Western Publishing Co., Inc. v. Mindgames, Inc.
| Citation | 995 F.Supp. 949 |
| Decision Date | 25 February 1998 |
| Docket Number | No. 94-C-998.,No. 94-C-552.,94-C-552.,94-C-998. |
| Parties | WESTERN PUBLISHING COMPANY, INC., Plaintiff, v. MINDGAMES, INC., Defendant. MINDGAMES, INC., Plaintiff, v. WESTERN PUBLISHING COMPANY, INC., Defendant. |
| Court | U.S. District Court — Eastern District of Wisconsin |
Richard A. Saldinger, Wendi Sloane, Barack, Ferrazzano, Kirschbaum & Perlman, Chicago, IL, Joshua L. Gimbel, Michael, Best & Friedrich, Milwaukee, WI, for Plaintiff.
E. Campion Kersten, Kersten & McKinnon, Milwaukee, WI, for Defendant.
DECISION AND ORDER
This consolidated case currently is set to begin trial on March 9, 1998. Before we get to trial, however, a partial summary judgment motion brought by Western Publishing Company, Inc. must be addressed.
In March 1988, G. Lawrence Blackwell III formed MindGames, Inc. to promote and sell a new board game he had created called Clever Endeavor. Clever Endeavor was MindGames's first and only product. Blackwell believed the game would reach the popularity of games like Pictionary and Trivial Pursuit. After selling 30,000 copies of the game in 1989, MindGames entered into a licensing agreement with Western and The Games Gang, Inc., under the terms of which Western and Games Gang planned to market, manufacture, promote, distribute and sell Clever Endeavor. Pursuant to the licensing agreement MindGames would receive royalties for the number of games sold and Western and Games Gang would provide a minimum amount of advertising support to the game. By its terms, the contract was governed by Arkansas law. Western has since assumed Games Gang's duties and obligations under the license and the agreement was amended to recognize that fact.
Net sales of Clever Endeavor in 1990, the first year of the agreement, totaled 165,000, but fell off dramatically starting in 1991. The parties amended the licensing agreement by allowing Western to reduce the percentage of gross sales to be used for advertising and promotion in order to keep the cost of the game down. In late 1993 Western drastically reduced prices to eliminate excess stock of the game. In 1994 Western made a bulk sale of its remaining stock of Clever Endeavor.
In May 1994 MindGames sued Western in federal court in the Eastern District of Arkansas for breach of the licensing agreement. MindGames sought $40 million in lost profits that it believed the game would have earned had it been marketed correctly, $1.2 million in "renewal fees" relating to the extension of the licensing arrangement past its original term, and other damages such as those related to the price of the bulk sale. Meanwhile, Western filed a declaratory judgment action in this district.1 The Arkansas case was transferred to this district as well and the two cases were consolidated before District Judge Robert W. Warren.
In a Decision and Order of October 11, 1996, Judge Warren granted partial summary judgment in favor of Western on the issue of the lost profits, finding that (1) MindGames was a new business and (2) under Arkansas law the "new business rule" prevents new and unestablished business ventures from collecting lost profits as damages in breach of contract or tort cases. With Judge Warren's decision MindGames lost the vast portion of its desired relief.
When I became a district judge this case was randomly transferred to me as part of my initial case load. Now pending before me is Western's second motion for partial summary judgment, which involves the last substantial chunk of damages — the renewal fees.
Paragraph 2 (emphasis added) of the licensing agreement between the parties states as follows:
The license grant shall become effective on the date this Agreement is fully-executed and continue in force until January 31, 1993. Provided that Licensees are not in breach of this Agreement, this license shall continue in force until January 31, 1994, in the event the sum of at least $1,500,000.00 (whether earned or unearned) is paid to Licensor by Licensees as a result of this Agreement prior to January 31, 1993. The license shall then automatically renew for successive one year periods provided that Licensees are not in breach of this Agreement and further provided that Licensees have paid to Licensor at least the Renewal Amount during the preceding twelve (12) month period. For each renewal term beginning on or after January 31, 1994, the Renewal Amount shall be $300,000.00, adjusted for the percentage of increase over the introductory gross sale price of $16.25 of the original version of "CLEVER ENDEAVOR" or its replacement. Any payment made to satisfy the Renewal Amount or the $1,500,000 referenced above shall be considered earned when paid and shall not be an advance payment for royalties to Licensor for the renewal term.
