MANUFACTURERS AIRCRAFT ASSOCIATION, INC., v. THE UNITED
STATES
No. J-569
UNITED STATES COURT OF CLAIMS
77 Ct. Cl. 481; 1933 U.S. Ct. Cl. LEXIS 277
May 8, 1933, Decided
CASE SUMMARY
PROCEDURAL POSTURE: Plaintiff, an association of aircraft manufacturers, sought to recover
$ 363,600 under implied contracts for royalties on 2,216 airplanes using patented devices
controlled by the association, which royalties, it was alleged, defendant United States agreed to
pay on airplanes which were either made or purchased by the government and used by it within
the United States between July 24, 1917, and December 31, 1928.
OVERVIEW: At the government's insistence, the association was created in 1917 to overcome
obstacles to the production of airplanes arising from disputes between patentees that were
embarrassing the government in its need for airplanes. The association alleged that the
government agreed to pay royalties on each plane it made or purchased between 1917 and 1928.
The government contended that the association was not entitled to maintain the suit because it
was not the absolute owner of the patents used on the airplanes manufactured or purchased by the
government. The government also argued that a six-year statute of limitation barred about half of
the association's claim to royalties. The court held that the association was entitled to recover
because all the circumstances surrounding the matter of royalties on airplanes made or purchased
by the government using the devices covered by the patents controlled by the association, the acts
and conduct of the parties, and their relations, established an implied-in-fact contract on the part
of the government to pay the claimed royalties to the association. Further, only one of the
association's royalty claims was beyond the statute of limitations.
OUTCOME: The court entered a judgment of $ 363,500 in favor of the association, holding that
the government did not comply with the terms of the parties' implied-in-fact contract relating to
the payment of royalties for the use of certain patents used on airplanes made or purchased by the
government.
CORE TERMS: airplane, royalty, patent, cross-license, navy, manufactured, invoice,
manufacturer, subscriber, patented, supplemental, manufacture, aircraft, implied contract,
patentee, accrue, per centum, contractor, factory, supplemental agreement, statute of limitation,
negotiations, termination,
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
amended petition, stockholder, license, plane, time to time, aeronautic, special-license
CORE CONCEPTS -
Contracts Law: Types of Contracts: Implied-in-Fact Contracts An implied contract upon which a
suit may be maintained under the Judicial Code @ 145 must be one implied in fact rather than in
law. A contract implied in fact, or an implied contract in the proper sense, arises where the
intention of the parties is not expressed, but an agreement in fact, creating an obligation, is
implied or presumed from their acts, or, where the circumstances show, according to the ordinary
course of dealing and the common understanding, a mutual intent to contract. The nature of the
understanding of the parties, whether the contract be express or implied, is the same, the only
distinction being in the mode of proof. Both express contracts and contracts implied in fact are
founded on the mutual agreement of the parties. The one class is proved by direct, and the other
by indirect evidence. In other words, an express contract is proved by an actual agreement, while
in the case of an implied contract it will be implied that the party made such an agreement as,
under the circumstances disclosed, he ought in fairness to have made. The implication must be a
reasonable deduction from all the circumstances and relations of the parties, their acts, and
conduct, although it need not be evidenced by any precise words and may result from random
statements and uncertain language.
Governments: Legislation: Statutes of Limitations: Statutes of Limitations Generally
Governments: Legislation: Statutes of Limitations: Time Limitations The statute of limitation, the
Judicial Code @ 156, provides that suits in the United States Court of Claims shall be commenced
within six years after the cause of action first accrues. The date on which a cause of action first
accrues is not necessarily the same in every case. Ordinarily a cause of action accrues when the
service is rendered or the articles are furnished and the obligation to pay therefor arises, but this is
not a hard and fast rule and whether the cause of action in a particular case accrues at such time
depends upon the agreement or arrangement between the parties. Their express agreement as to
this in the case of a formal contract or their understanding and course of conduct under an implied
contract may fix a different time for the accrual of the claim for the purpose of computing the
statute of limitation. The court thinks the language of @ 156 is used with this in view for if it had
been intended definitely to fix the time when the claim should accrue in every case, it would
simply have provided that every suit should be commenced within six years after the service was
rendered or the articles called for were furnished. In the case of a breach of a contract, a cause of
action accrues when the breach occurs.
Governments: Legislation: Statutes of Limitations: Statutes of Limitations Generally
Governments: Legislation: Statutes of Limitations: Time Limitations A claim may be said to
accrue at one time for accounting purposes and at another, or later, time for the purpose of
determining the statute of limitation within which suit may be brought.
Governments: Legislation: Statutes of Limitations: Statutes of Limitations Generally
Governments: Legislation: Statutes of Limitations: Time Limitations A right of action accrues and
the statute of limitations begins to run when,
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
and only when, the period of credit has expired; or, in other words, when an account is due and
payable, or when there is a breach of the contract.
Contracts Law: Types of Contracts: Implied-in-Fact Contracts As the parties may specify such
terms as price or time of payment by express contract, equally may they do so by implication of
practice.
COUNSEL: Mr. William Wallace for the plaintiff. Chadbourne, Stanchfield & Levy were on the
brief.
Mr. Wilbur H. Friedman, with whom was Mr. Assistant Attorney General Charles B. Rugg, for
the defendant.
JUDGES: Littleton, Judge, delivered the opinion of the court. Williams, Judge; and Green,
Judge, concur. Whaley, Judge, concurs in the conclusion. Booth, Chief Justice, took no part in
the decision of this case on account of illness.
OPINIONBY: LITTLETON
OPINION: [*482] The Reporter's statement of the case:
In this suit plaintiff seeks to recover $ 363,600 under implied contracts for royalties on 2,216
airplanes using patented devices controlled by plaintiff, which royalties, it is alleged, the defendant
agreed to pay on airplanes which were either made or purchased by the defendant and used by it
within the United States between July 24, 1917, and December 31, 1928. The agreement was to
continue until October 1933; however, the royalties for the period subsequent to December 31,
1928, are not involved in this proceeding inasmuch as a formal contract was entered into effective
on that date for a period of seven and one half years from the close of the war. The War and the
Navy Departments concluded upon advice from the Attorney General that they could not pay the
royalties for airplanes acquired in prior years upon a provision therefor in this formal contract, but
that such royalties as might be due would have to be paid under an implied contract for the period
prior to December 31, 1928. Invoices rendered by plaintiff for unpaid royalties were approved and
the matter of stating an account was referred to the Comptroller General, who first informed
plaintiff that a certificate for the amount due would be issued, but later, [*483] on May 12, 1927,
the certificate was refused and the entire claim then before him was disallowed.
During the period from July 24, 1917, to December 31, 1918, the War and Navy Departments
made regular and current payments to plaintiff directly or through manufacturers who were
stockholders of the plaintiff company and subscribers to the cross-license agreement for royalties
on certain airplanes manufactured by such departments or purchased by them from such
manufacturers, but it was later found, during the preparation of the aforesaid formal contract, that
these departments had manufactured or had purchased from manufacturers who were not
stockholders of the plaintiff, and who were not subscribers to the cross-license agreement
hereinafter mentioned, certain airplanes using the patents controlled by plaintiff, which airplanes
had not been reported to plaintiff by the departments and as to which no royalties had been paid.
The royalties on these airplanes constitute the subject matter of this suit.
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
The defendant contends that, assuming without conceding that there were implied contracts
between the War and Navy Departments and the plaintiff, such implied contracts arose only in
favor of the patentees and that, since plaintiff was and is not the owner of the patents, it has no
cause of action; that recovery of royalties on airplanes made and purchased by the Government
after July 25, 1922, is barred by the statute of limitation, and that as to all other airplanes the
plaintiff has failed to prove the reasonable value of the use of the patents.
The court, having made the foregoing introductory statement, entered special findings of fact as
follows:
I. During and prior to January 1917, the development of the aircraft industry in the United
States was seriously retarded by the existence of a chaotic situation concerning the validity and
ownership of important aeronautical patents. This situation was one of great concern to the
Government of the United States. A National Advisory Committee for Aeronautics had been
created pursuant to an act of Congress [*484] to consider and advise the President and the
departments on aeronautical problems and to consider and devise some plan to remedy the
existing difficulties. January 13, 1917, the Secretary of the Navy reported to the chairman of the
executive committee of the National Advisory Committee that various companies were
threatening all other airplane and seaplane manufacturing companies with suits for infringements
of patents, resulting in a general demoralization of the entire trade; that it was difficult for the
Government to obtain fulfillment of orders because some companies would not expend any money
on their plants for fear that suits brought against them would force them out of business; that to
protect themselves in case they were forced to pay large license fees the companies had greatly
increased the sales prices of their products to the Government and that as the Army and Navy
were the principal purchasers of aircraft in this country, they were bearing the burden of that levy;
and that it was thought that the National Advisory Committee for Aeronautics might be able in
some way to render great assistance to the Navy by undertaking a study of the question and
suggesting some line of action to be taken. A similiar letter concerning the same subject was
written to this committee by the Secretary of War January 31, 1917. There were a number of
outstanding patents on devices for airplanes desired by the Government. Prior to the time the
arrangement hereinafter mentioned was agreed upon and placed in operation, one airplane
manufacturer, who had made a considerable number of airplanes, was paying a royalty of $ 1,000
an airplane for the use of only one of the patents.
II. A joint meeting of the Committee with the representatives of the War and the Navy
Departments and of the aeronautical industry was arranged and held March 22, 1917, at which
time the chairman of the committee, Doctor Walcott, after stating the various means by which the
basic airplane patents could be acquired by the Government for the development of the industry,
said that "The Committee is therefore working diligently upon the proposition of arranging an
adjustment out of court whereby just recognition will be [*485] made to the owners of the more
important or basic patents in the form of reasonable royalties to be paid by the purchasers of
planes whether for military or civil use." The entire statement of the Committee is in evidence as
exhibit 3 (a) and is made a part of this finding by reference.
The Committee forthwith proceeded to consider the problem confronting the Government and
on March 23, 1917, the subcommittee on patents of the National
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
Advisory Committee rendered a report recommending the formation of the Aircraft
Manufacturers Association among all aircraft manufacturers and suggesting the details of a
cross-license agreement among its members. This recommendation is in evidence as exhibit 3 (b)
and is made a part of this finding by reference.
June 14, 1917, the executive committee of the National Advisory Committee for Aeronautics
authorized the patent committee to take such steps as appeared necessary to effect a solution of
the patent question and recommended that royalties to be paid by the Aircraft Manufacturers
Association, to be organized, to the Wright and Curtiss Companies, who owned the principal
airplane patents, be limited to two million dollars each. The Wright Company had become
consolidated with the Martin Company and the Curtiss Company had become consolidated with
the Burgess Company with the result that the principal airplane patents theretofore owned by the
four companies were then owned by the Wright and the Curtiss Companies. The minutes of this
meeting are in evidence as exhibit 4 and are made a part of this finding by reference.
