This is Bloomberg Law with June Brusso from Bloomberg Radio.
The weed of crime bears bitter fruit, So like this, it sticks. Did you think you'd get away with it?
Did you think I would know? But the shadow knows. Perhaps that's why a novel theory of the SEC is being called shadow trading. A corporate insider may think he got away with it, after all, the trade was in the stock of a rival company. But it seems like the SEC is trying to show that, like the shadow, it sees all. Just ask former Metivation executive Matthew Panawatt. A jury convicted him the regulator's first enforcement action targeting
so called shadow trading on Friday in California. Joining me is securities law expert James Park, a professor at UCLA Law School. Jim, this case has been called groundbreaking. Do you think it's groundbreaking and if so, why it is?
In some ways, but in other ways, I think it's the standard case. The reason why it's unusual is I believe it's the first time the SDC has brought and won a case involving something called shadow trading, which is a type of insider trading where you're using information that you obtained from your own company to trade in the stock of another company. This is the first time the SDC has brought such a case and pursued serious sanctions. It's not all that unusual, though, in that most of
the sort of outcome hinged upon factual issues. Did you believe that this individual got and read the email from the CEO which said that the company was going to be acquired? Factual issues which are fairly routine in insider trading cases. And I think you could argue that this is a straightforward extension of existing law that has been in place since the US Supreme Court's decision in the
United States versus o'hagen. But I do think that it is significant because it shows the SEC is willing to bring these types of cases and could do so in the future.
What was the evidence against the defendant here?
Some of the evidence was circumstantial, so they knew the CEO sent an email that included him and other individuals in the company. They didn't necessarily know though, whether or not he read the email, and he claimed the trial that he did not read the email. But what they do know is that seven minutes after the email was
sent and would have been received. He spent one hundred thousand dollars in options in this company that was likely to go up in price upon the announcement that his company would be acquired, and so that is circumstantial evidence. We don't know for a fact, you know, one hundred percent certainty that he actually knew of this inside information and that he read the email. But you know, that's
what a jury's for. Does a jury believe his explanation for buying all of these options, which is that he read a research analyst report by Goldman Sachs and that he had been following this company for a long time. You know, that's up to the jury. And recall that this is a civil case. It's not a criminal case where the sec has to prove beyond a reasonable doubt that he violated Rule TEND five, which is the major
Securities fraught provision that prohibits insider trading. They only have to prove by a preponderance of the evidence.
I thought the defense phraised several good points or defenses. One that you mentioned that the trades weren't based on confidential information because the merger had been covered publicly by the press. So the jury just didn't believe that.
It's a great point, and that was an argument that he made, is that you know, the market anticipated the merger. They anticipated the merger, and so this was not non public information. Now, I think the SEC's response is that sometimes there are rumors about whether mergers are going to happen, and the market sort of knows this and the price
adjusts accordingly. But there's a difference between a rumor of a merger that could happen at some point in time and an email from your company CEO that says Pfizer wants to buy the company and they want to complete the deal over the weekend, which means there's a higher probability if you know that information that there's going to be a merger that will be closed over the weekend and announced on Monday before the market opens, and that is non public, and I think there's a good argument
it is material important to investors. There's a difference between speculating about whether a merger might happen at some point in time and having an indication that there's a probability that it's going to happen over the weekend, and it's from your CEO, who presumably has good information and who typically would not say something this specific unless the possibility of an acquisition was fairly high.
The defense also argued that the SEC hadn't proven that pan Watt had an intent to defraud because he didn't know it was illegal to trade in a company that wasn't his employer and didn't conduct business with his employer. So his attorney told the jury, the evidence will show that the entire SEC case is an attempt to put thoughts in mister Panawat's head that we're not there when he made the trades.
