Federal Circuit Contract Interpretation

PatentLawPic308Lawler Mfg. v. Bradley Corp. (Fed. Cir. 2008)(nonprecedential)

In 2001, Lawler and Bradley settled a patent infringement lawsuit and entered into a contractual license agreement. Bradley was given the right to practice Lawler’s plumbing valve patents in exchange for a 10% royalty.  The license included a combination royalty provision. The royalty licensed parts sold in combination would be charged at a separate (likely lower) royalty rate. 

The dispute on appeal was whether a set of example combinations included in the contract limited the “combination” royalty rate to only a limited set. The particular contract provision read as follows:

“If a Licensed Unit is invoiced or shipped in combination in another product such as an emergency shower or eyewash, [then the combination rate applies.]”

De Novo Construction: Looking much like a claim construction opinion, the CAFC reviewed the contract language de novo (following Indiana law) and reversed the lower court interpretation. In particular, the court found that the “such as” language of the contract limited the combination royalty to only a limited set of combinations. The CAFC found its interpretation necessary to give meaning to the such as clause. As with Federal Circuit claim construction law, Indiana contract law has a preference for giving meaning and effect to all written terms.

“The question before us is whether that term, read in the context of the agreement, is restrictive, as Lawler urges, or merely explanatory, as the court found. We find that it is restrictive. “Such as” refers to items similar to what are recited rather than indicating that the recited items are just examples of what is covered by that provision. . . . The parties’ inclusion of the “such as” phrase … must either have been intended to provide some guidance as to the limited types of combinations that the parties contemplated … or to provide meaningless surplusage. Indiana law constrains us from finding the latter.”

Reversed and remanded.

In dissent, Judge Mayer saw the “such as” language as merely providing examples in much the same way that embodiments provide example implementations of an invention. “[E]mergency eyewashes and showers are examples of combination products, but they are not the only combination products covered by section 3.1 of the licensing agreement.”

7 thoughts on “Federal Circuit Contract Interpretation

  1. 7

    Thanks for the explanation. I didn’t realize the contract issue was part of a motion to enforce the setlement.

  2. 6

    Mr. Roethel, this might not be a complete enough answer for you, but…

    The original dispute was a patent infringement case (first full paragraph of p. 2). The license agreement in this case was part of the settlement (second full paragraph, p. 2). The patentee sought to enforce the license agreement not by filing a new action for breach of contract, but by filing a motion (in the district court that presided over the settlement) to enforce the license agreement/settlement. (first full paragraph, p. 4).

    So, this is an appeal from a patent infringement case, but the issue on appeal is enforcement of a settlement rather than contesting substantive issues of validity or infringement. I’m not sure which of the Federal Circuit’s opinions addresses this exact situation, but I think that’s enough to bring it within the Federal Circuit’s jurisdiction.

  3. 5

    Would someone explain to me how this case got to the Federal Circuit? Would not appeal lie to the circuit belonging to Indiana (6th?). Isn’t a patent license dispute just a contract dispute not arising under the patent laws? Thanks for teaching my old dog something I should know, but don’t.

  4. 4

    I’m fairly certain sure that’s the reason why it’s not published. I understand that the decision wouldn’t bind anyone in Indiana other than the parties even if it had gotten into F.3d.

  5. 3

    The federal circuit is applying the law of Indiana in deciding whether the examples are to be considered limiting. They might very well interpret another state’s law differently. The fact that they are opining on state law probably explains why this decision is non-precedential.

  6. 2

    Judge Mayer’s dissent is more persuasive, I think. I agree with Prof. Crouch that the opinion reads like a claim construction opinion. The majority’s analysis seems to hinge on the idea that the term “in combination” can be readily understood without the examples, AND THEREFORE the examples must be limiting. (maj. op. at 6-7). If I’m right about that, then I’m surprised that 2 judges swallowed that argument.

    It strikes me as an unsupportable way to interpret a contract. Contracts often are written with the idea of CYA in mind, so some important aspects of the contract are often stated multiple times, in different ways, with language meant to make them unmistakably clear so that there are no disputes later. Apparently this practice can be turned against the drafter because once the contract passes the point of being “clear enough,” any additional clarifying language must be limiting under the idea that “language is construed so as not to render any words, phrases or terms ineffective or meaningless.”

    Unless I’ve missed something, it’s quite fortunate that this decision will have no precedential value and shouldn’t affect anyone other than the parties to this case.

  7. 1

    Strange decision. It seems clear enough in this context (or out of it) that “such as” is not limiting in the way the court interpreted the phrase.

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