Buchwald Case to Focus on Studios’ Profit

Paramount Pictures Corp., defending itself against a lawsuit by humorist Art Buchwald, explained in legal documents that big Hollywood studios use a definition of “net profit” that is quite different from the generally accepted meaning.

Earlier this year, Buchwald and producer Alain Bernheim sued Paramount, claiming that their script called “King for a Day” was the basis for the film “Coming to America.” They contended they were entitled to a portion of the film’s net profits.

Paramount lost the case, and the trial is heading into its second phase--a determination of how much money, if any, is owed to Buchwald and Bernheim.

Each side has lined up experts in the arcane science of studio accounting practices to support their cases in the second phase of the suit.

Buchwald argues that Paramount’s definition of “net profit” is unfair if judged by generally accepted accounting standards. The studios, Buchwald asserts, collude to offer everybody identically unfair terms, thus making it impossible to shop a script or movie idea around for a better deal.

The plaintiffs charge that the system forces writers and producers like themselves into “take-it-or-leave-it” arrangements with studios, a prickly legal area known under California law as “contracts of adhesion.”

How much net profit, or loss, “Coming to America” reported is at the heart of the second phase of hearings set to resume July 9 in Los Angeles Superior Court. Lawyers for Buchwald claim that the 1988 film earned $40 million and that Buchwald and Bernheim are entitled to 19% of the net profits.

But during the first phase of the suit, Paramount disclosed that Buchwald and Bernheim were not due a dime, since the film was $18 million short of making a net profit--despite taking in $247 million at the box office.

In the upcoming hearing before Judge Harvey Schneider, both sides will square off over what is the proper definition of four of the most cherished words in the Hollywood lexicon: “net profits” and “gross receipts.”

According to Paramount, “What must be kept in mind . . . is that net profit participations . . . are negotiated contractual definitions which have evolved within the motion picture industry and have little to do with real profit of a picture as measured by generally accepted accounting principles.”

The studio maintains that the definition of “net profit” is clearly spelled out in Buchwald and Bernheim’s contract and are the same terms generally used in the industry.

Paramount contends that the plaintiffs were free to negotiate a better deal or take their idea to another studio.

“It’s unfathomable that anybody even remotely connected to the business would claim they don’t understand” the terms of their contract, said Charles Diamond, Paramount’s attorney in the case.

The studio offers the sworn testimony of nine industry accounting experts to back its position.

“More than most industries, the motion picture community has fashioned a complex but universally understood set of rules that reasonably allocate risks, rewards and controls in a business where failures outnumber successes. The contracts that embody these rules are a more reliable measure of what is ‘fair,’ ‘equitable’ or ‘conscionable’ than any doctrine the law might import.”

But Zazi Pope, an attorney for Buchwald and Bernheim, says Paramount’s argument that “everybody does it “ is “no defense.”

Pope and attorney Pierce O’Donnell have sworn statements from leading entertainment-industry accountants and lawyers, including the former vice president of business affairs at Universal, illustrating how studios such as Paramount engineer deals that preclude or substantially reduce the possibility that a film will ever show a net profit.

Among the studio practices they attack is the concept of the “rolling break-even,” which was introduced by Universal in the 1970s and subsequently adopted “without fanfare” by all the other movie companies.

In “rolling break-even,” explained Rudolph Petersdorf, the former Universal executive, a studio “feeds gross--and adjusted gross--participations back into the negative costs of the film, continuously pushing--rolling--back the point at which a picture breaks even and supposedly begins generating net profits.”

That “has had a serious adverse effect on the ability of net profit participants to receive net profits.”