Date of Agreement:
 
Parties, addresses and phone numbers and their attys or agents: (specify type of entity, corp., LLC etc.):
 
Current owner of script:   
 
Has script been optioned? If so, from whom to whom?
 
Author of script:
 
Script credit: 
 
Production Financing: (list contributions of each investing party)
 
 Party                   Amount invested
 
 _________________________

 Does any party obtain Distribution Rights? List with territory:
 
Nature of production entity:
 
LLC   
C Corp.   
S Corp.  
Gen. Partnership   
Lim. Partnership
 
Are there any passive investors?
 
Name of Director:
 
Director's deal:  
 
         --Director's right to direct sequels or remakes?
 
Name(s) of Producers and their credit(s):
 
Presentation credits:
 
Other credits:
 
Budget for production:
 
Completion Bond?
 
Will escrow account be established?
 
Conditions for breaking escrow (approvals):

 Deadline for depositing funds:
        
Approvals. Parties that have approval over:
 
         Script:
         Director:
         Budget:
         Lead actors:
         Cash flow schedule:
         Selection of distributor:
         Line Producer:
         DP:
         Production Accountant:
        
Who are signatories on production account?
 
Who selects production accountant?
 
Division of Voting Interests:
 
Name          % of voting interest
 
 ________________
TOTAL: 100%
 
Division of Net Profits

Name          Net Profit %
 
 ___________
TOTAL:100%
 
Who is responsible for casting and other pre-production expenses?
 
Named insured(s) on E & O policy:
 
Length of Shoot:
 
Dates of shoot:
 
Who will prepare budget?
 
Foreign sales company:
         Term:
         Commission:
 
Domestic distributor:
         Term:
         Commission:
        
If distribution not set, who selects distributor(s)?
 
Ownership of Picture:
 
Any rights reserved:
 
Amount of deferments:
 
Definition of deferments:
 
Who determines how much will be granted in deferments:
 
Recoupment of overhead expenses by any party?
 
Who pays legal expenses? Casting expenses? Other pre-production expenses?
 
Approvals over artwork and marketing?

By Mark Litwak Esq.

Filmmakers and profit participants often complain about distributors that engage in creative bookkeeping. This is one area where filmmakers concede the studios are sufficiently imaginative in their thinking. A frequent criticism is that distributors devise new and ingenious ways to interpret a contract so that all the revenue stays with them. Filmmakers believe that net profits are often illusory. Rarely does a share of net profits actually result in money received.

I have been involved in many creative accounting disputes and recovered millions of dollars for filmmakers cheated by distributors.  As a result of my experience,  whenever I negotiate a  distribution deal, I always try to tightly  define and limit expenses that are recoupable to those that are “direct, auditable, out-of-pocket, reasonable and necessary.” This means the distributor has to produce a receipt showing a legitimate payment to a third party in order to deduct that expense.  Less precise wording can leave enough ambiguity for a distributor to argue over which deductions are proper.

I recently won an award from a distributor that engaged in many of the typical tactics used to defraud filmmakers. Even though the distribution deal clearly prohibited the deduction of overhead, interest or legal fees, an audit revealed that the distributor had deducted those expenses.  The distributor even tried to claim its own attorney fees for negotiating the initial distribution deal with the filmmaker, as well as payment to his lawyer contesting the filmmaker’s right to terminate the agreement.  The filmmaker  was clearly within his rights to terminate the agreement, after the distributor repeatedly failed to provide producer statements and payments due.

The distributor tried to write off wages paid to staff members from ranging from executives to interns, and also deducted charges for cell phone calls, meals and entertainment and even staff parking.  Perhaps most outrageous, the distributor paid fees to one of its own top executives and attempted to hide this payment by making the payment to a company  owned by the executive that had ostensibly provided marketing services for the film. Since producer statements are summaries lacking in detail,  none of this misconduct was revealed until an audit was undertaken.

Distributors have attempted to hide their misconduct with missing or incomplete records. However, in cases where records essential to proving damages are in a distributor’s exclusive control, the courts have shifted the burden of proof to the distributor, to prove that their deductions are legitimate.

No doubt, there are numerous instances where producers or distributors have cooked the books to avoid paying back-end compensation to those entitled to it. Expenses incurred on one movie might be charged to another. Phony invoices can be used to document expenses that were never incurred. Some ruses are more subtle, and not readily apparent to the uninitiated.

Various court decisions have held that distributors have a duty to exercise good faith and fair dealing toward filmmakers. In Celador Int’l, Ltd. v. Disney Co., the court held that when a party has an interest in profits from a business, the person managing that business has to act in such a manner as to protect the interest of the profit participants. Celador created and executive produced a show entitled “Who Wants to Be a Millionaire,” which was highly successful in the United Kingdom. Celador later entered into an agreement with ABC and Buena Vista Television (both Disney subsidiaries) for a version of the Series to be produced for distribution in North America. Under the agreement negotiated by the parties, Celador was entitled to 50% profit participation.  Celador alleged that Disney breached its implied covenant of good faith and fair dealing because Disney assigned production of the Series to Valleycrest Productions, Ltd. (“Valleycrest”), a subsidiary of Disney, rather than seeking competitive deals from third-party producers.  According to Celador: “ABC agreed orally to license the Series for an ‘imputed per-episode license fee equal to Valleycrest’s per-episode production costs’.... As a result, the network exhibition of the Series could never reach profits after production costs, distribution fees, distribution costs, overhead, interest, etc. were deducted from any gross receipts.”  Consequently, the Series never generated any profits for Celador while  Disney benefited in the form of cost savings and increased profits to Disney affiliates.  As a result of decisions like Celador, filmmakers often try to restrict the distributor from making deals with affiliated companies or sub-distributors, unless the filmmaker consents to such arrangements.

It is important to understand that the major studios determine profits for participants using their own special accounting rules as set forth in their net profit definitions. The accounting profession has generally agreed-upon rules called Generally Accepted Accounting Principles (GAAP). There are special guidelines for the motion picture industry called Financial Accounting Standards Bulletin 53 (FASB 53). These rules provide, among other things, for the accrual method of accounting. Under this method, revenues are recognized when earned, and expenses are recognized when incurred. But distributors do not necessarily follow these rules. They may use GAAP and FASB 53 when accounting to their shareholders, or reporting to their bankers, but they often resort to their own Alice in Wonderland-type rules when they calculate net profits for participants. They may recognize revenue only when it is actually received, while taking expenses when incurred. So if the distributor licenses a film to a television network, the distributor may not count the license fee as revenue until they actually receive it. Even when they receive a non-refundable advance, they might not count it as income until the time of the broadcast. Meanwhile, they count expenses immediately, even if they have not paid those expenses yet.  This mismatching of revenues and expenses allows the distributor to delay payment to participants. It also allows distributors to charge producers interest for a longer time on the outstanding “loan” extended to a producer to make the film.

The Art Buchwald case illuminates some of the devices Paramount used to deny payment to net profit participants. Art Buchwald was a Pulitzer Prize winning author and syndicated columnist who  alleged that Paramount Pictures stole his script idea and turned it into the 1988 movie Coming to America. Although the movie generated more than $288 million in worldwide box office revenues, according to Paramount it had earned no net profits according to the profit definition in Buchwald's contract. The trial judge found many of Paramount’s accounting practices to be unconscionable and refused to enforce them. Paramount appealed, but the case was settled before the Court of Appeals could issue a definitive ruling on the issue.

If Buchwald had won the appeal, the precedent could have caused severe repercussions for all the major studios. That is because Paramount’s “net profit” definition was virtually identical to the definitions found throughout the industry. If Buchwald’s contract was invalid because it was unconscionable, then many other contracts could likewise be contested.