June 18, 1917, the subcommittee on patents and the Wright-Martin and Curtiss-Burgess
interests met and approved a proposed plan and authorized counsel for the Wright-Martin and
Curtiss-Burgess interests to prepare a form of agreement. The minutes of this meeting and a
report of the subcommittee are in evidence as exhibits 5 (a) and (b) and are made a part of this
finding by reference.
July 10, 1917, the subcommittee on patents met with the airplane manufacturers and
representatives of the Wright and Curtiss Companies, at which meeting the terms of the [*486]
proposed agreement were generally discussed and rules for the qualifications of membership in the
association adopted. Only members of the association became subscribers to the cross-license
agreement hereinafter mentioned. A resolution of the National Advisory Committee was adopted
fixing the qualifications of the stockholders or "subscribers" in the plaintiff corporation, as
follows: "A stockholder of this corporation shall be a responsible manufacturer of airplanes,
airplane engines, or parts and accessories used in airplanes; a responsible manufacturer who
intends to become bona fide producer of airplanes or airplane engines, parts, or accessories; or a
manufacturer to whom the Government has given a contract for the construction of ten or more
complete airplanes or airplane engines; but no stockholder herein shall acquire or own more than
one share of the stock of said corporation." July 12, 1917, the subcommittee on patents again
met, at which time there was submitted the draft of the proposed cross-license agreement, which
draft was unanimously approved and recommended to the executive committee of the National
Advisory Committee for Aeronautics for its approval. On the same date the executive committee
of the National Advisory Committee approved the report of the patent committee and the
proposed cross-license agreement.
As contemplated by the plan approved by the executive committee of the National Advisory
Committee for Aeronautics, a corporation was incorporated under the laws of the State of New
York, July 16, 1917, under the corporate name of the Manufacturers Aircraft Association, Inc.,
hereinafter sometimes called the "association." This corporation is the plaintiff in the present
action.
July 24, 1917, the first corporate meeting of the plaintiff was held and, in accordance with the
approved plan, a cross-license agreement, hereinafter called the "agreement", was entered into by
plaintiff and eleven manufacturers of airplanes including the Wright-Martin Aircraft Corporation
and the
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
Curtiss-Burgess Airplane & Motor Corp., Inc, who had contracts with the Government. This
cross-license agreement and a list of the subscribing members, stockholders [*487] in plaintiff
company, are in evidence as exhibits 10 (a) and (b), respectively, and are made a part of this
finding by reference.
III. The agreement and the bylaws of the plaintiff provided for the issuance of licenses to use
patented devices for airplanes owned or controlled by it and called for the payment of a royalty to
the association (the plaintiff) at the rate of $ 200 an airplane until October 1933. Plaintiff was
authorized to retain up to 12 1/2 per centum of all royalties received for the purpose of meeting
its expenses of administering the agreement and for other purposes. The agreement required the
plaintiff to pay the remaining 87 1/2 per centum of the royalties received from all sources in
declared proportions of 67 1/2 per centum to the Wright-Martin Aircraft Corporation and 20 per
centum to the Curtiss-Burgess Airplane & Motor Corp., Inc. The agreement also contained a
provision to the effect that within the period prior to November 1933, whenever and if said 87 1/2
per centum payments to Wright and Curtiss had equalled a maximum of $ 2,000,000 for each, the
rate of royalty to be paid to plaintiff was automatically to change to a sum not exceeding $ 25 an
airplane.
Article 7 of the original cross-license agreement provided in part that "On the 10th days of
January, April, July, and October in each year, each 'subscriber' shall report the number of
airplanes (with or without engine), sold and delivered by it, together with the names of the
purchasers, and the dates of delivery, or put into use for other than experimental or development
purposes, or shipped out of the United States, during the three preceding calendar months. * * *
The first of each of the reports specified shall be made by each 'subscriber' on the tenth day of
January, April, July, or October first occurring after it has become a 'subscriber' hereto, and shall
cover the period from July 1, 1917, to the first day of the month in which the report is due."
Article 8 provided that each "subscriber" should pay to the plaintiff a royalty of $ 200 at the
time of making the aforesaid reports on each airplane required to be reported under art. 7.
[*488] IV. This agreement was enclosed by the National Advisory Committee for Aeronautics
in its formal report made to the Secretary of War and the Secretary of the Navy. With respect
thereto the report stated that:
"Under date of July 27, the chairman addressed letters to the Secretary of War and the
Secretary of the Navy reporting the solution of the patent question and enclosing a copy of the
cross-license agreement which had been accepted by the aircraft manufacturers and signed by
them as members of a new 'Manufacturers Aircraft Association.'
"On the same date the chairman addressed a letter to the president of the Manufacturers Aircraft
Association recommending the acceptance of the cross-license agreement by the association and
its members and that aircraft manufacturers generally be invited to subscribe to same in the
interests of harmony and efficiency and to the end that the industry may be enabled to expand
freely in order to meet the demand of the Government for the quantity production of aircraft."
August 2, 1917, the Secretary of the Navy wrote the chairman of the National Advisory
Committee for Aeronautics as follows:
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
"I beg to acknowledge receipt of your letter of July 27, 1917, informing me of the settlement of
the aircraft patent situation reached by the manufacturers of aircraft and enclosing a copy of
'cross-license agreement and license' as drawn up by that association.
"I wish to thank you and the members of your committee for the assistance which has been
rendered to the Navy by the guidance of the various manufacturers toward amicable settlement of
the perplexing patent situation, thereby rendering it unnecessary to expend the appropriation of $
1,000,000, included in the Naval Appropriation Act of the fiscal year 1918, for the purchase or
condemnation of basic aeronautic patents."
From July 1917 the plaintiff functioned in issuing licenses for airplane manufacture under said
airplane patents and otherwise functioned as contemplated in the agreement for the benefit of the
Government and of the airplane industry.
V. September 17, 1917, the Secretary of War submitted the "cross-license agreement" to the
Attorney General of the United States for an opinion as to the legal status of the [*489]
association and an opinion as to whether the agreement was in accord with the antitrust laws of
the United States. In this letter of transmittal the Secretary of War expressed the desire of the
War Department to proceed under the agreement and secure the benefits thereof. This letter is in
evidence as exhibit 11 (b) and is made a part of this finding by reference. In response to this
letter, the Attorney General, on October 6, 1917, rendered an opinion, 31 Op. Atty. Gen. 166, on
the question submitted, which opinion concludes as follows: "Not to go into further details it
suffices to say that upon the data submitted to me I am of the opinion that the association
incorporated as now constituted and the cross-license agreement under which it is now operated
is not in contravention of the antitrust laws of the United States."
VI. In a letter of November 6, 1917, to the Secretary of War the National Advisory Committee
recommended that the payment of royalties provided for in the agreement be recognized as an
element of cost of all aircraft purchased on a cost-plus basis by the War and the Navy
Departments. This recommendation is in evidence as exhibit 12 (a) and is made a part of this
finding by reference.
VII. December 11, 1917, a resolution was passed at a meeting of the Aircraft Board of the
United States, which recommended the payment by the Government of the royalty of $ 200 an
airplane purchased, as follows:
"It is the opinion of this Board that settlement of patent controversies involved in the
cross-licensing agreement is of great value to the Government in the present crisis, and this Board
is apprehensive that if the amounts to be paid under the cross-licensing agreement are not allowed
as elements of cost in the manufacture of planes it will result in the repudiation of the settlements
therein affected, plunge the contractor into litigation, and render the Government liable for large
claims of indeterminate amounts."
The Aircraft Board also recommended the appointment of a special patent committee to
investigate the validity of the patents involved. Thereafter the Bureau of Aircraft Production, on
behalf of the Government, submitted to a committee of patent experts the question of the value
[*490] of the
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
agreement to the Government and the reasonableness of the royalties provided therein. The
report of this committee, dated January 14, 1918, speaking of the royalty of $ 200 an airplane,
said:
"Such royalty in our opinion is entirely reasonable in the premises and in all probability less than
the basis of recovery a court would allow in a suit against a private individual or concern. In fact
* * * the amount in question would be a perfectly reasonable royalty under the Wright patent
alone and possibly under the Bell et al (Curtiss) patent alone to say nothing of the other patents
covered by the cross-license agreement. * * *."
VIII. In February 1918 the Secretary of the Navy, in conversation with a representative of the
plaintiff, suggested that, in view of the circumstance that the war was being carried on, the
royalties to be paid by the Government to plaintiff be reduced during the period of the war. On
March 1, 1918, plaintiff, by letter to the Secretary of the Navy, declared its understanding of the
above request for reduction as being that the present agreement be modified for the period of the
war, the reduction of the established royalty from $ 200 to $ 100 an airplane. This letter is in
evidence as exhibit 13 and is made a part of this finding by reference.
March 8, 1918, the Secretary of the Navy replied in writing to plaintiff as follows:
"Referring to our recent conversation and your letter of March 1, 1918, in reference to the
Manufacturers Aircraft Association, and the royalties under the cross-license agreement entered
into between manufacturers of aircraft and your association, I wish to confirm what I have said to
you in conversation. As you are aware, on March [24], 1917, Congress appropriated $
1,000,000.
"'* * * to enable the Secretary of War and the Secretary of the Navy to secure by purchase,
condemnation, donation, or otherwise such basic patent or patents as they may consider necessary
to the manufacture and development of aircraft in the United States for governmental and civil
purposes.'
"I should much prefer to handle the patent situation by purchase under the above law within the
limit of the appropriation made, but have not found the owners of the [*491] Wright patents
willing to agree to a figure which would enable this to be done. Apparently the only action
practicable under the act of March [24], 1917, would be to proceed to condemn the necessary
patents. This I am loath to do under present conditions if some other reasonable solution can be
had. It was contemplated that under the cross-license agreement between the manufacturers of
aircraft and your association, royalties of $ 200 per plane would be paid over a term of years, with
a possible maximum limit of $ 2,000,000 to each of two companies. It now appears, however,
that owing to the great and growing requirements of the Government for airplanes, under the
royalty of $ 200 per plane the limit of $ 4,000,000 would be paid by the Government alone during
the next few months. I consider this excessive and inadmissable.
"The maximum payments which would in my opinion be at all acceptable under the cross-license
agreement would be as follows:
"(a) On all planes shipped to the United States Government after December 31, 1917, the
royalty be reduced to $ 100 per plane.
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
"(b) When the Wright-Martin and Curtiss Companies have together received royalties for
machines bought by the Government not to exceed the aggregate amount of $ 2,000,000, no
further royalties to be paid for the use of the patents controlled by the Manufacturers Aircraft
Association by the United States Government during the period of the present war.
