Richard Raysman is a Partner and Elliot Magruder is an Attorney in the New York office
On Nov. 17, 2017, the United States Court of Appeals issued its decision in Original Appalachian Artworks, Inc. v. JAKKS Pac., Inc., --- F'Appx. ----, 2017 WL 5508498 (11th Cir. Nov. 17, 2017). This case concerned the right of a licensor to execute a successor licensee while the relevant license remained in force. The terms of the license were ambiguous, so the decision turned on the commercial realities underlying the right to manufacture and distribute Cabbage Patch Kids dolls. As discussed in detail below, the Eleventh Circuit held that the term "negotiation" as applied to a licensor and successor licensee was ambiguous, meaning that the commercial realities of this type of license - that the licensor needed a portion of the time remaining on the license to negotiate with the successor licensee to ensure commercial continuity - precluded licensor's argument that the licensed had been breached and that therefore the licensor could stop paying license fees.
Plaintiff Original Appalachian Artworks, Inc. (Plaintiff) owns the Cabbage Patch Kids intellectual property (IP), which it licenses to third-parties who manufacture and distribute Cabbage Patch Kids dolls and accessories. Plaintiff licensed the IP to JAKKS Pacific, Inc. (Defendant) pursuant to two license agreements that expired on December 31, 2014 (the Licenses).
In May 2014, Plaintiff chose a successor licensee, Wicked Cool Toys (Wicked Cool), to manufacture and sell Cabbage Patch Kids products starting in 2015 when the Licenses expired. Plaintiff and Wicked Cool entered into a deal memorandum on May 30, 2014, which authorized Wicked Cool to immediately start creating a new line of Cabbage Patch Kids for launch in 2015.
Defendant argued that this breached the provision of the Licenses reserving Plaintiff's right to "engage, during the 365-day period prior to the termination or expiration of [the Licenses] [i.e. January 1, 2014 to December 31, 2014], in the negotiation, with potential licensees ... of one or more license agreements granting licenses with respect to" products covered by the Licenses' "to become effective upon the expiration or earlier termination of [the Licenses]." (emphasis added). According to Defendant, Plaintiff could only "negotiate" with Wicked Cool in 2014 and could not sign the deal memorandum nor take any other action to further the goal of launching a new...