Sms Demag Aktiengesellschaft v. Material Sciences

• Decision Date: 08 May 2009
• Docket Number: No. 08-2479.,08-2479.
• Citation: 565 F.3d 365
• Parties: SMS DEMAG AKTIENGESELLSCHAFT, Plaintiff, v. MATERIAL SCIENCES CORPORATION, Defendant-Appellee. Appeal of Terronics Development Corporation, Intervenor-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

565 F.3d 365

SMS DEMAG AKTIENGESELLSCHAFT, Plaintiff, v. MATERIAL SCIENCES CORPORATION, Defendant-Appellee.

Appeal of Terronics Development Corporation, Intervenor-Appellant.

No. 08-2479.

United States Court of Appeals, Seventh Circuit.

Argued December 12, 2008.

Decided May 8, 2009.

Kenneth P. McKay (argued), McKay & Associates, Pittsburgh, PA, for Plaintiff/Intervenor-Appellant.

Edward P. Gibbons (argued), Walker Wilcox Matousek, Chicago, IL, for Defendant-Appellee.

Before CUDAHY, FLAUM, and WOOD, Circuit Judges.

CUDAHY, Circuit Judge.

In this diversity action, Terronics Development Corporation (TDC) sues Material Sciences Corporation (MSC) for breach of contract, seeking damages and the return of certain patents TDC had assigned to MSC. The district court granted MSC's motion for summary judgment in its entirety. We affirm the dismissal of TDC's damages claims, but reverse the dismissal of TDC's claim seeking the reassignment of its patents.

I.

MSC is one of the largest liquid coating companies in North America. It pre-paints the raw materials that are used by commercial and industrial manufacturers in cars, building supplies, industrial equipment and consumer products. Beginning in the 1990s, MSC began working with TDC — a small research and engineering company — to develop a new process for coating metal materials using powder-based paint. Like traditional powder coating methods, TDC's process — which the parties call the "Powder Cloud" process — involves electrostatically coating sheet metal by imparting different electric charges to the powder paint and the metal substrate. Also like other powder coating methods, the Powder Cloud process wastes less coating material than traditional, liquid coating methods and eliminates the need for solvents, thus minimizing the generation of hazardous waste. TDC's Powder Cloud process was apparently innovative because it enabled a single apparatus to coat products of different shapes, and to coat both sides of a metal surface simultaneously. As a result, TDC's Powder Cloud technology seemed to promise both greater flexibility and faster processing than traditional powder coating processes.

In 1994, TDC granted MSC an exclusive license to use and sublicense the Powder Cloud technology in exchange for a fixed annual fee plus a variable fee based on MSC's sales. The parties renewed their licensing agreement in 1996, and TDC assigned its technology for a fixed term to MSC in 1998. It is this third "technology assignment" agreement (henceforth the Agreement) that is at issue here. The Agreement was never formally executed, but MSC concedes for the purpose of this appeal that the agreement is enforceable. Four provisions of the Agreement are worth mentioning at the outset: (1) TDC assigned MSC title to five patents and six patent applications relating to the Powder Cloud process; (2) MSC was required to purchase its powder coating equipment from TDC unless TDC was unable to provide it; (3) MSC agreed to purchase a fixed minimum amount of consulting services and equipment from TDC during the years the Agreement was in effect; and (4) the agreement would expire in 2002, but could be renewed at MSC's discretion and would be renewed automatically if certain sales goals were met.

In 1996, MSC sublicensed the Powder Cloud technology to SMS Demag Aktiengesellschaft (SMS), giving SMS the exclusive right to market this technology outside of North America.¹ After this initial success, however, the commercialization of the Powder Cloud technology did not proceed as the parties had expected. For one thing, MSC did not meet any of the sales goals that would have triggered the Agreement's automatic renewal or variable fee provisions. Further, because the technology was a great deal more experimental than the parties had anticipated, TDC experienced significant cost overruns in supplying the equipment and services MSC needed. (As TDC's CEO Ed Escallon would later remark, "[t]he Hubble's optics weren't correct on launch.") In 1996 and again in 1997, TDC chose to meet these cost overruns by borrowing against its expectation of future profits, executing two promissory notes in favor of MSC — the second superseding the first — for a total of $258,484 together with a 7% annual rate of interest. Under the terms of the second Note, MSC was permitted "at its sole discretion" to credit the fees due to TDC under the Agreement against the outstanding balance under the Note after April 2001.