"If the cross-license agreement is modified as above, I will agree with the Secretary of War that
all makers of airplanes for the War and Navy Departments on the cost-plus basis will be
reimbursed for royalties paid to your association as above. * * *"
IX. Between March 8 and March 28, 1918, while he was acting during these negotiations for
both the Navy and the War Departments, the Secretary of the Navy expressed to the plaintiff his
desire for the Government to obtain the right to make airplanes in its factories on the payment, for
such of them as might be made during the war, of the reduced royalty of $ 100 an airplane. In the
same period a supplemental cross-license agreement, hereinafter sometimes called the
"supplemental", was prepared. This agreement is in evidence as exhibit 15 and is made a part of
this finding by reference. This supplemental provided [*492] that, except as therein modified, the
original cross-license agreement of July 24, 1917, should remain in full force and effect, and that
"the price herein agreed upon for royalties upon airplanes furnished during the present emergency
to the United States Government is so fixed for the sole purpose of enabling the Government to
acquire airplanes manufactured under said patents upon a preferential basis during the period of
the present war."
The supplemental agreement, which modified the terms of the original cross-license agreement
between the stockholding manufacturers and the plaintiff, granting a preferential royalty to the
Government and limiting the maximum amount of royalty to be paid to the owners of the patents
during the period of the war to $ 2,000,000, was submitted to and accepted by the Secretary of
the Navy for both the Navy and the War Departments by letter from the Secretary of the Navy to
plaintiff on March 28, 1918, in which the Secretary of the Navy stated:
"This agreement, as modified, meets the conditions laid down by me and should be accepted
promptly by all manufacturers of aircraft under Government contracts, and by the owners of the
patents.
"In consideration of the reduced royalties therein provided for on the patents now owned or
controlled by the association or its subscribers for use on all airplanes manufactured and delivered
to the United States Government during the period of the war, I will agree.
"1. That the contracting and disbursing officers of the Navy Department shall allow and will be
directed to allow as an element of cost in all cost-plus contracts, the royalties paid under the
cross-license agreement and the supplementary agreement above referred to, to the amount and in
the manner provided for in said agreements.
"2. That the Navy Department will pay to the Manufacturers Aircraft Association, Inc., a
royalty of $ 100 per plane on all airplanes manufactured by the Navy Department. It being
understood that the payments so made shall be included in the $ 2,000,000 total allowed to the
owners of the patents during the period of the war, and with the further understanding that a
detailed
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
agreement will be made setting forth that such payments shall be complete and full compensation
for the use of all the patents now controlled by the Manufacturers Aircraft Association, Inc., for
the [*493] airplanes manufactured by the Navy Department during the period of the war. Said
payment of $ 100 per plane to cease when the sum of $ 2,000,000 has been realized by the
owners of the patents.
"I have conferred with the Acting Secretary of War about this matter and he authorized me to
say that he concurs in the statements made above, with the understanding, of course, that the
same agreement made to the Navy Department will operate with respect to the War Department.
And if the War Department shall undertake the manufacture of its own planes it will agree to pay
the same royalty as the provision requires the Navy Department to pay."
X. March 30, 1918, the supplemental agreement was submitted by letter to the Secretary of
War. A further conference between the Secretary of War, the Secretary of the Navy, and the
plaintiff was held, and on April 5, 1918, the Secretary of War in general confirmed and accepted
the terms of the supplemental agreement and suggested certain slight modifications. The letter of
acceptance of the Secretary of War concluded as follows:
"However, after conferring with the Secretary of the Navy, and in order that there may be no
misunderstanding of the matter, it is understood that it is not the intent of this letter, nor of the
letter of the Secretary of the Navy dated March 28, 1918, that either the War Department or the
Navy Department agrees to pay or allow, as an element of cost, royalties for 'after acquired
patents' under the provisions of section 5 of the original cross-license agreement. It is understood
that the question of the amount and propriety of any such payments is left for future disposition.
"I understand that all necessary steps to insure the legality of the right of the Manufacturers
Aircraft Association, Incorporated, to license under the patents in question are being taken and
will be completed.
"I trust that the modifications proposed by the supplemental agreement will be accepted
promptly by manufacturers of aircraft under Government contract and by the owners of the
patents."
These letters are in evidence as exhibits 17 (a) and (b), respectively, and are made a part of this
finding by reference.
XI. The phrase "amount and propriety of any such payments" which appears in the last sentence
of the first [*494] paragraph of the letter of April 5, 1918, of the Secretary of War, hereinabove
quoted, related to payments of royalties on "after acquired patents." This and the temporary
modification in the amount of royalty per airplane were the only changes from the terms of the
agreement as incorporated in the Government's proposal for a special license. By reason of the
requests of the Secretary of War and the Secretary of the Navy, as hereinbefore set forth, the
modifications were forthwith accepted by plaintiff and by the stockholders, subscribers to the
agreement, by letters from plaintiff of April 27, 1918, to the Secretary of War and the Secretary
of the Navy. These letters were the same. The letter to the Secretary of War in evidence as
exhibit 18 (a) is made a part of this finding by reference. After July 17, 1918, the original and
supplemental agreements were signed by certain other makers of airplanes, who thereby became
"Subscribers" thereto; all of whom
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
approved the special-license agreement with the Government.
XII. April 24, 1918, the War Department, by Order A.C. #30, instructed its contracting officers
to allow and to make direct payments of royalties on contracts awarded on a cost-plus basis,
where due on Government manufacture, to plaintiff until the sum of $ 2,000,000 had been
distributed by plaintiff to the owners of the various patents, in accordance with the distributive
ratios provided in the agreements. This order is in evidence as exhibit 19 and is made a part of
this finding by reference. The allowance and payment of royalties to plaintiff through contractors
with the Government applied only to contractors who were stockholders of plaintiff and
"Subscribers" to the original and supplemental cross-license agreements.
XIII. May 10, 1918, the Secretary of War wrote to plaintiff acknowledging receipt of its letter
of April 27, 1918, exhibit 18 (a) above, and stating that the necessary instructions had been given
for the allowance and payment of royalties on cost-plus contracts under the terms of the
supplemental agreement. This letter was acknowledged by plaintiff May 14, 1918.
[*495] XIV. In August 1918, the Bureau of Aircraft Production, on behalf of the War
Department and the Navy Department, with a view to consolidating into one document the
various agreements which had theretofore been entered into and the understandings which had
been had, as hereinbefore referred to, caused such an agreement to be prepared for execution by
the respective parties in interest. This agreement, however, was not executed because of the
armistice. Thereafter the Navy Department prepared and submitted to plaintiff and to the Wright
and Curtiss companies a so-called "Operating contract", dated March 11, 1919, in accordance
with paragraph 2 of the letter of the Secretary of the Navy dated March 28, 1918, as set out
above. This contract, which was executed by the Wright-Martin Aircraft Corporation and the
Curtiss Aeroplane & Motor Corporation as parties of the first part, and who are referred to in the
contract as the associates, the Manufacturers Aircraft Association, Inc., as agent and attorney for
the associates as party of the second part, and the United States, represented by the Secretary of
the Navy, as party of the third part, hereinafter referred to in the contract as the Department,
provides in part as follows:
"Whereas the associates own or control certain United States patents, covering important
inventions relating to aircraft, and
"Whereas the Department desires to manufacture, or has manufactured, at its navy yards and
naval factories, airplanes in the construction of which certain of the aforesaid inventions may be or
have been used.
"Now, therefore, it is hereby agreed by and between the parties hereto as follows:
"1. The Department shall have the right to use in the construction of airplanes at any of its navy
yards or naval factories, during the period of the war, all or any of the inventions covered by any
and all 'airplane' patents (not including engines and engine accessories) now owned by the
associates jointly or severally, or under which they jointly or severally now have the right to grant
a license, each of the associates hereby agreeing jointly with the other associate where their
interests are joint and severally where their interests are several.
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
[*496] "2. The Department will pay to the Manufacturers Aircraft Association and the
Manufacturers Aircraft Association will receive for and in behalf of the associates a royalty in the
sum of one hundred dollars ($ 100) for and on account of each and every airplane manufactured
or caused to be manufactured by the Department (during the period of the war) at any of its navy
yards or naval factories, and the associates agree that the aforesaid royalties when so paid to and
received by the Manufacturers Aircraft Association shall constitute and be accepted by them as
compensation in full for and on account of the use in the construction of the aforesaid airplane of
every 'airplane' invention (not including inventions on engines and engine accessories) owned or
controlled by them or either of them, but nothing herein contained shall be construed as a waiver
of any rights as to royalties on airplanes manufactured by or for the Government after the period
of war or on airplanes manufactured by aircraft manufacturers for the Government during the war
period."
During the war airplanes using the devices of said patents were being manufactured for the
Government by manufacturers who were not, as well as those who were, subscribers to the
agreement. The royalties on all airplanes manufactured for the Government by "Subscribers" have
been paid to plaintiff. The royalties here involved are those on airplanes manufactured by the
Government or acquired by it from contractors who were not stockholders of plaintiff or
subscribers to the original and supplemental cross-license agreements.
XV. Operations under the original agreement and its later modifications began about the end of
July 1917 and have been continued by its members uninterruptedly ever since. As a part of the
operations the members of the association, i.e., "Subscribers" to the cross-license agreements,
made reports to plaintiff from time to time of their production of airplanes and the War and the
Navy Departments, similarly reported manufacture in Government factories after the Government
accepted the supplemental agreement and secured the special-license agreement, except as
hereinafter stated in finding 17. Under the operating practice and the arrangement between the
Government and the plaintiff, the Government required invoices from the [*497] plaintiff before
payment and such invoices were to be made by plaintiff after the receipt of reports of airplanes
manufactured or otherwise acquired. Such invoices were never made by plaintiff until after such
reports had been received by it. The royalties to be paid by the Government to the plaintiff were
not to become due and payable until after the receipt by plaintiff of such reports and the receipt by
the Government of plaintiff's invoices. Plaintiff was required to certify the amount of distributions
made to the Wright and the Curtiss companies and the Government from time to time audited
plaintiff's books.
XVI. To carry out the terms of the original agreement, exhibit 10 (a), the supplemental
agreement, exhibit 15, and the Government's special-license agreements, exhibits 16, 17 (b), 19,
20 (a), and 22, reports were called for from time to time to be made on the 10th of January, April,
July, and October of each year on all airplanes sold and delivered during the three preceding
calendar months, and payment was demanded upon invoice submitted for the Government
airplanes so reported.
XVII. During each year after as well as before 1921 all stockholders of plaintiff, subscribers to
the cross-license agreement, regularly made their quarterly reports and payments to plaintiff.
Subsequent to the general
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
statement and report of September 19, 1923, hereinafter referred to, the plaintiff from time to
time called upon the War Department for further reports of the airplanes made for the
Government by manufacturers other than subscribers and it furnished the association with such
reports in response to such requests. From time to time after July 2, 1921, the plaintiff called on
the Navy Department for further reports in a similar manner. Failing to receive such reports prior
to 1927, plaintiff made tentative invoices to the Navy Department from information contained in
the annual reports of the Chief of the Naval Bureau of Aeronautics.
