It’s Patent that “Plain Meaning”
Dictionary Definitions Shouldn’t
Dictate: What Phillips Portends for
Contract Interpretation
Frederick W. Claybrook, Jr.*
Introduction
In Phillips v. AWH Corp., the en banc United States Court of Appeals
for the Federal Circuit (Federal Circuit) wrestled with the question of what
weight to give dictionary definitions in interpreting patents. Rejecting a line
of recent cases that had given preference to dictionary definitions, the full
court emphasized that it must, when striving to discern the patent holder’s
and the Patent and Trademark Office’s (USPTO) intent, give principal weight
in interpretation to the language of the patent claim as construed by the accompanying specification, along with evidence of the patent’s prosecution
history in the USPTO.
In Phillips, the Federal Circuit basically adopted, for its patent construction
cases, the interpretation principles for contracts set out in the Restatement
(Second) of Contracts (Restatement). Under those principles, a court
must consider evidence of the parties’ intent other than the plain meaning
dictionary definitions, even if there does not appear to be any ambiguity of
common usage. In other words, dictionary definitions do not establish an
irrebuttable presumption of the parties’ intent. It is ironic, then, that, while
the Federal Circuit has adopted the approach of the Restatement when
interpreting patent documentation, in a recent line of cases construing
* Frederick W. Claybrook, Jr., is a partner in Crowell & Moring LLP. He thanks his
partners David C. Hammond, W. Stanfield Johnson, and James F. McKeown for their helpful
comments on a prior draft. © Frederick W. Claybrook, Jr. 2006.
415 F.3d 1303 (Fed. Cir. 2005) (en banc), cert denied, 126 S. Ct. 1332 (2006).
Id. at 1310.
See infra notes 17–22 and accompanying text.
See id. at 1319–24.
See id. at 1312, 1317–21; see also Restatement (Second) of Contracts § 202, at
86–87 (1981).
See Phillips, 415 F.3d at 1312, 1317, 1321; see also Restatement (Second) of Contracts § 202, at 86–87 (1981).
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government contracts it has exalted plain meaning discerned through dictionary definitions to the exclusion of other evidence of the parties’ intent.
The Federal Circuit has yet to square that line of cases with the Supreme
Court’s repeated indications that courts should follow the Restatement in
cases involving federal contracts. Now the Federal Circuit must also explain
why the interpretation rules of the Restatement apply to patents, but not
to contracts. Indeed, the much stronger case could be made that dictionary
definitions should dominate patent construction than that they should dictate
contract interpretation.
The Phillips case also raises the issue of the proper scope of appellate review
of patent claim interpretation: is it a question of law, resulting in de novo
appellate review; does it involve questions of fact, meriting clearly erroneous
appellate review; or is it a combination? While the en banc Phillips court left
this question for another day, a panel of the court recently tackled the same
issue in the context of bid protest cases. The time is ripe to reassess the issue
in contract interpretation cases as well.
I. What Phillips Did, and Did Not, Hold
Phillips involved the proper interpretation of a patent claim regarding baffles
used to deflect objects such as bullets. Phillips, the patent holder, alleged
infringement by AWH Corporation, but the district court held against Phillips, as did a panel of the Federal Circuit.10 The court then granted en banc
reconsideration on several issues, including questions concerning contract
interpretation and the appropriate deference given to lower court findings on
appeal.11 Judge Bryson drafted the majority opinion for the en banc court,
in which all the other judges, except Judge Mayer, joined in the parts of the
opinion describing the rules of patent claim interpretation, including the
proper weight to be given to dictionary definitions.12 Judge Lourie, joined by
Judge Newman, concurred in part and dissented in part and agreed with the
principles of interpretation the majority opinion announced, but argued that
the court should have affirmed the district court decision outright, rather than
See supra notes 3, 4 and accompanying text; see also, e.g., Coast Fed. Bank v. United
States, 323 F.3d 1035, 1038 (Fed. Cir. 2003) (en banc).
Phillips, 415 F.3d at 1328; Bannum, Inc. v. United States, 404 F.3d 1346, 1353–54
(Fed. Cir. 2005).
Phillips, 415 F.3d at 1310.
10
Id. at 1309–10.
11
Phillips v. AWH Corp., 376 F.3d 1382, 1383–84 (Fed. Cir. 2004) (per curiam). The
court invited amicus briefs from the USPTO and interested parties; the USPTO and thirtyfive other amici responded. Id.; 415 F.3d at 1306–08.
12
415 F.3d at 1308–09.
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What Phillips Portends for Contract Interpretation
remand the case to the district court for further proceedings,13 as the majority
ruled.14 Judge Mayer, in a dissent joined by Judge Newman, excoriated the
majority for dodging one of the issues it had explicitly asked the parties and
amici to address––the proper deference to be given to district court findings
on appeal––and stated his views on that subject.15
A. What the Phillips Court Decided––Dictionaries Don’t
Dominate
In Phillips, the Federal Circuit acknowledged that it had two contrasting
lines of patent interpretation cases. Its task was either to reconcile them or
to reject one of them.16
In one line of patent interpretation jurisprudence, the court gave priority
to what it terms “intrinsic evidence”17––the language of the claims,18 read
in conjunction with the supporting specification that further elaborates the
claims and their use,19 together with the prosecution history between the patentee and the USPTO.20 The other line of Federal Circuit cases gave priority
to the general dictionary definition of disputed terms in the patent claims
Id. at 1328–30 (Lourie, J., concurring).
Id. at 1328.
15
Id. at 1330–31 & n.3 (Mayer, J., dissenting).
16
See id. at 1319 (majority opinion).
17
Id. at 1317; see also, e.g., Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582
(Fed. Cir. 1996); Markman v. Westview Instruments, Inc., 52 F.3d 967, 979–80 (Fed. Cir.
1995) (en banc), aff’d, 517 U.S. 370 (1996).
18
35 U.S.C. § 112 (2000) (“The specification shall conclude with one or more claims
particularly pointing out and distinctly claiming the subject matter which the applicant
regards as his invention.”).
19
§ 112.
The specification shall contain a written description of the invention, and of the manner
and process of making and using it, in such full, clear, concise, and exact terms as to
enable any person skilled in the art to which it pertains, or with which it is most nearly
connected, to make and use the same, and shall set forth the best mode contemplated
by the inventor of carrying out his invention.
13
14
Id.
§§ 131–34. The Patent Act sets up an application process, which entails a give and
take with the USPTO if the USPTO, after examination of the application, believes it should
reject or amend the application. Id. This interplay develops the prosecution history between
the patentee and the USPTO. See, e.g., Lear, Inc. v. Adkins, 395 U.S. 653, 658–59 (1969)
(“[I]n 1954, it took the average inventor more than three years before he obtained a final
administrative decision on the patentability of his ideas, with the Patent Office acting on
the average application from two to four times.”).
20
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themselves.21 The court would read the patent as broadly as those dictionaries
permitted, unless the contrary was expressly stated in the patent documentation.22 The Phillips court foreshadowed its resolution when it stated, “We have
also previously considered the use of dictionaries in claim construction. What
we have said in that regard requires clarification.”23 It rejected the primacy of
general dictionary definitions, without scuttling their use altogether.24
First addressing the importance of the patent specification in the interpretation of the claim, the court emphasized that “the words of a claim ‘are
generally given their ordinary and customary meaning,’” which is “the meaning
that the term would have to a person of ordinary skill in the art in question
at the time of the invention.”25 This follows from the fact that “inventors
are typically persons skilled in the field of the invention and that patents
are addressed to and intended to be read by others of skill in the pertinent
art.”26 This also follows directly from section 112 of the Patent Act, in which
Congress dictated that a patent specification is to contain a description of
the invention “as to enable any person skilled in the art to which it pertains
. . . to make and use the same . . . .”27
The majority in Phillips then noted that, although the ordinary meaning of
claim language can sometimes be apparent “even to lay judges,” in many cases
a proper interpretation depends on an understanding of the way persons in
the appropriate field of art use the term.28 Noting that “patentees frequently
use terms idiosyncratically,” the court must look to other sources, including
“the words of the claims themselves, the remainder of the specification, the
prosecution history, and extrinsic evidence concerning relevant scientific principles, the meaning of technical terms, and the state of the art.”29 The court
elaborated that the context of the way the term is used in both the claims
and the patent’s fuller specification can be “highly instructive,” because claim
Phillips, 415 F.3d at 1319.
See id.; see also, e.g., Nystrom v. TREX Co., 374 F.3d 1105, 1111 (Fed. Cir. 2004),
cert denied, 126 S. Ct. 1654 (2006); Inverness Med. Switz. GmbH v. Warner Lambert Co.,
309 F.3d 1373, 1379 (Fed. Cir. 2002); Texas Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d
1193, 1203 (Fed. Cir. 2002). The Phillips court described Texas Digital as the “leading case”
in this line. Phillips, 415 F.3d at 1319.
23
Phillips, 415 F.3d at 1312.
24
Id. at 1317.
25
Id. at 1312–13 (quoting Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582
(Fed. Cir. 1996)).
26
Id. at 1313.
27
35 U.S.C. § 112 (2000).
28
Phillips, 415 F.3d at 1314.
29
Id. at 1314 (quoting Innova/Pure Water, Inc. v. Safari Water Filtration Sys., Inc., 381
F.3d 1111, 1116 (Fed. Cir. 2004).
21
22
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What Phillips Portends for Contract Interpretation
terms are normally used consistently throughout the patent.30 Reiterating
that a contested claim must be read in conjunction with the accompanying
specification that outlines it and elaborates upon it, the court affirmed its
earlier language that “the specification ‘is always highly relevant to the claim
construction analysis. Usually it is dispositive; it is the single best guide to the
meaning of a disputed term.’”31 A “specification may reveal a special definition” that the inventor used that is different from typical usage; “[i]n such
cases, the inventor’s lexicography governs.”32
The court next instructed that, in addition to considering the specification,
“a court ‘should consider the patent’s prosecution history, if it is in evidence.’”33
As the court noted,34 that practice is consonant with the admonition of the
Supreme Court in Graham v. John Deere Co.35 “that an invention is construed
not only in the light of the claims, but also with reference to the file wrapper
or prosecution history in the Patent Office.”36 The court added that “[t]he
prosecution history . . . consists of the complete record of the proceedings
before the PTO and includes the prior art cited during the examination of
the patent.”37 The patentee creates this history by explaining the patent to
the USPTO, which provides “evidence of how the PTO and the inventor
understood the patent.”38 This concluded the majority’s discussion of what it
terms “intrinsic evidence”––the specification included with the patent claims,
together with the prosecution history at the USPTO.39
Finally, the majority turned to the proper use of what it terms “extrinsic
evidence” in patent cases, “which ‘consists of all evidence external to the patent
and prosecution history, including expert and inventor testimony, dictionaries, and learned treatises.’”40 The Phillips court clarified that, while extrinsic
evidence can prove useful in the appropriate case, it is “less significant than
Id. at 1314.
Id. at 1315 (quoting Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed.
Cir. 1996)).
32
Id. at 1316.
33
Id. at 1317 (quoting Markman v. Westview Instruments, Inc., 52 F.3d 967, 980 (Fed.
Cir. 1995) (en banc), aff’d, 517 U.S. 370 (1996)).
34
Id.
35
383 U.S. 1 (1966).
36
Id. at 33.
37
Phillips, 415 F.3d at 1317.
38
Id.
39
Id.
40
Id. (quoting Markman v. Westview Instruments, Inc., 52 F.3d 967, 979–80 (Fed. Cir.
1995) (en banc), aff’d, 517 U.S. 370 (1996)).
30
31
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the intrinsic record.”41 In particular, dictionaries and treatises can sometimes
prove useful in claim construction, but only to assist the court better to
understand the underlying technology and the way in which one of skill in
the art might use the claim terms.42 Dictionary definitions are less reliable
than the patent and prosecution history because, unlike intrinsic evidence
created during prosecution for the purpose of explaining the particular patent
claims’ scope, there is a “virtually unbounded universe of potential extrinsic
evidence of some marginal relevance that could be brought to bear on any
claim construction question.”43
From this elucidation of the proper use of dictionary and treatise information, the court moved to a rejection of its line of cases in which “the court
ha[d] given greater emphasis to dictionary definitions of claim terms and
ha[d] assigned a less prominent role to the specification and the prosecution
history.”44 This line of cases held that courts must consult dictionaries and
construe the patent claim to encompass all consistent dictionary definitions.45
The Phillips court rejected the primacy of dictionary definitions46 and summarized its reasoning as follows:
The main problem with elevating the dictionary to such prominence is that it focuses
the inquiry on the abstract meaning of words rather than on the meaning of claim terms
within the context of the patent. Properly viewed, the ordinary meaning of a claim term
is its meaning to the ordinary artisan after reading the entire patent. Yet heavy reliance
on the dictionary divorced from the intrinsic evidence risks transforming the meaning
of the claim term to the artisan into the meaning of the term in the abstract, out of its
particular context, which is the specification . . . . [T]he patent applicant did not create
the dictionary to describe the invention. Thus, there may be a disconnect between the
patentee’s responsibility to describe and claim his invention, and the dictionary editors’
objective of aggregating all possible definitions for particular words.47
B. What the Phillips Court Did Not Decide—What Deference Is
Due?
Another issue receiving attention in cases involving the proper interpretation of patent claims is the appropriate standard of review on appeal of
Id. (quoting C.R. Bard, Inc. v. U.S. Surgical Corp., 388 F.3d 858, 862 (Fed. Cir.
2004)).
42
Id. at 1318.
43
Id. at 1318–19.
44
Id. at 1319–24.
45
Id. at 1319–20.
46
See id. at 1321.
47
Id. at 1321; see also Vanderlande Indus. Nederland BV v. ITC, 366 F.3d 1311, 1321
(Fed. Cir. 2004) (“[A] general-usage dictionary cannot overcome credible art-specific evidence
of the meaning of a claim term.”).
41
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What Phillips Portends for Contract Interpretation
the trial court’s rulings. In its order granting en banc rehearing, the Federal
Circuit had indicated its intention to reanalyze that issue by asking the parties to brief the following question, among others: “is it appropriate for this
court to accord any deference to any aspect of trial court claim construction
rulings? If so, on what aspects, in what circumstances, and to what extent?”48
The majority, after the court had solicited and received multiple briefs on the
subject,49 then revealed that it had changed its mind: “[W]e have decided not
to address that issue at this time. We therefore leave undisturbed our prior
en banc decision in Cybor.”50 In Cybor, a majority of the court had held that
interpretation of patent claims is wholly a question of law requiring de novo
review on appeal in all of its particulars.51
Judge Mayer, joined by Judge Newman, lashed out at their colleagues for
avoiding this issue and for continuing to regard all issues as “up for grabs” at
the appellate level with no deference due to the findings of the trial court.52
The opening two paragraphs of the dissent set the tone:
Now more than ever I am convinced of the futility, indeed the absurdity, of this
court’s persistence in adhering to the falsehood that claim construction is a matter
of law devoid of any factual component. Because any attempt to fashion a coherent
standard under this regime is pointless, as illustrated by our many failed attempts to
do so, I dissent.
