TAS Distrib Co Inc v. Cummins Engine Co

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 05-1371
TAS DISTRIBUTING COMPANY,
INCORPORATED,
Plaintiff-Appellant,
v.
CUMMINS ENGINE COMPANY,
INCORPORATED,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Central District of Illinois.
No. 03 C 1026—Joe Billy McDade, Judge.
____________
ARGUED SEPTEMBER 19, 2006—DECIDED JUNE 14, 2007
____________
Before RIPPLE, MANION and WOOD, Circuit Judges.
RIPPLE, Circuit Judge. This case arises out of an agree-
ment between TAS Distributing 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
2 No. 05-1371
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 judg-
ment, and TAS cross-moved for partial summary judg-
ment (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.
I
BACKGROUND
A. Facts
TAS is an Illinois corporation with its principal place of
business and corporate headquarters in Peoria, Illinois. It
invents, develops, engineers, markets and licenses pat-
ented, proprietary technology. This technology auto-
matically turns an engine on under certain circumstances
(“Temp-A-Start”) and off during other circumstances
(“Temp-A-Stop”). Cummins is an Indiana corporation with
its principal place of business in Columbus, Indiana.
Cummins manufactures engines for use in trucks and
has approximately thirty percent of the market share of
the United States truck engine market.
1.
In order to permit a clear understanding of the litigation
before us, we must provide some background pertaining to
No. 05-1371 3
the underlying contractual arrangement between the
parties.
a.
TAS has four technologies relevant to this dispute. Two
of these technologies are used to manufacture “Temp-A-
Start” Products; they perform functions that automatically
turn on an engine. The other two involve “Temp-A-Stop”
Products; they function to power down automatically an
engine when it is not in use. Each of these products comes
in two different varieties—an “ECM” or “One-Box”
Product which is installed into the engine itself and a
“Retrofit” or “Two-Box” Product which can be added to
an existing engine or vehicle.
Before Cummins approached TAS about a licensing
agreement, TAS had an exclusive license agreement
with Detroit Diesel Company (“DDC”). In TAS’ view,
DDC had failed to comply with certain aspects of the
agreements that were necessary to preserve the exclu-
sive nature of the relationship. TAS therefore brought an
action to rescind the TAS/DDC License Agreement; it
sought a declaration that the TAS/DDC License Agree-
ment no longer provided exclusive rights to DDC. Shortly
thereafter, Cummins approached TAS and told TAS that
it desired to obtain the right to use its proprietary tech-
nology. Cummins urged TAS to pursue aggressively litiga-
tion against DDC in order either to terminate or to elimi-
nate the exclusivity of the TAS/DDC Agreement. In
March 1998, the United States District Court for the Central
District of Illinois granted summary judgment in TAS’
favor, declaring that DDC’s exclusive rights under the
agreement were validly terminated. TAS and DDC then
4 No. 05-1371
entered into settlement negotiations. TAS, rather than
pursue any substantial monetary compensation from DDC,
negotiated with Cummins to have “co-exclusive” rights
to certain aspects of the TAS technology. TAS alleges
that it opted for this quick resolution because Cummins
consistently had represented that it had a strong com-
mitment to the TAS technology and that it would utilize
aggressively the technology in its engines.
b.
In February 1997, TAS and Cummins entered into a
Master Agreement regarding the TAS technology, condi-
tioned upon a judicial determination that the TAS/DDC
license was no longer exclusive. The Master Agreement
generally governed the relationship between the parties,
defined various terms, established non-competitive
requirements and protected the TAS technology. The
Master Agreement included an integration clause. The
two companies also entered into a License Agreement.
The License Agreement granted Cummins a license to
utilize the TAS technology and set forth royalty and
payment terms. The License Agreement also included
the following clause:
Licensee shall make all reasonable efforts to market
and sell ECM Products and Retrofit Products so as to
maximize the payment of royalties to Licensor under
this License Agreement.
R.1, Ex.B at 5.
A “product” is defined as “any product, including any
component or subassembly of the product, manufactured
with or incorporating all or a substantial part of the Sub-
No. 05-1371 5
ject Technology.” R.1, Ex.A at 2 (Master Agreement). The
License Agreement defined generally the “subject tech-
nology” as all technology owned or licensed by TAS
relating to Temp-A-Start and Temp-A-Stop. The License
Agreement also provided for minimum royalty payments.
