[00:00:02] Speaker 00: The next case for argument is 15-1291 Laguna Construction Company versus De Fette. [00:00:09] Speaker 00: Ms. [00:00:09] Speaker 00: Callaway, whenever you're ready. [00:00:14] Speaker 02: May it please the court. [00:00:15] Speaker 02: I'm Carolyn Callaway. [00:00:17] Speaker 02: I represent Laguna Construction Company. [00:00:19] Speaker 02: There are two issues in this case. [00:00:22] Speaker 02: The first is whether the board actually had jurisdiction over the government's affirmative defense of fraud, or whether it was a claim that needed to be submitted for a contracting officer's final decision. [00:00:35] Speaker 02: The government's affirmative defense has all the hallmarks of a claim. [00:00:42] Speaker 02: That is, it sought a reduction in the amount owed by the government to Laguna, which is [00:00:52] Speaker 02: definitely a request for a change in contract terms or a change in monetary award, both of which require final decision by the contracting officer. [00:01:04] Speaker 06: The standard under the regulation, is that what you're proceeding under, the definition of claim under the regulation? [00:01:12] Speaker 06: Yes. [00:01:12] Speaker 06: So the government is not seeking money damages, so we can put that aside. [00:01:16] Speaker 06: And am I remembering right, the other two ways in which an assertion can be a claim is that the assertion require or involve, I'm not sure what the term is, either an interpretation of the contract or an adjustment of the contract. [00:01:32] Speaker 02: An interpretation of the contract or an adjustment in terms. [00:01:35] Speaker 02: The effect here, though, was that the government achieved a reduction in the [00:01:42] Speaker 02: its commitment to pay the incurred cost under a cost reimbursable contract of about three million dollars. [00:01:49] Speaker 05: But if that's a government claim, then every affirmative defense could be a government claim in your view. [00:01:56] Speaker 02: No. [00:01:57] Speaker 02: I think it's easily distinguished from traditional affirmative defenses like waiver, accord, and satisfaction. [00:02:05] Speaker 05: Why? [00:02:05] Speaker 05: Because if they went on that, they're still going to get the contract price reduced in some way. [00:02:13] Speaker 02: I don't know that it would be getting the contract price reduced. [00:02:17] Speaker 02: I think the way to look at it though is that if you could have achieved the same result by going to the board yourself, if you could have gone and made a claim to the board to reduce the amount of incurred costs by $3 million, then it becomes a claim. [00:02:34] Speaker 02: Or if you are asking for an adjustment in terms like ignoring the dispute clause, the determination clause, [00:02:43] Speaker 02: That would be a claim, too. [00:02:46] Speaker 06: Well, their contention, and I'm confused about this, so I wonder if you can help clarify. [00:02:51] Speaker 06: And that is that the relation between your jurisdictional argument, the argument that the government can't go to the board because it didn't present what it's now arguing to the contracting officer, and what feels like a merits contention, which is that [00:03:11] Speaker 06: the incorporated FAR provision specifies the mandatory steps for the government to take to terminate and the mandatory remedies if there is a termination based on [00:03:28] Speaker 06: Laguna default and they didn't comply with that far provision and so they can't come in because it would be a violation of the provision they themselves put into the contract and say you materially breached so we can we don't have to perform including payment and I just don't understand the relation between what seems a merits argument and your jurisdiction argument. [00:03:57] Speaker 02: two separate arguments, at least in my mind. [00:04:05] Speaker 02: In the first instance, should the board have even accepted this affirmative defense for a decision would be the jurisdictional argument. [00:04:14] Speaker 02: The second argument is assuming that they had jurisdiction and that Laguna breached, which we, of course, dispute. [00:04:23] Speaker 02: We do not believe that there was a breach here. [00:04:27] Speaker 02: or at least a material breach. [00:04:30] Speaker 02: Was it correct for the board then to reduce the amount payable under the contract for the incurred cost? [00:04:37] Speaker 02: The board assumed that the incurred cost claim was correct. [00:04:42] Speaker 05: That's kind of a fundamental proposition. [00:04:44] Speaker 05: Do you think that in government contracts, this doctrine of a prior material breach by one party can excuse a breach by a later party is viable? [00:04:57] Speaker 05: I don't believe so because... I can understand why you'd argue about that, but haven't we recognized that doctrine in the Jets case, in the Christopher Village case, and in other cases involving government contracts? [00:05:14] Speaker 02: Well, the Christopher Village case was not a procurement contract. [00:05:20] Speaker 02: It was not under the federal acquisition regulation. [00:05:23] Speaker 02: It wasn't a cost-reimbursable contract. [00:05:25] Speaker 02: It just really is not at all like this contract. [00:05:28] Speaker 05: But that's not answering the basic question I asked, which was, does this prior material breach doctrine? [00:05:35] Speaker 05: Is it viable in government contract cases at all? [00:05:37] Speaker 05: I mean, I understand that you want to make a distinction between FAR contracts and non-FAR government contracts. [00:05:43] Speaker 05: Maybe there is some difference, but do you accept that we have at least applied it in non-FAR government contract cases? [00:05:51] Speaker 02: Yes, on very different facts. [00:05:57] Speaker 05: I think the rule is... What would be the reason, because it's a common law doctor, right? [00:06:04] Speaker 02: Yes. [00:06:05] Speaker 05: So what would be the reason for not applying it in a FAR contract as opposed to some other kind of government contract? [00:06:13] Speaker 02: Two reasons. [00:06:14] Speaker 02: First is that the FAR itself, the Federal Acquisition Regulation, provides a means of dealing with breaches and disputes, which is in the contract. [00:06:25] Speaker 02: This contract was not declared void. [00:06:26] Speaker 05: Is there any indication that the FAR, has anybody ever held that by enactment of the FAR and the CDA that these common law defenses were abrogated? [00:06:41] Speaker 02: My understanding is that federal government contracts are governed by federal common law unless it has been replaced by statute. [00:06:53] Speaker 05: And we recognize in Christopher Village at least that one of those defenses can be the prior material breach. [00:06:59] Speaker 02: Right. [00:07:00] Speaker 02: And so I think the question then becomes is that if there is a prior material breach, what is the remedy [00:07:07] Speaker 05: But the point of the doctrine is, if there's a prior material breach, it excuses a later breach by the other party. [00:07:15] Speaker 05: That's the common law of defense. [00:07:17] Speaker 02: It excuses it, but there is the question of what happens then, and if the party who is the second breacher does not discontinue the contract, [00:07:36] Speaker 02: then they have waived their right to discontinue and can seek damages, but they can't actually, at that point, just walk away. [00:07:46] Speaker 02: They can seek damages. [00:07:48] Speaker 02: They may be awarded damages, or they can terminate the contract. [00:07:53] Speaker 02: Neither of those happened here. [00:07:55] Speaker 06: I guess I was, although I was somewhat confused about the relation of several pieces here, [00:08:04] Speaker 06: I came down to thinking that your argument about the prior material breach law was essentially twofold. [00:08:14] Speaker 06: One, that the government [00:08:19] Speaker 06: didn't timely assert it, but instead, in fact, continued with the contract by accepting some of the goods and paying. [00:08:27] Speaker 06: And once you do that, you can't later say, OK, now it's all over. [00:08:32] Speaker 06: You can't terminate it. [00:08:32] Speaker 06: And the second would be picking up on what's in comment A of the restatement provision on prior material breach, which says the parties can, of course, agree to a different procedure. [00:08:45] Speaker 06: and that your view is that a contract that incorporates the FAR provision is, in fact, a provision that displaces the background common law that says a prior material breach allows, in this case, would allow the non-breaching party simply to say, we