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TOM DOHERTY ASSOCS. v. SABAN ENTERTAINMENT INC.

November 21, 1994

TOM DOHERTY ASSOCIATES INC., d/b/a TOR BOOKS, Plaintiff, against SABAN ENTERTAINMENT INC., and SABAN INTERNATIONAL NV, Defendants.

LAWRENCE M. McKENNA, U.S.D.J.


The opinion of the court was delivered by: LAWRENCE M. MCKENNA

McKENNA, D.J.

 Plaintiff, TOR Books ("TOR"), brought this action against defendants, Saban Entertainment Inc. and Saban International NV (together "Saban"), for breach of contract. On August 11, 1994, TOR moved for a preliminary injunction requiring Saban to offer TOR the right to publish juvenile story books based on the Mighty Morphin Power Rangers ("Power Rangers"), prohibiting Saban from licensing or facilitating the publication of books based on the Power Rangers (except coloring, comic or activity books), and prohibiting Saban from licensing the publication of juvenile story books based on other Saban properties unless TOR is first offered the right to publish such books. After expedited discovery, the Court held an evidentiary hearing. For the reasons stated below, TOR's motion is granted in part and denied in part. *fn1"

 I.

 The Parties

 TOR, a wholly owned subsidiary of St. Martin's Press, is a major publisher of fantasy and science fiction books for adults. TOR is also a relatively minor publisher of children's books. Saban is the creator, producer, and distributor of video entertainment for children. In 1991, seeking to find a publisher for children's books featuring its characters and stories, Saban approached TOR about entering into a long term arrangement. The parties' goals were compatible. Saban sought a publisher for "a line of juvenile picture books based on [its] characters." (Def. Mem. p. 7.) TOR sought the "publishing rights to properties that could anchor a line of juvenile books." (K. Doherty Aff. P 3.)

 The ensuing negotiations principally involved four individuals: L. Spencer Humphries, an outside consultant for Saban who originally suggested TOR as a potential publisher; William Josey, General Counsel for Saban; Kathleen Doherty, the director of Education Sales at TOR and the person in charge of its children's book publishing division; and Lotte Meister, associate general counsel for St. Martin's Press and TOR. Neither Josey or Meister, the two attorneys involved, had ever negotiated a licensing agreement for publication rights of children's books. (Meister Aff. P 3; Tr. October 5, 1994 at 66.)

 The Contract

 Virtually the entire Agreement is concerned with the rights and obligations of the parties concerning the six titles TOR would publish immediately. However, the most significant provision of the Agreement for purposes of this motion is undeniably the rider to Paragraph 16 (the "Rider"). The Rider completely replaced TOR's standard option paragraph, and the evidence is undisputed that the Rider was the subject of intense negotiation and that several drafts were exchanged. In the end, the parties agreed that Saban would retain the initial right to decide whether to publish additional juvenile story books based on it properties. However, if Saban so desired, TOR would have an exclusive right of first refusal to be exercised within thirty days.

 The Rider reads as follows:

 
During the Term of this Agreement, if [Saban] desires to license the publishing rights to additional juvenile story books based on characters, artwork and/or literary, television, motion picture or theatrical properties owned or controlled by [Saban], [Saban] shall submit such additional titles for [TOR's] consideration. [TOR] shall have a 30 day period in which to evaluate each such submission. If, upon conclusion of such 30 day evaluation period, [TOR] does not desire to license the publishing rights to such submission, subject to the rights therein controlled by [Saban], [Saban] shall have no further obligation to [TOR] with respect thereto and [Saban] shall be free to enter into any third party publishing arrangement in connection therewith; on the other hand, if [TOR] desires to license the publishing rights to such submission, then [Saban] and [TOR] shall enter into an agreement under which [Saban] agrees to create a juvenile story book (of approximately 2,500 words) on the same terms and conditions set forth in this Agreement except that if such book is based on a primetime network television series, a primetime network television special, a major motion picture or theatrical feature, [TOR] and [Saban] shall negotiate in good faith with respect to an appropriate advance in connection therewith.

 The parties do not dispute the mechanics of the Rider's operation. The concern of the parties, and of this Court, is the meaning and scope of the phrase "juvenile story books". Does the term have any special meaning within the publishing industry? Did the parties intend for it to have some special narrow meaning? Or should the Court enforce the plain meaning of the words?

 The Industry

 The Court's understanding of the children's book industry, based on the evidence adduced at the hearing, is perhaps best set out here. The industry can be conceived of as having two distinct segments. The first segment is concerned with the creation of characters and stories and consists of individual authors, toy manufacturers, television and movie studios, and others. The second segment consists of the publishing houses. There may, of course, be some overlap.

