Rey v. Lafferty, Et Al.
Case Date: 03/30/1993
Court: United States Court of Appeals
Docket No: 92-1139
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March 30, 1993 UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT ____________________ No. 92-1139 MARGRET REY, Plaintiff, Appellee, v. RICHARD G.D. LAFFERTY, ET AL., Defendants, Appellants. ____________________ No. 92-1177 MARGRET REY, Plaintiff, Appellant, v. RICHARD G.D. LAFFERTY, ET AL., Defendants, Appellees. ____________________ APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Rya W. Zobel, U.S. District Judge] ___________________ ____________________ Before Selya, Cyr and Boudin, Circuit Judges. ______________ ____________________ H. Joseph Hameline with whom Andrea M. Fish and Mintz, Levin, __________________ ______________ ______________ Cohn, Ferris, Glovsky & Popeo, PC were on brief for appellee Rey. _________________________________ Charles Donelan with whom Katherine E. Perrelli, Kristen G. ________________ _______________________ ___________ McGurn and Day, Berry & Howard were on brief for appellants Lafferty, ______ ___________________ et al. ____________________ March 30, 1993 ____________________ CYR, Circuit Judge. Margret Rey, who owns the copy- CYR, Circuit Judge. _____________ right to the "Curious George" children's books, challenges an award of damages to Lafferty Harwood & Partners ("LHP") for Rey's withholding of approval of various ancillary products utilizing the "Curious George" character under their 1983 licensing agree- ment. LHP appeals the district court order awarding Rey damages and future royalties on certain other "Curious George" products. We affirm in part and reverse in part. I I BACKGROUND BACKGROUND __________ "Curious George" is an imaginary monkey whose antics are chronicled in seven books, written by Margret and H.A. Rey, which have entertained readers since the 1940s. A mischievous personality consistently lands Curious George in amusing scrapes and predicaments. The more recent "monkey business" leading to the present litigation began in 1977 when Margret Rey granted Milktrain Productions an option to produce and televise 104 animated "Curious George" film episodes. The option agree- ment was contingent on Milktrain's obtaining financing for the film project, and adverted to a potential agreement to license _________ "ancillary products," based on the "Curious George" character, once the 104 film episodes had been completed. 3 A. The Original Film Agreements. A. The Original Film Agreements. ____________________________ Milktrain approached LHP, a Canadian investment firm, to obtain financing for the project. LHP agreed to fund the venture by selling shares in the project to investors (hereinaf- ter: the "Milktrain Agreement"); LHP and its investors were to divide a 50% share of Milktrain's profits on the films and on any future ancillary products. With the financing commitment in place, Rey granted Milktrain and LHP a limited license "to produce (within a two- year period from the date of exercise) one hundred and four (104) four minute film episodes based on the ["Curious George"] charac- ter solely for broadcast on television" (hereinafter: the "Rey License"). Rey was to receive a fee for assisting with the editing and production of the episodes, and an additional royalty amounting to 10% of the revenues from any film telecasts. The Rey License made no mention of ancillary product rights. Never- theless, LHP promoted the project to investors through a prospec- tus (hereinafter: the "1978 Private Placement Memorandum") which represented, inter alia, that "the production contract [with Rey] _____ ____ gives LHP the right to participate in the financing of . . . the option . . . to undertake the exploitation of other rights to 'Curious George' including manufacturing, food, licensing and other commercial areas of exploitation." B. The Revised Agreements. B. The Revised Agreements. ______________________ The film project soon encountered delays and financial setbacks. By early 1979, though only 32 of the 104 episodes had 4 been completed, the original investment funds had been virtually exhausted. In order to rescue the project and complete the films to Rey's satisfaction, LHP offered to arrange additional financ- ing. In consideration, LHP insisted that the Milktrain Agreement be revised to permit LHP to assume control of the film production process and to receive higher royalties on the completed epi- sodes. Milktrain assented to these revisions, and the revised Milktrain Agreement (hereinafter: the "Revised Milktrain Agree- ment" or "RMA") was signed on November 5, 1979. As prelude to its description