It's a substantial argument. And you know, these cases depend on intent, and because we don't know for sure what someone's intent is, that's up for the jury to decide. And the jury looked at the evidence and they believe circumstantially that he acted with bad intent. And you know, one fact in favor of the SEC is that he buys one hundred thousand dollars in option. His purchase is represented around eighty percent of the options trading in that
stock on that particular day. That is very unusual. And you know, the other point I would make is that ignorance of the law is not a defense, even if you don't know all the ins and outs of insider trading law, which is complicated. That is not a defense to liability. Now he does have an argument that I just was I'm not conscious of doing anything wrong because you know, I didn't understand I couldn't trade in the
stock of other companies. And you know, the fact of the matter is he signs the policy saying that you cannot use company information to trade in the securities of another publicly traded company. Now, you know, I think, mister Pano, what would say. You know, we sign all sorts of things when you join a new company. We may not read these things carefully. And I just didn't understand this.
You know, I didn't read the agreement very carefully. And you know, I think they're different, you know, views as to whether you're still accountable for following that particular policy or not. And you know, I think that the jury could have decided you are accountable, and you are accountable because you signed the policy, and because you signed it, you have to follow it. And if you're not following it,
you know, you're deceiving your employee. And that sort of deception is a type of misappropriation of the company's confidential information. You know, another argument he could make might be, as you know, I found a loophole and I'm gaving the system. I don't know how sympathetic the jury would be to that argument, but you know, that is the sort of argument that one could give some weights to. But the jury rejected those arguments.
Was this based on you know, you mentioned the policy, the confidentiality agreement that he signed at his company. I mean, did the SEC bring this based on that? Or could they have brought this even if there wasn't a confidentiality agreement.
This is the.
Foundation of the case. Without this policy, the SEC would not have an insider trading case. You can only misappropriate confidential information and violate Rule ten B five based on inside information if you have a fiduciary duty to the corporation who stock your trading in, or you have agreed to keep information confidential. Those are the two mechanisms by
which you can violate insider trading prohibitions. The first avenue is called the classical theory of insider trading, and that actually does not apply to this case because Panawat does not have any fiduciary duties to insight, which is the company that he traded in he might have some juduciary like duties to his company metivation. But that's why you know this is seen or was seen as a type
of loophole. It gets you around the classical theory. But there's a second theory which has just as much status, has been approved by the Supreme Court called the misappropriation theory. And under that theory, the deception is when you sign a policy of confidentiality with your company that commits you to complying with that policy, and if you deceptively trade and violation of that policy, you have violated Rule ten
D five. So it is absolutely essential that they had a policy that specified you cannot trade them the securities of another publicly traded company. If they did not have that policy in a general policy of confidentiality, the sec would not have had a cake. Most public companies, or
many public companies, are adopting these policies. There's a study by g Men of Michigan State that documents increasing adoption of these types of broad insider trading policies that cover securities of other publicly traded companies.
So the SEC Enforcement Chief Gerbert Greenwall said, as we've said all along there was nothing novel about this matter, and the jury agreed this was insider trading, pure and simple. Why is he downplaying that?
I think the SEC was receiving some pushback and you know, to say it's not entirely novel. It's partly true. But I think this is the first time that the SEC has pursued this shadow trading theory. I do think that it's an extent of prior laws, but to a different set of facts. And there's you know, room for disagreement
about whether you think that's novel or not right. The misappropriation theory is very well established, but I think it was typically understood to apply to these confidentiality policies that might have specified you can't trade in your own company stock. But what begins to happen is companies are adopting broader
policies that include other stocks. And so you know that I think is a reasonable extension of the misappropriation theory that you have deceived your employee in trading securities, and so, you know, technically, I think he's right that it's not completely novel. It's just an extension of existing doctrine to
new set of facts. Now, you know, I think what the defense are and other concerned individuals might respond and say, is that, well, you've never aggressively applied the theory to this type of facts, and so the industry didn't really understands that this is a violation of insider trading law. But you know, the SEC would say that it's really your job to figure out the law and inform people that you know, this is a logical extension of this series coming up.
