HOBBIT TITLES: AN UNEXPECTED JOURNEY IN CONFUSION

Warner Brothers, New Line, and its affiliates (“Plaintiffs”) recently achieved a rare courtroom victory by obtaining a court order restraining distribution of a film they claimed unfairly competed with one of its titles. The target of their ire was The Global Asylum's ("Asylum") film The Age of Hobbits. Asylum was set to release its film on December 11, 2012, three days before New Line rolled out its film “The Hobbit: An Unexpected Journey.”  New Line's film revolves around the Hobbit characters, which first appeared in J.R.R. Tolkien's 1937 novel, The Hobbit, and were later in his The Lord of the Rings book trilogy, and the basis for the hit movie trilogy Lord of the Rings, which earned $3 billion dollars at the box office. New Line’s film is the first in a series of three films, all shot in New Zealand by Sir Peter Jackson, produced at a reported cost of $500 million dollars, and set to be released over the next few years.

New Line’s film had its world premiere in Wellington, New Zealand, on November 28, 2012 and has been the subject of intense promotion and advertising. I was in Wellington right before the world premiere and was surprised at the massive and ubiquitous nature of the promotion across the city. Not only were Hobbit characters placed on buildings, but museum stores and numerous other outlets carried movie merchandise. Tourism New Zealand spent $10 million dollars promoting the trilogy. The promotion began when I boarded my Air New Zealand flight to Wellington and was delighted to watch the most entertaining in-flight safety video I have ever seen. It starred Tolkien elves, dwarves, Hobbits, and a wizard. The video has become an online hit viewed by millions http://www.youtube.com/watch?v=XCbPFHu3OOc. The carrier has even rebranded itself the “Airline of Middle Earth,” and plastered a plane with images from the film.

Asylum's film, on the other hand, is a low budget indie film reportedly made for $2 million dollars. Asylum claimed that the word "Hobbits” as used in its film did not refer to the fictional Tolkien creatures, but to a human sub-species whose skeletons were discovered in Indonesia in 2003. In Indonesia, archaeologists discovered a human sub-species with the Latin name Homo Floresiensis, which they nicknamed “hobbits” because of their small stature.

The legal dispute, in its simplest terms, comes down to this. Asylum claimed it had the right, under the First Amendment, to make a movie about ancient Indonesian people and refer to a name commonly used to describe the short-statured ancients in its movie title. Plaintiffs, on the other hand, asserted that Asylum infringed on their trademarks and tried to ride on the coattails of its massive promotional campaign and trick moviegoers to purchase the Asylum movie, thinking they are buying the Warner/New Line film.

On August 31, 2012, Plaintiffs sent Asylum a cease-and-desist letter demanding that it refrain from using the “Hobbit” Marks. The parties then discussed Asylum’s asserted fair use defense and possible changes to the title, design, and promotional materials. Asylum changed the design of its promotional materials, but refused to remove the word “Hobbit” from the film title for the domestic release of the picture.

On November 7, 2012, Plaintiffs filed a complaint against Asylum for trademark infringement, false designation of origin, trademark dilution, false advertising, and unfair competition. Then, approximately three weeks before the scheduled release of the Asylum picture, Plaintiffs filed an application seeking a temporary restraining order stopping the release of the Asylum film.  

As most movie aficionados know, there is a long history of independent filmmakers trying to cash in on viewer interest in topics made popular by the major studios. Roger Corman produced Black Scorpion, which imitated the Batman movies, Forbidden World, a knockoff of Alien, and Piranha, which borrows liberally from JAWS. Asylum has produced a number of low- budget films that resemble major studio releases. The company made a low-budget version of H.G. Wells' The War of the Worlds, which was released the same year as Steven Spielberg's film based on the same 1898 public domain book. Blockbuster reportedly ordered 100,000 copies of the Asylum film, far more than it had for any of Asylum’s previous titles.   Seeing how profitable such films can be, Asylum produced several low-budget knockoffs, sometimes called mockbusters, including Transmorphers, Almighty Thor, Abraham Lincoln vs. Zombies, Snakes on a Train, and Paranormal Entity.

The major studios were not amused, but it was questionable whether they could legally stop Asylum. 20th Century Fox threatened legal action over the release of The Day the Earth Stopped, a film similar to The Day the Earth Stood Still.  Last May, Universal Studios filed suit against Asylum over their film American Battleship, claiming infringement of their movie Battleship. Asylum then changed the title to American Warships.

            For the most part, Asylum has been successful in releasing its pictures and defending them from legal assault. The company claims that it has released more than 150 films and has only been sued twice for trademark infringement. One case was settled, and Asylum prevailed in the other.

Asylum's legal success involved the film Haunting of Winchester House. Asylum was sued by the owners of the Winchester Mystery House, a popular tourist attraction in San Jose that consists of a 160-room Victorian-style mansion as well as a museum, gift shop, and café. The attraction is billed as the world's most haunted house. Sarah Winchester, according to legend, created this mansion to fend off ghosts.

The owners objected to Asylum's plan to produce and market its movie, which allegedly was based on a "terrifying true story." When Asylum asked for permission to film at the Winchester Mystery House, the owners informed Asylum that they had signed a contract with another producer for exclusive rights to the Winchester story.

The Asylum movie begins with a shot of a Victorian-style structure, but not the actual Winchester Mystery House. The movie includes the ghost characters of Sarah Winchester, her adolescent daughter, and her brother, who was deaf and could not speak. These characters, as well as the ghosts of those killed by Winchester guns, haunt Sarah Winchester’s home. However, the real Sarah Winchester did not have an adolescent daughter or a brother who was deaf and unable to speak.

The trial court dismissed the case against Asylum on summary judgment. On appeal, the appellate court agreed, stating that in trademark infringement cases involving First Amendment concerns, the finding of likelihood of confusion must be particularly compelling to outweigh the First Amendment interests of filmmakers. The owner of a trademark does not have the right to quash an unauthorized use of its mark by another who is communicating ideas or expressing points of view.

However, with its Hobbit movie, Asylum apparently crossed the line. So the question arises, where exactly is that line? How closely can a filmmaker imitate another work or title without having a judge halt its distribution?

It is rare for a court to restrain distribution of a film especially when copies have already been shipped. Films, like newspapers and books, are protected expression under the First Amendment. A party seeking a preliminary injunction must show that it is likely to succeed on the merits and will suffer irreparable harm if the relief is not granted.  