 There is generally little complete agreement on terminology within the industry. Certain terms carry certain meanings, others do not. The Court finds specifically that the terms "categories"[,] "formats", and "juvenile story books" have no uniform meanings. For purposes of this decision, however, the Court will use the word "format" to describe types of books with reference to their physical characteristics.

 Children's books are published in a variety of shapes, sizes and reading levels. Each format is designed to appeal to a specific segment of the juvenile audience. Once it is decided that a book will be published, the parties must decide on the appropriate format or formats.

 Although it was not directly shown at the hearing, it can be inferred that the decision to publish a children's story in more than one format is directly related to the popularity of the property. A property with only limited appeal may well only be published in one format; but when a character explodes onto the juvenile consciousness, the creator can be expected to license the publishing rights in an extended line of formats. It is not uncommon in a multiple-format situation for the creator to distribute the licensing rights to more than one publisher, with each focusing on one or two formats. (Stine Aff. P 10.) It can also be inferred that the 8 x 8 format is one of the most popular and successful.

 Initial Performance

 The parties cooperated on the publication of the original six titles, and TOR has published or is in the process of publishing each of such books. Each was, or will be, published in the 8 x 8 format alone, and includes text of approximately 1000 words. Nevertheless, the parties agree that under the terms of the contract, TOR is the only publisher that can publish books in any format based upon the Saban properties underlying the six books (Tr. October 5, 1994 at 83-91). *fn2"

 The Power Ranger Phenomenon and the Alleged Breach

 Saban's Mighty Morphin Power Rangers debuted on Saturday morning television in the Fall of 1993, and have become a lucrative merchandising property among children. To capitalize on the popularity of their characters, Saban has entered into a variety of licensing agreements with companies in various fields of children's merchandising, including children's book publishing. (Young Aff. P 8.) Today, Power Ranger merchandise is available in an almost limitless variety of products. (Id. P 6-8.)

 Saban decided to license publishing rights to the Power Rangers sometime in 1993. Before proceeding to license any publishing rights, Saban's newly-hired director of licensing, Debi Young, reviewed all of Saban's existing agreements including the Agreement with TOR. (Tr. October 6, 1994 at 198-201.) Young discussed the TOR Agreement with Josey and the two determined that the Rider only covered children's books in the same format as those TOR was already publishing pursuant to the Agreement, namely 8 x 8. (Id. at 201, 215-16.) Having determined that Saban was free to license publication rights for any format other than 8 x 8, Saban entered into a number of licensing agreements with other publishing houses. At no time did Saban approach TOR about publishing any books in any format. (Tr. October 6, 1994 at 197-98.) Today, children's books featuring the Power Rangers are available in a variety of formats: a board book, a fold-out book, a scrap book, a hardcover book, a book and tape, a junior novelization, and a number of coloring books; and more are planned. (Young Aff. PP 6-7.)

 There is some dispute as to when TOR, or anyone at TOR, first learned that Saban had licensed Power Ranger books. It is clear, however, that once Ms. Doherty learned that Saban had licensed publishing rights to the Power Rangers, many months passed before she first contacted someone at Saban regarding the Power Ranger books, and even longer before the parties discussed the possibility that Saban had breached the agreement. See infra pp. 22-24.

 After negotiations to resolve this dispute broke down, Saban filed a complaint in California state court seeking a declaratory judgment. TOR filed suit in this Court the next day. TOR's motion for a preliminary injunction, as modified at the evidentiary hearing, requests the following relief:

 
One, Saban be ordered not to license any further juvenile storybook rights to anyone for the Mighty Morpin [sic] Power Rangers without complying with the rider. That includes not signing contracts that are not yet signed. We understand the contract with Disney is still under negotiation. It includes if a contract has flexibility, such as the contract with Parachute says at least 4 books, wherever the contract has flexibility in which Saban doesn't have to provide more properties it should be ordered not to.
 
The order should recognize that Saban should have licensed these books to us in November 93, when it licensed them instead to third parties, and that as a result paragraph 21 in its exclusivity provision should have kicked in with the result that Saban should be ordered not to offer book rights of any sort to any third party with respect to the Mighty Morpin [sic] Power Rangers.
 
Saban should be ordered to comply with Rider 16 for its other entertainment properties. We understand they are licensing or attempting to license rights to something called VR Troopers and Creepy Crawler. Saban should be enjoined from further publishing its ...

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