U.S. Court of Appeals for the Seventh Circuit, Komatsu Mining Corp. v. Columbia Casualty Comp., Docket No. 21-2695

 

Insurance Law & Securities

 

D&O Policies

 

Securities and State-Law Suits

 

Exclusions

 

Inadequate Consideration Claim

 

Wisconsin Law

 

 

 

 

Appeal from the United States District Court for the Eastern District of Wisconsin. No. 2:18-CV-02034

 

 

The policies in question address securities and state-law suits, which the insurers must defend at their expense. But the underwriters need not indemnify the insureds (directors and officers as well as Joy Global) for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs”. In these policies, words and phrases in boldface are defined terms. The definition of “inadequate consideration claim” is: that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate. And a “claim” is: any civil, criminal, administrative or regulatory proceeding (other than an investigation) or arbitration, mediation or any alternative dispute resolution proceeding, ...  alleging a Wrongful Act, including any appeal therefrom.

 

 

The district court, applying Wisconsin law (which the parties agree is appropriate), granted summary judgment to the insurers. 555 F. Supp. 3d 589 (E.D. Wis. 2021). The judge found that the suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price. That brought the suits within the definition of “inadequate consideration claim” and activated the exclusion from indemnification (though the insurers still had to cover defense costs). Consider why an insurance policy might exclude coverage for “inadequate consideration”. How much a company is worth depends on the market, but bidders would like to shift the cost to a third party if possible. Suppose Company X is worth $100 million. Company Y agrees to buy X for $80 million and promises that X’s shareholders will be made whole. The shareholders sue, contending that X has withheld the “fact” that the company is worth $100 million. X and Y settle that claim for $20 million and turn to their insurer for indemnity. The shareholders get their $100 million, but if this maneuver works Y completes the purchase for only $80 million, with the rest coming from insurance. Insurers use clauses about inadequate consideration to protect themselves from this moral hazard. The hypothetical in this paragraph looks a lot like the actual merger between Joy Global and Komatsu America. But an inadequate-consideration clause means that Y, not the insurer, pays the target’s full market value.

 

 

(…) The only objection to this merger was that Joy Global could and should have held out for more money, and that revealing this would have induced the investors to vote “no” (or file suit in state court) and so trigger a renegotiation of the price.

 

 

Like the district court, we recognize that one state judge’s decision supports the approach that Komatsu Mining pursues. Northrop Grumman Innovation Systems, Inc. v. Zurich American Insurance Co., 2021 Del. Super. LEXIS 92 (Feb. 2, 2021), application for interlocutory review denied, 2021 Del. LEXIS 106 (Mar. 18, 2021), finds an inadequate-consideration exclusion in a different policy inapplicable because the claim rested in part on inadequate disclosure. The judge of the Superior Court wrote that such exclusions apply only when inadequate price is the sole allegation in the underlying complaint. Any other kind of allegation (including insufficient disclosure) nullifies the exclusion, the state judge wrote.

 

 

The state judge invoked what he understood to be a rule of Delaware insurance law that all conceivable ambiguities be construed against an insurer. But as the district judge pointed out, 555 F. Supp. 3d at 595, that may be the law in Delaware but is not the law in Wisconsin. See, e.g., Danbeck v. American Family Mutual Insurance Co., 2001 WI 91 ¶10 (Sykes, J.). What’s more, the language of the exclusion in Northrop Grumman differs from the definition of “inadequate consideration claim” in Joy Global’s policies. Komatsu Mining wants us to proceed as if all D&O policies contain the same language, but they don’t, so we shouldn’t.

 

 

 

 

(U.S. Court of Appeals for the Seventh Circuit, Jan. 23, 2023, Komatsu Mining Corp. v. Columbia Casualty Comp., Docket No. 21-2695)

U.S. Court of Appeals for the Seventh Circuit, REXA, Inc. v. Mark V. Chester and MEA, Inc., Docket No. 20-2953

Assignment

Breach of an Implied Contractual Obligation (of Employee) to Assign Patent Rights (to Employer, Then to Successor Corporation)

 

May Employer’s Rights Under a Written Employment Agreement Be Assigned Without the Employee’s Consent?