This court was created for the purpose of bringing consistency to the patent field.
Instead, we have taken this noble mandate, to reinvigorate the patent and introduce
predictability to the field, and focused inappropriate power in this court. In our quest
to elevate our importance, we have, however, disregarded our role as an appellate court;
the resulting mayhem has seriously undermined the legitimacy of the process, if not
the integrity of the institution.53
Judge Mayer argued that, when construing claims, fact finding is rife.54
Because, in Judge Mayer’s view, claim construction entails answering questions of law and making findings of fact, he reasoned that the appellate court
should defer to the findings of the trial court and should only overturn those
findings if clearly erroneous.55 He pointed out that the Supreme Court has
ruled that a trial court’s findings of fact, even those based entirely on docu-
Phillips v. AWH Corp., 376 F.3d 1382, 1383 (Fed. Cir. 2004) (per curiam).
See Phillips, 415 F.3d at 1328.
50
Id.
51
Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1454–55 (Fed. Cir. 1998) (en
banc).
52
Phillips, 415 F.3d at 1330 (Mayer, J., dissenting).
53
Id. (citation omitted).
54
Id. at 1332.
55
Id. at 1332–34.
48
49
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mentary evidence, are entitled to deference.56 Judge Mayer argued for an
approach that recognizes reality:
While this court may persist in the delusion that claim construction is a purely legal
determination, unaffected by underlying facts, it is plainly not the case . . . . In order
to reconcile the parties’ inconsistent submissions and arrive at a sound interpretation,
the district court is required to sift through and weigh volumes of evidence. While this
court treats the district court as an intake clerk, whose only role is to collect, shuffle, and
collate evidence, the reality, as revealed by conventional practice, is far different.57
Judge Mayer closed with a flourish: “Eloquent words can mask much mischief.
The court’s opinion today is akin to rearranging the deck chairs on the Titanic––the
orchestra is playing as if nothing is amiss, but the ship is still heading for Davey Jones’
locker.”58
II. What Phillips Means for the Interpretation of
Government Contracts
The “general-usage-dictionaries-first” line of patent interpretation cases
rejected by the en banc court in Phillips has its parallel in the “plain meaning”
contract interpretation cases currently in the ascendancy at the same court, as
reflected in the recent decision in Coast Federal Bank, FWB v. United States.59
Not a single judge on the court is now propounding a plain-meaning, dictionaries-first-and-only methodology for interpreting patents.60 If that rule
is correct for patents, which are publicly available and published documents
to be relied upon by third parties, it is correct in spades for government contracts, which are arrangements between the two parties that are not published
to the public or relied upon by third parties. Thus, Phillips undermines the
Federal Circuit’s current, dominant reliance on “plain meaning” in contract
interpretation cases. Rethinking the dictionaries-first principle is even more
important in contract than in patent cases.
Id. at 1332; see also Fed. R. Civ. P. 52(a).
Phillips, 415 F.3d at 1332 (Mayer, J., dissenting).
58
Id. at 1334–35. At the time of the grant of rehearing en banc, then-Chief Judge Mayer
dissented from the grant in similar words:
Nearly a decade of confusion has resulted form the fiction that claim construction is
a matter of law, when it is obvious that it depends on underlying factual determinations which, like all factual questions if disputed, are the province of the trial court,
reviewable on appeal for clear error. To pretend otherwise inspires cynicism. Therefore,
and because I am convinced that shuffling our current precedent merely continues a
charade, I dissent from the en banc order.
56
57
Phillips v. AWH Corp., 376 F.3d 1382, 1384 (Fed. Cir. 2004) (Mayer, C.J., dissenting).
59
323 F.3d 1035 (Fed. Cir. 2003) (en banc).
60
See supra Part I.A.
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What Phillips Portends for Contract Interpretation
A. The Recent Ascendancy of Plain Meaning Dictionary
Definitions in Contract Interpretation Decisions
We start with the foundational principle of contract construction:
The primary purpose and function of the court in interpreting a contract is to ascertain
the parties’ intention so as to give effect to that intention. Indeed, the cardinal principle
of contract interpretation is that the intention of the parties must prevail unless it is
inconsistent with some established rule of law.61
The Federal Circuit has repeatedly embraced this principle, stating that its
job is to determine the intent of the contracting parties.62
While most all courts and commentators embrace this foundational principle, they divide on the issue of whether, if the reviewing judges find that
the plain meaning of the written words is unambiguous, other evidence of
the intent of the parties may be brought to bear.63 As W. Stanfield Johnson
outlined recently, the precedent of the Federal Circuit and its predecessor, the
Court of Claims, also split on this issue.64 The compilers of the Restatement65
land solidly on the side of giving the written words presumptive weight, but
allowing that presumption to be overcome, if appropriate, by other evidence
of intent expressed by words or actions of the contracting parties, even if the
contract provisions seem unambiguous in accordance with normal dictionary usage.66
1. The Supreme Court’s and the Federal Circuit’s Reliance on the
Restatement (Second) of Contracts
While the Supreme Court has not spoken directly to the dictionary usage
issue and is not frequently called upon to rule on contract law issues, when it
does address contracting issues, it has repeatedly relied upon the Restatement
as the appropriate statement of general contract common law and federal
contract law. Since the Restatement was completed in 1979 and published
11 Samuel Williston, A Treatise on the Law of Contracts § 32:2, at 397–401
(Richard A. Lord ed., 4th ed. 1999).
62
See, e.g., King v. Dep’t of the Navy, 130 F.3d 1031, 1033 (Fed. Cir. 1997); S.S. Silberblatt Inc. v. United States, 888 F.2d 829, 831 (Fed. Cir. 1989); Greco v. Dep’t of the
Army, 852 F.2d 558, 560 (Fed. Cir. 1988); Alvin, Ltd. v. USPS, 816 F.2d 1562, 1564–65
(Fed. Cir. 1987).
63
See 29 Am. Jur. 2d Evidence § 1135 (2006).
64
W. Stanfield Johnson, Interpreting Government Contracts: Plain Meaning Precludes Extrinsic Evidence and Controls at the Federal Circuit, 34 Pub. Cont. L.J. 635, 641–52 (2005).
65
The American Law Institute assembled a collection of distinguished judges, scholars,
and practitioners to compile the Restatement (Second) of Contracts in order to restate
the then-current general law of contracts. See Restatement (Second) of Contracts
vii–viii (1981).
66
See infra notes 83–89, 99–101 and accompanying text.
61
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in 1981, the Supreme Court has cited it as authority in majority or other
opinions (or both) in thirty-two decisions, often repeatedly in individual
cases.67 In not one instance has any justice of the Supreme Court disagreed
with the formulation of general contract law as set out in the Restatement,
and, indeed, the Court has twice cited it when adopting a “contemporary”
contract law rule that varies from the traditional common-law formulation.68
See Cherokee Nation of Okla. v. Leavitt, 543 U.S. 631, 639 (2005); Pharm. Research
and Mfrs. of Am. v. Walsh, 538 U.S. 664, 683 (2003) (Thomas, J., concurring); Barnes v.
Gorman, 536 U.S. 181, 187, 188 (2002); Franconia Assocs. v. United States, 536 U.S. 129,
142–43 (2002); Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210–11
(2002); Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 95, 96 (2000) (Ginsburg, J., dissenting); E. Assoc. Coal Corp. v. UMW, 531 U.S. 57, 69 (2000) (Scalia, J., concurring); Mobil
Oil Exploration & Producing Se., Inc. v. United States, 530 U.S. 604, 608, 614, 622, 624
(2000); Unum Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 371 (1999); New Jersey v. New
York, 523 U.S. 767, 830–31 (1998) (Scalia, J., dissenting); Oubre v. Entergy Operations,
Inc., 522 U.S. 422, 425, 426 (1998); id. at 431–32 (Breyer, J., concurring); id. at 436, 438
(Thomas, J., dissenting); United States v. Winstar Corp., 518 U.S. 839, 863, 869–70, 895,
904, 905, 907 (1996) (plurality opinion); id. at 911–12 (Breyer, J., concurring); Exxon Co.
v. Sofec, Inc., 517 U.S. 830, 840 (1996); Hercules, Inc. v. United States, 516 U.S. 417,
431, 434 (1996) (Breyer, J., dissenting); Mastrobuono v. Shearson Lehman Hutton, Inc.,
514 U.S. 52, 59, 62–63, 63 n.10 (1995); Allied Bruce Terminix Cos. v. Dobson, 513 U.S.
265, 285 (1995) (Scalia, J., dissenting); BFP v. Resolution Trust Corp., 511 U.S. 531, 564
(1994) (Souter, J., dissenting); Wyoming v. Oklahoma, 502 U.S. 437, 473 (1992) (Thomas,
J., dissenting); United States v. Stuart, 489 U.S. 353, 367 n.7 (1989); Sun Oil Co. v. Wortman, 486 U.S. 717, 731 n.4 (1988); Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S.
717, 729 n.3 (1988); Kungys v. United States, 485 U.S. 759, 786–88 (1988) (Stevens, J.,
concurring); Langley v. FDIC, 484 U.S. 86, 91, 93–94 (1987); Ricketts v. Adamson, 483
U.S. 1, 17 n.7 (1987) (Brennan, J., dissenting); Texas v. New Mexico, 482 U.S. 124, 129
(1987); Town of Newton v. Rumery, 480 U.S. 386, 392 n.2 (1987); Evans v. Jeff D., 475
U.S. 717, 727 n.13 (1986); id. at 759 (Brennan, J., dissenting); Allis-Chalmers Corp. v.
Lueck, 471 U.S. 202, 217 n.11 (1985); Schneider Moving & Storage Co. v. Robbins, 466
U.S. 364, 370, 371 (1984); Guardians Assoc. v. Civil Serv. Comm’n, 463 U.S. 582, 633
(1983) (Marshall, J., dissenting); W.R. Grace & Co. v. Local 759, Int’l Union of United
Rubber Workers, 461 U.S. 757, 766–67, 769 n.13 (1983). Bowsher v. Merck & Co., 460
U.S. 824, 862 (1983) (Blackman, J., concurring in part, dissenting in part). The Supreme
Court has also cited to the initial Restatement of Contracts. See, e.g., Kansas v. Colorado,
533 U.S. 1, 10 n.3 (2001).
68
See Kansas, 533 U.S. at 6–12; Oubre, 522 U.S. at 425–426. In Kansas, Colorado
challenged an award of prejudgment interest in Kansas’ recovery of damages for breach of
a compact. Kansas, 533 U.S. at 6. The Court recognized the traditional common-law rule
disallowing interest for breach of contract when the amount was unliquidated, but it cited
cases and authority, including the Restatement of Contracts, “criticizing, qualifying,
or rejecting” the liquidated/unliquidated distinction and adopting the Restatement of
Contracts rule (at the time the states entered the compact) that interest can be allowed “if
67
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Even more tellingly, in their two most recent cases applying federal common
law69 to contracts involving the federal government, Mobil Oil Exploration
& Producing Southeast, Inc. v. United States70 and United States v. Winstar
Corp.,71 the justices relied extensively on the Restatement when stating the
applicable contract law principles.72
The Federal Circuit has recognized that the Restatement is persuasive
authority concerning general contract law.73 The Federal Circuit and Court
of Claims74 have cited it as authority in almost 150 decisions for almost the
entire gamut of contract law issues.75 Like the Supreme Court, the Court of
justice requires it.” See id. at 9–12. In Oubre, one litigant relied upon a “general principle[]
of state contract jurisprudence,” that to be able to rescind the contract the party must restore
the consideration given by the other party at the outset of the litigation. 522 U.S. at 425–26.
The Court agreed this was the traditional contract law rule, but remarked that the “general
rules may not be as unified” as the litigant had asserted because, in equity, a person failing
to rescind a contract is not required to restore consideration at the outset of the litigation.
Id. at 426. And, indeed, the Restatement (Second) of Contracts section provides, “The
merger of law and equity and modern procedural reforms have made this distinction undesirable, and the rule stated in this Section reflects the increasing criticism of the rule at law.
If the court has the power to assure the required return in connection with the relief that it
grants, it is not necessary that there have been a prior return or offer to return.” Restatement (Second) of Contracts §384 cmt. b (1981).
69
See Boyle v. United Techs. Corp., 487 U.S. 500, 504 (1988) (“[O]bligations to and
rights of the United States under its contracts are governed exclusively by federal law.”); see
also United States v. Little Lake Misere Land Co., 412 U.S. 580, 593–94 (1973); United
States v. Seckinger, 397 U.S. 203, 209 (1970); Prudential Ins. Co. of Am. v. United States,
801 F.2d 1295, 1298 (Fed. Cir. 1986).
70
530 U.S. 604 (2000).
71
518 U.S. 839 (1996).
72
See Mobil Oil, 530 U.S. at 608, 614, 622, 624; Winstar, 518 U.S. at 863, 869–70,
887, 895–96, 904, 905, 907–08 (plurality opinion); Winstar, 518 U.S. at 911-12 (Breyer,
J., concurring).
73
See, e.g., Hansen Bancorp, Inc. v. United States, 367 F.3d 1297, 1308 n.9 (Fed. Cir.
2004) (“The Restatement of Contracts is recognized as an appropriate source of authority in contract cases.”).
74
The appellate decisions of the Court of Claims are precedential for the successor Federal
Circuit. S. Corp. v. United States, 690 F.2d 1368, 1370 (Fed. Cir. 1982).
75
See, e.g., Ind. Mich. Power Co. v. United States, 422 F.3d 1369, 1373 (Fed. Cir. 2005)
(breach damages); MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420
F.3d 1369, 1376 (Fed. Cir. 2005) (offer and acceptance); Cruz-Martinez v. Dep’t of Homeland Sec., 410 F.3d 1366, 1371 (Fed. Cir. 2005) (past practice); Westfed Holdings, Inc. v.
United States, 407 F.3d 1352, 1369–70 (Fed. Cir. 2005) (reliance damages, burden of proof );
Xavier Chem. Co. v. United States, 128 F. App’x 112, 116 (Fed. Cir. 2005) (repudiation);
United Pac. Ins. Co. v. Roche, 401 F.3d 1362, 1365 (Fed. Cir. 2005) (recitals); Centex Corp.
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v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (good faith duties); Cal. Fed. Bank
v. United States, 395 F.3d 1263, 1267 (Fed. Cir. 2005) (expectancy damages); Blue Cross
& Blue Shield United v. United States, 117 F. App’x 89, 94 (Fed. Cir. 2004) (unpublished
opinion) (formation); Admiral Fin. Corp. v. United States, 378 F.3d 1336, 1341–42 (Fed.
Cir. 2004) (consideration); Langston v. Dep’t of the Army, 102 F. App’x 693, 695 (Fed. Cir.
