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

Heading: The Junk Products Counterclaim.

Text: 69 We next turn to the LHP counterclaim that Rey breached the APA by wrongfully withholding approval of ancillary products she considered junky. 9 The district court agreed with LHP, holding that 70 [The Ancillary Products Agreement] clearly contemplated the exploitation of Curious George.... Based on the testimony of Ms. Stoebenau and Mr. Konkle, I find that means that there may be produced with the character, junk products, junky products.... Plaintiff [had] the right ... to insist on ... an honest and good depiction of the character. She did not have the right to disapprove the quality of the product.... She had [the] right to disapprove an incorrect, improper, bad depiction of Curious George. 71 (Emphasis added.) The court further found: 72 [A]lthough Mrs. Rey unquestionably approved many products, I find that she improperly disapproved the Sears project for the reasons just outlined; that she was unreasonable with respect to the Eden project, and that she was so rude to Ms. Craighead as to abort the second and perhaps later trilogies of the software. 73 (Emphasis added.) After careful consideration, we must agree with Rey that the district court misapplied the APA. 74 The product-approval procedure under the APA required that: 75 LHP will submit product or other information sufficient to describe the product to you for prior approval. When a product is submitted ... we will wait two weeks before proceeding. If we do not receive any disapproval of the product from you within two weeks we are entitled to presume that you approve of the product. If you do disapprove of any product, you will, if feasible, suggest such changes to LHP as may render the product acceptable to you, or, if you cannot make such feasible suggestions, you may refuse to approve the product. Product approval will not be unreasonably withheld. 76 The term product is not defined in the APA. It is black letter law, however, that where the words of an agreement are plain and free from ambiguity, they must be construed in their ordinary and usual sense, Boston Edison Corp. v. FERC, 856 F.2d 361, 365 (1st Cir.1988), and, as we have noted in another context, the word 'product,' taken in its ordinary and usual sense, simply means 'something produced.'  See K Mart, 892 F.2d at 1085 (quoting Webster's Third New International Dictionary 1810 (1981)). See also id. at 1084 (where possible, words should be given their natural meaning, consistent with the tenor of contractual terms); id. at 1085 ([I]t is sufficient [to avoid ambiguity] if the language employed is such that a reasonable person, reading the document as a whole and in realistic context, clearly points toward a readily ascertainable meaning). Considered in context, we think the ordinary and usual meaning of the broad term product plainly indicates the parties' mutual intention that each article bearing the likeness of Curious George--not merely the likeness itself--be approved by Rey. 77 By contrast, the narrow interpretation urged by LHP would convert the term product into a mere synonym for the Curious George mark. Nowhere does the APA intimate that the parties contemplated that the term product was to be given so restrictive an interpretation. Indeed, elsewhere the APA plainly precludes the narrow interpretation urged by LHP by expressly distinguishing between the mark and the product with which it is used. See APA p. 3 ([LHP] will not sell or authorize the sale or distribution of any product on or in connection with which 'Curious George' is used ...) (emphasis added); id. at 3-4 (referring to separate approval procedure for apparel products ). 10 As the APA is unambiguous in this regard, the trial testimony of LHP's witnesses, Cheryl Stoebenau and Glen Konkle, need not be considered. Extrinsic evidence may not be utilized to contradict the unambiguous terms of a written agreement. See LTX Corp., 926 F.2d at 1263-64; Triple-A Baseball Club Assoc. v. Northeastern Baseball, Inc., 832 F.2d 214, 221 (1st Cir.1987), cert. denied, 485 U.S. 935, 108 S.Ct. 1111, 99 L.Ed.2d 272 (1988). 78 Even though the APA's product approval clause did not preclude Rey from rejecting products based on their junky quality, it did obligate her to act reasonably in doing so. The duty to act reasonably, like a duty to employ best efforts, or to act in good faith, is not reducible to a fixed formula[, and] varies with the facts and the field of law involved. See Triple-A Baseball Club, 832 F.2d at 225 (discussing contractual best efforts clause); see generally Robert S. Summers, Good Faith in General Contract Law and the Sales Provisions of the Uniform Commercial Code, 54 Va.L.Rev. 195, 201, 204-07 (1968) (discussing good faith as phrase without general meaning, incapable of precise definition). In a somewhat different context, the Massachusetts courts have interpreted contractual clauses preventing the unreasonable withholding of approval of commercial sublessees, as imposing a duty to act in accordance with usual standards of reasonableness. See Nassif v. Boston & M.R. Co., 340 Mass. 557, 564, 165 N.E.2d 397, 401-02 (1966); Worcester-Tatnuck Square CVS, Inc. v. Kaplan, 33 Mass.App.Ct. 499, 601 N.E.2d 485 (1992). It falls to us to define usual standards of reasonableness, in the present context, in a way which accords with the contracting parties' intent, yet avoids rendering the reasonableness standard either purely illusory or duplicative of more particular contractual terms. 