A modified version of this post, coauthored with Andrew Kitchel, has been posted on Valpo Law Blog.
A Whirlpool washing machine (but probably not one of the machines at issue), via Pavel Ševela / Wikimedia Commons.
On October 16, the Seventh Circuit ended a nine-year battle between Whirlpool and a former supplier that combined aspects of contract and patent law. The court ruled that the companies had a license agreement rather than a requirements contract, and therefore the supplier couldn’t get benefit of the bargain damages. Judge Frank Easterbrook wrote for the three-judge panel.
Our story begins in windswept Decatur, Illinois, “Pride of the Prairie,” where for many years the Grigoleit Company made knobs for Whirlpool’s household appliances.
In the 1980s, Grigoleit obtained two patents on a “knob with decorative end cap and method of manufacturing it” and a “knob with decorative end cap.”
Despite their unassuming names, these inventions were not trivial. As the district court said,
“Gri[go]leit’s patented technology was . . . addressed at getting away from glued assemblies for decorative caps of appliance knobs. . . . The technology and method obviated the need for gluing the cap to the knob and permitted efficiencies in assembly.”
All was fine and dandy until 1991, when Whirlpool switched to another supplier for its knobs and left Grigoleit in the cold. Grigoleit then threatened to sue Whirlpool because the new supplier was using Grigoleit’s own patented technology.
In 1993, the two companies entered into an agreement in which Whirlpool would continue to buy some knobs from Grigoleit, and in return Grigoleit would not sue Whirlpool.
Here is the agreement’s crucial clause, with some bolding added to make the key connecting phrases stand out:
Whirlpool shall not be obligated to pay Grigoleit any monies as royalties for the right, license, and privilege granted herein so long as Whirlpool continues to purchase from Grigoleit Whirlpool’s requirement for present styling of knobs for the “Estate” and “Roper” brand lines of automatic clothes washers and dryers and so long as, in the opinion of an arbitrator established in accordance with the procedures of a recognized and independent arbitration service, Whirlpool continues to give serious consideration to Grigoleit by working with and purchasing from Grigoleit various appliance components, when in regards to such components it is reasonable to believe Grigoleit can provide more than parity in technology, quality, service, delivery and price in comparison to other qualified suppliers in the Whirlpool supplier base at such time.
The agreement and the patents expired in 2003, but the battle was just beginning.
Whirlpool had complied with that first “so long as,” using only Grigoleit knobs for its Estate and Roper lines. But as the arbitrator later found, it did not comply with the second one: it failed to consider Grigoleit even for products where its knobs could have been very competitive.
Perhaps wisely, the arbitrator ducked the issue of damages, finding Whirlpool liable only for “payment of money royalties or damages as the courts may determine.”
In 2005, Grigoleit sued in the Central District of Illinois, arguing that the companies had a contract, and therefore it was entitled to the profits it would have made if Whirlpool had used Grigoleit knobs for other product lines as promised. Whirlpool argued that the conditional language meant only that if Whirlpool didn’t comply, it would have to pay royalties on Grigoleit’s patents.
Five years later, the district court ruled in Whirlpool’s favor. Four years after that, the court defined a rough formula for royalties. The parties quickly stipulated that the amount of the royalties by that formula would be $140,000.
Grigoleit then appealed to the Seventh Circuit, arguing again that the agreement was a requirements contract and that it should get its lost profits from Whirlpool’s breach. But Judge Easterbrook was unpersuaded.
Against Grigoleit’s argument that the agreement would lack consideration from Whirlpool under the district court’s reading, Judge Easterbrook noted that Whirlpool agreeing to pay royalties without Grigoleit having to show that its patents were both valid and infringed was already a “substantial promise by Whirlpool.” And so this two-decade grudge match draws to a close.
You may not spend a lot of time thinking about them, but let it never be said that appliance knobs are a simple business. Here is just one of the many drawings from the second Grigoleit patent:
That has almost as many different parts as the disputed sentence in the contract!
The Grigoleit Company stopped producing knobs (or anything else) in 2009. Its only visible activity in recent years involves this lawsuit and another one against Whirlpool in Michigan that ended in 2013.
That raises an interesting terminological question. If a company that does nothing besides file patent suits is a “patent troll,” what is the proper term for a company that used to make things but now exists only to pursue patent-related litigation based on the things it used to make?
A patent half-troll? A patent zombie?