NOTE: This disposition is nonprecedential. 

## United States Court of Appeals for the Federal Circuit

2009-1390 LAWLER MANUFAC TURING CO., INC., Plaintiff-Appellant,

v. BRADLEY CORPORATION, Defendant-Appellee, and KEVIN B. KLINE, Defendant.
Wayne C. Turner , Bingham McHale LLP, of Indi anapolis, Indiana, argued for plaintiff-appellant. With him on the brief was Shannon D. Landreth . Of counsel on the brief was Daniel J. Lueders , Woodard, Emhardt, Moriarty , McNett & Henry, LLP, of Indianapolis, Indiana. Barry L. Grossman , Foley & Lardner LLP, of Milwaukee, Wisconsin, argued for defendant-appellee. With him on the brief was George E. Quillin , of Washington, DC. Appealed from: United States District Cour t for the Southern District of Indiana Senior Judge Larry J. McKinneyNOTE: This disposition is nonprecedential. 

## United States Court of Appeals for the Federal Circuit

2009-1390

LAWLER MANUFACTURING CO., INC., Plaintiff-Appellant, v.

BRADLEY CORPORATION, Defendant-Appellee, and KEVIN B. KLINE, Defendant.

Appeal from the United States District Court for the Southern District of Indiana in case no. 1:98-CV-1660,S enior Judge Larry J. McKinney.

_________________________ DECIDED: January 27, 2010

__________________________ Before LOURIE, SCHALL, and BRYSON, Circuit Judges

. Opinion for the court filed by Circuit Judge SCHALL. Dissenting opinion filed by Circuit Judge BRYSON. SCHALL, Circuit Judge

. DECISION Lawler Manufacturing Co., Inc. (“Lawler”) appeals the order of the United States District Court for the Souther n District of Indiana in Lawler Mfg. Co., Inc. v. BradleyCorp. , No. 1:98-CV-1660-LJM-JMS (S .D. Ind. April 29, 2009) (“ Order ”). In the Order , the district court denied Law ler’s motion for an order termi nating the license agreement between Lawler and Bradley Cor poration (“Bradley”). We affirm

. DISCUSSION
I. Lawler sued Bradley in the Southern Dis trict of Indiana for patent infringement and misappropriation of trade secr ets. Eventually, the parties settled the suit. As part of the settlement, Lawler and Bradley entered into a license agreement. The license agreement granted Bradley the ri ght to manufacture and sell valves covered by Lawler’s patents in exchange for royalt y payments. Several provis ions of the license agreement are pertinent to the pr esent dispute. Under Section 2.4 of the agreement, Br adley was required to mark licensed products with the patent numbers of applicable Lawler patents. Se ction 5.3 of the agreement gave Lawler the right to appoint an independent certified public accounting firm to investigate and analyze Bradley’s record s and those of its affiliates to determine whether Bradley was accurately and correctly reporting the amount of royalties due under the agreement. Section 5.3 also prov ided that if the accounting firm’s investigation revealed an under payment in excess of $ 5, 000, Bradley would be liable for the costs of the investi gation. Section 5.4 of the agreement provided that if the accounting firm’s investigation found an underpayment of roya lties by Bradley and/or an affiliate, Bradley was required, within thirty days, to pay Lawler the additional royalties found to be due, plus interest. Finally, Section 8.1 of the agreement provided for termination of the agreem ent upon a party’s default. It read as follows:

2009-1390 2Any one or more of the following events shall consti tute an event of default under this License Agreement: (i) the fa ilure of Bradley or an Affiliate to pay any Royalties when due hereunder and the expiration of fifteen (15) days after receipt of a wr itten notice from Lawler requesting the payment of such Royalties; and (ii) the fa ilure of a party to perform any other obligation required to be performed hereunder, and the failure to cure within sixty (60) days after receipt of notice from the other party specifying in sufficient detail the nature of such default. Upon the occurrence of any event of default, the non-defaulting party may deliver to the defaulting party written notice of intent to termi nate, such terminati on to be effective thirty (30) days after the dat e set forth in such notice. A203. II. On December 22, 2003, Lawler sent Bradl ey a letter stating that, based upon the investigation report of the accounting fi rm KPMG, Lawler had conc luded that Bradley had underpaid royalties for the years 2001 and 2002. Bradley wrote: “Under Section 5.4 of the License Ag reement, Lawler demands that Bradley pay within thirty (30) days additional royalties of $ 22,018.41 plus interest in the amount of $ 5,911.87 for a total of $ 27,930.28.” In addition, citing section 5. 3 of the agreement, Lawle r wrote that Bradley was required to reimburse it for the costs of KPMG’s invest igation. Lawler’s letter further stated that the KPMG in vestigation had revealed that “Bradley continues not to mark its valves with all pertinent Lawler pat ent numbers.” The letter referred to this alleged conduct of Bradley as “a serious breac h of the License Agreement.” The letter concluded with the following sentence: “All of these ma tters need to be addressed and resolved or Lawler will have no choice but to resort to the default and termination provisions of the License Agreement.” By letter of counsel dated January 15, 2004, Bradley responded that it had not underpaid royalties, a nd it requested further informa tion from Lawler concerning its

