Marvel's in for a Hulk of a Lawsuit - Barron's

Barron's Bill Alpert (free) does some investigative reporting - and comes up with some serious questions about Marvel Entertainment (MVL).

Marvel - owner of more than 5,000 characters including Spider-Man, Iron Man, Hulk and X-Men - has made a spectacular comeback since its bankruptcy in 1998. Shares trade for $33, after earnings more than doubled in 2007 to $140M. This year Marvel began producing its own films, opening up a new source of revenue besides its bread-and-butter licensing segment.

Here's the issue: In 1998, controlling shareholder Isaac Perlmutter used bankruptcy procedures to cancel Marvel's $1M/year lifetime contract with Stan (The Man) Lee - which also voided Marvel's exclusive rights to Lee's characters. Lee left Marvel and started Stan Lee Media [SLM] with his friend Peter Paul; Paul put up $500K and Lee assigned to the company all his intellectual property.

In 2000, soon after underwriting a gala Hollywood fundraiser for Hillary Clinton's Senate campaign, Paul fell out of favor when previous felony convictions - for robbing the Cuban government (not a great idea) and for cocaine possession - came to light. This lead to Paul dipping into his margin account - in which he had booked profits gained by manipulating SLM's shares - in order to keep the company afloat. The SEC got suspicious and launched an investigation. Paul, who had fled to Brazil, was extradited, and currently awaits sentencing on stock fraud manipulation.

Meanwhile, Stan Lee abandoned Paul, and went back to Marvel for up to $1M/year and 10% of movie and TV profits.

But what of his characters? Lee now claims his creations were 'works-for-hire' and have always belonged to Marvel. But in 2002, Stan Lee sued Marvel, and was apparently paid $10M, claiming half-ownership of his characters due to the 1998 contract cancellation. If so, Stan Lee Media, now run by Jim Nesfield (star Eliot Spitzer insider-trading whistleblower), seems to have a legitimate claim to part-ownership in the characters.

Marvel rejects Paul's claims, and questions how much credence one should give to a man with a record the length of Paul's. Still, even if Stan Lee Media doesn't win the rights to half of Marvel's profits, their claims raise serious questions that should concern investors.

=======================================================

Here's the contract Stan Lee signed with Stan Lee Media in October 1998. Note 4 a):

I assign, convey and grant to the Company forever, all right, title and interest I may have or control, now or in the future, in the following: Any and all ideas, names, titles, characters, symbols, logos, designs, likenesses, visual representations, artwork, stories, plots, scripts, episodes... 

And here's his Nov. 1 1998 contract with Marvel. Note 5 a): 

You hereby assign, convey and grant to Marvel forever throughout the universe all right, title and interest solely and exclusively which you may have or control or which you may have had or controlled in the following: Any and all ideas, names, titles, characters, symbols, logos, designs, likenesses, visual representations, artwork, stories, plots, scripts, comic books or comic strips, episodes... 

5 b): 

You hereby warrant that you have not assigned, licensed, pledged or otherwise hypothecated, nor attempted to do so any of the Property and Rights to anyone other than Marvel, its affiliates, predecessors or their designees and will not do so in the future.

The Comics Reporter summarizes some of the Stan Lee vs. Stan Lee proceedings.

Marvel strategic partners: Viacom's (VIA) Paramount distributes Marvel's films. Lions Gate Entertainment (LGF) produces direct-to-DVD films for Marvel. Hasbro (HAS) has exclusive toy rights for its characters. And Universal Studios (NBC) has created some heavy-duty theme-park attractions based on its characters, such as Florida's Marvel Super Hero Island and a Japan Spider-Man attraction.

Comments

[Soonerxii]

That is interesting. I've never heard any of this before, though I do remember Marvel going through some trouble back in the late 90's

[dfu]

Paul's involvement with the Cuban Coffee Caper was almost three decades ago. When investors discovered what Stan Lee had done in the SLM bankruptcy, they took action to take over the company. A Colorado court, where the company is incorporated, agreed that the investor group, led by Nesfield, properly took control. They are now asserting the rights that were hidden in the bankruptcy and never declared by Lee. If Lee's work was work for hire, why did he sue Marvel for rights and extract $10 million from them? Spiderman is in a very sticky situation here and has been caught in his own web. It is time for the SEC and the Justice Department to act.

[blalpert]

Eli:

I'm flattered that you noticed my story. You got the time line a little mixed up, however. I know you do this all on a short deadline. A leisurely rereading of my story should straighten things out.

Again, thanks for the attention.

