CREATOR TIP: Don’t Negotiate Worthless Option Agreements #indiefilm #filmlaw #filmmaking #screenwriting #producing

A few weeks ago, I wrote about the importance of Option Agreements to a producer who is trying to acquire the rights to a screenplay when raising money for your film.

An option agreement is a contract that gives the filmmaker the exclusive right to buy the screenplay copyright during a defined period of time for a specific amount of money.

Now let’s talk about a mistake that a lot of filmmakers make when negotiating an option agreement with a writer… a mistake may transform your valuable option agreement into a little more than a right to keep negotiating with the writer. The big mistake? Failing to negotiate the purchase price when you negotiate the option.

When you negotiate the option agreement you must, at the same time, also negotiate the purchase price and other key terms of the screenplay sale. A filmmaker who has negotiated the option agreement to a screenplay but not the purchase agreement holds a worthless option. It is worthless because although the filmmaker may exercise the option, the sale terms have not been agreed on and, therefore, the screenwriter is not obligated to sell the script to the filmmaker for a certain price.

In the case of a worthless option, what the filmmaker really has is not a right to buy the script but a right to negotiate for its sale. The screenwriter may demand as much money for the script as he or she wants and the only choice the filmmaker has is either to agree to pay it or not to buy the script.

“Example: Wendy Writer has written a script called King Axolotl, a monster flick about a giant fire-breathing aquatic salamander, which Petra Producer is very interested in making. Suppose Petra didn’t negotiate a purchase agreement when she negotiated the option agreement for the script. It’s now six months later, and Petra has a backer interested in funding the picture. Petra tells Wendy that she wants to buy the script for $65,000. Wendy, knowing that Petra has an interested financier whom she doesn’t want to lose, decides to hold out for a higher purchase price—$100,000. After all, Wendy figures, she is not obligated to sell the script to Petra at any certain price, so she might as well hold out for a higher price. Petra has lost her leverage over bargaining for the purchase price. Without a purchase agreement tied to an option, the option is pretty much worthless. At best, it’s a shopping agreement – the right to show the script around without the right to buy it at a certain price.”

The most common reason a filmmaker fails to negotiate the purchase terms is that it the purchase terms is the trickiest part of the option/purchase agreement. It’s often a bit overwhelming and easier to just “kick that part down the road.” How much should you offer to pay for the script? What contract clauses do you need? What rights do you need and what rights should the writer keep?

However, the reality is this: few investors outside the “bank of mom and dad” will give you money for a project when you can’t promise that you can purchase the rights to the screenplay for a predetermined price.

The good news is that these are things you can learn. I spend a whole chapter in The Pocket Lawyer for Filmmakers walking you through some of the key deal points in option/purchase agreements. Even if you don’t own my book, this is an area where partnering with an experienced production attorney can provide you with the certainty your investors need in order to finance your film.

For more on the deal points of an option/purchase agreement, see The Pocket Lawyer for Filmmakers .

Parts of this blog been excerpted from The Pocket Lawyer for Filmmakers.

© 2017 Thomas A. Crowell, Esq.

Thomas A. Crowell, Esq. (tcrowell@lanesash.com) is a partner at the law firm of Lane Sash & Larrabee, LLP. He focuses his practice on intellectual property and media law.

NOT LEGAL ADVICE

CREATOR TIP: COPYRIGHT AND CREATIVE CHOICES #indiefilm #comicbook #filmmaking #screenwriting #artists #filmlaw

When we think of the kinds of things that can be copyrighted, we often think of types of expression, like motion pictures, drawings, paintings, screenplays, comic books, music, etc. But did you know that in addition to these works, a particularly creative arrangement or selection of materials may also be copyrighted?

In fact, if the selection or arrangement is creative enough, that arrangement can be copyright even despite the fact that what is arranged or selected may be in the public domain, and thus not itself protected by copyright!

For instance, you could register the copyright in:

• A film montage made from Charlie Chaplin's early works, even though the copyright has long since expired in those films, or

• A collage made from scraps of 19th-century advertisements, even though the copyright has long since expired in those images, or

• A particularly creative selection of words. For example, in James Lipton’s work “An Exaltation of Larks” Lipton was able to copyright the particular selection and arrangement of “terms of venery” (collective nouns for a group of animals, like a “herd” of cows, or my favorite, a “murder” of crows).

It is important to note that since it is the creativity of the selection and arrangement that is important to the granting of this kind of copyright the choices and organization of the elements must be sufficiently creative. For instance, the alphabetical listing of data is not creative enough to warrant copyright protection, nor is the chronological ordering of data.

Parts of this blog been excerpted from The Pocket Lawyer for Comic Book Creators and The Pocket Lawyer for Filmmakers. See those books for more details on copyright registration for artists.

© 2017 Thomas A. Crowell, Esq.  

