Automation by Design v. Raybestos Products

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-1172
AUTOMATION BY DESIGN, INCORPORATED,
Plaintiff-Appellant,
v.
RAYBESTOS PRODUCTS COMPANY,
RAYTECH CORPORATION AND PRODUCTION
DESIGN SERVICES, INCORPORATED,
Defendants-Appellees.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Indianapolis Division.
No. 1: 03-CV-0575-JDT-TAB—John Daniel Tinder, Judge.
____________
ARGUED SEPTEMBER 20, 2005—DECIDED SEPTEMBER 15, 2006
____________
Before CUDAHY, KANNE, and ROVNER, Circuit Judges.
ROVNER, Circuit Judge. In this copyright infringement
dispute, Automation by Design, Inc. (ABD) alleges that
Raybestos Products Company, a wholly owned subsidiary of
Raytech Corp., (together “Raybestos” or “RPC”) infringed on
its copyright and breached their agreement when it hired
Production Design Services, Inc. (PDSI) to build a duplicate
machine of one that ABD had designed and built for
Raybestos several years earlier. Because we find that
Raybestos did not violate the terms of the license agree-
ment, we affirm the decision of the district court granting
2 No. 05-1172
summary judgment and declaratory judgment in favor of
the defendants, Raybestos and PDSI.
I.
Raybestos manufactures parts used in the automotive
industry. In late 1998 or early 1999 it contacted ABD, a
designer and manufacturer of automated assembly ma-
chines, to initiate negotiations for a contract to manufacture
an automated clutch plate assembly machine to replace an
existing one. Representatives from the companies met
several times and ABD submitted three separate offers,
none of which was accepted by Raybestos. On June 21,
1999, following further discussions by the parties, ABD sent
Raybestos a letter offering to build the clutch plate assem-
bly machine for $756,000. Among other things, the June 21
offer letter memorialized the parties’ earlier agreement that
Raybestos would itself purchase all of the component parts
for the machine, allegedly due to concerns about ABD’s
financial health. The letter also contained the following
language which forms the gordian knot of this case:
ABD grants RPC the right to duplicate any or all design
copyrighted by ABD, as it relates to this project. This
“license” is non-transferrable and is only for equipment
to be used exclusively by RPC and does include any
equipment to be fabricated for resale or transferred to
a customer or supplier of RPC.
(R. at 90, Ex. M, p. 2).
Raybestos accepted the terms of this June 21 offer letter
and, on June 24, 1999, issued a purchase order. The
purchase order required, among other things, that ABD
design, construct, and install a clutch plate assembly
machine and provide Raybestos with a reproducible set of
machine drawings. The purchase order also reflected the
parties’ agreement that “the price for duplicates of this
No. 05-1172 3
machine will be for not more than 85% of the price of this
machine.” (R. at 90, Ex. N, p. 2). ABD accepted the terms of
the purchase order and designed, manufactured and,
sometime in the summer of 2000, installed the machine and
delivered to Raybestos all of the documentation specified in
the purchase order, including the machine design drawings.
ABD affixed a copyright symbol to each drawing.
All remained well until late 2001 or early 2002, when
Raybestos contacted ABD and requested a quote for a
second machine expecting the 15% discount described in the
June 24, 1999 purchase order. The quote from ABD,
however, was not 15% less than the price of the first
machine, but rather it was 10% higher. ABD asserts that
because Raybestos requested over thirty material changes
to the machine, ABD did not view the second machine as a
duplicate of the original, subject to the terms of the dis-
count. Raybestos disagreed.
Smarting from the higher quote, Raybestos sought bids
from alternate suppliers, but continued to negotiate with
ABD. During negotiations, Raybestos informed ABD that it
had received a bid for nearly $250,000 less than ABD’s bid.
In response, on July 3, 2002, ABD’s attorney delivered a
letter to Raybestos declaring that “the Plans are the
exclusive property of Automation by Design, and may not be
reproduced or used by Raybestos or provided by Raybestos
to any third party for its use.” (R. at 90, Ex. V). Raybestos
countered this claim by pointing to the language of the
purchase order granting Raybestos the right to duplicate
any or all designs for equipment to be used exclusively by
Raybestos. ABD’s letter also revoked the license effective
immediately and demanded the return of the designs.
Raybestos disagreed with ABD’s interpretation of the
contract language and continued to pursue alternate
suppliers. Toward that end, during fall 2002, Raybestos
made three copies of the machine manual. Ken Harlan,
Raybestos’ manager of Technical Services, delivered one
4 No. 05-1172
copy of the manual to each of six different suppliers with
directions to return the copy with its bid along with a
confidentiality agreement. When one supplier returned the
copy of the machine manual, Harlan delivered that same
copy to another supplier. All of the copies of the machine
manual were returned to Raybestos with the bids. Ulti-
mately Raybestos chose PDSI to design and install the
second machine, incorporating the thirty-three changes
requested by Raybestos, and, some time after June 30,
2003, Raybestos provided PDSI with a copy of ABD’s
drawings to use during the manufacturing process. PDSI
made a photocopy of the ABD drawings and used the
manual to obtain the list of component suppliers and to
identify the various changes that Raybestos requested. At
the end of its process, PDSI generated a complete set of
its own drawings for the machine it built.
