#### THE BETHLEHEM STEEL COMPANY v. THE UNITED STATES.

[No. 28693.

Decided April 22, 1907.]

*On the defendants’ Demurrer.*

The facts alleged in the petition show that the proper officers of the Government knew that letters patent had been issued for an improvement on breech mechanism for ordnance; that the *366patent had been assigned to the claimant; that letters had passed between the officers of the Ordnance Department and the claimant looking to the nse of the invention, and resulting in the claimant granting to the Government the right to use the invention in one trial gun without compensation. It is also alleged that the Government used the invention in a number of guns which it subsequently manufactured.

I.When the Government appropriates property which it does not claim as its own an implied contract arises. The decisions reviewed.

II.Where the officers of the Government appropriate a patented invention, recognizing it to be private property, a contract is thereby implied to make reasonable compensation for its use.

III.The fact that the patentee does not at the time know that his invention is being appropriated and used by officers of the Government does not preclude him from recovering on an implied contract where he has previously tendered the use of the invention to the Government. The owner of a patent can not be compelled to keep sentinels on guard to learn when Government officers are appropriating his property for public, purposes.

*The Reporters'*statement of the case:

The allegations of the petition are sufficiently set forth in the opinion of the court :

*Mr. A. 0. Campbell*(with whom was *Mr. Assistant Attorney-General Van Orsdel),*for the demurrer:

The defendant contends that if the transactions between the Bethlehem Iron Company and the defendant, as set forth in the petition, show merely an infringement by defendant of the rights of the owner of said patented invention, the demurrer in regard to the first question raised by it should be sustained. *(Pitcher*v. *U. S.,*1 C. Cls. B., 7; *McKeever*v. *U. S.,*14 C. Cls. B., 396, 422, 424; *Butler*v. *ü. S.,*23 C. Cls. B., 335, 339; *Paimer*v. *TJ. S.,*20 C. Cls. B., 432; *United States*v. Palmer, 128 U. S., 262, 269; *Sehillinger et al.*v. *U. S.,*24 C. Cls. B., 278, 298; same case, 155 U. S., 163, 167; *Talbert*v. *U. S.,*25 C. Cls. B., 141, 155; *Berdan Fire Arms Co.*v. *U. S.,*26 C. Cls. B., 48, 75; same case, 156 U. S., 552, 566; *Russell et dl.*v. *U. S.,*35 C. Cls. B., 154,162; same case, 182 U. S., 516, 530; *James*v. Campbell, 104 U. S., 356, 358-359.)

*367To determine whether the petition shows an implied contract, and therefore a promise on the part of the defendant to pay a reasonable royalty, or whether the petition shows merely an infringement, it is first necessary to ascertain the meaning of the term “ implied contract,” as the same is employed in the first section of the so-called Tucker Act.

Implied contracts are of two kinds, viz: (1) Those which are implied in fact, and (2) those which are implied in law. They differ radically in their nature. The former rest upon an actual agreement between the parties, and differ from express contracts only in the mode of proof. In the latter no actual contract exists. They rest upon a legal fiction. In the former there has been an actual meeting of the minds of the respective parties, a promise to pay on the part of the obligors and consent or actual knowledge on the part of the obligees. The latter require no promise on the part of the one or consent or knowledge on the part of the other, as the law supplies these elements in order to enforce a legal duty. (Am. and Eng. Ency. of Law, 2d ed., vol. 15, pp. 1077,1078.)

The defendant contends that the term “ implied contract,” as the same-is used in the Tucker Act, is restricted to contracts which are implied in fact, and does not include those which are implied in law.

As this is a court of limited jurisdiction, and the Tucker Act is in derogation of the common law, said term should be strictly, and not liberally, construed. This seems to be the view of this court, and also of the Supreme Court, as appears from what follows.

In *Simpson et al.*v.' *United States*(31 C. Cls. R., 217, at p. 245) the court said: “An implied contract is founded upon a presumed agreement.”

In *Gill*v. *United States*(25 C. Cls. R., 415) it was held in effect (syllabus) that in a patent case against the Government “ the.defense shall come in as if the suit were on an express contract.” In the course of the opinion it was stated, among other things (p. 426) : “ The contract to be implied is one which ought to be inferred from all the facts of the case recognizing a mutual intent in both parties, and giving due *368regard to the rights of each.” *(Pasquean*v. *United,*States, 26 C. Cls. E., 509.)

