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MAURA J. WOGAN (admitted pro hac vice)
JEREMY S. GOLDMAN (admitted pro hac vice)
ANDREW J. UNGBERG (admitted pro hac vice)
FRANKFURT KURNIT KLEIN & SELZ, P.C.
488 Madison Avenue, 10
th
Floor
New York, NY 10022
Telephone: (212) 980-0120
Facsimile: (212) 593-9175
E-Mail: mwogan@fkks.com
jgoldman@fkks.com
aungberg@fkks.com
MICHAEL E. WEINSTEN (SBN 155680)
LAVELY & SINGER
PROFESSIONAL CORPORATION
2049 Century Park East, Suite 2400
Los Angeles, California 90067-2906
Telephone: (310) 556-3501
Facsimile: (310) 556-3615
E-Mail: mweinsten@lavelysinger.com
Attorneys for Plaintiffs HASBRO, INC.
and WIZARDS OF THE COAST LLC
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
HASBRO, INC., a Rhode Island corporation;
and WIZARDS OF THE COAST LLC, a
Delaware limited liability company,
Plaintiffs,
vs.
SWEETPEA ENTERTAINMENT, INC., a
Delaware corporation; and SWEETPEA
B.V.I. LTD., a British Virgin Islands
corporation,
Defendants.
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Case No.: CV 13-03406-DMG (JCG)
[HON. DOLLY M. GEE]
PLAINTIFFS POST-TRIAL
MEMORANDUM
Trial Date: September 16, 2014
SWEETPEA B.V.I. LTD.,
Counter-Claimant,
vs.
HASBRO, INC., and WIZARDS OF THE
COAST, LLC,
Counter-Defendants.
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Case 2:13-cv-03406-DMG-JCG Document 291 Filed 10/06/14 Page 1 of 17 Page ID
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PLAINTIFFS POST-TRIAL MEMORANDUM
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TABLE OF CONTENTS
Page
I. THE SEQUEL RIGHTS REVERTED TO HASBRO....................................1
A. What Was Sweetpea Required To Do To Prevent Reversion?.............1
1. Commence Principal Photography of a Sequel.......................1
2. Based on the Picture, the Picture Creations and
the Property.................................................................................3
3. Intended for Initial U.S. Theatrical or Non-Theatrical
Release ........................................................................................4
4. Pay Hasbro the Theatrical or Non-Theatrical Rights
Payment Upon the Commencement of Principal
Photography ................................................................................7
B. Sweetpea Failed to Prevent the Reversion of the Sequel Rights ..........7
C. Sweetpeas Affirmative Defenses and Other Arguments Fail ............10
II. HASBROS RIGHTS UPON REVERSION.................................................13
III. RIGHT OF FIRST NEGOTIATION/LAST REFUSAL...............................14
IV. COPYRIGHT AND TRADEMARK............................................................15
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I. THE SEQUEL RIGHTS REVERTED TO HASBRO
The trial in this case focused primarily on two questions. First, what was
Sweetpea required to do to prevent the Sequel Rights (the rights granted in Paragraph 6
of the First Amendment) from reverting to Hasbro? Second, did Sweetpea fail to do what
was required to prevent the Sequel Rights from reverting?
A. What Was Sweetpea Required To Do To Prevent Reversion?
The evidence demonstrates the parties mutual intention that, to prevent the Sequel
Rights from reverting, Sweetpea was required do each of the following on or before
October 8, 2010 (five years from the initial U.S. release of the second movie):
(1) Commence principal photography of (a) a sequel (as that term is commonly
understood in the motion picture industry); (b) based on the Picture, the
Picture Creations and the Property (as those terms are defined in the License
Agreement); (c) intended for initial U.S. theatrical or non-theatrical release; and
(2) Pay Hasbro the applicable rights payment for a theatrical or non-theatrical
sequel upon the commencement of principal photography.
