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Case 1:92-cv-00580-EJD

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

SPARTON CORPORATION, Plaintiff,

) ) ) No. 92-580

v.

) ) Chief Judge Damich

THE UNITED STATES, Defendant.

) )

REPLY BRIEF OF THE UNITED STATES ON APPLICATION OF THE CHRISTIAN DOCTRINE

GREGORY G. KATSAS Assistant Attorney General JOHN FARGO Director GARY L. HAUSKEN Attorney Commercial Litigation Branch Civil Division Department of Justice Washington, D. C. 20530 Telephone: (202) 307-0342 Facsimile: (202) 307-0345

August 25, 2008

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TABLE OF CONTENTS I. DISCUSSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. SPARTON MISSES THE POINT IN ARGUING THAT THE `-0465 CONTRACT WAS A SUPPLY CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 THE ASPR DID NOT PRECLUDE THE INCLUSION OF A PATENT RIGHTS CLAUSE IN A FIXED PRICE SUPPLY CONTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SPARTON 'S CHANGES CLAUSE ARGUMENT ALSO MISSES THE MARK. . . . . . . . . . . 9 IN LIGHT OF THE PRESIDENTIAL POLICY STATEMENTS, THERE IS NO ROOM FOR DEFERENCE TO THE NAVY 'S ALLEGED PRACTICES. . . . . . . . . . . . . . . 10 SPARTON 'S "CONTEMPORANEOUS ACTIONS" ARGUMENT LACKS MERIT . . . . . . . 14 SPARTON 'S ARGUMENT ON CONCEPTION AND REDUCTION TO PRACTICE FAILS TO ACCOUNT FOR THE FEDERAL CIRCUIT 'S REVERSAL OF THE SUMMARY JUDGMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

B.

C. D.

E. F.

II.

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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TABLE OF AUTHORITIES CASES Atlantic Coast Line Ry. v. St. Joe Paper Co., 216 F.2d 832 (5th Cir. 1954) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Butler v. Eaton, 141 U.S. 240 (1891).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 18 CGB Occupational Therapy, Inc. v. RHA Health Services, Inc., 499 F.3d 184 (3d Cir. 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 De Nafo v. Finch, 436 F.2d 737, 740 (3d Cir. 1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380 (1947).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 G. L. Christian & Assoc. v. United States, 312 F.2d 418 (Christian I), aff'd on reh'g, 320 F.2d 345 (Ct. Cl. 1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 14 G. L. Christian & Assoc. v. United States, 320 F.2d 345 (Ct. Cl. 1963) (Christian II).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 13 IBI Security Service, Inc. v. United States, 19 Cl. Ct. 106 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 12 Keller v. Hall, 111 F.2d 129 (9th Cir.1940). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Khadr v. United States, 529 F.3d 1112 (D.C. Cir. 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Matchett v. Rose, 36 Ill. App. 3d 638, 344 N.E.2d 770 (1976) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 New Hampshire v. Maine, 532 U.S. 742 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 No East-West Highway Committee, Inc. v. Chandler, 767 F.2d 21 (1st Cir. 1985). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 18

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Pontarelli Limousine, Inc., v. City of Chicago, 929 F.2d 339 (7th Cir. 1991). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Porter v. United States, 496 F.2d 583 (1974).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 S.J. Amoroso Const. Co. v. United States, 12 F.3d 1072 (Fed. Cir. 1993). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-16 Sparton Corp. v. United States, 399 F.3d 1321 (Fed. Cir. 2005) (Sparton II). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 18 Sparton Corp. v. United States, 57 Fed. Cl. 455 (2003) (Sparton I). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 18, 19 U.S. Philips Corp. v. Sears Roebuck & Co., 55 F.3d 592 (Fed. Cir. 1995) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Udall v. Tallman, 380 U.S. 1 (1964).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Wheeler v. John Deere Co., 935 F.2d 1090 (10th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Yosemite Park & Curry Co. v. United States, 582 F.2d 552 (1978).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

REGULATIONS 32 C.F.R. 1.201-4 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 C.F.R. 1.201-4 (1970). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8 32 C.F.R. 7.101 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 C.F.R. 7.101 (1969). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 C.F.R. 7.101 (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 8 32 C.F.R. 7.101 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 32 C.F.R. 7.103-2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

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32 C.F.R. 7.104 (1969). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 32 C.F.R. 7.104-7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7 32 C.F.R. 7.104-7 (1969). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7 32 C.F.R. 7.104-7 (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6, 7 32 C.F.R. 7.301. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 32 C.F.R. 9.107 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 11, 13 32 C.F.R. 9.107-2 (1969) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 32 C.F.R. 9.107-2(c)(3) (1969). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 4 32 C.F.R. 9.107-2(c)(3) (1970). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 4, 8 32 C.F.R. 9.107-5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 32 C.F.R. 9.107-5(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 32 C.F.R. 9.107-5(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Armed Services Procurement Regulation (ASPR), 32 C.F.R., Chapter I (1960-76). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3, 5-9, 13, 20 Memorandum of August 23, 1971, Government Patent Policy, 36 Fed. Reg. 16887-16892 (Aug. 23, 1971). . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4, 11-13 Memorandum of October 10, 1963 [Government Patent Policy], 28 Fed. Reg. 10943-10946 (Oct. 12, 1963). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-4, 11, 13

