Optioning Literary Material
By: Mark Litwak
A literary acquisition contract is an agreement to acquire all or some rights in a literary property such as a novel or a play. Producers typically use it to obtain screenplays or movie rights to literary works. Purchasers, (e.g., producers) will want owners, (e.g., writers), to warrant that they own all the rights they are selling, free and clear of any other obligations (encumbrances). Sellers will disclose their copyright registration number so that Purchasers can check the copyright records and review the chain of title to ensure they obtain all the rights they desire.
Each agreement needs to define the extent of the rights being sold. Sometimes all rights (the entire copyright) are sold. Other times limited rights, on either an exclusive or non-exclusive basis, are licensed.
If movie rights are sold, the Purchaser typically will have the right to adapt the work into a motion picture and release it in ancillary markets such as home video. The Purchaser may also obtain sequel and remake rights, although an additional payment may be due if and when these rights are exploited. The Purchaser is routinely granted the right to excerpt up to 7,500 words from the book for advertising and promotion purposes.
Writers may want to reserve certain rights. A writer who allows adaptation of his novel into film might want to retain publication rights, stage rights, radio rights and the right to use his characters in a new novel (a sequel book). The latter right should be distinguished from sequel motion picture rights which allow the producer to use the characters in sequel motion pictures.
Another point important to the Purchaser will be securing the unlimited right to make changes to the work when adapting it. Paramount Pictures is not going to invest large sums of money to develop a screenplay only to find itself in a vulnerable position later, unable to change a line of dialogue without the author’s permission. Suppose the movie is in the midst of production and the author cannot be located? What if the author unreasonably withholds consent? No studio is going to let a writer hold a gun to its head by withholding permission to make changes.
On the other hand, authors frequently complain that studios and directors ruin their work. They are embarrassed when a studio releases a movie inferior to the original work it is based on. Some countries, such as France, grant artists so-called moral rights ("Droit Moral") which may prevent Purchasers from desecrating or changing an artist’s work without his permission. The United States does not expressly recognize the doctrine of moral rights. However, a variety of state and federal laws accomplish much the same result in a more roundabout manner. At any rate, the Purchaser is going to ask the seller to waive any moral rights the seller may have.
Purchasers want sellers to make certain warranties, or promises. For example, the writer will often warrant that the work does not defame or invade anyone’s privacy, or infringe on another’s copyright. Purchasers prefer warranties to be absolute, while writers want the warranties to be only to the best of the writer’s knowledge and belief. The difference is this: If the writer unknowingly defames another, he would be liable under an absolute warranty. With a limited warranty, though, the writer would not necessarily face liability; for instance, if he in good faith believed he had not defamed anyone, he wouldn’t be liable.
Purchasers want writers to stand behind their warranties and indemnify the Purchaser. When a writer indemnifies a Purchaser, the writer agrees to reimburse the Purchaser for any litigation costs and monetary judgment that may result from a breach of warranty by the writer.
Of course, an indemnity is only worth as much as the person standing behind it. It would be a waste of time for a studio to seek reimbursement from an impoverished writer.
To protect themselves from potential liability, producers and studios may purchase Errors and Omissions (E & O) insurance. Writers often ask that they be added as an additional named insured on the policy. This may add a few hundred dollars to the cost of the premium but will ensure that the insurance company defends the writer as well as the studio and bears any litigation expense. A writer purchasing his own policy would pay much more.
Credit is another topic that needs to be addressed. The Purchaser wants the right to use the name and likeness of the author to promote the film, although the writer is rarely featured in advertising. As for billing credit, the Writer’s Guild agreement will usually determine who receives writing credits (assuming the Writer is in the guild and the production company is a guild signatory). The producer cannot arbitrarily assign credit. In case of a dispute over credits, the Writer’s Guild will impanel a group of impartial writers to arbitrate. They will read all the drafts of the script and allocate credit.
The literary purchase agreement will also contain an explicit provision stating that the producer is under no obligation to actually produce a film. The producer wants the right to make a motion picture but does not want to be obliged to make the picture. This prevents the writer from forcing the producer into production.
If the writer has a reversion clause, all rights to the script can revert to him if production is not commenced within a set time (e.g., five years from the date the movie rights were bought). Thus, the writer will regain rights to the property and have a chance to set it up elsewhere.
The acquisition of literary rights can be structured as an outright purchase or as an option/purchase agreement. Purchasers typically prefer to take an option on a property to reduce their up-front risk. A party who buys an option on a literary property is obtaining the exclusive right to purchase the movie rights for a certain period into the future.