of the new obligations between Milktrain and LHP, the RMA recited that Milktrain and LHP owned "the rights to Curious George which have been obtained from . . . Rey" under the Rey License. The RMA further stated that: Investors acquiring the episodes shall ac- quire all right, title and interest therein, without limitation or reserve, including the original negative . . . . LHP shall have the right to participate on an equal basis with [Milktrain] in their right of first refusal after the present agency rights expire to undertake the exploitation of other rights to Curious George, including manufacturing, food, licensing and the publi- cation of the 104 episodes in book form . . . in accordance with the rights granted to [Milktrain] and LHP [by Rey] in [the Revised Rey License].1 Simultaneously with the negotiation of the RMA, LHP proposed several changes in the Rey License, including language ____________________ 1Shortly thereafter, Milktrain apparently assigned its share of ancillary product licensing rights to LHP, leaving LHP the sole owner of these rights. 5 which would have granted LHP the immediate right to "undertake the exploitation of other rights to 'Curious George,' including manufacturing, food, licensing and the publication of the 104 episodes in book form." Rey rejected the LHP proposal in a letter to Richard G. D. Lafferty (president and C.E.O. of LHP): "I have repeatedly stated to Milktrain and to you that I will not consider negotiating such rights before the films are done." Rey did consent, however, to certain changes to the royalty arrange- ments, whereby Rey would receive a 10% share of film revenues only "after the investors have recouped [their investment] and certain soft dollar commitments . . . have been paid." On November 5, 1979, concurrently with the execution of the Revised Milktrain Agreement, a revised version of the Rey License (hereinafter: the "Revised Rey License" or "RRL") was executed, incorporating these changes, and superseding the original Rey License. The RRL recited that the original Rey License had granted Milktrain and LHP the right to produce and distribute animated "Curious George" films "for television view- ing," but made no mention of the "ancillary product" rights unsuccessfully sought by LHP. As agreed, LHP undertook to arrange further financing to complete the film project. On November 23, 1979, LHP released another prospectus (hereinafter: the "1979 Private Placement Memorandum") to which it attached the Revised Milktrain Agree- ment. The 1979 Private Placement Memorandum again stressed the prospect of eventual revenues from ancillary products but noted 6 that these rights "have yet to be negotiated" with Rey. C. The Ancillary Products Agreement. C. The Ancillary Products Agreement. ________________________________ 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 prod- ucts" as: 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. 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. D. The Houghton Mifflin Contract. _____________________________ 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 7 "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. 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 addi- tional 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. E. Other Product Licenses. E. Other Product Licenses. ______________________ 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 ____________________ 2Curgeo Enterprises is not named in the Rey complaint; Curgeo Agencies Inc. and Curgeo Overseas, Inc., are named as defendants. We refer to the three entities collectively as "Curgeo." 8 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 pp. 6-7. ___ _____ 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 accept- able 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. 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 expo- 9 sure in the Sears catalog. 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. F. The Ancillary Products Agreement Renewal. ________________________________________ 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 guaran- teed minimum payment. On April 10, 1989, Rey terminated the APA. LHP responded by advising that Curgeo would "continue to adminis- ter 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. G. "Curious George" Goes to Court. G. "Curious George" Goes to Court. _____________________________ On February 8, 1991, Rey filed suit against Lafferty, 10 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 royal- ties 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. 