However, Buchwald could have lost the appeal.  The trial judge in Buchwald used the doctrine of unconscionability to invalidate a contract that Buchwald was trying to enforce. Courts have traditionally embraced this doctrine only when it was used as a defense, or shield, against enforcement of an unfair contract, rather than as a sword to enforce the terms of a contract against another. Courts have typically relied on the doctrine to protect uneducated people who have been taken advantage of. If an unscrupulous door-to-door salesman sells a refrigerator for an exorbitant price to a poor, illiterate consumer on an installment plan using a boilerplate contract not open to negotiation, the judge might refuse to enforce the contract because it “shocks the conscience of the court.”

Buchwald, however, was hardly a poor, defenseless victim. He was an intelligent, wealthy, and acclaimed writer represented by the William Morris Agency. If a judge was willing to rewrite his contract because it was unfair, then why not rewrite thousands of other writer contracts? Indeed, why not rewrite any unfair contract? Where does one draw the line? If any contract can be contested simply because it is unfair, then how can anyone safely rely upon the terms of a contract? And how can one conduct business if you cannot be sure your contracts will be enforceable?

Under long-established precedent, courts refuse to invalidate contracts simply because they are unfair. Law students are taught the principle that even a peppercorn—something worth less than a penny—can be valid consideration. This means that if you are foolish enough to sign a contract to sell your $200 bike for a dime, do not expect a court to bail you out of a bad deal. Absent fraud, duress, or some other acceptable ground to invalidate a contract, courts do not second-guess the wisdom of what the parties agreed to.

While the trial judge in the Buchwald case thought the doctrine of unconscionability could be invoked to invalidate a net profit definition, it bears noting that another Los Angeles Superior Court came to a different conclusion. In reviewing the accounting practices of Warner Bros. in the Batman case, the judge found that the plaintiffs had failed to prove that the studio’s net profits definition was unconscionable. The court noted that one of the plaintiffs who had negotiated the Warner Agreement was a former general counsel and senior executive

of a major motion picture studio who “knew all the tricks of the  trade,” and was knowledgeable about how these agreements worked.

Regardless of whether the Buchwald decision would have been upheld on appeal, the dispute has had an impact on the industry. The major studios have rewritten their contracts, replacing the phrase “net profits” with such terms as “net proceeds.” They want to avoid any implication that the back-end compensation promised participants has anything to do with the concept of profitability.

As a result of many highly publicized creative-accounting disputes, anyone who has clout insists on receiving either large up-front payments or a share of gross revenue. Distributors have consequently lost the ability to share risk with talent. Budgets have escalated to accommodate large up-front fees, with major stars now demanding $20 million per picture. Moreover, stars and directors have little incentive to minimize production expenses, since it doesn’t affect their earnings.

Not all complaints about creative accounting concern accounting errors. Many grievances reflect the inequality of the deal itself. The studio uses its leverage and superior bargaining position to pressure talent to agree to a bad deal. The distributor then accounts in accordance with the terms of the contract and can avoid paying out any revenue to participants because of how net profits are defined. The contract may be unfair, but the studio has lived up to its terms. It is only after the picture becomes a hit that the actor bothers to read the fine print of his employment agreement. This is not creative accounting. This is an example of a studio negotiating favorable terms for itself.

Keep in mind that there is no law requiring distributors to share their profits with anyone. Indeed, in most industries, workers do not share in their employer’s profits. Moreover, when a major studio releases a flop, losses are not shared; they are borne by the studio alone.

 By Mark Litwak


01/24/2015
 
In a pre-sale agreement, a buyer licenses or pre-buys movie distribution rights for a territory before the film has been produced. The deal works something like this: Filmmaker Henry, or his sales agent, approaches Distributor Juan to sign a contract to buy the right to distribute Henry's next film. Henry gives Juan a copy of the script and tells him the names of the principal cast members.
 
Juan has distributed several of Henry's films in the past. He paid $50,000 for the right to distribute Henry's last film in Spain. The film did reasonably well and Juan feels confident, based on Henry's track record, the script, and the proposed cast, that his next film should also do well in Spain. Juan is willing to license Henry's next film sight-unseen before it has been produced. By buying distribution rights to the film now, Juan is obtaining an advantage over competitors who might bid for it. Moreover, Juan may be able to negotiate a lower license fee than what he would pay if the film were sold on the open market. So Juan signs a contract agreeing to buy Spanish distribution rights to the film. Juan does not have to pay (except if a deposit is required) until completion and delivery of the film to him.

Henry now takes this contract, and a dozen similar contracts with buyers, to the bank. Henry asks the bank to lend him money to make the movie with the distribution contracts as collateral. Henry is "banking the paper." The bank will not lend Henry the full face value of the contracts, but instead will discount the paper and lend a smaller sum. So if the contracts provide for a cumulative total of $1,000,000 in license fees, the bank might lend Henry $800,000.

 Henry uses the loan from the bank to produce his film. When the movie is completed, he delivers it to the companies that have already licensed it. They in turn pay their license fees to Henry's bank to retire Henry's loan. The bank receives repayment of its loan plus interest. The buyers receive the right to distribute the film in their territory. Henry can now license the film in territories that remain unsold. From these revenues Henry makes his profit.

Juan's commitment to purchase the film must be unequivocal, and his company financially secure, so that a bank is willing to lend Henry money on the strength of Juan's promise and ability to pay. If the contract merely states that the buyer will review and consider purchasing the film, this commitment is not strong enough to borrow against. Banks want to be assured that the buyer will accept delivery of the film as long as it meets certain technical standards, even if artistically the film is a disappointment. The bank will also want to know that Juan's company is fiscally solid and likely to be in business when it comes time for it to pay the license fee. If Juan's company has been in business for many years, and if the company has substantial assets on its balance sheet, the bank will usually lend against the contract.

 In some circumstances, banks are willing to lend more than the face value of the contracts. This is called gap financing, and since the bank is assuming a greater risk of not being repaid its loan, higher fees are charged. Gap financing is helpful if the filmmaker is unable to secure enough pre-sales to cover the loan. The bank lends more than the amount of pre-sales based on its belief that the gap will be covered when unsold territories are licensed.

The bank often insists on a com­pletion bond to ensure that the filmmaker has sufficient funds to finish the film. Banks are not willing to take much risk. They know that Juan's commitment to buy Henry's film is contingent on delivery of a completed film. But what if Henry goes over budget and cannot finish the film? If Henry doesn't deliver the film, Juan is not obligated to pay for it, and the bank is not repaid its loan.

To avoid this risk, the bank wants a completion guarantor, a type of insurance company, to agree to put up any money needed to complete the film should it go over budget. Before issuing a bond, a completion guarantor will carefully review the proposed budget and the track record of key production personnel. Unless the completion guarantor is confident that the film can be brought in on budget, no completion bond will be issued.

First-time filmmakers may find it difficult to finance their films based on  pre-sales. With no track record of successful films to their credit, they may not be able to persuade a distributor to pre-buy their work. How does the distributor know that the filmmaker can produce something their audiences will want to see? Of course, if the other elements are strong, the distributor may be persuaded to take that risk. For example, even though the filmmaker may be a first-timer, if the script is from an acclaimed writer, and several big-name actors will participate, the overall package may be attractive. 

In a pre-sale agreement, a buyer licenses or pre-buys movie distribution rights for a territory before the film has been produced. The deal works something like this: Filmmaker Henry, or his sales agent, approaches Distributor Juan to sign a contract to buy the right to distribute Henry's next film. Henry gives Juan a copy of the script and tells him the names of the principal cast members.

