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Article 10: Stan Versus The Man
I do so enjoy a bit of comics-related litigation. And now there's another case for me to look over, with the summary judgment decision in Stan Lee v Marvel Enterprises. Let's be clear from the start. This case does not raise any wider legal issues about creator ownership. Nothing of that sort arises. This case is about the interpretation of Stan Lee's employment contract, paragraph 4(f). Which isn't to say that the case doesn't have some wider interest beyond that - but it has nothing to do with creator ownership. Stan Lee has, of course, been a Marvel employee since the year dot. However, after the company went into Chapter 11 bankruptcy in the late 1990s, his contract was renegotiated. We're dealing here with an employment contract from 17 November 1998. Now, there's a certain tendency to portray this case as a David and Goliath exercise, but let's put that into some perspective. Even on Marvel's interpretation, this contract is not ungenerous. Basically, the contract requires Stan to put in ten to fifteen hours' work every week. Presumably the idea was that he'd do some promotional work and perhaps write the occasional story. On any view, it's a less than demanding schedule. In return for this, Lee is getting paid $1 million a year until he dies. When he dies, his widow will get half a million dollars a year until she dies. Then, for another five years after that, his daughter gets $100,000 a year. On top of that, he got stock options, which he's already exercised, bringing in another $1.4 million. Not bad for fifteen hours' work a week, I think you'll agree. But that's not the crucial clause. The crucial one is paragraph 4(f):
This is not quite as straightforward as it sounds, since the contract doesn't define "profits", "ancillary rights" or "fee". Hence the litigation. Let's start with "profits". Crucially, the contract does not give Stan a right to share in the profits of the movies. Rather, it gives him 10% of Marvel's profits derived from the films' profits. So if the film makes a loss, Marvel gets nothing and Stan gets nothing. But even if the film makes a profit, if Marvel doesn't have a profit share of some sort, Stan still gets nothing. And that's what happened in 1998 with BLADE. Marvel nominally had a right to share in the net profits, but Hollywood accounting is a strange beast, and the net profits have a funny habit of being zero. So Marvel got nothing, and Stan got nothing. At this point, Marvel changes policy and decides to start demanding a share of the gross (in other words, the takings before Hollywood accounting gets hold of it). Lo and behold, studios are actually willing to deal with them on this basis. SPIDER-MAN is released, and the cash starts to flow in. Stan Lee waits politely for his cut. Marvel tell him to get lost. Here's their argument in a nutshell: The deals for SPIDER-MAN, X-MEN and so forth do not give Marvel a share in the profits. They give Marvel a share in the gross. That's a different thing. So while Marvel has certainly received a shedload of cash from these films, it has not made any profits derived from the profits of the films. They're derived from the revenue. At first glance, this actually makes some sense. "Revenue" is not "profit" - that's a basic concept. Giving Stan a cut in Marvel's revenue shares would be a wildly generous provision in a contract that was already paying him handsomely for doing not very much. Unfortunately, it turns out that Marvel's gross participation arrangements aren't quite as gross as they first seem, since while they haven't been subjected to Hollywood accounting, there are still some deductions before Marvel gets its cut. It's a gross profit share, not a revenue share. Whoops. So much for that argument, then. Marvel found itself arguing that "profits" was somehow implicitly qualified to mean "profits calculated by Hollywood accounting", and not surprisingly, the judge was not persuaded. (Aside from anything else, it would mean that "profits" had two different meanings in the same sentence, since there could be no question of Marvel's own profits being subject to Hollywood accounting.) Having lost on that point, Marvel tries a different tack. Stan's cut is based on profits from the movies, including ancillary rights. But, say Marvel, "ancillary rights" doesn't include merchandising revenue, so he doesn't get a share of all the movie merchandising. The judge takes all of three paragraphs to demonstrate why this is nonsense. So "ancillary rights" include merchandising and Stan gets a cut of the action figures. But here's where it gets interesting. The second sentence of the clause limits Stan's rights. He doesn't get a cut of Marvel's profits from "the fee ... for the licensing of the product or of the characters for merchandise or otherwise...". But what's a fee? Perhaps a little surprisingly, Stan more or less accepted Marvel's fallback position - a fee charged for licensing includes any and all revenue from the licensee, even percentage royalties and equity shares. So the merchandising revenue is straight back out again! Or is it? Because ToyBiz is already part of the Marvel group. And the money it makes off ToyBiz is not a licensing fee, so Stan gets a cut of that after all. The action then lumbers on to the next stage, where the parties will squabble about whether the arrangements for SPIDER-MAN 2 and HULK merchandise fall within the exemption or not, an argument which turns on the meaning of the word "licensing" and which will probably be so unrelentingly boring and only the hardiest of comics fans will bother to keep track of it. So. Anything we can take from this? Well, for one, if I'm reading this right, this means that Stan is entitled to 10% of Marvel's profit on movie merchandise created in-house by ToyBiz, but not movie merchandise created by a third-party licensee. That seems a surprising result. It may encourage Marvel to consider whether it's cheaper to go with a third-party licensee rather than their own toy wing - although the terms would have to be pretty good to justify it. More to the point, what on Earth were Marvel thinking when they gave Stan this remarkable amount of cash for doing so very little? Lee's biographer, Tom Spurgeon, has pointed out that there was an upside for Marvel in all this. They got Stan to sign a load of papers waiving any claim to ownership of the characters. Without Stan's characters, Marvel doesn't have much of a business, so this was a risk worth throwing some money at. In fact, Stan's claim to ownership would have been highly doubtful (he was, after all, a Marvel employee, not a freelancer), and the Marv Wolfman case makes it even weaker. The generosity of the contract may have been a bit of a waste of money. But they wouldn't have known that at the time. But why be so generous as to give him a profit share - and it has to be said that despite Marvel's protests, that's what most people seem to have interpreted it as. After all, the judge resolved the point at the stage of summary judgment, holding that the wording was unambiguous. It should surely have crossed somebody's mind that a cut of gross might be covered. Spurgeon suggests two possible explanations. One is that the lawyers screwed up. These things happen, after all. The second is that Marvel understood full well what they were granting, but thought that it was an academic point (in other words, Marvel screwed up). After all, if Marvel was only going to get a cut of net profits, then they'd hardly see anything. 10% of bugger all is bugger all, so what the hell. Yet this contract was signed in November 1998, by which time BLADE had already been out for three months. Surely the potential money should have been apparent by then? Commercially, this has been a rather bad deal for Marvel. They're shelling out a lot of money for Stan to do very little, in return for which he's waived a claim to the characters, which wouldn't have succeeded anyway. The only reasons for entering into such a remarkable deal are surprising generosity, massive cock-up, or some combination of the two. After all, as Marvel continues to build its business around movie licensing, 10% is going to be a lot of money. Paul O'Brien is the author of the weekly X-AXIS comics review. Ninth Art endorses the principle of Ideological Freeware. The author permits distribution of this article by private individuals, on condition that the author and source of the article are clearly shown, no charge is made, and the whole article is reproduced intact, including this notice. Back. |