It appears that by 1998, MSC began having serious second thoughts about its commitment to the Powder Cloud technology. Company records indicate that as a result of "overcapacity" and "lower than expected sales," MSC decided to merge its "applied technology group," which had been responsible for commercializing the Powder Cloud technology, into its liquid coating division. In addition, MSC postponed plans to construct a standalone powder coating facility, electing instead to add a powder coating line to an existing, liquid coating facility in Middletown, Ohio. The parties refer to this Middletown facility as "Line 15." TDC elected not to supply MSC with the equipment for Line 15.

The parties' relationship came to an unpleasant end in 2002. In late 2001, Ed Escallon sent MSC a letter purporting to memorialize an oral agreement providing for MSC to cancel $100,000 of TDC's debt under the Note. Escallon's letter stated that MSC agreed to forgive this debt to compensate TDC after MSC elected not to purchase its equipment for Line 15 from TDC. MSC did not respond to Escallon's letter. In April 2002, MSC sent TDC a letter informing it that MSC was exercising its right under the Note to credit the $250,000 technology assignment fee MSC owed TDC for 2002 against the balance of the Note, which at the time was about $350,000. Finally, in May 2002, TDC sent MSC a letter notifying it that it would "no longer provid[e] support to MSC activities."

SMS, the original sub-licensee for the Powder Cloud technology, commenced this action against MSC in federal district court. TDC intervened, adding its own breach of contract claim seeking $2,153,400 in damages as well as the reassignment of four of its patents. MSC counterclaimed against TDC for $103,843.52, based on the outstanding balance on the Note as well as the cost of the repair work for which TDC was paid but failed to perform. The district court granted MSC's motion for summary judgment in its entirety, dismissing TDC's damages and equitable claims and granting judgment for MSC on its counterclaims. On this appeal, TDC has challenged only the dismissal of its claims.

II.

Summary judgment is appropriate when there are no genuine factual disputes that require a trial. See Fed.R.Civ.P. 56(c); Waldridge v. American Hoechst Corp., 24 F.3d 918, 920 (7th Cir.1994). In evaluating a motion for summary judgment, courts must view the evidence in the light most favorable to the non-moving party. Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). However, before a non-movant can benefit from a favorable view of the evidence, it must show that there is some genuine evidentiary dispute. "Genuine," in this context, means "reasonably contestable." Wallace v. SMC Pneumatics, Inc., 103 F.3d 1394, 1396 (7th Cir. 1997). Put otherwise, a factual dispute is "genuine" only if a reasonable jury could find for either party. Reeves, 530 U.S. at 148, 120 S.Ct. 2097; de la Rama v. Ill. Dep't of Human Servs., 541 F.3d 681, 685 (7th Cir.2008).

In the present case, TDC sought an order compelling MSC to reassign TDC's patents as well as approximately $2.15 million in damages. TDC's damages claim was comprised of three sub-claims: (1) $250,000, which TDC alleges it was owed as an "assignment fee" for 2002; (2) $143,400, which was the amount of consulting services and equipment MSC was required to purchase from TDC in 2002; and (3) $1,760,000, which represents the fees TDC would have been due from 2003 to 2006 if the Agreement had been renewed.

The district court granted summary judgment for MSC on all of TDC's claims. We review this decision de novo. Gates v. Caterpillar, Inc., 513 F.3d 680, 685 (7th Cir.2008). Under the terms of the Agreement, Illinois law controls. We will consider TDC's claims in reverse order.

A.

$1.76 million of TDC's claimed damages represents the money it would have been owed if the Agreement had been renewed. By its terms, the Agreement ran from April 1998 to April 2002. MSC was empowered to renew the Agreement for an additional four-year term "at its sole discretion." While there is no dispute that MSC did not expressly renew the Agreement, TDC argues that MSC renewed the agreement implicitly "by performance." TDC makes two allegations in support of this claim: first, it alleges that MSC extended SMS's sub-license in 2004; second, it claims that MSC continued to market the Powder Cloud technology after the Agreement had lapsed.

As to the first allegation, there is no evidence that MSC affirmatively "extended" SMS's sub-license after 2002. Indeed, the copy of the sub-licensing agreement that was made part of the record on appeal shows that MSC had no need to "extend" the sub-license because the sub-license would be renewed automatically until it was cancelled. Nor was MSC required to terminate the sub-license in 2002, when TDC repudiated the Agreement. Section 10.6(a) of the Agreement provides that the expiration or non-renewal of the Agreement would have no effect on existing sub-licenses.

There is also no evidence to support TDC's allegation that MSC implicitly renewed the Agreement by continuing to market TDC's technology after 2002. TDC points to what appears to be a printout from a 2004 trade publication, which it submitted in opposition to MSC's motion for summary judgment, but which it did not authenticate. Even if we were to assume that the printout is what it purports to be, the printout lends no...