Saturday, July 31, 2021
In the 1990s, newspapers had a problem. They wanted their articles to be included in electronic databases like LexisNexis, but such databases being a relatively new technology, the newspapers had not bothered to include database republication rights in their agreements with freelance reporters. Some publishers argued that their existing contracts covered database inclusion, but the Second Circuit wasn’t having it. See Tasini v. New York Times Co., 206 F.3d 161 (2d Cir. 2000). After the Supreme Court held that the articles could not be included in databases without the reporters’ permission, news organizations updated their contracts to cover electronic database republication.
Scarlett Johansson and Disney are now embroiled in their own dispute over a contract impacted by new technology. Johansson’s contract for the Black Widow movie included a fairly standard provision (at least for big name actors) that she be entitled to a cut of the box office, and to ensure that the box office receipts would be worth her while, she extracted a promise that the movie would receive a “wide theatrical release of the Picture i.e., no less than 1,500 screens.” In the wake of Covid-19, however, Disney chose to simultaneously release the film in theaters and on its streaming platform, which likely reduced the box office take and Johansson’s cut. She’s now suing the company for $50 million, but however the case comes out, I think we can safely say that box office sharing contracts going forward will explicitly account for streaming.
And now it seems that shareholder agreements are also being affected by a new “technology” of a sort, namely, SPACs. In two cases pending in Delaware Chancery, investors in private companies slated for a SPAC merger are arguing that their shareholder agreements impose certain obligations on them in the event of a traditional IPO, but impose no obligations in the event that a company goes public via SPAC.
In the first, Brown v. Matterport et al., 2021-0595, the plaintiff is the former CEO. He claims that he agreed to a lockup for his shares in the event of an underwritten IPO, but that no such restriction attaches for a de-SPAC transaction – and that Matterport is improperly trying to bind him to a lockup via the merged company’s bylaws.
In the second, Pine Brook Capital Partners v. Better Holdco et al., 2021-0649, a venture capital firm claims that its shareholder agreement only gives the company redemption rights for some of its shares in the event of an underwritten IPO – not a de-SPAC transaction. (The firm also claims that the company is improperly requiring that larger shareholders – including itself – agree to a lockup as a condition to receiving merger consideration; the complaint does not specify whether its shareholder agreement provides for a lockup in the event of an IPO.)
SPACs have recently become an attractive alternative to IPOs, at least in part because of regulatory arbitrage. Specifically, the common wisdom has been that projections issued in connection with a SPAC IPO are protected by the PSLRA’s safe harbor while projections issued in connection with a traditional IPO are not. Also, it seems that while underwriter compensation must be fully disclosed in connection with a traditional IPO, SPAC IPOs may give more leeway for underwriters/investment banks to play multiple roles and leave some fees undisclosed. But with the Matterport and Better cases, we’re seeing the downside: shareholder agreements were not drafted with SPACs in mind. I assume that will change for shareholder agreements going forward, but it creates something of a holdup problem right now.