Bill Alpert
Barron's
william.alpert@barrons...

[SA EditorEli Hoffmann]

Bill,

Thanks for taking the time to comment. I am flattered.

I did take my time reading your excellent article, and I think it was clear to me at the time that the cocaine and coffee incidents were drudging up of previous felonies. Somehow when I went to write it, I bluffed. My apologies.

I think I've got it right now.

Eli

[dfu]

Bill and Eli - it is interesting that Marvel made a settlement with Lee for the intellectual property and paid him over $10,000,000. Were shareholders told that Marvel was admitting that Stan had rights in the creations? No, they weren't. If he had no such rights, they would have never given him $10 mil of money that should have gone to shareholders. It would be interesting for investors to go to the SEC records to see what was filed by Nesfield. His claims, if untrue, should cause him a 10b5 violation, and the SEC should take legal action against him. They have not done so. For those wishing to track through the SLM bankruptcy, you will find that the debtor in possession, an insider of POW (Stan's new company), transferred to another insider of POW, through a subsidiary, properties from the SLM BK in violation of the judge's order. They looted the company while in BK. You can see the transfer that is recorded in the US Office of Copyright. Stan used the Accuser and the Drifter to make deals with Vidiator while in bankruptcy. That is BK fraud and needs to be exposed.

[dfu]

You might find it interesting that, just before dismissal for cause of the SLM BK in late 2006, the attorney for the debtor in possession made a motion to have the court allow the destruction of corporate records. They claimed that there was no money to store them. No, folks, they were trying to cover their crimes. This is finally going to be exposed. SLM should have been reorganized because it had millions of dollars worth of assets. The money that Stan took in the settlement from Marvel belongs to SLM shareholders.

[dfu]

Eli - read the 13D from Nesfield. www.secinfo.com/d13A33... Marvel has dismissed the claims in its first quarterly report, saying that Stan is fighting them in court. In its upcoming quarterly, they better let the public know that Stan was defeated in court in his attempt to overturn the takeover of Stan Lee Media. Pension fund managers better be paying attention and asking serious questions of Marvel. Investors of POW should be asking Stan how he came into possession of assets such as the Drifter and the Accuser.

[dfu]

Watch how the BK was looted by insiders of POW - youtube.com/watch?v=ap...

[inqwizitr]

The frauds committed by Stan Lee (under the direction of his own Dr Doom- IP lawyer and partner Arthur Lieberman) against shareholders of Stan Lee Media, the Bankruptcy court and Judge administering the SIX YEAR Stan Lee Media Chapter 11 sham, the shareholders of Marvel Entertainment, and the bond holders of the $1billion collateralized notes Marvel warranted had no defects to 100% of the IP rights it used to guarantee the notes- have nothing to do with Stan's partner Peter Paul- His record from 30 years ago- for activities related to anti-Communist and anti-Castro work in South America- has been used to make him a Fall Guy for the biggest Entertainment frauds on record

[12345]

You hereby warrant that you have not assigned, licensed, pledged or
otherwise hypothecated, nor attempted to do so any of the Property and
Rights to anyone other than Marvel, its affiliates, predecessors or
their designees and will not do so in the future.


wouldn't this now turn into Stan Lee's problem and not Marvels?

[dfu]

to 219400 - It will be a big problem for Stan because he made warranties. For Marvel, it is a big problem because they have never told their shareholders the truth. And discovery is going to show who knew what when. This may well become the largest stock fraud in history.

[12345]

Official Press Release

NEW YORK--(BUSINESS WIRE)--Marvel Entertainment, Inc. (NYSE: MVL), reported that a claim was filed today in United States District Court for the Southern District of New York by Stan Lee Media, Inc. The claim against Marvel Entertainment alleges that nine years ago Stan Lee transferred to Stan Lee Media ownership of a number of Marvel comic book characters he co-created. Marvel believes that the claim against it is without merit and that it will prevail in this dispute.

Stan Lee Media was recently in bankruptcy and is being sued by Stan Lee. In his suit, Mr. Lee is challenging the legitimacy of the management of Stan Lee Media. Mr. Lee is a long-time employee of Marvel and its predecessor companies and currently serves as Publisher Emeritus of Marvel Comics. Mr. Lee commented that, "I do not support this action and believe the suit to be baseless."



This came out over a year ago?? Did Barrons really just find out about this now? Are they being paid by the Shorts to bring this back up? Something seems a little off

[dfu]

To - 12345

I told several financial reporters the story when it was filed. Apparently, none wanted to do their homework regarding a $5 billion lawsuit.

