Supreme Court of Texas, Van Dyke v. The Navigator Group, Docket No. 21-0146

Mineral Interests

 

Mineral Conveyances

 

1924 Deed’s Mineral Reservation of “One-Half of One-Eighth”

 

Interpretation of Contracts and Deeds

 

 

 

Estate-Misconception Theory

 

Oil-and-Gas Lease

 

Fee Simple Determinable with the Possibility of Reverter of the Entire Estate

 

 

Presumed-Grant Doctrine (= Title by Circumstantial Evidence = Common Law Form of Adverse Possession)

 

 

Oil & Gas Law

 

Property Law

 

Texas Law

 

 

 

 

Only in a legal text could the formula “one-half of one-eighth” mean anything other than one-sixteenth. But in the law, “one-half of one-eighth” sometimes equals one-half—in the context of reservations of mineral interests.

 

 

This case involves the first seeming oddity mentioned above: the so-called “double-fraction” dilemma from antique mineral conveyances in which the parties insisted on using two fractions. We must stretch back nearly a century to determine the meaning of a 1924 deed’s mineral reservation of “one-half of one-eighth.” This is not our first case involving double fractions, and it is likely not our last. But building on our precedents, and focused on our duty to faithfully interpret any legal text, we anticipate at least substantially reducing the frequency of disputes about double fractions. We conclude that an accurate construction of the 1924 text requires us to accept that the equation “one-half of one-eighth” equals one-half of the mineral estate. Even if this were not so, nearly a century of the parties’ unbroken understandings and representations would require us to recognize that allocation of present-day ownership by applying the presumed-grant doctrine. We accordingly reverse the judgment of the court of appeals and remand the case to the trial court for further proceedings.

 

 

In 1924, George H. Mulkey and Frances E. Mulkey conveyed their ranch and the underlying minerals to G.R. White and G.W. Tom (who had a general partnership called “White and Tom”) with the following reservation: It is understood and agreed that one-half of one-eighth of all minerals and mineral rights in said land are reserved in grantors, Geo. H. Mulkey and Frances E. Mulkey, and are not conveyed herein.

 

 

After the deed’s execution, both parties, their assignees, and various third parties engaged in numerous transactions and filings reflecting that each side of the original conveyance had an equal 1/2 interest in the minerals. This included further conveyances, leases, ratifications, division orders, contracts, probate inventories, stipulations, and various other recorded documents.

 

 

(…) For nearly ninety years after the original deed’s execution, the parties (including new owners who received various interests) continued without exception to engage in transactions and to make representations about their ownership interests that were consistent with the understanding that each original side had always had a 1/2 interest in the minerals.

 

 

(…) A text retains the same meaning today that it had when it was drafted. 1Thus, the ordinary meaning at the time of drafting remains the meaning to which courts must later adhere. We have made this basic point repeatedly, even in the very double-fraction context that we confront today: “Words must be given the meaning they had when the text was adopted.” Hysaw v. Dawkins, 483 S.W.3d 1, 13 (Tex. 2016) (quoting Antonin Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 78 (2012)).

 

 

1While there are minor differences between statutory interpretation and the interpretation of private instruments like contracts and deeds, the fundamental principle at issue here—that words keep meaning what they originally meant—is equally applicable to both.

 

 

Precisely because we are addressing the ordinary process of ascertaining a text’s meaning, we emphasize that the initial analysis remains confined to the four corners of the document as usual. We said that, too, in a case involving the double-fraction problem. See Garrett v. Dils Co., 299 S.W.2d 904, 906 (Tex. 1957). Our interpretation of any contract or deed primarily concerns the parties’ intended meaning. See, e.g., Myers v. Gulf Coast Mins. Mgmt. Corp., 361 S.W.2d 193, 197 (Tex. 1962). But as always, we determine intent objectively by giving words their fair meaning. Matagorda Cnty. Hosp. Dist. v. Burwell, 189 S.W.3d 738, 740 (Tex. 2006). We do not start with extrinsic evidence, nor do we credit claims made in litigation of a secret or bespoke meaning that no one not privy to the code reasonably would have understood. True, “parties may freely define an ordinary word to have an unusual meaning; when they do, they rebut the presumption of ordinary usage. Without any textually expressed bespoke meaning, however, courts will adopt the ordinary usage as a matter of law.” Perthuis v. Baylor Miraca Genetics Lab’ys, LLC, 645 S.W.3d 228, 236 (Tex. 2022) (footnote omitted). The question, then, is what the ordinary usage of the textually undefined term “one-half of one-eighth” actually was. In other words, we do not begin by asking what the original White and Mulkey parties secretly or unusually might have meant by it. Merely indulging that question at this stage of the analysis would invite a flood of unreliable and destabilizing extrinsic evidence, which would be contrary to our precedents and hostile to the rights of parties to have their documents’ meaning measured objectively without being undermined by a later (perhaps much later) subjective inquiry. Deeds provide a good example of why we insist on language bearing its ordinary meaning. Recording deeds and similar instruments is purposefully a public enterprise designed to elicit public reliance. “The reliability of record title contributes mightily to the predictability of property ownership that is so indispensable to our legal and economic systems.” Cosgrove v. Cade, 468 S.W.3d 32, 34 (Tex. 2015). A properly recorded deed, like the one at issue here, “provides all persons, including the grantor, with notice of the deed’s contents,” id., which would be far less valuable without a consistent and stable judicial construction of terms used in deeds. The meaning of a deed, in other words, matters to the public writ large, not merely to those who wrote it. So important is it that these records are public and permanent that we recently overturned a decades-old default judgment foreclosing a tax lien largely because of the failure “to consult public deed and tax records,” which would have revealed information necessary to achieve proper service on a defendant. Mitchell v. MAPRes., Inc., 649 S.W.3d 180, 191 (Tex. 2022).