XVIII. Under the terms of the original agreement and the supplemental, there were reported by
the subscribers to the plaintiff as made by them during the period of the war 15,353 airplanes, of
which 15,032 were for the Army [*498] and the Navy and 321 for other purposes. By similar
reports made to the plaintiff and as a basis for payment provided in its special licenses, as
hereinbefore stated, the Government reported to the association that there had been made by the
Government in governmental factories during the period of the war 451 airplanes. In the
aggregate, such reported airplanes constituted approximately 90 percent of all the airplanes made
by or for the Government for use of the United States during that period.
XIX. The quarterly reports made by the Government pursuant to its agreement with the plaintiff
included all airplanes made by the Government in Government factories, save as hereinafter
specified and particularly in finding 28 hereof. All airplanes made for the Government by members
of the plaintiff association were also duly reported by its members, but such reports did not
include airplanes using the devices of the patents owned or controlled by the plaintiff made for the
Government by persons other than members of the association or contractors licensed by such
members. It was not known to either the plaintiff or to the Government that there were any such
airplanes unreported, but the fact that certain airplanes manufactured by the Government and
acquired by it from contractors other than subscriber-contractors had not been reported to
plaintiff came to light in the course of negotiations for a new post-war contract, as hereinafter
referred to. As to the royalties herein sued for on airplanes received or used by the Government
before July 25, 1922, the Government did not report any thereof to the plaintiff before September
19, 1923, except one airplane, as stated in finding 20 hereof, and prior to such report the plaintiff
did not know, and had no means of knowing, the number or kind or date of receipt, or of use by
the Government, of any of such previously unreported airplanes.
XX. Royalties were paid to plaintiff by its members making airplanes for the Government for all
airplanes so made by them down to March 31, 1928, and royalties were paid by the Government
to plaintiff for such airplanes as were reported to have been made by the Government except
[*499] in the case of six airplanes where the manufacturer became bankrupt before payment and
in the case of one Government-made airplane reported October 8, 1920, and invoiced by plaintiff
April 19, 1921, being the first item in exhibit H (a) of the petition. No payments of royalties were
ever made by either the War or Navy Departments on any of the airplanes involved in this suit.
XXI. Prior to May 1924 the Government had paid royalties, either directly to plaintiff or
through subscribing contractors, on 16,108 airplanes. Since May 20, 1924, the Government, in
the same manner, has paid to the plaintiff royalties on 1,803 airplanes, aggregating, in amount,
more than $ 360,000. As such
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
payments were made from time to time and during each year from 1918 to 1928, inclusive, they
were credited by plaintiff on its general royalties account with the Government.
XXII. The Government audit of plaintiff's books shows the total of all royalties paid to plaintiff
from any source before July 2, 1921, to have been $ 2,094,600. Of this sum the Curtiss Company
paid $ 969,900; other subscribers paid $ 1,079,700; the War Department paid $ 1,200, and the
Navy Department paid $ 43,800. Included in the amounts received by plaintiff as royalty were
royalties on 274 airplanes made in the United States and sold to users other than the Government
at a royalty rate of $ 200 each and 23 airplanes of foreign manufacture for which a royalty of $
300 each was received. For the 297 airplanes so manufactured $ 61,700 was received by the
plaintiff as royalty.
XXIII. Of the $ 2,094,600, royalties received by the plaintiff before July 2, 1921, and all
royalties received by it at any time thereafter, 12 1/2 per centum of the amount received was
retained by the plaintiff and the balance distributed by it in accordance with the original
agreement, the supplemental, and the special license agreement. Of the $ 2,094,600, $ 261,825
(12 1/2%), was retained by plaintiff, $ 418,920 or 20 per centum was paid to the Curtiss
Company, and $ 1,413,855, being 67 1/2 per centum, was paid to the Wright Company. Included
in the $ 2,094,600 is $ 45,000 paid by the Government to plaintiff as royalties for airplanes made
[*500] in its own factories before July 2, 1921. Neither the Wright nor the Curtiss companies has
received any other sum as royalties for airplanes made or purchased prior thereto. The retention
of 12 1/2 per centum and distribution of 20 per centum and 67 1/2 per centum, as above stated,
continued until May 1923; but of all procurement or production royalties received by the plaintiff
during or since May 1923, 87 1/2 per centum has been paid to Curtiss and 12 1/2 per centum kept
by the plaintiff. Every distribution or disposition of royalties received by plaintiff was truly
declared on its books and records, which were always subject to examination, and were
periodically examined by the War Department auditors during each year of operation. The
auditors after each such examination prepared a report showing the entire number of airplanes
reported to plaintiff by subscribers and by the Government. Each such report showed the total of
royalties earned and received to that date by both the Wright and Curtiss companies to be equal to
87 1/2 per centum of the total royalties received by plaintiff. Such reports were furnished from
time to time to the Government and no complaint was ever made by the Government as to the
method of disposition or distribution of the royalties or of the amount shown as to the total
received by the Wright and Curtiss companies from plaintiff until the Comptroller General
rendered his opinion on May 12, 1927, disallowing plaintiff's claim for the royalties involved in
this suit.
XXIV. November 5, 1919, Rear Admiral Taylor, then Chief of the Bureau of Construction and
Repair of the Navy Department, wrote to plaintiff concerning one of its invoices for $ 9,300 as
due from the Navy Department in royalties. Referring to that invoice as reference (a), and by
reference (b) to the letter of the Secretary of the Navy of March 28, 1918, above, he said:
"Attention is invited to paragraph three of the supplemental cross-license agreement and to
reference (b) which provide that royalty payments shall cease when the limit of two million dollars
is reached.
"Before placing the invoice reference (a ) in line for payment, it is
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
requested that the Manufactures Aircraft Association state that the payment of the amount of this
[*501] invoice will not cause the above-mentioned limit of two million dollars to be exceeded."
On November 6, 1919, the following letter was written by the Manufacturers Aircraft
Association, Inc., to Rear Admiral Taylor in response to his letter of the preceding day:
"The total amounts disbursed by us under the cross-license agreement to the owners of the
patents up to and including June 30th, 1919 (last complete quarter under the cross-license
agreement), are as follows:
Wright-Martin Aircraft Corporation $ 1,331,910
Curtiss Aeroplane & Motor Corp 394,640
1,726,550
"Payment of our invoice $ 9,300, covering royalties on planes manufactured at the Naval
Aircraft Factory will not exceed the limit of two million dollars, provided for in the supplemental
agreement.
"We trust that with this information you will be able to pass the invoice for payment."
XXV. January 20, 1921, the Secretary of the Navy wrote plaintiff with reference to royalties for
Government-made airplanes as follows:
"In accordance with your request of December 27, 1920, to the Bureau of Construction and
Repair, a statement is being furnished to you, showing the number of airplanes (viz. 20)
manufactured in Government-owned factories by the Navy Department during the fourth quarter
of 1920. It is assumed that you will submit an invoice for the royalties due the Manufacturers
Aircraft Association at the rate of $ 100 per plane in accordance with the supplemental agreement
to the cross-license agreement dated July 24, 1917.
"As stated in my letter of March 28, 1918, it is understood that payments are to cease when the
sum of $ 2,000,000 has been realized by the owners of the patents, controlled by the
Manufacturers Aircraft Association.
"It is accordingly requested that when invoice is submitted covering the amount now due the
association, it be accompanied by a statement showing the amount disbursed to the owners of the
patents involved."
XXVI. In March 1927 the Comptroller General during his consideration of invoices submitted
to him on or after May 20, 1924, informed the plaintiff that he had just learned [*502] of his
failure previously to secure certification and approval of such invoices and was taking immediate
steps to insure such approval and certification. The invoices were in fact then certified to, but the
Comptroller General did thereafter acquire and obtain verification thereof. April 4, 1927, the
Comptroller General informed plaintiff that the audit had been completed and a certificate of
indebtedness for the amount due was being drawn and would issue. At a later date the
Comptroller General refused the certificate and disallowed the claim as then before him.
XXVII. By a joint resolution Congress declared that the war with Germany
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
should be deemed, for war-contract purposes, to have ended on July 2, 1921. This operated to
terminate the supplemental agreement to the original agreement. The Government made no
reports to plaintiff between July 1, 1921, and September 19, 1923. On the latter date a detailed
report was made as will be hereinafter set forth.
XXVIII. In December 1921 the Government, desiring to continue the use of the patented
devices in its own factories, suggested that a new agreement be entered into, based on the
experience under the special-license agreement and the postwar needs of the Government and the
industry; and, with that end in view, negotiations were begun by the parties in 1922. In the early
stages of these negotiations it developed that there were airplanes manufactured and purchased by
the Government that had not been reported, and which the plaintiff considered should have been
reported, and negotiations were broadened to include those items. At that time the plaintiff had
no definite knowledge of the number or nature of the unreported airplanes, and had no way of
obtaining such information except from the Government, in order to bill the Government for the
royalties due in accordance with the original arrangement. In July 1922 when discussing the
features of such negotiations with the Army Air Service and the Naval Bureau of Aeronautics,
plaintiff brought the matter of the unreported airplanes to their attention and asked that the
Government promptly report all such airplanes. Plaintiff was informed that the data for such a
report was not immediately available; and, [*503] thereafter, negotiations for a new agreement
proceeded on the understanding that such a supplemental report would be made by the
Government in such a way that all items not previously reported by the Government could be
known and the date of delivery determined in order that the Government could be billed for the
royalties claimed to be due.
XXIX. On July 2, 1921, the temporary arrangement for reducing royalties on airplanes made by
subscribers and those made or purchased by the Government expired. During protracted
negotiations which followed from and after July 2, 1921, and pending the conclusion of a
modified agreement for future use of the patented subject matter in the manufacture of airplanes
by the Government, the War and the Navy Departments, by consent of all parties connected with
the negotiations, continued to make, buy, use, and even sell within the United States, airplanes
containing the patented subject matters controlled by plaintiff. The practice continued until
December 1928, when the War and the Navy Departments entered into a formal agreement with
the plaintiff, which agreement became effective December 31, 1928. This agreement and a copy
of the letter dated December 1928, from the Secretary of War and the Secretary of the Navy, are
in evidence as exhibits 23 and 23 (a), respectively, and are made a part of this finding by
reference. The letter referred to the new agreement as "Conforming to the terms of the proposed
amended agreement and to the understanding and practice which has been evolved through the
Government's use of patents controlled and licensed by them to you."
XXX. After July 1921, it became the practice in making contracts for airplanes for the
contracting officers of the War Department to make a price distinction as between contractors
who were and those who were not subscribers to the plaintiff association. In contracts with the
former there was inserted a clause requiring the subscriber-contractor to indemnify the
Government against claims on it under patents covered by the agreement. It was not the practice
of that Department to insert such clauses in contracts with nonsubscribers. Contracting officers of
the War Department were instructed to make a price differential [*504] of $ 200 less an airplane
in their (nonsubscribers')
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
contracts to cover the Government's obligation to pay royalties to plaintiff thereon. In two
contracts with a single nonsubscriber contractor, in which he first agreed to discharge the
obligation (in his negotiated contract) and thereafter failed to do so, the War Department withheld
from its final payment to such contractor $ 200 an airplane on the 70 airplanes involved in that
contract. The amount so withheld was $ 14,000, which amount the Government did not pay to
plaintiff but still retains. These are the 70 airplanes in the fifth item from the bottom of page 103
of the amended petition in exhibit H (b).