79 We think the APA's proscription of unreasonable product disapproval required, at a minimum, that Rey articulate some material reason, subjective or otherwise, for disapproving a product. That is to say, Rey could not withhold product approval without ascribing a reason, nor for reasons immaterial to the Curious George mark, its proposed use or commercial potential, or unrelated to Rey's artistic and reputational identification with the mark and ancillary products. Moreover, assuming there existed some material ground for withholding product approval, it would need to be communicated, consistent with contractual specifications, within a reasonable time and in a reasonable manner, i.e., in a manner which makes it possible for [the licensee] to rework the [product] in order to meet ... approval. See Zim, 573 F.2d at 1324. Finally, the reason for withholding product approval could not be so preclusive as to frustrate the fundamental contractual assumptions on which the APA was formed. In the context of this case, for example, Rey could not impose approval standards which would effectively eliminate all potential for profitable use of the Curious George property; the parties' mutual assent, in the APA, that Rey would be entitled to minimum royalty payments, plainly implied a mutual understanding that some licensing of the Curious George character would be acceptable, in order to enable sales from which royalties might be generated. Cf. Steven J. Burton, Breach of Contract and the Common Law Duty to Perform in Good Faith, 94 Harv.L.Rev. 369, 403 (1980) (discretion in performance may be exercised legitimately [only] for the purposes reasonably contemplated by the parties). 80 The district court supportably found that Rey approved many products, including the original film series, the Houghton Mifflin books, the Sony videocassettes, the first series of DLM software, and the Eden plush toys (as modified). In addition, Rey testified, without contradiction, that she had approved children's sweatshirts, film strips, earmuffs and school bags for children ... buttons, children's books ... paper doll books[,] [w]rist watch, alarm clocks, wall clocks, footwear, little tennis shoes for children, ... [b]each slippers, ... After reviewing the record, we are convinced that Rey did not utilize objectively unreasonable criteria for approving products under the APA. We turn to the particular product rejections challenged on appeal. 81
82 The district court ruled that Rey acted unreasonably by basing her disapproval of the Sears project on the junky quality of the pajama material which would bear Curious George's likeness. 11 As we have stated, see supra at p. 1393, the basis for the district court's finding of unreasonableness was insufficient as a matter of law. Rey did not unreasonably withhold approval of the Sears pajama project as unbefitting the Curious George image protected by her copyright, because the grounds for withholding approval were reasonably related to the integrity and commercial value of her artistic creation. See Clifford Ross, 710 F.Supp. at 520. 12 83
84 Our conclusion that Rey reasonably rejected the Sears project disposes of LHP's claim for damages relating to the Beach paper products as well. Rey never saw, much less disapproved, the Beach paper products: as the undisputed evidence shows, Beach withdrew its proposal when the Sears project fell through; it never reached agreement with LHP or presented any product to Rey for approval. Therefore, LHP's claimed right to recover potential profits from the Beach project could be justified, if at all, only as consequential damages resulting from a wrongful rejection of the Sears project. As the Sears project was not wrongfully rejected under the terms of the APA, LHP is not entitled to consequential damages related to Beach's anticipated profits. See, e.g., Ryan v. Royal Ins. Co., 916 F.2d 731, 744 (1st Cir.1990) (unless appellants can demonstrate that [appellee] breached a duty owed to them.... consequential damages will not lie). 85
86 The district court ruled that Rey acted unreasonably with respect to the Eden plush toys project, but the court did not state whether its ruling was based on Rey's objections to the junky nature of the proposed product, or some other ground. We conclude, nonetheless, that remand is unnecessary in the present circumstances, see Produits Nestle, 982 F.2d at 640-41 (when a trial court misperceives and misapplies the law, remand may or may not be essential), since LHP did not present sufficient evidence to enable a finding that Rey's actions with respect to Eden were unreasonable. See id. at 642 (quoting Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 463 (1st Cir.1992)). 87 Applying the standard articulated supra p. 1393, reasonableness in the present context turns, first, on whether the reasons for rejecting a proposed product were material. As recently noted by the court, [t]here is no mechanical way to determine the point at which a difference becomes 'material.' Separating wheat from chaff must be done on a case-by-case basis. Produits Nestle, 982 F.2d at 641. In reference to conventional commercial products, such as the Perugina chocolates licensed in Produits Nestle, the appropriate test is whether the ground for refusing to approve a version of a licensed product is one which consumers would likely consider relevant. Id. In the context of an artistic creation such as Curious George, however, the highly subjective element of creativity, connecting product and author, implicates intangible considerations such as the total concept and feel of the product. See Roth Greeting Cards v. United Card Co., 429 F.2d 1106 (9th Cir.1970); see also Sid & Marty Krofft Television Productions, Inc. v. McDonalds Corp., 562 F.2d 1157 (9th Cir.1977). We believe an author's discretionary right to disapprove an ancillary product, as not in keeping with the aesthetic image the author envisions for her artistic creation, reasonably may be made to depend on product conformity, at least where, as here, conformity with the author's aesthetic standard would neither set unreasonably high levels of commercial practicality nor foreclose all prospect of profitability on which the contract was predicated. See supra at p. 1393. 