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This article is written by Mahvish Siddiqui pursuing Diploma in Intellectual Property, Media, and Entertainment Laws from LawSikho.

Introduction

George Lucas or George Walton Lucas, Jr. is the famous film director, producer, screenwriter, and founder of Lucasfilm.

He is best known for creating the Star Wars and Indiana Jones Franchise and he is the richest celebrity with his net worth being $7.4Billion (March 2021). He made his debut in 1971’s THX 1138, a futuristic movie where android robots controlled society with drugs to suppress the emotions of humans. In 1973 his American Graffiti was a monster hit earning $200 million.

The best idea Lucas ever had was described as a “western set in space” and it was called “The Star Wars”, this happened in 1971 and the next two years he worked on the script and after his success with American Graffiti  he straightaway reached out to make a deal with Fox studios but what was different here was that he offered to keep his salary at $150,000 in exchange for two seemingly insignificant requests: 

  • That he retains all merchandising rights, and
  • That he would retain rights to any sequels. 

We all know what happened after that with Star Wars being a humongous hit when it was released in 1977 it became the highest-grossing movie in history.

The Star Wars film, The Force Awakens smashed box office records all over the world when it was released. George Lucas made sure to aggressively protect this largest pop culture phenomenon in the world. It is evident that he made a fortune out of the Star Wars empire through LucasFilm.

Let’s get an insight on how exactly he made a fortune out of Star Wars.

Making dollars out of the intellectual property

Since the release in 1977, LucasFilms has filed approximately 205 patents, 1077 individual trademark applications, and 3489 registered copyrights. He has been very persistent in protecting the intellectual property rights of the movies.

Patent and trademark

A patent is a right or title one confers from a government authority for a period so that they be the sole owner of that invention whereas a trademark can be registered for specific goods and services to be able to distinguish themselves from the others. What Lucas did was that he took patent rights trademarks on all its characters and inventions whether the inventions were from an employee of the company or not he assigned all the patent rights to himself and Lucasfilms. Many of the toy patents were filed by Lucasfilm for their inventors – people like Joe Johnston, Ralph McQuarrie, Nilo Rodis-Jamero, Ralph McQuarrie, and such. Kenner does have its share of patents as well. Some examples of the patented characters and toys are Boba Fett, Hoth Stormtrooper, X- Wing Fighter, AT-AT, MLC3, Jabba the Hutt, R2 D2, C-3PO, Luke Skywalker, and many more. The BB8 droid was the best seller on Amazon. It was a ball shaped droid that could rotate from its head and could be operated from a tablet or a smartphone. The droid was not an original creation of an employee of the company, so the patent rights were assigned to the company. Star Wars registered for an enormous range of products which even included DVDs, software, etc. They trademarked the film’s titles and slogans which cannot be protected from copyright but can be trademarked and the example “May the Force be with you” and the film title The Force Awakens or Revenge of the Sith is one of the many trademarked titles/slogans.

In 2012 Disney who acquired Lucasfilms filed a patent for a real-life lightsaber experience at Disney’s Star Wars Park where the audience could fight off with a virtual lightsaber like in actual combat and it would include haptic feedback and the lightsaber hum so that the audience gets the feeling of an actual lightsaber and the Jedi experience.

Even the word “Droid” is trademark protected by Lucas and Lucasfilms so if any company wishes to use the term in shows or films must pay LucasFilms to use the word or face legal actions.

All of this brought millions of dollars to Lucasfilms and even Lucas himself.

Copyright

The copyright ranges from artistic expressions, including scripts, movie posters, sound recordings for example Star war books, e-books, screenplays, soundtracks, and films and tv programmes. The artistic work would include logos, graphics, photographs, images of fictional characters which play great importance in this franchise for example Yoda, R2 D2, and many more. Such fictional characters can then be reproduced on a mug or lunchbox, or clothing and that hit a fortune for George Lucas as the markets were flooded with the products.

These copyrighted products helped Lucas in a lot of infringement cases, and he made a great deal out of it too. In 2016 they sued a so-called “New York Jedi and Lightsaber Academy” because they were offering classes for Jedi combat by expert lightsaber and swordplay practitioners. They claimed that the school’s use of the words “Jedi” and “lightsaber” and the “Jedi Order” logo all constitute an infringement of Lucasfilm’s trademark rights.

