In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 07-3364

NYCOMED US INC.,

Plaintiff-Appellant,

v.

ABBOTT LABORATORIES,

Defendant-Appellee.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 04-C-4807—Virginia M. Kendall, Judge.

____________

ARGUED APRIL 16, 2008—DECIDED SEPTEMBER 8, 2008

____________

Before EASTERBROOK, Chief Judge, and WOOD and

WILLIAMS, Circuit Judges.

WOOD, Circuit Judge. Nycomed US Inc. (to which we

refer as “Altana,” its name at the time of this suit) manufactures and sells erythromycin ophthalmic ointment,

which is used to prevent and treat eye infections. To

manufacture the ointment, Altana uses erythromycin

powder supplied by defendant Abbott Laboratories

(“Abbott”). On one occasion, Abbott supplied to Altana
2 No. 07-3364

a batch of defective erythromycin. Under the supervision

of the Food and Drug Administration, Abbott promptly

notified Altana of the problem; Altana in turn had to recall

and destroy over 1.2 million tubes of its ointment. Faced

with this unexpected setback, Altana put its facility into

overdrive in order to make a replacement batch of ointment while not falling behind on its regular manufacturing

schedule. Altana’s employees worked overtime; personnel

moved from other departments into the ointment department to provide extra hands; and the extras also had to

work overtime in their own department so as not to let

those lines of business fall behind. Thanks to these

extraordinary efforts, Altana was able to satisfy all of its

orders for ointment. It did not turn away any customers, its

sales force did not lessen its efforts, and Altana was even

able to maintain an inventory of ointment at all relevant

times.

Abbott conceded that it was liable for all of Altana’s

direct costs in making the destroyed ointment, the cost of

destruction and disposal, and the additional costs incurred

in making the replacement product (that is, the overtime

expenses), for a total payment of $488,283.13. What else,

one might ask, is there to do? Altana has an answer: it

believes that it is entitled not only to the amounts we

have described, but also to “lost profits” of $540,159 and

“overhead costs” of $207,142.91. The parties cross-moved

for partial summary judgment on these two issues. The

district court ruled against Altana and in favor of Abbott

on both issues. It entered judgment for Altana in the

unopposed amount of $488,283.13, and Altana has appealed from the rejection of its additional demands. We

affirm.
No. 07-3364 3

I

We review summary judgment decisions de novo. Sound

of Music Co. v. 3M, 477 F.3d 910, 914 (7th Cir. 2007). Our

jurisdiction in this case is based on diversity, and the

parties agree that Illinois law governs this dispute.

A

The crux of Altana’s argument for seeking lost profits

in addition to the damages already paid by Abbott is that

it “would have made, sold and profited from the sale of,

both the product Altana was required to destroy as a

result of Abbott’s breach, and the product made in the

wake of the recall to replenish Altana’s inventory.” Altana

does not specify, however, when and how it would have

made this additional product, if the original product had

not been defective. If it would have made the ointment a

couple of months later during normal business hours, it

necessarily would have been substituting the making of

those quantities of ointment for whatever it was manufacturing at that future time—that is, ointment that it

made, sold, and reaped profits from. No one disputes that

Altana is in the business of making ointment, but if the

relevant time window is of unlimited scope then of

course any amount of ointment is an amount that “would

have been made” eventually. In order to replace the

recalled ointment, Altana put unusual strain on its facilities

and expended unusual resources, outside the ordinary

course of business, and the sum that Abbott agreed to

pay has fully compensated it for doing so. The record does

not show that Altana would have decided to double its
4 No. 07-3364

output, at a high cost in overtime, if Abbott had supplied

usable erythromycin. This inference is reinforced by the

fact that, having destroyed the defective half of the fruits

of this double-manufacturing, Altana still met all demand

for its product, even as its sales force continued the

same selling efforts.

To affirm the district court’s ruling on the issue of lost

profits, we need only confirm that awarding lost profits

is not necessary to put Altana in the position it would

have occupied absent the breach.

