TAS Distributing Company Inc v. Cummins Inc
Filing
300
OPINION AND ORDER denying 219 Defendant, Cummins, Inc. MOTION for Summary Judgment As To Count III Of Fifth Amended Complaint filed by Cummins Inc. Entered by Judge Joe Billy McDade on 10/28/2011. (RK, ilcd)
E-FILED
Friday, 28 October, 2011 03:46:53 PM
Clerk, U.S. District Court, ILCD
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
PEORIA DIVISION
TAS DISTRIBUTING COMPANY, INC., )
)
Plaintiff,
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v.
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CUMMINS, INC.,
)
)
Defendant.
)
Case No. 07-cv-1141
O P I N I O N and O R D E R
This matter is before the Court on the Motion for Summary Judgment as to
Count III of the Fifth Amended Complaint filed by Defendant, Cummins, Inc., on
December 18, 2009 (Doc. 219). As held in this Court‟s previous Order of May 18,
2010, an earlier replica of this Motion was granted on res judicata grounds. (Doc.
254). That holding was modified to note that the Motion was granted in part and
taken under advisement in part in light of this Court‟s September 1, 2011 Order
clarifying certain holdings. (Doc. 287). The Court will now address the merits of
Count III of the Fifth Amended Complaint. For the following reasons, Cummins‟
Motion for Summary Judgment as to Count III of the Fifth Amended Complaint
(Doc. 219) is DENIED.
Count III, pled as an “alternative” to Count I, is based on motions and
evidence compiled in this very case and is another claim similar to TAS‟ claim made
in TAS I that Cummins failed to use reasonable efforts to market and sell TAS
technology. TAS specifically alleges that, based on Cummins‟ Cross Motion for
1
Summary Judgment as to Count I (filed on December 21, 2007), Cummins has
asserted that it independently created technology (which TAS labels “enhanced
proprietary idle shutdown technology”) that would perform the same function as
TAS technology (shutting down electronic accessories to save battery power).
Cummins introduced this technology in late 1998 or 1999 in ISX and ISM engines.
This technology has been labeled by the Court in previous Orders as the “ISF Plus
System”: it is an accessory shutdown feature that Cummins added to the Electronic
Control Modules (ECMs) of the engines it manufactured. Thus, TAS alleges that
Cummins' technology directly competes with TAS‟ technology and Cummins is
using its technology in its engines in lieu of TAS‟ technology. This, TAS claims, is an
indication that Cummins is not using reasonable efforts to market and sell TAS
technology, which constitutes a violation of Section 6(f) of the License Agreement.
TAS claims that Cummins owes royalties that it would have paid had Cummins
incorporated TAS technology instead of its own technology.
BACKGROUND
The ISF Plus System shuts down an engine (by cutting off power to fuel
injectors) after the engine has been idling for a set period of time. The ISF Plus
System also shuts down certain vehicle accessories. The ISF Plus System is not sold
as a separate system but is contained in the ECM of the engine—Cummins does not
charge a separate fee for the system. The ISF Plus System with the accessory
shutdown feature has been included in Cummins‟ engines since at least 1997.
2
As indicated above, Count III alleges that Cummins did not use reasonable
efforts to market and sell TAS technology (specifically Temp-A-Stop), in violation of
the License Agreement, by selling and marketing the ISF Plus System. TAS
generally contends that by selling or providing the ISF Plus System, Cummins is
directly competing with TAS‟ technology, which also shuts down accessories under
certain circumstances.
In order to permit a clear understanding of this litigation and the context for
disposition of the pending summary judgment motion, reference must be made to
the decision of the Court of Appeals in TAS I affirming this Court‟s earlier
disposition of a summary judgment motion involving this same contract provision.
The appellate court described this litigation as follows:
This case arises out of an agreement between TAS Distribution
Company, Inc. (“TAS”) and Cummins Engine Company, Inc.
(“Cummins”). In that agreement, TAS granted Cummins a co-exclusive
license to use its idle-control technology for heavy-duty truck engines.
