## In the 

# United States Court of Appeals

For the Seventh Circuit

____________

No. 05-2247

P RIMA T EK II, L.L.C., Plaintiff-Appellant,

v.

K LERK ’ S P LASTIC I NDUSTRIES , B.V. AND K LERK ’ S P LASTIC P RODUCTS M ANUFACTURING , I NC ., Defendants-Appellees.

____________ Appeal from the United States District Court
for the Southern District of Illinois.
No. 00 CV 583— G. Patrick Murphy

, Judge.

____________
A RGUED J ANUARY 8, 2008—D ECIDED M AY 5, 2008

____________

Before F LAUM , RIPPLE , and M ANION , Circuit Judges

.
F LAUM , Circuit Judge . This case involves a licensing dispute between two companies that operate in the pot cover business. Prima Tek II (“PTII”), in essence, gave Klerk’s Plastic (“Klerks”) permission to use its technology to create superior pot covers in exchange for a royalty fee on each sale. The agreement between the parties delineated the type of product that Klerks was to sell, and it limited Klerks’s ability to sell to particular entities in specified regions. PTII claims that Klerks breached this2 No. 05-2247

1 Throughout the briefs and record, the parties refer to the objects at issue in this case as both “pot covers” and “plant
covers.” Pot covers an d plant covers are ob viously different, in that one covers pots and the other covers plants. Exhibits in the record seem to suggest that we are dealing with pot covers. However, for purposes of this opinion, we too will refer topot covers and plant covers interchangeably, since the distinction does not bear on the issues. agreement, and, in addition to damages, seeks to have Klerks held in contempt. The di strict court held that there were no material breaches of the licensing agreements, and that PTII failed to prove damages. We affirm.

Background
In January of 1986, Klerks entered into a non-exclusive license agreement with Hi ghland Supply Corporation (“Highland”). This agreement authorized Klerks to manufacture and sell certain flower pot covers 1 subject to patents and patent applications in the United States and Holland. The two parties entered into a similar licensing agreement in 1987 authorizing Klerks to sell flower pot covers in Canada. Soon thereafter, Highland assigned its rights under the agreemen ts to PTII. Both companiesmet on July 20, 2000, to discuss Klerks rights and obligations under the licenses as certain patents were about to expire. Four days later, PTII filed suit seeking damagesresulting from an alleged breach of the license agreements. The agreements generally control what types of pot covers Klerks can sell, to whom it can sell the covers, and where the covers can be sold.
On September 23, 2000, the parties arrived at an agreement where they amended the license agreements andNo. 05-2247 3

2 It appears that Klerks actuallyceased all manufacturing and selling of pot covers on June 21, 2002. settled the litigation. After PTII filed a motion to enforce this settlement agreement, the trial court issued an order on April 5, 2001 (the “April 5 Order”), incorporating the settlement agreement and licenses and dismissing the lawsuit while maintaining limit ed jurisdiction to enforce its order. PTII thereafter alleged that Klerks had breached provisions of the licenses, and on October 22, 2001, the trial court granted PTII’s request for post-judgment discovery. At that point, PT II terminated the licenses and Klerks stopped manufactur ing and selling pot covers. 2

The language of the licenses, which is in part what is at issue in this case, provides that:
PTII hereby grants to KLERKS HOLLAND the nonexclusive license to manufacture and sell only in Holland and only in the United States UPGRADE PLANT COVERS only to CUSTOMERS under the trademark rights referred to in Article II and using or incorporating the technology referred to in paragraph 1.5 which are absolutely e ssential for KLERKS HOLLAND to make and sell UPGRADE PLANT COVERS.

The term “customers” is defined as:
(a) horticultural growers of potted plants for use on such potted plants and (b) retail food supermarkets. The term “retail food supermarkets” means a retail business whose entire business primarily is the retail sale of food products, that is, considering the total sales of the consolidated business, at least eighty percent (80%) of such sales are for food products. The term “CUSTOMERS” specific ally (but not by way of4 No. 05-2247

limitation) excludes EX CLUDED CUSTOMERS (defined below).