On March 31, 2003, ABD registered its copyright with the
U.S. Copyright Office.1 ABD does not hold a patent on the
ABD Machine or any part of it. ABD subsequently brought
a claim against Raybestos and PDSI alleging copyright
infringement and breach of contract and requesting declara-
tory relief. Raybestos and PDSI counterclaimed for breach
of contract and declaratory relief. Upon the defendants’
motion, the district court granted summary judgment for
the defendants. Thereafter the defendants moved the
district court for entry of a declaratory judgment in their
favor and against ABD. Raybestos separately moved to
voluntarily dismiss its breach of contract claim. The district
court granted the defendants’ motions and entered final
judgment in favor of the defendants and against ABD. ABD
appeals and we affirm.
1
Registration is not a condition of copyright protection, but is
necessary before an infringement suit may be filed in court. See 17
U.S.C. § 411.
No. 05-1172 5
II.
For the most part the parties do not dispute the course of
events described above (with minor disagreements regard-
ing motivation and intent). The crux of the dispute is
whether the language of ABD’s June 21,1999 letter, and
Raybestos’ responsive purchase order of June 24, 1999,
which together formed the contract between the parties,
allowed Raybestos to act as it did—that is, to hire PDSI to
create a second clutch plate assembly machine. Because the
primary question is interpretation of a written contract, this
matter is particularly amenable to summary judgment,
Cherry v. Auburn Gear, Inc., 441 F.3d 476, 481 (7th Cir.
2006) (explaining that where there is no contractual
ambiguity, a contract’s interpretation is a matter of law);
Orthodontic Affiliates, P.C. v. Long, 841 N.E.2d 219, 222
(Ind. Ct. App. 2006) (“Generally, the construction of
a written contract is a question of law for which sum-
mary judgment is particularly appropriate.”), which we will
grant after de novo review if there are no questions
of material fact and the defendants are entitled to judgment
as a matter of law. Fed. R. Civ. P. 56(c); Hess v. Reg-Ellen
Mach. Tool Corp., 423 F.3d 653, 658 (7th Cir. 2005).
A. Copyright infringement.
Although the United States Copyright Act, 17 U.S.C.
§§ 101-1332, grants exclusive jurisdiction for infringement
claims to the federal courts, those courts construe copy-
rights as contracts and turn to the relevant state law to
interpret them. Kennedy v. Nat’l Juvenile Det. Ass’n, 187
F.3d 690, 694 (7th Cir. 1999). The district court properly
turned to Indiana law to resolve the dispute between these
two corporations whose principal places of business are
in Indiana. (R. at 104, p. 7). Under Indiana contract law,
interpretation of an unambiguous contract is a matter of
law that can be resolved on summary judgment. Orthodon-
6 No. 05-1172
tic Affiliates, P.C., 841 N.E.2d at 222. Ambiguous contracts,
on the other hand, must be set before a trier of fact to
ascertain the facts necessary to construe the contract. Id.
When a court grants summary judgment it has necessarily
determined that the contract is not ambiguous or that any
existing ambiguity can be resolved without the aid of a
factual determination. Perryman v. Motorist Mut. Ins. Co.,
846 N.E.2d 683, 687 (Ind. Ct. App. 2006).
ABD maintains that the contract at issue in this case
is ambiguous and that it cannot be interpreted without
resort to parol evidence. Raybestos counters that ABD failed
to make this argument to the district court and therefore
has waived the right to do so in this court. Although it is
true that the arguments were framed slightly differently in
the summary judgment briefing below (R. at 90, 97, 100),
ABD sufficiently raised the question of ambiguity to
preserve its right to argue to this court that the language of
the contract fails to clearly define which subdivided copy-
rights ABD granted to Raybestos—a question to which we
now turn.
The rights comprised in a copyright may be subdivided
and transferred. 17 U.S.C. 201(d)(2) (“Any of the exclusive
rights comprised in a copyright, including any subdivision
of any of the rights specified by section 106, may be trans-
ferred as provided by clause (1) and owned separately.”). In
other words, a copyright holder may transfer the right to
duplicate to one person, the right to distribute to another,
and the right to produce derivative works to yet another.
See ITOFCA Inc. v. MegaTrans Logistics, Inc., 322 F.3d 928,
929-30 (7th Cir. 2003) (“Making and selling are distinct
rights and you can assign one without the other.”). This
case turns on which subdividable rights ABD granted to
Raybestos.
To determine which rights ABD granted to Raybestos, we
look to the language of the agreement. If, and only if, the
No. 05-1172 7
language is ambiguous may we turn to evidence outside of
the four corners of the agreement to determine the parame-
ters of the license. Magee v. Garry-Magee, 833 N.E.2d 1083,
1087 (Ind. Ct. App. 2005). The language of a contract is not
ambiguous simply because the parties disagree as to the
meaning of the terms. Simon Prop. Group, L.P. v. Mich.