[dfu]

As chairman and chief creative officer of the company, this is what Stan told the SEC and investors in his 10K annual report for 1999. www.secinfo.com/dsVsb....

Read below. Stan claimed the following: "Stan Lee's co-creations include Spider-Man, The Incredible Hulk, X-Men, The Fantastic Four, Iron Man, Daredevil, Silver Surfer and Dr. Strange." How can he now say that the works were work for hire?

from the 10K ---

EMPLOYMENT AND SERVICES AGREEMENTS: The Company entered into a lifetime employment agreement with Stan Lee in 1998 in consideration for the assignment and transfer of all of Mr. Lee's right, title and interest in and to any and all ideas, names, titles, characters, symbols, logos, designs, likenesses, visual representations, artwork, stories, plots, scripts, episodes, literary property, and the conceptual universe related thereto, including his name and likeness. Mr. Lee's services for and on behalf of the Company shall be exclusive with the exception of those services provided under a lifetime agreement with Marvel Enterprises, Inc., which shall require no more than an average of 10-15 hours per week on its behalf. The employment agreement provides for base salary compensation of $250,000 annually, a discretionary bonus as determined by the company's board of directors, stock options equal to the highest number of options offered to company executives, reimbursement of certain business expenses, including without limitation, business-related travel and entertainment expenses, and a term life insurance policy in the minimum principal sum of $2 million.

UNIQUE COMPANY ASSETS Our primary assets consist of all the intellectual property currently owned by our founder Stan Lee, including ownership in perpetuity to Stan's name, likeness, brand and signature slogans, "Stan Lee Presents," "Excelsior!" and "Stan's Soap Box," along with rights to all intellectual property that will hereafter be created by Stan Lee. Known to millions as the man whose Super Heroes propelled Marvel Comics to its preeminent position in the comic book industry, Stan Lee's co-creations include Spider-Man, The Incredible Hulk, X-Men, The Fantastic Four, Iron Man, Daredevil, Silver Surfer and Dr. Strange. Now, in the 21st Century, Stan Lee is broadening his horizons once more, this time, into cyberspace. His Marvel creations have inspired thousands of Super Hero fan sites throughout the web, representing millions of web page references. Now his fans and admirers may meet the newest cutting-edge Stan Lee characters in The 7th Portal, which has been launched on shockwave.com and will later be featured on our stanlee.net website. In addition, Stan's fans can visit stanlee.net to read a regularly updated Stanzine with games, goofs and features from Stan and his staff.

[dfu]

HERE'S THE CORRECT URL FOR THE PREVIOUS POST

www.secinfo.com/dsVsb....

[K. Lewis]

So will all this hold up production of Mavel's stellar run of upcoming movies?? Let's get to the important data here.

--signed IronManFan

[dfu]

to K. Lewis - I don't suspect it will change the production schedule. It might make investors unhappy who did not receive full disclosure from Marvel.

[dfu]

HERE IS THE LAWSUIT - www.scribd.com/doc/298...

[12345]

Comment by Richard Land, Spokesman, Marvel
google news commentMarvel Response to Barron’s Article - 1 hour ago

There are many unsubstantiated and false claims in the Barron’s article. It is unfair to Marvel and its shareholders to dismiss Marvel’s position as simply attacking the messenger. Peter Paul has been convicted of three felonies and is awaiting sentencing for his latest crime, manipulating the stock of Stan Lee Media. His history speaks for itself. Marvel’s position with respect to Mr. Paul’s claims is not based on his lack of credibility. It is based on facts in the public record.

There are three main falsehoods underlying Peter Paul and Stan Lee Media, Inc.’s claims against Marvel.

First is the claim that Marvel is not the sole owner of every character created by Stan Lee during Mr. Lee’s lengthy tenure as a Marvel employee. Mr. Lee signed written employment agreements with Marvel in 1976 and 1980 in which Mr. Lee acknowledged and confirmed that all the work he did for Marvel from the beginning of his employment (in 1940) was as an employee. As is customary in contracts reflecting works made for hire, there was also a “belt and suspenders” assignment to Marvel of all rights in all characters he had previously created or would create for Marvel in the future.

The copyright law treats work done by an employee within the scope of his employment as a “work made for hire” which means the employer is automatically the author and owner for copyright law purposes. Therefore, Mr. Lee never owned any of the characters he created for Marvel. Since he never owned them, he could never have transferred them to anybody. Mr. Lee himself has always acknowledged that the Marvel characters belong and always belonged to Marvel.

