Friday, January 9, 2015

Film Releases

Entertainment Lawyer Question and Answer Forum:

Welcome to this week's Entertainment Lawyer Q&A, published by The Film & Television Law Quarterly and the entertainment law firm of BLAKE & WANG P.A. Each week an entertainment lawyer will respond to reader questions and publish the best discussions.

Have a question for an entertainment lawyer? Post it on our website at blakewang.com and get the answers you need.

Question:

For a fiction feature film: How identifiable do people on the street (not in the cast) have to be to require signed releases?

Answer by Brandon Blake - Entertainment Lawyer:

Over the years I have gotten more questions about releases than almost any other type of contract. Often among student filmmakers or first-time independent producers the release becomes one of the only documents on set. So in responding to questions about releases first I like to discuss how to define a release, second, where the legal basis for a release comes from, and third, I will comment on when a release of some kind is usually used.

At the most basic level all contracts are the same. A contract is an agreement between two parties where both want something out of the relationship. There is the concept of “consideration”, meaning both sides are getting something of value out of the arrangement. Generally courts hold there must be consideration on both sides to enforce an agreement.

So what is the releasing party getting out of the release? Theoretically, the party signing the release is getting the privilege of being in a film or TV show as some kind of background player. But to the surprise of some producers not everyone wants to appear in a movie or television show. So that is where the legal basis for releases begins.

The legal requirement for releases comes from a number of different laws. Most basically is the right of privacy. The right of privacy may be codified, as it is in California or New York, or it may be a common law principle. California Civil Code, Section 3344 addresses the rights of privacy and publicity in commercial film and television productions in California.

The right of privacy, as it relates to film and television, states that a person has the right to not have their name, voice or likeness used commercially. In addition to the right of privacy, the torts of defamation and false light are both applicable. When someone is recorded there may be certain facts implied by the production. For example, if a person was filmed outside of a demonstration, that might imply he or she was part of the protest. Finally, the right of publicity disallows use of someone’s name or likeness as an endorsement or ad without consent.

So when is a release required? States like California and New York have made it fairly clear that for commercial film and television productions, a person cannot appear recognizably without prior consent. Other states rely on common law standards, so the laws will vary by state and use. But in general, it is by far the standard that everyone appearing recognizably in a feature film should have signed a release or otherwise clearly expressed consent to being recorded.

The definition of terms like “commercial” and “recognizable” are unfortunately subject to dispute, and even in states with well-defined Codes, the application to any particular production is difficult. But producers hoping to get their project commercially distributed, and therefore requiring E&O insurance, should error on the side of more documentation and try to get signed releases from just about anyone possible. As an entertainment law firm, our firm offers a number of packages that can help make it affordable to get the contract and legal help needed on any size of film or television production. Feel free to contact me about how we can help make sure your project has the legal documentation required by distributors and E&O insurance companies.

As with any legal matter, please do not make a decision about complex matters without consulting an experienced entertainment attorney first. I have been representing feature film projects and television series for more than 14 years. Please feel free to contact my office about a quote.

- By Brandon Blake, Entertainment Lawyer

About the Editor:

Brandon A. Blake is an entertainment lawyer and producer who works with Academy Award winning actors, directors and filmmakers. A complete biography is available online.

About the Entertainment Lawyer Q&A: The Entertainment Lawyer Q&A does not create an attorney-client relationship, nor is the information treated as confidential. Responses to selected questions will be made public and shared with our subscribers. All entertainment law information is informational in nature and is not intended to be acted on without entertainment lawyer counsel.

Film and Television Development

Entertainment Lawyer Question and Answer Forum:

Question:

In the Oct. 24th, 2012 Q&A email, the answer states that: "Entertainment companies of all kinds require film producers and television producers to submit new projects through an agent or entertainment lawyer" On Dec.19th, 2012, Mr. Blake responded to a question I submitted about pitching a screenplay idea with the answer: "The minimum would be that it was written as a script. There are not going to be any producers out there that will get involved before a screenwriter has prepared the script".

My question: Is the answer on Oct. 24th regarding a "project" referring to a project with a completed screenplay, or a proposed project that is starting with simply an idea or treatment?

