Grigoleit Company v. Whirlpool Corporation

Filing

Filed opinion of the court by Judge Easterbrook. AFFIRMED. Frank H. Easterbrook, Circuit Judge; Ann Claire Williams, Circuit Judge and Diane S. Sykes, Circuit Judge. [6613119-1] [6613119] [14-1663]

Case: 14-1663

Document: 40

Filed: 10/16/2014

Pages: 4

In the

United States Court of Appeals
For the Seventh Circuit
____________________  
No.  14-­‐‑1663  
THE  GRIGOLEIT  COMPANY,  

Plaintiff-­‐‑Appellant,  
v.  

WHIRLPOOL  CORPORATION,  
Defendant-­‐‑Appellee.  
____________________  
Appeal  from  the  United  States  District  Court  
for  the  Central  District  of  Illinois.  
No.  05-­‐‑CV-­‐‑2126  —  Colin  S.  Bruce,  Judge.  

____________________  

ARGUED  SEPTEMBER  29,  2014  —  DECIDED  OCTOBER  16,  2014  
____________________  
Before  EASTERBROOK,  WILLIAMS,  and  SYKES,  Circuit  Judges.  
EASTERBROOK,   Circuit   Judge.   For   many   years   Whirlpool  
purchased   injection-­‐‑molded   plastic   knobs   and   decorative  
metal   stampings   from   Grigoleit.   In   1992   Whirlpool   told  
Grigoleit  that  it  would  replace  its  products  with  those  made  
by  Phillips  Plastics.  After  concluding  that  Phillips  was  using  
a  method  protected  by  its  patents,  Grigoleit  demanded  that  
Whirlpool  switch  back.  In  1993  they  struck  a  bargain:  Grigo-­‐‑
leit  would  license  Whirlpool  and  Phillips  to  practice  the  pa-­‐‑

Case: 14-1663

2  

Document: 40

Filed: 10/16/2014

Pages: 4

No.  14-­‐‑1663  

tents,   and   instead   of   royalties   Grigoleit   would   get   some   of  
Whirlpool’s  business.  Paragraph  3  of  the  contract  says:  
Whirlpool  shall  not  be  obligated  to  pay  Grigoleit  any  monies  as  
royalties   …   so   long   as   Whirlpool   continues   to   purchase   from  
Grigoleit   Whirlpool’s   requirement   for   present   styling   of   knobs  
for   the   “Estate”   and   “Roper”   brand   lines   of   automatic   clothes  
washers   and   dryers   and   so   long   as   …   Whirlpool   continues   to  
give   serious   consideration   to   Grigoleit   [for   other   product   lines  
when   Grigoleit   can   provide]   more   than   parity   in   technology,  
quality,   service,   delivery   and   price   in   comparison   with   other  
qualified  suppliers[.]  

The  agreement  expired,  with  the  patents,  in  2003.  
From   1993   through   2003   Whirlpool   bought   all   knobs   for  
the   Estate   and   Roper   lines   from   Grigoleit.   But   it   bought  
some  knobs  for  other  lines  from  Grigoleit’s  competitors,  and  
Grigoleit   concluded   that   it   had   not   received   the   “serious  
consideration”  to  which  ¶3  entitled  it.  That  dispute  was  arbi-­‐‑
trated,   as   the   contract   provided.   The   arbitrator   concluded  
that   Whirlpool   had   failed   to   consider   Grigoleit’s   parts   for  
some  lines  of  washers  and  dryers  “and  therefore  is  liable  for  
payment   of   money   royalties   or   damages   as   the   courts   may  
determine.”   In   this   suit   under   the   diversity   jurisdiction,  
Grigoleit  demanded  damages  calculated  by  a  contract  meas-­‐‑
ure:  the  profit  it  would  have  made  had  Whirlpool  purchased  
its   requirements   of   knobs   exclusively   from   Grigoleit.   The  
district   court   held,   however,   that   Whirlpool   had   not   prom-­‐‑
ised   to   give   Grigoleit’s   knobs   serious   consideration;   instead  
it  had  promised  to  pay  royalties  if  it  failed  to  do  so.  2010  U.S.  
Dist.  LEXIS  45524  (C.D.  Ill.  May  10,  2010).  Unfortunately,  the  
contract  failed  to  specify  the  royalty  Whirlpool  would  owe  if  
it  did  not  meet  the  conditions  for  a  royalty-­‐‑free  license.  The  
court   concluded   that   a   reasonable   royalty   falls   in   the   range  

