View CommentsArchie vs Penders vs SEGA

The complete transcript of the May 2nd status conference in the Archie v. Penders civil case, the conference that sealed the necessity for Sega to become directly involved in the matter.

“So this looks like a fine mess, and by that I mean that this is a matter that I thought had settled or it was on the verge of settling,” says Judge Richard Berman in the proceeding.  “I guess there was no settlement agreement finally reached, and so I’m happy to give you a jury trial, which is what you’re asking for, in the absence of settlement.”

Indeed, the proceedings detail what is a difficult impasse.  Both plaintiff and defendant want to settle–”desperately,” in both counsel’s words according to the transcript–but counsel for Archie argues that a major legal issue has to this point not been presented in proceedings thus far.  That issue centers around whether former Sonic comic writer Ken Penders, who filed for an array of copyrights concerning his work on the series, produced derivative works.  But Judge  Berman, overseeing the case and originally convinced a settlement was imminent, appears to have had enough of the back and forth, evidently scolding Archie counselor Joshua Paul:

MR. PAUL: So what’s been missed, your Honor, is this. The question is, this is a derivative work. The underlying rights here don’t come from Archie. They come from a contract between Sega of America, which owns the copyrights, which then granted to Archie the right to use the copyright for a particular purpose. Archie, in turn, hired Mr. Penders. The cases have said that in this circumstance, the ownership of the derivative work is governed by the intention of the licensor and the licensee in the grant, and it’s that I’d like to be able to write, at least explain that authority.

THE COURT: So are you saying prior counsel blew it?

MR. PAUL: Absolutely, your Honor. So I will say that this — the issue will need to be addressed in one forum or another, and we’re hoping — we’re hoping that you’ll allow us an opportunity to explain the issue and to explain our proposal, our proposal for dealing with it in a way that will not further inconvenience and drain resources, but will still allow this Court to apply the correct law. I can’t be as –

THE COURT: Well, give it to the jury. That’s the way we’re going to deal with it. We’re not going to have more motion practice. My God, this thing has been litigated up, down. If it’s a valid issue, you and counsel will discuss it, meet and confer. If you need to revise the joint pretrial order and the jury instructions, you’ll do that, and the jury will decide it. So I get back to my original question. When would you be ready for a trial?

MR. PAUL: I did not come today prepared to answer that question, but I will –

THE COURT: That’s really surprising to me because what else would we be talking about today?

Throughout the entire proceeding, Judge Berman addresses Penders counselor Phillip Daman rarely and, never with the level of frustration levied against attorney Paul.  Later in the hearing, Paul presents the “missing link”: that Penders has separately filed suit against Sega, and that the suit has been stayed pending the outcome of this case.  But another wrinkle is introduced: Archie will be on the hook financially for Sega’s legal involvement in this case (and, as a licensee, perhaps face worse sanctions), so the third party has not been introduced in the matter.  Judge Berman is still not amused:

MR. PAUL: The reason is, that there’s a third party who’s very important to the settlement but is not in court, and that is Archie’s licensor, Sega. Mr. Penders has sued Sega. That action has been stayed pending the resolution of this case, and we have an obligation, we — I will say a practical obligation because the last thing we want there to be is a dispute with our good licensor. But our licensor expects Archie to take care of this problem, as any licensor would. And so while we have, I think, as between Mr. Penders and Archie, we really could — if those were the only parties, we could do a deal. The problem is that we are paying or are responsible for that part of the overall equation, and the value that Mr. Penders has assigned to that second part of the equation does not take into account this legal issue that I brought to you just now.

THE COURT: Yes, I get it. I get it.

MR. PAUL: Okay? So that’s the problem.

THE COURT: So you’re saying the missing link is the third party?

MR. PAUL: The missing link is the premise, the legal premise that Mr. Penders brings to his valuation and, in fact, the fact of whether he has a claim or not against Sega. And while it would be very inefficient, we could deal with one thing — we could — I understand, if we could resolve issues between these two parties, but if you’re asking — your question was what’s the impediment to settlement.

