Village Roadshow v. Warner Brothers: A Decades-Long Relationship Upended Over ‘Matrix’ Release Strategy & Exclusion From Derivative Rights
Streaming services continue to be a source of tension for film studios and their long-standing partners over COVID-19 distribution strategies. On February 7, 2022, Village Roadshow Entertainment filed a suit against its partner of twenty-five years, Warner Brothers, seeking declaratory and injunctive relief over Warner Brothers’ alleged breach of contract.[1]
In the complaint, Village Roadshow alleges Warner Brothers shut it “out of its legal and contractual rights to co-own and co-produce the sequels, prequals, spinoffs, and other derivative works” of nearly 100 films Village Roadshow co-funded and co-owns.[2] Further, Village Roadshow argues Warner Brothers made deliberate and consistent efforts to lower the value of its intellectual property in releasing their co-owned film, The Matrix Resurrections to HBO Max the same day as its theatrical release, to prop up sister company HBO Max’s subscriber numbers.[3]
Village Roadshow and WB’s close partnership dates way back to 1997.[4] Since then, the two have successfully co-financed ninety-one films, including the film at the heart of this controversy, The Matrix Resurrections.[5] This lawsuit marks the first litigation between the two partners in their twenty-five years of working together.[6]
Warner Brothers has not filed a response to the February 7th complaint; however, it publicly stated Village Roadshow rejected its prior offer to “de-risk them from any financial underperformance” as a result of the new release strategy during the pandemic.[7] Other production partners of Warner Brothers accepted similar downside protection offers.[8] It will be interesting to see how the court treats Village Roadshows’ claims given Warner Brothers’ prior efforts to reach an agreement.
Unlike a similar recent dispute between Scarlett Johansson and Walt Disney, over the release of the film Black Widow to Disney+,[9] The Matrix Resurrections was released to HBO Max subscribers for free.[10] By not charging subscribers, Village Roadshow argues Warner Brothers “enticed movie-going audiences away from the theaters,” making it inconsistent with “customary commercial practices” in the film industry.[11] Additionally, this dispute arises out of alleged subsequent efforts of Warner Brothers to deprive Village Roadshow of its continuing right to co-own and co-invest in any derivative works it co-owns.[12]
The Copyright Act grants copyright owners the exclusive right to prepare derivative works based on the copyrighted work.[13] A derivative work is defined as “a work based upon one or more preexisting works, such as a… motion picture version, sound recording… or any other form in which a work may be recast, transformed, or adapted.”[14]
According to Village Roadshow, the derivative rights to produce works based on any of their co-owned pictures, were “reserved jointly” between the two parties.[15] However, there appears to be certain exceptions to the scope of VR’s rights where the derivative work produced will be based on a work within Warner Brothers’ “existing library.”[16] “Existing library” may mean a work the two parties co-financed prior to their 2014 amended agreement, however, Village Roadshow argues this is not the case.[17] According to the complaint, where a derivative work is one within the “existing library” it must meet certain conditions to be a “Qualifying Derivative Work,” for which then Village Roadshow could claim the rights. [18] Thus, this copyright issue will likely turn on the interpretation of the contractual term “existing library” and whether the derivative works in question fall under the scope of Village Roadshow’s rights.
On February 15, 2022, a Los Angeles Superior Court Judge denied Village Roadshow’s application to file a motion for preliminary injunction and for expedited schedule, finding there is no basis to support ex parte relief.[19] Warner Brothers hopes to keep the dispute in arbitration, which commenced before the lawsuit was filed.[20]
One reason streaming services have fueled conflict between film studios and their financing partners appears to be a lack of need for studios to rely on financers to mitigate risk.[21] Now that studios have their own streaming services, they do not need to depend on box office numbers to determine the financial success of their films.[22]
If Village Roadshow is successful in arguing its contractual carve-out for actions seeking injunctive relief warrants litigation instead of arbitration, it may serve as a test for how judges assess harms caused by the adoption of a hybrid film distribution strategy during the pandemic. However, Village Roadshow faces an uphill battle, making success unlikely. First, public policy generally supports keeping a case in arbitration despite such a carve out. Second, depending on the interpretation of the contractual rights afforded to Village Roadshow, and the reasonableness of Warner Brothers’ offers to remedy Village Roadshow’s concerns, a court may view Village Roadshow as the “bad guy,” making it that much more difficult to argue its case. The next hearing takes place on March 11, where the judge will consider Village Roadshow’s motion for a preliminary injunction and expedited discovery.[23]
Footnotes