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 conse- quential damages resulting from Rey's rejection of these prod- ucts. II II DISCUSSION DISCUSSION __________ "Under Massachusetts law, the 'interpretation of a contract is ordinarily a question of law for the court'." 11 Fairfield 274-278 Clarendon Trust v. Dwek, 970 F.2d 990, 993 (1st _________________________________ ____ Cir. 1992) (quoting Edmonds v. United States, 642 F.2d 877, 881 _______ _____________ (1st Cir. 1981)); see also, e.g., Lawrence-Lynch Corp. v. Depart- ___ ____ ____ ____________________ _______ ment of Environmental Mgmt., 392 Mass. 681, 682, 467 N.E. 2d 838, ___________________________ 840 (1984); Sparks v. Microwave Associates, Inc., 359 Mass. 597, ______ __________________________ 600, 270 N.E. 2d 909, 911 (1971).3 Only if the contract is am- biguous will there arise issues of fact reviewable for clear error. See Dwek, 970 F.2d at 993; see also ITT Corp. v. LTX ___ ____ ___ ____ _________ ___ Corp., 926 F.2d 1258 (1st Cir. 1991); Fashion House, Inc. v. K _____ ___________________ _ Mart Corp., 892 F.2d 1076, 1083 (1st Cir. 1989) (New York law). __________ "Contract language is usually considered ambiguous where an agreement's terms are inconsistent on their face or where the phraseology can support reasonable difference of opinion as to the meaning of the words employed and obligations undertaken," K _ Mart, 892 F.2d at 1083 (citing In re Navigation Technology Corp., ____ _________________________________ 880 F.2d 1491, 1495 (1st Cir. 1989)). The ambiguity determina- ____________________ 3The Rey License and RRL contain choice-of-law provisions providing for the application of New York law, and the Milktrain Agreement and RMA contain choice-of-law provisions providing for the application of the law of the Province of Quebec, Canada. Neither party alludes to these contractual provisions in their briefs, however, and both parties appear to have premised their trial presentations and appellate briefs on the application of Massachusetts law. In accordance with their choice, and since a "reasonable relation" exists between their contract and the Massachusetts forum, see Carey v. Bahama Cruise Lines, 864 F.2d ___ _____ ____________________ 201, 206 (1st Cir. 1988), we apply Massachusetts law. See Borden ___ ______ v. Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir. 1991) _________________________ ("[w]here . . . the parties have agreed about what law governs, a federal court sitting in diversity is free, if it chooses, to forego independent analysis and accept the parties' agreement"); accord Doherty v. Doherty Ins. Agency, Inc., 878 F.2d 546, 547 ______ _______ __________________________ (1st Cir. 1989); Moores v. Greenberg, 834 F.2d 1105, 1107 n.2 ______ _________ (1st Cir. 1987). 12 tion itself is subject to plenary review, id., and parol evidence ___ may not be used to "create ambiguity where none otherwise ex- ists." See Boston Car Co. v. Acura Auto. Div., 971 F.2d 811, 815 ___ ______________ ________________ (1st Cir. 1992) (citing ITT Corp., 926 F.2d at 1261). _________ A. The Book/Video Claims. A. The Book/Video Claims. _____________________ The Rey complaint alleged that LHP's only right to publish the "Curious George" TV episodes in book and video form derived from the Ancillary Products Agreement, was subject to the APA's royalty provisions, and expired when Rey terminated the APA in 1989. LHP responds that the book and video rights to the TV episodes were governed by the parties' other agreements, specifi- cally the Revised Rey License, which (according to LHP) incor- porated the Revised Milktrain Agreement. According to LHP, these other agreements continued in effect notwithstanding termination of the APA; moreover, these agreements provided that no royalties were due Rey before LHP's investors recovered their investment in the 104 TV films.4 The district court accepted the interpreta- tion urged by Rey, based on the language of the various contracts and the circumstances surrounding their execution. We agree. 1. The Houghton Mifflin Books. 1. The Houghton Mifflin Books. __________________________ The Ancillary Products Agreement provided, inter alia, _____ ____ that for stories already owned by [LHP] . . . which have been produced as 104 episodes ____________________ 4LHP contends that $250,000 (U.S.) had yet to be recovered by the investors at the time the present action was commenced. 13 under the license granted in the January, 1978 agreement and the November 5, 1979 revi- sion 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 . . . (Emphasis added.) Throughout the document the term "this Agree- ment," utilizing the capital letter "A", refers to the APA. Thus, the plain language of the operative provision clearly con- templates that the APA was to govern the licensing of any books and "video productions" arising from the 104 films. See Barilaro ___ ________ v. Consolidated Rail Corp., 876 F.2d 260, 265 n.10 (1st Cir. ________________________ 1989) ("it is . . . 