If you have a website that exhibits third party content, you should make sure you are in compliance Digital Millennium Copyright Act (DMCA) regulations. The rules have recently changed as the copyright office has implemented a new online registration system that replaces the prior paper system. Agents designated before December 1, 2016 must re-register before December 31, 2017 and renew such designations every three years to maintain safe harbor status.
 
The DMCA safe harbor provisions can shield you from liability for copyright infringement in the United States. So if you allow others to post comments, photos or other content on your website, and those materials infringe another person’s copyright, you can avoid liability if you follow the DMCA procedures. This is important because if you allow someone to post material on your website, and you don’t comply with these rules, you could be liable for copyright infringement even though you did nothing improper yourself.
 
To obtain the protection offered under the DMCA, you need to include on your website a DMCA notice informing visitors how to contact you to notify you of the presence of infringing material on your site. You will need to designate a person who will be your agent to receive notices of infringement and register that agent with the US Copyright Office's using their new online registry system.
 
A sample notice for a website is reproduced below which you can borrow from to create your own notice. Where there is a blank at the end after “Copyright Agent,” fill in your name, address, email and contact info of the person you are authorizing to accept any notices. You can serve as your own agent. This notice can be included in your terms and conditions portion of your website.
 
Then you need to register the agent with the copyright office. Go to: https://www.copyright.gov/dmca-directory/
 
There is a 6 dollar filing fee that can be paid online by credit card.
 
The copyright office has a help page with useful instructions at https://www.copyright.gov/dmca-directory/help.html
 
Sample Notice for website:
 
Notice and Procedure for Making Claims of Copyright Infringement
If you believe that your work has been copied in a way that constitutes copyright infringement, please submit your complaint with this information:

• A physical signature of the person authorized to act on behalf of the owner of the copyright interest;
• A description of the copyrighted work that you claim has been infringed upon;
• A description of where the material that you claim is infringing is located on the site;
• Your address, telephone number, and e-mail address;
• A statement by you that you have a good-faith belief that the disputed use is not authorized by the copyright owner, its agent, or the law;
• A statement by you, made under penalty of perjury, that the above information in your notice is accurate and that you are the copyright owner or authorized to act on the copyright owner's behalf.

Our Copyright Agent for notice of claims of copyright infringement on its site can be reached as follows:
Copyright Agent:  ______________________ 

The death of actress Carrie Fisher raised the issue of whether her name and likness could be resurrected after her death for future Star War movies. 

Virtual characters have been used before such as when when Universal Pictures combined CGI and previous footage for Paul Walker's role in 2015's "Furious 7" after his  death in a car crash.

Disney gave a supporting role to a digital version of  actor Peter Cushing in Rogue One, after he died in 1994.

Read the full article here

Distribution of independent films has grown increasing difficult and complex. Today, a filmmaker needs to not only understand how to use social media to promote a film, but also needs to carefully orchestrate varied revenue streams essential to recoupment. These new sources include the Tugg theatrical platform, various Video On Demand (VOD) outlets, Electronic Sell-Through (EST) revenue, direct DVD sales from Amazon, and licensing to Subscription Video on Demand (SVOD) outlets such as Netflix and Hulu. Each year, a handful of films are auctioned off to the highest bidder at Sundance; however, for most films, the producer struggles to figure out how to split rights to maximize return. Reliable information about how best to distribute one’s film and how much can be expected from each source is hard to find.

That is why it is refreshing to be able to access this information for several documentary films. Last September at the International Documentary Association Getting Real Conference, Jon Reiss, the Senior Lab Leader at the IFP Filmmaker Labs presented a seminar called “So Your Film Didn’t Get into Sundance: Navigating the New Distribution Landscape.” The seminar included three documentary case studies: Hooligan Sparrow by Nanfu Wang, which follows a maverick activist Ye Haiyan in southern China as she seeks justice in the case of school girls allegedly sexually abused by their principal (which was at Sundance); Touch the Wall by Grant Barbeito & Christo Brock, which follows two Olympic Swimmers as they prepare for the 2012 London Olympics; and Age of Champions by Christopher Rufo & Keith Ochwat about seniors who compete in the National Senior Olympics.