Answer by Brandon Blake, Entertainment Attorney:

Thank you for the very thorough question. I think it is a great question because it does get to the heart of many issues that I am asked about how to protect projects and ideas, and how to submit film and television projects. Having worked with most of the major studios and television networks, I have gained a good perspective on what development executives are looking for and how to get a project noticed. While the question here involves a feature film project, the answer is going to be equally applicable to network television as well.

When it comes to feature film development, the key is to have the project as well developed as possible. That means that it is better to have a script than a treatment. It is better to have a polished script than a rough draft script. It is even better to have prepared pitch materials like posters and websites, than to have just a script, etc. Finally, the best position to be in with a studio is to also have a-list performers attached to the project, because that will tend to get the attention of development executives. If studios know that performers, and their agents and managers like the project, then it means the executives are taking less of a chance on choosing the material over the tens-of-thousands of other scripts submitted every year.

But what about the situation where there is a great concept but it has not been written in script format, much less packaged? I have had clients in this position before and it generally revolves around true-life stories and events. There are times when a concept is so good that it can speak for itself. In such a situation the producer needs to make sure that all of the underlying rights to the project are secured before pitching it. Additionally, these are often the situations where well-known actors and actresses get involved, because the performers can see how the concept can be developed around them as the lead.

However, no matter how good the concept, there are some reasons why a producer might want to further develop the project before approaching a studio. The primary reason is copyright law. The copyright law is set up to protect “tangible forms of expression,” and right or wrong, the courts have interpreted that as meaning that mere ideas are not copyrightable. Where an idea ends and a treatment begins is a source of controversy, but no producer wants to be in court arguing why the idea pitched was more than an idea.

This copyright issue is also why most studios will not accept the submission of ideas in the first place. From their perspective, another “teen romance” or “space cowboy” idea is not going to be so unique as to differentiate it from thousands of other produced films or projects in development, but could get the studio in a lot of legal trouble if someone later claims their concept was stolen.

For network television the same rule applies, the more developed the better. But rather than a feature length script, networks are typically looking for well-developed pitch materials as well as recognizable performers or celebrity attachments. While not everyone can afford to produce a pilot, having a broadcast quality sizzle reel can also be a great addition to the pitch materials.

During 15 years of representing film and television projects I have learned a few things about the types of materials that studios and networks are looking for from producers. The key is top quality material, whether it is a treatment, screenplay, series pitch, pilot or trailer. Never ask the development executives to imagine how good the project will be with their help. Demonstrate the ability to finish the job, which will go a long way to getting the financing and assistance needed.

Non-Profit Production Companies

Entertainment Lawyer Question and Answer Forum:

Question:

I would like to get angel investors for my television pilot. Can I set up a non-profit for donations? What kind of a return can I promise if the show makes money?

Answer by Brandon Blake, Entertainment Attorney:

Non-profit financing has become increasingly popular for television, documentary and feature film development. Often it is the concept or script that hooks investor interest, rather than a promise of big financial returns. So it makes sense that the tax deductibility of financing is interesting to many potential angel “investors.”

The good news is that with a properly organized tax-exempt organization it is possible to collect tax-exempt donations for a project that is otherwise a “for-profit” venture, provided that the content of the project, whether that is a film, television or music project, fits within the mission statement of the tax-exempt organization and that the finances and control of the non-profit and for-profit entities are kept separate.

However, it is not possible to mix tax-deductibility and a future interest in profits in the same transaction. Tax deductibility and profit are like oil and water, they just do not mix. I have reviewed a number of structures by clients hoping to be able to convert a donation into an investment at a later date, thereby getting the best of both worlds. The problem with this concept is that if the “donation” were re-characterized at a later point, then the deductibility of that donation would retroactively be taken away, creating a true mess for the investor’s accountant. Moreover, in the IRS’ zeal to eliminate tax shelters, any arrangement with a contractual right to profits later would most likely be characterized up front as an investment, not a donation.

Yet our firm has successfully set up many 501(c)(3) tax-exempt organizations that participate in the financing of documentaries, television, and feature film projects. And those projects have gone on to be commercially distributed. The key to the proper use of the non-profit in entertainment finance is to understand that donations can be used to finance any project but that profits cannot flow to the donors.

A proper structure can take several different shapes, including the use of a conduit organization to receive the donations or the creation of a viable non-profit that might assist in the development of feature film, documentary or television projects.

