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TAS Distributing Company, Inc. v. Cummins

March 31, 2009

TAS DISTRIBUTING COMPANY, INC., PLAINTIFF,
v.
CUMMINS, INC. DEFENDANT.



The opinion of the court was delivered by: Joe Billy Mcdade United States District Judge

ORDER

Before the Court are the Motion for Partial Summary Judgment as to Liability under Count III filed by TAS on May 7, 2008 [Doc. 74] and the Cross-Motion for Summary Judgment on Count III filed by Cummins on July 21, 2008 [Doc. 82]. For the reasons set forth below, TAS' Motion on Count 3 is DENIED and Cummins' Motion on Count 3 is GRANTED.*fn1

INTRODUCTION*fn2

TAS and Cummins entered into various contracts in 1997 and 1998 whereby Cummins obtained a license to use technology created by TAS that would automatically turn off and on engines and various electronic accessories, like lights, in diesel trucks thereby saving battery power. In exchange for use of the technology, Cummins agreed to pay TAS a royalty for every TAS technology based system that was either incorporated in its engines or that was produced as a stand-alone unit that could be attached to an engine. In general, the contracts called for a minimum royalty for the first five years of the contract, which totaled $1 million, and a per unit royalty for every unit sold thereafter.

In a previous lawsuit filed with this Court,*fn3 TAS alleged that Cummins was not using reasonable efforts to market and sell its technology, in violation of the agreements. In a related vein, Cummins sought a declaration that it owed only minimum royalties for the first five years and owed no royalties thereafter. This Court found, in part, that TAS did not present evidence of any damages that resulted from Cummins' alleged failure to use reasonable efforts to sell and market its product. However, this Court did find that Cummins owed royalty payments beyond March 31, 2003, the last date that it owed minimum royalties, as provided by the contracts.

Count 3, plead as an "alternative" to Count 1, is based on motions and evidence compiled in this very case*fn4 and is another claim similar to TAS' claim made in TAS 1 that Cummins failed to use reasonable efforts to market and sell TAS technology. TAS specifically alleges that, based on Cummins' Cross Motion for Summary Judgment as to Count 1 (filed on December 21, 2007), Cummins has asserted that it independently created technology (that TAS labels "enhanced proprietary idle shutdown technology") that would perform the same function as TAS technology (namely shutting down electronic accessories to save battery power). Cummins introduced this technology in late 1998 or 1999 in "ISX" and "ISM" engines, among other engines. This technology is hereinafter labeled ISF Plus System: it is an accessory shutdown feature that Cummins added to the Electronic Control Modules (ECM's) 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. TAS claims that Cummins owes royalties that it would have paid had it incorporated TAS technology instead of its own technology.

It is important to note that TAS is only claiming that the ISF Plus System directly competed with its "one box product" as described in this Court's Order on the summary judgment motions related to Count 1.*fn5

BACKGROUND

As indicated above, Count 3 alleges that Cummins did not use reasonable methods to market and sell TAS technology (specifically the one box product), 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 (that is installed in an engine's ECM), 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 cross-moved 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.

For the reasons set forth in this opinion, we affirm the judgment of the district court. 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 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 Tem-A-Stop and that is not contained in an engines' ECM). These actions, TAS alleges 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 in any event argued that TAS cannot show damages.*fn6 Cummins indicated that the contracts did not call for the development of a stand-alone 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. This 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 two pieces of evidence: pre-contract ...


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