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