A basic principle of copyright law is that ideas, themes, facts, subject matter, and historical incidents cannot be copyrighted. Anyone can write a book about George Washington, and they can even borrow facts from prior books without infringing those authors’ copyrights. Moreover, film titles generally cannot be registered as trademarks. Only a distinctive title to a series of books, periodicals, newspapers, or television programs like Bonanza could be registered. The reason is that trademarks are used to identify the origin of goods or services. Single books or films are one-offs. Their titles describe that particular work, not a series of works. Courts can, however, protect titles from confusingly similar uses, under the law of unfair competition, if the title has acquired a secondary meaning. A secondary meaning is when the title is sufficiently well known, that consumers associate it with a particular author’s work.

While courts are very protective of filmmaker's First Amendment rights, the law is also concerned about protecting consumers from being misled about the origin of products, which is what the laws of unfair competition and trademark address.  

There have been a number of cases in which courts have wrestled with a conflict between the freedom of expression of a filmmaker and the owners of trademarks and other rights. A commonly cited case is Rogers v. Grimaldi, which Asylum relied upon in its defense.  In that case, Federico Fellini conceived, co‑wrote, and direct­ed a film entitled "Federico Fellini's `Ginger and Fred'." The movie was a fictional work about two re­tired dancers. The dancers made a living in Italian cabarets imitating Fred Astaire and Ginger Rogers, thus earning the nickname "Ginger and Fred." The story was a satire about the world of television. According to Fellini, the characters did not resemble or portray Fred Astaire and Ginger Rogers. However, Ginger Rogers brought suit, claiming that Fellini violated her rights of privacy and publicity. Her complaint alleged that the defendants violated her rights by creating the false impression that the film was about her or that she sponsored, endorsed, or was involved in the film, and that it violated her right of publicity, and defamed her by depicting her in a false light.

            The district court decided that Fellini’s movie was a work protected under the First Amendment, and that a trademarked term could be used in the title of an artistic work if the use of the term has some artistic relevance to the work and does not explicitly mislead consumers as to the source and content of the work.

               The Court of Appeals affirmed the lower court, explaining that movies, plays, books, and songs are all works of artistic expression and deserve protection, even though they are also sold in the commercial marketplace and thus can be the subject of consumer deception. Consequently, when the title of a movie or a book has acquired secondary meaning—that is, when the title is sufficiently well-known, that consumers associate it with a particular author’s work—the holder of the rights to that title can prevent the use of the same or confusingly similar titles by other authors.

            The court concluded that filmmakers can use a celebrity’s name in the title of an artistic work where the title does not explicitly denote authorship, sponsorship, or endorsement by the celebrity or explicitly mislead as to its content. The court also held that Oregon law on the right of publicity does not bar the use of a celebrity’s name in a movie title, unless the title was “wholly unrelated” to the movie or was “simply a disguised commercial advertisement for the sale of goods or services.”

            Other cases have given less weight to the First Amendment rights of filmmakers. In American Dairy Queen Corp. v. New Line Productions, Inc., the defendant produced and was preparing to release a film entitled Dairy Queens, which was described as a mockumentary satirizing Minnesota beauty contests. The plaintiff was the Dairy Queen ice-cream chain, which claimed trademark infringement and dilution of its trademark. The district court found that the likelihood-of-confusion factors weighed in favor of the plaintiff. Then, it considered whether the defendant’s First Amendment interests were sufficient to outweigh the plaintiff’s trademark interests in its Dairy Queen trademark. Ultimately, the court found that because other alternative titles like Dairy Princesses or Milk Maids were available, “the balance between the public’s interest in free expression and its interest in avoiding consumer confusion and trademark dilution tilts in favors [sic] of avoiding confusion and dilution.” Dairy Queen Corp. won because the court distinguished  Rogers v. Grimaldi on the grounds that the Rogers case involved a title that directly referred to the content of the film – performers known as Ginger and Fred. On the other hand, defendant’s film was about beauty pageants in Minnesota, without any  connection to plaintiff's ice cream stores. The Dairy Queen decision has been widely criticized.  Moreover, there are many cases that stand for the principle that filmmakers can refer to trademarks in their film, provided they do not do so in such a manner as to mislead moviegoers that the trademark owner is somehow affiliated or endorsing the picture.

            In Dallas Cowboys Cheerleaders, Inc. v. Pussycat Cinema, Ltd., the defendant exhibited a pornographic movie, "Debbie Does Dallas," which portrayed a "Texas Cowgirl" engaged in sex acts. The character wears a uniform strikingly similar to that worn by the Dallas Cowboys Cheerleaders. Ads for the movie showed the character in the uniform, and included such captions as "Starring Ex-Dallas Cowgirl Cheerleader Bambi Woods." In fact, Bambi Woods had never been a Dallas Cowboys Cheerleader.

            The Dallas Cowboy Cheerleaders brought suit, alleging that they had a trademark in the particular combination of colors and the design of their uniforms. The uniform in which they appear and perform consists of a blue bolero blouse, a white vest decorated with three blue five-pointed stars on each side of the front of the vest and white fringe at the bottom of the vest, tight white shorts with a belt decorated with blue stars, and white boots. The trademark was not registered at the time, although Plaintiff contended that it was protected as a common law trademark.

            The defendant contended that the film was a parody or satire on female cheerleaders and was protected expression under the First Amendment. Moreover, the defendant claimed that no one could rationally believe that the film originated or was associated with the actual Dallas Cowboy Cheerleaders.

            The court disagreed and issued an injunc­tion against further distribution of the film. The court found that the association with the Dallas Cowboy Cheerleaders, both in the film and in the advertising, had the single purpose of exploiting the Dallas Cowboy Cheerleaders' popularity in order to attract an audience to view sex acts in the movie.

            Then there is the Agatha Christie case. Casablanca Records produced a film titled “Agatha” about the famous mystery writer Agatha Christie. The story is a fictionalized account of an 11-day disappearance of Christie in 1926. Christie is portrayed as an emotionally unstable woman who engaged in a sinister plot to murder her husband’s mistress. The heir to Christie’s estate brought suit to enjoin Casablanca from distributing the movie, alleging unfair competition and infringement of the right of publicity.

During her life, Agatha Christie agreed to have her name used in connection with various motion pictures and plays based on her books. Her heir alleged that Casablanca’s use of the name "Agatha" and "Agatha Christie" would cause confusion in the minds of the public in general, and Agatha Christie readers in particular, by creating the impression that the movie and novel were authorized or even written by Ms. Christie. The court, however, summarily dismissed this claim, without much explanation other than finding that the heir "can prove no set of facts in support of [this] claim which would entitle [them] to relief.”

