Marvel Comics’ transformation from a bankrupt company with a dusty library of 5,000 superheroes in 1998 into a booming entertainment conglomerate that produced its first self-made movies this year was a real-life metamorphosis.
After last month’s release of “The Incredible Hulk,” a gushing story in Portfolio asked, “Is Marvel the next Magic Kingdom?”
The Wall Street Journal trumpeted the $500-million-plus receipts from “The Iron Man,” starring Robert Downey Jr. as the first sign of “the company’s transition from a licenser of its comic-book superheroes to an independent film studio that can build its characters into full-fledged franchises.”
Adding to the buzz was news of the first-ever Marvel Theme Park slated to open in 2011, a $1-billion project undertaken in Dubai in partnership with the Al Ahli Group, a developer in the United Arab Emirates.
“Creating their own studio is the best idea Marvel has had since the creation of Spider-Man,” Jeff Bock of Exhibitor Relations, which tracks box office receipts, told Portfolio. “They have thousands of characters that fans would love to see on the big screen.”
But just when everything seemed golden came a plot complication that seemed ripped from one of Marvel’s own comics.
A three-time felon named Peter F. Paul, a former partner of Marvel creator Stan Lee, helped bring a lawsuit against the company, and a complaint with the U.S. Securities and Exchange Commission, contending that a now-bankrupt company named Stan Lee Media, which Lee had co-owned with Paul, had co-ownership of Marvel characters like Spider-Man and the Incredible Hulk.
Barron’s wrote about the 2007 lawsuit and complaint last week, predicting that a bitter legal fight could undermine investor confidence in the company regardless of its outcome. The price of Marvel stock began falling that very day - despite Marvel’s insistence that the claims were baseless.
The story may have hit some Marvel investors hard since the company had made a spectacular comeback after years of poor performance and, then, bankruptcy, under financier Ronald Perelman. In 1998, the new controlling shareholder, Isaac Perlmutter, used bankruptcy procedures to end Marvel’s $1 million-a-year lifetime contract with Lee, who had spent more than 60 years at the company and who had helped create The Incredible Hulk, the X-Men and Spider-Man, among other characters.
The abrogation of that contract was what freed Lee, in October, 1998, to start a new company, an Internet animation studio called Stan Lee Media, along with his then-friend Peter Paul. Paul put $500,000 into the new company, while Lee assigned it all his intellectual property rights. The new dot-com rode the bubble market for a while, then went bankrupt in 2001.
The lawsuit and the SEC complaint, filed by self-described whistleblower James L. Nesfield (once a star witness for former New York Attorney General Eliot Spitzer) on behalf of the shareholders of Stan Lee Media, alleges that Marvel had agreed to sign over Lee’s ownership rights of his superhero characters to Stan Lee Media, but in fact, never did so.
But Marvel spokesman Richard Land denied such an agreement and insisted Lee had no ownership rights.
In written agreements, “Mr. Lee acknowledged and confirmed that all the work he did for Marvel from the beginning of his employment (in 1940) was as an employee,” Land said.
“. . .Since he never owned them, he could never have transferred them to anybody. Mr. Lee himself has always acknowledged that the Marvel characters belong and always belonged to Marvel.”
Lee, now 85, has written shareholders of Stan Lee Media that Paul is behind the lawsuit and SEC filing, and blamed him for the bankruptcy of Stan Lee Media. He has also made statements concurring with Marvel’s ”work for hire” characterization of his work.
The complaint was brought after Paul was extradited back to this country from Brazil, and he now awaits sentencing on his most-recent felony conviction for the manipulation of Stan Lee Media’s stock. He has two prior felony convictions, one for attempting to sell Cuba $8.75 million worth of coffee that never existed, and a second for cocaine possession.
“His history speaks for itself,” Land said of Paul.
Not everyone is convinced the suit lacks merit, however.
In his story for Barron’s, Alpert contends that documents attached to Marvel’s filings with the SEC “show contradictory assignments by Stan Lee of his rights to all these characters.”
Alpert notes that in 2002, after Stan Lee Media went bankrupt, Lee sued Marvel Entertainment on a previously undisclosed contract.
“It turned out that in November 1998 . . .Lee had gone to Marvel claiming half-ownership of Spider-Man, the X-Men and other characters, since Marvel had cancelled his previous rights assignment in its bankruptcy,” according to Alpert. That claim was made a month after he had signed over his intellectual property rights to Stan Lee Media.
“Lee got a new contract for up to $1 million in annual salary and 10% of movie and TV profits, assigning Marvel his rights in those characters,” Alpert wrote. “So, come 2002, Spider-Man: The Movie had grossed more than $1 billion and Lee invoked that contract and sued. Their 2005 settlement was sealed, but Marvel later reported a $10 million charge for it.”
At the very least, the case will surely bring forth a crop of superhero lawyers.