 

 

We therefore ask, as the Court in New Prime did, whether there is some objective reason that the double fraction in the deed at issue meant something other than its arithmetical result. URI, 543 S.W.3d at 765. Said differently, using extrinsic evidence of subjective intent to inform the language that the specific parties used would impermissibly trespass beyond the document’s four corners. Courts frequently consult contemporary dictionaries because they convey objective and generally available—not subjective or bespoke—guides to meaning. Specialized or technical dictionaries can provide the same assistance for texts that arise in specialized or technical contexts. Indeed, the types of generally available sources that the Court used in New Prime to confirm that the meaning of “contracts of employment” has changed over time can benefit textual analyses of all kinds. The goal of such an inquiry is always to determine what a text could reasonably have meant to an informed but disinterested speaker at the time the text was written.

 

 

Determining what a text would have meant to a disinterested audience is an inquiry that is designed to confine courts to the four corners of the document and is a proper part of interpretation. See, e.g., U.S. Shale Energy II, LLC v. Laborde Props., L.P., 551 S.W.3d 148, 152 (Tex. 2018) (“We may consider such circumstances to the extent they ‘inform, rather than vary from or contradict, the instrument’s text.’” (quoting URI, 543 S.W.3d at 767)). As we discuss below, only if the text remains incapable of a clear meaning—and thus is unavoidably ambiguous—would we then move beyond the traditional, neutral, and objective tools of textual analysis.

 

 

This brings us to the now-familiar observation that, at the time the parties executed this deed, “1/8” was widely used as a term of art to refer to the total mineral estate. Notably, it is that fraction—not 1/3, 2/7, 6/241, or any other—that is so repeatedly deployed. Happily, we need not speculate as to why. Hysaw recently undertook the core analysis on which we rely today. The Court there examined what it called the “Double-Fraction Dilemma” in the context of a 1947 will-construction dispute where a provision of the will bequeathed each child a “one-third of one-eighth royalty.” Hysaw, 483 S.W.3d at 4. While recognizing that “discerning the nature of a particular royalty interest may be a simple matter when an instrument consistently uses single fractions to describe the interest,” double fractions can present serious complications. Id. at 9. The Court looked to the objective circumstances as a necessary part of defining the terms in their context. Id. at 9–15. The Court identified two related circumstances that explain why 1/8 in such instruments did not typically bear its arithmetical meaning: the historical use of 1/8 as the standard royalty and the estate-misconception theory. Id. at 8.

 

 

The estate-misconception theory reflects the prevalent (but, as it turns out, mistaken) belief that, in entering into an oil-and-gas lease, a lessor retained only a 1/8 interest in the minerals rather than the entire mineral estate in fee simple determinable with the possibility of reverter of the entire estate. Id. at 10; Concord Oil Co. v. Pennzoil Expl. & Prod. Co., 966 S.W.2d 451, 460 (Tex. 1998). Therefore, for many years, lessors would refer to what they thought reflected their entire interest in the “mineral estate” with a simple term they understood to convey the same message: “1/8.”

 

 

(…) Nor do we foreclose the possibility that an instrument may have enough textual evidence to drain confidence in the presumption yet insufficient evidence for a court to conclude that a reasonable reader at the time would have understood the instrument to require mere multiplication. In such a case, and if our ordinary rules of construction are incapable of generating a single answer, then our case law involving inescapable ambiguity—including the authorized but reluctant recourse to extrinsic evidence—provides the next step. When that happens, a factfinder may be needed to finally resolve the text’s meaning. Courts should endeavor to give meaning to the text without too hastily finding ambiguity, but there may be times in which no other choice remains.