XXXI. The unreported airplanes by the Government in which were used the patented subject
matter controlled by plaintiff, whether such uses were before or after July 2, 1921, for which
royalties have not been paid, were of the nature described by the Attorney General in his opinion
of March 24, 1925, and in the letter requesting such opinion sent him by the Secretary of the
Navy, dated September 28, 1922, both of which are hereinafter referred to in finding XXXII.
Such uses were enjoyed by the Government under practices similar to those obtaining during the
period of the war except that they were not reported to the plaintiff until long after the date of the
several uses.
XXXII. By September 1922 an agreement providing for payment by the Government of any and
all royalties on airplanes previously unreported using devices of said patents, and also providing
for royalties to be paid on similar airplanes to be made by or for the Government in the future, had
been reached and drafted and approved by the Judge Advocate General of the Navy. It was
submitted to the Attorney General by the Secretary of the Navy by letter of September 28, 1922,
with a request for an expression of his opinion as to whether such agreement was legal and
proper. The Attorney General rendered his opinion March 24, 1925, 34 Op. Atty. Gen. 447. This
opinion is made a part of this finding by reference. The Attorney General was of the opinion that
the letters of the Secretaries of War and of the Navy plus the operating contract sufficiently
protected the Government as to royalties already paid by it [*505] and, after having disposed of
the reported and royalty-paid "during-the-war" airplanes as being within the benefit of the letters
and the operating contract, the Attorney General said with reference to the unreported airplanes,
included in those here in suit, that "There remain not settled for, certain airplanes built or
imported during the war, not covered by the terms of the express contract, which it is now
proposed to arrange settlement for on the same basis -- $ 100 per airplane -- as has been the case
for those already settled for, and further machines built or otherwise secured by the United States
since the war and prior to the date of the proposed contract which it is proposed to settle for at
the rate provided for in the original cross-license agreement, namely, $ 200 per airplane. * * * It
will be necessary to consider whether the use was an infringing one -- or one under implied
contract. * * * That an implied contract to pay compensation for use of a patented invention will
arise when the Government uses it with the patentee's consent and either acquiesces in his title or
does not deny it, is now fully settled. * * *."
XXXIII. September 19, 1923, the War Department submitted to plaintiff a statement and report
comprehensively covering all airplanes using the patented devices of the plaintiff made for and
used by the Government from 1908 to 1918, including all procurements by the Bureau of Aircraft
Production. A like formal report covering the procurement by the Navy Department was sent by
the latter to the plaintiff with a letter of June 22, 1927. From the first named report and certain
additional information covering procurement by both the Army and the Navy, and obtained by
plaintiff in 1923 and 1924, tentative invoices were
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
submitted to the Chief of the Naval Bureau of Aeronautics and the Chief of the Air Corps by
letters of May 13 and May 16, 1924, respectively. In these letters the plaintiff requested that
officers of the Army and the Navy be designated to check with it all such procurement figures to
eliminate duplications and errors, with the object of securing Government certification to all
unpaid items.
XXXIV. The Chief of the Air Corps promptly designated such officers. Plaintiff's request to the
Naval Bureau [*506] of Aeronautics was referred to the Judge Advocate General of the Navy.
Thereupon plaintiff prepared similar invoices covering all such items of unpaid royalties as existed
on May 20, 1924, so far as they could be determined from the information then at hand. Plaintiff
submitted these invoices on that date to the Chief of the Air Corps, the Chief of the Naval Bureau
of Aeronautics, and to the Comptroller General of the United States. As so submitted the
invoices covered all unpaid items then reported by the War Department and the amounts unpaid
on account of the naval procurement as disclosed by the annual reports of the Naval Bureau of
Aeronautics. These items are all the items listed on page 60 of exhibit H (a) of the amended
petition plus those on page 61 of said exhibit, as to which invoices are dated in May 1924, and
also the item on page 61 "1 Sarling (Barling) B. Whiteman, L", which, as appears from page 79
of exhibit H (a) should be dated May 20, 1924, instead of January 20, 1926.
XXXV. March 1, 1927, the Chief of the Air Corps of the War Department, after having
considered the claims of the plaintiff to royalties as set forth in the original of which exhibit H (a),
found on pages 60 to 85, both inclusive, of the amended petition is a copy, certified to the
Comptroller General that the 1,041 airplanes first listed on pages 60 and 61, being all save one
Barling bomber and the 45 airplanes listed in the last seven starred items on page 61, had been
made by or for, and delivered to and received and used by the War Department under and subject
to the Government's special license agreement with plaintiff. He then further certified that the
aggregate amount of the royalties due on the 1,041 airplanes was $ 143,500, that none of the
royalties had been paid, and that the whole thereof was approved by him for payment. Exhibit H
(a), which is attached to the second amended petition herein, is made a part of this finding by
reference.
XXXVI. At the same time, having also considered all the claims of plaintiff as represented by
the items listed in an original account of which so much of exhibit H (b) of the second amended
petition as is found on pages 103 to 109, both inclusive, thereof is a part, the Chief of Air [*507]
Corps of the War Department likewise certified to the Comptroller General that all of the 504
airplanes as now listed on page 103 of the amended petition had been made by or for, delivered to
and received and used by the War Department; that none of the royalties claimed thereon had
been paid; and that the total thereof was approved by him for payment. Exhibit H (b) to the
second amended petition is made a part of this finding by reference.
XXXVII. In December 1923 the Wright Company commenced suit in this court against the
United States to recover royalties for the use by the Government of patented devices, which use is
the basis of the royalty claimed in the present action by plaintiff. At the request of plaintiff and
other subscribers, the Wright Company by agreement to that effect with the Department of
Justice, withdrew the suit without prejudice.
XXXVIII. The claims for royalties involved in this suit, including all
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
items shown on exhibits H (a) and (b) of the amended petition, the same having been referred to
the General Accounting Office for consideration, remained before the Comptroller General for
consideration until May 12, 1927, when he rejected all the claims then before him. Plaintiff asked
the Comptroller General to reconsider his ruling and on April 28, 1928, he declined to do so, and
the claims were finally rejected.
XXXIX. All the 1,545 airplanes on which, in its amended petition, plaintiff has claimed royalties
because of their use by the War Department were made by or for, and received and used by that
Department prior to March 31, 1928. They were all provided with and used patented devices
controlled by plaintiff and described in and subject to the agreement, the supplemental, and the
special-license agreement of the Government. No royalty has been paid on any of them.
Of these 1,545 airplanes, 1,041 thereof were received and used in the United States before the
termination of the war, namely, before July 2, 1921. The remaining 504 airplanes were so made,
received, and used after the termination of the war, but before March 31, 1928. And of the
last-mentioned number, 500 thereof were so made, received, and used after July 25, 1922.
[*508] XL. Reasonable royalties for the use by the Government of the patented devices on each
of the 1,545 airplanes in every instance correspond to the sum provided for use thereof in the
agreement, the supplemental, and the special license agreement of the Government. Thus
calculated, the total of royalties due plaintiff on the 1,545 airplanes was $ 244,300.
On the 1,041 airplanes received and used by defendant before the termination of the war on July
2, 1921, the total of such royalties, so calculated, was $ 143,500.
On the 504 airplanes received and used after the termination of the war and before March 31,
1928, the total of such royalties, so calculated, was $ 100,800.
On the 500 airplanes of the 504 last mentioned so received and used by the defendant after July
25, 1922, and before March 31, 1928, the total of such reasonable royalties, so calculated, was $
100,000; while on the remaining 4 airplanes of those received and used after the termination of
the war, the total of such royalties, so calculated, was $ 800.
XLI. Of the total of 1,545 airplanes above mentioned, 1,000 thereof were first reported to
plaintiff by the War Department as having been so received and used by it in September 1928. Of
the remaining 545 airplanes all but one were reported to plaintiff by the War Department from
time to time after September 1923.
XLII. Of the 444 airplanes on which in its amended petition plaintiff has claimed royalties
because of their use by the Navy Department, 434 thereof, and no more, were in fact so made by
or for, and received and used by that Department prior to March 31, 1928. Since the filing of that
amended petition the Navy Department has finally verified to plaintiff 65 more previously
unverified airplanes as made for, and received and used by it, within the United States in 1917 and
1918, so that the total actually received and used by defendant prior to March 31, 1928, on which
plaintiff claims royalties for use
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
during that period is 499 airplanes.
All of the 499 airplanes were provided with and used patented devices controlled by the
plaintiff, and described in and subject to the original agreement, the supplemental, [*509] and the
special-license agreement of the Government. No royalty has ever been paid by defendant on any
of them.
Of these 499 airplanes, 160 thereof were received and used by the Navy Department in the
United States before the termination of the war, July 2, 1921. The remaining 339 airplanes were
so made, received, and used by the Navy Department after the termination of the war but before
March 31, 1928. And of these 339 airplanes, 325 thereof were so made, received, and used by
the Navy Department after July 25, 1922.
XLIII. Reasonable royalties for the use by the Government of the patented devices on each of
the 499 airplanes above referred to in every instance correspond to the sum provided for use
thereof in the agreement, the supplemental, and the special-license agreement of the Government.
The total of the royalties due on the 499 airplanes was $ 84,900. On the 160 airplanes received
and used before the termination of the war, the total of such royalties, so calculated, was $
17,100. On the 339 airplanes received and used after the termination of the war and before
March 31, 1928, the total of such royalties was $ 67,800. On the 325 airplanes received and used
after July 25, 1922, and before March 31, 1928, the total of such royalties was $ 65,000; while on
the remaining 14 airplanes of those received and used after the termination of the war, the total of
such royalties, so calculated, was $ 2,800.
XLIV. Of the 499 airplanes made by or for, and received and used by the Navy Department,
434 thereof were first reported to the plaintiff by the Navy Department, in June 1927, as having
been so received and used by it. As already stated, the remaining 65 airplanes were not finally
verified until 1929, after the commencement of this action, but which are included in the amended
petition.
XLV. During the last nine months of 1928, between March 31, 1928, and the end of that year,
on which latter date, by its terms, the newly made contract between the plaintiff and the
Government referred to in finding 29 hereof for airplane royalties went into effect, 172 airplanes
using the patented devices covered by the original and supplemental agreements were made by or
for, and received and used by [*510] the Government in the United States, 168 thereof being so
received and used by the War Department and the remaining 4 thereof by the Navy Department.