1. Commence Principal Photography of a Sequel
Sweetpea agrees that, to prevent the reversion of the Sequel Rights, it was required
to commence principal photography on a Sequel within the timeframe set forth in the
Agreement. Ex. 528-0026 37. The parties dispute the meaning of the term sequels
as it is used in Paragraph 6 of the First Amendment. At trial, Hasbros expert Roger Toll,
the former head of legal affairs for Sony/Columbia Pictures, testified that, in the motion
picture industry, the term sequel, when not modified by other language, is understood
to mean a motion picture that features the same principal characters (or, in some
instances, a single central character) as in the prior underlying motion picture, appearing
in a new story that may follow, but is substantially different, from the story in the prior
motion picture. Toll Decl. 14. Mr. Toll supported his opinion by referring to the
similar definition of the term sequel contained in the Writers Guild of America Basic
Agreement, Exs. 55053, which Mr. Toll testified has come to reflect generally
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understood industry terminology and shows what the parties would have had in mind
when they used the term sequel. Toll Decl. 40; 9/19 (am) Tr. 47:1248:17.
Moreover, applying the WGAs definition of sequel makes sense here because the First
Amendment, like the WGA Agreement, addresses creative continuity between one picture and
the next by requiring that sequels be based on the Picture, the Picture Creations and the
Property. Ex. 37 6. As discussed below, requiring sequels to include Picture
Creations evidences the parties mutual intention that subsequent movies continue
characters, story, plot lines, themes or other elements created by Sweetpea in
connection with the Picture. Ex. 12 1(e) (definition of Picture Creations).
Sweetpeas expert Peter Dekom, who represented Sweetpea in connection with the
negotiation of the License Agreement, PF
1
39, defines sequel as a subsequent movie,
television program, or other production that is linked to a prior production in the minds of
consumers by taking place in the same world or universe as the prior production.
Dekom Decl. 9. However, Mr. Dekom was unable to identify any outside source to
corroborate his definition. 9/19 (pm) Tr. 20:1417. The only sources identified in his
declaration that purportedly support his definition were from websites that the Court
precluded from evidence, id. 38:1040:2, and, in any event, were shown not to support
Mr. Dekoms definition, id. 36:1739:4. At the same time, Mr. Dekom admitted that he
has seen the WGA definition in license agreements. 9/19 (am) Tr. 168:19169:4.
In addition, according to Mr. Dekom, whether a motion picture constitutes a sequel
an issue that will determine whether the parties here stand to gain or lose very valuable
rights turns on whether consumers perceive the new movie as linked to the prior
picture, a subjective inquiry that would be difficult or impossible to prove and would
breed conflict and uncertainty. See 9/19 (am) Tr. (Dekom) 161:23162:3. In contrast,
Mr. Dekom admitted the WGA definition employs objective, readily discernable criteria:
either the motion picture continues primary characters or it does not. 9/19 (am) Tr.
1
Plaintiffs Post-Trial Proposed Findings of Fact and Conclusions of Law dated Oct. 6,
2014 (PF).
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171:23172:4. Moreover, Mr. Dekom defines sequel based on the general publics
purported understanding of the term, but the rule permitting evidence of custom and
practice requires the application of the special meaning . . . given to them by usage [in a
particular industry], not the thoughts of the consuming public. Cal. Civ. Code 1644.
Mr. Dekom criticizes the WGA definition as limited and outdated. Dekom Decl.
156. In fact, the definition has remained unchanged in each iteration of the agreement
from as early as 1984 through the present. Exs. 55053. Further, the glossary on
IMDB.com, a source Mr. Dekom admitted was not outdated and frequently is relied upon
by entertainment lawyers, defines sequel as a movie that presents the continuation of
characters and/or events of a previously filmed movie. 9/19 (pm) Tr. 23:914.
Finally, Messrs. Solomon and Dekom contend that continuing characters from one
movie to the next would conflict with how D&D is played because characters supposedly
die at the end of each game. In fact, Hasbros Liz Schuh testified that players play the
same characters year after year in many cases by tell[ing] a series of stories as a group
but with consistent characters in those stories. 9/17 Tr. 114:11116:12. Indeed, D&D
publications have analogized the adventures within a campaign to a series of movies or
television episodes that follow the same characters from one adventure to the next. PF
22. Moreover, this argument is mere pretext. On cross, Mr. Solomon admitted that his
initial hope was to continue the characters from the first movie into a sequel. 9/23 Tr.
14:715:8. He opted not to do so because those characters were poorly received, not
because it conflicted with game play. See id. 8:319, 9:814, 12:36.