 

 

(…) The use of a double fraction in this deed, combined with the lack of anything that could rebut the presumption, is precisely why we can conclude as a matter of law that this deed did not use 1/8 in its arithmetical sense but instead reserved to the Mulkey grantors a 1/2 interest in the mineral estate.

 

 

 

Presumed-grant doctrine:

 

Even if we were less persuaded by the double-fraction analysis, however, the Mulkey parties argue that we still would have to recognize their present-day ownership of one-half of the mineral estate. That is, even if the “one-half of one-eighth” reservation meant only a 1/16 mineral interest in 1924, they argue that the record conclusively establishes that they acquired the other 7/16 interest through the presumed-grant doctrine. The court of appeals disagreed, concluding that the presumed-grant doctrine played no role. 647 S.W.3d at 908–10. We agree with the Mulkey parties. The presumed-grant doctrine, “also referred to as title by circumstantial evidence, has been described as a common law form of adverse possession.” Fair v. Arp Club Lake, Inc., 437 S.W.3d 619, 626 (Tex. App.—Tyler 2014, no pet.). The doctrine requires its proponent to establish three elements: (1) a long-asserted and open claim, adverse to that of the apparent owner; (2) nonclaim by the apparent owner; and (3) acquiescence by the apparent owner in the adverse claim. Magee v. Paul, 221 S.W. 254, 257 (Tex. 1920).

 

 

We think that the parties’ history of repeatedly acting in reliance on each having a 1/2 mineral interest conclusively satisfies the presumed-grant doctrine’s requirements. This ninety-year history includes conveyances, leases, ratifications, division orders, contracts, probate inventories, and a myriad of other recorded instruments that provided notice. There was a long and asserted open claim—for nearly a century, both parties acted in accordance with each side owning a 1/2 interest. And until this litigation began in 2013, the White parties never said anything to the contrary.

 

 

For example, in 1926—just two years after the deed’s execution—the White parties acknowledged in a Purchase and Escrow Agreement with an oil company that they owned only half of the minerals and that the other half belonged to the Mulkey parties. The corresponding documents provide further support by indicating that after both parties leased their respective mineral interests, each side was to receive an equal share of the royalties.

 

 

(In cases where the presumed-grant doctrine is clearly implicated, a court could dispense with the deed-construction analysis. Fn. 11).

 

 

We conclude that the Mulkey parties hold title to 1/2 of the mineral estate because the original deed so requires and because the presumed-grant doctrine would remove any remaining doubts. Because the court of appeals held otherwise, we reverse its judgment and remand to the trial court for further proceedings.

 

 

 

 

(Supreme Court of Texas, Feb. 17, 2023, Van Dyke v. The Navigator Group, Docket No. 21-0146)

 

Impression Products, Inc. v. Lexmark Int'l, Inc., Docket 15-1189

Patent exhaustion doctrine: International exhaustion (patent): First sale doctrine: License: Common law: Fee simple:

When a patentee sells one of its products, however, the patentee can no longer control that item through the patent laws—its patent rights are said to “exhaust.” The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.

Two questions about the scope of the patent exhaustion doctrine: First, whether a patentee that sells an item under an express restriction on the purchas­er’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit. And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply. Answer:  a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.

First up are the Return Program cartridges that Lexmark sold in the United States. We conclude that Lexmark exhausted its patent rights in these cartridges the moment it sold them. The single-use/no-resale re­strictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.

For over 160 years, the doctrine of patent exhaustion has imposed a limit on that right to exclude. See Bloomer v. McQuewan, 14 How. 539 (1853). The limit functions automatically: When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with owner­ship. Id., at 549–550. A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser. United States v. Univis Lens Co., 316 U. S. 241, 250 (1942). The sale “terminates all patent rights to that item.” Quanta Computer, Inc. v. LG Electronics, Inc., 553 U. S. 617, 625 (2008).

This well-established exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation. The Patent Act “pro­motes the progress of science and the useful arts by granting to inventors a limited monopoly” that allows them to “secure the financial rewards” for their inventions. Univis, 316 U. S., at 250. But once a patentee sells an item, it has “enjoyed all the rights secured” by that limited monopoly. Keeler v. Standard Folding Bed Co., 157 U. S. 659, 661 (1895). Because “the purpose of the patent law is fulfilled . . . when the patentee has received his reward for the use of his invention,” that law furnishes “no basis for restraining the use and enjoyment of the thing sold.” Univis, 316 U. S., at 251.