Thomas A. Crowell, Esq. (tcrowell@lanesash.com) is a partner at the law firm of Lane Sash & Larrabee, LLP. He focuses his practice on intellectual property and media law.

NOT LEGAL ADVICE
 

CREATOR TIP: SHOW ME THE MONEY! #indiefilm #comicbook #filmmaking #screenwriting #artists #filmlaw

Here’s the scenario: you sell your screenplay, comic book, musical composition, or other artistic work and the producer, publisher, record company, or other party offers you some form of contingency compensation in exchange.

Whether we call this contingent compensation "net profits," "residuals," "royalties," or “fantasy fun bucks,” it doesn’t matter, the concept is the same: you are being promised a certain percentage of money from the option, sale, licensing, or other commercial exploitation of your work.

There are two very important aspects to making sure you get paid that you must keep in mind when negotiating this provision in your contract:

1.       Understanding the payment formula

2.       Making them prove it

The first part, “understanding the payment formula” may require the most negotiation on your part. For instance, net profits are paid after certain expenses are deducted, so the trick is negotiating what expenses can be deducted before you are paid. There are countless variations to royalty provisions, net profit calculations, and residual computations (many can be found in my books The Pocket Lawyer for Filmmakers and The Pocket Lawyer for Comic Book Creators). As a matter fact, most people will spend the majority of their time negotiating the formula provision, while neglecting the second step: making them prove it.

Whenever you’re being promised contingent compensation, your contract should also have an audit clause. If you are receiving royalties, residuals, net profits, or any other contingent compensation, you’re going to want to be able to keep track of the other side’s financial records to make sure you’re getting paid what you are owed. This provision specifies how frequently the parties must provide each other with a detailed accounting of profits, costs, and revenue streams. It also regulates how often a party can send a certified public accountant to perform an audit of the other party’s financial records.

In a typical audit provision, the party with audit rights has the right to hire a CPA to perform an annual audit. If the audit uncovers an underpayment of more than, say, 5%, the party being audited has to pick up the cost of this audit (as well as make good on the underpayment that was discovered).

Example: Accounting and Audit. Pub Co. shall keep complete and accurate financial records relating to the exploitation of the Comic Book and shall send Artist a semiannual Royalty statement and, if applicable, Royalty payment. Artist shall have the annual right, upon 30 days advance written notice, to cause a certified public accountant, at Artist’s expense, to inspect the books and records Pub Co. keeps with respect to the accounting of the exploitation of the Comic Book. In the event that such inspection reveals an underpayment by Pub Co. of the monies owed Artist, Pub Co. shall pay the difference. If such underpayment shall be in excess of 5% of the amount owed Artist for any payment period, Pub Co. shall also reimburse Artist for the directly attributable, verifiable, out of pocket third party cost of such inspection.

Failure to include an audit clause may leave you relying only upon the accurate accounting and upstanding ethical character of the other party to the contract. And when money is involved, it’s always good to “trust, but verify.”

Parts of this post were excerpted from The Pocket Lawyer for Comic Book Creators.

© 2017 Thomas A. Crowell, Esq.  

Thomas A. Crowell, Esq. (tcrowell@lanesash.com) is a partner at the law firm of Lane Sash & Larrabee, LLP. He focuses his practice on intellectual property and media law.

NOT LEGAL ADVICE

Filmmaker's Tip: Can't Afford the Screenplay? Try an Option. #indiefilm #filmmaker #screenwriting #screenplay

A filmmaker who wants to make a movie using someone else’s script must buy the motion picture rights to that script in order to make the movie. However, a filmmaker won't want to buy a script unless she knows that she can get it made. After all, the filmmaker needs a little time to secure funding, interest actors, and hopefully, set up a distribution deal. But here's the rub -- the filmmaker can’t attach all those elements (financiers, talent, distributors) to the project unless she has the right to make the film from the screenplay.

This is where the option agreement comes in handy. An option agreement is a contract that gives the filmmaker the exclusive right to buy the screenplay copyright during a defined period of time for a specific amount of money. 

Optioning and Selling the Screenplay

● Under U.S. copyright law, all screenplay sales, assignments, and transfers must be in writing to effectively transfer the copyright.

● Both sides in the transaction need to be especially careful that everybody understands which rights are granted and which rights are reserved.

● What is being purchased is the copyright to the screenplay. A producer must make sure that all the screenplay’s authors and contributors sign off on the deal.

● When you negotiate the exclusive right to buy (the option), you should also negotiate the sale (the purchase agreement).

For details on the deal points in an Option/Purchase Agreement, See The Pocket Lawyer for Filmmakers.

© 2017 Thomas A. Crowell, Esq.  

Thomas A. Crowell, Esq. (tcrowell@lanesash.com) is a partner at the law firm of Lane Sash & Larrabee, LLP. He focuses his practice on intellectual property and media law.

NOT LEGAL ADVICE