2004) (rescission); Metabolite Labs., Inc. v. Lab. Corp. of Am. Holdings, 370 F.3d 1354,
1370 (Fed. Cir. 2004) (termination upon breach); Gardiner, Kamya & Assocs., P.C. v. Jackson, 369 F.3d 1318, 1322 (Fed. Cir. 2004) (mutuality of obligation); NTN Bearing Corp.
v. United States, 368 F.3d 1369, 1378 (Fed. Cir. 2004) (consideration); Hansen Bancorp.,
Inc. v. United States, 367 F.3d 1297, 1308–09, 1311–16, 1319 (Fed. Cir. 2004) (breach
damages, materiality); Barron Bancshares, Inc. v. Masterson, 366 F.3d 1360, 1380–81 (Fed.
Cir. 2004) (material breach); Christopher Vill., L.P. v. United States, 360 F.3d 1319, 1334
(Fed. Cir. 2004) (prior material breach); Rumsfeld v. Freedom NY, Inc., 346 F.3d 1359,
1361 (Fed. Cir. 2003 (affect of attachments); FDIC v. United States, 342 F.3d 1313, 1319
(Fed. Cir. 2003) (third-party beneficiaries); First Commerce Corp. v. United States, 335 F.3d
1373, 1381 (Fed. Cir. 2003) (counteroffer); Abraham v. Rockwell Int’l Corp., 326 F.3d 1242,
1254 (Fed. Cir. 2003) (resolution of ambiguity); LaSalle Talman Bank v. United States, 317
F.3d 1363, 1371 (Fed. Cir. 2003) (loss avoidance); Maher v. United States, 314 F.3d 600,
605 (Fed. Cir. 2002) (incidental beneficiary); Raytheon Co. v. White, 305 F.3d 1354, 1367
(Fed. Cir. 2002) (impracticability); Robinson v. United States, 305 F.3d 1330, 1333–34
(Fed. Cir. 2002) (mitigation); Castle v. United States, 301 F.3d 1328, 1341 (Fed. Cir. 2002)
(reliance damages); Energy Capital Corp. v. United States, 302 F.3d 1314, 1324–25, 1332
(Fed. Cir. 2002) (lost profit damages); White v. Delta Constr. Int’l Inc., 285 F.3d 1040,
1043 (Fed. Cir. 2002) (breach damages); P.R. Burke Corp. v. United States, 277 F.3d 1346,
1360 (Fed. Cir. 2002) (good faith duties); Linear Tech. Corp. v. Micrel, Inc., 275 F.3d 1040,
1050 (Fed. Cir. 2001) (offer); Bluebonnet Sav. Bank v. United States, 266 F.3d 1348, 1355
(Fed. Cir. 2001) (foreseeability); Moreland Corp. v. Principi, 259 F.3d 1377, 1382 (Fed. Cir.
2001) (impossibility); Landmark Land Co. v. FDIC, 256 F.3d 1365, 1372–73, 1378 (Fed.
Cir. 2001) (restitution, reliance damages); Glass v. United States, 258 F.3d 1349, 1353–54
(Fed. Cir. 2001) (third-party beneficiary); Mass. Bay Transp. Auth. v. United States, 254 F.3d
1367, 1372–73 (impossibility); Ins. Co. of the W. v. United States, 243 F.3d 1367, 1374
(Fed. Cir. 2001) (assignment); Bohac v. Dep’t of Agric., 239 F.3d 1334, 1340 (Fed. Cir.
2001) (consequential damages); Ace-Fed. Reporters, Inc. v. Barram, 226 F.3d 1329, 1332
(Fed. Cir. 2000) (mutuality); Danzig v. ACE Corp., 224 F.3d 1333, 1337–38 (Fed. Cir.
2000) (adequate assurance); Metric Constructors, Inc. v. NASA, 169 F.3d 747, 753 (Fed.
Cir. 1999) (trade usage); Air-Sea Forwarders, Inc. v. United States, 166 F.3d 1170, 1171–72
(Fed. Cir. 1999) (specific terms control); Commercial Contractors, Inc. v. United States, 154
F.3d 1357, 1372–73 (Fed. Cir. 1998) (remedial costs); Heidelberg Harris, Inc. v. Loebach,
145 F.3d 1454, 1459 (Fed. Cir. 1998) (conditions); Northrop Grumman Corp. v. Goldin,
136 F.3d 1479, 1484 n.2 (Fed. Cir. 1998) (reformation); T. Brown Constructors, Inc. v.
Pena, 132 F.3d 724, 729 (Fed. Cir. 1997) (misrepresentation); Mass. Bay Transp. Auth. v.
United States, 129 F.3d 1226, 1236 (Fed. Cir. 1997) (integration); Thomas v. HUD, 124
F.3d 1439, 1442 (Fed. Cir. 1997) (material breach); Montana v. United States, 124 F.3d
1269, 1273–74 (Fed. Cir. 1997) (third-party beneficiary); NSK Ltd. v. United States, 115
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Claims in at least two situations adopted contemporary contract law positions
as set out in the Restatement that differ from the traditional common-law
rules. First, in Hoel-Steffen Construction Co. v. United States76 the court recognized the modern Restatement rule that, under certain circumstances, a
contractor’s reliance on a subcontractor’s bid when submitting its own proposal
could bind the subcontractor to honor its bid.77 Second, in David Nassif Associates v. United States78 the Court of Claims adopted the “contemporary”
view that proof of threats that would accomplish economic harm adequately
support an action for duress, not just threats to commit a crime or a tort, as
had traditionally been the rule.79 However, with respect to one of the most
critical contract law issues, contract interpretation, the Federal Circuit has
frequently deviated from the lead of the Restatement.80
F.3d 965, 975 (Fed. Cir. 1997) (consideration); Allen v. United States, 100 F.3d 133, 134
(Fed. Cir. 1996) (pre-existing duties and consideration); Collins v. OPM, 45 F.3d 1569,
1573 (Fed. Cir. 1995) (election); Dairyland Power Coop. v. United States, 16 F.3d 1197,
1202–03 (Fed. Cir. 1994) (mutual mistake); Burnside-Ott Aviation Training Ctr., Inc. v.
United States, 985 F.2d 1574, 1581 (Fed. Cir. 1993) (allocation of risk); Roseburg Lumber
Co. v. Madigan, 978 F.2d 660, 665 (Fed. Cir. 1992) (mutual mistake); Stone Forest Indus.,
Inc. v. United States, 973 F.2d 1548, 1550–51 (Fed. Cir. 1992) (materiality); Ginsberg v.
Austin, 968 F.2d 1198, 1201 (Fed. Cir. 1992) (transfer of reversion); S.S. Silberblatt Inc. v.
United States, 888 F.2d 829, 831 (Fed. Cir. 1989) (mutual understanding); Kinsey v. United
States, 852 F.2d 556, 558 (Fed. Cir. 1988) (anticipatory repudiation); Malone v. United
States, 849 F.2d 1441, 1445 (Fed. Cir. 1988) (material breach, good faith duties); Merrick v. United States, 846 F.2d 725, 726 (Fed. Cir. 1988) (indefiniteness, effect of contract
performance); Hankins Constr. Co. v. United States, 838 F.2d 1194, 1196 (Fed. Cir. 1988)
(assumption of risk); Alvin, Ltd. v. USPS, 816 F.2d 1562, 1564–65, 1567 (Fed. Cir. 1987)
(presumption of validity, principal purpose, mutual intent); Sys. Tech. Assocs., Inc. v. United
States, 699 F.2d 1383, 1387 (Fed. Cir. 1983) (duress); Hoel-Steffen Constr. Co. v. United
States, 684 F.2d 843, 848 (Ct. Cl. 1982) (promissory estoppel); Torncello v. United States,
681 F.2d 756, 769 (Ct. Cl. 1982) (en banc) (alternative performances).
76
684 F.2d 843 (Ct. Cl. 1982).
77
Id. at 848.
78
644 F.2d 4 (Ct. Cl. 1981).
79
Id. at 12.
80
See infra Part II.A.4. Another commentator has also recently criticized the Federal
Circuit for failing to apply the Restatement (Second) of Contracts and common-law
principles with respect to the allowability of lost profits related to collateral undertakings. See
generally Daniel Patrick Graham, Departing from Hadley: Recovering Lost Profits on Collateral
Undertakings in Suits Against the Government, 35 Pub. Cont. L.J. 43 (2005).
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2. Recognized Exceptions to the Plain Meaning Rule
Judges are usually asked to interpret contracts when the parties disagree
about what they meant by the words they used in their agreement.81 In such
situations, no one questions the appropriateness of judges using general-usage dictionaries as an aid to determining the intent of the parties.82 Indeed,
dictionaries help define a zone of reasonableness and initial inquiry: “Unless a different intention is manifested, . . . where language has a generally
prevailing meaning, it is interpreted in accordance with that meaning . . . .”
83
Ordinarily, a party will not be heard to assert that the words to which he
or she signed up mean something that no one outside the transaction would
have thought possible considering the ordinary, plain, dictionary-definition
use of the words.84 Case law and the Restatement set out exceptions to this
rule, however, which are necessary if the dominant purpose of interpreting
an agreement as the parties intended and expressed to each other is to be
honored.85
First, if a party can demonstrate that it explained to the other party its
interpretation of the words used in the agreement prior to contract formation, and the other party, without objecting to the first party’s interpretation,
executes the agreement, the meaning expressed by the first party controls.86
The Restatement states the rule as follows:
Where the parties have attached different meanings to a promise or agreement or a
term thereof, it is interpreted in accordance with the meaning attached by one of them
if at the time the agreement was made
(a) that party did not know of any different meaning attached by the other, and
the other knew the meaning attached by the first party; or
(b) that party had no reason to know of any different meaning attached by the other,
and the other had reason to know the meaning attached by the first party.87
See Restatement (Second) of Contracts § 20 cmt. b (1981) (“[M]aterial differences of meaning are a standard cause of contract disputes, and the decision of such disputes
necessarily requires interpretation of the language . . . .”).
82
See § 201 cmt. a; see also § 200 (“Interpretation of a promise or agreement or a term
thereof is the ascertainment of its meaning.”).
83
§ 202(3)(a).
84
See id.
85
See id.; § 201(1).
86
See Blue Cross & Blue Shield United v. United States, 117 F. App’x 89, 94 (Fed. Cir.
2004) (unpublished opinion); see also Perry & Wallis, Inc. v. United States, 427 F.2d 722,
725 (Ct. Cl. 1970).
87
Restatement (Second) of Contracts § 201(2) (1981).
81
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Citing this Restatement provision, the Supreme Court described this as
“hornbook contract law.”88 Similarly, the Federal Circuit recently labeled this
as an “unassailable rule of contract law.”89
Second, courts have allowed parties to demonstrate that they did not use
contact language in its ordinary sense, but in a specialized sense known to
those in the relevant trade, art, or industry.90 According to the Restatement,
“[u]nless a different intention is manifested . . . technical terms and words
of art are given their technical meaning when used in a transaction within
their technical field.”91
Third, the contracting parties themselves during their prior performance
under similar contracts may have developed some specialized sense of the words
they employed.92 Again, the Restatement explains, “Wherever reasonable,
the manifestations of intention of the parties to a promise or agreement are
interpreted as consistent . . .with any relevant course of performance, course
of dealing, or usage of trade.”93
Fourth, the parties by their post-contracting actions can demonstrate how
they understood the contract language in question.94 The Restatement clarifies, “Where an agreement involves repeated occasions for performance by
either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or
United States v. Stuart, 489 U.S. 353, 368 n.7 (1989); see also Bowers Hydraulic
Dredging Co. v. United States, 211 U.S. 176, 188 (1908).
89
HPI/GSA-3C, LLC v. Perry, 364 F.3d 1327, 1335 (Fed. Cir. 2004).
90
See Metric Constructors, Inc. v. NASA, 169 F.3d 747, 752–53 (Fed. Cir. 1999); Gholson,
Byars & Holmes Constr. Co. v. United States, 351 F.2d 987, 999 (Ct. Cl. 1965) (“[T]rade
usage or custom may show that language which appears on its face to be perfectly clear and
unambiguous has, in fact, a meaning different from its ordinary meaning.”).
91
Restatement (Second) of Contracts § 202(3)(b) (1981).
92
Sperry Flight Sys. Div. of Sperry Rand Corp. v. United States, 548 F.2d 915, 923 (Ct.
Cl. 1977) (“[A] course of dealing can supply an enforceable term to a contract (or may even
supplement or qualify that contract) provided that the conduct which identifies that course
of dealing can reasonably be construed as indicative of the parties’ intentions––a reflection
of their joint or common understanding.”).
93
Restatement (Second) of Contracts § 202(5) (1981). See also § 223(2) (“Unless
otherwise agreed, a course of dealing between the parties gives meaning to or supplements
or qualifies their agreement.”).
94
See Cruz-Martinez v. Dep’t of Homeland Sec., 410 F.3d 1366, 1371 (Fed. Cir. 2005);
Julius Goldman’s Egg City v. United States, 697 F.2d 1051, 1058 (Fed. Cir. 1983); Arizona
v. United States, 575 F.2d 855, 863 (Ct. Cl. 1978); Petrofsky v. United States, 488 F.2d
1394, 1401–02 (Ct. Cl. 1973); see also Merrick v. United States, 846 F.2d 725, 726 (Fed.
Cir. 1988) (“[T]he obstacle of indefiniteness may be removed by the subsequent conduct
of the parties.”).
88
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acquiesced in without objection is given great weight in the interpretation
of the agreement.”95
3. The Proper Priority of the Plain Meaning Rule
The Restatement also focuses on what priority, or weight, to give plain
meaning in an ordinary, dictionary-definition sense when interpreting disputed agreements.96 It states that “express terms are given greater weight than
course of performance, course of dealing, and usage of trade . . . .”97 While it
does not explicitly distinguish between general usage and technical usage of
particular words, the specialized sense is apparently to be given priority over
a general-usage meaning when parties use the term in a transaction within
the technical field.98 Under the interpretation rules of the Restatement,
however, plain meaning may be overridden by a showing that such a general-dictionary usage was not what the contracting parties had intended, as
shown by their other words or conduct.99 The authors of the Restatement
preface the presumption that general usage should prevail with the words
Restatement (Second) of Contracts § 202(4) (1981). Citing this provision, Justice
Scalia stated that “[i]t is hornbook contracts law that the practical construction of an ambiguous agreement revealed by later conduct of the parties is good indication of its meaning.”
New Jersey v. New York, 523 U.S. 767, 830–31 (1998) (Scalia, J., dissenting).
96
See, e.g., Restatement (Second) of Contracts § 201 cmt. a (1981) (noting that a
word’s generally prevailing meaning is difficult to ascertain, even with the use of dictionaries).
97
§ 203(b).
