BY:Michael I. Rudell
(Originally published in Mr. Rudell’s Entertainment Law column in the New York Law Journal, October 23, 1998.)
A critical part of any merchandising license agreement is the clause describing the property being licensed. In a recent federal court decision, the Court strictly interpreted this clause in concluding that Warner Bros. did not breach its license agreement with a stuffed-animal manufacturer by licensing other toy manufacturers to produce dolls based upon the cartoon series “Tiny Toon Adventures.” 1
In November, 1980, defendant Warner Bros. entered into an agreement with plaintiff DCN Industries, Inc. under which it granted DCN the exclusive right to market in the United States and Canada stuffed dolls depicting 26 specified cartoon characters from the Looney Tunes cartoon series.
Paragraph 1(a) of the agreement entitled “Definitions” provides that the term “Name and Character” means the specified fictional characters which include, among others, Bugs Bunny, Honey Bunny, Sylvester, Tweety, Porky Pig, Daffy Duck, Road Runner, Wile E. Coyote and Tasmanian Devil.
Paragraph 1(b) defines Licensed Product(s) to include stuffed dolls of all sizes.
Paragraph 2 of the agreement provides that Licensor grants to Licensee for the term of the agreement a license to use the Name and Character solely upon or in connection with the manufacture, distribution and sale of the Licensed Products throughout the Territory “on an exclusive basis.”
Paragraph 5 provides that Licensor retains all rights not expressly conveyed to Licensee under the Agreement and that Licensor may grant licenses to others to use the Name and Character, artwork and textual matter in connection with other products. During the term of the license, DCN produced and marketed dolls based on the characters referred to above.
In 1990, Warner Bros. commenced broadcast of a new television cartoon series entitled “Tiny Toon Adventures” starring a group of 17 fictional characters referred to as Tiny Toons.
These characters are essentially more youthful versions of certain of the Looney Tunes characters, including two bunnies, a duck, a pig, a cat, a small bird, a road runner and a Tasmanian devil.
Rather than licensing to DCN the right to produce dolls based on the Tiny Toons characters, Warner Bros. entered into a license agreement with each of Playskool, Applause and Ace Novelty. These companies produced dolls based on the Tiny Toons characters.
Although there are certain similarities between the characters there also are marked differences, such as their names. For example, the youthful Bugs Bunny is Buster Bunny, Tweety is Sweetie, Porky Pig is Hamton, Daffy Duck is Plucky Duck and Tasmanian Devil becomes Dizzy Devil. Whereas Bugs Bunny is gray, Buster is blue, Daffy Duck is black while Plucky is green, Tweety is yellow while Sweetie is pink. Tasmanian Devil is brown but Dizzy Devil is purple. Facial and bodily characteristics also differ as do the types of clothing. Although Porky Pig and Hamton are the same color and are similar in appearance, they are tagged and packaged differently showing the specific name for each doll.
DCN sued alleging that Warner Bros. breached DCN’s right of exclusivity by allowing other licensees to produce dolls based upon the Tiny Toons characters, eventually limiting the claim to nine characters in particular. It contends that these characters are so similar to Looney Tunes characters that they all were embraced by the DCN license and infringed DCN’s rights.2 Plaintiffs also claim that Warner Bros. breached an implied covenant of good faith and fair dealing and that it committed the tort of unfair competition.
Shortly after the case was brought, the defendants brought a motion to dismiss for failure to state a valid claim which was treated as one for a summary judgment and denied. The defendants tried once again, moving for summary judgment in 1997 on the basis of a more extensive factual and legal submission. This motion is the subject of the opinion issued by the Court.
The decision first observes that Warner Bros. retained all rights not expressly conveyed by the agreement. The evidence is clear that about ten years after it granted the license to DCN, Warner Bros. decided to initiate a new cartoon series. It did so in order to have a series with certain new and fresh elements and to take advantage of the popularity of the original long-standing Looney Tunes series. Thus, Tiny Toons cartoons were created with characters intended to recall their forebears notwithstanding their distinctive names and characteristics.
The Court notes that the license agreement with DCN was precise in limiting its scope to specific characters. DCN’s right to produce dolls and its right of exclusivity related solely to those specific characters. To the extent that Warner Bros. created different characters, the license agreement with DCN did not apply. Accordingly, the question is before the Court is whether the Tiny Toons characters were in fact different characters and whether the other licensees were producing dolls based upon these different characters.
DCN argues that the Court should make use of standards applicable to trademark and copyright cases and that it should inquire as to whether dolls made of the Tiny Toons characters are “confusingly similar” or “substantially similar” to the DCN dolls made from the Looney Tunes characters. In rejecting this argument, the Court states that this is not a trademark or copyright case and that DCN’s rights are defined by its contract with Warner Bros. Under that contract, Warner Bros. had the right to create different characters and to license them to parties other than DCN.
The Court concludes that Warner Bros. has established, beyond any triable issue of fact, that the Tiny Toons characters are different from the Looney Tunes characters listed in the license agreement and that the dolls made by other licensees and approved by Warner Bros. are different dolls based on these different characters. Any resemblance between the dolls were not the product of a ruse or manipulation by Warner Bros. but occurred pursuant to a valid commercial purpose: to create a new generation of characters which would appear to have a relation to the old. Warner Bros. was not obligated under its license agreement with DCN to avoid the creation of characters similar to those on the licensed list, nor was it obligated to consider that characters with such similarities would be embraced within DCN’s license agreement.
On the same basis, the Court also disposed of the claims by DCN for breach of an implied covenant of good faith and fair dealing and for unfair competition; by acting within its rights under the contract, Warner Bros. neither violated any implied covenant of good faith and fair dealing, nor committed the tort of unfair competition.
As Richard Wincor, author of “The Art of Character Licensing,” has suggested, subdividing and reciting “exactly who owns the character and each of its potentially valuable components” should be of particular concern to drafters of character licenses. He notes that “taking a little trouble may forestall years of litigation later on.”3 Given the huge revenues which are involved (in 1997 retail sales of licensed merchandise in the United States and Canada totaled 72.23 billion dollars of which $16.1 billion related to entertainment and character licensed merchandise) this advice is particularly appropriate.
The DCN case is a good example of the need for thorough description of the licensed character. It appears that if a licensee wishes to protect itself against a situation similar to that with which DCN was faced, it should not only name specific characters but also expand the definition of the licensed property to include all similar characters and derivatives. At the very least, the licensee should seek a provision that similar characters and derivatives will not be licensed to others for use during the term in the same product categories.
1 1 91 Civ. 5094 (TPG) (SDNY, August 24, 1998).
2 Plaintiffs also brought an independent claim – not discussed in this article – that it should have been permitted to create dolls based on another Warner Bros. television series.
3 “The Character Licensing Enigma,” Alan J. Hartnick, New York State Bar Journal, 70 No. 5, July/August 1998.