The agreements required Cummins to “make all reasonable efforts to
market and sell” the licensed products in an effort to maximize
royalties payable to TAS. TAS, believing that Cummins was not
making “all reasonable efforts,” filed this action in the Central District
of Illinois. The complaint set forth twelve counts, including claims for
breach of contract and for specific performance. At the close of
discovery, Cummins moved for summary judgment, and TAS crossmoved for partial summary judgment (relating specifically to
Cummins' failure to market one particular product, the “Temp-A-Stop”
Product). The district court granted Cummins‟ motion for summary
judgment and denied in part and granted in part TAS‟ cross-motion.
TAS Distributing Co., Inc. v. Cummins Engine Co., Inc., 491 F.3d 625 (7th Cir.
2007). In TAS I, TAS specifically alleged (in its motion for partial summary
3
judgment) that Cummins was not using “reasonable efforts” to market and sell
licensed products by failing to develop a separate Temp-A-Stop system (that is, a
“two box product” that included only Temp-A-Stop and that is not contained in an
engines' ECM). These actions, TAS alleged, violated Section 6(f) of the License
Agreement. In Cummins‟ motion for summary judgment, it generally alleged that
TAS failed to show that it did not use “reasonable effort,” and that in any event TAS
cannot show damages. Cummins indicated that the contracts did not call for the
development of a standalone Temp-A-Stop system and that both Temp-A-Start and
Temp-A-Stop were included in its ICON product.
In ruling on the Motions, this Court did not specifically address TAS‟
assertion that Cummins failed to develop an independent Temp-A-Stop system (and
thus failed to use reasonable efforts in that particular regard), and instead focused
on the general proposition that Cummins failed to use reasonable efforts to market
and sell TAS technology. In considering liability, this Court held that it was a
question of fact whether or not Cummins was using reasonable efforts to market
and sell TAS technology. However, the Court went on to find that TAS‟ damages
claims were too speculative to warrant judgment in its favor and in fact warranted
judgment in Cummins‟ favor. In so ruling, this Court considered and rejected two
pieces of evidence offered by TAS: pre-contract negotiations in which Cummins
estimated that it could sell a certain amount of units; and an unverified affidavit
that a competing company, Detroit Diesel, actually sold a certain number of units.
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The Seventh Circuit also considered the sales of Detroit Diesel and Cummins‟
estimated sales. With respect to the former, the court stated that Illinois “New
Business Rule” provided guidance and found that damages based on Detroit Diesel's
sales were too speculative. Id. at 635. With respect to the latter basis of damages—
pre-contractual negotiations—the court found that the “four corners rule” prevented
consideration of extrinsic evidence regarding projected sales. Id. at 636-37. Thus,
the court held that TAS failed to present any evidence upon which damages could
be calculated. Id.
In so ruling, the Seventh Circuit noted that under Illinois law, damages for a
breach of contract require (1) proof that plaintiff sustained damages, and (2) a
reasonable basis for computing those damages. Id. at 632. With respect to lost
profits, the court stated that
lost profits will be allowed only if: their loss is proved with a
reasonable degree of certainty; the court is satisfied that the wrongful
act of the defendant caused the lost profits; and the profits were
reasonably within the contemplation of the defaulting party at the
time the contract was entered into.
Id. at 632. The court then noted that “as a general rule, expected profits of a new
commercial business are considered too uncertain, specific and remote to permit
recovery”—a proposition labeled the “New Business Rule,” which also applies to
new products. Id. at 633. The court then considered all of these principles in finding
that TAS‟ attempt to show damages was too speculative. In particular, with respect
to the sales by Detroit Diesel, the court stated that the New Business Rule was
“relevant” in that it provides that lost profits can be determined by comparable
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“past profits in an established business, but that the lost profits of a new business
would be too speculative on which to base recovery”—a proposition that applies with
equal force to new products. Id. (citations omitted).
The court found that the
product sold by Detroit Diesel was inherently different from Cummins‟ ICON
product and therefore the New Business Rule and Illinois law regarding damages
rendered speculative any comparison between the two. Further, the court reasoned
that there was nothing in the record tending to suggest that Cummins could have
sold as many products as Detroit Diesel, establishing the latter‟s precise role in the
engine market, or tending to establish that Detroit Diesel and Cummins are
sufficiently comparable companies to warrant imputing Detroit Diesel‟s engine sales
to Cummins. Additionally, the court found that TAS‟ proof on the subject did not
prove damages to a reasonable degree of certainty. Id. at 635. The Seventh Circuit
finally noted that evidence of pre-contract projected sales could not be considered as
proof of damages because of the four corners rule applied to integrated contracts.