Touch the Wall used social media and Kickstarter to raise awareness one year before the film premiered. The producers also partnered with various swimming organizations like USA Swimming to promote the film, which premiered at the Denver International Film Festival. The film was briefly released in NYC followed by 363 Tugg screenings, with an average of 153 attendees each and grossing $712,993. The producer also sold $169,000 of DVD’s from their website and through Amazon.com. The film is currently available on Amazon instant video, Vimeo, PlayStation, Google Play and Vudu.

These case studies disclose in detail with real numbers how these films were marketed and distributed and the amount of revenues from each window. This information is rarely made public.
​
You can access a free download of the presentation here: LINK

Dealmaking is the first "self-defense" book for everyone working in the film and television industry. Addressing a general, non-attorney readership, it is a fascinating, highly accessible guide to current entertainment law's peculiarities, "creative" practices, and practical applications.

The Fourth Edition updates the existing text and adds more than 100 pages of new material covering changes occurring in the movie industry such as the growth of new media outlets like Netflix and You Tube.  The first edition won the 1995 Kraszna-Krausz Foundation Book Award. Winning books have been those which make original and lasting educational, professional, historical and cultural contributions to the field.

Purchase your copy today!

Anyone who has been following the presidential campaign is probably aware that Donald Trump has been accused by multiple women of sexual assault. These allegations surfaced after an Access Hollywood recording was disclosed in which Trump bragged to correspondent Billy Bush about kissing women without their permission and claimed that because he was a star, he could grab women by the genitals and get away with it. At the October 9th debate, co-moderator Anderson Cooper pressed him on whether he had engaged in such behavior and Trump denied ever having done so.

Soon thereafter, women starting coming forward with allegations that Trump had acted inappropriately toward them. At the present time, 11 women have made claims about his alleged behavior. Trump has threatened that he will sue the women after the election. The nature of his claim against them is not yet clear, but likely the cause of action would be defamation, which is harm to one’s reputation. Trump also threatened to sue the New York Times for publishing an article featuring two women accusing him of touching them inappropriately.

Defamation is a communication that harms the reputation of another, so as to lower him in the opinion of the community, or to deter third persons from associating or dealing with him. For example, those communications that expose another to hatred, ridicule or contempt, or reflect unfavorably upon their personal morality or integrity, are defamatory. One who is defamed may suffer embarrassment and humiliation, as well as economic losses, such as loss of a job or the ability to earn a living.

However there are a number of defenses and privileges to defamation. The most important privilege is truth. If your remarks hurt someone’s reputation, but your statement is true, you are absolutely privileged. An absolute privilege cannot be lost through bad faith or abuse. So even if you maliciously defame another person, you will be privileged if the statement is true. Truth is an absolute privilege because society values truth more than it values protection of people’s reputations.

Public figures, such as celebrities or public officials have a much higher burden to bear to prevail in a defamation action. They must prove that the defendant acted with “actual malice.” Actual malice is a legal term that means that the defendant intentionally defamed another or acted with reckless disregard of the truth.

Plaintiffs find it difficult to prove that a defendant acted with actual malice. That is why so few celebrities bother suing The National Enquirer. To successfully defend itself, the Enquirer need only show that it did not act with malice. In other words, the newspaper can come into court and concede that its report was false, defamatory and the result of sloppy and careless research. However, unless the celebrity can prove that the Enquirer acted with actual malice, the court is obliged to dismiss the case. Mere negligence is not enough for liability. So, a lawsuit against the New York Times would be particularly difficult for Trump to win since the Times only needs show that its reporting was not reckless.

Trump faces a dilemma. He has claimed his comments on the bus were “locker room talk,” and that he never actually engaged in the activities he bragged about. However, this is a double- edged sword for him. If he had never engaged in these activities, then he is a braggart that was lying to Billy Bush, and thus a jury may find his testimony suspect on other matters. On the other hand, if he was telling the truth, then he has admitted to sexual assault. Either way, he has a problem. Under the first scenario he is an admitted liar, or at least an exaggerator, and under the second he has sexually assaulted women. So, the most important witness against Trump may well be Trump himself.