No royalty has ever been paid on any of these airplanes. A reasonable per-airplane royalty was
that perscribed for the applicable period by the original and supplemental agreements, and the
special license agreement of the Government, namely, $ 200 an airplane. On the 4 airplanes so
used by the Navy Department the total of such reasonable royalties was $ 800. On the said 168
airplanes so used by the War Department the total of such reasonable royalties was $ 33,600. The
manufacture, receipt, and use of the 172 airplanes was had under a continuation of the practice
prevailing with respect to the manufacture, receipt, and use of airplanes as hereinbefore set forth.
Of the 1,041 airplanes received and used by the War Department during the period of the war,
finding XL, and the 160 airplanes received and used by the Navy Department during the period of
the war, finding XLII, only 22 thereof were made by the Government.
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
XLVI. A summary with reference to the 2,216 airplanes involved in this suit made by or for,
and received and used by the Government with respect to which no royalties have been paid, and
the reasonable royalties due thereon, follows:
SUMMARY
War Department
Number
Government Purchased Royalties
made
During war 1 1,040 $ 143,500
After war until 7/28/22 4 800
After 7/25/22 until 3/31/28 500 100,000
Last 9 mos. of 1928 168 33,600
1 1,712
Total made and
purchased 1,713 277,900
SUMMARY
Navy Department
Number
Government Purchased Royalties
made
During war 21 139 $ 17,100
After war until 7/28/22 14 2,800
After 7/25/22 until 3/31/28 325 65,000
Last 9 mos. of 1928 4 800
482
Total made and
purchased 21 503 85,700
SUMMARY
Total War and
Navy
Planes RoyaltiesDuring war
After war until 7/28/22
After 7/25/22 until 3/31/28
Last 9 mos. of 1928
Total made and
purchased 2,216 $ 363,600
Total made in Government factories during war and paid for ($ 45,000) 452 Total made in
Government factories during war and not paid for -- 21
of them unreported until 1928 22
[*511] XLVII. The chief purpose of the arrangement detailed in these findings and the implied
understanding and agreement between the War and the Navy Departments and the plaintiff, which
were carried out in practice, was that the United States should have the right to fulfill its
requirements for airplanes by manufacture or purchase from subscribers to the cross-license
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
agreement or nonsubscribing manufacturers upon the payment to plaintiff of a royalty of $ 100 or
$ 200 an airplane, depending upon the time such airplanes were manufactured or purchased.
It was further impliedly agreed that the Government would report quarterly to plaintiff all
airplanes manufactured by it or acquired or purchased from nonsubscribing airplane manufacturers
and pay to plaintiff the royalties agreed upon, and that such royalties should accrue and become
due and payable upon the receipt of invoices or bills therefor with a certification by plaintiff that
the royalties demanded would not cause the amounts to be distributed to the Wright and the
Curtiss Companies to exceed the maximum agreed upon.
XLVIII. If plaintiff recovers the royalties claimed in this suit, the distributions made therefrom
to the Wright and the Curtiss Companies will not cause the amount to which the companies were
entitled under the original plan and arrangement to exceed the maximum amount specified.
The court decided that plaintiff was entitled to recover.
The arrangement which resulted in the incorporation of the plaintiff and the control by it of
various patents relating to airplanes, whereby the Government was enabled to obtain and
manufacture all the airplanes desired by it upon the payment of a royalty of $ 200 an airplane,
which was, by agreement, reduced to $ 100 during a certain period, was brought about at the
suggestion of the Secretary of War and the Secretary of the Navy through the assistance of the
National Advisory Committee for Aeronautics. The arrangement and the practice under it related
to all airplanes acquired by the Government. This should be kept [*512] in mind throughout the
case. The Secretaries of War and of the Navy had full authority to act in the premises and if in the
arrangement and practice followed, as disclosed in detail by the findings, they had embodied the
same in a formal written contract there could be no question but that plaintiff would be entitled to
the royalties claimed in the amount of $ 363,600 in addition to those paid to it by the War and
Navy Departments.
Between July 16, 1917, the date of plaintiff's incorporation, and May 1924, the Government had
paid royalties to the plaintiff in accordance with the original, the supplemental, and the
cross-license agreements, either directly or through contractors, on 16,108 airplanes
manufactured by or for the Government and received and used by it, in the manufacture of which
airplanes various patents controlled by plaintiff were used. These royalties were at the rate of
either $ 200 an airplane or $ 100 an airplane, depending upon the time they were made or
acquired under contracts. Since May 20, 1924, to December 31, 1928, the effective date of the
formal contract for the payment of royalties, the Government in the same manner paid to plaintiff
royalties at the rate of $ 200 an airplane on 1,803 airplanes aggregating $ 360,600.
During the period of the war, ending July 2, 1921, the Government made in its own factories
and duly reported to plaintiff 450 airplanes using the patents controlled by plaintiff, for which
plaintiff was duly paid $ 100 an airplane, or $ 45,000. During the period of the war and until
December 31, 1928, the Government manufactured in its own factories 22 airplanes and
purchased from contractors who were not "subscribers" to the cross-license agreement 2,194
airplanes, all of which used the patented devices controlled by plaintiff and for which, under the
original and supplemental agreements, the total of the reasonable royalties due plaintiff was $
363,600. These 2,216 airplanes are
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
the ones involved in this proceeding and the royalties thereon constitute the claim for which
plaintiff seeks judgment.
The Government agreed to make accurate quarterly reports to plaintiff of all airplanes made or
purchased by it [*513] upon the basis of which reports the plaintiff was to render invoices to the
War and the Navy Departments respectively, for the royalties due thereon, which royalties were
not to accrue and become payable until such reports were made and invoices received.
Of the 2,216 airplanes involved in this case 22 were manufactured by the Government during
the period of the war but were not paid for nor reported to plaintiff until 1928. The Government
purchased 1,179 airplanes during the war; and it likewise purchased 18 between July 2, 1921, and
July 25, 1922; 825 between July 28, 1922, and March 31, 1928; and 172 between April 1 and
December 31, 1928. The total of the royalties due and unpaid on the 1,713 airplanes
manufactured and purchased by the War Department is $ 277,900, and the total of the royalties
due on the 503 airplanes manufactured or purchased by the Navy Department is $ 85,700. None
of the royalties has been paid nor were any of the 2,216 airplanes involved, except one, reported
by the Government to the plaintiff prior to September 19, 1923.
There is no dispute as to the number of airplanes using the patented devices controlled by
plaintiff and the facts establish that the per-plane royalty sued for is in every case reasonable.
It is contended by the defendant, first, that plaintiff is not entitled to maintain this suit because it
was not the absolute owner of the patents used on the airplanes manufactured or purchased by the
Government; and, second, that $ 164,400 of the royalties sued for relate to airplanes
manufactured or purchased by the Government prior to July 25, 1922, and is therefore barred by
the statute of limitation.
Plaintiff contends that it has a right to maintain this suit and to recover the royalties claimed
under implied contracts; that no portion of the total royalties claimed is barred by the statute of
limitation, inasmuch as the cause of action for such royalties did not accrue under the terms of
payment of the original agreement, which terms were also applicable to the supplemental
agreement and the Government's special license agreement, until fifteen days after the date on
which [*514] the Government was required to report all airplanes manufactured or otherwise
acquired by the War and the Navy Departments.
The facts summarized show that within the United States and during the period between July
24, 1917, and December 31, 1928, the Government made or purchased and used all the airplanes
on which royalties are here sued for. Each airplane used devices of patents controlled by the
plaintiff. No royalties have been paid on any of the airplanes involved and the total demanded
represents reasonable royalties on the 2,216 airplanes in question.
The plaintiff was created in 1917 at the instance of the Government and in accordance with the
plan evolved by it as the means of overcoming obstacles to the production of airplanes arising
from disputes between patentees that were embarrassing the Government in its need for airplanes.
The Government found itself in a situation where it was being required to pay amounts which it
regarded as excessive for airplanes using certain patented devices. The
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
purpose of the plan, which was carried out in practice, was to enable the Government to fulfill its
needs for airplanes using patented devices upon payment to plaintiff of a stipulated royalty for
each airplane. After full report from the agency designated to formulate a plan to overcome this
difficulty, in one of which reports it was recommended that such royalties be regarded as an item
of cost of airplane production, and after the Attorney General had approved the legality of the
plan, the Secretaries of War and of the Navy approved the plan in all essential particulars. The
substance of the arrangement and understanding between the Government and the plaintiff was
that the War and Navy Departments would pay to plaintiff a certain amount on each airplane
made or purchased as a royalty on certain patents which had been pooled for that purpose and
were controlled by plaintiff, and such royalty was to be paid by the Government on each airplane
using devices of the patents, whether manufactured by the Government in its own factories or
purchased and used by it from subscribers to the original cross-license agreement or from
manufacturers who were nonsubscribers [*515] thereto. Plaintiff licensed certain manufacturers
who then had contracts for airplanes with the Government and they became stockholders or
subscribers to the arrangement known as the cross-license agreement, but the Government was
not limited to the purchase of airplanes from subscribers. It was free to purchase airplanes using
the patented devices from other manufacturers who had not signed the cross-license agreement,
and there was an implied agreement between the Government and the plaintiff that the
Government would report such airplanes and pay to the plaintiff the stipulated royalty which
should become due upon the receipt of invoices or bills from plaintiff.
After its organization, plaintiff for all practical purposes was referred to by the departments as
owning or controlling these patents. The arrangement was to endure for about fifteen years. The
disputing patentees who held legal title to the airplane patents agreed under the plan formulated
and suggested by the Government that plaintiff, until November 1933, should license airplane
makers to use the patented devices, should collect royalties and retain one eighth thereof, or 12
1/2% of all royalties collected, and use the same to meet expenses of administering the plan and
for other purposes, and should distribute the balance in specified proportions to the Wright and
the Curtiss Companies who were the owners of the principal patents. After plaintiff's organization
all dealings with the Government were with the plaintiff. When the Government sought reduction
of royalties for the period of the war and also the privilege of making in its own factories airplanes
using the patented devices, it took these matters up with the plaintiff and not with the patentees.
All reports of airplanes using patented devices, including the late reports by the Government of
airplanes representing royalties here sued for, were made to the plaintiff. The Secretary of War
referred to the legality of the right of plaintiff to license under the patents in question and both he
and the Secretary of the Navy urged airplane manufacturers and patentees to accept the
supplemental agreement which only varied the original by the reduction of royalties during the
war. The recommendation of [*516] the departments that royalties be treated as a part of
airplane-production costs was adopted and observed in practice, and plaintiff was advised that
such would be the practice. During the period from 1917 until the end of 1928 no one except
plaintiff ever issued a license or collected a royalty. The only joint agreement by Wright, Curtiss,
and the plaintiff with the Government was made pursuant to a provision of the original
cross-license agreement and directed payment of royalties to plaintiff.
