IndieWire covers the changes to production insurance and what productions will be like after the Corona virus. Read article here.
The movie and television industries have been devastated by the COVID-19 virus. Almost all production has been halted, theaters have shuttered and cast and crew have been furloughed or terminated. Delivery of films to networks and streaming outlets have been delayed and, in some instances, productions may never resume. If a producer was in the middle of a shoot when forced to shut down, it may be impossible to restart, because the cast and crew may have conflicting commitments that preclude them from resuming their work at a later time.
Many movie industry contracts contain a Force Majeure clause to deal with situations like the COVID-19 pandemic. This is one of those boilerplate clauses that parties rarely pay much attention to or bother to negotiate. However, the clause is important because it may excuse the performance of one or more parties who cannot fulfill their obligations because of something outside their control, like an earthquake, war or a pandemic. Sometimes these events are referred to as Acts of God. These events may excuse a breach of an agreement by either party because they are deemed unforeseeable. So, for example, if a producer in the midst of production of a television series has to stop production because of a pandemic, the producer may be able to terminate or suspend the performers employed, without any obligation to pay them the balance of their salary for the rest of the season.
Here is a typical force majeure clause found in many artist employment agreements:
FORCE MAJEURE: During the Term, in the event that the development or production of the Series for which Artist is rendering services hereunder are materially hampered, interrupted or interfered with by reason of an event of force majeure or by virtue of any other disruptive event which is beyond Producer's control or a labor dispute, strike or lockout (collectively, "Force Majeure"), Producer shall have the right to suspend this Agreement pursuant to the provisions regarding suspension. Producer may terminate this Agreement at any time upon written notice during the continuation of such event of Force Majeure, and regardless of whether Producer shall have exercised the right of suspension. If this Agreement is terminated pursuant to any of the provisions of this paragraph, Producer shall be released from and relieved of all further obligations and liabilities to Artist, other than Producer's obligation to pay Artist such compensation, if any, as may be due and payable to Artist hereunder at the time of such termination.
Under such a provision, the obligations of the parties to each other can be terminated or suspended. The provision works both ways. It might excuse an actor failing to show up at a location because flights have been cancelled, or it might excuse a producer who suspends or terminates the actor because the shoot had to shut down.
The clause above does not explicitly mention that a disease or a pandemic qualifies as a force majeure and sometimes it may not be clear if a party has been prevented from fulfilling their obligations or just that the event has made it more difficult or expensive to do so. In the case of shooting in Los Angeles, since local authorities have prohibited shooting in the entire County, there is no question that COVID-19 has shut down all productions here.
A producer’s liability from a shutdown might be reimbursable if the producer has a completion bond or business interruption insurance. A completion bond is a type of insurance that guarantees completion of film even if the production goes over budget. Typically, the insurance covers extra costs incurred due to the death, illness, incapacity, default of the producer, director, any principal cast member or other person essential to the production. It also covers the occurrence of an event of force majeure. Before issuing a policy, the completion guarantor will require a realistic budget, with a ten percent contingency amount for unforeseen cost overruns, and an automatic extension of the delivery deadline for up to three months. The insurer will also require that experienced crew be hired. However, not all productions have completion bonds. Many studios self-insure and independent filmmakers with budgets less than one million dollars cannot obtain this kind of insurance.
Business interruption insurance can also cover lost profits and costs that result from disruptions in a company’s supply chain, including failures by suppliers or the inability to sell to customers. However, after the 2002 SARS outbreak, some insurers excluded communicable diseases from their coverage.
Even without insurance or a force majeure clause to rely on in one’s contract, a party could assert the impossibility defense if they fail to live up to their obligations because of unforeseen circumstances. Thus, a producer who misses a delivery deadline could argue that the pandemic made it impossible for him to deliver the production on time, and therefore his failure should be excused. A party relying on the defense of impossibility of performance must establish (1) the unexpected occurrence of an intervening act, (2) that occurrence was of such a character that its non-occurrence was a basic assumption of the agreement of the parties, and (3) that occurrence made performance impracticable Under California law, impossibility of performance will excuse a party's performance under a contract.
The impact of COVID-19 is going to financially hurt many people in the movie industry, including the workers, executives and companies large and small that produce and distribute content. Some companies may not survive. However, the demand for entertainment will surely endure after this crisis is over.
 Restatement (Second) of Contracts § 261. In re Janssens, 449 B.R. 42 (Bankr. D. Md. 2010), judgment aff'd on other grounds, 2011 WL 1642575 (D. Md. 2011).