98
§ 202(3). Although the Restatement does not state this in terms of a preference, it
includes the general prevailing meaning and the technical meaning in this same subsection,
and it seems obvious that a technical usage, if shown, would take priority over a general usage
of a term. See also § 221 & cmt. a (explaining that trade usage may control even if contracting party was unaware of it); § 222 cmt. b (explaining that trade usage may be inconsistent
with common usage); 11 Williston, supra note 61, §§ 31:9, 31:10 (discussing “standard
of local or limited usage”); Sun Oil Co. v. Wortman, 486 U.S. 717, 732 n.4 (1988) (“It is
standard contract law . . . that a party may be bound by a custom or usage even though he
is unaware of it, and indeed even if he positively intended the contrary.”); Gholson, Byars &
Holmes Constr. Co. v. United States, 351 F.2d 987, 999 (Ct. Cl. 1965) (“[T]he principle is
now established in this court (and almost every other court) that in order that the intention
of the parties may prevail, the language of a contract is to be given effect according to its
trade meaning notwithstanding that in its ordinary meaning it is unambiguous.”); W. States
Constr. Co. v. United States, 26 Cl. Ct. 818, 825 (1992); cf. Vanderlande Indus. Nederland
BV v. ITC, 366 F.3d 1311, 1321 (Fed. Cir. 2004) (noting that in patent construction, general
usage dictionary definitions cannot overcome credible art-specific evidence of a claim’s meaning). But see WRB Corp. v. United States, 183 Ct. Cl. 409, 436 (1968) (“A trade practice .
. . cannot properly be permitted to overcome an unambiguous contract provision.”).
99
See Restatement (Second) of Contracts § 212 cmt. f (1981).
95
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“Unless a different intention is manifested,”100 and in their “Rules in Aid of
Interpretation” they specifically reject the notion that resort to interpretational indicators other than general usage is foreclosed unless an ambiguity
is found: “The rules are general in character, and serve merely as guides in
the process of interpretation. They do not depend upon any determination
that there is an ambiguity, but are used in determining what meanings are
reasonably possible as well as in choosing among possible meanings.”101 This
makes perfect sense, because otherwise the court might frustrate, rather than
enforce, the actual intent of the parties.
On the other hand, if judges––who, after all, are outsiders to the contracting process102––give threshold and conclusive priority to plain meaning, such
that the question of interpretation is over as soon as they find the language
in general usage to be clear to them, then the exceptions to plain meaning
are really no exceptions at all, because the judicial arbiters will never allow
other evidence to contradict the meaning they deem to be “plain” or “clear” or
“unambiguous.” Over the course of the last several years, the Federal Circuit
in contract cases has apparently come to this place.103 The court has put the
burden on the contracting party, as a threshold matter, to show an ambiguity considering only the plain, dictionary meaning of the words used in the
written instrument.104 If he or she cannot do so, then the Federal Circuit
has declared in Coast Federal Bank that the interpretation inquiry at an end,
with itself fully capable of defining the intent of the parties without further
assistance.105 It is obvious, though, that this analysis contradicts the Restatement106 and precludes contracting parties from introducing extrinsic evidence
to challenge plain meaning construction under one of the exceptions laid out
in case law and the Restatement.107
§ 202(3).
§ 202 cmt. a. See Cienega Gardens v. United States, 194 F.3d 1231, 1243 (Fed. Cir.
1998).
102
See, e.g., In re Info. Control Corp., 33 B.R. 246, 248–89 (Bankr. C.D. Cal. 1983)
(“Words derive their meanings from the people who use them; and it would be a brave judge
who would say always and in every case that he knows what those meanings might be.”).
103
See, e.g., Coast Fed. Bank v. United States, 323 F.3d 1035, 1038 (Fed. Cir. 2003)
(en banc); Blue Cross & Blue Shield United v. United States, 177 F. App’x 89, 92–93 (Fed.
Cir. 2004) (unpublished opinion); Bowers v. Baystate Techs., Inc., 320 F.3d 1317, 1326
(Fed. Cir. 2003).
104
See Coast Fed. Bank, 323 F.3d at 1038.
105
See Coast Fed. Bank, 323 F.3d at 1038; see also infra notes 131–137 and accompanying text.
106
Restatement (Second) of Contracts § 202 cmt. a (1981).
107
See discussion infra Section II.A.2. For example, excluding extrinsic evidence prevents
the contracting parties from showing that it expressed a different understanding than the
100
101
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4. The Seesaw Precedent of the Federal Circuit
The Federal Circuit and its predecessor, the Court of Claims, have not
always followed the rule stated in Coast Federal Bank. In 1970, the Court of
Claims observed that, “[i]n judging the import of words in the contract, the
context and intention [of the contracting parties] are more meaningful than
the dictionary definition.”108 To understand “context and intention,” courts
often rely on parol evidence.109 If the court forecloses such resort because
the plain meaning seems clear from normal dictionary definitions, then the
context in which the contracting parties generated their agreement can be
ignored.110
In 1965, the Court of Claims, in what until recently has been one of the
most frequently cited precedents related to contract interpretation principles,
Hol-Gar Manufacturing Corp. v. United States,111 reinforced the importance of
the contextual circumstances and held, “In construing a contract, the language
of the instrument is given its ordinary and commonly accepted meaning unless it is shown that the parties intended otherwise.”112 This principle stated in
Hol-Gar closely tracks the formulation the compilers of the Restatement
adopted a few years later: “[u]nless a different intention is manifested, where
language has a generally prevailing meaning . . . it is interpreted in accordance
with that meaning . . . .”113
But for the present, as reflected in Coast Federal Bank (discussed more
fully infra), the Federal Circuit has made the plain meaning rule not only
presumptively correct, but regnant and irrefutable in contract interpretation
cases.114 The court has turned away from its prior precedent that aligned with
the Restatement. For example, the Restatement underscores that “[t]here
is no requirement that an agreement be ambiguous before evidence of a usage
of trade can be shown, nor is it required that the usage of trade be consistent
other party. Restatement (Second) of Contracts § 201(2). It also prohibits them from
showing that those in the relevant trade do not understand the terms used as laymen would,
or that the parties’ pre-dispute performance manifests their true mutual intent that differs
from the most natural reading to an outsider, or that the parties had a prior performance
history that defined the written obligations in a way that an outsider would not necessarily
understand upon a reading of the words on a piece of paper. § 202(3)–(5).
108
Rice v. United States, 428 F.2d 1311, 1314 (Ct. Cl. 1970).
109
See Restatement (Second) of Contracts §§ 202, 212 cmt. b, 219–222 (1981).
110
See generally Beta Sys., Inc. v. United States, 838 F.2d 1179, 1183 (Fed. Cir. 1998).
111
351 F.2d 972 (Ct. Cl. 1965). The Federal Circuit, Court of Claims, Court of Federal
Claims, and Claims Court have cited Hol-Gar over 200 times through May 2006.
112
Id. at 976 (emphasis added).
113
Restatement (Second) of Contracts § 202(3)(a) (1981) (emphasis added).
114
For a detailed history of this movement in the court, see Johnson, supra note 64.
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with the meaning the agreement would have apart from the usage.”115 Even
before the Restatement was published, the Court of Claims in Gholson,
Byars & Holmes Construction Co. v. United States116 stated that “the principle
is now established in this court (and almost every other court) that in order
that the intention of the parties may prevail, the language of a contract is
to be given effect according to its trade meaning notwithstanding that in its
ordinary meaning it is unambiguous.”117 The court elaborated that modern
law largely repudiates the contrary, traditional rule because it could betray
the intent of the parties:
The doctrine of earlier cases was that ordinary terms and expressions could not be
altered by usage and that usage, while admissible to explain what was doubtful, was
not admissible to contradict what was plain. . . . This doctrine would appear to have
been unfortunate in tendency since it served to frustrate the intention of the parties
by preventing them, through refusal to admit evidence of usage, from showing what
the real meaning of the written words was.118
In 1990, however, the panel in R. B. Wright Construction Co. v. United
States119 reverted to the “doctrine of earlier cases” repudiated in Gholson and
by the modern commentators and rearticulated the primacy of general usage
understandings over trade usage when it stated, “Neither a contractor’s belief
nor contrary customary practice . . . can make an unambiguous contract provision ambiguous, or justify a departure from its terms.”120 In other words, once
the court thought it understood, based on ordinary, general-usage dictionary
analysis, what the contract stated, the court prohibited parties from showing
that they, or those in the trade, understood the contract differently.121 In 1999,
Restatement (Second) of Contracts § 222 cmt. b (1981).
351 F.2d 987 (Ct. Cl. 1965).
117
Id. at 999.
118
Id. at 999 n.12 (citation omitted).
119
919 F.2d 1569 (Fed. Cir. 1990).
120
Id. at 1572. This is not to say that there no prior Court of Claims authority consistent
with the holding in R.B. Wright Construction existed. See, e.g., Sea-Land Serv., Inc. v. United
States, 553 F.2d 651, 658 (Ct. Cl. 1977) (“[W]hen the terms of a contract are clear and
unambiguous, there is no need to resort to the custom of the trade for its interpretation.”);
Nw. Indus. Piping, Inc. v. United States, 467 F.2d 1308, 1314 (Ct. Cl. 1972); Sylvania Elec.
Prods., Inc. v. United States, 458 F.2d 994, 1005 (Ct. Cl. 1972); Chris Berg, Inc. v. United
States, 455 F.2d 1037, 1044 (Ct. Cl. 1972).
121
To the extent that the R.B. Wright Construction court held that the unstated intent
of one of the parties alone cannot undo an unambiguous writing, it stated good law. See
Restatement (Second) of Contracts §§ 17–20, 200 cmt. b (1981) (“[T]he intention of
a party that is relevant to formation of a contract is the intention manifested by him rather
than any different undisclosed intention.”); see also ITT Arctic Servs., Inc. v. United States,
524 F.2d 680, 684 (Ct. Cl. 1975); John C. Kohler Co. v. United States, 498 F.2d 1360, 1365
115
116
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the panel in Metric Constructors, Inc. v. NASA122 pulled back from this articulation in favor of the Gholson approach,123 but in 2002, in Hunt Construction
Group, Inc. v. United States,124 another panel expressly rejected the teaching
that “the existence of trade practice can render a contract ambiguous that is
otherwise clear on its face.”125
A similar trend has developed in the Federal Circuit with respect to whether
extrinsic evidence of the surrounding circumstances and conduct of the parties can be used to interpret a contract when the language appears clear based
on general usage dictionary definitions.126 The court adhered to the Hol-Gar
formulation in some cases, even as recently as 2000 in Jowett Inc. v. United
States,127 in which the panel stated, “In interpreting a contract, we begin with
the plain language. We give the words of the agreement their ordinary meaning
unless the parties mutually intended and agreed to an alternative meaning.”128
But, over time, more and more frequently Federal Circuit panels omitted the
(Ct. Cl. 1974); Dana Corp. v. United States, 470 F.2d 1032, 1041 (Ct. Cl. 1972); Bayou
Land & Marine Contractors, Inc. v. United States, 23 Cl. Ct. 764, 771–72 (1991).
122
169 F.3d 747 (Fed. Cir. 1999).
123
Id. at 752–53.
124
281 F.3d 1369 (Fed. Cir. 2002).
125
Id. at 1373. The Hunt panel at the same time acknowledged that a trade practice may
be useful to identify a meaning other than the ordinary meaning. Id. To the Hunt court, using
accepted trade meanings to interpret is different from finding contract language ambiguous,
which is a doubtful proposition. See id.; see also Tecom, Inc. v. United States, 66 Fed. Cl.
736, 748 (2005). But see Restatement (Second) of Contracts § 200(1) (1981).
126
Jowett Inc. v. United States, 234 F.3d 1365, 1368 (Fed. Cir. 2000).
127
234 F.3d 1365 (Fed. Cir. 2000).
128
Id. at 1368 (emphasis added) (citation omitted) (internal quotation marks omitted);
see also Cruz-Martinez v. Dep’t of Homeland Sec., 410 F.3d 1366, 1371 (Fed. Cir. 2005)
(relying on the U.C.C. and the Restatement (Second) of Contracts to hold that the
plain meaning of an agreement does not preclude consideration of extrinsic evidence to show
a contrary binding past practice); King v. Dep’t of the Navy, 130 F.3d 1031, 1033 (Fed.
Cir. 1997); Perry v. Dep’t of the Army, 992 F.2d 1575, 1579 (Fed. Cir. 1993); Lockheed
Aircraft Serv. Co. v. Rice, No. 91-1202, 1992 WL 29143, at *1 (Fed. Cir. Feb. 20, 1992)
(unpublished opinion); Brunswick Corp. v. United States, 951 F.2d 334, 336 (Fed. Cir.
1991); Gemini Elecs., Inc. v. United States, 65 Fed. Cl. 55, 62 (2005); Peckham v. United
States, 61 Fed. Cl. 102, 106–07 (2004); Johnny F. Smith Truck & Dragline Serv., Inc. v.
United States, 49 Fed. Cl. 443, 451 (2001); Hawaiian Bitumuls & Paving v. United States,
26 Cl. Ct. 1234, 1242 (1992); Park Vill. Apartments v. United States, 25 Cl. Ct. 729, 732
(1992); Fry Commc’ns, Inc. v. United States, 22 Cl. Ct. 497, 503 (1991); Town of Port
Deposit v. United States, 21 Ct. Cl. 204, 211–12 (1990); Tecom, Inc. v. United States, 66
Fed. Cl. 736, 748–49 (2005).
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What Phillips Portends for Contract Interpretation
critical qualifying phrase “unless it is shown that the parties intended otherwise.”129
The obvious implication was that, if the judges considered the contract unambiguous in accordance with general usage, then they would exclude other
evidence of intent from consideration, notwithstanding the teaching of HolGar and the common law as articulated in the Restatement.
The en banc Federal Circuit then addressed the plain meaning issue in Coast
Federal Bank v. United States.130 This case involved, at least for the layman,
somewhat arcane and unfamiliar principles of financial institution accounting and related federal regulation.131 It was confusing enough that Judge
Michel, who joined the majority panel opinion in favor of the contractor,
joined the majority en banc opinion in favor of the government and wrote a
concurrence explaining that “[t]he panel got confused by the language of the
testimony . . . [which it] took too literally” and that “imprecise terminology
led to incorrect logic.”132 The en banc majority repudiated the panel’s reliance
on testimonial evidence taken in the Court of Federal Claims.133 The majority
believed all that was needed was to look at the language of the agreement itself
(about which, obviously, the parties disagreed).134 While admitting that some
of the terms of the agreement conflicted with generally accepted accounting
principles, the majority found what it identified as the central phrases of the
contract to be “plain” and believed itself able to harmonize those phrases with
other apparently conflicting provisions in the contract.135 Thus, it applied the
“no ambiguity” rule of construction to disregard any contrary testimonial
evidence: “Where, as here, the provisions of the Agreement are phrased in
clear and unambiguous language, they must be given their plain and ordinary
[i.e., general-usage-dictionary] meaning, and we may not resort to extrinsic
evidence to interpret them.”136
Hol-Gar Mfg. Corp. v. United States, 351 F.2d 972, 976 (Ct. Cl. 1965) (emphasis
added); see also Navcom Def. Elecs., Inc. v. England, 53 F. App’x 897, 901 (Fed. Cir. 2002);
Kearns v. Chrysler Corp., 32 F.3d 1541, 1546 (Fed. Cir. 1994); C. Sanchez & Son, Inc. v.