Sporting Goods Distrib., Inc., 837 N.E.2d 1058, 1070 (Ind.
Ct. App. 2005). “A contract is ambiguous only where a
reasonable person could find its terms susceptible to more
than one interpretation.” Cummins v. McIntosh, 845 N.E.2d
1097, 1104 (Ind. Ct. App. 2006). To determine if there are
any ambiguities in the contested two sentences of the June
21, 1999 letter, we begin by eliminating that which is clear.
Both parties agree that the license unambiguously gave
Raybestos the right to duplicate the designs of the clutch
plate assembly machine. The language as to this point is
unequivocally clear: “ABD grants RPC the right to duplicate
any or all design copyrighted by ABD, as it relates to this
project.” (R. at 90, Ex. M, p. 2).
The next sentence of the keystone paragraph states that
the “license”—that is, “the right to duplicate any or all
design”—“is only for equipment to be used exclusively
by RPC.” The question then becomes: what does it mean to
be permitted to use a license “for equipment.” One obvious
way to use a “right to duplicate the design” license “for
equipment” is to duplicate that equipment. Consequently,
the language on its face appears to allow Raybestos to
duplicate the equipment. Indeed, ABD itself agrees that
Raybestos could duplicate the equipment, so on this point
the language is clear. ABD argues, however, that Raybestos
could duplicate only parts of the equipment and then solely
for the purpose of maintenance and repair. (ABD brief at
17, 19); (Reply brief at 11). As evidence for this proposition,
ABD points to its June 14, 2001 letter to Raybestos which
states, “for maintenance and repair purposes, Raybestos
Products Company does have the right to duplicate parts of
8 No. 05-1172
the assembler.” (R. at 90, Ex. M, p. 2). As just noted above,
however, where the terms of a contract are clear and
unambiguous, this court cannot consider extrinsic evidence.
Magee, 833 N.E.2d at 1087. The parties’ agreement as to the
meaning of this language—that Raybestos had the right to
duplicate equipment—constitutes vigorous proof of the
clarity of language. Indeed, if the parties agree as to the
meaning, it seems certain that a reasonable person could
interpret this language in only one way. See Cummins, 845
N.E.2d at 1004. The major dispute then turns on whether
Raybestos had the right to duplicate only parts of the
equipment, as ABD maintains, or to duplicate the machine
in toto, as Raybestos argues—a question to which we will
turn momentarily. In any case, reviewing the controverted
language to this point, we can conclude that resort to
extrinsic evidence is unavailable given the lack of ambiguity
in the agreement.
Interestingly, even if we were to consider the proffered
parol evidence, that evidence only would serve to clarify this
interpretation. The letter to which ABD refers makes clear
that the agreement allows Raybestos to use the designs to
duplicate parts of the machinery (as opposed to simply
duplicating the design itself, as by photocopy). Raybestos
insists that the letter makes clear that Raybestos could
duplicate parts solely for maintenance and repair purposes:
“for maintenance and replacement purposes, Raybestos
Products Company does have the right to duplicate parts of
the assembler.” (R. at 90, Ex. S). Nothing in that letter,
however, limits Raybestos to duplicating parts for mainte-
nance and repair only. The letter, after all, was written in
response to Raybestos’ purchase order for a specific part,
and only addresses, therefore, Raybestos’ right to replace
that particular part. To understand Raybestos’ copyright
permission in other contexts, one would have to turn back
to the language of the agreement which, as we interpreted
above, issues a broad grant to duplicate any or all designs
No. 05-1172 9
“for the equipment.” In this way the extrinsic evidence
further clarifies the language of the agreement which, on its
face, grants Raybestos the right to use the license to
duplicate parts of the equipment.
We emphasize, however, that because the language of the
contract is subject to only one interpretation, we need not
and will not rely on extrinsic evidence to guide our way.
Similarly, the court cannot add to, vary, or explain the
terms of this unambiguous agreement. Cooper v. Cooper,
730 N.E.2d 212, 215 (Ind. Ct. App. 2000). Consequently, we
reject ABD’s invitation to the court to interpret the contract
or add language to it limiting the license to the repair and
maintenance of the machine.
Turning to the second sentence of the disputed paragraph,
ABD’s letter states that the “license is non-transfer-
able”—language that is similarly unambiguous. In other
words, whatever rights ABD granted to Raybestos,
Raybestos could not transfer those rights to another. The
sentence that follows augments and clarifies this con-
clusion: the license “is only for equipment to be used
exclusively by [Raybestos] . . . .” This language indicates
that ABD intended to prevent Raybestos from using ABD’s
designs to enter the clutch plate assembly business
itself—that is from manufacturing clutch plate assembly
machines for sale to others. Similarly, it intended to
prevent Raybestos from transferring the designs to a third
party to manufacture equipment to be used by or sold to
entities other than Raybestos.
After this point, however, the streak of clarity ends.
