60 F.3d 27 (2nd Cir. 1995), 1659, Tom Doherty Associates, Inc. v. Saban Entertainment, Inc.

Docket Nº:1659, Docket 94-9310.
Citation:60 F.3d 27
Party Name:35 U.S.P.Q.2d 1537, TOM DOHERTY ASSOCIATES, INC. d/b/a Tor Books, Plaintiff-Appellee, v. SABAN ENTERTAINMENT, INC. and Saban International N.V., Defendants-Appellants.
Case Date:July 12, 1995
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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60 F.3d 27 (2nd Cir. 1995)

35 U.S.P.Q.2d 1537,

TOM DOHERTY ASSOCIATES, INC. d/b/a Tor Books, Plaintiff-Appellee,

v.

SABAN ENTERTAINMENT, INC. and Saban International N.V.,

Defendants-Appellants.

No. 1659, Docket 94-9310.

United States Court of Appeals, Second Circuit

July 12, 1995

Argued Jan. 25, 1995.

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[Copyrighted Material Omitted]

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Max Gitter, New York City (Aidan Synnott, Lynn B. Oberlander, Paul, Weiss, Rifkind, Wharton & Garrison, of counsel), for defendants-appellants.

Gregory L. Diskant, New York City (Mary Mulligan, Patterson, Belknap, Webb & Tyler, of counsel), for plaintiff-appellee.

Before: LUMBARD, VAN GRAAFEILAND, and WINTER, Circuit Judges.

WINTER, Circuit Judge:

Saban Entertainment, Inc. is a Delaware corporation with its principal place of business in Burbank, California. Saban International N.V. is a Netherlands Antilles corporation. Saban Entertainment, Inc. and Saban International N.V. ("Saban") appeal from a preliminary injunction issued by Judge McKenna in favor of TOR Books ("TOR") in TOR's breach of contract action. The appeal raises important issues concerning preliminary injunctive relief. In particular, it raises questions concerning when a preliminary injunction alters, rather than maintains, existing conditions; what standard regarding "likelihood of success" a plaintiff must meet to obtain an order that alters the status quo; and under what circumstances a lost opportunity to market a product constitutes irreparable harm. We affirm.

BACKGROUND

Saban is a creator, producer, and distributor of video entertainment for children. Its library of properties in 1991 included more than 1,200 titles of children's television programming. Saban decided that it wanted to feature its characters and stories in children's

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books and approached a number of publishers, including TOR, a wholly owned subsidiary of St. Martin's Press. TOR, a New York corporation, is a major publisher of fantasy and science fiction books for adults. TOR is only a minor publisher of children's books. However, it was, and is, eager to expand its role in this specialized area of publishing and viewed a relationship with Saban as a means of doing so.

  1. The Negotiations and Agreement

    The ensuing negotiations between TOR and Saban concerned both TOR's immediate publication of six titles and the contours of a long-term relationship between the parties. The present dispute concerns that long-term relationship and TOR's right to publish additional children's books based on Saban properties. However, because Saban claims that the negotiations and agreement as to the first six titles informs the interpretation of provisions governing additional publications, we will review the negotiations and view the contract as a whole.

    The negotiations principally involved four individuals: L. Spencer Humphrey, a consultant for Saban who initially suggested TOR as a potential publisher; William Josey, Saban's general counsel; Kathleen Doherty, director of educational sales at TOR and the individual in charge of its children's book publishing; and Lotte Meister, associate general counsel for both TOR and its corporate parent, St. Martin's Press. Neither Josey nor Meister, the two attorneys involved, had ever previously negotiated a licensing agreement for publication rights to children's books.

    Children's books are published in a variety of formats, shapes, sizes, and reading levels, each designed to appeal to different segments of the juvenile market. More popular properties are licensed in several formats, while less popular properties may be published in a single format. Where multiple formats are used, it is not uncommon for an author to license rights to more than one publisher, with each publishing only one or two formats.

    One format of relevance to the present dispute is the so-called "8 X 8," a term of art for a children's book that measures 8"' X 8"' and includes many illustrations and limited text. In seeking a publisher, Saban had circulated a brochure that was accompanied by a sample that was an 8 X 8 entitled The Rollicking Adventures of Robin Hood.

