Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77-C-1401 - George N. Leighton, Judge.
Before Swygert, Circuit Judge, Moore, Senior Circuit Judge,*fn* and Bauer, Circuit Judge.
Defendant-appellant, Coherent Radiation ("Coherent") appeals from a judgment of $73,923.40 entered in favor of plaintiff-appellee AES Technology Systems, Inc. ("AES"), in an action for breach of warranty by Coherent arising out of AES's purchase of a CR-5 Argon Laser ("Laser") from Coherent, because the Laser did not operate at the specified power output of 150 milliwatts ("mw") in the ultraviolet spectrum. Coherent is a California corporation with its principal place of business in Palo Alto, California. AES is a Delaware corporation with its principal place of business in Illinois. Jurisdiction is provided by 28 U.S.C. § 1332.
The facts were in dispute as evidenced by the conflicting testimony concerning statements and representations made by employees of both parties. AES manufactures, among other things, document retrieval and printing devices. Coherent manufactures lasers. In late 1973 AES, interested in developing a device to make high speed copies on paper from computer generated microfilm, obtained exclusive rights from Appleton Paper Company, Inc. for a special light sensitive paper ("HLH paper"). Coherent employed Richard Weaver, an electrical engineer, to work on the project with Aaron Aronson, a consultant. They reported to Ronald Wochinski, AES's Manager of Engineering.
In order to transfer the image from the microfilm to the HLH paper, a source of light was needed to create a latent image on the HLH paper, which would be developed through the application of heat. Weaver met with Augustus Bidwell, Coherent's Midwest Regional Sales Manager, in February 1974 to discuss the possibility of using a Coherent laser as a light source. After discussions with Bidwell, Weaver visited Coherent's Palo Alto laboratory and tested the HLH paper with Coherent's lasers, including a CR-5 Argon Laser. The CR-5 Argon Laser was able to produce images on the HLH paper. On Weaver's return, Bidwell met with Weaver, Wochinski, and perhaps Martin Abrams, Board Chairman of AES. Bidwell was told that AES intended to use a laser to produce hard copies from microfilm and Bidwell informed AES that the CR-5 Argon Laser was capable of producing 150 mw in the ultraviolet mode, as specified in Coherent's catalogue.
On March 9, 1974, Bidwell gave AES a quotation of $16,635.00 for the Laser and related equipment. On March 22, 1974, AES sent Coherent a purchase order for the equipment.*fn1 The Laser was delivered on May 13, 1974 and a few days later Bidwell supervised the installation, checkout and initial start-up. The Laser appeared to perform satisfactorily. Early in June, 1974, Weaver telephoned Bidwell and informed him that the power output had fallen below specifications. Joseph Bruno, Midwest Service Representative of Coherent, visited AES and inspected and repaired the Laser. Subsequently, the Laser continued to suffer power fall-off problems. On June 17, 1974, Weaver drafted a letter to Coherent regarding the Laser's problems, but he never sent it to Coherent. Instead, he did communicate his unhappiness to Coherent by telephone. Also in June, Bidwell went to AES to inspect the Laser and readjust the optics. He observed that the Laser would not maintain a continuous power output of 150 mw. On June 26, Bruno made another service call. He noticed an explosion and smoke emanating from the Laser support equipment. He serviced the Laser and it approached 200 mw in the ultraviolet mode after his service. On September 25, 1974, Bruno made another service call to AES, and he again noted the low power output on the Laser.
In the fall of 1974, Bidwell attended a meeting at AES concerning the Laser's low power output. The parties disagreed as to what transpired at this meeting. Bidwell indicated that Coherent would replace the tube (which seemed to be a cause of the problem) as often as required, but he testified that "one of the gentlemen said to me that it would not be convenient to replace the tube. They wanted to know about a development that they had heard about with higher power Argone (sic) lasers". Trans. 335. However, AES presented testimony that Bidwell indicated that replacing the tube would not solve the problem, but the solution would have to wait until a new type of tube became available. Abrams testified:
He said they were trying everything possible to correct this problem. He went into a Brewster window, things of this nature, they were working on a new tube, but we were hearing the same story for quite a number of months already.
Q. Did Mr. Bidwell make any other statements?
A. Yes. He kept talking, that if we would just be patient, you know, we would have new tubes that would make this machine operate now, this I heard myself, I was there.
Q. What did you direct AES to do as a result of these statements?
A. There was not much I could do. I couldn't send the machine back because they couldn't fix it. They could not fix it within my factory.
Q. Did you continue the project at this point and if so, to what extent?
A. Well, we continued around the things that we couldn't do. We worked on the logic within the machine, worked on our transport systems, ...