These cases were decided by different judges, under different state laws, and federal and state laws have evolved over time. Still, it is difficult to distinguish how the use of the word “Agatha,” is not likely to confuse moviegoers about the origin of the film about her, but the use of the word “Hobbit” is likely to confuse moviegoers about the source of Asylum’s movie.

            The judge in the Asylum case seemed to be greatly influenced by Plaintiffs’ data showing that Asylum's title was likely to mislead moviegoers about its movie. Plaintiffs presented evidence from a weekly tracking study conducted by Nielsen National Research Group (“Nielsen”) in which 30 to 40 percent of survey respondents indicated confusion about the source of “Age of Hobbits.” The survey included 1200 respondents divided into two groups. The Test Group was shown an image of the “Age of Hobbits” poster while the Control Group was shown the same poster with an alternative title. Thirty percent of those in the Test Group who had an opinion about the source of “Age of Hobbits” (about 200 respondents) said they believed the movie was made or distributed by Plaintiffs. On the other hand, only 6 to 14 percent of the respondents in the Control Group, who were shown the movie poster “Age of Java Men,” associated the film with Plaintiffs.

            The court also mentioned that Asylum's release of its film three days before the release of the Plaintiff's film demonstrated intent to capitalize on the publicity surrounding Plaintiffs’ film, and its similar artwork and prominent use of the trademark showed intent to deceive.

Domestic Distribution Part III, Home Video Formulas

There are many formulas for home video deals, but most fall within three patterns. The first deal allows the distributor to retain a percentage of Gross Receipts as a distribution fee, and to recoup certain designated marketing expenses from film revenues, with the remaining balance, if any, paid to the filmmaker. I will call this formula a “standard distribution deal,” although there is nothing standard about it except for the fact that these deals calculate the distributor’s fee as a percentage of Gross Receipts. Another type of deal, sometimes referred to as a “50-50 net deal,” allows the distributor to first recoup its expenses from Gross Receipts off the top, and then share the remaining amount 50/50 with the filmmaker. A third type of deal is known as a “royalty deal,” where the filmmaker gets a percentage of the wholesale price of every DVD sold. The percentage is negotiable, but often is in the range of 20-25%. Here, all expenses incurred are irrelevant in calculating the filmmaker's share because they are borne by the distributor.

Which type of deal is best for a filmmaker? That depends on how much revenue is generated, the amount of expenses and whether they are capped, and the size of distribution fees. Let us consider three different scenarios.

First, suppose $1,000,000 is generated in Gross Receipts from sales and rentals of DVDs. Gross Receipts for the home video media are  generally defined as the wholesale revenues received, less any returns. If the suggested retail price of a DVD is twenty dollars, the wholesale price would be about half or ten dollars. However, prices are negotiable and Wal-Mart is known to drive a hard bargain and pay substantially less for DVD’s.

Under a standard distribution deal with a 25% distribution fee and recoupment of $100,000 in expenses, a filmmaker would receive $650,000. Under a 50/50 net deal, with the same Gross Receipts and cap on recoupable expenses, the filmmaker would receive $450,000. Under a royalty deal with a 20% royalty, the filmmaker receives $200,000. Clearly the standard distribution deal appears to be the better choice.

But now suppose the film generated $175,000 in Gross Receipts. With the same distribution fee and expenses, the filmmaker receives $31,250 under the standard distribution deal, $37,500 under a 50/50 net deal, and $35,000 under a royalty deal. In this case, the 50/50 net deal delivers the most revenue to the filmmaker.

Now, consider a third scenario with only $100,000 in Gross Receipts and the same distribution fee and expenses. Here, the filmmaker receives zero under either a standard distribution deal or the 50/50 net deal. However, under a royalty deal, the filmmaker receives $20,000. The fact that distribution fees and expenses now outweigh Gross Receipts is irrelevant in a royalty deal, because the filmmaker gets 20% of the wholesale price, no matter the extent of fees and expenses incurred. Moreover, under a royalty deal, there is little room for a distributor to engage in creative accounting. Once you determine how many units have been sold, and determine their price, a simple calculation reveals what the producer is due.  Many creative accounting disputes concern the deduction of expenses which is irrelevant in a royalty deal, since expenses are not counted in calculating the producer’s share of revenue.

Consequently, the best choice for the filmmaker depends on a number of factors especially how much revenue is generated; which is unknown when the deal is negotiated. Since none of these types of deals is always best, it is important for the filmmaker to pencil out the numbers before deciding which formula they want.  Most deals are more complicated to assess because they cover multiple media, and the distributor’s fee varies by media (i.e., 35% for theatrical, 25% for broadcast television). Moreover, domestic distributors usually insist on cross-collateralizing expenses among media. Thus, if there is a loss on the theatrical release but a net gain on television, then the revenue and expenses are pooled. This enables the distributor to recoup its theatrical loss from television revenue. Particular care must be taken when the home video arrangement is a royalty deal that does not allow deduction of expenses. These royalties should not be offset against expenses incurred in other media.

DVD’s are sold on consignment, meaning the buyers can return any product for a 100% refund. Sometimes large numbers of DVD’s are returned. Therefore, most distributors insist on holding back some revenues as a reserve to make sure they do not pay the filmmaker a share of revenue based on sales that are returned.  DVD sales are dominated by mass merchants like Wal-Mart, Best Buy, and Target. However, only a few companies have a direct relationship with Wal-Mart, therefore the other distributors have to go through an intermediary such as Anderson Merchandisers.

One should also keep in mind that while home video sales have been declining VOD sales have grown. Some home video companies manufacture a limited number of DVD’s, or none at all, and focus on distributing the film digitally through NetFlix, Amazon, and other outlets. Without the cost of manufacturing, these deals can be quite profitable. However, one has to be careful in licensing rights to avoid conflicts and maximize revenues. The filmmaker may only want to grant VOD rights on a non-exclusive basis. Moreover, filmmakers can often negotiate with a home video company to retain the right to sell their film directly to the public from their own website.

Let me offer one final piece of advice. Filmmakers should never sign a short form deal memo to be followed by a long form contract. Once you sign a short form, you may have a binding contract with the distributor. When the long form arrives, if you do not like some of the provisions, you may have a big problem. If the distributor refuses to make the changes you want, you have an agreement but not on the terms you want.  Your options are not good. You cannot easily disavow the deal memo, yet you may not want to proceed without certain terms in the long form. A short form deal memo is short because many terms are left out. By agreeing to the short form, you are agreeing to a deal without knowing all its terms. Therefore, you should insist on going directly to a long form. If you are unable to work out all the terms to your satisfaction, you can walk away with all your rights unencumbered. Many distributors try to get filmmakers to commit to a short form deal memo because it is easier to negotiate. Nonetheless, if and when the long form arrives, the filmmaker cannot just walk away. The short form often does not include such provisions as a detailed audit and accounting clause. If there is a dispute between the filmmaker and a distributor, a judge will not insert terms that he/she thinks are fair. The contract is only those terms agreed upon by the parties.

