Opinion ID: 4471482
Heading Depth: 2
Heading Rank: 1

Heading: “Subject Matter”

Text: The majority recognizes that the “right to practice the ’915 patent” is common to the 2006 Covenant and the 2007 Settlement. Maj. Op. at 14. The majority, however, concludes that the two agreements do not have sufficiently related subject matter because they have “fundamental differences,” mainly, Merkle-Korff’s additional right to sue as an exclusive licensee under the 2007 Settlement. Id. at 10. I disagree. Under Illinois law, which applies here, the common right to practice the ’915 patent is sufficiently related subject matter. In Midwest Builder Distrib., Inc. v. Lord & Essex, Inc., a case cited by the majority, an Illinois court determined that merger occurred between an earlier credit information sheet and later subcontractor agreements because they had sufficiently related subject matter. 891 N.E.2d 1, 20 (Ill. App. Ct. 2007). The earlier credit information sheet provided that Midwest Builder Distribution (“Midwest”), a cabinets and appliances company, would supply its goods on credit to Lord & Essex, a home construction company. Id. at 7. Later subcontractor agreements more narrowly provided that Midwest would sell goods to Lord & Essex for homes in five subdivisions. Id. The court rejected Midwest’s overly narrow view that the subcontractor agreements’ subject matter was “focused exclusively on the specifications of the products to be delivered.” Id. at 20. The court instead found “the heart of the subject matter” to be broader—the “payment obligations” of Lord & Essex to Midwest. Id. The court also noted that the earlier credit information sheet had the same subject matter, and, thus, the later subcontractor agreements “preempted and superseded” the credit information sheet’s conflicting payment MOLON MOTOR AND COIL CORP. v. NIDEC MOTOR CORPORATION 3 obligations. Id. Here, the “heart of the subject matter” of the 2007 Settlement and the 2006 Covenant is the right to practice the ’915 patent. Thus, like in Midwest Builder, the two agreements merge. Contrary to Midwest Builder, the majority applies an unduly heightened standard for merger. Although claiming it is not dispositive, the majority notes that the absence of any reference to the 2006 Covenant in the 2007 Settlement “is an indication that Nidec did not intend to assent to its revocation.” Maj. Op. at 16. There is no legal requirement that a party explicitly list prior agreements in a merger clause. Indeed, as the district court here noted, “[p]arties may have numerous outstanding contracts, even in a relatively simple operation,” hence, requiring the contracting parties to mention prior agreements in a merger clause should “not be taken too far.” J.A. 11. Yet, the majority goes too far by implying that the 2007 Settlement should have explicitly referenced the 2006 Covenant. The majority also mistakenly believes that there was no merger because the parties failed to note that both agreements were part of the same negotiations. Maj. Op. at 14. The merger doctrine, however, turns on whether two separate agreements have related subject matter, not whether they are part of the same negotiations. Midwest Builder, 891 N.E.2d at 20 (“To determine the scope of integration of the subcontractor agreements, we must . . . determine the intended subject matter of the contracts.”). In addition, the majority’s narrow view of the merger doctrine conflicts with the plain terms of the agreement, which provides that merger encompasses prior negotiations as well as prior “agreements, representations and covenants concerning the subject matter hereof.” J.A. 35. The majority conflates the merger doctrine with the related but distinct parol evidence rule. As the majority correctly notes, once merger has occurred, the “effect” of the merger “is to ‘preclude[] evidence of understandings, not 4 MOLON MOTOR AND COIL CORP. v. NIDEC MOTOR CORPORATION reflected in a writing, reached before or at the time of its execution which would vary or modify [the integrated agreement’s] terms.’” Maj. Op. at 13 (quoting J & B Steel Contractors, Inc. v. C. Iber & Sons, Inc., 642 N.E.2d 1215, 1217 (Ill. 1994)). Yet, this “effect,” commonly referred to as the parol evidence rule, is irrelevant in this appeal. See J & B Steel Contractors, Inc., 642 N.E.2d at 1217 (noting that the “parol evidence rule” is the “rule [that] generally precludes evidence of understandings, not reflected in a writing”); Restatement (Second) of Contracts § 213 cmt. A (1981) (noting that the parol evidence rule is not “a rule of interpretation,” but instead “defines the subject matter of interpretation”). 1 Here, no party disputes that the 2007 Settlement merged with all prior dealings with related subject matter, and, thus, parol evidence will not be admissible at trial. Instead, the parties disagree as to the scope of the subject matter of the 2007 Settlement.