OTHER AUTHORITIES 5 C.J.S. Appeal and Error 1106 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Black's Law Dictionary WL (8th ed. 2004).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Merriam-Webster's Collegiate Dictionary (11th ed., 2003). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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TABLE OF APPENDICES

E

Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1969).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A51 Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1970).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A73 Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1973).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A98

F

G

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REPLY BRIEF OF THE UNITED STATES ON APPLICATION OF THE CHRISTIAN DOCTRINE The United States herein responds to "Sparton Corporation's Post Trial Brief on the Christian Doctrine In Compliance With the Court's July 1, 2008 Order," Docket No. 372 (Aug. 12, 2008) (Sparton's Post-Tr. Br.). Through its brief, Sparton raises numerous issues that are only set forth in cursory fashion. Many of the arguments contain no citations to either legal authority or to facts of record. See, e.g., Sparton Post-Tr. Br. at 10-11 (arguing that "[a] rational basis exists for the Navy construction of the ASPR because it invokes the Changes clause in fixed-price production supply contracts to obtain an improved product" by allowing the Navy to develop an improved product at lower cost than executing a separate research and development contract). Such arguments fail to comply with the court's Order of July 1, 2008, Docket No. 370, which specifically required citation to facts of record. Accordingly, we only address those arguments for which Sparton has cited some authority or which are significantly argued. None of Sparton's arguments (including those not specifically addressed below) can overcome the clear evidence and legal authority that establish that the Government is entitled to a royalty-free license to use the claimed inventions of United States Patents Nos. 3,921,120 (the `120 patent) and 4,029,233 (the `233 patent). The Government is entitled to such a license because a Patent Rights clause must be incorporated into the Mod 4 of the `-0465 contract by operation of law under the Christian doctrine.

I.

DISCUSSION In its Post-Trial Brief, Sparton argues that the Christian doctrine does not apply because

the contract at issue, No. N00019-69-C-0465, was a supply contract and the use of any of the

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Patent Rights clauses, 32 C.F.R. 9.107-5, in the 1960-1976 versions Armed Services Procurement Regulation (ASPR),1 32 C.F.R., Chapter I, was precluded in fixed price supply contracts. Sparton Post-Tr. Br. at 8-9. As is discussed below, Sparton's argument is erroneous in virtually all respects.

A.

SPARTON MISSES THE POINT IN ARGUING THAT THE `-0465 CONTRACT WAS A SUPPLY CONTRACT

Sparton begins from the premise that because the contract was a fixed price supply contract, the Christian doctrine is inapplicable. This is so, according to Sparton, because the Patent Rights clause was not required in supply contracts, but only in research and development contracts. Sparton Post-Tr. Br. at 8-9. The issue, however, is not whether the contract was categorized as a "supply contract," but whether the work performed was "research and development work." The controlling authority as to the Presidents' policy statements are the statements themselves and their implementing ASPR regulations. Neither President Kennedy's "Memorandum of October 10, 1963 [Government Patent Policy]," 28 Fed. Reg. 10943-10946 (Oct. 12, 1963) (Gov. Post-Tr. Br., Append. A) (the 1963 Policy Statement), nor President Nixon's "Memorandum of August 23, 1971, Government Patent Policy," 36 Fed. Reg. 16887-

A caution on nomenclature: Sparton refers to a version of the ASPR that was used by contracting practitioners, which was in looseleaf form and updated periodically by replacing pages with new conforming pages. Sparton offers portions of four versions, first published in 1960, 1963, 1969 and 1976, respectively. The Government refers to the version of the ASPR published annually in the Code of Federal Regulations. Despite the differing source of the regulations, we have discerned no difference in content. There is, however, a difference is nomenclature: the locations of the hyphen and period are reversed. Thus, 32 C.F.R. 7.104-7 in the Government brief is the same as ASPR 7-104.7 in Sparton's brief. 2

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16892 (Aug. 23, 1971) (Gov. Post-Tr. Br., Append. B) (the 1971 Policy Statement), distinguish between "supply contracts" and "research and development contracts." And the respective implementing ASPR regulation, 32 C.F.R. 9.107, does not distinguish based on whether the contract is denominated a supply contract or a research and development contract. See 32 C.F.R. 9.107-2 (1969) (Gov. Post-Tr. Br., Append. C); 32 C.F.R. 9.107-2 (1971) (Gov. Post-Tr. Br., Append. D). Rather, the policy statements and implementing regulations focus on the nature of the work to be performed. In each of the policy statements and implementing regulations, "contract" is defined for purposes of the policy as any actual or proposed contract ... entered into with or for the benefit of the government where a purpose of the contract is the conduct of experimental, developmental or research work. 1963 Policy Statement, 3(d) (Gov. Post-Tr. Br., Append at A5) (emphasis added); 1971 Policy Statement, 3(e) (Gov. Post-Tr. Br., Append at A12); 32 C.F.R. 9.107-2(c)(3) (1969) (Gov. Post-Tr. Br., Append. at A17); 32 C.F.R. 9.107-2(c)(3) (1971) (Gov. Post-Tr. Br., Append. at A36). As is clear from each of these authorities, the focus is not on how one may categorize the contract, but rather on how one categorizes the work being performed. Notably, policy statements and implementing regulations specify that research, development or experimental work need not be the sole purpose of the contract: it need be only a purpose of the contract. Thus, as long as any of the work performed under the contract is research, developmental or experimental work, the patent policy applies. Sparton's argument would elevate the form of the contract over its substance and allow the very type of "avoid[ance] or eva[sion]" and "sapping by subordinates" against which the

