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On Wednesday, AMC scored a huge post-trial win in the high-stakes profits battle over The Walking Dead when a Los Angeles judge ruled that the entertainment company had correctly interpreted contracts on the key issue of license fees for the highest-rated television series in cable history.
“Today’s decision is a total victory for AMC,” says its attorney Orin Snyder at Gibson Dunn. “The judge found in AMC’s favor on all seven issues that were presented at trial and confirmed that AMC honored its contracts and paid [Walking Dead creator Robert] Kirkman and the other plaintiffs what they were owed. As the court found, these plaintiffs had the most sophisticated lawyers and agents in Hollywood and they got what they bargained for. We are now turning our attention to the trial in New York — which involves very similar claims by CAA and Frank Darabont — secure in the knowledge that the first court to hold a trial on these issues ruled completely in AMC’s favor.”
The decision was a gigantic setback for Kirkman along with executive producers Gale Anne Hurd, David Alpert, Charles Eglee and Glen Mazzara. The five have been fighting for greater profits since filing a breach-of-contract lawsuit in 2017. Their legal action followed a similar case in New York from Frank Darabont (who first developed Kirkman’s comic book) and his agents at CAA. Darabont’s separate suit remains active after seven years and is set to go to trial next year.
All these creatives and CAA have contracts that entitle them to a share of profits from the hit show about survivors of a zombie apocalypse. But they’ve all been dissatisfied with what AMC claims are the net profits. That’s because Walking Dead is exhibited on AMC Network after being licensed by AMC Film Holdings. The two cases explore whether the licensing transaction between sister companies has to be “fair market,” akin to what AMC would have paid a third party for rights to the show through arms-length negotiations. Had AMC been paying proper license fees, these profit participants say they’d be owed hundreds of millions of dollars more. At a time when a handful of entertainment conglomerates are vertically integrated in structure and increasingly self-distributing their content on their own streaming platforms, the two Walking Dead cases figure to impact Hollywood dealmaking.
Unlike the other profit participants, Kirkman alleged that his 2009 contract requires that AMC Network pay an “actual license fee.” Instead, over the course of Walking Dead‘s run, AMC has been “imputing” an amount — about $2 million an episode. Even if that’s allowed for AMC, a separate issue pertains to whether those imputed license fees are subject to an “affiliate transaction provision” that dictates the amount essentially be fair market.
The case further explores the art of negotiation. AMC has been defending itself by alleging that the creatives were represented by sophisticated transactional counsel who ultimately accepted AMC’s way of calculating profits. The plaintiffs say AMC’s former boss, Charlie Collier, promised they’d be treated fairly at a time when the company had just begun to produce its own content. Regardless, they argue that the dealmaking never resulted in any long-term agreement that explicitly adopted AMC’s proposed profit definition. Finally, the case examines whether the five plaintiffs are owed anything from spinoffs Fear the Walking Dead and Talking Dead.
In February and March, Los Angeles Superior Court Judge Daniel Buckley presided over a mini-trial that lasted eight days. He heard testimony from the plaintiffs, from AMC executives, and from expert witnesses like legal pro Ken Ziffren. His task was to decide a few core issues of contract interpretation.
On the first big issue, Buckley rules that it is clear AMC “shall” have the authority to define how modified adjusted gross receipts (MAGR) are collected from the exhibition of Walking Dead, and accordingly, the “plaintiffs’ fairness arguments are foreclosed by the express terms of the parties’ contracts.”
The judge further rules that the contract is silent about the type of license fee used to calculate net profits, but that in considering the agreement as a whole, AMC’s imputed method is allowed, and that Kirkman isn’t owed an “actual” license fee paid in connection with the exhibition of the show.
Buckley considered arguments from the plaintiffs that under custom in the television industry, a profit participant would never agree to the imputed fee structure without seeing the specific terms first, but the judge responds that even if so, this custom varies from the terms of this contract. He also finds support for this interpretation because some of the Walking Dead deals — the ones signed by Alpert and Hurt — expressly state that an “imputed license fee” would be used to calculate MAGR. He says AMC’s expert witness was persuasive on this front and adds, “It is not credible Kirkman’s sophisticated representatives did not expect an imputed license fee would be used to calculate the MAGR derived from AMC Network’s broadcast of the show on its own channel.”
Ronald Nessim, Kirkman’s lawyer, says his clients are exploring options upon today’s ruling.
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