Critics say the SEC is going beyond its jurisdiction. This is Bloomberg. The SEC won a jury verdict in its groundbreaking insider trading case that seeks to bar employees from using non public information about their own company to place bets on rival stocks. The closely watched two week San Francisco civil trial was the SEC's first enforcement action targeting
so called shadow trading. In the case, the regulator argued that former Metivation executive Matthew Panawatt broke the law when he learned that his company would soon be acquired, and, believing the news would benefit other companies in the industry,
traded another biotech company call options. His attorneys countered that the trades weren't based on confidential information because the merger had been covered publicly by the press, and they argued that the SEC couldn't prove that Panawat hadn't intend to defraud. I've been talking to Professor James Park of UCLA Law School.
The SEC and its enforcement chief have brought cases that have pushed it into new territory, for example, a case over McDonald's CEO's relationship with an employee and the workplace culture at a video game developer. And it's also bringing several cutting edge cases to gain greater control over cryptocurrency. And the criticism is that it's going too far, that it's stretching its enforcement power, is beyond its jurisdiction.
That is the criticism. And you know, I think one response the SEC might have is that these are novel problems. These are novel problems, the novel issues, and the reason we were not addressing them before is the SEC was too passive. We need to get out there. We need to enforce the laws to novel situations and educate people about what the law is. You can't simply ignore these broader standards and principles. You know, they're there for people
to read and interpret and apply in good faith. And I think the SEC would say is, if you're applying, you know, the definition of insider trading in this appropriation, if you're applying the definition of security and good faith, you would know that in some cases that there are violations of securities laws. Now, the argument on the other side, I think is that you know, certainly, I think the SEC has become more aggressive, and I would say more
entrepreneurial in certain ways. I have an article coming out in the Northwestern Law Review later this fall that says the SEC is acting more as an entrepreneurial enforcer, and part of that is that you have a more expansive, aggressive regulatory policy, and enforcement is a way to develop
that policy. And you know, they're positives and negatives I think to the SEC being more aggressive and entrepreneurial, but recall that there are times when the SEC is criticized as too passive, too much of a bureaucracy captured by the industry because the lawyers want to get good jobs with law firms, and so, you know, I think, either way, if you're too passive, if you're too aggressive, the SEC is going to face some criticism for its enforcement policies.
But I would say that I do think that this administration, for better or worse, has implemented a more entrepreneurial or aggressive approach to enforcement.
Do you think that this case will survive and appeal this theory.
It's always hard to say. I think, on the facts, on the factual determinations, I think that there's not much of a basis for overturning the case. The vulnerable point to me, I think is on the enter. I think that is the one argument that a judge on the Ninth Circuit or perhaps the Supreme Court could look at very closely on these facts. And you know, that's the place where I think a appellate court could be a little bit skeptical of the SEC theory of the case.
On the other hand, I think that you know, these are typically factual matters. The enter is fraudulent intent is a matter for the jury, and many appellate courts will defer to that, And the Supreme Court may not think of this as a good vessel for clarifying the boundaries of insider trading law.
Do you know how widespread shadowed trading is? I mean, I'm not sure how the SEC even discovered this trade.
Well, I think in this case they do monitor trading activity, and so if you see a big spike in trading, you know, eighty percent of the options activity can be traced to one person who made one hundred thousand dollars in a few weeks from the SEC. Self regulatory organizations like FINRA, they monitor these trading patterns. My guess is that's how they discovered this case. As to how extensive
shadow trading is, that is difficult to measure. I've you know, seen some studies here and there that have tried to measure it, and you know whether or not it's extensive, but it's always hard to conclusively determine whether or not it is extensive. My guess is it will become less extensive after this case, and given how it has been publicized.
You know, these sorts of decisions matter. My colleague for Nonstreppo has a nice paper on the impact of O'Hagan in the late nineteen nineties and how that might have affected insider trading on merger agreements that he finds it did have an impact.
So then you know, considering all that, how big a victory is this for the SEC? A ten on a ten scale or.
Five, it's a big victory, every trial win is a big thing and a good thing for the SEC because you're not just settling cases. That's the criticism of the SEC is that too often they just settle cases. The defendant doesn't admit to wrongdoing or deny it, and the SEC has been afraid or doesn't have the resources to actually go in front of judges and juries and test
their theory. So I think this is very significant, and you know, along with their win in the Coinbase motion to dismiss, it's been a good few weeks for the SEC and these are needed wins because when you're getting criticized for stretching the law regulating by enforcement, the shortst response is winning cases in courts. And you know they have won these cases. They need to keep litigating cases and winning them fairly consistently in order to enhance the legitimacy of their enforcement efforts.