walk away, we don't need to perform anything. [00:09:08] Speaker 02: Am I getting it? [00:09:09] Speaker 02: I think that is correct. [00:09:12] Speaker 06: And I don't remember the details, but would that be an explanation for distinguishing Christopher Village and the other cases where there's no FAR provision incorporated into the contract? [00:09:26] Speaker 02: I would certainly think so. [00:09:29] Speaker 05: Wouldn't the Christopher Village contract likely have included different procedures for resolving disputes as well? [00:09:38] Speaker 02: I haven't seen the Christopher Village contract, but my understanding is that... Well, it's one of the HUD housing contracts. [00:09:45] Speaker 05: I mean, they're extremely lengthy and have all kinds of provisions and unlikely provisions involving default and the like. [00:09:53] Speaker 02: Well, I know that there was a clause that said if Christopher Village defaulted, [00:10:01] Speaker 02: then the government could foreclose. [00:10:05] Speaker 05: One thing that I can't quite figure out from the brief and the record here is what are these invoices for and was the government continuing to accept payment for services [00:10:21] Speaker 05: that you were performing after it learned of the fraud, or was the fraud discovered after the contract was essentially done? [00:10:29] Speaker 05: And these invoices are essentially clean-up invoices to recover various other costs relating to already performed work. [00:10:37] Speaker 05: As far as I could tell, most of the invoices seemed to bill for a tax. [00:10:43] Speaker 02: Yes. [00:10:45] Speaker 02: The question of when was the fraud discovered would be [00:10:51] Speaker 02: 2008, early 2009 at the latest. [00:10:56] Speaker 02: Laguna was continuing to perform, continuing to submit invoices after that date. [00:11:00] Speaker 05: When you say you were continuing to perform, what do you mean you were continuing to perform? [00:11:03] Speaker 02: They were building buildings in Iraq. [00:11:07] Speaker 05: And was there official acceptances of those buildings after? [00:11:10] Speaker 05: Yes. [00:11:10] Speaker 05: Where is any of that in the record? [00:11:13] Speaker 02: There's an admission. [00:11:14] Speaker 02: It's in the complaint and the answer. [00:11:18] Speaker 02: The documents aren't actually in the record. [00:11:23] Speaker 05: Well, it's really hard to figure out what's going on when none of it's in the record, and the facts don't really tell us that. [00:11:30] Speaker 06: The government, I think, at least according to a note I have on page 53 of its brief, says that Laguna's physical work was completed in 2010. [00:11:41] Speaker 02: Is that... That's probably correct. [00:11:46] Speaker 02: But if I can just explain what happened here. [00:11:51] Speaker 02: So they were billing during the period through whatever it was in 2010 for actual work performed. [00:11:58] Speaker 02: At some time prior, I think it was 2006, the Defense Contract Audit Agency had raised a question about the Pueblo Laguna tax and would not allow them to bill it. [00:12:10] Speaker 02: So finally when that got resolved in 2011, they [00:12:16] Speaker 02: were able to bill for the tax and some fee that was remaining. [00:12:20] Speaker 05: So let me, I'm still a little fuzzy, but at the time you submitted these invoices that are issued here, when did that happen? [00:12:29] Speaker 05: Is that in 2011? [00:12:29] Speaker 02: These invoices were submitted in I believe August and September of 2011. [00:12:37] Speaker 05: So that was after the fraud was discovered? [00:12:41] Speaker 02: Yes, and so were [00:12:43] Speaker 02: quite a few of the ones submitted for the work in Iraq in 2009, 2010. [00:12:47] Speaker 05: But those aren't the invoices we're talking about. [00:12:49] Speaker 02: No, they're not. [00:12:50] Speaker 05: We're talking about these invoices and whether they can assert defense as to these particular invoices. [00:12:58] Speaker 02: Well, they did come after. [00:12:59] Speaker 02: Now, there was... After what? [00:13:02] Speaker 02: After the discovery of the fraud. [00:13:05] Speaker 00: Did the invoices were submitted or that the work upon which the invoices are based was performed? [00:13:16] Speaker 02: Because these are Pueblo Laguna tax invoices for the most part, they would have covered the entire period from 2005 to 2010, the work done in that period. [00:13:28] Speaker 02: They were just, because the government had refused to pay them earlier, [00:13:33] Speaker 02: They had to be billed when the government finally said yes, you can bill it. [00:13:38] Speaker 02: There was, however, one more invoice after these 14 invoices that was submitted and paid for $3.5 million. [00:13:50] Speaker 06: Can I ask, what would be the consequence if we were to agree with your jurisdictional argument that the government could not go to the board and make this affirmative defense without going to the contracting office, contract officer? [00:14:08] Speaker 02: Then I think the board would take up our summary judgment motion, which has [00:14:16] Speaker 02: It was denied because of the affirmative defense. [00:14:19] Speaker 05: It was not considered on the merits. [00:14:22] Speaker 05: Could the contracting officer issue a fraud claim? [00:14:27] Speaker 02: No. [00:14:28] Speaker 05: So isn't the consequence of your argument that if you elect to go to the board and you think the board doesn't have jurisdiction over a fraud defense like this, then the government is precluded from asserting fraud in a contract. [00:14:42] Speaker 00: Oh, not all. [00:14:44] Speaker 05: Well, the only way they could do it is that they file their own claim in district court. [00:14:49] Speaker 05: Whereas if you would go into the court of federal claims, I think you'd agree there'd be no problem whatsoever with them asserting a fraud counterclaim here. [00:15:01] Speaker 02: The government has many, many tools to deal with fraud. [00:15:05] Speaker 02: The Anti-Kickback Act [00:15:07] Speaker 02: which addresses this very issue of employees taking kickbacks from subcontractors, is the way that the government has to recover. [00:15:16] Speaker 02: Not only the amount of the kickback, but double. [00:15:17] Speaker 05: But not exclusively. [00:15:18] Speaker 05: I mean, there's plenty of precedent the government cited that it doesn't have to only rely on the anti-kickback. [00:15:23] Speaker 05: It can use kickbacks as a basis for an affirmative defense of fraud, right? [00:15:29] Speaker 02: Well, they have here. [00:15:39] Speaker 02: I think that this is covered in my brief, but the Anti-Kickback Act tries to allocate the risk of the kickbacks between the two parties. [00:15:54] Speaker 02: They realize that quite, I think the Anti-Kickback Act brings into this, they realize that they cannot prevent kickbacks because employees go off and do this without your knowledge. [00:16:09] Speaker 02: But they have provided a way to recover that through the Anti-Kickback Act or through the False Claims Act or whatever. [00:16:19] Speaker 00: But there's nothing in the Anti-Kickback Act that says it's the exclusive procedure for doing this. [00:16:24] Speaker 00: Indeed, the provision we're talking about says the contracting officer may [00:16:29] Speaker 00: may offset. [00:16:30] Speaker 00: Right. [00:16:31] Speaker 00: It doesn't compel an offset. [00:16:34] Speaker 00: It seems to allow for other things. [00:16:36] Speaker 00: And in addition, there's nothing that would limit, that says this shall be the only procedure upon which, et cetera. [00:16:43] Speaker 02: No. [00:16:43] Speaker 02: And when it says it may offset, that becomes a claim by the government, which can be challenged by the contractor. [00:16:52] Speaker 02: It's not just an automatic, we take your money back. [00:16:54] Speaker 02: It's a claim. [00:16:55] Speaker 02: Right. [00:16:59] Speaker 00: But your argument here is that that's the exclusive procedure that they could have pursued. [00:17:04] Speaker 02: Well, under CASEL, they can also terminate the contract. [00:17:07] Speaker 02: There's no doubt about that. [00:17:09] Speaker 02: The government always has the option of terminating the contract. [00:17:12] Speaker 00: Well, if they didn't discover this or didn't feel like they had sufficient basis for doing so until 2010, then that wouldn't get us anywhere, right? [00:17:20] Speaker 00: Because you said the relevant work that we're talking about for which these expenses were incurred occurred before 2010. [00:17:28] Speaker 02: The government had knowledge as early as 2008. [00:17:31] Speaker 05: Do they have to terminate the contract, or couldn't they just refuse to pay for the invoices? [00:17:36] Speaker 02: I don't see how they can... What's the difference there? [00:17:39] Speaker 02: Well, if they terminated the contract, even for default, Laguna would be entitled to its incurred costs, plus its reasonable portion of fee, under the terms of the contract. [00:17:51] Speaker 02: The contract is not declared void, ab initio. [00:17:55] Speaker 02: But that term would still apply. [00:17:57] Speaker 05: Wait, so you think that if they terminated the contract, they'd still have to pay you all these costs? [00:18:02] Speaker 02: That's what the contract clause says. [00:18:03] Speaker 05: So in your view, there's just no way for them to use this doctrine of prior material breach to defend against these costs? [00:18:14] Speaker 02: I think that would be correct, yes. [00:18:18] Speaker 02: Because the government has plenty of tools to get this. [00:18:21] Speaker 05: So it doesn't matter whether they terminate for default or not, in your view. [00:18:23] Speaker 05: It's just not a permissible doctrine. [00:18:30] Speaker 02: But if the point is recovering the money, they had, if it was a prior material breach, they had the opportunity to terminate. [00:18:41] Speaker 02: They had the opportunity to seek damages. [00:18:44] Speaker 05: But you just said if they terminate, they still couldn't defend against those costs. [00:18:48] Speaker 02: The cost-reimbursable contracts are designed that way for a purpose. [00:18:55] Speaker 02: They're used when [00:18:57] Speaker 02: a job is high risk, you can't do it. [00:18:59] Speaker 05: I don't want to take up too much of your time, but if I get what you're saying, you're saying that even, and I know you probably dispute these facts, but even if invoices are affected by fraud, that the government cannot defend against failure to pay based upon this doctrine, that their only way to do it would be perhaps to file some kind of false claims act in district court. [00:19:20] Speaker 05: or something else that I can't even think of, rather than just when you file seeking these claims paid, defending against them on that grounds. [00:19:30] Speaker 05: Is that right? [00:19:30] Speaker 05: Yes. [00:19:32] Speaker 05: OK. [00:19:34] Speaker 00: OK. [00:19:34] Speaker 00: So why don't we turn to the other side and we'll just go to the other side. [00:19:46] Speaker 01: May it please the court. [00:19:49] Speaker 01: Laguna breached the contract in two respects. [00:19:52] Speaker 01: First, to the extent that these cost reimbursement vouchers were inflated by the kickbacks, the contractor materially breached the allowable cost and payment clause, which is at FAR 52.216-7. [00:20:06] Speaker 06: I thought that there was no finding that these vouchers were in fact inflated. [00:20:16] Speaker 01: the uh... that is a these vouchers include various amounts. [00:20:23] Speaker 01: They do include subcontractor costs. [00:20:27] Speaker 01: The board did not find, did it? [00:20:30] Speaker 06: That's correct. [00:20:31] Speaker 06: The board did not find that these 14... That can't be the breach. [00:20:37] Speaker 01: I agree, but the board did find a breach. [00:20:40] Speaker 01: The board found that there were cost reimbursement vouchers that were submitted, that were paid, that were inflated by these kickbacks. [00:20:49] Speaker 01: And that was a breach of the allowable cost and payment clause. [00:20:54] Speaker 00: But aren't we talking here, isn't the sum in dispute largely, almost entirely, based on amounts that weren't infected by the kickbacks? [00:21:05] Speaker 01: You don't really know and the board didn't make any findings. [00:21:10] Speaker 05: They're mostly based on taxes, right? [00:21:12] Speaker 01: There's $24,000 of other costs. [00:21:16] Speaker 05: What are the taxes for? [00:21:20] Speaker 05: They're like city taxes, right? [00:21:23] Speaker 01: I think it's called a Laguna Pueblo tax. [00:21:26] Speaker 05: What are those taxes assessed on? [00:21:31] Speaker 01: I don't know exactly the basis of it, but I assume it's the work performed under the contract. [00:21:37] Speaker 01: But they're taxes that are then paid to the Pueblo. [00:21:42] Speaker 01: The board found specifically that the breach doesn't have to be these 14 vouchers. [00:21:52] Speaker 01: In fact, what's being alleged is that the breach of the prior... Wait, when you think of the 14 vouchers, what are you talking about? [00:21:58] Speaker 00: The 14 vouchers that were infected by the kickbacks fee? [00:22:01] Speaker 01: No. [00:22:02] Speaker 01: This appeal is brought about 14 vouchers, which largely include the tax. [00:22:10] Speaker 01: There's numerous vouchers submitted to the government and paid by the government. [00:22:17] Speaker 01: And the finding is that those vouchers [00:22:20] Speaker 01: At least some of those vouchers are inflated by kickbacks and were paid by the government. [00:22:26] Speaker 01: So those are false vouchers. [00:22:28] Speaker 01: They were submitted in violation of the allowable cost and payment clause. [00:22:32] Speaker 01: And that is a material breach of the contract. [00:22:37] Speaker 06: And when you say the contract, you mean the umbrella contract, not the particular task orders? [00:22:42] Speaker 01: The overall, it's an indefinite quantity contract, the whole contract. [00:22:47] Speaker 06: Can I ask you this? [00:22:49] Speaker 06: Because it seems to me that this is more about the right remedial scheme than it is about whether there was a wrong. [00:22:58] Speaker 06: And I want to concentrate on the right remedial scheme. [00:23:02] Speaker 06: Let me ask you this first. [00:23:05] Speaker 06: If the government was required by the inclusion of 52.2496 [00:23:12] Speaker 06: the FAR provision to follow the procedure to terminate the contract and then Laguna could come in and there were provisions here for the parties to settle up in some way. [00:23:28] Speaker 06: Do you agree with Ms. [00:23:29] Speaker 06: Callaway that you could not in that process under the FAR provision [00:23:37] Speaker 06: assert certain kinds of fraud-related defenses to amounts that they're claiming that were infected by fraud? [00:23:48] Speaker 01: No, I don't agree with them. [00:23:49] Speaker 01: I think I have to explain, though. [00:23:51] Speaker 01: First of all, it really is based on the factual circumstances of this case. [00:23:56] Speaker 01: In this case, this is a different case. [00:23:58] Speaker 01: You have guilty pleas. [00:24:00] Speaker 01: So you have admissions of fraud during the performance of the contract. [00:24:06] Speaker 01: And you have a finding by the board that that conduct, that fraudulent conduct, the kickbacks [00:24:12] Speaker 01: the inflated vouchers, that that conduct is imputed to the corporation. [00:24:17] Speaker 01: So this is not a case where the board itself would have to make a finding of fraud. [00:24:24] Speaker 01: It's not a case where the contracting officer would have to decide. [00:24:29] Speaker 06: I think I get all of that. [00:24:31] Speaker 06: Part of what was a little bit troubling, at least to me as I understood it or misunderstood, an answer that Ms. [00:24:37] Speaker 06: Callaway gave to a question that Judge Hughes asked [00:24:41] Speaker 06: I took her position to be that if you follow the termination clause, these amounts have to be paid regardless of fraud. [00:24:50] Speaker 06: That's a fairly startling position. [00:24:53] Speaker 01: Right. [00:24:53] Speaker 01: I think that's their position, yes. [00:24:55] Speaker 06: But I think you disagree with that. [00:24:56] Speaker 06: Yes, we do. [00:24:58] Speaker 06: So fraudulently claimed amounts are not going to be paid under your view even if you follow the FAR provision. [00:25:07] Speaker 01: That's correct. [00:25:10] Speaker 06: So why doesn't the FAR provision inserted into the contract determine your remedies when you find a breach, namely termination for default? [00:25:23] Speaker 01: The FAR clause merely restates the anti-kickback act, the amendments in 1986. [00:25:32] Speaker 01: And it's exactly in the act [00:25:36] Speaker 01: that the contracting officer has this right of offset. [00:25:40] Speaker 01: So what the FAR clause is just to incorporate the Anti-Kickback Act. [00:25:44] Speaker 06: The FAR clause goes on at tremendous length, only one piece of which is the kickback stuff. [00:25:53] Speaker 06: It doesn't get [00:25:55] Speaker 06: I guess let me just return to the comment A of the restatement provision that states the general principle