Waterloo Furniture Components v. Haworth, Inc.

Decision Date30 October 2006
Docket NumberNo. 05-4744.,05-4744.
Citation467 F.3d 641
PartiesWATERLOO FURNITURE COMPONENTS, LTD., Plaintiff-Appellant, v. HAWORTH, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Rhett R. Dennerline (argued), Competition Law Group, Chicago, IL, for Plaintiff-Appellant.

Paul S. Grossman (argued), Stuart I. Friedman and Andrew A. Wittenstein, Friedman & Wittenstein, A Professional Corporation, New York, NY, for Defendant-Appellee.

Before FLAUM, Chief Judge, and KANNE and SYKES, Circuit Judges.

FLAUM, Chief Judge.

On October 29, 1992, Haworth, Inc. ("Haworth") entered into an agreement with Waterloo Furniture Components, Ltd. ("Waterloo"), granting Waterloo a license to Haworth's Patent No. 4,616,798 ("the '798 patent"). The agreement included a "most favored nations" provision that required Haworth to give Waterloo the benefit of any more favorable royalty rates that Haworth might grant to another licensee under the '798 patent. Haworth's patent expired on October 14, 2003. On March 24, 2004, Haworth executed a settlement agreement with a third party, SoftView Computer Products Corporation ("SoftView"), for past infringement of the '798 patent. Waterloo learned of the settlement agreement and brought suit against Haworth alleging breach of contract. The district court stayed discovery in the case and granted Haworth's motion for summary judgment holding that Waterloo's rights under the "most favored nations" clause ended on the day the parties' agreement expired, October 14, 2003. For the following reasons, we affirm the judgment of the district court.

I. BACKGROUND

Waterloo is a manufacturer of articulated keyboard support devices with its principal place of business in Ontario, Canada. Haworth is an office furniture systems manufacturer with its principal place of business in Michigan. Haworth owned the '798 patent, which was for an adjustable support for a computer keyboard. The device attaches to the underside of a desk, allowing a computer keyboard to swing out from under the desk and be adjusted to various heights and positions. The patent issued on October 14, 1986 and expired on October 14, 2003.

In December 1992, Haworth granted a license to Waterloo under the '798 patent ("the Haworth/Waterloo Agreement") to resolve an infringement claim that Haworth brought against Waterloo. The parties chose Michigan law to govern the contract. Under the "Grant and Term" section, the contract provided, "This Agreement shall be effective only when executed by both parties and shall continue for the full term of said Licensed Patent, unless this Agreement is earlier terminated pursuant to the provisions hereof." The Haworth/Waterloo Agreement also contained a "most favored nations" clause that provided:

If, during the term of this Agreement, Haworth grants a license to thereafter make, use or sell under the '798 patent to a direct competitor of Waterloo at a more favorable royalty than that contained in Section IV-1 hereof ... then such more favorable royalty will be automatically offered to Waterloo ... The intent of Haworth and Waterloo is to provide that Waterloo is treated no less favorably than direct competitors of Waterloo in regard to licensing of the '798 patent ... In the event that Haworth enters into any license agreement under the '798 patent with any direct competitor of Waterloo, then Haworth shall provide written notice of such agreement and the terms thereof to Waterloo within thirty days following the execution thereof.

In 1997, a third party, SoftView, filed a declaratory judgment action in New York federal court against Haworth, arguing that SoftView was not infringing the '798 patent. In June 1998, Haworth asserted a counterclaim against SoftView, alleging that SoftView had infringed the '798 patent. The case was litigated for over five and a half years.

On December 9, 2003, Haworth and SoftView reached an agreement in principle to settle the case. The parties negotiated the terms of a formal settlement between December 2003 and March 2004 and executed a final agreement on March 24, 2004 (the "Haworth/SoftView Agreement"). Waterloo learned about the agreement and requested a copy from Haworth. Haworth responded that its agreement with SoftView was confidential.

On March 15, 2005, Waterloo filed a first amended complaint in this case alleging breach of contract. On May 4, 2005, Haworth moved for summary judgment. On May 9, Waterloo served discovery, including a request that Haworth produce a copy of the Haworth/SoftView Agreement. On May 23, the district court sua sponte stayed all discovery pending its ruling on the summary judgment motion. In support of its motion for summary judgment, Haworth submitted the affidavit and reply affidavit of James R. Wiersma. Wiersma was one of the Haworth employees responsible for negotiating the Haworth/SoftView Agreement. Waterloo filed three related motions in conjunction with its response: 1) a motion to strike Wiersma's affidavit under the Best Evidence Rule; 2) a motion to deem certain allegations admitted pursuant to Federal Rule of Civil Procedure 8(d); and 3) a motion to refuse application for judgment pursuant to Federal Rule of Civil Procedure 56(f).