 In re Toyota Motor Corp., 790 F. Supp. 2d 1152, 85 Fed. R. Evid. Serv. 451 (C.D. Cal. 2011) (applying California law).
Like a story in a low budget horror movie, the corona-virus outbreak is having a dramatic impact on the movie industry. Theaters in New York and Los Angeles have been shuttered, premieres have been cancelled and major industry events like SXSW and Cannes are being cancelled or postponed. Production has largely been halted, although some development and post-production work is being done remotely. On-location filming has been halted within Los Angeles County by order of local authorities. Film permits are being denied for shooting after March 20th. The impact is worldwide. In China some 70,000 theaters were closed.
Shows with audiences like Stephen Colbert's The Late Show have been put on hiatus. Theme parks such as Disneyland have been shut down. Travel abroad has been severely restricted.
Perhaps the only benefit might be an increase in home viewing from all those stuck at home and bored. Some movies are skipping the theatrical window or being released early, before the customarily 90-day window between theatrical exhibition and digital release. Disney's animated feature "Onward" will launch on its subscription service on April 3 in the U.S., only two weeks since "Onward'" premiered in theaters.
It is difficult to predict the long-term consequences of the virus, but it will not be good for many small businesses like restaurants and those in the travel industry. Production companies and those servicing them such as caterers will be also hurt. Netflix has established a 100-million-dollar relief fund to help workers hit by the shutdown.
The Law Offices of Mark Litwak & Associates is continuing to operate, although our lawyers are mostly working remotely from home. We have the ability to log on to our work computers remotely, as well as conduct conference calls and video conferences.
The Mayor of Los Angeles has ordered that all persons must isolate themselves at their residences, subject to certain exceptions for those engaged in essential activities. These essential activities include: visiting a health or veterinary care professional, obtaining medical supplies or medication, obtaining grocery items (including, without limitation, canned food, dry goods, fresh fruits and vegetables, pet supplies, fresh or frozen meats, fish, and poultry, any other household consumer products and products necessary to maintain the safety and sanitation of residences and other buildings) for their household or for delivery to others, or for legally mandated government purposes. Certain activities are exempt, such as first responders, police and healthcare workers.
The Impact on the Industry
The Hollywood Reporter has published a story that major studios risk losing their franchise rights to major 80’s films like Terminator, Friday the 13th and Who Framed Roger Rabbit because authors have the right to terminate grants to their work and regain ownership under copyright law.
Under U.S. copyright law, authors (or, if the authors are not alive, their surviving spouses, children, or executors), can “terminate” copyright assignments they have previously made in certain circumstances and regain rights to their work. Consequently, even if an author, musician, or filmmaker signed an agreement transferring all rights in their work in perpetuity, the Copyright Act provides that the author can terminate that grant and demand that the rights revert. Essentially, the author is getting a second chance to make money from his work.
Congress deemed these provisions desirable “because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work's value until it has been exploited.” However, the mechanism that Congress put in place in order to allow authors and their heirs to regain their rights is complicated.
Copyright termination rights are found in § 203 and § 304 of the U.S. Copyright Act of 1976. The relevant provisions in § 203 of the statute set forth that “[i]n the case of any work other than a work made for hire, the exclusive or nonexclusive grant of a transfer or license of copyright or of any right under a copyright, executed by the author on or after January 1, 1978, otherwise than by will, is subject to termination. Termination of works assigned after January 1, 1978 may be exercised during a five-year window that starts 35 years after the date of assignment under certain conditions. These conditions include the requirement that the author provide notice of an intent to exercise the termination right between two and ten years before the effective date of the termination. On the effective date of termination, all rights previously transferred from the author to the grantee revert to the author.
Works previously created before termination can continue to be distributed. The owner of a film produced based on a novel, for example, can continue to exploit the movie because that grant was prepared under authority of rights before termination. However, no new sequels or remakes could be made after termination.
It bears noting that termination rights cannot be waived in advance by contract including an agreement to make a will or to make any future grant.” §§ 203(a)(5), 304(c)(5).
These rules do not apply when the content created was made as a work for hire. This is one reason it is preferable for producers to enter into work for hire agreements with their collaborators, rather than obtain rights from them by way of assignment.
Notices of termination may be served no earlier than 25 years after the execution of the grant or, if the grant covers the right of publication, no earlier than 30 years after the execution of the grant or 25 years after publication under the grant (whichever comes first). However, termination of a grant cannot be effective until 35 years after the execution of the grant or, if the grant covers the right of publication, no earlier than 40 years after the execution of the grant or 35 years after publication under the grant (whichever comes first).
