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Caterpillar Inc. v. Sturman Industries

June 7, 2006

CATERPILLAR INC., PLAINTIFF,
v.
STURMAN INDUSTRIES, INC., ODED E. STURMAN AND CAROL K. STURMAN, DEFENDANTS.
STURMAN INDUSTRIES, INC., AND ODED E. STURMAN, COUNTER-PLAINTIFFS,
v.
CATERPILLAR INC., COUNTER-DEFENDANT.



The opinion of the court was delivered by: Judge Michael M. Mihm

ORDER

On May 31 and June 1, 2006, the Court held an evidentiary hearing to consider evidence on the question of whether the equities preclude assignment of the Sturmans' '329 and '987 patents to Caterpillar. During that hearing, the Court held that Caterpillar was entitled to specific performance of the Joint Development Agreement ("JDA") and that the evidence presented did not demonstrate that the equities preclude the assignment of the patents. This Order follows to provide a more detailed discussion of the reasons for the Court's ruling.

As the Court previously indicated, the normal remedy for breach of contract is an award of damages; however, specific performance is an equitable remedy that comes into play when damages are an inadequate remedy. Miller v. LaSea Broadcasting, Inc., 87 F.3d 224, 230 (7th Cir. 1996); Schwinder v. Austin Bank of Chicago, 348 Ill.App.3d 461, 809 N.E.2d 180, 195 (1st Dist. 2004). "Specific performance is a matter of sound judicial discretion controlled by established principles of equity and exercised upon a consideration of all the facts and circumstances of a particular case." Id. at 196, citing Omni Partners v. Down, 246 Ill.App.3d 57, 614 N.E.2d 1342, 1345 (2nd Dist. 1993). The court must balance the equities between the parties and may decline to grant specific performance where the remedy would cause a peculiar hardship or inequitable result. Id.

"[P]atentable discoveries are the legitimate subject of contracts to assign, and . . . with certain limitations, action for specific performance lies for failure to execute the assignment required by the contract." Gas Tool Patents Corporation v. Mould, 133 F.2d 815, 818 (7th Cir. 1943). To obtain specific performance, a plaintiff must prove: (1) the existence of a valid, binding, and enforceable contract; (2) that plaintiff has complied with the terms of the contract or is ready, willing, and able to perform it's part of the contract; and (3) defendant has failed to perform or refused to perform its part of the contract. Dixon v. City of Monticello, 223 IllApp.3d 549, 585 N.E.2d 609, 618 (4th Dist. 1991).

These elements have been satisfied here. The parties agreed and stipulated that the JDA was a valid, binding and enforceable contract. Additionally, the jury found that the Sturmans breached ¶ 6.1 of the JDA, which provided:

With respect to INTELLECTUAL PROPERTY made or conceived by ANESCO personnel, either alone or with others (a) pursuant to the PROGRAM or (b) resulting from or based on CATERPILLAR'S PROPRIETARY INFORMATION, ANESCO agrees to: . . . (b) assign (and ANESCO hereby assigns) to CATERPILLAR all rights to such INTELLECTUAL PROPERTY, to Applications for Letters Patent, and to Letters Patent granted upon such INTELLECTUAL PROPERTY; and © acknowledge and deliver to CATERPILLAR (without charge to CATERPILLAR but at the expense of CATERPILLAR) such written instruments and to do such other acts as may be necessary in the opinion of CATERPILLAR to obtain and maintain Letters Patent and to vest the entire right and title in same and in the WORKS in CATERPILLAR.

This verdict necessarily included findings that Caterpillar had performed all material obligations required of it under the JDA, that the '329 and '987 patents were "granted upon INTELLECTUAL PROPERTY that was made or conceived pursuant to the PROGRAM or resulting from or was based on CATERPILLAR'S PROPRIETARY INFORMATION", and that the Sturmans did not satisfy their obligations under the contract by failing to assign these patents.

