The opinion of the court was delivered by: LUONGO
Since 1972, defendant National Bureau of Standards, an agency of the United States government and a subdivision of the Commerce Department, has been responsible for the operations of the Experimental Technological Incentive Program (ETIP). ETIP was established within the Bureau pursuant to the general authority of the National Bureau of Standards Act, 15 U.S.C.A. § 272,
to explore policies by which the federal government can stimulate technological innovation by private industry. To fulfill its mandate, ETIP invited the public to submit proposals and experiments relating to the program's objectives. Proposals found promising by ETIP were to be funded by the agency.
Plaintiff Eli Raitport submitted to ETIP a proposal which was ultimately rejected. Raitport instituted this suit contending inter alia that the agency is not serving the purpose for which it was created and that his proposal was rejected, not on its merits, but because ETIP is acting to protect established companies from small innovative competitors. He seeks damages for lost profits and a decree enjoining ETIP from further spending of the funds allocated to it until it approves his proposal or one similar to it. This court has jurisdiction pursuant to 28 U.S.C. § 1331.
Presently before the court is Raitport's motion for preliminary injunction pending final hearing.
ETIP was set up in response to a perceived need, articulated in the President's State of the Union Message of 1972, to discover more "about the process of stimulating and applying research and development."
In the President's budgetary message for FY 1973, ETIP's goal was described as "initiating a series of experiments to find better ways to encourage private investment in R & D (research and development), including investment by small entrepreneurial R & D firms, which have made significant contributions to the generation and exploitation of innovative ideas . . . ."
In 1972 and 1973, ETIP issued a series of brochures and press releases describing its purposes and inviting the submission of projects conforming to the purpose of the program. These releases stated that ETIP would pursue its policy objectives by focusing on three areas: (1) Federal regulatory policy, (2) Federal procurement policy, and (3) assistance to inventors and small R & D firms.
There is nothing in ETIP's public releases which evidences a departure from the broad charge of the President's language and the Bureau of Standards enabling legislation. In a press release of May 16, 1973, for example, ETIP stated that its purpose in each of its project areas was to "obtain knowledge and experience concerning technological invention and innovation in the United States [and] determine cost effective actions government can take to increase the rate at which new technologies are introduced into the market place." (Exh. D-1A)
Raitport is a Pennsylvania resident. He is president of Scientronic Corp., a Pennsylvania corporation with its office in Philadelphia. He has a long-standing interest in reducing obstacles encountered by small entrepreneurs in the research and development area, particularly the obstacle posed by lack of access to capital. His concern dovetails with his professional interests. Either independently or through Scientronic, he has authored several papers designed to counsel small investors or entrepreneurs on pitfalls commonly encountered when investing or seeking capital. (Exh. D-1E) He also claims to have invented or designed plans to invent several devices, including an energy absorbing mechanism for cars, a heating and cooling system for small dwellings, and improved switches for sprinkler systems. For several years, Raitport had been writing to government officials making the case for a program generally like ETIP, which would concern itself with the problems of small entrepreneurs involved in R & D.
In July 1972, shortly after the inception of ETIP, Raitport submitted a proposal to the agency in which he suggested that ETIP fund a United States Bank for National Economic Development to finance small entrepreneurs seeking to provide at lower cost products used in large volume in this country.
(Exh. D-1B) In Raitport's view, by fostering new competition in major established product areas, the Bank could contribute to a general reduction of prices, create new jobs and help products manufactured in the United States compete more effectively against foreign products. Quite obviously also, in his view, the aid to small entrepreneurs would directly spur research and development.
For more than a year following the July 1972 submission, Raitport and ETIP exchanged correspondence concerning the proposed bank, which Raitport renamed the United States Investment Banking Corporation (USIBC). The Bank, as it emerged in Raitport's view, would initially require $5,000,000 of ETIP's funds. Raitport's "group" would raise an additional $100,000,000 by selling shares of the Bank on the open market. The Bank would provide "start up" capital to those companies which proposed to manufacture low-cost substitutes for products having a broad and established demand in the United States. As an incentive to the public to invest in the Bank, ETIP would guarantee USIBC against net losses after consolidation of three years' operation. USIBC would hold at least 20% control of all companies to which it contributed money, and it could acquire more control either by negotiating with the management of the company or by tender offer. This equity interest, coupled with USIBC's regulatory power, would provide USIBC (and ultimately ETIP) with considerable control over the corporations to which money was given.
