Marvel and Disney: A Merger with Character

I.  Introduction

On August 31, 2009, The Walt Disney Company (“Disney”) and Marvel Entertainment, Inc. (“Marvel”) entered into a merger agreement in which Disney would acquire Marvel. [ 1 ] At this time, it is up to debate whether the acquisition is a horizontal, vertical, or conglomerate/lateral transaction. Both Disney and Marvel are involved in a very broad range of products and services, but both companies center their business models on intangibles, particularly characters. As a result, much of Disney and Marvel’s business revolves around intellectual property. Unlike the products of technological and software companies, the intellectual property rights created by Disney and Marvel are less concrete but more versatile, and decidedly harder to enforce. As such, this article will consider the nature of characters as property rights, particularly those of Disney and Marvel, as they relate to the Department of Justice (“DoJ”) and Federal Trade Commission (“FTC”) Merger Guidelines and suggest areas of consideration that will require more study for a full antitrust analysis of the merger.

II.  Background

Disney was formed in 1923 [ 2 ] and has grown to very significant size in the time since then. Disney owns many varied assets in several different industries. Several are of interest for this merger. The Disney family of companies contains a motion picture arm that owns and operates film studios, and produces films based both on Disney intellectual property as well as the worlds and characters of other creators. [ 3 ] Furthermore, Disney controls a publishing company that is involved both in traditional books as well as comic book and magazine publications. [ 4 ] Finally, Disney relies a great deal on merchandising and licensing opportunities that arise out of their intellectual properties, especially characters. [ 5 ]

Marvel was founded in 1933 and exists mainly as a character-based entertainment and licensing business. Marvel owns and then licenses its intellectual properties, existing in the form of characters, and describes itself as a character-based entertainment company. [ 6 ] Marvel further owns and operates Marvel Publishing, Inc, which acts as the publishing arm of Marvel, with a focus on comic books. [ 7 ] Furthermore, Marvel owns and operates a film production office, known as MLV Productions, Inc. [ 8 ] Marvel does not, however, create films in-house and does not own or operate any movie studios. [ 9 ]

Under the terms of the agreement of merger, Disney is acquiring Marvel so that each share of common stock in Marvel will be converted into a receivership right to either $30 in cash, or 0.7452 shares of Disney common stock. [ 10 ] Furthermore, the agreement provides that Marvel Characters licensing and publishing offices will continue to be based in their original home cities. [ 11 ]

III.  Analysis

The Merger guidelines of the DoJ and FTC make a distinction between horizontal and non-horizontal mergers. [ 12 ] Each requires different analysis, but both treat efficiencies similarly. Because the Disney-Marvel merger has characteristics of both horizontal and non-horizontal mergers, each will be addressed separately, and then the concept of efficiencies, which the guidelines treat in the exact same way [ 13 ], will be addressed last.


Many analysts have speculated on the horizontal nature of the merger. Their approach centers on the idea that Marvel and Disney intellectual properties, especially characters, compete for the attention of the same market. [ 14 ] Several of these analysts point out that Disney has repeatedly tried and failed to capture the young male market share with their characters, especially in the television and film realms, but succeeded with young women. [ 15 ] These analysts point to Marvel’s strong hold on young males and weakness towards female in the comic book realm as indication that the two companies have synergistic competition and could significantly benefit from a merger. [ 16 ]

The merger guidelines provide that the first step in analyzing a merger that is considered to be horizontal is to define the markets in question, both geographically and in terms of product. [ 17 ] Disney and Marvel both operate as national corporations and make their products available across the United States, so the geographic market is clearly national. However, it is more problematic to try and identify the exact product market.

For two goods to be in the same market, they must be at least general substitutes. [ 18 ] If the price of Disney properties were to go up, or if they were to become unavailable, their customers would have to substitute with Marvel properties for the two to be competitors. It is questionable what portion of either customer base would substitute from one to the other. The nature of the products alone raise questions as to whether the two companies operate in a single market. Marvel has generally produced character properties in the realm of superhero, detective, and horror story characters. Disney, on the other hand, has a vast realm of fairies, princesses, dashing princes, and anthropomorphic critters. Furthermore, Marvel’s properties typically skew towards older customers whereas Disney properties typically skew towards the younger, family-appropriate crowds.