of material breach by one party entitles, absent continued acceptance of performance and so on, the non-breach party to not perform anymore, including perhaps not to pay. [00:26:19] Speaker 06: Why doesn't the inclusion of the FAR clause [00:26:22] Speaker 06: displace that background common law right? [00:26:25] Speaker 01: It doesn't displace it because as explained by the Second Circuit in the General Dynamics decision, when the 1986 amendments were made to the Anti-Kickback Act, they were to increase the government's rights. [00:26:41] Speaker 01: They were not to cut back on the government's rights. [00:26:45] Speaker 06: Is this far clause limited to kickbacks? [00:26:51] Speaker 06: I thought it covers [00:26:52] Speaker 06: defaults, convenience, the whole panoply of grounds on which you can walk away from the contract. [00:27:02] Speaker 01: Okay, you're speaking now of the termination clause then. [00:27:06] Speaker 01: Yes, I'm sorry. [00:27:07] Speaker 01: The termination clause applies when you're going to terminate work under the contract. [00:27:13] Speaker 01: Our argument with regard to the termination clause is, first of all, the work was done. [00:27:18] Speaker 01: The work was done as of [00:27:22] Speaker 01: there's certainly no evidence that there was any work going on after June of 2010. [00:27:26] Speaker 01: And I would cite for that the record at 596 and 1712. [00:27:32] Speaker 01: So the work is done. [00:27:37] Speaker 01: So this clause, the termination clause, is used when you want to terminate work under the contract. [00:27:43] Speaker 01: Termination here doesn't mean terminate the contract? [00:27:46] Speaker 01: No, terminate work. [00:27:49] Speaker 01: Now here the work is done. [00:27:51] Speaker 01: But as I understand it, the argument that's being made is that they are entitled to all of their costs, all of their reimbursable costs under the contract. [00:28:05] Speaker 05: First of all, this clause, the termination clause... So let me make sure I understand this too, because I'm a little fuzzy on all that. [00:28:15] Speaker 05: If you had terminated for default here, [00:28:18] Speaker 05: that termination for default wouldn't have precluded them from filing the same claim they are now pursuing for these reimbursable costs. [00:28:28] Speaker 05: It wouldn't be a defense to that. [00:28:29] Speaker 05: You have to find some other defense to that. [00:28:34] Speaker 01: I think that they would be filing a claim for their same clause under the termination clause. [00:28:40] Speaker 05: But our point is that the termination... I'm not trying to trick you here. [00:28:45] Speaker 05: I'm just trying to understand. [00:28:46] Speaker 05: Your view is that if the government had terminated this contract for default, it wouldn't have automatically canceled their right to seek the cost of these invoices and put forth the claim we're arguing about now. [00:28:58] Speaker 01: but we still have a defense because under the clause you only are entitled to reimbursable costs and the termination clause doesn't define reimbursable costs. [00:29:11] Speaker 01: Then you have to go and look at your allowable cost and payment clause. [00:29:16] Speaker 05: And your view is that once we're looking at reimbursable costs and they seek them [00:29:20] Speaker 05: don't get them paid and go to the board that this common law defense of a prior material breach is available. [00:29:29] Speaker 05: And that would have been true even if it wasn't a fraud breach. [00:29:33] Speaker 05: If it was some other prior material breach, you could assert that defense. [00:29:39] Speaker 01: But in this case, what we're concerned with is a fraud breach, a breach which is material because it involves the kickbacks, the conscious wrongdoing on the part of the corporate officials. [00:29:52] Speaker 05: And what's your best case? [00:29:54] Speaker 05: Because I do find this really kind of puzzling. [00:29:56] Speaker 05: That seems, particularly when it's alluding to the breach of the duty of good faith and [00:30:01] Speaker 05: It seems odd for me that the government rely on since it usually tries to limit that doctrine, but what's your best case for the notion that this common law defense is still viable after the enactment of the CDA and these FAR clauses? [00:30:21] Speaker 01: There is a Brown construction case that's cited by both parties from the Court of Federal Claims that found a breach of the duty of good faith and fair dealing. [00:30:34] Speaker 01: And in those circumstances, the court refused to enforce the contract. [00:30:40] Speaker 01: Also, we have cited the Joseph Morton case, which is a CDA case. [00:30:44] Speaker 01: a FAR contract in which there was a prior material breach involving one change order. [00:30:51] Speaker 01: And because of that breach involving one change order, there couldn't be any recovery. [00:30:59] Speaker 01: And we also think that the Christopher Village case is, from our point of view, the best case, because that case involved kickbacks. [00:31:08] Speaker 01: It involved false statements. [00:31:10] Speaker 01: It involved payment. [00:31:12] Speaker 01: It involved... Sure. [00:31:13] Speaker 05: I mean, it seems like Christopher Village's obvious case. [00:31:16] Speaker 05: But the problem there, of course, is that it's not a CDA contract, right? [00:31:20] Speaker 01: Yes, it's not a CDA contract. [00:31:22] Speaker 01: But I also pointed to the Joseph Morton case and the Brown construction case. [00:31:30] Speaker 01: And then also here, there's two breaches that were found. [00:31:33] Speaker 01: There's a breach of the allowable cost and payment clause because the vouchers were false vouchers. [00:31:39] Speaker 01: And they were paid by the government. [00:31:41] Speaker 05: And then secondly... Are you familiar with the Judd's case? [00:31:45] Speaker 05: Excuse me. [00:31:46] Speaker 05: He cited it in your brief. [00:31:47] Speaker 05: It's an older case, but it's from the ASPCA. [00:31:52] Speaker 05: I just couldn't tell from reading it whether that was a CDA contractor or not. [00:31:58] Speaker 01: Which case are we talking about now? [00:31:59] Speaker 05: JETS. [00:32:01] Speaker 05: This is the United States. [00:32:05] Speaker 01: I believe the Judd's case is a CDA contract case. [00:32:14] Speaker 01: So here, the breach was clearly a material breach because, as I said, it involved there were kickbacks, there were false vouchers being submitted, false vouchers being paid by the government, and it's the type of conduct, conscious wrongdoing on the part of the contractor that would justify the government not paying the remaining vouchers. [00:32:43] Speaker 01: The contractor has raised the defense of waiver. [00:32:48] Speaker 01: What we've pointed out is that this is a defense based on, it's a question of fact as well as a question of law, and that that defense of waiver was not made before the board. [00:33:00] Speaker 01: Before the board, what was argued was that the rights and remedies were only those provided in the contract. [00:33:07] Speaker 01: that you could only terminate for default, and then you had to pay all of the costs. [00:33:13] Speaker 01: They didn't make the argument that there was a waiver. [00:33:17] Speaker 01: But what we've also pointed out here is that all of the work was done before there was a determination of kickbacks. [00:33:28] Speaker 01: And under the Martin Simcoe case, if there isn't a guilty plea, [00:33:37] Speaker 01: contracting officer doesn't have any authority to take any action. [00:33:43] Speaker 01: So prior to the guilty plea, the contracting officer wouldn't have had any authority to... The contracting officer can't make his or her own determination that fraud has occurred and reject a claim. [00:33:58] Speaker 01: That's correct. [00:33:59] Speaker 01: And we also cited the Turner case, which is interesting. [00:34:02] Speaker 01: It's a board case in which a contracting officer tried to find kickbacks, but there were no guilty pleas. [00:34:09] Speaker 05: So until the government learns of the fraud, there's no basis, not even fraud, until there's a factual finding by some court or body of competent jurisdiction, the contracting officer can't reject any claims, terminate the fault, or do anything like that based on fraud. [00:34:28] Speaker 01: That's correct. [00:34:29] Speaker 01: And we've cited for that... How far does that go? [00:34:32] Speaker 06: Since, I mean, your defense here was near breach of a duty of good faith and fair dealing. [00:34:40] Speaker 06: Can the contracting officer conclude that that is a ground for