2. Based on the Picture, the Picture Creations and the Property
Paragraph 6 of the First Amendment expressly limits Sweetpeas right to make one
or more sequels or remakes to those based on the Picture, the Picture Creations and the
Property. Ex. 37 6 (emphasis added). The License Agreement defines Picture
Creations as [t]he characters, story, plotlines, themes, or other elements created, in
whole or part, by Sweetpea, and expressly excludes elements originally created and
owned by Hasbro. Ex. 12 1(e). A comment that Lee Rosenbaum, the former attorney
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for Hasbro who negotiated the First Amendment, sent to Sweetpeas attorney Sheri
Jeffrey in Exhibit 50, expressed the parties intention with respect to this language:
The rights comprise the right to produce one motion picture based upon the
Property and the right to produce remakes, sequels and television programs
based on the Picture, the Picture Creations and the Property. You and I
have specifically discussed this point: Sweetpea may not go back to the
Property for a picture or television program based on the Property alone
but completely unrelated to the first Picture or the Picture Creations.
2
3. Intended for Initial U.S. Theatrical or Non-Theatrical Release
At trial, Hasbro demonstrated that the parties intended for Sweetpeas rights to
make theatrical and non-theatrical sequels (Sequel Rights) to operate independently of
Sweetpeas rights to make television series and television motion pictures (Television
Rights). This means that only the timely production of a theatrical or non-theatrical
sequel not a television motion picture would prevent the Sequel Rights from reverting
to Hasbro. Mr. Solomon, the principal negotiator of all the terms that are reflected in
the First Amendment [Solomon Decl. 2, 41] admitted that only the production of a
non-theatrical (or, presumably, a theatrical) motion picture would maintain
Sweetpeas theatrical and non-theatrical rights, and that the production of a television
motion picture could result in the reversion of those rights. Solomon Tr. 260:21261:07.
Mr. Solomons understanding is consistent with the plain language and structure of
the First Amendment, which sets forth a grant of rights, reversion clause and financial
terms for the Sequel Rights in Paragraphs 6 through 9, and a separate grant of rights,
reversion clause and financial terms for the Television Rights in Paragraphs 10 through
12. To date, Sweetpea has failed to offer any explanation, cogent or otherwise, why the
parties would have included a separate grant of rights and reversion clause for the
Television Rights unless they intended those rights to operate independently for purposes
2
While Sweetpea does not contest this express requirement, at trial, Mr. Dekom opined
that Paragraph 6 granted Sweetpea the right to make any motion picture based on the
Property, writing out the requirement that sequels be based on the Picture, the Picture
Creations and the Property. 9/19 (pm) Tr. 4:918. Mr. Dekoms interpretation of
Sweetpeas rights under Paragraph 6 both explains and guts his boundless
definition of the term sequel.
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of reversion. Sweetpea has provided no justification for its request that the Court write
these specific provisions out of the First Amendment.
The extrinsic evidence further supports Hasbros and Mr. Solomons interpretation.
Mr. Rosenbaums January 30, 1998 letter, which was TSRs starting point for the
mediation that led to the First Amendment, proposed separate grants of rights, financial
terms and reversion clauses for the Sequel and Television Rights a structure that is
mirrored by the First Amendment. Ex. 28 2, 4. Ms. Jeffreys February 9, 1998
response, on the other hand, which proposed a single grant of rights and a single
reversion clause for all subsequent productions, is not reflected in the language or
structure of the First Amendment. Ex. 29. Nothing in the First Amendment states, in
sum or substance, that Sweepea may produce sequels for release in all media.
While in her draft long-form Ms. Jeffrey attempted to renegotiate the parties
agreement on this point by again proposing that the rights be collapsed together into a
single provision [Ex. 48-0002], Mr. Rosenbaum rejected Sweetpeas long-form in its
entirety [Ex. 52] and proposed his own long-form that accurately reflected the agreement
reached in the First Amendment that the Sequel Rights and Television Rights operate
independently [Ex. 57 VI and VII].
Finally, Mr. Toll confirmed that it would be contrary to custom and practice for the
production of a television motion picture or series, together with the television rights
payment, to extend the reversion clock for the production of theatrical motion pictures.
Toll Decl. 26(f). Mr. Rosenbaum corroborated this fact by testifying that, over his 32-
year career as an entertainment lawyer, he cannot recall a single instance in which he
agreed that the exercise of television rights would extend a producers theatrical rights,
that no such agreement had been reached in connection with the First Amendment and, if
it had, he would have remembered such an anomaly. 9/16 Tr. 220:17222:3.
