Clause & Effect: <b>Non-Monetary Benefits' Impact on Royalty Rights</b>

Still, a right to gross profits has its pitfalls. A key issue is what revenues belong in the gross-profit pool. The Court of Appeal of California, Second Appellate District, Division Seven, recently considered this in a case involving the gross-profit-participation right of the author of the book “Who Censored Roger Rabbit?” Wolf v. The Superior Court of Los Angeles County, B169265.

In 1981, author Gary Wolf entered into a deal memo with Walt Disney Pictures and Television under which Disney optioned most of the rights to Wolf's book. The deal gave Wolf a 5% royalty on merchandise based on the “Roger Rabbit” characters. In 1983, Disney and Wolf entered into a long-form agreement, after Disney exercised its option. The long-form agreement gave Disney:

“The sole and exclusive right to make, publish and vend, throughout the world, or to license others so to make, publish and vend, representations of the characters created by the Seller [Wolf] which are in the work (including said characters from the work appearing in any such motion pictures or other adaptations), upon, in and/or in connection with articles of merchandise, or the advertising, display or exploitation of merchandise or in connection with any commercial activities.”

The provision in the agreement covering Wolf's merchandising royalty rights stated:

“In the event that Purchaser [Disney] exercises any of the rights granted to it … Purchaser agrees to pay to Seller [Wolf] a sum equal to five percent (5%) of Purchaser's gross receipts derived from the exercise of such rights, which, in the event of Purchaser's licensing of any such rights to others, shall be composed of Purchaser's royalties so derived from the licensee. In the event that such licensee is a subsidiary of Purchaser, then such royalties received by Purchaser from such subsidiary shall be deemed to be not less than five percent (5%) of such subsidiary's gross receipts derived from the exercise of such rights. Purchaser's obligation to pay such sums to Seller shall not accrue unless and until monies with respect to which the same are to be paid shall have been received within the United States of America by, and placed at the unrestricted disposal of, Purchaser or Purchaser's subsidiary (or if restricted from being transmitted to the United States by applicable law or regulations ['restricted funds'] then the restricted funds shall be deemed to have been so received to the extent used by Purchaser or Purchaser's subsidiary in such territory from which such monies would have otherwise been transmitted). So long as such monies are so received, Purchaser shall render semi-annual statements to the Seller within forty-five (45) days after the end of each half of the calendar year, showing the sums of money so received during the preceding half with respect to which the said obligation applies; and said statements shall be accompanied by payment of the amount appearing thereby to be then due from Purchaser to Seller. All such statements shall be mailed to Seller at the address specified for notices herein, unless or until Purchaser is otherwise instructed in writing. All statements and accountings furnished by Purchaser hereunder shall be conclusively deemed correct unless the same shall be objected to within ninety (90) days from Purchaser's rendition thereof.”

(Following the 1988 release of the film “Who Framed Roger Rabbit?”, based on Wolf's book, several areas of dispute arose between the parties. Disney and Wolf settled their differences with a new agreement that included the author's 5% gross royalty right on merchandise.)