 

May an Implied-In-Fact Contractual Obligation Regarding Intellectual-Property Rights Be So Assigned?

 

Successor Corporation

 

Patent Law

 

Illinois Law

 

Wisconsin Law

 

Common Law of Massachusetts (Contract Formation)

 

 

 

 

(…) REXA also challenges the district court’s grant of summary judgment to Chester on Count IV, REXA’s claim for breach of an implied-in-fact contractual obligation to assign any patent rights in connection with the patent application. In evaluating such a claim, federal courts “apply state-law principles of contract formation to determine whether an implied contract existed.” Farmers Edge Inc. v. Farmobile, LLC, 970 F.3d 1027, 1031 (8th Cir. 2020) (citing Teets v. Chromalloy Gas Turbine Corp., 83 F.3d 403, 407 (Fed. Cir. 1996)). The parties agree that REXA’s claim for breach of an implied-in-fact contract arises under the common law of Massachusetts, where Koso employed Chester.

 

 

Massachusetts law provides that if an employer “contemplates the discovery of an invention” and contracts with an employee to build it such that the employee “must have reasonably understood that such inventions as resulted from his performance of the contract should belong to the employer,” the employee has “an implied obligation to assign any patents ... for said inventions to his employer.” Nat’l Dev. Co. v. Gray, 55 N.E.2d 783, 787 (Mass. 1944) (citations omitted). Subsequent cases have extended that proposition. When an employee—even if hired in a general capacity—is specifically “directed during the course of his employment to develop or perfect new or existing machinery or processes, his employer becomes the owner of resulting inventions and may compel the assignment of patents taken in the employee’s name.” Steranko v. Inforex, Inc., 362 N.E.2d 222, 233–34 (Mass. App. Ct. 1977); see also Silica Tech, L.L.C. v. J-Fiber, GmbH, 2009 WL 2579432, at *13 (D. Mass. Aug. 19, 2009) (same).

 

 

REXA is correct that the question of whether an employer’s rights under a written employment agreement may be assigned without the employee’s consent is materially distinct from whether an implied-in-fact contractual obligation regarding intellectual-property rights may be so assigned. The concerns that weigh against permitting a successor corporation to enforce a contract for employment, a personal service, do not necessarily apply to an implied contractual right to assign intellectual property. Chester and MEA do not sufficiently account for the differences between employment and intellectual-property rights. Notably, in other cases involving similar allegations, courts and parties have assumed that successors-in-interest may enforce the type of implied-in-fact contractual right at issue here.

 

 

Yet, we decline to hold that as a matter of Massachusetts law, an implied-in-fact obligation to assign patent rights may be transferred to a successor-in-interest. After all, state courts are the “ultimate expositors” of their own laws. Smart Oil, LLC v. DW Mazel, LLC, 970 F.3d 856, 863 (7th Cir. 2020) (citation omitted). “A federal court sitting in diversity must proceed with caution in making pronouncements about state law,” especially given that such pronouncements “inherently involve a significant intrusion on the prerogative of the state courts to control that development.” Lexington Ins. Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1092 (7th Cir. 1999) (citations omitted). Here, there is no need to resolve the Massachusetts state-law issue concerning the transferability of implied-in-fact obligations to assign patents. Instead, we adjudicate REXA’s implied-in-fact contractual claim by applying a requirement common to all such claims.

 

 

As a general rule, “an individual owns the patent rights to the subject matter of which he is an inventor, even though he conceived it or reduced it to practice in the course of his employment.” Banks, 228 F.3d at 1359. But there are exceptions. In the archetypal case involving an inventor’s breach of an implied-in-fact contractual obligation, an employer may be entitled to ownership rights associated with “the inventions of employees hired to direct or to engage in inventive research.” Steranko, 362 N.E.2d at 233 (citations omitted). Also, when an employee is specifically “directed during the course of his employment to develop or perfect new or existing machinery or processes, his employer becomes the owner of resulting inventions and may compel the assignment of patents taken in the employee’s name.” Id. at 233–34. By adhering to this rule, Massachusetts follows the law of many other states. See, e.g., Teets, 83 F.3d at 408 (“Even if hired for a general purpose, an employee with the specific task of developing a device or process may cede ownership of the invention from that task to the employer.”) (applying Florida law); Goodyear Tire & Rubber Co. v. Miller, 22 F.2d 353, 356 (9th Cir. 1927) (applying federal common law).