Id. at 637.
TAS‟ Count III claim again raises the issue of whether Cummins has
breached the “all reasonable efforts” clause. This time, TAS alleges that Cummins
is selling engines equipped with its ISF Plus System in place of engines utilizing
TAS‟ Temp-A-Stop product. TAS explicitly assumes (for the purposes of Count III
only) “that Cummins developed the ISF Plus System prior to signing the License
Agreement and independent of TAS . . . .” (Doc. 205 at 13, ¶ 66).
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DISCUSSION
I.
Standard
Summary judgment should be granted where “the pleadings, depositions,
answers to interrogatories, and admissions on file, together with the affidavits, if
any, show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” FED. R. CIV. P. 56(c). The moving
party has the responsibility of informing the Court as to portions of the record that
demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986). The movant may meet this burden by demonstrating “that
there is an absence of evidence to support the nonmoving party's case.” Id. at 325.
Once the movant has met its burden, to survive summary judgment the
“nonmovant must show through specific evidence that a triable issue of fact remains
on issues on which he bears the burden of proof at trial.” Warsco v. Preferred Tech.
Group, 258 F.3d 557, 563 (7th Cir. 2001); see also Celotex Corp., 477 U.S. at 322-24.
“The nonmovant may not rest upon mere allegations in the pleadings or upon
conclusory statements in affidavits; it must go beyond the pleadings and support its
contentions with proper documentary evidence.” Chemsource, Inc. v. Hub Group,
Inc., 106 F.3d 1358, 1361 (7th Cir. 1997).
This Court must nonetheless “view the record and all inferences drawn from
it in the light most favorable to the [non-moving party].” Holland v. Jefferson Nat.
Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir. 1989). In doing so, this Court is not
“required to draw every conceivable inference from the record—only those
7
inferences that are reasonable.” Bank Leumi Le-Isreal, B.M. v. Lee, 928 F.2d 232,
236 (7th Cir. 1991). Therefore, if the record before the court “could not lead a
rational trier of fact to find for the non-moving party,” then no genuine issue of
material fact exists, and the moving party is entitled to judgment as a matter of
law. McClendon v. Indiana Sugars, Inc., 108 F.3d 789, 796 (7th Cir. 1997) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
However, in ruling on a motion for summary judgment, the court may not weigh the
evidence or resolve issues of fact; disputed facts must be left for resolution at trial.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986).
II.
Analysis
In its Motion, Cummins argues that it should be granted summary judgment
as to Count III on three grounds. First, Cummins contends that, as a matter of law,
Section 6(f) of the License Agreement does not impose a duty on Cummins to refrain
from installing its ISF Plus System in place of TAS Temp-A-Stop product. Second,
Cummins argues that TAS‟ damages claim is speculative under Illinois law. Third,
Cummins claims that Count III is barred by res judicata.
This Court previously granted Cummins summary judgment as to Count III.
See Orders of March 31, 2009 (Doc. 145) and May 18, 2010 (Doc. 254). The March
31, 2009 Order was later vacated by the Court because it was based on a
misunderstanding of TAS‟ claim in Count III. The May 18, 2010 Order awarded
judgment to Cummins on the basis of res judicata. However, the Court subsequently
modified its holding, determining that TAS is not barred from pursuing a claim for
8
breach of contract for breaches that occurred after entry of judgment in TAS I.
(Docs. 273, 287). Because the res judicata issue has been resolved, the Court need
only consider Cummins‟ two remaining arguments: that the “all reasonable efforts”
clause does not impose a duty on Cummins to refrain from installing its ISF Plus
System in place of Temp-A-Stop, and that TAS‟ damages claim is speculative.