 Juan has distributed several of Henry's films in the past. He paid $50,000 for the right to distribute Henry's last film in Spain. The film did reasonably well and Juan feels confident, based on Henry's track record, the script, and the proposed cast, that his next film should also do well in Spain. Juan is willing to license Henry's next film sight-unseen before it has been produced. By buying distribution rights to the film now, Juan is obtaining an advantage over competitors who might bid for it. Moreover, Juan may be able to negotiate a lower license fee than what he would pay if the film were sold on the open market. So Juan signs a contract agreeing to buy Spanish distribution rights to the film. Juan does not have to pay (except if a deposit is required) until completion and delivery of the film to him.  

Henry now takes this contract, and a dozen similar contracts with buyers, to the bank. Henry asks the bank to lend him money to make the movie with the distribution contracts as collateral. Henry is "banking the paper." The bank will not lend Henry the full face value of the contracts, but instead will discount the paper and lend a smaller sum. So if the contracts provide for a cumulative total of $1,000,000 in license fees, the bank might lend Henry $800,000.

 Henry uses the loan from the bank to produce his film. When the movie is completed, he delivers it to the companies that have already licensed it. They in turn pay their license fees to Henry's bank to retire Henry's loan. The bank receives repayment of its loan plus interest. The buyers receive the right to distribute the film in their territory. Henry can now license the film in territories that remain unsold. From these revenues Henry makes his profit.

Juan's commitment to purchase the film must be unequivocal, and his company financially secure, so that a bank is willing to lend Henry money on the strength of Juan's promise and ability to pay. If the contract merely states that the buyer will review and consider purchasing the film, this commitment is not strong enough to borrow against. Banks want to be assured that the buyer will accept delivery of the film as long as it meets certain technical standards, even if artistically the film is a disappointment. The bank will also want to know that Juan's company is fiscally solid and likely to be in business when it comes time for it to pay the license fee. If Juan's company has been in business for many years, and if the company has substantial assets on its balance sheet, the bank will usually lend against the contract.

In some circumstances, banks are willing to lend more than the face value of the contracts. This is called gap financing, and since the bank is assuming a greater risk of not being repaid its loan, higher fees are charged. Gap financing is helpful if the filmmaker is unable to secure enough pre-sales to cover the loan. The bank lends more than the amount of pre-sales based on its belief that the gap will be covered when unsold territories are licensed.

The bank often insists on a com­pletion bond to ensure that the filmmaker has sufficient funds to finish the film. Banks are not willing to take much risk. They know that Juan's commitment to buy Henry's film is contingent on delivery of a completed film. But what if Henry goes over budget and cannot finish the film? If Henry doesn't deliver the film, Juan is not obligated to pay for it, and the bank is not repaid its loan.

To avoid this risk, the bank wants a completion guarantor, a type of insurance company, to agree to put up any money needed to complete the film should it go over budget. Before issuing a bond, a completion guarantor will carefully review the proposed budget and the track record of key production personnel. Unless the completion guarantor is confident that the film can be brought in on budget, no completion bond will be issued.

First-time filmmakers may find it difficult to finance their films based on  pre-sales. With no track record of successful films to their credit, they may not be able to persuade a distributor to pre-buy their work. How does the distributor know that the filmmaker can produce something their audiences will want to see? Of course, if the other elements are strong, the distributor may be persuaded to take that risk. For example, even though the filmmaker may be a first-timer, if the script is from an acclaimed writer, and several big-name actors will participate, the overall package may be attractive. 

 

Mark will be speaking with other legal professionals about legal topics on Saturday December 13, 2014. 

Topics include: Considerations when securing agency/management representationGuild (WGA, DGA, SAG, etc.) and Union (IATSE, IBEW, etc.) representation Copyright registration v. WGA registration Protecting your ideas during the pitching process Working with Producers Open Writing Assignments and getting hired to write Submission Releases Working with co-writers and writing partners without losing your rights Ownership of script notes Acquiring rights to books and materials not created by you Acquiring life story rights Adapting public domain materials Must-have deal points in option/purchase agreements Crowdfunding

After 19 years in Beverly Hills, we are moving our offices to Brentwood and will be  in the Landmark II building which is in the heart of the Brentwood/Wilshire corridor.  The building is on Wilshire Blvd. between Barrington and S. Bundy Drive, to the west of the 405 freeway. The  building has a beautifully designed plaza in front that includes trees and flowers and a lobby  with a waterfall and contemporary art. 

Please note our  new address as of January 1, 2015 will be:

11766 Wilshire Blvd., Ste. 270 | Los Angeles | CA 90025


Phone calls and faxes will be automatically forwarded to our new offices.  We expect to make the transition in late December over the holidays. 

Filmmakers expend so much effort to produce their film that they often don’t give much thought to distribution until the movie is complete. Many filmmakers believe that if they just make a good film, distribution will take care of itself. However, securing distribution is often more challenging than raising financing and producing the movie.

One’s leverage in negotiating a distribution deal depends on whether distributors perceive the film as desirable. Of course, films cannot be appraised like real estate, as every picture is unique and there are no sure-fire criteria to determine a film’s commercial worth. I don’t know of a single industry executive who could have predicted the success of Slumdog Millionaire  or Precious.  The major studios, despite all their market research and expertise, frequently release big budget flops. While no one can accurately predict the commercial worth of a film, there are techniques and strategies that can be employed to improve one’s prospects. Even filmmakers with low-budget pictures with limited commercial appeal can usually improve upon the initial offer if they are savvy. An experienced negotiator can obtain many concessions just by knowing what to ask for.  And they can also avoid making demands that can doom a possible deal, such as asking for final approval over all marketing and distribution decisions.

In a typical deal, the distributor secures the right to distribute the movie in one or more media (e.g., theatrical, home video, television). The distributor pays for all distribution, advertising and marketing costs.  Both parties share revenue derived from the film.

Competition improves terms.   Giving one distributor an early peek at your film is usually a bad idea. If the distributor passes on the film, word gets around and other acquisition executives may not bother to watch your film. On the other hand, if the distributor likes the film, a pre-emptive bid is likely, and you may only have a day or two to decide whether to accept the offer. If you decline, you may be rejecting the best deal you will ever receive.  If you accept, you foreclose the possibility of a better deal tomorrow from a different distributor. Thus, you will be forced to make a decision without knowing where you stand in the marketplace and what other companies might offer. That is why it is important to orchestrate the release of your film to potential buyers so as to create maximum competition and enhance your leverage. Here are some guidelines:

1) NO SNEAK PREVIEWS: It is best not to screen your film for distributors until it is complete. Executives may beg to see a rough cut. They may assure you, "Don’t worry. We are professionals. We can imagine what the film will look like with sound and titles." Don’t believe them. Most people cannot extrapolate. They will view your unfinished film and perceive it as amateurish. First impressions last.

2) SCREEN IT BEFORE A CROWD: It is usually better to invite executives to a screening than to send them DVD. If you send a DVD to a busy executive, he will pop it in his machine and hit the pause button as soon as the phone rings. Then he will watch another few minutes until his secretary interrupts. After numerous distractions, he passes on your film because it is "too choppy."

You want an executive to view your film in a dark room, away from distractions, surrounded by a live audience--hopefully one that loves your film. So rent a screening room at a convenient location, invite all the acquisition executives you think appropriate, and pack the rest of the theater with your friends and relatives, especially Uncle Bob with his infectious laugh. Perhaps the best venue for exhibiting a picture is at a film festival. If the film is warmly received, your bargaining position will be strengthened.  If a studio executive views your film surrounded by an appreciative audience, it will boost his perception of the film.