We have explained in the context of copyright law that exhaustion has “an impeccable historic pedigree,” tracing its lineage back to the “common law’s refusal to permit restraints on the alienation of chattels.” Kirtsaeng v. John Wiley & Sons, Inc., 568 U. S. 519, 538 (2013). As Lord Coke put it in the 17th century, if an owner restricts the resale or use of an item after selling it, that restriction “is voide, because . . . it is against Trade and Traffique, and bargaining and contracting betweene man and man.” E. Coke, Institutes of the Laws of England §360, p. 223 (1628); see J. Gray, Restraints on the Alienation of Prop­erty §27, p. 18 (2d ed. 1895) (“A condition or conditional limitation on alienation attached to a transfer of the entire interest in personalty is as void as if attached to a fee simple in land”).

Lexmark cannot bring a patent infringement suit against Impression Products to enforce the single-use/no-resale provision accompanying its Return Program cartridges. Once sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with its purchasers, not the patent law.

In sum, patent exhaustion is uniform and automatic. Once a patentee decides to sell—whether on its own or through a licensee—that sale exhausts its patent rights, regardless of any post-sale restrictions the patentee pur­ports to impose, either directly or through a license.

(…) What helped tip the scales for global exhaustion was the fact that the first sale doctrine originated in “the common law’s refusal to permit restraints on the aliena­tion of chattels.” Id., at 538. That “common-law doctrine makes no geographical distinctions.” Id., at 539. The lack of any textual basis for distinguishing between domestic and international sales meant that “a straightforward application” of the first sale doctrine required the conclu­sion that it applies overseas. Id., at 540.

Applying patent exhaustion to foreign sales is just as straightforward. Patent exhaustion, too, has its roots in the antipathy toward restraints on alienation, and nothing in the text or history of the Patent Act shows that Congress intended to confine that borderless common law principle to domestic sales. In fact, Congress has not altered patent exhaustion at all; it remains an unwritten limit on the scope of the patentee’s monopoly. See Astoria Fed. Sav. & Loan Assn. v. Solimino, 501 U. S. 104, 108 (1991) (“Where a common-law principle is well established, . . . courts may take it as given that Congress has legislated with an expectation that the principle will apply except when a statutory purpose to the contrary is evident”).

(…) Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principle against restraints on aliena­tion. Exhaustion does not depend on whether the patentee receives a premium for selling in the United States, or the type of rights that buyers expect to receive. As a result, restrictions and location are irrelevant; what mat­ters is the patentee’s decision to make a sale.

Secondary sources: E. Coke, Institutes of the Laws of England §360, p. 223 (1628); J. Gray, Restraints on the Alienation of Prop­erty §27, p. 18 (2d ed. 1895); M. Nimmer & D. Nimmer, Copyright §17.02, p. 17–26 (2017).

(U.S.S.C., May 30, 2017, Impression Products, Inc. v. Lexmark Int'l, Inc., Docket 15-1189, C.J. Roberts).

La protection conférée par le brevet cesse dès que la chose est vendue à un tiers, soit dès le transfert de propriété. Que la vente soit interne ou internationale ne change rien. Un contrat de licence n'est pas l'équivalent d'une vente. Mais le titulaire peut vendre par lui-même ou par l'intermédiaire d'un contrat de licence avec le même effet : ces types de vente mettent également fin à la protection.

Si le titulaire du brevet vend la chose en restreignant contractuellement le droit de l'acheteur de la revendre, ce titulaire peut-il requérir le respect de cette restriction par une action en violation du brevet ? La réponse est négative, seule la voie contractuelle est à disposition à cet égard.

C'est qu'en effet, le droit des brevets confère un monopole limité pour permettre au titulaire de bénéficier de la récompense financière qu'il mérite, promouvant ainsi l'innovation. Mais dès que le titulaire vend le produit de son invention, il est réputé avoir bénéficié des droits découlant du monopole limité. De la sorte, le but du droit des brevets est atteint quand le titulaire a reçu sa rémunération pour l'usage de la chose. Ainsi, la loi sur les brevets ne saurait servir à restreindre l'usage et la jouissance de la chose vendue.

La cessation de la protection conférée par le brevet en cas de transfert de propriété de la chose trouve sa source dans la Common law, qui ne permet pas de restreindre les droits de l'acquéreur. La Common law ne distingue pas suivant que la vente soit interne ou internationale. Ni l'interprétation littérale ni l'interprétation historique de la loi fédérale sur les brevets ne démontre d'intention du Congrès d'altérer le contenu de ces principes de Common law. La cessation de la protection telle que décrite demeure une limite non écrite au monopole découlant du brevet. Quand un principe de la Common law est bien établi, les Tribunaux peuvent tenir pour acquis que le Congrès a légiféré avec pour but l'application du principe, sauf indication légale contraire évidente.