This minimum royalty schedule required Cummins to
make royalty payments totaling at least $1,000,000 over
a five-year period. Those minimum royalty payments
would continue after the fifth year if “Licensee does not
generate sufficient sales to meet the minimum royalty
payments.” R.1, Ex.B at 4 (License Agreement). Under
§ 6(b) of the License Agreement, Cummins could elect
to terminate its rights to utilize the subject technology
and would not be obligated to pay the minimum royalties
after the fifth year. The parties additionally entered into a
First Amendment to these agreements, which stated that
TAS could use and sell the subject technology itself,
and that TAS could license and sell it to other major
engine manufacturers including DDC, Mack Trucks, Inc.
and Caterpillar, Inc.
c.
Cummins integrated both the Temp-A-Start and the
Temp-A-Stop technology into its “ICON Product.”1 It
developed a brochure for this product and featured it at
trade shows and in product presentations. Despite these
efforts, Cummins averaged sales of fewer than 200 ICON
Products on an annual basis. Cummins developed and
1
Cummins employees testified that they were not aware of the
name “Temp-A-Stop,” however this name was proprietary
to TAS as stated in the Master Agreement.
6 No. 05-1371
sold a “Two-Box” or “Retrofit” Product incorporating
both the Temp-A-Start and Temp-A-Stop technology,2 and
similarly developed and sold a “One-Box” or “ECM”
Product. Cummins discontinued the “ECM” Product in
order to comply with new Environmental Protection
Agency requirements in October 2002.
The sales performance of Cummins’ products was
substantially below the expectations of the parties. Prior
to entering into any contracts with TAS and during nego-
tiations, Cummins made certain projections regarding
its likely sales of engines incorporating the TAS technol-
ogy. These projections ranged from likely sales of 4,000
products during the first year, and 10,000 each subse-
quent year, to the projection that Cummins would eventu-
ally attain 12,000 a year. Indeed, Cummins’ competitor,
DDC, allegedly sold significantly more TAS Products
than did Cummins.3 Nevertheless, Cummins consistently
made the minimum royalty payments as required by the
License Agreement. It has fulfilled its contractual obliga-
tion to pay at least $1,000,000 in royalties.
TAS submitted an affidavit of its president, Harvey
Slepian, in support of its motion for partial summary
2
In its opening brief TAS contended that Cummins had
failed completely to develop or manufacture any product
containing the Temp-A-Stop technology. However, TAS
conceded in reply that Cummins’ ICON Product incorporated
both the Temp-A-Start and Temp-A-Stop technologies. See
Reply Br. at 5.
3
Harvey Slepian, the president of TAS, stated in an affidavit
that DDC had sold an annual average of 15,000 engines in-
corporating the TAS technology in each of the past four years.
R.20 at 145.
No. 05-1371 7
judgment. Slepian’s testimony attempted to quantify
damages owed to TAS through comparisons to sales of
similar products by DDC.4
B. District Court Proceedings
The district court granted Cummins’ motion for sum-
mary judgment. The district court determined that there
were disputed material issues of fact with respect to
whether Cummins made “all reasonable efforts” to market
and sell the TAS technology. However, it took the view
that this determination did not preclude a grant of sum-
mary judgment because proof of damages is an element
of a breach of contract claim, and TAS had failed to present
any proof that it was damaged by Cummins’ alleged
failure to make “all reasonable efforts” to market TAS’
products. TAS had cross-moved for partial summary
judgment based upon Cummins’ alleged failure to market
a stand-alone Temp-A-Stop Product. The district court
did not reference expressly the Temp-A-Stop Product
when ruling on Cummins’ summary judgment motion.
TAS submits that, because the district court did not
4
Cummins filed a motion to strike this affidavit, alleging
numerous inadequacies. Cummins claimed that the affidavit
failed to comply with Federal Rule of Civil Procedure 56(e),
which establishes certain minimal requirements for affidavits
submitted in support of a motion for summary judgment.
Cummins further claimed that, because statements in the
affidavit conflicted with Slepian’s deposition testimony,
offered legal conclusions, and/or were hearsay, the affidavit
was improper. The district court, after ruling on the cross-
motions for summary judgment, denied this motion to strike
as moot.