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Christian doctrine is meant to protect. G. L. Christian & Assoc. v. United States, 320 F.2d 345, 351 (Ct. Cl.) (Christian II), aff'g on reh'g, 312 F.2d 418 (1963) (Christian I). Under Sparton's analysis, the actual work being performed would be of little consequence, what would be important is whether the contracting officer categorized the contract as one for "supplies or services" rather than as being for "research and development." And, under that analysis, the contracting officer would be able to evade or avoid the policy simply by labeling the contract as one for supplies or services, even if all of the contract effort was for "research and development." The proper approach the one followed in the Presidential policy statements and implementing regulations is to look to the work being performed. If any part of the work being performed has as its purpose research, development or experimentation, then Presidential policy statements require the inclusion of Patent Rights clause. 1963 Policy Statement, 3(d) (Gov. Post-Tr. Br., Append at A5); 1971 Policy Statement, 3(e) (Gov. Post-Tr. Br., Append at A12); 32 C.F.R. 9.107-2(c)(3) (1969) (Gov. Post-Tr. Br., Append. at A17); 32 C.F.R. 9.107-2(c)(3) (1971) (Gov. Post-Tr. Br., Append. at A36). In a similar vein, Sparton argues that "the Presidential policy statements ... are inapplicable to fixed-price supply contracts." Sparton Post-Tr. Br. at 12. Once again, Sparton cites no authority for its proposition. The policy statements, as noted above, are to the contrary. Both the policy statements and the implementing regulations are phrased in terms of "research and development work," not "research and development contracts." 1963 Policy Statement, 3(d) (Gov. Post-Tr. Br., Append at A5) (emphasis added); 1971 Policy Statement, 3(e) (Gov. Post-Tr. Br., Append at A12); 32 C.F.R. 9.107-2(c)(3) (1969) (Gov. Post-Tr. Br., Append. at A17); 32 C.F.R. 9.107-2(c)(3) (1971) (Gov. Post-Tr. Br., Append. at A36). It is nature of the

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work, not the categorization of the contract that is significant. On the facts of this case, Mod 4 required development work. Sparton's ECP states that the purpose is to "verify feasibility of [the] design approach." J11.1. And the accompanying Form ME-1017 indicated that the proposed design would only be incorporated into production during "future procurement." J12.1. And the statement of work stated that Sparton, in phase one, would design and construct engineering models and perform sea tests. D130.15 at 2.0. Further, each of the three SSQ-53 contractors received a similar engineering change modification at approximately the same time to address the same issue. Jt. Stip. of Fact at 8, 42; D17.4; D123.4 3.1. Indeed, the ultimate goal of all three engineering change modifications, was to produce a small quantity of sonobuoys so that the Navy could obtain data from routine use of the dual depth sonobuoys and thereafter evaluate their efficacy. D17.4; D123.4 3.1.

B.

THE ASPR DID NOT PRECLUDE THE INCLUSION OF A PATENT RIGHTS CLAUSE IN A FIXED PRICE SUPPLY CONTRACT

Sparton next asserts that "[t]he ASPR regulations pertaining to fixed-price supply contracts not only do not mandate the insertion of a Patent Rights clause, they also preclude its insertion therein by operation of law, discretion or otherwise." Sparton Post-Tr. Br. at 9. Syntactical issues aside,2 this statement is based on a false premise. Conspicuously absent from the Sparton's brief is any citation of authority for the proposition that the ASPR precludes the use of a Patent Rights clause in supply contracts. Rather, Sparton seems to contend that the relevant ASPR provisions were re-written in 1969,

It is unclear whether "by operation of law, discretion or otherwise" is meant to be a series or whether "discretion or otherwise" is an appositive. 5