1. Section 6(f) of the License Agreement
First, it is important to make clear what TAS assumes and what it does not
assume for the purposes of Count III. As stated above, in its Fifth Amended
Complaint, TAS explicitly assumes (for the purposes of Count III only) “that
Cummins developed the ISF Plus System prior to signing the License Agreement
and independent of TAS . . . .” (Doc. 205 at 13, ¶ 66). However, assuming this, TAS
further asserts that “the ISF Plus System was not incorporated into any engine that
Cummins manufactured, sold or delivered to OEMs prior to signing the License
Agreement.” Id. at 13-14, ¶66. In other words, TAS is willing, for the purposes of
Count III, to assume that Cummins had (independently) developed ISF Plus before
singing the License Agreement, but not that Cummins had implemented ISF Plus
before signing the License Agreement. The License Agreement was signed on
February 22, 1997. (Doc. 238 at 3, ¶ 1).
The date of implementation of the ISF Plus System—that is, the date upon
which Cummins began placing ISF Plus on engines delivered to OEMs—is not in
dispute, though as discussed infra, Cummins‟ Motion for Summary Judgment
unnecessarily obfuscated the issue.
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In Cummins‟ Statement of Undisputed Material Facts in its Motion and
Memorandum in Support of Summary Judgment as to Count III, it states that
“Cummins‟ ISF has been in existence on electronic engines since at least 1990, and
similar technology has been used in the heavy duty trucking industry for decades.”
(Doc. 219 at 8, ¶ 15). It then notes that
[f]rom a hardware perspective, accessory shutdown consists of two
parts: an on/off switch, also known as a relay, and a port or pinout on
Cummins‟ Electronic Control Module . . . that allows the ECM to send
a signal to the relay. Such relays and switches have been used in the
engine control industry for decades.
Id. at 8, ¶ 16 (emphasis added). Note that Cummins is not asserting that the
accessory shutdown has existed for decades, but rather that the parts that go into
making an accessory shutdown feature have existed for that long. Finally, Cummins
claims that it is an undisputed material fact that “[t]he accessory shutdown subfeature is a minor feature of the general ISF Plus feature.” Id. at 9, ¶ 18. Nowhere
in its Statement of Undisputed Material Facts does Cummins unambiguously state
the date upon which it began incorporating the ISF Plus System with the accessory
shutdown feature into engines which Cummins manufactured, sold or delivered to
OEMs. In TAS‟ Motion in Opposition to Summary Judgment, TAS disputes
Cummins‟ assertion that “Cummins‟ ISF has been in existence on electronic engines
since at least 1990.” The Court notes that before responding to Cummins‟
statement, TAS alters the text of the paragraph from “Cummins ISF has been in
existence . . .” to “Cummins ISF [Plus System] has been in existence . . . .” (Doc. 238
at 7, ¶ 15) (emphasis added). TAS then goes on to dispute this (altered) assertion,
10
stating that “the accessory shutdown feature of the ISF Plus System was not
included by Cummins on an engine delivered to an OEM until July 1997.” Id. at 8, ¶
7. In TAS‟ Statement of Additional Undisputed Material Facts, TAS writes that
Cummins admitted “that it first placed the ISF Plus System (which included an
accessory shutdown feature) on an engine delivered to an OEM approximately four
months after it signed the License Agreement with TAS.” Id. at 30, ¶ 10. Cummins
finally concedes this point in its reply, noting first that “Cummins had a functional
version of the accessory shutdown capability of its ISF Plus system since at least
1996,” but then admitting “that in approximately July 1997, Cummins began
manufacturing, selling, and delivering engines to its OEMs containing its ISF Plus
system.” (Doc. 240 at 14, ¶ 31).
It is therefore undisputed that the ISF Plus System—the engine-shutdown
system that also had accessory shutdown capability—was not implemented until
July 1997. TAS and Cummins entered into the License Agreement on February 22,
1997. (Doc. 238 at 3, ¶ 1). This means, of course, that the ISF Plus System was first
placed on engines delivered to OEMs several months after the parties entered into
the License Agreement. For the purposes of the present Motion, the Court finds this
to be a critical fact.
Were Cummins able to show that the ISF Plus System had been
implemented before it signed the License Agreement with TAS, this Court would
find that, as a matter of law, Cummins would not be prohibited from using that
technology in its engines, and that Cummins would be under no obligation—from
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the “all reasonable efforts” clause or any other clause in the License Agreement—to
substitute Temp-A-Stop for the ISF Plus System. If this were the case—if TAS had
desired an arrangement in which Cummins would be required to forego the use of
Cummins‟ own independently-developed and previously-implemented technologies—
it was free to negotiate a contract with those terms. A requirement that a licensee
jettison its existing technology when that technology is already in use is not a
contractual provision that may simply be implied from a “reasonable efforts” clause.