termination for default? [00:34:48] Speaker 01: It would depend upon the circumstances. [00:34:51] Speaker 06: of the case. [00:34:52] Speaker 06: Well, I'm trying to understand what the scope of this principle is. [00:34:56] Speaker 06: The contracting officer cannot utter the word fraud, find facts that, if found, would amount to fraud. [00:35:05] Speaker 06: You did not make an actual fraud defense here. [00:35:08] Speaker 06: You made a defense prior material breach of a good-faith-fair-dealing implied term of the contract. [00:35:18] Speaker 06: Right. [00:35:19] Speaker 06: The contracting officer really could not have said in 2005, six, seven, eight, nine during all the years when there was lots of auditing investigation of bad billing. [00:35:34] Speaker 06: Couldn't have said, we don't trust you anymore. [00:35:37] Speaker 06: Terminate for default. [00:35:40] Speaker 01: He can't terminate for fraud. [00:35:42] Speaker 01: Absolutely. [00:35:42] Speaker 06: I didn't say anything. [00:35:43] Speaker 06: I didn't use the word fraud. [00:35:47] Speaker 06: where does this principle come from? [00:35:49] Speaker 01: It comes from the CDA that the contracting officer doesn't have [00:35:54] Speaker 01: the authority to make a finding of fraud. [00:35:59] Speaker 06: But you don't need to find fraud in order to find breach of duty of good faith and fair dealing by the submission of these various invoices that were for more than a proper amount do you? [00:36:14] Speaker 06: Or is it a substantive inquiry that says he just had to ignore all of this until [00:36:21] Speaker 06: until somebody other than the contracting officer adjudicated it. [00:36:25] Speaker 01: Typically, if it's just simply an erroneous invoice, that's a mistake. [00:36:33] Speaker 01: That's a different type of case. [00:36:35] Speaker 01: But if the assertion is that it's a false, intentionally false invoice, and because you have submitted an intentionally false invoice, conscious wrongdoing on your part, [00:36:48] Speaker 01: The contracting officer cannot make that decision under the contracts dispute. [00:36:52] Speaker 06: So on a going forward basis, the government is going to live with the proposition that with all five years worth of stinky, but not yet adjudicated fraudulent conduct, the government contracting officer may not terminate the thing for default. [00:37:09] Speaker 01: That's correct. [00:37:10] Speaker 01: Under this court's decision in Martin Simcoe, [00:37:14] Speaker 01: that's excluded from the contracting officer's authority. [00:37:19] Speaker 01: And we also cited the Turner case, which is another example of the application of that same principle. [00:37:26] Speaker 01: So until you have a guilty plea or a judicial determination [00:37:33] Speaker 01: of fraud, then you can't have a contracting officer making any decisions based on it. [00:37:40] Speaker 01: It's not for his decision. [00:37:42] Speaker 01: This is something that's within the authority of the Department of Justice and other agencies. [00:37:48] Speaker 01: It's not within the authority of the contract. [00:37:51] Speaker 06: The lesser determination for untrustworthiness. [00:38:02] Speaker 01: If the untrustworthiness means fraud, then yes, it's excluded. [00:38:07] Speaker 01: Now, if you're going to terminate a contractor because they are continually sloppy, they keep making mistakes, I think that's a different case. [00:38:30] Speaker 02: Just a couple of things I'd like to address. [00:38:32] Speaker 02: The contracting officer can terminate for convenience at any time. [00:38:39] Speaker 02: There's no significant difference between a termination for convenience and a termination for default in a cost reimbursable contract. [00:38:49] Speaker 05: As early as 2005, the defense contract audited... But if the contracting officer terminated for convenience, you'd be entitled to all of your costs, right? [00:38:58] Speaker 02: Also under default. [00:39:00] Speaker 06: Unless the government is right that in the H1 process of determining what's reimbursable, they get to argue about whether there was fraud. [00:39:08] Speaker 02: Of course. [00:39:09] Speaker 02: No, they don't get to argue about whether there was fraud. [00:39:11] Speaker 02: They get to argue about whether there was overpayment or whether the costs were unreasonable and the DCAA in the Forms 1 had raised issues about cost reasonableness. [00:39:23] Speaker 02: That's what our claim is about. [00:39:24] Speaker 05: See, your view is basically, I think your bottom line view is that [00:39:28] Speaker 05: no matter what kind of fraud occurred in this contract, because it didn't relate to these invoices and because, well essentially because it didn't relate to these invoices, the government can't use it as a defense and you're entitled to your allowable costs. [00:39:45] Speaker 05: That the fraud in the other parts of the contract, assuming that it's not related, is not a defense. [00:39:52] Speaker 05: At all. [00:39:53] Speaker 02: Ever. [00:39:56] Speaker ?: I [00:39:57] Speaker 02: The board has jurisdiction over the contract costs, determining what the reasonable costs are, whether a default termination was correct, interpretation of contract terms. [00:40:11] Speaker 02: They don't have the jurisdiction, they don't have the power to impose a penalty of taking that. [00:40:20] Speaker 05: I'm not just talking about the board and its jurisdiction because it seems to me that the theory you're making [00:40:25] Speaker 05: goes far beyond just what the board could do and can also go to what the Court of Federal Claims could do as well. [00:40:32] Speaker 05: Absent a claim under the False Claims Act, or special plea in fraud. [00:40:37] Speaker 05: Your view is that this prior material breach doctrine can never be used on a fraud basis to defend against a claim, or otherwise allow the fraud. [00:40:50] Speaker 02: I may not understand this, but [00:40:55] Speaker 02: My understanding of the prior material breach doctrine is the first party commits a material breach. [00:41:00] Speaker 02: Even if the second party, when they breached and know about it, they're excused. [00:41:06] Speaker 02: But excused doesn't mean that you get to walk away. [00:41:10] Speaker 02: You can terminate. [00:41:12] Speaker 02: You can seek damages. [00:41:17] Speaker 05: Or you can refuse to pay contractor claims. [00:41:20] Speaker 05: That's what happened in Christopher Village, right? [00:41:23] Speaker 02: under a very different type of contract, yes. [00:41:27] Speaker 02: But the government here is not without remedy. [00:41:30] Speaker 02: They had, as early as 2005 or 2006, they could have just simply terminated the contract for convenience. [00:41:38] Speaker 02: When they heard about these issues in 2008, they could have terminated for convenience and probably for fraud because at that point they could have [00:41:47] Speaker 02: examined invoices and said, yes, these appear to be overpriced, we have evidence. [00:41:51] Speaker 05: But haven't you said, even if they do those terminations, you're still entitled to the cost here. [00:41:57] Speaker 05: So they are, under your theory of decay, without remedy to oppose these invoices and costs up here. [00:42:06] Speaker 02: The remedy under the contract is 52-249-6, which says that if you've performed work, [00:42:15] Speaker 02: You get paid. [00:42:16] Speaker 05: So no matter how much fraud goes on in the contract, as long as the government can't connect it up to the cost side, they have to pay you. [00:42:24] Speaker 02: Unless the contract was void ab initio, for example, for conflict of interest or, well even there, if work has been performed and accepted, the government would still be liable for payment even if the contract was void and resend it. [00:42:44] Speaker 00: Okay, I think we have your argument. [00:42:46] Speaker 00: We thank both parties on the cases submitted. [00:42:48] Speaker 02: Thank you. [00:43:14] Speaker 00: The next case for argument is 15-1453, M. Ray DeStefano. [00:44:06] Speaker 04: Mr. Paul, whenever you're ready. [00:44:08] Speaker 04: Good morning, Your Honors, and may it please the Court. [00:44:10] Speaker 04: Under Lowry, the printed matter doctrine applies to novel arrangements of printed lines or characters useful and intelligible only to the human mind. [00:44:19] Speaker 04: Our claimed web assets do not meet that definition. [00:44:23] Speaker 04: In King Pharmaceuticals, this court expanded that definition. [00:44:26] Speaker 06: Can I ask that? [00:44:29] Speaker 06: Let me just say how I'm thinking about it, and then you can tell