Singer Co. v. Skil Corp.

• Decision Date: 14 October 1986
• Docket Number: Nos. 85-1608,85-1667 and 85-1701,s. 85-1608
• Citation: 803 F.2d 336
• Parties: The SINGER COMPANY, Plaintiff-Appellee, Cross-Appellant, v. SKIL CORPORATION, Defendant-Appellant, Third-Party Plaintiff-Appellee, Cross-Appellee, v. LUCERNE PRODUCTS, INC., Third-Party Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 336

803 F.2d 336

231 U.S.P.Q. 543

The SINGER COMPANY, Plaintiff-Appellee, Cross-Appellant, v. SKIL CORPORATION, Defendant-Appellant, Third-Party Plaintiff-Appellee, Cross-Appellee, v. LUCERNE PRODUCTS, INC., Third-Party Defendant-Appellant,

Cross-Appellee.

Nos. 85-1608, 85-1667 and 85-1701.

United States Court of Appeals Seventh Circuit.

Argued Feb. 12, 1986.

Decided Oct. 14, 1986.

Clarence J. Fleming, McDougall, Hersh & Scott, Chicago, Ill., for Skil corp.

Richard J. Egan, Baldwin, Egan & Fetzer, Cleveland, Ohio, for Lucerne Products, Inc.

P. Phillips Connor, Hill, Van Santen, Steadman & Simpson, Chicago, Ill., for Singer Co.

Before CUMMINGS, COFFEY and RIPPLE, Circuit Judges.

COFFEY, Circuit Judge.

This case involves the resolution of five separate issues. Initially, Skil Corporation ("Skil") appeals a summary judgment granted to The Singer Company ("Singer") ordering that Skil repay Singer $161,367.56 in royalties which Singer mistakenly paid to Skil. Second, Singer appeals the district court's refusal to award Singer prejudgment interest and attorneys fees after its successful litigation against Skil. Third, Lucerne Products, Inc. ("Lucerne") appeals the trial court's grant of summary judgment on a third-party complaint brought against Lucerne by Skil requiring Lucerne to reimburse Skil in part for the royalties the court ordered Skil to return to Singer. Fourth, Lucerne appeals a summary judgment on Skil's second third-party complaint against Lucerne ordering Lucerne to pay Skil royalties for a period from the fourth quarter of 1977 through September 28, 1982 on a patent held by Skil. Finally, Lucerne appeals a dismissal of its cross-claim against Singer.

I

The focal point of controversy in this case is a 1967 patent license agreement between Singer and Skil. This agreement was the product of a patent infringement action which Skil brought against Singer and others in 1966. Under the agreement, Singer agreed to pay royalties to Skil if Singer used products (switch units) covered by Skil's patent (the Gawron patent) as component parts in Singer products. The agreement also provided that Singer would not have to pay royalties to Skil if Singer purchased switch units from a party Skil licensed to make patented switch units. Singer regularly purchased switch units from Lucerne. Lucerne was granted a license from Skil to manufacture and sell the switch units covered under Skil's patent.

In November 1970, Skil notified Singer that Skil's license agreement with Lucerne was cancelled, and thus Singer would have to pay royalties to Skil if Singer continued to use switch units purchased from Lucerne in its products. Singer began paying royalties to Skil, and sent a telegram to Lucerne informing Lucerne that Singer was now paying royalties to Skil.

Skil's November 1970 notice to Singer stating that Skil had cancelled its agreement with Lucerne was a result of a dispute between Skil and Lucerne over their license agreement. Lucerne disputed the validity of Skil's Gawron patent. Skil filed an action in the Northern District of Ohio ("the Ohio litigation") against Lucerne in 1968 to recover royalties due under its agreement with Lucerne. In 1974, Skil filed a second action against Lucerne for patent infringement. The second action was consolidated with the first. This litigation resulted in a ruling that Skil's patent was valid, that Lucerne was liable to Skil for royalties due under its agreement with Skil, and further that Skil was not entitled to cancel its license agreement with Lucerne. The court awarded Skil $294,079 in royalties for the time period from 1965 through the third quarter of 1977. See Skil Corporation v. Lucerne Products, Inc., 489 F.Supp. 1129 (N.D.Ohio 1980), aff'd 684 F.2d 346 (6th Cir.1982), cert. denied, 459 U.S. 991, 103 S.Ct. 347, 74 L.Ed.2d 387 (1982).