3
3
Sweetpea also argues that because the original Picture under the License Agreement
was defined as one theatrical or television motion picture, this meant that sequels also
could be theatrical or television. However, the term Picture refers to one specific
production (the first D&D movie) and the evidence shows that, by the time the parties
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In determining whether a motion picture being produced under the First
Amendment is theatrical, non-theatrical or television, the experts agree that custom and
practice looks to how the producer intended to release the production when principal
photography commenced. See Toll Decl. 5254; 9/19 (am) Tr. (Dekom) 152:23
153:9. Mr. Toll testified that, in discerning the producers intent, the custom and practice
is universal: Its what you pay and what you say. Toll Decl. 54. The producer makes a
rights payment to the property owner and accompanies the payment with a note
specifying the particular right being exercised, which correlates to the intended mode of
release. Id. Mr. Dekom, on the other hand, testified that custom and practice does not
require the producer either to make its intentions known to the rightsholder or to make a
rights payment consistent with its intentions. 9/19 (am) Tr. 154:1924; Dekom Decl.
64. According to Mr. Dekom, the rightsholder would find out eventually whether the
rights reverted by seeing how the picture was released, which he admitted could be years
after the start of production. 9/19 (am) Tr. 154:25156:3. Again, the custom and practice
suggested by Mr. Toll employs objective criteria, easily discernable by the affected
parties, while the practice suggested by Mr. Dekom would breed conflict and uncertainty.
Moreover, Mr. Toll testified that, in the motion picture entertainment industry,
whether a motion picture is considered theatrical, non-theatrical or television customarily
is determined by the medium in which the motion picture is initially released in the
United States, not in some foreign market. Toll Decl. 53. Mr. Dekom all but conceded
this point, agreeing that the release must be a meaningful release in a meaningful
market, 9/19 (pm) Tr. 73:1820, that the U.S. release is absolutely relevant, id. 74:13,
and that when the parties entered into the First Amendment, the U.S. comprised
approximately 60% of the worldwide market (while the U.K. comprised only 12% of the
international market or 5% of the total market), id. 35:1820 and 75:812. Mr. Toll
explained that where, as here, a sales agent is charged with licensing all foreign
negotiated and entered into the First Amendment, it already had been determined that the
Picture was going to be a theatrical motion picture. PF 90.
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distribution rights on a territory-by-territory basis, [i]t would completely defeat the
customary expectations of the parties if the decision by a local distributor in Thailand or
Peru to distribute the production theatrically in its territory could transform the
production from a television motion picture into a theatrical motion picture, thereby
triggering (among other possible outcomes) an obligation on the part of the producer to
make a much larger rights payment to the rights holder. Toll Decl. 53. See also PF
333 (provisions in the Agreement show that U.S. release determines parties rights and
obligations).
4. Pay Hasbro the Theatrical or Non-Theatrical Rights Payment
Upon the Commencement of Principal Photography
The evidence overwhelmingly establishes the parties mutual intention that the
rights payment for a theatrical or non-theatrical sequel be paid upon the commencement
of principal photography. PF 62, 112, 120(b), 121, 144-145, 176-190, 306, 337.
Furthermore, Mr. Toll testified that, where there is a rolling reversion clause like the one
in Paragraph 6, the timely payment of the license fee is a condition to properly extend the
reversion clock. PF 282-284.
B. Sweetpea Failed to Prevent the Reversion of the Sequel Rights
The evidence overwhelmingly establishes that the Sequel Rights reverted because
Sweetpea elected to exercise its Television Rights, not its Sequel Rights.
TheBookof VileDarknessWasNot aSequel. The third movie was not a
sequel because it contains none of the characters principal or otherwise who
appeared in the first movie. PF 225. Moreover, the movie took place in a different
fantasy world and did not continue any of the storylines from the first movie. PF 226-
227. Indeed, Mr. Richards described the third movie as an attempt to start fresh and to
get away from the camp humor of the first movie. 9/17 Tr. 108:24109:8.