Suppose you are a producer and you read a wonderful novel written by Alice. You want to make a movie out of this book. You approach Alice and offer to buy the movie rights. She says "Fine, I would like $50,000." You cannot afford to pay $50,000 at this time. Even if you could afford it, an outright purchase would be risky. What if the screenwriter you hire doesn’t produce a satisfactory screenplay? What if you cannot arrange production financing? There are many obstacles to getting a movie produced, and if you buy the movie rights and cannot get the movie produced, you have bought something you ultimately don’t need.
Another way to structure the deal would be to option the rights instead of buying them. Let’s say you offer Alice $5,000 for a one-year option. During that one-year period you have the exclusive right to exercise the option and buy the movie rights. Let’s also suppose that the purchase price is $50,000. As a rule of thumb options are often 10% of the full purchase price, but the amount is negotiable. Sometimes sellers are willing to give a "free" option or an option for a nominal sum (e.g., "for ten dollars"). Of course, a seller is not required to give an option for movie rights, and if you are dealing with the author of a best seller, she may insist on an outright sale.
The option period can last for any length of time, but it is often a year. The Purchaser may seek certain rights of renewal, which allow the Purchaser to extend the option upon payment of an additional sum. Let’s suppose that you have taken a one-year option for $5,000, and have a right of renewal to extend the option for a second year for $6,000. The right of renewal must be exercised before the initial option period expires. If the parties agreed that the Purchaser would have a second or third right of renewal, the Purchaser could extend the option further.
Renewals let the purchaser extend an option without exercising it. Assume Alice sells a producer a one-year option that is about to expire. The producer has commissioned a screenplay which she is pleased with, and she has the interest of an important director. But she doesn’t have a star attached to the project and financing is not in place. At this time the producer doesn’t want to buy the movie rights for $50,000, but she also doesn’t want to lose the right to buy those rights in the future. If she has a right of renewal she can extend the option. Usually Purchasers don’t want to purchase movie rights until the first day of principal photography, when they know for certain that a movie will be produced.
Note that an option gives the Purchaser the exclusive right to purchase movie rights within the option period. No one else can buy the movie rights during that time. The seller can do nothing that would interfere with the Purchaser purchasing those rights during the option period.
Once the option expires, however, the writer retains not only the option money but all movie rights as well. Some writers have sold options on the same property repeatedly because earlier options expired without being exercised. Of course, once an option is exercised, the Purchaser owns the movie rights outright, and the writer can’t sell or option what he no longer owns.
The option payments, and any payments for rights of renewals, can be applicable or non-applicable. If the payments are applicable, they count as an advance against the purchase price. If they are non-applicable, they do not apply against the purchase price. For example, if an option was for $5,000 applicable against a purchase price of $50,000, a Purchaser wanting to exercise the option would pay an additional $45,000. If the $5,000 option was non-applicable, the Purchaser would pay an additional $50,000 because the $5,000 option payment would not count against the purchase price.
The most important point to remember when taking (purchasing) an option is that you must simultaneously negotiate the terms of the purchase agreement. Usually the option contract is a two- or three-page document with a literary purchase agreement attached as an exhibit. When the option is exercised, the literary purchase agreement automatically kicks in. A Purchaser who enters an option agreement without negotiating the underlying literary purchase agreement has purchased a WORTHLESS OPTION. All you have bought is the right to haggle with the seller in the future should you choose to buy the movie rights. The seller is under no obligation to sell on the terms you propose.
For example, you purchase an option for $500 for one year but don’t work out the terms of the literary purchase agreement. Nine months later you decide to exercise the option and buy the movie rights. You send the writer a check for $10,000. She objects, wanting $20,000. Since the parties have not agreed to this essential term of the sale, the contract is unenforceable. You have a worthless option, and the time and money you spent developing the project may be wasted. The writer now has you over the barrel, and can demand any amount she wants for the rights.
Question Summary for Option & Literary Purchase Agreement
What is the name of the Purchaser?______________________________
Name and title of person signing for Purchaser.______________________________
What is the address of Purchaser?_______________________________________________
What is the name of the Writer?______________________________
What is the address of Writer?_______________________________________________
What is the name of the Screenplay or Motion Picture?______________________________
What is the date of the Option/Purchase Agreement?______________________________
How much is the Purchase Price?______________________________
The copyright for the Literary Material entitled _________________ is registered under whose name?______________________________
Copyright Registration Number.____________________________
How much is the initial option? ______________________________
How many months will the first option period be?______________________________
How much is the second option (renewal payment period) price?________________________
How many months will the Second Option Period be?______________________________
What state's laws will govern?______________________________
What city will hold the arbitration?______________________________
This material has been excerpted from my book Contracts for the Film and Television Industry.
