Comic Book Superheroes Teach Us a Lot about Corporate Law and Copyrights.

Recently, I stumbled across news that Netflix's rights to the "Daredevil" television show that they produced and distributed were going to revert back to Marvel Studios by December of 2020. Given that this is a show about a superhero whose day job is an attorney at a local law practice, and as someone that grew up enjoying comic books, this news is a great opportunity to dive into a plethora of legal issues, including copyrights, intellectual property licensing agreements, corporate structuring, and bankruptcy.

Because these posts are for the layperson who is likely overwhelmed by the sheer amount of information on a given area of interest, I think that the best way to understand this topic is by teaching it in the same way I learned it: by walking through the history of a comic book company.

In case you are wondering--yes, this is considered the adult-equivalent of sneaking in broccoli into your mac 'n cheese. To begin, there are two major publications that are responsible for most every superhero we know and love: DC comics and Marvel comics. DC comics is the older of the two, established in the 1930's; DC created such beloved characters as Batman, Superman, the Flash, Wonder Woman, and Aquaman. In contrast, Marvel comics was founded in the 1960's and created characters such as the Hulk, X-Men, Spider-Man, Captain America, Iron Man, Thor, etc.

As a business entity, Marvel comics was initially incorporated as "Marvel Comics Group," and existed as subsidiary to a magazine publication company, "Magazine Management Group," which itself was a subsidiary to a now-defunct conglomerate, Cadence Industries. Conglomerates were companies involved in various, unrelated industries and were very popular throughout the 60's and 70's, but eventually fell apart in the 80's as being too top-heavy and unmanageable. At the time, however, they were very useful for cross-platform promotion. For example, Cadence Industries was permitted to use the characters created by Marvel Comics Group to market chewable vitamins to kids, with said vitamins manufactured by a pharmaceutical company also owned by Cadence Industries.

This is a prime example of the power of copyright licensing; while Marvel Comics Group created fictional characters for adventures in comic book stories, its parent company, Cadence Industries, maintained the power to use these characters for other purposes--such as advertising to promote unrelated products to the public.

In 1986, Cadence Industries fell apart and liquidated its assets, selling its ownership of Marvel Comics Group. As a protective measure, Marvel Comics Group then re-incorporated into "Marvel Entertainment Group" and formed two subsidiaries of its own: Marvel Publications, Inc., and Marvel Productions, Ltd. Marvel Publications, Inc. managed their characters in the comic book and publishing industry, whereas Marvel Productions, Ltd. managed the characters in animated and live-action movie and television film productions. The parent company, Marvel Entertainment Group, managed the two companies but their prime responsibility was toy-making rights associated to their fictional characters.

If your brain has twisted into a pretzel with all this talk about conglomerates and subsidiaries and liquidation of assets, let me take a step back and give you the view from 20,000 feet: Marvel Comics Group, aka Marvel Entertainment Group, maintains rights to the characters they created, which includes something called "derivative works." These rights to derivative works extend far beyond the comic book stories these characters originated from--they include spin-off cartoon shows, animated and live action movies, toys, etc.

This is what attorneys mean when they talk about "copyrights." Individuals and businesses have exclusive rights to not only the characters and stories they create, but also things that organically spring from these characters and stories.

Moreover, these rights are capable of temporary or permanent transfer to other businesses and/or individuals...and this is where things get really complicated.

In the early 1990's, comic book characters became incredibly popular, and Marvel Entertainment Group expanded as a result. They pushed comic book printing to levels never seen before, they bought trading card companies to print and distribute their characters' likeness, and they acquired toy manufacturers. Eventually, however, the bubble burst. The massive production levels of comic books diluted their worth as collector's items; the trading card companies they bought folded after the 1994 Major League Baseball strike (decimating the industry as a whole); and the cartoon shows rose and then fell in popularity and ratings before being cancelled altogether.