8 No. 05-1371
reference expressly Cummins’ failure to manufacture a
stand-alone Temp-A-Stop Product, summary judgment
was granted improperly in favor of Cummins. In fact, the
district court did not reference expressly either product,
but rather refers to “TAS technology,” “licensed technol-
ogy,” “products” and “units.” R.36 at 10, 11, 12.5 The
district court presumably determined that the lack of
proof of damages disposed of the dispute regarding both
products. Finally, the district court declined to order
specific performance of Cummins’ obligations under the
“all reasonable efforts” clause of the License Agreement.
The court held that TAS would have an adequate dam-
ages remedy should Cummins violate future obligations
under the License Agreement.
II
DISCUSSION
We review the district court’s grant of summary judg-
ment de novo. See Magin v. Monsanto Co., 420 F.3d 679, 686
(7th Cir. 2005). In doing so, we must construe all facts
5
In fact, the only place where the district court references
expressly one of the TAS products by name occurs in the
Amended Agreement between the parties which directly
mentions the Temp-A-Start Product. See R.16, Ex.D at 1, 2. This
agreement references the Temp-A-Start Product eleven times
and includes the words “Temp-A-Stop” only three times.
Although it is true that the district court did not reference
explicitly the Temp-A-Stop Product, the opinion discussed
TAS technology at length. Failure to employ the term “Temp-A-
Stop,” without more, does not warrant reversal of the grant of
summary judgment in favor of Cummins.
No. 05-1371 9
and make all reasonable inferences in favor of the non-
moving party. Id. Summary judgment is proper if “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
matter of law.” Id. (citing Celotex Corp. v. Catrett, 477
U.S. 317, 322-23 (1986)).
A.
As we have noted in our earlier description of the dis-
trict court’s ruling, that court determined that there
were genuine issues of triable fact with respect to whether
Cummins had employed its best efforts in selling en-
gines with TAS’ technology. However, the court never-
theless held that summary judgment for Cummins was
proper because TAS had failed to produce any evidence
that would support an award of damages.
TAS submits, for the first time in its reply brief, that, in
a breach of contract case, damages are presumed. We
cannot consider this argument; it is well-settled that
arguments first made in the reply brief are waived. Beraha
v. Baxter Health Care Corp., 956 F.2d 1436, 1441 (7th Cir.
1992).6
6
Even if the issue were not waived, the argument would be
without merit. The authorities upon which TAS relies do not
support such a proposition. First, TAS relies on Olympia Hotels
Corp. v. Johnson Wax Development Corp., 908 F.2d 1363, 1372 (7th
Cir. 1990). There, the district court had dismissed an action for
breach of contract; we then held that “failure of proof of
(continued...)
10 No. 05-1371
In Illinois, “[i]n order to plead a cause of action for
breach of contract, a plaintiff must allege: (1) the existence
of a valid and enforceable contract; (2) substantial perfor-
mance by the plaintiff; (3) a breach by the defendant; and
(4) resultant damages. Only a duty imposed by the terms
of a contract can give rise to a breach.” W.W. Vincent & Co.
v. First Colony Life Ins. Co., 814 N.E.2d 960, 967 (Ill. App. Ct.
2004); see also Ollivier v. Alden, 634 N.E.2d 418, 422 (Ill. App.
Ct. 1994) (“As the party seeking to recover, the plaintiff
bears the burden of proving that he or she sustained
damages. . . .”). Therefore, under Illinois law, it is neces-
sary to show damages—not the specific amount, but
rather that the plaintiff did, in fact, suffer some damages.
See Transp. & Transit Assocs., Inc. v. Morrison Knudsen Corp.,
6
(...continued)
damages does not justify dismissal.” Id. The difference in
procedural posture is significant. TAS also relies upon Hydrite
Chemical Co. v. Calumet Lubricants Co., 47 F.3d 887, 890 (7th Cir.
1995). A careful reading of that case demonstrates it does
not support the view that, in Illinois, an action for breach of
contract can be maintained without proof of damages. First,
that case applied Wisconsin tort law rather than Illinois con-
tract law. Wisconsin tort law distinguishes between the “fact of
injury and the amount of injury. Tort liability requires proof of
the first, that is, proof that there was injury, regardless of how
much.” Id. (citing Stromberger v. 3M Co., 990 F.2d 974, 976 (7th
Cir. 1993)). However, Illinois law is clear that, to state a claim
for breach of contract, one must be able to prove actual damage.
W.W. Vincent & Co. v. First Colony Life Ins. Co., 814 N.E.2d 960,
967 (Ill. App. Ct. 2004); see also Ollivier v. Alden, 634 N.E.2d 418,
422 (Ill. App. Ct. 1994).