. An examination will disclose that in every case instituted in this court under the Tucker Act for the recovery of royalty for the use of a patented invention, where there has been no express contract, and judgment was recovered against the defendant, it was made to appear that the authorized officers of the Government knew the article involved was protected by letters patent and recognized the claimant as the owner thereof; and further, that he knew of such intended use, and either consented thereto or did not object, and that when such facts did not appear the petition was dismissed. Such facts appeared in *MeKeever*v. *United States*(supra), *Butler*v. *U. S.*(supra), *Palmer*v. *U. S.*(supra), *Talbert*v. 27. *S.*(supra), *Berdan Fire Arms Go.*v. *U. S.*(supra), and in each of these cases claimant recovered a judgment. Such facts did not appear in *Pitcher*v. *U. S.*(supra), *Simpson*v. *U. S.*(supra), *Gill*v. *U. S.*(supra), *Russell*v. *U. S.*(supra), *Schillinger*v. *U. S.*(supra), and *Harley*v. 27. *S.*(supra), and the petition in each of these cases was dismissed.

Upon the point now under consideration see *Gill*v. *United States.*

The Supreme Court has affirmed the decision of this court in *Russell et al.*v. *United States*(182 U. S., 516). See also *Palmer*v. *United States*(128 U. S., 262, 269) ; *Schillinger case*(155 U. S., 169, 170) ; *Berdan Fire Arms Go.*v. *United States*(156 U. S., 552).

The foregoing authorities would seem to establish the following propositions, viz:

1. To establish an implied contract, such as is contemplated by the Tucker Act, it is necessary to show consent on the part of the claimant and a promise to pay on the part of the defendant. The consent must be shown as a fact by competent evidence, while the promise may be inferred from such fact and other facts.

2. To entitle a claimant to recover in an action, instituted under the Tucker Act, upon an implied contract for royalties for the use of a patented article he must show among other things that defendant knew the article was protected by a *369patent; that the patent was recognized by the defendant as belonging to the claimant; that the latter knew of its contemplated use and assented thereto; and that thereby defendant, by its authorized officers, promised to pay a reasonable royalty.

The consent of an owner of a patented article to the manufacture and use thereof must have been prior to or contemporaneous with a promise to pay upon the part of the defendant. In other words, there must be a meeting of the minds in respect to the question of use and payment. If consent on the part of the owner is shown, a promise to pay may be inferred. If the consent is only an inference from other facts, then a promise to pay can not be inferred, for the reason that an inference must be based upon facts and not upon another inference deducible from facts. In other words, an inference can not be based upon another inference. If consent on the part of the claimant is not shown, then there is no meeting of the minds of the parties, and a promise to pay can not be inferred.

From the petition it appears that no communication at any time passed between the parties during the time of the alleged manufacture and use. There is no suggestion even that the Bethlehem Iron Company or its alleged successor, the claimant herein, knew of such manufacture and use during the time intervening between March 5, 1898, and November 16, 1905. Hence no promise of payment on the part of the defendant can be inferred.

*Mr. James H. Hayden*in opposition. *Mr. Thomas*IF. Balaewell, and *Messrs. McGammon da Hayden*were on the brief:

The leading case wherein this court was called upon to adjudicate the right of a patentee to recover compensation for the use of his invention by the Government without an express license or agreement is that of *McKeever*v. *United-States*(14 C. Cls. B., 396; affirmed, Supreme Court, 18 C. Cls. R, 757).

Another case in point is that of the *United States*v. *Palmer*(128 U. S., 262, 20 C. Cls. B., 432). There it appeared *370that the claimant presented his inventions to a board appointed by the Secretary of War to recommend proper equipment for infantry soldiers. The board recommended the adoption of Palmer’s device. They were adopted bjr the War Department for the use of the Army and thereafter manufactured for and used by it. When he submitted his inventions to the board, Palmer had obtained letters patent for some, but not all, of them. After the Government had been using them for some time he demanded royalty, which was refused. Pie then brought suit in the Court of Claims. The court gave him judgment.

See *Berdan Firearms Manufacturing Oompam/*(26 C. Gis. K., 77-79).

In the case of *Butler*v. *The United States*(23 C. Cls. R.. 335) it appeared that the claimant had offered the use of his patented invention to the War Department. The Department did not procure a license from or hold any communication with him. The Government manufactured and used devices embodying his invention. On this showing the court gave him judgment for a sum which it fixed upon as reasonable compensation'for the use of his property, saying: “ The liability of the Government in this case arises exclusively from its own acts.”