'a general rule in the construction of a written instrument that the same word occurring more than once is to be given the same meaning unless a different meaning is demanded by the context.'") (quoting Dana v. Wildey Sav. Bank, ____ ________________ 294 Mass. 462, 466, 2 N.E.2d 450, 453 (1936)). LHP argues, nonetheless, that a narrow meaning must be ascribed to the quoted APA language, insofar as the RMA purported to grant investors "all right, title and interest [to the 104 film episodes], without limitation or reserve, including the original negative." The problem with LHP's argument is that Rey never signed the RMA. LHP concedes this, but argues that the RMA and RRL were negotiated and executed simultaneously by LHP, and must be interpreted in pari materia. See, e.g., Interstate __ ____ _______ ___ ____ __________ Commerce Comm'n v. Holmes, slip op. at 10-11 (1st Cir. Jan. 11, _______________ ______ 1993) (escrow agreement and consent decree read together, as "synergistic" documents); accord Chelsea Indus., Inc. v. Flor- ______ _____________________ _____ 14 ence, 358 Mass. 50, 55-56, 260 N.E.2d 732 (1970); Thomas v. ____ ______ Christensen, 12 Mass. App. Ct. 169, 422 N.E.2d 472, 476 (1981). ___________ The Massachusetts courts sometimes have held that the party to be bound need not have signed each component part of an integrated agreement where it is the "sense" of the transaction, as support- ed by reliable indicia in the writings which were signed by the party to be bound, that a unitary transaction was contemplated by the parties. See Chase Commercial Corp. v. Owen, 32 Mass. App. ___ ______________________ ____ Ct. 248, 588 N.E.2d 705 (1992) (holding that non-signatory guarantor was bound by jury trial waiver contained in loan and security agreements, though guarantee agreement contained no such waiver, where "the three documents were part of one transac- tion"); see also Gilmore v. Century Bank & Trust Co., 20 Mass. ___ ____ _______ _________________________ App. Ct. 49, 50, 477 N.E.2d 1069, 1073 (1985) (holding that non- signatory trustee could recover for breach of workout agreement, even though not a party to its terms, based on "sense" of agree- ment, and "such factors as simultaneity of execution, identity of subject matter and parties, cross-referencing, and interdepen- dency of provisions"). On this theory, LHP contends, Rey's signature on the RRL bound her to the language of the RMA, and authorized LHP to transfer the television episodes to book form, using available technology. However, where contract language contains no unambigu- ous indicia of the parties' mutual intent to enter into a unitary transaction, we review for "clear error" the fact-dominant deter- mination whether their separate documents were intended by the 15 parties as an integrated agreement. Interstate Commerce Comm'n __________________________ v. Holmes, slip op. at 10-11; Holmes Realty Trust v. Granite City ______ ___________________ ____________ Storage Co., 25 Mass. App. Ct. 272, 517 N.E.2d 502, 504 (1988) ____________ ("it would be open to a fact finder . . . to treat [separate ____ __ _ ____ ______ documents] as intended by the parties to be parts of a single transaction") (emphasis added); Fred S. James & Co. v. Hoffmann, ___________________ ________ 24 Mass. App. Ct. 160, 163, 507 N.E.2d 269, 271 (1987). In the present case, we find no "clear error" in the district court's determination that the parties contemplated separate (though related) transactions for film rights and ________ financing. The evidence cut both ways. On the one hand, the RMA and the RRL were executed at approximately the same time, with some overlap in their internal references and subject matter. On the other hand, their respective provisions are less in unison than parallel.5 Most importantly, the written and circumstan- tial indicia sharply contradict any suggestion of a meeting of the minds relating to the licensing of ancillary products. Rey did not participate in negotiating the RMA, did not sign it, was ____________________ 5Even if the RMA and RRL were jointly construed, their language might point away from the interpretation urged by LHP. Section 2(i) of the RMA granted LHP's investors "all right, title and interest" in the 104 T.V. episodes, "without limitation or reserve," but 1(a) tempered this grant by defining the rights as "described herein, and set forth in Schedule 'A' [the RRL]." This language suggests that the "right, title, and interest" language of the RMA was meant only to confirm and restate, and _______ _______ not to expand upon, the RRL's parallel, but more limited, grant of rights. Cf. Fred S. James & Co., 24 Mass. App. Ct. at 164, ___ ____________________ 507 N.E.2d at 272 (finding no conflict between simultaneously executed instruments, where their language and the extrinsic evidence suggested independent obligations arising from simulta- neous contracts). 