In order to fund Marvel Entertainment Group's rapid expansion, the company negotiated relatively lucrative licensing rights to film studios to produce movies based upon their popular characters, who would in theory, profit from the success of bringing these characters to life on the big screen. Most of these licenses were contingent arrangements, meaning that a film studio would keep the exclusive rights to produce a movie about say--Spider-Man- for a certain period of time, but those rights would revert back to the copyright holder at the end of that period if a film wasn't produced. Paradoxically, some studios ended up making superhero films that were never actually released to the public just so they could keep their purchased licensing rights longer, in effect holding them hostage.

After the bubble burst, Marvel Entertainment Group was forced to file for Chapter 11 bankruptcy protections in 1996. Bankruptcy actions are divided into several chapters, the most common being 7, 11, and 13. As a kid reading about this in my local newspaper, my heart sank thinking that I wouldn't be seeing any of my favorite characters on their adventures anymore--but that wasn't and isn't the case.

Chapter 7 actions are for when you're closing up shop; you stop the business altogether and you liquidate and sell off all of your assets in order to pay your debts to your creditors. Chapter 13 is when you get to keep the business, but you submit a plan to the Bankruptcy Court to restructure your business and figure out how to manage your debts; some may even be dismissed by the court. Chapter 11 functions in the same way as Chapter 13, but the difference is how much debt you owe; generally speaking, it's far less complex to do a Chapter 13 restructuring, but the amount of debt you hold as an individual or company will limit your ability to file under that Chapter. The common aspect of all bankruptcy, however, is that all calls for the repayment of debt must stop while the proceedings are ongoing.

Marvel's plan to restructure and resolve its debts involved restructuring as a limited liability company under a new name, Marvel Enterprises LLC. They slowly went about reacquiring the film licensing rights to their characters, most notably Spider-Man, and eventually began licensing them out more carefully to Sony Pictures and Universal. In 2005, Marvel changed its name to Marvel Entertainment, and in 2009, it was acquired by the Walt Disney Corporation--and this is where the bulk of Marvel Enterprises' copyrights currently rest, within a sub-company, Marvel Studios.

The Walt Disney Corporation is why over the past decade we have been able to enjoy a shared-film universe franchise that involves so many different comic book characters. While there are still some navigation problems--such as Spider-Man still being licensed to Sony, and all of the X-Men characters as well as the literary concept of mutants (which is why they are never mentioned in those Avenger films) being licensed to 20th Century Fox--by and large, Disney's status as an intellectual property juggernaut has all but settled those issues.

This brings us full circle back to Netflix and Daredevil's television rights being returned to Marvel Studios in December of 2020. From all the publicly available information, it seems that Disney didn't want to directly invest in producing a television show based upon the Daredevil character, so they licensed him out to Netflix for a period of time--and one of the contingencies to that licensing right apparently was the requirement to continue to produce episodes of the show. As the show was cancelled a year or so back and Netflix has no plans to produce more episodes, the rights to the character will return to Disney and Marvel Studios.

While I'm not privy to their licensing agreements, we can safely presume that Disney will then shift the back episodes of the Daredevil television series into its Disney+ platform and remove it from Netflix altogether. This is a reasonable prediction given that they've done so with all of their Marvel properties.

A good portion of Nechleba Law Firm, P.C.'s practice revolves around helping authors, illustrators, and artists ensure that their rights to their creative work products are properly guarded and that they can benefit from the fruits of their labor. I picked up my first comic book when I was 8 years old and my parents supported my interest in them because I imagine they wanted to encourage reading in their children, no matter the source. I never imagined that enjoyment of stories about colorfully costumed heroes would help me understand and explain copyrights, intellectual property licensing agreements, corporate structuring, and bankruptcy law--but I think there's a certain amount of beauty in that, because it allows creatives to see how deep the rights to their creative works go, and how far they can take them.

If you're interested in what your intellectual property rights are regarding your creative works, or you're interested in forming a business around your creative work products, feel free to reach out to the Nechleba Law Firm, P.C. to assist you through all your questions and set you on the path for success.