Other options exist as well, including the use of crowd funding websites. However, it is important to note that crowd funding websites neither provide for tax deductibility, nor do they allow for any return on profits to the investor/donors. In many ways crowd funding is currently the worst of both worlds in terms of tax treatment. The donors are required to record the funds provided as non-deductible gifts, which then reduces the donor’s lifetime limit on other such gifts to family, and at the same are blocked by the SEC from participating in any future profits from the venture.

However, there are a number of creative ways to try to create benefit for donors while still utilizing the benefits of crowd funding. One such technique is to use crowd funding in conjunction with forming a non-profit organization.

I have been working with non-profit organizations ranging in size from public universities to galleries, theater groups and documentary production companies for more than 15 years with the law firm of BLAKE & WANG P.A. We can assist clients in organizing solid, broad based tax-exempt 501(c)(3) organizations that gain the broadest tax-deductibility for the donors. Properly organized, a tax-exempt organization is an ideal way to unlock capital for projects that have an appeal based on the message and cause promoted, rather than the potential box office returns.

As with any legal matter, please do not make a decision about complex matters without consulting an experienced entertainment attorney first.

- By Brandon Blake, Entertainment Lawyer

Entertainment Loan-Out Company

Entertainment Lawyer Question and Answer Forum:

Question:

As a feature film editor my wife has the option of working as a loan-out company. There are several confusing aspects in making a decision. Such as, can she collect unemployment when not working? Are pension benefits accrued under her name or does she give them up? Are there other welfare benefits she would give up by working as a loan out company?

Answer by Brandon Blake, Entertainment Attorney:

Loan-out companies are a great way to reduce tax exposure and to avoid the pitfalls of the alternative minimum tax and self-employment taxes. Generally the only reason that people working in the entertainment field do not form loan-out companies is when the hiring company does not allow them. Before electing to work as a loan-out, you will need to have an entertainment law firm like ours organize the loan-out company.

In this question the studio has already provided the option of working as a loan-out. Although particular facts vary from case to case, and there is not going to be a way to provide one answer to every different situation, I would say that in almost every case I have reviewed it has been substantially to the benefit of the client to choose loan-out status rather than employment status.

The primary reason comes down to taxation, and more specifically the issue of business expenses. When you are an employee you do not have the option of taking business expenses out of your calculation of income. The amount reported on your W-2 is your income and the only way to reduce your tax bill is through deductions. There are various deductions for business expenses, such as the home office deduction, and others. But the problem is that these deductions are only partial, allowing you to take a portion of the expenditure off of your tax bill, but not allowing you to reduce the size of the income figure itself. Moreover, higher income individuals will reach the alternative minimum tax, in which case most of the business deductions are then eliminated, meaning that money spent on things like vehicles, business supplies, inventories, and office space is being paid for with after tax money. Essentially you are being taxed on your revenue, not on your profit.

The loan-out company allows the individual to run in the same way that a company runs, which means the costs of doing business are taken out and the company only pays tax on the profits. This makes sense because no one expects a major corporation to be paying income tax on money it is paying out for office space or for the raw materials it uses in the course of business. So why should an individual be forced to pay tax on the materials that he/or she must purchase in the course of business?

When I counsel clients who have always worked as employees on the differences between loan-out and employment status, it often takes a while for the client to get his or her head around just what a big difference it will make to the tax bill. Then once the client gets it, there is often regret at not having switched years earlier.

I have spent a lot of time talking about the upside, but there are a few downsides too. One of those is unemployment insurance. In order to maintain unemployment insurance, you will need to pay yourself a fair salary. That means a portion of the money that flows into your loan-out will need to be paid to yourself, with the traditional withholdings and deductions.

Regarding the other questions, pension benefits will depend entirely on your guild rules so check with the Pension Health and Welfare people. Regarding other types of welfare benefits, generally those are tied to showing previous employment, which would still be possible with a loan-out.

The reason to have a loan-out set up by an entertainment law firm like ours is that we can make sure you can take advantage of every possible tax benefit, and also ensure that your entertainment business is in compliance with federal and state tax law, saving you tax penalties and accounting fees in the long run. Feel free to contact us for a quote.

Thursday, January 8, 2015

Copyright Infringement

Entertainment Lawyer Question and Answer Forum:

Question:

I am wondering if you can comment on this: Let's say I had some "great idea" for a story (film, TV, whatever) and I worked on it for months, perhaps a year even. I developed it and got it to a point I liked. Then, after all that, I learn about a project that was done more than 30 years ago that has a lot of the same elements. It's not exact, but the basis is extremely similar.

