01-2999 Jahn, et al. v. 1-800-FLOWERS.com, Inc., et al.

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“A royalty is a risk-sharing agreement. Instead of paying Jahn up front the estimated value of the phone number, the investors who established 800-Flowers (Wisconsin) and its successors divided the risk with Jahn, so that he would be paid only to the extent the new business succeeded. Suppose they had done things otherwise – paying Jahn a lump sum and dividing the risk among investors who financed that payment. Any attempt to force Jahn to disgorge what he received in 1982 or 1986 would be retroactive. Yet this is no different, as an economic matter, from refusing to make ongoing payments. Suppose that Jahn had manufactured his own lump-sum payment by borrowing against the value of the royalty. A bank could have lent Jahn $1 million (say) in 1986, taking the royalty agreement as security for repayment. The effect on such a lender of losing its security because of a 1997 regulation would be visibly retroactive. So too if 800-Flowers (Wisconsin) had paid Jahn $1 million cash, borrowing the money from bondholders who were promised repayment out of the phone number’s future value. Defendants could not have used the 1997 regulation as a reason to stop repaying their bondholders. Or consider yet another example: suppose that Texas were to vote to go dry on January 1, 2003, and ban all imports of liquor, as sec.2 of the twenty-first amendment permits. During December 2002 a vintner delivers 1,000 cases of its best cabernet sauvignon to a merchant in Texas, on credit. January 1 arrives; no new sales could be made; would the buyer be free to ignore the debt for the wine already received? Surely Texas would not permit such a step, which would differ but little from theft. If the buyer of wine must pay even after new sales have been forbidden, then the buyer of a phone number must pay too.”

Reversed and remanded.

Appeal from the United States District Court for the Western District of Wisconsin, Crabb, J., Easterbrook, J.