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Tas Distributing Company, Inc v. Cummins

October 28, 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 Friday, 28 October, 2011 03:46:53 PM Clerk, U.S. District Court, ILCD

OPINION and ORDER

This matter is before the Court on the Motion for Summary Judgment as to Count III of the Fifth Amended Complaint filed by Defendant, Cummins, Inc., on December 18, 2009 (Doc. 219). As held in this Court‟s previous Order of May 18, 2010, an earlier replica of this Motion was granted on res judicata grounds. (Doc. 254). That holding was modified to note that the Motion was granted in part and taken under advisement in part in light of this Court‟s September 1, 2011 Order clarifying certain holdings. (Doc. 287). The Court will now address the merits of Count III of the Fifth Amended Complaint. For the following reasons, Cummins‟ Motion for Summary Judgment as to Count III of the Fifth Amended Complaint (Doc. 219) is DENIED.

Count III, pled as an "alternative" to Count I, is based on motions and evidence compiled in this very case and is another claim similar to TAS‟ claim made in TAS I 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 I (filed on December 21, 2007), Cummins has asserted that it independently created technology (which TAS labels "enhanced proprietary idle shutdown technology") that would perform the same function as TAS technology (shutting down electronic accessories to save battery power). Cummins introduced this technology in late 1998 or 1999 in ISX and ISM engines. This technology has been labeled by the Court in previous Orders as the "ISF Plus System": it is an accessory shutdown feature that Cummins added to the Electronic Control Modules (ECMs) 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, which constitutes a violation of Section 6(f) of the License Agreement. TAS claims that Cummins owes royalties that it would have paid had Cummins incorporated TAS technology instead of its own technology.

BACKGROUND

The ISF Plus System shuts down an engine (by cutting off power to fuel injectors) after the engine has been idling for a set period of time. The ISF Plus System also shuts down certain vehicle accessories. The ISF Plus System is not sold as a separate system but is contained in the ECM of the engine-Cummins does not charge a separate fee for the system. The ISF Plus System with the accessory shutdown feature has been included in Cummins‟ engines since at least 1997.

As indicated above, Count III alleges that Cummins did not use reasonable efforts to market and sell TAS technology (specifically Temp-A-Stop), 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, 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.

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 Temp-A-Stop and that is not contained in an engines' ECM). These actions, TAS alleged, 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 that in any event TAS cannot show damages. Cummins indicated that the contracts did not call for the development of a standalone 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. However, the 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 and rejected two pieces of evidence offered by TAS: pre-contract negotiations in which Cummins estimated that it could sell a certain amount of units; and an unverified affidavit that a competing company, Detroit Diesel, actually sold a certain number of units.

The Seventh Circuit also considered the sales of Detroit Diesel and Cummins‟ estimated sales. With respect to the former, the court stated that Illinois "New Business Rule" provided guidance and found that damages based on Detroit Diesel's sales were too speculative. Id. at 635. With respect to the latter basis of damages- pre-contractual negotiations-the court found that the "four corners rule" prevented consideration of extrinsic evidence regarding projected sales. Id. at 636-37. Thus, the court held that TAS failed to present any evidence upon which damages could be calculated. Id.

In so ruling, the Seventh Circuit noted that under Illinois law, damages for a breach of contract require (1) proof that plaintiff sustained damages, and (2) a reasonable basis for computing those damages. Id. at 632. With respect to lost profits, the court stated that lost profits will be allowed only if: their loss is proved with a reasonable degree of certainty; the court is satisfied that the wrongful act of the defendant caused the lost profits; and the profits were reasonably within the contemplation of the defaulting party at the time the contract was entered into.

Id. at 632. The court then noted that "as a general rule, expected profits of a new commercial business are considered too uncertain, specific and remote to permit recovery"-a proposition labeled the "New Business Rule," which also applies to new products. Id. at 633. The court then considered all of these principles in finding that TAS‟ attempt to show damages was too speculative. In particular, with respect to the sales by Detroit Diesel, the court stated that the New Business Rule was "relevant" in that it provides that lost profits can be determined by comparable "past profits in an established business, but that the lost profits of a new business would be too speculative on which to base recovery"-a proposition that applies with equal force to new products. Id. (citations omitted). The court found that the product sold by Detroit Diesel was inherently different from Cummins‟ ICON product and therefore the New Business Rule and Illinois law regarding damages rendered speculative any comparison between the two. Further, the court reasoned that there was nothing in the record tending to suggest that Cummins could have sold as many products as Detroit Diesel, establishing the latter‟s precise role in the engine market, or tending to establish that Detroit Diesel and Cummins are sufficiently comparable companies to warrant imputing Detroit Diesel‟s engine sales to Cummins. Additionally, the court found that TAS‟ proof on the subject did not prove damages to a reasonable degree of certainty. Id. at 635. The Seventh Circuit finally noted that evidence of pre-contract projected sales could not be considered as proof of damages because of the four corners rule applied to integrated contracts. Id. at 637.

TAS‟ Count III claim again raises the issue of whether Cummins has breached the "all reasonable efforts" clause. This time, TAS alleges that Cummins is selling engines equipped with its ISF Plus System in place of engines utilizing TAS‟ Temp-A-Stop product. TAS explicitly assumes (for the purposes of Count III only) "that Cummins developed the ISF Plus System ...


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