Recall the language of the June 21 letter:
ABD grants RPC the right to duplicate any or all design
copyrighted by ABD, as it relates to this project. This
“license” is non-transferrable and is only for equipment
to be used exclusively by RPC and does include any
10 No. 05-1172
equipment to be fabricated for resale or trans-
ferred to a customer or supplier of RPC.
(R. at 90, Ex. M, p. 2) (both bold and italicized emphasis
ours). The second sentence of this paragraph is made up of
two clauses which appear to contradict one another. In the
first clause it restricts Raybestos’ use of the license to
“equipment to be used exclusively by [Raybestos].” The
second half of the sentence, however, seems to allow
Raybestos the use of the license to fabricate equipment for
resale or to transfer equipment to a customer or sup-
plier—a seemingly limitless grant of permission to use the
license, including a grant to use the license to compete
directly with ABD. Neither party mentions this contra-
diction in the briefing before this court and the district
court ignores it as well, most likely because all parties
assumed, as we do, that ABD meant to include the word
“not” between the word “does” and “include.” In fact, in
depositions the deponents repeatedly read the contract to
include the word “not.”2 Resolving this ambiguity is not
2
Defendant’s Memorandum of Law in Support of Motion for
Summary Judgment mentions the dispute but maintains that it
is not relevant. (R. at 90, p. 16, n.2).
The matter was also raised during depositions but not ad-
dressed further, or at least not discussed in the portions of the
depositions provided to this court. These portions support the
hypothesis that everyone assumed that the license did not include
any equipment to be fabricated for resale or transferred to a
customer or supplier of RPC.
During the deposition of ABD principal John Kirk by counsel for
Raybestos, the following exchange occurred:
Q: Okay. The second sentence, if you could read that to me.
A: “This license is non-transferrable and is only for equip-
ment to be used exclusively by RPC and does not include any
equipment to be fabricated for resale or transferred to a
(continued...)
No. 05-1172 11
necessary for the resolution of this matter (indeed, as
just noted, neither the parties nor the district court men-
tioned it). Such a glaring contradiction in the key paragraph
of the contractual language warrants mention, however, if
not resolution. We could resolve the matter simply by
applying the doctrine of mutual mistake, and, since the
ambiguity is one that can be resolved without aid of a
factual determination, it does not prevent a grant of
summary judgment. See Perryman, 846 N.E.2d at 687. But
2
(...continued)
customer or supplier of RPC.”
Q. You read “does not” include. Does it say does not include?
A: No, it does not. It says “does include.” Sorry.
The attorney then moved to a new subject and from what we can
tell from the portions of the transcript provided, it was not
mentioned again. (R. at 90, Ex. E, p. 221, l.23-p. 222, l.9).
Similarly, in a portion of the deposition of Raybestos employee
Jan Morse by an attorney for ABD, Morse, without comment, read
a “not” into the sentence:
Q: Okay, so that second sentence of the paragraph that
we’re looking at, please read that out loud again.
A: “This license is non-transferrable and is only for equip-
ment to be used exclusively by RPC and does not include any
equipment to be fabricated or for resale or transferred to
customer or supplier of RPC.”
Q: What is your understanding of the meaning of that
sentence?
Q: I don’t know. It gets a little bit confusing in its structure,
I think, a little bit.
A. Go ahead and take your time to read it over again if you
like.
(R. at 90, Ex. I, p. 252, l.10-p. 252, l.9) (emphasis ours).
The remainder of this line of questioning was not provided to
this court.
12 No. 05-1172
because such resolution is not necessary for a decision in
this case, we mention the contradiction solely for the sake
of thoroughness.
Having reviewed all of the key language of the contract,
we can turn to the parties’ arguments regarding the alleged
transfer of the design. According to ABD, Raybestos violated
the agreement when it transferred the design to PDSI for
the purpose of allowing PDSI to manufacture a duplicate
machine for Raybestos’ use. ABD makes two claims regard-
ing transferability and distribution. The first is that the
license did not permit any distribution or transfer whatso-
ever: “the language of the license clearly states that the
‘license is non-transferable.’ ” (ABD brief 14); “the use of the
term nontransferable means nontransferable.” (oral argu-
ment at 25min:33-37sec); “[a]bsent from the language the
License, however, is any right to distribute the Designs.”
(ABD brief 15); “there is no question but that the License
language does not permit distribution.” Id. 18; “it is without
question that the express language of the License prohib-
ited the transfer of any duplication rights to any third
party, including PDSI.” Id. at 22; “[o]n it’s face, the License
did not grant any rights of distribution.” Id. at 10. At the
same time, it concedes that, despite the language on the
face of the agreement, Raybestos had an “implicit right of
distribution for the sole purpose of maintaining and repair-
ing the machine,” (oral argument at 1min:13-18sec) one that
was not apparent from any language in the agreement, but
solely from the extrinsic evidence. (ABD brief at 19, Reply
brief at 11). In short, ABD simultaneously argues that “non-
transferable means non-transferable”—period, but also
states that there are exceptions to the prohibition of
transferability. Raybestos’ position, on the other hand, is
that defining the scope of a permissible transfer is unneces-
sary as Raybestos never transferred or attempted
to transfer the license to PDSI. (Appellee’s brief at
27). Rather, the license applied to PDSI as Raybestos’
agent. Id.
