Hedge Fund Backs Spider-Man Lawsuit Against Disney

imagesFor the last few years Michael Wolk has quietly worked to advance the multi-billion dollar copyright infringement lawsuit that claims Walt Disney Co. does not own the rights to iconic Stan Lee-created superhero characters it acquired from Marvel Entertainment, like Spider-Man, X-Men, The Incredible Hulk and The Fantastic Four. Before Wolk got involved, the minority shareholders of a company Lee founded in the 1990s had for a long time unsuccessfully litigated over these characters, but Wolk has not been dissuaded.

“We are in the right here,” says Wolk in an interview. “No court has ever addressed or ever decided who is the owner of the characters—all of the prior litigation got dismissed for reasons that have nothing to do with who owns the characters.”

Wolk is not a shareholder of Stan Lee Media, which spent the years 2001 to 2006 in bankruptcy court, nor is he a lawyer in the case. Rather Wolk is an investor who has organized a small group to financially back Stan Lee Media’s legal claims that it owns these iconic characters. Wolk says his primary investor is one of the nation’s biggest hedge funds, billionaire Paul Singer’s Elliott Management. “Elliott Capital hedge fund has been providing financial support to help [Stan Lee Media] since 2011,” says Wolk.

Hedge funds and other investment vehicles have increasingly been funding litigation against major corporations in return for a piece of any winnings. Elliott Management, which oversees $21 billion in assets, is a hedge fund that is comfortable using sharp elbows both in the stock market and in the courts. In its battle against Argentina over defaulted bonds, Elliott Management has worked to seize sovereign assets, successfully convincing the government of Ghana last year to take possession of an Argentine naval vessel, much to the dismay of President Cristina Fernandez de Kirchner. In a typical move for the activist investor, Elliott Management recently purchased shares of Hess Corp., proclaimed it would seek board seats and said “lack of focus is a chronic issue at Hess that remains unchecked by the board.”

Wolk was able to attract Elliott Management’s financial backing in 2011 after two key events. In May 2010, Wolk succeeded in getting the Colorado Court of Appeals to reverse a prior lower court decision in Stan Lee Media’s corporate governance case, allowing the company’s minority shareholders to take control of the company from Lee himself and appoint a new board of directors by 2011. In addition, in December 2009 Disney bought Marvel Entertainment for $4 billion and started to make blockbuster movies from Stan Lee characters like those in The Avengers.

Elliott Management declined to comment. Disney has said the “lawsuit is without merit; it arises out of the same core facts and legal claims that have been rejected by three federal district court judges.” The company did not respond to requests to discuss the case. Lee’s lawyer also did not respond to a request for comment.

Comic writer Lee assigned the rights to his superhero characters to Marvel in 1998, but after Stan Lee Media collapsed, minority shareholders of the company claimed that Lee had previously assigned those rights in a written agreement to a predecessor company of Stan Lee Media. The minority shareholders have previously brought legal proceedings in courts from New York to California, but have never been able to get anywhere, losing decisions and cases.

For his part, Wolk says he became intrigued by Stan Lee Media’s claims when he was looking for some litigation to fund as part of his new business venture in 2009. Born in the Riverdale section of the Bronx, Wolk is a graduate of the University of Pennsylvania Law School who worked as a commercial lawyer in the New York area for years and, more recently, as a general counsel in the life settlements business. He has no copyright or intellectual property law experience. “The law is out there, I really don’t think it’s rocket science,” he says.

According to Wolk, the prior legal efforts by some shareholders of Stan Lee Media to pursue ownership rights of the superhero characters were stymied because the claims were brought derivatively, with minority shareholders of Stan Lee Media trying to stand in the shoes of the company without its authorization, against both Marvel and Lee. But by wresting control of Stan Lee Media, Wolk maintains, infringement claims can now be pursued directly for the first time. In October, Stan Lee Media launched its lawsuit against Disney in federal court in Denver, claiming that Stan Lee Media, a Colorado company, “owns the copyrights to Stan Lee’s creations” and “is entitled to the billions of dollars of profits” Disney has earned releasing motion pictures starring the characters in the last three years.

In motions to dismiss the lawsuit, Disney calls the new lawsuit “frivolous” and “a wholly improper attempt to revive a claim already rejected three times.” Disney is essentially arguing that Stan Lee Media is improperly trying to get around legal doctrines meant to bar continued litigation between the same parties over an already decided issue and that it’s trying to circumvent statutes of limitation. In its legal filings Disney implies that Marvel, where Disney says Lee worked for 40 years, owned the characters all along and states that Lee always retained the right to reclaim any intellectual property he assigned to Stan Lee Media’s predecessor company in the event of a material breach, which Disney claims Lee did in 2001. Disney has also asked the court to stay all discovery in the case.

“This action is the latest in a long series of attempts to assert non-existent rights over unspecified Marvel comic book characters allegedly stemming from a terminated 1998 agreement that on its face never granted any such rights in the first place,” Disney says in a court document. “Numerous previous litigations have soundly rejected the copyright claim.”

Nevertheless, Wolk on Wednesday had his lawyers, who are partly being financed by Elliott Management, arrange for Lee to be served with a subpoena to testify in a deposition and turn over documents this month. The legal adventure continues.

Via Forbes

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