The Curtiss Company, one of the patentees, in its capacity as a
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
manufacturer of airplanes for the Government, paid to plaintiff $ 969,900 as full royalties on all
airplanes made by it during the war. It received from plaintiff in distributions to itself as a
patentee $ 418,920, being 20 percent of the total royalties of $ 2,094,600 collected by plaintiff
from all sources during that time. The whole of those royalty payments by the Curtiss Company
was included in the total used in figuring the distributions to the Wright Company and to the
Curtiss Company to make sure that such distributions during the war period had not exceeded $
2,000,000 to both companies, as provided in the supplemental agreement suggested by the
Government.
The Secretary of the Navy, who originated and carried into execution the plan, kept a careful
check of the distributions on the basis agreed upon and he and the Secretary of War distinctly
recognized the patents grouped in the plaintiff. In 1922, when called upon by plaintiff to report to
it the airplanes here in suit so that plaintiff could bill the Government for royalties thereon, the
Secretaries did not dispute plaintiff's right to collect such royalties from the Government but
recognized the same and excused its delay in reporting by urging a lack of necessary data and
promised such reports as soon as possible so that plaintiff could bill for the royalties involved.
Soon after the ending of the arrangement for reduction of royalties for the war period, such
arrangement being the so-called special-license agreement with the Government, negotiations
were begun for a new royalty agreement. These were continued by the Government, through
[*517] the Secretaries of War and the Navy on the one hand and plaintiff on the other, until the
end of 1928 when such new arrangement was entered into between them. That agreement,
according to its title, granted a nonexclusive license to the Government under all airplane patents
embraced therein and in accordance with the terms of the amended cross-license agreement with
the plaintiff and recited that the plaintiff controlled and had the power to grant licenses under
certain United States patents covering important inventions. It also provided for the termination
of all formal and informal agreements between the Government and the plaintiff, except only such
matters as were in dispute, which matters were those involved in the present action. By that
agreement the Government was to pay the plaintiff specified royalties until October 31, 1933, the
expiration date of patent #1203550, unless a specified total maximum should have been paid to
plaintiff before that date, after which the uses would be free.
Intermediate of the negotiations, an acceptable form of agreement was reached containing a
provision for payment to plaintiff of all royalties here in suit that had been earned in prior years.
In 1922 this agreement was submitted to the Attorney General, who, in 1925, ruled that payment
with respect to airplanes used prior to the date of the agreement would have to be settled for
otherwise than by a new contract, whereupon that feature was eliminated from the negotiations
and the procedure indicated by the Attorney General was followed.
The post-war uses by the Government reducing the royalties claimed herein were enjoyed under
a practice similar to that obtaining during the war, except for delay in reporting the airplanes used.
In settling with a particular contractor the Government withheld royalties aggregating $ 14,000
on seventy airplanes, which it still holds, and these royalties are a part of those involved in this
suit.
On March 1, 1927, after having checked the claims made by plaintiff at that time for royalties
which are involved in this suit, the War Department
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
approved the same for the amount claimed on the 1,545 airplanes theretofore used [*518] by it
and recommended payment of that sum. It further found that this number of airplanes had been
made by or for, and received and used by, the War Department under and subject to the
Government's special-license agreement with the plaintiff.
The Secretary of the Navy on June 22, 1927, prepared and furnished the plaintiff with a report
of the airplanes received and used by it from July 1, 1917, to July 1, 1926, which related to
royalties payable on airplanes manufactured or procured by the Government.
In the circumstances of this case, we are of opinion that plaintiff has a right to maintain this suit.
This is not a case involving the infringement of patents and the suit is not grounded upon the use
by the Government of patents without license of the owner and without lawful right to use the
same, but is one based upon an implied contract by the Government to pay plaintiff certain
royalties for the use of certain patents used on airplanes made or purchased by the Government.
For the purpose of the arrangement made, at the suggestion of the Government, all the patents on
devices used on the airplanes were pooled and placed under the control of plaintiff, and thereafter
the Government as well as all patentees recognized such control of plaintiff and its right to
demand and collect the royalties provided for, and the patentees of the principal airplane patents
paid to the plaintiff the agreed royalties on all airplanes manufactured by them in the same manner
as such royalties were paid to plaintiff by the Government and the manufacturers who were not
patentees. It was entirely a contractual arrangement, and we may lay aside the cases cited and
relied upon by the defendant involving suits for infringement which hold that only the patentee or
the person having legal title to the patents may sue to recover damages or compensation for
infringement.
In this case the Government used the patents in the manufacture of airplanes and used the
airplanes embodying devices covered by the patents with the consent of the patentees and the
plaintiff, and impliedly agreed to pay plaintiff a specified royalty on each airplane without further
[*519] liability to the patent owners. This was under an arrangement to which the patent owners
agreed, whereby such patent owners had a right to receive and did receive out of all royalties paid
to the plaintiff a certain specified distribution in full of all compensation due them for the use of
their patents.
In addition to the control of the patents for contract purposes with the Government, the plaintiff
had an interest to the extent of 12 1/2 percent of all royalties collected, including those payable by
the Government on airplanes made or purchased by it using devices covered by the patents; such
interest amounts to $ 45,450 of the royalties claimed in this case. Cf. Ohio Oil Co. v. United
States, 69 C.Cls. 137.
The next question is whether there was an implied contract between the Government and the
plaintiff for the payment to the plaintiff by the Government of the royalties claimed in this suit.
An implied contract upon which a suit may be maintained under section 145 of the Judicial
Code must be one implied in fact rather than in law. A contract implied in fact, or an implied
contract in the proper sense, arises where the intention of the parties is not expressed, but an
agreement in fact, creating an obligation, is implied or presumed from their acts, or, where the
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
circumstances show, according to the ordinary course of dealing and the common understanding,
a mutual intent to contract. The nature of the understanding of the parties, whether the contract
be express or implied, is the same, the only distinction being in the mode of proof. Both express
contracts and contracts implied in fact are founded on the mutual agreement of the parties. The
one class is proved by direct, and the other by indirect evidence; in other words, an express
contract is proved by an actual agreement, while in the case of an implied contract it will be
implied that the party made such an agreement as, under the circumstances disclosed, he ought in
fairness to have made. The implication must be a reasonable deduction from all the circumstances
and relations of the parties, their acts, and conduct, although [*520] it need not be evidenced by
any precise words and may result from random statements and uncertain language. In this case
there was no formal written contract under which the Government agreed to pay the plaintiff
royalties claimed in this suit. We think all the circumstances surrounding the matter of royalties on
airplanes made or purchased by the Government using the devices covered by the patents
controlled by the plaintiff, the acts and conduct of the parties, and their relations, establish an
implied contract on the part of the Government to pay to the plaintiff the royalties which it now
claims. This was the view of the arrangement taken by the parties, the Government being
represented by the Secretary of War and the Secretary of the Navy who had authority to act for it.
The War and Navy Departments recognized the right of plaintiff to collect the royalties claimed
on the airplanes made by or for the Government and the invoices or bills to the Government
therefor rendered by the plaintiff, after it had received reports from these departments of the
airplanes used by them containing the patented devices, were approved. Under the Attorney
General's opinion, however, the matter of payment of plaintiff's invoices was referred to the
Comptroller General for the purpose of stating an account. He first advised plaintiff that a
certificate for the amount due would be issued but later refused such certificate and disallowed
payment of the entire amount claimed, principally on the ground that under his view of the
arrangement the patentees, Wright and Curtiss, who were entitled to distributions from the
royalties collected by the plaintiff, had received the total amount to which they were entitled after
which the Government was entitled to use airplanes containing devices covered by the patents
without further payment of royalty. We think the interpretation by the General Accounting Office
of the arrangement was not correct. It is not here urged by the defendant. Under the original
cross-license agreement the Government was to pay the stipulated royalties until such time as the
Wright and Curtiss companies had received in distributions from the plaintiff a maximum of $
2,000,000 each. For the period between December 31, 1917, and the end of the war, the
per-plane royalty [*521] on all airplanes manufactured or purchased by the United States was
reduced and it was provided that whenever both the Wright and the Curtiss companies had
together received $ 2,000,000, in the aggregate, for airplanes bought by the Government it would
be released from further payments "during the period of the present war." The last-mentioned
arrangement expired on July 2, 1921, at the termination of the war. The Wright and the Curtiss
companies did not receive, and will not receive, in distributions from the plaintiff an amount in
excess of the maximum authorized by the original and the supplemental agreements if judgment is
rendered in favor of plaintiff for the amount claimed in this suit. The practical interpretation of
the arrangement and the understanding by the parties during performance is of great importance.
Insurance Co. v. Dutcher, 95 U.S. 269, 273; District of Columbia v. Gallaher, 124 U.S. 505, 510;
Old Colony Trust Co. v. City of Omaha, 230 U.S. 100, 118.
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
Under the arrangement disclosed by the facts, which was suggested by the Government and
carried out in all of its details, the plaintiff was the only party who could have contracted with the
Government. It was the only one who had dealings with the Government in the matter. Every
action was by or with it. All communications from the Government carrying matters of contract
implication were with the plaintiff. All negotiations for the new agreement between the
termination of the war in 1921 and the execution of that agreement at the end of 1928 were with
plaintiff. The understanding with which the departments proceeded, in the meantime using the
patented devices, was with plaintiff, as was the understanding by the Government that when data
for reports of airplanes used, but theretofore unreported, could be secured, such reports would be
made to the end that plaintiff might render invoices or bills for the royalties due by the War or
Navy Departments. The Departments during the operations never questioned their obligation to
pay royalty on every airplane used, regardless of who may have made it; or their obligation to
report the unreported used airplanes, on the ground that they were not required to report or pay
plaintiff therefor, because made by nonsubscribers. The findings establish [*522] this and, further,
that after the first general report of the War Department on September 19, 1923, of the then
unreported airplanes made by nonsubscribers, the Government from time to time made further
reports to plaintiff of airplanes used by it, made by manufacturers other than subscribers. There
was no independent action by or with the patentees, Wright or Curtiss, or with any other
subscribing patentee. The only alternative to a contract by implication with plaintiff would be a
tortious infringement by the Government, but the findings of fact negative such possibility. The
implied contract upon which this claim is based was wholly performed. St. Louis Hay & Grain
Co. v. United States, 191 U.S. 159; Willard, Sutherland & Co. v. United States, 262 U.S. 489.
The last question is whether the royalties due on airplanes manufactured by or for the
Government and used by it during the period prior to July 25, 1922, are barred by the statute of
limitation. Counsel for the defendant contends that, if there was an implied contract obligating the
Government to pay royalties, plaintiff's cause of action for such royalties accrued at the time the
airplanes were made or purchased by the Government. On the other hand, the plaintiff contends
that the statute of limitation did not begin to run in this case, except as to one airplane reported by
the Government in October 1920, until sometime after September 19, 1923, in the case of
royalties on airplanes used by the War Department and not until sometime after June 22, 1927, in
the case of royalties on airplanes used by the Navy Department.