Merchandising and granting licensing of intellectual property rights

Merchandising is a very strong way to earn a lot of money and it can be incredibly lucrative for business. Merchandising refers to a wide range of activities that increase the visibility and accessibility of products, including window displays and shop floor layouts. George Lucas had taken all the merchandising rights earlier and that was his best decision as this made all the real money. We know product licensing involves two parties: a licensor and a licensee.  The licensor owns the rights to intellectual property (IP) while the licensee manufactures products using the IP granted by the licensor (LucasFilms) via a license agreement.   A product (or merchandise) license allows licensees to leverage popular IP to create branded products, usually for a specific period. 

Once the rights have been secured, the licensee manufactures a product using the licensed IP, and in return pays the licensor a royalty for its use. This can be a flat fee or a percentage of the sales of the products that incorporated the IP. This model can be applied to nearly any product, from apparel and accessories to toys, home goods, and more. 

The product licensing model helps both parties to gain relevancy, recall, and revenue.

In 1977, Lucas granted Kenner the exclusive rights to produce Star Wars toys in perpetuity for $100,000 per year. Back then, of course, no one realized how valuable that right was, and for years Kenner made millions of dollars selling little plastic Princess Leias and R2-D2s. Hasbro Inc. had taken over Kenner in 1991 and the Star Wars merchandise had come to a halt. Galoob Toys Inc. saw the opportunity and pushed out its Star Wars Merchandise. In 1996, Galoob sold about $120 million worth of small-scale Star Wars toys. This made Hasbro push sales and made $200 million that year.

It was believed that Lucas never would have rereleased those movies if Galoob hadn’t shown him that Star Wars was still popular by successfully promoting those toys. 

In 1997, the biggest licensing deal ever happened between Lucasfilm Ltd, Hasbro Inc., and Galoob Toys. The companies separately reached agreements with LucasFilms for the next three Star Wars movies.

The combined deal was worth $225 million with additional royalties.

Galoob has granted the Lucas companies warrants for nearly 20% of the company’s issued and outstanding common stock, equal to approximately 3.6 million shares, at an exercise price of $15 per share. The $140 million advances will be payable as the three new films are released.

Hasbro offered a guarantee of about $300 million; stock options and royalties close to 20% of sales for nine years

Star Wars sold $100 million worth of toys. 35 years later and Star Wars themed toys have generated $12 billion in revenue. After the first film, George owned 100% of the rights to the entire franchise. The next five Star Wars movies would go on to earn an additional $3.5 billion at the box office. In total, the Star Wars empire has sold $4 billion worth of DVDs and VHS, $3 billion worth of video games, $2 billion worth of books. George Lucas had earned himself an impressive $3.3 billion net worth by 2012. Then, Disney came knocking.

Lucas granted his film distributing rights to 20th Century Fox in 1999 for his three Star Wars films.

Fans will always remember the famous drumroll of 20th Century Fox and fanfare at the beginning of the Star Wars film but then in 2012 Disney took over LucasFilms and paid more than $4 billion and also replaced the opening sequence in all of the films except for the original 1977 film because Fox still owns the rights of that movie.

Even though Lucas is not the owner of Lucasfilm now, he still makes a lot of money from the first movie which is considered as the father of the Star Wars saga. Lucas does not earn any royalties from the newer movies or shows as a writer, director, or even creator. However, because of the Disney stock shares he received as part of the transaction, Lucas still sees a hefty payout due to the value of the stocks.

Around the time of the acquisition of Lucasfilm, each of Disney’s shares was worth about $50. Lucas acquired 37,076,679 shares from Disney, valued at $1.85 billion at the time.

By now, Disney’s stock value is sitting at $200 per share, meaning that Lucas’s stocks are now worth over $7 billion.

Conclusion

The intellectual capital business or franchise constitutes a significant component of its total assets, the value that the intellectual property can exceed the value of fixed assets or working capital of the business. It has been recognized that the intellectual capital of a business provides the most potent – and most effective – impetus to its earning power. So vigorous and jealous guarding of IP rights is much like protecting your supplies and money from the raiding and pillaging Alkhara Bandits.

George Lucas made a fortune out of the Star Wars empire though his resume is very thin he still managed to make the right decisions at the right time and that has made all the difference now.

Without retaining these rights, Lucas would have done very well, but his earnings would have been a tiny fraction of what they became. This windfall would not have been remotely possible if it wasn’t for that single brilliant decision made back in 1973. George Lucas essentially traded $350,000 for more than $5 billion. That might be the smartest business decision of all time! So the lesson here is, if you believe in your idea, don’t give up your rights easily! 

While George Lucas gave up control of the franchise in 2012, he still made a tremendous profit off of it. That is not just because he created the original story. Lucas gained control of licensing and merchandising rights before “A New Hope” was even released. This smart move ultimately turned him into one of the most successful people in the entertainment industry.

References


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