This Court recognizes that such an interpretation of the requirements of a
reasonable/best efforts clause puts it at odds with interpretations of similar clauses
by other courts. See, e.g., Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir.
1979) (holding that defendant‟s promotion of its own product (that defendant sold
before entering into the agreement with plaintiff and continued to sell thereafter) at
the expense of plaintiff‟s product was a breach of the contract‟s “best efforts” clause).
However, such contrary holdings must be reconciled with the widely-accepted
proposition that “[t]he obligation to use one‟s best efforts on behalf of another does
not require the obligor to ignore its own interests.” Grant v. Bd. Of Educ. Of
Chicago, 668 N.E.2d 1188, 1197 (Ill. App. Ct. 1996); see also Van Valkenburgh,
Nooger & Neville, Inc. v. Hayden Publishing Company, 30 N.Y.2d 34 (N.Y. 1972).1
Despite this language, whether the defendants in both Grant and Van
Valkenburgh breached best efforts clauses was determined to be a fact question for
the jury. Grant is distinguishable in that it is not factually analogous to the present
case: the best efforts clause in that case involved a promise to use best efforts in
negotiating a collective bargaining agreement. Van Valkenburgh is a closer case. In
Van Valkenburgh, a publisher promised to use its best efforts in promoting an
author‟s book. The publisher subsequently published and promoted a competing
1
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Additionally, this Court believes that if parties to a contract contemplated the
wholesale replacement of the licensee‟s previously-implemented product with the
licensor‟s product, such a drastic measure would be—and could easily be—included
in the express terms of the contract, and “[t]here is a strong presumption against
provisions that easily could have been included in the contract but were not.”
Wright v. Chicago Title Ins. Co., 554 N.E.2d 511, 514 (Ill. App. Ct. 1990).
But in the present case, TAS asserts—and Cummins does not dispute—that
Cummins did not employ an ISF system that shut down both the engine and
accessories prior to signing the License Agreement. According to Cummins,
Cummins had already developed the necessary technology for the product, but that
technology had not yet been put into engines. Although the Court would be willing
to find that the preexisting use of a system that was functionally identical to TempA-Stop would entitle Cummins to summary judgment, proof of the mere existence of
the necessary predicate technology does not.
This does not mean, of course, that Cummins is necessarily prevented from
developing its own technology to compete with Temp-A-Stop as a matter of law. TAS
bargained only for an “all reasonable efforts” clause, not a non-compete clause; TAS
book, at least partly because the author refused to accept a reduced royalty. But in
Van Valkenburgh, the “competing” product—the second book—was not produced
until after the agreement with the author was signed. This is, of course, similar to
what happened in the present case: ISF Plus (the “competing” product) was not
produced (or, more specifically, included in engines) until after the License
Agreement had been signed. Had the plaintiff in Van Valkenburgh argued that the
defendant breached by continuing to promote a competing book that had been
published and promoted by the publisher before signing the agreement with the
author, this Court, at least, would have held that no reasonable jury could find that
the defendant breached the best efforts clause.
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may therefore avail itself to the protections of the former clause, but this Court will
not invent the latter. Courts have long held that a “best efforts” clause does not
necessarily impose a burden on a licensee equivalent to that of a covenant not to
compete. See Autotech Technologies Ltd. Partnership v. Automationdirect.com, Inc.,
249 F.R.D. 530, 534 (N.D. Ill. 2008); Van Valkenburgh, 30 N.Y.2d at 45-46; Thorn
Wire Co. v. Washburn & Moen Co., 159 U.S. 423, 449-50 (1895).
What this does mean is that this Court must reject Cummins‟ argument that
it has, in essence, an absolute, unrestrained “license to compete” with TAS‟ Temp-AStop product. Cummins is correct in its assertion that “[u]nder Illinois law, in the
absence of a non-competition clause, a licensee has no absolute duty to refrain from
producing and selling a competing product.” (Doc. 219 at 24). But it does not
necessarily follow that a licensee could never breach a best/reasonable efforts clause
by competing with the licensor—a point which the Seventh Circuit made clear in
Roboserve, Inc. v. Kato Kagaku Co. Ltd., 78 F.3d 266 (7th Cir. 1996).