More specifically, the merger guidelines call for the identification of markets using the small-but-significant price increase method. [ 19 ] This method calls for the assumption of a monopolist, and then considering the effect of a price increase by said monopolist with all other prices held constant. [ 20 ] If Disney is considered a monopolist, and it increases the price of its character properties by five percent, would consumers shift towards Marvel?

The Guidelines' method seems to fail at this juncture. What is the price of an intellectual property as versatile as a character? There is no simple answer. Characters and the worlds that have been built around them can be sold for use in movies, television programs, books, advertisements, etc. There are few, if any, real limits to their use. Furthermore, Disney and Marvel generally create their own products based on their characters. Perhaps the price of a character property should be one that the end consumer pays. A new issue arises with this approach in that we must determine what media to consider. We must further question whether the traditionally movie-based characters of Disney can be compared alongside the generally comic book-based characters of Marvel fairly in any single media, and whether it is wise to compare across medias.

Existing data regarding the competition between Disney and Marvel at the intellectual property level is scarce and would serve no purpose in this instance. Historically, Marvel properties have been focused in a comic book format whereas Disney properties have been focused on animated and film media. As a result, it is hard to examine whether the properties can compete each other when their current preferred formats do not. It may well be impossible to ascertain whether Mickey Mouse and Wolverine are competing properties at this time. It will be critical for the regulators, however, to approximate date in this field so as to get a clearer picture of this character market. Doing so will be critical in determining whether concerns in this market should affect the agencies' stance on the overarching merger.


Disney does not solely create and own intellectual properties. They also publish books and comic books, produce movies and television shows, and create amusement parks, all of which use the properties as a base for the product. [ 21 ] As a result, Disney is a significant consumer of intellectual properties as well a producer thereof. Marvel, on the other hand, publishes comic books, but does not own movie or television studios and does not operate any theme parks. As a result, Marvel could be considered to be a supplier for Disney if Disney were to use Marvel properties in creating such products as movies and television shows. Disney perhaps acquired Marvel for its intellectual properties as an act of vertical integration, to save itself the costs of acquiring such properties for use in their other ventures.

This approach has been suggested by several analysts. [ 22 ] However, some are quick to point out that, on the vertical level, this merger would be a less than favorable deal for Disney. [ 23 ] Marvel properties are already embroiled in license agreements that are set to last for several more years and, as a result, the merger may only work to Disney’s favor in a longer time horizon. [ 24 ] As a result, the non-horizontal effects of the merger on the markets is hard to fully quantify as there are both present and future effects.

The non-horizontal merger guidelines call for an examination of effects of the merger on barriers to entry. [ 25 ] They further call for an analysis centering on whether Disney owning both Marvel and its own character-property producing facilities raises the barriers to entry in Disney's primary market. [ 26 ] However, the issue is further confused by the difficulty in ascertaining, as mentioned above, whether Disney and Marvel characters, and therefore any products based on such characters, are in the same market.

Finally, the greatest question that arises is whether there could ever be barriers of entry in an industry that requires only imagination to create a product. Characters can be created by anyone, at any time, simply by imagining the character, and then publishing its characteristics to the world in some way. This raises a question as to whether barriers to entry can exist at all. No matter how big Disney and Marvel get, they cannot physically stop individuals from imagining characters and cannot stop individuals from consuming those characters in some way, whether it be through formalized media like television, or through an informal media, such as stories posted on a blog on the internet. As such, it seems that the non-horizontal merger guidelines are either not equipped to consider a merger where one of the primary products is non-technical intellectual property, or not interested in regulating a merger in such an industry.


