Opinion ID: 604801
Heading Depth: 2
Heading Rank: 3

Heading: The Ancillary Products Agreement.

Text: 16 Production of the 104 TV episodes was completed in 1982. On January 3, 1983, an Ancillary Products Agreement (or APA) was signed by Rey and LHP, granting LHP a general right to license Curious George in spin-off (ancillary) products for a renewable term of five years. The APA defined ancillary products as: 17 All tangible goods ... excluding books, films, tapes, records, or video productions.... However, for stories already owned by [LHP] and which have been produced as 104 episodes under the license granted in the January, 1978 agreement and the November 5, 1979 revision of that agreement, [LHP] shall have the right to produce books, films, tapes, records and video productions of these episodes under this Agreement, subject to [Rey's] prior approval ... which prior approval shall not be unreasonably withheld. 18 In return for these rights, Rey was to receive one-third of the royalties on the licensed products, with certain minimum annual payments guaranteed. Rey retained the right to disapprove any product, and to propose changes which would make a disapproved product acceptable to her. The APA provided, inter alia, that Rey's approval would not be withheld unreasonably.D. The Houghton Mifflin Contract. 19 Following the execution of the Ancillary Products Agreement, LHP assigned its licensing rights to a new subsidiary, Curgeo Enterprises, which turned its attention to licensing the Curious George character in various product forms. 2 On March 27, 1984, Curgeo executed a contract with Houghton Mifflin Company to publish the 104 television film episodes in the form of a children's book series. The contract provided that Houghton Mifflin would publish at least four books, with illustrations drawn directly from the film negatives, in each year from 1984 through 1987; the contract was renewable for an additional five-year term if LHP and Rey agreed to extend the APA beyond 1987. Pursuant to the contract, Houghton Mifflin published four books each year from 1984 through 1987. 20 In 1987, LHP notified Houghton Mifflin that it had declined to extend the APA, but that Curgeo had entered into a new operating agreement which permits us to continue to act in the capacity in which we have been acting for the last five years.... [Y]ou are free to pick up your option to renew. In response, Houghton Mifflin extended its contract for the additional five-year term, publishing an additional four books in 1988 and again in 1989. It ceased publication of the book series in 1990, when Rey advised that the APA had been cancelled. 21 E. Other Product Licenses. 22 Curgeo moved aggressively to license the Curious George character in other product areas as well. Beginning in 1983, the Curious George TV episodes were licensed to Sony Corporation, which transferred the images from the television film negatives to videotape. LHP takes the position that the Sony video license was entered pursuant to the RRL; Rey claims it is subject to the APA. See supra at p. 1382. 23 In 1983, Curgeo licensed Curious George to Eden Toys Inc., which proposed to market a Curious George plush toy. In the beginning, Rey rejected Eden's proposed designs for the toy, but Eden eventually proposed several versions which were acceptable to Rey. The plush toy was marketed from 1983 to 1990, but experienced poor sales and generated less revenue than expected. Eden blamed the poor market performance on Rey's alterations to Eden's original design proposals. 24 In 1987, Curgeo received a commitment from Sears, Roebuck to market Curious George pajamas through the Sears catalog. The Sears pajama project promised high returns, but catalog deadlines necessitated immediate approval of a product design. Glen Konkle, Curgeo's agent, brought Rey a prototype pajama and a flat paper sketch of Curious George which had been proposed as the basis for the final pattern. Rey rejected the proposal, complaining that the pajama material was hard, ugly [and] bright yellow, and that the sketch of Curious George was plump and not recognizable. The catalog deadline passed and the pajama manufacturers withdrew their bids. In addition, Beach Paper Products, which had orally agreed to license Curious George for a line of paper novelties, withdrew its offer after learning that Curious George products would not receive exposure in the Sears catalog. 25 In 1988, Curgeo licensed Curious George to DLM Inc., which intended to use the Curious George character in a trilogy of educational software. Rey approved the software in principle, and production began in July 1988. In August 1988, however, DLM withdrew its plans to complete the trilogy after Rey telephoned DLM's project director and harshly criticized the design of the first software product and the accompanying manual developed by DLM.F. The Ancillary Products Agreement Renewal. 26 Due in part to these product rejections, LHP earned less money than it anticipated from ancillary products. When the APA came up for renewal in January 1988, LHP declined to exercise its option for an additional five-year term. Instead, the parties agreed to renew on a month-to-month basis, terminable by either party on one month's notice. Rey's royalty rate was increased to 50% (effective January 3, 1988), but with no guaranteed minimum payment. On April 10, 1989, Rey terminated the APA. LHP responded by advising that Curgeo would continue to administer those licenses which [remained] outstanding and report to you from time to time accordingly. LHP thereupon continued to market the Sony videos and to publish the television films in book form under the Houghton Mifflin agreements. 27 G. Curious George Goes to Court. 28 On February 8, 1991, Rey filed suit against Lafferty, Curgeo and LHP, in connection with LHP's continuing, allegedly unauthorized production of the Houghton Mifflin books and Sony videos. Rey's complaint alleged violations of federal copyright, trademark and unfair-competition statutes, breach of contract, and violations of Mass.Gen.L. ch. 93A (chapter 93A); it sought to enjoin further violations and to recover unpaid royalties on the books and videos. LHP countersued, claiming that Rey unreasonably had withheld approval of various products while the APA remained in force. The LHP complaint alleged breach of contract, interference with contractual and advantageous business relationships, and violation of chapter 93A. 29 After a four-day bench trial, the district court found for Rey on her claims for breach of contract, ruling that the book and video licenses were governed by the APA and that Rey was entitled to recover $256,327 in royalties. The court found for LHP on several LHP counterclaims, however, holding that Rey unreasonably had withheld approval of, inter alia, the Sears pajamas, the DLM software, and Eden's original plush toy design. LHP was awarded $317,000, representing lost profits and consequential damages resulting from Rey's rejection of these products. II