The provisions generally provide that transfers before 1978 can be terminated during a five-year period beginning at the end of 56 years from the date copyright was originally secured, while transfers after 1978 can be terminated during a five year period beginning either 35 or 40 years after execution of the grant, depending on the nature of the grant.
Mark Litwak recently represented Claimant Aletheia Films (Robert Rippberger) in an arbitration against Respondent Raging Nations Films whose principal is Dale Resteghini. The parties had agreed to collaborate in the production of a pilot called “Cracka.” Claimant asserted that Raging Nations had deviated from the production plan, refused to reimburse Claimant its expenses, failed to provide a screen credit, denied Claimant its equity interest and tried to remove it from the project.
After four days of hearings, Claimant was determined to be the prevailing party. Respondent's counter claim was dismissed.
The arbitrator found: “Raging Nation tried to cut Aletheia Films out of the Cracka Project after production and tried to keep Aletheia from receiving any benefits under the signed MOU contract.” The arbitrator restored all of Claimant’s rights under the agreement including its copyright interest and its profit participation.
Claimant was also awarded compensatory damages of $16,742, costs of $11,257.91, and reimbursement of attorney fees of $75,579.35 for a total award of $103,579.26.
A Manhattan Beach man, Adam Joiner, was arrested and faces federal charges in connection with an alleged fake movie project that cost investors $14 million dollars, according to a criminal complaint filed in United States District Court. The complaint alleges wire fraud, money laundering and aggravated identity theft.
According to the affidavit in support of the complaint, Joiner used fake documents and forged signatures to raise millions of dollars from foreign investment firms based in South Korea and China for a project called “Legends,” described in court papers as an anachronistic mash-up of legendary and historical figures such as Davy Crockett, Calamity Jane, Paul Bunyan, and John Henry. The fake documents included a bogus Netflix distribution agreement.
The FBI’s Complex Financial Crime squad of the Los Angeles Office investigated the matter. Joiner is scheduled to appear in court on Sept. 23, according to the U.S attorney’s office.
As the owner of a company called Dark Planet Pictures, LLC, Joiner allegedly showed investors forged documents. The FBI reviewed the company’s bank records and found that more than $5 million of the investors’ money was used to purchase a Manhattan Beach home.
If convicted, Joiner could face up to 20 years in prison for wire fraud, up to 10 years for money laundering, and a mandatory two years for aggravated identity theft.
Read the press release regarding the Criminal Complaint.
For more information on how investors can protect themselves, read my article: The Hollywood Shuffle: Protecting Film Investors, published in the Vanderbilt Law Journal.
In determining whether an individual providing service to another is an independent contractor or an employee, the "control" test, is often used initially to make this evaluation. To put it simply, an employee is an individual who the employer has the right to exercise control over the manner and means by which the individual performs his or her services.
However on April 30, 2018, the California Supreme Court adopted an expansive definition of "employee" and rejected the Borello test for determining whether workers should be classified as either employees or independent contractors for the purposes of the wage orders adopted by California’s Industrial Welfare Commission (“IWC”) in favor of a worker-friendly standard that may upend the existing independent contractor labor market.
Under the new so called ABC test, a worker will be deemed to have been “suffered or permitted to work,” and thus, an employee for wage order purposes, unless the employer proves:
(A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
(B) that the worker performs work that is outside the usual course of the hiring entity’s business; and
(C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.
Each of these requirements need to be met in order for the presumption that a worker is an employee to be rebutted, and for a court to recognize that a worker has been properly classified as an independent contractor.
This new test will likely result in many “independent contractors” in the entertainment industry being reclassified as employees.
In addition, under existing California Labor Code section 3351.5(c), if a service contract has “work made for hire” language, the worker is deemed to be an employee, and almost all contracts in the industry have this kind of language vesting ownership in the employer.
Eight Defendants Charged with Running Two of the Largest Illegal Streaming Services in the United States
Eight persons who are behind two of the largest illegal streaming services in the U.S. have been indicted on charges of conspiring to violate federal criminal copyright law, the Department of Justice has announced.
According to the indictment, the defendants allegedly ran an entity called Jetflicks, an online subscription-based service based in Las Vegas, Nevada, that permitted users to stream and, sometimes download copyrighted television programs without the consent of the copyright holders.
The defendants copied thousands of copyrighted television episodes without authorization, and distributed the infringing programs to tens of thousands of paid subscribers located throughout the U.S. At one point, Jetflicks claimed to have more than 183,200 different television episodes. Read the Department of Justice news release.