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after which the "Navy did not have regulatory authority to include a Patent Rights clause in the `0465 contract." Sparton Post-Tr. Br. at 9. To fully understand this argument, one must return to Sparton's historical review of the ASPR at pages 2 through 5 of Sparton's Post-Trial Brief. Essentially, Sparton argues that from 1960 through March of 1969, the Navy had discretionary authority to include a Patent Rights clause in supply and service contracts. Sparton Post-Tr. Br. at 3-4 (citing the Table of Contents for the 1960, 1963 and 1969 versions of the ASPR); see also Append. at A59, A69 (Patent Rights clause a clause "to be used when applicable" in fixed price supply contracts under 32 C.F.R. 7.104, 7.104-7(1969)). Further, according to Sparton, that discretionary authority was somehow withdrawn due to the removal of 32 C.F.R. 7.104-7 during 1969. Sparton Post-Tr. Br. at 4-5 (citing the Table of Contents for the 1973 and 1976 versions of the ASPR); compare Gov. Append. A59, A69 (1969 ASPR containing 7.104-7) with Gov. Append. A82, A93 (1970 ASPR without 7.104-7). The difficulty with Sparton's argument is that it relies solely on the Table of Contents of the regulations, not on substance of the underlying regulatory provisions, and that it ignores other pertinent parts of the regulation. Indeed, contrary to Sparton's argument, the ASPR at all times required that contracting officer include a Patent Rights clause in fixed price supply contracts, if the contract also included research and development work. In ASPR, Chapter I, Part 7, all contracts were divided into approximately 15-16 "types," depending on the method of pricing (e.g., fixed price, cost plus fixed fee, incentive fee, etc.) and the nature of goods or services being procured (e.g., supplies, research, development, construction, laundry, etc.). See Sparton Append. B-E. According to Sparton, the relevant

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"type" of contract is fixed price supply contract (ASPR, Chapter I, Part 7, Subpart A) rather than a fixed price research and development contracts (ASPR, Chapter I, Part 7, Subpart C). Compare Gov. Append. A58-59, A68-69, A80-81 & A92 (Clauses for Fixed-Price Supply Contracts) with id., A61, A72, A82-83 & A95 (Clauses for Fixed-Price Research and Development Contracts). The significant provisions, however, are 32 C.F.R. 7.101 (Applicability) and 7.104-7. Prior to June 1969, the ASPR required inclusion of a Patent Rights clause where such a clause was applicable. See 32 C.F.R. 7.101, 7.104-7 (1969). And 32 C.F.R. 1.201-4 (1969) defines a "contract" as including "awards and notices of award, contracts of a fixed price, cost, cost-plus-a-fixed-fee, or incentive type; ...," and also includes "amendments and supplemental agreements with respect to any of the foregoing." See also Append. A79 (same in 32 C.F.R. 1.201-4 (1970)). Thus, for purposes of applying the contract "types" in the ASPR, an amendment is itself a "contract." But even if the Navy had discretion to incorporate a Patent Rights clause in 1969, the Navy lacked any discretion in 1971 when Sparton submitted ECP 0465-2 and when Mod 4 became effective. After the 1969 amendment to the ASPR, the section previously codified as 32 C.F.R. 7.104-7 (1970) was removed. The import that Sparton attributes to this change is illusory, however, in light of an amendment to 32 C.F.R. 7.101 (1970). As amended, the latter section provides: As used throughout this subpart, the term "fixed-price supply contract" shall mean any contract (a) entered into either by formal advertising or by negotiation other than (1) purchase orders ..., (2) short form negotiated supply contracts ..., (3) letter contracts, (4) notices of award, and (5) supplemental agreements to contacts ..., which do not effect new procurement; (b) at a fixed price ...; and (c) for supplies other than (1) the construction, alteration, or repair of ...real property, (2) experimental developmental, or research work, or (3) facilities to be provided by the Government .... However, there are supply

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contracts in which performance involves ... research and development, or other special factors. In such cases, see the particular subparts containing additional applicable clauses. 32 C.F.R. 7.101 (1970) (emphasis added); see also 32 C.F.R. 7.101 (1973) (same provision still codified two years later). Where, as here, a contract involves both research and development work and supplies, the contracting officer is directed to include both the required clauses for the fixed price supply contracts and the required clauses for fixed price research and development contracts. Further, Sparton concedes that the Patent Rights clause was required in fixed price research and development type contracts both before and after the change to the regulation in 1969. Sparton Post-Tr. Br. at 3 (stating that the Patent Rights clause was a "required clause" in fixed price research and development contracts in accordance with ASPR, 7.302 and 7.302-23 (1960)); id. at 3-4 (same for 1963 version of ASPR); id. at 4 (same for the 1969 version of ASPR); id. at 4-5 (same for the 1973 and 1976 versions of ASPR). Therefore, the contracting officer was also obligated to incorporate a Patent Rights clause in Mod 4 because Mod 4 was a "contract" pursuant to 32 C.F.R. 1.201-4 & 9.107-2(c)(3) (1970) and Mod 4 had as its purpose "research" or "development" work, as described in 32 C.F.R. 9.107-2(c)(3). With the incorporation of Mod 4 into the contract on July 13, 1971 (D17.10-11; D1.9 & .11), the `-0465 contract included a research and development component, as stated in the ECP and Sparton's cover letter (see D130.15 2.0; D128.1). And 32 C.F.R. 7.101 (1970) had already been amended, as described above, to require the contracting officer to incorporate in a fixed-priced supply contract, which had a research and development component, at least those

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provisions of the ASPR that were required to be incorporated in research and development contracts. Thus, contrary to Sparton's argument the ASPR certainly did not preclude the use of a patent rights clause in the supply contracts having a research and development component. Rather, where a supply contract also includes a research and development component, the ASPR specifically directs the contracting officer to apply the appropriate clauses for research and development contracts, as well as those for supply contracts.

C.