Case: 14-1663

No.  14-­‐‑1663  

Document: 40

Filed: 10/16/2014

Pages: 4

3  

of  1¢  to  12¢  per  part  and  scheduled  proceedings  to  produce  a  
definitive   royalty.   2014   U.S.   Dist.   LEXIS   686   (C.D.   Ill.   Jan.   3,  
2014).  The  parties  then  agreed  that  royalties  computed  under  
the  district  court’s  approach  come  to  $140,000,  but  Grigoleit  
reserved  its  right  to  contest  the  two  rulings  on  appeal.  
Grigoleit’s   principal   argument   in   this   court   is   that,   once  
Whirlpool   took   advantage   of   the   royalty-­‐‑free   license   under  
¶3,  it  became  bound  for  the  duration  of  the  contract  to  give  
Grigoleit   “serious   consideration”   for   all   of   its   requirements  
for  parts  that  Grigoleit  could  supply.  Paragraph  3’s  language  
forecloses  that  contention.  It  says,  twice,  that  Whirlpool  gets  
a   royalty-­‐‑free   license   “so   long   as”   it   purchases   Grigoleit’s  
knobs  for  two  product  lines  and  gives  it  “serious  considera-­‐‑
tion”  for  the  rest.  The  phrase  “so  long  as”  permitted  Whirl-­‐‑
pool   to   change   how   it   performed,   getting   a   royalty-­‐‑free   li-­‐‑
cense  in  some  periods  and  paying  royalties  in  others.  Whirl-­‐‑
pool   failed   to   keep   its   promise;   for   some   periods   it   neither  
gave   Grigoleit   “serious   consideration”   nor   paid   royalties.  
This   allowed   Grigoleit   to   seek   compensation,   which   it   has  
done.   But   what   it   is   entitled   to   are   “royalties”   rather   than  
contract  damages  under  a  theory  that  once  Whirlpool  took  a  
royalty-­‐‑free  license  for  any  period  it  was  bound  to  meet  the  
conditions  of  ¶3  until  the  patents  expired.  
Grigoleit  protests  that  the  district  court’s  approach  treats  
the  contract  as  an  option,  held  by  Whirlpool,  rather  than  as  
bilateral   and   binding.   Grigoleit   accuses   the   district   judge   of  
ignoring  ¶1,  which  grants  Whirlpool  a  non-­‐‑exclusive  license  
and  releases  it  from  liability  for  pre-­‐‑agreement  infringement.  
But  the  district  court  did  not  ignore  Grigoleit’s  promises;  in-­‐‑
stead   it   read   the   contract   as   including   Whirlpool’s   promise  
to   pay   royalties—without   any   need   for   Grigoleit   to   show  

Case: 14-1663

4  

Document: 40

Filed: 10/16/2014

Pages: 4

No.  14-­‐‑1663  

that   its   patents   were   valid   and   infringed—unless   it   met   the  
conditions  in  ¶3.  That’s  a  substantial  promise  by  Whirlpool.  
Paragraph   7,   which   says   that   the   contract   terminates   if  
Whirlpool   stops   buying   Grigoleit’s   products   for   the   Roper  
and   Estate   lines,   does   not   imply   that   Whirlpool   must   give  
“serious   consideration”   to   Grigoleit’s   parts   for   all   lines,   in-­‐‑
definitely,  once  it  buys  even  one  of  Grigoleit’s  knobs;  instead  
it   reinforces   the   inference   that   the   contract   continues,   but  
Whirlpool  must  pay  royalties,  if  it  stops  giving  “serious  con-­‐‑
sideration”  to  Grigoleit’s  offerings  for  other  lines.  
Nonetheless,   Grigoleit   contends   that   even   if   Whirlpool  
was  entitled  to  change  its  mind  and  shift  from  buying  knobs  
to  paying  royalties,  the  amount  it  owes  still  should  be  calcu-­‐‑
lated   under   the   lost-­‐‑profits   method   of   contract   law.   The  
main   reason   that   it   gives   for   this   contention   is   that   during  
their   negotiations   the   parties   decided   not   to   set   a   per-­‐‑piece  
royalty.   Only   a   contract   measure   of   damages   then   is   possi-­‐‑
ble,  the  argument  concludes.  Yet  ¶9  of  the  contract  is  an  in-­‐‑
tegration  or  entire-­‐‑agreement  clause,  in  which  Grigoleit  and  
Whirlpool   disclaim   any   understandings   that   do   not   appear  
in   the   contract’s   final   text.   What   the   text   tells   us   is   that  
Whirlpool  owes  “royalties,”  and  lost  profits  differ  from  roy-­‐‑
alties.   The   caption   on   the   contract   is   “LICENSE  
AGREEMENT”   and   the   heading   on   ¶3   is   “Royalties”.   The  
district   court   therefore   was   not   obliged   to   treat   ¶3   as   a   re-­‐‑
quirements  contract;  the  deal  is  a  patent  license.  
AFFIRMED