Moreover, festivals can generate favorable publicity. Most publications only review films about to be released theatrically in their community.  Thus films seeking distribution are not reviewed.  But entertainment trade papers and selected publications will review pictures exhibited at major festivals.

When arranging a screening, book a theater large enough to hold everyone expected to attend but not so spacious that your viewers are sitting in a sea of empty seats. Filling out the audience with cast, crew and friends may be a good idea as these people are likely to respond positively. At the screening, have someone at the door collecting business cards or taking names of those attending.  That way you can determine which companies have seen the film and which have not.

3) DO NOT GIVE AWAY YOUR FESTIVAL PREMIERE LIGHTLY: Carefully plan a festival strategy. I have seen filmmakers give their premiere to minor festivals and thereby disqualify themselves from participating in more significant ones. You can participate in lesser festivals later. If you are turned down by an important festival, the worse that happens is that you incur a small delay in seeking distribution. No one knows which festivals passed on your film unless you tell them.

4) TIMING IS EVERYTHING: You should sell your film when buyers are hungry for product. Distributors that acquire films for international distribution plan their activities around a market calendar. The major film markets are 1) AFM in the fall in Santa Monica, California, 2) Berlin in February in Germany, 3) Cannes in May in Cannes, France. There are also television markets including NATPE in the U.S.A., and MIP and MIP-COM in France.

International distributors, also known as foreign sales agents, are hungriest for product when a market is rapidly approaching and they do not have much fresh inventory. A distributor may spend $90,000 or more to attend Cannes, and if it appears the company will have nothing new to sell, the executives panic. This is the best time to approach them. Give your distributor enough time to include your film in their marketing efforts. A movie acquired at the last moment will often receive rushed and slipshod treatment. As a result, the film may sell poorly at the first market, which is the most critical market for a picture. At subsequent markets, the film is no longer new product. The best time to approach a distributor is 60-90 days before a market. Assuming a distributor wants to acquire rights to your film, it may take a month or longer to negotiate a deal.


Mark will be conducting an all-day seminar in New York City on April 24th, 2015 called Self Defense for Writers and Filmmakers with Volunteer Lawyers for the Arts.

The U.S. Supreme Court, in a 6-3-majority opinion by Justice Ruth Bader Ginsburg, has overturned the lower courts and decided that the doctrine of laches cannot be used to bar a suit if the applicable statute of limitations has not expired. This is the case even if the plaintiff delayed many years before moving to enforce its rights.

The court explained that it “has never applied laches to bar in their entirety claims for discrete wrongs occurring within a federally prescribed limitations period. Inviting individual judges to set a time limit other than the one Congress prescribed would tug against the uniformity Congress sought to achieve.” However, the majority also said that in extraordinary circumstances, laches could curtail the amount of relief granted, such as precluding an injunction to stop destruction of an infringing work.

Copyright claims have a three-year statute of limitations, but the claim renews every time another infringement of the owner’s rights occurs. So the statute has the effect of not barring a claim but limiting damages to the past three years. However, under the doctrine of laches, courts have barred suits if the plaintiff unreasonably delayed in initiating a suit. As the Ninth Circuit explained, "Laches is an equitable defense that prevents a plaintiff, who with full knowledge of the facts, acquiesces in a transaction and sleeps upon his rights." On the other hand, the court here observed that laches originally served as a guide when no statute of limitations controlled the claim.

In this case writer Frank Petrella collaborated with boxer Jake LaMotta on a book and several screenplays that were the basis for the movie "Raging Bull." In 1976, they assigned the rights to these works to Chartoff-Winkler Productions. United Artists and Metro-Goldwyn-Mayer Inc. later acquired the motion picture rights.

In 1981, Frank Petrella died and his daughter Paula inherited his rights including his right to renew his copyrights. At the time when he created the works, copyright law provided for an initial term of 28 years of protection which could be renewed for an additional term of 28 years. Renewal registration within strict time limits was required to extend the copyright.

For many years, it was not clear if this renewal right could be assigned before the initial term expired and before it had been exercised. In 1990, the Supreme Court in Stewart v. Abend, often referred to as the "Rear Window" case, held that such an assignment was not valid when the author dies prior to the time that his renewal rights vest. This creates a potential problem for the owner of a film based on a copyrighted book still in its initial term. If the right to adapt the book into a film expires, the film owner cannot continue to distribute the film if the renewal rights cannot be secured from the person who succeeds to the author’s renewal rights.

The "Rear Window" decision was modified in 1992 by an amendment to copyright law that limits the aforementioned rule when a claimant to the renewal rights fails to timely apply to register the renewal rights, or if the renewal registration fails to issue. In such cases, a film producer could continue to use the author’s underlying work in the producer’s film, but may not prepare new works, such as a sequel, based on it.

Here, the plaintiff waited 18 years, until 2009, to sue MGM alleging copyright infringement, claiming she had renewed the copyright to her father's work after its initial 28-year term expired in 1991. The defendants claimed she delayed too long and should be barred under the doctrine of laches.

Courts have traditionally weighed the reasons for a delay in deciding whether to apply the doctrine. A delay may be excused when it is required by the exhaustion of remedies through the administrative process, when it is used to appraise and prepare a complicated claim, or when the delay is to assess whether the infringement will justify the cost of bringing suit. On the other hand, a delay is generally not allowed when its purpose is to simply benefit from the delay by allowing the infringer to continue exploiting the work. In this case, both the trial judge and the U.S. Ninth Circuit Court of Appeals rejected the plaintiff’s claim reasoning that she had waited too long to bring suit. However, other circuit courts have rejected the laches defense and allowed copyright cases to proceed as long as the plaintiff’s case has been filed within the statute of limitations.

So, the question presented to the U.S. Supreme Court was whether a statute enacted by Congress setting specific time limits to bring suit should prevail over the equitable doctrine of laches, which is determined by a court based on the facts before it. Although the plaintiff delayed 18 years in bringing her suit, that suit was preceded by a series of letters threatening litigation by her attorneys beginning in 1998. MGM knew of the plaintiff’s claims before it invested millions of dollars in a new edition of the film.

The effect of the majority ruling is that the case will go back to the lower court where the plaintiff can seek damages dating back to 2006, three years before initiating the lawsuit.

The impact on practitioners is that owners who claim their copyrighted work has been infringed will be better able to bring suit even if many years have passed since the initial infringement. Judges will not be able to bar a suit based on such delays if the statute of limitations has not run.

In instances where the plaintiff’s recovery of damages is based on the infringer’s profits, rather than statutory damages, the plaintiff will have more opportunity to wait and see whether there are profits to be recovered before initiating suit. Defense counsel in copyright cases will want to make sure to preserve evidence that might be needed in a suit filed long after the initial infringement but before the statute of limitations has run.

There is nothing in the opinion that limits the doctrine to copyright disputes. The precedent could be applied to expand the rights of plaintiffs in other actions where there is an applicable statute of limitations. Moreover, the Supreme Court has emphasized that laches can be used to limit a plaintiff’s remedies even if it cannot bar a claim. In other words, while laches may not always be a complete defense to an infringement action, it can affect remedies. So it could be used to deny injunctive relief to a plaintiff unreasonably delays bringing suit. As the court explained the doctrine is “essentially gap-filling, not legislation-overriding.”

The decision can be read at: http://www.supremecourt.gov/opinions/13pdf/12-1315_ook3.pdf

Mark will be speaking on Legal Rights of Screenwriters at 3 PM on June 20, 2014 at Marriott Hotel & Convention Center in Burbank, California.

