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May 27, 2008

Such As

CAFC caprice is further confirmed in today's non-precedential Lawler v. Bradley. Bradley settled a patent infringement suit by Lawler by taking a license which was too complicated and unclear in its terms. 10% royalty on the actual selling price of infringed values. 10% on "average" selling price of products combined with the infringed valves. Lawler tried to terminate the agreement on a pretext that the district court blew off, but that a 2-1 CAFC majority, eschewing dictionaries and common sense, read differently.

Lawler Mfg. v. Bradley (CAFC 07-1533)

The disputed contract clause:

3.1: . . . If a Licensed Unit is invoiced or shipped in combination in another product such as an emergency shower or eyewash, the Selling Price for such Licensed Unit shall be the average...

The backdrop:

After entering into the license agreement, Bradley began selling valves covered by Lawler's patents and duly paid the appropriate royalties to Lawler. Bradley also sells other products, including emergency showers and eyewashes that can be sold with a patented valve, but can also be sold without a valve. Bradley paid royalties on the emergency showers and eyewashes that contained patented valves in accordance with the alternative royalty provision. Sometime after entering into the license agreement Bradley began selling custom cabinet and piping fixtures connected to the Lawler valves. Lawler paid lower royalties on these products according to the alternative royalty provision. It is the royalty payments arising from the sale of valves combined with piping and cabinets that are at issue on appeal.

On December 20, 2005, Lawler notified Bradley that it considered Bradley to be in default of the license agreement. Bradley subsequently filed a motion in the district court to enforce the various agreements between the parties. Lawler responded by filing a motion to terminate the license agreement, presenting three arguments in support of a finding of default: failure to properly mark its products as patent-protected, obstruction of Lawler's audit rights, and underpayment of royalties.

The district court found that Bradley's underpayment of royalties did not amount to a breach of the license agreement and, on June 22, 2007, the court therefore denied Lawler's motion and granted Bradley's motion in part. The court found that the term "such as" in Section 3.1 of the license agreement meant "for example," and therefore that any product that Bradley shipped or invoiced in combination with a valve triggered the alternative royalty provision of Section 3.1. The court also held that Bradley did not fail to properly mark its products and did not obstruct Lawler's audit rights.

Lawler appealed. 2-1, the CAFC sided with Lawler.

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 district court's interpretation of the "such as" clause effectively renders that clause superfluous. If all combinations of products qualified for Section 3.1's alternative royalty provision, as the district court held that they do, there would be no need to list specific examples of included combinations. Nor are the two alleged examples - emergency showers and eyewashes - necessary to clarify the term "in combination" in Section 3.1 because that term, as the district court interpreted it, is readily understood without the examples. Even if examples were needed to understand the "in combination" term, listing only two very specific examples does not justify the all-inclusive nature of the court's reading of that term. Thus, an interpretation that the "such as" clause merely provides examples of combinations covered by that clause is an interpretation that renders that phrase superfluous. Such an interpretation is in direct conflict with Indiana law, which requires that all contract terms have effect. See Eskew v. Cornett, 744 N.E.2d 954, 957 (Ind. Ct. App. 2001) (noting that contracts must be construed so that the "language is construed so as not to render any words, phrases, or terms ineffective or meaningless"). The parties' inclusion of the "such as" phrase in Section 3.1 must either have been intended to provide some guidance as to the limited types of combinations that the parties contemplated for inclusion in the alternative royalty calculation, or to provide meaningless surplusage. Indiana law constrains us from finding the latter. Thus, the alternative royalty provision of Section 3.1 applies only to combinations of products that are similar to emergency showers and eyewashes.

Judges Lourie and Schall, majority. Judge Mayer in dissent, agreeing with the district court and Bradley, in reading "such as" by the book.

The ordinary and customary meaning of the phrase "such as" is "for example" and there is nothing in the license agreement which would support a different conclusion. See H. Ramsey Fowler, The Little, Brown Handbook 597 (3d ed. 1986) ("When you are giving examples of something, use 'such as' to indicate that the example is a representative of the thing mentioned."); The American Heritage Dictionary 1215 (2nd college ed. 1982) (First definition of "such as" is "for example."); see also Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 577 (1994) (concluding that the use of the words "such as" and "including" in the Fair Use Act were employed "to indicate the 'illustrative and not limitatitive' function of the examples given"); United States v. Doubet, 969 F.2d 341, 346 (7th Cir. 1962) (concluding that the items listed after the phase "such as" were used "by way of example rather than limitation").

Posted by Patent Hawk at May 27, 2008 10:18 AM | Litigation

Comments

I think the next to last sentence of the first "backdrop" paragraph should read "Bradley paid lower royalties...".

Posted by: anon at May 27, 2008 6:12 PM

It appears the mistake is in the opinion itself. My bad.

Posted by: anon at May 27, 2008 6:13 PM