SPARTON 'S CHANGES CLAUSE ARGUMENT ALSO MISSES THE MARK

Sparton further contends that "defendant [cannot] establish that the Navy's use of the `0465 contract's Changes clause was improper" and that "the Changes clause clearly trumped the Patent Rights clause" Sparton Post-Tr. Br. at 12-13. Sparton's argument is specious. It appears that Sparton is attempting to argue that unless the Navy's use of the Changes clause was improper, then the failure to include a Patent Rights clause was proper. The second proposition, however, does not follow from the first. The Changes clause does not specify what modifications may be made to the contract (or, conversely, which cannot). 32 C.F.R. 7.103-2. Rather, the Changes clause specifies the procedure that must be followed, specifically: if the contract cost changes, then, under certain circumstances, the contracting officer must make an equitable adjustment to the contract. 32 C.F.R. 7.103-2. As this court has seen, Sparton did request an equitable adjustment and the Navy modified the contract to reflect that equitable adjustment. See D1.1 &.3 ("supplemental agreement" finalizing equitable adjustment at $ 282,000), D1.5 (increasing limit for Mod 4 from

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$ 198,000 to $ 294,000); D1.9 (setting limit of $ 198,000 on any equitable adjustment unless modified by the contracting officer); D128.1 (Sparton agrees to perform Mod 4 for an equitable adjustment in the fixed price of $ 198,000). But nothing in the Changes clause allows a contracting officer to avoid or evade established policies. Rather, the determination as to which clauses are required stems from the nature of the modifications to the contract, not from application of the Changes clause. In this case, Mod 4 transformed the very nature of the contract: before Mod 4 became effective, the contract was strictly a supply contract; after Mod 4, the `-0465 contract included a research and development component.3

D.

IN LIGHT OF THE PRESIDENTIAL POLICY STATEMENTS , THERE IS NO ROOM FOR DEFERENCE TO THE NAVY 'S ALLEGED PRACTICES

Sparton next argues that "[b]ased on long standing (decades), deeply ingrained Navy procurement practice (policy) to obtain development work using ECPs under fixed-price production supply contracts ... and the Navy's interpretation of the relevant procurement regulations to permit the same, to which deference must be given under IBI, supra, no Patent Rights clause should be incorporated into fixed-price supply contract ... merely because a Although the research and development aspect of the ECP is undeniable, we repeat the salient evidence for the court's convenience: (1) the cover letter submitting the ECP states that the purpose is to "verify feasibility of [the] design approach" (J11.1); (2) the accompanying Form ME-1017 indicated that the proposed design would only be incorporated into production during "future procurement" (J12.1); (3) the statement of work stated that Sparton, in phase one, would design and construct engineering models and perform sea tests (D130.15 at 2.0); (4) the Navy had publicized its desire for a dual depth sonobuoy at meetings attended by the sonobuoy manufactures (D126.91:13-.94:4; Tr. (Boyle) 590:22-591:25, 593:12-594:3 & 3495:23-3497:16); and (5) each of the three SSQ-53 contractors received a similar contract modification implementing an engineering change proposal at approximately the same time to address the same issue (Jt. Stip. of Fact at 8 42). 10
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modification thereto ... required the contractor to perform development work." Sparton Post-Tr. Br. at 10. Sparton's argument is confused and begins from a series of false premises. As an initial matter, Sparton's contention that the Navy had a long standing "practice" or "policy" is baseless. Sparton does not provide any citations to support its claim of a "long standing" Navy "practice" or "policy" of using changes to supply contracts to conduct research or develop new products in the sonobuoy art.4 The most that has been shown is that the Navy acted in that fashion only in the AN/SSQ-53 contracts with Sparton, Magnavox and Sanders. D17.4; D123.4 3.1. Sparton's reliance on IBI Security Service, Inc. v. United States, 19 Cl. Ct. 106, 110 (1989) is also misplaced. IBI stemmed from a contracting officer's denial of a contract price adjustment to account for a Department of Labor Wage Determination (which required that the plaintiff pay certain employees wages in accordance with certain collective bargaining agreements). Id. at 107. Plaintiff argued that, under certain temporary procurement regulations and the Christian doctrine, a price adjustment clause was a required clause that had to be incorporated by law into its contract. Id. The court found that publication of a Federal Acquisition Circular demonstrated that the drafters of the acquisition regulations had manifested their intention that the wage adjustment provisions would no longer be mandatory. Id. at 109.

Sparton's argument regarding this putative practice or policy is also confused. Sparton's argument assumes that the government is contending that the Navy erred in modifying a supply contract to add research and development work. The government does not so contend. The Navy's error was in failing to include a Patent Rights clause when issuing the modification. The 1963 and 1971 Policy Statements and 32 C.F.R. 9.107 only require that a Patent Rights clause be incorporated into the contract if the contract calls for "research and development work." Once the contracting officer decided to employ the `-0465 contract as a vehicle for performing research and development work, the contracting officer was obligated to include the appropriate Patent Rights clause. 11

