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Netflix Sues Relativity Over Breach of Exclusivity Deal

Netflix sued Relativity Media on Friday, accusing the bankrupt mini-studio of violating an exclusivity agreement by providing five films to Amazon and Starz.

The streaming service also accuses Relativity of failing to provide the required number of releases for 2017. Netflix is seeking $12.6 million in damages for the exclusivity violations, plus $5 million for each film Relativity failed to deliver.

Relativity declared bankruptcy last month for the second time in three years, as it seeks a court-approved sale to UltraV Holdings. Since emerging from the first bankruptcy in 2016, Relativity founder Ryan Kavanaugh has been unable to raise fresh capital to produce new films.

Relativity continues to have an output agreement with Netflix, first signed in 2010, which Relativity considers to be “one of the crown jewel assets of the estate,” according to the filing. Under the deal, Relativity was originally supposed to provide 15 titles to Netflix in 2017. Following its first bankruptcy, the company revised that total, offering to provide 22 films from 2016 through 2018, including eight in 2017. In fact, Relativity delivered just three titles in 2017, according to the complaint.

Netflix also alleges that it paid licensing fees for exclusive rights to “The Lazarus Effect,” “The Woman in Black 2,” and “Beyond the Lights,” each of which subsequently appeared on Amazon’s streaming service. According to the complaint, Relativity lost control of the titles when Macquarie US Trading LLC foreclosed on them, and the films were then offered to rival distributors. Netflix also alleges that “Hector and the Search for Happiness” and “And So It Goes” were licensed to Starz during Netflix’s exclusivity period.

Netflix and Relativity waged a bitter fight during the mini-studio’s first bankruptcy, when the streaming service sought to release “Masterminds” and “The Disappointments Room” prior to their theatrical runs. The court sided with Relativity in that dispute, and ordered Netflix to pay Relativity’s attorneys’ fees.

Relativity has alleged that Netflix sees the output agreement as unfavorable, as it was signed when Netflix was just beginning to stream theatrical films and was willing to pay a premium for such rights. Since then, Netflix has gained more power in the marketplace and has, according to Relativity, been doing everything it can to get out of the 2010 agreement.

Relativity alleges that Netflix used the alleged breaches of its agreement as a basis to withhold $1.6 million in licensing payments.

In bankruptcy court, Relativity has stated that “not a single one of the Netflix’s allegations — most of which are factually inaccurate — gives rise to a breach of or damages claim under the Netflix License Agreement.”

The deal is set to expire at the end of this year.

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