The Music Modernization Act (aka the Orrin G. Hatch Music Modernization Act), was passed unanimously in the Senate. The bill is now waiting on a vote in the House of Representatives, where it is expected to pass and then be signed by President Trump and become law. At a time when bipartisan agreement is rare, this was an extraordinary compromise supported by both Democrats and Republicans as well as most of the music industry.
The bill is essentially a fix for some issues that have arisen from streaming music by companies like Spotify. The Music Licensing Collective it establishes will begin operating on Jan. 1, 2021. This clearinghouse will be run by the artists and publishers and be paid for by the digital streaming services. It will maintain a public database that will permit streaming music services to easily locate data about who owns music and ensure that the owners are compensated for it. The Act updates licensing and royalties for streaming and provides that songwriters and artists receive royalties for pre-1972 songs.
As reported in the Los Angeles Times, the home video market for sales and rentals of movies continues to decline as more consumers turn to Netflix and other services for movies. Revenue from sales and rentals of movies and television shows totaled $12 billion in 2016, down seven percent from the prior year, according to data released Friday by trade organization Digital Entertainment Group. At the same time, subscription streaming services continued rapid growth, increasing nearly 23 percent to $6.23 billion in consumer spending. For the first quarter of 2017, Electronic Sell Through increased 13 percent. Consumer spending on home-video entertainment grew two percent from the same period in 2016.
Info Wars has settled a copyright infringement suit for a pittance. The site is a fringe media outlet founded by radio host and conspiracy theorist Alex Jones. It is notorious for spreading outlandish conspiracy theories, including that the September 11, 2001 attacks were carried out by the United States government, and the “Pizzagate” story which claimed Hillary Clinton was involved in a child sex trafficking ring run out of a restaurant in Washington D.C. The Pizzagate story induced a 29-year-old North Carolina man to open fire inside the pizzeria believing he was saving children from a sex-slave ring. He was subsequently sentenced to four years in jail. None of this has deterred Jones, who continues to live stream his show from the Info Wars' website after losing access to Twitter and Facebook which have permanently banned him.
Jones is currently being sued by Sandy Hook families over his claims that the shooting of 20 first-graders and six educators in 2012 was staged by paid actors who faked the children's deaths. Jones later admitted that the shooting was real, but the suit continues, and the damages against him might limit his ability to promote his conspiracy theories.
In a lesser known case, Jones was sued for copyright infringement for using the Pepe the Frog character for a MAGA poster that was sold on his website. Matt Furie is the creator of the character which was first used in his 2003 comic book, Play Time, and then appeared in other Furie comic books. After white supremacists began using "Pepe" during the 2016 presidential election, Furie became upset that his character was being used as a "hate symbol."
Jones claimed that Pepe’s image on the poster was protected by the First Amendment because it is transformative, and he has possible defenses of fair use, de minimis use and abandonment of the copyright, which is when one intentionally relinquishes enforcement of one’s copyright.
Damages from copyright infringement can be substantial although often difficult to prove. Furie sought $1.2 million dollars in statutory damages as set forth in 17 U.S.C. § 504(c). For infringements that are not willful, statutory damages range from $750 to $30,000 per infringement. The amount depends on the seriousness of the infringing act. However, one who knowingly infringes another copyright can be subject to damages of as much as $150,000 for a single infringement.
However, Furie’s failure to timely register his copyright limited his potential recovery. He didn’t seek copyright registration until September 2017. He elected to settle the case after the judge ruled that Furie could not seek statutory damages and reimbursement of attorney fees because he had not timely registered his copyright. The ruling severely limited the amount of potential damages Furie could recover.
An author must register a copyright to file a suit for infringement in federal court. 17 U.S.C. § 411(a). If the work is registered prior to infringement (or after infringement but within three months of first publication of the work), the owner may obtain statutory damages and/or attorney fees. However, a prevailing defendant may seek attorney fees regardless of whether the plaintiff had a timely registration.
The settlement agreement includes a provision that Info Wars destroy any copies of the poster in its possession. Info Wars also agreed not to sell any other items with Pepe’s likeness without permission.
This case is an t example of why it is important to timely register your copyright.
More information on Copyright Registration.