No. 05-1371 11
255 F.3d 397, 401 (7th Cir. 2001).7 Merely showing that
a contract has been breached without demonstrating
actual damage does not suffice, under Illinois law, to
state a claim for breach of contract. Id. (“On TTA’s under-
standing of what ¶ 4 means, MKC broke its promise;
neither MKC nor Amerail (after the delegation in 1995)
even once offered TTA an opportunity to meet another
subcontractor’s bid. But this does not matter unless TTA
can show damages, and the district court held that it could not
do so.”) (emphasis added).
Because the district court granted summary judgment
to Cummins on the ground that TAS had failed to dem-
onstrate that it could prove damages, we pause at this
point to set forth the basic principles that govern that
issue. TAS essentially is seeking the profits it allegedly
had lost because Cummins had breached the “all reason-
able efforts” requirement of the parties’ agreement. We
therefore must focus on the requirements to prove and
receive lost profit damages.
As a general principle, when seeking the recovery of
lost profits, a claimant must establish these lost profits
with “reasonable certainty.” See, Note, The Requirement of
Certainty in the Proof of Lost Profits, 64 Harv. L. Rev. 317,
317 (1950). This “reasonable certainty” rule was formerly
a rule of “absolute certainty,”8 but this requirement has
fallen into disuse. The absolute certainty requirement
7
See also Illinois Pattern Jury instructions—Civil 700.02, 700.11
(2006).
8
See, e.g., Griffin v. Colver, 16 N.Y. 489, 491 (1858) (“[D]amages
to be recovered from a breach of contract [must] be shown with
certainty, and not left to speculation or conjecture . . . .”).
12 No. 05-1371
was reformed some time ago to the less demanding
requirement of “reasonable certainty.” See J. Mayne & H.
McGregor, Mayne & McGregor on Damages § 174, at 163
(12th ed. 1961); see also C. McCormick, Handbook on the
Law of Damages § 26, at 99-100 (1935) (“[T]he certainty
rule in its most important aspect, is a standard requiring
a reasonable degree of persuasiveness in the proof of
the fact and the amount of damages. . . . [I]t appears that
the epithet certainty is overstrong, and that the standard
is a qualified one, of ‘reasonable certainty’ merely, or,
in other words, of ‘probability.’ ”). The Restatement
(Second) of Contracts likewise expresses the requirement
of proof of the precise amount of loss as one of “reasonable
certainty.” Restatement (Second) of Contracts § 352. Today,
all United States jurisdictions enforce the requirement of
“certainty” in damage award amount, but limit this
requirement to “reasonable certainty.”9
In Illinois, in order to recover for breach of contract, a
plaintiff must establish both “that he sustained dam-
ages . . . [and] he must also establish a reasonable basis for
computation of those damages.” Ellens v. Chicago Area
Office Fed. Credit Union, 576 N.E.2d 263, 267 (Ill. App. Ct.
1991). Dating back to the start of the 20th Century, Illinois
courts have stated that, for lost profits to be an element of
damages, they must be established with certainty, see Trout
Auto Livery Co. v. People’s Gas Light & Coke Co., 1912 WL
1990, at *2 (Ill. App. Ct. 1912), capable of definite proof,
see Mugge v. Erkman, 1911 WL 2315, at *2 (Ill. App. Ct.
9
See Bernadette J. Bollas, The New Business Rule and the Denial
of Lost Profits: Men Keep Their Promises When Neither Side Can
Get Anything by the Breaking of Them, 48 Ohio St. L.J. 855, 858
(1987).
No. 05-1371 13
1911), or capable of tangible proof, see Favar v. Riverview
Park, 1908 WL 2065, at *2 (Ill. App. Ct. 1908).
