Paramount Beats Down ‘Top Gun: Maverick’ Lawsuit From Screenwriter’s Cousin

U.S. District Judge Jed Rakoff granted Paramount summary judgment on Jan. 9 in SDNY, dismissing Shaun Gray’s copyright claim against Top Gun: Maverick as an unprotectable derivative work. The court denied Gray’s motion to dismiss Paramount’s countersuit for copyright infringement and fraud—finding questions of concealed contributions and reasonable reliance sufficient to proceed to trial—and thus preserves Paramount’s affirmative claims while reducing its immediate litigation risk. The decision follows a separate recent win for Paramount in a related copyright dispute and limits near-term legal exposure for the studio while leaving potential damages and liability to be resolved at trial.

Analysis

Market structure: Paramount (PARA) is the direct winner — court ruling preserves Top Gun franchise economics (theatrical, streaming, licensing) and reduces near-term legal overhang; ancillary beneficiaries include large integrated media owners (DIS, CMCSA) through a stronger IP-defense precedent. Direct losers are claimant writers/independent creators and small-cap production houses that lack legal/insurance resources; pricing power for studios to monetize legacy IP improves modestly (estimate 3–8% increase in franchise NPV on protected titles over 12–24 months).

Risk assessment: Tail risks include an adverse jury finding on Paramount’s countersuit (fraud damages, reputational hit) or a broader legal trend tightening writers’ rights — both low probability but high impact (equity downside 15–30%). Immediate reaction likely muted (days: <5% move); short-term (weeks/months): litigation milestones and earnings could move stock 5–15%; long-term (quarters/years): preservation of IP drives stable cash flows and potential M&A interest, affecting bond spreads by 20–50bps. Hidden dependencies include talent contract clauses, insurance recoveries, and international rights windows.

Trade implications: Direct play is selective long PAR A-equity exposure sized small (1–3% of portfolio) with asymmetric options overlay; pair trade favored: long PARA vs short smaller studio (Lionsgate LGF.A) to express franchise-defense premium. Options strategy: buy 6–9 month calls or call spreads (delta ~0.30) to capture upside around upcoming releases/earnings while capping cost. Sector rotation: modestly overweight Media & Entertainment (+1–2%) vs small-cap content producers (-1–2%).

Contrarian angles: Consensus downplays value of legal victories — protecting IP can compound returns across multiple windows (theatrical → streaming → licensing) and may not be priced into PARA (possible 15–25% underpricing of franchise annuity). Reaction may be underdone; however, countersuit trial outcomes and appeals are binary catalysts that could reverse gains. Historical parallels: studio wins (e.g., Warner cases) reduced future claim frequency and boosted valuation multiples; unintended consequence — studios may pay up for clear chain-of-title in M&A, increasing acquisition multiples over next 12–24 months.

Key Decisions for Investors

• Establish a 1.5% long position in Paramount Global (PARA) within 1–4 weeks, target +25% total return over 12 months, set a hard stop-loss at -15% and reassess after next quarterly earnings (within 60–90 days).
• Implement a 6–9 month options overlay instead of full equity exposure: buy calls or a call spread on PARA sized to cap max premium to 1% of portfolio value (target option delta ~0.30; if cost >1% reallocating to a 2‑leg 10–20% OTM call spread).
• Enter a relative-value pair: long PARA 1.5% vs short Lionsgate (LGF.A) 1.0% to capture IP-defense premium; rebalance or close within 6–12 months or earlier if differential exceeds ±10% absolute or if a trial/appeal date is set.
• Reduce aggregate exposure to small-cap, litigation-prone content producers by 1% and redeploy into large-cap diversified media (DIS, CMCSA) by +1% to favor balance-sheet resilience and lower legal risk over the next 3–12 months.
• Monitor three catalysts over next 6–12 months before increasing size: (1) trial scheduling/bench rulings on Paramount’s countersuit, (2) Paramount quarterly report and Top Gun-related revenue disclosures, and (3) any appeals — if no adverse developments and revenue trajectory improves, increase PARA exposure to 3%.