And just hours before this jury verdict came in a jury in New York found Terraform Labs co founder Libel for fraud over the firm's twenty twenty two collapse. Was that a big win as well?
Also a big win in my you a much more straightforward case of fraud there with aspect to the crypto assets, where you know, you're claiming that these crypto assets are this project is you know, being used in the real world, that merchants are actually using this digital coin to effectuate transactions.
They are not.
You are literally making up fake transactions that to create the impression that something's happening in the real world. That strikes me as a fairly straightforward fraud. And Judge Raycoff, I think, you know, my view got it right that these particular digital assets were securities, and so that's a securities fraud, but another big win for the sec And.
Just to clarify whether cryptos a security hasn't been decided by an appellate court yet and the district court judges like Raycoff are split on that.
They are split, although it seems like the trend seems to be in favor of at least some and in fact actually all of the judge is it said, some digital assets can be securities under the Howie test. The difference is whether you think that, you know, are the tokens when they're trading in secondary markets can they be security?
So there is a bit of a split there, and you know, with pre form, you know, producing a jury verdict once Judge Raycoff determines the damages, I would expect there's a chance that that could be appealed to this US Court of Appeals for the Second Circuit, So that could be the first case where we get some guidance from the Court of Appeals.
Now, a lot of people might not realize that Congress has never defined insider trading. It's all judge created law.
You know, it is insider trading law. You know, has been developed by judges, and you know, there's an argument that for non lawyers it can be difficult to understand these cases and the boundaries of the law. So you know, it's really up to in House Council to do a better job of explaining the boundaries of insider trading and doing it in a way so people are not tuning
it out, and you know, this is important stuff. You know, if you have a compliance meeting, you know, maybe mister panowatt attended one and maybe you know, maybe they explained the policy to him, but he was not paying attention something. You know, that's possible, or it's possible that the compliance meeting was not thorough enough. These are things that compliance. These are decisions. Compliance divisions need to be looking at
very seriously. They have to also think about how do we understand or how do we explain these rules in a clear, comprehensible way so that our employees understand what the law is.
And let's see how long it takes for the sec to bring the next shadow trading case. Thanks so much for your insights, Jim. As always, that's Professor James Park of UCLA Law School. In other legal news today, Donald Trump is now all in three in his last attempts to get his hush money criminal trial, scheduled to start
on Monday delayed. An appeals court judge rejected the latest salvo from the former president, who argued he should be on the campaign trail rather than in a courtroom defending himself. Trump's lawyers had asked the state's mid level appeals court to halt the case indefinitely while they fight to remove the trial judge and challenge several of his pre trial rulings. After three straight days of emergency hearings on Trump's delay requests, it appears the way is cleared for jury selection to
begin on Monday. Trump's hush money case is the first of his four criminal indictments slated to go to trial and would be the first criminal trial ever of a former president. Coming up next, on the Bloomberg Lan Show, Top Gun the Sequel, a judge throws out the case against Paramount for copyright infringement. I'm June Grasso, and you're listening to Bloomberg.
What attention? Taking me?
An attention?
Good?
Paramount has come out on top of a copyright lawsuit over Top Gun, Maverick. There's a lot at stake. The sequel grows nearly one point five billion dollars at the box office worldwide, and a federal judge in California has found that the sequel, set decades after the article that inspired the original Top Gun movie, does not infringe the copyright of the article. Very good news for Paramount, since
another sequel is in the wings, so to speak. Joining me is intellectual property litigator Terrence Ross, a partner at Katain Yutchen Rosenmuan over So, the writer of this nonfiction magazine article about real life F fourteen fighter pilots how to sign the movie rights to Paramount for the first movie. So then what happened?