Seminar description: Making sure you are protected legally is one of the most important things you will ever do, in all areas of your life.  Learn legal basics such as how to option a script, or what to negotiate if a producer wants to option your work.  Can you write about a real person, or factual events?  What is copyright law, and how does it protect you?  What about idea theft?  Can someone ‘steal’ my script?  Learn how to become a professional in the business by embracing these legal essentials, to make sure you are on the path of production, and not litigation. 



Andrew Greene, who claims he was the inspiration for the character Nicky “Rugrat” Koskoff  in the motion picture “The Wolf of Wall Street,” has filed a $25 million lawsuit against Paramount Pictures and the producers of the Oscar-nominated film. The film, by Martin Scorsese, is about the notorious stockbroker Jordan Belfort, played by Leonardo DiCaprio. Based on a 2007 memoir written by Belfort, the movie has grossed more than $387 million worldwide and was nominated for five academy awards, including Best Picture. 

Greene claims he was portrayed in the movie as a character with the nickname Rugrat, who is an immoral attorney and drug user who wears a bad toupee. His claims include allegations of defamation and violation of New York Civil rights Law Sections 50 and 51, which prohibit the unauthorized use of a person’s image. Greene was the head of corporate finance for the firm depicted in the film, Stratton Oakmont, and was referred to in Belfort’s memoir by his real name and the nickname Wigwam. While the producers did not disclose Greene’s actual name in the movie, Greene contends that from the circumstances, he was identifiable to the public as the character wearing an ill-fitting toupee. Stratton Oakmont was a brokerage firm notorious for manipulating the market by buying up a particular company's stock, pumping up its value, and then reselling it to unsuspecting investors who would suffer huge losses.

This is hardly the first time that a plaintiff who is not identified by name in a film has sued when they have been portrayed without their permission. The seminal case arose in England in 1934 with Youssoupoff v. MGM,[1] where MGM produced a movie “Rasputin and the Empress” based on a novel, in which a character named Princess Natasha, who resembled Russian Princess Irina Youssoupoff, was ravaged or seduced by Rasputin, a man with the worst possible character. In the movie, Rasputin is murdered by several men, including the prince whom the princess intended to marry. Princess Youssoupoff brought suit for libel, claiming that the public had come to identify her as a woman of questionable repute as a result of the movie.

Prior to the release of this movie, Princess Youssoupoff’s husband had published a book discussing his participation in the murder of Rasputin. As a result, the prince character in the film, Prince Chedgodieff, was likely to be perceived by viewers to be Prince Youssoupoff and lead viewers to conclude that the character Natasha was Princess Youssoupoff. MGM described the film as factual, although it was a fictionalized account, and the studio said that some of the principal characters were alive. The jury concluded that reasonable people would perceive the character Natasha to be Princess Youssoupoff and awarded her substantial damages.

This case is often cited for the principle that you can defame a person even if you do not reveal their name, if the context and circumstances enable the listener or viewer to identify the person.  As a result of this case, studios routinely add disclaimers saying all characters and incidents are fictitious. I have even seen such disclaimers despite the notification, in the opening credits, that the movie is based on a true story. In this case, Paramount provided the following disclaimer:

While this story is based on actual events, certain characters, characterizations, incidents, locations and dialogue were fictionalized or invented for purposes of dramatization. With respect to such fictionalization or invention, any similarity to the name or to the actual character or history of any person, living or dead, or any product or entity or actual incident, is entirely for dramatic purpose and not intended to reflect on an actual character, history, product or entity.

Paramount is saying that while the story is based on true incidents, a lot of characters and other stuff are made up. Of course, it will not be apparent to most moviegoers which aspects of the story are true and which are invented. However, the disclaimer is far better for Paramount than the one used by MGM, which claimed the story was true when some of it was not.  

Although, not naming Greene does not provide a complete defense for Paramount, Greene will nevertheless find it difficult to prevail. He will have a tough time establishing a connection between himself and the Rugrat character. Paramount has moved to dismiss the claim on the basis that there were two executives affiliated with the firm that had bad hairpieces and readers of the book would understand that Rugrat was a composite character. And, for those who have not read the book, they have no reason to believe that Greene was Rugrat.

In cases like this, courts have often declined to find liability because the defamatory matter was not clearly of and concerning the plaintiff. For example, in the case of Clark v Random House, Inc, library worker Daria Carter-Clark filed suit against Joe Klein, author of the best-selling novel “Primary Colors” and his publisher for injuring her reputation. The book was based on the 1991 presidential primary campaign of Bill Clinton, although in the book the candidate is named Governor Stanton. Carter-Clark’s claims arose from a scene in the novel, in which the fictional Governor Stanton emerges from a hotel room unkempt and tucking in his shirt, with a character named Ms. Baum. Carter- Clark alleged that people who read the novel falsely assumed that she was Ms. Baum and that she had romantic relations with Clinton. In real life, Clinton had made an appearance at the library where she had worked, but there was no intimate contact between them.

The Court noted that “any purported similarities” between Carter-Clark and Ms. Baum’s character, such as that they both worked at the library, were “superficial” and thus the scene that Carter-Clark objected to in the novel was not really “of and concerning” her. In response to Carter-Clark’s claim that the publisher was negligent in not investigating the facts, the court noted that because the book was fiction, the publisher was not obligated to undertake such an investigation.

Greene has also alleged the unauthorized use of his image and likeness in the movie. However, his real name and actual image are not in the movie--just the image of an actor portraying a character he claims represents him. New York's right of privacy is based purely on a statute, specifically, Sections 50 and 51 of the New York Civil Rights Law. Courts have held that there are no common law rights to protect one’s image from commercial misappropriation in New York.  In 1902, after a women’s likeness was used in a flour advertisement without her consent, the Court of Appeals in Roberson v. Rochester Folding Box Co., rejected a right of privacy claim and held that there was no right of privacy in New York. The New York Legislature responded by enacting Sections 50 and 51 of  the New York Civil Rights Law, creating a “limited statutory right of privacy.”

The statute prohibits the use of a person’s name, picture, or likeness for advertising or trade purposes. It does not apply where the use occurs in the context of a report of newsworthy events or matters of public interest, since such a use is not considered for the purposes of advertising or trade, and such a prohibition would violate the First Amendment’s right of free speech. Perhaps the biggest barrier that Greene will need to surmount is proving his reputation has been harmed. In the book, his real name is used and he is portrayed as someone who smoked thousands of marijuana joints, delivered Quaalude tablets to Belfort, and was caught cheating on his SAT’s. He is characterized as a shyster lawyer and an amateur in the securities business. Moreover, Paramount mentions in its motion to dismiss that Greene was unsuccessful in challenging an arbitration award against him, holding him liable for $2.18 million stemming from securities fraud.

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 one’s personal morality or integrity are defamatory. However, if remarks hurt someone’s reputation, but they are true, they are absolutely privileged. An absolute privilege cannot be lost through bad faith or abuse. Truth is an absolute privilege because society values truth more than it values the protection of peoples’ reputations. And, even if truth is not an absolute defense to all the allegations in the movie, Greene is going to have to prove that his reputation was damaged. This can be very difficult if one’s reputation is already in the gutter.

In real life Stratton Oakmont agreed to pay a $2.5 million fine to the SEC in 1994 in order to settle a civil securities fraud case, with Belfort and two other partners paying $100,000 each. Belfort was arrested in 1998 for securities fraud and money laundering. After cooperating with the FBI and providing the FBI with information on his friends, he was convicted and he received a 4-year sentence. He was ordered to repay $110 million to a victim compensation fund, but according to one news report, he has paid less than $12 million in restitution, and has reneged on his agreement to fork over 50%of his income toward the fund. Greene was not convicted of any crimes from his activities at Stratton Oakmont, but appears to have enough of a checkered past that he may find it difficult to convince a jury that his reputation has been hurt by the movie.

