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Tas Distributing Company, Inc v. Cummins

January 10, 2011

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



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

E-FILED

Monday, 10 January, 2011 11:18:07 AM Clerk, U.S. District Court, ILCD

A M E N D E D OPINION and ORDER

Before the Court are the Cross-Motions for Summary Judgment (Docs. 258 and 261) on the only remaining issue in this case, damages as to Count II of the Fifth Amended Complaint (Doc. 205). For the reasons set forth below, Defendant's Motion is DENIED and Plaintiff's Motion is GRANTED.*fn1

INTRODUCTION

The Court assumes familiarity with the facts underlying the Fifth Amended Complaint. In Count II, TAS accuses Cummins of failing to live up to its end of a bargain and pay royalties for each Retrofit Product sold by Cummins from April 1, 1998 to April 30, 2010. In an Order dated March 30, 2009 (Doc. 141) this Court found that Cummins breached the Intellectual Property License Agreement ("License Agreement") by failing to both provide monthly royalty compliance reports (as provided in section 6(e) of the License Agreement) and by failing to make royalty payments (as provided in section 5(a) of the License Agreement). At that time, the Court made no finding on actual damages. On December 10, 2009, however, this Court went on to find that according to section 6(c) of the License Agreement, Cummins is entitled to credit against "future royalty obligations" to the extent that the minimum royalty payments (which were paid during the first five years of the agreement) exceeded actual royalty payments (Doc. 217).

There is no dispute that Cummins made minimum royalty payments, in the amount of $1 million, during Years 1 through 5 of the License Agreement. There is also no dispute as to the number of retrofit units sold by Cummins. From April 1, 1998 to April 30, 2010, Cummins sold 13,681 such Retrofit Products.

The parties' dispute centers on whether sales of Original ECM Product*fn2 may be counted towards the minimum royalty offset that Cummins seeks. The parties also dispute whether TAS is entitled to prejudgment interest.

BACKGROUND

The License Agreement between the parties has three sections that are relevant to the present Motions. Section 5(a) of the License Agreement provides that:

From and after the Retrofit Stand-Alone Date, Licensee shall pay a royalty to Licensor for every Retrofit Product sold by Licensee, whether sold under the Cummins Brand or some other name, at the rate of: one hundred dollars ($100) per unit sold by Licensee in the first year commencing with the Retrofit Stand-Alone Date; one hundred and twenty-five dollars ($125) per unit sold by Licensee in the second year commencing with the first anniversary of the Retrofit Stand-Alone Date; and one hundred dollars ($100) per unit sold by Licensee in each year thereafter, commencing with the successive anniversaries of the Retrofit Stand-Alone Date. Royalties shall be paid on a monthly basis, with the first month beginning on the Retrofit Stand-Alone Date, within thirty (30) days after the close of each month.

Section 5(b) contains a royalty obligation with respect to the Original ECM Product that is based not on year but rather on number of units sold.*fn3 Both parties appear to agree that the "Retrofit Stand-Alone Date" referenced in the License agreement refers to March 31, 1998.*fn4 From April 1, 1998 to March 31, 1999, Cummins sold no Retrofit Products (Doc. 260, p. 5). From April 1, 1999 to March 31, 2000, Cummins sold 752 Retrofit Products (Id.). From April 1, 2000 to April 30, 2010, Cummins sold 12,929 Retrofit Units (TAS' Statement of Undisputed Material Facts (TSUMF) 3).*fn5 Based on Section 5(a) of the License Agreement (alone), this amount would have generated $1,386,900 in royalty payments over this time period (April 1, 1998 to April 30, 2010).*fn6

Section 6(a) of the License Agreement covers minimum royalty obligations.

The section provides:

Licensee covenants and agrees that, if Licensee shall have any of the rights granted to Licensee in Sections 3 and 4 of this License Agreement with respect to any of the Subject Technology or Related Intellectual Property, Licensee shall make, for each of the five (5) years commencing with the later of July 1, 1997 or the Decision Date in the Pending TAS Action or though [sic] settlement with DDC (the "Royalty Commencement Date"), either (i) actual royalty payments of at least a total of the minimum royalty payments to Licensor according to the schedule below; or, if Licensee does not generate sufficient sales to meet the minimum royalty payments, (ii) payments within 30 days after the close of each year in addition to actual royalty payments for a total of the minimum royalty payments according to the schedule below.

Schedule of Minimum Royalty Payments Year 1 $100,000 Year 2 $300,000 Year 3 $200,000 Year 4 $200,000 Year 5 $200,000

It is undisputed that the minimum royalty obligation period began on March 31, 1998 and ran through April 1, 2003. It is further undisputed that Cummins paid the $1,000,000 minimum royalty obligation consistent with the terms of the License Agreement. During this same time period, Cummins sold 1,339 Retrofit Products (752 of which were sold from March 31, 1999 to April 1, 2000 -- at the higher $125 per product rate). The total actual royalty amount for Retrofit Products during this time period is $152,700.00 (March 31, 1998 to April 1, 2003).

The final relevant section is 6(c):

To the extent that minimum royalty payments made by Licensee exceed actual royalties paid by Licensee in a given year, such payments above and beyond actual royalties shall be credited against Licensee's future royalty obligations, provided that Licensee shall make the requisite yearly minimum payments specified in sections [sic] 6(a) of this Agreement.