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The court then went on to find that the temporary regulations on which the plaintiff relied expired before the government sought the bids for the contracts at issue, and thus those regulations could not be the legal basis for incorporating a contract clause under the Christian doctrine. Id. And, finally, the court found the Department of Labor, which is charged with issuing the Wage Determinations, did not share plaintiff's expansive view of the temporary regulations. Id. at 110. Citing to Udall v. Tallman, 380 U.S. 1, 16 (1964), the court concluded that "[w]hen a court is asked to construe the meaning of an administrative regulation, deference to the agency's interpretation is in order." Here, however, the policy statements and implementing ASPR provisions were created specifically to limit agency discretion and to create a uniform policy throughout the Federal government. Appendix A at A2, 28 Fed. Reg. at 10943 ("there is need for greater consistency in agency practices in order to further the governmental and public interests in promoting the utilization of federally financed inventions"); Appendix B at A9 G, 36 Fed. Reg. at 16889 ("[t]he prudent administration of Government research and development calls for a Governmentwide policy on the disposition of inventions made under Government contracts reflecting common principles and objectives"). Thus, the policy would have been frustrated if the agency contracting officers, or even the Navy as an agency, had discretion to ignore or avoid it. Further, Sparton confuses "practice" with "policy." Sparton Post-Tr. Br. at 10 ("deeply ingrained Navy procurement practice (policy)"). A "practice" is an activity done or performed "often, customarily or habitually." Merriam-Webster's Collegiate Dictionary 974 (11th ed., 2003). On the other hand, a "policy" is "a high-level overall plan embracing the general goals and acceptable procedures [especially] of a governmental body." Id. at 960. At most, Sparton

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has shown a Navy practice of using existing supply contracts as a vehicle for conducting research and development work in some instances. But that putative practice could never trump the Presidents' declared policy as embodied in the 1963 Policy Statement or the 1971 Policy Statement or the implementing regulations in the ASPR. Indeed, as Christian II counsels that [o]bligatory Congressional enactments are held to govern federal contracts because there is a need to guard the dominant legislative policy against ad hoc encroachment or dispensation by the executive. There is a comparable need to protect the significant policies of superior administrators from sapping by subordinates. 320 F.2d at 351 (citation omitted). To the extent that Navy contracting officers had a practice of failing to incorporate a Patent Rights clause in supply contracts that called for "research and development work," the contracting officers were acting contrary to the directives of superior administrators embodied in the policy statements and implementing ASPR provisions. Sparton expressly argues that the actions of the Navy contracting officers should control over the collective will of two Presidents and the executives responsible for publication of the ASPR. Sparton's argument would encourage the very type of "sapping" that the Christian doctrine is designed to prevent. Sparton's contention that a Patent Rights clause should not be incorporated into the `-0465 contract "merely because a modification thereto ... required the contractor to perform development work" (Sparton Post-Tr. Br. at 10 (emphasis added)) is similarly misguided. Indeed, Mod 4 to the `-0465 contract should have incorporated a Patent Rights clause precisely because it called for development work. The whole point of both the 1971 Policy Statement and the implementing regulations in 32 C.F.R. 9.107 was to require the inclusion of a Patent Rights clause, where a contract called for research or development work.

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E.

SPARTON 'S "CONTEMPORANEOUS ACTIONS" ARGUMENT LACKS MERIT

Sparton next argues that the court should not employ the Christian doctrine here because the "parties contemporaneous actions during the performance of the subject `-0465 production supply contract support the conclusion that a Patent Rights clause should not be incorporated therein." Sparton Post-Tr. Br. at 11. Sparton then suggests (without citations to the trial transcript or exhibits) that four actions, or failures to act, demonstrate that the contracting parties treated the contract as not incorporating a Patent Rights clause. Sparton then concludes that "[t]o require [incorporation of a Patent Rights clause] now, decades after the completion of the contract, changes the agreement of the parties without statutory or regulatory authority mandating said change." Sparton Post-Tr. Br. at 11. The first difficulty with Sparton's argument is that it lacks any logic. It is not surprising that Sparton and the Navy did not treat the contract as having a Patent Rights clause: the Navy did not include one within the four corners of the contract, as written. But the Christian doctrine causes a clause to be incorporated by operation of law, whether or not the parties act like one should have been included. Christian I, 312 F.2d at 427. Indeed, the term of "operation of law" is defined by lack of intent; it is "[t]he means by which a right or a liability is created for a party regardless of the party's actual intent." Black's Law Dictionary, WL "operation of law" (8th ed. 2004). Sparton's erroneous logic would mean that the Christian doctrine could only be applied where the parties intended to include the omitted clause and failed to do so as a result of ministerial error. See Sparton Post-Tr. Br. at 11. S.J. Amoroso Const. Co. v. United States, 12 F.3d 1072 (Fed. Cir. 1993), rejected a similar contention:

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Amoroso contends that the Christian case is inapplicable because in that case a clause was inadvertently omitted whereas in this case clause 79 was intentionally substituted for clause 34. This distinction, as the Claims Court held, is irrelevant. Application of the Christian doctrine turns not on whether the clause was intentionally or inadvertently omitted, but on whether procurement policies are being "avoided or evaded (deliberately or negligently) by lesser officials." 12 F.3d at 1075 (footnote and citations omitted). In most cases, the parties will be unlikely to treat the clause as being present. To be sure, in the extreme case where the omission occurs in an effort to deliberately avoid or evade the regulations (such as by collusion between the contractor and contracting officer) one could hardly expect that the parties would treat a deliberately omitted provision as being present. But even where the provision is negligently omitted by simple failure to recognize the need to insert it, the parties are also unlikely to treat the provision as being incorporated into the contract, if only because they had already failed to recognize that the omitted provision should have been incorporated in the first instance. But the Christian doctrine is to be employed regardless of whether the omission is deliberate or through negligence. Accordingly, resort to the Sparton's or the Navy's treatment of the matter is unnecessary. The second difficulty in accepting Sparton's argument is the lack of authority to support it. Sparton's brief cites no case law or other authority to support its position. Sparton Post-Tr. Br. at 11. Rather, Sparton merely argues that requiring incorporation by operation of law "changes the bargain without statutory or regulatory authority." Id. In doing so, Sparton ignores the clear authority in Christian I and Christian II and their progeny for incorporating required clauses by operation of law. Christian II, 320 F.2d at 347, 356 (denying rehearing of Christian I and noting that the court "held in our original opinion that ...the [ASPR] required, as a matter of law, the inclusion in plaintiff's ... contract of the standard-form ... article providing for the

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termination of ... contracts for the convenience of the Government"); Christian I, 312 F.2d at 426 ("We are not, and should not be, slow to find the standard termination article incorporated, as a matter of law, into plaintiff's contract if the [ASPR] can fairly be read as permitting that interpretation"); see also S. J. Amoroso Const., 12 F.3d at 1075 ("Under the ... Christian doctrine, a mandatory contract clause that expresses a significant or deeply ingrained strand of public procurement policy is considered to be included in a contract by operation of law"). And Sparton also ignores that the basis for such incorporation is "Supreme Court law that the United States is neither bound nor estopped by its agents who act beyond their authority or contrary to statute and regulations." S. J. Amoroso Const., 12 F.3d at 1075 (citing Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947); Yosemite Park & Curry Co. v. United States, 582 F.2d 552, 558 (1978); and Porter v. United States, 496 F.2d 583, 590 (1974)). Sparton's argument regarding the contemporaneous actions of Sparton and the Navy is contrary to law and therefore irrelevant to whether this court should apply the Christian doctrine.

F.

SPARTON 'S ARGUMENT ON CONCEPTION AND REDUCTION TO PRACTICE FAILS TO ACCOUNT FOR THE FEDERAL CIRCUIT'S REVERSAL OF THE SUMMARY JUDGMENT

Finally, Sparton contends that this court "has already ruled on the conception and reduction to practice issues" and that the Government "appears to contest these rulings, citing to Sparton Corp. v. United States, 57 Fed. Cl. 455 (2003) (Sparton I). Sparton Post-Tr. Br. at 1415. Sparton is misinformed as to the law. This court's opinion and judgment in Sparton I was reversed by the Federal Circuit in Sparton Corp. v. United States, 399 F.3d 1321 (Fed. Cir. 2005) (Sparton II). The question of the

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effect of the reversal on the court's findings of fact arose during the trial. See Tr. 286:22 290:16 (colloquy between court and counsel over admission of exhibits used in summary judgment motion). Sparton was thus aware of countervailing arguments to its position. Yet, without citation to any authority, Sparton urges that the "court has ruled on these issues." Sparton Post-Tr. Br. at 14-15. The Federal Circuit has concluded that a reversal causes the lower court's orders and opinions to be of no effect. U.S. Philips Corp. v. Sears Roebuck & Co., 55 F.3d 592, 598 (Fed. Cir. 1995) (applying Seventh Circuit law). In Philips, the Federal Circuit quoted with approval Pontarelli Limousine, Inc., v. City of Chicago, 929 F.2d 339, 340-41 (7th Cir. 1991), as stating: [The question on appeal] is whether the district judge erred in refusing to give the judgment in Chicago Courtesy collateral estoppel effect in this case. ... He did not err. A vacated judgment has no collateral estoppel or res judicata effect under Illinois law, Matchett v. Rose, 36 Ill. App. 3d 638, 649, 344 N.E.2d 770, 779 (1976) (or any other law, No East-West Highway Committee, Inc. v. Chandler, 767 F.2d 21, 24 (1st Cir. 1985)). The reference to "any other law" is of particular import here. The Federal Circuit then went on to quote the First Circuit in No East-West Highway, 767 F.2d at 24, for the proposition that a vacated judgment "has no preclusive force either as a matter of collateral or direct estoppel or as a matter of the law of the case." Philips, 55 F.3d at 598. This is consistent with the view of other courts. Khadr v. United States, 529 F.3d 1112, 1115-16 (D.C. Cir. 2008) ("It has long been well established that the reversal of a lower court's decision sets aside that decision, leaves it `without any validity, force, or effect,' and requires that it be treated thereafter as though it never existed," citing Butler v. Eaton, 141 U.S. 240, 243-44 (1891) ("The judgment complained of is based directly upon the judgment of the supreme judicial court of Massachusetts, which we have just reversed. It is apparent from an inspection of the record that the whole foundation of that

