Automation by Design, Inc. v. Raybestos Products

• Decision Date: 15 September 2006
• Docket Number: No. 05-1172.,05-1172.
• Citation: 463 F.3d 749
• Parties: AUTOMATION BY DESIGN, INCORPORATED, Plaintiff-Appellant, v. RAYBESTOS PRODUCTS COMPANY, Raytech Corporation and Production Design Services, Incorporated, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

463 F.3d 749

AUTOMATION BY DESIGN, INCORPORATED, Plaintiff-Appellant, v. RAYBESTOS PRODUCTS COMPANY, Raytech Corporation and Production Design Services, Incorporated, Defendants-Appellees.

No. 05-1172.

United States Court of Appeals, Seventh Circuit.

Argued September 20, 2005.

Decided September 15, 2006.

COPYRIGHT MATERIAL OMITTED

Geoffrey Slaughter, Michelle K. Bray (argued), Sommer Barnard, Indianapolis, IN, for Plaintiff-Appellant.

Elizabeth M. Keiley (argued), Wildman, Harrold, Allen & Dixon, Chicago, IL, for Defendants-Appellees.

Before CUDAHY, KANNE, and ROVNER, Circuit Judges.

ROVNER, Circuit Judge.

In this copyright infringement dispute, Automation by Design, Inc.(ABD) alleges that Raybestos Products Company, a wholly owned subsidiary of Raytech Corp., (together "Raybestos" or "RPC") infringed on its copyright and breached their agreement when it hired Production Design Services, Inc. (PDSI) to build a duplicate machine of one that ABD had designed and built for Raybestos several years earlier. Because we find that Raybestos did not violate the terms of the license agreement, we affirm the decision of the district court granting summary judgment and declaratory judgment in favor of the defendants, Raybestos and PDSI.

I.

Raybestos manufactures parts used in the automotive industry. In late 1998 or early 1999 it contacted ABD, a designer and manufacturer of automated assembly machines, to initiate negotiations for a contract to manufacture an automated clutch plate assembly machine to replace an existing one. Representatives from the companies met several times and ABD submitted three separate offers, none of which was accepted by Raybestos. On June 21, 1999, following further discussions by the parties, ABD sent Raybestos a letter offering to build the clutch plate assembly machine for $756,000. Among other things, the June 21 offer letter memorialized the parties' earlier agreement that Raybestos would itself purchase all of the component parts for the machine, allegedly due to concerns about ABD's financial health. The letter also contained the following language which forms the gordian knot of this case:

ABD grants RPC the right to duplicate any or all design copyrighted by ABD, as it relates to this project. This "license" is non-transferrable and is only for equipment to be used exclusively by RPC and does include any equipment to be fabricated for resale or transferred to a customer or supplier of RPC.

(R. at 90, Ex. M, p. 2).

Raybestos accepted the terms of this June 21 offer letter and, on June 24, 1999, issued a purchase order. The purchase order required, among other things, that ABD design, construct, and install a clutch plate assembly machine and provide Raybestos with a reproducible set of machine drawings. The purchase order also reflected the parties' agreement that "the price for duplicates of this machine will be for not more than 85% of the price of this machine." (R. at 90, Ex. N, p. 2). ABD accepted the terms of the purchase order and designed, manufactured and, sometime in the summer of 2000, installed the machine and delivered to Raybestos all of the documentation specified in the purchase order, including the machine design drawings. ABD affixed a copyright symbol to each drawing.

All remained well until late 2001 or early 2002, when Raybestos contacted ABD and requested a quote for a second machine expecting the 15% discount described in the June 24, 1999 purchase order. The quote from ABD, however, was not 15% less than the price of the first machine, but rather it was 10% higher. ABD asserts that because Raybestos requested over thirty material changes to the machine, ABD did not view the second machine as a duplicate of the original, subject to the terms of the discount. Raybestos disagreed.