The statute of limitation, section 156 of the Judicial Code, provides that suits in this court shall
be commenced within six years after the cause of action first accrues. The date on which a cause
of action first accrues is not necessarily the same in every case. Ordinarily a cause of action
accrues when the service is rendered or the articles are furnished and the obligation to pay
therefor arises, but this is not a hard and fast rule and whether the cause of action in a particular
case accrues at such time depends upon the agreement or arrangement between the parties. Their
express agreement as to this in the case of a formal contract [*523] or their understanding and
course of conduct under an implied contract may fix a different time for the accrual of the claim
for the purpose of computing the statute of limitation. We think the language of section 156,
supra, was used with this in view for if it had been intended definitely to fix the time when the
claim should accrue in every case, it would simply have provided that every suit should be
commenced within six years
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
after the service was rendered or the articles called for were furnished. In the case of a breach of
a contract a cause of action accrues when the breach occurs. In this case there was no breach and
the royalties claimed did not accrue and become payable under the agreement until reports had
been made and invoices or bills rendered. There had been no refusal of the Government to pay
prior to September 19, 1923. It is true that the royalties had not been paid, due to failure of the
Government to report the airplanes made by it or acquired from nonsubscribers or stockholders of
plaintiff, but the agreement and the practice under it fixed the time when the royalties should
become due and when the plaintiff could demand payment. Compare Amy v. Dubuque, 98 U.S.
470; United States v. Taylor, 104 U.S. 216, 222; United States ex rel. Louisville Cement Co. v.
Interstate Commerce Commission, 246 U.S. 638, 644; W. A. & G. Steam Packet Co. v. Sickles,
10 How. 419, 441; Mundt v. Sheboygan & F. Dul. R. Co., 31 Wis. 451; Barnes v. City of
Brooklyn, 22 N.Y., App. Div. 520. A claim may be said to accrue at one time for accounting
purposes and at another, or later, time for the purpose of determining the statute of limitation
within which suit may be brought. Smith Courtney Co. v. United States, 46 C.Cls. 262; Maneely,
Admr., et al. v. United States, 68 C.Cls. 623, 631, 632; Penn Bridge Co. v. United States, 71
C.Cls. 273.
In Bull, Executor, v. Commissioner of Internal Revenue, 7 B.T.A. 993, 995, the United States
Board of Tax Appeals said:
"A study of the multitude of decisions, treatises, and variously expressed views, and our
experience in the consideration of many cases presented to this Board in which the word is either
carefully or loosely used, disclose that [*524]the word 'accrue' is fraught with confusion because
it expressed no certain concept. In law, it has long been used in respect of rights and obligations
which are said to accrue when they become enforceable. In accounting, it may be variously used
with equal authority to refer to a right or liability fixed in amount, or certain in all respects except
amount, or to an apportionment of a right or liability which runs hand in hand with a matter upon
which it depends, or to a reserve in anticipation of an event, sometimes certain and sometimes
uncertain. Other connotations will occur, but these are sufficient to indicate that there is little in
common among the significations recognized. One thing is clear -- that the word implies the
exclusion of 'received' or 'paid', or a right or liability discharged. But short of this, what is meant
when an item is accounted for as accrued depends upon the system of accounting in which it
appears and the breadth of the accountant's concept.
"When, therefore, it becomes necessary to interpret the word as it appears in the revenue act,
the interpretation cannot be fixed by definition, for this would imply a precision of congressional
intention at variance with the more fundamental purpose to tax that which a proper system of
accounting should clearly reflect as net income."
The question of when an item accrues for the purpose of the income tax was the question before
the courts in United States v. Anderson, 269 U.S. 422; American National Co., Receiver, v.
United States , 274 U.S. 99; Lucas v. American Code Co., Inc., 280 U.S. 445; Lucas v. North
Texas Lumber Co., 281 U.S. 11; Uncasville Mfg. Co. v. Commissioner of Internal Revenue, 55
Fed. (2d) 893; and Acme Coal Co. v. United States, 70 C.Cls. 696, 44 Fed. (2d) 95; and, for this
reason, those cases are distinguishable. In the present case, for the purpose of accounting in
determining whether the maximum distributable to the Wright and the Curtiss companies had been
reached, royalties would only be
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
payable on airplanes made by or delivered to the Government to the dates such airplanes were
made or delivered.
This suit was begun July 25, 1928, and the six-year period of the statute would therefore extend
back to July 25, 1922. Of the $ 363,600 royalties herein sued for, $ 199,200 thereof relates to
royalties on airplanes indisputably made or purchased by the Government and placed in use after
July 25, [*525] 1922. Only $ 164,400 of the total amount sued for can be affected by the statute
of limitation. The right to recover this amount depends upon the terms of the implied contract
affecting the terms and conditions for the payment of royalties on airplanes manufactured by the
Government and those acquired by it from persons other than subscribers to the original
cross-license agreement. All persons making airplanes for the Government, and who were
subscribers to the cross-license agreement, regularly and properly reported to plaintiff all airplanes
made by them. The Government did not make reports to the plaintiff of all the airplanes
manufactured by it and did not, until September 1923 and June 1927, report to the plaintiff any of
the airplanes acquired and put in use by it from manufacturers other than subscribers to the
cross-license agreement. Some of the airplanes upon which royalties are claimed in this suit were
placed in use by the Government concurrently with airplanes made by the Government or by
manufacturers who were subscribers to the cross-license agreement, as to which airplanes the
terms of payment were declared in writing. The practice as to time and manner of payment of
royalties on all airplanes was uniform throughout all the years from 1917 to 1928. It conformed
to the provisions of the original agreement which were applicable also to the supplemental and the
Government's special license agreement. Similar provisions were placed in the new contract,
effective December 31, 1928, which brought to an end the period of the implied contracts
involved in this proceeding. Inasmuch as those provisions corresponded to the practice they may
be looked to as evidence as to what the practice was. Summarizing, the requirements were that
(1) all airplanes manufactured or otherwise acquired by the War and the Navy Departments in any
quarter of each calendar year were to be reported with specific data to the plaintiff in writing on
the 10th day of the month next following that quarter; (2) forthwith, on receipt of each report,
plaintiff was to render invoices to said Departments in accordance with certain reports; and (3)
within a reasonable time (or 15 days) after the receipt of such invoices the [*526] Government
was to authorize and instruct its disbursing officers to make payments accordingly. The foregoing
procedure leading up to payment was actually followed in operating practice with respect to all
airplanes reported and paid for. Under such practice the Government, before paying the royalties,
always insisted upon having invoices or bills from plaintiff covering airplanes on which the latter
was claiming a royalty. The Government would not, and did not pay any such royalties until bills
were rendered therefor. During the period of the war plaintiff rendered no invoices or bills to the
Government except for airplanes previously reported to it. It was recognized by all parties to the
arrangement that plaintiff could not prepare and render invoices or bills without the information
contained in those reports.
Another circumstance which throws light upon the question when the cause of action for the
unpaid royalties accrued is the provision of a draft of a formal contract in August 1918 prepared
by the Bureau of Aircraft Production for the War and the Navy Departments for execution by the
plaintiff and the Government, but which was not executed because of the ending of the war,
November 11, 1918. Paragraph 7 thereof provides that "On the tenth day of January, April, July,
and October of each year, the Government, through the War and Navy Departments,
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
shall report to the association the number of airplanes built and accepted by the War and Navy
Departments, during the three (3) months preceding, and, based upon said reports, payments of
said royalties shall be made on the 25th of each such month. The first report shall be rendered on
October 10, 1918, and shall cover the period from July 1, 1917, to October 1, 1918."
Under the foregoing summary of the operating practices, we think payments of royalties were to
be based upon and to be made fifteen days after the furnishing of each report for airplanes therein
reported. In view of these terms, by implication, the case stands as if the parties by formal
contract had agreed to a rightful use of the patented devices to pay reasonable sums as royalties
for such use; and that payments should become due on demand accompanied by bills [*527]based
on and made from information contained in reports to be made quarterly for all airplanes
manufactured by or sold and delivered to the Government in each quarter preceding any given
report.
In Butler v. United States, 23 C.Cls. 335, 339, which was a suit upon an implied contract, the
court pointed out that "There was no express contract postponing the payment of the royalty or
making it contingent upon a demand or other event; * * *." In Smith Courtney Co. v. United
States, supra, the plaintiff contracted to sell metal for which the United States agreed to pay after
presentation of bills, with proper evidence of delivery, inspection, and acceptance, and within ten
days after warrant had been passed by the Secretary of the Treasury. The petition was filed July
1, 1909, so that the six-year period began to run July 1, 1903. In May 1901 it delivered the metal
to the proper authorities and on May 23, 1903, the Government inspected and accepted it. June
6, 1903, bills with proper evidence were presented and accepted. But they were not passed upon
by the Secretary of the Treasury until May 23, 1904. It was alleged that a reasonable time to pass
upon the bills was within thirty days from their presentation. This court held that the right of
action did not arise until a reasonable time had elapsed, ten days from such presentation to the
Treasury; and that since the allegation that thirty days was a reasonable time was admitted by the
demurrer, the right of action first accrued forty days after June 6, or on July 16, 1903, which was
fifteen days within the statutory period. In overruling the demurrer and holding that the statute of
limitation was not a bar, the court stated that "It has been determined by the Supreme Court and
this court, and is in fact elementary, that a right of action accrues and the statute of limitations
begins to run when, and only when, the period of credit has expired; or, in other words, when an
account is due and payable, or when there is a breach of the contract." As the parties may specify
such terms as price or time of payment by express contract, equally may they do so by implication
of practice. In Penn Bridge Co. v. United States, supra, the plaintiff had contracted to [*528]
furnish and erect machinery in the Government navy yards. The contract provided that if the
wages of labor should be increased above the rate prevailing when the contract was executed, the
plaintiff would receive certain additional compensation therefor. The contract, however, provided
"That any increase over the wage rates prevailing at the date of the contract before being granted
by the contractor shall be notified to and approved in writing by the Bureau of Yards and Docks.
* * * Determination of such claims shall be deferred until the completion of the contract."
The court held that the plaintiff's right to recover additional compensation did not accrue when
the machinery was delivered, but only after determination by the Bureau of Yards and Docks of
the amount of increase in the prevailing wage rate, and the approval by that bureau. To hold that
a right to sue for
77 Ct. Cl. 481, *; 1933 U.S. Ct. Cl. LEXIS 277 Ct.Cl.
the royalties involved in this case arose the moment the airplanes were placed in use by the
Government would, we think, be making an implied contract at variance with the practice, acts,
and operations of the parties. Such an arrangement, we think, was not contemplated by the
parties. In the circumstances of this case, we think the statute of limitation did not begin to run
with reference to the royalties herein sued for earlier than September 19, 1923, which was within
six years prior to the filing of the petition on July 25, 1928.
There is included in plaintiff's claim a royalty of $ 100 upon an airplane reported to plaintiff by
the Government on October 6, 1920, for which royalty the plaintiff prepared an invoice and
rendered a bill to the Government in 1921. Recovery of this royalty is clearly barred.
Judgment will be entered in favor of the plaintiff for $ 363,500. It is so ordered.