THE COURT: You can’t –

MR. PAUL: We’re going to end up having to pay for Sega’s defense.

THE COURT: It’s pretty obvious, though, isn’t it? Why don’t you just bring in Sega to your settlement conversations? I mean, if there’s some other missing aspect –

MR. PAUL: Right. We have — Until we can interject into the discussion the rule, what the courts have said about the ownership of the derivative of the rights, then there’s no point.

THE COURT: You’re talking — forgive me.

MR. PAUL: Please, please.

THE COURT: You’re talking about angels on a pin. So practical lawyers –

MR. PAUL: Practical lawyers, they want a lot of money.

THE COURT: Can I finish?

MR. PAUL: Of course.

In fact, Penders counselor Daman notes later in the proceedings that their side has been open to Sega’s involvement in the talks, but Archie insisted they not be contacted:

MR. DAMAN: Yes, your Honor. We would agree with everything you’ve just said. We’ve been asked not to contact Sega, and we’ve adhered to their wishes.

THE COURT: That makes no sense.

MR. PAUL: Judge, the case won’t go away though, because Sega won’t offer a dime.

THE COURT: I don’t know who asked you not to. I don’t think I did.

MR. DAMAN: We were asked by ACP, the other party in this case –

THE COURT: Right.

MR. DAMAN: — not to.

THE COURT: So but that makes no sense. Forgive me. If he’s saying that they’re the missing link and, you know, you’re two smart business lawyers, so get the missing link. Bring the missing link in and solve all the issues.

MR. DAMAN: As an alternative, your Honor, and what happened in November was ACP and Mr. Penders settled their disputes as between themselves.

THE COURT: Right.

MR. DAMAN: What happened after, in the guise of issuance in the schedule, is they brought up issues on releases for Sega that were not — that were specifically excluded in November. So we agree, if you’re going to bring in Sega, that brings in a whole set of different circumstances in evaluations and that’s where we’ve been bogged down.

THE COURT: I would think so.

MR. PAUL: The reason Sega is essential, as a practical matter, because Archie needs to continue living with them.

For the moment, according to these proceedings, Judge Berman wants the focus not on who owns what rights, but simply on settlement.  He assured that when counselor Paul attempted to argue the issue:

MR. PAUL: But Sega is not — What needs to be resolved or addressed are the more fundamental question of whether this plaintiff has any rights whatsoever.

THE COURT: What we’re talking about is settlement. That’s what we’re talking about. So I don’t know if you want to write a law review article on this subject –

MR. PAUL: No, I don’t.

THE COURT: — or you want to give a lecture or whatever. You know, you could do that on the outside. But we’re talking now about the real world and settling a case. And if Sega’s got, you know, a horse in the race, as it were, that’s sort of indispensable to you settling, then why don’t you bring in Sega? Who represents Sega?

Separately, Penders counselor Daman unsuccessfully argued in the Thursday proceeding that he should be allowed to file for an injunction barring Archie from selling the material in dispute.  Judge Berman held that off until the phone conference that was scheduled for this past Monday.  We understand a court reporter was part of the conference, but we do not have a transcript of that proceeding yet.

The bottom line is that in the end, both parties agreed to get Sega involved in these proceedings.  Doing so may, ideally, kill two birds with one stone, bringing conclusion to both the dispute over the comics, and the matter between Penders, Sega, and EA/Bioware. We do not yet know if those three-way talks have taken place.  But it does appear that Archie may have to pull out of their own financial reserves to make it so.  The second problem for Archie is the real possibility of a damaged relationship with their licensor.  It does not appear Sega wants to be involved by choice, but the inevitability of that given the directives stemming from this conference in of itself may threaten the Archie Sonic comics as we know it, no matter the outcome of the Penders case.