Unelko Corp. v. Prestone Products Corp.

• Decision Date: 16 June 1997
• Docket Number: No. 96-3694,96-3694
• Citation: 116 F.3d 237
• Parties: UNELKO CORP., Plaintiff-Appellee, v. PRESTONE PRODUCTS CORP., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 237

116 F.3d 237

43 U.S.P.Q.2d 1208

UNELKO CORP., Plaintiff-Appellee, v. PRESTONE PRODUCTS CORP., Defendant-Appellant.

No. 96-3694.

United States Court of Appeals, Seventh Circuit.

Argued April 25, 1997.

Decided June 16, 1997.

Seymour Rothstein (argued), Allegretti & Witcoff, Christopher J. Renk, J. Pieter van Es, Banner & Witcoff, Chicago, IL, for Plaintiff-Appellee.

Damon E. Dunn (argued), Levin & Funkhouser, Chicago, IL, for Defendant-Appellant.

Before POSNER, Chief Judge, and CUMMINGS and FLAUM, Circuit Judges.

POSNER, Chief Judge.

This trademark contract case turns on the meaning of the word "marketed." Unelko, the plaintiff, produces a water repellent for application to car windows, which it sells under its federally registered trademark "Rain-X" in a bright yellow plastic bottle with a black cap. The bottle is packaged in a black box, but is sometimes displayed without the box. Unelko has been marketing Rain-X since 1972, and has advertised it extensively. It has become the leading brand of water repellents for use on vehicular glass.

In 1994 Prestone, the defendant, announced that it would be introducing its own water repellent for vehicular glass, which it called "Rain /" and planned to sell in a bright yellow plastic bottle with a black cap, packaged in a dark box. Unelko sued, charging federal trademark infringement and related forms of unfair competition because of Prestone's choice of a misleadingly similar trade name and trade dress. The parties settled that suit before trial, resulting in its dismissal without any action by the court. In the settlement agreement, Prestone agreed to abandon the name Rain /, to change the color of the black cap and of the dark box, and--the nub of the present case--"if Prestone packages any Prestone brand water repellent product in yellow containers, Prestone agrees and warrants that each individual container will be marketed to Prestone's customers as packaged within an individual box" (emphasis added).

When, shortly afterward, Prestone began depicting the yellow bottle containing its renamed water repellent in magazine advertising directed to dealers in automotive products, Unelko brought the present suit in the same court in which it had brought the trademark case, and the case was assigned to the same judge. It is a diversity suit for breach of the settlement agreement. The breach of an agreement to settle a federal suit does not, despite its origin, arise under federal law unless the federal court has retained jurisdiction to enforce the terms of the settlement, as it did not do here (the agreement itself states that its interpretation and enforcement are to be governed by the law of Illinois). Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 381-82, 114 S.Ct. 1673, 1677, 128 L.Ed.2d 391 (1994); Lucille v. City of Chicago, 31 F.3d 546, 548 (7th Cir.1994). That is why Unelko had to establish diversity of citizenship in order to be able to bring this suit in federal court.

Contending that the word "marketed" in the settlement agreement clearly includes "advertised," Unelko moved for summary judgment. The lawyers for the two parties appeared before the district judge to establish a schedule for the pretrial proceedings in the case. After learning what the dispute was about, the judge, the same one, as we said, who had had the original trademark case, questioned the need for a full-scale summary judgment proceeding. He said, "Why don't you give an oral argument? What's so complicated about it [the meaning of 'marketed']?" Unelko's lawyer replied, "I don't think there is anything complicated," and Prestone's lawyer chimed in, "I don't either, if you're inclined to hear oral argument." The judge suggested that each side submit a five-page brief and that the case be scheduled for a 20-minute oral argument. The lawyers agreed, the briefs were filed, the argument was held. The parties and the judge agreed that if he thought the meaning of the disputed clause in the settlement agreement unambiguous he should resolve the parties' dispute forthwith, but that if he thought it ambiguous there would have to be an evidentiary hearing. Prestone did not ask for an opportunity to introduce extrinsic evidence to show, in accordance with the doctrine of latent ambiguity, that the agreement, even if it seemed unambiguous, was actually ambiguous, perhaps because it employed words having a meaning in the relevant trade different from their ordinary meaning. See, e.g., Meyer v. Marilyn Miglin, Inc., 273 Ill.App.3d 882, 210 Ill.Dec. 257, 652 N.E.2d 1233, 1238 (1995); AM International, Inc. v. Graphic Management Associates, Inc., 44 F.3d 572, 574-76 (7th Cir.1995) (applying Illinois law). Prestone did, it is true, cite a latent-ambiguity case to the district judge, Metalex Corp. v. Uniden Corp., 863 F.2d 1331, 1335-36 (7th Cir.1988), but cited it for the proposition that words in a contract must be interpreted in their context. Context is not a synonym for extrinsic evidence. Some context is furnished by other parts of the contract itself, besides the clause in dispute; some is furnished by the circumstances of the contract, which may be evident without need for presenting evidence. Prestone did not want to present evidence; any argument that it might make for using extrinsic evidence even if the settlement agreement seems clear on its face has therefore been waived.

Prestone argued that "marketed" as used in the settlement agreement means "shipped" and "customers" means "dealers," so that all Prestone agreed to was that if it continued to sell its water repellent in yellow bottles it would ship them to its dealers individually boxed rather than loose. The dealers would be free to take the containers out of the boxes and display them; and Prestone would be free to advertise the bottles without the boxes. So understood, the clause would have little significance unless this type of automotive product is typically sold to the consumer unboxed, which no one has suggested it is. We know from the settlement agreement that both parties were selling their product in individual boxes rather than loose. So under Prestone's interpretation the clause in question required it to do no more than it would be doing anyway--shipping its water repellent to the dealers in individual boxes. Required nothing, in other words.

The district judge rejected Prestone's interpretation, ruling that "marketed" unambiguously includes "advertised," and so granting summary judgment for Unelko. Our review of an issue of contract interpretation is plenary when the only evidence placed in the record is the written contract itself. Schering Corp. v. Illinois Antibiotics Co., 62 F.3d 903, 909 (7th Cir.1995); PSI Energy, Inc. v. Exxon Coal USA, Inc., 17 F.3d 969, 971 (7th Cir.1994); United States Liability Ins. Co. v. Selman, 70 F.3d 684, 687 (1st Cir.1995).

The color of Prestone's "Rain /" bottle was one of Unelko's complaints in the trademark dispute that gave rise to the contract that we are interpreting, and so the natural interpretation of the clause in contention is that it requires Prestone to hide, as it were, the yellow bottle (if it insists on continuing to use the same color as Unelko) in a box that the agreement required be changed so that...