Source: http://www.comicsreporter.com/index.php/briefings/commentary/760/
Timestamp: 2019-04-19 22:58:35+00:00

Document:
And here's the text, as best as I can format it which isn't all that well. The stand-alone numbers are page numbers.
The defendant Marvel Enterprises, Inc. ("Marvel") has moved for partial summary judgment in accordance with Rule 56(a), Fed. R. Civ. P., dismissing the claims in the complaint seeking a profit participation from licensing of its characters for merchandising. The plaintiff Stan Lee ("Lee") has cross-moved for partial summary judgment declaring that he is entitled to 10% participation in profits derived by Marvel from television or movie productions, not limited by so-called "Hollywood Accounting," including film/television merchandising when the profits do not result from a fee for licensing. For the reasons set forth below, Marvel's motion is denied, and Lee's crossmotion is granted in part and denied in part.
(Cohen Aff. Ex. 1 at 5.) This deceptively simple language, drafted by a company and an executive both skilled and experienced in the industry, has given rise to a multimillion dollar controversy because of changes in the way Marvel has conducted business since the execution of the Agreement in November, 1998.
all profits -- including gross profits or gross proceeds -- derived from contingent payments to Marvel in connection with the use of Marvel characters in film or television productions. According to Marvel, pursuant to the second sentence of paragraph 4(f), Lee is barred from any profits from merchandising. According to Lee, he is entitled to participate in all revenue from film/television merchandising with the exception of profits resulting from fees from licensing for merchandise.
[T]he basic net profits formula subtracts from the studio's (distributor's) adjusted gross receipts the production costs, distribution expenses, and distribution fees. . . . Production costs are all costs directly attributed to the particular film (plus overhead). Production costs include the payments to all other participants in a film including the contingent compensation of gross participants. So, for example, [if a given actor] had fifteen gross points for [a given movie] (that is, he received 15% of the gross receipts), every dollar of revenue that the film generated pushed the net profits breakeven point back fifteen cents. Thus, if a film has significant gross participants, the breakeven point quickly recedes. Almost all the box office smashes that failed to produce net profits had significant gross participants.
Victor P. Goldberg, The Net Profits Puzzle, 97 Colum. L. Rev. 524, 528-529 (1997).
of procedure and construction. This determination has the potential to affect substantially the financial fortunes of the parties.
2 On September 18, 2003, Lee and Marvel entered into a stipulation dismissing the action with prejudice with respect to Characters. The stipulation was so-ordered by the Court on October 16, 2003.
In discovery, Lee propounded various document requests and interrogatories to Marvel in which Lee requested that Marvel produce and identify, inter alia, all documents concerning Marvel's merchandising agreements and payments received by Marvel in connection with merchandising relating to movie and television productions.
Upon the October 22, 2003 argument on a motion to compel discovery that turned on interpretation of Lee's rights under the Agreement, it was concluded that the proper construction of the Agreement would be better addressed in the context of a motion for summary judgment. The instant motion by Marvel to bar Lee from profits arising out of merchandising and Lee's cross-motion to obtain profits from film/television productions and from certain film/television merchandising were heard and marked fully submitted on September 8, 2004.
Spider-Man. Lee's various roles at Marvel have included editor, art director, head writer, and publisher. In 1980, Lee moved from New York to California to set up and run Marvel's animation studio and to pursue Marvel's involvement with television and motion pictures.
Marvel and its predecessors in interest started out in the business of publishing comic books based on fictional characters in 1938. The first Marvel character to be used in another medium was Captain America, which was featured in a 1944 motion picture serial produced by Republic Pictures. In the 1960's, Marvel expanded its business to include the merchandising of consumer products utilizing Marvel characters. In 1966, a half-hour animated cartoon series produced by the Grant-Ray- Lawrence Company called The Marvel Super Heroes was syndicated to television stations around the country. Between 1967 and 1970, half-hour television programs featuring The Fantastic Four and Spider-Man appeared on the ABC television network each Saturday morning.
continued its efforts to license such characters to third parties for use in connection with television and movie productions. Marvel was in bankruptcy from December 1996 through October 1998. During this period Ronald Perelman, Carl Icahn, and ToyBiz, Inc. ("ToyBiz") sought control of Marvel. ToyBiz prevailed in this contest.
