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Even Hedge Funds Love Comics – Stan Lee Comic Book Character Lawsuit Receives Unusual Support

Published onFeb 22, 2013
Even Hedge Funds Love Comics – Stan Lee Comic Book Character Lawsuit Receives Unusual Support

A lawsuit involving a company formerly tied to iconic comic book publisher Stan Lee remains afloat thanks to the financial backing of hedge fund managers who wish to cash in on potential winnings once the dispute is resolved.

In 2009, the Walt Disney Co. (“Disney”) purchased Marvel Entertainment (“Marvel”) and its roughly 5,000 characters for $4 billion. Since then, Disney has earned significant profits off the Stan Lee (“Lee”) creations in the form of merchandise – action figures, toys, costumes, and, of course, “The Avengers” film, which earned more than a billion dollars in global office revenue. However, one company claims Disney has no right to any of the characters. In October 2012, Stan Lee Media Inc. (“SLMI”), formerly affiliated with Lee, filed a complaint in the U.S. District Court in Colorado claiming SLMI, not The Walt Disney Company, owned the rights to any and all of Stan Lee’s characters, including the very profitable “Avengers” gang.

According to the allegations in SLMI’s complaint, “in November, 1998, Stan Lee signed a written agreement with Marvel Enterprise, Inc., in which he purportedly assigned to Marvel the rights to the characters. However, Lee no longer owned those rights since they had been assigned . . . previously. Accordingly, the Marvel agreement actually assigned nothing.” Specifically, the lawsuit focuses on the many successful movies based on Marvel characters released since Disney acquired the comic book company including the Marvel-produced “Iron Man 2,” “Thor,” and “The Avengers,” as well as “X-men First Class” and “The Amazing Spider Man” licensed to other studios. In addition to SLMI’s claim that its rights supersede Marvel’s because its contract with Lee was signed first, SLMI claims that Disney never publicly recorded Marvel’s agreement with Lee with the U.S. Copyright Office.

While this lawsuit seems to be composed of myriad simple contract disputes, the backing of one of the nation’s largest hedge funds, Elliott Management, has just upped the stakes. Elliott Management’s support of SLMI demonstrates the increasing trend of large hedge funds and other investment vehicles funding litigation against major corporations in return for a piece of any winnings. Elliott Management, a hedge fund which oversees $21 billion in assets, is in no way associated with or investing in SLMI itself. Elliott Management’s involvement in the case is purely financial, and, should SLMI win, Elliott Management could stand to gain a return on the potential winnings paid out by Disney.

Elliott Management is a classic example of a contemporary active institutional investor. In October 2012, Elliott Management seized an Argentinian naval training ship while it was docked in Ghana. Elliott Management got an injunction from the government of Ghana after it recently won a court judgment in Argentina stating that Argentina owes Elliott Management money from a 2001 bond. Elliott Management took the situation into its own hands and waited for the ship to stop in a port where it would have a chance to enforce legal judgments previously awarded by the UK and US courts. More recently, Elliott Management has demonstrated more of its active investor intentions by purchasing shares of Hess Corp., in a move to seek board positions. Elliott Management has accused Hess Corp., board members of “poor oversight” and “over a decade of failures” in a letter to Hess Corp. stockholders. Elliott Management further requests Hess Corp. stockholders to vote five new independent directors to the board and advocates for Hess Corp., to conduct a full strategic and operational review to consider new pathways to maximize stockholder value.

It seems clear that SLMI is grateful for the financial support it gets from Elliott Management as SLMI tries to tackle Disney. However, the support doesn’t come free. In the past the very news of hedge fund activism would alert stockholders to a looming blunder or possible shortsighted goals. Should the SLMI stockholders get a say in whether to accept the large financial support from Elliott Management, especially in light of Elliott Management’s possible ulterior motives. In SLMI’s case is Elliott Management just interested in the possible reward following a successful lawsuit, or is there more underlying its decision to help out SLMI?

* Allison McCowan is a third-year student at Wake Forest University School of Law and is President of the Domestic Violence Advocacy Committee. She holds a Bachelor of Arts in Psychology from Norwich University. Upon graduation in May 2013, Ms. McCowan intends to practice corporate law, commercial law, or alternative entity law in either Delaware or Washington D.C.


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