Autotech Technology Limited Partnership (“Autotech”) and Automationdirect.com (“ADC”) are two companies involved in the touch screen industry. Autotech manufactures computer equipment, while ADC is a direct marketer that sells automation control products through e-commerce and catalogs. On September 8, 1999, ADC and Autotech entered into a contract for the joint development and sale of a product that would later be known as the “EZTouch touch screen.” They also signed a document entitled, “This Marriage and Signing of a $100 Million Contract.” Non-lawyer employees at ADC and Autotech drafted both documents without the assistance of lawyers. In the court’s own words: “This usually sets the stage for a lovely lawsuit.”
By terms of the contract, Autotech agreed to manufacture and ship products to ADC, and ADC agreed to market them. Each party contributed $150,000 to a joint investment account as the initial co-investment. The parties were to “mutually agree upon the dispersion of funds.” Both parties agreed that this was not a “simple legal relationship.” Instead, the contract was to “more strongly define a deeper sense of commitment to the longterm success of all partners in the relationship.”
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 contract had an initial term of five and a half years and was automatically renewed for successive one-year terms unless notice was given.
Without informing Autotech, ADC began to develop a new product known as “C-More” with a different manufacturer, Koyo Electronics, Industries Company, Limited. ADC planned to introduce the new product after the contract with Autotech expired in January 2005. In June 2004, ADC gave timely notice of nonrenewal to Autotech.
On September 15, 2005, Autotech sued ADC, asserting claims for, among others, breach of fiduciary duty. Autotech contended that C-More was a clone of EZTouch that ADC developed based on proprietary information that ADC obtained from Autotech. Autotech pointed to the similarity of the display of the computer icons on C-More when compared to EZTouch.
Under Illinois law, to establish a claim for breach of fiduciary duty, Autotech must prove the existence of a fiduciary duty, breach of that duty, and damages proximately resulting from that breach. A fiduciary duty arises either as a matter of law or by special circumstances. Autotech asserted that ADC owed it fiduciary duties based on the existence of a partnership or joint venture relationship or special circumstances.
Fiduciary duties exist as a matter of law in certain relationships including partnerships and joint ventures. The burden of proving the existence of a partnership or joint venture is on the person who claims such a relationship exists. A partnership is an association of two or more persons to carry on, as co-owners, a business for profit. A joint venture is similar but relates to a single enterprise. To establish a partnership, the plaintiff must show that the parties (1) joined together to carry on a trade or venture, (2) for their common benefit, (3) with each contributing property or services to the enterprise, and (4) having a community of interest in the profits. To establish a joint venture, the plaintiff must prove (1) an express or implied agreement to carry on some enterprise, (2) a manifestation of intent by the parties to be associated as joint ventures, (3) a joint interest as shown by the contribution of property, financial resources, effort, skill or knowledge, (4) a degree of joint proprietorship or mutual right to the exercise of control over the enterprise, and (5) a provision for joint sharing of profits and losses.
Other than the text of the contracts referring to “marriage” and “partners,” 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 intent to be associated as a partnership or joint venture. On this basis, the court determined that there was no partnership or joint venture to support a fiduciary relationship because the parties had no right or ability to create joint liabilities with third persons.
The court also examined whether there were any special circumstances that could give rise to a fiduciary duty. To determine if special circumstances exist, courts consider the degree of kinship between the parties; the disparity in age, health, mental condition, education, and business experience between the parties; and the extent to which the servient party entrusted his business affairs to the dominant party and placed trust and confidence in it. Autotech asserted that a confidential relationship existed between it and ADC because ADC had exclusive control over customer relationships. The court found that this fact alone was insufficient to establish special circumstances where fiduciary duties are owed.
This case stands for at least two propositions: manufacturers and service providers can serve competitive companies provided no fiduciary relationship exists with either of the customer companies; and parties should be represented by counsel when they enter into a business relationship.