2009-1390 3claim that Bradley had failed to mark its products with the numbers of Lawler’s patents. This letter was followed by further correspondence between Lawler and Bradley, culminating in an exch ange of letters in the latter part of June 2004. On June 21, 2004, Lawler sent Bradley the following two-sentenc e letter: “Enclosed is the detail you requested supporting KPMG’s bill. Lawler’ s demand made in its December 22, 2003 letter stands.” Bradley responded on June 29, 2004. Bradley’s letter stated that, as it had explained it its previous letters, it had not underpaid royalties and was not required to reimburse Lawler for the co sts of the KPMG audit for cal endar years 2001 and 2002. On September 9, 2004, Lawler sent Bradley a letter stating that Bradley’s August 16, 2004 refusal to allow Lawler’s auditor to revi ew royalties payable for 2003 constituted “an event of default under the Li cense Agreement.” On August 26, 2005, Lawler sent Bradley a letter stating that, on July 22, 2005, Lawler had provided Bradley with specific marking instructions and that subsequently, on August 17, 2005, Bradl ey had informed Lawler that it would not comply with those instructions. Lawler concluded its letter with the following stat ement: “Please be advised that Bradley’s refusal to mark . . . , despite Lawler’s specific instructions, constitutes an event of default pursuant to Se ction 2.4 of the . . . License Agreement.” Four months later, on December 20, 2005, Lawler sent Bradley a letter with the following caption: Re: Bradley’s Continued Failure To Follow Lawler’s Patent Marking Instructions; Termination of License Agreement In the December 20 letter, Lawler recited what it characterized as Bradley’s election “not to engage in the required patent marking or to correct its prior patent marking

2009-1390 4deficiencies in a manner that complies with the License Agreement.” After doing so, Lawler informed Bradley that is was terminating the license agreement: Given Bradley’s continued default under the License Agreement, Lawler hereby notifies Bradley that, pursuant to Paragraph 8.1 of the License Agreement, the License Agreement is hereby terminated by Lawler. This termination will be effective thirty da ys from the date of this letter, on January 19, 2006. Pursuant to Paragr aph 8.2, this termination will not relieve Bradley of its responsibility fo r breaches of the royalty payment and other provisions of t he License Agreement. A208-09. III. On July 15, 2008, Lawler moved in the district court for an order enforcing termination of the license agreement and determining ro yalties and damages owed to Lawler by Bradley. This motion came on the heels of the decision by this court that reversed and remanded the June 22, 2007 order of the district court denying Lawler’s earlier February 8, 2006 motion to terminate the agreement. See Lawler Mfg. Co., Inc. v. Bradley Corp. , 280 Fed. Appx. 951, 956 (Fed. Cir. 2008) (noting there was “insufficient evidence before this court to determine whether La wler properly notified Bradley of its failure to pay any royalties or of its intent to terminate the license agreement.”). As noted above, the district court denied Lawler’s mo tion on April 29, 2009. Order . In so doing, the court rejected Lawler’ s contention that it had properly notified Bradley on December 20, 2005, that it was terminating the license agreement for underpayment of royalties and that the license agreement ex pired pursuant to its terms thirty days later on January 19, 2006. Relevant to our disposition of the case, the court determined that Lawler’s December 20 letter to Bradley did not inform Bradley that

2009-1390 5Lawler was terminating the agreement for underpayment of royalties. Order at 5-6. The court thus concluded that La wler had failed to comply wit h Section 8.1 of the license agreement. Lawler has timely appealed the Order . We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1)
IV. The answer to this case lies in the sequence of events set forth above. Thereafter, on December 22, 2003, Lawler wrote Bradle y presenting a demand under Section 5.4 of the license agreem ent for the payment of royalt ies. Significantly, in the last paragraph of the letter, re ferring to the royalties iss ue and Bradley’s alleged failure to patent mark, Lawler stated: “All of these matters need to be addressed and resolved or Lawler will have no choice but to resort to the default and termination provisions of the License Agreement.” We read this stat ement as Lawler telling Bradley that it was not then terminating the licens e agreement but that if the matters noted in the letter were not resolved, Bradley would proceed to terminate the agreement under Section
8.1. Thereafter, following Lawler’s December 22, 2003 letter, there ensued correspondence between Lawler and Bradl ey concerning royalties. This correspondence continued throu gh June of 2004. On June 21, 2004, Lawler reiterated the demand made in its Dece mber 22, 2003 letter. On June 29, 2004, Bradley responded that it had not underpaid roya lties. We do not read any of the communications from Lawler during this peri od or thereafter during 2004 as signaling to Bradley that it was “resort[ing] to the default and termination provisions of the License Agreement.”