About Mark Litwak: Mark Litwak is a veteran entertainment attorney and Producer’s Rep based in Beverly Hills, California. He is the author of six books including: Reel Power: The Struggle for Influence and Success in the New Hollywood, Dealmaking in the Film and Television Industry, Contracts for the Film and Television Industry, and Risky Business: Financing and Distributing Independent Film. He is the author of the CD-ROM program Movie Magic Contracts, and the creator of the Entertainment Law Resources website at www.marklitwak.com. He can be reached at law2@marklitwak.com

Mark will be speaking about distributing independent film at the SPADA (Screen Production and Development Association) annual conference November 22, 2012 in Wellington, New Zealand.

Mark to speak at SPADA Conference New Zealand

Mark will be speaking about distributing independent film at the SPADA (Screen Production and Development Association) annual  2 day conference beginning on November 22, 2012 in Wellington, New Zealand.

Mark will also be teaching a master class for a select group of producers before the formal conference begins.

SPADA members include producers, directors, production companies and allied craft professionals working in film, television, TVC, video, post-production, animation and interactive media; lawyers and accountants, completion guarantors, and industry suppliers.

SPADA  is supported by the New Zealand Film Commission, SONY, KODAK and others.

Screen Production and Development Association is located at 119 Taranaki Street, PO BOX 9567, Wellington, New Zealand.

SPADA Conference

DOMESTIC DISTRIBUTION PART II

 The goal for many filmmakers is nothing less than to see their film shown in a theater.   Theatrical distributors typically advance all marketing and distribution costs and, for highly desirable films, may provide the producer with an advance payment or minimum guarantee ("MG"). These payments are recoupable but not refundable. That means the distributor can reimburse itself its advances from revenues before paying the filmmaker his share of revenue, but if the film bombs and there is not enough revenue for the distributor to recoup its advance and expenses, the filmmaker does not have to refund payments received. If the advance is sufficient to repay one's investors, then the filmmaker has effectively transferred all financial risk to the distributor. This is a desirable but increasingly rare occurrence. Nowadays, many distributors will only offer a small advance or no advance when seeking to acquire a title for distribution. The distributor will argue that it is advancing marketing and distribution costs and that is enough, thank you.   

If a domestic distributor is willing to take the plunge and release a film theatrically, it will almost always insist on securing ancillary rights for home video and television media. A theatrical release, even for a hit film, often generates less revenue than its costs because of the substantial expense for prints and advertising (P & A): a 35 mm print costs $1200 to $1500. Thus, a major studio releasing a film on 4,000 screens will spend $6 million dollars. Shipping heavy film canisters has cost major studios up to $450 million a year. On top of that, the price of a single full page advertisement in the New York Times can add another hundred thousand dollars.  

However, print outlays are plummeting as theaters convert to digital projection. 77% of screens in the USA now have systems that can exhibit a digital copy, which costs about $150. The savings are so enormous that the studios have been subsidizing the conversion to digital projectors by paying exhibitors "virtual print fees."  While many theaters have taken advantage of this subsidy, the studios have announced that they will soon phase out this support. Smaller theaters face a terrible dilemma. If 35 mm prints are no longer available, and they cannot afford a digital system, which can cost $150,000, they will go out of business. In a few years, it may be difficult to view a movie on celluloid. Eastman Kodak has filed for bankruptcy, and hundreds of art house cinemas are predicted to go out of business. This can only make it more difficult for independent filmmakers to secure a theatrical release. Screen Digest predicts that almost all screens will be digital by 2015.

Aside from wide releases, even a limited release to a hundred theaters can cost a million dollars or more. If a film is released digitally, the print costs are dramatically reduced, but the advertising outlays remain the same. Consequently, a distributor that bears the financial risk of a theatrical release will insist on securing the rights to home video and television media to offset any theatrical losses. These so-called ancillary media are usually more profitable than the theatrical release. A film that becomes known to the public as a result of its theatrical run does not require much more publicity for its home video release. And, television exhibition is the most profitable of all.

When a distributor licenses a film to a cable channel it does not incur any advertising expenses because the channel promotes its own programming. The seller simply negotiates the deal and delivers a copy of the film, which is often returned after the cable television window expires.  

The sequence of release windows is also changing. Traditionally, films were first exhibited in theaters, followed months later by home video (DVD's), followed by a release to television beginning with Pay TV, VOD, and eventually free television. The order of these windows was intended to maximize revenue. However, a release that generates maximum revenue for a distributor does not necessarily do the same for the exhibitor. Distributors want to capitalize on public awareness arising from the theatrical release by quickly issuing the film into the home video market. A short delay also inhibits piracy because illegal sales are more likely as long as there is no legitimate way to buy a DVD.

Some distributors have gone so far as to experiment with a simultaneous release in theaters and in home video. However, theater owners strongly object to such releases or any shortening of the gap between windows, arguing that moviegoers are less likely to buy box office tickets if they know the film will soon be available on DVD. The gap from the end of the theatrical release to the start of the home video release has been falling and now is in the range of 90 to 120 days.

In 2011, Universal Pictures attempted to release its movie "Tower Heist" on Comcast's Video-on-Demand three weeks after its theatrical debut. The Regal and AMC theater chains objected and the third largest theater chain, Cinemark, refused to book the picture at all if it was available on VOD so soon after its debut. This caused Universal to back down and cancel the VOD release. 

As mentioned earlier, exhibitors and distributors have competing interests. The exhibitor and distributor enter into a lengthy and complex agreement, which sets out how they share revenue. The agreement may require the exhibitor to give certain advances or guarantees to the distributor to secure a film. Additionally, the exhibitor may agree to play the film for a minimum number of weeks. In the past, a distributor releas­ing a major motion picture would split revenues on a sliding scale, with a 90/10 ratio for the first few weeks after the theater owner deducted its overhead costs. The distributor received 90% of the revenue and the exhibitor 10%. In subsequent weeks, the split would become more favorable for the exhibitor, shifting to 70/30, 60/40, or 50/50.

