Intellectual property

Scarlett Johansson V. Disney: Contract, Tort Or No Case?

“The most important deals in the movie industry are finalized on the sun-drenched turf of golf courses or around turquoise swimming pools, where the smell of barbecue sauce is borne on gentle breezes and wafts over the stereo system of houses that people seldom leave.” – Shirley Maclaine

That quote sure sounds like one off the lips of Samuel L. Jackson. And mind you, it is reported that all his contracts have clauses for a golf course embedded in them.

Let’s get to a start now. If you follow Hollywood well enough, you may have noticed the interesting number of trailers on social media platforms and their releases within the last few months. Amidst the releases came Black Widow, an event movie whose release, initially set for May 2020, was delayed for more than a year, thanks to the Covid-19 pandemic. For most of the Hollywood blockbuster enthusiasts, ‘Black Widow’ was a must watch on release. For others like us, it is a cynosure.

“Why will we not throw it all at a story whose release Covid-19 kept us anticipating”? A friend asked rhetorically of the event movie.

The Movie: Black Widow
Being an American superhero film based on Marvel Comics, the action/adventure movie was produced by Marvel Studios (“Marvel”) through its brand, Marvel Cinematic Universe (“CMU”). This movie that was set just after the events of Captain America: Civil War (2016) with a budget of $200M debuted in America on July 9, 2021 after being premiered at various events around the globe on June 29, 2021. As at July 30, the movie had grossed $345M in box office receipts, making it the fifth highest grossing movie of 2021 within its short release. Box office receipts refer to the total revenue made from the sale of tickets for a movie premiere. They refer to any receipt from all sources whatsoever for the sale or distribution of tickets for the viewing of recorded performances.

In writing this, we did not set out to simply emphasise the millions and billions of dollars flowing through the Entertainment industry, whether music or movie; and for the later, whether Hollywood, Bollywood, Nollywood or any other wood. Kindly find below the chief reason for our typing.

The Suit
On July 29, exactly twenty days after the event movie’s debut in America, Marvel star and the face of the movie, Scarlett Johansson (“Scarlett”), who took on the fictional role of Natasha Romanoff, filed a lawsuit against the Walt Disney Company (“Disney”) alleging that the contract she executed with Marvel was breached when Black Widow was released on Disney+. Scarlett claims that Disney dishonoured its commitment to release the film exclusively in theatres by simultaneously making the Marvel movie available on Disney+. Now, Disney+ is an OTT platform owned by Disney for the streaming and distribution of cinematographic content produced by Disney Studios. Disney+ is operated by the Media and Entertainment Distribution division of Disney.

Filed in Los Angeles County Superior Court, the suit contends that Black Widow had been guaranteed wide theatrical release from Marvel’s deal with Scarlett, Disney was wrong (legally) to have had the movie streamed on its OTT service, earning $60M within the first week of the movie’s release in the process in a time where the theatrical market was weak, only trying to rise from the impact of Covid-19 which saw that theatres and premiere shows were locked or restricted to a certain number of persons. Scarlet further claims in the suit that Disney’s act meant she was no longer going home with the ‘very large box office bonuses’ (back-end profits) that Marvel otherwise would have been obligated to pay her as the movie grossed higher in box office receipts.

Disney, on its part, released a statement criticising the move, tagging the lawsuit “sad” and “distressing”, Disney having fully complied with the terms of the contract Scarlett. The statement asserts also that the release of Black Widow on Disney+ with Premier Access has significantly enhanced Scarlett’s ability to earn back-end profits on the $20M she has received from Marvel as base remuneration for her starring role in the event movie.

Scarlett does not deny the $20M base salary as that may not be the centre of the suit. What is contentious, however, is whether her contract with Marvel had a clause for bonuses as the box office receipts grossed. This view flows from the contention of Marvel, revealed in the previous paragraph, that the release of Black Widow on the premium Disney+ has significantly enhanced Scarlett’s ability to earn additional compensation on top of the $20M. An unveiling of the contract will do.

The Contract
Although the exact details of Scarlett’s contract with Marvel for Black Widow is not yet public domain, it is apparent that somewhere in the contract is embedded a clause that gives Scarlett the right of entitlement over the revenue bonuses on the film’s box-office receipts separate from the $20M base salary in the deal. From the face of it, the deal seems not to have offered nor contemplated any bonuses or back-end profits accrued on revenue from digital streams or downloads.

