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Ecri v. McGraw-Hill Inc.

January 20, 1987

ECRI, A NONPROFIT PENNSYLVANIA CORPORATION,
v.
MCGRAW-HILL, INC., MCGRAW-HILL INFORMATION SYSTEMS CO., AND MCGRAW HILL BOOK CO., APPELLANT



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Civil No. 86-3340)

Author: Weis

BEFORE ALDISERT, Chief Judge, and WEIS, Circuit Judge and FISHER,*fn* District Judge

Opinion OF THE COURT

WEIS, Circuit Judge.

The district court granted a preliminary injunction enforcing a contract and requiring defendant to continue publishing technical material prepared by plaintiff. Because the findings do not take into account a termination provision in the agreement, we conclude that plaintiff did not demonstrate irreparable harm. Consequently, we will vacate the preliminary injunction and remand for further proceedings.

The plaintiff ECRI is a non-profit corporation that works toward the improvement of the safety and quality of patient treatment through testing and evaluating medical equipment for the health care industry. ECRI also publishes a substantial amount of material in this field. The company employs about 117 persons, many of them health care specialists, and in 1985 had gross revenues of about $5.5 million.

The defendant McGraw-Hill is a well-established publisher that produces specialized books, periodicals, and other products for a number of professions, including those in health care. McGraw-Hill decided that a market existed for information services devoted to technology and equipment in hospital and medical laboratories. Because ECRI was already active in such an enterprise, McGraw-Hill began negotiations that culminated in an agreement in 1983.

The parties executed a ten-year contract for the production of loose-leaf subscription services. ECRI agreed to develop "Product Comparison Systems Services," and in turn, McGraw-Hill would print and market the publications. As part of the transaction, the Hospital Product Comparison System and the Laboratory Product Comparison System.

McGraw-Hill agreed to reimburse ECRI for overhead, time, materials, and other developmental costs, and in return would receive the copyright for the publications developed by ECRI under the contract. The agreement also included early termination and non-competition clauses.

The arrangement worked well until January, 1985, when the relationship deteriorated, according to the district court, as a result of a shift in McGraw-Hill management personnel. Because the newly-assigned executives lacked detailed knowledge of the company's arrangements with ECRI, they blundered into situations causing friction between the parties. A number of disputes arose, the two most serious being ECRI's alleged failure to place the McGraw-Hill copyright on the newly-developed Operating Room Management Service and ECRI's agreement to provide the Voluntary Hospitals of America with a Medical Equipment Service. The latter was called the VHA Equip, a consultation service geared to a hospital's specific request.

At the center of the controversy apparently was McGraw-Hill's belief that ECRI was diverting resources properly allocable to the contract to competing enterprises. ECRI asserted that its activities were outside of, and not in conflict with its contractual obligations. That the ECRI arrangement showed continuing losses, although anticipated at the inception of the agreement by McGraw-Hill's then controlling management, was perhaps an additional underlying and unexpressed element of conflict.

After some unproductive meetings between the parties, McGraw-Hill on May 8, 1986, announced its intention to terminate the agreement pursuant its intention to terminate the agreement pursuant to its P 8(a) because ECRI had materially breached the copyright and non-competition provisions. ECRI filed this suit on June 6, 1986, requesting a declaratory judgment, specific performance, and a preliminary injunction.

The district court granted a temporary restraining order, and after hearing six days of testimony, granted ECRI a preliminary injunction on August 19, 1986. The order prohibited McGraw-Hill from terminating the contract and required specific performance pendente lite.

The court found that the ECRI would succeed on the merits of its breach of contract claim because its independent activities were beyond the scope of the contract and protected by it. Moreover, the alleged copyright claims were without merit. The court concluded that ECRI had ...


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