Each agreement needs to define the extent of the rights being sold. Sometimes all rights (the entire copyright) are sold. Other times limited rights, on either an exclusive or non-exclusive basis, are licensed.
If movie rights are sold, the Purchaser typically will have the right to adapt the work into a motion picture and release it in ancillary markets such as home video. The Purchaser may also obtain sequel and remake rights, although an additional payment may be due if and when these rights are exploited. The Purchaser is routinely granted the right to excerpt up to 7,500 words from the book for advertising and promotion purposes.
Writers may want to reserve certain rights. A writer who allows adaptation of his novel into film might want to retain publication rights, stage rights, radio rights and the right to use his characters in a new novel (a sequel book). The latter right should be distinguished from sequel motion picture rights which allow the producer to use the characters in sequel motion pictures.
Another point important to the Purchaser will be securing the unlimited right to make changes to the work when adapting it. Paramount Pictures is not going to invest large sums of money to develop a screenplay only to find itself in a vulnerable position later, unable to change a line of dialogue without the author’s permission. Suppose the movie is in the midst of production and the author cannot be located? What if the author unreasonably withholds consent? No studio is going to let a writer hold a gun to its head by withholding permission to make changes.
On the other hand, authors frequently complain that studios and directors ruin their work. They are embarrassed when a studio releases a movie inferior to the original work it is based on. Some countries, such as France, grant artists so-called moral rights ("Droit Moral") which may prevent Purchasers from desecrating or changing an artist’s work without his permission. The United States does not expressly recognize the doctrine of moral rights. However, a variety of state and federal laws accomplish much the same result in a more roundabout manner. At any rate, the Purchaser is going to ask the seller to waive any moral rights the seller may have.
Purchasers want sellers to make certain warranties, or promises. For example, the writer will often warrant that the work does not defame or invade anyone’s privacy, or infringe on another’s copyright. Purchasers prefer warranties to be absolute, while writers want the warranties to be only to the best of the writer’s knowledge and belief. The difference is this: If the writer unknowingly defames another, he would be liable under an absolute warranty. With a limited warranty, though, the writer would not necessarily face liability; for instance, if he in good faith believed he had not defamed anyone, he wouldn’t be liable.
Purchasers want writers to stand behind their warranties and indemnify the Purchaser. When a writer indemnifies a Purchaser, the writer agrees to reimburse the Purchaser for any litigation costs and monetary judgment that may result from a breach of warranty by the writer.
Of course, an indemnity is only worth as much as the person standing behind it. It would be a waste of time for a studio to seek reimbursement from an impoverished writer.
To protect themselves from potential liability, producers and studios may purchase Errors and Omissions (E & O) insurance. Writers often ask that they be added as an additional named insured on the policy. This may add a few hundred dollars to the cost of the premium but will ensure that the insurance company defends the writer as well as the studio and bears any litigation expense. A writer purchasing his own policy would pay much more.
Credit is another topic that needs to be addressed. The Purchaser wants the right to use the name and likeness of the author to promote the film, although the writer is rarely featured in advertising. As for billing credit, the Writer’s Guild agreement will usually determine who receives writing credits (assuming the Writer is in the guild and the production company is a guild signatory). The producer cannot arbitrarily assign credit. In case of a dispute over credits, the Writer’s Guild will impanel a group of impartial writers to arbitrate. They will read all the drafts of the script and allocate credit.
The literary purchase agreement will also contain an explicit provision stating that the producer is under no obligation to actually produce a film. The producer wants the right to make a motion picture but does not want to be obliged to make the picture. This prevents the writer from forcing the producer into production.
If the writer has a reversion clause, all rights to the script can revert to him if production is not commenced within a set time (e.g., five years from the date the movie rights were bought). Thus, the writer will regain rights to the property and have a chance to set it up elsewhere.
The acquisition of literary rights can be structured as an outright purchase or as an option/purchase agreement. Purchasers typically prefer to take an option on a property to reduce their up-front risk. A party who buys an option on a literary property is obtaining the exclusive right to purchase the movie rights for a certain period into the future.