So, if you remember way back in nineteen eighty three, wod June wrote this article in California Magazine on the top gun program down at the QS Navy Fighter Weapons School, but wrote it in a sort of an interesting way where he wrote it from the perspective of a pilot in his backseat going through the program, and it caught somebody's eye in Hollywood, and Baramount went out and got
an assignment of rights per movie from him. When I look at such agreements, I was focused on what's the credit being called for, you know, at the end of the movie. And he got the lowest possible credit you could get, which is suggested by story written by June. I mean suggested by is like the lowest language you can get and still get some sort of credit for.
But they had rights and complete rights in the article for purposes of the movie, and they went out made them movie unclear whether they really needed those rights, but they did it so the you know, I says, Copyright Act has a provision in it that allows heirs to a copyright to terminate a license in the copyright years after
the license was given. On sort of the theory that young up and coming writers artists often get cheated in these licenses, and so we have to leave a window of opportunity later on if the work has been worth something for them to recover some value. So they're allowed to terminate the license. And after yone's death in twenty eighteen,
his son and widow did exactly that. They sent a letter to Paramount saying they've terminated the rights in the nineteen eighty three California Magazine article because they had seen somewhere that there was a sequel being worked on, and that sort of got us up to the top Gun Maverick the sequel, the.
Judge seemed to address every possible angle here. One thing he said was similarities between the two works based on facts can't be protected. So doesn't that pretty much cover everything? Because the initial magazine article was nonfiction, right, it was about real people.
So I agree with you, June, as the judge found at one point the magazine article was really just a factual recitation of what went on at US Navy's Fighter Weapons skull DAN a mirror mark, and therefore there really wasn't much that could be protected by copyright. And I have to say, I mean, he said, the judge went through this carefully. I agree with you completely. Judge Anderson
did a very careful job here with this decision. He went through every possible argument raised by the plaintiffs and fucinctly described what was wrong with those arguments as a matter of law, which is going to make it very hard to appeal this case to the Ninth Circuit.
Why did Paramount even get a license for the first movie? It seems like they wouldn't have needed a license.
So in the age of copyright lawsuits at the drop of a hat that we live in, lawyers in house at creative organizations such as Paramount Pictures had to be very careful, and the cost of getting a license here was relatively inexpensive. They didn't have to give away much credit in the movie for getting a license. The device was relatively low as these things go, So I mean it made sense even if the in house lawyer thought there was no need to get a copyright license, why
not get it as an insurance mechanism. I sort of get it. Although it did lead to these problems down the road at that point in time, back in nineteen eighty four, I think it was a very reasonable decision on the part of the Paramount lawyers.
So the court applied this extrinsic task. Will you tell us about you know what the court decided and how?
Sure? So, the Ninth Circuit, which covers the West coast Alaska, why, as far as federal appeals, probably sees the most copyright cases of any court in the United States. Second Circuit, which covers New York Connecticut, mate and see quite a few as well. But it's really the Ninth Circuit is the driver with respect to these copyright lawsuits involving infringement.
And for decades now they have laid out a test by which the trial courts can filter out certain losses at an earlier stage, what we call summary judgment, instead of making every one of these copyright infringement lawsuits involving music or movies or television show go to a jury troup. And so what the Ninth Circuit created this judicially imposed gloss on the Copyright Act. You can commit copyright infringement on the Copyright Act by not merely xeroxing of work
or recording a work. You can also do it by creating work that's substantially similar. And those are the tough cases. The case is where the allegation is that work is substantially similar to the copyright at work. So the Ninth Circuit said, that's where we have all the problems. We're going to set up this test that involves two parts, and we're going to call that the extrinsic review and
the intrinsic review. The extrinsic review looks at sort of objective comparison of certain elements of the allegedly infringing work with the copyright at work. It is done by the judge with the assistance of experts, does not require jury troump. The intrinsic part of the test examines an ordinary person adjures subjective impressions of the similarities between the two works. In order to get to that point, the planet first has to satisfy the extrinsic test and convince the court
that there are objective elements that are substantially similar. So the court, as part of the extrinsic test, focuses on similarities between the plot, themes, dialogue, mood, setting, pace, character, sequence of events, and of course dialogue the actual wording being used. So that's where we work in this decision by Judge Anderson. He was conducting that review of the extrinsic factors to determine whether the case should even get to jury.
