Contract Interpretation and Patent Renewal Services
Sid DeLong provided the helpful reminder on this Blog that, in order to understand a case, you have to understand the business. With my background in the humanities and my disinterest in commercial matters, this was a challenge for me as a law student. But in practice, I found the process of getting to understand the transactions that I was involved in litigating to be one of the most interesting parts of the job. It helped, of course, that I was working for a global law firm, and I, as a mid-level associate, could call the transactional partner who drafted the agreement and ask them to explain it to me. Those one-on-one tutorials were a great supplement to my legal education, and the firm paid me handsomely to enjoy that post-graduate education. What a country!
Reading Brainchild Surgical Devices, LLC v. CPA Global Ltd., I was immediately struck that it was about an industry of whose existence I was unaware. And yet, I can see why this industry is necessary in the field of intellectual property, and I was eager to learn more. The case is about pretty narrow interpretive issues, as well as expert witness testimony, which we will not address here. Still, it allows us a brief glimpse into a niche industry.
A lot of contracts litigation comes down to interpretation. Interpretation is hard to teach, because each interpretation case is sui generis, embedded in the specific contractual language, the commercial context, and the conduct and relations of the parties. Still, there are some doctrinal tools. I spend a day going over canons of constructions in my contracts course, and then we revisit those canons in case after case. I devote a day to ambiguity and another to vagueness. We talk about implied terms, with the help of Lady Duff-Gordon (below).
Brainchild is an interpretation case, and the Court makes it look easy. It does so through nimble deployment of the canons, and it takes the time to understand the transaction. There is more to the case than the contracts part that interests us, so I won’t address the entire opinion.
Brainchild Surgical Devices (Brainchild) contracted with CPA Global Ltd. (CPA) to provide it with patent renewal services in 2018. CPA would provide notice of fees — for example, it might charge $1200 to renew a patent, but the invoice would not break out the elements of that aggregate fee. In April, 2021, Brainchild concluded that it was being overcharged, and it terminated its relationship with CPA and then sued for breach of contract and fraud, among other things. The trial court granted summary judgment to CPA, and Brainchild appealed to the Fourth Circuit. Given the appeal to the Fourth Circuit and the use of expert witnesses, I take it that Brainchild paid a lot of these services.
The Fourth Circuit reversed the dismissal of the breach of contract claim in part. The analysis begins with a pretty simple question of contract interpretation. It seems that Brainchild thought that the contract provided that, with respect to one component of the contract price, CPA could only charge Brainchild its “pass-through” costs — that is, CPA would charge Brainchild the same amount as it was paying to renew patents. But that is not what the contract says. The relevant language provides that the charge “relates to the infrastructure, CPA Global personnel and third parties (where appropriate) required in order to execute a renewal in a particular jurisdiction.” “Relates to” does not mean the same thing as “is limited to.” To make maters worse, an adjacent provision provides a model of the language the parties used when they intended a pass-through charge. They defined the Official Charge as “the amount we pay to relevant registries in each jurisdiction.”
The Court rejected a similar attempt by Brainchild to impose contractual limits on CPA’s ability to take advantage of fluctuating values in currencies. Brainchild argued that the contractual language only covered “costs associated with required currency exchange.” But the language was much broader. “Virginia contract law does not treat words in a contract as meaningless.” Damn straight.
However, the parties’ roles were reversed on Brainchild’s argument that CPA breached by assessing Country Charges unrelated to “infrastructure, CPA Global personnel and third parties (where appropriate) required in order to execute a renewal in a particular jurisdiction.” CPA argued that its Country Charges need not relate to costs incurred for a particular renewal or even a particular jurisdiction. The plain language of the contract says otherwise. As a result, the Court reversed the grant of summary judgment as to Brainchild’s clams relating to the Country Charges.
The Court affirmed the dismissal of Brainchild’s breach of the duty of good faith argument. The rest of the opinion related to expert testimony, a matter beyond the scope of this Blog.