About Mark Litwak: Mark Litwak is a veteran entertainment attorney and producer’s rep based in Beverly Hills, California. He is the author of six books including: 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 with lots of free information for filmmakers (www.marklitwak.com). He can be reached at law2@marklitwak.com.

Mark will be conducting a one day seminar in New York City on April 25th, 2014 called Risky Business: Financing and Distributing Independent Films. To enroll click here: Volunteer Lawyers for the Arts.

[1] Eng. Ct of App., 50 Times L.R. S81, 99 A.L.R. 864 (1934). 

Novice actors are generally thought to have very little power in Hollywood.  Many wait tables and drive taxis while awaiting their big break.  Even top stars usually have little control over their films, compared to producers, directors and the studios that finance and distribute them.  However, all that may change as a result of a recent court decision.

In a case that may have far-reaching implications for the movie industry, the United States Court of Appeals for the Ninth Circuit found that an actress had established a likelihood of success in her claim of copyright infringement, on the basis she had an independent interest in a film by virtue of her performance in it, without signing any document granting rights to the producer. 

Cindy Lee Garcia had agreed to perform a minor role in an independent film with the working title “Desert Warrior.” She thought she was playing a character in an Arabian adventure story and worked for three days and received $500 dollars for her performance.  However, Garcia’s scene was never used in the film she thought she was appearing in.  Instead a five-second clip was used in a controversial anti-Islamic 13-minute video trailer titled the “Innocence of Muslims.” Her performance was partially dubbed so that her character appeared to be asking, “Is your Mohammed a child molester?”

Not surprisingly this film caused outrage in the Muslim world, with protests and violence injuring hundreds and killing more than 50 persons. One Egyptian cleric issued a fatwa, calling for the killing of all those involved with the movie, and Garcia received numerous death threats.  She was forced to take extensive security precautions when traveling and relocated her home and business as a precaution.  This is the film that sparked international media attention when the Obama administration mentioned it as possible cause for the 2012 attack on the U.S. Consulate in Benghazi, Libya.

The case is precedent setting because it acknowledges that an actor can have a separate copyright interest in a film they are hired to perform in.  Under this rationale, if a producer has not secured the rights to their actors’ performances, a single actor could conceivably halt distribution of a blockbuster film causing enormous losses to its owners.

Producers generally secure rights to their actor’s performance either on the basis of 1) the actor being an employee working within the scope of their employment; 2) with a written work for hire agreement; or 3) by having the actor sign an assignment of their rights.  However, considering the exigencies of production, it is not unusual for the production to fail to sign up a few actors. The repercussions for failing to have signed legally binding agreements with every actor may be more profound than previously thought.

In this case, the actress contacted Google and attempted to have the film removed from YouTube. Google refused, because they did not think that she had any ownership interest in the film. After filing eight takedown notices under the Digital Millennium Copyright Act to no avail, she brought suit. The trial court denied her request for an injunction to remove the film from YouTube. While she did not claim copyright ownership in the entire film, she did assert that her performance within the film was independently copyrightable and that she retained an interest in that copyright. That, she argued, should be enough to force Google to take down the film from the Internet.

Her performance was based on a script given her, so her creative contributions were only her body language, facial expression and reactions to other actors in the scene.  Judge Kozinski, writing for the majority, found that “An actor’s performance, when fixed, is copyrightable if it evinces “some minimal degree of creativity . . . ‘no matter how crude, humble or obvious’ it might be.”[1] He explained, “That is true whether the actor speaks, is dubbed over or, like Buster Keaton, performs without any words at all.”

The court reasoned that an actor’s performance that’s part of a larger film, may itself constitute an independently copyrightable “work.” Admittedly, the actress did not write or have any ownership in the script or other scenes in the movie. The court noted that “Where, as here, an actor’s performance is based on a script, the performance is likewise derivative of the script, such that the actor might be considered to have infringed the screenwriter’s copyright. And an infringing derivative work isn’t entitled to copyright protection.” The court then reasoned that because the producers gave her the script they implicitly granted her a license to perform the screenplay. So while Garcia did not have any claim on the underlying script, and her contributions were minimal, they were likely sufficient for her to prevail and secure an injunction stopping distribution of the movie.  

The case is also extraordinary for what it says about the status of actors as employees. It is generally thought within the industry that cast members should be characterized as employees of the production company. This is certainly the position that the IRS takes when it comes to penalizing producers who attempt to hire cast as independent contractors.  California has cracked down on employers who mischaracterize employees.  As of January 1, 2012, a new California law creates large penalties for employers who misclassify their workers as independent contractors.  Labor Code Section 3357 creates a rebuttable presumption that a worker is an employee.

The key issue in determining whether a person is an employee or an independent contractor is the extent the employer controls the work of the employee.  Actors have very little control over when, where and how they perform their roles. That is why the industry almost always pays them as employees. However, the Ninth Circuit found that because the actress was hired for a specific task, worked only three days and received no health or other traditional employment benefits, she was not an employee.  This is contrary to other cases, which have found that actors should be classified as employees rather than independent contractors.[i]  Furthermore, if actors are not employees, then they may not be covered by worker’s compensation insurance and the producer can be liable for their workplace injuries.

While a producer can secure ownership of a performance with a work for hire contract, Garcia did not sign one, and she claims a purported agreement signed by her is a forgery.  The court dismissed the argument that Garcia granted the producer an implied license to use her performance by performing in the film. Since Garcia was told she’d be acting in an adventure film set in ancient Arabia and that was not the case, the court concluded that the scope of any implied license was exceeded. “The film differs so radically from anything Garcia could have imagined when she was cast that it can’t possibly be authorized by any implied license she granted…” according to Judge Kozinski.  In other words, because the producer misled Garcia as to the nature of the film, any consent was void. Under this rationale, producers who mislead cast members about a film could find themselves without any rights to their performance.  Many day players and extras are never given the entire script to review when hired.

This single decision is remarkable by changing a number of basic principles on which the movie industry operates. It provides the basis for an actor to claim copyright ownership in his or her performance in a film that they did not write, direct or produce. It creates doubt as to whether cast members working for just a few days should be classified as employees rather than independent contractors. And it raises the specter that if a film is significantly changed by its producers, or if they don’t make full disclosure to an actor, they could end up without consent to use their footage absent a signed agreement.  Moreover, while professionals in the movie industry make a concerted effort to secure signed releases from cast and crew, that is not the case with amateur filmmakers who upload millions of homemade videos onto the internet. This decision could provide the basis for anyone appearing in such a movie to demand that YouTube remove it if they don’t approve of their performance.

Judge N.R. Smith criticized the majority decision in his dissent pointing out “We have never held that an actress’s performance could be copyrightable.”  The author of a work is the person who exercises creative control over the creation of a work and fixes it in a fixed tangible medium of expression.  Garcia “was not the originator of ideas or concepts. She simply acted out others’ ideas or script. Her brief appearance in the film, even if a valuable contribution to the film, does not make her an author,“ he wrote.  And Garcia did not record her performance into a tangible medium of expression, one of the criteria for copyright protection.

This is not the first case where a minor contributor to a film claimed copyright ownership in it. In Aalmuhammed v. Lee[ii], a consultant for the movie “Malcom X” brought suit against Spike Lee and his production company, claiming to be a joint author. The consultant maintained that he reviewed and made revisions to the script, which were included in the film.  The Ninth Circuit in a 2000 decision said, “[m]ost of the revisions . . . were to ensure the religious and historical accuracy and authenticity of scenes depicting Malcolm X’s religious conversion and pilgrimage to Mecca.” Although the consultant claimed he had directed Denzel Washington and other actors, created two new scenes, supplied his own voice for voice-overs and edited parts of the movie, the court concluded that in order for a joint work to exist, each author must make an independently copyrightable contribution. And while this consultant provided valuable input for the film, the court held that was not copyrightable. 