me. [00:44:32] Speaker 06: It seems to me you're biting off way more than you need to bite off here. [00:44:37] Speaker 06: OK. [00:44:37] Speaker 06: Why isn't a simple proposition on which reversal of the board on printed matter would be required is that the printed matter exception requires a necessary but not sufficient condition that the element at issue [00:44:53] Speaker 06: claim the particular expressive content of some expression. [00:44:58] Speaker 06: This doesn't. [00:44:59] Speaker 06: In particular, the origin of an expression is not the expressive content. [00:45:06] Speaker 06: It doesn't matter whether the reader is a computer [00:45:11] Speaker 06: Origins of the expression are not part of the communicative content. [00:45:18] Speaker 06: And as far as I can tell, the printed matter doctrine has never been applied except when what is being claimed is the particular communicative content. [00:45:31] Speaker 06: If it is, then there are some exceptions. [00:45:34] Speaker 06: And it can be a relation, a functional relation. [00:45:37] Speaker 04: But I guess it isn't that. [00:45:41] Speaker 04: I think I'm having trouble understanding your distinction. [00:45:46] Speaker 04: Your patent doesn't claim any particular printed matter. [00:45:53] Speaker 05: No. [00:45:53] Speaker 05: I think that's the question. [00:45:57] Speaker 05: When it doesn't claim particular printed matter, but refers to the origins of different types of printed matter, that's not printed matter itself. [00:46:08] Speaker 04: I agree. [00:46:09] Speaker 04: in the very first part of our appeal brief, we stated that print matter doctrine applies to printed lines of characters useful and intelligible only to human mind. [00:46:20] Speaker 06: Claim assets do not, and therefore that's enough to reverse. [00:46:24] Speaker 06: That seems to me a broader proposition than the proposition you need, because that proposition would exclude content readable by a computer. [00:46:35] Speaker 06: Well, that's a more difficult proposition to sustain than the narrower proposition that an element that does not claim the content of a communication is not an element to be ignored under the printed matter doctrine. [00:46:55] Speaker 06: Regardless of who the receiver of the content is, it just doesn't apply to that. [00:47:02] Speaker 04: Certain content can be given patently. [00:47:06] Speaker 04: For example, if the content of the data structure is the amount of users using a particular server and you're doing load balancing, so you have [00:47:21] Speaker 04: One server is load balancing, 10 other servers, because you have 100,000 users using it, and you have to balance them out there. [00:47:30] Speaker 04: That's informational content. [00:47:32] Speaker 04: And I believe that, if claimed as a data structure, that informational content is the number of users attempting to access this server. [00:47:45] Speaker 04: Well, yeah, that should be getting a lot of weight. [00:47:48] Speaker 04: Again, I'm just [00:47:52] Speaker 04: your point is kind of throwing me for a loop, because it's not part of the case law that I've... Pardon? [00:47:59] Speaker 04: Why are you pushing back? [00:48:01] Speaker 04: Oh, no, no, I'm not pushing... I'm just trying to understand. [00:48:05] Speaker 05: Well, you're trying... I mean, at least in your brief, you're trying to argue for the big, broad rule that [00:48:12] Speaker 05: the printed matter doctrine can apply to computers. [00:48:15] Speaker 05: And I think what we're telling you is we're not going to buy that argument, because you have a much simpler, more narrow argument that you should win on. [00:48:23] Speaker 04: Yeah, and I believe that the printed matter can apply to computers if it's directed to the underlying content, and that's what was said by this court in Lowry. [00:48:36] Speaker 04: in which they stated these claims are not directed to the underlying content. [00:48:41] Speaker 04: For example, by way of an example, an audio file is a data structure. [00:48:52] Speaker 04: It explains to the computer, this is what it is, this is how it should be operated on. [00:48:57] Speaker 04: Whereas if the data structure is, if the audio file is the star spangled banner, the star spangled banner part of it is the underlying content and that shouldn't be given patable weight. [00:49:11] Speaker 04: our claims aren't directed to that underlying content. [00:49:14] Speaker 00: Can I just move you on ahead, which is if indeed some of the contents here were to result in a reversal of the board here, what is your view as to how we proceed? [00:49:28] Speaker 00: This case has been going on for over 10 years, but would the reversal on the printed matter doctrine [00:49:35] Speaker 00: question result in, in your view, result in a remand so that the board could revisit this question? [00:49:42] Speaker 04: The board can revisit it and if the board chooses, yes, of course the board can revisit the issue depending upon what this court states and if the board does reverse and does send it back to the examiner, the examiner is not prevented from reopening prosecution. [00:49:58] Speaker 04: The MPP [00:50:01] Speaker 04: 121.14.04 specifically permits the examiner where there are situations where prior art that indicate unpatentability of the subject matter, they can request to reopen prosecution. [00:50:14] Speaker 04: So even if we do get a reversal here, there's no guarantee that we're going to get a patent. [00:50:23] Speaker 06: So you think that even if we reversed on claim 24, we should go on to review the claim construction [00:50:31] Speaker 04: That's not necessary. [00:50:32] Speaker 06: Not necessary. [00:50:34] Speaker 04: I mean, it's necessary if the... I'm going to agree that it's not necessary. [00:50:44] Speaker 06: We have a certain amount of discretion about whether it would be prudential to decide an issue that might well come up on remand. [00:50:53] Speaker 06: Would it be a good idea for us to address that? [00:50:56] Speaker 04: I believe the brief stands for itself, but if you have any questions, I would be more than happy to answer them. [00:51:03] Speaker 06: Your argument, at least as I understand it, rests pretty heavily, and maybe this is perfectly sufficient, I guess, on a combination of two things. [00:51:16] Speaker 06: One, that a search request, at least implicitly, [00:51:22] Speaker 06: entails identification of a criterion for the recipient of the request to use to compile the list. [00:51:31] Speaker 06: That's not the same as picking things already on a list. [00:51:36] Speaker 06: And second, that a number of picking things on a list [00:51:42] Speaker 06: descriptions in the specification are fully accounted for by the specification's acknowledgement that sometimes searches don't need to be performed, and those would be examples where searches are not being performed. [00:51:55] Speaker 04: The example in the specification that talks about where searches are not performed, they're actually in re-reading it, and I made this point in the reply [00:52:12] Speaker 04: is there actually, there isn't a quick criteria involved. [00:52:15] Speaker 04: The criteria is, you know, is it a time final or what have you. [00:52:20] Speaker 04: There is, even where there's quote unquote no search being involved, there is still a criteria. [00:52:25] Speaker 04: And so that language, again written some 14, 15 years ago, isn't exactly accurate and determined what the search, you know, a search still requires a criteria. [00:52:40] Speaker 04: I mean, that's then the one point. [00:52:47] Speaker 00: there are a lot of them here the court before knowledge that this claim does not [00:53:11] Speaker 03: entail printed words on a piece of paper. [00:53:16] Speaker 03: It's not traditional printed matter as that term has been used in prior court decisions. [00:53:22] Speaker 03: I still think that the underlying policy of the printed matter doctrine applies in this case in that as this court explained in King Pharmaceuticals, we want to prevent the indefinite patenting of a [00:53:33] Speaker 03: of claims just by adding a novel but unfunctional addition to the claims and here clearly I think it's pretty undisputed that the origins of the web assets provide no function to the rest of the method. [00:53:50] Speaker 06: There are two things on which you say repeatedly in your brief that I guess I didn't really track. [00:54:01] Speaker 06: One is the heading [00:54:03] Speaker 06: The origins of the web assets are non-functional descriptive material. [00:54:09] Speaker 06: That sounds like nonsense to me. [00:54:12] Speaker 06: I