The question to be determined at the hearing was whether the totality of the circumstances indicated that the assignment of the patents would cause a peculiar hardship or inequitable result for the Sturmans and third parties. Although other evidence was presented concerning the purported benefit or lack of benefit to Caterpillar if the patents are assigned, the key evidence with respect to the equities of assignment consisted of the testimony of Patrick Charbonneau ("Charbonneau"), Roger Blakely ("Blakely"), Carol Sturman ("Mrs. Sturman"), and Joaquin Gehres ("Gehres").

Charbonneau, Vice President of Government Relations for International, testified that between 1995 and 2004, International invested approximately $500 million and 1,000 man years in G2*fn1 technology. Charbonneau further testified that engines containing the G2 fuel system currently account for almost all of International's U.S. engine sales and that if International was barred from continuing to produce engines utilizing the G2 technology, four plants and approximately 4,300 employees would be adversely affected. Sub-suppliers, dealers, servicers, and end users would also be impacted by the resulting unavailability of replacement parts.

On cross-examination, it was established that research and development on the G2 technology did not cease after the filing of the Complaint in this action in 1999. To the contrary, International entered into a joint venture with Siemens to produce the G2 injectors in 1999 and invested in the construction of Siemens' South Carolina production facility in 2000. Despite the jury verdict in favor of Caterpillar in 2002, production of G2 did not stop; to the contrary, G2 went into production in V-8 engines and was first offered to the public in 2002. Nor did G2 production stop as a result of the initial assignment of the '329 and '987 patents ordered by Judge McDade in 2003. Rather, in 2004, International began production to utilize G2 technology in its I-6 fuel injectors, as well. The verdict by the second jury in 2005 finding that the Sturmans had breached the assignment clause in the JDA did not stop production, and Charbonneau admitted that there were no plans to either shut down the four International plants or lay off any of the employees if an assignment was ordered today.

Moreover, Charbonneau testified that International and Siemens have already made plans to change the entire fuel system for the V-8 engines from the G2 injectors to high pressure common rail systems for the 2007 model year. This decision was made several years ago to address emission and sound levels; costs for this changeover are already being incurred and will be incurred regardless of whether the '329 and '987 patents are assigned to Caterpillar. Finally, Charbonneau acknowledged post-assignment statements to International's investors in the company's 10-Q filings to the effect that the claims in this proceeding and related proceedings "will not have a material adverse impact on its business, results of operations or financial condition of the company" and that one option for avoiding the potential problems associated with ceasing production of the G2s would be to pay a license fee to Caterpillar to utilize the technology.

Blakely, the Sturmans' patent attorney, then testified that had he been asked to take different actions in preparing and prosecuting the '329 and '987 patents, he would have seen that those instructions would have been carried out. Although the relevance of this testimony was somewhat unclear, the Court presumes the point to have been that had the Sturmans known that Caterpillar would claim ownership of the '329 and '987 patents in their entirety, they could have modified the claims in the applications or filed separate applications for the 3- or 4-way valves in order to remove these applications from Caterpillar's reach.

Mrs. Sturman testified that they began working with International on improving the operation of HEUI injectors in mid to late 1993. Prove-out work continued in 1994 and 1995 and culminated in the two companies entering into a joint venture in 1996 (hereinafter referred to as "SES"). To prepare for the joint venture, she quit her full-time job in real estate to focus on the commitment to International. The Sturmans had to purchase land for the construction of a new facility, build, furnish, and equip the new facility, move into the new facility, and hire employees to work on the project that would ultimately culminate in commercial production. At peak in 1999 and 2000, the Sturmans had approximately 180 employees. The Sturmans received substantial loans from International to facilitate this process and purchase an equity interest in SES.

Pursuant to an agreement with International, the Sturmans receive a royalty for every injector that Siemens makes for International. This income produces funds for repayment of the loans from International, and if the production of G2 injectors is stopped, Mrs. Sturman testified that the Sturmans might not be able to repay the loans. If International then called the loans, she indicated that they would lose everything. The Sturmans also received income from other ongoing development projects with International. After the initial assignment was ordered in 2003, International cut that business by ...


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