September 04, 2012 5:13pm PT by Eriq Gardner
Judge Sends 'Smallville' Vertical Integration Lawsuit to Trial
A jury will hear the dispute over whether the creators and executive producers of TV's Smallville were robbed of profits by Warner Bros. TV, the studio behind the long-running series.
Miles Millar and Alfred Gough and series co-producer Tollin/Robbins Productions are suing WBTV for allegedly making sweetheart license-fee deals for Smallville with sister companies WB Network and then The CW. The case concerns "vertical integration," an important topic now that many networks are producing content in-house.
On Tuesday, a Los Angeles Superior Court judge denied WBTV’s motion for summary judgment. Now a jury must decide whether the showrunners were deprived by not getting as much as they could when WBTV made its deals with affiliates instead of outside companies, and also provides the possibility of punitive damages. The plaintiffs estimate damages at about $100 million.
Warner Bros. argued in its motion for summary judgment that it had absolute discretion to determine the terms of its license agreement. But in denying that motion, the judge accepted the plaintiff's response that the studio was obligated to make deals in good faith.
According to the judge's ruling: "Plaintiffs have demonstrated triable issues regarding these provisions: whether WBTV complied with its arms-length obligations, whether a provision which proposed to add that the agreements be “for fair market rates consistent with licenses granted by Warner to non-affiliates” was included in the Producers’ MAGD [Modified Adjusted Gross Definition], whether the absolute discretion clause applies to the producers without limit and whether the producers’ MAGD inherently included the equivalent of an affiliate, arms-length provision."
The defendants also argued that damages are "speculative" because the executive producers couldn't establish that greater profits would have been earned if Smallville had been licensed to Fox or another network.
But the judge says a jury must determine "whether Plaintiffs received terms comparable to other WBTV licensing deals, whether Plaintiffs received terms that met the customs and practices of the industry, whether plaintiffs would have obtained greater compensation if the series’ license agreements had higher licensing fees or more favorable terms, whether plaintiffs would have received greater compensation from The WB and CW if the series’ license agreements were negotiated and renegotiated in good faith and at arms-length and whether other series cited by WBTV are in fact comparable to the series."
The plaintiffs also successfully battled back WBTV's demand that punitive damages be taken out of the picture. The studio had argued that oppression, fraud or malice couldn't be demonstrated by clear and convincing evidence, but again, the judge says these are issues for a jury.
At trial, WBTV could defend itself by saying that the statute of limitations precludes the plaintiffs' claims. The studio believes that its legal adversaries knew all about the licensing terms since 2000 but didn't file a lawsuit until March 2010. WBTV had hoped this would preclude any liability, but the judge says, "It is not clear as to precisely when the statute of limitations accrued under the circumstances of this case."
A trial originally was scheduled for next month, but the parties are in the midst of delaying proceedings until sometime next year.
Warner Bros. TV had no comment.
The plaintiffs are represented by the firm of Kinsella Weitzman Iser Kump & Aldisert.
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