If he files lawsuits, the women will be able to engage in discovery. Their attorneys will be able to depose him under oath and ask him all kinds of uncomfortable questions as well as subpoena relevant documents to support their defense. His opponents can force disclosure of any information relevant to the claims even if that information is not admissible as evidence.

If he lies under oath, he could subject himself to a perjury charge. A person convicted of perjury under federal law can face up to five years in prison and fines. If he tells the truth, and admits he assaulted the women, then he will not only lose his case, but open himself to a counterclaim for sexual assault. Moreover, Trump has denounced the woman as liars. So while some of the women might be barred by the statute of limitations for sexual assault, Trump has now given them an opening to sue him for defaming them.

As reported by USA Today,[1] Trump has been involved in at least 4,095 lawsuits. These include 14 media or defamation related cases including suits against Miss Pennsylvania, Bill Maher and author Tim O’Brien. Trump was a plaintiff in seven and a defendant in seven. He has apparently won only one case for defamation, an arbitration award against Miss Pennsylvania for $5 million after she called the pageant “fraudulent.” She later filed a malpractice suit against her lawyer.[2] A federal judge said the lawyer’s representation was “unconscionable.” She entered into a settlement agreement with the lawyer that helped her settle her case with Trump.

Many of Trumps lawsuits have ended before trial. For example, Trump filed suit against comedian Bill Maher for $5 million in 2013. Maher had offered to donate $5 million to a charity if Trump produced his birth certificate to prove his mother had not mated with an orangutan. This was said after Trump had challenged Obama to produce his birth certificate, and offered $5 million to a charity of Obama's choice, if Obama produced documents such as his college applications. Trump produced his birth certificate and filed a suit after Maher failed to donate $5 million, asserting Maher’s offer was legally binding and not just a comedian making a joke. However, Trump withdrew the lawsuit after eight weeks.

Perhaps the biggest obstacle for Trump to overcome is proving that his reputation has been harmed. Even if he is able to show that the statements about him were false, he has been the subject of so much other negative publicity during the campaign. Thus, how could he prove how much reputation suffered from these allegations compared with the many other disparaging remarks made about him? Persons who have poor reputations can find it difficult to prove that their reputation has been lowered further because they are already dwelling in the cellar.

Lawsuits may be filed for reasons other than prevailing at  trial. Threats of defamation suits may be used to intimidate other persons from coming forward and making claims, and deter publications from disseminating such allegations.  Defamation cases often take years to resolve. For example, the Republican presidential nominee Barry Goldwater in 1964 sued FACT magazine for assertions made in a special issue that accused him of having a paranoid personality and being psychologically unfit for the White House. The suit did not come to trial until May 1968, which was years after Lyndon B. Johnson had won the election.[3] After a 15-day trial Goldwater won $1 in actual damages and $75,000 in punitive damages. Appeals then dragged on until January 1970 when Richard Nixon was president and the Supreme Court refused to review the case. So, a quick resolution of any defamation cases brought by Trump should not be expected.
 
[1] http://www.usatoday.com/pages/interactives/trump-lawsuits/
[2]http://www.thedailybeast.com/articles/2015/07/31/trump-lawyer-bragged-i-destroyed-a-beauty-queen-s-life.html
[3] http://www.factcheck.org/2008/02/suing-over-false-political-advertising/

After a four year wait, as of May 16, 2016, crowdfunding portals can finally begin to operate and raise investment funds for film and other enterprises.  For the first time, producers will be able to offer funders a share of the profits of a project, including low budget films. Until today, internet platforms like Kickstarter were limited to seeking donations and could only offer T-shirts and other swag to those who donated funds. The new rules make crowdfunding cheaper and easier but there is a $1 million cap on the amount that can be raised in a 12-month period.

