BY:Michael I. Rudell
(Originally published in the Entertainment Law column in the New York Law Journal, March 25, 2005.)
A corporation which furnished writing, producing and directing services of Peter Jackson in connection with “The Lord of the Rings: The Fellowship of the Ring” (the “Film”) has filed suit in Federal Court against the producers and distributors of that Film.1Defendants have not yet responded and there are no conclusions to be drawn as to the merits of the allegations. However, the Complaint is of interest because of the information it sets forth as to the relationship of the parties and several of the provisions contained in the applicable agreement.
In August of 1998, Wingnut Films, Ltd. a New Zealand corporation in the business, among other things, of providing the services of Peter Jackson (“Jackson”) entered into an agreement (the “Agreement”) with Katja Motion Picture Corp. (“Katja”) relating to the creation, production and distribution of three motion pictures based on the books The Lord of the Rings (collectively the “Trilogy Films”). The Complaint describes the relationship under the Agreement as “akin to a joint venture. . . in which the parties engaged in a single business enterprise (the creation, production and distribution of three motion pictures based upon the books Lord of the Rings , including the Film. . .) for mutual profit with each party contributing to the venture.” Wingnut’s contribution included furnishing the writing and producing services of Jackson and Fran Walsh (“Walsh”) and Jackson’s directing services.
According to the Complaint, the Film is reported to have grossed in excess of $314 million and $556 million from United States and foreign box office receipts, respectively. Shortly after its release, the Film was reported to be the fifth highest grossing film of all time in the world. It was nominated for thirteen academy awards and won four.
The Complaint states that the Agreement accorded to Jackson three cuts and three public previews for each of the Trilogy Films. He also was entitled to final cut with respect to the theatrical, home video and television versions of the Trilogy Films in the United States and major foreign territories.
Wingnut was entitled to certain approval rights under the Agreement, some of which were shared jointly with Katja. These included: (a) the engagement of other producers and the degree of such producers’ involvement in the Trilogy Films; (b) the engagement of writers and key crew and the right to designate all non-key crew; (c) the selection of the cast; (d) the right to produce the Trilogy Films in New Zealand unless Wingnut approved a different location; (e) the aspect ratio and format of the Trilogy Films and (f) according to any third party, other than approved actors and prior rights holders, a participation in merchandising.
It should be noted that the approvals contained in the Agreement are not customary, and are obtained by entities with significant bargaining position. In addition to leverage that Wingnut may have had during the negotiations, the Complaint states that Wingnut, Jackson and Walsh devoted eight years to the development and production of the Trilogy Films and were at financial risk together with defendants.
Wingnut also was entitled to certain rights of consultation. It had the right to consult with Katja with regard to the United States theatrical, home video and television marketing campaigns and release patterns, including key art, print, radio and television advertising, trailers, entry in film festivals and beneficiaries of charitable premiers. It had the further right to be consulted with respect to dubbed and subtitled versions of the Trilogy Films in major foreign territories, the designation of the cities, theaters, dates and times for the public previews of the Trilogy Films, and any claims that were subject to indemnity as provided in the Agreement.
Jackson, and in some instances Walsh, were designated by the parties to exercise the approval, cutting and consultation rights accorded Wingnut under the Agreement.
The Complaint states that if Katja retained the right to publish screenplays of the Trilogy Films, it was obligated to assign such rights to Wingnut in return for payment of 50% of the gross compensation received by Wingnut from the exploitation of such rights.
For providing the services of Jackson and Walsh and for the obligations which it undertook Wingnut, was entitled to receive fixed compensation and to share in first dollar gross receipts of the Trilogy Films. In addition, Wingnut was entitled to certain bonuses when gross receipts of the Trilogy Films reached certain levels and the sale of home video units attained certain levels.
Wingnut alleges that it agreed to reduce its normal and customary producing and directing fees in half in order to receive its share of gross receipts for the Trilogy Films. (The Complaint notes that all three films were “greenlit” simultaneously.) It also alleges that it agreed to a holdback of a portion of its producing and directing fees to be applied in the event that any of the Trilogy Films exceeded the approved budget of such film, plus a so-called cushion (the “Over Budget Excess”). This Over Budget Excess could be deducted from sums otherwise payable to Wingnut as a participation in gross receipts of the Trilogy Films under a formula set forth in the Agreement.
As an inducement to Wingnut, to enter into the Agreement, the Complaint states that NL Productions agreed in writing to guarantee the full and faithful performance of all of Katja’s obligations under the Agreement. This guarantee provided that NL productions waived any right to require Wingnut to proceed against Katja or to pursue any other remedy prior to proceeding against NL productions.
Wingnut claims that defendants failed to (a) properly account, calculate and pay to Wingnut its share of the profits derived from the distribution and exploitation of the Film; (b) license, market and exploit the Film subject to reasonable business judgment exercised in good faith; (c) negotiate certain sales and licenses on an arm’s length non-discriminatory and customary basis in good faith, and (d) properly allocate license fees paid with respect to packages of defendants’ film properties that include the Film. It also alleged breach of various provisions of the Agreement.
Cases of this nature can provide information about the motion picture industry that is not otherwise available. Examples are the affidavits filed in the suit brought by Art Buchwald involving “Coming to America” and the papers filed in the Lee v. Marvel case, both of which were the subject of columns that appeared in this space.2 It is reasonable to assume that if this action proceeds there will be additional illuminating material contained in the documents which are filed.
1 [Wingnut Films, Ltd. v. Katja Motion Pictures Corp. et al., U.S. District Court, Central District of California, Case No. CV-051516 RSWL (SHX) (2005)].
2 Damages Awarded in Buchwald Case, NYLJ April 24, 1992, Vol. 207, Issue No. 79 Definition of Motion Picture Profits Held to Include Gross Proceeds, NYLJ February 25, 2005, Vol. 233, Issue No. 37 .