2009-1390 6The next pertinent correspondence in the record before us is Lawler’s letter to Bradley dated August 26, 2005. In that lette r, Lawler complained to Bradley about what Lawler described as Bradley’s refusal to comply with Lawler’s patent marking instructions. Subsequently, on December 20, 2005, Lawler gave Bradley notice that, pursuant to Section 8.1 of the license agree ment, it was terminating the agreement for failure to follow Lawler’s marking instructions . (This ground for termi nation was rejected by the district court in its June 22, 2007 or der, and Bradley did not appeal that ruling.) The letter made no mention of terminat ion for underpayment of royalties. We see no error in the decision of the dist rict court. In our vi ew, the critical point is that in its letter of De cember 22, 2003, Lawler expressl y stated that if the matters discussed in the letter—one of which was th e alleged underpayment of royalties—were not resolved, Lawler would exercise its default and termination rights under the license agreement. Lawler thus informed Bradley t hat if, in the future, circumstances warranted, it would proceed u nder the notice and termination pr ovisions of Section 8.1 of the agreement. As seen, however, Lawler never pursued that course with respect to the underpayment of royalties. It only did so with re spect to patent marking. Lawler argues that its December 20, 200 5 letter did give notice that it was terminating the license agreement fo r underpayment of royalties. It also argues that, in any event, in its February 8, 2006 motion for an order enforcing termination of the agreement it gave the required notice and that the agr eement was therefore terminated under Section 8.1. We do not agree with either of Lawler’s arguments. It is true that in its December 20 letter Lawler stated that its termination ac tion “[did] not relie ve Bradley of its

2009-1390 72009-1390 8 responsibility for breaches of the License Agreement.” Ho wever, this statement, to which Lawler points, was in our view a reservation of ri ghts rather than a notice of termination. Moreover, we think the stat ement underlined the fact that Lawler was only terminating the agreement based upon Bradley’s alleged failure to mark. Neither do we think Lawler fares any better with its argument based upon its February 8 motion. It is tr ue that the brief submitt ed in support of the motion referenced, among other things, Bradley’s alleged underpayment of royalties. The fact remains, however, that the February 8, 2006 motion arose from Lawler’s December 20, 2005 letter, which was limited to patent marking. We are not prepared to hold that, having stated in December of 2003 that it would proceed u nder the default and termination provisions of the license agreement if certain matters were not resolved, and then having done so solely with respect to patent marking in December of 2005, Lawler then could piggyback a notice of default termination for underpayment of royalties onto its February 2006 motion. For the forgoing reasons, the Order is affirmed. Each party shall bear its own costs.NOTE: This disposition is nonprecedential. 

## United States Court of Appeals for the Federal Circuit

2009-1390 LAWLER MANUFACTURING CO., INC., Plaintiff-Appellant,

v. BRADLEY CORPORATION, Defendant-Appellee, and KEVIN B. KLINE, Defendant.

Appeal from the United States District C ourt for the Southern District of Indiana in case no. 1:98-CV-1660, Senior Judge Larry J. McKinney.

BRYSON, Circuit Judge , dissenting. Section 8.1 of the License Agreement at issue in this case defines an event of default to include Bradley’s failure to pay royalties when due, followed by a written notice from Lawler requesting paym ent of the royalties. That section of the Agreement further provides that upon the occurrence of any event of default, “the non-defaulting party may deliver to the defaulting party wri tten notice of intent to terminate, such termination to be effective thirty (30) days a fter the date set forth in such notice.” Although Lawler’s efforts to give notice of default and notice of termination were inelegant, they were sufficient to satisf y the requirements of the agreement. The2009-1390 2 December 22, 2003, letter from Lawler advised Bradley that it had underpaid royalties (an assertion that was subsequently dete rmined to be true). Because the License Agreement merely required written notice requesting payment of roya lties in order to provide notice of default, that letter was sufficient. And even if it was not, the subsequent letter sent by Lawler on June 21, 2004, which stated that Lawler continued to press the demand made in its December 2003 letter, was surely sufficient notice of default. As for the required notic e of termination, the Dece mber 20, 2005, letter advised Bradley of Lawler’s intent to terminate the agreement, which is all that section 8.1 of the agreement required. The district court, and now this court, have found the December 20, 2005, letter insufficient because it failed to identify, with suffici ent specificity, the shortfall in royalty payments as the cause of the claimed default. But the License Agreement does not require the termination lette r to specify the caus e of the default as long as a sufficient notice of default has previously been sent. Even if specificity were required, the December 20, 2005, letter referred to Bradley’s “continued default under the License Agreement” and alluded to Bradley’s “breaches of the royalty paym ent and other provisions of t he License Agreement.” And even if that constituted insufficient notice of termination, the Febr uary 8, 2006, pleading filed by Lawler, which contained a lengthy se ction complaining of the underpayment of royalties, satisfied any requisite specif icity as to the reason for termination. For the foregoing reasons, I would rule that Lawler’s notice of default and notice of termination were sufficient to satisfy t he requirements of the License Agreement and would reverse the contrary decision of the dist rict court. I therefore respectfully dissent.