Partial success for Kyocera in polysilicon lawsuit against Hemlock

The federal U.S. Court of Appeals for the Sixth Circuit has ruled that the take-or-pay provision in the long-term supply contracts of Michigan-based polysilicon manufacturer Hemlock Semiconductor with its Japanese customer Kyocera is an unlawful penalty.

In its decision, the three-judge panel cites Michigan law, according to which damages can be liquidated, “but only at an amount which is reasonable in the light of the anticipated or actual harm caused by the breach.”

The panel argues that this is not the case in the contract between Hemlock and Kyocera: “Under the pay option, Hemlock can get all the money promised under the contract but do nothing, thereby making a greater profit than if the parties performed as envisioned.” Hence, the court “cannot say that requiring Kyocera to pay full price for nothing is a reasonable measure of damages.”

Although the panel has not followed Kyocera’s claims on two other disputed points, the decision appears as an important partial success for Kyocera. The case has been remanded to the Eastern Michigan District Court for further proceedings.

The court decision is available in our collection of PDF Articles.