Second, in order for Mr. Paul’s claims to have any traction, a court would have to accept that when Marvel rejected Mr. Lee’s contract in the bankruptcy proceeding, that rejection somehow resulted in a return to Mr. Lee of rights in Marvel’s characters. Not only did Mr. Lee never have those rights, but the rejection of Mr. Lee’s contract did not and could not have had that effect. Neither Mr. Paul nor SLMI has ever pointed to any legal support for their theory because they simply made it up.

Third, Mr. Paul has deliberately mischaracterized what happened in the 2002 Stan Lee/Marvel lawsuit. Since the majority of the litigation papers are public record, there is no reason for anyone to be confused. That lawsuit was over how to interpret a profit participation paragraph in Mr. Lee’s 1998 contract. It had nothing whatsoever to do with ownership of any characters. Mr. Lee never claimed in that lawsuit or anyplace else to own any part of any character he created for Marvel. In 2005, the profit participation lawsuit was settled. While the terms are confidential, Mr. Lee did not “give back” or transfer to Marvel any interest in any characters in the settlement.

The truth is a lot duller than the spin Mr. Paul is trying to put on the facts. Stan Lee never owned any of the characters he created and never claimed to own them. His contract with Stan Lee Media was and is clear on its face that Stan Lee was giving to his new company all the rights in characters that he planned to create for it – not any Marvel characters. Stan Lee Media was in business from approximately 1998-2001 when it went bankrupt. It made numerous filings with the SEC and issued a tremendous volume of promotional material. Once it filed for bankruptcy, its assets were subject to intense scrutiny. Through all of that time, it never once claimed that it owned any interest in any Marvel character.

[SA EditorEli Hoffmann]

Thanks 12345!

[dfu]

to Eli - how can Lee now make public proclamations that what he did was a work for hire? When he sued Marvel, here is what he said:

14. Under the Agreement the Defendants were given the right and assumed the obligation to commercially exploit Mr. Lee's characters, as well as his name. In order to facilitate these rights and obligations, Defendants received a conditional assignment of Mr. Lee's rights in his many world famous and hugely popular characters, and Mr. Lee was entitled to share in the profits from any live action or animation television or movie production based on these characters and other Marvel characters, as well as profits from the exploitation of any ancillary rights associated with such film or television productions, including toys.

15. Throughout his relationship of more than sixty years with Defendants, during which Mr. Lee permitted Defendants to exploit his superhero characters on the understanding that they would share in the profits derived therefrom, Mr. Lee reposed trust and confidence in Defendants to, among other things, deal with him fairly and in good faith, and to pay over to him a portion of the profits derived from such commercial exploitation.
=======

As you see, the "Defendants were given the right and assumed the obligation to commercially exploit Mr. Lee's characters." Defendants received a "conditional assignment of Mr. Lee's rights."
Mr. Lee "permitted Defendants to exploit his superhero characters." Isn't that interesting? He asserted then what he denies now after getting paid off by Marvel. How convenient for him in screwing the investors of SLM.

[dfu]

to Richard Land:

YOUR WORDS: "Mr. Lee signed written employment agreements with Marvel in 1976 and 1980 in which Mr. Lee acknowledged and confirmed that all the work he did for Marvel from the beginning of his employment (in 1940) was as an employee."

I believe you that he signed employment agreements in 1976 and 1980. But, Richard, tell Marvel investors the rest of the story. Don't be shy. From the Nov. 1998 contract (you know, the one that came a month after Stan assigned all of his rights to his new company, Stan Lee Media), “This Agreement will constitute the entire understanding between the parties in connection with Stan Lee’s relationship with Marvel from the date hereof, shall supersede any and all previous agreements and may not be amended or modified except by a writing signed by the party to be charged.”

It sure looks like that agreement "shall supersede any and all previous agreements..." you had with Stan. You guys really screwed up when you had the bankruptcy judge cancel Stan's lifetime contract and gave him the freedom to take his rights and assign them to SLM. Marvel investors must be wondering why, if you cancelled it, you shortly thereafter gave him a much better contract. Duh, that seems dumb and a poor business move. You gave away money that belonged to the shareholders.

[dfu]

This YouTube helps explain the story - youtube.com/watch?v=x3...

[MVL Investor]

I am not a lawyer, but what I understood from the above contract extracts is that Marvel owned the IP until Oct/98, SML owned the new IP generated by Stan from Oct ?/98 until Nov 1/98 at which time Marvel recontracted with Stan and controlled all the IP generated from that date forward.