491 F.3d 625 (7th Cir. 2007), 05-1371, TAS Distributing Co., Inc. v. Cummins Engine Co., Inc.

Docket Nº:05-1371.
Citation:491 F.3d 625
Case Date:June 14, 2007
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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491 F.3d 625 (7th Cir. 2007)




No. 05-1371.

United States Court of Appeals, Seventh Circuit.

June 14, 2007

Argued September 19, 2006.

Appeal from the United States District Court for the Central District of Illinois. No. 03 C 1026-Joe Billy McDade, Judge.

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Robert M. Riffle (argued), Elias, Meginnes, Riffle & Seghetti, Peoria, IL, for Plaintiff-Appellant.

Marianne C. Holzhall (argued), Foley & Lardner, Chicago, IL, for Defendant-Appellee.

Before Ripple, Manion and Wood, Circuit Judges.

Ripple, Circuit Judge.

This case arises out of an agreement between TAS Distributing Company, Inc. ("TAS") and Cummins Engine Company, Inc. ("Cummins"). In that agreement, TAS granted Cummins a co-exclusive license to use its idle-control technology for heavy-duty truck engines. The agreements required Cummins to "make all reasonable efforts to market and sell" the licensed products in an effort to maximize royalties payable to TAS. TAS, believing that Cummins was not making "all reasonable efforts," filed this action in the Central District of Illinois. The complaint set forth twelve counts, including claims for breach of contract and for specific performance. At the close of discovery, Cummins moved for summary judgment, and TAS cross-moved for partial summary judgment (relating specifically to Cummins' failure to market one particular product, the "Temp-A-Stop" Product). The district court granted Cummins' motion for summary judgment and denied in part and granted in part TAS' cross-motion. For the reasons set forth in this opinion, we affirm the judgment of the district court.



A. Facts

TAS is an Illinois corporation with its principal place of business and corporate headquarters in Peoria, Illinois. It invents, develops, engineers, markets and licenses patented, proprietary technology. This technology automatically turns an engine on under certain circumstances ("Temp-A-Start") and off during other circumstances ("Temp-A-Stop"). Cummins is an Indiana corporation with its principal place of business in Columbus, Indiana. Cummins manufactures engines for use in trucks and has approximately thirty percent of the market share of the United States truck engine market.


In order to permit a clear understanding of the litigation before us, we must provide some background pertaining to the underlying

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contractual arrangement between the parties.


TAS has four technologies relevant to this dispute. Two of these technologies are used to manufacture "Temp-A-Start" Products; they perform functions that automatically turn on an engine. The other two involve "Temp-A-Stop" Products; they function to power down automatically an engine when it is not in use. Each of these products comes in two different varieties--an "ECM" or "One-Box" Product which is installed into the engine itself and a "Retrofit" or "Two-Box" Product which can be added to an existing engine or vehicle.

Before Cummins approached TAS about a licensing agreement, TAS had an exclusive license agreement with Detroit Diesel Company ("DDC"). In TAS' view, DDC had failed to comply with certain aspects of the agreements that were necessary to preserve the exclusive nature of the relationship. TAS therefore brought an action to rescind the TAS/DDC License Agreement; it sought a declaration that the TAS/DDC License Agreement no longer provided exclusive rights to DDC. Shortly thereafter, Cummins approached TAS and told TAS that it desired to obtain the right to use its proprietary technology. Cummins urged TAS to pursue aggressively litigation against DDC in order either to terminate or to eliminate the exclusivity of the TAS/DDC Agreement. In March 1998, the United States District Court for the Central District of Illinois granted summary judgment in TAS' favor, declaring that DDC's exclusive rights under the agreement were validly terminated. TAS and DDC then entered into settlement negotiations. TAS, rather than pursue any substantial monetary compensation from DDC, negotiated with Cummins to have "co-exclusive" rights to certain aspects of the TAS technology. TAS alleges that it opted for this quick resolution because Cummins consistently had represented that it had a strong commitment to the TAS technology and that it would utilize aggressively the technology in its engines.