Trop So, Terry, will you go through some of what the judge considered in making this decision.
So you know, the plane off raised a number of alleged similarities between the Top Gun Maverick and this California magazine article. I think I saw somewhere in the opinion as on the order magnitude of seventy seven zero different alleged similarity. And the judge source said they all fit into certain categories, and he went through the category by category and pointed out there are certain things that just not protected by copyright. We talked about facts, they're not protected.
So the fact there is this Top Gun program, the fact that Navy pilots are that are selected to go through it are the best in the Navy. Those are all factual elements that get no protection whatsoever. But then there are literary expression elements that also get no protection. So general plot ideas a murder mystery, you can't protect that. You know, stock characters, the detective solving the mystery, the
British secret agent, you don't get protection for that. And then there certain SEMs are fair which are sort of situations that arise naturally out of the plot. So if you've got a World War II drama set in Europe, the characters are going to be Nazis, The bad guys are gonna be Nazis, right, and they're gonna be wearing squats because you don't get to copyright that. All those
things are unprotected. And the bulk of what was in the California magazine article, which is the allegedly infringed work, fit into a category such as that.
The Plate of the Journey, who is well known in this area, said, we respectfully disagree with the ruling, particularly on some rejudgment, So explain. The Ninth Circuit has warned against prematurely dismissing copyright lawsuits before allowing experts to testify. In this case, I think they had submissions from experts and the judge didn't consider the plaintiff's.
Expert So the Ninth Circuit has caution District court judges about dismissing copyright lawsuits at too early a point in the case, particularly prior to jury trial. The defendants had brought a motion to dismiss right after the complaint was piled, So this is the earliest possible time to get a dismissal. It's basically an attack on the completing itself, saying the way you've played this doesn't amount to cognizable legal claim. And the court had heard that way back in November
of twenty twenty two. If I recall correctly and said, look, this is way too early. I think within the four corners of the complaints, the judge that within this, I think there's enough to make out a cognizable legal claim, but I'm not going to comment upon where this might go in the future. So we go through discovery, we get expert reports, and Paramount comes back at the end of discovery, the last thing you do before the jury trial and files most for summer judgment says you're on it.
We're back. You said we needed to allow the facts to be developed and get expert testimal. We did, and we say this is still not a legally cognizable claim and therefore we should be entitled summary judgment. And at that point I think the judge was perfectly within his rights to consider such emotion, and given what we now know about those various alleged points of infringement, I think the judge got it right and was allowed to do
this on summary judgment. Now there's a second question that's raised by the plane If, which is, well, well, yes, you did allow expert to give testimony, and that would have been considered, but you refuse to allow our expert to testify or to accept it the testimony. They're experts, And this is where it gets complicated. In my view, it was not that the plaintiff wasn't allowed to put
up expert testimony. In my view, and I think in the judges the plaintiff copyright owners put up expert testimony that wasn't competent and relevant to the case. The expert for the plaintiff had failed to take into account any of these defenses to copyright and infringement. You know that they're just facts, that their sins are fair, that they're
non protectable elements. The expert for the planoffs have just assumed everything was copyrightable, and the just said, you know, that's what this case is all about, whether or not it's copyrightable, whether it's protectable in the first place. You can't assume that away. Therefore, your expert opinion is of no value here, and we're not going to allow it and again think the judge got that right, and therefore I really do not think that that's a legitimate complaint
on appeal. I'm sure the plaintiffs will appeal to the Ninth Circuit and raise this point, but judges have enormous discretion at the trial court level into what testimony they will allow, into evidence what they will not, and I just don't see the Ninth Circuit overturning his decision here.
And let me just say that you are on record that when we discussed this the first time, when this suit happened, that you said this wasn't going to fly, so to speak. So I just want to credit you for that.
Terry Well, I appreciate the question.
Nothing to get you anything, you know, when.