Now, to be clear, I had no idea this other project existed at all – and it's only by happenstance that I stumbled across it. So, LEGALLY - what do I need to do to protect the fact that I really did have the idea on my own?

Answer by Brandon Blake, Entertainment Attorney:

At one time I would sit and answer legal questions for hours in the evenings as legal advisor to IFP/West. Eventually my practice got too busy to keep helping in this way, but this question about independent development of an existing project came up fairly often.

I am going to run through several different ways to look at the question based on different areas of the law that apply. Some of these might seem obvious, but I do this because you did not provide the name of the property. Years ago I spent about a half hour explaining these same points to an eager young filmmaker who took a lot of notes. At the end of his half hour I finally asked him what property he was talking about, since he did not offer it earlier. His answer: Superman!

The first area of the law that you should consider is trademark. While copyright is an important and relevant question, many filmmakers do not know that trademarks apply to many different well-known characters. So many famous characters, whether they are from comic books, cartoons, or even live-action films can and are trademarked. Trademark law does not deal at all with authorship or ideas versus tangible expression. The sole question is whether a trademark or servicemark is a source identifier and whether the infringing work would create consumer confusion. So a man in tights with an “S” on his chest is going to be a problem, no matter what.

The second area of the law that is relevant would be the right of privacy and the right of publicity. If this work unintentionally copies or repeats elements of a real life story there may be a problem, even if there is no copyright infringement. That is the reason why clients will perform a script clearance on a project after the script has been finished. If a film that is absolutely fictional accidentally uses names or characters that are the same or similar to real life people and their stories, there can still be liability, even if the work was truly fictional. Now during trial it might be proved that you never had any relationship or knowledge of the real people involved, but by the time you have reached trial you or the distributor may have already spent hundreds-of-thousands of dollars defending what could be a frivolous suit. So filmmakers and distributors do what they can to avoid any unintentional copying of real life stories, too.

Finally, copyright will of course also be an important consideration. Again, during a copyright infringement trial, access to the infringed work is one of the elements of the test for copyright infringement. However, the access test would typically be applied after the film was released to the general public and a lawsuit had been brought. By that point, by your own admission, you would have had access to the work. Moreover, because proving or disproving real access is difficult (Can you show you just came out of a cryogenic freezer? And if so, for how long were you in?) courts generally look at whether the defendant could have theoretically accessed the work. For an unpublished work with a claim of infringement, that means showing that this unpublished work had somehow been submitted to or otherwise obtained by the producer. I once had a would-be client suggest that a producer mounted hidden cameras throughout his house. Needless to say, I did not take the case.

But when it comes to a published work, such as a feature film that has been distributed, a court would generally assume that access was possible and would not stay up late at night considering whether you had bought a ticket for this film or perhaps a different one on the weekend in question.

So the practical answer is that a work that was independently developed but ends up being similar to an existing, published work is probably going to be a candidate for litigation, and the technicalities of the Copyright Act will not protect the producer. That might seem unfair, and I happen to personally agree that copyright law is overbearing and shrinking or killing parts of the American film and entertainment industry, but producers need to know the law first. Then maybe you can join with others to help make changes.

Promoting Films at Film Markets

Entertainment Lawyer Question and Answer Forum:

Question:

Dear Sir, I have a completed feature film and I would like to know what I need before I attend a film market?

Answer by Brandon Blake, Entertainment Attorney:

Having worked with feature filmmakers for more than 13 years, I know that perhaps the busiest time is during post-production as a producer begins to think about the successful distribution of the project.

Typically the producer and director will be focused on getting the picture editing just right while the audio is second, the legal contracts are somewhere in the back of the producer’s mind, and the promotional materials end up only lightly considered. So I want to bring up a range of things that filmmakers should consider as they are completing the film, which touch on both legal issues and also film sales issues.

Most producers have a general idea about the need for contracts, copyrights and trademarks. I will not cover this ground too much in this article, although anyone interested in additional articles about film contracts as well as the film distribution agreement can visit my firm’s website at www.blakewang.com.

