Six Degrees of Disney
By Robert L. Moshman
he creative world of Walt Disney, the artist, was populated by a cast of beloved characters. Characters such as Mickey Mouse have became the most valuable intellectual properties in the world to the point of becoming icons of the entertainment industry. The corporate legacy of Walt Disney has been repopulated by scores of new intellectual properties from other artists.
With the extension of intellectual property rights, heirs of artists, writers, and other performers can expect to manage valuable rights for many years after an artist's death. As a result, the Walt Disney Company has become the nexus of many celebrated estates. Heirs have sometimes found themselves at odds with Disney over royalties and recognition of stories, songs, drawings and ideas. Each of these conflicts reflects the evolution of intellectual property rights and other relevant issues.
Steamboat Willie
Walt Disney started out as an artist with nothing but a few art supplies and a $250 loan from his brother. By 1928, at the age of 26, he had founded a cartoon studio. But when he traveled to the East Coast to finance a motion picture, his creditors not only turned him down, they confiscated his best character, Oswald the Lucky Rabbit.
Disney got back on the train and drew a cartoon mouse named Mortimer. By the time he reached California, his wife had renamed it "Mickey," and the rest is history. Mickey Mouse was introduced later that year in Steamboat Willie, the first cartoon with a synchronized sound track and was an instant hit.
Disney used new technology and innovation and expanded his business. By 1940, he employed more than 1,000 artists, writers, and technicians. Over the years, the Disney enterprise was able to merchandise its characters, branch into television and become the number-two media conglomerate in the world behind Time Warner.
Today, Disney owns broadcast and cable networks reaching over 120 million households worldwide as well as 60 radio stations. It operates or licenses theme parks in California, Florida, Paris, Tokyo and Hong Kong. There are Disney cruises, Disney software, Disney home video, and Disney consumer products which include apparel, toys, home décor, books, games, food, electronics, and fine art. A full line of Disney candy for each season is produced at 13 plants in the United States and Mexico. In 1994, an estimated $14 billion of products were sold worldwide.
Walt Disney's Will
Walter E. Disney (1901-1966) divided most of his estate between a charitable trust and a family trust. His estate plan took several basic approaches.1
A team of co-executors included Disney's wife, an attorney, and a bank. In the event the individual executors were unavailable, the corporate executor would become sole executor.
Under California's community property law, Disney's assets were already divided between his and his wife's estate.
Trust funds established by Disney could be paid to his surviving spouse if needed (or if it were beneficial, for estate tax purposes).
The family trust was to be administered as a "sprinkling trust" that allowed trustees to distribute funds to the two Disney daughters or accumulate funds in a flexible manner.
At the death of Mrs. Disney, the two daughters would continue to receive trust income for life. At their deaths, the trust was to be divided among their heirs.
A Corporate Dynasty
Ironically, the artist who once lost Oswald the Lucky Rabbit to corporate creditors had created his own corporate colossus. Walt Disney's creations, Mickey Mouse, Donald Duck, Minnie Mouse, Goofy and Pluto, are registered trademarks and/or copyrights of the Walt Disney Company.
Yet a media company the size of Disney cannot survive on Mickey Mouse and Donald Duck alone. The Walt Disney Company is like an engine that requires a constant supply of intellectual properties that can appeal to each new generation of children.
As a result, Disney has acquired rights to the works of other artists such as A.A. Milne, who authored Winnie the Pooh, and the late Jim Henson, creator of the Muppets. Disney has reportedly locked up a deal to incorporate Harry Potter in its theme parks and is in hot pursuit of The Lord of the Rings.
From the artist's standpoint, an established company like Disney provides the best opportunity to share creative works with the world and maximize profits. But it also sets up issues that Walt Disney heirs did not have to contend with: The loss of control over creative work and the suspicion that a corporate steward of the work is not sharing the appropriate royalties.
The Nexus of IP Battles
The intellectual property rights of authors and artists have changed dramatically over the past 15 years. Not surprisingly, the Walt Disney Company, as the crossroads of so many valuable media products, has been at the eye of this storm.
Disney products have evolved from records, to tapes to compact discs and now digital files. Laws applying to intellectual properties have also evolved and intellectual property rights have been greatly extended.2
The Copyright Act of 1790 established copyright protections of 14 years with a 14-year renewal. By 1909, these were doubled to 28 years with a 28-year renewal. Other small extensions were made but in 1976, Congress made copyright protections last for the life of the author plus 50 years. This was in anticipation of the Berne Convention, an international copyright treaty.
