Johansson patent relate to such radar-defeating camouflage, which overcame the long-felt but unsolved disadvantages of the prior art camouflage. As discussed in the court’s Opinion on liability, an essential element of the claimed invention was its ability to minimize radar detection, as set forth in the government’s detailed procurement specifications. The screens in this case embodied a significant improvement over the prior art, and this increases the royalty rate accordingly-
10. Nature, character, and benefits of use.
When determining the proper royalty rate, courts examine the “nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.” Georgia-Pacific,
11. Extent and value of infringing use.
This factor may be considered quantitatively and qualitatively. That is, the extent and value of infringing use may be gauged by the size of the procurement as well as the degree to which the patented invention has been incorporated by the infringing products. In a negotiation between a willing licensor and a willing licensee, whether hypothetical or actual, it is common for a government procurement of large magnitude to vary inversely with the corresponding royalty rate. See e.g., Jamesbury Corp. v. United States,
12. Allocation of a portion of profits or sales for use of invention.
This factor is helpful where analogous agreements concerning analogous inventions provide guidance as to the proper royalty rate. Defendant argues that Brunswick agreed to pay Barracuda and Dr. Gunter Pusch between 1% and 5% in royalties from sales of new camouflage to the government, including substantial, non-refundable advances. These arguments have already received full and fair consideration under factors 1 and 2 above.
13. Portion of realizable profits creditable to the invention alone.
Factor 13 lowers the reasonable royalty rate according to the infringer’s addition of (unpatented) features, shouldered business risks, or improved manufacturing processes.
14. Expert testimony on royalty rates.
Georgia-Pacific factor 14 originates from 35 U.S.C. § 284, If 3, which reads, “The court may receive expert testimony as an aid to the determination of damages or of what royalty would be reasonable under the circumstances.” As with any expert testimony, the weight to be given such evidence depends on the expert’s education, experience, and knowledge of the particular legal standards at issue. In Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,
15. Other factors impacting a hypothetical negotiation.
In addition to the Georgia-Pacific factors, the court, in its discretion, may weigh a variety of considerations in crystallizing the reasonable royalty rate from the swirling stew of considerations. Many of these considerations have already been examined in the 15-pronged Georgia-Pacific test or through the combination of several of the above considerations. Among these other factors are: (1) adjusting the royalty rate downward where viable alternatives to the infringed, patented invention are available; and (2) adjusting the royalty rate upward if there were substantial capital expenditures associated with performance of the government contract.
a. Viable noninfringing alternatives.
The facts are clear that Brunswick responded to the demand created by the government’s solicitation for camouflage screens and possessed the production capacity to exploit said demand. Brunswick has not, however, proven the absence of noninfringing alternatives. As defendant points out, the fact that the screens under the A117 and B007 contracts did not infringe the Johans-son patent, yet were accepted by the Army in June 1988 and used, is strong evidence that there were, in fact, viable noninfringing alternatives. Brunswick argues that the screens provided under these two contracts were improperly tested, did not meet the Army’s original specifications, and never would have knowingly been accepted by the Army.
The military specifications as of February 1984 required camouflage cloth having transmission in the range from 10 to 20% (DX100), and could only be met by camouflage having a resistivity that infringed the ’606 patent literally or under the doctrine of equivalents____ The only thing that has saved the Government from liability for infringement by these screens was the fact that no one suspected there were errors in Teledyne’s test data.
Pl.’s Supp.Brief on Damages at 4. This argument, while creative and resourceful, ignores the fact that, ultimately, the A117 and B007 screens did not infringe the ’606 patent. Despite the unusual circumstances where Teledyne’s screens would have been infringing but for its poor aptitude for testing, the court must reiterate that the A117 and B007 screens were, in fact, noninfringing and accepted by the Army as alternatives. Hence, noninfringing screens did exist, and they were, at least to some extent, viable alternatives. This consideration functions against an elevated royalty rate.
b. Capital expenditures.