You've been doing this as long as I have sort of get a flavor for the types of cases that get brought. And you know, one of the really telling things to me was the plantifs were only able to identify a single sentence, and my sentence is being generous because it's only a two word sentence, a single sentence of dialogue that was similar between the article and top Gun Mavericke the sequel, and that's one of the things I always look for, are there a lot of similarities
in dialogue? Are there really unique settings that are similar? And here the only dialogue that was similar was a phrase fight on, which apparently is the code word at the Top Gun school that these pilots use to say that the mock engagement is starting. And again that's telling that that's the only dialogue similarity they could come up with. And quite frankly, idio itself is not copyrightable because the Copyright Office does not allow copyrights in short phrases, and
that would come within that exception to the rules. So when you look at and you see no no dialogue similar no settings that are really unique, and just all these generalities, it's impossible to not have those gut reactions. This isn't go anywhere? Does go to get dismissed? I guess I got it right this time.
You always get it right. But why appeal? Then I'd say, Okay, they're looking for some kind of settlement, but you know Top Gun three is in the wings, so Paramount's not going to want to settle this.
I don't know what this plane iff's specific motivation will be to appeal, And apparently counsel for Plane has already announced that they're planning on appealing it. I can only tell you in general how attorneys think about this, and you know, there's no doubt that this had to have been I have no inside information, but this had to be a contingent V litigation where the lawyer only gets paid if they win. So that's a factor. Second, Topa
Maverick made enormous mile money. I believe the box office gross was one point five billion. Yeah, and I think it had to do something with the timing of being one the first released after the pandemic, when people are coming back in theaters and desperate for content. But if you can believe this June, that is the largest gross of any Tom Cruise movie of all time. It's bigger than the Jackie Reacher movie, is bigger than any of the I don't all we're up to six or seven missions.
I have no idea how that happened, but this is the enormous amount of money. And you know, the argument for damages if there was copyright infringement is that we're entitled to the reasonable royalty based on that royalty amount, and so the amount at Steak is enormous. And so when you have large amounts at steak, even if you have a minimal chance of success, you know, the math works out that you ought to pursue the appeal on the off chance that you get two out of three
judges on the appellate panels. That's some problem with what the district court did. And of course the longer it drags out, the hope on the play side is always that the defendse get tired of paying their attorneys because this is expensive sort of litigation, and then they might just consent to the settlement and so they get some money out of it, and you're right top gun free.
The script is already being written. What I read an Wood reporter is that their negotiations with director and other principal roles and so it looks it's like semi green winter ready, and so there's that much more money to be had. And that's my speculation in my opinion, based on past experience, as to why they might appeal.
So finally, I just want to ask you this, which also the Hollywood Reporter brought up this idea that this kind of order could undermine the notion that studios have to reacquire the rights to stories for a sequel if the original was based on source material. And they talk about the copyright lawsuit that Columbia Pictures filed against George Gallo, who wrote the story that developed into The Bad Boys.
So it's an interesting question of law that I think is discussed too broadly in that Hollywood Reporter article that you're referencing. It really comes down to what was the agreement that was signed in the first place. So if you get a license to the copyright, you can do whatever you want with it, including creating derivative works, which is essentially what a sequel is, a derivative work. The way we teach copyright is copyright is like a bundle
of sticks. They're different individual rights, and you can give away, license away, sell away individual sticks, or the entire bundle of sticks, and so it depends how the agreement is written.
Here.
I don't think that was a problem, and therefore I don't think this decision really has any impact upon future negotiations. It's always going to turn on what was the specific first agreement by which the rights were acquired, that they buy or license the entire bundle or just one stick for a limited period of time. And that's why I think those comments, I mean the Hollywood reporter overreach.
We appreciate all your commentary on the show. Thanks so much, Terry. That's Terrence Ross of Katin Yuchen Rosenman. And that's it for this edition of the Bloomberg Law Podcast. Remember you've can always get the latest legal news by subscribing and listening to the show on Apple Podcasts, Spotify, and at Bloomberg dot com, slash podcast, slash Law. I'm June Grosso and is Gloomberg