 

 

The pertinent question is whether the employer “specifically directed” the employee to create the invention at issue. Farmers Edge, 970 F.3d at 1032; Teets, 83 F.3d at 408. “The primary factor courts consider in determining whether an employed to invent agreement exists is the specificity of the task assigned to the employee.” Farmers Edge, 970 F.3d at 1032 (quoting Skycam LLC v. Bennett, 900 F. Supp. 2d 1264, 1276 (N.D. Okla. 2012)). In Skycam, the court correctly reasoned that if the employee was not employed or specifically directed “to invent the entirety” of the system described in a claim of the patent application for which assignment is sought, the employer “is not entitled to ownership of the invention described therein.” 900 F. Supp. 2d at 1277.

 

 

 

(U.S. Court of Appeals for the Seventh Circuit, July 28, 2022, REXA, Inc. v. Mark V. Chester and MEA, Inc., Docket Nos. 20-2953, 20-3213, 21-2033)

 

 

Trade Secrets - Misappropriation of Trade Secrets

Misappropriation of Trade Secrets

 

 

Illinois Law

 

Wisconsin Law

 

 

 

 

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:17-cv-08716

 

 

REXA brought its claim for misappropriation of trade secrets under the Illinois Trade Secrets Act (“ITSA”), 765 ILL.COMP.STAT.1065/1, et seq. To prevail on such a claim, the plaintiff must demonstrate “that the information at issue was a trade secret, that it was misappropriated and that it was used in the defendant’s business.” Learning Curve Toys, Inc. v. PlayWood Toys, Inc., 342 F.3d 714, 721 (7th Cir. 2003) (citations omitted). The statute defines a trade secret as:

 

Information, including but not limited to, technical or non-technical data, a formula, pattern, compilation, program, device, method, technique, drawing, or process ... that: (1) is sufficiently secret to derive economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use; and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy or confidentiality. 765 ILL.COMP.STAT. 1065/2(d). There is also a specificity requirement inherent in a claim for misappropriation of trade secrets; a plaintiff must show “concrete secrets” rather than “broad areas of technology.” Life Spine, Inc. v. Aegis Spine, Inc., 8 F.4th 531, 540 (7th Cir. 2021) (quoting Composite Marine Propellers, Inc. v. Van Der Woude, 962 F.2d 1263, 1266 (7th Cir. 1992)). As relevant here, misappropriation under the ITSA involves the “disclosure or use of a trade secret of a person without express or implied consent” by another person who, at the time, knew or had reason to know that knowledge of the trade secret was either “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use” or “derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use.” 765 ILL.COMP.STAT. 1065/2(b). A misappropriation may also occur when a person produces “modified or even new products that are substantially derived from the trade secret of another.” Mangren Rsch. & Dev. Corp. v. Nat’l Chem. Co., 87 F.3d 937, 944 (7th Cir. 1996) (citations omitted).

 

 

Case law requires a high level of specificity when a plaintiff makes a claim for misappropriation of a trade secret. Life Spine, 8 F.4th at 540; Composite Marine, 962 F.2d at 1266. When a plaintiff presents complex or detailed descriptions of methods and processes but fails to isolate the aspects that are unknown to the trade, no trade secret has been identified. IDX Sys. Corp. v. Epic Sys. Corp., 285 F.3d 581, 583–84 (7th Cir. 2002). Our court has emphasized that “a plaintiff must do more than just identify a kind of technology and then invite the court to hunt through the details in search of items meeting the statutory definition.” Id. at 584 (citing Composite Marine, 962 F.2d at 1266). The key task for a plaintiff is to present a specific element, or combination of elements, that is unknown to the trade and was allegedly misappropriated.

 

 

(Fn. 2: Although IDX involved a claim for misappropriation of a trade secret under Wisconsin law, the statute at issue was materially identical to the ITSA, and federal courts have properly cited IDX in applying Illinois trade secret law. See, e.g., NEXT Payment Sols., Inc. v. CLEA Result Consulting, Inc., 2020 WL 2836778, at *10–11 & n.5, 15 (N.D. Ill. May 31, 2020).)