This sliding scale formula gave exhibitors an incentive to retain the picture for a long run. As the weeks pass, the exhibitor's share increases. Of course, for major studio films, revenues tend to drop sharply after the initial few weeks. Giving the exhibitor a larger share of revenue in later weeks makes sense because the distributor wants to encourage the theatre owner to exhibit the film as long as possible.

However, major studios have now adopted a new formula for sharing revenue with exhibitors. The revenues are split according to the magnitude of the overall national box office. The distributor receives 48% to 63% of box office receipts, with more receipts earning the distributor a larger percentage.  On average, a major studio receives 53% of the box office gross. For art house fare, distributors average around 45%. The exhibitor no longer has the same incentive to hold a picture, and pictures tend to be released wider and pay off faster. For major studio films, 80% of the box office revenue is often received in the first two weeks of a picture's release.  

One aspect of exhibition has not changed. The exhibitor retains 100% of all sales at the concession stand. This is a major profit center for theaters; it can be said that theater owners are really in the fast food business. The candy and popcorn they sell have huge profit margins. However, nobody goes to the theater for the food. So, theater owners have an incentive to fill the house with a lot of moviegoers, even if they only earn a relative minor portion of the ticket price. This is why they prefer major studio films designed for mass consumption rather than art house fare that appeals to a niche audience.  

Another ongoing struggle is whether movies should be released on DVD before being offered for digital download. The major studios find digital downloads quite profitable because they avoid all manufacturing and shipping costs. 20th Century Fox released Ridley Scott's sci-fi thriller "Prometheus" for HD download on Sept. 18, 2012, three weeks before its release on DVD. The film was made available through Amazon, iTunes, Vudu, Xbox, and CinemaNow. Sony and the Weinstein Company have also experimented with early digital releases.

The economics of independent films have become increasingly tricky. Due to a flood of independent films, licensing fees have declined, and many specialty distributors have disappeared. Filmmakers can no longer expect to auction their film off to the highest bidder at Sundance or Toronto. This occasionally occurs for a breakout film, but it is hardly the norm, even for films shown at top festivals. Hence, instead of an all-rights deal with one domestic distributor, many filmmakers end up opting for "split rights" deals. Rather than one deal with a domestic distributor that controls all media in North America, the filmmaker enters into a series of deals with different distributors, each of which is granted limited rights. This can benefit the filmmaker, because with several distributors, there is no cross-collateralization of expenses against revenue. So, if the home video release loses money, those losses would not be recouped by the home video distributor from TV sales controlled by a different company.

Although a theatrical release is risky, it is important for building awareness and prestige that filmmakers sometimes book their films directly into theaters. A rent-a-distributor or "service" deal is an arrangement in which the producer bears the marketing costs of releasing a film theatrically. Traditionally, distributors cover these costs, whether the title is one they produced or acquired from an independent producer. With a service deal, the producer is essentially renting the distribution apparatus and bearing all distribution costs. The distributor is willing to receive a reduced distribution fee -- perhaps half of the traditional 35% -- in return for not advancing any expenses. The producer assumes all financial risk. One of my clients recently self-released a documentary on 80 screens at a cost of $600,000. While it did not earn back its distribution costs from the theatrical release alone, the film became a best-selling documentary on Amazon and received substantial license fees from Netflix and other outlets.

For a distributor, such a deal makes sense if there is an open slot in its release schedule. Many distribution and marketing staff are full time permanent employees, and if the distributor does not have a title to release one month, the staff must nevertheless be paid. Why would a producer bear the financial risk of releasing a film theatrically? Often, it is because there is no other alternative as no distributor is willing to bear the costs to release the film in the traditional manner. It bears noting that relatively few independent films nowadays secure a theatrical release. Indeed, many indies are unable to secure distribution in any media.

Another reason a filmmaker may desire a theatrical release is because it will generate more attention than if the picture is released directly to home video and television. Many publications will not review a film unless it opens theatrically in their region. Therefore, a theatrical release, even if unprofitable by itself, can boost television and home video revenues. There have been some spectacular self-release successes including Mel Gibson's "The Passion of the Christ." This picture cost $30 million to produce, $15 million to market, and generated more than $600 million. In its first weekend, the film reportedly earned $83 million in the United States.

Another method used to get films into theaters is known as a "four wall" release. This is an arrangement between the producer and theater owner that bypasses the distributor. Here, the filmmaker rents the theater from the exhibitor and takes the financial risk that is normally borne by the distributor and exhibitor. The filmmaker, in turn, retains all the box office receipts. If a lot of tickets are sold, the filmmaker can do well. However, if ticket sales are meager, the filmmaker can suffer disastrous losses, since the filmmaker is paying for the theater, as well as bearing all print and advertising costs.

Self-distribution not only requires money, but enormous time and effort. Most successful campaigns require the filmmaker to be available for media interviews, develop a rich website, conduct research to find and reach out to their audience, and accompany the film to openings. Some filmmakers earn additional income through speaking fees, websites, and DVD screenings.

The theatrical release, while often difficult to secure and expensive, can significantly help a filmmaker advance their career. The exposure gained from one film can induce investors or a studio to finance their next project.

Emmy Win

CHILDRENS HOSPITAL

Congratulations to our client Jon Stern and his Abominable Pictures for their Emmy Award for Outstanding Special Class Live Action Entertainment.  The show is exhibited on Adult Swim which is part of the Cartoon Network in association with Warner Bros. Television. The shows stars Rob Corddry, Erinn Hayes, Ken Marino, Megan Mullally, Malin Akerman, Lake Bell, Rob Huebel  and others.

UPDATE ON SOLICITING INVESTORS

The Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted on April 5, 2012. It   allows small businesses to enter into equity-based crowdfunding for raising up to one million dollars, without the usual burdensome requirements currently in place. These rules should be in place by early 2013. 

As important as the crowdfunding provisions, the JOBS Act also amended Rule 506 of Regulation D, thus permitting general solicitation or general advertising, provided that all purchasers are accredited investors. Currently, it is unlawful for a filmmaker to send out email blasts to strangers, or advertise on the internet to attract investors. To comply with the existing law you should only approach persons you have a pre-existing relationship with. This rule will change with the implementation of the JOBS Act.

People may be accredited investors based on their net worth or annual income, as follows:

1) a natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1 million, excluding the value of the person’s primary residence (the “net worth test”); or

2) a natural person who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person’s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year (the “income test”).

The shorthand description of accredited investors is simply "wealthy people." General solicitation could be described as advertising or any method for approaching people you do not currently know.