The party claiming damage bears the burden of proving
those damages to a reasonable degree of certainty. See In re
Estate of Halas, 568 N.E.2d 170, 181 (Ill. App. Ct. 1991)
(citing Rosos Litho Supply Corp. v. Hansen, 462 N.E.2d 566(Ill. App. Ct. 1984) (abrogated on other grounds)). How-
ever, when a party establishes that it is entitled to damages
but fails to prove the amount of those damages to a rea-
sonable degree of certainty, only nominal damages are
recoverable at the discretion of the trial judge. Id.More recently, in the specific context of lost profits
damages, Illinois courts have stated that “[l]ost profits
will be allowed only if: their loss is proved with a reason-
able 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.” Milex Prods., Inc. v. Alra Labs., Inc., 603 N.E.2d 1226,
1235 (Ill. App. Ct. 1992); see also Royal’s Reconditioning Corp.
v. Royal, 689 N.E.2d 237, 240 (Ill. App. Ct. 1997). When the
profits arise out of a breached contract, those profits are
considered an element of the contract and thus, within the
contemplation of the parties at the time the contract was
established; these damages are recoverable if proved to
a reasonable degree of certainty. Id.Certainly, because damages for lost profits are prospec-
tive, these damages will be inherently uncertain and
incapable of calculation with mathematical precision.
Royal’s Reconditioning, 689 N.E.2d at 240. Nevertheless, the
evidence presented must afford a reasonable basis for
the computation of damages. Id. Indeed, the Supreme
Court of Illinois has stated expressly that “the law does
14 No. 05-1371
not require that lost profits be proven with absolute
certainty. Rather, the evidence need only afford a reason-
able basis for the computation of damages which, with a
reasonable degree of certainty, can be traced to defendant’s
wrongful conduct.” Belleville Toyota, Inc. v. Toyota Motor
Sales, U.S.A., Inc., 770 N.E.2d 177, 199 (Ill. 2002) (citing
Midland Hotel Corp. v. Reuben H. Donnelley Corp., 515
N.E.2d 61 (Ill. 1987)).
Illinois courts consistently have rejected “the use of
speculative, inaccurate or false projections of income in
the valuation of a business” and reviewing courts will
reverse damage awards “based on speculation or conjec-
ture.” SK Hand Tool Corp. v. Dresser Indus., 672 N.E.2d 341,
347, 348 (Ill. App. Ct. 1996). Moreover, the party request-
ing damages must show causation, that is that the alleged
breach is the cause of those damages, with reasonable
certainty. Id. at 348; see also Midland Hotel Corp. v. Reuben H.
Donnelley Corp., 515 N.E.2d 61, 66 (Ill. 1987).
Finally, as a general rule, expected profits of a new
commercial business are considered too uncertain,
specific and remote to permit recovery. SK Hand Tool, 672
N.E.2d at 348. This maxim is commonly referred to as the
“new business rule” and, as we shall note later, the same
approach applies likewise to new product lines in estab-
lished businesses when profits are difficult to measure.
There are, of course, some exceptions. Milex Products v. Alra
Laboratories, Inc., 603 N.E.2d 1226, 1236-37 (Ill. App. Ct.
1992), notes that there are circumstances in which the
general rule that the lost profits of a new business are
too speculative to be recoverable does not apply. The
court in Milex Products relied upon cases in which ex-
perts have provided convincing and non-speculative
evidence sufficient to prove lost profits, and where, as
No. 05-1371 15
such, the general rule that lost profits are not recoverable
did not apply. Id.10 Lost profits damages are difficult to
recover in any case, and are allowed only if their loss is
proved with “a reasonable degree of certainty.” Spangler
v. Holthusen, 378 N.E.2d 304, 309 (Ill. App. Ct. 1978). “A
plaintiff generally must present competent proof of lost
profits from which a reasonable basis of computation
can be derived.” E.J. McKernan Co. v. Gregory, 623 N.E.2d
981, 1000 (Ill. App. Ct. 1993) (citing Nordhem v. Harry’s Cafe,
Inc., 529 N.E.2d 988 (Ill. App. Ct. 1988)).
Although many cases addressing damages for lost profits
have included expert testimony, see, e.g., Milex Products, 603
N.E.2d at 1236, Illinois law does not require expressly
expert testimony to prove lost profits damages. Illinois
courts likewise have highlighted that “mathematical
certainty is not required” in the proof of lost profits. Drs.
10
In Milex Products v. Alra Laboratories, Inc., 603 N.E.2d 1226(Ill. App. Ct. 1992), the court referenced three different cases
in which the courts in fact award lost profits damages. First,
in Malatesta v. Leichter, the profits of the person who operated a
car dealership were held not too speculative to prove damages
to a plaintiff who was prevented from acquiring the dealership.
542 N.E.2d 768 (Ill. App. Ct. 1989). This court held in Fishman
v. Estate of Wirtz, 807 F.2d 520 (7th Cir. 1986), that plaintiffs
who had never owned a particular sports franchise could recoup
lost profits based upon the profits made by the team owners.