 

 

Applying that framework, we agree with Chester and MEA that REXA has failed to identify a concrete trade secret, as it must, to defeat summary judgment. IDX considered and rejected an argument similar to the one REXA advances. There, the plaintiff alleged that certain aspects of billing software which the defendants had misappropriated qualified as trade secrets. In support, the plaintiff, IDX, submitted “a 43-page description of the methods and processes underlying and the inter-relationships among various features making up IDX’s software package.” Id. at 583. Our court noted that IDX’s “tender of the complete documentation for the software leaves mysterious exactly which pieces of information are the trade secrets.” Id. at 584. Without information sufficient to separate “the trade secrets from the other information that goes into any software package,” the court could not determine “which aspects are known to the trade, and which are not.” Id. Thus, in IDX this court affirmed the district court’s grant of summary judgment to the defendants on the claims for misappropriation of trade secrets. Id. at 584, 587.

 

 

Alleged Misappropriation:

 

REXA alleges that its trade secrets were misappropriated.

 

Recall that to prove misappropriation, REXA must show the “disclosure or use of a trade secret” by Chester and MEA and that they knew the trade secret had been either “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use” or “derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use.” 765 ILL.COMP.STAT. 1065/2(b).

 

 

(…) Illinois courts “have read the preemptive language in the ITSA to cover claims that are essentially claims of trade secret misappropriation.” Spitz v. Proven Winners N. Am., LLC, 759 F.3d 724, 733 (7th Cir. 2014) (citation omitted). That is, consistent with the law of other jurisdictions, the ITSA forecloses claims “when they rest on the conduct that is said to misappropriate trade secrets.” Hecny Transp., Inc. v. Chu, 430 F.3d 402, 404–05 (7th Cir. 2005) (citations omitted). In Spitz this court held that the plaintiff’s “quasi-contract” theories of unjust enrichment and quantum meruit were preempted by the ITSA because they were essentially claims of trade secret misappropriation. 759 F.3d at 733.

 

 

 

 

(U.S. Court of Appeals for the Seventh Circuit, July 28, 2022, REXA, Inc. v. Mark V. Chester and MEA, Inc., Docket Nos. 20-2953, 20-3213, 21-2033)

 

Supreme Court of Wisconsin, Chris Hinrichs and Autovation Limited, v. The Dow Chemical Company d/b/a Dow Automotive, No. 2017AP2361

Contract Law

Torts

Economic Loss Doctrine

Fraud in the Inducement

Misrepresentation

Common Law

Advertisement

Unfair Competition

Consumer Law

Commercial Purchaser

Wisconsin Law

All subsequent references to the Wisconsin statutes are to the 2015-16 version unless otherwise indicated.

Wisconsin Stat. § 100.18(1) provides:

No person, firm, corporation or association, or agent or employee thereof, with intent to sell, distribute, increase the consumption of or in any wise dispose of any real estate, merchandise, securities, employment, service, or anything offered by such person, firm, corporation or association, or agent or employee thereof, directly or indirectly, to the public for sale, hire, use or other distribution, or with intent to induce the public in any manner to enter into any contract or obligation relating to the purchase, sale, hire, use or lease of any real estate, merchandise, securities, employment or service, shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in this state, in a newspaper, magazine or other publication, or in the form of a book, notice, handbill, poster, bill, circular, pamphlet, letter, sign, placard, card, label, or over any radio or television station, or in any other way similar or dissimilar to the foregoing, an advertisement, announcement, statement or representation of any kind to the public relating to such purchase, sale, hire, use or lease of such real estate, merchandise, securities, service or employment or to the terms or conditions thereof, which advertisement, announcement, statement or representation contains any assertion, representation or statement of fact which is untrue, deceptive or misleading.

(This section is part of Wisconsin's Deceptive Trade Practices Act, the purpose of which is "to protect consumers from untrue, deceptive or misleading representations to promote the sale of a product." Bonn v. Haubrich, 123 Wis. 2d 168, 173, 366 N.W.2d 503 (Ct. App. 1985). It is also intended "to deter sellers from making false and misleading representations in order to protect the public." Novell v. Migliaccio, 2008 WI 44, ¶30, 309 Wis. 2d 132, 749 N.W.2d 544).