United States, 6 F.3d 1539, 1543 (Fed. Cir. 1993); Hills Materials Co. v. Rice, 982 F.2d
514, 516 (Fed. Cir. 1992); Andersen Consulting v. United States, 959 F.2d 929, 934–35
(Fed. Cir. 1992).
130
Coast Fed. Bank v. United States, 323 F.3d 1035, 1038–40 (Fed. Cir. 2003) (en
banc).
131
Id. at 1037.
132
Id. at 1042 (Michel, J., concurring).
133
See id. at 1040; Coast Fed. Bank v. United States, 309 F.3d 1353, 1358 (Fed. Cir.
2002), vacated, 320 F.3d 1338 (Fed. Cir. 2003).
134
Coast Fed. Bank, 323 F.3d at 1040.
135
Id. at 1039–40.
136
Id. at 1038.
129
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5. The Effect of a Dictionaries-First Approach and Unresolved
Questions
By exalting the plain meaning rule to controlling prominence in contract
interpretation, the Federal Circuit has greatly increased its own power to
resolve the controlling reading of a contract, irrespective of other evidence
of the drafters’ intent. Starting with the maxim that contract interpretation
is “a matter of law,”137 the appellate judges are then free to second-guess the
trial court, to disregard whatever testimony or other indicia of intent exists
besides the plain words of the instrument itself, and to fix a reading for the
parties without any restraint except the written text.138 While there is certainly
a place for the plain meaning rule in setting the bounds beyond which contract language cannot reasonably be stretched, making plain meaning both
the beginning and the end of the inquiry puts the burden of persuasion in the
wrong place. The court should use the ordinary meaning of the text only as an
initial, rebuttable presumption, even if it seems unambiguous to those who are
not contracting parties. The inquiry should not end when the court believes
it understands the contract by use of normal dictionary definitions.
Put another way, ambiguities are not always obvious on the face of an
agreement. The interpretational analysis should not be concluded when
the court, as a non-party reviewer, thinks it understands the language and,
ipso facto, finds that reading in the acceptable zone of reasonableness by application of the plain meaning rule. Evidence of intent––either by proof of
non-standard usage in the trade, past performance of the parties in the same
situation or under the contract, or expressed understandings of the language
in question prior to contract execution––cannot properly be decreed outside
the zone of reasonableness and insulated from a more expanded review simply by determining that there is a general-usage-dictionary meaning of the
language at issue.139
See infra note 214 and accompanying text.
See, e.g., Coast Fed. Bank, 323 F.3d at 1038.
139
This does not champion a subjective, rather than an objective, theory of contracts.
The plain meaning rule still has the salutary effect of not allowing one party to a contract
to later claim that it did not intend the normal meaning of the words used, if the parties did
not express that contrary interpretation to each other by words or deeds. See ITT Arctic Servs.,
Inc. v. United States, 524 F.2d 680, 684 (Ct. Cl. 1975); see also Restatement (Second) of
Contracts §§ 2 cmt. b, 17–20, 200 cmt. b, 212 cmt. a. Using somewhat confusing and
overlapping language, Professor Lord refers to the rule that when both parties agree as to the
interpretation that is controlling, rather than an objective reading by a judge controlling, as
a subjectivist standard. See 11 Williston, supra note 61, § 31.14, at 386. By his count, this
standard remains a minority rule compared to the objectivist standard, “although it is slowly
gaining adherents.” Id.; see also Baladevon, Inc. v. Abbott Labs., Inc., 871 F. Supp. 89, 98
137
138
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What Phillips Portends for Contract Interpretation
The Supreme Court, as early as 1867, adopted the principle that courts
must consider more than just the words on paper when interpreting a contract: 140
Courts, in the construction of contracts, look to the language employed, the subjectmatter, and the surrounding circumstances. They are never shut out from the same
light which the parties enjoyed when the contract was executed, and, in that view,
they are entitled to place themselves in the same situation as the parties who made
the contract, so as to view the circumstances as they viewed them, and so to judge
of the meaning of words and of the correct application of the language to the things
described.141
The Federal Circuit has deviated from this longstanding instruction in its
recent decisions on contract interpretation,142 without providing a satisfactory
rationale for doing so.143 The Federal Circuit has not explained why the long-
(D. Mass. 1994) (applying the Restatement (Second) of Contracts rule that when both
parties agree as to the meaning of the contract terms it is controlling).
140
Nash v. Towne, 72 U.S. (5 Wall.) 689, 704 (1867).
141
Id. at 699; see also W. States Constr. Co. v. United States, 26 Cl. Ct. 818, 825 (1992)
(relying on Nash).
142
See supra notes 114–137 and accompanying text.
143
Perhaps the court came closest to providing a rationale in Rumsfeld v. Freedom NY, Inc.,
in which it rejected the Restatement (Second) of Contracts formulations that integration
clauses are not determinative on their face. Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320,
1327–29 (Fed. Cir. 2003). The Restatement states, “Whether a writing has been adopted as
an integrated agreement is a question of fact to be determined in accordance with all relevant
evidence.” Restatement (Second) of Contracts § 209 cmt. c (1981). For example, an
integration clause in a contract can be challenged “by other evidence that the writing did
not constitute a final expression.” § 209(3). Further, “a writing cannot of itself prove its own
completeness, and wide latitude must be allowed for inquiry into circumstances bearing on
the intention of the parties.” § 210 cmt. b. However, the panel in Freedom NY stated it was
applying the majority rule as set out in the third edition of the Williston treatise, which,
contrary to the Restatement (Second) of Contracts, would follow the traditional rule
and disallow resort to parol evidence in this situation. 329 F.3d at 1328–29. And, even
Professor Lord admits in the latest Williston edition that in modern times “[p]erhaps most
courts . . . ascertain[] the parties’ intent on the basis of the written instrument alone” when
determining whether a contract is integrated. 11 Williston, supra note 61, § 33:16, at 621.
The Freedom NY panel cited the Restatement (Second) of Contracts for the proposition
that an integration clause is “likely to conclude the issue whether the agreement is completely
integrated.” 329 F.3d at 1329 n.3 (quoting Restatement (Second) of Contracts § 216
cmt. e (1981)) (internal quotation marks omitted). However, the panel neglected to mention
that the Restatement rejects the traditional rule and allows parol evidence to override the
presumption. See id.; Restatement (Second) of Contracts § 210 cmt. b (1981). Just six
years earlier, another panel of the Federal Circuit had cited the formulation of the Restatement (Second) of Contracts in this regard with approval. Mass. Bay Transp. Auth. v.
United States, 129 F.3d 1226, 1235–36 (Fed. Cir. 1997).
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applied rule of construction it announced in Hol-Gar,144 which the compilers
of the Restatement validated,145 is no longer good law. The Federal Circuit
has never explained why it uses the Restatement as authority in almost all
contract law situations,146 but ignores it in this most important instance.147
The Federal Circuit has not explained why it rejects the Restatement formulations when the Supreme Court cites to these formulations repeatedly
as the summation of general contract law applicable to the United States in
its contracting relations.148 And now, the Federal Circuit must explain how
to harmonize the dictionaries-first-and-only rule of contract construction it
embraced en banc in Coast Federal Bank149 with its en banc rejection of that
rule in Phillips for patent construction cases.150
B. How Phillips Undermines the Primacy of the Plain Meaning
Methodology
The Federal Circuit in Phillips held, in summary, that (a) the words of
the patent claims and their accompanying specification are to be given the
most weight, but (b) this evidence is not to be given exclusive weight if other
relevant evidence is brought to bear, such as the negotiation history with the
USPTO or proof of trade usage that conflicts with common usage.151 These
Hol-Gar, 351 F.2d at 976 (holding that the ordinary meaning of a contract may be
overcome by other evidence of the intent of the parties).
145
Restatement (Second) of Contracts § 202(3)(a) (1981).
146
See supra notes 73–79 and accompanying text.
147
See supra notes 143–145 and accompanying text.
148
The Supreme Court or individual justices have applied principles taken from the
Restatement (Second) of Contracts in the following cases involving contracts with the
federal government or otherwise applying principles of federal contract law: Cherokee Nation
of Okla. v. Leavitt, 543 U.S. 631, 638–39 (2005); Franconia Assocs. v. United States, 536 U.S.
129, 142–43 (2002); Kansas v. Colorado, 533 U.S. 1, 11 n.4 (2001); Mobil Oil Exploration
& Producing Se., Inc. v. United States, 530 U.S. 604, 608, 614, 622, 624 (2000); New Jersey
v. New York, 523 U.S. 767, 830–31 (1998) (Scalia, J., dissenting); United States v. Winstar
Corp., 518 U.S. 839, 869–70, 895, 904, 905, 907 (plurality opinion); id. at 911–12 (Breyer,
J., concurring); Hercules, Inc. v. United States, 516 U.S. 417, 431, 434 (1996) (Breyer, J.,
dissenting); Wyoming v. Oklahoma, 502 U.S. 437, 473 (1992) (Scalia, J., dissenting); Langley
v. FDIC, 484 U.S. 86, 91, 93–94 (1987); Texas v. New Mexico, 482 U.S. 124, 129 (1987);
Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 217 (1985); Snepp v. United States, 444 U.S.
507, 520 n.8 (1980) (Stephens, J., dissenting) (citing a Tentative Draft).
149
See Coast Fed. Bank v. United States, 323 F.3d 1035, 1040–41 (Fed. Cir. 2003) (en
banc).
150
See Phillips v. AWH Corp., 415 F.3d 1303, 1322 (Fed. Cir. 2005) (en banc), cert
denied, 126 S. Ct. 1332 (2006).
151
Phillips, 415 F.3d at 1315–19.
144
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What Phillips Portends for Contract Interpretation
rules are basically the same as the contract interpretation principles set out in
the Restatement152 and Hol-Gar, which the Federal Circuit and the Court
of Claims previously followed.153 They do not give the plain meaning found
in common-usage dictionaries preemptive weight in interpretation.
1. Dictionary Definitions Are Not Determinative
The Federal Circuit erected no bar in patent cases to other evidence of intent
if it deems the claim language clear or plain in ordinary speech.154 Instead,
along with the claim language, it considers the accompanying specification
and the individual prosecution history between the inventor and the USPTO as
first-level, intrinsic evidence.155 The prosecution history is analogous to the
contract drafting history between contracting parties. Indeed, the Federal
Circuit allows use of technical dictionaries to prove the non-ordinary use of
a term “if the court deems it helpful in determining ‘the true meaning of language used in the patent claims.’”156 The “true meaning” of the patent claim
can mean nothing else than what the inventor and the USPTO intended the
claim to mean.157
Much of the Phillips court’s discussion about the potential damages of
overreliance on dictionary definitions158 has direct applicability when interpreting contracts. Dictionaries can be powerful tools in the hands of those
who wield them. A word can often connote many different meanings and
shades of meanings. Thus, as one of the Federal Circuit’s predecessor courts
ruled, “Indiscriminate reliance on definitions found in dictionaries can often
produce absurd results”––results presumably out of harmony with the intent
of the parties.159 The Phillips court recognized that “different dictionaries may
contain somewhat different sets of definitions for the same words,”160 and the
Federal Circuit in other patent cases has recognized the phenomenon of different dictionary definitions for even common words.161 Indeed, the Phillips
See, e.g., Restatement (Second) of Contracts § 202 (1981).
See supra notes 111–130.
154
Phillips, 415 F.3d at 1319.
155
Id. at 1317.
156
Id. at 1318 (emphasis added) (quoting Markman v. Westview Instruments, Inc., 52
F.3d 967, 979–80 (Fed. Cir. 1995) (en banc), aff’d, 517 U.S. 370 (1996)). This is also true
in contract interpretation. See supra notes 90–91 and accompanying text.
157
Phillips, 415 F.3d at 1317.
158
See id. at 1321–22.
159
Liebscher v. Boothroyd, 258 F.2d 948, 951 (C.C.P.A. 1958).
160
Phillips, 415 F.3d at 1322.
161
See, e.g., Beckson Marine, Inc. v. NFM, Inc., 292 F.3d 718, 723–24 (Fed. Cir. 2002)
(multiple definitions of “groove”); Renishaw PLC v. Marposs Societa’ per Azioni, 158 F.3d
1243, 1251 (Fed. Cir. 1998) (different definitions of “when”).
152
153
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court reinforced its previously stated rule that “‘a general-usage dictionary
cannot overcome art-specific evidence of the meaning’ of a claim term.”162
No fact or theory prevents courts from applying these same principles in
the contract interpretation setting. Most courts recognize, and reality teaches
us, that words are not hard objects with immutable boundaries.163 They are
flexible tools with denotations and connotations that differ from person to
person, time to time, and situation to situation164––even from region to region
and industry to industry.165 Professor of Linguistics Deborah Tannen over the
last several years has popularized just this fact in a series of books for laymen
based on her scholarly work.166
While Professor Tannen’s work focuses on conversational discourse,167 the
Restatement notes the flexibility of words and the difficulty of working with
dictionaries alone when analyzing contract language:
Usages of varying degrees of generality are recorded in dictionaries, but there are
substantial differences between English and American usages and between usages in
Phillips, 415 F.3d at 1322 (quoting Vanderlande Indus. Nederland BV v. ITC, 366
F.3d 1311, 1321 (Fed. Cir. 2004)).
163
See generally Restatement (Second) of Contracts § 219 cmt. a, b (1981).
164
§ 219 cmt. a. (“Usages change over time, and persons in close association often develop
temporary usages peculiar to themselves.”).
165
See 1 Williston, supra note 61, § 1:5, at 22 (“Regrettably, our language, and indeed
all language, is susceptible to ambiguity and vagueness, and the same words may be used to
convey very different meanings.”).
166
See, e.g., Deborah Tannen, You Just Don’t Understand: Women and Men in
Conversation (1990); Deborah Tannen, That’s Not What I Meant! (1986).
167
These observations are not restricted to the fields of law and linguistics. Theologian
N. T. Wright observed as follows:
“It’s going to rain.” This is a fairly clear statement, but its meaning varies with the
context. The context supplies an implicit narrative, and the force of the statement
depends on the role that it plays within those different potential narratives. If we are
about to have a picnic, the statement forms part of an implicit story which is about
to become a minor tragedy instead of (as we had hoped) a minor comedy. If we are
in East Africa, fearing another drought and consequent crop failure, the statement
forms part of an implicit story in which imminent tragedy will give way to jubilation. If I told you three days ago that it would rain today, and you disbelieved me,
the statement forms part of an implicit story in which my ability as a meteorologist
is about to be vindicated, and your scepticism proved groundless. If we are Elijah and
his servant on Mt. Carmel, the sentence invokes a whole theological story: YHWH is
the true God and Elijah is his prophet. In each case, the single statement demands to
be heard within the context of a full implicit plot, a complete implicit narrative. The
meaning of a word is the job it performs in a sentence; the meaning of a sentence is
the job it performs within a story.