While contracts between movie stars and movie producers and distributors in Hollywood differ, the legal representatives of the Stars, in recent times, have found a way to negotiate and make certain clauses constant. The set of paragraphs outlining the terms of back-end profits on the movie’s total box office revenue is one of such clauses. Such a clause was inserted, negotiated and agreed upon in Robert Downey Jr’s (“Iron Man”) contract with Marvel in the making and production of ‘Avengers: Endgame’.

That contract had Marvel agreeing to pay Robert $20M to play the role and an additional 8% as back-end profits depending on the movies total net box office grossing. When the movie (Avengers: Endgame) left theaters, it had made a staggering $2.797B at the box office as gross revenue with a net profit of about $700M. That meant Robert was entitled to about $55M. While you do your simple mathematics, let me quickly chip in the fact that Robert ended his contract with MCU with $75M in total for his role in Avengers: Endgame, thanks to the ‘back-end profit’ clause in his contract. That’s a whooping sum!

Undoubtedly, Scarlett’s contract is similar to Robert’s and the knowledge of how much Robert (and those two are close) is reported to have bagged may have spurred her contractual right enforcement. With that suit, she is ardent on not sliding on this one.

The Seeming Irony
Entertainment companies are often structured and operated like mini conglomerates, with multiple divisions or subsidiaries operating in a variety of industries. Bringing it home, Disney is a holding or parent company in media and entertainment with myriads of subsidiaries under it, including the distributor of Black Widow, Walt Disney Studios Motion Pictures. Marvel is also one of such subsidiaries (a wholly owned subsidiary actually) of Disney after it was acquired on the last day of 2009 for about $4.24B.

Here is the relationship between a holding company and a subsidiary. A subsidiary is a corporation that is owned by the parent or holding company. The parent company owns or controls more than half of the equity stock in the subsidiary company, indicating that it has a controlling interest. Similarly, a wholly owned subsidiary is one whose stock is totally in the ownership (100 percent) of a holding company.

Each subsidiary is technically a separate entity from other subsidiaries and the holding company, as each subsidiary, being a legal person, has its will. Such will is expressed in its ability enter into agreements, sue and be sued in its name, own properties, succeed perpetually, etc. The only coverage the holding company has over the subsidiary is that it determines, and has a stake in, the investments of the subsidiary.

The Summary
Starlett has a contract with Marvel over Black Widow, a contract whose performance is the assurance of indefinite revenue bonuses in no distant time. The contract ensures the movie would only have theatrical debut with no simultaneous streaming debut. Disney is aware of this contract. Marvel is a subsidiary of Disney, Disney owns Disney+. Black Widow debuts simultaneously in Disney+, a premium streaming service. Disney announces the colossal profit it amasses from the streaming of the event movie. Starlet believes the simultaneous release undermines the box office potential of Black Widow and consequently her bonuses. Starlet files a suit of tortious interference against Disney for inducing Marvel’s inability to perform the contract.

There’s your summary.

Any Case?
It is not Scarlett’s decision to file this suit that has met with the most criticisms, unless, of course, by Marvel. What is questioned is the choice of tortious interference as a cause of action instead of an action for breach of contract.

Well, a contract is generally an agreement between two or more persons or entities called parties. These parties are bound by this contract and will be liable under the agreement if they breach any of its terms, expressed or implied. Only parties to the contract are bound by it. Third parties are said to be “not privy to the contract” and are therefore not bound by the contract. This is known as the privity of contract principle and has some qualified exceptions (which we will forgo since none of them applies in the case in perspective). Since third parties are generally not bound, the party cannot be held to be in breach of a contract; at least not directly.

The way to establishing the liability of a third party who indirectly led to the breach of a contract is through the principle of tortious interference. Tortious interference is a common law tort that allows a claim for damages against a party who wrongfully, whether negligently or intentionally, interferes with the contractual or business relationship of another. While an intentional interference requires proof that the wrongly party (the defendant) intended to cause the alleged harm to the alleging party (the plaintiff) or knew that harm was likely to result from their actions (recklessness), negligent interference requires the plaintiff to show that the defendant owed them a particular duty of care, was in breached that duty and such breach caused the plaintiff harm of any kind.
We hope the rationale behind the cause of action is getting clearer?