The Securities and Exchange Commission (SEC) was given 90 days to implement this rule change and missed the deadline. However, the SEC has proposed draft rules that, if adopted, will make it easier to raise capital. Essentially, the proposed rules state that if you want to advertise or approach strangers for capital you will have to: 1) take reasonable steps to verify that all of the purchasers are accredited investors; 2) reasonably believe that all of the purchasers are accredited investors; and 3) check a box on the Form D confirming that you are acting under the rules which allow general solicitation.

The SEC did not specify exactly what steps must be taken to verify that a person is an accredited investor, but states that it depends on the circumstances. Most filmmakers do not have access to detailed financial records of  potential investors, and a potential investor may not want to disclose their tax returns or other documents to prove that they are accredited. The SEC gives as an example:  "An issuer that solicits new investors through a website accessible to the general public or through a widely disseminated email or social media solicitation would likely be obligated to take greater measures to verify accredited investor status than an issuer that solicits new investors from a database of pre-screened accredited investors created and maintained by a reasonably reliable third party, such as a registered broker-dealer."

In other words, if you are indiscriminately sending out solicitations through social media, merely requiring a potential investor to check a box that they are accredited, that is not  likely to be deemed sufficient. Since the standard is vague, and no specific steps to determine an investor's status are suggested, it would be wise to verify an investor’s status by having them complete a detailed questionnaire that will provide information that can be used to justify a belief that they have the assets or income they claim.  If, for instance, a person claiming to be accredited, does not  have any investment or bank accounts and resides in low-income housing, then either they are not as wealthy as they allege, or perhaps they are a drug dealer whose savings are stashed in a mattress.

Filmmakers relying on the new Reg D rules should maintain careful records documenting what they have done to verify that each investor is accredited. And remember, these rules have not yet been adopted. The proposed rules can be read at: Link

You can submit your comments on the proposed rules at: Link

Contracts for the Film and Television Industry: 3rd Edition

The long awaited third edition of my Contracts book, now including 80 contracts, has just been published.  For more information, click here

California Lawyers for the Arts Self Defense Seminar:

Date: October 20, 2012

Location: West Los Angeles College, 9000 Overland Ave., Culver City, CA 90230 (Free parking is available in the campus parking structure.)

This seminar explains how writers and filmmakers can prevent problems from arising by properly securing underlying rights, and by encouraging the other party to live up to agreements by adding performance milestones, default penalties and arbitration clauses.

Seminar Info

DOMESTIC DISTRIBUTION PART I

In my last article I discussed foreign sales agents and their role in the distribution of independent films. Now let's turn to domestic deals. "Domestic" is usually defined as North America, which is comprised of the USA and Canada, as well as their possessions, territories, commonwealths, protectorates and trusteeships. For the United States, these include the U.S. Virgin Islands, Saipan American Samoa, Guam, Wake Island and Puerto Rico. However, many domestic deals also encompass the Bahamas, Bermuda, Saba Island, St. Eustatius Island, St. Kitts Island and St. Maarten Island. These are not affiliated with either the USA or Canada. Bermuda, a British colony in the middle of the Atlantic Ocean, has never been part of Canada or the USA. St. Kitts Island's sovereignty is shared by France and the Netherlands.Why are these entities considered part of the Domestic territory? Simply because certain television channels have satellite footprints that cover these areas, and they demand these rights be included in any deal.

Consequently, producers need to be careful in defining the scope of territories granted to distributors. It is customary for independent producers to enter into separate foreign and domestic deals. If, for example, the filmmaker assigns Bermuda to an international distributor, that could prevent their domestic distributor from making a lucrative deal with HBO. Indeed, it may deter a domestic distributor from acquiring the title. Thus, to maximize revenues a producer has to make sure they don't sacrifice a beneficial deal because they thoughtlessly assigned away rights to a small territory.

The term "distributor" is so broad that it encompasses many different types of companies. The major studios such as Paramount and Sony typically distribute pictures directly to theaters, license them to television channels like Showtime, and manufacture their own packaged media (i.e. DVDs) for sale to mass merchants and video rental outlets. Many majors studios may also distribute their pictures in selected foreign territories and contract with local distributors elsewhere.

Smaller independent distributors exploit movies in a variety of different ways. Some book films into theaters and then assign television and home video rights to third parties for licensing in those media. Others are basically home video labels that manufacture and market DVD's. Some of these companies license directly to television while others use intermediaries. However, sometimes home video labels decide to release some of their films in theaters to build awareness for the picture. They may pay a third party to book the title into theaters. A filmmaker seeing such theatrical releases may perceive the company as a theatrical company when they are not. So it can be difficult to tell what kind of distributor they are dealing with.

A theatrical release, even if perfunctory, may help the distributor persuade filmmakers to make a deal even if it is unprofitable by itself. If a smaller distributor attempts to theatrically release an indie film, they face stiff competition from the majors. Because the major distributors have a steady flow of desirable movies, they have the clout to demand the best theaters and dates, often relegating independents to whatever dates and venues are left.

Complicating matters further, some home video companies deal directly with mass merchants like Wal-Mart, while the others have to go through intermediaries like Anderson Merchandisers, that ship and pack product from numerous companies for delivery to mass merchants.

All this is to say that distributors operate differently and filmmakers need to do their homework before making commitments so they understand exactly how each distributor proposes to release their film and how the revenue stream will be divvied up. If multiple companies in the chain of distribution deduct significant fees and expenses, the revenue stream that goes to the filmmaker/investors can become a trickle. So when a distributor says they distribute to theatrical, home video and television media, you should ask: "O.K. Exactly how you do that? What intermediary companies do you use, and what kind of fees and expenses do they deduct?"

One type of home video deal is known as a sub-label deal. Here two companies split the responsibilities for acquiring, marketing and distributing titles. Typically one company, such as Lionsgate, handles the physical distribution of titles and collection of revenue from its buyers. The other company, the sub-label, is responsible for acquiring titles and creating the key art and marketing materials. The two share revenue.

There is nothing inherently wrong with a sub-label deal, provided the filmmaker understands how distribution fees are collected and expenses are recouped, and the amounts are reasonable. However, I have seen many of these deals where the filmmaker thinks they are sharing in the wholesale price remitted by buyers like Blockbuster or Wal-Mart. The filmmaker is unaware that he/she is really receiving just a share of what is remitted to the sub-label from the parent company.

