Friday, December 20, 2002

Hawaii Offers Generous Tax Credits to Film Production Companies

December 20, 2002

In This Newsletter:

Hawaii Offers Generous Tax Credits to Film Production Companies

Hawaii recently enacted some very impressive and generous tax incentives. Hawaii’s high tech investment tax credit provides a 100% return on cash investments in a qualified high tech business (QHTB) on a front-loaded basis over 5 years (35% credit in the year of investment, 25% in the following year, 20% in the second year following, then 10% each in the third and fourth year following). Qualified research activities include performing arts products such as motion pictures. The credit is designed to give a 100% return for investments up to $2 million per year per QHTB. The credit applies against Hawaii income tax liability only. The credit can be taken by individuals and corporations paying Hawaii income tax, and by banks and insurance companies against their franchise and insurance premium tax.

Moreover, if money from outside Hawaii is invested, the tax benefits can be allocated to the Hawaiian investors so they can obtain more than 100% return. So for example, if a Hawaii investor put up $500,000 and an Arkansas investor put up $500,000, the parties could agree to allocate all the tax credits to the Hawaii investor (since the Arkansas investor doesn't pay taxes in Hawaii they are worthless to him anyway). So the Hawaii investors gets back 200% return over 5 years. In return, the Arkansas investor could be given a greater share of the back end, or preferred recoupment.

The production entity would be required to employ or own capital or property or maintain an office in Hawaii, to have more than 50% of its total business activities in performing arts products and to conduct more than 75% of those activities in Hawaii. In other words, 75% of the budget needs to be spent in Hawaii. I currently represent a Hawaiian company that can serve as the production entity that has received a comfort ruling from the Department of Taxation indicating that the company qualifies.

In order to qualify, companies need to stay in business in Hawaii for at least five years, and should have some copyright ownership of the picture. There are many more details but those are the basics. For additional information about Hawaii’s tax incentives, goto http://www.state.hi.us/tax/hi_tech.html.

I am working with a major Hawaiian law firm and a large Hawaiian bank on several co-productions. I am looking for projects that can be shot in Hawaii that have partial financing, preferably at least half the budget from non-Hawaiian sources. Note that there are not many shooting stages or post facilities in Hawaii, so stories that can be shot on location in Hawaii are best.

"Tom Dowd and the Language of Music" to Screen at Sundance
Congratulations to our clients Mark Moormann and Mark Hunt. Their film, TOM DOWD AND THE LANGUAGE OF MUSIC, has been selected for the 2003 Sundance Film Festival's Documentary competition.

The documentary describes the life and influence of Tom Dowd, legendary recording engineer and producer. Dowd helped shape the sounds of a wide variety of pop, R&B, soul, jazz and roll & roll artists including Ron Stewart, Aretha Franklin, John Coltrane, and Eric Clapton.
For more information about "Tom Dowd and the Language of Music," visit http://www.thelanguageofmusic.com/.

Composer Can't Sue for Copyright Infringement
A federal District Court in Los Angeles has ruled that though composer Richard Warren can sue Fox Family Worldwide for breach of contract he cannot sue for copyright infringement, in a case that pitted the "Remington Steele" composer against the media conglomerate.

In the 1980's, Warren signed several composer agreements with the "Remington Steele" series producer, MTM. Some of these agreements did not include the phrase "work made for hire" and none of them specified that Warren's work was "specially ordered or commissioned." The agreements did entitle Warren to the writer's share ofASCAP and BMI performance fees. In addition, if the show were licensed to companies that did not hold ASCAP or BMI licenses, the producer would pay a portion of the license fees to Warren.

Fox Family Worldwide succeeded MTM and assumed the license rights to "Remington Steele." Fox Family eventually signed agreements to license the show to the Christian Broadcasting Network and Princess Cruises, neither of which held ASCAP or BMI licenses when the agreements were signed. Fox Family failed to pay Warren.
Warren sued for copyright infringement and asked that his agreements be rescinded and his full rights to the music copyright be returned because Fox Family never paid the performance fees. The District Court ruled that the agreements Warren signed were in fact work for hire agreements, making Fox Family the rightful copyright holder. Therefore, Warren had no standing to sue for copyright infringement.

The court refused to grant Warren's request for rescission, stating that, "where…there is an express contractual obligation to pay royalties, the remedy for breach is clear, and the implication of a right to rescind is not necessary."
The District court granted Fox Family's motion to dismiss the lawsuit.Warren v. Fox Family Worldwide, Inc., 171 F.Supp.2d 1057, 201 U.S.Dist.LEXIS 22207 (C.D.Cal. 2001)

Friday, December 13, 2002

Texan Can't Be Sued in California for Releasing DVD Decryption Software on the Web

December 13, 2002

In This Newsletter:

Mark Litwak to Speak at HarvardOn Sunday, December 22 at 2PM, Mark Litwak will give a one-hour lecture on "Self-defense for Filmmakers" at Harvard University.

This free seminar is open to the public and will be held in the Graduate Student Lounge, 2nd Floor, Lehman Hall. Anyone planning to attend should RSVP to Valerie Weiss at vhweiss@fas.harvard.edu. You must arrive on time as the entrance doors will be locked at 2PM.

For more information, please visit the Dudley Film Program website at http://go.to/dudleyfilm.

"Levity" to Open 2003 Sundance Film Festival
Congratulations to our client Echo Lake Productions. Their film, LEVITY, has been selected to screen as the opening night film at the 2003 Sundance Film Festival. The directorial debut of screenwriter Ed Solomon (MEN IN BLACK), the film will be distributed in the U.S. by Columbia TriStar and internationally by Canal+. The film stars Billy Bob Thornton, Morgan Freeman, Holly Hunter, and Kirsten Dunst.
For more information about Levity, visit Echo Lake Productions' website at http://www.echolakeproductions.com/intheaters/intheaters.htm.

Texan Can't Be Sued in California for Releasing DVD Decryption Software on the Web

In a ruling that has the DVD industry worried, California's Supreme Court has decided that the state has no jurisdiction in a trade secret infringement lawsuit involving the Web-based LiViD video project and California's DVD Copy Control Association.
The DVD Copy Control Association alleged that LiVid's founder, Matthew Pavlovich, infringed its trade secrets in posting code on the Internet that could unscramble its encryption software. Furthermore, the Association argued that the movie industry, with so many companies based in California, would suffer if DVDs could be illegally copied at leisure. The case should therefore be adjudicated in California.

In a 4-3 decision, the California high court said that it had no personal jurisdiction over Pavlovich, who lives and works in Texas and was a student in Indiana when he first posted the decryption code, known as DeCSS.

The majority stated that Pavlovich had no apparent California contacts. Furthermore, that although his software was posted on the Web, his site "merely posts information and has no interactive features." There was nothing on the Website to show there was any intent, express or implied, to directly target California and its DVD and movie industries. As Pavlovich did not have sufficient "minimum contacts" in the state and had no intent to impact state business, he could not be sued in California

The majority expressed concern that if Websites like Pavlovich's, which contained nothing more than information and no interactive features, could be the basis for jurisdiction, then "mere use of the Internet would subject the user to personal jurisdiction in any forum where the site was accessible."

The dissenters in the case argued that though Pavlovich had never established a residence or business address in California, the code he posted on the Internet could be used by anyone in every state, including California.

In addition, the dissenters stated that Pavlovich knew or should have known that posting DeCSS to his Website would harm the DVD and movie industries, and he knew or should have known that these industries are primarily based in California. Therefore, Pavlovich did target California's DVD and movie industries.
It is expected that the case will be brought for consideration before the U.S. Supreme Court.