Disney is headquartered in California and the California Law identifies two kinds of tortious interference: interference with prospective economic advantage (“IWPEA”) and interference with contractual relations (“IWCR”). IWPEA is wider than IWCR and has claims for IWCR subsumed into it since all claims for IWCR consequently lead to a claim for IWPEA.

A claim for IWPEA would require proof of seven mutually inclusive element: the existence of an economic relationship that was likely to benefit the plaintiff; the defendant’s knowledge of this relationship; independent wrongful conduct by the defendant; intent on the defendant’s part to disrupt the economic relationship, or knowledge that disruption was likely because of their conduct; disruption of the relationship; harm to the plaintiff; and a causal connection between the wrongful act and the harm. The elements required in proof for IWCR are akin to those required in proof for IWPEA but for the fact for the former, it must first be shown that there existed a contract between the plaintiff and a third party (Marvel, in our scenario).

If asked, we’d say Scarlett’s claim perfectly comes within the law of tort and the principle of tortious interference particularly. To the best of our knowledge, none of the many exceptions to the privity of contract principle in existence would justify instituting a breach of contract action. John Berlinski, Scarlett’s Attorney, being an experienced and multiple award-winning entertainment Attorney, knows this action would be dismissed or struck out (in a best-case scenario) if instituted as a breach of contract against Disney. He also is aware that since Marvel is a company, though a subsidiary of Disney, it has a legal mind and cannot be approached with a breach of contract demand list for a contract it did not directly breach.

Why Los Angeles?
“Why Los Angeles instead of California?” Give us the ‘two seconds benefit of doubt’ of assuming that this came to mind. Los Angeles (L.A.) is a city in Southern California. The city is governed by the laws of California, which is the state that houses L.A. In 2015, Scarlett moved to L.A. where she still resides. And as already stated, Disney has its corporate headquarters in L.A. from where it runs and operates Disney+.

A tortious action is civil in nature and like Nigeria, two of the best places (jurisdiction and venue) for the institution of a civil suit under the California laws are where the cause of action arose and where the defendant does business. The latter is called personal jurisdiction as it is reflected by the registered address of the defendant. Also, the Superior Court of Los Angeles County has the power to entertain all kinds of original trials within the L.A. County.

This is all putting a square peg into a square hole, we believe. A suit at the appropriate quarters for Scarlett.

The Future
Scarlett has filed this suit, which may appear to be meritorious. We await Disney’s defence and the outcome of the suit nevertheless. And as you may have thought, this suit is likely to open the floodgates of suits as movie Stars would look forward to enforcing their rights under their various contracts with Hollywood media houses and production studios. Meanwhile, ‘tortious interference’ may have a tolling effect in the minds of these Stars as they insert back-end profit clauses in their contracts going forward.

To this end, it may be needful for Hollywood companies and entertainment studios, in a bid to avoid public dragging, to think of renegotiating their contracts with growing talents and Stars. Contracts would need to be handled in a way that is more equitable and fairer for all parties, with contractual breaches and tortious interferences requiring total avoidance.

References
1. https://www.hollywoodreporter.com/business/business-news/scarlett-johansson-disney-lawsuit-1234990249/amp/?__twitter_impressio

https://www.cheatsheet.com/entertainment/robert-downey-jr-s-staggering-avengers-endgame-payday-finally-confirmed.html/

https://www.businessjustice.com/what-are-the-elements-for-a-tortious-interference-claim-under-ca.html

https://www.google.com/amp/s/screenrant.com/scarlett-johannson-lawsuit-meaning-disney-marvel-streaming/amp/

https://www.courts.ca.gov/9617.htm?rdeLocaleAttr=en

https://ballotpedia.org/Superior_Court_of_Los_Angeles_County,_California

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About Ujong Okpa and Otitonijesu David

Ujong Okpa and Otitonijesu David are Intellectual Property, Entertainment, Media and Technology Law Attorney and Enthusiasts respectively with a flair for writing. They partly work virtually with IP&Tech, an organisation that creates awareness and promotes trends in intellectual property and technology law. Ujong and Otito may be found on LinkedIn with the official names above or contacted via: okpaujong@yahoo.com, davidotitonijesu@gmail.com.