162
2 Nicholas Thomas Wright, Christian Origins and the Question of God, Jesus and
the Victory of God 198 (1996) (footnotes omitted) (emphasis in original).
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What Phillips Portends for Contract Interpretation
different parts of the United States. Differences of usage also exist in various localities and in different social, economic, religious and ethnic groups. All these usages
change over time, and persons engaged in transactions with each other often develop
temporary usages peculiar to themselves. Moreover, most words are commonly used
in more than one sense.168
This linguistic flexibility must be recognized, not ignored, if a contract is to
be interpreted correctly––that is, consistently with what the parties intended
at the time of contracting.169 The exaltation of ordinary dictionary definitions
of contract terms is in tension in some circumstances with the overriding
purpose of contract interpretation: to understand the mutual intent of the
contracting parties and to enforce their agreement in accordance with that
intent.170 Williston on Contracts makes the point this way:
[A]lthough it might be desirable that words have a fixed and ascertained meaning, inflexibly and rigidly attaching such a fixed meaning, regardless of circumstances, may well
result in an outcome at variance with the intent of the parties; that, of course, defeats
the primary rule that the intention of the parties is the polestar of interpretation.171
Professor Corbin concurs: “some of the surrounding circumstances always
must be known before the meaning of the words can be plain and clear; and
proof of the circumstances may make a meaning plain and clear when in
the absence of such proof some other meaning may also have seemed plain
and clear.”172 Making the plain meaning rule an irrebuttable presumption in
interpretation in some instances will do exactly what judges commonly say
they will not do: make a contract for the parties.173
Restatement (Second) of Contracts § 201 cmt. a (1981); see also § 219 cmt. b.
See § 201 cmt. c.
170
§ 201(1); see also S.S. Silberblatt Inc. v. United States, 888 F.2d 829, 831 (Fed. Cir.
1989); Alvin, Ltd. v. USPS, 816 F.2d 1562, 1567 (Fed. Cir. 1987) (holding that the mutual
understanding of the parties prevails even when a contractual term has been defined differently by statute or regulation).
171
11 Williston, supra note 61, § 31:1, at 261 (footnote omitted).
172
3 Arthur Linton Corbin, Corbin on Contracts § 542, at 100–03 (1960) (footnote omitted).
173
See, e.g., Intergraph Corp. v. Intel Corp, 195 F.3d 1346, 1365 (Fed. Cir. 1999); Alvin,
Ltd. v. USPS, 816 F.2d 1562, 1567 (Fed. Cir. 1987); Sultan Chemists, Inc. v. EPA, 281
F.3d 73, 80 (3d Cir. 2002); Krumme v. WestPoint Stevens, Inc., 238 F.3d 133, 139 (2d Cir.
2000); Restatement (Second) of Contracts § 201 cmt. c; United States v. Lennox Metal
Mfg. Co., 255 F.2d 302, 313 (2d Cir. 1955) (“To shut out the light furnished by the parties
themselves––to read their words not as they meant them but as they appear when denuded
of that meaning––is to decide an unreal, fictitious, hypothetical case.”).
168
169
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2. Contracts Deserve More Deference to the Intent of the Parties
Than Do Patents
The Federal Circuit in Phillips reestablished for patent cases that, when
discerning the proper construction of a document, the lodestar must be the
specific intent of the parties.174 It rejected the attempt to conclude the interpretational analysis after viewing the document through the detached lens of
commonly used dictionary definitions.175 If courts cannot faithfully interpret
patents using plain-meaning dictionary definitions as the dominating principle,
then they cannot faithfully interpret contracts in that way either.
A much stronger case can be made in the patent field than in the government contract field for deviating from the interpretation principles of the
Restatement and giving conclusive weight to a plain meaning reading of the
document. Congress has decreed that patents are to be understood, and thus
interpreted, from the point of view of an informed outsider (i.e., in a way one
knowledgeable in the particular technology would understand them).176 Patents, as the Phillips court emphasized, have a “public notice function.”177
By contrast, a contract is a consensual undertaking between the parties
involved. It does not bind other parties, and it cannot be relied upon to
confer rights on others (except in the relatively rare instance of third-party
beneficiaries).178 The Restatement explains, “An agreement is a manifestation
of mutual assent on the part of two or more persons.”179 Williston says the
same: “A contract represents the parties’ own private agreement as to their
legal relationship, liabilities, and rights . . . .”180 And Professor Corbin echoes
the theme: “A contract directly affects only the parties who have formed
it . . . .”181
One could argue that government contracts exist in a different class than
contracts between private parties—that government contracts relate to the
public at large and, thus, courts should interpret them from the perspective
of a disinterested third party, in accordance with more objective methodologies, rather than looking principally to the intent of the contracting parties.
See supra Part II.A.
See supra notes 40–47.
176
35 U.S.C. § 112 (2000).
177
Phillips v. AWH Corp., 415 F.3d 1303, 1319 (Fed. Cir. 2005) (en banc), cert denied,
126 S. Ct. 1332 (2006).
178
See Restatement (Second) of Contracts §§ 302, 303 (1981).
179
§ 3, at 13.
180
11 Williston, supra note 61, § 32:2, at 396–97.
181
5 Margaret N. Kniffin, Corbin on Contracts § 24.1, at 7 (Joseph M. Perillo ed.,
rev. ed. 1998) (hereinafter “Corbin on Contracts”) (comparing statutory interpretation
and noting that a statute “usually governs the activities of millions of persons”).
174
175
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What Phillips Portends for Contract Interpretation
The Supreme Court, however, has repeatedly and consistently rejected this
view for almost 200 years.182
As early as 1868, citing precedent from more than twenty-five years earlier,
the Supreme Court declared:
[It is] too well established by the decisions of this court, to admit now of serious
controversy [and] [i]t must be taken as settled, that when the United States becomes
a party to what is called commercial paper . . . they are bound in any court, to whose
jurisdiction they submit, by the same principles that govern individuals in their relations to such paper.183
In 1875, the Supreme Court reiterated that, when the federal government
“comes down from its position of sovereignty, and enters the domain of
commerce, it submits itself to the same laws that govern individuals there.”184
Three years later in the Sinking-Fund Cases,185 the Supreme Court stated, “The
United States are as much bound by their contracts as are individuals.”186 In
1926, the Court emphasized that “[t]he United States does business on business terms.”187 In 1934, the Court reiterated that theme: “When the United
States enters into contract relations, its rights and duties therein are governed
generally by the law applicable to contracts between private individuals.”188
In 1943, the Supreme Court reconfirmed that the government does “business on business terms.”189 In 1986, the Supreme Court instructed that “the
Federal Government, as sovereign, has the power to enter contracts that
See generally Graham, supra note 80, at 45–47 & n.11.
The Floyd Acceptances, 74 U.S. (7 Wall.) 666, 675, 679 (1869). Earlier, the Supreme
Court opined:
When the United States . . . become a party to negotiable paper, they have all the rights,
and incur all the responsibility of individuals who are parties to such instruments. We
know of no difference . . . . From the daily and unavoidable of use commercial paper
by the United States, they are as much interested as the community at large can be,
in maintaining these principles.
182
183
United States v. Bank of the Metropolis, 40 U.S. (15 Pet.) 377, 392 (1841); see also Cent.
Nat’l Bank of Richmond v. United States, 91 F. Supp. 738, 740 (Ct. Cl. 1950) (“When
a question regarding assignments as they affect the Government arises, the general law of
assignments must govern.”).
184
Cooke v. United States, 91 U.S. 389, 398 (1875).
185
99 U.S. 700 (1879); see also United States v. Bostwick, 94 U.S. 53, 66 (1877).
186
Sinking-Fund Cases, 99 U.S. at 719.
187
United States v. Nat’l Exch. Bank of Balt., 270 U.S. 527, 534 (1926).
188
Lynch v. United States, 292 U.S. 571, 579 (1934); see also United States v. Smith,
94 U.S. 214, 217 (1877) (“[T]he principles which govern inquiries as to the conduct of
individuals, in respect to their contracts, are equally applicable where the United States are
a party.”).
189
Clearfield Trust Co. v. United States, 318 U.S. 363, 369 (1943) (quoting Nat’l Exch.
Bank of Balt., 270 U.S. at 534).
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confer vested rights, and the concomitant duty to honor those rights . . . .”190
In 1996, in United States v. Winstar Corp.,191 the Court stressed that, when
the government acts in a proprietary capacity, it is “governed generally by
the law applicable to contracts between private individuals.”192 And in 2000,
in Mobil Oil Exploration & Producing Southeast, Inc. v. United States,193 the
Court applied contracts law to the government as it applies between private
individuals to find the government in breach of its contract.194
An important public policy undergirds this consistent line of cases supporting the principle that a court should interpret a government contract in
the same way as it would a contract between two private parties, i.e., if the
government took special privileges when acting in its proprietary capacity,
private parties would be less willing to contract with the government.195 Justice
Souter, author of the plurality opinion in Winstar, explained that allowing
the government to dishonor its obligations with impunity would be “at odds
with the Government’s own long-run interest as a reliable contracting partner
in the myriad workaday transaction [sic] of its agencies”196 and quoted Justice
Brandeis for the proposition that “[p]unctilious fulfillment of contractual
obligations is essential to the maintenance of the credit of public as well as
Bowen v. Pub. Agencies Opposed to Soc. Sec. Entrapment, 477 U.S. 41, 52
(1986).
191
518 U.S. 839 (1996) (plurality opinion).
192
Id. at 895 (quoting Lynch, 292 U.S. at 579); id. at 912 (Breyer, J., concurring) (quoting Lynch, 292 U.S. at 579).
193
530 U.S. 604 (2000).
194
Id. at 607. The Court in Mobil Oil Exploration relied extensively on the Restatement (Second) of Contracts to define applicable contract law. See Mobil Oil, 530 U.S.
at 608, 614, 621, 622, 624. In so doing, the Court basically adopted contract law as stated
in the Restatement (Second) of Contracts as the federal law of contracts. See id.; see also
Boyle v. United Techs. Corp., 487 U.S. 500, 504 (1988) (holding that federal law governs
contracts with the United States).
195
Of course, the government does retain some special privileges, such as the “unmistakability” and “sovereign acts” doctrines discussed but rejected on the facts in Winstar. See 518
U.S. at 871–72, 886, 891, 896 (plurality opinion). The federal government also mandates
contract provisions by law and/or regulations in certain contracts that give it rights not
commonly negotiated in commercial contracts. See, e.g., 48 C.F.R. § 52.249-2 (requiring
insertion of a termination clause into certain fixed-price government contracts). Thus, it is
more accurate, perhaps, to state that, to the extent the government reserves special rights to
itself, it reduces its attractiveness as a contracting party.
196
518 U.S. at 883 (plurality opinion).
190
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What Phillips Portends for Contract Interpretation
private debtors.’”197 In sum, a government contract is to be interpreted the
same as any other contract between two private individuals.198
A patent stands on a different footing. It is a creature of the Constitution199
and statute,200 not common law. It is effective only after USPTO reviews
and approves it and it is disseminated to the public.201 The patent gives the
inventor the right to profit from the invention for a limited time, but it is
published for the express purpose of fostering economic development by the
use of the invention by others in the trade.202 To that end, the patent must
“contain a written description of the invention . . . [so] as to enable any person
skilled in the art to which it pertains . . . to make and use the same . . . .”203
Thus, unlike with private contracts, third parties who review, use, and rely on
patents are not part of the drafting process.204 Patents have a “public notice
function”205 that government contracts lack.206
One would think, then, that, between patents and contracts, it would be
patents relied upon by the public that would be interpreted the way that one
disassociated from the instrument would interpret it, not letting other factors
like testimony of negotiation history intrude. But the opposite is currently the
case.207 The Federal Circuit, despite Congress’ prescription that patents are
to be read as would knowledgeable third parties in the trade, still considers
evidence of the intent of the drafting party, in conjunction with the USPTO,
more helpful in the normal case than even technical dictionaries, which the
Id. at 884–85 (plurality opinion) (quoting Lynch v. United States, 292 U.S. 571, 580
(1934) (Brandeis, J.) (internal quotation marks omitted); see also United States v. Bank of
the Metropolis, 40 U.S. (15 Pet.) 377, 392 (1841) (explaining that the United States is “as
much interested as the community at large can be, in maintaining these principles”).
198
The Federal Circuit recognizes this principle. See, e.g., Centex Corp. v. United States,
395 F.3d 1283, 1304 (Fed. Cir. 2005); Alvin, Ltd. v. USPS, 816 F.2d 1562, 1564 (Fed. Cir.
1987); Prudential Ins. Co. of Am. v. United States, 801 F.2d 1295, 1298 (Fed. Cir. 1986).
199
“The Congress shall have Power . . . To promote the Progress of Science and useful
Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries . . . .” U.S. Const. art. I, § 8.
200
Patent Act, 35 U.S.C. §§ 1­–376 (2000).
201
See §§ 122, 131, 151, 153.
202
J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U.S. 124, 142 (2001).
203
35 U.S.C. § 112.
204
See Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150–51 (1989).
205
Phillips v. AWH Corp., 415 F.3d 1303, 1319 (Fed. Cir. 2005) (en banc), cert denied,
126 S. Ct. 1332 (2006).
206
Lear v. Adkins, 395 U.S. 653, 668, 674 (1969) (holding that the federal policy favoring free competition, limited only by patents, trumps the common-law interest in enforcing
freely negotiated contracts).
207
See Phillips, 415 F.3d at 1317–18.
197
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court still may use to help it better understand the technology “and the way
in which one of skill in the art might use the claim terms.”208 Ironically, the
Federal Circuit in Phillips disclaimed the dictionaries-first approach in part
to further the third-party-notice function of patents, as well as to remain true
to the intent of the inventor and the USPTO, stating, “undue reliance on
extrinsic evidence poses the risk that it will be used to change the meaning
of claims in derogation of the ‘indisputable public records consisting of the
claims, the specification and the prosecution history,’ thereby undermining
the public notice function of patents.”209
As matters now stand, the Federal Circuit, while recognizing the general
primacy of the patent claim document itself, declares that what it calls “extrinsic” evidence may be “useful to the court” and leaves it “for the district
court in its sound discretion to admit and use such evidence.”210 On the other
hand, in a contract case involving only the rights and responsibilities of the
contracting parties, the Federal Circuit cuts off such discretion when it can
find what it considers to be a common-usage, third-party meaning of the
words the parties used, even though no third parties have a vested interest in
the contract.211 This stands matters on their head.