Hinrichs developed a product called JeeTops, which he manufactures and installs through his company, Autovation Limited. He obtained a patent for the JeeTops in 2010.

JeeTops are acrylic skylights installed aftermarket in the roofs of Jeep Wrangler vehicles equipped with a certain type of hardtop. The complaint describes the JeeTops as giving "front- seat passengers unparalleled views of the outdoors" and rear-seat passengers "unprecedented panoramic views." After installation, "the cumulative effect is to give the Wrangler's occupants the sensation of directly experiencing the environment through which they are driving."

Installation of JeeTops is accomplished using an adhesive manufactured by Dow. The adhesive performs a dual role, attaching the JeeTops to the existing Jeep and maintaining a watertight seal.

(…) Hinrichs relayed to Dow that customers were experiencing cracks in their JeeTops panels.

In examining Hinrichs' common law claims, we conclude that the "fraud in the inducement" exception to the economic loss doctrine does not apply to allow Hinrichs' common law claims to go forward because the alleged misrepresentation is related to the quality and characteristics of the product in question and is thus not extraneous to the contract. We further conclude that the "other property" exception to the economic loss doctrine does not apply to allow Hinrichs' common law claims to go forward because the JeeTops and adhesive are components of an integrated system.

The economic loss doctrine is a judicially created doctrine with three primary purposes. Van Lare v. Vogt, Inc., 2004 WI 110, ¶17, 274 Wis. 2d 631, 683 N.W.2d 46 (citing Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403, 573 N.W.2d 842 (1998)). First, the doctrine exists to "maintain the fundamental distinction between tort law and contract law . . . ." Id. Second, it protects "commercial parties' freedom to allocate economic risk by contract . . . ." Id. Third, the doctrine encourages "the party best situated to assess the risk of economic loss, the commercial purchaser, to assume, allocate, or insure against that risk." Id. The doctrine has been part of our jurisprudence since it was first adopted by this court in Sunnyslope Grading, Inc. v. Miller, Bradford and Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989).

We have described the economic loss doctrine as holding that "a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories . . . ." Van Lare, 274 Wis. 2d 631, ¶18. "Economic loss" in the context of the doctrine is defined as "the loss in a product's value which occurs because the product is 'inferior in quality and does not work for the general purposes for which it was manufactured and sold.'" Insurance Co. of N. Am., 276 Wis. 2d 361, ¶23 (quoting Wausau Tile, Inc. v. Cty. Concrete Corp., 226 Wis. 2d 235, 246, 593 N.W.2d 445 (1999)). Both direct and consequential economic loss are encompassed within this definition. Daanen & Janssen, Inc., 216 Wis. 2d at 401.

The upshot of the economic loss doctrine is that it "requires transacting parties in Wisconsin to pursue only their contractual remedies when asserting an economic loss claim, in order to preserve the distinction between contract and tort." Ins. Co. of N. Am., 276 Wis. 2d 361, ¶24 (quoting Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶34, 262 Wis. 2d 32, 662 N.W.2d 652).

It "precludes parties under certain circumstances from eschewing the more limited contract remedies and seeking tort remedies." Id.

We have recognized several exceptions to the economic loss doctrine, two of which are at issue here. See John J. Laubmeier, Demystifying Wisconsin's Economic Loss Doctrine, 2005 Wis. L. Rev. 225, 228 (2005). First, we address the "fraud in the inducement" exception. Subsequently, we turn to the "other property" exception.

This court has recognized "a narrow fraud in the inducement exception" to the economic loss doctrine. Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, ¶42, 283 Wis. 2d 555, 699 N.W.2d 205. We have emphasized the limited nature of this exception. See id.

Fraud in the inducement presents a special situation where parties to a contract appear to negotiate freely— —which normally would constitute grounds for invoking the economic loss doctrine——but where in fact the ability of one party to negotiate fair terms and make an informed decision is undermined by the other party's fraudulent behavior.

Huron Tool and Eng'g Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541, 545 (Mich. Ct. App. 1995).