No. 05-1172 13
ABD counters that PDSI could not have been Raybestos’
agent because the two parties signed an agreement which
specifically defined their relationship as that of independent
contractors and not agents. (R. at 97, Ex. 8). This puts too
fine a point on it. We need not delve into a complex discus-
sion of agency to understand the term as Raybestos uses it
here. Raybestos hired PDSI “to act for or in place of” itself,
as a representative. See Black’s Law Dictionary, (8th ed.
2004) (defining “agent” as “[o]ne who is authorized to act for
or in place of another; a representative.”). Regardless of how
the two parties chose to define their relationship for
remuneration, tax, employment law, or tort liability
purposes, for purposes of determining whether a transfer
occurred, it seems clear that Raybestos simply hired PDSI
to act in Raybestos’ stead—using the design to create a
machine that it likely did not have the capacity to create on
its own. To see that Raybestos had the right to use the
designs in this manner we need only look to a more clear-
cut example. Take, for instance, Raybestos’ right to dupli-
cate the designs. All parties agree that this language clearly
allowed Raybestos to make photocopies of the designs. If,
however, Raybestos lacked the capacity to photocopy the
designs on sight (if, for example, the designs were to large
for an ordinary copier or needed to be reproduced in color),
Raybestos could certainly take the designs to a Kinko’s
photocopy shop to have them copied. Similarly, if it lacked
the capacity to manufacture parts on its own, it had the
right to hire another to do so in its stead. It is true, as the
dissent points out, that PDSI benefitted from having the
designs. It benefitted in part, however, in the same way
that Kinkos might benefit from being awarded a photo-
copy job. Additionally, of course, PDSI saved considerable
time and expense by not having to reinvent the wheel. But
again, had Raybestos opted to put engineers and manu-
facturers on its payroll to complete the job on its own, it
would have saved considerable expense by having the
designs rather than being forced to reverse engineer the
14 No. 05-1172
machine. The benefit of having the designs, therefore, was
Raybestos’ benefit—a benefit for which it paid. Without the
designs, Raybestos would have had to start from scratch—a
contingency it avoided by requiring access to the designs as
a term of the agreement. The dissent would return this case
to the district court for further proceedings to determine
whether “PDSI’s low bid on the replacement machine and
its possession of the existing machine’s designs was merely
coincidental in the face of a reasonable inference to the
contrary.” Post at 25. As the above discussion demonstrates,
however, the answer to that question is irrelevant. Once
Raybestos secured the rights to duplicate the designs and
“use the license” to duplicate machinery, it could hire
another party to manufacture parts for it if Raybestos
lacked the tools or skills to do so itself.
Allowing one’s agent or contractor to use designs for one’s
own benefit is not a transfer. The definition of a transfer
under the Copyright Act is not helpful in this context as it
explicitly excludes from its definition non-exclusive licenses
like the one in this case.3 Other general definitions of
“transfer,” like the one from Black’s Law Dictionary, are
perhaps more helpful. Black’s defines a transfer as “(1)
[a]ny mode of disposing of or parting with an asset or an
interest in an asset, including a gift, the payment of money,
release, lease, or creation of a lien or other encumbrance .
. . (2) Negotiation of an instrument according to the forms
of law . . . (3) A conveyance of property or title from one
person to another. ” Black’s Law Dictionary (8th ed. 2004).
Surely Raybestos never intended to part with whatever
license rights it had. Raybestos needed then, and likely
3
“A ‘transfer of copyright ownership’ is an assignment, mortgage,
exclusive license, or any other conveyance, alienation, or hypothe-
cation of a copyright or of any of the exclusive rights comprised in
a copyright, whether or not it is limited in time or place of effect,
but not including a nonexclusive license.” 17 U.S.C. § 101.
No. 05-1172 15
needs today, the ability to use the designs to operate and
maintain its machinery. Furthermore, PDSI signed a
Secrecy and Confidentiality Agreement agreeing not to use
any proprietary information it gained in its work with
Raybestos for commercial use, so it has no continuing need
or ability to use the license. (R. at 90, Ex. X).
The second sentence of the disputed agreement language
further explains the parameters of what the parties in-
tended to constitute a transfer. The license “is only for
equipment to be used exclusively by RPC.” In other words,
the purpose of prohibiting a transfer was to prevent
Raybestos or third parties from going into the clutch plate
assembly business and selling such equipment to others.
The license permitted Raybestos to employ the designs only
for its own use—which is precisely what it did.