TheBookof VileDarknessWasNot BasedonthePictureor thePicture
Creations. There is no evidence that a single Picture Creation from the first movie
appeared in the third movie, much less evidence that the third movie was based on the
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Picture and the Picture Creations. PF 225234. Although Mr. Solomon, Mr. Dekom
and Mr. Richards attempted to identify elements in common between the first and third
movies, each element represented no more than a generic fantasy trope (e.g., fire-
breathing dragons, swords, spells, heroes on a quest, etc.) that was expressed quite
differently in each production. PF 228. The only non-generic element identified by
Sweetpea as having been featured in all three movies was the Rod of Savrille.
Solomon Decl. 139. On cross, Mr. Solomon admitted that he was keenly aware that the
Rod of Savrille had been destroyed in the first movie and did not return in the second or
third movies. 9/23 36:1840:25. Yet, Mr. Solomon falsely claimed that listing it on the
chart was an innocent mistake. Id. 41:2042:8. Mr. Solomons willingness to mislead
the Court regarding the Rod of Savrille demonstrates Sweetpeas acknowledgement that,
to prevent reversion of the Sequel Rights, the third movie had to be based on the Picture
Creations, and the absence of the Rod of Savrille, or any other Picture Creation, in the
third movie demonstrates Sweetpeas failure to satisfy that critical requirement.
TheBookof VileDarknessWasI ntendedToBeA TelevisionMovie. The
evidence overwhelmingly establishes that, at the commencement of principal
photography (and at all relevant times), the third movie was not intended to be a
theatrical or non-theatrical movie, but was intended to be a television movie that
would premiere on the Syfy cable television network. The best evidence of Sweetpeas
intent is Exhibit 131, which shows that on October 7, 2010, six days after the
commencement of principal photography, Sweetpeas agent and producer of the third
movie, Steve Richards, wired to Hasbro a $20,000 rights payment with the message:
Dungeons & Dragons, Passive Royalty due per 11.d of March 19, 1998 Agreement (the
provision relating to TV movies). Exhibit 128 shows that Mr. Richards calculated the
$20,000 based on the payment owed for a two-hour TV movie of the week because, at
that point in time, he felt very confident that [Syfy] would end up buying the movie, and
that they would be very happy with the end result. . . . 9/18 (am) Tr. 98:59; see also PF
193. Exhibit 126 shows that, the day before sending the rights payment, Mr. Richards
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advised Hasbro that [s]hooting started last week and things are going well. Scyfy seems
pleased as well. Moreover, Mr. Richards admitted that the shooting script used at the
start of principal photography [Ex. 569] was formatted for television. 9/18 (am) Tr.
89:1490:17, 105:9106:18. In fact, the evidence shows that, from inception to release,
The Book of Vile Darkness was conceived, budgeted, developed, produced, marketed,
released and, most importantly, repeatedly represented to Hasbro, as a television movie
for initial and primary distribution on the Syfy cable television network. PF 163224.
Against this weighty evidence, Sweetpea contends the third movie was a theatrical
or non-theatrical motion picture. Sweetpeas main argument relies on the purported fact
that a DVD of the third movie was released in the U.K. prior to the Syfy release. But this
is a red herring. Both experts opined that, based on custom and practice, it is the intended
release at the time of the commencement of principal photography that determines the
parties rights and obligations under a license agreement; how the film is ultimately
released is irrelevant. There is no evidence that, when production started, the producer
intended that the movie would have its world premiere by DVD release in the U.K. 9/18
(am) 118:12120:23 (Richards was not contemplating possible foreign releases when he
made rights payment to Hasbro). Moreover, as stated above, it is the initial release in the
U.S. that determines whether a motion picture is theatrical, non-theatrical or television,
not the release in a minor foreign market like the U.K.
Sweetpea further relies on statements by Mr. Solomon and Mr. Richards that they
hoped to distribute the third movie as widely as possible, including theatrically if
possible. But as Mr. Toll put it, talk is cheap, and nowhere is it cheaper than in the
movie business; consequently, the custom and practice in the industry is to disregard all
such statements in determining the rights and obligations of the parties. Toll Decl. 54.
Mr. Solomon admitted, during his deposition, that he never intended to distribute the third
movie theatrically and, during trial, that Sweetpea made no effort to distribute the third
movie theatrically. Solomon Dep. 193:1194:20; 9/23 Tr. 48:318.