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part of the judgment which is in favor of the defendant is, to our judicial knowledge, without any validity, force, or effect, and ought never to have existed.")); Wheeler v. John Deere Co., 935 F.2d 1090, 1096 (10th Cir. 1991) ("Once we reversed the original judgment incorporating the first jury's verdict and our mandate issued, the first verdict became null and void in its entirety. The district court could no more reinstate the damages portion of the first verdict than it could substitute the second jury's award with a larger sum pulled out of a magically appearing hat." (citation omitted)); Atlantic Coast Line Ry. v. St. Joe Paper Co., 216 F.2d 832, 833 (5th Cir. 1954) ("To reverse a judgment ... means to overthrow it by a contrary decision, to make it void, to undo or annul it for error"); Keller v. Hall, 111 F.2d 129, 131 (9th Cir.1940) ("the judgment theretofore rendered in the case, after it was reversed, was `without any validity, force, or effect,'" quoting Butler)); CGB Occupational Therapy, Inc. v. RHA Health Services, Inc., 499 F.3d 184, 188 n.2 (3d Cir. 2007) (citing 5 C.J.S. Appeal and Error 1106 (2007) (the effect of a reversal of a judgment "is to nullify it completely and to leave the case standing as if such judgment ... had never been rendered, except as restricted by the opinion of the appellate court")); De Nafo v. Finch, 436 F.2d 737, 740 (3d Cir. 1971) (cited in No East West Highway, 767 F.2d at 24)). As a result, Sparton I is of "no effect," and the only facts established, as law of case, are those necessary to the judgment in Sparton II. Thus, Sparton is quite clearly wrong when it argues that this court has ruled on the "issues" of conception and reduction to practice. In any event, Sparton does not contest that the date of conception was after Mod 4 had been adopted. To be sure, Sparton argued before the Federal Circuit that "[c]onception of the 120 and 233 claimed inventions occurred between July 29, 1971 and November 23, 1971, when

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this single part release plate was conceived for use in the dual depth sonobuoy." D17.13. The Federal Circuit accepted that fact in determining that the alleged barring event ECP 0465-2 could not have been an offer of the claimed invention. 399 F.3d at 1325 (quoting 57 Fed. Cl. at 468). Sparton is thus barred by either judicial estoppel or law of the case from arguing any other conception date. New Hampshire v. Maine, 532 U.S. 742, 742-43 (2001) ("[u]nder the judicial estoppel doctrine, where a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him"); Toro Co. v. White Consolidated Inds., 383 F.3d 1326 (Fed. Cir. 2004) (law of the case doctrine precludes a party from rearguing issues that were actually decided, either explicitly or by necessary implication, earlier in the litigation). On the other hand, Sparton offers no argument as to when the invention was reduced to practice other than a simple conclusory statement that it was "in the summer of 1972 when the inventions were tested under actual service conditions." Sparton Response Br. at 15. Sparton's failure to cite any evidence is fatal to its argument. As demonstrated in the preceding section (and in Government's Post-Trial Brief, sections I.C. and II.E) the claimed inventions were reduced to practice in course of the `-0465 contract. In support of its conclusion, the Government has cited to Sparton's own documents establishing at least five tests, all performed under the contract, between November 1971 and March 9, 1972, any of which could be considered the first reduction to practice.5

In its prior opinion on summary judgment, the court had found that the March 9, 1971 test was the first actual reduction to practice. Sparton I, 57 Fed. Cl. at 477-78. 19

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II.

CONCLUSION For the reasons stated above and in the "Post-Trial Brief of the United States on

Application of the Christian Doctrine," the ASPR Patent Rights clause at either 32 C.F.R. 9.107-5(a) or 32 C.F.R. 9.107-5(b) was required to be inserted in Mod 4 of the `-0465 contract. Under either clause, the government obtains a royalty-free license to manufacture and use the claimed inventions of the `120 and `233 patents. Accordingly, at least the clause at 32 C.F.R. 9.107-5(b) should be incorporated in the `-0465 contract by operation of law under the Christian doctrine. As a result, the United States has a lawful right to use the claimed inventions of `120 and `233 patents and, consequently, did not engage in unauthorized use of either patent. Sparton's claim, therefore, should be dismissed. Respectfully submitted, GREGORY G. KATSAS Assistant Attorney General JOHN FARGO Director

s/Gary L. Hausken GARY L. HAUSKEN Attorney Commercial Litigation Branch Civil Division Department of Justice Washington, D. C. 20530 Telephone: (202) 307-0342 Facsimile: (202) 307-0345

August 25, 2008

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APPENDICES

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TABLE OF APPENDICES

E

Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1969).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A51 Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1970).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A73 Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1973).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A98

F

G

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REPLY BRIEF OF THE UNITED STATES ON APPLICATION OF THE CHRISTIAN DOCTRINE

APPENDIX E

Extract of Armed Services Procurement Regulation, 32 C.F.R. Parts 1 and 7 (1969)

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A 51

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A 52

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A 53

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A 54

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A 55

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A 56

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A 57

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A 58

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A 59

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A 60

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A 61

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A 62

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A 63

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A 64

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A 65

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A 66

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A 67

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A 68

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A 69

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A 70

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A 71

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A 72