88 The evidence before the district court clearly showed that Rey imposed a demanding aesthetic standard for the design of the Eden Toys doll. 13 Eden's frustration at Rey's meticulous immersion in the details of toy design may indeed be understandable, the more so perhaps because of the irascible terms in which Rey appears to have chosen to couch her product criticisms on occasion. Even viewing the evidence as a whole in the light most flattering to LHP, however, we cannot conclude that her proposed changes were unrelated to her legitimate artistic concerns or to her desire to protect the aesthetic integrity of the Curious George image. 89 Reasonableness likewise requires, of course, that changes be made within a reasonable time and in a reasonable manner, i.e., in a manner which makes it possible for [the licensee] to rework the [product] in order to meet ... approval. See Zim, 573 F.2d at 1324. The evidence before the district court, which we have examined in detail, did not show that Rey's product criticisms, though caustic, were made in an unreasonable time or manner. And although the record is replete with testimony that Eden and LHP grumbled about Rey's product criticisms, neither Eden nor LHP ever communicated to Rey, prior to the present lawsuit, that her proposed changes to the Eden plush toy products were impracticable or even unduly burdensome. 14 Since Rey's objections to Eden's original toy design were based on criteria reasonably related to her legitimate artistic and aesthetic concerns about the proposed ancillary product, and were communicated in a time and manner which would permit Eden to conform the product, we conclude that Rey's rejection of Eden's product designs was not unreasonable. 90
91 Finally, we consider whether Rey's alleged rudeness to Donna Craighead, the DLM project manager, amounted to an unreasonable withholding of approval of the DLM software project in violation of the APA. We conclude that it did not. As all parties agree, the licensing arrangement between DLM and LHP covered only the first installment in the proposed DLM software trilogy, the first installment was approved by Rey prior to her telephone conversation with Craighead, and DLM continued to manufacture and market the first-installment software even after Rey's intemperate remarks. Given the fact that Rey's statements led to no curtailment in the production or sale of the licensed software, we are unable to discern any relevant respect in which Rey's statements to Craighead could be considered a rejection of the product for which LHP had issued its license to DLM. 92 The district court apparently thought that Rey's harsh criticism of the first software installment may have discouraged DLM from undertaking second and ... later installments in the proposed trilogy. Here, however, the relevant consideration is that these subsequent installments had not yet been licensed by the time Rey communicated her criticism about the first software product and manual. Even were Rey's criticism actionable in tort, as an intentional interference with contractual relations, see Restatement (Second) of Torts § 766, or as a breach of the implied good-faith duty not to interfere with LHP's performance under the APA, it nevertheless was not actionable in contract. Under the plain terms of the APA, Rey could not reject products not yet licensed or presented for approval. 15 93 LHP attempts to extend the APA's plain language by characterizing Rey's criticism of the DLM project as essentially revok[ing] product approval [of] the DLM software concept  already approved by Rey. LHP does not define the term software concept, but clearly uses it to encompass not only the first DLM product but all subsequent installments in the planned trilogy. Such an interpretation would not withstand analysis under the language of the APA, however, nor comport with the undisputed record evidence. 94 We reject LHP's overly expansive definition of product in the present context. By lumping all DLM software products under the umbrella of a single software concept, LHP would eviscerate Rey's retained right to grant, or reasonably withhold, approval for distinct generations of software products in a particular software series. All conceptually related articles identified by LHP as part of the same series would be deemed approved, sight unseen; the policing of the integrity of the conceptual relationship presumably having ceased to be a matter of legitimate concern to Rey. Courts universally recognize that the elasticity of contract language is limited by the natural meaning of its terms and their context. See K Mart, 892 F.2d at 1085; Boston Edison Corp., 856 F.2d at 365. LHP's interpretation strips the product approval term from its context and depletes its natural meaning.