If Abbott had supplied erythromycin that met all pertinent quality standards, Altana would have made

1.2 million tubes of ointment, incurred the ordinary costs

of doing so, sold these tubes, and earned its ordinary

profits. Because of the defective product, Altana incurred

the following costs: (1) direct costs (materials, etc.) of

making the destroyed product; (2) costs of destroying that

product; (3) direct costs (materials, etc.) of making the

replacement product; (4) extraordinary costs (overtime)

of making replacement product.

Abbott reimbursed Altana for the first, second, and

fourth cost categories. This leaves Altana bearing only the

direct costs of making one batch of product, the replacement batch, and pocketing the ordinary profit from this

batch. That is the same position it would have been in

if Abbott had not breached the contract. To award anything more in damages would not be compensating

Altana for “lost profits”; it would be giving Altana a

windfall.
No. 07-3364 5

To avoid this result, Altana attempts to invoke the “lost

volume seller” doctrine. See U.C.C. § 2-708(2); Davis Chem.

Corp. v. Diasonics, Inc., 826 F.2d 678, 682 (7th Cir. 1987). This

attempt is misplaced. The district court noted that the

doctrine did not apply because Altana was not the seller in

the contract between Abbott and Altana, which is the one

at issue here. Altana responds that the doctrine ought to

apply nonetheless, because Altana is not just a buyer but

a “buyer-reseller.”

As Abbott points out, the doctrine cannot be applied

blindly in the case of a so-called buyer-reseller who is

the nonbreaching party, because in such a case there is

no automatic proof of a lost sale and therefore lost profit.

When a volume seller enters into a contract with a buyer

who then breaches by repudiating the goods, that is by

definition a lost sale suffered by the nonbreaching party.

The fact that the seller goes on to sell to other parties

does not mitigate its damages because it is a volume

seller and would have made those additional sales anyway.

When the nonbreaching party is a buyer, the breach of

contract does not necessarily mean that there was a lost

sale. Lost sales must be shown separately. In the buyerreseller cases cited by Altana, the nonbreaching party

sufficiently demonstrated loss of sales. See Canusa Corp. v.

A & R Lobosco, 986 F. Supp. 723, 732 (E.D.N.Y. 1997)

(applying New York law) (holding that “Canusa has

provided substantial evidence in the form of testimony of

a rising market in the relevant period” and “Lobosco does not

contest that there was a viable market for” the product,

so “the fact that Canusa sold all the [product] it

acquired does not bar it from recovering damages for
6 No. 07-3364

the loss of the [product] it could have sold if it was obtainable”) (emphasis added).

Although Altana contends that the ointment recall

occurred during a rising market, this case is distinguishable from Canusa because Altana was not simply

obtaining as much product for resale as possible; it was

buying erythromycin with which to manufacture the

product (ointment) for which demand was allegedly

increasing. Altana admitted that it did not lose a single

sale as a result of the recall and that it did not turn away

a single willing customer. Because Altana has not shown

that it would have resorted to overtime manufacturing

during the relevant period if all of the erythromycin

it received had been satisfactory, it has not shown any

evidence of sales that it would have been in a position

to consummate had the breach not occurred. Therefore,

nothing in the “lost volume seller” doctrine supports any

additional recovery for Altana.

B

Altana also claims that the district court should have

permitted it to recover a certain portion of its overhead

costs. It argues that it could not sell the destroyed batch,

and therefore could not use those revenues to help cover

its overhead costs. The district court correctly pointed out

that such a claim requires Altana to show at least one

of two things: (1) that Altana’s overhead costs increased

as a result of the breach, or (2) that Altana suffered actual

lost profits from lost sales because of the breach, implying

that the breach caused Altana to have less revenue
No. 07-3364 7

with which to cover its overhead costs than it otherwise

would have had. As we have already pointed out, Altana

has not shown that it lost any revenues, and so it had the

same amount of revenue over which to spread its overhead costs as it would have had if the defective

erythromycin had never been delivered. As for the first

condition, Altana has submitted no evidence that its

overhead costs increased. The costs that did increase as a

result of the breach, such as wages, have already been

covered by the amount that Abbott has paid to Altana.

* * *

We AFFIRM the judgment of the district court.

9-8-08