In these deals, "Gross Receipts" has been defined and calculated on the revenue received by the sub-label after the parent company has deducted its fees and expenses. The cumulative effect may be that little or no revenue flows down to the filmmaker. The filmmaker thinks he/she is receiving 25% of the wholesale price of each DVD sold but actually is receiving 25% of the funds remitted from the parent company to the sub-label. A well-drawn contract will carefully define "Gross Receipts" as the wholesale price which is the amount remitted from the home video buyers, and not the amount remitted to the sub-label. Filmmakers need to ask specific questions when selecting a distributor in order to avoid unpleasant surprises.

Almost all distributors nowadays try to acquire so-called ancillary and new media rights so they can license movies to such companies as iTunes, Netflix, Hulu and Amazon. Many of these new media buyers don't like to acquire individual titles and prefer to deal with aggregators who can license them bunches of films at a time.

  

Book Recommendation:

 The Reel Truth: Everything you didn't know you need to know about making an independent film. By Reed Martin 

 Filmmakers are creative artists, and the less time they have to spend on the logistics of getting their film to the market, the happier many of them are. But the logistics of the business cannot be ignored, and a recent book by Reed Martin offers filmmakers of all persuasions an impeccable, thorough, intelligent guide to navigating one's way through the film industry. The book is "The Reel Truth: Everything you didn't know you need to know about making an independent film. "  

This is a book that will save filmmakers years of research and missteps, so they can proceed full steam ahead to create their cinematic masterpieces. This is a definitive, essential guide for all filmmakers.

to purchase Reel Truth

CONTRACTS IN THE FILM AND TELEVISION INDUSTRY, 3RD EDITION 

JUST PUBLISHED

The long awaited third edition of my Contracts book has just been published. Newly expanded and updated the book now includes 80 contracts.

An invaluable collection of sample entertainment contracts along with discussions of the terms and ideas contained therein. Armed with this book, filmmakers can save thousands of dollars in legal fees.

You can also order a separate CD-R disk with copies of all the 80 contracts in word format. This is on sale now at a reduced price of $45.00.

Order Now

Table of Contents

Introduction
Basic Elements of Contract Law
Common Provisions of Entertainment Contracts

Depiction and Copyright Releases
Depiction Release, Grant with Reversion
Depiction Release, Option/Purchase Format
Depiction Release, Documentary Short Form
Guestbook Release
Crowd Release
Talk Show Appearance Agreement
Film Clip License
Still Photo Release
Artwork Release

Literary Submission and Sale
Submission Release
Non-Disclosure Agreement
Option and Literary Purchase Agreement (Long Form)
Option and Literary Purchase Agreement (Short Form)
Quitclaim Release

Artist Employment
Conversion Agreement
Actor Offer Letter
Actor Employment Agreement (Loan-out Format to Employ SAG Actor)
Actor Employment Agreement )Low-Budget, Non-Union Day Player)
Nudity Rider to Player Agreement
Rider to Day Player Agreement
Extra Agreement
Extra Release
Series Regular Actor Contract (AFTRA)
Minor Release
Parental Consent
Stunt Performer's Agreement
Television Host Agreement
Television Performer Employment Agreement
Writer Employment Agreement (Low-Budget, Non-union)
Writer Employment Agreement (Theatrical WGA Writer)
Television Writer's Contract (WGA, Loan-out)
Director Agreement (Theatrical, Loan-Out)
Director Employment Agreement (Non-Union)
Director's Television Series Employment Agreement (to Employ a DGA Director)
Consultant Agreement
Certificate of Engagement

Collaboration
Writer Collaboration Agreement
Joint Venture Agreement
Agreement to Dissolve
Co-Production Agreement

Music
Composer Agreement (Low-Budget Feature)
TV Music Rights License
Synchronization/Performing/Master Use and Mechanical License
Synchronization License TV Series
Master Use License, Television
Soundtrack Recording Agreement (Loan-Out Format)

Financing
Finder Agreement
Promissory Note
Promissory Note with Guarantee
Guarantee

Production
Production Services Agreement
Cable TV Production Agreement
Casting Director Employment Agreement (Independent Contractor)
Crew Deal Memo (Salaried On-Call)
Producer Employment Agreement
Television Series Producer Agreement
Makeup and Special Effects Agreement
Location Agreement
Studio Rental Agreement

Distribution and Exhibition
International Sales Agency Agreement (Filmmaker Friendly)
International Sales Agency Agreement (Distributor Friendly)
Certificate of Authorship
Certificate of Origin
Short Form Assignment
Definition of Gross Receipts After Break-even
Net Profit Definition
Television Distribution Agreement
International TV Distribution Agreement
Security Agreement
Short Form Security Agreement
SAG Buyer's Assumption Agreement Theatrical
Home Video Licensing Agreement
Internet Acquisition Distribution Agreement
Website Content Provider Agreement
Video on Demand Agreement
Exhibition Agreement

Merchandising
Merchandising Agreement
Product Release
Product Placement Agreement

Retainer
Attorney-Client Retainer Agreement
SAG Agency Motion Picture/Television Agency Contract
Representative Agreement

Glossary of Terms

Appendix

DISTRIBUTION 101 – Foreign Sales Agents

With the start of the Festival De Cannes and accompanying Marche Du Film, one is reminded that film is both an art form and a business. The festival will exhibit approximately 22 feature films in competition, another 20 in Un Certain Regard, 6 Out of Competition and 10 in Special Screenings. Then there are the parallel sections or sidebars that are not officially part of the festival, but exhibit at the same time.  Director’s Fortnight, which was created by the French Director’s Guild, will exhibit 19 features. International Critics' Week (la Semaine de la Critique) run by the French Union of Film Critics, will show another 10 features. Add these up and you have 87 feature films in the festival and its sidebars. Only a relative handful of these films are from filmmakers based in the USA.  On the other hand, the market (Marche Du Film) will screen 1465 feature films, and many of these are from the USA. Few of the market films are also in the festival. Many are more commercial fare that festivals often ignore.  However, they generate substantial revenue.

With that in mind, filmmakers fortunate enough to receive distribution offers for their films are often confronted with complex deals to distribute their films. These can bewilder those unfamiliar with the customs and practices of the industry.   Let’s begin with a discussion of international film sales.

International sales agents are distributors, although they usually do not own a single theater, home video label or television outlet. They are essentially distributors that license films to territory distributors ("buyers"). Territory distributors acquire rights to exhibit a film within their country although sometimes they may license rights for several different countries. They often find out about films from sales agents whom they meet at various markets held throughout the year. Sales agents and buyers typically attend the three major film markets, which are at Cannes, Berlin and Santa Monica (AFM) as well as TV markets such as Mip and MipCom. The May 2012 edition of the Cannes Market will have more than 1100 sales agents and 10,000 participants from almost one hundred different countries.