The 1998 enactment of the Sonny Bono Copyright Term Extension Act extended the term of U.S. copyrights for 20 years. As a result, copyrights now last for the lifetime of the author plus 70 years. Pre-1978 works are extended from 75 years to 95 years. Works created prior to 1923 are now in the public domain. In general, works for hire have a term of 95 years from the year of first publication, or a term of 120 years from the year of creation, whichever expires first.
As a result, estates now have a reason to exist long after authors and artists have passed on. Because these issues may take decades to arise and decades to resolve, Disney has litigated with the estates of a number of artists.
Lady and the Tramp
Peggy Lee co-wrote six songs and did voices for four characters on the soundtrack of the Disney's classic 1952 film, Lady and the Tramp. When released for sale 35 years later, it became the top-selling film of 1987 and sold more than three million copies.3
In 1991, Lee sued Disney for $50 million based on breach of contract and unjust enrichment. The central issue was whether Lee was entitled to royalties when Disney had re-released the film on video cassette, a technology that had not been invented at the time of the movie. Lee's contract granted her royalties for "recordings and transcriptions." The key word here was "transcriptions," which was found to be broad enough to include new media such as video cassettes.
After Lee was awarded $2.3 million in royalties, many artists filed lawsuits against various media companies, but with mixed success. Disney faced suits from performers in Sleeping Beauty and Cinderella.
Several battles were waged over the 1991 video cassette release of Fantasia.4 An heir to conductor Leopold Stokowski was successful because Stokowski's contract specifically included language that contemplated the use of future technology. But these battles illustrate how many variables affect the outcome. Even if future technology was provided for, it must be determined if the licensee reserved any rights, and whether changing copyright laws extended intellectual property rights to the performances in question. Stokowski had conducted the Sorcerer's Apprentice, a piece of music that was in the public domain. However, Stokowski's arrangement of the piece was protected.
Other Fantasia-related lawsuits were filed, one by the Philadelphia Orchestra, and another by a company that had been assigned the copyright to Igor Stravinsky's Rite of Spring. Although that composition was in the public domain in the United States, it was protected in Europe and the case dealt with European distribution rights. In that case it was determined that Disney had the right to utilize video cassettes because the plaintiff had the burden of including such limitations in the contract and had failed to do so.
As a result of these cases, modern intellectual property contracts now routinely include clauses about all future media
Pooh Bear, Superstar
By some reports, Winnie The Pooh is now Disney's major "cash cow" surpassing even the corporate icon, Mickey Mouse by generating revenues of $1.5 billion a year (or $6 billion a year, depending on whom you ask). The amount of money at stake may have helped twist this case into a complex mess.
Alan Alexander Milne (1882-1956) published Winnie The Pooh in 1926 and sold certain merchandising rights to New York literary agent Stephen Slesinger (SSI) in 1930. SSI later licensed those rights to Disney for $11 million a year. But in 1991, SSI sued Disney over royalties from videos, computer software, etc.
At one point in the case, Disney was sanctioned by the Court for destroying documents. Disney complained about a reporter's coverage of this, which led to the reporter's termination…and a $10-million lawsuit by the reporter against Disney. There was yet another lawsuit filed based on the Securities and Exchange Act of 1934 for Disney's failure to disclose the potential loss of $2 to $6 billion from the "Pooh Litigation."
Meanwhile, there were the remaining world-wide rights to Winnie the Pooh which A. A. Milne's will left to several beneficiaries, including the Garrick Club (which sold its rights to Disney), his wife (who sold her rights to Disney in 1961), and his son Christopher Robin, who sold his rights to the other copyright holders in 1996 before his death. In 2001, Disney paid a reported $340 million to the A.A. Milne Trust for other rights.
But there were still more rights floating around, including those of Milne's only grandchild, Claire Milne, and the heirs of E.H. Shepard, who illustrated Winnie the Pooh. Dutton Books, the original copyright holder for Milne's published works, may have certain rights on the books and classic illustrations as well.
In 2002, based on the 1998 changes in American copyright laws, a granddaughter of A.A. Milne attempted to recover the North American copyrights from SSI on behalf of herself and the heirs of E.H. Shepard. However, that case concluded that Milne's son Christopher Robin had the right to revoke the copyright in 1983 but instead renewed it with SSI. However, the judge found Milne's argument "appealing" and allowed an appeal.
The SSI lawsuit was recently dismissed after plaintiffs had gone through Disney dumpsters for evidence. A California judge said plaintiffs' "willingness to tamper with, and even corrupt, the litigation process constitutes a substantial threat to the integrity of the judicial process." However, there is always another chapter in this saga. SSI has hired Johnnie Cochran (of the O.J. Simpson criminal case) while Disney has retained Daniel Petrocelli (who was successful in the O.J. Simpson civil case).