The Supreme Court as far back as 1884[iii] held that a photographer who took a picture of Oscar Wilde was its author for copyright purposes. The person who controls the creation of a work is deemed its author, not the subject who poses for a picture. In another case a person who closely supervised the filming of a movie was deemed the author of the movie, not the person who actually photographed it. The author had created storyboards for a film documenting the underwater wreck of the Titanic, identified specific camera angles and shooting sequences, and directed the underwater filming from a ship on the surface. [iv] So the person who exercises creative control over a work has been considered its author, not those employed to fulfill his vision.

Although Google has taken down the film, it has filed an emergency motion to stay the decision pending a rehearing before a larger panel at the 9th Circuit Court of Appeals. Google argues that “Under the panel’s rule, minor players in everything from Hollywood films to home videos can wrest control of those works from their creators, and service providers like YouTube will lack the ability to determine who has a valid copyright claim.”

This is that rare decision which unites Internet companies, movie studios and First Amendment advocates in opposition to a court ruling.  While the producer’s abuse of the plaintiff is outrageous, this decision will likely have unintended consequences.

 About Mark Litwak: Mark Litwak is a veteran entertainment attorney and producer’s rep based in Beverly Hills, California. He is the author of six books including: 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 with lots of free information for filmmakers (www.marklitwak.com). 

[1] Citing Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 345 (1991) (quoting 1 Nimmer on Copyright § 1.08[C][1]).
[i] See, e.g. Durae v. Industrial Acc. Commission (1962) 206 Cal.App.2d 691 (stuntman was an employee); Johnson v. Berkofsky-Barret Productions, Inc., 211 Cal.App;3d at 1067 (actor was an employee).
[ii] Aalmuhammed v. Lee, 202 F.3d 1227 (9th Cir. 2000).
[iii] Burrow-Giles Lithographic Co. v. Sarony, 111 U.S. 53, 61 (1884).
[iv] Lindsay V. R.M.S. Titanic, ET A, 1999,  Copr.L.Dec. P 27, 96752 U.S.P.Q.2d 1609

Plaintiff Ricky Ross was a notorious drug lord in the 1980s who was indicted and convicted on drug trafficking charges. He was infamous for bringing crack cocaine to Los Angeles and eventually sold up to 3 million dollars’ worth every day. Although he was illiterate, he was entrepreneurial and built a business empire worth hundreds of millions of dollars, including more than 30 real estate ventures and “legitimate” businesses, such as a custom tire and rims shop, beauty salon, and junk yard. 

In 1989, Ross was arrested in Ohio and charged with trafficking cocaine and was indicted on separate charges in Texas. He pled guilty to the charges and received lengthy sentences. While in prison, he helped to uncover a ring of “dirty cops,” who planted evidence and framed innocent people using false evidence. His testimony helped to free approximately 120 wrongly convicted men and he was rewarded with a significantly reduced sentence, leading to his release from prison in 1994.

About six months after his release, Ross was arrested once again and convicted on fresh charges of conspiracy to traffic cocaine. While Ross was incarcerated, a reporter interviewed him and wrote a piece about his ties to the Nicaraguan Contras. As a result, there was widespread exposure regarding his role in the Iran-Contra scandal. Cocaine from Nicaragua was given to Ross with the CIA’s blessing, while Ross funded the anti-communist movement in Nicaragua. Journalist Gary Webb wrote a book called “Dark Alliance: The CIA, the Contras, and the Crack Cocaine Explosion” that chronicled these events.

While Ross was in jail, a former correctional officer by the name of William Leonard Roberts started using the name Rick Ross allegedly to help him sell his rap music. His lyrics frequently include fictional accounts of selling drugs and running a large scale cocaine operation. As a former correctional officer, Roberts was the antithesis of what is often lauded in the rap world. In order to gain street cred, he adopted a different persona and tried to hide his real background. He has released numerous albums which have achieved tremendous commercial success.

In 2006, plaintiff discovered that Roberts was using the name “Rick Ross,” when he saw a magazine article about “up and coming” rappers. Ross had a lawyer write a cease and desist letter, but never received much of a response. After he was released from prison in 2009, he filed suit in 2010, first in federal court and later in state court. Ross claimed that Roberts misappropriated Ross’ name and identity to further his rap music career. The former crime lord claims to have changed his ways and now wants to use his celebrity status to promote literacy and teach children not to repeat his mistakes.  

The right of publicity is the right that individuals have to control the use of their name and likeness. You cannot put a picture of another person on your spaghetti sauce without their permission. The right of publicity is typically exploited by celebrities, who earn large fees from endorsing products. A problem arises, however, when one person’s publicity rights come in conflict with another person’s rights under the First Amendment. Suppose a newspaper publisher wants to place a picture of Brad Pitt on the front page of its paper. Is his permission required? What if “60 Minutes” wants to broadcast an exposé of a corrupt politician? What if an author wants to write a critical biography of a celebrity?

In each of these instances, a person’s name and likeness is being used on a “product” that is sold to consumers. However, products such as books, movies and plays are also forms of expression protected by the First Amendment. The First Amendment allows journalists to freely write about others without their consent. Otherwise, subjects could prevent any critical reporting of their activities. When one person’s right of publicity conflicts with another person’s rights under the First Amendment, the courts have to decide whose rights will prevail.

California recognizes both a common law and statutory right of publicity. California Civil Code, § 3344 states:  “Any person who knowingly uses another’s name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services, without such person’s prior consent ... shall be liable for any damages sustained by the person or persons injured as a result thereof.” However, there are exemptions for news, public affairs, sports and political campaigns.

When a use is newsworthy, or the use is in the context of a documentary, biography, or parody, the First Amendment will often protect the producer. In Hicks v. Casablanca Records, Casablanca Records made a movie called “Agatha” about mystery writer Agatha Christie. The film portrayed her as an emotionally unstable criminal. An heir brought suit alleging infringement of Christie’s right of publicity. The court held that Casablanca’s rights under the First Amendment were paramount to the estate’s rights. The court reasoned that the First Amendment outweighed the right of publicity because the subject was a public figure, and the events portrayed were obviously fictitious.

However, the First Amendment does not always prevail over the right of publicity. In 1976, the Ohio Supreme Court discussed the right of publicity in Zacchini v. Scripps-Howard Broadcasting Co. Here, Zacchini, known as the Human Cannonball, was videotaped without his consent while performing his act of being shot out of a canon. His performance was later broadcast on a television news program. The Ohio Supreme Court held that Zacchini’s right of publicity was outweighed by the First Amendment. On appeal, the U.S. Supreme Court reversed, holding that the First Amendment did not insulate the defendant from liability for violating Zacchini’s right of publicity where the defendant broadcast the plaintiff’s entire act.[2]

The outcome of these conflicts often turns on whether the use of a celebrity’s name or likeness is “transformative.” When artistic expression takes the form of a literal depiction or imitation of a celebrity for commercial gain, without adding any new expression, the right of publicity will likely be the paramount right. However, when a work contains significant creative elements it is more likely to be considered worthy of First Amendment protection, and less likely to interfere with the economic interests protected by the right of publicity.

In other words, the  issue becomes whether the celebrity’s likeness is one of the “raw materials” from which an original work is synthesized, or whether the depiction or imitation of the celebrity is the very sum and substance of the work in question. If a product containing a celebrity’s likeness has been so transformed that it has become something new and original, and more the product of defendant’s own expression rather than the celebrity’s likeness,[3] then it will be considered protected expression.