Of particular relevance is that this section is silent as to whether the credit would go to royalty payments for the Retrofit Product and/or the Original ECM Product.

There is no dispute that Cummins paid royalties in the amount of $13,200 for 132 Retrofit Products sold in April and May, 2003 (TSUMF 2). There is also no dispute that Cummins offered $136,225 to TAS on November 16, 2007, $28,467.50 on December 21, 2007, and $392,000 on July 10, 2009, adding up to a total of $556,692.50, as additional payment for any unpaid royalties it may owe on the sale of Retrofit Products. TAS refused to accept the payment.

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 "non-movant must show through specific evidence that a triable issue of fact remains on issues on which [s]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 non-movant 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 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).

DISCUSSION

As indicated above, the parties dispute centers around the total royalties due and owing TAS as of April 30, 2010, the dollar amount of the minimum royalty credit that Cummins is entitled to, and whether TAS is entitled to prejudgment interest.

I. Contractual Credit and Amount Owed by Cummins to TAS

TAS argues that Cummins is entitled to no minimum royalty credit because

the actual royalties due on the sale of Retrofit and Original ECM products exceed the minimum royalty payments made by Cummins. To support this argument, TAS points out that from April, 2000 to February, 2010, Cummins sold 195,128 ISX and ISM engines "that contained ICON code that could be enabled by an OEM." TAS further points out that this figure is conservative in light of this Court's conclusion that the engine ECM's, themselves, are "Original ECM Products" that would presumably generate a royalty to TAS. TAS does not specifically refer to sales data for the entire minimum royalty time period, March 31, 1998 to April 1, 2003; however, for the years 2000 to 2003, Cummins sold 37,241, 24,320, 28,937, and 7,806 Original ECM Products, respectively. These sales would have generated $5,181,430 in royalty payments*fn7 , which, coupled with the sales and royalties on the Retrofit Products during the same time period, exceed the minimum royalty amount paid by Cummins. According to TAS' calculations, Cummins therefore owes $1,360,575 in royalty payments for Retrofit Products sold.*fn8

Cummins on the other hand, argues that any royalties with respect to Original ECM Products cannot count to towards the minimum royalty credit because TAS is barred from making such claims by this Court's prior Order. According to Cummins, actual sales of the Retrofit Products and Integrated ICON from April 1998 to 2003 equaled 2,315 (1,339 and 976, respectively). This would have generated $250,300 in royalties to TAS during that time period ($152,700 and $97,600, respectively). Cummins then concludes that because it paid the $1,000,000 minimum royalty amount from April 1998 to April 2003 and it owed only $250,300 in actual royalties on Retrofit Products and Integrated ICON, it was entitled to a credit of $749,700 against all royalties due after April 1, 2003. This amount ($749,700), coupled with actual royalties paid after April 1, 2003, $13,200, when subtracted from the total amount of actual royalties due on Retrofit Products sold from April 2003 to April 2010 (that is, after the minimum royalty period)*fn9 would generate the amount of $471,300 due and owing to TAS.

The Court finds TAS' argument persuasive: Merely because it is barred from seeking relief from this Court and recovering royalties on Count I does not negate the terms of the contract which call for royalties on Original ECM Products and for those royalties to be included in the offset occasioned by the credit that Cummins may be entitled to pursuant to Section 6(c) of the License Agreement.

The doctrine of res judicata bars subsequent litigation on a claim that has already been adjudicated. See Altair Corp. v. Grand Premier Trust and Inv., Inc., 742 N.E.2d 351, 355 (Ill. App. Ct. 2000). The justification for the doctrine is to prevent a defendant from being harassed by multiple suits and to conserve resources that would be expended on duplicative lawsuits. Id. The Court is unaware of any authority that would bar TAS from recovering damages on a claim that is not found barred by res judicata even though those damages must be calculated using the potential damages of a claim that is barred by res judicata. In addition, as far as the Court is aware, the issue of what sales of Retrofit or Original ECM Products would be subject to the credit contained in section 6(c) of the License Agreement has never been litigated such that issue preclusion would apply. Merely because TAS is barred from filing suit to recover damages related to the Original ECM Product does not prevent it from using those damages in calculating the amount due, pursuant to the License Agreement, on the sale of Retrofit Products.

Cummins goes on to argue that the phrase "actual royalties paid" in section 6(c) of the License Agreement would prevent TAS from asserting that actual royalties that are due, but not paid, are also subject to the credit. As quoted above, the section 6(c) License agreement provides that:

To the extent that minimum royalty payments made by Licensee exceed actual royalties paid by Licensee in a given year, such payments above and beyond actual royalties shall be credited against Licensee's future royalty obligations, provided that Licensee shall make the requisite yearly minimum payments specified in section 6(a) of this Agreement.

Cummins' construction of this section, and, in particular, the weight given to the word "paid" would not be in accordance with the intent of the parties. In construing a contract, the Court is required to give meaning to the intent of the parties as evidenced by the language contained in an unambiguous contract. Buenz v. Frontline Transp. Co., 882 N.E.2d 525, 528-529 (Ill. 2008) ("The Cardinal rule of contract interpretation is to discern the parties' intent from the contract language."). Section 5 of the License Agreement mandates the payment of actual royalties on a monthly basis. The parties must have intended, then, that any such credit that Cummins would be entitled to pursuant to ...


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