The legal world surrounding intellectual properties such as those produced by Disney and Marvel is complicated and murky. Multiple legal debates have arisen, and much of legal framework seems inefficient. Characters have long been established as copyrightable separate of their originating work. [ 27 ] A test was first created in Nichols v. Universal Picture Corp. for the copyright protection of characters, but it is considered unclear and generally inconclusive. [ 28 ] In Nichols, the court explained that “the less developed the characters, the less they can be copyrighted” and further stated that identifying characteristics were critical for the copyrighting of characters, but did not elaborate a strict test. [ 29 ]

The tests that have since emerged continue to leave much to the imagination of lawyers and judges. Names cannot be copyrighted, but characters cannot be copyrighted without a name. [ 30 ] Stock characters, characters who are generic and generally only identifiable by their general purpose, such as two lovers who are “loving and fertile [and] that is really all that can be said of them”, are not copyrightable, as Judge Learned Hand recognized in Nichols [ 31 ], but at what point does a character exit the stock and become delineated? According to author Gregory Schienke, the answer remains unclear and requires further clarification to this day. [ 32 ]

This background creates a complicated legal landscape in which character-based entertainment companies such as Marvel or Disney must operate. This is further complicated by the ways in which characters can be infringed, and the decisions that must be made as to which infringements must be stopped and which should be allowed as fostering fan dedication and appreciation (the “fandom” as some refer to it). [ 33 ]

Disney derives a great deal of its market share and market power from copyright and its ability to control its intellectual properties. [ 34 ] However, the intangible nature of copyright infringement as well as the relatively loose and vague judicial guidelines discussed above mean that Disney may be accruing a great deal of costs in enforcing its rights with regards to these properties. The emergence of a significant international intellectual property issue further complicates this problem and acerbates the costs involved. [ 35 ]

Marvel has had a myriad of intellectual property issues of its own. The Superhero genre that Marvel operates in has been particularly prone to infringement from varied sources. [ 36 ] Only recently, a significant case arose from the video game industry, Marvel v. NCSoft, which considered whether the operator of an online game had a duty to prevent users from replicating Marvel characters and whether the game operators and designers had made it too easy to replicate such characters. [ 37 ] The case, though ultimately settled, relied heavily on the question of what constitutes the character and whether appearance or name was enough to be infringement. [ 38 ] The legal problem arises out of the difficulty of defining exactly what a character and what he or she represents. [ 39 ] Author Michael Price, in an article titled When Phone Booths are Inadequate Protection: Copyright and Trademark Infringement of Superheroes, points to the importance of flexibility in copyright protections in acknowledgment that a character is more than a name and appearance. [ 40 ] As a result, litigation arising out of these concepts is evidence-intensive and likely expensive to pursue.

A merger by Disney and Marvel may well operate to combine the legal aspects of the character-based business and afford the two companies a greater economy of scales in policing and enforcing their intellectual property rights. As a result, it would be critical for antitrust authorities to consider the exact ramifications of such efficiencies when considering the merger. Efficiency is typically recognized as a significant positive in a merger and may serve to convince antitrust authorities that a merger may be positive for the economic landscape. [ 41 ]

IV.  Recommendation

When two companies merge, antitrust authorities must regulate the merger and determine, based on the economic data before them, whether it will result in too great a reduction in competition. In this case, however, the two companies have a significant level of involvement in creating intangible products: characters. The only thing that can be clearly ascertained are the efficiencies gained by a merger of two such character-producing entities. As such, it becomes critical for the regulatory agencies to closely consider the exact ramifications of the merger, as the negative effects on competition are hard to quantify, and the positive effects are much clearer. However, it appears most likely that the approach delineated in the merger guidelines will not be sufficient to fully appraise this merger. This is a likely sign that the guidelines are not yet flexible enough to approach every type of industry and may require further revision.

V.  Conclusion

The nature of intellectual property does not meld well with that of merger regulation. One requires a flexible approach that allows for close consideration of the facts in each case; the other approaches the world with an inflexible viewpoint that requires hard facts. Any time the two meet, difficulties arise. However, the specific realm of intellectual property focusing on multimedia, creative properties leads to even greater difficulties in analysis. Unlike technological intellectual property such as software, or technical plans, or other such products, characters have nearly limitless use. Furthermore, the markets are hard to define, because these characters can base themselves in a number of media that do not directly compete for the same end consumer. Characters further cannot be clearly defined, and the boundaries between copyrighted character and similar but legally-acceptable character are extremely blurry. These characteristics lead to an awkward fit between such a merger and the “ideal” merger implied by the merger guidelines. As a result, these transactions will undoubtedly be hard to regulate, and may well push for a revision of the guidelines to a more flexible approach.