“Excluded customer” means:
any customer who is not a horticultural grower of potted plants or a retail food supermarket. EXCLUDED CUSTOMERS specifically in cludes (but not by way of limitation) businesses such as variety chains, mass merchandisers, discount chains, drug chains, buying clubs, craft and hobby stores, garden centers, and home improvement cent ers such as (but not by way of limitation) Lowe ’s, Home Depot, WalMart . . . whether or not marketed at retail store sites, central buying offices or via catalogs or via electronic means by a websit e or via any other marketing channel. KLERKS will no t, to its best knowledge, sell plant covers to a CUSTOMER who resells those plant covers to an EXCLUDED CUSTOMER. KLERKS shall not (directly or indirectly) sell UPGRADE PLANT COVERS to anyone who is not a CUSTOMER andspecifically cannot sell to any EXCLUDED CUSTOMERS.
In total, between April 5, 2001 (when the order was issued) and June 21, 2002, Klerks sold more than 30 million plant covers for a total of $4,805,627.16 in 1,736 different transactions. As a part of these transactions, Klerks paid PTII a total of $418,635 in royalties.

After completing its post-judgment discovery, on August 13, 2004, PTII filed a renewed motion urging the court to hold Klerks in contempt. PTII claimed that Klerks “knowingly manufactured, offere d for sale [and] sold . . . (i) unlicensed plant covers, ( ii) plant covers outside the licensed geographic territories, (iii) [to un]authorizedNo. 05-2247 5

customers, and (iv) [incorrectlymarked] plant covers . . . .”In addition to asking the court to hold Klerks in contempt, PTII also sought proceeds from any and all salesmade in violation of the April 5 Order, settlement agreement, and licenses. The district court made a judgment on partial findings pursuant to Federal Rule of Civil Procedure 52(c) ruling in favo r of Klerks. It held that PTII failed to meet its burden of producing clear and convincing evidence that Kler ks should be held in civil contempt for violations of th e April 5 Order. The district
court also found that while Klerks did breach certain provisions of the license agreements, these breaches were not material, and PTII did not prove any damages
that resulted from these breaches.

Discussion
PTII raises three issues on appeal. First, it asserts that Klerks in fact did engage in material breaches of the license agreements attached to the April 5 Order. Second, with respect to these breaches, PT II maintains that it hasshown damages with sufficient clarity. Third, it contends that Klerks should have been held in contempt for alleged violations of the April 5 Order. We analyze
each issue in turn.

A
PTII must prove by a preponderance of the evidence
that Klerks breached the contract. Austin v. Illinois , 54 Ill. Ct. Cl. 375 (2002). We review “de novo a district court’s determination of the meaning of an ambiguous contract
term . . . as well as the cour t’s factual findings following
a bench trial.” Central States, Southeast and Southwest6 No. 05-2247

3 When orally addressing the parties during a hearing, the trial judge stated as follows: “Both parties have told me I can . . .award damages for . . . breach of contract irrespective of finding . . . contempt. Now, of co urse, the standard is entirely different. One is a mere preponderance of the evidence and one is clear and convincing.” Areas Pension Fund v. Kroger Co ., 226 F.3d 903, 910 (7th Cir. 2000). PTII contends that the district court used the wrong standard in assessing whether a material breach occurred here. It argues that the court used a clear error standard instead of the required preponderance of the evidence standard. However, the trial transcript makes
it clear that the district court understood that the contempt standard is clear error and the breach standard is preponderance of the evidence. 3 Moreover, apart from
the district court’s statement on what standard it used in its order, the record reflec ts—as the district court concluded—that PTII was not entitled to damages because it produced virtually no evid ence of any material breaches or damages. This clears both standards.

To be sure, Klerks did brea ch portions of the agreement, but these breaches were not material. Specifically, its sales to Impack Corporation ($2,067), Dunstan AS Groome ($338.40), Kinney Bonded Warehouse ($303.74), Sea Venture Overseas ($60.21), and St. John’s Shipping ($466.54) were made outside of authorized territories. Also, Klerks manufactured some nonconforming pot covers byimproperly reversing the film in its machines. Such production, however, was promptly stopped. Overall, while some sales violated the terms of the license, more than 99 percent did not. There were no material breaches, and a party can only be held liable for damages resultingNo. 05-2247 7