This conclusion—that no transfer occurred—wraps up
all but one aspect of the copyright infringement claims
in this case. ABD argues that although Raybestos could
duplicate and manufacture parts of the machinery on its
own, it could not duplicate the machinery as a whole. But
once ABD admitted that Raybestos could duplicate parts of
the equipment for maintenance and repair, this fight was
over. For there is nothing in the contract language that
would distinguish between copying and making derivative
works for one or more parts, but not for the machine as a
whole. And, as explained above, whatever rights Raybestos
had to duplicate, it could hire PDSI to do so in its stead.
The dissent argues that the right of duplication was limited
to the “project” which the dissent claims was only the “first
machine.” Post at 23. From this the dissent concludes that
“Raybestos’s implied right of distribution should not extend
beyond making spare and replacements parts for the first
machine because ABD has not admitted such a right of
distribution.” Id. (emphasis ours). But this leap in logic
works only if we grant ABD’s request to interpret the
contract to add such limiting language—that is if we accept
16 No. 05-1172
ABD’s contention that the contract implies something that
it does not say. And for the reasons described above, we
cannot. Furthermore, the language points to the opposite
result. If the license grants a right of duplication as it
relates to the project, as the dissent states, and the project
is defined as the first machine, then Raybestos had the
right to duplicate the first machine in toto. The district
court correctly granted summary judgment for Raybestos
and PDSI on this copyright infringement claim.
B. Revocation of the license.
Because Raybestos did not materially breach the license
agreement, the district court was correct in determining
that ABD could not revoke the license for breach of the
agreement. (R. at 104, p. 11). We turn consequently to
the only remaining question in this case—whether ABD
could terminate the license at will.
Under Indiana law, a contract which provides no termina-
tion date is terminable at will by either party. Rogier v. Am.
Testing and Eng’g Corp., 734 N.E.2d 606, 616 (Ind. Ct. App.
2000); Marksill Specialties, Inc. v. Barger, 428 N.E.2d 65, 69
(Ind. Ct. App. 1981). Furthermore, state law governing
contract termination does not conflict with and is therefore
not pre-empted by the federal Copyright Act. Walthal v.
Rusk, 172 F.3d 481, 485 (7th Cir. 1999). In other words, if
a contract is terminable at will under Indiana law, nothing
in the federal Copyright Act would prevent such a termina-
tion.
According to ABD, because the contract provided no
termination date or fixed duration, ABD could terminate it
at will. In support of its position it cites Walthal, which
upheld the right of a musical group to cancel an oral
contract of unspecified duration that gave a record distribu-
tor the nonexclusive right to manufacture and sell cer-
tain recordings in return for a fifty percent share of the
No. 05-1172 17
sales. Id. at 485-86. The Walthal court’s task was to
determine whether Illinois’ common law allowing con-
tracts of unspecified duration to be terminated at will
conflicted with the Copyright Act’s § 203 on termination
which allows copyright holders to terminate the grant of
a license after thirty-five years.4 Id. at 483. The Walthal
court concluded that it did not. Id. at 485. The Copyright
Act allows a copyright holder to terminate the grant of a
copyright after thirty-five years, but nothing in the act
prevents parties from agreeing to a shorter period for
termination or prevents the operation of state law allow-
ing termination at will. Id. at 482, 484-85.
ABD points to Walthal as definitive support for its claim
for the proposition that any copyright license of indefinite
duration can be terminated at will. Because Walthal upheld
a copyright grantor’s right to terminate the license at will,
even where the license holder had paid consideration for the
license, the case certainly appears helpful to ABD’s claim.
4
(a) Conditions for Termination.—In the case of any work
other than a work made for hire, the exclusive or nonexclu-
sive grant of a transfer or license of copyright or of any right
under a copyright, executed by the author on or after January
1, 1978, otherwise than by will, is subject to termination
under the following conditions:
***
(3) Termination of the grant may be effected at any time
during a period of five years beginning at the end of
thirty-five years from the date of execution of the grant; or, if
the grant covers the right of publication of the work, the
period begins at the end of thirty-five years from the date of
publication of the work under the grant or at the end of forty
years from the date of execution of the grant, whichever term
ends earlier.
17 U.S.C. § 203.
18 No. 05-1172
Regarding consideration and termination, however, Walthal
says only: “Touch and Go presents two primary issues. The
first is that the licensing agreement is irrevocable because
consideration—the 50 percent share of the profits—was
paid. This contention is without merit.” Walthal 172 F.3d at
483. In essence, the Walthal court assumed that the
contract was terminable at will under Illinois law and
instead turned its attention to the question of whether
Illinois or Federal Copyright law prevailed. In this case,
however, we must answer the threshold question as to
whether the contract at issue between the parties was
terminable at will. And because this court looked more
precisely at this particular question in Baldwin Piano, Inc.
v. Deutsche Wurlitzer GmbH, 392 F.3d 881 (7th Cir. 2004),
that trademark case provides more guidance for our
analysis.5
After a reorganization in the Wurlitzer company, Baldwin
Piano kept the piano and organ business and became the
new parent company of the organization; Deutsche Wurlit-
zer GmbH, a jukebox manufacturer, was spun off to another
firm but received a license to continue to use the famous
“Wurlitzer” name on its jukeboxes and other products. Id.
at 882. Eighteen years later, Baldwin Piano informed
Deutsche Wurlitzer that the license was cancelled effective
immediately. Id. The court, looking to the contractual
termination language and the economic realities of the
situation, held that the license could not be terminated at
will. Id. at 886.