Finally, in Rhodes v. Sigler, 357 N.E.2d 846 (Ill. App. Ct. 1976),
an Illinois appellate court held that the plaintiff could rely on
evidence of the profit earned by the defendants; such evidence
provided the requisite degree of certainty where the evidence
showed that the plaintiff was no worse a farmer than the
defendants.
16 No. 05-1371
Sellke & Conlon, Ltd. v. Twin Oaks Realty, Inc., 491 N.E.2d
912, 917 (Ill. App. Ct. 1986).
With these principles in mind, we now turn to the
question of whether TAS has shown that it has suffered
damages through Cummins’ alleged failure to market
engines with TAS’ technology. TAS attempts to demon-
strate that it was damaged and to provide a reasonable
basis for the calculation of these damages through two
submissions. First, it presents evidence of the sales of TAS
Products by Cummins’ chief competitor, DDC. Second,
it contends that Cummins should have achieved the
sales estimates projected during negotiations. We shall
examine each of these approaches in turn.
TAS submits first that it was damaged beyond the
minimum royalty payments because Cummins’ competitor,
DDC, sold many more products than did Cummins.
Relevant to this analysis is Illinois’ “new business rule”
which states that the reasonable certainty requirement for
recovery of lost profits damages may be satisfied 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. Malatesta v.
Leichter, 542 N.E.2d 768, 782 (Ill. App. Ct. 1989). The general
rule under Illinois law is that a new business has no
right to recover lost profits. See, e.g., Stuart Park Assoc.
Ltd. P’ship v. Ameritech Pension Trust, 51 F.3d 1319, 1328 (7th
Cir. 1995) (interpreting Illinois law). Illinois courts have
upheld damage awards based on comparable businesses
where the “profits [are] of a person other than plaintiff,
who operated the same established business at the identical
location for the period of time which plaintiff seeks
damages.” Id. In situations where the plaintiff operated an
established business at an identical location during the
No. 05-1371 17
same time period as a party for whom profit information
is available, Illinois courts have held these comparisons
to be “not of such a speculative nature to require a find-
ing that plaintiff’s lost profits may not be proved to a
reasonable certainty.” Id. The reasoning behind the rule
is simply that a new business has not demonstrated yet
what its profits will be. See Milex Prods., 603 N.E.2d at 1236;
see also Kinesoft Dev. Corp. v. Softbank Holdings Inc., 139
F. Supp. 2d 869, 908 (N.D. Ill. 2001).
We have recognized that Illinois’ new business rule can
apply when an entity, while established in the field,
markets a new product. In Stuart Park Associates Ltd.
Partnership v. Ameritech Pension Trust, 51 F.3d 1319, 1328
(7th Cir. 1995), one party argued that its successes
with other apartment complexes should dictate its likely
profits regarding the disputed complex. However, we
stated in that case that, because the complexes were
different pieces of real estate from different markets, they
did not provide a self-evident mode from which to gen-
eralize any lost profits incurred. Stuart Park, 51 F.3d
at 1328.
Illinois courts likewise have held that the new business
rule applies with equal force to new products which create
potential new business for the entity. In Milex Products, an
Illinois appellate court concluded that, in the context of
the specific new product at issue, the plaintiffs had dem-
onstrated the existence of an established market sufficient
to prove damages. 603 N.E.2d at 1236. The court nonethe-
less acknowledged that, absent such special evidence,
the new business rule would preclude recovery. Id. How-
ever, under the particular facts of the case, the court
concluded that the proof of lost profits was based upon a
reasonable degree of certainty. Id.18 No. 05-1371
Other courts also have stated that past successes with
similar products or businesses do not provide sufficient
information from which to calculate lost profits on a
new product or new business. See Kinesoft, 139 F. Supp. 2d
at 909. In Kinesoft Development Corp. v. Softbank Holdings
Inc., 139 F. Supp. 2d 869, 909 (N.D. Ill. 2001), the plaintiff
Kinesoft relied on several exceptions to the new business
rule in urging that this rule should not serve as a bar to
recovery. First, Kinesoft urged that it had some profit
record prior to the breach, which has been recognized as
an exception to the new business rule under Illinois law.
Id. Kinesoft also relied upon an exception recognized in
Milex Products where an identical product had been sold
by another company and thus, there was an established
market from which to calculate lost profits. Id. at 910.