Crowdfunding refers to the process of raising money to fund a project or business through numerous small donors, often using an online platform or funding portal to solicit their investment. Because film investments are so risky, the ability to allocate that risk among many investors should increase the amount of financing available for indie films.

Anyone can invest in crowdfund offerings subject to limits on the amounts invested. The entity raising funds must be American and cannot be an investment company.
Funding portals are platforms that provide investors with information about investments being offered.  These portals are designed to allow internet-based platforms or intermediaries to facilitate the offer and sale of securities.  Portals are required to register with the Securities and Exchange Commission and become a member of the Financial Industry Regulatory Authority (FINRA). FINRA’s standards can be reviewed here.

Under FINRA rules, funding portals communication cannot include in their communications any false, exaggerated, unwarranted, promissory or misleading statement or claim; nor omit any material fact or qualification which would cause the communication to be misleading.

The SEC has issued an investor bulletin on Crowdfunding, portions of which are reproduced below:

Can I make a crowdfunding investment?

Anyone can invest in a crowdfunding securities offering.  Because of the risks involved with this type of investing, however, you are limited in how much you can invest during any 12-month period in these transactions.  The limitation on how much you can invest depends on your net worth and annual income.
If either your annual income or your net worth is less than $100,000, then during any 12-month period, you can invest up to the greater of either $2,000 or 5% of the lesser of your annual income or net worth.
If both your annual income and your net worth are equal to or more than $100,000, then during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser, but not to exceed $100,000. 










Joint calculation.  You can calculate your annual income or net worth by jointly including your spouse’s income or assets.  It is not necessary that property be held jointly.  However, if you do calculate your income or assets jointly with your spouse, each of your crowdfunding investments together cannot exceed the limit that would apply to an individual investor at that annual income or net worth level.

How do I calculate my net worth?

Calculating net worth involves adding up all your assets and subtracting all your liabilities.  The resulting sum is your net worth.
For purposes of crowdfunding, the value of your primary residence is not included in your net worth calculation.  In addition, any mortgage or other loan on your home does not count as a liability up to the fair market value of your home.  If the loan is for more than the fair market value of your home (i.e., if your mortgage is underwater), then the loan amount that is over the fair market value counts as a liability under the net worth test.

Further, any increase in the loan amount in the 60 days prior to your purchase of the securities (even if the loan amount doesn’t exceed the value of the residence) will count as a liability as well.  The reason for this is to prevent net worth from being artificially inflated through converting home equity into cash or other assets.

How do I make a crowdfunding investment?

You can only invest in a crowdfunding offering through the online platform, such as a website or a mobile app, of a broker-dealer or a funding portal.  Companies may not offer crowdfunding investments to you directly—they must use a broker-dealer or funding portal.   

The broker-dealer or funding portal—a crowdfunding intermediary—must be registered with the SEC and be a member of the Financial Industry Regulatory Authority (FINRA).  You can obtain information about a broker by visiting FINRA’s BrokerCheck or calling FINRA’s toll-free BrokerCheck hotline at (800) 289-9999.  You can obtain information about a funding portal by visiting the SEC’s EDGAR website.
Keep in mind that you will have to open an account with the crowdfunding intermediary—the broker-dealer or funding portal—in order to make an investment and all written communications relating to your crowdfunding investment will be electronic.

What should I keep in mind?

Crowdfunding offers investors an opportunity to participate in an early-stage venture.  However, you should be aware that early-stage investments may involve very high risks and you should research thoroughly any offering before making an investment decision.  You should read and fully understand the information about the company and the risks that are disclosed to you before making any investment.
The following are some risks to consider before making a crowdfunding investment:

• Speculative.  Investments in startups and early-stage ventures are speculative and these enterprises often fail.  Unlike an investment in a mature business where there is a track record of revenue and income, the success of a startup or early-stage venture often relies on the development of a new product or service that may or may not find a market.  You should be able to afford and be prepared to lose your entire investment.
• Illiquidity.  You will be limited in your ability to resell your investment for the first year and may need to hold your investment for an indefinite period of time.  Unlike investing in companies listed on a stock exchange where you can quickly and easily trade securities on a market, you may have to locate an interested buyer when you do seek to resell your crowdfunded investment. 
• Cancellation restrictions.  Once you make an investment commitment for a crowdfunding offering, you will be committed to make that investment (unless you cancel your commitment within a specified period of time).  As detailed in the box below for Changing your mind, the ability to cancel your commitment is limited.
• Valuation and capitalization.  Your crowdfunding investment may purchase an equity stake in a startup.  Unlike listed companies that are valued publicly through market-driven stock prices, the valuation of private companies, especially startups, is difficult and you may risk overpaying for the equity stake you receive.  In addition, there may be additional classes of equity with rights that are superior to the class of equity being sold through crowdfunding.
• Limited disclosure.  The company must disclose information about the company, its business plan, the offering, and its anticipated use of proceeds, among other things.  An early-stage company may be able to provide only limited information about its business plan and operations because it does not have fully developed operations or a long history to provide more disclosure.  The company is also only obligated to file information annually regarding its business, including financial statements.  A publicly listed company, in contrast, is required to file annual and quarterly reports and promptly disclose certain events—continuing disclosure that you can use to evaluate the status of your investment.  In contrast, you may have only limited continuing disclosure about your crowdfunding investment.
• Investment in personnel.  An early-stage investment is also an investment in the entrepreneur or management of the company.  Being able to execute on the business plan is often an important factor in whether the business is viable and successful.  You should also be aware that a portion of your investment may fund the compensation of the company’s employees, including its management.  You should carefully review any disclosure regarding the company’s use of proceeds.
• Possibility of fraud.  In light of the relative ease with which early-stage companies can raise funds through crowdfunding, it may be the case that certain opportunities turn out to be money-losing fraudulent schemes.  As with other investments, there is no guarantee that crowdfunding investments will be immune from fraud.
• Lack of professional guidance.  Many successful companies partially attribute their early success to the guidance of professional early-stage investors (e.g., angel investors and venture capital firms).  These investors often negotiate for seats on the company’s board of directors and play an important role through their resources, contacts and experience in assisting early-stage companies in executing on their business plans.  An early-stage company primarily financed through crowdfunding may not have the benefit of such professional investors.

​How do I get informed?

Broker-dealers and funding portals that operate crowdfunding platforms are required to offer educational materials to help investors understand this type of investing.  These materials further detail the risks involved when making a crowdfunding investment.  You should take advantage of this resource to educate yourself and understand the risks of making crowdfunding investments.  Remember, this is your money that you are putting at risk, and you should only invest after careful consideration of the risks.
Read the full Investor Bulletin.
​
About Mark Litwak: Mark Litwak is a veteran entertainment attorney and producer’s rep based in Los Angeles, California. He is the author of six books including: Dealmaking in the Film and Television Industry, Contracts for the Film and Television Industry, and Risky Business: Financing and Distributing Independent Film. He is an adjunct professor at USC Gould School of Law and the creator of the Entertainment Law Resources (www.marklitwak.com). He can be reached at law2@marklitwak.com

While the United States Constitution does not contain a single mention of a right to privacy, the United States Supreme Court has held that such a right is implicit in the Constitution and Bill of Rights. The right of privacy has been defined as the right to live one’s life in seclusion, without being subjected to unwarranted and undesired publicity. In short, it is the right to be left alone. However, the Bill of Rights also protects the right to free speech under the First Amendment.  Consequently, it is not always evident which of these rights prevails when they come in conflict.  Journalists and filmmakers often wonder how much they can reveal without infringing a subject’s right of privacy.

This issue was recently illustrated when a Florida jury awarded Hulk Hogan $140
million in damages for invasion of his privacy after Gawker Media published a tape that was almost two minutes in length of him having sex with the wife of a friend. Hulk Hogan is a well-known professional wrestler and celebrity. Gawker Media is an online media publisher with 64 million monthly US readers.