Thus a contract was implied in Butler’s favor, from nothing more than a neutral absorption and beneficial use of his property by the United States. In the case at bar the claimant shows more clearty the formation of a contract. There was (1) a tender by the claimant, or its predecessor, of its patented invention; (2) recognition by the War Department that the invention was the claimant’s property and that its use would be a proper subject for compensation; (3) the beneficial use by the Government of claimant’s patented invention, with the claimant’s assent, the Government recognizing that it was taking and using the claimant’s property; and (4) indirectly, at least, allowance of compensation by the Government for use of the invention, as applied to guns manufactured for it by the Bethlehem company.

The case does not fall within the rulings of this court or the Supreme Court in the case of *Sehillinger*v. *The United*
      *371
      *States*(24 C. Cls. B., 278; 155 U. S., 163) or that of *Bussell et al.*v. *The United States*(35 C. Cls. B., 151; 182 U. S., 516). In the former, the use of Schillinger’s invention, if made at all, was made by a person who was performing work for the Government under contract, and not by the Government. Furthermore, the Government actually denied the use, thereby rendering it, if it did occur, an infringement, pure and simple. In Bussell’s case, the claimant’s patented' device was tendered to the Government along with others. The Government adopted one tendered by a third party. Bussell declared the one adopted to be an infringement of his patent. In a lengthy correspondence between him and the Chief of Ordnance his claim was not rejected, but neither was it conceded that in using the device tendered by the third party Bussell’s property would be appropriated. In the present case no questions of that kind can arise.

Peelle, Ch. J.,

delivered the opinion of the court:

To the amended petition herein the defendants demur on the ground “ that the allegations of fact in said amended petition contained do not constitute a cause of action against the United States.”

The facts well pleaded are that on March 20, 1894, letters patent were granted by the-United States to one Owen F. Leibert, who, on March 27, 1894, assigned all his right, title, and interest in and to said invention and letters patent to the Bethlehem Iron Company, the immediate predecessor of the claimant company herein (both being corporations organized under the laws of the State of Pennsylvania), which instrument of writing was duly recorded in the Patent Office of the United States. While the application of said Leibert. for said letters patent was pending the Secretary of War, by letter to the Commissioner of Patents, requested that officer to expedite action upon said application. February 12, 1894, the Chief of Ordnance, through Captain McNutt, inspector of ordnance, by letter of that date to the Bethlehem Iron Company, requested “ a description and detailed drawings upon a large scale of this invention, which may be used in connection with the patent specification for the consideration *372of its merits,” which were furnished by said company in the form of blueprints illustrating the application of said invention to an 8-inch gun of its own, and also drawings “ showing another plan of applying mechanism to an 8-inch gun,” together with “ a description of the mechanism and the relations of the various parts.”

Further correspondence was had between said Bethlehem Iron Company and the officers of the Government respecting the use and application of the Leibert patent, and on June 29, 1894, said Captain McNutt, bjr letter of that date to said company, informed it that in equipping a 40-caliber 12-inch rifle, then being assembled at Watervliet Arsenal, with the Farcot breech mechanism it was “ the desire of the Chief of Ordnance to test, in connection therewith, the plans for which Mr. Owen Leibert has secured a patent. It is proj)osed to make a rack and pinion after Mr. Leibert’s designs and use them as alternative with like parts of the other design, the fittings being otherwise the same in each case. Will you please inform me whether the Department can secure from you the right to use these plans on this trial' gun without claim for compensation? ” which permission, as requested, was granted as to the “ one trial gun above referred to without claim for compensation on our part.”

November 7, 1891, the Bethlehem Iron Company had entered into a contract with the Government to manufacture one hundred 8, 10 and 12 inch breech-loading guns, and on October 12, 1897, after the issuance and assignment of said letters patent and when about fifteen of the guns so contracted for remained to be manufactured, General Flagler, the Chief of Ordnance, in a communication to said company, stated that “ the Department has no objection to your making the last fifteen 12-inch breech-loading guns under your one-hundred-gun contract of November 7, 1891, to conform to model 1895, instead of model 1888, M2, this change to cover both the new form of breech mechanism and the gun itself.”

The said fifteen guns so manufactured embraced the invention of said Leibert, and in the manufacture thereof it was agreed that there should be no modification or change in the price fixed in said contract of 1891.

*373That by reason of the facts stated the Government thereby recognized said invention and patent as the property of said Bethlehem Iron Company.