4 A more significant hurdle for PTII is that it has not proven damages with sufficient cl arity, as detailed below.

5 The district court properly looked to the dictionary for guidance on defining “horticultural grower,” (since it is not defined in the license) and found that it refers to an entity that cultivates a fruit or other product. This is more consis- (continued...) from a material breach. 4 Pacini v. Regopoulos , 281 Ill. App.3d 274, 279 (1996) (finding no breach of an occupancyguarantee because 94.9953% occupancy rate was tantamount to a 95% occupancy rate); Rubloff CB Machesney v.
World Novelties , 363 Ill. App.3d 558, 564 (2006) (listing several factors relating to a finding of materiality: 1) the extent to which the non-breaching party was deprived of the benefit that it reasonablyexpected; 2) the extent towhich the non-breaching party can be adequately compensated for the part of that benefit of which it will be deprived; 3) the extent to which the breaching party will suffer forfeiture; 4) the likelihood that the breachingparty will cure its failure; 5) the extent to which the breaching party’s behavior comports with standards of good faith and fair dealing).
PTII tries to argue that Kler ks breached the agreementin additional ways that the district court either overlooked or failed to appreciate. In each case, PTII eithermischaracterizes the facts or uses faulty logic. First, it attempts to label several of Klerks’s sales as sales to garden centers, which are excluded customers according to the agreement. However, PTII’s own witness admitted that
he had no evidence that the entities that they consideredto be garden centers were anything other than horticultural growers of plants, 5 which are not excluded customers.8 No. 05-2247

5 (...continued) tent with the plain meaning of the term than PTII’s proposed contextual definition, which narrowly defines the term as “large wholesale commercial growers.”

Second, PTII maintains that Klerks breached the license agreements by manufacturing and selling $2,762,459.66of pot covers with “skirt angles” outside the specifications of the agreements. The license requires that “plant covers [have] the appearances and [be] made exactly like the samples covers Exhibits A (standard cover) and A1 (brite cover) attached hereto and made a part hereof, and with the skit extending upwardly and outwardly from the base at an angle fr om about 30 degrees to about 55 degrees from horizontal .” More simply, visualize your everyday flower pot. In most cases, as you move further up the pot from bottom to top, it gets wider. The rate at which the pot widens—or the angle—is the “skirtangle.” The district court found that the pot covers conformed to the skirt angle provisions. In addition, it found that these specific measurements were selected by the parties to reflect Klerks’s existing manufacturing process, Klerks did not change this process, and PTII never complained about the sk irt angles until after Klerksceased making pot covers. What is essential to the dispute here is that each party has its own expert that claims that a particular me thod of measuring the skirt angle is superior. PTII’s expert stated that he measured the angle at the intersection of the skirt and the base (the “break angle”) and found many to be outside of the 30 to 55 degree range. Nevertheless, this expert agreed that there could be other ways to measure the angle, and Klerks’s own expert measured the angl es using a different methodNo. 05-2247 9

(not just focusing on the break angle) and found them to be in compliance. Given the conflicting testimony, the
fact that the licenses did no t state a procedure for measuring the angles, that each expert offered a reasonable procedure, and both experts were well-qualified, it was
reasonable for the district court to conclude that the skirt angles were within the permissible range.

Third, PTII asserts that Klerks sold $6,000 of lace plant
covers in violation of the licenses. The district court
held that the sales did not violate the licenses for two reasons. First, the license agreements incorporate a patent that permitted the production of lace covers.Second, the lace covers fit within the definition of “Upgrade B Plant Covers,” which Klerks was permitted to sell. PTII argues that the 1986 license as amended doesnot grant Klerks permission to sell lace style covers because the patent is not included. Even if this were true—and it is not clear whether it is—PTII’s argument still falls short because the lace covers appear to conform to the definition of Upgrad e B Plant Covers. These covers are described as ones made from a non-matted polymerfilm, with a four-cornered skirt, “having a printed pattern only on the outside and with a solid color inside.” Both parties agree that these covers have printed patterns on the outside. The questionis whether the film has a solid color on the inside. The inside layer of these covers is clear, which is technicallycolorless. But the key idea is that the printed pattern is on the outside, not the inside, even though it can be seen from the inside because the inside layer is clear. Further, the fact that some of the printed pattern can be seen on the inside does not violate
the license because the covers attached to the licenses shown as Exhibits B and B-1 have printed patterns10 No. 05-2247

clearly visible from the inside of the pot cover. Thus,
the district court did not co mmit any clear error in holding that the lace plant covers qualify as Upgrade B Plant
Covers.

