Development Agreement Did Not Prevent ‘Partner’ from Developing Competing Product

A development agreement drafted without lawyers did not create a fiduciary duty to prevent one of the “partners” from developing a competing computer touch screen, the Seventh Circuit found.

Autotech Technology Limited Partnership and Automationdirect.com (ADC) entered into a contract for joint development and sale of a new touch screen to be called EZTouch. The agreement was written by the parties and no attorneys were involved. “This usually sets the stage for a lovely lawsuit,” the court correctly observed.

“Peppered throughout the contract was language describing the parties as ‘partners.’ However, the contract also provided that neither party had the right or responsibility ‘to assume or to create any obligations or responsibilities expressed or implied on behalf of or in the name of the other or to bind the other party in any manner whatsoever.’ Also, neither party was prohibited from developing competing products,” the court wrote.

ADC is a direct marketer that sells automation controls on the Internet. Without telling Autotech, it began to develop another touch screen with Koyo Electronics Industries Company, Limited. When the product was developed, ADC cancelled the development agreement with Autotech, who then filed suit for breach of fiduciary duties and sought an injunction to stop the sale of the competing product.

At hearing, Autotech claimed that C-More, the competing product, “was a clone of EZTouch that ADC developed based on proprietary information that ADC obtained from Autotech.” The trial court denied the injunction request finding there was no breach of fiduciary duty. In affirming the trial court, the appellate court said that Autotech “failed to offer any evidence showing a partnership or joint venture. In fact, the evidence indicated the opposite: the contract expressly prohibited joint control; there was no provision for profit sharing and loss; the parties did not file joint tax returns; and there was no evidence of an intent to be associated as a partnership or joint venture.”

The appellate court also found that the trial court was correct in excluding Autotech’s expert from testifying that the features of C-More could not be developed independently of EZTouch. The software expert based his opinion solely on advertisements concerning the product.

The court said: “At no time, however, did Martin examine the C-More software. Moreover, he never conducted tests on the product. The district court found this methodology unreliable because computer experts must do more than read advertisements. To qualify as an expert on software, an expert should, at a minimum, examine the product and software upon which the expert bases his opinion. Accordingly, we conclude that the district court properly found that Peter Martin was an unqualified expert and that his opinion was unreliable.”

Autotech Technology Limited Partnership v. Automationdirect.com et al.., Seventh Cir. No. 05-4544, December 11, 2006.