mean, the origins are not descriptive material at all. [00:54:18] Speaker 06: Non-functional or otherwise. [00:54:19] Speaker 06: It's just not a description. [00:54:21] Speaker 06: But the provenance of a wine is not descriptive. [00:54:26] Speaker 03: It's where it came from. [00:54:27] Speaker 03: Yeah, but that's something that's describing it. [00:54:30] Speaker 03: That's a property that's [00:54:32] Speaker 06: The origin is not put into the material that is claimed. [00:54:40] Speaker 06: If the material said, I come from the user as opposed to I come from third party, then the origin would be part of the descriptive content. [00:54:49] Speaker 03: Well, I think that's the point. [00:54:51] Speaker 03: The origin has no use here. [00:54:53] Speaker 03: There's no application of the origin. [00:54:55] Speaker 06: So one point is, it seems to me, the origin just isn't descriptive material at all. [00:55:00] Speaker 06: The second thing that you say a number of times is the method step, it doesn't change the, the origins don't change the method at all. [00:55:16] Speaker 06: Again, I don't understand [00:55:18] Speaker 06: how that can be. [00:55:19] Speaker 06: One method involves selecting things from A or B. Another method involves selecting things from A. How are those things not different? [00:55:32] Speaker 03: I think the point is that it doesn't matter where you pick [00:55:38] Speaker 03: your web asset from the method of... It matters under the claim. [00:55:43] Speaker 05: Why doesn't it matter? [00:55:44] Speaker 05: I'm obviously not a web designer or anything like that. [00:55:49] Speaker 05: 10 or 15 years ago, say these basic web design packages came out and it limited you to only the materials provided with the web design software. [00:56:00] Speaker 05: And you couldn't go outside that. [00:56:02] Speaker 05: You couldn't put in your own pictures, your own videos or anything like that. [00:56:08] Speaker 05: You were limited to [00:56:10] Speaker 05: The software package and this company comes along and said we found a new method that doesn't confine you to Just the materials here. [00:56:18] Speaker 05: You can also go and use your personal resources. [00:56:21] Speaker 05: Why isn't that? [00:56:23] Speaker 05: a functional difference [00:56:25] Speaker 03: Well, if that was the case that really, you know, choosing from, in the prior art, you could only choose from A, and then your claim, now you say you can choose from A or B, and, you know, that's a leap from the prior art that has some function, I agree that that may be a case where that limitation would be given weight. [00:56:52] Speaker 05: but isn't that the limitation we're talking about? [00:56:56] Speaker 05: That you found irrelevant. [00:56:58] Speaker 05: It may be that you should have found it obvious, but to disregard it on a printed matter doctrine when it's not printed matter at all is problematic. [00:57:08] Speaker 03: I think the issue that the board came across here was that the claim sets up to have this distinction between where you get your [00:57:20] Speaker 03: web-asset from, but then in the rest of the claim, it makes no use of that. [00:57:25] Speaker 06: So, for example, in the... Lots of claim elements don't use other elements of the claim. [00:57:33] Speaker 06: The fact is, you say the origin of the selected web-asset does not in any way change, alter, or affect the method. [00:57:42] Speaker 06: I can't get how that could be true when the claim says, select from A or B. It doesn't affect it. [00:57:54] Speaker 03: I agree that there's a difference between selecting from a third-party web asset versus selecting from a user-submitted web asset. [00:58:02] Speaker 03: That's different. [00:58:03] Speaker 03: I agree. [00:58:04] Speaker 00: If you think that's a different method, then... Well, you just said you think that's a different method too, right? [00:58:11] Speaker 03: I mean, the point is that the rest of the method steps are performed exactly the same no matter where you get your web asset from. [00:58:20] Speaker 03: It doesn't matter if you get your web asset from a third party, from yourself, from the internet. [00:58:25] Speaker 03: The origin of it has no bearing on how the method is performed. [00:58:30] Speaker 05: Except that for certain parts of the steps using different origins, you go to a different place. [00:58:38] Speaker 05: I mean, the fact that everything else in the program works the same way doesn't mean that this particular method step has no function. [00:58:48] Speaker 05: I mean, if nobody had ever thought of it before, the fact that the only difference between this and the prior art is that you can go outside of what was provided and use your own resources, the fact that everything else is the same doesn't mean it's not a patentable step, does it? [00:59:08] Speaker 03: What they were getting at in the specification here, and if you read the specification, they have a system set up so that when a third party web asset author, when you select their web asset, it's supposed to provide payment to them. [00:59:21] Speaker 03: So, you know, if you create these images or music files, whatever, you put it in the database, then if someone selects your image or your music file, you get some credits, some money. [00:59:33] Speaker 06: It's in this application? [00:59:34] Speaker 03: Yeah, it's in this application. [00:59:37] Speaker 03: I agree that there is some, I mean that didn't, the distinction between the two didn't come randomly. [00:59:44] Speaker 03: I mean there is, I think that's the base. [00:59:45] Speaker 03: I mean I understand what you're saying. [00:59:47] Speaker 05: You're understanding that this distinction isn't the point of the invention, there's no discussion that it's necessarily, you know, a patentable step or anything like that, but that doesn't make it printed matter. [00:59:58] Speaker 05: It just makes it obvious. [01:00:01] Speaker 03: I think that's the case. [01:00:04] Speaker 03: would think if this case came back there would be an easy, obviousness rejection, or even an anticipation rejection by saying that it was within the knowledge of in the art that you could choose from different places. [01:00:18] Speaker 06: Was there evidence of that? [01:00:21] Speaker 06: This dates to what, 1995, is that right? [01:00:25] Speaker 06: A long time ago. [01:00:26] Speaker 06: What we all have in our heads right now is not what we had in our heads in 1995. [01:00:31] Speaker 03: The problem is that we don't [01:00:33] Speaker 03: We don't have any evidence on that because this printed matter rejection first arose at the board level. [01:00:39] Speaker 03: So we don't have the examiner incorrectly thought that this reference meant the claim limitation even giving way to all the words. [01:00:49] Speaker 03: So that's why the board reversed that rejection and then put a new rejection on itself. [01:00:55] Speaker 03: So if it came back, I think that, you know, [01:00:58] Speaker 03: we could reopen prosecution, as Paul said, and examine whether this claim is anticipated or obvious, giving weight to all the claim limitations. [01:01:10] Speaker 06: Can I ask you about the search request issue? [01:01:16] Speaker 06: Sure. [01:01:17] Speaker 06: I guess I was struck almost at the threshold with the following problem, I guess, with [01:01:26] Speaker 06: A definition is supposed to take a form such that you can replace the thing being defined with the definition, plop it in and it makes grammatical sense. [01:01:44] Speaker 06: That seems to me not to have gone on here. [01:01:49] Speaker 06: A search request is something that is being, under the claim, received. [01:01:55] Speaker 06: It is not the act of doing something. [01:02:01] Speaker 06: It is an information packet to be acted on by the receiver of that information packet. [01:02:09] Speaker 06: That's not a selective retrieving of data. [01:02:13] Speaker 06: And while that may seem like a small matter, it seems to me to get at the problem with the board's client construction, which is that this information packet is supposed to tell the receiver of that packet, go and find something. [01:02:34] Speaker 06: that seems to me to entail a criterion, or one or more criteria, for how the receiver of this information packet is supposed to go and file this. [01:02:46] Speaker 06: And that's what it seems to me the board eliminated with its claim construction. [01:02:50] Speaker 03: I think that the board is just looking at [01:02:53] Speaker 03: the broad use of the term search request and the specification and giving the term its broadness, reasonable