Studios Hit With String of Lawsuits for Outdated Profit Participation Models
On March 21, 2014, the latest class action lawsuit was filed against MGM in LA Superior Court by Joan J. Buck, whose late father produced the 1965 Woody Allen flick “What’s New Pussycat?” Buck is seeking residual payments she claims are owed to her and other profit participants (i.e., the class), based on a breach of contract theory.
She claims that the standard contract entered into between the profit participants and the studio requires the calculation of revenue to be based on 100% of the revenue received by MGM. However, contrary, to the unambiguous terms of the contract, MGM “engages in a common and systematic practice of paying less revenue than it receives by including only 20% of the revenue in their calculations.” Basically, the suit alleges a failure to properly account to Buck and the other profit participants for income derived from the distribution of the motion picture on home video. The term “home video” is inclusive of VHS, DVD, laser disc, video-on-demand, digital download, and streaming.
The contracts at issue were originally negotiated during the era of a developing home video market. The complaint reads: “When home video distribution was in its infancy, and studios such as MGM had not yet established in-house home video departments or subsidiaries, the large independent home video distributors paid a flat 20 percent royalty to the studios from home video sales. The studios, including MGM, then paid profit participants based on the 20 percent royalty received by the studios.”
After the studios established their own home video divisions, they continued the practice of only reporting 20% of actual receipts to profit participants. Such accounting practices have allowed MGM to withhold a substantial amount of money it receives from home video distribution at the expense of Buck and other members of the class. This type of math keeps 80% of the revenue generated from home video distribution in the pockets of the studio and never subject to the allowance of the profit participants.
In January, four separate lawsuits were filed in the LA Superior Court of a nearly identical nature. Twentieth Century Fox, Paramount Pictures, Universal City Studios, and Sony Pictures were all hit with similar lawsuits by the estates of old Hollywood nobility. In separate complaints, directors Collin Higgins and Stanley Donen and the estate of the late actor Charles Bronson allege that the studios have shortchanged them with an outmoded method of calculating compensation for rentals, sales and other sources of revenue deriving from home video.Estate of Charles Bronson vs. Sony Pictures
Larry Martindale, the trustee of Bronson Survivors’ Trust, filed a complaint against Sony Pictures for calculating the share of its profit from home videos it pays the trust based on only 20 percent of its revenue from home video sales than the full 100 percent. Specifically, Martindale is suing over the 1975 film “Hard Times.”Estate of Collin Higgins vs. Paramount Pictures; Higgins v. Universal City Studios
Collin Higgins Productions Ltd., the loan-out company of the late writer and director of the same name, brought two separate suits against Paramount and Universal. The suit against Paramount is over profit participation for the 1978 film “Foul Play,” and the suit against Universal is for his 1982 film “Best Little Whorehouse in Texas.”Estate of Stanley Donen vs. 20th Cent. Fox
“Singin’ in the Rain” and “Funny Face” director Stanley Donen also filed a class action lawsuit over breach of contract concerning his 1974 profit participation agreement with Fox for “Lucky Lady.” According to the complaint, the contract provides that he should get 5% of the “adjusted gross receipts” of the movie after the break-even point based on 100% of the gross receipts.
The recent flurry of these homogenous suits within the past few months brings into question the litigation strategy of the plaintiffs. Interestingly enough, all of the plaintiffs of each lawsuit are represented by the same four law firms: Johnson & Johnson LLP, Kiesel + Larson LLP, the Law Office of Raymond P. Boucher, and Pearson, Simon, Warshaw & Penny, LLP. So, despite the variance of parties in each case, the arguments remain relatively the same. Public commentary from the defending studios has yet to be reported.