The en banc rationales of Phillips and Coast Federal Bank are in irreconcilable tension. If anything, the stronger case can be made in patent cases to
ignore all evidence of intent except the words of the document itself, as the
public has a valid interest in relying on a patent and so it arguably should be
interpreted as the “public,” represented by the judiciary, would. With private
contracts, judges are not to make agreements for the parties but are to enforce
the parties’ intent as expressed by their words and actions, considering all
relevant evidence, whether or not the words of the contract appear “plain”
or “clear” to the court.212 The Federal Circuit should follow the lead of the
Supreme Court and apply the principles of the Restatement when interpreting contracts. If these principles apply to patent construction, as the Phillips
court effectively held, they apply a fortiori to contract construction.
See id. at 1316–18.
Id. at 1318–19 (quoting Southwall Techs., Inc. v. Cardinal IG Co., 54 F.3d 1570,
1578 (Fed. Cir. 1995). The Federal Circuit recently held that expert testimony is inadmissible when interpreting a regulation. See Rumsfeld v. United Techs. Corp., 315 F.3d 1361,
1369–70 (Fed. Cir. 2003). A regulation obviously has a public notice function as does a
patent. However, a patent is more similar to a contract because, like a contract, it is negotiated between two parties, i.e., the inventor and the USPTO.
210
Phillips, 415 F.3d at 1319 (“[E]xtrinsic evidence may be useful to the court, but it is
unlikely to result in a reliable interpretation of patent claim scope unless considered in the
context of the intrinsic evidence.”).
211
Coast Fed. Bank v. United States, 323 F.3d 1035, 1038 (Fed. Cir. 2003) (en banc).
212
See supra notes 159–174 and accompanying text.
208
209
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What Phillips Portends for Contract Interpretation
C. De Novo or Deferential Review on Appeal––An Issue Ripe for
Examination in Contract Interpretation Cases As Well
The Federal Circuit and its predecessor, the Court of Claims, have consistently held that contract interpretation, in all its aspects, is a question of
law that the appellate court reviews de novo.213 Judge Mayer in his dissent in
Phillips argued, in the strongest language, for the Federal Circuit to address
whether patent interpretation on appellate review should continue to receive
de novo review or, as he believes, “clear error” review under Federal Rule
of Civil Procedure 52.214 Once again, patents, due to their public nature,
present a stronger case for de novo review than do private contracts.215 But in
both cases, the Federal Circuit indulges in a legal fiction that interpretation
is always a question of law, rather than a question of fact.216 At least with
respect to contracts, the principal historical reason for this legal fiction has
largely passed.217 The Federal Circuit recently reevaluated the issue in the
contract-related field of bid protests,218 and it should do so with contract
interpretation issues as well.
1. The Suggestion of the Phillips Decision
The judges of the Federal Circuit in Phillips handled the issue of what
deference should be given to the findings of the trial court concerning the
proper interpretation of a patent in various ways.219 The court had requested
the parties to address the issue, but, “[a]fter consideration of the matter, [the
See, e.g., United Pac. Ins. Co. v. Roche, 401 F.3d 1362, 1365 (Fed. Cir. 2005); M.A.
Mortenson Co. v. Brownlee, 363 F.3d 1203, 1205 (Fed. Cir. 2004); Giove v. Dep’t of Transp.,
230 F.3d 1333, 1340 (Fed. Cir. 2000); Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990,
997 (Fed. Cir. 1996); Interwest Constr. v. Brown, 29 F.3d 611, 614 (Fed. Cir. 1994); Community Heating & Plumbing Co. v. Kelso, 987 F.2d 1575, 1579 (Fed. Cir. 1993); Fortec
Constructors v. United States, 760 F.2d 1288, 1291 (Fed. Cir. 1985); Dynamics Corp. of
Am. v. United States, 389 F.2d 424, 429 (Ct. Cl. 1968); Hol-Gar Mfg. Corp. v. United
States, 351 F.2d 972, 974 (Ct. Cl. 1965); Copco Steel & Eng’g Co. v. United States, 341
F.2d 590, 595 (Ct. Cl. 1965).
214
Phillips, 415 F.3d at 1330–35 (Mayer, J., dissenting). Rule 52 is identical under
both the Federal Rules of Civil Procedure and the Rules of the Court of Federal
Claims, the lower court whose appeals the Federal Circuit hears. See infra note 239 and
accompanying text.
215
See supra notes 175–182 and accompanying text.
216
See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1456 (Fed. Cir. 1998) (en banc);
Coast Fed. Bank v. United States, 323 F.3d 1035, 1037–38 (Fed. Cir. 2003) (en banc).
217
See infra notes 237–238 and accompanying text.
218
See Bannum, Inc. v. United States, 404 F.3d 1346, 1351, 1353–57 (Fed. Cir.
2005).
219
See generally Phillips, 415 F.3d at 1309–36.
213
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majority] decided not to address that issue at this time,” leaving undisturbed
the court’s prior en banc decision in Cybor Corp. v. FAS Technologies, Inc.220
Judge Lourie, who concurred in part and dissented in part with Judge Newman, disagreed with the majority’s decision to remand the matter to the district court for further consideration of the proper interpretation in light of its
decision.221 He then suggested a “middle-of-the-road” approach to appellate
review in these words: “Finally, even though claim construction is a question
of law, reviewable by this court without formal deference, I do believe that
we ought to lean toward affirmance of a claim construction in the absence
of a strong conviction of error.”222
It is not yet clear what Judge Lourie intends by this distinction between
formal and informal deference on review.223 Whatever the merits of this “leantoward-affirmance” view224 in reaching principled decisions, it does not fit
easily into the current categories, which draw a bright line between de novo
review and clear error review.
Judge Mayer in his dissent, which Judge Newman also joined, strongly
advanced the case for clear error review.225 In essence, he accused his colleagues
of continuing an unjustified power grab that permitted them to second-guess
trial courts, which have a much superior ability to determine the true intent
of the parties who developed and negotiated the patent.226 Judge Mayer’s main
point was that underlying issues of patent interpretation tie irreducibly to
factual determinations, and thus are subject to the normal Rule 52 “clearly
erroneous” standard of review for factual determinations.227
Id. at 1328. The Cybor court had held that patent claim construction is a matter of
law that the appellate court reviews de novo. Cybor, 138 F.3d at 1456.
221
Philips, 415 F.3d at 1329–30 (Lourie, J., concurring in part and dissenting in part).
222
Id. at 1330. As Judge Lourie did “not have such a conviction in this case, after considering the district court’s opinion and the patent specification,” he would have affirmed
the district court’s decision. Id.
223
Perhaps Judge Lourie is suggesting the “substantial evidence” standard of review courts
apply when reviewing administrative decisions, such as a board’s decision in a government
contracts case. See Koppers Co. v. United States, 405 F.2d 554, 557–58 (Ct. Cl. 1968). The
court presumes the validity of the board’s findings and upholds its decision if one could draw
two reasonable but contrary inferences from the record. See id.
224
Phillips, 415 F.3d at 1330 (Lourie, J., concurring in part and dissenting in part).
225
See id. at 1331–32 (Mayer, J., dissenting).
226
See id. 1330 (“In our quest to elevate our importance, we have, however, disregarded
our role as an appellate court; the resulting mayhem has seriously undermined the legitimacy
of the process, if not the integrity of the institution.”).
227
See id. at 1330–33. Rule 52(a) of the Federal Rules of Civil Procedure provide,
“Findings of fact . . . shall not be set aside unless clearly erroneous, and due regard shall be
given to the opportunity of the trial court to judge the credibility of the witnesses.” Fed.
220
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What Phillips Portends for Contract Interpretation
Judge Mayer supported his argument that “we are obligated by Rule 52(a) to
review the factual findings of the district court that underlie the determination
of claim construction for clear error”228 with an extended litany of the types
of subsidiary factual findings that patent interpretation cases often involve:
Claim construction is, or should be, made in context: a claim should be interpreted
both from the perspective of one of ordinary skill in the art and in view of the state
of the art at the time of invention. These questions, which are critical to the correct
interpretation of a claim, are inherently factual. They are hotly contested by the parties,
not by resort to case law as one would expect for legal issues, but based on testimony
and documentary evidence. During so[-] called Markman hearings, which are often
longer than jury trials, parties battle over experts offering conflicting evidence regarding who qualifies as one of ordinary skill in the art; the meaning of patent terms to
that person; the state of the art at the time of the invention; contradictory dictionary
definitions and which would be consulted by the skilled artisan; the scope of specialized terms; the problem of patent was solving; what is related or pertinent art; whether
a construction was disallowed during prosecution; how one of skill in the art would
understand statements during prosecution; and on and on.229
Judge Mayer’s arguments and observations apply even more directly to the
interpretation of private contracts. Because of the private nature of contracts,
the need for uniformity by having a single appellate forum resolve interpretation issues as a neutral observer (the, rationale that undergirds the Cybor
rule in patent cases230) does not apply with as much force in government
contract cases.231
In contract interpretation cases, the Federal Circuit has repeatedly instructed, just as Judge Mayer stated for patent claim construction,232 that
R. Civ. P. 52(a). Judge Mayer pointed out that the Supreme Court has explained that Rule
52(a) means “that findings of fact, even ‘those described as ultimate facts because they may
determine the outcome of litigation,’ are to be reviewed deferentially on appeal.” 415 F.3d
at 1331 (Mayer, J., dissenting) (quoting Bose Corp. v. Consumers Union of United States,
466 U.S. 485, 498, 501 (1984)).
228
Phillips, 415 F.3d at 1332 (Mayer, J., dissenting).
229
Id. at 1332 (citations omitted) (footnote omitted).
230
See Cybor Corp. v. FAS Techs., Inc., 138 F.3d 1448, 1455 (Fed. Cir. 1998) (en banc).
In Phillips, Judge Mayer ridiculed the result of the Cybor rule:
What we have wrought, instead, is the substitution of a black box, as it so pejoratively
has been said of the jury, with the black hole of this court. Out of this void we emit
legal pronouncements by way of interpretive necromancy; these rulings resemble
reality, if at all, only by chance. Regardless, and with a blind eye to the consequences,
we continue to struggle under this irrational and reckless regime, trying every alternative––dictionaries first, dictionaries second, never dictionaries, etc., etc., etc.
Phillips, 415 F.3d at 1330 (Mayer, J., dissenting) (citation omitted) (internal quotation
marks omitted).
231
See supra notes 177–182 and accompanying text.
232
Phillips, 415 F.3d at 1332 (Mayer, J., dissenting).
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contract construction must be made “in context.”233 Indeed, substituting
contract law terminology into a paraphrase of Judge Mayer’s litany illustrates
that one can produce an even longer listing of fact issues in contract interpretation cases:
[Contract] construction is, or should be, made in context: A [contract] should be
interpreted from the perspective of the parties and their primary purpose and, in appropriate situations, from the perspective of one knowledgeable in the trade and its
specialized vocabulary. These questions, which are critical to the correct interpretation
of a [contract], are inherently factual. They are hotly contested by the parties, not by
resort to case law as one would expect for legal issues, but based on testimony and
documentary evidence. During [fact-finding] hearings, parties battle over experts
offering conflicting evidence regarding who qualifies as one knowledgeable in the industry; the meaning of [contract] terms to that person; the [party’s past practice under
similar contracts and whether that is relevant to the contract being interpreted; what
the parties told each other at the time of contracting concerning how they understood
the arrangement and how it would be applied; how the parties performed under the
agreement prior to dispute and whether that performance was consistent enough to
indicate acquiescence in the other party’s interpretation of the disputed provision;
what other provisions in the contract mean and how they are best harmonized with
the disputed provision; the scope of specialized terms; whether a construction was
rejected during the negotiations]; and on and on.234
Issues of this type look, taste, and feel like questions of fact. If it were a tort
action, questions of this type would undoubtedly be considered questions of
fact subject to clearly erroneous appellate review.235 What makes it different
in contract cases?
The historical answer suggested by the compilers of the Restatement is
that it resulted, at least partly, from the fact that jurors were often illiterate,
making it illogical to refer matters of written contract to them.236 That rationale, though, maintains little present significance in this country, even when
a jury is involved.237 It certainly does not apply in a government contract
interpretation case decided by a judge of a board of contract appeals or of
the Court of Federal Claims.
The reality as viewed by Professor Corbin is this: “[i]f the only issue presented by the conflicting evidence is the interpretation of language, it is a
See, e.g., Metric Constructors, Inc. v. NASA, 169 F.3d 747, 752 (Fed. Cir. 1999);
Consumers Ice Co. v. United States, 475 F.2d 1161, 1167 (Ct. Cl. 1973); Hol-Gar Mfg.
Corp. v. United States, 351 F.2d 972, 974 (Ct. Cl. 1965).
234
Phillips, 415 F.3d at 1332 (Mayer, J., dissenting) (citations omitted) (footnote omitted) (replacing patent language with contract language).
235
See, e.g., Klein v. District of Columbia, 409 F.2d 164, 167 (D.C. Cir. 1969); cf.
Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985) (applying clearly erroneous
review in a discrimination action).
236
Restatement (Second) of Contracts § 212 cmt. d (1981).
237
See id.
233
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What Phillips Portends for Contract Interpretation
question of fact with which no question of law is mixed.”238 The authors of the
Restatement basically concur, drawing an appropriate line between disputed
issues of interpretation (which revolve around questions of fact) and issues
of interpretation upon which there is only one reasonable resolution (which
courts may decide as a matter of law).239 In addition, the Restatement provides that, if the agreement is fully integrated and the court is to interpret it
on the face of the contract, without extrinsic evidence, the appellate judges
sit in the same position as the trial court to make the determination, and so
the issue of interpretation becomes a matter of law.240
There have been occasional cracks in the otherwise solid wall that the Federal Circuit and its predecessor, the Court of Claims, constructed requiring
courts to consider contract interpretation issues de novo on appeal.241 Under
the Wunderlich Act,242 the Court of Claims initially noted that it would have
to resolve the issue of whether contract interpretation involved questions of
fact in later decisions,243 but it soon settled into resolution of all such issues
being matters of law, not of fact.244 More recently, in Blue Cross & Blue Shield
Corbin on Contracts, supra note 182, § 24.30, at 339 (emphasis omitted).
See Restatement (Second) of Contracts § 212 cmts. d, e.
240
See id. In this situation, the determination is the same as review of summary judgment issued by the trial court. Appellate review in such a situation is de novo. See, e.g., NVT
Techs., Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004); Galen Med. Assocs., Inc.
v. United States, 369 F.3d 1324, 1329 (Fed. Cir. 2004); Info. Tech & Applications Corp. v.
United States, 316 F.3d 1312, 1318 (Fed. Cir. 2003). With respect to summary judgment
regarding contract law, the First Circuit explained:
In our opinion, an argument between the parties about the meaning of a contract
is typically an argument about a material fact, namely, the factual meaning of the
contract. But, sometimes this type of argument raises no genuine issue. The words of a
contract may be so clear themselves that reasonable people could not differ over their
meaning . . . . Courts, noting that the judge, not the jury, decides such a threshold
matter, have sometimes referred to this initial question of language ambiguity as a
question of law, which we see as another way of saying that there is no genuine factual
issue left for a jury to decide.