During the initial term of the licensing agreement (from March 30, 1990, through January 31, 1993), royalties paid to Mind-Games totaled approximately $600,000. As of January 31, 1993, Western had not been notified that it was in breach of any obligations under the license and accordingly had the right to renew the agreement. It let January 31, 1993, pass by, however, without paying MindGames the additional $900,000 required to satisfy the $1,500,000 automatic renewal amount. On February 1, 1993 MindGames did not demand that Western pay the renewal amount in order to continue its licensing arrangement with MindGames. Nor did MindGames demand the return of its inventory from Western.
During a telephone conversation on or about February 4, 1993, Blackwell and Michael Letourneau, one of Western's marketing directors, agreed to meet at an upcoming trade show in New York City known as "Toy Fair" to discuss the status of the license and whether Western was going to distribute the game for another year. During the conversation, Blackwell expressed concern with Western's future commitment to Clever Endeavor and suggested to Letourneau that Western could ease his concern by guaranteeing a minimum royalty payment to MindGames regardless of the number of games sold in the future. Blackwell specifically proposed a minimum royalty payment for the upcoming year equal to roughly one-half of the royalties received by MindGames the previous year, or about $25,000 to $30,000.
With MindGames's knowledge and without MindGames's objection, Western continued to act as the exclusive licensee of Clever Endeavor for approximately two weeks until the mid-February start of Toy Fair. At Toy Fair, Blackwell and Letourneau discussed the status of the license and Western's future marketing plans for Clever Endeavor. Although whether an agreement was actually reached during Toy Fair is hotly disputed, it is undisputed that the two men at the least negotiated modifying the license to extend the term through January 31, 1994.
After Toy Fair, Blackwell, who is not an attorney, drafted an addendum to the licensing agreement dated March 5, 1993, and sent it to Western by cover letter dated April 9, 1993. The letter stated as follows:
This amendment dated 3/5/93 sets forth the following agreements:
1. Licensor and Western extend the term of the expiration of the licensing agreement to January 31, 1994.
2. Western agrees to pay $27,500 in minimum royalties to Licensor, one half to be paid by July 31, 1993, and the remainder to be paid by January 31, 1994. All of the $27,500 is considered an advance of royalties from Clever Endeavor product shipped between February 1, 1993 and January 31, 1994.
3. Western agrees to notify Licensor by December 31, 1993, of its desire to extend the licensing agreement one more year, or to have the licensing agreement expire on January 31, 1994.
All other provisions from the licensing agreement referenced in the first paragraph will remain in effect.
Blackwell's cover letter indicates that he merely "split the difference" between the $25,000 and $30,000 in minimum royalties that he and Letourneau had discussed.
Western did not sign the addendum for quite some time. Blackwell contacted Western in June 1993 to inquire about the addendum. Still, Western did not sign. Nevertheless, the parties continued their arrangement, with Western acting as the exclusive licensee and MindGames as licensor accepting royalty checks based on the number of games sold. In practice, therefore, they continued as if the agreement had not terminated.
Paragraph 27 of the license agreement, however, states as follows:
This is the entire Agreement among the parties, it supercedes all prior agreements, discussions and negotiations, and may not be changed, modified, or canceled except in writing signed by both parties.... No waiver either express or implied, by either party, of any provision or breach of this Agreement is effective unless in a signed writing, and no waiver will be deemed a waiver of any other or later or similar or dissimilar provision or breach....
January 31, 1994, came and went without Western paying MindGames anywhere near $300,000 in royalties or any payment to keep the agreement in effect for another year. The parties, however, continued their relationship as it stood until the February 1994 Toy Fair, at which point Blackwell and representatives of Western met at least twice to discuss the status of the license and whether Western was interested in continuing to market and distribute Clever Endeavor. At the meetings, Western indicated it wanted to "clean up" the prior year's extension matter by signing an amendment, even though the time frame of that amendment had already passed.
At the conclusion of the meetings the parties failed to agree on a future licensing arrangement and Western terminated the business relationship. By letter dated February 28, 1994, Western discussed how it would proceed with disposing of its remaining inventory of the game. Also in that letter, Western indicated that its representative was...
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MindGames v. Western Publishing Co.
...to a renewal fee and that Arkansas's "new business" rule barred any recovery of lost profits. 944 F. Supp. 754 (E.D. Wis. 1996); 995 F. Supp. 949 (E.D Wis. 1998). Although the victim of a breach of contract is entitled to nominal damages, Mason v. Russenberger, 542 S.W.2d 745 (Ark. 1976); M......