Although the basic concept of the Bank remained generally unchanged throughout, Raitport did amend his plan in one major respect during the course of correspondence. In its initial form, the Bank proposal included no role for him. However, the proposal later envisioned that he and a Board of Directors appointed by him would run the Bank's operations although appointment of the officers and directors would be subject to ETIP's approval. On June 5, 1973, Raitport notified ETIP that he had "finalized the selection of management team for United States Investment Banking Corporation (USIBC) in accordance with my proposal." (Exh. D-1 H, I, J)
ETIP's reaction to the proposal, expressed in a letter to Raitport dated August 25, 1972, was that it was "an intriguing concept . . . although [it might not] be possible to fit into ETIP format." (Exh. D-1F). Despite the prompt response, it is obvious from the record that ETIP was not yet geared up to seriously evaluate Raitport's proposal. For the first year of its existence, ETIP suffered the type of birth-pangs frequently experienced by fledgling government programs. As Richard T. Penn, ETIP's Deputy Director of Operations, testified "in 1972 ETIP was not in the position to accept or reject any proposals. It did not have an approved operational statement under which to operate, and it had no funds." (T 28). Although the President had requested 14.4 million dollars for ETIP in his budget for FY 1973, the program was not finally funded until May 6, 1973, when the Office of Management and Budget (OMB) allocated 7 million dollars to it.
Because of this fiscal uncertainty and the fact that ETIP had not yet fully defined its objectives, (T 55), no proposals were approved during FY 1973. (T 8).
Nevertheless, after the program's funding was set, ETIP began exploring Raitport's proposal in detail, requesting clarification about the envisioned operation of the Bank. In a letter dated July 6, 1973, for example, ETIP wrote:
". . . those suggestions that are offered for our consideration must contain more detail than you have offered on pages nine and ten of your June 4, 1973, letter. Specifically, we need to know (a) how many firms have products otherwise unable to enter the market place for lack of seed capital, but willing to except (sic) the terms you propose? (b) what method have you used, or will you propose to use in selecting borrowers? and (c) what record of performance do the selected officers of the proposed investment firms have, to illustrate their expertise and success in this rather specialized form of finance?
ETIP also expressed extreme concern about the $5,000,000 price tag ("the amount of money suggested is much too large") and the proposed ten year funding period and asked if a scaled-down version would be possible. (Exh. D-1M).
Raitport responded to the specific questions raised by ETIP with sweeping generalizations and optimistic assertions. For instance, he expressed the view that "literally hundreds of firms . . . and every sincere firm" would want capital from the Bank despite the conditions which presumably would limit their freedom of management. The qualifications of the Bank's proposed management team included "many years of devotion to that program by each member; . . . a good understanding of the subjected (sic) problem and ability to devise a solution; . . . extensive knowledge of the components market . . . and the materials and manufacturing process, . . . thorough knowledge of corporate finance . . . ." Although Raitport conceded that the Bank could be funded with less than $5,000,000, he suggested strongly that the Bank would not be very successful if funded with less than that amount. In Raitport's view, the Bank "deserved 70% of the money allocated by ETIP, even more, because only a program like USIBC will justify existence of ETIP in all areas of endeavor." (Exh. D-1R)
On August 1, 1973, ETIP informed Raitport that his bank proposal could not be funded in its present form. The reasons stated for the rejection were cost and the proposal's lack of specificity. (Exh. D-1S) (T 77-78). In a letter to Senator Hugh Scott, whose office, at Raitport's request, had inquired about ETIP's reaction to the bank proposal, ETIP also stated that Raitport's proposal furnished no opportunity ...