The sales agent not only licenses the films they represent, but also services their buyers by providing them with various materials and elements, including film and video masters, key art, photos and trailers. An honest and competent sales agent can be extremely helpful to a filmmaker. Most filmmakers have no clue how to go about licensing their film, for instance, to a Turkish buyer, and what terms would be acceptable. Moreover, they don’t even know who the buyers are in most territories.

According to the latest 2011 Box Office statistics, two-thirds of all film revenue now comes from abroad. International sales (those outside of North America) grew 35% from 2007 to 2011. Revenue in North America, by comparison, increased a mere 6%. So while foreign sales have been expanding quickly, domestic sales have grown modestly. Over the past four years, the number of screens in China has doubled to more than 6,200, a number that's expected to double again by 2015. Chinese box-office receipts hit a record $1.5 billion last year, according to their State Administration of Radio, Film and Television. With China and other rapidly developing countries building thousands of new theaters, this trend is expected to continue.  Indeed, for many independent filmmakers, even today, 90% or more of their revenue is derived from foreign sales. That is because the North American market is by far the toughest market to crack for a low budget indie film without stars.

It can be difficult to select a sales agent. Reputable sales agents should be willing to accept terms in their contract with filmmakers that protect their interests. Many such provisions do not cost the sales agent anything, as long as the sales agent lives up to the terms of its contract. A requirement for interest on late payments, for example, costs the sales agent nothing as long as payments are made on time. Such a clause is important because it will encourage a sales agent to live up to its commitments, and provide the filmmaker with a viable remedy in case the sales agent defaults. While a competent sales agent provides valuable services, one should always remember the importance of what the filmmaker brings to the table. Without a good film, the sales agent has nothing to sell. Most sales agents produce few if any movies themselves.

Here is a list of some of the most critical ways for filmmakers to protect their interests in contracting with sales agents. The following list should not be considered exhaustive. There are other provisions a filmmaker may want to include such as clauses dealing with advances, guarantees and reservation of rights.

NO CHANGES: The film should not be edited, nor the title changed, without the filmmaker's approval. Editing for censorship purposes, television broadcast and changes made for a foreign language release, such as adding subtitles and translating the title and dialogue, is permissible.

MINIMUM ADVERTISING SPECIFIED: The contract should specify in writing the minimum amount the sales agent will spend on advertising and promotion of the film. These expenses are often incurred at various markets. They could include advertising in the trade papers, a billboard on the Croissette or payment for a screening room for the film. The sales agent should commit to payment for the creation of a poster, one-sheet and trailer if these items do not exist.

EXPENSES LIMITED: There should be a floor and a ceiling on expenses. Market expenses (the cost to attend film and TV markets) should be limited to the first year of release and capped per market. Promotional expenses should be limited to direct out-of-pocket costs spent to promote the film, and should specifically exclude the sales agent's general overhead and staff expenses.

TERM: The term should be a reasonable length, perhaps five or even 10 years, but not in perpetuity. The filmmaker should be able to regain rights to the film if the sales agent gives up on it. Thus, it is best to have a short initial term of two or three years and a series of automatic rollovers if the sales agent returns a certain amount of revenue to the filmmaker. If the sales agent does not meet or exceed these performance milestones, all rights should revert to the filmmaker. If the sales agent is doing a good job and paying the filmmaker his share of revenue, there is little reason to switch to another sales agent. Indeed, for movies that have been out in the marketplace for a few years, it is very difficult to find a sales agent willing to take on  an older  film.

INDEMNITY: Filmmaker should be indemnified (receive reimbursement) for any losses incurred by filmmaker as a result of the sales agent's breach of the terms of the agreement, violation of third party rights, and for any unauthorized changes or additions made to the film.

POSSESSION OF NEGATIVE: The sales agent should receive a lab access letter rather than possession of the original negative and other master elements. The sales agent should not be permitted to remove masters from the laboratory.

ERRORS AND OMISSIONS (E&O) POLICY: While it is generally the filmmaker's responsibility to purchase an E & O insurance policy, sales agents sometimes may be willing to advance the cost of this insurance and recoup it from film revenues. In such an event, the filmmaker should be added as an additional named insured on the policy, which is a minor cost.

TERMINATION CLAUSE: If the sales agent defaults on its contractual obligations, the filmmaker should have the right to terminate the contract, and regain rights to license the film in unsold territories as well as obtain money damages for the default. It is only fair for the filmmaker to give the sales agent reasonable prior notice of default before exercising her right to terminate.

RIGHT TO INSPECT BOOKS AND RECORDS: The sales agent should maintain complete and detailed books and records with regard to all sales and rental of the film. Filmmakers should receive quarterly (or monthly) producer statements accompanied by any payments due the filmmaker. Filmmakers should have the right to examine the books and records of sales agent during reasonable business hours, on 10 days’ notice.

LATE PAYMENTS/LIEN: All monies due and payable to the filmmaker should be held in trust by sales agent for the filmmaker. The filmmaker should be deemed to have a lien on filmmaker's share of revenue. The sales agent should pay the filmmaker interest on any late payments.

LIMITATION ON ACTION: The filmmaker should have at least three years from receipt of any financial statement, or discovery of any accounting irregularity, whichever is later, to contest accounting errors and file a Demand for Arbitration.

ASSIGNMENT: It is best to prohibit assignment unless filmmaker consents. If assignment is permitted, the sales agent should not be relieved of its obligations under the original contract.

FILMMAKER DEFAULT: The sales agent should give the filmmaker 14 days written notice of any alleged default by filmmaker, and an additional 10 days to cure such default, before taking any action to enforce its rights.

WARRANTIES: The filmmaker's warranties, in regard to infringement of third party rights, should be to the best of the filmmaker's knowledge and belief, not absolute.

SCHEDULE OF MINIMUMS: Foreign sales agents should agree to attach, to their contract, a schedule of minimum acceptable license fees per territory. The sales agent is not permitted to license the film in any territory for less than the minimum without the prior approval of the filmmaker.

ARBITRATION CLAUSE: Every contract should contain an IFTA arbitration clause ensuring that all contractual disputes are subject to binding arbitration with the prevailing party entitled to reimbursement of legal fees and costs. The arbitration award should be final, binding and non-appealable. The IFTA personal guarantee Rider can be used to bar a company's chief executive from attending future American Film Markets if the company refuses to pay an arbitration award.

For a more detailed discussion of distribution deal terms read my article at: Article  

Mark Litwak will next be offering his Risky Business seminar in San Francisco on June 16^, 2012 through California Lawyers for the Arts.Seminar