    The negotiating process involved the marking up of a TOR form contract. The final contract ("the Agreement") thus contains numerous black-outs, wholesale deletions, amendments typed in the margin, and riders. The contract authorized immediate publication by TOR of six books based on Saban properties, and the Agreement's terms primarily concern the rights and obligations of the parties with respect to these six titles. 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 [TOR] acting in its sole discretion."

    The Agreement also gives TOR exclusive English language book publication and subsidiary rights to the "Work," meaning the six Saban videos or cartoon series. Under Paragraph 9(e), Saban thus agrees not to "authorize ... the publication in any printed form of a novelization, adaptation or other version of either the Work or a work in another medium based on the Work." However, under a rider to Paragraph 9(e), Saban reserves 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." Redundantly, Paragraph 21 forbids Saban 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))".

    The present dispute arose over the portion of the Agreement that contemplates the possibility of TOR's future publication of additional books based on Saban properties. The Agreement replaced TOR's standard option paragraph--Paragraph 16--with a rider (the "Rider") that, both parties agree, was the subject of negotiation. Because of its importance,

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    we set forth its full text in the margin. 1

    In essence, the Rider gives TOR a right of first refusal over the publication of "additional juvenile story books based on" Saban properties. If TOR chooses, after an invitation from Saban, to publish "a juvenile story book of approximately 2,500 words," the terms of the Agreement, including those permitting publication in any format (Paragraph 13), and granting exclusive rights to characters and stories (Paragraphs 9(e) (with rider) and 21), govern that publication. The "additional juvenile story books" to be published by TOR would, in short, become "the Work" under the Agreement. The record indicates that the term "juvenile picture books" was originally used in the Rider. This term was replaced by "additional juvenile story books" in a draft of the Rider submitted by Josey, Saban's general counsel.

  2. Post-Agreement Events

    After execution of the Agreement, TOR commenced publication of the books based on the initial six titles--Thumbelina, Aladdin, Noozles, Littl' Bits, The Nutcracker, and Heidi. The format for each book is 8 X 8, and the text of each of the six books amounts to approximately 1000 words. (Although the Agreement specifies approximately 2,500 words, this is not a subject of dispute among the parties.)

    Like most parties to a commercial contract, Saban and TOR had substantial mutual interests that bound the relationship. Saban was a moderately successful children's television programmer that saw a chance for expansion in forming a relationship with a publisher. TOR saw such a relationship as a means of becoming a major publisher of children's books, particularly if Saban characters increased in popularity. As often happens, an unexpected event altered the mutual interests that bound the relationship. That event was the conception and development of the Mighty Morphin Power Rangers (the "Power Rangers").

    After execution of the Agreement, the Power Rangers, a Saban property introduced in a Saturday morning television program, became a huge success--almost an obsession--with children. According to the record (there is no danger of this panel resorting to personal experience), an entire generation is caught up in the Power Rangers' unique ability to "morph"--to transform themselves from normal teenagers into superheroes who fight evil aliens. Saban's ownership of the Power Rangers clearly ended any need it had for TOR's publication and promotion of books based on its characters. Moreover, the exclusive rights provisions were now an albatross rather than a necessary inducement to get TOR to publish books based on Saban characters. Saban now had a property that was urgently sought after by companies in all fields of children's merchandising, including children's book publishing.

    Before licensing any publishing rights to the Power Rangers, Saban's director of licensing, Debi Young, reviewed Saban's existing agreements, including the Agreement with TOR. Young discussed the TOR Agreement with Josey. They claim to have interpreted the Agreement to cover only children's books in the same format as those

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    TOR was already publishing under the Agreement, namely 8 X 8. Saban never gave TOR an opportunity to publish Power Rangers books pursuant to the Rider, an act that would have triggered the exclusive rights provisions of the Agreement.

    Saban thereafter entered into a number of licensing agreements relating to Power Rangers books with other publishing houses. Today, children's books licensed by Saban and featuring the Power Rangers are available in a variety of formats, including: a board book (consisting of rigid cardboard pages with illustrations and very little text), a fold-out book, a scrap...

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