On August 6, 1901, the said Bethlehem Iron Company assigned and conveyed to the Bethlehem Steel Company, claimant herein, all of its property rights and franchises, including said patent, and the affairs of said Bethlehem Iron Company were duly wound up and it ceased to exist.

On June 6, 1902, Congress passed an act as follows:

> All contracts of the Bethlehem Iron Company, of South Bethlehem, Pennsylvania, heretofore made between it and the United States, excepting the contract of November 7, 1891, for one hundred eight, ten, and twelve inch guns shall be completed by its successor, the Bethlehem Steel Company, or its successor, which has acquired or may acquire all of its assets, and has assumed or may assume all of its liabilities under the said contracts, and the said Bethlehem Steel Company, or its lawful successor, upon giving good security in the same form and amount, conditioned for the performance by it of the said contracts, shall be substituted therein for the said Bethlehem Iron Company and be entitled to exercise all rights thereunder which the said Bethlehem Iron Company had or would have had if it had continued in existence. (32 Stat. L., 305, 308.)

Pursuant to the provisions of said assignment and conveyance, the claimant herein became the successor of the Bethlehem Iron Company.

That between March 5, 1898, and the filing of the petition herein, November 16, 1905, and within the period of six years next prior to filing said petition, the Government manufactured 130 guns “ with breech mechanism containing the said patented invention,” for which the reasonable royalty, at the rate of $500 per gun, amounting to $65,000, is due and unpaid.

What portion of said 1.30 guns were manufactured by the United States. during the lifetime of the Bethlehem Iron Company and what portion were manufactured since the succession thereto by the Bethlehem Steel Company, claimant herein, does not appear; but that spme of them were manufactured by the United States since the organization of the claimant company herein and the assignment thereto by the *374Bethlehem Iron Company of all its right* title, and franchises, including the invention and patent aforesaid, is evident, as in the twenty-second paragraph of the petition it is averred that “ between March 5, 1898, and the date of the filing of the original petition herein (November 16, 1905), and during and throughout the period of six years next preceding the filing of said petition, the United States did manufacture and use large numbers of guns, to wit, 130 guns, other than those manufactured for and delivered to it by the said Bethlehem Iron Company or by the claimant, which were and are provided with breech mechanism containing the said patented invention.”

In addition to this, however, the claimant contends that, by virtue of the language in the act of June 6, 1902, above quoted, the Government thereby recognized the claimant company as the successor of the Bethlehem Iron Company, with the right to complete all contracts theretofore entered into between the Bethlehem Iron Company and the United States, “ excepting the contract of November 7, 1891, for one hundred 8, 10, and 12 inch guns.” But in view of the fact that some of the guns for which rojmlty is claimed herein were manufactured by the United States since the claimant became the successor by assignment of the Bethlehem Iron Company, of which the Government, its officers and agents, had notice, we need not now consider the office and effect of said statute res]3ecting the use by the United States of the claimant’s patent, for, as to the extent stated, it must be held that the demurrer is not well taken.

The facts set forth unquestionably show that the proper officers of the Government not only knew that letters patent had been issued to Owen F. Leibert for improvement in breech mechanism for ordnance, but that the same, with all the right, title, and interest of said Leibert, had been assigned to the Bethlehem Iron Company, the predecessor of the claimant herein. The Secretary of War requested the Commissioner of Patents to expedite action on the application for a patent and, after the assignment as aforesaid, several letters passed between the Bethlehem Iron Company and the defendants’ officers of the ordnance department looking *375to the use of said invention and jDatent by the Government and which resulted in the Bethlehem Iron Company granting to the Government the right to use the patent in one trial gun without compensation.

Thereafter by permitting — after testing the mechanism— the use of the patent to the 15 guns manufactured under the contract hereinbefore referred to, the claimant contends that the Government thereby recognized the invention and patent-as the property of the Bethlehem Iron Company. That is to say, that the proper officers of the Government recognized that said invention was the private property of said company, and that therefore for any subsequent use of said invention and patent by the Government a contract was implied to make reasonable compensation therefor under the. ruling of both the Supreme Court and this court.