Plaintiff requests that it be compensated for its capital expenditures in addition to conventional damages for patent infringement. Defendant argues that in no event is plaintiff entitled to recover such expenses. In PL’s Supp.Brief on Damages, Brunswick summarized the relevant evidence, wherein it
Plaintiff attempts to refute defendant’s condemnation of an award of capital expenditures by arguing that “recovery of these expenditures is the only way a Brunswick negotiator could justify agreeing to a license that would result in lost revenues from price reductions made by Brunswick to compete with an infringer.” Pl.’s Supp. Brief on Damages at 14. Brunswick argues that capital expenditures must be awarded in addition to whatever other form of compensation the court selects, but plaintiff does not support this position with any legal authority. Ultimately, plaintiff requests this form of compensation and resolves the issue in the same breath. “These capital expenditures were damages Brunswick suffered as a direct consequence of the infringing activities, and the Court should consider them as a factor in determining how Brunswick is to be reasonably and entirely compensated____” Id. (emphasis added). This is precisely what the court has already done in its reasonable royalty rate analysis immediately above.
The court must agree with defendant that as a matter of law, there is no precedent for this court to award such damages directly. In Leesona Corp. v. United States,
IV. Delay Compensation.
Plaintiff also claims entitlement to delay damages. Recently, this court has set forth clearly the law on entitlement to delay damages, sometimes referred to as a form of pre-judgment interest.
Courts are loathe to use subjective indicia of the appropriate interest rate. Brunswick suggests that its after-tax Weighted Average Cost of Capital (“WACC”), ranging from 8.76% to 12.50%, be selected. “Brunswick’s WACC is the most economically realistic and just rate to be applied. As an economic entity, Brunswick expects a return consistent with the cost of its capital. Brunswick had an internal policy requiring a projected return of 12% prior to approving a capital investment, i.e., a ‘hurdle rate.’ ” Pl.’s Brief on Damages at 148. While this WACC may potentially be the most likely rate to fully return Brunswick and its investors to the same economic position they otherwise would have held had royalties been timely paid and prudently invested, using the WACC utterly defeats the strong judicial policy of establishing uniformity in the award of delay damages. Indeed, this approach was rejected by the court in Hughes Aircraft, which stated:
Adoption of the plaintiffs proposal to award delay damages to it on the basis of its unique return on equity would result in obvious discrimination between it and other just-compensation claimants entitled to delay damages by reason of the government’s withholding of timely payment of principal over the same time periods.
Y. Taxation.
The Hughes Aircraft decision very ably sets forth the appropriate method of tax treatment in governmental patent infringement cases. In its primary and supplementary briefs on accounting issues, defendant advanced a pre-judgment interest income tax adjustment theory that adjusts the damages base and accruing interest by the marginal tax rate, i.e., the highest rate at which a corporation pays taxes on its last remaining dollar earned within a given tax period.
CONCLUSION
After careful consideration of the testimony, exhibits, arguments, and the applicable law, the court has concluded that plaintiff is entitled to reasonable and entire compensation in the form of a royalty based on a compensation base of $35,503,039 and a royalty rate of 17%. In addition, plaintiff is entitled to delay compensation at an interest rate commensurate with the prime rate compounded on an annual basis and taxed at the time of receipt only. As discussed at the February 23, 1996 formal status conference, the parties shall perform the damages calculations in accordance with this Opinion and shall stipulate to the exact amount of compensation. The stipulation on damages shall be filed on or before August 13,1996.
The Clerk shall enter judgment accordingly-
IT IS SO ORDERED.
Notes
. Incorporation of the government’s PIC into the terms of a public contract places liability for patent infringement on the private contractors. Thus, removal of this clause at the contractors' request exposed the government to potential liability for infringement of the Johansson '606 patent.
. Assistant Secretary Skulley wrote a letter to the Army’s Deputy Commander of Material Readiness ("DCMR”) on January 27, 1983, in which he raised many of these solicitation issues and stated, ”[w]e are especially concerned that our efforts to execute a competitive program are not impeded, and of course, we are concerned whether royalties are actually necessary." The letter requested that the DCMR respond by February 28, 1983.
. The U.S. Supreme Court has construed the words reasonable and entire in the context of patent infringement by the government. As stated by Justice Holmes, "We are of the opinion that interest should be allowed in order to make the compensation 'entire.' In addition to the purpose of the word ... we cannot doubt that it was intended to accomplish complete justice as between the plaintiff and the United States.” Waite v. United States,
. Courts have selected alternate "uniform” rates in the delay damages computation. These include: the rate of return on U.S. Treasury bills, the Prime Rate, the 26 U.S.C. § 6621 tax-overpayment rate, and the 41 U.S.C. § 611 Contracts Disputes Act rate.
. The government’s expert witness on defendant's proposed tax-adjusted delay compensation plan, Professor Robert R. Losey, was also the expert witness in Hughes Aircraft, in which the identical tax methods were advanced and rejected.