The opinion of the court was delivered by: JAMES H. ALESIA
Graphic Management Associates, Inc. ("GMA") argues that it is entitled to judgment on the pleadings because the undisputed facts and the License Agreement under which AM International, Inc. ("AMI") seeks relief (incorporated by reference in the complaint) show that defendant assumed no obligation to pay plaintiff the royalty fees which plaintiff seeks in Count I. "If the language of the contract unambiguously provides an answer to the question at hand, the inquiry is over." Grubb & Ellis Co. v. Bradley Real Estate Trust, 909 F.2d 1050, 1055 (7th Cir. 1990). The court agrees with the defendant that this is a case where we need go no further than the clear language of the agreement.
Paragraph 3.3 of the License Agreement provides in pertinent part that:
GMA agrees to pay AM a continuing royalty of Two Hundred Thousand Dollars ($ 200,000) for each MIRS product shipped after the entry of the Consent Judgment Order and before the expiration of U.S. Patent No. 3,825,246.
The Consent Judgment Order was entered on December 27, 1988, and the patent expired on July 23, 1991. The products at issue, newspaper inserting machines with a Missed Insert Repair System ("MIRS machines"), were shipped between September 26, 1991 and November 14, 1991. Because the products were shipped after the expiration of the patent, the particular order of MIRS machines at issue is outside the scope of paragraph 3.3 of the License Agreement.
Paragraph 3.5 of the License Agreement, however, both elaborates on and provides an exception to paragraph 3.3:
The continuing royalties set forth in paragraph 3.3 above shall accrue on the date of shipment of the product by GMA, except at [sic] beginning on January 1, 1991 and continuing to July 23, 1991 royalty shall accrue on the receipt by GMA of a bona fide purchase order for a product, provided that product is shipped prior to December 31, 1991.
The machines at issue were ordered in January of 1990, long before the time period to which paragraph 3.5 of the License Agreement applies.
Plaintiff argues that GMA's motion should be denied because the issue of whether the parties intended for GMA to pay royalties on the machines if ordered before January 1, 1991 and shipped between July 23, 1991 and December 31, 1991 is a contingency for which the parties did not explicitly provide in the License Agreement. Plaintiff contends that GMA's interpretation of the parties' intent is insupportable in the "real-world" context. FDIC v. W.R. Grace & Co., 877 F.2d 614, 620 (7th Cir. 1989) (A contract may appear to be "a perfectly lucid and apparently complete specimen of English prose," but "anyone familiar with the real-world context of the agreement would wonder what it meant with reference to the particular question that has arisen.") Plaintiff argues that paragraph 3.5 of the License Agreement is an inclusive provision which extended AMI's patent rights by including MIRS machines ordered during the life of the patent but shipped after the patent expired.
Further, plaintiff argues that GMA confuses the obligation to pay royalties with the accrual of the obligation. Plaintiff points out that paragraph 3.5 specified that royalties would accrue on the date of shipment except that beginning January 1, 1991, royalties would accrue on the receipt of a bona fide order, provided the product was shipped before December 31, 1991. Thus, plaintiff contends, the date of shipment was important to the accounting of royalties and had nothing to do with creating GMA's obligation to pay the royalties.
The only exception to the general rule that GMA agrees to pay royalty fees upon shipment of MIRS machines is paragraph 3.5, which provides for the accrual of royalty obligations for orders received by GMA beginning January 1, 1991 and continuing to July 23, 1991, provided the product is shipped by GMA prior to December 31, 1991. Had the parties intended otherwise, they could have employed different language. For example, plaintiff could have employed the language suggested by its affiant, George H. Gerstman, by providing that paragraph 3.5 of the License Agreement "pertains to all machines that were 'on order' or 'orders which were in receipt' during the period January 1, 1991 to July 23, 1991, even if the order had been received before or after January 1." Affidavit, at 7. Rather, for reasons the court will not now second guess, the parties opted for language limiting the time during which bona fide offers would trigger an obligation to pay royalty fees to a period "beginning on January 1, 1991 and continuing to July 23, 1991."
The plaintiff argues that the parties did not provide for the contingency at issue in the License Agreement. The events that transpired, however, were not unpredictable, and the parties are not unsophisticated. By including a specific period during which bona fide offers would trigger the accrual of an obligation to pay royalty fees, the parties implicitly excluded orders received outside of that period. Furthermore, the License Agreement contains an integration clause at paragraph 9.3 which provides that the License Agreement "constitutes the entire understanding of the parties with respect to its subject matter. . . ." If the ...