Singer discovered that Skil's purported cancellation of Lucerne's license to manufacture and sell switches covered under Skil's patent was ineffective and ceased making royalty payments to Skil in 1980. In 1982, Singer commenced the present litigation with the filing of an action against Skil to recover royalties it claims were mistakenly paid to Skil between 1970 and 1980. Skil subsequently filed a third-party complaint against Lucerne seeking to force Lucerne to compensate Skil for any royalties it might have to return. Skil also filed a complaint against Lucerne in the Northern District of Ohio in 1982 seeking royalties under the Skil-Lucerne agreement for the period from the fourth quarter of 1977 to September, 1982 when Skil's Gawron patent expired. The court consolidated this case with the Singer-Skil litigation as the second count of Skil's amended third-party complaint against Lucerne in the Northern District of Illinois. On July 6, 1984, Lucerne filed a cross-claim against Singer alleging that Singer had agreed with Lucerne to pay all royalties directly to Skil for unit switches that Singer purchased from Lucerne.

On June 28, 1984, the district court granted Singer's motion for summary judgment against Skil. The court ordered Skil to repay Singer the royalties Singer mistakenly paid to Skil between 1970 and 1980. On February 7, 1985, the trial court granted Skil's motion for summary judgment against Lucerne on the first count of its third-party complaint. The court ordered Lucerne to reimburse Skil partially for the royalties that Skil was ordered to return to Singer. Further, the court granted Skil's motion for summary judgment on the second count of its third-party complaint against Lucerne, ruling that Lucerne was obligated to pay royalties to Skil for the period from the fourth quarter of 1977 through September 28, 1982. The court denied Singer's motion to amend the judgment entered against Skil for prejudgment interest. Finally, the district court granted Singer's motion to dismiss Lucerne's cross-claim for failure to state a claim upon which relief could be granted. The parties appeal each of these rulings.

II

Skil appeals the judgment of the district court in favor of Singer ordering Skil to return the royalties Singer mistakenly paid to Skil. Initially, Skil asserts that the district court erroneously interpreted the Singer-Skil license agreement. Sections 3.01 and 3.02 of the Singer-Skil license agreement state:

"3.01 Singer shall pay to Skil, at the times and in the manners provided in ARTICLE IV hereof, Royalties on all of its sales of Licensed Products after the effective date of this Agreement. Said Royalties shall be computed as follows:

(i) As to Licensed Products which incorporate Switch Units made by others than Singer, four (4%) per cent of the Net Purchase Price of said Switch Units; and

(ii) As to Licensed Products which include Switch Units made by Singer, four (4%) per cent or Licensee's Net Selling Price, as determined by Singer's usual methods of cost accounting, of such Switch Units.

3.02 Notwithstanding the provisions of Paragraphs 3.01(i) and 4.01 hereof, Singer shall not be obligated to pay to Skil any Royalties or render any reports thereon in respect of Licensed Products which include as component parts thereof Switch Units which Singer has purchased from a party licensed by Skil to make and sell Switch Units."

Skil argues that section 3.02 of the Singer-Skil license agreement relieves Singer of only the obligation to pay royalties directly to Skil. Skil maintains that under the agreement Singer was liable to Skil for royalties if Singer purchased products covered by Skil's Gawron patent (expired 9/28/82) from a licensed seller and that seller failed to pay the required royalties to Skil. The district court stated "[t]his novel interpretation of the license agreement would make Singer the guarantor of its vendors' obligation to Skil." Mem.Op. & Or. 6/28/84, p. 2. The trial court went on to say that "[t]here is no evidence of an intent that p 3.02 would relieve Singer only of the need for direct payment when its vendor pays Skil." Id.

We agree with the district court that a plain reading of the agreement demonstrates that Singer did not have to pay royalties to Skil if Singer purchased switch units from a licensed supplier. In addition, Skil failed to present evidence establishing that the parties ever intended that Singer would be liable for any royalties Skil was unable to collect from its licensees. The district court stated "[t]here is no record evidence supporting Skil's argument [that Singer be liable for royalties for switch units purchased from licensed sources if Skil could not collect royalties from those sources] and the argument runs counter to the usual interpretation of such clauses." Mem.Op. & Or. 6/28/84, p. 7. The trial court went on to state that "[h]ad Singer assumed such a duty to insure payment of royalties to Skil by all other Skil licensees with whom it dealt, there would be evidence of Singer's intent to do so both in the language of the contract and the circumstance of its formation." Id. In Joseph v. Lake Michigan Mortgage Company, 106 Ill.App.3d 988, 62 Ill.Dec. 637, 436 N.E.2d 663 (1982), the court summarized the guidelines which the Illinois courts follow in construing contracts. The court stated:

"A contract is to be construed as a whole, giving meaning and effect to every provision thereof, if possible, since it is presumed that every clause in the contract was inserted deliberately and for a purpose. It is well established that the primary objective in construing a contract is to give effect to the intention of the parties involved. The intention of the parties must be ascertained from the language employed in the instrument itself and where there is no ambiguity, from such language alone."

62 Ill.Dec. at 639, 436 N.E.2d at 665 (citations omitted). We agree that the district court's construction of the Singer-Skil agreement is proper under Illinois law, and it is evident that the court construed the license agreement as a whole and gave...