Entertainment legal should be handled during the production, since it is much easier to get actors and writers to sign off on agreements before they start work. At some point everyone that participates in the production will need to sign a contract, if the project is going to get a commercial release. That is because distributors require E&O insurance (errors and omissions insurance), and before the insurance company will agree to cover a film the insurer will require that all production legal has been completed.

When it comes to film sales, I routinely attend film markets around the world, including the Cannes Film Festival, AFM, Sundance, Hong Kong FilmArt and this October I will also attend the Busan International Film Festival (formerly Pusan), the largest film market in Asia. When I represent finished feature films, I am often surprised how many experienced producers spend a tremendous amount of time editing the images, without as much attention to either audio or marketing and promotions. The good news is that every film can get attention from buyers if the following materials are put together before the markets.

In my experience, more films get passes because of deficient audio than almost any other technical problem. Sound editing, sound design and audio mastering are all critical to successfully distributing a film. Moreover, often the sound elements are what cause needless additional distribution expenses if it is left to the distributor to fix.

The promotional materials are also key. Trailers are important, although many distributors will want to create their own, but the website, stills and yes, the poster are all crucial. The fact is that without an excellent website and poster, distributors will pass on the project without even reviewing it. The initial sell of a feature film comes from the poster and one-sheet, with the website and trailer being the tools to get the buyer interested enough to invest 90 minutes in the film. With the right promotional materials and of course the proper legal paperwork and documentation for the chain-of-title, every film can get noticed by buyers.

Crowdfunding Film and Television Projects

Entertainment Lawyer Question and Answer Forum:

Question:

I want to use crowdfunding to get investors for my feature film project. Can I get investors through my own website or do I have to use another site like Kickstarter?

Answer by Brandon Blake, Entertainment Attorney:

Great news for everyone looking to begin promoting his or her feature film, television, and music projects to investors this year. As you may remember, back in November of 2012 I provided an update on the progress of the Jumpstart Our Business Startups (JOBS) Act, which was passed in April of 2012. Well the SEC has been working extremely slowly in enacting the JOBS Act, but things are finally starting to move forward.

The SEC just voted 4 to 1 in favor of implementing section 201(a) of the JOBS Act, known as Title II, which lifts the ban on general solicitation and permits filmmakers, television producers and music labels, among others, to openly advertise that they are raising money in private offerings.

What does all this mean for independent entertainment producers? It is a big deal, because for 80 years the SEC has prohibited any kind of public advertising of small offerings. Because of this limitation the only way to approach new potential investors was through the use of stockbrokers or, more clandestinely, finders. Now after all of these years, the era of investor “introductions” is over and producers can finally do things like buy Internet and radio advertising, use mailing lists, and even promote offerings on television.

However, this is certainly not going to be a free-for-all and there are some important limitations left in place by the SEC to keep producers in line while marketing small offerings.

First, the SEC still requires that small offerings be filed for exemption through the SEC. That means that before producers can start advertising their offerings they will have to prepare the same limited offering materials that have been required for years, and there are now additional reporting requirements with the SEC. The SEC is going to require filing 15 days before the start of general solicitation, and also within 30 days of completion of general solicitation. Both of these are new requirements and will require use of the new EDGAR filing system.

Second, state law is not going to be pre-empted, so producers will have to be even more careful planning their marketing strategy and making sure that their limited offerings are tailored to the particular states where the best investor prospects exist. Nationwide advertising campaigns will still be limited by what each State will allow under the new regulations.

Third, the SEC will restrict the investment to accredited investors only, which are high net worth individuals, companies and a few other types of investors. So the tradeoff on general advertising will be the requirement to only allow more sophisticated investors to buy in.

So how will all this impact raising money online? The good news is that once you have an offering filed with the SEC, you can openly promote the investment online, including through your own website. Sites like Kickstarter are still strictly off-limits, however. The reason is that the SEC has not enacted the crowdfunding portion of the JOBS Act, which is referred to as Title III. This is the more controversial and complicated portion of the bill and it might well be another year or more before it is enacted.

A special note of caution: The general solicitation ban will not be lifted until September of 2013, and an offering and filing must be in place before the start of advertising. The SEC has been extremely strict about deadlines and has sanctioned a wave of early JOBS Act claimants, so please do not act on this without legal guidance.

Our firm has been handling PPMs, limited offerings and investment companies for the film, television and music industry for 13 years. Feel free to contact us for a quote for affordable, high quality legal service.