16 never made a party to its terms, and expressly refused, during _________ _______ ______ the RRL negotiations, to license "Curious George" for the "ancil- ___ ___ ____________ __ _______ _______ ______ ___ ___ ______ lary" purposes now urged by LHP. See supra at p. 6. Moreover, ____ ________ ___ _____ __ ___ ___ _____ the 1979 Private Placement Memorandum prepared by LHP acknowledg- es Rey's nonacceptance by attaching the RRL as an exhibit and noting that ancillary product rights "have yet to be negotiated" with Rey. Finally, the parties' intention to exclude the Hough- ton Mifflin books from the RRL, and their intention to cover them in the APA, are corroborated by their subsequent course of dealing: among other things, the record shows that LHP paid Rey royalties on the books and videos on several occasions at the 33% __ ___ ___ rate required under the APA, rather than the 10% rate prescribed ____ ________ _____ ___ ___ by the RRL, and that Curgeo expressly keyed the dates of the Houghton Mifflin contract to the term (and anticipated renewal __ ___ ____ ___ ___________ _______ term) of the Ancillary Products Agreement: ____ __ ___ _________ ________ _________ By September 30, 1987, Curgeo [will] inform [Houghton Mifflin] in writing as to whether Curgeo has exercised its option to exploit the character "Curious George" through December 31, 1993 and, if Curgeo has exer- cised said option, Curgeo shall give the Publisher the option to extend this Agreement through December 31, 1993. It was for the district court to balance the evidence in the first instance, see Holmes Realty Trust, 517 N.E. 2d at ___ ___________________ 504, and we discern no sound reason to disagree with its find- ings, particularly on "clear error" review. See Interstate ___ __________ Commerce Comm'n v. Holmes, slip op. at 13 (citing Cumpiano v. _______________ ______ ________ Banco Santander Puerto Rico, 902 F.2d 148, 152 (1st Cir. 1990)) ___________________________ 17 (even if proffered interpretation did "[give] rise . . . to another plausible view of the evidence," reversal not warranted on "clear error" review).6 To sum up: Since the district court supportably found that the RRL and the RMA are separate, though related, agree- ments, the RMA's purported grant of rights did not bind Rey, who was bound only by the grant of rights she endorsed in the RRL and APA. The RRL contained no grant of rights to produce the Hough- ton Mifflin books, and the APA, which granted the right "to produce books . . . of these episodes," obligated LHP to pay Rey royalties on the books without regard to whether LHP's investors had recouped their investment on the television film project. Thus, the district court did not err in finding that LHP's withholding of the Houghton Mifflin book royalties was wrongful, and we affirm its ruling on this point. ____________________ 6We reject LHP's further contention that Rey's failure to protest publication of the four Houghton Mifflin books in 1990 estops her from cancelling the book and video contracts under the APA. Where more than one inference fairly may be drawn from the evidence and an estoppel ruling turns on an issue of fact, we review for clear error. United States v. Marin, 651 F.2d 24, 29 ______________ _____ (1st Cir. 1981); Morgan Guaranty Trust Co. v. Third Nat'l Bank, __________________________ _________________ 529 F.2d 1141, 1144 (1st Cir. 1976). In our view, Rey's conduct does not require an inference that she acquiesced in the publica- tion of these books under the APA. Rather, Rey protested the publication of the four books by filing suit shortly after realizing the unauthorized nature of Houghton Mifflin's continued publication. The district court apparently found that Rey's one- year delay, dating from the first unauthorized publication until the filing of Rey's suit for injunctive relief, was not "unrea- sonable" in the circumstances, and we decline to disturb its findings on this issue. 18 2. The Sony Videos. 