## Facts

- Intervisual Communications, Inc. marketed interactive advertising devices and used third parties for manufacturing.
- John K. Volkert, through One-Up, Inc., held patents for machine-made pop-up products and manufacturing methods.
- In 1991, One-Up granted Intervisual an exclusive license to practice and market the patented pop-up technology.
- Intervisual agreed to pay consulting compensation, advance royalties, an annual license fee, and ongoing sales-based royalties; Volkert agreed to provide consulting services.
- The agreement included a “best efforts” obligation for Intervisual to market the patented products and provisions permitting termination upon material breach.
- The parties amended the agreement twice, adjusting advance royalty payments, reducing required consulting time, and modifying royalty terms.
- Intervisual generated substantial sales of licensed products (including multi-million-dollar sales early in the relationship) while also marketing other non-Volkert products.
- Volkert became dissatisfied with Intervisual’s continued marketing of other products and later asserted Intervisual failed to use “best efforts.”
- In 1996, Volkert purported to terminate the exclusive license for alleged material breach and granted a nonexclusive license to a third party.
- Intervisual sued for declaratory relief, injunctive relief, and damages (including interference with prospective economic advantage and lost profits).
- Defendants counterclaimed for declaratory and injunctive relief and damages, alleging breach of best efforts and patent infringement premised on termination.

## Issues

1. Whether Intervisual materially breached the exclusive license, including the “best efforts” marketing obligation, justifying termination.
2. Whether Volkert’s termination and licensing of a third party breached the exclusivity grant, and what contract remedies were available.
3. Whether defendants could recover for patent infringement if Intervisual continued practicing the patents after the purported termination.
4. Whether Intervisual proved a claim for interference with prospective economic advantage and entitlement to injunctive relief.

## Decision

- The court entered declaratory judgment for Intervisual that it had not materially breached the license and that defendants’ purported termination was ineffective.
- The court found Intervisual satisfied its “best efforts” obligation based on concrete marketing activity and substantial sales, rejecting defendants’ theory that Intervisual was required to concentrate exclusively on Volkert’s products.
- The court held defendants breached the contract by attempting to terminate without grounds and by granting rights to a third party while exclusivity remained in effect.
- The court awarded Intervisual $567,667 in damages for losses caused by defendants’ wrongful conduct.
- The court denied Intervisual’s claims for interference with prospective economic advantage and injunctive relief.
- The court denied all counterclaims, including patent infringement, because Intervisual’s use of the patents remained authorized under the un-terminated license.

## Legal Principles

- A contractual “best efforts” clause in an exclusive license requires commercially reasonable, good-faith diligence measured by objective performance (e.g., marketing efforts and sales results), not the licensor’s subjective dissatisfaction.
- Absent a material breach, a licensor’s unilateral termination of an exclusive license is ineffective and may itself constitute breach of the exclusivity obligation.
- Licensed conduct is not patent infringement; an infringement claim premised on termination fails if the license remains in force.
- Contract damages may be awarded for losses attributable to wrongful termination efforts and improper licensing to competitors; separate tort recovery requires proof of the tort’s distinct elements beyond the contract breach.
- Injunctive relief may be denied where declaratory relief and monetary damages provide an adequate remedy.

## Conclusion

The court enforced the parties’ exclusive patent license by holding Intervisual complied with its best-efforts duty, invalidating defendants’ attempted termination, awarding contract damages for the resulting harm, and rejecting infringement and other counterclaims while denying Intervisual’s separate tort and injunctive requests.


Intervisual Commc’ns, Inc. v. Volkert, 975 F. Supp. 1092 (N.D. Ill. 1997)