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Finally, Sweetpea relies on the presence of nudity in the DVD version of the third
movie. However, the nude scenes are entirely consistent with the intention conveyed to
Hasbro: that the third movie would premiere on Syfy followed by a DVD release. PF
204. The inclusion of a few graphic scenes with the hope to boost sales of the DVDs,
see 9/17 Tr. (Richards) 167:1417, that were scheduled to follow the Syfy premiere is not
enough to transform this movie into a theatrical or non-theatrical motion picture.
4
SweetpeaExercisedandPaidFor TelevisionRights. The evidence shows that
Sweetpea exercised Television Rights, not Sequel Rights, by making a $20,000 rights
payment to Hasbro and indicating that the payment was for a television movie of the
week. Ex. 131. At no time did Sweetpea make the rights payment for a theatrical or non-
theatrical sequel. PF 202-203. Nor was Sweetpea obligated to make any such
payment, as Sweetpea intended to produce, produced and released a television movie.
C. Sweetpeas Affirmative Defenses and Other Arguments Fail
Recognizing that the evidence weighs heavily in Hasbros favor, Sweetpea asserts
a number of affirmative defenses and other arguments to avoid reversion.
First, Sweetpea constructs a straw man by arguing that, pursuant to Paragraph
19(b) of the License Agreement, Hasbro was obligated to notify Sweetpea of its failure to
pay the non-theatrical rights payment and provide Sweetpea with ten days to cure that
breach. But Sweetpea had no obligation to produce any motion picture and thus had no
obligation to exercise its Sequel Rights and pay the theatrical or non-theatrical rights
payment. Ex. 12 14(a). Sweetpea elected to exercise its Television Rights by
commencing production of a television movie, paying Hasbro the $20,000 rights payment
and repeatedly telling Hasbro that it was exercising Television Rights. Ex. 131. These
actions represented a valid exercise of Sweetpeas Television Rights, not a breach of any
4
Mr. Solomon and Mr. Dekom claimed that the third movie obtained a PG-13 rating
from the MPAA. Solomon Decl. 128; Dekom Decl. 50(b). However, Mr. Solomon
admitted on cross that he had no knowledge of the MPAA application process and that he
was not even sure that an MPAA rating would have yet been issued for the movie.
9/23 Tr. 111:12112:19. Mr. Dekom, for his part, cites to a never-produced Richards
Decl. to support the PG-13 claim. Dekom Decl. 50(c).
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obligation under the parties agreement. Hasbro had no duty to give Sweetpea notice of
the fact that it had not exercised Sequel Rights.
Second, Sweetpea argues that, by participating in the writing of the script and in
the filming of a DVD extra for the third movie, Hasbro either waived, or is estopped
from asserting, its claim that the third movie was not a sequel intended for theatrical or
non-theatrical release. However, as stated above, Sweetpeas agent represented to Hasbro
at all relevant times that it was producing a television movie that would be released on the
Syfy channel. Accordingly, Hasbro had no reason or right to insist that Sweetpeas
production meet the requirements of a sequel pursuant to Paragraph 6 of the First
Amendment, and Hasbros participation in the development and promotion of the third
movie cannot be construed as clear, decisive and unequivocal conduct which indicates
a purpose to waive Hasbros right to claim that Sweetpeas rights to make sequels
reverted. United States v. Amwest Surety Ins. Co., 54 F.3d 601, 60203 (9th Cir. 1995).
Moreover, the evidence shows that the individuals whose conduct provides the basis for
Sweetpeas waiver and estoppel defenses had no actual knowledge of the any of the
terms of the First Amendment, as such knowledge would be required to show the
intentional relinquishment of a known right. Cathay Bank v. Lee, 14 Cal. App. 4th 1533,
1539, 18 Cal. Rptr. 2d 420, 423 (1993). See PF 209213. Sweetpeas estoppel
argument fails for similar reasons. See PF 445448.
5
Third, Sweetpea argues that Hasbros decision to forego its initial claim that the
Sequel Rights reverted in connection with the second movie is inconsistent with its
current position that the Sequel Rights reverted in connection with the third movie
because the release pattern of the two productions was the same (i.e., Syfy then DVD).
However, as stated above, it is not how the production is ultimately released that
determines whether the Sequel Rights were validly exercised; rather, it is what you say
5
At most, Hasbro may be deemed to have waived its right to claim that Sweetpea failed
to exercise its Television Rights by producing a television motion picture that was not
based on the Picture, the Picture Creations and the Property. However, Hasbro has not
asserted that claim, even though the third movie lacks such elements.