However, the court found that Kinesoft had failed to
present evidence regarding any comparable company
selling comparable products. Id.In this case, the Illinois “new business rule” provides
significant guidance for our decision. It appears that
Cummins manufactured two different products incorporat-
ing the TAS technology, a One-Box ECM ICON Product
and a Two-Box Retrofit ICON Product. Each of these
products incorporated both the Temp-A-Start and Temp-A-
Stop technologies. Although DDC did manufacture and
market TAS technology, it is undisputed, on this record,
that only Cummins manufactured the ICON Product
that incorporated both the Temp-A-Start and Temp-A-
Stop technologies. Because a product containing both
technologies is inherently different from one that con-
tains only one type of TAS’ proprietary technologies, the
Illinois “new business rule” renders a comparison to
DDC’s sales of engines somewhat speculative, and, con-
No. 05-1371 19
sequently, counsels extreme caution in relying on this
comparison as a measure of TAS’ lost profits.
Moreover, Illinois law, even without reference to the
new business rule, clearly requires that damages be
proved to a reasonable certainty. E.J. McKernan Co., 623
N.E.2d at 1000. TAS submits first that it was damaged
beyond the minimum royalty payments because Cummins’
competitor, DDC, sold many more products than did
Cummins. TAS has failed, however, to produce any
evidence that proves its lost profits to a reasonable cer-
tainty, and therefore TAS’ claim must fail. We note that
“Illinois courts have not hesitated to reverse damage
awards based on false assumptions or data as speculative.”
SK Hand Tool, 672 N.E.2d at 348 (citing Midland, 515
N.E.2d at 67; Reynolds v. Coleman, 527 N.E.2d 897, 904-05
(Ill. App. Ct. 1988); F.L. Walz, Inc. v. Hobart Corp., 510
N.E.2d 1248, 1252-53 (Ill. App. Ct. 1987)). Illinois courts
also have stated that “[i]t is perhaps true that absolute
certainty as to the amount of loss or damage in such cases
involving lost profits is unattainable, but that is not
required to justify a recovery. All the law requires is that it
be approximated by competent proof.” Curt Bullock
Builders, Inc. v. H.S.S. Dev., Inc., 634 N.E.2d 751, 753 (Ill.
App. Ct. 1994) (internal citations and quotation marks
omitted). The evidence before us on summary judg-
ment simply does not establish a basis upon which dam-
ages can be calculated to a reasonable degree of certainty.
TAS submits that Cummins should have sold as many
products incorporating the subject technology as did
DDC. There is scant evidence in the record pertaining to
the DDC’s sales of engines with the TAS technology.
Slepian, TAS’ president, asserted in an affidavit that DDC
20 No. 05-1371
sold approximately 15,000 such engines per year.11 TAS
concedes that the exact number of units incorporating the
TAS technology is a matter of proof for trial.12 However,
TAS must still face the principle that, to survive a
motion for summary judgment on a breach of contract
claim, the plaintiff must provide a basis upon which lost
profits may be calculated to a reasonable certainty. E.J.
McKernan Co., 623 N.E.2d at 1000.
There is no evidence in the record, aside from TAS’
assertions, suggesting that DDC’s product sales provide a
reasonable basis upon which to calculate damages. TAS
submits that DDC is a chief competitor of Cummins,
and, therefore, that DDC’s sales numbers likewise
should have been attained by Cummins. Merely stating
that Cummins should have sold as many engines incorporat-
ing the TAS technology as did DDC, without more, does
not warrant reversal of the district court’s judgment. There
is nothing in the record tending to suggest that Cum-
mins could have sold as many products as DDC; the rec-
ord is devoid of information relating to DDC’s precise
role in the engine market. The record also does not con-
tain facts, beyond unsupported contentions, tending to
establish that DDC and Cummins are sufficiently compara-
11
Cummins also introduced a document before the district
court suggesting that DDC sold only 4,883 units in 1991 and
6,516 units in 2002. R.36 at 12. We are obligated, on a motion for
summary judgment, to view all facts in the light most favor-
able to the non-moving party. However, a factual dispute
that exists as to the number of products sold by DDC does not
affect our determination that DDC’s product sales do not
provide a reasonable basis for the computation of damages.
12
Appellant’s Br. at 41.
No. 05-1371 21
ble companies to warrant imputing DDC’s engine sales
to Cummins.
