Take the case of “The Jumping Toy” a/k/a the “SkyDriver”. The inventor, Will Isaksson, entered into an oral royalty sharing agreement with marketer, Craig Nadel and his company, Design O Matic, to market a toy known as “the Modified Kenner Car”. The parties to the oral contract agreed to evenly split any royalties. However, because they failed to commit their agreement to writing, the parties soon crashed into a costly and protracted lawsuit concerning several important contract terms.
As luck would have it, Isaksson altered the design of the Modified Kenner Car by adding a fin. This fin made the toy jump. Isaksson naturally called the toy “the Jumping Toy”, and he presented it to Nadel for possible marketing. Isaksson wanted the toy marketed to Hasbro, but Nadel suggested a smaller company. This disagreement drove Isaksson to go direct to Hasbro with the toy. Hasbro agreed to sell the toy under the name “SkyDriver”, and the toy generated approximately $535,000.00 in royalties.
As you might expect, Nadel demanded 50% of the royalties from the SkyDriver and Isaksson refused. For his part, Isaksson alleged that the oral agreement with Nadel was limited to the Modified Kenner Car and any royalties generated by it. Nadel meanwhile alleged that the oral agreement covered any toy that arose out of the design underlying the Modified Kenner Car.
In April 1998, the parties wheeled their dispute into the United States District Court for resolution. In December 1999, nearly 20 months later, the case was tried to a jury and Nadel won. The jury decided that the SkyDriver was not a new toy but merely a modification of the Modified Kenner Car, and therefore covered by the oral royalty sharing contract. The jury awarded Nadel his share of the royalties. But this toy story did not end there…
The case was appealed by Isaksson. And, in February 2003 nearly five years after the lawsuit was filed, the Appellate Court decided the appeal. The Appeals Court accepted the jury’s determination that the SkyDriver was not a new toy. However, the Appeals Court also ruled that there was another critical question that the jury needed to answer before deciding the case. The Appeals Court sent the case back to the trial court and the jury to decide whether or not Nadel earned his share of the royalties under the oral contract. The specific questions that the Appeals Court required the jury to answer – (1) what performance the Modified Kenner Car agreement required of Nadel for him to earn a share of the royalties, and (2) whether Nadel fulfilled those performance obligations?
The parties ended up resolving this dispute in a confidential settlement before returning to the jury for answers to these additional questions. However, neither party could take a victory lap in this case, having spent too many years fighting and thousands upon thousands of dollars on lawyers. This dispute could have been avoided with a well-crafted contract.
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