Fourth, PTII claims that the district court erred in holding that Klerks “did not use any Highland or PTII technology to make Sleeve products. In fact, neither Highland nor PTII . . . transferred any technology” to Klerks.Whether or not this finding is correct is irrelevant, because it was used to support two conclusions that PTII does not dispute. First, it was used to bolster the idea that plant sleeves (which Klerks now sells instead of pot covers) did not use any tec hnology in violation of the agreements. Second, it was used to demonstrate that Exhibit X to the licenses was the only item of technologythat PTII proved at trial was subject to the “return” provision of the licenses. The district court simply concluded that plant sleeves do not contain any Exhibit X technology, which PTII does not dispute. Moreover,PTII failed to prove that Klerks did not return any technology to it.
Finally, PTII makes a number of arguments with little to no support in the record . For instance, it nakedlyasserts that Klerks made sales to non-supermarket retailers, which is not permitted, but it does not cite to anything in the record to support this point. In addition,
PTII takes issue with the district court’s conclusion that PTII failed to prove that Klerks made or sold any pot covers with a matted polymer film. The district
court relied on its own observ ations and its own determinations with respect to the credibility of PTII’s expert witness to arrive at this conclusion, and PTII does not offer any reason to doubt the correctness of its analysis.No. 05-2247 11

PTII also disputes the district court’s finding that Klerks did not materially breach an August 30, 2001 agreement because it shipped unlabelled covers from September 4 through September 12, 2001. Pursuant to the agreement, the covers had to be marked with a label as prescribed by PTII. But PTII made compliance difficult, in that it kept switching the labeling requirements, which cost Klerks almost $500,000. Given the cost and time associated with meeting PTII’s mercuria l demands, the agreement stated that Klerks could ship unmarked covers through September 4th. Klerks went over by eight days. The district court did not abuse its discretion in declaring that this was not a material breach, especially since PTII did not suffer any identifiable harm.

B

Even if PTII could somehow show a material breach, it would still fall short of winning on its claim because it has not proven damages. PTII makes two arguments here. First, it contends that it should have been awarded nominal damages even if it could not prove actual damages. Second, it argues that it did in fact prove actual damages. With respect to the first point, Illinois law is clear: “[m]erely showing that a contract has been breached without demonstrating actual damages dose not suffice . . .
to state a claim for breach of contract.” TAS Distrib. Co. v. Cummins Engine Co. , 491 F.3d 625, 631 (7th Cir. 2007). More importantly, PTII never sought damages from Klerks—it only sought to requ ire Klerks to “disgorge” the entire proceeds of every sale it contend was in violation of the licenses (plus treble damages and attorneys’ fees).

With respect to the second point, Illinois law is again clear: damages for unjust enrichment are not awardable12 No. 05-2247

when, as here, there is a contract between the parties on the subject in dispute. La Throp v. Bell Fed. Sav. & Loan
Assoc. , 68 Ill.2d 375, 391 (1977). PTII did not prove in its proceedings below that it lost any sales, profits, or royalty income as a result of the alleged violations, and it provided no proof that any of the violations damaged its business in any concrete way. Indeed, PTII does not actually makeanything—its business is to license and collect royalties from sale s made by others. And we
know from the record that Kl erks paid royalties on every sale. PTII could claim that it would have given the license to another party that could have made sales, but it provides no evidence to show that its royalties would have been any higher.

In the alternative, PTII submits that this court should fashion an equitable remedy and award Klerks’s gross sales as a measure of damages. See Leman v. Krentler-Arnold Hinge Last Co. , 284 U.S. 448 (1932); Connolly v. J.T. Ventures

, 851 F.2d 930, 933 (7th Cir. 1988). But what PTII does not recognize is that in cases where such a remedy has beencrafted, the court also found the breaching party in contempt, which is not the case here. Klerks’s breaches were not material, and there is no suggestion that it did not deal with PTII in good faith.
Both Klerks and the district court posit that PTII suffered no theoretical damages—and actually gained— from the breaches that were alleged to have occurred because royalties were paid on each transaction. This is not accurate. If we suppose, for instance, that Klerks did actually manufacture covers with angles outside the permissible range, then it do es not follow that PTII onlybenefitted because it was still paid a royalty on the transactions. This is because PTII could have made additionalNo. 05-2247 13

6 Even beyond harms to the particular licensor, there is a social loss associated with reading licenses in an overly liberal manner. Interpreting licenses loosely could lead to higher degrees of uncertainty with respect to a licensor’s ability to carve up markets, which in turn could push up the price of
licenses as a whole. In addi tion, companies like PTII would be less inclined to innovate and create new technology if they could not properly define the contours of precisely what their licensees can do with the technology. revenue by forcing Klerks to pay a higher fee for a less restrictive angle range. In addition, the cost of losing
control over whom the licensee can sell to and where they can sell implicates mark et share and quality control

issues. 6All of these types of harms are capable of being made concrete. Unfortunately for PTII, it was unable to prove any material breaches, or any concrete damages
that flowed from these breaches. Transportation & Transit Assocs., Inc. v. Morrison Knudsen Corp. , 255 F.3d 397, 401 (7th Cir. 2001) (“the party claiming the breach must establish the amount of damages. The demonstration need not be precise, . . . but the plaintiff must have a sensible basis for its claim.”).