On December 6, 2005, the district court granted Haworth's motion for summary judgment. See Waterloo Furniture Components, Ltd. v. Haworth, Inc., 402 F.Supp.2d 950, 953 (N.D.Ill.2005). The court found that the Haworth/Waterloo Agreement terminated October 14, 2003, the date the '798 patent expired. Because the Haworth/Softview Agreement was not executed until after the expiration of the '798 patent, the district court held that Haworth's obligations under the Haworth/Waterloo Agreement had ended. The district court also held that "the status of the Agreement as a license (or not) is irrelevant." Id. Finally, the district court denied Waterloo's related motions to strike, to refuse application for judgment, and to deem allegations admitted.

II. DISCUSSION

On appeal, Waterloo argues that the district court erred by interpreting the Haworth/Waterloo Agreement as terminating on October 14, 2003, and further argues that the Haworth/SoftView Agreement constituted a license for past infringement violating the Haworth/Waterloo "most favored nations" clause. Waterloo also argues that the district court erred by denying discovery before granting Haworth summary judgment, and by denying its Rule 56(f) motion. Finally, Waterloo argues that Wiersma's affidavit violated the Best Evidence Rule. We will address each argument in turn.

A.

Waterloo argues that the district court erred in ruling that the Haworth/Waterloo Agreement terminated before Haworth executed its agreement with SoftView. We review a district court's grant of summary judgment de novo. See, e.g., Matuszak v. Torrington Co., 927 F.2d 320, 322 (7th Cir.1991). Summary judgment is not warranted when there are genuine issues of material fact with respect to the interpretation of a contract. See Diehl v. Twin Disc, Inc., 102 F.3d 301, 305 (7th Cir.1996). "[A] contract's meaning is a matter of law, and where there is no contractual ambiguity, there is no resort to extrinsic evidence, hence no factual dispute to preclude summary judgment." Id. (citing GCIU Employer Ret. Fund v. Chi. Tribune Co., 66 F.3d 862, 864 (7th Cir.1995)).

The plain language of the Haworth/Waterloo Agreement makes clear that it terminated on October 14, 2003, the same day that the '798 patent expired. Under Michigan law, which controls the contract, a court is required to interpret an unambiguous contract as a matter of law. UAW-GM Human Res. Ctr. v. KSL Rec. Corp., 228 Mich.App. 486, 579 N.W.2d 411, 414 (1998). A contract is only ambiguous when its words may reasonably be understood in different ways. Raska v. Farm Bureau Mut. Ins. Co., 412 Mich. 355, 314 N.W.2d 440, 441 (1982).

Section III-4 states that "this Agreement ... shall continue for the full term of said Licensed Patent, unless this Agreement is earlier terminated pursuant to the provisions hereof." This provision is found under the heading "Grant and Term" and clearly states the duration of the contract. Moreover, the contract provides no other termination date. Section III-4 is not susceptible to any other reasonable interpretation, and thus, its plain language terminates the agreement upon expiration of the '798 patent.

Waterloo advances five arguments as to why the above interpretation of Section III-4 is incorrect. Each is without merit. First, Waterloo claims that interpreting the Haworth/Waterloo Agreement as terminating on October 14, 2003 conflicts with the intent of the parties as described in Section VII-2 of the Agreement. Waterloo argues that the district court's interpretation of the contract permits Haworth to license a competitor's past sales at more favorable terms, without notifying Waterloo. As we discuss in Part B infra, however, it is not possible to license a patent past its expiration. In addition, the parties' intent that "Waterloo is treated no less favorably than direct competitors of Waterloo in regard to licensing of the '798 patent," only provides insight into the parties obligations during the term of the contract. It does not extend the Agreement past its express termination date.

Second, Waterloo argues that even if the Haworth/Waterloo Agreement terminated on October 14, 2003, Haworth's obligations under Section VII-2 continued past that date. This argument fails because an expired contract releases all its parties from their respective contractual obligations. See Advanced Plastics Corp. v. White Consol. Indus., Inc., 828 F.Supp. 484, 488 (E.D.Mich.1993) (granting summary judgment on plaintiff's breach of contract claim where the contractual obligations of the parties simply expired prior to the alleged breach). The first sentence of the most favored nations provision states, "If, during the term of this Agreement, Haworth...

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