[1] Marvel Entertainment, Inc., General statement of acquisition of beneficial ownership (Schedule 13D/A) (Sept 10, 2009)

[2] The Walt Disney Company, The Walt Disney Company and Affiliated Companies – Company Overview, (Last visited Sept. 20, 2009)

[3] The Walt Disney Company, 2008 Annual Report (2009), available at investorrelations/annual_reports/WDC-AR-2008.pdf.

[4] See Id. at 29.

[5] See Id. at 28, 63.

[6] Marvel Entertainment, Inc., Annual Report for the Year Ended December 31, 2008. (2009), available at

[7] Id. at 7.

[8] Id. at 9.

[9] Id.

[10] Marvel Entertainment, Inc., General Statement of Acquisition of Beneficial Ownership (Schedule 13D/A) (Sept 10, 2009)

[11] Marvel Entertainment, Inc., Policies for the Management of the Marvel Business (Form 425, EX-99.1) (Sept 4, 2009)

[12] U.S. Dep't of Justice, U.S. Dep't of Justice Merger Guidelines (1984) available at . [hereinafter 1984 Merger Guidelines]

[13] Id.

[14] Brooks Barnes & Michael Cieply, Disney Swoops into Action, Buying Marvel for $4 Billion, N.Y. Times, Aug. 31, 2009, available at; Sarah Jaffe, Can Marvel-Disney Help Close the Comic Book Gender Gap?, (Sept. 2, 2009) (Last visited Sept. 14, 2009).

[15] Barnes & Cieply, supra note 14.

[16] Jaffe, supra note 14.

[17] U.S. Dep't of Justice & Fed. Trade Comm'n, U.S. Department of Justice and the Federal Trade Commission Horizontal Merger Guidelines §1.1 (1992, revised 1997) available at horiz_book/hmg1.html [hereinafter 1997 Merger Guidelines].

[18] Michael E. Porter, The Five Competitive Forces that Shape Strategy, HBR 79 (January 2008).

[19] 1997 Merger Guidelines, supra note 17, at §1.11.

[20] Id.

[21] See The Walt Disney Company, 2008 Annual Report, supra note 3.

[22] See Steven Zeitchik, Analysis: Disney-Marvel Deal Brings Changes, Adweek, Sept 1, 2009, available at

e3i76e7bfe15f67e9f1832a6af63f7c353c; Alex Dobuzinskis, ANALYSIS – Disney-Marvel benefits come with time lag, risks, Reuters, (Last visited Sept 14, 2009).

[23] Dobuzinskis, supra note 22.

[24] Id.

[25] 1984 Merger Guidelines, supra note 12, §4.2

[26] Id.

[27] Nichols v Universal Pictures Corp., 45 F.2d 119 (2d Cir. 1930).

[28] Gregory S. Schienke, The Spawn of Learned Hand – A Reexamination of Copyright Protection and Fictional Characters: How Distinctly Delineated Must the Story be Told?, 9 Marq. Intell. Prop. L. Rev. 63, 70 (2005).

[29] Nichols, 45 F.2d at 121

[30] Schienke, supra note 28, at 81.

[31] Nichols, 45 F.2d at 121-22 (1930).

[32] Schienke, supra note 28, at 83.

[33] Britton Payne, Super-Grokster: Untangling Secondary Liability, Comic Book Heroes, and the DMCA, and a Filtering Solution for Infringing Digital Creations, 16 Fordham Intell. Prop. Media & Ent. L.J. 939, 955 (2006).

[34] Michael J. Meurer, Copyright Law and Price Discrimination, 23 Cardozo L. Rev. 55, 83 (2001).

[35] See Marshall A. Leaffer, Protecting United States Intellectual Property Abroad: Toward a New Multilateralism, 76 Iowa L. Rev. 273 (1991).

[36] Michael T. Price, When Phone Booths are Inadequate Protection: Copyright and Trademark Infringement of Superheroes, 43 Wayne L. Rev. 321, 321-22(1996).

[37] See Payne, supra note 33, at 958.

[38] Id.

[39] Price, supra note 36, at 323.

[40] Id.

[41] See Alan A. Fisher & Robert H. Lande, Efficiency Considerations in Merger Enforcement , 71 Calif. L. Rev. 1582, 1582 (1983); 1984 Merger Guidelines, supra note 12 , at §4.24; 1997 Merger Guidelines, supra note 17, at §4.



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