Smarting from the higher quote, Raybestos sought bids from alternate suppliers, but continued to negotiate with ABD. During negotiations, Raybestos informed ABD that it had received a bid for nearly $250,000 less than ABD's bid. In response, on July 3, 2002, ABD's attorney delivered a letter to Raybestos declaring that "the Plans are the exclusive property of Automation by Design, and may not be reproduced or used by Raybestos or provided by Raybestos to any third party for its use." (R. at 90, Ex. V). Raybestos countered this claim by pointing to the language of the purchase order granting Raybestos the right to duplicate any or all designs for equipment to be used exclusively by Raybestos. ABD's letter also revoked the license effective immediately and demanded the return of the designs. Raybestos disagreed with ABD's interpretation of the contract language and continued to pursue alternate suppliers. Toward that end, during fall 2002, Raybestos made three copies of the machine manual. Ken Harlan, Raybestos' manager of Technical Services, delivered one copy of the manual to each of six different suppliers with directions to return the copy with its bid along with a confidentiality agreement. When one supplier returned the copy of the machine manual, Harlan delivered that same copy to another supplier. All of the copies of the machine manual were returned to Raybestos with the bids. Ultimately Raybestos chose PDSI to design and install the second machine, incorporating the thirty-three changes requested by Raybestos, and, some time after June 30, 2003, Raybestos provided PDSI with a copy of ABD's drawings to use during the manufacturing process. PDSI made a photocopy of the ABD drawings and used the manual to obtain the list of component suppliers and to identify the various changes that Raybestos requested. At the end of its process, PDSI generated a complete set of its own drawings for the machine it built.

On March 31, 2003, ABD registered its copyright with the U.S. Copyright Office.¹ ABD does not hold a patent on the ABD Machine or any part of it. ABD subsequently brought a claim against Raybestos and PDSI alleging copyright infringement and breach of contract and requesting declaratory relief. Raybestos and PDSI counterclaimed for breach of contract and declaratory relief. Upon the defendants' motion, the district court granted summary judgment for the defendants. Thereafter the defendants moved the district court for entry of a declaratory judgment in their favor and against ABD. Raybestos separately moved to voluntarily dismiss its breach of contract claim. The district court granted the defendants' motions and entered final judgment in favor of the defendants and against ABD. ABD appeals and we affirm.

II.

For the most part the parties do not dispute the course of events described above (with minor disagreements regarding motivation and intent). The crux of the dispute is whether the language of ABD's June 21,1999 letter, and Raybestos' responsive purchase order of June 24, 1999, which together formed the contract between the parties, allowed Raybestos to act as it did — that is, to hire PDSI to create a second clutch plate assembly machine. Because the primary question is interpretation of a written contract, this matter is particularly amenable to summary judgment, Cherry v. Auburn Gear, Inc., 441 F.3d 476, 481 (7th Cir.2006) (explaining that where there is no contractual ambiguity, a contract's interpretation is a matter of law); Orthodontic Affiliates, P.C. v. Long, 841 N.E.2d 219, 222 (Ind.Ct.App.2006) ("Generally, the construction of a written contract is a question of law for which summary judgment is particularly appropriate."), which we will grant after de novo review if there are no questions of material fact and the defendants are entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); Hess v. Reg-Ellen Mach. Tool Corp., 423 F.3d 653, 658 (7th Cir.2005).

A. Copyright infringement.

Although the United States Copyright Act, 17 U.S.C. §§ 101-1332, grants exclusive jurisdiction for infringement claims to the federal courts, those courts construe copyrights as contracts and turn to the relevant state law to interpret them. Kennedy v. Nat'l Juvenile Det. Ass'n, 187 F.3d 690, 694 (7th Cir.1999). The district court properly turned to Indiana law to resolve the dispute between these two corporations whose principal places of business are in Indiana. (R. at 104, p. 7). Under Indiana contract law, interpretation of an unambiguous contract is a matter of law that can be resolved on summary judgment. Orthodontic Affiliates, P.C., 841 N.E.2d at 222. Ambiguous contracts, on the other hand, must be set before a trier of fact to ascertain the facts necessary to construe the contract. Id. When a court grants summary judgment it has necessarily determined that the contract is not ambiguous or that any existing ambiguity can be resolved without the aid of a factual determination. Perryman v. Motorist Mut. Ins. Co., 846 N.E.2d 683, 687 (Ind.Ct.App.2006).

ABD maintains that the contract at issue in this case is ambiguous and that it cannot be interpreted without resort to parol evidence. Raybestos counters that ABD failed to make this argument to the district court and therefore has waived the right to do so in this court. Although it is true that the arguments were framed slightly differently in the summary judgment briefing below (R. at 90, 97, 100), ABD sufficiently raised the question of ambiguity to preserve its right to argue to this court that the language of the contract fails to clearly define which subdivided copyrights ABD granted to Raybestos — a question to which we now turn.

The rights comprised in a copyright may be subdivided and transferred. 17 U.S.C. 201(d)(2) ("Any of the exclusive rights comprised in a copyright, including any subdivision of any of the rights specified by section 106, may be transferred as provided by clause (1) and owned separately."). In other words, a copyright holder may transfer the right to duplicate to one person, the right to distribute to another, and the right to produce derivative works to yet another. See ...