2. The Sony Videos. _______________ LHP's claim to the Sony video royalties is more compli- cated: assuming the videos were not covered by the contractual clause in the RMA, see supra Part II.A.1., might they nonetheless ___ _____ have been covered by the grant of rights in the RRL, which licensed LHP to produce the 104 episodes "for television view- ___ __________ _____ ing"? The district court thought not: the parties' "reference ___ to television viewing . . . in a licensing agreement . . . does not include [video technology] . . . which probably was not in existence at the time that the rights were given." a. "New Uses" and Copyright Law. a. "New Uses" and Copyright Law. ___________________________ For purposes of the present appeal, we accept the uncontested district court finding that the relevant video technology "was not in existence at the time that the rights" were granted under the RRL in January 1979. Consequently, it must be inferred that the parties did not specifically contem- plate television "viewing" of the "Curious George" films in videocassette form at the time the RRL was signed. Such absence of specific intent typifies cases which address "new uses" of licensed materials, i.e., novel technological developments which ____ generate unforeseen applications for a previously licensed work. See Melville B. Nimmer and David Nimmer, 3 Nimmer on Copyright ___ ___________________ 10.10[B] at 10-85 (1992) ("Nimmer") ("the . . . fact that we ______ are most often dealing with a later developed technological process (even if it were known in some form at the time of execution) suggests that the parties' ambiguous phraseology masks 19 an absence of intent rather than a hidden intent which the court simply must 'find'"). Normally, in such situations, the courts have sought at the outset to identify any indicia of a mutual general intent to _______ apportion rights to "new uses," insofar as such general intent can be discerned from the language of the license, the surround- ing circumstances, and trade usage. See, e.g., Murphy v. Warner ___ ____ ______ ______ Bros. Pictures, Inc., 112 F.2d 746, 748 (9th Cir. 1940) (grant of ____________________ "complete and entire" motion picture rights to licensed work held to encompass later-developed sound motion picture technology); Filmvideo Releasing Corp. v. Hastings, 446 F. Supp. 725 (S.D.N.Y. _________________________ ________ 1978) (author's explicit retention of "all" television rights to licensed work, in grant of motion picture rights predating tech- nological advances permitting movies to be shown on television, included retention of right to show motion picture on televi- sion). Where no reliable indicia of general intent are discern- _______ ible, however, courts have resorted to one of several interpre- tive methods to resolve the issue on policy grounds. Under the "preferred" method, see 3 Nimmer at 10-85, ___ ______ recently cited with approval in SAPC, Inc. v. Lotus Development __________ _________________ Corp., 921 F.2d 360, 363 (1st Cir. 1990), the court will con- _____ clude, absent contrary indicia of the parties' intent, that "the licensee may properly pursue any uses which may reasonably be said to fall within the medium as described in the license." 3 Nimmer at 10-86. Under this interpretive method, the courts will ______ presume that at least the possibility of nonspecific "new uses" 20 was foreseeable by the contracting parties at the time the licensing agreement was drafted; accordingly, the burden and risk of drafting licenses whose language anticipates the possibility of any particular "new use" are apportioned equally between licensor and licensee. See, e.g., Bartsch v. Metro-Goldwyn- ___ ____ _______ ______________ Mayer, Inc., 391 F.2d 150, 155 (2d Cir.), cert. denied, 393 U.S. ___________ _____ ______ 826 (1968) ("[i]f the words [of the license] are broad enough to cover the new use, . . . the burden of framing and negotiating an exception should fall on the grantor" of the licensed rights). An alternative interpretive method is to assume that a license of rights in a given medium (e.g., ____ 'motion picture rights') includes only such uses as fall within the unambiguous core meaning of the term . . . and excludes any uses which lie within the ambiguous penumbra (e.g., exhibition of motion picture film on ____ television). Thus any rights not expressly (in this case meaning unambiguously) granted are reserved. See 3 Nimmer at 10-85; see also Bourne Co. v. Walt Disney Co., ___ ______ ___ ____ __________ _______________ 1992 Copyr. L. Rep. (CCH) 26,934 (S.D.N.Y. 1992) ("if the disputed use was not invented when the parties signed their agreement, that use is not permitted under the contract"). This method is intended to prevent licensees from "'reap[ing] the entire windfall' associated with the new