What both parties and the district court ignored, is that
just like the parties in Baldwin Piano, but unlike the
5
Trademark license contract disputes, just like copyright li-
cense disputes, are governed by the general rules of contract
interpretation. 4 J. Thomas McCarthy, McCarthy on Trademarks
and Unfair Competition § 18:43, at 18-69 (2004).
No. 05-1172 19
parties in Walthal, the agreement between ABD and
Raybestos did indeed contain a termination clause.
Raybestos’ June 24, 1999 Purchase Order, contained
boilerplate language which allowed for termination due
to default or at Purchaser’s (Raybestos’) convenience.6
Both parties agree that this document, along with the
June 21, 1999 offer letter from ABD formed the agree-
ment between the parties. (R. at 97, p. 6); (Appellee’s
brief at 10-11). Although ABD describes the fine print of
Raybestos’ purchase order as boilerplate it makes no
contention that it was not binding. Cf. Prall v. Ind. Nat.
Bank, 627 N.E.2d 1374, 1378 (Ind. Ct. App. 1994) (holding
a party to the terms of boilerplate language where he was a
sophisticated party and did not contend that the boilerplate
language was ambiguous or that he agreed to it under
economic duress). In Baldwin Piano, the court looked at the
contract’s termination clause and determined that the
enumerations in that clause were exclusive rather than
illustrative and consequently prohibited any other form of
termination including termination at will. Baldwin Piano,
6
TERMINATION: (a) Default. Purchaser may terminate this
order or any part thereof by written notice if Seller fails
to make deliveries or complete performance of services within
the time specified or in accordance with agreed schedules . . . .
(b) Purchaser’s convenience. Purchaser may terminate this
order for its convenience in whole or in part by written notice
to Seller. In the event of such termination, Seller may claim
its reasonable costs incurred prior to the effective date of
termination plus a reasonable allowance for profit, all to be
determined in accordance with generally accepted procedures,
provided, however, that the local sum payable upon termina-
tion shall not exceed the order price reduced by payment
previously made. If it appears that Seller would have sus-
tained a loss on the entire order had it been completed, no
profit shall be allowed . . . .
(R. at 90, Ex. N, pp. 3-4).
20 No. 05-1172
392 F.3d at 884. The Baldwin Piano court relied on an
Illinois Supreme Court decision holding that a non-exclu-
sive list of reasons for termination makes the term of the
contract indefinite and permits termination at will. Id.
(citing Jesperson v. Minn. Mining and Mfg. Co., 700 N.E.2d
1014, 1016-17 (Ind. 1998)). Conversely, an exclusive list of
reasons for termination prevents termination at will. Id.
Although we do not have the same elucidation from the
Indiana Supreme Court as the Baldwin Piano court had
from the Illinois Supreme Court, a natural reading of the
agreement terms in this case indicates that the parties have
delineated the instances in which they anticipated permissi-
ble termination and that list appears to be exclusive rather
than illustrative. Consequently, the language of the agree-
ment supports an interpretation that the contract was not
terminable at will. See id.
Similarly, the economic realities of the agreement
favor treating the license as perpetual rather than termina-
ble at will. See id. at 883. According to ABD, it gave
Raybestos a very limited license to duplicate its designs.
That license, it contends, would have allowed Raybestos
to make photocopies of the designs or to use the designs
to maintain and replace parts, but nothing more. Even
accepting ABD’s narrow construction of the license, it defies
economic logic for Raybestos to enter into an agreement to
purchase a machine where the license that allowed it to
repair or maintain the machine could be revoked at any
time. For if ABD revoked the license, then the first time a
critical part broke or failed, the machine would have become
essentially useless to Raybestos. “Businesses are not
compelled to make sensible bargains, but courts should not
demolish the economic basis of bargains that would be
sound if the contract were given a natural reading.” Id. at
883-84. Both the natural reading of the contract language
and the nod to economic reality favor an interpretation that
the license agreement was not terminable at will.
No. 05-1172 21
Looking further through a lens of economic sensibility, we
note that, like the parties in Baldwin Piano, and unlike the
parties in Walthal, these parties were not engaged
in a long-term interactive arrangement. As the Baldwin
Piano decision points out, the “terminable-at-will” doctrine
was designed to allow businesses to part ways amicably
where they had an ongoing long-term relationship that
required coordination and agreement over a long period
of time and where the relationship was no longer profitable
for one or more parties. “Terminablility means that, if the
firms’ goals or methods diverge, either side may get out.” Id.
at 885. But where, as here, the parties are not locked
together in an ongoing relationship there is no sense in
presuming that the parties intended to make their contract
terminable at will, particularly where the language of the
agreement, the nature of the license, and the economic
realities dictate otherwise. See id. at 885-86. Consequently
we find that the agreement was not terminable at will. We
need not, therefore, delve into the dispute regarding
whether Raybestos provided separate consideration for the
license.