In Roboserve, a company that leased and serviced hotel room mini-bars sued
the company that owned the Hyatt Regency Chicago for, among other things,
breach of contract. Roboserve was to install 1000 of its “Robobar” mini-bars in
rooms in the Hyatt. The agreement between the parties required the Hyatt to use
“reasonable endeavors” to place those guests most likely to use mini-bars in the
Robobar rooms and to encourage them to make purchases from the mini-bars.
However, Hyatt did not permit Roboserve to install all 1000 of the mini-bars, and
Hyatt then had mini-bars from one of Roboserve‟s competitors installed. A jury had
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awarded Roboserve $2.1 million for breach of contract. Kato (Hyatt) argued on
appeal that the agreement‟s “reasonable efforts” clause was too vague to be
enforceable. The Seventh Circuit upheld the jury‟s finding that Kato breached the
“reasonable endeavors” clause of the contract:
“Reasonable efforts” clauses are enforceable in Illinois. The question of
what is reasonable under a contract is an issue of fact for the trier of
fact. . . . The evidence demonstrates that Kato could have placed
Robobars in the more upscale Gold Passport rooms, but it did not. Kato
could have informed its guests of the Robobars and given them brief
instructions as to their use, but it did not. At the very least, Kato could
have refrained from establishing and promoting a competing product
line within the . . . [hotel] itself, but it did not. By agreeing to this
provision, Kato was committed to a number of “endeavors” that it did
not perform but that Roboserve (and the jury) could have considered
reasonable. Whatever the precise affirmative duties of one bound to
use “reasonable endeavors” to promote a product, the jury could
reasonably have found that Kato had not complied.
Roboserve, 78 F.3d at 278 (emphasis added). Although the contract at issue in
Roboserve did not involve a non-competition clause, the Seventh Circuit still found
that the “competitive” activities of Kato could be considered by a jury when
determining whether the “reasonable endeavors” clause was breached. True, a
“reasonable efforts” clause carries with it no per se rule against competition by the
licensee. But, depending on the “nature of the undertaking for which the „best
efforts‟ commitment has been made,” Grant, 668 N.E.2d at 1197, Roboserve makes
clear that a licensee‟s competitive activity may constitute evidence of a breach of
such a clause.
Cummins states that Roboserve “does not support TAS‟ argument that, as a
matter of law, Cummins is precluded from offering a competing product.” (Doc. 219
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at 25). However, as TAS points out, “Cummins misses the point. TAS is not seeking
summary judgment as to its Section 6(f) claim; it is satisfied to have this claim
decided by a jury.” (Doc. 238 at 44-45). This Court agrees with TAS in its appraisal
of Cummins‟ Herculean efforts at distinguishing Roboserve and other clearly
contrary case law: Cummins simply misses the point. Cummins presses the Court to
decide whether Cummins was precluded, as a matter of law, from installing ISF
Plus in its engines on the grounds that ISF Plus competes with TAS‟ Temp-A-Stop
product. But that is not the inquiry in which this Court must engage in deciding,
based on the absence of any disputed material fact in the record, whether Cummins
is entitled to judgment as a matter of law. See FED. R. CIV. P. 56(a). Rather, the
inquiry is whether a reasonable jury could find that Cummins‟ substitution of its
ISF Plus System in place of TAS‟ Temp-A-Stop product constitutes a breach of
Cummins‟ obligation under Section 6(f) to use “all reasonable efforts to market and
sell ECM Products and Retrofit Products so as to maximize the payment of royalties
to Licensor . . . .” (Doc. 236, Ex. 2A, License Agreement ¶ 6(f)). Based on the
foregoing, this Court determines that a reasonable jury could find that Cummins‟
use of ISF Plus to the exclusion of Temp-A-Stop constitutes a breach of Section 6(f).