Courts have found that a person who publicizes a matter concerning the private life of another can be liable for invasion of privacy if the matter is of a kind that would be highly offensive to a reasonable person, and is not of legitimate concern to the public. In other words, the publication is offensive and not newsworthy.

Clearly, most people would find the unauthorized publication of a private sex tape to be highly offensive. Just a few weeks ago, a jury awarded Fox Sports broadcaster Erin Andrews $55 million in damages against a voyeur and the operators of a Nashville Marriott when the hotel let a stalker book a room next door to her, which he used to surreptitiously videotape her in the nude and then uploaded the clip to the Internet.
​
However, the term “newsworthy” is an imprecise term of art that the courts have struggled to define. The Hulk Hogan case was a clash between Gawker’s free speech rights under the First Amendment and Hogan’s right to maintain his privacy. While Gawker often deals in salacious news and gossip, it has the same First Amendment rights as more esteemed publications like the New York Times. Hogan is a celebrity, and courts have found that celebrities by thrusting themselves into the limelight have less of a right to privacy than those who closely guard their privacy. However, some individuals who have not sought publicity or consented to it have through their own conduct, such as committing a crime, become a legitimate subject of public interest. These involuntary public figures are treated the same as those who have sought publicity. Here, Hogan publicly disclosed to radio jock Howard Stern that he slept with his friend’s wife with the blessing of her husband although he claimed that he was not aware that his activities were being filmed by security cameras in the home.

It can be difficult to define exactly what is newsworthy, which is often described as that which is of legitimate public concern.  However, just because the public might be interested in scandalous details of a celebrity’s personal life, does not by itself make an item newsworthy. Courts have mentioned several factors including the value to society of the information published, the details and nature of the information disclosed, and whether the party voluntarily placed them in the public eye.

In one case, a newspaper revealed that a college student running for student body president was a transsexual. The court found that this disclosure was not newsworthy.[1] The court saw little connection between the information disclosed and the student’s fitness for this office. Likewise, a mother’s private words spoken over the body of her slain son as he lay in a hospital room were held to be not newsworthy although it was undisputed that the public has a legitimate public interest in gang violence.[2]

So, while the legitimate public interest extends beyond hard news to information provided for educational and amusement entertainment purposes, it does not include sensational prying into private lives for its own sake.” Gawker argued that the facts were not private at the time the Gawker story was posted, but had been widely disseminated before in both news reports and photographs. It bears noting that Hogan was upset not only by the sexual revelations in the tape, but because he admitted to being a racist and used some extremely offensive language. After the World Wrestling Entertainment Inc. (“WWE”) learned that the tape contained such racist remarks, they terminated their contract with him.

In the end, the jury was obviously sympathetic to Hogan. He asked for $100 million in damages, yet the jury awarded him $140 million. The award was comprised of $55 million for economic injuries, $60 million for emotional distress, and another $25 million in punitive damages.

In order to avoid liability, filmmakers should follow these guidelines:

1. Be especially careful if you disclose information about private living individuals who are not public figures or public officials.
2. Obtain written releases from people on-camera that might be identifiable to an audience whenever possible.
3. Purchase Errors & Omissions Insurance (E & O Insurance) for your company and add yourself as a named insured.
4. Avoid the use of hidden cameras and microphones.
5. To the extent possible, base the information in your film on matters of public record, such as court transcripts. Revealing matters of public record cannot be the basis for an invasion of privacy action because they are already public.
6. Have an experienced attorney review your completed film before it is released.

[1] Diaz v. Oakland Tribune, Inc. 139 Cal.App.3d 118, 126 (1983).

[2] Green v. Chicago Tribune Co., 296 Ill. App.3d 1, 675 NE 2nd 249 (1996).

