Tom Doherty Associates, Inc. v. Saban Entertainment, Inc.

60 F.3d 27 (1995)

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Nature of the Case

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Facts

D is a creator, producer, and distributor of video entertainment for children. D approached a number of publishers, including TOR, a wholly owned subsidiary of St. Martin's Press. TOR is only a minor publisher of children's books, but it was eager to expand its role in this specialized area of publishing and viewed a relationship with D as a means of doing so. The negotiating process involved the marking up of a TOR form contract. The final contract ('the Agreement') contains numerous black-outs, wholesale deletions, amendments typed in the margin, and riders. The contract authorized immediate publication by P of six books. The Agreement does not use the term 8 x 8, nor does it prescribe a particular format for the six books other than that they will, according to Paragraph 3(a), contain 'approximately 2500 words.' Indeed, Paragraph 13 provides that publication of the six works shall be 'in a format determined by P acting in its sole discretion.' TOR was given exclusive English language book publication and subsidiary rights to the 'Work,' meaning the six d videos or cartoon series. TOR agreed not to license anyone else for those properties, but under a rider to Paragraph 9(e), D reserved the right to publish or license the publishing rights to 'comic books, coloring books and activity books based on the characters and/or stories on which the Work is based.' Another paragraph forbids D from authorizing the publication of any 'book based on any of the characters or stories contained in the Work (except as provided in Rider to Paragraph 9(e))'. TOR was also given a first right of refusal on additional properties that D may want to license and had a 30 day period to decide. Otherwise, on day 31 D was free to do as it pleased. P published the first six books, and things were going great until D created the Mighty Morphin Power Rangers. The Power Rangers became a huge success -- almost an obsession -- with children. Everybody wanted a piece of the Power Rangers, and the TOR -D agreement was now an albatross around D's neck. D never gave TOR an opportunity to publish Power Rangers books. D entered into a number of licensing agreements relating to Power Rangers books with other publishing houses. Doherty, who is not a lawyer, first learned of D's property in the Power Rangers and others publishing books featuring them. She appears not to have alerted TOR. P claims not to have known specifically that D had licensed another publisher for the Power Rangers until April when she learned that Grosset & Dunlap was preparing to publish a Power Rangers book. It was two to three weeks after this, She began attempting to contact D about licensing the Power Rangers under TOR's Agreement. Her calls were not returned, and her inquiries were left unanswered. In July, D contacted St. Martin's, TOR's parent company, seeking to renegotiate the Agreement. TOR eventually claimed that D had violated the Agreement, and negotiations failed to resolve the dispute. TOR sued D for breach of contract and moved for a preliminary injunction. The district court found that TOR demonstrated it would suffer irreparable harm unless D was ordered to license to it publishing rights to a Power Rangers book and that TOR had demonstrated a likelihood of success on the merits. The district court observed that certain terms of the Agreement favored a broad reading of 'juvenile story books.' The district court emphasized Paragraph 13, which states that 'publication will be in a format determined by [TOR] acting in its sole discretion.' The court also relied upon Paragraph 9(e) and its rider, which preserves for D the 'right to publish and authorize the publication of comic books, coloring books and activity books based on the characters and/or stories on which the work is based.' The district court concluded that D intended to grant broad book publishing rights reserving only the rights with regard to comic, coloring, and activity books. The court concluded that, under the Agreement, D was licensing character or story rights rather than a right to publish in only one format. The district court discounted Doherty's conduct because she was not a lawyer, may not have appreciated the scope of the term 'juvenile story books,' or may simply have forgotten the specific terms of the Agreement. The district court determined that the extrinsic evidence was inconclusive and gave the term 'juvenile story books' its ordinary meaning. The district court ordered D to enforce the agreement. D appealed.