THR Esquire

Vertical integration gets its day in court

The battle over who turned "Sahara" into an epic flop has received more attention than the film itself ever did. But other than a leaked budget for the movie, which contained such revelations as Steve Zahn's $2.2 million salary and the $271,100 Paramount paid for Penelope Cruz's hair and makeup, few developments have emerged from the trial.

But just downstairs in Los Angeles Superior Court's downtown courthouse, another two-month entertainment trial wrapped last week, and this one delivered the goods: allegations of "Hollywood accounting" on a massive scale, testimony from top talent and studio brass, and a judge so hostile to the attorneys that one lawyer twice asked for a mistrial.

"Will & Grace" creators David Kohan and Max Mutchnick are suing NBC Universal, claiming its studio arm, which owns the show, defrauded them by negotiating a sweetheart license extension with the NBC network.

These "vertical integration" cases were fairly common in the years following the relaxation of fin-syn rules, as profit participants realized that when production companies negotiate with affiliated networks and distributors, they essentially negotiate with themselves. Studios were hit with lawsuits by, among others, David Duchovny, over Fox's distribution of "The X-Files," and by the creators of "Home Improvement," which aired on ABC and was produced by Touchstone Television, both owned by the Walt Disney Co. But only a case NBC won over the series "Profiler" ever reached trial, and studio legal departments now protect themselves with deal language, invite talent lawyers to participate in license renegotiations and require that disputes be arbitrated out of court.

But the "Will & Grace" dispute is going all the way to a verdict.

"There was a lot of bad blood in this case," said Ron Nessim, Kohan and Mutchnick's lead lawyer, who has brought similar claims against NBC for Danielle Steel and Barry Levinson, both of which settled. "And a whole lot of money at stake."

Indeed, NBC claims Kohan and Mutchnick have made $100 million from "Will & Grace," but they say they're owed about $65 million more because NBC Studios never pursued the kind of license fee commanded by similar shows "Frasier" and "Everybody Loves Raymond."

During the trial, Nessim was largely shut down in his efforts to compare the "Will & Grace" renewal process with other shows, with Judge Warren Ettinger — who was assigned the complex case on the eve of trial when the previous judge learned her husband owns GE stock — leading Nessim to request a mistrial.

But such is the risk of a high-stakes entertainment trial. It's a risk both sides apparently knew they would undertake when negotiating the deal. Marc Graboff, head of NBC Universal Television West Coast, testified that he anticipated litigation as soon as he heard attorney Jim Jackoway was representing Kohan and Mutchnick.

NBC claims Jackoway, one of the industry's top talent lawyers, refused to accept an invitation to join in the license renegotiation in order to set up future litigation. NBC's legal team even showed a map during closing arguments to illustrate for the jury the short distance between Jackoway's office in Beverly Hills and NBC's Burbank headquarters.

Even for a vertical integration case, this one was particularly contentious. Now we'll see what a jury thinks.
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