This comprehensive seminar —for new attorneys, attorneys transitioning to entertainment law, and filmmakers— explores how independent films are financed and distributed.
Topics include financing via pre-sales, debt and equity investors, negotiating tactics, typical contract terms, cross-collateralization, creative accounting, and ethical concerns. Particular attention will be paid to how producers and filmmakers can protect themselves by: investigating distributors; watering down warranties; adding contract provisions covering performance, termination, and alternative dispute resolution; getting errors and omissions (E&O) insurance; and using lab access letters and schedules of minimums. Other topics will include: criteria for selecting a distributor; new media distribution; which contract terms are negotiable; compliance with state and federal laws regarding investors; retaining an attorney, producer reps and publicists; and confirming awards and enforcing judgments. Extensive handouts will be distributed via email in advance of the program, including a distribution contract, articles, and a self-defense checklist. Finally, the lunch hour will provide a great opportunity for networking.

Mark Litwak is a veteran entertainment attorney with offices in Beverly Hills, California. His practice includes work in the areas of copyright, trademark, contract, multimedia law, intellectual property, and book publishing. Litwak is an adjunct professor at USC Law School, and functions as a Producer’s Rep, assisting filmmakers in the financing, marketing and distribution of their films. Litwak is the author of many books including: Reel Power, Dealmaking in the Film and Television Industry (winner of the 1995 Krazna-Kranz Moving Image Book Award), Contracts for the Film and Television Industry, Litwak’s Multimedia Producer’s Handbook, and his latest book, Risky Business, Financing and Distributing Independent Film.
*CLE with VLA: Seven (7) New York CLE credits awarded for attorneys: 4 Areas of Professional Practice credits, 2 Skills credits, and 1 Ethics credit. This program qualifies as “transitional” for newly admitted attorneys.
When:
Friday, April 29, 2016, 9:30 AM – 5 PM – CLE*
Space is limited! Please register early.
Where:  Manhattan 

​More Info and to register

Buckle your seat belts because there may soon be a wave of new indie films produced under relaxed government regulations. The Securities and Exchange Commission (“SEC”) after a long delay has finally adopted rules to permit companies to offer and sell securities through crowdfunding. Several years overdue, the new Regulations for Crowdfunding are to implement the requirements of the Jumpstart Our Business Startups Act (“JOBS Act”), enacted on April 5, 2012.
 
Crowdfunding refers to the process of raising money to fund a project or business through numerous small donors often using an online platform or funding portal to solicit their investment. Because investing is film is such a risky endeavor, being able to spread that risk among many small investors may substantially increase the amount of financing available for indie films.
 
Essentially the new rules will allow companies like Kickstarter and Indiegogo to offer those who contribute funds to receive more than posters, T-shirts and the other swag they now get in return for a donation.  For the first time, promoters will also be able to offer a share of the profits in a project. Previously, Internet platforms were limited to donations unless they complied with complex and costly SEC regulations governing investments. Under the new rules, however, if an indie film is a hit, the backers can share in its profits. This will likely encourage small investors who want to participate in film or other start up businesses but can only afford to make a modest contribution.
 
The new rules limit the amount of individual investments to relatively small sums but collectively they will constitute  enough of an investment to make a big difference for many start-ups. Investors with annual incomes or a net worth of less than $100,000 can contribute up to  $2,000 or 5 percent of their net worth or income, whichever is greater. Wealthier investors can invest 10 percent of the lesser of their annual income or net worth in these transactions, with a cap of $100,000 over a 12-month period. The rules will allow a producer to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.   While this cap limits investment to what amounts to the catering budget for major studio films, it will allow many indie filmmakers to raise enough to produce a film or pilot program.
 
Funding portals are platforms that provide investors with information about investments being offered.  These portals are designed to allow Internet-based platforms or intermediaries to facilitate the offer and sale of securities without having to register with the SEC as brokers.  Portals are required to register with the Commission and become a member of a national securities association (currently, FINRA).
 
The new crowdfunding rules and forms will be effective 180 days after they are published in the Federal Register. The forms enabling funding portals to register with the Commission will be effective Jan. 29, 2016.  Companies relying on the crowdfunding exemption are required to file an annual report with the SEC and provide it to investors.
 
The SEC press release can be read here.
 
You can download the complete rules here.  Warning they are 686 pages long.