The Writers Guild of America (WGA) and the talent agencies represented by the Association of Talent Agents (ATA) are on a collision course. The WGA wants to stop agencies from having an interest in affiliated production companies and taking packaging fees. Packaging is the practice of an agent putting together a script, star and director and presenting it as a bundled deal to a studio or network. The practice is largely dominated by the major talent agencies who can draw on their large pool of clients to assemble an attractive project. Packaging is mostly a television phenomenon and is extremely lucrative for the agencies. Instead of taking a ten percent commission on their client’s earnings, the agency instead receives a percentage of the production budget and often a share of the profits. While agents usually forego commissioning their clients when they take a packaging fee, the amount paid them reduces the funds that can be spent on production, including compensation paid to writers. And an agency receiving a package fee has less incentive to get their writer greater compensation because it does not affect the fee the agency receives.
What seems to be lost in the controversy is why packaging has become so dominant in the industry. It is not just that the big talent agencies are greedy. It is because the studios and networks have relinquished much of the creative control they used to exert.
When a studio finds a script it likes, it will not approve it for production without knowing who the director or showrunner will be, the identity of the principal cast and the of the budget. If the studio wants to package elements itself, it must option the script and expend the effort to assemble the other elements before the option expires. Unless the studio has commissioned the script and owns it, that means paying the writer an option fee to take the script off the market. That is often ten percent of the purchase price, which for a desirable script can be a significant sum. Then the studio must find a director or showrunner, and the most sought-after people are often in great demand. The studio will also want to secure a star or name actor or two before committing funds to its production. The truth is that studio executives often prefer to accept an agency package than to assemble one themselves. It is a lot of work to find a good script and recruit a director and stars that want to collaborate. Let’s say you find a script you like and can interest a director. Now you approach stars, but it takes weeks for them to read the script and respond as most are in high demand and many will ultimately decline. Or perhaps the star likes the script but wants changes made to it or who will direct it. Or their busy schedule means the shoot must be postponed until next spring, but that conflicts with commitments made by the director, the co-star or producer. And while you are paying option and holding fees, you are taking a financial risk which will be a complete write off if the project collapses and never gets produced. Herding cats may be easier than assembling elements into a package.
Consequently, studio executives have found that it is much easier to let a big agency package a project and present all the elements on a silver platter to them. All the buyer has to say is yes or no. They don’t have to rush about trying to secure elements before their option expires or juggle personalities and schedules. The studios and networks complain about packaging fees, but no one is forcing them to accept packages.
The fact is the studios have evolved and become financiers and distributors rather than producers. They don’t exercise creative control like the old days when a mogul would staff a project by simply picking among the writers, directors and stars they employed under long term contracts. The studios today are more like banks considering a mortgage. Bring them the right paperwork, check the boxes and its approved.
The WGA is correct that packaging poses a conflict of interest for agents. But agents are awash in conflicts of interests. The top agencies represent hundreds of stars, director and writers who compete for the same projects. And writers want to be represented by these agents because of their clout and relationships with studios as well as access to the stars and directors they represent. A writer given the choice of retaining an agent who would only represent her, or an agency that represents a lot of top talent, will usually choose the later.
The problem with this struggle between the WGA and ATA is that there is no middle ground. Unlike a labor negotiation which is a matter of haggling over work rules and minimums there is plenty of room to compromise. I don’t see the WGA backing down, and I think the agencies will strenuously resist losing a large portion of their income. Moreover, if the WGA is successful in banning the practice of packaging, that may only encourage more agents to become managers who are completely unregulated and often produce their client’s projects. So, stay tuned. It is going to be interesting.
More about the controversy.
Mark returns to NYC to present his one day seminar with Volunteer Lawyers for the Arts: SELF-DEFENSE FOR WRITERS AND FILMMAKERS
Writers and filmmakers need to understand their legal rights and how to defend themselves from those who may seek to exploit them or falsely claim their rights have been infringed.
This seminar explains how writers and filmmakers can prevent problems from arising by properly securing underlying rights, and by encouraging other parties to live up to agreements by adding performance incentives, default penalties and arbitration clauses. In the event of a dispute, participants learn what remedies are available to enforce their rights. Related topics include protecting your stories, typical compensation and terms of contracts, merchandising deals, and negotiating tactics and strategies. The seminar includes more than 100 pages of useful contracts, checklists, forms and materials.
This seminar is for filmmakers and lawyers. Lawyers earn Seven (7) Continuing Legal Education credits: 4 Areas of Professional Practice credits, 2 Skills credits, and 1 Ethics credit.
When: Friday, April 26, 2019, 10 AM – 6 PM
Where: Skadden, Arps, Slate, Meagher & Flom, 4 Times Square, New York, NY 10036
For more info and to Register
Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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