January 03, 2013 11:35am PT by Eriq Gardner
Warner Bros. Settles Big 'Smallville' Vertical Integration Lawsuit (Exclusive)
Warner Bros. has settled a big part of a significant lawsuit that alleged the creators and executive producers of Smallville were cheated out of tens of millions of dollars through sweetheart license-fee deals that the studio made with its sister TV networks.
On Wednesday, Tollin/Robbins Productions submitted papers in Los Angeles Superior Court to dismiss its claims. A Warner Bros. spokesperson confirms to The Hollywood Reporter that the dispute with the production company has been resolved. Part of the case from Killara Productions, run by Smallville co-developer Miles Millar and Leonardtown Productions and operated by Alfred Gough, will continue.
The Tollin/Robbins lawsuit from Smallville showrunners Mike Tollin and Brian Robbins seeking more than $100 million in damages was filed in March 2010, about a year before the long-running show about Superman's earthly upbringing ended after 10 lucrative seasons on the air.
The case touched upon a sensitive issue in Hollywood: so-called "vertical integration." The producers contended they were deprived of significant profits when WBTV allegedly undersold the series to affiliates the WB Network and then The CW instead of licensing the series to outside companies.
In August, a judge put the case on the path to a June trial.
In court papers, Warners argued that that it had absolute discretion to determine the terms of its license agreement. The studio also attempted to convince the judge that damages were merely "speculative" because Tollin/Robbins couldn't establish that greater profits would have been earned if Smallville had been licensed to Fox or another network.
But Judge Michael Johnson said there was enough in the pleadings to send it to a jury. In his ruling, he said the plaintiffs had demonstrated triable issues as to whether WBTV complied with obligations to conduct negotiations at various divisions in-house at arms-length and whether the producers' contracts included profit definitions that necessitated that money be collected at "fair market rates consistent with licenses granted by Warner to non-affiliates."
The judge added that it was up to a jury to determine whether Tollin/Robbins received terms comparable to other WBTV licensing deals, whether those terms met the customs and practices of the industry and whether the plaintiffs could have received greater compensation from The WB and The CW if the series’ license agreements were negotiated and renegotiated in good faith and at arm's length.
The plaintiffs' claims for monetary damages also were aided by the judge allowing the possibility of punitive damages as well as a late claim that alleged that Warner Bros. had paid itself for Superman rights by including subsidiary DC Comics (the show is based on the Superman comic) into the profit pool and unilaterally reducing plaintiffs' profit participation. That action was alleged to have cost the producers about $13.4 million.
A trial undoubtedly would garner big attention in the industry thanks to its focus on sensitive Hollywood accounting. Terms of the settlement agreement have not been made public. The claims from Millar and Gough are still active.
The plaintiffs were represented by the Santa Monica firm Kinsella Weitzman Iser Kump & Aldisert. Warners was represented by Gibson, Dunn & Crutcher.
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