Suppose you are a producer and you read a wonderful novel written by Alice. You want to make a movie out of this book. You approach Alice and offer to buy the movie rights. She says "Fine, I would like $50,000." You cannot afford to pay $50,000 at this time. Even if you could afford it, an outright purchase would be risky. What if the screenwriter you hire doesn’t produce a satisfactory screenplay? What if you cannot arrange production financing? There are many obstacles to getting a movie produced, and if you buy the movie rights and cannot get the movie produced, you have bought something you ultimately don’t need.
Another way to structure the deal would be to option the rights instead of buying them. Let’s say you offer Alice $5,000 for a one-year option. During that one-year period you have the exclusive right to exercise the option and buy the movie rights. Let’s also suppose that the purchase price is $50,000. As a rule of thumb options are often 10% of the full purchase price, but the amount is negotiable. Sometimes sellers are willing to give a "free" option or an option for a nominal sum (e.g., "for ten dollars"). Of course, a seller is not required to give an option for movie rights, and if you are dealing with the author of a best seller, she may insist on an outright sale.
The option period can last for any length of time, but it is often a year. The Purchaser may seek certain rights of renewal, which allow the Purchaser to extend the option upon payment of an additional sum. Let’s suppose that you have taken a one-year option for $5,000, and have a right of renewal to extend the option for a second year for $6,000. The right of renewal must be exercised before the initial option period expires. If the parties agreed that the Purchaser would have a second or third right of renewal, the Purchaser could extend the option further.
Renewals let the purchaser extend an option without exercising it. Assume Alice sells a producer a one-year option that is about to expire. The producer has commissioned a screenplay which she is pleased with, and she has the interest of an important director. But she doesn’t have a star attached to the project and financing is not in place. At this time the producer doesn’t want to buy the movie rights for $50,000, but she also doesn’t want to lose the right to buy those rights in the future. If she has a right of renewal she can extend the option. Usually Purchasers don’t want to purchase movie rights until the first day of principal photography, when they know for certain that a movie will be produced.
Note that an option gives the Purchaser the exclusive right to purchase movie rights within the option period. No one else can buy the movie rights during that time. The seller can do nothing that would interfere with the Purchaser purchasing those rights during the option period.
Once the option expires, however, the writer retains not only the option money but all movie rights as well. Some writers have sold options on the same property repeatedly because earlier options expired without being exercised. Of course, once an option is exercised, the Purchaser owns the movie rights outright, and the writer can’t sell or option what he no longer owns.
The option payments, and any payments for rights of renewals, can be applicable or non-applicable. If the payments are applicable, they count as an advance against the purchase price. If they are non-applicable, they do not apply against the purchase price. For example, if an option was for $5,000 applicable against a purchase price of $50,000, a Purchaser wanting to exercise the option would pay an additional $45,000. If the $5,000 option was non-applicable, the Purchaser would pay an additional $50,000 because the $5,000 option payment would not count against the purchase price.
The most important point to remember when taking (purchasing) an option is that you must simultaneously negotiate the terms of the purchase agreement. Usually the option contract is a two- or three-page document with a literary purchase agreement attached as an exhibit. When the option is exercised, the literary purchase agreement automatically kicks in. A Purchaser who enters an option agreement without negotiating the underlying literary purchase agreement has purchased a WORTHLESS OPTION. All you have bought is the right to haggle with the seller in the future should you choose to buy the movie rights. The seller is under no obligation to sell on the terms you propose.
For example, you purchase an option for $500 for one year but don’t work out the terms of the literary purchase agreement. Nine months later you decide to exercise the option and buy the movie rights. You send the writer a check for $10,000. She objects, wanting $20,000. Since the parties have not agreed to this essential term of the sale, the contract is unenforceable. You have a worthless option, and the time and money you spent developing the project may be wasted. The writer now has you over the barrel, and can demand any amount she wants for the rights.
Question Summary for Option & Literary Purchase Agreement
What is the name of the Purchaser?______________________________
Name and title of person signing for Purchaser.______________________________
What is the address of Purchaser?_______________________________________________
What is the name of the Writer?______________________________
What is the address of Writer?_______________________________________________
What is the name of the Screenplay or Motion Picture?______________________________
What is the date of the Option/Purchase Agreement?______________________________
How much is the Purchase Price?______________________________
The copyright for the Literary Material entitled _________________ is registered under whose name?______________________________
Copyright Registration Number.____________________________
How much is the initial option? ______________________________
How many months will the first option period be?______________________________
How much is the second option (renewal payment period) price?________________________
How many months will the Second Option Period be?______________________________
What state's laws will govern?______________________________
What city will hold the arbitration?______________________________
This material has been excerpted from my book Contracts for the Film and Television Industry.