Pursuant to this exception, "a fraud in the inducement claim is not barred by the economic loss doctrine where the fraud is extraneous to, rather than interwoven with, the contract." Kaloti Enters., 283 Wis. 2d 555, ¶42 (citations and internal quotation omitted). To invoke the "fraud in the inducement" exception, a plaintiff must demonstrate three elements: (1) that the defendant engaged in an intentional misrepresentation; (2) that the misrepresentation occurred before the contract was formed; and (3) that the alleged misrepresentation was extraneous to the contract. Id. Stating the third element differently, the misrepresentation must "concern matters whose risk and responsibility did not relate to the quality or the characteristics of the goods for which the parties contracted or otherwise involved performance of the contract." Id.

A misrepresentation relates to the quality or characteristics of the goods sold if it is expressly dealt with in the contract's terms. Id., ¶43. If not addressed explicitly in the contract, a misrepresentation is still related to the quality or characteristics of the goods sold, precluding the application of the "fraud in the inducement" exception, if the misrepresentation informs the reasonable expectations of the parties to the risk of loss in the event the goods purchased did not meet the purchaser's expectations. Id.

Hinrichs urges us to apply the "fraud in the inducement" exception here to preclude application of the economic loss doctrine. He contends that his prior purchases of adhesive from Dow do not preclude a claim where a subsequent purchase is induced by a misrepresentation.

We disagree with Hinrichs. His argument ignores a fatal shortcoming: that the alleged misrepresentation regarding the effectiveness of Dow's adhesive is related to the quality and characteristics of the product in question and is thus not extraneous to the contract. As the court of appeals correctly stated, "whether the Dow adhesive was properly functioning on the acrylic used in JeeTops directly relates to its quality and characteristics——in particular its ability to maintain a water- tight seal, which was one of its main functions." Hinrichs, No. 2017AP2361, unpublished slip op., ¶14. Hinrichs therefore cannot fulfill the third necessary element for application of the "fraud in the inducement" exception.

Therefore, we conclude that the "fraud in the inducement" exception to the economic loss doctrine does not apply to allow Hinrichs' common law misrepresentation claims to go forward because the alleged misrepresentation is related to the quality and characteristics of the product in question and is thus not extraneous to the contract.

We turn now to the "other property" exception to the economic loss doctrine. Pursuant to this exception, the economic loss doctrine "does not bar a commercial purchaser's claims based on personal injury or damage to property other than the product, or economic loss claims that are alleged in combination with noneconomic losses." Daanen & Janssen, Inc., 216 Wis. 2d at 402; Grams v. Milk Products, Inc., 2005 WI 112, ¶24, 283 Wis. 2d 511, 699 N.W.2d 167. In other words, the economic loss doctrine bars "the recovery of purely economic losses in consumer transactions through tort remedies where the only damage is to the product purchased by the consumer." State Farm Fire and Cas. Co. v. Hague Quality Water, Int'l, 2013 WI App 10, ¶6, 345 Wis. 2d 741, 826 N.W.2d 412 (citing State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 341, 348, 592 N.W.2d 201 (1999)).

To determine whether the "other property" exception applies, we apply a two part test. Id. First, we consider whether the defective product and the damaged property are part of an "integrated system." Id., ¶7. If the product and damaged property are part of such a system, then any damage to that property is considered to be damage to the product itself. Id. That is, "once a part becomes integrated into a completed product or system, the entire product or system ceases to be 'other property' for purposes of the economic loss doctrine." Selzer v. Brunsell Bros., Ltd., 2002 WI App 232, ¶38, 257 Wis. 2d 809, 652 N.W.2d 806.

If the damaged property and the defective product are not part of an integrated system, we then apply the second part of the "other property" test——the "disappointed expectations" test. State Farm Fire and Cas. Co., 345 Wis. 2d 741, ¶7. In doing so, we focus on the product's expected function and whether the purchaser should have foreseen that the product could cause the damage at issue. Id. When claimed damages are merely the result of disappointed expectations of a product's performance, the exception will not apply and the economic loss doctrine will bar recovery in tort. Grams, 283 Wis. 2d 511, ¶3.

The court of appeals here concluded that the JeeTops and the adhesive were components of an integrated system. Hinrichs, No. 2017AP2361, unpublished slip op., ¶15. It reasoned that "they became components of an integrated system once the adhesive was applied to bond the JeeTops to the motor vehicle. At that point, they were integral parts of a greater whole and did not serve an independent purpose." Id. Accordingly, the court of appeals concluded that the "other property" exception did not apply. Id.