In February 1997, TAS and Cummins entered into a Master Agreement regarding the TAS technology, conditioned upon a judicial determination that the TAS/DDC license was no longer exclusive. The Master Agreement generally governed the relationship between the parties, defined various terms, established non-competitive requirements and protected the TAS technology. The Master Agreement included an integration clause. The two companies also entered into a License Agreement. The License Agreement granted Cummins a license to utilize the TAS technology and set forth royalty and payment terms. The License Agreement also included the following clause:

Licensee shall make all reasonable efforts to market and sell ECM Products and Retrofit Products so as to maximize the payment of royalties to Licensor under this License Agreement.

R.1, Ex.B at 5.

A "product" is defined as "any product, including any component or subassembly of the product, manufactured with or incorporating all or a substantial part of the Subject Technology." R.1, Ex.A at 2 (Master Agreement). The License Agreement defined generally the "subject technology" as all technology owned or licensed by TAS relating to Temp-A-Start and Temp-A-Stop. The License Agreement also provided for minimum royalty payments. This minimum royalty schedule required Cummins to make royalty payments totaling at least $1,000,000 over

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a five-year period. Those minimum royalty payments would continue after the fifth year if "Licensee does not generate sufficient sales to meet the minimum royalty payments." R.1, Ex.B at 4 (License Agreement). Under § 6(b) of the License Agreement, Cummins could elect to terminate its rights to utilize the subject technology and would not be obligated to pay the minimum royalties after the fifth year. The parties additionally entered into a First Amendment to these agreements, which stated that TAS could use and sell the subject technology itself, and that TAS could license and sell it to other major engine manufacturers including DDC, Mack Trucks, Inc. and Caterpillar, Inc.


Cummins integrated both the Temp-A-Start and the Temp-A-Stop technology into its "ICON Product."1 It developed a brochure for this product and featured it at trade shows and in product presentations. Despite these efforts, Cummins averaged sales of fewer than 200 ICON Products on an annual basis. Cummins developed and sold a "Two-Box" or "Retrofit" Product incorporating both the Temp-A-Start and Temp-A-Stop technology,

[2 and similarly developed and sold a "One-Box" or "ECM" Product. Cummins discontinued the "ECM" Product in order to comply with new Environmental Protection Agency requirements in October 2002.

The sales performance of Cummins' products was substantially below the expectations of the parties. Prior to entering into any contracts with TAS and during negotiations, Cummins made certain projections regarding its likely sales of engines incorporating the TAS technology. These projections ranged from likely sales of 4,000 products during the first year, and 10,000 each subsequent year, to the projection that Cummins would eventually attain 12,000 a year. Indeed, Cummins' competitor, DDC, allegedly sold significantly more TAS Products than did Cummins.3 Nevertheless, Cummins consistently made the minimum royalty payments as required by the License Agreement. It has fulfilled its contractual obligation to pay at least $1,000,000 in royalties.

TAS submitted an affidavit of its president, Harvey Slepian, in support of its motion for partial summary judgment. Slepian's testimony attempted to quantify damages owed to TAS through comparisons to sales of similar products by DDC.4

B. District Court Proceedings

The district court granted Cummins' motion for summary judgment. The

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district court determined that there were disputed material issues of fact with respect to whether Cummins made "all reasonable efforts" to market and sell the TAS technology. However, it took the view that this determination did not preclude a grant of summary judgment because proof of damages is an element of a breach of contract claim, and TAS had failed to present any proof that it was damaged by Cummins' alleged failure to make "all reasonable efforts" to market TAS' products. TAS had cross-moved for partial summary judgment based upon Cummins' alleged failure to market a stand-alone Temp-A-Stop Product. The district court did not reference expressly the Temp-A-Stop Product when ruling on Cummins' summary judgment motion. TAS submits that, because the district court did not reference expressly Cummins' failure to manufacture a stand-alone Temp-A-Stop Product, summary judgment was granted improperly in favor of Cummins. In fact, the district court did not reference expressly either product, but rather refers to "TAS technology," "licensed technology," "products" and "units." R.36 at 10, 11, 12. 5 The district court presumably determined that the lack of proof of damages disposed of the dispute regarding both products. Finally, the district court declined to order specific performance of Cummins' obligations under the "all reasonable efforts" clause of the License Agreement. The court held...

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