238
239
Boston Five Cents Sav. Bank v. HUD, 768 F.2d 5, 8 (1st Cir. 1985). For an exploration
of plain meaning and the appropriate standard of appellate review, see Johnson, supra note
64, at 652–56.
241
See infra notes 243–251 and accompanying text.
242
Pub. L. No. 83-356, 68 Stat. 81 (1954) (codified as amended at 41 U.S.C. §§ 321,
322 (2000)).
243
See WPC Enters., Inc. v. United States, 323 F.2d 874, 878 (Ct. Cl. 1964).
244
See, e.g., Dynamics Corp of Am. v. United States, 389 F.2d 424, 429 (Ct. Cl. 1968).
Johnson suggested, as did Judge Mayer in his dissent in Phillips, that the court’s gravitating to
the de novo standard was motivated by the court’s desire to retain appellate power. See Johnson,
supra note 64, at 652–53; Phillips v. AWH Corp., 415 F.3d 1303, 1330 (Fed. Cir. 2005)
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United v. United States,245 an unpublished opinion, the Federal Circuit considered the proper interpretation of an income tax settlement agreement.246
The court refused to decide the interpretational issue on appeal, finding that
the contract was ambiguous and “that the matter must be remanded for consideration of the extrinsic evidence by the trier of fact.”247 In support of this
proposition, the panel cited248 both Williston on Contracts249 and Corbin
on Contracts.250 If a contract interpretation issue is ambiguous and requires
the trier of fact to consider extrinsic evidence, it is hard to understand how it
transforms itself into a matter of law when it moves to the Court of Appeals
after fact finding.
More significantly, the Supreme Court has indicated that it expects courts
to follow the principles stated in the Restatement when setting the standard
of appellate review for contract interpretation.251 In Sun Oil Co. v. Wortman,252
the Supreme Court considered whether the language used in a contract had
a specialized trade usage.253 Citing the Restatement for “standard contact
law,” the Court held in part that “the existence and scope of a particular usage is usually a question of fact,” not of law.254 The Federal Circuit has never
grappled with the relevance of the Supreme Court’s treatment of this issue
in Sun Oil.255
2. The Example of the Bannum Decision
The Federal Circuit recently demonstrated the importance of reanalyzing
whether it should apply the de novo or clearly erroneous review standard in
(en banc), cert denied, 126 S. Ct. 1332 (2006) (Mayer, J., dissenting) (“We have . . . focused
inappropriate power in this court . . . [i]n our quest to elevate our importance . . . .”).
245
117 F. App’x 89 (Fed. Cir. 2004) (unpublished opinion).
246
Id. at 89.
247
Id. at 94.
248
Id.
249
“The general rule is that interpretation of a writing is for the court . . . . Where, however, the meaning of a writing is uncertain or ambiguous, and parol evidence is introduced
in aid of its interpretation, the question of its meaning should be left to the jury.” 4 Samuel
Williston, A Treatise on the Law of Contracts § 616, at 649, 652 (Walter H.E. Jaeger
ed., 3d ed. 1961).
250
“The question of interpretation of language and conduct––the question of what is
the meaning that should be given by a court to the words of a contract, is a question of fact,
not a question of law.” 3 Corbin, supra note 173, § 554, at 219.
251
See Sun Oil Co. v. Wortman, 486 U.S. 717, 731–32 n.4 (1988).
252
486 U.S. 717 (1988).
253
Id. at 731–32 n.4.
254
Id. (citing Restatement (Second) of Contracts § 221 cmt. a (1981)).
255
In the eighteen years since the Supreme Court’s decision in Sun Oil, the Federal Circuit
has never cited or relied upon its holdings.
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What Phillips Portends for Contract Interpretation
the related field of bid protests.256 Bannum, Inc. v. United States257 involved a
bid protest brought under the judicial review section of the Administrative
Procedure Act (APA),258 and Judge Gajarsa for the unanimous panel carefully
considered the appropriate standard of review upon appeal related to different
aspects of the case.259 The analysis of what appellate review standard applied
to the merits was straightforward.260 The trial court had found error on the
administrative record under the APA’s “arbitrary and capricious” and “not in
accordance with law” standards.261 The panel reviewed the merits findings of
the Court of Federal Claims under the same APA review standards and without deference.262 The ruling was appropriate considering the circumstances
of the case, in which the trial court did not make a record, because the appellate judges are in the identical situation as the trial judge in determining
the legality of the actions on a purely paper record.263
Bid protests often involve the interpretation of a solicitation, which also presents a
question of law. See, e.g., NVT Techs., Inc. v. United States, 370 F.3d 1153, 1159 (Fed.
Cir. 2004); Banknote Corp of Am., Inc. v. United States, 365 F.3d 1345, 1353 (Fed. Cir.
2004); Stratos Mobile Networks USA, LLC v. United States, 213 F.3d 1375, 1380 (Fed.
Cir. 2000).
257
404 F.3d 1346 (Fed. Cir. 2005).
258
Id. at 1351.
259
Id. at 1351, 1353–57. Chief Judge Michel and Judge Newman were the other two
judges on the panel. Id. at 1349.
260
Id. at 1351, 1353.
261
Id. at 1351.
262
Id. at 1351.
263
In this sense, a judgment on the paper administrative record will normally be analogous
to review of a summary judgment on uncontroverted facts. In some circumstances, however,
supplementation of the informal administrative record in bid protest cases is appropriate.
See, e.g., Info. Tech. & Applications Group v. United States, 316 F.3d 1312, 1324 n.2 (Fed.
Cir. 2003); Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324,
1337–39 (Fed. Cir. 2001); Cubic Applications, Inc. v. United States, 37 Fed. Cl. 345, 350
(1997) (observing that the administrative record in a procurement context is “something of
a fiction, and certainly cannot be viewed as rigidly as if the agency had made an adjudicative
decision on a formal record that is then certified for court review”). In such cases, the rules
for supplementation set out by the District of Columbia Circuit in Esch v. Yeutter, 876 F.2d
976, 991 (D.C. Cir. 1989), are followed. See, e.g., Marine Hydraulics Int’l, Inc. v. United
States, 43 Fed. Cl. 664, 670 (1999); United Int’l Investigative Servs., Inc. v. United States,
41 Fed. Cl. 312, 319 (1998); CRC Marine Servs., Inc. v. United States, 41 Fed. Cl. 66, 84
(1998). The Esch rules, in appropriate circumstances, allow supplementation of the record
by affidavits, depositions, and/or oral testimony. See, e.g., Galen Med. Assocs., Inc. v. United
States, 56 Fed. Cl. 104, 109 (2003) (depositions), aff’d, 369 F.3d 1324 (Fed. Cir. 2004);
Emery Worldwide Airlines, Inc. v. United States, 49 Fed. Cl. 211, 219 (2001) (depositions),
aff’d, 264 F.3d 1071 (Fed. Cir. 2001); Dubinsky v. United States, 43 Fed. Cl. 243, 245 n.4,
256
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Having found error, the trial court next had to determine “if the bid
protestor was prejudiced by that conduct.”264 The trial court found that the
conduct did not prejudice the bid protestor and entered judgment for the
government under Court of Federal Claims Rule 56.1, “Review of Decision
on the Basis of Administrative Record.”265 The panel determined that, as to the
trial court’s prejudice determination, it should not apply a de novo appellate
review standard.266 Instead, distinguishing dicta in others of its decisions indicating de novo review applied to all aspects of a bid protest appeal, the panel
ruled that it should apply the deferential, clear error standard of Rule 52(a)
to the prejudice finding.267 It based that ruling on the fact that the Court of
Federal Claims in making its prejudice determination was required “to make
factual findings from the record evidence as if it were conducting a trial on
the record.”268 When there is such fact finding, the Bannum court accurately
discerned that clearly erroneous appellate review is appropriate.269
252 (1999) (oral testimony). In these circumstances, the Court of Federal Claims is making
findings of subsidiary fact as to what occurred in the challenged agency procurement action.
Courts should accord validity to those subsidiary facts on appeal unless they are clearly erroneous, rather than review them de novo. See Fed. Cl. R. 52(a).
264
Bannum, 404 F.3d at 1351, 1353.
265
Id. at 1357–58. Rule 56.1(a) read as follows: “RCFC 56(a)–(b) apply, with the
exception that any supplementation of the administrative record shall be by stipulation or
by court order.” Fed. Cl. R. 56.1(a) (repealed 2006). The panel went to some pains to distinguish judgment on the administrative record under Rule 56.1 from summary judgment
under Rule 56, as appeals from rulings on summary judgment are considered de novo by
the Federal Circuit. Bannum, 404 F.3d at 1354–56; see also, e.g., R&W Flammann GmbH
v. United States, 339 F.3d 1320, 1322 (Fed. Cir. 2003); Stratos Mobile Networks USA,
LLC v. United States, 213 F.3d 1375, 1379 (Fed. Cir. 2000). The Court of Federal Claims
has recently amended its rules to abrogate Rule 56.1 and to replace it with new Rule 52.1,
effective June 20, 2006, for the stated reason of eliminating confusion as to the applicable
standard or standards to be applied in cases involving an administrative record. See Fed. Cl.
R. 52.1, Rules Committee Note 2006 Adoption.
266
Bannum, 404 F.3d at 1357.
267
Id. at 1354.
268
Id.
269
Id. However, the Bannum court’s analysis is faulty in several particulars. First, the panel
misstated the legal standard to be whether the errors “significantly prejudiced” the protestor.
Id. at 1353. Only “prejudicial error” need to be shown, not “significant prejudice.” See 5
U.S.C. § 706 (2000); see also Frederick W. Claybrook, Jr., The Initial Experience of the Court
of Federal Claims in Applying the Administrative Procedure Act in Bid Protest Actions–Learning
Lessons All Over Again, 29 Pub. Cont. L.J. 1, 40–45 (1999). Second, the prejudice analysis is
not properly considered under Rule 56.1, as it is not an administrative decision. See Fed. Cl.
R. 56.1(a) (repealed 2006). It typically requires a factual showing that was not made before
the agency. See Claybrook, supra, at 26–27. The prejudice analysis can be made under Rule
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What Phillips Portends for Contract Interpretation
The Federal Circuit should apply the same type of discriminating analysis
it performed in Bannum in its contact interpretation cases. If the trial court
or board rested its contact interpretation solely on the written record, then
the appellate court should review it de novo, as de novo review is akin to
summary judgment on undisputed facts and requires no credibility determinations.270 If the court is dealing only with standard clauses from the Federal
Acquisition Regulation,271 de novo review is appropriate, because the parties have not negotiated these clauses, which have standard, trade practice
meanings.272 A question of law arises when the court can reach only one
reasonable result because “there is no genuine factual issue left for a [finder
of fact] to decide.”273 However, if the court considers extrinsic evidence, as it
often should,274 the court is resolving questions of fact and should apply the
clearly erroneous standard of review per Rule 52(a).275 Adopting this resolution would be consistent with the Restatement and the clear indications of
the Supreme Court.276
If the Federal Circuit recognizes a need to reassess its case law both in the
field of patent interpretation (for which one could argue that statutory law
requires a third-party review)277 and in the field of bid protests (which are
akin to contract actions),278 the court should also reassess the appellate review
56 if affidavits demonstrating prejudice are not contested by the agency or uncontested facts
based on the administrative record are solely used to prove prejudice (in which case review
would be de novo). But if oral testimony is taken and/or credibility determinations made,
these are fact findings entitled to clearly erroneous appellate review. Fed. R. Civ. P. 52(a).
270
See supra note 264 and accompanying text.
271
Title 48 of the Code of Federal Regulations.
272
Restatement (Second) of Contracts § 212 cmt. d (1981) (“In cases of standardized contracts such as insurance policies, [reviewing as a question of law] provides a method
of assuring that like cases will be decided alike.”).
273
Boston Five Cents Sav. Bank v. HUD, 768 F.2d 5, 8 (1st Cir. 1985) (emphasis omitted).
274
See supra Part I.
275
See Harbert/Lummus Agrifuels Projects v. United States, 142 F.3d 1429, 1432 (Fed.
Cir. 1998) (“[W]e review conclusions of law de novo and findings of fact for clear error.”).
See also Kimco Realty Corp. v. United States, No. 05-5181, 2006 WL 1813911, at *5 (Fed.
Cir. June 30, 2006) (holding that directing the entry of summary judgment on appeal is
“unusual . . .[and] reserved for circumstances in which the outcome is not in doubt and no
useful purpose would be served by further proceedings on remand”).
276
See supra notes 252–255 and accompanying text. The Supreme Court recently applied
a mixed standard of appellate review. Gonzales v. O Centro Espirita Beneficente Uniao do
Vegetal, 126 S. Ct. 1211, 1219 (2006) (“We review the District Court’s legal rulings de novo
and its ultimate decision to issue the preliminary injunction for abuse of discretion.”).
277
See supra note 177–178 and accompanying text.
278
See supra note 257 and accompanying text.
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standard for contract interpretation issues and strive for a comprehensive
and uniform approach among similar issues. It should discard its tendency
to resort to legal fictions and recognize that contract interpretation often
involves findings of fact that deserve deferential appellate review. The court
should conduct appellate surgery with a scalpel, not a hammer.
Conclusion
By eschewing a dictionaries-first approach to patent construction, the en
banc Federal Circuit in Phillips undercut its contract interpretation rulings
giving conclusive primacy to plain-meaning, general-usage definitions.279 The
court should follow the lead of the Supreme Court and adopt the interpretation
principles of the Restatement. This would not be a major reversal of direction, because the Federal Circuit has articulated and applied these principles
in various cases for many years.280 The court should give presumptive weight
to the dictionary-definition meaning of a contract, but not to the exclusion
of other expressed indicators of the meaning the parties themselves attached
to the language, which should be permitted to override a dictionary or common usage analysis in appropriate cases.281
Similarly, the Federal Circuit should give renewed attention to the appellate
review standard for contract interpretation findings of the Court of Federal
Claims and boards of contract appeals. It should also adopt the principles set
out in the Restatement in this respect. When more than just a facial reading
of the contract is involved, the trial tribunal’s findings of fact are entitled to
deference.282 Judge Mayer’s lament in Phillips that the standard of appellate
review needs a thorough reanalysis283 is even more appropriate for contract
than patent cases, and the Federal Circuit in Bannum demonstrated that it
understands it should apply clearly erroneous appellate review to findings
of fact even when other portions of the case receive de novo review.284 The
time has come for the Federal Circuit to reanalyze whether appellate review
of contract interpretation is a one-size-fits-all exercise.
See supra Part II.B.
See supra Part II.A.4.
281
See supra Part II.A.3.
282
See supra Part II.C.2.
283
See Phillips, 415 F.3d at 1330–35 (Mayer, J., dissenting).
284
See supra Part II.C.2.
279
280
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