In the case of *United States*v. *Lynah*(188 U. S. R.., 445, 464) the court, after reviewing fully the authorities respecting the right of the Government to take private property for public use, said:

> “ The rule deducible from these cases is that when the Government appropriates property which it does not claim as its own it does so under an implied contract that it will pay the value of the property it so appropriates. It is earnestly contended in argument that the Government had a right to appropriate this property. This majr be conceded, but there is a vast difference between a proprietary and a governmental right. When the Government owns property, or claims to owu it, it deals with it as owner and by virtue of its ownership, and if an officer of the Government takes possession of property under the claim» that it belongs to the Government (when in fact it doés not) that may well be considered a tor-tious act on his part, for there can be no implication of an intent on the part of the Government to pay for that which it claims to own. ' Very different from this proprietary right of the Government in respect to property which it owns is its-governmental right to appropriate the property of individuals. All private property is held subject to the necessities of government. The right- of eminent domain underlies all such rights of property. The Government may take personal or real property whenever its necessities or the exigencies of the occasion demand. So the contention that the Government had a paramount right- to appropriate this- property may be conceded, but the Constitution in the fifth amendment guar*376antees that when this governmental right of appropriation — ■ this asserted paramount right — is exercised it shall be attended by compensation.

> “ The -Government may take real estate for a post-office, a court-house, a fortification, or a highway; or in time of war it may take merchant vessels and make them part of its naval force. But can this be done without an obligation to pay for the value of that which is so taken and appropriated ? Whenever in the exercise of its governmental rights it takes prop- . erty, the ownership of which it concedes to be in an individual, it impliedly promises to pay therefor. Such is the import of the cases cited as well as of many others.”

Following those authorities the court, in the case of *Alfred J. Brooks*v. *The United States*(39 C. Cls. R., 494, 502), said:

> “ We think it may be regarded as settled law that where an officer of the Government, having authority to act, takes or appropriates to public use property, admitting it to be private property, an implied contract will arise to make compensation.”

Nor will the Government, where it takes property for public use, conceding it to be private property, be heard to say that because there was no promise to pay therefor no contract is implied, as annexed to the use of property so taken without claim of ownership is an implied promise to make reasonable compensation. *McKeever*v. *United States*(14 C. Cls. R., 396) (affirmed bjr the Supreme Court without an opinion) ; *United States*v. *Bigby*(18S U. S., 401, and authorities there cited) ; *United States*v. *Palmer*(128 ib., 262), and *United States*v. *Harvey Steel Company*(196 U. S., 313) affirming-this court (38 C. Cls. R., 662).

If as averred in the petition the Government appropriated to public use the invention for which the claimant owned the patent, it did so knowing it was private property, and having used the patent without claim of ownership and without objection from the claimant or its predecessor, a contract thereby arose to make a reasonable compensation therefor.

In *Harley*v. *United States*(39 C. Cls. R., 105, 114), affirmed 198 U. S., 229, 234, where the court respecting an implied contract said:

> “ In the case at bar the Court of Claims finds that the appellant *1*supposed and understood that he would be en*377titled to compensation, and that it would be allowed and paid by the Secretary of the Treasury;’ but it also finds that ‘ on the part of the Secretary and Chief of Bureau (Engraving and Printing) it was supposed .and understood that the; claimant (appellant), being an employee of the Treasury Department, would neither expect nor demand remuneration.’ That there was ‘ a coming together of minds ’ is therefore excluded by the findings. And the use of the device can not give a right independent of the understanding under which it was used.”

The use of the patent -in that case, it was supposed and understood, would be without compensation, because the owner of the patent was at the time in the employ of the Treasury Department; and as there was no use of the patent independent of that understanding,.it was held that no contract could be implied to make compensation.

In the present case there is nothing to indicate that the claimant or its predecessor did not expect compensation for the use of the invention, and the contention of the Government that, because the claimant or its predecessor had no knowledge of the use by the Government of its patent at the time the 130 guns were being manufactured — for which royalty is claimed — therefore no promise to pay can be implied is not well founded for the reason that the use of the invention had been tendered to the Government by the claimant’s predecessor prior thereto, and the mechanism had been tested and actually used by the Government. The mechanism was specially adapted and designed for large guns — such as used by the Government — and the Government had recognized private ownership in the patent.

With such knowledge on the part of the officers of the Government respecting the private ownership of the patent, it would be a monstrous doctrine to hold that because the owner had no knowledge of the use of its patent at the particular time therefore no promise to pay can be implied. If it were so the owner of a patent would be compelled to keep sentinels on guard to learn when vigilant officers of the Government were appropriating his property for public purposes.

From the facts averred in the petition — summarized above — the court must hold that when the officers of the Gov*378ernment appropriated the patented invention, recognizing it as private property, a contract was thereby implied to make reasonable compensation for such use.

For the reasons given the demurrer is overruled and the defendants are required to answer over.

Howry, J., was not present when this case was tried and took no part in the decision.