Prior to the 1994 bankruptcy, the parties entered into an agreement granting Lee a share of Marvel's profits. In 1995, pursuant to this agreement, Marvel paid Lee a 10% participation, which was based on revenue received by Marvel under an arrangement with Danchuk Productions. Under this arrangement, Lee received a percentage of gross receipts. The payments to Marvel were characterized as "profit participation." Marvel remitted 10% ($4,994) to Lee without any deduction for costs. Marvel stated to Lee that this sum "represent[ed] your 10% of the profits." (Cohen Aff. Ex. 23.) The executory portion of this prior agreement was rejected by Marvel during the bankruptcy.
After Marvel emerged from bankruptcy, the parties on November 17, 1998 executed the Agreement.
destinations. Merchandising has generated hundreds of millions of dollars in revenue to Marvel during this period. In August 1998, the film Blade, which was based on a Marvel character, was released. Despite the fact that Blade apparently generated considerable profits, Marvel was not entitled to participate in these profits based on the terms of the profit-participation provision of the production agreement.
Marvel's contract with Sony for use of the character Spider-Man (generally regarded as Marvel's most valuable asset) contained a gross-profit participation provision. Spider-Man: The Movie, which was released in May, 2002, proved to be a huge box-office hit, earning $114.8 million in its opening weekend (at the time, the largest domestic opening of all time) and more than $800 million in worldwide box-office gross. Based on these receipts, the profit participation provision that Marvel negotiated with Sony has yielded more than $50,000,000 to Marvel.
As set forth in its 2002 annual report, Marvel's toy division alone reported over $100 million in sales of Spider-Man: The Movie toys. (Id. Ex. 3.) Marvel's 2003 results were similarly strong, driven by the popularity of the films X-Men 2, Daredevil, and Hulk, all of which featured Marvel characters. (Id. Ex. 4 at 22).
Marvel has leveraged its characters' universal awareness and appeal to position them as highly soughtafter franchises within Hollywood, much like movie stars who can "open" a film and therefore command profit participation.
Marvel's agreements include either gross profit participation "dollar one," a real profit participation, or equity (ownership) interests in the films themselves.
Q: Is that a true statement?
A: I would not call it a gross profit participation.
Q: I take it that you think your use of the term "gross profit participation" is incorrect?
A: It's neither correct nor incorrect. You can call it anything you want. It shows exactly what he means.
According to plaintiff's expert Steven D. Sills, a certified public accountant familiar with film industry compensation agreements, consistent with industry custom and usage, profit participation comes in a wide variety of forms, from standard net profits to first-dollar gross profits. According to Sills, the grant of a profit participation simply means that the recipient is entitled to a share of some defined amount: Whether that sharing is net profits, defined proceeds, gross after breakeven, rolling breakeven or adjusted gross receipts, it is still a profit participation as that term is used in the motion picture and television business.
summary judgment may be granted when its words convey a definite and precise meaning absent any ambiguity"); Chimart Assocs. v. Paul, 66 N.Y.2d 570, 572, 498 N.Y.S.2d 344, 346, 489 N.E.2d 231, 233 (1986) (stating that the interpretation of an unambiguous contract provision is a question of law for the court). Summary judgement is also appropriate "'when the [contractual] language is ambiguous and there is relevant extrinsic evidence, but the extrinsic evidence creates no genuine issue of material fact and permits interpretation of the agreement as a matter of law,'" Shepley v. New Coleman Holdings Inc., 174 F.3d 65, 72 n.5 (2d Cir. 1999) (quoting Nycal Corp. v. Inoco PLC, 988 F. Supp. 296, 299 (S.D.N.Y. 1997) (applying New York law), aff'd, 166 F.3d 1201 (2d Cir.1998)).