C
We do not disturb a district court’s decision regarding a contempt petition unless we find that it abused its
discretion. Stotler & Co. v. Able , 870 F.2d 1158, 1163 (7th Cir. 1989). Put another way, we “must affirm if the district court’s determination is plau sible in light of the record in its entirety.” Zeige Distrib. Co., Inc. v. All Kitchens, Inc.

, 63 F.3d 609, 612 (7th Cir. 1995) (citations omitted).14 No. 05-2247

7 The coercive element is not in play here because, as noted earlier, Klerks is no longer in the plant cover business.

8 For instance, Klerks decided that it would not sell pot covers to any grower who is using the pot covers on plants
that would be sold to mass merchandisers. Contempt is a unique civil sanction because its aim is both coercive and compensatory. U.S. v. United Mine
Workers , 330 U.S. 258, 303-04 (1947). 7To sustain its contempt claim, PTII has the burden of proving all of the following elements by clea r and convincing evidence: (1) the Order sets forth an unambiguous command; (2) Klerks violated that co mmand; (3) Klerks’s violation was significant, meaning it did not substantially comply with the Order; and (4) Klerks failed to take steps to reasonable and diligently comply with the Order. Goluba v. School Dist. of Ripon , 45 F.3d 1035, 1037 (7th Cir. 1995); Stotler, 870 F.2d at 1163.

Starting with the last prong, it is pellucid that Klerks took reasonable and diligent steps to comply with the April 5 Order. Indeed, shortly after the Order was issued, Klerks’s management met with its attorneys to review its rights and responsib ilities. It instituted policies
that were more restrictive than the licenses themselves. 8 It also held quarterly meet ings to review compliance issues. Klerks communicated these policies internally and externally, and conducted meetings with sales staff and its customer service department to inform them of
restrictions. It even went so far as to directly inform its
customers and distributors of the restriction limiting sales of pot covers to horticultural growers and retail food supermarkets. This lis t is meant to be illustrative—it is by no means exhaustive. PTII’s sole counter-No. 05-2247 15

argument here is the evidence that it offers that suggests that some of Klerks’s employees (e.g., salesmen) werenot aware of some of the new policies that Klerks implemented in order to ensure compliance. While this is indeed countervailing evidence, onbalance, it does not add up to a finding that the distri ct court abused its discretion in concluding that Klerks took reasonable and diligent steps to comply with the April 5 Order.

With respect to the third pron g, PTII is unable to prove by clear and convincing evidence that Klerks failed to substantially comply with th e April 5 Order. The parties disagree as to how many of the 1,736 transactions at issue contravene the Order. As explained in greater detail above, some of these transa ctions indeed did not comply. However, we ultimately agree with the district court that “[t]he quantity of nonconforming pot covers sold is a fraction of 1% of total pot cover sales by Klerks.”

With respect to the first two prongs, PTII again fails to prove by clear and convincingevidence that Klerks violated an unambiguous command contained in the April 5
Order. The district court co rrectly found that on a number of issues (e.g., sales of ma tted covers, lace covers, etc.) that PTII did not meets its burden. In addition, the order
must be unambiguous , which is not the case here with respect to definitions of “customers” and “excluded customers.” For instance, PTII forbade the sale of plant covers to a customer who then resells the plant cover (even if it is on a potted plant) to an excluded customer. The problem with this position is that it would render the entire April 5 Order useless, because it would preclude Klerks from selling plant cove rs to horticultural growers and retail food supermarkets since they themselves then sell to individuals (i.e., the ultimate end-users), who are16 No. 05-2247

excluded customers. Klerks in terpretation of “resells” is more reasonable, in that it refers only to resales of theplant covers alone, not resales of the plant covers attached to potted plants.
Notwithstanding PTII’s inability to meet the standards set out for holding a party in contempt, we have held that remedial sanctions are limited to provable losses sustained by the non-breaching party as a result of the
violation of the order. Autotech Techs. LP v. Integral Research and Dev. Corp. , 499 F.3d 737, 752 (7th Cir. 2007). As we have explained above, PTII failed to prove any such loss.

Conclusion
For the foregoing reasons, we A FFIRM the judgment of
the district court.

USCA-02-C-0072—5-5-08