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Relativity, Netflix Battle Involves Interplay Between Bankruptcy and Streaming License
Entertainment companies be forewarned: Unlike standard civil litigation, a single bankruptcy proceeding can often include multiple seemingly unrelated adjudications that, in hindsight, have a much greater subsequent impact than an unsuspecting litigant might expect. An example of this was evidenced in a recent order entered by U.S. Bankruptcy Judge Michael E. Wiles of the Southern District of New York that barred Netflix from distributing, and even “contending that they have the rights to distribute” two Relativity Media-produced films prior to movie theater release under the terms of the parties' license agreement. In re Relativity Fashion, 15-11989 (Bankr. S.D.N.Y. 2016). (See also, Doc. No. 1948 for the corrected transcript of the decision.) Finding that it was essential to the feasibility of Relativity's confirmed plan and relying on clear confirmation hearing testimony, the bankruptcy court denied Netflix's subsequent claim that it had the right to stream certain films prior to their theatrical release.
Case Background
Before July 2015, when Relativity Media and its 150 affiliates filed for Chapter 11 protection, Relativity and Netflix entered into a movie-licensing agreement that contemplated execution of film-specific notices of assignment as part of Netflix's obligations to Relativity. The notices of assignment required Netflix to pay a licensing fee to Relativity's secured lender upon certain conditions, with payment due 12 months after an initial “theatrical release” in movie theaters nationwide.
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