construction, because as we talked about in the brief and as we talked about with the Pellant, there are examples in the specification where you're just choosing from a list. [01:03:09] Speaker 06: But don't all of those examples can be understood as coming under that portion of the specification language that says sometimes you don't need to have a search. [01:03:30] Speaker 06: Like when you just say, oh, I already see the list of choices. [01:03:33] Speaker 06: I want that one and that one. [01:03:35] Speaker 03: I don't believe so because I think if what we cited in our brief in the specification, there's a, I mean the example in the specification where this comes up is choosing a color. [01:03:50] Speaker 03: So they just provide you a list from what's called the color palette and you just choose one color. [01:03:54] Speaker 03: And that is specifically referred to as a search request in the specification. [01:03:58] Speaker 03: Where is that? [01:04:00] Speaker 03: So it's at, in our brief, it's on pages 25 and 26, and in the appendix, it's A668, line 26 to A669, line 6. [01:04:15] Speaker 03: So it says, uh, 668. [01:04:19] Speaker 03: Yes. [01:04:22] Speaker 03: So the information that is obtained is responsive to the search request entered at step 1604. [01:04:27] Speaker 06: That is, the information concerns color elements. [01:04:31] Speaker 03: So it says the search request was made via color palette 640. [01:04:36] Speaker 03: So the color palette is just the example where you don't enter anything in, you don't enter a keyword search, you just select a color you want. [01:04:45] Speaker 03: And that's specifically referred to as a search request. [01:04:48] Speaker 03: So I think that the board was just going on the breadth of the specification, which gives an example of a search request where you're not entering a keyword. [01:05:01] Speaker 03: You're not performing the traditional Google searches, as you would think of it. [01:05:20] Speaker 03: I would hope that this court wouldn't look so narrowly at the Printer Matter Doctrine and see that this case, while not traditionally fitting into Printer Matter, really the same underlying policy applies. [01:05:44] Speaker 06: Can I just check my understanding? [01:05:47] Speaker 06: Printed matter doctrine is not actually statutory, so you're making an argument that a doctrine that is non-statutory that has been said over many decades to be one without a very decent statutory foundation should be broadened according to some broad policy one can find in this non-statutory doctrine. [01:06:09] Speaker 03: I don't think we're [01:06:10] Speaker 03: I don't think we're necessarily broadening it beyond what is said in the King Pharmaceuticals case. [01:06:15] Speaker 06: That was actually a claim element that says communicate the following information to somebody. [01:06:23] Speaker 03: Correct, but I don't think it was the fact that it was communicating information that renders it. [01:06:29] Speaker 06: Is there any printed matter case that doesn't [01:06:32] Speaker 06: at a minimum, just a necessary condition, not a sufficient condition, at a minimum require and involve a printed matter case in which the doctrine was applied to support disregarding a claim element that didn't involve an element that claimed the content of an expression. [01:06:54] Speaker 03: I'm not aware of one. [01:06:55] Speaker 03: Yeah, I'm not either. [01:06:59] Speaker 03: I mean it's still providing, the origin is still providing you some information. [01:07:03] Speaker 03: It's providing information to the user and not... You know, I just think that... [01:07:16] Speaker 03: We'd be allowing the indefinite claiming of something that has no function here, that's merely descriptive. [01:07:23] Speaker 05: If you think it's indefinite, why don't you reject it? [01:07:26] Speaker 03: No, not indefinite in the indefinite sense. [01:07:30] Speaker 03: The sense that you can just keep adding these kind of trivial limitations. [01:07:36] Speaker 05: That don't distinguish them over prior art, so therefore they're obvious. [01:07:41] Speaker 05: I mean, you're really asking us to let you be lazy. [01:07:45] Speaker 05: I don't mean to be mean about it, but this is the third printed matter case I've seen from you all, and I've only been here two years. [01:07:52] Speaker 05: And they've all involved instances like this, where the court is trying to fix a sloppy examiner's rejection. [01:08:00] Speaker 03: I think that in this case, an obviousness rejection can clearly be made. [01:08:02] Speaker 03: But I think that there could be a case where you add a limitation that's not functionally related to the method. [01:08:11] Speaker 03: and it wouldn't be obvious. [01:08:12] Speaker 03: Because if you're picking something, if you're adding something that has no functional relation to the method, you can understand that it may not be so obvious. [01:08:18] Speaker 03: So I think that, I think, sure, obviousness could be substituted here, but it may not be the case. [01:08:24] Speaker 03: Thank you. [01:08:25] Speaker 03: Thank you. [01:08:32] Speaker 04: Let me just address a few of the points made. [01:08:36] Speaker 04: The invention actually goes claims prior to 2015. [01:08:41] Speaker 04: June 2000, not 1995, but still 15 years ago. [01:08:47] Speaker 04: The opposing council talks about the origins of the web assets, those that we talked about, but mentioned in the reply brief. [01:08:56] Speaker 04: When we specifically asked the board, what do you believe to be the print of matter, they did not state the origins of the web assets was the print of matter. [01:09:11] Speaker 04: Had the board done that, we would have changed our appeal brief accordingly to address that particular point. [01:09:17] Speaker 04: Now, to go to your point Judge Hughes about being a web designer, I'm no web designer, but where you get the web assets, in this case, where if it's provided to the user, [01:09:32] Speaker 04: The functionality would have to be, those web assets would have to be stored locally in the computer, either in memory or in a hard drive or in a diskette. [01:09:43] Speaker 04: And the user interface would have to access those web assets in a different manner, in a functionally different manner than it would be able to access the web assets that were associated in the database that's in the website design [01:10:02] Speaker 04: server. [01:10:03] Speaker 04: And so there is a functional difference associated with those limitations. [01:10:07] Speaker 04: And you could argue about that if there were an obviousness rejection about whether... Absolutely. [01:10:17] Speaker 04: Why I always say about obviousness rejections is until I see the prior art and until I understand what was art at the time of the invention, it's tough for me to decide whether something's obvious or not. [01:10:28] Speaker 04: And based upon the prior art that they provided, [01:10:31] Speaker 04: and the 102 rejection in which these claims are rejected, there is no obvious rejection currently before us. [01:10:39] Speaker 04: Not to say they can't do it later, but certainly not before us. [01:10:43] Speaker 06: Can I ask you a very specific question about the search request? [01:10:47] Speaker 06: Yes. [01:10:48] Speaker 06: Page 669 of the appendix. [01:10:56] Speaker 04: Please. [01:11:00] Speaker 06: Yeah, so this is page 669, page 39 of your application. [01:11:06] Speaker 06: And up at the top, it [01:11:11] Speaker 06: speaks of, I guess, Mr. Foreman indicated, the line about information obtained at various places concerned sound elements if the search request was made via sound menu 540 and concerns color elements if the search request was made via color palette 640. [01:11:35] Speaker 06: Does not that language use the phrase search request [01:11:41] Speaker 06: to a simple pick from a menu that you are looking at? [01:11:49] Speaker 04: A menu that has already had a criteria applied to it, which is a color palette. [01:11:55] Speaker 04: So you've had, it's a search request in the context of either a color palette, some palette, or what have you. [01:12:02] Speaker 04: It's not a search request that [01:12:08] Speaker 04: you have, let's say, an entire list of objects that haven't already been and a criteria has already been applied to it. [01:12:17] Speaker 04: Again, it's color pilot. [01:12:19] Speaker 04: You have a criteria already applied to it. [01:12:21] Speaker 04: And again, that still falls within our definition of search request. [01:12:28] Speaker 04: It has to involve a criteria. [01:12:38] Speaker 04: If there are no other questions, thank you.