Compagnie Financiere de CIC v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 232 F.3d 153, 158 (2d Cir. 2000) (stating that "whether the language of a contract is clear or ambiguous is a question of law to be decided by the court"); SEC v. Credit Bancorp, Ltd., 232 F. Supp. 2d 260, 264 (S.D.N.Y. 2002), aff'd sub nom. Loewenson v. London Market Cos., 351 F.3d 58 (2d Cir. 2003). Contract language is only ambiguous when, viewed objectively, more than one meaning may reasonably be ascribed to the language used. See, e.g., Gomez v. Local 144, No. 95 Civ. 5755 (RWS), 1995 WL 731628 at *3 (S.D.N.Y. Dec. 11, 1995) (granting summary judgment after construing an unambiguous contract); Nissho Iwai Europe plc v. Korea First Bank, 99 N.Y.2d 115, 122, 752 N.Y.S.2d 259, 264, 782 N.E.2d 55, 60 (2002) (stating that ambiguity arises only from "what was written so blindly and imperfectly that its meaning is doubtful").
(S.D.N.Y. 1986) (citing Browning-Ferris Industries of New York, Inc. v. County of Monroe, 103 A.D.2d 1040, 1041, 478 N.Y.S.2d 428, 430 (4th Dep't 1984), aff'd, 64 N.Y. 2d 1046, 489 N.Y.S.2d 902, 479 N.E.2d 247 (1985)). A chief objective of interpretation is "to avoid a result which places one party at the mercy of the other." Id.
Marvel has controverted certain of Lee's statements of material fact. However, any statement controverting a statement of material fact "must be followed by citation to evidence which would be admissible . . ." Rule 56.1(d), Local Rules of the United States District Courts for the Southern and Eastern Districts of New York. Marvel has failed to comply with this requirement. Instead, it has attempted to controvert Lee's Rule 56.1 Statement by (1) stating that "there exists genuine issues of material fact to be tried with respect to the facts alleged in the following paragraphs of Lee's Rule 56.1 Statement," and (2) providing a list comprised largely of citations to paragraphs of Lee's Rule 56.1 Statement. Moreover, Marvel has come forward with virtually no evidence to refute the evidence that Lee has proffered. Under these circumstances, the facts set forth in Lee's Rule 56.1 Statement are largely deemed admitted. Loucar v. Boston Mkt. Corp., 294 F. Supp. 2d 472, 478 (S.D.N.Y. 2003); Spina v. Our Lady of Mercy Med. Ctr., No. 97 Civ. 4661 (RCC), 2003 WL 22434143 at 2 n2 (S.D.N.Y. Oct. 22, 2003).
B. Profit Participation Pursuant To The First Sentence Of Paragraph 4(f) Is Not Limited to Net Profit Participation.
According to Lipson, Marvel's 30(b)(6) witness, Marvel's construction of the first sentence of paragraph 4(f) is based on the plain meaning of the text. According to Lipson, Lee is entitled to participation pursuant to paragraph 4(f) only when a payment by a studio (or producer) to Marvel is the result of a calculation of profit based on "Hollywood Accounting." Marvel argues that Lee is not entitled to share in profits arising from the contingent compensation provision in the Spider-Man agreement (and others like it) because such provisions entail participation in gross receipts and not profits.
However, the first sentence of paragraph 4(f) does not state that Lee's participation is limited to net profits earned by the producer or studio. Nor is the word "profits" defined in the Agreement. Moreover, the first, and therefore preferred, dictionary definition for "profit" is "an advantageous gain or return; benefit" (The American Heritage College Dictionary (3d ed. 2000); or "a valuable return: gain." (Merriam-Webster Online Dictionary). As demonstrated by the evidence proffered by Lee, these dictionary definitions are consistent with Marvel's own consistent practice in treating all forms of contingent compensation as profit participation.
In short, the first sentence of paragraph 4(f) is not ambiguous. 4 It provides that Lee is entitled to share in the results of Marvel's arrangements for movie and television productions involving Marvel characters, however those arrangements may have been characterized as between Marvel and the third party, as long as there is a valuable gain or return, a benefit to Marvel.