TAS also urges that Cummins should be bound by the
sales projections it forwarded during negotiations. We
believe that the district court properly noted that the
Master Agreement’s integration clause, Section 7,13 pre-
cludes such an argument. The Supreme Court of Illinois
has held expressly that, “where parties formally include
an integration clause in their contract, they are explicitly
manifesting their intention to protect themselves against
misinterpretations which might arise from extrinsic
evidence.” Air Safety, Inc. v. Teachers Realty Corp., 706
N.E.2d 882, 885 (Ill. 1999). The court went on to hold
that, in a situation where the contract is facially unam-
biguous and contains an integration clause, the “four
corners rule” applies, barring the consideration of ex-
trinsic evidence. Id. at 886.
Therefore, Cummins’ pre-contractual sales projections
during negotiations cannot be considered proof of dam-
ages. TAS had that information when it established the
minimum royalty payments, and has not shown that it
was damaged in excess of those payments. The law is
clear in Illinois that only the four corners of an integrated
contract are properly considered when interpreting a
contract. See id. Illinois courts have interpreted the parole
evidence rule to bar the introduction of evidence relating
to understandings not reflected in the terms of the contract,
13
Section 7 of the Master Agreement states that “[t]his Agree-
ment, the License Agreement, and the Consulting Agreement
collectively shall constitute the entire agreement between TAS
and Cummins and shall not be amended, modified, or rescinded
in any part except by a writing signed by both parties.”
22 No. 05-1371
reached either before or at the time of the contract’s
execution, where those terms would vary or modify the
terms of the contract itself. W.W. Vincent, 814 N.E.2d at
966. Had TAS and Cummins intended the minimum
royalty payments to set a minimum sales floor but in fact
meant to require Cummins to pay significantly more than
the amount outlined in the minimum royalty payment
schedule, they were obligated, under Illinois law, to
include this understanding within the four corners of the
contract. Illinois law thus precludes us from consider-
ing any pre-contractual negotiations between Cummins
and TAS in determining whether TAS has succeeded in
proving it was damaged by Cummins’ alleged failure to
exercise all reasonable efforts.
TAS has failed to present, on this record, a reasonable
basis for the calculation of any damages and likewise TAS
has failed to show it was damaged beyond the minimum
royalty payments paid by Cummins.
B.
Finally, TAS seeks specific performance of Cummins’
obligations under the contract. Specific performance is an
exceptional remedy and is normally available only when
damages constitute an inadequate remedy. See, e.g., Miller
v. LeSea Broad., 87 F.3d 224, 230 (7th Cir. 1996). Further-
more, an order for specific performance is appropriate
only when the terms of the contract are sufficiently
specific to allow the precise drafting of such an order. See
Crane v. Mulliken, 408 N.E.2d 778, 780 (Ill. App. Ct. 1980);
see also Restatement (Second) of Contracts § 362 (“Specific
performance or an injunction will not be granted unless
the terms of the contract are sufficiently certain to pro-
No. 05-1371 23
vide a basis for an appropriate order.”). This court re-
views the district court’s denial of a request for specific
performance for abuse of discretion only. See, e.g., Medcom
Holding Co. v. Baxter Travenol Labs., Inc., 106 F.3d 1388,
1403 (7th Cir. 1997).
TAS seeks an order mandating that Cummins shall
perform specifically its obligation to make “all reasonable
efforts” to manufacture and market the subject technology.
Since TAS and Cummins have an ongoing relationship,
and, in fact, TAS’ prayer for specific performance expressly
acknowledges the indefinite nature of the License Agree-
ment, an order of specific performance would require the
kind of ongoing supervision that strains judicial resources.
See, e.g., New Park Forest Assoc. II v. Rogers Enters., Inc.,
552 N.E.2d 1215, 1218 (Ill. App. Ct. 1990).
We cannot perceive any abuse of discretion in the dis-
trict court’s determination that specific performance
was not an appropriate remedy. Again, specific perfor-
mance is an extraordinary remedy and ought not be
granted where the terms of the contract do not allow
for the drafting of a precise order. Furthermore, specific
performance is rarely an appropriate remedy where
such a grant would mandate ongoing supervision by the
court. We therefore cannot say that the district court
abused its discretion in denying TAS’ request for specific
performance of the “all reasonable efforts” term of the
License Agreement.
Conclusion
For the foregoing reasons, the judgment of the district
court is affirmed.
AFFIRMED
24 No. 05-1371
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—6-14-07