## Facts

- Margret Rey co-created and owned copyrights in the *Curious George* character and books.
- In 1977, Rey granted Milktrain Productions an option to produce and televise animated *Curious George* films.
- After financing was arranged by Richard G.D. Lafferty and related entities, Rey granted a license to produce 104 four-minute animated episodes for television broadcast; the license did not address ancillary product rights.
- A 1979 revision similarly described rights limited to producing and distributing the animated films for television viewing, without mentioning ancillary products, future technologies, or future methods of exhibition.
- In 1983, Rey and Lafferty executed an Ancillary Products Agreement (APA) granting rights to produce items derived from the 104 episodes (including books and video productions) in exchange for Rey receiving one-third of royalties; the APA also gave Rey approval rights over proposed ancillary products.
- Lafferty-related entities licensed the episodes for exploitation, including licensing to Sony for transferring the episodes to videotape and marketing videos, and licensing to Houghton Mifflin for books connected to the episodes.
- The APA expired in 1989; Rey claimed continued exploitation required authorization and royalties under the APA, while Lafferty claimed broader rights arose under the earlier television licenses.
- Rey sued for contractual and related relief tied to post-expiration exploitation and royalties; Lafferty counterclaimed that Rey breached the APA by unreasonably withholding approval of proposed ancillary products.
- The district court held the Sony videos were governed by the APA and awarded Rey royalties, but also awarded Lafferty damages for lost profits based on findings that Rey unreasonably withheld approvals.
- Both parties appealed.

## Issues

1. Whether books and home-video products derived from the animated episodes were governed by the 1983 Ancillary Products Agreement or instead fell within earlier television-focused licenses.
2. Whether Rey breached the APA by unreasonably withholding approval of proposed ancillary products, supporting an award of lost-profit damages to Lafferty.

## Decision

- The First Circuit affirmed the determination that the APA governed the disputed ancillary products, including the Houghton Mifflin books and Sony videotapes, entitling Rey to royalties under the APA.
- The First Circuit reversed/vacated the damages awarded to Lafferty for lost profits, holding Rey did not act unreasonably in withholding approval of certain proposed ancillary products.
- The judgment was affirmed in part and reversed in part.

## Legal Principles

- Contract interpretation focuses on the text of the agreements and the subject matter they address; a later, specific agreement on ancillary exploitation can control over earlier, more limited production/broadcast licenses.
- A license limited to television broadcast/viewing, without language granting ancillary product rights or rights in future technologies/methods of exhibition, does not imply broad derivative-product rights such as books and home video.
- Where a contract grants an author approval rights over derivative or ancillary products, disapproval grounded in protecting quality and character integrity can be reasonable and does not necessarily constitute breach, even if it constrains the licensee’s commercial opportunities.
- Lost-profit damages for rejected products require a predicate contractual breach; absent unreasonable withholding of approval, such damages are not supported.

## Conclusion

The First Circuit treated the parties’ later ancillary-products agreement as the controlling source of rights for books and home-video uses derived from the *Curious George* animated episodes, preserving Rey’s royalty entitlement, and it set aside the licensee’s lost-profit recovery because Rey’s refusals to approve proposed ancillary products were within the reasonable scope of her contractual approval authority.


Rey v. Lafferty, 990 F.2d 1379 (1st Cir. 1993)