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and what you pay at the commencement of principal photography. The evidence
revealed that, with respect to the second movie (and in contrast to the third movie),
Sweetpea (a) notified Hasbro that it was producing a non-theatrical sequel, i.e., it is not
intended for general theatrical release in the U.S. [Ex. 88-0002], and (b) paid Hasbro the
non-theatrical rights payment [Ex. 91]. In addition, and again in contrast to the third
movie, the second movie continued one of the main villains from the first movie
(Damodar) and was, at least arguably, based on the Picture and the Picture Creations (it
was set in the same fantasy realm Ismir and loosely followed the storyline from the
first movie). PF 153. While the second movie may still not have constituted a sequel
within the meaning of Paragraph 6, Hasbro decided to narrow the issues for trial and
focus solely on the third movie, which is a clear-cut case for reversion.
Fourth, Sweetpea points to statements made by Hasbro representatives purportedly
acknowledging that Sweetpea continued to hold certain D&D motion picture rights.
However, there is no evidence and there can be no evidence that any of these
statements were made by individuals with personal knowledge of either (i) the intent of
the parties with respect to the Sweetpea/TSR agreement, which Hasbro inherited from
Wizards, or (ii) the facts and circumstances of Sweetpeas exploitation of its rights, which
is necessary to analyze the issue of reversion. Moreover, as to the statements purportedly
made to Warner Bros. and Universal, it was agreed by all parties that all discussions were
subject to chain-of-title review.
6
Thus, none of these statements, which at most reflect
one persons subjective understanding of a contract s/he may not have even reviewed, are
relevant. Fed. R. Evid. 402.
Fifth, Sweetpea argues that the reversion of the Sequel Rights would constitute a
forfeiture. However, Sweetpea had the option not an obligation to extend its rights
under Paragraph 6 by producing a sequel. Ex. 12 14(a). Under California law, the
6
The evidence shows that Hasbro never represented to Warner Bros. that it lacked the
rights necessary to make a D&D movie. 9/22 Tr. (Oh) 30:731:6. Rather, Hasbro
represented that the rights were complicated and that Hasbro was still working to find
out what exactly the status [was] on the rights. Oh Decl. 4.
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expiration of an option is not a forfeiture. See Bekins Moving & Storage Co. v.
Prudential Ins. Co., 176 Cal. App. 3d. 245, 253254 (Cal. App. 1985) (In order for there
to be a forfeiture there must be some right or vested interest involved. An option is
merely an offer.); Drewry v. Welch, 236 Cal. App. 159, 167 (Cal. App. 1965) (rejecting
defendant loggers argument that the termination of their timber rights was a forfeiture
and holding this is not a case of forfeiture but of a failure by defendants to properly
exercise an option which would grant them the right to continue logging on plaintiffs
land). Sweetpea elected to exercise its option to produce a television motion picture and
will maintain its Television Rights. Moreover, Sweetpea can hardly claim forfeiture in
light of Warner Bros. purchase of all of Sweetpeas rights for at minimum $5 million
regardless of the outcome of this case. Ex. 540 (Sweetpeas deal is pay or play).
II. HASBROS RIGHTS UPON REVERSION
Sweetpea seeks a declaration that it holds the perpetual, exclusive right to make a
motion picture based on the underlying D&D Property and the exclusive right to use
the words Dungeons & Dragons in the primary title of a motion picture even if the
reversion of the Sequel Rights precludes Sweetpea from exercising those rights in
connection with theatrical or non-theatrical films. Ex. 528 6. In other words, Sweetpea
contends that, in the event of reversion, neither Sweetpea nor Hasbro will be permitted to
make feature films based on the Property or to use Dungeons & Dragons as the primary
title of a film. Those rights would be frozen. Forever.
The Agreement does not specify what rights Hasbro may exercise in the event the
Sequel Rights revert. Again, custom and practice fills the gap. Mr. Toll testified that
the point of the use it or lose it provision is to assure that the licensor and its
subsequent licensees will be able to use all of the elements in the underlying property
(including the title and associated logos) together with new elements they create to
produce more theatrical motion pictures. Toll Decl. 29. In other words, the rights
holder gets back everything it contributed to the transaction in the first instance (9/19
(am) Tr. 136:1115), which here would comprise the Property and the D&D title.
