When Disney did cross-merchandising ‘Roger Rabbit’ deals with Coca Cola and McDonald’s, receiving no cash, how did that work for the ‘5% of gross receipts’ entitlement of Roger Rabbit’s creator?
Who: Walt Disney Pictures and Television and Gary K Wolf
Where: The Court of Appeal of the State of California
When: January 2004
Around the hugely successful film “Who Framed Roger Rabbit?”, Walt Disney Pictures entered into various alliance agreements with companies like McDonald’s, Kodak and Coca Cola whereby Disney licensed the other parties to use Roger Rabbit characters in advertising promotions. The terms of the agreements varied. Sometimes money changed hands and sometimes it did not. This turned out to have enormous implications.
The reason was the original contract between Walt Disney Pictures and the creator of the Roger Rabbit characters, Gary Wolf. Under this agreement, Disney took over nearly all the rights in Wolf’s book “Who Censored Roger Rabbit?”. In a section dealing with merchandising, Wolf was entitled to a 5% royalty on “gross receipts” from dealings in children’s story books, children’s story telling records and merchandise based on the Roger Rabbit characters.”
Wolf wanted his 5% on the merchandising deals with McDonald’s, Kodak, Coca Cola etc. He said that if no cash changed hands under the deals, then he should get his 5% of the value to Disney of the particular licensing agreement.
Disney offered only 5% in respect of cash payments, saying that the term “gross receipts” was clear and unambiguous and only extended to deals where such payments were actually made.
Wolf rejected this analysis, and brought proceedings and at the first instance trial introduced extrinsic evidence of trade usage. This appeared to expose a potential ambiguity in the contract language and presented an interpretation to which the term “gross receipts” was reasonable susceptible. The interpretation was favourable to Wolf’s claims in respect of the “value” to Disney of the non-cash merchandising deals.
Unfortunately for Wolf, the first instance trial Court rejected that extrinsic evidence and threw out Wolf’s claim.
Undaunted, Wolf appealed to the Court of Appeal of the State of California. Here the outcome was different. The appeal judges held that the first instance trial court had erred in rejecting Wolf’s extrinsic evidence. It was directed that the first instance judgement be vacated and that the matter be remanded back to the trial Court for further proceedings.
Why this matters:
There can still be no guarantees that Wolf’s claim will ultimately succeed, but the case is yet another in a long line of disputes where contractual terminology has not catered for either new technology or the fertile imagination and creativity of those exploiting intellectual property rights.
Just as the precise meaning of the term “merchandising” must be pinned down in any licensing arrangements, the drafting of the licence must do as much as possible to cater for the many different ways in which the value in intellectual property can be unlocked, for instance, as in this case, in a marketing context.