The judgment of the district court granting summary
judgment and a declaratory judgment for Raybestos and
PDSI is affirmed.
KANNE, Circuit Judge, dissenting. I am in substantial
agreement with the thorough legal analysis of the majority,
but the procedural approach required for a grant of sum-
mary judgment causes me to conclude that a reversal and
remand is the proper course. Briefly, the following is my
reasoning.
22 No. 05-1172
As the majority noted, it is likely there was a mistake
in the drafting of the contract, however I disagree with the
majority’s conclusion that the mistake is immaterial. Not
only does the addition of missing language serve to limit
Raybestos’s contractual rights, it has, in my view, the
additional consequence of giving rise to a factual dispute.
The license agreement involved Raybestos’s right, under
the Copyright Act, to duplicate the designs for purposes
stated in the contract. The license was silent both as to
Raybestos’s rights to distribute the designs and to make
derivative works from the designs. There is no explicit right
for Raybestos to provide the designs to anyone.
ABD concedes there is an implied right for Raybestos to
distribute the designs for the limited purposes of repairing
and maintaining the equipment. To that end, Raybestos
could hire an agent to repair and maintain the equipment
and provide the agent with the designs, but, as the majority
correctly states, Raybestos could not “transfer” the designs
to that agent without breaching the license agreement.
The majority concludes that the language of the con-
tract does not limit the implied right of distribution to
the production of individual parts rather than the ma-
chine as a whole. But the license granted the right of
duplication only insofar “as it relates to this project.” The
“project,” of course, was the first machine. In general,
caution is used when implying rights in a contract and is
done only insofar as necessary. See Beraha v. Baxter Health
Care Corp., 956 F.2d 1436, 1441-42 (7th Cir. 1992) (collect-
ing authority). In this instance, Raybestos’s implied right of
distribution should not extend beyond making spare and
replacement parts for the first machine because ABD has
not admitted such a right of distribution. The nuances are
irrelevant. Falling well outside the implied right is
Raybestos’s use of the designs to bid against ABD on a
replacement machine, effectively permitting Raybestos to
No. 05-1172 23
enter the clutch plate assembly business. Cf. Empire Gas
Corp. v. American Bakeries Co., 840 F.2d 1333, 1337 (7th
Cir. 1988) (noting that in a requirements contract, a buyer
may not capitalize on a price rise by increasing his “require-
ments” in order to resell the goods at a profit and compete
against the seller).
I believe it is a misconception in this case to determine
that the right to duplicate the machine carries with it
the right to use the designs to do the same thing. Patent
law is the regime used to prevent duplication of the ma-
chine; as there was no patent, there is no bar to reverse
engineering the machine. However, copyright law protects
the designs, and I believe the use of the designs to make
duplicate machines for sale to the buyer is not within
the license.
In this case, PDSI was the agent Raybestos selected to
service the machine, and PDSI was also a competitor of the
licensor ABD. So long as PDSI acted in its capacity as an
agent, and not as a competitor of ABD, Raybestos would
remain within its implied right and there would be no
“transfer” between Raybestos and ABD. The majority’s
opinion implicitly draws the appropriate line of demarca-
tion: If PDSI did not obtain a tangible benefit—beyond
compensation for its service as an agent—from possessing
the designs, there was no “transfer.”
In consonance with the settled principle that agents
are bound to keep their principal’s secrets, ABD and PDSI
entered into a confidentiality agreement. The majority
relies upon the existence of this contract to foreclose any
“transfer” in this manner. However, on a summary judg-
ment analysis it would seem necessary to leave open the
possibility—and thereby acknowledge the existence of a
genuine issue of material fact—of whether PDSI breached
the confidentiality agreement by misappropriating the
designs to reverse engineer the replacement machine for
sale to Raybestos.
24 No. 05-1172
The record indicates PDSI did benefit from the plans
and did enter the clutch plate assembly business. PDSI
would have saved a considerable expense by using ABD’s
designs to reverse engineer a new machine rather than
start from scratch. That PDSI took possession of the ma-
chine’s designs and submitted the low bid for the replace-
ment machine (lower than ABD’s by $250,000), supports a
reasonable inference that PDSI did just that. In addition,
Raybestos stood to gain from any low bid, so long as ABD
was kept in the dark.
It boils down to whether it is appropriate, on sum-
mary judgment, to determine that PDSI’s low bid on the
replacement machine and its possession of the existing
machine’s designs was merely coincidental in the face of
a reasonable inference to the contrary. That contrary
inference should have been taken in a light most favorable
to the non-moving party—ABD. See Magin v. Monsanto Co.,
420 F.3d 679, 686 (7th Cir. 2005) (citation omitted). There
remains a genuine issue of material fact, and I would
reverse the grant of summary judgment and remand
for further proceedings. I, therefore, respectfully dissent.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-15-06