medium," Cohen v. _____ Paramount Pictures Corp., 845 F.2d 851, 854 (9th Cir. 1988) _________________________ (quoting Neil S. Nagano, Comment, Past Software Licenses and the ______________________________ New Video Software Medium, 29 U.C.L.A. L. Rev. 1160, 1184 (- ___________________________ 1982)), and is particularly appropriate in situations which 21 involve overreaching or exploitation of unequal bargaining power by a licensee in negotiating the contract. See, e.g., Bartsch, ___ ____ _______ 391 F.2d at 154 & n.2 (citing Ettore v. Philco Television Broad- ______ ________________________ casting Corp., 229 F.2d 481 (3d Cir. 1955) (suggesting narrow _____________ construction where licensor was not "an experienced businessman" and had no "reason to know of the . . . potential" for new uses at the time he signed the relevant agreement)). It may also be appropriate where a particular "new use" was completely unfore- seeable and therefore could not possibly have formed part of the _____ ___ ________ bargain between the parties at the time of the original grant. Cohen, 845 F.2d at 854; Kirke La Shelle Co. v. Paul Armstrong _____ _____________________ _______________ Co., 263 N.Y. 79, 188 N.E. 163 (1933). Obviously, this method ___ may be less appropriate in arm's-length transactions between sophisticated parties involving foreseeable technological devel- opments; in such situations, narrow construction of license grants may afford an unjustifiable windfall to the licensor, who would retain blanket rights to analogous "new uses" of copyright material notwithstanding the breadth of the bargained-for grant. See generally 3 Nimmer at 10-85 ("it is surely more arbitrary and ___ _________ ______ unjust to put the onus on the licensee by holding that he should have obtained a further clarification of a meaning which was already present than it is to hold that the licensor should have negated a meaning which the licensee might then or thereafter rely upon.").7 ____________________ 7The problem becomes particularly acute when the analogous technology develops so rapidly as to supplant the originally contemplated application of the licensed work, rendering the 22 b. Video Technology as "New Use". b. Video Technology as "New Use". ____________________________ These fine-tuned interpretive methods have led to divergent results in cases considering the extension of televi- sion rights to new video forms. Thus, for example, in Rooney v. ______ Columbia Pictures Industries, Inc., 538 F. Supp. 211 (S.D.N.Y.), __________________________________ aff'd, 714 F.2d 117 (2d Cir. 1982), cert. denied, 460 U.S. 1084 _____ ____ ______ (1983), the court determined that a series of contracts granting motion picture distributors a general license to exhibit plain- tiffs' films "by any present or future methods or means" and "by __ ______ any means now known or unknown" fairly encompassed the right to ___ _____ __ _______ distribute the films by means of later-developed video technol- ogy. The contracts in question gave defendants extremely broad rights in the distribution and exhibition of pre-1960 films, plainly _______ intending that such rights would be without _________ limitation unless otherwise specified and further indicating that future technological advances in methods of reproduction, trans- mission and exhibition would inure to the benefit of defendants. (Emphasis added.) Similarly, in Platinum Record Co. v. ______________________ Lucasfilm, Ltd., 566 F. Supp. 226, 227 (D. N.J. 1983), the court ________________ ____________________ parties' original bargain obsolete. Thus, for example, broad grants of "motion picture rights," made before technological advances permitted the combination of moving images with sound, _____ later were held, typically, to encompass the rights to sound motion picture technology; a narrower holding would have left the original license virtually worthless, despite its broad language, and would have provided the licensor with an undeserved windfall. See, e.g., Murphy, 112 F.2d at 748; L.C. Page & Co. v. Fox Film ___ ____ ______ ________________ ________ Corp., 83 F.2d 196 (2d Cir. 1936). _____ 23 held that videocassette rights were encompassed by a broad synchronization license to "exhibit, distribute, exploit, market, and perform [a motion picture containing licensed musical compo- sition] . . . perpetually throughout the world by any means or methods now or hereafter known." Again, the court rested its holding on the "extremely broad and completely unambiguous" contractual grant of general rights to applications of future _______ technologies, which was held to "preclude[] any need in the Agreement for