An appeals court has reversed a lower court decision that ruled Big Idea, the company behind VeggieTales, had broken an agreement with Lyrick Studios to distribute its videos and products. The Fifth Circuit Court of Appeals ruled earlier this month that there was no written agreement between Big Idea and Lyrick Studios, which gave Big Idea the freedom to find a new distributor.

Lyrick claimed that two faxes and one internal memo referencing an agreement were enough to satisfy the law. But the court ruled that while the two companies were working to reach an agreement, and had been working as if an agreement were in place, there was never a final contract.

"We conclude that the faxes themselves do not set out a final signed contract. By their own language, they are part of negotiations," wrote Judge Edward Prado in the August 5 ruling. The internal memo, though it referenced "an agreement in force," was also not enough to satisfy the law, the court ruled.

"We were disappointed in the court of appeals verdict," said Tom Williams, an attorney who represents Lyrick. "We felt there was more than enough in the writings evidencing the agreement to satisfy a section 204(a) of the Copyright Act." Williams said Lyrick had not decided whether to appeal the verdict. "We're looking at our options."

"If the first judge had only seen the issues as clearly as the appeals judge, we might not have been forced to sell everything we had built," says Phil Vischer, founder of Big Idea. "VeggieTales would still be ours."

Although the earlier $11.5 million verdict forced Big Idea into bankruptcy, Vischer says, it was only the straw that broke the camel's back. "Our fundamental mistakes were, first, that we thought VeggieTales could continue growing ...