2. Damages
Cummins argues that TAS‟ damages claims are speculative under Illinois
law, and that “TAS cannot show that its „lost profits‟ damages are sufficiently
particularized under the New Product/Business Rule.” (Doc. 219 at 28). TAS
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counters that, unlike its claim in TAS I, TAS‟ damages calculation in the present
case would be simple:
In TAS I, to support its claim that Cummins did not adequately
market the licensed product . . . , TAS attempted to estimate how
many Temp-A-Stop units would have been placed on Cummins‟
engines if Cummins had, hypothetically, increased its marketing
efforts . . . . In contrast, in its Section 6(f) claim, TAS contends that
every time that Cummins improperly substituted its ISF Plus System
for the licensed Temp-A-Stop System, it deprived TAS of a royalty, as
specified in Section 5(b) of the License Agreement . . . . This calculation
requires no estimate of sales under “but-for” conditions. It is based on
actual sales, Cummins‟ own actual sales data . . . , and the royalty
formula in Section 5(b).
(Doc. 238 at 47). Under this theory of damages, the amount to which TAS would be
entitled would be, according to TAS, “precisely calculable without any need for
estimation: the number of engines upon which Cummins improperly substituted
ISF Plus times the royalty it would have owed had it used the licensed engine-stop
product.” (Doc. 149 at 8). Further, TAS claims the New Business Rule is
inapplicable, as the Rule has never “been applied to a damage calculation which
requires no estimate of but-for sales.” (Doc. 238 at 48).
Under the New Business Rule, a plaintiff is generally prevented from
recovering lost profits for a new business, as such damages would be too
speculative. Kinesoft Dev. Corp. v. Softbank Holdings Inc., 139 F. Supp. 2d 869, 908
(N.D. Ill. 2001). Furthermore, “Illinois‟ new business rule can apply when an entity,
while established in the field, markets a new product.” TAS Distributing Co., Inc. v.
Cummins Engine Co., Inc., 491 F.3d 625, 634 (7th Cir. 2007). There are, however,
several exceptions to the New Business Rule. Kinesoft, 139 F. Supp. 2d at 909.
17
It is true, as Cummins contends, that the ISF Plus System and TAS‟ Temp-AStop product are not identical products. ISF Plus is an ECM-resident feature, while
Temp-A-Stop is a Retrofit product. (Doc. 219 at 29). Furthermore, ISF Plus differs
from Temp-A-Stop because “TAS‟ Temp-A-Stop product does not cut off fuel flow
like the Cummins product.” Id. But what is material to the present issue is not how
the products differ in the manner in which they carry out their functions, but rather
whether they perform different functions. In other words, the question is not
whether the products are identical, but whether they are functionally identical.
Cummins‟ ISF Plus System and TAS‟ Temp-A-Stop product are functionally
identical. Both products shut off a vehicle‟s engine and certain accessories. In Milex
Prods. v. Alra Labs, Inc., 603 N.E.2d 1226 (Ill. App. Ct. 1992), the court found that
an expert could base a damages calculation on the sales of “actual products in the
marketplace”—in that case, drugs that were the functional equivalent of the subject
drug. Thus, even though the drug in Milex was a “new product,” because there was
a non-speculative basis for estimating sales of plaintiff‟s product (namely, drugs
that were the functional equivalent of plaintiff‟s drug), the proof of lost profits “was
neither speculative nor the product of conjecture but was based upon a reasonable
degree of certainty.” Milex, 603 N.E.2d at 1237. In the present case, the damages
calculation is even more straightforward than in Milex: the “marketplace” for TAS‟
product is simply every engine sold by Cummins in which ISF Plus was substituted
for Temp-A-Stop.
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In contrast to TAS I, the damages calculation in the present case is simple
and non-speculative. This Court finds that even if Temp-A-Stop qualifies as a “new
product” under Illinois law, “proof of lost profits . . . [may be] based upon a
reasonable degree of certainty,” TAS I, 491 F.3d at 635 (citing Milex, 603 N.E.2d at
1236), and TAS‟ second ground in support of summary judgment must therefore be
rejected.
CONCLUSION
For the foregoing reasons, the Motion for Summary Judgment as to Count III
of the Fifth Amended Complaint filed by Defendant, Cummins, Inc., on December
18, 2009 (Doc. 219) is DENIED.
IT IS SO ORDERED.
Entered this 28th day of October, 2011.
s/ Joe B. McDade
JOE BILLY McDADE
United States Senior District Judge
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