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Mr. Toll testified that in his 30+ years in the motion picture industry, he never heard of a
situation where such rights were frozen in perpetuity following the reversion of rights.
Sweetpea relies on Paragraphs 14 and 15 of the First Amendment to argue that the
primary title rights never revert to Hasbro. However, by their own terms, those
restrictions existed to address the pre-reversion scenario, in which Hasbro and Sweetpea
held rights to make feature films based on the D&D and AD&D properties, respectively.
Mr. Toll testified that these provisions should not impact the custom and practice of
reversion causing all the rights, including the Property and the title, to return to their
original owner Hasbro. See 9/19 (am) Tr. 25:1827:6.
III. RIGHT OF FIRST NEGOTIATION/LAST REFUSAL
Sweetpea seeks a declaration that, even if the Sequel Rights revert, it continues to
hold a Right of First Negotiation/Last Refusal with respect to sequels and remakes that
had been granted to Sweetpea pursuant to the Paragraph 2(k) of the License Agreement
(the 2(k) Right). However, the evidence shows that when the parties entered into the
First Amendment, Sweetpea received, for the first time, an outright grant of Sequel and
Television Rights subject to specified financial terms and reversion clauses. Ex. 37 6
12. By operation, this outright grant of rights conflicts with the far more limited 2(k)
Right, which required the parties to negotiate the terms of any sequel or remake deal.
Compare Ex. 12 2(k), with Ex. 37 612. And, [i]n the event of any conflict
between the provisions of [the First Amendment] and the provisions of the [License]
Agreement, the provisions of [the First Amendment] shall prevail. Ex. 37 17. Thus,
the First Amendment, by operation, eliminated the 2(k) Right.
Moreover, [w]here, as here, the contract at issue is fully integrated, California law
allows the admission of parol evidence if it is (1) relevant to prove (2) a meaning to
which the language of the instrument is reasonably susceptible. U.S. Cellular Inv. Co.
v. GTE Mobilnet, Inc., 281 F.3d 929, 938 (9th Cir. 2002) (citation omitted). See also
Dore v. Arnold Worldwide, Inc., 139 P.3d 56, 60 (Cal. 2006) (Even if a contract appears
unambiguous on its face, a latent ambiguity may be exposed by extrinsic evidence which
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reveals more than one possible meaning to which the language of the contract is yet
reasonably susceptible.) (quotation marks and citations omitted). The extrinsic evidence
in this case overwhelmingly shows that the parties intended for the outright grant of
Sequel and Television Rights to supersede the 2(k) Right, and for the 2(k) Right to be
eliminated. See Rosenbaum Decl. 2628; Ex. 33-0002 (3/16/98 Rosenbaum to Jeffrey:
The reference in the draft to and as provided in 2(k) is confusing, as this paragraph is
intended to supersede those provisions with respect to first negotiation/refusal.); Ex. 34-
0004-5 (3/16/98 Jeffrey to Rosenbaum: accepting Rosenbaums comment by striking
and as provided in 2(k)); Ex. 48-0005 (Jeffreys long-form proposed cutting off
Paragraph 2 after subparagraph (h)); Ex. 57-0003 (Rosenbaums long-form proposed
deleting sequels and remakes from Paragraph 2(k)); Toll Decl. 3033 (allowing 2(k)
Right arise again after a producer was granted but then lost its rights pursuant to a use
it or lose it clause would contradict custom and practice).
IV. COPYRIGHT AND TRADEMARK
With respect to Hasbros claims for copyright and trademark infringement, Hasbro
relies on its oral argument in opposition to Sweetpeas Fed. R. Civ. P. 52 motion [9/22
Tr. 123132:15 and 137:9139:1], as well as its supplemental brief [ECF # 274].
Dated: October 6, 2014 FRANKFURT KURNIT KLEIN & SELZ P.C.
BY: / S/ Maura Wogan
MAURA J. WOGAN
JEREMY S. GOLDMAN
ANDREW J. UNGBERG
Dated: October 6, 2014 LAVELY & SINGER P.C.
BY: / S/ Michael E. Weinsten
MICHAEL E. WEINSTEN
Attorneys for Plain7tiffs Hasbro, Inc. and
Wizards of the Coast LLC
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