In one case, an artist’s drawings of the Three Stooges, which were little more than literal reproductions of their likenesses sold as lithographs and on T-shirts, were denied protection under the First Amendment. In another case[4], a court found that comic book illustrations depicting the musician brothers Johnny and Edgar Winter as half human and half worm were sufficiently transformative to qualify for First Amendment protection.

In the Rick Ross case, the California Court of Appeal[5]  found that Roberts created a celebrity identity using the name Rick Ross, a cocaine kingpin turned rapper. He composed music out of fictional tales of dealing drugs and other exploits — some of which related to Ricky Ross. However, the court found that he was not simply an imposter seeking to profit solely off the name and reputation of Ricky Ross.

While the trial court had granted Roberts’ motion for summary judgment on the basis that Ross’ claim was barred by statutes of limitation and the doctrine of laches, the Court of Appeal was not convinced that the trial court’s rulings were correct. However, it found for Roberts based on a First Amendment defense. The court concluded “Using the name and certain details of an infamous criminal’s life as basic elements, he [Roberts] created original artistic works.”  The court explained: “A work is transformative if it adds ‘new expression…The economic value of Roberts’s work is reflected to a large extent by the number of CD’s and records he sells. It can safely be assumed that when individuals purchase music, they generally do so in order to listen to music that they enjoy. It defies credibility to suggest that Roberts gained success primarily from appropriation of plaintiff’s name and identity, instead of from the music and professional persona that he (and the other defendants) created.

In summary, the court found that Roberts’ music and persona were much more than literal depictions of the real Rick Ross, and therefore were protected under the First Amendment. click here to read full case

[1] Hicks v. Casablanca Records, 464 F. Supp 426 (S.D.N.Y. 1978).
[2] See Zacchini v. Scripps-Howard Broadcasting Co., 433 U.S. 562 (1977).
[3] See, Cal. Comedy III Productions v. Gary Saderup, 25 Cal.4th 387, 406 (2001).
[4] See, Winter v. DC Comics, 30 Cal.4th 881, 890–891 (2003).
[5] 222 Cal.App.4th 677, 13 Cal. Daily Op. Serv. 13,893, 2013 Daily Journal D.A.R. 16,737.

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  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  including a distribution contract, articles, and a self-defense checklist. Finally, the lunch hour will provide a great opportunity for networking.  

To register click Here.   

Presented by Volunteer Lawyers for the Arts

 *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.   

Mark Litwak named a Southern California Super Lawyer


Mark Litwak named a Southern California Super Lawyer

Mark Litwak has been named to the Southern California Super Lawyers list as one of the top attorneys in Southern California for 2014.  No more than 5 percent of the lawyers in the state are selected by Super Lawyers.

Super Lawyers, a Thomson Reuters business, is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high degree of peer recognition and professional achievement. The annual selections are made using a rigorous multi-­‐phased process that includes a statewide survey of lawyers, an independent research evaluation of candidates, and peer reviews by practice area.

The Super Lawyers lists are published nationwide in Super Lawyers magazines and in leading city and regional magazines across the country. Super Lawyers magazines also feature editorial profiles of attorneys who embody excellence in the practice of law. For more information about Super Lawyers, go to superlawyers.com or click Here.

The first Super Lawyers list was published in 1991 and by 2009 the rating service had expanded nationwide. In February 2010 Super Lawyers was acquired by Thomson Reuters the world’s leading source of intelligent information for business and professionals. This is the fifth time that Mark Litwak has been honored with inclusion in the Southern California Super Lawyer Edition. 

Mark Litwak is presenting a 3-hour lecture on production finance and distribution to a delegation of 40 Russian lawyers at the Century Plaza Hotel in Century City. The delegation's visit to Los Angeles and AFM arranged  by the Centre Europeen de Cooperation Juridique which is based in Strasbourg, France. The visit is also sponsored by the Federal Chamber of Lawyers of the Russian Federation.

The Securities and Exchange Commission (“SEC”) has finally proposed, for comment, new Regulations for Crowdfunding to implement the requirements of the Jumpstart Our Business Startups Act (“JOBS Act”), enacted on April 5, 2012. More than one year overdue, the SEC has released a 585-page comprehensive report with its proposed rules and underlying rationale.

The public has 90 days to offer comments on the rules. Therefore, it is likely that entrepreneurs seeking to raise capital will have to wait at least another six months or so before the agency finalizes its rules. The proposed regulations prescribe a rigorous registration process for portals, handled by both the SEC and the Financial Industry Regulatory Authority (“FINRA”), Wall Street’s self-policing body. The rules also establish record-keeping and anti-money laundering procedures.

Under existing regulations, it is difficult and expensive for a company to legally raise small amounts from ordinary investors. Crowdfunding will allow investors with an annual net income or net worth of less than $100,000 to invest up to five percent of that amount, or $2,000, whichever is more, every 12 months. Investors with an annual income or net worth exceeding $100,000 can invest up to ten percent of their annual income or net worth every 12 months. On the other hand, promoters are limited to raising $1 million during a 12-month period.

Until now, crowdfunding has been generally limited to donations. Websites such as Kickstarter have been very successful in raising funds for various artistic endeavors, like films. However, these sites do not offer equity or profit sharing in the business. Typically, donors receive T-shirts, an invite to the wrap party or festival premiere, a screen credit, or some other nominal benefit; however, they do not share in any revenue derived from the movie.

Under the recommended rules, transactions must be conducted through an intermediary that is registered as a broker or is registered as a new type of entity called a “funding portal.” The rules would require these intermediaries to deliver educational materials that explain how the offering process works and the risks associated with investing in crowdfunding. The materials could be in any electronic format, including videos. Investors will be required to represent that they have reviewed the materials and understand the risks they are taking. The portals would also be required to obtain a fidelity bond and maintain coverage for the duration of its registration.

The proposed rules will restrict advertising by directing investors to the portals, which will contain more specific information and various disclosures. They will also restrict intermediaries from promoting an offering unless they clearly disclose any past or future compensation every time that there is a communication. Likewise, the portals must disclose to potential investors how they are compensated.

The suggested rules would promote online social media by requiring intermediaries to provide the means, for investors who have opened accounts, to post comments about the offering on the portal, which would be available for both investors and the public to see. 

Portals would be required to notify investors that they have 48 hours to cancel their commitment to invest. Moreover, funds would be directed to banks where they would be held until the offering was completed or cancelled. If a target amount is not raised, the funds would be returned to the investor.

Surprisingly, the SEC intends to allow funding portals to be based outside the United States. The recommended rules would require a non-resident funding portal to appoint an agent for service of process in the United States, and to certify and provide opinion of counsel that the funding portal can provide the SEC with prompt access to its books and records and can submit to onsite inspection and examination. 

There are a growing group of companies that have already indicated they intend to become funding portals. According to FINRA, approximately 36 companies have already submitted the voluntary Interim Form for Funding Portals indicating their intention to act as funding portals under the JOBS Act.

Overall, the SEC has struck a sensible balance between protecting investors and assisting startups in seeking a cost effective way to raise funds through crowdfunding.

Mark will be speaking and attending this year’s Ventana Sur Film Market in Buenos Aires, Argentina. Organized by Argentina’s Incaa Film Institute and the Cannes Film Market, and now in its fifth year, Ventana Sur will take place from Dec. 3 to December 6th.

Since launching in 2009, Ventana Sur grown dramatically with more than 2,000 attendees at last year’s edition. Established with the assistance of Cannes’s Marché Du Film, the event is sometimes referred to as the Latin American Film Market, and is its biggest film market.