The wraps have finally come off the slugfest between Marvel Characters Inc. and Sony Entertainment over Spider-Man merchandising.
On Monday, a state court judge lifted the seal to reveal a $50 million lawsuit by Marvel claiming that Sony has hijacked Spidey by doing everything in its power to dissociate Marvel from the character in the minds of retailers.
Sony filed its countersuit Monday, alleging that Marvel is using the litigation to force an unjustified renegotiation of its agreement with Sony. It claims that Marvel cannot have the license agreement rescinded and that Marvel has breached the agreement by improper accounting on merchandising and by favoring its own merchandise over the joint-venture because it has a more favorable deal on non-movie items.
At a lengthy hearing Monday, L.A. Superior Court Judge Alexander Williams granted a motion made by Bonnie Eskenazi on behalf of Variety and the Los Angeles Daily Journal to unseal court records in the case. Williams, however, ruled that he was obliged to return two documents Sony most wanted to keep confidential — the specific terms of the license agreement and a marketing study on the first “Spider-Man” film.
In a massive complaint filed by Marvel attorney Carole Handler, the company alleges fraud, breach of contract and unfair competition. It alleges that Sony actively courted Marvel, touting that sister company Sony Electronics would be crucial to marketing Spidey. Although Sony told Marvel that its core merchandising of “classic” Spider-Man items would continue unabated, Marvel claims Sony is telling third parties that only Sony has right to market the webbed one.
According to the complaint, Sony paid $10 million in early 1999 for limited motion picture and television rights. The complaint revealed, among other financial details, that Marvel gets an advance on the films, contingent compensation and sound track royalties. As to merchandising, Marvel says rights were jointly exercised as to picture-related items, while classic Spider-Man was reserved to Marvel. In the joint entity, each side got 50% of receipts; on classic merchandise, Sony got 50% over a certain baseline.
Marvel charges that even though Sony had only limited rights, it acted as if it had perpetual and unlimited rights, going so far as to try to get a moratorium on classic merchandising, claiming Marvel should not be selling classic Spidey items until the movie ran its course.
Game didn’t play
In one section of the complaint, Marvel alleges that Sony never intended to use its electronics branch to market Spider-Man electronic games. It claims that Sony PlayStation offered only $500,000 for a game based on the movie, even though it had told Marvel it could get $5 million in guarantees and $7 million in earned royalties. Marvel claims it was then forced to take an inferior deal with Activision and that Sony also made it impossible for Marvel to make a deal with Vivendi Universal Games, because the studio took the position that Spider-Man characters couldn’t be used during movie blackout periods.
In other claims, Marvel alleges that Sony never brought in the co-promotions Marvel expected with companies such as McDonald’s and Burger King. Marvel also alleges that Sony had no basis for withholding $1.5 million in box-office receipts on the theory that it was owed money on merchandising.
Sony strikes back
In papers filed by Sony attorney Patricia Glaser, the studio alleges that it has never attempted to dissociate Marvel from Spider-Man and that it never was required to use Sony Electronics to market the character. It claims that the license agreement gives Marvel a greater share of classic merchandising, so Marvel has an economic incentive to favor classic items. Sony argues that blackout periods are provided for in the licensing agreement and that Marvel is prohibited from favoring classic items over picture-related items. It also alleges that Marvel was using inappropriate accounting methods to deprive Sony of payments on classic merchandising and that its phony accounting prompted Sony to seek an audit.
In their contract, the parties agreed to a confidential proceeding, called a reference, before a private judge, but Marvel now claims that because of Sony’s alleged fraud it is entitled to a jury trial. Sony seeks to avoid a jury trial and says it wants a reference for efficiency.
Williams did not decide the issue of whether the case will go to a private judge for a reference, instead of being tried in a public court. Either way, the public will have access to the trial, because references are public proceedings for the purpose of public access.