Muppets, Meet Mickey
Jim Henson and his Muppets became famous on the television show Sesame Street in 1969 and went on to develop a successful company prior to his death in 1991. Shortly before his death, he was negotiating a deal with the Walt Disney Company. But after his death, those arrangements went astray.
In May of 2003, the Henson family outbid Disney and spent $78 million to buy back the rights to the Muppets from EMTV & Merchandising, a major German media company that has since gone bankrupt. Nine months later, the Henson family sold the rights to Disney for an undisclosed sum. The transaction includes Muppet assets such as Kermit, Miss Piggy, Fozzie Bear, Gonzo, the Muppet film and television library, and all associated copyrights and trademarks.
Did the family change their minds about Disney? Or was the intervention more about creative control? It may be indicative that the family did retain certain characters and projects.
Brian and Lisa Henson now operate The Jim Henson Company that their father founded. In a press release, Lisa Henson said: "In the months before his death in 1990, my father Jim Henson pursued extensive discussions with The Walt Disney Company based on his strong belief that Disney would be a perfect home for the Muppets. As such, the deal we announced today is the realization of my father's dream, and ensures that the Muppet characters will live, flourish and continue to delight audiences everywhere, forever."
Michael Eisner, Disney's chairman and chief executive officer, said, "Kermit and Miss Piggy are well-known and beloved around the world and will have an opportunity to be seen and loved by millions more well into the future through Disney's distribution channels at home and abroad, including home video, family television programming and consumer products, in addition to the existing theme-park presence at Walt Disney World and Disneyland Resort."
It seems like a happy Disney ending, but the uncertainties of the Muppets future between 1991 and 2004 illustrate what may take place when the business deal planned by Henson was interrupted in 1990.
That's My Idea!
There's an adage about there being no new ideas under the sun, just new versions of things others have already thought of. From Steamboat Willie to the Lion King, there are comparisons with other works and accusations of copyright infringement, some real and some imagined.5
For example:
Two men were awarded $240 million from Disney after demonstrating that they had shown their Sports World idea to Disney executives in 1987, prior to Disney's opening of Wide World of Sports World. This outcome inspired the family of Mark Waters to sue Disney for using their late father's idea for Epcot Center. His 1961 painting of "Miniature World" closely resembles the 1982 theme park.
In 1999, a suit was filed against Disney alleging that Toy Story used characters, plot, and dialogue from a script submitted ten years earlier.
A French author unsuccessfully claimed that Finding Nemo was based on his story Pierrot The Clown Fish. (The court found that all Clown fish look alike.)
In 1993, an author was awarded $300,000 in damages for submitting a 1980 script that apparently gave rise to the hit movie, Honey, I Blew Up The Kids.
A copyright claim against Disney for the 1992 movie Sister Act, starring Whoopi Goldberg, was rejected.
There was even a suit over the idea to bottle pixie dust. A Disney employee came up with the idea in 1996. Disney rejected the idea…but then added pixie dust to its catalogue. A lawsuit resulted in a settlement.
TECHNICAL REFERENCES
1 Walt Disney's will is posted on several websites, including California probate attorney Mark Welch: http://www.value.net/Emarkwelch/wills.htm. For an article evaluating the provisions of the will, see Lenderman and Kremer, Estate Planning By Example: Walt Disney's Will, The Business Monthly (1998) is online at: http://www.bizmonthly.com/6_1998/lendermankremer.html.
2 Moshman, "Developments in Intellectual Property", The Estate Analyst (May, 2003). A constitutional challenge to this 20-year extension of a copyright's term was rejected by the U.S. Supreme Court in Eldred v. Ashcroft, 123 S. Ct. 769, 537 U. S. 186 (2003).
3 In, Lady and the Tramp, Peggy Lee did the voices of the torch-singer dog Peg, the two Siamese cats (Si and Am), and Lady's owner Darling. She was paid $3,500 for the voices and $1,000 for co-writing six songs.
4 See, Radcliffe, Contracts and Online Content Providers (2001), part two of which is online at. http://www.gcwf.com/gcc/GrayCary-C/News--Arti/Articles/062001.2.doc_cvt.htm?COM=P.
5 Copyright suits against Disney are so typical that in 2002, Austria launched a tongue-in-cheek copyright claim after discovering a 14th century church fresco with a Mickey Mouse-like figure kneeling at the feet of Saint Christopher.
© R. Moshman MMIV.6
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