We agree with the court of appeals that the JeeTops and the adhesive formed an integrated system.

Wis. 2d 235, provides a useful analogy. In that case, Wausau Tile purchased cement from Medusa Corporation for use in manufacturing concrete paving blocks. Id. at 241. Wausau Tile claimed that the concrete it received from Medusa was defective and brought claims against Medusa sounding in both contract and tort. Id. at 242.

This court determined that the economic loss doctrine barred Wausau Tile's tort claims. Id. at 241. Rejecting Wausau Tile's argument that the "other property" exception applies, this court reasoned that "the pavers were integrated systems comprised of several component materials, including Medusa's cement." Id. at 251. "Various substances incorporated into finished products constitute integral components of those products." Id.

Similarly here, when the adhesive joins a JeeTops to the body of a Jeep, it creates an integrated system. An adhesive does not function on its own——its basic purpose is to integrate two parts by adhering them together. Like the court of appeals did, we see no relevant difference between the products here and others that courts have determined to be components of an integrated system, such as the cement in a concrete paving block in Wausau Tile, a window in a house, a gear in a printing press, a generator connected to a turbine, and a drive system in a helicopter.

(…) Wisconsin Stat. § 100.18 created a new cause of action, providing "protection and remedies for false advertising that do not exist at common law." Kailin, 252 Wis. 2d 676, ¶42; see also K & S Tool & Die Corp. v. Perfection Mach. Sales, Inc., 2007 WI 70, ¶36, 301 Wis. 2d 109, 732 N.W.2d 792 (determining that "the legislature created a distinct cause of action" pursuant to § 100.18). As the Kailin court stated, the policies underlying the economic loss doctrine— —the allocation of risk and the distinction between tort and contract law——are irrelevant to the legislature's choice to provide a purely statutory cause of action and remedy by way of § 100.18. Kailin, 252 Wis. 2d 676, ¶42. A common law restriction like the economic loss doctrine therefore does not apply to Hinrichs' statutory claim.

Therefore, we conclude that the economic loss doctrine does not serve as a bar to claims made under Wis. Stat. § 100.18.

Following Automatic Merchandisers, Wisconsin courts have consistently applied the "particular relationship" test in determining whether a plaintiff is a member of "the public" for purposes of Wis. Stat. § 100.18(1). See, e.g., K & S Tool & Die Corp., 301 Wis. 2d 109, ¶27; Kailin, 252 Wis. 2d 676, ¶44. The test provides that "a plaintiff remains a member of 'the public' unless a particular relationship exists between him or her and the defendant." K & S Tool & Die Corp., 301 Wis. 2d 109, ¶27. Whether such a relationship exists is a question of fact that depends on the peculiar facts and circumstances of the case. Id., ¶¶27, 30 (citing Cawker v. Meyer, 147 Wis. 320, 326, 133 N.W. 157 (1911)).

(…) We reaffirm that one person can be "the public" for purposes of Wis. Stat. § 100.18(1) and decline Dow's invitation to overrule Automatic Merchandisers.

(…) Whether Hinrichs and Dow were in a "particular relationship" so as to remove Hinrichs from the realm of "the public" pursuant to Wis. Stat. § 100.18(1) remains an open question to be determined by the circuit court after further discovery.

Secondary sources: John S. Greene, Navigating Wisconsin's Consumer Protection System, 90 Wis. Law. 22, 24 (Sept. 2017); see also James D. Jeffries, Protection for Consumers Against Unfair and Deceptive Business Practices in Wisconsin, 57 Marq. L. Rev. 559, 595-605 (1974); Mark R. Hinkston, Protecting Consumers in the Modern Age: Wisconsin's Deceptive Trade Practices Act, 81 Wis. Law. 14, 16 (Oct. 2008).

(Supreme Court of Wisconsin, January 9, 2020, Chris Hinrichs and Autovation Limited, v. The Dow Chemical Company d/b/a Dow Automotive, No. 2017AP2361, Review of Decision of the Court of Appeals, Reported at 386 Wis. 2d 351, 927 N.W.2d 156)