an exhaustive list of specific potential uses of the film." Id. ___ By contrast, in Cohen, 845 F.2d at 853-54, the Ninth _____ Circuit concluded that a 1969 contract granting rights to "[t]he exhibition of [a] motion picture [containing a licensed work] . . . by means of television," but containing a broad restriction __ _____ __ __________ reserving to the licensor "all rights and uses in and to said musical composition, except those herein granted," did not encom- ___ ___ pass the right to revenues derived from sales of the film in videocassette form. After deciding that "[t]he general tenor of the [contract] section [in which the granting clause was found] contemplate[d] some sort of broadcasting or centralized distribu- ____________ __ ___________ _________ tion, not distribution by sale or rental of individual copies to ____ the general public," see id. at 853 (emphasis added), the court ___ ___ stressed that the playing of videocassettes, with their greater viewer control and decentralized access on an individual basis, did not constitute "exhibition" in the sense contemplated by the contract. 24 Though videocassettes may be exhibited by using a television monitor, it does not fol- low that, for copyright purposes, playing videocassettes constitutes "exhibition by television." . . . Television requires an intermediary network, station, or cable to send the television signals into consumers' homes. The menu of entertainment appearing on television is controlled entirely by the intermediary and, thus, the consumer's selec- tion is limited to what is available on vari- ous channels. Moreover, equipped merely with a conventional television set, a consumer has no means of capturing any part of the televi- sion display; when the program is over it vanishes, and the consumer is powerless to replay it. Because they originate outside the home, television signals are ephemeral and beyond the viewer's grasp. Videocassettes, of course, allow viewing of a markedly different nature. . . . By their very essence, . . . videocassettes liberate viewers from the constraints otherwise in- herent in television, and eliminate the in- volvement of an intermediary, such as a net- work. Television and videocassette display thus have very little in common besides the fact that a conventional monitor of a television set may be used both to receive television signals and to exhibit a videocassette. It is in light of this fact that Paramount ar- gues that VCRs are equivalent to "exhibition by means of television." Yet, even that assertion is flawed. Playing a videocassette on a VCR does not require a standard televi- sion set capable of receiving television signals by cable or by broadcast; it is only necessary to have a monitor capable of dis- playing the material on the magnetized tape. Id. at 853-54. ___ Most recently, in Tele-Pac, Inc. v. Grainger, 570 _______________ ________ N.Y.S.2d 521, appeal dismissed, 580 N.Y.S.2d 201, 588 N.E.2d 99 ______ _________ (1991), the court held (one judge dissenting) that a license to 25 distribute certain motion pictures "for broadcasting by televi- sion or any other similar device now known or hereafter to be made known" did not encompass the videocassette film rights. "Transmission of sound and images from a point outside the home _______ ___ ____ for reception by the general public . . . is implicit in the _______ ______ concept of 'broadcasting by television.' Conversely, while one may speak of 'playing,' 'showing,' 'displaying,' or even perhaps 'exhibiting' a videotape, we are unaware of any usage of the term 'broadcasting' in that context." Id. at 523 (emphasis added). ___ c. Video Rights and the RRL. c. Video Rights and the RRL. ________________________ Although the question is extremely close, under the interpretive methodology outlined above we conclude that the RRL's grant of rights to the 104 film episodes "for television viewing" did not encompass the right to distribute the "Curious ___ ___ George" films in videocassette form. First, unlike the contracts in Rooney and Lucasfilm, ______ _________ the RRL contained no general grant of rights in technologies yet to be developed, and no explicit reference to "future methods" of exhibition. Compare Lucasfilm, 566 F. Supp. at 227; Rooney, 538 _______ _________ ______ F. Supp. at 228. Rather, the RRL appears to contemplate a comparatively limited and particular grant of rights, encompass- ing only the 104 film episodes and leaving future uses of "Curi- ous George" to later negotiation in the ancillary products agreement. Although the RRL conversely contains no "specific limiting language," compare Cohen, 845 F.2d at 853, we believe |