It is also apparent that a determination of the profits to which Lee is entitled cannot be made on the basis of the present record.
4 Even if the first sentence of paragraph 4(f) were ambiguous, the extrinsic evidence proffered by Lee would permit interpretation of the agreement as a matter of law. See Shepley, 174 F.3d at 72 n.5.
rights" describes all rights beyond a film/television production's initial intended distribution, and that such rights are understood in the entertainment industry to necessarily include merchandising.
5 It is appropriate to consider expert testimony of custom and usage to inform the interpretation of a contractual term. See, e.g., Am. Nat'l Fire Ins. Co. v. Mirasco, 265 F. Supp. 2d 240, 252 (S.D.N.Y. 2003); see also Int'l Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76,87 n.4 (2d Cir. 2002) (citing Morgan Stanley Group Inc. v. New England Ins. Co., 225 F.3d 270, 275 (2d Cir. 2000)).
Based on this expert testimony proffered by Lee and Marvel concerning common usage in the relevant industries, it is determined that the phrase "ancillary rights," as used in the first sentence of paragraph 4(f), necessarily includes merchandising rights.
The second sentence of paragraph 4(f) states: "This participation is not to be derived from the fee charged by Marvel for the licensing of the product or of the characters for merchandise or otherwise." Contrary to the interpretation urged by Marvel, this sentence does not bar Lee's participation in any and all merchandising revenue derived by Marvel. By its plain language, the sentence only excludes Lee's participation in "fee[s] charged by Marvel for . . . licensing[.]"
Transportation LLC v. Waste Management of Conn., Inc., 211 F.
Supp. 2d 499, 503 (S.D.N.Y. 2002) (stating that when interpreting a contract, a court should "read meaning into each provision of [the] contract, if possible").
any and all revenue received by [Marvel] from its licensee in exchange for [Marvel's] grant of the rights to use its characters for merchandising . . . regardless of whether the fee is in the form of a onetime payment, a percentage royalty based on sales, an interest in the entity to which the rights were granted, or a combination of these payment structures.
(Marvel Opp. Mem. at 4 (emphasis in original).) Lee does not seriously dispute the validity of this alternative construction of the phrase "fee[s] charged by Marvel for . . . licensing." On this basis, Marvel's alternative construction of the phrase is adopted.
This construction not withstanding, Lee argues that he is entitled, as a matter of law, to participation in the revenues generated by the following three merchandising ventures: (1) the marketing of film/television merchandise by Marvel's ToyBiz division, (2) the marketing of Spider-Man: The Movie merchandise by LP (a Sony/Marvel joint venture), and (3) the Hulk merchandising arrangement entered into by Marvel and Universal.
Marvel has conceded that its profits from the manufacture and sale of movie-related toys by its own ToyBiz division are not covered by the language of the second sentence of paragraph 4(f), characterizing this as the "only arrangement arguably not covered by the plain language of the merchandising exclusion." (Marvel Opp. Mem. at 5.) Marvel's explanation that it "believes" that the merchandising exclusion was nonetheless intended to cover these activities (Id. at 6) is submitted without any evidentiary support. That unsupported belief will not forestall summary judgment. Saffire Corp. v. Newkidco, LLC, 286 F. Supp. 2d 302, 306 (S.D.N.Y. 2003).
However, triable issue of fact do exist as to whether Lee is entitled to share in the profits from the LP and the Hulk merchandising ventures. Neither party has established whether either of these ventures involved the grant of a license by Marvel to a third-party for the use by that party of Marvel characters in merchandise.
from licensing transaction (i.e., revenues in which Lee is entitled to participate).
Based on the foregoing, Lee's motion for partial summary judgment is hereby granted in part and denied in part. Marvel's motion for partial summary is hereby granted with respect to its proposed alternative construction of the phrase "fee[s] charged by Marvel for . . . licensing," and denied with respect to all other issues.

References: v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.